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.)

Subject Matter Jurisdiction

In FMC Corp. v. United States Environmental Protection Agency, No. 14-CV-487S (Jan. 31, 2017), plaintiff sought a declaratory judgment that the federal agency was required to act in conformance within an administrative order on consent (“AOC”) that the parties and a New York agency had entered in 1991 relative to the cleanup of plaintiff’s industrial facility. Plaintiff commenced the action when, instead of the federal agency selecting the final remedy for environmental conditions at the facility from one of a number of alternatives that had been analyzed under the AOC’s program, the state agency selected a different remedy from outside of the AOC and based on state law, and when plaintiff petitioned the federal agency to set aside the selected remedy, the federal agency declined to act.

Simultaneous with this declaratory judgment action in federal court, plaintiff also commenced an action against the state agency under CPLR Article 78 in state court. The Court granted defendant’s motion to dismiss under Rule 12(b)(1), finding that it lacked subject matter jurisdiction. First, neither the federal question statute at 28 U.S.C. § 1331, nor the Declaratory Judgment Act at 28 U.S.C. § 2201, provided an independent basis for subject matter jurisdiction. The Court also rejected the Administrative Procedure Act, 5 U.S.C. § 701 (“APA), as a basis for jurisdiction because plaintiff’s claims under the AOC, even if they arose out of a contract with the United States, would have been required to be brought in the Court of Federal Claims pursuant to the Tucker Act, 28 U.S.C. §§ 1346(a) (2) and 1491. Since the four causes of action did not fall within the Court’s limited jurisdiction over contract claims and the United States had not otherwise waived its sovereign immunity relating to those contract claims, the Court lacked subject matter jurisdiction.

Plaintiffs’ fifth and last cause of action did not arise out of the AOC but instead argued a more traditional APA claim, that the federal agency, through its inaction, had acted arbitrarily and capriciously and had abused its discretion when it failed to act in response to (and thus impliedly accepted) the selection of the remedy by the state agency. To confer jurisdiction under the APA, however, the action by the agency must be a final agency action, which the federal agency’s failure to act in response to the state agency’s selected remedy was not. In addition, plaintiff had not demonstrated that there was no other adequate remedy in a court, particularly in light of its pending Article 78 proceeding against the state agency. Finally, plaintiff also had agreed in the AOC that no action or decision by the federal agency would constitute a final agency action prior to the federal agency commencing a judicial action for violation of the order. Since the federal agency had not initiated a judicial action, the AOC itself precluded a finding of a final agency action here.

Rooker-Feldman Doctrine

In Barlow v. Nationstar Mortgage, Inc., No. 16-CV-818(LJV)(HKS) (Jan. 30, 2017), a pro se plaintiff sought to enjoin defendants from foreclosing on his property after a judgment of foreclosure and sale was entered in a state court proceeding. In support of his request, plaintiff claimed that several representations made by defendants in connection with the underlying mortgage loan were fraudulent, false, and violated New York General Business Law §349. Defendants moved to dismiss and the Magistrate Judge recommended dismissal of the complaint.

In adopting that recommendation granting the motion, the District Court noted that plaintiff did not appeal the state court’s judgment, and observed that federal courts are not courts of appeal for litigants unhappy with state court decisions. The Court then analyzed the factors under the Rooker-Feldman doctrine, which precludes federal court jurisdiction when a plaintiff who lost in state court seeks redress in federal court for injuries allegedly caused by the state court judgment. The Court found that each factor was present, and expressly rejected plaintiff’s claim that he “did not lose” on the issues adjudicated in state court, finding that he would not otherwise have invited the Court to review and reject the state court’s judgment.

Immigration

In Kaur et al. v. Boente et al., No. 16-CV-6252(FPG) (Feb. 6, 2017), plaintiffs alleged that the United States Embassy in India improperly denied one plaintiff’s visa application and changed his family-based preference category from unmarried to married without sufficient evidence of his marital status, and therefore sought a judicial declaration and a Writ of Mandamus compelling defendants to adjudicate the visa application in light of evidence they contended would show that plaintiff was not married. Defendants moved to dismiss the complaint under Rule 12(d)(1), arguing that the Court lacked subject matters jurisdiction under the doctrine of consular nonreviewability.

