Jan 26, 2017

Court of Appeals #12

Court Order

The Court of Appeals started the 2016/2017 Term with the issuance of a far-ranging assortment of decisions addressing the standing of an unmarried partner to seek custody or visitation privileges, in the absence of a biological or adoptive relation to the child; whether the acquisition of a note was champertous; the obligation of a youth hockey association to protect spectators from a post-game assault; whether the intentional and repeated use of New York correspondent bank accounts to launder illegally-obtained funds constituted business activities that brought defendants within the reach of New York’s long-arm jurisdiction and satisfied the Due Process Clause of the United States Constitution; whether an enforceable contract was formed in an auction process in the absence of an executed written sales agreement and the submission of a timely cash deposit; whether a peremptory challenge on the basis of skin color was a ground upon which a prosecutor’s striking of a juror could be impeached; whether a farmer’s negligence in allowing a calf to escape was the proximate cause of an automobile driver’s death; and the burden of proof as to substantial prejudice in respect of an application to file a late notice of claim against a public corporation.

Can an unmarried partner, without a biological or adoptive relation to a child, ever have standing to seek custody or visitation privileges?  Answer:  Yes.

Matter of Brooke S.B. v. Elizabeth A.C.C., 2016 NY Slip Op 05903 (August 30, 2016)

This opinion was delivered in two cases involving similar facts but different results in the lower courts.  In doing so, the Court assessed its earlier ruling in Matter of Alison D. v. Virginia M. (77 NY2d 651 [1991]).  In the first case:

Petitioner and respondent announced their engagement at a time when same-sex couples could not legally marry in New York. They could afford to travel to another jurisdiction to enter into a legal arrangement comparable to marriage, and it was then unclear whether New York would recognize an out-of-state same-sex union.  They jointly decided to have a child. In 2008, respondent became pregnant through artificial insemination. During respondent’s pregnancy, labor and delivery petitioner participated in a parental manner and the couple gave the child petitioner’s last name.  The parties continued to live together with the child and shared all major parental responsibilities. The child referred to petitioner as “Mama B.”  After the parties ended their relationship, respondent permitted petitioner regular visits with the child.  When the child was four years old, however respondent effectively terminated petitioner’s contact with him.

Petitioner commenced a proceeding seeking joint custody of the child and regular visitation. The child’s court-appointed attorney determined that the child’s best interests would be served by allowing regular visitation with petitioner.  Respondent moved to dismiss the petition for lack of standing under Domestic Relations Law § 70 asserting that, in the absence of a biological or adoptive connection to the child, petitioner was not a “parent” within the meaning of the statute. Petitioner and the child’s attorney opposed, countered that, in light of the Marriage Equality Act and other changes in the law, Alison D. should no longer be followed. They asserted that petitioner’s long-standing parental relationship with the child conferred standing to seek custody and visitation under principles of equitable estoppel.  Family Court dismissed the petition.  The attorney for the child appealed.  The Appellate Division unanimously affirmed because Alison D. prohibited Family Court from ruling that petitioner had standing.

In the second case:

Petitioner and respondent had registered as domestic partners and later agreed to have a child. The couple jointly decided that respondent would bear the child and that the donor should share petitioner’s ethnicity. When respondent became pregnant through artificial insemination, the petitioner participated in a parental manner.  The couple agreed that the child should call petitioner “Mama.”  The child resided with the couple in their home and the parties shared parental responsibilities.  After petitioner and respondent ended their relationship, petitioner continued to have contact with the child.

Court involvement in this case began differently:

Respondent commenced a proceeding seeking child support from petitioner.  While the support case was pending, petitioner sought visitation with the child. The court appointed an attorney for the child.  Family Court granted respondent’s child support petition holding that petitioner was “a parent” to the child and, as such, “chargeable with the support of the child.” Petitioner then amended her visitation petition to indicate that she “ha[d] been adjudicated the parent” of the child and therefore was a legal parent for visitation purposes.

When, respondent challenged petitioner’s standing to seek custody or visitation under Domestic Relations Law § 70 as interpreted in Alison D, Family Court concluded that judicial estoppel conferred standing on petitioner to request visitation with the child.  Subsequently, Family Court found that petitioner’s regular visitation and consultation on matters of import with respect to the child would serve the child’s best interests[.]

Family Court’s order was unanimously affirmed by the Appellate Division which determining that, while Domestic Relations law § 70, as interpreted in Alison D., confers standing to seek custody or visitation only on a biological or adoptive parent, Alison D. does not preclude recognition of standing based upon the doctrine of judicial estoppel.  Under that doctrine, the Court found, “a party who assumes a certain position in a prior legal proceeding and secures a favorable judgment therein is precluded from assuming a contrary position in another action simply because his or her interests have changed” which agreed that the requirements of judicial estoppel had been met.

Domestic Relations Law § 70 provides:

Where a minor child is residing within this state, either parent may apply to the supreme court for a writ of habeas corpus to have such minor child brought before such court; and on the return thereof, the court, on due consideration, may award the natural guardianship, charge and custody of such child to either parent for such time, under such regulations and restrictions, and with such provisions and directions, as the case may require, and may at any time thereafter vacate or modify such order. In all cases there shall be no prima facie right to the custody of the child in either parent, but the court shall determine solely what is for the best interest of the child, and what will best promote its welfare and happiness, and make award accordingly.

In matter of Alison D. v. Virginia M. the Court of Appeals held that, in an unmarried couple, a partner without a biological or adoptive relationship to a child was not the child’s parent for purposes of standing to seek custody or visitation under Domestic Relations Law § 70.  The Court was required to decide whether the rule established in Alison D. should bind the Court in the subject cases, noting that:

As a result, in the 25 years since Alison D. was decided, this Court has gone to great lengths to escape the inequitable results dictated by a needlessly narrow interpretation of the term “parent.” Now, we find ourselves in a legal landscape wherein a non-biological, non-adoptive “parent” may be estopped from disclaiming parentage and made to pay child support in a filiation proceeding…yet denied standing to seek custody or visitation…By creating a disparity in the support and custody contexts, Alison D. has created an inconsistency in the rights and obligations attendant to parenthood. Moreover, Alison D.’s foundational premise of heterosexual parenting and nonrecognition of same-sex couples is unsustainable, particularly in light of the enactment of same-sex marriage in New York State, and the United States Supreme Court’s [2015] holding in Obergefell v Hodges…which noted that the right to marry provides benefits not only for same-sex couples, but also the children being raised by those couples.

The Court further noted:

Under the current legal framework, which emphasizes biology, it is impossible—without marriage or adoption—for both former partners of a same-sex couple to have standing, as only one can be biologically related to the child…By contrast, where both partners in a heterosexual couple are biologically related to the child, both former partners will have standing regardless of marriage or adoption. It is this context that informs the Court’s determination of a proper test for standing that ensures equality for same-sex parents and provides the opportunity for their children to have the love and support of two committed parents.

