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Rodriguez v. City of New York – Court of Appeals decision is adverse to defense counsel’s ability to defend comparative negligence cases; holds that plaintiffs may obtain summary judgment on liability without establishing the absence of their own negligence

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By:      Roy Anderson, Esq.
            Associate, New York
Date:   April 5, 2018

The Court of Appeals dealt a significant blow to defense counsel in a recent decision, Carlos Rodriguez v. City of New York (2018), by holding that plaintiffs do not bear the burden of first establishing the absence of their own comparative negligence to obtain partial summary judgment as to liability in a negligence case.  The Rodriguez decision arguably overrules Thoma v. Ronai, 189 A.D. 2d 635 (1st Dep’t 1993) aff’d 82 N.Y. 2d 736 (1993) and its progeny, which for two decades have been cited for the proposition that Plaintiffs moving for summary judgment on liability bear the burden of demonstrating the absence of any material issue of fact concerning their comparative negligence.

In Rodriguez, the plaintiff was employed by the City of New York as a garage utility worker.  He was injured while working in a garage “outfitting” sanitation trucks with tire chains and plows.  An out-of-control sanitation truck skidded on ice and crashed into a car in the garage which then pinned the plaintiff up against a rack of tires.  He sustained bodily injuries which necessitated a spinal fusion surgery and rendered him permanently disabled from working.

After discovery, plaintiff and the City of New York moved for summary judgment on the issue of liability.  Plaintiff’s motion argued that even if there was an issue of fact with respect to his comparative fault, he was entitled to summary judgment on the issue of Defendant’s liability.  The Supreme Court denied both motions and held that there were triable issues of fact regarding foreseeability, causation, and plaintiff’s comparative negligence.  The First Department relied on Thoma and affirmed the denial of plaintiff’s motion because he failed to make a prima facie showing that he was free of comparative negligence.  In a split decision, the Court of Appeals reversed, holding that placing the burden on the plaintiff to show an absence of comparative fault is inconsistent with New York’s system of pure comparative negligence, which was adopted in 1975 and is codified in Article 14-A, Sections 1411 and 1412 of the Civil Practice Law and Rules (“CPLR”).  The Court explained that in a pure comparative negligence state, such as New York, courts are directed to consider a plaintiff’s comparative fault only when considering damages; therefore, the Rodriguez decision gives effect to the plain language and legislative intent of Sections 1411 and 1412.

Section 1411 provides, in relevant part, that in an action for personal injuries a plaintiff’s culpable conduct “shall not bar recovery, but the amount of damages otherwise recoverable shall be diminished in the proportion which the culpable conduct attributable to the claimant bears to the culpable conduct which caused the damages.”  Section 1412 further provides that “[c]ulpable conduct claimed in diminution of damages, in accordance with [CPLR 1411], shall be an affirmative defense to be pleaded and proved by the party asserting the defense.”

The Rodriguez opinion explains that the legislature’s intent in enacting Sections 1411 and 1412 was “to bring New York law into conformity with the majority rule” which is that “a plaintiff’s comparative negligence is not a complete defense to be pleaded and proven by the plaintiff, but rather is only relevant to the mitigation of plaintiff’s damages and should be pleaded and proven by the defendant.”  Thus, the Court of Appeals held that “[p]lacing the burden on the plaintiff to show an absence of comparative fault is inconsistent with the language of CPLR 1412.”  The Court also rejected the City of New York’s argument that comparative fault should be considered a defense because “it is not a defense to any element (breach, duty, causation) of plaintiff’s prima facie cause of action for negligence.”

Significantly, Rodriguez purports to distinguish – without explicitly overruling – Thoma, because in that case the First Department did not address the significance of Article 14-A and the plaintiff effectively conceded that if she failed to establish the absence of a material fact as to her negligence then summary judgment on the issue of liability would be denied.  Conversely, the Rodriguez plaintiff explicitly argued that he was entitled to summary judgment, even if there was an issue of fact regarding his comparative fault. 

The Rodriguez dissent rejects the majority’s reasoning and argues that the rule in New York is and should remain “that a plaintiff must demonstrate the absence of issues of fact concerning both defendant’s negligence and its own comparative fault in order to obtain summary judgment.”  The dissent further rejects that the Court was not overruling Thoma because “[s]ince Thoma, each Department has held that a plaintiff is precluded from obtaining summary judgment where issues of fact exist concerning comparative fault.”  The dissent also calls attention to the inequity of assessing a percentage of plaintiff’s culpability distinct from the defendant’s and noted that “[d]eterminations of degrees of fault should be made as a whole, and assessing one party’s fault with a preconceived idea of the other party’s liability is inherently unfair.”

It is not hard to imagine the injurious effect that Rodriguez will have on defendants when it comes time for juries to apportion liability.  As articulated by the dissent, defendants will effectively be “entering the batter’s box with two strikes already called.”


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Recent Publication by Associate Attorney Jacqueline Muttick

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By:      Gartner + Bloom, P.C.
Date:   April 2, 2018

            Associate Attorney Jacqueline Muttick was recently published in CLM Construction Magazine. Ms. Muttick examined a New Jersey Supreme Court decision that held that a construction defect action accrues not upon substantial completion of construction but instead when the building’s owner knows or should have known through reasonable diligence about the existence of an actionable claim. See the full publication here.

