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Plaintiff Cannot Be the Only Link between the Defendant and the Forum/Defendant’s “Minimum Contacts” with New York Not Demonstrated

The Second Department determined New York courts did not have subject matter jurisdiction in an action against a Texas physician who had treated plaintiff’s late mother when she resided in Texas and Florida.  The court explained the relevant analysis:

Where a motion is made to dismiss an action for lack of personal jurisdiction, it is the plaintiff who bears the ultimate burden of proving a basis for such jurisdiction … . A plaintiff relying on CPLR 302(a)(3)(ii) “must show that (1) the defendant committed a tortious act outside New York; (2) the cause of action arose from that act; (3) the tortious act caused an injury to a person or property in New York; (4) the defendant expected or should reasonably have expected the act to have consequences in New York; and (5) the defendant derived substantial revenue from interstate or international commerce” … . Once those elements are met, an assessment must then be made as to whether a finding of personal jurisdiction satisfies due process … .

Here, the plaintiff failed to establish that the defendant’s alleged tortious act — prescribing medication in Texas to the plaintiff’s mother while she was in Texas and in Florida — caused injury in New York … . Moreover, under the circumstances, the plaintiff failed to establish that the defendant expected or should reasonably have expected the act to have consequences in New York, or that the defendant “derive[d] substantial revenue from interstate . . . commerce” (CPLR 302[a][3][ii]). In addition, the plaintiff failed to establish that the defendant had the requisite “minimum contacts” with New York such that the prospect of defending a suit here comported with “traditional notions of fair play and substantial justice,” as required by the Federal Due Process Clause … .

On February 25, 2014, the Supreme Court of the United States rendered a decision refining the “minimum contacts” analysis set forth in International Shoe Co. (see Walden v Fiore, _____ US _____, 134 S Ct 1115). The Supreme Court determined that a “plaintiff cannot be the only link between the defendant and the forum. Rather, it is the defendant’s conduct that must form the necessary connection with the forum State that is the basis for its jurisdiction over him” (id. at 1122). Moreover, the Supreme Court held that, “[d]ue process requires that a defendant be haled into court in a forum State based on his own affiliation with the State, not based on the random, fortuitous, or attenuated’ contacts he makes by interacting with other persons affiliated with the State” … . Waggaman v Arauzo, 2014 NY Slip Op 03259, 2nd Dept 5-7-14

 

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Whether Plaintiff “Justifiably Relied” on Alleged Misrepresentations Is Not Generally a Question Which Can Be Resolved in a Motion to Dismiss for Failure to State a Cause of Action

Reversing the appellate division, over two-judge dissent, the Court of Appeals determined (in the context of a motion to dismiss for failure to state a cause of action) plaintiff had sufficiently pled “justifiable reliance” on the representations at issue. The complaint alleged defendant (Goldman Sachs) “fraudulently induced plaintiff to provide financial guaranty for a synthetic collateralized debt obligation (CDO), known as ABACUS. In its complaint, plaintiff alleges that defendant fraudulently concealed the fact that its hedge fund client …, which selected most of the portfolio investment securities in ABACUS, planned to take a “short” position in ABACUS, thereby intentionally exposing plaintiff to substantial liability; had plaintiff known this information, it would not have agreed to the guaranty.” The complaint further alleged defendant affirmatively misrepresented the role of the hedge fund in answer to plaintiff's questions. Those allegations were sufficient to survive a motion to dismiss:

To plead a claim for fraud in the inducement or fraudulent concealment, plaintiff must allege facts to support the claim that it justifiably relied on the alleged misrepresentations. It is well established that “if the facts represented are not matters peculiarly within the [defendant's] knowledge, and [the plaintiff] has the means available to [it] of knowing, by the exercise of ordinary intelligence, the truth or the real quality of the subject of the representation, [the plaintiff] must make use of those means, or [it] will not be heard to complain that [it] was induced to enter into the transaction by misrepresentations” … . Moreover, “[w]hen the party to whom a misrepresentation is made has hints of its falsity, a heightened degree of diligence is required of it. It cannot reasonably rely on such representations without making additional inquiry to determine their accuracy” … . Nevertheless, the question of what constitutes reasonable reliance is not generally a question to be resolved as a matter of law on a motion to dismiss … .  ACA Fin. Guar. Corp. v Goldman, Sachs & Co., 2015 NY Slip Op 03876, CtApp 5-7-15

