1 4BU7SEPM 1 UNITED STATES DISTRICT COURT 1 SOUTHERN DISTRICT OF NEW YORK 2 ---------------------------------x 2 3 IN RE: SEPTEMBER 11TH LITIGATION 03 Civ. 7043 3 04 Civ. 1382 4 ---------------------------------x 4 5 November 30, 2004 5 2:15 p.m. 6 6 Before: 7 7 HON. ALVIN K. HELLERSTEIN 8 8 District Judge 9 9 APPEARANCES 10 10 GENNETT KALLMANN ANTIN & ROBINSON PC 11 Attorneys for Aegis, et al. 11 BY: STANLEY KALLMANN 12 12 BUCHANAN INGERSOLL 13 Attorneys for City of New York 13 BY: EUGENE SCHEIMAN 14 MARK BLOOM 15 BRUCHMANN & VICTORY 15 Attorneys for Certain Underwriters 16 BY: PATRICK J. MALONEY 16 17 GREGORY JOSEPH 17 ERIC FISHER 18 Attorneys for Industrial Risk Insurers 18 19 SCHIFF HARDIN 19 Attorneys for The Port Authority of New York and New 20 Jersey 20 BY: BETH JACOB 21 ROBERT RILEY 21 22 CLEARY GOTTLIEB STEEN & HAMILTON 22 Attorneys for Citigroup-Related Defendants 23 BY: THOMAS J. MOLONEY 24 25 SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 2 4BU7SEPM 1 (Case called) 2 (In open court) 3 THE COURT: I have three motions before me, the 4 property damage cases dealing with 7 World Trade Center. I 5 want to have the motion by the City argued first, the motion by 6 the Port Authority argued second, and the motion by Citigroup 7 argued third. 8 Two observations to begin with. My view upon 9 reviewing all these papers is that the motions are premature. 10 Rule 12(b)(6) provides that if affidavits are introduced in 11 support of a motion to dismiss for failure to state a claim, 12 and affidavits are presented, it's discretionary on my part 13 whether to entertain those affidavits, in which case the motion 14 is converted to Rule 56 or whether to deny the motion on the 15 basis of items being introduced outside the record. 16 My feeling with regard to all or mostly all of these 17 motions is that they depend on facts that have to be introduced 18 into the record, and proper order would involve the allegations 19 of the affirmative defenses as part of an answer, limited 20 discovery perhaps, and a renewal of the motion. 21 I think there is substantial merit with respect to the 22 motions to the extent that I have read them, assuming that the 23 facts as promised are proved, but I think it's premature at 24 this point to deal with some of the very difficult issues that 25 are presented, especially because it's highly likely that the SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 3 4BU7SEPM 1 aggrieved party will want to appeal, and I owe it to the Court 2 of Appeals to provide a better record. 3 The second observation is that although Citigroup's 4 motion is not yet ready, it seems to me that the same issues 5 are implicated, or much the same issues are implicated, and I 6 think I can probably dispose of the issues on the 7 nonsubstantive grounds I'm suggesting and get all these cases 8 into a posture where in very short order I will be able to 9 entertain motions and rule upon them with a good record. 10 These are just preliminary views. They are subject to 11 your arguments and my being educated by your arguments, but 12 let's proceed on this basis. Who is going to be arguing for 13 the City? 14 MR. SCHEIMAN: My name is Eugene Scheiman, your Honor. 15 I am a member of the firm of Buchanan Ingersoll, counsel to the 16 City of New York. 17 THE COURT: And who is going to be arguing in 18 opposition? 19 MR. KALLMANN: Stanley Kallmann from the firm of 20 Gennett Kallmann Antin & Robinson, representing the plaintiffs 21 Aegis. 22 THE COURT: All right. Mr. Scheiman, please proceed. 23 MR. SCHEIMAN: Thank you, your Honor. Your Honor, 24 with respect to the City, the plaintiffs bring two causes of 25 action -- negligence and negligence per se -- allegedly based SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 4 4BU7SEPM 1 on the existence of a 6,000 gallon diesel fuel tank located on 2 the first floor of 7 World Trade Center. This tank was used to 3 fuel the emergency power generators required by the City's 4 Office of Emergency Management located on the 23rd floor of 5 that building. According to plaintiff, the tank allegedly 6 caused or contributed to the fires that caused the collapse of 7 World Trade Center 7 and the destruction of the ConEd station 8 located below. 9 We base our motion to dismiss both causes of action on 10 statutory and common-law immunities granted to the City and on 11 plaintiff's failure to allege violation of a statute or rule of 12 statewide applicability with respect to its negligence per se 13 claim. 14 Your Honor, with respect to the City's immunity 15 claims, I start with the proposition long held in this country 16 that governments are formed and exist in great part to effect 17 the safety and security of their citizens. In recognition of 18 that obligation, New York in 1951 passed the Defense Emergency 19 Act. This Act, based on a similar federal act, the Civil 20 Defense Act, was designed to allow planning for, acting during 21 and acting after an enemy attack. The Defense Emergency Act 22 focuses on civil defense and defines that term broadly as, 23 among other things, "measures to be taken in preparation for 24 anticipated attacks, including operational plans, provision of 25 suitable warning systems and the construction or preparation of SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 5 4BU7SEPM 1 shelters and control centers." 2 Because the legislature recognized the critical need 3 for the state and its municipalities to undertake civil defense 4 activities, it determined that they would be immune from 5 liability claims based on the planning and performance of civil 6 defense activities, thus the legislature granted immunity for a 7 municipality which in good faith carries out activities, among 8 other things, in preparation for anticipated attacks. 9 THE COURT: Isn't good faith an issue? 10 MR. SCHEIMAN: Yes. There has been no claim to the 11 contrary, your Honor, of bad faith. 12 THE COURT: You haven't set up the defense yet. 13 MR. SCHEIMAN: I understand we haven't furnished 14 pleadings, your Honor, but there has been no pleading with 15 respect to bad faith. 16 THE COURT: How do you know it will not be an issue of 17 good faith? 18 MR. SCHEIMAN: I know the complaint does not allege 19 bad faith. 20 THE COURT: But it doesn't have to. The complaint 21 bases its theory on negligence. 22 MR. SCHEIMAN: Correct. 23 THE COURT: The issue of good faith does not come into 24 the case until you bring it into the case. 25 MR. SCHEIMAN: Well, your Honor, when I gave you the SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 6 4BU7SEPM 1 definition that I just did, that does not bring the issue of 2 good faith into the case. If the pleading only goes to 3 negligence, there is no issue of good or bad faith. 4 THE COURT: Correct. But then when you produce the 5 defense and base it on preparedness, you have other issues that 6 can be injected. For example, is defense preparedness the only 7 purpose? Are the City's activities in good faith? What does 8 good faith require? What does it entail? 9 MR. SCHEIMAN: Again, your Honor, because the pleading 10 only guess to negligence, I don't think we have the burden of 11 proving or stating good faith in our response to the complaint. 12 That's assumed, unless the complaint brings it into the case. 13 THE COURT: But it doesn't have to bring it into the 14 case until you raise the defense. 