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First Department finds factual issues in §241(6) exclusion, and holds that claim by a lessee's contractor triggers the lessor's indemnity

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By:      Michael E. Kar, Esq.
            Associate, New York
Date:   December 27, 2017

Synopsis:

            On March 1, 2018, the First Department entered their decision in Karwowski v. 1407 Broadway Real Estate LLC. This decision gleans two important considerations for insurers and practitioners, in the Appellate Division’s: (i) holding that a lessor’s indemnity provision will be triggered by a claim by a lessee’s contractor; and (ii) finding of factual issues with the lower court’s exclusion of a contractor’s workshop from liability under 241(6).

Background:

            Defendant 1407 Broadway Real Estate LLC (“Broadway”) is the owner of the building wherein this claim arose. Broadway holds an operating lease for the entirety of the building, located in Midtown Manhattan, New York. Defendant Cayre Grp Ltd. (“Cayre”) leases the 41st and 42nd floors of Broadway’s building, and holds a lease extension with Broadway. Plaintiff is a former employee of XCEL Interior Contracting, Inc. (“XCEL”), a third-party defendant in the action. While employed by XCEL, Plaintiff injured his hand while cutting plywood on an unprotected table saw, located on the 16th floor of Broadway’s building. Plaintiff’s injury was in the furtherance of a project undertaken by Cayre, for which XCEL was hired as a contractor.

Indemnity Trigger:

            Pursuant to the lease extension with Broadway, Broadway was given direction and coordination over XCEL, who was one of the lease’s memorialized approved contractors (“[a]ll work done by the contractor [XCEL] must be coordinated with the Building Manager”). This lease extension also contained the following indemnity, recited in pertinent part: “Tenant shall indemnify, defend and save harmless Landlord… from and against (a) all claims of whatever nature against Landlord arising from any act, omission or negligence of Tenant, its subtenant, contractors, licensees, agents, servants, invitees, employees or visitors…”

            Broadway cross-claimed below for summary judgment as to the issue of their contractual indemnification, a claim that was not granted. The First Department reversed and found for Broadway on this issue. The Appellate Division found that this indemnity was clear and unambiguous. In response, Cayre argued that this provision required a finding of “active negligence” or fault on behalf of Cayre. The First Department disagreed with this assertion, in holding that “all that is necessary to trigger the provision is a claim arising from any act or omission of Cayre or Cayre’s contractor…” (emphasis added). Cayre’s contractor here was XCEL, employer of the Plaintiff at the time of the alleged accident. The court held that no negligence was needed to trigger the indemnity, and instead, all that was needed was work being done by Cayre or their contractors within the building leased by Broadway.

Factual issue found in Labor Law §241(6) analysis:

            At the Supreme Court below, Plaintiff’s claims under Labor Law §241(6) were dismissed. Section 241(6) imposes on property owners (and lessee’s under Article 10 of New York Labor Law) the duty to provide reasonable protection and safety for workers, and to comply with all Department of Labor regulations. The issue in application of §241(6) was, primarily, centered around the physical location at which the injury took place. The location was the 16th floor of the building in question. A portion of the 16th floor was XCEL’s in practice, an area where they would keep materials and tools used for renovations within the building. However, no personnel or office furniture existed in a permanent capacity, and XCEL had no lease and did not pay any rent for the space. XCEL maintains a separate permanent office and workshop in Queens.

            In support of their motion for summary judgment as to the applicability of Labor Law §241(6), Defendant Cayre asserted that the 16th floor is a permanent workshop where “for the past 10 years, the… plaintiff reported to work each day….” Their argument concludes that due to these facts the 16th floor is not the statutorily protected “area[] in which construction, excavation or demolition work is being performed….” N.Y. Labor Law §241(6).

            In granting Cayre’s motion for summary judgment below, the Supreme Court found that the 16th floor of the building “was a permanent workshop controlled by XCEL, not a temporary staging area ancillary to the Project and controlled by Cayre.” By extension, this also released Broadway under §241(6).

            The First Department reversed and remanded for the court below, finding that “there are disputed issues of fact concerning whether the 16th floor space qualifies as a construction area.” In remanding, the Appellate Division cited such cases as Gerrish v. 56 Leonard, 147 A.D.3 511 (1st Dept. 2017) (factors for determining applicability of 241(6) are physical proximity, common ownership, and operation of off-site premises) and Gonnerman v. Huddleston, 78 A.D.3d 993 (2d Dept. 2010) (241(6) extends to areas where materials are being readied for use, contrary to areas where materials are merely stored for future use).

            Lastly, and most important for Labor Law practitioners, the First Department then reasoned that because §241(6) would apply if the saw had been utilized on the 41st floor, the Plaintiff should not have an “automatic loss of the protections afforded by the statute” because Plaintiff chose instead to cut the wood on the 16th floor, and then bring it up to the 41st floor in an elevator.


            Application of this trigger to indemnity warrants widespread consideration across the legal universe. The analysis of Labor Law §241(6) by the First Department should be applied by insurance carriers and Labor Law practitioners to all future cases concerning the Section. Insurers should be aware that the designation of a physical area as a construction area is increasingly subject to more liberal interpretations – especially in regards to defense-side summary judgments motions.
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New Year, New Contract Drafting and Due Diligence Concerns for Partnerships

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By:      Michael E. Kar
            Associate, New York

Date:   December 27, 2017

            Entities that are taxed as partnerships enter 2018 with fresh concerns in relation to due diligence and contract drafting, in reaction to changes in the statutory regime impacting audit procedures for taxable years starting after December 31, 2017.

