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Error to Exclude Petitioner from Arbitration Proceeding

Although the First Department determined the error was harmless, the court noted that petitioner should not have been excluded from an arbitration proceedings concerning the termination of her employment:

The arbitrator exceeded the scope of his authority by excluding petitioner from certain portions of the arbitration proceedings, over her objection, in violation of Rule 23 of the American Arbitration Association’s Commercial Arbitration Rules  (see CPLR 7511[b][iii]…).

The exclusion of petitioner from approximately 5% of the proceedings was, however, harmless error, since the result would have been the same had she been present. Petitioner’s case rested on her argument that respondents’ reasons for terminating her were merely a pretext to avoid paying her what she believed would be very high commissions. Since the evidence presented during petitioner’s absences from the proceedings had no bearing on that issue, there is no basis for vacating the arbitrator’s finding that petitioner was fired for her repeated, and severe, violations of the conflict of interest provisions of her contract, as well as for her threats against her employer… . Caruso v Viridian Network, LLC, 2013 NY Slip Op 05780, 1st Dept 9-10-13

 

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Student Who Had Been Expelled Could Bring Plenary Complaint Against School, in Addition to an Article 78 Proceeding

In a full-fledged opinion by Justice Andrias, the First Department determined that a dental student who had been expelled in a disciplinary action could bring both an article 78 proceeding and a plenary action for damages against the school. The court went through each cause of action in the complaint and allowed a few, including sex discrimination claims, to go forward. (In a previous appeal the article 78 petition re: the expulsion had been granted, finding that expulsion was too severe a penalty.):

“Judicial review of an academic institution’s disciplinary determinations is limited to whether it substantially adhered to its own published rules and guidelines and whether the determinations are based on a rational interpretation of the relevant evidence” … . Thus, to the extent plaintiff’s causes of action are, in essence, a challenge to the determination to expel her, she was only entitled to article 78 review …, and the filing of the article 78 proceeding mandated the dismissal of the plenary action insofar as it raised such claims … . Conversely, to the extent the gravamen of plaintiff’s causes of action is not a challenge to the decision to expel her and is not duplicative of the petition’s allegations, she is not limited to article 78 review and may seek damages in a plenary action … . Kickertz v New York Univ, 2013 NY Slip Op 05781, 1st Dept 9-10-13

 

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Certificates of Bond Insurance Are Insurance Policies to Be Interpreted Under Insurance and Contract Law—Restructuring in Bankruptcy and Reduction of Value of the Bonds Did Not Affect the Insurer’s Obligation to Cover the Bond Payments

In a full-fledged opinion by Justice Gische, the First Department determined the defendant, which issued certificates of bond insurance (CBI’s) insuring bonds against nonpayment, was obligated to cover payment on the bonds even after a bankruptcy restructuring in which the bonds were revalued:

Defendant acknowledges that it would have been contractually obligated to pay for any loss suffered by plaintiffs under the original bonds when they matured, in the event of the issuer’s bankruptcy, but it claims that as a result of the Restructuring Plan that was adopted, the original bonds were cancelled, completely relieving it of any obligation to pay under the CBIs. The court rejects this position because it is inconsistent with the terms of the policies and contrary to law.

The CBIs are financial guaranty insurance policies, which defendant is specially licensed to sell throughout the United States, including New York. …The policies are primarily governed by Article 69 of the Insurance Law. While they have some unique characteristics, they are generally subject to the same laws and principles underlying insurance policies in general (see Insurance Law § 6908). Thus, CBIs are policies of insurance that should be analyzed in accordance with general principles of contract interpretation and insurance law … .

Insurance policies are to be afforded their plain and ordinary meaning and interpreted in accordance with the reasonable expectations of the insured party… . Exclusions from policy obligations must be in clear and unmistakable language …, and if the terms of a policy are ambiguous, any ambiguity must be construed in favor of the insured and against the insurer … . …

The plain meaning of the contractual language contained in the CBI requires defendant to absolutely and unconditionally guarantee payment on the individual bonds in the event of the issuer’s nonpayment. Issuer insolvency is clearly a covered risk, as is bankruptcy, which is a societal hallmark of insolvency. These are the very risks for which defendant received payment of premiums. The CBIs were noncancellable, with a narrow exception not applicable here, and did not provide for any exclusion in the event of bankruptcy. … The restructuring occurred only after the default under the trust agreement had occurred. Confirmation of the restructuring plan made it a certainty that the issuer would not make any future payments to plaintiffs on the original bonds at their respective maturity dates. It is the restructuring of the bonds and their reissuance in a lower principal amount with a longer payment period that concretely represents that plaintiffs have sustained a loss. Neither the restructuring plan, nor the issuer’s discharge of debt in the bankruptcy proceeding, changed the obligations under the parties’ contracts of insurance. Oppenheimeer AMT-Free Municipals v ACA Fin. Guar. Corp., 2013 NY Slip Op 05768, 1st Dept 9-3-13

 

