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Milliken & Co. v. Consolidated Edison Co. of New York, Inc.

84 N.Y.2d 469 Court N.Y. Decision date 1994-12-01 English

Delivered by Bellacosa, J.

Contents

Majority

p. 469
[644 NE2d 268, 619 NYS2d 686]
Milliken & Co. et al., Respondents, v Consolidated Edison Company of New York, Inc., Appellant, and City of New York et al., Respondents. (And a Third-Party Action.) (Action No. 1.) Gold Mills, Inc., Respondent, v City of New York et al., Respondents, and Consolidated Edison Company of New York, Inc., Appellant. (And a Third-Party Action.) (Action No. 2.) I.S.K. Manhattan, Inc., Doing Business as McDonald’s #2276, et al., Respondents, v City of New York et al., Respondents, and Consolidated Edison Company of New York, Inc., Appellant. (And Third- and Fourth-Party Actions.) (Action No. 3.)
Argued October 25, 1994;
decided December 1, 1994
p. 471
POINTS OF COUNSEL
Maura A. Kilroy, New York City, and Richard W. Babinecz for appellant in the first, second and third above-entitled actions.
I. The Court below incorrectly held that Con Edison owed a duty to the noncustomer plaintiffs. (Strauss v Belle Realty Co., 65 NY2d 399 ; Koch v Consolidated Edison Co., 62 NY2d 548 , 469 US 1210 ; Moch Co. v Rensselaer Water Co., 247 NY 160 ; Eaves Brooks Costume Co. v Y.B.H. Realty Corp., 76 NY2d 220 ; Credit Alliance Corp. v Andersen & Co., 65 NY2d 536 , 66 NY2d 812 ; Beck v FMC Corp., 53 AD2d 118 , 42 NY2d 1027 .) II. The customer plaintiffs’ alleged economic losses are not recoverable in either tort or contract. (Strauss v Belle Realty Co., 65 NY2d 399 ; Sommer v Federal Signal Corp., 79 NY2d 540 ; Burns Jackson Miller Summit & Spitzer v Lindner, 59 NY2d 314 ; Schiavone Constr. Co. v Mayo Corp., 81 AD2d 221 , 56 NY2d 667 ; Travelers Ins. Co. v Ferco, Inc., 122 AD2d 718 ; Alvord & Swift v Muller Constr. Co., 46 NY2d 276 ; Rockaway Blvd. Wrecking & Lbr. Co. v Raylite Elec. Corp., 26 AD2d 9 ; Guard-Life Corp. v Parker Hardware Mfg. Corp., 50 NY2d 183 ; Rosenberg v Del-Mar Div., 56 AD2d 576 ; Bellevue S. Assocs. v HRH Constr. Corp., 78 NY2d 282 .) III. Plaintiffs failed to carry their burden of establishing that their alleged economic losses are not speculative. (Koch v Consolidated Edison Co., 62 NY2d 548 .) IV. The Court below had no authority to grant affirmative relief to the nonappealing real estate defendants. (Hecht v City of New York, 60 NY2d 57 ; Merritt Hill Vineyards v Windy Hgts. Vineyard, 61 NY2d 106 ; Kornfeld v NRX Technologies, 93 AD2d 772 , 62 NY2d 686 .) V. Con Edison should be permitted to reassert its cross claims and third-party claims. (Mas v Two Bridges Assocs., 75 NY2d 680 .)
p. 472
Paul A. Crotty, Corporation Counsel of New York City (Michael McLoughlin and Stephen J. McGrath of counsel), for City of New York, respondent in the first, second and third above-entitled actions.
Con Edison should not be permitted to reassert its cross claims and third-party claims against the City. (Strauss v Belle Realty Co., 65 NY2d 399 ; Crane v City of New York, 65 NY2d 859 ; Petrucci v City of New York, 167 AD2d 29 ; D'Ambrosio v City of New York, 55 NY2d 454 ; Mas v Two Bridges Assocs., 75 NY2d 680 .)
