New York Daily Fantasy Sports Suit: The Third Department Hears Oral Argument on Whether DFS is Prohibited Gambling

Oral argument of an appeal is often an appellate attorney’s most fun moment in a case. You’ve labored over lengthy briefs on the issues at hand, thought about how you want the appellate court to decide your case, and pored over the briefs and record for hours creating an iron clad argument that will tip the court in your favor. Now the time has come when you get to stand up at that podium with a panel of Judges staring at you and engage them in a conversation about why the law says you should win.

Your case is called. You stand up and introduce yourself. May it please the Court. You start in on your well crafted first few lines, and then it begins. A barrage of questions from a hot bench, or worse yet, a cold bench where you have ten minutes to fill with no one seemingly interested. Thankfully, the advocates in White v Cuomo got a mixture of the two at oral argument before the Appellate Division, Third Department.

Because the State appealed Justice Connolly’s order holding the DFS Law unconstitutional, it was up first. Deputy Solicitor General Victor Paladino, relying on the point ably made in the State’s brief, emphasized that the Legislature had undertaken a thorough look at DFS and rationally decided that it was not gambling. When a new game is proposed in NY, he argued, the Legislature gets to decide in the first instance whether the game is gambling or not, and DFS is not. Unlike sports gambling where bettors wager on the outcome of a game over which they have absolutely no control, the relevant contest for DFS is the not the sports game, but the task of putting together the best lineup for the day to compete against other DFS players. Yes, the scores of that lineup are determined by professional players over whom the DFS player has no control, but the DFS player very much controls which players are selected. It’s just like being a general manager, Paladino argues, and that takes skill. Because the Legislature rationally concluded that the DFS contest is not gambling, and the Court is required to defer to that legislative choice, the State argued that Judge Connolly’s order should be reversed.

In contrast, Neil Murray argued for the Plaintiffs, there is only one definition of gambling in NY and when a game meets it, the Legislature can’t merely say that the game isn’t gambling. Murray argued that not only is DFS a game of chance, because a material degree of chance is involved in the result (a player could get hurt, the weather could impact game conditions, etc.), but it’s also a wager on a contingent future event over which the bettor has no control (that is, DFS is effectively wagering on player performances). Either way, because DFS fits the definition of gambling under the Penal Law section that implements the constitutional ban, the Legislature could not authorize it by mere legislation. A constitutional amendment was required.

If you watch the argument, which can be found here, the Judges did a very good job of hiding where they stood on the outcome. Only Judge Pritzker seemed to indicate through his questioning—he asked about the very heavy burden that the Plaintiffs face to establish the DFS Law’s unconstitutionality beyond a reasonable doubt—that he favored the State’s position. The remaining Judges (Presiding Justice Garry, Justice Clark, Justice Mulvey, and Justice Molly Reynolds Fitzgerald, who had only been sworn in just a few days earlier) kept a tight lid on which way they were leaning. The questions were fair and clearly showed that the Judges were well prepared for the thorny issues facing them. In light of that, it’s hard to predict where this will turn out, though I still lean slightly in favor of the State’s position given the extremely heavy burden that the Plaintiffs face and the deference usually accorded to legislative determinations. You can hear me on Capitol Pressroom with David Lombardo talking about the case here.

Whichever way this comes out, it will not be the end of the case. Because the issue of DFS’s constitutionality presents an adequate jurisdictional predicate for an appeal as of right to the Court of Appeals, the case is likely be headed there next for a final answer to the question: can DFS continue in NY without an amendment to the constitutional ban on gambling?

The Appellate Division’s decision is expected by early January 2020.

New York Daily Fantasy Sports Suit: The Amici Bring an Interesting Twist to Whether DFS Violates the NY Constitution’s Ban on Gambling

The State and the Plaintiffs aren’t the only ones who want to be heard on whether the New York Interactive Fantasy Sports Law violates New York’s constitutional ban on gambling. And New York courts are happy to hear their opinions. In White v Cuomo, three parties have sought and been granted leave to file amici briefs—FanDuel and DraftKings in support of the State, and Rivers Casino, one of New York’s four licensed brick and mortar casinos, in support of the Plaintiffs.

Let’s take a quick run through the amici briefs to see what new arguments they bring to the table.

FanDuel and DraftKings

FanDuel’s and DraftKings’ arguments are remarkable similar to the State’s arguments in its opening brief. They both argue that DFS is not gambling prohibited by the New Yor Constitution because the skill required dominates chance-based elements. Thus, it is a bona fide contest for a prize, they argue.

What distinguishes FanDuel’s and DraftKings’ arguments from the State’s is the legal test that they each apply. While the State seeks to have the Appellate Division apply the “dominating element” test that holds that a game constitutes prohibited gambling when chance dominates any skill involved instead of the “material degree” test that holds a game is gambling when chance is involved in a material respect, which Supreme Court applied to hold the IFS Law unconstitutional, FanDuel and DraftKings argue that the tests are substantively identical. It’s just that Supreme Court got it wrong under both.

Particularly, FanDuel and DraftKings trace the “dominating element” test back to a 1904 Court of Appeals’ decision in People ex rel. Ellison v Lavin (179 NY 164, 170-171 [1904]), where the Court held:

Throwing dice is purely a game of chance, and chess is purely a game of skill. But games of cards do not cease to be games of chance because they call for the exercise of skill by the players, nor do games of billiards cease to be games of skill because at times, especially in the case of tyros, their result is determined by some unforeseen accident, usually called luck. The test of the character of the game is not whether it contains an element of chance or an element of skill, but which is the dominating element that determines the result of the game.

