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2nd Circuit: $5M Contingent Payment Pursuant To Sept. 11 Settlement Not Triggered

NEW YORK — (Mealey’s) The Second Circuit U.S. Court of Appeals on June 9 found that a lower federal court erred in ordering the WTC Captive Insurance Co. Inc. to make a $5 million first contingent payment pursuant to the settlement of personal injury claims filed against the City of New York and private contractors by individuals participating in the rescue, recovery and cleanup operations at the World Trade Center site after the Sept. 11, 2001, terrorist attacks, reversing in part (In re: World Trade Center Disaster Site Litigation, No. 11-4021 [consolidated], 2nd Cir.). 

(Opinion available.  Document #51-140612-025Z.

WTC Captive was created in 2004 with a $1 billion Federal Emergency Management Agency grant from a 2003 appropriation by Congress to provide funds for the settlement of the personal injury claims of first responders and those who worked removing the rubble after the Sept. 11, 2001, collapse of the World Trade Center towers. 

Thousands of firefighters, police officers, construction and cleaning workers and others sustained injuries while participating in the rescue, recovery and cleanup operations at the World Trade Center site and surrounding areas.  As a result of these injuries, more than 10,000 lawsuits were filed against the City of New York, private contractors and WTC Captive.  The lawsuits were consolidated before U.S. Judge Alvin K. Hellerstein of the Southern District of New York. 

Settlement Reached 

In June 2010, the parties reached a settlement process agreement to settle the claims.  The principal settlement amount ranged from $625 million to $712.5 million.  The agreement became effective Jan. 5, 2011. 

Evan R. Chesler of Cravath, Swaine & Moore in New York was appointed March 13 as pro bono counsel and ordered to file an amicus curiae brief with respect to Judge Hellerstein's decisions regarding WTC Captive's obligations under the settlement agreement and the cross-appeal of plaintiffs' co-liaison counsel regarding the award of attorney fees in the dispute over WTC Captive's obligations to pay bonuses for the participation rate of the claimants in the settlement. 

The parties agreed that the settlement would become effective only if at least 95 percent of the plaintiffs “eligible” to participate agreed to do so and that if more than 95 percent opted in, WTC Captive would pay a “bonus payment.”

Eligible Plaintiffs 

On Dec. 30, 2010, the District Court dismissed the claims of 409 plaintiffs for failure to prosecute and gave them 30 days in which to seek relief.  The District Court also ordered these plaintiffs excluded from the eligible plaintiffs list (EPL), relying on the Agreement. Twenty-five of the 409 plaintiffs were eventually heard from and reinstated.  The opt‐in rate of eligible plaintiffs rose to 99 percent, and the District Court ordered the defendants to make a bonus payment of $55 million. 

The agreement also established certain circumstances under which the defendants would be required to make “contingent payments.”  On July 13, 2012, the District Court ordered the defendants to make the first contingent payment of $5 million, finding that “the critical date for counting newly filed or submitted claims was January 5, 2012,” and that “a claim that was withdrawn or dismissed on the merits prior to the critical date . . . is not a claim to be counted.”

 The District Court also ruled sua sponte that plaintiffsʹ counsel were not entitled to any portions of the bonus or contingent payments. 

The parties appealed to the Second Circuit. 

Bonus Payment 

The defendants argued that the proper opt‐in percentage is 96 percent and, therefore, the appropriate bonus payment is $12.5 million. 

The panel found that the agreement is ambiguous regarding whether the plaintiffs whose claims were involuntarily dismissed are to be excluded from the EPL. 

“In light of the surrounding circumstances, reasonable minds could disagree as to whether the phrase ‘Plaintiffs who dismiss’ includes ‘Plaintiffs who are dismissed.’  We remand for the district court to consider extrinsic evidence of the partiesʹ intent.  . . .  On remand, if the district court determines that the parties had an understanding as to the treatment of plaintiffs whose claims were involuntarily dismissed, it must give effect to that understanding.  If the district court finds that the parties never considered the treatment of involuntary dismissals, then it may, if consistent with contract principles, imply a term — but only if one ‘may be fairly and reasonably fixed by the surrounding circumstances and the parties’ intent,’” the panel said. 

Contingency Payments 

The panel reversed the District Court’s ruling that the first contingent payment was triggered. 

“We conclude that the district court erred, for there is no ambiguity in the Agreement with respect to Contingent Payments.  The Contingent Payments provision plainly provides that the key was the number of new claims ‘filed or submitted’ as of January 5, 2012.  The Agreement expressly defines ‘New Debris Removal Claims’ as those that have been ‘filed,’ ‘asserted,’ or ‘served.’  Neither the Contingent Payments provision nor the definition of ‘New Debris Removal Claims’ uses the word ‘pending’ or any words equivalent thereto.  . . .  Of course, there is some logic to the district courtʹs reasoning, but the district court was not free to substitute its own reasoning or ‘personal notions of fairness’ for the intent of the parties.  . . .  If the parties had intended to count only claims ‘pending’ as of the trigger dates, they would have so provided; instead, they referenced claims ‘filed or submitted’ as of the trigger dates,” the panel said. 

The panel found, however, that the District Court properly barred plaintiffsʹ counsel from collecting fees regarding the bonus payment. 

“In short, we hold that the district court acted reasonably in limiting plaintiffsʹ attorneysʹ fees to 25 percent of the base settlement amounts, approximately $187 million, and it did not abuse its discretion in precluding plaintiffsʹ attorneys from recovering a contingency fee from the Bonus Payment,” the panel said. 

The panel noted that plaintiffsʹ counsel also appealed the lower court’s denial of any attorney fee as to to the first contingent payment. 

“As we have reversed the district courtʹs order compelling defendants to make the First Contingent Payment, the appeal from this aspect of the district courtʹs rulings is moot,” the panel said. 

Judge Denny Chin wrote the opinion, which was joined by Judge Peter W. Hall and Judge Jane A. Restani of the U.S. Court of International Trade. 


Denise A. Rubin and Paul J. Napoli of Worby Groner Edelman & Napoli Bern in New York represent the plaintiffs. 

Brian J. Shoot, Andrew J. Carboy, Nicholas Papain and Wendell Y. Tong of Sullivan, Papain, Block, McGrath & Cannovo in New York represent the Sullivan plaintiffs. 

Margaret H. Warner, M. Miller Baker, Mark A. Collins and Joshua D. Rogaczewski of McDermott, Will & Emery in New York represent WTC Captive.  James E. Tyrrell Jr., Joseph E. Hopkins, Jason W. Rockwell and Alyson N. Villano of Patton Boggs in Newark, N.J., represent New York and the contractors. 

Andrew J. Carboy and Brian J. Shoot of Sullivan, Papain, Block, McGrath & Cannovo and Paul J. Napoli and Denise A. Rubin of Worby, Groner, Edelman & Napoli Bern represent plaintiffs' co-liaison counsel. 

Evan R. Chesler and Antony L. Tyan of Cravath, Swaine & Moore in New York are the appointed amicus curiae counsel

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