The Court granted the motion and dismissed the complaint with prejudice, after holding that, in the Second Circuit, courts consistently refuse to review a consular officer’s decision to suspend or deny an immigration visa unless a U.S. citizen claims their constitutional rights have been violated, and even then the government need only provide a “facially legitimate and bona fide reason” for its decision. Here, the plaintiffs failed to allege a plausible constitutional claim. Moreover, the Court found that the government had provided a sufficient reason for its decision when it refused the visa application after determining the applicant was married.

Personal Jurisdiction

In Albino v. Global Equipment USA, Ltd. et al., No. 14-CV-6519(MAT) (Jan. 26, 2017), plaintiff commenced a diversity action based on strict products liability and negligence for injuries sustained in the workplace while operating a machine. Two third-party defendants, a Japanese manufacturer of the machine and its American subsidiary who sold replacement parts for its parent’s machines in the United States, both moved to dismiss the third-party complaint for lack of personal jurisdiction. The Court denied the motions without prejudice and granted the third-party plaintiff’s request to conduct jurisdictional discovery, having found that the third-party plaintiff made a “sufficient start towards establishing personal jurisdiction,” and that its position was not frivolous.

The American subsidiary, who conceded that it sold parts to plaintiff’s employer for use on the machine, argued though that none of those parts were involved in the accident or alleged to be defective or dangerous, but the third-party plaintiff argued that the subsidiary’s liability was based on a duty to warn of defects in the machine regardless of whether it provided the parts involved in the accident. The Court determined that the subsidiary’s argument bears upon the question of ultimate liability, which the third-party plaintiff was not required to establish at this stage in the litigation.

Next, the Japanese parent, who did not conduct business in New York, argued that the third-party plaintiff could not prove a formal agency relationship existed between the parent and its subsidiary. The court noted, however, that the third-party plaintiff need only show that the subsidiary engaged in purposeful activities within the state for the benefit of and with the knowledge and consent of its parent and that the parent exercised some control over the subsidiary in the matter that is the subject of the lawsuit. Because facts necessary to establish personal jurisdiction — in particular, those related to the precise nature of the relationship between the parent and its wholly owned subsidiary — lie exclusively within the knowledge of the two third-party defendants, the court granted the third-party plaintiff’s request to conduct jurisdictional discovery, finding that such discovery would lead to a “more accurate judgment than one made solely on the basis of affidavits.”

Stay in favor of Arbitration

In Andersen v. Walmart Stores, Inc., No. 16-CV-6488(CJS) (Feb. 17, 2017), a proposed class action asserting claims for deceptive business practices and false advertising under New York General Business Law (“GBL”) §§ 349, 350, and 350-a, defendants moved to compel arbitration or dismiss the complaint. In response, plaintiff cross-moved to remand the action to state court arguing, among other things, that the amount in controversy did not exceed $5 million, as required by the Class Action Fairness Act.

The Court first addressed the motion to remand, because it involved subject matter jurisdiction, and found that the requisite amount in controversy was met. In doing so, the Court observed that plaintiff and the proposed class “could” recover more than $5 million because GBL §§ 349 and 350-a provide for statutory damages up to $1,000 and $10,000, respectively, and the proposed class consisted of 10,000-plus members.

Turning to defendants’ motion to compel arbitration, the Court found that a binding agreement to arbitrate was formed because the product’s packaging prominently referenced arbitration, and because the plaintiff accepted the agreement to arbitrate by retaining and using the product. The Court then rejected plaintiff’s argument that the bitration agreement was unenforceable under GBL § 399-c, which prohibits arbitration clauses involving the sale of consumer goods, because that provision of New York law is pre-empted by the Federal Arbitration Act in cases involving interstate commerce.

