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G + B PARTICIPATES IN THE 2017 NEW YORK CARES WINTER WISHES PROGRAM

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

                                                   By Jacqueline A. Muttick and Marc Shortino

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?


                                                                        By Michael E. Kar

            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.
                                                           

                                                                                                10/4/17
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CAMELOT RETURNS TO MANHATTAN!



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

                                                                                       By Jacqueline A. Muttick

      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. 

                                                                                              9/19/17

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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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New York Litigation Landscape in the Autonomous Vehicle Era

by Vera Tsai



There is no doubt that we are entering the “autonomous vehicle era.”  Just nine months ago, the National Highway Traffic Safety Administration (“NHTSA”) issued a “Federal Automated Vehicles Policy” (“The NHTSA Policy”) which provides guidance on the safe design and development of “Highly Automated Vehiclesi” (HAVs). The NHTSA Policy reflects the Department of Transportation’s view that “automated vehicles hold enormous potential benefits for safety, mobility and sustainability.” As we are entering the autonomous vehicle era, inevitable questions arise as to how these driverless vehicles will impact motor vehicle litigation.

Much of the  future  landscape  in  motor vehicle  litigation will depend  upon the regulatory framework adopted by the federal and state governments.   The NHTSA Policy sets forth guiding “reasonable practices and procedures” that manufacturers and suppliers should follow in developing HAVs.  These standards and procedures will likely become rules and regulations in the years to come. Additionally, the NHTSA Policy encourages states to regulate HAV “drivers”ii for the limited purpose of enforcing traffic laws and to consider allocating liability among HAV owners, operators, passengers, manufacturers, and others when a crash occurs.  The NHTSA Policy makes clear that regulations on the “performance” of the HAVs are exclusively within the province of the federal governmentiii while states should “examine its laws and regulations in the areas including insurance and liability and enforcement of traffic laws and regulations.” Therefore, it is anticipated that the federal government will issue unified safety standards for HAVs while individual states will update their traffic, liability, and insurance laws to regulate these vehicles.

This article sets forth the current legal framework in motor vehicle litigation in New York involving fully autonomous vehicles (“AVs”).   In early April of this year, the New York lawmakers approved a state budget bill that includes a new measure allowing AVs on New York highways for the limited purpose of testing or demonstration.  Just last month, the Department of Motor Vehicles began accepting applications for autonomous vehicle testing. What happens if an AV is involved in an accident? For purposes of illustration, assume an AV is involved in a collision with another vehicle driven by a human (“non-AV”) and the non-AV driver is injured as a result.   The injured non-AV driver may potentially sue (1) the owner of the AV (if different than the manufacturer); (2) the human driver of the AV (if human driving was involved); and (3) the manufacturer of the AV.  Set forth below is an analysis of possible claims against each of these parties in this fact pattern.
1.   The Owner of the AV

In New York, in order to recover from the owner of a vehicle in a car accident, an injured plaintiff typically needs to prove that the owner was negligent and that such negligence caused his or her injuries. Negligence is defined as “lack of ordinary care,” which is the “failure to use that degree of care that a reasonably prudent person would have used under the same circumstances.”  PJIiv 2:10.   Additionally, New York Vehicle and Traffic Law (“VTL”) establishes “rules of the road” and violation of a VTL section constitutes negligence.  PJI 2:26; Deleon v. N.Y.C. Sanitation Dept., 14 N.Y.S.3d 280 (2015).

In a typical motor vehicle case, even if the owner of the vehicle was not involved in the operation of the vehicle, the owner may nevertheless be found liable if he or she failed to properly maintain the vehicle and such failure resulted in the plaintiff's injuries.  Additionally, the owner may be implicated pursuant to VTL §388 which imposes liability on the owner of a vehicle for the negligence of a driver if the owner had given permission to the driver to operate the vehicle.

In our fact pattern, if the accident occurred as a result of the malfunctioning of the AV due to the failure to maintain the vehicle, including the software, then liability will likely attach to the owner.  For example, if the owner failed to update the AV software as required by the manufacturer, or if the owner modified the software, then the owner will likely be found liable. However, unlike in a typical case, VTL
§388 will likely not apply to the owner of an AV even though the owner technically gave permission to the AV software “driver” to operate the vehicle. This is because the statute, as it is currently written, imputes liability on the owner only for the negligent operation of the vehicle by a “person.” Specifically, VTL §388 provides that:

Every owner of a vehicle used or operated in this state shall be liable and responsible for death or injuries to person or property resulting  from negligence in the use or operation of such vehicle, in the business of such owner or otherwise, by any person using or operating the same with the permission, express or implied, of such owner (emphasis added).

VTL defines a “person” as a “natural person, firm, partnership, association, or corporation.”  As such, it is unlikely that the AV software would qualify as a “person” for purposes of VTL §388. Therefore, if the vehicle was in fully autonomous mode and  its software “driver” simply made an incorrect prediction or decision, then the owner of the AV will not be implicated by the operation of VTL §388 since the AV software is not a “person.”  Liability may attach, however, if human control of the AV was involved, such as when an occupant of the AV took over the control of the vehicle.  If the AV was bein g operated by a “person,” then the owner of the AV will be liable for the negligence of the driver if the owner had given permission to the driver to operate the vehicle.

It should be noted, however, that the state legislature may choose to revise VTL §388 to impute liability on the owner for the decisions and actions of the AV, depending upon the state's policy involving AVs.  While clearly stating that allocating liability and regulating traffic rules remain the responsibility of the individual states, the NHTSA Policy does recommend that the term “driver” in state traffic laws be redefined to accommodate new scenarios which may be presented by a self-driving car.  Specifically, the NHTSA Policy recommends that an HAV system that conducts the driving task and monitors the driving environment (generally SAE Levels 3-5) be considered the “driver” of the vehicle.  For vehicles and circumstances in which a human is primarily responsible for monitoring the driving environment (generally SAE Levels 1-2), NHTSA recommends the state consider the human to be the driver for purposes of traffic laws and enforcement.
At this time, the New York Vehicle and Traffic law defines a “driver” as “Every person who
operates or drives or is in actual physical control of a vehicle.”  VTL §113.  As indicated above, VTL
§131 defines a “person” as “[e]very natural person, firm, partnership, association, or corporation.” Therefore, it does not appear that a software “driver” would be considered a “driver” for purposes of the New York traffic law. However, based upon the recommendations in the NHTSA Policy, New York state legislature will likely change the definition of “driver” to include both a “person” and an HAV system. It is, therefore, possible that the state legislature may also revise VTL §388 to impute liability on the owner of a vehicle for the negligent operation of vehicle by either a person or an HAV system.

2.   The Driver of the AV

Similar to seeking recovery from the owner of a vehicle, an injured person suing the driver of a vehicle must prove that the driver was negligent in the operation of the vehicle and that such negligence caused the injuries.  The inquiry is generally whether the driver used reasonable care in the operation of the vehicle.  Additionally, New York Vehicle and Traffic Law (“VTL”) governs rules of the road that a driver must abide by and a violation of the VTL is prima facie evidence of negligence.

In our fact pattern, therefore, if human operation of the AV was involved, then the liability of the human driver would be determined according to the “reasonably person” standard mentioned above.  If a human driver was forced to take control of the AV because of issues arising out of the software, and the accident nevertheless occurred, then the human driver’s liability will depend upon whether his conduct was reasonable under the circumstances.

