People Express Airlines, Inc. v. Consolidated Rail Corp.
100 N.J. 246, 495 A.2d 107 (1985)
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Rule of Law:
A defendant owes a duty of care to take reasonable measures to avoid the risk of causing purely economic damages to particular plaintiffs or an identifiable class of plaintiffs whom the defendant knows or has reason to know are likely to suffer such damages from its conduct, even in the absence of physical harm.
Facts:
- On July 22, 1981, a fire started in a freight yard owned by Consolidated Rail Corporation (Conrail) when ethylene oxide escaped from a tank car and ignited.
- The tank car was punctured during a 'coupling' operation with another rail car.
- The ethylene oxide was manufactured by BASF Wyandotte Company (BASF), and the tank car was owned by Union Tank Car Company (Union Car).
- Fearing an explosion from the highly volatile chemical, municipal authorities evacuated a one-mile radius around the fire.
- The evacuation zone included the North Terminal of Newark International Airport, where People Express Airlines based its operations.
- People Express was forced to evacuate its premises for twelve hours, but suffered no physical damage to its property or personal injury to its employees.
- As a result of the evacuation and business shutdown, People Express suffered economic losses from cancelled flights and lost reservations.
Procedural Posture:
- People Express Airlines sued Consolidated Rail Corporation and other defendants in the New Jersey state trial court.
- Defendant Conrail filed a motion for summary judgment, arguing economic loss was not recoverable in tort without property damage or personal injury.
- The trial court granted summary judgment for Conrail, and subsequently for the other defendants on the same grounds.
- Plaintiff People Express, as appellant, was granted leave to appeal to the Appellate Division.
- The Appellate Division reversed the trial court's grant of summary judgment, holding that recovery was not automatically barred.
- Defendant Union Car, as petitioner, sought and was granted certification by the Supreme Court of New Jersey, joined by the other defendants.
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Issue:
Does a defendant owe a duty of care to take reasonable measures to avoid the risk of causing purely economic damages to a plaintiff absent physical injury or property damage?
Opinions:
Majority - Handler, J.
Yes, a defendant owes a duty of care to prevent purely economic loss to particularly foreseeable plaintiffs, even without physical harm. The traditional per se rule barring recovery for purely economic loss absent physical harm is an artificial and unjust barrier to recovery. Concerns about limitless liability can be managed by a sedulous application of traditional tort concepts of duty and proximate cause, rather than by a rigid, arbitrary rule. A duty of care exists when a defendant knows or has reason to know that particular plaintiffs or an identifiable class of plaintiffs are likely to suffer economic damages from its conduct. This 'particular foreseeability' is more than general foreseeability; the class must be ascertainable in terms of the type of persons, the certainty of their presence, their approximate numbers, and the type of economic expectations disrupted. In this case, People Express was a particularly foreseeable plaintiff due to its close proximity to the railyard, the obvious nature of its airline operations, and the defendants' knowledge of the chemical's volatility, making the economic harm from an evacuation-causing accident foreseeable.
Analysis:
This decision marks a significant departure from the traditional common law 'economic loss rule,' which generally barred recovery in negligence for purely economic losses unaccompanied by physical injury or property damage. By rejecting this bright-line rule, the court established a more flexible, policy-based approach centered on 'particular foreseeability.' This holding expands potential tort liability for businesses whose negligence can cause foreseeable economic disruption to an identifiable class of nearby entities. The decision signals a shift from rigid formalism towards a fact-intensive analysis of duty and proximate cause, requiring future courts to carefully define the boundaries of this 'identifiable class' to avoid the 'limitless liability' the old rule was designed to prevent.
