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OIL AND GAS INVESTMENT SCHEME PROPERLY FOUND TO BE AN ABUSIVE TAX AVOIDANCE TRANSACTION (THIRD DEPT).

The Third Department, in a full-fledged opinion by Justice Pritzker, affirmed the Tax Appeals Tribunal’s determination that petitioner’s complex gas and oil drilling investment scheme constituted an abusive tax avoidance transaction. Therefore the notice of deficiency, penalties and interest assessed by the Department of Taxation and Finance were appropriate. The opinion is fact-specific and too complicated to fairly summarize here. The following quotation from the opinion is provided to demonstrate the nature of the issues:

The Tribunal’s determination that the overall financing structure artificially inflated the actual capital contributions of the Belle Isle partners [the petitioner oil and gas drilling company], allowing large tax deductions based upon IDCs [intangible drilling costs] derived through the inflated turnkey contract, is rationally based and supported by substantial evidence … . Beginning with the Belle Isle financing structure, particularly Sznajderman’s [petitioner general partner’s] subscription note, it is clear that Belle Isle did not have an intent to create a true debtor-creditor relationship as to 85% of the face value of the note. Specifically, while the face value of the subscription note was $540,000, the additional collateral agreement had the practical effect of satisfying the principal of said note by Sznajderman’s payment of only 15% of the face value, which was to be used by SS & T, the so-called creditor, to purchase bonds. Importantly, these bonds were not collateral; rather, they were ostensibly used to pay off the principal of the subscription note in 25 years. …

Further, Sznajderman’s payment of interest during the first year did not legitimize the debt because interest after the first year, which was designed to be paid from Sznajderman’s net operating proceeds, was only paid sporadically, despite such proceeds being available. We agree with the Tribunal that, based upon this sporadic collection of interest, it is highly unlikely that Belle Isle would attempt to collect “its partners’ very large interest accruals when the subscription notes mature.” … . As such, we find that substantial evidence supports the Tribunal’s conclusion that, while Sznajderman’s investment had economic substance in general, … the subscription note, to the extent of 85% of its face value, was artificially inflated and, as such, did not establish true debt and most certainly elevated form over substance … . Matter of Sznajderman v Tax Appeals Trib. of the State of N.Y., 2019 NY Slip Op 00007, Third Dept 1-3-19

 

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PLAINTIFF SUED THE VOLUNTEER FIRE COMPANY, NOT THE FIRE DISTRICT WHICH WAS THE PROPER PARTY, PLAINTIFF NEVER SERVED A NOTICE OF CLAIM ON THE DISTRICT, THE ACTION WAS PROPERLY DISMISSED (THIRD DEPT).

The Third Department determined the action against the Coeymans Hollow Volunteer Fire Company was properly dismissed and the proper party, the Coeymans Hollow Fire District #3, could not be sued because it was never served with a notice of claim. Plaintiff alleged she was injured when members of the Coeymans Hollow Volunteer Fire Company evacuated her from her house during a fire call:

A volunteer fire company, such as defendant, “shall be under the control of the . . . fire district . . . having, by law, control over the prevention or extinguishment of fires therein” (N-PCL 1402 [e] [1]). Indeed, the Fire District was responsible for preventing and extinguishing fires within its jurisdiction and trained and supervised defendant’s members. Furthermore, when defendant’s members responded to the fire at [plaintiff’s] house, they acted under the direction of the Chief of the Fire District. Because defendant and the Fire District are separate entities and defendant does not exert control over its members, defendant cannot be held liable for the alleged negligence of its members … . …

We reject plaintiff’s contention that defendant and the Fire District are so inextricably intertwined that timely service of the notice of claim upon defendant equates to timely service upon the Fire District. Furthermore, although defendant conducted an examination of [plaintiff] under General Municipal Law § 50-h, equitable estoppel does not preclude any claim that Roberts failed to serve the notice of claim upon the proper party … . We also note that, even though defendant was not obligated to inform Roberts that she failed to name the proper party … , defendant did so as an affirmative defense in its answer.

