No. 555 March 2006

CASE HOLDING JUDGMENT CREDITOR NOT LIABLE FOR DAMAGE MARSHAL DOES TO THIRD PARTY’S PROPERTY IN COURSE OF LEVY OFFERS OPPORTUNITY TO TREAT MARSHAL’S ENFORCEMENT PROCEDURES AND LIABILITIES IN GENERAL As long as the judgment creditor (JC) relies entirely on the marshal’s office to levy on the judgment, damage done to the property of a third person in the course of the marshal’s levy is the responsibility of the marshal, not the JC. Hence an action by the third person to make the JC pay for the damages fails. Cla-Mil East Holding Corp. v. Medallion Funding Corp., .... N.Y.3d ...., .... N.Y.S.2d .... (Feb. 9, 2006).

The JC in this case had financed the judgment debtor’s (JD’s) purchase of laundromat equipment, which stood as collateral for the financing. The equipment was located on premises that JD leased from landlord L. When JD defaulted on its payments to JC, JC secured a judgment against JD and used the marshal’s office to enforce the judgment. The marshal proceeded to levy on the equipment. In the course of disconnecting the pipes, wires, and air vents so as to free the equipment for removal, the marshal allegedly damaged the premises.

For that, L claimed that JC bore liability and sued JC. No liability, rules the Court of Appeals in an opinion by Judge Rosenblatt. The marshal (or sheriff or other enforcement officer) in such circumstances is not the agent of the JC, but of the government, and is bonded to protect third parties in cases like this. Hence as long as the JC acts entirely through the marshal’s office, as the JC did in this case, it is insulated from liability. In the Court’s words,

[f]ar from abusing legal process [as L claimed], [JC] submitted to legal authority at every step. Such conduct is consistent with public policy disfavoring parties taking matters into their own hands.

JC might have taken matters into its own hands by relying on the UCC’s self- help provisions. Had JC done so, it would have indeed been liable to a damaged third party. UCC § 9-604(d) provides that a secured party that “removes collateral shall promptly reimburse” the owner of real property damaged by the removal. The statute is not in point here because the JC at no time relied on self-help.

The case presents us with an opportunity to address the procedures and liabilities of the marshal’s office in a treatment relevant to the sheriff’s office as well.

The first thing to be noted is that the Cla-Mil case must not be read as taking the JC off the hook entirely for the activities of the marshal in levying on the judgment. Under Cla-Mil, the JC is off L’s hook, all right — the party allegedly damaged in the course of the marshal’s enforcement steps — but because of common procedures in the marshals’ world, the JC will likely have to reimburse the marshal for any damages suffered by L.

A levy of this kind, involving personal property affixed to real property, will necessarily require the closing off of vents, pipes, electric lines, etc., a situation almost tailor made for a potential damages claim by L. The marshal therefore does not ordinarily perform these tasks himself, but hires a licensed contractor (plumber, electrician, etc.) to do the physical job. He will ascertain the likely expense of retaining such contractors in advance of the levy, and bill the JC for those expenses right up front, before proceeding to levy.

All of this up-front stuff, moreover, is necessarily an estimate only. Perhaps an over-estimate, in fact, or, less likely but possible, an under-estimate. Then what happens if the marshal does do damage to the premises in the course of the levy, generating a liability that exceeds the amounts prepaid by the JC to cover contractors’ activities?

Here another item in the marshals’ world puts in its appearance: a hold- harmless agreement. Marshals will usually exact one from the JC — again in advance of the levy — if there’s any possibility that damages may result to the landlord in the course of the levy, such as through alleged negligence by the marshal. Especially in that situation do the marshals want the hold- harmless agreement. The marshal will always claim that he used due care in the levying process, but the landlord — and ultimately a court — may disagree. For that, the marshal or his surety — the marshal is bonded, see New York City Civil Court Act §§ 1604 and 1605 — wants to be able to look to a hold-harmless agreement exacted of the JC.

These issues, always lurking in the wings of such enforcement cases, were not involved in Cla-Mil, which addresses only the liability of the JC to the damaged third party.

