District Judge Pamela K. Chen recently granted summary judgment in a slip and fall diversity case that highlights the difference between the summary judgment standards under federal and New York state law. Taylor v. Manheim Marketing Inc., 15-CV-01950 (E.D.N.Y. Nov. 30, 2017).

This case offers a reminder to counsel that the federal summary judgment standard can be less forgiving to plaintiffs, and a reason, particularly in close cases, for defense counsel to consider removing eligible cases to federal court.

Taylor involved a slip and fall at a gravel parking lot in defendant’s car auction facility. Plaintiff claimed that he slipped on a patch of oil or ice and that defendant either created or was on constructive notice of the condition. Judge Chen found that plaintiff’s failure to offer evidence that defendant created the hazard or had notice of the condition required dismissal of the case. In analyzing the summary judgment motion, Judge Chen noted a critical distinction between New York state and federal summary judgment practice:

The federal burden of proof on a motion for summary judgment differs from the corresponding standard under New York law on a slip-and-fall action. See, e.g., Tenay v. Culinary Teachers Ass’n of Hyde Park, 281 Fed.Appx. 11, 12-13 (2d Cir. 2008); Vasquez v. United States, No. 14-CV-1510 (DF), 2016 WL 315879, at *4-5 (S.D.N.Y. Jan. 15, 2016). “Under New York law, [a] defendant who moves for summary judgment in a [sl]ip-and-fall case has the initial burden of making a prima facie showing that it neither created the alleged hazardous condition, nor had actual or constructive notice of its existence for a length of time sufficient to discover and remedy it.” Vasquez, 2016 WL 315879, at *4 (citation omitted). Conversely, under federal law, the moving party “need not make any affirmative prima facie showing on [a] motion for summary judgment, and may discharge its burden of proof merely ‘by pointing to an absence of evidence to support an essential element of [Plaintiff’s] claim.’” Id. at *5 (citation omitted).

Taylor v. Manheim Marketing Inc., 15-CV-01950 (E.D.N.Y. Nov. 30, 2017).

And, no, applying the federal summary judgment standard to a diversity action does not violate the Erie Doctrine – the burden of proof under rule FRCP 56 is procedural. See Tenay v. Culinary Teachers Ass’n of Hyde Park, 281 Fed.Appx. 11, 12-13 (2d Cir. 2008)). A more recent Seventh Circuit decision made that clear as well. See Couvillion v. Speedway LLC, 673 F. App’x 558, 559 (7th Cir. 2016) (“federal procedure governs all federal cases, even if this implies an outcome different from the one likely in state court”).

Posted by Solomon N. Klein, Litigation Partner
Schlam Stone & Dolan LLP

District Judge Brian M. Cogan recently re-imposed sanctions on the defendants in Funk v. Belneftekhim a/k/a Concern Belneftekhim, 14 CV 0376 (E.D.N.Y. Oct. 17, 2017) after the Second Circuit addressed the nuances of sanctioning parties for non-compliances with jurisdictional discovery.

Of course, the term “jurisdictional discovery” is a bit of a misnomer, since a court would need some predicate jurisdiction in order to direct discovery in the first instance. So when it comes to sanctions for non-compliance with jurisdictional discovery, a “half-dozen” is not the same as “six”, though the results may be indistinguishable.

We have previously discussed how the facts alone make this case a worthy read. Plaintiffs (an attorney and his legal assistant that represented investors in a Belarus oil company) alleged that they were drugged, abducted and flown to Belarus, where they were imprisoned and tortured for over a year. Defendants moved to dismiss, claiming sovereign immunity among other grounds. Judge Cogan directed limited jurisdictional discovery on the sovereign immunity defense to determine defendants’ claim that they were agents or instrumentalities of Belarus.

Defendants presented documents in support of their sovereign immunity argument, but repeatedly refused to comply with plaintiffs’ discovery demands relating to jurisdiction. In 2015, Judge Cogen sanctioned defendants by striking their sovereign immunity defense. Funk v. Belneftekhim a/k/a Concern Belneftekhim, 14 CV 0376 (E.D.N.Y. Oct. 20, 2015).

