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PLAINTIFFS STATED CAUSES OF ACTION FOR VIOLATIONS OF THE SECURITIES ACT BASED UPON ALLEGEDLY MISLEADING INFORMATION IN THE SECONDARY PUBLIC OFFERING (SPO) (FIRST DEPT). ​

The First Department determined plaintiffs, who purchased securities based upon allegedly inaccurate information in defendants’ secondary public offering (SPO), stated causes of action for violations of the Securities Act. The court noted that the heightened pleading requirements of CPLR 3015(b) do not apply to the Securities Act violations alleged in the complaint:

… [C]laims for violations of sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (15 USC §§ 77k, 77l[a][2], and 77o) are not subject to the heightened pleading requirements of CPLR 3016(b) … .

… [T]he alleged misstatements in the SPO cannot be deemed forward-looking or mere puffery as a matter of law because the complaint alleges that defendants knew at the time of the SPO that present facts rendered statements in the SPO misleading or false. The generic, boilerplate risk warnings in the offering documents do not shield defendants from liability … .

… [P]laintiff adequately]alleges that, once [defendant] spoke about its “significant exposure to emerging markets in Asia,” it was obligated to disclose the “whole truth,” namely that its mobile solutions business in China was actually experiencing a sharp decline at the time of the SPO … . Erie County Empls.’ Retirement Sys. v NN, Inc., 2022 NY Slip Op 03473, First Dept 5-31-22

Practice Point: The heightened pleading requirements for fraud (CPLR 3016) do not apply to the causes of action here alleging violations of the Securities Act—allegedly misleading information in a secondary public offering (SPO).

 

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THE LLC’S FAILURE TO CHANGE THE ADDRESS ON FILE WITH THE SECRETARY OF STATE IS NOT A SUFFICIENT EXCUSE FOR A DEFAULT; PARTIES TO WHICH THE SUBJECT PROPERTY WAS TRANSFERRED AFTER THE LIS PENDENS WAS FILED ARE NOT NECESSARY PARTIES BECAUSE THEY ARE BOUND BY THE RESULT IN THIS ACTION (FIRST DEPT). ​

The First Department, reversing Supreme Court, determined (1) defendant E&A did not show a reasonable excuse for its default, and (2) the parties to which the property was transferred after the lis pendens was filed were not necessary parties because they are bound by the result of the instant action:

E&A asserted that it did not receive the summons and complaint, which had been served on the Secretary of State, because it had failed to keep its address updated. However, where a defendant does not receive service of process because it failed to keep a current address on file with the Secretary of State, courts will not find a reasonable excuse for a default … . …

Supreme Court should have denied E&A’s cross motion insofar as it sought to join as defendants Yuanqing Liu (who purchased the property from E&A) and NYC Happy Housing LLC (which purchased the property from Liu), as Liu and NYC Happy Housing are not necessary parties. On the contrary, Liu and NYC Happy Housing need not be joined to accord complete relief or to avoid an inequitable effect (CPLR 1001[a]); rather, they are “bound by all proceedings taken in the action . . . to the same extent as a party” because their conveyances were recorded after the filing of the notice of pendency (CPLR 6501 …). Majada Inc. v E&A RE Capital Corp., 2022 NY Slip Op 03476, First Dept 5-31-22

Practice Point: A limited liability corporation’s (LLC’s) failure to change the address on file with the Secretary of State is not an acceptable excuse for a default. Because a lis pendens was filed against the defendant’s property here, the parties to which the property was subsequently transferred are bound by the result of this action and are not, therefore, necessary parties.

 

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IN THIS PRODUCTS LIABILITY ACTION WHERE A ROUTER SEVERED PLAINTIFF’S THUMB, THE FAILURE-TO-WARN CAUSE OF ACTION BASED ON THE MANUAL SHOULD HAVE BEEN DISMISSED BECAUSE PLANTIFF NEVER READ IT; THE GENERALIZED FAILURE-TO-WARN CAUSE OF ACTION PROPERLY SURVIVED SUMMARY JUDGMENT; DISAGREEING WITH THE SECOND DEPARTMENT, THE DESIGN-DEFECT CAUSE OF ACTION BASED ON THE LACK OF AN INTERLOCK DEVICE PROPERLY SURVIVED SUMMARY JUDGMENT (FIRST DEPT).