The Supreme Court has emphasized the stigma suffered by the “hundreds of thousands of children [who] are presently being raised by [same-sex] couples”…By “fixing biology as the key to visitation rights”…the rule of Alison D. has inflicted disproportionate hardship on the growing number of nontraditional families across our state. At the time Alison D. was decided, estimates suggested that “more than 15.5 million children [did] not live with two biological parents, and that as many as 8 to 10 million children are born into families with a gay or lesbian parent”…Demographic changes in the past 25 years have further transformed the elusive concept of the “average American family”…recent census statistics reflect the large number of same-sex couples residing in New York, and that many of New York’s same-sex couples are raising children who are related to only one partner by birth or adoption[.]

While the Court declined to establish a single test for all situations it ruled:

Petitioners in the two cases before us have alleged that the parties entered into a pre-conception agreement to conceive and raise a child as co-parents.  We hold that these allegations, if proven by clear and convincing evidence, are sufficient to establish standing.

…determining that, while Domestic Relations Law § 70, as interpreted in Alison D., confers standing to seek custody or visitation only on a biological or adoptive parent, Alison D. does not preclude recognition of standing based upon the doctrine of judicial estoppel. Under that doctrine, the Court found, “a party who assumes a certain position in a prior legal proceeding and secures a favorable judgment therein is precluded from assuming a contrary position in another action simply because his or her interests have changed”[.]

Was the acquisition of two notes champertous as a matter of law; and, if so, did the acquisition fall within the statutory safe harbor provision?  Answer by a divided court:  acquisition of the notes was champertous and was not entitled to the protection of the safe harbor provision.

Justinian Capital SPC v. WestLB AG, 2016 NY Slip Op 07047 (October 27, 2016)

Judiciary Law §489 prohibits the purchase of notes, securities or other instruments or claims with the intent or for the primary purpose of bringing a lawsuit.  Section 489 also contains a safe harbor provision which makes the champerty doctrine inapplicable when the notes or other securities are acquired for an aggregate purchase price of $500,000 or more.

Pursuant to a sale and purchase agreement DPAG assigned the notes to Plaintiff for a base purchase price of $1,000,000.  The assignment, however, was not contingent on payment of the purchase price. Nor did failure to pay constitute an Event of Default or even a breach of the agreement. The only consequences of the failure to pay by the selected due date were accrual of interest and a diminution of plaintiff’s share of any proceeds recovered from the lawsuit.  Plaintiff had not paid any portion of the $1,000,000 base purchase price and payment had not been demanded.

Plaintiff acquired the notes days before the lawsuit was commenced.  The suit was filed shortly before the expiration of the statute of limitations.  The complaint alleged causes of action sounding in breach of contract, fraud, breach of fiduciary duty, negligence, negligent misrepresentation, and breach of the covenants of good faith and fair dealing in connection with the original purchase of the notes.  Defendant moved to dismiss on the grounds of champerty.  Supreme Court ordered discovery limited to that issue.  The court treated the renewed motion to dismiss as one for summary judgment and dismissed the complaint on the ground that the note purchase agreement was champertous.  The Appellate Division affirmed adopting the grounds used by Supreme Court.

The legal template:

In a prominent early champerty case, Moses v McDivitt (88 NY 62, 65 [1882]), we concluded that the language “with the intent and for the purpose” contained in a predecessor champerty statute — language which Judiciary Law § 489 (1) has retained — was significant. We determined that simply intending to bring a lawsuit on a purchased security is not champerty, but when the purchase of a security was “made for the very purpose of bringing such suit” that is champerty because “this implies an exclusion of any other purpose”…Therefore, we held that “[t]o constitute the offense [of champerty] the primary purpose of the purchase must be to enable [one] to bring a suit, and the intent to bring a suit must not be merely incidental and contingent”…The primary purpose test articulated in Moses has been echoed in our courts for well over a century[.]

Chief Judge DiFiore and four other judges noted:

Here, the impetus for the assignment of the Notes to Justinian was DPAG’s desire to sue WestLB for causing the Notes’ decline in value and not be named as the plaintiff in the lawsuit. Justinian’s business plan, in turn, was acquiring investments that suffered major losses in order to sue on them, and it did so here within days after it was assigned the Notes. Contrary to the suggestion by the dissent, there was no evidence, even following completion of champerty-related discovery, that Justinian’s acquisition of the Notes was for any purpose other than the lawsuit it commenced almost immediately after acquiring the Notes[.]

Judge Fiore summarized the safe harbor provision:

The legislative explanation of the safe harbor’s purpose further supports our reading. New York has long been a leading commercial center, and our statutes and jurisprudence have, over many years, greatly enhanced New York’s leadership as the center of commercial litigation. The safe harbor was enacted to exempt large-scale commercial transactions in New York’s debt-trading markets from the champerty statute in order to facilitate the fluidity of transactions in these markets…The participants in commercial transactions and the debt markets are sophisticated investors who structure complex transactions. Requiring that an actual payment of at least $500,000 have been made for these transactions to fall within the safe harbor would be overly restrictive and hinder the legislative goal of market fluidity. The phrase “purchase price” in section 489 (2) is better understood as requiring a binding and bona fide obligation to pay $500,000 or more for notes or other securities, which is satisfied by actual payment of at least $500,000 or the transfer of financial value worth at least $500,000 in exchange for the notes or other securities. Such understanding conforms with the realities of these markets in which payment obligations may be structured in various forms, whether by exchange of funds, forgiveness of a debt, a promissory note, or transfer of other collateral. We emphasize that we find no problem with parties structuring their agreements to meet the safe harbor’s requirements, so long as the $500,000 threshold is met, as set forth above.

However…“[u]nquestionably, if the obligation to pay [at least $500,000] [i]s entirely contingent on a successful outcome in [the] litigation, it [does] not constitute a binding and bona fide debt”…The legislative history reveals that a purchase price of at least $500,000 was selected because the Legislature took comfort that buyers of claims would “not invest large sums of money” to pursue litigation unless the buyers believed in the value of their investments…This comfort is lost when a purchaser of notes or other securities structures an agreement to make payment of the purchase price contingent on a successful recovery in the lawsuit; such an arrangement permits purchasers to receive the protection of the safe harbor without bearing any risk or having any “skin in the game,” as the Legislature intended. The Legislature intended that those who benefit from the protections of the safe harbor have a binding and bona fide obligation to pay a purchase price of at least $500,000, irrespective of the outcome of the lawsuit.

The five judge majority concluded that:

That [binding obligation to pay] is precisely what is lacking here. The record establishes, and we conclude as a matter of law, that the $1,000,000 base purchase price listed in the Agreement was not a binding and bona fide obligation to pay the purchase price other than from the proceeds of the lawsuit. The Agreement was structured so that Justinian did not have to pay the purchase price unless the lawsuit was successful, in litigation or in settlement. The due date listed for the purchase price was artificial because failure to pay the purchase price by this date did not constitute a default or a breach of the Agreement. The Agreement permitted Justinian to exercise the option to let the due date pass without consequence and simply deduct the $1,000,000 (plus interest) from its share of any proceeds from the lawsuit.

In sum, we hold that because the Notes were acquired for the sole purpose of bringing litigation, the acquisition was champertous. Further, because Justinian did not pay the purchase price or have a binding and bona fide obligation to pay the purchase price of the Notes independent of the successful outcome of the lawsuit, Justinian is not entitled to the protection of the safe harbor. In essence, the Agreement at issue here was a sham transaction between the owner of a claim which did not want to bring it (DPAG) and an undercapitalized assignee which did not want to assume the $500,000 risk required to qualify for the safe harbor protection of section 489 (2) (Justinian).