On appeal, the Second Circuit took no issue with the decision to sanction defendants, but nonetheless vacated the striking of the defendants’ sovereign immunity defense. The Second Circuit found that “striking a jurisdictional challenge . . . risks a district court’s exercise of jurisdiction where none may exist.” In other words, by striking a jurisdiction challenge without determining the merits, a court may be improperly creating jurisdiction where no jurisdiction existed.

The Second Circuit then proceeded to explain that there were “alternative[]” sanctions – such as (1) “an evidentiary presumption against defendants that [the] withheld discovery” would have refuted the claim of sovereign immunity, and (2) “prohibiting defendants from offering further supporting evidence” of immunity.

Upon remand, Judge Cogan embraced the Second Circuit’s suggestion and re-imposed sanctions in the form of an evidentiary presumption against defendants – not striking the sovereign immunity defense outright, but with the same effect:

[P]laintiffs presented evidence that the documents defendants relied upon give an incomplete picture of Belarusian. . . . . Plaintiffs also presented affirmative evidence that Belneftekhim or some portion of it is a commercial company owned at least in part by private investors, and therefore not subject to sovereign immunity.

This conflicting evidence created a factual dispute about whether Belneftekhim is actually majority-owned by Belarus, rather than by other companies, private investors, or individual government agents. . . . . The factual dispute necessitated discovery, which defendants refused to provide, thereby preventing me from assessing the validity of the evidence defendants originally submitted.

In light of the sanctions I applied against defendants . . . , their sovereign-immunity claim fails. The evidence that defendants initially submitted, which was significantly undermined by plaintiffs’ response, is now clearly insufficient in light of the evidentiary presumption. Based on that presumption – that the discovery defendants withheld would have disproven the assertions they put forth about Belneftekhim’s ownership structure and its status under Belarusian law – defendants fail to demonstrate that they are entitled to immunity. Because the evidentiary presumption rebuts defendants’ only immunity evidence before the Court, I therefore deny defendants’ motion to dismiss on the grounds of foreign-sovereign immunity.

Posted by Solomon N. Klein, Litigation Partner
Schlam Stone & Dolan LLP

On October 23, 2017, the Second Circuit issued a decision in Yu v. Hasaki Restaurant, Inc., Docket No. 17-1067, granting permission to file a late petition for an interlocutory appeal from a decision of the EDNY, explaining:

The relevant court of appeals may, in its discretion, permit an appeal from the order if application is made within ten days after entry of the order. Rule 5 of the Federal Rules of Appellate Procedure requires a request for permission to file a discretionary appeal to be filed within the time specified by the statute authorizing the appeal.

We acknowledge at the outset that time requirements for invoking appellate jurisdiction are strictly enforced. In Bowles v. Russell, 551 U.S. 205 (2007), for example, the Supreme Court ruled that a court of appeals lacked jurisdiction where a district court had mistakenly told an appellant that his notice of appeal could be filed within seventeen days, instead of the fourteen days specified in the relevant rule, FRAP 4(a)(6).

In the pending matter, Hasaki’s petition to appeal the District Court’s April 10 Order was filed beyond the ten days specified in section 1292(b). However, a notice of appeal was filed within that ten day period. The issue presented is whether the notice of appeal may be deemed the 7 functional equivalent of a section 1292(b) petition for purposes of invoking this Court’s jurisdiction over Hasaki’s petition.

In Casey v. Long Island R.R. Co., 406 F.3d 142, 146 (2d Cir. 2005), we ruled that a brief, filed within ten days of a District Court’s order, was the functional equivalent of a section 1292(b) petition. A brief is, of course, a far more informative document that a bare notice of appeal. But Casey permits us to determine whether, under the circumstances of this case, we should deem Hasaki’s notice of appeal, filed in the District Court, sufficient to invoke our appellate jurisdiction over the petition for an interlocutory appeal. That notice identified the Order for which review was sought. It also triggered the automatic electronic transmission to this Court of the notice of appeal and the District Court’s Order and Opinion. That Opinion fully informed us of the considerations relevant to whether the District Court’s Order was appropriate for a section 1292(b) appeal.

