In re September 11th Litigation
590 F. Supp. 2d 535 (2008)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
Under New York law, the measure of damages for negligently destroyed property is the lesser of the property's diminution in market value or its replacement cost. A property's unique characteristics do not qualify it for the 'specialty property' exception allowing for replacement cost damages if the property has a demonstrable market value and is used for commercial purposes.
Facts:
- In April 2001, the Port Authority of New York and New Jersey accepted a bid from World Trade Center Properties LLC (WTCP) to purchase 99-year net leases for Towers One, Two, Four, and Five of the World Trade Center.
- In July 2001, WTCP and the Port Authority executed the leases for consideration valued at $2.805 billion.
- The leases contained covenants requiring WTCP to insure the buildings and to 'rebuild, restore, repair and replace' the premises if they were damaged or destroyed.
- By 2001, the World Trade Center, originally built with a public purpose, had become a profitable commercial office complex with numerous tenants paying market rates.
- On September 11, 2001, terrorists hijacked airplanes belonging to American Airlines and United Airlines and crashed them into Towers One and Two.
- The resulting fires and subsequent collapses completely destroyed Towers One, Two, Four, and Five, which WTCP had taken possession of only two months earlier.
Procedural Posture:
- World Trade Center Properties LLC (WTCP) sued American Airlines, United Airlines, and other aviation defendants in the U.S. District Court for the Southern District of New York.
- Jurisdiction was established in this specific federal court pursuant to the Air Transportation Safety and System Stabilization Act (ATSSSA), which consolidated all civil litigation arising from the September 11th attacks.
- During discovery, the Aviation Defendants filed a motion for partial summary judgment on the issue of damages.
- The defendants' motion asked the court to rule as a matter of law that WTCP's potential recovery was capped at the market value of its leaseholds on September 11, 2001, not the greater replacement cost.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does New York law limit a plaintiff's recovery for the destruction of commercial real property to the lesser of the property's market value or its replacement cost, even when the property is unique and the plaintiff has a contractual obligation to rebuild it?
Opinions:
Majority - Hellerstein, J.
Yes. New York law limits damages for destroyed property to the lesser of its market value or replacement cost. This rule applies here because the World Trade Center towers, despite their unique character, were not 'specialty properties' and had a clearly established market value. The court's reasoning followed several key points. First, it affirmed New York's 'lesser of two' rule, as established in cases like Fisher v. Qualico Contracting Corp., which holds that limiting recovery to the lower of market value or replacement cost fully compensates the owner while avoiding uneconomical awards. Second, the court rejected WTCP's argument that the towers were 'specialty properties' (like churches or hospitals) for which replacement cost is the standard measure. The court applied the four-factor Lido Beach test and found the towers failed because a clear market for them existed, as proven by the recent $2.8 billion arm's-length transaction. The towers were used for general commercial purposes, not a unique use suitable only to the owner. Third, the court held that WTCP's private contractual obligation to rebuild did not expand the scope of the Aviation Defendants' tort liability. A tortfeasor is responsible only for the direct and foreseeable consequences of their negligence—the destruction of the property valued at its market price—not for special obligations arising from the victim's contracts. Finally, the court denied WTCP's separate claim for lost rental income, reasoning that the market value of a property inherently includes the present value of its expected future rental streams, and allowing a separate recovery would constitute an impermissible double recovery.
Analysis:
This decision reinforces the traditional 'lesser of two' rule for property damages in New York, clarifying its application to unique and iconic commercial buildings. By rejecting the 'specialty property' designation for the World Trade Center, the court established that if a property, regardless of its symbolic value, is used for commercial purposes and has a demonstrable market value, that value will cap tort damages. This precedent significantly limits the potential liability of tortfeasors in cases involving the destruction of high-value commercial real estate, preventing plaintiffs from recovering potentially astronomical replacement costs that far exceed the property's actual economic worth. The ruling also firmly separates tort liability from contract law, holding that a defendant's liability is not expanded by the private contractual undertakings of the injured party.
