Southern Cal. Gas Leak Cases , 7 Cal. 5th 391 ( 2019 )

IN THE SUPREME COURT OF
CALIFORNIA
SOUTHERN CALIFORNIA GAS LEAK CASES.
SOUTHERN CALIFORNIA GAS COMPANY,
Petitioner,
v.
THE SUPERIOR COURT OF LOS ANGELES COUNTY,
Respondent;
FIRST AMERICAN WHOLESALE LENDING
CORPORATION et al.,
Real Parties in Interest.
S246669
Second Appellate District, Division Five
B283606
Los Angeles County Superior Court
JCCP No. 4861
May 30, 2019
Justice Cuéllar authored the opinion of the court, in which
Chief Justice Cantil-Sakauye and Justices Chin, Corrigan, Liu,
Kruger, and Groban concurred.
SOUTHERN CALIFORNIA GAS LEAK CASES
S246669
Opinion of the Court by Cuéllar, J.
This case concerns a massive, months-long leak from a
natural gas storage facility located just outside Los Angeles.
According to the allegations before us, the accident severely
harmed the economy of a nearby suburb. We must decide if local
businesses — none of which allege they suffered personal injury
or property damage — may recover in negligence for income lost
because of the leak. Our decision turns on whether the entity
that allegedly caused the leak had a tort duty to guard against
what we and other courts have termed “purely economic losses.”
The businesses argue that they deserve compensation for
such losses, that the entity responsible must bear the full costs
of its alleged negligence so tort law can play its essential role of
forcing people and organizations to take sufficient account of the
risks they generate, and that courts can sensibly apportion
liability under these circumstances within meaningful limits.
Tort law indeed lies in the heartland of our common law system.
It serves society’s interest in allocating risks and costs to those
who can better prevent them, and it provides aggrieved parties
with just compensation. But a proper assessment of competing
considerations in light of our precedent suggests, and the extent
of consensus across other jurisdictions confirms, that claims for
purely economic losses suffered from mere proximity to an
industrial accident create intractable line-drawing problems for
courts. So the claims before us are best not treated as
compensable in negligence.
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Opinion of the Court by Cuéllar, J.
We therefore affirm the judgment of the Court of Appeal.
I.
Because this case comes to us at the demurrer stage, we
take as true all properly pleaded material facts — but not
conclusions of fact or law. (Centinela Freeman Emergency
Medical Associates v. Health Net of California, Inc. (2016)
1 Cal.5th 994, 1010 (Centinela).)
A.
Near the northwestern corner of Los Angeles lies Porter
Ranch, a residential neighborhood home to some 30,000 people.
Southern California Gas Company (SoCalGas) stores vast
amounts of natural gas in an underground facility in the hills
surrounding the community. Known today as the “Aliso
Facility,” that subterranean storage site was once an oil
reservoir. It was repurposed about 40 years ago for its present
use. SoCalGas supplies over 21 million people with natural gas
from its four storage facilities, but the Aliso Facility is the
company’s largest. It holds up to 80 billion cubic feet of natural
gas, which SoCalGas pumps underground at high pressure into
more than 100 “injection wells.” Because natural gas is odorless,
SoCalGas adds a nausea-causing chemical to the gas so that
people notice when a leak happens.
In October 2015, a leak happened — and people noticed.
An uncontrolled flow of natural gas from the Aliso Facility
coated nearby neighborhoods in an oily mist. At its peak, the
leak released some 55 tons of natural gas every hour. Porter
Ranch residents reported unpleasant odors, headaches,
dizziness, and respiratory problems. In addition to those
symptoms, students at local schools complained of nosebleeds
and vomiting.
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That November, the Los Angeles County health
department directed SoCalGas to establish a relocation program
available to Porter Ranch residents who lived within a five-mile
radius of the leak site. The Department of Conservation’s
Division of Oil, Gas, and Geothermal Resources required
SoCalGas to provide real-time data about the leak, as well as a
timeline for stopping it. A month later, with the flow of gas
slowing but still significant, the Los Angeles County Board of
Education decided to relocate students and staff from two Porter
Ranch schools for the duration of the academic year. And a
month after that, SoCalGas expanded its relocation program,
citing complaints of poor air quality from people living outside
the initial five-mile boundary. About 15,000 people were
relocated in total, scattering to locations dozens — and in some
cases hundreds — of miles away.
SoCalGas finally got the leak under control in February
2016 — four months after detecting it. All told, about 100,000
tons of natural gas escaped the Aliso Facility, releasing enough
greenhouse gases into the atmosphere to erase several years’
worth of efforts to combat climate change in California.
B.
Plaintiffs are Porter Ranch area businesses seeking to
represent a class of “[a]ll persons and entities conducting
business within five miles of the [Aliso] Facility from
October 23, 2015 to [the] present.”1 They allege that SoCalGas’s
negligence caused the leak. The resulting relocation of many
Porter Ranch residents devastated the local economy: by
1
We refer to the named plaintiffs in this action collectively
as “Plaintiffs.”
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Opinion of the Court by Cuéllar, J.
depriving local businesses of customers, the environmental
disaster cost local businesses considerable earnings.
That harm, Plaintiffs maintain, is ongoing. Sales at
businesses of all stripes declined sharply, and in many cases,
stayed down. Enrollment at a local martial arts center, Plaintiff
King Taekwondo, nosedived during the leak and has not
recovered. The same was true of a neighborhood day care,
Plaintiff Polonsky Family Day Care. Restaurants, gas stations,
and pharmacies were affected, too. So were beauty salons,
doctor’s offices, party suppliers, and a photography store.
With the en masse relocation of Porter Ranch residents
and the diminution in property values caused by the leak, home
mortgage lenders and home improvement businesses suffered
economically as well. Plaintiff First American Realty saw
clients get cold feet, loans fall out of escrow, and sales tumble.
A local contractor’s business dropped by 25 percent, as
customers moved away or decided against home improvements
for the time being. “Since the onset of the gas leak,” in other
words, business operations throughout Porter Ranch “have
either halted or slowed substantially” — and Plaintiffs “have not
yet recovered from the blow to their bottom lines.”
Yet no named plaintiff in this action alleges personal
injury or property damage. Accordingly, Plaintiffs acknowledge
they are suing SoCalGas to recover solely for the income they
lost because of the leak.
C.
SoCalGas demurred, arguing that Plaintiffs’ negligence
claims failed as a matter of law because Plaintiffs were seeking
to recover for purely economic losses. Overruling the demurrer,
the trial court explained that companies “must face the full cost
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Opinion of the Court by Cuéllar, J.
of accidents” they create, or else “they will underinvest in
precautions.” The trial court acknowledged that economic losses
not flowing from conventional injury to person or property, such
as physical damage, are ordinarily not recoverable in tort — and
that the Court of Appeal had so held in Adams v. Southern
Pacific Transportation Co. (1975) 50 Cal. App. 3d 37 (Adams) on
facts with some similarities to those here.2 But the trial court
questioned the wisdom of that rule and reasoned that Adams
was no longer good law after our later decision in J’Aire Corp. v.
Gregory (1979) 24 Cal. 3d 799 (J’Aire).
After SoCalGas petitioned for a writ of mandate, the Court
of Appeal granted the petition and reversed the trial court.
