March 6, 2019

New York Law Journal / Written by: Harvey M. Stone, Richard H. Dolan

In their Eastern District Roundup, Harvey M. Stone and Richard H. Dolan report on several significant, representative decisions, including a decision that dismissed §1983 and due process claims by a suspended school superintendent; another denying defendant’s appeal from an order of detention pending trial in an international fraud case; another which enforced a subpoena to a third party, over the objections of defendant lenders, in a suit alleging violations of the Fair Debt Collections Act; and the last dismissing an action under the Magnuson-Moss Warranty Act, asserting food poisoning by a  restaurant.

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, finding no deprivation of a protected property right, dismissed §1983 and due process claims by a suspended school superintendent. Judge William F. Kuntz II, denying defendant’s appeal from an order of detention pending trial in an international fraud case, expressed concern that defendant’s proposed use of paid security guards to create a “private jail” at home might be ineffective or represent an improper disparate treatment based on wealth. Magistrate Judge Cheryl L. Pollak enforced a subpoena to a third party, over the objections of defendant lenders, in a suit alleging violations of the Fair Debt Collections Act, 15 U.S.C. §1692 et seq. And Judge Margot K. Brodie dismissed an action under the Magnuson-Moss Warranty Act, asserting food poisoning by a restaurant.

No Federally Protected Property Interest in School Superintendent Position

In Waronker v. Hempstead Union Free School District, 18 CV 393 (EDNY, Jan. 16, 2019), Judge Hurley dismissed “deeply troubling” claims by a school superintendent who had been suspended with pay.

Plaintiff Shimon Waronker has a history of turning around underperforming school districts. Hempstead was such a district, plagued by “a fraught history of violence, gang activity, low graduation rates, inadequate resources, and dilapidated facilities.” Slip op. 2. Upon being hired as Superintendent in 2017, Waronker, through his own review and with the assistance of special investigators and a forensic accounting firm, found, among other things, that: (1) 75 percent of 1,500 high school students whose transcripts were reviewed would not graduate; (2) 9th grade students were being given 11th grade history, with only 17 percent passing; (3) middle school students were allowed to continue to the next grade even if they failed all of their classes; (4) hundreds of distributions had been made from the district’s payroll account to non- employees; and (5) financial records demanded by auditors had been burned prior to plaintiff’s arrival.

After he terminated the Assistant Superintendent for Business and Operations for his inability to disclose the amount of money in the budget, and the high school principal for unspecified misconduct, opposition to Waronker grew. It was headed by a former school board member who had been removed after being convicted of grand larceny and a sexual offense. In late November 2017, the school board fired the special investigators Waronker had retained.

On Jan. 5, 2018, Waronker distributed an open letter to the community, and posted it to the district’s website, calling for “transparency, honesty and commitment to meaningful change.” On January 9, the board placed him on administrative leave of absence, with pay, effective immediately.

Accepting these “deeply troubling” allegations on defendants’ motion to dismiss, Hurley nonetheless granted the motion. “[T]his is a Court of limited jurisdiction and Plaintiff has not set forth any actionable federal claims.” Slip op. 18.

Plaintiff’s first two claims, under 42 U.S.C. §1983 and for due process violations under the Fourteenth Amendment, require the deprivation of a protected property right. “While the Second Circuit has not specifically considered this question,” Hurley relied on decisions by out-of-circuit Courts of Appeals and district courts in the Second Circuit to find that “no liberty or property interest was infringed when a superintendent was suspended with pay and lost only ‘the ability to fulfill the function of superintendent.’”  Slip op. 9, quoting Watkins v. McConologue, 820 F. Supp. 70, 72 (S.D.N.Y. 1992), and citing, inter alia, Batagiannis v. West Lafayette Community School, 454 F. 3d 738, 741–42 (7th Cir. 2006) and Holloway v. Reeves, 277 F.3d 1035 (8th Cir. 2002).

Plaintiff’s third claim, for violations of his First Amendment rights, failed because a public employee may assert such a claim only as to speech outside the scope of his official responsibilities. Matthews v. City of New York, 779 F.3d 167, 172 (2d Cir. 2015). The speech on which plaintiff relied was made in his capacity as, and concerned matters relating to, his duties as superintendent. Slip op. 12-14. Plaintiffs’ state law claims failed to comply with state procedural requirements, but in any event would not be appropriate for the exercise of supplemental jurisdiction upon dismissal of the federal claims. Slip op. 14-17.

Denial of Bail

In United States v. Boustani, 18 CR 681 (EDNY, Feb. 4, 2019), Judge Kuntz denied defendant’s appeal from Magistrate Judge Peggy Kuo’s Order of Detention pending trial, where—despite the rigorous bail conditions proposed by defendant—the court found that he was a flight risk and no combination of conditions could reasonably assure his appearance.

Defendant and others were charged in a four-count indictment in connection with a $2 billion fraud, bribery and money laundering scheme. He was allegedly a “central organizing figure” in the scheme, involving the payment of at least $200 million in bribes and kickbacks to officials in Mozambique and investment bankers. Defendant, now 40 years old, is a rich international businessman and a citizen of Lebanon, Antigua and Barbuda, with no ties to the United States.