           By way of background, in the early 1980s a series of statutes, consolidated as the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), changed the way partnerships were audited by the IRS. Where previously each partner was individually audited and then collected from, TEFRA supposedly streamlined the process by auditing the partnership as a whole, and then applying the results to each individual partner, taking into account his or her specific tax attributes. This meant that these adjustments were based in part on each individual partner’s taxable rate. Now, however, new rules will alter that statutory regime, regulations that follow the Bipartisan Budget Act of 2015.  The rules of the BBA are effective for partnership returns for tax years beginning after December 31, 2017.


            TEFRA was deemed in need of improvement for a collection of reasons. One such reason was who exactly the IRS would deal with in regard to the partnership. There was difficulty in ascertaining who the single ‘tax matters’ partner was.  Sometimes, this was an unofficial coalition of partners who would deal with the IRS, creating conflicting information and procedural confusion. Along with a series of other inefficiencies, it was determined that TEFRA resulted in fewer tax-eligible partnerships being audited.


            Following the new rules at hand, the most immediate consideration imposed upon partnerships is the necessary designation of a “tax partnership representative”. This is a designated individual (or entity) with whom the IRS interacts. Unlike the ‘tax matters partner’, the tax partnership representative does not have to be a member of the partnership; the only statutory requisite is a substantial presence in the United States.


            Although requisites are minimal, this tax partnership representative is given substantial power in regard to potential audits. This representative of a partnership has the sole authority to act on behalf of the partnership with respect to auditing, including any settlement, and can make certain unilateral Internal Revenue Code elections. All partners are bound by this representative’s decisions as well as any final IRS determination relating to the pertinent audit. Drafting tip: a partnership representative should be chosen before 2018 because if there is no designation, the IRS will make the selection. In addition to the benefit of autonomy of choice due to this increased power, partnerships should select their own representative because IRS consent is needed to revoke any IRS-made designation.


            The second and far more substantial consideration is that the new rules allow the IRS to collect directly from the partnership, not just from the individual partners therein. This has been termed the “imputed underpayment”, and this adjustment is applied to the year in which the audit was centered, the “review year.”


            In terms of tax rates, in contrast to TEFRA and the prior statutory regime which utilized the tax attributes of individual partners, the new rules would apply one rate to the entire partnership. It is important to note that this rate would not be based on the traditional aggregate method of determining tax on partnerships.


            For this reason, among other potential considerations, partnerships may wish to avoid these changes. For qualifying partnerships, there are two options available.


            The first option is an opt out, exercisable each year by partnerships that furnish less than 100 required (not possible) K-1s. Partnerships can qualify to opt out, generally, as long as there are no owners that are: trusts; tax-disregarded entities; or other partnerships not meeting certain requirements. These qualifications may and should factor into the acquisition and disposition decisions of a partnership, both today and in the future.


            The second option, a sort of retroactive opt-out, is the election of a “push out.” If an audit tries to collect based on a previous review year, the partnership can push out the tax responsibility to the partners in that reviewed year, removing the tax responsibility of the partnership as a whole. Drafting tip: in consideration of possible adjustments that may be made under these rules, partnerships may want to impose an obligation on the partnership to push out in the event of an imputed underpayment.


            Pushing out requires (i) a timely election within 45 days of IRS notice of final audit adjustment, and (ii) that the partnership provides to each partner during that reviewed year their share of the adjustment. The latter share adjustment must also be sent to the IRS. If executed properly, each notified partner is thereafter responsible for payment. Drafting tip: a partnership may want to secure these obligations contractually with owners, either during the relationship or during the sale or transfer of that owner’s interest. This drafting consideration works both ways. Alternatively, owners who are releasing their interest may seek contractual indemnity for any future audits being done under these new rules, particularly for possible review years in which that owner held interest.


            Although this article addresses just a portion of the changes under the new rules, two obvious changes are needed moving forward for most impacted partnerships. First, existing tax distribution provisions should be reviewed in light of these developments, even if a partnership plans on systematic opting or pushing out. Second, new agreements to acquire or transfer interest should consider these rules and inject potential indemnities, preceded by new due diligence as to the partnership’s previous tax and ownership circumstances.


            These changes to the statutory regime may and should result in global considerations for acquisition and disposition of partnership interests, as well as a multitude of amendments to operating agreements, partnership agreements, contracts, and other instruments. Some of these changes, especially the designation of a tax partnership representative, demand immediate attention.


NOTE: This is not tax advice.

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G + B Participates in the 2017 New York Cares Winter Wishes Program

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By:      Gartner + Bloom, P.C.

Date:   December 11, 2017

            Under the leadership of Alex Fisher, g + b was proud this year to participate in the New York Cares Winter Wishes program. The program collects children’s letters to Santa and sends them to volunteers who play Santa and buy, wrap and deliver the gifts before Christmas. Our attorneys and staff provided gifts for twenty-five boys and girls in the New York City area ranging in age from 5 to 11.


            For background on the project, visit https://www.newyorkcares.org/winter-wishes/about.










