Gregory v. Garrett Corp., 82 Civ. 2316 (GLG)

• Decision Date: 01 June 1984
• Docket Number: 82 Civ. 6459 (GLG),82 Civ. 5278 (GLG),82 Civ. 1042 (GLG) and 83 Civ. 1082 (GLG) to 83 Civ. 1084 (GLG).,82 Civ. 3912 (GLG),82 Civ. 6297 (GLG),82 Civ. 3913 (GLG),82 Civ. 3911 (GLG),No. 82 Civ. 2316 (GLG),82 Civ. 3045 (GLG),82 Civ. 2316 (GLG)
• Citation: 589 F. Supp. 296
• Parties: Gwendolyn L. GREGORY, as Executrix under the Will of Joseph Morgan Gregory, Deceased, Plaintiffs, v. The GARRETT CORPORATION; Colt Electronics Co., Inc.; Phoenix Aerospace, Inc.; and Lockheed Corp., Defendants. The GARRETT CORPORATION and Lockheed Corporation, Third-Party Plaintiffs, v. TEXASGULF, INC. and Texasgulf Aviation, Inc., Third-Party Defendants. and Related Actions.
• Court: U.S. District Court — Southern District of New York

589 F. Supp. 296

Gwendolyn L. GREGORY, as Executrix under the Will of Joseph Morgan Gregory, Deceased, Plaintiffs, v. The GARRETT CORPORATION; Colt Electronics Co., Inc.; Phoenix Aerospace, Inc.; and Lockheed Corp., Defendants.

The GARRETT CORPORATION and Lockheed Corporation, Third-Party Plaintiffs, v. TEXASGULF, INC. and Texasgulf Aviation, Inc., Third-Party Defendants.

and Related Actions.

Nos. 82 Civ. 2316 (GLG), 82 Civ. 3045 (GLG), 82 Civ. 3911 (GLG), 82 Civ. 3912 (GLG), 82 Civ. 3913 (GLG), 82 Civ. 5278 (GLG), 82 Civ. 6297 (GLG), 82 Civ. 6459 (GLG), 82 Civ. 1042 (GLG) and 83 Civ. 1082 (GLG) to 83 Civ. 1084 (GLG).

United States District Court, S.D. New York.

June 1, 1984.

Whitman & Ransom, New York City, for plaintiffs Gwendolyn L. Gregory, Mary V. Drew, and Mary L. McKee; Kevin Keating, Richard E. Lawler, New York City, of counsel.

Kreindler & Kreindler, New York City, for plaintiffs Morgan Guaranty (Fogarty), Woodling, and Claydon; Milton G. Sincoff, Steven Earl Anderson, New York City, of counsel.

Speiser & Krause, P.C., New York City, for plaintiff Constance A. Boyle; Frank H. Granito, Jr., New York City, of counsel.

Cummings & Lockwood, Stamford, Conn., for plaintiff Judith N. Sorenson Ten Stamford Forum; Mark E. Fuhrmann, Stamford, Conn., of counsel.

Costello & Shea, New York City, and Perkins, Coie, Stone, Olsen & Williams, Seattle, Wash., for defendant and third-party plaintiff The Garrett Corp.; J. Donald Tierney, New York City, Keith Gerrard, Richard C. Coyle, Sherilyn Peterson, Seattle, Wash., of counsel.

Lester, Schwab, Katx & Dwyer, New York City, and Blackwell, Sanders, Matheny, Weary & Lombardi, Kansas City, Mo., for defendant and third-party plaintiff Colt Electronics Co., Inc.; B. Jennifer Jaffee, New York City and Timothy W. Triplett, Kansas City, Mo., of counsel.

Donovan, Leisure, Newton & Irvine, New York City, and Morris, Larson, King, Stamper & Bold, Kansas City, Mo., for defendant and third-party plaintiff Phoenix Aerospace, Inc.; Daniel R. Murdock, New York City and Steven G. Emerson, Kansas City, Mo., of counsel.

Mendes & Mount, New York City, for defendant and third-party plaintiff Lockheed Corp.; Kevin F. Cook, James W. Hunt, James M. Fitzsimons, New York City, of counsel.

John S. Martin, Jr., U.S. Atty., New York City, J. Paul McGrath, Asst. Atty. Gen., Washington, D.C., for defendant U.S.A.; Kathlynn G. Fadely, Susan M.H. Gillett, Trial Attys., Dept. of Justice, Torts Branch, Civ. Div., Washington, D.C., of counsel.

Townley & Updike, New York City, for defendants and third-party defendants TexasGulf Inc. and TexasGulf Aviation Inc.; Frederick D. Berkon, John C. Sabetta, Michael Belohlavek, New York City, of counsel.

MEMORANDUM DECISION AND ORDER

GOETTEL, District Judge.

In most of the twenty-one related actions arising out of the crash of Texasgulf Aviation, Inc.'s ("TGA's") Lockheed Jetstar near Westchester airport on February 11, 1981, TGA and its parent, Texasgulf, Inc. ("Texasgulf"), as defendants or third-party defendants,¹ asserted two affirmative defenses against the claims brought by the estates of the six passengers and two crew members who died in the crash. The first defense was that of employer's immunity from suit under the pertinent workers' compensation laws, and the second defense was that of release from any potential tort liability or liability for contribution to other defendants.²

When Texasgulf and TGA moved for summary judgment based on these two affirmative defenses, the Court denied both motions, primarily on the ground that material issues of fact remained to be litigated. Thereafter, Texasgulf and TGA moved for a bifurcated trial, with the affirmative defenses to be tried first and the issues of liability and damages to be tried later. That application was granted and the two defenses were tried to a jury during the month of April.

