Bernard v. Brookfield Props. Corp. (2011)

Our plain-English summary of Bernard v. Brookfield Props. Corp. (New York Supreme Court, June 7, 2011).

Shelly Bernard sued over an asbestos-related illness. Her estate's co-executors continued the case after her death. She testified that she was exposed to asbestos dust from 1985 to 1988 while working as a consultant on the 28th floor of 55 Water Street in Manhattan. She said renovation and construction there produced dust and debris. The opinion says she developed mesothelioma. The building's earlier owner, Olympia & York, went bankrupt in 1993, and the building passed to New Water Street Corporation, whose majority shareholder is Retirement Systems of Alabama. Brookfield, New Water Street and Retirement Systems of Alabama moved for summary judgment, arguing they were not successors to the earlier owner and that the bankruptcy had discharged the claims. Retirement Systems of Alabama also challenged personal jurisdiction. The court confirmed a referee's report. It held that Bernard did not lose her claims in the bankruptcy because she could not have known of them then. It found unresolved factual questions about successor status and jurisdiction. All motions were denied, with leave to renew after discovery.

We wrote this summary from the court's opinion with the help of AI. It is not the court's wording, and it is not legal advice. The full opinion is below.

The decision

• Court: New York Supreme Court
• Decided: June 7, 2011
• Citation: 2011 NY Slip Op 51056(U)
• Stage: Summary judgment
• Unpublished opinion. Many courts limit citing unpublished opinions as precedent.
• State: New York

Outcome. The court confirmed the referee's report and denied summary judgment to Brookfield, New Water Street Corporation and Retirement Systems of Alabama, and denied RSA's personal jurisdiction motion, all with leave to renew after discovery, so the estate and co-defendant Colgate prevailed for now.

What the court held. A person whose asbestos disease had not appeared when a debtor's reorganization plan was confirmed did not lose her claims, because due process outweighs the plan's discharge language. A corporation that acquires another's assets can be liable as successor-in-interest only on certain grounds, and the defendants did not show these were absent.

Issues decided: Asbestos Bankruptcies, Personal Jurisdiction, Trial Procedure and Discovery, Successor Liability.

The people and their exposure

• Shelly Bernard: mesothelioma; died

Who	Work	Where	When	Products
Shelly Bernard	consultant; worked near others using it	55 Water Street, New York, New York	1985-1988

The defendants

• Brookfield Properties Corporation (premises owner)
• New Water Street Corporation (premises owner)
• Retirement Systems of Alabama
• Colgate Palmolive Corporation

Other decisions in this case

Other rulings from the same court in the same case, in our library:

• Bernard v. Brookfield Props. Corp. (June 15, 2012). The court confirmed, as modified, the Special Master's recommendation: Colgate-Palmolive could not claim attorney-client privilege over its pre-deposition talks with former employee Dr. Turse, but its counsel properly asserted work-product protection against broad questions about those talks, so the plaintiffs could submit written questions or reopen the deposition while avoiding counsel's mental impressions.

Decisions this opinion cites

Earlier decisions in our library that the court cited:

• Kane v. Johns-Manville Corp. (U.S. Court of Appeals, Second Circuit, 1988). The Second Circuit affirmed the District Court's order, which had upheld the Bankruptcy Court's confirmation of Manville's reorganization plan, so Manville and the plan's supporters won and claimant Kane lost.
• In re Waterman SS Corp. (U.S. District Court, Southern District of New York, 1993). The district court vacated the Bankruptcy Court's judgment for the asbestosis claimants (seamen) against Waterman Steamship and remanded for further findings on whether notice of the bar date was adequate to individual seamen who had shown symptoms.
• In re Waterman SS Corp. (U.S. Bankruptcy Court, Southern District of New York, 1992). The bankruptcy court granted the Asbestosis Claimants' summary judgment motion, holding their claims were pre-petition claims but were not discharged by Waterman Steamship's confirmation order because Waterman failed to give known creditors adequate notice.

The court's opinion

The text below is Google Scholar's copy of the court's opinion, a public record. Numbers in brackets, such as [*921], mark where each page of the printed reporter begins.

2011 NY Slip Op 51056(U)

LAWRENCE BERNARD AND MARILYN BERNARD AS CO-EXECUTORS OF THE ESTATE OF

SHELLY BERNARD, Plaintiffs,

v.

BROOKFIELD PROPERTIES CORP., ET AL., Defendants.

107211/08.

Decided June 7, 2011.

Supreme Court, New York County.

Christine Chung, Esq., — Quinn Emanuel.

