author: Chief Judge Breitel.

text:
    Helias Doundoulakis et al., Respondents, v Town of Hempstead et al., Appellants-Respondents, and A. James De Bruin, Appellant.
    Argued May 4, 1977;
    decided September 9, 1977

      Morris Zweibel, Harold V. McCoy and Kathleen M. Beckett for Town of Hempstead, appellant.

      Joseph A. Bergadano, Vincent J. Zichello and Franklin A. Bonin for A. James De Bruin, appellant.

      Richard Bakalor for Gahagan Dredging Corporation, appellant.

      Richard Bakalor for Gahagan Dredging Corporation, respondent.

      Morris Zweibel, Harold V. McCoy and Kathleen Beckett for Town of Hempstead, respondent.

      William J. Steinbrecher for respondents.
   Chief Judge Breitel.

Plaintiffs, three separate owners of private homes built on filled sandy soil on the south shore of Long Island, brought separate actions, since consolidated, to recover for property damage. The damage, subsidence of their lands, was allegedly caused by a hydraulic landfilling project conducted by defendants, the Town of Hempstead, its contractor, and its design engineer, on 146 acres of swampy meadowland abutting plaintiffs’ homes.

Supreme Court, after jury trial, awarded plaintiffs Doundoulakis and D’Angelo judgment against the town, but set aside the verdicts and dismissed their complaints as against the engineer, De Bruin, and the contractor, Gahagan Dredging Corporation. With respect to the complaint of plaintiffs Silver, the verdict in their favor was set aside and their complaint dismissed in its entirety. From an order of the Appellate Division, one Justice dissenting, modifying the judgment to reinstate all of the plaintiffs’ verdicts, defendants appeal.

The pivotal issue is whether it was established that hydraulic dredging and landfilling, that is, the introduction by pressure of a continuous flood of massive quantities of sand and water, is, under the circumstances, an abnormally dangerous activity giving rise to strict liability. Subsidiary issues involve whether strict liability should be imposed on the contractor and design engineer engaged by the offending landowner and, if so, whether apportionment of relative liability can be had among defendants. Assuming that strict liability does not attach, a dependent issue would be whether the contention that defendants conducted the landfill operation incautiously was sufficiently supported to warrant submission of the issue of negligence to the jury. Other issues turn on the application of section 50-e of the General Municipal Law governing notices of claims, and interpretation of provisions for indemnification in the town’s agreement with its contractor.

Plaintiffs’ pleadings and theory of action were based on negligence in the handling of the landfilling project. The trial court, however, precluded submission to the jury of that issue and instead submitted the case on the theory, never raised by the parties, of "absolute” liability for harm caused by activity in the nature of trespass and dangerous use of abutting or adjacent property. The Appellate Division, in modifying, in effect sustained the trial court’s preclusion of the negligence issue and submission of the case on theories of strict liability. It extended liability, however, to all of the defendants. As a consequence, plaintiffs’ claims based on negligence have never been determined by a fact finder and, indeed, were expressly rejected by the trial court.

There should be a reversal and a new trial. Although the record suggests that hydraulic dredging and landfilling is not a "normal” activity, in the special sense in which the standard has been developed, the record is unsatisfactory to establish that the activity was in this case abnormally dangerous. A new trial is needed, however, to resolve the issue of negligence, the original basis for liability urged by plaintiffs, and to which the record is largely devoted, an issue never submitted to the jury. On such retrial, plaintiffs are also entitled to establish, if they can, that there is sufficient basis for recovery on a theory of strict liability.

Plaintiffs’ homes, constructed around 1961, were part of a housing development built on filled meadowland on Long Island’s south shore. Because it was bordered on the west by a navigable stream of water, Parsonage Creek, the property was bulkheaded. Immediately south of plaintiffs’ homes, and extending eastward, were 146 acres of marshland owned by the Town of Hempstead.

The town property, on which the town proposed to lay out a public park, was significantly lower in elevation than the filled land on which plaintiffs’ homes had been constructed. Building a public park required that one and one-half million cubic yards of sandfill be deposited on the 146 acres. Defendant De Bruin was engaged by the town to prepare the plans and specifications and to act as supervising engineer on the site. Gahagan Dredging Corporation was awarded the landfilling contract.

Starting on September 5, 1966, and continuing 24 hours a day, a dredged mix of 85% water and 15% sand was pumped, under pressure, onto the park site. Over two miles of pipe brought the mixture from the Jones Beach inlet. To impound the waters, dikes had been constructed around most of the landfill site. Settlement of the sand was accomplished and the level of water controlled by a system of exit weirs designed to discharge up to 40,000 gallons of water per minute.

Presumably in part because plaintiffs’ land was significantly higher in elevation than the land to be filled, no dike had been installed on the side of the landfill abutting plaintiffs’ homes. It also seems that a dike constructed along that border during the development of plaintiffs’ homes was believed still in place. In fact, however, part of that dike had been removed when a roadway was put in. And despite the system of exit weirs, a "lake” of over 50 acres in the area south of plaintiffs’ homes had accumulated as a result of the hydraulic landfill project.

On September 16, the eleventh day of the operation, the first sign of damage, a partial failure of the Doundoulakis bulkhead, was spotted. A further collapse of that bulkhead occurred five days later, the same day the D’Angelo bulkhead bowed out. Finally, in April, 1968, damage to the Silver bulkhead became manifest. Plaintiffs’ actions resulted.

Plaintiffs urge that subterranean percolation or seepage of the water from the landfill site raised the underground water table, thereby increasing the pressure and loosening the bulkhead anchorages. Defendants, on the other hand, attributed the collapse to the assertedly dilapidated and thus unstable condition of the bulkheads as well as an increase in pressure caused by heavy rainfalls.

Despite voluminous testimony on the issue of negligence, the trial court treated the hydraulic landfill project as an abnormal activity giving rise to "absolute” liability. Thus limited to the issue of proximate cause, the jury returned verdicts totaling $51,180 in favor of plaintiffs against all three defendants. For reasons not now material the trial court reduced the total verdicts by $15,007. As noted earlier, however, the verdicts against the dredging contractor and the consulting engineer were set aside so as not to extend responsibility for abnormally dangerous activities beyond offending landowners. In addition, the $6,000 verdict in favor of the Silver plaintiffs against the town was set aside for failure to serve the required notice of claim within the appointed time period (see General Municipal Law, § 50-e). At the Appellate Division a majority agreed that hydraulic dredging was an abnormally hazardous activity. The judgment was modified, however, to reinstate, subject to some reductions in amount, the Doundoulakis and D’Angelo verdicts against the contractor and the engineer and the Silvers’ verdict against the town, the contractor, and the engineer.

Imposing strict liability upon landowners who undertake abnormally dangerous activities is not uncommon (see, generally, Prosser, Torts [4th ed], § 78). The policy consideration may be simply put: those who engage in activity of sufficiently high risk of harm to others, especially where there are reasonable even if more costly alternatives, should bear the cost of harm caused the innocent (see Restatement, Torts 2d, § 519, Comment d; Spano v Perini Corp., 25 NY2d 11, 17, 18). Determining whether an activity is abnormally dangerous involves multiple factors. Analysis of no one factor is determinative. Moreover, even an activity abnormally dangerous under one set of circumstances is not necessarily abnormally dangerous for all occasions (see Restatement, Torts 2d, § 520, Comment f).

Guidelines, however, are identifiable. The many cases and authorities suggest the numerous factors to be weighed. Particularly useful are the six criteria listed in Restatement of Torts Second (§ 520): "(a) existence of a high degree of risk of some harm to the person, land or chattels of others; (b) likelihood that the harm that results from it will be great; (c) inability to eliminate the risk by the exercise of reasonable care; (d) extent to which the activity is not a matter of common usage; (e) inappropriateness of the activity to the place where it is carried on; and (f) extent to which its value to the community is outweighed by its dangerous attributes”.

Thus, what should be considered in determining whether an activity is abnormally dangerous is not the most difficult part of this case. Instead, the difficulty this court has had, in contrast to the courts below, is finding enough in the record to determine how the landfill method employed by defendants measures up to the various applicable factors.

There is little if any information, for example, of the degree to which hydraulic landfilling poses a risk of damage to neighboring properties. Nor is there data on the gravity of any such danger, or the extent to which the danger can be eliminated by reasonable care. Basic to the inquiry, but not to be found in the record, are the availability and relative cost, economic and otherwise, of alternative methods of landfilling. There are other Restatement factors, and perhaps still others, which the parties may develop as relevant, about which there is little or nothing in the record.

