Schoenefeld v Schneiderman, ___ F3d ___, 2016 WL 1612845

Predictions are difficult, especially about the future. Much to my surprise, Judiciary Law 470, requiring non-resident attorneys to maintain a physical office in New York in order to practice here, has survived a constitutional challenge.

A year ago, I posted about the Court of Appeals determination in this case, construing Judiciary Law § 470 as meaning what it says: a non-resident attorney must maintain a physical office in New York in order to practice here. The Court had responded to a certified question from the Second Circuit, seeking to know whether the plaintiff’s constitutional challenge to § 470 could be avoided by an alternative reading. It seemed at the time that the Court of Appeals’ construction of the statute made the challenge unavoidable, and that it must inevitably fall afoul of the Privileges and Immunities Clause of the US Constitution.

Indeed, my comment at the time was

The tenor of the opinion is that the Court recognized that Judiciary Law § 470 cannot be sustained under the Privileges and Immunities Clause, and that it was unwilling to rewrite it in order to save it. That the Second Circuit will invalidate it seems a foregone conclusion.

Well, right and wrong. The challenge was indeed unavoidable, but the statute has survived.

The challenge came in federal court from a New Jersey attorney, duly admitted in New York and in compliance with all other requirements, who wished to practice in New York but not to open a second office here. She observed, correctly, that a New York attorney has no need for a formal office but can work from home.

The District Court found that the statute unduly burdened the rights of non-resident attorneys, without a corresponding justification in a state interest. In the Second Circuit, the State argued that the statute aimed only at ensuring that the attorney was amenable to the service of process, and could be satisfied by the designation of an agent for the service of process or even the maintenance of a post office box. Existing New York case law, unfortunately, did not support that interpretation.

Before considering the constitutionality of the statute, the Second Circuit wanted to be sure that the more lenient view of the statute’s requirements was not available and that the constitutional challenge could not be avoided. It therefore certified the question of what the minimum requirements for compliance were. The New York Court of Appeals rejected the alternate interpretations, holding that a physical office within the state is required in order to facilitate the service of process on attorneys.

The stage seemed set for a the Second Circuit to invalidate the statute as violative of the Privileges and Immunities Clause. The court found that there was no “protectionist purpose” behind the statute, favoring New York attorneys, but only the neutral purpose of providing a means of service of process on all attorneys. In fact, the court noted, it was the plaintiff who was seeking to be treated differently from New York resident attorneys. In so ruling, it had the benefit of the recent SCOTUS decision of McBurney v Young, 133 S.Ct. 1709. While not establishing a new rule of law, McBurney clarified that the privileges and immunities clause is violated only when the questionable law was enacted for a protectionist purpose. Contrast that with the Commerce Clause, which “regulates effects, not motives,” rendering irrelevant an inquiry into the reasons for enacting a statute with a discriminatory effect. (Schoenefeld had asserted Equal Protection and Commerce Clause claims, but they had been dismissed by the District Court and not appealed by her.)

There was a dissent, which regarded the majority’s approach as erroneously placing the burden of proving discriminatory intent on the plaintiff, instead of requiring the state to justify the discriminatory statute.

In honor of National Poem In Your Pocket Day:

THE laws of God, the laws of man,

He may keep that will and can;

Not I: let God and man decree

Laws for themselves and not for me;

And if my ways are not as theirs

Let them mind their own affairs.

Their deeds I judge and much condemn,

Yet when did I make laws for them?

Please yourselves, say I , and they

Need only look the other way.

But no, they will not; they must still

Wrest their neighbour to their will,

And make me dance as they desire

With jail and gallows and hell-fire.

And how am I to face the odds

Of man’s bedevilment and God’s?

I, a stranger and afraid

In a world I never made.

They will be master, right or wrong;

Though both are foolish, both are strong.

And since, my soul, we cannot fly

To Saturn nor to Mercury,

Keep we must, if keep we can,

These foreign laws of God and man.

