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EDNY Blog

Current Developments in the US District Court for the
Eastern District of New York
Posted: April 8, 2016

FDCPA Requires Debt Collector to Disclose That Balance Due May Increase Due to Interest and Fees

On March 22, 2016, the Second Circuit issued a decision in Avila v. Riexinger & Associates, LLC, 15‐1584(L), reversing the EDNY and holding that a debt collector violates the Fair Debt Collection Practices Act if, when it notifies consumers of their account balance, it fails to disclose that the balance may increase due to interest and fees, explaining:

Section 1692e of the FDCPA provides that a debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt. The sixteen subsections of Section 1692e set forth a non‐exhaustive list of practices that fall within this ban, including the false representation of the character, amount, or legal status of any debt. Because the list in the sixteen subsections is non‐exhaustive, a debt collection practice can be a false, deceptive, or misleading practice in violation of § 1692e even if it does not fall within any of the subsections of § 1692e. The question presented is whether the sending of a collection notice that states a consumer’s current balance, but does not disclose that the balance may increase due to interest and fees, is a false, misleading, or deceptive practice prohibited by Section 1692e. In considering this question, we are guided by two principles of statutory construction. The first principle is that, because the FDCPA is primarily a consumer protection statute, we must construe its terms in liberal fashion to achieve the underlying Congressional purpose. That purpose is to eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses. We have consistently interpreted the statute with these congressional objects in mind.

The second principle is that, in considering whether a collection notice violates Section 1692e, we apply the least sophisticated consumer standard. In other words, we ask how the least sophisticated consumer—one not having the astuteness of a Philadelphia lawyer or even the sophistication of the average, everyday, common consumer—would understand the collection notice. Under this standard, a collection notice can be misleading if it is open to more than one reasonable interpretation, at least one of which is inaccurate.

Applying these principles, we hold that plaintiffs have stated a claim that the collection notices at issue here are misleading within the meaning of Section 1692e. A reasonable consumer could read the notice and be misled into believing that she could pay her debt in full by paying the amount listed on the notice. In fact, however, if interest is accruing daily, or if there are undisclosed late fees, a consumer who pays the current balance stated on the notice will not know whether the debt has been paid in full. The debt collector could still seek the interest and fees that accumulated after the notice was sent but before the balance was paid, or sell the consumer’s debt to a third party, which itself could seek the interest and fees from the consumer. Because the statement of an amount due, without notice that the amount is already increasing due to accruing interest or other charges, can mislead the least sophisticated consumer into believing that payment of the amount stated will clear her account, we hold that the FDCPA requires debt collectors, when they notify consumers of their account balance, to disclose that the balance may increase due to interest and fees. We think that requiring such disclosure best achieves the Congressional purpose of full and fair disclosure to consumers that is embodied in Section 1692e. It also protects consumers such as plaintiffs who may hold the reasonable but mistaken belief that timely payment will satisfy their debts.

(Internal quotations and citations omitted).

Posted: March 21, 2016

Hispanic Describes a Race for Purposes of § 1981 and Title VII

On February 16, 2016, the Second Circuit issued a decision in Village of Freeport v. Barrella, 14‐2270‐CV(L), reviewing a decision by the EDNY determining “whether ‘Hispanic’ describes a race for purposes of § 1981 and Title VII.”

In Village of Freeport, the plaintiff sued the defendant village and its former mayor “under 42 U.S.C. § 1981, Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq., and the New York State Human Rights Law (“NYSHRL”), N.Y. Exec. Law § 290 et seq., alleging that” the defendant mayor “had not appointed him chief of police because [the plaintiff] was a white Italian‐American, and that [the mayor] had instead appointed a less‐qualified Hispanic.” The EDNY held that discrimination based on “Hispanic ancestry or lack thereof” stated a claim under the federal civil rights law. The Second Circuit affirmed, explaining:

This case asks us to resolve a vexed and recurring question: what does it mean to be Hispanic? Specifically, it presents the question of whether “Hispanic” describes a race for purposes of § 1981 and Title VII.

. . .

Based on longstanding Supreme Court and Second Circuit precedent, we reiterate that “race” includes ethnicity for purposes of § 1981, so that discrimination based on Hispanic ancestry or lack thereof constitutes racial discrimination under that statute. We also hold that “race” should be defined the same way for purposes of Title VII.

