This column reports on a significant decisions handed down recently in the U.S. District Court for the Eastern District of New York; at issue was the balance between religious freedom and certain public health matters; in another matter the court examined prisoners’ rights.
In Farina v. The Board of Education of the City of New York, 00 CV 5767 (EDNY, Oct. 12, 2000), Judge Eugene H. Nickerson, denying a motion for a preliminary injunction, held that plaintiffs had failed to show genuine and sincere religious beliefs which would exempt their minor children from immunizations as a prerequisite to attending public school.
Mr. and Mrs. Farina brought this action individually and as guardians of their children alleging that the Board of Education had violated their rights of religious freedom and equal protection under the First Amendment and § 1983 by refusing to grant them an exemption from the requirements of New York Public Health Law § 2164, which mandates immunization against six diseases.
Plaintiffs argued that they are entitled to an exemption under § 2164(9) because their religious beliefs prohibit immunization. In connection with plaintiffs’ motion for a preliminary injunction, the court held a hearing on whether plaintiffs could show "genuine and sincere religious beliefs" against immunization to qualify for a statutory exemption.
In letters to public schools Mrs. Farina made statements of which the following is typical:
Our family holds genuine and sincere religious beliefs which prohibit the practice of vaccination and invasive treatments by the State.
A letter by plaintiffs’ attorney in September 1997 also described his clients’ religious beliefs, stating (for example):
We believe in God and that God has created us in His image. In being created in God’s image, we are given His immune system; we are bestowed with His gift, the immune system. We believe it is sacrilegious and a violation of our sacred religious beliefs to violate what God has given us by showing a lack of faith in God.
School officials concluded that plaintiffs had failed to substantiate a religious exemption. Their children thus had to be excluded from school.
Judge Nickerson noted that, while plaintiffs must hold genuine and sincere religious beliefs to prevail, their beliefs "need not be consistent with the dogma of any organized religion." Rather, personal religious beliefs are sufficient if sincerely and genuinely held.
Personal, Not Religious Beliefs
Analyzing the evidence in detail to draw inference about plaintiffs’ actual state of mind (slip op. 13-28), the court concluded that plaintiffs’ objections to immunization are "personal," not religious, and reflect a belief that "inoculations would be damaging to the physical health of the children." Certain testimony and documents struck the court "as the product not of the plaintiffs’ own deeply held conviction, but rather more plausibly as expressions the plaintiff borrowed from outside sources in their effort to obtain the exemption." Judge Nickerson found Mrs. Farina’s testimony "often evasive and inconsistent."
Plaintiffs’ claim that the issue was of the highest spiritual consequence seemed at odds with parts of their cross-examination where they denied speaking with each other about pertinent information found by Mr. Farina on the Internet or pressing the pediatrician for advice or consulting with their priest. The court also found plaintiffs’ assertions that they were unconcerned about alleged health problems from inoculations to be contradicted by their own testimony and written statements.
In Webb v. Goldstein, 99 CV 2645 (EDNY, Sept. 29, 2000), Judge Reena Raggi dismissed an inmate’s claims that the dissemination of his prison medical records to law enforcement authorities investigating a serial rape case violated his privacy interests under the Fourteenth Amendment.
Plaintiff is a New York State prisoner serving lengthy concurrent terms as a result of a 1997 conviction on rape and other charges. He sued the Kings County District Attorney and numerous other defendants for assorted violations of his federal constitutional rights in connection with the investigation and prosecution of his criminal case and the denial of adequate medical treatment in prison. Judge Raggi dismissed most of the claims and transferred the rest to state court.
As to his Fourteenth Amendment privacy claim, the facts showed that in 1995 plaintiff was a state parolee supervised in Brooklyn. The New York City police were then investigating a serial rape case. Two parole officers, concluding that plaintiff had distinctive physical characteristics matching those of the rape suspect, disclosed portions of plaintiff’s prison medical records, from a much earlier incarceration, for use in the investigation. The correctional facility that had the records also transmitted them, pursuant to subpoena, to the prosecutors working on the rape case. In 1997 a jury found plaintiff guilty on multiple counts of rape, sodomy, arson and robbery.