(Southern California Gas Leak Cases (2017) 18 Cal.App.5th 581,
583-584.) The Court of Appeal explained that, under California
law, it is “not presumed” that a defendant owes a duty of care to
guard against economic losses unaccompanied by injury to
person or property. (Id. at p. 591.) And without a “special
relationship” between the plaintiff and the defendant stemming
in this context from a “transaction,” the Court of Appeal
reasoned, California law did not permit recovery for the purely
economic losses sought by Plaintiffs in this case. (Id. at p. 591.)
The Court of Appeal also took the view that our decision in
J’Aire had not rejected Adams in its entirety but instead
disapproved Adams only “insofar as [it] held a plaintiff can never
recover purely economic losses based on a defendant’s negligent
conduct.” (Id. at p. 592, italics added.) Because Plaintiffs
2
The Court of Appeal held in Adams that employees could
not sue a railroad for lost wages even though, allegedly, the
railroad’s negligence caused an explosion that destroyed the
employees’ workplace, a nearby factory. (See Adams, supra, 50
Cal.App.3d at pp. 39-41.)
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Opinion of the Court by Cuéllar, J.
disclaimed any desire to further amend their complaint, the
Court of Appeal directed the trial court to sustain SoCalGas’s
demurrer without leave to amend. (Id. at p. 595.)
II.
Recovery in a negligence action depends as a threshold
matter on whether the defendant had “ ‘a duty to use due care
toward an interest of [the plaintiff’s] that enjoys legal protection
against unintentional invasion.’ ” (Centinela, supra, 1 Cal.5th
at p. 1012, quoting Bily v. Arthur Young & Co. (1992) 3 Cal. 4th
370, 397 (Bily).) We review de novo whether this “ ‘essential
prerequisite’ ” to recovery is satisfied.3 (Centinela, at pp. 1010,
1012.)
The issue here is whether SoCalGas — separate from
other legal and practical reasons it had to prevent injury of any
kind to the public — had a tort duty to guard against negligently
causing what we and others have called “purely economic
loss[es].” (Centinela, supra, 1 Cal.5th at p. 1013; see also 532
Madison Avenue Gourmet Foods, Inc. v. Finlandia Center,
Inc. (N.Y. 2001) 750 N.E.2d 1097, 1102 (532 Madison).) We use
that term as a shorthand for “pecuniary or commercial loss that
does not arise from actionable physical, emotional or
reputational injury to persons or physical injury to property.”
(Dobbs, An Introduction to Non-Statutory Economic Loss Claims
(2006) 48 Ariz. L.Rev. 713 (Dobbs).) And although SoCalGas of
course had a tort duty to guard against the latter kinds of injury,
3
The “ordinary standards of demurrer review still apply”
even though this case “arrived at the Court of Appeal by the
unusual path of a writ petition challenging an order overruling
a demurrer.” (City of Stockton v. Superior Court (2007) 42
Cal. 4th 730, 746-747.)
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we conclude it had no tort duty to guard against purely economic
losses.
A.
In California, the “general rule” is that people owe a duty
of care to avoid causing harm to others and that they are thus
usually liable for injuries their negligence inflicts. (Cabral v.
Ralphs Grocery Co. (2011) 51 Cal. 4th 764, 771 (Cabral).) Under
Civil Code section 1714, subdivision (a), “[e]veryone is
responsible . . . for an injury occasioned to another by his or her
want of ordinary care or skill in the management of his or her
property or person, except so far as the latter has, willfully or by
want of ordinary care, brought the injury upon himself or
herself.” So at least in cases involving traditionally
compensable forms of injury — like physical harm to person or
property — we presume the defendant owed the plaintiff a duty
of care and then ask whether the circumstances “justify a
departure” from that usual presumption. (Cabral, at p. 771.)
In Rowland v. Christian (1968) 69 Cal. 2d 108 (Rowland), we
identified several factors that, among others, may bear on that
question: (1) “the foreseeability of harm to the plaintiff,” (2) “the
degree of certainty that the plaintiff suffered injury,” (3) “the
closeness of the connection between the defendant's conduct and
the injury suffered,” (4) “the moral blame attached to the
defendant’s conduct,” (5) “the policy of preventing future harm,”
(6) “the extent of the burden to the defendant and consequences
to the community of imposing a duty to exercise care with
resulting liability for breach,” and (7) “the availability, cost, and
prevalence of insurance for the risk involved.” (Id. at p. 113.) At
core, though, the inquiry hinges not on mere rote application of
these separate so-called Rowland factors, but instead on a
comprehensive look at the “ ‘the sum total’ ” of the policy
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considerations at play in the context before us. (Parsons v.
Crown Disposal Co. (1997) 15 Cal. 4th 456, 472 (Parsons),
quoting Ballard v. Uribe (1986) 41 Cal. 3d 564, 572, fn. 6;
see also T.H. v. Novartis Pharmaceuticals Corp. (2017)
4 Cal.5th 145, 164.)
What Civil Code section 1714 does not do is impose a
presumptive duty of care to guard against any conceivable harm
that a negligent act might cause. No one doubts, for example,
that a child suffers gravely when an accident permanently
disables her parent. But in Borer v. American Airlines,
Inc. (1977) 19 Cal. 3d 441 (Borer), we nevertheless treated the
prospect of a child recovering for loss of consortium in precisely
that circumstance as “a wholly new cause of action,” rather than
a presumptively viable one. (Id. at p. 447.) And we refused to
recognize such a novel — though quite sympathetic — claim for
emotional harm largely because that claim, unlike a loss of
consortium claim brought by a spouse, threatened
indeterminate and disproportionate liability. (Id. at pp. 448-
449, 453; see also Thing v. La Chusa (1989) 48 Cal. 3d 644, 666-
668 (Thing) [strictly cabining recovery for negligent infliction of
emotional distress to ensure meaningful limits on liability].)
Disabled parents, after all, have parents of their own, along with
“brothers, sisters, cousins, inlaws, friends, colleagues, and other
acquaintances who,” in some way, may “be deprived of [their]
companionship.” (Borer, at p. 446.) In declining to impose a tort
duty to guard against such harms, we noted in Borer the
“overwhelming approval” our conclusion enjoyed in other
jurisdictions and rejected the argument that our analysis was
somehow “inconsistent with the principles of tort law”
established in our own. (Id. at pp. 449-450; see also Thing, at
p. 668, fn. 11.)
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Opinion of the Court by Cuéllar, J.
Plaintiffs do cite several cases where we presumed the
defendant owed the plaintiff a duty of care and then asked
whether the circumstances warranted a departure from that
baseline presumption. But unlike Borer and Thing, every one of
those cases involved a traditionally compensable form of harm:
personal injury. (See Vasilenko v. Grace Family Church (2017)
3 Cal.5th 1077, 1082 [plaintiff was struck by a car when crossing
a public street shortly after leaving defendant’s parking lot];
Kesner v. Superior Court (2016) 1 Cal.5th 1132, 1140-1141
(Kesner) [employee’s household members were exposed to
asbestos, causing personal injury and death]; Cabral, supra, 51
Cal.4th at p. 769 [plaintiff’s husband died after colliding with a
truck owned by defendant]; John B. v. Superior Court (2006) 38
Cal. 4th 1177, 1181-1183 [defendant infected plaintiff with HIV];
Parsons, supra, 15 Cal.4th at p. 460 [defendant’s truck startled
plaintiff’s horse, causing the plaintiff to fall to the ground].) And
in Rowland itself, a faulty faucet in the defendant’s home
mangled tendons and nerves in the plaintiff’s hand. (Rowland,
supra, 69 Cal.2d at p. 110.) So yes, we have frequently begun
our analysis by presuming a duty of care. But we have not
universally done so.