Posted: March 14, 2016

Second Circuit Affirms Decision to Empanel an Anonymous Jury

On February 24, 2016, the Second Circuit issued a decision in United States v. Prado, 13-2894-CR(L), affirming a decision by the EDNY to empanel an anonymous jury, explaining:

When genuinely called for and when properly used, anonymous juries do not infringe a defendant’s constitutional rights. A district court may order the empaneling of an anonymous jury upon (a) concluding that there is strong reason to believe the jury needs protection, and (b) taking reasonable precautions to minimize any prejudicial effects on the defendant and to ensure that his fundamental rights are protected. . . . .

The district court did not abuse its discretion in empaneling an anonymous and partially sequestered jury. There was substantial evidence of attempted and actual interference with the judicial process by [the defendants’] codefendants, the crimes charged were extremely violent, and [the defendants] were members of a large, well-organized, and violent gang with many members who were not incarcerated.

(Internal quotations and citations omitted).

Posted: March 8, 2016

Apple Not Required To Assist U.S. Search Of Drug Dealer’s Phone Under All Writs Act

A lot of media attention is being devoted to Apple’s fight with the U.S. Government over a California Magistrate Judge’s February 16, 2016, ex parte order requiring Apple to assist in the Government’s investigation of the San Bernardino mass shooting by disabling the password security features on the iPhone of one of shooters. But as EDNY Magistrate Judge James Orenstein notes in In re Order Requiring Apple, Inc. to Assist in the Execution of a Search Warrant Issued by This Court, 15-MC-1902 (EDNY. Feb. 29, 2016), the California case is only one of several—including the one before him—around the country that presents similar issues under the All Writs Act (the “AWA”). In a thorough, 50-page Memorandum and Order, Magistrate Judge Orenstein denied the Government’s motion to compel assistance from Apple, thereby providing one of the first reasoned legal decisions in an important privacy vs. security societal debate.

The facts in the case before Magistrate Judge Orenstein are much more routine than those arising from the San Bernardino attack. It is precisely because of the adage that ‘hard cases”—like ones involving terrorism and national security—can make “bad law,” that Apple has pushed for consideration of the reach of the AWA in everyday criminal cases like this one. Here, the Government had obtained warrants in 2014 to arrest and search the residence of Jun Feng, a Queens resident, suspected of conspiracy to traffic in methamphetamine. Feng was arrested, indicted and one year later pled guilty. In executing the original search warrant, the DEA had seized (among other things) Feng’s iPhone 5s. Shortly before Feng’s guilty plea, the Government obtained another search warrant—this time to search Feng’s devices, including his iPhone—as part of its continuing investigation into Feng and his co-conspirators. The DEA and FBI were stymied, however, by the iPhone’s password security features which, the Government alleged, threatened to damage the data on the device if the federal agents were to query it without Apple’s technical assistance. Apple refused to assist without a “lawful order” of a court requiring it to do so. The Government applied to the EDNY for such an order under the AWA. At first, Apple provided minimal opposition and the matter languished for several months; however, after its loss in the California case on February 16, 2016, Apple pushed for a reasoned decision on the AWA in New York and it got one.

The AWA, only modestly rephrased since enacted by the first Congress as part of the Judiciary Act of 1789, today states that Article III courts ‘may issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law.” 28 U.S.C. §1651. Magistrate Judge Orenstein denied the Government’s application first, for failing to meet the statutory requirement of being “agreeable to the usages and principles of law” and, second, as a matter of judicial discretion based on the statute’s permissive “may” language.

On the “usages and principles of law” issue, the Magistrate noted that in 1994 Congress had passed the Communications Assistance for Law Enforcement Act (“CALEA”), which provides a fairly “comprehensive legislative scheme” on the extent to which private telecommunications carriers and information service providers are required to assist government agents in law enforcement matters. The Court found that the absence “from that scheme of any requirement that Apple provide the assistance sought here implies a legislative decision to prohibit the imposition of such a duty.” Slip op. 16-20. It further held that the Government had failed in its affirmative obligation to cite other “usages and principles of law” where Congress had empowered the federal courts to compel private entities (as opposed to regulated utilities such as phone companies) to assist in law enforcement. The Magistrate declined to read the AWA as a broad legislative grant to allow any and all orders necessary or appropriate in aid of a court’s jurisdiction because such a reading “raises serious doubts about how such a statute could withstand constitutional scrutiny under the separation-of-powers doctrine.” Slip. op. 29.