Judge Stein, joined by Judge Pigott, filed a lengthy dissenting opinion in which he asserted that “resolution of the questions of whether the transaction was champertous and, if so, whether the parties’ contract included a bona fide obligation for plaintiff to pay $1 million for the notes, such that the safe harbor provision would apply, requires a factfinder to ascertain the parties’ intent, a determination that is inappropriate on a motion for summary judgment.”  Judge Stein quoted a 2000 decision of the Court which held that “Judiciary Law § 489 requires that the acquisition be made with the intent and for the purpose (as contrasted to a purpose) of bringing an action or proceeding.”  [Emphasis in original].

Did a youth hockey association have a duty to protect spectators from a post-game assault?  Answer:  No, because the assault was not a reasonably-foreseeable result of any failure to take preventive measures.

Pink v. Rome Youth Hockey Assn., Inc., 2016 NY Slip Op 06946 (October 25, 2016)

Defendant Rome Youth Hockey Association (“RYHA”), a non-profit community sports organization, rented a local arena owned by the City of Rome to host a tournament for 13-year-old players. Approximately 50-75 spectators attended the game between Rome and Whitestown. Both teams were part of USA Hockey, the national governing organization.  During the game, several on-ice fights broke out between the players; the Whitestown coach was ejected for throwing an object onto the ice; and spectators engaged in yelling and name calling.

No physical altercation occurred in the stands during the game. Afterwards, two female spectators got into a fight in the stands.  Several others, including plaintiff Raymond Pink, stepped in to break up the fight.  The brother of one of the spectators involved in the fight struck Pink causing him to sustain a head injury.  Ricci and the two female spectators pled guilty.

Pink sued RYHA, the City of Rome, Ricci, and others involved in the melee.  He alleged that RYHA owed a duty to protect him from criminal assault.  Plaintiff’s verified bill of particulars alleged that RYHA was negligent in failing to enforce the USA Hockey’s “Zero-Tolerance” policy by failing to remove spectators from the game for use of vulgar language.

RYHA moved for summary judgment arguing that it did not have a duty to protect plaintiff from a random assault where there was no history of physical confrontation. Supreme Court denied the motion noting that the crux of plaintiff’s claim was that the tensions between the spectators essentially put defendant on notice of the need to enforce the Zero-Tolerance policy.

The Appellate Division, with one Justice dissenting, affirmed as to RYHA because issues of fact existed as to whether defendant’s duty to plaintiff included the duty to protect him from his assailant’s conduct; and, given the hostile environment in the arena before the fight, as to whether defendant should have known of the likelihood of the fight.

The Court discussed the applicable law:

“[T]he definition of the existence and scope of an alleged tortfeasor’s duty is usually a legal, policy-laden declaration reserved for Judges”…With respect to landowners and leaseholders, there is a “duty to control the conduct of third persons on their premises when they have the opportunity to control such persons and are reasonably aware of the need for such control”…That duty includes “minimiz[ing] foreseeable dangers on their property” including “foreseeable criminal conduct”[.]

We have recognized, however, “foreseeability and duty are not identical concepts”…”Foreseeability merely determines the scope of the duty once the duty is determined to exist”…Accordingly, the scope of a duty “is defined by past experience and the ‘likelihood of conduct on the part of third persons . . . which is likely to endanger the safety of the visitor’”…and “is limited to risks of harm that are reasonably foreseeable”[.]

And held that:

[RYHA] was entitled to summary judgment. On this record, the criminal assault on plaintiff was not a reasonably foreseeable result of any failure to take preventive measures. While defendant owed a duty to protect spectators from foreseeable criminal conduct, the scope of that duty is defined by the likelihood that the aggressive behavior would lead to a criminal assault. Defendant took measures to address player and spectator conduct. The behavior of the fans, however inappropriate, certainly did not create the risk that failure to eject any specific spectator would result in a criminal assault, particularly since such an assault had never happened before[.]

The Court rejected the plaintiff’s reliance on the Zero-Tolerance policy because a violation of internal organization rules in and of itself cannot serve as basis for tort liability where the internal policy exceeds the standard of ordinary care.

Did defendants’ business activities bring them within the reach of New York’s long-arm statute and satisfy due process under the U.S. Constitution?  Answer:  Yes, based upon defendants’ intentional and repeated use of New York correspondent bank accounts to launder their customers’ illegally-obtained funds.

Rushaid v. Pictet & Cie, 2016 NY Slip Op 07834 (November 22, 2016)

The Court of Appeals summarized the parties and the lawsuit:

Plaintiff Rasheed Al Rushaid is a Saudi resident and co-owner of plaintiff Al Rushaid Petroleum Investment Corporation (ARPIC), a company organized under the laws of Saudi Arabia and the owner of another Saudi company, plaintiff Al Rushaid Parker Drilling, Ltd. (ARPD). Defendants are Pictet & Cie (Pictet), a private bank with its principal place of business in Geneva, Switzerland, one of Pictet’s officers and Pictet’s eight general partners.  Plaintiffs sued defendants in New York state court for allegedly concealing ill-gotten money from a scheme orchestrated by three of plaintiffs’ employees.

The facts as alleged in the complaint:

  • That [ARPD] contracted to build six oil rigs for Saudi Arabia’s national oil company. Unbeknownst to the plaintiffs, three ARPD employees responsible for procuring services and vendors for the project breached their fiduciary responsibilities by accepting bribes and kickbacks from certain vendors, in exchange for purchasing products at inflated prices and ignoring deficiencies in the vendors’ services.
  • That defendants played a central role in the employees’ scheme by knowingly laundering and concealing the bribes and kickbacks for approximately four years.
  • That “the corrupted employees needed the help of a willing banker”, a role fulfilled by defendants Pictet and the officer defendant.
  • That Pictet orchestrated the laundering of funds from the vendors who wired bribes in favor of “Pictet and Co. Bankers Geneva” to Pictet’s New York correspondent bank account which were then credited by Pictet to the Geneva-based account of an offshore “bogus” company — TSJ Engineering Consulting Co., Ltd. (TSJ) in the British Virgin Islands – and the money was later divided up and transferred to the employees’ individual accounts.

Plaintiffs alleged that the defendants “valued their cozy business relationship with the allegedly corrupted employees more than they valued proper banking procedures or ensuring that it complied with its own financial responsibilities.”

Plaintiffs sought over $350 million in damages for harm allegedly incurred as a result of the bribery/kickback scheme; and plaintiffs allege that defendants aided and abetted their employees’ breach of fiduciary duty and were part of a civil conspiracy with their employees:

Defendants successfully moved to dismiss the amended complaint for lack of personal jurisdiction.  CPLR 302 (a)(1) provides, in relevant part, “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…transacts any business within the state…”

Plaintiffs submitted copies of documents tracing wire transfers from the vendors to Pictet’s five New York correspondent accounts, invoices directing payment to Pictet’s Citibank account in New York, “credit advice” documents reflecting payment to that same account, and routing documents tracing transfers again through that same New York account. Similar documents evidenced receipts from and transfers to various other Pictet accounts in New York.  In sum, the documents represented numerous transfers, 15 of which were to/from Citibank, New York and totaled over $4 million.