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Outside the Coverage Period but Still Covered: New Jersey's Warning to Insurers in Construction Defect Matters

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By:      Jacqueline A. Muttick, Esq. & Marc Shortino, Esq.
            Associate, New Jersey                Partner, New Jersey

Date:   October 19, 2017


            On October 10, 2017, the New Jersey Appellate Division addressed the “continuous-trigger” theory of insurance coverage in Air Master & Cooling, Inc. v. Selective Insurance Company of America, __ N.J. Super. __, Docket No. A-5415-15T3 (App. Div. Oct. 10, 2017). The Court found that the continuous trigger theory of insurance coverage applies “to third-party liability claims involving progressive damage to property caused by an insured’s allegedly defective construction work” and that the “last pull” of the trigger for ascertaining the end of a covered occurrence “happens when the essential nature and scope of the property damage first becomes known, or when one would have sufficient reason to know of it.” Id. (slip op. at 3).

            The insured, Air Master & Cooling, Inc. (“Air Master”), was hired as a subcontractor to perform heating, ventilation, and air conditioning (“HVAC”) work at a condominium building project. Between November 2005 and April 2008, Air Master installed condenser units on the roof and HVAC devices within each unit. Air Master also had a number of Commercial General Liability (“CGL”) insurance policies during and after this work, including a policy through Penn National Insurance Company in effect from about June 22, 2014 through June 22, 2009, a policy through Selective Insurance Company of America (“Selective”) effective June 22, 2009 through June 22, 2012, and a policy from Harleysville Insurance Company (“Harleysville”) covering June 22, 2012 through June 22, 2015.

            In the beginning of 2008, unit owners began to notice water infiltration in their individual units. Specifically, by February 2008, as reported in a news article, at least one unit owner noticed leaks in the walls and windows of his unit. A May 3, 2010 expert consultant report found roof damage caused by moisture from water infiltration, and recommended removal and replacement of those damaged areas of the roof. That expert was unable to determine when the moisture infiltration occurred. Individual unit owners and the condominium association filed suit against the project’s developer and other defendants for property damage, and those defendants brought third-party complaints against subcontractors, including Air Master.

            Air Master sought defense and indemnity from its insurers under its CGL policies, and filed a declaratory judgment action against both Selective and Harleysville when those insurers disclaimed coverage. Selective’s CGL policy stated, in part, that the policy provided coverage for property damage occurring “during the policy period.” The policy defined “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The policy also defined “property damage” as “physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it.” “Property damage” included the “loss of use of tangible property that is not physically injured” and that loss “shall be deemed to occur at the time of the ‘occurrence’ that caused it.” Id. (slip op. at 7).

            Selective moved for summary judgment, arguing its policy did not cover water damage that materialized or manifested before the policy coverage began in June 2009. Air Master opposed that motion, arguing that the continuous-trigger theory of coverage applied and that coverage continued until the “last pull” of the trigger of injury occurs. Air Master also argued that manifestation occurs when it is known, or reasonably knowable, that damage is attributable to the work of the insured, which occurred in May 2010 with the issuing of the expert report. The trial judge granted summary judgment, ultimately finding that while the continuous-trigger theory of coverage applied, the damage manifested prior to the start of Selective’s policy period. Air Master appealed that determination.[1]

            On appeal, the Appellate Division also found that the continuous-trigger doctrine applies to claims for third-party, progressive property damage in construction defect litigation. “[T]he continuous-trigger theory recognizes that, because certain harms … will progressively develop over time, ‘the date of the occurrence should be the continuous period from exposure to manifestation.’” Id. (slip op. at 12) (quoting Owens-Illinois, Inc. v. United Insurance Co., 138 N.J. 437, 454-56 (1994)) (applying the continuous-trigger theory in the context of property damage claims arising from the installation of asbestos-related products). “Under such a continuous-trigger approach, ‘all the insurers over that period [are] liable for the continuous development’” of the damage. Id. (quoting Owens-Illinois, Inc., 138 N.J. at 450-51). “[T]he continuous-trigger approach requires multiple successive insurers up to the point of manifestation to cover a loss,” which the Court noted provides more coverage for claims and encourages insurers to monitor developing risks. Id. (slip op. at 13) (citing Owens-Illinois, Inc., 138 N.J. at 458-59). The Appellate Division stated that the doctrine was not unfair to insurers, but instead required them to bear a portion of the coverage burden that accumulated while the property harm had not yet manifested, as occurs in construction defect litigation where defects are not immediately obvious. Id. (slip op. at 17) (citing The Palisades at Fort Lee Condominium Association, Inc. v. 100 Old Palisade, LLC, __ N.J. __, Docket No. A-101/102/103/104-15 (2017) (slip op. at 34)). 

            The Appellate Division also held that the “last pull” or “end” point of coverage under the continuous-trigger theory occurs when there is an “essential” manifestation of the injury, which is the “revelation of the inherent nature and scope of that injury.” Id. (slip op. at 25). That manifestation does not require that the damage be shown to be attributable to the conduct of a specific insured, as such an analysis would be highly fact-dependent and require lengthy discovery to determine. Id. (slip op. at 19). Instead, the “last pull” should be “a date of initial manifestation that is common to all parties – regardless of which contractor or subcontractor may be ‘at fault’ for the occurrence.” Id. (slip op. at 21).

