Western District Case Notes

(This article originally appeared in The Bulletin, the official publication of the Bar Association of Erie County. It is reprinted here with permission.)

Kevin Hogan

Subject Matter Jurisdiction

In U.S. Bank Trust, N.A. v. Wiebeld, No. 16-cv-6797(MAT) (Aug. 8, 2017), plaintiff commenced an action on behalf of a trust to foreclose a mortgage, asserting diversity of citizenship as the sole basis for the court’s subject matter jurisdiction. Shortly after the court dismissed a similar action brought by the same plaintiff based on lack of subject matter jurisdiction, the court issued an order requiring plaintiff to show cause why its complaint in this action should not also be dismissed given the complaint’s inadequate allegations concerning plaintiff’s citizenship and the citizenship of the underlying trust.

After reviewing plaintiff’s response, the court found that while plaintiff adequately established that its citizenship (rather than the citizenship of the trust) controlled for purposes of determining diversity, plaintiff nonetheless failed to provide sufficient information regarding its citizenship. In doing so, the court observed that the citizenship of a national banking association is determined by the state designated in its articles of association as its “main office,” and that the national association’s “principal place of business” is not to be considered.

The court then held that because plaintiff relied on the location of its “principal executive offices” rather than providing its articles of association or any allegations concerning the “main office” listed therein, the court lacked the information necessary to determine plaintiff’s citizenship and dismissed the complaint for lack of subject matter jurisdiction.

Sean McPhee

Tax Law

In Perkins, et al v. United States, No. 16-CB-495(LJV)(Aug. 4, 2017), plaintiffs, one of whom is a member of the Seneca Nation, removed and sold gravel from Seneca Nation territory, paid taxes on that income after receiving a notice of deficiency from the Internal Revenue Service, and then commenced this action alleging they were owed a tax refund because the income from the gravel sale was exempt from federal income tax based on two treaties between defendant and the Seneca Nation.

According to the court, the claim presented the novel issue of whether a treaty between the United States and Native Americans insuring free use and enjoyment of tribal land barred taxes on income derived directly from that land. The court denied defendant’s motion to dismiss, finding that plaintiffs’ claim plausibly sought relief under two treaties with the Seneca Nation. Under the so-called 1794 Canandaigua Treaty, the court found that not only the Seneca Nation but also individual Nation members were entitled to the “free use and enjoyment” afforded under the treaty, which plausibly included gravel mining free from taxation.

The court also held that the so-called 1842 Treaty protected “the lands of the Seneca Indians … from all taxes,” and that this language did not distinguish between exemptions from real property taxes and exemptions from taxes on the dirt, gravel, foliage and other features that make up that real property.

Tort Law

In Hopkins v. Hopkins Environmental Group, Inc., No. 16-CV-841(FPG) (July 28, 2017), plaintiff asserted 11 causes of action in a complaint seeking damages for alleged discrimination by a former employer after she allegedly was promised one type of job during her interview but was assigned a different job after she was hired. She was told the more desirable jobs were assigned to younger, less senior men because the dispatcher did not want those men to quit.

Defendant unsuccessfully moved to dismiss plaintiff’s fraudulent inducement cause of action, arguing first that promises made during the hiring process that plaintiff would receive a particular job were merely representations regarding future actions and not statements about present fact that are normally required to sustain a claim for fraudulent inducement. The court disagreed, holding that a representation concerning the type of job plaintiff would be assigned was actionable in this case because plaintiff also plausibly alleged that defendant had no intention of actually hiring plaintiff for that assignment and thus made the statement with the preconceived and undisclosed intention of never delivering.

Defendant also argued that any reliance on such a promise was unreasonable as a matter of law because plaintiff was an at-will employee. This the court also rejected because the fraudulent inducement claim and plaintiff’s alleged injuries resulting from the loss of income due to the inferior job assignment were separate and distinct from plaintiff’s ultimate termination and, therefore, her at-will employment status was of no moment.

Class Certification

In McCracken v. Verisma Systems, Inc., No. 14-cv-6248(MAT) (July 28, 2017), plaintiffs claimed that defendants violated the New York Public Health Law by charging them an across-the-board rate of $0.75 per page for copies of their medical records, rather than the actual cost to reproduce those records. Plaintiffs moved for class certification and the court first found that Fed. R. Civ. P. 23(a) was satisfied because the rule’s requirements regarding numerosity, commonality, typicality and adequacy of representation were all met. Then, noting that courts within the Second Circuit consistently recognize an “implied requirement of ascertainability,” the court determined that factor was also satisfied.