15 MR. SCHEIMAN: Well, I believe, your Honor, I'm moving 16 now for a dismissal based on the face of the statute and the 17 pleadings, and since the pleadings don't go to bath faith -- 18 THE COURT: The pleadings allege a claim of 19 negligence. 20 MR. SCHEIMAN: Correct, and no more than negligence, 21 your Honor. There is no pleading with respect to good or bad 22 faith. 23 THE COURT: But it doesn't have to. Why does it have 24 to anticipate that the City will raise a defense? 25 MR. SCHEIMAN: Because the City's immunity is well SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 7 4BU7SEPM 1 known. 2 THE COURT: It may be well known, but the City may 3 choose not to raise the defense. 4 MR. SCHEIMAN: I suggest, your Honor, that that is 5 something that would be rather farfetched, and counsel would 6 know that. 7 THE COURT: Maybe, but counsel doesn't have to 8 anticipate it. 9 MR. SCHEIMAN: I respectfully disagree, your Honor. I 10 think it needn't be in the complaint for the motion to survive 11 a motion to dismiss. 12 THE COURT: Mr. Kallmann? 13 MR. KALLMANN: Well, I would certainly want to find 14 out for purposes of the common-law immunity, as well as the 15 asserted statutory immunities, what the response of the City 16 was when they were allegedly told by the fire department that 17 it was an extreme hazard to have the fuel oil system in this 18 particular building, specifically a hazard to life and 19 property, and what the City's reaction was. 20 THE COURT: Suppose the City said this is the only 21 place, we have to have our preparedness in the heart of the 22 city, we have to put it in a place where it's accessible to the 23 Mayor and high city officials, and necessarily it has to be in 24 a dense area. Isn't the City entitled to immunity? 25 MR. KALLMANN: If they exercised discretion, they SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 8 4BU7SEPM 1 would be entitled to immunity. The question, as we pointed out 2 in the cases, and including in particular the Court of Appeals 3 case in Haddock, the question is whether or not they exercised 4 discretion, not whether or not they could have exercised 5 discretion. 6 THE COURT: Well, deciding to put an OED in a 7 particular place is a discretionary act. 8 MR. KALLMANN: But they didn't necessarily have to 9 have the fuel oil systems in the location which they were. 10 THE COURT: It's a matter of judgment. 11 MR. KALLMANN: Well, it may be, or they may have 12 sloughed it off. If your Honor reviews the cases that we cite 13 in our brief, a sloughing off by an agency which otherwise 14 could exercise its discretion will not result in that agency 15 getting the benefit of immunity. 16 THE COURT: What do you mean sloughing off? 17 MR. KALLMANN: Well, sloughing off is -- 18 THE COURT: You have to make a decision. The fuel 19 generators have to be in some place accessible to where they 20 are going to be used. You can't have pipelines going through 21 the city. 22 MR. KALLMANN: The City was apparently warned not to 23 put the fuel systems in this building the way they were put in. 24 If the City disregarded without any kind of analysis, just 25 disregarded the actions or the recommendations of the fire SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 9 4BU7SEPM 1 department, that would be a sloughing off within the meaning of 2 the Haddock case and the other cases which address that 3 particular issue. There has to be, under the cases, a reasoned 4 decision on the part of the City. The two cases that we cite 5 in our brief, Santiago v. The Transit Authority and Chase v. 6 the Transit Authority illustrate that point. They were both 7 decided in the Second Department. They are a year apart. And 8 the Second Department in the first case, Santiago, refused to 9 give immunity for the City, involving an assertion that the 10 City was improperly running its trains into train stations at 11 full speed. The City produced nothing to show that it had made 12 a studied decision to -- 13 THE COURT: So one issue is how the City deliberated 14 in relationship to the fire department recommendation. 15 MR. KALLMANN: Exactly. 16 THE COURT: What other issues are there? 17 MR. KALLMANN: As far as the common-law immunity is 18 concerned? That's basically it. The City -- 19 THE COURT: And no other factual issue? 20 MR. KALLMANN: Well, the factual issues will address 21 who made the decisions, when they were made and under what 22 basis they were made. Those are the decisions. 23 THE COURT: And what else? 24 MR. KALLMANN: I would say those are basically the 25 decisions. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10 4BU7SEPM 1 THE COURT: So that's the only issue of fact that 2 needs to be addressed. 3 MR. KALLMANN: I believe so, yes. 4 MR. SCHEIMAN: May I? Your Honor, I think that 5 question is not a question of fact that need be decided or even 6 looked at. I think the City's exercise of discretion came 7 about when it decided to lease property at 7 World Trade Center 8 and entered into a lease which required that the architects and 9 engineers of the lease owner be used to plan the design and 10 plan the location of the 6,000 gallon tank. That's in the 11 public record of the City of New York. It's contained in our 12 brief, and that is the exercise of discretion which put this in 13 a good faith posture and removes any issue of fact from being 14 necessarily decided before you grant the motion. 15 THE COURT: Mr. Kallmann, is another issue whether or 16 not the City housed any of its other agencies at the place, and 17 whether there were fuel tanks for other agencies? 18 MR. KALLMANN: I don't know whether they housed any 19 other agencies. Our only information is to the OEM. It's 20 conceivable, but I don't know the issue. 21 THE COURT: So that's another factual issue. 22 MR. KALLMANN: Could be. 23 MR. SCHEIMAN: The pleadings say that the OEM was 24 located at 7 World Trade Center, and if that's the only factual 25 issue, I suppose we could take very limited discovery with SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 11 4BU7SEPM 1 respect to that, but I can tell the court that that's what the 2 lease says. 3 THE COURT: I think, Mr. Scheiman, my view is that you 4 are probably correct in your defense, but I think it's 5 premature. I think I've got to allow Mr. Kallmann reasonably 6 to test the decision to make 7 World Trade Center the Office of 7 Preparedness in case of emergency. I think that goes to the 8 issue of good faith perhaps, also how the City reacted in 9 response to what the fire department recommended and what 10 alternatives there were, and if the use of the fuel generators 11 was for Preparedness or other functions of government. And 12 there may be several other issues, but I think that these are 13 narrow factually drawn issues that need not go very extensively 14 into why the City decided to do things, as long as there was 15 some reasoned decision making. And then you will be in a 16 position to renew your motion. 17 MR. SCHEIMAN: Well, with that in mind, I will not go 18 into the other immunity arguments that I had, but I will turn 19 to the negligence per se cause of action. 20 THE COURT: With regard to the other immunity issues, 21 I ruled on them, and I don't know that I want to revisit that 22 ruling. 23 MR. SCHEIMAN: Well, the other immunity issues for the 24 City are the Defense of Emergency Act, the Disaster 25 Preparedness Act and common-law immunity for governmental SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 12 4BU7SEPM 1 agencies. 