Current Developments in the US District Court for the
Eastern District of New York
On July 9, 2014, the Second Circuit issued a decision in United States v. Park, 13-4142-CR, reversing an EDNY decision sentencing a defendant to probation rather than imprisonment “based solely on its belief that the government could not afford the cost of incarceration during a so-called “government shut-down.”
In Park, the defendant pled guilty to one count of tax evasion. The defendant had prior convictions, but the EDNY sentenced the defendant to probation rather than imprisonment, explaining:
I would probably give a period of incarceration if not for the financial pressures that the Court has, the court system and the government has. Especially low-level federal employees at the present time. And we really can’t afford the luxury of paying another $28,000 to keep this person in jail under the circumstances . . . .
The Second Circuit reversed, explaining:
[W]e conclude that the District Court committed procedural error in imposing a term of probation in lieu of imprisonment for two reasons. First, the only sentencing factor the District Court deemed relevant was the cost of incarceration to the government and the economic problems allegedly caused by the government shut-down. . . . The Court therefore committed procedural error by refusing to consider the § 3553(a) factors in deciding what is an appropriate sentence.
Second, and equally problematic, is that the cost of incarceration to the government—the Court’s sole justification for imposing a term of probation rather than incarceration—is not a relevant sentencing factor under the applicable statutes. [B]ased on the plain language of § 3553(a), no sentencing factor can reasonably be read to encompass the cost of incarceration. Nor does the statute permit the sentencing court to balance the cost of incarceration against the sentencing goals enumerated in § 3553(a).
(Internal quotations and citations omitted) (emphasis added). The Second Circuit went on to hold that not only was the sentence procedurally unreasonable, it also was–based on the record as it stood–substantively unreasonable, given the defendant’s conduct and prior convictions.
On June 25, 2014, the Second Circuit issued a decision in Giuffre Hyundai v. Hyundai Motor America, Docket No. 13–1886, holding that contractual obligations to provide notice and an opportunity to cure a breach of contract can be excused.
In Giuffre Hyundai, the defendant “terminated its contract with” the plaintiff car dealer “after a New York State court concluded that the dealer had engaged in fraudulent, illegal, and deceptive business practices—a clear breach of the contract terms.” The plaintiff brought suit in the EDNY, alleging that the termination violated “section 463 of the New York Vehicle and Traffic Law, which provides protections to motor vehicle franchisees in their dealings with automobile manufacturers” because it was not provided notice and an opportunity to cure. The EDNY granted the defendant summary judgment, which the Second Circuit affirmed. One issue addressed by the Second Circuit was whether New York contract law excused a party from an obligation to provide notice of a breach and an opportunity to cure it when the breach could not be cured. Holding that it did, the Second Circuit affirmed the EDNY’s decision, explaining:
New York common law will not require strict compliance with a contractual notice-and-cure provision if providing an opportunity to cure would be useless, or if the breach undermines the entire contractual relationship such that it cannot be cured. In particular, New York law permits a party to terminate a contract immediately, without affording the breaching party notice and opportunity to cure when the breaching party’s misfeasance is incurable and when the cure is unfeasible. When contracting parties agree to a notice-and-cure provision, it is reasonable to assume that they do so with the assumption that the breaches which would be used to terminate the contract would be curable breaches. It is no less reasonable to presume that the legislature operated under the same expectation in drafting section 463.
(Internal quotations and citations omitted) (emphasis added).
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On June 27, 2014, the Second Circuit issued a decision in Leskinen v. Halsey, 13-1157-CV, limiting the application of the probate exception to federal jurisdiction.
In Leskinen, the EDNY dismissed a plaintiff’s RICO and related state-law claims against “various relatives and other participants in the sale of real property once owned by her late grandmother,” holding “that the probate exception to federal jurisdiction precluded its adjudication of [the plaintiff’s] claims because they directly target the administration of her grandmother’s estate, including the allegedly improper disposition of real property.” While the Second Circuit ultimately found alternate grounds to uphold the EDNY’s dismissal, it held that the probate exception did not apply, explaining:
This court . . . has narrowly construed the probate exception to apply only if a plaintiff seeks either to (1) administer an estate, probate a will, or do any other purely probate matter, or (2) to reach a res in the custody of a state court. Nothing in the record demonstrates that [the plaintiff] seeks to reach a res in the custody of a state court. Insofar as she sues for racketeering, common law fraud, willful negligence, and negligent misrepresentation, the relief sought may be at odds with concluded state probate proceedings, but the claims do not themselves ask the district court to administer an estate, probate a will, or perform another purely probate matter. In such circumstances, we cannot conclude that federal jurisdiction is lacking.
