Major Victory for Solvent Asbestos Defendants

In a recent and critical ruling, New York State Supreme Court Justice Helen Freedman provided a rare victory for solvent defendants in asbestos litigation. Refusing to go along with a prior ruling by the Second Circuit, Judge Freedman interpreted Article 16 of New York's Civil Practice Law and Rules to hold that defendants in asbestos litigation are entitled to decrease their respective shares of liability to take into account the percentage of liability that should have been apportioned to other would-be defendants who were not named in the case because of a prior event of bankruptcy. Until now, liability was apportioned only among those defendants who were present in the lawsuit, with the other defendants being deemed 'unavailable' for purposes of sharing in liability. In this most recent iteration on the subject, Justice Freedman agreed with the defendants who argued that a bankruptcy filing of a potential defendant does not divest a plaintiff of jurisdiction that it might otherwise have had over the bankrupt entity.

The ruling, which held that 'the culpability of a bankrupt, non-party tortfeasor will be included when calculating the defendant-tortfeasors' exposure ' ' came in the case of Tancredi v. A.C. & S., Inc., No. 120136/00 and departed from the rule of In re Brooklyn Navy Yard Asbestos Litigation, 971 F.2d 831 (2nd Cir. 1991).

Background

In Tancredi, the court considered motions and cross-motions for summary judgment (converted to motions for declaratory judgment) in four asbestos-related personal injury and wrongful death lawsuits. The suits consolidated in Tancredi were four of the more than 30,000 asbestos-related suits currently pending in New York City. Because Justice Freedman was aware of the precedential 'importance of these motions for all [New York City Asbestos Litigation] litigants,' the court invited interested non-parties to submit amicus curiae briefs; many were filed, including four by some of the most active plaintiffs' firms in the world of New York asbestos litigation. The parties in Tancredi sought judgment on the proper construction of the provision of Article 16 of the New York C.P.L.R., which amends the common law joint and several liability rule. Article 16 provides in pertinent part:

Notwithstanding any other provision of law, when a verdict or decision in an action or claim for personal injury is determined in favor of a claimant in an action involving two or more tortfeasors jointly liable ' and the liability of a defendant is found to be 50% or less of the total liability assigned to all persons liable, the liability of such defendant to the claimant for non-economic loss shall not exceed that defendant's equitable share determined in accordance with the relative culpability of each person causing or contributing to the total liability for non-economic loss ' N.Y. C.P.L.R. 1601(1).

Under the common law rule of joint and several liability, all tortfeasors would be liable for the entire amount of a verdict (with only rights of contribution among themselves to apportion payment equitably). So, for example, before the passage of Article 16, if P sued A and B and secured a judgment of $100,000, A and B would both be liable for the full $100,000. Under the modified rule of Article 16, full joint and several liability attaches only to defendants responsible for more than half of the injury. As the court explained,

'In a personal injury action, it is found that Defendant A is 30% at fault and Defendant B is 70% at fault for plaintiff's non-economic loss of $100,000. Under Article 16, Defendant A, whose share of fault is less than 50%, is liable for no more than $30,000 of the loss (30% of $100,000), while Defendant B, whose share exceeds 50%, is liable for the entire $100,000.'

At issue in Tancredi ' and surely in the tens of thousands of other asbestos-related litigations ' was an exception to the rule of Article 16:

[T]he culpable conduct of any person not a party to the action shall not be considered in determining any equitable share herein if the claimant proves that with due diligence he or she was unable to obtain jurisdiction over such person in said action ' N.Y. C.P.L.R. 1601(1)

The effect of this exception is effectively to eliminate tortfeasors over whom a plaintiff cannot obtain jurisdiction in the apportionment of damages (but not in the gross damage award). As Justice Freedman explained in another example:

'Plaintiff P sues tortfeasors A and B in a personal injury action. P also diligently tries to join tortfeasor C, a non-domiciliary of New York, but is unable to obtain jurisdiction over C.  P is found to have non-economic damages of $100,000. As to liability, defendant A is found to be 30% at fault, defendant B to be 50% at fault, and non-party C to be 20% at fault. A's and B's liability to P is calculated as follows: pursuant to the proviso in CPLR 1601(1), C's share of the total fault (20%) is not considered in determining A's and B's liability shares. Deducting 20% from 100% leaves 80%, which is used to determine the limit of A and B's exposure pursuant to CPLR 1601(1). Thus A's share is adjusted from 30/100 to 30/80, or 37.5%; since 37.5% is less than 50%, A's exposure is capped at 37.5% of $100,000, or $37,500. As for B, its share of fault is adjusted from 50/100 to 50/80, or 62.5%, which exceeds 50%; accordingly, B is jointly and severally liable for the entire $100,000.'