Yet, the case strongly suggests that strict liability treatment may be appropriate (cf. Sea Harbor Corp. v G & M Dredging Co., 105 NYS2d 497, 499; see, generally, Liability for Damages to Adjacent Land or Building Caused by Dredging, Ann., 62 ALR2d 526, § 4; Injury by Percolation or Seepage from Ponded Water, Ann., 38 ALR 1244). Writing for a majority of the Appellate Division, Mr. Justice Marcus G. Christ stated, succinctly and soundly, why strict liability might have been the proper standard for fixing defendants’ liability:

"From * * * review of the authorities there emerges a dominant theme, viz., that strict liability will be imposed upon those who engage in an activity which poses a great danger of invasion of the land of others. It matters little whether the force used is dynamite, gunpowder or pressure created by accumulating, massing and diverting large amounts of water by means of hydraulic pumps, pipes and impounding dikes, or whether the invasion is by objects projected by explosion, or water forced or diverted over the surface of the earth or forced underneath and through the earth. Often underlying these invasion-causing activities is a deliberate interference, distortion, wrenching or manipulation of natural forces, resources or equilibrium, frequently on a massive scale.

"At bar, the defendants transported (from a site miles from the plaintiffs’ homes), under pressure, continuously and in great quantities, waters from a site near a gate to the Atlantic Ocean, and deposited those waters virtually at the doorsteps of homes previously constructed on a filled-in meadowland. The transported water was impounded between dikes upon its arrival, and although the water was to be discharged through weirs into the bay, it was generally impounded long enough to allow the sand to settle. This operation created a Take’ of 50 to 70 acres in the immediate vicinity of the plaintiffs’ homes. Not surprisingly, the water percolated into the adjoining properties. The operations here were a far cry from the type of incidental changes of grade for which the defendant was held not liable in Kossoff v Rathgeb-Walsh (3 NY2d 583). There the defendant did not import the problem-causing 'diffused surface water’ to his property site; nor did he use leader pipes, drains or ditches, much less hydraulic pumps and an impounding dike system” (51 AD2d 302, 312-313).

It is not insignificant that alternative methods, perhaps more time-consuming and expensive but less dangerous, might have been available to defendants to accomplish the landfill. It may be significant that the edges of the south shore of Long Island are much like sandbars risen from the sea with the instability appropriate to that kind of land.

That the flood of water under pressure was not treated as abnormally dangerous in McLoone Metal Graphics v Robers Dredge, (58 Wis 2d 704, 711) is not too persuasive. The Wisconsin court expressly stated that it dealt not with the adjoining landowner, but, for what relevance that may have, with the construction firm alone (id., p 709). And, the corporate plaintiff there was not the owner of a small private home, but of a building "made of concrete block” (58 Wis 2d, p 706).

On the question of causation the testimony is voluminous. And to the issue of negligence, the theory on which plaintiffs tried the case, a great part of the record, as previously observed, was devoted. But on whether hydraulic dredging and landfilling should or may give rise to strict liability, as held by both courts below, there is little supporting evidence because, again, it was not the initial issue posed by the litigants. As indicated, a new trial is needed, in any event, so that the issue of negligence may be submitted to the jury. The parties, if they be so advised, should also have the opportunity on the new trial to offer proof and argument, guided by the appropriate criteria, whether the type of landfill operation in the circumstances was abnormally dangerous. The issue had been raised by the trial court, and not improperly. The appellate litigation has been devoted to it, and its resolution is essential to a just result in the case dependent on how the negligence issue is eventually resolved.

Should it appear on a new trial that, as a matter of law, a prima facie case for strict liability has been made out, the issue who besides the offending landowner may be liable must be resolved. As the Appellate Division noted, responsibility for abnormally dangerous activities is not attributable to landowners alone. In Spano v Perini Corp. (25 NY2d 11, supra), for instance, it was the blasting contractors engaged by the City of New York who were held responsible for injuring neighboring property. Similarly, the central roles of De Bruin, planner of the dredging project, and Gahagan, the contractor, justify imposition of strict liability because they were the actors through whose conduct harm was allegedly suffered by plaintiffs (see Restatement, Torts 2d, §§ 383, 384, 427A, Comment a; see, generally, 41 Am Jur 2d, Independent Contractors, § 48). Just as the landowner is responsible because for his own benefit he has chosen to engage in an activity of sufficiently high risk of harm to others, so, too, those who intentionally undertake or join in that abnormally dangerous activity must bear the consequences resulting from harm to others (but see McLoone Metal Graphics v Robers Dredge, 58 Wis 2d 704, 709-711, supra).

Also the cause of controversy below, and potentially an issue on a new trial, is whether joint actors strictly liable for abnormally dangerous activities may cross-claim for apportionment of relative culpability. Extended discussion is not needed. Since adoption of the new CPLR article 14 (L 1974, ch 742), equitable apportionment of damages may be claimed among "persons who are subject to liability for damages for the same * * * injury to property” (CPLR 1401). Nowhere is it required that the liability be predicated upon negligence (see Twentieth Ann Report of NY Judicial Conference, 1975, p 215; 2A Weinstein-Korn-Miller, NY Civ Prac, par 1401.13; McLaughlin, Practice Commentaries, McKinney’s Cons Laws of NY, Book 7B, CPLR 1401:3, p 362; see, also, Hughes v Ataka Amer., 48 AD2d 808; Noble v Deseo Shoe Corp., 41 AD2d 908, 909-910). In short, should the dredging operation be found abnormally dangerous, the cross claims of the codefendants stand.

No cause of action in strict liability having been proved, under normal circumstances the judgment in plaintiffs’ favor should have been reversed, and the matter ended. But plaintiffs, who pressed the issue of negligence throughout the trial, may not be deprived of their day in court on that issue because of the trial court’s conclusion that responsibility could be predicated on strict liability. This is true, of course, only if it is concluded that plaintiffs presented at least a prima facie case of negligence, and it is so concluded.

It is not for this court to weigh the conflicting evidence adduced by the parties. It is enough that in a record of more than 2,300 pages plaintiffs have presented some credible evidence of negligence, although the trial court thought otherwise (see 4 Weinstein-Korn-Miller, NY Civ Prac, par 4401.15, at p 44-15). There was proof, for example, that an insufficient number of exit weirs were installed. Moreover, the failure to build an impounding dike abutting plaintiffs’ property, or at least to verify that the old dike was still in place, was criticized as well. Upon a new trial, these issues of fact would have to be resolved if plaintiffs are to prevail on the theory of negligence.

Two additional points merit attention. The first concerns plaintiff Silvers’ failure to comply with the 90-day notice of claim requirement of section 50-e of the General Municipal Law. In September, 1966, shortly after the initial failure of the Doundoulakis bulkhead, but before the Silvers noticed any damage, the Silvers wrote defendant town that they would hold it accountable for any settlement of their property. An investigation by the town followed. It was not until April, 1968, however, after the landfill operation had been completed, that the first sign of damage to the Silver bulkheads appeared. At that point, another seven months went by until, on November 22, 1968, formal notice of claim was served on the town.

The Appellate Division incorrectly reinstated the Silver complaint against the town. The September, 1966 letter, sent some 18 months before damage to the Silver property became manifest and hence before any cause of action accrued, did not, nor could it, purport to meet the formal requirements of section 50-e. It is true that some courts have been lenient where a municipality has affirmatively created a hazardous condition (see, e.g., Muszynski v City of Buffalo, 33 AD2d 648, affd 29 NY2d 810; Lytwyn v Town of Wawarsing, 43 AD2d 618). But the requirement that formal notice be served within 90 days after a claim arises was not involved in those cases; at issue, instead, was a requirement that as a condition precedent to liability the municipality must have had notice of the defective condition (compare General Municipal Law, § 50-i, subd 1; § 50-e, subd 1, with e.g., Town Law, § 65-a, and General Municipal Law, § 50-e, subd 4). The town, perhaps confident that any defect in the landfill operation had been corrected after failure of the Doundoulakis and D’Angelo bulkheads in 1966, was entitled by statute to prompt notice of the Silver bulkhead collapse and the consequential harm while the claim was still fresh.

The disposition of the Silver complaint against the town does not affect it with respect to the contractor and the engineer. Should a claim for apportionment later arise, further problems will be entailed (see Twentieth Ann Report of NY Judicial Conference, 1975, p 217; Claim Against Municipality—Notice, Ann., 93 ALR2d 1385).

With respect to the town’s cross claim for contractual indemnity from defendant contractor, the relevant clauses are set forth in full in the opinion at the Appellate Division. The many alternative hypotheses as to what the proof on retrial may reveal, however, make further comment on the applicability of the indemnification provisions too speculative at this point. To be considered in ascertaining Gahagan’s liability for "loss or damage arising out of the nature of the work” would be, for example, whether in fact strict liability is involved. Also potentially significant is whether the system of operation designed by the engineer is found by the jury to have been foreseeably faulty. In short, the present record does not permit of appellate determination of how these issues should be resolved.

The parties raise various other issues which would be easily avoided upon a new trial by preparation in light of the contentions raised. It would be bootless to consider them in view of the turn the litigation now takes. They are therefore neither considered nor discussed. Moreover, the length of this discussion should not be protracted further.

Absent defendants having engaged intentionally in an abnormally dangerous activity or being negligent in the performance of the hydraulic landfill project, they may not be cast in damages. So, too, they may not be cast in damages if the dangerous activity or their negligence, as the case may be, was not the legal cause of the harm suffered by plaintiffs. Even in strict liability, as well as in negligence, defendants’ activity must have been the proximate cause of the harm suffered. Thus harm may have been caused through no fault of defendants, through no one’s fault, or because plaintiffs’ bulkheads were quite inadequate (unknown and perhaps unknowable to defendants) or negligently maintained.