Supreme Court concluded that use of the correspondent accounts was passive, not purposeful.  The Appellate Division affirmed on the ground that “defendants merely carried out their clients’ instructions and did not ‘purposefully avail [themselves] of the privilege of conducting activities in New York’”.

The Court of Appeals, however, concluded that:

[D]efendants’ use of the correspondent bank accounts was purposeful and that plaintiffs’ aiding and abetting and conspiracy claims arise from these transactions. [And] that the requirements of CPLR 302 (a)(1) are satisfied where the quantity and quality of contacts establish a “course of dealing” with New York, and the transaction and claim are not “merely coincidental”[.]

Noting that:

The CPLR 302 (a)(1) jurisdictional inquiry is twofold: under the first prong the defendant must have conducted sufficient activities to have transacted business in state, and under the second prong, the claims must arise from the transactions.  Thus, “jurisdiction is proper even though the defendant never enters New York, so long as the defendant’s activities here were purposeful and there is a substantial relationship between the transaction and the claim asserted”[.]

The Court has explained that “[p]urposeful activities are those with which a defendant through volitional acts, avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws”…Determining “‘purposeful availment’ is an objective inquiry, [which] always requires a court to closely examine the defendant’s contacts for their quality”[.]

Assuming the truth of the facts alleged in the amended complaint, the Court of Appeals held that:

“The amended complaint asserts that Pictet maintained a relationship with New York banks and marketed “business relations in New York” on its website. Specifically, the Citibank, New York account was used to wire the bribes to a Pictet account in Geneva, after which point, the money was divided up and distributed amongst the “corrupted employees” by deposit to their individual Pictet accounts [and that the officer] knew the large sums of money being wired were proceeds of an illegal scheme but never questioned them, and continued to aid and abet the fraud. In opposition to the motion to dismiss, plaintiffs submitted copies documenting 15 wire transfers to Citibank in favor of TSJ, from 2006-2008, which reveal the movement of millions of dollars from the vendors to the employees. Similar transactions were documented from several other of Pictet’s New York correspondent accounts.

“After the vendors sent the money to Citibank, Pictet did not ignore or reject the funds. Rather, Pictet credited the funds in that correspondent bank account to TSJ, an essential step in the money-laundering scheme. Citibank and the other banks held funds for Pictet, then Pictet credited them to the TSJ account, and next distributed the funds to the employee accounts. It is of no moment that the employees “directed the vendors” to deposit the money in the New York accounts because what matters is defendants’ banking activity with the correspondent accounts, here, that the money deposited in New York was credited to the Pictet accounts in accordance with Pictet’s money-laundering. As described in the complaint, the employees accessed the funds in those accounts after Pictet credited the transfer from its New York correspondent account.”

The Court of Appeals further noted that:

“[T]he jurisdictional inquiry at the first prong requires a close examination of defendant’s contacts…If those contacts are enough, the fact that others may also have contact with the correspondent bank is not dispositive. The facts here illustrate the point because the complaint alleges that defendants orchestrated the money laundering and that the New York account was integral to the scheme. It is precisely the fact that defendants chose New York, when other jurisdictions were available, that makes the New York connection “volitional” and not “coincidental.” The focus of the jurisdictional analysis is the foreign bank’s conduct vis-a-vis the correspondent bank, meaning how it uses the correspondent accounts — not whether some other bank could have been used instead.”

*     *     *

Defendants’ correspondent banking activity is sufficient to establish a purposeful course of dealing, constituting the transaction of business in New York under CPLR 302 (a)(1).

Moving on, the Court of Appeals stated that:

To satisfy the second prong of CPLR 302 (a)(1) that the cause of action arise from the contacts with New York, there must be an “‘articulable nexus’” or ‘substantial relationship’ between the business transaction and the claim asserted”…This inquiry is “relatively permissive”…and does not require causation, but merely “a relatedness between the transaction and the legal claim such that the latter is not completely unmoored from the former, regardless of the ultimate merits of the claim”…The claim need only be “in some way arguably connected to the transaction”[.]

It then held that:

The allegations in the complaint easily satisfy this nexus requirement. Plaintiffs allege that defendants aided and abetted in the employees’ breach of their fiduciary duty to the plaintiffs, and defendants further conspired with each other and the employees by acting in concert to breach fiduciary duties, defraud plaintiffs, and convert plaintiffs’ property. These claims depend on the assertions that defendants established the banking structure in New York and Geneva through which they orchestrated the money laundering part of the bribery/kickback scheme. Defendants served as the employees’ bankers, without whom the employees could not launder and conceal millions in kickbacks and bribes…[T]he complaint alleges that Pictet and defendants effected the transfers of money to the New York correspondent bank as part of the money-laundering scheme that put the bribes/kickbacks in the hands of the employees.  Those allegations are enough to show the minimum level of relatedness to the Citibank transactions.

Turning to due process under the U.S. Constitution, the Court of Appeals stated that:

Exercise of personal jurisdiction under the long-arm statute must comport with federal constitutional due process requirements…It is well established that a nondomiciliary must have “certain minimum contacts with [the forum] such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice”[.]

The Court finally held:

The “minimum contacts” test “has come to rest on whether a defendant’s conduct and connection with the forum State are such that it should reasonably anticipate being hauled into court there”…Such minimum contacts exist where a defendant “purposefully avails itself of the privilege of conducting activities within the forum State”…Here, defendants’ maintenance and repeated use of a New York correspondent bank account “to achieve the wrong complained of in this suit satisfies the minimum contacts component of the due process inquiry”[.]

Whether personal jurisdiction offends “notions of fair play and substantial justice” depends on a consideration of “the burden on the defendant, the forum State’s interest in adjudicating the dispute, the plaintiff’s interest in obtaining convenient and effective relief, the interstate judicial system’s interest in obtaining the most efficient resolution of controversies, and the shared interest of the several States in furthering fundamental substantive social policies”…Here, while the parties are foreign nationals, the burden of litigation in New York is reduced by “modern communication and transportation”…Furthermore, the complaint implicates the fraudulent use of New York’s banking system, an issue of great importance to the State, and New York courts provide the plaintiffs a greater possibility of relief. On balance, and considering all the remaining factors, the maintenance of suit here does not ”offend traditional notions of fair play and substantial justice.”

Stonehill Capital Mgt., LLC v. Bank of the West, 2016 NY Slip Op 08481 (December 20, 2016)

Bank of the West (“BOTW”) retained co-defendant Mission Capital Advisors, LLC (“Mission”) to manage a competitive online sealed-bid auction of several non-performing mortgage loans. As part of the bid process, Mission issued an Offering Memorandum which announced its solicitation of indicative bids for the purchase of the loans, and invited non-contingent final offers. The auction portfolio included a syndicated loan known to the parties as the “Goett Loan”, which was the underlying subject of the parties’ dispute.  In the description of the “Loan Sale Process,” the Memorandum informed interested parties that:

“[a]fter receipt of the indicative bids, Mission, in conjunction with the Seller, will select Final Bidders to complete final due diligence before submitting non-contingent offers on the Final Bid Date (the acceptance of which by Seller will require immediate execution of pre-negotiated Asset Sale Agreement(s) by Prospective Bidder accompanied by a 10% non-refundable wire funds deposit).”

