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Attorney General’s Civil Suit Against Former Officers of AIG Survived Summary Judgment

In a full-fledged opinion by Judge Smith, the Court of Appeals determined the Attorney General’s civil suit, seeking equitable relief (based upon allegations of fraud) against two former officers of AIG, survived summary judgment.  The Court explained the nature of the suit as follows:

The Attorney General began this civil suit against AIG, Maurice Greenberg and Howard Smith in 2005. Until shortly before the suit was brought, Greenberg was the Chief Executive Officer, and Smith the Chief Financial Officer, of AIG. AIG has settled the case; Greenberg and Smith remain as defendants.

The Attorney General alleges that Greenberg and Smith violated section 63(12) of the Executive Law and Article 23-A of the General Business Law (the Martin Act), and committed common law fraud. The statutes on which the Attorney General relies are broadly worded anti-fraud provisions, prohibiting among other things “repeated fraudulent or illegal acts” (Executive Law § 63[12]), “persistent fraud or illegality” (id.), and “fraud, deception, concealment, suppression [or] false pretense” (General Business Law § 352-c [1] [a]). It is not disputed that the Attorney General is empowered to sue for violation of these statutes.

The gist of the Attorney General’s claim, to the extent that it is now before us, is that Greenberg and Smith participated in causing AIG to enter into a sham transaction with General Reinsurance Corporation (GenRe) in which AIG purported to reinsure GenRe on certain insurance contracts. The Attorney General asserts that the transaction transferred no real risk from GenRe to AIG, and therefore should not have been treated as an insurance transaction on AIG’s books; and that the transaction’s sole purpose was to increase the insurance reserves shown on AIG’s financial statements, thereby creating the impression of a healthy insurance business and bolstering AIG’s stock price.  People v Greenberg, et al, No 63, CtApp, 6-25-13

 

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Ambulance Services Provided by Municipality Constitute a Governmental, Not Proprietary, Function

In a full-fledged opinion by Judge Graffeo, with two concurrences, the majority determined ambulance assistance rendered by first responders is a governmental, not proprietary, function.  The majority also concluded a question of fact had been raised about whether the city owed a “special duty” to the plaintiff, who suffered serious brain damage after going into anaphylactic shock.  Judges Smith and Abdus-Salaam disagreed with the majority and would have found that the ambulance service was a proprietary function.  The Court explained:

When a negligence claim is asserted against a municipality, the first issue for a court to decide is whether the municipal entity was engaged in a proprietary function or acted in a governmental capacity at the time the claim arose. If the municipality’s actions fall in the proprietary realm, it is subject to suit under the ordinary rules of negligence applicable to non-governmental parties…. A government entity performs a purely proprietary role when its “activities essentially substitute for or supplement traditionally private enterprises”…. In contrast, a municipality will be deemed to have been engaged in a governmental function when its acts are “undertaken for the protection and safety of the public pursuant to the general police powers” …. * * *

If it is determined that a municipality was exercising a governmental function, the next inquiry focuses on the extent to which the municipality owed a “special duty” to the injured party. The core principle is that to “‘sustain liability against a municipality, the duty breached must be more than that owed the public generally'”… .  Applewhite, et al, v Accuhealth, Inc, et al, No 86, CtApp 6-25-13

 

Breach of Duty to Defend Precludes Reliance on Policy Exclusions

In a full-fledged opinion by Judge Smith, the Court of Appeals held that “when a liability insurer has breached its duty to defend its insured, the insurer may not later rely on policy exclusions to escape its duty to indemnify the insured for a judgment against him.”  The Court wrote:

…”[A]n insurance company that has disclaimed its duty to defend “may litigate only the validity of its disclaimer.” If the disclaimer is found bad, the insurance company must indemnify its insured for the resulting judgment, even if policy exclusions would otherwise have negated the duty to indemnify. This rule will give insurers an incentive to defend the cases they are bound by law to defend, and thus to give insureds the full benefit of their bargain. It would be unfair to insureds, and would promote unnecessary and wasteful litigation, if an insurer, having wrongfully abandoned its insured’s defense, could then require the insured to litigate the effect of policy exclusions on the duty to indemnify.  K2 Investment Group, LLC v American Guarantee & Liability Insurance Company, No 106, CtApp, 6-11-13

 

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Bear Stearns Complaint Stated a Cause of Action for Indemnification and Should Not Have Been Dismissed