Kornstein Veisz & Wexler, New York City (Joel Bossom, Marvin Wexler, Lawrence C. Fox and Emily Rosdeitcher of counsel), and Stuart S. Sherman for Empire City Subway Company (Limited) and another, respondents in the first, second and third above-entitled actions.
Con Edison may not properly assert a claim for contribution or indemnification against Empire or NY Tel in connection with plaintiffs’ claims for economic loss. (Board of Educ. v Sargent, Webster, Crenshaw & Folley, 71 NY2d 21 ; Lawrence Dev. Corp. v Jobin Waterproofing, 186 AD2d 634 ; Facilities Dev. Corp. v Miletta, 180 AD2d 97 ; Dormitory Auth. v Caudill Rowlett Scott, 160 AD2d 179 ; Dole v Dow Chem. Co., 30 NY2d 143 ; McDermott v City of New York, 50 NY2d 211 ; McFall v Compagnie Mar. Beige, 304 NY 314 ; Rosado v Proctor & Schwartz, 66 NY2d 21 ; D'Ambrosio v City of New York, 55 NY2d 454 .)
Wien, Malkin & Bettex, New York City (Douglas D. Aronin and Eli R. Mattioli of counsel), and Smith, Mazure, Director, Wilkins Young, Yagerman & Tarallo, P. C., for HelmsleySpear, Inc., and others, respondents in the first, second and third above-entitled actions.
I. The Court below had jurisdiction to dismiss the remaining claims against the real estate defendants. (Merritt Hill Vineyards v Windy Hgts. Vineyard, 61 NY2d 106 ; Fertico Belgium v Phosphate Chems. Export Assn., 100 AD2d 165 ; Matter of Windsor Park Assocs. v New York City Conciliation & Appeals Bd., 91 AD2d 569 , 59 NY2d 18 ; Freidus v Todem Homes, 80 AD2d 575 , 56 NY2d 526 ; Howell v Davis, 58 AD2d 852 , 43 NY2d 874 ; Peoples Sav. Bank v County Dollar Corp., 43 AD2d 327 , 35 NY2d 836 ; Wiseman v Knaus, 24 AD2d 869 ; Hecht v City of New York, 60 NY2d 57 ; St. John v Andrews Inst, for Girls, 192 NY 382 .) II. The Court below correctly dismissed the remaining claims against the real estate defendants on the merits. (People v Scott, 26 NY2d 286 ; Silver v Brodsky, 112 AD2d 213 ; Mobile Home Estates v Preferred Mut. Ins. Co., 105 AD2d 883 ; Schlesinger v Rockefel
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ler Ctr., 119 AD2d 462 ; Kirshenbaum v General Outdoor Adv. Co., 258 NY 489 .)
Gair, Gair, Conason Steigman & Mackauf, New York City (Rhonda E. Kay of counsel), for Milliken & Co. and others, respondents in the first and second above-entitled actions.
I. The Court below correctly held that Con Edison owed a legal duty to all those commercial tenants who might satisfactorily prove at trial that they assumed an obligation in their leases to purchase electric service on an apportioned basis. (Strauss v Belle Realty Co., 65 NY2d 399 ; Koch v Consolidated Edison Co., 62 NY2d 548 ; Grow Tunneling Corp. v Consolidated Edison Co., 195 AD2d 325 ; Staten Is. Edison Corp. v New York City Hous. Auth., 296 NY 750 ; Goldstein v Consolidated Edison Co., 115 AD2d 34 ; Eaves Brooks Costume Co. v Y.B.H. Realty Corp., 76 NY2d 220 ; Moch v Rensselaer Water Co., 247 NY 160 ; Pond v New Rochelle Water Co., 183 NY 330 ; Matter of City of New York v Public Serv. Commn., 17 AD2d 581 ; Lawrence v Fox, 20 NY 268 .) II. Inasmuch as plaintiffs’ claims against Con Edison are essentially contractual in nature, recovery for purely economic injury is permissible. Moreover, Con Edison’s contention that plaintiffs’ claims for lost profits were too speculative to permit a damage award, must fail. (Koch v Consolidated Edison Co., 62 NY2d 548 ; Dunlop Tire & Rubber Corp. v FMC Corp., 53 AD2d 150 ; Food Pageant v Consolidated Edison Co., 54 NY2d 167 ; Kenford Co. v County of Erie, 67 NY2d 257 , 73 NY2d 312 ; Ashland Mgt. v Janien, 82 NY2d 395 ; Dalton v Educational Testing Serv., 155 Misc 2d 214 ; Shankman v Consolidated Edison Co., 94 Misc 2d 150 ; Lee v Consolidated Edison Co., 95 Misc 2d 120 ; Miner v Walden, 101 Misc 2d 814 .)