3.   The Manufacturer of the AV

In addition to suing the owner and driver of the AV, an injured person may also make a claim against the manufacturer on products liability grounds.  If an injured plaintiff alleges that the software “driver” did not act properly and caused the accident, then a design defect claim may be implicated. For example, a plaintiff may bring a design defect claim if the AV incorrectly predicted the movement of another vehicle or made a driving decision that is being questioned. An injured person claiming a design defect may allege causes of action in negligence and strict products liability.  Under the strict liability theory, a manufacturer is liable if the injury was caused by a defective product that was used for its intended or reasonably foreseeable purpose.   Under the negligence theory, in addition to proving a defective product, the plaintiff also needs to prove that the manufacturer knew, or in the exercise of reasonable care should have known, that the product was defective.v

Under both strict liability and negligence theories, a product is “defective” if it is not “reasonably safe.” PJI 2:120. A product is not reasonably safe if a reasonable person who knew or should have known of the product's potential for causing injury and of any feasible alternative design would have concluded that the product should not have been marketed in that condition.  In deciding whether a product was defective, the jury is required to balance the risks involved in using the product against (1) the product's usefulness and its costs, and (2) the risks, usefulness and costs of the alternative design as compared to the product in question. PJI 2:120, 2:126. To prove his case, a plaintiff is “under an obligation to present evidence that the product, as designed, was not reasonably safe because there was a substantial likelihood of harm and it was feasible to design the product in a safer manner.”   Voss v. Black & Decker Mfg. Co.,
59 N.Y.2d 102, 108 (1983). The defendant manufacturer, on the other hand, may present evidence show-
ing that “the product is a safe product--that is, one whose utility outweighs its risks when the product has been designed so that the risks are reduced to the greatest extent possible while retaining the product's
inherent usefulness at an acceptable cost." Id.

Additionally, a product is as a matter of law “not reasonably safe” if a Federal Safety statute is violated.  See Feldman v. CSX Transp., Inc., 31 A.D.3d 698, 703 (2d Dept. 2006).  The Federal Motor Vehicle Safety Standards (FMVSS) are regulations setting forth minimum safety performance require- ments for motor vehicles or items of motor vehicle equipment. If such a safety standard is violated, then the product is not “reasonably safe.”  However, compliance with a Federal Safety Standard constitutes “some evidence” of due care but does not by itself preclude the imposition of liability.   See Lugo v. LJN Toys, Ltd., 146 A.D.2d 168 (1 Dept. 1989). vi

In applying these principles, the injured non-AV driver will have to prove that the AV software, as designed, was substantially likely to cause harm and that there was a safer alternative which is not cost-prohibitive.  In deciding whether the AV software was “substantially likely to cause harm,” a jury will necessarily have to first determine whether the AV’s behavior in the accident was improper.  If the AV had acted properly, then the AV software, as designed, was clearly not likely to cause harm.  The “substantially likely” standard also suggests that the jury will need to consider the likelihood of a specific accident fact pattern occurring.  Additionally, the non-AV driver would need to present expert evidence of an alternative safer design that is not cost prohibitive.  Such a “safer alternative design” will likely take the form of better machine learning algorithms, a rule-based algorithm or increased data input (training) to enable the AV software to make better decisions.

However, this standard may be difficult to apply in cases involving a self-driving car ’s software as an inquiry into the propriety of an AV's decision or behavior involves value judgment that could differ from individual to individual. A jury in one case may find an AV's decision or behavior improper while a different jury may return a different result.  Should an AV be found “defective” just because it made a decision that five people on the jury disagree with? Should a manufacturer be facing liability each time a jury questions a decision made by an AV? Additionally, what standard should an AV's behavior be held to? Should an AV be held to a “reasonable person” standard as in a standard motor vehicle case?   Since most of the AVs are programmed to drive more conservatively and marketed to be safer than a human driver, should they be held to a higher standard of behavior, such as a “reasonable machine” standard?

Additionally, a recent studyvii by London School of Economics found that some drivers intend to “bully” AVs when they hit the road- driving aggressively around them in the assumption that they will have to stop and let the bully through.  Such a behavior may create a higher risk of accidents for AVs. Should an AV be programmed to predict such bully behavior?  Furthermore, in the case of an imminent crash, should the vehicle prioritize the well-being of passengers or pedestrians?   This is yet another example of value judgment that may differ from one person to another.

As illustrated above, the advent of the autonomous vehicle era necessarily creates the need for change in the law.  Such changes will likely be made by both the federal and state legislatures with the courts filling the gaps. A new legal landscape will inevitably emerge as self-driving cars enter the market place.



Vera Tsai is an associate at Gartner + Bloom, P.C.





i The NHTSA has adopted the SAE International (“SAE”) definitions for levels of automation in vehicles.  HAVs represent
SAE levels 3-5 vehicles which are vehicles with the ability to monitor driving environments.
ii The Policy, in various places, refers to the automated vehicle system as the “HAV’s computer ‘driver ’” and suggests that
states should update references to a human driver as appropriate when evaluating their laws and regulations.
iiiThe Vehicle Safety Act expressly preempts states from issuing any standard that regulates performance if that standard is
not identical to an existing Federal Motor vehicle Safety Standard (“FMVSS”) regulating that same aspect of performance.
iv New York Pattern Jury Instructions (PJI) is used by judges throughout New York State to instruct juries in civil cases.
vIt should be noted, however, that the Court of Appeals has stated in dictum that causes of action for negligent design and
defective design are “essentially identical” and that separate jury questions on each theory were “redundant.” It is currently unclear whether the Court of Appeals intended to eradicate all distinctions between negligent design and defective design claims.
vi However, liability may not be imposed upon a manufacturer on a theory that has been pre-empted by federal law, that is, if the theory directly conflicts with a Federal Safety Standard or stands as an obstacle to the accomplishment of a Federal Motor Vehicle Safety Standard.  See Geier v. Am. Honda Motor Co., 529 U.S. 861 (2000).
vii Think Good Mobility Survey 2016, http://media.wix.com/ugd/efc875_d98af657dce04c72a4c167a9efd93757.pdf

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SLIPPERY STAIRS AND THE LABOR LAW: NEW GUIDANCE, 

By Arthur P. Xanthos

Defense counsel and carriers should be aware of the recent Court of Appeals pronouncement on Labor Law 240(1) cases, particularly because this latest pronouncement provides a roadmap for defeating plaintiffs’ common stratagem – the summary judgment motion.

The decision is O'Brien v Port Auth. of N.Y. & N.J., 2017 N.Y. LEXIS 725, 2017 NY Slip Op 02466 (N.Y. Mar. 30, 2017) The facts have been seen many times:  Plaintiff working on construction site, while descending an exterior temporary scaffold staircase which was wet and slippery due to rain, slips and falls thereby injuring himself.  Plaintiff sues all relevant parties and the focus of the complaint is Labor Law 240(1).

Plaintiff made the traditional summary judgment motion, supported by an expert affidavit from a professional engineer who opined that the stairs were "not in compliance with good and accepted standards of construction site safety and practice", that slippery conditions on stairways should be eliminated before use, and that the stairs in question were smaller, narrower, more worn, and steeper than typical stairs.  The expert concluded that these conditions coupled with the fact that the stairs were wet due to rain created a dangerous condition that was not in compliance with good and accepted standards of construction site safety and created a significant risk of slipping on the stairs and of thus falling down the stairs.
In opposition, defendants submitted affidavits from a construction safety expert, who disagreed with plaintiff’s expert, and opined that the staircase was designed for both indoor and outdoor use and provided traction acceptable within industry standards and practice in times of inclement weather. He further disagreed that the steps were too narrow, or that the step treads had been worn down.  He noted that the staircase provided both perforated holes to allow rain to pass through and raised metal nubs for traction.  He concluded that these anti-slip measures were sufficient. The defendants’ expert also opined that the use of both handrails could have helped prevent plaintiff's fall.
Not surprisingly, the lower court and the appellate division ruled in favor of the plaintiff on the motion.  The Court of Appeals, however, reversed plaintiff’s summary judgment award.  The Court’s primary rationale was the following:  the mere fact a plaintiff falls from a height on a construction site does not give rise to automatic Labor Law 240(1) liability, and where the defendants raise questions of fact as to whether a safety device (in the O’Briencase, the staircase) provided adequate protection to the plaintiff, summary judgment is not warranted.