A case in point is liability in negligence for purely
economic losses, which is “the exception, not the rule” under our
precedents. (Quelimane Co. v. Stewart Title Guaranty
Co. (1998) 19 Cal. 4th 26, 58 (Quelimane).) And that holds true
even though Civil Code section 1714 does not, by its terms,
“distinguish among injuries to one’s person, one’s property or
one’s financial interests.” (J’Aire, supra, 24 Cal.3d at p. 806;
see Centinela, supra, 1 Cal.5th at p. 1013; Dobbs, supra, 48 Ariz.
L.Rev. at p. 713 [explaining that “[n]egligently inflicted
economic loss that results from some other kind of injury may
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Opinion of the Court by Cuéllar, J.
be recoverable, but recovery for stand-alone economic loss is
frequently rejected”].)
The primary exception to the general rule of no-recovery
for negligently inflicted purely economic losses is where the
plaintiff and the defendant have a “special relationship.”
(J’Aire, supra, 24 Cal.3d at p. 804.) What we mean by special
relationship is that the plaintiff was an intended beneficiary of
a particular transaction but was harmed by the defendant’s
negligence in carrying it out. Take, for example, Biakanja v.
Irving (1958) 49 Cal. 2d 647 (Biakanja). There, we held that the
intended beneficiary of a will could recover for assets she would
have received if the notary had not been negligent in preparing
the document. (Id. at pp. 650-651.) A special relationship
existed between the intended beneficiary and the notary in
Biakanja, we emphasized, because “the ‘end and aim’ of the
transaction” between the nonparty decedent and the notary was
to ensure that the decedent’s estate passed to the intended
beneficiary. (Id. at p. 650.)
For similar reasons, in J’Aire we held that a special
relationship existed between a restaurant operator and a
contractor hired by a third-party property owner to renovate the
space rented by the restaurant operator. (J’Aire, supra, 24
Cal.3d at pp. 804-805.) So when the contractor negligently
failed to complete the construction work on time, the restaurant
operator could recover purely economic losses it suffered as a
result.4 (J’Aire, at pp. 804-805.)
4
Having concluded in J’Aire that recovery for foreseeable
purely economic losses “should not be foreclosed simply because
it is the only injury that occurs,” we disapproved the Court of
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Discerning whether there is a special relationship
justifying liability of this sort can nonetheless be a subtle
enterprise. In both Biakanja and J’Aire we emphasized that our
duty determination rested not just on (i) “the extent to which the
transaction was intended to affect the plaintiff,” but also on a
subset of the Rowland factors relevant to the circumstances
before us in those cases: (ii) “the foreseeability of harm to the
plaintiff,” (iii) “the degree of certainty that the plaintiff suffered
injury,” (iv) “the closeness of the connection between the
defendant’s conduct and the injury suffered,” (v) “the moral
blame attached to the defendant’s conduct,” and (vi) “the policy
of preventing future harm.” (J’Aire, supra, 24 Cal.3d at p. 804,
citing Biakanja, supra, 49 Cal.2d at p. 650.)
Our subsequent decision in Bily, however, underscored for
negligence cases involving purely economic losses what is true
of all negligence cases. Deciding whether to impose a duty of
care turns on a careful consideration of the “ ‘the sum total’ ” of
the policy considerations at play, not a mere tallying of some
finite, one-size-fits-all set of factors. (Bily, supra, 3 Cal.4th at
p. 397, quoting Dillon v. Legg (1968) 68 Cal. 2d 728, 734 (Dillon).)
In Bily, investors in a failed company sued the company’s
auditor for financial losses they allegedly suffered due to the
auditor’s negligent preparation of a public report on the
Appeal’s decision in Adams “[t]o the extent that [it] h[eld] that
there can be no recovery for negligent interference with
prospective economic advantage.” (J’Aire, supra, 24 Cal.3d at
pp. 806-807 & fn. 3.) So as the Court of Appeal recognized,
J’Aire disapproved Adams only to the extent it purported to
impose an absolute rule that a plaintiff can never recover for
negligently inflicted purely economic losses.
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company’s financial well-being. (See Bily at pp. 376-379.) We
rejected those claims. (See id. at p. 376.) Despite
acknowledging that financial losses to investors from
negligently prepared audit reports are “certainly” foreseeable,5
we held that an auditor “owes no general duty of care regarding
the conduct of an audit to persons other than the client.” (Bily,
at pp. 376, 398.)
In requiring more than mere foreseeability for imposing a
duty of care in Bily, we appreciated the need to safeguard the
efficacy of tort law by setting meaningful limits on liability.
(Bily, supra, 3 Cal.4th at pp. 398-399.) Citing decisions from our
court limiting recovery for emotional harms based on similar
concerns, we explained that although foreseeability “ ‘may set
tolerable limits for most types of physical harm, it provides
virtually no limit on liability for nonphysical harm.’ ” (Id. at
p. 398, quoting Thing, supra, 48 Cal.3d at p. 663.) After all, on
“ ‘clear judicial days’ ” courts “ ‘can foresee forever.’ ” (Bily, at
p. 399, quoting Thing, at p. 668.) So although exposure to
liability often provides an important incentive for parties to
internalize the social costs of their actions, we were concerned
that allowing the countless people who rely on public audit
reports to recover “pure economic loss suffered” due to a shoddy
audit would “raise[] the spectre of vast numbers of suits and
limitless financial exposure.” (Bily, at p. 400.) The resulting
universe of potential claims would not only raise difficult
line-drawing questions for courts, it might deter socially
beneficial behavior. (Id. at pp. 400, 404.) That result was
5
We of course determine foreseeability not by reference to
specific parties but instead based on the general sort of conduct
at issue. (See Kesner, supra, 1 Cal.5th at p. 1145.)
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unacceptable. (Id. at p. 406.) We therefore limited auditor
liability to claims for negligent misrepresentation brought by
plaintiffs who — like the plaintiffs in Biakanja and J’Aire —
were “specifically intended beneficiaries” of the defendant’s
conduct. (Bily, at pp. 406-407.)
To be sure, several additional considerations cut further
in favor of strictly circumscribing recovery in Bily. In the audit
context, “[t]he client typically prepares [the] financial
statements” on which the auditor relies in preparing a
report — and that report “is not a simple statement of verifiable
fact” but instead “a professional opinion based on numerous and
complex factors.” (Bily, supra, 3 Cal.4th at pp. 399-400.) The
plaintiffs in Bily were also particularly “sophisticated” and had
“efficient means of self-protection,” such as diversifying their
investment portfolios or conducting their own due diligence. (Id.
at p. 406.) More fundamentally, purely economic losses flowing
from a financial transaction gone awry — which were at issue
in Biakanja, J’Aire, Bily, and our other negligence cases to date
about purely economic losses6 — “are primarily the domain of
contract and warranty law or the law of fraud, rather than of
negligence.” (Aas v. Superior Court (2000) 24 Cal. 4th 627, 636
(Aas), superseded by statute on other grounds as stated in Rosen
6
(See, e.g., Goonewardene v. ADP, LLC (2019) 6 Cal.5th
817, 820 [purely economic losses stemming from payroll
company’s alleged miscalculation of wages]; Centinela, supra,
1 Cal.5th at p. 1013 [purely economic losses stemming from
health care plan’s delegation of financial responsibility to pay
emergency service claims to third parties]; Quelimane, supra,
19 Cal.4th at pp. 57-60 [purely economic losses stemming from
defendant’s refusal to issue title insurance policies on real
property].)