A.E. Housman

Matter of People ex rel. Schneiderman v Trump Entrepreneur Initiative. LLC, ___ AD 3d ___, 2016 NY Slip Op 01430 [1st Dept., 2016]

Let’s resist the impulse to snarkiness, and stick to the legal issues. Yes, this is the one involving serious allegations of fraud against Donald Trump in one of his business ventures. The proceeding was commenced in August, 2013, well before Trump became an actual, and now a leading, presidential candidate, and so any claim of a political witch-hunt must go by the board. A detailed rundown of the Attorney General’s allegations is unnecessary for our discussion, and in any event has been done better than I could by Eric Turkewitz on his NY Personal Injury Blog.

Whether those claims can be substantiated is not the issue here. The actual issue here, once the nature of the action is properly understood, is in fact a rather simple limitations question of which period governs: When the Attorney General sues over a fraud, under the authority of Executive Law § 63(12), does the claim involve a “liability, penalty or forfeiture created or imposed by statute” (CPLR 213 (2), 3-year period), or one of the six-year periods of CPLR 214? This is resolved by well-established principles, as will be seen.

As a threshold matter, however, the Appellate Division reconsidered one of its recent precedents, found it to be erroneous, and overruled it. We’ll look at that aspect of the case first, and then look directly at the limitations issue.

All we need know of the petition is that the Attorney General alleged numerous fraudulent and improper practices against Donald Trump individually and several of his namesake business entities. The fraud allegations were framed in separate causes of action: first under the Attorney General’s statutory authority pursuant to Executive Law § 63(12), and as common-law fraud. Common-law fraud, of course, carries a six-year limitations period, and there is no issue as to the timeliness of those claims.

The issues concern the Executive Law cause of action. First, whether it is properly pleaded as an independent cause of action, and assuming that it is, whether it carries a limitations period different from the common-law fraud claims.

Supreme Court dismissed the cause of action, finding on constraint of the Appellate Division decision in People v Charles Schwab & Co., Inc., 109 AD3d 445 [1st Dept., 2013] that it may not be pleaded as an independent cause of action. We must start, therefore, with the language of Executive Law § 63(12), which states:

“12. Whenever any person shall engage in repeated fraudulent or illegal acts or otherwise demonstrate persistent fraud or illegality in the carrying on, conducting or transaction of business, the attorney general may apply . . . for an order enjoining the continuance of such business activity or of any fraudulent or illegal acts, directing restitution and damages . . . and the court may award the relief applied for or so much thereof as it may deem proper. The word “fraud” or “fraudulent” as used herein shall include any device, scheme or artifice to defraud and any deception, misrepresentation, concealment, suppression, false pretense, false promise or unconscionable contractual provisions.”

In State v Cortelle, 38 N.Y.2d 83 [1975], the Attorney General sought to enjoin the respondents from a scheme of obtaining title to distressed real property under false pretenses, and to dissolve the corporate entities through which they acted. The issue was the same as ultimately arose in Trump, whether the cause of action was one “created or imposed by statute,” subject to a three-year limitations period under CPLR 214(2), or whether it was subject to the six-year catch-all provision of CPLR 213. The Court of Appeals found that the State’s right to enjoin such conduct and to dissolve the corporate entities extended back to the common-law. That it had since been codified by statute did not mean that it was “created or imposed” by statute. CPLR 214(2) therefore did not apply, and the applicable period was the six-year catch-all.

The Court’s opinion includes this language:

“The [Executive Law and BCL] did not ‘make’ unlawful the alleged fraudulent practices, but only provided standing in the Attorney-General to seek redress and additional remedies for recognized wrongs which pre-existed the statutes. Statutory provisions which provide only additional remedies or standing do not create or impose new obligations. . . .That the statutes authorizing the Attorney-General to bring this action appear to be or are new to the law is not dispositive. As applied to the allegations in this case, they create no new claims but only provide particular remedies and standing in a public officer to seek redress on behalf of the State and others. Moreover, the kind of wrong the Attorney-General seeks to redress is not a new one to the decisional law but a now rather old and common type of fraud.” State v Cortelle Corp., 38 NY2d 83, 85-86 [1975]

This said nothing about whether the Attorney General could bring an independent Executive Law claim, but concerned only whether the specific claim had been “created or imposed” by the Executive Law.