While this decision and rationale is not a technical rewrite of Labor Law 240(1), it does mark a sea change in what presumptions the lower courts should make in analyzing these motions.  Heretofore, the process with some exceptions has been maddeningly difficult for the defense, because once a court heard that a plaintiff had fallen from a height and was injured, the court presumed – regardless of contradicting expert affidavits -- that inadequate safety devices were in place.  In other words, courts have been utilizing the fact of the fall to impose automatic liability. 

O’Brien counsels the courts against making that presumption.

                                                     -APX 5/26/17



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LANDLORDS  AND SECONDHAND SMOKE COMPLAINTS:
THE  APPELLATE DIVISION CLEARS THE AIR

By Joseph Rapice and Arthur P. Xanthos

This Firm recently won a successful appeal concerning whether a co-op has an obligation to guarantee an odor free apartment for a shareholder.  The appellate decision, Reinhard v. Connaught Tower Corporation, is available on this website under Publications.

Shareholder-tenant Susan Reinhard sued her co-op, the Connaught Tower Corporation, alleging that a cigarette smoke odor condition rendered her apartment uninhabitable for nine years, thereby forcing her to live in another premises.  Prior to trial, plaintiff had made a settlement demand of $600,000.00, essentially making settlement impossible and forcing a trial.

At a three-day non-jury trial, plaintiff testified that she, her family, and a close family friend smelled cigarette smoke in the apartment on a handful of occasions over a nine year period, although the source of the odor was never identified.  Plaintiff also proffered the testimony of an expert industrial hygienist, who testified that air passageways existed behind the walls in plaintiff’s apartment, implying that offensive odors could have been entering the apartment via those passageways.  The industrial hygienist also testified that he too smelled a smoke odor in the apartment during his inspections. 

In defense, we noted at trial that plaintiff’s expert, although he could have done so, failed to do a nicotine test.  We pointed out as well via cross-examination that such tests are inexpensive and easy to do.  We further demonstrated that without such objective testing and data, plaintiff could show no threshold amounts of any toxin (i.e.,secondhand smoke) in the apartment.   Essentially, we proved that the only objective evidence presented by plaintiff was that yielded by her nose – she smelled something she did not like.

At trial we also introduced other critical facts: plaintiff was a full time resident of Connecticut, never actually inhabited her apartment, and instead desired to use the apartment as a Manhattan pied a terre.

Despite these facts, the trial court ruled that the co-op had breached the proprietary lease and the statutory warranty of habitability, thereby constructively evicting Plaintiff.  The trial court awarded plaintiff a full return of nine years of maintenance payments in an amount of $120,000.00, and an award of attorneys fees.  In so ruling, the trial court found that “significant cigarette smoke permeates and pollutes the apartment,” that the apartment was “infiltrated by secondhand smoke”, and that the apartment was “smoke-polluted.” We appealed that decision.

On May 4, 2017, the Appellate Division First Department unanimously reversed the trial court’s decision, dismissed plaintiff’s complaint in its entirety, and awarded attorneys’ fees to our client – the co-op.  The appellate court held that the evidence failed to show that the subjective odor of cigarettes on a few occasions over nine years rendered plaintiff’s apartment uninhabitable.  Critically, the appellate court reasoned that plaintiff failed to show that the alleged odor was present on a consistent basis and that it was sufficiently pervasive as to affect the health and safety of the occupants. (The Court also noted that plaintiff lived in Connecticut and only intended to stay in the apartment occasionally.) 

The Reinharddecision marks a significant victory for building owners, cooperatives, and condominium boards, as well as for their insurers.  The trial court’s ruling had temporarily opened a Pandora’s Box with regard to habitability claims, as it seemed to imply that a tenant need only claim a subjective odor to recover a full rent abatement.   (Indeed, this Firm had seen an uptick in smoke odor cases following that decision.)  The Appellate Division First Department’s decision, however, reaffirmed two rules: (i) that a plaintiff-tenant must present objective evidence of the presence of a toxin, a threshold level of it, and proof of a causal connection to health and safety of an occupant; and (ii) that a claim based upon the habitability of an apartment dwelling requires proof that the plaintiff occupied the dwelling. 


                                                                                                                -5/9/17
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Firm Wins Significant Dismissal in Construction Defect Case, by Alexander D. Fisher, Esq.

In a recent New Jersey decision, this Firm succeeded in obtaining partial summary judgment in a construction defect case, dismissing multiple causes of action and claims against our client.  With this decision, the Court dismissed over 98% of the Plaintiff’s claimed damages of $6.1 million asserted against our client. The case is Views at Hudson Pointe Condominium Association v. K. Hovnanian at Hudson Pointe, LLC, et al., venued in Superior Court, Hudson County.
  
In the Views at Hudson Pointe case, Plaintiff condominium association claims significant construction defects in a large residential condominium complex located on the shores of the Hudson River in North Bergen, New Jersey.  Our client, a concrete subcontractor, is alleged to have been responsible for concrete cracking and piping deficiencies in the two on-site garages.  As part of a plan to repair the alleged cracking, Plaintiff’s expert opined that an expensive traffic coating would be needed in each garage, at an approximate cost of $5.8 million dollars.

Through discovery, the following was determined: (1) the garage plans provided to our client did not include a traffic coating; (2) our client was not contracted to put down such a coating; (3) our client was not retained to design the garages, only to construct them; (4) no one ever requested our client to install a traffic coating; (5) Plaintiff’s expert stated that the inclusion of a traffic coating would have been a “better design” for the garages; and (6) multiple parties acknowledged that our client had no role in the installation of piping, and that the claimed deficiencies were the responsibility of the piping contractor.

Accordingly, we moved for summary judgment at the close of discovery, on the grounds that the installation of a traffic coating was an obligation not found in the contract and for which Plaintiff could not recover.  In granting this portion of the motion, the Court found it clear that the traffic coating had not been part of the original plans for the garages.  Furthermore, the Court found that our client had no role in the design of the garages, and therefore, could not be held responsible for the proposed cost of installing such a coating.  Therefore, the Court limited the Plaintiff’s recoverable damages against our client to the cost of repairing the cracks in the garages with concrete filler, which Plaintiff’s own expert estimated at approximately $100,000.00 dollars.  

The Court also dismissed the claims relating to piping in the garages, stating that the evidence clearly showed that our client played no role in this work.

This decision highlights that a Plaintiff in a construction defect matter may only recover damages that provide them with the benefit of the bargain – in this case, two garages without a traffic coating.  A Plaintiff in this type of action is not entitled to receive a better building than was envisioned by the plans.  

It is common for condominium association experts in construction defect cases to inflate the cost to repair the alleged defects by inserting items that substantially improve upon the design of a particular building.  With this decision, the Court affirmed that a plaintiff will not be permitted to inflate its damages estimates in order to improve a building with upgraded designs and/or materials.  


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Kenneth Bloom to Speak at the 2016 CLM National Construction Claims Conference in San Diego CA

Gartner + Bloom is proud to announce that managing partner Kenneth Bloom will be speaking at the 2016 CLM National Construction Claims Conference.  The conference will be held in the Manchester Grand Hyatt in San Diego, California, September 28-30.
This September, the Claims and Litigation Management Alliance (CLM) will hold the most comprehensive construction claims conference ever. In addition to addressing construction defect claims, conference sessions will also address facets of construction-related claims including construction site accidents/injuries, coverage issues, subcontractor issues, and new technologies. Sessions also will address issues on the national, regional, and state levels.

