The domestic relations exception to diversity jurisdiction, which divests federal courts of power to issue divorce, alimony, and child custody decrees, is generally well-known.  But the Witness Security Reform Act of 1984 (the “Program Statute”), which deals with the federal witness protection program, creates a rare exception to the exception by expressly creating a right of action for domestic relations matters in federal courts where the Program Statute applies.

In Garmhausen v. Corridan, 07-CV-2565 (ARR)(LB) (E.D.N.Y. Feb. 25, 2014), Judge Allyne R. Ross had to decide whether a child custody dispute involving a parent who had left protective custody would nevertheless benefit from the Program Statute’s federal right of action. Plaintiff, the father of the child at issue, argued that the Program Statute no longer applied once the mother left protective custody, and therefore the court did not have subject matter jurisdiction over the dispute.  The government, appearing on behalf of the mother, argued that the court had jurisdiction–even though the mother had been removed from the witness protection program—because the terms of the Program Statute continued to apply.  According to Judge Ross, this was a matter of first impression.

The statute makes itself applicable “to any person provided protection” under the program.  The government argued that “once someone is ‘provided’ protection, their lives change in immeasurable ways—e.g., new identities, cessation of communication with loved ones, removal to a new state—and they do not typically revert to their former identities or lives when any physical protection ends.”  Id. at 5.  In essence, the government’s position was that the court retained jurisdiction because once a witness is in the program, he or she never leaves.  Judge Ross agreed, finding as a policy matter that it was important to extend the Program Statute’s protections “because of the ongoing relationship that continues in place between Corridan and the Program.”

In U.S. v. Finazzo, 10-CR-457 (RRM)(RML) (E.D.N.Y. Jan. 14, 2014), Judge Roslynn Mauskopf denied three post-trial motions by Defendant Christopher Finazzo: (1) for judgment of acquittal (under Fed. R. Crim. P. 29); (2) to vacate the judgment (under Fed. R. Crim. P. 33); and (3) to arrest the judgment (under Fed. R. Crim. P. 34).

Finazzo was an executive at the clothing retailer Aeropostale who was accused of funneling some of Aeropostale’s graphic t-shirt business to a vendor (“South Bay”) that gave him kickbacks by sharing its profits from the referred business. According to the government, Aeropostale lost profits because it could have paid less to other suppliers if Finazzo had not improperly diverted the accounts to South Bay, in which he owned an undisclosed interest. Interestingly, Aeropostale discovered the fraud during a separate investigation into Finazzo’s conduct, when it uncovered an email from Finazzo’s personal attorney that referred to a list of assets in his “revised wills” that included his interest in South Bay.

After trial, Finazzo challenged his convictions on over a dozen counts of mail and wire fraud. He essentially claimed that the government had failed to offer “solid proof of the actual, identifiable, monetarily better deal” Aeropostale could have gotten elsewhere. Op. at 27. Judge Mauskopf rejected that argument. She held that the applicable mail and wire fraud statutes did not impose such a requirement, and even if they did, there was evidence introduced at trial sufficient to show that the company would have paid lower prices for t-shirts from other vendors.

In The Gowanus Dredgers v. Baard, 11 CV 5985 (PKC) (E.D.N.Y. Dec. 17, 2013), the Gowanus Dredgers (the “Dredgers”), a charitable organization established “to raise awareness of environmental issues affecting the Gowanus waterfront in Brooklyn and the broader New York/New Jersey harbor area,” sued Erik Baard, the founder of a group called the Long Island City Community Boathouse (“Boathouse”) that later became affiliated with the Dredgers.  After Baard resigned from the leadership of both the Dredgers and the Boathouse, he allegedly continued to use the logo and name of the Boathouse on his Facebook page.  As a result, the Dredgers sued Baard for trademark infringement under the Lanham Act, common law unfair competition, and New York’s unfair competition laws.

In deciding the Dredgers’ motion for summary judgment, Judge Pamela Chen addressed whether they had standing to assert infringement claims owned by the Boathouse, which used (and therefore owned) the trademark at issue.  The Dredgers argued that they owned the Boathouse’s trademark because: (1) the Boathouse was “essentially a subsidiary” of the Dredgers; (2) the Boathouse was an “activity committee” of the Dredgers governed by the Dredgers’ by-laws; (3) the Dredgers provided insurance to the Boathouse; and (4) the Boathouse operated as a “fiscal conduit” for fundraising for the Dredgers.  Baard countered by arguing that the Boathouse was a separate entity from the Dredgers, therefore they did not have standing to assert the infringement claims at issue.

