By Kevin M. Hogan and Sean C. McPhee, originally published in The Daily Record on Tuesday, December 12, 2017.

Western District Case Notes

Insurance Law In Violet Realty, Inc. v. Affiliated FM Insurance Co., No. 16-cv-757(EAW) (Aug. 28, 2017), plaintiff commenced an action for breach of contract, failure to act in good faith, violation of New York Insurance Law, and deceptive business practices when defendant paid only a portion but not all of losses sought by plaintiff pursuant to a fire insurance policy. Defendant moved for judgment on the pleadings to dismiss all but the breach of contract claim, and the court granted the motion.

According to the court, a covenant of good faith and fair dealing is implied in all New York contracts, making a claim that a defendant failed to act in good faith redundant of a breach of contract claim, unless the claimed breach of the good faith covenant was supported by different allegations than support the separate breach of contract claim, and here that was not the case. The court then dismissed the Insurance Law § 2601 claim because no private right of action is created under that statute.

The court also dismissed the claim for deceptive business practice under General Business Law § 349 on grounds that the lawsuit arose out of a private contract dispute involving a fire insurance policy that was not consumer-oriented and conduct that was not aimed at the public at large.

Lanham Act

In Sit N’ Stay Pet Services, Inc. v. Hoffman, No. 17-cv-116(LJV) (Sept. 5, 2017), plaintiff commenced a lawsuit under the Lanham Act alleging defendant engaged in unfair competition and false designation of origin by using a business name that, according to plaintiff, closely resembled her own. Defendant moved to dismiss for lack of subject matter jurisdiction, arguing that plaintiff failed to allege that her business had “substantial effects on interstate commerce,” which defendant argued was a requisite to jurisdiction under the Lanham Act.

The court denied the motion after concluding that the “in commerce” provision of the Lanham Act is not an element of the statute’s jurisdictional provision, but rather its cause of action. Because plaintiff had alleged that her business involved interstate commerce in “considerable detail,” the court concluded plaintiff’s claims were not “essentially fictitious,” “wholly insubstantial,” “obviously frivolous,” or “obviously without merit,” which was otherwise required to deprive the court of subject matter jurisdiction.

Arbitration

In Spano v. V & J National Enterprises, LLC et al, No. 16-cv-6419(EAW) (August 30, 2017), plaintiff commenced a putative class action lawsuit against defendants seeking damages resulting from allegedly illicit wage practices. Defendant filed a counterclaim seeking a declaratory judgment that plaintiff’s claim must be resolved through arbitration pursuant to an Arbitration and Collective/Class Waiver Agreement (the Agreement). Plaintiff then filed an NLRB charge contesting the validity of the class/collective action waiver, an arbitration demand with the American Arbitration Association (AAA), and a motion with the court to voluntarily dismiss the lawsuit under Rule 41(a)(2). After the AAA sent numerous letters to defendants seeking their required filing fee, all to no avail, the AAA terminating the arbitration due to defendants’ default. Plaintiff then returned to court and sought to withdraw his motion for voluntary dismissal and argued that defendants’ waiver of the right to arbitrate was dispositive of their counterclaim seeking to require arbitration.

Noting the curious reversal of the parties’ respective positions regarding the need for arbitration, the court first held that defendants were bound by the Agreement despite not having signed it, because they were listed in it as third-party beneficiaries with the right to enforce the Agreement and, indeed, had already filed a counter-claim seeking to enforce the Agreement against plaintiff. The court then found that defendants had breached the Agreement by failing to participate in the AAA proceeding, and that any errors in plaintiff’s demand for arbitration, its service, and any of the notice from the AAA were technical deficiencies about which defendants had constructive notice and failed to object, and which caused no prejudice in any event.

As a result, defendants’ motion to compel arbitration and stay the lawsuit was denied on the ground that defendants had forfeited their right to force plaintiff to arbitrate his claims. As to the effectiveness of the class/collective action waiver, the court then stayed the lawsuit pending a forthcoming determination from the Supreme Court in three consolidated cases that are expected to directly address the issue.