With respect to strict liability it is not every dangerous activity which will establish liability. It is only when, under the circumstances, an activity is abnormally dangerous that the actors become legally responsible. But, as developed above, the parties never adequately explored the factors which would permit a proper determination of the nature of the activity. As for the negligence theory, plaintiffs never had their day in court. Consequently, although the futility of the effort and cost of the litigation thus far is regrettable, there is no judicial recourse except to require a new trial.

Accordingly, the order of the Appellate Division should be reversed, with costs to plaintiffs to abide the event, the Silver complaint against the town dismissed, and a new trial ordered with respect to all other claims and cross claims.

Judges Jasen, Gabrielli, Jones, Wachtler, Fuchsberg and Cooke concur.

Order reversed, etc.

       Also relevant to this appeal are various cross claims asserted among the codefendants. Those for apportionment of liability were dismissed by the Supreme Court, but reinstated at the Appellate Division. The contractor and the consulting engineer appeal. As to the cross claim brought by the town against the contractor for contractual indemnity, the town appeals from the Appellate Division’s affirmance of the Supreme Court’s dismissal.


source: Caselaw Access Project

author: Cooke, J.

license: Public Domain

text:
    ATI, Inc., Appellant, v Ruder & Finn, Inc., et al., Respondents.
    Argued August 29, 1977;
    decided October 6, 1977

      Gerald Alch, Walter Feldesman, Justin W. D'Atri, Stuart B. Newman and Kenneth I. Haber for appellant.

      Martin London, Simon H. Rifkind and Richard M. Zuckerman for respondents.
   Cooke, J.

The issue in this case arises in the context of a motion to dismiss on the grounds that the complaint fails to state a cause of action. Plaintiff is a contract packager primarily engaged in the manufacture and packaging of proprietary, household and pharmaceutical aerosol products. Basically, it is claimed that plaintiff suffered losses from adverse publicity concerning the use of aerosols and that defendants; through their public relations activities, intentionally caused these losses.

A description of each of the defendants is necessary to an understanding of plaintiff’s argument. Defendant Ruder & Finn is a public relations firm of which defendant Norman Weissman is senior vice-president. Defendant William Ruder is president of Ruder & Finn and was the founder of defendant PIPR, Inc., apparently a nonprofit organization formed to engage in public relations endeavors in the public interest. Ruder & Finn employs defendant Lynn Deming as an account executive and has sometimes loaned her services to PIPR. It bears commenting that, although the circumstances suggest varying degrees of responsibility, and as to some defendants perhaps no intention to harm, plaintiff’s pleadings are drafted in terms which, for the most part, ascribe the alleged intention to harm to all defendants.

Underlying this litigation is plaintiff’s allegation that starting in February, 1974 defendants engaged in a scheme and conspiracy to intimidate it into retaining Ruder & Finn to do public relations work to combat publicity centering around a theory linking fluorocarbon propellants used in certain aerosol products to the destruction of the earth’s ozone layer. Assuming this theory is proven, the concern is that depletion of the ozone layer through the use of aerosols will increase the amount of ultra violet radiation reaching the earth from the sun, the result of which would be significant increases in the incidence of skin cancer.

The adverse publicity concerning aerosol products stems at least partly from, and may even have originated with, the activities of the Natural Resources Defense Council, Inc. (NRDC), an organization seeking to protect the environment, which urged the Federal Consumer Products Safety Commission to ban the use of certain aerosol products. Defendant PIPR was retained by NRDC to promote NRDC’s position and, to this end, a press conference was organized to bring to the attention of the public the ozone depletion theory. Shortly thereafter, in connection with discussions concerning plaintiff’s possible retention of Ruder & Finn to combat adverse publicity, plaintiff’s president received a letter from William Ruder. The letter, which is almost entirely reproduced herein, speaks for itself:

"About a year ago I personally started a Public Interest PR firm which is a nonprofit organization known as PIPR, Inc. It is supported by a couple of foundations who have given us money to work on three accounts. One is the Natural Resources Defense Council (in connection with their work in the atomic and nuclear energy field) * * *.

"Through a whole series of circumstances, NRDC got involved in this aerosol situation and asked PIPR to help. We loaned Lynn Deming from the Ruder & Finn staff to them to help put on that press conference.

"The net result of all of this is that we are about as close to NRDC and this new thing that they have taken on (which is really beyond our original charter) as anybody can be. It would seem to me that this' would be about as useful a relationship to you and your associates in the aerosol industry as possible, simply because of my dual relationship (90% with Ruder & Finn and 10% with PIPR) and that we really could function as a membrane through which some reasonable and thoughtful communications could take place, rather than permit NRDC to square off on an uninformed basis at whatever target might be in sight. Once or twice this exact situation has arisen between Nader and Coca-Cola in respect to the caffeine situation, and simply because of my relationship with both I have arranged several marvelously productive sessions between Ralph and Paul Austin that resulted in Ralph understanding the situation—backing off, and nothing coming out in the public press.

"In this crazy society one of the key things is to get people to start acting reasonably and putting them into meaningful communications rather than underwriting 'hollering matches.’ "I want to emphasize that PIPR has an entirely separate and public Board of Directors. It is not part of Ruder & Finn. I give it a little bit of time and occasionally Ruder & Finn lends it personnel. That’s about the whole story as honestly and as straight as I can give it to you.”

Ruder & Finn was not retained by plaintiff which thereafter suffered substantial losses resulting from a decline in sales of aerosol products. Plaintiff commenced this action, seeking six million dollars in consequential damages and six million in punitive damages, alleging that its losses result from the activities of the defendants in furtherance of the scheme and conspiracy to intimidate it to retain Ruder & Finn and the continued harassment of the aerosol industry by PIPR and NRDC. It should be noted that plaintiff is not seeking damages in respect to fees it never paid but rather is seeking to recoup losses allegedly resulting from public concern over the use of aerosols.

Special Term construed the pleadings as purporting to frame four possible theories of recovery (conspiracy, duress, defamation and prima facie tort) and, rejecting each of these, dismissed the complaint for failure to state a cause of action. Leave to replead was also denied, and the Appellate Division affirmed on the opinion of Special Term.

Before this court, plaintiff argues that its complaint, or an amended complaint, states a valid cause of action for prima facie tort and that dismissal of the action under CPLR 3211 (subd [a], par 7) was premature. For the reasons that follow, we reject these arguments.

It is well established that one may recover for injury resulting from what has been styled a "prima facie tort” (see, e.g., Advance Music Corp. v American Tobacco Co., 296 NY 79; Opera on Tour v Weber, 285 NY 348). In this country, this tort evolved from the principle, expressed by Mr. Justice Holmes, that "prima facie, the intentional infliction of temporal damage is a cause of action, which * * * requires a justification if the defendant is to escape” (Aikens v Wisconsin, 195 US 194, 204). The concept has developed since then and it has been commented that "[t]he key to the prima facie tort is the infliction of intentional harm, resulting in damage, without excuse or justification, by an act or a series of acts which would otherwise be lawful” (Ruza v Ruza, 286 App Div 767, 769; see, e.g., Board of Educ. v Farmingdale Classroom Teachers Assn., Local 1889, AFT AFL-CIO, 38 NY2d 397, 405-406). Further, an essential element of the cause of action is an allegation of special damages (see Nichols v Item Publishers, 309 NY 596, 602; Knapp Engraving Co. v Keystone Photo Engraving Corp., 1 AD2d 170).

Although the complaint fails to allege special damages, and hence plaintiff has sought to amend its pleadings, it is our view that there is a failure to state a cause of action even in the amended complaint sought to be interposed. Viewing the complaints most favorably to plaintiff, we conclude that the defects are more than those of pleading since the alleged conduct of defendants simply does not constitute the tort of intentional harm without excuse or justification.

Seeking to fit defendants’ conduct within the principles of intentional tort, plaintiff focuses on its allegation that defendants’ purpose was to obtain a fee from plaintiff to combat adverse publicity by first mounting their own public relations campaign against its product. Further, explaining the thrust of its allegations, plaintiff asserts that the question is not whether NRDC (not a defendant here) was justified in espousing the alleged dangers of aerosols but whether defendants can be deemed justified in using the cause of NRDC in furtherance of the alleged purpose of coercing plaintiff to pay substantial sums of money in order to get defendants to "back off”.

Plaintiff’s manner of viewing its own allegations neglects other aspects of the situation in which it finds itself. For example, it is noteworthy that plaintiff’s losses, assuming such to have resulted from adverse publicity, were proximately caused by a third party, NRDC, which is not a defendant in this action. In this respect, lamenting that its action was dismissed in the courts below prior to any pretrial discovery, plaintiff asserts that through discovery it may yet be able to prove that the representation of NRDC was a mere sham to disguise defendants’ true purpose and that it was in fact PIPR that got NRDC into the ozone controversy in the first place and not the other way around. It is asserted that discovering these facts would help on trial to establish the absence of excuse or justification. Assuming even these facts, however, still more is needed to establish plaintiff’s case.

