With the opening of the 2014/15 Term, the Court of Appeals addressed a virtual cornucopia of legal issues relating to the validity of a marriage between a half-uncle and a half-niece; the enforceability of a $44 million contingent legal fee; liability for negligence where a person fell off the setback roof of a building; deference to an administrative agency’s decision; exemptions from the real property tax law; exemption of a rent-stabilized lease from a bankrupt’s estate; jurisdiction to hear a medical malpractice claim against an out-of-state medical group and its surgeons; and the obligation of a liability insurance carrier to give notice to the insured.
Was the marriage between a half-uncle and a half-niece void as incestuous under Domestic Relations Law § 5(3)? Answer: No.
Nguyen v. Holder, 2014 NY Slip Op 07290 (decided October 28, 2014)
It is hard to imagine a more unique and complicated set of “family law” facts:
Petitioner is a citizen of Vietnam. In January of 2000, at the age of 19, she was married in Rochester, New York to Vu Truong, who was 24 and a naturalized American citizen. Later that year, petitioner was granted the status of a conditional permanent resident in the United States on the basis of her marriage…petitioner’s mother was born in 1950 to a woman named Nguyen Thi Ba. Twenty-five years later, Nguyen Thi Ba gave birth to Vu Truong. Petitioner’s mother and Vu Truong had different fathers. Thus petitioner’s mother was Vu Truong’s half-sister, and petitioner is his half-niece[.]
* * *
Petitioner was ordered to be removed from the country on the ground that her purported marriage to an American citizen was void[.]
Upon appeal, the Second Circuit asked the Court of Appeals to determine:
“Does section 5 (3) of New York’s Domestic Relations Law void as incestuous a marriage between an uncle and niece ‘of the half blood’ (that is, where the husband is the half-brother of the wife’s mother)?”
The Court of Appeals was called upon to decide “whether subdivision 3 of [the Domestic Relations Law] should be read to include a half-uncle and half-niece (or half-aunt and half nephew)”. And noted: “[T]here is something to be said on both sides of this question.”
The Court of Appeals concluded that a half-uncle/half-niece marriage would not violate the purpose of the statute:
[T]he apparent purpose of section 5 (3) supports a reading that excludes half-uncle/half-niece marriages from its scope. Section 5 as a whole may be thought of as serving two purposes: it reflects long-held and deeply-rooted values, and it is also concerned with preventing genetic diseases and defects. Sections 5 (1) and 5 (2), prohibiting primarily parent-child and brother-sister marriages, are grounded in the almost universal horror with which such marriages are viewed a horror perhaps attributable to the destructive effect on normal family life that would follow if people viewed their parents, children, brothers and sisters as potential sexual partners. As the Appellate Division explained in Matter of May (280 App Div 647, 649 [3d Dept 1952], aff’d 305 NY 486 [1953]), these relationships are “so incestuous in degree as to have been regarded with abhorrence since time immemorial.”
The Court held that this result comports with prior decisions:
There is no comparably strong objection to uncle-niece marriages. Indeed, until 1893 marriages between uncle and niece or aunt and nephew, of the whole or half blood, were lawful in New York (see L 1893, ch 601; Audley, 196 AD at 104). And sixty years after the prohibition was enacted we affirmed, in May, a judgment recognizing as valid a marriage between a half-uncle and half-niece that was entered into in Rhode Island and permitted by Rhode Island law. It seems from the Appellate Division’s reasoning in May that the result would have been the same even if a full uncle and full niece had been involved. Thus Domestic Relations Law § 5 (3) has not been viewed as expressing strong condemnation of uncle-niece and aunt-nephew relationships.
And would not increase the risks associated with incestuous marriages:
The second purpose of section 5’s prohibition of incest is to prevent the increased risk of genetic disorders generally believed to result from “inbreeding.” (It may be no coincidence that the broadening of the incest statute in 1893 was roughly contemporaneous with the development of the modern science of genetics in the late 19th century.) We are not geneticists, and the record and the briefs in this case do not contain any scientific analysis; but neither party disputes the intuitively correct-seeming conclusion that the genetic risk in a half-uncle, half-niece relationship is half what it would be if the parties were related by the full blood. Indeed, both parties acknowledged at oral argument that the risk in a half-uncle/half-niece marriage is comparable to the risk in a marriage of first cousins. First cousins are allowed to marry in New York, and I conclude that it was not the Legislature’s purpose to avert the similar, relatively small, genetic risk inherent in relationships like this one.
After being paid approximately $18 million in legal fees on an hourly basis, was a law firm entitled to retain $44 million as a contingent fee upon the settlement of the action that was resolved just a few months after the contingent fee agreement was signed? Answer: Yes.
Matter of Lawrence, 2014 NY Slip Op 07291 (decided October 28, 2014)
The Court of Appeals described the genesis of the dispute:
Beginning in 1983, defendant law firm Graubard Miller (Graubard or the law firm) represented Alice Lawrence (Lawrence) and her three children in litigation arising from the death of her husband and their father, Sylvan Lawrence (decedent), a real estate developer. At the time of decedent’s death in 1981, his company owned commercial real estate in New York City valued at an estimated $1 billion. Decedent’s brother and lifelong equal business partner, Seymour Cohn (Cohn), was executor of the estate. Cohn resisted selling decedent’s properties and distributing the proceeds to Lawrence and the children, which caused Lawrence to bring suit in 1983. For over two decades, she and Cohn (and after he died in November 2003, his estate) battled in court (hereafter, the estate litigation).
The involvement of Lawrence:
Lawrence, who died in February 2008, has been portrayed as intelligent, tough and sophisticated in business matters, having personally managed an investment portfolio worth more than $200 million. She described herself in prior proceedings as a “force to be reckoned with”; her “own person” who made her “own decisions”; and someone who “never” consulted with her attorneys or children about business matters, but rather kept her own counsel and “trust[e]d nobody.” Consistent with this persona, Lawrence participated in almost every detail of the estate litigation large and small and reviewed all of the documents and motions her attorneys filed. She demanded to be the “senior partner” in the litigation and threatened on numerous occasions to fire Graubard when she thought that the law firm was not carrying out her wishes. She had no qualms about rejecting Graubard’s advice outright.
And the subsequent dispute:
The estate litigation came to an abrupt and unexpected end on May 18, 2005, when the Cohn estate agreed to settle for over $100 million, a sum about twice what Graubard assessed the remaining claims to be worth. There quickly followed, though, this dispute between Lawrence and Graubard with respect to the law firm’s fee, and the validity of certain gifts made by Lawrence to three Graubard partners in 1998[.]
The history of the retainer agreement:
By the end of 2004, Lawrence had paid Graubard approximately $18 million in legal fees on an hourly fee basis since 1983 in connection with the estate litigation. After 2002, the major remaining contested claims involved accounting objections. These claims rested on the contention that Cohn had in one way or another abused his position as executor to engage in self-dealing. Positive outcomes in this phase of the litigation were uncertain and costly to pursue. Indeed, Lawrence spent a total of $4.88 million in legal fees in 2003 and 2004. There were no distributions to the Lawrence family during those two years.
In early 2004, soon after Cohn died, Lawrence tried to negotiate a settlement directly with Cohn’s children. Her efforts resulted in a $60 million offer, but it was subject to numerous open-ended givebacks. Lawrence’s son, later (and still) co-executor of her estate, testified that his mother did not consider this a bona fide offer that would achieve a complete and definitive financial separation of the Lawrences from the Cohns, her goal ever since the inception of the estate litigation in 1983. In her son’s telling, Lawrence likened the $60 million offer to an earlier proposal made by Cohn in which he “purportedly wanted to buy her share [in a particular building]…presented her with a simple offer and then proceeded to add so many conditions and qualifications…that it was obvious that he had no intention of concluding the deal.”
