Petition — McGRATH v. SLOTKIN (Nos. 79-1535, 79-1524, 79-1571, 79-1719)
Supreme Court brief1980
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In THE
Supreme Court of the United States
Ootoser Term, 1979 °
Joun MoGraru,
Petitioner,
, *
Steven JoHN SLoTKIN, an infant by his mother and natural
guardian, CHArLoTTE SLoTKIN, and CHarLoTTe SLOTKIN,
as Kixecutrix of the Estate of Bert Slotkin, deceased,
Respondents,
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
Wiui41aM EK. Kewtiy
PREBEN JENSEN
Casey, Lane & Mirrenporr
26 Broadway
New York, New York 10004
(212) 943-3000
Counsel for Petitioner
Of Counsel:
Ropert J. Cuary
March 31, 1980
IN THE
SUPREME COURT OF THE UNITED STATES
OCTOBER TERM, 1979
No.
JOHN MCGRATH, Petitioner,
W
STEVEN JOHN SLOTKIN, an infant by
his mother and natural guardian,
CHARLOTTE SLOTKIN, and CHARLOTTE
SLOTKIN, as Executrix of the
Estate of Bert Slotkin, deceased,
Respondents.
PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF
APPEALS FOR THE SECOND CIRCUIT
WILLIAM E. KELLY
PREBEN JENSEN
CASEY, LANE & MITTENDORF
26 Broadway
New York, New York 10004
(212) 943-3000
Counsel for Petitioner
Of Counsel:
ROBERT J. CLARY
March 31, 1980
INDEX
Page
CARA GRE ALON 66 io 0 86506 50.085 vee ees 3
PUA MEAGCIOs 666.046 Céwvenveweveseews 3
OURSEIGORE PEOGOMTOG. «ccc csevcccvtenes 5
Constitutional Provisions Involved... 7
Statement OF THO CABO. .cccccecvceser 9
Reasons for Granting the Writ....... 18
I. In Reversing The Judgment
Dismissing The Complaint
Against Petitioner, The
Court Of Appeals Violated
His Seventh Amendment Rights,
Made A Decision Contrary To
A Decision Of This Court And
Departed Impermissibly From
The Accepted And Usual Course
Of Judicial Proceedings To
Petitioner's Prejudice........ 18
Il. The Alternative Mandate Of The
Court Of Appeals Is Unconstitu-
tional In That It Delegates Ar-
ticle III Judicial Power And
Violates John McGrath's Seventh
Amendment Right: To A Jury Trial
And His Fifth Amendment Right
ZO DOO FPLOCOGE. 6 co vicvesssceenue 29
III. John McGrath Respectfully Joins
In The Arguments Submitted By
The Other Petitioners Insofar
As Those Arguments Are Aimed
At Relief Consistent With
The Relief Requested By John
MoGreth MOCOIR. cc ccctcswvesces 42
DR MRAOR. gs dceee teeter 42
ii
Page
Appendix
Opinion of the District Court....App.
Judgment of the District Court...App.
Opinion of the Court of Appeals. .App.
Order extending time to petition
SOE SOMO eles ec cc resbeweecric App.
Order on petitions for rehearing.App.
Order granting leave to submit
supplemental brief............. App.
Order granting stay of mandate...App.
Order declining action on sugges-
tion for rehearing en banc..... App.
Order denying leave to reargue
petition for rehearing and sug-
gestion for rehearing en banc. .App.
Motion for extension of stay of
Pree ere ee ee ee Tee eee App.
Order extending time to file
petition for writ of certi-
CITATIONS
Association of Western Railways v/
Riss and Company, 299 F.2d 133
i: PE Rie 5 i 22
Brigham v. Olmstead, 10 App. Div. 2d
769, 197 N.Y.S.2d 570 (3rd Dep't.
ih | Lf PP er eee Te eRe PRC Ve TROT Cree 16
Dextone Co. v. Building Trades Coun-
cil, 60 F.2d 47 (2nd Cir. 1932).. 25
Dimick v. Schiedt, 293 U.S. 474
CRE Pak 0b wa b's 00 odes a3, 20; Sf, oF
Dole v. Dow Chemical Co., 30 N.Y. 2d
143, 331 N.Y¥.S.2G@ 382 (1972)..... 34
1
17
20
68
69
75
76
77
79
81
82
fn.
iii
Fairmount Glass Works v. Cub Fork
Coal Co., 287 U.S. 474 (1933)
A Pe AP ree ae ee a ee L939, 29, 40
Finn v. Carnegie-Illinois Steel Cor-
poration, 68 F. Supp. 423 (W.D.
PEs BOWS Pee cece earsrerebesesesece 16 fn.
Gleich v. Volpe, 32 N.Y.2d 517, 346
Win ece OED CEPTO dee esctecoscvec 25
Jones v. Schramm, 436 F.2d 899
ivatle Wee Bete detesceteeecveteees 41 fn.
Joseph v. Rowlen, 425 F.2d 1010
i: Bo) Fy) rer eee «oe 20, 21
Klepper v. Seymour House Corp., 246
Neds OS, £98 Bebe 29 CLIST )occces 24-25
McKinney v. Parsons, 488 F.2d 452
ERE GAN SOPERi sock ectecsadgecee's 32
National Labor Relations Board v.
New York Merchandise Co., 134
F.2G GOD CARE CLF. A9ES) es vccvccse 32
Rivera v. McCarthy, 54 App. Div. 2d
757, 387 N.Y.S.2a 704 (2d Dep't.
BPPO Pcie ceboreeevecresbecseedsecs 34 fn.
TPO, Incorporated v. McMillen, 460
FctG SOG USC CAS BOladccccce oa; oo
Westinghouse Electric Corp. v. Rio
Algom, Slip. Op. (7th Cir. Feb-
KUGLY 26, LOGO) occccvceccvces 39, 40
Wingerter v. Maryland Casualty, 313
F.2d 754 (5th Cir. 1963)..... ‘may 22
Womble v. J.C. Penney Company, 431
F.2G 965 (6th Cir. L970). cccccces 16 fn.
iv
Yascavage v. Weinberger,
1297 (M.D. Pa. 1974)
Page
379 F. Supp.
IN THE
SUPREME COURT OF THE UNITED STATES
OCTOBER TERM, 1979
No.
JOHN MCGRATH, Petitioner,
V «
STEVEN JOHN SLOTKIN, an infant by
his mother and natural guardian,
CHARLOTTE SLOTKIN, and CHARLOTTE
SLOTKIN, as Executrix of the
Estate of Bert Slotkin, deceased,
Respondents.
A
PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF
APPEALS FOR THE SECOND CIRCUIT
Petitioner John McGrath re-
spectfully prays that a writ of certi-
orari issue to review the judgment and
opinion of the United States Court of
Appeals for the Second Circuit entered
in this proceeding on August 29, 1979
and its order and opinion entered Decem-
ber 10, 1979 on his petition for rehear-
ing and suggestion for rehearing en banc,
modifying its opinion of August 29, 1979.
Petitioner is informed that Christopher
McGrath, Jr., Citizens Casualty Company
of New York and American Mutual Insurance
Company of Boston intend to file petitions
for a writ of certiorari in this matter
also. Petitioner joins in all questions
presented and reasons which shall be
advanced by those parties for granting
the writ to the extent that such ques-
tions and reasons are not adverse to
his interests. Additional appellees
before the Court of Appeals were Guar-
anty Reinsurance Company, Allstate In-
surance Company, Urbaine Fire Insurance
Company, Arkwright-Boston Manufacturers
Mutual Insurance Company, Hardware Mutual
Casualty Co., National Casualty Co. (all
of which are hereafter together with
American Mutual Insurance Company of
Boston collectively referred to as the
"reinsurers" or the “reinsurance compa-
nies"), George Berkowitz and Paul Ratner.
Additional parties who may retain an
interest in this litigation are named
in the initial paragraph of the state-
ment of the case.
OPINIONS BELOW
The opinions of the Court of
Appeals, not yet reported, the orders
denying petitions for rehearing and sug-
gestions for rehearing en banc and deny-
ing petitioner John McGrath's motion
for leave to reargue his petition for
rehearing and suggestion for rehearing
en banc, not yet reported, and the opin-
ion of the United States District Court
for the Southern District of New York,
reported at 447 F. Supp. 253 (S.D.N.Y.
1978), appear in the Appendix.
JURISDICTION
The judgment of the United
States Court of Appeals for the Second
Circuit, entered August 29, 1979, re-
versed the judgment of the United States
District Court for the Southern District
of New York dismissing plaintiffs' com-
plaint against petitioner John McGrath.
Due to a substitution of counsel for
petiticner, on Septeinber 21, 1979 the
Court of Appeals granted petitioner's
September 12, 1979 motion for an exten-
sion of time in which to file a petition
for rehearing. {In a decision entered
December 10, 1979, the court denied peti-
tioner's timely petition for rehearing
but modified its upinion of August 29,
1979. On January 21, 1980, the Court
of Appeals granted petitioner's motion
for leave to file a supplemental brief
in support of his motion for reargument
of his petition for rehearing and his
suggestion for rehearing en banc. On
January 21, 1980 the court entered an
order announcing its refusal to act on
petitioner's suggestion for a rehearing
en banc. The court denied petitioner's
motion for leave to reargue in an order
entered February 27, 1980.
On February 28, 1980, Mr.
Justice Marshall signed an order extend-
ing the time to file a petition for a
writ of certiorari from March 10, 1980
to and including March 31, 1980. The
jurisdiction of this Court is invoked
under 28 U.S.C. § 1254(1).
QUESTIONS PRESENTED
(1) To the extent that the Court
of Appeals based its decision
to reverse a judgment in peti-
tioner's favor on a verdict
which was not formally announc-
ed and adhered to by all jurors
and with respect to which peti-
tioner was not accorded his
right to poll the jury, was
petitioner deprived of his
right to trial by a jury and
did the court so far depart
from the accepted and uswal
course of judicial procéedings
as to call for an exercise of
this Court's power of supervi-
sion?
(2) To the extent that the Court
of Appeals interpreted a jury
verdict in the amount of $680,000
as to other defendants and
%
7%
(3)
"nothing" as to petitioner to
be a finding that all defen-
dants, including petitioner,
were jointly and severally
liable for the sum of $680,000
was petitioner deprived of
his right to trial by jury
and did the Court of Appeals
render a decision in conflict
with this Court's decision in
Fairmount Glass Works v. Cub
Fork Coal Co., 287 U.S. 474
(1932), misapply two lines of
authorities in other courts of
appeals and so far depart from
the accepted and usual course
of judicial proceedings as to
call for an exercise of this
Court's power of supervision?
Is the mandate of the Court
of Appeals unconstitutional
in that it yields to plaintiffs
the Court's Article III power
to choose between granting a
new trial to all defendants
initially sued by plaintiffs
(4)
(5)
and reinstating the j>%int and
several verdict against only
those defendants who proceeded
to trial?
Does the mandate of the Court
of Appeals deprive petitioner
of rights guaranteed by the
Constitution in that it permits
plaintiffs at their election
to deprive petitioner of a
new trial?
Does the mandate of the Court
of Appeals deprive petitioner
of rights guaranteed by the
Constitution in that it unjus-
cifiably prejudices petitioner's
contribution rights?
CONSTITUTIONAL PROVISIONS INVOLVED
UNITED STATES CONSTITUTION, Art.
III,
§ 1, cl. 1, in United States
Code, Vol. 1 at XLVIII:
SECTION 1. The judicial
Power of the United States,
shall be vested in one supreme
Court, and in such inferior
Courts as the Congress may
from time to time ordain and
establish.
UNITED STATES CONSTITUTION, amend.
V, in United States Code, Vol. 1
at L:
No person shall be held
to answer for a capital, or
otherwise infamous crime, un-
less on a presentment or in-
dictment of a Grand Jury, ex-
cept in cases arising in the
land or naval forces, or in
the militia, when in actual
service in time of war or pub-
lic danger; nor shall any per-
son be subject for the same
offense to be twice put in
jeopardy of life or limb; nor
shall be compelled in any crim-
inal case to be a witness a-
gainst himself, nor be deprived
of life, liberty, or property,
without due process of law;
nor shall private property be
taken for public use, without
just compensation.
UNITED STATES CONSTITUTION, amend.
VII, in United States Code, Vol. 1
at LI:
In Suits at common law,
where the value in controversy
Shall exceed twenty dollars,
the right of trial by jury
shall be preserved, and no
fact tried by a jury, shall
be otherwise reexamined in
any Court of the United States,
than according to the rules
of the common law.
STATEMENT OF THE CASE
THE PARTIES
The jurisdiction of the Dis-
trict Court was invoked under 28 U.S.C.
§1332 on the ground of diversity of citi-
zenship. _The plaintiffs, at the time
10
of commencement of the action, were citi-
zens of New Jersey. At the time of com-
mencement of the action, the defendants
who went to trial herein were not citi-
zens of N-w Jersey. Petitioner John
McGrath, Christopher McGrath, Jr., Paul
Ratner and George Berkowitz were citi-
zens of New York. The following defen-
dants were corporations incorporated in
the states or countries indicated, and
each of them had its principal place of
business in the same state or country:
Citizens Casualty Company of New York
(New York); Allstate Insurance Company
and Guaranty Reinsurance Company (I1li-
nois); American Mutual Insurance Com-
pany of Boston and Arkwright-Boston
Manufacturers Insurance Company (Mas-
sachusetts); National Casualty Co.
(Michigan); Hardware Mutual Casualty
Co. (Wisconsin); and Urbaine Fire In-
surance Company (France). Defendants
in the cross-claims at the time of the
trial included, in addition to the de-
fendants in the main action, Morrell
Goldberg and Bernard Fuss, both citizens
of New York, and Brookdale Hospital Medi-
11
cal Center, a corporation incorporated
in New York and having its principal
place of business in that state.
THE FACTS
The infant respondent and his
parents ("the plaintiffs") brought an
action in a New York state court against
a hospital and the estates of two physi-
cians for malpractice. The hospital's
insurer, Citizens Casualty Co., retained
Christopher McGrath, Esq. to act as
trial counsel for the hospital. Peti-
tioner John McGrath, Christopher McGrath's
partner, assisted Christopher McGrath
during some of the proceedings.
During settlement negotiations,
Christopher McGrath told the plaintiffs'
attorney, in good faith but erroneously,
that the hospital carried no applicable
insurance beyond the Citizens Casualty
policy, which had a policy limit of
$200,000. (App. 26). This information
evidently had been conveyed to him by
the hospital or by Citizens Casualty's
claims manager, Ratner, who made the
12
same representations to plaintiffs' at-
torney during the negotiations. (App.
33). John McGrath later reiterated
Christopher McGrath's statement.
After several days of trial,
plaintiffs agreed to settle their claims
for $180,000. When Christopher McGrath's
representation as to insurance coverage
was incorporated into .the stipulation
of settlement between plaintiffs and
the hospital, John McGrath insisted
that the representation be qualified by
the words "to the best of his know-
ledge". (Record 521la). The repre-
sentation in its final form read:
It is further stipulated that
the attorney for the defendant
[Christopher McGrath] represents
that the total insurance cover-
age of the defendant is the
sum of $200,000, under a policy
with Citizens Casualty, and to
the best of his knowledge there
are no other policies covering
this event. (App. 31).
Shortly after the settlement,
it was discovered that the hospital car-
ried excess insurance in the amount of
$1,000,000 above the $200,000 basic pol-
icy. Ratner had known this but had
forgotten about it when he spoke with
Christopher McGrath and the plaintiffs’
attorney. (App. 33). Although the ex-
cess insurer stood ready to participate
in a trial, plaintiffs' attorney re-
fused to rescind the settlement agree-
ment and try the case. (App. 35-37).
Instead, he presented a compromise
order based on the settlement stipula-
tion to the trial judge, who signed it.
(App. 37). Thereafter, plaintiffs*
brought the diversity action in the
United States District Court for the
Southern District of New York out of
which this petition arises. Plaintiffs
joined as defendants not only Ratner
and Citizens Casualty Co. but also
Christopher McGrath and John McGrath,
as well as Citizens Casualty's rein-
surers and other parties.
* The infant plaintiff's father
having died before the institution of
the federal action, the plaintiffs in
that action were the infant plaintiff
and his mother.
14
Plaintiffs claimed that the representa-
tions as to coverage made by the defen-
dants to plaintiffs' attorney constitut-
ed constructive fraud.
The action was tried before
Milton Pollack, J. When the jurors first
returned to deliver a verdict ("the first
verdict"), the forelady stated, "[wle
have an amount for all *** [a] total of
$680,000 total against all of them".
(App. 38, n. 13, infra). This statement
evoked comments from jurors numbers 2
and 4 evincing dissent or, at least,
confusion. (App. 38-39, n. 13 infra).
Judge Pollack therefore sent the jury
back to deliberate further. (App. 39,
n. 13 infra). It is important to note
that the jury was not polled as to the
first verdict and that, in the colloquy
that took place with respect to that
verdict, jurors numbers three, five and
Six were not heard from.
When the jury returned, it
entered a verdict ("the second verdict")
in various amounts, totalling $680,000,
as to four of the defendants and "no-
thing" as to defendant John McGrath.
(App. 39, n. 13 infra). The clerk polj-
15
ed the jury as to this verdict, and each
juror acknowledged his agreement. Judge
Pollack immediately declared, "there is
no verdict against John McGrath" and
dismissed the complaint against him.
The judge made it known that "the Court
would have unhesitatingly set aside a
contrary verdict [if] rendered by the
jury as to John McGrath" (App. 39-40,
n. 14 infra).
The Court of Appeals "rein-
stated" the $680,000 verdict, not only
against three of the four defendants
against whom the jury had assessed it
but also against petitioner John McGrath.
Van Graafeiland, J. entered a strong
dissent. (App. 20-67). The majority
(Oakes and Gurfein, JJ.) held that "al-
though [John McGrath] may have been only
minimally at fault, there was sufficient
evidence for the case against him to go
‘to the jury; and the jury found him liable
(even though in subsequently apportioning
the damages it allocated none to him)".
(App. 40). It is clear from the quoted
language that the Court rested its hold-
ing as to John McGrath's liability on
the first verdict. In reinstating the
16
verdict against the other defendants,
the Court also relied entirely on the
first verdict and held that the second
verdict contained an improper allocation
of damages and therefore was void but
could be disregarded.