Even if it be true that at least some of the defendants intended to harm plaintiff, and that to this end defendants caused NRDC to become involved in this controversy, to determine if this includes the elements of the tort of intentional harm, there remains the question of whether their conduct is without excuse or justification. Of course, one can always advance an explanation for one’s conduct but, in this type of case, it must be an excuse or justification which the law will recognize (Advance Music Corp. v American Tobacco Co., 296 NY 79, 85, supra; compare Beardsley v Kilmer, 236 NY 80, with American Bank & Trust Co. v Federal Bank, 256 US 350). Underlying the question of excuse or justification, it has been noted, is the question of whether the public’s gain outweighs the harm to another (see Prima Facie Tort, Ann., 16 ALR3d 1191, 1220-1227).

In the instant matter, whatever the ultimate conclusion in the scientific community, there were at least some scientists who subscribed to the ozone depletion theory espoused by NRDC. Federal regulations were proposed, and, since a potential health hazard was recognized, a social justification is apparent even if it is someday conclusively determined that NRDC’s views were incorrect. Nevertheless, plaintiff asserts that this is not a justification for defendants’ conduct since defendants were not, it is alleged, motivated by the public interest.

This assertion by plaintiff should be rejected. The motivation plaintiff ascribes to defendants, malicious as it may be, has not been recognized as actionable in circumstances where allegations of possible wrongdoing are acted upon by government agencies (see Brandt v Winchell, 3 NY2d 628, 634-635; cf. Al Raschid v News Syndicate Co., 265 NY 1). The same principle should apply here for, while no one suggests that plaintiff knowingly manufactured a product the use of which may be harmful, it may be necessary to ignore the motivation of some or all of the defendants in favor of the need to explore the situation. Put otherwise, since use of plaintiff’s product may be injurious, that perhaps some defendants were motivated to harm plaintiff by alerting the public as to the potential hazard does not require a conclusion that these defendants’ conduct is without justification. Whatever defendants’ motivation, the net effect is that various agencies of government, which are presumed to have acted properly, found a reasonable basis for concluding that aerosols may damage the environment and this must be deemed a justification which the law will recognize.

Whether our conclusion is premised on a desire to prevent law suits such as this from discouraging others from alerting the public to the dangers of a product, or simply to prevent the makers of a potentially harmful product from attempting to recover their losses resulting from public awareness by claiming that the "gadfly” was motivated by ill will, the answer is that plaintiff cannot recover in this action. Indeed, the harm to plaintiff, as noted in its pleadings, is one to the entire aerosol industry and, hence, for that reason alone should not be actionable (cf. Oma v Hillman Periodicals, 281 App Div 240, 242). Further, as between the public and plaintiff’s industry, the greater injustice is to the public if controversies such as this are not expeditiously considered and acted upon by all concerned.

The court, of course, does not condone the conduct or motives manifested by some of the defendants as averred in this matter. While those engaged in public relations will often be hired to combat adverse publicity, one can understand the reaction of a plaintiff upon learning that a public relations firm, which somehow became "involved” in a matter of social concern that nonetheless threatened to destroy plaintiffs business, would offer to try to limit the public’s awareness, for a fee. Nevertheless, for the reasons stated, we hold that defendants’ involvement in a publicity campaign alerting the public to the potential harm resulting from the use of plaintiffs product does not state a cause of action for intentional tort. However morally reprehensible the asserted conduct of some of the defendants may be considered to be, it is not actionable in the courts, and hence plaintiffs complaint is insufficient as a matter of law.

In conclusion, it is noted that "leave to plead again shall not be granted unless the court is satisfied that the opposing party has good ground to support his cause of action” (CPLR 3211, subd [e]). Under these circumstances, Special Term correctly concluded that leave to replead was not warranted. Finally, it is commented that plaintiff’s reliance on Rovello v Oroñno Realty Co. (40 NY2d 633) is misplaced. That case is distinguishable because, as discussed, the complaint is not sufficient on its face, and, as a matter of law, there is no reasonable possibility that plaintiff will prevail on the merits. The motion to dismiss was therefore properly granted.

Accordingly, the order of the Appellate Division should be affirmed, with costs.

Chief Judge Breitel and Judges Jasen, Gabrielli, Jones, Wachtler and Fuchsberg concur.

Order affirmed.


text:
    In the Matter of St. Lawrence Gas Company, Inc., Appellant, v Public Service Commission of the State of New York, Respondent.
    Argued August 31, 1977;
    decided October 6, 1977

      Lawrence X. Dalton for appellant.

      Peter H. Schiff and Charles R. Gibson for respondent.
   Cooke, J.

In this article 78 proceeding, petitioner, St. Lawrence Gas Company, Inc., seeks to set aside that part of a Public Service Commission (PSC) order which rejected a "going value” adjustment, which would have added to petitioner’s rate base the sum of $3,116,454.

The adjustment sought involves "development costs” incurred beginning in 1962 when it commenced service as a public utility. These costs apparently resulted from the fact that petitioner, while still a new utility, felt compelled to establish rates for natural gas which would be competitive with the price of oil, but which were below the industry norm for the period involved. According to petitioner, its rates for those years were not designed to produce an adequate return, and the rate adjustment sought here is designed to require present customers to make up for the past revenue deficiencies resulting from its earlier competitive pricing policies. It is noteworthy that, as determined by the hearing examiner, the rates established by petitioner were anticipated, in the third year of operations, to be lower than rates proposed by Niagara Mohawk Power Corporation, which contested petitioner’s application for a certificate of public convenience and necessity, and that petitioner’s lower rates were a factor in the decision granting it said certificate.

The hearing examiner, after noting the PSC’s opposition, both on a theoretical basis and on the ground that the amount sought is overstated, denied the going value adjustment but did recommend an increase in the rate of return of over $620,000 annually. In rejecting the full adjustment sought, the examiner concluded that "a 'going value’ adjustment is nothing more than an euphemism for retroactive ratemaking”.

The PSC, expressing approval of the hearing examiner’s characterization of petitioner’s going value adjustment claim, agreed that petitioner’s request was nothing more than an attempt to recoup low earnings in earlier years and concluded that present ratepayers should not be required to pay more because the rates charged by petitioner in the past produced returns below some claimed norm for the industry. Thereafter, Special Term dismissed petitioner’s application to annul the order of the PSC insofar as it rejected a going value adjustment to petitioner’s rate base, and the Appellate Division affirmed. We granted leave to appeal to this court.

There should be an affirmance. If a gas utility proposes to increase its rates, the burden is on it to show that the proposed rate is just and reasonable (Public Service Law, § 72). In the instant matter, petitioner has failed to meet its burden. Both sides presented extensive testimony and, considerations of the going value adjustment aside, there has been no demonstration that the authorized increase of over $620,000 in annual revenues is unjust or unreasonable from the point of view of petitioner. However, while a determination that the statutory standard has been satisfied ordinarily ends the matter, further comment is warranted regarding the concept of a "going value” adjustment.

As noted by the PSC in its opinion below in this matter, " '[gjoing value’ has been defined as the difference in value between a business in successful operation and the cost of the assembled plant not yet in full operation.” The controversy in this proceeding concerned the question of whether a going value adjustment may be used to take into account the fact that in the early years of operation of a new utility, in order to attract customers, it is sometimes necessary to charge rates which do not produce an adequate return to the utility, and hence to its investors. To the extent that the discussion in the proceedings below may suggest that the PSC is of the view that in all instances this type of loss may not be recouped by a utility, we here register our disagreement with this view.

When a utility introduces a new service into an area, it bestows a benefit on the denizens of the region in return for rates which will adequately compensate investors and attract whatever capital is necessary to continue service. The question of whether a rate is just and reasonable must, of necessity, strike a balance between the interests of the consumer and those who invest in the utilities (Power Comm, v Hope Gas Co., 320 US 591, 603). Ordinarily, this determination will not concern rates imposed in prior years. In some instances, however, if a new utility attempted to set rates high enough to cover its initial costs, it would be unable to attract customers and consequently the service would not become available. In such an instance, it may be necessary, as well as just and reasonable, to charge a portion of these initial costs to later users (see 1 Kahn, Economics of Regulation [1970], p 113, n 73, for a discussion of this principle with respect to rates set by Comsat [the Communications Satellite Corporation]). In the same fashion, for the reason that future customers also benefit from start-up expenses, it may sometimes be just and reasonable to allow new enterprises to recover high initial costs at a later time (see id., at pp 121-122).

Since the petitioner here failed to demonstrate that the rate set was unjust or unreasonable, there is no need to determine whether the going value adjustment should have been allowed. It bears mentioning, however, that a strong argument may be made that the type of losses incurred by petitioner would not in any event be recoverable from present customers. Indeed, there is a difference between introducing rates which are designed to make a service initially affordable and rates which are fixed with the idea of driving out competition. Since the facts adduced below manifest that petitioner was simply competing with others, considerations of fairness would mandate a conclusion that these losses should not be borne by consumers.

