5th Avenue Chocolatiere, Ltd. v. 540 Acquisition Co. , 712 N.Y.S.2d 8 ( 2000 )

Andrias, J.

(dissenting). We would affirm the dismissal of the complaint for failure to state a cause of action.

In this action arising out of the closing, by order of the City of New York, of a section of Madison Avenue during the 1997 Christmas shopping season due to the partial collapse of the southern facade of a 39-story office building at 540 Madison Avenue, plaintiffs, purporting to represent a class of nearby businesses which allegedly suffered economic loss in the form of lost profits, make claims of negligence, gross negligence, negligence per se, public nuisance, private nuisance and strict liability against the owner, ground lessee and managing agent of the building. The IAS Court dismissed the negligence causes of action on the ground that the connection between defendants’ alleged negligence in renovating their premises and plaintiffs’ alleged damages for economic losses without accompanying property damage is too tenuous and remote to permit recovery, citing, inter alia, Beck v FMC Corp. (53 AD2d 118, 121-122, affd on opn at App Div 42 NY2d 1027) and Petitions of Kinsman Tr. Co. (388 F2d 821, 824). We agree.

The IAS Court drew the appropriate line “between the competing policy considerations of providing a remedy to everyone who is injured and of extending exposure to tort liability almost without limit” (De Angelis v Lutheran Med. Ctr., 58 NY2d 1053, 1055). “[T]he economic and social burden that would be placed on defendants, for purely financial losses as sustained here, would expand the orbit of duty to an uncontrollable degree and extend liability to a point totally disproportionate to the fault found.” (Schneider Natl. v State of New York, 138 Misc 2d 205, 210-211.)

A defendant may be held liable for negligence only when it breaches a duty owed to the plaintiff (Pulka v Edelman, 40 NY2d 781, 782). Such duty “is defined neither by foreseeability of injury * * * nor by privity of contract * * * [And] while the absence of privity does not foreclose recognition of a duty, it is still the responsibility of courts, in fixing the orbit of duty, ‘to limit the legal consequences of wrongs to a controllable degree’ * * * and to protect against crushing exposure to liability * * * ‘In fixing the bounds of that duty, not only logic and science, but policy play an important role’ * * *. The courts’ definition of an orbit of duty based on public policy may at times result in the exclusion of some who might otherwise have recovered for losses or injuries if traditional tort principles had been applied” (Strauss v Belle Realty Co., 65 NY2d 399, 402-403 [citations omitted]). The better rule is the long-standing “economic loss” rule, which bars recovery for solely economic damage absent personal injury or property damage.

The majority, while recognizing that plaintiffs have no relationship, contractual or otherwise, with defendants, would, nevertheless, expand defendants’ orbit of duty to encompass, in the companion case of 532 Madison Ave. Gourmet Foods v Finlandia Ctr. (271 AD2d 49 [decided herewith]), a shopkeeper located half a block from defendants’ premises, and, in this case, two stores located about two blocks away which sue on their own behalf as well as on behalf of all similarly situated shopkeepers within a 15-block area bounded by 42nd and 57th Streets and Park and Fifth Avenues. In so doing, it strongly relies upon a 15-year-old decision of the New Jersey Supreme Court, People Express Airlines v Consolidated Rail Corp. (100 NJ 246, 495 A2d 107 [NJ Sup Ct 1985]), which, in the 15 years since it was decided, has never been cited, let alone followed, by a New York State court, and which admittedly departed from a longstanding body of American and British law holding that, absent a duty or relationship between the parties and in the absence of both privity and personal injury or property damage, mere economic loss is insufficient to cast defendants in tort liability.

People Express Airlines v Consolidated Rail Corp. (supra) is readily distinguishable on its facts. That decision permitted the plaintiff airline to pursue an action for alleged economic damage caused by defendant’s alleged negligence associated with a fire caused when ethylene oxide escaped from a punctured tank car in defendant’s freight yard, which was adjacent to plaintiff’s airport terminal. The municipal authorities, fearing an explosion, evacuated the area within a one-mile radius and, although the feared explosion never occurred, plaintiff’s employees were prohibited from using the terminal for 12 hours. Among the facts that persuaded the court that a cause of action for economic loss had been established was “the close proximity of the North Terminal and People Express Airlines to the Conrail freight yard; the obvious nature of the plaintiff’s operations and particular foreseeability of economic losses resulting from an accident and evacuation; the defendants’ actual or constructive knowledge of the volatile properties of ethylene oxide; and the existence of an emergency response plan prepared by some of the defendants (alluded to in the course of oral argument), which apparently called for the nearby area to be evacuated to avoid the risk of harm in case of an explosion” (supra, 100 NJ, at 267-268, 495 A2d, at 118).

