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(1) The Effect of Minor Discrepancies Re: the Submissions Required by a Standby Letter of Credit (SLC) (2) The Criteria for Interpreting an SLC (3) the Nature of an SLC and (4) the “Independence Principle” as Applied to an SLC Discussed in Some Depth

The First Department, in a full-fledged opinion by Justice Andrias, reversed Supreme Court and determined the issuer of standby letters of credit (SLC) was required to honor them.  The opinion is detailed and fact-based.  Among the legal issues discussed are: (1) minor discrepancies re: the documents required to be submitted (for a drawdown) by the terms of an SLC do not violate the “strict compliance” rule; (2) how to interpret an SLC; (3) the nature of an SLC  (versus a guaranty); and (4) the “Independence Principle” which requires that an SLC be deemed separate and distinct from the other contractual agreements underlying the transaction:

Under New York law, in order to recover on its claim that the issuer wrongfully refused to honor its request to draw down on a letter of credit, the beneficiary must prove that it strictly complied with the terms of the letter of credit … . “The corollary to the rule of strict compliance is that the requirements in letters of credit must be explicit, and that all ambiguities are construed against the [issuer]” … . The reasoning is that “[s]ince the beneficiary must comply strictly with the requirements of the letter, it must know precisely and unequivocally what those requirements are” … . “Where a letter of credit is fairly susceptible of two constructions, one of which makes fair, customary and one which prudent men would naturally enter into, while the other makes it inequitable, the former interpretation must be preferred to the latter, and a construction rendering the contract possible of performance will be preferred to one which renders its performance impossible or meaningless” … . * * *

There are three parties to an SLC: the applicant who requests the SLC; the beneficiary to whom payment is due upon the presentation of the documents required by the SLC; and the issuer which obligates itself to honor the SLC and make payment when presented with the documents the SLC requires. In turn, there are three corresponding agreements: the agreement between the applicant and the beneficiary, which creates the basis for the SLC; the agreement between the issuer and the applicant; and the SLC itself … .

“[A] fundamental principle governing these transactions is the doctrine of independent contracts, [which] provides that the issuing bank’s obligation to honor drafts drawn on a letter of credit by the beneficiary is separate and independent from any obligation of its customer to the beneficiary under the … contract and separate as well from any obligation of the issuer to its customer under their agreement” … .

From the beneficiary’s perspective, the independence principle makes a letter of credit superior to a normal surety bond or guaranty because the issuer is primarily liable and is precluded from asserting defenses that an ordinary guarantor could assert. Indeed, “a letter of credit would lose its commercial vitality if before honoring drafts the issuer could look beyond the terms of the credit to the underlying contractual controversy or performance between its customer and the beneficiary”… . BasicNet S.P.A. v CFP Servs. Ltd., 2015 NY Slip Op 02080, 1st Dept 3-17-15

 

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Even Though the People Indicated They Were Not Ready for Trial After Filing a Certificate of Readiness, the Presumption the Statement of Readiness Was Accurate and Truthful When Made Was Not Rebutted/How to Interpret a Plurality Opinion by the Court of Appeals Explained

The First Department determined the People’s off-calendar statement of readiness was not illusory and, therefore, the defendant’s speedy-trial motion was properly denied. The First Department explained how it interpreted the Court of Appeals decision in People v Sibbles, 22 NY3d 1174, which included two three-judge concurrences, one by Judge Lippman and one by Judge Graffeo:

The three judge concurrence by Chief Judge Lippman “would hold that, if challenged, the People must demonstrate that some exceptional fact or circumstance arose after their declaration of readiness so as to render them presently not ready for trial” at the next court appearance after filing the certificate (22 NY3d at 1178). Chief Judge Lippman found that the People’s desire to strengthen their case did not satisfy this requirement.

The three judge concurrence by Judge Graffeo “would decide th[e] case on a narrower basis” (22 NY3d at 1179). While recognizing established precedent that the requirement of actual readiness under CPL 30.30 “will be met unless there is proof that the readiness statement did not accurately reflect the People’s position'”(id. at 1180, quoting People v Carter, 91 NY2d 795, 799 [1998]) and that “there is a presumption that a statement of readiness is truthful and accurate” (22 NY3d at 1180), Judge Graffeo found the statement of readiness “illusory” because “[t]he People initially declared that they were ready for trial on February 22 but within days sought copies of the injured officer’s medical records,” admitted at the next calendar call that they “were not in fact ready to proceed because they were continuing their investigation” and that they “needed to examine the medical records to decide if they would pursue introduction of the records into evidence at trial”, and then “gave no explanation for the change in circumstances between the initial statement of readiness and the[ir] subsequent admission that the[y] … were not ready to proceed without the medical records” (22 NY3d at 1181).