Judge Chen found that issues of fact concerning the Dredgers’ ownership of the Boathouse precluded summary judgment.  She was not persuaded that the purchase of insurance coverage or the alleged “fiscal conduit” relationship constituted evidence of ownership.  What she found “most telling” was the absence of a contract, board minutes, correspondence, or an authorization evidencing the Dredgers’ ownership of the Boathouse.  After oral argument she gave the Dredgers the opportunity to submit an affidavit supplementing their claim of ownership, and the Dredgers did so.  However, the affidavit did not definitively resolve the ownership question and left issues of fact.

In Animal Science Products, Inc. v. Hebei Welcome Pharmaceutical Co. Ltd., 05 CV 0453 (E.D.N.Y. Dec. 30, 2013), Judge Brian Cogan granted in part plaintiffs’ request for attorneys’ fees under the Clayton Act, to the extent of awarding $4,093,163.35 in fees, and no costs, out of the $13,724,641.75 in fees and $1,363,307.68 in costs requested.  The case was a seven-year, multi-district anti-trust class action against Chinese vitamin C manufacturers, in which a group of direct purchasers alleged that the defendants participated in a cartel to fix prices and limit the output of vitamin C exported to the United States.  Plaintiffs settled with two of the four main defendants and ultimately recovered a judgment, after a jury trial and trebling of the damages, of $153,300,000 against defendants Hebei Welcome Pharmaceutical Co. and North China Pharmaceutical Group Corp.  Plaintiffs were represented by Boies, Schiller & Flexner LLP and Susman Godfrey LLP.

Judge Cogan accepted plaintiffs’ counsel’s hourly rates of $375-$980, even though they were higher than the rates customarily charged by lawyers with offices in the District, due to the complex and demanding nature of the case. The Court said the case involved factual and legal issues that “have never been considered in this district and very possibly would be unique anywhere,” and required that “extraordinary” resources “be brought to bear to prosecute the case.” Slip op., 3.  In the Court’s view there was “no plaintiffs’ class action firm with the capacity to deal with a case of this magnitude resident within this district.”  Slip op., 4.  The Court said that because it was not a “close question” whether to apply the forum rate or counsel’s national rates, there was no need for plaintiffs to offer independent evidence that their counsel’s national rates were reasonable.  Rather, the Court relied on its own knowledge of market rates in the relevant community, which includes the Southern District, and said that plaintiffs had bolstered their reasonableness showing by demonstrating that counsel’s proposed rates were the same as the rates charged to clients paying on an hourly basis, and that similar or higher rates had been approved by courts in other complex class action litigation.

Virtually the entire reduction in the fees and the complete denial of the costs was in order to avoid what Judge Cogan viewed as double counting, in light of plaintiffs’ prior receipt of a substantial amount in fees and costs from the settling defendants.  Plaintiffs sought the “full amount of their fees in this case even though a substantial portion of those fees have been paid” as a result of the settlements, on the theory that “they are entitled to an enhancement of their lodestar calculation and that in lieu of that, I should not apply a credit in favor of defendants to their fee recovery.”  Slip op., 11.  Judge Cogan rejected plaintiffs’ argument that relied on a “linkage between an enhancement and an offset” for fees already recovered, because plaintiffs’ proposal would result in an enhancement of “over 100%.”  He concluded that not offsetting the fees plaintiffs had already received would result in a windfall to them at odds with the Clayton Act’s allowance of a “reasonable” fee award.

In In re Symbol Techs., Inc. Securities Litigation, 05 CV 3923 (E.D.N.Y. Dec. 5, 2013), Judge Denis Hurley denied defendants’ motion to dismiss the consolidated amended class action complaint.  The case involves Symbol Technologies, a manufacturer of inventory management products that was the subject of a government investigation into “systematic accounting fraud, including the manipulation of inventory levels to artificially inflate reported revenues” prior to the class period.  That government investigation led several former executives to plead guilty to criminal charges and the company to agree to consent decrees enjoining future violations of the antifraud provisions of federal securities laws.