The Memorandum also included the following disclaimer: “The seller reserves the right, at their sole and absolute discretion, to withdraw any or all of the assets from the loan sale, at any time.”

Stonehill expressed an interest in the Goett Loan and Mission sent a proposed “Loan Sale Agreement” [the “LSA”].  Stonehill submitted to Mission a $2,363,142 final bid on the Goett Loan. The same day, by separate correspondence, Stonehill informed Mission that the LSA was not the proper document to effectuate a syndicated loan transfer, and offered to “either make the minor modifications required to that document to account for the agent’s approval process, etc, or use an LSTA syndicated loan document, whichever the seller prefers.”

Mission notified Stonehill by telephone that it had submitted the winning bid for the Goett Loan. Three days later Stonehill sent Mission a modified version of the proposed LSA, containing the necessary technical changes that would enable the LSA to effectuate the sale and assignment of the Goett syndicated loan. Mission’s representative replied with skepticism about the extent of the proposed changes.

Mission emailed Stonehill a few days later:

“Subject to mutual execution of an acceptable [LSA], [BOTW] has agreed to the Stonehill bid of:

Mixed Portfolio – $8,787,141 UPB

Purchase Price – $2,363,142

As discussed, counsel representing [BOTW] will be sending you an executable [LSA] by Tuesday, May 1st. An executed signature page and 10% non-refundable deposit is expected no later than 2:00 pm EDT on Wednesday, May 2nd.”

The email also included wiring instructions for the deposit and closing.

That same day, April 27, BOTW’s counsel sent Stonehill an email explaining that he was previously unaware that the Goett Loan was syndicated and that he “prefer[red] to use LSTA documentation for syndicated credits.” He pushed for an early May closing on the loan transfer because “[m]ost trade agents won’t approve trades at the end of the month” and said that he would send the trade agreements the following week.

BOTW’s counsel and Stonehill worked on the documents past the May 1 deadline.

Stonehill informed BOTW’s counsel that it was forwarding the Credit Agreement Transfer Forms to Wells Fargo, the Credit Agreement agent, and this was a necessary step to complete and record the transfer of the Goett Loan to Stonehill.  Stonehill informed BOTW’s counsel when Wells Fargo approved the Credit Transfer Forms. and sent him a standard allonge form for the promissory note on the Goett Loan issued to BOTW.  And, around this time, BOTW learned that Stonehill was refinancing the Goett Loan which would increase the value of the loan.

On May 14, Stonehill contacted BOTW’s counsel for an update.  On May 16, Mission informed Stonehill by telephone that BOTW would not proceed with the trade. Over a week later, on May 25, Mission forwarded to Stonehill a May 18 email from BOTW to Mission declaring that it would not sell to Stonehill:

“[BOTW] will not proceed with this trade because it has no obligation to do so. There are no agreements (oral or written) between [BOTW] and Stonehill Capital. The Offering Memorandum specifically permits [BOTW] to withdraw any loan from the auction at any time. Specifically, it states ‘The Seller reserve[s] the right, at their sole and absolute discretion, to withdraw any or all of the assets from the loan sale, at any time.’ In addition, Mission Capital’s bid response e-mail to Stonehill conditioned [BOTW’s] response upon the execution of a definitive loan sale agreement.”

Due to the refinancing and the cancellation of the sale to Stonehill, on June 21 BOTW received $4,197,441 on the Goett Loan, or approximately $1.8 million over Stonehill’s bid.

Stonehill sued BOTW and Mission for breach of contract, breach of the implied covenant of good faith and fair dealing, indemnification and unjust enrichment.

Supreme Court denied BOTW’s motion to dismiss and cross-motion for summary judgment; and granted Stonehill’s motion for summary judgment on the breach of contract cause of action. Supreme Court held that, because the purchase and sale agreement was pre-negotiated, BOTW’s acceptance of Stonehill’s bid created a binding contract. BOTW appealed and the Appellate Division reversed, dismissing the complaint as against BOTW because Stonehill had failed to establish a valid acceptance.

The Court summarized the applicable law as to breach of contract:

To establish a prima facie breach of contract, Stonehill must show that BOTW breached a binding agreement between the parties, which damaged Stonehill…To form a binding contract there must be a “meeting of the minds”…such that there is “a manifestation of mutual assent sufficiently definite to assure that the parties are truly in agreement with respect to all material terms”[.]  In determining whether the parties intended to enter a contract, and the nature of the contract’s material terms, we look to the “objective manifestations of the intent of the parties as gathered by their expressed words and deeds”…”[D]isproportionate emphasis is not to be put on any single act, phrase or other expression, but, instead on the totality of all of these, given the attendant circumstances, the situation of the parties, and the objectives they were striving to attain”…With respect to auctions, the general rule is that a seller’s acceptance of an auction bid forms a binding contract, unless the bid is contingent on future conduct…While an auction can be conditional, meaning property can be withdrawn after the close of bidding, it will not be deemed conditional absent explicit terms[.]

And the formation of contract analysis:

The totality of the parties’ conduct and the “objective manifestations” of their intent is evidenced by BOTW’s inclusion of pre-negotiated auction terms in the Offering Memorandum, BOTW’s acceptance of Stonehill’s bid in correspondence that communicated the terms of the purchase and the date and instructions for the closing, the email exchanges between BOTW’s counsel and Stonehill which indicated the sale was moving ahead and included references to documents necessary for closing the transaction, and BOTW’s utter failure to identify or explain any objections to the LSTA form prior to the May 18th correspondence announcing its withdrawal from the sale. This established the parties’ intent to enter a binding agreement in which BOTW would sell the Goett Loan to Stonehill at the accepted final price.

The Court rejected the claim that preconditions to contract were never fulfilled:

“[I]f the parties to an agreement do not intend it to be binding upon them until it is reduced to writing and signed by both of them, they are not bound and may not be held liable until it has been written out and signed”…Certainly, “when a party gives forthright, reasonable signals that it means to be bound only by a written agreement, courts should not frustrate that intent”[.]

Such a forthright, reasonable signal is not obvious from the mere inclusion in an auction bid form of such formulaic language that the parties are “subject to” some future act or event. Less ambiguous and more certain language is necessary to remove any doubt of the parties’ intent not to be bound absent a writing[.]

We disagree with BOTW that the “subject to” language in the April 27th email clearly expresses an intent not to be bound to the sale of the Goett Loan. This email stated that closure of the transaction required execution of a signed document and Stonehill’s tender of the 10% deposit.

That, however, is not the same as a clear expression that the parties were not bound to consummate the sale and that BOTW could withdraw at any time, for any reason. Nor did BOTW make known its desire for an unrestricted exit from the deal before accepting Stonehill’s bid or anytime before it withdrew from the transaction.

This was never made explicit before the bid was accepted either. There is a difference between conditions precedent to performance and those prefatory to the formation of a binding agreement[.]

*     *     *

Here, the signed writing and deposit were post-agreement requirements necessary for the consummation of the transfer, as established by the continued exchange of documents necessary to the asset transfer. To adopt BOTW’s argument would mean that the auction was neither final nor binding—in direct contravention of the auction sale terms and the usual manner in which reserve auctions proceed.