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v. State Farm General Ins. Co. (2003) 30 Cal. 4th 1070, 1079-
1080 (Rosen).)
We nonetheless acknowledged in Bily the “need to limit
liability for [purely] economic loss[es]” even in the absence of
those additional considerations. (Bily, supra, 3 Cal.4th at
p. 400, fn. 11.) In doing so, we pointed to a hypothetical scenario
similar in many ways to the case now before us. We considered
a situation where “a defendant negligently causes an automobile
accident that blocks a major traffic artery such as a bridge or
tunnel.” (Ibid.; see also Kinsman Transit Co. (2d Cir. 1968) 388
F.2d 821, 825, fn. 8 [using a similar illustration]; Rabin, Tort
Recovery for Economic Loss: A Reassessment (1985) 37 Stan.
L.Rev. 1513, 1536-38 [same].) That defendant would of course
be liable for “personal injuries and property damage suffered in
such an accident.” (Bily, at pp. 400-401, fn. 11.) But would “any
court,” we continued, “allow recovery by the myriad [other] third
parties who might claim [purely] economic losses because the
bridge or tunnel” was blocked? (Id. at p. 401, fn. 11.) Based on
concerns about limitless liability and unending litigation, as
well as on long-standing legal consensus, we considered that
prospect “doubtful.” (Ibid.)
B.
What we recognized in Bily fits with numerous decisions
from other jurisdictions — as well as the Restatement of Torts.
That consensus cuts sharply against imposing a duty of care to
avoid causing purely economic losses in negligence cases like
this one: where purely economic losses flow not from a financial
transaction meant to benefit the plaintiff (and which is later
botched by the defendant), but instead from an industrial
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accident caused by the defendant (and which happens to occur
near the plaintiff).
1.
Concerned about line-drawing problems and potentially
overwhelming liability, courts across the country have rejected
recovery for purely economic losses stemming from man-made
calamity. Take the New York Court of Appeals’ decision in
532 Madison. There, part of a 39-story office tower collapsed,
shutting down more than a dozen bustling blocks of midtown
Manhattan for several weeks. (See 532 Madison, supra, 750
N.E.2d at p. 1099.) Among the plaintiffs in 532 Madison were
local businesses who alleged that would-be customers “were
unable to gain access to their stores” due to the disaster, forcing
the plaintiffs to shut down for an extended period of time. (Id.
at pp. 1099-1100.) They sued on behalf of themselves and “all
other business entities” operating within the affected city
blocks. (Ibid.)
The plaintiffs in 532 Madison sought compensation for the
income they lost from the tower collapse. The New York Court
of Appeals responded by declining to hold “that a landowner
owes a duty to protect an entire urban neighborhood against
purely economic losses.” (532 Madison, supra, 750 N.E.2d. at
pp. 1102.) It instead “limit[ed] the scope of defendants’ duty to
those who ha[d], as a result of th[e] [collapse], suffered personal
injury or property damage.” (Id. at p. 1103.) The court
explained that this limitation provided “a principled basis for
reasonably apportioning liability” that was necessary to prevent
potentially crushing liability to “an indeterminate group in the
affected areas” who could prove “financial losses directly
traceable to the” collapse. (Ibid.) Adopting that rule, the court
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added, was what “historically courts ha[d] done” with similar
negligence claims. (Ibid.)
Indeed: the Illinois Supreme Court, for example, reached
the same result for similar reasons in litigation flowing from a
flood caused by human error that inundated downtown Chicago
in 1992. (See In re Chicago Flood Litigation (Ill. 1997) 680
N.E.2d 265, 268, 276.) Consider also the West Virginia Supreme
Court of Appeals’ decision in Aikens v. Debow (W.Va. 2000) 541
S.E.2d 576, the Iowa Supreme Court’s decision in Nebraska
Innkeepers, Inc. v. Pittsburgh-Des Moines Corp. (Iowa 1984) 345
N.W.2d 124, the Massachusetts Supreme Judicial Court’s
decision in Stop & Shop Companies, Inc. v. Fisher (Mass. 1983)
444 N.E.2d 368, and the Seventh Circuit’s decision applying
Wisconsin law in Leadfree Enterprises, Inc. v. U.S. Steel Corp.
(7th Cir. 1983) 711 F.2d 805. Those cases all concerned bridge
accidents similar to the hypothetical we discussed in Bily — and
those cases all rejected attempts by affected businesses to
recover in negligence for purely economic losses resulting from
those accidents. (See Aikens, at pp. 579, 589; Nebraska
Innkeepers, at pp. 125, 128; Stop & Shop, at pp. 371-373;
Leadfree Enterprises, at pp. 806, 809; see also American
Petroleum and Transport, Inc. v. City of New York (2d Cir. 2013)
737 F.3d 185, 187, 196-197 [rejecting under federal maritime
law recovery for purely economic losses stemming from a
drawbridge malfunction].) Among their concerns were the
endless “ripple effects of a negligence claim based upon pure
economic loss.” (Aikens, at p. 591; see also Dundee Cement Co.
v. Chemical Laboratories, Inc. (7th Cir. 1983) 712 F.2d 1166,
1172 [opining that allowing recovery in negligence for purely
economic losses may unleash “multiversant possibilities” for
litigation that “are staggering to the imagination”].)
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Similar rationales buttressed the Court of Appeals for the
District of Columbia’s decision in Aguilar v. RP MRP
Washington Harbour, LLC (D.C. 2014) 98 A.3d 979 (Aguilar)
and the Connecticut Supreme Court’s decision in Lawrence v.
O & G Industries, Inc. (Conn. 2015) 126 A.3d 569. Like the
California Court of Appeal’s decision in Adams, those cases
rejected claims for lost wages brought by employees whose
workplaces were forced to close by a man-made disaster — a
flood in Aguilar and an explosion in Lawrence. (See Aguilar, at
pp. 981, 983; Lawrence, at pp. 571, 585.) In fact, more than a
half century ago we ourselves approved a decision from an
intermediate appellate court in Ohio that arrived at the same
conclusion on very similar facts — another explosion causing the
closure of a nearby workplace. (See Fifield Manor v. Finston
(1960) 54 Cal. 2d 632, 636, citing Stevenson v. East Ohio Gas Co.
(Ohio Ct.App. 1946) 73 N.E.2d 200, 201-204.)
Federal courts sitting in admiralty have dealt with
industrial accidents perhaps most like the one before us:
maritime spills of oil and other pollutants. Leaving aside one
narrow exception not applicable here, they too have refused to
impose a duty of care to guard against purely economic losses.
