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Woodling v. Garrett Corp.

decided: March 3, 1987.


Appeal and cross-appeals from a judgment of the United States District Court for the Southern District of New York after jury trials before Gerard L. Goettel, Judge, awarding plaintiff $1,142,888, including pre-judgment interest, on her claim for the wrongful death of her husband.

Feinberg, Chief Judge, Oakes and Kearse, Circuit Judges.

Author: Kearse

KEARSE, Circuit Judge:

Third-party-defendant Texasgulf, Inc. ("TG" or "TGI"), and defendant-third-party-defendant Texasgulf Aviation, Inc. ("TGA"), appeal from a judgment of the United States District Court for the Southern District of New York, entered in these consolidated actions after a series of jury trials before Gerard L. Goettel, Judge, in favor of plaintiff Susan Winter Woodling ("Woodling") for $1,142,888, including prejudgment interest, against TG, TGA, and defendants-third-party-plaintiffs The Garrett Corporation ("Garrett"), Phoenix Aerospace, Inc. ("Phoenix"), and Colt Electronics Company ("Colt"), for the wrongful death of her husband Albert D. Woodling ("Albert Woodling"). TG and TGA contend principally that the court erred (1) in failing to direct a verdict in their favor or to grant them judgment notwithstanding the verdict ("n.o.v.") either because they were protected from liability in the present suit by principles of workers' compensation immunity or because Woodling had validly released them from liability, and (2) in failing to grant them a new trial on the ground that there were errors in the evidentiary rulings and instructions to the jury.

Garrett and Phoenix cross-appeal from the judgment against them, contending principally that the court erred (1) in failing to grant them a directed verdict or judgment n.o.v. on the ground that TGA's conduct was a superseding cause that exonerated them from liability, and (2) in calculating the prejudgment interest to be awarded to Woodling. Garrett contends, in the alternative, that if TG and TGA are granted judgment as a matter of law, Garrett is entitled to a new trial because of a variety of alleged trial errors. Woodling cross-appeals from so much of the judgment as limited her recovery to $1,142,888, contending principally that she is entitled to a new trial as to certain elements of damage because of errors in the district court's rulings and instructions.

For the reasons below, we affirm so much of the judgment as holds TG, TGA, Garrett, and Phoenix liable to Woodling; we affirm in part and vacate in part the award of damages and remand for further proceedings.


On February 11, 1981, a Lockheed Jetstar airplane (the "Jetstar"), owned by TG's wholly-owned subsidiary TGA, crashed near Westchester Airport in Westchester County, New York, killing its two-man crew and all six passengers. Albert Woodling, a 34-year-old Accounting Supervisor employed by TG in Raleigh, North Carolina, was one of the passengers.

In 1982 and 1983, Woodling brought the present actions in the district court under the New York wrongful death statute, N.Y. Est. Powers & Trusts Law ("EPTL") ยงยง 5-4.1 to 5-4.6 (McKinney 1981 & Supp. 1987); jurisdiction was based on diversity of citizenship. Woodling named as defendants, inter alios, TGA as owner and operator of the Jetstar; Phoenix as the designer and manufacturer of generator control units aboard the Jetstar, which were alleged to have malfunctioned and caused the crash; Garrett as the installer of those generator control units; and Colt, which had prepared the installation drawings for those units. Each of the defendants was alleged to have been negligent with respect to events leading to the crash.

TGA, which in 1982 had been dissolved and its assets distributed to TG, denied liability and asserted two affirmative defenses pertinent to its present appeal. First, it contended that TG and TGA were alter egos and that since TG was Albert Woodling's employer, TGA was protected from liability in the present action by North Carolina principles of workers' compensation immunity. Second, TGA contended that Woodling had entered into a valid agreement (the "Release") releasing TG and TGA from liability resulting from the crash in exchange for a payment of $250,000. Woodling, in response to the latter defense, sought rescission of the Release on the ground that TG had procured it by means of material misrepresentations.

The district court tried the action before juries in three stages.

A. The Trial of the Affirmative Defenses

The first trial, held in the spring of 1984, dealt with TGA's affirmative defenses. As set forth in greater detail in Part II.A. below, Woodling presented evidence to show that, although TG paid the salaries of all TGA personnel, TGA was governed and operated as an entity separate from TG. The evidence included proof that TGA's pilots and maintenance employees were supervised by TGA officials; that both TG and TGA repeatedly certified to various state and federal agencies that TGA both owned and operated the aircraft; and that TGA entered into contracts in its own name for the lease, modification, and storage of aircraft and for the training and temporary employment of pilots. There was documentary and testimonial evidence that the technical aviation decisions with respect to TGA operations were made by TGA alone, not by TG.

As discussed in Part II.B. below, Woodling testified that she had signed the Release in reliance on TG officials' representations, inter alia, that TGA was essentially a shell that had "no employees," no "power to hire and fire the pilots and ground personnel," and "no business operations beyond holding title to the former TGI aircraft." Woodling testified that she had understood these representations to mean that TGA would have a workers' compensation defense to any wrongful death action she might bring. She also testified that she signed the Release because she was informed by TG and its insurer, United States Aircraft Insurance Group ("USAIG"), that a $250,000 insurance benefit payable to Albert Woodling's estate could not be received unless she signed such a release. Woodling testified that she was unaware that TG had another insurance policy with American Home Assurance Company ("American Home") which did not require such a release and which on its face covered aircraft accidents if the aircraft was not "owned or operated by the Policyholder," defined therein as "Texasgulf, Inc." She stated that had the existence and terms of the American Home policy been revealed to her, she would not have signed the Release.

