Getty Refining & Marketing Co. v. Mt Fadi B

766 F.2d 829, 1985 A.M.C. 2579

• Court: Court of Appeals for the Third Circuit
• Decided: July 11, 1985
• Docket: No. 84-1567
• Status: Published

Opinions

OPINION OF THE COURT

ALDISERT, Chief Judge.

This appeal by Getty Refining and Marketing Company from judgment entered in favor of M/T FADI B and Fadi Shipping Corp. requires us to decide whether, in the absence of physical damage, appellant may recover economic loss sustained when it had to pay contractual obligations to third parties by reason of the negligence of the FADI B. The district court applied the teachings of Robins Dry Dock & Repair Co. v. Flint, 275 U.S. 303, 48 S.Ct. 134, 72 L.Ed. 290 (1927), and held that economic loss could not be recovered if the tortious interference with a contract was not intentional, but only negligent. We affirm.

I.

Appellant operates a marine terminal at its refining facility at Delaware City, Delaware. On January 11, 1981, the oil tanker, FADI B, docked at Pier 1 at 7:00 a.m. Discharge of its oil cargo commenced at 11:20 a.m. and continued for the remainder of that day and into the morning of the following day, when at 7:00 a.m., a crack was discovered in the ship’s deck and hull. Upon being discovered by the vessel’s crew members, cargo discharge was stopped. Approximately three hours later the United States Coast Guard ordered the FADI B to cease cargo operations and ordered the vessel to remain at her berth until such time as a safe plan for discharging the balance of the cargo could be implemented. Pursuant to the express authorization of the Coast Guard, and in accordance with a plan developed by the vessel’s classification society, cargo discharge resumed and was completed on January 17 at 10:55 a.m. The vessel then departed from the dock. Interruption of the cargo discharge extended for a period of two days, 13 hours and 15 minutes. It was determined that a defective weld in the main deck plating, welded in early spring 1980 in Piraeus, Greece, caused the crack. The parties have stipulated that the cessation of cargo discharge “did not cause any physical damage to the dock or marine terminal nor any pollution of the adjoining waters.” Stipulation of Fact No. 22, app. at 17.

At trial and before this court appellant claims damages “as a result of the negligence of FADI.” Brief for Appellant at 3. Appellant claims as damages demurrage it was obligated to pay to other vessels that were scheduled to dock at its pier during and immediately after the FADI B’s crack was discovered. Additionally, appellant seeks recovery of expenses incurred in rescheduling those vessels that were preparing to dock at its terminal, but were unable to do so at the scheduled times.¹ At trial most of the facts were stipulated and apparently are not controverted on appeal. The district court found as a matter of law that under Robins an action for negligence may not be maintained for interference with contractual relations and granted the motion to dismiss under Rule 41(b), Federal Rules of Civil Procedure.²

II.

Appellant asserts that the district court incorrectly construed Robins, contending that the Robins Court did not establish a per se rule foreclosing recovery in all negligence actions when no physical damage has occurred. Specifically, appellant argues that the district court erred in characterizing appellant’s cause of action as negligent interference with contractual relations. Appellant argues that the Robins rule does not apply to the facts of this case because appellant had both a property right in its blocked pier and a special relationship with the FADI B. Because this issue involves the interpretation and application of legal precepts, our review is plenary. Universal Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d 98, 102-03 (3d Cir.1981).

III.

In Robins, a time charterer of a vessel sued for profits lost when the defendant dry dock negligently damaged the vessel’s propeller. The propeller had to be replaced, thus extending by two weeks the time the vessel was laid up in dry dock, and it was for the loss of the use of the vessel for that period that the charterer sued. In denying recovery, and speaking through Justice Holmes, the Court noted:

[N]o authority need be cited to show that, as a general rule, at least, a tort to the person or property of one man does not make the tortfeasor liable to another merely because the injured person was under a contract with that other, unknown to the doer of the wrong____ The law does not spread its protection so far.

275 U.S. at 309, 48 S.Ct. at 135 (citation omitted). The Court of Appeals for the Fifth Circuit has reminded us that “Robins broke no new ground but instead applied a principle, then settled both in the United States and England, which refused recovery for negligent interference with ‘contractual rights’.” State of Louisiana ex reL. Guste v. M/V TESTBANK, 752 F.2d 1019, 1022 (5th Cir.1985) (in banc).