To wit: in State of Louisiana ex rel. Guste v. M/V Testbank
(5th Cir. 1985) 752 F.2d 1019 (Testbank), two ships collided in
the Mississippi River Gulf. (Id. at p. 1020.) Some 12 tons of a
toxic chemical called pentachlorophenol rushed into the water
and caused the suspension of fishing, shrimping, and other
maritime activities across four hundred square miles of marsh
and waterways. (Ibid.) Among the plaintiffs were businesses
like boat rental operators, seafood restaurants, and tackle and
bait shops. (Id. at pp. 1020-1021.) They sued to recover “for
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Opinion of the Court by Cuéllar, J.
economic loss unaccompanied by physical damage” that the spill
had inflicted. (Id. at p. 1021.)
The Fifth Circuit rejected those claims. (See Testbank,
supra, 752 F.2d at pp. 1028-1029.) The court echoed concerns
about “wave upon wave of successive economic consequences”
and stressed that “[t]hose who would delete the requirement of
physical damage have no rule or principle to substitute,” save
perhaps letting the trier of fact determine case-by-case,
whim-by-whim which claims for purely economic losses warrant
recovery. (Id. at p. 1028.) The Fifth Circuit further explained
that “to the extent that economic analysis” mattered, it favored
rejecting recovery for purely economic losses. (Id. at p. 1029.)
That was because defendants in industrial accident
cases — despite their frequently deep pockets — will have more
difficulty obtaining third-party insurance coverage against
purely economic losses than will individual plaintiffs seeking
comparable first-party insurance. (See ibid.) Defendants’
potential liability for purely economic losses in such cases is
massive and indeterminate. (Ibid.) So insurance companies
cannot feasibly offer them comprehensive coverage — or even
fix a sensible premium based on actuarial measurement. (Ibid.)
Plaintiffs’ “own potential losses,” by contrast, “are finite and
readily discernible.” (Ibid.) They can therefore obtain insurance
to cover them — perhaps relatively cheaply. (Ibid.; see also
Posner, Common-Law Economic Torts: An Economic and Legal
Analysis (2006) 48 Ariz. L.Rev. 735, 737-738.)
Faced with an oil spill diverting a container ship at
substantial cost, the First Circuit in Barber Lines A/S v. M/V
Donau Maru (1st Cir. 1985) 764 F.2d 50 denied recovery in
negligence for those purely economic losses. The First Circuit’s
analysis in many ways mirrored the Fifth Circuit’s reasoning in
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Opinion of the Court by Cuéllar, J.
Testbank. (See Barber Lines, at pp. 50-52.) Through the pen of
then-Judge Breyer, the First Circuit explained that the “number
of persons suffering foreseeable financial harm in a typical
accident” — like a car crash — “is likely to be far greater than
those who suffer traditional (recoverable) physical harm.” (Id.
at p. 54.) And when it comes to industrial accidents, that
proliferation of potential liability for purely economic losses is
even more dramatic. (See ibid.) An oil spill, for instance,
“foreseeably harms” not just those whose property is “covered
with oil,” but also “blockaded ships, marina merchants,
suppliers of those firms, the employees of marina businesses and
suppliers, the suppliers’ suppliers, and so forth.” (Ibid.) That
indeterminate liability, the First Circuit continued, made
third-party insurance coverage against purely economic losses
less feasible than first-party insurance. (Ibid.) It also risked
over-deterring socially productive activities. (Id. at p. 55.) And
unable to “distinguish between, say, oil spill accidents and
tunnel accidents,” the First Circuit rejected the idea of adopting
different duty rules depending on the particular “industrial
context” at issue. (Id. at p. 57.)
The narrow exception mentioned earlier, to which we now
turn, does not help Plaintiffs. Applying maritime law and
California law alike in Union Oil Co. v. Oppen (9th Cir. 1974)
501 F.2d 558, the Ninth Circuit held that commercial fishermen
could recover in negligence for the “diminution of aquatic life”
caused by an oil spill. (Id. at pp. 563, 570.) But that was because
theirs was “a pecuniary loss of a particular and special nature”
grounded in the time-worn principle that “seamen are the
favorites of admiralty.” (Id. at pp. 567, 570; see also Curd v.
Mosaic Fertilizer, LLC (Fla. 2010) 39 So. 3d 1216, 1228.)
Recovery in Union Oil was therefore tightly circumscribed: it
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Opinion of the Court by Cuéllar, J.
was “limited to the class of commercial fishermen” whose
livelihoods depend on the flourishing of aquatic life in the
commons of the sea and thus did not include, for example,
recreational fisherman whose “ ‘Sunday piscatorial pleasure’ ”
depended on angling in the same waters. (Union Oil, at p. 570,
quoting Oppen v. Aetna Ins. Co. (9th Cir. 1973) 485 F.2d 252,
260.) Indeed, the Ninth Circuit further cautioned that its
narrow holding based on unique features of the maritime
context did “not open the door to claims” from others “whose
economic or personal affairs were discommoded by the oil spill.”
(Union Oil, at p. 570.) Not “every decline in the general
commercial activity of every business” nearby, the court
reasoned, was “a legally cognizable injury for which the
defendants may be responsible.” (Ibid.) So in Union Oil — as
in every case discussed so far — recovery in negligence for
purely economic losses was the exception, not the rule.
Against all these decisions, only the New Jersey Supreme
Court’s opinion in People Express Airlines, Inc. v. Consolidated
Rail Corp. (N.J. 1985) 495 A.2d 107 (People Express) cuts
definitively the other way. In People Express, a railroad fire
forced a nearby terminal at Newark International Airport to
shut down for twelve hours — a terminal housing the plaintiff’s
business. (See id. at p. 108.) The plaintiff brought a negligence
claim for income lost as a result –– a claim the New Jersey
Supreme Court permitted to proceed. (Id. at pp. 108, 116.) The
court imposed a tort duty to guard against purely economic
losses where there is “an identifiable class with respect to whom
[the] defendant knows or has reason to know are likely to suffer
such damages from its conduct.” (Id. at p. 116.) The court
stressed “that an identifiable class of plaintiffs is not simply a
foreseeable class of plaintiffs” — such as happenstance
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Opinion of the Court by Cuéllar, J.
bystanders — but instead a class that is “particularly
foreseeable in terms of the type of persons or entities comprising
the class, the certainty or predictability of their presence, the
approximate numbers of those in the class, as well as the type
of economic expectations disrupted.” (Ibid.)
Yet decades after the demise of the airline that gave the
case its name, People Express remains “a lonely outpost.”
(Rabin, Respecting Boundaries and the Economic Loss Rule in
Tort (2006) 48 Ariz. L.Rev. 857, 858.) Its relatively ad hoc
standard, embodied in a fact-intensive “ ‘particular
foreseeability’ ” test, has been avoided by other courts with — as
one scholar put it — “a striking degree of unanimity.” (Ibid.;
see also 532 Madison, supra, 750 N.E.2d at p. 1103 [declining to
follow People Express]; Aguilar, supra, 98 A.3d at p. 984
[same].)7
2.
