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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

 

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

 

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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CLAIMANT WAS CONVICTED OF MURDER AND AN UNRELATED ROBBERY WHICH WERE CHARGED IN A SINGLE INDICTMENT, AFTER A MAN CONFESSED TO THE MURDER, CLAIMANT’S MURDER CONVICTION WAS VACATED BUT THE ROBBERY CONVICTION REMAINED, REVERSING THE COURT OF CLAIMS, THE THIRD DEPT DETERMINED CLAIMANT WAS ENTITLED TO COMPENSATION FOR THE UNJUST MURDER CONVICTION AND RELATED IMPRISONMENT (THIRD DEPT).

The Third Department, reversing the Court of Claims, determined that claimant was entitled to compensation based upon his unjust conviction and imprisonment. Claimant’s murder conviction was vacated after another man confessed to the murder. Claimant had been charged with an unrelated robbery and the murder and robbery charges were joined in a single indictment. At the time the murder conviction was vacated, defendant pled guilty to the robbery. The state contended that the guilty plea to robbery precluded the claimant from compensation for the unjust murder conviction based upon the wording of the statute. The Third Department disagreed and interpreted the statute to allow compensation:

Court of Claims Act § 8-b allows individuals who are unjustly convicted and imprisoned to recover damages from defendant. To avoid dismissal of his claim, claimant was required to establish, as relevant here, that “he did not commit any of the acts charged in the accusatory instrument” … . Claimant admitted that he committed acts charged in the indictment when he pleaded guilty to first degree robbery; however, he argues that the term “accusatory instrument” must be construed as applying only to the murder charges because they arose from an event that had no connection to the robbery. * * *

The term “accusatory instrument” could be literally construed to refer to the single indictment that charged claimant with crimes that arose from both events — the robbery and the subsequent murder. However, that conclusion must be measured against the intent of the legislation plainly expressed in the statute, which states that “[t]he [L]egislature finds and declares that innocent persons who have been wrongly convicted of crimes and subsequently imprisoned have been frustrated in seeking legal redress due to a variety of substantive and technical obstacles in the law and that such persons should have an available avenue of redress over and above the existing tort remedies to seek compensation for damages. The [L]egislature intends by enactment of the provisions of this section that those innocent persons who can demonstrate by clear and convincing evidence that they were unjustly convicted and imprisoned be able to recover damages against [defendant]” … . Hence, “the linchpin of the statute is innocence” … . …

Under the unique facts of this case, a literal interpretation of “accusatory instrument” would lead to an unreasonable result starkly at odds with the clearly-expressed intent of the statute by denying recovery to claimant — who is indisputably innocent of the murder for which he was wrongfully convicted and imprisoned — solely because the charges arising from events now known to be unrelated were joined in a single indictment. Jones v State of New York, 2018 NY Slip Op 08985, Third Dept 12-27-18

 

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THE OPINION EVIDENCE THAT CLAIMANT’S PRE-EXISTING HEART CONDITION WAS A HINDRANCE TO HER EMPLOYABILITY WAS INSUFFICIENT, THE WORKERS’ COMPENSATION CARRIER, THEREFORE, WAS NOT ENTITLED TO REIMBURSEMENT FROM THE SPECIAL DISABILITY FUND (THIRD DEPT).

The Third Department, reversing the Workers’ Compensation Board, determined the evidence did not support the finding that the claimant’s pre-existing conditions posed a hindrance to her employability. Therefore the carrier was not entitled to reimbursement from the Special Disability Fund:

Claimant, a licensed practical nurse, established a claim for a work-related injury to her right knee stemming from a September 3, 2004 accident that occurred while she was dispensing medication to patients. * * *