In concluding, we do not subscribe to the broad statement that the Supreme Court has overruled the doctrine of People ex rel. Kings County Light. Co. v Willcox (210 NY 479). When, in Power Comm, v Hope Gas Co. (320 US 591, 602, supra), the court explained that the commission was not bound to the use of reproduction cost or any particular prescribed formula to determine rates, it did not reject any method provided that the result reached is just and reasonable (see Matter of New York Tel. Co. v Public Serv. Comm., 309 NY 569, 576). Moreover, since the decision in Hope Gas Co. (supra) changed the standard for fixing rates, little reliance may be placed on cases (decided prior to that decision) which reasoned that since past losses do not tend to prove present value they may not be included in the rate base for the purpose of determining whether a rate is confiscatory. In those earlier cases the Supreme Court was not faced with the precise question here, and hence the decisions should not be read as precluding in all instances consideration of these losses in determining whether a rate charged is just and reasonable (cf. Galveston Elec. Co. v Galveston, 258 US 388, esp 396). Of course the utility is not guaranteed a profit and generally its investors run the risk of losses in the same way as any other investor in a private business. For example, the utility’s customers should not bear the cost of inefficient management or poor planning (see 210 NY, at pp 491-492). Nevertheless, in order to fix rates that compensate investors for the risks assumed (see 320 US, at p 605), in some instances a proper determination of what is just and reasonable will require consideration of a new utility’s losses resulting from the rates charged in the early years of operation. These considerations aside, the order of the Appellate Division should be affirmed, with costs.

Chief Judge Breitel and Judges Jasen, Gabrielli, Jones, Wachtler and Fuchsberg concur.

Order affirmed.


author: Jones, J.

text:
    The People of the State of New York, Respondent, v Paul Singleton, Appellant.
    Submitted September 1, 1977;
    decided October 11, 1977

      Martin L. Schmukler, for appellant.

      Denis Dillon, District Attorney (William C. Donnino and Anthony J. Girese of counsel), for respondent.
   Jones, J.

We hold that the trial court properly determined that defendant was entitled to a disclosure of the identity of the informer in the circumstances of this case and that the indictment was properly dismissed in the interest of justice when the People elected not to make such disclosure. Additionally the constitutional prohibition against double jeopardy would mandate reinstatement of the order dismissing the indictment.

With the assistance of a confidential informer, two undercover police officers set up a prearranged meeting for the purchase of $1,000 of heroin from one Gregory Bruce, known to the police to be a seller. As arranged, the meeting took place at a shopping center at 9:00 p.m. When the police and the informer met Bruce at the appointed place, defendant and Bruce’s cousin were also found to be present. Neither defendant nor the cousin had previously been known to either undercover officer or to the informer, and the prearrangements had not contemplated their participation or presence. One of the officers asked Bruce whether he had the heroin. It was the officer’s testimony that when Bruce responded in the affirmative defendant removed his hat and held it out across his chest toward Bruce, whereupon Bruce reached in and took a package (later proved to contain heroin) out of defendant’s hat. Bruce immediately took off his own ski cap and placed the package in the ski cap. Bruce then proceeded with the two undercover officers and the informer to the informer’s car to make delivery and to close the transaction. Defendant told Bruce to get the money while he went to call a cab. The police officer tasted a bit of the white substance in the package and then told his fellow officer to get the money from the trunk of the car. The insertion of the key in the trunk was the prearranged signal on which detectives staked out nearby closed in, took possession of the package of heroin, and arrested both undercover officers, the informer, Bruce, his cousin and defendant.

At trial much attention and controversy focused on the undercover officers’ testimony on the witness stand that defendant had removed his hat and held it out to Bruce and that Bruce had withdrawn the heroin package from that hat. The notes made by one of the officers the night of the arrest contained no mention of any hat, or that defendant had taken his hat off or held it out to Bruce, or that Bruce had obtained the package of heroin from defendant’s hat. The only other written report, prepared by the same officer some five weeks later, similarly included no reference to the events of the hat. The People offered no other evidence of any offer to sell on the part of defendant.

In these circumstances we conclude that it was not error as a matter of law under the rule enunciated in People v Goggins (34 NY2d 163) for the Trial Judge to have directed the disclosure of the identity of the informer. The informer was present and an eyewitness to the entire transaction on which the charge against defendant was based; indeed the transaction was closed in his automobile. It is true that the particular crucial factual issue in Goggins was the identification of the defendant. But it was not intended that the rule should be restricted to matters of identification only. The principle recognized is of broader import—"the truly crucial factor in every case is the relevance of the informer’s testimony to the guilt or innocence of the accused” (34 NY2d, at p 170).

In the case now before us defendant’s guilt hinged on determination that the events of the hat had in fact occurred as the People claimed. Thus, whether defendant was merely a bystander or an active participant in the sale of the heroin depended entirely on acceptance of the undercover officers’ testimony with respect to the events of the hat. This evidence was first elicited on the witness stand and had not been contained in either of the contemporaneous written police reports. There was no other proof of any conversations or nonverbal acts which might be deemed to constitute an offer to sell emanating from defendant. Nor was there any other evidence that defendant had provided the heroin. The particular issue with respect to the events of the hat could scarcely have been more crucial to a determination of defendant’s guilt or innocence.

There are evident weighty considerations countervailing against disclosure of the identity of police informers (cf. People v Goggins, 34 NY2d 163, 176 [dissenting opn], supra; People v Darden, 34 NY2d 177, 181-182). That this was so in this case must be concluded from the fact that the prosecutor here elected to abandon the case rather than to make disclosure. It is thus appropriate in balancing the legitimate interests of this defendant and the competing, broad interests of the State, to consider not only the critical significance of the particular issue on which testimony is sought from this informer, but also to appraise defendant’s predicament and the availability of alternative means open to him to establish his innocence. It is not conclusive against disclosure, however, to note that on the witness stand both undercover officers gave identical testimony as to the events of the hat or that defendant himself could have taken the stand and thus have created a one-on-two issue of credibility. It would be relevant and highly material, on the other hand, if the subject matter testimony which defendant sought to elicit from the informer might also have been obtained from other witnesses, a demonstration not made or attempted by the prosecutor. Although both Bruce and his cousin were eyewitnesses to the transaction, the prosecutor in the trial court did not urge the availability of such testimony as grounds for denying disclosure of the identity of the informer. While the record does not reveal the details, it appears that Bruce had been charged with and pleaded guilty to a narcotics charge arising out of this same transaction. Note was taken that he might exercise his constitutional right to refuse to testify. Nor could defense counsel be expected to derive any solid solace from the possibility of testimony from Bruce’s cousin, if indeed the cousin was available at the time of trial, a circumstance not disclosed on the record before us. In any event it cannot be said that there were available to defendant such alternative sources of the relevant evidence as to warrant protection of the anonymity of the informer in this case (cf. Roviaro v United States, 353 US 53). Disclosure of the identity of the informer was essential to a fair trial.

For the reasons stated, we conclude that it was not error for the Trial Judge, with the added advantages of evaluation which always attend at that level, to have directed disclosure of the identity of this informer.

We next hold that it was error for the Appellate Division to have concluded that in dismissing the indictment in the interest of justice there was such failure to comply with the requirements of CPL 210.40 and 210.45 as to constitute reversible error. Presumably the reference to these sections refers to the requirements that a motion to dismiss an indictment such as that made here must be made in writing and upon reasonable notice to the People and that a hearing be held. We find no procedural error in the trial court’s disposition of defendant’s motion to dismiss the indictment. The application for disclosure of the identity of the informer was first made during the course of the testimony of the People’s first witness, one of the two undercover officers. At that time the application was denied as premature with leave to renew. At the conclusion of the testimony of both undercover officers the application was renewed. There followed colloquy between the Trial Judge and both counsel with reference to disclosure procedures, and the record reveals extensive argumentation and consideration of the right of defendant to the disclosure. Finally the Trial Judge directed the prosecutor to produce the informer for an in camera examination by the court. When the prosecutor declined to comply with the direction of the court, defense counsel moved to dismiss the indictment in the interest of justice, and the trial court granted the motion. No contention was then made by the prosecutor that the motion was not in writing, or that he had not been given reasonable notice or an opportunity to be heard; nor did he request the formality of-any further hearing. We perceive no aspect in which the procedural rights of the People were in any way prejudiced by the sensible and wholly understandable manner in which the Trial Judge disposed of defendant’s motion to dismiss.

The order of the Appellate Division should be reversed and the order dismissing the indictment reinstated.

Chief Judge Breitel and Judges Jasen, Gabrielli, Wachtler, Fuchsberg and Cooke concur.

Order reversed and the order of Nassau County Court reinstated.

      . The correctness of the procedural determination at the Appellate Division is not addressed by the People on the appeal before us.

      . If we were to dispose of this appeal on the basis of the constitutional proscription against double jeopardy, we would remit the case to the Appellate Division with directions that the appeal to that court be dismissed (People v Casiel, 41 NY2d 945; cf. People v Brown, 40 NY2d 381, cert den 433 US 913, mot for rearg den 42 NY2d 1015).


text:
    In the Matter of First National Bank of East Islip, Appellant, v Mahlon Brower, as Clerk of the First District Court of the County of Nassau, Respondent.
    Argued September 6, 1977;
    decided October 11, 1977

      Maitland M. Axelrod for appellant.

