Retroactive Law Makes Wrongful Conviction Compensation Tax-Free

MAY 2016 VOL. 88 | NO. 4 JournalNEW YORK STATE BAR ASSOCIATION

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EUGENE C. GERHART (1912 – 2007) Editor-in-Chief, 1961 – 1998 CONTENTS MAY 2016

RETROACTIVE LAW MAKES WRONGFUL CONVICTION COMPENSATION TAX-FREE by Robert W. Wood 10

DEPARTMENTS 18 Is the UDRP Biased in Favor of 5 President’s Message Trademark Owners? 8 CLE Seminar Schedule by Gerald M. Levine 15 Burden of Proof by David Paul Horowitz 30 2014-2015 Review of UM/UIM/SUM 22 Short Story Contest Law and Practice 50 New Members Welcomed by Jonathan A. Dachs 53 Book Review Defensible Cybersecurity by Mark H. Alcott 38 Tailoring an Organization’s Security 54 Attorney Professionalism Forum Posture to Applicable Legal Standards 61 Index to Advertisers by Dino E. Medina 61 Classified Notices 63 2015–2016 Officers 44 CPLR 3404 Dismissals of Civil Causes 64 The Legal Writer “for Neglect to Prosecute” by Gerald Lebovits by Kenneth R. Kirby

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Lawyers Must Protect the Public We Serve

“Do the Public Good.” – Motto of the New York State Bar Association

The Real Justice Gap provide a justice portal to find new When we discuss the lack of avail- ways to deliver limited scope pro bono ability of legal services to those who legal services via the Internet and email. need them, often referred to as the We have taken the lead in looking to hundreds of millions of dollars of ven- “justice gap,” we generally think of it in establish a statewide justice center in ture capital are poured into non-lawyer the context of providing pro bono legal Albany to help coordinate and facilitate legal service technology companies; well services to the poor. However, the pub- pro bono activities statewide. We also over 1,000 legal tech start-up companies lic, lawyers and the organized bar are continue our longstanding and steadfast are selling legal services to the public, faced with another, perhaps more dif- advocacy for increases in our state’s and their numbers are growing. ficult, gap – non-lawyer entrepreneurs budget to fully fund the judiciary and for These companies started on the attempting to make a profit on the legal services initiatives. fringe of what might be considered backs of solo and small firm attorneys But there is also the second “justice legal services by offering legal forms seeking work, and a public that wants gap” for lower and middle income that customers could purchase and easy answers to legal issues. New Yorkers with some resources to complete themselves, or easy-to-use Increasingly our profession and pay for legal services. This gap is frus- electronic databases where listings of the public we serve are threatened by trating because many attorneys, espe- attorney contact information could non-lawyer “legal services” businesses cially those who are newly admitted or be found. They have attracted mil- that not only demean the profession, who practice as solos or in small firms, lions of dollars of venture capital, but also diminish the complexity and report difficulty finding new ways to not to help close the justice gap for nuances of providing competent and connect with clients. Along with other the poor, but to profit from consum- effective legal services and reduce bar associations, NYSBA is working on ers who can afford to pay for legal the attorney-client relationship to an enhancing our lawyer referral service services. Operating mostly unfettered, online form that needs to be completed. to provide support to all attorneys, they have blossomed into marketing Although these services claim to be focusing on solo and small firms. machines for legal services and legal innovative, they subvert the funda- The legal profession and the orga- advice, furnishing attorneys for legal mental principles of our profession. nized bar must use the collective services. Two of the most aggressive The New York State Bar Association strength of their resources and expertise and well-funded of these companies and our profession have worked hard to to address this issue. We must work are LegalZoom and Avvo. help address the real justice gap for the together to support struggling attorneys LegalZoom began as a legal forms poor and underserved. We make great and connect them with a public that service and is now offering attorney efforts, working with our sister bars, seeks access to affordable legal services. consultations and legal plans. For about pro bono legal service organizations and Some argue we should let our profes- $10 a month, consumers can sign a con- the courts to help address legal needs of sion be co-opted by the influx of venture tract for unlimited 30-minute attorney the poor in this state. Our Association capitalists and internet entrepreneurs consultations on new or “unique” legal has three new staff members whose purporting to “market” legal services matters. It also offers fixed-rate services responsibilities include the promotion without being encumbered by rules of and coordination of pro bono activities, professional conduct or the various laws David P. Miranda can be reached at and we’re partnering with the ABA to that apply to our profession. Each year [email protected].

NYSBA Journal | May 2016 | 5 PRESIDENT’S MESSAGE such as a $39 living will with review by by Top Attorneys – Up-to-Date Legal Several options for fixed-fee services a “document specialist” or a $149 estate Documents. Our attorneys continually are offered: document provision only; plan bundle that includes a year’s worth maintain our documents to be up to date document service with review by a of “attorney advice.” It is not a law firm, with the latest legal requirements in each non-lawyer “document specialist” of but it has thousands of attorneys willing state.” unknown experience; more expensive to pay for the referrals they receive. Avvo’s website features: “Fixed-fee attorney review. However, as noted Avvo started as an attorney directory legal services. Choose your lawyer. above, these businesses imply in their and rating service. It now furnishes law- Choose your service. Satisfaction guar- advertising and promotions that they are yers for a fee. Lawyers who agree to work anteed.” “Free Q&A with Attorneys.” offering legal services. to Avvo’s terms and conditions will be “Every 5 seconds someone gets free Even if these businesses are not in referred to perform document review or legal advice from Avvo.” Its tagline: violation of our ethics rules, they may start-to-finish services. Avvo has recently “Legal. Easier.” be in violation of N.Y. Judiciary Law § launched a free legal forms service, with This advertising if used by a lawyer, 495(1) which provides: the option to click a button and chat for or to market a law firm, might put the No corporation or voluntary asso- a fee with a practicing attorney. The con- lawyer on the wrong side of the Rules of ciation shall . . . (c) . . . render legal sumer pays Avvo directly; Avvo holds Professional Conduct. services or advice, nor (d) furnish the money until the work is completed For example, Rule 7.1(a) attorneys or counsel, nor (e) render and Avvo then deposits the money into “Advertising” states: “(a) A lawyer or legal services of any kind in actions the attorney’s Avvo account, taking back law firm shall not use or disseminate or proceedings of any nature or what it calls a “marketing fee.” or participate in the use or dissemina- in any other way or manner, nor These new practices raise many con- tion of any advertisement that: (1) con- (f) assume in any other manner to cerns: compliance with laws regulating tains statements or claims that are false, be entitled to practice law, . . . nor legal advertising; the line drawn between deceptive or misleading.” Thus, adver- (h) advertise that either alone or “marketing” and “fee-splitting”; can a tising that is not false violates this Rule if together with or by or through any non-lawyer corporation provide legal it is deceptive or misleading. person whether or not a duly and services; is it permissible for a business Rule 8.4(a), entitled “Misconduct,” regularly admitted attorney-at-law, to act as a referral service; can a business states: “A lawyer or law firm shall not: (a) it has, owns, conducts or maintains charge fees to refer clients to lawyers? violate or attempt to violate the Rules of a law office or an office for the prac- Professional Conduct, knowingly assist or tice of law, or for furnishing legal Businesses Advertising Legal induce another to do so, or do so through advice, services or counsel. Services the acts of another.” Consequently, if If these businesses are found to be The well-funded marketing cam- advertising is deceptive or misleading, “rendering legal services or advice” paigns of non-lawyer legal service busi- responsibility falls on the attorney. or “furnishing attorneys or counsel,” nesses employ a tone that is both bold These businesses claim the Rules of then they would be in violation of this and deliberately vague. They offer legal Professional Conduct do not apply to section. If not, it would seem that New services. They are simply facilitators them because they are non-lawyer cor- York’s broader false advertising laws so attorneys and clients can find each porations, not law firms. However, even would be implicated. other. They furnish legal help. They if they are correct, New York’s Judiciary do not furnish legal help. They give Law § 495, prohibiting non-lawyer cor- Fee Splitting with Non-lawyers legal advice. They do not give legal porations from furnishing legal services, These businesses often offer fixed- advice. They create one impression to clearly applies. rate, flat-fee consultations and servic- an unknowing public. They include es, as well as hourly based fee plans. disclaimers for the regulators. Judiciary Law § 495 For example, consumers seeking ser- LegalZoom provides a small-print vices through Avvo go to the company disclaimer on its site, “We are not a law No Corporation Shall Furnish website and are steered toward a list firm or a substitute for an attorney or Attorneys or Counsel of attorneys in their geographic and law firm. We cannot provide any kind of There is some debate about whether practice area. advice, explanation, opinion, or recom- what these businesses are doing consti- After an introductory discussion mendation about possible legal rights, tutes the unauthorized practice of law. between the consumer and the law- remedies, defenses, options, selection of By their own account, they have licensed yer, if the lawyer is hired, the company forms or strategies.” Its marketing cam- attorneys that perform the legal work. immediately collects the fee, retaining paign aims to create a very different They purport to maintain an arm’s the entire fee until the representation is impression: “Whatever your legal need, length distance from the actual attorney completed. Pricing depends on the ser- we have an answer. Let us help you performing the actual representation, vice the client wants, and the company’s protect all that matters easily and afford- but their business collects the fee and cut depends on the cost of the legal ser- ably” and “LLC Documents Created controls its distribution. vice. After the representation has ended,