Bigham Englar Jones & Houston, New York City (James J. Taylor and Elaine P. Chryssochoos of counsel), for I.S.K. Manhattan, Inc., and others, respondents in the third above-entitled action.
I. There is no basis for the contention advanced by Con Edison that only a direct customer of the utility can effect a recovery for loss or damage, be it property damage, pure economic loss or a combination of the two. (Strauss v Belle Realty Co., 65 NY2d 399 ; Moch Co. v Rensselaer Water Co., 247 NY 160 ; Beck v FMC Corp., 53 AD2d 118 , 42 NY2d 1027 ; Hernandez v Consolidated Edison Co., 65 NY2d 857 ; Longo v New York City Educ. Constr. Fund, 114 AD2d 304 ; Goldstein v Consolidated Edison Co., 115 AD2d 34 , 68 NY2d 604 ; Santoro v Central N. Y. Power Corp., 189 Misc 567 ;
p. 474
Eaves Brooks Costume Co. v Y.B.H. Realty Corp., 76 NY2d 220 ; Koch v Consolidated Edison Co., 62 NY2d 548 , 469 US 1210 .) II. Loss of profits and earnings are recoverable under New York law in breach of contract and tort cases. (Stitz v Gifford, 280 NY 15 ; Seagroatt Floral Co. v New York Tel. Co., 76 AD2d 1038 ; Brooklyn Union Gas Co. v Macgregor’s Custom Coach, 133 Misc 2d 582 ; Dunlop Tire & Rubber Corp. v FMC Corp., 53 AD2d 150 ; Food Pageant v Consolidated Edison Co., 54 NY2d 167 ; Koch v Consolidated Edison Co., 62 NY2d 548 , 469 US 1210 .) III. The Court below abused its discretion in dismissing the action against the real estate defendants.
Huber Lawrence & Abell, New York City (John D. Draghi and Michael Zaitz of counsel), for Central Hudson Gas & Electric Corporation and others, amici curiae, in the first, second and third above-entitled actions.
I. The Court below incorrectly held that Con Edison was liable to its customers’ tenants. (Strauss v Belle Realty Co., 65 NY2d 399 ; Crane v City of New York, 65 NY2d 859 ; Hernandez v Consolidated Edison Co., 65 NY2d 857 ; Beck v FMC Corp., 53 AD2d 118 , 42 NY2d 1027 ; Moch Co. v Rensselaer Water Co., 247 NY 160 ; Abraham v New York Tel. Co., 85 Misc 2d 677 ; Kentucky Agrie. Energy Corp. v Bowling Green Municipal Utils. Bd., 735 F Supp 226 ; Food Pageant v Consolidated Edison Co., 54 NY2d 167 ; Koch v Consolidated Edison Co., 62 NY2d 548 ; Krasner v New York State Elec. & Gas Corp., 90 AD2d 921 .) II. The Court below incorrectly held that Con Edison was liable for purely economic loss. (Koch v Consolidated Edison Co., 62 NY2d 548 ; Kenford Co. v County of Erie, 67 NY2d 257 ; Schiavone Constr. Co. v Mayo Corp., 81 AD2d 221 , 56 NY2d 667 ; Jones & Laughlin Steel Corp. v Johns-Manville Sales Corp., 626 F2d 280 ; Bellevue S. Assocs. v HRH Constr. Corp., 78 NY2d 282 ; East Riv. S. S. Corp. v Transamerica Delaval, 476 US 858 ; Dunlop Tíre & Rubber Corp. v FMC Corp., 53 AD2d 150 ; Syracuse Cablesystems v Niagara Mohawk Power Corp., 173 AD2d 138 ; Schneider Natl. v State of New York, 138 Misc 2d 205 .)