The Court did not consider the constitutionality of the application of the AWA to the liberty or due process interests of citizens, such as Apple, that might be compelled against their will to assist in government investigations. However, Magistrate Judge Orenstein held that the Government’s application directed to Apple also failed under the three “discretionary factors’ used in AWA cases: (1) the “closeness” of the party being compelled to the criminal activity at issue; (2) the “burdensomeness” of the Government’s demands on compelled party and (3) the “necessity” of the Government’s obtaining the party’s assistance. Slip. op. 31-48. In brief, the Court reasoned that Apple bore no relationship to or responsibility for Feng’s criminal activity, that being required to disable security features of its products would adversely affect Apple’s business in the eyes of consumers, and that there was “conflicting evidence in the record about the availability, from private sources other than Apple, of technology that would allow the government to bypass the security on Feng’s device.” Slip op. 46.

At the time of this writing, the case is on appeal to District Judge Margo Brodie.

Posted: January 29, 2016

Second Circuit Examines Appealability of Non-Final Orders

On December 9, 2015, the Second Circuit issued a decision in Rodriguez v. Anderson, 14-3828(L), dismissing an appeal because it was from a non-final order.

In Rodriguez, both the plaintiff and certain defendants appealed the denial of their motions for summary judgment. The Second Circuit dismissed their appeals, explaining, with respect to the plaintiff’s appeal:

The historic rule in the federal courts has always prohibited piecemeal disposal of litigation and permitted appeals only from final judgments. Nonetheless, under Rule 54(b), a district court can determine, in its discretion, if an immediate appeal is warranted in the interests of justice by issuing a certification along with an explanation for its determination. But the exercise of this discretion must follow the procedures set out by the Rule, and the requirement of an express determination that there is no just reason for delay has not been taken lightly by this Circuit.

This Court has held that it is possible to have jurisdiction over a non-final order even when the district court did not formally enter a Rule 54(b) certification:

When there is a judgment in a consolidated case that does not dispose of all claims which have been consolidated, there is a strong presumption that the judgment is not appealable absent Rule 54(b) certification. In highly unusual circumstances, a litigant may be able to overcome this presumption and convince us that we should consider the merits of the appeal immediately, rather than waiting for a final judgment.

But the exception identified in Hageman has been restricted to highly unusual circumstances, for example, where the district court clearly intended to enter a final judgment but inadvertently failed to do so.

The parties do not point to any such highly unusual circumstances in this case. . . . [The plaintiff] never sought Rule 54(b) certification, and she does not identify any evidence that the district court intended to but inadvertently failed to certify its order for immediate review. Indeed, it is clear from that order that the district court anticipated that trial would go forward on [the plaintiff’s] claims, and the court scheduled a trial date during the follow-up status conference. . . . We have repeatedly noted that the district court generally should not grant a Rule 54(b) certification if the same or closely related issues remain to be litigated.

Accordingly, [the plaintiff’s] appeal is dismissed. [The plaintiff] may file a motion in the district court requesting Rule 54(b) certification in order to reinstate her appeal, but we note that the district court is under no obligation to grant her request. Respect for the historic federal policy against piecemeal appeals requires that a Rule 54(b) certification not be granted routinely.

(Internal quotations and citations omitted).

Posted: January 12, 2016

Court-Appointed Guardian Ad Litem Not a State Actor

On December 22, 2015, the Second Circuit issued a decision in Milan v. Wertheimer, 14‐3527‐CV, holding that court-appointed law guardians are not state actors for the purposes of Section 1983.

In Milan v. Wertheimer, the plaintiff brought Section 1983 claims against several defendants, including two lawyers (Fred Wertheimer and Denise Costanza) who were “law guardians, also known as ‘attorney[s] for the child,’ appointed by New York’s family court to represent the interests of [the plaintiff’s] children in . . . custody proceedings.” The EDNY dismissed the claims against the law guardians. The Second Circuit affirmed, explaining:

The question of whether law guardians so appointed are state actors has not previously been addressed by this Court.