In the 2013 Charles Schwab decision, the First Department considered claims of securities fraud brought by the Attorney General, including a cause of action under Executive Law § 63(12). The First Department dismissed the Executive Law cause of action, citing Cortelle for the proposition that the Executive Law “does not create independent claims”. Cortelle, as we have seen, does not support that proposition.

Of course, just because an independent Executive Law § 63(12) cause of action isn’t precluded by Cortelle doesn’t mean that it is viable. The viability of such a cause is shown by other Appellate Division cases, which have allowed for independent fraud claims under § 63(12), including at least one holding that the language of the statute requires proof of neither scienter nor reliance, further supporting the conclusion that the Attorney General is not limited to common-law fraud claims. (People v American Motor Club, 179 AD2d 277, 283 [1st Dept., 1992], app. dism. 80 NY2d 893 [1992]; see also People v Greenberg, 95 A.D.3d 474, 483 [1st Dept., 2012], aff’d 21 N.Y.3d 439 [2013])

The First Department thus concluded that the decision in Charles Schwab had been based on a misreading of Cortelle, and was erroneous. Seeing no reason to allow the error to languish in the law, furnishing precedent for further erroneous decisions, the First Department overruled it. The Attorney General may, indeed, claim allege independent fraud causes of action under both the Executive Law and common-law fraud.

Finally addressing the limitations issue directly, the First Department found that the rationale of Cortelle was controlling. That is, Executive Law § 63(12) neither creates nor imposes a new liability or penalty for fraudulent conduct, but simply gives the Attorney General standing to sue. The claim is therefore not subject to the three-year period of CPLR 214(2), but rather to the six-year residual period of CPLR 213(1). The first cause of action was therefore timely.

A similar situation arose in 2014, in regard to the attorney-deceit statute, Judiciary Law §487. In Melcher v Greenberg Traurig, the Court of Appeals held that while the roots of this claim originated in the First Statute of Westminster (in 1275!) the claim entered New York law as part of our common law, at the creation of the country in 1776, when both English statutory and common law were adopted by common consent. Thus, what appears to be a statutory cause of action really isn’t, and the three-year period doesn’t control. As with the Executive Law cause of action in Trump, the controlling period is the six-year residual period.

Bongiovanni v Cavagnuolo, ___ AD 3d ___, 2016 NY Slip Op 00638

In a malpractice action an opinion as to causation may be rendered by an expert in a field related to the injury, even though the underlying claim of negligence relates to a specialist in a different field. In this malpractice action against a chiropractor, therefore, opinions as to the causation of plaintiff’s disk injuries could be received from non-chiropractors whose expertise was in orthopedics and radiology. These opinions related to causation only, which was within the experts’ fields of expertise, and not to the standard of care applicable to chiropractors.

One of the hallmarks of a professional negligence case is that the profession itself is generally allowed to set the standard of good and accepted practice. Negligent care, or malpractice, is a departure from that standard. It follows that expert testimony as to whether the care at issue departed from that standard must come from those whose expertise is established either by their being practitioners in the same field or through some other combination of training, skill or experience. The principle also extends to specialists: Expert opinion must come from specialists in the same field or those who can otherwise establish the reliability of their opinions.

In a chiropractic malpractice case such as this, therefore, whether the defendant departed from the standard of good and accepted practice would normally require expert testimony from chiropractors. Normally, an orthopedic surgeon could not testify as to whether a given chiropractic treatment deviated from the chiropractic standard.

There is, of course, a second issue: whether or not the acts of malpractice were the proximate cause of the plaintiff’s injuries. Here, expert testimony need not necessarily come from experts in the same field of treatment, but may come from anyone whose expertise as to the nature of the injuries would justify an opinion as to their origin and causation.

The plaintiff’s claim here was that the defendant chiropractor engaged in improper and unduly forceful manipulations of her thoracic spine, resulting in trauma to a cervical disk, requiring a discectomy and fusion surgery.