About Ken: Ken Bloom is a founding partner of Gartner + Bloom, PC., an AV rated law firm in existence for twenty-two years and with offices in New York City and Springfield New Jersey. Ken is a skilled trial attorney, who concentrates his practice in the areas of Casualty/Liability Defense; Insurance Coverage; New York Labor Law (Scaffold Law); Construction Litigation including construction defect, EIFS, apparent microbial growth (AMG), asbestos and lead paint matters, as well as Insurance Fraud Defense and Commercial Litigation. Ken was admitted to the bar in the District of Columbia in 1981; New York 1982; Pennsylvania 1990; the U.S. District Court, Eastern and Southern District of New York in 1983; U.S. District Court, Northern District of New York in 1990; U.S. Supreme Court in 1985; U.S. District Court, Eastern District of Michigan in 1988; and the U.S. Court of Appeals, Second Circuit 1990.  He is a graduate of Cornell University (B.S., 1978), where he serves as a guest lecturer for the course, “Managing and Resolving Conflict.” He obtained his J.D. from American University in 1981.  

Prior to founding Gartner + Bloom, Ken was an Assistant District Attorney, Kings County, New York, 1981-1982; Senior Staff Attorney, New York City Mayor's Strike Force, 1982-1983; Partner, O'Donnell, Fox & Gartner, P.C., New York City, 1983-1990; Resident Senior Partner Cozen and O'Connor, New York City, 1991-1994.Ken is a member of the New York State Former District Attorneys Association, Brooklyn, New York; Pennsylvania and American Bar Associations- member of the Tort and Insurance Practice Section and Alternate Dispute Resolution Section; Co- chair of the Construction Committee of the ABA Section on Dispute Resolution (2004-2005); District of Columbia Bar and the New York County Lawyers Association. He is a frequent lecturer on construction and coverage related topics, as well as ADR.

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MOLD PERSONAL INJURY LAWSUITS: WHY DO THEY CONTINUE? By Arthur P. Xanthos

In our August 6, 2014 article, we explained the import of the New York State Court of Appeals' Cornell decision -- without medical community acceptance of causation between mold and bodily injury, courts in New York State will dismiss lawsuits for bodily injury premised on mold.

Since the Cornell decision came down, this Firm has used it twice to dismiss mold-related bodily injury claims against our clients: first in June of 2014 in Benton v. 80 Cranberry, and now in August of 2016 in a case called Sylla-ba v. The Colton Condominium. (Both of these decisions can be accessed on the Firm's website, www.gartnerbloom.com, under Publications.)  In Sylla-ba, Justice Cynthia Kern reiterated what the Court of Appeals held: an 'association' between mold and the alleged symptoms of a plaintiff is not the same as 'causation' between them; therefore, proving that there is such an association is insufficient for the bodily injury claims to survive dismissal.  

Cornell should have resulted in a sharp drop in the number of mold-related personal injury lawsuits brought in New York's state courts; yet these lawsuits continue to be brought in roughly the same numbers as before Cornell. We suspect the reasons for this counter-intuitive statistic are, (1) the plaintiffs' bar's unfamiliarity with the 2014 Cornell decision (viz., the flawed belief that if you can get one doctor to say 'mold caused the plaintiff's illness', that such is sufficient), (2) the use of a mold-related bodily injury claim as an 'add on' claim to bolster the settlement value of the case, and (3) publication in the popular press of other states' mold verdicts and settlements.

So, we repeat what we wrote in our August 6, 2014 entry: Absent a major change in the science of mold illness, the next few years will see many more summary judgment decisions in favor of land owners and against mold plaintiffs.

                                                         -APX 8/15/2016
        
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WHERE THERE'S A WILL, THERE'S A FAMILY - By ALEXANDER D. FISHER, ESQ.


Recently, the Firm succeeded in obtaining summary judgment on behalf of our client - a well-known catering establishment in Great Neck, New York - in a case involving a dispute over the ownership rights of shares in a family-owned business.

In this matter, Plaintiff, one of the sons of the deceased founder of the business, sought to block his stepmother from taking shares of the company that had been bequeathed to her by the decedent’s “pour over” will and subsequent trust.  Plaintiff argued that per the terms of a shareholders agreement for the business, which pre-dated the will by almost 20 years, his stepmother was not entitled to hold the shares because the agreement had purportedly limited the right to hold shares to “family members”.  Plaintiff argued that as a spouse of the decedent, his step-mother did not qualify as a “blood” relative, and therefore was not a family member.  He also noted that a separate clause in the agreement required any spouse who was no longer married to a member of the decedent’s family to return her shares in the company, and argued that since the decedent had passed away, his stepmother could no longer be married to him.  He accordingly commenced a declaratory judgment action seeking a declaration that his stepmother was not entitled to hold these shares, and forcing her to sell the shares to the remaining shareholders, including Plaintiff.

In our motion for summary judgment, we argued that there was no language in the shareholders agreement that limited the right to hold shares to “blood” relatives – rather, the agreement limited the right to hold shares to family members.  Accordingly, as the spouse of the decedent at the time of his death, the stepmother was clearly a family member under any reasonable definition of the term.  We noted that the requirement in the agreement requiring divestiture of shares in the company once a spouse was no longer married to a member of the decedent’s family was clearly limited to spouses of the decedent’s relatives – there was no clause requiring the spouse of the decedent himself to return any shares she held.  We also noted that Plaintiff had repeatedly acquiesced to his stepmother receiving the shares, both in a very detailed waiver agreement signed in Florida at the time of the distribution of shares from the trust, and in multiple clear ratifications of his stepmother’s status as a shareholder thereafter.  Furthermore, we argued that per the terms of the waiver, any contest to the terms of the trust were to be made in Florida under Florida law, and that pursuant to the statute of limitations governing such claims in Florida, Plaintiff was barred by the statute of limitations from challenging the terms of the trust.

In his decision, Nassau County Justice Thomas Feinman agreed with our position that Plaintiff’s stepmother unquestionably qualified as a member of the family based upon even a narrow reading of the term “family”.  The Court also found that the terms of the agreement did not contemplate the return of shares held by the decedent’s spouse upon his death, but only those shares held by a spouse of the decedent’s relatives.  Moreover, Justice Feinman noted that Plaintiff had unequivocally waived his right to challenge the grant of shares to his stepmother when he executed the waiver agreement at the time the shares were transferred.  The Court therefore granted our clients summary judgment as to all claims asserted against them.

This decision highlights the value of a well-worded waiver agreement relating to the distribution of property from an estate or a trust, particularly when there may be the potential for inter-family squabbles down the line.  Such an agreement allows the parties finality, and ensures that an aggrieved relative will not seek to undo various grants of property years later.  The decision also illustrates the value of a carefully drafted agreement regarding transfer of shares in a business, and how a seemingly mundane choice of words when drafting agreements can have massive unforeseen consequences a generation later.


The decision, Sessa v Sessa, can be found on this Firm’s website under Publications.

                                                                          -7/19/16


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New York City Building Owners and the Legionella Outbreak, by Arthur P. Xanthos

This past week has seen an outbreak of legionella in buildings in the South Bronx section of New York City.  Legionella is the bacterium that causes legionnaires disease and flourishes in the water of air conditioning and central heating systems. Utmost concern is for the health and safety of building residents, and pending New York City regulations address this concern by imposing on building owners new registration, testing, and maintenance requirements. Given the number of deaths and hospitalizations already reported, building owners and their insurers should be aware of the following facts and suggestions:

1. There have been fewer than a dozen reported legionella/personal injury decisions in New York State in the last decade, and far fewer such decisions involving residential buildings. As in any toxic tort lawsuit, the legionella claimant will have the burden of proving that the building owner negligently allowed a toxin to develop (namely, legionella), and that the claimant was exposed to the toxin in an amount that caused injury to the claimant -- two very difficult though not impossible burdens to meet. (For a detailed discussion of the burden of proving causation in toxic tort lawsuits, see our prior blog entry titled Mold up in the Air: Settled.)

2. A building owner must report to its insurance carrier immediately any notice of bodily injury or property damage arising from the outbreak. A building owner should also notify its HVAC/cooling tower contractor, and the insurer for that contractor, of the incident(s).