William Smith, Esq., John F. Olson, Esq. — Faust Goetz Schenker Blee.

SHERRY KLEIN HEITLER, J.

Defendants Brookfield Properties Corporation ("Brookfield"), New Water Street Corporation ("NWSC"), and Retirement Systems of Alabama ("RSA"), having moved, pursuant to CPLR § 3212, respectively, for summary judgment dismissing the complaint and all other claims against them; and defendant RSA having also moved, pursuant to CPLR § 3211(a)(8), to dismiss the action against it for lack of personal jurisdiction; and co-defendant Colgate Palmolive Corporation ("Colgate"), having opposed such applications on the grounds that movants are successors-in-interest to Olympia & York ("O & Y"), the previous owner of the building of which plaintiffs complain, by orders dated August 13, 2010 in motion sequence No.'s 002 and 004, this court referred the issues whether this court had personal jurisdiction over RSA, whether Brookfield and NWSC and/or RSA are successors-in-interest to O & Y, and whether a de facto merger occurred between NWSC and O & Y to a Special Referee of this court to hear and report with recommendations. Decision on these motions was held in abeyance pending receipt of the Special Referee's report and a motion pursuant to CPLR § 4403.

A hearing was held before the court's designee, the Hon. Stanley Sklar, as Judicial Hearing Officer, on November 9, 2010. JHO Sklar issued his report on December 3, 2010 ("Report"). The Report, exhibits, and transcripts of the testimony were filed with the County Clerk of New York County on December 8, 2010. Pursuant to CPLR § 4403, the parties had fifteen days from such filing date within which to move to confirm or reject JHO Sklar's Report. On April 7, 2011, Colgate moved by Order to Show Cause for an order adopting JHO Sklar's recommendation that both motions for summary judgment and RSA's motion to dismiss be denied without prejudice to renew at the close of discovery. Neither Brookfield, nor RSA, nor NWSC submitted papers in opposition. In accordance with CPLR § 4403 and 22 NYCRR § 202.44, this court hereby confirms the Report and grants Colgate's motion as set forth herein.

BACKGROUND

In or about May 2008, Shelly Bernard, now deceased, brought this asbestos-related personal injury action against defendants NWSC, RSA, and Brookfield, among others. Ms. Bernard was deposed on June 5, 2008. Among other things, she testified that she was exposed to asbestos dust while working as a consultant for Salomon Brothers on the 28th floor of 55 Water Street, a commercial office building in Manhattan ("the Building"), from 1985 to 1988. Ms. Bernard testified that renovations and construction on the 28th floor of the Building generated dust and debris to which she and her fellow workers were exposed. She testified that she saw dust all over her clothing and in her food, and described wading through streamers of unfettered loose material, which she believed to be asbestos insulation, while moving from one part of the Building to another. In or about 1993, O & Y, then the owners of the Building, filed for bankruptcy protection in the United States Bankruptcy Court for the Southern District of New York.

According to the Third Amended Joint Plan of Reorganization in the bankruptcy proceeding, dated September 12, 1996 (attached to Brookfield's Notice of Motion as exhibit F ("Joint Plan"))[1], O & Y, an international real estate conglomerate, owned the Building through its New York entities, Olympia & York Water Street Finance ("O & Y Finance") and Olympia & York Water Street Credit Corp. ("O & Y Credit"). When O & Y collapsed in 1993, O & Y Finance and O & Y Credit filed for

protection under the U.S. Bankruptcy Code. In furtherance of the Joint Plan, O & Y Credit transferred ownership of the Building to O & Y Finance by deed in lieu of foreclosure.[2] O & Y Finance in turn transferred the Building to NWSC, a New York stock corporation newly formed for that purpose.[3] The O & Y Finance bondholders were issued shares of stock in NWSC commensurate with their O & Y Finance holdings. RSA became the majority shareholder of NWSC, which to this day owns the Building.

Brookfield's position is that it never possessed any ownership or proprietary interest in the Building prior to, during, or after the period that Ms. Bernard claims she was exposed, nor is it a successor-in-interest to any of the entities that are alleged to have owned the Building. Brookfield further asserted that all potential claims against O & Y's successors-in-interest were discharged by the bankruptcy court's Confirmation Order[4], by reason of which there can be no successor liability. NWSC and RSA's position is that they are not responsible to plaintiffs because NWSC's ownership of the Building did not come into existence until September 1993, five years after Ms. Bernard's alleged exposure. Like Brookfield, both NWSC and RSA asserted that pursuant to the Confirmation Order there is no successor liability.

