December 15, 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 Jack B. Weinstein, granting summary judgment to one of two co-defendant corporations in a discrimination case, dealt with issues relating to employer status and aiding and abetting. Judge Pamela K. Chen rejected a constitutional challenge to sex offender registration and residency requirements. Judge Allyne R. Ross chose not to impose restitution in a wire fraud case where the difficulty of identifying a victim would unduly burden the sentencing process. And Judge Sandra L. Townes granted the government's motion to dismiss a petition by a Citibank customer to quash an IRS administrative summons to the bank issued in aid of collecting assessed taxes.

City Anti-Discrimination Law

In Tate v. Rocketball, 14 CV 2056 (EDNY, Sept. 18, 2014), Judge Weinstein held that defendant Rocketball, Ltd., owners and operators of the Houston Rockets, was liable neither as a "co-employer" for its players' taunting of a gay waiter working for co-defendant Levy Restaurant Holdings, LLC (Restaurant), nor as an "aider and abettor" of Levy's employment decisions in response to the incident. The court therefore granted Rocketball's motion for summary judgment.

Plaintiff, a gay male, sued Rocketball and Restaurant under the New York City Human Rights Law (NYCHRL), N.Y. City Admin. Code at §§8-107(1)(a), et seq. Plaintiff alleged as follows: He was hired by Restaurant as a private event catering server at Brooklyn's Barclays Center. Restaurant assigned him to serve food and beverages to visiting teams at Brooklyn Nets basketball games. In February 2013, he delivered and set up a buffet for the Rockets' players in their visitors' locker room. When he entered the room, some Rockets' players laughed and said, "Get this faggot out of here!" and "He's trying to catch a sneaky peaky!" Players and staff repeated the comments.

On witnessing this scene, a Nets representative instructed plaintiff to "just leave" and said he would "take care of it." Restaurant and Rocketball were then notified of the incident.

Plaintiff claims to have suffered adverse employment consequences. He was no longer sent to the dressing rooms, locker rooms and certain other locations at Barclays Center, and stopped getting overtime shifts, which instead went to heterosexual Restaurant employees, some with less seniority. He was also improperly singled out and "written up" for purported lapses in his job performance. Consequently, plaintiff missed work at over 20 events and has now been removed from the work schedule.

An alleged general culture of homophobia in professional basketball does not, at present, "translate to a violation of employment discrimination statutes" or support a specific claim against a team owner. Slip op. 8.

As to Rocketball, this was simply not a case of "employer" discrimination under the NYCHRL:

There is no showing that Rocketball was [plaintiff's] "joint employer" with Restaurant and exercised "control" or management over him….No evidence is provided that Defendant Rocketball caused the alleged employment discrimination. Plaintiff does not claim that the Rockets had the power to hire or fire any Restaurant employees, that the Rockets had any control over Restaurant employees' schedules or conditions of employment, or that the Rockets had any say in the rate and method of payment to Restaurant employees….

Slip op. 10. The players as customers and plaintiff as their server had no employer-employee relationship under the statute.

Nor was there any evidence that Rocketball aided and abetted any discriminatory conduct by Restaurant after the incident.

Even if homophobia were endemic among NBA players, there was no evidence that Rocketball proximately caused damage to plaintiff in the way it responded to the matter.

Weinstein stayed the dismissal order for 60 days to allow further discovery as to the relationship among Rocketball and its employees and Restaurant and its employees. Slip Op. 12.

Sex Offender Registration

In Wallace v. State of New York, 12 CV 5866 (EDNY, Aug. 28, 2014), Judge Chen dismissed claims alleging that state, county and town sex offender registration and residency requirements violated the U.S. Constitution.

The challenged provisions require certain categories of sex offenders to register as such, for a term of years or for life, and prohibit them from living within certain fixed distances from schools, registered day-care centers, or other localities where children are especially likely to be found. Chen declined to dismiss on standing grounds, finding that, although not every plaintiff was affected by all of the challenged provisions, at least some of the plaintiffs were affected, and therefore had standing, with respect to each. Slip op. 23-31.

A central question was whether the provisions were punitive, as necessary to show that their ex post facto application was unconstitutional. Citing Smith v. Doe, 538 U.S. 84 (2003), Chen found that each provision was reasonably related to the non-punitive purpose of protecting children, and that any punitive effect was secondary to this purpose and therefore insufficient to support a constitutional challenge. Slip op. 40-44, 56-65, 67-77.

The court rejected plaintiffs' argument that the provisions were not "reasonably proportional" to the non-punitive purpose: "The 'best choice' is not the only choice; the 'regulatory means chosen' by the State legislature should be upheld if they are 'reasonable in light of the non-punitive objective.' Smith, 538 U.S. at 105." Slip op. 64. Chen upheld the county and town restrictions under the same rationale. Slip op. 74-75, 83.


In United States v. Gourevitch, 12 CR 758 (EDNY, Sept. 23, 2014), Judge Ross declined to enter a restitution order because there was no "identifiable" victim.

