UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
December 16, 1983
GWENDOLYN L. GREGORY, Executrix under the Will of JOSEPH MORGAN GREGORY, Deceased, Plaintiffs, against THE GARRETT CORPORATION, COLT ELECTRONICS CO., INC., PHOENIX AEROSPACE, INC., and LOCKHEED CORP., Defendants; THE GARRETT CORPORATION and LOCKHEED CORPORATION, Third-Party Plaintiffs, against TEXASGULF, INC. and TEXASGULF AVIATION, INC., Third-Party Defendants.
The opinion of the court was delivered by: GOETTEL
Presented is a motion for summary judgment that requires the Court to decide very close issues concerning the scope of an employer's immunity from suit under the workers' compensation statutes of New York, Connecticut, and North Carolina. Before those issues can be precisely formulated, however, the complexity of this case requires a fairly detailed accounting of its underlying facts.
As has been true of a number of earlier cases involving airplane crashes, this one has grown into a formidable jungle of litigation. There are twenty-one related actions involving numerous direct claims, third-party claims, expert witnesses, requests for discovery, and motions, all springing from a simple but tragic event -- an airplane accident that resulted in the death of all persons aboard the aircraft. Those caught up in the litigation include the decedents' families, estates, and employers, as well as the owner and operator of the aircraft, the United States government, and all those corporations that were in any way involved in the design, manufacture, sale, installation, maintenance, or inspection of the critical aircraft components whose failure may have caused, at least in part, the aircraft to crash.
The crash itself occurred at 6:40 p.m. on February 11, 1981, as corporate aircraft N520S, a Lockheed 731 JetStar owned and operated by TexasGulf Aviation, Inc. ("TGA"), approached for a landing at the Westchester County Airport, which lies just north of White Plains, New York. Of the eight persons who died when the JetStar crashed, two were members of its flight crew and six were employees of TexasGulf, Inc. ("TG"), the parent corporation and 100% shareholder of TGA.
More specifically, those on board and their corporate affiliations were as follows:
Dr. Charle F. Fogarty Chairman of the Board and Chief
Executive Officer of TG
Chairman of the Board of TGA
Gordon N. McKee, Jr. Vice President and Treasurer of
Vice President and Treasurer of
Robert J. Boyle Vice President of TG
Clarence E. Drew Manager of Corporate Communi-
cations at TG
Frank J. Claydon, Jr. Vice President of TG
Albert D. Woodling Accoaunting Superintendent of TG
J. Morgan Gregory President and Director of TGA
Shanley S. Sorenson Pilot for TGA
Of the six passengers, four (Fogarty, McKee, Boyle, and Drew) were residents of Connecticut and worked for TG in Stamford, Connecticut. The other two passengers (Claydon and Woodling) were residents of North Carolina and worked at a TG office located there. TG is a major mining and mineral exploration company incorporated in Texas and maintaining its principal place of business in Stamford, Connecticut.
The two flight crew members were also residents of Connecticut but worked at TGA's headquarters at the Westchester County Airport in New York. Originally a department of TG, TGA in 1973 was spun off as a subsidiary and incorporated in New York to enable TG to continue to maintain a fleet of readily available corporate aircraft yet still meet the ownership requirements of the Federal Aviation Agency (the "FAA").
All eight of the decedents had been receiving their paychecks directly from TG, and all eight were covered by a workers' compensation insurance policy issued to TG and certain of TG's subsidiaries. Thus, as soon as the insurer verified that the crash had occurred during the course of the eight individuals' employment as they were returning from a business trip to Toronto, Ontario, approval was given for their surviving spouses (the "survivors")
to receive workers' compensation benefits in accordance with the terms of TG's insurance policy. The survivors of the six Connecticut residents accepted benefits under the terms of Connecticut's Workers' Compensation Act, while the two survivors of the North Carolina residents accepted benefits under the terms of North Carolina's Workers' Compensation Act.
Not surprisingly, though, the fairly minimal benefits provided under the relevant workers' compensation statutes were hardly enough to match the income that the survivors had been accustomed to receiving while the employees were alive and earning considerable salaries.
However, under the applicable statutory provisions, TG as the passengers' employer was, and is, immune from any additional direct liability to the survivors. See Conn. Gen. Stat. Ann. § 31-284(a) (1972); N.C. Gen. Stat. § 97-10.1 (1979). Hence, the survivors had to look to other entities if they were to recover any further compensation for the losses they had suffered.
Initially, the survivors followed the lead of TG and TGA, which had brought sui against a number of parties whose services and products were alleged to have caused the accident and thereby TGA's loss of the JetStar. See TexasGulf, Inc. v. Colt Electronics Co., No. 81 Civ. 7147 (S.D.N.Y. filed Nov. 17, 1981).
The theory of that pending action is that all those who were connected with the design, manufacture, sale, installation, and inspection of the JetStar's solid-state generator control units ("GCU's") are liable to TGA and TG for the loss of the aircraft because the GCU's failed to perform as specified on the night of the crash. Adopting a similar theory, the survivors filed a number of actions against the same five defendants involved in TGA's suit, namely: (1) Lockheed Corporation ("Lockheed"), which designed and manufactured the JetStar; (2) Phoenix Aerospace, Inc. ("Phoenix"), which designed and manufactured the GCU's that were installed in the Jet Star and were in use on the night of the crash; (3) Colt Electronics Co. ("Colt"), which adapted the GCU's for the JetStar and sold them to TGA; (4) The Garrett Corporation ("Garrett"), whose division, A Research Aviation Company, located in Islip, New York, installed the GCU's on the aircraft; and (5) the United States (through the FAA), which approved Colt's application for a Supplemental Type Certificate covering the modification of the JetStar's electrical system and the installation of the GCU's into the aircraft, and which is responsible for the conduct of the air traffic controllers who were in communication with the Jetstar on the night of the crash.
