New York Law Review

Tag: economic loss

  • Sung Hwan Co. v. Rite Aid Corp., 7 N.Y.3d 78 (2006): Enforcing Foreign Judgments Based on Tortious Acts Causing Economic Injury

    7 N.Y.3d 78 (2006)

    New York courts will generally enforce foreign judgments under the principles of comity, even if the foreign court’s substantive law differs from New York’s, provided the foreign court had jurisdiction and the judgment doesn’t violate New York’s public policy.

    Summary

    Sung Hwan Co., a Korean company, sought to enforce a Korean court judgment against Rite Aid Corporation in New York. The Korean judgment was based on a tort claim alleging that Rite Aid’s defective ice cream caused economic injury to Sung Hwan in Korea. Rite Aid argued that the Korean court lacked jurisdiction because the claim was essentially a breach of contract, and New York law doesn’t allow economic damages for negligence. The New York Court of Appeals reversed the lower courts, holding that the Korean court’s exercise of jurisdiction was proper under New York’s long-arm statute (CPLR 302) and that the difference in substantive tort law between Korea and New York was not a sufficient basis to deny comity.

    Facts

    Sangshin Trading Co., a Korean company, contracted with Thrifty Payless, Inc. (later acquired by Rite Aid) to purchase ice cream for resale in Korea.

    Sung Hwan Co. contracted with Sangshin to buy Thrifty ice cream for its stores in Korea.

    Sales of Thrifty ice cream grew rapidly, but declined sharply after the Korean government found listeria in the ice cream.

    Sung Hwan sought compensation from Thrifty (later Rite Aid) for losses but received no offer of settlement.

    Sung Hwan sued Rite Aid in Korea, alleging a tort claim based on Rite Aid’s negligence in failing to properly test the ice cream.

    Rite Aid failed to respond to the Korean lawsuit, and a default judgment was entered against them.

    Procedural History

    Sung Hwan sought to enforce the Korean judgment in New York.

    The Supreme Court dismissed the complaint, finding no basis for personal jurisdiction over Rite Aid.

    The Appellate Division affirmed the dismissal.

    The New York Court of Appeals granted leave to appeal and reversed the Appellate Division’s order.

    Issue(s)

    1. Whether the Korean court’s exercise of jurisdiction over Rite Aid was consistent with New York’s concept of personal jurisdiction, specifically under CPLR 302(a)(3), which allows jurisdiction over non-domiciliaries who commit tortious acts outside the state causing injury within the state.

    2. Whether the difference in substantive tort law between Korea and New York, specifically regarding the recovery of economic damages for negligence, is a sufficient basis to deny comity to the Korean judgment.

    Holding

    1. Yes, because for purposes of establishing long-arm jurisdiction, a tort should be broadly defined to encompass one that causes economic injury.

    2. No, because differing remedies do not violate the principles of comity between the two jurisdictions.

    Court’s Reasoning

    The Court of Appeals stated that New York has a history of generously enforcing foreign judgments under the doctrine of comity. CPLR Article 53 codifies this principle, allowing enforcement of foreign judgments unless the foreign court lacked jurisdiction or the judgment violates New York’s public policy.

    The court focused on whether the Korean court’s exercise of jurisdiction was consistent with CPLR 302(a)(3), New York’s long-arm statute, which allows jurisdiction over non-domiciliaries who commit tortious acts outside the state causing injury within the state. The court determined that the key question was whether Rite Aid committed a “tortious act” outside of Korea causing injury within Korea.

    Rite Aid argued that Sung Hwan’s claim was essentially a breach of contract claim disguised as a tort, and that New York law doesn’t allow recovery for economic loss based on negligence. The Court rejected this argument, stating that the focus should be on whether a tortious act occurred, not on the remedy sought. The court cited Sybron Corp. v. Wetzel, stating that CPLR 302 does not limit the kinds of tortious acts covered to personal injury and property damage.