Little wonder the Restatement of Torts takes the
dominant view. Although acknowledging that “[d]uties to avoid
the unintentional infliction of economic loss” exist in certain
recognized circumstances, the latest Restatement provides that
there is “no general duty to avoid the unintentional infliction of
economic loss on another.” (Rest.3d, Torts, Liability for
7
Although the Alaska Supreme Court discussed People
Express in a positive light in Mattingly v. Sheldon Jackson
College (Alaska 1987) 743 P.2d 356, it did so while allowing a
contractor to recover purely economic losses suffered from the
collapse of a trench that was dug specifically “so that his
employees could work in it.” (Id. at pp. 359-361.) Mattingly thus
resembles our special relationship precedents far more so than
People Express — or this case.
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Opinion of the Court by Cuéllar, J.
Economic Harm (Tent. Draft. No. 1, Apr. 4, 2012) § 1
(Restatement T.D. 1).)
In justifying that position, the Restatement echoes
widespread judicial concern that purely economic losses
“proliferate more easily than losses of other kinds” and “are not
self-limiting” in the same way. (Restatement T.D. 1, § 1, com. c.)
Those characteristics, the Restatement explains, threaten
“liabilities that are indeterminate and out of proportion
to [a defendant’s] culpability,” and with them “exaggerated
pressure to avoid an activity altogether.” (Restatement T.D. 1,
§ 1, com. c.) For centuries, in fact, similar concerns have
justified strict limits on private recovery for a public nuisance.
(See 4 Blackstone, Commentaries 167 [noting that a public
nuisance is usually not privately actionable because “it would be
unreasonable to multiply suits by giving every man a separate
right of action”]; accord Rest.3d Torts, Liability for Economic
Harm (Tent. Draft. No. 2, Apr. 7, 2014) § 8, com. c. (Restatement
T.D. 2); Civ. Code, § 3493 [originally enacted in 1872].)
Only when the foregoing considerations are “weak or
absent” — such as in Biakanja and J’Aire, but not in Bily — does
a duty to guard against purely economic losses exist under the
Restatement approach to negligence claims. (See Restatement
T.D. 1, supra, § 1, com. d; see also Restatement T.D. 2, supra,
§ 7, com. a [using 532 Madison’s facts and the court’s holding as
an illustration of the Restatement view].) But in this case, as in
the mine run of man-made disaster cases, those rationales apply
with full force.
C.
The allegations before us underscore the ineluctable
difficulty associated with imposing a duty to guard against
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Opinion of the Court by Cuéllar, J.
purely economic losses in negligence cases like this one. It may
be possible to quantify the profits any one business lost because
of an industrial accident, but imposing such a duty would
nevertheless create line-drawing problems across — quite
literally — space and time.8 So although our duty determination
must ultimately “occur[] at a higher level of generality” than
would a jury’s analysis of fact-intensive issues like breach and
causation (Kesner, supra, 1 Cal.5th at p. 1144), we examine
some particulars of Plaintiffs’ claims to illustrate those two sets
of persistent line-drawing problems.
1.
We lack clear spatial bounds within which to cabin claims
like those asserted here.
This case does not involve a so-called special relationship
under our precedents. Plaintiffs concede — as they must — that
their only relevant ties to SoCalGas are having the misfortune
of operating near the Aliso Facility. Accordingly, they propose
to limit the class they seek to represent based on geographic
proximity alone. Putative class members here are businesses
operating “in the area within five miles” of the leak, a space
which Plaintiffs characterize as “the precise area from which
residents were evacuated.”
What is far from clear is why the five-mile line means
anything. Others beyond that boundary were also affected. We
discern no compelling basis for us to let a business operating
8
We express no view on whether, or to what extent, these
line-drawing problems persist (or dissipate) in cyberspace. (See,
e.g., Dittman v. UPMC (Pa. 2018) 196 A.3d 1036, 1038
[considering whether to impose a tort duty to guard against
“purely pecuniary” losses stemming from a data breach].)
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Opinion of the Court by Cuéllar, J.
4.9 miles away recover its lost profits but deny such recovery to
another business operating 5.1 miles away. Nor is it clear what
we should do about a third business operating 6 miles away
whose balance sheet was hit just as hard by the leak and
ensuing evacuation — or perhaps a fourth business operating
10 miles away, whose income depends on supplying Porter
Ranch businesses or offering services to its residents. Similar
questions arise regarding employees of businesses operating
within the five-mile mark but who live outside it — or even well
outside it. (This is Los Angeles we’re talking about.) They might
have lost wages during a temporary business slowdown — or
even lost their jobs if their employers were forced to cut back
permanently. Those employees might not be included in
Plaintiffs’ proposed class, but their losses are foreseeable, too.
They could come to court next in lawsuits of their own. And if
we were to permit recovery for purely economic losses in this
case, we don’t see how we could justify denying it in that one.
Most of the foregoing difficulties emerge even when an
evacuation zone is set in stone. But here the lines drawn were
traced in sand. Plaintiffs’ own complaint acknowledges that, a
few weeks after the leak was detected, the evacuation zone was
extended beyond the initial five-mile mark. Why businesses
operating outside the original boundary but inside the new one
should not get to recover their equally real and foreseeable
financial losses we do not know.
Using the boundary of an evacuation zone as a liability
line might not just lack predictability. In certain circumstances,
it could also inject a dangerous incentive into disaster response
efforts. Consider how a company taking after Justice Oliver
Wendell Holmes’s infamous “bad man” — that is, a company
that “cares nothing for an ethical rule” and thus cares “only for
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Opinion of the Court by Cuéllar, J.
the material consequences” of its actions — might respond to an
evacuation zone rule. (Holmes, The Path of the Law (1897) 10
Harv. L.Rev. 457, 459, 461; see also Exxon Shipping Co. v. Baker
(2008) 554 U.S. 471, 501-502 [looking to “Justice Holmes’s ‘bad
man’ ” in a tort case brought under federal maritime law].) If
companies face liability in negligence only for traditionally
compensable harms, their financial incentive with respect to
evacuations points in one direction: caution. To minimize the
risk of, and their liability for, harm to people and property,
companies under that legal regime may indeed seek (or at least
not try to avoid) large evacuation zones. But imposing liability
for purely economic losses — bounded only by the size of the
evacuation zone — would blunt that otherwise sharp financial
incentive for caution. The larger the evacuation zone, the larger
a company’s potential liability for purely economic losses. So
under that rule, a company taking after Justice Holmes’s bad
man would face a newly vexing cost-benefit analysis: will an
evacuation prevent enough physical damage to offset the purely
economic losses it is sure to cause? The calculus of a ruthlessly
self-interested company would tend to prioritize maximizing its
own economic return, not minimizing the risk of harm to people
and property. And where it expects an evacuation to harm its
bottom line, our proverbial “bad company” might take steps to
confine or prevent one.
Such steps might include, most obviously, overt pressure
on public officials to roll back or eliminate a proposed
evacuation. But that’s not the only possibility. Public officials
must often rely on company information to know what scale of
risk the community faces. Case in point: during the very
disaster at issue here, authorities allegedly demanded from
SoCalGas real-time data about the leak — and a timeline for
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Opinion of the Court by Cuéllar, J.
ending it. So public officials might simply be kept in the dark.
That’s bad enough when, as here, the public health concerns are
things like nausea and nosebleeds. But it would be much worse
when, on different facts, the stakes are life and death.