The First Department, modifying Supreme Court in this products liability case where plaintiff severed his thumb using a router, determined: (1) the failure-to-warn cause of action based upon the product manual should have been dismissed because plaintiff testified he never read it; (2) the generalized failure-to-warn cause of cause properly survived summary judgment; and (3) the design defect cause of action alleging the router should have had an interlock device which would shut it down properly survived summary judgment. Whether plaintiff was familiar with the risk of amputation such that the defendant was relieved of the duty to warn is a question of fact. And whether the lack of an interlock device is a design defect is a question of fact (disagreeing with decisions from the Second Department):

… [T]he record contains evidence that plaintiff had knowledge of power tools other than the router and the general hazards associated with cutting devices. Plaintiff also had used the router on one prior occasion at the premises before the accident. However, it is for a jury, not the court, to determine whether, based on the evidence and testimony presented, plaintiff had sufficient knowledge of the specific hazards from the use of the router to relieve defendants of their duty to warn of them. Further, whether the router presented an open and obvious danger is also a jury issue. * * *

The branch of defendants’ motion for summary judgment dismissing the design defect claim based on the lack of an interlock was also properly denied. We recognize that the Second Department has held that such a claim is per se unviable in Chavez v Delta Intl. Mach. Corp. (130 AD3d 667 [2d Dept 2015]), Patino v Lockformer Co. (303 AD2d 731 [2d Dept 2003]), and Giunta v Delta Intl. Mach. (300 AD2d 350 [2d Dept 2002]). Chavez (at 669), the most recent of these cases, cited Patino and Giunta for this proposition, and in Giunta (at 351), the Second Department held that a theory of liability that a “table saw should have been designed with an interlock which would have prevented the motor from starting if the blade guard was off. . . . was explicitly rejected as a matter of law in David v Makita U.S.A. (233 AD2d 145 [1st Dept 1996]), and implicitly rejected in Banks v Makita, U.S.A. (226 AD2d 659 [2d Dept 1996], lv denied 89 NY2d 805 [1996]).”

However, we read neither David nor Banks as supporting Giunta’s conclusion. Vasquez v Ridge Tool Pattern Co., 2022 NY Slip Op 03488, First Dept 5-31-22

Practice Point: In this products liability case where plaintiff lost a thumb using a router, there was a question of fact whether plaintiff was familiar enough with the danger of amputation that the defendant should be relieved of liability for the failure to warn. Here the First Department, disagreeing with the Second Department, determined the absence of an interlock device which would shut the router down raised a question of fact on the design-defect cause of action.

 

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SUPREME COURT PROPERLY REFUSED TO QUASH SUPBOENAS ISSUED BY THE OFFICE OF THE ATTORNEY GENERAL (OAG) TO THE TRUMP ORGANIZATION IN THE OAG’S FRAUD INVESTIGATION; THE FACT THAT THERE IS A RELATED CRIMINAL INVESTIGATION DOES NOT PRECLUDE CIVIL DISCOVERY (FIRST DEPT).

The First Department, in this civil investigation by the Office of Attorney General (OAG) into whether the respondent Trump Organization committed fraud in their financial practices and disclosure, Supreme Court properly refused to quash the OAG’s subpoenas seeking depositions and documents. The fact that there is also a criminal investigation does preclude civil discovery:

The existence of a criminal investigation does not preclude civil discovery of related facts, at which a party may exercise the privilege against self-incrimination … .. Individuals have no constitutional or statutory right to be called to testify before a grand jury under circumstances that would give them immunity from prosecution for any matter about which they testify; although subjects of a grand jury proceeding have a statutory right to appear and testify, this right is conditioned upon the witness waiving the right to immunity and giving up the privilege against self-incrimination (CPL 190.50[5] …). The political campaign and other public statements made by OAG about appellants do not support the claim that OAG initiated, or is using, the subpoenas in this civil investigation to obtain testimony solely for use in a criminal proceeding or in a manner that would otherwise improperly undermine appellants’ privilege against self-incrimination … . Neither does the record suggest that, in the absence of a civil investigation, OAG would be likely to grant immunity to appellants — the primary subjects of the criminal investigation — to secure their grand jury testimony. Thus, the subpoenas did not frustrate any right to testify with immunity. Matter of People of the State of New York v Trump Org., Inc., 2022 NY Slip Op 03456, First Dept 5-26-22

Practice Point: This case stems from the Office of Attorney General’s (OAG’s) fraud investigation of the Trump Organization. Supreme Court properly refused to quash the OAG’s subpoenas. The fact that there is a related criminal investigation does not preclude civil discovery. There was no showing the appellants’ privilege against self-incrimination was being undermined by the subpoenas seeking depositions and documents.

