Dimming the Bright-Line Rule: The Fifth Circuit Lowers Its Requirement to Bring Claims for Purely Economic Losses

Bradley J. Schwab | Note

During the late hours of Christmas Eve 2007, a collision on the Mississippi River between the up-river bound tug M/V DAN MACMILLAN and the down-river bound tug M/V JOHN M DONNELLY broke several barges free from the DAN MACMILLAN’s tow. After drifting more than two miles down the river, one of those barges drifted into a connecting channel and eventually grounded on its bank. The waterway in which the barge grounded served as the intake channel for a hydroelectric station owned by Catalyst Old River Hydroelectric Limited Partnership (Catalyst). The channel’s purpose was to divert water from the Mississippi River toward the station’s dam structure, where turbines use the water’s flow to generate electrical power. The barge grounded on the bank in a way that obstructed the continuous flow of water through the channel to the station’s turbines. In order to prevent the barge from sinking and facilitate its safe removal, Catalyst reduced the current in the intake channel by shutting down six of the station’s eight turbines. The removal effort continued for approximately twenty hours, and Catalyst’s facility suffered no physical damage as a result of the incident. However, by operating its turbines at reduced capacity during the barge’s removal, Catalyst’s station generated substantially less electrical power than it otherwise would have. As a result, Catalyst brought claims against American River Transportation Company and Ingram Barge Company, the owners of the vessels involved in the collision, to recover the value of the lost electrical output.

The United States District Court for the Western District of Louisiana dismissed Catalyst’s claim for lost profits, finding the mere presence of the barge in the intake channel insufficient to satisfy the United States Court of Appeals for the Fifth Circuit’s bright-line rule requiring physical damage to property for recovery of economic losses. Catalyst appealed the district court’s ruling, arguing that the barge’s presence in its intake channel should constitute physical damage to its facility because it interfered with the normally unobstructed flow of water through the channel and impaired the ability of the facility to operate as designed. The Fifth Circuit reversed the district court’s dismissal and held that the bright-line rule was satisfied by both: (1) the barge’s intrusion onto Catalyst’s private property and interference with the proper functioning of its hydroelectric facility and (2) Catalyst’s act of closing its turbines to prevent any future physical damage to its facility. Catalyst Old River Hydroelectric Ltd. Partnership v. Ingram Barge Co., 639 F.3d 207, 211-14, 2011 AMC 913, 918-22 (5th Cir. 2011).