Current Developments in the US District Court for the
Eastern District of New York
In In re: HSBC Bank, USA, N.A. Debit Card Overdraft Fee Litigation, 13 MD 2451 (E.D.N.Y. April 21, 2014), Judge Arthur D. Spatt took the rare step of granting a motion for reconsideration in a class action involving allegations that HSBC customers were improperly charged “overdraft fees” on debit card transactions. Plaintiffs claimed that the bank posted debits in a “largest to smallest” order instead of chronologically in order to maximize overdraft fees for itself, allegedly in violation of the bank’s agreements with customers.
The Court had originally dismissed plaintiffs’ claims for violation of New York General Business Law (“GBL”) § 349 and breach of contract. The GBL claim was dismissed as untimely because the federal class action was filed more than three years after the conduct at issue. Upon reconsideration, the Court held that because the plaintiffs had originally filed their claim in New York state court and received a dismissal without prejudice, they should have been entitled to the benefit of tolling under the U.S. Supreme Court’s decision in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974). Further, the Court recognized that the state court action provided HSBC with timely notice of the GBL claim, and so “HSBC cannot be heard to complain about lack of notice or prejudice in having to defend against this claim.” Id. at 13.
The breach of contract claim had been dismissed for failure to allege a breach of a specific term of the contracts at issue. Upon reconsideration, the Court acknowledged that it “overlooked” some of the provisions in the debit card agreements, in particular a provision stating that debit card transactions would be treated as a “simultaneous withdrawal” from customers’ checking accounts. Id. at 14.
On April 23, 2014, the Second Circuit issued a decision in European Community v. RJR Nabisco, No. 11-2475-cv, reversing a decision of the EDNY holding that “RICO does not apply to enterprises outside the United States.”
In European Community, the plaintiff asserted RICO and associated state law claims against the defendants alleging a multi-step international scheme involving “the smuggling of illegal narcotics into Europe by Colombian and Russian criminal organizations,” money laundering and using the laundered funds to purchase cigarettes, the sale of which funded further drug smuggling. The EDNY dismissed the complaint on several grounds, including that RICO does not apply to enterprises located and directed outside the United States. The Second Circuit reversed, explaining, with respect to RICO’s extra-territorial application, that:
We conclude that RICO applies extraterritorially if, and only if, liability or guilt could attach to extraterritorial conduct under the relevant RICO predicate. Thus, when a RICO claim depends on violations of a predicate statute that manifests an unmistakable congressional intent to apply extraterritorially, RICO will apply to extraterritorial conduct, too, but only to the extent that the predicate would. Conversely, when a RICO claim depends on violations of a predicate statute that does not overcome Morrison‘s presumption against extraterritoriality, RICO will not apply extraterritorially either. In all cases, what constitutes sufficient domestic conduct to trigger liability is the same as between RICO and the predicate that forms the basis for RICO liability.
On April 17, 2014, the Second Circuit issued a decision in Cutrone v. Mortgage Electronic Registration Systems, Inc., No. 14-455-CV, holding that the 30-day time windows to remove an action under the Class Action Fairness Act (“CAFA”) do not start to run until the plaintiff serves the defendant with a document specifying the damages sought or setting forth facts from which the amount could be ascertained.
In Cutrone, the defendant removed an action to the EDNY under CAFA. The EDNY remanded, holding that the defendant’s notice of removal was untimely because “although the complaint filed on February 20, 2013, did not specify either the total amount of damages sought or an exact number of class members, it provided” the defendant “with all it needed to know in order to enable it to make an intelligent assessment as to CAFA removability” and, because the Notice of Removal was not filed within 30 days of receiving the Complaint, it was untimely. The Second Circuit granted the defendant’s petition for permission to appeal and, on appeal, reversed the EDNY, explaining:
We addressed this issue in Moltner v. Starbucks Coffee Co., 624 F.3d at 36‐38, a personal injury suit initially filed in New York state court. There, the plaintiff allegedly suffered severe burns while drinking tea purchased from the defendant. It was only in response to a letter from the defendant three months after the plaintiff filed suit that the plaintiff disclosed she sought more than $75,000 in damages, the threshold amount for diversity jurisdiction under 28 U.S.C. § 1332(a). The defendant filed a notice of removal within 30 days of receiving the plaintiff’s letter. In determining whether removal was timely under 28 U.S.C. § 1446(b)(3), we rejected the plaintiff’s argument that the defendant should have concluded from the state court complaint that the amount in controversy would exceed $75,000 by applying a reasonable amount of intelligence to the complaint’s general description of the plaintiff’s severe injuries. Instead, we held that the removal clock does not start to run until the plaintiff serves the defendant with a paper that explicitly specifies the amount of monetary damages sought. We stated that a bright line rule is preferable to the approach the plaintiff advocates. Requiring a defendant to read the complaint and guess the amount of damages that the plaintiff seeks will create uncertainty and risks increasing the time and money spent on litigation. Under the Moltner standard, defendants must still apply a reasonable amount of intelligence in ascertaining removability. However, defendants have no independent duty to investigate whether a case is removable. If removability is not apparent from the allegations of an initial pleading or subsequent document, the 30‐day clocks of 28 U.S.C. §§ 1446(b)(1) and (b)(3) are not triggered.
