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Mandamus to Compel Proceedings Properly Sought to Compel the NYC Housing Authority to Consider Requests for Increases in “Section 8” Rent Subsidies (A Ministerial Act), But a Particular Result Could Not Be Compelled (Because Exercise of Discretion Involved)

The First Department, in a full-fledged opinion by Justice Richter, determined that Article78/mandamus-to-compel proceedings were properly brought by owners of rental-properties against the NYC Housing Authority seeking rulings re: increased and suspended “Section 8” rent subsidies. The court held that the property-owners could compel the NYCHA to consider its requests (a ministerial act), but could not compel any specific result (an exercise of discretion).  The action was deemed timely because the NYCHA had never denied the requests, therefore the four-month statute never started running.  With respect increased subsidies, the court wrote:

An article 78 mandamus proceeding may be brought to compel an agency “to perform a duty enjoined upon it by law” (CPLR 7803[1]). It is well-settled that a mandamus to compel “applies only to acts that are ministerial in nature and not those that involve the exercise of discretion” … . Thus, “the petitioner must have a clear legal right to the relief demanded and there must exist a corresponding nondiscretionary duty on the part of the administrative agency to grant that relief” … .

Supreme Court properly found that the determination of the amount of any increase in the Section 8 subsidy is not purely ministerial but a matter entrusted to NYCHA’s discretion. An owner cannot receive a rent increase unless NYCHA first determines the reasonable rent (24 CFR 982.507[a][2][i]). In doing so, NYCHA is required to compare the unit’s rent to comparable unassisted units and must consider a myriad of discretionary factors, including location, quality, size, type and age of the unit, and any services, utilities and amenities provided (24 CFR 982.507[b]). Because the determination of the amount of any rental increase involves the exercise of discretion, it is not subject to mandamus. * * *

Although the eventual determination of reasonable rent will be the product of NYCHA’s judgment, the agency does not enjoy similar discretion to not make a decision at all on the rent increase requests. The applicable regulation, relied upon by NYCHA, provides that before any rent increase is allowed, NYCHA “must redetermine the reasonable rent” (24 CFR 982.507[a][2][i] [emphasis added]; see also 24 CFR 982.519[a] [under regulation relied upon by petitioners, NYCHA must annually adjust rent at owner’s request]). Upon the proper submission of a request for rent increase, NYCHA must process the request and come to a determination, whether adverse to petitioners’ position or not. NYCHA cannot leave petitioners in limbo, neither granting nor denying their requests, many of which have been pending for a significant amount of time. Thus, the petition states a claim for mandamus relief to the extent it seeks an order directing NYCHA to make a determination with respect to the rent increase requests … . Matter of Flosar Realty LLC v New York City Hous. Auth., 2015 NY Slip Op 01906, 1st Dept 3-10-15

 

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Rebuttal Evidence Re: a Defense that Was Not Asserted Should Not Have Been Allowed (Harmless Error)/Partial Closure of Courtroom During Testimony of Undercover Officers Proper

The First Department, over a dissent, determined that, although Supreme Court erred when it allowed the prosecution to reopen its case to present rebuttal evidence, the error was harmless in this bench trial. Defense counsel had mentioned an agency defense to the drug-sale charge, but then explained that the only defense raised at trial was defendant’s complete noninvolvement. Under those circumstances evidence rebutting the agency defense, which was never asserted, should not have been allowed. The First Department also held that Supreme Court properly closed the courtroom during the testimony of undercover officers.  With regard to the partial closure of the courtroom, the First Department wrote:

The Hinton hearing court, which closed the courtroom for the testimony of two undercover officers and which offered to permit family members or other persons designated by defendant to enter, properly exercised its discretion in rejecting defense counsel’s proposal that a court officer screen members of the general public who sought to enter during the testimony. The court concluded that this suggestion would have been impracticable because there was no additional court officer available to be posted outside the courtroom, and because in any event the officer would frequently have to interrupt the testimony to report the presence of persons seeking to enter. Therefore, under the circumstances presented, defendant’s proposal was not a “reasonable alternative[] to closing the proceeding” … . People v Mallard, 2015 NY Slip Op 01882, 1st Dept 3-10-15

 

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Criteria for (Upward) Departure from the Risk Level Assessed by the Board of Sex Offenders Explained