6 | May 2016 | NYSBA Journal PRESIDENT’S MESSAGE benefits are also to reward referrals, the company transfers the balance of the ciation or authorized by law or court then it is difficult to harmonize the payment into the attorney’s assigned rule. Notably, for-profit corporate enti- arrangement with Rule 7.2(a). account and, at the same time, directly ties are not included among authorized withdraws its “marketing” fee. Rule 7.2(a), cited in the opinion, states: law referral providers. A lawyer may pay a business for A lawyer shall not compensate or advertising; however, fee-splitting vio- give anything of value to a person or Impact on the Public and the lates Rule 5.4, entitled “Professional organization to recommend or obtain Profession Independence of a Lawyer.” This Rule employment by a client, or as a reward The Rules of Professional Conduct states: “A lawyer or law firm shall not for having made a recommendation are in place not to protect lawyers, but share legal fees with a non-lawyer.” resulting in employment by a client the public from unscrupulous lawyers A recent NYSBA Ethics Opinion, No. . . . . who fail to meet the highest standards 1081, from January of this year, dis- Significantly, Comment [1] to this that we expect from officers of the court cussed the topic, where lawyers were Rule adds: and defenders of justice. The Judiciary employees of the non-lawyer company: [1] [L]awyers are not permitted to Law is in place to prevent unregulat- Rule 5.4 contains a number of pro- pay others for recommending the ed non-lawyers from preying on an visions intended to ensure the pro- lawyer’s services or for channeling unknowing public. fessional independence of a lawyer. professional work in a manner that Non-lawyers are not required to . . . Rule 5.4(a) provides that a law- would violate Rule 7.3 if engaged in adhere to the Rules of Professional yer “shall not share legal fees with by a lawyer. Conduct or the core principles of our a nonlawyer”. . . . If the Company’s The opinion also notes the existence profession. They are not bound by our clients are paying the Company of Judiciary Law § 482, which states: ethics rules. They do not check for con- for legal services rendered by the It shall be unlawful for an attorney flicts of interest. They do not have a duty inquirers, then the inquirers would to employ any person for the pur- of competent advocacy. They do not go be violating Rule 5.4(a). pose of soliciting or aiding, assist- to law school or pass the bar exam. They Avvo and other companies reject ing or abetting in the solicitation of are not officers of the court. the idea that they are engaging in fee- legal business or the procurement Our Rules of Professional Conduct splitting, claiming that they are merely through solicitation either directly reflect the core values of our profes- charging a marketing fee. or indirectly of a retainer, written sion and they are designed to protect For example, Avvo claims it “is not or oral, or of any agreement autho- the public we are all privileged and referring people to a particular lawyer”; rizing the attorney to perform or licensed to serve. As attorneys we the client makes the choice. However, render legal services. are sworn in as officers of the court, the choices are limited to those attorneys This law survived a challenge in part of a legal system that our society in a particular geographic area who have People v. Hankin, 182 Misc. 2d 1003 (Sup. relies on for justice and fairness. In agreed to pay Avvo’s “marketing” fee if Ct., App. Term 1999), where the court our country, lawyers must complete a they take on a representation. However, ruled the statute did not unconstitution- rigorous education just to be permit- since Avvo rates all lawyers, regardless ally restrict commercial speech. ted to sit for a bar exam. Our system of whether any individual lawyer con- NYSBA Ethics Opinion No. 887 also of examination to test knowledge and sents to the service, there is an implica- clarified Rule 7.2, stating that the Rule competency, determination of char- tion that all lawyers are on the list of prohibits a lawyer from offering bonus acter and fitness, and adherence to a available attorneys. compensation to an employee who is a prescribed set of rules of professional There are two important factors non-lawyer marketer “based on refer- conduct throughout an attorney’s ten- when considering the ethics of fee- rals of particular matters . . . [or] . . . the ure not only serves to protect the pub- splitting in New York. First, does the profitability of the firm or the depart- lic from untrained and unscrupulous marketing fee increase depend on the ment for which the employee markets would-be practitioners, but also far dollar value of the representation? if such profits are substantially related surpasses what is required to start a Second, are these fees more like referral to the employee’s marketing efforts.” business. fees than marketing fees? In other words, marketing fees cannot Change to our profession should not NYSBA Ethics Opinion No. 976 dis- be paid based on the dollar value of come from profit-seeking entrepreneurs cussed the issue regarding an arrange- a representation or per representation unencumbered by rules of ethical ment between a law firm and a non-legal that an attorney gets through the mar- conduct and responsibility. It remains service provider in relation to mortgage keter. As for referrals, Rule 7.2(b) limits incumbent on us as attorneys and the related referrals, where the fee paid, at approved lawyer referral programs, organized bar to remain guided by rules least in part, would be based on success: including legal aid, public defender of professional responsibility to find The firm may legitimately provide office or military legal assistance office; ethical and responsible ways to use new benefits to the Company for or a lawyer referral service operated, technologies to help attorneys better marketing and lien services, but if the sponsored or approved by a bar asso- connect with and serve their clients. n

NYSBA Journal | May 2016 | 7 NYSBACLE NAM Congratulates: Tentative Schedule of Spring Programs (Subject to Change)

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® The Better Solution Retroactive Law Makes Wrongful Conviction Compensation Tax-free

By Robert W. Wood

10 | May 2016 | NYSBA Journal rguably one of the best and brightest changes Tax Questions to the tax code in the massive tax bill passed at Few people have argued that these recoveries should be Athe end of 2015 is something that for years was taxed, but there has been no clear exemption. Our justice proposed as the stand-alone “Wrongful Convictions Tax system is complex, and sometimes gross injustices occur. Relief Act.”1 Unlike many other tax changes, you do not When they do and are eventually rectified, the person is want this to apply to you. After all, if it does, you were never the same. This includes re-entry needs that are hard wrongfully convicted and wrongfully behind bars, prob- to comprehend. ably for many years. For those who do end up with money to help pay for Few of us can imagine what it would be like to be their ordeal, adding IRS collectors into the mix can be salt convicted and imprisoned for crimes we did not commit. in the wounds. And not every exoneree is well advised In the U.S., individuals who were wrongfully convicted or equipped to handle a query from the IRS about a legal and exonerated by DNA evidence spent an average of settlement. Yet until now, the tax issues have been sur- 13.5 years wrongfully incarcerated. Their actual prison prisingly cloudy. terms range up to 35 years. The IRS issued a series of rulings in the 1950s and Since the first DNA exoneration in 1989, wrongfully 1960s involving prisoners of war, civilian internees and convicted persons have collectively served more than holocaust survivors.7 Sensibly, the IRS ruled that their 3,809 years in prison before being exonerated. Whether compensation was tax-free irrespective of whether they you look at an individual case or at the averages, these suffered physical injuries. Then the IRS “obsoleted” are some astounding numbers. The new law amends these rulings in 2007, suggesting that the landscape had the Internal Revenue Code so that a wrongfully changed.8 incarcerated individual can exclude his or her Section 104 was amended in 1996, but these 1950s and recovery. 1960s rulings were not based on § 104. Meanwhile, the The exclusion applies to the civil damag- Tax Court and the Sixth Circuit found a false imprison- es, restitution, or other monetary awards an ment recovery to be taxable in Stadnyk.9 It was a very exoneree receives as compensation for a wrong- short term incarceration case, but suggested continuing ful incarceration. Several points are notable, and may adherence to the canard that “there must also be physical not be obvious. First, it may even cover punitive dam- injury.”10 ages, a topic discussed below. If so, the damages are tax-free as with more garden Second, it covers only exonerees. Thus, it does not variety personal physical injury recoveries. If an inmate apply to a false imprisonment recovery – or any other was seriously injured in prison, § 104 might exclude the claim – by a person who may have been mistreated but is entire recovery. Yet even then, normal IRS rules would not later found to actually be innocent. The exoneration is suggest allocating the recovery between amounts that are a legal requirement for the tax exclusion to apply. tax-free and those that are not. Thirty states, the District of Columbia, and the federal Indeed, in some cases the plaintiff is never physically government provide some form of statutory compensa- injured despite physical confinement. If the § 104 model tion for wrongful conviction and incarceration. Some was not too helpful in excluding an entire recovery, per- plaintiffs sue in state court under a state wrongful incar- haps one could rely on the non-statutory general welfare ceration statute, in federal court for violation of civil exception? After all, the government is typically paying rights, or in state court for the torts of false imprisonment the money. or malicious prosecution. The states vary in the maxi- Moreover, the government is paying someone for mum amount of their payout, and in the means used to depriving him or her of his or her freedom and welfare.11 measure the awards.2 Unfortunately, little attention is usually given to the gen- Some states include lost wages in addition to the com- eral welfare exception. That brings us back to the uneasy pensation otherwise provided by the statute.3 Apart from topic of § 104. state statutes, there is also a federal statute.4 The federal As the voluminous § 104 authorities make clear, the statute was originally enacted in 1948 and was later sub- statute’s post-1996 iteration requires that the payment be stantially revised by the Innocence Protection Act of 2004, made on account of physical injuries, sickness or related part of the Justice for All Act of 2004 (JFAA).5 In addition emotional distress. If a payment is for emotional distress to state and federal statutes of general application, some not arising out the physical injuries or physical sickness, state legislatures have weighed in with targeted legisla- then tax applies.12 This invites discussion over just why tion to compensate a particular wronged person.6 the payment is being made, or more exactly in the language of the statute, “on account of” what the payment Robert W. Wood is a tax lawyer with www.WoodLLP.com, and the is made. author of numerous tax books including Taxation of Damage Awards The payment may be for a mix of damages, including & Settlement Payments (www.TaxInstitute.com). This discussion is not loss of freedom, loss of career, loss of consortium, familial intended as legal advice. association, reputation, emotional distress and more. The

NYSBA Journal | May 2016 | 11 exoneree may have been beaten, roughed up, subjected This IRS ruling said only that a victim of wrong- to inadequate medical treatment and more. These latter ful imprisonment who “suffered physical injuries and items often become the hook on which we hang tax-free physical sickness while incarcerated” can exclude his treatment. recovery from taxes. If the exoneree had physical inju- Positions vary on whether one should allocate mon- ries, the damages are tax-free, just like personal physical ies between these pure physical elements and the more injury recoveries. If not . . . well, we don’t like to talk generic wrongful imprisonment damages. Tax lawyers about that one. are inclined to allocate. In the IRS “bruise” ruling, the IRS There are usually significant levels of physical injuries says that all of the damages in a sex harassment case lead- and sickness in long-term wrongful imprisonment cases. ing up to the “First Pain Incident” are taxable.13 For that reason, as a practical matter, we tend to use a All of the damages (including emotional distress dam- hook for tax-free treatment that we know appeals to the ages) accruing after the First Pain Incident are tax-free. IRS. But is that really why the victim is getting most of the Does the sex harassment case discussed in the bruise money? Usually, no. ruling have a wrongful imprisonment analog? If so, it It may be difficult or even impossible to separate out would perhaps be a case in which a person is wrong- all of the multiple levels of horror, all the losses that can fully arrested, convicted and imprisoned for say 10 years never be made up. But in many cases, the loss of physi- before being exonerated and released. cal freedom and civil rights is at the root of the need for

The new law says you no longer have to prove that you were physically injured in prison to get tax-free treatment.