Next, the court addressed plaintiffs’ argument that Fed. R. Civ. P. 23(b) was satisfied because questions of law or fact common to class members predominate over any questions affecting only individual members, and because a class action is superior to other available methods for fairly and efficiently adjudicating the controversy. Finding the predominance element satisfied, the court rejected defendants’ argument that an individual class member’s voluntary payment of the fee was a defense.

Finally, the court found that a class action was superior to the alternative of individual lawsuits because, among other things, the costs of bringing such individual suits would be prohibitive for any single class member or even a small group of them. As a result, the court granted plaintiffs’ motion and certified the proposed class.

Federal Tort Claims Act

In Farley, et al. v. United States, No. 11-CV-198S (Aug. 15, 2017), plaintiff, a security contractor who worked at defendant’s immigration detention facility, brought this negligence action under the Federal Tort Claims Act (FTCA) for personal injuries suffered following an assault by a detainee. Defendant moved to dismiss (and alternatively for summary judgment), arguing that the discretionary function exception limited the waiver of sovereign immunity afforded under the FTCA and prohibited plaintiff’s lawsuit. Under the discretionary function exception, no sovereign immunity applies and the United States remains immune from suit if the acts alleged to be negligent were not compelled by statute or regulation and involved an element of judgment or choice that is grounded in considerations of public policy.

The plaintiff first claimed that defendant was negligent in its failure to disseminate information regarding the detainee’s violent propensities, but the court held that this theory of negligence implicated a policy that left considerable discretion to defendant to determine how best to achieve the aim of increasing safety while balancing that consideration against the detainee’s privacy. Plaintiff next claimed that defendant was negligent in releasing the detainee from a special housing unit, but the court found that this, too, was susceptible to a policy determination that involved balancing safety and security against the detainee’s rights and available resources.

Plaintiffs’ third and final theory was that even if these two decisions were discretionary and susceptible to policy analysis, the discretionary function exception was not applicable under the negligent guard theory, which provides that an official who fails to perform his discretionary duty because of laziness, hastiness or general carelessness may still pose liability to the government. The court, however, rejected this claim because there was no evidence that defendant disregarded any applicable safety policy or that any decision was born out of laziness or carelessness.

Motion for Interlocutory Appeal

In Buehlman v. IDE Pontiac, Inc., No. 15-cv-6745-EAW-MWP (Aug. 1, 2017), a putative class action asserting claims for unpaid overtime compensation under the Fair Labor Standards Act and New York Labor Law, both parties moved for summary judgment. The court denied plaintiff’s motion and denied defendants’ motion in part, finding that defendants did not fall within a statutory exception for overtime compensation.

Defendants then moved for leave to appeal, arguing that the court mistakenly relied on a decision from the Eastern District of New York that was “wrongly decided” and should not have been applied in this case. In evaluating the motion, the court first observed that it can only certify an order for interlocutory appeal where the underlying order involves a controlling question of law as to which there is substantial ground for difference of opinion, and the immediate appeal may materially advance the ultimate termination of the litigation.

The court then held that while defendants satisfied the first prong (because, if the exemption applied, it would end the litigation), they did not satisfy the second prong because they failed to identify any Circuit Court of Appeals’ decision, or any decision issued by a court in the Second Circuit, that conflicted with the underlying order.

Finally, the court found that defendants failed to demonstrate that the third prong was satisfied because, if defendants did not succeed on appeal, there would be a substantial delay in the resolution of the action and, even if defendants succeeded, plaintiff would likely then appeal the denial of his motion for summary judgment. As a result, the court refused to certify an interlocutory appeal.

Kevin M. Hogan is the managing partner at Phillips Lytle LLP. He concentrates his practice in litigation, intellectual property and environmental law. He can be reached at [email protected] or (716) 847-8331. Sean C. McPhee is a partner with Phillips Lytle LLP where he focuses his practice on civil litigation, primarily in the area of commercial litigation. He can be reached at [email protected] or (716) 504-5749.