. . .
We . . . hold that, in CAFA cases, the removal clocks of 28 U.S.C. § 1446(b) are not triggered until the plaintiff serves the defendant with an initial pleading or other document that explicitly specifies the amount of monetary damages sought or sets forth facts from which an amount in controversy in excess of $5,000,000 can be ascertained. While a defendant must still apply a reasonable amount of intelligence to its reading of a plaintiff’s complaint, we do not require a defendant to perform an independent investigation into a plaintiff’s indeterminate allegations to determine removability and comply with the 30‐day periods of 28 U.S.C. §§ 1446(b)(1) and (b)(3). Thus, a defendant is not required to consider material outside of the complaint or other applicable documents for facts giving rise to removability, and the removal periods of 28 U.S.C. §§ 1446(b)(1) and (b)(3) are not triggered until the plaintiff provides facts explicitly establishing removability or alleges sufficient information for the defendant to ascertain removability.
(Internal quotations and citations omitted) (emphasis added).
In an April 4, 2014 judgment and order in Jiaxing Globillion Import and Export Co. v. Argington, Inc., 11 CV 6291 (JBW) (E.D.N.Y. Apr. 4, 2014), Judge Jack B. Weinstein granted summary judgment for plaintiff and pierced the corporate veil to hold one of the corporate defendant’s two shareholders liable for the company’s breach of contract. Plaintiff Jiaxing Globallion Import and Export Co. (“JG”) entered into a contract with Argington, Inc., to supply children’s furniture and furniture parts for a contract price of nearly $900,000, and delivered the goods in 28 shipments between 2009 and 2011. Argington paid only for a portion of the shipments, and earlier in the case a default judgment was entered against it for $672,905. Judge Weinstein had little trouble granting JG’s summary judgment motion on its claim to pierce the corporate veil, which under governing Missouri law had to be pled as a distinct cause of action. The two shareholders were husband and wife and made all decisions for the company. They observed no corporate formalities, comingling funds and using corporate funds for their personal expenses, including purchases at Costco, Crate and Barrel, Home Depot, IKEA, Prospect Park Tennis and elsewhere. They failed to declare as income the personal expenses the corporation paid for them. As a result of the company’s payment of the shareholders’ personal expenses, the company became undercapitalized. Between 2009 and 2012 the company’s debt to vendors went from 0 to $558,000, but instead of paying their vendors the shareholders disbursed $554,000 from the corporation to themselves. They also disbursed to themselves $193,000 in loans. In his decision Judge Weinstein did not report that there was any countervailing evidence.
On April 14, 2014, the Second Circuit issued a decision in United States v. Doe, Docket No. 14-572, dismissing an appeal from “an oral order of the” EDNY “granting the government’s motion for a protective order that would allow proffer statements made by” defendant Doe “to be disclosed to his codefendants” because the order was not appealable.
The Second Circuit determined that the EDNY’s discovery order was not appealable under the collateral order doctrine, notwithstanding the circumstances of the disclosure ordered, explaining:
Typically, this Court lacks jurisdiction to entertain an appeal until the district court renders a final judgment. Doe, however, argues his appeal properly brought pursuant to the collateral order doctrine, or as a petition for a writ of mandamus. The collateral order doctrine permits an appeal of a small class of collateral rulings that, although they do not end the litigation, are appropriately deemed final. Only decisions that are conclusive, that resolve important questions separate from the merits, and that are effectively unreviewable on appeal from the final judgment the underlying action fall within this exception to the rule of finality. In making this determination, we do not engage in an individualized jurisdictional inquiry. Rather, our focus is on the entire category to which a claim belongs. The policy embodied in 28 U.S.C. § 1291 is at its strongest in the field of criminal law. As Doe’s counsel concedes, disclosure of these proffer statements is a routine practice; we therefore cannot conclude that the entire category, of orders sanctioning the disclosure of proffer statements raises issues of such importance as to justify an exception to the final judgment rule. We conclude that we lack jurisdiction to hear Doe’s appeal.
