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.

Realignment of parties

Kevin Hogan

In Romano v. Am. States Ins. Co., No. 17-CV-6358-EAW (Dec. 19, 2017), an action arising out of an automobile accident involving a single vehicle, plaintiffs filed a complaint in New York State Supreme Court against the driver, the purported owner, and the insurer of the vehicle, seeking a declaratory judgment that the insurer’s disclaimer of coverage was invalid. The insurer removed the action on diversity grounds, and plaintiffs sought remand based on lack of complete diversity.

Sean McPhee

In response, the insurer argued that, although the driver and purported owner of the vehicle have the same citizenship as two of the plaintiffs, they were fraudulently joined as defendants and/or should be realigned as plaintiffs. The Court first found that the driver and purported owner of the vehicle had not been fraudulently joined because their rights as insureds are inextricably tied to the resolution of the dispute, making them necessary parties to an action seeking declaratory relief against their insurer.

Nonetheless, the Court found that the driver and purported owner of the vehicle should be realigned because, if plaintiffs successfully secure the declaratory judgment they seek, the driver and purported owner will benefit since the insurer will be required to indemnify them for any amount (within the policy limit) that is ultimately owed to plaintiffs. Thus, because complete diversity existed after realignment, the Court found that removal was appropriate, and denied plaintiffs’ motion to remand.

Default judgment/late answer

In Cathey v. LVNV Funding, LLC, No. 15-CV-6741-DGL-JWF (Jan. 4, 2018), plaintiff filed a complaint for damages under the Fair Debt Collection Practices Act, which was later amended. Defendants failed to timely respond to the amended complaint, but plaintiff agreed to a modest extension. When the extension lapsed, one defendant still had not responded and, just five days later, plaintiff requested entry of a default against that defendant.

Defendant also filed its answer the same day, but plaintiff refused to withdraw his request for entry of a default. As a result, defendant moved for leave to file a late answer, and plaintiff cross-moved to strike the answer and for entry of a default. After noting that defaults are generally disfavored in light of the “well-established preference for resolving disputes on the merits,” the Court found that defendant’s default was not willful; was promptly cured; and resulted in no prejudice to plaintiff. The Court then observed that the motion and cross-motion “could all have been avoided by the simple courtesy of agreeing to accept an answer filed five days late,” and granted defendant’s motion.

Clean Water Act

In United States v. Whitehall et al., No. 14-CV-188-RJA-NJR (Jan. 18, 2018), an action for civil penalties and injunctive relief under the Clean Water Act alleging unauthorized discharges without a permit and violations of an administrative order, defendants filed a third-party complaint seeking contribution and indemnification from various third-party defendants that allegedly were permitted by defendants to dump fill on the property at issue. The Court granted the third-party defendants’ motion for judgment on the pleadings, ruling first that New York’s contribution statute does not permit defendants to seek contribution for the relief sought by the United States in this case.

CPLR § 1401 provides that two or more persons who are subject to liability for damages for the same injury to property may seek contribution among them. Here, however, the United States does not allege that defendants are liable for injury to property, but rather for discharging without a permit or in violation of an administrative order and, moreover, seeks penalties rather than damages. Nor could defendants seek common law indemnification, which in New York is permitted only if defendants were held to be vicariously liable without proof of any negligence or actual supervision of their own. Here, any liability owed by defendants to the United States would arise out of their own conduct at least in part, thus precluding their indemnification claim. And, because the contribution and indemnification claims were dismissed not because of any pleading defect but because such relief could not be afforded for the types of claims sought by plaintiff in the complaint, any amendment would be futile and defendants’ motion for leave to amend their third-party complaint also was denied.

Equal Access to Justice Act

In Consumer Financial Protection Bureau et al. v. MacKinnon et al., No. 16-CV-880-FPG (Jan. 8, 2018), with their answer to plaintiffs’ complaint alleging violations of the Consumer Financial Protection Act of 2010, defendants filed a counterclaim pursuant to the Equal Access to Justice Act (EAJA) seeking to recover their fees and expenses incurred in defense of the lawsuit. Plaintiffs filed a joint motion for judgment on the pleadings with respect to that counterclaim. The Court granted the motion and dismissed the counterclaim as procedurally improper because defendants had not yet achieved the requisite alteration in legal relationship with plaintiffs such that they could yet allege that they were “prevailing parties” as required under the EAJA. Indeed, the Court noted that the EAJA instructs that the proper vehicle to recover such fees and expenses was an application after a party has prevailed in the underlying matter, rather than a counterclaim.

Privilege

In Woodworth v. United States et al., No. 14-CV-674-RJA-JJM (Dec. 27, 2017), a medical malpractice action under the Federal Tort Claims Act (FTCA), plaintiffs moved to compel production of “peer-review” documents and other records concerning the care and treatment of the decedent. In granting the motion in part, the Court began by noting that, in a medical malpractice action under the FTCA, state law applies to the United States in the same manner it would apply to a private person and is the source of substantive liability under the FTCA, and that state rules on privilege are substantive not procedural because they affect private conduct before the litigation arises.

