UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
March 31, 1978
THE CITY OF NEW YORK, Plaintiff,
THOMAS F. PATTON and RALPH S. TYLER, JR., Trustees of the property of ERIE LACKAWANNA RAILWAY COMPANY, Debtor, and ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Defendants; THOMAS F. PATTON and RALPH S. TYLER, JR., Trustees of the property of ERIE LACKAWANNA RAILWAY COMPANY, Defendants and Third-Party Plaintiffs, v. ACME FAST FREIGHT, INC., Third-Party Defendant
The opinion of the court was delivered by: WERKER
HENRY F. WERKER, D.J.
Plaintiff, the City of New York (the City), has brought this action to recover back rent and deferred maintenance costs for its Pier 21 North River from defendant Erie Lackawanna Railway Company (Erie), which was in possession of that facility from January 1, 1966 to August 31, 1972 -- initially as the tenant of the City and later, after one renewal of the lease, as either a licensee under an occupancy permit or as a holdover tenant. Defendant St. Paul Fire and Marine Insurance Company (St. Paul) posted a surety bond guaranteeing performance of Erie's obligations under the lease and third-party defendant Acme Fast Freight, Inc. (Acme) was licensed by Erie to use the pier during the period of Erie's possession. The claims asserted by the various parties were previously described in a decision reported at 390 F. Supp. 1001 (S.D.N.Y. 1975) and, insofar as possible, will not be reiterated here. The motions before the Court, of which there are several, will be considered seriatim.
As a preliminary procedural matter, Erie contends that the principal action cannot proceed until there has been complete compliance with Order No. 633 of the Reorganization Court dated June 16, 1977. Order No. 633 provides in part that Erie is to be substituted for the Trustees as a party defendant and that execution of any judgment obtained against Erie is to be stayed pending further order of the Reorganization Court. In accordance with Erie's request, the Court hereby adopts the terms of Order No. 633 as its own. See Rules 21, 24(c), Fed. R. Civ. P.
The City has made a motion for partial summary judgment against St. Paul in the amount of $16,934.02 on the second cause of action which is brought to recover net pre-Bankruptcy rental charges owed to the City by Erie. St. Paul has cross-moved for summary judgment reforming the terms of its bond by changing all references to the expiration date of the lease between Erie and the City from December 31, 1972 to December 31, 1971. Since the claim for back rent covers the period from December 31, 1971 through August 31, 1972, granting St. Paul's motion would relieve it of any possible liability under the second cause of action.
The City and St. Paul are apparently in agreement that the bond erroneously described the renewal period of the lease for the pier, however, they differ as to the legal import of that error.
The City contends that the mistake was made by the defendants alone and that the bond is therefore not subject to reformation in the absence of fraud or other misconduct by the City. It further contends that reformation is barred by the doctrine of laches or equitable estoppel. St. Paul contends that the mistake was mutual and that it is properly remedied by reformation since "there can be no question that if brought to the attention of the parties at [the time the bond was issued], all would have agreed that the expiration date in the bond was an error." Affid. of Lewis Stockman, Esq., sworn to Nov. 16, 1977, at 3.
At the outset, I note that the parties to the bond were Erie as principal and St. Paul as surety; the City, as obligee, had no formal role in the preparation of the bond and was merely a third party beneficiary. Clearly, the bond would reflect the understanding of one of the parties if either Erie asked St. Paul for a bond effective through August 31, 1972 or St. Paul mistakenly understood that to be the desired expiration date. The mistake in the bond would therefore not be the result of a scrivener's error and would not be subject to reformation.Royal Indemnity Co. v. Heller, 256 N.Y. 322, 327, 176 N.E. 410, 412 (1931); Salomon v. North British & Mercantile Insurance Co., 215 N.Y. 214, 219, 109 N.E. 121, 122 (1915); Born v. Schrenkeisen, 110 N.Y. 55, 59, 17 N.E. 339, 341 (1888). On the other hand, if Erie and St. Paul agreed on an August 31, 1971 expiration date and it was then inaccurately memorialized in the bond, reformation might be granted as a matter of equity notwithstanding the City's clear interest in enforcing the instrument as written. See 2 Restatement of Contracts § 504 (1932); 13 Williston on Contracts § 1548 (1970). Both motions for summary judgment must consequently be denied since it is impossible to determine how the error arose without receiving further evidence.