Then on December 16, 2004, the Referee ruled against Lawrence with respect to her single largest accounting objection by far, which related to a Manhattan office building known as 95 Wall Street. This unexpected loss was quite a blow, and prompted Lawrence to complain about her legal fees and ask for a new fee arrangement going forward. She and C. Daniel Chill (Chill), the lead attorney at Graubard for Lawrence-related matters, discussed the possibility of a contingency fee arrangement. Lawrence proposed a 30% contingency; Chill countered with 50%. They eventually agreed upon a fee of 40% of the net recovery after deduction of up to $1.2 million in time charges for calendar year 2005.
Graubard sent Lawrence a proposed revised retainer agreement on January 12, 2005. She received the agreement the next day and reviewed it with her longtime accountant, Jay Wallberg (Wallberg)…[Wallberg requested a clarification, to which Graubard agreed.] Lawrence executed the revised retainer agreement on January 19, 2005.
The settlement of the action only months later:
The case settled on May 18, 2005 in the midst of an evidentiary hearing to resolve certain of the outstanding accounting objections raised by Lawrence. This sudden turn of events came about on the heels of a “smoking gun” discovery made by Graubard that Cohn had engaged in egregious self-dealing in connection with the sale of several properties (the so-called “Epps claim”). This “smoking gun” did not exactly drop into Graubard’s lap: the law firm makes the point, which appears to be uncontested, that it had doggedly pursued the Epps claim even though earlier attempts to trace Cohn’s malfeasance had proven fruitless and Lawrence had expressed skepticism about whether this particular claim (not one of the larger accounting objections) was worth continued time and effort.
The genesis of the settlement proposal:
Once the “smoking gun” surfaced, the Cohn estate offered Lawrence and the children over $100 million to dispose of the estate litigation. This figure was about twice what Graubard estimated the remaining claims to be worth; essentially, the “smoking gun” revelation was so damaging that the Cohn estate paid a substantial premium to bring the litigation to a swift and certain conclusion.
The post-settlement litigation over the contingency fee:
The closing under the settlement of the estate litigation took place on July 25, 2005. Soon after, Lawrence discharged Graubard and refused to pay the 40% contingency fee due under the revised retainer agreement (roughly $44 million). On August 5, 2005, Graubard commenced a proceeding in Surrogate’s Court to compel payment of its legal fees. On September 13, 2005, Lawrence countered by filing suit in Supreme Court against Graubard and the attorneys. She sought rescission of the revised retainer agreement, return of all legal fees she had paid Graubard since 1983 and the monies she had given to the attorneys in 1998. Supreme Court directed that this action be removed to Surrogate’s Court; the Surrogate referred both the Graubard and the Lawrence actions to the same Referee who had handled the estate litigation.
The Referee’s report:
After extensive motion and appellate practice and completion of discovery, the Referee heard 15 days of testimony over three months, beginning on October 5, 2009. The only issues remaining to be decided at the evidentiary hearing were the enforceability of the revised retainer agreement and the validity of the gifts to the attorneys. In his report dated August 27, 2010, the Referee concluded that the revised retainer agreement was not procedurally or substantively unconscionable when made, but became substantively unconscionable in hindsight because of its sheer size, disproportion to Graubard’s efforts and the relatively small risk to Graubard. The Referee recommended granting Graubard’s claim seeking an order compelling the Lawrence estate to pay fees under the revised retainer agreement to the extent of ordering payment of $15.8 million.
The Referee reached this figure by computing what Graubard was owed in quantum meruit under a graduated fee structure in which he applied the 40% contingency to an initial portion of the recovery and then reduced the percentage for the additional, unanticipated portion of the award. Thus, he applied 40% to the first $10 million recovery (which Lawrence anticipated), 30% to the less expected next $10 million and 10% to the remaining $91.8 million, which neither Lawrence nor Graubard expected prior to production of the “smoking gun.” Finally, the Referee subtracted from the resulting calculation of $16.1 million the $348,000 Lawrence paid to Graubard for services rendered in the first quarter of 2005.
The Referee further concluded that the attorneys had shown “by strong, convincing and satisfactory proof that the gifts were free from undue influence and that the gift transaction was fully understood by [Lawrence],” and therefore was valid. He identified five factors that underpinned his conclusion; specifically, 1) Lawrence’s handwritten notes, which expressed sincere gratitude and whose authenticity was not challenged; 2) her seven-year delay in challenging the gifts; 3) her history of hiring and firing professionals at will (including Graubard), whenever they displeased her; 4) her election to pay gift taxes on the gifts rather than count them as bonuses; and 5) her aggressive, domineering, “vituperative” personality, which even frightened her adult children.
The subsequent proceedings by the Surrogate:
In a decision dated September 8, 2011, the Surrogate affirmed the Referee’s recommendations with respect to attorneys’ fees; however, she concluded that the gifts to the attorneys should be set aside and the funds returned to the Lawrence estate…In the Surrogate’s view, the attorneys did not satisfy “their burden ‘to show by strong, convincing and satisfactory proof…that the conveyance to [them] was entirely honest, legitimate and free from taint’”…
She emphasized that Lawrence was an octogenarian who had depended on the attorneys for over 16 years to “champion her interests in [the] highly contentious” estate litigation. Since the $400,000 gift to the law firm had clearly “gone against the grain of [Lawrence’s] feelings and judgment,” the Surrogate surmised that “it would take an unwarranted leap of faith to conclude that the multi-million-dollar checks written at about the same time to the lawyers had not likewise been extracted from her by some degree of pressure, whether express or tacit, patent or subtle, from at least one of the [attorneys].” Moreover, there were no neutral witnesses to Chill’s private discussions with Lawrence, the gifts were more generous than other major lifetime gifts bestowed by Lawrence and the attorneys kept the gifts secret from their partners, the Lawrence children and even, in one case, a spouse. This “combination of dubious circumstances…emit[ted] an odor of overreaching too potent to be ignored,” and convinced the Surrogate that the gifts were not voluntarily made.
The decision of the Appellate Division that modified the Surrogate’s order:
[T]he Appellate Division held that the revised retainer agreement was both procedurally and substantively unconscionable. In the court’s view, Graubard failed to show that Lawrence fully knew and understood the terms of the agreement…With respect to substantive unconscionability, the Appellate Division commented that Graubard had “internally assessed the estate’s claims to be worth approximately $47 million so that the contingency fee provision in the revised retainer would have meant a fee of about $19 million. [Accordingly,] it seems highly unlikely that the firm undertook a significant risk of losing a substantial amount of fees as a result of the revised retainer agreement’s contingency provision”…
Additionally, the court considered the sought-after contingency fee to be disproportionate compensation for the number of hours spent by the law firm on the estate litigation after the revised retainer agreement went into effect.
The Appellate Division, however, disagreed with the Referee and the Surrogate about the proper remedy. The court held that “[w]here, as here, there is a preexisting, valid retainer agreement, the proper remedy is to revert to the original agreement”…The Appellate Division therefore remanded for the Surrogate to determine the fees due under the original hourly fee agreement, plus prejudgment interest from the date of the breach.
And the certified question answered on the appeal to the Court of Appeals:
“Was the order of [the Appellate Division], which modified the decree of the Surrogate’s Court and affirmed a previous order of the Surrogate’s Court, properly made?” We now reverse and answer the certified question in the negative.
