November 13, 2014
This column reports on several significant, representative decisions handed down recently in the U.S. District Court for the Eastern District of New York. A three-judge Eastern District panel ordered the governor and various legislators of New York State to implement a congressional redistricting plan that the court felt obligated to draw up in the face of defendants' delay in issuing their own plan. Judge Joseph F. Bianco granted the government's motion to transfer defendant to district court for prosecution as an adult. Judge Jack B. Weinstein certified a proposed class for a collective action involving federal and state labor claims. And Judge Denis R. Hurley denied an application by the Securities and Exchange Commission to bar defendant from serving as an officer or director of a publicly traded company.
In Favors v. Cuomo, 11 CV 5632 (EDNY, March 8, 2012, and March 19, 2012), a three-judge Eastern District panel consisting of Second Circuit Judges Reena Raggi and Gerard E. Lynch and Eastern District Judge Dora L. Irizarry: (1) denied defendants' motions to dismiss, and (2) ordered defendants to implement the Ordered Plan for redistricting developed by the court so that the 2012 elections for the House of Representatives could go forward as scheduled.
On Feb. 14, 2012, Dennis Jacobs, chief judge of the U.S. Court of Appeals for the Second Circuit, had designated the three-judge panel, pursuant to 28 U.S.C. §2284(b), to develop a redistricting plan for congressional districts in New York State. The panel orally denied the motions to dismiss on Feb. 21, 2012, and issued a written decision on March 8, rejecting defendants' ripeness and standing arguments.
The panel concluded that the action was ripe because a redistricting plan had to be in place prior to March 20, 2012, the beginning of the candidate petitioning period. On Jan. 27, 2012, Chief Judge Gary L. Sharpe of the Northern District of New York had held that, in order for New York to comply with the Uniformed and Overseas Citizens Absentee Voting Act, New York's congressional primary elections must be held "at least 80 days before the November 6, 2012 federal general election." Chief Judge Sharpe set a primary date of June 26, 2012, and a start date of March 20, 2012, for the candidate petitioning period, to continue for 37 days pursuant to state law. Candidates were required to submit petitions from the districts they sought to represent. Thus, a redistricting plan had to be in place by March 20.
The New York Legislature, which had the responsibility to issue a redistricting plan in the first instance, had not taken any action. Without a redistricting plan in place, New York voters would be disenfranchised because the number of congressional districts in New York had been reduced from 29 to 27. If New York elected 29 representatives, none would be seated. Thus, the need for judicial redistricting was ripe. Slip op. at 11. The period remaining between Feb. 21 and March 20 was an extraordinarily brief one for the court to create a plan.
As potential candidates and politically active voters, plaintiffs also had standing to bring the action. Indeed, candidates had no idea which district to run in, and voters ran the risk of losing their congressional representation.
In the Opinion and Order dated March 19, 2012, adopting the Ordered Plan, the panel noted that in the past, "judicial creation of a congressional redistricting plan has spurred the New York legislature to produce its own plan just in time to avoid implementation of the judicial plan." Slip op. 3. This time, however, the New York Legislature had not done anything and time was up. The panel declared "New York to be without a congressional redistricting plan that conforms to the requirements of federal law," and ordered defendants to implement the judicial plan attached to the decision. With only a few modifications, the panel adopted the March 12, 2012, Report and Plan of Magistrate Judge Roanne L. Mann. Noting that Magistrate Judge Mann, along with Nathaniel Persily as redistricting expert, had developed a remarkable plan for the state's congressional districts in two weeks, the panel described their efforts as "Herculean." By contrast, in a year defendants had been unable to provide any plan to New York state voters.
The panel reviewed the Recommended Plan drafted by Magistrate Judge Mann de novo, along with all the filings in the case, including submitted plans, objections and comments. The panel first considered constitutional requirements. Article I, Section 2 of the Constitution mandates that congressional election districts conform to the principle of "one person, one vote."
"To satisfy this mandate, the population of each of New York's 27 new congressional districts must be within one person of the target number of 717,707 persons." Slip op. 11. This means that the movement of any number of persons from one district to another, would require replacement by the same number of persons from the other district, and any changes in the Recommended Plan would trigger a ripple effect through multiple districts.
Second, the panel had to ensure that the plan did not intentionally discriminate against a racial or ethnic group, but it could not use race or ethnicity as the "predominant factor" in deciding whether to put persons within or without a particular district.