(Internal quotations and citations omitted) (emphasis added). The court went on, however, to note that its
disposition does not endorse the district court’s decision, nor limit the ability of the court to reconsider its order, including giving further consideration to the advisability of more restrictive conditions on the government’s proposed disclosures
and to discuss alternatives to the proposed disclosure.
On April 2, 2014, the Second Circuit issued a decision in United States ex rel. Maurice Keshner v. Nursing Personnel Home Care, Docket Nos. 13-1688-cv (Lead), 14-251-cv (Con), addressing the question of when the time to appeal non-final fee awards begins to run.
In Keshner, the Second Circuit addressed a motion to dismiss an appeal from an order issued by the EDNY awarding a qui tam plaintiff attorney’s fees because the appeal had been filed more than 60 days after the initial decision granting the fees was issued. The Court held that a “fee award, entered before entry of a final judgment or a partial judgment entered pursuant to Rule 54(b) of the Federal Rules of Civil Procedure, did not have to be appealed until entry of an appealable judgment.” It explained that:
because the fee award against [the appealing defendant] was a collateral order in a case that remained pending because of open claims against other defendants, the entry of the fee award did not trigger [the defendant’s] obligation to file a notice of appeal. Failure to take an available collateral order appeal does not forfeit the right to review the order on appeal from a final judgment. Indeed, we would not expect an appellate court to require an interlocutory appeal of a pre-judgment or pre-final order fee award because review of a fee award would normally be intertwined with the merits of an appeal from a final judgment or final order. Of course, once the District Court in the pending case entered a partial judgment under Rule 54(b), the time to appeal that judgment began upon its entry.
(Internal quotations and citations omitted).
This decision adds clarity to what can be the confusing question of whether/when interlocutory appeals need be taken under the Federal Rules of Civil Procedure. The Keshner Court noted that four months ago, in Perez v. AC Roosevelt Food Corp., 734 F.3d 175 (2d Cir. 2013), amended, No. 13-497, 2013 WL 6439381 (2d Cir. Dec. 10, 2013), the Second Circuit reached a different conclusion on different facts, so in assessing the question of when/whether to appeal a non-final order awarding attorney’s fees, one might want to consult Perez as well as Keshner.
In Knox v. Countrywide Bank, 13 CV 3789 (JFB)(WDW) (E.D.N.Y. March 12, 2014), homeowners who took out first and second home mortgage loans from Countrywide sued the bank and others on two fraud theories. The first theory alleged that Countrywide had concealed that the note underlying the mortgage was invalid because the mortgage was held in the name of defendant Mortgage Electronic Registration Systems (“MERS”), an agent of the mortgagee, and was therefore “split” from the underlying note signed by defendant Countrywide. Plaintiffs’ second theory was that Countrywide caused the homeowners to inflate their income on a loan application in order to obtain the loan. Judge Joseph F. Bianco dismissed the fraud claims. With respect to the “splitting” of the mortgage from the underlying note, the Court, citing a New York Appellate Division, Second Department decision , held that plaintiffs had it backwards: the mortgage is unenforceable apart from its underlying note, but the note remains enforceable apart from its mortgage. This dashed plaintiffs’ hopes of using the controversial MERS system (of registering mortgages in the name of an agent so that they could be more easily assigned among lenders) as a basis to get out from under their debt. Since Countrywide held the underlying note, the note was enforceable and there could be no fraud claim. With respect to the inflated income on the loan application, plaintiffs claimed that even though they informed Countrywide that their income was lower than that stated on the form, Countrywide took advantage of plaintiffs’ “severe financial stress” and caused them to submit it anyway. Id. at 7. The Court rejected that theory as well, holding “Plaintiffs’ financial situation does not convert their knowing submission of false information into a cause of action for fraud against Countrywide.” Id. The second fraud theory was dismissed because plaintiffs could not have reasonably relied “on a lender’s misstatement of one’s own income, which one knows to be false.” Id. The Court went on to uphold plaintiffs’ statutory claim for quiet title under Article 15 of the New York Real Property Actions and Proceedings Law, the only claim to survive the dismissal motion.