In a more extreme example, tortfeasors who bear a negligible percentage of actual liability may end up jointly and severally liable for the entire judgment, as in the case, for example, of two defendants determined to be 5% and 10% at fault and a non-party determined to be 85% at fault. In such a case, the share of the two defendants would grow from, in one case, 5% (5/100) to 33% (5/15), and in the other from 10% (10/100) to 100% (10/15, which is 66%, or more than 50%). This unjust scenario became quite too commonplace in asbestos litigation where tertiary defendants were forced to pay exorbitant amounts in respect of miniscule liability and, all-too-often, were eventually forced into bankruptcy as a result.

Therefore, the construction of the 'proviso' of CPLR 1601(1) is nowhere more important than in the context of asbestos litigation, because many of the parties that can be considered 'traditional defendants' ' asbestos miners, manufacturers, sellers, and so forth, of asbestos ' have been driven into bankruptcy by asbestos-related litigation. Instead, asbestos plaintiffs have been forced to bring their claims against so-called 'downstream users,' such as property owners, brake manufacturers, and general contractors, of asbestos-containing products. Under the rule of In re Brooklyn Naval Yard Asbestos Litigation, those same downstream users were required to pay all of a plaintiff's damages. Hence, as a result of the unfair application of Article 16, those entities who were least involved with the mining, manufacture and sale of asbestos often became those responsible for the greatest amount of financial liability.

Analysis and Holding

In Tancredi, the court took up the question previously decided by the Second Circuit in the Brooklyn Naval Yard case ' whether a plaintiff is 'unable to obtain jurisdiction' over a bankrupt tortfeasor due to the automatic stay imposed by 11 U.S.C. ' 362(a) ' and, applying new New York State law, came out the other way.

After dispensing with certain threshold questions (ie, whether the motions were properly characterized as motions for summary judgment or declaratory relief, and, if they were properly motions for declaratory relief, whether such claims were ripe for determination), the court turned to the central question: whether the reference to 'jurisdiction' in CPLR 1601(1) means jurisdiction in the strictly technical sense of 'personal jurisdiction,' or whether it means 'effective jurisdiction,' as the Second Circuit had held in the Brooklyn Naval Yard case. Relying on two recent Appellate Division decisions, Justice Freedman determined that she was bound to determine that 'jurisdiction' in CPLR 1601(1) means 'personal jurisdiction.'

In Duffy v. County of Chautauqua, 649 N.Y.S.2d 297 (App. Div., 4th Dep't 1996), the Appellate Division, Fourth Department noted in dicta that '[t]he term 'jurisdiction' in CPLR 1601(1) ' refers to personal rather than to subject matter jurisdiction.' In that case, John Duffy was an employee of G & J Construction Corp. On a work-related matter, Steven Nichols, the president of G & J, was driving a crane across a bridge in the Town of Hanover in Chautauqua County; Duffy followed in a pickup truck with several other passenger/employees. The bridge collapsed, due to both structural defects in the bridge and the weight of the two vehicles, which far exceeded the posted weight limit of the bridge. Duffy was killed and his passengers were injured. The surviving passengers and Duffy's estate then sued Chautauqua County for negligence, and a jury returned a verdict for the plaintiffs, finding the County 25% at fault and G & J and/or Steven Nichols 75% at fault.

On appeal, the Fourth Department found that Duffy's comparative negligence (for ignoring the weight limit signs) should have been included when determining the tortfeasors' liability. Even though Duffy and his estate were immune from suit by his co-workers by virtue of the Workers' Compensation Law, the court found that 'the statutory bar of the Workers' Compensation Law does not constitute the inability to obtain jurisdiction as intended by CPLR 1601.' Thus, although the other plaintiffs could not obtain 'effective jurisdiction' over Duffy because of the Workers' Compensation Law, his equitable share of fault had to be included in any damages calculations because he was subject to personal jurisdiction in the most technical sense.

