This case involves three appeals. Two of those appeals, 532 Madison Ave. v. Finlandia Ctr., Inc. and 5th Ave. Chocolatiere, Ltd. v. 540 Acquisition Co., involved the collapse of a section of the south wall of 540 Madison Ave. on December 7, 1997. The collapse resulted in the closing to traffic of fifteen blocks, from forty-second to fifty-seventh streets. Plaintiff in 532 Madison Ave. and Plaintiffs in 5th Ave. Chocolatiere, suing in a class action, brought purely economic loss negligence claims and public nuisance claims. The Supreme Court dismissed both. The third case, Goldberg, Weprin & Ustin LLP v. Tishman Construction Corp., arose out of the collapse of a construction elevator tower on West 43 Street on July 21, 1998, which resulted in the closure of Midtown Manhattan to traffic. Plaintiffs brought suit to recover on the basis of negligence and public nuisance theories. The Supreme Court dismissed both claims.

The Appellate Division affirmed the dismissal of the Goldberg, Weprin & Ustin case, but reinstated the negligence and public nuisance claims of Plaintiffs in 532 Madison Ave. and 5th Ave. Chocolatiere. The Appellate Division majority concluded that Plaintiffs had established a special injury distinct from the general inconvenience to the public. The Court of Appeals reversed 532 Madison Ave. and 5th Ave. Chocolatiere and affirmed Goldberg, Weprin & Ustin .

1. Whether a landowner has a duty to protect those in an urban neighborhood against purely economic losses that occur when the neighborhood is closed to traffic due to a construction-related disaster.

2. Whether a construction-related disaster, which results in economic losses in an urban neighborhood closed to traffic, is a public nuisance actionable by a private person.

1. No. A landowner's duty is limited to those individuals that suffer personal injury or property damage, not purely economic losses.

2. No. Plaintiffs failed to show that they suffered a special injury beyond that of the community at large.

State of the Law Before 532 Madison Ave. Gourmet Foods, Inc.

Under New York tort law, landowners have a duty to take reasonable precautions to avoid injuring neighbors when engaging in activities that may cause injury to those neighbors. Furthermore, landowners have a duty to protect tenants, patrons, and invitees from foreseeable harm that may come to them while they are on the landowners' premises. However, these duties did not extend to members of the general public or entire urban neighborhoods. In Pulka v. Edelman, 40 N.Y.2d 781 (NY 1976), the Court of Appeals held that a defendant must owe a duty of care directly to the plaintiff before becoming liable in negligence. In that case, the Court declined to impose a duty on a garage owner to "control the conduct of its patrons for the protection of off-premises pedestrians." In doing so, the Court reasoned that such a duty would subject garage owners to limitless liability.

A duty may arise from a special relationship, requiring the defendant to protect the plaintiff from harm. A special relationship puts the defendant in the best position to protect the plaintiff against the harm. In addition, where a defendant has entered into a contract to perform certain duties and fails to do so, he owes a duty to an injured plaintiff. See Palka v. Servicemaster Mgmt Servs. Corp., 83 N.Y.2d 579 (NY 1994). However, foreseeability of harm does not define duty; rather, it determines the scope of an already existing duty.

In determining whether a duty exists and its scope, New York courts have been influenced by public policy concerns such as avoiding limitless liability, mass litigation, and fraudulent claims. As the Court of Appeals noted in Waters v. New York City Hous. Auth., 69 N.Y.2d 225 (NY 1987), a court is "bound to consider the larger social consequences of [its] decisions and to tailor [its] notion of duty so that 'the legal consequences of wrongs [are limited] to a controllable degree.'" Therefore, the Court declined to impose a duty on a landowner where neither the crime nor the victim were connected with his building, though the building had been used to complete the crime, and on a utility company where tenants suffered loss of profits or personal injuries during a power outage. See Milliken & Co. v. Consol. Edison Co., 84 N.Y.2d 469 (NY 1994); Waters, 69 N.Y.2d 255; Strauss v. Belle Realty Co., 65 N.Y.2d 399 (NY 1985). In addition, in Kinsman Transit Co. v. City of Buffalo, 388 F.2d 821 (2d Cir. 1968), the Second Circuit Court of Appeals held that damages resulting from a collapsed bridge "were too 'remote' or 'indirect' a consequence of defendants' negligence."