Suppose it is five years into his sentence before he is reparations. Although I commended the IRS for saying assaulted and beaten, hurt in a botched operation in the what it did say in IRS Chief Counsel Advice 201045023, it prison hospital, or experiences some other “First Pain did not solve all the issues. Incident.” Does that mean all of his recovery attributable Chief Counsel Advice 201045023 does not attempt to to the time before the First Pain Incident is taxable? To allocate an amount paid under the state statute between me, the loss of liberty and physical confinement is itself a the payment for physical injuries and sickness and the physical injury within the meaning of § 104. other damages. I applaud that treatment, for I don’t think However, that view was hard to square with the the “First Pain Incident” analog made sense in this con- authorities. Indeed, in Stadnyk v. Commissioner,14 the Tax text. Perhaps the IRS did not either. Court and the Sixth Circuit ruled that physical restraint The state statute in the Chief Counsel Advice awarded and physical detention are not “physical injuries” for money based on tenure in prison with a kind of per diem purposes of § 104(a)(2). approach. The fact that the IRS does not broach the alloca- Mrs. Stadnyk was held at a local sheriff’s office for tion point might mean that it views the money as all for approximately eight hours. She was handcuffed, photo- the physical injuries and sickness. It might mean that the graphed, confined to a holding area, and searched via time-based payment is carried along with the physical pat-down. She suffered no observable bodily harm, and injury payment. she admitted she was never injured or even roughed up. It might even mean that the time-based payment on its The Tax Court concluded that the deprivation of personal own would be tax-free, though the latter seems the least freedom is not a physical injury for purposes of § 104(a)(2). likely meaning. In any case, the IRS does not attempt to The Sixth Circuit affirmed, noting that while false parse the recovery in Chief Counsel Advice 201045023. imprisonment involves a physical act – restraining the Still, what of an exoneree who spends years in prison but, victim’s freedom – it does not mean that the victim is like Mrs. Stadnyk, says he was never roughed up, never necessarily physically injured as a result.15 The issue came beaten, never given inadequate medical care? up in the Regulation hearing on the § 104 regulations in February 2010. Then, the IRS published Chief Counsel New Day Advice 201045023.16 With the new legislation, these recoveries are now tax-free, even retroactively. Congressmen Sam Johnson

12 | May 2016 | NYSBA Journal as of such date by the operation of any law or rule of (R-TX) and John Larson (D-CT) introduced their bill law (including res judicata), such credit or refund may repeatedly. In 2015, they re-introduced the Wrongful nevertheless be allowed or made if the claim therefor Convictions Tax Relief Act. Several members of the is filed before the close of the 1-year period beginning Senate, including Charles Schumer (D-NY) and John on the date of the enactment of this Act. Cornyn (R-TX), joined in. The new law says you no longer have to prove that Punitive Damages you were physically injured in prison to get tax-free treat- Does the new law cover punitive damages as well as ment. You also no longer have to fudge the allocation compensatory ones? That is an interesting question. One of the money. You no longer need to suggest that you might note that new code § 139F itself does not say that received millions for getting stabbed or beaten up while punitive damages are taxed. That is a contrast from § 104, in prison, and nothing for spending 15 years wrongfully which makes that point explicit. behind bars. Perhaps that means that § 139F excludes any punitive The Wrongful Convictions Tax Relief Act allows exon- damages too. It appears that some people are reading the erees to keep their awards tax-free. According to Con- law in this way.18 On the other hand, there is also noth- gressman Larson, “Though we can never give the wrong- ing in § 139F to expressly state that punitive damages are fully convicted the time back that they’ve had taken from tax-free. them, they certainly shouldn’t have to pay Uncle Sam a One can argue – as the IRS has in the past – that share of any compensation they’re awarded. This bill will punitive damages are by definition not to compensate make sure they don’t have to suffer that insult on top of the plaintiff for anything. Punitive damages are to pun- their injury.”17 ish. That would suggest, as the Supreme Court held in Section 139F of the tax code now provides that: O’Gilvie,19 that punitive damages are not compensating In the case of any wrongfully incarcerated individual, for an injury and therefore cannot be tax-free. gross income shall not include any civil damages, res- This may be an academic point unless and until an titution, or other monetary award (including compen- exoneree receives punitive damages. But that does not satory or statutory damages and restitution imposed seem out of the realm of possibility. And it seems easy to in a criminal matter) relating to the incarceration of imagine the taxpayer and the IRS disagreeing over this. such individual for the covered offense for which such individual was convicted. Structured Settlements As you might expect in any tax code section, there With many physical injury cases, the plaintiff may want are definitions. A “wrongfully incarcerated individual” to “structure” all of a part of his recovery. Section 104 means an individual who was convicted of a covered clearly contemplates this. Section 104 says that the dam- offense, who served all or part of a sentence of imprison- ages are tax-free in a lump-sum or in periodic payments. ment relating to that covered offense, and: With periodic payments, 100 percent of each payment (A) who was pardoned, granted clemency, or granted will be tax-free. This is so even though a portion of those amnesty for that covered offense because that indi- periodic payments could be viewed as investment return vidual was innocent of that covered offense, or on the lawsuit proceeds. The plaintiff only wants to be (B) (i) for whom the judgment of conviction for that sure that he will receive all of the promised payments covered offense was reversed or vacated, and (ii) for over time, and that each payment is tax-free. whom the indictment, information, or other accusato- But the mechanics are complex. Defendants want to ry instrument for that covered offense was dismissed or who was found not guilty at a new trial after the pay a lump-sum, and no plaintiff would want to rely judgment of conviction for that covered offense was upon the defendant to pay like clockwork over time. reversed or vacated. Accordingly, insurance companies that write structured settlement annuities fill the void. Finally, a “covered offense” means any criminal The defendant or insurer transfers the obligation to an offense under federal or state law, and includes any assignment company which will make the payments to criminal offense arising from the same course of conduct the plaintiff. If the assignment qualifies under § 130, the as that criminal offense. assignment company is sure that the payment it receives The law has an unusual effective date. At first, it even is not income for federal income tax purposes. Even with seems hard to understand: “The amendments made by § 139F, however, it is unclear how wrongful conviction this section shall apply to taxable years beginning before, recoveries will be structured from now on. on, or after the date of the enactment of this Act.” Then, Up until now, the settlement agreement and structure the provision goes on to include a waiver of the statute documents in a wrongful conviction settlement would of limitations: refer to §§ 104 and 130. Now, unless one continues to use If the credit or refund of any overpayment of tax personal physical injury language and to rely on §§ 104 resulting from the application of this Act to a period and 130, there will be a mismatch. That is, § 139F does not before the date of enactment of this Act is prevented work in tandem with § 130.

NYSBA Journal | May 2016 | 13 of Associate Chief Counsel for Income Tax and Accounting, Public Hearing This may be a mere technical glitch that can be over- on Proposed Regulations, 26 C.F.R. pt. 301, “Damages Received on Account come in one of several ways. But it may be causing some of Personal Physical Injuries or Physical Sickness,” (Reg-127270-06), Feb. 23, worries. One suggestion I recently heard was to use 2010: “I mean I don’t know that the Service has ever gone to court on litigation, you know, I know the Service doesn’t ever go to court on litigation, non-qualified structured annuities, of the same type one [regarding] anybody who’s been falsely imprisoned or anyone who’s suffered would employ for taxable periodic payments. any sex abuse, as far as asserted in a courtroom that those kinds of damages On first blush, this strikes me as a terrible idea. First, are taxable, I mean whatever the pure technical answers may be.” at p.10, Doc 2010-4501, or 2010 TNT 41-15. it will dramatically limit the number of companies that 11. Wood, Are False Imprisonment Recoveries Taxable?, Vol. 119, No. 3, Tax can write the annuities. There are approximately 15 big Notes (Apr. 21, 2008), at p. 287. For more general information on the general life insurance companies that write qualified (§ 130) welfare exception, see Wood, The Evergreen General Welfare Exception, Vol. annuities. There are approximately two that write non- 126, No. 10, Tax Notes (Mar. 8, 2010), p. 1271; Wood, Updating General Welfare Exception Authorities, Vol. 123, No. 12, Tax Notes (June 22, 2009), p. 1443. qualified ones. 12. See H.R. Conf. Rep. No. 104-737, 104th Cong., 2d Sess., p. 301 (1996). Even worse, it sets up the protocol for taxable payments with a Form 1099 every year to the plaintiff. Per- 13. Letter Ruling 200041022 (July 17, 2000). haps there are ways to counteract that. And if the IRS 14. T.C. Memo 2008-289, aff’d without published opinion (6th Cir. 2010). later tries to tax the payments, presumably § 139F would 15. Id. (italics in original). For more on Stadnyk, see Wood, Why the Stadnyk Case on False Imprisonment Is a Lemon, Vol. 127, No. 1, Tax Notes (April 5, be sufficiently clear that the IRS should go away. 2010), p. 115. However, this could lead to administrative tax prob- 16. Nov. 4, 2010. lems galore. It seems like an unfortunate train to set off 17. See Press Release, “Congressmen Sam Johnson and John Lar- down the tracks, particularly with insurance products son introduce legislation to assist those wrongfully convicted” (March and companies that are not used to altering their Form 22, 2012), http://samjohnson.house.gov/news/documentsingle. aspx?DocumentID=286340. 1099 protocols. They issue Forms 1099 in non-qualified 18. RIA’s Complete Analysis of the Protecting Americans From Tax Hikes cases, and that is likely to be that. Act of 2015, Other Tax Provisions of the Consolidated Appropriations Act, 2016, and Earlier 2015 Tax and Pension Acts, Chapter 100 at ¶ 120, Damages Conclusion for wrongful incarceration are excluded from gross income; available on The tax code does not always make sense. And it is not Checkpoint. always clear. The origin of the claim doctrine is the hall- 19. 519 U.S. 79 (1996). mark of taxing litigation recoveries, but it is often more thematic than conclusive. For many litigants who receive damages, there is often ambiguity. There may be disputes about the facts, pleadings, resolution of the case, and about the application of the tax law as well. Sometimes, tax returns must be examined, litigation documents must be exhumed, and there will be tax disputes. The tax law and the IRS may apply their own imprint on the dispute that went before. With wrongful conviction recoveries, though, it is now clear that lump sums or periodic payments are tax-free. ■ Court & Litigation One Grand Central Place There may be a few definitional issues in the future, and 60 East 42nd Street it seems conceivable that punitive damages may become ■ BankruptCy & Depository Suite 965 New York, NY 10165 a bone of contention. Furthermore, there may be some ■ trusts & estates changes in the structured settlement field. But this is a 212-986-7470 Tel very good change in the law. n ■ inDemnity & misCeLLaneous 212-697-6091 fax