 

Doctrine of Judicial Estoppel Precluded Plaintiff from Taking a Position Contrary to the Position Plaintiff Took In Two Prior Successful Actions

The Third Department determined the position taken by plaintiff in prior successful actions, i.e., that defendant was the owner of certain lots, precluded plaintiff, under the doctrine of judicial estoppel, from taking the position defendant was not the owner of those lots in the instant proceeding:

Under the doctrine of judicial estoppel, or estoppel against inconsistent positions, “if a party assumes a position in one legal proceeding and prevails in maintaining that position, that party will not be permitted to assume a contrary position in another proceeding simply because the party’s interests have changed” … . “The doctrine rests upon the principle that a litigant should not be permitted . . . to lead a court to find a fact one way and then contend in another judicial proceeding that the same fact should be found otherwise” …. . Green Harbour Homeowners Assn., Inc. v Ermiger, 2015 NY Slip Op 03899, 3rd Dept 5-7-15

 

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Courts Do Not Have Subject Matter Jurisdiction Over Disputes Requiring Inquiry Into Religious Doctrine

The Second Department determined a dispute among religious parties could not be determined in the courts because it would involve an impermissible inquiry into religious doctrine or practice:

“The First Amendment forbids civil courts from interfering in or determining religious disputes, because there is substantial danger that the state will become entangled in essentially religious controversies or intervene on behalf of groups espousing particular doctrines or beliefs. Civil disputes involving religious parties or institutions may be adjudicated without offending the First Amendment as long as neutral principles of law are the basis for their resolution” … . Here, the claims asserted by the plaintiff are nonjusticiable, as they cannot be resolved based on neutral principles of law. Rather, resolution of the issues raised would necessarily involve an impermissible inquiry into religious doctrine or practice … . Rodzianko v Parish of the Russion Orthodox Holy Virgin Protection Church Inc, 2014 NY Slip Op 03249, 2nd Dept 5-7-14

 

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Most of Plaintiff’s Causes of Action Were Allegations Concerning the Conduct of a State Employee in His Official Capacity—Therefore, Those Causes of Action Were Actually Against the State and Could Only Be Heard in the Court of Claims/Elements of Intentional Infliction of Emotional Distress Explained

The Second Department upheld the dismissal of several causes of action (brought in Supreme Court) which were determined to constitute actions against the state because they were directed at the official conduct of an individual employed by the state. Actions against the state can be heard only in the Court of Claims. The suit was brought by a doctor employed by the SUNY Downstate Medical Center and alleged breach of contract, wrongful termination of employment, promissory estoppel, defamation and intentional infliction of emotional distress.  The Second Department concluded that only defamation should survive because that cause of action was against plaintiff’s boss, Dr. Abulafia, in his individual, not official, capacity.  The intentional infliction of emotional distress cause of action, which was also against Dr. Abulafia in his individual capacity, was dismissed because it was not sufficiently alleged:

“The Court of Claims has limited jurisdiction to hear actions against the State itself, or actions naming State agencies or officials as defendants, where the action is, in reality, one against the State—i.e., where the State is the real party in interest” … . Generally, “[t]he Court of Claims has exclusive jurisdiction over actions for money damages against State agencies, departments, and employees acting in their official capacity in the exercise of governmental functions” … . “Where, however, the suit against the State agent or officer is in tort for damages arising from the breach of a duty owed individually by such agent or officer directly to the injured party, the State is not the real party in interest—even though it could be held secondarily liable for the tortious acts under respondeat superior” … .

Contrary to the plaintiff’s contention, the Supreme Court properly granted those branches of the defendants’ motion which were to dismiss the causes of action to recover damages for breach of contract, wrongful termination of employment, and promissory estoppel insofar as asserted against Abulafia, correctly concluding that it lacked subject matter jurisdiction to entertain those cases of action insofar as asserted against Abulafia, as those causes of action arose from acts performed, and determinations made, by Abulafia as a State employee acting in his official capacity… . * * *

“In order to state a cause of action to recover damages for intentional infliction of emotional distress, the complaint must allege conduct that was so outrageous in character, and so extreme in degree, as to go beyond all possible bounds of decency . . . and [was] utterly intolerable in a civilized community'” … . Even accepting as true the allegations in the complaint regarding Abulafia’s conduct, and according the plaintiff the benefit of every possible favorable inference …, Abulafia’s conduct was not “so outrageous in character, and so extreme in degree” as to qualify as intentional infliction of emotional distress … .  Borawski v Abulafia, 2014 NY Slip Op 03221, 2nd Dept 5-7-14

