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Current Developments in the US District Court for the
Eastern District of New York
Posted: June 2, 2014

Failure To Appeal Revised Judgment Prevents Appeal Of Original Judgment

On May 27, 2014, the Second Circuit issued a decision in United States v. Pelt, No. 13-1972-CV, dismissing an appeal from the EDNY.

In Pelt, the defendant, an attorney appearing pro se, filed a notice of appeal of a “partial judgment in favor of the United States on claims that [she] failed to repay her student loans.” At the same time, the defendant filed her Notice of Appeal, she also moved in the EDNY to vacate the judgment.  The EDNY granted her motion in part and entered a new judgment.  The defendant did not file another Notice of Appeal.  The Second Circuit subsequently dismissed the appeal she had filed, explaining:

In these circumstances we are obliged to dismiss [the defendant’s] appeal for lack of jurisdiction. Insofar as [the defendant] appeals from the partial summary judgment entered on March 22, 2013, that is not, by itself, a final judgment over which we may exercise jurisdiction. The Rules of Civil Procedure permit a district court to enter final judgment as to one or more, but fewer than all, claims only if the court expressly determines that there is no just reason for delay; without such an express determination, any order or other decision, however designated does not end the action and may be revised at any time before the entry of a judgment adjudicating all the claims and all the parties’ rights and liabilities. The partial judgment entered on March 22, 2013, does not mention Rule 54(b) or expressly determine that there is no just reason for delay. Accordingly, that partial judgment was never certified for appeal.

We have held that, where an appellant files a notice of appeal before final judgment is entered, that premature notice of appeal may ripen into a valid notice of appeal if a final judgment has been entered by the time the appeal is heard and the appellee suffers no prejudice. But there is no reason to apply that principle here, where [the defendant] filed a timely—not a premature—notice of appeal from a judgment that was then vacated. In such circumstances, she was obliged to file a timely notice of appeal from the final judgment entered on November 20, 2013. In the absence of such a notice, we lack jurisdiction to hear the appeal.

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

Few things are as unforgiving in the law as the rules for timely filing appeals.

Posted: May 22, 2014

Sentencing Issues

In Halloway v. United States, No. 01-CV-1017 (E.D.N.Y. May 14, 2014), Judge John Gleeson pressured the government to agree to reopen the sentencing of a defendant who had rejected a plea bargain of 130-147 months for stealing three cars at gunpoint and after losing at trial was sentenced to 57 years in prison. The disparity in the terms offered by the plea bargain and the post-conviction sentencing resulted from a practice known as “stacking,” whereby the defendant received the consecutive mandatory minimum penalties for all three violations of 18 U.S.C. § 924(c) for gun possession. As noted in the opinion, the Sentencing Commission has asked Congress to amend Section 924(c) to eliminate the practice of stacking, so that increased mandatory minimums apply only to prior convictions as opposed to multiple violations of the same statute in the same indictment.

Judge Gleeson noted that this almost 20-year-old case illustrates some of the problems that have “plagued” the federal criminal justice system: “(1) the excessive severity of sentences, (2) racial disparity in sentencing, and (3) prosecutors’ use of ultraharsh mandatory minimum provisions to annihilate a defendant who dare to go to trial.” Slip op. 1. Judge Gleeson cited statistical studies finding that black men like defendant have long been disproportionately subjected to stacking of Section 924(c) counts. Turning to the defendant in this case, Judge Gleeson noted that during his 19-year imprisonment in Florida (which has kept him from seeing his five children and eight grandchildren whom he’s never seen), defendant has tried to better himself by completing numerous wellness and educational programs.

A year earlier, Judge Gleeson had requested the United States Attorney to consider exercising discretion and agree to an order vacating two or more of defendant’s Section 924(c) convictions so that he could be resentenced. The government declined, but suggested that defendant might be eligible for a presidential pardon. In response, Judge Gleeson noted that DOJ policy regarding clemency applications disqualifies inmates who have committed crimes of violence, which made it unlikely that defendant could receive executive clemency.

In conclusion, Judge Gleeson renewed his request to the United States Attorney to reconsider its decision not to agree to vacate two or more of defendant’s convictions. Should the government again refuse to agree to reopen the sentencing, Judge Gleeson indicated that he may take matters into his own hands by addressing defendant’s pending application to reopen his collateral challenge to his conviction as the “extraordinary” penalty in this case “may warrant further briefing on the constitutional issues raised by such a use of prosecutorial power.” Slip op. 5. Judge Gleeson also noted that although he had earlier rejected a claim of ineffective assistance of counsel, he “may direct a closer inspection of that issue as well” should the government not reconsider its decision not to reopen defendant’s sentencing. Id.

Posted: May 19, 2014

Judge Garaufis Denies Defendants’ Summary Judgment Motion In Government’s Antitrust Case Against American Express Based On Government’s Theories Concerning The Significance Of Undisputed Facts

In a May 7, 2014 order in United States v. American Express Co, No. 10-CV-4496 (NGG) (RER), Judge Nicholas G. Garaufis denied summary judgment to defendant American Express in the government’s antitrust action against Amex arising out of the company’s “anti-steering” rules. These rules impose certain restrictions on merchants that accept American Express cards, which, generally speaking, prohibit merchants from expressing to customers a preference for other cards or imposing conditions on use of the Amex card that are not also imposed on users of other cards.