            Using the above analysis, the Court determined that while the continuous-trigger doctrine applied to the third-party, progressive property damage claims asserted in the construction defect litigation, the “last pull” or “essential” manifestation could not be determined by the record presented on appeal. Specifically, it was unclear what defects were or reasonably could have been revealed between the time of the first unit owner’s complaint in February 2008 and the start of Selective’s CGL policy in June 2009.

            The application of the continuous-trigger doctrine to third-party, progressive property damage claims in New Jersey construction defect litigation impacts insurers who may be held liable for occurrences that would otherwise be outside the insured’s policy period. It also, as noted by the Appellate Division, distributes risk to several insurers which may have the impact of resolving claims earlier in litigation through settlement. Insurers will need to be aware that occurrences outside of the policy period may still result in risk on the policy under this ruling.




[1] Harleysville also obtained summary judgment and Air Master did not appeal that determination.  
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Appellate Court in Divorce Proceeding Gives Weight to Motive Behind Life Insurance Policy: What Doors Does This Open Moving Forward?

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By:      Michael E. Kar
            Associate, New York

Date:   October 4, 2017

            In a recent decision, the Second Department has opened the door for matrimonial attorneys and parties to question the motive behind the failure to pay premiums for life insurance policies, for the purpose of automatic orders in divorce actions.

            Upon the commencement of all matrimonial actions in New York, a series of automatic orders are initiated, pursuant to Domestic Relations Law § 236(B)(2)(b). The purpose behind these automatic orders, also called ‘notice provisions’, is to maintain the status quo and preserve assets in the time between the filing for divorce and the final determination, either by an agreement between the parties or the decision of the court. Among other restrictions, neither party can: dispose of particular assets (except in the “ordinary course of business”); incur unreasonable debts; or remove from medical insurance either, (i) the other spouse, or (ii) the children. Additionally, the last subsection of § 236(B)(2)(b) provides that upon the commencement of the action each party must “maintain existing life insurance… in full force and effect.” DRL § 236(B)(2)(b)(5).

            This last automatic order, in particular, prevents a spouse from changing policies or withholding premiums/payments that may result in jeopardizing the future financial security of the children or the other spouse. If either spouse violates this rule, such as by refusing to pay the premium on a policy, that spouse can be held in contempt of court. A motion to be held in contempt may result in an order forcing the other party to pay arrears, and can even lead to a finding of criminal contempt and incarceration. If a party is held in contempt ­– by further refusing to comply with a court order -- “willful” disobedience could result in jail time.

            In a recent Second Department decision, however, when faced with this exact scenario the court did none of the above. In fact, faced with a wife who refused to maintain her husband’s life insurance policy, the court approved her conduct.

            In Savel v. Savel, the wife/mother stopped paying the premiums on her husband’s life insurance policy, after the automatic orders had been put into effect. 153 A.D.3d 872 (2d Dept 2017). The husband’s attorney moved to hold the wife in contempt for violation of the automatic orders, after which she continued to withhold payment. In a relatively-novel defense, the wife claimed that she did not violate the orders because the life insurance policy was intended to be a “savings vehicle.” The wife argued she should not be forced by the court to contribute her post-commencement income to a savings vehicle for the husband. Post-commencement income is of course separate property, not marital, as the filing for divorce stops the clock on the economic partnership.

            The wife further argued that the husband’s rights were not “prejudiced” by this violation. Indeed, the parties in this case maintained three whole-life life insurance policies in the amounts of $12 million for the benefit of the children, $7.6 million for the wife, and the subject policy which was the supposed “savings vehicle” owned in the husband’s name.

            During the proceedings below, the husband admitted to his policy serving as a “savings plan” as opposed to the traditional motive behind such a mechanism (to wit, as a safeguard for the family in the event of a death). This admission was enough for the Nassau County Supreme Court to rule in the wife’s favor. The Second Department affirmed the decision below denying the husband’s contempt motion and not requiring the wife to pay the premiums on the husband’s life insurance policy.

            But for the husband’s admission of the purpose of the life insurance policy as a savings plan, would this whole-life policy be deemed an investment rather than a safeguard? Are policies such as this not usually the result of a hybrid of motives, including death benefit for the family and asset diversification? These questions in regard to the pre-judgment automatic orders are important, but have the potential to be overshadowed by the larger implications of the Savel court’s holding: how does the holding affect the equitable distribution of whole-life insurance policies collectively?

            Currently, pre-marital life insurance accounts are deemed separate property, with an argument that premiums paid during the marriage from the marital funds are marital. In this scenario, the non-owning spouse may be entitled to a credit for half the monies paid toward the premiums, but not the balance of the cash value of the policy. On the other hand, investment accounts that are separate property stay separate, unless they are actively managed. Accounts where the appreciation of value is “passive” are deemed not furthered by the economic partnership, and therefore remain separate property. Alternatively, if an investment account fluctuates in value due to “active” involvement of the spouses, the other spouse can receive a credit for all increases in the balance during the marriage.

            How many doors does Savel open? For example, are courts now required on pendente lite  support motions (for temporary support during pendency of the action) to make a factual finding as to whether an insurance policy is, (i) an investment, or (ii) security/death benefit for a family?  Also, now that the door is open to deeming life insurance policies “savings vehicles” in some circumstances, can the cash value of separate whole-life policies be actively managed, and the appreciation thereof subject to equitable distribution?