RSA further posits that it is not related to O & Y and did not become so when RSA became the majority stockholder in NWSC, nor is it subject to personal jurisdiction in New York because it never had a presence in New York and has never transacted any business here. See CPLR 301, 302.

By decisions and orders in motion sequence #'s 002 and 004, each dated August 13, 2010, this court held that plaintiffs' claims were not discharged by reason of the bankruptcy proceedings. The August 13, 2010 orders also referred each matter to a Special Referee to hear and report on the following issues: (1) whether Brookfield is a successor-in-interest to O & Y; (2) whether NWSC or RSA, or either of them, are successors-in-interest to O & Y or whether a defacto merger occurred; and (3) whether RSA is subject to the personal jurisdiction of this court pursuant to CPLR 301 or 302. The August 13, 2010 orders are incorporated herein by reference and made a part hereof.

REFEREE'S REPORT

A hearing was held before JHO Sklar on November 9, 2010. JHO Sklar issued his Report on December 3, 2010. The Report informs that almost no new evidence was submitted by any party in terms of Brookfield's, RSA's, or NWSC's status as successors-in-interest to O & Y. No person was offered to provide any sworn testimony on these issues. Brookfield declined to offer any additional evidence whatsoever, either oral or written. Defendants RSA and NWSC submitted an affidavit from their attorney John Olsen, sworn to November 8, 2010 ("Olsen Affidavit"), which sets forth as an exhibit, among other things, O & Y's First Amended Disclosure Statement, dated June 18, 1993 ("Disclosure Statement") which these defendants had failed to produce with their underlying summary judgment motion.[5] The Olsen Affidavit provides that there can be no successor liability, both because Judge Garrity had said so and because the Disclosure Statement so indicates. The Olsen Affidavit also provides that O & Y remained in existence after it filed for bankruptcy because it was named in several premises liability cases. JHO Sklar concluded that the Olsen Affidavit and attached exhibits did not add anything to what had already been before this court on NWSC's and RSA's underlying motions. His Report essentially recommends that both applications for summary judgement be denied because all three defendants failed to meet their respective burdens of proof.

On the issue of whether there was a de facto merger between NWSC and O & Y, Colgate argued to JHO Sklar that the transfer of ownership from O & Y to NWSC included a transfer of all of O & Y's assets and liabilities. NWSC argued that § 5(c) of the Disclosure Statement advises of the injunction against O & Y and its successors. JHO Sklar also found that NWSC had not met its burden on the de facto merger issue and recommended denial of that branch of NWSC's motion. On the issue of New York's jurisdiction over RSA, Colgate introduced RSA's 2002 annual report. The document reads, in pertinent part, that "55 Water Street, New York City, is a fifty-four story tower and a fifteen-story annex containing 3.6 million square feet. One of the two outdoor plazas is the Vietnam Memorial Plaza, which is owned by the City of New York and maintained by the RSA." JHO Sklar determined that nothing in that report infers that RSA owns the building, either directly or through NWSC. Nevertheless he recommended that RSA's motion to dismiss for lack of personal jurisdiction be denied because RSA had not met its burden of proof.

DISCUSSION

To obtain summary judgment, the movant must establish its cause of action or defense sufficiently to warrant a court's directing judgment in its favor as a matter of law, and must tender sufficient evidence to demonstrate the absence of any material issues of fact. See, e.g., Zuckerman v City of New York, 49 NY2d 557, 562 [1980]; CPLR § 3212[b]. Where the proponent of the motion makes a prima facie showing of entitlement to summary judgment, the burden shifts to the party opposing the motion to demonstrate by admissible evidence the existence of a factual issue requiring a trial of the action. Vermette v Kenworth Truck Co., 68 NY2d 714, 717 [1986].

A. Bankruptcy Proceedings

Generally, the U.S. Bankruptcy Code (11 USC § 1141, et seq.) provides that a creditor loses its pre-petition claims after the debtor's bankruptcy reorganization plan is confirmed, even if it was not notified of the bankruptcy. In Waterman Steamship Corporation v Aguilar, 141 BR 552 [1992], vacated on other grounds 157 BR 220 [1993], however, the court found that the due process considerations of the Fifth Amendment should take precedence over the discharge provisions of § 1141: [N]o future Asbestosis Claimant who, by definition, had yet to manifest any detectible injury prior to

confirmation, could be deemed to have relinquished substantive rights when, even if that individual had read the "notice," those individuals would have remained completely unaware that their substantive rights were

affected.