Following analogous precedent pertaining to plurality opinions by the United States Supreme Court, we apply the narrower approach of Judge Graffeo, which leaves intact well- settled law that a post-certificate assertion that the People are not ready does not, by itself, vitiate the previously filed certificate of readiness … . * * *

[Here], unlike, Sibblies, there is no “proof that the readiness statement did not accurately reflect the People’s position,” so as to render the prior statement of readiness illusory (Sibblies, 22 NY3d at 1180 …). Rather, defense counsel merely speculated that the certificate of readiness was illusory because the People announced that they were not ready at the next court appearance after it was filed, which is insufficient to rebut the presumption that the certificate of readiness was accurate and truthful … . People v Brown, 2015 NY Slip Op 02042, 1st Dept 3-17-15

 

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Failure to Transcribe Portion of Voir Dire Not Reversible Error—Criteria Explained

The Third Department determined the failure to transcribe a portion of the voir dire did not require reversal (because the defendant did not request that it be transcribed and could show no prejudice).  The court explained the relevant analysis:

“Although we agree that verbatim recordation of the trial proceedings is the better practice, unless waived, the case law makes clear that the absence of a stenographic record does not, per se, require reversal of a defendant’s conviction” … . “‘Rather, a defendant must show that a request was made that the voir dire proceedings be recorded, the request was denied, and the failure to record the proceedings prejudiced him or her in some manner'” … . Here, voir dire was recorded, except one portion during which each counsel exercised peremptory challenges to the first panel of jurors. However, defendant did not request that this part (or any part) of voir dire be recorded … and, importantly, he does not assert that an incorrect ruling or any prejudicial error occurred during the omitted portion … . People v Chappelle, 2015 NY Slip Op 105486, 3rd Dept 3-12-15

 

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“Constructive Possession” Theory Applied to Weapon Deemed to Have Been Discarded by Defendant During a Police Pursuit

The Third Department determined there was sufficient evidence defendant constructively possessed a weapon which was found near him after the police saw him discard something during a pursuit:

Constructive possession can be demonstrated where there is evidence — either direct or circumstantial — that defendant exercised “dominion and control over the weapon or the area in which it was found” … . The People presented testimonial evidence of several police officers, including Gregory McGee, who averred that, after hearing a gun shot during his overnight shift, his investigation led him to observe defendant turning a street corner on a bicycle. When defendant saw McGee’s marked police car, he became visibly nervous and immediately clutched the right side of his waistband. Believing that defendant was armed, McGee exited his vehicle, drew his firearm and ordered defendant to show his hands. Defendant refused to comply with the directive and a physical encounter ensued. As McGee holstered his handgun and attempted to grab his taser, defendant fled on his bicycle. McGee then radioed for assistance while pursuing defendant on foot and a responding police officer, Jason Seward, pulled his patrol car onto the sidewalk in order to block defendant. McGee testified that, as defendant ran around the patrol car, he observed defendant’s hand emerge from under his sweatshirt and throw something, which created a sound of “metal hitting the ground.” As Seward continued to pursue defendant, McGee found a handgun on the sidewalk a few feet from Seward’s patrol car. Shortly thereafter, defendant was apprehended and the handgun was later confirmed to contain three rounds of “live” ammunition and one spent shell casing, indicating that the handgun had been fired once.

… “[V]iewing the evidence in a neutral light and according deference to the jury’s credibility determinations,” we find that defendant had constructive possession of the gun such that the conviction was not contrary to the weight of the evidence … . People v Butler, 2015 NY Slip Op 105216, 3rd Dept, 3-12-15

 

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Presentation of Hearsay to Grand Jury Did Not Taint the Proceedings—Criteria Explained

The Third Department determined that the admission of hearsay before the grand jury (the audio of a videotape which could not be muted) did not constitute reversible error, mainly because the prosecution did not intentionally present inadmissible evidence:

We first address defendant’s argument that the grand jury’s exposure to inadmissible hearsay so tainted the proceedings that dismissal of the indictment is required. Dismissal of an indictment is an extreme remedy that is limited to “‘those instances where prosecutorial wrongdoing, fraudulent conduct or errors potentially prejudice the ultimate decision reached by the [g]rand [j]ury'” … . Defendant’s challenge relates to a recording of the bar’s security camera footage that depicted the attack on the victim. Specifically, the victim’s son made a video recording of a monitor as it played the surveillance footage, during which recording he and another person can be heard making several comments regarding the severity of the attacks upon the victim. The People explained to Supreme Court that they were unable to mute the video as it was being played during grand jury proceedings, and that the prosecutor provided an instruction to disregard the audio component of the video recording. Thus, it is apparent that the People did not intentionally present inadmissible hearsay or otherwise engage in an “over-all pattern of bias and misconduct” … . Moreover, in light of the ample evidence supporting the assault in the second degree charge against defendant, we find no basis to determine that the hearsay evidence rendered the indictment defective … . People v Boddie, 2015 NY Slip Op 105524, 3rd Dept 3-12-15