3. The insurance carrier for its part must assemble a pre-lawsuit response team -- legal, engineering, medical, and environmental -- to investigate the premises and establish the facts.

4. New York City is now inspecting and testing building cooling systems. As these test results will be admissible in any subsequent lawsuit, building owners (or, preferably, their insurance carriers) should retain environmental consultants to photograph, monitor, and report on how the City performs the testing.

5. Finally, if the cooling tower or HVAC system is going to be dismantled or modified significantly, care should be taken to avoid a spoliation penalty.  (For a detailed discussion of this topic, see our prior blog entry titled Spoiling the Evidence, Spoiling the Case.) 

-APX 8/10/15





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WE'VE MOVED!

G + B is pleased to announce the relocation of our New York offices. To accommodate our continued growth, you will now find us in significantly larger premises at 801 Second Avenue occupying the entire 11th floor. Our new state of art facilities are designed to serve our clients more effectively, and comfortably and efficiently accommodate our current professional and support staff as well as our anticipated expansion over the next several months and years.

Drop by to say hello and tour the new place!
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Ignoring Court Ordered Discovery Leads to Preclusion of Tenant's Claim, by Arthur Xanthos

Dentists are fond of saying if you ignore your teeth, your teeth will go away.  The same is true in litigation: ignore your discovery obligations and your claim will go away. This Firm is defending a building owner in a case brought by a tenant (who happens to be a lawyer).  The tenant alleges among other things bodily injury from second-hand smoke in his apartment.  As is customary, we demanded medical authorizations (to secure medical records related to the tenant's treatment) and a bill of particulars compelling the plaintiff to particularize his bodily injuries.  We also made sure the court included those demands in several court orders.

For unknown reasons, the plaintiff-tenant-lawyer refused to hand over medical authorizations and refused to particularize his injuries.  After several attempts at securing the documents failed, this Firm made a motion to compel the tenant to produce the medical authorizations and to serve a meaningful bill of particulars. That motion resulted in an order, with which the plaintiff-tenant-lawyer failed to comply. So another motion was made, and this time an order was sought to preclude/dismiss the tenant's bodily injury claims.  That second motion resulted in a more stringent order setting another deadline for the tenant's compliance, and warning the tenant of penalties for non-compliance.  The tenant again failed to comply. At a subsequent conference and upon being advised of the tenant's non-compliance, the court after oral argument precluded the tenant from any bodily injury claims at trial, and dismissed any negligence claims found in his complaint.  A copy of this decision/order (Johnson v. 78/79 York) can be found at this Firm's website (www.gbglaw.com) under Publications.

Preclusion orders are very rare, especially against pro se plaintiffs.  Counsel should expect to make more than one motion, and should request a progressively stronger sanction with each motion made.  Obtaining such an order is not a quick exercise either, as it took nearly two years to secure the one discussed herein.                                                                  -APX 12/16/14
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Shareholder Disputes: How to Obtain Company Documents, by Stuart F. Gartner

What can you do if you suspect that shareholders in your company are engaging in fraud or mismanaging the company, yet your requests for corporation records go unheeded? In Novikov v. Oceana Holdings Corp., a case handled by this Firm, the Kings County Supreme Court answered that question: so long as you have a legitimate purpose (such as investigating suspected mismanagement), you can force the company to turn over relevant corporation records.

Our client was a minority owner in a closely held corporation (the "Company") that owned a mixed commercial and residential building ("Building") in the Brighton Beach area of Brooklyn.  Our client had been kept out of the decision making loop by the other shareholders, and received virtually no information from them as to the Company.  Over time, he began to suspect that the other shareholders were engaging in self-dealing and mismanaging the Company.  Among other things, our client believed that one  of the shareholders had taken a substantial loan from the Company that had gone unpaid, and that the other shareholders were paying themselves unreasonable salaries, and had rented a commercial unit in the Building at a below market rent to another, separate company owned by them.  To investigate the suspected misconduct, our client demanded to see Company tax returns, financial statements, and property leases.

The Company refused to give over the documents voluntarily, so this Firm brought a Supreme Court petition on our client's behalf to compel the Company to do so.  The Company opposed the petition, saying that it had already given a redacted Company tax return, and that our client had bad motives for seeking the documents.

The Court granted the petition, ordering the Company to give over to our client unredacted State and Federal tax returns, profit and loss statements, leases, employment and commission agreements, shareholder meeting minutes and lists, and mortgage and loan documents.  (A copy of the decision is found at www.gbglaw.com under Decisions.)  The key to the Court's decision is a well-known point of law:  In addition to a statutory right for certain documents, "[a] shareholder has a common law right to inspect corporate books and records when the request is made in good faith and for a proper purpose....Investigating alleged misconduct by management and obtaining information that may aid legitimate litigation are in fact proper purposes ..." 

(Critically, our client with other counsel had tried previously to compel the Company to produce documents, but was turned away by the Court for failing to show a proper purpose for his request.  Our petition on his behalf included documentary evidence supporting his belief of Company mismanagement.)
 
The lesson offered by the Novikov decision is clear: the Business Corporations Law provides protections for minority shareholders; but whether you succeed in your request to obtain company documents depends on how well you can, prior to commencing a lawsuit, garner relevant facts and articulate a strong basis for your belief that the company is being mismanaged.   -SFG 11/3/2014

    




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Gartner + Bloom Lawyers Awarded SuperLawyer Distinction for 2014

The Firm is pleased to announce that Ken Bloom and Arthur Xanthos have received the New York Metro Area SuperLawyers distinction for 2014. Ken received the SuperLawyer award in the area of construction litigation (http://digital.superlawyers.com/superlawyers/nyslrs13?pg=81&search_term=bloom&doc_id=-1&search_term=bloom#pg81) while Arthur received his in the area of business litigation (http://digital.superlawyers.com/superlawyers/nyslrs14#pg77).
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Arbitrating Indemnity Issues During the Pendency of a Supreme Court Action, by Arthur Xanthos

Our last article warned of a pitfall with the traditional arbitration clause - ‎an arbitrator may end up with a power (e.g., the power to award punitive damages) that was never intended by the parties. Here we highlight another arbitration issue that has arisen several times in our practice.

Assume an Owner (O) hires a General Contractor (GC) to do work on a construction site, and the standard AIA form contract is executed containing a mandatory arbitration clause providing that "all disputes between the parties arising out of this agreement shall be resolved by binding arbitration under then applicable commercial arbitration rules". Plaintiff-worker (P) trips and falls while working on the site and sues both O and GC, alleging ‎negligence, as well as violations of the New York State Labor Law (the "Lawsuit"). O and GC each answer the Lawsuit and assert cross-claims against each other for contribution, defense, and indemnification.

All of the above is standard fare and occurs almost reflexively. But then something unusual happens: O's counsel files an arbitration demand, demanding that ‎GC arbitrate the issue of whether GC owes O defense and indemnification in the Lawsuit (the "Arbitration"). Inter-defendant arbitration of an indemnity obligation in the context of a pending personal injury lawsuit is an unusual tactic, and raises a host of procedural problems. For example, what happens to the rest of the case as the arbitration proceeds? What if the arbitration requires the resolution of other issues that have not yet been decided by the court? What if the arbitration takes the case beyond “standards and goals”? New York courts have come up with methods of dealing with the procedural problems. See, e.g., Weiss v Nath, 97 A.D.3d 661, 664 (2d Dep't 2012); County Glass & Metal Installers, Inc. v. Pavarini McGovern, LLC, 65 A.D.3d 940, 940-941 (1st Dep't 2009); and 624 Art Holdings, LLC v. Berry-Hill Galleries, Inc., 2012 N.Y. Misc. LEXIS 6440, 26-27 (N.Y. Sup. Ct. June 7, 2012). But even assuming counsel is willing to navigate the attendant procedural problems, in our opinion inter-defendant Arbitration of part of a Supreme Court action can only be justified in one of two circumstances:

1. Where a quicker resolution of the indemnity issue would occur in the Arbitration as opposed to the Lawsuit, and that speed is worth the arbitration fees; and/or
2. Where a more favorable resolution of the indemnity issue would occur in the Arbitration as opposed to the Lawsuit.

