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Multi-million Dollar Legal Malpractice Action Stemming from Commercial Mortgage-Backed Securities Dismissed

The Court of Appeals, in an extensive opinion by Judge Rivera, determined a multi-million dollar malpractice action should have been dismissed. The law firm, Cadwalader, was hired by the plaintiff, Nomura, in connection with Nomura’s commercial mortgage-backed securities investments. Cadwalader’s role was to advise and confirm that Nomura’s securitized commercial mortgage loans qualified as real estate mortgage investment conduit (REMIC) trusts. When a hospital which had been deemed REMIC-qualified by Cadwalader went bankrupt and defaulted on its loan, Nomura settled with the trustee for $67.5 million. Nomura then sued Cadwalader. The opinion is fact-specific and cannot be fairly summarized here. Based upon the facts and the evidence, the Court of Appeals determined Cadwalader demonstrated it had done what it was hired to do, and had exercised due diligence in fulfilling its limited obligations. Nomura failed to raise a question of fact to the contrary. Nomura, the court found, was seeking to impose duties upon Cadwalader which it had expressly reserved to itself. Nomura Asset Capital Corp. v Cadwalader, Wickersham & Taft LLP, 2015 NY Slip Op 07693, CtApp 10-22-15

 

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Securities Did Not Pass Outside the Estate, Requirements of Transfer on Death Security Registration Act (TODSRA) Not Me

The First Department, in a full-fledged opinion by Justice Gische, over a concurring opinion arguing the matter had already been determined by Surrogate’s Court, determined a letter sent by decedent to Merrill Lynch did not meet the requirements of the Transfer on Death Security Registration Act (TODSRA) such that the securities account passed to the beneficiary outside the estate:

In order to take advantage of New York’s [TODSRA] law, certain categories of owners may request that a security be registered in beneficiary form (EPTL 13-4.2). The institution holding the securities account, however, is not required to either offer or accept a request to register a security in beneficiary form (EPTL 13-4.8). It is only if the owner requests that a security be held in beneficiary form and the entity holding the security accepts the designation, that an enforceable contractual relationship is created between the owner and that registering entity, requiring the registering entity to act in accordance with the designation (EPTL 13-4.9). Under TODSRA, the registering entity has the sole right to establish the terms and conditions under which it will receive and implement requests to register securities in beneficiary form (EPTL 13-4.10), and TODSRA statutorily mandates that the registering entity have certain protections in the process (EPTL 13-4.8).

A registering entity is not the owner of the security, but rather the person or entity that originates or transfers title to a security by registration, which includes a broker such as defendant (EPTL 13-4.1[i]). Thus, under the statute, it is perfectly clear that a unilateral action by an owner of a securities account to designate a beneficiary in the event of death is not by itself sufficient. Arroyo-Graulau v Merrill Lynch Pierce, Fenner & Smith, Inc., 2015 NY Slip Op 07774, 1st Dept 10-22-15

 

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Under the Unique Circumstances of this Case, the Neglect Adjudication Should Have Been Vacated Upon Compliance with the Conditions of the Suspended Judgment

The Second Department determined, under the unique circumstances of this case, Family Court should have vacated its neglect adjudication after the parent complied with the conditions of the suspended judgment. The neglect was apparently based upon lead levels:

Although facts sufficient to sustain the petitions were established, neglect petitions may nevertheless be dismissed if “the court concludes that its aid is not required on the record before it” (Family Ct Act § 1051[c]). Under the discrete circumstances of this case, the Family Court properly directed dismissal of the petitions after the expiration of the six-month suspended judgment period, as the aid of the court was no longer required. However, the court should have also exercised its discretion by directing that, upon the dismissal of the petitions, the adjudication of neglect shall be vacated (see Family Ct Act § 1061). As a general rule, a parent’s compliance with the terms and conditions of a suspended judgment does not eradicate the prior neglect finding (see Merril Sobie, Practice Commentaries, McKinney’s Cons Laws of NY, Book 29A, Family Ct Act § 1053 at 57). Here, however, there are a number of factors warranting the vacatur of the neglect findings. The parents’ underlying conduct was aberrational in nature, the lead condition at the family home has been abated, the children’s blood lead levels after the six-month suspended judgment period were within acceptable ranges, the parents fully complied with the conditions of the suspended judgment, there is no risk that the circumstances of lead exposure will recur, and there is no likelihood that these circumstances will warrant further judicial proceedings (see Family Ct Act § 1051[c]…). Accordingly, the Supreme Court should have directed that, upon the dismissal of the petitions, the adjudication of neglect shall be vacated. Matter of Anoushka G. (Cyntra M.), 2015 NY Slip Op 07658, 2nd Dept 10-21-15

 

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Former Parking Enforcement Officer Entitled to Hearing Re: Whether Town Abolished Her Civil Service Position in Bad Faith

The Second Department determined petitioner was entitled to a hearing re: whether the town acted in bad faith in abolishing her position as a parking enforcement officer. Just prior to her termination, the town hired four parking enforcement officers who were not required to take the civil service examination:

In light of NY Constitution, article V, § 6, a public employer may abolish a civil service position when the “discontinuance of the position would promote efficiency and economy,” provided that the employer acts in good faith … . The Court of Appeals has stated that “[a] public employer may abolish civil service positions for the purpose of economy or efficiency, as long as the position is not abolished as a subterfuge to avoid statutory protection afforded civil servants before they are discharged'” … . Where a public employer has abolished a civil service position, an employee challenging that determination has the burden of proving that the employer engaged in a bad faith effort to circumvent the Civil Service Law … .