The dominating element test was long applied in New York, until at least the 1965 Penal Law amendments that defined gambling to include any contest the outcome of which “depends in a material degree upon an element of chance, notwithstanding that skill of the contestants may also be a factor therein.” Penal Law § 225.00 (1) (emphasis added). The State argues that these amendments changed the test for gambling to the stricter “material degree” test. FanDuel and DraftKings, on the other hand, argue for two reasons that the amendment changed nothing at all.

First, after the 1965 Penal Law amendments, New York courts continued to apply Lavin’s dominating element test to determine when a game depended on chance to a material degree. If skill dominated, the courts held, the game didn’t depend in a material degree on an element of chance, and it wasn’t prohibited gambling.  And vice versa.

Second, FanDuel and DraftKings argue, the legislative history underlying the 1965 Penal Law amendments do not identify any explicit desire to overrule the Court of Appeals’ common law “dominating element” test. The Court, in other contexts, has been very reluctant to find a wholesale abrogation of the common law absent the Legislature’s expressed intention to do so. That simply isn’t present here, they argue.  Instead, the Bartlett Commission that proposed these revisions actually said they weren’t intending to make many changes of substance at all, and the “dominating element” vs. “material degree” test conflict does not appear anywhere in the Commission’s report. Thus, FanDuel and DraftKings argue, the Legislature can’t have intended to replace more than 60 years of precedent applying the “dominating element” test to determine whether a game is prohibited gambling without so much as a word on the subject.

This interpretation is in line with numerous holdings across the country, they argue, including many holding that fantasy sports and daily fantasy sports, in particular, are not gambling because they are contests for which the players pay set entry fees, compete against others in picking the best roster, and play for a set prize pool. One such holding was from New Jersey, and was eventually endorsed by the Third Circuit and Congress. Where DFS games involve “(1) prizes [that] are established and announced in advance; (2) outcomes [that] reflect the ‘relative knowledge and skill of the participants’; and (3) the result is not determined by the outcome for a real-world team or teams or an athlete’s performance in a single real-world sporting event (FanDuel and DraftKings Amici Brf, at 14, quoting Unlawful Internet Gambling Enforcement Act, 31 U.S.C. § 5362(1) (E) (ix) (2006)), they are not gambling.

Rivers Casino

On the other side, Rivers Casino appeared in support of the Plaintiffs’ arguments that the IFS Law is unconstitutional, arguing that the law had fundamentally upset the casino gambling industry’s legitimate expectations that gambling can only be authorized in New York by a constitutional amendment. That’s what the casinos had to do, and so too should the fantasy sports industry, it argues.

Beyond the “we had to get a constitutional amendment, and so should you” rhetoric, Rivers Casino’s legal argument is fairly straightforward. It offers a definition of constitutionally prohibited gambling that is far more strict than any party to this case has previously discussed and doesn’t rely at all on the skill vs. chance dichotomy. As Rivers’ puts it,

Before considering the meaning and scope of the Penal Law, this Court first must decide if DFS constitutes gambling as that term is used in the Constitution. For reasons explained below, the term gambling as used in the Constitution means simply: to wager on games of skill or chance. Whether DFS is viewed as a game of skill or chance, or should be subject to criminal penalties in New York, it is still unauthorized “gambling” as that term is used in the Constitution. From there, the Legislature presumably may decide to criminalize DFS, or to prescribe civil penalties, but the Legislature cannot somehow “authorize” DFS. Chapter 237, therefore violates the Constitution’s general prohibition against gambling. (Rivers’ Brf, at 3-4).

To support this argument, Rivers breaks out the early 1900s dictionaries, which appear to define gambling as wagering money on games of either chance or skill, without differentiation. Rivers, thus, argues that selling access to the DFS pool is prohibited gambling under the Constitution, even if it involves a measure of skill. Indeed, at the time the constitutional ban was implemented for the first time, the Legislature also amended the Penal Law to criminalize wagering on “the skill, speed, or power of endurance of man or beast” involving “any unknown or contingent event whatsoever” (Rivers Brf, at 8, quoting L. 1895, ch. 1, § 1, amending § 351 of the Penal Law). That, Rivers argues, is a conclusive construction that even games of skill are subject to the constitutional ban.

Rivers also argues that the constitutional ban itself was intended to prohibit the Legislature from authorizing any form of gambling by merely calling it not gambling. The debates surrounding the constitutional ban show that the intent was to take the decision about what is gambling and what is not out of the Legislature’s purview, because, the convention delegates believed, the temptation to grab the gambling tax revenues and run would always be strong and often too strong to resist. Thus, Rivers argues, while the Legislature can decide how to enforce the constitutional ban on gambling, it can’t redefine it and authorize what the Constitution prohibits.

Oral Argument

In addition to seeking leave to file an amici brief, FanDuel and DraftKings also sought leave to participate in the oral argument of the appeals. The Third Department, however, denied that request. It’s not often in New York appeals that an appellate court will grant oral argument to an amicus party. In fact, the only time I’ve seen it is when it’s the State asking for divided argument. That’s not a hard and fast rule, but it seems to be the way that these high profile cases play out.

