This column reports on several significant, representative decisions handed down recently in the U.S. District Court for the Eastern District of New York. Judge Jack B. Weinstein imposed an exceptionally lenient sentence on a defendant who had suffered losses from the chaos in Syria. Judge Arthur D. Spatt explained the requirements of a complaint in admiralty that would allow defendant to implead a third party under Rules 14(c) and 9(h). And Judge Pamela K. Chen addressed the circumstances in which claims of fiduciary breach may be asserted by a mortgagor against a mortgage servicer.
Leniency in Sentencing
In United States v. Al Sabsabi, 14 CR 583 (EDNY, June 16, 2016), Judge Weinstein explained the reasons for a lenient sentence based largely on the hardships suffered by defendant, a recent immigrant from Syria, resulting from the civil war in that country. The court’s Statement of Reasons for Sentence exemplifies the latitude available to impose a just sentence in light of the general provisions of 18 U.S.C. §3553(a), relating (among other things) to the purposes of sentencing and “the history and characteristics of the defendant,” without being unduly restricted to the detailed offense and offender characteristics set forth by the Sentencing Commission in the U.S. Sentencing Guidelines.
Defendant pleaded guilty to conspiring to sell at least $674,000 in counterfeit U.S. dollars. His guidelines sentencing range was 41 to 51 months. Weinstein sentenced defendant to four months’ time already served in prison, 17 months of house arrest and three years of supervised release.
The conspiracy started in the Middle East in 2011. Defendant apparently became involved in July 2014, shortly after he moved to the United States. He had previously traveled to the United States for bypass surgery in 2012, stayed for about a year to recover from that and pneumonia, then went back to Syria.
Before turning to the considerations set forth in §3553(a), the court emphasized that “parsimony in incarceration is to be prized” given the deleterious effects of excessive imprisonment on individuals, society and the economy.
Weinstein then considered the “nature and circumstances of the offense and the history and characteristics of the defendant.” 18 U.S.C. §3553(a)(1). The court cited a number of factors to support its view that the sentence was “sufficient, but not greater than necessary, to comply with the purposes” of sentencing. 18 U.S.C. §3553(a).
The court observed that defendant has been married to his wife for 44 years, and has six daughters, all “loving of him.” His wife, moreover, requires physical therapy. But the factors weighing most heavily in favor of leniency were the harsh effects of the war in Syria:
- Because of that war, defendant has “nothing” in Syria anymore. He was forced to close his real estate business at the start of the uprising. His farmland was taken by ISIS and another terrorist organization. His car was destroyed in an explosion.
- Defendant, depressed since his arrest, receives financial support from a daughter and son-in-law.
As Weinstein also noted, defendant may be deported following his release from custody, “but it is unlikely he can be sent back to Syria while it is in chaos.” Slip op. 9.
In Seemann v. Coastal Environmental Group, 15 CV 2065 (EDNY, July 2, 2016), Judge Spatt dismissed a third-party action on procedural grounds. Plaintiff was injured in an accident on a self-propelled barge. He sued Coastal Environmental Group, Inc., his employer and lessee of the barge, asserting negligence claims and the unworthiness of the vessel. Defendant sought to implead the barge’s owner, GSI Disaster Services, Inc., pursuant to Fed. R. Civ. P. 14(c). The issue here was whether that third-party action was procedurally proper under Rule 14(c).
This decision examined the requirements, under Rule 14(c), for bringing a third-party claim in the admiralty context, and illustrates the barriers against an interpleader–to a defendant’s disadvantage, and possibly plaintiff’s–when the original complaint is not sufficiently specific. Slip op. 4-13. Rule 14(c), applicable to admiralty and maritime cases brought under Rule 9(h), allows a third-party plaintiff to implead a third party who is wholly or partially liable to the original plaintiff or the third-party plaintiff for contribution arising from the same transaction or occurrence.
Rule 14(c) also allows a defendant to demand judgment on the plaintiff’s behalf against the third-party defendant, and the third-party defendant must defend against both the plaintiff’s and the third-party plaintiff’s claims. The plaintiff may obtain relief directly from the third-party defendant.
To trigger Rule 14(c), the plaintiff must have specifically designated a claim as an admiralty or maritime claim under Rule 9(h). In this case, plaintiff had a basis for federal jurisdiction apart from admiralty jurisdiction. Although plaintiff asserted claims that could have been designated as admiralty or maritime, he did not so designate his claims. As a result, the court considered whether the third-party claim here should be dismissed as procedurally improper because it did not meet the requirements of Rule 9(h). In contrast, under Rule 14(a), a defendant may bring a third-party claim only against a non-party whose liability extends solely to that defendant/third-party plaintiff for all or part of the claim against it.