The City has also moved for summary judgment on the issue of liability on the first and third causes of action for deferred maintenance and dredging expenses. Erie argues that any recovery under these causes would constitute unjust enrichment because the City has no intention of spending any money to restore the pier which was demolished after Erie surrendered possession of it. Although I fully agree that the City is pursuing a recovery for a theoretical loss which should not be compensated, see Roberts, 1976 Survey of New York Law, 28 Syr. L. Rev. 353, 360-63 (1977), I am obliged to follow the unambiguous New York cases holding to the contrary. City of New York v. Pennsylvania Railroad Co., 37 N.Y.2d 298, 333 N.E.2d 361, 372 N.Y.S.2d 56 (1975); Farrell Lines, Inc. v. City of New York, 30 N.Y.2d 76, 281 N.E.2d 162, 330 N.Y.S.2d 358 (1972). Summary judgment on the question of Erie's liability for deferred maintenance and dredging expenses is therefore granted.
St. Paul argues that its situation is distinguishable because it only agreed to indemnify the City for losses, an obligation which it believes does not extend to the payment of theoretical damages. However, if the City is entitled to recover the costs of deferred maintenance from Erie under New York law and is unable to do so because of Erie's bankruptcy, it is clear that the City has sustained a monetary loss for which St. Paul must provide indemnity. See Stogop Realty Co. v. National Surety Co., 216 App. Div. 198, 200-01, 215 N.Y.S. 90, 93-94 (1st Dep't), aff'd, 243 N.Y. 622, 154 N.E. 631, 217 A.D. 555, 217 N.Y.S. 106 (1926). Summary judgment on the question of liability for deferred maintenance and dredging is therefore also granted against St. Paul as surety.
Since it has been held liable as a matter of law on the first and third causes of action, Erie moves for summary judgment on the question of Acme's liability for one-half of the City's recovery against Erie. The Erie motion is based on the fourth paragraph of its license agreement with Acme, providing in pertinent part as follows:
[Acme] agrees to reimburse Railroad for one-half (1/2) of the cost of all expenses incurred by the Railroad Company in connection with its and Licensee's use of the Pier Property including, but not limited to, one-half of the cost of electricity, insurance, heat, sprinkler and fire alarm service and maintenance, including deferred maintenance at the expiration of Railroad Company's lease of the Pier Property . . .
Erie places great stress upon the proposition that it has already incurred liability as a result of the grant of the City's summary judgment motion on the issue of liability for deferred maintenance. However, Erie conveniently overlooks the fact that Acme only agreed to reimburse Erie for one-half of certain described expenses, an obligation which has repeatedly been held to arise only when the other party has already made some disbursement. See, e.g., Woerz v. Schumacher, 161 N.Y. 530, 536, 56 N.E. 72, 73 (1900); 379 Madison Avenue, Inc. v. Stuyvesant Co., 242 App. Div. 567, 569, 275 N.Y.S. 953, 955 (1st Dep't 1934), aff'd, 268 N.Y. 576, 198 N.E. 412 (1935); see also Wisconsin Gas & Electric Co. v. United States, 322 U.S. 526, 532, 64 S. Ct. 1106, 88 L. Ed. 1434 (1944).
Accordingly, until Erie makes payment to the City, the motion for summary judgment on the third-party complaint must be denied as premature.
The parties are to complete discovery by April 30 and a completed pre-trial order is to be submitted to the Court at a pretrial conference to be held on Friday, May 12, 1978 at noon.