The Court of Appeals set forth the legal standard for reviewing fee agreements between attorneys and their clients:
Courts “give particular scrutiny to fee arrangements between attorneys and clients,” placing the burden on attorneys to show the retainer agreement is “fair, reasonable, and fully known and understood by their clients”… A revised fee agreement entered into after the attorney has already begun to provide legal services is reviewed with even heightened scrutiny, because a confidential relationship has been established and the opportunity for exploitation of the client is enhanced…As we explained in this case’s earlier trip here, an unconscionable contract is generally defined as “one which is so grossly unreasonable as to be unenforceable according to its literal terms because of an absence of meaningful choice on the part of one of the parties [procedural unconscionability] together with contract terms which are unreasonably favorable to the other party [substantive unconscionability]”…
The parties and the lower courts agree that the percentage of the fee (40%) is not automatically unconscionable. Rather, the Lawrence estate argues that the revised retainer agreement is void procedurally because Lawrence did not fully know and understand its nature, and void substantively because Graubard took no risk in entering into the agreement and $44 million, in hindsight, is disproportionately excessive in light of the work Graubard put into the case.
Found that the fee agreement was not procedurally unconscionable:
To determine whether the agreement is procedurally unconscionable, we must examine the contract formation process for a lack of meaningful choice. The most important factor is whether the client was fully informed upon entering the agreement…Even in the absence of fraud or undue influence, the attorney must show that the client executed the contract with “full knowledge of all the material circumstances known to the attorney…and that the contract was one free from fraud on [the attorney]’s part or misconception on the part of [the client]”…
The hearing evidence demonstrated that Lawrence fully understood the revised retainer agreement, which she herself sought. Lawrence was abreast of the status of the litigation because, as the Referee found, she was involved in every detail of the case. She also sent the proposed agreement to Wallberg, her trusted accountant, who reviewed it, explained it to Lawrence, and even proposed that Graubard clarify the duration of the hourly charges capped at $1.2 million. Graubard made the changes Lawrence requested, and she signed the agreement four days after she received the revised version.
Contrary to the Lawrence estate’s assertions, the mathematical calculations required to understand the 40% contingency fee are not so difficult for a layperson to comprehend, let alone a sophisticated businesswoman. Any doubt about Lawrence’s understanding of the proposed fee was dispelled by Wallberg, the estate’s own witness, who testified that he explained to Lawrence exactly what the 40% contingency fee required of her.
Moreover, the Referee discredited the Lawrence estate’s contention that Chill had a “svengali-like” influence over Lawrence and overcame her will. Given Lawrence’s history of hiring and firing attorneys and other professionals, it is implausible to think that anyone would have been able to force or cajole her to enter into any agreement against her will. There was no evidence to suggest that Lawrence was not fully in command of her faculties when she executed the revised retainer agreement in January 2005.
The Lawrence estate propounds that Graubard did not fully inform Lawrence about the potential “up-sides” of the litigation, and so she did not have “full knowledge of all the material circumstances known to the attorney”…In particular, the estate stresses that Lawrence never saw the undated handwritten worksheet, which set out Graubard’s evaluation of the value of each claim, its likelihood of success and the potential recovery. But this evaluation estimated a $97 million recovery before the Referee dismissed the largest claim on the list, the 95 Wall Street claim, valued at $49.5 million. And conspicuously, the worksheet overly optimistically assigned a 90% chance of recovery to this dismissed claim. This just points out the hazards of predicting outcomes in highly complex litigation.
Although Graubard did not provide this internal document to Lawrence in 2004, Chill informed her when they negotiated the revised retainer agreement that the recovery would probably be at least a few million dollars (enough to cover the capped hourly charges for 2005). Further, the estate’s own expert witness testified that Graubard provided Lawrence a “tremendous amount of detail” concerning the various claims, including their likelihood of success and potential recoveries. As the Referee noted, “before the 2005 modified retainer agreement [Lawrence] had in her possession a lot of the information that [the Lawrence estate’s expert] thinks she should have had at the time of that agreement.”
Of course, in January 2005 neither Graubard nor Lawrence anticipated the size of the eventual recovery. They did not know that there was a “smoking gun” that would change the whole complexion of the estate litigation once it came to light. In sum, Graubard did not hide from Lawrence an anticipated recovery of over $100 million, as was actually achieved.
Found that the contingent fee agreement was not substantively unconscionable:
Agreements that are not unconscionable at inception may become unconscionable in hindsight, if “the amount becomes large enough to be out of all proportion to the value of the professional services rendered”…A close reading of the cases that create this “hindsight” review, however, seem to limit the principle to a more narrow application. Although “[t]he word ‘unconscionable’ has frequently been applied to contracts made by lawyers for what were deemed exorbitant contingent fees,” what is meant is that “the amount of the fee, standing alone and unexplained, may be sufficient to show that an unfair advantage was taken of the client or, in other words, that a legal fraud was perpetrated upon him”…
Absent incompetence, deception or overreaching, contingent fee agreements that are not void at the time of inception should be enforced as written…As we further observed on the prior appeal in this case, “the power to invalidate fee agreements with hindsight should be exercised only with great caution” because it is not “unconscionable for an attorney to recover much more than he or she could possibly have earned at an hourly rate”…In fact,
“the contingency system cannot work if lawyers do not sometimes get very lucrative fees, for that is what makes them willing to take the risk – a risk that often becomes reality – that they will do much work and earn nothing. If courts become too preoccupied with the ratio of fees to hours, contingency fee lawyers may run up hours just to justify their fees, or may lose interest in getting the largest possible recoveries for their clients”…
Whether $44 million is an unreasonably excessive fee depends on a number of factors, primarily the risk to the attorneys and the value of their services in proportion to the overall fee. Here, Graubard undertook significant risk in entering into a contingency fee arrangement with Lawrence. The risk to an attorney in any retainer agreement is that the client may terminate it at any time, “leaving the lawyer no cause of action for breach of contract but only the right to recover on quantum meruit for services previously rendered” (Gair, 6 NY2d at 106). This risk is amplified in the context of a client who frequently fires professionals (including attorneys), as Lawrence had done in the past and threatened to do once again.
Beyond the ever-present risk that Lawrence would lose interest in the case or fire Graubard, the law firm took the very real chance that this decades-long litigation would drag on for several more years (as the Referee also predicted might happen), through a lengthy trial and appeals, with the non-hourly fee as its only compensation for many hours of work. In just the five months after entering into the contingency fee arrangement, Graubard lawyers spent nearly 4,000 hours preparing for the trial in May 2005, the first of the many trials that were envisaged before the case so unexpectedly settled. In sum, Graubard took the risk that its fees would not cover costs over a period of years, and that Lawrence would fire them or lose interest in the case and drop the claims. Especially given a client who frequently castigated and ignored her lawyers, the law firm also risked that Lawrence would reject a settlement agreement that she was advised to accept, or, conversely, accept an offer that Graubard deemed to be unwise.
In addition to Graubard’s risk in entering the revised retainer agreement, we also must consider the proportionality of the value of Graubard’s services to the fee it now seeks. As we stated in the prior appeal, the value of Graubard’s services should not be measured merely by the time it devoted to prosecuting the claims…Rather, the value of Graubard’s services (for the purpose of hindsight analysis) should be the $111 million recovery it obtained for Lawrence.
And continued that:
We agree with Graubard that a hindsight analysis of contingent fee agreements not unconscionable when made is a dangerous business, especially when a determination of unconscionability is made solely on the basis that the size of the fee seems too high to be fair…It is in the nature of a contingency fee that a lawyer, through skill or luck (or some combination thereof), may achieve a very favorable result in short order; conversely, the lawyer may put in many years of work for no or a modest reward. Most cases, of course, fall somewhere in between these two extremes…
Finally, it bears reemphasizing that Lawrence was no naif. She was a competent and shrewd woman who made a business judgment that was reasonable at the time, but which turned out in retrospect to be disadvantageous, or at least less advantageous than it might have been. As a general rule, we enforce clear and complete documents, like the revised retainer agreement, according to their terms…
Could the owner and manager of an apartment building be found liable for negligence where the plaintiff fell off the setback roof of the building? Answer: Summary judgment was precluded because fact finders “could differ as to whether plaintiff’s use of the roof and his resulting fall were foreseeable[.]”