With the case now fully briefed, and the amici briefs in, we now have to wait until November for the oral argument, with a decision expected in late December 2019 or January 2020.

NY Daily Fantasy Sports Suit: Plaintiffs Argue that a Rose is a Rose and DFS is Gambling, Notwithstanding the Legislature’s Attempt to Say Otherwise

What kind of world do we live in, the Plaintiffs in White v Cuomo want to know in their constitutional challenge to New York’s Interactive Fantasy Sports Law that authorized and regulated daily fantasy sports games in New York for the first time. “[A] Shakespearean world inhabited by Romeo and Juliet where substance trumps form, and a rose is, in fact, a rose; or . . . in a parallel universe of alternative facts, like the one inhabited by Humpty Dumpty—and now by the New York State Legislature—where ‘gambling’ is not ‘gambling’ simply because the Legislature has decided to call it something else” (Plaintiffs’ App Div Brf, at 2). To the Plaintiffs, a rose is still a rose, and DFS is wagering money on real life athletes in real life games over which the bettors have no control. That’s gambling, they argue, and barred by Article I, § 9 of the New York Constitution.

In the Plaintiffs’ opening brief to the Appellate Division, Third Department, they make four principal arguments in support of Justice Connolly’s decision declaring the IFS Law unconstitutional: (1) DFS falls within the Penal Law’s definition of prohibited gambling, and the Legislature’s rationale for an opposite finding ignores the realities that DFS is a game involving a material degree of chance and are wagers on future contingent events; (2) the New York Attorney General admitted that DFS is prohibited gambling when it prosecuted DraftKings and FanDuel before the IFS Law was adopted; (3) DFS looks like gambling and is regulated like gambling, so it must be gambling; and (4) the Legislature was not free to define gambling to exclude DFS because it had applied the constitutional gambling ban to all forms of sports wagering over more than 100 years. Let’s take a closer look at each of the arguments.

DFS is Gambling Under the Penal Law Because it Involves a Material Degree of Chance and Wagers on Future Contingent Events

The Plaintiffs start with the Penal Law definition of gambling. Under Penal Law § 225.00(2), “[a] person engages in gambling when he stakes or risks something of value upon the outcome of a contest of chance or a future contingent event not under his control or influence, upon an agreement or understanding that he will receive something of value in the event of a certain outcome.” According to Plaintiffs, that means “[t]he key elements, therefore, of gambling are (1) whether a contestant stakes or risks something of value, (2) upon a contest of chance or a future contingent event not under his control or influence, (3) with the understanding he will receive something of value in the event of a certain outcome” (Plaintiffs’ App Div Brf, at 32).

DFS fits all three, they argue. DFS players pay an entry fee to the companies to participate—that’s something of value. The players have absolutely no control over how the athletes they select for their fantasy teams perform in the real life games—that’s a wager on a future contingent event not under their control. And if their fantasy team outperforms others, they win a prize—that’s receiving something of value in the event of a winning outcome. So, the Plaintiffs contend, DFS is gambling as the Legislature has defined it in the Penal Law.

The Legislature’s opposite conclusion in the IFS Law, they argue, lacks a rational basis and shouldn’t be accorded the presumption of constitutionality on which the State strongly relies. Attacking the Legislature’s rationale, the Plaintiffs first argue that DFS is a game of chance. There is no real distinction between the fantasy DFS game and betting on a real sports contest, the Plaintiffs contend, because the performances on which DFS is based are real life athletes in real games on any given night over whom the DFS players have absolutely no control. An athlete they choose for their DFS team could get hurt in the first inning, or have an off night shooting the ball, or could miraculously score the game winning goal in the Miracle on Ice, but in the end, the DFS player’s performance is all based on things well outside of his or her control.  There’s unquestionably a material degree of chance involved, they contend. And just like poker, the mere fact that the players use their skill to play their hands, or for DFS to assemble their teams, doesn’t eliminate that material degree of chance.

But even if DFS didn’t involve a material degree of chance, as the Legislature found and the State contends on this appeal, the Plaintiffs argue that DFS is nevertheless a wager on future contingent events over which the DFS players have no control, and so it is prohibited gambling. As the Plaintiffs put it, “it is indisputable that the outcome of any IFS contest must inevitably be based upon a future contingent event—the performance of real-life athletes in real-life games. It is equally indisputable that an IFS contestant has absolutely no control over how those athletes will perform in those games, as the State itself has stipulated” (Plaintiffs’ App Div Brf, at 47). Indeed, the Plaintiffs argue, the mere fact that those real life players are being used in a fantasy game doesn’t magically transform the bets on their performances from gambling to not gambling. Supreme Court, therefore, properly declared the IFS Law unconstitutional, the Plaintiffs assert.

