Current Developments in the US District Court for the
Eastern District of New York
Posted: June 13, 2016

False Certifications of Compliance With Banking Laws Does Not Support False Claims Act Claims

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).

Posted: May 12, 2016

Court Denies Application for Expungement of Conviction But Issues Certificate of Rehabilitation

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.

Posted: May 2, 2016

No Stay Of EDNY Case Pending Resolution Of Related Foreign Country Action

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.

Posted: April 27, 2016

Rule 69, Which Provides that Money Judgments are Executed Under State Law, Applies to State Substantive Law

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).

Posted: April 22, 2016

Past Consideration Insufficient to Create Contract Unless Clearly Expressed in Writing

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).

Posted: April 14, 2016

Social Security Administration Cannot Be Sued for Failure to Pay Fee Award

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).

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.