Here, it is undisputed that four new part-time parking enforcement officers were hired in 2011; one of those employees was hired in October 2011, only a month before the petitioner was informed that her position would likely be abolished. Further, the Town and Town Board submitted no evidence as to whether the decision to abolish the petitioner’s position was made by Town Board resolution, or by some other means. Pursuant to the doctrine of legislative equivalency, a civil service position “created by a legislative act can only be abolished by a correlative legislative act” … . Here, the record does not indicate the specific mechanism by which the petitioner’s position was abolished. Additionally, although the Town submitted some evidence showing that it undertook various cost-cutting measures in connection with its 2012 budget, the record contains no evidence as to any legislative or other deliberations underlying the determination at issue here. Matter of Colabella v Town of Eastchester, 2015 NY Slip Op 07656, 2nd Dept 10-21-15

 

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Inadequate Pain and Suffering Damages Verdict Properly Set Aside

The Second Department determined the jury’s pain and suffering damages award in a slip and fall case was against the weight of the evidence and Supreme Court properly set the damages verdict aside:

After a trial on the issue of damages, the jury awarded the plaintiff the sum of $20,000 for past pain and suffering and $0 for future pain and suffering. The trial court correctly granted the plaintiff’s motion pursuant to CPLR 4404(a) to set aside the jury verdict on the issue of damages, as that verdict was contrary to the weight of the evidence. The jury’s determination that the plaintiff was not entitled to damages for future pain and suffering was inconsistent with the evidence that her shoulder injury was permanent in nature … . The award for past pain and suffering was also contrary to the weight of the evidence, as it could not have been reached on any fair interpretation of the evidence … . Santana v Western Beef Retail, Inc., 2015 NY Slip Op 07639, 2nd Dept 10-21-15

 

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School District Failed to Demonstrate It Did Not Have Actual or Constructive Notice of Student’s Potential to Harm Other Students

The Second Department, over a dissent, determined the school district’s motion for summary judgment was properly denied. The district failed to demonstrate it did not have actual or constructive notice of a student’s potential for harming other students:

“Schools are under a duty to adequately supervise the students in their charge and they will be held liable for foreseeable injuries proximately related to the absence of adequate supervision” … . “An injury caused by the impulsive, unanticipated act of a fellow student ordinarily will not give rise to a finding of negligence absent proof of prior conduct that would have put a reasonable person on notice to protect against the injury-causing act” … .

* * * [The school district’s] submissions failed to eliminate all triable issues of fact as to whether the School District had actual or constructive notice of the fellow student’s potential for causing harm, and whether, under the circumstances, the School District provided adequate supervision during the field trip … . Lennon v Cornwall Cent. School Dist., 2015 NY Slip Op 07628,, 2nd Dept 10-21-15

 

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Forum Selection and Time Limitation Clauses in Cruise Ship Ticket Enforceable

The Second Department, reversing Supreme Court, determined that the forum selection and time limitation clauses in a “Carnival” cruise ship ticket were enforceable. The passenger’s personal injury complaint was dismissed:

A contractual forum selection clause contained in a cruise passenger ticket is generally enforceable as long as it has been reasonably communicated to the passenger and does not violate notions of fundamental fairness, and the submission thereof constitutes documentary evidence that may provide a proper basis for dismissal of an action pursuant to CPLR 3211(a)(1) … . Here, Carnival’s submissions established that the plaintiffs’ contract of carriage included a clause requiring that any disputes between the parties “shall be litigated, if at all, before the United States District Court for the Southern District of Florida in Miami, or as to those lawsuits to which the Federal Courts of the United States lack subject matter jurisdiction, before a court located in Miami-Dade County, Florida, U.S.A. to the exclusion of the Courts of any other county, state or country.” Furthermore, the contract provided that an action to recover damages for personal injuries “shall not be maintainable unless filed within one year after the date of the injury.” Carnival also established that the plaintiffs had a reasonable opportunity to review their tickets, and there is no allegation of fraud or overreaching … . Fritsche v Carnival Corp., 2015 NY Slip Op 07618, 2nd Dept 10-21-15

 

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No “Special Relationship” Between School District and Teacher Injured by Student

The Second Department determined the absence of a special relationship between the city/school district and a teacher injured by a student required dismissal of the teacher’s action. Although a special relationship exists between a school district and the minor students, a special relationship exists between a school district and a teacher only in limited circumstances:

A school district may not be held liable for the negligent performance of its governmental function of supervising children in its charge, at least in the absence of a special duty to the person injured … . Although a school district owes a special duty to its minor students, that duty does not extend to teachers, administrators, or other adults on or off school premises … .