The New York Attorney General’s Prior Admissions

Unsurprisingly, the Plaintiffs support much of their argument with citations to the New York Attorney General’s position and public statements that DFS is gambling prohibited by the New York Constitution in People v DraftKings. Back before the adoption of the IFS Law, the Attorney General commenced criminal proceedings against DraftKings and FanDuel for what the Attorney General claimed was illegally offering DFS games that constituted prohibited sports betting. In particular, the Attorney General told the New York Daily News:

Daily fantasy sports is much closer to online poker than it is to traditional fantasy sports … FanDuel and DraftKings take a bite out of every bet. That is what bookies do, and it is illegal in New York … In fact, as our court papers lay out, these companies are based on business models that are identical to other forms of gambling . . . Consider the final moments of a football game where the outcome has been decided and the winning quarterback takes a knee to run out the clock and assure victory. Let’s say it’s Eli Manning, and the Giants are defeating the Eagles or the Cowboys. Statistically, this play would cost the quarterback one yard – a yard that could make the difference between someone on DraftKings or FanDuel winning or losing tens of thousands of dollars. What did that have to do with the bettor’s skill? It’s the classic risk involved in sports betting. Games of choice involve some amount of skill; this does not make them legal. Good poker players often beat novices. But poker is still gambling, and running a poker room – or online casino – is illegal in New York (Plaintiffs’ App Div Brf, at 50).

Throughout the criminal proceedings, the Attorney General took a strong position that DFS was prohibited gambling, for many of the same reasons that Judge Connolly invalidated the IFS Law. The Plaintiffs now use the Attorney General’s own arguments as evidence that DFS remains the same kind of banned gambling that it was then. Indeed, quoting from a former Attorney General’s opinion, the Plaintiffs attempt to equate DFS to straight sports betting, which the Attorney General has long held needed a constitutional amendment to be authorized.

If DFS Looks Like Gambling and is Regulated Like Gambling, It Must be Gambling

What do they say about ducks? If it looks like a duck, and quacks like a duck, then it’s a duck. Well, that’s how the Plaintiffs frame their third argument for why DFS is gambling banned by the New York Constitution.

Listing off a number of factors that make DFS look like gambling, the Plaintiffs cite to the bets on real life athletes in real life games over whom the DFS players have no control, that the DFS operators rake a piece of the prize pool, that the Legislature put the IFS within the Racing, Pari Mutuel Wagering and Breeding Law where other forms of gambling are regulated, and that the law offers protections for “compulsive” players, aka problem gamblers. Although the Legislature excluded “registered” DFS operators from the criminal prohibition, the mere fact of registration does not change the underlying nature of the DFS game. DFS is still DFS whether or not the operator is register, and it’s still gambling, the Plaintiffs argue.

The Legislature Was Not Free to Exclude DFS From the Definition of Gambling

Even though the term “gambling” is not defined in Article I, § 9 of the New York Constitution, that does not grant the Legislature unlimited license to define the term in any manner it wishes, the Plaintiff argue. Words must be construed to have their ordinary meanings, and thus “the Legislature [could not] ignore certain kinds of gambling, let alone pass laws to enable rather than to prevent it, as it has done here . . . Otherwise, as Supreme Court pointed out in this case, the prohibition against gambling, a protection embodied in the Bill of Rights in Article I of the New York Constitution, would exist only at the sufferance of the Legislature” (Plaintiffs’ App Div Brf, at 61-62).

From the 1894 addition of the constitutional ban on gambling, the Legislature and the Attorney General have always understood that sports betting is illegal gambling. DFS is no different than sport betting, because the bets are still placed on real life performances over which the DFS players have no control. Thus, it too is illegal gambling, and the Legislature wasn’t free to ignore over 100 years of history to find otherwise. Indeed, the Plaintiffs argue,

Courts are not required to stand by helplessly while the Legislature interprets the Constitution any way it wants. The difference between what Plaintiffs and the State cite as precedent turns on the distinction between the “interpretation” versus the “implementation” of a constitutional mandate. It is the Judiciary’s sole prerogative to interpret “gambling”; it falls to the Legislature to implement laws to prevent it. Thus, the determination on whether daily fantasy sports falls within the definition of “gambling” is for the Judiciary, not the Legislature, to decide. Supreme Court properly interpreted the term (Plaintiffs’ App Div Brf, at 68).

Plaintiffs’ Cross Appeal

Finally, Plaintiffs argue on their cross appeal of Judge Connolly’s decision that he also should have declared the Legislature’s attempt to decriminalize DFS without substituting some other penalty unconstitutional. As the Plaintiffs view the constitutional commands, Article I, § 9 requires the State to pass laws to prevent gambling. The removal of the criminal sanction in the IFS Law is permitted, therefore, only if the Legislature substitutes some other penalty in its place.  “It could, for example, have enacted a civil law prohibiting gambling and imposing civil fines to prevent any person or entity from operating IFS. Instead, it left a statutory and regulatory vacuum by decriminalizing gambling while not substituting something else in its place to prevent it” (Plaintiffs’ App Div Brf, at 70).

This legal limbo, where DFS has been decriminalized but still violates the constitutional ban, cannot withstand scrutiny, the Plaintiffs’ argue. Either the IFS law falls in its entirety, or it doesn’t. As an example, the Plaintiffs point out that DraftKings and FanDuel are still operating with impunity, and without any statute or regulation to stop them from continuing to violate the Constitution. “This is precisely why Chapter 237 should be struck down in its entirety, and not just partially, as Supreme Court did. The Legislature did not exclude IFS from the Penal Law definition of ‘gambling’ because it intended to substitute in its place some alternative measure to prevent it. Quite to the contrary, it inserted the exclusion for the obvious and sole purpose of enabling IFS to occur, so that the State could regulate and tax it. This is precisely why the exclusion is unconstitutional because it had the effect—an effect that was the Legislature’s deliberate objective—to enable that which is constitutionally prohibited” (Plaintiffs’ App Div Brf, at 72).