The First Department determined the SORA court properly departed from the recommendation by the Board of Sex Offenders (the Board) that defendant be assessed a level one sex offender.  The defendant had communicated in an Internet chat room with a police officer posing as a 13-year-old girl. Upward departure (to level two) was deemed warranted because, although there was no actual victim, the defendant’s behavior indicated he posed a risk to young girls and might re-offend. The court explained when departure from the Board’s recommendation is warranted:

The court concluded that the Board’s allocation to defendant of risk level one was inadequate and determined him to be a risk level two. The court stated, in relevant part:

“I don’t think this level would be appropriate for somebody who might re-engage in this conduct because the next person that he’s in contact with could very well be a real child and that person would be victimized, and I don’t think that this qualifies under the lowest level. This is not like one single, you know, inadvertent contact with somebody. This is a relationship that he attempted to develop, and as if over the period of days he got more and more explicit, counsel, indicated to her what he wanted to do, all the while thinking she’s a 13 year-old girl. I don’t believe that this risk score or the Board’s recommendation accurately reflects even the risk of his re-offending, counsel, or the harm that would be caused if he did re-offend, which are the two factors that the court is supposed to weigh in assessing his risk.” …

Although the Board’s assessment of a risk level is presumed to be correct, the reviewing court is to consider it as only a recommendation from which it, as an exercise of its discretion, can depart if there is clear and convincing evidence that a departure is warranted (…Correction Law 168-n[3]). The court’s analysis is not limited to tallying up points it believes the Board did not assess; rather, the court can adjust the risk level upwards if it determines that there are “aggravating factors not adequately accounted for in the [RAI]” … . This rule derives from the Board’s “Risk Assessment Guidelines and Commentary,” (the Guidelines), which note that “an objective instrument, no matter how well designed, will not fully capture the nuances of every case. Not to allow for departures would, therefore, deprive the Board or a court of the ability to exercise sound judgment and to apply its expertise to the offender” … . Conversely, as noted, the Board’s determinations are presumptive, and not to be routinely overturned … .  People v Macchia, 2015 NY Slip Op 01883, 1st Dept 3-10-15

 

 

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Trustee’s Settlement of Claims Against Countrywide/Bank of America Stemming from Sale of Mortgage-Backed Securities Approved

The First Department, in a full-fledged opinion by Justice Saxe, determined the trustee properly exercised its discretion in settling the claims stemming from mortgage-backed securities sold by Countrywide Home Loans between 2004 and 2008. Countywide was subsequently purchased by Bank of America (BofA). The First Department explained the courts’ powers re: reviewing the settlement under CPLR Article 77:

The ultimate issue for determination here is whether the trustee’s discretionary power was exercised reasonably and in good faith … . It is not the task of the court to decide whether we agree with the Trustee’s judgment; rather, our task is limited to ensuring that the trustee has not acted in bad faith such that his conduct constituted an abuse of discretion … .

We agree with Supreme Court that the Trustee did not abuse its discretion or act unreasonably or in bad faith in embarking on the settlement here. The Trustee acted within its authority throughout the process, and there is no indication that it was acting in self-interest or in the interests of BofA rather than those of the certificateholders.

Importantly, “if a trustee has selected trust counsel prudently and in good faith, and has relied on plausible advice on a matter within counsel’s expertise, the trustee’s conduct is significantly probative of prudence” (Restatement [Third] of Trusts § 77, Comment b[2]). While reliance on the advice of counsel may not always be the end of the analysis regarding a claimed breach of trust — it is possible for a trustee to specifically seek out legal advice that would support the trustee’s desired course of conduct, or there may be other circumstances establishing that it was unreasonable to follow the legal advice (id.) — a party challenging the decisions of a trustee who followed the advice of a highly-regarded specialist in the relevant area of law can prevail only upon a showing that, based on the particular circumstances, the reliance on such counsel’s assessment was unreasonable and in bad faith. Court approval of the settlement does not require that the court agree with counsel’s judgment or assessment; all that is required is a determination that it was reasonable for the Trustee to rely on counsel’s expert judgment. Matter of Bank of N.Y. Mellon, 2015 NY Slip Op 01880, 1st Dept 3-5-15

 

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Merger Doctrine and “As Is” Clause Did Not Bar Suit/Fraud-Based Causes of Action Did Not Duplicate Breach of Contract Cause of Action