We thus knew, within ten days of the District Court’s Order, everything we needed to know in order to exercise our discretion whether to permit the interlocutory appeal. We note that the District Court’s Order required the parties to explain the justification for their settlement “[a]bsent a notice of appeal being filed within ten days, see 28 U.S.C. § 1292(b).” The citation was helpful, but the reference to a notice of appeal was not.

There is a reason why this Court should be somewhat indulgent in determining whether the notice of appeal should be considered the functional equivalent of a section 1292(b) petition. We are not asked to uphold appellate jurisdiction solely for the benefit of a litigant who has not prevailed after plenary proceedings in a district court. Here, the acceptance of appellate jurisdiction would achieve the objective of a conscientious district court judge who has determined, after a comprehensive analysis, that an interlocutory appeal will serve the interests of efficient judicial administration.

Under all the circumstances, we deem the timely filed notice of appeal sufficient to invoke our appellate jurisdiction over the section 1292(b) petition. Having accepted jurisdiction over the petition by virtue of the timely notice of appeal and timely receipt of related information, we grant Hasaki’s request to file his later filed formal section 1292(b) petition.

(Internal quotations and citations omitted). Having accepted the petition, the Second Circuit went on to grant leave to file an interlocutory appeal of the question of “whether Rule 68 settlements in FLSA cases require District Court review and approval.”

On June 27, 2016, Schlam Stone & Dolan partner John Lundin will co-moderate a CLE program at the New York City Bar on mediation in the federal courts. Among the panelists will be Rebecca Price, Director of the ADR Program for U.S. District Court for the Southern District of New York; Kathleen M. Scanlon, Chief Circuit Mediator for United States Court of Appeals for the Second Circuit; and Robyn Weinstein, ADR Administrator for the U.S. District Court for the Eastern District of New York.
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On May 5, 2016, the Second Circuit issued a decision in Bishop v. Wells Fargo, 15‐2449, affirming a decision by the EDNY that alleged false certifications of “compliance with various banking laws and regulations when” borrowing “money at favorable rates from the Federal Reserve’s discount window” did not “constitute legally false claims under the” False Claims Act, explaining:

As this Court has long recognized, the FCA was not designed to reach every kind of fraud practiced on the Government. Even assuming the relators’ accusations of widespread fraud are true, they have not plausibly connected those accusations to express or implied false claims submitted to the government for payment, as required to collect the treble damages and other statutory penalties available under the FCA.

(Internal quotations and citations omitted).

In Doe v. United States, 15 MC 1174 (E.D.N.Y. Mar. 7, 2016), District Judge John Gleeson considered a nurse’s motion to expunge her thirteen-year-old conviction for participation in an insurance fraud scheme because of its adverse impact on her ability to find professional employment. Contrary to the government’s position, the court found that it had jurisdiction to hear the motion, because “controlling Second Circuit precedent establishes that ‘expungement [of convictions] lies within the equitable discretion of the [district] court.'” Slip op. 17 (quoting U.S. v. Schnitzer, 567 F.2d 536, 539 (1977)).

Reviewing the applicant’s history, the court noted that, “[i]n the 12 years since she reentered society after serving her prison sentence, she has not been convicted of any other wrongdoing” and “has worked diligently to obtain stable employment.” Slip op. 2. Following an examination of numerous documents on the applicant’s character and competence, Judge Gleeson concluded that “there is no relationship between Doe’s conviction and her fitness to be a nurse.” Slip op. 23. However, he still denied the motion for expungement, finding that the Schnitzer standard “unfortunately does not permit [him] to grant it.” Slip op. 21. Specifically, according to the Second Circuit, expungement “should be reserved for the unusual or extreme case,” which this was not. Slip op. 23 (quoting Schnitzer, 567 F.2d at 539).