Three cases cited by Justice Holmes in Robins deserve examination because they show the historical underpinnings of the Robins rule: Elliott Steam Tug Co. v. The Shipping Controller, [1922] 1 K.B. 127; Byrd v. English, 117 Ga. 192, 43 S.E. 419 (1903); The Federal No. 2, 21 F.2d 313 (2d Cir.1927). In Elliott Steam Tug, the British admiralty, under wartime legislative powers, requisitioned a tug. A charterer of the tug lost profits because of the requisitioning. In applying an indemnity statute that authorized recovery, the court noted that the charterer could not have recovered at common law, stating: “The charterer in collision cases does not recover profits, not because the loss of profits during repairs is not the direct consequence of the wrong, but because the consumer law rightly or wrongly does not authorize him as able to sue for such an injury to his mere contractual rights.” 1 K.B. at 140. In Byrd v. English, the defendant negligently damaged a utility’s electrical conduits, thus cutting off power to the plaintiff’s printing plant. The plaintiff sued for lost profits because of loss of power, and the court denied recovery. Finally, in The Federal No. 2, the defendant tug negligently injured plaintiff’s employee while he was working on a barge. The employer sued to recover sums paid to the employee in maintenance and cure. The court denied recovery and explained: “It is too indirect to insist that this may be recovered, where there is neither the natural right nor a legal relationship between the appellant and the tug, even though the alleged right of action be based upon negligence.” 21 F.2d at 314.

IV.

Significantly, the Supreme Court decided Robins, announcing a bright line rule of limitation, against a backdrop of general judicial expansion of tort liability in negligence, demonstrated most graphically by Judge Cardozo’s milestone decision, ten years earlier, in MacPherson v. Buick Motor Co., 217 N.Y. 382, 111 N.E. 1050 (1916) (destroying the sacrosanct notion of privity in recoveries based on negligence). The Robins rule, however, has withstood the test of time. It has been followed by courts and embraced by commentators. The rule has been reaffirmed by the Restatement of Torts (Second):

One is not liable to another for pecuniary harm not deriving from physical harm to the other, if that harm results from the actor’s negligently

(a) causing a third person not to perform a contract with the other, or

(b) interfering with the other’s performance of his contract or making the performance more expensive or burdensome, or

(c) interfering with the other’s acquiring a contractual relation with a third person.

Restatement (Second) of Torts § 766C (1977).

The Restatement’s drafters report that it is the character of the contract or prospective interest itself that has led courts to refuse to give the interest protection against negligent interference. Id. comment a. The extremely variable nature of the relations between the parties, the fear of an undue burden upon the defendant’s freedom of action, the probable disproportion between the large damages that might be recovered and the extent of the defendant’s fault, and perhaps in some cases the difficulty of determining whether the interference has in fact resulted from the negligent conduct, all have influenced the courts against permitting recovery. Id. “Whatever the reason may be, there is as yet no general recognition of liability for negligent interference with an existing contract or with a prospective contractual relation, although a number of cases, scattered through the years, have held that liability should be imposed.” Id.

The courts today, with the exception of one or two isolated cases,³ have adopted a bright line rule that precludes recovery of the loss of financial benefits of a contract or of prospective trade because of negligent interference with a contractual relationship absent physical damage or injury. The courts have discarded traditional tort precepts of foreseeability and lack of remoteness in this limited class of cases. Professors Prosser and Keeton set forth a recent explanation of the rule:

The policy against recovery based on negligence is rooted at least in part on what Professor James has called the “pragmatic” objection, that while physical harm generally has limited effects, a chain reaction occurs when economic harm is done and may produce an unending sequence of financial effects best dealt with by insurance, or by contract, or by other business planning devices. The courts have generally followed this policy and the rather limited and narrow exceptions have had virtually no impact on the law.

