MEDIA

August 11, 2006

Should State Drug Offenses Be Termed ‘Serious’ for Federal Cases?

Published in: New York Law Journal | volume 236

In the U.S. District Court for the Eastern District of New York,. In deciding whether prior state drug convictions should be counted as ‘serious’ offenses for purposes of federal sentencing enhancements under the Armed Career Criminal Act, Judge David G. Trager looked to recent ameliorative changes in New York law rather than to the harsher laws in effect at the time of defendant’s state court convictions. Chief Judge Edward R. Korman denied an application for attorney’s fees in a medical malpractice case that had settled for $2.4 million. Judge I. Leo Glasser, rejecting as frivolous plaintiff’s claim under the Fair Debt Collection Practices Act, awarded attorney’s fees to defendant. And Judge Arthur D. Spatt held that plaintiff, as a member of defendant limited liability corporation (LLC), lacked standing to bring a Racketeer Influenced and Corrupt Organizations Act (RICO) suit based on injuries suffered by reason of his interest in the LLC.

Armed Career Criminal Act

In United States v. Hammons, 05 CR 280 (EDNY, July 18, 2006), Judge Trager held that defendant’s 1994 state felony convictions did not qualify as predicate convictions warranting a sentencing increase under the Armed Career Criminal Act (ACCA), 18 USC § 922(g)(1), 924(e), because under recent changes in New York law these felonies no longer carry a maximum sentence of 10 or more years.

In 2005, defendant was charged federally with being a felon in possession of a firearm. He had one prior federal conviction and three prior state convictions. The state convictions related to a 1994 guilty plea to three separate instances of attempted possession of a controlled substance with intent to sell in the third degree, a Class C felony. N.Y. Penal Law § 220.16(1). In 1994, the maximum sentence for those offenses was 15 years. N.Y. Penal Law § 70.00(2).

ACCA provides for sentencing enhancements when a defendant has previously been convicted of three ‘serious drug offenses.’ It defines a ‘serious drug offense’ under state law as one involving controlled substances ‘for which a maximum term of imprisonment of ten years or more is prescribed by law[.]’

In 2004, the Rockefeller Reform Act in New York amended the ‘Rockefeller drug laws’ by lowering the maximum sentence for Class C felonies such as defendant’s to five and one-half years. N.Y. Penal Law § 70.70; 2004 N.Y. Laws Ch. 738 (effective Jan. 13, 2005). The sponsors of the bill described the old laws as providing ‘inordinately harsh punishment for low-level non-violent drug offenders.’

The government argued here that the Rockefeller Reform Act is not retroactive and thus defendant, if sentenced today in state court for the 1994 convictions, would still be eligible for a qualifying maximum sentence.

As Judge Trager observed, ACCA looks to a state’s sentencing policies to judge the ‘seriousness’ of a drug conviction. In United States v. Morton, 17 F3d 911 (6th Cir. 1994), the U.S. Court of Appeals for the Sixth Circuit held that the ACCA enhancements did not apply where the state had lowered the maximum sentence below 10 years since the conviction. Morton did not discuss the retroactivity of the Tennessee statute in question. Nevertheless, the Fourth and Fifth Circuits, distinguishing Morton on the basis of Tennessee’s retroactivity provisions, have applied ACCA despite recent ameliorative changes in state law.

Judge Trager disagreed with the U.S. Court of Appeals for the Fourth and Fifth circuits. ‘It is not at all clear,’ the court noted, ‘that [defendant] would be subject, in State court today, to a maximum sentence of over 10 years’ for his 1994 convictions. The retroactivity issue in question is now before the New York Court of Appeals. In any event, ‘the state has in fact made its new policy of lowering sentences retroactive for many sentenced defendants through other means.’ Slip op. 7. For those who had faced the harshest punishment (for a class A-1 felony offense), the state has offered the opportunity of resentencing. For other defendants, the state has expanded the availability of ‘merit time allowances’ to shorten sentences. This approach, Judge Trager observed, implements the new policy while avoiding the enormous burden on state courts of dealing with thousands of re-sentencings if the statute were made fully retroactive to all felonies.