Nevertheless, the applicant was not left without relief: the court issued her a “certificate of rehabilitation.” Despite the absence of a federal statute directly governing the issuance of such a certificate, Judge Gleeson noted that such certificates exist in some states including New York and that “[t]he federal system already contemplates certificates of rehabilitation” as they are referenced in the Federal Rules of Evidence and the Federal Sentencing Guidelines Manual. Slip op. 29. Judge Gleeson’s ruling calls for an express “congressional authorization” for “a robust federal certification system” that “could include an enforceable presumption of rehabilitation, as is offered in New York.” Slip op. 29.

The factors Judge Gleeson considered in concluding that Ms. Doe was rehabilitated and deserved the certificate included: “the nature of [her] crime,” her “current economic and social circumstances,” and “how Doe has spent her time since her release from prison,” including her “efforts to rebuild herself” as “a productive member of society.” Slip op. 31.

Even with the court’s caveat that this is not an exhaustive list, the list provides some guidance to other judges who would consider issuing similar certificates. In the meantime, Judge Gleeson attached the redacted version of the federal certificate of rehabilitation issued to Ms. Doe to the opinion to serve as a model to be used by other district judges.

Judge Brian Cogan denied a motion to stay plaintiff’s antitrust case pending resolution of an earlier filed, related action brought by defendants in the Netherlands, in Schenker A.G. v. Societe Air France, et al., No. 14-Civ.-4711 (E.D.N.Y. Apr. 14, 2016). The plaintiff was a freight forwarder and the defendants were air carriers. The complaint alleged that defendants participated in a conspiracy to fix surcharges imposed on airfreight services. The defendants filed the Netherlands action in April 2011, seeking a declaration that they were not liable to plaintiff for any violation of antitrust law, including U.S. and European law. Slip op. 2. After settlement negotiations trailed off, plaintiff filed the Eastern District action in early August 2014. Defendants resumed prosecution of the Netherlands action later that month.

Judge Cogan explained that a “district court should only surrender its jurisdiction in ‘exceptional circumstances,'” and that the mere existence of parallel litigation in a foreign jurisdiction “‘cannot reasonably be considered exceptional circumstances.'” Slip op. at 4 (quoting Royal & Sun All. Ins. Co. of Canada v. Century Int’l Arms, Inc., 466 F.3d 88, 93, 94 (2d Cir. 2006)). Rather, in evaluating whether to grant a stay, the court should consider various factors, “such as the similarity of the parties, the similarity of the issues, the order in which the actions were filed, the adequacy of the alternate forum, the potential prejudice to either party, the convenience of the parties, the connection between the litigation and the United States, and the connection between the litigation and the foreign jurisdiction.” Slip op. 4 (quoting Royal & Sun, 466 F.3d at 94).

The Court reasoned that “although some factors cut against” the case proceeding, “they are not exceptional.” Slip op. 6. Because the parties and the issues were not the same in the two cases, the conduct was closely tied to the United States, and because a first-filed action seeking declaratory relief “in response to a direct threat of litigation,” as was present in this case, negated the “general preference for deferring to the first-filed action,” id., Judge Cogan concluded that the motion for stay should be denied.

On April 11, 2016, the Second Circuit issued a decision in Mitchell v. Garrison Protective Servs., Inc., 15‐2137‐CV, discussing the procedure in federal court for collecting a judgment under state law as mandated by F.R.C.P. 69.
   