Powers v. 31 E 31 LLC, 2014 NY Slip Op 07084 (decided on October 21, 2014)
The Court of Appeals summarized the facts as follows:
In the early morning hours of August 23, 2008, plaintiff Joseph W. Powers and several others, all of whom had been consuming alcohol, visited a friend’s apartment located on the second floor of a 13-story apartment building in Manhattan. During the visit, the group stepped through a window in the apartment to access the adjacent roof deck. The window opening was 17½ inches wide by 31 inches tall, and the flat roof area was approximately five feet wide and extended the length of the building above the first floor. This setback portion of the roof abutted the exterior wall and railing of a structure behind the apartment building. In one area of the roof there was a 25-foot-deep air shaft situated between the two buildings. There was no railing, fence or parapet wall around the perimeter of the air shaft. The opening of the air shaft measured approximately six feet, four inches by eight feet, five inches.
Plaintiff and the others walked around the setback roof for a few minutes and then re-entered the apartment through the window they had used earlier. After a time, the group realized that plaintiff was no longer with them. They undertook a search and discovered that plaintiff was lying unresponsive at the bottom of the air shaft. Apparently, plaintiff had re-exited the apartment through the window and fallen off the unguarded edge of the setback roof into the air shaft. As a result of this tragic accident, plaintiff sustained debilitating injuries.
Plaintiff’s guardian ad litem sued the building’s owner and its manager and:
…alleged that defendants had created and maintained a dangerous condition and negligently caused his injuries by failing to install a railing, parapet wall or fence around the perimeter of the air shaft. In support of his negligence claim, plaintiff further asserted that the absence of a guardrail violated the Multiple Dwelling Law and New York City Building Code.
After discovery Defendants unsuccessfully sought summary judgment:
…arguing primarily that plaintiff’s accident was unforeseeable and that the 1968 and 2008 New York City Building Codes did not govern the condition of this particular roof because the construction of the apartment building predated those codes [and] [d]efendants’ [made] additional arguments that they could not be held liable on the basis that plaintiff had no memory of the accident and the air shaft was an open and obvious condition…
The Appellate Division reversed, holding that:
[T]he 1979 certificate of occupancy submitted by defendants demonstrated that the building was grandfathered out of the 1968 and 2008 Building Codes and complied with the earlier regulations…The court further concluded that defendants had no duty to mitigate the risk of an accident such as plaintiff’s fall because, “given the nature and location of the setback, it was unforeseeable that individuals would choose to access it”.
The Court of Appeals granted leave to appeal and summarized the issue as follows:
The central issue before us is whether defendants’ summary judgment proof was sufficient to refute plaintiff’s allegations of negligence more particularly, plaintiff’s assertion that the building codes required the erection of a railing or parapet on the setback roof. Defendants argue that the building was exempted from the 1968 and 2008 Building Codes, relying on an exception contained in the code in effect when the building was constructed in 1909. According to defendants, their summary judgment proffers, which consisted primarily of an expert affidavit and a certificate of occupancy issued by the City, established that the 1909 exception applied and that subsequent alterations to the building did not require updated compliance. Alternatively, defendants claim that, even if the 1968 Building Code governs, it does not mandate that the setback roof have a protective guard.
Plaintiff counters that defendants failed to eliminate questions of fact concerning the applicability of the 1909 exception or whether the later conversion of the building to multiple dwelling use obligated defendants to bring the entire building into compliance with the 1968 Building Code. Plaintiff contends that, by granting defendants summary judgment, the Appellate Division assigned too much weight to the certificate of occupancy.
After analyzing the relevant provisions of the Multiple Dwelling Law and the Building Code of the City of New York, the Court of Appeals held that:
As the proponent of summary judgment, defendants bore the burden of “tendering sufficient evidence to demonstrate the absence of any material issues of fact”…Specifically, defendants needed to eliminate any doubt as to whether, under the foregoing regulatory scheme, the absence of a protective guard on the setback roof conformed to code. To that end, defendants should have established that the roof was finished with gutters in 1909 and that the 1979 conversion did not trigger an obligation to bring the entire building, including the unaltered setback roof, into compliance with the 1968 Building Code. In our view, defendants’ proof fell short in both respects.
* * *
In this case, it was defendants’ burden to prove at the outset that the absence of a railing did not violate the building regulations…On this record, defendants have not adequately demonstrated that the roof was finished with gutters in 1909, and the certificate of occupancy is inadequate to establish that the setback roof fully complied with all code mandates on the date of its issuance or 29 years later on the day of plaintiff’s accident…Hence, under the circumstances of this case, issues of fact concerning the roof’s compliance with the building codes remain.
As to whether the accident was foreseeable, the Court of Appeals held that:
It is well settled that, as landowners, defendants have “a duty to exercise reasonable care in maintaining [their] . . . property in a reasonably safe condition under the circumstances”…The existence and scope of this duty is, in the first instance, a legal question for the courts to determine by analyzing the relationship of the parties, whether the plaintiff was within the zone of foreseeable harm, and whether the accident was within the reasonably foreseeable risks…
The focus of our inquiry, therefore, is whether it was foreseeable that defendants’ tenants and their guests would access the setback roof and be exposed to a dangerous condition from the absence of a railing or guard around the air shaft. In Lesocovich, the plaintiff fell off a setback roof while visiting a friend’s apartment and alleged that the fall was due to the absence of a railing or parapet…As here, the setback roof was not an area included in the tenant’s lease, no permission had been obtained for her to use it and the landlord denied prior knowledge of its use. Also, the roof in Lesocovich was similarly accessible only through a window…In that case, we denied the defendant’s summary judgment motion, holding that reasonable minds could disagree as to whether the plaintiff’s use of the roof was foreseeable…
The Court of Appeals reversed the Appellate Division and remanded the matter to the First Department to consider issues raised but not reached on the appeal to that Court.
What deference should a Court pay to an administrative agency’s decision, made for its own enforcement purposes, to construe a statute as prospective only? Answer: Under the facts of this case, no deference was required.
Ramos v. SimplexGrinnell LP, 2014 NY Slip Op 07198 (decided on October 23, 2014)
This action came to the Court of Appeals by a certified question from the Second Circuit. The Court of Appeals summarized the proceedings in federal court:
In this lawsuit, the federal courts have been called on to interpret New York’s “prevailing wage” statute, which requires that certain employees upon “public works” be paid “not less than the prevailing rate of wages” as defined by law (Labor Law § 220 [3] [a]). The statute has been held applicable only to workers employed in construction, maintenance or repair work…The dispute between the parties, to the extent relevant here, is whether workers engaged in the testing and inspection of certain fire protection equipment are covered by the statute. On December 31, 2009, the Department’s Commissioner issued an opinion letter saying that the workers were covered, but that:
“because there has been much confusion in the past about the Departments [sic ] position as to the applicability of the prevailing wage law to this work, this opinion shall be applied prospectively to contracts that are put out for bid after January 1, 2010.”
The Second Circuit held that the Department’s “substantive construction of the statute (as covering testing and inspection work)” is entitled to deference…The court was in doubt, however, as to whether it should defer to the Department’s ruling that its opinion would be applied prospectively only.
The Court of Appeals considered and answered the following question from the Second Circuit:
“What deference, if any, should a court pay to an agency’s decision, made for its own enforcement purposes, to construe section 220 of the [New York Labor Law] prospectively only, when the court is deciding the meaning of that section for a period of time arising before the agency’s decision?”
