November 13, 2014

New York Law Journal / Written by: Harvey M. Stone, Richard H. Dolan

This column reports on several significant, representative decisions handed down recently in the U.S. District Court for the Eastern District of New York. Judge Raymond J. Dearie felt constrained to deny remission of bail, despite the hardship on defendant's parents as sureties. Judge Brian M. Cogan relied on the Federal Sovereign Immunities Act to dismiss claims against Germany. Magistrate Judge Cheryl L. Pollak granted plaintiffs limited discovery to develop their claims of equitable estoppel and equitable tolling of the statute of limitations. And Judge David G. Trager affirmed a jury's award of $150 million in non-economic damages.

Remission of Bail

In United States v. Pevzner, 08 CR 706 (EDNY, May 18, 2010), Chief Judge Raymond J. Dearie, presented with an 'unpleasant task,' denied a motion by a fugitive defendant's parents for remission of bail pursuant to Federal Rule of Criminal Procedure 46(f)(4).

In August 2008 Magistrate Judge Michael L. Orenstein arraigned defendant on a complaint that he impersonated an FBI agent and a U.S. Secret Service officer. Judge Orenstein agreed to release defendant on a $50,000 personal recognizance bond signed by his mother and explained to defendant and his mother the consequences of violating any condition of release.

In October 2008 Chief Judge Dearie arraigned defendant on the indictment. Pretrial services informed the court that defendant had been arrested by local authorities twice over the previous week on charges including identity theft and grand larceny and that defendant appeared to be a flight risk. At a bail hearing, Chief Judge Dearie remanded defendant because, in addition to his arrests, he had refused to seek mental health treatment imposed as a condition of release by Judge Orenstein.

At another bail hearing in December, Chief Judge Dearie set bail at $250,000, secured by a lien on the parents' house. Chief Judge Dearie explained to the Pevzners that 'this is serious business. And the last thing I want to do is see two hard-working people lose the family home.'

During a hearing for the signing of the bond, Magistrate Judge Marilyn Go reiterated these warnings and made it clear that, if defendant failed to appear as required, his parents would be personally liable for the $250,000, even beyond the value of their house.

A jury found defendant guilty on the federal indictment in June 2009. Prior to sentencing, he was arrested for grand larceny, prompting Chief Judge Dearie to schedule a bail revocation hearing. Defendant then sent the court a letter stating that he had gone to Russia.

In December 2009, the court declared the bail forfeited, but in a series of rulings stayed forfeiture until March 5, 2010, in the hope that defendant would finally appear. He never did.

Chief Judge Dearie saw no basis for partial remission of the $250,000 bond. Defendant's flight was 'willful.' Though his parents attributed their son's flight to factors they 'could not control or anticipate,' they had been aware of his erratic and criminal behavior for years.

Chief Judge Dearie rejected the argument that the amount of forfeiture was excessive in comparison to the cost, inconvenience and prejudice suffered by the government. As the court stated, the inconvenience and prejudice to the government is 'ongoing' because 'defendant is still at large.' Bail, moreover, was clearly not excessive given its failure to prevent flight. Nor could the parents get credit for their assistance in trying to secure their son's return when he remained a fugitive.

The Pevzners' status as 'non-professional' sureties weighed in their favor. Nonetheless, it was 'important to the credibility of the bail system that courts do not relent just because of any hardship visited on caring and concerned parents.' The court waited 'inordinately long' for defendant to return, and was 'constrained' now 'to ensure the effectiveness and credibility of the bail system.'

Sovereign Immunity

In Oleg Zapolski v. Federal Republic of Germany, 09 CV 1503 (EDNY, May 4, 2010), Judge Cogan invoked the Federal Sovereign Immunities Act, 28 USCA §§1330(a), 1602-11 (FSIA), to dismiss pro se plaintiffs' claims against the Federal Republic of Germany.

