Court of Appeals Holds Hearsay Statements from Sexual Assault Victim May be Considered to Support College Disciplinary Decision

When a sexual assault occurs on a SUNY campus, the victim shouldn’t have to suffer through the assault twice. The victim has the right to decide not to participate in any disciplinary hearings held by the SUNY disciplinary board, and to instead submit a written or other hearsay statement telling his or her side of the story. And that’s exactly what happened in Matter of Haug v State Univ. of N.Y. at Potsdam (No. 102). The sexual assault victim didn’t want to participate in the SUNY disciplinary hearing against the offender, but instead submitted a written statement.  The victim’s statement was consistent with what she had told the SUNY investigator and a SUNY administrator, and following the hearing, SUNY expelled the offender.

In a surprising reversal, however , the Third Department annulled SUNY’s expulsion determination as unsupported by substantial evidence in the record.  The SUNY Student Code required affirmative consent to sex, which it was undisputed that the student never received, but the Third Department majority nevertheless said that the victim’s hearsay account of the incident was insufficient to meet the substantial evidence standard. Hearsay evidence couldn’t be considered in the substantial evidence determination, the Court held. Instead, the Court held, the complainant’s act of removing her shirt when the student offered sex was enough to show consent in this situation. The Court, therefore, vacated the student’s expulsion.

In a cogent dissent at the Appellate Division, two Justices took the majority to task for, among other things, substituting the Court’s own judgment of the facts for the SUNY disciplinary board that heard the testimony at the disciplinary proceeding.  The dissent emphasizes that the complainant’s story that she “froze” upon the student’s advances was consistent when she told it both to the SUNY investigator and to an administrator.  It did not have any of the hallmarks of unreliability that have lead to the general rule that hearsay evidence, on its own, isn’t enough to constitute substantial evidence.  Moreover, the only reason why the complainant’s account was technically hearsay, the dissent pointed out, was because she didn’t want to participate in disciplinary proceedings.  Her decision to invoke that right doesn’t undermine the credibility of her account of the assault.

SUNY appealed, and the Court of Appeals understandably reversed. In a short memorandum opinion, joined by 6 of the 7 Judges, the Court held that the victim’s hearsay statement could be considered when deciding whether substantial evidence, a very low standard, existed in the administrative record to support SUNY’s expulsion decision.

The Court, adopting the Appellate Division dissent’s view, also took the Appellate Division majority to task for substituting its view of the facts for the SUNY disciplinary board’s findings. “[I]t was the province of the hearing board to resolve any conflicts in the evidence and make credibility determinations,” the Court held. And thus, it was not for the Appellate Division to reweigh that evidence on appeal.

By holding that a sexual assault victim’s hearsay statements may be considered both at the administrative level and in a subsequent challenge to a disciplinary decision, the Court of Appeals has preserved the victim’s right to choose whether or not to participate in the disciplinary proceedings. That’s undoubtedly, to me at least, the right result. If the victim is unwilling or unable to relive the assault in the context of a subsequent disciplinary proceeding, he or she shouldn’t have to.  Holding otherwise would have forced the victim into a sort of Hobson’s choice: relive the sexual assault in live testimony at the hearing and be cross-examined, or don’t participate at all. The Court of Appeals’ holding in Haug, therefore, will continue to allow victims of sexual assault to decide whether or not to participate in a disciplinary hearing, free from considerations of how that decision will impact the disciplinary process.

The Court of Appeals’ opinion is here.

For the First Time, Court of Appeals Issues a Separate Opinion While Denying Leave to Appeal

When the Court of Appeals grants or denies a motion for leave to appeal, it generally does so in a one sentence order that says “motion for leave to appeal denied” or “motion for leave to appeal granted.”

At most, the Court will issue paragraph explanations sometimes when it has to dismiss a motion for leave to appeal on a complex jurisdictional ground. And it does that only so the parties understand what is preventing the Court from deciding the motion for leave on the merits.

Yesterday, however, for what I believe to be the first time, the Court of Appeals published a separate opinion in denying a motion for leave to appeal (at least that’s what my brief Westlaw research seems to suggest). You’ll see that at the United States Supreme Court sometimes when a Justice disagrees with the denial of certiorari and writes separately to explain why. But I’ve never seen it at the Court of Appeals.

In this case, Judge Eugene Fahey wrote separately to concur in the denial of leave to appeal in the so-called chimpanzee habeas corpus case. In that case, an animal rights group sought a writ of habeas corpus to free two captive chimps, Tommy and Kiko, from private owners who are keeping them in small cages within the State. Judge Fahey explains that if the Court were to grant leave, he would vote to affirm because the habeas had already been sought and denied on the chimps behalf, and two successive writs can’t be sought under the CPLR. So, he concurs in the denial of leave to appeal.

But, that’s not the end of his thoughts. Instead, Judge Fahey explains, the question of whether habeas corpus can be available for the release of a non-human animal will have to be addressed at some point.  And he offers an approach for how that question should be answered:

The Appellate Division’s conclusion that a chimpanzee cannot be considered a “person” and is not entitled to habeas relief is in fact based on nothing more than the premise that a chimpanzee is not a member of the human species. I agree with the principle that all human beings possess intrinsic dignity and value, and have, in the United States (and territory completely controlled thereby), the constitutional privilege of habeas corpus, regardless of whether they are United States citizens, but, in elevating our species, we should not lower the status of other highly intelligent species.