The position of the New York State Department of Labor:
In its amicus brief in this Court, the Department asserts that no deference is due to it by the courts deciding this litigation. It says that its prospectivity ruling “has no relevance to a private contract action such as this one” and therefore “provides no occasion for deference”…We conclude that this determines our answer to the Second Circuit’s question. We will not give the agency more deference than it is asking for. It is inherent in the very idea of deference to an administrative agency that the agency has determined that its view of the law merits deference.
The opinion includes a unique admonition by the Court of Appeals:
We add a word to make clear the very limited nature of our decision. The agency appears to assume that, while it renounces deference in “private litigation,” it may nevertheless seek deference when the issue is “its own enforcement of Labor Law § 220”… Thus, it seems that in the Department’s view a court that did not defer to the agency in a suit initially brought in court would nevertheless defer in its review of an administrative determination so that cases might come out differently, on identical facts, depending on whether they were originally lawsuits or administrative proceedings. We have no occasion to consider the correctness of this assumption. Obviously, the fact that we will not give an agency more deference than it seeks does not mean that it cannot be given less.
Was certain real property owned by a not-for-profit theater corporation exempt from taxation under the Real Property Tax Law? Answer: Yes.
Matter of Merry-Go-Round Playhouse, Inc. v. Assessor of City of Auburn, 2014 NY Slip Op 07928 (decided on November 18, 2014)
The Court of Appeals framed the question presented: “[W]hether certain real property owned by petitioner Merry-Go-Round Playhouse, a not-for-profit theater corporation, and used to house its staff and summer stock actors, is exempt from taxation under RPTL 420-a.”
The Court set forth the facts as follows:
Merry-Go-Round was initially established in 1958 as the Auburn Children’s Theater and was incorporated as a not-for-profit corporation in 1972. Petitioner currently operates two theaters — a professional summer stock theater that puts on large scale musicals in the City of Auburn, and a year-round youth theater that tours New York State during the academic year, performing about ten different productions for various school districts. According to its articles of incorporation, Merry-Go-Round was formed for the purposes of “augment[ing] the speech and drama training of Auburn area children[;]…present[ing] theater as the showcase for all the arts; . . . conduct[ing] year round programs in the performing arts for children, teenagers and adults” and “any other act or thing incidental to or connected with the foregoing purposes or in advancement thereof.”
In order to hire qualified actors and staff, Merry-Go-Round recruits candidates from around the country. Petitioner has traditionally provided housing for many of its summer actors and staff to help compensate them for their relatively low salaries and the temporary nature of their employment. In the past, the organization had leased apartments for its employees through various local landlords, but as its operation grew, that process became unwieldy.
In 2011, Merry-Go-Round purchased the two apartment buildings at issue — one building is comprised of 14 units and the other of 16 units. The apartments are only for Merry-Go-Round’s actors and staff. They are not open to the public and Merry-Go-Round does not derive any income from the properties. In addition to reducing the burden of obtaining individual housing for each staff member, petitioner maintains that the living arrangement has “aided in cultivating a community among its artists” and that the actors and other staff “spend countless volunteer hours, off-stage and off-the-clock, running lines together, discussing creative ideas, working on wardrobes, creating sets and working in the furtherance of the purposes and mission of Merry-Go-Round.”
The prior proceedings:
Soon after purchasing the properties, petitioner filed applications for real property tax exemptions with respondent assessor. The applications were denied and the denials were upheld by the City of Auburn’s Board of Assessment Review. Petitioner then commenced this RPTL article 7 proceeding for review of its tax assessments.
Supreme Court granted respondents’ motion and denied petitioner’s cross motion for summary judgment, finding that Merry-Go-Round was not entitled to the exemption. The court determined that petitioner had failed to establish both that its summer theater was an exempt purpose under the statute and that the use of the apartment buildings to house its employees was reasonably incidental to its primary purpose.
The Appellate Division reversed and granted the petition insofar as it sought the tax exemptions…The Court found that petitioner was clearly organized exclusively for a tax exempt purpose — showcasing and encouraging appreciation of the performing arts, thereby advancing the education, as well as the moral and mental improvement of, the community. The Court further determined that petitioner had demonstrated that its use of the properties was reasonably incidental to its primary purpose, in that it helped to establish a community among its artists, and that respondents had failed to raise an issue of fact in opposition to defeat summary judgment.
The case was governed by] the Real Property Tax Law, which provides: “[r]eal property owned by a corporation or association organized or conducted exclusively for religious, charitable, hospital, educational, or moral or mental improvement of men, women or children purposes…and used exclusively for carrying out thereupon one or more of such purposes…shall be exempt from taxation as provided in this section.”
The Court of Appeals noted:
Here, it is clear that petitioner is organized exclusively for an exempt purpose, in that it is intended to promote appreciation for the arts/musical theater, thereby providing education to the community and advancing the moral or mental improvement of area residents. The summer stock theater does not have the same educational component as the youth theater, but is similarly geared toward promoting the arts. In addition, although the summer stock theater charges admission, that bare fact cannot nullify petitioner’s tax exempt purpose. We have previously observed that “[a] ‘commercial patina’ alone is not enough to defeat tax-exempt status”…Merry-Go-Round asserts without contradiction that the theater generally either breaks even or operates at a loss. There is no indication that petitioner is organized for the purpose of making a profit and this limited commercial aspect does not preclude it from receiving a tax exemption.
We must then determine whether the property is being used exclusively for an exempt purpose. “The test of entitlement to tax exemption under the used exclusively clause of the statute is whether the particular use is reasonably incidental to the primary or major purpose of the facility. Put differently, the determination of whether the property is used exclusively for the statutory purposes depends upon whether its primary use is in furtherance of the permitted purposes”…
And the legal conclusion:
[H]ere, the primary use of the apartment buildings is in furtherance of Merry-Go-Round’s primary purpose. Petitioner established that the housing is used to attract talent that would otherwise look to other theaters for employment, that the living arrangement fosters a sense of community and that the staff spends a significant portion of its off-hours in furtherance of theater-related pursuits. In addition, similar to the situation presented by St. Luke’s, the record shows that petitioner would have difficulty recruiting qualified staff if it did not provide the housing, which would undermine its primary purpose. Although we have not previously addressed the provision of tax exempt housing in relation to an arts organization, the statute does not elevate one exempt purpose over another. Under these circumstances, the use of the property to provide staff housing is reasonably incidental to petitioner’s primary purpose of encouraging appreciation of the arts through theater. Petitioner has demonstrated that it is entitled to an RPTL 420-a tax exemption and respondent failed to raise a material issue of fact warranting a trial.
On the same day the decision was released in Merry-Go-Around Playhouse, the Court of Appeals, as follows, summarily affirmed the Appellate Division in Matter of Maetreum of Cybele, Magna Mater, Inc. v. McCoy, 2014 NY Slip Op 07929 (November 18, 2014)):
Petitioner, a not-for-profit religious corporation that owns real property in the Town of Catskill, commenced proceedings pursuant to CPLR article 78 and RPTL article 7 after respondent Board of Assessment and Review for the Town refused petitioner’s 2009, 2010 and 2011 applications for tax-exempt status pursuant to RPTL 420-a. Under that provision, real property owned by a corporation that is “organized and conducted exclusively” for charitable and/or religious purposes, if “used exclusively” for such purposes, “shall be exempt from taxation” (RPTL 420-a [1] [a]). We have defined the term “exclusively” as used in this context “to connote ‘principal’ or ‘primary,’ such that purposes and uses merely ‘auxiliary or incidental to the main and exempt purpose’ and use will not defeat the exemption’”…
After a non-jury trial, where petitioner called four witnesses and respondents called none, the trial court dismissed the petitions on the ground that the religious and charitable uses of the subject property were incidental to petitioner’s primary, non-exempt use of providing affordable cooperative housing. The Appellate Division reversed and granted the petitions, holding that the testimony at trial by petitioner’s witnesses demonstrated that petitioner “uses the property primarily for its religious and charitable purposes” and was therefore entitled to a property tax exemption for the years in question…
Is a New York bankruptcy debtor’s interest in her rent-stabilized lease a local public assistance benefit that is exempt from her bankruptcy estate? Answer: Yes.
