Kevin M. Hogan and Sean C. McPhee Co-Author Article Published in The Daily Record

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

Western District Case Notes

Fair Labor Standards Act

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.

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 plaintiff 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.