World Trade Ctr. Props. LLC v. Am. Airlines, Inc. (In re September 11 Litig.)

• Decision Date: 05 December 2012
• Docket Number: Nos. 21 MC 101 (AKH), 08 Civ. 3722 (AKH).,s. 21 MC 101 (AKH), 08 Civ. 3722 (AKH).
• Citation: 908 F.Supp.2d 442
• Parties: In re SEPTEMBER 11 LITIGATION. World Trade Center Properties LLC et al., Plaintiffs, v. American Airlines, Inc. et al., Defendants.
• Court: U.S. District Court — Southern District of New York

908 F.Supp.2d 442

In re SEPTEMBER 11 LITIGATION.

World Trade Center Properties LLC et al., Plaintiffs,

v.American Airlines, Inc. et al., Defendants.

Nos. 21 MC 101 (AKH), 08 Civ. 3722 (AKH).

United States District Court,

S.D. New York.

Dec. 5, 2012.

Derek Todd Smith, Zafer Adem Akin, Akin & Smith, LLC, Dale Christian Christensen, Jr., Seward & Kissel LLP, Douglas J. Pepe, Gregory P. Joseph Law Offices LLC, New York, NY, Jemi Goulian Lucey, Greenbaum, Rowe, Smith & Davis LLP, Iselin, NJ, for Plaintiffs.

Desmond Thomas Barry, Jr., Condon and Forsyth LLP, James Patrick Connors, Jones Hirsch Connors & Bull P.C., New York, NY, T. Patrick Byrnes, Locke Lord LLP, Chicago, IL, Johnathan Jeffrey Ross, Susman Godfrey LLP, Houston, TX, Bruce Richard Wildermuth, Mendes & Mount, LLP, Newark, NJ, Kimberly A. Donlon, Attorney at Law, Beverly, MA, for Defendants.

OPINION AND ORDER DENYING MOTION TO CREDIT INSURANCE RECOVERIES AGAINST POTENTIAL TORT RECOVERIES (CORRECTED OPINION)

ALVIN K. HELLERSTEIN, District Judge:

I. INTRODUCTION

On December 31, 1980, the Port Authority of New York and New Jersey (the “Port Authority”) entered into a ground lease with 7 World Trade Company, L.P. (“7WTCo.”) for the development and construction of 7 World Trade Center (“Tower 7”), Upon its completion in 1987, the Port Authority leased Tower 7 to 7WTCo, for a period of 99 years.

On September 11, 2001, terrorists hijacked American Airlines Flight 11 and crashed it into the 110–story 1 World Trade Center, the northern Twin Tower. As 1 World Trade Center collapsed, it spewed debris, some of which pierced the facade of Tower 7, causing fires and, eventually, Tower 7's collapse.¹ As a result of Tower 7's destruction, 7WTCo. recovered approximately $831 million from its insurer, Industrial Risk Insurers (“IRI”).

7WTCo. has sued United Airlines, American Airlines and others (collectively, “Aviation Defendants”), alleging that Tower 7 would not have been destroyed but for Aviation Defendants' negligence. Aviation Defendants now move for summary judgment on the basis of collateral setoff pursuant to N.Y. C.P.L.R. § 4545, alleging that 7WTCo.'s insurance recovery has fully compensated it for any possible tort recovery against Aviation Defendants.²

Collateral setoff requires correspondence between categories of insurance recovery and categories of tort damage. Because correspondence presents issues of material fact requiring trial, I deny the motion.

II. BACKGROUNDa. 7WTCo.'s Insurance Coverage and Recovery

Pursuant to its lease, 7WTCo. agreed that in the event Tower 7 was damaged or destroyed, 7WTCo. would “rebuild, restore, repair and replace [Tower 7] ... in accordance with the plans and specifications for the same as they existed prior to such damage or destruction or with the consent in writing of the Port Authority make sure other repairs, replacements, changes or alterations as is mutually agreed to by the Port Authority and [7WTCo.].” ³ 7 World Trade Center Lease and Amendment to Lease § 14.1. 7WTCo. also agreed to procure certain insurance for Tower 7. See id. at § 13. 7WTCo. agreed to insure Tower 7 against property damage to “not less than ninety percent (90%) of the ... ‘full insurable value’ [of] the Tower Building and all structures, improvements, fixtures and equipment, furnishings and physical property now or in the future located on or a part of the premises,” with “full insurable value being the cost of replacing the Tower Building and of said structures, improvements, fixtures, equipment, furnishing and physical property,” Id. at § 13.1.1. 7WTCo. also agreed to continue making lease payments even if Tower 7 were damaged or destroyed and to procure “[r]ent insurance covering loss of rents, fees and other revenues of the Lessee during the period when the Tower Building or a portion thereof is out of operation,” ⁴Id. at §§ 13.1.4, 4.1.1.