Waterman, supra, 141 BR at 559.[6]

Indeed, due to the nature of asbestos, no clinical symptoms of asbestos-related diseases "may manifest themselves for many years or even decades, if ever." Acevedo v Consolidated Edison Co., 151 Misc 2d 347, 348 [NY Sup. Ct. 1991]; see also CPLR § 214-c. These due process considerations apparently take priority over the finality and definiteness provided for in § 1141 "where a debtor has knowledge of claims against it, and fails to inform claimants of the pendency of the proceedings." Id. at 557; see also Castleman v Liquidating Tr., 2007 US Dist LEXIS 64047, at [*29]-30 [NDNY Aug. 28, 2007].In this case the evidence shows that all parties interested in the bankruptcy proceedings knew or should have known that asbestos was present throughout the Building. The Disclosure Statement, which was provided to the bankruptcy court, provides in pertinent part (pp. 15, 39):

The Steering Committee advised the Issuer that such Potential Claims may include potential claims for

nondisclosure by the Issuer and the Current Owner of the presence of asbestos in the Building. The Building contains asbestos, the removal of which is generally mandated by local law when physical improvements to

the Building are made and, as a result, the asbestos area is disturbed. Such removal could require

substantial capital expenditures.

* * * *

e. Asbestos Removal. The Building contains a significant amount of asbestos which is currently planned to

be removed over a period of time extending to 2003, at an approximate cost of $87 million, which should be

satisfied from the Property's operational cash flow. The removal of asbestos poses a risk due to the health hazards associated with asbestos, and therefore presents potential financial exposure to New Water Street

Corp. if it is required to conduct extensive abatement of such asbestos.

Ms. Bernard did not show symptoms of mesothelioma until many years after the bankruptcy proceedings had concluded. As set forth in this courts' August 12, 2010 orders, and notwithstanding any language to the contrary in the Confirmation Order, Ms. Bernard did not relinquish her claims because she was completely unaware of her substantive rights at that time. Waterman, supra, 141 BR at 559.

B. Referee's Report

This court may confirm or reject the Report, in whole or in part, or "may make new findings with or without taking additional testimony." CPLR § 4403; see also 22 NYCRR 202.44. The Report "should be confirmed whenever the findings are

substantially supported by the record, the referee has clearly defined the issues and has resolved matters of credibility." Thomas v Thomas, 21 AD3d 949 [2005]; app. den. 6 NY3d 704 [2006]. The court may reject any portions of the report that are unsupported by the record and may do so upon its own independent review. See Borenstein v Rochel Properties, Inc., 216 AD2d 34, 34 [1995]. The evidence submitted at the hearing before JHO Sklar did not add anything to what was before this court when the underlying motions were first argued. Accordingly, the court has reviewed the evidence in light of the underlying motions and JHO Sklar's Report.

Under well-settled New York law, a corporation that acquires the assets of another may be held liable for the torts of its predecessor as a successor-in-interest if it: (1) impliedly assumed the predecessor's tort liability; (2) there was a consolidation or merger of seller and purchaser; (3) the purchasing corporation was a mere continuation of the selling corporation; or (4) the transaction was entered into fraudulently to escape such obligations. Schumaker v Richards Shear Co., 59 NY2d 239, 245 [1983].

NWSC's motion for summary judgment is denied. As discussed infra, Ms. Bernard's claims were not extinguished insofar as same would have denied her due process, and in light of NWSC's admission that it currently owns the Building, there remain outstanding issues of fact as to NWSC's status as O & Y's successor-in-interest.

Brookfield's motion for summary judgment is also denied. On its underlying motion Brookfield submitted the affidavit of its senior vice president who attests that Brookfield never purchased any interest in the Building located at 55 Water Street. However, triable issues of fact remain insofar as Brookfield failed to provide any support for the conclusory assertions made therein. Moreover, while Brookfield had several opportunities to clarify these issues, it (1) declined to offer any evidence before JHO Sklar; (2) failed to move to confirm or reject his Report; and (3) declined to oppose this motion. With regard to RSA's motion to dismiss pursuant to CPLR § 3211(a)(8), personal jurisdiction exists where a non-domiciliary "transacts any business within the state or contracts anywhere to supply goods or services in the state." An entity can be found to transact business within the meaning of CPLR 302(a)(1) based upon a single transaction (First Nat'l. Bank & Trust Co. v Wilson, 171 AD2d 616, 617 [1st Dept 1991]) if it is shown that the non-domiciliary "had some business contacts within this State and that the cause of action sued upon arose out of those business contacts" (Lancaster v Colonial Motor Frgt. Line, 177 AD2d 152, 158 [1st Dept 1992], app. den. 82 NY2d 920 [1994]). However, in opposing a motion to dismiss pursuant to CPLR 3211(a)(8) on the ground that discovery on the issue of personal jurisdiction is necessary, "plaintiffs need not make a prima facie showing of jurisdiction, but instead must only set forth a sufficient start, and show [] their position not to be frivolous.'" Shore Pharm. Providers, Inc. v Oakwood Care Ctr., Inc., 65 AD3d 623, 624 [2d Dept 2009] (quoting Peterson v Spartan Indus., 33 NY2d 463, 467 [1974]).