OPINION OF THE COURT

In early August 1983, over 11 years ago, an underground water main burst near 38th Street and 7th Avenue in Manhattan. The unleashed waters flooded the subbasement of the Navarre Building at 500-512 Seventh Avenue, where Consoli

p. 475
dated Edison maintained an electricity supply substation. A fire broke out in the subbasement when the waters seeped into the substation and came into contact with Con Edison’s electrical equipment. The fire engulfed the substation, causing extensive damage which disrupted the flow and supply of electricity to most of the Manhattan "Garment Center” for four days. The disaster occurred during the biannual "Buyers Week,” when merchandisers from all over the world were in New York City to visit fashion showrooms, to examine merchandise and to place orders for lines of goods for future seasons.

Alleging various acts of negligence, some 200 Garment Center businesses brought over 50 lawsuits against Con Edison, the owners and managing agents of the Navarre Building ("real estate” defendants), the City of New York, Empire City Subway Company and New York Telephone. This group of plaintiffs included those who did have and those who did not have a direct contractual relationship with the appellant utility. The claims of those plaintiffs having a direct contractual relationship with appellant Con Edison are not the subject of this appeal.

Before this Court are the claims of the commercial tenants of the Navarre Building and of other Garment Center properties who had no direct contractual relationship with Con Edison. These noncontract customer claims were reinstated by the Appellate Division after Supreme Court dismissed them. These tenants sued, claiming a connected duty relationship with Con Edison by virtue of their lease agreements, which obligated them to pay an apportioned share of the electricity expenses to the direct contracting entities, their landlords.

Among these noncontractually related plaintiffs are those who alleged physical damages and associated economic losses, as well as those who asserted only pure economic losses, such as lost profits, overhead expenses, and out-of-pocket expenses resulting from their inability to conduct business during "Buyers Week.” These noncontract plaintiffs’ claims are the sole subjects of this narrow certified question appeal.[1]

The central issue involves the scope of the duty owed by the electricity supplying utility to noncontractual users. Specifically, the Court must decide whether a regulated utility owes

* We do not read the Appellate Division order as also having reinstated the claims of contractually related customers who alleged purely economic loss. Hence, we do not address that matter, as it is not properly before us.

p. 476
a duty of due care, answerable in negligence, to commercial tenants who do not have service contracts with the utility, but who are obligated under their leases to reimburse their landlords for apportioned electricity costs.

We agree with the Supreme Court determination that, under the facts of this case, the utility does not owe such a duty to these commercial tenants who lack a direct contractual arrangement with it. The certified question, thus, should be answered in the negative, and the order of the Appellate Division should be modified in accordance with this opinion.

L

Supreme Court limited appellant Con Edison’s liability to its direct customers. That court, at a summary judgment stage, (1) dismissed all claims by plaintiffs who were tenants without a direct relationship with Con Edison; (2) dismissed all claims against all defendants which were predicated solely upon economic losses unassociated with any property damage; (3) dismissed all claims against the real estate defendants by nontenants of the Navarre Building; and (4) dismissed, without prejudice, the cross claims, counterclaims, and third-party actions in relation to the underlying primary complaints that had been dismissed.

The Appellate Division modified to the extent of (1) reinstating all claims against Con Edison of those plaintiffs which were dismissed for lack of a direct contractual relationship with the defendant utility, including for loss of profits, and (2) dismissing the tenants plaintiffs’ claims against the real estate defendants, and otherwise affirmed ( 199 AD2d 75 ). The Appellate Division granted Con Edison leave to appeal, certifying the question whether its order was properly made.

Hi

Relying principally on Strauss v Belle Realty Co. ( 65 NY2d 399 ), appellant Con Edison argues that it should suffer no duty, answerable in tort, to commercial tenants who lack a direct contractual relationship with it as the electricity supplying utility. Con Edison argues that the Appellate Division ruling transgresses the public policy precedential authorities of this Court by expanding the utility’s "orbit of duty” to an "uncontrollable degree,” and thus exposing the strictly regulated public utility to potentially crushing liability (see, Strauss v Belle Realty Co., supra, at 404-405).

p. 477
Plaintiffs-respondents assert that their lack of direct contractual linkage to the utility should not be an absolute bar to suit against it. They contend that as tenants of a commercial building — be they direct contractual customers or ultimate consumers-users and, hence, indirect customers — they are a well-defined, reasonably identifiable class. Therefore, allowing tort exposure or responsibility in favor of this class of plaintiffs would not unduly expand the appropriate scope of the utility’s liability. Plaintiffs-respondents also tender a distinguishing feature to their cases. They stress that their injuries occurred in locations where plaintiffs have a proprietary interest in direct need of the electricity product and services and that their lease responsibilities are also directly keyed to costs proportioned for their actual use of supplied electricity.

m.

This Court has from time to time addressed the scope of the duty of a utility, or a similarly situated entity, arising from negligence in the performance of contractual obligations (see, e.g., Eaves Brooks Costume Co. v Y.B.H. Realty Corp., 76 NY2d 220 ; Strauss v Belle Realty Co., 65 NY2d 399 , supra; Moch Co. v Rensselaer Water Co., 247 NY 160 ). Consistently, this Court has emphasized that determining the scope of the duty and the consequent sphere of potential liability is fundamentally a policy question, with the objective being to " 'fix[ ] the [entity’s] orbit of duty’ ” so as to " ' "limit the legal consequences of wrongs to a controllable degree” ’ ” (Eaves Brooks Costume Co. v Y.B.H. Realty Corp., supra, at 226-227; Strauss v Belle Realty Co., supra, at 402; Moch Co. v Rensselaer Water Co., supra, at 164-168; cf., Palka v Servicemaster Mgt. Servs. Corp., 83 NY2d 579 , 585-587). We noted in Palka that the existence and scope of an alleged tortfeasor’s duty, at the threshold, is a legal, policy-laden determination dependent on consideration of different forces, including logic, science, competing socioeconomic policies, and contractual assumptions of responsibility.