2 I know you ruled with respect to the Port Authority 3 and with respect to World Trade Center 1 and 2, but the 4 situation, the factual situation at World Trade Center 7 is 5 quite different. 6 THE COURT: It is different, and the focus of the 7 complaint is the secondary explosion that brought down the 8 building. 9 MR. SCHEIMAN: That's correct. 10 THE COURT: And that should be the focus of the 11 complaint, and to the extent that anything more is added by 12 common-law immunity, I think you will allege it. I think it 13 should be alleged. And we will go over dates later on. 14 MR. SCHEIMAN: Your Honor, I don't want the record to 15 show that I agree that an explosion caused the building to come 16 down. Your Honor stated that it did. I don't believe that's 17 the fact. We will get into that later. 18 THE COURT: Well, that's the ground for negligence. 19 MR. SCHEIMAN: It could be. 20 THE COURT: Well, what else is there alleged, 21 Mr. Kallmann. 22 MR. KALLMANN: We don't assert an explosion. We 23 assert that the protracted fire which was allowed to burn for 24 many, many hours beyond which it would have ordinarily burned 25 with the ordinary combustibles in the building, that that SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 13 4BU7SEPM 1 protracted fire eventually weakened the structure which lead to 2 its eventual collapse. 3 THE COURT: That's a better way to put it. 4 MR. SCHEIMAN: Going to the negligence per se cause of 5 action, your Honor, I think the law in New York -- 6 THE COURT: How could you have a negligence per se 7 action against the City based on a city ordinance? 8 MR. KALLMANN: It may well be in the end that we 9 don't. On the other hand, the cases on the subject, Elliot in 10 particular, which is certainly favorable to the defense, the 11 Elliot case recognizes that there are situations in what they 12 describe as a quote appropriate case in which a negligence per 13 se could be applicable in regard to a city ordinance. 14 We have here from the report that we have submitted of 15 Doctor Fred Mauer, we have here a situation in which the fuel 16 tank in question was grossly in excess of what the city code 17 would have allowed, grossly in excess at that particular 18 location. 19 I recognize that the city code is not technically 20 applicable in the Port Authority facility because the Port 21 Authority is not subject to city code, but here, where the City 22 institutes a code and then grossly ignores the code, and 23 perhaps then ignores the advice of its own fire department that 24 there is a threat to life and safety, this might be the quote 25 appropriate case for the invocation of negligence per se, even SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 14 4BU7SEPM 1 within the Elliot case. 2 THE COURT: You will pardon me for interrupting, but 3 there is a long calendar, and I want to make sure we cover 4 everything. 5 I think this is an incident of good faith in terms of 6 the City's entitlement to immunity and not negligence per se, 7 but I will deal with it all. I'm not going to dismiss a part 8 of the claim today. 9 All right. I think I know where this is, and I rule 10 that it's premature at this time. I deny the motion without 11 prejudice to renewal upon a more complete record. The City 12 will allege its affirmative defenses in its answer. We will go 13 over the dates, but let's figure on a ten-day span. 14 MR. SCHEIMAN: Just briefly, for the sake of the 15 record, with respect to your Honor's ruling that the motion is 16 premature, I do want to note that the affidavit that we 17 attached to our papers only contains public documents and was 18 for the convenience of the court, so it really added no factual 19 material to the record. 20 THE COURT: We are not going to debate that. 21 MR. SCHEIMAN: I understand, your Honor. 22 THE COURT: You will amend. I want the two of you to 23 create a narrow discovery plan that will allow Mr. Kallmann 24 reasonably to test the propositions that you alleged for your 25 affirmative defense, and I will look forward to an early SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 15 4BU7SEPM 1 renewal of the motions, and I will deal with all issues at that 2 time. 3 MR. SCHEIMAN: Thank you. 4 THE COURT: Okay. Now we will deal with the Port 5 Authority. 6 Who is going to be arguing for the Port Authority? 7 MS. JACOB: May it please the court, my name is Beth 8 Jacob of Schiff Hardin, and we represent the Port Authority of 9 New York and New Jersey. 10 THE COURT: And who is going to be arguing in 11 opposition? 12 MR. JOSEPH: Your Honor, Gregory Joseph. 13 THE COURT: Good morning, Mr. Joseph. 14 MR. JOSEPH: Fine. I will be arguing on the issues 15 other than notice. Mr. Kallmann will be arguing on the issue 16 of notice. 17 MR. KALLMANN: And we will both be arguing on the 18 issue of waivers of subrogation. 19 THE COURT: Only one. 20 MR. KALLMANN: There are different issues as far as 21 the waiver is concerned as applicable to the two different 22 releases. We would not be replicating what the other one says. 23 THE COURT: Okay. 24 MR. MALONEY: And, your Honor, Patrick Maloney for 25 plaintiff certain underwriters. We also have a waiver of SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 16 4BU7SEPM 1 subrogation argument different from the other two plaintiffs. 2 THE COURT: Okay. 3 MS. JACOB: And, your Honor, if I may, one 4 housekeeping matter. When this case was pending before Judge 5 Koeltl we had moved to have Robert Riley admitted pro hac vice 6 to represent the Port Authority also in this court. Mr. Riley 7 is a partner at Schiff Hardin, and he is out of our Chicago 8 office. He is a member in good standing of the bars of 9 Illinois and Wisconsin, of the Central District of Illinois, 10 the Third Circuit and the Seventh Circuit, and I would ask that 11 his admission be accepted at this time. 12 THE COURT: The motion is granted. I take it that you 13 have filed papers. 14 MS. JACOB: We have filed the papers and we have 15 submitted the check, your Honor. 16 THE COURT: You might find out where it is. 17 MS. JACOB: I will do that. 18 THE COURT: Contact Miss Jones, and I will sign it as 19 soon as I get it. 20 MS. JACOB: Thank you. 21 Your Honor, with respect, I did hear what the court 22 said before we started. We do believe, however, that in large 23 part our motion is not premature. I know that I am one of the 24 ones who submitted the declaration, but our declaration merely 25 brought to the court's attention the leases that were referred SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 17 4BU7SEPM 1 to in the complaints and, therefore, are part of the complaint 2 and are appropriately before the court on the motion to 3 dismiss. 4 If, as we argue, it is clear from the language of the 5 leases -- 6 THE COURT: But I don't have the insurance clauses 7 themselves. 8 MS. JACOB: No, that is correct, your Honor. But we 9 did cite case law to you which indicates that if the lease 10 provisions provide -- 11 THE COURT: They're split, right? 12 MS. JACOB: There is I think one case going the other 13 way, that's correct, which we did cite, but I believe the 14 better law -- 15 THE COURT: It may be the better law, but there is no 16 good judicial reason that I should not allow a record to be 17 developed. It's a simple matter to require the plaintiffs to 18 produce the insurance policies in question, including their 19 insureds' files, to see what the negotiations were in 20 connection with the antisubrogation clause, and then to renew 21 the motion on a complete record. It makes better sense. This 22 is going to go up, so why have an imperfect record? 