These defendant's have, in turn, impleaded TG and TGA as third-party defendants on the theory that the crash was actually caused by the negligence of the flight and maintenance personnel working out of TGA's office and hangar at the Westchester Airport. The five defendants seek contribution from TG and TGA for any liability that is actually found to be attributable to the latter two parties.
In addition, the survivors of four of the passengers have brought wrongful death actions directly against TGA on the theory that the workers' compensation immunity that admittedly protects TG, the parent corporation, does not extend to its subsidiary, TGA.
In the instant motion for summary judgment, TG and TGA seek dismissal of both the third-party claims and the direct claims. With respect to the third-party claims, TG and TGA put forth a two-part argument, both parts of which are essential to their motion. First, they argue that the issue of whether the third-party claims for contribution can be brought against TG as the employer is to be decided under the laws of Connecticut and North Carolina, and those laws clearly prohibit such claims. Second, TG and TGA argue that this immunity from contribution claims extends not only to TG but also to TGA, because the flight and maintenance crews and the passengers were co-employees, all in the employment of TG, and because TG and TGA must be considered as a single corporate entity. Garrett and the other defendants dispute both parts of TG's and TGA's argument. First, Garrett contends that New York law governs the issue of contribution and that New York's law clearly permits contribution claims in the workers' compensation context. Second, Garrett argues that even if Connecticut and North Carolina law were to apply, the scope of immunity under those states' laws would cover only TG and not TGA, because the two are separate corporate entities and TG is the sole employer of the passengers while TGA is the sole employer of the flight and maintenance crews.
As for the claims of the four survivors who are suing TGA directly, TGA moves for summary judgment on the same grounds, i.e., that the laws of Connecticut and North Carolina apply and that TGA as well as TG is immune from suit under those laws. While all but one of the plaintiffs agree that Connecticut's and North Carolina's laws apply, they disagree with TGA as to the scope of immunity provided under those laws. Their contention is that TGA is not immune from suit by the passengers because, as a separate corporate entity, the owner and operator of the JetStar, and the sole employer of the flight and maintenance crews, TGA cannot be considered the alter ego of TG and its crew members cannot be treated as co-employees of the passengers.
Having carefully reviewed the above arguments of the parties, the Court concludes for reasons set forth below that TG's and TGA's motion for summary judgment must be denied with respect to both the third-party claims and the direct claims, and that a full evidentiary hearing on the factual issues discussed below should be held as soon as possible.
The Court first considers the issues raised with respect to the actions involving third-party claims for contribution and then turns to the issues raised with respect to the plaintiffs direct suits against TGA.
I. The Immunity Defense of TG and TGA With Respect to the Third-Party Claims of the Defendants
With respect to the third-party claims, the initial issue is a conflict of laws question. All of the parties more or less agree upon what the law of each state is.
They also agree that if the Court determines that the law to be applied is that of New York, then there is no need to consider the second critical issue, that concerning the nature of the interrelationship of TG, TGA, and the flight and maintenance personnel. In other words, only if the Court finds that the law of Connecticut or North Carolina should be applied will it have to determine whether any immunity accorded TG also protects TGA. This is so because the law of the latter two states grants the employer immunity from third-party contribution claims, while the law of New York does not.
A. Employer's Liability to Third Parties, Generally
The ultimate issue to be determined here is whether under the applicable workers' compensation laws TG (and perhaps TGA), as the employer, is immune from any third-party contribution claims brought by Garrett and the other parties who are defending against the tort claims filed by the survivors of TG's six deceased employees. In general, the issue of an employer's liability to third-party claims has been characterized as one of the most closely contested controversies in the field of workers' compensation law,
and understandably so. After all, this is not the situation presented by the classic employer immunity rule, under which the employer is protected against any direct tort claims that the employee or his survivors might otherwise have. That basic immunity rule serves as the quid pro quo for the insurance coverage provided to the employee and his survivors, which encompasses even work-related accidents for which the employer could not be held liable under the common law. See, e.g., Conn. Gen. Stat. Ann. § 31-284(a) (1972); N.Y. Work. Comp. Law § 29(6) (McKinney's Supp. 1982); N.C. Gen. Stat. § 97-10.1 (1979).
Here, however, the Court is faced with the problem of whether the employer's immunity should protect him against the contribution or indemnity claims of a third party plaintiff who is a complete stranger to the employment relationship and who is effectively being held liable for injury or death caused at least in part by the employer. This problem is a much more difficult one. On the one hand, the employer can argue with great conviction and merit that to permit the contribution claim is to allow indirectly a recovery for a compensable injury that would not be allowed directly because of the statutory limitations that have been put on the employer's liability for such injuries. See 2A Larson, Workmen's Compensation Law § 76.11, at 14-562 (1982); also Elston v. Industrial Lift Truck Co., 420 Pa. 97, 216 A.2d 318, 320 n.3 (1966) (noting the anomaly that, absent a limitation on the contribution that can be exacted from the employer, "he would be exposed to a potentially larger liability in those circumstances in which a third-party tortfeasor was involved than where his own negligence was the sole cause on the injury"). On the other hand, the third-party plaintiff can argue with equal cogency that he should not have to bear any portion of the liability not caused by him simply because chance would have it that the otherwise liable party happens to enjoy the immunity of the compensation act. "Why should [the third party], a stranger to the compensation system, subsidize that system by assuming liabilities that he could normally shift to or share with the employer?" 2A Larson, supra, § 76.11, at 14-563. With such persuasive arguments on either side of the issue, it is not surprising that the courts of different states have resolved it differently.
