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 I. Leo Glasser, dismissing mail fraud charges relating to a scheme to help applicants cheat in passing the written test for commercial drivers' licenses, found that the mailings of the licenses were not really the "mechanism of deceit." Judge Raymond J. Dearie decided that plaintiff's state law contract claims against British Airways were not preempted by the Airline Deregulation Act. Judge Frederic Block declined to grant an injunction prohibiting a landlord from demolishing a building that contained works of graffiti art. And Judge Denis R. Hurley granted defendant's motion for a new trial because of possible jury tampering.

Mail Fraud Statute

In United States v. Ng, 12 CR 553 (EDNY, Sept. 25, 2013). Glasser held that a particular scheme did not violate the mail fraud statute, 18 U.S.C. §1349, where the use of the mails was not part of the execution of the fraud. The court therefore granted defendants' motions to withdraw both their waivers of indictment and their guilty pleas to an Information, and to dismiss the Information.

Ying Wai Phillip Ng and Pui Kuen Ng pleaded guilty to an Information charging a conspiracy to commit mail fraud based on the following facts. Defendants owned and ran a driving school serving mostly Chinese immigrants. While providing legitimate training, they also devised a scheme to help Chinese-speaking applicants with limited proficiency in English to pass the written portion of the Commercial Drivers' License (CDL) test. That test was given only in English and Spanish.

The scheme involved placing a concealed camera on the test-taker conveying an image of the written test to a receiver in a nearby van in which Mr. Ng sat and transmitted the answers to a listening device worn by the applicant. After the applicants passed the written test, the Department of Motor Vehicles (DMV) mailed them a permit to take the driving test, which they could pass without subterfuge. The DMV then mailed the CDL to the applicants. The mailings of the permit and CDL triggered the alleged mail fraud. The alleged victims of the fraud were the applicants' prospective employers. (The DMV was not a suitable victim because the licenses were not their "property" under §1349.)

At sentencing the court, sua sponte, raised concerns about the existence of mail fraud here, and the parties submitted extensive briefing.

Defendants' conduct clearly violated §392 of N.Y. Vehicle & Traffic Law, which makes this sort of deception a misdemeanor. But absent clear congressional intent, a court should not assume federal jurisdiction, via the mail fraud statute, over conduct traditionally policed by the states. Slip op. 7. As Justice Antonin Scalia stated in Schmuck v. United States, 459 U.S. 705, 722-23 (1989) (dissenting opinion):

This federal statute is not violated by a fraudulent scheme in which, at some point, a mailing happens to occur — nor even by one in which a mailing predictably and necessarily occurs. The mailing must be in furtherance of the fraud.

During the investigation, the government had tried to strengthen its jurisdictional argument by using an undercover agent, who told defendants he needed the CDL to drive a bus and had them agree, if contacted by his prospective employer, not to reveal the trick used to pass the written test. The Information charged that Mr. and Mrs. Ng conspired with others to defraud the "prospective employers" by obtaining their money through false representations and causing mailings of fraudulently acquired licenses and permits.

This theory, in Glasser's view, did not amount to mail fraud. In Toulabi v. United States, 875 F.2d 122, 123 (7th Cir. 1989), defendant fraudulently obtained a license to drive a taxi in Chicago, and the license was mailed to him. As the U.S. Court of Appeals for the Seventh Circuit stated there, "Why the United States should be so interested in enforcing the 'laws of the City of Chicago' is something of a mystery. The mailings here were not the mechanism of deceit." See also, Cleveland v. United States, 531 U.S. 12.

Here, too, the statute was not violated merely because a mailing happened to take place. "The objective of the scheme here was to deceive the DMV and was accomplished when the CDL test was passed and not when the mailing occurred . . . " Slip op. 9. On these facts the court saw no reason to enforce New York law with a felony statute carrying a jail term of up to 20 years. Slip op. 18-19.

Claims Against Airline

In Dover v. British Airways (UK), 12 CV 5567 (EDNY, Nov. 7, 2013), Dearie denied defendant's motion to dismiss the complaint of putative class plaintiffs, finding that plaintiffs' contract claims were not preempted by federal law and pleaded sufficient detail to state a claim.

Plaintiffs are members of the "Executive Club," a frequent flyer program offered by British Airways. Upon joining the Executive Club, they agreed that, when exchanging accrued points for air travel, they would have to pay various charges, including "fuel surcharges." The essence of their complaint is that the "fuel surcharges" were used to extract hundreds of dollars from Executive Club members for each ticket accessed through the program, without reference to any actual fuel costs. In support of this proposition, they pleaded that (1) statistical analysis showed little relationship between the fuel charges and the price of fuel, and (2) the fuel charges were excessive as, for example, in identified instances when they were greater than the cost of an economy ticket on the same flight. Slip op. 2-4.

The court rejected defendant's federal preemption argument. Am. Airlines v. Wolens, 513 U.S. 219 (1995), held that the state law consumer protection claims of frequent flyer program members were preempted by the Airline Deregulation Act, which forbids states from "enact[ing] or enforc[ing] a law, regulation, or other provision having the force and effect of a law related to a price, route or service of an air carrier[.]" Slip op. 4, quoting 49 U.S.C. §41713(b)(1). But Wolens also held that the program members' contract claims, as "privately ordered obligations" rather than laws or regulations, were not preempted. Slip op. 4-6. As plaintiffs did not seek statutory or regulatory enforcement of their contract rights, Wolens would not support preemption.

