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.

Fair Labor Standards Act

Kevin Hogan

In Lusk v. Serve U Brands, Inc., No. 17-CV-6451-MAT (Feb. 12, 2018), various delivery drivers employed by defendants brought suit under the Fair Labor Standards Act (FLSA) claiming that defendants failed to pay them the federally mandated minimum wage or overtime at the appropriate rate. Days later, plaintiffs moved for conditional certification of the case as a collective action under the FLSA and Defendants moved to dismiss for failure to state a claim.

The Court first determined that plaintiffs’ minimum wage allegations were insufficient because the complaint lacked the information a finder of fact would need in order to determine plaintiffs’ rate of pay. And, without that information, it was impossible to conclude that they were not paid the minimum wage in any given week. Next, the Court found that plaintiffs’ blanket allegation that they had worked in excess of 40 hours on “numerous occasions” without being paid at least one and one-half times their regular rate did not satisfy the plausibility requirement, and dismissed that claim as well.

Sean McPhee

Having dismissed the FLSA claims, the Court then denied as moot plaintiffs’ request for conditional certification, noting it could not certify a collective action where no plausible FLSA claim had been alleged. Finally, although plaintiffs failed to comply with the requirements for making a request for leave to amend, the Court found that the interests of justice would be served by affording plaintiffs an opportunity to file a properly supported motion for leave to file an amended complaint on the condition they did so within 30 days.

False Claims Act

In United States v. Strock et al, No. 15-CV-887-FPG (Jan. 31, 2018), plaintiff commenced this action alleging violations of the False Claims Act (FCA) in connection with contracts awarded to service-disabled veteran owned small businesses (SDVOSBs). The thrust of plaintiff’s FCA claim was that defendants had falsely certified or verified that they met the relevant statute or regulatory requirements to qualify as a SDVOSBS, and that those misrepresentations fraudulently induced plaintiff to enter into the contracts and pay for work performed.

A recent Supreme Court decision, Universal Health Services, Inc. v United States ex rel. Escobar, clarified that misrepresentations about compliance with statutory, regulatory or contractual requirements must be material to the government’s payment decision in order to be actionable under the FCA. In this case, the Court held that plaintiff’s complaint failed to present concrete allegations from which the Court could draw the reasonable inference that defendants’ alleged falsities caused plaintiff to make the reimbursement decisions involved.

The Court held further that Escobar’s materiality standard applied to all of plaintiff’s claims brought under FCA § 3729(a)(1)(A), regardless of whether those claims were brought under a theory of implied false certification, express false certification, or fraudulent inducement. Because the Escobar decision was decided after plaintiff filed its complaint, the Court held that fairness required that plaintiff be afforded a chance to amend its complaint, notwithstanding defendants’ objections to the contrary.

Motion to strike defenses

In White v. Fein, Such & Crane, LLP, No. 15-CV-438-LJV-HKS (Feb. 20, 2018), plaintiff filed a class action complaint alleging violations of the Fair Debt Collection Practices Act and New York General Business Law § 349 arising from attorneys’ fees charged by defendant for legal services pertaining to mortgage foreclosure actions against plaintiffs. After defendant’s motion to dismiss was denied, plaintiffs amended their complaint and defendant served an answer to the amended complaint, which included 23 affirmative defenses.

Plaintiff then moved to strike 16 of the affirmative defenses, arguing that the defenses failed to meet the specificity requirements of Fed. R. Civ. P. 8. The Court first noted that motions to strike affirmative defenses are generally disfavored, but also observed that such motions should be granted where there is no question of law or fact which might allow the defense to succeed, and the plaintiff would be prejudiced by its inclusion. The Court then determined that defendant’s defense of failure to state a claim should be stricken because defendant’s motion to dismiss on that ground was previously denied, rendering the purported defense without a legal basis. However, the Court denied the balance of plaintiffs’ motion because those affirmative defenses (i) were sufficiently entwined with the merits of the claims asserted by plaintiffs; (ii) had been sufficiently developed through discovery; and/or (iii) did not prejudice plaintiffs.

