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Motion to Vacate Default Judgment in Foreclosure Action Properly Granted—Criteria Explained

The Second Department determined Supreme Court properly vacated a default judgment in a foreclosure action:

” A foreclosure action is equitable in nature and triggers the equitable powers of the court'” … . “Under CPLR 5015(a), a court is empowered to vacate a default judgment for several reasons, including excusable neglect; newly-discovered evidence; fraud, misrepresentation or other misconduct by an adverse party; lack of jurisdiction; or upon the reversal, modification or vacatur of a prior order” … .

“In addition to the grounds set forth in section 5015(a), a court may vacate its own judgment for sufficient reason and in the interests of substantial justice” … . Indeed, the drafters of CPLR 5015(a) “intended that courts retain and exercise their inherent discretionary power in situations that warranted vacatur but [*2]which the drafters could not easily foresee” … .

“The decision as to the setting aside of a default in answering is generally left to the sound discretion of the Supreme Court, the exercise of which will generally not be disturbed if there is support in the record therefor” … .

Under the unique circumstances of this case, the Supreme Court providently exercised its discretion in vacating the judgment of foreclosure and sale entered on the default of the Cohen defendants “in the interests of substantial justice” … . The documentary evidence submitted in support of the motion raises issues including, among others, whether the plaintiff had “knowledge of facts that would lead a reasonable, prudent lender to make inquiries of the circumstances of the transaction at issue” … . Hudson City Sav Bank v Cohen, 2014 NY Slip Op 06177, 2nd Dept 9-17-14

 

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Record Did Not Demonstrate Defendant Understood His Miranda Rights—Statement Should Have Been Suppressed

The Second Department determined defendant’s statement should have been suppressed.  The People failed to demonstrate defendant understood his right to remain silent:

Contrary to the hearing court’s determination, the evidence adduced at the suppression hearing was insufficient to establish that the defendant’s statements to law enforcement officials were made after he knowingly, voluntarily, and intelligently waived his Miranda rights (see Miranda v Arizona, 384 US 436). Although the defendant’s refusal to sign the Miranda card did not, in itself, preclude the finding of a valid waiver …, the record was devoid of any indication that the defendant clearly understood his Miranda rights as read to him … . People v Barnes, 2014 NY Slip Op 06209, 2nd Dept 9-17-14

 

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Motion to Vacate Convictions Granted—People Failed to Provide “Brady” Material In Time for the Defense to Make Meaningful Use of It

The Second Department, pursuant to a CPL 440 motion, vacated the defendants’ convictions because of the People’s failure to turn over documents which would have aided the defense (a “Brady” violation).  Although the documents were provided at the time of jury selection, they were mixed in with a large volume of other documents which effectively deprived the defense of notice of their existence.  There was a “reasonable probability” the documents, had they been used at trial to impeach police witnesses, would have changed the outcome of the trial:

The People have an obligation to disclose exculpatory evidence, known as Brady material, in their possession which is favorable to the defendant and material to his or her guilt or innocence (see Brady v Maryland, 373 US 83, 87…). Such evidence is to be produced regardless of whether a defendant requests the material … . The prosecutor’s duty to exchange Brady material extends to the disclosure of evidence that can be used to impeach the credibility of a witness for the People whose testimony may be determinative of the defendant’s guilt … . Such material is to be turned over to the defendant in time for him or her to use it in a meaningful fashion during cross-examination or as evidence during his or her own case … .

In order to establish a Brady violation, a defendant must prove: (1) the evidence at issue is favorable to him or her; (2) the evidence was suppressed by the State, either willfully or inadvertently; and (3) prejudice ensued because the suppressed evidence was material … . As to the element of materiality, where there was only a general request by the defendant at the time of trial for exculpatory material, evidence is material if there is a reasonable probability that, had the evidence been disclosed to the defense, the result of the proceeding would have been different … . Here, the manner in which the prosecution turned over the documents, during the course of jury selection, deprived the defendants of a meaningful opportunity to employ that evidence during their cross-examination of the prosecution’s witnesses … . People v Wagstaffe, 2014 NY Slip Op 06217, 2nd Dept 9-17-14

 

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Plaintiff Was Catapulted Into the Air from a Flatbed Truck When a Heavy Bundle Landed on the Plank He Was Standing On—Labor Law 240(1) Action Should Not Have Been Dismissed

The Second Department determined that the Labor Law 240(1) cause of action should not have been dismissed.  Plaintiff was catapulted into the air when heavy bundles of rebar were being rolled off a flatbed truck.  A bundle landed on the plank plaintiff was standing on and the plank raised up sharply.  A hoist had previously been used to remove the bundles from the truck.  The court also noted that the common law negligence and Labor Law 200 causes of action against one of the defendants should not have been dismissed because of a question of fact about the defendant’s supervisory role:

“Labor Law § 240(1) was designed to prevent those types of accidents in which the scaffold, hoist, stay, ladder or other protective device proved inadequate to shield the injured worker from harm directly flowing from the application of the force of gravity to an object or person” … . “The relevant inquiry—–one which may be answered in the affirmative even in situations where the object does not fall on the worker–—is rather whether the harm flows directly from the application of the force of gravity to the object” … .