(Internal quotations and citations omitted) (emphasis added).
Magistrate Judge Kathleen Tomlinson’s June 16, 2014 decision in Verizon v. The Village of Westhampton Beach, et al., No. 11 Civ. 252 (AKT), allows the establishment of an eruv to proceed in Westhampton Beach. An eruv is an “unbroken delineation of an area” that allows Jews “with certain religious beliefs to carry or push objects from place to place within the area during the Sabbath and Yom Kippur.” Slip op. 1. The court ruled that there is no bar to Verizon and the Long Island Lighting Company (“LIPA”) allowing the placement of wooden or plastic strips, known as “lechis,” on their telephone and utility poles for the purpose of demarcating the eruv. In the action, Verizon and LIPA sought a declaratory judgment that they would not incur any liability to the towns of Westhampton Beach, Quogue, and Southampton by entering into agreements with the East End Eruv Association (“EEEA”) permitting the Association to install the lechis. In a related case, the EEEA asserted that its members’ constitutional rights were violated by the towns when they allegedly prevented establishment of an eruv. The utilities’ declaratory judgment action is less glamorous, turning on the construction of the utilities’ franchise agreements, the state Transportation Corporations and LIPA statutes, and the scope of the towns’ police powers. (The action was stayed as to Southampton so the June 16 ruling pertains only to Westhampton Beach and Quogue.)
Although it was undisputed that the utilities own the poles on which the lechis were sought to be placed, the towns argued that the utilities lacked authority to license use of their poles for other than utility purposes. However, this argument fell flat given that the utilities had previously allowed the temporary mounting of posters and banners announcing local events, such as the Westhampton Beach St. Patrick’s Day Parade. The court construed the utilities’ franchise agreements with the towns and found they contained no prohibition on the utilities licensing use of their poles for non-utility purposes. See Slip op. 24. The court also found that the Transportation Corporations Act, which the court determined was applicable to Verizon, but not LIPA (which was created by statute as a “subdivision of the state,” and was therefore not a corporation subject to the Transportation statute, Slip op. 28), did not bar Verizon from entering into such license agreements. See Slip op. 31-32. As to LIPA, the court determined that Section 1020-g(c) of the LIPA Act gives LIPA “the discretion to lease or use its poles as it sees fit.” Slip op. 39.
That left the question whether the towns’ police powers permit them to prevent the utilities from licensing the use of their poles for placement of lechis. The court held that although the municipalities could regulate the mounting of lechis under their police powers, Westhampton Beach had no ordinance doing so, and as a result there was no municipal regulatory bar to the utilities permitting placement of lechis on their poles. As to Quogue, the town had denied EEEA’s application to place lechis on certain utility poles under an ordinance allowing Quogue to regulate encroachments onto public roads, but the utilities disputed the applicability of that regulation to lechis. See Slip op. 57. The court allowed further briefing on the issue of whether it could interpret the ordinance in light of Quogue’s denial of the application.
On June 18, 2014, the Second Circuit issued a decision in Martinez v. O’Leary, Docket No. 13-2967, showing once again that failure timely to file a notice of appeal is fatal to an appeal.
In Martinez, the Second Circuit dismissed an appeal from the EDNY, reaffirming the strictness of the rules regarding timely filing a notice of appeal. As it explained:
Filing deadlines are mandatory and jurisdictional. If an appellant does not file a timely notice of appeal, this Court lacks jurisdiction to hear the appeal.
Here, the judgment was entered Wednesday, July 3, 2013. Therefore, the notice of appeal had to be filed no later than Friday, August 2, 2013. In fact, the notice of appeal was not filed until Saturday, August 3, 2013 — 31 days after the district court judgment was entered.
(Internal citations and quotations omitted). One day late. And a weekend day at that. But as this decision shows, the rule is clear and the courts enforce it strictly.