Other circuits, in determining that law guardians are not state actors for the purpose of § 1983, have relied largely on Polk County v. Dodson, 454 U.S. 312 (1981).    In Polk County, the Supreme Court held that public defenders do not act under color of state law when performing a lawyer’s traditional functions as counsel to a defendant in a criminal proceeding, notwithstanding the fact that the state pays for the services they provide. We believe that the analogy of a law guardian to a public defender is apt.  Although both are supplied and funded by the state, each acts according to the best interests of the client with no obligation to the mission of the state. Accordingly, we hold that law guardians who act as attorneys for the child are not state actors for the purposes of suits filed pursuant to § 1983.

(Internal quotations and citations omitted).

Posted: December 14, 2015

Court Awards $5 Million In Attorneys’ Fees And Costs In Civil Rights Saga

“The Court assumes familiarity with the facts and procedural history of the case” Judge Joanna Seybert writes in the opening sentence of Restivo v. Nassau County, 06-CV-6720 (E.D.N.Y. Nov. 30, 2015), but it is difficult to appreciate fully the outcome – the award of $5 million in attorneys’ fees and costs to the well-known plaintiffs’ civil rights firm, Neufeld Scheck & Brustin LLP (“NSB”) – on the basis of the short summary that the Court provides to resolve the fee motion. This much shorter blog entry will necessarily do the matter even less justice, but here goes: plaintiffs John Restivo and Dennis Halsted were wrongly convicted in 1985 for the rape and murder of a Long Island teenager named Theresa Fusco. They spent 18 years in prison, until 2003, when they were finally released based on exculpatory DNA evidence and the help of attorneys from the “Innocence Project” (which was founded by named NSB partners, Barry Scheck and Peter Neufeld).

In 2006, NSB filed a § 1983 civil rights action on behalf of Restivo, Halsted and a third-man, John Kogut, who had initially confessed to the crime but was acquitted in a 2005 re-trial based on evidence that the lead Nassau County detective on the case, Joseph Volpe, had manufactured evidence and had obtained the confession improperly. The issue in § 1983 action was whether Volpe and Nassau County had unconstitutionally deprived the plaintiffs of their right to a fair trial. The plaintiffs also sued for malicious prosecution. A first trial ended in 2012 in a verdict for defendants. NSB moved for a new trial for Restivo and Halsted on the ground that they were prejudiced by the jury’s receipt of evidence of Kogut’s confession, which tainted its consideration of the degree to which the defendants had probable cause to suspect Restivo and Halsted. Judge Seybert granted a new trial in her joint decision in Kogut v. County of Nassau, 06 CV 6695, and Restivo v. Nassau County, 06-CV-6720 (EDNY, July 22, 2013). In the second trial, which ended in 2014, the jury awarded Restivo and Halsted $18 million each — $1 million for each year of their wrongful incarceration.

Judge Seybert’s fee decision recites impressive numbers of deposition and trial days, expert reports and Daubert challenges over the course of eight years of civil litigation, including two trials. It is clear that the facts and the results, not nuance in the law on attorneys’ fees, drives the award. Nevertheless, there are a few legal tidbits for practitioners who are fond of the law of lawyering. First, the Court found that counsel could overcome the presumption in favor of “in-district” hourly fee rates and granted the application for higher SDNY partner rates of $700/hour on the ground that “no lawyers with primary offices in the [EDNY] have obtained a successful jury verdict in a § 1983 wrongful conviction suit, as NSB did here” Slip Op. 7. Second, the Court refused to dock the application for time spent on “dismissed, withdrawn and abandoned claims” quoting the Second Circuit for the proposition that “[e]specially in a complex case, competent counsel is entitled to raise ‘alternative legal grounds for a desired outcome, and the court’s rejection of or failure to reach certain grounds is not a sufficient reason for reducing a fee.'” Slip Op. 11 (quoting Green v. Torres, 361 F.3d 96, 100 (2d Cir. 2004)). Third, the Court declined to fault NSB for “block billing” entries on their time sheets (i.e., failure to itemize how much time was spent on each task covered in a multi-task description), noting that the practice “is pervasive in the legal industry” and was not prohibited in this Circuit. Slip Op. 13. Indeed, the only “haircut” to the application was the “legitimate concern” raised by Defendants to “instances in which NSB lawyers billed travel time as attorney time.” Slip Op. 13. NSB wisely took that issue off-the-table by agreeing to omit those entries. Id. In the end, the Court awarded $4.58 million in attorneys’ fees for the 1983 actions, $320,000 in costs and $97,132.50 for the time and costs of preparing the fee application itself. The total is $4,997,914.55.