Matter of Santiago-Monteverde, 2014 NY Slip Op 08051 (decided November 20, 2014)
The United States Court of Appeals for the Second Circuit certified the following question to the New York Court of Appeals: “May a bankruptcy debtor’s interest in her rent-stabilized lease be exempted from her bankruptcy estate pursuant to New York State Debtor and Creditor Law section 282 (2) as a ‘local public assistance benefit?’” The Court of Appeals “[held] that section 282 (2) of the Debtor and Creditor Law (DCL) exempts a debtor-tenant’s interest in a rent-stabilized lease.”
The facts:
The debtor Mary Santiago-Monteverde has lived in her apartment at 199 E. 7th Street in Manhattan for over forty years. The apartment is rent-stabilized. After her husband died in June 2011, Santiago-Monteverde was unable to pay her credit card debts of approximately $23,000 and filed for Chapter 7 bankruptcy. During the pendency of the bankruptcy proceedings, she remained current on her rent obligations. She initially listed her apartment lease on Schedule G of her bankruptcy petition as a standard unexpired lease. Shortly thereafter, the owner of the apartment approached the bankruptcy trustee, respondent John S. Pereira, and offered to buy Santiago-Monteverde’s interest in the lease. When the trustee advised her that he planned to accept the offer, she amended her filing to list the value of her lease on Schedule B as personal property exempt from the bankruptcy estate under DCL § 282 (2) as a “local public assistance benefit.”
The prior proceedings:
The Bankruptcy Court granted the trustee’s motion to strike the claimed exemption on the ground that the value of the lease did not qualify as an exempt “local public assistance benefit”…The court noted that Santiago-Monteverde’s counsel did not dispute “that a rent-stabilized lease is the property of the estate and that the Trustee ‘may assume or reject any executory contract or unexpired lease of the debtor’”… The court reasoned that “the benefit of paying below market rent [ ] is not a ‘public assistance benefit’ that is entitled to any exemption in bankruptcy” and that the benefit “is a quirk of the regulatory scheme in the New York housing market, not an individual entitlement”…
The District Court affirmed the Bankruptcy Court…, holding that “the value in securing a lawful termination of the rent-stabilized lease…is a collateral consequence of the regulatory scheme and not a ‘local public assistance benefit’”…
On appeal to the Second Circuit, Santiago-Monteverde argued that “the lease (or its value) is a ‘local public assistance benefit’ because the value of the lease (in whole or in part) is traceable to the protections afforded to her under the [Rent Stabilization Code]”.
The legal template:
The Bankruptcy Code authorizes a bankruptcy trustee to “assume or reject any…unexpired lease of the debtor”…As was noted by the Second Circuit, there is limited case law from both New York courts and bankruptcy courts holding that a trustee’s authority under section 365 extends to rent-stabilized leases…In this case, the debtor’s counsel acknowledged at the hearing before the Bankruptcy Judge that a rent-stabilized lease is property of the estate and that the Trustee had the power to assume the lease pursuant to section 365…
Section 522 (b) of the Bankruptcy Code permits the debtor to exempt certain property from the bankruptcy estate, and section 522 (d) provides a list of property that may be exempt. However, the Code also permits states to create their own list of exemptions, and New York has done so. DCL § 282 sets forth the permissible exemptions in personal bankruptcy. Debtors domiciled in New York have the option of choosing either the federal exemptions or New York exemptions…, entitled “Bankruptcy exemption for right to receive benefits” lists the following as exemptions:
“The debtor’s right to receive or the debtor’s interest in: (a) a social security benefit, unemployment compensation or a local public assistance benefit; (b) a veterans’ benefit; (c) a disability, illness, or unemployment benefit; (d) alimony, support, or separate maintenance, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor; and (e) all payments under a stock bonus, pension, profit sharing, or similar plan or contract on account of illness, disability, death, age, or length of service…”
The legislative background:
The Legislature has concluded that rent stabilization is necessary to preserve affordable housing for low-income, working poor and middle class residents in New York City. As we said in Manocherian v Lenox Hill Hosp., “[t]he rent stabilization system began in 1969 to ameliorate, over time, the intractable housing emergency in the City of New York” due to a housing shortage which was caused by continued high demand and decreasing supply. We noted in Manocherian that “[b]y regulating rents and providing occupants with statutory rights to tenancy renewals under rent stabilization…the State intended to protect dwellers who could not compete in an overheated rental market, through no fault of their own”.
The New York City Administrative Code provides that the City Council “finds that a serious public emergency continues to exist in the housing of a considerable number of persons within the city of New York,” and that “unless residential rents and evictions continue to be regulated and controlled, disruptive practices and abnormal conditions will produce serious threats to the public health, safety and general welfare”…
The legal analysis:
The rent-stabilization program has all of the characteristics of a local public assistance benefit. It is plainly local in that it depends on periodic determinations by local authorities as to the continuing existence of an emergency in the particular jurisdiction. The program is public as it was enacted by the New York Legislature and implemented by legislative and administrative bodies at both the state and local level. Rent stabilization provides assistance to a specific segment of the population that could not afford to live in New York City without a rent regulatory scheme. And the regulatory framework provides benefits to a targeted group of tenants – it protects them from rent increases, requires owners to offer lease renewals and the right to continued occupancy, imposes strict eviction procedures, and grants succession rights for qualified family members.
The Trustee argues that the benefits of rent-stabilization are unlike the other exemptions listed in DCL § 282 (2), such as social security benefits, unemployment compensation, and alimony, support, or separate maintenance because those exemptions all involve periodic payments, while the rent-stabilization program does not involve payments to tenants. However, that argument ignores the reality of social programs such as food stamps, vouchers, medical care, discounted prescriptions, and the like, that do not involve payments to the recipients of the benefit. While many public assistance benefits are administered through programs that provide periodic cash payments, such payments are not a prerequisite to a benefit being in the nature of public assistance.
* * *
While the rent-stabilization laws do not provide a benefit paid for by the government, they do provide a benefit conferred by the government through regulation aimed at a population that the government deems in need of protection. Among other things, the Rent Stabilization Law caps legal rents. Although the population that benefits from rent-stabilization may not meet the requirements for New York City public housing programs or Section 8 assistance, the government, recognizing that housing protection is necessary to benefit a specific group of tenants, has created a public assistance benefit through a unique regulatory scheme applied to private owners of real property.
And the conclusion of the Court:
Finally, as was recently noted by the United States Supreme Court, exemptions serve the important purpose of protecting the debtor’s essential needs…Affordable housing is an essential need. Mindful that exemption statutes are to be construed liberally in favor of debtors…the certified question should be answered in accordance with this opinion.
Are an out-of-state medical practice and its surgeons subject to personal jurisdiction in New York in connection with a medical malpractice action? Answer: No, under the facts of this case.
Paterno v. Laser Spine Inst., 2014 NY Slip Op 08054 (decided on November 20, 2014)
The Court of Appeals summarized the facts:
In May 2008, plaintiff was suffering from severe back pain. While on the homepage of a well-known internet service provider plaintiff discovered an advertisement for LSI, a surgical facility specializing in spine surgery, with its home facility and principal place of business in Tampa, Florida. Plaintiff clicked on the LSI advertisement, and viewed a 5-minute video presentation of a testimonial from a former LSI patient and professional golfer, extolling LSI’s medical services. The advertisement appeared to hold out the promise of relief for plaintiff’s back problems so he communicated with LSI by telephone and internet to inquire about possible surgical procedures to alleviate his pain.
