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AMERICAN MOTORIST INS. v. MORRIS GOLDMAN REAL ESTATE CORP.

United States District Court, S.D. New York


June 17, 2004.

AMERICAN MOTORIST INSURANCE COMPANY, as subrogee of JODAMO INTERNATIONAL, LTD., and CHUBB CUSTOM INSURANCE COMPANY, as subrogee of JODAMO INTERNATIONAL, LTD., Plaintiffs,
v.
MORRIS GOLDMAN REAL ESTATE CORP., Defendant.

The opinion of the court was delivered by: SHIRA SCHEINDLIN, District Judge

OPINION AND ORDER

I. INTRODUCTION

  Two insurance companies, American Motorist Insurance Company and Chubb Custom Insurance Company (collectively "Insurers") bring this action against Jodamo International, Ltd.'s ("Jodamo") landlord, Morris Goldman Real Estate Corp. ("Goldman"), to recover amounts paid to Jodamo, notwithstanding a waiver of subrogation clause found in Jodamo's Lease Agreement for property located at 321 Grand Street. The plaintiffs allege that Jodamo suffered property damage as a result of Goldman's grossly negligent conduct. Both parties now move for summary judgment. For the reasons stated below, summary judgment is granted in favor of the Insurers.

  II. BACKGROUND

  This Court has jurisdiction based on diversity of citizenship. American Motorist, Chubb, and Goldman are citizens of Illinois, Delaware, and New York, respectively.*fn1

  Jodamo is a designer menswear store located at 321 Grand Street in Manhattan, on property leased from Goldman since 1995.*fn2 On January 8, 1996, a portion of the store's wet pipe sprinkler system froze and ruptured,*fn3 flooding the store, and largely ruining Jodamo's inventory.*fn4 At that time, Jodamo was insured by Atlantic Mutual Insurance Company ("Atlantic Mutual"),*fn5 which compensated Jodamo for its losses. Atlantic Mutual then sued Goldman to recover the monies it paid to cover Jodamo's losses.*fn6 The case was tried on April 25, 2000, and the jury ultimately determined that Goldman's negligent failure to provide adequate heat to Jodamo had caused the sprinkler pipe to freeze and burst.*fn7

  The jury awarded Atlantic Mutual more than one million dollars, a figure that represented the full amount that Atlantic Mutual had paid to cover Jodamo's losses.*fn8 The amount paid by Atlantic Mutual represented the total retail price of each damaged item in the Jodamo inventory.*fn9 Goldman moved to set aside the jury verdict, but the motion was denied as untimely filed.*fn10 The denial of Goldman's motion was upheld on appeal.*fn11

  On January 23, 2000, before the Jodamo I jury reached a verdict, Jodamo's wet pipe sprinkler system froze again and burst again, flooding the store for a second time.*fn12 Jodamo's inventory was again damaged, and Jodamo collected an amount exceeding $450,000 from American Motorist and Chubb, which were now its insurers.*fn13 This figure was again based on the retail price of each damaged item.*fn14 The Insurers now seek recovery from Goldman for this second sprinkler system failure.

  For its defense, Goldman relies on a waiver of subrogation clause contained in the Lease Agreement.*fn15 Clause 9(e) of the Lease provides, in pertinent part, that each party "hereby releases and waives all right of recovery against the other or any one claiming through or under each of them by way of subrogation or otherwise."*fn16

  On August 6, 2003, this Court held that the waiver of subrogation clause would not bar this action if Goldman acted recklessly or was grossly negligent.*fn17 As the Insurers' initial complaint failed to allege gross negligence, the complaint was dismissed with leave to amend the complaint to include such a claim. That amended complaint is now before the Court, together with cross motions for summary judgment.

  III. SUMMARY JUDGMENT

  A. Legal Standard

  Summary judgment is permissible "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law."*fn18 "An issue of fact is genuine if the evidence is such that a jury could return a verdict for the nonmoving party."*fn19 A fact is material when "it might affect the outcome of the suit under the governing law."*fn20

  The party seeking summary judgment has the burden of demonstrating that no genuine issue of material fact exists.*fn21 Accordingly, the non-moving party can defeat summary judgment by raising a genuine issue of material fact. However, she "must do more than simply show that there is some metaphysical doubt as to the material facts,"*fn22 and she "may not rely on conclusory allegations or unsubstantiated speculation."*fn23

  Rather, the non-moving party must produce admissible evidence that supports her pleadings.*fn24 In this regard, "[t]he mere existence of a scintilla of evidence supporting the non-movant's case is also insufficient to defeat summary judgment."*fn25

  In accordance with Rule 56.1 of the Local Civil Rules of the United States District Courts for the Southern and Eastern Districts of New York ("Local Rule 56.1"), a party moving for summary judgment must submit "a separate, short and concise statement," which lists facts undisputed by either party.*fn26 Similarly, a party opposing summary judgment must submit a statement that either disputes or admits the facts listed by the moving party.*fn27 "The facts set forth in a moving party's statement will be deemed to be admitted unless controverted by the opposing party's statement."*fn28