Mitchell involved a challenge to determinations made in the course of a proceeding to collect on a judgment. The issue arose in the EDNY regarding the procedural posture of an action in federal court to collect a money judgment from a defendant that allegedly had received a fraudulent transfer from the judgment debtor. Federal Rule of Civil Procedure Rule 69(a)(1), provides that the “procedure on execution” in federal court upon a money judgment “must accord with the procedure of the state where the court is located,” in this case, NY CPLR § 5225. But since federal practice does not include a “special proceeding” envisioned by CPLR 5225, what is the procedure to be followed for judgment collection in the federal courts under Rule 69 and CPLR 5225? The Second Circuit concluded that the procedure was a “plenary action pursuant to New York’s substantive law of fraudulent transfers.” The Second Circuit explained:

[CPLR] 5225(b) creates a procedural mechanism by which judgment creditors can enforce a money judgment, rather than a new substantive right. That mechanism, known as a “special proceeding,” has no equivalent under the Federal Rules of Civil Procedure, which recognize only one form of action—the civil action. It is unclear, therefore, how a party in federal court in New York satisfies the special proceeding requirements of § 5225(b). What is clear, however, is that a special proceeding under § 5225(b) is not the only mechanism for avoiding a fraudulent transfer in New York. Rather, creditors may instead bring a plenary action to avoid the transfer under New York substantive law.

Because there is no such thing as a “special proceeding” in federal court, we have afforded district courts in New York some leeway in determining whether to construe a particular fraudulent‐transfer suit as a plenary action or a special proceeding. . . . These considerations lead us to conclude that although plaintiffs initially described their motion as having been filed pursuant to § 5225(b), the District Court properly construed it as a plenary action. . . .

Accordingly, we agree with the District Court that plaintiffs’ claim depends solely on the definition of a fraudulent transfer under DCL § 273‐a.

(Internal quotations and citations omitted).

On April 15, 2016, the Second Circuit issued a decision in Greenberg v. Greenberg, 15-731-CV, affirming a decision of the EDNY granting a defendant summary judgment on a breach of contract claim because of a lack of consideration.

In Greenberg, the plaintiff’s cousin “was badly injured in a work-related accident . . . and subsequently brought a personal injury suit.” The plaintiff alleged that he and his cousin entered into a contract providing that his cousin would pay the plaintiff $200,000 “if and when upon receiving settlement of his claim and/or lawsuit for bodily injury.” The agreement recited that the $200,000 “gift” was “being given because” in the past the plaintiff had “given many gifts and many loans to” the defendant.

The “defendant settled his personal injury suit, but did not pay plaintiff $200,000.” The plaintiff sued the defendant in the EDNY for breach of contract. The EDNY granted the defendant summary judgment, dismissing the claim. The Second Circuit affirmed, explaining:

The law is well settled that in order for a promise to be enforceable as a contract, the promise must be supported by valid consideration. Consideration is defined as either a bargained for gain or advantage to the promisee or a bargained for legal detriment or disadvantage to the promisor. Generally, past consideration is no consideration and cannot support an agreement because the detriment did not induce the promise.

There is, however, a statutory exception to this general rule. Under New York law,

a promise in writing and signed by the promisor or by his agent shall not be denied effect as a valid contractual obligation on the ground that consideration for the promise is past or executed, if the consideration is expressed in the writing and is proved to have been given or performed and would be a valid consideration but for the time when it was given or performed.

N.Y. Gen. Oblig. Law. § 5-1105. To meet § 5-1105’s requirement that the consideration be expressed in the writing, the recitation of consideration must not be vague or imprecise.

Here, the district court correctly held that the past consideration in the contract was not sufficiently expressed to fall within the confines of Section 5-1105.

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

On March 21, 2016, the Second Circuit issued a decision in Binder & Binder v. Colvin, 14‐4141-CV and 14‐4457‐CV, affirming decisions by the EDNY that sovereign immunity barred a law firm’s lawsuits against the Social Security Administration for failing to pay fee awards.

In Binder & Binder, the plaintiff law firm successfully represented litigants in two actions against the Social Security Administration. In both cases, the plaintiff was successful in the representation and, under the Social Security Act, was entitled to be paid fees out of the award. However, in both cases the Social Security Administration failed to withhold and pay to plaintiff the fees and instead paid the entire award to the plaintiff’s clients. Worse (for plaintiff), its clients declared bankruptcy and its clients’ debts to it were discharged.