Given the fact that marshals — unlike sheriffs — keep their fees, if the marshal did not exact recompense from the JC in advance here, and doesn’t pursue it now should he be successfully sued by L, the marshal will be decorated in a public ceremony and earn a prominent place in the state museum.

OTHER DECISIONS COMP CARRIER’S OFFSET RIGHTS Failure of Comp Carrier to “Unambiguously” Reserve Offset Rights Against Claimant’s Third-Party Recovery, Forfeits It The carrier here was the self-insured county that employed the claimant, who was injured on the job by a van and suffered injuries. Compensation was awarded by the Workers’ Compensation Board. Now the claimant sued the driver and owner of the van for ordinary tort damages. An opportunity to settle the case arose, and the comp carrier — in this case the county that was self-insured for comp coverage — of course had an interest in any such third-party recovery the plaintiff/claimant might realize. The carrier has a lien on the proceeds for past payment of comp benefits, and a right to offset future comp payments against the third-party recovery for a statutorily prescribed period of time.

The question arose in Brisson v. County of Onondaga, .... N.Y.3d ...., .... N.Y.S.2d .... (Feb. 16, 2006), whether the county, through the administrator handling its workers’ compensation obligations, had waived the offset right as to future payments. The Court of Appeals holds that it did, for failing to reserve its right of offset “expressly and unambiguously” in consenting to a proposed settlement of the third-party claim when advised about it.

The advice occurred in correspondence between the plaintiff’s lawyer and the administrator, in which the lawyer sought the consent and the administrator appeared to offer it, but in what the majority of the Court finds an ambiguous response. The administrator’s letter said to the lawyer that “[y]ou indicate that you believed we have no right” to invoke an offset, but “[t]his is not entirely correct”. It added that when “lost wages and medical” payments in this case exceed “basic economic loss” — as provided in the no-fault law — “we can take credit against net third party proceeds”.

In an opinion by Judge Read, the Court finds this language ambiguous and therefore deems the issue at best a question of fact for the board to resolve. The board did resolve it, finding that the letter did not adequately preserve offset rights. The Court sees the board’s finding as supported by substantial evidence and therefore defers to the board’s determination that the county’s offset right had been waived.

The legal point addressed and resolved by the Court is that any such offset must be absolutely clear, because the plaintiff/claimant is entitled to know, when considering a settlement offer in his third-party action against the tortfeasor, what an offset will mean to his overall recovery.

Judge R.S. Smith in dissent agrees on that point, but sees no ambiguity in this case. To him, the county’s response was “as unambiguous a statement as can be imagined that the employer retained its offset right”.

The lesson is that as unambiguous as the preservation of the offset right in this case might seem to some, it must be made more unambiguously unambiguous in the future.

AGE DISCRIMINATION Existence of Other Ground (Corruption) for Firing Restaurant Workers Counters Their Contention That They Were Fired Because of Their Ages The plaintiffs in this age discrimination suit adduced proof that they were qualified for their positions and that their ages were 55 and 64. This sufficed to make out a prima facie case of age discrimination under the state’s Human Rights Law (Executive Law § 296), but that was only step one in the statutory process.

In the second step the burden shifts to the defendant to come forward with a non-pretextual reason for the firing, which the defendant union did in this case with proof of the plaintiffs’ corruption and their facilitating organized crime’s infiltration of the union.

In step three, the ball now shifted back to the plaintiffs’ court to show that the defendant’s assigned reason was merely pretextual. Here the plaintiffs are found to have failed. While the jury verdict was for the plaintiffs, and the trial judge refused to set it aside on defendant’s motion for judgment under CPLR 4404, the appellate division, reversing, finds that the defendant had indeed proved that it had a nondiscriminatory reason for the firing, so that the firing could not be attributed to age.

The Court of Appeals affirms. Stephenson v. Hotel Employees and Restaurant Employees Union Local 100 of the AFL-CIO, .... N.Y.3d ...., .... N.Y.S.2d .... (Feb. 16, 2006).