1. Public Law No. 114-113 at § 304 (2015). ■ LiCense & permit [email protected] 2. For a comprehensive list, see the database provided by the Innocence Project, www.innocenceproject.org/how-is-your-state-doing. 3. See, e.g., Iowa Code § 663A.1; Ohio Revised Code Ann. 2743.48. 4. 28 U.S.C. §§ 1495 and 2513. 5. Public Law 108-405, 118 Stat. 2293. 6. See, e.g., Cal. Rev. & Tax Code § 17156, providing for exclusion from income for the $620,000 paid by the state of California to Kevin Lee Green as Surety Bond SpecialiStS compensation for 17 years of wrongful imprisonment. 7. Rev. Rul. 55-132, 1955-1 C.B. 213; Rev. Rul. 56-462, 1956-2 C.B. 20; Rev. Rul. 56-518, 1956-2 C.B. 25; Rev. Rul. 58-370, 1958-2 C.B. 14. 212-986-7470 8. Rev. Rul. 2007-14, 2007-12 IRB 747, Doc 2007-4230, 2007 TNT 34-15. 9. T.C. Memo 2008-289, aff’d without published opinion (6th Cir. 2010). 10. But see comments of Mike Montemurro, branch chief of the IRS Office

14 | May 2016 | NYSBA Journal BURDEN OF PROOF BY DAVID PAUL HOROWITZ David Paul Horowitz ([email protected]) is a member of Geringer, McNamara & Horow- itz in New York City, and has represented parties in personal injury, professional negligence, and commercial cases for more than 27 years. Complementing his litigation practice, he teaches New York Practice at Columbia Law School and serves as a private arbitrator, mediator, discovery referee, and expert witness. He is the author of Bender’s New York Evidence and New York Civil Disclosure (LexisNexis), as well as the 2008 Supplement and forthcoming Third Edition of Fisch on New York Evidence® (Lond Publications). He serves on the Office of Court Administration’s Civil Practice Advi- sory Committee, is a member of the New York State Bar Association’s CPLR Committee, and has been selected eight times since 2007 for inclusion in the New York Super Lawyers listing. He served as a Reporter to the New York Pattern Jury Instructions (P.J.I.) Committee and was selected by the New York Board of Law Examiners to present CPLR lectures to 2016 bar examination candidates. Mr. Horowitz is a frequent lecturer on civil practice, evidence, ethics, and alternative dispute resolution throughout New York State for the New York State Judicial Institute and on behalf of numerous bar associations, law firms and legal departments.

Two Different Worlds

Introduction take reasonable steps to preserve in the volume of such information. it, and it cannot be restored or Federal circuits have established Last month’s column discussed the replaced through additional dis- significantly different standards December 15, 2015, decision from the covery, the court: for imposing sanctions or cura- Court of Appeals in Pegasus Aviation I, (1) upon finding prejudice to tive measures on parties who fail Inc. v. Varig Logistica S.A.,1 where the another party from loss of the to preserve electronically stored Court confronted, for the first time, information, may order measures information. These developments spoliation of electronically stored no greater than necessary to cure have caused litigants to expend information (ESI). Pegasus resound- the prejudice; or excessive effort and money on ingly ratified the First Department’s (2) only upon finding that the party preservation in order to avoid the 2012 decision in Voom HD Holdings LLC acted with the intent to deprive risk of severe sanctions if a court v. EchoStar Satellite L.L.C.,2 which in another party of the information’s finds they did not do enough. turn adopted the holdings of SDNY’s use in the litigation may: New Rule 37(e) replaces the 2006 Judge Shira Sheindlin’s 2003 decision (A) presume that the lost informa- rule. It authorizes and specifies in Zubulake v. UBS Warburg LLC.3 tion was unfavorable to the party; measures a court may employ if However, effective December 1, (B) instruct the jury that it may or information that should have been 2015, there were a number of signifi- must presume the information was preserved is lost, and specifies the cant changes to the Federal Rules of unfavorable to the party; or findings necessary to justify these Civil Procedure (Fed. R. Civ. P.), and (C) dismiss the action or enter a measures. It therefore forecloses changes to Fed. R. Civ. P. 37 signifi- default judgment. reliance on inherent authority or cantly altered what had been, in many state law to determine when cer- important ways, the Zubulake land- Advisory Committee Comments tain measures should be used. The scape in federal court. The Advisory Committee explained rule does not affect the validity of the impetus behind the 2015 amend- an independent tort claim for spo- The New Fed. R. Civ. P. 37(e) ment to Fed. R. Civ. P. 37(e): liation if state law applies in a case Relevant to ESI and spoliation is the Present Rule 37(e), adopted in and authorizes the claim. change to Rule 37: 2006, provides: “Absent exception- The new rule applies only to elec- Rule 37. Failure to Make Disclo- al circumstances, a court may not tronically stored information, also sures or to Cooperate in Discovery; impose sanctions under these rules the focus of the 2006 rule. It applies Sanctions on a party for failing to provide only when such information is lost. … electronically stored information Because electronically stored infor- (e) Failure to Preserve Electroni- lost as a result of the routine, good- mation often exists in multiple cally Stored Information. If elec- faith operation of an electronic locations, loss from one source tronically stored information that information system.” This limited may often be harmless when sub- should have been preserved in the rule has not adequately addressed stitute information can be found anticipation or conduct of litiga- the serious problems resulting from elsewhere. tion is lost because a party failed to the continued exponential growth

NYSBA Journal | May 2016 | 15 the lost information never would The Advisory Committee pointed further measures should be taken. have. The better rule for the neg- out that the existence, and potential At the same time, it is impor- ligent or grossly negligent loss of impact, of preservation requirements tant to emphasize that efforts to electronically stored information independent of those in litigation: restore or replace lost information is to preserve a broad range of Although the rule focuses on the through discovery should be pro- measures to cure prejudice caused common-law obligation to pre- portional to the apparent impor- by its loss, but to limit the most serve in the anticipation or con- tance of the lost information to severe measures to instances of duct of litigation, courts may claims or defenses in the litigation. intentional loss or destruction. sometimes consider whether there For example, substantial measures was an independent requirement should not be employed to restore An Example of the Impact of the that the lost information be pre- or replace information that is mar- Rule Change served. Such requirements arise ginally relevant or duplicative. In a decision by E.D.N.Y. Magistrate from many sources – statutes, The Advisory Committee expressly Judge Roanne L. Mann, the court rec- administrative regulations, an rejected the Second Circuit approach to ommended, under the old Rule 37(e), order in another case, or a party’s the imposition of sanctions on a find- that a two-part permissive adverse own information-retention proto- ing of negligence or gross negligence, inference instruction be given to the cols. The court should be sensi- which the Pegasus Court continues to jury for spoliation of back office data:4 tive, however, to the fact that such follow: (1) From the fact that the Foreign independent preservation require- Subdivision (e)(2). This subdivision Defendants produced no evidence ments may be addressed to a wide authorizes courts to use speci- of any actual plans or preparations variety of concerns unrelated to the fied and very severe measures to to take CKB public, the jurors may current litigation. The fact that a address or deter failures to pre- infer that no such documents ever party had an independent obliga- serve electronically stored infor- existed and that the Foreign Defen- tion to preserve information does mation, but only on finding that dants had no plan and made no not necessarily mean that it had the party that lost the information preparations to take CKB public. such a duty with respect to the liti- acted with the intent to deprive (2) To the extent that the jurors gation, and the fact that the party another party of the information’s find that any unproduced evidence failed to observe some other pres- use in the litigation. It is designed ever existed, they may infer that ervation obligation does not itself to provide a uniform standard in the unproduced evidence would prove that its efforts to preserve federal court for use of these seri- support the SEC’s allegation that were not reasonable with respect ous measures when addressing the Foreign Defendants had no to a particular case. failure to preserve electronically plan and made no preparations to The initial focus when ESI is stored information. It rejects cases go public. destroyed or lost should be on replac- such as Residential Funding Corp. v. Noting that “The amended rules ing the lost evidence: DeGeorge Financial Corp., 306 F.3d govern in ‘all proceedings in civil When a party fails to take reason- 99 (2d Cir. 2002), that authorize cases’” commenced after December 1, able steps to preserve electronical- the giving of adverse-inference 2015, and, “insofar as just and practica- ly stored information that should instructions on a finding of negli- ble, all proceedings then pending,” the have been preserved in the antici- gence or gross negligence. court directed the parties to file sub- pation or conduct of litigation, and Adverse-inference instructions missions addressing the impact of the the information is lost as a result, were developed on the premise rule changes on the sanctions imposed Rule 37(e) directs that the initial that a party’s intentional loss or and, upon consideration of the submis- focus should be on whether the destruction of evidence to prevent sions, revised its recommendation: lost information can be restored or its use in litigation gives rise to a The Court reasoned that including replaced through additional dis- reasonable inference that the evi- the first instruction would allow covery. Nothing in the rule limits dence was unfavorable to the party a jury to consider the possibility – the court’s powers under Rules responsible for loss or destruction likely, in this Court’s view – that 16 and 26 to authorize additional of the evidence. Negligent or even the requested documents had never discovery. Orders under Rule 26(b) grossly negligent behavior does existed at all. (Citation omitted). (2)(B) regarding discovery from not logically support that infer- Nonetheless, because this is ulti- sources that would ordinarily be ence. Information lost through mately a motion for a spoliation considered inaccessible or under negligence may have been favor- sanction, the first instruction should Rule 26(c)(1)(B) on allocation of able to either party, including the not be given independently of the expenses may be pertinent to solv- party that lost it, and inferring that second one. A party cannot be sanc- ing such problems. If the informa- it was unfavorable to that party tioned for spoliation without a find- tion is restored or replaced, no may tip the balance at trial in ways ing that some spoliation occurred.