*     *     *

Furthermore, there is no indication that these events were an actual obstacle to the sale. BOTW proffered no evidence to suggest that Stonehill refused to enter a signed agreement or to submit the deposit. Quite the opposite. Stonehill was responsive to all of BOTW’s requests for documentation, expressed its eagerness to close the deal, took necessary steps to achieve that end (including securing approval of the Credit Agreement from Wells Fargo), and never implied its inability or unwillingness to turn over the deposit.

BOTW’s withdrawal was not without consequences for Stonehill, which suffered losses totaling over $1.8 million, reflecting the difference between the refinanced Discounted Payoff proceeds on account of the loan received by BOTW ($4,197,441) and the accepted bid sale price ($2,363,142). In other words, BOTW’s breach of contract resulted in Stonehill not being able to realize the increased valuation of the Goett Loan.

Concluding that:

We conclude therefore that Stonehill met its prima facie burden on summary judgment by showing that BOTW accepted Stonehill’s bid to purchase the Goett Loan and the parties entered a binding agreement to complete the sale, BOTW breached that agreement, and the breach caused Stonehill to suffer monetary damages. Moreover, Stonehill asserted — and BOTW did not dispute — that Stonehill was ready, willing and able to close.

In response, BOTW failed to establish the existence of material issues of fact. This is not a case where the parties’ intentions present a question of fact that prevents summary judgment…Here the “totality of the parties’ conduct,” and the objective manifestations of the parties’ intent as evidenced by their expressed words and deeds, establishes as a matter of law the existence of the agreement. In addition to the acceptance, the correspondence, and the LSTA form exchange, the clear objective of both parties upon the acceptance of the offer was to sell the Goett Loan to Stonehill for the bid amount. While that objective remained unchanged for Stonehill, BOTW reconsidered the sale — not because of the failure to execute a written agreement or because Stonehill had not tendered the 10% deposit, but because BOTW concluded it would make more money by reneging on the sale. That choice was a breach of its agreement with Stonehill.

People v. Bridgeforth, 2016 NY Slip Op 08586 (December 22, 2016)

Is skin color of a prospective juror a classification upon which a prosecutor’s use of a peremptory challenge may be based?  Answer:  No.  Discrimination on the basis of skin color is a ground upon which a prosecutor’s striking of a juror may be challenged.

In this case, the criminal defendant’s conviction was vacated and a new trial was ordered because the trial court committed reversible error by not seating the juror in question.  The Court of Appeals summarized the facts:

Defendant, a dark-complexioned African-American male, along with several other individuals, was involved in a robbery in Queens. As a result, defendant was charged with one count of robbery in the first degree and two counts of robbery in the second degree. During voir dire, the prosecutor used peremptory challenges to exclude a number of potential jurors. One of those jurors, the subject of this appeal, was a dark-complexioned Indian-American woman. Defense counsel lodged a Batson challenge as to five of the prosecutor’s peremptory strikes, stating: “The district attorney has now perempted all the female black women and I don’t believe that there are valid reasons other than their race and their gender that they have been challenged.” Defense counsel specified that she was referring to “[t]he black or dark-colored [women],” noting that “the Guyanese women [were] included in that” group. The People responded “Well, Judge, we are either going to do Guyanese or African American, can’t do black or skin color, Judge. But I have reasons for everybody.”

*     *     *

The prosecutor, however, immediately proceeded to supply reasons for four of the excluded potential jurors. When it came to the juror at issue, the prosecutor stated: “I’m trying to remember why I got rid of her,” but ultimately failed to provide a reason for striking her participation on the jury. Defense counsel again noted her objection, and in response to the trial judge’s prompting to give specific reasons for why the People’s explanations were pretexts, defense counsel stated that the woman “did not indicate that there was any reason why she would not be fair and impartial.” The prosecutor replied that whether the potential juror would be fair and impartial is not the relevant inquiry, but rather whether there was a non-discriminatory reason for perempting the juror. The court agreed with the prosecutor on the requisite inquiry and then proceeded to seat one of the other black female jurors included in the group of black or dark-colored women the prosecutor perempted. The juror at issue here, however, was ultimately not seated.

And the law:

[Batson v. Kentucky (476 US 79) [1986]] provides the framework under which courts analyze challenges to peremptory strikes of potential jurors based on alleged discrimination. The Supreme Court of the United States held that “the Equal Protection Clause [of the Fourteenth Amendment] forbids [a] prosecutor to challenge potential jurors solely on account of their race”…Batson’s application has been extended to discrimination on the basis of sex…and ethnicity…Batson outlines a three-step protocol to be applied when a defendant challenges the use of peremptory strikes during voir dire to exclude potential jurors for pretextual reasons. At Step 1, the movant must make a prima facie showing that the peremptory strike was used to discriminate; at Step 2, if that showing is made, the burden shifts to the opposing party to articulate a non-discriminatory reason for striking the juror; and finally, at Step 3, the trial court must determine, based on the arguments presented by the parties, whether the proffered reason for the peremptory strike was pretextual and whether the movant has shown purposeful discrimination[.]

The question presented:

We have adopted Batson under the State Constitution and prohibit discrimination against prospective jurors by either the People or the defense “on the basis of race, gender or any other status that implicates equal protection concerns”…In this appeal, we are asked to decide whether skin color is a “status that implicates equal protection concerns”[.]

The Equal Protection Clause:

“No person shall be denied the equal protection of the laws of this state or any subdivision thereof. No person shall, because of race, color, creed or religion be subjected to any discrimination in his or her civil rights by any other person or by any firm, corporation, or institution, or by the state or any agency or subdivision of the state”…The separation of “race” and “color” in the Clause indicates that “color” is a distinct classification from “race.” Similarly, section 13 of the Civil Rights Law, which prohibits disqualification of a State citizen from jury service on the basis of certain personal characteristics, lists “race” and “color” as distinct classes. Specifically, this provision states that “[n]o citizen of the state possessing all other qualifications which are or may be required or prescribed by law, shall be disqualified to serve as a grand or petit juror in any court of this state on account of race, creed, color, national origin or sex”… These provisions indicate that “color” is a separate and distinct classification from “race.” It follows, then, that color has been recognized as a category upon which discriminatory practices have been based, including exclusion from jury service.

And the State Constitution:

Our State Constitution and Civil Rights Law plainly acknowledge that color is a “status that implicates equal protection concerns”…and therefore a Batson challenge may be based on color. Discrimination on the basis of one’s skin color — or colorism — has been well researched and analyzed, demonstrating that “not all colors (or tones) are equal”…Persons with similar skin tones are often perceived to be of a certain race and discriminated against as a result, even if they are of a different race or ethnicity. That is why color must be distinguished from race. Today, we acknowledge color as a classification separate from race for Batson purposes, as it has already been acknowledged by our State Constitution and Civil Rights Law. Making this distinction is necessary to serve the purpose of Batson, which recognized that discrimination in the selection of jurors violates “a defendant’s right to equal protection because it denies him [or her] the protection that a trial by jury is intended to secure”…Where individuals are excluded from jury service on the basis of their skin color, the defendant is denied the right to a trial by a jury of his or her peers, which is meant to reflect the community in which the defendant lives[.]

Concluding that:

We therefore extend the application of Batson to challenges based on color to ensure that the jury is not used as a tool to accomplish such discrimination.