In an opinion by Judge G.B. Smith, the Court finds that the appellate division, as it was required to do to support a motion for judgment notwithstanding the verdict — the official name of which under the CPLR is a “post-trial motion for judgment” — properly viewed the evidence “in the light most favorable to the plaintiffs” and, after so doing, found the evidence insufficient as a matter of law to support the plaintiffs’ verdict. The Court of Appeals agrees. Among the significant items of the defendant’s proof that negated the inference that age was the reason for the two plaintiffs’ termination is that three other and much younger employees of the union — all under 40 — were also terminated for the reason of their implication in the corruption charges.

VEHICLE AND TRAFFIC LAW § 388 Court Addresses When Summary Judgment for Defendant Car Owner in Tort Case May Be Granted Based on Showing That Driver Involved in Accident Lacked Permission to Drive Vehicle and Traffic Law § 388 is New York’s vicarious liability statute. It makes a vehicle owner liable to a person injured by the vehicle as long as the vehicle was being driven with the owner’s permission. The purpose is to assure a solvent source of recovery to the injured person, premised on the notion that while the driver may be solvent enough to pay for any damages he causes, the owner is more likely to be in a still stronger economic position. It also makes the owner’s liability policy available to protect the injured person. Those factors are what produced the predecessors of § 388.

The permission issue has been a frequent source of litigation. It becomes so again on a series of certified questions sent by the Second Circuit to the New York Court of Appeals, which the Court considers and, as best it can, answers in Country Wide Ins. Co. v. National Railroad Passenger Corp. (Amtrak), 6 N.Y.3d 172, .... N.Y.S.2d .... (Feb. 14, 2006).

The accident occurred in when an Amtrak worker took a company car, without permission, to go home to get an Amtrak radio he forgot, and on the way back struck the plaintiffs’ car. They sued Amtrak in state court, the case was removed to the Eastern District federal court, the federal judge found that permission was lacking and gave summary judgment to Amtrak, and the plaintiffs appealed.

Finding unclear under what circumstances New York would allow summary judgment to be granted on the permission issue, the Second Circuit certified five questions to the New York Court of Appeals. The first was whether uncontradicted statements by both owner and driver that permission was not given would suffice for the summary judgment. Usually they would, the New York Court of Appeals answers in an opinion by Judge Rosenblatt, but not invariably. Hence a straight yes or no could not be given to the first question.

The Court thus combined several of the follow-up questions with the first one, which generated an extensive review of a number of cases. The first point emerging is that there’s a presumption of permission under the statute, but that it’s rebuttable, with the Court noting several different things that may serve to rebut it even in what may appear a strong case presumptively. Citing one of its older cases, for example, the Court notes that “improbability” or “interest of the witnesses” might be such presumption-rebutting factors, in which case the issue of permission must be treated as one of fact and left for the jury.

It really comes down to a sui generis test in each case. In the Court’s words,

whether summary judgment is warranted depends on the strength and plausibility of the disavowals [of permission], and whether they leave room for doubts that are best left to the jury.

In one of its more recent cases (Manning, 1997, Digest 458), in which outright theft of the vehicle was involved, the owner did produce sufficient evidence to rebut permission and thereby earned summary judgment. The plaintiff in that case was a teenager who participated in the theft of the car, drove it for a while, and was then hurt after her cohort and co-thief took over the wheel, tried to adjust the radio, and swerved off the road into a pole. Neither of the girls was licensed.

On the facts of the present case, Country Wide, the Court finds sufficient the evidence of both owner and driver — the driver even accepted punishment for his misconduct — clearly denying permission. The Court sees nothing offered by the plaintiffs as possibly countering that proof so as to pose at least an issue of fact for the jury.

The Court says that for that reason it would grant Amtrak summary judgment, but, noting that its obligation in this certification situation is just to answer the questions, it does that, with all the qualifications recited in its opinion, and leaves the Second Circuit to decide what to do with the answers.