16 | May 2016 | NYSBA Journal The second instruction should be without a finding of “prejudice to for Rule 37 sanctions and to make analyzed under the revised Rule another party[,]” and even then, the requisite showing of intent and 37(e), inasmuch as it is a sanc- the sanction may be “no greater loss of ESI based on the evidence tion for missing information that than necessary to cure the preju- adduced at trial. should – and, logically, would – dice . . . .” Fed. R. Civ. P. 37(e)(1). Conclusion have been stored electronically on The SEC argues that “[t]he pres- No longer can a lawyer in New the hard drive that the Foreign ent record supports the conclu- York State Supreme Court at 60 Centre Defendants turned over to the SEC. sion” that the Foreign Defendants Street in Manhattan cross the street to The amended rule “was adopted to acted with the intent to deprive the the Federal Court at 40 Centre Street address concerns that parties were SEC [14] of its requested materials. secure in the knowledge that the incurring burden and expense as (Citation omitted). The Court dis- same rules apply to the spoliation of a result of overpreserving data, agrees, as the existing record is not ESI. which they did because they feared sufficiently clear to support the fac- While life for New York State prac- severe spoliation sanctions . . . .” tual findings that are a prerequisite titioners has gotten a bit more compli- (citation and parenthetical omit- under the recent revisions to Rule cated, Pegasus does clarify the rules for ted). As such, a court may not now 37. The Court cannot even con- state court practice, for both ESI and impose an adverse jury instruction clude, as a threshold matter, that non-ESI spoliation. as a sanction for the spoliation of the Foreign Defendants destroyed ESI absent a showing of a loss of or failed to preserve these materi- 1. 26 N.Y.3d 543, 26 N.Y.S.3d 218 (2015). ESI “because a party failed to take als at all – simply put, there is a 2. 93 A.D.3d 33, 42, 939 N.Y.S.2d 321 (1st Dep’t reasonable steps to preserve it,” as strong likelihood that the materials 2012). well as “intent to deprive another never existed. (Citation omitted). 3. 220 F.R.D. 212 (S.D.N.Y. 2003). party” of the use of that informa- Nonetheless, in the event the case 4. SEC v. CKB168 Holdings, Inc., No. 13-CV-5584 tion. Fed. R. Civ. P. 37(e)(2). A court proceeds to trial, the SEC should (RRM), 2016 U.S. Dist. LEXIS 16533 (E.D.N.Y. Feb. 2, 2016). may not impose a sanction at all be permitted to renew its motion HAVE AN IMPACT!

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NYSBA Journal | May 2016 | 17 Is the UDRP Biased in Favor of Trademark Owners? By Gerald M. Levine

Background of the UDRP “Uniform” refers to the UDRP’s status as an interna- In an effort to combat a form of unlawful conduct on tional, non-territorial procedure for adjudicating claims the Internet, which saw registrants purchasing domain of cybersquatting. The first UDRP decision was filed in names identical or confusingly similar to trademarks January 2000. Since then the principal providers, WIPO and leveraging their value for commercial gain at the and the National Arbitration Forum (recently renamed expense of trademark owners, governments, business the Forum) together have processed more than 50,000 dis- organizations, professional associations, and concerned putes. Central to the UDRP’s success is a non-territorial constituencies turned to the World Intellectual Property centric jurisprudence applied by a corps of arbitrators Organization (WIPO) in 1997 to assist them in designing appointed to assess whether domain name registrations a remedial solution to “cybersquatting.” WIPO published and uses violate third-party trademark rights. its proposals in April 19991 and the Internet Corporation The UDRP is not a trademark court but it delivers for Assigned Names and Numbers (ICANN) adopted efficient and swift justice within its limited jurisdiction them in October 1999 as the Uniform Domain Name Dis- to the party entitled to the domain name, which is not pute Resolution Policy (UDRP).2 always the trademark owner. Not surprisingly the UDRP has its critics. Gerald M. Levine, Esq. is a partner in the law firm of Levine Samuel, LLC in New York City. He is the author of Domain Name Arbitration: A Perception of Bias Practical Guide to Asserting and Defending Claims of Cybersquatting The belief that the UDRP is biased in favor of trademark Under the Uniform Domain Name Dispute Resolution Policy, a recently owners begins with the circumstances under which the published book on trademarks, domain names, and cybersquatting. regime came into being as a forum designed specifically

18 | May 2016 | NYSBA Journal dural safeguards that allow a minority of arbiters to for trademark owners to combat cybersquatting. It has mishandle the power entrusted to them to order the to be acknowledged in considering the question posed cancellation of a registrant’s rights to a domain name in the title of this article – whether there is bias in favor and the transfer of that domain name to a new owner of trademark owners – that for the uninformed observer for the flimsiest of reasons.3 there may be grounds for believing there is. First, there is the disproportionate success of trademark owners who In the case in question, the dissent expressed the view on average prevail 85% of the time. Commentators have that the also found suspicious the fact that arbitrators (known as intent of Respondent upon registration of the panelists) appointed to hear the disputes are drawn from Disputed Domain Name appears to be a conscious the trademark bar. strategy to register the domain name for eventual sale The question is whether these factors in themselves to a potential complainant or competitor, to prevent a are marks of bias, or can the results be explained by trademark registrant from reflecting its name in a cor- responding domain name, to disrupt a competitor’s factual circumstances that objectively support targeting business or to attract Internet users for commercial and bad faith registration and use of the domain names gain by confusing use of the domain name. Under in issue. these circumstances, paragraphs 4(b)(i)-(iv) of the While eyebrows and voices have certainly been raised Policy arguably apply and are prescribed criteria for (not without cause, in some instances), for the most bad faith under the Policy.4 part, setting aside anomalies that I will discuss further below, there is no evidence of systemic bias in favor of But buying, selling, and monetizing domain names trademark owners. A review of the database of awards is not unlawful unless the intent is to take advantage of amply demonstrates that the overwhelming majority of the goodwill and reputation of the owner’s trademark. challenged registrations were unsustainable under any Fortunately, this was a three-member panel and the legal theory, whether based on UDRP jurisprudence or majority had the law right. statutory law. It is undeniable that some panelists interpret the facts Over the years the UDRP has attracted a substantial differently from their colleagues and apply different amount of criticism which tends to be generalized to the standards for assessing bad faith. WIPO makes the point regime when the immediate targets are particular cases that “[t]he UDRP does not operate on a strict doctrine or panelists. The criticism tends to hew to one of two of precedent.”5 Consistency is expected to be achieved negative poles: panelists are either accused of cognitive through consensus. The most glaring example of this dif- impairment or outright bias in favor of trademark own- ference involves the question as to whether renewal of a ers. There are panelists (these critics say) “who substi- domain name registration is a new registration or simply tute their personal views for the agreed language of the “protecting an existing investment.”6 UDRP.” One commentator announced in a posting on The construction that bad faith can be found on renew- September 20, 2005 that “[t]he UDRP is obviously not al regardless of whether the domain name was originally working.” Why? “Two websites, fundamentally the same registered in good faith has been soundly rejected by [involving trademark top-level domains (TLDs)], reached the majority of UDRP panelists, yet it continues to have two opposite decisions, both within weeks of each other!” subdural life. In fact, it recently spilled over into an action Other critics have complained that there is a “fundamen- filed in the U.S. District Court for the Southern District of tal bias in the Policy [in favor of trademark owners].” New York, Office Space Solutions, Inc. v. Jason Kneen,7 in One critic also perceived “a significant threat to free and which the plaintiff was attempting to capture a domain robust expression on the Internet.” name composed of a descriptive phrase – workbetter.com A new round of criticism came in response to a split – which the defendant had registered many years prior to decision in a more recent case discussed below. The deci- the plaintiff’s claim of rights to it. Priority is a major fac- sion led one critic to exclaim that the result “demonstrates tor in determining cybersquatting. Judge Kaplan gave the that UDRP has devolved into a casino, when panelists plaintiff’s claim short shrift: “However you slice it, there can reach such divergent decisions.” A banner head- are good cybersquatting cases and there are bad ones. line in a posting on TheDomains (a leading blog of the And this is really one of the bad ones.”8 domain name industry) on March 17, 2015 reads “Worst Given the astonishing number of decisions from UDRP Decision of the Year? Panel Gives Away Domain UDRP panelists it is surprising how few are truly infected Registered Before TM Was Filed.” with errors of law or questionable judgments. Trademark In the words of a successful domainer (businesses that owners generally prevail because registrant choices 85% buy, sell, and monetize domain names) of the time are indefensible. Domain name holders pre- [m]ost arbiters are sincere, fair-minded, hard-working, vail where they are found to have a right or legitimate distinguished legal professionals who make a genuine interest in the domain names in issue or are using the effort to carefully and faithfully apply the UDRP rules. domain names for fair or noncommercial purposes. Two Yet their good work is undermined by weak proce- recent ACPA actions by losing domain name holders