The First Department, in a full-fledged opinion by Justice Mazzarelli, over a dissent, determined, in the context of a motion to dismiss for failure to state a cause of action, the merger doctrine did not apply to a contract for the sale of an apartment building, the fraud and fraudulent misrepresentations causes of action were not duplicative of the breach of contract cause of action (which was time-barred), and sufficient allegations for piercing the corporate veil had been pled.  The opinion is detailed because of the complicated facts and cannot fairly be summarized here.  With respect to the merger doctrine and the fraud-based causes of action, the court wrote:

The merger doctrine in a real estate transaction provides that once the deed is delivered, its terms are all that survive and the purchaser is barred from prosecuting any claims arising out of the contract … . The only exception to this rule is where the parties clearly intended that the particular provision of the contract supporting the claim would survive the delivery of the deed … . Further, an “as is” clause in a contract to sell real property will ordinarily bar a claim for breach of contract … . Plaintiff argues that the merger doctrine does not apply here because of the latent nature of the defects at issue. It further contends that its allegations of deceptive behavior on Seller’s part to mask the true condition of the building render the “as is” clause inoperable.

Although plaintiff cites trial court opinions identifying a latency exception to the merger doctrine, the concept has not been adopted by any of the Appellate Divisions or by the Court of Appeals … , and we are not adopting it here. Nevertheless, the merger doctrine is inapplicable in this case. Although the crux of the action is undoubtedly that plaintiff took title to a seriously defective building, the specific allegations in the complaint are that Seller breached the contract by failing to abide by those provisions designed to permit plaintiff to gain a true understanding of the condition of the property. …[E]ach of those representations was explicitly intended by the parties not to merge into the deed.

Further, since the breach of contract cause of action is addressed to these representations, and not to the condition of the building itself, the presence of the “as is” clause is no bar to the claim. Additionally, while the “as is” clause states that Seller has made no representations as to “any other matter or thing affecting or relating to the property,” it carries the caveat that this is “except as specifically set forth to the contrary in this agreement” (emphasis omitted). Thus, the three specific representations which plaintiff alleges were breached trump the “as is” clause. To the extent that plaintiff asserts fraud claims not directly related to the three surviving representations, the merger doctrine still does not apply (West 90th Owners Corp. v Schlechter, 137 AD2d 456, 459 [1st Dept 1988] [“fraud is a recognized exception to the merger doctrine”). * * *

Where “allegations of intentional fraud, though parallel in many respects to the breach of contract claim, include claims of fraudulent misrepresentations made by defendants which induced them to enter into the contract and close on the property, they are not merely redundant of the breach of contract claim . . . [and a] fraud cause of action is sustainable” … . TIAA Global Invs., LLC v One Astoria Sq. LLC, 2015 NY Slip Op 01768, 1st Dept 3-3-15

 

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Failure to Provide Personal Ropes to Firefighters Is a Proper Basis for a General Municipal Law 205-a Claim

The First Department determined the alleged violation of Labor Law 27-a(3)(a)(1)  was sufficient to support an action by firefighters against the City pursuant to General Municipal Law 205-a.  Firefighters were injured and killed jumping from a building without personal ropes. The failure to provide personal ropes is the basis of the suit.  Governmental immunity did not bar the suit:

The City unavailingly contends that Labor Law § 27-a(3)(a)(1) cannot provide a valid predicate for any General Municipal Law § 205-a claim. However, the statute, known as the Public Employee Safety and Health Act (PESHA), which imposes a general duty on an employer to provide employees with “employment and a place of employment which are free from recognized hazards that are causing or are likely to cause death or serious physical harm to its employees and which will provide reasonable and adequate protection to the lives, safety or health of its employees” (Labor Law § 27-a[3][a][1]), is sufficient since it is ” a well-developed body of law and regulation that imposes clear duties'” … .