Judge Trager found these policy decisions by the state to be dispositive, especially in light of ACCA’s plain language–which defines a ‘serious drug offense’ as one for which a maximum of 10 or more years ‘is’ prescribed. Having no trouble with what the meaning of ‘is’ is, Judge Trager viewed the current sentencing structure as relevant, rather than the one that ‘was’ previously provided.

As to the government’s argument that the term ‘is’ refers to the former sentencing structure, the rule of lenity would require any such statutory ambiguity, if it even exists, to be resolved in defendant’s favor. Slip op. 9- 11.

Attorney’s Fees: Medical Malpractice

In D.F., an infant by his Mother and Natural Guardian Z.C. v. Mt. Sinai-NYU Medical Center Health Systems, 04 CV 1507 (EDNY, July 19, 2006), Chief Judge Korman denied a request for legal fees by a former lawyer, Steven F. Goldman, who had represented an infant and his mother in a medical malpractice action arising out of the infant’s premature birth. (In 2005 Mr. Goldman had resigned from the bar for improprieties not relating to this case).

In July 2004 the parties agreed to settle the case for $2.4 million. Mr. Goldman submitted an application to Chief Judge Korman to approve the settlement. The court found those papers so ‘utterly inadequate’ that it appointed a Special Master to evaluate the settlement and recommend whether it should be approved.

The Special Master also evaluated the attorney’s application for $408,000 in legal fees and $20,000 in disbursements. After checking the fee calculation against the sliding scale percentage under N.Y. Judiciary Law § 148(a), the Special Master detected a $20,000 overcharge. In correspondence with the Special Master, Mr. Goldman acknowledged that the fee under New York law would be $388,000, not $408,000.

Following a hearing on these issues, Chief Judge Korman concluded that Mr. Goldman ‘knowingly submitted false and inflated claims for counsel fees and disbursements.’ Because of this violation of the Disciplinary Rules, the court denied the fee application in its entirety.

To complete the record for appeal, the court made clear that, even had there been no misconduct, it would have reduced the fee from $388,000 to $100,000. The reasons for this reduction turned principally on ‘the grossly incompetent and inexplicable manner in which Mr. Goldman conducted himself’ after the settlement agreement.

By way of limited example, Mr. Goldman’s post-settlement application ‘did not contain any of the information necessary to make a judgment on the reasonableness of the settlement agreement.’ When requested to address the court’s specific concerns, Mr. Goldman provided an affidavit containing nothing to help determine ‘the nature of the malpractice or the strength of the case or the adequacy of the settlement amount.’

Ultimately, the court was obliged to retain its own medical expert to obtain ‘sufficient information about the nature of the case and the infant’s needs.’

In addition, Mr. Goldman failed to prepare a Special Needs Trust and showed an ignorance of the infant’s needs and the purpose of the trust. Though Mr. Goldman had proposed the child’s mother as the sole trustee, the guardian ad litem advised the court that the mother does not speak English and would have no capacity to manage the proceeds of the settlement. ‘In sum, Mr. Goldman’s incompetence would have placed at risk the benefits of the settlement that the infant desperately needed.’

As Chief Judge Korman also noted, ‘it took an extraordinary effort by myself, the Special Master and the guardian ad litem (who ultimately prepared a Special Needs Trust)’ to obtain the necessary information and protect the child’s interests.

Chief Judge Korman cited the court’s supervisory authority to reduce Mr. Goldman’s fee for the 188 hours he expended to achieve the settlement. This result was intended to send a message to other attorneys that there is a price to be paid for post-settlement carelessness and incompetence, particularly in infant’s compromise cases.

Frivolous Litigation

In Jacobson v. Healthcare Financial Services, Inc., 04 CV 3268 (EDNY, June 6, 2006), Judge Glasser granted summary judgment to defendant, dismissing an action alleging violations of the Fair Debt Collection Practices Act (the FDCPA) and awarding attorney’s fees to defendant.

Plaintiff alleged that defendant’s letter demanding payment of a $492 debt violated the FDCPA in two respects: first, the demand for payment within 30 days did not clearly set forth plaintiff’s right to dispute the demand within 30 days; and second, defendant’s language ‘shortened’ the 30-day period by creating an ambiguity as to whether the payment was due within 30 days of the date of the letter or receipt of the letter.