  While it is obviously preferable for parties to comply with local court rules, district courts may overlook a party's failure to do so.*fn29 Local Rule 56.1 is not "a vehicle for making factual assertions that are otherwise unsupported in the record."*fn30 A non-moving party's failure to file a proper statement will not automatically establish as fact each and every allegation made by the moving party. Even if the party opposing summary judgment fails to dispute the facts asserted by the moving party, the moving party's "unsupported assertions must nonetheless be disregarded and the record independently reviewed."*fn31

  B. Discussion

  While the Insurers have filed a proper statement asserting undisputed facts in support of their motion for summary judgment, Goldman has failed to file a statement that clearly and concisely lists the facts that it wishes to dispute.*fn32 The Insurers argue that Goldman's failure to contest the allegations set forth in the Insurers' statement effectively establishes those facts as uncontested.*fn33 Because it would be less than fair to Goldman for this Court to credit everything that the Insurers allege based on Goldman's procedural error, this Court has reviewed the record independently, and has reached the following conclusions.

  It is clear that the water in the sprinkler pipe froze because there was inadequate heating in the Jodamo store.*fn34 In Jodamo I, Ingemar Asp, Atlantic Mutual's expert witness, testified that heat had escaped the store through holes in the building's exterior walls, causing the pipe to freeze and burst.*fn35 The Insurers here assert that the second wet pipe burst occurred for the same reasons that it occurred the first time.*fn36 Vincent Valetutti, Goldman's expert witness in this action, has reported that the second wet pipe burst was caused by insufficient heat in the building, and has suggested that the heat again left the building through holes in the exterior walls.*fn37

  As both parties agree on the cause of the wet pipe sprinkler burst, and the manner in which it occurred, there is no issue of material fact for a jury to decide. Goldman simply asserts that the waiver of subrogation clause bars the Insurers' claim because they have failed to show that Goldman was grossly negligent.*fn38 As "the pleadings, depositions, answers to interrogatories, and admissions on file . . . show that there is no issue as to any material fact," summary judgment must be granted to one party as a matter of law.*fn39 For the following reasons, summary judgment is granted in favor of the Insurers.

  IV. COLLATERAL ESTOPPEL

  A. Legal Standard

  The doctrine of res judicata consists of two distinct preclusion concepts: "claim preclusion"*fn40 and "issue preclusion."*fn41 Issue preclusion, also known as collateral estoppel, refers to the effect of a judgment in foreclosing litigation of a matter that has been litigated and decided.*fn42 It is well-settled under New York law that collateral estoppel "precludes a party from relitigating in a subsequent action or proceeding an issue clearly raised in a prior action or proceeding and decided against that party . . . whether or not the tribunals or causes of action are the same."*fn43

  Collateral estoppel does not require that the parties be the same in both actions.*fn44 However, four requirements must be met before issue preclusion can be applied. "A party is collaterally estopped from raising an issue in a proceeding if: (1) the identical issue was raised in a previous proceeding; (2) the issue was actually litigated and decided in the previous proceeding; (3) the party had a full and fair opportunity to litigate the issue; and (4) the resolution of the issues was necessary to support a valid and final judgment on the merits."*fn45

  B. Discussion

  The Insurers invoke collateral estoppel to preclude litigation of two issues: (1) Goldman's responsibility for the second pipe burst; and (2) the calculation of damages that Goldman must pay.*fn46 As the Insurers have sufficiently demonstrated that the issues necessary to adjudicate this case were fully and fairly litigated in Jodamo I, Goldman may not litigate them now.

  First, Goldman is barred from disputing the cause of the pipe burst because the issue was already litigated in Jodamo I, and the Insurers have demonstrated that the second wet pipe burst occurred in the same manner as the first.*fn47 As previously discussed, it is undisputed that the pipe burst was caused by water freezing inside the pipes as a result of inadequate heating in the building. Goldman only disputes that it was responsible for such lack of heating.

  However, Goldman is collaterally estopped from arguing that Jodamo was negligent in causing the pipe to freeze and burst. The jury in Jodamo I did not accept Goldman's defense that Jodamo was responsible for the heating problem because Jodamo had installed an HVAC system.*fn48 Goldman is thus precluded from raising this affirmative defense unless it can show that the pipe burst of 2000 occurred in a different fashion, or that Jodamo made some unauthorized alteration to the HVAC system between 1996 and 2000. Goldman has demonstrated neither. Clearly, Goldman had a full and fair opportunity to litigate the identical issue of causation in a previous proceeding, which was necessary to support the final judgment in Jodamo I. Second, Goldman is precluded from re-litigating the methodology for calculating damages.*fn49 Goldman argues that the damages in Jodamo I were calculated incorrectly, and seeks to calculate damages in this action differently.*fn50 The Insurers, on the other hand, argue that they are entitled to recover the full amount paid to Jodamo because the issue was raised and decided in Jodamo I.*fn51 Because the method for calculating damages was conclusively resolved in Jodamo I, it will not be revisited here. In the first Jodamo action, the court instructed the jury on the issue of damages, and Goldman had the opportunity to object at that time.*fn52 In fact, Goldman had every incentive to object since the damage caused by the 1996 pipe burst was greater than the damage caused by the 2000 burst.*fn53 However, Goldman failed to contest the court's instruction until after judgment was entered. Once a judgment becomes final, collateral estoppel makes that judgment conclusive of all issues resolved in that action.*fn54 Therefore, the Insurers in this action are justified in seeking damages based on the total retail value of Jodamo's damaged inventory. As the jury awarded full recovery to Atlantic Mutual in Jodamo I, collateral estoppel dictates that the same measure of damages applies here.