            The Second Department’s evaluation of the motive behind a life insurance policy kicks down a door in relation to automatic orders, and in doing so, possibly opens the door in relation to insurance policy equitable distribution, or credit.
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CAMELOT RETURNS TO MANHATTAN!

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Gartner + Bloom is pleased to support the Washington Heights and Inwood Development Corp (WHIDC.org), which holds the annual Medieval Festival at Fort Tryon Park on Sunday, October 1, 2017 from 11:30 am to 6pm.

The festival is a unique chance to experience the Medieval period in the most authentic setting this side of the Atlantic. The area around the Cloisters Museum in Fort Tryon Park is transformed into a medieval market village where knights in armor, jugglers, jesters, magicians, musicians, storytellers, and puppeteers will perform. A blacksmith, manuscript illuminator, pottery decorator, wood carver and other artisans will demonstrate their crafts. Performers and fair-goers dress in historical costumes. Medieval food is available and craft items will be sold.

The afternoon culminates with a jousting event between knights on horseback! Yes, they do knock each other off horses!

Admission is free. This annual event is sponsored by the City of New York Parks and Recreation and the WHIDC.

We hope to see everyone there!

http://www.whidc.org/festival/home.html

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Construction Defect Claims: A New Statute of Limitations Analysis

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By:      Jacqueline A. Muttick, Esq.
            Associate, New Jersey
Date:   September 19, 2017

      On September 14, 2017, the New Jersey Supreme Court in The Palisades at Fort Lee Condominium Association, Inc. v. 100 Old Palisade, LLC, articulated when the accrual date of the six year statute of limitations for construction defect claims accrues. The Court held that a construction defect claim accrues when the building’s owner, or a subsequent owner, knows or should have known though reasonable diligence about the existence of an actionable claim. Under the statute of limitations, the owner then has six years in which to bring a claim. For the purposes of the statute of limitations, a subsequent owner of the property stands in the shoes of a prior owner with regard to notice, so the statute of limitations begins to run upon notice to any prior owner.

            This litigation was instituted by Plaintiff The Palisades at Fort Lee Condominium Association (“Condominium Association”), who asserted construction defects at The Palisades. Palisades A/V Acquisitions Co., LLC (“A/V Acquisitions”), owned and developed The Palisades, hiring a general contractor who subsequently retained various subcontractors for the project. The architect certified the project as “substantially complete” on May 1, 2002. A/V Acquisitions then rented units for the following two years before selling the property to 100 Old Palisade, LLC (“Old Palisade”), which converted the rentals to condominiums. Old Palisade’s expert noted some defects at the property but no structural concerns, and a report reflecting the same was attached to the public offering statement and master deed. Old Palisade relinquished control to the Condominium Association in July 2006. The Condominium Association then hired its own expert who found additional construction defects and issued a report in June 2007. The Plaintiff subsequently filed suit against the general contractor and other entities in March 2009 and continued to add defendants to the lawsuit through the next year.

            Since substantial completion of the building occurred in May 2002, and the trial court determined that the six-year statute of limitations began running at that time, it followed that suit should have been filed by May 2008. Since the Condominium Association did not institute proceedings until after May 2008, the trial court dismissed those claims. Upon appeal, the Appellate Division reversed utilizing the “discovery rule”, finding that the construction defect claims did not accrue until the Condominium Association had full unit-owner control of the building and became aware of the claims through its expert. The New Jersey Supreme Court has now held that neither the standard utilized by the trial court nor the one employed by the Appellate Division were correct.

            The statute of limitations for tort-based property claims under N.J.S.A. 2A:14-1 requires instituting claims within six years of the date of accrual. Accrual of a claim begins when a reasonable person with ordinary diligence would be alerted that there was an injury due to another’s fault. Id. (slip op. at 19) (quoting Caravaggio v. D’Agostini, 166 N.J. 237, 246 (2001)). Accrual does not begin to run against an unknown third party until the plaintiff has evidence of that third party’s involvement, which may result in different accrual times against different defendants. Id. (slip op. at 23-24) (quoting Caravaggio, 166 N.J. at 248-250). Also applicable in determining accrual is the discovery rule, which holds that the time limit to bring a claim under an applicable statute of limitations does not begin to accrue until the plaintiff knew or should have known with reasonable diligence that an actionable claim existed against a defendant. Utilizing the statute of limitations and the discovery rule, the Court here determined that “[a] construction-defect lawsuit must be filed within six years from the time that the building’s original or subsequent owners first knew or, through the exercise of reasonable diligence, should have known of the basis for a cause of action.” Id. (slip op. at 6-7) (emphasis in original).

            Furthermore, “[a] subsequent owner stands in no better position than a prior owner in calculating the limitations period. If a prior owner knew or reasonably should have known of a basis for a construction-defect action, the limitations period began at that point.” Id. (slip op. at 7). Since a subsequent owner to a property takes title subject to the original owner’s rights, if the original owner knew or should have known of a construction defect claim then the subsequent owner will stand in the original owner’s shoes with regard to the statute of limitations. Id. (slip op. at 28). In other words, “[a] cause of action, for purposes of N.J.S.A. 2A:14-1, accrues when someone in the chain of ownership first knows or reasonably should know of an actionable claim against an identifiable party.” Id. (slip op. at 29) (citing O’Keeffe v. Snyder, 83 N.J. 478, 502 (1980)).