Did defendant farm establish entitlement to summary judgment by demonstrating the absence of a material question of fact as to whether its alleged negligence of allowing a calf to escape was the proximate cause of decedent’s death?  Answer:  Defendant failed to meet its burden as the movant and proximate cause was a question of fact:

Hain v. Jamison, 2016 NY Slip Op 08583 (December 22, 2016)

Plaintiff’s wife was struck and killed by a vehicle while walking in the northbound lane of a rural road late one evening. Plaintiff alleged that, at the time of the collision, his wife was assisting a calf that was loose in the roadway. The calf, owned by the Farm, had escaped its nearby enclosure.

The Farm moved for summary judgment arguing that allowing the calf to escape or failing to retrieve it did not constitute a proximate cause of decedent’s death. Rather, the Farm argued, decedent’s act of exiting her vehicle and entering the roadway in an attempt to assist the calf, and the other driver’s negligence in operating her vehicle, were the only proximate causes of decedent’s death.

According to the driver’s deposition testimony, she was traveling north shortly after 10:00 p.m., slowed her vehicle to maneuver a curve and, as she came around the bend, saw “very bright” headlights from a vehicle pulled over on the southbound side of the road.  The driver saw decedent in the road milliseconds before hitting her and the calf.

The calf involved in the accident had been born earlier that day.  The Farm’s owner did not learn of the calf’s escape until his stepdaughter alerted him at approximately 10:00 p.m.  She had, in turn, just learned that the calf was loose when another relative telephoned to relay that, approximately 30 to 45 minutes earlier, a neighbor had seen the calf loose next to the road.  The farmer immediately left his home to look for the calf, at which point he came upon the accident.

Proof offered in opposition to the Farm’s motion indicated that the fence surrounding the Farm was in poor condition and that, on prior occasions, cows had escaped and wandered near and into the roadway.  The Farm’s owner asserted that the fence was intact at the time of the accident.

The Decisions by Supreme Court and the Appellate Division:

Supreme Court denied the Farm’s motion, holding that it could not conclude, as a matter of law, that decedent’s conduct in exiting her vehicle was sufficiently extraordinary and unforeseeable to break the chain of causation. Upon the Farm’s appeal, the Appellate Division…reversed, granted the Farm’s motion, and dismissed the complaint and cross claims as asserted against it…The majority held that the Farm had established that its alleged negligence in allowing the calf to escape was not a proximate cause of decedent’s death, reasoning that the Farm’s negligence merely furnished the occasion for, but did not cause, decedent to enter the roadway, where she was struck by the Jamison vehicle.

The Court set forth the applicable law as follows:

It is well settled that “[e]vidence of negligence is not enough by itself to establish liability,” for it also must be proven that the negligence was a proximate, or legal, cause of the event that produced the harm sustained by the plaintiff…We have previously observed that “[t]he concept of proximate cause . . . has proven to be an elusive one, incapable of being precisely defined to cover all situations”…This is because the determination of proximate cause involves, among other things, policy-laden considerations; that is, the chain of causation must have an endpoint in order “to place manageable limits upon the liability that flows from negligent conduct”[.]

The overarching principle governing determinations of proximate cause is that a “defendant’s negligence qualifies as a proximate cause where it is ‘a substantial cause of the events which produced the injury’”…Typically, the question of whether a particular act of negligence is a substantial cause of the plaintiff’s injuries is one to be made by the fact-finder, as such a determination turns upon questions of foresee-ability and “‘what is foreseeable and what is normal may be the subject of varying inferences’”[.]

When a question of proximate cause involves an intervening act, “‘liability turns upon whether the intervening act is a normal or foreseeable consequence of the situation created by the defendant’s negligence’”…Thus, “[w]here the acts of a third person intervene between the defendant’s conduct and the plaintiff’s injury, the causal connection is not automatically severed”…Rather, “[t]he mere fact that other persons share some responsibility for plaintiff’s harm does not absolve defendant from liability because ‘there may be more than one proximate cause of an injury’”…It is “[o]nly where ‘the intervening act is extraordinary under the circumstances, not foreseeable in the normal course of events, or independent of or far removed from the defendant’s conduct,’ [that it] may…possibly ‘break the causal nexus’”…To state the inverse of this rule, liability subsists ”[w]hen…the intervening act is a natural and foreseeable consequence of a circumstance created by defendant”[.]

Although foresee-ability and proximate cause are generally questions for the fact-finder, there are instances in which proximate cause can be determined as a matter of law because “only one conclusion may be drawn from the established facts”…Such cases may arise when the plaintiff’s injuries are caused by “independent intervening acts which operate upon but do not flow from the original negligence”…Stated differently, proximate cause will be found lacking where the original negligent act merely “furnished the occasion for” — but did not cause — “an unrelated act to cause injuries not ordinarily anticipated”[.]

In applying the law, the Court held:

While the foregoing rules may be easily stated, they are not so handily applied. The line between those intervening acts which sever the chain of causation and those which do not cannot be drawn with precision. Proximate cause is, at its core, a uniquely fact-specific determination …and “[d]epending upon the nature of the case, a variety of factors may be relevant in assessing legal cause”…Such factors include, among other things: the foreseeability of the event resulting in injury; the passage of time between the originally negligent act and the intervening act; the spatial gap, if any, between the original act and the intervening act; whether the original act of negligence was a completed occurrence or was ongoing at the time of the intervening act; whether and, if so, what other forces combined to bring about the harm; as well as public policy considerations regarding the scope of liability…The relevance of each factor will vary depending upon the factual circumstances presented, but the most significant inquiry in the proximate cause analysis is often that of foreseeability. Thus, where the risk of harm created by a defendant’s conduct corresponds to that which actually results — absent an extraordinary intervening act or significant facts weighing in favor of attenuation — it cannot be said, as a matter of law, that a defendant’s negligence merely furnished the occasion for the harm…Under such circumstances, the determination of proximate cause is best left for the fact-finder.

Was it an abuse of discretion to deny petitioner’s motion for leave to serve a late notice of claim?  Answer:  Yes, where the Court determines, in the absence of any record evidence to support such determination, that a respondent will be substantially prejudiced in its defense by a late notice of claim without requiring the respondent to sustain the burden of proof.

Matter of Newcomb v. Middle Country Cent. Sch. Dist., 2016 NY Slip Op 08581 (December 22, 2016)

The Court summarized the legal template:

Pursuant to General Municipal Law § 50-e (1) (a), a party seeking to sue a public corporation, which includes a school district, must serve a notice of claim on the prospective defendant “within ninety days after the claim arises.”  [The law] permits a court, in its discretion, to extend the time for a petitioner to serve a notice of claim. The statute requires the court to consider whether the public corporation “acquired actual knowledge of the essential facts constituting the claim within [90 days after the accrual of the claim] or within a reasonable time thereafter”…Additionally, the statute requires the court to consider “all other relevant facts and circumstances” and provides a “nonexhaustive list of factors that the court should weigh”.  One factor the court must consider is “whether the delay in serving the notice of claim substantially prejudiced the public corporation in maintaining its defense on the merits”[.]