John McGrath filed a petition
for rehearing, arguing that the Court
of Appeals' reliance on the first ver-
dict was misplaced inasmuch as (1) that
verdict was ambiguous and not unanimous
and (2) John McGrath had not been ac-
corded his right to poll the jury with
respect to that verdict, for not until
inguiry is made of the whole jury as to
the foreman's statement and it is duly
entered by the clerk is there a verdict.
Brigham v. Olmstead, 10 App. Div. 2d
769, 197 N.Y.S.2d 570 (3rd Dept. 1960).*
x Although this is a diversity case,
questions as to the form and acceptance
of the jury verdict would appear to be
matters of federal law. Finn v. Carne-
gie-Illinois Steel Corporation, 68 F.
Supp. 423 (W.D. Pa. 1946). Cf. Womble
v. J.C. Penney Company, 431 F.2d 985,
989 (6th Cir. 1970). Federal and New
York law are not inconsistent in this
area, however, and it is therefore appro-
priate to refer to state decisions for
guidance, as the Court of Appeals did in
its original opinion. (App. 56).
17
The court denied the petition for rehear-
ing and adhered to its original decision,
but for exactly the opposite reasons of
those given by the court in its initital
decision, Van Graafeiland, J. again dis-
senting. (App. 69-74). The court con-
ceded upon the rehearing that John McGrath
had had a right to poll the jury--a right
which was not accorded with respect to
the first verdict. (App. 72). The court,
however, held that, accepting that the
first verdict (upheld by the court in
its first decision) was invalid, the sec-
ond verdict (held void in the court's
first decision) would have to be rein-
stated, for "the jury therein found peti-
tioner [John McGrath] liable but assessed
no monetary damages against him". (App.
72). The court rested its decision on
authorities holding that a verdict
against defendant for $0.00 implies "a
finding of defendant's liability to a
given extent". (App. 73). Applying
those authorities to John McGrath's case,
the majority held that the jury in its
second verdict had found John McGrath
to be a joint tortfeasor. (App. 73).
18
REASONS FOR GRANTING THE WRIT
POINT I
IN REVERSING THE JUDGMENT
DISMISSING THE COMPLAINT
AGAINST PETITIONER, THE
COURT OF APPEALS VIOLATED
HIS SEVENTH AMENDMENT RIGHTS,
MADE A DECISION CONTRARY
TO A DECISION OF THIS COURT
AND DEPARTED IMPERMISSIBLY FROM
THE ACCEPTED AND USUAL COURSE
OF JUDICIAL PROCEEDINGS TO
PETITIONER'S PREJUDICE
*
The second verdict was as fol-
lows:
We have a verdict in favor
of the plaintiffs for
$680,000 to be apportioned
in this manner: Citizens
Casualty Co., $500,000,
Berkowitz, $100,000, Ratner,
$60,000, Chris McGrath,
$20,000, John McGrath,
nothing.
(App. 39). Referring to that verdict,
the Court of Appeals said:
The jury therein found
petitioner liable but
~ assessed no monetary dam-
ages against him.
19
(App. 72). It is impossible, however,
to discern anywhere in the language
employed by the jury in the second
verdict a finding of liability on the
part of John McGrath. The second ver-
dict, by any fair reading, absolves John
McGrath of liability. Only in the in-
valid first verdict, as announced by
the forelady and qualified by jurors
numbers two and four, was there even
arguably a finding of liability on the
part of John McGrath. It is not permis-
sible to read any part of the first ver-
dict into the second verdict, for it is
clear from the record that, when eventu-
ally the jury was polled, it was polled
only with reference to the second ver-
dict. (App. 37-39). Jurors numbers
three, five and six may well have dis-
agreed with the forelady's statement
that the first verdict was intended to
be against "all" defendants. The only
findings to which they expressed an agree-
ment in open court were those contained
within the four corners of the second
verdict, which can only be read to be a
verdict of no liability on the part of
John McGrath.
20
In reaching the opposite con-
clusion, the Court of Appeals relied on
two lines of authorities in the courts
of appeals, the $0.00-verdict cases and
the erroneous-apportionment cases.
Through a mistaken interpretation of
those authorities, the court was led to
render a decision in conflict with this
Court's decision in Fairmount Glass Works
v. Cub Fork Coal Co., 287 U.S. 474 (1933).
We discuss these errors separately below.
THE $0.00 VERDICT CASES
The court noted that, in the
state courts, there is disagreement "as
to whether a verdict against defendant
for $0.00 amounts to judgment for plain-
tiff or defendant" but that most federal
cases interpret such a verdict "as a
finding of defendant's liability to a
given extent, viz., $0, ***." (App.
73; emphasis supplied). In the instant
case there was a verdict of "nothing"
as to John McGrath, not a verdict against
John McGrath for any amount, $0.00 or
otherwise. In each of the cases cited
by the court in its decision on rehearing
21
the jury had first made an express find-
ing of liability against a defendant
and had next proceeded to assess damages
against that defendant for "$0.00" or
"None". The question in those cases,
then, was whether an express finding of
liability is consistent with a finding
of no damages. Where, as in the instant
case, there is no express finding of
liability, that question obviously does
not arise.
In the first case cited by
the Court of Appeals, Joseph v. Rowlen,
425 F.2d 1010 (7th Cir. 1970), a civil
rights action, the jury verdict read as
follows:
We the jury find in favor
of the plaintiff, David
L. Joseph, and against the
defendant, James H. Rowlen
and assess damages in the
amount of $00.00.
425 F.2d at 1011; emphasis supplied.
The District Court entered a judgment
for damages "in the sum of '0' dollars,
together with costs". ( Ibid.). The
plaintiff argued on appeal that, in a
Civil rights case, if liability is es-
tablished, damages are established as a
22
matter of law. The Court of Appeals
for the Seventh Circuit, however, af-
firmed the judgment, holding that ei-
ther the jury had found that plaintiff
experienced a technical violation of his
rights but suffered no damages or else
the verdict was intended to be a finding
for defendant. 425 F.2d at 1012.
In Wingerter v. Maryland Casu-
alty Co., 313 F.2d 754 (Sth Cir. 1963),
the second authority cited by the Court
of Appeals, the jury had rendered a ver-
dict "in favor of the Plaintiff and a-
gainst both Defendants," and had assess-
ed "the amount of damages in the follow-
ing amount: None". (313 F.2d at 755;
emphasis supplied). The Court of Appeals
for the Fifth Circuit held that such a
verdict is not invalid or ambiguous and
does not necessitate a new trial. (313
F.2d at 756). The Wingerter court quot-
ed with approval the statement of the
Court of Appeals for the District of
Columbia in Association of Western Rail-
ways v. Riss and Company, Inc., 299 F.2d
133 (D.C. Cir. 1962), cited as a contrary
authority by the Court of Appeals on
rehearing herein, that "[t]he finding
23
that the conspiracy had not damaged the
plaintiff was therefore a finding that
the plaintiff had not proved its claim."
(299 F.2d at 135).
Thus, in both of the authori-
ties cited by the Court of Appeals on
rehearing, the courts held that a ver-
dict of $0.00 must be upheld, even in
the presence of an express finding of
liability by the jury, either on the
theory that the jury assessed nominal
damages only or on the theory chat the
jury meant to find defendant not liable.
A fortiori, in the instant case, where
there was no express finding of liabil-
ity and no assessment of an amount of
damages, whether substantial, nominal
or 0, but a verdict of "nothing" as to
defendant John McGrath, the only reason-
able conclusion is that the jury found
John McGrath not liable.
THE ERRONEOUS~APPORT IONMENT
CASES
Having used the $0.00 verdict
case as a stepping stone to the conclu-
sion that "nothing" is something, the
Court of Appeals concluded:
24
Under this interpretation
the jury, by its second
verdict found petitioner
a joint tortfeasor. Act-
ing under erroneous appor-
tionment instructions,
however, it allocated none
of the damages to him.
This allocation, however,
must be set aside under
New York law which holds
tortfeasors jointly and
severally liable. (App.
Faye
In thus assimilating John Mc-
Grath's case to the cases (some of which
were cited in the court's first opinion)
in which a jury, going beyond proper
instructions, allocated the amount of
the damages among all of the individual
tortfeasor defendants, the Court of Ap-
peals failed to perceive that such a
verdict is altogether different in kind
from a verdict in which the jury, after
finding the total amount of damages suf-
fered by the plaintiff, allocates that
total among some of the defendants but
allocates nothing against the remaining
defendant. While in the former instance,
with or without express words of liabil-
ity in the verdict, it is clear that
the jury found all of the defendants
25
liable, in the latter case it is equally
clear, we respectfully submit, that the
jury meant to find the defendant against
whom it assessed no part of the damages
not to be liable. In each of the cases
cited by the Court of Appeals, damages
in substantial, not nominal, amounts
were assessed against all defendants,
and in each case, moreover, an express
finding of liability as against each
aefendant accompanied the jury's attempt
to allocate damages. Klepper v. Seymour
House Corp., 246 N.Y. 85, 98-99 (1927);
Dextone Co. v. Building Trades Council,
60 F.2d 47, 49 (2d Cir. 1932); Gleich v.
Volpe, 32 N.Y.2d 517, 523-24, 346 N.Y.S.
2d 806, 811 (1973).
THE FAIRMOUNT GLASS WORKS CASE
The plaintiff in Fairmount
Glass Works v. Cub Fork Coal Co., 287
U.S. 474 (1933) sought damages for a
breach of contract. It was clear that,
if liability were found, it would be
entitled to substantial damages. The
jury found a verdict for the plaintiff
in the amount of $1.00. The District
Court entered judgment on the verdict.
26
The judgment was reversed by the Court
of Appeals but reinstated by this Court.
The reasoning of the Supreme Court (Bran-
deis, J.) was as follows:
To regard the verdict as
inconsistent on its face
is to assume that the jury
found for the plaintiff
and failed to perform its
task of assessing damages.
The trial judge was not
obliged so to regard the
verdict. The defendant
had insisted upon several
defenses and had set up a
counterclaim. The plain-
tiffs were not entitled
to a directed verdict.
The evidence was volumi-
nous; and, on some issues
at least, conflicting.
The instructions left the
contested issues of liabil-
ity to the jury. The ver-
dict may have represented
a finding for the defendant
on those issues; the reason
for the award of nominal
damages may have been that
the jury wished the costs
to be taxed against the
defendant. The defendant
did not complain of the
verdict. The record be-
fore us does not contain
any explanation by the
trial court of the refusal
to grant a new trial, or
any interpretation by it
of the jury's verdict.
27
In the absence of such
expressions by the trial
court in the case at bar,
the refusal to grant a
new trial cannot be held
erroneous as a matter of
law. Appellate courts
should be slow to impute
to juries a disregard of
their duties, and to trial
courts a want of diligence
or perspicacity in apprais-
ing the jury's conduct.
Compare Union Pacific R.
Co. v. Hadley, 246 U.S.
330, 334; Dunn v. United
States, 284 U.S. 390, 394.
287 U.S. at 484-85 (footnotes omitted).
This reasoning applies with even greater
force to the instant case where the jury
did not assess even nominal damages a-
gainst John McGrath and where the Dis-
trict Judge, far from remaining silent,
expressed his conviction that the ver-
dict was intended to absolve John McGrath
from liability and that the evidence
would have permitted no other finding.
SUMMARY
A question requiring review
by this Court is presented. The Court
of Appeals adjudged John McGrath liable,
jointly and severally with others, for
damages in the amount of §680,000, ini-
tially on the basis of an incomplete
and invalid verdict with respect to which
John McGrath was not allowed to poll
the jury and later on the basis of an
interpretation of another verdict which
is contrary to authorities in other lower
courts and conflicts with a decision of
this Court. John McGrath thereby has
been deprived of his right to a jury
trial, guaranteed to him by the Seventh
Amendment to the Constitution. Moreover,
in interpreting a jury verdict for "noth-
ing" to be a verdict for $680,000 and
assuming that the jury failed to perform
its task of assessing damages and that
Judge Pollack failed to use diligence
and perspicacity in appraising the jury's
conduct, the Court of Appeals so far
departed from the accepted and usual
course of judicial proceedings as to
call for an exercise of this Court's
power of supervision. Unless the judg-
ment is reversed, John McGrath will be
severely prejudiced. While he may be
legally entitled to contribution from
his co-defendants, that right is illu-
sory when those co-defendants are a 1iq-
uidated insurance company and two indi-
viduals (one of them elderly, in poor
health and retired) whose means are as
or more limited than his own. If the
judgment is allowed to stand, the plain-
tiffs may well look for payment of the
entire $680,000 judgment, or as much
thereof as his assets can supply, to
John McGrath, the defendant whom the
jury and Judge Pollack found liable for
nothing and whom even the Court of Ap-
peals considered to be only "minimally
at fault". Such a result would shock
the conscience.
POINT II
THE ALTERNATIVE MANDATE OF THE
COURT OF APPEALS IS UNCONSTITUTIONAL
IN THAT IT DELEGATES ARTICLE III
JUDICIAL POWER, AND VIOLATES JOHN
MCGRATH'S SEVENTH AMENDMENT RIGHT
TO JURY TRIAL AND HIS FIFTH
AMENDMENT RIGHT TO DUE PROCESS
In this Point we shall as-
sume arguendo that the verdict was
properly rendered against all defen-
dants, including John McGrath.
30
Having held that the verdict
was a proper verdict against four defen-
dants and reversed the District Court's
dismissal of the complaint as to the
reinsurers, the Court of Appeals gave
the plaintiffs the following option in
its mandate:
We hold that the
$680,000 verdict against
Citizens, Ratner and both
McGraths, jointly and sever-
ally, may be reinstated.
Because we have also
held that the court below
should not have dismissed
the complaint against the
reinsurers, plaintiffs have
an option: they may either
reinstate the verdict and
judgment of $680,000 against
Citizens and the three indi-
viduals, or they may re-
try the case ab initio a-
gainst all appellees ex-
cept George Berkowitz on
both liability and damages.
They may not do both. :
(App. 57, 58, emphasis
added).
John McGrath respectfully sub-
mits that this mandate resulted in an
unconstitutional delegation of Article
III judicial power and violated John
McGrath's Seventh Amendment right to a
jury trial.
31
The mandate impermissibly re-
linquishes to plaintiffs the power to
decide the remedy to be granted. As
the choice between reinstatement of the
verdict and a new trial would determine
Significant rights of John McGrath's,
the court had the non-delegable duty to
decide whether to reinstate the verdict
or try all the defendants anew. It is
evident that the decision between the
two remedies is one that calls for the
application of judicial standards; thus,
the court violated petitioner's consti-
tutional rights by abandoning its Article
III responsibilities and vesting plain-
tiffs with the power to resolve what is
properly a decision for the court. See
TPO, Incorporated v. McMillen, 460 F.2d
348, 359 (7th Cir. 1972); McKinney v.
Parsons, 488 F.2d 452 (5th Cir. 1974);
Yascavage v. Weinberger, 379 F. Supp.
1297 (M.D. Pa. 1974).
Though the courts have not
often faced the implications of an im-
proper delegation of judicial power,
Judge Learned Hand did confront the ques-
tion in National Labor Relations Board v.
New York Merchandise Co., 134 F.2d 949
32
(2d Cir. 1943). There the issue arose
in the context of the NLRB's motion to
enforce an order requiring an employer
to reinstate two of its employees with
back pay. The court was presented with
the question whether it could properly
enter an enforcement order providing
for back pay, leaving it to the NLRB to
make a subsequent determination as to
the precise sum due and owing. Id. at
951. The court held that the enforcement
order entered by the court, though "final
as to any of its other provisions that
require no further definition", could
not be considered final with respect to
the amount of back pay. Id. at 952.
The court held that it could not allow
the Board to utilize the enforcement
order to hold respondent liable for any
amount of back pay the Board might sub-
sequently determine to be owing, saying
"We cannot delegate to the Board power
to fill in the amount of the back pay as
a merely ministerial duty." Ibid. (em-
phasis added).
Plaintiffs' choice may define
John McGrath's rights in subsequent,
related litigation. If plaintiffs should
33
choose to reinstate the original jury
verdict, the other defendants, including
John McGrath, will be denied the oppor-
tunity for a new trial. The prejudice
they will suffer therefrom is obvious.
They are beholden to plaintiffs in the
sum of $680,000, but when they seek con-
tribution from the reinsurers, they will
be met with the contention that the re-
insurers may relitigate all of the issues
in the action upon which their liability
depends, including the issue of damages.
If this contentioh is upheld, the defen-
dants will run the risk of receiving
less than their outlay from the reinsur-
ers. This will happen if they challenge
successfully the amount of damages claim-
ed by plaintiffs.*
To leave the choice between
two inconsistent remedies to the unfet-
tered discretion of plaintiffs clearly
flies in the face of due process. John
% Under New York law Tohn McGrath
may seek contribution for the entire
amount of any payment he makes in satis-
faction of plaintiffs' judgment. Dole v.
Dow Chemical Co., 30 N.Y.2d 143, 331
N.Y.S.2d 382 (1972); Rivera v. McCarthy,
54 App. Div. 2d 757, 387 N.Y.S.2d 704
(2d Dep't 1976) (contribution will lie
against one vicariously liable).
34
McGrath is entitled to have an Article
IIZJ court weigh, on the basis of its
application of accepted judicial stan-
dards, the consequences of selecting
one remedy over the other. It is unlike-
ly that plaintiffs will give serious
attention to the implications for John
McGrath inherent in either selection.
It has been recognized that
["t]he constitutional argument that due
process requires a determination by an
Article III judge is, to a certain extent,
tied to the Constitutional guarantee to
a trial by jury." IPO, Inc. v. McMillen,
Supra, at p. 354, n. 37. The instant
case presents a perfect example of how
the two interact, for not only does the
Court of Appeals' conditional mandate
represent an unconstitutional delegation
of Article III power, but it also vio-
lates petitioner's Seventh Amendment
rights. Dimick v. Schiedt, 293 U.S.
474 (1934) illustrates the point. In
Dimick plaintiff sued petitioner in the
lower court to recover damages for an
injury sustained in an automobile acci-
dent. The jury returned a verdict in
favor of plaintiff in the amount of $500.
35
Plaintiff moved for a new trial on the
ground, among others, that the damages
allowed were inadequate. The trial court
ordered a new trial upon that ground,
"unless petitioner would consent to an
increase of the damages to the sum of
$1,500.00." Petitioner consented to
the increase and appealed the judgment.