B. Conflicting State Laws
Turning to the states who laws arguably govern this issue, we find that Connecticut and North Carolina have followed what is clearly the majority rule. That rule, stated in general terms, is "that the employer whose concurring negligence contributed to the employee's injury cannot be sued or joined by the third party as a joint tortfeasor, whether under contribution statutes or at common law." 2A Larson, supra, § 76.20, at 14-571. In the most often cited Connecticut case on this point, it was held that "the compensation act is the "exclusive remedy" available against an employer and restricts his liability accordingly." A.A. Equipment, Inc. v. Farmoil, Inc., 31 Conn. Supp. 322, 330 A.2d 99, 100-01 (Super. Ct. 1974); see also, Cirrito v. Continental Can Co., 519 F. Supp. 638, 640 (D. Conn. 1981) ("It is clear that a third party should not be permitted to raise the issue of employer negligence in a suit or counterclaim for indemnification or contribution against the employer."); Therrien v. Safeguard Manufacturing Co., 35 Conn. Supp. 268, 408 A.2d 273, 276 (Super. Ct. 1979). Similarly, the supreme court of North Carolina has held that "the North Carolina Workmen's Compensation Act abrogates the statutory right of a negligent third party to claim contribution from a negligent employer in equal fault. . . ." Hunsucker v. High Point Bending & Chair Co., 237 N.C. 559, 75 S.E.2d 768, 777 (1953). Clearly then, both of these states have made a policy decision to adopt the majority view, which, as Professor Larson points out, favors a pro-employer resolution of the issue and stresses the value of stability in the field of workers' compensation law. See, 2A Larson, supra, §§ 76.91(a) & 76.92(a).
New York, in direct contrast, has adopted the most pro-third-party approach of any state in the United States, one which stresses the value of fairness above all other considerations and downplays the exclusive liability provisions of the workers' compensation act. 2A Larson, supra, §§ 76.91(b) & 76.92(b). This policy was announced in the New York Court of Appeal's landmark ruling in Dole v. Dow Chemical Co., 30 N.Y.2d 143, 152-53, 282 N.E.2d 288, 331 N.Y.S.2d 382, 390-91 (1972). There the court held in very broad terms that the "[r]ight to apportionment of liability or to full indemnity, . . . as among parties involved together in causing damage by negligence, should rest on relative responsibility and . . . be determined on the facts." Id. at 153, 331 N.Y.S.2d at 391-92. Although the court couched the right of the third-party tortfeasor in terms of an implied right to indemnity, the ease with which such an implied right was found among mere joint tortfeasors suggested that the right was essentially the equivalent of the right to contribution, 2A Larson, supra, § 76.38, at 14-623, and courts ever since have so interpreted the holding in Dole, see, e.g., Ackerman v. Southern Wood Piedmont Co., 409 F. Supp. 469, 471-72 (E.D.N.Y. 1976); Coons v. Washington Mirror Works, Inc., 344 F. Supp. 653, 657-58 (S.D.N.Y. 1972), rev'd on other grounds, 477 F.2d 864 (2d Cir. 1973).
Thus, the Court is faced with as clear a conflict of laws and policy choices as could exist. New York's answer to this hotly disputed question of workers' compensation law is exactly the opposite of the answer reached by Connecticut and North Carolina. As a consequence, this Court must first determine which state's law should be applied before it can resolve the ultimate issue of whether TG as the employer is immune from the third-party contribution claims.
C. Conflict of Laws Analysis
Because jurisdiction over these various actions is based upon the parties' diverse citizenship, the Court is required to apply the choice of law rules of New York, the forum state, to determine which state's substantive law should be applied to any given issue. Klaxon v. Stentor Electric Manufacturing Co., 313 U.S. 487, 496-97, 85 L. Ed. 1477, 61 S. Ct. 1020 (1941). Thus, as the Second Circuit has so aptly put the matter, "Our task . . . is to determine not what law we would choose to apply but what law the New York courts would apply." O'Connor v. Lee-Hy Paving Corp., 579 F.2d 194, 205 (2d Cir.), cert. denied, 439 U.S. 1034, 58 L. Ed. 2d 696, 99 S. Ct. 639 (1978).
In this regard, the New York Court of Appeals has held that "[j]ustice, fairness and "the best practical result" . . . may best be achieved by giving controlling effect to the law of the jurisdiction which, because of its relationship or contact with the occurrence or the parties, has the greatest concern with the specific issue raised in the litigation." Babcock v. Jackson, 12 N.Y.2d 473, 481, 191 N.E.2d 279, 240 N.Y.S.2d 743, 749 (1963).Although resort to this "governmental interest" test may have been modified to some extent in Cousins v. Instrument Flyers, Inc., 44 NY.2d 698, 699, 376 N.E.2d 914, 405 N.Y.S.2d 441, 442 (1978) ("[L]ex loci delicti remains the general rule in tort cases to be displaced only in extraordinary circumstances . . ."), the instant case does present the type of extraordinary circumstances that require application of the interest analysis adopted in Babcock and applied in numerous cases since. We are dealing with an airplane crash, the situs of which was at least to some extent fortuitous.