At issue in the case were statements by the company and its senior executives to the effect that the company had put its financial improprieties behind it.  According to the complaint, those statements misrepresented Symbol’s financial results, the efficiency of its internal controls, and improvements in its corporate governance, which led to an inflation of Symbol’s stock price that damaged plaintiffs when the truth emerged.  Judge Hurley had little trouble concluding that the consolidated amended complaint sufficiently alleged the necessary elements of a securities fraud claim:  misrepresentations by defendants, materiality, falsity, scienter, and loss causation.

Of interest to us was his analysis of defendants’ claim that the Private Securities Litigation Reform Act’s “safe harbor” provision applied to defendants’ revenue projections.  The lead plaintiff argued that the safe harbor provision did not apply because of an exclusion for issuers who had “been the subject of a judicial or administrative decree or order.”  In short, plaintiff asserted that Symbol’s consent decrees deprived the company of safe harbor protection while defendants asserted that the consent decrees did not constitute a “judicial or administrative decree or order.”  In a case of first impression—neither the parties nor the Court found direct support for either side’s position—Judge Hurley found defendants’ argument to be a “distinction without a difference” and held the exclusion to apply.

In In re Gentiva Securities Litigation, 10 CV 5064 (E.D.N.Y. Dec. 10, 2013), two individual defendants and the defendant corporation moved for reconsideration of Judge Arthur D. Spatt’s order denying their motion to dismiss federal securities claims.  The case is a class action alleging that Gentiva, a health care provider, artificially inflated its stock price through a scheme that involved ordering unnecessary medical care for clients, and then billing the federal government for these illegitimate expenses.  At issue was whether the plaintiff class had properly pleaded scienter.

One of the individuals, Potapchuck, asserted that the claims against him did not meet Section 10(b)’s scienter requirement because he sold his shares pursuant to a “10b5-1 plan,” under which shares are divested at predetermined times.  Potapchuck pointed out that he sold only 12% of his shares, if the 10b5-1 trades were disregarded.  That fact made the difference on reconsideration.  After commenting that “Defendants should have specifically quantified the number of 10b5-1 [trades] in their prior motions to dismiss, rather than relying on the Court to comb through the Defendants’ financial records,” the Court found that the relatively small amounts at issue—just 12% of Potapchuck’s shares, resulting in $300,000 in net profits—did not support an inference of scienter.  The Court reached a different result regarding the other individual defendant, Malone, who sold 99% of his shares during the class period for approximately $2.14 million (and none pursuant to 10b5-1 plans).  Those trades were sufficient to plead scienter against Malone.

The fact that only one corporate insider engaged in allegedly suspicious sales caused the Court to change its mind about the Section 10(b) claim against Gentiva as well, which was dismissed on the ground that an inference of its fraudulent intent could not be shown.  Thus, the Court reversed course on reconsideration and dismissed two of the three defendants, while upholding claims against the third.

In The Roman Catholic Archdiocese of New York. v. Sebelius, 12 CV 2542 (E.D.N.Y. Dec. 13, 2013), Judge Brian M. Cogan held that the Patient Protection and Affordable Care Act (the “ACA”) violated certain plaintiffs’ core religious beliefs under the Religious Freedom Restoration Act (“RFRA”).   The ACA requires that group health insurance plans cover certain preventative services, including contraception, sterilization and related counseling (the “Mandate”).

Certain religious employers, primarily churches such as plaintiffs the Archdioceses of New York and the Diocese of Rockville Center (the “Diocesan Plaintiffs”), are exempt from the Mandate.  By recent regulation, religious non-profits, including the four other plaintiffs (the “non-exempt Plaintiffs”) who are affiliated with the Roman Catholic Church, were not required to pay for a health plan that covered contraceptive services; instead, an eligible entity must provide its issuer or third party administrator (“TPA”) with a self-certification form stating its objection to the Mandate on religious grounds.  The TPA is then required to provide contraceptive services free of charge to plan participants.  Plaintiffs claimed that, notwithstanding the exemptions that applied to them, the Mandate required them to violate their religious beliefs which prohibited them from providing, facilitating or sponsoring the provision of contraception, sterilization or abortion-inducing services.   Plaintiffs moved for summary judgment on all of their claims under RFRA, the Administrative Procedures Act, and the Establishment, Free Exercise, and Free Speech Clauses of the First Amendment.  Defendants cross-moved for summary judgment.