The third tier of analysis involved consideration of "traditional principles that generally inform legislative redistricting." The four factors that Magistrate Judge Mann weighed at the direction of the panel were "(1) district compactness, (2) contiguity, (3) respect for political subdivisions, and (4) preservation of communities of interest." Additional factors — (5) maintaining the cores of existing districts and (6) protecting incumbency — were suggested by the parties and members of the public. Only the first three factors have been enacted in New York law. Thus, the Plan was very careful to ensure district contiguity and compactness and to avoid splitting political subdivisions. The Plan additionally preserved "obviously established and compact communities of interest," by "respecting 'certain widely-recognized, geographically defined communities.'" Slip op. 16.
Recognizing that maintaining cores of prior districts and protecting incumbencies would draw the court into political disputes and that the other factors were sanctioned by the Constitution and the state, the magistrate judge and the panel gave little weight to the fifth factor and no weight to incumbency protection. The panel concluded with consideration of objections to the Recommended Plan. Slip op. 21-44.
Prosecution as Adult
In United States v. Juvenile Male, 11 CR 717 (EDNY, Feb. 24, 2012), Judge Bianco, analyzing the relevant factors under 18 U.S.C. §5032, found that transfer of the case to district court for prosecution of defendant as an adult was warranted in the interest of justice, even though defendant — who was 18 years, 5 months old at the time of the hearing — was only 16 years, 3 months at the time of the alleged offense.
Defendant was charged in a Juvenile Information with one count of conspiring to commit murder in aid of racketeering, 18 U.S.C. §1959(a)(1); one count of murder in aid of racketeering, 18 U.S.C. 1959(a)(5); and other related offenses. The charges stemmed from defendant's involvement in MS-13, a criminal enterprise based in El Salvador and operating in Long Island and elsewhere. MS-13 allegedly engaged in street wars on Long Island with rival gangs resulting in murders, shootings and assaults.
According to the Information, in November 2009 defendant, then an associate seeking admission into MS-13, agreed to be a shooter in a planned attack on a rival gang in Brentwood, N.Y. Pursuant to the plan, defendant allegedly fired rifle shots at a crowd of people gathered outside of a home, killing a 15-year-old.
Applying the statutory criteria (slip op. 5-15), Judge Bianco found this a "compelling" case for transfer. The court pointed to the following factors (among others):
- The nature of the charged offense — "the murder of a fifteen-year-old at a crowded house party using a rifle with scope" — clearly favors prosecution as an adult. Defendant allegedly committed the murder as part of his participation in the racketeering activities of a violent street gang. The juvenile justice system, with its statutory maximum sentence of five years' incarceration, is "ill-equipped and woefully insufficient" to address the grave charges under all the circumstances.
- The age and social background of defendant call, on balance, for transfer. Defendant grew up in a stable, loving family, yet still turned to gang activity, as reflected by his prior record and the current charges. His age (16) at the time of the murder weighs against transfer, but his current age (18) and family background tip the scales the other way.
- Defendant's prior juvenile record, including several detentions and repeated probation violations for menacing and assault, "strongly" supports transfer. The alleged murder occurred only 11 days after his release on bail from a juvenile facility.
- Defendant's present intellectual development and psychological maturity are "neutral" factors. A report by a defense psychologist depicted defendant as immature but with average intelligence and good reasoning ability.
- Past efforts to treat defendant show, contrary to the defense expert's report, that rehabilitation is unlikely, especially given defendant's recidivism.
- The apparent availability of out-of-state juvenile facilities to treat defendant weighs against transfer but not enough to counter the other factors, such as the nature of the crime and defendant's "extensive" criminal history, that "overwhelmingly" support the government's transfer motion.
In Poplawski v. Metroplex on the Atlantic, 11 CV 3765 (EDNY, April 2, 2012), Judge Weinstein certified a class for purposes of plaintiffs' collective action under the federal Fair Labor Standards Act (FLSA) and, pursuant to Fed. R. Civ. P. 23(b)(3), under various provisions of the New York Labor Law.
Plaintiffs alleged "that defendants have a pattern and practice of underpaying their employees in violation of state and federal law," and that "none of the named plaintiffs have received wages for October 2009 to June 2010 — the last months of their employment by defendants." Plaintiffs proposed a class consisting of "Plaintiffs and all current and former employees who performed construction-related work for [defendants], located in Brooklyn, New York, from August 2005 to present." Slip op. 5-6. Defendants failed to appear to answer, to oppose class certification, or otherwise.