It is likely that New York counsel always will conclude that a quicker resolution would occur in the Arbitration. Counsel could also conclude that a more favorable resolution would occur in the Arbitration under the following scenarios:

1. If the rules applicable to the Arbitration (but not applicable to the Lawsuit) generate a better result -- of course then Arbitration would be advisable. But to make this decision counsel must retrieve the applicable Arbitration rules, review them for application to the indemnity issue, and compare the result with that obtained via the Lawsuit.
2. If the particular arbitrator used comes from a construction background and therefore knows or “feels” that such indemnity obligations should regularly be enforced -- here too Arbitration would be advisable.

So the conclusions are these: If the Arbitration would yield a more favorable result, choose inter-defendant arbitration regardless of the fees for arbitration. If the arbitration would yield a quicker result, and a result no worse than that yielded in Supreme Court, choose to arbitrate if you are willing to pay the cost to arbitrate in exchange for a speedier decision. In all other cases, bide your time and wait for the assigned Justice to make the decision on summary judgment.

APX 10/8/14
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Camelot Returns to Manhattan!

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, September 28, 2014 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 fairgoers 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 their 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!


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Binding Arbitration: A New Timebomb for Lawyer and Client, by Arthur Xanthos

It is customary to recommend to a range of clients that they agree to binding arbitration as a mechanism to resolve future disputes under an agreement. Arbitration is often regarded as a cheaper, quicker alternative to litigation.  The typical arbitration clause reads as follows: "Any dispute arising under this agreement shall be resolved by arbitration before the American Arbitration Association in New York City under the commercial arbitration rules then in effect." It is just as customary in the same agreement to choose a particular State law, e.g., New York law, to govern the resolution of future disputes.  A simple version of this choice of law clause reads as follows: "This agreement shall be governed by the laws of the State of New York."

Yesterday, the New York State Appellate Division, First Department, had the opportunity to consider a case involving an agreement containing both clauses.  A limited liability company's operating agreement contained both an arbitration clause and a choice of law (New York) clause. But the commercial arbitration rules (mandated by the arbitration clause) conflicted with New York State law (mandated by the choice of law clause) in one important respect: commercial arbitration rules permit an arbitrator under some circumstances to assess punitive damages against a party to the arbitration.  New York State law, on the other hand, does not permit an arbitrator to assess punitive damages.  So when an agreement contains both clauses (commercial arbitration rules, and New York State choice of law), may an arbitrator award punitive damages?

Yes, said the Appellate Division in a sharply divided 3-2 decision. Matter of Flintlock Constr. Servs. LLC v. Weiss, 2014 NY Slip Op 05818 (8/14/2014).  The majority held that the operating agreement's choice of law provision, in the absence of additional limiting language, "is insufficient to remove the issue of punitive damages from the arbitrator".

The Flintlock decision is problematic for two reasons: First, what do contracting parties do about their already executed agreements that now have conflicting clauses? It is barely overstatement to say that the overwhelming majority of shareholder agreements, operating agreements, asset sale agreements, and even employment agreements contain both of these clauses.  Second, how should such agreements be drafted going forward?  Pending an appeal of the Flintlock decision, attorneys should follow the First Department's direction and place limits on the arbitrator's power to impose punitive damages.  The new clauses might read as follows:

              "ARBITRATION. Any dispute arising under this agreement shall be resolved by arbitration before the [NAME OF ARBITRATION TRIBUNAL] in [LOCATION].  The arbitration shall be conducted under commercial arbitration rules then in effect, but the arbitrator(s) shall resolve the dispute in accordance with the laws of the State of New York without giving effect to principles of conflict of laws. The arbitrator(s) shall have the limitations on his, her and their power and authority as are found in New York State law, including without limitation no power or authority to award or assess punitive damages."

                "CHOICE OF LAW. This agreement, its validity, construction, and enforcement, shall be governed by the laws of the State of New York, without giving effect to principles of conflict of laws."

                                                                                            APX 8/15/14 



     

  
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Mold Up in the Air: Settled, by Arthur Xanthos

Our January 16, 2014 entry entitled “Mold Up in the Air” discussed the pending appeal of Cornell v. 350 West 51st St. Realty LLC, a case which concerned whether a plaintiff could get to a jury on her claim that indoor residential mold caused her respiratory injuries. We pointed out that the Court of Appeal’s questioning at oral argument portended a potential reversal and defeat for mold plaintiffs. And that is in fact what has happened. The Court of Appeals (2014 NY Slip Op 02096) granted the defendant landlord and coop summary judgment, and dismissed the bodily injury claims of the Cornell plaintiff. The decision is a difficult read, but the lessons yielded are clear.

Some background: the plaintiff in Cornell alleged that throughout her occupancy of a co-op apartment, the co-op building's "basement was in a wet, damp, musty condition"; that the radiator in her apartment's living room "leaked on numerous occasions" and "continued to leak and also released steam into the Apartment" despite the co-op’s attempts at repair; that in July 2003 she first noticed and notified the co-op that "there was mold growing in the [apartment's] bathroom," but the co-op "ignored" this condition; and that beginning in the first week of October, 2003, the landlord and/or its contractor performed demolition and/or construction work in the basement of the co-op building, permitting noxious dust, dirt, mold and debris to be released, which infiltrated her first-floor apartment.  What were her injuries? The Cornell plaintiff claimed that "[i]mmediately after" the landlord and/or its contractor performed the work in the basement, she became dizzy, disoriented, covered with rashes, unable to breathe, light-headed, congested, experienced tightness in her chest, had severe headaches, had shortness of breath, had a metallic taste in her mouth, and experienced other physical symptoms.

At the Frye hearing (brought on by defense motion), the defendants used an immunologist/epidemiologist who assessed plaintiff’s claim that "a significant portion of her physical and psychological problems is related to adverse reactions stemming from exposures to molds," and, after review of her medical records and the relevant science, opined with reasonable medical certainty that there was no relationship between the medical problems experienced by Ms. Cornell and exposures to molds (i.e., no specific causation). The defendants’ expert also opined that a causal relationship between indoor residential mold and Ms. Cornell’s injuries was not generally accepted in the medical community (i.e., no general causation).

Plaintiff’s medical expert opined to the contrary, and pointed to numerous studies that supported an association between indoor residential mold and illness. But as the Court of Appeals explained, “studies that show an association between a damp and moldy indoor environment and the medical conditions that [plaintiff's medical expert] attributes to Cornell's exposure to mold (bronchial-asthma, rhino-sinusitis, hypersensitivity reactions and irritation reactions of the skin and mucous membranes) do not establish that the relevant scientific community generally accepts that molds cause these adverse health effects.” (The causation/association battle line was explained in detail in our January 16 entry.)

The Court of Appeals could have ended its decision there (since without proof of general causation, plaintiff must be turned away), but it went further: even assuming that the plaintiff in Cornell demonstrated general causation, she did not show the necessary specific causation. (For a theory of causation to survive under Frye, both prongs of causation – general and specific – must be proved.) The Court of Appeals decision alludes to the fact plaintiff failed to show specific causation because she did not set forth “exposure to a toxin, that the toxin is capable of causing the particular illness and that plaintiff was exposed to sufficient levels of the toxin to cause the illness (specific causation)." The Cornell plaintiff’s expert had tried to prove specific causation by differential diagnosis. The Court of Appeals dismissed that attempt: “Differential diagnosis, of course, 'assumes general causation has been proven'". This last pronouncement is of incredible importance to the defense of toxic tort claims, as the number of clinicians who use differential diagnosis to support an opinion on causation is legion.