Defendant Eugene Gourevitch pleaded guilty to one count of wire fraud, triggering mandatory restitution under the Mandatory Victim Restitution Act of 1996 (MVRA), 18 U.S.C. §3663A(c)(1)(A)(ii). The pre-sentence report described the conduct underlying the offense: Gourevitch told an individual identified as John Doe #1 that Gourevitch could invest his money in the Facebook initial public offering. To conceal his own involvement Gourevitch set up a company called Konnektix Ventures, which opened a bank account at Signature Bank and a trading account with Interactive Brokers. Gourevitch gave a friend signing authority and directed John Doe #1 to send $6 million to the Konnektix Ventures account at Signature Bank. To conceal, in turn, his own ownership of the stock, John Doe #1 sent the $6 million to another Gourevitch-controlled company, which then transferred the money to Konnektix.

Gourevitch transferred the money to the Interactive Brokers account, but did not inform John Doe #1 of any of the transfers. The funds that John Doe #1 transferred to Gourevitch came from a corporate account, but the government could not determine who owned the corporation.

The MVRA makes restitution mandatory for any offense against property under Title 18 in which "an identifiable victim or victims has suffered a physical injury or pecuniary loss." The purpose of the MVRA is to restore a victim to the position he or she occupied before suffering an injury. The government has the responsibility to identify the victims of an offense and provide a listing of the amounts tied to the victim's actual, provable loss. If the victims' losses cannot be determined by 10 days before sentencing, the court must set a date for final determination of the losses within 90 days after sentencing. Here, the court deferred the final determination of restitution to allow the government to identify a victim for restitution.

The government could not ascertain the victim and, based on the government's letter to the court, the Probation Department issued an addendum to the pre-sentence report recommending that no restitution order be issued. John Doe #1 asserted that a restitution award in the amount of $6 million should be paid to him because he transferred the money to an account controlled by Gourevitch. But that was not sufficient to establish John Doe #1 as a victim, because John Doe #1 had transferred funds from a corporate account that he controlled, not his personal funds. The ownership of the corporate account was unclear, and there was no evidence that the loss of the corporation's funds would represent a pecuniary loss to John Doe #1. John Doe #1's counsel also provided no evidence that the funds belonged to John Doe #1, nor did he offer to do so.

Under the MVRA, the court has discretion to decline to order restitution. If resolution of complex issues of fact related to the identification of the victim's losses would "complicate or prolong the sentencing process to a degree that the need to provide restitution to any victim is outweighed by the burden on the sentencing process," restitution is not mandatory. 18 U.S.C. §3663A(c)(3)(B). Ross found: "the case presents complex factual issues, and resolving those issues would impose a burden on the sentencing process that outweighs the need to provide restitution," because it was "impossible to identify the victim of this wire fraud scheme." Slip op. 8. The case thus "falls within the exception to the MVRA in which a court can decline to award restitution where the factual determinations necessary to impose a restitution order would be unduly burdensome." Slip op. 9.

IRS Summons

In Knudson v. United States, 13 CV 2269 (EDNY, Aug . 27, 2014), Judge Townes granted the government's motion to dismiss a petition to quash an IRS administrative summons.

Defendant IRS Revenue Officer Gregory Allison issued a summons to a Citibank office in Long Island City, Queens, directing Citibank to produce credit card records relating to the pro se petitioner. The summons was not specific regarding the purpose for which it was issued, but Allison submitted a declaration stating that the summons was issued in aid of collection of approximately $50,000 in taxes, interest and penalties.

Petitioner moved to quash the summons pursuant to 26 U.S.C. §7609, which authorizes a taxpayer to bring an action to quash an administrative summons served on a third-party record keeper. The government moved to dismiss on the ground that §7609 does not apply to a summons issued in aid of the collection of an assessment made or judgment.

The United States, as sovereign, is immune from suit except to the extent it consents to be sued. Unless an action satisfies the statutory requirements for jurisdiction, it is barred by sovereign immunity and the district court lacks subject-matter jurisdiction. Within three days of the service of a summons under §7609, the IRS must give notice of the summons and the right to initiate a proceeding in federal court to quash the summons to the person who is identified as the subject of the records.

Although the provisions of §7609(a) and (b)(2) prescribing these rights apply to any summons issued pursuant to IRS authority to oversee tax matters, there are exceptions, including any summons "issued in aid of collection of…an assessment made or judgment rendered against the person with respect to whose liability the summons is issued." §7609(c)(2)(D). Having failed to submit any evidence to controvert the IRS's assertion that the summons was issued in aid of collecting assessed taxes, petitioner did not meet his burden of establishing jurisdiction under 26 U.S.C. §2609.

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.

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[Reproduced with permission from New York Law Journal Volume 252, Friday, October 10, 2014.  Copyright 2014 ALM Properties, Inc.  All rights reserved.]