    Editors’ Note: For more casual, but detailed reading about the underlying criminal case against Restivo, Halstead and Kogut, their acquittals, the subsequent civil rights trials and the jury’s $18 million award to each of Restivo and Halstead, see “The Price of a Life” in the April 13, 2015 issue of The New Yorker.

Posted: December 10, 2015

Lender Has Standing to Foreclose When it Possesses Note

On November 24, 2015, the Second Circuit issued a decision in Eastern Savings Bank, FSB v. Thompson, 14-4520-CV, reversing the EDNY’s grant of summary judgment to a defendant in a foreclosure action on the ground that the plaintiff lacked standing to bring a foreclosure action because of defects in the chain of assignments of title.

In Eastern Savings Bank, the plaintiff brought a foreclosure action against the defendant. The EDNY granted summary judgment to the defendant on the ground that the plaintiff lacked standing to bring the action because of a defect (cured after the lawsuit was initiated) in the chain of assignment of the note. The Second Circuit reversed, explaining:

Under New York law, a plaintiff establishes its standing in a mortgage foreclosure action by demonstrating that, when the action was commenced, it was either the holder or assignee of the underlying note. Notably, either a written assignment of the underlying note or the physical delivery of the note prior to the commencement of the foreclosure action is sufficient to transfer the obligation, and the mortgage passes with the debt as an inseparable incident. Thus, although assignment of a mortgage without the accompanying note does not provide the assignee with a right to the debt, the delivery or assignment of a note without the accompanying mortgage transfers the debt and can confer standing on the recipient.

. . . The record admits no genuine dispute that [the plaintiff] possessed the original note, indorsed in blank, prior to commencing this action in March 2012. . . . Further, defendants failed to raise any question of fact as to whether [the plaintiff] retained possession of the note.

When a plaintiff demonstrates that upon commencement of the action it possessed a note, indorsed in blank, by way of physical delivery, New York has consistently found the plaintiff to have sufficient interest in the enforcement of the debt to support standing in a foreclosure action.

(Internal quotations and citations omitted) (emphasis added).

Posted: December 1, 2015

Suit Against State Court Judges Barred By Younger Abstention Doctrine

On November 12, 2015, the Second Circuit issued a decision in Falco v. Justices of the Matrimonial Parts of the Supreme Court of Suffolk County, 15-863-CV, affirming the dismissal of an action against New York State Supreme Court justices on Younger Abstention Doctrine grounds.

In Falco, the plaintiff was ordered by a Suffolk County matrimonial judge to pay half the cost of court-appointed counsel for his children in a divorce proceeding. The plaintiff refused and brought a Section 1983 action in the EDNY “challenging the constitutionality of the New York laws that authorize State judges to order parents to pay for attorneys appointed for their children.” The defendants moved to dismiss on Younger abstention grounds. The EDNY granted the motion. The Second Circuit affirmed.

The court began by discussing the standard for granting a motion to dismiss on Younger abstention grounds. It explained that the EDNY had erred in deciding the motion under the Second Circuit decision in Spargo v. New York State Commission on Judicial Conduct rather than the standard set forth in Sprint Communications, Inc. v. Jacobs, which the Supreme Court decided after Spargo. In Sprint, the Supreme Court “clarified that district courts should abstain from exercising jurisdiction only in three exceptional circumstances involving (1) ongoing state criminal prosecutions, (2) certain civil enforcement proceedings, and (3) civil proceedings involving certain orders uniquely in furtherance of the state courts’ ability to perform their judicial functions” and that “these three exceptional categories define Younger’s scope.”