    The Court emphasized that interfering with another jurisdiction’s legislative and judicial actions undermined the principles of comity. The Court concluded that although Korean law may be more expansive than New York law in imposing liability for economic loss under a tort theory, this difference alone is not enough to deny comity to the Korean judgment, citing Loucks v Standard Oil Co. of N.Y.

    “If a foreign statute gives the right, the mere fact that we do not give a like right is no reason for refusing to help the plaintiff in getting what belongs to him. We are not so provincial as to say that every solution of a problem is wrong because we deal with it otherwise at home.”

  • 532 Madison Ave. Gourmet Foods, Inc. v. Finlandia Center, Inc., 96 N.Y.2d 280 (2001): Limits on Recovery for Purely Economic Loss in Negligence and Public Nuisance

    532 Madison Ave. Gourmet Foods, Inc. v. Finlandia Center, Inc., 96 N.Y.2d 280 (2001)

    In cases of widespread economic disruption, a duty of care in negligence does not extend to protect against purely economic loss without accompanying personal injury or property damage, and a public nuisance claim requires a special injury distinct from that suffered by the community at large.

    Summary

    These consolidated appeals arose from two construction-related collapses in Manhattan. Businesses sought recovery for economic losses suffered due to street closures ordered after the incidents. The New York Court of Appeals addressed whether landowners owed a duty of care to protect against purely economic loss in the absence of physical injury or property damage, and whether businesses could maintain a claim for public nuisance. The Court held that no duty existed for purely economic losses and that the businesses did not suffer a special injury required to sustain a public nuisance claim, reversing the Appellate Division’s order in two cases and affirming in the third.

    Facts

    On December 7, 1997, a portion of the south wall of 540 Madison Avenue collapsed, leading to the closure of 15 blocks of Madison Avenue. 532 Madison Ave. Gourmet Foods, Inc., a delicatessen, and 5th Ave. Chocolatiere, retailers two blocks away, both suffered economic losses due to the closure. On July 21, 1998, a construction elevator tower collapsed in Times Square, causing street closures and building evacuations. Goldberg Weprin & Ustin, a law firm, and other businesses in the area also incurred economic losses. All plaintiffs sought to recover for lost income due to the disruptions.

    Procedural History

    In 532 Madison Ave. Gourmet Foods and 5th Ave. Chocolatiere, the Supreme Court dismissed the negligence and public nuisance claims. The Appellate Division reinstated the negligence and public nuisance claims. In Goldberg Weprin & Ustin, the Supreme Court dismissed the complaint. The Appellate Division affirmed the dismissal. The New York Court of Appeals consolidated the cases, reversing the Appellate Division in 532 Madison Ave. Gourmet Foods and 5th Ave. Chocolatiere and affirming in Goldberg Weprin & Ustin.

    Issue(s)

    1. Whether a landowner owes a duty of care in negligence to protect against purely economic loss in the absence of personal injury or property damage to businesses affected by street closures following a building collapse?

    2. Whether businesses affected by street closures following a building collapse suffered a “special injury” sufficient to maintain a claim for public nuisance?

    Holding

    1. No, because limiting the scope of a defendant’s duty to those who suffered personal injury or property damage as a result of the event provides a principled basis for reasonably apportioning liability.

    2. No, because the economic loss was common to an entire community, and the plaintiffs suffered it only in a greater degree than others, not a different kind of harm.

    Court’s Reasoning

    The Court of Appeals reasoned that while harm may be foreseeable, foreseeability alone does not define duty. A duty may arise from a special relationship, but it must be circumscribed to avoid exposing defendants to unlimited liability. Citing Strauss v. Belle Realty Co. and Milliken & Co. v. Consolidated Edison Co., the Court emphasized the need to limit liability in cases of widespread disruption to avoid “crushing exposure” to potentially limitless claims. The Court distinguished the present cases from Dunlop Tire & Rubber Corp. v. FMC Corp., where there was direct physical damage alongside the economic loss. Here, the economic losses were too remote. The Court declined to follow People Express Airlines v. Consolidated Rail Corp., which allowed recovery for purely economic loss, finding it created an unacceptably broad scope of duty. The Court stated, “In such circumstances, limiting the scope of defendants’ duty to those who have, as a result of these events, suffered personal injury or property damage—as historically courts have done—affords a principled basis for reasonably apportioning liability.” Regarding public nuisance, the Court found that the economic harm suffered by the businesses was similar in kind to that suffered by the community at large, even if the degree of harm was greater for the named plaintiffs. Quoting Restatement (Second) of Torts § 821C, comment h, the court stated, “the economic loss was ‘common to an entire community and the plaintiff [s] suffer [ed] it only in a greater degree than others, it is not a different kind of harm and the plaintifffs] cannot recover for the invasion of the public right’.”