The plaintiff sued the Social Security Administration for failing to withhold and pay to the plaintiff the fees to which it was entitled under the Social Security Act. The EDNY granted the Social Security Administration’s motion for summary judgment dismissing the plaintiff’s claims on the ground that the Social Security Administration was immune from suit under the principle of sovereign immunity. The Second Circuit affirmed.

First it explained that the requirement that the Social Security Administration pay counsel fees from the claimant’s award did not constitute a waiver of sovereign immunity:

Absent a waiver, sovereign immunity shields the Federal Government and its agencies from suit. Moreover, waivers of sovereign immunity must be unequivocally expressed in statutory text, and cannot simply be implied.

[The plaintiff] contends that sovereign immunity is waived by the statutory instruction that the Commissioner of Social Security shall . . . certify for payment out of such past‐ due benefits . . . to such attorney an amount equal to so much of the maximum fee as does not exceed 25 percent of such past‐due benefits.” But under the Social Security Act’s fee structure, it is the claimant who pays the attorney from her entitlements, and the SSA – in deducting those fees from its payments to the claimant – serves only as an intermediary.  The Social Security Act creates a statutory duty for the SSA to fix the fees of claimantʹs attorneys and to withhold and transmit the fees so fixed.

Our Court earlier recognized this aspect of the fee provision in the context of a neighboring provision of the Social Security Act, which governs fees for cases that proceed to judicial review.  In Wells v. Bowen, we were presented with fee petitions under both the Social Security Act, 42 U.S.C. § 406(b), and the Equal Access to Justice Act (EAJA), 28 U.S.C. § 2412(d). We there noted that the principal difference between the SSA . . . fee provision and the EAJA is that EAJA fees are paid by the government to the litigant to defray the cost of legal services whereas the SSA . . . fees are paid by the litigant to the attorney from the past‐due benefits awarded. And we contrasted the EAJA, which is based on a waiver of the normal principles of sovereign immunity, with the Social Security Act fee provision, which is simply a statutory interference with the attorney client contractual relationship—thereby, indicating that there is no similar waiver of sovereign immunity under the Social Security Act.

The language of § 406(a) differs slightly from § 406(b), the provision in Wells.  Section 406(a) provides that the Commissioner “shall” fix, approve, and certify such a fee, while § 406(b) provides that a court “may determine . . . a reasonable fee,” which the Commissioner “may certify” out of past due benefits (emphasis added).

But this difference, reflecting the mandatory nature of § 406(a), does not constitute a waiver of sovereign immunity.  The substitution of shall for may does not amount to an “unequivocally expressed statutory waiver” of sovereign immunity reflecting the consent of the United States to be sued for money damages.

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

Next, the Court acknowledged that this may have left the plaintiff with a right without a remedy, but held that this did not trump the principle of sovereign immunity:

The fact remains that the Social Security Act fees, whether for services before the SSA or the court, are the plaintiff’s debt and not the government’s. The failure of the SSA to deduct the fees that the plaintiff owes its lawyer may be a wrong on the part of the SSA. But the existence of a wrong – even a statutory wrong – by the government, does not, without more, waive sovereign immunity.

In other words, [the plaintiff] confuses rights and remedies. [The plaintiff] begins by noting that it continues to be entitled to its statutorily awarded legal fees; fair enough.  It then says that such a right means that the SSA remains liable to [it] for the award fees.   But, as Judge Bianco aptly observed although Binder II recognizes a statutory duty based on 42 U.S.C. § 406(a) on the part of the SSA, the decision does not establish a corresponding remedy of money damages against the SSA for breach of that duty. There may well be a wrong (the SSA’s alleged failure to disburse fees), but to pursue successfully the remedy that [the plaintiff] seeks (damages from the SSA) for this wrong, Binder must demonstrate a waiver of sovereign immunity. And it has failed to cross this threshold.

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