foreseeability of harm

In 1966 Essex Group, Inc., a manufacturer of electrical wire products, decided to expand its aluminum wire production and began negotiations with Aluminum Company of America (ALCOA) for a long-term supply of aluminum. By December 26, 1967, the parties entered into the Molten Metal Agreement under which Essex would supply alumina to ALCOA, which would smelt it into molten aluminum at its Warrick, Indiana facility for Essex to pick up. The agreement was to run until the end of 1983, with Essex having an option to extend it to 1988. Essex also entered into a separate Alumina Purchase Agreement with Alcoa of Australia Proprietary Ltd. for the supply of alumina. The price under the Molten Metal Agreement was calculated using a formula with three components. A demand charge was indexed to the Engineering News Record Construction Cost Index. A non-labor production cost component was indexed to the Wholesale Price Index-Industrial Commodities (WPI-IC). A labor production cost component was indexed to ALCOA's average hourly labor costs at Warrick. The initial price was fifteen cents per pound, subject to an overall cap at sixty-five percent of a specified market price for aluminum. ALCOA consulted economist Alan Greenspan in developing the indexing system, and both parties examined the historical performance of the indices before agreeing to them. The parties also executed a Side Letter Agreement addressing concerns under the Robinson-Patman Act, providing that if the agreement were construed as a sale of goods, either party could terminate it. From 1968 through the early 1970s, the price formula produced returns to ALCOA within the expected range of one to seven cents per pound net. Beginning in 1973, following actions by OPEC to increase oil prices and unanticipated pollution control costs, ALCOA's electricity costs at Warrick rose much more rapidly than the WPI-IC. As a result, ALCOA began incurring substantial out-of-pocket losses on the contract, projected to exceed sixty million dollars over the remaining term if unchanged. In June 1979, ALCOA notified Essex that it would reduce deliveries by fifteen percent, and Essex disputed ALCOA's authority to do so under the contract terms. On July 21, 1975, representatives of ALCOA and Essex, including Krome George and Paul O'Malley, met and discussed possible revision of the pricing formula, but the parties dispute whether an oral agreement to modify the contract was reached. In 1977 and 1978, electrical generating plant failures and a coal strike caused interruptions in ALCOA's smelting operations, leading to reduced deliveries to Essex that ALCOA attributed to causes beyond its control. ALCOA filed this action in the United States District Court for the Western District of Pennsylvania seeking reformation of the contract, a declaratory judgment regarding an alleged oral modification and termination rights, while Essex counterclaimed for damages and specific enforcement of the original delivery obligations. The case proceeded to a non-jury trial on liability issues, during which evidence was presented including tables showing the divergence between the WPI-IC and ALCOA's actual non-labor costs, testimony from company officials, and records of contract negotiations and performance. Jurisdiction is based on diversity of citizenship with the amount in controversy exceeding the jurisdictional threshold, and the parties agreed that Indiana law governs the contract.

Plaintiffs, who are some of the beneficiaries under the will of Eugene H. Emmick, deceased, brought this action for damages against defendant L. S. Hamm, an attorney at law who had been engaged by the testator to prepare the will. They have appealed from a judgment of dismissal entered after an order sustaining a general demurrer to the second amended complaint without leave to amend. The allegations of the first and second causes of action are summarized as follows. Defendant agreed with the testator, for a consideration, to prepare a will and codicils thereto for him by which plaintiffs were to be designated as beneficiaries of a trust provided for by paragraph Eighth of the will and were to receive 15 per cent of the residue as specified in that paragraph. Defendant prepared testamentary instruments containing phraseology that was invalid by virtue of section 715.2 and former sections 715.1 and 716 of the Civil Code. Paragraph Eighth of these instruments transmitted the residual estate in trust and provided that the trust shall cease and terminate at 12 o’clock noon on a day five years after the date upon which the order distributing the trust property to the trustee is made by the Court having jurisdiction over the probation of this will. After the death of the testator the instruments were admitted to probate. Subsequently defendant advised plaintiffs in writing that the residual trust provision was invalid and that plaintiffs would be deprived of the entire amount unless they made a settlement with the blood relatives of the testator under which plaintiffs would receive a lesser amount. As a result, plaintiffs were compelled to enter into a settlement under which they received a share of the estate amounting to $75,000 less than the sum which they would have received pursuant to testamentary instruments drafted in accordance with the directions of the testator. The third cause of action alleges that after admission of the will and codicils to probate, Harold Houghton Emmick, Walton Russell Emmick, Delta Inez Spelman, and Retha Newell instituted a will contest. The executors, defendant, and the contestants reached a settlement agreement under which $10,000 would be paid to the contestants from the assets of the estate in return for releases. Defendant caused to be executed releases which did not preclude the contestants from a subsequent attack upon the validity of the testamentary instruments. As a consequence, the contestants joined in a legal attack upon the validity of the residual clause and plaintiffs would have received an additional sum of $15,000 from the estate if the releases had been prepared in accord with good legal practice. The trial court sustained a general demurrer to the second amended complaint without leave to amend and entered a judgment of dismissal from which the plaintiffs appealed.