In similar cases, courts applying New York law have consistently looked beyond the situs of the accident and considered a number of other contacts that each of the various states has had with the parties and events in question before deciding which state's law should be applied to determine a particular issue. See, e.g., Pan American World Airways, Inc. v. Boeing Co., 500 F. Supp. 656, 660-61 (S.D.N.Y. 1980); O'Brien v. Grumman Corp., 475 F. Supp. 284, 293-95 (S.D.N.Y. 1979); Cousins, supra, 44 N.Y.2d at 699-700.
Thus, in an action sounding in tort, the types of contacts most often considered are: (1) the state in which the injury or death occurred, (2) the state in which the conduct occurred that caused the injury or death, (3) the domicile or place of business of each of the parties, and (4) the state in which the relationship between the parties is centered. Restatement (Second) of Conflict of Laws § 145(b)(2) (1971). In addition, because of the nature of the issue before the court, two other factors should be considered as well, namely: the principal place of employment of the individuals involved and the states under whose laws the survivors have accepted workers' compensation benefits.
See, e.g., O'Connor v. Lee-Hy Paving, supra, 579 F.2d at 204; Ackerman v. Southern Wood Piedmont Co., supra, 409 F. Supp. at 472.
With these types of contact in mind, all of the parties agree that Connecticut, North Carolina, and New York are the three states having the most important contacts with the parties and events in question. New York's interest in the case derives from its being: (1) the situs of the accident; (2) the state in which most of the allegedly negligent conduct of the agents of TGA and the defendants occurred; (3) the principal place of business of TGA, and (4) the place where the critical relationships between TGA and the defendants and between the defendants and the plaintiffs are centered.
Connecticut's interest in the case derives from its being: (1) the principal place of business of the employer TG; (2) the domicile of four of the passengers, as well as of the two flight crew members; (3) the primary place of employment for those four passengers; and (4) the state under whose law their survivors have accepted and are receiving workers' compensation benefits. Finally, North Carolina has an interest as: (1) the domicile of the other two passengers; (2) the primary place of their employment; and (3) the state under whose laws their survivors have accepted and are receiving workers' compensation benefits.
Confronted with this array of contacts, the Court concludes that a New York court would apply the law of New York to determine whether TG and TGA can be held liable to third-parties for claims of contribution. Although the Court does not reach this conclusion easily, it finds a number of reasons for doing so.
First, at the most general level, is the strong support that is found in the Restatement (Second). "When the injury [has] occurred in a single, clearly ascertainable state and when the conduct which caused the injury also occurred there, that state will usually be the state of the applicable law with respect to most issues involving the tort." Restatement (Second) of Conflict of Laws § 145 comment (e) (1971).Here we find that New York was not only the situs of the "injury" and the place where most of the purportedly negligent conduct occurred,
but also the principal place of business of one of the most critical parties, TGA,
and the state in which the complex relationships between the various parties are centered. With such an alignment of factors, the force of comment e of section 145 is magificied and the application of New York law is forcefully called for.
The second reason why the Court believes New York law must be applied here is that such application is called for under the general policies expressed by the New York Court of Appeals in Neumeier v. Kuehner, 31 N.Y.2d 121, 130, 286 N.E.2d 454, 335 N.Y.S.2d 64, 71 (1972). There the court posited a special rule of law for determining whose law should be applied when: (1) the question is whether a driver's guest injured as a result of the driver's negligence may bring a cause of action against the driver and (2) the guest and driver are residents of different jurisdictions. In that situation, the court held that "the applicable rule of decision will be that of the state where the accident occurred but not if it can be shown that displacing that normally applicable rule will advance the relevant substantive law purposes without impairing the smooth working of the multi-state system or producing great uncertainty for litigants." Id. at 128, 335 N.Y.S.2d at 70. The general policy that has been derived from this very specific rule is that the law of the state in which the accident occurred should apply if one of the parties to the action is domiciled in that state, unless application of another state's law would do more to advance the policies underlying the relevant laws of the various jurisdictions involved. In the instant case, where the application of one state's laws and policies is necessarily at the expense of the other states", there is no reason for displacing the general rule that the law of the state in which the injury occurred should be applied, particularly since that state is also where most of the negligent conduct occurred, where TGA has its principal place of business, and where the complex relationships between the parties are centered.
Given the fairly clear policy set forth in Neumeier, it is not surprising that other courts have applied the Neumeier rationale in a range of different contexts. Most significantly, in Ackerman v. Southern Wood Piedmont, supra, 409 F. Supp. at 472, Judge Heaher relied upon Neumeier and other New York decisions to support his conclusion that New York law should apply in a case involving the same issue as is found in the instant case, as well as similar facts. In Ackerman, Judge Neaher gave greater weight to the fact that the injury and the conduct causing the injury had both occurred in New York and lesser weight to the fact that New Jersey had an interest as the domicile of the plaintiffs, the center of the employment relationship, and the state under whose law workers' compensation benefits were being paid. Id. at 472. Although one might question the reasoning in Ackerman for giving what appears to have been too little consideration to New Jersey's express interest in barring third-party actions against employers, one can hardly disagree with the proposition that a New York court, faced with the same situation, would stress the same contacts emphasized by Judge Neaher and reach the same conclusion. This is true primarily because a New York court would be persuaded, as was Judge Neaher, that New York has an overwhelming "interest in the advancement of its strong public policy to hold a co-tortfeasor, albeit an employer of the plaintiff, responsible to the other tortfeasors for its porportionate share of a plaintiff's injury." Id. at 472.
