Daily Development for
Friday, September 1, 1995

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

Continuing the theme of extensions of liability "beyond privity," here is an intriguing recent case on the extended liability of public utilities. It is hard to imagine that ConEd will be found liable to anyone for the problems involved in this case. But if it is liable to the property owners who contract with the utility, where is the logic in denying damage claims to the parties really injured - the tenants of those property owners? The logic appears to be that "society" (or at least that part of it consisting of ConEd stockholders) can't afford such liability. Or is there some other ground? Ed.

LANDLORD/TENANT; TENANT'S REMEDIES; RIGHTS AGAINST THIRD PARTY SERVICE PROVIDERS: A regulated utility does not owe a duty of care to commercial tenants who do not have service contracts with utility but are obligated under their leases to reimburse their landlords for a portion of the electricity costs. Millikenn & Co. v. Consolidated Edison Co., 619 N.Y.S.2d 686 (App. Div. 1994).

In this case, due to a watermain break a power substation was flooded, knocking power to the New York Garment District during "buyers' week." Class actions agains the utility were brought on behalf of all of the utilities' customers. This action addresses only the separate class of "non-contractual users" - but includes everyone commercially injured by the blackout who has a proprietary interest in a lease or business located on premises served by the utility.

The court held that to permit suits by parties in the position of plaintiffs would expose the utility to too broad a class of claimants. It admitted that its decision was based almost entirely on policy grounds, with the ultimate concern to be "to fix the entity's orbit of duty so as to limit the legal consequences of wrongs to a controllable degree."

Note: The court did not differentiate, because the plaintiffs apparently did not differentiate, between the tenants who paid "additional rent" that directly reflected aliquot electric usage of their premises, and tenants who paid "undifferentiated rent" (which, of course, would have taken utility costs into account in any event.)

Drafting Tip: If the ultimate case is resolved in favor of the landlords, so that there is clear precedent for claims against utilities for service blackouts, then tenants with sufficient bargaining strenghth might bargain for a pro rata assignment in the lease of contract claims the landlord has against the utility.

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