Applying our benchmarks, we have as a general policy and approach declined to leapfrog duties, over directly juridically related parties, to noncontractually related consumers of a utility’s service or product (Strauss v Belle Realty Co., 65 NY2d 399 , supra). There, this Court rejected a tenant’s effort to recover against Con Edison for personal injuries sustained in the common areas of the tenant’s building during a blackout (id,., at 404-405). Focusing on the competing policies of

p. 478
"extending] the defendant’s duty to cover specifically foreseeable parties but at the same time [ ] containing] liability to manageable levels”, we expressly eschewed extending the utility’s duty to the tenant plaintiff in that case (id., at 404). This Court so held, notwithstanding the fact that plaintiff was a tenant in the apartment building where the injury occurred (id.; see also, Eaves Brooks Costume Co. v Y.B.H. Realty Corp., 76 NY2d 220 , 222, supra; contrast, Palka v Servicemaster Mgt. Servs. Corp., 83 NY2d 579 , 587-589, supra). Our precedents thus warrant the view and conclusion that tenants of a building, as such, are not a sufficiently "narrowly defined class” and should not be relieved of the usual juridical relationship prong in order to garner a potential liability against the utility (Strauss v Belle Realty Co., 65 NY2d 399 , 402, 404-405, supra; see also, Eaves Brooks Costume Co. v Y.B.H. Realty Corp., 76 NY2d 220 , 226-227, supra).

Consequently, plaintiffs’ attempt to distinguish Strauss, based simply on the situs of the injury, is unavailing in this case. The locale in which the injuries occur, in circumstances such as these, is a distinction without a legal, public policy-rooted difference because, regardless of the situs, the same unlimited, undefined class of potential plaintiffs is implicated. In essence, in Strauss, the identical potential plaintiff group was involved; namely, building tenants with no direct contractual linkage to the utility, whose landlord had a contractual relationship with the utility. Given that here the same class of plaintiffs and public policy factors are under consideration, the location of the occurrence of the injuries is an insufficient basis upon which to extend defendant Con Edison’s "orbit of duty” to this noncontract, proprietary, tenant class (see, Strauss v Belle Realty Co., 65 NY2d 399 , 404, supra). We reject plaintiffs-respondents’ reasoning because it would hold regulated utilities liable to every tenant in every one of the countless skyscrapers comprising the urban skyline. This would unwisely subject utilities to loss potentials of uncontrollable and unworkable dimensions (see, Strauss v Belle Realty Co., supra).

We are also persuaded that plaintiffs-respondents cannot seek recovery as third-party beneficiaries of the contract between their landlords and the defendant utility (compare, Koch v Consolidated Edison Co., 62 NY2d 548 , 553, cert denied 469 US 1210 ). In Koch v Consolidated Edison Co., this Court held Con Edison liable to PASNY customers on a third-party beneficiary theory, where Con Edison had expressly under

p. 479
taken a contractual duty to supply electricity for the needs of PASNY’s customers (id., at 558-559). In marked contrast, however, in the instant case, there is no such express undertaking by the utility, and, consequently, there is no basis to allow plaintiffs’ recovery on a third-party beneficiary theory (compare, Palka v Servicemaster Mgt. Servs. Corp., 83 NY2d 579 , 588-589, supra).

All other arguments and contentions have been considered, and we conclude that they are without merit.

Accordingly, the order of the Appellate Division should be modified in accordance with this opinion, in effect reinstating the order of the Supreme Court to the extent that it dismissed the claims of noncontract plaintiffs against the utility, and the certified question should be answered in the negative, with costs to Con Edison against the dismissed plaintiffs-respondents only, and, as so modified, the order should be affirmed.

Chief Judge Kaye and Judges Simons, Titone, Smith, Levine and Cipabick concur.

Order modified in accordance with the opinion herein, with costs to appellant against the dismissed plaintiffs-respondents, and, as so modified, affirmed, and certified question answered in the negative.

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