The better approach in my view is to ask not whether a chimpanzee fits the definition of a person or whether a chimpanzee has the same rights and duties as a human being, but instead whether he or she has the right to liberty protected by habeas corpus. That question, one of precise moral and legal status, is the one that matters here. Moreover, the answer to that question will depend on our assessment of the intrinsic nature of chimpanzees as a species. The record before us in the motion for leave to appeal contains unrebutted evidence, in the form of affidavits from eminent primatologists, that chimpanzees have advanced cognitive abilities, including being able to remember the past and plan for the future, the capacities of self-awareness and self-control, and the ability to communicate through sign language. Chimpanzees make tools to catch insects; they recognize themselves in mirrors, photographs, and television images; they imitate others; they exhibit compassion and depression when a community member dies; they even display a sense of humor. Moreover, the amici philosophers with expertise in animal ethics and related areas draw our attention to recent evidence that chimpanzees demonstrate autonomy by self-initiating intentional, adequately informed actions, free of controlling influences.

Does an intelligent nonhuman animal who thinks and plans and appreciates life as human beings do have the right to the protection of the law against arbitrary cruelties and enforced detentions visited on him or her? This is not merely a definitional question, but a deep dilemma of ethics and policy that demands our attention. To treat a chimpanzee as if he or she had no right to liberty protected by habeas corpus is to regard the chimpanzee as entirely lacking independent worth, as a mere resource for human use, a thing the value of which consists exclusively in its usefulness to others. Instead, we should consider whether a chimpanzee is an individual with inherent value who has the right to be treated with respect (Fahey, J., concurring, at 4-5).

Whatever Judge Fahey’s thoughts are on the availability of habeas corpus for chimps and other animals, it is significant that the Court of Appeals seems to moving in the direction of explaining its work. A separate opinion on a motion for leave to appeal can signal to the bench and bar that a case may present important issues, but that it’s not the right vehicle for deciding those issues. It’s a welcome addition to the work of the Court.

The Court of Appeals’ motion decision can be found here.

Court of Appeals Gets “Cleaned Up,” and Also Decides an Identity Theft Case

When a thief, or these days a hacker, steals your credit card and uses it, most people call that identity theft.  The New York criminal statutes, however, haven’t been so clear about whether the use another’s personal identifying information, such as their name, bank account, or credit card number, is enough to show that the criminal has assumed the person’s identity. The Appellate Division, First Department has said that merely using another’s personal information, without more conduct actually assuming the person’s identity, isn’t enough for an identity theft conviction. The Fourth Department, on the other hand, disagreed and said that it was.

The Court of Appeals, resolving this conflict, held in People v Roberts (No. 42) and People v Rush (No. 43) that the statutory language of the identity theft statute is clear: use of another’s personal identifying information alone is sufficient for a conviction.  The statute, Penal Law §§ 190.79 and 190.80, is pretty clear. It provides that a person is guilty of identity theft:

“when [such person] knowingly and with intent to defraud assumes the identity of another person by presenting [themselves] as that other person, or by acting as that other person or by using personal identifying information of that other person, and thereby . . . commits or attempts to commit [a felony]” (Penal Law §§ 190.79 [3]; 190.80 [3]).

Using the personal identifying information of another person is enough for a conviction. As Judge Rivera writing for the majority put it:

To establish identity theft in the first or second degree, the People must establish as the mens reathat the defendant knowingly and actually intended to defraud by the actus reusof assuming the identity of another. The statute expressly limits the manner by which a defendant assumes the identity of another to three types of conduct: by presenting oneself as that other person, acting as that other person, or using that other person’s personal identifying information.3Contrary to defendants’ argument, the requirement that a defendant assumes the identity of another is not a separate element of the crime. Rather, it simply summarizes and introduces the three categories of conduct through which an identity may be assumed. In other words, the “assumes the identity of another” language is the operational text that sets forth the actus reusof identity theft, while the three types of acts listed are the legislatively-recognized methods by which a defendant satisfies that element (Opn, at 12).

But what’s really the most important part of this opinion is not what’s in the majority, but what’s in Judge Wilson’s separate opinion concurring in part and dissenting in part. On page 6 of Judge Wilson’s writing, he does something that has never before been seen in a Court of Appeals opinion. He uses the citation signal “cleaned up”:

What’s (cleaned up), you ask? Created by Jack Metzler (@SCOTUSPlaces on Twitter), it’s a now relatively established way for attorneys to indicate in their writing that they’ve altered the form of a quote without changing its substance, and without the overly cumbersome parenthetical that you used to have to include, like (citations, quotations marks, and alteration omitted). It can also be used to eliminate unnecessary string cites to citing or quoting authority in the case you’re citing or quoting. Jack’s piece explaining the need for and use of (cleaned up) can be found here.

With Judge Wilson’s use of “cleaned up,” the Court of Appeals joins a long list of other Courts across the country, including the Fifth Circuit and others, adopting this new approach to clarifying legal writing. Now, it’s time for New York to formally adopt it in the Tan Book to make this exciting event a staple in appellate work and opinions across the entire state.

The Court of Appeals’ opinion can be found here.

Sharply Divided Court of Appeals Rejects Per Se Rule that a Gap in Treatment Longer than 2 1/2-Year Statute of Limitations Should Bar Application of Continuous Treatment Doctrine

Imagine you hurt your shoulder and it’s just not getting better. You go to the doctor after trying rehab and he says it’s time for surgery. You schedule the date, head in to the hospital, and the doctor fixes your shoulder, or at least he says he did. He tells you to follow up with him over the next year to watch how you recover from the surgery, and you do. He continues to treat you and then, at the end of the year, he says to follow up “as needed.” After 19 months go by, your shoulder starts to hurt again. You go back to the doctor, and he does a second surgery. You see him twice more over the next 20 months when your shoulder hurts.

More than 2 1/2 years pass, and your shoulder still hasn’t gotten better. Although you’re not very happy with the doctor, you don’t have much choice but to go back to him again. But he isn’t doing shoulder surgeries anymore, so he refers you to his partner. Another surgery is needed.

You’ve had it with these guys. It’s been seven years with chronic shoulder pain. Nothing that the doctor has recommended has helped. Not the rehab, the surgeries, or post-op exercises. Fed up, you leave the doctor’s practice and find a new doctor. And a few years later you sue the doctor for malpractice.

