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Getty Refining and Marketing Co. v. Mt Fadi B

decided: July 11, 1985.

GETTY REFINING AND MARKETING COMPANY, APPELLANT
v.
MT FADI B, HER ENGINES, TACKLE, APPAREL, FURNITURE, EQUIPMENT AND ALL OTHER NECESSARIES THERE UNTO APPERTAINING AND BELONGING IN REM AND FADI B SHIPPING CORP. IN PERSONAM



Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. Civil No. 81-0759).

Aldisert, Chief Judge, and Sloviter and Mansmann,*fn* Circuit Judges. Mansmann, Circuit Judge, dissenting.

Author: Aldisert

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, 72 L. Ed. 290, 48 S. Ct. 134 (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 her deck and side hull by the vessel's crew members, cargo discharg 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.*fn1 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.*fn2

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:

No 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 (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. 191, 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 profis, not because the loss of profits during repairs is not the direct consequence of the wrong, but because the common 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, recovery of lost profits was denied when a utility's electrical conduits were negligently damaged by defendant, 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 ยง 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 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,*fn3 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.*fn4

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.*fn5

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 ...


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