  • Oden v. Chemung County Industrial Development Agency, 87 N.Y.2d 81 (1995): Collateral Source Rule and Offset Requirements

    Oden v. Chemung County Industrial Development Agency, 87 N.Y.2d 81 (1995)

    CPLR 4545(c) requires a direct correspondence between the category of economic loss awarded and the type of collateral source reimbursement before a statutory offset can be applied.

    Summary

    This case clarifies the application of New York’s CPLR 4545(c), concerning collateral source offsets in personal injury cases. The Court of Appeals held that a collateral source payment can only reduce a damage award if it specifically replaces or indemnifies the same category of loss for which damages were awarded. A general reduction of the total economic loss award by the total amount of collateral source payments is not permissible. The purpose of the statute is to prevent double recovery, not to provide a windfall to defendants by allowing offsets for payments unrelated to the specific loss categories.

    Facts

    Plaintiff, an ironworker, was injured at a worksite when struck by a falling steel column. He sued the crane owner, operator, the contract agency, and the site owner/lessee. The jury awarded damages for past medical expenses, pain and suffering, lost past earnings, lost pension benefits, and future lost earnings and benefits. The trial court reduced the award for future economic loss by the value of disability retirement benefits the plaintiff was expected to receive.

    Procedural History

    The Appellate Division modified the trial court’s judgment by restoring the full amount of the award for future lost earnings and benefits. It reasoned that CPLR 4545(c) only allows eliminating a jury award for a category of economic loss when a collateral source wholly satisfies and exceeds that specific category. The appellate court determined only the lost pension benefits award qualified for offset by the disability retirement benefits. The third-party defendant, Streeter Associates, appealed to the New York Court of Appeals.

    Issue(s)

    Whether CPLR 4545(c) requires reducing the total award for economic loss by the total amount of all collateral source payments for economic loss, or whether the statute requires a reduction only when the collateral source payment corresponds to a specific category of loss for which damages were awarded?

    Holding

    No, CPLR 4545(c) requires a direct correspondence between the category of economic loss awarded and the type of collateral source reimbursement before a statutory offset can be applied because the statute is in derogation of common law and should be construed narrowly to avoid overcompensating defendants.

    Court’s Reasoning

    The Court of Appeals emphasized that CPLR 4545(c) is a statute in derogation of the common-law collateral source rule, which traditionally prohibited reducing a plaintiff’s award based on compensation from sources other than the tortfeasor. As such, it must be strictly construed. The court noted that the statute allows the trial court to consider if “such” losses were replaced by a collateral source, suggesting a direct connection is required. The use of “any” in reference to cost/expense and collateral source was intended to be inclusive regarding types of losses and benefits, but does not negate the need for a direct relationship.

    The court reasoned that the statute requires a finding that the cost or expense “was or will * * * be replaced or indemnified” from a collateral source, indicating that the collateral source payment must actually substitute for the awarded loss. “To ‘replace’ means to ‘take the place of’ or substitute,” the court quoted, indicating a direct, corresponding relationship. The court criticized the argument that all collateral source payments should be treated as fungible.

    The court noted that the legislature aimed to eliminate duplicative recoveries, not to create a windfall for defendants. Applying Streeter’s broader rule would overcompensate defendants, allowing them a credit for collateral source payments unrelated to the specific economic losses they are required to reimburse. “Indeed, the rule appellant advances would confer an undeserved windfall on tort defendants and their insurers by permitting them to obtain a credit for collateral source payments that do not correspond to the items of economic loss that they are being called upon to reimburse.”