In a full-fledged opinion by Judge Graffeo, the Court of Appeals reversed the Appellate Division and allowed a suit by Bear Stearns against its insurers (which had denied coverage) to go forward.  In response to a Security and Exchange Commission (SEC) investigation into late trading and market timing activities, Bear Stearns agreed to pay a 160-million-dollar disgorgement fee.  Bear Stearns then sought indemnification from the defendant insurance companies.  The complaint, which had been dismissed, alleged that 140 of the 160 million constituted profits that flowed to Bear Stearns’ customers, not funds improperly acquired by Bear Stearns. The Court of Appeals determined that it could not be discerned from the SEC order alone whether or not the funds were deemed improperly acquired by Bear Stearns.  Therefore the complaint stated a cause of action:

In the context of these dismissal motions, we must assume Bear Stearns’ allegations to be true unless conclusively refuted by the relevant documentary evidence, in this case, the SEC order. Contrary to the Insurers’ position, the SEC order does not establish that the $160 million disgorgement payment was predicated on moneys that Bear Stearns itself improperly earned as a result of its securities violations. Rather, the SEC order recites that Bear Stearns’ misconduct enabled its “customers to generate hundreds of millions of dollars in profits.” Hence, at this CPLR 3211 stage, the documentary evidence does not decisively repudiate Bear Stearns’ allegation that the SEC disgorgement payment amount was calculated in large measure on the profits of others.  JP Morgan Securities, Inc v Vigilant Insurance Company, No 113, CtApp 6-11-13

 

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Proper Procedures for Handling Pro Se Motions to Withdraw Guilty Pleas (Alleging Coercion by Defense Counsel) Explained

The Court of Appeals considered two cases in which, after pleading guilty, the defendant made a pro se motion to withdraw the plea, claiming coercion and undue pressure by defense counsel. In both cases the sentencing judge asked for the defense attorney’s position on the pro se motion, which forced both attorneys to take a position adverse to the client’s, which, in turn, required the assignment of new counsel.  The Court explained how the situation should be handled:

…[W]hen a motion to withdraw a plea is patently insufficient on its face, a court may simply deny the motion without making any inquiry. When certain actions or inaction on the part of defense counsel are challenged on the motion, it may very well be necessary for defense counsel to address the matter when asked to by the court. When doing so, defense counsel should be afforded the opportunity to explain his performance with respect to the plea …, but may not take a position on the motion that is adverse to the defendant …. At that point, a conflict of interest arises, and the court must assign a new attorney to represent the defendant on the motion. People v  Mitchell …, Nos 116, 117, CtApp, 6-11-13

 

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Beating of Child Combined with Two-Hour Delay in Seeking Help Constituted Depraved Indifference

The Court of Appeals, in a full-fledged opinion by Judge Pigott which addressed both the proof requirements for depraved indifference murder and ineffective assistance of counsel, determined that the brutal beating of a 15-month-old baby combined with the failure to summon assistance for 2 hours met the criteria for depraved indifference to human life.  The Court found that the facts proved a brutal course of conduct over a prolonged or extended period of time.  In explaining the operative principles, Judge Pigott wrote:

This appeal is governed by the requirement that, in proving the existence of “circumstances evincing a depraved indifference to human life,” the People must show that, at the time the crime occurred, defendant had a mens rea of “utter disregard for the value of human life” …. Put simply, the People must prove that defendant did not care whether his victim lived or died … . Additionally, the People must prove a second mens rea, namely recklessness. * * *

A brutal course of conduct against a vulnerable victim occurring over a prolonged or extended period of time is more likely to be associated with the mental state of depraved indifference to human life than brutality that is short in duration and is not repeated. This is because the actor had the opportunity to regret his actions and display caring, but failed to take the opportunity. In the present case, defendant argues that his course of conduct against the child was not prolonged. But defendant’s argument focuses exclusively on the duration of his physical assault on the child, which may have been brief. However, this argument ignores the evidence that, by his later inaction “ his failure, over some two hours, to seek medical attention for the child “ defendant turned a brutal assault into a brutal and prolonged course of conduct against a vulnerable victim.  People v Barboni, 102, CtApp, 6-11-13

 

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Conviction for Selling T-Shirts without a Vendor’s License Upheld—Constitutional Expression vs. Commercial Enterprise