With regard to teachers, administrators, or other adults on or off school premises, a special relationship with a municipal defendant can be formed in three ways: ” (1) when the municipality violates a statutory duty enacted for the benefit of a particular class of persons; (2) when it voluntarily assumes a duty that generates justifiable reliance by the person who benefits from the duty; or (3) when the municipality assumes positive direction and control in the face of a known, blatant and dangerous safety violation'” … .

Here, as the Supreme Court correctly concluded, the school defendants established, prima facie, that they did not owe the plaintiff a special duty… . Brumer v City of New York, 2015 NY Slip Op 07611, 2nd Dept 10-21-15

 

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Negligent Supervision and Retention and Respondeat Superior Causes of Action Against City Department of Education (DOE) Should Not Have Been Dismissed—Complaint Alleged Sexual Abuse of Student By Teacher

The Second Department determined the causes of action against the City of New York Department of Education (DOE) alleging negligent supervision and retention of a teacher, as well as liability based upon respondeat superior, should not have been dismissed. The complaint alleged the sexual abuse of a student by a teacher, Watts, over the course of two years. The DOE failed to demonstrate it did not have actual or constructive notice of the teacher’s propensity for sexual abuse. Although the respondeat superior theory did not apply to the teacher (who acted outside the scope of employment) other employees, who were acting within the scope of employment, may have been negligent:

“Schools have a duty to adequately supervise the students in their care, and may be held liable for foreseeable injuries proximately related to the absence of adequate supervision” … . “The standard for determining whether the school has breached its duty is to compare the school’s supervision and protection to that of a parent of ordinary prudence placed in the same situation and armed with the same information” … . “Where the complaint alleges negligent supervision due to injuries related to an individual’s intentional acts, the plaintiff generally must demonstrate that the school knew or should have known of the individual’s propensity to engage in such conduct, such that the individual’s acts could be anticipated or were foreseeable” … . “Actual or constructive notice to the school of prior similar conduct generally is required” … . Similarly, in order to establish a cause of action based on negligent retention of an employee, “it must be shown that the employer knew or should have known of the employee’s propensity for the conduct which caused the injury” … .

Here, the moving defendants failed to establish, prima facie, that the DOE had no specific knowledge or notice of Watts’ propensity to engage in the misconduct alleged in the complaint … . * * *

The Supreme Court also should have denied that branch of the moving defendants’ motion which was for summary judgment dismissing the cause of action alleging liability based upon a theory of respondeat superior insofar as asserted against the DOE. “Under the doctrine of respondeat superior, an employer may be vicariously liable for the tortious acts of its employees only if those acts were committed in furtherance of the employer’s business and within the scope of employment” … . Here, the DOE may not be held liable under a theory of respondeat superior for the alleged misconduct committed by Watts, as it is undisputed that those acts were not committed in furtherance of the DOE’s business and within the scope of Watts’ employment … . However, as the plaintiffs correctly contend, the complaint adequately alleged that other employees of the DOE were negligent in the performance of their respective duties, and that such negligence constituted a proximate cause of the infant plaintiff’s injuries. In this regard, the moving defendants failed to establish, prima facie, that these other employees were not acting within the scope of their employment …, that they were not negligent, or that any such negligence was not a proximate cause of the alleged injuries … . Nevaeh T. v City of New York, 2015 NY Slip Op 07642, 2nd Dept 10-21-15

 

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Zoning Board’s Determination Lacked a Rational Basis

The Second Department determined Supreme Court properly found the zoning board of appeals (ZBA’s) determination was not supported by the evidence and lacked a rational basis. The petitioners were denied permission to operate a concrete aggregate recycling business in an area where the processing of raw materials was prohibited. The zoning board denied the application on the ground that petitioners were going to process raw materials. However petitioners denied that they would process raw materials and there was no evidence, other than rumor, to the contrary. The court explained the criteria for review of a zoning determination:

“In a proceeding pursuant to CPLR article 78 to review a determination of a zoning board of appeals, judicial review is limited to ascertaining whether the action was illegal, arbitrary and capricious, or an abuse of discretion”… . Where, as here, a determination is made by a zoning board of appeals after a public hearing, the determination of the zoning board should be upheld if it has a rational basis supported by evidence in the record (see CPLR 7803[4] …).

* * * The key determination made by the ZBA … was that the petitioners intended to engage in activities that included the processing of raw materials on the site, despite the petitioners’ repeated statements and assurances otherwise. The record is replete with instances where the petitioners disputed, as nothing more than baseless rumor and suspicion, the claim that they intended to engage in activities other than concrete aggregate recycling on the site. The record is also devoid of any evidence supporting the ZBA’s conclusion that the petitioners would engage in activities other than those which were explicitly approved or permitted as of right under the zoning and planning ordinance in force prior … . Matter of Green Materials of Westchester v Town of Cortlandt, 2015 NY Slip Op 07659, 2nd Dept 10-21-15

 

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