Since the Diocesan Plaintiffs were exempt from the Mandate, the Court found that they would not have suffered a substantial burden on their religion under the RFRA; and since these claims failed under the more lenient standard of the RFRA, they could not succeed on their remaining constitutional claims.  Accordingly, the Court granted defendants summary judgment with respect to the Diocesan Plaintiffs’ claims.  As described below, the non-exempt plaintiffs were entitled to summary judgment and a permanent injunction against enforcement of the Mandate as to them.  The Court found the remaining constitutional claims moot.

In a bizarre twist, late in the briefing of these motions after almost 18 months of litigation, the government realized that all of the plaintiffs’ health plans were exempt under ERISA, which provided the Department of Labor with authority to enforce the Mandate.  The government belatedly argued that since it had no authority to require the plaintiffs’ TPAs to provide contraceptive coverage, the plaintiffs lacked standing because their TPAs could not be forced to provide coverage for any objectionable services.  While noting that it is unclear how citizens like plaintiffs could know what the ACA requires if the government itself was unsure, the Court found that even if the government had finally come to an accurate understanding of how to apply the ACA and the Mandate, plaintiffs’ alleged an injury-in-fact was sufficient for Article III standing.

Plaintiffs suffered an injury because the Mandate made them complicit in a plan to provide coverage to which they had a religious objection, regardless of whether it provided contraceptive coverage.  The government argued that since all plaintiffs have to do is to complete a form stating their religious objections to contraceptive coverage, completing the form was a de minimis act and placed no burden on their religion.  However, in deciding whether a law imposes a “substantial burden”, the RFRA explicitly states (and the Supreme Court’s Free Exercise cases equally state) that a court may not consider the centrality of a particular religious practice to an adherent’s faith.  Here, the ACA required the non-exempt plaintiffs to complete and submit a self-certification, which authorized a third-party to provide the contraceptive coverage.  According to these plaintiffs, the self-certification was a compelling affirmation of a repugnant belief.  Thus, the Court rejected what it called the government’s “it’s just a form” argument and found that since the monetary fines for non-compliance were substantial the Mandate compelled the non-Diocesan plaintiffs to perform acts that were contrary to their religion.

Because the Court found that the non-exempt plaintiffs had demonstrated a substantial burden on their religious beliefs, the government then had to demonstrate that the Mandate was the least restrictive means of furthering a compelling governmental interest.  The Court first noted that every Circuit court presented with a similar argument in connection with RFRA challenges had held that the Mandate failed the RFRA’s test of strict scrutiny.

The Court rejected the government’s argument that it had a compelling interest in uniform enforcement of the Mandate that would be undermined by granting plaintiffs the exemption they sought.  First, the Mandate was not uniform because tens of millions or people qualified for one of various exemptions.  Second, the government’s belated realization that the ACA did not require plaintiffs’ TPAs to provide contraceptive coverage undermined any claim that imposing the Mandate served a compelling governmental interest, because in this case, the Mandate would force plaintiffs to fill out a form that violated their religious beliefs even though it ultimately had no effect whatsoever.  The Court concluded: “A law that is totally ineffective cannot serve a compelling interest.”  Finally the Court noted that the Mandate was far from the least restrictive means by which the Government could achieve the goals of the ACA and the Mandate to improve public health and equalize women’s access to healthcare.  Among many other options, the government could avoid requiring plaintiffs’ participation by providing the contraceptive services or insurance coverage directly to plaintiffs’ employees.

In Long Island Head Start Child Development Services, Inc., v. Economic Opportunity Commission, 00 CV 7394 (E.D.N.Y. Dec. 5, 2013), Judge Arthur Spatt held that a claim for appellate attorneys’ fees under ERISA’s fee shifting provisions is not governed by the 14-day deadline set forth in Federal Rule of Civil Procedure 54(d)(2)(B).  Under that Rule, a motion for an award of attorneys’ fees must be brought “no later than 14 days after the entry of judgment.”  The defendant had appealed an adverse judgment to the Second Circuit and lost.  The Circuit issued its mandate on June 10, 2013.  Two and a half months later, on August 29, 2013, the plaintiffs moved under ERISA to recover their appellate attorneys’ fees.