This Court held that the conditional
new trial order (additur) was a viola-
tion of the Seventh Amendment:
When, therefore, the trial
court here found that the
damages awarded by the
jury were so inadequate
as to entitle plaintiff
to a new trial, how can
it be held, with any sem-
blance of reason, that
that court, with the con-
sent of the defendant only,
may, by assessing an addi-
tional amount of damages,
bring the constitutional
right of the plaintiff to
a jury trial to an end in
respect of a matter of
fact, which no jury has
ever passed upon either
explicitly or by implica-
tion? To so hold is ob-
viously to compel the plain-
tiff to forego his consti-
tutional right to the ver-
dict of a jury and accept
"an assessment partly made
by a jury which has acted
36
improperly, and partly by
a tribunal which has no
power to assess."*
Id. at 486, 487 (emphasis added).
* While the Court addressed only the
constitutional defect inherent in addi-
tur, it indicated that remittitur was a
"doubtful precedent", acceptable only
in light of its customary usage:
In the light reflected by
the foregoing review of
the English decisions and
commentators, it, therefore,
may be that if the question
of remittitur were now
before us for the first
time, it would be decided
otherwise. but, arse
announced by Mr. Justice
Story in 1822, the doctrine
has been accepted as the
law for more than a hundred
years and uniformly applied
in the federal courts during
that time. And, as it
finds some support in the
practice of the English
courts prior to the adop-
tion of the Constitution,
we may assume that in a
case involving a remittitur,
which this case does not,
the doctrine would not be
reconsidered or disturbed
at this late day.
Dimick v. Scheidt, supra, at 484-85.
The foregoing discussion of remittitur
indicates that the court believed that
37
John McGrath's situation is
even more precarious than the plaintiff's
in Dimick, for in the latter case the
plaintiff at least received a benefit
to the extent that the addition increas-
ed his judgment. Here John McGrath con-
fronts the real possibility that plain-
tiffs will elect to reinstate the ver-
dict, thereby depriving him of a new
trial and exposing him to the risk that
he will not be able to recover the full
amount of any payment he makes in satis-
faction of plaintiffs' judgment.
This basic flaw in the mandate
stems from the fact that all defendants
were sued on a theory of joint and sev-
eral liability. With the dismissal of
the reinsurers at the close of the plain-
tiffs’ case, the defendants were segre-
gated into two groups: (1) those who
proceeded to trial, and (2) those who
did not take part in an adjudication of
either liability or damages. The Court
additur was not unconstitutional merely
because it increased the amount of the
judgment beyond the jury's award; rather,
additur was unacceptable because it per-
mitted one of the parties unilaterally to
deprive the other of a new trial by accept-
ing an alternative authorized by the court.
38
of Appeals’ use of a conditional new
trial mandate represents its attempt to
circumvent the problem created by the
fact that the various co-defendants,
even though jointly and severally liable,
might be liable for differing amounts
of total damages if the reinsurers were
sued separately by the plaintiff. The
court failed to realize that, if plain-
tiffs were to choose reinstatement of
the verdict, inconsistent adjudications
on the question of plaintiffs' damages
might be made in John McGrath's contribu-
tion action against the reinsurers. More-
over, the prejudice to John McGrath will
flow from the District Court's dismissal
of the reinsurers and the Second Circuit's
subsequent reversal of that decision. It
is this sequence of judicial actions which
split the defendants below.
The Seventh Circuit recently
addressed an analogous situation in West-
inghouse Electric Corp. v. Rio Algom,
Slip. Op. (7th Cir. February 15, 1980).
There several defendants were sued on a
theory of joint and several liability.
Certain of the defendants defaulted,
39
and Westinghouse moved for entry of final
judgment against them. The District
Court granted this motion and denied
motions by the answering defendants to
postpone any hearing on damages as to
the defaulting defendants until after a
trial on the merits. On appeal the an-
swering defendants argued that the Dis-
trict Court erred in entering judgment
against the absent defendants and in
subsequently proceeding to a determina-
tion of damages. The Court of Appeals
ruled that the District Court properly
entered judgment against the defaulters
but erred in proceeding to assess dam-
ages against them:
If damages are entered
against the defaulters
now, and Westinghouse sub-
sequently prevails on the
merits against the answer-
ing defendants, damages
would then have to be de-
termined as to the answer-
ing defendants. The pos-
sibility of two distinct
determinations as to the
damages arising out of a
single price-fixing claim
is, indeed, an inconsis-
tency. Just as the several
or independent nature of
plaintiff's claim permits
40
different findings as to
liability of individual
defendants, the joint na-
ture of plaintiff's claim
prohibits different find-
ings as to damages against
all defendants. *
The Rio Algom case is analogous
to the instant action in that it involved
a splitting into two separate groups of
defendants who were initially sued on a
theory of joint and several liability.
It was the default of fewer than all of
the defendants that set the stage for a
possibly inconsistent adjudication of
damages in Rio Algom. In the instant
case it was the District Court's dismis-
sal of the complaint as against the re-
insurers and the subsequent reversal of
that decision by the Court of Appeals
that set the stage for a potentially
inconsistent adjudication of damages.
The Court of Appeals decision is incon-
sistent with due process in that it places
* Rio Algom was only recently decided,
and petitioner was unable to procure a
copy of the slip opinion. The quotation
is from the full text of the opinion as
it appears in Lexis.
41
John McGrath in a situation where his
contribution rights may be prejudiced
because, if plaintiffs choose reinstate-
ment of the verdict and forego a new
trial, the reinsurers will claim the
right to relitigate the issue of damages
in John McGrath's contribution action. *
In issuing its mandate in the alternative,
the Court of Appeals failed to consider
the implications of the fact that the
liability of John McGrath and his co-
defendants is joint as well as several.
John McGrath has been placed
in this detrimental procedural posture
because the two courts below disagreed
on the issue whether the complaints a-
gainst the reinsurers should have been
dismissed. The only remedy consistent
with due process is a new trial.
n That John McGrath has a direct inter-
est in preserving his contribution rights
is beyond dispute. Jones v. Schramm,
436 F.2d 899 (D.C. Cir. 1970). (Joint
tortfeasor may challenge a verdict in
favor of his co-defendant to the extent
of asking the court to set it aside. )
POINT III
JOHN MCGRATH RESPECTFULLY
JOINS IN THE ARGUMENTS SUBMITTED
BY THE OTHER PETITIONERS
INSOFAR AS THOSE ARGUMENTS
ARE AIMED AT RELIEF CONSISTENT
WITH THE RELIEF REQUESTED
BY JOHN MCGRATH HEREIN
CONCLUS LON
For these reasons, a writ of
certiorari should issue to review the
judgment and opinions of the Second
Circuit.
Respectfully Submitted,
WILLIAM E. FELLY
PREBEN JENSEN
CASEY, LANE & MITTENDORF
26 Broadway
New York, New York 10004
(212) 943-3000
Counsel for Petitioners
Of Counsel:
ROBERT J. CLARY
March 31, 1980
APPENDIX
App. 1
APPENDIX
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
March 1, 1978.
Steven John SLOTKIN, an infant by his
mother and natural guardian,
Charlotte Slotkin, and Charlotte
Slotkin, as Executrix of the
Estate of Bert Slotkin, Deceased,
Plaintiffs,
wo
CITIZENS CASUALTY CO. OF NEW YORK,
Allstate Insurance Company,
American Motorists Insurance Com-
pany, American Mutual Insurance
Company of Boston, Employers Mutual
Liability Insurance Company of
Wisconsin, Guaranty Reinsurance
Company, Urbaine Fire Insurance
Company, Grange League Insurance
Co., National Casualty Co., Hard-
ware Mutual Casualty Co., Arkwright-
Boston Mfrs. Mutual Insurance Com-
pany, Paul Ratner, George Berkowitz,
Christopher McGrath, Jr. and John
McGrath, Defendants.
No. 71 Civ. 4044 (MP).
¥
On return of a verdict that
moving defendants had committed fraud,
App. 2
inducing plaintiffs to settle a medical
malpractice action for less than they
otherwise would have obtained, defen-
dants' motions to dismiss the complaint
and to direct a verdict in their favor,
reserved during trial, and post-trial
motions to set aside the verdict and
for judgment n.o.v. came before the
court. The District Court, Pollack,
J., held that: (1) where plaintiffs seek-
ing recovery on charge of malpractice
on behalf of an infant alleged that they
were unwilling to demand more from defen-
dant hospital than its insurance would
cover, yet plaintiffs after learning of
additional insurance coverage but before
the court's approval of a settlement on
behalf of the infant insisted on proceed-
ing with and thereby obtaining execution
of the stipulation of settlement, with
full knowledge of the facts, plaintiffs
were barred from thereafter seeking dam-
ages for fraud; (2) the court was not
obliged to adhere to another judge's
earlier decision in the same litigation,
and (3) where the only basis on which
the jury was instructed that it could
hold insurance company liable was the
App. 3
theory of respondeat superior with re-
spect to liability of its claims manager,
there was no justification for a verdict
against the insurer more than eight
times as great as against the agent,
and such error tainted not only findings
as to damages but the entire verdict.
Verdict set aside, judgment
n.o.v. directed for defendants, com-
plaint dismissed and judgment entered
in favor of defendants.
Arum, Friedman & Katz, New York
City, for plaintiffs; by Theodore H.
Friedman, New York City.
Granik, Silverman, Sandberg &
Nowicki, New City, N.Y., for defendant
Citizens Casualty Co.; by David W.
Silverman, New City, N.Y.
Julien & Schlesinger, New York
City, for defendant Paul Ratner; by
Stuart A. Schlesinger and David
Jaroslawicz, New York City.
Tell, Cheser, Breitbart & Lefkowitz,
New York City, for defendant George
Berkowitz; by Seymour Lefkowitz, New
York City.
Hart & Hume, New York City, for
defendant Christopher McGrath, Jr.; by
Joseph A. Bergadano, New York City.
App. 4
OPINION
POLLACK, District Judge.
A jury has returned a verdict
that the moving defendants herein commit-
ted fraud, inducing plaintiffs to settle
a medical malpractice action for less
than they otherwise would have obtained.
Now before the Court are defendants'
motions to dismiss the complaint and to
direct a verdict in their favor, reserved
during trial, and post-trial motions to
set aside the verdict and for judgment
n.o.v.
The following facts have been
amply proved, and indeed are uncontested.
The infant plaintiff, Steven Slotkin,
was born at the Brookdale Hospital in
1963 to a diabetic mother who had been
admitted to the hospital in a state of
toxemia. Early in his life he was diag-
nosed as suffering from cerebral palsy.
He and father sued the hospital in the
New York Supreme Court, Kings County,
alleging that Steven's disability stemmed
from a condition of acetonuria in the
mother due to the negligence of the hos-
pital staff. The case went to trial
before Justice Williams in late February
197C.
App. 5
The hospital had a liability
insurance policy issued by defendant
Citizens Casualty Company, in the amount
of $200,000, which was applicable to
the claim. Shortly before commencement
of the trial, Citizens retained defen-
dant Christopher McGrath to represent
the hospital. Early in the proceedings
in the trial court, plaintiffs' counsel,
Max Toberoff, Esq. received the impres-
sion that the Citizens policy was the
only liability insurance covering the
hospital and applicable to the claim,
and he telephoned the hospital to warn
it that it was exposed to a potential
liability exceeding its insurance cover-
age. In response, the hospital sent
defendant George Berkowitz, a trustee
of the hospital and a lawyer, to the
courthouse to protect the institution's
interests. As the trial progressed
through the plaintiffs' case, the law-
yers discussed the possibility of a set-
tlement. On March 4, defendant Paul
Ratner, a claims manager for Citizens,
arrived at the courthouse and joined
the discussions. On the same day, a
stipulation settling the case for
App. 6
$185,000 was read into the record, the
Judge orally indicated approval thereof,
and the jury was discharged.
Plaintiffs allege, and the
jury apparently found, that the individ-
ual defendants mentioned above represent-
ed to Toberoff, during the settlement
negotiations, that the $200,000 Citizens
policy was the only insurance applicable
to the claim. The jury must also have
accepted plaintiffs' allegation that
they were unwilling to demand more from
the hospital than its insurance would
cover,+ and that therefore they relied
on defendants' representations concern-
ing the insurance. Finally, the jury
must have concluded that the hospital
had an umbrella policy providing a mil-
lion dollars' worth of "excess" insur-
ance under certain circumstances, with
Lloyds Insurers unrelated to Citizens,
which was applicable to the Slotkins'
claim. The Lloyds group was not noti-
fied of the pendency of the trial and
did not participate therein or in the
1/ Mr. Toberoff testified that he as-
sumed that the hospital could satisfy
any judgment that plaintiffs might obtain.
App. 7
negotiations and stipulation of settie-
ment. The defendants allege that they
were unaware at the time of the excess
insurance above the primary coverage by
Citizens, and the jury was instructed
that it could return a verdict for the
plaintiffs on a finding that the defen-
dants conveyed a pretense of knowledge
when they were recklessly ignorant of
the truth.
The following facts are also
both amply proved and uncontested. Be-
cause it determined the claims of an
infant, the settlement stipulation was
unenforceable“ unless it was followed
2/ Mr. Toberoff conceded that failure
or refusal of the Judge to make and enter
a compromise order pursuant to NYCPLR
§§ 1207-08 would render the stipulation
for settlement unenforceable. Mr.
Toberoff testified:
"He [the Judge] had it in
his power to refuse to
sign the compromise order
... If he didn't, I would
say they by logical opera-
tion the stipulation would
be rendered valueless ...
We wouldn't be able to
collect without the compro-
mise order."
Moreover, the trial Judge had the unques-
tioned power to reject the settlement
as inadequate or insufficient for the
infant after learning of the existence
of excess insurance coverage.
App. 8
by a judicial order finalizing the ar-
rangement, providing for the distribu-
tion of the settlement fund and terminat~-
ing the suit. NYCPLR §§ 1207-08. Such
a judicial order has the effect of a
judgment. NYCPLR § 1207.
Within a fortnight after the
stipulation was read into the record,
and before the requisite order was made
and judgment accordingly entered, Ratner
was alerted to the existence of the ex-
cess insurance coverage. He promptly
telephoned McGrath, and McGrath immedi-
ately notified Justice Williams and
Toberoff. In a conference before Jus-
tice Williams, representatives of the
excess carriers declined to recognize
the settlement stipulation since they
had not been aware of the trial, were
not represented at the trial and had
not participated in the stipulation.
The hospital and Citizens offered to
drop the settlement stipulation, to rec~
ommence trial of the claim before either
a judge or a jury, and to permit intro-
duction of the transcript of the medical
and any other testimony from the earlier
proceeding. The carriers of the excess
be.
App. 9
insurance offered to appear if the case
were retried and to recognize any obli-
gation thereon owing to the hospital if
given an opportunity to come in and de-
fend the claim. The Judge, too, urged
the plaintiffs to accept the proposals
of a retrial made by the hospital, Citi-
zens and the excess carriers, to no avail.
Insisting that retrial would
be impractical because no medical experts
were willing to testify, and vowing to
seek damages for fraud, Toberoff orally
and in formal papers demanded that Jus-~
tice Williams finalize the arrangement,
make the requisite compromise order and
direct judgment thereby on the settleuwent
stipulation. After considering the mat~-
ter for over two months, Justice Williams
acceded to plaintiffs' demand for execu-
tion of settlement arranged, with an order
of infant's compromise that does not men~
tion the possibility of a fraud action.
2/ In view of the determination reached
ereafter, it becomes unnecessary to
construe the effect of the judgment ul-
timately directed by Justice Williams.
The parties are in dispute on whether
the Judge's compromise order constituted
a settlement value judgment and inde-
pendent adjudication of the fairness of
the settlement, and an expression on
the best interest of the infant, the
App. 10
The compromise was paid thereunder and
the funds were distributed as ordered
in the judgment. This suit followed.
It went to the jury only as against the
lawyers, Citizens, which was the primary
insurance carrier, and its claims agent.
The jury verdict was for the plaintiffs
in sums stipulated separately as against
each defendant in varying amounts.
The Court finds, as a matter
of law, that plaintiffs' insistence on
proceeding with and thereby obtaining
the execution of the stipulation of set-
tlement with full knowledge of the facts
bars this action.
Under the governing law of
New York, the victim of fraud generally
may, upon learning the truth, affirm
and complete performance of the contract,
retain whatever benefits he has received
thereunder, and maintain an action for
damages. Vail v. Reynolds, 118 N.Y.
validity of which cannot now be ques-
tioned collaterally for error which does
not affect the jurisdiction of the Court
which rendered it. It is a settled prin-
ciple that a valid judgment should not
be subject to a collateral attack.
Crouse v. McVickar, 207 N.Y. 213, 100
N.E. 697 (1912).
App. 11
297, 302-03, 23 N.E. 301, 303 (1890);
Strong v. Strong, 102 N.Y. 69, 73, 5
N.E. 799, 800 (1886); Byrnes v. National
Union Insurance Co., 34 A.D.2d 872, 310
N.Y.S.2d 781 (1970). But see Glatzer v.
Ax, 63 N.¥.S.2d 551 (Sup. Ct. 1946) (al-
ternate ground). If a victim of misrep-
resentation learns the truth when per-
formance of the contract has just begun,
and he could rescind without significant
prejudice, however, he waives the fraud
if he proceeds to execute the agreement.
See A.G. Concrete Breakers, Inc. v. State,
9 A.D.2d 995, 996, 194 N.Y.S.2d 743, 745
(1959) (alternate ground); Kelly v. Otis
Elevator Co., 283 App. Div. 363, 368,
128 N.Y.S.2d 39, 43 (1954), aff'd mem.
308 N.Y. 805, 125 N.E.2d 864 (1955) (dic-
tum); General Valuations Co., Inc. v.
City of Niagra Falls, 253 App. Div. 156,
157-59, 1N.Y.S.2d 880, 882-83, aff'd on
this point mem. 278 N.Y. 273, 15 N.E.2d
802 (1938).
Other jurisdictions take the
same view. See Simon v. Goodyear Metal-
lic Rubber Shoe Co., 105 F. 573 (7th
Cir. 1900); Kingman & Co. v. Stoddard,
85 F. 740 (7th Cir. 1898); Advance Alumi-
App. 12
num Castings Corp. v. Davenport, 224
Ark. 440, 274 S.W.2d 649 (1955); Lewis
v. Carsh, 79 Colo. 51, 244 P. 598 (1926);
Christy v. Heil, 255 Iowa 602, 123 N.W.2d
408, 411 (1963) (dictum); Eckstein v.
