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 Denis R. Hurley granted an attorney disqualification motion. Judge Arthur D. Spatt dismissed claims by an LLC member as derivative, with leave to replead. Judge Jack B. Weinstein found that plaintiff, an injured seaman, had raised sufficient issues of fact to defeat summary judgment in a Jones Act case. And Judge Spatt affirmed a decision by the bankruptcy court to deny recovery of assets from the debtor's family.

Attorney Disqualification

In Glacken v. The Incorporated Village of Freeport, 09 CV 4832 (EDNY, Oct. 6, 2010), Judge Hurley granted defendants' motion to disqualify plaintiff's counsel because of his prior representation of defendant Village of Freeport in a matter substantially related to the current case.

Plaintiff William F. Glacken was the mayor of Freeport from 1997 to 2009. Attorney Harrison J. Edwards, Mr. Glacken's brother-in-law, served by appointment as village attorney during the same period, ending in 2009 when Mr. Glacken lost his bid for reelection.

At a public meeting in February 2009, during the campaign, Mayor Glacken allegedly referred to one Gary Melius as an 'extortionist,' precipitating a defamation action by Mr. Melius. Just days before Mr. Glacken's term of office was to expire, Freeport's Board of Trustees voted to indemnify him against any judgment and pay for his legal fees in the defamation suit.

After Mr. Glacken's successor took office, the board, revisiting its decision, withdrew its offer to provide indemnification and legal fees on the ground that the alleged statements were made in an election campaign and fell outside the scope of Mr. Glacken's duties as mayor. Mr. Glacken, represented by Mr. Edwards, then commenced the instant action challenging the board's revocation of its earlier decision.

Mr. Edwards had represented the Village of Freeport as early as the 1980s, and had represented Mr. Glacken on various matters since 1977.

In granting the motion to disqualify, Judge Hurley noted that defendant Village of Freeport is a former client of Mr. Edwards, plaintiff's counsel here. In addition, 'as Edwards advised Freeport on whether to provide a defense and indemnity to Glacken in the defamation action, there is a substantial relationship between Edwards' representation of Freeport and the current action.' Slip op. 6. It is therefore presumed that Mr. Edwards had access to relevant privileged information in the course of his prior representation of Freeport.

The key point is that 'Glacken's attorney has switched sides. In his capacity as Village Attorney, Edwards represented the Village of Freeport as distinct from Glacken its Mayor. . . . In advising Freeport as to the propriety of providing Glacken with a defense and indemnification in the defamation action, Edwards's duty of loyalty and confidence lay with the Village of Freeport, not Glacken. ' Slip op. 8.

Moreover, the confidential nature of the information which Mr. Edwards acquired as village attorney does not depend on whether the information was known to Mr. Glacken in his capacity as mayor. Slip op. 8-9.

Claims by LLC Co-Owner

In Weidberg v. Barnett, 09 Civ. 948 (EDNY, Nov. 27, 2010), Judge Spatt granted two defendants' prediscovery motions for summary judgment, dismissing claims of an LLC co-owner with partial leave to replead.

Plaintiff Clifford Weidberg had been co-owner, with defendant Stewart Barnett, of Iron Horse Bicycle Co., LLC. Under the court's diversity jurisdiction, plaintiff brought state-law claims against Mr. Barnett for breach of fiduciary duty, breach of contract, and fraudulent inducement, alleging that Mr. Barnett had diverted funds, inflated Iron Horse's financial condition, and defrauded him into increasing his personal guarantee of Iron Horse's credit line. He also sued defendant Nicholas Aversano, Iron Horses chief financial officer, for aiding and abetting Mr. Barnett's fiduciary breaches. Iron Horse, which was in bankruptcy, was not a party to the action.

Judge Spatt granted defendants' motions for summary judgment. All but the fraudulent inducement claims were derivative under Ceribelli v. Elghanayan, 900 F.2d 62, 62 (2d Cir. 1993), and could be asserted only by Iron Horse (whose presence as a plaintiff would have defeated diversity jurisdiction). Plaintiff, however, would be permitted to replead claims of fiduciary breach, and aiding and abetting fiduciary breach, to assert grounds suggested in his opposition to the motions, including the allegation that defendants' misstatements had led plaintiff to overpay when he purchased Mr. Barnett's interest in Iron Horse (which the court noted was 'similar to the actual facts of Ceribelli'). Slip op. 9-14.

The fraudulent inducement claim was dismissed without prejudice as unripe, because Iron Horse had repaid the loan that plaintiff had guaranteed. Slip op. 15-18.

Injuries to Seaman

In Haney v. Miller's Launch Inc., 08 CV 5225 (EDNY, Nov. 15, 2010), Judge Weinstein denied defendants' motion for summary judgment in a Jones Act case where plaintiff, a seaman, claimed injury due to the unseaworthiness of the vessel, the negligence of the vessel owner and the failure of defendants to provide him with prompt medical care for his injuries.

Plaintiff was injured when the Marguerite, a 42-foot water taxi, owned by Miller's Launch Inc., on which he was a deck hand, ran into a pier and bulkhead while docking at 34th Street in Manhattan following a trip from its base on Staten Island. Plaintiff was thrown to the deck, injuring his back and neck. Although he sought immediate medical attention and Captain Mike McCabe contacted the company's port office to request medical attention, the vice president of operations instructed Captain McCabe to return to Staten Island before providing aid because he believed it would be unsafe to offload plaintiff at 34th Street. As a result, plaintiff received his first medical treatment four hours after the accident.