23 MS. JACOB: Your Honor, that may be appropriate with 24 respect to Aegis Insurance, because I would concede that lease 25 is perhaps the least clear, and we don't have the insurance SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 18 4BU7SEPM 1 policy. But with respect, for example, to the lease agreement 2 with certain underwriters and Citigroup, I think that one is 3 clear and we do not need the insurance policy for that. 4 THE COURT: Why not? 5 MS. JACOB: Because there is a provision in that lease 6 that says even if the insurance policy does not include a 7 waiver of subrogation, then the parties release each other. 8 THE COURT: The problem with relying on the release 9 alone is that you have the issue of gross negligence. 10 MS. JACOB: Not with respect to the Port Authority, 11 your Honor. 12 THE COURT: Why is that? 13 MS. JACOB: Because all that was pleaded against the 14 Port Authority was negligence. There is no allegation of gross 15 negligence with respect to the Port Authority. We are not a 16 landlord, we're a superior lessor. So the issue with respect 17 to gross negligence which was raised against Citigroup was not 18 pleaded against us. It was not included in the notice of 19 claims either, so thus it is just a case of simple negligence 20 and that is released in I think 12.06(d). And I did hand the 21 portions of the leases on which we would be relying -- 22 THE COURT: Yeah, they are in your brief. 23 MS. JACOB: They are also in the brief. 24 THE COURT: It's 12.06(b) and (c). C is the waiver of 25 subrogation. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 19 4BU7SEPM 1 MS. JACOB: And D is the release which explains the 2 scope of the waiver subrogation, and also provides this would 3 be a lease if for some reason the insurance policy doesn't 4 include it. 5 THE COURT: That's the perfect defense, right? 6 MS. JACOB: That's what we believe. 7 THE COURT: Let's see what Mr. Joseph says. 8 MS. JACOB: Although, your Honor, this is with respect 9 to certain underwriters, not to IRI. 10 THE COURT: Who is responding to this one? 11 MR. MALONEY: Your Honor, Patrick Maloney. With 12 respect to the argument of waiver of subrogation and the lease, 13 the underwriters have two responses. One, the waiver of 14 subrogation itself says that there will be a waiver with 15 respect to the building or the demised premises. The demised 16 premises is a defined term within the lease. 17 THE COURT: So you are excepting tenant's property. 18 MS. JACOB: It excepts tenant's property from the 19 definition of demised premises and, therefore, it is excepted 20 from the waiver of subrogation. With respect to the lease 21 argument -- 22 THE COURT: Which reduces the claim pretty much to 23 nuisance value. 24 MR. MALONEY: The claim for tenant's property? I 25 disagree, your Honor. The tenant's property -- SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 20 4BU7SEPM 1 THE COURT: In relationship to other values at stake 2 here. 3 MR. MALONEY: Well, you know, I mean the tenant's 4 property has a claim value of approximately $280 million, your 5 Honor. 6 THE COURT: I doubt it. 7 MR. MALONEY: And that was the subject of the 8 litigation before Judge Cedarbaum, and the Port Authority has 9 just submitted to your Honor the decision in that case. But it 10 certainly is a -- 11 THE COURT: You have two exceptions: Tenant's 12 property -- whatever value it has -- and use and occupancy. 13 MR. MALONEY: And also, your Honor, with respect to 14 12.06(d), which is the release language, there is clearly 15 something missing here, which is the language that extends the 16 release to the superior lessor. So we have to turn back to 17 12.06(c). And it says the waiver of subrogation or the 18 permission for release, referring to clause B, applies to -- 19 and if you follow the train of definitions -- applies to the 20 Port Authority. But if we turn to clause D, which is the 21 release language, that language bringing the Port Authority 22 within the protection of the release, it isn't there. 23 THE COURT: So all this is to say that we need the 24 insurance policies. Ms. Jacob? 25 MS. JACOB: Your Honor, with all due respect, I don't SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 21 4BU7SEPM 1 think so. 2 THE COURT: It's a harder issue. I have to work to 3 find your way. 4 MS. JACOB: That is correct, your Honor. 5 THE COURT: I'm against doing unnecessary work. 6 MS. JACOB: Obviously if we're named in the insurance 7 policy -- it will definitely be easier if the insurance policy 8 names us. I cannot argue with that one. 9 THE COURT: Let's do an answer. 10 MS. JACOB: Okay, your Honor. I would like to just 11 mention -- unless you want to just move on to hearing from IRI, 12 but the argument with them is a little bit different. 13 THE COURT: Make your argument against IRI, and then 14 we will see where we go with that. 15 MS. JACOB: There are two points, and I will try to 16 summarize them briefly. One is, again, if we look to the 17 provisions of the lease, the Port Authority clearly was 18 supposed to be a named insured. This isn't a waiver of 19 subrogation now. This is we were supposed to be a named 20 insured on that insurance policy. 21 There is also Section 17.1, and 17.1 clearly spells 22 out the relationship between Silverstein and the Port Authority 23 and says that Silverstein will indemnify the Port Authority for 24 any damages or any losses caused by acts of its tenants, 25 Citigroup. And what is happening in this complaint is there is SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 22 4BU7SEPM 1 an allegation that Citigroup constructed an emergency backup 2 generator system with or without -- well, the complaint says of 3 course with negligence by the Port Authority -- which led to 4 the destruction of the building. But Section 17.1 states that 5 Silverstein could not sue us for that. And if Silverstein 6 cannot sue us, with all due respect, neither can Silverstein's 7 insurers. 8 THE COURT: Well, does disability necessarily apply to 9 the subrogee? 10 MS. JACOB: The subrogee stands in the shoes of the 11 subrogor. It has no rights greater than its insured. 12 THE COURT: It's true as a general proposition, but is 13 it necessarily true with regard to a disability of suit clause? 14 MS. JACOB: Your Honor, I can't offhand think of a 15 particular case on point, but I think it is. I'm not aware of 16 any authority. I should put it the other way. I am not aware 17 of any authority that goes the other way. 18 The second point which I wanted to bring up has to do 19 with the certificate of insurance. I know the argument is it's 20 not worth the paper it's written on, but the certificate of 21 insurance was issued by Silverstein's broker, Silverstein's 22 agent. And in fact that was a position taken by IRI before 23 Judge Cedarbaum, that Willis was Silverstein's agent. If 24 that's the case, then Silverstein is bound by the acts of its 25 agent in putting the Port Authority on the insurance policy SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 23 4BU7SEPM 1 and, therefore once again IRI in this situation is bound by 2 Silverstein. 3 THE COURT: All right. So your argument in a nutshell 4 is that if the insured can't be sued under a subrogation 5 clause, neither can the additional insured. 