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Equipment Leases Are Not “Securities” for Purposes of Tax Law

In a detailed decision going into depth on many of the related issues, the Third Department determined that (1) leases of equipment which the customer has the option to buy at the end of the term and (2) installment sales of equipment in which title is conferred to the customer at the outset, both referred to as “financial agreements,” were not “securities” and therefore the related interest was not “investment income” within the meaning of Tax Law 208:

Business income is defined as “entire net income minus investment income” (Tax Law § 208 [8]); investment income, as relevant here, is defined as “income . . . [derived] from investment capital” less allowable deductions (Tax Law § 208 [6]), which is “investments in stocks, bonds and other securities, corporate and governmental, not held for sale to customers in the regular course of business” (see Tax Law § 208 [5] [emphasis added]).  The corporate franchise tax statutes do not offer a definition of the term security or the phrase “other securities.”  The [Tax] Department’s regulations provide that the phrase “stocks, bonds and other securities,” among other things, means “debt instruments issued by . . . government[s]” (20 NYCRR 3-3.2 [c] [2]).  Petitioner’s main argument is that the finance agreements in issue constitute such debt instruments and, thus, the income derived therefrom is investment income under Tax Law § 208 (5) and (6).  The [Tax Appeals] Tribunal rejected this interpretation, and we confirm.  Xerox Corp v NYS Tax Appeals Tribunal, 514464, 3rd Dept 10-24-13

 

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Letters Between Attorney and City Re: Fees Did Not Create Unilateral Contract

The Third Department affirmed the dismissal of a complaint seeking attorneys fees from the City for the defense of a police officer who allegedly pointed a loaded weapon at a coworker.  At one point the City and the defense attorney exchanged letters concerning the lawyer’s fees and the City offered to pay the defense attorney $150.00 an hour.  The breach of contract cause of action was based on those letters.  In addition to determining there was no contract, the Third Department explained the flaws in the promissory estoppel, unjust enrichment, quantum meruit and fraud causes of action. In finding that the letters did not constitute a contract, the Third Department wrote:

“For a contract to be created, regardless of whether it is bilateral or unilateral, ‘there must be a manifestation of mutual assent sufficiently definite to assure that the parties are truly in agreement with respect to all material terms'” … . Price is a material term of a contract … ..

The complaint here alleges that [the City’s] letters constituted a unilateral contract whereby [the City] agreed to pay [defense counsel] at the rate of $150 per hour, and that the contract became binding when [defense counsel] performed under the contract by representing [the officer].  Plaintiffs cannot prevail because their allegations are flatly contradicted by documentary evidence.  [Defense counsel’s] invoice billed defendant at the rate of $350 per hour for his time and at other rates – all higher than listed in his ….estimate – for his staff.  This invoice contradicts plaintiffs’ assertion that the parties had agreed on all material terms of a contract, namely a price of $150 per hour … .   As documentary evidence refutes the allegations and establishes that no valid contract had been formed, Supreme Court properly dismissed the cause of action for breach of contract… . DerOhannesian v City of Albany, 515875, 3rd Dept 10-24-13

 

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Relocation Criteria Explained

In affirming the grant of father’s petition to relocate with the child, the Third Department explained the criteria:

The party seeking to relocate with a child – here, the father – bears the burden of establishing by a preponderance of the credible evidence that the relocation is in the child’s best interests … .  Family Court must consider a number of relevant factors in making this determination, including “‘each parent’s reasons for seeking or opposing the move, the quality of the relationships between the child and the custodial and noncustodial parents, the impact of the move on the quantity and quality of the child’s future contact with the [nonmoving] parent, the degree to which the [moving] parent’s and child’s life may be enhanced economically, emotionally and educationally by the move, and the feasibility of preserving the relationship between the [non-moving] parent and child through suitable visitation arrangements'” … .  Notably, as “Family Court is in the best position to make factual findings and credibility determinations, its decision will not be disturbed if it is supported by a sound and substantial basis in the record” … .  Matter of Cole v Reynolds, 514712, 3rd Dept 10-24-13

 

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Sex Offender Status Not Enough to Support Neglect Finding

The Third Department reversed Supreme Court’s finding of neglect against respondent mother for leaving the children with the father unsupervised.  The father was a sex offender who failed to complete sex offender treatment and was previously found to have neglected the children by Supreme Court on that and other grounds.  In the prior appeal of the father’s neglect finding, the Third Department reversed Supreme Court and determined the father’s status as a sex offender was insufficient to support a finding he neglected the children and the other factors relied upon by the court lacked a sound and substantial basis in the record.  Because of those prior rulings, a finding of neglect against the mother based on leaving the children unsupervised with the father had to be reversed:

Inasmuch as the finding of neglect against respondent was premised on her permitting the father to have unsupervised contact with the children, it would be completely illogical to conclude that the subject children’s “physical, mental or emotional condition [had] been impaired or [was] in imminent danger of becoming impaired as a result of the failure of [respondent] . . . to exercise a minimum degree of care . . . in providing the child[ren] with proper supervision or guardianship” (Family Ct Act § 1012 [f] [i] [B]), when we previously determined that petitioner failed to prove that the father posed a risk of imminent danger to them (Matter of Hannah U. [Dennis U.], 97 AD3d at 909).  Thus, for the same reasons that led us to reverse the finding of neglect as to the father, we similarly conclude that petitioner failed to prove by a preponderance of the evidence (see Family Ct Act § 1046 [b] [i]) that respondent neglected the subject children as alleged in the petition … .  Matter of Hannah U …, 514024, 3rd Dept 10-24-13

 

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Question of Fact About Whether Rider Assumed Risk of Being Kicked by Horse—Allegations Defendant Heightened Risk

The Third Department there was a question of fact whether plaintiff assumed the risk of being kicked by defendant’s horse.  Plaintiff alleged the risk was heightened by defendant’s actions:

While it has been recognized that participants in the sporting activity of horseback riding assume commonly appreciated risks inherent in the activity, such as being kicked …, “[p]articipants will not be deemed to have assumed unreasonably increased risks” … .  “‘[A]n assessment of whether a participant assumed a risk depends on the openness and obviousness of the risks, the participant’s skill and experience, as well as his or her conduct under the circumstances and the nature of the defendant’s conduct'” … .

Here, plaintiffs have raised triable issues of fact by offering evidence that defendant’s attendant assisted plaintiff in mounting her assigned horse, and the attendant then positioned the head of her horse within six inches of the tail of the horse in the line in front of her.  The attendant then was called away and, in leaving, he ducked under the head of plaintiff’s horse, causing it to nudge the horse in front of it.  The horse in front then kicked back, striking plaintiff in the leg and injuring her. Defendant’s co-owner acknowledged that the positioning of horses is an important safety concern and that horses should be spaced approximately one horse length apart.  Thus, while being kicked by a horse is an obvious risk of horseback riding, and plaintiff, although an inexperienced rider, was aware of the risk, issues of fact exist as to whether defendant’s alleged actions in positioning the horses and then ducking under the head of plaintiff’s horse heightened the risk of injury to an inexperienced rider… . Valencia … v Diamond F Livestock, Inc…, 516434, 3rd Dept 10-24-13

 

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Question of Fact Whether Encroaching Hedge Was De Minimus Encroachment Re: Adverse Possession

The Second Department determined there was a question of fact about whether a hedge which encroached eight feet into plaintiff’s right of way was a “de minimus” encroachment within the meaning of the Real Property Actions and Proceedings Law (RPAPL) (re: adverse possession):

RPAPL 543(1), which was enacted in 2008, provides: “Notwithstanding any other provision of this article, the existence of de [minimis] non-structural encroachments including, but not limited to, fences, hedges, shrubbery, plantings, sheds and non-structural walls, shall be deemed to be permissive and non-adverse.” The plaintiff contends that pursuant to RPAPL 543(1), the existence of all encroaching hedges and shrubbery, no matter how large, shall be deemed permissive and non-adverse. Under the plaintiff’s interpretation of the statute, the list of examples contained in RPAPL 543(1) are examples of “de [minimis] non-structural encroachments.” We reject this interpretation. The more reasonable interpretation of RPAPL 543(1) is that the list contains examples of “non-structural encroachments” which could still be adverse if they are not de minimis. This reading gives effect to the words “de [minimis],” while the plaintiff’s interpretation would render those words superfluous. “It is a cardinal principle to be observed in construing legislation that . . . whenever practicable, effect must be given to all the language employed. Our duty is to presume that each clause . . . has a purpose” … . Wright v Sokoloff, 2013 NY Slip Op 06856, 2nd Dept 10-23-13

 

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Note and Mortgage Void as Usurious

The Second Department determined a loan transaction and the associated note and mortgage were void because the loan was usurious:

Under the civil usury statute, the maximum interest rate on a loan is 16% per annum (see General Obligations Law § 5-501[1]; Banking Law § 14-a[1]). General Obligations Law § 5-501(6)(a) provides that the 16% maximum interest rate is not applicable “to any loan or forbearance in the amount of [$250,000] or more, other than a loan or a forbearance secured primarily by an interest in real property improved by a one or two family residence.” * * *