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A Contract Between a Hospital and a Security Company Was Not Invalidated by the Failure to Spell Out the Duties of the Security Personnel—Missing Element Filled in by Conduct; Interplay of Contract and Tort Liability to Third Parties Discussed

The First Department, in a full-fledged opinion by Justice Renwick, determined a security company (Burns), which had contracted to provide security at a psychiatric hospital (RUMC), was not liable, under contract or tort, to the family of a patient who escaped from the facility, engaged in a gun battle with police, and was killed. The opinion includes good discussions of contract liability to third parties versus tort liability to third parties. and the potential availability of contribution among joint tortfeasors that may apply even where no contractual or tort duty exists.  The First Department determined the contractual exclusion of liability to third parties was valid, the security company owed no duty to the plaintiff in tort, and contribution did not apply.  The central point of the opinion was that a security contract can be enforceable even if the precise duties of the security personnel are not spelled out in the contract. The missing element was not deemed essential and could be filled in by conduct:

…[C]ourts have consistently held that “where [as here] it is clear from the language of an agreement that the parties intended to be bound and there exists an objective method for supplying a missing term, the court should endeavor to hold the parties to their bargain”… . Under such circumstances, “[s]triking down a contract as indefinite and in essence meaningless is at best a last resort” …  .

In this case, there is a clear method for supplying the missing term, the parties’ course of conduct; all other terms were adopted directly from the written agreement. Thus, the only thing that was absent in this contract was a writing evincing the particulars of a non essential provision, which was later filled in by the parties’ mutual consent and course of conduct.  Aiello v Burns Intl. Sec. Servs. Corp., 2013 NY Slip Op 05767, 1st Dept 9-3-13

 

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Temporary Maintenance Award Not Waived by Prenuptial Agreement Waiving Only the Final Award of Alimony or Maintenance

The First Department held that Supreme Court properly awarded temporary maintenance to the wife (defendant) even though the wife waived alimony and maintenance in the prenuptial agreement:

We reject plaintiff’s argument that defendant waived temporary maintenance in the parties’ prenuptial agreement. Notwithstanding that defendant waived any claim to a final award of alimony or maintenance in the prenuptial agreement, the court was entitled, in its discretion, to award pendente lite relief in the absence of an express agreement to exclude an award of temporary maintenance… . Lennox v Weberman, 2013 NY Slip Op 05766, 1st Dept 9-3-13

 

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Death Threats Not Protected Under First Amendment; Hearsay May Be Basis of Administrative Determination

In affirming the arbitrator’s recommendation a teacher should be terminated for making death threats against an arbitrator in a prior disciplinary proceeding, the First Department noted that hearsay can be the basis for an administrative determination and explained the threats were not protected by the First Amendment:

We reject petitioner’s allegations that the instant disciplinary proceeding and the ultimate discipline imposed against him violated the right to free speech under the First Amendment to the United States Constitution. Supreme Court properly deferred to the arbitrator’s finding that petitioner’s statements are exempt from First Amendment protection because they constitute “true threats.” We note that petitioner’s former attorney only disclosed the threats because he believed that petitioner’s increasingly erratic behavior rendered him genuinely dangerous. Under the circumstances, it cannot be argued that petitioner’s speech implicates matters of public concern … . Nor can it be disputed that petitioner’s death threats disrupted the initial arbitration proceeding… . Matter of Smith v New York City Dept. of Educ., 2013 NY Slip Op 05765, 1st Dept 9-3-13

 

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Irreparable Injury to Plaintiffs Not Demonstrated and Balance of Equities Did Not Favor Plaintiffs Who Sought Injunction Prohibiting Landlord from Proceeding with a Water-Damage-Repair Plan Plaintiffs Thought Inadequate

In a full-fledged opinion by Justice Saxe, the First Department affirmed the denial of a preliminary injunction where plaintiffs-tenants sought to prohibit the landlord from going forward with repairs necessitated by water damage. The landlord proposed a repair-plan which involved the installation of insulation in the walls which would reduce the interior space of the 1400 square-foot apartment by about 50 square feet.  The plaintiffs wanted the exterior walls completely removed and replaced.  The First Department applied the standard criteria for injunctive relief and determined plaintiffs did not show irreparable harm and the balance of equities did not favor plaintiffs:

…[A]n alteration to residential quarters may be so minor that even though the tenant may be entitled to some form of compensation, a finding of irreparable harm is not warranted. Cases in which interference was sufficient to justify either injunctive relief or orders preventing the work from proceeding … do not preclude the possibility that interference in other circumstances may be so minimal as to fail to justify injunctive relief. Plaintiff failed to make a clear showing that the possible square footage reduction, a small fraction of the total footprint of the apartment, was more than de minimis. This conclusion, however, does not preclude compensation by other means.