W. Prosser & W. Keeton, The Law of Torts 1001 (5th Ed.1984). The commentators have hinted that one historical justification for the rule is that interference with contract had its modern inception in “malice,” and thus has remained essentially an intentional tort: “In general, liability has not been extended to the various forms of negligence by which performance of a contract may be prevented or rendered more burdensome.” Id. at 997.⁴

Moreover, as recently emphasized, “retention of this conspicuous bright line rule in the face of the reforms brought by the increased influence of the school of legal realism is strong testament both to the rule’s utility and to the absence of a more ‘conceptually pure’ substitute.” M/V TESTBANK, 752 F.2d at 1023 (footnote omitted). We recognize that a plausible argument can be advanced that it was entirely foreseeable that appellant would have a flotilla of ships scheduled to berth at its pier. An experienced oil tanker company like Fadi knew or should have known the scheduling at discharge points is a common occurrence and that ships like the INTREPID, for example, would have specific schedules based on a normal discharge time at the appellant’s pier. But the courts and the commentators respond that the long established rule, reaffirmed in Robins and incorporated into the modern Restatement and embraced by the commentators, is a pragmatic limitation imposed by the court upon the tort doctrine of foreseeability. Concededly, we are drawing a fine line, but this approach has the virtue of what Holmes called “predictability” and Llewellyn, “reckonability,” by saying that the law shall go thus far and no further.⁵

Absent drawing the line where it now is, a court could plausibly decide that wave upon wave of successive economic consequences were foreseeable. If, for example, the INTREPID, delayed in Delaware, was unable to fulfill its obligation to perform a contract of freightment at its next port of call, the shipper of that next cargo could suffer injury and its receiver, customers of the receiver, and their customers as well might suffer damage. In a different context, Cardozo stated the concern that extending liability under these circumstances would be “liability in an indeterminate amount for an indeterminate time to an indeterminate class.” Ultramares Corp. v. Touche, 255 N.Y. 170, 179, 174 N.E. 441, 444 (1931).

We emphasize, of course, that the rule under discussion applies when the plaintiff suffers only pecuniary loss such as the claim here. Clearly, a plaintiff may recover for negligence that results in physical harm to his person or land or chattels and causes pecuniary loss because of the nonperformance of a contract with him. Under those circumstances, the physical injury forms the basis of a tort independent of any contractual interests and recovery is subject to the usual rules governing liability for negligence.

Accordingly, we will adhere to the rule defined by Justice Holmes in Robins, incorporated in the Restatement of Torts (Second) § 766C, and embraced by the leading commentators that where the negligence does not result in physical harm, thereby providing no basis for an independent tort, and the plaintiff suffers only pecuniary loss, he may not recover for the loss of the financial benefits of a contract or prospective trade. By so holding we align ourselves with numerous other courts that have interpreted and applied the teachings of Robins.⁶

V.

A.

Faced with such formidable authority appellant argues that the district court mischaracterized its complaint as alleging negligent interference with contractual re-litigation — will likely insure that little of the limited pot will remain to succor late comers. lations.⁷ We disagree. The only injury appellant established before the district court was the payment of demurrage charges to several vessels that were delayed due to the FADI B’s extended stay at appellant’s pier. It is clear that appellant incurred these damages solely because of its contractual relations with the various vessels. Similarly, any incidental expense incurred by appellant in rescheduling those delayed vessels into its pier arose from obligations appellant assumed by contract. Appellant’s damages thus flow from its contractual duties; appellant has not established any damages arising by reason of its property right in the dock itself. Accordingly, the district court properly concluded that appellant’s claim was essentially one for negligent interference with performance of contracts. Construed as such, the claim falls squarely within the prohibition of Robins.

B.

Appellant also contends that the Robins rule does not apply because a special relationship existed between it and the FADI B. Apparently, appellant argues that the presence of the ship at the pier was an improper interference with appellant’s riparian rights. It argues that as an owner of riparian land it had the right of access to the navigable water immediately in front of its property and also a right of access to the whole body of navigable water connected with the water in front of this property; that although the riparian landowner does not own the water in front of his property and must share that water with the public, its right of access is a property interest that is an accessory to its land ownership. From these assertions appellant constructs the theory that it has suffered an invasion of this property interest by the negligence of the FADI B and that this invasion created liability.

However innovative this theory may be, certain observations are compelled. First, appellant did not clearly assert this theory in its complaint. Second, assuming the theory was properly pleaded, appellant does not contend that the alleged invasion was intentional, but concedes that it was negligent. Third, howsoever appellant describes the act of negligence, we are left with the brute fact that there was no physical damage to a person, chattel, or real property. Fourth, no persuasive court precedent or academic authority substantiates appellant’s theory of recovery under the circumstances presented here. We cannot conclude that the contention is consistent with or is coherent with the body of negligence law.