The very existence of a privacy interest here, the court noted, depends on a balancing of the severity of the privacy invasion against the state interest in disclosure. As Judge Raggi also observed, in Doe v. City of New York, 15 F.3d 264, 267 (2d Cir. 1994), the Second Circuit upheld the privacy claim of someone who sued the city for unnecessarily disclosing in a press release his HIV infection. The Second Circuit gave great weight to the individual’s interest in maintaining the confidentiality of a "serious medical condition" such as HIV because disclosure could expose him to "discrimination and intolerance." Only a "substantial" state interest, the Doe Court held, could outweigh such an interest in confidentiality. As Judge Raggi also observed, the Second Circuit has recently recognized that the sex-change operation of a prison inmate and her HIV infection were entitled to confidentiality. Powell v. Schriver, 175 F.3d 107 (2d Cir. 1999). Nor did the prison guards’ gratuitous discussion there of the inmate’s conditions reflect any cognizable state interest. Id. at 111.
Turning to plaintiff’s claim, Judge Raggi stated:
[Plaintiff] has not alleged that his prison records contained the sort of sensitive medical information at issue in Doe
Defendants here also "had a strong public interest in seeking and disclosing [plaintiff’s] prison medical records among themselves." Slip op. 24.
Judge Raggi also held that, in any event, the claim would have to be dismissed on grounds of qualified immunity "since no right to privacy under these circumstances was so ‘clearly established’ in 1995 that defendants should reasonably have understood that their conduct" violated the Constitution. Slip op. 27.
In Grieve v. Tamerin, 00 CV 3824 (EDNY, Aug. 5, 2000), Judge John Gleeson, invoking the Younger abstention doctrine, refused to rule upon a father’s child custody application while a similar application was pending in New York State court.
Plaintiff-husband in Grieve had been divorced from defendant-wife in Israel, at which time a "private agreement" assertedly granted him custody of their only child, with the wife retaining visitation rights. After plaintiff took the child to New York either temporarily, as he claimed, or permanently, as the mother asserted the mother came to New York and obtained a temporary custody order in state court, disputing the voluntariness and effectiveness of the asserted custody agreement under Israeli law.
Plaintiff moved to dismiss the state court action, arguing that the Convention on the Civil Aspects of International Child Abduction, done at the Hague on Oct. 25, 1980 (the "Hague Convention"), and its implementing legislation (42 U.S.C. § 11604 et seq.) precluded a custody decision in the United States. While that dismissal motion was pending in state court, plaintiff commenced the federal action, arguing, inter alia, that the state court had failed to act "expeditiously" as required by the statute.
Judge Gleeson cited the "three requirements for Younger abstention: ‘1) there is an ongoing state proceeding; 2) an important state interest is implicated; and 3) the plaintiff has an avenue open for review of constitutional claims in state court.’ " Slip op. 5.
The court found all three factors satisfied in light of the pending state court matter, and the fact that "the states have a strong interest in domestic relations matters generally and child custody questions in particular." Slip op. 6.
As to plaintiff’s assertion that state courts "are predisposed against transferring custody decisions abroad," Judge Gleeson noted that the Hague Convention expressly grants concurrent jurisdiction to state and federal courts. In addition, meaningful review was available through the New York court system and the U.S. Supreme Court. Nor, Judge Gleeson concluded, had the state court denied plaintiff effective relief by failing to rule upon his motion to dismiss in the three months leading up to the federal decision.
Finally, the court rejected plaintiff’s contention that the state court had erred by making a temporary custody determination at the outset of the state proceedings, when the Hague Convention required that courts first establish the Convention’s applicability before determining custody. As Judge Gleeson observed, the state court’s temporary custody ruling had come before anyone had raised arguments under the Hague Convention, and the state court "has not taken any further action, such as, for example, awarding permanent custody, since [plaintiff’s] Hague Convention Application was made." Slip op. 7.
In Tremont International Insurance Ltd. v. Blue Water Fund Ltd., 00 CV 3768 (EDNY, Aug. 1, 2000), Judge Charles P. Sifton denied plaintiffs’ motion for appointment of a receiver or, alternatively, for a preliminary injunction prohibiting defendants from transferring or dispersing the assets of certain hedge funds.