TGA introduced the Release, which stated in part as follows:

This Release reflects the entire agreement between Releasor and Releasee concerning the subject matter hereof. Releasor has carefully read and fully understands the provisions of this Release and knows the contents thereof, and signs the same as Releasor's own free act, and avers that Releasor has not been influenced to any extent whatsoever in making and signing same by any representations or inducements whatsoever by Releasee, other than as set forth herein.

In addition, TGA introduced proof that the American Home policy did not in fact cover the death of Albert Woodling because the language that appeared to cover that event was the inadvertent result of a mutual mistake between TG and the carrier. TGA moved for a directed verdict in its favor on the basis of either or both of its affirmative defenses.

The district court denied the motion and submitted special interrogatories to the jury with respect to each defense. The court instructed the jury that in fact Albert Woodling's death was not covered by the American Home policy and that the jury should decide whether the nondisclosure of the policy with its mistaken facial coverage was a fraudulent or material misrepresentation.

The jury found in favor of Woodling on both of TGA's defenses. Rejecting the workers' compensation immunity defense, the jury found that TG and TGA were separate entities and that TGA was the employer of the flight crew and maintenance personnel involved in the events leading to the crash. Rejecting the release defense, the jury found that TGA was the operator of the airplane involved in the crash, that TG or USAIG had made fraudulent or material misrepresentations both with regard to the status and operations of TGA and with regard to the existence and coverage of the American Home policy, and that Woodling had justifiably relied on each set of misrepresentations in signing the Release. See Gregory v. Garrett Corp., 589 F. Supp. 296, 298-99 (S.D.N.Y. 1984).

TGA moved unsuccessfully for judgment n.o.v. and for a new trial. In addition, on the ground that Woodling should not be allowed to rescind the Release agreement without returning the consideration she received, TG and TGA moved for an order requiring Woodling to return to TG its $250,000. The court granted this motion, and in order not to compromise TGA's ability to pursue on appeal its challenge to the decision allowing rescission of the Release, the court allowed Woodling to place the money in an interest-bearing escrow account. The court denied the request that Woodling be required to pay TG interest on the $250,000 for the period during which she had retained possession of it. See id. at 301 n.10.

B. The Trial of the Liability Issues

In the fall of 1984, the liability issues were tried. The jury found that the four defendants who are parties to this appeal were, to varying degrees, negligent and jointly liable for causing the crash. The jury assessed the relative culpability of these defendants as follows: TGA, as owner and operator of the Jetstar, 70%; Garrett, installer of the generator control units on the Jetstar, 20%; Phoenix, designer and manufacturer of the units, 5%; and Colt, preparer of the installation drawings, 5%.

No defendant challenges here the sufficiency of the evidence to support the finding of its negligence. The principal appellate issues arising from the liability trial are the contentions of Garrett and Phoenix that they were entitled to a directed verdict or to judgment n.o.v. on the ground that the conduct of TGA was a supervening cause of the crash that entirely exonerated them from liability. These contentions and the pertinent evidence at the liability trial are discussed in Part II.C. below.

C. The Trial of the Damages Issues

In March 1986, the damages issues were tried. Woodling sought damages for past and future losses of support, services, and fatherly care and guidance. She presented, inter alia, evidence that Albert Woodling's annual salary at the time of his death was approximately $32,000 and expert testimony as to his reasonably expected increases from age 34 to retirement and the likely effect of inflation on those earnings. The trial court permitted defendants to cross-examine Woodling's expert as to the likely effect of income taxes and social security taxes on Albert Woodling's lost future earnings.

The court submitted interrogatories to the jury with respect to each element of damage claimed by Woodling. It instructed the jury to deduct likely income taxes from Albert Woodling's gross income in calculating the amount to be awarded for lost support; no instruction was given with regard to the effect of social security taxes. As to the proper discount rate, reduced for the effect of inflation, the court instructed the jury as follows:

The plaintiffs' expert has suggested that the real investment return rate is 1 percent per year after allowing for the effects of inflation. Our appellate court has suggested that from an analysis of long term figures the real investment return rate has averaged one and a half or 2 percent per year. But these figures vary from time to time depending on economic conditions. You must determine what figure is appropriate in bringing the award down to present value.

Thus, you must award one sum for each of the future pecuniary losses which when invested will provide the widow and children with the same increasing values of future support[,] care and services that Albert Woodling if still alive would have provided to his family.

The jury returned its special verdict awarding Woodling a total of $1,055,000 for the following categories of injury:

Past loss of support $150,000

Future loss of support $600,000

Past loss of fatherly care and

guidance $25,000

Future loss of fatherly care and

guidance $235,000

Past loss of services $20,000

Future loss of services $25,000

Following this verdict, the court entered the final judgment here appealed, awarding Woodling the $1,055,000, plus $87,888 representing prejudgment interest for the period between Albert Woodling's death and the entry of judgment on the sums awarded for past losses, for a total of $1,142,888. The judgment reflected the jury's assessment of defendants' relative culpability (TGA 70%; Garrett 20%; Phoenix and Colt 5% each) by ...

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