 

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Defendant Properly Precluded from Introducing Medical Records Without Accompanying Medical Testimony

The Third Department determined defendant was properly precluded from placing his hospital records into evidence in the absence of any accompanying medical testimony.  The defendant in this DWI case wanted to use the hospital records to demonstrate his failure of the sobriety tests was due to his medical condition, not intoxication.  The trial court correctly ruled that, without accompanying medical testimony, the jury would have to speculate about the meaning of the hospital records:

In support of his theory that his failure of the field sobriety tests was caused by his medical ailments as opposed to intoxication, defendant sought the admission of his hospital records — unaccompanied by any testimony from a medical professional. County Court denied the relief, concluding that defendant’s hospital records, while generally admissible pursuant to CPLR 4518, would lead the jury to speculate as to defendant’s medical condition unless a medical professional offered an explanation. The court did permit defendant to testify regarding his physical condition and hospital treatment, and to introduce photographs of his injuries at trial … . Inasmuch as the hospital records, without explanatory testimony, would have required the jury to speculate as to whether defendant’s injuries caused him to fail the sobriety tests, we find that the court properly excluded them … . People v Collins, 2015 NY Slip Op 105558, 3rd Dept 3-12-15

 

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Criteria for Balancing the Need for a Public Trial and First Amendment Rights (Freedom of the Press) With the Defendant’s Right to a Fair Trial Discussed in Some Detail—Here the Court’s Sealing of Some Records and Closures of the Courtroom Reflected a Proper Discretionary Balance

The First Department, in a detailed decision, determined Supreme Court had properly balanced the requirement that a criminal trial be open to the public and the defendant’s right to a fair trial.  Because the court properly used its discretion to balance the two concerns neither mandamus nor prohibition was an available remedy.  The decision is worth reading—many of the issues discussed are not noted here:

The First Amendment guarantees the public and the press a qualified right of access to criminal trials … . This right must be kept in balance with the compelling interest of the defendant’s Sixth Amendment right to a fair trial and the right to privacy of prospective jurors … . The public’s right of access may be limited where there is a compelling governmental interest and closure is narrowly tailored to serve that interest … .

New York’s approach to courtroom closure is “comparable to the federal analysis” … . The press is not imbued with any special right of access, and while it possesses “the same right of access as the public,” it has no right to information about a trial that is “greater” or “superior” to that of the general public … . A ” trial judge has an affirmative constitutional duty to minimize the effects of prejudicial pretrial publicity'” … . Decisions to seal or disclose records fall within the inherent power of the court to control the records of its own proceedings … . While a court must guarantee that the defendant receives a fair trial, it must do so in a manner that balances the interests of “the defendant, jurors, witnesses, attorneys and the public at large” … . Matter of Daily News, L.P. v Wiley, 2015 NY Slip Op 02010, 3rd Dept 3-12-15

 

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Transportation-Contract Bidding Requirement that the Carrier Have an “Out of Service” Rate Less than that Required by the State Was Not Preempted by State Law/The Requirement Was Not Anti-Competitive Merely Because It Excluded Petitioner from Consideration—Analytical Criteria Discussed

The Third Department determined the county’s requirement that carriers bidding for a county transportation contract must have an “out of service rate” of less than 15% was not preempted by state law (which allows a 25% out of service rate) and was not “anti-competitive” because the requirement excluded petitioner from consideration.  The court explained the relevant analytical criteria:

Preemption applies where there is “express conflict between local and [s]tate law” or “where the [s]tate has evidenced its intent to occupy the field” … . In the Transportation Law, the Legislature has indicated an intention for the state “to regulate transportation by motor carriers,” for both safety and economic reasons (Transportation Law § 137; see Transportation Law § 140 [2]…), and granted exclusive jurisdiction over safety regulations for motor carriers to the Commissioner of Transportation (see Transportation Law § 140 [8]), thereby preempting the field of safety regulations for motor carriers. Although the County’s RFB specification of an out of service rate exceeded the inspection pass rate in DOT [Department of Transportation] regulations, which provide that a motor carrier’s authority to carry passengers within the state may be suspended or revoked for an out of service rate of 25% or more (see 17 NYCRR 720.32 [a] [2]; see also Transportation Law §§ 145 [1]; 156 [2]), preemption does not apply under the circumstances here. * * *