Plaintiffs are shareholders and a limited partner in defendant hedge funds who invested about $4.4 million in the Funds. Plaintiffs requested:
(1) a temporary restraining order (TRO) enjoining defendants from transferring or disposing of the funds’ assets to any party, including insiders, for any purpose, except that defendant Blue Water LLC would be permitted to trade securities in the ordinary course of business if in the best interests of the funds; and
(2) an order removing Blue Water LLC as investment manager of the funds and appointing a temporary receiver pursuant to Federal Rule of Civil Procedure 66.
As Judge Sifton noted, the securities laws do not explicitly provide for appointment of a receiver, but courts have consistently held that such power exists where necessary to prevent the dissipation of a defendant’s assets pending further court action. Courts also have the discretion to appoint a receiver to protect the public interest against diversion or waste. The appointment of a receiver, however, is an extraordinary remedy, requiring a "clear and satisfactory" showing of necessity. Slip op. 38.
As the court also noted, a showing of irreparable harm or imminent danger to the property was the most important prerequisite for provisional relief. Plaintiffs argued that irreparable harm would result from defendants’ continued mismanagement, primarily by placing a substantial portion of the funds’ assets in NetSol shares, as well as from past misconduct.
To show irreparable harm here, Judge Sifton stated, plaintiffs had to establish that defendants are "running the funds into the ground or that there is a substantial likelihood that defendants will disburse investor redemptions in excess of the funds’ liquid assets." Slip op. 40. Plaintiffs pointed to the Reallocation Plan offered by defendants to reallocate NetSol shares among the investors as the immediate danger, because it portended the possible withdrawal of all the funds’ liquid assets.
Judge Sifton disagreed. While under the original Reallocation Plan the managers might be able to procure their own releases at the expense of the funds’ continued viability, in the court’s view the withdrawal of the Reallocation Plan after the plaintiffs’ complaint was filed removed that danger. Thus, plaintiffs had not shown that the liquidity and viability of the funds were imperiled. Similarly rejecting plaintiffs’ allegations that the pattern of fraud and mismanagement threatened the funds’ viability, Judge Sifton pointed to the appreciation in value of the funds and noted that the alleged high-handed behavior by one of the managers did not amount to gross misconduct or arbitrary management.
Judge Sifton found that plaintiffs had established sufficiently serious questions going to the merits to make them fair grounds for litigation but not a likelihood of success on the merits. The alleged oral misrepresentations by the manager defendants about their methods for selecting and evaluating securities were "material," the court found, because they were made in response to questions posed after plaintiffs had read the offering materials. The offering materials and individual conversations highlighted the 10 percent limitation on holdings in a single security, and the statements were untrue when made because at the time (December 1999, prior to plaintiffs’ investments) 67 percent of the funds’ assets were invested in NetSol. The managers’ statements that the holdings in NetSol were a temporary "spike," that the position would soon be wound down, that the funds did not invest much of the portfolio in the technology sector and that the position was fully hedged, were knowingly false and material. Slip op. 58.
Regarding the requirement of reasonable reliance, Judge Sifton stated that, as a matter of law, reliance on oral misrepresentations purporting to enlarge upon prior written representations was not per se unreasonable in the context of a fraud claim. Next, the court rejected defendants’ contention that the general merger clause and broad disclaimers against reliance on outside representations shielded defendants from federal securities fraud liability.
Nevertheless, the court concluded, plaintiffs were sophisticated investors and should have performed due diligence that would have led them to confirm the level of concentration in a single security. Indeed, the information about the concentration of NetSol shares was available in filings found on the SEC’s EDGAR database on the Internet. Thus, plaintiffs’ reliance on oral misrepresentations, including general assurances about portfolio concentration and specific statements about investment strategy, may not have been reasonable. Slip op. 58.
Accordingly, while on the merits plaintiffs had met the standard for a preliminary injunction if the balance of hardships tipped decidedly in their favor, they had not made a showing for such extraordinary relief as the appointment of a temporary receiver. Finally, Judge Sifton determined that plaintiffs’ failure to establish irreparable harm was fatal to their request for a preliminary injunction. Slip op. 70.
Peter R. Schlam and Harvey M. Stone are partners at Schlam Stone & Dolan. Bennette D. Kramer, a partner of the firm, assisted in the preparation of the article.
[Reproduced with permission from New York Law Journal Volume 224, Wednesday, November 15, 2000. Copyright 2000 ALM Properties, Inc. All rights reserved.]