The launch of the plaintiff from the truck along with the wooden “four by four” plank upon which he was standing flowed directly from the application of the force of gravity to the bundle of rebar … . The elevation differential between the flatbed truck and the ground was significant given the 8,000-to-10,000-pound weight of the bundles of rebar, and the amount of force they were capable of generating, “even over the course of a relatively short descent” … .

The causal connection between the bundles’ “inadequately regulated descent and plaintiff’s injury” was unmediated by any safety device, such as the crane that had hoisted the bundles earlier in the day … .

The plaintiff’s evidence established, prima facie, that the … respondents violated Labor Law § 240 by failing to provide an enumerated safety device, such as the hoist that had been provided earlier in the day to secure the bundle of rebar as it was being lowered, and that the Tillary respondents’ failure to provide an appropriate safety device was a proximate cause of the plaintiff’s injury … . Treile v Brooklyn Tillary LLC, 2014 NY Slip Op 06197, 2nd Dept 9-17-14

 

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Hearsay Can Not Be Sole Basis for Denial of Summary Judgment Motion

The First Department explained that, while hearsay can be submitted in opposition to a summary judgment motion, it can not be the sole basis for denying the motion:

“A party opposing summary judgment may proffer hearsay evidence, but such proof may not be the sole factual basis for denying summary judgment” … . * * * …[D]efendant’s affidavit relies only on hearsay evidence … . The documentary evidence is to the contrary. Andron v Libby, 2014 NY Slip Op 06155, 1st Dept 9-11-14

 

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Shareholders’ Requests for Documents for Investigation of Possible Wrongdoing by Corporation Were Facially Legitimate Under the Business Corporation Law (BCL) and Common Law–No Need for Shareholders to Bring a Shareholders’ Derivative Action to Procure the Documents

The First Department determined shareholders’ (petitioners’) requests for documents from the respondent corporation were facially legitimate pursuant to the Business Corporation Law (BCL) and common law and disputes about the propriety of the requests should be resolved in a hearing.  Supreme Court’s ruling that the petitioners were required to institute a shareholders’ derivative action was reversed.  The shareholders were investigating whether respondent’s board of directors failed to oversee wrongdoing by S & P, a credit rating agency wholly owned by respondent:

Under New York law, shareholders have both statutory and common-law rights to inspect a corporation’s books and records so long as the shareholders seek the inspection in good faith and for a valid purpose … . The statutory right supplemented, but did not replace, the common-law right … .

Here, petitioners sufficiently showed that they were acting in good faith and for a proper purpose in seeking to enforce their common-law right to inspect respondent’s books and records. Specifically, the petition alleges that petitioners seek to investigate alleged mismanagement and breaches of fiduciary duty by respondent’s board of directors in failing to oversee purported wrongdoing by S & P; this alleged wrongdoing, petitioners assert, exposed respondent to substantial potential liability in multiple civil actions and investigations. These allegations form a proper basis for petitioners’ request … .

Contrary to respondent’s contentions, investigating alleged misconduct by management and obtaining information that may aid legitimate litigation are, in fact, proper purposes for a BCL § 624 request, even if the inspection ultimately establishes that the board had engaged in no wrongdoing … . Indeed, petitioners identified several reasons for making their demand, including assessment of policies that the board had implemented when issuing credit ratings and investigation of possible wrongdoing by the respondent’s board of directors. Each of these purposes adequately justifies petitioners’ access to certain board documents. Moreover, because the common-law right of inspection is broader than the statutory right, petitioners are entitled to inspect books and records beyond the specific materials delineated in BCL § 624(b) and (e) … . Retirement Plan for Gen Empls of City of N Miami Beach vs McGraw-Hill Cos Inc, 2014 NY Slip Op 06154, 1st Dept 9-11-14

 

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Consent to Divorce In Exchange for Payments Would Violate Public Policy

In the course of a lengthy decision dealing with several other issues, the Second Department explained why an in-court stipulation was properly vacated, noting that defendant-wife’s consent to the divorce in exchange for financial payments could not be consideration for the stipulated agreement because such an agreement would violate public policy:

To be enforceable, an open court stipulation must contain all of the material terms and evince a clear mutual accord between the parties (see CPLR 2104…). The 2011 on-the-record agreement was too incomplete and indefinite to be enforceable, and was merely a non-binding agreement to agree … . The parties disagreed whether the proposal included a waiver of maintenance and they did not finalize the details of the transfer of the 1999 Trust. Other material terms were never agreed upon, and the agreement was subject to the consummation of future conditions and additional agreements.