We find that the carrier failed to prove that claimant’s preexisting conditions hindered or were likely to hinder her employability. Although Moriarty, an orthopedist, did offer an opinion based upon a records review that claimant’s heart conditions could pose a hindrance to employability, the opinion was based upon generalities and speculation, and did not rationally support the conclusion that claimant’s present disability was “‘materially and substantially greater than what would have arisen from the [2004] work-related injury by itself'” … . Moriarty did not examine or interview claimant, and the record does not reflect that claimant was subject to any restrictions or that any of her preexisting conditions hindered her job performance or ability to work… . In addition, as noted in Moriarty’s addendum, claimant’s aortic insufficiency from a heart valve condition was controlled by medication, and “preexisting conditions that are controlled by medication have been found, without more, not to constitute a hindrance to employability” … . In view of the lack of evidence that claimant’s preexisting conditions hindered or were likely to hinder her employability, we find that the Board’s decision is not supported by substantial evidence and, therefore, it must be reversed … . Matter of Ricci v Maria Regina Residence, 2018 NY Slip Op 08980, Third Dept 12-27-18

 

DEFENDANTS NEVER INTERPOSED AN ANSWER SO PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT SHOULD NOT HAVE BEEN GRANTED, DEFENDANTS’ MOTION FOR PERMISSION TO SERVE A LATE ANSWER PROPERLY DENIED, MATTER REMITTED SO PLAINTIFF CAN MOVE FOR A DEFAULT JUDGMENT (THIRD DEPT).

The Third Department determined Supreme Court should not have granted plaintiff’s motion for summary judgment because defendants never interposed an answer. The Third Department further determined defendants’ motion for permission to serve a late answer was properly denied. The matter was remitted to afford plaintiff the opportunity to make a late motion for a default judgment. The underlying matter is plaintiff’s action to recover the cost of cleaning up a highway accident involving defendants’ truck:

Supreme Court erred in granting plaintiff summary judgment because defendants never filed an answer and, thus, issue was not joined, a prerequisite that is “strictly adhered to”… . Further, summary judgment was not granted here pursuant to CPLR 3211 (c) … . Even if defendants are deemed to have appeared by filing a notice of removal of the action to federal court or by other conduct (see CPLR 320 [a]), they did not file a responsive pleading (see CPLR 3011) and, consequently, plaintiff was barred from seeking summary judgment … . …

Although Supreme Court possessed discretion to permit late service of an answer “upon a showing of [a] reasonable excuse for [the] delay or default” (CPLR 3012 [d]…), the reasonableness of the excuse “is a discretionary, sui generis determination to be made by the court based on all relevant factors”… . … We discern no basis for finding that Supreme Court abused its discretion in denying defendants’ motion, given the absence of a reasonable excuse for the delay … . Gerster’s Triple E. Towing & Repair, Inc. v Pishon Trucking, LLC, 2018 NY Slip Op 08979, Third Dept 12-27-18

 

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DEFENDANTS ARE REQUIRED TO PRODUCE TAX AND WAGE DOCUMENTS AND TO PROVIDE FACTUAL BASES FOR THEIR REFUSAL TO ANSWER QUESTIONS, SUPREME COURT SHOULD NOT HAVE ACCEPTED DEFENDANTS’ BLANKET ASSERTIONS OF THE PRIVILEGE AGAINST SELF-INCRIMINATION AND SPOUSAL PRIVILEGE IN THIS CONTEMPT PROCEEDING STEMMING FROM AN ACTION TO RECOVER A DEFICIENCY JUDGMENT (THIRD DEPT).

The Third Department, reversing (modifying) Supreme Court, determined that the defendant’s blanket assertion of his Fifth Amendment privilege against self-incrimination and his wife’s assertion of her Fifth Amendment and her spousal privileges did not justify the denial of plaintiff’s motion to hold defendant in contempt or the denial of a motion to compel defendant’s wife to submit to a deposition and produce documents. Plaintiff sought payment of a multi-million dollar deficiency judgment. The Third Department explained that tax returns, W-2 forms and 1099 forms fall withing the “required records exception” to the privilege against self-incrimination. The Third Department further found that defendant and his wife must provide a factual basis for their refusal to answer each of the 358 questions posed by plaintiff because there had been no showing that criminal proceedings against the defendant were imminent or that the spousal privilege was applicable:

… [D]efendant’s income tax returns, W-2 wage statements and 1099 forms — fall within the “required records exception” to the privilege against self-incrimination. Under this exception, “[t]he Fifth Amendment privilege which exists as to private papers cannot be asserted with respect to records which are required, by law, to be kept and which are subject to governmental regulation and inspection” … . “To constitute ‘required records,’ the documents must satisfy a three-part test: (1) the requirement that they be kept must be essentially regulatory, (2) the records must be of a kind which the regulated party has customarily kept, and (3) the records themselves must have assumed ‘public aspects’ which render them analogous to public documents” … . …

… [I]t is not evident that every answer to the 358 questions propounded during the May 2015 deposition, and every disclosure of the remaining documents requested in the subpoena, would subject defendant to a real and substantial danger of self-incrimination. The questions put to defendant were those customarily asked at a judgment debtor examination, and there is no indication that the purpose of the deposition was “anything other than an ordinary search of [defendant’s] assets in order to satisfy the judgment against him” … . … [T]here is nothing in this record indicating, nor does defendant assert, that he is the subject of any criminal investigation or proceeding. More to the point, defendant has not shown that his claimed fear of prosecution is anything other than “imaginary” … .

… [W]e conclude that Supreme Court’s order denying plaintiff’s motion to compel as to Chava Nelkenbaum [defendant’s wife] must be reversed and the matter remitted for an in camera inquiry to test the validity of her invocation of the Fifth Amendment privilege as to each of the questions asked and each of the documents demanded of her. To the extent that Chava Nelkenbaum invoked the spousal privilege as a basis for refusing to answer certain questions propounded at the deposition or to produce documents responsive to the subpoena, we note that the privilege “attaches only to those statements made in confidence and ‘that are induced by the marital relation and prompted by the affection, confidence and loyalty engendered by such relationship'” … . Further, this privilege does not attach to “ordinary conversations relating to matters of business” … . Carver Fed. Sav. Bank v Shaker Gardens, Inc., 2018 NY Slip Op 08975, Third Dept 12-27-18

 

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IN THIS CPLR ARTICLE 4 PROCEEDING BROUGHT BY THE ATTORNEY GENERAL, THERE WERE QUESTIONS OF FACT ABOUT WHETHER THE RESPONDENT NOT-FOR-PROFIT CORPORATION VIOLATED ITS FIDUCIARY DUTY AND THE NOT-FOR-PROFIT-CORPORATION LAW WITH RESPECT TO ITS AFFILIATE NOT-FOR-PROFIT CORPORATIONS AND WHETHER THE BUSINESS JUDGMENT RULE APPLIED (THIRD DEPT).

The Third Department, reversing (modifying) Supreme Court, in a decision too fact-specific to be fairly summarized here, determined issues of fact were presented about whether certain actions taken by respondent not-for-profit corporation (TLCN) breached its fiduciary duty to its not-for-profit corporation affiliate (Coburn) and violated the Not-for-Profit Corporation Law. The action was brought by the Attorney General in a special proceeding pursuant to CPLR article 4 which is similar to a summary judgment motion. The Third Department further held there were questions of fact whether the business judgment rule could properly be applied:

… Supreme Court acted properly in ordering TLCN to adopt a conflict of interest policy … .

… [I]nasmuch as Coburg is an independent corporation, TLCN may not operate Coburg in a manner inconsistent with Coburg’s purpose, nor engage in related party transactions without complying with the relevant provisions of the Not-For-Profit Corporation Law. * * *

Genuine issues of material fact exist as to whether respondents violated their duty to Coburg by improperly utilizing its surplus to benefit TLCN and its other affiliates and by engaging in related party transactions that were not in Coburg’s best interest. …

… [T]he business judgment rule has no place where corporate officers or directors take actions that exceed their authority under the relevant corporate bylaws … , or where they make decisions affected by an inherent conflict of interest… . There are issues of fact in the present record that preclude application of the business judgment rule, specifically regarding whether respondents exceeded their authority by improperly utilizing Coburg’s surplus to benefit TLCN and its other affiliates and by engaging in related party transactions that were not in Coburg’s best interest. Matter of The People of The State of New York v The Lutheran Care Network, Inc., 2018 NY Slip Op 08727, Third Dept 12-20-18

 

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