NYSBA Journal | May 2016 | 19 in UDRP proceedings illustrate the risk that attempted The case criticized in TheDomains Blog for its split deci- reverse domain name hijacking by overreaching trade- sion, easyGroup Limited v. Easy Group Holdings Limited,12 is mark owners can be an expensive proposition. Once the a good illustration of the problem and is worth looking lawsuits were filed, both trademark owners entered into at more closely. In this case, a three-member panel split stipulated settlements and consent judgments for $25,000 with the majority denying the complaint and finding and $50,000, respectively, including permanent injunc- reverse domain name hijacking and the dissent finding tions.9 Why did the trademark owners do this? Because lack of rights or legitimate interests and abusive registra- overreaching is indefensible. tion. Some, who took to Twitter, saw this as evidence the UDRP is a roulette wheel. To quote again: “This demon- Consistency and Predictability strates that UDRP has devolved into a casino, when pan- Inconsistency and unpredictability of awards are signifi- elists can reach such divergent decisions.” The criticism cant issues which have not gone unnoticed by panelists. would have made sense if the dissent was correct and the While there is a strong pull in the direction of precedent majority wrong. But the dissent’s view is not correct; she panelists do not walk in lockstep on a number of issues. simply applied the wrong law. This has created tensions that can undermine consistency and predictability and lead to the noted criticisms. The problem was recognized almost immediately in an important case from the second year of the UDRP, The UDRP is not a trademark court Time Inc. v. Chip Cooper.10 The majority could not have but it delivers efficient and swift put it more bluntly: “[p]otential users of the UDRP are entitled to some degree of predictability.” The majority justice within its limited jurisdiction. continued that proceedings “should consist of more than ‘[i]t depends [on] what panelist you draw.’”11 The dissent in Time had a different view. She would have denied the complaint because the complainant Although the dissenting panelist cites no cases it is failed to prove its case by clear and convincing evidence plain the inspiration for her views is traceable to a line that the respondent registered lifemagazine.com in bad of cases that hold abusive registration can be found even faith. The “clear and convincing” standard failed to where the original registration was in good faith. These attract consensus, although it is now applied in another panelists read a continuing promise of lawful use into the ICANN regime, the Uniform Rapid Suspension System original act of registration, with the result that any sub- (URS), which ICANN implemented in 2013 in connection sequent breach supports abusive registration regardless with its approval of hundreds of new generic top-level of the registrant’s motivation for acquiring the domain domains. name. Fortunately in the Easy Group dispute there was Nevertheless, the concern expressed by the majority a three-member panel. If the dissent had been a sole that “[i]t depends [on] the panelist you draw” continues panelist, the complainant would have been out of luck to be the magnet of criticism. Some panelists adhere to by having the misfortune of drawing the wrong panelist, the view that it is abusive to register a domain name precisely the concern expressed by the majority in Time. identical or confusingly similar to a mark regardless of The theory noted earlier of renewal as the date from website content; others, that content is the test of abu- which to measure bad faith derives from a 2009 case, sive registration. In other cases, panelists simply come Eastman Sporto Group LLC v. Jim and Kenny,13 which to different conclusions in their assessments of factually unfortunately was one of those hard cases that make bad similar circumstances, which is why it is imperative for law. The panel (a sole panelist) found that although the parties to clearly support the facts they believe control- respondent could not have registered the domain name ling with sufficient evidence to persuade the panel. in bad faith since the complainant’s trademark postdated the domain name registration, the respondent began Dueling Views of the UDRP using the domain name in bad faith before, and contin- The critical views leveled at the UDRP come about in part ued this conduct after, renewal of registration. While the because there is no appellate authority within the regime to award in the complainant’s favor may be understandable harmonize the law. Disharmony is conspicuous, for exam- as showing repugnance at the respondent’s conduct, it ple, in assessing fair use when it comes to freedom of speech. was unfortunate, because this was not a cybersquatting What exactly is protected speech? The domain name or the case at all but a trademark infringement case that prop- content of the website? Some panelists refuse to adhere to erly belonged in federal court. consensus or precedent in the most fundamental element Criticism was also leveled at a particularly disturb- of UDRP law, namely that the regime is “conjunctive” in its ing case decided by an experienced panelist, Videolink, requirement for proving abusive registration. It differs from Inc. v. Xantech Corporation.14 In this case, the panel actu- the ACPA, which is a disjunctive model. ally requested the complainant, who had not thought to

20 | May 2016 | NYSBA Journal argue bad faith renewal, to provide an additional sub- any legal system, namely consistency and predictability, mission on the same generally rejected construction of and when it does not there is the ACPA. n the policy. In the panel’s own words: “At the request of the Panel pursuant to Rule 12, Complainant provided an 1. The Management of Internet Names and Addresses: Intellectual Property Issues, Final Report of the World Intellectual Property Organization Internet Domain Name Additional Submission contending that the UDRP analy- Process (April 30, 1999), par. 40: “A domain name registration . . . gives rise to a sis should occur not when Respondent originally regis- global presence.” tered the domain name but when Respondent renewed 2. Also in 1999, Congress passed and President Clinton signed into law a the domain name in June 2010.” This instruction elicited statutory regime, the Anticybersquatting Consumer Protection Act (ACPA), which is nested as a section in the Lanham Act. from one of several commentators a classic response: “I’m 3. Guest Post Nat Cohen, DirectNavigation.com, March 15, 2010, www. dumbfounded.” And so he should have been because the directnavigation.com/2010/01/udrp-a-guest-post-every-domainer-must- domain name was not registered in bad faith. The UDRP read/. is not a trademark court and the panel was not right to 4. Geometric Software Solutions Co. Ltd. v. Telepathy Inc., No. D2007-1167 have ruled as though it were. (WIPO November 8, 2007). 5. WIPO Overview of WIPO Panel Views on Selected UDRP Questions (2d Conclusion Ed.) at par. 4.1. Is criticism of the UDRP and panelists warranted? Yes, 6. Live-Right, LLC v. Domain Administrator / Vertical Axis Inc., FA1506001622960 (Forum July 16, 2015). as to anomalous decisions in which panelists depart 7. 15-cv-04941. The action was commenced and voluntarily dismissed with from precedent and deliver awards inconsistent with prejudice on July 8, 2015 after a verbal lashing from the court on the merits of expectations; “no” where there may be genuine issues of the claim. The transcript and the endorsed memo on the notice of dismissal disputed facts which either support different results or are available on Pacer. disqualify disputes from an administrative remedy. And, 8. The transcript and the endorsed memo on the Notice of Dismissal are available on Pacer. Judge Kaplan made it unmistakably clear the claim lacked “no” also where the parties fail to pay attention to the merit by striking from the Notice of Dismissal the suggestion that the plaintiff evidentiary demands of the UDRP. Difficult cases invite was dismissing the case for lack of personal jurisdiction. second guessing. 9. Hugedomains.com, LLC v. Wills, 14-cv-00946 (D. Colorado, July 21, 2015); What is not in dispute and above criticism is that the Telepathy, Inc. v. SDT Int’l SA-NV, 14-cv-01912 (D. Columbia, July 9, 2015). UDRP is a strong and stable jurisprudence. Criticisms 10. No. D2000-1342 (WIPO February 13, 2001). apart, the business community prefers its convenience, 11. See id. at § 6. cost, and speed of resolution over adjudicating in courts 12. No. D2014-2128 (WIPO February 19, 2015) (easygroup.com). of law. The UDRP works remarkably well. Parties know 13. No. D2009-1688 (WIPO March 1, 2010). (or should know) what is expected of them and what 14. VideoLink, Inc. v. Xantech Corporation, FA1503001608735 (Forum May 12, outcome to expect if the evidence is properly assessed. In 2015). this regard the UDRP fulfills the essential expectations of

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NYSBA Journal | May 2016 | 21 And the Winners Are . . . The winners of the New York State Bar Association Journal’s 2016 Short Story Contest have been selected. Stories did not have to be legal- or law-related but had to include the phrase “justice is served.” We received numerous entries and narrowed the field down to the top four stories. Due to a tie, we will publish all four of the top entries, in no particular order. Congratulations to Judith A. LaManna, Henry G. Miller, Lawrence Savell and Harvey Silverstein for submitting the winning entries.

Lawrence Savell is Counsel at Herbert Smith Freehills New York LLP, New York, N.Y. He poured himself a tall black coffee from the office kitchen. He returned to his chair, put his feet on his desk, and opened the lowest-numbered volume. It had been a while since Nick had opened a book of case decisions, since he was part of the generation which conducted The Bequest nearly all of its case research via online databases like Lexis and Westlaw. Indeed, Nick’s firm, like many others, By Lawrence Savell had in recent years donated or tossed all its case report The boxes arrived in Nick’s office on a Friday morn- volumes, as anachronistic relics of the pre-digital world ing. Inside the one designated “#1” on the outside was a taking up valuable office space that could be put to more short letter from the executor. profitable use. “Dear Mr. Adams: With this letter please find four He turned through the pages, and saw the spectrum boxes which Mr. Robert Maxwell instructed in his will be of subject matters that one would expect addressed in the sent to you. Best regards.” reported cases: contracts, torts, matrimonial, wills, etc. Nick sighed. Bob Maxwell was a friend of his father’s, There was nothing out of the ordinary. from when they were undergrad roommates at Ohio He was about to put the book down when he saw State. Bob had stayed on to attend the Law School there, something. About a third of the way into the volume, while Nick’s father moved back to New York after gradu- at the right margin of a page, was a pair of handwritten ation to start working in the Adams family business. pencil marks. The first, at the beginning of a long para- Nick had met Bob with Nick’s dad a few times over the graph, consisted of a horizontal line about a quarter of an years when Bob’s law practice required trips to New York. inch long, joined at a right angle by another line of about It was Bob, a soft-spoken and polite Midwesterner who the same length going down. At the end of the paragraph had never married and who took a liking to Nick, who had again at the right margin was another mark, this time first encouraged the inquisitive Nick to consider a legal with the vertical line meeting the horizontal at the bot- career. And when Nick had said he was thinking of putting tom, like a backwards “L.” law school off for a couple of years after he got his B.A., The marks surprised Nick. He would never – even in it was Bob who persuaded him not to delay but to seize pencil – think of defacing a book owned by his firm. The the moment, as things had a habit of slipping away. Three case – which dealt with authorship of a courthouse cafete- years later, Nick became the first lawyer in the family. ria cook’s memoir, predictably titled “Justice Is Served” Nick had not seen Bob since Nick’s father passed five – was not one he recalled hearing about in law school. years before, and he was surprised and touched that Bob The marked paragraph contained merely a statement of had remembered him in his will. the law in Ohio on a particular obscure point. It was the Under the letter, the box, like its three traveling com- only notation in the case. Why had someone broken the panions, was full of books. There were several treatises, unwritten rules of law office decorum to single out that nearly all a bit long in the tooth. Nick presumed that Bob paragraph in that case? had remembered Nick was a history major in college, and Nick continued paging through the volume, and might appreciate them more than other lawyers. toward the end, in a contract case, he saw another set of But they also contained two other things – a large folder the handwritten brackets. This set was different in two of copies of filed briefs, and various volumes of the Ohio ways: the first mark occurred midway through the para- State Reports, First Series. Sending the volumes of old (the graph, and next to it was written, “Rider 1.” Series ended in 1964) Ohio decisions was strange, Nick Nick sat back in his chair. Riders to him were pas- thought, as they would be of little use to a New York lawyer. sages he wanted to quote in briefs or other documents. Nick took out all the Reports volumes and arranged When, as was usually the case, he drafted directly into them sequentially. There were 32 in all – a small fraction Word, he would just cut and paste from the online text of the full First Series. There were thus many gaps in the to his document. For materials that were not available number sequence. Nick was intrigued. online, he would photocopy the respective printed