Next up in my run through the Appellate Division briefs, a not so surprising application for two DFS titans to participate in the appeal.



Court of Appeals January Session Arguments of Interest: U.S. Bank National Association v DLJ Mortgage Capital, Inc.

If you thought the fallout from the residential mortgage foreclosure had run its course by now, you’d be wrong. For in the New York courts (and many others, I’m sure), litigation over bad mortgages lives on, and once again finds its way to the New York Court of Appeals. This time, the Court is asked to decide a number of procedural issues in lawsuits over breaches of the representations and warranties about the quality of the mortgages placed in a number of RMBS trusts, and will hear oral arguments tomorrow, January 9, 2019.

Nos. 6 & 7    U.S. Bank National Association v DLJ Mortgage Capital, Inc. (and other actions)

In these breach of contract actions, DLJ placed thousands of mortgages worth nearly $4 billion into residential mortgage backed securities trusts for which U.S. Bank was the trustee. In No. 6, an investor in the trusts, the Federal Housing Finance Agency, sued DLJ for breach of its representations and warranties about the mortgages, but was forced to substitute U.S. Bank because the trust agreement strictly limited suits by investors. Only the trustee could bring suit on behalf of the investors, the agreement said, so FHFA lacked standing. After U.S. Bank was substituted, Supreme Court dismissed the action with prejudice anyway, which barred U.S. Bank from refiling it under CPLR 205(a).

The Appellate Division, First Department affirmed the dismissal with prejudice, reasoning that U.S. Bank was not a “plaintiff” to which the 6-month CPLR 205(a) extension to refile could apply. Nor could U.S. Bank’s claims relate back to the prior action because, the Court held, there was no “valid preexisting action” to which the newly filed action could relate back to.

In No. 7, the issue is slightly different. U.S Bank actually filed this action directly, but failed to comply with a condition precedent to suit, namely, serving notice on both DLJ and Ameriquest as the originator of the loans that it was invoking the trust agreement’s repurchase obligations. Because U.S. Bank failed to comply with the condition precedent before commencing the action, Supreme Court dismissed the action, without prejudice to refiling. The Appellate Division, First Department again affirmed, this time reasoning that U.S. Bank could refile within 6 months under CPLR 205(a) after complying with the stated condition precedent to suit.

I’ve always wanted to know who qualifies as a “plaintiff” under CPLR 205(a), and now we’ll all get to find out! Also notably, one of these cases is being argued by #AppellateTwitter luminary Bob Loeb (@BobLoeb on Twitter). I’ll be heading down to the Court to watch the arguments in person tomorrow, but if you aren’t in Albany, then I strongly recommend watching the Court of Appeals’ livestream of arguments, which can be found here.

Court of Appeals January Session Arguments of Interest: Arrowhead Capital Finance, Ltd. v Cheyne Specialty Finance Fund L.P.

The Court of Appeals begins the new year with one week of oral arguments that features a critical issue effecting multi-state practice of law in New York. On January 9, 2019, the second day of oral arguments, the Court will determine whether the failure of a plaintiff’s nonresident attorney to maintain an in-state office at the time the action was commenced, in violation of Judiciary Law § 470, renders the action a nullity and requires dismissal of the action (the Court’s case summary can be found here).

No. 4  Arrowhead Capital Finance, Ltd. v Cheyne Specialty Finance Fund L.P.

Judiciary Law § 470 provides that “[a] person, regularly admitted to practice as an attorney and counsellor, in the courts of record of this state, whose office for the transaction of law business is within the state, may practice as such attorney or counsellor, although he resides in an adjoining state.” Upon the certified question from the Second Circuit as to “the minimum requirements necessary to satisfy the statutory directive that nonresident attorneys maintain an office within the State ‘for the transaction of law business under Judiciary Law § 470,” the Court of Appeals held “the statute requires nonresident attorneys to maintain a physical office in New York” (Schoenefeld v State, 25 NY3d 22, 25 [2015]).

Arrowhead Capital Finance, Ltd. v Cheyne Specialty Finance Fund L.P. seeks to answer a question left unanswered by the Court of Appeals in Schoenefeld—what is the effect of a nonresident attorney’s failure to comply with the minimum requirements of Judiciary Law § 470.

Barry Goldin is an attorney licensed to practice law in the State of New York who maintains an office in Allentown, Pennsylvania. In June 2014, Goldin, commenced this action on Arrowhead’s behalf against Cheyne, Arrowhead’s general partner, for breach of two trust agreements. The complaint that Goldin filed listed his Allentown office address with its telephone and fax numbers as well as an address at 240 Madison Avenue in Manhattan.

After Cheyne successfully moved to dismiss all of Arrowhead’s claims except for breach of fiduciary duty and breach of contract, Cheyne sought permission to file a second motion to dismiss the action on the ground that Goldin violated Judiciary Law § 470. Specifically, Cheyne argued that the Madison Avenue address listed on the complaint “is not an actual law office occupied by [Goldin], or, for that matter, anyone else.” In response to the motion, the New York law firm of Wollmuth Maher & Deutsche filed a notice of appearance as co-counsel for Arrowhead in the action. Goldin posited that the second motion to dismiss should be denied because any violation of Judiciary Law § 470 was cured by Wollmuth’s appearance as co-counsel.