The United States and the attorneys general of 17 states allege that the anti-steering rules are anti-competitive in violation of Section 1 of the Sherman Act. Under Second Circuit precedents, to prove anti-competitive effect plaintiffs had to establish either an actual adverse effect on competition or market power in the relevant market. See Slip Op. 9, 12. The government’s theory of “actual adverse effect” on competition rested largely on the higher fees Amex charged merchants compared to Visa and Mastercard. Id. at 13. The government contended that absent the anti-steering rules, Visa and Mastercard could have competed with Amex to urge merchants to convey to customers a preference among cards, as was done in the 1990s with merchants’ displays of signs such as “We Prefer Visa,” and that this would have driven down prices across the industry.

Based on these conceptual arguments, the Court concluded that material issues of fact existed as to whether the anti-steering rules had an actual adverse effect on competition. The Court’s ruling that material issues of fact existed as to whether Amex had market power was also based arguments that were conceptual rather than evidence-based. The Court found that “the basic facts relating to Amex’s market share are not in dispute.” Id. at 18. But the government had a “customer insistence theory,” under which cardmember brand loyalty allegedly gave Amex control over how much merchants would use the Amex card, which allegedly enhanced Amex’s market power. Id. at 18. The Court’s approach, in short, was closer to a motion to dismiss than to a summary judgment analysis, with the court assessing the plausibility of the government’s theories of anti-competitive effect and market power, rather than whether it had presented sufficient evidence to suggest that Amex’s anti-steering rules have an actual anti-competitive effect or that Amex has market power.

Posted: May 19, 2014

Second Circuit Affirms EDNY Interpretation Of Child Pornography Statute

On May 15, 2014, the Second Circuit issued a decision in United States v. Lockhart, Docket No. 13-602-CR, applying several canons of statutory interpretation to a child pornography statute.

In Lockhart, the EDNY sentenced the defendant to a minimum term of ten years for possessing child pornography, following “18 U.S.C. § 2252(b)(2), which requires a minimum term of imprisonment of ten years . . . when a defendant is found guilty of possessing child pornography and was previously convicted under state law of a crime ‘relating to aggravated sexual abuse, sexual abuse, or abusive sexual conduct involving a minor or ward.'” The defendant appealed on the ground that his previous conviction did not involve a minor or ward. The Second Circuit affirmed the EDNY, in a lengthy but well-worth-reading discussion of the applicable canons of statutory interpretation: (more…)

Posted: May 10, 2014

New York Insurance Law Does Not Require Arbitration Of Insurer’s Claim To Recover Payments On Fraudulent Claims

On May 6, 2014, the Second Circuit issued a decision in Allstate Insurance Co. v. Mun, Docket No. 13-1424-CV, holding that while the New York Insurance Law gives a medical provider the right to demand arbitration of a refusal to pay a claim, that right does not extend to a claim by an insurer to recover from the provider already-made payments.

In Allstate Insurance, the plaintiff sued the defendants in the EDNY to recover payments the plaintiff had made to the defendants on no-fault insurance claims that, the plaintiff alleged, were fraudulent. The defendants moved to compel arbitration of the plaintiff’s claims. The EDNY denied the motion, holding “that medical providers have a right to arbitrate as-yet unpaid claims, but not claims that were timely paid.” The Second Circuit affirmed, explaining:

Section 5106 of the New York Insurance Law provides, in relevant part:

(a) Payments of first party benefits and additional first party benefits shall be made as the loss is incurred. Such benefits are overdue if not paid within thirty days after the claimant supplies proof of the fact and amount of loss sustained. . . .
(b) Every insurer shall provide a claimant with the option of submitting any dispute involving the insurer’s liability to pay first party benefits, or additional first party benefits, the amount thereof or any other matter which may arise pursuant to subsection (a) of this section to arbitration pursuant to simplified procedures to be promulgated or approved by the superintendent. Such simplified procedures shall include an expedited eligibility hearing option, when required, to designate the insurer for first party benefits . . . .

N.Y. Ins. Law § 5106(a)‐(b) (emphases added). . . .

Defendants rely on citations to the FAA; but the real question is: do Allstate’s policies, which implement requirements imposed by New York law and which must be construed to satisfy those requirements, grant Defendants the right to arbitrate Allstate’s fraud claims?

The arbitration provision in the Allstate policies appears quite broad. It contemplates arbitration if the claimant and insurance company do not agree regarding any matter relating to the claim. But it is not as broad as it may seem. An arbitrable dispute is one between the insurance company and a person making a claim for first-party benefits. Defendants are no longer making a claim. They made a claim; they made many claims. And those claims were promptly paid by Allstate. Allstate’s fraud suit therefore does not raise a dispute between it and a person making a claim for first-party benefits. The arbitration provision does not apply.

(Internal quotations and citations omitted).

This decision illustrates that notwithstanding case-law favoring arbitration and the rights of health care providers vis-à-vis insurers, at the end of the day, it is the law and applicable contracts that define the scope of the right to demand arbitration.

Posted: May 6, 2014

Two Claims Revived Upon Reconsideration In HSBC Bank Overdraft Fee Litigation

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.

Posted: April 28, 2014

RICO Applies To Foreign Enterprises When Underlying Predicates Were Intended To Apply To Such Conduct

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.

(Emphasis added).

Posted: April 23, 2014

Removal Clock For Class Action Fairness Act Does Not Start Until Plaintiff Discloses Facts Showing Removability

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).

Posted: April 17, 2014

Judge Weinstein Grants Summary Judgment To Contract Creditor Piercing The Corporate Veil

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.