* * *
After his initial inquiries in May 2008, plaintiff sought a medical assessment of his condition by LSI, and sent to LSI’s Florida facility certain magnetic resonance imaging (MRI) films of his back. LSI then sent plaintiff an e-mail letter, describing preliminary surgical treatment recommendations and orders, based on its doctors’ professional evaluation of the MRI. The letter made clear the recommendations and suggested procedures were not final, and that plaintiff would be “evaluated by [LSI] surgeons upon arrival so therefore these orders will be subject to change by the surgeon while in consultation.”
[Due to] a cancellation, [plaintiff was offered] the open spot and have the surgery performed at a significant discount due to the short notice. LSI offered a June 9, 2008 surgery date.
In preparation for his surgery plaintiff had several additional e-mail contacts with LSI from June 2nd through June 6th. These communications were intended to address registration and payment issues, and to generally facilitate plaintiff’s arrival at LSI’s Florida facility.
* * *
Apart from these administrative matters, plaintiff forwarded to LSI his blood work, which had been completed in New York. He also attempted to schedule a conference call between his New York-based doctor, Dr. Dimatteo, and LSI defendant Dr. Perry. After plaintiff was unable to reach Dr. Perry, an LSI doctor called Dr. Dimatteo the following day and briefly discussed plaintiff’s scheduled surgery.
On June 6th, plaintiff traveled from New York to Tampa, Florida, and on June 9th, he underwent surgery at the LSI facility, performed by defendant LSI surgeon Dr. Kevin Scott. Plaintiff experienced extreme pain following the surgery and complained to LSI staff who advised him that this was due to the procedure and could last for two weeks. Plaintiff underwent a second surgical procedure at LSI on June 11th, this time performed by defendant LSI surgeon Dr. Vernon Morris. He again experienced severe pain after the surgery.
For two weeks following his return to New York on June 12th, plaintiff contacted the LSI physicians on a daily basis to discuss his medical status, and to complain about his post-operative pain. LSI doctors and staff addressed his request for pain medication by calling prescriptions into local pharmacies in plaintiff’s home city, which he then filled.
In mid-July, plaintiff… underwent an MRI, which according to one of his New York-based doctors revealed the same disc herniations the doctor had observed prior to the surgery. In response to plaintiff’s request for consultation with LSI, LSI physicians held a conference call with this New York-based doctor to discuss plaintiff’s condition.
After further telephone and e-mail communications with LSI, and after plaintiff demanded that LSI address his condition, plaintiff returned to Florida on August 6th where he underwent a third surgery, this time performed by defendant LSI surgeon Dr. Craig Wolff. As before, plaintiff was in severe pain following the surgery, and as before only days after the procedure he returned to his home in New York State.
For approximately the next three months, until October 31, 2008, plaintiff claims to have communicated daily with LSI staff via text messages, e-mails and telephone calls. He also spoke directly by telephone with defendant Dr. Wolff, regarding his back pain and headaches. Dr. Wolff discussed ways to alleviate the pain, and ordered an MRI which was performed in New York. Dr. Wolff also spoke by telephone with another of plaintiff’s New York-based doctors concerning plaintiff’s condition. When plaintiff’s condition did not improve, Dr. Wolff told him he could return to LSI for another surgical procedure to address what appeared to be fluid accumulation from a spinal dura leak. LSI offered to fly plaintiff to Florida at LSI’s expense. After several consultations with New York-based doctors, plaintiff underwent another surgery, but this time in New York, performed by a New York-based doctor not connected with LSI.
The proceedings below:
Plaintiff thereafter commenced this medical malpractice action in New York against LSI and several LSI doctors, including the surgeons who operated on him. Defendants moved to dismiss for lack of personal jurisdiction pursuant to CPLR 3111 (a) (8), and Supreme Court granted the motion.
The Appellate Division affirmed in a split decision, concluding that the court lacked personal jurisdiction over LSI and the doctors because they were not transacting business in New York within the meaning of CPLR 302 (a) (1), and there was no personal jurisdiction under CPLR 302 (a) (3) because plaintiff’s injury did not occur in New York. The two dissenting justices concluded that the contacts demonstrated the “purposeful creation of a continuing relationship” sufficient to establish jurisdiction over defendants under CPLR 302 (a)(1).
The arguments of the parties:
Plaintiff argues that New York courts have personal jurisdiction over defendants under CPLR 302 (a) (1), based on their purposeful activity, [and] under CPLR 302 (a) (3) because defendants committed a tortious act outside New York State which caused injury to him within New York.
Defendants argue that their contacts with plaintiff merely responded to his inquiries or constituted followup to the surgical procedures, and do not constitute transacting business in New York State within the meaning of the CPLR so as to confer personal jurisdiction over the defendants. Furthermore, they contend that because plaintiff’s injuries occurred in Florida, his reliance on CPLR 302 (3) as an alternative basis of jurisdiction is without merit. They also argue that plaintiff failed to effectuate proper service of process over all the LSI defendants.
The legal template:
CPLR 302 (a) (1) provides in relevant part:
“(a) Acts which are the basis of jurisdiction. As to a cause of action arising from any of the acts enumerated in this section, a court may exercise personal jurisdiction over any non domiciliary,… who in person or through an agent:
1. transacts any business within the state or contracts anywhere to supply goods or services in the state…”
Whether a non-domiciliary is transacting business within the meaning of 302 (a) (1) is a fact based determination, and requires a finding that the non-domiciliary’s activities were purposeful and established “a substantial relationship between the transaction and the claim asserted”…Purposeful activities are volitional acts by which the non-domiciliary “’avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws’”……More than limited contacts are required for purposeful activities sufficient to establish that the non-domiciliary transacted business in New York…
The lack of an in-state physical presence is not dispositive of the question whether a non-domiciliary is transacting business in New York. For “[w]e have in the past recognized CPLR 302 (a) (1) long-arm jurisdiction over commercial actors using electronic and telephonic means to project themselves into New York to conduct business transactions”.
Regardless of whether by bricks and mortar structures, by conduct of individual actors, or by technological methods that permit business transactions and communications without the physical crossing of borders, a non-domiciliary transacts business when “’on his [or her] own initiative…[the non-domiciliary] project[s] himself [or herself]’ into this state to engage in a ‘sustained and substantial transaction of business’”…Thus, where the non-domiciliary seeks out and initiates contact with New York, solicits business in New York, and establishes a continuing relationship, a non-domiciliary can be said to transact business within the meaning of 302 (a) (1)…
The Court’s legal analysis:
Plaintiff contends that the totality of defendants’ contacts establish that it conducted business in New York through its solicitation and several communications related to LSI’s medical treatment of plaintiff. We disagree. In order to satisfy “’the overriding criterion’ necessary to establish a transaction of business” within the meaning of CPLR 302 (a) (1), a non-domiciliary must commit an act by which it “purposefully avails itself of the privilege of conducting activities within [New York]”…Plaintiff here admits that he was the party who sought out and initiated contact with defendants after viewing LSI’s website. According to plaintiff, that website informed viewers about LSI medical services and its professional staff. However, he has not asserted that it permitted direct interaction for online registration, or that it allowed for online purchase of LSI services…Passive websites, such as the LSI website, which merely impart information without permitting a business transaction, are generally insufficient to establish personal jurisdiction…Thus, as plaintiff concedes, the mere fact that he viewed LSI’s website in New York is insufficient to establish CPLR 302(a)(1) personal jurisdiction over defendants.