In 2001, the Appellate Division, First Department, decided Kharmah v. Metropolitan Chiropractic Center, 753 N.Y.S.2d 165 (N.Y. App. Div., 1st Dep't 2001). In that case, the plaintiff, Bilal Kharmah, alleged negligence on the part of his chiropractor and his doctors in connection with a back injury that was supposedly mistreated, resulting in Kharmah's paralysis. During the course of the litigation, the chiropractor defendants filed for bankruptcy. Kharmah moved to sever the chiropractor defendants' case from the medical defendants' case, because he could not move forward against the chiropractor defendants due to the bankruptcy stay. The First Department affirmed the severance, but held squarely ' citing Duffy as its sole support ' that 'while the bankrupt defendants will not participate in the trial, equity requires that defendants-appellants have the benefit of CPLR article 16 rights, even though there is an automatic stay by virtue of the bankruptcy.' Accordingly, if the medical defendants' share of fault was less than 50%, they would only be held liable for their proportionate share of damages.

Conclusion

Based on the logic of Duffy and the holding of Kharmah, Justice Freedman in Tancredi found that controlling First Department law required her to determine that, because personal jurisdiction is not disturbed by a bankruptcy stay, the liability of a bankrupt tortfeasor should be included in determining the liability of defendants in asbestos litigation (unless personal jurisdiction could not be obtained for some other, unrelated reason). Following the same reasoning, the court held that the exception to CPLR 1601 found in CPLR 1602(10) (relating to several-only liability in a product liability action when the plaintiff is not able to obtain 'jurisdiction' over the manufacturer, who is held liable under a theory of strict liability) did not apply to bankrupt asbestos manufacturers.

Peter A. Antonucci is Of Counsel in the Litigation Department at the New York office of Weil, Gotshal & Manges LLP. He concentrates his practice in complex commercial litigation, product liability, toxic torts, bankruptcy litigation, crisis management and internal corporate investigations.

In a recent and critical ruling, New York State Supreme Court Justice Helen Freedman provided a rare victory for solvent defendants in asbestos litigation. Refusing to go along with a prior ruling by the Second Circuit, Judge Freedman interpreted Article 16 of New York's Civil Practice Law and Rules to hold that defendants in asbestos litigation are entitled to decrease their respective shares of liability to take into account the percentage of liability that should have been apportioned to other would-be defendants who were not named in the case because of a prior event of bankruptcy. Until now, liability was apportioned only among those defendants who were present in the lawsuit, with the other defendants being deemed 'unavailable' for purposes of sharing in liability. In this most recent iteration on the subject, Justice Freedman agreed with the defendants who argued that a bankruptcy filing of a potential defendant does not divest a plaintiff of jurisdiction that it might otherwise have had over the bankrupt entity.

The ruling, which held that 'the culpability of a bankrupt, non-party tortfeasor will be included when calculating the defendant-tortfeasors' exposure ' ' came in the case of Tancredi v. A.C. & S., Inc., No. 120136/00 and departed from the rule of In re Brooklyn Navy Yard Asbestos Litigation, 971 F.2d 831 (2nd Cir. 1991).

Background

In Tancredi, the court considered motions and cross-motions for summary judgment (converted to motions for declaratory judgment) in four asbestos-related personal injury and wrongful death lawsuits. The suits consolidated in Tancredi were four of the more than 30,000 asbestos-related suits currently pending in New York City. Because Justice Freedman was aware of the precedential 'importance of these motions for all [New York City Asbestos Litigation] litigants,' the court invited interested non-parties to submit amicus curiae briefs; many were filed, including four by some of the most active plaintiffs' firms in the world of New York asbestos litigation. The parties in Tancredi sought judgment on the proper construction of the provision of Article 16 of the New York C.P.L.R., which amends the common law joint and several liability rule. Article 16 provides in pertinent part:

Notwithstanding any other provision of law, when a verdict or decision in an action or claim for personal injury is determined in favor of a claimant in an action involving two or more tortfeasors jointly liable ' and the liability of a defendant is found to be 50% or less of the total liability assigned to all persons liable, the liability of such defendant to the claimant for non-economic loss shall not exceed that defendant's equitable share determined in accordance with the relative culpability of each person causing or contributing to the total liability for non-economic loss ' N.Y. C.P.L.R. 1601(1).