During their deliberations the jury considered the following special interrogatories and gave the following answers:

Q.1. Do you find: that at the time of the crash Texasgulf Aviation functioned solely as the aviation department of Texasgulf; that Texasgulf and Texasgulf Aviation were so merged that they were really only one entity; that Texasgulf Aviation had no purpose other than to carry out Texasgulf's business; and that Texasgulf Aviation's corporate structure and any right it had to control the flight crews and maintenance personnel were so merged with those of Texasgulf that for purposes of determining the scope of workers' compensation immunity Texasgulf Aviation should be considered the alter ego of Texasgulf rather than a separate corporate entity?

A. No.

Q.2. Who was the employer of the flight crew and the maintenance personnel for the aircraft that crashed?

A. Texasgulf Aviation.

Q.3. Who was the operator of the aircraft that crashed?

A. Texasgulf Aviation.

Q.4. In communicating with the estate representatives regarding the relationship between Texasgulf and Texasgulf Aviation or regarding the workers' compensation immunity defense, did Texasgulf or USAIG make any fraudulent misrepresentation or any material misrepresentation which was justifiably relied upon by the estate representatives while they were making their decision to sign the releases?

A. Yes.

Q.5. In communicating or not communicating with the estate representatives regarding the existence of the American Home Insurance policy and the nature of its coverage, did Texasgulf or USAIG make any fraudulent misrepresentation or any material misrepresentation which was justifiably relied upon by the estate representatives while they were making their decision to sign the releases?

A. Yes.

Q.6. Did Texasgulf or USAIG, in their dealings with any of the estate representatives in connection with the releases, make any fraudulent misrepresentation or any material misrepresentation which the estate representatives justifiably relied upon in making their decisions to sign the releases?

A. Yes.

With respect to Questions 4, 5, and 6, the jury also indicated that each estate representative who had signed a release had relied upon the misrepresentations.³

After the jury returned its verdict, counsel for Texasgulf and TGA stated that they would move within ten days to set aside the jury verdict. They also argued that, if the jury verdict were not set aside, the Court should order each estate that had received $250,000 in exchange for signing a release to return the full amount of the consideration. The Court has since received complete papers only on the question of the return of consideration; thus, in this decision only that question is considered.

Texasgulf and TGA argue that each estate is required by law, equity, and contractual obligation to return $250,000, because the release that was signed as a condition precedent to the receipt of the money is a "nullity." Texasgulf and TGA's Post Trial Memorandum of Law at 12 n. *. In response, the estates make a number of points. One of these is that a return of consideration is required only upon entry of a final judgment and that no final judgment can be entered at this time because no claim has been fully adjudicated. The estates add that even if judgment were proper, a stay of execution of such judgment would be appropriate because the estates have claims against Texasgulf and TGA which will probably result in an even larger recovery than $250,000 per estate.

DISCUSSION

The parties spend considerable time debating which state's law should be applied to these issues. However, the Court has already determined during trial that New York law should apply to procedural issues even though some aspects of the releases' validity might have to be considered under the laws of other states.⁴ So too, New York law applies here to the question of whether the estates must return the consideration before the issues of liability and damages are tried.⁵ See, e.g., Ciletti v. Union Pac. R. Co., 196 F.2d 50, 51 (2d Cir.1952).

Section 3004 of New York's Civil Practice Law provides that one seeking rescision of a contract (or opposing a defense of release) need not offer to restore benefits received pursuant to the contract when bringing an action thereon and that the claimant will not be denied relief because of a failure to make such an offer before a judgment is entered. N.Y.Civ.Prac. Law § 3004 (McKinney 1974).⁶ However, the section goes on to provide that "the court may make a tender of restoration a condition of its judgment, and may otherwise in its judgment so adjust the equities between the parties that unjust enrichment is avoided." Id.⁷Thus, it is clear that although section 3004 of New York's Civil Practice Law does not require a tender of restoration as a prerequisite to a rescission action, it does give the Court the discretion to order such a tender to prevent unjust enrichment.⁸

Despite the clear language of the statute to the contrary, the estates seem to cite Skipworth v. Cooper, 37 A.D.2d 906, 325 N.Y.S.2d 485 (4th Dep't 1971), for the proposition that a Court may in no circumstances require a plaintiff to tender restoration of consideration before judgment is entered on the merits of the underlying tort claim. That, however, reads an awful lot into a brief memorandum decision of only two paragraphs,⁹ and the Court is unwilling to construe the word "judgment" in section 3004 as meaning only a final money judgment ultimately disposing of all issues in the case. Indeed, under New York practice, where interlocutory appeals are freely allowed, such a construction would be an anomaly. Rather, the "judgment" contemplated is one that determines whether the releases in question are voidable — a decision already made by the jury herein. Although the considerations would perhaps be different in the case of a concurrent verdict on both the validity of the releases and the tort liability of each party, here, where there has been a preliminary determination of the invalidity of the releases before...