That’s what happened to the plaintiff in Lohnas v Luzi (No. 7). It was a bad situation, and brought to the Court of Appeals the issue whether the doctor continuously treated the plaintiff when there was a break in the visits for a longer time than the 2 1/2-year statute of limitations. If it was continuous treatment, Lohnas’ suit could proceed. If not, she sued too late and the case would have to be dismissed.

In a sharply divided 4-3 decision, the Court of Appeals held that questions of fact exist precluding summary judgment on whether the continuous treatment doctrine tolled the statute of limitations for Lohnas’ claim for medical malpractice against Dr. Luzi. The continuous treatment doctrine, the Court noted, ensures that a patient need not break off a relationship with a doctor and sue for malpractice immediately, but can continue to receive treatment for the original condition and then sue up to 2 1/2 years after the doctor’s care has finished. The treatment must indeed be continuous, however, and must be related to the same condition for which the doctor committed the malpractice.

The majority rejected a per se rule that would have held the continuous treatment doctrine inapplicable as a matter of law where there is a gap in treatment for more than the 2 1/2-year statute of limitations. All doctor-patient relationships are not created equal, the Court reasoned, and whether the continuous treatment toll applies depends on the unique facts of each case. Here, there was enough evidence that Lohnas and Dr. Luzi intended a continuous course of treatment for Lohnas’ shoulder injury to send the case to trial. Dr. Luzi was the only doctor she saw for the injury, and she went back to him repeatedly because she still felt pain. The 30-month gap in visits and direction to return on an as-needed basis didn’t make out a defense as a matter of law, the majority held, so the jury should be allowed to decide.

Judge Wilson, writing for the dissent, took the majority to task for confusing a chronic condition with continuous treatment. Comparing this case to the Court’s decision in Massie v Crawford (78 NY2d 516 [1991]), where the Court held that the continuous treatment doctrine couldn’t be invoked for routine regular doctor appointments, Judge Wilson explained that Lohnas’ routine follow ups for the chronic shoulder condition and the gap in treatment of more than 2 1/2 years meant the continuous treatment doctrine couldn’t apply. Indeed, he noted, Dr. Luzi tried different treatments. The alleged malpractice was improperly installing the humeral head in her shoulder during the first surgery that then wore down her rotator cuff. The second surgery was to fix the rotator cuff issue. And then Lohnas only came back after she was pushed into a wall and hurt her shoulder again.

None of these facts, Judge Wilson explained, implicated the policy concerns underlying the continuous treatment doctrine. Lohnas could have easily left the practice, as she later did, and filed suit. She wasn’t getting any treatment at all between the second surgery and the consult for the third, a period of more than 2 1/2 years.

Public policy animated our creation of the continuous treatment doctrine: a doctor engaged in continuous treatment of a patient should not have her efforts chilled by the filing of a lawsuit, nor should the patient undergoing such treatment be required to suffer the burden of suing the physician while still in her care. Where, as here, the treatment is not continuous, no such policy concerns warrant an exception to the limitations period. Indeed, when continuous treatment is absent, public policy, as embodied in the legislature’s selection of a limitations period, cuts the other way: a plaintiff whose surgery and follow- up appointments have been completed, who has been discharged from the hospital, returns to normal life activities, and still suffers “terrible” pain, is on notice that something may be wrong, and is required to take steps to determine whether she has a claim – including by consulting a different doctor if necessary – and file it within the prescribed period (Dissenting Opn, at 5-6).

The majority’s rule, Judge Wilson reasoned, allows what should be prohibited: manipulation of the statute of limitations by returning to a doctor regularly for routine check ups on a chronic condition.

With the 4-3 split Court, only one thing is really clear. No one really knows what is continuous treatment and what isn’t.

The Court of Appeals’ opinion can be found here.

Court of Appeals: Indenture Trustee Can Bring Third Party Actions to Recover for Fraudulent Redemption of Assets Rendering Debtor Insolvent

Financial fraud is complex. The schemes cooked up by fraudsters are intricate, and the financial maneuvers used are often difficult to follow. The fraud alleged in Cortlandt Street Recovery Corp. v Bonderman (No. 14) is no different.

Breaking it down to the extent I can, a number of private equity investors were interested in acquiring a profitable and debt-free telecom company in Greece, and set up a group of shell companies in Luxembourg to make the buy. The group, called Hellas Group, borrowed heavily (about €1.6 billion) to buy the Greek company, and had very little equity to repay the loans. In another round of borrowing in 2006, Hellas Finance (a subsidiary of Hellas Group) borrowed €200 million in exchange for payment-in-kind notes, which were governed by the indenture that is the focus of this case.

What’s an indenture? An indenture is a legal agreement that vests title of securities, like the payment-in-kind notes here, in a single trustee who is given certain specified powers to act on behalf of all of the noteholders. It’s usually tough to get all noteholders who may have different interests to act collectively, so the appointment of the indenture trustee to act on their collective behalf helps to solve that problem. Generally included in the bundle of rights given to the indenture trustee, which are limited to what’s in the agreement, is the right to bring suit to recover the principal, interest, costs, and fees in the event that the investment tanks and the debtor defaults.

In Cortlandt Street Recovery Corp., at the same time that Hellas Finance issued the payment-in-kind notes, Hellas the parent redeemed €973.7 million in convertible preferred equity certificates, and paid the cash to the private equity investors. For a more in depth look at the Hellas investments, read this Economist piece. When the global financial crisis hit, Hellas Finance defaulted on the payment-in-kind notes, as did another Hellas subsidiary that had guaranteed the notes.

The  indenture trustee, on behalf of all of the noteholders, brought an action to recover the €200 million and interest from Hellas, a number of the Hellas subsidiaries, and the private equity investors, alleging that the convertible preferred equity certificate redemptions were fraudulently intended to render Hellas Finance, the primary debtor, insolvent. Even though the private equity investors weren’t parties to the payment-in-kind notes, the indenture trustee alleged claims against them for breach of contract, fraudulent conveyances, unlawful corporate distribution, and unjust enrichment, and sought to pierce the corporate veil on an alter ego theory.