The purpose of the FDCPA is to eliminate abusive debt-collection practices, such as using obscene language or threats, misrepresenting consumers’ legal rights, disclosing consumers’ personal affairs to others, impersonating public officials and creating the false appearance of legal process. In analyzing claims under the FDCPA, the court employs an objective standard–measuring conduct by how the ‘least sophisticated consumer’ would perceive it. The purpose of the standard is to protect the most vulnerable consumers who are the least-equipped to deal with unscrupulous debt collectors.

As Judge Glasser noted, ‘the interaction of the least sophisticated consumer standard with the presumption that the FDCPA imposes strict liability’ has created a cottage industry of professional plaintiffs composed of sophisticated consumers suing to take advantage of the FDCPA liability scheme. Since 2002 the number of cases filed in the Eastern District under the FDCPA has jumped from four in 2002 to 85 in the first five months of 2006, including a second case filed by this very plaintiff.

Here, defendant’s demand included a ‘validation notice,’ as required by the FDCPA, informing the consumer of certain rights. Because that notice tracked the language of the statute, it is presumed to fulfill the statutory requirement. As the court observed, even with plaintiff’s effort to parse the demand letter ‘with microscopic scrutiny,’ his position ‘that the least sophisticated consumer would feel harassed, abused, misled or deceived would defy credulity.’ Slip op. 12.

Plaintiff’s counsel’s admitted that plaintiff did not feel ‘harassed, threatened or misled by the letter’ and failed to deny that plaintiff owed the money. Concluding that plaintiff knew his claim was meritless and pursued it to harass defendant, Judge Glasser granted costs and attorney’s fees to defendant.

RICO Standing

In At the Airport v. ISATA, LLC, 05 CV 3544 (EDNY, July 5, 2006), Judge Spatt granted defendants’ motion to dismiss a RICO complaint based on claims that defendants diverted the assets of ISATA. The court found that plaintiff lacked standing under RICO to bring a claim because plaintiff had a derivative, not a direct, claim, as a member of an LLC.

Plaintiff and defendants formed ISATA LLC, a New York limited liability company to operate duty-free shops and other concessions at JFK Airport. Plaintiff owned 20 percent of ISATA, and defendant ISLLC owned 80 percent. Plaintiff claimed that defendants delayed obtaining a customs bond so that they could control ISATA’s operations at JFK, allowing them to manipulate expenses and divert assets to themselves and family members.

A RICO plaintiff must show a RICO injury, both factually and proximately caused by a violation of the RICO statute. For proximate case, (1) plaintiff’s injury must result from defendants’ racketeering activity or commission of RICO predicate acts, and (2) defendants’ acts must be a substantial factor in the sequence of reasonable causation and the injury must be reasonably foreseeable or anticipated. A shareholder or creditor generally does not have standing to assert a RICO cause of action based on claims of injury suffered by a third party (such as a debtor or company) in which plaintiff has a financial interest.

Plaintiff’s alleged injury was the loss of revenue from ISATA, an LLC in which plaintiff was a member. Judge Spatt found this injury derivative of ISATA’s injury and insufficient to establish the proximate cause necessary to maintain a RICO cause of action. Plaintiff had argued that because the New York Limited Liability Company Act does not expressly provide for derivative claims against an LLC, it should have standing to bring a RICO claim. Judge Spatt rejected this reasoning because there was no prohibition in the LLC Act against a member bringing a derivative claim, and one federal court in this district has held that such an action can be implied.

Plaintiff also relied on the ‘special duty exception’ to the general rule prohibiting shareholder standing in RICO cases. But this exception applies only where a shareholder was fraudulently induced to invest. Here, all the alleged misconduct took place while plaintiff was already a member of the LLC. Slip op. 20.

Harvey M. Stone and Richard H. Dolan are partners at Schlam Stone & Dolan. Bennette D. Kramer, a partner of the firm, assisted in the preparation of the article.

[This article is reprinted with permission from the August 11, 2006, issue of the New York Law Journal. Copyright © 2007 ALM Properties, Inc. All rights reserved. Further duplication without permission is prohibited.]