Law School Case Brief
In re September 11th Litig. - 590 F. Supp. 2d 535 (S.D.N.Y. 2008)
New York courts follow the "lesser of two" rule: a plaintiff whose property has been injured may recover the lesser of the diminution of the property's market value or its replacement cost. This rule applies even when the property in question has been completely destroyed. Replacement cost and diminution in market value are simply two sides of the same coin. Each is a proper way to measure lost property value, the lower of the two figures affording full compensation to the owner yet avoiding uneconomical efforts.
In April 2001, the Port Authority of New York and New Jersey, Inc. accepted the bid of a New York real estate developer, Larry Silverstein, to purchase 99-year net leases to four of the World Trade Center towers. In July 2001, the Port Authority executed net leases and related agreements, and conveyed the four net leaseholds to Towers One, Two, Four and Five to corporations formed by Silverstein to hold the net leases. Silverstein paid, and the Port Authority accepted, consideration valued at $ 2.805 billion. Two months after Silverstein took possession, the towers became rubble, destroyed by the terrorist-related aircraft crashes of September 11, 2001.
Silverstein's company, World Trade Center Properties LLC, and his several holding companies (collectively, plaintiff "WTCP") filed suit against defendants American Airlines and United Airlines alleging that, but for the airlines' negligence, the terrorists would not have gained entrance into the aircrafts they hijacked and flew into Towers One and Two. WTCP also sued other aviation defendants, alleging that, because of their negligence and causation, they too were jointly and severally liable for WTCP's damages. WTCP's lawsuit sought the recovery of $ 16.2 billion, the alleged replacement value of Towers One, Two, Four and Five. The aviation defendants denied liability. The aviation defendants also filed a motion for summary judgment seeking a ruling that the recovery amount exceeded the market value of the leaseholds. They argued that, under New York law, WTCP cannot recover $ 8.4 billion in replacement costs, because the diminution of the properties' market value limits recovery.
Were the aviation-airline defendants entitled to summary judgment that plaintiff World Trade Center leaseholders' potential recovery was limited to the September 11, 2011 market value of the destroyed net leases for four Towers?
The United States District Court explained that the aviation defendants' motion for summary judgment sought a ruling on one defense: whether liability, if found, can exceed the market value of the leaseholds. The Court sought to decide whether the lesser of the market value on September 11, 2001 of the four 99-year leaseholds, or the four towers' replacement value, was the proper measure of recoverable damages. The Court held that the aviation defendants were entitled to summary judgment that WTCP's potential recovery against them was limited to the September 11, 2001 market value of the destroyed net leases for towers One, Two, Four, and Five. The Court granted the substantive ruling sought by the aviation defendants and denied the balance of the motion.
The Court also held that the value fixed by the parties a few months earlier was probably, but not necessarily, the market value of the four leaseholds as of September 11, 2001. Accordingly, a question of fact was presented as to what was that market value. The issue of diminution of recovery because of insurance and other possible recoveries presented additional issues of fact. Thus, additional proceedings were ordered.
In reaching its decision, the Court explained that New York courts follow the "lesser of two" rule: a plaintiff whose property has been injured may recover the lesser of the diminution of the property's market value or its replacement cost. This rule applies even when the property in question has been completely destroyed. The Court rejected WTCP's argument that there is an exception for specialty properties, and that the World Trade Center towers, because of their history and purpose, fit that exception. If WTCP is entitled to recover, recovery of the properties' market value would fully compensate it. WTCP is not entitled to recover the larger value of replacement cost.
The Court also discussed the application of the ("ATSSSA"), by which Congress provided that all claims arising from, or in connection with, the terrorist-related aircraft crashes into the World Trade Center were to be brought exclusively in the United States District Court for the Southern District of New York. Because ATSSSA limits the liability of each aviation to its insurance coverage, this was an important reason for enforcing the traditional New York law limiting property damage recoveries to the lesser of market value or replacement value.
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