The private equity investors moved to dismiss, and Supreme Court granted the motion. The Court held that the indenture that specified the indenture trustee’s powers and rights did not allow it to sue for recovery for the alleged fraud. The Court also dismissed the alter ego claims.

The Appellate Division, First Department modified the order on appeal, and reinstated the indenture trustee’s claims against the private equity investors. The Court held, the indenture governing recovery for default under the payment-in-kind notes “confers standing on the trustee to pursue . . . the fraudulent conveyance and other . . . claims, which seek recovery solely of the amounts due under the notes, for the benefit of all noteholders on a pro rata basis, as a remedy for an alleged injury suffered ratably by all noteholders by reason of their status as note holders” (Cortlandt St. Recovery Corp. v Hellas Telecommunications, S.à.r.l., 142 AD3d 833, 833-834 [1st Dept 2016]). The Appellate Division also reinstated the alter ego theory claims, and then granted leave to the Court of Appeals.

Because the right of the indenture trustee to bring suit is defined by the indenture agreement, the Court of Appeals began its analysis with normal principles of contract law. A contract means what its unambiguous words say. The contract’s language has to be read in context of the obligations. And a court can’t read any language of an agreement to be meaningless. In this case, the indenture agreement provided:

If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, and interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture.

That’s pretty clear, the Court held.  “[A]ny available remedy” means any remedy at law or in equity. “The plain meaning of section 6.03, then, is to authorize a trustee to pursue any lawful means of enforcing the noteholders’ rights, against any individual or entity, based on any viable theory of recovery in order to secure repayment upon the event of a default on the debt to noteholders” (Opn, at 10).

In the context of this case, that means that the indenture trustee isn’t just limited to asserting claims against Hellas Finance, as the debtor, or the Hellas subsidiary, as the guarantor. It can go after the private equity investors too, as long as the recovery it is seeking is for the principal, interest, and related costs of the payment-in-kind notes on behalf of all of the noteholders.

The Court, in dicta, also noted that its plain meaning interpretation of the indenture was consistent with the interpretation of the virtually identical language of the Revised Model Simplified Indenture, and the related commentary by the American Bar Association. The model indenture, the Court noted, appears to have been the form for the indenture in this case, and so the parties surely would have expected the two to have been given the same construction.

The Court was careful to caution, however, that this interpretation of the indenture only holds for post-agreement fraud, like the one alleged here. For fraudulent inducement claims based on pre-indenture misrepresentations, the interpretation is different. In that kind of case, the “any available remedy” language does not give the indenture trustee any right to bring claims for violations of the federal or state securities laws, primarily because the individual noteholders likely will be in different positions, which could create conflicts for the trustee, and can bring their own claims.

Like the Appellate Division, the Court of Appeals too agreed that the indenture trustee had validly stated alter ego theories against the private equity investors. Whether the trustee can make out that case, however, is a different question for a different day.

The case will now proceed back in the trial court, with the indenture trustee trying to show that this all was just a massive fraud to line the private equity investors’ pockets, and the investors arguing that these were legitimate recapitalization efforts that just didn’t end up working out. I’ll leave it to the financial investment experts to guess how that’s going to come out.

The Court of Appeals’ opinion can be found here.

 

Plurality of Court of Appeals Holds Party Barred from Asserting a Federal Compulsory Counterclaim in a Subsequent State Court Suit

A case about movie investments is the latest that has closely divided the Court of Appeals. Actually, the issue before the Court had absolutely nothing to do with the movie or the lost investment. Instead, it’s the kind of issue that sparks interest in the community of appellate lawyers who look at how the courts work—whether res judicata principles bar assertion of a federal compulsory counterclaim in a later state court action when it wasn’t brought in an earlier federal suit on similar facts. Fascinating, I know.

In Paramount Pictures Corporation v Allianz Risk Transfer AG (No. 16), Allianz invested in a Paramount film, but agreed to waive any claims against Paramount and not to sue if the investment went south. The investment tanked, and Allianz sued Paramount in federal court anyway, notwithstanding the waiver of claims and bar to lawsuits. Paramount defended the litigation based on the waiver provision, but never raised the covenant not to sue as an affirmative defense or pleaded Allianz’s breach of it as a counterclaim in the federal suit.

After the federal court predictably dismissed the case because of the waiver provision, Paramount brought this breach of contract suit in state court based Allianz’s breach of the covenant not to sue. Allianz moved to dismiss, arguing that res judicata barred Paramount’s breach of contract claim because it was a mandatory counterclaim that was never asserted in the federal suit and was barred by Rule 13(a) of the Federal Rules of Civil Procedure.

Rule 13(a) requires any party to a suit to assert any mandatory counterclaims that it has in that litigation or else they will later be barred from doing so. That rule has never before applied to New York litigation. Instead, New York is a permissive counterclaim jurisdiction, where a defendant to a New York litigation has no obligation to assert any counterclaims, but can wait to assert its own claims in a separate later action.

Recognizing that New York hasn’t subscribed to Rule 13(a)’s mandatory counterclaim rule, Supreme Court denied the motion to dismiss, citing New York’s permissive counterclaims rule under CPLR 3011. To adopt the federal rule, the Court held, would conflict with New York’s rule.

The Appellate Division, First Department, however, reversed and dismissed the suit. The Court held that Rule 13(a) should be applied in state court litigation, and Paramount’s breach of contract claim was thus barred by res judicata for failure to assert it as a mandatory counterclaim in the federal suit.