Plaintiff argues, however, that LSI did more than just post an online advertisement. He alleges that over months, there were several telephone calls and e-mail communications between plaintiff and LSI representatives, that he sent MRIs and blood work to LSI, and that LSI sent prescriptions to his New York-based pharmacies. To the extent plaintiff argues that by sheer volume of contacts, defendants are subject to personal jurisdiction in New York, we disagree. As we have stated it is not the quantity but the quality of the contacts that matters under our long-arm jurisdiction analysis…
Turning to the content and “quality” of defendants’ contacts with plaintiff, it is apparent that they were responsive in nature, and not the type of interactions that demonstrate the purposeful availment necessary to confer personal jurisdiction over these out-of-state defendants. After plaintiff initially sought out LSI, LSI responded with information designed to assist plaintiff in deciding whether to arrange for LSI medical services in Florida. For example, after plaintiff sent his MRI for evaluation, LSI sent him a letter setting forth a preliminary evaluation and treatment recommendations.
Once plaintiff confirmed his interest, and the June 9, 2008 surgery date was set, he fully engaged with defendants in order to ensure that all pre-surgical matters were completed. Plaintiff filled out and returned the insurance forms and attempted to negotiate payment arrangements; he arranged for his travel and lodging; he completed and sent LSI the necessary registration forms; he ensured that his bloodwork was sent to LSI before his arrival in Florida; and he requested that an LSI doctor speak with his New York-based doctors concerning the impending surgery at the LSI facility. As part of the preparation for plaintiff’s arrival, these communications served the convenience of plaintiff…
And the rationale for affirming the lack of personal jurisdiction:
Plaintiff urges us to consider the contacts between plaintiff and LSI once he returned to New York on June 9th, after the first two Florida surgeries. Our long-arm statute requires that the cause of action arise from the non-domiciliary’s actions that constitute transaction of business. “There must be a substantial relationship between the transaction and the claim asserted”…Here, plaintiff’s claim is based on the June and August surgeries in Florida. Contacts after this date cannot be the basis to establish defendant’s relationship with New York because they do not serve as the basis for the underlying medical malpractice claim…Further, defendants’ contacts with New York at the behest of the plaintiff subsequent to the first two Florida surgeries but before the third cannot be used to demonstrate defendants actively projected themselves into New York…In any event, even considering the defendants’ contacts following the surgeries, they are similar in kind to the pre-surgery contacts and for the same reasons do not constitute the transaction of business required by CPLR 302(a)(1).
It is no longer unusual or difficult, as it may once have been, to travel across state lines in order to obtain health care from an out-of-state provider. It is also not unusual to expect follow up for out-of-state treatment. Given this reality, to find defendants’ conduct here constitutes transacting business within the meaning of CPLR 302 (a) (1), based on contacts before and after the surgeries, would set a precedent for almost limitless jurisdiction over out-of-state medical providers in future cases. We do not interpret the expanse of CPLR 302 (a) (1) to be boundless in application.
* * *
We also reject plaintiff’s alternative basis for personal jurisdiction asserted under CPLR 302 (a) (3). This section provides that New York courts have personal jurisdiction over a non-domiciliary who “commits a tortious act without the state causing injury to person or property within the state” (CPLR 302 [a] [3]). We disagree with plaintiff that the allegations in his complaint establish that his injury occurred in New York. Rather, the situs of the injury in medical malpractice cases is the location of the original event which caused the injury, and not where a party experiences the consequences of such injury…Here, the injury occurred in Tampa, Florida, where plaintiff underwent the surgeries that are the basis for his medical malpractice claim. Therefore, 302(a)(3) cannot be a basis for personal jurisdiction over defendants.
Must a liability insurance carrier give a written notice of disclaimer to the insureds under each of several policies covering a loss? Answer: Yes.
Sierra v. 4401 Sunset Park, LLC, 2014 NY Slip Op 08216 (decided November 24, 2014)
At the outset, the Court of Appeals described the issue presented:
Insurance Law § 3420 (d) (2) requires a liability insurer that disclaims liability to give written notice of the disclaimer “to the insured.” This case involves parties who were insureds under two different policies: they were named insureds under their own policy, and additional insureds under a policy obtained by a contractor they had hired. The contractor’s insurer, seeking to disclaim liability, sent written notice to the insureds’ own carrier, but not to the insureds themselves. We hold that this did not meet the requirement of the statute.
The background:
4401 Sunset Park LLC and Sierra Realty Corp., defendants and third-party plaintiffs in this action, are respectively the owner and managing agent of an apartment building in Brooklyn. They contracted with third-party defendant LM Interiors Contracting, LLC to do renovation work on the building. The contract required LM to maintain liability insurance that named the owner and managing agent as additional insureds, and LM obtained such a policy from third-party defendant Scottsdale Insurance Company. The owner and managing agent also had their own liability insurance policy, issued by Greater New York Mutual Insurance Company (GNY).
On August 18, 2008, plaintiff, Juan Sierra, an LM employee (unrelated to the managing agent, Sierra Realty Corp.), lost a finger in an accident while working on the renovation project. The managing agent learned of the accident that day, but gave no notice of it to either GNY or Scottsdale. More than three months later, on November 30, 2008, plaintiff brought this action seeking damages for personal injuries against the owner and the managing agent, and at this point they notified GNY of the claim. GNY retained a lawyer for its insureds, but neither the insureds nor GNY informed Scottsdale of the injury or the claim until January 6, 2009, when GNY sent the summons and complaint to Scottsdale. In a letter that accompanied the summons and complaint, GNY asked Scottsdale to “respond in writing upon receipt of this letter whether you will defend, indemnify and hold our insured harmless in connection with this lawsuit.” The letter included the name and address of the law firm that GNY had retained to answer the complaint on the insureds’ behalf.
Scottsdale replied to GNY on February 2, 2009, disclaiming liability on various grounds, including the insureds’ failure to comply with their obligation under the policy “to see to it that we are notified as soon as practicable of an ‘occurrence’ which may result in a claim.” Scottsdale did not send its letter to the owner and managing agent (its additional insureds and GNY’s insureds) or to the lawyer representing the insureds in this action.
The prior proceedings:
The owner and managing agent brought third party claims against LM Interiors and Scottsdale asserting, among other things, that Scottsdale was required to provide them with a defense and indemnification. Supreme Court granted summary judgment against Scottsdale on that claim, and the Appellate Division affirmed that portion of Supreme Court’s order…The Appellate Division concluded that Scottsdale had failed to comply with Insurance Law § 3420 (d) (2) because it had not sent its disclaimer notice to its additional insureds…
The governing statute:
If under a liability policy issued or delivered in this state, an insurer shall disclaim liability or deny coverage…it shall give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage to the insured and the injured person or any other claimant (emphasis added).
And the legal analysis and conclusion:
It is undisputed that Scottsdale did not give notice of its disclaimer directly to its additional insureds or to the lawyer who had been retained to represent them. Scottsdale argues that the disclaimer notice it sent to GNY was sufficient to satisfy the statute. We disagree.
GNY was not an insured under Scottsdale’s policy; it was another insurer. While GNY had acted on the insureds’ behalf in sending notice of the claim to Scottsdale, that did not make GNY the insureds’ agent for all purposes, or for the specific purpose that is relevant here: receipt of a notice of disclaimer. GNY’s interests were not necessarily the same as its insureds’ in this litigation. There might have been a coverage dispute between GNY and the insureds, or plaintiff’s claim might have exceeded GNY’’s policy limits. Because the insureds had their own interests at stake, separate from that of GNY, they were entitled to notice delivered to them, or at least to an agent — perhaps their attorney — who owed a duty of loyalty in this matter to them only…
The Court of Appeals also rejected Scottsdale’s argument that the carrier had “substantially complied” with the statute. The Court cautioned that “if [two previous Appellate Division decisions] are read to stand for the general proposition that notice to an additional insured’s liability carrier serves as notice to the additional insured under Section 3420(d)(2), those cases should not be followed.”