22 | May 2016 | NYSBA Journal SHORT STORY CONTEST page and circle his selection for his assistant to input. With the pile of briefs to his left, and the Reports vol- But this rider was likely created before photocopiers umes standing at the ready in a large arc further away were available in the office – the marking lawyer prob- on his hastily cleared desk, Nick started turning to the ably gave his secretary the volume with some kind of pinpoint-cited pages identified in Bob’s briefs. bookmark in the page, and the secretary would type The bracketed passage in the first one bore after the the marked passage into whatever document was first marking the handwritten notation, “Sunny day.” being prepared. Those words appeared to have no relation to the case or Nick smiled – Bob had indeed sent him a history les- the quoted material. son – on ancient law office procedure. The next brief, dated a couple of weeks later, had a Nick flipped through the rest of the volume, but saw Reports citation pointing to another bracketed passage, no more notations. this time accompanied by the notation, “Windy.” Again, Nick next turned to the volume with the next highest no connection was apparent. number on its spine. It too had a few marginal notations. “So Bob was not just a lawyer, but also an amateur A quick flip through the rest of the volumes indicated meteorologist,” Nick mused to himself. “Who knew?” they all did. Similar notations were made, until one that said after Why, Nick asked himself, had Bob sent him so many the opening bracket, “Chilly.” But this one was different volumes, when just one would have illustrated the prac- in that to the right of the closing bracket was the word, tice? Maybe it was to show how prevalent the practice “Indeed,” in a different handwriting. was; indeed, Nick had noticed slight variations in the The next several instances contained similar paired marking styles, and in the handwriting of notations. notations, basically limited to single word weather obser- Each volume had inside the back cover the firm vations and single word affirmative responses. library sign-out card in a white pocket, with columns Finally, the forecast changed. for name and date borrowed. Nick knew from his own This particular opening notation read, “Park 12.5.” experience that most lawyers would not bother to sign Nick determined that “Park” was not the name of the out a case report volume he or she borrowed. Neverthe- case, nor of any of the parties, nor the judge, nor counsel. less, each volume’s card had a number of conscientious On a hunch, he pulled up on Google Maps the location of entries, over the course of several decades. Bob’s firm as indicated at the end of the brief. Two blocks Nick wondered whether any of the notations were away was a park. Bob’s. He looked at the card in the volume he had open, But “12.5” made no sense. Unless it was a time. and saw that it had been signed out by “R. Maxwell” on Twelve-thirty? “1/21/63.” He pulled the card from another volume, and Photographs of the park showed that, at least when saw another “R. Maxwell” entry. Every one of the cards they were taken, the park had many benches, and infor- in the volumes Bob had sent him had an “R. Maxwell” mation indicated it was a popular place for nearby work- sign-out entry. Some had more than one. ers to eat their lunch. “OK,” Nick thought, “so what?” Bob was now beyond The ending bracket in the case reporter passage bore the jurisdiction of any court seeking to prosecute him the notation, “Okay.” for serial publication defacement. And Nick had no idea Such “Park” references reoccurred frequently, virtu- whether any, or if any which, of the notations had been ally every time accompanied by an affirmative response. Bob’s. This went on for nearly two years. Nick started putting the books back in the boxes when But then, although the opening bracket references he saw again the large folder of briefs. He removed the thereafter continued, the closing bracket responses did contents, and flipped through them. They had carefully not. Not long after that, alongside the final cited passage, been arranged in ascending date order, spanning several there was no notation accompanying the opening bracket. years in the 1960s, which Nick realized was probably at “Why had they stopped?” Nick wondered to himself. the beginning of Bob’s legal career. Each brief had been Nick reviewed all the materials again, but they pro- signed by Bob. vided no guidance. On a hunch, he confirmed online that The first brief dealt with an automobile case. It con- the park remained a park through the present, and had tained two block quotations. Nick looked at the first not been paved over to put up a parking lot or for any citation, which was to a Texas case. But the second was to other form of “progress.” the Ohio State Reports. The volume number was one of Nick ran all kinds of searches on the web, trying to the volumes Bob had sent him. Nick went through each find some clue. Eventually, in response to a search includ- brief, and located in each at least one block quote citing ing the name of Bob’s firm and the word “secretary,” to the Reports. among the results was one that caught his eye. By now night had fallen, and Nick was the only one It was an engagement announcement in a local news- left in the office. paper. Dated shortly after the last brief, it proudly reported that one Abigail Mills had become engaged to one

NYSBA Journal | May 2016 | 23 SHORT STORY CONTEST

Benjamin Nelson, accountant. Ms. Mills was identified as ber, off-season, and I parked just up the street from my a secretary at Bob’s firm. destination, an old dive bar called The Black Shamrock, Bob had let his chance slip away. headquarters for the Provincetown Striper Derby. Nick leaned back in his chair and exhaled audibly. He The familiar refrain of Brown Eyed Girl was playing on now understood that when Bob had advised him to seize the jukebox as I entered the crowded bar. The first face the moment, he had been speaking from personal, and I recognized was that of Malachi Diggins (aka Digger painful, experience. based both upon his last name and his job operating exca- Bob had apparently never fully recovered from that vating equipment for a septic company). Already three disappointment, Nick realized. But he had wanted to sheets to the wind, Diggins is a tall, rawboned man in his make sure that Nick did not make the same mistake. late 30s with angry grey eyes, a pockmarked face, and Nick cleared space on his shelves for the books and as thick a Boston accent as you’re likely to hear this side the folder of briefs, so that they would always be in his of Fenway Park. Matter of fact, he’s wearing a tattered view and so he would not forget their lesson. He thought Red Sox cap that must date back to the 1975 World Series about the many ways he could implement the guidance (Author’s note: When in New England, especially in any he received, in his career, in his personal life, and in his establishment that serves alcoholic beverages, it is my plan someday to do the writing he kept putting off for long-standing practice, based upon painful experience, to that time all lawyers envision, when life would somehow refrain from discussing the relative merits of the Yankees become less hectic. versus the Red Sox.) Before leaving, he sent a quick email to the executor, Occupying the barstool next to Diggins is his partner acknowledging his receipt of the box, thanking him for in crime Arthur “Skully” Sullivan, sporting a gnarly his efforts, and requesting a copy of Bob’s will. shaved head, and Irish-themed tattoos covering his neck And a few days later, Nick would read in that will and bonecrusher arms. Digger accosts me immediately: that, except for four boxes of legal material, Bob had left “Look what the friggin’ cat dragged in. How many years everything to one Abigail Mills Nelson. you been gracin’ us with your presence, Ginn?” “Six, Malachi,” I reply, using his given name, because

Harvey Silverstein, Esq. is an attorney in Latham. calling him Digger would imply some affinity between us. “Well Mistah New Yawk barristah, solicitah or whatever in hell you ah, don’t plan on repeating this year, I already got the 20 large spent,” he feigns a smile, but Gone there is menace in his voice, likely because he finished runner-up to me last year by a mere two pounds. “Later, Malachi,” I say, and walk to the back room of the tavern, where the Derby officials have set up. The A-Fishing tournament director is Luther “Sarge” McClendon, a no- nonsense man with close-cropped salt and pepper hair, By Harvey Silverstein for three decades a trooper with the Massachusetts State “I have laid aside business, and gone a-fishing.” Police. Izzak Walton, The Compleat Angler, 1653 “Greetings, Henry, I wasn’t sure if our defending champ was going to make it up to P-Town this year. The lawsuit alleged that our firm’s client, a bus com- Thought maybe you had a big trial or something. We got pany, had breached its legal duty to protect passengers. almost 200 fisherman signed up.” During her deposition, I asked plaintiff Dora Krachenko, “Nice to see you too, Luther. I wondered if you’d “What did the bus driver do when Ms. Ranier allegedly retired and moved down to Florida to fish for tarpon.” assaulted you with a curling iron?” This question begat “Soon enough, counselor,” Luther says, as I hand him an anxiety attack on Dora’s part, which led her attorney a $100 bill, and am officially entered in the Striper Derby. to request a postponement, and I agreed. By then, it was The rules are straightforward. Winner take all, $20,000 for mid-afternoon, and without further ado, I left the office the heaviest striped bass caught from shore in any waters and walked to the garage on West 48th Street, where my between Provincetown and Eastham over the next week. Jeep Wrangler was parked. And courtesy of a local marina, the winner will receive Driving uptown to the 79th Street entrance to the a bonus of $1,000 per pound if the striper exceeds 50 Henry Hudson Parkway, I headed north through the pounds. Bronx and Westchester, eventually merging onto I-95. Once registered, I sat at a table and placed an order Around 9 p.m., after six hours on the road and a few pit for the Shamrock’s signature dish, the Little Frenchie, a stops, the Jeep turned onto Commercial Street, the main Portuguese sandwich overstuffed with presunto, linguica, drag in Provincetown, Massachusetts. It was late Septem- steak, cheese, tomato and beer sauce. Even in New York,