In 1969, Seatrain Shipbuilding Corp., a wholly owned subsidiary of Seatrain Lines, Inc., announced it would build four oil-transporting supertankers—the T. T. Stuyvesant, T. T. Williamsburgh, T. T. Brooklyn, and T. T. Bay Ridge. Each tanker was constructed pursuant to a contract in which a separate wholly owned subsidiary of Seatrain engaged Shipbuilding. Shipbuilding in turn contracted with respondent, now known as Transamerica Delaval Inc., to design, manufacture, and supervise the installation of turbines costing $1.4 million each that would be the main propulsion units for the 225,000-ton, $125 million supertankers. When each ship was completed, its title was transferred from the contracting subsidiary to a trust company as trustee for an owner, which in turn chartered the ship to one of the petitioners, also subsidiaries of Seatrain. Queensway Tankers, Inc. chartered the Stuyvesant; Kingsway Tankers, Inc. chartered the Williamsburgh; East River Steamship Corp. chartered the Brooklyn; and Richmond Tankers, Inc. chartered the Bay Ridge. Each petitioner operated under a bareboat charter for 20 or 22 years and assumed responsibility for the cost of any repairs to the ships. The Stuyvesant sailed on its maiden voyage in late July 1977. On December 11 of that year, as the ship was about to enter the Port of Valdez, Alaska, steam began to escape from the casing of the high-pressure turbine. That problem was temporarily resolved by repairs, but before long, while the ship was encountering a severe storm in the Gulf of Alaska, the high-pressure turbine malfunctioned. In January 1978, an examination revealed that the first-stage steam reversing ring virtually had disintegrated and had caused additional damage to other parts of the turbine. The damaged part was replaced with a part from the Bay Ridge, which was then under construction. In April 1978, the ship again was repaired with a part from the Brooklyn. Finally, in August, the ship was permanently and satisfactorily repaired with a ring newly designed and manufactured by Delaval. The Brooklyn and the Williamsburgh were put into service in late 1973 and late 1974, respectively. In 1978, as a result of the Stuyvesant’s problems, they were inspected while in port, revealing similar turbine damage, and newly designed parts were installed as permanent repairs that summer. When the Bay Ridge was completed in early 1979, it contained the newly designed parts and thus never experienced the high-pressure turbine problems that plagued the other three ships. In 1980, when the ship was on its maiden voyage, the engine began to vibrate with a frequency that increased even after speed was reduced. It turned out that the astern guardian valve, located between the high-pressure and low-pressure turbines, had been installed backwards. Because of that error, steam entered the low-pressure turbine and damaged it. The charterers’ second amended complaint, filed in the United States District Court for the District of New Jersey, invokes admiralty jurisdiction. It contains five counts alleging tortious conduct on the part of respondent Delaval and seeks an aggregate of more than $8 million in damages for the cost of repairing the ships and for income lost while the ships were out of service. The first four counts allege that Delaval is strictly liable for the design defects in the high-pressure turbines of the Stuyvesant, the Williamsburgh, the Brooklyn, and the Bay Ridge, respectively. The fifth count alleges that Delaval negligently supervised the installation of the astern guardian valve on the Bay Ridge. The initial complaint also had listed Seatrain and Shipbuilding as plaintiffs and had alleged breach of contract and warranty as well as tort claims. After Delaval interposed a statute of limitations defense, the complaint was amended and the charterers alone brought the suit in tort. The nonrenewed claims were dismissed with prejudice by the District Court. Delaval moved for summary judgment. The District Court granted summary judgment for Delaval, and the Court of Appeals for the Third Circuit, sitting en banc, affirmed. The Supreme Court granted certiorari to resolve a conflict among the Courts of Appeals sitting in admiralty. Richmond Tankers, Inc., the charterer of the Bay Ridge, did not charter the Bay Ridge until May 1979, after the ship was completed with a newly designed, nondefective, high-pressure turbine. The ring was installed in the Stuyvesant where it remained until April 1978, when it was removed due to disintegration.

Transatlantic Financing Corporation, the operator of the SS CHRISTOS, entered into a voyage charter with the United States on October 2, 1956, for the carriage of a full cargo of wheat from a United States Gulf port to a safe port in Iran. The charter specified the points of origin and destination but did not indicate the route to be taken. On July 26, 1956, the Government of Egypt nationalized the Suez Canal Company. During the ensuing international crisis, on October 27, 1956, the SS CHRISTOS sailed from Galveston on a course that would have taken her through the Suez Canal. Israel invaded Egypt on October 29, 1956, followed by invasions of the Suez Canal Zone by Great Britain and France on October 31, 1956. On November 2, 1956, the Egyptian Government closed the Suez Canal to traffic by obstructing it with sunken vessels. After the closure, Transatlantic's representative contacted an employee of the United States Department of Agriculture on or about November 7, 1956, to request instructions on the cargo and to seek additional compensation for a voyage around the Cape of Good Hope. The ship changed course and arrived in Bandar Shapur, Iran, on December 30, 1956. Transatlantic later filed a libel against the United States in the District Court seeking recovery of the costs attributable to the diversion around the Cape of Good Hope. The District Court dismissed the libel, and Transatlantic appealed to the United States Court of Appeals for the District of Columbia Circuit.