Indeed, it is the strength of this interest, effectively created by the holding in Dole v. Dow Chemical Co., supra, 30 N.Y.2d at 152-53, 331 N.Y.S.2d at 390-91, that provides the third and perhaps most compelling argument for the application of New York law. A New York court, confronted with a tort claim based upon events and conduct occurring primarily in New York and knowing the striking stand taken in Dole on the issue of third party contribution, a position diametrically opposed to that of the majority of states, would have no hesitation in applying New York law here.Not to do so would be to undermine one of the primary purposes of New York's rule, that is to deter tortious conduct by attributing liability and damages among joint tortfeasors in proportion to their relative responsibility for injuries and losses, regardless of whether one of the tortfeasors happens to be an employer. This rule after all is one that implements the "tort policy goals of deterrence, equitable loss sharing by all wrongdoers, effective loss distribution over a large segment of society, and rapid compensation of the plaintiff. . . ." Id. at 150, 331 N.Y.S.2d at 389 (quoting Werner, Contribution and Indemnity, 57 Cal. L. Rev. 490, 516 (1969)). Because Dole itself was a workers' compensation case and because the rule it announced is in great part designed to deter tortious conduct, the Court does not see how in the instant case it can apply the opposite rule of Connecticut when New York has so many critical contacts with the parties and events in question.
The final argument for applying New York law is that the authority cited by TG and TGA in favor of applying Connecticut law is not apposite.In the first place, the two New York cases cited by TG and TGA as most supportive of their argument involve claims between those directly involved in employment relationships rather than third-party contribution claims brought by strangers to such relationships. See O'Brien v. Grumman Corp., 475 F. Supp. 284, 291 (S.D.N.Y. 1979) (applying the law of the state where benefits were paid to determine issues raised in employee's direct claim against the employer); In re Estate of O'Connor, 21 A.D.2d 333, 335, 250 N.Y.S.2d 696, 698 (1964) (applying the law of the state where benefits were accepted to determine issues raised by insurer's subrogation claim against deceased employee's estate). As has already been explained, see supra note 12, the determination of which law should be applied to decide the rights of those directly involved in the employment relationships requires consideration of different factors than those that must be weighed when a stranger is involved. Indeed, this point was made expressly in Tuffarella v. Erie Railroad Co., 17 A.D.2d 484, 236 N.Y.S.2d 503, 507 (1962), when the court noted that "the question of whether or not a right of contribution existed must be determined by the law of the place of the accident, whereas questions relating to the injured employee's rights against his employer [are] to be determined by the law of the State whose workmen's compensation law defines and controls the rights and remedies of employee against employer." Consequently, O'Brien and O'Connor are of no real precedential value.
More importantly, the primary case upon which TG and TGA base their argument for applying Connecticut law, Elston v. Industrial Lift Truck Co., 420 Pa. 97, 216 A.2d 318 (1966), is distinguishable in ways that are so critical that it also is of little or no precedential value. First, with regard to the question of choice of laws, Elston represents the choice of law rules of Pensylvania as determined by that state's supreme court. There is no reason to believe that New York's choice of law rules would be similarly determined by a New York court, even if uniformity of such rules is one of the most sought-after objectives in this particular field of law. Even though one may admire the Elston court's extraordinary deference to the interests of New Jersey, whose law was ultimately applied, that admiration does not necessarily lead one to the conclusion that a New York court would show similar deference in the same situation, let alone in the much different situation presented in the instant case.
Second, the laws of Pennsylvania and New Jersey, between which the Elston court had to choose, were not in diametric opposition to one another as are the laws of New York and Connecticut, or North Carolina. Indeed, Pennsylvania and New Jersey both honored the exclusive remedy provisions of their workers' compensation acts. The only difference was that while New Jersey completely barred third-party contribution recovery, Pennsylvania merely limited such recovery to the amount of the employer's liability under the workers' compensation act. Elston, supra, 216 A.2d at 320. As the court said, "In so restricting recovery, Pennsylvania, preserves the limited liability feature of its workmen's compensation act while at the same time giving partial effect to its policy in favor of contribution between joint tortfeasors." Id. The fact that the underlying policies of Pennsylvania were primarily in accord with those of New Jersey was a critical factor in the court's determination that New Jersey law should be applied. Id. at 324. That factor is not present in the instant case.
Finally and perhaps most importantly, Elston is distinguishable on its facts. In that case the foreign state, New Jersey, was not just the state under whose law benefits were paid but also the state in which occurred the injury and the conduct that caused the injury. This court has little doubt that a New York court, or the court of any state for that matter, if faced with such an overwhelming combination of significant contacts would have held just as the Pennsylvania court held. However, we are not faced with the same set of facts; rather, we find that while Connecticut is the state under whose laws benefits have been accepted, New York is the state where the deaths and most of the allegedly negligent conduct occurred.
Thus, Elston is inapposite in three critical ways -- on its facts, on the substantive laws, which were in only partial conflict, and on the choice of laws rules that were applied. Thus, even though this court views that case with considerable respect, particularly for its thorough and scholarly analysis, its final result offers little guidance in the instant action.