The agreement also lacked consideration … . Accepting defendant’s consent to the divorce in exchange for the financial payments would have been against public policy … . In any event, the parties unambiguously agreed that “whether we hammer out the agreement or not, the divorce will go forward uncontested.” There is no merit to defendant’s claim that her decision to avoid a public trial on fault grounds constituted consideration because it would have brought up embarrassing and difficult questions for plaintiff concerning his financial dealings. Cohen v Cohen, 2014 NY Slip Op 06157, 1st Dept 9-11-14

 

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Failure to Comply with California Insurance Law Rendered Arbitration Clauses in Agreements Issued by a California Workers’ Compensation Insurance Carrier Unenforceable

The First Department, in a full-fledged opinion by Justice Moskowitz, over a dissent, determined that the arbitration clauses within payment agreements issued by the California workers’ compensation insurance carrier were not enforceable because the clauses had not been reviewed as required by California law.  The agreements provided that any arbitration be under the auspices of the Federal Arbitration Act (FAA).  But the court determined California’s insurance law was not preempted by the FAA (pursuant to the McCarran-Ferguson Act) and, therefore, the failure to comply with California law rendered the arbitration clauses void and unenforceable:

…”[T]he McCarran-Ferguson Act was an attempt to . . . assure that the activities of insurance companies in dealing with their policyholders would remain subject to state regulation” (…see 15 USC § 1011). Courts have established a four-part test to determine whether the McCarran-Ferguson Act precludes application of a federal statute (in this case, the FAA). Under this test, a federal statute is precluded if: (1) the statute does not “specifically relate” to the business of insurance; (2) the acts challenged under the statute constitute the “business of insurance”; (3) the state has enacted laws regulating the challenged acts; and (4) the state laws would be “invalidated, impaired, or superseded” by application of the federal statute ….

…[T]he FAA does not specifically regulate the business of insurance, and an act specifically relating to the business of insurance is the only type of federal legislation that can preempt state insurance law under McCarran-Ferguson. Furthermore, application of the FAA would modify California law because it would mandate arbitration even though [the insurer] did not, as required by California law, file the payment agreements, and the payment agreements, in turn, contained the arbitration clauses. Matter of Monarch Consulting Inc v National Union Fire Ins Co of Pittsburgh PA, 2014 NY Slip Op 06158, 1st Dept 9-11-14

 

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Plank Used to Access Work Area Not Covered by Industrial Code—Labor Law 241(6) Action Dismissed

The First Department determined a plank used to walk on for access a work area was not “used in the construction of equipment or a temporary structure” and therefore could not be the basis of an action under Labor Law 241(6):

Insofar as the Labor Law § 241(6) claim is based on a violation of Industrial Code (12 NYCRR) § 23-1.7(e)(1), it should be dismissed. The accident occurred in an open working area, notwithstanding evidence that workers traversed the plank to get from the street to the job site … .

Industrial Code (12 NYCRR) § 23-1.11(a) states: “The lumber used in the construction of equipment or temporary structures required by this Part (rule) shall be sound and shall not contain any defects . . . which may impair the strength of such lumber for the purpose for which it is to be used.” While the plank on which DePaul slipped qualifies as dimensional lumber under the regulation, it fails to meet the other specified criteria: it was not used in the construction of equipment or a temporary structure, and no equipment or temporary structure required by Part 23 has been identified by plaintiffs. A plank fails to meet even the liberal definition of “structure” contained in Joblon v Solow …: “any production or piece of work artificially built up or composed of parts joined together in some definite manner” (internal quotation marks omitted and emphasis added). Plaintiffs concede that the lumber was not joined together, and photographs of the location show only loose planks. Simply put, nothing had been constructed from the planks so as to come within the ambit of the regulation. Furthermore, the regulation applies only to a device required to be constructed by another provision of Part 23, as evident from subsections (b) and (c), which discuss, respectively, “[t]he lumber dimensions specified in this Part (rule)” and the nails required “to provide the required strength at all joints.” Thus …plaintiffs have failed to demonstrate that § 23-1.11(a) is applicable, and this claim was properly dismissed … . DePaul v NY Brush LLC, 2014 NY Slip Op 06152, 1st Dept 9-11-14

 

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Failure to Subpoena Witness Required Reversal

The Third Department reversed the Unemployment Insurance Appeal Board because the putative employer, Brody, was entitled to call the claimant as a witness in a proceeding to determine whether Brody was required to make further unemployment insurance contributions. Claimant had done work for Brody and had subsequently applied for and was granted unemployment insurance benefits. Brody asked that claimant be subpoenaed to testify but the administrative law judge (ALJ) denied the request:

Brody was entitled to call claimant as a witness and, moreover, had the right to request that the ALJ issue a subpoena to compel her attendance (see Labor Law § 622 [1]; 12 NYCRR 461.4 [c]…). Claimant plainly had relevant testimony to offer as to whether an employer-employee relationship existed between her and Brody. The ALJ nevertheless declined to issue the requested subpoena, pointing out that counsel for Brody could have subpoenaed claimant directly. The failure to either issue a subpoena or to adjourn the proceedings so that counsel could do so constituted an abuse of discretion under the circumstances of this case and, thus, “we believe that the proper course is to reverse the Board’s decision and remit this matter for further proceedings”… . Matter of Philip…, 2014 Slip Op 06129, 3rd Dept 9-11-14

 

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