            This accrual analysis applies even in situations involving condominium associations. In this matter, the first owner, A/V Acquisitions, was the developer and the Condominium Association was a subsequent buyer. As such, if a prior owner knew or should have known of a construction defect claim, then the statute of limitations began to accrue before the Condominium Association took ownership of the property. Since there is a question as to when the statute of limitations began to accrue, the Court remanded the litigation to the trial court for a Lopez hearing on this issue. Id. (slip op. at 7) (citing Lopez v. Swyer, 62 N.J. 267 (1973)).

            The Supreme Court also stressed that the 10-year statute of repose in construction defect cases remains in effect. The statute of repose, N.J.S.A. 2A:14-1.1(a), requires all construction defect claims against construction professionals be brought within ten years of the date of substantial completion. Id. (slip op. at 32-33). The six-year statute of limitations, in conjunction with the discovery rule, determines when a claim must be brought and the statute of repose sets an outside limit of ten years for those claims. Therefore, as noted by the Court, if a claim accrued eight years after substantial completion, the plaintiff in such a matter would have two years to bring a claim before having that claim barred by the statute of repose. Id. (slip op. at 33).
           
            There remains the unresolved issue raised by defendants regarding the claims barred by the statute of repose. The defendants noted that the statute of repose appears to bar claims involving “defective and unsafe” conditions arising from construction. Defendants were concerned that the statute of repose could be interpreted as barring those conditions that are both defective and unsafe, potentially leaving viable claims that only regard defects alone. A reading of the statute in this manner could result in a situation in which a claimant is able to bring a construction defect claim outside of the ten-year statute of repose. Utilizing the example provided by the Court, the instance could arise if a claim accrues eight years after substantial completion but does not impact safety and is therefore timely filed fourteen years after substantial completion. The Court declined to opine on this issue and noted that the wording of the statue could be addressed by the Legislature.

            The takeaway from this ruling is that construction defect claims do not accrue upon substantial completion but instead accrue when the building’s owner (or predecessor owner) knows or should have known though reasonable diligence about the existence of an actionable claim. The owner then has six years in which to bring a claim. This accrual date does not re-start when a new owner takes possession of the property but is instead imputed to each subsequent owner. The accrual date also may vary as to different defendants, depending on when the owner was or should have been aware of the claim. The ten-year statute of repose remains in effect and bars claims filed ten years after substantial completion, however the Court did not directly address in this opinion what claims the statute of repose specifically bars. 

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        LESSONS AND LAW FROM A CRANE COLLAPSE, by Anne E. Armstrong

         The First Department has reduced the awards to plaintiffs in the widely covered crane collapse case of May 30, 2008. The First Department also upheld the preclusion of a defense expert whose testimony was deemed to be speculative and conclusory. Additionally, the First Department upheld the piercing of the corporate veil to hold defendant James Lomma, personally, and many of his other companies liable to plaintiffs. Below is a recap of the First Department’s lengthy decision.

The Crane Collapse
         On May 30, 2008, a crane collapsed on East 91st Street in Manhattan, resulting in the deaths of crane operator Donald Leo and construction worker Ramdan Kurtaj. The subject crane was leased from defendant NY Crane, a company owned by individual defendant James Lomma. In 2007, before being used on the 91st Street project, it was determined that the crane’s bearing ring, upon which both the operator’s cab and counterweight arm rested, had developed a crack and required replacement. Lomma admitted knowing that any failure of the bearing ring would have catastrophic results. Upon being informed that a replacement from the original manufacturer would cost $34,000.00 dollars, and would take one (1) year to manufacture, Lomma directed an employee to find an alternative. This employee, who had no technical expertise, performed a Google search and located a China-based company, RTR, who claimed it could make the bearing ring for only $20,000.00 dollars and on the needed timeline. Defendant corporation JF Lomma paid for the bearing ring.

         Lomma pressed forward with RTR to manufacture the bearing ring, despite RTR’s own stated reservations about its ability to weld the bearing. Lomma paid RTR an additional $1,710.00 dollars, and provided them general information from the manufacturer regarding the welds. RTR then agreed to weld the bearing. During the manufacturing process for this bearing, Lomma contacted engineers to get their input on the bearing and potential certification of same, however none of the engineers would sign off on the bearing for DOB certification. As a result, Lomma, who is not an engineer, certified the bearing himself. Upon receipt of the replacement bearing, Lomma had the steel tested to ensure compliance with industry requirements but he did not have the weld tested. The bearing was then installed by Brady Marine Repair Co., who did not test the welds because Lomma did not request they do so. Lomma then contacted a former NY Crane employee, now employed with DOB, to inspect the crane to be placed back in service. This DOB employee only visually inspected the crane, a breach of DOB protocol. On April 19 and 20, 2008 the crane was erected, and at that time passed DOB testing. In late April, Brady Marine informed Lomma that another RTR-manufactured turntable had a bad weld that was pitted and not fused properly. Lomma did not take any action to determine if the just installed bearing ring had similar flaws, and instead negotiated a discount of $6,000 for the other ring.

