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 William Kuntz II found that a hearing was required to determine whether defendant was in custody for Miranda purposes at the time of his statements to federal agents. Judge Eric Vitaliano, affirming orders of Bankruptcy Judge Jerome Feller, held that the bankruptcy trustee's adversary proceeding was properly dismissed on a theory of "constructive notice." Judge Jack Weinstein granted an injunction, under the National Labor Relations Act, requiring a company to reinstate a union organizer as its super. And Judge Arthur Spatt adopted a Report and Recommendation of Magistrate Judge Gary Brown addressing discovery issues in a suit by a litigious owner of a pornographic film alleging copyright infringement by John Doe defendants.

'Miranda' — Custody

In United States v. Fama, 12 CR 186 (Dec. 7, 2012), Judge Kuntz granted defendant's request for an evidentiary hearing to determine whether he was in "custody" when, without receiving Miranda warnings, he made statements to FBI agents.

Gary Fama was charged with bank robbery and a firearms violation. In January 2012, after the robbery, FBI agents had interviewed his mother at her home. Fama soon arrived to speak with the agents.

Moving here to suppress the statements, Fama asserted that he was in custody when he made them. The parties dispute the facts bearing on the issue of custody. To determine whether a hearing was necessary, the court looked to the allegations in Fama's affidavit describing the interrogation.

According to Fama, two agents were waiting for him when he arrived at his mother's house. When he asked the agents if he was under arrest, they said, "let's talk — get in the van." The agents allegedly escorted him inside a nearby government vehicle, closed the doors, did not allow him to leave, became increasingly hostile and "berated" him with raised voices.

Though the interrogation lasted only 10 minutes and the agents did not search or frisk Fama, the court found his version of the events plausible enough to require a hearing. The issues would be: (1) What were the circumstances surrounding the interrogation? and (2) Would a reasonable person have felt free to stop the questioning and leave?

Bankruptcy Appeal

In O'Connell v. JPMorgan Chase Bank, 12 CV 1951 (EDNY, Dec. 6, 2012), Judge Vitaliano affirmed Bankruptcy Judge Feller's decision dismissing the trustee's adversary proceeding seeking to avoid and preserve for the benefit of the bankruptcy estate a first mortgage held by Chase Bank.

Debtors Carlos and Marla Lopez purchased a house in Elmhurst, N.Y., in September 2004, financed by a first mortgage from Chase. The cover page of the mortgage had erroneously described the property, and the City Register used the erroneous description in filing the recording. In March 2006, Chase granted debtors a second mortgage which unequivocally referred to the first mortgage. The second mortgage was correctly recorded.

After the debtors commenced the bankruptcy case, the City Register, upon Chase's request, corrected the recording error on the first mortgage. The trustee commenced an adversary proceeding against Chase seeking to avoid the first mortgage, arguing that "due to the recording error, the Trustee was entitled to the status of a bona fide purchaser of real property without knowledge of the First Mortgage." Slip op. 3. The trustee also claimed that Chase's correction was an impermissible post-petition transfer.

The critical issue was whether or not the trustee was on notice of the first mortgage. The bankruptcy court found that, despite recording errors, the trustee was "on constructive notice of the First Mortgage as a result of the information disclosed in the Second Mortgage." Slip op. 6. Vitaliano concluded that Feller's factual findings and legal conclusions were correct, whether reviewed deferentially or de novo. As the court stated:

In sum, the bankruptcy court did not err when it determined that, as a matter of fact, the language of the Second Mortgage put a putative bona fide purchaser on notice that §291-e's good faith requirement obliged inquiry and that the same Second Mortgage, therefore, also put the Trustee on constructive notice of the debtors' existing First Mortgage obligations, even though that senior encumbrance itself was not properly recorded. Slip op. 8.

Injunction, NLRA

In Paulsen, Regional Director of Region 29 of the National Labor Relations Bd. v. 833 Central Owners Corp., 12 CV 5502 (EDNY, Dec. 3, 2012), Judge Weinstein granted an injunction, under §10(j) of the National Labor Relations Act (NLRA), 29 U.S.C. §160(j), to "freeze the status quo as it existed before" petitioner had filed its labor grievance. Slip op. 2.

After an administrative law judge found that the respondent-employer had committed an unfair labor practice by discharging building superintendent Ezra Shikarchy for union-organizing activity, petitioner sought an injunction, pending resolution of respondent's objections to the National Labor Relations Board: (i) forbidding further anti-union activity and (ii) reinstating Shikarchy to his position.

Section 10(j) of the NLRA allows the district court to grant "appropriate temporary relief" upon issuance of a complaint alleging an unfair labor practice. An applicant for such relief must establish the "likelihood of violation" and that "the requested relief is just and proper." Slip Op. 4, quoting Hoffman v. Inn Credible Caterers, 247 F.3d 360, 364-65 (2d Cir. 2001).

Deeming the ALJ's finding sufficient to satisfy the first element, Weinstein focused on the second. Respondent offered two arguments in opposition: (i) petitioner's delay in seeking injunctive relief, and (ii) the assertedly irreparable harm that reinstating Shikarchy would cause to respondent and to the replacement employee it had hired.