Plaintiff additionally contends that General Municipal Law § 50-e (3) (c) permits deeming the notice of claim served upon defendant as being timely served upon the Fire District. We disagree. This savings provision is “limited in scope to defects in the manner of serving the notice of claim on the correct public entity” … . That said, plaintiff fails to identify, nor does the record disclose, any infirmities in the service of the notice of claim. More critically, before any defects in service can be overlooked, service on the proper party must be accomplished in the first instance … . Roberts v Coeymans Hollow Volunteer Fire Co., 2019 NY Slip Op 00006, Third Dept 1-3-19

 

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DEFENDANT WAS CONVICTED OF 37 COUNTS OF SEXUAL OFFENSES, THE TESTIMONY AT TRIAL RENDERED 26 COUNTS DUPLICITOUS REQUIRING REVERSAL (THIRD DEPT).

The Third Department determined that 26 of the 37 sexual offense counts on which defendant was convicted must be reversed because they were rendered duplicitous by the trial testimony:

An indictment count is duplicitous when it charges more than one crime that is completed by a discrete act in the same count … . “Even if a count is valid on its face, it is nonetheless duplicitous where the evidence presented to the grand jury or at trial ‘makes plain that multiple criminal acts occurred during the relevant time period, rendering it nearly impossible to determine the particular act upon which the jury reached its verdict'” … . Thus, when “the trial testimony provides evidence of repeated acts that cannot be individually related to specific counts in the indictment, the prohibition against duplicitousness has been violated”  … . …

For example, counts 1 and 2 of the indictment used identical language to charge defendant with predatory sexual assault against a child on the ground that he committed the crime of criminal sexual assault in the first degree against victim 1 during the summer of 2006 … . Victim 1 testified that, during the summer of 2006 when he was 12 years old, defendant put his mouth on victim 1’s penis “[a]t least two times.” Likewise, counts 5 and 6 charged defendant with criminal sexual act in the second degree consisting of oral sexual conduct with victim 1 during the summer of 2007, counts 7 and 8 charged defendant with the commission of the same crime during the summer of 2008, counts 9 through 12 charged defendant with the commission of two counts of criminal sexual act in the third degree in each of the summers of 2009 and 2010, and count 13 charged defendant with the commission of sexual abuse in the second degree during the summer of 2006. Victim 1 testified that the charged conduct occurred at least twice during each of the specified time periods. He provided no further specifics about the frequency or timing of any particular act, and the prosecutor did not seek to distinguish among them by, for example, drawing victim 1’s attention to the first incident in one of the specified time periods and then asking him to describe that particular event … .  Likewise, the jury was given no instructions that distinguished between the counts pertaining to any of the time periods in a way that would have permitted it to relate each of the counts to a specific act … . People v Madsen, 2019 NY Slip Op 00003, Third Dept 1-3-19

 

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THE STATE ACTION ON A MULTI-MILLION DOLLAR DEBT SHOULD NOT HAVE BEEN DISMISSED ON CLAIM PRECLUSION OR RES JUDICATA GROUNDS BASED UPON THE DISMISSAL OF A FEDERAL ACTION AGAINST A DEFENDANT WHO WAS NOT A PARTY IN THE STATE ACTION, THE FACT THAT THE PLAINTIFFS IN THE STATE ACTION MAY HAVE BEEN ABLE TO INTERVENE OR ASSIGN THEIR RIGHTS TO THE DEFENDANT IN THE FEDERAL ACTION WAS NOT A PROPER GROUND FOR CLAIM PRECLUSION (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Moulton, reversing Supreme Court determined that the dismissal of action in federal court to recover on a multi-million dollar notes did not preclude the state action on claim preclusion (res judicata) grounds. The opinion is fact-specific and too complicated to be fairly summarized here:

Supreme Court dismissed the action with prejudice on claim preclusion grounds, and denied the motion to amend as moot. The court found that plaintiffs herein should have intervened in the federal action, or assigned their claims to [the defendant in the federal action,] Varshavsky. The failure to do so was a “blatant misuse of the federal forum,” which resulted in a “stunning” amount of discovery, and several motions, which Supreme Court found were wasted because plaintiffs herein failed to use the federal forum to resolve all “claims aris[ing] from a common nucleus of operative facts.” * * *

The doctrine of claim preclusion does not bar plaintiffs’ claims herein. Varshavsky, the sole defendant in the federal action, was not himself the creditor of the subject loans and had no standing to assert a counterclaim for recovery of plaintiffs’ loans in that action. Plaintiffs’ putative rights to intervene as party defendants in the federal action, or to assign their claims to Varshavsky, are far from clear. Either option, intervention or assignment, might have been rejected by the federal court as an attempt to evade the strictures of diversity jurisdiction. Apart from the efficacy of these options, even if intervention or assignment were possible, there is no legal doctrine that would compel plaintiffs herein to litigate in the federal action. In short, plaintiffs herein, as nonparties to the federal litigation, are not precluded from asserting claims that no party in the federal litigation had standing to pursue. To hold otherwise would mean that a debtor may, by suing a creditor’s principal or associate, require the creditor to participate in the action or have its claims precluded. Avilon Auto. Group v Leontiev, 2019 NY Slip Op 00058, First Dept 1-3-19

 

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THE TRIAL EVIDENCE DID NOT SUPPORT THE PLAINTIFF’S EXPERT’S TESTIMONY THAT DEFECTS IN THE HANDRAIL OR THE STAIR RISER HEIGHTS CONSTITUTED THE PROXIMATE CAUSE OF PLAINTIFF’S FALL IN THIS STAIRWAY SLIP AND FALL CASE, THE OVER $500,000 PLAINTIFF’S VERDICT WAS VACATED AND A NEW TRIAL ORDERED (FIRST DEPT).

The First Department vacated the plaintiff’s jury verdict (over $500,000) in this stairway slip and fall case and ordered a new trial, finding that plaintiff’s expert should not have been allowed to testify about defects in the handrail because the trial evidence did not allege the handrail was a proximate cause of the fall. The First Department further held, without explanation, that the riser heights should not have been charged as an independent theory of liability:

… [D]efendants’ argument that there was insufficient evidence adduced at trial to charge the jury on theories that either riser heights or the handrail were a proximate cause of plaintiff’s fall, has merit… . Although plaintiff testified that it was her usual habit to hold a handrail while descending stairs, her testimony was equivocal on whether she held the handrail that day. Further, she testified that she did not attempt to reach for a handrail at the time of her fall, because the accident happened too fast. Nor did she provide any testimony connecting the handrail to her optical illusion theory. Thus, plaintiff’s expert should not have been allowed to testify that the handrail was a contributing cause of plaintiff’s fall, and the jury should not have been charged on the question whether the handrail was too short. Moreover, while the final step’s size may have helped contribute to plaintiff’s claim of optical illusion, the riser heights in the staircase should not have been charged as an independent theory of liability.

The trial court’s response to a jury note asking whether the building was “up to code” was incorrect in light of the prior summary judgment order. Rather than responding that there was no evidence that the code was either violated or complied with, the jury should have been informed that the building code was not applicable to the staircase. Landau v Balbona Rest. Corp., 2019 NY Slip Op 00051, First Dept 1-3-19

EXPERT OPINION

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LEGAL MALPRACTICE ACTION BROUGHT BY A NEW JERSEY RESIDENT IS UNTIMELY PURSUANT TO NEW YORK’S BORROWING STATUTE, NEW YORK’S SHORTER STATUTE OF LIMITATIONS WAS APPLIED (FIRST DEPT).