Under the common law rule of joint and several liability, all tortfeasors would be liable for the entire amount of a verdict (with only rights of contribution among themselves to apportion payment equitably). So, for example, before the passage of Article 16, if P sued A and B and secured a judgment of $100,000, A and B would both be liable for the full $100,000. Under the modified rule of Article 16, full joint and several liability attaches only to defendants responsible for more than half of the injury. As the court explained,

'In a personal injury action, it is found that Defendant A is 30% at fault and Defendant B is 70% at fault for plaintiff's non-economic loss of $100,000. Under Article 16, Defendant A, whose share of fault is less than 50%, is liable for no more than $30,000 of the loss (30% of $100,000), while Defendant B, whose share exceeds 50%, is liable for the entire $100,000.'

At issue in Tancredi ' and surely in the tens of thousands of other asbestos-related litigations ' was an exception to the rule of Article 16:

[T]he culpable conduct of any person not a party to the action shall not be considered in determining any equitable share herein if the claimant proves that with due diligence he or she was unable to obtain jurisdiction over such person in said action ' N.Y. C.P.L.R. 1601(1)

The effect of this exception is effectively to eliminate tortfeasors over whom a plaintiff cannot obtain jurisdiction in the apportionment of damages (but not in the gross damage award). As Justice Freedman explained in another example:

'Plaintiff P sues tortfeasors A and B in a personal injury action. P also diligently tries to join tortfeasor C, a non-domiciliary of New York, but is unable to obtain jurisdiction over C.  P is found to have non-economic damages of $100,000. As to liability, defendant A is found to be 30% at fault, defendant B to be 50% at fault, and non-party C to be 20% at fault. A's and B's liability to P is calculated as follows: pursuant to the proviso in CPLR 1601(1), C's share of the total fault (20%) is not considered in determining A's and B's liability shares. Deducting 20% from 100% leaves 80%, which is used to determine the limit of A and B's exposure pursuant to CPLR 1601(1). Thus A's share is adjusted from 30/100 to 30/80, or 37.5%; since 37.5% is less than 50%, A's exposure is capped at 37.5% of $100,000, or $37,500. As for B, its share of fault is adjusted from 50/100 to 50/80, or 62.5%, which exceeds 50%; accordingly, B is jointly and severally liable for the entire $100,000.'

In a more extreme example, tortfeasors who bear a negligible percentage of actual liability may end up jointly and severally liable for the entire judgment, as in the case, for example, of two defendants determined to be 5% and 10% at fault and a non-party determined to be 85% at fault. In such a case, the share of the two defendants would grow from, in one case, 5% (5/100) to 33% (5/15), and in the other from 10% (10/100) to 100% (10/15, which is 66%, or more than 50%). This unjust scenario became quite too commonplace in asbestos litigation where tertiary defendants were forced to pay exorbitant amounts in respect of miniscule liability and, all-too-often, were eventually forced into bankruptcy as a result.

Therefore, the construction of the 'proviso' of CPLR 1601(1) is nowhere more important than in the context of asbestos litigation, because many of the parties that can be considered 'traditional defendants' ' asbestos miners, manufacturers, sellers, and so forth, of asbestos ' have been driven into bankruptcy by asbestos-related litigation. Instead, asbestos plaintiffs have been forced to bring their claims against so-called 'downstream users,' such as property owners, brake manufacturers, and general contractors, of asbestos-containing products. Under the rule of In re Brooklyn Naval Yard Asbestos Litigation, those same downstream users were required to pay all of a plaintiff's damages. Hence, as a result of the unfair application of Article 16, those entities who were least involved with the mining, manufacture and sale of asbestos often became those responsible for the greatest amount of financial liability.

Analysis and Holding

In Tancredi, the court took up the question previously decided by the Second Circuit in the Brooklyn Naval Yard case ' whether a plaintiff is 'unable to obtain jurisdiction' over a bankrupt tortfeasor due to the automatic stay imposed by 11 U.S.C. ' 362(a) ' and, applying new New York State law, came out the other way.