      William Gitelman, County Attorney (William S. Narden, Natale C. Tedone and Matthew A. Tedone of counsel), for respondent.
   Jones, J.

We uphold the validity of a court-promulgated directive that allowance of attorneys’ fees on the entry of default judgments shall be determined on a quantum meruit basis rather than by mechanical application of a blanket formula contained in the agreement between the creditor and the debtor.

On November 19, 1975 at the direction of the Administrative Judge of the Nassau County Courts, the Chief Clerk of the District Court of Nassau County issued a directive to the various district court clerks that no default judgment containing an allowance for attorneys’ fees was thereafter to be entered until there had been an inquest by the court to assess the proper amount of the fee in the particular case. Thereafter, following a conference between the Administrative Judge and the leading collection attorneys in Nassau County, a revised directive of the same import was issued by the Chief Clerk on January 23, 1976.

In February, 1966 retained attorneys for appellant bank presented the appropriate supporting papers for entry of a default judgment in the amount of $135.32 based on a motor vehicle retail installment contract. In reliance on an express provision of that contract, the proposed default judgment included a claim for attorneys’ fees in an amount equal to 15% of the unpaid balance, or $20.29. The Clerk of the First District Court of Nassau County, pursuant to the previously issued directives, refused to enter a default judgment containing a claim for attorneys’ fees without an inquest before the court. The bank thereupon instituted the present proceeding under CPLR article 78 for a judgment in the nature of mandamus directing the clerk to enter a default judgment, including attorneys’ fees, as requested. Supreme Court denied the relief requested and dismissed the petition. The Appellate Division affirmed unamimously and granted leave to appeal to our court. We now affirm the dispositions below.

As stated at Special Term, "[t]he attorney for the petitioner concedes that the Court can direct an inquest as to the reasonable value of the attorneys’ fees where an answer has been interposed, and the attorneys’ fees are requested either on a motion for summary judgment or during the course of a trial.” It is the bank’s narrower contention in this case that such procedure is not authorized with respect to the entry of a default judgment under CPLR 3215 (subd [a]) based on a retail installment contract under the Motor Vehicle Retail Instalment Sales Act (Personal Property Law, art 9). Specifically reliance is placed on subdivision 7 of section 302 of the Personal Property Law which provides in pertinent part: "In addition to such delinquency and collection charge, the retail instalment contract may provide for the payment of attorney’s fees not exceeding fifteen percent of the amount due and payable under such contract where such contract is referred to an attorney not a salaried employee of the holder of the contract for collection, plus the court costs.” The bank submits that this sentence constitutes specific statutory authorization for the contract provision in question and that the buyer’s default is tantamount to an admission of all of the allegations of the complaint, including the agreement to pay the statutorily authorized 15% attorneys’ fees. We reject the bank’s position.

At the outset there should be recognition of the traditional authority of the courts to supervise the charging of fees for legal services under the courts’ inherent and statutory power to regulate the practice of law (Gair v Peck, 6 NY2d 97; cf. Judiciary Law, §§ 53, 90, art 15). We perceive no sufficient reason for observing the difference that the bank urges between the determination of attorneys’ fees in contested matters and on default. Beyond the court’s inherent power to supervise the charging of legal fees, we have recently had occasion, in considering an express agreement between creditor and debtor purporting to fix attorneys’ fees, to recognize the strong public policy of our State which condemns the contractual imposition of a penalty (Equitable Lbr. Corp. v IPA Land Dev. Corp., 38 NY2d 516).

The present court rule does not foreclose the collection of a 15% attorney’s fee. In essence it requires only that there be an appropriate demonstration that the quantity and quality of legal services actually rendered are such as to warrant, on a quantum meruit basis, that full percentage. If not, the fee will be fixed by the court at a proper figure on the same basis. It is evident that the reasonable value of legal services rendered incident to the recovery of a default judgment will not automatically and always be equal to 15%, or indeed to any other percentage, of the amount of the indebtedness being collected.

To uphold the directive of the court in this instance does not operate to eviscerate subdivision 7 of section 302 of the Personal Property Law. It leaves undisturbed the proscription of that statute that the agreement for payment of attorneys may not exceed 15% and the prescription that the fees must be those charged by an outside attorney other than a salaried employee of the creditor. In effect we read the section as authorizing an agreement between creditor and debtor that the latter will pay reasonable attorneys’ fees not exceeding 15%. We do not read the statute, at least in the absence of explicit provision, as either ousting the courts of their authority to supervise the charging of attorneys’ fees or as reversing our State’s strong public policy against the private imposition of penalties.

For the reasons stated, the order of the Appellate Division should be affirmed, with costs.

Chief Judge Breitel and Judges Jasen, Gabrielli, Wachtler, Fuchsberg and Cooke concur.

Order affirmed.

       The promissory instrument in question, evidencing the buyer’s agreement to repay a loan made to cover the purchase price of a Volkswagen camper, included the following provision in paragraph 11: "the Buyer agrees to pay an attorney’s fee of fifteen percent (15%) of the amount due and payable under this contract when same is referred to an attorney, not a salaried employee of the holder for collection, plus the court costs.”


text:
    Laura Margolies et al., Respondents, v Encounter, Inc., Appellant, et al., Defendant.
    Argued September 8, 1977;
    decided October 11, 1977

      Maurice A. Reichman for appellant.

      Roy M. Cohn, Michael Rosen and Ronald F. Poepplein for respondent.
   Jones, J.

We hold that the purpose and function of an undertaking given by a plaintiff pursuant to the provisions of CPLR 6312 (subd [b]), prior to the granting of a preliminary injunction, is to reimburse the defendant for damages sustained if it is later finally determined that the preliminary injunction was erroneously granted.

Encounter, Inc., defendant-appellant, is an organization chartered by the New York State Drug Abuse Control Commission to provide residential and ambulatory services for drug dependent persons. On March 1, 1974, in accordance with commission approval, Encounter moved its facilities from Brooklyn to a building located on East 68th Street in Manhattan. Plaintiffs-respondents, tenants of the building and a neighborhood association, instituted the present action against Encounter and the owner of the building seeking a permanent injunction restraining Encounter from taking possession of the leased premises.

Supreme Court on May 17, 1974 granted plaintiffs’ motion for a preliminary injunction, conditioned on plaintiffs’ posting an undertaking in the amount of $10,000 pursuant to the provisions of CPLR 6312 (subd [b]), and denied defendants’ cross motion to dismiss the complaint. The undertaking was posted and Encounter vacated the premises. On appeal, on July 2, 1974 the Appellate Division modified by vacating the preliminary injunction but affirmed the denial of the cross motion to dismiss the complaint. Encounter then moved back into the premises. Eight months later, after the New York City Addiction Services Administration had recommended discontinuance of Éncounter’s program at the East 68th Street facility, in February, 1975 Encounter vacated the premises before plaintiffs had placed the injunction action on the Trial Calendar.

Plaintiffs then moved for an order discontinuing the action and discharging their undertaking. Encounter consented to and joined in the request for a discontinuance, but opposed the application for discharge of the undertaking. On June 8, 1975 Supreme Court denied the application for discharge of the undertaking but discontinued the action without prejudice to Encounter’s rights, if any, to claim damages on the undertaking. Encounter then moved under CPLR 6315 for ascertainment of damages to which it was entitled under the undertaking. This motion was consolidated with a second motion by plaintiffs to discharge the undertaking. On November 13, 1975 Special Term directed a reference to determine whether Encounter had in fact sustained damages and held the motion for discharge in abeyance pending the filing of the referee’s report and final disposition of the motion for ascertainment of damages. In June, 1976 the special referee found that Encounter had in fact sustained damages in excess of the $10,000 undertaking but reported that as a matter of law it was not entitled to recover such damages because there had been no final determination that plaintiffs were not entitled to an injunction. On October 8, 1976 Supreme Court confirmed the referee’s report both as to the amount of damages and as to the denial of Encounter’s right to recover such damages, and accordingly granted plaintiffs’ motion to discharge the undertaking. On appeal the Appellate Division affirmed, one Justice dissenting. We now reverse and remit the matter to Special Term for entry of an order directing payment of damages to Encounter to the extent of the full liability on the undertaking.

The issue presented is the meaning properly to be attached to the clause in CPLR 6312 (subd [b])—"if it is finally determined that [plaintiff] was not entitled to an injunction”. That is the contingency fixed by the statute on which depends a defendant’s right to recover damages on a CPLR 6312 (subd [b]) undertaking. Plaintiffs argue that the contingency referred to is a determination that plaintiffs are not entitled to prevail in the final outcome of the action itself, and contend that, in view of the discontinuance of the underlying action with Encounter’s consent, there has been no such predicate final determination. We reject that view; the statute refers to a final determination that the plaintiffs were not entitled to the preliminary injunction, rather than a determination with respect to their right to a permanent injunction or other favorable outcome on the merits of the main action. The proper focus is on the propriety of the issuance of the preliminary injunction when it was granted at the commencement of the action (Palmer v Foley, 71 NY 106, 110, 111; cf. Apollinaris Co. v Venable, 136 NY 46; Paeiñc Mail S. S. Co. v Toel, 85 NY 646; Freifeld v Sire, 96 App Div 296).