In light of the fact that RSA does not oppose this motion with the caveat that any such denial of its motion be without prejudice to renew at the close of discovery, it appears that discovery on this issue is still pending. The evidence now in the record of RSA's alleged contacts with New York comports with Shore Pharm. Providers, supra such that Colgate's position is a sufficient non-frivolous start at this juncture. Peterson, supra, 33 NY2d at 467.

Accordingly, it is hereby

ORDERED that, pursuant to CPLR § 4403, the recommendations in JHO Sklar's Report are confirmed in their entirety, and it is further

ORDERED that Colgate's motion herein is granted, and it is further

ORDERED that Brookfield's motion for summary judgement is denied with leave to renew at the close of discovery, and it is further

ORDERED that NWSC's motion for summary judgment is denied with leave to renew at the close of discovery, and it is further

ORDERED that RSA's motion for summary judgment is denied with leave to renew at the close of discovery, and it is further ORDERED that defendant RSA's motion to dismiss for lack of personal jurisdiction is denied with leave to renew at the close of discovery.

This constitutes the decision and order of the court.

[1] The Joint Plan was originally approved on September 14, 1993 by Judge James L. Garrity, formerly of the United States Bankruptcy Court for the Southern District of New York ("Confirmation Order").

[2] Prior to the bankruptcy, O & Y Credit had mortgaged the Building as security for a loan made to it by O & Y Finance. O & Y Credit defaulted on its loan obligations to O & Y Finance, which then initiated foreclosure proceedings against O & Y Credit. The foreclosure proceedings were included in the bankruptcy proceedings under which the Joint Plan was adopted. The Joint Plan required O & Y Credit to convey the Building to O & Y by a deed in lieu of foreclosure.

[3] O & Y Finance had raised the money for the loan to O & Y Credit primarily through the issuance of bonds. At the time the bankruptcy action was filed, O & Y Finance had defaulted on its obligations to its bondholders. RSA was the primary O & Y Finance bond holder. [4] Judge Garrity held that the transfer of property from O & Y Finance to NWSC would not "except as contemplated by the Joint Plan. . . subject New Water Street Corp. or any other transferee under the Joint Plan or the property so transferred to any liability by reason of such transfer under applicable law on any theory of law, including, without limitation, any theory of successor or transferee liability." Confirmation Order ¶ 132.

[5] Disclosure statements are submitted pursuant to section 1125 of the United States Bankruptcy Code and in general are meant to provide creditors with adequate information to make an informed judgment about the joint plan. This statement included, among other things, a history of the events leading up the bankruptcy filing, a description of O & Y's assets, and a description of the conditions under which O & Y was to be reorganized. See Olsen Affidavit, Exhibit 1, p. 1.

[6] Due process considerations have become of paramount importance in bankruptcy cases where there is the potential for asbestos litigation. In 1986, the Bankruptcy Court for the Southern District of New York issued for the first time an injunction which channeled all of a debtor's asbestos-related liabilities into a trust fund created out of the debtor's assets. See In re Johns-Manville Corp, 68 BR 618, 624 [SDNY 1986], aff'd 78 BR 407 [SDNY 1987], aff'd sub nom. Kane v Johns-Manville Corp., 843 F2d 636 [2d Cir. 1988]. Under this scheme, future asbestos-related claims against the debtor could only be brought against the trust. In the face of the growing number of asbestos lawsuits across the country, Congress added § 524(g) to the Bankruptcy Code in 1994, which explicitly authorizes the issuance of injunctions for asbestos trusts, and § 524(h), which retroactively approved the application of this mechanism in then pending bankruptcy cases. Section 524(g) requires that a legal representative be appointed for future claimants as a prerequisite to the establishment of an asbestos claims trust. The trust must be adequately funded and any injunction should be "fair and equitable." § 524(g)(4)(B)(ii). The purpose of these provisions is to ensure that future litigants with asbestos-related claims are adequately represented in bankruptcy proceedings.

Sources

• The opinion on Google Scholar
• New York asbestos laws
• New York asbestos exposure sites