The Second Circuit went to hold that:

[o]n de novo review, however, we independently conclude that [the plaintiff’s] case presents circumstances that qualify as “exceptional” under Sprint and that Younger abstention was therefore warranted. [The plaintiff’s] federal lawsuit implicates the way that New York courts manage their own divorce and custody proceedings—a subject in which the states have an especially strong interest. In particular, [the plaintiff] challenges the State court’s order that he pay half the fees of the attorney appointed to represent his children in the divorce proceeding. Although there is some disagreement among New York courts about whether the fees for such court-appointed counsel should be borne by the public or by the parents, . . . there is no discernible disagreement that orders relating to the selection and compensation of court-appointed counsel for children are integral to the State court’s ability to perform its judicial function in divorce and custody proceedings. The circumstances of this case therefore clearly fall within Sprint’s third category: pending State civil proceedings involving orders uniquely in furtherance of the state courts’ ability to perform their judicial functions.

(Internal quotations and citations omitted).

Posted: November 30, 2015

Court Elects Lodestar Over Percentage Method In Awarding Attorneys’ Fees In FLSA Case, While Reducing Lodestar Fee To Account For Overstated Hours And Other Timekeeping Excesses

In Marshall v. Deutsche Post DHL, No. 13-CV-1471 (E.D.N.Y. Sept. 21, 2015), Judge Dearie reduced a claim for $500,000 in attorneys’ fees under the Fair Labor Standards Act, 29 U.S.C. § 216(b), to $370,236.50. The parties settled the case for $1.5 million while plaintiffs’ motion for certification as a collective action was pending. Plaintiffs’ claim for compensatory damages was $1,650,000.

Judge Dearie applied the lodestar method, under which a presumptively reasonable fee is determined by multiplying “a reasonable hourly rate by the reasonable number of hours required by the case.” Slip op. 10. He criticized the percentage-of-settlement method for determining fees sought by plaintiffs’ counsel as dependent on one of the prevailing “amorphous multi-factor tests” that “are often outcome driven”—”‘a list of factors without a rule of decision [that] is just a chopped salad.'” Slip op. 12 (quoting In re Synthroid Mktg. Litig., 264 F.3d 712, 719 (7th Cir. 2001)). The judge explained that “[i]t is almost impossible to know what amount of time, litigation magnitude, complexity, and risk justifies a 20 percent versus 30 percent fee award,” and noted that most of the cases awarding a 33 percent fee in employment class actions are “without persuasive force” because they “cite to ‘proposed orders drafted by the class action plaintiffs’ bar'” that reflect minimal, if any, review by judges. Slip op. 12 (quoting Fujiwara v. Sushi Yasuda Ltd., 58 F. Supp. 3d 424, 436 (S.D.N.Y. 2014)).

In applying the “modified” lodestar method, in which the court considers case-specific factors at the outset to determine the reasonable hourly rate (rather than once the lodestar fee is calculated), see Slip op. 14, the Court rejected plaintiffs’ counsel’s requested hourly rates of $400 to $750 for senior partners, $350 and $400, respectively, for a junior partner and senior associate, $190 and $375 for associates, and $85-$150 for paralegals. Judge Dearie observed that prevailing rates in FLSA cases in the Eastern District are “now well established” at $300 to $400 for partners, $200 to $300 for senior associates, and $100 to $150 for junior associates, though he questioned the wisdom of “treating Brooklyn and Manhattan as separate legal markets,” as the Second Circuit does. Slip op. 15 & n.3.

Regarding the number of hours spent, the Court concluded they were “overstated,” finding that many time entries were “vague and evidence redundant work.” Slip op. 20. The Court criticized the “top heavy” approach reflected in the senior partners having spent most of their time reviewing others’ work and “conferring with each other.” Id. Judge Dearie also criticized the firm’s block billing; billing in quarter hour increments, which “tends substantially to overstate” the time spent since “many tasks require only a short time span to complete,” slip op. 21 (internal quotation marks omitted); and billing travel time at full hourly rates, even though the general rule in the District “is that travel time is compensated at one-half the amount of time billed.” Slip op. 22. To “trim the excess” from the billing entries, Judge Dearie imposed an across the board percentage cut of 10%. Slip op. 22. The resulting fee award was $370,236.50. The Court also awarded the total amount of costs requested, some $33,300. See slip op. 23.