In sum, the lack of precedent in support of TG's and TGA's argument for the application of Connecticut, or North Carolina, law and the strong authority and reasoning favoring the application of New York law compel the Court to conclude that New York law should be applied to determine the issue of whether the third-party claims of Garrett and the other defendants ought to go forward. Because New York does permit such claims and does favor a policy of contribution among tortfeasors, including the employer, TG's and TGA's motion for summary judgment with respect to the third-party claims is denied.
II. TGA's Motion for Summary Judgment with Respect to the Direct Claims of Morgan Guaranty Trust, Boyle, Claydon, and Woodling
In the four direct actions brought against TGA for the alleged negligence of its flight and maintenance crews, TGA seeks summary judgment on the ground that the workers' compensation statutes of Connecticut and North Carolina apply and that an employer's immunity thereunder protects TGA as well as TG. TGA, in a rather sophisticated argument sets forth two separate theories in support of this immunity defense. The first theory is that TG and TGA were not separate entities for employment purposes but rather a single entity, that TGA was no more than an aviation department of TG, and that, as such, TGA had no purpose other than to carry out a part of TG's business. Because the subsidiary was in effect the alter ego of the parent, concludes TGA, the former is just as immune from suit as is the latter. TGA's second theory of immunity is that all members of its flight and maintenance crews were actually employed by TG, not TGA, and were thus co-employees of the six passengers. As co-employees, argues TGA, these crew members are immune from suit, and if they are immune so must TGA be for it can be found liable only if they, as its agents, are found liable.
Of course, for the Court to grant this motion for summary judgment, TGA, as the moving party, must demonstrate a complete absence of controversy as to all facts material to the resolution of the above legal issues. Fed. R. Civ. P. 56; Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 26 L. Ed. 2d 142, 90 S. Ct. 1598 (1970).In determining whether this requirement has been satisfied, the court must draw all reasonable inferences against the moving party. American International Group, Inc. v. London American International Corp., 664 F.2d 348, 351 (2d Cir. 1981). "If the party opposing summary judgment "generates uncertainty as to the true state of any material fact, the procedural weapon of summary judgment is inappropriate." Id. (quoting Quinn v. Syracuse Model Neighborhood Corp., 613 F.2d 438, 444-45 (2d Cir. 1980). Unfortunately for TGA, just such uncertainty has been raised by the plaintiffs.
On the one hand, the facts upon which TGA bases its two theories are rather more compelling than is usually the case when this type of defense is put forth.For example, it appears that TGA transported primarily, if not solely, TG employees on official TG business. Furthermore, TGA was originally, and is once again, a mere aviation department of TG. Indeed, it seems likely that TGA would have been a department at the time of the accident had its separate incorporation not been caused by the need to comply with federal laws and regulations having to do with a consideration extraneous to this case -- the citizenship of corporate stockholders. See supra note 1. Even then, all of TGA's shares were indirectly onwed by TG through a voting trust, which TG established with FAA approval.Moreover, it appears that all of TGA's flight and maintenance crew members were paid by TG. Finally, TGA apparently paid no income taxes, and its expenses were passed directly through to TG and appeared on TG's consolidated financial statement.
On the other hand, there does not appear to have been a complete integration of the two entities, and certain aspects of the complex of relationships between TG, TGA, and the flight and maintenance crew members remain at issue at this point.The most significant of these is the overwhelming amount of documentary evidence suggesting that the ownership and operation of the JetStar and other TGA aircraft were exclusively in the hands of TGA and that neither TG nor its executives had the right to exercise any control over the operation of TGA flights other than to determine their destinations and desired times of arrival. In addition, TGA appears to have held itself out to the public as a separate corporate entity in a number of ways. For example, its name alone appears on a number of FAA and Department of Labor documents which indicate that TGA was the sole operator of the various aircraft and that it had its own personnel. Finally, there is a question of fact concerning the nature of the work of the flight and maintenance crews as it related to the overall business purpose of first TGA and second TG. If TGA's business purpose was the operation of aircraft and TG's business purpose the discovery and mining of minerals, then one question that may have to be answered is the extent to which the flight and maintenance crews of TGA were furthering the business of TG, as distinct from that of TGA, at the time of the flight.
As the discussion below brings out further, these unanswered questions require the Court to submit the dual aspects of TGA's defense to a full evidentiary hearing. Thus, even if we assume that TGA is correct in its summary of the law with regard to its theories of merged entities, joint employment, and vicarious liability, TGA's motion for summary judgment must be denied.
A. Law of Connecticut and North Carolina Applies
Although plaintiff Boyle contends that New York law applies to these issues, the three other plaintiffs and TGA agree that the law of Connecticut and North Carolina applies.In this instannce, the Court has little difficulty in determining that it is the law of the latter two states that is applicable. Here, we do not have the type of claim -- one brought by the survivor directly against the employer's subsidiary (and perhaps alter ego) -- that is covered by comment b to section 184 of the Restatement (Second) of Conflict of Laws. See supra note 12. The plaintiffs, having chosen to receive benefits under the compensation laws of Connecticut and North Carolina, respectively, must accept the immunity conditions that are laid down by the statutes and case law of those two states. Restatement (Second) of Conflict of Laws § 184 comment b (1971); see also O'Brien v. Grumman Corp., 475 F. Supp. 284, 291 (1979).