  V. GROSS NEGLIGENCE

  A. Legal Standard

  When gross negligence is invoked by a business entity seeking an exception to a waiver of subrogation clause, that party must show that the other has acted with negligence that "differs in kind, not only degree, from . . . ordinary negligence."*fn55 Gross negligence is "conduct that evinces a reckless disregard for the rights of others or `smacks' of intentional wrongdoing."*fn56 "Failure to use even slight care" can indicate the total indifference toward the "rights and safety of others," that constitutes gross negligence.*fn57

  Whether or not particular conduct constitutes gross negligence is usually construed as a question of fact for a jury to decide.*fn58 However, a court may opt to avoid subjecting the litigants to the added expense and time of bringing a case before a jury if, based on the evidence presented, the outcome is clear. A court may find gross negligence alone when no reasonable jury could possibly find that the defendant did not act in a grossly negligent manner.*fn59

  B. Discussion

  Goldman's conduct constitutes gross negligence. When Jodamo experienced its first sprinkler system failure in 1996, Goldman immediately knew that the wet pipe burst was caused by water that had frozen inside the pipe. Goldman testified in Jodamo I that he visited Jodamo on the day after the first pipe burst. When asked what he thought had happened, Goldman responded that he "could not understand how a sprinkler in that particular position of the premises . . . could freeze (emphasis added)."*fn60 In addition, Vito Colangelo, Goldman's expert witness in Jodamo I, testified that he investigated the 1996 incident before the pipe burst again in 2000, and concluded that the first sprinkler burst because water had frozen in the pipe.*fn61 Therefore, Goldman cannot credibly claim it did not have actual notice of the cause of Jodamo's damages. Whether Goldman's boiler, the holes in the exterior walls, or Jodamo's HVAC system was responsible, one thing was certain: Jodamo had heating problems.

  Goldman urges the Court to accept that it believed, until the jury rendered its verdict, that Jodamo was ultimately responsible for the lack of heat in the store. Even were the Court to accept this position, Goldman knew that Jodamo had no access to the building's boiler, could not control the heat, and thus could not investigate the cause of the heating failure without Goldman's assistance.*fn62 When the pipe burst in 1996, Goldman was effectively alerted to a very serious problem with the heating at 321 Grand Street, which could lead to disastrous consequences for its tenants unless Goldman took precautionary steps.

  Nonetheless, Goldman admits that it did not take any action at all to remedy the heating failure. Goldman responded to Jodamo's pipe burst by patching up the broken section of pipe.*fn63 Goldman did not take any steps to provide Jodamo with access to the boiler,*fn64 nor did Goldman order Jodamo to remove the HVAC system, an action that would have been consistent with Goldman's position that the HVAC system had caused the problem.*fn65

  Goldman claims that there was no need to take action until it knew for certain whether it or Jodamo was responsible for the damage.*fn66 This position is untenable, and evinces a reckless disregard for tenants' safety and property. Even absent a lawsuit, Goldman should have taken at least minimal steps to ensure that the temperatures in its buildings did not drop below freezing, that heat did not escape through holes in the building, and that the sprinkler systems were in working order. Goldman's failure to maintain the property at 321 Grand Street rises to the level of gross negligence because Goldman had actual notice of a severe heating problem that could cause sprinkler system failure, and did not take one single step to remedy that problem. It is negligent for a landlord to ignore a tenant's repeated complaints of inadequate heating.*fn67 It is gross negligence when that landlord continues to do nothing even after the inadequate heating results in a devastating loss for the tenant. This second pipe burst was not only foreseeable from Goldman's perspective; it became certain and inevitable when Goldman failed to take any remedial action whatsoever. This is a negligence different in kind, not just in scope, from ordinary negligence; it is recklessly indifferent behavior that surely amounts to gross negligence.

  VI. CONCLUSION

  For the reasons set forth above, the Insurers' motion for summary judgment is granted. The Insurers are entitled to full recovery of the amount paid to their insured, $478,483.88.*fn68 Each insurance company is entitled to the amount that they paid to Jodamo; American Motorist paid $397,881.88 and Chubb paid $80,602.00.*fn69 The Insurers are also entitled to pre-judgment interest at a rate of nine percent per annum from the date on which the Insurers compensated Jodamo, September 28, 2000.*fn70

  SO ORDERED.


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