A preliminary injunction is an extraordinary provisional remedy to which a plaintiff is entitled only on a special showing. It operates as a substantial limitation on the defendant’s interests prior to any adjudication of the respective rights of the parties on the merits of the controversy between them. To afford reasonable protection to the defendant against an erroneous or improper grant of this special provisional remedy, the plaintiff as beneficiary thereof is required to post an undertaking in an amount fixed by the court. If it is later finally determined that the preliminary injunction was improperly granted there will then be a ready source from which the defendant may recover for damages which he may have sustained.

In many, even most, instances the entitlement to the preliminary injunction will parallel the plaintiff’s right to a permanent injunction or to other relief he seeks in the main action. Consequently, it has sometimes been suggested that defendant’s right to damages turns on the final outcome in the main action. This is not the critical contingency. The defendant’s right to damages depends on whether the plaintiff was entitled to the preliminary injunction, not on whether the defendant eventually prevails on the merits.

In Williams v Montgomery (148 NY 519) it was held under the predecessor section of the Code of Civil Procedure that the defendant was not entitled to damages even though the plaintiff eventually lost on the merits where the plaintiff had nonetheless been entitled to the preliminary injunction when it was issued. The holding in that case is thus consistent with and supportive of the result we now reach. Our attention is invited to no case, nor has our research revealed any, in which our court has previously been confronted with a situation in which, as here, there has been a final determination that the preliminary injunction was erroneously granted but no final determination on the merits in the main action. We perceive no reason in principle why in such circumstances the defendant should not recover damages when it is concluded that the plaintiff was not entitled to the preliminary injunction.

That this was the intention when CPLR 6312 (subd [b]) was incorporated in the Civil Practice Law and Rules at the time of its enactment in 1962 (L 1962, ch 308) appears from the notes included in the Third Preliminary Report of the Advisory Committee on Practice and Procedure, the legislative committee that supervised the revision of the practice statute and rules. Referring to subdivision (b) of proposed section 15.7 (which subsequently was enacted as CPLR 6312, subd [b]) the committee wrote: "The opening paragraph of this subdivision is derived from section 893 [of the Civil Practice Act] which sets forth the general condition of the undertaking, viz.: to pay the defendant the damages he sustained by the injunction if it is determined that the plaintiff was not entitled to it.” (Emphasis added.) (NY Legis Doc, 1959, No. 17, p 363.)

Our conclusion is further buttressed by comparing the statutory sections which prescribe the terms of undertakings where the provisional remedies are arrest and attachment (CPLR 6112, subd [b], and 6212, subd [b]). We note that in each of these sections, by contrast with CPLR 6312 (subd [b]), it is expressly provided that the defendant is entitled to recover damages on the undertaking in alternative contingencies (CPLR 6112, subd [b]—"if the defendant recovers judgment or if it is finally determined that the plaintiff was not entitled to arrest the defendant”; CPLR 6212, subd [b]—"if the defendant recovers judgment or if it is finally decided that the plaintiff was not entitled to an attachment of the defendant’s property”). Whatever may be the case with respect to undertakings on arrest or attachment, questions which are not now before us, the statute dealing with preliminary injunctions, CPLR 6312 (subd [b]), conditions liability on the undertaking in terms of a single contingency—a final determination that the plaintiff was not entitled to a preliminary injunction. There is no alternative provision with respect to the final outcome of the underlying action. This omission is persuasive. Where the Legislature has seen fit to attach significance to the final outcome of the action it has made explicit reference thereto.

The determination of the Appellate Division in vacating the preliminary injunction in this case was based on reasoning that a preliminary injunction should never have been issued. The case would be quite different had the court concluded that while the preliminary injunction had been initially properly granted, nonetheless it should be vacated as of the later date. The Appellate Division wrote: "Special Term, as indicated, found that the primary requisite for injunctive relief, namely, irreparable harm to the plaintiffs, was not shown at all. However, the court granted the relief on the ground that it was protecting the interest of the minors who were being served by Encounter. * * * The interest of the minors not having been shown to be adversely affected, the injunction rests on no foundation at all and must be vacated.” (45 AD2d, at p 834; cf. Williams v Montgomery, 148 NY 519, supra.) Inasmuch as this decision stands undisturbed it constitutes a final determination that plaintiffs were not entitled to the preliminary injunction, the precise statutory predicate for recovery of the damages sustained by Encounter. We finally note that when the underlying action was discontinued on consent, that discontinuance was expressly made "without prejudice to defendants’ rights, if any, that may exist under CPLR 6314 [presumably should be CPLR 6315]”, i.e., rights to recover damages on the undertaking.

For the reasons stated, the order of the Appellate Division should be reversed, with costs, and the case remitted to Supreme Court for entry of an order directing payment of damages, as found by the special referee, confirmed by Special Term and affirmed at the Appellate Division, to the full extent of liability on the undertaking.

Chief Judge Breitel and Judges Jasen, Gabrielli, Wachtler, Fuchsberg and Cooke concur.

Order reversed, with costs, and the case remitted to Supreme Court, New York County, for further proceedings in accordance with the opinion herein.

      . CPLR 6312 (subd [b]) in pertinent part provides: "(b) Undertaking. Except as provided in section 2512, prior to the granting of a preliminary injunction, the plaintiff shall give an undertaking in an amount to be fixed by the court, that the plaintiff, if it is finally determined that he was not entitled to an injunction, will pay to the defendant all damages and costs which may be sustained by reason of the injunction”.

      . We note that in a strictly literal sense the reference to "injunction” could not always be said to refer to the permanent injunction, inasmuch as preliminary injunctions are statutorily authorized in actions in which no permanent injunction is sought or granted (CPLR 6301; 7A Weinstein-Korn-Miller, NY Civ Prac, par 6301.09).


author: Wachtler, J.

text:
    Milau Associates, Inc., Plaintiff, v North Avenue Development Corp., Defendant. (Action No. 1.) Baum Textile Mill Co., Inc., et al., Appellants, v Milau Associates, Incorporated, et al., Respondents. (Action No. 2.)
    Argued September 8, 1977;
    decided October 11, 1977

      Milton B. Pfeffer for appellants.

      Ralph S. Joseph, Harry A. Fox and Leo J. Gutterman for Milau Associates Incorporated, respondent.

      Roger P. McTiernan for Higgins Fire Protection, Inc., respondent.
   Wachtler, J.

A massive burst in an underground section of pipe, connecting a sprinkler system to the city water line, caused substantial water damage to bolts of textiles stored in a warehouse. The plaintiffs who were commercial tenants of the building sought recovery against both Milau Associates, the general contractor which built the warehouse, and Higgins Fire Protection, Inc., the subcontractor which designed and installed the sprinkler system. The suit was brought on the alternative theories of negligence and breach of implied warranty of fitness for a particular purpose.

Evidence adduced at the trial indicated that the break followed the occurrence of a phenomenon known as a "water hammer”—a sudden and unpredictable interruption in the flow from the city water main, followed by a back-surge and build-up of extreme internal pressure when the flow was again released. According to the plaintiffs’ experts, this "hoop tension” caused a crack to develop at the root of a V-shaped notch discovered toward the end of the conduit; the fracture traveled along the length of the vulnerable section of pipe with a tearing action and the torrential result.

The "stress-raising” notch was alleged to have been produced by a dull tooth on the hydraulic squeeze cutter used by Higgins to cut sections of the commercially marketed pipe furnished by the subcontractor as specified in the work contract with Milau. Although the 400-foot-long connection had been carefully tested and had functioned properly in conjunction with the remainder of the system inside the building, only a few months in operation had caused enough rusting at the base of the notch, plaintiffs contended, to affect the integrity of the entire system. The defendants produced offsetting expert opinion that the pipe itself was neither defective as manufactured nor improperly installed.

The Trial Judge, having denied plaintiffs’ request to charge that the contractors had impliedly warranted the fractured pipe to be fit for its intended purpose, submitted the case to the jury on the sole question of negligent installation. The jury returned a verdict in favor of the defendants, finding neither want of due care by Higgins nor negligent supervision by Milau.

The textile companies contest the trial court’s restrictive rulings on the law of warranty. They assert that the V-shaped notch found in the ruptured section of pipe is adequate proof that this crucial component of the sprinkler system supplied by Higgins was defective. It is their contention that the jury would have been justified in finding a defect in the "goods” furnished under the hybrid sales-services contract without necessarily finding negligence on the part of either defendant. The plaintiffs argue that this defect made the pipe unfit for its intended purpose and that they were entitled to have the jury decide whether there was a breach of an implied warranty under section 2-315 of the Uniform Commercial Code or by application of common-law warranty principles.