6 MS. JACOB: I think it's that if the insured cannot 7 sue us, then its subrogated insurer cannot sue us either. 8 THE COURT: Both places. 9 MS. JACOB: Yes. 10 THE COURT: Mr. Joseph? 11 MR. JOSEPH: Thank you. First, we did put the policy 12 in. We sent it by letter to Judge Koeltl, so it is there, a 13 letter dated July 28, 2004, and it's very clear that the Port 14 Authority is not an insured. 15 Judge Cedarbaum evaluated the certificate -- which 16 with all respect to my good friend Miss Jacob -- 17 THE COURT: Let me stop you. This goes back to a 18 lease in 1985, is it? 19 MR. JOSEPH: 1980. 20 THE COURT: 1980. And at that time the Port Authority 21 was not named as an additional insured? 22 MR. JOSEPH: We were not on this risk at that time, 23 your Honor. I cannot say what happened prior to '98. 24 MS. JACOB: Your Honor, I believe the Port Authority 25 was clearly named as an additional insured up until maybe it SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 24 4BU7SEPM 1 was 2000 when IRI became the insurance company. 2 THE COURT: How do you prove that, Ms. Jacob? 3 MS. JACOB: We are not relying on that fact. That was 4 just a response to the court's question. That was a -- 5 THE COURT: Well, it's a useful fact. 6 MS. JACOB: That was found by Judge Cedarbaum in an 7 action which IRI was a party and, therefore, it should bind 8 IRI. 9 THE COURT: So it's collateral estoppel. 10 MS. JACOB: To the extent it's a fact relative to 11 their case, yes, and that's according to her decision. 12 MR. JOSEPH: Your Honor -- 13 THE COURT: All of this suggests that it's premature 14 at this time to make these rulings. I need to let the two of 15 you do again limited discovery. I don't mean open up the whole 16 case. 17 I envision that discovery will focus on the defenses 18 and enable you to renew the motion on a complete record. And 19 then if there are gaps, I will be able to deal with the gaps. 20 You will know better, I will know better, Mr. Joseph will know 21 better, and we can deal with the issue in a better way. 22 MR. JOSEPH: Fine, your Honor. 23 MS. JACOB: Your Honor, we're not totally giving up. 24 We have two more points. 25 THE COURT: Well, you haven't lost anything. It's SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 25 4BU7SEPM 1 just a little work, which is profitable. 2 MS. JACOB: One has to do with the notices of claim. 3 THE COURT: Yes, I want to deal with that issue. 4 MS. JACOB: Those I think clearly are not premature. 5 That's a jurisdictional issue which has to be decided on the 6 pleadings and on the notices of claim. 7 THE COURT: I agree. And isn't New York law to the 8 effect that the plaintiff has to allege compliance with the 9 notice? Or is it a matter of defense? Or does anyone know? 10 MS. JACOB: Your Honor, I am ashamed to say I can't 11 answer that, and I should be able to, but I can't. The 12 plaintiffs -- 13 THE COURT: It shouldn't make any difference. It's a 14 threshold issue. I have to deal with it. 15 MS. JACOB: The plaintiffs did at least in two of the 16 three cases submit the notices of claims with their complaints, 17 and what we are arguing is not that they failed to plead it but 18 that the notices of claim themselves are defective for the 19 scope of the complaints. 20 THE COURT: I would like to take it up with you. Let 21 me find the notice of claim. 22 MS. JACOB: Your Honor, if I could just step to pull 23 the documents myself. 24 THE COURT: Yes. 25 MS. JACOB: Your Honor, with respect to really three SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 26 4BU7SEPM 1 of them. The first of our claims or arguments is that all 2 three plaintiffs allege breach of contract causes. None of 3 them mention breach of contract in the notices of claim. And 4 we believe it is fairly clear that, therefore, they cannot 5 bring those actions. Their response is, well, it's the same 6 facts, it all has to do with the event -- 7 THE COURT: It doesn't make any difference. 8 MS. JACOB: It should not make any difference. I 9 think it's clear whatever the latitude is under the municipal 10 law with respect to notices of claims again the City, it is 11 fairly clear you don't have that latitude with respect to 12 claims against the Port Authority. 13 THE COURT: And I have so held. 14 MS. JACOB: And you have so held, yes. 15 THE COURT: Could you focus me, taking these notices 16 one by one, first the IRI notice. 17 MR. JOSEPH: It's Exhibit I. 18 THE COURT: I have it in front of me, but I want 19 Ms. Jacobs to read out the precise phraseology. 20 MS. JACOB: The IRI notice, the relevant part of it is 21 the second paragraph where it says the nature of the claim. 22 THE COURT: It's a claim for property damage as a 23 result of the negligence of the Port Authority. 24 MS. JACOB: Correct. 25 THE COURT: And that's the basis for your saying that SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 27 4BU7SEPM 1 it doesn't include a breach of contract claim. 2 MS. JACOB: That's correct. And it runs through a lot 3 of alleged negligence, but it doesn't say anything about any 4 contract claim. 5 THE COURT: What is the breach of contract claim? Is 6 it the status of the Port Authority as a lessor? 7 MR. JOSEPH: Your Honor, it's negligence. I mean they 8 hold themselves to a duty of negligence in the lease, so 9 substantively it's identical. It's true that the notice does 10 not mention the contract. The contract -- 11 THE COURT: Are you arguing that the contract provides 12 a duty for the negligence? 13 MR. JOSEPH: That's correct, but that is one of the 14 bases for a duty of negligence. It changes nothing to have the 15 contract claim in the case. 16 THE COURT: I think that's right. I think the 17 contract is the context. The negligence is what's actionable. 18 MS. JACOB: With all due respect, if the breach of 19 contract claim is permitted to be made, it's not just 20 negligence -- it has perhaps negligence -- it's what the breach 21 is, but there are differences in terms of what the plaintiff 22 would have to prove and what the responsibilities would be of 23 the Port Authority under the contract. 24 THE COURT: I would have to examine that in detail. I 25 can understand both points. And I don't know when would be the SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 28 4BU7SEPM 1 right time to deal with that, but as I understand the nature of 2 the complaint the complaint is for negligence of the Port 3 Authority allowing these fuel tanks to be constructed on the 4 property, and the context providing the duty is the lease. 5 Now, if there are different provisions in the lease 6 that change the duty, either ameliorating it or exacerbating 7 it, then I might have to get into these issues, but I'm not 8 sure I do, so I'm responsive to any precise claims in terms of 9 motions to strike or not strike, but I think in the large 10 Mr. Joseph is correct. 11 MS. JACOB: Your Honor, but I think the difference is 12 that, precisely as the court said, they base their duty 13 argument on the lease, not on some other obligation the Port 14 Authority might have. And what we are saying is that they 15 can't do that, because they did not bring up the lease in the 16 breach of contract, in the notice of claim. They have to go on 17 a general, if there is some other basis for the negligence 18 argument. But they just made a pure negligence claim against 19 us. They did not make a breach of contract claim against us, 20 however much that breach of contract may have been negligence 21 and conduct under the lease. 