In re Sept. 11 Property Damage and Business Loss

Decision Date12 January 2006
Docket NumberNo. 04 Civ.7272(AKH).,No. 02 Civ.7188(AKH).,No. 21 MC 101(AKH).,21 MC 101(AKH).,02 Civ.7188(AKH).,04 Civ.7272(AKH).
PartiesIn re SEPTEMBER 11 PROPERTY DAMAGE AND BUSINESS LOSS LITIGATION Aegis Insurance Services, Inc., et al., Plaintiffs, v. the Port Authority of New York and New Jersey, et al., Defendants. Aegis Insurance Services, Inc., et al., Plaintiffs, v. 7 World Trade Center Company, L.P., et al., Defendants.
CourtU.S. District Court — Southern District of New York
OPINION AND ORDER GRANTING MOTION FOR SUMMARY JUDGMENT, AND DISMISSING AND LIMITING COMPLAINTS

HELLERSTEIN, District Judge.

The terrorist-related aircraft crashes of September 11, 2001, brought down, not only the Twin Towers of the World Trade Center, buildings One and Two, but Seven World Trade Center ("7WTC") as well, an adjacent 47-story office tower. The raging fires that caused Towers One and Two to collapse spread to Tower Seven, presumably from the debris that rained down on 7WTC and the surrounding area. The fires in 7WTC continued all that day, unquenched by water because of rupture of an adjacent water main, unfought by New York City firemen many of whom had died in Towers One and Two, and fueled by diesel fuel stored in tanks located in 7WTC. Approximately seven hours after the fires at 7WTC were initiated by the collapse of buildings One and Two, 7WTC itself collapsed. In marked contrast to the collapse of the Twin Towers, the collapse of 7WTC resulted in no loss of life. But there was substantial damage to property, giving rise to the set of lawsuits with which I now deal.

The Consolidated Edison Company a New York, Inc. ("Con Ed") operated a substation beneath 7WTC which the fires and building collapse heavily damaged. Nine transformers and considerable ancillary equipment housed in the substation were destroyed by the fire and the building collapse. Con Ed's insurers — Aegis Insurance Services, Inc., Liberty Insurance Underwriters, Inc., National Union Insurance Company of Pittsburgh, Nuclear Electric Insurance Limited, and Underwriters at Lloyds — reimbursed Con Ed for the damage it incurred, and became subrogated to and assignees of Con Ed to the extent of their reimbursement.

The insurers subrogated to Con Ed's claim allege that the negligence and fault of others involved with 7WTC proximately caused the collapse of the building and the consequent destruction of Con Ed's substation and, by this suit, seek damages to recover the sums they paid to, and incurred in defense of, Con Ed. Principally, plaintiffs claim that the Port Authority of New York and New Jersey (the "Port Authority"), the owner of the property, and 7 World Trade Company, the owner and manager of 7WTC, permitted Salomon Brothers, Inc. (since acquired by defendant Citigroup) and the City of New York to build and maintain large tanks of diesel fuel in their leased premises in 7WTC, and emergency generation systems powered by those fuel tanks, and that the tanks and generation systems caused the fires to grow out of control and consume the building. Plaintiffs claim also that the contractors, engineers and architects who designed and built 7WTC for the Port Authority and the leased premises for Salomon and the City, designed the building and the respective premises negligently and in violation of applicable building and safety standards, and that their faults also proximately caused the collapse of the building.

Defendants all move to dismiss the complaint for failing to state a legally sufficient claim for relief: the City, by motion for summary judgment following limited discovery pursuant to Rule 56, Fed.R.Civ.P.; all other defendants, by motion in lieu of complaint pursuant to Rule 12(b)(6), Fed. R.Civ.P.1 I hold, as discussed in this opinion, that the motion of the City should be granted and the complaint against it should be dismissed; that the motions by the Port Authority and by Citigroup both should be denied as premature; and that the motion, of some, but not all, the other defendants should be granted. The proceedings against the defendants who remain should continue.

I. BACKGROUND
A. The Development and Construction of Seven World Trade Center

In 1968, during the planning stage for the development of the World Trade Center and the twin 107-story towers, the Port Authority approached Con Edison about constructing a power substation to provide power to the proposed development. Con Ed agreed, and entered into a lease agreement with the Port Authority for the space below what would become 7WTC. The lease contemplated that the Port Authority might authorize the construction of an office tower above the premises housing Con Ed's substation and, in anticipation of such future construction, provided that the Port Authority;; would indemnify Con Ed for damage to its, property resulting from the construction and maintenance of the building.