The Appellate Division, First Department disagreed, holding that “[p]laintiff’s subsequent retention of cocounsel with an in-state office did not cure the violation, since the commencement of the action in violation of Judiciary Law § 470 was a nullity.” The First Department’s “nullity” rule directly conflicts with precedent from the Second and Third Department which permit a nonresident attorney to cure a Judiciary Law § 470 violation by obtaining a new counsel with a New York office or by filing a pro hac vice application (see, e.g., Elm Mgt. Corp. v Sprung, 33 AD3d 753 [2d Dept 2006]; Stegemann v Rensselaer County Sheriff’s Off., 153 AD3d 1053 [3d Dept 2017]).

The Court of Appeals resolution of this issue with have a great impact on the future of multi-state practice in New York. Certainly, unwitting plaintiffs should not be punished for their attorneys’ violation of Judiciary Law § 470. Conversely, clients should not be able to refute actions taken by their nonresident attorneys on their clients’ behalf merely because the attorney has violated Judiciary Law § 470. However, is judicial economy served by dismissing actions without prejudice for an attorney’s failure to maintain bricks and mortar in New York? After all, the nonresident attorney Goldin in Arrowhead is licensed to practice law in the New York. And isn’t that why New York adopted the Uniform Bar Exam, to make it easier to maintain a multi-state practice?

Interestingly, Goldin is scheduled to present Arrowhead’s oral argument of the appeal before the Court of Appeals, even though doing so is technically a violation of section 470. By allowing that to occur, could the Court be signaling that Goldin’s affiliation with Wollmuth, a New York City firm, was sufficient to cure his violation? We shall see.

Court of Appeals June Session: Arguments of Interest for June 7, 2018

The Court of Appeals finishes up the 2017-18 argument term with 4 arguments on the last day of the June Session. The cases vary wildly, from a Medicaid recoupment proceeding to a Justice Center finding of negligence against an intermediate care facility (the Court’s case summaries can be found here). The Court will hear arguments on the following issues: (1) does a statutory notice of Medicaid overpayment recoupment limit OMIG’s recoupment to the amount provided in the notice, or may OMIG continue to withhold funds until the upper limit of the unchallenged audit report is released; (2) did a municipality comply with a procedures necessary to dissolve a fire protection district pursuant to a resident-initiated referendum; (3) did the city civil court deprive a criminal defendant of his constitutional right to assistance of counsel by denying him the opportunity to provide closing arguments at the end of a bench trial; and (4) whether the Justice Center may substantiate a finding of negligence against an intermediate care facility without a corresponding finding that one of its supervisors or employees was negligent in the underlying incident.

No. 77    Matter of Anonymous v Molik

When one of your loved ones has to live in an assisted care facility because of a physical or mental disability, you want to know that the facility and its staff isn’t neglecting your loved one’s care. That what the State Justice Center for the Protection of People with Special Needs was created to oversee.  Created under the Social Services Law, the Justice Center investigates and responds to allegations of abuse and neglect of persons with special needs in facilities throughout the State.

In Matter of Anonymous, an allegation of neglect was made against an employee, a supervisor, and an intermediate care facility in St. Lawrence County arising from the sexual assault of a resident by another resident. Allegedly, the employee left the living room of the facility to attend to some laundry in the next room, and returned to find the assault in progress. After the Justice Center’s investigation, the Center found the allegations against the employee and the supervisor unsubstantiated because the facility did not have a policy that the employee could not leave residents alone in a common area, but found the facility negligent because this was the third incident of sexual assault by the same male resident and the facility failed to increase the level of his supervision.

After the finding of neglect against the facility was confirmed by an ALJ, and the Center’s director of administrative hearings, the facility brought suit, alleging that because the relevant Social Services Law provision only provides that the Justice Center may substantiate a “concurrent finding” of neglect against a facility only if the people responsible can’t be identified and it was a systematic issue that contributed to the neglect. Because the Justice Center identified the alleged responsible individuals here and didn’t find the allegations of neglect substantiated against the employee or the supervisor, the facility argued, the Justice Center lacked statutory authority to issue a finding of neglect against the facility.

The Appellate Division, Third Department agreed, and annulled the Justice Center’s finding of neglect. The Court held that, under Social Services Law § 493(3)(a), the only circumstance under which the Justice Center can substantiate a report of neglect against a facility or provider agency is where an incident of neglect has occurred but the subject can’t be identified. That wasn’t the case here, so the Justice Center lacked authority to substantiate the finding of neglect against the facility.

The Court of Appeals will now decide the scope of the Justice Center’s power to make findings of neglect against a facility.

The Appellate Division, Third Department’s order can be found here.

Court of Appeals June Session: Arguments of Interest for June 6, 2018

It’s the second to last day of arguments at the Court of Appeals before the two month summer recess, and the Court has four cases on the docket (the Court’s case summaries can be found here). The Court will hear arguments on the following issues: (1) whether a criminal defendant’s guilty plea should be thrown out because the trial court never explained to him the  consequences of waiving indictment by grand jury; (2) whether the New York City Board of Health’s regulations requiring all kids in certain child care, pre-K, and kindergarten programs to get the flu vaccine exceeded the scope of the Board’s authority; (3) in fraud claims relating to failed residential mortgage backed securities, whether an insurer of the securities was required to show justifiable reliance and losses directly attributable to the fraudulent representations; and (4) whether statements made to FDA investigators during an investigation are protected by an absolute privilege from liability for defamation.