General Municipal Law § 103 (1) requires that municipalities award purchase contracts above a certain monetary threshold to the “lowest responsible bidder” to protect the public’s finances and prevent corruption or favoritism in the awarding of public contracts … . Municipalities are permitted to include bid specifications that may be more favorable to some bidders over others, as long as the public interest is served and the specifications are not intended to ensure that one particular bidder be awarded the contract … . Including specifications in a request for bids often has the effect of disqualifying some potential bidders who cannot meet those specifications, but this reality does not invalidate those specifications. If a challenged specification is not facially anticompetitive, courts apply “ordinary rational basis review” in assessing its validity … . A petitioner bears the burden of demonstrating that the inclusion of the challenged specifications, and the ultimate award of the contract, was the product of actual impropriety, unfair dealing or statutory violation … . …

The County’s bid specification requiring an out of service rate of less than 15% is not facially anticompetitive, as that standard does not, in and of itself, guarantee the award of the contract to a particular bidder … . The bid specification here, requiring a safety rating higher than the minimum allowed by DOT for a motor carrier to continue operating within the state, does have some rational basis rooted in the public interest, namely, attempting to assure the safety of children being transported under the County’s care. Matter of Blueline Commuter, Inc. v Montgomery County, 2015 NY Slip Op 519277, 3rd Dept 3-12-15

 

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Engineer/Engineering Firm Did Not Have Standing to Contest Variance

The Third Department determined the petitioner, Klein, an engineer who claimed to be representing neighbors opposed to a variance granted by the town zoning board, did not have standing to contest the variance:

The Town Code permits appeals by “any person aggrieved” by, among other things, the zoning administrator’s decisions (Code of the Town of Queensbury § 179-14-040 [C]). As the Town Code does not define the quoted phrase, it must be interpreted according to its plain meaning … . This language seems to be taken directly from Town Law § 267-a (4). This same phrase in that statute has been consistently interpreted to mean a person who “has sustained special damage, different in kind and degree from the community generally” … . Even without establishing an injury in fact, a person is presumed to have standing if he or she falls within the statute’s zone of interests and his or her property is sufficiently proximate to the property at issue … .

The notice of appeal to the ZBA [Zoning Board of Appeals] listed Klein’s engineering firm as the appellant and Klein as the appellant’s agent. Klein and his firm did not exhibit any specialized harm and do not own property near the Kitchens’ property. Thus, Klein does not have standing in his individual capacity or as an agent for his firm. Klein asserts that at the public hearings and in letters he identified himself as appearing on behalf of neighbors. While this is true, at no point up until the day before the hearing on his appeal did he identify who his clients were. The other petitioners involved in this appeal, who later claimed that Klein was their agent, were not listed on the notice of appeal and did not file a formal designation form naming him as their agent — as the Town generally requires — prior to the expiration of the statute of limitations for appealing an administrative determination. Under the circumstances, the ZBA did not err in finding that Klein was not a duly authorized agent of an aggrieved party during the requisite limitations period for the appeal and was not himself aggrieved, so he had no standing … . Matter of Fund for Lake George, Inc. v Town of Queensbury Zoning Bd. of Appeals, 2015 NY Slip Op 518831, 3rd Dept 3-12-15

 

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Corporation Is a Proper Respondent in an Article 78/Mandamus to Compel Proceeding

The Third Department determined that respondent corporation (CGFNS), which contracted with the state to provide credential verification services to the Department of Education for foreign-trained nurses, was a proper respondent in an Article 78/mandamus to compel proceeding.  The proceeding was brought by the foreign nursing school after CGFNS indicated it could not verify the school’s credentials:

CGFNS argues that it is not a “body or officer” subject to CPLR article 78 (CPLR 7802 [a]) and that it did not make a “determination” reviewable in this proceeding (CPLR 7803 [3]). CPLR 7802 (a) defines a “body or officer” against whom a CPLR article 78 proceeding may be instituted to include, as relevant here, “every court, tribunal, board, [or] corporation” (emphasis added). CGFNS is a not-for-profit corporation. Courts have recognized that corporations, both public and private, may be subject to CPLR article 78 as quasi-governmental bodies because they are “beholden to the [s]tate for their franchise or charter or the exercise of their functions” (… Siegel, NY Prac § 558 at 989; § 564 at 1001-1002 [5th ed 2011]). As a corporate entity, CGFNS is a “body or officer” subject to a writ of mandamus under CPLR article 78 (CPLR 7802 [a]; see CPLR 7803 [1], [3]…). Matter of American Univ. of Antigua v CGFNS Intl., 2015 NY Slip Op 02028, 3rd Dept 3-12-15

 

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