Defendant moved for summary judgment both as to a deviation from acceptable standards of care and as to causation. As to deviation, defendant offered his own affidavit, to the effect that there was no deviation from accepted standards. This is of course permitted.

Defendant then offered the affidavits of an orthopedic surgeon and a radiologist. Both of these were restricted to the issue of causation, saying nothing about the standard of chiropractic care. Both concluded that the injuries were degenerative, pre-existing the treatment at issue. In opposition, the plaintiff offered the affidavit of a radiologist, who also restricted his opinion to causation, finding that the injury was caused by a significant amount of force, consistent with the plaintiff’s claims.

Supreme Court held that the opinions of defendant’s experts were inadmissible, as the experts had not established a knowledge of chiropractic treatment. The court held that the defendant had accordingly not sustained his initial burden of proof on the motion, and denied it.

The Appellate Division affirmed, but on a different ground. The opinions of the experts, being limited to the causation of the plaintiff’s disk injuries, were squarely within their areas of expertise. They were therefore admissible on the motion. The disagreement between them raised a triable issue of fact, and that was the proper rationale for denial of the motion.

As to the issue of deviation from the standard of care, the Appellate Division held that the defendant’s affidavit failed to establish the applicable standard of care, rendering his opinion as to the lack of any deviation to be conclusory. He therefore failed to sustain his initial burden on this score, and the court did not consider the plaintiff’s opposition.

McCord v Larsen, 132 A.D.3d 1115, 18 N.Y.S.3d 458 [3rd Dept., 2015]

Plaintiff alleged that she was injured in a building owned by the defendant, due to a defective porch railing. She sued, and claimed to have served the summons by deliver-and-mail (CPLR 308 [2]). The defendant did not answer, and judgment by default was obtained against him.

He now moved to vacate the default judgment on the grounds that he had not received the summons and complaint in time to defend, and to dismiss the action for lack of jurisdiction. Supreme Court denied both branches of the motion.

The first question must be the jurisdictional one, since if there is no personal jurisdiction the judgment is void. The first step in deliver-and-mail service is delivery to a person of suitable age and discretion at the defendant’s actual place of business, dwelling place, or usual place of abode. The delivery in this case was made to the defendant’s ex-wife, at her residence in the Town of Blooming Grove, Orange County. The defendant had moved out long before the delivery, and claimed that he had moved his business from that address as well. However, the plaintiff showed proof that he advertised his business from that address, and had not changed the address with either the Postal Service or DMV. Delivery was therefore held to have been validly made, and jurisdiction properly upheld.

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Faison v Lewis, 25 N.Y.3d 220, 10 N.Y.S.3d 185 [2015]

            In a 4-3 decision, the Court of Appeals held here that claims challenging conveyances or encumbrances based on a forged deed are not subject to statutes of limitations.

            The claim here was that the interest of plaintiff’s decedent, her father Percy Lee Gogins, had been purportedly conveyed to his sister and niece, the defendants Dorothy and Tonya Lewis, by means of a forged deed, recorded in 2001. Plaintiff clearly knew of the claimed forgery as early as 2002, when she commenced an action to set aside the deed. That first action was dismissed for lack of capacity, since plaintiff was not at that time the administrator of Gogins’ estate. In 2009, the defendant Tonya Lewis over $269,000 from Bank of America, secured by a mortgage against the property. By August of 2010, plaintiff had been made administrator of Gogins’ estate, and commenced this action against Dorothy Lewis, Tonya Lewis, Bank of America and others, to declare both the deed and mortgage null and void as based on a forged deed. The defendants raised limitations defenses, and moved to dismiss. The plaintiff cross-moved to strike the defenses.