No. 64     Garcia v New York City Department of Health and Mental Hygiene

When you send your kids to day care, pre-K, or kindergarten, you know that they will get sick and bring home plenty of germs. You just hope those germs aren’t the flu. That would be a win.

To try to ensure that all kids in those programs won’t send home the flu, the New York City Board of Heath issued amendments to the New York City Health Code  to require that all children from 6 months to 5 years who attend child care and school-based programs under the jurisdiction of the City Department of Health and Mental Hygiene (DHMH) be vaccinated against the flu each year. Although there are exemptions for when a vaccine would be harmful to the child’s health and for parents’ religious convictions, and the programs can accept unvaccinated kids, the amendments require the programs to pay a stiff penalty per child for doing so.

Upon adoption of the amendments, a group of parents challenged the Board’s authority to adopt them and sought a permanent injunction against their enforcement. Supreme Court held that the Board had acted outside the lawful bounds of its power because the amendments were preempted by the Public Health Law, and enjoined application of the flu vaccine regulations.

The Appellate Division, First Department affirmed, albeit on different grounds.  The Court held that the amendments weren’t preempted because local governments may adopt stricter health standards than the state baseline. But, the Court held, under the factors set forth in the Court of Appeals’ decision in Boreali v Axelrod (71 NY2d 1 [1987]), the amendments exceeded the scope of the Board’s regulatory authority. The Court held that the amendments represent value judgments and exceptions not grounded in public health concerns because the rule doesn’t preclude unvaccinated children from attending the school programs. Instead, those children can still attend the programs if the schools simply pay a monetary fine. This doesn’t protect the public health, the Court held, and it was further evidence that the amendments went beyond the lawful bounds of the Board’s regulatory authority.

The Board and DHMH now ask the Court of Appeals to reverse the First Department’s order, and reinstate the amendments. They argue that the First Department impermissibly intruded on their discretionary authority to promulgate vaccine regulations. Now, the Court of Appeals will decide.

The Appellate Division, First Department’s order can be found here.

Court of Appeals June Session: Arguments of Interest for June 5, 2018

The Court of Appeals returns for its last argument session before the summer break on Tuesday, June 5, 2018. On the first day of the June Session, the Court has three criminal cases on the docket (the Court’s case summaries can be found here), involving the following issues: (1) whether the denial of a motion to quash in a criminal trial is appealable, and whether the Appellate Division properly granted the motion to quash based on the qualified protection for a journalist’s nonconfidential material; (2) whether the trial court’s failure to provide notice of the contents of two jury notes to the defense before a verdict was rendered constituted a mode of proceedings error; and (3) whether a jury note qualified as a substantive inquiry, which should have required application of the procedure required under People v O’Rama (78 NY2d 270 [1991]).

No. 58      Matter of People v Conrado Juarez; Frances Robles

In a brutal case of the sexual abuse and murder of a 4 year old, the Court of Appeals will hear arguments on whether the denial of a motion to quash a subpoena in a criminal case is appealable. Should the Court decide that it is, a really interesting question of journalistic privilege lies beneath.

For 22 years, the police were unable to identify the 4-year-old murder victim who was found in a picnic cooler in Manhattan in 1991. When she was eventually identified in 2013, the police questioned her cousin, Conrado Juarez, as the suspect. He confessed after hours of interrogation, and was charged with murder. Two days later, Frances Robles, a reporter with the New York Times, interviewed him at Rikers Island, but Juarez changed his story. Instead of participating in the murder, this time he said he only helped his sister dispose of the victim’s body after she fell down the stairs.

Juarez moved to suppress his confession as involuntary, and in response the police subpoenaed Robles to testify at the suppression hearing and for her notes. Robles moved to quash the subpoena based on New York’s Shield Law, Civil Rights Law § 79-h(c), which generally protects from disclosure the information reporters gather while investigating stories.

Supreme Court denied the motions to quash the subpoenas, balancing the interests in favor of the People’s access to all evidence that could go to show that Juarez’s statements were voluntary.  The Appellate Division, First Department reversed, and granted Robles’s motions to quash, holding

the People have a videotaped confession by the defendant that has been found admissible at trial and that includes statements consistent with other evidence in the case. Under the circumstances, and in keeping with ‘the consistent tradition in this State of providing the broadest possible protection to “the sensitive role of gathering and disseminating news of public events”‘…, we find that the People have not made a ‘clear and specific showing’ that the disclosure sought from Robles (her testimony and interview notes) is ‘critical or necessary’ to the People’s proof of a material issue so as to overcome the qualified protection for the journalist’s nonconfidential material (Civil Rights Law § 79-h[c]).

On appeal, however, the People now argued that the Court lacks jurisdiction to hear the case because a trial court order denying a nonparty’s motion to quash a subpoena in a criminal case isn’t appealable. The People’s argument is based on the Court of Appeals’ decision about one year ago in the Facebook search warrants case, where the Court held that denial of a motion to quash in a criminal case isn’t appealable, and the Court lacks jurisdiction to consider the underlying merits question.

Unless the Court decides to reconsider its prior precedent from only a year ago, which is highly doubtful, or decides that search warrants are somehow different from subpoenas in criminal cases, this case is going to end up just like the Facebook case, dismissed for lack of jurisdiction and remanded for the Appellate Division to do the same. That’s really unfortunate, but it seems to me unavoidable.

The Appellate Division, First Department’s order can be found here.