Although recognized as a departure from the established doctrine that recovery for solely economic damages is limited to those instances where defendant’s negligence has caused personal injury or property damage, People Express is really more akin to cases such as Syracuse Cablesystems v Niagara Mohawk Power Corp. (173 AD2d 138), where the interruption of plaintiff’s business operations was found to be foreseeable and the lost profits and related business expenses resulting from the interruption compensable after defendant’s electrical transformer exploded, causing physical damage and economic loss to plaintiff’s adjacent building, which was shut down due to consequent danger of PCB contamination; and Commonwealth v General Pub. Util. Corp. (710 F2d 117 [Three Mile Island]) where, although there were no claims of physical injury or property damage, there was a claim of temporary loss of use of property and “damage to property” as a result of the intrusion of radioactive materials upon plaintiffs’ properties through the ambient air, irrespective of any causally related permanent physical harm to property.

Similarly, in Dunlop Tire & Rubber Corp. v FMC Corp. (53 AD2d 150), the plaintiff was found to be within the zone of foreseeable danger since its tire plant was located across the railroad tracks from the defendant’s chemical manufacturing plant and the explosion, which was not the first experienced by the defendant, occurred less than 1,200 feet from the plaintiffs tire factory, casting stones and debris on the tire factory and damaging it by concussion as well as destroying the power lines servicing the plaintiffs plant, thus causing a 24-hour shutdown of plaintiffs factory. In permitting the plaintiff to proceed with its claims for lost profits, the Fourth Department held that the plaintiffs rights arose from an independent duty of care owed to it by the defendant to protect it against a predictable risk.

The majority’s discussion and distinction of the Dunlop Tire and Syracuse Cablesystems cases is interesting inasmuch as plaintiffs strongly rely upon both cases for the proposition that where there is no contractual remedy, the “economic loss” rule does not apply. However, Dunlop Tire and Syracuse Cablesystems clearly required property damage as a prerequisite to any recovery for economic loss. This distinction is readily apparent in Beck v FMC Corp. (supra), relied upon by the IAS Court, which resulted from the same explosion as Dunlop Tire and was decided by the Fourth Department on the same day. In Beck, where the explosion caused no property damage but resulted in the loss of electric power to the Chevrolet plant where they worked, the plaintiff's were denied recovery for loss of a day’s wages attributable to the resulting closing down of production. The Court refused to broaden the range of duty and, therefore, of liability of one charged with unintentional tortious conduct or with maintaining a nuisance, in order to create a new cause of action, independent of direct physical injury, for lost wages by employees of a third party in those circumstances. The Court stated: “Judicial sanction of the causes of action pleaded here would make it nearly impossible to guard against unlimited or unduly burdensome liability and avoid arbitrary distinctions in defining the areas of liability” (53 AD2d, at 122).

Clearly, without a legally cognizable relationship and without physical injury or property damage, mere economic loss is not recoverable in tort. As noted by the Court in Hemming v Certainteed Corporation (97 AD2d 976, appeal dismissed 61 NY2d 758), the “economic loss” rule enunciated in Schiavone Constr. Co. v Elgood Mayo Corp. (56 NY2d 667, revg 81 AD2d 221 on dissenting opn of Silverman, J.) applies equally to negligence and strict liability causes of action and so-called “economic loss” claims are relegated to the law of contracts and warranty. Nor do we agree with the majority’s contention that it is apparent from the facts in Dunlop that the economic damage so far outweighed the physical damage that the latter was merely used as a vehicle for redressing the much more serious former.

The other cases relied upon by the majority are likewise distinguishable on the applicable law or their particular facts, which are limited for the most part to instances of adjacent landowners who suffer property damage and/or economic loss as a result of the foreseeable effect of defendant’s alleged negligence.

Plaintiffs’ nuisance claims, which are premised on the same theory as the negligence causes of action, were also properly dismissed (see, Copart Indus. v Consolidated Edison Co., 41 NY2d 564, 569; Aversa v Garlain Realty, 247 AD2d 420). There is no evidence of a special relationship between plaintiffs and defendants. Rather, the record supports the conclusion that plaintiffs’ relationship was the same as that of every other property owner in the area affected by the temporary closure of Madison Avenue. Indeed, the class described in the amended complaint illustrates the enormous scope of liability sought to be imposed, i.e., “all other business entities, in whatever form,” located in the area from 42nd Street to 57th Street bounded by Fifth Avenue and Park Avenue. Even in the companion appeal, where the plaintiff gourmet shop is located only half a block away, the question arises: where do we draw the line of liability?

Just as in Milliken & Co. v Consolidated Edison Co. (84 NY2d 469), the locale and time of year in which the injuries occur (the “Garment Center” during “Buyers Week”) are distinctions “without a legal, public policy-rooted difference because, regardless of the situs, the same unlimited, undefined class of potential plaintiffs is implicated” (supra, at 478). It is also well settled that, where economic loss results from business interruption, “speculative lost profits, lost revenues or lost labor productivity” are not recoverable (Grow Tunneling Corp. v Consolidated Edison Co., 157 AD2d 452).

Mazzarelli, J. P., and Rubin, J., concur with Ellerin, J.; Andrias and Buckley, JJ., dissent in a separate opinion by Andrias, J.

Order, Supreme Court, New York County, entered October 14, 1998, reversed, on the law, without costs, and defendants’ motion pursuant to CPLR 3211 (a) (7) to dismiss the complaint denied with respect to the causes of action for negligence and nuisance and those causes of action reinstated.