A plurality of the Court of Appeals affirmed, in a closely split decision. Three judges joined the plurality opinion (Judges Garcia, Stein, and Fahey), two concurred in the judgment only but for different reasons (Judge Rivera and Chief Judge DiFiore), and one dissented (Judge Wilson). What really split the Court was whether it should even be deciding whether to apply federal res judicata precedent to decide whether Paramount’s breach of contract claim should be barred in state litigation.

Judge Garcia, writing for the plurality, began with the principle that the US Supreme Court has the last word on the preclusive effect of federal judgments. And because federal judgments flow from federal courts exercising different types of jurisdiction—generally either federal question or diversity—the federal rules of preclusion are different for each. For a federal judgment based on federal question jurisdiction alone, the Supreme Court has held, federal res judicata principles apply. For diversity jurisdiction cases, state preclusion rules apply.

But what about so-called mixed jurisdiction cases, where both federal question claims and diversity claims are determined in a case? As Judge Garcia pointed out, “[t]he Supreme Court has not squarely addressed the applicable federally prescribed rule of decision – the uniform federal rules or state preclusion law – in a case where, as here, the judgment in the parties’ federal action encompassed both federal- and state-law claims” (Plurality Opn, at 6). Whether the Court of Appeals should answer that open question of federal law on its own split the Court.

Judge Garcia and the plurality decided it should, and held that federal law applied because applying state law to a mixed jurisdiction case would be contrary to “federal interests” (Plurality Opn, at 7). Judge Garcia explained,

That made a state law res judicata analysis unnecessary to decide whether Paramount’s claim should be barred in the state litigation, the plurality held.

Under federal claim preclusion principles, which look at whether the two claims arise from the same transaction or series of transactions, whether the same evidence is needed for both, whether the facts needed for the second claim were also presented in the first, the plurality held that Paramount’s claim was barred. The investors’ claims in the federal suit and Paramount’s counterclaim were too related not the be tried together. Paramount’s failure to assert the counterclaim in that prior action, thus, barred it from bringing a later state court action to enforce the covenant not to sue.

Judge Rivera and the Chief Judge disagreed with the plurality’s decision to reach the unsettled question of the preclusive effect of the federal judgment in a mixed jurisdiction case. In fact, they argued, the question need not have been answered at all because Paramount’s claims were barred regardless of which res judicata principles applied. As the plurality agreed, Paramount’s claim for breach of the covenant not to sue arose out of the same series of transactions as Allianz’s claims in the federal action, and thus were barred because Paramount did not assert its claim when it had the chance to do so. Judge Rivera criticized the plurality for going too far in what essentially amounted to a mistaken advisory opinion.

Judge Wilson, dissenting, disagreed with both and argued that the Supreme Court, had it addressed the issue of the preclusive effect of a federal judgment in a mixed jurisdiction case, would have parsed the claims based on their jurisdictional predicate. Paramount’s breach of contract counterclaim is a state law claim over which the federal district court had diversity jurisdiction, he argued. So the Supreme Court’s precedent would require application of state res judicata principles, and state law would not bar Paramount’s claim here.

Judge Wilson also argued that the plurality had fundamentally confused FRCP Rule 13(a) with federal res judicata principles as if the two were synonymous. They are not, Judge Wilson noted.

Further, Judge Wilson contended, Rule 13(a)’s compulsory counterclaim rule is a policy choice to protect the federal courts from repeated litigations over the same subject. But that policy doesn’t come into play when the counterclaim is later asserted in state court. It is the state courts, not the federal ones, that would be burdened. And New York’s permissive counterclaim rule is a different policy choice. Indeed, as a Judge Wilson put it, “[i]t would be quite strange, though, for the federal court to ‘extend’ the preclusive effect of its judgment to a subsequent claim, arising from the same transaction or occurrence, brought by a defendant seeking to litigate a state law claim and have his or her own day in state court, where the state has made the choice to allow a defendant that option. Unless a judgment on the separately-filed claim would nullify or undermine the federal judgment, federal courts have neither a res judicata interest nor an efficiency interest in that outcome” (Dissenting Opn, at 14).

I tend to agree with Judge Wilson that the plurality’s approach, effectively applying Rule 13(a) in New York based on federal res judicata principles, ignores the unique jurisdictional based on which state law claims can be heard in federal courts, and then what procedural rules apply to those claims. Although I won’t go so far as to guess how the Supreme Court would answer this unsettled question, I think Judge Wilson’s detailed approach makes sense. State law claims litigated in federal court don’t become any less state law claims merely because they are pleaded together with federal question claims. So, state law procedural rules and res judicata principles should apply when a later state court suit is brought to prosecute a cause of action that could have been asserted in the prior federal action. In that case, New York’s policy choice to allow counterclaims to be litigated separately should rule the day, not federal procedural policies. Nevertheless, the plurality’s approach is now the law of New York. Parties beware.

The Court of Appeals’ opinion can be found here.

Court of Appeals: Private Facebook Posts are Discoverable Under Normal Discovery Rules

Like privacy wonks have always said, everything you do online will live on forever. In metadata, back up tapes, and the cloud. The same is true for what you say on Facebook, Twitter, or any other social media platform. And although privacy settings can protect your content from the general public, limiting it to sharing with specifically designated family and friends, those same protections don’t hold in litigation.

That’s what the Court of Appeals held recently in Forman v Henkin (No. 1), which I previewed here. In Forman, Kelly Forman sued Mark Henkin for injuries she suffered when she fell off one of his horses while riding in a state park on Long Island. Forman alleged that the leather strap attaching a stirrup to the saddle broke and caused her to fall. She claims that she suffered a traumatic brain injury that caused “cognitive deficits, memory loss, inability to concentrate, difficulty in communicating, and social isolation.” Although she was an active Facebook user at the time, about a year after her fall, she deactivated her account. Nonetheless, in discovery, Henkin sought an order compelling her to give him unrestricted access to her Facebook account, including posts from the non-public portion of her account.