B. Should TGA and TG Be Considered as a Single Entity?
TGA's initial claim that it was merely the alter ego of TG is an extremely difficult one to prove. Whether one looks at this contention as an effort to pierce the corporate veil or as an argument that the parent and subsidiary were actually so intertwined as to be a single entity, it represents a legal theory that has not met with a warm reception in the courts of most states, including those of Connecticut, North Carolina, and New York. See, e.g., Boggs v. Blue Diamond Coal Co., 590 F.2d 655, 662 (6th Cir.), cert. denied, 444 U.S. 836, 62 L. Ed. 2d 47, 100 S. Ct. 71 (1979) (applying Kentucky law); Peterson v. Trailways, Inc., 555 F. Supp. 827, 833-34 (D. Colo. 1983); Stoddard v. Ling-Temco-Vought, Inc., 513 F. Supp. 314, 326 (C.D. Cal. 1981) (applying Texas law), remanded on other grounds sub nom. Ashland v. Ling-Temco-Vought, Inc., 711 F.2d 1431 (9th Cir. 1983); O'Brien v. Grumman Corp., 475 F. Supp. 284, 292-93 (S.D.N.Y. 1979) (applying Georgia law); Samaras v. GATX Leasing Corp., 75 A.D.2d 890, 428 N.Y.S.2d 48, 49 (2d Dep't 1980); Phillips v. Stowe Mills, Inc., 5 N.C. App. 150, 167 S.E.2d 817, 819-20 (1969); Daisernia v. Co-operative G.L.F. Holding Corp., 26 A.D.2d 594, 270 N.Y.S.2d 542, 543 (3d Dep't 1966); Doe v. Saracyn Corp., 138 Conn. 69, 82 A.2d 811, 816 (1951); Wheeler v. New York, N.H. & H.R. Co., 112 Conn. 510, 153 A. 159, 160 (1931).But see, e.g., Wells v. Firestone Tire & Rubber Co., 97 Mich. App. 790, 296 N.W.2d 174, 176-77 (1980); Coco v. Winston Industries, Inc., 330 So.2d 649, 654-55 (La. App. 1975), rev'd on other grounds, 341 So.2d 332 (1976). The reluctance with which the alter ego theory is greeted stems from a rather straightforward principal of fairness: that one who has gained the advantages of separate incorporation must also be willing to accept the consequences of such incorporation.
Hence, courts have developed the general rule that "separate artifical corporate personalities are usually disregarded only when the corporate device is used to defraud creditors, create a monopoly, circumvent a statute or for other similar reasons." Boggs, supra, 590 F.2d at 662.
Typically no such "similar reasons" for piercing the corporate veil are presented in a workers' compensation case involving the issue of parent-subsidiary immunity. This is true because while almost all states provide immunity for the employer and most provide immunity for co-employees, e.g., Conn. Gen. Stat. Ann. § 31-293a (1972); N.Y. Workers' Comp. Law § 29(6) (McKinney Supp. 1982); N.C. Gen. Stat. § 97-9 (1982), almost all also have a strong policy of preserving the employee's rights to bring tort claims against any culpable parties who are "strangers" to the employment relationship. See, Boggs, supra, 590 F.2d at 659-60; O'Brien, supra, 475 F. Supp. at 293; 2A Larson, Workmen's Compensation Law § 72.33, at 14-179 (1982) (criticizing those courts that have committed "the cardinal sin of forgetting the pervading rule that valuable common-law rights shall not be deemed destroyed by a statute except by clear language"). With such a balance of countervailing policies on the line it is not surprising to find courts concluding that absent exceptional circumstances a parent and subsidiary will be treated as distinct legal entities when sued by the employee or his survivors, even if the parent owns all of the stock of the subsidiary, has the right to control it, and has the same directors as does the subsidiary. See, e.g., Stoddard, supra, 513 F. Supp. at 326; Thomas v. Maigo, 37 A.D.2d 754, 323 N.Y.S.2d 106 (4th Dep't 1971). "Implicit in these decisions is the suggestion that the tort system should not deny recovery in an increasingly concentrated economy to an injured employee due to the fortuitous circumstance that the tortfeasor is not a stranger but is controlled by the same business enterprise that controls his immediate employer." Boggs, supra, 590 F.2d at 662.
The courts of Connecticut and North Carolina seem to have reached a similar conclusion. In Wheeler v. New York, N.H. & H.R. Co., 112 Conn. 510, 153 A. 159, 160 (1931), Connecticut's Supreme Court of Errors not only refused to treat as a single entity a subsidiary and a parent but also indicated that it was "in full accord" with an earlier Massachusetts holding that neither the identity of stockholders nor the parent corporation's complete control of the subsidiary "operated to create a merger of the corporations into one or make either the alter ego of the other, and that they were to be treated as distinct entities. . . ." Id. In a later workers' compensation case, Doe v. Saracyn Corp., 138 Conn. 69, 82 A.2d 811, 816 (1951), the same court held that a lower court had been correct in refusing to instruct the jury that the real employer was a merged entity consisting of the corporation for which the plaintiff worked and the person who maintained virtually complete control and ownership of that corporation. Reaching this conclusion despite the fact that the individual defendant managed the corporation's operations and had hired the plaintiff and paid him his wages, the court explained its conclusion as follows:
The defendant was a legal entity with separate rights and powers conferred and duties and liabilities imposed by law. Under certain circumstances, the corporate entity may be disregarded, but the claims of proof do not warrant such action in this case. The entity will not be ignored where those in control have deliberately adopted the corporate form in order to secure its advantages.