Additionally, the cases upon which appellant relies to support its riparian rights theory do not contradict the strong judicial precedent against recovery for purely economic harm where the cause of action sounds in negligence, as appellant’s complaint obviously does. Thus, in City of Philadelphia v. Standard Oil Co., 12 F.Supp. 647 (E.D.Pa.1934), aff'd 79 F.2d 764, cert. denied, 297 U.S. 705, 56 S.Ct. 443, 80 L.Ed. 992 (1935), the court held that a riparian landowner need not pay for the use of a retaining wall along the river where his land abutted after he dredged the river in front of the wall. 12 F.Supp. . This case turned on statutory construction, not riparian owner rights, and did not involve a negligent act. In City of Philadelphia v. Commonwealth, 284 Pa. 225, 130 A. 491 (1925), negligence also was not involved. The court simply decided that a state commission established to build a bridge across the Delaware River could appropriate — with just compensation — the property rights of riparian owners. Id., 130 A. at 493.

Appellant also mischaracterizes the holdings of several cases that it cites for support of its statement: “If a landowner’s riparian access is blocked, he has a cause of action against the offending party for whatever damages he can prove, be they economic or otherwise.” Brief for Appellant at 24. The cases cited either do not support this principle or can be distinguished from the issue presented here. See Sound Marine & Machine Corp. v. Westchester County, 100 F.2d 360 (2d Cir. 1938), cert. denied, 306 U.S. 642, 59 S.Ct. 582, 83 L.Ed. 1042 (1939), on remand 45 F.Supp. 980 (S.D.N.Y.1942) (diminished rental value of pier allowed as damage for improper placement of underwater pipeline; however, negligence not involved); United States v. Pennsylvania Salt Manufacturing Co., 30 F.2d 332 (3d Cir.1929) (court denied an injunction requested by the lessor of an adjoining pier to deny a wharf owner access to his wharf — court did not address economic damages); Kohlasch v. New York State Thruway Authority, 516 F.Supp. 769 (S.D.N.Y.1981) (court held statute of limitations barred any action for placement of pipeline — court did not discuss negligence or damages); In re Boat Demand, Inc., 174 F.Supp. 668 (D.Mass.1959) (economic damages for loss of use of pier allowed; however, case involved physical injury to both pier and buildings thereon); D'Albora v. Garcia, 144 So.2d 911 (La.Ct.App.1962) (court enforced an injunction barring one riparian owner’s intentionally blocking another’s use of a navigable canal — intentional conduct involved, court did not discuss economic damages). In The Jamaica, 51 F.2d 857 (W.D.N.Y.1926), on reh’g, 51 F.2d 858 (W.D.N.Y.1931), although the court allowed recovery by the owner of a steamer that was negligently blocked from exiting its slip, this case did not involve riparian rights and clearly goes against the weight of subsequent authority denying recovery for negligence without physical damage.

Finally, the only case which supports this theory for appellant’s recovery is Sinclair Refining Co. v. Smith, 13 F.2d 68 (5th Cir.1926). In that case, because the court allowed recovery for economic loss on the basis of negligence alone, the subsequent Supreme Court decision in Robins, a year later, and the more recent Fifth Circuit cases barring recovery under such circumstances have virtually eliminated any prece-dential value to its holding. See, e.g., M/V TESTBANK, 752 F.2d 1019. Therefore, even if appellant had proceeded under this theory in the district court, the result here would be the same.

VI.

At oral argument, appellant seemed to anchor its entire case on the theory of a negligent invasion of its proprietary interest in a riparian right. Near the conclusion of the argument the following colloquy took place between the court and counsel for appellant:

THE COURT: [I]f we do not accept your notion that there was a proprietary interest that was invaded, where are you?

MR. KEATING: I think if I have no proprietary interest, unless, your Honors wish to overrule Robins, I’m out of court.

Transcript of oral argument at 32. The short answer in this case is that a court of appeals has no power to overrule a decision of the Supreme Court. Moreover, we do not have any inclination to tinker with a long-standing rule that has received the support of the courts and the commentators.

The judgment of the district court will be affirmed.

1 . The vessels were scheduled to dock, and actually did dock, as follows: INTREPID, 1600 January 12, 1981-0510 January 14, 1981; OGDEN CHAMPION, 0800 January 14, 1981-0930 January 15, 1981; INTERSTATE 140, 1400 January 13, 1981-0810 January 17, 1981; ALABAMA GETTY, 2100 January 14, 1981-0155 January 20, 1981; TEXAS GETTY, 2200 January 15, 1981-0110 January 18, 1981; PENNSYLVANIA GETTY, 2300 January 16, 1981-1635 January 23, 1981; INTERSTATE 32, 2300 January 12, 1981 (diverted to another terminal); SOLVEIG, 0245 January 21, 1981-1820 January 25, 1981.