Supreme Court granted the motion, in part, and ordered that Forman produce some private posts from her Facebook account, “including all photographs of herself that she privately posted after the accident, except those involving nudity or romantic encounters, and also the timing and length, but not the content, of her private Facebook messages.”

The Appellate Division, First Department, modified the order, however, on a 3-2 vote. The majority vacated the portion of the order requiring production of the private Facebook posts, except for any photos that she intended to use at trial. The majority cautioned that mere speculation that some of the private posts might be relevant is an insufficient basis to require production. The dissenters, however, argued that the majority put too high a burden on discovery of private social media documents. Case law over the last few years has tended toward allowing discovery, they said, and Supreme Court’s order was a proper balance under CPLR 3101(a).

The unanimous Court of Appeals agreed with the Appellate Division dissenters. After spending a bit of time explaining Facebook’s privacy settings, and acknowledging that sharing things on Facebook is still fairly new (in the grand scheme of history), the Court held that “there is nothing so novel about Facebook materials that precludes application of New York’s long-standing disclosure rules to resolve this dispute” (Opn, at 7). New York’s normally broad discovery rules apply. No new or heightened standards for discovery are required, the Court held.

The Court rejected a former First Department rule for private social media discovery, which required the party seeking the information to establish a factual basis for delving into the private posts by showing that information on the public portion of a social media account tended to contradict or conflict with the plaintiff’s alleged injuries or claims. That rule, the Court held, “effectively permits disclosure only in limited circumstances, allowing the account holder to unilaterally obstruct disclosure merely by manipulating ‘privacy’ settings or curating the materials on the public portion of the account” (Opn, at 8). That would be contrary to New York’s policy for allowing broad disclosure in litigation.

Discovery of private social media information isn’t unlimited, however, the Court held. Requests still have to be narrowly tailored and reasonably calculated to reveal relevant information. Fishing expeditions still aren’t allowed.

we agree with other courts that have rejected the notion that commencement of a personal injury action renders a party’s entire Facebook account automatically discoverable. Directing disclosure of a party’s entire Facebook account is comparable to ordering discovery of every photograph or communication that party shared with any person on any topic prior to or since the incident giving rise to litigation – such an order would be likely to yield far more nonrelevant than relevant information. Even under our broad disclosure paradigm, litigants are protected from unnecessarily onerous application of the discovery statutes (Opn, at 9-10 [cleaned up]).

Providing useful guidance to the trial courts supervising discovery, the Court took the opportunity to explain what the inquiry should be when discovery disputes arise.

In the event that judicial intervention becomes necessary, courts should first consider the nature of the event giving rise to the litigation and the injuries claimed, as well as any other information specific to the case, to assess whether relevant material is likely to be found on the Facebook account. Second, balancing the potential utility of the information sought against any specific “privacy” or other concerns raised by the account holder, the court should issue an order tailored to the particular controversy that identifies the types of materials that must be disclosed while avoiding disclosure of nonrelevant materials. In a personal injury case such as this it is appropriate to consider the nature of the underlying incident and the injuries claimed and to craft a rule for discovering information specific to each. Temporal limitations may also be appropriate – for example, the court should consider whether photographs or messages posted years before an accident are likely to be germane to the litigation. Moreover, to the extent the account may contain sensitive or embarrassing materials of marginal relevance, the account holder can seek protection from the court (see CPLR 3103[a]) (Opn, at 10).

Litigants and the courts now have a defined rule to apply—and to me what seems to be a sensible approach—when disputes come up about whether private social media posts should be discoverable. I’m sure further litigation will clarify how the rule applies in different and unique circumstances, but a little bit of predictability here should go a long way.

The Court of Appeals’ opinion can be found here.

Court of Appeals: Sorry, Judges. The State’s Contribution to Your Health Insurance is Not Part of Your Compensation

New York employees have pretty great health insurance options. Having left the State’s employ and its health insurance to move to the private sector and non-collectively bargained health insurance, believe me, I know. Premiums are low. Coverage is high. And the State covers a substantial part of the cost. So too for New York’s judges. They are state employees with access to New York’s health insurance plans, and the State too pays a significant portion of their health insurance premiums.

But in 2011, when the State was faced with a budget crisis, it negotiated with the State-employee unions to, among other things, reduce the percentage of health insurance premiums for which it was responsible. The deal avoided layoffs, so the unions agreed, and the Legislature thereafter adopted Civil Service Law § 167(8) to effectuate the reductions for nearly all State employees and retirees, including the State’s 1,200 judges. As a result of the amendment, the State’s percentage of the judges’ health insurance premium contribution was reduced from 90% to 84%.

Here’s the rub. To ensure that the State’s judges are protected from political influence by manipulation of their pay, Article VI, § 25 of the New York Constitution protects the judges’ compensation from diminishment. In particular, the Judges’ Compensation Clause provides that “the compensation of State sitting and retired judges: ‘shall be established by law and shall not be diminished during the term of office for which [a judge] was elected or appointed'” (Opn, at 5, quoting NY Const, art VI, § 25[a]). The term “compensation” isn’t defined in the Compensation Clause, however.

Seizing on the ambiguity, 13 sitting and retired judges and a few associations of judges challenged the reduction of the State’s health insurance premium contributions, arguing that it violated the Compensation Clause by reducing the judges’ total compensations, which they read broadly to include all salary and benefits paid by the State.

Supreme Court, New York County agreed, and declared Civil Service Law § 167(8) and its implementing regulations unconstitutional as applied to the State’s judges. Particularly, the Court held, the First Department had previously taken a broad view of the term “compensation” to include both wages and benefits. The Court also found persuasive a case from the New Jersey Supreme Court, where that court held that a similar diminution in the compensation of New Jersey judges violated the New Jersey Constitution.