Effect of 532 Madison Ave. Gourmet Foods, Inc. on Current Law

As the Court noted, this case presented a novel issue regarding "a landholder's duty in negligence [to an urban neighborhood] where plaintiffs' sole injury is lost income." In declining to impose a duty the Court acknowledged that policy-driven line-drawing is arbitrary because persons who might foreseeably be plaintiffs are cut off.

The Court declined Plaintiffs' invitation to invoke the "economic loss" rule from Schiavone Constr. Co. v. Elgood Mayo Corp., 56 N.Y.2d 667 (NY 1982). The Court confined Schiavone's application to "the proposition that an end-purchaser of a product is limited to contract remedies and may not seek damages in tort for economic loss against a manufacturer." Furthermore, the Court declined to follow People Express Airlines, Inc. v. Consolidated Rail Corp., 495 A.2d 107 (NJ 1985), in which the New Jersey Supreme Court allowed Plaintiff to recover damages for purely economic loss. Instead the Court chose to address whether a duty exists and its scope.

The Court explained that duty is not defined by foreseeability of harm; rather, the existence and scope of duty are determined with public policy in mind. The Court explained that imposing such a duty on landowners, as Plaintiffs sought, would subject them to limitless liability. For example, a landowner would be liable to hundreds of businesses within the affected area, including storefront merchants, other commercial tenants, taxicab drivers, and any other plaintiffs whose businesses were affected by the traffic closure. Therefore, the Court adopted the historical approach of limiting liability to those individuals that suffered personal injury or property damage, since it could not easily distinguish among individuals that had suffered purely economic losses.

To illustrate its point, the Court compared Dunlop Tire & Rubber Corp. v. FMC Corp., 53 A.D.2d 150 (NY 1976) and Beck v. FMC Corp., 53 A.D.2d 118 (NY 1976). Both cases arouse out of the same incident, an explosion at defendant's plant. The Appellate Division allowed recovery in Dunlop Tire & Rubber Corp., where Plaintiff suffered property damage and economic loss, but denied recovery in Beck, where Plaintiffs only suffered only economic loss.

Lastly, the Court reemphasized that to establish an actionable public nuisance claim, private persons must show that they suffered special injuries beyond those suffered by the community at large. The Court stated that "[w]hen business interference and ensuing pecuniary damage is 'so general and widespread as to affect a whole community, or a very wide area within it, the line is drawn.'" Since the entire community was exposed to similar economic losses, Plaintiffs do not have an actionable claim for public nuisance.

Unanswered Questions

On the facts of this case the Court denied recovery relying on the historic rule, requiring property damage or physical injury. However, the Court did not adopt a per se economic loss rule. Therefore, it is unclear whether a plaintiff could recover for economic loss in a situation similar to that found in People Express Airlines, Inc. v. Consolidated Rail Corp., 495 A.2d 107 (NJ 1985), where the number of individuals affected and type of damage is clearly foreseeable and thus there is an "appropriately circumscribed orbit of duty." For example, the construction disaster could occur in a small town where the number of businesses affected is limited, unlike the situation in an urban neighborhood. Also, a situation may arise where it is easy to distinguish among individuals that have suffered purely economic losses.

Survey of the Law in Other Jurisdictions

The US Supreme Court first denied recovery for indirect economic loss in Robins Dry Dock & Repair Co. v. Flint, 275 US 303 (1927). Thereafter, the majority of jurisdictions have adopted the economic loss rule, denying recovery for purely economic loss absent property damage or personal injury, or refused to find a duty in economic loss situations. For example, courts have denied recovery to employees for lost wages resulting from plant closing caused by defendants' negligence. See Willis v. Georgia N. Ry. Co., 314 S.E.2d 919 (Ga. CT App. 1984); Aikens v. Baltimore & Ohio RR Co., 501 A.2d 277 (Pa. Super. CT 1985); United Textile Workers v. Lear Siegler Seating Corp., 825 S.W.2d 83 (Tenn. 1990).

In addition, the majority of jurisdictions have denied recovery where economic loss arose from bridge closings due to defendants' negligence. See Leadfree Enter. v. United States Steel Corp., 711 F.2d 805 (7th Cir. 1983); General Foods Corp. v. United States, 448 F.Supp. 111 (D.Md. 1978); In re Chicago Flood Litigation, 680 N.E.2d 265 (Ill. 1997); Nebraska Innkeepers, Inc. v. Pittsburgh-Des Moines Corp., 345 N.W.2d 124 (Iowa 1984). Furthermore, in Bamberger & Feibleman v. Indianapolis Power & Light Co., 665 N.E.2d 933 (Ind. 1996), the court denied plaintiffs recovery where loss of profit resulted from the electric company's negligence.