The First Department determined Supreme Court properly applied New York’s borrowing statute (CPLR 202) and chose the shorter of the statutes of limitations for a legal malpractice action. New York’s statute is three years and New Jersey’s is six years. Plaintiff was a New Jersey resident:

The court correctly found the complaint time-barred under CPLR 202, New York’s “borrowing statute,” which requires a claim to be timely under both the New York limitations period and that of the jurisdiction where the claim is alleged to have arisen (Kat House Prods., LLC v Paul, Hastings, Janofsky & Walker, LLP, 71 AD3d 580[1st Dept 2010]).

Plaintiff, a New Jersey resident, alleged legal malpractice in connection with defendants’ representation of him for numerous real estate transactions, a cause of action which has a three year statute of limitations in New York (CPLR 214 [6]), and a six year limitations period in New Jersey (NJ Stat Ann § 2A:14-1). The latest that the alleged malpractice could have occurred was February 7, 2013, the date set for closing on the last of the real estate matters. Because plaintiff commenced the action on October 28, 2016, more than three years later, it was correctly dismissed as untimely. Soloway v Kane Kessler, PC, 2019 NY Slip Op 00026 [168 AD3d 407], First Dept 1-3-19

 

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PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT ON HIS LABOR LAW 240 (1) CAUSE OF ACTION SHOULD HAVE BEEN GRANTED, THE SCAFFOLD TILTED OR COLLAPSED CAUSING EVERYTHING IN IT TO CRASH ONTO HIM (FIRST DEPT).

The First Department, reversing Supreme Court, determined plaintiff’s motion for summary judgment on his Labor Law 240 (1) cause of action should have been granted:

Plaintiffs established entitlement to judgment as a matter of law in this action where plaintiff Steven Kind was injured when one end of a scaffold that he and a coworker were using to wash exterior windows on a building dropped out from under him and the scaffold came to rest at an angle, causing everything in it to crash down on him. The tilting or collapse of the scaffold was prima facie evidence of a violation of Labor Law § 240(1) … , and plaintiffs were not required to demonstrate a specific defect … .

In opposition, defendants failed to raise a triable issue of fact as to whether plaintiff’s actions were the sole proximate cause of the accident. The conclusion of the Department of Labor investigator that the scaffold tilted because plaintiff and his coworker caused a safety line to become caught in a spool for the scaffold’s suspension cables was speculation unsupported by the evidence … . Furthermore, defendant Titanium Scaffold Services, Inc., which contracted to maintain the scaffold, was an agent for purposes of the Labor Law. Kind v 1177 Ave. of the Ams. Acquisitions, LLC, 2019 NY Slip Op 00029, First Dept 1-3-19

 

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THE RELATION BACK DOCTRINE ALLOWED PLAINTIFF TO SERVE A SUPPLEMENTAL SUMMONS AND COMPLAINT ON THE DRIVER’S EMPLOYER IN THIS TRAFFIC ACCIDENT CASE PURSUANT TO THE RESPONDEAT SUPERIOR THEORY OF LIABILITY, AFTER THE ACTION WAS STARTED PLAINTIFF LEARNED THAT THE DRIVER OF THE CAR IN WHICH PLAINTIFF’S DECEDENT WAS A PASSENGER WAS PAID BY THE EMPLOYER TO TRANSPORT THE OTHER EMPLOYEES IN THE CAR TO WORK (FIRST DEPT).

The First Department, reversing Supreme Court, determined that the relation-back doctrine (CPLR 203(f)) allowed plaintiff, Polanco, to serve a supplemental summons and complaint against the employer of Elias-Tejada, the driver of the car in which plaintiff’s decedent was a passenger. The Elias-Tejada car stalled on a bridge and was struck from behind. Plaintiff (Polanco) did not learn until after the action was started that Elias-Tejada was paid by his employer, Fairway, to transport the other occupants of his car, all Fairway employees, to work. Plaintiff (Polanco) sought to add Fairway as a defendant under a respondeat superior theory and the First Department held he could do so:

The claims that Polanco seeks to assert against Fairway arise out of the same occurrence as alleged in the complaint against Elias-Tejada [and the other two defendant drivers]. … [W]e find that Polanco also satisfied the second condition, because under the doctrine of respondeat superior, an employer will be vicariously liable for the negligence of an employee committed while the employee is acting in the scope of his or her employment … . Based on Elias-Tejada’s employer/employee relationship with Fairway, they are united in interest because a judgment against one of them will similarly affect the other … . … [T]he Fairway defendants can, therefore, be charged as having notice of Polanco’s potential claims against them, based upon the claims asserted against Elias-Tejada in the original summons and complaint … . …

… Only later, after depositions were held, including those of a key Fairway employee and Elias-Tejada, did [plaintiff] learn that Fairway compensated Elias-Tejada for hosting the car pool and that this travel arrangement was condoned, if not actually implemented and encouraged, by Fairway’s human resources department because Fairway reimbursed him for tolls and mileage. Ramirez v Elias-Tejada, 2019 NY Slip Op 00021, First Dept  1-3-19

TRAFFIC ACCIDENTS

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LAWSUIT SEEKING TO ENJOIN JUDICIAL SALARY INCREASES WAS PROPERLY DISMISSED (THIRD DEPT). ​

The Third Department determined summary judgment dismissing the action brought by the Center for Judicial Accountability was properly granted:

… [P]laintiff Center for Judicial Accountability, Inc. (hereinafter CJA) and plaintiff Elena Ruth Sassower, CJA’s director, commenced this action seeking, among other things, a declaratory judgment that the bill establishing the budgets for the Legislature and the Judiciary for the 2016-2017 fiscal year … was unconstitutional and also seeking an injunction permanently enjoining respondents from making certain disbursements under the bill, including judicial salary increases. * * *

… Supreme Court properly granted defendants’ cross motion for summary judgment dismissing the sixth cause of action … which alleged that the enabling statute that created the Commission [Commission on Legislative, Judicial and Executive Compensation] is facially unconstitutional with respect to judicial compensation. Center for Jud. Accountability, Inc. v Cuomo, 2018 NY Slip Op 08996, Third Dept 12-27-18

 

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THE MAJORITY CONCLUDED COMMUNITY OPPOSITION TO PETITIONER’S RELEASE ON PAROLE WAS PROPERLY CONSIDERED BY THE BOARD OF PAROLE AND UPHELD THE DENIAL OF PAROLE, TWO-JUSTICE DISSENT ARGUED COMMUNITY OPPOSITION IS NOT INCLUDED IN THE STATUTORY FACTORS TO BE CONSIDERED BY THE BOARD (THIRD DEPT).

The Third Department, over a two-justice dissent, determined that petitioner’s request to be released on parole was properly denied. The majority held that community opposition to release is a factor to be considered. The dissenters argued that community opposition is not included in the statutory factors to be considered:

By statutorily protecting the confidentiality of those members of the community — in addition to the crime victim or victim’s representative — who choose to express their opinion, either for or against, an inmate’s bid to obtain parole release, the Legislature demonstrated a clear intent that such opinions are a factor that may be considered by respondent in rendering its ultimate parole release decision. Significantly, such statements and opinions are germane to respondent’s determination as to whether an inmate will live and remain at liberty without violating the law, whether such release is compatible with the welfare of society and whether an inmate’s release will deprecate the seriousness of the underlying crime as to undermine respect for the law — statutory factors that respondent must consider in rendering its parole release determinations (see Executive Law § 259-i [2] [c] [A] …).

From the Dissent: Respondent based its denial of petitioner’s parole, in part, on “consistent community opposition” — an element that is not among the factors that the Legislature directed respondent to consider in making parole release determinations (see Executive Law § 259-i [2] [c] [A]). Although the majority’s approach may have some practical appeal, we are bound by the governing law. It is well established that respondent may not rely upon factors outside the scope of Executive Law § 259-i in making decisions concerning parole release … . Matter of Applewhite v New York State Bd. of Parole, 2018 NY Slip Op 08989, Third Dept 12-27-18

 

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