Because the only question involved in the case was the constitutionality of Civil Service Law § 167(8) under the Compensation Clause, the State used a rarely invoked provision of the Court of Appeals’ jurisdiction to appeal directly from the Supreme Court judgment to the Court of Appeals. CPLR 5601(b)(2) provides that “[a]n appeal may be taken to the court of appeals as of right . . . from a judgment of a court of record of original instance which finally determines an action where the only question involved on the appeal is the validity of a statutory provision of the state . . . under the constitution of the state.” This is a very limited right to appeal, but the majority felt that it fit in this case.

On appeal in Bransten v State of New York (No. 67), the Court of Appeals held that under the Compensation Clause, protected judicial “compensation” includes only “a judge’s salary and any additional monies that serve as a permanent remuneration for costs necessarily incurred in fulfillment of a judge’s judicial obligations” (Opn, at 7). From the Court’s prior case law on the topic, the Court gleaned two essential features of protected compensation: “the remunerative purpose and the permanence of the legislative allotment” (Opn, at 8). The health insurance premiums, the majority held, fit under neither of these criteria.

Indeed, if the health insurance premiums were included as compensation, all benefits, even the most trivial like parking privileges, could be viewed as protected. Those benefits are not what the Constitution intended to protect when it sought to free the judiciary from political meddling. Therefore, the majority held,

While the reduction in the State’s contributions to the costs of health insurance premiums would increase a participating judge’s share of the cost associated with the chosen health care plan, such an increase is not the equivalent of a direct reduction in judicial compensation. It is a cost that is voluntarily assumed by the participating judges, and affects salary only indirectly as the judge must make up the difference.

Justice Dillon, sitting by designation from the Second Department, concurred in the reversal of the Supreme Court judgment, but for a starkly different reason. He reasoned that the term “compensation” should be read broadly to include the health insurance premiums, but would have held that the plaintiffs failed their burden to establish entitlement to judgment as a matter of law regardless. As Justice Dillon explained, given the presumption of constitutionality to which state statutes are entitled, the Plaintiffs failed to submit any evidence that the State would actually be paying less money overall to judges. A violation of the Compensation Clause, he reasoned, requires a showing that total compensation will be diminished, not just that the percentage that the State pays for health insurance premiums will be reduced. In fact, Justice Dillon noted,

If, for instance, the State’s contributions toward health care insurance premiums increase in a relevant year by a dollar amount that exceeds the value of the State’s 6% reduction in contributions for jurists or the 2% reduction for retirees, the judiciary, rather than suffering a diminution of overall compensation, may arguably come out “ahead” in the equation. In other words, the 6% or 2% contribution reductions toward premiums, as authorized by Civil Service Law § 167(8), do not necessarily and mathematically reduce the value of the insurance payments provided by the State, like a see-saw, without additional evidence that insurance payments by the State have not independently risen by 6% or 2% or more, if at all.

Judge Wilson, continuing his trend as the judge most focused on the intricate matters of the Court’s jurisdiction, objected to the Court’s taking the case on direct appeal from Supreme Court. As Judge Wilson saw it, the potential diminution in the judges’ compensation came not from Civil Service Law § 167(8), but from its implementing regulations. Section 167(8) was just a grant of authority to adopt regulations, which did not itself cause any diminution in judicial compensation. Because the plaintiffs never challenged the implementing regulations, and CPLR 5601(b)(2) only authorizes a direct appeal for constitutional questions of “the validity of a statutory provision of the state,” not for challenges to regulations, Judge Wilson would have declined to take the case.

In the end, the Court of Appeals has now limited the scope of the Judicial Compensation Clause and provided a specific definition of what constitutes protected judicial “compensation” under the New York Constitution. Although it’s an interesting issue, it certainly doesn’t seem like one that will come up much more in the future, save for maybe the jurisdictional point.  For as Judge Wilson put it, “our decision today creates an amorphous jurisdictional portal, which may open for others in the future” (Wilson, J., concurring, at 2-3). We shall see.

The Court of Appeals’ opinion can be found here.

 

 

Court of Appeals Answers Second Circuit Certified Questions in World Trade Center Cleanup Suit Against Battery Park City Authority

After the 9/11 terrorist attack, first responders and volunteers spent weeks/months/years cleaning up the City from the debris and dust left after the World Trade Center towers fell. A few of the buildings that were cleaned up were owned by the Battery Park  City Authority, a public benefit corporation created by the Legislature to spur economic redevelopment in Battery Park. When the workers doing the cleanup began to fall ill because of the cleanup of toxic dust, they brought personal injury claims against the BPCA in federal court for negligence and violations of NY Labor Law §§ 200 and 241(6) for failing to provide a safe workplace.

The plaintiffs’ claims were dismissed on July 29, 2009, however, for failure to timely serve a notice of claim pursuant to the Public Authorities Law. Afterwards, the New York Legislature enacted “Jimmy Nolan’s Law,” which revived the time-barred claims against the BPCA and provided the plaintiffs with an additional year to serve the notices of claim. The eight plaintiffs then took advantage of the new law and sued BPCA again. BPCA moved for summary judgment dismissing the claims and challenging the constitutionality of Jimmy Nolan’s Law on due process grounds. The State intervened in defense of the statute and argued that BPCA, as a public benefit corporation, lacks capacity to challenge the constitutionality of the state statute.

As I previewed in more depth here, New York generally follows the traditional rule that municipalities and other arms of the State lack capacity to challenge the acts of the State as their creator, including state legislation. BPCA argued, however, that as a public benefit corporation it is different. Under the Court of Appeals’ decision in Clark-Fitzpatrick, Inc. v Long Is. R.R. Co. (70 NY2d 382, 387 [1987]), BPCA argued, “a particularized inquiry is necessary to determine whether—for the specific purpose at issue—the public benefit corporation should be treated like the State.”