The defendant was convicted of “unlicensed general vending” for selling t-shirts in New York City without a vendor’s license. In his defense the defendant argued that the vending of t-shirts with artistic images on them was constitutionally protected expression. The Court of Appeals affirmed the conviction and the determination below that the purpose of the sale was primarily utilitarian as opposed to expressive.  Judge Smith dissented because the t-shirts had been destroyed and the Court could not determine their expressive nature.  In describing the appropriate analysis as explained in a Second Circuit case, the Court of Appeals wrote:

…[T]he Second Circuit found that the relevant inquiry is whether the vendor is “genuinely and primarily engaged in artistic self-expression or whether the sale of such goods is instead a chiefly commercial exercise” … . The Court recognized that certain items, including apparel, could simultaneously contain potentially expressive and non-expressive components and, in that situation, a reviewing court must determine which purpose — expression or utility — is dominant… .  People v Lam, 95, CtApp, 6-11-13

 

Loan Agreement Constituted a “Building Loan Contract” within Meaning of Lien Law/Only “Construction Funds” Subject to Subordination Penalty

In a full-fledged opinion by Judge Read, with a concurrence/dissent by Judge Graffeo, the Court of Appeals hashed out the priority of liens, including mechanic’s liens, to be satisfied after the foreclosure on a 10 million dollar construction project in Syracuse.  The Court determined that a loan agreement constituted a “building loan contract” within the meaning of Lien Law section 22, and that only the “construction funds,” as opposed to the total mortgage, were subject to the statutory subordination penalty.  Altshuler Shaham Provident Funds, Ltd v GML Tower, LLC, No 115, CtApp, 6-11-13

 

Petitioner Did Not Demonstrate Diminution in Value Related to Presence of Lead Paint Re: Tax Assessments

In affirming the tax assessment of residential properties in Syracuse, the Court of Appeals, in a full-fledged opinion by Judge Rivera, determined that the petitioner did not make a sufficient showing of the diminution of property values by the presence of lead paint:

In this Real Property Tax Law article 7 proceeding challenging the tax assessments of certain residential properties located in Syracuse, New York, petitioner contends that the trial court erred by failing to consider the impact of contamination — specifically, lead paint — upon the market value of the properties. We hold that petitioner failed to rebut the presumption of validity that attaches to the tax assessments of the properties by the City of Syracuse. That is, petitioner failed to proffer substantial evidence demonstrating a diminution in market value to his properties caused by the mere presence of lead paint. * * *

Where the trial court declined to credit petitioner’s appraisal reports, and the record does not demonstrate a diminution in market value caused by environmental contamination or hazards, petitioner failed to meet his burden and there is no basis to disturb the presumption of validity in the City’s favor. Matter of Roth v City of Syracuse, No 110, CtApp, 6-11-13

 

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“Substantial Factor in Producing the Injury” Jury Instruction (Re: Causation) Did Not Reduce Plaintiff’s Burden of Proof

In attempting to intubate an 83-year-old woman who was unresponsive, a doctor perforated her esophagus making it necessary that she be fed through a tube for the remaining three years of her life.  In affirming the plaintiffs’ verdict, the Court of Appeals determined that the trial court’s jury charge did not improperly reduce plaintiffs’ burden of proof on the issue of causation in this medical malpractice action. The jury was told defendant’s negligence caused the injury if it was a substantial factor in producing the injury:

It is well settled that a “plaintiff must generally show that the defendant’s negligence was a substantial factor in producing the injury” to satisfy “the burden of proving a prima facie case” in a medical malpractice action…. Here, the trial court recited the proximate cause charge directly from the PJI and explicitly instructed the jury as to plaintiffs’ burden of proof in the case. The court charged the jury using the language from PJI 2:70, as follows: “An act or omission is regarded as a cause of an injury if it was a substantial factor in bringing about the injury. That is, if it had such an effect in producing the injury that reasonable people would regard it as a cause of the injury.” Further, at the outset of the charge, the court instructed the jury that “the burden of the proof in this case rests with the plaintiffs,” and made clear that the plaintiffs had to establish by a preponderance of the evidence defendants’ negligence. Taking this jury charge as a whole, we do not find support for defendants’ contention of an improper alteration of the causation standard or plaintiffs’ burden of proof ….  Wild v Catholic Health System…, No 97, CtApp, 6-6-13

 

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