Storck, 199 Iowa 1375, 203 N.W. 796,
797-98 (1925); Defiel v. Rosenberg, 144
Minn. 166, 174 N.W. 838 (1919). Were
the rule otherwise, a plaintiff would
be able to recover damages for a self-
inflicted injury, and exchange the right
to rescind for a speculation on a jury's
appraisal of his damages. E.g., Thompson
v. Libby, 36 Minn. 287, 31 N.W. 52 (1666).
Further, it would extend the principle
allowing a victim of fraud to complete
the contract and sue for damages beyond
its original rationale, of assuring that
one who is no longer in a position to
rescind would not be deprived of all
remedy, Gould v. Cayuga County National
Bank, 99 N.Y. 333, 337, 2 N.E. 16, 17
(1885).
In the instant case, plaintiffs
had not significantly changed position
to their prejudice before learning the
truth. No such prejudice can be attrib-
uted to the difficulties asserted by
App. 13
Toberoff with respect to retrying the
malpractice case. There was no impair-
ment of the facts giving rise to claims
of malpractice by the hospital. Under
New York law, plaintiffs were required
to prove malpractice by the hospital in
order to recover for fraud in the induce-
ment of the stipulation of settlement.
Urtz v. New York Central & Hudson River
R.R., 202 N.Y. 170, 175-76, 95 N.E. 711,
712-13 (1911). Thus, retrying the mal-
practice case would have been no more
burdensome than pursuing this action
for fraud. Further, by obtaining a ver-
dict in the present litigation, plain-
tiffs have proved that such a retrial
was indeed practicable.
In reaching this decision,
the Court has carefully considered Judge
Motley's contrary conclusion at an ear-
lier stage of this litigation, Slotkin
v. Brookdale Hospital Center, 357 F.
Supp. 705, 707 (S5.D.M.Y%. 1972). Judge
Motiey did not have the benefit of a
full record, including plaintiffs’ demon-
stration of the practicability of retry-
ing the malpractice claim, when she was
required to render a decision. In any
App. 14
event, the Court is not obliged to ad-
here to another judge's earlier decision
in the same litigation. LeRoy v. Sabena
Belgian World Airlines, 344 F.2d 266,
274 (2d Cir.), cert. denied, 382 U.S.
676, 66 8. Ct. 161, 15 Le. EG. 24 119
(1965) (dictum); Dictograph Products Co.
v. Sonotone Corp., 230 F.2d 131, 134-36
(2d Cir.), petition for cert. dismissed
per stipulation, 352 U.S. 883, 77 S.
Ct. 104, 1 L.Ed.2d 82 (1956) (Learned
Hand, J.). The earlier ruling does not
relieve this Court of the obligation to
present the Court of Appeals with what
it believes to be a correct judgment.
Schmeider v. Hall, 421 F. Supp. 1208,
Aaae fe 6 (S.DN.¥.), O£h'G, 3457.26
768 (2d Cir. 1976), cert. denied, 430
U.S. 955, 97 8. Ct. 1601, 51 L.Ed.24
805 (1977); Rodriguez v. Olaf Pedersen's
Rederi A/S, 387 F. Supp. 754, 757 (E.D.
N.Y. 1974), aff'd, 527 F.2d 1282, (2d
Cir. 1975), cert. denied, 425 U.S. 951,
96 S. Ct. 1726, 48 L.Ed.2d 195 (1976).
Accordingly, defendants are
entitled to judgment. In the alterna-
tive, a new trial is required. The jury
returned separate awards of $20,000 a-
App. 15
gainst McGrath, $60,000 against Ratner,
$100,000 against Berkowitz, and $500,000
against Citizens. The verdict is incor-
rect as a matter of law, for two reasons.
First, separate wrongs resulting in a
single, indivisible injury, as here,
create joint and several liability for
the whole harm. Hill v. Edmonds, 26
A.D.2d 554, 270 N.Y.S.2d 1020 (1966);
Hawkins v. Goll, 256 App. Div. 940, 9
N.Y.S.2d 924, aff'd mem. 281 N.Y. 808,
24 N.E.2d 484 (1939); Insurance Company
of North America v. Lindsey, 83 Misc.2d
495, 498-99, 372 N.Y.S.2d 164, 167 (Sup.
Ct. 1975). Second, the only basis on
which the jury was instructed that it
could hold Citizens liable was a theory
of respondeat superior with respect to
Ratner's liability. There is no justi-
fication for a verdict against Citizens
more than eight times as great as that
against Ratner. This error so clearly
demonstrates that the jury yielded to
its sympathy for a severely crippled
child, and determined to provide for
him without regard for the law, that it
taints not only its findings as to dam-
ages, but its entire verdict.
App. 16
The jury's verdict is set aside,
judgment notwithstanding the verdict is
directed for the defendants, the complaint
is dismissed, and judgment shall be en-
tered in favor of the defendants and
against the plaintiffs, with costs to
be taxes by the Clerk.
SO ORDERED.
App. 17
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
STEVEN JOHN SLOTKIN, an infant
by his mother and natural
guardian, CHARLOTTE SLOTKIN,
and CHARLOTTE SLOTKIN, as Filed Mar.
Executrix of the Estate of 6, 1978
BERT SLOTKIN, deceased
71 Civil
Plaintiffs 4044 (MP)
-against- JUDGMENT
CITIZENS CASUALTY CO., OF
NEW YORK, et al.,
Defendants
The issues in the above enti-
tled action having been brought on regu-
larly for trial, before the Honorable
Milton Pollack, United States District
Judge, and a jury, on September 15, 16,
49, 20, di, 23, 26; 27, 28. 29,.30 Ge
October 3, 4, 5, 6, 7 and 11, 1977, and
at the conclusion of the plaintiffs’
evidence all the defendants having moved
the Court to dismiss the complaint, and
the Court having granted the said motions
to dismiss made on behalf of all defen-
dants except on behalf of defendants
Citizens, Paul Ratner, George Berkowitz
App. 18
Christopher McGrath and John McGrath,
and the jury thereafter having returned
a verdict in favor of the plaintiffs,
as against defendants CITIZENS, PAUL
RATNER, GEORGE BERKOWITZ and CHRISTOPHER
MCGRATH, and in favor of JOHN MCGRATH,
and the said defendants having moved
the Court for judgment notwithstanding
the verdict, and for a directed verdict
in favor of the said defendants, and
the Court thereafter on March i, 1978,
having handed down its opinion setting
aside the jury verdict, and having di-
rected that judgment notwithstanding
the verdict be entered for the defen-
dants dismissing the complaint, it is
ORDERED, ADJUDGED and DECREED:
That defendants CITIZENS CASUALTY CO.
OF NEW YORK, PAUL RATNER, GEORGE BERKOWITZ
and CHRISTOPHER MCGRATH have judgment
against plaintiffs STEVEN JOHN SLOTKIN,
an infant by his mother and natural guard-
CHARLOTTE SLOTKIN, and CHARLOTTE SLOTKIN,
as Executrix of the Estate of Bert Slotkin,
deceased, dismissing the complaint on
the merits, with costs to be taxed, and
it is further,
ORDERED, ADJUDGED and DECREED:
App. i9
That the complaint be and it is hereby
dismissed as to the remaining defendants,
with costs to be taxed.
Dated: New York, New York
March 6, 1978
/s/Raymond F. Burghardt
Clerk
App. 20
Opinion of the United States
Court of Appeals
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
>
No. 353—August Term, 1978.
(Argued January 17, 1979 Decided Aug. 29,1979.)
Docket No. 78-7167
>
STEVEN JOHN SLOTKIN, an infant by his mother and
natural guardian, CHARLOTTE SLOTKIN, and
CHARLOTTE SLOTKIN, as Executrix of the Estate of
BERT SLOTKIN, deceased,
Appellants,
—Yy —
CITIZENS CASUALTY Co. OF NEW YORK, ALLSTATE
INSURANCE CO., AMERICAN MOTORISTS INSURANCE
Co., AMERICAN MUTUAL INSURANCE CO. OF BOSTON,
EMPLOYERS MUTUAL LIABILITY INSURANCE CO. OF
WISCONSIN, GUARANTY REINSURANCE CO., URBAINE
FIRE INSURANCE Co., GRANGE LEAGUE INSURANCE
Co., NATIONAL CASUALTY Co., HARDWARE MUTUAL
CASUALTY CO., ARKWRIGHT-BOSTON MANUFACTURERS
MUTUAL INSURANCE CO., PAUL RATNER, GEORGE
BERKOWITZ, CHRISTOPHER MCGRATH, JR., and JOHN
McGRATH,
Appellees.
App. 2]
Before:
OAKES, GURFEIN, and VAN GRAAFEILAND,
Circuit Judges.
>
In an action for fraud arising out of representa-
tions as to insurance coverage in connection with the
settlement of a medical malpractice case, the United
States District Court for the Southern District of
New York, Milton Pollack, Judge, dismissed the com-
plaint against appellees John McGrath and the rein-
surance companies and granted judgment _not-
withstanding the verdict to the other appellees. Held,
that appellants could maintain their action for fraud
without first rescinding the settlement and thus the
judgment n.o.v. is vacated except as to one individual
defendant; and that the complaint against John
McGrath and the reinsurance companies should not
have been dismissed.
>
THEODORE H. FRIEDMAN, Arum, Freidman
& Katz, New York, N.Y. (Fred R.
Profeta, Jr., Max Toberoff, of coun-
sel), for Appellants.
SEYMOUR LEFKOwITZ, Tell, Cheser, Breitbar
& Lefkowitz, New York, N.Y. (Sol-
omon M. Cheser, of counsel), for Ap-
pellee Berkowitz.
JOSEPH A. BERGADANO, Hart & Hume,
New York, N.Y. (Leslie F. Ruff, of
counsel), for Appellees McGrath.
App. 22
Davip W. SILVERMAN, Granik Silverman
Sandberg & Nowicki, New York,
N.Y., for Appellee Citizens Casualty
Co. of New York.
HowarD R. COHEN, Bower & Gardner,
New York, N.Y., for Appellee Guar-
anty Reinsurance Co.
KENNETH SAGET, D’Amato & Lynch, New
York, N.Y. (John P. Higgins, of coun-
sel), for Appellees Allstate Insurance
Co., Urbaine Fire Insurance Co.,
Arkwright-Boston Manufacturers Mu-
tual Insurance Co., Hardware Mutual
Casualty Co., and National Casualty
Co.
DANIEL H. MAHONEY, New York, N.Y.
(Kathryn D. Nealon, of counsel), for
Appellee American Mutual Insurance
... Co. of Boston.
STUART A. SCHLESINGER, David Jaroslawicz,
Julien, Schlesinger & Finz, P.C., New
York, N.Y., for Appellee Ratner.
>
OAKES, Circuit Judge:
Any personal injuries lawyer knows that the
amount of a defendant’s assets or insurance coverage
is generally a factor to be weighed in evaluating a
case for settlement. The instant diversity action is
one for fraud, or its legal equivalent; but it arises
from a state court malpractice case that the plain-
App. 23
tiffs, a brain-damaged child and his mother,’ settled
on the record after trial commenced for $185,000,
just under the so-called “policy limit.” Slotkin v.
Beth-El Hospital, No. 65-6253 (N.Y. Sup. Ct., Kings
County, June 4, 1971) (order approving settlement of
March 4, 1971). The Hospital defendant and its pri-
mary insurer represented that the policy limit was
$200,000 when in fact there was an additional $1
million in excess coverage. Plaintiffs then brought
this suit in the United States District Court for the
Southern District of New York, Milton Pollack,
Judge, under the court’s diversity jurisdiction. The
jury found certain of the defendant-appellees liable
for misrepresenting the insurance coverage. Those de-
fendant-appellees were Citizens Casualty Co. of New
York (Citizens), the Hospital’s primary insurer, Paul
Ratner, Citizens’ assistant vice president, who was
present at the malpractice trial; Christopher
McGrath, Jr., and John McGrath, partners in the
firm of McGrath, Cohen & McGrath and nominal
trial counsel for the Hospital but actually appearing
for the insurers; and George Berkowitz, a Hospital
trustee and attorney. The complaint against the in-
surance companies that had reinsured Citizens’ cov-
erage were dismissed by Judge Pollack in the federal
trial. The jury awarded damages in the amount of
$680,000, representing the difference between the ac-
tual settlement in the state action and a likely settle-
1 Plaintiffs in the state malpractice action were the infant,
Steven John Slotkin, and his father, Bert Slotkin. Bert Slotkin
having died before the initiation of the fraud action, plaintiffs in
the court below and appellants here are the infant again and
Charlotte Slotkin, his mother, as executrix of the estate of Bert
Slotkin.
App. 24
ment amount had there been no misrepresentation of
the coverage.’
Judge Pollack, however, granted judgment not-
withstanding the verdict to appellees. Appellees had
argued earlier in the proceedings that, as a matter of
law, plaintiffs had waived any claim for fraud by af-
firming the malpractice settlement after discovering
the misrepresentations. Judge Constance Baker Mot-
ley had denied appellees’ motion to dismiss the com-
plaint on this ground, holding that plaintiffs were
entitled under New York law to retain the benefits
of the settlement and nevertheless to proceed with
the fraud action. Slotkin v. Brookdale Hospital
Center, 357 F. Supp. 705 (S.D.N.Y. 1972).
Judge Pollack’s original charge to the jury also
stated that as a matter of law plaintiffs had not
waived their right to sue for fraud. Nevertheless,
subsequent to the verdict he reversed his previous
holding and also ruled contrary to Judge Motley. He
granted judgment to defendants notwithstanding the
verdict on the ground that plaintiffs’ failure to re-
scind the settlement and retry the case in state court
2 The court's charge was in part as follows:
The plaintiffs did not sustain any damages unless they had
a valid malpractice claim against the Brookdale Hospital. |
have already explained to you how to determine whether they
had such a valid claim. You must then determine the actual
pecuniary loss, if any, suffered by the plaintiffs, that is, the
difference between the amount which was actually paid on the
settlement in 1971 and the amount: which would have been
the fair settlement value of the Slotkin case if plaintiffs had
not been deceived.
Assuming the parties meant to avoid further litigation and
to compromise their dispute and that nothing but true facts
were disclosed, how much could plaintiffs reasonably have
demanded and the Brookdale Hospital reasonably have allowed
us a final compromise? That is the fair settlement value.
App. °25
when given the opportunity to do so constituted a
waiver of the fraud action.
We reverse this grant of judgment to appellees
notwithstanding the verdict except as to appellee
Berkowitz. We also reverse the alternative holding
that appellees are entitled to a new trial because the
jury improperly allocated the damage award after it
returned a verdict of liability and in response to a
request of the court for clarification of the verdict.
Additionally, we reverse the lower court’s finding of
insufficient evidence to support the verdict against
defendant John McGrath and its dismissal of the
complaint against the reinsurers of Citizens. Because
such a result does not permit a single appropriate
judgment our mandate is expressed in the alter-
native.
I. THE FACTS
A. Introduction
Appellants here are Steven John Slotkin and his
mother, Charlotte Slotkin. Mrs. Slotkin, a diabetic,
gave birth to Steven at Brookdale Hospital Center,
then Beth-El Hospital, on November 16, 1963.
Steven sustained brain damage at birth which his
doctors diagnosed as congenital cerebral palsy. As a
result of the brain damage, he is paralyzed, confined
to a wheelchair, and will require constant care for
the rest of his life. Plaintiffs claimed, and the jury
in the action below subsequently found, that the Hos-
pital’s failure properly to administer insulin to Mrs.
Slotkin during the period immediately preceding
delivery had caused Steven’s brain damage.
App. 26
The State Court Proceedings
In order to understand the issue of waiver, the
principal issue that all appellees raise, it is necessary
to detail what happened in the state court pro-
ceedings. Appellant Steven and his father, Bert
Slotkin, since deceased, commenced the state court
action against Heth-El Hospital. Citizens had
$200,000 of primary liability insurance coverage but
was undergoing liquidation and rehabilitation by the
State of New York. Ten companies, here called the
reinsurers,’ reinsured $150,000 of this coverage. Sub
scribing underwriters at Lloyd’s of London under-
wrote $1 million worth of excess insurance.
On February 22, 1971, at the jury selection, Chris-
topher McGrath, the attorney for Citizens who was
representing the defendant Hospital, told Max Tob
eroff, plaintiffs’ attorney, that the Hospital had only
$200,000 worth of insurance coverage. McGrath alao
stated that he had not told the Hospital’s own coun-
sel that the case was on trial, and he refused Tob
s Plaintiffs originally filed their complaint against ten rein
surers, They were: Allstate Insurance Co., American Motoriata
Insurance Co., American Mutual Insurance Co. of Boston,
Employers Mutual Liability Insurance Co. of Wisconsin, Guar
anty Keinsurance Co., Urbaine Fire Insurance Co.. Grange
League Insurance Co., National Casualty Co., Hardware Mutual
Insurance Co., and Arkwright-Boston Manufacturers Mutual
Insurance Co. Two of the reinsurers, Employers Mutual Liatality
Insurance Co. of Wisconsin and Grange League Insurance (4
were dismissed in 1977 by stipulation when it was shown that
they had no conceivable connection to this matter Another of
the reinsurers, American Motorists Insurance Co.. was a named
defendant but was apparently never served, and it never ap
peared in the case (although Judge Pollack included it in hia die
missal of all reinsurers). Hereafter, when we refer to “the rein
aurers, we refer only to the seven active participants, 1¢., all
the above named reinsurers except American Motorists Insurance
Co., Employers Mutual Insurance Co. of Wisconsin, and Grange
League Insurance Co
b ee
App. 27
eroff's request that he notify the Hospital's attorney
Toberoff, concerned about the collectibility of plain-
tiffs’ likely judgment, then notified the Hospital ad-
ministrator by telephone, letter, and telegram that
the case was on trial and that the Hospital faced
possible exposure to liability for a verdict in excess
of $1 million. In response to the Administrator's tele-
phone call, appellee George Berkowitz, an attorney
and trustee of the Hospital, appeared at the court
house on behalf of the Hospital. Berkowitz told Tob-
eroff at that time that the insurance coverage was
$200,000. According to Berkowitz» testimony in his
deposition taken shortly before the trial below, he
had learned about the policy limit from Christopher
McGrath, John McGrath, also trial counsel for
Citizens, and Paul Ratner, assistant vice-president
and claims manager of Citizens.