The District Court (SDNY) held that the BPCA is an entity independent of the State because it “was created to be independent of the State in performing primarily private functions, funded primarily by private means,” through issuance of bonds (Matter of World Trade Ctr. Lower Manhattan Disaster Site Litig., 66 F Supp 3d 466, 472 [SDNY 2014]). Thus, the District Court concluded that BPCA had capacity to challenge the statute on due process grounds, and held that Jimmy Nolan’s Law violated the BPCA’s due process rights under the New York Constitution (see id. at 476).

On appeal, the Second Circuit did not find New York law on whether a public benefit corporation has capacity to challenge a state statute on constitutional grounds to be so clear. Instead, the Second Circuit held, it is “unclear whether New York courts have applied the [Clark-Fitzpatrick] particularized-inquiry test in the present context—that is, to determine whether a public benefit corporation should be treated like the State for the purpose of having the capacity to raise a constitutional challenge to a State statute” (Matter of World Trade Ctr. Lower Manhattan Disaster Site Litig., 846 F3d 58, 64 [2d Cir 2017]).

So, the Second Circuit certified two questions to the Court of Appeals:

(1) Before New York State’s capacity-to-sue doctrine may be applied to determine whether a State-created public benefit corporation has the capacity to challenge a State statute, must it first be determined whether the public benefit corporation “should be treated like the State,” see Clark–Fitzpatrick, Inc. v. Long Island R.R. Co., [70 N.Y.2d 382, 521 N.Y.S.2d 653] 516 N.E.2d 190, 192 ([ ]1987), based on a “particularized inquiry into the nature of the instrumentality and the statute claimed to be applicable to it,” see John Grace & Co. v. State Univ. Constr. Fund, [44 N.Y.2d 84, 404 N.Y.S.2d 316] 375 N.E.2d 377, 379 ([ ]1978), and if so, what considerations are relevant to that inquiry?; and

(2) Does the “serious injustice” standard articulated in Gallewski v. H. Hentz & Co., [301 N.Y. 164] 93 N.E.2d 620 ([ ]1950), or the less stringent “reasonableness” standard articulated in Robinson v. Robins Dry Dock & Repair Co., [238 N.Y. 271] 144 N.E. 579 ([ ]1924), govern the merits of a due process challenge under the New York State Constitution to a claim-revival statute?

Answering those two certified questions in Matter of World Trade Center Lower Manhattan Disaster Site Litigation (Faltynowicz et al v Battery Park City Authority and two others) (No. 119), the Court of Appeals held that public benefit corporations are no different than any other arm of the State for purposes of capacity to challenge a state statute. Thus, they must fall within one of recognized exceptions to the general incapacity rule before they can bring such a claim, and “no ‘particularized inquiry’ is necessary to determine whether public benefit corporations should be treated like the State for purposes of capacity” (Opn, at 5).

Public benefit corporations, which are vehicles for funding public projects, the Court held, have two purposes: (1) to “protect the State from liability” and (2) to “enable public projects to be carried on free from restrictions otherwise applicable” if the State was the project sponsor. In that way, public benefit corporations have an existence separate from the State. That separate existence for those limited purposes, however, does not mean that public benefit corporations, as agents of the State, fall outside of New York’s general rule that subdivisions of the State lack capacity to challenge the acts of their creator on constitutional grounds. Indeed, the “particularized inquiry” test applied in Clark-Fitzpatrick applies only to public benefit corporations’ relationships with private parties, not to its relationship with the State. Thus, the Court held, “with few exceptions, [New York’s] capacity bar closes the courthouse doors to internal political disputes between the State and its subdivisions,” such as those in this case (Opn, at 9).

Reviewing the second certified question, the Court concluded that the “serious injustice” standard and the “reasonableness” standard aren’t really that different, although the different terminology has been used in prior precedent. Clarifying, therefore, what standard applies to the merits of a due process claim to a claim-revival statute, the Court held “a claim-revival statute will satisfy the Due Process Clause of the State Constitution if it was enacted as a reasonable response in order to remedy an injustice” (Opn, at 32). As the Court explained, under that standard, a claim-revival statute will be constitutional if there was “an identifiable injustice that moved the legislature to act” and “the legislature’s revival of the plaintiff’s claims for a limited period of time was reasonable in light of that injustice” (Opn, at 30-31). A higher standard of review would be too much, the Court held.

A more heightened standard would be too strict. In the context of a claim-revival statute, there is no principled way for a court to test whether a particular injustice is “serious” or whether a particular class of plaintiffs is blameless; such moral determinations are left to the elected branches of government. While we have traditionally expressed an aversion to retroactive legislation, of which claim-revival statutes are one species, we have noted that the modern cases reflect a less rigid view of the Legislature’s right to pass such legislation. Nonetheless, there must first be a judicial determination that the revival statute was a reasonable measure to address an injustice

(Opn, at 31-32 [cleaned up]).

Judges Rivera and Wilson wrote separately to expand on their views of the issues. Judge Rivera explained her view of the second certified question that “unless it impinges on a separate vested property right and not merely the hope of avoiding litigation, a claim-revival statute does not violate due process, because defendant has no fundamental right to a statute of limitations in perpetuity” (Rivera, J., concurring, at 9). And Judge Wilson argued, on the first certified question, that the question was not one of capacity at all. Plainly, he thought, the BPCA has capacity to bring a suit.  What it doesn’t have, Judge Wilson explained, is prudential standing that would make the question justiciable. Judge Wilson would have gone farther too, to offer for the Second Circuit a view of the case on the merits: BPCA loses.

With those questions answered, the case will proceed back to the Second Circuit for a decision on whether BPCA has capacity to challenge Jimmy Nolan’s Law (after the Court of Appeals decision, there is likely zero chance that it does) and whether BPCA’s due process claims will succeed on their merits (even if BPCA had capacity, its claims would still likely fail under the Court’s newly clarified standard). So, in all likelihood, the plaintiffs’ personal injury claims will proceed in District Court with BPCA on the hook for damages.

The Court of Appeals’ opinion can be found here.

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