The court acknowledged that delay may defeat injunctive relief under §10(j) "where the harm has already occurred and the status quo cannot be restored." However, it found this inapplicable, as the "relevant status quo is one in which Shikarchy is employed as the respondent's super." Moreover, "to keep Shikarchy off the job is to strike at the heart of the Union's attempt to provide representation to its members and the fairness in labor negotiations that the [National Labor Relations] Act is designed to provide." Slip Op. 8.

Nor did asserted harm to respondent or the replacement employee justify denying injunctive relief. Respondent had instructed its employees to call the police if Shikarchy appeared at the building, limiting "his capacity to communicate with and to influence his fellow union members." That "reinstatement of Shikarchy may require dismissal of a replacement does not require denial of injunctive relief. '[A]ny hardship that may be caused by the displacement of new employees is outweighed by the harm that will result if the union's organizational efforts are terminated prematurely.'" Slip Op. 9, quoting Blyer ex rel. NLRB v. P&W Elec., 141 F.Supp.2d 326, 331 (EDNY 2001).

Discovery From ISPs

In Patrick Collins, Inc. v. John Doe 1, 12 CV 1154 (EDNY, Nov. 20, 2012), Judge Spatt adopted the Report and Recommendation of Magistrate Judge Gary Brown addressing plaintiff's application for immediate discovery directed at non-party Internet Service Providers (ISPs) to obtain identifying information about subscribers to Internet Protocol (IP) addresses in order to identify anonymous John Doe defendants.

Plaintiff claimed to own a registered copyright for the pornographic film Gangbanged. He alleged direct and indirect copyright infringement against anonymous John Doe defendants who downloaded the film through a sharing protocol that plaintiff, in turn, was able to use to track files containing the film and the IP addresses to which the film was downloaded. Plaintiff has filed many such lawsuits in the Eastern District and other districts against dozens, maybe hundreds, of defendants.

Brown's report addressed this matter and three others. Brown granted plaintiff's motion only to the extent of permitting him to serve subpoenas on the ISPs pursuant to Rule 45, to obtain the name, address and Media Access Control address for only one John Doe defendant in each case, with the information to be produced directly to the court, not to plaintiff, ex parte and under seal. Also, "[p]laintiff was explicitly forbidden from seeking the telephone numbers and email addresses of these individuals" or to file joint actions against multiple defendants. Slip op. 4.

Plaintiff objected to Brown's findings that counsel had engaged in improper litigation tactics and that it was highly probable that plaintiffs in these cases would engage in similar tactics if allowed to proceed in mass litigations. In Brown's view, "[t]he most persuasive argument against permitting plaintiffs to proceed with early discovery arises from the clear indicia, both in this case and in related matters, that plaintiffs have employed abusive litigation tactics to extract settlements from John Doe defendants." Slip op. 6 (quoting report, at *9). As Spatt pointedly noted, despite Brown's specific direction that the information be sent directly to the court, the subpoenas issued by plaintiff requested that the information be sent to plaintiff's counsel. Other courts both in this circuit and around the country have also refused to participate in what was generally viewed as an extortion scheme to shake down the John Doe defendants. Slip op. 7.

Plaintiff fared no better on objections to Brown's finding that an IP address alone was not sufficient to identify defendants to sue. One IP address often supports multiple computer devices through wireless routers. Thus, a relative or guest or even an interloper could use the device. Spatt pointed as well to vulnerabilities in wireless networks highlighted by the Department of Homeland Security and the FBI, and declined to impose a duty "that every home internet user vigilantly guard their wireless network." Slip op. 9. Spatt rejected as "inapposite" the argument that Brown's ruling would impede federal law enforcement efforts to prosecute cyber-crimes. In short, plaintiff "failed to establish a reasonable likelihood that the discovery requested would lead to the identity of the Defendants who could be sued." Slip op. 11.

Finally, plaintiff objected to Brown's recommendation requiring plaintiff to file all future actions against John Doe defendants as separate actions. Though plaintiff dismissed all defendants except John Doe 1 in this case, he stated his intention to proceed against a number of defendants in the future, because under the "swarm joinder" theory, every user who participates in the swarm is acting in concert.

Brown rejected joinder because: (1) the user does not interact with any other defendants; (2) the dates of alleged infringement are wide spread; (3) individual questions of fact outweigh common questions of fact; and (4) allowing plaintiff to file mass actions permits them to avoid filing fees. Additionally, given the nature of the sharing transactions, one participant may have obtained a copy through an intervening sharer and would have no connection with the initial sharer or other defendants. Thus, Spatt joined other courts in directing that future actions be filed as separate actions, "so as to avoid unfair outcomes, improper joinder and waste of judicial resources, and to ensure the proper payment of filing fees." Slip op. 16.

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 January 11, 2013, issue of the New York Law Journal. Copyright © 2013 ALM Properties, Inc. All rights reserved. Further duplication without permission is prohibited.]