The defendants argued that the motion was out of time under Rule 54(d)(2)(B), and should be denied, because it was made more than 14 days after “the entry of judgment.”  The court examined whether the word “judgment” used in the Rule includes an appellate judgment.  The court noted that Rule 54(a) defines judgment as a “decree and any order from which an appeal lies,” and that, as a Northern District of Texas court had ruled, an appellate judgment could qualify because “a judgment from the Court of Appeals can be appealed to the United States Supreme Court.”  Slip op. at 5.  The court ultimately rejected that view, however, based on an earlier Eastern District case that decided the same question under the fee-shifting provisions of Title VII, and held that since Title VII contained no deadline, and since neither the Federal Rules of Appellate Procedure nor the Second Circuit’s local rules contained a deadline, the fee motion had only to be made within a reasonable period.

Reasoning that ERISA also had no deadline for making a motion for appellate fees, the Court ruled that motions under ERISA’s fee-shifting provisions likewise had only to be made “within a reasonable of time after the circuit’s entry of final judgment.”  Slip op. at 8.  Other fee shifting statutes are unlikely to be far behind.  (As for the two and a half months it took plaintiffs to make their motion, the Court held the time was not unreasonable because it was only two days after the defendants’ right to petition for U.S. Supreme Court review had lapsed.)

In S.E.C. v. MedLink International, Inc., 12 CV 5325 (E.D.N.Y. Nov. 25, 2013), Judge Leonard D. Wexler denied an individual defendant’s motion to vacate a default judgment after he and his counsel apparently played a cat-and-mouse game of engaging with the SEC, only to disappear and fail to respond to communications.  The underlying case involved a year-long investigation by the SEC regarding MedLink’s allegedly false and misleading 10-K:  the 10-K supposedly included the electronic signature of MedLink’s auditor notwithstanding the fact that the auditor had not completed its audit.

Counsel for Defendant Aurelio Vuono originally appeared on his behalf and interacted with the SEC to discuss settlement issues, but failed to respond to the SEC’s subsequent inquiries.  Counsel then reappeared, indicating he would accept service of a complaint on Vuono’s behalf.  Vuono never answered the complaint, however, and the SEC moved for default.  Vuono himself then surfaced and told the SEC he would defend himself pro se.  He then failed to respond to the motion seeking default judgment, which was ultimately entered.

Faced with these facts, the Court denied Vuono’s motion.  First, Wexler held that Vuono had been served with the complaint based on his counsel’s representations to the SEC that he would accept service, rejecting his argument that he had not been served.  Second, Vuono’s failure to respond to the complaint under the circumstances was willful.  Last, Vuono had not established a meritorious defense because his motion “misstate[d] applicable law and raise[d] irrelevant points.”

In Dudek v. Nassau County Sheriff’s Department, 12 CV 1193 (E.D.N.Y. Nov. 19, 2013), Judge Pamela Chen was called upon to resolve what one state court had called a “legislative oversight”:  family court judges have statutory authority to confiscate firearms from individuals involved in domestic incidents, but do not have explicit statutory authority to order their return.  As a result, when plaintiff, who had been involved in a domestic incident resulting in the confiscation of his firearms, asked the Nassau County Sheriff to return his weapons after his wife withdrew the petition, the sheriff refused to do so without a court order.  Plaintiff filed suit seeking declaratory, injunctive, and monetary relief.

Faced with defendants’ motion to dismiss, the Court ruled that the apparent legislative oversight did not divest the sheriff’s department, or the New York Supreme Court, of authority to return the firearms.  While permitting claims to go forward against Nassau County and particular officers who were personally involved with plaintiff, it dismissed claims against certain subordinate officers whose personal involvement was not apparent from the record and against the sheriff’s department, which was merely an arm of the County.

The non-dismissed officers were deemed to have qualified immunity, however, because their conduct did not violate “clearly established statutory or constitutional rights of which a reasonable person would have known.”  The Court held it was “incorrect, but not unreasonable” for the officers to have believed that they could not return the weapons absent a court order.  This ruling immunized the officers from monetary claims.  In sum, Judge Chen declined to dismiss declaratory and injunctive claims against the individual officers and allowed discovery on the Monell claim against the County, which was subject to claims for monetary damages.