Although the captain inspected the vessel on a daily basis, the company's port engineer inspected it once every two years. It was agreed that the accident was caused by the failure of a cotter pin on the transmission's control lever. The company's maintenance repair program does not specifically provide for inspection of this pin.

Defendants sought summary judgment based on their contentions that (1) the vessel was not negligently operated; (2) the vessel was not negligently maintained and was seaworthy; and (3) plaintiff was 'not entitled to additional maintenance and cure payments because he had obtained the 'maximum medical improvement' and residual pain and suffering is not compensable.'

Under the Jones Act, a seaman has a federal remedy for injuries suffered as a result of negligence. A vessel owner has the duty to use due care to provide a competent crew, including the captain. Here, there were questions of fact regarding whether Captain McCabe took due care in docking and properly inspecting the cotter pin. A shipowner has a duty to provide a reasonably safe work environment, requiring internal policies relating to proper maintenance and repair of the vessel.

Although Miller's Launch had a maintenance and repair system in place, there was evidence that the system had not been followed. A shipowner also has a duty to provide medical care to a seaman who is injured while serving aboard a vessel. A shipowner may violate this duty if medical care is not provided as soon as possible. Here, on the order of the company's vice president of operations, plaintiff was returned to Staten Island, despite his obviously serious injury, rather than given immediate medical care in Manhattan.

A vessel owner has the absolute duty to provide its seamen with 'reasonably fit' ships. Because of the failure of the vessel's transmission, 'the vessel was arguably not fit to make its journey.' Slip op. 13. Plaintiff provided additional evidence of the vessel's mechanical problems prior to the collision.

As to defendants' failure to establish limitation of liability, Judge Weinstein stated: 'plaintiff has provided sufficient evidence to raise a genuine issue as to the competence of the Marguerite captain and seaworthiness of the ship as well as the negligence of the Vice President of Operations when he ordered a return of the vessel to the pier at Staten Island before providing Haney with medical care.' Slip op. 14. By that evidence, plaintiff showed privity or knowledge on the part of the company's executive in charge of the vessel.

Finally, Judge Weinstein discussed 'cure' payments and whether payments that plaintiff sought to relieve pain and suffering were leading to a cure or whether plaintiff had reached the point of 'maximum medical cure.' Based on new theories of medical treatment, '[p]alliative care is now encompassed in the notion of recovery and maximum improvement.' Slip op. 19. The court concluded:

Whether pain is included in medical treatment may be a question of fact for the jury. It is time to reconsider the old rule, now out of the main stream of medical practice. In any event, the probable need for further surgery suggests that in the instant case treatment may not have been completed even in its traditional sense. Slip op. 21.

Additional questions of fact are whether: (1) plaintiff was fit to return to work; (2) plaintiff's condition would improve with surgery, making surgery required under the routine maintenance and cure doctrine; or (3) plaintiff's pain was precipitated by the accident or arose from a preexisting condition. Slip op. 22.

Property of Bankruptcy Estate

In Pergament v. Yerushalmi (In re Yerushalmi), 10 CV 1078 (EDNY, Nov. 20, 2010), Judge Spatt denied plaintiff Chapter 7 Trustee's appeal and affirmed a decision by U.S. Bankruptcy Judge Dorothy T. Eisenberg granting summary judgment against the trustee and denying his request to recover assets from the debtor's family members.

The debtor, Joseph Yerushalmi, had been involved in a dispute with his former law firm partner over legal fees earned while Mr. Yerushalmi was at the firm. The former partner sued the debtor in April 1998, seeking to recover his alleged share of the fees. In 2007, the state court entered a judgment against the debtor for almost $5 million. The debtor paid $1.2 million immediately from an escrow account and took an appeal rather than satisfying the judgment. The Appellate Division, First Department, remanded the case to determine the proper amount of the judgment against the debtor, finding that he was likely to be entitled to a greater portion of the fees.

In July 2009, the trustee filed an adversary proceeding in bankruptcy court seeking avoidance under the New York State Debtor and Creditor Law §273-a of two gifts of real property made by the debtor to his wife Hadar and daughter Malka in 2000 and 2001, after Mr. Yerushalmi's former partner had commenced his suit seeking his share of legal fees. Section 273-a provides for avoidance of transfers made when a person is a defendant in an action for money damages or a judgment has been docketed against him if the defendant failed to satisfy a final judgment.

Judge Eisenberg had granted motions for summary judgment by debtor's wife and daughter on the ground that the state court judgment against the debtor was not final, and dismissed the trustee's claims against them. Although the March 2007 judgment would have satisfied the requirement of a final judgment, that judgment was vacated by the First Department and remanded for fact finding on the amount of money the debtor was obligated to pay his former partner. It was irrelevant that the March 2007 judgment had been final for a period of time, because before the adversary proceeding was complete the judgment was no longer final. Therefore, the debtor was not in default on a final judgment. Judge Spatt observed:

Until a final judgment is rendered against Yerushalmi and he fails to pay it, it would be contrary to the plain language of Section 273-a-and manifestly unjust-to take property from third parties who received that property from Yerushalmi in an otherwise legal manner.

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 December 10, 2010, issue of the New York Law Journal. Copyright © 2010 ALM Properties, Inc. All rights reserved. Further duplication without permission is prohibited.]