This Firm already has had opportunity to use the Cornell decision at the trial court level to our client’s advantage (see Benton v 80 Cranberry Street, in “Publications” above).  Absent a major change in the science of mold illness, there is every reason to believe the next few years will see many more summary judgment decisions in favor of land owners and against mold plaintiffs.

                                                        APX 8/6/14
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Pre-Loss Risk Management Meetings with Insureds, by Arthur Xanthos

Liability insurance carriers have several methods of managing the risk posed by their insureds' operations. One little used but very effective technique is the pre-loss risk management meeting between the insured and the carrier, or between the insured and an attorney hired by the carrier.

 In the case of a general contractor ("GC")insured, the procedure runs generally as follows: a GC that intends to develop land purchases a general liability insurance policy from an insurance carrier. As part of the insurance binder, the GC is obligated to meet with an attorney to review the subcontract agreements used by the GC, and to review the safety of its operations. (The carrier if it wishes can charge the GC a sum in addition to the premium to cover the cost of the meeting.) The meeting is then held between the attorney and the GC, during which subcontracts and insurance certificates are reviewed, and safety measures on the construction site are looked at (particularly those that might trigger New York State Labor Law liability). The attorney then makes suggestions to improve the GC's paperwork and its safety measures.

Rather than rewriting the insured's subcontracts entirely (an expensive, and likely vain pursuit), the attorney will want to leverage the time spent by focusing on three areas during the meeting with the insured: (1) the quality of the indemnity language in the insured's subcontracts; (2) the accuracy and proper wording of any insurance certificates from the subcontractors; and (3) the responsibility for safety on the construction site. It is these three areas that will pay the most dividends in the event of a loss.

In our experience conducting risk management meetings, not more than half of the contractor insureds we meet have both a valid indemnification provision in their favor, and a properly drafted insurance certificate from their subcontractors. Following a well run risk management meeting, however, the insured's subcontracts will have a valid and unambiguous indemnification clause running in favor of the insured, the insured's subcontractors will have made the insured an additional insured on the subcontractor's liability insurance policy, the insured will have received a tutorial on the strict safety rules applicable to owners and contractors on a construction site, and the carrier's adjustment of a future claim will be a matter of passing the defense and indemnity of the insured to the subcontractor and its insurance carrier.

So a proper risk management meeting will benefit both carrier and insured. For these reasons, all general liability insurance carriers should consider utilizing risk management meetings. Four points, however, should be kept in mind: (1) the insured is not always receptive to such meetings, even if the insurance binder requires it. Consequently, you will find that the meeting often takes place long after the insured starts work on the site; (2) you are counting on the insured taking the advice of the attorney. There is little recourse, however, if the insured does not do so (other than perhaps a non-renewal of the policy); (3) it is not a requirement that an attorney conduct these meetings -- an experienced adjuster can be just as effective; and (4) the average time to prepare for and conduct the meeting is six hours. The amount charged to the insured, if any, should reflect that anticipated cost.

                                                                                                          -APX 2/14/14
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Spoiling the Evidence - Spoiling the Case, by Arthur Xanthos

The legal doctrine of spoliation permits a court to punish a party who destroys crucial evidence prior to the other party having had an opportunity to inspect that evidence.  Sometimes the punishment for spoliation is dismissal of the case (if done by plaintiff) or preclusion of a defense (if done by defendant).

Spoliation considerations arise often in premises liability and toxic tort cases.  For example, if a plaintiff disposes of personal property that was damaged from a water leak, and the defendant has no other means of assessing the damage to that property, the court can dismiss the plaintiff's property damage claims.  Similarly, if a plaintiff renovates or remediates his allegedly toxic apartment prior to giving the defendant an opportunity to test whether that apartment was truly toxic, then the court can dismiss plaintiff's claims relating to the toxic nature of the apartment.  See, e.g., Theodoli v.170 E. 77th 1 LLC, 40 Misc. 3d 135(A)(N.Y. App. Term 2013).

In our experience, it is not uncommon that a plaintiff in a case we are defending disposed of her "moldy" clothes, or fixed  her water-damaged walls, prior to bringing the lawsuit; but such actions leave the plaintiff open to spoliation penalties, possibly including the dismissal of the entire case.

A database search of reported New York State case law reveals 247 decisions from 2000 through 2006 that mentioned spoliation.  In the next seven year period (2007 through 2013), the number of such decisions was 555.  What accounts for the 225% increase in spoliation decisions?  There are several reasons.

A motion for spoliation penalties is straightforward, can be made anytime -- pre-trial, in limine, or during trial, and has virtually no downside and significant potential upside.  Further, and perhaps most relevant, courts in the First Department appear to be imposing stronger spoliation penalties more often than they have in the past.

Theodoli v.170 E. 77th 1 LLC, a case handled by this Firm, is illustrative of the trend toward stronger spoliation penalties.  There, a tenant's mold and toxic tort claim was dismissed because he renovated his apartment prior to the defendants' environmental consultant gaining access to test the apartment.  On motion, the environmental consultant testified that once an apartment is "cleaned", it is no longer possible to determine whether the apartment was previously toxic.  So, because the tenant had destroyed crucial evidence and prevented the defendant from testing the apartment in its allegedly toxic state, his mold and toxic tort claim was dismissed. That decision came down in the Fall of 2013.

The start of 2014 saw the continuation of the judicial trend toward strong spoliation penalties.  On January 9, 2014, the First Department came down with a spoliation decision in Malouf v. Equinox Holdings, 2014 N.Y. App. Div. LEXIS 163.  Plaintiff Malouf injured herself on a Life Fitness treadmill at an Equinox gym.  She sued the Equinox gym, which in turn sued the maker of the treadmill.  Equinox, however, had disposed of the subject treadmill prior to the lawsuit; so no party was able to examine it.  The court punished the Equinox for its spoliation by dismissing the Equinox's claim against the maker of the treadmill; the court also precluded the Equinox from arguing at trial that the treadmill in question worked properly -- a punishment which could be the functional equivalent of summary judgment for the plaintiff.


The trend in spoliation case law offers two simple lessons, one proactive and the other prophylactic.  First, courts are more willing to entertain spoliation motions and less reluctant to impose strong spoliation penalties; therefore, counsel should be constantly mindful of the potential for making a spoliation motion, and should pursue diligently the discovery necessary to secure strong spoliation penalties against the adversary.  Second, counsel should from the beginning advise the client on the need to avoid spoliation penalties, by preserving damaged property and by maintaining the status of any object, item, or environment that is crucial to the lawsuit.           

                                                                                                     -APX 1/24/14

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Adjacent Landowner Liability for City Sidewalk Defects, by Arthur Xanthos

For nearly a decade, the New York City Administrative Code has imposed on landowners the responsibility of maintaining the sidewalks adjacent to the landowner's premises.  Thus, a passerby who slips and falls on the sidewalk outside your building can look to the building owner as a possible defendant.


By definition, condominium boards are not landowners.  So if a passerby slips and falls on a sidewalk adjacent to a condominium building, who is the adjacent landowner for purposes of liability?


This Firm has seen plaintiff counsel sue the condominium itself, which we believe eventually results in a dismissal because the condominium is not a landowner and the NYC Administrative Code provision is interpreted strictly.  So that leaves one other possibility on whom to impose liability for a sidewalk defect -- the owner of the particular condominium unit closest to the site of the trip and fall (occupied most likely by a ground floor commercial tenant of the unit owner).


In light of uncertain litigation with these quirky facts, ground floor condominium unit owners who rent out their unit should obligate the tenant to maintain and repair the sidewalk adjacent to the unit, and to defend and indemnify the unit owner (and the condominium board of managers) in the event of a lawsuit.  We note that while many form leases obligate tenant to keep the adjacent sidewalk clean, they leave unclear the responsibility for sidewalk maintenance and repair.