Plaintiffs complained that, after purchasing a home in Berlin, they and their business were improperly subjected to a criminal tax prosecution and related proceedings by the German government. Deutsche Bank 'closed or froze plaintiffs' accounts in response to letters from the German authorities,' and 'Plaintiff Zapolski was imprisoned, and then released after the German authorities determined that he was not subject to the tax laws pursuant to which he had been prosecuted.'

Deutsche Bank and certain other defendants apparently not directly associated with the German government were dismissed for failure to state a claim because they were 'named in the caption but nowhere else.'

The German governmental defendants were dismissed for lack of subject matter jurisdiction under FSIA. First, Germany had not waived its immunity. Second, even if a 'taking' had occurred in violation of international law (which might allow jurisdiction under 28 USCA §1605(a)(3)), the other necessary element of that section was not satisfied. The property at issue was 'neither present in the United States in connection with a commercial activity carried out in the United States by Germany nor owned and operated by an agency or instrumentality of Germany engaged in commercial activity in the United States.'


In Zimmerman v. Poly Prep Country Day School, 09 CV 4586 (EDNY, May 25, 2010), Magistrate Judge Pollak granted plaintiffs' motion for limited discovery in order to respond to defendants' motion to dismiss based on the statute of limitations.

Plaintiffs, former Poly Prep Country Day School students, claim that defendants-Poly Prep, its former and current headmasters and members of the board of trustees-engaged in a RICO conspiracy to conceal sexual abuse allegedly committed by former Poly Prep football coach and physical education instructor Philip Foglietta. Mr. Foglietta, who worked at Poly Prep from 1966 to 1991, is now deceased. Plaintiffs also allege state law claims for negligent supervision and retention, and breach of fiduciary duties.

Plaintiffs seek files relating to Poly Prep's investigation concerning the alleged sexual misconduct of Mr. Foglietta, his personnel files and the deposition of Poly Prep's 80-year-old former headmaster and current headmaster.

Plaintiffs contend that discovery into defendants' alleged fraudulent concealment is necessary to support their equitable estoppel argument, because defendants concealed Poly Prep's knowledge of the abuse and dissuaded plaintiff from commencing timely lawsuits. One of the plaintiffs previously had filed a state court action which was dismissed as untimely, but plaintiffs claim that in 2009, after that action was dismissed, they uncovered new details pertaining to fraudulent concealment, including many complaints to the school about Mr. Foglietta's inappropriate behavior and the school's failure to take steps to stop it. Plaintiffs seek discovery to ascertain the extent of the concealment.

Under New York law the doctrines of equitable tolling and equitable estoppel can overcome a statute of limitations defense if the plaintiff was 'induced by fraud, misrepresentations or deception to refrain from filing a timely action.' Slip op. 7. Judge Pollak held that plaintiffs were entitled to discovery into equitable estoppel, because: plaintiffs made timely complaints at the time of the alleged sexual abuse and asserted specific misrepresentations by defendants in (a) promoting Mr. Foglietta despite knowledge of the alleged abuse, (b) conducting a sham investigation and (c) informing parents that their children's accusations were not credible. In addition, the school allegedly put pressure on students not to report sexual abuse and threatened retaliation, such as expulsion, if students continued to pursue allegations against Mr. Foglietta.

Granting plaintiffs' motion, the court found it highly likely that defendants have additional information in their possession, particularly given the claim that they conducted an investigation into the charges, which may lead to the discovery of additional information in support of plaintiffs' equitable estoppel argument, including new victims, and additional instances of acts designed to conceal the abuse, or dissuade the filing of suit. Slip op. 14.

Judge Pollak ordered defendants to produce the requested investigative records and personnel file, and allowed plaintiffs to take the deposition of Poly Prep's former headmaster, but not the current headmaster.

Defamation and Damages

In Cantu v. Flanigan, 05 CV 3580 (EDNY, April 14, 2010), Judge Trager upheld the jury's award for noneconomic damages in the amount of $150 million following remand by the U.S. Court of Appeals for the Second Circuit for an explanation as to why the non-economic damages award was not excessive.