Id. 82 A.2d at 816 (citations omitted).
In the one relevant North Carolina case, Phillips v. Stowe Mills, Inc., 5 N.C. App. 150, 167 S.E.2d 817, 819-20 (Ct. App. 1969) the court used the same rationale to deny a parent corporation the immunity accorded its subsidiary. The court reached this conclusion after conducting a thorough examination of the facts, which resulted in the ultimate finding that the parent could not be considered as the employer. This conclusion was reached despite a finding that the parent and subsidiary "had common administrative offices, a common purchasing agent, a common personnel department and a common sales organization. . . ." Id. at 819. The court found that these factors were offset by the fact that "the plaintiff was performing work under the supervision and control of" the subsidiary, as well as by the fact that the two corporate entities were treated separately for all accounting and tax purposes. Id.
The strong language of Wheeler, Doe, and Phillips suggests that for TGA to succeed with its alter ego theory,
it must prove a complete merger of TG's and TGA's corporate structures, accounting and tax procedures, operational control, and business purposes. However, as was indicated earlier, some of these key characteristics of the two corporations remain at issue. Most significantly, there remains a serious question as to which of the two entities really had operational control over the flight and maintenance crews. With such factual matters still in dispute, the Court has no choice but to submit this aspect of TGA's defense to a jury.
C. Whether TG was Either the Sole or Joint Employer of the Flight and Maintenance Crews Is an Issue for the Jury
TGA's second theory of immunity rests upon the premise that TG was either the sole or joint employer of the flight and maintenance crews that worked out of TGA's Westchester facilities. Assuming the validity of that premise, TGA argues, the crew members are co-employees of the plaintiffs and thus immune from tort liability under the workers' compensation laws of Connecticut, Conn. Gen. Stat. Ann. § 31-293a (1972), and North Carolina, N.C. Gen. Stat. § 97-10 (1979). In addition, TGA contends, such immunity necessarily extends to TGA because it cannot be held vicariously liable if its agents, the crew members who are alleged to have been actively negligent, are immune from suit.
The problem with this argument in the context of a motion for summary judgment is that it requires the Court to find as a matter of law that TG was the employer of the crew members; yet, such a finding is one of fact, which should be left to the jury.See, e.g., Bradford v. Air La Carte, Inc., 79 A.D.2d 553, 434 N.Y.S.2d 17, 19 (1st Dep't 1980); Lewis v. Barnhill, 267 N.C. 457, 148 S.E.2d 536, 544 (1966); Doe v. Saracyn Corp., 138 Conn. 69, 82 A.2d 811, 816 (1951). That is particularly true here, where there is conflicting evidence as to who the employer actually was. For example, while it appears that TG originally hired the crew members, carried them on its payroll, and had the right to terminate them, TGA appears to have had the right to control how they carried out their work. That right to control has consistently been held to be the most critical, if not the determinative, factor in deciding who a worker's employer is. See, e.g., Lewis v. Barnhill, 267 N.C. 457, 148 S.E.2d 536, 543 (1966); Parsons v. M.J. Daly & Sons, 114 Conn. 143, 158 A. 216, 218 (1932). Given this array of facts, it would be impossible to grant a motion based on this theory of employment. Which of the two corporate entities was the employer of the flight and maintenance crews is a matter that will have to be determined by the jury.
In denying this aspect of the motion, the Court reserves decision upon two difficult, underlying issues of law that require additional briefing. At the most technical level, the Court is uncertain whether the crew members who worked with TGA for several years can truly be viewed as having been "temporarily lent" within the meaning of Connecticut's loaned employee provision, Conn. Gen. Stat. Ann. § 31-292 (1982),
and also whether enactment of that provision has in any way limited the defense of joint employment under Connecticut law. At a more general level, the Court is not sure why in this particular case any immunity covering the crew members as co-employees would necessarily extend to TGA if it and TG were found to be separate entities. In other words, there is a need for further briefing on the question of whether TGA, as the alleged owner and operator of the Jetstar, has incurred any liability independent of that which it may have incurred vicariously through the acts of the flight and maintenance crews.
Finally, by leaving these legal issues unresolved, the Court does not mean to imply that TGA's theories have generally been rejected by courts. Indeed, just the opposite is true.The concepts of the loaned employee and of joint employment appear to have gained acceptance not only on a national scale, see generally 1C Larson, Workmen's Compensation Law §§ 48.00-48.40 (1982), but also in Connecticut and North Carolina, see, e.g., Lewis v. Barnhill, supra, 148 S.E.2d at 542 (loaned employee); Leggette v. J.D. McCotter, Inc., 265 N.C. 617, 144 S.E.2d 849, 852 (1965) (joint employers); De Paola v. Cummins Diesel Engines of Connecticut, 22 Conn. Supp. 162, 164 A.2d 301, 302 (1960) (loaned employee); Parsons, supra, 158 A. at 218 (loaned employee).What the Court needs to ascertain, however, is the applicability of these concepts to the particular and unusual facts of this case.
For the reasons outlined in the discussion above, TG's and TGA's motion for summary judgment based upon the workers' compensation laws of New York, Connecticut, and North Carolina is denied, and trial of the matters discussed herein shall be scheduled as soon as the Court's trial calendar permits.