On March 27, 2014, the Second Circuit issued a decision in DPWN Holdings (USA), Inc. v. United Airlines, Inc., No. 12-4867-cv, discussing the standard for determining whether a post-bankruptcy-discharge lawsuit can be brought based on pre-discharge claims.
In DPWN Holdings, the EDNY denied the defendants’ motion to “dismiss an antitrust price-fixing claim,” rejecting the defendants’ argument that “the plaintiff had sufficient notice of the availability of the claim against a Chapter 11 debtor to satisfy due process requirements and render the claim discharged.” The Second Circuit reversed, explaining that: (more…)
On March 11, 2014, the Second Circuit issued a decision in Donachie v. Liberty Mutual Ins. Co. et al., Nos. 12-2996-CV (Lead), 12-3031 (XAP), clarifying “the scope of a district court’s discretion in deciding whether to award attorneys’ fees to a prevailing” ERISA plaintiff.
In Donachie, the EDNY granted the plaintiff summary judgment “on his claim for long-term disability benefits pursuant to ERISA,” but denied the “plaintiff’s request for attorneys’ fees, based on the conclusion that defendant did not act in bad faith.” The Second Circuit reversed the denial of an award of attorneys’ fees, explaining:
[A] district court’s discretion to award attorneys’ fees under ERISA is not unlimited, inasmuch as it may only award attorneys’ fees to a beneficiary who has obtained some degree of success on the merits. . . . [W]hether a plaintiff has obtained some degree of success on the merits is the sole factor that a court must consider in exercising its discretion. Although a court may, without further inquiry, award attorneys’ fees to a plaintiff who has had some degree of success on the merits, . . . courts retain discretion to consider five additional factors in deciding whether to award attorney’s fees. Those five factors, known in this Circuit as the Chambless factors are:
(1) the degree of opposing parties’ culpability or bad faith; (2) ability of opposing parties to satisfy an award of attorneys’ fees; (3) whether an award of attorneys’ fees against the opposing parties would deter other persons acting under similar circumstances; (4) whether the parties requesting attorneys’ fees sought to benefit all participants and beneficiaries of an ERISA plan or to resolve a significant legal question regarding ERISA itself; and (5) the relative merits of the parties’ positions.
. . .
[However,] if a court chooses to consider factors other than a plaintiff’s success on the merits in assessing a request for attorneys’ fees, Chambless still provides the relevant framework in this Circuit, and courts must deploy that useful framework in a manner consistent with our case law. A court cannot selectively consider some factors while ignoring others.
(Internal quotations and citations omitted) (bold emphasis added).
Because the district court “misapplied” the Chambless “framework,” the Second Circuit found that it had abused its discretion and, on performing the analysis itself, found no reason to deny an award and remanded the case to the district court for an award of reasonable fees.
In a March 11, 2014, summary order, the Second Circuit (Katzmann, C.C.J., Sack, C.J., and Rakoff, D.J.) vacated an order denying the plaintiff’s motion for attorneys’ fees under the Americans With Disabilities Act (the “ADA”). The court also remanded and reassigned the case because Eastern District Judge Sterling Johnson, Jr. had conducted his own investigation of the premises at issue and determined that plaintiff’s counsel had not succeeded in remedying the ADA violations—and therefore was not deserving of attorneys’ fees.
The seemingly sui generis case is Costello v. Flatman LLC, No. 13-1446 (Mar. 11, 2014). The plaintiff obtained a default judgment against the defendant for violations of the ADA and moved for attorneys’ fees as provided in the statute. The district judge visited each of the businesses identified in the plaintiff’s eight lawsuits, and took judicial notice that the “‘alleged structural deficiencies preventing access to persons with disabilities still exist.'” Slip Op. at 3 (quoting district court). Based on those observations, the district court concluded that plaintiff’s counsel “never sought to remedy these failings” and consequently that he should receive no attorneys’ fees. Id. In vacating and remanding, the Circuit explained that structural defects in the buildings that prevented access to the disabled did not represent the kind of fact appropriate for judicial notice because “it is not clear” that such defects are “not subject to reasonable dispute” or that the district court’s conclusions could be “readily determined from sources whose accuracy cannot reasonably be questioned.” Id. The Panel also granted the plaintiff’s request that on remand the case be assigned to another judge, given “the district court’s error in conducting its own investigation of the restaurants and taking judicial notice of its findings.” Id. at 4. The Court did not question the district judge’s impartiality, but said he would likely have difficulty on remand putting his own findings out of his mind.