Court of Appeals April-May Session: Arguments of Interest for May 2, 2018

The Court of Appeals wraps up the April-May Session on Wednesday, May 2, 2018 with three cases on the argument docket (the Court’s case summaries can be found here). Two civil cases and one criminal case will be heard today, involving the following issues: (1) under the NYC rent control regulations that provide for deregulation when tenants reach $175,000 in adjusted gross income, must the income reported on a joint tax return be apportioned between the spouses when one of the spouses has vacated a regulated apartment; (2) does a police officer lose his entitlement to defense and indemnification from civil liability under the General Municipal Law when he admits that he intentionally disregarded alibi evidence that would have cleared a criminal suspect, leading to the suspects wrongful detention for four months; and (3) is an individual inquiry required to determine whether a juror is grossly unqualified as a result of her outburst at defendant’s counsel for his repeated use of a racial epithet during trial.

No. 70 Matter of Lemma v Nassau County Police Officer Indemnification Board

Police officers who get sued for things they do in the line of duty generally aren’t individually responsible to pay civil damages in lawsuits. Instead, General Municipal Law 50-l provides that the police department has to defend its officers in civil suits and indemnify them if the courts award damages for the officers’ conduct. But there is a limitation on that principle. Particularly, GML 50-l provides for indemnification in civil actions “from any judgment … for damages, including punitive or exemplary damages, arising out of a negligent act or other tort of such police officer committed while in the proper discharge of his duties and within the scope of his employment.” So, the officers’ conduct that gave rise to liability has to be a “proper” discharge of his duties before the police department will be on the hook for damages.

The question in this case is is Nicholas Lemma, a detective with the Nassau County Police Department, entitled to be indemnified from civil liability for his intentional withholding of alibi evidence that would have allowed a criminal suspect to go free four months earlier. That’s right. Lemma discovered that a suspect was in jail at the time of the robbery that the suspect was accused of committing, and he sat on that information to “let the chips fall where they may.” And he wants the NCPD to pay for his misconduct.

Supreme Court dismissed Lemma’s challenge to the Police Indemnification Board’s decision to deny his request for defense and indemnification. The Court held that Lemma’s actions didn’t satisfy the requirement that they be a “proper” discharge of his duties, because he purposefully withheld the alibi evidence.

The Appellate Division, Second Department affirmed. Now, the Court of Appeals will take up the question. Need an officer show that he or she was acting properly before he or she will be entitled to indemnification from civil damages?

The Appellate Division, Second Department’s order can be found here.

Court of Appeals April-May Session: Arguments of Interest for May 1, 2018

The Court of Appeals returns for the final week of the April-May Session with four cases (three arguments) on its argument docket today (the Court’s case summaries can be found here).  The Court will hear arguments on the following issues today: (1) can the State prove that a parent has maltreated her child by using the child to facilitate shoplifting; (2) whether the State may be the proximate cause of injuries sustained in a motor vehicle accident at an intersection where it failed to complete a traffic study or upgrade the traffic control or warning devices; and (3) whether a criminal defendant may be convicted of depraved indifference assault where it was clear that he committed the assault intentionally.

No. 66 Brown v State of New York
No. 67 Brown, as administratrix, v State of New York

You’ve stopped at intersections before where you just can’t see any oncoming cars, trucks, or motorcycles without creeping way too far into the intersection, right? I know I have. Those intersections are dangerous, and result in far too many serious accidents. One such accident is before the Court of Appeals today.

In 2003, the plaintiff, Linda Brown, and her husband were riding a motorcycle on State Route 350 in Wayne County (where I grew up), just east of Rochester. They were driving about 55 miles per hour, which was the speed limit there, when the pickup truck driven by Henry Friend pulled into the intersection. The motorcycle slammed into Friend’s truck, killing Brown’s husband and seriously injuring her.

In the subsequent personal injury action, Brown sued the State, alleging that the intersection was dangerous because of restricted sight lines, the 55 mph speed limit was excessive for that area, and there weren’t enough warning signs of the intersection on the road. Friend testified that he came to a full stop at the intersection, looked both ways, and never saw any oncoming vehicles before the accident.

The Court of Claims agreed with Brown that the intersection was dangerous, and held that the State had prior notice of the dangerous condition due to 17 prior accidents at that intersection between 1996 and 3002. The Court, however, dismissed Brown’s claims, holding that she failed to prove that the State’s failure to complete a safety study and take corrective action was the proximate cause of the accident.

The Appellate Division, Fourth Department reversed on a 3-2 vote, however, and reinstated Brown’s claims. The Court held that the proximate cause issue wasn’t whether the State’s failure to undertake a study was the proximate cause of the accident, but whether the State was aware of the dangerous condition and failed to remedy it, and then that the dangerous condition was the proximate cause.  Using that standard, the Fourth Department held that Brown had shown that the State was negligent, and remitted for a determination of proximate cause.

On remittal, the Court of Claims found the State 100% liable, and awarded about $7 million for Brown’s injuries and her husband’s death.  The Appellate Division, Fourth Department affirmed, and now the Court of Appeals will hear arguments on the proximate cause issue.

What’s interesting here is that the Court held a municipality liable for failure to complete a traffic study on very similar facts about a year and a half ago. Will the Court extend this decision and apply the same standard to the State?  We’ll see.

The Appellate Division, Fourth Department’s orders can be found here (December 2010 order) and here (November 2016 order).

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