Judge: World Trade Center Properties Cannot Recover Against Aviation Defendants

NEW YORK — (Mealey’s) World Trade Center Properties LLC and its holding companies’ $4.09 billion insurance recovery stemming from the Sept. 11, 2001, terrorist attacks corresponds to and offsets their maximum potential tort damages recovery of $2.8 billion, a New York federal judge ruled July 18, finding that World Trade Center Properties cannot recover further money from aviation defendants (In Re September 11 Litigation, No. 21-101, S.D. N.Y.).

(Transcript available.  Document #51-130808-010T.)


Larry Silverstein's company, World Trade Center Properties LLC, and his holding companies, 1 World Trade Center LLC, 2 World Trade Center LLC, 4 World Trade Center LLC and 5 World Trade Center LLC (collectively, WTCP), filed suit in the U.S. District Court for the Southern District of New York against American Airlines Inc.  and United Airlines Inc., alleging that because of the airlines' negligence, terrorists were able to hijack the airplanes that flew into Towers One and Two on Sept. 11.

WTCP also sued other aviation defendants, alleging that because of their negligence and causation, they are jointly and severally liable for WTCP's damages.  Also named as aviation defendants are AMR Corp., UAL Corp., US Airways Group Inc., US Airways Inc., Delta Air Lines Inc., Continental Airlines Inc., AirTran Airways Inc., Colgan Air Inc., Globe Aviation Services Corp., Huntleigh USA Corp., ICTS International NV, The Boeing Co. and the Massachusetts Port Authority.

Two sets of claimants sued the aviation defendants for damages, with one group alleging personal injury and wrongful death claims and one group alleging subrogated and uninsured property damage claims.  The aviation defendants denied liability for the Sept. 11 attacks.

On Feb. 23, 2010, the property damage claimants, their subrogated insurers and the aviation defendants reached a proposed $1.2 billion settlement, representing a 72 percent discount from the settling plaintiffs' total claimed damages of $4.4 billion. Two days later, the parties moved to approve the settlement in the District Court. The WTCP plaintiffs filed objections to the settlement, alleging that it would "encroach on the liability ceilings provided by the ATSSSA [Air Transportation Safety and System Stabilization Act] and leave insufficient capacity to pay their claims."

On July 1, 2010, Judge Alvin K. Hellerstein approved the settlement. The Second Circuit U.S. Court of Appeals affirmed Judge Hellerstein's ruling. 

$8.4 Billion

WTCP purported that it suffered $8.4 billion in damages — the estimated cost of replacing the towers — and sought recovery against the aviation defendants.  The aviation defendants argued that they were not negligent and denied that they could be liable beyond the fair market value of the property leasehold.

Judge Hellerstein found that the fair market value of WTCP's destroyed leasehold on Sept. 11, 2001, was $2.8 billion, which was the price it agreed to pay the Port Authority for the leasehold only a few months before the attacks.

The aviation defendants moved for "collateral setoff," contending that because WTCP recovered $4.09 billion from insurance, it cannot recover the $2.8 billion from them.  Judge Hellerstein denied the motion twice, finding that he cannot conclude with "reasonable certainty" that the categories of insurance payments "correspond" to the categories of potential damages WTCP could potentially recover in its lawsuit against the aviation defendants.

Legally Recoverable Damages

WTCP moved for summary judgment, seeking a declaration that it has priority with respect to certain of the insurers' settlement proceeds pursuant to the insurance policies' subrogation provisions.

On Nov. 27, 2012, Judge Hellerstein found that WTCP must establish legally recoverable tort damages exceeding their insurance payments before they can seek recovery of any subrogated insurers' settlement proceeds of the $1.2 billion settlement involving the aviation defendants. 

Judge Hellerstein requested a hearing on the issue, and four experts were called to testify beginning on July 15. 

On July 18, Judge Hellerstein ruled against WTCP. 

“The short of it is this:  We're talking about major components of insurance.  The insurers paid against claims. The claims that were submitted were in excess of the insurance recovered.  The insurance recovery, I found and ruled, correspond against the potential tort recoveries.  Hence, if this case were to go forward, WTCP Companies -- in Towers 1, 2, 4, 5 and 7 -- would not be able to recover anything against the airlines,” he said. 

‘Windfall’ 

In his oral ruling, Judge Hellerstein rejected WTCP attorney Richard A. Williamson’s use of the term “windfall” in his argument seeking recovery for his client. 

“This argument ‘windfall’ gets us nowhere.  The defendant airlines, under the Air Transport Safety and System Stabilization Act, are limited in liability to their insurance coverage.  The insurers paid out over $4 billion.  Your client lost a lot of money, but is limited in recovery to $2.805 billion.  In my opinion, no one is enjoying a windfall.  Everyone is suffering from 9/11.  The concept of a windfall is foreign to me.  This is a case about a disaster, and we are hearing about a dispute between two people, who suffered different aspects of the disaster, trying to sort out what one may owe to the other, if anything.  To talk about a windfall in this concept is obnoxious in a sense.  Nobody enjoyed a windfall from 9/11,” he said to Williamson. 

The judge noted that “it's sad to remember our feelings on September 11, 2001, not only as New Yorkers but reflecting the sentiment all across the United States and indeed throughout the world.” 

“We were dealt a very severe blow. The people who came to the rescue of New York -- the first responders who worked for the various construction companies, the firemen, policemen, the volunteers, the construction companies, and the actors involved here, including Larry Silverstein -- all were heroes because they worked hard to create beauty out of the ashes of destruction and expressed pride in going into Tower 7, the first building that was rebuilt by Mr. Silverstein, on  speculation but now with tenants; and in seeing the Freedom Tower -- I don't think it's called the Freedom Tower anymore  but I'll call it that -- 1776 feet high in beautiful splendor over Lower Manhattan.  It's not easy to do these.  It takes great risk, it takes great imagination, it takes great skill.  So, to talk about windfalls in this context is something that I will not do,” he said. 

Counsel 

Richard A. Williamson, Cathi Baglin, Jason T. Cohen and Megan P. Davis of Flemming Zulack Williamson Zauderer in New York represent WTCP plaintiffs and 7 World Trade Co. 

Roger E. Podesta and Erica Weisgerber of Debevoise & Plimpton in New York and Desmond T. Barry of Condon & Forsyth in New York represent American Airlines. 

Ann C. Taylor and T. Patrick Byrnes of Locke Lord Bissell & Liddell in Chicago represent Globe Aviation Services Corp.  Willard Mark Wood of O'Melveny & Myers in New York represents Massachusetts Port Authority.  Brian S. Fraser of Richard Kibbe & Orbe in New York represents Boeing Co. 

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