    In this case, the plaintiff’s disability retirement pension did not necessarily replace lost future earnings, as the plaintiff could still earn income in other capacities without losing those benefits. Therefore, offsetting the lost future earnings award with the disability pension benefits was inappropriate. The Appellate Division correctly applied the statute by reducing the lost ordinary pension benefits award with the disability pension benefits, as the latter replaced the former.

    The court dismissed concerns about the practicality of establishing a close correspondence, noting that CPLR 4111(f), requiring detailed itemization of damages, helps facilitate this task. The burden of proof rests on the party seeking the offset, and if the connection is tenuous or lacking, the offset should not be applied. The court also rejected the plaintiff’s argument about the inadequacy of the overall future damages award because the plaintiff did not seek leave to appeal on that issue.

  • Ossining Union Free School Dist. v. Thune Assoc., 73 N.Y.2d 417 (1989): Negligent Misrepresentation Requires Near-Privity

    Ossining Union Free School Dist. v. Thune Assoc., 73 N.Y.2d 417 (1989)

    In cases of negligent misrepresentation causing only economic injury, a plaintiff must demonstrate either contractual privity with the defendant or a relationship so close as to be the functional equivalent of privity to maintain a cause of action.

    Summary

    Ossining Union Free School District sued engineering consultants Thune & Geiger for negligent misrepresentation after relying on their reports about structural weaknesses in a school annex, which led to its unnecessary closure. The school district had a contract with an architectural firm, Anderson LaRocca Anderson, who then retained Thune and Geiger as consultants. The New York Court of Appeals held that while contractual privity is not strictly required, the relationship between the school district and the engineers had to be so close as to approach privity. The Court found that the allegations satisfied this near-privity requirement because the engineers knew their reports would be relied upon by the school district for a specific purpose.

    Facts

    The Ossining Union Free School District hired Anderson LaRocca Anderson (Anderson), an architectural firm, to evaluate its buildings. Anderson retained Thune Associates and Geiger Associates as engineering consultants to assess the structural soundness of the high school annex. Thune and Geiger tested the concrete and reported serious weaknesses. The school district, relying on these reports, closed the annex. A subsequent expert found that the concrete was a lightweight type known as “Gritcrete,” a fact allegedly available to Thune and Geiger in the original building plans. The school district claimed that Thune and Geiger’s negligence caused them substantial expenses related to the unnecessary closure of the annex.

    Procedural History

    The school district sued Anderson, Thune, and Geiger, asserting claims of negligence and malpractice. Thune and Geiger moved to dismiss the complaint, arguing a lack of contractual privity. The Supreme Court granted the motion, and the Appellate Division affirmed. The New York Court of Appeals reversed the Appellate Division’s order and denied the motion to dismiss the complaint against Thune and Geiger.

    Issue(s)

    Whether, in a negligent misrepresentation case producing only economic injury, a plaintiff must demonstrate contractual privity with the defendant or a relationship so close as to be the functional equivalent of contractual privity to state a cause of action.

    Holding

    Yes, because while strict contractual privity is not required, the relationship between the plaintiff and defendant must be so close as to approach that of privity for a negligent misrepresentation claim to proceed when only economic damages are sought.

    Court’s Reasoning

    The Court of Appeals relied on the principle established in Glanzer v. Shepard (233 N.Y. 236 (1922)) and Ultramares Corp. v. Touche (255 N.Y. 170 (1931)), which addressed the limits of liability for negligent misrepresentation causing economic loss. The Court distinguished between foreseeable reliance and a relationship approaching privity. “If liability for negligence exists, a thoughtless slip or blunder, the failure to detect a theft or forgery beneath the cover of deceptive entries, may expose accountants to a liability in an indeterminate amount for an indeterminate time to an indeterminate class.” (Ultramares Corp. v Touche, 255 N.Y. 170, 179-180 (1931)). The Court articulated a three-part test derived from Credit Alliance Corp. v. Andersen & Co. (65 N.Y.2d 536 (1985)): (1) awareness that the reports were to be used for a particular purpose; (2) reliance by a known party or parties in furtherance of that purpose; and (3) conduct by the defendants linking them to the party or parties and evincing defendant’s understanding of their reliance. The Court found that the school district’s allegations satisfied these criteria, as the engineers knew their reports would be transmitted to and relied upon by the school district for the evaluation of the school buildings’ structural soundness, and that there was direct contact between the school and the engineers, thus linking the two parties in a manner that met the “near privity” standard. The court emphasized that this narrower rule, requiring near-privity, was a matter of policy to avoid imposing overly broad liability, rather than a limitation applying only to accountants.