Here, in order to preserve his right to a jury trial, which he would not get if he designated an admiralty claim under Rule 9(h), plaintiff invoked federal question jurisdiction under 28 U.S.C. §1331, referring to the Jones Act and Admiralty and Maritime Law. Spatt concluded that plaintiff had not adequately designated his claim as an admiralty claim under Rule 9(h) so as to make the flexible procedural provisions of Rule 14(c) applicable.
Even though plaintiff asserted claims that might invoke admiralty jurisdiction; i.e., claims for unseaworthiness and maintenance and cure benefits; his demand for a jury trial showed an intent on his part not to designate his claims under 9(h) and not to proceed under admiralty jurisdiction. Thus, Coastal’s attempt to implead GSI under Rule 14(c) was procedurally improper and the court dismissed the third-party complaint without prejudice to bringing a third-party claim under Rule 14(a). The court also noted that plaintiff could seek to amend his complaint to add GSI as a defendant and to make clearer whether he intended to proceed under admiralty or federal question jurisdiction. Slip op. 13.
In Dolan v. Select Portfolio Servicing, 03-CV 3285 (EDNY June 22, 2016), Judge Chen gave useful guidance concerning when a mortgage servicer’s actions in breach of an underlying mortgage agreement may support a mortgagor’s claim of fiduciary breach against the servicer.
Mortgagee Michael Dolan brought a federal action against Select Portfolio Servicing (SPS) and others who serviced his mortgage for the lender, The Money Store (TMS). In later, amended pleadings, Dolan ultimately alleged that SPS had breached its fiduciary duty to him by: (1) exploiting his default to force him to accept an unfair forbearance agreement against his will, and (2) taking out excessive property insurance without notice to him and accepting kickbacks from the insurer. In a state court foreclosure action against Dolan that began before and ran contemporaneous to the federal action, the state court found that TMS had failed to establish the presence of a default at the time the proceedings were commenced and that, with respect to Dolan’s counterclaims, TMS and its servicers had engaged in predatory lending practices.
The federal action was assigned originally to Judge Denis R. Hurley, and re-assigned to Judge Chen in April 2013. In a March 2013 summary judgment decision, Hurley had found that SPS, as agent to TMS, had a fiduciary duty under the mortgage “to make specified payments, including tax payments, from the escrow fund.” Slip op. 11 (quoting Hurley decision). A borrower may make such payments himself or outsource that obligation to the lender or its servicer and, when it is outsourced, the party accepting that obligation generally has a fiduciary duty to the borrower in making such payments. In January 2016, SPS, then the sole remaining defendant, moved for summary judgment on Dolan’s breach of fiduciary duty claims. In opposing summary judgment, Dolan argued that, because he placed trust and confidence in SPS, it had a fiduciary duty beyond those Hurley had recognized.
Chen found that no broader fiduciary duty arose from SPS’s role as Dolan’s mortgage servicer because Dolan failed to show that SPS or TMS had an “unusual advantage” over him sufficient to distinguish their relationship from the ordinary, non-fiduciary lender/borrower relationship. She proceeded to consider whether the duty Hurley had identified was sufficient to support claims of fiduciary breach arising from SPS’s role in: (1) negotiation, offer and enforcement of a forbearance agreement, or (2) purchasing insurance for the mortgaged property.
Dolan’s claims relating to the forbearance agreement were dismissed. The state court findings were not binding on SPS because it had not been a party, Slip op. 9-10, and Dolan’s allegations that the agreement was imposed against his will went beyond the payment obligations that Hurley had found to define SPS’s fiduciary duty. Slip op. 13-15.
The claims for fiduciary breach arising from SPS’s purchase of insurance, however, survived. Dolan alleged that SPS had taken out more insurance than was necessary to protect the lender’s right in the property, had taken kickbacks from the property insurer, Balboa, while doing so, and had failed to give Dolan prior notice of the purchases. These allegations described violations of the duty “to make specified payments . . . from the escrow fund” that Hurley had found. Dolan would not be allowed to refer to kickbacks at trial unless an evidentiary basis was established, but would be allowed to call a representative from Balboa in order to explore whether the insurance was excessive. Slip op. 16-17.