After September 11, 7WTCo. submitted claims to IRI for damage resulting from the destruction of Tower 7, On January 3, 2005, 7WTCo, and IRI entered into a settlement pursuant to which IRI paid 7WTCo. $819 million and the parties agreed to share the net proceeds of their separate litigations against Aviation Defendants, with 90.2% of the net proceeds allocated to IRI and 9.8% of the proceeds allocated to 7WTCo. On December 2, 2011, 7WTCo. and IRI entered into a second settlement agreement whereby they agreed that IRI's Tower 7 subrogation recovery from Aviation Defendants was $121,801.880.40 and that 7WTCo. was entitled to 9–8%. or $11,936,584.28. Thus 7WTCo.'s total insurance recovery is $830,936,584.28.⁵

b. 7WTCo.'s Damages

7WTCo. alleges that the diminution in the fair market value of its leasehold resulting from the destruction of Tower 7 is $959 million, plus prejudgment interest. Its expert, Kerry Vandell, Ph.D., using a discounted cash flow analysis, determined that immediately prior to Tower 7's destruction, the leasehold was worth $737 million, and that its value following Tower 7's destruction was negative $222 million. Vandell determined the post-destruction value by calculating the net present value of anticipated cash flows of an identical rebuilt building ($262 million) and subtracting the cost of 7WTCo.'s obligation to rebuild pursuant to the lease ($484 million). With a pre-destruction value of $737 million and a post-destruction value of negative $222 million, Vandell calculated the diminution in the fair market value of the leasehold to be $959 million, plus prejudgment interest.

In addition, 7WTCo. alleges that it suffered consequential damages and personal property losses as a result of Tower 7's destruction. 7WTCo. seeks to recover $80,849,636.82 for re-tenanting costs, $200,883,571.53 for mortgage interest carrying costs, $371,400,000 for lost tenant improvements, $8,052,309.13 for insurance recovery costs and fees, $2,846,139.43 for lost personal property and $307.291.90 for paid insurance premiums.

In total, 7WTCo. alleges that the destruction of Tower 7 caused it to suffer a $959 million diminution in the fair market value of its leasehold and over $600 million in consequential damages and personal property losses and that it is entitled to recover these amounts from Aviation Defendants.

III. LAWa. Standard of Review

“The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A genuine issue of material fact exists “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In ruling on a motion for summary judgment, the court must view all evidence in the light most favorable to the nonmoving party, Overton v. N.Y. State Div. of Military & Naval Affairs, 373 F.3d 83, 89 (2d Cir.2004), and must “resolve all ambiguities and draw all permissible factual inferences in favor of the party against whom summary judgment is sought.” Sec. Ins. Co. of Hartford v. Old Dominion Freight Line, Inc., 391 F.3d 77, 83 (2d Cir.2004).

b. Choice of Law

7WTCo, brought this action pursuant to the Air Transportation Safety and System Stabilization Act, 49 U.S.C. § 40101 note et seq, (“ATSSSA”), which creates a federal cause of action for damages arising from the terrorist-related aircraft crashes of September 11. ATSSSA provides the United States District Court for the Southern District of New York with original and exclusive jurisdiction over such actions, with the substantive law to be “derived from the law, including choice of law principles, of the State in which the crash occurred unless such law is inconsistent with or preempted by Federal law.” As neither party has shown New York law to be inconsistent with or preempted by federal law, New York substantive law governs this action.

c. N.Y. C.P.L.R. § 4545

Pursuant to N.Y. C.P.L.R. § 4545, a plaintiff who has been compensated for an economic loss by a collateral source, such as insurance, cannot recover compensation for that economic loss again in tort from the tortfeasor.⁶ As the statute provides:

In any action brought to recover damages for personal injury, injury to property or wrongful death, where the plaintiff seeks to recover for ... loss of earnings or other economic loss, evidence shall be admissible for consideration by the court to establish that any such past or future cost or expense was or will, with reasonable certainty, be replaced or indemnified, in whole or in part, from any collateral source such as insurance (except for life insurance).... If the court finds that any such cost or expense was or will, with reasonable certainty, be replaced or indemnified from any collateral source, it shall reduce the amount of the award by such finding, minus an amount equal to the premiums paid by the plaintiff for such benefits for the two-year period immediately preceding the accrual of such action and minus an amount equal to the projected future cost to the plaintiff of maintaining such benefits.

N.Y. C.P.L.R. § 4545(c) (2008).⁷

“[R]eduction is authorized only when the collateral source payment represents reimbursement for a particular category of loss that corresponds to a category of loss for which damages were awarded,” Oden v. Chemung County Indus. Dev. Agency, 87 N.Y.2d 81, 84, 637 N.Y.S.2d 670, 661 N.E.2d 142 (N.Y.1995), and correspondence must be proven by a “reasonable certainty.” N.Y. C.P.L.R. § 4545(c) (2008); Turnbull v. USAir, Inc., 133 F.3d 184, 186 (2d Cir.1998).

IV. ANALYSIS

Aviation Defendants move for summary judgment, contending that 7WTCo.'s insurance recovery more than offsets any potential tort recovery by 7WTCo. against Aviation Defendants.⁸ 7WTCo. contends that its tort damages exceed its insurance recovery and furthermore that its insurance recovery does not...