On February 25, 1971, New York State Supreme
Court Justice Oliver D. Williams, the trial judge,
held a conference for the parties. According to Tob-
eroff's testimony in the court below, both Berkowitz
and Christopher McGrath affirmed to the judge that
the total insurance coverage was $200,000, although
as we have noted, Berkowitz stated that the
McGraths and Ratner were the source of his informa-
tion.‘ Toberoff stated that both he and Justice Wil-
i Although Berkowitz insted that the Metiratha and Hatner
told him about the %200,000 “policy limit. Berkowits has not
disputed Toberoffs statement that at thie preliminary conference
Berkowitz represented the coverage to be only $200,000 and
that t» the best of his knowledge there were no other policies
In fact, he has admitted that he did make such @ representation
to Justice Williams, although it m unclear from his depomition
and his crosscomplaint whether he made the statement at the
preliminary conference or the final settlement neyotiations We
note that in a colloquy that took place in Justice Williamea
App. 28
liams found it difficult to believe that the Hospital’s
coverage was 80 low. Despite the very low “policy
limit” and the plaintiffs’ willingness to settle within
the limit, the parties reached no agreement; and the
case went to trial.
The state court trial proceeded to plaintiffs’ ad-
vantage. Dr. Gerald Bernstein, an internist and assis-
tant professor at Albert Einstein College of Medicine
and acknowledged specialist in diabetes, testified that
Mrs. Slotkin’s doctor had ordered fractional urine
specimens to be examined for sugar and acetone
q.i.d. (four times a day); his orders hence required a
test before each meal and at bedtime. Based upon
the results of these tests, insulin should have been
administered as necessary to avoid acetonuria.’ Dr.
chambers at the March 4 conference Christopher McGrath stated
that Berkowitz had told him that the Hospital had no coverage
other than Citizens Casualty. We aiso note that Ratner also
stated on deporition .at he had asked Berkowitz whether there
was any excess insurance above the $50,000 Citizens coverage
(presumably a reference to tne amount for which Citizens would
ultimately be responsible) and tiat Berkowitz had said no. But
nee note 20 infra.
fh The doctor explained, as is well known, that because diabetics
lack the insulin necessary to break down the sugar in their
bodies, their blood sugar (glucose) rises. As a result, there is an
excensive lows of water as the body attempts to expel the extra
suger that the kidneys cannot absorb. Additionally, because
sugar is not reaching the cells, other things, such as fata, begin
t» act as substitutes for the sugar. The liver cannot accommo-
date the extra fats, and they turn into ketone acida, called ace-
tones. When acetone ia produced it will appear in the urine; this
condition is termed acetonuria. If acetonurie in allowed to con-
tinue unchecked the chemistry of the body Lecomee acidic, a con-
dition known as acidosis. This acidosin in sometimes called keto-
acidosis because it consists of acids waich are ketone bodies,
products of fatty-acid catabolism. The result can be fatal and, in
# pregnant woman, fatal or permanently damaging to the fetus.
See Churchill, Berendes & Nemure, Neuropsychological Deficits
in Children of Diabetic Mothers, 106 Am. J. Obet. & Gyn. 257
(Sept.-Dec. 1969). Thus, by measuring the amounts of sugar and
acetone in the urine, « doctor can determine whether a patient
requires insulin at that time.
App. 29
Nicholas Olninc, a neurosurgeon who participated in
a National Institutes of Health study introduced at
the trial, corroborated Dr. Bernstein’s testimony. The
health study demonstrated the relationship between
acetonuria in diabetic mothers and neuropsychological
defects in their “children. See note 5 supra.
The evidence showed that on the morning of Novem-
ber 14, 1963, two days before Steven’s birth, Mrs.
Slotkin had acetonuria. This condition was _ short-
lived; she was given regular insulin and responded
very readily. By that afternoon the condition had
cleared up; her 6:00 p.m. test was also negative.
However, she was not given the remaining q.i.d. test
before bedtime on the 14th. The following morning
she did not feel well; her fractional urine test show-
ed high levels of sugar and acetone, indicating the
condition of acetonuria of s0 much concern. Her own
physician administered insulins and made the follow-
ing note ‘in the hospital record: “Acetonuria noted
this a.m. Probably due to the fact that patient has
not received any insulin for almost 18 hours.” Mrs.
Slotkin responded slowly to the insulin, indicating
that the acetonuria was quite severe and that she
was in a state of acidosis. These episodes were the
only acetonuria she had had during her pregnancy.
Steven was born on November 16 with symptoms
of brain damage; when he was eleven months old
and still not sitting up, his parents took him to Dr.
Leon Greenspan, director of the Children’s Division
at the Institute of Rehabilitation Medicine, also
known as the Rusk Institute. Dr. Greenspan diag-
nosed congenital -brain damage; at trial he cor-
roborated the testimony of Drs. Bernstein’ and Olninc
that the failure to check “Mrs. Slotkin’s urine
App. 30
before bedtime on November 14 and to administer
the needed insulin had resulted in maternal acidosis
which in turn had caused Steven’s brain damage.
C. The Settlement
On March 1, 1971, just shortly before the close of
plaintiffs’ case in the state court and just prior to
the time that plaintiffs settled on the basis of the
representations of insurance coverage of $200,000,
the expert on diabetes for the defense, Dr. Harold
Zarowitz, sent appellee Christopher McGrath a letter
summarizing their telephone conversation of February
27, 1971. This letter substantiated the negligence of
the Hospital and corroborated the opinions of plain-
tiffs’ doctors. The parties held a settlement con-
ference on March 4, 1971, before Justice Williams.
At that conference Christopher McGrath again stated
on the record that the total insurance coverage, in-
cluding reinsurance, was $200,000 and that he knew
that the Hospital did not have additional insurance
with other companies.’
6 The letter reads in part:
In conclusion, it seems apparent that this mother developed
moderately severe ketoacidosis somewhere between the evening
of November 14 and the morning of November 15. This was
due to the fact that an appropriate urine analysis was not
done at 10 P.M. on the evening of November 14 or thereafter,
when acetone in the urine would have been detected. Had this
been done, the administration of insulin as ordered by the
physicians could have averted the acidotic state on the morn-
ing of the 15th. This significant ketoacidosis, in my opinion,
== an adequate cause of brain injury in the premature
newborn.
7 MR. [Christopher] McGRATH: The total coverage is
$200,000, including reinsurance.
MR. TOBEROFF: So far as you are concerned.
MR. McGRATH: Correct.
(footnote continued)
App. 31
The parties drafted a stipulation of settlement that
was read into the record; the settlement provided in
pertinent part:
It is further stipulated and agreed that the
settlement of $185,000 is hereby approved by
the trial judge and that he is to make the alloca-
tion of the said sum of $185,000 after all the
facts and affidavits are submitted to him by
trial counsel as to the allocation of the $185,000
between the plaintiffs Slotkin as to the loss of
services and medical expenses and the balance
paid to the plaintiff.
It is further stipulated that the attorney for
the defendant represents that the total insurance
coverage of the defendant is the sum of
$200,000, under a policy with Citizens Casualty,
and to the best of his knowledge there are no
other policies covering this event.
The settlement in the sum of $185,000 is to
be paid without interest, costs or disbursements.
Mr. TOBEROFF: So stipulated.
Mr. [Christopher] MCGRATH: So stipulated.
MR. BERKOWITZ: So stipulated.
MR. TOBEROFF: You have no knowledge as to whether the
hospital has additional coverage with other companies? You
have no knowledge of that?
MR. McGRATH: I do have knowledge of that. We were the
only company on the line at that time.
Because Mr. McGrath indicated that he knew that there v-as no
other coverage, we construe his statement as being a denial of
excess insurance also.
App. 32
D. Uncovering the Misrepresentation.
Appellees Christopher McGrath and Berkowitz stip-
ulated that to the best of their knowledge there was
only $200,000 worth of coverage. The former,
however, had complete access to documents that
demonstrated otherwise. In the files of Citizens,
there were letters from Robert Gilroy, an attorney
with the firm of Mendes & Mount who represented
the excess insurer, specifically inquiring about the
Slotkin case.* The file with the Gilroy letters, which
I One example of the Gilroy letters is as follows:
MENDES & MOUNT
27 William Street
New York, N.Y. 10005
March 31, 1967
Citizens Casualty Company of New York
33 Maiden Lane
New York, N.Y. 10038
{Attention} Mr. David Quigley, Examiner
Your Ref: 7-8-44085
Claimant: Steven John Slotkin
D/A: November 11, 1963
Our File: 210,609
Dear Mr. Quigley:
We are the attorneys representing the interest of the excess
insurers for Beth El-Brookdale Hospital Center. We have
received various letters sent by you to the assured stating
that the litigation involves an amount in excess of your policy
limits.
We would like to have the opportunity in approximately
two months time to review your file and discuss these claims
with you. We will accordingly be telephoning you in several
weeks to arrange a mutually convenient time for such a
review and discussion.
Very truly yours,
MENDES & MOUNT
By:
ROBERT GILROY
‘ App. 33
clearly indicated that there was excess coverage, was
in the possession of the McGraths’ firm during the
state court trial. Berkowitz, who was a trustee of the
Hospital and vice-chairman of the Legal Committee,
did not speak with anyone in the Hospital ad-
ministration nor check any of the Hospital records to
determine whether they showed any excess insurance
coverage; instead, he stated, he had relied solely
upon the statements of Christopher and John
McGrath, although Christopher McGrath, of course,
maintains that Berkowitz told him what the coverage
was. See note 4 supra. Ratner, who took over the
settlement negotiations on March 4, contends that
the McGraths and Berkowitz had told him that the
coverage was only $200,000. But two of the Gilroy
letters were specifically directed to Ratner’s atten-
tion. Indeed, Ratner had briefly spoken with Gilroy
regarding the Slotkin case before the trial and saw
the letters from Gilroy shortly before the trial.’
A week to ten days after, the parties entered into
the stipulation on the record, Ratner advised
Christopher McGrath, and Christopher McGrath in
) Ratner was apparently in Florida during the trial below, and
his deposition testimony taken in preparation for the trial was
admitted into evidence as requested by plaintiffs’ counsel. In a
May 17, 1972, deposition Ratner stated that at the end of 1968
or sometime in 1969 he became aware that the Hospital had ex-
cess insurance when he “read a file for the first time and saw
one or two letters from Mendes & Mount mentioning excess
insurance.” But, he stated, between the time that he read the
file and the time of the state trial, he had “forgotten” that there
was excess insurance. In an April 9, 1975, deposition Ratner
stated that when he looked at the file shortly before trial, he
noticed the letters from Mendes & Mount but that because the
firm “was the reinsurer and not the excess carrier” in “hun-
dreds” of other cases, he “associated [the firm] with their role as
a reinsurer.” But because the letters themselves explicitly dis-
close the excess insurance, Ratner cannot excuse his representa-
tions on the basis of a failure of memory or mistake.
App. 34
turn advised Justice Williams and Toberoff, that
there was $1 million in excess coverage and that the
representations as to insurance coverage had been
erroneous."® At this point Justice Williams had not
yet signed an order under N.Y. Civ. Prac. Law
§1207 and Rule 1208 (McKinney)"' allocating the
sums paid in settlement. Justice Williams held a con-
ference on March 31, 1971. The judge attempted to
have the excess insurer participate in new settlement
discussions, but it refused to do so because it claimed
10
ll
According to Ratner’s testimony in deposition, two or three
days after the trial ended, Robert Gilroy of Mendes & Mount as
attorney for the excess insurer saw a story in the newspaper
about the settlement and calied Ratner to congratulate him.
Ratner testified that he did not understand the purpose of the
call, 80 he called Gilroy three or four days later to ask why Gil-
roy had called. Gilroy then stated that “[wje had an excess on
it,” and only then according to Ratner did he remember that
there was additional coverage.
§ 1207. Settlement of action or claim by infant or judicially
declared incompetent, by whom motion made; special
proceeding; notice; order of settlement
Upon motion of a guardian of the property or guardian ad
litem of an infant or, if there is no such guardian, then of a
parent having legal custody of an infant, or if there is no
such parent, by another person having legal custody, or if the
infant is married, by an adult spouse residing with the infant,
or of the committee of the property of a person judicially de-
clared to be incompetent, the court may order settlement of
any action commenced by or on behalf of the infant or incom-
petent. If no action has been commenced, a special proceeding
may be commenced upon petition of such a representative for
settlement of any claim by the infant or incompetent in any
court where an action for the amount of the proposed settle-
ment could have been commenced. If no motion term is being
held and there is no justice of the supreme court available in
a county where the action or an action on the claim is triable,
such a motion may be made, or special proceeding may be
commenced, in a county court and the county judge shall act
with the same power as a justice of the supreme court even
though the amount of the settlement may exceed the jurisdic-
tional limits of the county court. Notice of the motion or peti-
tion shall be given as directed by the court. An order on such
a motion shall have the effect of a judgment. Such order, or
the judgment in a special proceeding, shall be entered without
App. 35
that Citizens had not notified it that the case was
going to trial (although it did know that an action
was pending). Attorneys for the »xcess insurer did
. state that it would participate if there were a retrial.
costs and shall approve the fee for the infant's or incompe-
tent’s attorney, if any.
Rule 1208. Settlement procedure; papers; representation
(a) Affidavit of infant's or incompetent’s representative. An
affidavit of the infant's or incompetent's representative shall
be included in the supporting papers and shal! state:
1. his name, residence and relationship to the infant or
incompetent,
2. the name, age and residence of the infant or incompe-
tent,
3. the circumstances giving rise to the action or claim,
4. the nature and extent of the damages sustained by the
infant or incompetent, and if the action or claim is for
° damages for personal injuries to the infant or incompetent,
the name of each physician whe attended or treated the in-
fant or incompetent or who was consulted, the medical ex.-
penses, the period of disability, the amount of wages lost
and the present physical condition of the infant or incompe-
tent;
5. the terms and proposed distribution of the settlement
and his approval of both;
6. the facts surrounding any other motion or petition for
settlement of the same claim, of an action to recover on the
same claim or of the same action;
7. Whether reimbursement for medical or other expenses
4 has been received from any source; and
8. whether the infant's or incompetent’s representative or
any member of the infant's or incompetent's family has
made a claim for damages alleged to have been suffered as
a result of the same occurrence giving rise to the infant's
or incompetent's claim and, if so, the amount paid or to be
paid in settlement of such claim or if such claim has not
been settled the reasons therefor.
(b) Affidavit of attorney. If the infant or incompetent or
his representative is represented by an attorney, an affidavit
. of the attorney shall be included in the supporting papers and
shall state:
1. his reasons for recommending the settlement,
2. that directly or indirectly he has neither become con-
cerned in the settlement at the instance of a party or per-
ee
App. 36
Toberoff insisted that it was inpossible to retry
the case. Mrs. Slotkin, who had testified at trial and
whose testimony was important because it con-
tradicted the hospital record + part, had still not
recovered completely from a heart attack. Her physi-
cian, who examined her shortly after the trial, stated
that she should not be asked to testify again. Addi-
tionally, all of the plaintiffs’ expert witnesses—Dr.
Bernstein, Dr. Greenspan, Dr. Olninc—indicated that
they would not testify again. Toberoff contacted a
number of other doctors, but they also refused to
testify. Moreover, the Slotkins did not have the
funds for a new trial. The cost of the plaintiffs’ case
had been $6,800, and they had borrowed $3,000 to
make partial payment.
Toberoff also rejected the offer to forfeit the plain- _
tiffs’ jury rights and continue the trial before the
judge on the original record. He similarly refused the
offer of a new jury trial that would rely on the
record from the original trial because he believed
sa gon opposing, or with interests adverse to, the infant or in-
competent nor received nor will receive any compensation
from such party, and whether or not he has represented or
now represents any other person asserting a claim arising
from the same occurrence, and
3. the services rendered by him.
(c) Medical or hospital report. If the action or claim is for
damages for personal injuries to the infant or incompetent,
one or more medical or hospital reports, which need not be
verified, shall be included in the supporting papers.
(d) Appearance before court. On the hearing, the moving
party or petitioner, the infant or incompetent, and his attor-
ney shall attend before the court unless attendance is excused
for good cause.
(e) Representation. No attorney having er reprebenting any
interest conflicting witlf that of an infant or incompetent may
represent the infant or incompetent.
(f) Preparation of papers by attorney for adverse party. If
the infant or incompetent is not represented by an attorney
the papers may be eens by the attorney for an adverse
party or person and shall state that fact.
App. 37
that having his clients’ case put to the jury in the
form of a record when the defendants’ case would be
put in on live testimony would disadvantage plain-
tiffs’ case. Therefore, at the insistence of Toberoff
and the plaintiffs, Justice Williams on June 4, 1971,
signed the “infant’s compromise order,” see note 11
supra, approving the settlement. Toberoff’s intention
to sue all parties involved for fraud was well-known
at the time.
E. The Federal Court Suit
Plaintiffs initiated the instant diversity action for
fraud, but prior to trial they voluntarily discontinued
the case against the Hospital; its administrator and
deputy administrator; the excess insurer; its attorney,
Robert Gilroy, and his law firm, Mendes & Mount.
The case went to trial against the other defendants,
who were Citizens, the primary insurer; the rein-
surers; Ratner; Berkowitz; and the McGraths. At the
close of plaintiffs’ case Judge Pollack dismissed the
complaint against the reinsurers. The jury found both
underlying malpractice on the one hand” and fraud
on the other; it rendered a verdict in the total sum
of $680,000, allocating it in accordance with Judge
Pollack’s “supplemental instructions” as follows:
Citizens, $500,000; Berkowitz $100,000; Ratner,
$60,000; Christopher McGrath, $20,000; and John
McGrath, nothing.
12 There is substantial evidence of the medical malpractice. In
addition to the testimony of plaintiffs’ experts, Drs. Bernstein,
Olninc, and Greenspan, in text supra at note 5, there is the let-
ter from defendants’ expert, Dr. Zarowitz, note 6 supra. See also
note 5 supra.
13. In fact there were no real supplementary instructions but
rather colloquy and direction. The entire transcript of what took
place in the jury's presence is as follows:
THE COURT: Madam Forelady, has the jury agreed upon
a verdict? (footnote continued)
App. 38
Subsequent to the verdict Judge Pollack ruled
on a reserved motion and dismissed the complaint
: THE FORELADY: = Yes.
, THE COURT: This says that you have reached a verdict.
You may make inquiries, Mr. Clerk.
. The Clerk will ask you about each name and then you will
. advise what your verdict is.
THE CLERK: What is your verdict as to the defendant
4 Citizens Casualty Company of New York?
THE FORELADY: We have decided against.
THE COURT: Is that your whole verdict?
THE FORELADY: Yes.
THE COURT: Is there any amount of verdict against
them?
You decided against them, did you say?