22 THE COURT: I hold that it's fairly described in the 23 first sentence of paragraph 2 of the IRI notice, where it 24 states the claim is for property damage as a result of the 25 negligence of the Port Authority acting in its proprietary SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 29 4BU7SEPM 1 function as owner and landlord of 7 World Trade Center, New 2 York, New York, and other sentences like that. And I will 3 reserve decision as to whether or not the negligence has to be 4 informed by any particular duties undertaken by the contract. 5 MS. JACOB: Your Honor, did you want to look at the 6 other notices of claim? 7 THE COURT: Yes. 8 MS. JACOB: Attached to my first declaration as 9 Exhibit M is the notice of claim of Aegis Insurance. We attach 10 that because the notice of claim that they attached to their 11 amended complaint was their old notice of claim, not the one 12 that included Consolidated Edison, so this is really not 13 bringing anything in outside the record. And again we look to 14 paragraph 2, the nature of the claim. 15 THE COURT: Let me get hold of this for a minute. 16 All right. 17 MS. JACOB: And this one again is very similar, but 18 what is missing from the notice of claim submitted by Aegis and 19 ConEd is the language that the court looked at with respect to 20 IRI, which was a reference to the Port Authority as owner and 21 landlord. 22 This just refers to a result of the negligence and 23 carelessness of the Port Authority, which consisted -- and it 24 then lists the alleged negligent acts in the installation, 25 approval and so on and so forth of the fuel tanks. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 30 4BU7SEPM 1 THE COURT: It's less clear but still sufficiently 2 clear to constitute an adequate notice. I make the same 3 ruling. 4 MS. JACOB: Well, your Honor, certain underwriters' 5 notice of claim is quite similar. 6 THE COURT: It would still be the same ruling. 7 MS. JACOB: I assume it's the same ruling. 8 THE COURT: Thank you. So you will also have ten days 9 within which to answer, but again we will go over the dates 10 after we finish. 11 MS. JACOB: Your Honor, there is one more basis, and I 12 am well aware of the court's decision. 13 THE COURT: I am not going to change my mind. This is 14 on a supervening cause? 15 MS. JACOB: Yes, your Honor. 16 THE COURT: I am not changing my mind. The factual 17 setting is a little different. Your argument is that the cause 18 of the fire was the airplanes crashing into 1 and 2, and you 19 are arguing that they are supervening events arising from the 20 secondary causes of the fire in 7 World Trade Center, and the 21 alleged decision of the fire department not to fight the fire 22 in 7. 23 For the reasons that informed my decision with regard 24 to the same issue arising in buildings 1 and 2, I hold that 25 these are issues of fact that need to be developed on the SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 31 4BU7SEPM 1 record, and I invite renewal of these motions at such time as 2 the record is sufficiently developed. 3 MS. JACOB: Thank you, your Honor. 4 THE COURT: Is there anything else on the Port 5 Authority? 6 MS. JACOB: That does take care of the Port 7 Authority's motions, your Honor. 8 THE COURT: Thank you. 9 MR. MOLONEY: Good afternoon, your Honor. Tom Moloney 10 on behalf of Citigroup. I somewhat anticipated, your Honor, 11 that you might be concerned about deciding these motions on 12 this record. I would point out that we cite I think the 13 definitive case in this Circuit in our brief, and it's the case 14 Chambers v. Time Warner, and that's a Second Circuit decision 15 on February 21, 2002, where the court discusses at great length 16 what criteria a court should use in terms of looking outside 17 the record at this stage. 18 Your Honor is completely correct in terms of your 19 willingness to consider certain documents. That's totally a 20 matter of your Honor's discretion as to whether you want to 21 convert this to summary judgment or not, but certain documents 22 don't fall in that category and actually the court is required 23 to consider in connection with a motion to dismiss, and those 24 are documents in the words of the Second Circuit that are 25 essentially integral to the complaint. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 32 4BU7SEPM 1 And in analyzing that, the court says these are 2 documents in which the plaintiff had to rely, and it took large 3 consideration of the fact that these are documents that the 4 plaintiff had in their position when they filed their lawsuit. 5 So it's something they had to have considered and relied upon. 6 With that in mind we put together some charts that 7 support our motion on two documents. One is the lease which is 8 clearly a document that is integral to the complaint. And 9 second is IRI's own insurance policy, which is something they 10 clearly had possession of. They had to rely on it, because 11 they are suing as subrogor, and that is before your Honor, and 12 there is no dispute by our side that we put before your Honor 13 the proper policy. 14 So as to these two documents which are before your 15 Honor, there can be no question, and there would be no need to 16 take discovery to establish that both of these documents are 17 accurate. I am sure Mr. Fisher would concede that statement 18 today, that both those documents are accurate. 19 If I might approach the bench. 20 THE COURT: You may. 21 MR. MOLONEY: So that the $750 we spent on this, this 22 is for your Honor's benefit, the big picture chart. 23 THE COURT: I'm not sure we have the IRI insurance 24 policy, but go on. I will take it from there. 25 MR. MOLONEY: I think we attached the relevant SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 33 4BU7SEPM 1 provisions, your Honor. I haven't. Rather than attach a huge 2 policy, there is only one provision we actually quote, which is 3 the first document I would like to refer in my motion. 4 But before I do that, I would like to draw your 5 Honor's attention to this, if I can walk up, your Honor, to 6 this large chart. It kind of gave us a picture overview about 7 what this case is about. I know you spent a lot of time -- 8 THE COURT: I am looking for a better place to put it 9 so people can follow along. How about if you go against the 10 wall? 11 MR. MOLONEY: I know your Honor spent a lot of time 12 with 1 and 2 World Trade Center. That's your introduction to 13 this building. 14 THE COURT: I have been in the building. The SEC used 15 to be in that building. 16 MR. MOLONEY: Yeah, it turns out that a lot of people 17 were there. I will stand over here if I can, your Honor. 18 THE COURT: I know that my former partner Len Boxer 19 did a lot of work for Silverstein. I don't know if he was 20 involved with 7. I know Strook was involved in leasing of 1 21 and 2. I don't know if I have disclosed that in connection 22 with 7, but I have disclosed that earlier. 23 Also, my knowledge of a lot of the parties goes back a 24 long time. I can repeat those, but I have already made that 25 disclosure. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 34 4BU7SEPM 1 MR. MOLONEY: Yes, your Honor. Essentially, your 2 Honor, the architecture of this arrangement was that the Port 3 Authority was the ground lessor, Silverstein was the ground 4 lessee and the space lessor. Citigroup -- at that time it was 5 Salomon Brothers -- so this was Salomon's headquarters, now 6 they are called Citigroup Global, which is a change in our 7 lifetime and memory -- they are the space lessee. 