Moreover, the City failed to “show that it did not negligently violate any relevant government provision or that, if it did, the violation did not directly or indirectly cause plaintiff’s injuries” … . There is evidence, including testimony and an investigative report, that the failure to issue personal ropes to the firefighters contributed to the injuries and deaths suffered when the firefighters jumped from windows using either no safety devices or a single rope that had been independently purchased by one of the firefighters. The City is also not entitled to dismissal of these claims pursuant to governmental function immunity, since the evidence concerning the removal of existing personal ropes in 2000, and the failure to provide new ropes in the period of more than four years from then until the fire giving rise to these claims, raises issues of fact concerning whether the absence of ropes “actually resulted from discretionary decision-making — i.e., the exercise of reasoned judgment which could typically produce different acceptable results” … . Stolowski v 234 E 178th St LLC, 2015 NY Slip Op 01732, 1st Dept 3-3-15

 

Release Applied to Claims Unknown at the Time the Release Was Signed and to Claims Among Parties on the Same Side of the Underlying Lawsuit

The First Department determined the language of the release was broad enough to include claims not known to exist at the time the release was signed and claims among parties on the same side in the suit:

According to the language of the agreement, the release broadly barred “all and/or any” claims “arising from” or “resulting from” or “in connection with” “any act [etc.] concerning [the Fund].” This Court has actually construed similar broad language to bar fraud claims relating to the subject matter where the signatories to the agreement did not specifically refer to, or even know about, those fraud claims before executing their release … . Similarly, courts have given effect to releases even when the releasors are subjectively unaware of the precise claims they are releasing … .

* * *  … [T]he language in the release simply states that “each Party . . . irrevocably and fully releases and forever discharges each other Party.” Had the parties wanted to release only specific individuals or entities, the agreement provided the language by which the parties could have done so. Thus, the release here at issue makes clear that each individual party released each other individual party regardless of the position in which those parties stood at the time they signed the release. Long v O’Neill, 2015 NY Slip Op 01733, 1st Dept 3-3-15

 

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Tortious Interference with Contract and Unfair Competition Causes of Action Proven–Elements Explained—Punitive Damages Not Warranted–Purpose Explained

The First Department, in a full-fledged opinion by Justice Sweeney, determined that the trial judge (bench trial) properly found that JC Penney (JCP) had tortiously interfered with the exclusivity provision of a contract between Macy’s and Martha Stewart Living Omnimedia (MSLO), but that the trial judge had improperly dismissed the cause of action alleging tortious interference with the confidentiality provision of the contract and the cause of action for unfair competition. The First Department agreed with the trial judge that punitive damages were not warranted.  Macy’s had entered a contract with MSLO which gave Macy’s the exclusive right to manufacture and sell MSLO products. JCP was found to have knowingly and forcefully engaged in negotiations with MSLO which resulted in MSLO’s breaching both the exclusivity and confidentiality provisions of the Macy’s contract:

To sustain its claim of tortious interference with contract, Macy’s must prove (1) that it had a valid contract with MSLO; (2) that JCP had knowledge of Macy’s contract with MSLO; (3) that JCP intentionally induced MSLO to breach its contract with Macy’s; (4) that MSLO breached its contract with Macy’s; (5) that MSLO would not have breached its contract with Macy’s absent JCP’s conduct; and (6) that Macy’s sustained damages … .

* * * On the record before us, the evidence establishes that JCP had, as the court found, a “certainty” or “substantial certainty” that it actions would result in a breach, particularly in light of the unambiguous language of the contract requirement that all MSLO goods in the Exclusive Product Categories, including all such goods sold in any MSLO Store, had to be manufactured by Macy’s. * * *

… Macy’s alleges that JCP induced MSLO to disclose the terms of its agreement and confidential financial information. This was a violation of the confidentiality provision of the agreement. Macy’s sufficiently demonstrated that the material disclosed does not fall under any exception to the confidentiality provisions as required by law or legal processes. Further, Macy’s demonstrated that the scope of disclosure was not properly limited with respect to the information provided and the personnel receiving it. As noted, JCP sought this information almost from the inception of its discussion with MSLO. The information was tantamount to trade secrets, as JCP’s executives acknowledged. * * *

It is well settled that “the primary concern in unfair competition is the protection of a business from another’s misappropriation of the business’ organization [or its] expenditure of labor, skill, and money'” (Ruder & Finn v Seaboard Sur. Co., 52 NY2d 663, 671 [1981]…). Indeed, “the principle of misappropriation of another’s commercial advantage [is] a cornerstone of the tort” (52 NY2d at 671). Allegations of a “bad faith misappropriation of a commercial advantage belonging to another by exploitation of proprietary information” can give rise to a cause of action for unfair competition … .