Defendant proposed a list of bail conditions, including (among many other requirements) a $20 million personal recognizance bond, secured by $1 million in cash; surrender of all travel documents; and “[h]ome confinement with GPS monitoring to be secured by security company Guidepost Solutions[.]” Regarding home confinement, defendant proposed numerous restrictions, such as “24-hour armed former or off-duty law enforcement officers”; “two officers per shift”; security technology “throughout the residence”; and travel limited to court appearances and counsel visits, with two officers accompanying him.

According to the defense, these conditions made it “impossible” for defendant to flee.

Kuntz found, on de novo review, that the government met its initial burden of showing defendant to be a flight risk, given the nature and circumstances of the offenses, the weight of the evidence, and the history and characteristics of defendant. Slip op. 6-12. As the court observed: “[T]he combination of defendant’s alleged deceptive actions, access to substantial financial resources, frequent international travel, complete lack of ties to the United States, and extensive ties to foreign countries without extradition demonstrates defendant poses a serious risk of flight.” Slip op. 11-12.

While defendant argued that the proposed conditions of bail effectively created a “private jail,” Kuntz agreed with the government that no combination of conditions could assure defendant’s appearance in court. Slip op. 12-17. Not even the private security guards could alleviate this concern. Moreover, “Guidepost employees would face a clear conflict of interest—private prison guards paid by an inmate.” Slip op. 15. See United States v. Tajideen, 17-CR-46, 2018 WL 1342475 at *6 (D.D.C. March 15, 2018).

As to “private prisons,” Kuntz also questioned whether “‘disparate treatment based on wealth is permissible under the Bail Reform Act.’ [citation omitted.]” The Second Circuit has not decided whether district courts must “routinely” consider retention of private security guards as a condition of release. United States v. Banki, 369 F. App’x 152, 153- 54 (2d Cir. 2010). On the facts here, defendant’s release “could very well produce disparate treatment” as his co-defendants may not be able to pay for a private jail. Slip op. 17

Privacy Interest

In Forsythe v. Midland Funding, 18 CV 3276 (EDNY, Jan. 17, 2019), a case alleging conversion and violations of the Fair Debt Collections Act, Magistrate Judge Pollak denied defendant’s motion to quash plaintiff’s subpoena to non-party Corporation Services Company (CSC), defendant’s registered agent.

Plaintiff requested documents from CSC related to four unrelated lawsuits against defendants in order to determine whether and why defendants were opening CSC emails in suits filed against defendants, but not in collection suits filed by them.

Defendants argued that they had a legitimate privacy interest in the information plaintiff sought and, further, that it was irrelevant. They also claimed plaintiff was seeking information about “the internal underlying workings of CSC’s relationship with defendants.” Slip op. 6.

But defendants lacked standing to quash the subpoena directed at a non-party, because they were not “seeking to protect a personal privilege or right.” United States ex rel. Ortiz v. Mount Sinai Hosp., 169 F. Supp. 3d 538, 545 (S.D.N.Y. 2016). Slip op. 4. A personal privilege exists if the information is private, confidential, privileged or highly sensitive. Courts in the Second Circuit have found privacy interests where a subpoena seeks information about personal financial affairs or the challenging party’s performance at a subsequent employer. The burden of establishing any privilege is a heavy one. Pollak concluded: “The Court has not been provided with any specific detail to show the requested documents constitute sensitive financial, employment or business information.” Slip op. 6. In short, defendants failed to meet their burden of establishing any personal privilege arising from privacy interests.

Pollak also found the information sought by plaintiff was relevant. Plaintiff made efforts to contact defendants to retrieve her money. Based on the information she received in response to the first subpoena addressed to CSC, she asserted that defendants received six emails from CSC about her case. Plaintiff then sought information about the four cases against defendants to determine how they and CSC handled communications in other cases. Finding that the information sought may be relevant and lead to the discovery of admissible evidence, the court directed CSC to respond to the subpoena.

Breach of Warranty

In Trisvan v. Checkers Drive-In Restaurants, 16 CV 7000 (EDNY, Jan. 25, 2019), Judge Brodie dismissed an action brought pursuant to the Magnuson-Moss Warranty Act, 15 U.S.C. §2301, et seq. (MMWA), on the grounds that no warranty existed and the MMWA did not cover personal injury damages.

Pro se plaintiff alleged that he suffered food poisoning after eating at defendant’s restaurant. He claimed that defendants posted warranties on the walls of their restaurant stating that defendants sold “crazy good food” and the food was “the best on Earth.”

Brodie found no federal question jurisdiction because “the MMWA specifically precludes recovery for personal injury.” Slip op. 7. Even if there had been subject matter jurisdiction, plaintiff failed to state a claim under the MMWA “because ‘crazy good food’ and ‘the best on Earth’ do not constitute written warranties as defined by the MMWA.” Slip op. 8.

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.