 

In Consolidated Actions Started in Different Counties, the County Where the First Action Was Brought is the Proper Venue

The Second Department determined the proper venue for consolidated actions started in different counties is the county where the first action was brought: ” ‘[W]here actions commenced in different counties have been consolidated pursuant to CPLR 602, the venue should be placed in the county where the first action was commenced, unless special circumstances are present which decision is also addressed to the sound discretion of the court’…” . Fitzsimons v Brennan, 2015 NY Slip Op 03802, 2nd Dept 5-6-15

 

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Once an Amended Complaint is Served the Action Must Proceed As if the Original Complaint Never Existed—A Summary Judgment Motion Based Upon an Affirmative Defense Asserted for the First Time in the Answer to the Amended Complaint Was Properly Brought, Even Though a Prior Summary Judgment Motion on the Same Ground Had Been Denied/Medical Billing Software, i.e., Intellectual Property, Is “Personal Property” Covered by General Obligations Law 5-903—The Automatic Renewal Provision of the Medical Billing Contract Was Therefore Void

The First Department, in a full-fledged opinion by Justice Gische, determined that an amended complaint supersedes the original complaint and an affirmative defense asserted in the answer to the amended complaint could be the basis of a summary judgment motion, even though the same ground was asserted in a prior, unsuccessful summary judgment motion. The substantive issue was whether billing software licensed to a doctor was “service … to or for … personal property” within the meaning of General Obligations Law 5-903 (2).  The court determined the billing software was covered by the General Obligations Law and, therefore, the automatic renewal provision in the contract between the software company and the doctor could not be enforced.  The “General Obligations Law” affirmative defense was not asserted in the original answer and a summary judgment motion based on the unpled affirmative defense had previously been denied:

We find that the second summary judgment motion, brought after the pleadings were amended on a substantive issue not previously decided by the court, was procedurally proper. “Once plaintiff served the amended complaint, the original complaint was superseded, and the amended complaint became the only complaint in the action. The action was then required to proceed as though the original pleading had never been served” … . Thus, defendant’s appeal from the prior order denying summary judgment became moot …, and “sufficient cause . . . exist[ed]” for his motion for summary judgment dismissing the amended complaint … . …

General Obligations Law § 5-903 does not define “personal property,” although it broadly defines “person” as “an individual, firm, company, partnership or corporation” and also states that its restrictions apply unless “the person receiving the service” is served with advanced notice calling its attention to the renewal clause in the contract (General Obligations Law § 5-903[2]). The statute does not require that the person own the “personal property” being serviced, and section 5-903 has been analyzed by courts in a variety of circumstances to determine its applicability. Personal property has been interpreted to include intellectual property as well as tangible personal property … . The purpose of the notice provision is to protect service recipients from the harm of unintended automatic renewals of contracts for consecutive periods … . Since § 5-903 is remedial in nature it is construed broadly … .

We find that the parties’ agreement was “for service . . . to or for . . . personal property” within the meaning of the General Obligations Law. The services provided were directly and inextricably related to the billing and medical records of the practice, which are personal property. Healthcare IQ LLC v Tsai Chung Chao, 2014 NY Slip Op 03216, 1st Dept 5-6-14

 

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Supreme Court Should Not Have Determined the Mortgage Company Did Not Negotiate a Loan Modification in Good Faith Without a Hearing, and Could Not, Pursuant to the Contract Clause, Order the Mortgage Company to Enter a Loan Modification Agreement

After defendant, Ms Hepburn, failed to answer the summons and complaint in a mortgage foreclosure action, the plaintiff mortgage company moved for an order of reference (the appointment of a referee to compute the amount due).  Supreme Court denied the motion and, sua sponte, determined the mortgage company had not negotiated a loan modification in good faith (CPLR 3408), and directed the mortgage company to offer a loan modification within sixty days.  The Second Department determined Supreme Court should have granted the motion for an order of reference (which was not opposed), should not have made a finding the mortgage company failed to negotiate a loan modification in good faith without conducting a hearing, and could not, pursuant to the Contract Clause, order the mortgage company to enter a loan modification agreement:

The Supreme Court should not have, sua sponte, determined that the plaintiff failed to negotiate in good faith as required by CPLR 3408, and directed it, within sixty days, to offer a loan modification to Ms. Hepburn allowing her to assume the subject mortgage. “It is well-settled that an action to foreclose a mortgage is equitable in nature and triggers the equitable powers of the court” … . “Once equity is invoked, the court’s power is as broad as equity and justice require” … . A court “may impose a sanction sua sponte, but the party to be sanctioned must be afforded a reasonable opportunity to be heard” … .