8 Con Edison doesn't really have any relationship with 9 either 7 World Trade Center or Citigroup, even though that 10 motion is not being honored. Essentially they have a contract 11 with the Port Authority. I'm not going to argue that today. I 12 understand that. But they have a separate agreement. And the 13 subrogee are Aegis for Con Edison and IRI as subrogee. 14 What is really critical to our motion is the consent 15 from IRI to 7 World Trade Center, which is what we would like 16 to focus on at the beginning. 17 If you look at tab 1 -- 18 THE COURT: So IRI paid Silverstein's damage claim? 19 MR. MOLONEY: Correct. They paid Silverstein's damage 20 claim, and they are now suing Citigroup under a subrogation 21 theory. 22 THE COURT: Citigroup, CGMH. 23 MR. MOLONEY: Yes. And actually they are suing the 24 entire Citigroup family, even though -- 25 THE COURT: Well -- SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 35 4BU7SEPM 1 MR. MOLONEY: That's a separate point, but I put CGMH 2 because that's what Salomon is now known as. That's the 3 Citigroup Global Market. 4 Essentially if you look at tab 1 in our tabs, your 5 Honor, this will give you the contractual language of the 6 lease, and you will see that on the lease there is no question 7 that Silverstein and Citigroup released each other, and they 8 provided that the release would be effective if the insurance 9 company, who Silverstein was required to obtain, as you will 10 see further on, agreed to permit the release. 11 And then if you turn the page you will see IRI's 12 insurance policy, which we quote from page 16. And I am sure, 13 your Honor, this is part of what we submitted to the court. 14 THE COURT: No, I accept that. 15 MR. MOLONEY: It says, "This insurance shall not be 16 invalidated should the insurer waive by express agreement" -- 17 which the release is -- "prior to a loss any or all right of 18 recovery against any party for loss or damage insured against 19 by this policy." 20 So essentially IRI consented to this. The lease also 21 provides in 12.09 -- 22 THE COURT: That's what you mean by consent. 23 MR. MOLONEY: Yes. 24 THE COURT: That depiction. 25 MR. MOLONEY: Right. And the lease also provides in SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 36 4BU7SEPM 1 12.09, you know, essentially that the insurance which the 2 landlord is required to obtain is an operating expense, which 3 Citigroup has to pay as a tenant its proportional share, and 4 since Citigroup was the largest anchor tenant of this building 5 it paid for most of the IRI insurance. 6 So in essence, your Honor, this, as we indicated in 7 our brief, this form of waiver of subrogation -- 8 THE COURT: And the last clause deals with removables. 9 MR. MOLONEY: The last clause -- 10 THE COURT: -- deals with the initial work and any 11 alterations. 12 MR. MOLONEY: Right. The initial work and alterations 13 are defined terms in the lease. Initial work was the work in 14 connection with -- what happened was, your Honor, we moved into 15 this building. The time line we will show you. 16 THE COURT: It's the space configurations. 17 MR. MOLONEY: Exactly right. And we were basically 18 paying for the insurance as a pass-through, as an operating 19 expense under the lease. This was subject to an approval 20 process which involved Silverstein. And if you look at the 21 second tab, the lease kind of indicates an approval process, 22 and it's not only subject to the approval process, but also the 23 lease contemplated when we moved in that we would build a 24 generator on the fifth floor that would have access to over 25 12,000 gallons of fuel, that in fact we couldn't build it SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 37 4BU7SEPM 1 anywhere else without Silverstein agreeing to put -- for us 2 putting it anywhere else. So what this shows you, your Honor, 3 is in terms of when we moved into this space -- 4 THE COURT: Well this doesn't say that, but it gives 5 you a specific location where you're supposed to build your 6 generator. 7 MR. MOLONEY: Right. And it says how much fuel. It 8 says we shall have access to -- the only two allegations they 9 have against us -- 10 THE COURT: How do you read that? 11 1750 KDA diesel 11 emergency power generators. 12 What does that mean? 13 MR. MOLONEY: I'm not sure I am looking at exactly the 14 same one. 15 THE COURT: It's paragraph 2. The top part says that 16 you are entitled to build tanks sufficient to store 12,000 17 gallons of diesel fuel. 18 MR. MOLONEY: 11. This is what we built. These are 19 the power generators that were built in the space. What they 20 essentially are saying is that even though the lease provided 21 that we are supposed to build these generators in this space, 22 the lease provided we were supposed to have access to over 23 12,000 gallons of fuel. The fact that we actually followed the 24 lease was not only negligence but gross intentional wrongdoing 25 on our part. That's the argument they have to ultimately make SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 38 4BU7SEPM 1 to vitiate this release. 2 If you turn to tab 3 you will see that -- 3 THE COURT: I missed that. Run that by me again. 4 MR. MOLONEY: The gist of their argument is since it's 5 a contractual release -- the gist of his argument is that gross 6 negligence vitiates a contractual release. He has to argue -- 7 and what was our gross negligence? We built a generator on the 8 fifth floor of the building which was too close to the trusses, 9 in his view, with the genius of hindsight; and, second, we put 10 12,000 gallons of fuel in the building. 11 THE COURT: Well, I am going to assume he is correct. 12 MR. MOLONEY: I assume for purposes of my argument 13 that he is correct, that we should not have put 5,000 gallons 14 of fuel in the building, we should not have built it on the 15 fifth floor. 16 THE COURT: But merely having a lease provision that 17 allows you to do a grossly negligent act doesn't stop it from 18 being grossly negligent. 19 MR. MOLONEY: Your Honor, a lease provision that tells 20 you that if you are Citigroup and you are moving into a 21 building and you need an emergency backup generator system 22 because the only one who can provide electricity to that 23 building is Con Edison -- 24 THE COURT: What you are really saying to me is that 25 the subrogee of the landlord can't complain about a clause that SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 39 4BU7SEPM 1 the landlord has agreed to. 2 MR. MOLONEY: Yes, exactly. 3 THE COURT: It's an acquiescence issue, not a defeat 4 of gross negligence. If you can acquiesce in a grossly 5 negligent act you have acquiesced. 6 MR. MOLONEY: Your Honor, we will go a little bit 7 beyond simple acquiescence. If we look to slide 3 you will see 8 that the landlord was not only given this approval over the 9 general placement of what we did and of how much fuel we used, 10 but we had to submit our precise plans to the landlords from 11 engineers and architects for them to review, and if they 12 thought they were in any way dangerous, their architects and 13 engineers could stop us from implementing plans. And we 14 actually were required to pay for this. So we actually 15 reimbursed them to have their engineers and architects look at 16 the precise construction, which we did. 17 THE COURT: You want me to look at paragraph 14, which 18 allows the landlord to stop you from doing anything that in the 19 landlord's opinion will jeopardize the building. 