In re Gibson & Cushman Dredging Corp.
| Decision Date | 28 September 1998 |
| Docket Number | Bankruptcy No. 088-80147-511,Adversary No. 088-0117-511. |
| Citation | 225 BR 543 |
| Parties | In re GIBSON & CUSHMAN DREDGING CORP., Debtor. GIBSON & CUSHMAN DREDGING CORP., v. Thomas HEALEY, Esq., and Healey & McCaffrey, Esqs., Bigham, Englar, Jones & Houston, Travelers Indemnity Co., Atlantic Gulf & Pacific Co., John McMullen Trust and Joseph DiIorio. |
| Court | U.S. Bankruptcy Court — Eastern District of New York |
Richard J. Reisch, Carle Place, NY, by Richard J. Reisch, for Plaintiff.
Mahoney & Keane, New York City, by Edward A. Keane, for Defendants.
DECISION AFTER TRIAL
Proposed Findings of Fact & Conclusions of Law Pursuant to 28 U.S.C. § 157(c)(1) ()
Gibson & Cushman Dredging Corp. (the "Debtor" or "G & C"), filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code on February 26, 1988. On August 18, 1988, the Debtor commenced the instant adversary proceeding against, inter alia, its former attorneys, Healey & McCaffrey, Esqs. ("H & M"), and Thomas Healey, Esq. ("Healey" and collectively with H & M, the "Defendants").1 G & C seeks damages resulting from the alleged legal malpractice committed by H & M and Healey during a prior state-court proceeding. The Court conducted a three-day trial on the merits at which various witnesses appeared and exhibits were received into the evidentiary record.2 Thereafter, the parties each filed a Post-Trial Memorandum of Law. The Court thereupon reserved decision.
As this is a non-core proceeding,3 this decision constitutes the Court's proposed findings of fact and conclusions of law pursuant to 28 U.S.C. § 157(c)(1).4
The second, and sole remaining, cause of action in this adversary proceeding alleges that Defendants committed legal malpractice when they represented the Debtor in an action for personal injuries commenced by Joseph P. DiIorio ("DiIorio"), in the Supreme Court of the State of New York, New York County (the "State Court"). The malpractice stems from Defendants' failure to: (i) implead Atlantic Gulf & Pacific Co. ("AG & P") as a third-party defendant in the State Court action; (ii) raise the affirmative defense of release; (iii) conduct appropriate pre-trial discovery; (iv) properly and satisfactorily cross-examine DiIorio's expert witness; (v) adequately and properly prepare for the examinations of witnesses and to exercise sound judgment in the tactical preparation of the defense; and (vi) seek a judicial determination of AG & P's equitable share of damages. Compl't ¶¶ 49-54. Debtor seeks compensatory damages, in the amount of the judgment rendered against it, as well as consequential damages resulting from any malpractice.
In their Answer, the Defendants deny the substantive allegations, except that they admit that they did not implead AG & P. Answer ¶ 20.5 Defendants also raise five affirmative defenses and allege two counterclaims against G & C. In their first three affirmative defenses, Defendants assert that: (i) this Court lacks subject matter jurisdiction; (ii) the complaint fails to state a claim against them; and (iii) G & C willfully misstated and concealed information relevant to the facts of the State Court proceeding and that this adversary proceeding is without factual or legal basis.
Defendants' remaining two affirmative defenses are coupled with counterclaims. The first alleges that G & C had actual knowledge of misrepresentations and misstatements of material information, and that such conduct is in violation of the cooperation clause of the policy of insurance between G & C and Travelers Indemnity Co. ("Travelers"). Defendants seek judgment on their first counterclaim in the amount of $100,000, plus costs and attorneys fees. In their second counterclaim, Defendants seek punitive damages in the amount of $500,000.
The adversary proceeding here stems from an action for personal injuries suffered by DiIorio while a seaman aboard the dredge Pittsburgh, which was within the navigable waters of the United States and located in Sunnypoint, North Carolina. After sustaining these injuries, DiIorio commenced suit in State Court against G & C.
On September 12, 1972, G & C and AG & P entered into an agreement whereby G & C, as an alleged nominee of AG & P, would bid on a dredging contract (the "Sunnypoint job") with the United States Army Corps of Engineers ("USACE"). Pl. Exh. 3A. Under the terms of the agreement, AG & P would do 60% of the work and subcontract out the remaining 40% of the work. Id. G & C's sole obligation was to bid on the contract and, if successful, to "engage in such formalities as were required of the successful bidder." Compl't ¶ 14. AG & P, a large dredging company, could not directly bid on this contract due to a "small business set aside" which mandated that only small businesses could bid on the Sunnypoint job. Trial Tr. (Feb. 1) at 12. G & C was ultimately awarded the contract and thereafter became the primary contractor. Compl't ¶ 15 and Answer ¶ 3.