In 1987, approximately eleven years later, 7WTC was built by 7 World Trade Company and its agent, Silverstein Properties ("Silverstein"), on the premises above the Con Ed substation pursuant to 7 World Trade Company's lease of ground rights from the Port Authority. (See Agreement of Lease between the Port Authority of New York and New Jersey and 7 World Trade Company (the "7WTC Lease"), Bekker Dec. Ex. E.) In setting forth standards applicable to the construction of 7WTC, the 7WTC Lease expressly provided that "so long as title to the World Trade Center or the premises remains in the Port Authority the Lessee shall not be required to submit its design, construction and building plans and specifications for approval by the City of New York." (7WTC Lease, § 4.5.)

One original tenant, Salomon Brothers (later acquired by Citigroup and now part of Citigroup Global Market Holdings), and one later tenant, the City of New York, obtained authorization in their lease agreements with the Port Authority and Silverstein to construct and maintain diesel fuel tanks and generators for emergency power back-up systems. Salomon Brothers, now Citigroup, proposed to operate a large trading floor in 7WTC for continuous operation, 24 hours a day seven days a week, and wanted a back-up generator system to ensure continuity of its trading activities in the event of power failures. In 1998, the City of New York leased the 23rd floor of 7WTC for its Office of Emergency Management command center and additional space below the first floor and on the seventh floor for an emergency fuel and power back-up generator system to ensure continuity of command and control functions by that center should power failures be experienced during a condition of emergency.

B. Procedural History of These Cases

Plaintiffs filed Civil Action 02 Civ. 7188 on September 10, 2002 against the City and the Port Authority,2 and Civil Action 04 Civ. 7272 on September 10, 2004 against the owners and lessees of 7WTC, and against the design and construction professionals who designed and built 7WTC and the leased floors of Salomon and the City. Plaintiffs seek to recover their damage, the amounts paid to Con Ed and costs incurred defending Con Ed.

In lieu of an answer, the City moved to dismiss, arguing that plaintiffs could not state a legally sufficient claim for relief because of statutory immunities enjoyed by the City. On December 1, 2004, I heard oral argument, and ruled at that time that the motion was premature, before an answer pleading the immunities as affirmative defenses was filed. I ordered limited discovery to create an appropriate record, and invited the motion then to be renewed. The parties have completed their limited discovery, and the City now renews its motion as a motion for summary judgment.

The Port Authority also moved to dismiss the Complaint in 02 Civ. 7188, arguing that the Port Authority's negligence was not the proximate cause of plaintiffs' damages and that the lease agreement between the Port Authority and Con Ed barred Con Ed's subrogated insurers from maintaining an action against the Port Authority. Following oral argument, I denied the Port Authority's motion without prejudice to resubmission after limited discovery. The Port Authority now renews its motion to dismiss, on essentially the same record as previously.

In addition to the City's motion, the defendants named in 04 Civ. 7272 have also moved to dismiss, arguing that the Complaint does not state a legally sufficient claim for relief on its face. Defendants argue that, as a matter of law, defendants did not owe a duty to plaintiffs, and that defendants' acts were not the proximate cause of Con Ed's damage. Defendants advance other grounds as well. Citigroup argues that it was released from liability as an intended beneficiary of the lease between Con Ed and the Port Authority, and that the Port Authority's exercise of control over the construction of the Citigroup premises precludes any negligence claims against Citigroup based on such construction. The design professionals (primarily the architects and engineers who designed 7WTC, and the design and construction contractors that built the premises leased by Citigroup and the City) argue that the Complaint should be dismissed because they did not owe a duty to plaintiffs and for various other reasons.

II. THE CITY OF NEW YORK'S MOTION FOR SUMMARY JUDGMENT

The Complaint of Con Ed's insurers against the City alleges that the City was a tenant of 7WTC, that its Office of Emergency Management ("OEM") occupied the 23rd floor of 7WTC to function as a command and control center for emergencies, that a 6,000-gallon diesel fuel tank located below 7WTC, and a 275-gallon day tank on the 7th floor of 7WTC, were used as an independent supply of power to the command and control center, and that the City's negligence in designing and maintaining the diesel fuel emergency backup generator system enabled the fires that consumed 7WTC to continue, causing the building to collapse and the Con Ed substation to be damaged. Plaintiffs sue to...

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