The facts of the case:

While attempting to cross an intersection Petitioner’s 16-year-old son was hit by a car and sustained devastating injuries.  The driver fled the scene but was subsequently arrested. Within days, petitioner reported details of the accident, including the location and the nature of his son’s injuries, to his son’s high school, which is located within respondent Middle Country School District.  Petitioner’s counsel was unable to obtain the accident file until the police investigation of the hit-and-run driver was closed.  Instead, petitioner had his own investigator photograph the accident site and timely served notices of claim on the State, town, and county.

Six months after the accident, petitioner’s counsel finally received the police file.  The photographs in the file revealed that, at the time of the accident, there was a large sign at the corner of the intersection where petitioner’s son was struck. This sign had been removed after the accident, and it did not appear in the photographs taken by petitioner’s investigator.  The lettering on the sign was illegible, even with magnification. Petitioner’s counsel received enlarged photographs, which revealed that the sign advertised a play at another high school located within the School District, in November 2013.  Later that month, some five months after the 90-day statutory period had expired, petitioner served a notice of claim on the School District. The notice alleged that the School District’s sign “obstruct[ed] the view of the corner and pedestrians thereupon,” “creat[ed] a distraction for drivers,” “obstruct[ed] the view of drivers upon the roadway,” and “creat[ed] a dangerous and hazardous condition.” Petitioner simultaneously filed an order to show cause for leave to serve a late notice of claim or to deem the notice timely served nunc pro tunc.

While the Courts examined the other factors, the crux of the Court’s decision related to substantial prejudice.  In its motion:

[P]etitioner argued that the School District was not substantially prejudiced by the late notice for several reasons. These included that the School District or its agents had placed the sign at the intersection and subsequently removed it during the 90-day statutory period; that the School District knew about the accident within a few days of its occurrence because petitioner had notified his son’s high school; that the School District had access to the police report and photographs from the police file that would permit the School District to reconstruct the scene and to interview witnesses; and that, except for removal of the sign by the School District, the accident scene was unchanged, and could be inspected and investigated by the School District.

In response:

The School District did not rebut petitioner’s showing of lack of substantial prejudice other than to argue that petitioner bore the burden of establishing such lack of prejudice and had failed to do so. Additionally, the School District argued that, when a notice of claim is not served within 90 days or a reasonable time thereafter, the court should infer that the passage of time has created substantial prejudice due to fading witness memories.

In his reply, Petitioner noted that the School District had failed to submit evidence of how it would be substantially prejudiced by the late notice. Petitioner also disputed the Schjool District’s argument about an inference of substantial prejudice.

The Court ruled:

With respect to…substantial prejudice, Supreme Court placed the burden on petitioner to demonstrate that the School District was not substantially prejudiced by the delay in service. The court concluded that the matriculation and graduation of students in the interim, as well as personnel changes, “presumably hinder[ed]” the School District’s ability to collect information about the sign. Additionally, Supreme Court reasoned that prejudice could be “inferred” because “the mere passage of time creates prejudice with respect to fading memories of witnesses.” Thus, Supreme Court held that the School District was substantially prejudiced by the late notice.

The Appellate Division affirmed holding that petitioner had failed to demonstrate that the late notice “would not substantially prejudice the School District’s ability to defend against the claim”.

The Court’s legal analysis:

[A] court’s decision to grant or deny a motion to serve a late notice of claim is “purely a discretionary one”…The lower courts have broad discretion to evaluate the factors set forth in [the law]. At the same time, a lower court’s determinations must be supported by record evidence…Here, there was support in the record for the lower courts’ determinations regarding factors one through three — that there was no nexus between petitioner’s son’s infancy and the delay, that there was a reasonable excuse for the delay, and that the School District did not have actual knowledge of the essential facts constituting the claim within the 90-day statutory period or a reasonable time thereafter.

The same cannot be said for the lower courts’ determinations concerning substantial prejudice. In examining whether the School District would be substantially prejudiced in its defense by the late notice, Supreme Court presumed that the matriculation and graduation of students and personnel changes hindered the School District’s ability to gather information. This argument, however, was not made by the School District and there was no record evidence to support it. Additionally, Supreme Court inferred that the passage of time would prejudice the School District because of fading memories of potential witnesses. The Appellate Division adopted these determinations without discussion.

While this Court has previously instructed that lack of actual knowledge and lengthy delays are “important factor[s] in determining whether the defendant is substantially prejudiced”…mere inferences cannot support a finding of substantial prejudice where, as here, there is no record evidence to support them. We hold that a finding that a public corporation is substantially prejudiced by a late notice of claim cannot be based solely on speculation and inference; rather, a determination of substantial prejudice must be based on evidence in the record.

In another context, we have held that “the mere passage of time normally will not constitute substantial prejudice in the absence of some showing of actual injury”…Although changes in personnel and the fading memories of witnesses may, in fact, be “prejudicial,” a court must consider whether record evidence indicates that substantial prejudice does in fact exist. Providing proof of substantial prejudice on the record is qualitatively and quantitatively different from a mere inference of prejudice. Generic arguments and inferences will not establish “substantial prejudice” in the absence of facts in the record to support such a finding.

The Court addressed a split among the Departments of the Appellate Division:

There is a split in Appellate Division authority regarding which party has the burden of proof to demonstrate that a late notice of claim substantially prejudices the public corporation. While there are decisions in all four departments that place the burden on the petitioner to show a lack of substantial prejudice, there are also decisions in all four departments that either place the burden on the public corporation or shift the burden to the corporation after the petitioner has made an initial showing of a lack of prejudice.

We hold that the burden initially rests on the petitioner to show that the late notice will not substantially prejudice the public corporation. Such a showing need not be extensive, but the petitioner must present some evidence or plausible argument that supports a finding of no substantial prejudice.

Here, for example, the petitioner argued, among other things, that the photographs from the police file, which documented the size and placement of the sign, would permit the School District to reconstruct the conditions on the date of the incident. Once this initial showing has been made, the public corporation must respond with a particularized evidentiary showing that the corporation will be substantially prejudiced if the late notice is allowed. Here, the lower courts applied the incorrect legal standard by placing the burden solely on petitioner to establish lack of substantial prejudice and by failing to consider whether petitioner’s initial showing shifted the burden to the School District. Moreover, even if the lower courts had applied the proper standard, speculation and inference do not satisfy the requirement of a particularized showing of substantial prejudice by the School District.

Plainly, a determination of “substantial prejudice” does not occur in a vacuum…Nonetheless, whether the public corporation is substantially prejudiced remains a separate inquiry under the statute…Indeed, there may be scenarios where, despite a finding that the public corporation lacked actual knowledge during the statutory period or a reasonable time thereafter, the public corporation nonetheless is not substantially prejudiced by the late notice[.]

Concluding that:

The rule we endorse today — requiring a petitioner to make an initial showing that the public corporation will not be substantially prejudiced and then requiring the public corporation to rebut that showing with particularized evidence — strikes a fair balance. We recognize that a petitioner seeking to excuse the failure to timely comply with the notice requirement should have the initial burden to show that the public corporation will not be substantially prejudiced by the delay. The public corporation, however, is in the best position to know and demonstrate whether it has been substantially prejudiced by the late notice…Requiring the public corporation to come forward with a particularized showing is appropriate in this context given that the public corporation is in the best position to provide evidence as to whether the late notice has substantially prejudiced its ability to defend the claim on the merits.

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