The majority at the Appellate Division found the record to be "devoid of any evidence that the pipe installed by Higgins was unfit for its intended purpose” (56 AD2d 587, 588), and concluded that neither the code nor the case law could be invoked to grant the extension of warranty protection sought by the plaintiffs. While we agree with this result, we have some difficulty with that court’s caveat that, "in a proper case, the implied warranty provisions of the Uniform Commercial Code might apply to the 'sale of goods’ aspect of a hybrid sales-services contract (see Schenectady Steel Co. v Trimpoli Gen. Constr. Co., 43 AD2d 234 [concurring opn by Greenblott, J.], affd 34 NY2d 939).” (56 AD2d 587-588.)

The sales-services dichotomy has been recognized and developed from the days of the law merchant. In a more contemporary formulation, this court in Perlmutter v Beth David Hasp. (308 NY 100, 104) held that, "when service predominates, and transfer of personal property is but an incidental feature of the transaction”, the exacting warranty standards for imposing liability without proof of fault will not be imported from the law of sales to cast purveyors of medical services in damages. In that case we held that this prohibition could not be circumvented by conceptually severing the sale of goods aspects of the transaction from the overriding service component so that a hospital’s act of supplying and even separately charging for impure blood plasma could not in logic or common sense be separated from a physician’s contribution in administering the plasma during the course of treatment. Viewed in its entirety, we held in Perlmutter that the transaction could not be characterized in part or in its underlying nature as one for the sale of goods, for Mrs. Perlmutter had checked into the hospital to restore her health, not to purchase blood.

The fact that in Perlmutter our "service predominates” analysis led to a conclusion of law which was also supported by policy considerations peculiar to the impure blood cases does not strip its analytic approach of vitality. The court made no attempt to mask the fact that reallocating the risk of loss by imposing warranty liability on no greater proof than the adverse result itself would place untoward economic and health-care burdens on hospitals and patients alike. However, the court’s sensitivity to these policy considerations, rather than restrict the scope of its holding, should suggest the need to assess all hybrid transactions along the sales-services continuum both legally and pragmatically.

As suggested in Perlmutter, those who hire experts for the predominant purpose of rendering services, relying on their special skills, cannot expect infallibility. Reasonable expectations, not perfect results in the face of any and all contingencies, will be ensured under a traditional negligence standard of conduct. In other words, unless the parties have contractually bound themselves to a higher standard of performance, reasonable care and competence owed generally by practitioners in the particular trade or profession defines the limits of an injured party’s justifiable demands (e.g., Aegis Prods, v Arriflex Corp. of Amer., 25 AD2d 639 [recognizing that in cases where "the service is performed negligently, the cause of action accruing is for that negligence”, and "if it constitutes a breach of contract, the action is for that breach”]).

The parties to the contract underlying this action were perfectly free at the outset, although not after the fact, to adopt a higher standard of care to govern the contractors’ performance. Indeed, under a subcontract in which Higgins undertook to design and put together a sprinkler system tailored to the needs of the commercial tenants, the subcontractor was obligated to "Furnish and install [a] wet pipe sprinkler system all in accordance with the requirements of the New York Fire Insurance Rating Organization, including * * * One (1) 8" City water connection from pit at property line to inside of factory building”. Additionally, by affixing its corporate signature to the standard form construction subcontract, the fire protection specialist "expressly warranted” that "all * * * materials and equipment [which it] furnished and incorporated [would] be new” and that "all Work under this Subcontract shall be of good quality, free from faults and defects and in conformance with the Contract Documents. All Work not conforming to these standards may be considered defective” (emphasis added).

Section 2-313 of the Uniform Commercial Code requires that a "seller’s” affirmation of fact to a "buyer” be made as part of the basis of the bargain, that is, the contract for the sale of goods. The express warranty section would therefore be no more applicable to a service contract thafi the code’s implied warranty provisions. Of course, where the party rendering services can be shown to have expressly bound itself to the accomplishment of a particular result, the courts will enforce that promise (e.g., Robins v Finestone, 308 NY 543; Frankel v Wolper, 181 App Div 485, affd 228 NY 582).

Here the textile company plaintiffs had the opportunity to plead and test the construction of the written warranty provided in the work subcontract at the trial level. They opted instead to prove fault, and if that failed, to seek enforcement of a warranty imposed by law for the sale of goods unfit for their intended purpose. They were unable to convince a jury that Higgins had performed negligently. And they failed as well to demonstrate that the work subcontract was anything other than precisely what the parties had understood it to be: an agreement outlining the materials to be employed and the performance obligations to be assumed by a construction specialist hired to install a sprinkler system. Both the subcontract and the agreement between Milau and the owner were on their face and at heart no more than a series of performanee undertakings, plans, schedules and specifications for the incorporation of the specialized system during the erection of a building—a predominantly labor-intensive endeavor. In the final analysis, the parties contemplated the workmanlike performance of a construction service. The fact that something went wrong less than six months after that service was performed does not change the underlying nature of the agreement governing its performance.

Given the predominantly service-oriented character of the transaction, neither the code nor the common law of this State can be read to imply an undertaking to guard against economic loss stemming from the nonnegligent performance by a construction firm which has not contractually bound itself to provide perfect results (see Schenectady Steel Co. v Trimpoli Gen. Constr. Co., 43 AD2d 234, 238-239; id., pp 239-240 [Cooke, J., concurring in part]; Ben Constr. Corp. v Ventre, 23 AD2d 44; see, also, North Amer. Leisure Corp. v A & B Duplicators, Ltd., 468 F2d 695; 1 Anderson, Uniform Commercial Code [2d ed], §§ 2-102:5, 2-105:10; 1955 Report of NY Law Rev Comm, p 361). In fact, where courts in other jurisdictions have purported to apply an implied warranty of fitness to transactions which in essence contemplated the rendition of services, what was actually imposed was no more than a "warranty” that the performer would not act negligently (e.g., Bloomsburg Mills v Sordoni Constr. Co., 401 Pa 358), or a warranty of workmanlike performance imposing only the degree of care and skill that a reasonably prudent, skilled and qualified person would have exercised under the circumstances (e.g., Union Mar. & Gen. Ins. Co. v American Export Lines, 274 F Supp 123; Pepsi Cola Bottling Co. v Superior Burner Serv. Co., 427 P2d 833 [Alaska]), or an implied warranty of competence and ability ordinarily possessed by those in the profession (Wolfe v Virusky, 306 F Supp 519). (See, generally, Greenfield,. Consumer Protection in Service Transactions—Implied Warranties and Strict Liability in Tort, 1974 Utah L Rev 661, 668-673.) The performance of Higgins and Milau was tested under precisely this standard and found free from any actionable departure.

To be sure, particularly in cases involving personal injury, the absence of an enforceable contractual relationship for the technical sale of goods will not necessarily result in the foreclosure of all remedies, at least where the policies favoring the imposition of strict tort liability for the marketing of defective products are present (see, e.g., Victorson v Boch Laundry Mach. Co., 37 NY2d 395; Velez v Craine & Clark Lbr. Corp., 33 NY2d 117) or where manufacturing misjudgments create an unreasonably dangerous condition (see Micallef v Miehle, Co., 39 NY2d 376). However, in the products liability cases, "[r]ather than arising out of the 'will or intention of the parties’, the liability imposed on the manufacturer * * * is predicated largely on considerations of sound social policy” (Victorson v Boch Laundry Mach. Co., supra, p 401, quoting Codling v Paglia, 32 NY2d 330, 340-341), including consumer reliance, marketing responsibility and the reasonableness of imposing loss redistribution. Yet the language and policies of the tort-based cases "should not be understood as in any way referring to the liability of a manufacturer [or tradesman] under familiar but different doctrines of the law of contracts for injuries sustained by a customer or other person with whom or for whose benefit the manufacturer previously has made a warranty or other agreement, express or implied” (Victorson v Boch Laundry Mach. Co., supra, p 400).

The appellants here, however, had at no time in the course of litigation sought to invoke these doctrines to redress their no less real but somehow less impelling economic loss. Additionally, to a much greater extent than professionals and tradesmen in the services arena where standards are usually set contractually, sellers of goods typically encourage mass public reliance on their products’ fitness and safety through advertising, packaging and other promotional devices. This phenomenon is reflected in the fact that the code’s warranties attaching to sales of goods are underpinned by an assumption of some form of reasonable reliance by the unleveraged buyer.

No such situation presents itself here and we can find no reasonable basis in policy or in law for reading what would amount to a warranty of perfect results into the contractual relationships defined by the parties to this action.

Accordingly, the order of the Appellate Division should be affirmed.

Chief Judge Breitel and Judges Jasen, Gabrielli, Jones, Fuchsberg and Cooke concur.

Order affirmed, with costs.

       From its inception, the "English rule” served as a basis for applying the commercial law of sales whenever a transaction resulted in a transfer of chattels. Applying this formulation in Lee v Griffin (1 B & S 272; 121 Eng Rep 716 [KB, 1861]), Justice Blackburn held that a contract to manufacture and fit a set of false teeth was subject to sales remedies. Courts in this country, however, generally followed the "labor rule”, under which the law of sales would not be applied if the contract required a workman "to put materials together and construct an article for the employer” (Mixer v Howarth, 38 Mass [21 Pick] 205, 207 [1838]).