Nor is it always simple to decide what counts as an
evacuation, or to resolve claims for purely economic losses where
the disaster in question never triggered an evacuation. Some
evacuations are mandatory, others are voluntary. And
sometimes public officials issue public safety warnings without
telling people to leave the area. An evacuation zone rule would
require a coherent way to decide which sorts of government
action count and which ones don’t. We do not see one. What is
more, the utility of an evacuation zone rule depends on there
being at least some sort of evacuation. So adopting an
evacuation zone rule would be of no help in cases where nothing
remotely approaching an evacuation happens, but the economic
effects are nevertheless severe. (Consider, for instance, an oil
spill at sea that leaves dry land mostly untouched.) Faced with
all this potential for negative consequences and doctrinal
confusion, “we would be acting rashly to adopt a rule treating”
evacuation zones as talismanic. (Intel Corp. v. Hamidi (2003)
30 Cal. 4th 1342, 1363 [declining to extend trespass liability into
cyberspace based on similar doctrinal and practical concerns].)
Without adopting a (not so) bright-line evacuation zone
rule, the alternative is applying a fact-intensive, case-by-case
standard à la People Express. But we have already
experimented with an analogous approach regarding recovery
for negligent infliction of emotional distress. It did not go well.
In Thing, we lamented the “arbitrary results” and the
“inconsistent and often conflicting” body of law that approach
produced. (Thing, supra, 48 Cal.3d at p. 662.) Which is why we
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Opinion of the Court by Cuéllar, J.
retreated from an ad hoc standard and imposed instead a
hard-and-fast rule. (Id. at pp. 667-668.)
We have not forgotten that experience. Today, we are
confronted with hundreds of claims brought by hundreds of
businesses stemming from one industrial accident — and that’s
just the artificially limited class Plaintiffs seek to represent, not
the full universe of potential claimants whose pocketbooks were
adversely (and foreseeably) affected by the leak. We see no
workable way to limit geographically who may recover purely
economic losses. Without one, the dangers of indeterminate
liability, over-deterrence, and endless litigation are at their
apex.
2.
Nor do we see a viable way to limit temporally what purely
economic losses could be recovered here.
Plaintiffs allege that they “have been and continue to be
heavily impacted by the gas leak.” (Italics added.) That is
possible because Plaintiffs complain not of being forced to shut
down during the disaster — no named plaintiff squarely alleges
that — but of losing customers due to the exodus of
neighborhood residents. And even though the leak is over, they
allege that, for as long as the Aliso Facility remains in use,
“business will never return to Porter Ranch as usual.” (Italics
added.) So Plaintiffs are, in effect, seeking pro rata recovery for
the past, present, and future economic toll the leak allegedly
had, has, and will have on Porter Ranch. These are claims
without end.
True: we could conceivably cabin recovery for purely
economic losses to those suffered during the disaster alone. Or
we could allow recovery only for such losses suffered during a
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Opinion of the Court by Cuéllar, J.
business closure, not merely for systemic hits to economic
demand. Yet upon closer inspection, the alluring simplicity of
both approaches quickly proves to be a mirage.
The “during the disaster” option would require a way of
determining precisely what the words “during” and “disaster”
mean in a given case. That will not always be easy. Even
assuming the beginning and end of most disasters can be easily
fixed by the closing of a wayward valve or its equivalent,
distinctions between one disaster (say, a leak of flammable fluid)
and another (a fire) can be unstable. Moreover, disasters like
the gas leak at issue here happen over an extended period of
time, but other industrial accidents (like tower collapses or
railroad explosions) happen in an instant. So for the latter sort
of disaster, we might have to use the duration of any subsequent
evacuation (if there is one) to time-bound the ensuing claims for
purely economic losses. But doing that would inject into disaster
response efforts the very same dangerous incentives and other
problems discussed above.
The “business closure” option, for its part, would likely
prove self-defeating. Requiring affected businesses to close as a
prerequisite for recovery in negligence would lock them into a
dilemma: shut down and lose any income you might have
earned — or stay open and lose any tort claim you might have
brought. Difficult though the choice could be for some, many
businesses might rationally decide they are better off shutting
down. Plaintiff Mediterranean Bistro, for example, would
presumably be reluctant to keep its 80-seat restaurant open to
serve a handful of customers if doing so meant forfeiting a
potentially valuable tort claim. Encouraging businesses to close
could thus catalyze the very economic stagnation we want to
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Opinion of the Court by Cuéllar, J.
minimize. Better instead to encourage businesses to continue
their economic activity where they can.
D.
None of this is to say that denying recovery for those who
did not suffer injury to person or property is a perfect solution
in negligence cases like this one. Far from it. It is only the
least-worst rule out there.
Like other courts, we acknowledge that denying recovery
for purely economic losses under circumstances like these has
“the vice of creating results in cases at its edge that are . . .
‘unjust’ or ‘unfair’ ” — or even “seemingly perverse.” (Testbank,
supra, 752 F.2d at p. 1029; see also 532 Madison, supra, 750
N.E.2d at p. 1103 [acknowledging that this rule is “to an extent
arbitrary because . . . invariably it cuts off liability to persons
who foreseeably might be plaintiffs”].) The courthouse doors are
open for people who experience slight physical injury — yet
closed to others who suffer devastating purely economic losses.
That line may appear arbitrary in some sense. Yet so are the
alternatives we have considered and rejected — and those
alternatives, as we’ve explained, have further flaws of their own.
At any rate, “drawing arbitrary lines is unavoidable if we
are to limit liability and establish meaningful rules for
application by litigants and lower courts.” (Thing, supra, 48
Cal.3d at p. 666.) And as we have explained, the ripple effects
of industrial catastrophe on this scale in an interconnected
economy defy judicial creation of more finely tuned rules. Hence
the admittedly imperfect legal regime that governs in most
jurisdictions — and that we now confirm governs in ours.
The Legislature, however, may be able to improve that
regime in ways that would be exceptionally difficult, if not
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Opinion of the Court by Cuéllar, J.
impossible, for us. To name one example: after we rebuffed
homeowners’ efforts to recover for purely economic losses
stemming from construction defects in Aas, the Legislature
responded to popular calls for a more forgiving rule in that
context. (See Rosen, supra, 30 Cal.4th at p. 1079, citing Aas,
supra, 24 Cal.4th at p. 646.) It enacted a detailed statutory
mechanism specifically designed for homeowners seeking
redress against negligent builders. (Rosen, at p. 1079, citing
Civ. Code, § 895 et seq.) To name another: in view of “the
economic and social disruptions arising out of the Lake Davis
Northern Pike Eradication Project,” the Legislature set up a
special process for people to recover for, among other things,
purely economic losses suffered due to that environmental
protection effort. (Gov. Code, §§ 998, 998.2.)
With the economic consequences in this case allegedly so
severe, and the number of people affected allegedly so large, the
Legislature could be spurred yet again to act. To be sure, purely
economic losses caused by a natural gas leak may present their
own set of challenges. But so too, we can only presume, of those
caused by an oil spill. And in that context the Legislature has
already interceded. It enacted legislation permitting those “who
derive[] at least 25 percent” of their income from activities that
utilize “natural resources” to recover — without regard to
fault — for “[l]oss of profits or impairment of earning capacity
due to the injury, destruction, or loss of . . . natural resources”
from a spill.9 (Gov. Code, § 8670.56.5, subd. (h)(6).) Perhaps
there’s a basis for further industry-specific legislative or
regulatory action. And through the democratic process, the
9
The United States Congress has passed similar
legislation. (See 33 U.S.C. § 2702(b)(2)(E).)