On June 19, 2014, the Second Circuit issued a decision in Nicholson v. Forster & Garbus LLP, Docket No. 13-2394, interpreting the “least sophisticated consumer” rule of the FDCPA.
In Nicholson, the Second Circuit affirmed the EDNY’s grant of summary judgment to the defendant law firm–Forster & Garbus–on the plaintiff class’s Fair Debt Collection Practices Act (“FDCPA”) claims. One issue on summary judgment was whether the defendant had violated § 1692e of the FDCPA by using a “false, deceptive, or misleading representation or means in connection with the collection of any debt.” As the Second Circuit explained:
To determine whether a communication violates § 1692e, this Court applies an objective standard based on the “least sophisticated consumer.” Under this standard, collection notices can be deceptive if they are open to more than one reasonable interpretation, at least one of which is inaccurate.
(Internal quotations and citations omitted). The Second Circuit rejected the argument that the even though an unsophisticaed investor might not have known that the calls were being made on behalf of a law firm, the plaintiff in this action did:
Nor was the statement misleading or deceptive under the least-sophisticated-consumer test. The least sophisticated consumer, if the standard is to be taken literally, would not even know what “Forster & Garbus” is. The terms “law,” “lawyer,” “attorney,” “legal,” etc., were never used, and the phrase “settle this account,” in context, did not suggest that the caller was a lawyer. Moreover, not every sequence of names with an ampersand is a law firm.
Nicholson likely knew that Forster & Garbus was a law firm because his lawyer was in negotiations with that firm. But the least sophisticated consumer test pays no attention
to the circumstances of the particular debtor in question.
(Internal quotations and citations omitted) (emphasis added).
On June 11, 2014, the Second Circuit issued a decision in Haskin v. United States, Docket No. 13-3880-CV, holding that the US Postal Service may have waived subcontractor immunity under the Federal Tort Claims Act when it also did some of the work for which the subcontractor was engaged.
In Haskin, the plaintiffs sued the US Postal Service for injuries one of them suffered when he slipped and fell on an icy sidewalk outside a post office. The USPS had contracted with defendant Precise Detailing LLC to provide snow and ice removal services at the office. For that reason, the EDNY dismissed the plaintiffs’ claims against the USPS for lack of subject matter jurisdiction, relying on the Federal Tort Claims Act’s independent contractor exception, which provides that where the Government is without fault, it may not be held liable for a negligent or wrongful act or omission of an independent contractor. The Second Circuit reversed, holding:
[T]he district court prematurely dismissed the [plaintiffs’] suit for lack of subject matter jurisdiction, as genuine issues of material fact existed concerning the alleged negligence of USPS employees. The record contains evidence from which a reasonable jury could find that [the plaintiffs’] injury resulted from the negligence of USPS employees. Here, the USPS chose to contractually delegate some–but not all–of its snow removal responsibilities to Precise. At a minimum, the USPS retained responsibility for inspecting the Branch’s sidewalks when less than two inches of snow fell. In such circumstances, as was the case on December 21, 2009, USPS employees could either (1) ask Precise to come to the Branch or (2) remove the snow and ice themselves. Indeed, USPS employees customarily checked the sidewalks surrounding the Branch for snow and ice, and kept shovels and ice melt chemicals at the Branch to remove snow and ice themselves. . . . A reasonable jury could conclude, therefore, that [the plaintiff] was injured by the negligence of USPS employees–specifically, their failure to detect and remove ice on the sidewalks surrounding the Branch, or their failure to summon Precise to remove the ice.
(Internal quotations and citations omitted).
The strong federal presumption in favor of enforcing arbitration clauses is well known. In Moss v. BMO Harris Bank, N.A., 13 CV 5438 (JFB)(GRB), Judge Bianco reaffirmed just how strong it is. The case is a putative class action asserting civil RICO claims based on defendants’ alleged role in facilitating “payday” loans, which are short-term, high fee, closed-end loans made to consumers to provide funds in anticipation of an upcoming paycheck.