Here, the only matter before the Supreme Court was the plaintiff’s motion for an order of reference. Without an evidentiary hearing or notice to the parties, the Supreme Court sua sponte determined that the plaintiff had not acted in good faith in its negotiations with Ms. Hepburn at settlement conferences, which were held over a 16-month period, and thereupon denied the plaintiff’s motion. Such procedure did not afford the plaintiff an opportunity to oppose the Supreme Court’s finding that it had not met it obligation to negotiate in good faith as required by CPLR 3408 or to oppose the imposition of sanctions … . Moreover, even if sanctions for failure to negotiate in good faith were appropriate in this matter, the Supreme Court erred in directing the plaintiff to, in effect, enter into a contract with Ms. Hepburn … . Such a sanction violates the Contract Clause of the United States Constitution … . PHH Mtge. Corp. v Hepburn, 2015 NY Slip Op 03817, 2nd Dept 5-6-15

 

Doctrines of Res Judicata and Collateral Estoppel Precluded Plaintiffs’ Action—Doctrines Clearly Described

The Second Department determined plaintiffs’ breach of contract action was precluded by the doctrines of res judicata and collateral estoppel because all the relevant issues had been raised and determined in defendant’s successful mortgage foreclosure actions. The Second Department offered the following clear descriptions of the res judicata and collateral estoppel doctrines:

The doctrine of res judicata provides that “once a claim is brought to a final conclusion, all other claims arising out of the same transaction or series of transactions are barred, even if based upon different theories or if seeking a different remedy” … . The doctrine of res judicata bars a party from relitigating any claim which could have been or should have been litigated in a prior proceeding … . Therefore, under res judicata, or claim preclusion, a valid final judgment will bar future actions between the same parties involving the same cause of action … .

The claims asserted by the plaintiffs in this case concern the parties’ rights and obligations under the mortgage agreements between the plaintiffs and the defendant. As such, those claims needed to be—and, in fact, were—raised by the plaintiffs in defending against the foreclosure action, and thus the plaintiffs are barred from relitigating those claims in this action … . * * *

Collateral estoppel, or issue preclusion, precludes a party from relitigating in a subsequent proceeding or action an issue that was raised in a prior action or proceeding and decided against that party or those in privity … . For the bar to apply, the issue must have been material to the first action and “essential to the decision rendered therein,” and it must be the point that is to be determined in the second action, such that “a different judgment in the second would destroy or impair rights or interests established by the first” … . In addition, the party against whom preclusion is sought must have had a “full and fair opportunity to contest the matter in the prior action” … .

In this case, the claims sought to be relitigated are identical to those that were decided against the plaintiffs in the foreclosure action. These claims were material to the action and were essential to the decision rendered. Moreover, the plaintiffs had a full and fair opportunity to contest the prior determination … . SSJ Dev. of Sheepshead Bay I, LLC v Amalgamated Bank, 2015 NY Slip Op 03824, 2nd Dept 5-6-15

 

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Even Records Demonstrated to Be Material and Necessary to the Prosecution or Defense of an Action Are Not Discoverable If Privileged and the Privilege Is Not Waived

Even though disclosure of a non-party sibling’s medical records was demonstrated to be material and necessary (CPLR 3101(a)(1)), the Second Department determined discovery was precluded because the records are privileged (CPLR 3101 (b)) and the privilege was not waived:

Even when the party seeking disclosure has demonstrated that such disclosure is material and necessary in the prosecution or defense of an action (see CPLR 3101[a][1]), discovery may still be precluded where, as here, the requested information is privileged and thus exempted from disclosure pursuant to CPLR 3101(b) … . “Once the privilege is validly asserted, it must be recognized and the sought-after information may not be disclosed unless it is demonstrated that the privilege has been waived” … . Washington v Alpha-K Family Med. Practice, P.C., 2015 NY Slip Op 03831, 2nd Dept 5-6-15

 

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