After dispensing with certain threshold questions (ie, whether the motions were properly characterized as motions for summary judgment or declaratory relief, and, if they were properly motions for declaratory relief, whether such claims were ripe for determination), the court turned to the central question: whether the reference to 'jurisdiction' in CPLR 1601(1) means jurisdiction in the strictly technical sense of 'personal jurisdiction,' or whether it means 'effective jurisdiction,' as the Second Circuit had held in the Brooklyn Naval Yard case. Relying on two recent Appellate Division decisions, Justice Freedman determined that she was bound to determine that 'jurisdiction' in CPLR 1601(1) means 'personal jurisdiction.'

In Duffy v. County of Chautauqua , 649 N.Y.S.2d 297 (App. Div., 4th Dep't 1996), the Appellate Division, Fourth Department noted in dicta that '[t]he term 'jurisdiction' in CPLR 1601(1) ' refers to personal rather than to subject matter jurisdiction.' In that case, John Duffy was an employee of G & J Construction Corp. On a work-related matter, Steven Nichols, the president of G & J, was driving a crane across a bridge in the Town of Hanover in Chautauqua County; Duffy followed in a pickup truck with several other passenger/employees. The bridge collapsed, due to both structural defects in the bridge and the weight of the two vehicles, which far exceeded the posted weight limit of the bridge. Duffy was killed and his passengers were injured. The surviving passengers and Duffy's estate then sued Chautauqua County for negligence, and a jury returned a verdict for the plaintiffs, finding the County 25% at fault and G & J and/or Steven Nichols 75% at fault.

On appeal, the Fourth Department found that Duffy's comparative negligence (for ignoring the weight limit signs) should have been included when determining the tortfeasors' liability. Even though Duffy and his estate were immune from suit by his co-workers by virtue of the Workers' Compensation Law, the court found that 'the statutory bar of the Workers' Compensation Law does not constitute the inability to obtain jurisdiction as intended by CPLR 1601.' Thus, although the other plaintiffs could not obtain 'effective jurisdiction' over Duffy because of the Workers' Compensation Law, his equitable share of fault had to be included in any damages calculations because he was subject to personal jurisdiction in the most technical sense.

In 2001, the Appellate Division, First Department, decided Kharmah v. Metropolitan Chiropractic Center , 753 N.Y.S.2d 165 (N.Y. App. Div., 1st Dep't 2001). In that case, the plaintiff, Bilal Kharmah, alleged negligence on the part of his chiropractor and his doctors in connection with a back injury that was supposedly mistreated, resulting in Kharmah's paralysis. During the course of the litigation, the chiropractor defendants filed for bankruptcy. Kharmah moved to sever the chiropractor defendants' case from the medical defendants' case, because he could not move forward against the chiropractor defendants due to the bankruptcy stay. The First Department affirmed the severance, but held squarely ' citing Duffy as its sole support ' that 'while the bankrupt defendants will not participate in the trial, equity requires that defendants-appellants have the benefit of CPLR article 16 rights, even though there is an automatic stay by virtue of the bankruptcy.' Accordingly, if the medical defendants' share of fault was less than 50%, they would only be held liable for their proportionate share of damages.

Conclusion

Based on the logic of Duffy and the holding of Kharmah, Justice Freedman in Tancredi found that controlling First Department law required her to determine that, because personal jurisdiction is not disturbed by a bankruptcy stay, the liability of a bankrupt tortfeasor should be included in determining the liability of defendants in asbestos litigation (unless personal jurisdiction could not be obtained for some other, unrelated reason). Following the same reasoning, the court held that the exception to CPLR 1601 found in CPLR 1602(10) (relating to several-only liability in a product liability action when the plaintiff is not able to obtain 'jurisdiction' over the manufacturer, who is held liable under a theory of strict liability) did not apply to bankrupt asbestos manufacturers.

Peter A. Antonucci is Of Counsel in the Litigation Department at the New York office of Weil, Gotshal & Manges LLP. He concentrates his practice in complex commercial litigation, product liability, toxic torts, bankruptcy litigation, crisis management and internal corporate investigations.