Discovery

In Cimato v. State Farm Fire and Casualty Co., No. 16-CV-94-A(Sr) (Jan. 31 2018), plaintiff sued in state court claiming breach of a homeowner’s insurance contract and seeking to enforce the appraisal provision. After the matter was removed, defendant denied plaintiff’s insurance claim. Plaintiff moved to compel disclosure of documents prepared prior to the denial of the insurance claim on the basis that the documents had been prepared in the ordinary course of business, notwithstanding defendant’s argument that the documents were privileged because they were prepared in anticipation of litigation or were attorney-client privileged communications with outside counsel.

The Court held that the documents could not be deemed privileged as documents prepared in anticipation of litigation when they were prepared prior to the determination of whether to accept or reject plaintiff’s insurance claim. That fact, however, did not preclude a determination that the documents might be protected by the attorney-client privilege, and required the Court to conduct an in-camera review to determine whether they were primarily reports of an investigation of plaintiff’s claim, and therefore discoverable, or primarily of a legal character and therefore protected by the attorney-client privilege.

Discovery

In Middlesex Mutual Assurance Co. v. Britton, No. 16-CV-814A(Sc) (Feb. 7, 2018), a diversity subrogation action involving a fire insurance policy, plaintiff moved to compel defendant’s deposition and defendant cross-moved to compel the deposition of plaintiff’s witnesses and other discovery. In opposing plaintiff’s motion, defendant argued that she was entitled to priority of her depositions because they were noticed first. The Court rejected that argument, noting that affording priority to the first noticed deposition was abolished from the Federal Rules in 1970.

While the Court had the discretion to determine the order of the depositions, it declined to do so and instead ordered the parties to use their good faith efforts to work out an examination schedule convenient to all, and warned that, if the parties cannot agree on such a schedule, the Court likely would exercise its discretion and set a random schedule with little regard for the convenience of the parties, witnesses, or counsel. Defendant also sought to compel plaintiff to serve a bill of particulars, which the Court denied because bills of particulars had been abolished from the Federal Rules since 1948.

Mortgage foreclosure and default judgment

In Nationstar Mortgage LLC v. Atanas, No. 16-CV-6832-EAW (Jan. 29, 2018), plaintiff commenced an action to foreclose a mortgage and defendants failed to appear. Plaintiff then filed a motion for default judgment and a judgment of foreclosure and sale, which was denied without prejudice to the filing of a renewed motion that corrected the deficiencies identified by the Court. Plaintiff timely filed the renewed motion, which was granted in part and denied in part. Specifically, because the Court found that Plaintiff had now satisfied the procedural requirements for obtaining a default judgment, that request was granted.

However, notwithstanding a provision in the underlying note that permitted plaintiff to recover reasonable attorneys’ fees, the Court refused to award any, finding plaintiff “again failed to provide contemporaneous time records,” and set forth fewer attorney and paralegal hours than the first application “for what appear[ed] to be the same work,” leaving the Court to “question[] the accuracy of counsel’s recording practices.”  Finally, the Court denied the request for entry of a judgment of foreclosure and sale without prejudice because plintiff failed to provide invoices, receipts or other documentary support sufficient to satisfy its burden of demonstrating the amount of its damages to a reasonable certainty.

Res Judicata

In U.S. v. Strader, 15-CV-6243-FPG (Feb. 1, 2018), the United States filed a complaint to recover a student loan debt assigned to it five years earlier. Defendant answered, admitting only that the Court had jurisdiction to hear the case and that venue was proper. After plaintiff’s first motion for summary judgment was denied without prejudice, plaintiff moved for summary judgment a second time. That motion was also denied and plaintiff’s counsel was ordered to show cause why he should not be sanctioned for failing to comply with the Court’s local rules. Plaintiff then moved for summary judgment a third time, and defendant failed to oppose the motion. Noting that the non-moving party’s failure to respond to a motion for summary judgment does not itself justify granting summary judgment, the Court then denied the motion based on the doctrine of res judicata because a valid final judgment was entered against defendant 25 years ago for the same indebtedness. And, while plaintiff was not the holder of the underlying note at the time the prior judgment was entered, as the successor-in-interest, there was sufficient privity for purposes of res judicata. Accordingly, the Court held that plaintiff’s claim was barred, and the action was dismissed with prejudice.

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.