One of the formalities required of G & C was to submit an accident prevention plan to the USACE. Trial Tr. (Feb. 1) at 26. G & C's accident prevention plan named William Tabbot ("Tabbot") as G & C's authorized representative. Pl. Exh. 2 at E3-E7. It was shown at trial, however, that Tabbot was employed by AG & P, and not G & C. Trial Tr. (Feb. 1) at 18-19; 99.
During the course of the dredging, a main steam generator turbine on the Pittsburgh exploded, injuring DiIorio. At all times mentioned, AG & P owned and operated the Pittsburgh. Id. at 63.
DiIorio commenced an action against AG & P under the general maritime law of the United States, alleging, among other things, that the vessel was unseaworthy and that AG & P was negligent in providing safe conditions. Compl't, Exh. 3. This suit was ultimately settled with AG & P paying DiIorio $600,000 and DiIorio executing a release in favor of AG & P and certain other entities. Pl. Exh. 7. That release, dated November 22, 1975 (the "DiIorio Release"), provides, in pertinent part, that the following entities (in addition to AG & P) were released by DiIorio:
The dredge Pittsburgh, its captain, officers, crewmembers, agents, owners, charterers and all vessels owned and operated by AG & P, Inc., their heirs, administrators, successors and assigns. . . .
Id., (emphasis added).
On or about January 21, 1976, approximately 60 days after DiIorio released AG & P, he commenced an action against G & C in State Court under the General Maritime Laws of the United States and the theory of comparative negligence under the Maritime Doctrine of Shipowner's Warranty of Seaworthiness. Pl. Exh. 5. In his complaint, DiIorio describes G & C as a "charterer" or a "time charterer" in at least six paragraphs. See id. at ¶¶ 10, 11, 13, 14, 18 and 21. DiIorio was represented by the same attorney in both the G & C action and in the action against AG & P. Pl. Exh. 5 at 7; Compl't, Exh. 3 at 6.
Healey and H & M were engaged by Travelers to represent and defend G & C and they interposed an answer on behalf of G & C. Pl. Exh. 6. The answer did not contain an affirmative defense alleging that the action was barred by reason of DiIorio's release of AG & P and the other parties named therein. Id. Before trial, the issues of liability and damages were bifurcated by the trial court. On October 31, 1987, in the liability portion of the trial, the jury returned a verdict against G & C, finding that G & C was liable to DiIorio for such damages as he may have suffered as a result of the steam turbine explosion. Pl. Exh. 1 at A1376-A1384. Following the liability portion of the trial, but before the damages portion began, H & M was discharged by Travelers and the firm of Bigham, Englar, Jones & Houston ("BEJ & H") was retained. Compl't ¶ 35.
BEJ & H thereafter appeared on behalf of G & C in the damages portion of the trial. On December 29, 1987, the jury returned a verdict in favor of DiIorio against G & C in the sum of $6,578,698. The judgment was subsequently reduced by the trial court to the sum of $3,078,696 on January 13, 1988. The judgment was further reduced by the trial court by $600,000 as a result of the settlement between DiIorio and AG & P. After taking all these reductions into account, the judgment totaled $2,478,696 as against G & C. Compl't ¶ 37.
G & C ultimately appealed the judgment to the Supreme Court of the State of New York, Appellate Division, First Department (the "Appellate Division"). By written decision dated June 27, 1989,6 the Appellate Division ordered a new trial unless DiIorio consented to reduce the award for future earnings to $750,000. In accordance with the Appellate Division's ruling, a modified judgment was entered against G & C in the amount of $1,728,696.
Thereafter, G & C (by its new counsel, BEJ & H) moved before the State Court to vacate the judgment on the grounds of newly discovered evidence and/or fraud based on the release between DiIorio and AG & P. After the State Court denied the motion, G & C appealed. By written decision dated May 29, 1990,7 the Appellate Division affirmed the State Court's ruling, finding that "the release in question does not expressly or impliedly release defendant from liability for plaintiff's injuries" (emphasis added). However, on reargument, the Appellate Division modified its May 29, 1990 Order and withdrew the above-quoted sentenced as it was determined to be inconsistent with the New York Court of Appeals ruling in Wells v. Shearson Lehman/American Express, 72 N.Y.2d 11, 14, 530 N.Y.S.2d 517, 526, 526 N.E.2d 8 (1988).8 The Appellate Division ultimately concluded that the reference to "charterers" in DiIorio's release included G & C, but that G & C waived this defense by failing to plead and prove it.9
The principal...
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