SUSTAINING ARBITRATOR’S AWARD Worker, Returning to Work After Injury, Didn’t Take Required Urine Test; Finding This Not Wilful, Arbitrator Changed His Firing to Mere Suspension, and Is Upheld in Court The Court of Appeals views this as just a matter of interpreting the collective bargaining agreement (CBA) between the worker’s union and the employer (the Transit Authority), and holds that it’s a matter on which the courts must defer to the arbitrator. New York City Transit Auth. v. Transport Workers Union, .... N.Y.3d ...., .... N.Y.S.2d .... (Dec. 20, 2005).

The urine test was required by the CBA. The worker showed up for the test after being out for a month and a half because of an injury, but claimed that he couldn’t urinate at the time. A month later a physician found no condition in him that would have prevented urination. Two weeks after that examination a hearing was held and the hearing officer recommended the worker’s firing. That was step one in the hearing process. At a further hearing within the agency (step two), the charge and penalty were sustained and he was discharged. (Under the CBA, the refusal to take the test is deemed an admission of prohibited drug use.)

Now the worker sought and got arbitration, and prevailed before the arbitrator (step 3), who found under the “peculiar facts” of the case that his refusal was not of the wilful kind that could ground a dismissal. The arbitrator changed dismissal to suspension and restored the worker to his position without back pay.

Now the transit authority brought a proceeding under Article 75 of the CPLR to overturn the award. The supreme court vacated the award under CPLR 7511(b)(1)(iii), finding that the arbitrator “exceeded his power” by in essence altering the CBA. That was step 4. Step 5 was the appellate division’s affirmance of the supreme court. Now, in step 6, the Court of Appeals reverses the appellate division and upholds the arbitrator. This was not an exceeding of power but a rational interpretation of the contract, concludes the Court in an opinion by Judge G.B. Smith. The worker gets relief, which we assume that by this stage he could certainly use.

Six prolonged procedures, at much unmeasured cost to all concerned, including the court system, all of which might have been avoided if the worker had tried just a wee bit harder.

DECONTROLLING UNDERUSED APARTMENTS Facts Arising After DHCR’s Eviction Determination Can’t Be Considered as Basis for Overturning It “As a rule,” says the Court of Appeals, a court “may not consider evidence concerning events that took place after the agency made its determination.” In this case the administrative determination ordered the partial eviction of two individual tenants found to be inhabiting, with rent control protection, apartments of such size that the apartments could be considered under- occupied under the rent control laws. Those laws also provide that if the owner’s annual return on the building — in this case a four-story residential building in — is less than 8 1/2%, the DHCR can authorize a partial eviction, i.e., an eviction of the tenant from that portion of the premises found to be unnecessary for use by a single tenant.

On application by the owner, the DHCR made such a determination for two of the apartments in the building, after finding that the owner’s return did fall below the 8 1/2%. It ordered eviction of the tenants from the front portions of their apartments — freeing the landlord to make separate apartments of them — with proportionate reductions in the tenants’ rents. After that determination, one of the two tenants died and her apartment thereupon became deregulated. With that apartment now rentable at a market figure, this meant a leap in the total rents for the whole building that would bring the landlord’s return well beyond the 8 1/2% mark. On that basis, the other tenant sought to have the matter remitted to the DHCR for revised findings.

The courts can’t do that, holds the Court in an opinion by Judge Rosenblatt. The fact of the tenant’s death arose after the determination and could not be the basis for reconsideration of the result. Rizzo v. New York State Division of Housing and Community Renewal, 6 N.Y.3d 104, 810 N.Y.S.2d 112 (Dec. 20, 2005; 6-1 decision).

Were the rule otherwise, says the Court, quoting from the appellate division opinion below,

the admission of subsequent events which occurred after the final agency order would defeat finality and could subject an otherwise final order to endless recurring review.

If a landlord, because of post-determination events, ends up with a greater return, and even a far greater return, than the statutory 8 1/2%, that’s just an inevitable condition of litigation. Though not cited in Rizzo, the res judicata doctrine is relevant here, at least by analogy. A final judgment in court can’t be overturned by post-judgment events. The Court in Rizzo is in effect holding likewise of an administrative determination that has become final in its own right and ripe for judicial review. The judicial review must be limited to the record on which the agency acted at the time of its determination.