THE FORELADY: Yes.
THE COURT: In what amount, if any?
THE FORELADY: We have an amount for all.
THE COURT: What is the amount that the jury has
found? In other words, you have found the same amount
against all defendants?
. THE FORELADY: A total of $680,000 total against all of
them.
THE COURT: Your verdict against the Citizens Casualty is
what?
THE FORELADY: We didn't break it down, your Honor.
THE COURT: Has the jury found that each of the defen-
dants is liable for the $680,000? Is that what you are saying?
THE FORELADY: Yes, your Honor.
THE COURT: In other words, as to the defendant Citizens
4 Casualty, Paul Ratner, Chris McGrath, John McGrath and
re George Berkowitz, your verdict is $680,000?
THE FORELADY: Yes, your Honor.
THE COURT: Poll the jury.
(Jury roll called—all present.)
THE CLERK: You say that you find in favor of the plain-
tiff Steven John Slotkin as against the defendant Citizens
Casualty Company of New York, Paul Ratner, Christopher
McGrath, John McGrath and George Berkowitz in the sum of
$680,000.
JUROR NUMBER TWO: Combined.
THE COURT: When you say total combined, let me under-
stand that. You have reached ‘one verdict?
JUROR NUMBER FOUR: One verdict, one total against
all combined. I hope it wasn't misunderstood that it was
against each one.
THE FORELADY: A total.
THE COURT: The way the verdict stands now, it is a ver-
dict against each one for $680,000. (footnote continued)
ea |
App. 39
against John McGrath.'* He also granted to all ap-
pellees judgment notwithstanding the verdict, relying
14
THE FORELADY: No, all told.
THE COURT: The only collectibility will be a total of
$680,000.
Is that what you are saying?
THE FORELADY: Yen.
THE COURT: That means that each one is held individv-
ally—
JUROR NUMBER TWO: A fraction of.
JUROR NUMBER FOUR: A portion of, pro rated.
THE COURT: If it is @ pro rated verdict, that is one
thing. On the other hand, if you intend a proportionate ver-
dict only, that is, for each one in a particular amount that’s a
different thing. So, I have to send you back for you to decide
what verdict you wish to render. The defendants are sued in-
dividually, and although you say there is only one total recov-
ery, if you have all indicated the amount among them, that’s
one kind of a verdict.
If you have not allocated the verdict among them, any one
is responsible for the whole $680,000.
So, you better go out and decide what it i# that you are
trying to call to our attention.
Will the jurors go back for a moment while | talk to coun-
sel, to be sure I have a correct understanding of what it is
Juror Number Four, I think it was, tried to convey to me.
THE COURT: Bring in the jury.
(Jury present.)
THE CLERK: Madam Forelady, has the jury agreed upon
a verdict?
THE FORELADY: Yes, we have.
THE COURT: Read the verdict.
THE CLERK: (Reading) We have a verdict in favor of the
plaintiff for $680,000 to be apportioned in this manner: Citi-
zens Casualty $500,000, Mr. Berkowitz $100,000, Mr. Ratner
$60,000, Chris McGrath $20,000, John McGrath nothing.
Signed Anna D. O'Shea, Forelady.
THE COURT: Poll the jury.
(Each juror, upon being asked by the Clerk “Is that your
verdict?”, answered in the affirmative.)
THE COURT: All right, ladies and gentlemen, that com-
pletes your service in this case. Thank you very much for
a and the time that you spent. You are now ex-
(Jury discharged.)
The ground for dismissal ia not readily discernible although it
appears to be that the jury did not find John McGrath liable.
(footnote continued)
App. 40
on one proposition and one fact. The proposition was
that, because the case concerned a minor, “the settle-
ment stipulation was unenforceable unless it was fol-
lowed by a judicial order finalizing the arrangement,
providing for the distribution of the settlement fund
and terminating suit.” Slothkin v. Citizens Casualty
Co. of New York, 447 F. Supp. 253, 255-56
(S.D.N.Y. 1978). The fact upon which Judge Pollack
relied was that plaintiffs had learned of the excess
insurance before that final order was made and judg-
ment entered so that their “insistence on proceeding
with and thereby obtaining the execution of the
stipulation of settlement .. . bars this action.” Jd. at
256. Judge Pollack reasoned that “[ijn the instant
case, plaintiffs had not significantly changed position
to their prejudice before learning the truth.” Jd. at
257. He first noted that there was “no impairment
of the facts giving rise to claims of malpractice by
After the jury rendered ite allocated verdict, counsel for the
McGraths began to make a motion as to “George McGrath.” The
court interrupted, saying that there was no verdict against John
McGrath Counsel quickly agreed, stating that zero damages was
really « verdict in John McGrath's favor. The court did not die
agree and immediately dismissed the complaint as to him
Piaintiffa’ attorney excepted to the dismiasal on the ground
that the jury's verdict of lability, before it apportioned damages,
was # verdict against all the defendants, including John
MeGrath The court responded that “there was no competent evi-
dence within the burden of proof obligatory in a fraud case” of
any intent on his part to deceive nor gross negligence or pre
tense of knowledge Plaintiffs’ attorney began to catalogue the
evidence againat John McGrath to show that it was sufficient
“to raime a triable issue of fact.” The court, however, countered
that “lajny verdict against John McGrath would have heen
clearly againat the weight of the credible evidence and would
have been clearly set aside on that ground as well as the ground
already mentioned.” By this last ground the judge further die
cloned his belief that the jury's failure to allocate any damages
to John MeGrath was in effect a finding of no liability, we note
that he stated that a verdict against John McGrath “would have
heen wet aside”
App. 4]
the hospital”; he then noted that because the plain
tiffs had to prove the underlying malpractice even in
the fraud action,’’ retrying the malpractice cane
would have been no more burdensome than pursuing
the action for fraud. Jd. He held that by obtaming a
verdict in the present litigation “plaintiffs have
proved that such a retrial was indeed practicable.”
Id.
I]. Discussion
A. Judgment Notwithstanding the Verdict
Initially, we note that Judge Pollack had the
power to rule as he did on the waiver point, even
though Judge Motley (and he) had held otherwise
previously. It is well established that “the law of the
case” does not constitute a limitation on the court's
power but merely expresses the general practice of
refusing to reopen what has been decided. Dictograph
Products Co. v. Sonotone Corp., 230 F.2d 1341,
134-36 (2d Cir.), petition for cert. diamissed per stip-
ulation, 352 U.S. 883 (1956). See alao Messenger v.
Anderson, 225 U.S. 436, 444 (1912), LeRoy vu.
Sabena Belgian World Airlines, 344 F.2d 266, 274
(2d Cir.), cert. denied, 382 U.S. 87% (1965).
As a matter of law, however, we agree with Judge
Motley’s ruling. As she said, it was the settlement
stipulation entered into before the plaintiffs knew of
the excess coverage that was the contract induced by
appellees’ misrepresentations; and as a result of the
15 Appellants do not contest Judge Pollack's ruling that they had
to prove in the federal trial that they had # valid malpractice
clairh in the state court, a ruling based on Urtz v New York
Central & Hudaon River RAR Co, 202 NY. 170, 176-76, 06
N_E. 711, 712-13 (1911).
App. 42
stipulation plaintiffs terminated the state court jury
trial without a verdict. 357 F. Supp. at 707. The law
of New York is clear that one who has been induced
by fraudulent misrepresentation to settle a claim may
recover damages without rescinding the settlement.
Strong v. Strong, 102 N.Y. 69, 73, 5 N.E. 799, 800
(1886); Byrnes v. National Union Insurance Co., 34
A.D.2d 872, 310 N.Y.S.2d 781 (1970); Inman v. Mer-
chants Mutual Casualty Co., 274 A.D. 320, 323-24,
83 N.Y.S.2d 801, 804 (1948)."*
Even if the underlying premises of this New York
rule allowing rescission on the one hand or ratifica-
tion and suit for damages on the other were un-
sound, we would of course nevertheless be bound by
that rule. The premises for the rule, however, are
quite sound. If all that will result from a mis-
representation is a new trial, then the party making
it has everything to gain and nothing to lose. The
plaintiffs would be placed at a disadvantage by a
new trial; the defendants would not. If anything, de-
fendants would benefit by having a preview of plain-
tiffs’ case. As McCormick notes in the case of willful
fraud:
[Ijf the defendant by willful falsehood has coz-
ened the plaintiff into risking his property upon
a bargain, which, upon the information given by
the defendant, would have been profitable, a
remedy which merely seeks to place the plaintiff
16 ~=§See alao Automobile Underwriters v. Rich, 222 Ind. 384, 53
N.E.2d 775 (1944), Southern Ry. Co. v, Jaynes, 86 Ind. App.
461, 140 N.E. 666, 668 (1923); Ware v. State Farm Mut. Auto.
Ins. Co., 161 Kan, 201, 311 P.2d 316, 320-21 (1967); Minazek v.
Libera, 63 Minn. 288, 86 N.W. 100, 101-02 (1901); Brown v.
Ocean Accident & Guar. Corp., 168 Wis, 196, 140 N.W. 1112,
1114-15 (1913).
App. 43
back in the position he was in before seems
hardly adequate. The plaintiff might well be
given the value of the expected bargain. A will-
ful fraud should cost as much as a broken prom-
ise. If the cheat can anticipate that the worst
that can happen is that he shall be called upon
to pay back his profit upon the trade, he may be
encouraged to defraud."
C. McCormick, Handbook on the Law of Damages
§ 121, at 453 (1935). Thus the New York rule serves
to deter fraud. Moreover, the rule does not present a
problem of double recovery. In this case, for ex-
ample, Judge Pollack appropriately instructed the
jury that in fixing damages it should deduct from
the “fair settlement value” the $185,000 received
under the settlement. See note 2 supra.
Judge Pollack considered that the settlement was
“inchoate” until the judicial order finalizing the ar-
rangement was made. He relied heavily on this char-
acterization in determining that defendants’ misrepre-
sentations had not prejudiced plaintiffs. But even if
the March 4, 1971, stipulation of settlement was
technically “inchoate,”"* it was treated as final at the
time; and plaintiffs reasonably relied upon defen-
dants’ representations in agreeing to the settlement
17 The fraud here was a statement that the defendants knew
that there was no additional insurance when, in fact, they did
not know that.
18 The court below used both the words “inchoate” and “unen-
forceable.” And, technically, before judicial approval the settle-
ment was both. But the characterizations are relevant only from
the standpoint of determining the defendants’ obligations under
the applicable state law. They do not go to the question of plain-
tiffs’ detrimental reliance which occurred on settlement and dis-
miseal of the jury and not on the court's approval of ‘the settle-
ment.
App. 44
and allowing the judge to dismiss the jury. Thus al-
though it is true that plaintiffs could have avoided
going through with the settlement, this does not di-
minish the prejudice that they had already suffered
by irrevocably changing their position.
In holding that plaintiffs had waived their vight to
sue by not rescinding the settlement, Judge Pollack
relied upon a series of commercial cases which he
cited for the proposition that “{i]f a victim of misrep-
resentation learns the truth when performance of a
contract has just begun, and he could rescind without
significant prejudice, . . . he waives the fraud if he
proceeds to execute the agreement.” 447 F. Supp. at
256, citing, eg., A.G. Concrete Breakers, Inc. v.
State, 9 A.D.2d 995, 996, 194 N.Y.S.2d 743, 745
(1959) (alternative ground); Kelly v. Otis Elevator
Co., 283 A.D. 363, 368, 128 N.Y.S.2d 39, 43 (1954)
(dictum), aff'd mem., 308 N.Y. 805, 125 N.E.2d 864
(1955). This rule prevents a, plaintiff from recovering
damages for “self inflicted” injury. See, e.g., Thomp-
son v. Libby, 36 Minn. 287, 31 N.W. 52, 53 (1886).
But these cases are distinguishable because they all
involve an exchange of money or value for goods or
services after the defrauded party has learned of the
fraud and when he has not incurred any damages at
the time that he has the opportunity to rescind.
Involved here, however, is the release or settle-
ment of an underlying personal injury claim where,
in contrast to the commercial cases, the plaintiffs
had already been injured by the dismissal of the jury
before they discovered the fraud. Plaintiffs here
never had the opportunity to avoid any injury. Plain-
tiffs were already injured, and their only choices
were to accept the settlement and sue for fraud or to
App. 45
retry the malpractice case with all that retrial in-
volved in terms of obtaining witnesses and the like.
Given these choices, their decision to proceed by way
of the fraud action was understandable, as we
discuss below.
The true measure of damages was as Judge Pol-
lack charged initially: the difference in settlement
value before and after discovery of the fraud, note 2
supra. We note that there is no problem here of
plaintiffs’ failure to mitigate damages by this suit
rather than electing to retry the malpractice action.
It is true that on retrial the exposure of appellees
would have been less because the excess insurer
would have been in the case. Nevertheless, plaintiffs
were not obliged to incur the risks that retrial would
have presented. At retrial, so far as then appeared,
plaintiffs would stand a chance of receiving a verdict
smaller than the original settlement amount or pos-
sibly losing everything in a verdict for the defen-
dants. This risk was additional prejudice to them if
they proceeded by retrial because they had already
eliminated this risk from the first trial by settling.
Having passed the point in the first trial where they
could have received nothing or less than $185,000,
they should not be required to face this risk again in
a second malpractice trial. The law of damages is
clear:
If the effort, risk, sacrifice, or expense which
the person wronged must incur in order to avoid
or minimize a loss or injury is such that under
all the circumstances a reasonable man might
well decline to incur it, a failure to do so im-
poses no disability against recovering full
damages.
C. McCormick, supra, § 35.
App. 46
Of course by hindsight it may appear that the risk
of a defendant’s verdict was minimal, but that is by
hindsight only. At the time that plaintiffs had to
make their election there was a definite possibility
that no live medical evidence could be had for a re-
trial.
We stress again that it was appellees who commit-
ted the fraud, that plaintiffs did significantly change
position by allowing the judge to dismiss the jury be-
fore learning the truth, and that obtaining a verdict
in the present litigation under more favorable cir-
cumstances does not at all show that a retrial in the
state court would not have resulted in still further
injury to plaintiffs..° Thus Judge Pollack was in er-
ror in granting judgment notwithstanding the verdict
on the ground that plaintiffs had not significantly
changed their position before learning the truth.
19 We note that according to the expert testimony of former
Justice Bernard Meyer (now Judge of the Court of Appeals) and
Justice Frank B. McCullough, both retired from the New York
Supreme Court, under New York law doctors could not be forced
to provide live opinion testimony in state court. Thus in a retrial
of the malpractice action in the state court, plaintiffs would
have been unable to obtain the oral testimony of their key wit-
nesses after they refused to testify voluntarily. This is true even
though under federal law one can compel expert testimony by
subpoena. Indeed, although Drs. Bernstein and Greenspan agreed
to testify voluntarily in the federal fraud action, they did so
only after being told that if they refused they would be sub-
poenaed. (Dr. Olninc was unavailable by reason of a failure of
memory with age, and his testimony from the state court trial
was read into the federal record.) Thus one cannot equate suc-
cess in the 1977 federal fraud action with a lack of detriment
and damage in the 1971 state malpractice action as Judge Pol-
lack did. Slotkin v. Citizens Casualty Co. of New York, 447 F.
Supp. 253, 257 (S.D.N.Y. 1978).
Moreover, even without regard to the difference between the
state and federal procedure, Judge Pollack’s position proves too
much. By proceeding with the fraud action, plaintiffs did not
eliminate the prejudice that they had suffered. When the defen-
dants’ conduct put plaintiffs in a disadvantageous position, plain-
App. 47
B. The Liability of the Parties
Because we believe that the jury could properly
have found, as it did under appropriate instructions,
infra note 19, that fraudulent misrepresentations
made to plaintiffs amounted to legal fraud, and that
they did not waive their right to sue for the injury
that they suffered as a result of those representa-
tions, we address the remaining principal question on
appeal of who was responsible and who is therefore
liable.
1. Christopher McGrath
We believe that the jury could properly find that
Christopher McGrath’s conduct rendered him liable
under New York law as charged. McGrath was in
charge of the settlement negotiations until Ratner
took over; all the while McGrath’s position of
authority heightened the impact of his representa-
tions as to the insurance coverage. McGrath stip-
ulated that “to the best of his knowledge” there was
only $200,000 worth of coverage in spite of the in-
formation in the documents in his possession. See
note 8 supra. McGrath’s insistence that the policy
limit was $200,000, see note 7 supra, renders him
liable under the New York definition of scienter as
“a reckless indifference to error,” “a pretense of exact
tiffs were injured; they did not stop being injured just because
they were able to overcome the injury. Under Judge Pollack’s
view, the victim of fraud would never be able to recover his
damages by electing to affirm the settlement and sue for dam-
ages in deceit: no matter what the prejudice, his success in prov-
ing the underlying cause of action would demonstrate the
absence of prejudice in proceeding by retrial. Because New York
law allows the fraud victim to proceed by affirmance and an
action for deceit, we cannot subscribe to Judge Pollack’s view of
the relationship between the two causes of action.
App. 48
knowledge,” or “an assertion of a false material fact
‘susceptible of accurate knowledge’ but stated to be
true on the personal knowledge of the representer.”
See Burgundy Basin Inn v. Watkins Glen Grand
Prix, 51 A.D.2d 140, 379 N.Y.S.2d 873, 879 (1976),
and cases cited. This, of course, attunes with the
classic formulation of Judge Cardozo in the touch-
stone case of Ultramares Corp. v. Touche, Niven &
Co., 255 N.Y. 170, 174 N.E. 441, 449-50 (1931).”
2. Paul Ratner
Ratner took over the settlement negotiations on
March 4; and again, his position of authority in and
of itself made his misstatements more egregious. Rat-
ner contends that the McGraths and Berkowitz” told
him that the coverage was only $200,000; but again,
the documents are evidence against him. See note 9
20 + The trial court’s instructions quite accurately presented to the
jury these alternative bases for a finding of fraud. The court
charged that the jury must find scienter and that
a person makes a misrepresentation with scienter, meaning
knowingly, if he knows that the representation is false, or he
neither knows nor cares whether it is true or false, or if he
has no genuine belief that it is true. If a speaker actually be-
lieves that what he says is true, then he does not act with
scienter, even though that belief is negligent, in that a reason-
able man would not believe it.