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Opinion of the Court by Cuéllar, J.
Legislature can bring to bear a mix of expertise while
considering competing concerns to craft a solution in tune with
public demands.
A partial solution leveraging the insurance market may
also prove feasible, at least for some businesses. Although many
business interruption insurance policies presently available
might not cover the purely economic losses alleged here (see
Buxbaum v. Aetna Life & Casualty Co. (2002) 103 Cal. App. 4th
434, 448-449), private insurance companies could conceivably
see a profit-making opportunity in today’s decision. Now certain
that a lawsuit seeking purely economic losses of this sort will
not succeed, businesses operating near a natural gas storage
facility — or a dam, shipping lane, oil well, and so forth — may
be more inclined to buy insurance covering profits they stand to
lose if disaster strikes. (See, e.g., Testbank, supra, 752 F.2d at
p. 1029 [observing that a local business’s “own potential losses”
in the event of an industrial accident “are finite and readily
discernible,” which may enable them to obtain insurance “at a
relatively low cost”].) If so, private insurance companies might
expand their policy offerings accordingly.
Finally, we recognize Plaintiffs’ concern that SoCalGas’s
alleged negligent behavior will go insufficiently deterred if we
deny recovery here. But SoCalGas is not getting off scot-free.
At oral argument, the company represented that some 50,000
claimants have alleged in other litigation that they suffered
property damage caused by the leak — several hundred of whom
are local businesses. It further informed us, and we have no
reason to doubt, that the company has spent some $450 million
on remedial measures and agreed to pay another $120 million
as part of a settlement with local authorities. SoCalGas,
operating in a heavily regulated domain, also remains under
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Opinion of the Court by Cuéllar, J.
investigation –– and may face further consequences in the
future.
III.
Risks from industrial accidents raise grave concerns for
society, and we have no doubt the accident precipitating this
case caused significant hardships. To compensate those harmed
and to deter those who do the harming, our society assigns tort
law a pivotal role. But that does not mean society’s interests are
best served by extending its scope indefinitely. Meaningful
limits on tort liability, along with the incentives they set, are
crucial to the functioning of our economy and of our courts.
Where such limits leave gaps in our social fabric, tort does not
stand alone: insurance also compensates, regulation also
deters. And where gaps persist, the Legislature can act.
The better part of a century has passed since then-Judge
Cardozo warned that permitting recovery in negligence for
purely economic losses can threaten indeterminacy-cubed:
“liability in an indeterminate amount for an indeterminate time
to an indeterminate class.” (Ultramares Corp. v. Touche
(N.Y. 1931) 174 N.E. 441, 444.) Courts across the country have
since heeded that warning, by and large denying recovery in
negligence cases like this one even though purely economic
losses inflict real pain. That prevailing rule of no recovery is,
like society itself, imperfect. Yet nearly everyone follows a rule
that few (if any) entirely like. California does, too. So we affirm
the Court of Appeal’s judgment.
CUÉLLAR, J.
We Concur:
CANTIL-SAKAUYE, C. J.
CHIN, J.
CORRIGAN, J.
LIU, J.
KRUGER, J.
GROBAN, J.
32
See last page for addresses and telephone numbers for counsel who argued in Supreme Court.
Name of Opinion Southern California Gas Leak Cases
__________________________________________________________________________________
Unpublished Opinion
Original Appeal
Original Proceeding
Review Granted XXX 18 Cal.App.5th 581
Rehearing Granted
__________________________________________________________________________________
Opinion No. S246669
Date Filed: May 30, 2019
__________________________________________________________________________________
Court: Superior
County: Los Angeles
Judge: John Shepard Wiley, Jr.
__________________________________________________________________________________
Counsel:
Morgan, Lewis & Bockius, James J. Dragna, David L. Schrader, Yardena R. Zwang-Weissman; Quinn
Emmanuel Urquhart & Sullivan, Kathleen M. Sullivan and Daniel H. Bromberg for Petitioner.
Horvitz & Levy, Jeremy B. Rosen, Eric S. Boorstin and Yen-Shyang Tseng for Chamber of Commerce of
the United States, California Chamber of Commerce, American Insurance Association and Property
Casualty Insurers Association of America as Amici Curiae on behalf of Petitioner.
Hueston Hennigan, John C. Hueston, Moez M. Kaba and Douglas J. Dixon for Southern California Edison
Company, Pacific Gas & Electric Company, Southwest Gas Corporation, Edison Electric Institute and
American Gas Association as Amici Curiae on behalf of Petitioner.
Munger, Tolles & Olson, Henry Weissmann and Fred A. Rowley, Jr., for Plains All American Pipeline,
L.P., the Association of Oil Pipe Lines and the Western States Petroleum Association as Amici Curiae on
behalf of Petitioner.
Mark P. Gergen; Reed Smith and Raymond A. Cardozo for California Tort Law Scholars as Amicus Curiae
on behalf of Petitioner.
Fred J. Hiestand for The Civil Justice Association of California as Amicus Curiae on behalf of Petitioner.
No appearance for Respondent.
Lieff Cabraser Heimann & Bernstein, Robert J. Nelson, Sarah R. London, Wilson M. Dunlavey; Public
Justice, Leslie A. Brueckner; Kiesel Law, Paul R. Kiesel, Helen Zukin, Mariana Aroditis; Keller Rohrback,
Ben Gould, Derek W. Loeser, Amy Williams-Derry; Boucher, Raymond P. Boucher, Shehnaz M.
Bhujwala, Maria L. Weitz; The Kick Law Firm, Taras Kick; Baron & Budd, Roland Tellis; R. Rex Parris
Law Firm, R. Rex Parris and Patricia Oliver for Real Parties in Interest.
Page 2 – S246669 – counsel continued
Counsel:
Sean B. Hecht, Julia E. Stein and Nathaniel Logar for California Tort Professors Richard Abel, Alison
Anderson, Blake Emerson, Jill Horwitz, Kathleen Kim, Albert Lin, John Nockleby, Alex Wang, Jonathan
Zasloff and Adam Zimmerman as Amici Curiae on behalf of Real Parties in Interest.
Nelson & Fraenkel, Gretchen M. Nelson and Gabriel S. Barenfeld for Consumer Attorneys of Los Angeles
as Amicus Curiae on behalf of Real Parties in Interest.
The Arkin Law Firm and Sharon J. Arkin for Consumer Attorneys of California as Amicus Curiae on
behalf of Real Parties in Interest.
Boies Schiller Flexner, Christopher G. Caldwell, Michael R. Leslie, Andrew Esbenshade, Kelly L. Perigoe
and David Boies for Toll Brothers, Inc., and Porter Ranch Development Company as Amici Curiae on
behalf of Real Parties in Interest.
Counsel who argued in Supreme Court (not intended for publication with opinion):
Kathleen M. Sullivan
Quinn Emmanuel Urquhart & Sullivan
555 Twin Dolphin Drive, 5th Floor
Redwood Shores, CA 94065
(650) 801-5000
Leslie A. Brueckner
Public Justice
475 14th Street, Suite 610
Oakland, CA 94612
(510) 622-8150