Here, the agreement between Macy’s and MSLO provided Macy’s with valuable exclusive rights to the Martha Stewart trademark and MSLO’s designs in the Exclusive Product Categories, which, as the court found, gave Macy’s a competitive advantage. It is conceded that the MSLO brand had significant value in the retail world, and the record shows JCP was fully aware of Macy’s commercial advantage as the exclusive distributor of these branded products. JCP’s actions in attempting to misappropriate this commercial advantage by inducing MSLO to breach its agreement falls squarely within Ruder and Finn’s definition of unfair competition … . * * *

…In order to be entitled to punitive damages, a private litigant “must not only demonstrate egregious tortious conduct by which he or she was aggrieved, but also that such conduct was part of a pattern of similar conduct directed at the public generally … . Punitive damages are “a social exemplary remedy, not a private compensatory remedy” Macy’s Inc v Martha Stewart Living Omnimedia Inc, 2015 NY Slip Op 01728, 1st Dept 2-26-15

 

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Insufficient Foundation for Introduction of Grand Jury Testimony as Past Recollection Recorded—No Showing Recollection Was “Fairly Fresh” and Accurate at the Time of the Grand Jury Appearance

The First Department, in a full-fledged opinion by Justice Andrias (disagreeing at length with the rationale of the concurring opinion), reversed defendant’s perjury conviction because a witness’ (Woods’) grand jury testimony was wrongly admitted under the past recollection recorded hearsay exception.  Woods testified and remained available to testify when the hearsay exception was invoked.  Woods claimed that he did not know whether he had actual knowledge of past events or whether his memory stemmed from the many “prep” discussions he had had with the prosecutor over a six-year period. There was a six-year gap between the underlying events and Woods’ grand jury appearance. The First Department determined the prosecutor did not lay a sufficient foundation for admission of the grand jury testimony in that it was not shown that Woods’ recollection was “fairly fresh” at the time of the grand jury testimony:

Although there is no rigid rule as to how soon after the event the statement must have been made …, here the assurance of the accuracy of the recordation and its trustworthiness are diminished by the six- year gap between the underlying events, which concluded in 2000, and Woods’s grand jury testimony in 2006 * * * .

The People argue that Woods’s testimony is admissible despite the six-year gap because the trial court found that he was “feigning a lack of memory.” However, even if Woods’s lack of memory demonstrates that he was unable or unwilling to testify, it does not abrogate the People’s obligation to satisfy the foundational requirement that the recollection was fairly fresh when [*5]recorded or adopted.

Nor was Woods able to “presently testify that the record correctly represented his knowledge and recollection when made” … . Although Woods testified that he believed his grand jury testimony was truthful and accurate, he also testified that “[a]s I sit here right now, I can’t tell you if everything that’s in that Grand Jury that I said was … accurate”; that although he “wanted to be accurate” and “wouldn’t testify untruthfully,” he could not swear that “what’s in the … Grand Jury … was exactly what happened,” and that he could not “remember [if] … what I was talking to was my clear recollection or … was resulting from [my prep sessions] with people.” Thus, Woods’s testimony reflects that although he would not have purposefully lied to the grand jury, he could not presently state that his testimony accurately reflected his own recollection of the events in question at the time that he testified before it … . People V DiTommaso, 2015 NY Slip Op 01592, 1st Dept 2-14-15

 

Re: a Third-Party Settlement, Consent of Special Fund Required Before Carrier Entitled to Reimbursement from Special Fund

The First Department determined an employee must obtain the consent of the Special Fund (or judicial approval) before accepting a third-party settlement:

Workers’ Compensation Law § 29(5) permits an employee to settle a lawsuit arising out of the same accident as gave rise to his workers’ compensation claim for less than the amount of the compensation he has received only if the employee has obtained written consent to the settlement from the carrier or, in the alternative, judicial approval. We find that, just as the employee is required to obtain the carrier’s consent prior to settlement, the carrier is required to obtain the Special Funds Conservation Committee’s consent prior to the settlement where it is entitled to reimbursement by the Committee pursuant to Workers’ Compensation Law § 15(8)(d) … . Ace Fire Underwriters Inc Co v Special Funds Conservation Comm, 2015 NY Slip Op 01574, 1st Dept 2-24-15

 

 

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