Plaintiff Jose Ramiro Garza Cantu is a businessman who lives in Mexico City. He worked hard over the years to build a business empire including the sale of gravel and sand, construction of refineries, on-shore and off-shore drilling and maintaining several ships. Defendant Billy R. Flanigan served as the president of a Bahamian corporation, was involved in numerous lawsuits against a Mexican petroleum workers union, and claimed he was entitled to collect a default judgment in the amount of $800 million against the union. A Texas appellate court had ruled in 1986 that the default judgment was invalid because the union did not have notice of the lawsuit.

Believing that Mr. Cantu could assist him in collecting the judgment, Mr. Flanigan, without ever having met Mr. Cantu, engaged in conduct to pressure Mr. Cantu into either paying Mr. Flanigan or using influence to help Mr. Flanigan collect. Mr. Flanigan drafted an 'amicus brief' that resembled a complaint, listing Mr. Cantu as a defendant and stating that Mr. Cantu was involved in a racketeering enterprise and drug cartels, laundered large sums of money, participated in the bribery of government officials, headed a crime family, illegally smuggled oil into the United States and conspired with Saddam Hussein to illegally circumvent sanctions against Iraq-and that Mr. Cantu was personally responsible for causing the price of gasoline to rise.

Mr. Flanigan met with a reporter from a popular and widely circulated Mexican magazine and turned over the 'amicus brief.' He then sent a copy of the 'amicus brief' to the Eastern District of New York. Though it never became part of the record, the document was publicly accessible on PACER.

On Feb. 13, 2005, an article that repeated and quoted the 'amicus brief' was published in the Mexican magazine, which was circulated throughout the world. As a result Mr. Cantu lost multimillion dollar contracts, was unable to secure other contracts, and became subject to criminal investigations in Mexico and the United States in which he ultimately was exonerated. In April 2005, Mr. Cantu's representative met with Mr. Flanigan to request that he retract the statements. Mr. Flanigan told the representative that he wanted Mr. Cantu to pay the amount the union owed him or pressure the union to pay. Mr. Flanigan added that he did not care whether the statements were true or not, he just wanted his money.

In this action Mr. Cantu, alleging defamation, sought economic damages to compensate for his lost contracts and non-economic damages to compensate for the harm to his reputation and for the humiliation and mental anguish. A jury awarded Mr. Cantu $38 million in economic damages and $150 million in non-economic damages. The Second Circuit upheld the economic damage award, but remanded the case 'for a more detailed explanation of the basis for the affirmance of the jury's non-economic damages award, so that it could review the decision for abuse of discretion.' Slip op. 10.

The standard in New York for assessing the excessiveness of damages is whether the award 'deviates materially from what would be reasonable compensation.' NYCPLR 5501(c). Judge Trager examined similar cases in New York to determine whether the award was within the range of awards approved by New York courts.

In upholding the award, Judge Trager emphasized a series of factors. First, before the publication of the article, Mr. Cantu had a positive reputation throughout the petroleum industry and a reputation with his peers for honesty and fair business practice. Second, the nature of defendant's statements was inflammatory. Third, the statements were circulated throughout the world. Fourth, the statements tended to damage Mr. Cantu's professional reputation and caused mental suffering. Finally, Mr. Flanigan 'engaged in a deliberate course of conduct that can only be described as attempted criminal extortion.' Slip op. 20.

Although the jury's $150 million non-economic damage award was larger than any other defamation award approved by New York courts, Judge Trager concluded that it did not deviate materially from reasonable compensation. Mr. Cantu's non-economic damage award was valued at approximately four times the amount of his economic losses of $38 million, compared to non-economic awards in New York courts of five and six times the economic loss. Slip op. 20-27.

Harvey M. Stone and Richard H. Dolan are partners at Schlam Stone & Dolan. Bennette D. Kramer, a partner of the firm, assisted in the preparation of the article.

[This article is reprinted with permission from the June, 2010, issue of the New York Law Journal. Copyright © 2010 ALM Properties, Inc. All rights reserved. Further duplication without permission is prohibited.]