 

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PLAINTIFF FELL DOWN AN OPEN, UNGUARDED MANHOLE AS HE ATTEMPTED TO STEP OVER IT; PLAINTIFF’S ACTION WAS NOT THE SOLE PROXIMATE CAUSE OF THE FALL BECAUSE THERE WAS NO PROTECTIVE RAILING AROUND THE MANHOLE (FIRST DEPT). ​

The First Department determined plaintiff was entitled to summary judgment on his Labor Law 240(1) cause of action. Plaintiff fell into an unguarded, open manhole. Defendants argued plaintiff’s attempting to step over the manhole was the sole proximate cause of the fall. But the fact that the manhole was unguarded (another cause of the fall) defeated the sole proximate cause argument:

Plaintiff established prima facie his entitlement to summary judgment on his Labor Law § 240(1) claim, it being undisputed that he was injured when he fell down an open and unguarded manhole that he had been attempting to cover, as instructed, while working on a construction site … . In opposition, defendants, the operator of the subway facility and its general contractor on the project, failed to raise an issue of fact. Their argument that plaintiff was the sole proximate cause of the accident because he allegedly stepped over the open manhole — at which point he was accidentally bumped by another individual and fell into it — is unavailing, given the lack of protective railing around the manhole or any other safety devices … . Piccone v Metropolitan Tr. Auth., 2022 NY Slip Op 03458, First Dept 5-26-22

Practice Point: A defense to a Labor Law 240(1) construction-accident cause of action is that the plaintiff’s own act or omission was the sole proximate cause of the accident. Here, even if plaintiff’s attempt to step over the open manhole was a proximate cause of his fall, the absence of a protective railing around the manhole was also a proximate cause. Plaintiff’s comparative negligence is not considered in a Labor Law 240(1) cause of action.

 

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RARE SLIP AND FALL WON BY THE DEFENDANT AT SUMMARY JUDGMENT BY DEMONSTRATING A LACK OF CONSTRUCTIVE NOTICE OF THE PRESENCE OF THE BOX WHICH ALLEGEDLY CAUSED PLAINTIFF’S FALL (FIRST DEPT).

The First Department, reversing Supreme Court, determined defendant demonstrated it did not have constructive notice of the presence of a cardboard box over which plaintiff allegedly tripped and fell—a rare slip and fall case where a lack of constructive notice was successfully demonstrated at the summary judgment stage:

Defendant sustained its initial burden of showing that it lacked notice of the presence of the cardboard box near the walkway of its building before the accident and that it observed a reasonable cleaning routine … .. Plaintiff testified that she did not see the box when she left work at 4:00 p.m. on the day before her fall, and defendant’s caretaker stated that it was not there when he left work at 4:30 p.m. on the same day. The caretaker also testified that he cleaned the area twice a day, first thing in the morning and last thing at night. Thus, the box could have been deposited near the walkway a few minutes before plaintiff’s accident … . Defendant is not required to patrol the area 24 hours a day … , and plaintiff failed to show that the cleaning schedule described by the caretaker was “‘manifestly unreasonable'” … .

Plaintiff’s argument that the caretaker admitted that tenants regularly left garbage near the walkway and that it was a recurring problem is unavailing. The caretaker’s testimony shows that defendant was aware of the general problem, not that it was aware of the specific presence of the cardboard box at issue, and that it addressed the problem by having the caretaker clean the area twice a day … . Rodriguez v New York City Hous. Auth., 2022 NY Slip Op 03461, First Dept 5-26-22

Practice Point: In this slip and fall case, the defendant, at the summary judgment stage, presented evidence, including the plaintiff’s deposition testimony, which demonstrated the box which allegedly caused plaintiff’s fall was not in the walkway long enough to raise a question of fact whether defendant was or should have been aware of it.

 

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A REJECTED PURCHASE OFFER WAS NOT ADMISSIBLE AT TRIAL TO PROVE THE FAIR MARKET VALUE OF THE MARITAL RESIDENCE (FIRST DEPT). ​

The First Department, reversing (modifying) Supreme Court in this divorce case, determined a purchase offer was not admissible to show the fair market value of the marital residence:

Order … which … granted plaintiff’s motion to set a minimum net value for marital real property located in Southampton, New York, at $20 million for equitable distribution purposes, unanimously reversed … .

With respect to the parties’ Southampton marital property, we find that the court erred in imposing a minimum value based on a purchase offer of $20 million rejected by defendant, as evidence of an offer to purchase is generally inadmissible at trial to show fair market value … . Lauren S. v Alexander S., 2022 NY Slip Op 03462, First Dept 5-26-22

Practice Point: In a divorce action, a rejected purchase offer was not admissible at trial to prove the fair market value of a marital residence.

 

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GROUNDANYWHERE DRIVERS, LIKE UBER DRIVERS, ARE EMPLOYEES, NOT INDEPENDENT CONTRACTORS, ENTITLED TO UNEMPLOYMENT INSURANCE BENEFITS (THIRD DEPT).