            A forged deed is void ab initio, that is, void in its inception, it is a legal nullity and conveys no interest at all in the property it purports to transfer. It follows that the holder of such a document has no interest in that property, and a mortgage granted to that holder also conveys no interest in the property. So much is settled law. (Marden v Dorthy, 160 N.Y. 39 [1899])

            The nullity of a forged deed must be distinguished from the status of a deed which was obtained by fraud. A deed obtained by fraud in the inducement is voidable and not void, and unless and until it is set aside it does transfer title to the fraudulent grantee, who may in turn convey an interest to a purchaser in good faith. (Marden v Dorthy, 160 N.Y. at 50)

            The majority in Faison held that the nullity of the void deed led to the conclusion that no limitations period applied. The forged deed being void, its “legal status cannot be changed, regardless of how long it may take for the forgery to be uncovered.”[3] Specifically, a forged deed cannot be regarded as simply a fraud, governed by CPLR 213 (8), even though that contains an extension for delayed discovery of the fraud. The Court analogized the situation of a forged deed with that of an illegal contract, also void in its inception, which carries no limitations period. (see, Riverside Syndicate, Inc. v. Munroe, 10 N.Y.3d 18 [2008]) The mere passage of time, or the expiration of a limitations period, cannot have the effect of validating what the law has expressly rejected.

            The dissent would have held that the discovery provisions of CPLR 213 (8) provide a sufficiently long period in which to discover and challenge a forged deed as well as a merely fraudulent one, and that the interests of protecting interests in property against stale claims mandated its applicability here.

Pegasus Aviation I, Inc. v Varig Logistica S.A., ___ NY3d ___, ___ NYS3d ___, 2015 NY Slip Op 09187 [2015]

The Court of Appeals here endorsed the holding of VOOM HD Holdings LLC v EchoStar Satellite L.L.C., 93 A.D.3d 33, 939 N.Y.S.2d 321 [1st Dept., 2012], concerning imposition of sanctions for spoliation of evidence. Imposition of a sanction for spoliation requires proof of three elements: (1) control over the evidence and an obligation to preserve it; (2) that the party destroyed or lost the evidence with a “culpable state of mind”; and (3) that the evidence was relevant to the claim or defense.  “Culpable state of mind” includes ordinary negligence. Relevance is established where the evidence is lost intentionally or willfully, so as to amount to gross negligence; but where the loss is merely negligent relevance must be shown by the proponent of sanctions. Gross negligence, such as to support a finding of relevance, may be shown by serious failings such as not issuing a written litigation hold to employees, failing to identify “key players” and ensure that their documents are preserved, or continuing to delete emails. The distinction between simple and gross negligence thus becomes highly important.

Here, the dispute centered primarily on just that distinction: whether the defendant Varig Logistica (“VarigLog”) had failed to preserve electronically stored information (“ESI”) due to ordinary negligence or gross negligence.

VarigLog had failed to preserve emails, had not instituted any sort of litigation “hold” to ensure that materials were preserved, did not even have a centralized storage system for emails but stored them on the computers of individual employees, and that such as it did have on a central system had been lost in a series of computer crashes. Supreme Court held that the failure to establish a litigation hold established gross negligence, struck VarigLog’s answer, and imposed a trial sanction of an adverse inference upon certain other defendants. The Appellate Division was divided on the issue, but the majority rejected the finding that the failure to establish a litigation hold amounted to gross negligence per se, and reviewing the facts found only simple negligence. The majority held that the plaintiff had failed to show that the missing information was relevant, and struck the trial adverse inference sanction. The majority also noted its view that the adverse inference charge was so strong as to amount to summary judgment.

The Court of Appeals held that the record supported the Appellate Division conclusion of simple negligence. Rejecting the idea that the failure to institute a litigation hold, or some other factor, would lead to a per se finding of gross negligence, the Court agreed with the Appellate Division majority that all of the facts led to a determination of simple negligence. It did not, however, agree with the Appellate Division as to the sanction. It found that the majority had ignored the plaintiff’s arguments as to relevance. The Court remitted the matter to Supreme Court for further findings as to relevance.

There was a two-judge dissent, which would have found gross negligence. The dissent noted that the Court’s opinion fails to define “gross negligence,” and would have adopted the standard of the failure to exercise even slight care.