The tenant cited an exception in the applicable statute — NYC Administrative Code § 26-411(a)(2) — which allows the post-determination introduction of additional evidence “which could not reasonably have been offered” earlier. That applies only to facts existing before the determination but for some good reason not offered at the hearing, the Court finds; it doesn’t apply to facts that come into existence only after the determination.

The dissent, by Justice Ciparick, relied on a different statute in the code, § 26-408(b)(1), involving a tenant in occupancy for more than 20 years and a landlord’s seeking the apartment for his own use. The majority finds this statute irrelevant in Rizzo.

NYC COUNCIL’S ATTEMPT TO REQUIRE CONTRACTORS TO OFFER EQUAL BENEFITS TO “DOMESTIC PARTNERS” OR LOSE CITY BUSINESS IS INVALIDATED AS PREEMPTED BY BOTH STATE AND FEDERAL LAW Case Makes Important Points About Article 78 Proceedings New York City’s Equal Benefits Law (EBL) conflicts with both General Municipal Law § 103 and the federal Employee Retirement Income Security Act (ERISA, 29 U.S.C. § 1144[a]), finds the Court of Appeals, and is hence preempted by both. Council of the City of New York v. Bloomberg, .... N.Y.3d ...., .... N.Y.S.2d .... (Feb. 14, 2006; 4-3 decision). The EBL was enacted by the city council over the mayor’s veto. Its clear design was to require contractors retained by the city for expensive projects to assure benefits to domestic partners equal to those furnished to spouses. Failing to commit to that forfeits the contractor’s eligibility to secure the city’s business, even if the contractor is the low bidder on the particular project.

It is in fact the bidding process, as required by state law (GML § 103), that the EBL is found to run afoul of. It would bar a responsible contractor from a city project even though it is the lowest bidder, to whom the state statute would otherwise require that the contract be awarded.

There have been some exceptions to that, such as the one approved in the Court’s 1996 decision in New York State Chapter, Inc. v. N.Y. State Thruway Auth. (Digest 440). In that case, a project labor agreement that limited a contractor’s power of labor negotiation was held okay because it was found in the particular case to advance the purpose of competitive bidding, which is of course to enable the city to get the best bargain possible from among the reputable contractors bidding on a city project. Here, in contrast, the upholding of the council’s ordinance would undermine that aim, the Court finds in an opinion by Judge R.S. Smith. It amounts to a policy decision and can’t co-exist with GML § 103.

On the federal side, the ordinance’s incapacity to co-exist with ERISA is also found a reason for invalidating it. ERISA sets standards for employee benefit plans and provides that it “shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan”.

Hence the EBL gets hit by two shots. And neither the state nor federal statute makes any exception for the kind of requirement the city council was endeavoring to impose here, holds the Court.

There was an interesting procedural skirmish, too, which turns out to be the principal basis for the three-judge dissent written by Judge Rosenblatt. It concerns the Article 78 proceeding.

When the mayor refused to enforce the EBL because of what he, too, saw as this conflict with state and federal law, the council brought an Article 78 proceeding to compel him to. He defended on the GML § 103 and ERISA grounds. The dissent says that he should not be able to do that in an Article 78 proceeding; that a declaratory judgment action is the proper vehicle for testing out a statute or ordinance in that way. The majority disagrees with that, pointing out that what would happen under such an approach is that the Article 78 proceeding would have to be suspended “in limbo” while a declaratory judgment action is brought collaterally.

Parenthetically, the Article 78 proceeding could simply have been converted into a declaratory action on the authority of CPLR 103(c). An even better procedural step would simply have been to treat the proceeding as a declaratory action and let the case proceed as both. An early CPLR case even held that if an Article 78 proceeding and a declaratory action are pending separately, the two may be consolidated, which is a fortiori authority for letting both proceed when the two end up together, either because brought together at the outset or afterwards merged through an application of the conversion statute, CPLR 103(c). (See Siegel, New York Practice 4th Ed. § 128.)

An important substantive point that emerges here, and which the Court stresses, is that if a mayor deems a local ordinance in conflict with a state or federal law, “the Mayor’s obligation is to obey the latter”.