         For the next five weeks, the crane performed without issue. However at 8:00 a.m. on May 30, 2008, as Donald Leo was operating the crane to lift a basked of electricians' tools, the “headache ball”, a ballast used to keep the lifting line taught, was 30 to 40 feet off the ground, and stationary when the crane began to tip backwards. Donald Leo was trapped, alone, in the operator cab. Witnesses testified to seeing him pray and then brace himself against the coming impact. He suffered catastrophic injuries, and died less than 20 minutes after the accident. Ramadan Kurtaj screamed at his coworkers to run, and his injuries were indicative of attempts to brace himself against the impact. Kurtaj succumbed to his injuries approximately four (4) hours after the accident.

The Trial and Jury Award
         Plaintiffs presented testimony from numerous experts all of whom pointed to the inadequacy of the RTR welds in bringing about the crane collapse. Defendants were only able to present one expert at trial, Edward Cox, as another expert, James Wiethorn, was precluded. Even Cox, defendants' own expert, testified that he would not have certified the RTR bearing.

         The jury found defendants Lomma, NY Crane and JF Lomma negligent. For Plaintiff Leo the jury awarded $7.5 million for pre-impact terror, $8 million for pain and suffering, and $24 million in punitive damages. For Plaintiff Kurtaj the jury awarded $7.5 million for pre-impact terror, $24 million for pain and suffering, and $24 million for punitive damages. Lomma, NY Crane and JF Lomma appealed the awards as well as the preclusion of their expert witness, Wiethorn, and the piercing of the corporate veil subjecting Lomma to personal liability. Though the appellate court did reduce the awards, it upheld Wiethorn’s preclusion and the piercing of the corporate veil.

Where Entities Are Treated As One, The Corporate Veil Will Be Pierced
         Mr. Lomma was found to have exercised complete dominion over multiple businesses, all of which were determined to have operated, essentially, as one entity and were treated as such by Lomma himself. The First Department found that each of the various companies would rent equipment from the other at will, profits were readily shifted between companies, and they all shared the same offices, email and staff. Most damning for Lomma was his personal involvement in the events that brought about the crane collapse. The court found that Lomma was personally involved in the events that launched a dangerous instrumentality, failed to respect the corporate form of his businesses and was therefore able to be held personally liable to plaintiffs. It is important to note that Lomma himself was acquitted of criminally negligent homicide, and all charges, resulting from this accident.

Expert Testimony Precluded Where Plainly Contradicted by Facts in Evidence
         The First Department also upheld the trial court’s preclusion of defense expert Wiethorn, holding that his opinion was conclusory and plainly contradicted by the record. Essentially, Wiethorn placed the blame for the accident on Leo, opining that Leo “high boomed” and “two-blocked” the crane. The First Department found that none of the eyewitness accounts of the accident would support Wiethorn’s theory, and that he was contradicted by the physical evidence. The First Department upheld the trial court’s decision to preclude the testimony as it would have lacked probative value in that it was conclusory, speculative and contradicted by the evidence.

Damages Reduced, but Remain Significant
          In reducing the awards to plaintiffs the First Department sought guidance from similar cases. Pre-impact terror is a subcategory of conscious pain and suffering designed to compensate for the time between the first apprehension of danger and the resulting injuries. The First Department noted that each plaintiff experienced inconceivable pre-impact terror, and tried to shield themselves from the debris. The pre-impact terror awards to Leo and Kurtaj of $7.5 million each were found to be excessive regardless, and reduced to $2.5 million and $2 million, respectively.
         The awards to Leo and Kurtaj for conscious pain and suffering, $8 million and $24 million, respectively, were also reduced by the First Department. An award of conscious pain and suffering requires proof of some level of cognitive awareness following the injury. The burden of proof falls to plaintiff to prove consciousness following an accident. The record established that Leo was conscious for less than 20 minutes following the accident, and that Kurtaj would remain alive for some four (4) hours. The injuries suffered by each man, as detailed in the record, were catastrophic. With regard to Leo, the First Department noted that other plaintiffs, also surviving for a brief period of time following an accident, were awarded damages of less than $1 million for conscious pain and suffering. However, the court also noted that the injures suffered by Leo were extreme, and then reduced the award to $5.5 million. As to Kurtaj, the court again looked to similar plaintiffs and found awards ranging from $1.2 million to $3 million. The court again noted, however, that Kurtaj’s injuries were almost singular in their devastation, and then reduced his award to $7.5 million.
         Each plaintiff was awarded $24 million in punitive damages, which was then reduced to $8 million for Leo and $9.5 million for Kurtaj. In upholding an award of punitive damages in this case, the court found that Lomma placed profit over the safety of the public and construction workers, and made numerous calculated decisions toward that end. The court noted that Lomma failed to test the welds, have them properly certified and failed to act when warned about the welds on another crane. The court noted that the accident occurred early in the day, and that had it occurred later, the result could have been even more devastating. However, the court also noted that punitive damages must comport with constitutional limitations, specifically the Due Process Clause which prohibits grossly excessive punishments. The First Department found that a reduction in the awards was necessary, but that a sizeable award was required to punish the defendants and to deter any future misconduct. It should be noted that, in addition to Lomma himself, all of his companies were also acquitted of criminal charges in this matter.
                                                                          -9/13/17
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