First Amendment Freedom of Speech

In Center for Bio-ethical Reform, Inc. et al. v. Black et al., No. 13-CV-581A (Feb. 10, 2017), plaintiffs brought a civil rights action under 42 U.S.C. § 1983 alleging that their fundamental rights to freedom of speech and to equal protection of law were violated during a demonstration they staged on a university campus when counter-demonstrators were permitted by defendants (who were university officials) to use signs, umbrellas and bed sheets to block plaintiffs’ photo murals depicting gruesome content. The Court first found that two organizational plaintiffs and one individual plaintiff, all of whom had been involved in the demonstration, had standing to bring the suit, but that two other individuals who were officers in the organizational plaintiffs but were not present during the demonstration were without standing and should be dismissed.

The Court then found that plaintiffs had alleged a plausible § 1983 First Amendment free speech claim because the protest was activity protected by the First Amendment, their alleged loss of opportunity to express themselves in the way they preferred — when defendants allowed the counterdemonstrators to block the photo murals from view — was sufficient to allege that defendants took adverse actions against the plaintiffs, and that plaintiffs’ allegations that defendants attempted to discourage plaintiffs from proceeding in the fashion they choose tended to show that defendants were hostile to the content and viewpoint of plaintiffs’ demonstration. The Court also ly alleged that they were selectively treated because their demonstration had been impaired by the acts of counterdemonstrators who were favored as a result of defendants’ hostile motives towards their exhibition. In essence, the equal protection claim depended upon the alleged violations of the First Amendment rights and, therefore, coalesced with (or merged into) the First Amendment claim.

Forged/fraudulent Checks

In Accadia Site Contracting, Inc. v. Northwest Savings Bank, No. 14-cv341(MAT)(JMM) (Feb. 8, 2017), plaintiff asserted claims against its bank for breach of contract and negligence based on the bank’s payment of approximately $700,000 in unauthorized

checks made payable to plaintiff’s corporate secretary over a period of nearly five years. After the fraud was uncovered, the corporate secretary pleaded guilty to larceny and plaintiff sought to recover the funds from its bank. The bank initially filed a pre-answer motion for summary judgment, which was eventually withdrawn, and limited discovery ensued. The bank then renewed its motion for summary judgment, arguing that it was absolved of any liability because plaintiff failed to comply with the notice requirements contained in its deposit account agreement.

The Magistrate Judge found that there were a number of triable issues of material fact and recommended denial of the motion, to which the bank objected. In reviewing the objections, the District Court found that the bank did not establish that plaintiff had count agreement. The Court also found that the question of plaintiff’s comparative negligence could not be resolved as a matter of law. Finally, the Court refused to entertain the bank’s argument regarding UCC 4-406(4), which bars suit against a bank er fails to discover and notify the bank of an unauthorized signature within a year, because the bank did not raise that argument in its original motion papers. As a result, the Court adopted the Magistrate Judge’s recommendation and denied the bank’s motion.

Breach of Unconditional Payment Obligation

In Xerox Corp. v. RP Digital Services, Inc., No. 16-CV-6063L (Feb. 8, 2017), plaintiff commenced an action for breach of an equipment finance lease based on defendants’ undisputed failure to make required payments. In response, defendants answered and asserted counterclaims, arguing that plaintiff breached the lease by providing defective equipment. Plaintiff then moved for summary judgment, primarily relying on a clause in the lease providing that defendants’ obligation to make all payments was “absolute and unconditional,” and not subject to delay, reduction, set-off, defense, counterclaim, or recoupment “for any reason whatsoever,” irrespective of plaintiff’s performance or obligations under the lease.

After noting that such contractual provisions (commonly referred to as “hell or high water” clauses) are typically enforceable, the Court held that defendants had expressly waived any defense based on the allegedly defective nature of the equipment. The Court then rejected defendants’ assertion that the motion was premature because no discovery had taken place, holding that plaintiff was entitled to summary judgment based on the plain language of the lease, even if discovery was required regarding the amount of plaintiff’s damages.