20 MR. MOLONEY: Exactly. And also if you continue, you 21 will see that we have an obligation to actually pay for this 22 review by the landlord's architects and engineers in 14.03(d). 23 Then if you go on to point 4 of our submission, which 24 is the three-party agreement between the Port Authority, 7 25 World Trade Center and Citigroup, which indicates how the Port SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 40 4BU7SEPM 1 Authority -- also before your Honor, also integral to this 2 build-out and to this lawsuit, this document, your Honor, 3 indicates that in addition to Silverstein, the Port Authority 4 and their engineers and architects had to approve this precise 5 construction before we did anything. And we had to pay for 6 them to engage in this review as well. 7 THE COURT: And then you have Con Edison. 8 MR. MOLONEY: We in fact obtained -- 9 THE COURT: I think I get the picture. So who is 10 going to tell me Mr. Moloney is not correct? 11 MR. MOLONEY: And if I -- 12 THE COURT: I think I've got the picture. 13 MR. MOLONEY: Okay. Thank you, your Honor. 14 THE COURT: Mr. Joseph? 15 MR. JOSEPH: Your Honor, we don't dispute what the 16 lease says. We don't dispute that there are three parties that 17 are involved in the decision-making process for this system: 18 The Port Authority, Mr. Silverstein and Citigroup. We don't 19 dispute that there is a comparative fault issue. We do say 20 that that is an issue for a jury to decide. 21 THE COURT: And you are representing the subrogee of 22 Silverstein -- 23 MR. JOSEPH: Of Silverstein. 24 THE COURT: -- who approved all of this. 25 MR. JOSEPH: He did. As did the Port Authority. And SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 41 4BU7SEPM 1 it was Citigroup that had the responsibility for design, 2 installation, maintenance and functioning, and it was the Port 3 Authority that had ultimate hands-on control over design, 4 installation, maintenance and function. 5 THE COURT: But your subrogor had an intimate 6 involvement in the whole process. 7 MR. JOSEPH: Absolutely right. We don't deny that. 8 Their argument is ultimately assumption of risk, which 9 is what your Honor was pointing out, an acquiescence argument, 10 which CPLR 14.11 says that that is an issue for the comparative 11 fault calculus. It may be that they can prove that 12 Mr. Silverstein was negligent. Perhaps they can. But, if so, 13 that doesn't exonerate them from their responsibility. 14 The exact wording of 14.11 of the CPLR is, "In any 15 action to recover damages for injury to property, the culpable 16 conduct attributable to the claimant, including contributory 17 negligence or assumption of risk shall not bar recovery." 18 Shall not bar recovery. But the amount of damages -- 19 THE COURT: That's against a third party. 20 MR. JOSEPH: Well, we are not suing Silverstein, so 21 it's definitely against a third party. But any assumption of 22 risk or contributory negligence by Silverstein -- should any be 23 found by a jury -- would be something that would reduce 24 recovery. 25 THE COURT: If I'm walking past the building when it SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 42 4BU7SEPM 1 caught fire, and I was engulfed by the flames, and my wife sued 2 all of you, you may all have to contribute to the judgment, but 3 that doesn't mean that in a lawsuit by a subrogee we're 4 entitled to recover. 5 MR. JOSEPH: I believe it does, because we are in the 6 shoes of the claimant. The claimant is Silverstein now suing 7 the Port Authority and Citigroup for this -- 8 THE COURT: And you think Silverstein would have had a 9 right of action? 10 MR. JOSEPH: Oh, I believe, your Honor, in fairness, I 11 do believe it clearly would have had a right of action against 12 Citigroup. We have to show gross negligence. Against the Port 13 it's a negligence standard. Against Citigroup it is a gross 14 negligence standard. We may or may not be able to prove it. 15 We are comfortable with our experts that we will be able to. 16 But it will be for a jury to decide. But there is not a legal 17 preclusion against that action being filed or pursued, and 18 that's what they are trying to do as they attempt to try the 19 case on the pleadings. 20 THE COURT: I have all the papers on this, right? 21 MR. JOSEPH: You have more papers than you need or 22 want, your Honor. 23 THE COURT: And this is ripe for decision, I think. 24 MR. JOSEPH: Yes, we believe that. 25 THE COURT: All of you feel it's ripe for decision. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 43 4BU7SEPM 1 MR. MOLONEY: Yes, your Honor. May I say one thing? 2 THE COURT: Yes. 3 MR. MOLONEY: Very briefly, your Honor. If you look 4 at the decision of the Court of Appeals in 1985, which we cite, 5 in the decision which we cite it's called Abergast v. Board of 6 Education. 7 THE COURT: I am not going to rule from the bench. 8 MR. MOLONEY: I am just telling you to help your law 9 clerk or your Honor. Abergast v. Board of Education of South 10 New Berlin, a Court of Appeals decision from 1985, the official 11 cite is 65 NY 2d 161. Express assumption of risk is not 12 barred, is a complete defense, the court held. And, therefore, 13 if your Honor finds based on the lease provisions and the 14 approval process there is express assumption of risk, then the 15 argument that you made about comparative fault is completely 16 irrelevant. 17 The second point I make, your Honor -- and it's in the 18 papers -- is that -- 19 THE COURT: Mr. Moloney, we've got the papers. We 20 will reread the papers. We will reread the papers. 21 MR. MOLONEY: Thank you, your Honor. 22 THE COURT: Anything more on that? Okay. Decision 23 reserved. 24 I've dealt with all the three motions. Let's go over 25 timing. Will the defendants file and serve answers with SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 44 4BU7SEPM 1 affirmative defenses within a ten day period? Is that 2 satisfactory? 3 MR. MOLONEY: Yes, your Honor. 4 THE COURT: All right. Then I'd like you to confer 5 and create a discovery plan and submit it to me. I envision 6 that the discovery plan will focus only on the defenses, and 7 that in rapid time the defendants will, if they wish to, renew 8 their motions. And I would think that a date sometime in 9 February should allow the parties to do what they need to do. 10 If that's a little bit too optimistic, you will let me know. 11 But I would like to try for this. 12 I would like all of us to know if there are viable 13 causes of action or not. I don't do anybody any favor by 14 creating a final cause of action, because I'm willing to decide 15 the issues. I envision that I will need to make a decision, 16 and the aggrieved party is going to wish to appeal, and the 17 sooner that's done the better. 18 So if we can't make that date, you will let me know. 19 I don't see any point to meet until we have argument of the 20 motion unless there are disagreements. I suspect there will 21 not be disagreements. But if there are, express your 22 disagreement in a single joint letter. I have this formulated 23 in my chambers rule 2E, and I will try to give you a very quick 24 and responsive ruling. Thank you very much. 25 SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300