Plaintiffs signed loan agreements with various online lenders that contained arbitration clauses. The defendants were neither parties to the loan agreements nor mentioned by name in the agreements. But the defendants, who facilitated the funds transfers connected with the loans, nevertheless moved to compel arbitration on the theory that the plaintiffs had agreed to arbitrate disputes against the lenders’ “agents” and “servicers.” Plaintiffs argued that the arbitration provisions did not place them on notice that they were consenting to arbitrate with defendants.
The court disagreed with plaintiffs. Judge Bianco applied a “two-part intertwined-ness test” to determine whether plaintiffs were sufficiently put on notice of their agreement to arbitrate. First, the court had to determine whether plaintiffs’ claims arose under the subject matter of the underlying agreements. It had little trouble concluding that they did. Second, the court had to determine whether there was a “close relationship” between the plaintiffs and non-signatory defendants. While this was a closer question, the court held that the loan agreements’ references to “agents” and “servicers” implicitly described the services provided by defendants. Therefore, it was foreseeable to plaintiffs that they had agreed to arbitrate claims against the defendants, especially because the agreements explicitly referred to the electronic funds transfer process. Thus, the court compelled arbitration and stayed the federal court case.
On June 3, 2014, the Second Circuit issued a decision in Stanczyk v. City of New York, Docket No. 13-1582-CV, holding that Rule 68 requires a prevailing civil rights plaintiff to pay a defendant’s post-offer costs if the plaintiff’s judgment is less favorable than the unaccepted Rule 68 offer.
In Stanczyk, the City of New York, which, along with two police officers, was a defendant in a civil rights action, made an offer of judgment before trial in the EDNY. The City was not found liable, but jury did find that the two police officers had used excessive force against the plaintiff and awarded the plaintiff $55,000 in compensatory damages and $2,000 in punitive damages against each officer. The EDNY granted the plaintiff’s “fees and costs incurred prior to the date of Defendants’ Rule 68 Offer and awarded the defendants post-offer costs, excluding attorney’s fees.” The Second Circuit affirmed the award, explaining:
Rule 68 is a cost-shifting rule designed to encourage settlements without the burdens of additional litigation. Under normal circumstances, a plaintiff who prevails on a 42 U.S.C. § 1983 claim is entitled to recover costs, including reasonable attorney’s fees. Rule 68, however, precludes a plaintiff from recovering post-offer costs if (a) the defendant timely serves plaintiff with an offer of judgment, (b) plaintiff rejects the offer, and (c) plaintiff prevails but obtains a judgment less than the rejected offer.
The City’s unaccepted offer provided for a judgment in an amount greater than that which [the plaintiff] obtained at trial. In light of Rule 68, it is undisputed that the district court properly limited [the plaintiff’s] costs and attorney’s fees to those incurred prior to [the date of the Rule 68 offer]. The district court also determined that Rule 68 entitled Defendants to costs–excluding attorney’s fees–that they incurred after making the Offer. [The plaintiff] challenges this latter portion of the district court’s decision and argues that Rule 68 cuts off a prevailing plaintiff’s right to costs but does not compel a prevailing plaintiff to bear the defendant’s post‐offer costs.
In other words, [the plaintiff’s] challenge requires us to determine whether Rule 68 not only cancels the operation of Rule 54(d)–which entitles a prevailing party to costs–but also reverses it. Although this is an issue of first impression in this Circuit, every Circuit to have confronted this question appears to have reached the same conclusion: Rule 68 reverses Rule 54(d) and requires a prevailing plaintiff to pay a defendant’s post-offer costs if the plaintiff’s judgment is less favorable than the unaccepted offer. . . .
[O]ur conclusion in no way dictates that a prevailing plaintiff . . . would be liable for a defendant’s post-offer attorney’s fees–a result that would be at odds with Section 1988. In Marek, the Supreme Court made clear that the term “costs” in Rule 68 was intended to refer to all costs properly awardable under the relevant substantive statute or other authority. Because a civil rights defendant can recover attorney’s fees only when the plaintiff’s claims are vexatious, frivolous, or brought to harass or embarrass, and a prevailing plaintiff by virtue of her victory exceeds this standard, we cannot conceive of a situation in which attorney’s fees could be properly awardable to a non-prevailing defendant under Rule 68 in a civil rights action.
(Internal quotations and citations omitted) (emphasis added).