Moreover, the balance of the equities does not weigh in plaintiff’s favor. Although plaintiff proposed an alternative method of performing the work on the exterior, she failed to respond to defendant’s assertion that this method would entail substantial extra expenses that defendant was under a fiduciary duty to avoid imposing on the other cooperative shareholders … . The claimed impact to plaintiff of the planned modifications to her apartment, most of which will be compensable based on plaintiffs’ breach of contract theory, is far outweighed by the expense to the co-op of demolishing and rebuilding exterior walls, especially when those walls have already been repaired and treated for waterproofing. Goldstone v Gracie Terrace Apt Corp, 2013 NY Slip Op 05725, 1st Dept 8-27-13

 

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Causes of Action Based Upon Allegations of Violations of Martin Act Concerning Fraud in the Selling of Securities Allowed to Go Forward— Supreme Court Should Not Have Evaluated Merits on Motion to Dismiss

The First Department determined Supreme Court should not have dismissed certain Martin Act/Executive Law causes of action alleging fraud in the sale of securities brought by the Attorney General against Charles Schwab. The First Department explained that Supreme Court should not have evaluated the merits of the case in determining the motion to dismiss:

The Martin Act causes of action are based on General Business Law § 352-c(1)(a), which, where applicable, prohibits fraud, concealment, suppression or false pretense, and General Business Law § 352-c(1)(c), which prohibits false representations or statements to induce or promote the issuance, purchase or sale of securities within or from the State. It is alleged in the complaint that defendant, Charles Schwab & Co., Inc. (Schwab), a registered securities broker-dealer, engaged in fraudulent and deceptive conduct in the sale of auction rate securities (ARS) to the investing public. The Attorney General asserts that Schwab misrepresented ARS to its customers as safe, liquid investments while concealing the fact that they were complex financial instruments with significant, inherent and increasing liquidity risks. * * *

In dismissing the Martin Act causes of action, the court concluded that the “misrepresentations alleged were true when made and the complaint contains no allegations that ARS were liquid at a time when they were illiquid.” The court based this conclusion on its own finding that there had been no failures in the auctions in the 20 years preceding August 2007. In reaching this conclusion, the court erroneously engaged in an evaluation of the merits of the Martin Act causes of action. On a motion to dismiss for failure to state a cause of action, it is not the function of the court to evaluate the merits of the case… . People v Charles Schwab & Co, Inc, 2013 NY Slip Op 05722, 1st Dept 8-27-13

 

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Level One Request for Information Not Justified by “Drug-Prone” Area or Defendant’s “Flight”—Seized Handgun Should Have Been Suppressed

Over a dissent, the First Department determined the facts did not justify a level one stop of the defendant by the police inside a New York City Housing Authority building and, therefore, the motion to suppress the handgun found in defendant’s pocket should have been granted. The First Department explained that a defendant’s presence in a high-crime or drug-prone alone does not justify a police request for information:

The uniformed police officers entered the building to check on other officers stationed inside. As the officers made their way towards the lobby, they saw defendant descending the stairs. When defendant saw the officers, he froze, jerked back, began to retreat, then stopped and stood on the stairs. Based on defendant’s reaction, and given the drug-prone nature of the building, the officers “suspected [defendant of] trespassing,” and asked him to come down the stairs to “make sure if he lived in the building.”

Defendant initially told the officers that he lived there. However, when asked for identification, he began to stutter, and changed his story to say that he was visiting his girlfriend. Although defendant stated that he had his identification in his pocket, he began moving his hands “all over the place, especially around his chest area,” which the officers interpreted to be threatening and indicative of possession of a weapon. To “take control of the situation” before it could “get out of hand,” an officer grabbed defendant’s left arm and brought it behind defendant’s back, which caused defendant’s open jacket to open up further and reveal a silver pistol in the netted interior coat pocket. One officer removed the pistol from the pocket, and another handcuffed defendant. * * *

Presence in a high-crime or drug-prone location, without more, does not furnish an objective credible reason for the police to approach an individual and request information … . As we have observed, “[T]he reputation of a location, however notorious, does not provide a predicate for subversion of the Fourth Amendment” … .

Nor does an individual’s desire to avoid contact with police—even in a high-crime neighborhood–constitute an objective credible reason for making a level one inquiry… .  People v Johnson, 2013 NY Slip Op 05723, 1st Dept 8-27-13

 

Plaintiff Assumed the Risk of Injury in Martial Arts Class

In reversing Supreme Court, the First Department determined the defendant, which conducted a mixed martial arts class, was entitled to summary judgment, based on the assumption-of-risk doctrine, in an action brought by a participant in the class injured when sparring with another “stockier” student. The First Department explained the relevant legal principles:

It is well established that the doctrine of assumption of risk generally applies where the plaintiff is injured while voluntarily participating in a sport or recreational activity, and the injury causing event is a “known, apparent or reasonably foreseeable consequence of the participation” … . The participant engaging in a sport or recreational activity “consents to those commonly appreciated risks which are inherent in and arise out of the nature of the sport generally and flow from such participation” … . Further, the assumption of risk doctrine considers the appreciation of risk measured “against the background of the skill and experience of the particular plaintiff” … . Tadmor v New York Jiu Jitsu Inc, 2013 NY Slip Op 05721, 1st Dept 8-27-13

 

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