  • Sargent, Webster, Crenshaw & Folley v. Thompson Construction Corp., 69 N.Y.2d 777 (1987): Contribution in Pure Breach of Contract Cases

    69 N.Y.2d 777 (1987)

    New York’s contribution statute (CPLR 1401) does not permit contribution between two parties when their potential liability to a third party arises solely from economic loss resulting from a breach of contract.

    Summary

    This case addresses whether CPLR 1401 allows contribution between parties whose potential liability to a third party stems from economic loss due to breach of contract. The Hudson City School District (District) sued Sargent, an architectural firm, and Thompson Construction, the general contractor, for a defective roof. Sargent sought contribution from Thompson. The Court of Appeals held that CPLR 1401, designed for tort liability apportionment, does not extend to pure breach of contract actions where the potential liability is solely for the contractual benefit of the bargain. This ruling reinforces the principle that contract liability is defined by the parties’ agreement.

    Facts

    The Hudson City School District contracted with Sargent to design and supervise the construction of a high school. The District also contracted with Thompson Construction to perform the construction work. The roof of the completed building began to leak shortly after Sargent issued its final certificate of completion in 1972. In 1980, the District sued both Sargent and Thompson for breach of contract, alleging a defective roof. Sargent was accused of failing to secure necessary guarantees, while Thompson was accused of improper construction.

    Procedural History

    The District Court initially dismissed the claim against Thompson based on the statute of limitations but allowed the claim against Sargent to proceed under the “continuous treatment” doctrine. Sargent then filed a third-party action against Thompson seeking contribution or indemnification. The trial court allowed Sargent’s third-party action. The Appellate Division reversed, dismissing the third-party complaint, concluding CPLR 1401 did not apply to liability purely for contractual benefit of the bargain. The Court of Appeals granted leave to appeal.

    Issue(s)

    Whether CPLR 1401 permits contribution between two parties whose potential liability to a third party is for economic loss resulting only from a breach of contract?

    Holding

    No, because CPLR 1401 was intended to address the apportionment of liability among tortfeasors and does not extend to cases involving pure breach of contract where the potential liability is solely for the contractual benefit of the bargain.

    Court’s Reasoning

    The court emphasized that CPLR 1401 was enacted to codify the principles established in Dole v. Dow Chemical Co., which drastically changed the law regarding apportionment among joint tortfeasors. The legislative history and common-law evolution of CPLR 1401 demonstrate its application to tort liability, including joint, concurrent, and successive tortfeasors, as well as strict liability cases. The court stated, “[i]t is the fact of liability to the same person for the same harm rather than the legal theory upon which tort liability is based which controls.” However, the court found nothing to indicate that CPLR 1401 was intended to apply to a pure breach of contract action. Allowing contribution in such cases would conflict with contract law principles that limit a contracting party’s liability to foreseeable damages at the time of contract formation. The court reasoned that Thompson was entitled to expect its liability to be determined by its own contractual undertaking and should not face liability based on Sargent’s separate contract. The court also rejected the argument that Sargent’s potential breach of a “duty of due care” transformed the contract claim into a tort claim, citing Clark-Fitzpatrick, Inc. v. Long Is. R. R. Co., 70 N.Y.2d 382, 390. The court concluded that no legal duty independent of Sargent’s contractual obligations was breached, and therefore, the contribution claim was properly dismissed.