There is one exception to what I have just told you. If you
find that the defendant whom you are considering intended
that it should be understood that what he said ieee the hos-
pital’s insurance was trve to his personal knowledge and in-
tended that the plaintiffs should act on the basis of what he
said, then you should find that said defendant acted with sci-
enter if he didn’t know what he [said] was true. To this ex-
tent, a person who asserts a falsehood as true to his personal
knowledge may be said to have acted with scienter, that is,
knowingly, even though he believes what he says to be true.
un
21 We note that Ratner did not speak with Berkowitz until after
the McGraths had informed Berkowitz about the policy limit.
App. 49
supra. The letters then in his possession explicitly
disclose the excess insurance; and there was ample
evidence, to permit the jury to reject any defense of
failure of memory or simple mistake on his part,
note 10 supra, and, as in the case of Christopher
McGrath, to find scienter under Burgundy Basin and
Ultramares, supra.
3. George Berkowitz
The jury’s finding as to Berkowitz is more troub-
ling. Berkowitz did not speak with anyone in the
Hospital administration nor check any of the
Hospital records to determine the insurance coverage,
instead relying solely upon the statements of Chris-
topher and John McGrath. We could easily hold that
Berkowitz was negligent, perhaps even grossly negli-
gent, in so failing to check or in so relying; but
there is, we think, insufficient evidence to permit a
jury to find recklessness or a representation “stated
to be true on the personal knowledge of the repre-
senter.”
Indeed, we note that plaintiffs in fact did not
premise their action against Berkowitz on the theory
that he had intentionally or even recklessly misrep-
resented the amount of the insurance coverage. Both
Charlotte Slotkin and Toberoff testified that they did
not believe that Berkowitz had lied. Rather, Mrs.
Slotkin stated that “he just didn’t know any better
about any of the insurance companies”; and Toberoff
stated that “it was my impression that George
Berkowitz may have been guilty of a fraudulent
representation in that he was grossly careless.” Fur-
thermore, plaintiffs do not make a claim against
Berkowitz for a representation of absolute knowledge.
App. 50
Their reference to the record discloses, insofar as
Berkowitz is concerned, only the testimony on deposi-
tion by Berkowitz that he told Toberoff after con-
versing with the McGraths that he “was informed
that there was $200,000 insurance.”
Finally, we note that Berkowitz not only had no
motive to conceal the excess insurance; but rather, to
protect the Hospital, he had every reason to seek to
tap whatever insurance coverage there might have
been. His unawareness of the excess insurance is evi-
dent in his statement to Justice Williams that be-
cause he believed that the Hospital itself would be li-
able above the $200,000 limit, he wanted the record
to reflect bad faith on the part of the insurance car-
rier if it failed to settle the case within the $200,000
limit. The district court itself noted the “extraor-
dinarily thin reed on which it is suggested that there
may be a claim against” Berkowitz, and we hold that
the court did not err in recognizing this lack of evi-
dence in granting Berkowitz’s motion for judgment
notwithstanding the verdict. —
4. Dismissal of John McGrath
The court should not, however, have dismissed the
complaint as to John McGrath.” Although he may
have been only minimally at fault, there was suffi-
cient evidence for the case against him to go to the
jury; and the jury found him liable (even though in
subsequently apportioning the damages it allocated
none to him). As to John McGrath the verdict was
not against the weight of credible evidence. There
was evidence that John McGrath gave the ap-
22 See note 14 supra.
App. 5l
pearance of personal knowledge when he specifically
ratified his brother’s misrepresentation: “What Chris
told you is true .... All the coverage there is on
the case is $200,000 ... . That’s it. How many
times do you want to hear it?” Berkowitz stated that
John McGrath was one of his sources of information
about the insurance coverage. There was evidence
that John McGrath participated in the drafting of
the March 4 stipulation which contained explicit rep-
resentations as to the coverage limit. Moreover, the
letters from the excess insurer’s counsel were in his
firm’s file. We note that on the basis of this evi-
dence, Judge Pollack reversed his earlier ruling
granting John McGrath’s motion for dismissal. On
the renewed motion at the close of all the evidence,
Judge Pollack recognized that it would be best to get
the jury’s verdict on the fact questions. The evidence
supports the verdict that the jury rendered, and it is
in accordance with New York law under Burgundy
Basin and Ultramares, supra.
Finally, even though the case was not tried on a
partnership theory, as a matter of law John McGrath
was liable for his partner’s tort. N.Y. Partnership
Law §§24, 26 (McKinney); Caplan v. Caplan, 268
N.Y. 445, 448, 198 N.E. 23, 24 (1935); see also
Pedersen v. Manitowoc Co., 25 N.Y.2d 412, 419, 255
N.E.2d 146, 150, 306 N.Y.S.2d 903, 909 (1969) (joint
venture).
5. Dismissal of the Reinsurers
The reinsurers were closely involved in all the
transactions leading up to the settlement. They had
written notice of the state court trial, and they had
an absolute right to all information concerning any
App. 52
matter affecting their coverage. Moreover, their con-
sent was needed for any settlement within the rein-
sured range, i.e., over $50,000. There was abundant
evidence, including Ratner’s own testimony, that
throughout the trial Ratner communicated with each
of them either directly or through his subordinate.
Ratner told Toberoff that he had to telephone the re-
insurers as soon as the settlement talk crossed the
$50,000 line. Indeed, Toberoff provided Ratner with
a copy of the National Institutes of Health study bet-
ter to enable Ratner to persuade the reinsurers to
settle. Ratner testified that he contacted each of the
reinsurers to obtain their final consent to the
$185,000 settlement. And according to Toberoff’s tes-
timony in the court below, Berkowitz told him at the
time of the settlement negotiations that Ratner was
talking to the reinsurers; Christopher McGrath con-
firmed that Ratner told him that he, Ratner, had ob-
tained the reinsurers’ consent to the settlement.
For the reinsurers to be liable for misrepresenta-
tion, plaintiffs needed to prove that Ratner was act-
ing as their agent or representative when he mis-
represented the amount of coverage. A crucial point
to remember is that although the reinsurers’ consent
was required for any settlement above $50,000, they
did not have an employee present at the trial.
Because a settlement stipulation was agreed upon,
one can infer that the reinsurers’ consent to the
settlement was obtained through some intermediary,
some agent. The reinsurers contend that Ratner’s
testimony was inadmissible against them to prove
agency and thus that there was a complete absence
of probative evidence of an agency relationship.
“?
App. 53
In dismissing the complaint against the reinsurers,
Judge Pollack relied on the rule of law that he para-
phrased as “fajcts and declarations of a _ person
assuming to be the representative of another are not
competent to prove the agency.” Campare Restate-
ment (Second) of Agency § 2@5 (1958). That rule,
however, does not deal with testimony by an agent.
See id. comment a. As there stated, “[a] person can
properly testify as to the facts which it is alleged
constitute his authority, and his testimony can be in-
troduced either by or against the alleged principal.”
See F. Mechem, Outlines of the Law of Agency § 95
(P. Mechem ed. 1952). See also Steuerwald v.
Jackson, 123 A.D. 569, 108 N.Y.S. 41 (1908); Boston
Old Colony Insurance Co. v. Trivedi, 93 Misc. 2d
566, 403 N.Y.S.2d 169 (1978). Thus Ratner’s testi-
mony was admissible on the issue of agency. The
reinsurers themselves concede in their brief that
“(t]he deposition testimony of Mr. Ratner . . . is not
prohibited by the rule regarding the out of court acts
and declarations of a purported agent.” Rather, their
argument is that Ratner’s statements do not prove
the existence of agency. We agree with plaintiffs
that their burden of proof to avoid dismissal of the
complaint was not to prove the agency but merely to
adduce sufficient evidence to take the issue to the
jury. The jury should have been allowed to resolve
the fact questions, as is its province.
This is not to say that Ratner’s misrepresentations
as to excess coverage were within the scope of his
agency. This too is a question of fact that the fact-
finder must decide. The rule in this regard is that
“{ijf the statement is one which, if true, the agent
would be authorized or apparently authorized to
make, the principal is subject to liability for it,
App. 54
although deceitfully made.” Restatement (Second) of
Agency, supra, §257, comment a.” We note, how-
ever, that the jury’s verdict indicates a finding that
Ratner’s comments were made within the scope of
his agency with Citizens. We believe that there is
also sufficient evidence for a jury to conclude that if
Ratner was acting as agent for the reinsurers, his
comments were similarly within the scope of his
agency. The evidence could support a finding that
Ratner’s agency relationship with Citizens and with
the reinsurers was the same; if so we can see no dif-
ference in the fact of liability of the two as prin-
cipals.
We note further on the issue of the sufficiency of
the evidence that on the basis of Ratner’s declara-
tions, we must reject the reinsurers’ contention that
the Restatement rule prohibiting out of court declara-
tions renders “inadmissible and _ substantively in-
competent” on the issue of agency the testimony of
Toberoff, Berkowitz, and Christopher McGrath. Sec-
tion 285 provides that:
Evidence of a statement by an agent concerning
the existence of extent of his authority is not
admissible against the principal to prove its ex-
istence or extent, unless it appears by other
evidence that the making of such statement was
within the authority of the agent or, as to per-
sons dealing with the agent, within the apparent
authority or other power of the agent.
23 See also Johns Hopkins Univ. v. Hutton, 422 F.2d 1124, 1130
(4th Cir. 1970), cert. denied, 416 U.S. 916 (1974); Jerger v.
Rubin, 106 Ariz. 114, 471 P.2d 726, 731 (1970).
App. 55
Thus if the jury finds that Ratner’s declarations
establish the agency and the scope of his authority
as encompassing his statements, then it may properly
consider the testimony of others as well. Thus on the
basis of all of the testimony, there was sufficient
evidence of an agency relationship to send the case
against the reinsurers to the jury.
C. Allocation of Damages
Appellees argue that in any event a new trial is
called for because of the jury’s allocation of damages.
The jury first brought in a verdict of $680,000 “total
against all of them.” See note 13 supra. In response
to a question by the court, “Has the jury found that
each of the defendants is liable for the $680,000?,”
the forelady said, “Yes, Your Honor.” At this point,
the court raised the spectre of multiple liability
against the defendants in the amount of $680,000
each and sent the jury out to determine whether it
wanted to allocate the verdict. Jd. The jury returned
the second time with the allocated verdict as noted
above.
Judge Pollack’s subsequent comments and actions
amounted to an instruction to the jury to determine
contribution rights under Dole v. Dow Chemical Co.,
30 N.Y.2d 143, 282 N.E.2d 288, 331 N.Y.S.2d 382
(1972), something that has no bearing upon the joint
and several liability to the plaintiffs of the defen-
dants found liable. Kelly v. Long Island Lighting Co.,
31 N.Y.2d 25, 286 N.E.2d 241, 334 N.Y.S.2d 851
(1972). In his written opinion, Judge Pollack cor-
rectly concluded that although the allocated verdict
was in accordance with his instruction, it was erro-
App. 56
neous as a matter of law because liability for the
whole harm was joint and several. 447 F. Supp. at
257-58."
Thus the crucial question is whether the subse-
quent submission to the jury can be treated as void,
allowing plaintiffs to reinstate the $680,000 verdict.
We find that under Klepper v. Seymour House Corp.,
246 N.Y. 85, 98-99, 158 N.E. 29, 34 (1927), the jury
properly found a general verdict in accordance with
the law; their subsequent action of allocation under
direction of the court is surplusage which may be
disregarded. See also Dextone Co. v. Building Trades
Council, 60 F.2d 47, 49 (2d Cir. 1932) (where jury
verdict, which attempted to apportion damages, had
found both liability and amount of plaintiffs loss,
form of verdict may be disregarded); Gleich v. Volpe,
32 N.Y.2d 517, 523-24, 300 N.E.2d 148, 151-52, 346
N.Y.S.2d 806, 811 (1953) (trial judge properly
disregarded jury’s attempt to apportion damages be-
tween defendants and entered judgment against both
defendants for full amount awarded plaintiffs). We
hold that the $680,000 verdict against Citizens,
Ratner, and both McGraths, jointly and severally,
may be reinstated.
Because we have also held that the court below
should not have dismissed the complaint against the
reinsurers, plaintiffs have an option: they may either
reinstate the verdict and judgment of $680,000
24 The parties alluded at trial to a stipulation among the defen-
dants to try the “cross claims” to the court in a nonjury trial if
the jury found liability. Why this was abandoned in favor of a
resubmission to the jury after the basic verdict—if that is what
occurred—does not appear in the record on appeal, which does
not contain the stipulation. How to proceed on the cross claims
for contribution, indemnification, and the like is, of course, a
matter for the district court on remand.
App. 57
against Citizens and the three individuals, or they
may retry the case ab initio against all appellees ex-
cept George Berkowitz on both liability and damages.
They may not do both. If plaintiffs elect reinstate-
ment of the verdict already rendered, the case will
be remanded for a separate trial before Judge
Pollack on the cross claims for contribution and ap-
portionment among the appellees (again except
George Berkowitz) as per their stipulation, note 24
supra.
Judgment in accordance with opinion.
>
VAN GRAAFEILAND, Circuit Judge, dissenting:
In February 1971, a medical malpractice action
against Brookdale Hospital was reached for trial in
New York State Supreme Court. The suit had been
brought on behalf of Steven Slotkin, an infant, who
allegedly sustained permanent brain damage at the
time of his birth because of the improperly con-
trolled toxemia of his diabetic mother.
The hospital had $1,200,000 of liability insurance,
$200,000 of primary coverage written by Citizens
Casualty Co. and a $1,000,000 umbrella policy writ-
ten by Lloyds of London. The hospital’s attorneys
had nothing to gain by hiding from plaintiffs the ex-
istence of the umbrella policy. The insurance was
there to be used; that is why the hospital purchased
it.' If the attorneys fraudulently concealed its ex-
1 Ratner and appellee carriers likewise had little if anything to
gain by concealing the existence of the umbrella policy. The
maximum exposure of Citizens Casualty Co., Ratner’s employer,
was $50,000, all of which was on the table when the several set-
tlement offers were made. Fraudulent settlement for $185,000
App. 58
istence, they exposed themselves to personal liability
which might not be covered by their own malpractice
policy.2, They would be liable to the plaintiffs and
would also be required to indemnify all of the hos-
pital’s carriers held derivatively liable because of
their wrongdoing. Oceanic Steam Navigation Co. v.
Compania Transatlantica Espanola, 134 N.Y. 461,
467 (1892); Opper v. Tripp Lake Estates, Inc., 274
App. Div. 422, 423-24 (1948), affd, 300 N.Y. 572
(1949); 42 C.J.S. Indemnity §21 at 597-98.
Notwithstanding the foregoing, the existence of
the Lloyds policy was not disclosed, and, as a result,
the attorneys and claim representative Ratner have
been sued for fraud and misrepresentation. Although
the personal liability to which these men are thus ex-
posed is in no way determinative of the issues on
this appeal, it precludes us from comfortably ra-
tionalizing that this litigation involves merely the
shifting of liability from one insurance carrier to
another. It also highlights what I believe to be the
basic weakness in plaintiffs’ case.
The fundamental issue on this eed is whether
plaintiffs could’ reject Lloyds’ offer to make
$1,000,000 in coverage available if the trial were re-
commenced, successfully importune the state judge to
approve settlement for $185,000, and thereafter re-
would save the seven reinsurance carriers a total of $15,000. In
the case of one carrier, which carried only five percent of the
reinsurance, the saving would amount to $750.
2 As a general rule, malpractice policies do not insure against
fraudulent acts or omissions. See, e.g., St. Paul Fire & Marine
Insurance Co. v. Clarence-Rainess & Co., 70 Misc. 2d 1082, 1083
* (1972), aff'd, 41 App. Div. 2d 604 (1973). The McGraths’ policy
80 provides, and they are being defended by their insurance car-
rier pursuant to a stipulation that the carrier will not be respon-
sible for the payment of any judgment aginst them which
sounds in fraud.
App. 59
cover substantial damages from appellees because the
settlement approved at plaintiff's insistence did not
represent their claim’s true settlement value. I be-
lieve that the district court was correct in concluding
that they could not.
I disagree at the outset with the majority’s inter-
pretation of the New York law governing infants’
settlements. Prior to court approval, the settlement
herein was not, as the majority would have it, only
“technically” inchoate. Until the compromise was ap-
proved by the court in the manner prescribed by the
New York statutes, it was not a legal settlement,
and it could not be enforced by either the plaintiffs
or the defendants.
Two former New York State Supreme Court Jus-
tices, one of whom is now a Judge of the New York
Court of Appeals, testified as experts on the trial
below. They were in agreement that Judge Williams
could have, and should have, declined to sign the
order approving the $185,000 settlement, in which
event the stipulation of compromise would have had
no binding effect. Plaintiffs’ trial counsel in the state
court action also testified that “Judge Williams had a
right to refuse to sign the compromise papers, which
would have nullified the entire settlement pro-
ceedings” and that “if he didn’t sign the papers I did
know that the settlement is a nullity.” These were
correct statements of the New York law.
Infant plaintiffs are wards of the court, Glogowski
v. Rapson, 20 Misc. 2d 96, 97 (1959), and New
York’s “rules of practice abound in provisions of an-
cient origin designed to safeguard their legal rights.”
Greenburg v. New York Central and H.R.R.R. Co.,
210 N.Y. 505, 509 (1914). Today’s rules, as embodied
App. 60
in CPLR 1207 and 1208, require that applications
for approval of an infant settlement be made upon
motion supported by affidavits of the infant’s repre-
sentative and attorney setting forth certain specified
facts.* The order entered on such a motion has the
effect of a judgment. CPLR 1207; Krichmar ov.
Krichmar, 42 N.Y. 2d 858, 860 (1977).
Until the requirements of CPLR 1207 and 1208
are complied with, there can be no binding compro-
mise agreement. Farraro v. Stripekis, 60 App. Div.
2d 861 (1978); Cagliotti v. Medi-Cab, Inc., 52 App.
Div. 2d 544 (1976); Valdimer v. Mount Vernon
Hebrew Camps, Inc., 9 App. Div. 2d 900, affd, 9
N.Y. 2d 21 (1961); 28 N.Y. Jur. Infants §63. Any
compromise reached in anticipation of a_ court-ap-
proved settlement is unenforceable, because the stat-
utes prescribe the only method by which a defendant
may secure a binding release from an infant. 2 Wein-
stein, Korn & Miller, New York Practice § 1207.06.‘
It is undisputed that plaintiffs had full knowledge
of the amount of Brookdale’s insurance coverage
some three months before they succeeded in securing
4 The applicable Rules of Practice of the Appellate Division,
First Department, also required that an application for court ap-
proval of a settlement of a claim or cause of action belonging to
an infant be made as provided in CPLR 1207 and 1208. See 22
Codes, Rules and Regulations of the State of New York § 603.8.