2 . Rule 41(b) provides, in relevant part:

After the plaintiff, in an action tried by the court without a jury, has completed the presentation of his evidence, the defendant, without waiving his right to offer evidence in the event the motion is not granted, may move for a dismissal on the ground that upon the facts and the law the plaintiff has shown no right to relief. The court as trier of the facts may then determine them and render judgment against the plaintiff or may decline to render any judgment until the close of all the evidence. If the court renders judgment on the merits against the plaintiff, the court shall make findings as provided in Rule 52(a).

3 . See, e.g., In re Kinsman Transit Co. (Kinsman II), 388 F.2d 821 (2d Cir.1968).

4 . See also Carpenter, Interference with Contractual Relations, 41 Harv.L.Rev. 728 (1928); Green, Relational Interests, 29 Ill.L.Rev. 1041 (1934-35), 30 Ill.L.Rev. 1, 2 (1935-36); Harper, Interference with Contractual Relations, 47 Nw. U.L.Rev. 873 (1953); James, Limitations on Liability for Economic Loss Caused by Negligence: A Pragmatic Appraisal, 25 Vand.L.Rev. 43 (1972).

5 . Obviously unsatisfied with where the bright line has been placed, the Second Circuit has attempted to create a new rule. In Petition of Kinsman Transit Co., 388 F.2d 821 (2d Cir.1968) (Kinsman II), the court was willing to depart from Robins and rely on a case-by-case application of proximate cause principles rather than the blanket bar. We unhesitatingly reject such an approach because it replaces a time-tested rule that sets out the law clearly and distinctly with what is in fact no rule at all. We embrace what Judge Gee of the Fifth Circuit stated in M/V TESTBANK:

The compensatory bucket may well be emptied by ... damages and expenses of litigation long before remote members are even in a position to line up for a compensatory drink. Even considering compensatory damages alone for early claimants, compassionate juries — keenly aware that large percentages of any awards that they make will go for individuals’ attorneys’ fees and other expenses of M/V TESTBANK, 752 F.2d at 1033 (Gee, J„ concurring).

6 . See M/V TESTBANK, 752 F.2d 1019; Akron Corp. v. M/T CANTIGNY, 706 F.2d 151 (5th Cir.), reh'g denied, 711 F.2d 1054 (5th Cir.1983); Hercules Carrier, Inc. v. Florida, 720 F.2d 1201 (11th Cir.1983), reh'g denied, 728 F.2d 1359 (11th Cir.1984); Kingston Shipping Co. v. Roberts, 667 F.2d 34 (11th Cir.), cert. denied, 458 U.S. 1108, 102 S.Ct. 3487, 73 L.Ed.2d 1369 (1982); In re Bethlehem Steel Corp., 631 F.2d 441 (6th Cir.1980), cert. denied, 450 U.S. 921, 101 S.Ct. 1370, 67 L.Ed.2d 349 (1981); Dick Meyer Towing Service, Inc. v. United States, 577 F.2d 1023 (5th Cir.1978), cert. denied, 440 U.S. 908, 99 S.Ct. 1215, 59 L.Ed.2d 455 (1979); In re S.C. Loveland Co., 170 F.Supp. 786 (E.D.Pa.1959).

7 . In its complaint, appellant alleged:

6. On or about January 12, 1981 the MT FADI B did berth at plaintiff's Delaware City Terminal to discharge a cargo of crude oil.

7. During the aforesaid discharge operation, the MT FADI B developed a crack in her hull, causing the discharge of the cargo to be substantially delayed.

8. The aforesaid crack was sustained as a result of the unseaworthiness of the MT FADI B and/or the negligence of her officers and crew.

9. As a result of the delay, plaintiff was deprived of the use of its terminal berth for a substantial period of time and was unable to accommodate at its terminal, as scheduled, several other vessels which were, as a result, then compelled to wait at anchorage pending the removal of the FADI B. Further, plaintiff was denied access to the navigable water of the Delaware River.

10. Plaintiff, as a result of defendants' actions has incurred demurrage charges and other damages presently estimated to be in excess of $600,000.

App. at 8-9.