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World Trade Center's Mortgage Holder Loses Discovery Fight

Tom Perrotta
New York Law Journal
07-08-2002


Insurance companies Wednesday won another battle in a multibillion-dollar dispute over the World Trade Center, as a federal judge in the Southern District of New York said he would compel the building's mortgage holder to testify and disclose an array of documents.

U.S. District Judge John S. Martin ruled that employees of GMAC Commercial Mortgage Corp., which holds the mortgage on the World Trade Center, and its insurance advisors, Harbor Group Ltd., could not use the attorney-client privilege to shield communications made after the Sept. 11 attacks.

SR International Business Insurance Co. Ltd. (Swiss Re) is seeking the communications and testimony from agents in an attempt to bolster their claim that the destruction of the World Trade Center was the result of one terrorist attack rather than two.

Larry Silverstein, the leaseholder of the towers, has argued that the attacks were two separate events, meaning insurance companies would have to reimburse him a total of $7.1 billion rather than half of that amount.

But the insurance companies have said that conversations between Silverstein's lawyers and insurance brokers would reveal that initially there was an understanding that the attacks constituted one event, not two.

The ruling from Martin comes a few weeks after he came to a similar conclusion on a motion brought by Travelers Insurance Co., one of the defendant counterclaimants in SR International Business Insurance Co. Ltd. v. World Trade Center Properties and World Trade Center Properties v. Allianz Insurance Company, 01 Civ. 9291.

In that ruling, the judge said conversations between Silverstein's attorneys at Wachtell, Lipton, Rosen & Katz and insurance brokers at Willis of New York Inc. were not subject to the attorney-client privilege.

On Wednesday, the judge applied similar reasoning to a request by Swiss Re to examine documents drafted by employees at GMAC and Harbor Group after Sept. 11 as they attempted to address investor concerns.

Martin ruled that the actions of the employees, supervised by GMAC's in-house counsel, constituted information gathering in the normal course of business, not in anticipation of litigation.

"No privilege attaches to an attorney's communications when the attorney is hired to give business or personal advice, or to do the work of a nonlawyer," Martin wrote.

GMAC had argued that all post Sept. 11 communications were protected by the attorney-client or the work product privilege because of the in-house counsel's supervision.

Martin did say, however, that any communications involving the in-house counsel that contained or sought legal advice would be privileged.

The judge said that the parties could submit documents to the court for in camera inspection to determine whether they were privileged.

Barry R. Ostrager of Simpson Thacher & Bartlett, who represented Swiss Re, said an important aspect of the ruling involves a Sept. 14 meeting at Silverstein's office between Silverstein, his lawyers, Willis of New York, GMAC, Harbor and other investors.

Martin ruled that documents related to the meeting were not privileged and said employees of GMAC and Harbor can be questioned about what was said.

He also said Swiss Re could review notes taken by Beth Ann Herrmann, a vice president at GMAC, and Peter Lefkowitz, of Harbor, at the meeting. The two had taken notes at the request of GMAC's in-house counsel, but Martin ruled the notes were not privileged because they "merely set forth the facts that were reported to the attorney."

Ostrager said the deadline for discovery in the case is Sept. 30.

John C. Ulin of Heller Ehrman White & McAuliffe in Los Angeles, who represented GMAC, was not available for comment.

Marc Wolinsky of Wachtell Lipton who was not involved with this motion, said the ruling was "of no real consequence."

Chet A. Kronenberg of Simpson Thacher's Los Angeles office also represented Swiss Re.