The Third Department determined drivers who work for Groundanywhere, like the drivers who work for Uber, are employees not independent contractors, entitled to unemployment insurance benefits:

Shortly after the [Unemployment Insurance Appeal] Board’s decision here, we held that substantial evidence supported the Board’s determination that drivers for Uber Technologies, Inc in upstate New York were employees of Uber … . We find that the relationship between Groundanywhere and its drivers is not materially distinguishable from the employment relationship between Uber and its drivers. The record reflects that Groundanywhere uses a smartphone app that is essentially similar to the one used by Uber and exercises a comparable level of control over its drivers, providing substantial evidence to support the Board’s finding that claimant and other similarly situated drivers were employees entitled to unemployment insurance benefits and for whom Groundanywhere was liable for additional contributions … . The indicia of control include use of an app owned by Groundanywhere, which reviews and screens drivers’ various credentials and inspects their vehicles for compliance with its standards, provides drivers with a GPS navigation system, tests their knowledge of geography and ability to use GPS, and handles both driver and client complaints and problems that arise during the transport. Groundanywhere coordinates and oversees all aspects of the ride through its app, tracking the drivers and the ride on GPS and running a help desk for the drivers and controlling the drivers’ access to its clients. Groundanywhere sets and calculates the fares, keeps a set percent as a fee, charges the client a processing fee, adds a gratuity which, if disputed by the client, results in the driver getting a higher percent of the fare in lieu of a gratuity, collects the charges from the client and pays a percent of the base charge to the drivers, who are paid even if the client fails to show up for the trip or disputes the charges. Although drivers use and maintain their own vehicles and pay all vehicle expenses, they display a Groundanywhere logo and are reimbursed for tolls and parking costs. Clients are able to rate drivers, who are selected based upon their location, ratings and history of accepting offered fares. Matter of Hossain (Groundanywhere LLC–Commissioner of Labor), 2022 NY Slip Op 03424, Third Dept 5-26-22

Practice Point: Uber drivers, and drivers for similar outfits like Groundanywhere, are employees, not independent contractors, entitled to unemployment insurance benefits.

 

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PLAINTIFF HUSBAND WAS ENTITLED TO 15% OF THE APPRECIATON OF THE WIFE’S PREMARITAL ART-GALLERY BUSINESS IN THIS DIVORCE PROCEEDING REQUIRING THE DISTRIBUTION OF A NUMBER OF SUBSTANTIAL ASSETS (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Gesmer, modified some of some of Supreme Court’s distribution of marital assets in this divorce action. The opinion is too detailed, and addressed too many substantial assets to be fairly summarized here. With respect to the valuation of the husband’s portion of the appreciation of the wife’s art gallery, AWI, founded before the marriage, the First Department wrote:

… [P]laintiff met his burden to show that the appreciation in value of defendant’s pre-marital business, AWI, during the marriage constituted marital property subject to distribution … . …

An award to plaintiff of significantly less than half of the marital portion of AWI is justified by the following facts: defendant started her business years before she met plaintiff; plaintiff was not involved with defendant’s acquisition or sale of art; plaintiff’s conduct was at times problematic and even a hindrance to defendant’s business success; plaintiff’s contributions to the marriage diminished over time; and defendant will bear substantial tax consequences when she sells art to pay plaintiff a distributive award (see Domestic Relations Law § 236[B][5][d][7], [8], [11]; see also Cotton, 170 AD3d at 596). * * * Considering all of the circumstances, we find that plaintiff’s share of AWI’s appreciation during the marriage should be 15%, or $3,486,821 … . Culman v Boesky, 2022 NY Slip Op 03440, First Dept 5-26-22

Practice Point: In this complex divorce action involving may substantial assets, based upon the husband’s limited participation in the wife’s pre-marital art-gallery business, the husband was entitled to 15% of the appreciation of the business during the marriage.

 

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THE SEX OFFENDER LEVEL ADJUDICATION IN NEW YORK COUNTY REQUIRED THE DISMISSAL OF THE SORA PROCEEDING IN BRONX COUNTY WHICH WAS BASED ON THE SAME CONDUCT (FIRST DEPT).

The First Department, reversing Supreme Court, determined the Bronx County SORA proceeding should have been dismissed because New York County had entered a sex offender level adjudication based on the defendant’s conduct in both counties:

… [T]he proceeding in Bronx County should have been dismissed on defendant’s motion where Supreme Court, New York County had entered a sex offender level adjudication based on defendant’s criminal conduct in both counties, which constituted the “current offenses” under the risk assessment instrument … . People v Cisneros, 2022 NY Slip Op 03454, First Dept 5-26-22

Practice Point: The same conduct in two counties will not support more than one SORA sex offender level adjudication.

 

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