General Jurisdiction

In Wilderness USA, Inc. v. Deangelo Bros. LLC, No. 17-CV-6491(EAW) (Aug. 23, 2017), plaintiff commenced an action in New York state court arising out of a contract dispute with defendant. After the action was removed on the basis of diversity, defendant moved to dismiss, arguing that the court lacked personal jurisdiction over it. Plaintiff opposed on the ground that the court had general jurisdiction over defendant because defendant registered to do business in New York and, as such, had appointed the New York Secretary of State as its agent for service of process.

In response, defendant acknowledged that New York courts have previously permitted the exercise of personal jurisdiction on that basis, but argued that it has been rendered inapplicable in light of the U.S. Supreme Court’s more recent decision in Daimler AG v. Bauman and its progeny. Specifically, defendant argued that, notwithstanding its authorization to do business in New York, because it is not incorporated under the laws of New York and does not maintain its principal place of business here, general jurisdiction was lacking.

Ultimately, the court found that, because New York’s registration statute does not provide “an express requirement” of consent to general jurisdiction as a condition for authorization to transact business within the state, it could not interpret the registration statute as providing general jurisdiction “in the absence of a clear legislative statement and a definitive interpretation by the New York Court of Appeals.” As a result, defendant’s motion to dismiss for lack of personal jurisdiction was granted and the complaint was dismissed without prejudice.

Ripeness

In Nat’l Fuel Gas Distrib. Corp. v. N.Y. State Energy Research & Dev. Auth., No. 17-CV-00554(EAW) (Aug. 22, 2017), plaintiff asserted due process and Takings Clause claims against defendants and sought injunctive relief that would allow it to cease supplying natural gas to the former site of a commercial nuclear fuel reprocessing center. In support of its claims, plaintiff argued that its constitutional rights had been violated because its property rights were taken without just compensation since it could not safely access, use and dispose of its pipeline given the presence of radioactivity on the site.

Defendants moved to dismiss, arguing that the claims were not ripe because plaintiff had not availed itself of the required prerequisites for bringing its claims in the District Court. Noting first that plaintiff’s complaint did not explain whether a taking had already occurred or whether plaintiff merely worried that one was imminent, the court then found that plaintiff’s claims were not ripe since it had not brought them to the court of Federal Claims under the Tucker Act in the first instance. Thus, while the court was “sympathetic to plaintiff’s concern regarding the integrity of the pipeline and that a failure could have significant environmental effects,” because the claims were not ripe, dismissal was required.

Oral Stipulations by Counsel

In County of Niagara v. Netherlands Ins. Co., No. 15-CV-737(A)(F) (Sept. 9, 2017), an insurance coverage dispute arising out of a personal injury action that was litigated in state court, plaintiff sought a declaratory judgment that it was entitled to coverage for the underlying lawsuit and the post-trial settlement. During discovery, defendants served a subpoena to depose plaintiff’s attorney from the state court action. Plaintiff objected, defendants moved to compel, and plaintiff cross-moved to quash.

The magistrate judge denied defendants’ motion and granted plaintiff’s cross-motion on the grounds that the subpoena sought information that was both irrelevant and protected by the attorney work product doctrine. Defendants appealed to the district judge, arguing that the magistrate judge’s decision was based on an erroneous factual determination concerning the effectiveness of an oral stipulation among counsel for the parties that was made in open court as part of the state court action. The district judge first observed that the standard to be applied when reviewing the magistrate judge’s decision is “highly deferential,” and also noted that oral stipulations made by counsel in open court are strictly enforced and may be set aside only where there is cause sufficient to invalidate a contract, such as fraud, collusion, mistake or accident.

Against this backdrop, the district judge found that, although parts of the record supported defendants’ position, the record also “quite comfortably support[ed]” the magistrate judge’s resolution of the factual issue. As a result, the decision was not clearly erroneous and was affirmed.

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 khogan@phillipslytle.com 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 smcphee@phillipslytle.com or (716) 504-5749.