If the procedures mandated by these sections were not complied
with, the application for approval of the settlement had to be
denied. Speizhts v. Motor Vehicle Accident Indemnification
Corp., 75 Misc. 2d 937 (1973); Bittner v. Motor Vehicle Accident
Indemnification Corp., 45 Misc. 2d 584 (1965).
4 If the state court judge had indicated that he would not sign
the order of settlement, one wonders how much either of my
learned colleagues would have been willing to pay for an assign-
ment of plaintiffs’ rights under the “technically inchoate” agree-
ment.
App. 61
court approval. It is also undisputed that plaintiffs
importuned Judge Williams to approve the $185,000
settlement in order that they might bring suit
against appellees for fraud. In so doing, they com-
pletely removed from the case one of the requisite
elements for a claim in fraud, i.e., reliance. To re-
cover for misrepresentation, a plaintiff must establish
that he relied upon the misrepresentation and that
the damages for which recovery is sought flowed
from the reliance. Ochs v. Woods, 221 N.Y. 335,
338, 340-41 (1917); Karscher v. DeWald, 246 App.
Div. 21, 22-23 (1935), 24 N.Y. Jur. Fraud and Deceit
§ 25 at 224.5
Contrary to Judge Oakes’ assertion, the damages
which are the basis of plaintiffs’ claim for recovery
did not occur at the time the state action was dis-
continued and the jury dismissed. Although plaintiffs
did agree to a discontinuance in reliance upon ap-
pellees’ misstatements, and, as a result, undoubtedly
sustained some damage, this was not the damage for
which they sued. The jury’s verdict was based upon
the allegedly inadequate settlement which plaintiffs
insisted the Court approve after they had full knowl-
edge of the facts. Under the doctrine of volenti non
fit injuria, recovery cannot be had where an agree-
ment has been consummated in this manner. Oleet v.
Pennsylvania Exchange Bank, 285 App. Div. 411
5 “A false representation is not cognizable by the law as deceit
unless it is believed and relied upon as an inducement to ac-
tion.”
Ochs v. Woods, supra, 221 N.Y. at 338.
“The maker of a fraudulent misrepresentation is not liable to
one who does not rely upon its truth but upon the expectation
that the maker will be held liable in damages for its falsity.”
3 Restatement of Torts § 548.
,
App. 62
(1955); Kelly v. Otis Elevator Co., 283 App. Div. 363
(1954), affd, 308 N.Y. 805 (1955); General Valua-
tions Co. v. City of Niagara Falls, 253 App. Div.
156, affd on this point, 278 N.Y. 273 (1938); Com-
modity Credit Corp. v. Rosenberg Bros. & Co., 243
F.2d 504 (9th Cir.), cert. denied, 355 U.S. 837
(1957).
The rationale of the foregoing cases is not con-
fined to commercial contracts. The proper measure of
damages is inseparably connected with the right of
action, Chesapeake & Ohio Ry. v. Kelly, 241 US.
485, 491 (1915), and two basic and closely related
doctrines of the law of damages are (1) that a
wrongdoer is responsible only for the natural and
proximate consequences of his misconduct, Steitz uv.
Gifford, 280 N.Y. 15, 20 (1939), and (2) that an in-
jured person must take reasonable steps to minimize
his losses. Pearlstein v. Scudder & German, 527 F.2d
1141, 1145 (2d Cir. 1975); Industrial Sugars, Inc. v.
Standard Accident Insurance Co., 338 F.2d 673, 676
(7th Cir. 1964). Under the doctrine of “avoidable con-
sequences”, a plaintiff cannot recover damages re-
sulting from consequences he could reasonably have
avoided. Restatement of Torts §918. Put another
way, if a plaintiff could reasonably have avoided the
consequences, the defendant's wrongdoing is not the
proximate cause of their occurrence. McClelland v.
Climax Hosiery Mills, 252 N.Y. 347, 358-59 (1930)
(Cardozo, C.J., concurring); W. B. Moses & Sons v.
Lockwood 295 F. 936, 941 (D.C. Cir. 1924).
Here, the plaintiffs deliberately and knowingly re-
jected $1,000,000 in available insurance in order that
they might impose liability upon appellees. In view
of this conduct, I am at a loss to understand the ma.
App. 63
jority’s statement that “[pjlaintiffs here never had
the opportunity to avoid any injury.” Plaintiffs had
every opportunity to avoid the injury for which they
now seek recovery. It is no answer to say that, if
they wanted to take advantage of Lloyds’ umbrella
policy, they would have to present their proof a sec-
ond time. They would have to do this in any event
in their fraud action against appellees.* It is likewise
no answer to say that plaintiffs would have to re-
scind their settlement and give up $185,000. Until
court approval was obtained, plaintiffs had no bind-
ing settlement, no $185,000, and no right to demand
payment of it. Moreover, there is nothing in_ the
record to indicate that appellee insurers would have
withdrawn their settlement offer if the case were
ordered retried. Indeed, because appellees’ entire
$200,000 would have to be expended before the
$1,000,000 in umbrella coverage became available,
appellees would almost certainly have offered the full
amount of their policies in order that plaintiffs
would not be denied the benefit of the umbrella cov-
erage.
‘ The majority opinion would lead one to believe that the retrial
of an action is such @ rare occurrence as to justify drastic sanc-
tions for the party causing it. This simply is not so. Ketrials are
constantly being ordered with no greater sanctions imposed than
the liability for additional costs and disbursements. See, e.y.,
Dunbar v. Ingraham, 275 App. Div. 898% (1949).
I am not impressed by the argument that appellants’ doctors
could not have been compelled to give opinion testimony if the
state court action had been retried. The doctors could have been
subpoenaed and required to testify as to all of their factual ob-
servations. Had they then refused to repeat the expert testimony
they had given on the prior trial, it could have been read into
evidence. CPLR 4517. It is inconceivable that any doctor, sitting
on the witness stand, would forego a lucrative fee for testifying
as an expert, and at the same time put the medical profession
and his own standing in disrepute, by repeating his factual
observations but refusing to reiterate his opinion based thereon.
App. 64
“To err is human” is a phrase inscribed in the
records of antiquity. Where, as here, defendants have
erred, the law does not impose upon plaintiffs the
divine obligation of forgiveness. Justice will not be
served, however, if this Court accepts financially mo-
tivated retaliation as an alternative. Because I believe
this is what my colleagues are doing in the instant
case, I respectfully dissent.
Assuming, for the argument only, that the district
judge erred in dismissing the complaint as to the in-
dividual defendants, he was nonetheless correct in
dismissing as against the reinsurers. The sole obliga-
tion of the seven reinsurers was the contractual duty
to indemnify Citizens Casualty Co. for the amount of
its policy loss in excess of $50,000, the share of rein-
surance as between carriers varying from five per-
cent to fifteen percent. Although settlement of plain-
tiffs’ case for $185,000 resulted in a saving for the
five percent reinsurer of only $750, my colleagues
hold nonetheless that a jury could find that Ratner
was acting as this carrier’s agent when he fraud-
ulently concealed the existence of Lloyds $1,000,000
policy. They say that the “evidence could support a
finding that Ratner’s agency relationship with
Citizens and with the reinsurers was the same.” With
all due respect for my brothers’ perspicacity, I do not
find this to be so.
Ratner was a paid employee of Citizens, the com-
pany whose policy was issued to Brookdale and
whose duty it was to handle all liability claims
against the hospital. The reinsurers’ sole obligation
was to Citizens, i.e., the obligation to indemnify.
Greenman v. General Reinsurance Corp., 237 App.
Div. 648, 649 (1933).
App. 65
“Reinsurance, to an insurance lawyer, means one
thing only—the ceding by one insurance company
to another of all or a portion of its risks for a
stipulated portion of the premium, in which the
liability of the reinsurer is solely to the rein-
sured whith .3 the ceding company, and in
which contract the ceding company retains all
contact with the original insured, and handles all
matters prior to and subsequent to loss.”
13 Appleman, Insurance Law and Practice § 7681 at
479-80.
Giving plaintiffs the benefit of the broadest read-
ing of all the testimony concerning the in-court and
out-of-court statements of Ratner,’ his sole contact
with the reinsurers was through telephone conversa-
tions with their “claims people” in which either he or
his subordinates at Citizens attempted to “sell them”,
to “push them”, to “get them to up the offer”. This,
my brothers say, is sufficient to permit a finding
that Ratner was acting as the agent for all seven
“pushees”.* I disagree.
7 The only testimony given by Ratner was by deposition, in
which he said that he obtained the consent of the reinsurers to
settle for $185,000. I disagree with the majority's holding that
this established an agency relationship with the reinsurers and
opened the floodgates to any hearsay statements of Ratner that
plaintiffs were thereafter prepared to offer. See O.A. Skutt, Inc.
v. J. & H. Goodwin Ltd., 251 App. Div. 84, 86 (1937); United
States v. Consolidated Laundries Corp., 291 F.2d 563, 576 (2d
Cir. 1961). However, for purposes of this opinion, I need not
enter the dispute between my colleagues and Judge Pollack con-
cerning out-of-court declarations. Accepting all of the testimony
offered by plaintiffs, it is nonetheless insufficient to establish
that Ratner was the agent of the seven reinsuring carriers.
i My brothers do not say whether Ratner’s subordinates at Cit-
izens were also acting as agents for the reinsurers.
App. 66
Agency is a fiduciary relationship which arises
when one acts on behalf of another and is subject to
his control. Northern v. McGraw-Edison Co., 542
F.2d 1336, 1343 (8th Cir. 1976), cert. denied, 429
U.S. 1097 (1977); Aetna Insurance Co. v. Glens Falls
Insurance Co., 453 F.2d 687, 690-91 (5th Cir. 1972);
Globemaster Midwest, Inc. v, United States, 337 F.
Supp. 465, 470 (Cust. Ct. 1971); Restatement (Sec-
ond) of Agency §1. The purported agent must have
been assigned and instructed by the purported prin-
cipal to carry out the task he was performing. Parou-
tian v. United States, 370 F.2d 631, 632 (2d Cir.),
cert. denied, 387 U.S. 943 (1967).
There is not one iota of evidence to establish that
Ratner, the Assistant Vice President of Citizens, was
under the control and supervision of the reinsurers.’
He denied categorically that he was or that he acted
on their behalf. Moreover, the testimony that Ratner
attempted to “sell” and “push” these companies, the
only testimony offered to establish agency, is com-
pletely at odds with the fiduciary obligation that
Ratner, as an agent, would owe.
In today’s world of high verdicts, where substan-
tial insurance coverage is a must, it is rare indeed
that the entire risk on a policy is carried by the
named insurer. Reinsurance is the rule rather than
the exception. Under my colleagues’ version of the
law, a reinsuring carrier would not dare discuss set-
) The securing of consent is not the equivalent of submission to
control. For example, the approval of at least one other judge is
required every time an opinion is filed in this Court. If this
were sufficient to make the writing judge the agent of his con-
curring brothers, this Court might at one time have lost several
of its most able and distinguished members. See United States v.
Manton, 107 F.2d 834, 846 (2d Cir. 1939), cert. denied, 309 US.
664 (1940). °
App. 67
tlement of a case with the primary carrier's claim
representative for fear that it would be making him
its agent. This is not, and should not be, the law.
See Aetna Insurance Co. v. Glens Falls Insurance —
Co., supra, 453 F.2d at 690-91. Where, as here,
plaintiffs failed completely to establish the existence
of a principal-agent relationship, the district court
had no alternative but to dismiss the complaint as to
the reinsuring carriers. Cramer v. Hoffman, 390 F.2d
19, 23 (2d Cir. 1968); Hedeman v. Fairbanks, Morse
and Co., 286 N.Y. 240, 248 (1941).
CONCLUSION
In dismissing the infant’s claim against the rein-
surers and in setting aside the verdict against the re-
maining defendants, Judge Pollack was performing a
most unpleasant task. He was, however, carrying out
his duties in accordance with the highest traditions
of his office. I have written at some length in a los-
ing cause because I want to make clear that, in the
opinion of one appellate judge, the law of New York
gave Judge Pollack no happier choice.
I would affirm.
App. 68
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
Filed: Sept.
STEVEN JOHN SLOTKIN, 12, 1979
et ano.,
NOTICE OF
Vv. MOTION FOR
EXTENSION OF
CITIZENS CASUALTY COMPANY TIME IN WHICH
OF NEW YORK, et al., TO PETITION
FOR REHEARING
No. 78-7167
xakkkk
ORDER
IT IS HEREBY ORDERED that the motion
[of John McGrath] to extend time to file
a petition for rehearing to and includ-
ing September 26, 1979 be and it hereby
is GRANTED |
Sept. 21, 1979 /s/James L. Oakes
Hon. JAMES L. OAKES, C.J.
App. 69
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
Filed: Dec. 10, 1979
No. 78-7167
-
Steven John Slotkin, an infant by his
mother and natural guardian, Charlotte
Slotkin, and Charlotte Slotkin, as Exe-
cutrix of the Estate of Bert Slotkin,
deceased,
Appellants,
Vv.
Citizens Casualty Co. of New York, All-
state Insurance Co., American Motorists
Insurance Co., American Mutual Insurance
Co. of Boston, Employers Mutual Liability
Insurance Co. of Wisconsin, Guaranty Re-
insurance Co., Urbaine Fire Insurance Co.,
Grange League Insurance Co., National
Casualty Co., Hardware Mutual Casualty
Co., Arkwright-Boston Manufacturers Mutu-
al Insurance Co., Paul Ratner, George
Berkowitz, Christopher McGrath, Jr., and
John McGrath,
Appellees.
ORDER ON PETITIONS FOR
REHEARING OF PETITIONERS
CHRISTOPHER MCGRATH, JR.,
AND JOHN MCGRATH
Petitioners Christopher McGrath,
Jr., and John McGrath move separately
for rehearing and rehearing en banc of
App. 70
this court's August 29, 1979, decision.
Christopher McGrath, Jr., claims that
the court distorted New York law, John
McGrath that the verdict below was mis-
interpreted with respect to him and that
he should not have been held liable on
a partnership theory.
PETITION OF CHRISTOPHER MCGRATH, JR.
Petitioner Christopher McGrath,
Jr., claims that the opinion both miscon-
strues the facts of his involvement and
applies the wrong law. The first argu-
ment remains unconvincing. The second
is inaccurate. It is petitioner who
misstates the scienter requirements of
New York law -- Burgundy Basin Inn v.
Watkins Glen Grand Prix, cited slip op.
at 4441, petitioner acted with intent.
Petitioner's best argument is
that the judicially approved New York
state settlement had the force of a judg-
ment, barring plaintiff from instituting
and appealing his federal case. He places
primary reliance on Holm v. Shilensky,
388 F.2d 54 (2d Cir. 1968), in which this
court, also applying New York law in
diversity jurisdiction, declined to re-
App. 71
view an earlier Nevada decree allegediy
obtained via fraud. But the ratio deci-
dendi of Holm is soley that New York
courts must give full faith and credit
to the decree of the rendering state,
and since the decree would not have been
reviewable in Nevada, a New/.York court
could not review it. Holm supports peti-
tioner only if New York forbids the sort
of challenge to an earlier decree here
permitted. In support of that position,
petitioner adduces Grossman v. Kass,
124 N.Y.S.2d 416 (Sup. Ct. 1953). Gross-
man is, however, effectively supplanted
by Byrnes v. National Union Insurance Co.
cited slip. op. at 4435, quoted approv-
ingly in National American Corp. v. Fed-
eral Republic of Nigeria, 597 F.2d 314,
323 (2d Cir. 1979). Byrnes holds that
when plaintiffs do not ask for rescis-
sion of a release (which, as in the in-
stant case, was judicially approved)
but rather affirm it and sue for damages
for fraud in its procurement, the new
trial is legitimate. 310 N.Y.S.2d at
782. It is not barred by res judicata
because it is for a different, albeit
related, cause of action. See Inman v.
App. 72
Merchants Mutual Casualty Co., cited slip
op. at 4435, 83 N.Y.S.2d at 803.
PETITION OF JOHN MCGRATH
The opinion reinstates the
first general verdict against all defen-
dants. Petitioner John McGrath's new,
separate counsel makes the new arguments
that that verdict was vague, tentative,
uncertain, and possibly not unanimous,
see slip op. at 4430 n. 13, and that
the judge sent the jury back for further
deliberation before petitioner had an
opportunity to poll them, as was his
right under Humphries v. District of
Columbia, 174 U.S. 190, 194 (1899).
Accordingly, the argument runs, it is
unfair to hold petitioner liable under
the first verdict -- the jury may or
may not have intended to find against
him.
Even accepting this as true
the second-verdict rather than the first
would have to be reinstated. The jury
therein found petitioner liable but as-
sessed no monetary damages against him.
While in state courts there is some dis-
agreement as to whether a verdict against
App. 73
defendant for $0.00 amounts to judgment
for plaintiff or defendant, see Annota-
tions, 116 A.L.R. at 834; 49 A.L.R.2d
at 1331, 1334, most federal cases inter-
pret the verdict as a finding of defen-
dant's liability to a given extent, viz.,
$0, e.g., Joseph v. Rowlen, 425 F.2d
1010, 1013 (7th Cir. 1970) ("We believe
any distinction between an award of 6¢
and '0' damages is more of form than
substance"); Wingerter v. Maryland Casu-
alty Co., 313 F.2d 754, 756 (5th Cir.
1963) (verdict neither invalid nor ambig-
uous, no retrial needed); but see Associ-
ation of Western Railways v. Riss & Co.,
299 F.2¢0 133, 135 (D.C. Cir.), cert.
denied, 370 U.S. 916 (1962) (remanding
for entry of judgment for defendant since
finding of no damage meant plaintiff
had not proven claim).
Under this interpretation,
the jury by its second verdict found
petitioner a joint tortfeasor. Acting
under erroneous apportionment instruc-
tions, however, it allocated none of
the damages to him. This allocation,
however, must be set aside under New
York law which holds tortfeasors joint-
ly and severally liable.
App. 74
Therefore, even if petitioner
should be judged by the second rather
than the first verdict, his liability
remains the same.
We are persuaded, however,
that the alternative holding finding
John McGrath liable as a matter of law
for his partner's torts, slip op. at
4444, is erroneous and should be elimi-
nated. The case was not tried on this
theory; were it, John McGrath could have
taken steps, now foreclosed, to decrease
his liability. He could have join
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