To determine whether the interest charged exceeded the usury limit, we must apply the traditional method for calculating the effective interest rate as set forth in Band Realty Co. v North Brewster (37 NY2d 460, 462). Viewing the loan as a one-year loan, the total annual interest is $43,175 ($33,000 in annual interest at 12% on $275,000, plus $10,175 in retained interest fees). The net loan funds advanced, i.e., the loan principal ($275,000) minus the retained interest ($10,175), equals $264,825. Expressed as a percentage of the net loan funds advanced, the $43,175 in total annual interest equals 16.3% of $264,825. The effective interest rate of 16.3% exceeds the civil usury limit, and the loan was therefore usurious.  Oliveto Holdings Inc v Rattenni, 2013 NY Slip Op 06844, 2nd Dept 10-23-13

 

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Case Brought by UK Citizen Re: Death in Dubai Dismissed on Forum Non Conveniens Grounds

Over a substantial dissent, the Second Department affirmed Supreme Court’s grant of a dismissal motion on forum non conveniens grounds.  Plaintiff’s decedent died of Legionnaire’s disease after staying in defendant’s hotel in Dubai.  The only connection with New York was defendant’s global headquarters in White Plains. The plaintiffs were citizens of the UK:

The doctrine of forum non conveniens permits a court to stay or dismiss an action when, although it may have jurisdiction over a claim, the court determines that “in the interest of substantial justice the action should be heard in another forum” (CPLR 327[a]…). A defendant bears the burden on a motion to dismiss on the ground of forum non conveniens to “demonstrate relevant private or public interest factors which militate against accepting the litigation” … . “On such a motion, the Supreme Court is to weigh the parties’ residencies, the location of the witnesses and any hardship caused by the choice of forum, the availability of an alternative forum, the situs of the action, and the burden on the New York court system” … . “No one factor is dispositive” … . “The Supreme Court’s determination should not be disturbed unless the court improvidently exercised its discretion or failed to consider the relevant factors” … . Boyle v Starwood Hotels & Resorts Worldwide, Inc, 2013 NY Slip Op 06830, 2nd Dept 10-23-13

 

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Partial Closure of Courtroom During Testimony of Undercover Police Okay

he Second Department determined partial closure of the courtroom during the testimony of undercover police detectives was proper:

…[T]he court providently adopted a reasonable alternative to full closure of the courtroom, excluding the general public and allowing the defendant’s sister and the defendant’s friend to be present during the testimony of the two undercover detectives, and placing a blackboard in front of the detectives so as to shield their identities from the sister and the friend. The two undercover detectives testified at a Hinton hearing … that they had conducted a long-term undercover operation in the particular housing project where the defendant had been arrested, and that there were unapprehended or “lost” subjects from that investigation. Further, they both testified that they had been threatened by subjects in the past and their safety would be jeopardized if their identities were revealed, that they both planned to conduct future narcotics operations in the area and that one detective planned to return to the particular housing project, that they currently had pending cases in the courthouse in which they were testifying, and that they took special precautions when testifying in court so as to protect their identities. Contrary to the defendant’s contention, this testimony exceeded mere “unparticularized impressions of the vicissitudes of undercover narcotics work in general” and included particularized references to their own work which established a specific link between their safety concerns and open-court testimony in this case … . People v Tate, 2013 NY Slip Op 06882, 2nd Dept 10-23-13

 

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Effect of Witness’ Invocation of Fifth Amendment Privilege on Fairness Explained

The Second Department explained when a witness’ asserting the privilege against self-incrimination constitutes reversible error and noted that the introduction of a photograph of the murder victim when he was alive was (harmless) error:

“[A] witness’s invocation of the Fifth Amendment privilege may amount to reversible error in two instances: one, when the prosecution attempts to build its case on inferences drawn from the witness’s assertion of the privilege, and two, when the inferences unfairly prejudice defendant by adding critical weight’ to the prosecution’s case in a form not subject to cross-examination” … . “Absent a conscious and flagrant attempt by the prosecutor to build a case out of the inferences arising from the use of the testimonial privilege or without some indication that the witness’s refusal to testify adds critical weight to the People’s case in a form not subject to cross-examination, reversal is not warranted” … . Under the circumstances presented here, invocation of the Fifth Amendment privilege against self-incrimination by a prosecution witness did not add critical weight to the prosecution’s case, and the defendant was not deprived of his right to a fair trial by that testimony… .  People v Berry, 2013 NY Slip Op 06872, 2nd Dept 10-23-13

 

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