Unpersuaded that the federal interest at stake in employment or anti-trust cases are similar to those in a medical malpractice case, the Court declined to follow cases cited by plaintiff and concluded that New York’s peer-review privilege should be recognized in an FTCA medical malpractice claim as a matter of federal common law. Even if the peer-review privilege might apply, though, the Court also held that statements of a defendant in a medical malpractice action that were made before a peer-review board or for quality assurance evaluation are not privileged when they relate to the subject matter the litigation. The Court, therefore, ordered that only statements of defendants who were treating physicians must be produced, rather than statements of all treating physicians, including non-parties.

Right to Financial Privacy Act

In Davis v. Nat’l Credit Union Admin. Bd., No. 17-MC-6014-FPG (Dec. 18, 2017), a proceeding brought under the Right to Financial Privacy Act, a former branch manager of a federal credit union sought an order preventing the National Credit Union Administration from obtaining access to her personal financial records as part of the Administration’s investigation concerning cash that went missing during her employment. In support of her motion, plaintiff argued that the records sought were not relevant to a legitimate law enforcement inquiry, while the Administration claimed that it had reason to believe plaintiff deposited $19,200 in cash into her bank account within days of the disappearance of $20,000 from her branch.

The Court found that this activity “would suggest apparently illicit conduct sufficient to prompt a reasonable belief of relevancy,” rendering the Administration’s subpoena proper. However, the Court limited the scope of the subpoena to records during and after the period of plaintiff’s employment on the ground that records predating her employment were not relevant.

Supplemental Jurisdiction

In Koul v. Strong Memorial Hosp., 14-CV-6428-DGL-MWP (Oct. 17, 2017), plaintiff brought suit in state court, claiming he was discriminated against in violation of federal law, and also seeking damages for breach of contract. Defendants removed the action and, after discovery, moved for summary judgment. The Court granted summary judgment in favor of defendants on each of the federal claims and directed the parties to submit additional briefing as to whether the Court should continue to exercise supplemental jurisdiction over the remaining state law claim. In response, defendants urged the Court to continue to exercise supplemental jurisdiction, while plaintiff argued against it.

The Court first observed that the rule governing supplemental jurisdiction is “flexible,” and requires consideration of factors such as co-judicial economy, convenience, fairness and comity. The Court then concluded that retaining jurisdiction over the state law claim was appropriate because the case had been pending for several years; remand would involve a duplication of efforts; and there were no novel or unsettled issues concerning state law. On a side note, if the Court had declined to exercise supplemental jurisdiction, the breach of contract claim would have been dismissed without prejudice. In that instance, upon refiling in state court, the claim would have enjoyed a toll of the statute of limitations for the entire three-and-a-half years that it was pending in federal court. Indeed, in a recent 5-4 decision, the U.S. Supreme Court clarified that the statute of limitations for claims based on state law completely stops running while those claims are pending in federal court. Artis v. District of Columbia, No. 16-460, 2018 WL 491524 (U.S. Jan. 22, 2018).

Constitutional Law

In Libertarian Party of Erie County et al. v. Cuomo et al., No. 15-CV-654-FPG (Jan. 10, 2018), plaintiffs allege that New York’s firearm licensing laws violated their rights under the Second and Fourteenth Amendments to possess firearms in their homes and in public, and that certain standards outlined in those licensing laws were vague and violated the Due Process Clause in the 14th Amendment. The Court granted defendants’ motion to dismiss, finding first that seven of nine individual plaintiffs lacked standing to bring their claims.

Four of those plaintiffs had not applied for a firearms license in New York and did not allege that their failure to apply was because their application would be futile. Two other plaintiffs currently hold unrestricted firearms licenses thus cannot allege an actual injury merely because the licensing process is cumbersome or could result in the future but speculative suspension. Two other plaintiffs, however, had standing, one because that plaintiff was denied a license to carry a concealed firearm and the second because his firearms license application was denied. Their claims, however, were subject to dismissal because the judges who had denied their licenses were entitled to judicial immunity from suit for money damages and injunctive relief in their individual capacities as well as sovereign immunity in their official capacities.

The Court also ruled that the firearm licensing laws were not unconstitutionally vague because plaintiffs could not establish that no set of circumstances exist under which the laws would be valid when reasonable circumstances exist to prohibit at least felons and the mentally ill from possession firearms. The firearm licensing laws, while they implicated the core of the Second Amendment right, do not substantially burden it, but rather place no more than a marginal, incremental, or even appreciable restraint on the right to keep and bear arms, and the state has a substantial (and even compelling) governmental interest in public safety and crime prevention. The Court concluded the licensing laws were substantially related to that governmental interest, and were designed to ensure that only law abiding, responsible citizens were allowed to possess a firearm, and therefore plaintiffs had not alleged a plausible claim for relief.

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.