Defendant's motion to dismiss also failed as to the merits of the pleading, preemption aside. While defendant proffered its own statistical analysis to establish the correlation between fuel costs and fuel surcharges, such factual disputes are not appropriately resolved on a motion to dismiss. Plaintiffs had pleaded sufficient facts to allow "the court to draw the plausible inference that the fuel surcharges imposed by British Airways were not, in fact, reasonably related to or based upon the price or cost of fuel." Slip op. 9-10.

Preservation Of Graffiti

In Cohen v. G&M Realty, 13 CV 5612 (EDNY, Nov. 20, 2013), Block declined to enjoin the destruction of works of aerosol and/or graffiti artists that adorned the exterior of defendants' buildings scheduled for demolition.

In 2002 defendant Gerald Wolkoff, the owner of several warehouses in Brooklyn, gave oral approval to plaintiff Jonathan Cohen, a graffiti artist known as "Meres One," to act as curator of graffiti paintings on Wolkoff's buildings, which were already covered in graffiti. As curator, Cohen controlled which artists would be permitted to paint on the buildings. The site, known as 5Pointz, evolved into a mecca for works by internationally recognized aerosol artists and became a popular tourist attraction. After the City Planning Commission gave Wolkoff permission to demolish the existing buildings in order to erect residences, he claimed that there was no way to preserve the works of art.

The Visual Artists Rights Act of 1990 (VARA), 17 U.S.C. §106A, gives the creator of a work of visual art the right to sue to enjoin the destruction of his or her work if it is of "recognized stature." After an evidentiary hearing, Block denied plaintiffs' application for a preliminary injunction under VARA.

Plaintiffs could not claim irreparable harm because they "would be hard pressed to contend that no amount of money would compensate them for their paintings." Slip op. 25. Monetary damages are explicitly enumerated by VARA as a remedy. All parties, moreover, recognized the transient nature of plaintiffs' works. According to certain evidence, Cohen knew well before seeking injunctive relief that Wolkoff planned to demolish the buildings; and many of the works at 5Pointz were created after September 2013, when the city approved defendants' plans to demolish the building.

VARA itself does not define what makes a work of "recognized stature" under the statute, and there is a paucity of case law on the subject. The court stated: "The final resolution of whether any [of the paintings] do indeed qualify as such works of art is best left for a fuller exploration of the merits after the case has been properly prepared for trial, rather than at the preliminary injunction stage." Slip op. 24.

During the evidentiary hearing, the court questioned the parties' experts as to whether some of the works at 5Pointz should be considered to have "recognized stature." Plaintiffs' expert claimed that the artistic quality of the works alone qualified them as works of recognized stature. Conversely, defendants' expert opined that since there was no consensus in the scholarly and art communities as to the artistic worthiness of the works, they had yet to achieve recognized stature. Block did not need to decide this battle of experts in order to resolve the motion before the court.

The case will be moving forward on the question of remedy. Plaintiffs have requested money damages in the complaint. Should the case continue to a decision on the merits, the court will be faced with issues of first impression under VARA.

Jury Tampering

In United States v. Morrison, 04 CR 699 (EDNY, Nov. 6, 2013), Hurley vacated defendant's conviction for RICO conspiracy and unlawful possession of a firearm as a convicted felon and granted a new trial, based on a presumption of prejudice from possible jury tampering.

Following defendant's conviction in May 2008, the FBI conducted an investigation into alleged jury tampering. In December 2012 the government furnished to defendant information about that investigation including post-verdict interview notes. Defendant moved for a new trial, and the court held a hearing. Juror Keith Amstead testified that he had found a cell phone on the ground beside his car during jury deliberations, the phone rang and the person on the other end offered him money to sway the jury in defendant's favor. When deliberations reconvened four days later, an alternate juror who had been in the car with Amstead handed the phone to a court officer without alerting the court (or the officer) to the bribe offer. Amstead had told one or two other jurors about finding the phone and his belief that it belonged to defendant's son.

In Remmer v. United States, 76 S. Ct. 425 (1956), the Supreme Court established the "implied bias doctrine:"

In a criminal case, any private communication, contact, or tampering directly or indirectly, with a juror during a trial about the matter pending before the jury is, for obvious reasons, deemed presumptively prejudicial, if not made in pursuance of known rules of the court with full knowledge of the parties. 76 S. Ct. at 426-27.

Hurley concluded that defendant had presented sufficient evidence to establish the Remmer rebuttable presumption. The government then had the obligation to demonstrate that the "extraneous influence was harmless" to the typical juror and there was no possibility that the jury deliberations had been affected by the tampering. Slip op. 18-19.

Federal Rule of Evidence 606(b) limits the type of inquiry that may be made to a juror. During an inquiry into the validity of a verdict, a juror may not testify about the effect of anything on any juror's vote or mental processes concerning the verdict, but a juror may testify whether an outside influence was brought to any juror's attention.

Amstead testified that he was very anxious after the call. Thus, no one could say that Amstead's freedom of action as a juror was not affected by the bribe offer. He also willfully failed to notify the court about the bribe offer because he wanted to finish his jury service. The court would have excused him from continued jury service for "inferable bias" if the call had been brought to its attention. Rejecting the government's efforts to rebut the presumption of prejudice, Hurley stated: "it is clear that the government has not demonstrated that the bribe offer and attendant circumstances did not affect the freedom of action of one or more of the jurors, and, thus, the defendant's right to a fair trial." Slip op. 29.

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 13, 2013, issue of the New York Law Journal.  Copyright © 2013 ALM Properties, Inc.  All rights reserved.  Further duplication without permission is prohibited.]