FLSA provides for an "opt in" class format, while Fed. R. Civ. P. 23, which applied to the state law claims, provides for an "opt out" format. Certification under FLSA is therefore "considerably less stringent," but there is "an inclination to grant class certification of state labor law claims" where they are "based on the same set of facts as a class approved under the FLSA." Slip op. 7, 11.
Plaintiffs' allegations of a "company-wide policy" were sufficient for at least initial class certification under the FLSA. Slip op. 7-10. As to the class proposed to pursue state law claims, both the Rule 23(a) elements of "numerosity," "commonality," "typicality" and "adequacy of representation," and the Rule 23(b) factors of "predominance" and "superiority," were satisfied. Plaintiffs alleged that (1) there were between 40 and 160 employees similarly situated to themselves, and all such employees had been denied wages due from defendants for construction-related services under the New York Labor Law during the same six-year period, (2) plaintiffs' counsel was experienced in labor law and class-action matters, and (3) the Labor Law claims were nearly identical to the FLSA claims, which would be tried collectively. Slip op. 11-23.
The court made it clear that it would not permit obstacles created by defendants' default to cause undue delay: "Defendants cannot prevent their employees from obtaining their full procedural and substantive rights under federal and state law by cowering silently in the swamp of neglect of employees' claims for wages." Slip op. 2. Judge Weinstein asked the magistrate judge "to expedite discovery since the payment of wages is involved." Slip op. 25.
Officer and Director Bar
In Securities and Exchange Commission v. Ishopnomarkup.com, 04 CV 4057 (EDNY, March 3, 2012), Judge Hurley denied the SEC's motion for an order barring defendant Moussa Yeroushalmi (also known as Mike Yeroush) from serving as an officer or director of a public company.
In November 2010, Yeroush consented to entry of judgment against him permanently enjoining him from violating Sections 5 and 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5. He was ordered to pay disgorgement, pre-judgment interest and a civil penalty. Here, the SEC sought to bar Yeroush from "acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act or that is required to file reports pursuant to Section 15(d) of the Exchange Act."
Yeroush was executive director and then president of iShop in 2000. iShop made three private placement offerings of stock from 1999 through 2000, using confidential offering memoranda that contained material misrepresentations or failed to disclose material information about iShop's website, revenues, use of investor proceeds and operating capabilities. Yeroush represented to potential investors that iShop would have a public offering, an investment in iShop would dramatically increase in value, an iShop investment carried no risk, Merrill Lynch was backing the company and iShop had projected revenues between $50 million and $70 million per year. However, iShop had no plans to conduct an IPO, no investment banks providing services to it and no revenue-generating operations. Yeroush was also generally aware of phone calls and letters to potential investors throughout the country.
Under the consent agreement, Yeroush was prohibited from arguing that he did not violate Section 17(a) of the Securities Act or Section 10(b) of the Exchange Act. Weighing the factors to determine whether Yeroush was unfit to serve as an officer or director, the court found that, while Yeroush had undoubtedly engaged in illegal fraudulent activity, "this was not a case involving broad-based deception where, for instance, the alleged oral misrepresentations were made to the public at large." Slip op. 7. Further, the SEC had not provided the court with a clear picture of Yeroush's role in preparing the fraudulent Confidential Memos. In Judge Hurley's view, Yeroush's violations did not, in themselves, rise to a sufficiently egregious level to warrant an officer and director ban.
Yeroush did serve as executive director and president at the time the securities law violations occurred and he did have an economic stake in the violations, since he obtained a partial return on his investment and earned a salary from the proceeds of iShop's sale of stock. On the other hand, Yeroush was not a repeat offender. He also did not act with a high degree of scienter in connection with the statements made during telephone solicitations or misstatements in the confidential memo, although he did make oral misrepresentations to five potential investors.
Finally, the court found that the SEC did not adequately demonstrate a likelihood of future misconduct. Yeroush had expressed remorse and accepted responsibility for his actions. After balancing these factors, the court declined to impose an officer and director bar on Yeroush. Slip op. 12.
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 April 13, 2012, issue of the New York Law Journal. Copyright © 2012 ALM Properties, Inc. All rights reserved. Further duplication without permission is prohibited.]