Of course, the condominium unit owner should also insist on proof that the tenant has adequate liability insurance and has named the unit owner (and, of course, the board of managers) as additional insureds on the insurance policy.
     

                                                                                                 -APX 1/19/14
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The Legal Fees Sword, by Arthur Xanthos

Many proprietary leases between a Co-op and a shareholder-tenant contain a boilerplate legal fees provision, obligating the shareholder-tenant to pay reasonable attorneys fees if the Co-op has to sue to enforce a provision of the lease. Because most lawsuits between Co-ops and shareholders are relatively quick summary proceedings in landlord-tenant court, the attorneys fees in question tend to be modest.

Sounds great, right? Except that sometimes it’s the shareholder-tenant who sues the Co-op (e.g., on a claim that the Co-op has breached the warranty of habitability), and by operation of the Real Property Law it is the shareholder-tenant who will be owed the reasonable attorneys fees if he or she prevails. These shareholder initiated lawsuits usually are plenary actions in Supreme Court, take years to litigate, and the attorneys fees in question can be substantial.   Our Firm's experience is that most Co-ops are willing to take that risk; thus, the boilerplate legal fees provision remains, well, boilerplate in most proprietary leases.

We believe however that serious consideration should be given to removal or modification of the legal fees provision in proprietary leases. Here is why. Assume a shareholder-tenant’s apartment is flooded due to a burst pipe from inside a wall. For whatever reason (inattentive Board, inexperienced managing agent), the apartment is not repaired for several months, and the shareholder-tenant relocates to a hotel. Disillusioned with the slow pace of repair, the shareholder-tenant repairs the apartment herself and sues the Co-op in Supreme Court for out-of-pocket expenses (the hotel bills, dry cleaning cost), the cost of repair (putting up new walls and ceiling), the damage to her personal property (furniture, artwork), a refund of maintenance payments for the period in question, and attorneys fees under the proprietary lease. The shareholder-tenant's lawsuit is based, in part, on the allegation that the Co-op breached the proprietary lease. If the shareholder-tenant prevails on her claim, she is likely entitled to attorneys fees, and the amount will be far more than the typical amount generated in the usual summary proceeding. That is because a fully litigated plenary action almost always generates significantly more legal fees than a summary proceeding generates. Worse for the Co-op, the award of attorneys fees to the shareholder-tenant (and for that matter, any award refunding maintenance payments) is almost never covered by the Co-op’s general liability insurance policy. Thus, a Co-op that has the boilerplate legal fees provisions in its proprietary lease and loses such a case will, (a) have to pay with out-of-pocket, non-insurance dollars, and (b) have to explain to its shareholders the reason for the hit to the Co-op's finances.

With no attorneys fees provision in the proprietary lease, the Co-op never faces this scenario; but must a Co-op forgo entirely the right to collect attorneys fees in all cases involving shareholder-tenants? Maybe not. Consider this: a proprietary lease that allows recovery of legal fees but only up to a specified dollar amount, say $15,000.00. In the majority of non-payment proceedings against shareholder-tenants, the Co-op will in most instances be made whole, as the legal fees generated will not exceed the specified dollar amount (i.e., $15,000.00). On the other hand, the maximum exposure the Co-op would face in Supreme Court if a shareholder-tenant prevailed would similarly be limited to $15,000.00, and most likely result in a “savings” of tens of thousands of dollars. In this light, a modified attorneys fees provision can be considered an additional insurance policy for the Co-op. We are unaware of any reported case addressing the validity of such a modified attorneys fees provision, but there is no good reason why a well-drafted limited attorneys fees provision wouldn’t be enforced in accordance with ordinary contract principles.

                                                                                             -APX 1/17/14
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Noises Off, by Arthur Xanthos

What is a Co-op obligated to do when one shareholder-tenant complains that another shareholder-tenant is too noisy? Consider the following: Shareholder-tenant on 4th floor sues Co-op and shareholder-tenant on 5th floor. The complaint alleges that the 5th floor tenants are unreasonably noisy, and that the Co-op has failed to resolve it. As real estate development in New York City continues to accelerate, such complaints are becoming commonplace.

Co-ops are landlords, so by law they are deemed to have warranted to tenants that the premises are habitable. An unreasonably loud building obviously can make an apartment uninhabitable. But what if the ‘noise’ complained of is caused by another shareholder-tenant? Further, what if the noise is sporadic, or difficult to record or measure objectively? Such cases pose nettlesome problems for co-ops, managing agents, and their carriers, because money damages are often not the primary goal of the plaintiff. How do you resolve a claim where the plaintiff wants peace and quiet, the defendant-tenant argues that the noise is the natural by-product of a happy, busy family life, and the Co-op cannot control the noise or the plaintiff’s reaction to it?

In our practice, we have seen or suggested several, non-orthodox settlement possibilities: (1) The Co-op can pass and enforce more stringent carpeting and padding rules; (2) Subject to cost, the Co-op can invest in soundproofing materials at the ceiling, floor, or wall interfaces; (3) The parties can explore an apartment swap, or a buyout/sale; (4) The Co-op can monitor noise (via a property manager or superintendent) and assess reasonable fines based on violations of a well-defined noise policy; and (5) If warranted and authorized under the proprietary lease, the Co-op can attempt a dispossess proceeding based on the offending tenant creating a nuisance. See, e.g., Domen v. Aranovich, 1 N.Y.3d 117 (2003). Failing resolution, a strong summary judgment motion on behalf of the Co-op is imperative, keeping in mind that as recently as a few days ago the First Department kept a Co-op in a lawsuit while dismissing the offending, noisy tenant from the case! Brown v Blennerhasset Corp., 2014 N.Y. App. Div. LEXIS 188, 1-3 (1st Dept. Jan. 14, 2014).

                                                                                                   -APX 1/17/14
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Mold Up in the Air, by Arthur Xanthos


On January 13, 2014, the New York State Court of Appeals heard oral argument in the appeal of Cornell v. 360 W. 51st Realty, which is the latest First Department word on whether and when a claim alleging bodily injury due to mold can survive for presentment to a jury.
Cornell was decided by the First Department on March 6, 2012, and is generally regarded to have made it easier for a plaintiff’s mold claim to survive summary judgment under a Frye analysis.  (Fryerequires that for a plaintiff’s claim to survive, it must be generally accepted in the relevant scientific community that the offending agent (mold, asbestos, etc.) causes the claimed injury.)
A decision is likely months away but if the questions from the Court of Appeals bench during oral argument are any indication, Cornell stands an excellent chance of reversal or modification.
The Justices focused primarily on the difference between the word “causation”, and the term “association”.  While science recognizes many associations, it recognizes far fewer causations -- and that is the entire point of Frye.  If the relevant scientific community does not generally accept that A (e.g., mold) causes B (e.g., asthma), then plaintiff cannot prove causation and must be turned away. The Cornell plaintiff showed “association” between mold and illness; will that be enough for plaintiff’s case to survive for presentment to a jury?
About two years ago, this firm handled a Frye hearing in Supreme Court, Kings County in which the sitting Justice presciently asked the same question the Court of Appeals just did -- what is the difference between causation and association?  In other words, do scientists (doctors) use “association” to mean the same thing that a layperson means by “causation”?  This question gets at the very root of the confusion in some of the case law on whether to allow expert testimony under Frye.
Hypotheticals, some absurd, highlight the issue.  There may be a strong association between men with grey hair, and mortality; or between membership in a sailing club, and sunburn; or between those who make appointments with Dr. Smith, and sickness.  But it would never be argued seriously that the former causes the latter.  That, in a nutshell, is why New York requires proof that causation is generally accepted in the relevant scientific community.
So Cornellwill likely turn on whether the Court of Appeals views causation and association as starkly different as these examples illustrate, or whether it accepts the more highbrow argument that causation and association are the same thing, differing only in the degree of experimental proof available for each.
                                                                                    - APX 1/16/14
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