The Massachusetts Supreme Judicial Court denied recovery to plaintiffs who were forced to delay contractual work for 157 days because defendant negligently spilled oil, in Garweth Corp. v. Boston Edison Co., 613 N.E.2d 92 (Mass. 1993). Also, the Pennsylvania Superior Court, in Moore v. Pavex, Inc., 514 A.2d 137 (Pa. Super. CT 1986), denied recovery to plaintiffs who sought damages resulting from the interruption of water service. More recently, in Queen City Terminals, Inc. v. Gen. American Transp. Corp., 653 N.E.2d 661 (Ohio 1995), the Ohio Supreme Court held that plaintiffs cannot recover for pure economic loss, but that plaintiffs must prove damages arise from physical injury or property damage.

A minority of jurisdictions allow recovery for purely economic loss in certain circumstances. The New Jersey Supreme Court allowed recovery in People Express Airlines, Inc. v. Consolidated Rail Corp., 495 A.2d 107 (NJ 1985), to a commercial airline that was forced to evacuate and interrupt its business operations as a result of fire at defendant's train yard. The court reasoned that the purpose of tort law is to compensate the injured and that defendant could clearly foresee that the airline would suffer from a business interruption. However, the court noted that "[a]n identifiable class of [of] plaintiffs must be particularly foreseeable in terms of the type of persons or entities comprising the class, the certainty or predictability of their presence, the approximate numbers of those in the class, as well as the type of economic expectations disrupted."

The Alaska Supreme Court adopted the New Jersey approach in Mattingly v. Sheldon Jackson Coll., 743 P.2d 356 (Alaska 1987). The court allowed plaintiff to recover purely economic losses when he lost the services of his employees due to defendant's negligence. The court emphasized that foreseeability played a key role and that a plaintiff must show that "the defendants knew or reasonably should have foreseen both that particular plaintiffs or an identifiable class of plaintiffs were at risk and that ascertainable economic damages would ensue from the conduct."

In J'Aire Corp. v. Gregory, 598 P.2d 60 (Cal. 1979), the California Supreme Court allowed a tenant to recover purely economic losses due to a contractor's delay in completing the work. However, the court limited recovery to cases where "the risk of harm is foreseeable and is closely connected with the defendant's conduct, where damages are not wholly speculative and the injury is not part of the plaintiff's ordinary business risk." See also Biakanja v. Irving, 320 P.2d 16 (Cal. 1958). Furthermore, in Union Oil Co. v. Oppen, 501 F.2d 558 (9th Cir. 1974), the Ninth Circuit Court of Appeals, relying on California negligence law, allowed fishermen to recover lost profits resulting from an oil spill caused by defendant's negligence.

Acknowledging J'Aire Corp. v. Gregory, 598 P.2d 60 (Cal. 1979), the Montana Supreme Court, in Hawthorne v. Kober Constr. Co., 640 P.2d 467 (Mont. 1982), held that a subcontractor can maintain an action in tort against a steel supplier, where the subcontractor had suffered loss of profit due to a delay in the delivery of steel by the supplier. The court concluded that such an action could be maintained without privity if the harm was foreseeable.

Lastly, in Aikens v. Debow, 541 S.E.2d 576 (W. Va. 2000) the West Virginia Supreme Court of Appeals adopted a hybrid approach after a lengthy consideration of both the majority and minority viewpoints. In Aikens a motel operator sued a truck driver and his employer to recover lost business income because of a bridge closure, which resulted when defendant's truck struck the bridge. The court reasoned that a hybrid approach would bar limitless liability, while allowing plaintiffs with meritorious claims to recover. Furthermore, the court restricted its decision to actions for purely economic loss resulting from an interruption in commerce caused by another's negligence. Under the court's approach a plaintiff can recover damages only if there is property damage or physical injury; a contractual relationship with defendant; or a special relationship that compels a court to conclude that "the tortfeasor had a duty to the particular plaintiff and that the injury complained of was clearly foreseeable to the tortfeasor." The court explained that a special relationship exists where there is an "intimate nexus" between the parties or where the plaintiff is "affected differently from society in general."