24 | May 2016 | NYSBA Journal SHORT STORY CONTEST

I can’t find anything like it. As I awaited the food, the “Appreciate your concern, Malachi, I’m just gonna fish bar owner, a grizzled Portugee named Pedro (“Pete”) this last eel,” which I proceeded to cast out into a rip cur- Goncalves, brought me an ice cold fino. After some small rent off the Dike. Then, I felt a tapping on the line which talk, he glanced around nervously to ensure that Digger signified a fish showing interest in the eel, and the 10-and- was out of earshot. “Henry, word to the wise. All summer a-half-foot rod bent double. The fish took off like she want- long Digger’s been coming in here running his mouth ed to cross the Atlantic Ocean, and as the storm intensified, about how he’s gonna avenge his defeat in last year’s it took all of my skill to maintain balance on the slippery derby. So I‘d be careful. It‘s no secret that back in the day rocks while battling a fish that felt larger and fought harder he did five years in Walpole for armed robbery.” than any I’d caught in my life. Twenty heart pounding “Thanks for the heads up, Pete,” I reply. “And I minutes later, the huge striper was finally subdued. thought fishing was supposed to be fun.” Digger and Skully looked stunned. “It’s a damned The tournament officially began at 12 a.m. Friday cow, I bet she’s at least 50 pounds,” said Skully, barely morning. The best striper fisherman concentrate their concealing his admiration. fishing at night, because that’s when the bass come close Digger took a long pull from his bottle, got up in my to shore to feed, and some of the contestants headed face, and screamed, his whiskey breath penetrating the directly from the Shamrock to fish. But the long drive wind, “This ain’t happening to me again. Gimme that to the Cape after a day of work, and the finos, left me striper, Ginn. You remind me of that asshole D.A. who exhausted, so I planned to get a good night’s sleep before sent me to State Prison for five years. I’ve had it up to I began the fishing competition. here with rich, know nothing bastards like you getting all My daily routine was to rise at 5 a.m., have coffee and the dead presidents while I’m busting my hump digging donuts in the motel, and then fish. Along with many of out septic tanks. Just gimme that bass, and we all walk the other contestants, I preferred to fish at Race Point in off the Dike.” Provincetown, perhaps the best known fishing location Insult was added to injury when Digger whipped a on the Cape. As the days went by, I caught some bluefish small Glock pistol from his pocket and pointed it my way. and school sized stripers, but nothing worth weighing in. “She’s all yours, Mr. Diggins,” I say, and push the still Malachi Diggins was always in the back of my mind, but flopping striper toward him. our paths didn’t cross. Even so, on Wednesday evening, “Maybe you should put down the piece, Digger,” cau- the Derby leaderboard showed Digger on top with a tions Skully. 44-pound striper. Enraged by his friend‘s admonition, Digger shouts, Since Thursday was the final day of fishing in the “Screw you, too, Skully. In for a dime, in for a dollah.“ tournament, I intended to fish as much as possible on “OK, Digger, but how you gonna stop him from tellin’ that day. Ominously, the weather forecast predicted that the Derby guys that you stole his fish?” a coastal northeaster was expected to hit the Cape on Digger answers, “Here’s how, pally boy,” and then Thursday evening. But barring a monsoon, I wouldn’t be levels the Glock at me and fires. deterred from fishing, because big fish can sometimes be In an instant, I found myself in 20 feet of frigid water, caught in a storm. By dusk, when the storm had not mate- in a churning rip current, in the pitch black of night, in a rialized, I decided to walk the length of the Stone Dike, Nor’easter, a long way from home. a breakwater leading to the Wood End Lighthouse and Long Point, remote but potentially productive fishing How it all turned out grounds. I fished there for a couple of hours, without any At noon on Friday, everyone associated with the fishing luck, and was resigned to finishing the Derby without tournament gathered at The Black Shamrock. Director catching any big stripers. Around 9 p.m., the wind began McClendon got right down to business. “Congratulations to howl and it started raining, so perhaps the meteo- to our winner, Mr. Malachi Diggins from Yarmouthport. rologists were right. Upon further reflection, prudence Please step up to the podium as I present you with a dictated that I begin the return trip over the Stone Dike $24,000 check for your 54-pound striper.” before a storm surge made it too dangerous. At that moment, with a trial lawyer’s flair for drama, I And then I had company. Approaching me on the burst through the door of the tavern. Digger glared at me breakwater from the other direction were Digger and like he’d seen a ghost. “Sarge,” I said, “you might want Skully, sans fishing gear, drinking from a half-empty fifth to hold off on that check. Mr. Diggins didn’t catch that of Tullamore Dew. Digger seemed in a talkative mood. striper. I did, and he took it from me at gunpoint.” “FYI, Ginn, I got a 44 pounder, and the tournament’s Digger, now ballistic, bellowed, “What’s this horse almost over. Most of the boys are just sitting around the manure? This shyster is nuts. That’s my fish and my Shamrock shootin’ the bull. Don’t you got sense enough money and I want it now.” to come in before the worst of the storm? Come on coun- Sarge interceded, “Well, Mr. Ginn, you’ve made a very selor, have a pull of the Dew. And don’t say I never did serious accusation. What evidence do you have?” nothing for ya.”

NYSBA Journal | May 2016 | 25 SHORT STORY CONTEST

It was then that Skully stepped forward. “I can back thought him special. “You know he talked and walked Mr. Ginn 100 percent. Digger and I were on the Stone Dike before all the other children his age.” John loved it when last night and we saw Ginn catch this monstah striper and his first word was, of course, “Da-Da.” Digger pulled a gun and fired at him. I tried to stop him, All this pleasantness was a bit out of character for I swear to God.” At this point, Digger grabbed the check John. He was known as the toughest chief clerk in the and ran out of the bar, right into the waiting hands of four history of the courthouse. He practically ran the County of Sarge McClendon’s colleagues from the State Police. Court and the judges were glad to let him do it. He was a After the turmoil subsided, Sarge asked me what had no-nonsense clerk. If the papers were a day late, there’d happened on the Dike. I theorized that the combination be no way John would ever accept them. If the proper of rain, wind, booze, and a well-timed shove from Skully, form wasn’t followed, the papers would be summarily threw off Digger’s aim so the bullet only grazed my fishing rejected. The worst way to deal with No-Nonsense John waders. Though disoriented when I hit the water, I remem- was to try to be too nice to him. Like the time Friendly bered childhood swimming lessons advising not trying to Frankie Esposito, one of the courthouse regulars, gave swim through rip currents, but parallel to them. Yes, I was him a case of wine for Christmas. John exploded, “What very lucky, but somehow, I made it safely to shore. kind of a man do you think I am?” It took Friendly We invited Skully to join us, and I prodded him to Frankie over six months to get anything accepted in the explain why he shoved Digger on the jetty, and then told County Court. Friendly Frankie had forgotten some of the truth at the Derby award ceremony. “Mr. Ginn, I’ve John’s other names used by the Bar: John the Altar Boy, done some bad stuff in my life hanging around guys like St. John the Impossible, and John the Purest of Prudes. Digger, even spent time in jail. Striper fishing is maybe But some thought they noticed a softening in John the only thing in life I hold sacred. It’s simple, you caught after his son was born. He was always talking about his the biggest striper, you deserve the prize. It’s just not son. “What a smile he has, and he knows how to charm worth a man’s life.” us old folks. I’ll tell you, and I’m not just saying it because Even hardboiled Sarge choked up when he told Skully he’s my son, but that kid’s going places.” that he’d probably saved my life. “Mr. Sullivan,” I said, John’s reputation for integrity had always been unstained. addressing Skully for the first time by his surname, “half In law school he was on the Law Review, quite an honor. of this prize is going to you, and half to the Cape Cod John liked working in the court system, a safe and steady Children’s Hospital. Before I head back to New York, let job. Some thought John should aim higher and work for a me ask you one final question. What is the meaning of prestige law firm. But John liked the safety of being in the those words tattooed in green ink on your neck?” court system and the authority that went with it. The Party He grinned broadly, and carefully enunciated, “Ta’ felt John could be an asset. He was chosen to be chair of the ceartas a sheirbhea’il. It’s Irish, ya know, Gaelic. It means Conflict of Interests Board. John was going up the ladder. ‘justice is served.’” After that John was even being considered for Congress. The Party sure could use a little purity on the ticket. John took pride in his tough, inflexible standards. That’s what Henry G. Miller, is the senior member of Clark, Gagliardi & Miller, P.C., he learned at school. The Jesuits were exacting taskmasters. White Plains, N.Y. And just because you mentioned little John didn’t mean you’d get any favors, but perhaps it meant John would listen just a little more sympathetically before he turned you down. He Never Kate fought with John. “You’ve got to say ‘no’ to your son every now and then, just like you do on your job. You can’t be a tough guy at work and a marshmallow at home.” The son always seemed to be in trouble at St. Michael’s Said No Grammar School for not doing his homework, for speaking out in class, for talking fresh to the teachers. But By Henry G. Miller Daddy always ran to the rescue. He was an expert at find- What a surprise. John Duffy married. He was almost ing excuses. And, of course, he’d always come up with forty. A confirmed bachelor if ever there was one, always some idea on how to help the school with its fundraising. bragging about his need for freedom. But when he met * * * Kate McGuire—it was all over. She told him the wedding So somehow little John, spoiled little John, got out of would be in September. And it was. St. Michael’s and made it into Bishop Paul, the premier And John was a new man when little John was born. local Catholic high school. He would be an only child. Complications stopped Kate There was trouble there too. Kate told John in no from having more. But it didn’t matter. John thought uncertain terms, “You’re ruining him. Stop it. He won’t be his son perfect. He filled their lives all by himself. John able to always count on you in the real world.”

26 | May 2016 | NYSBA Journal SHORT STORY CONTEST

“Kate, he’s our everything. He’s a bit wild but he’s worked. John got the account and became a partner. He coming together. You’ll see. He’s special. Did you know was on his way. he can almost recite the Gettysburg Address without “See, Dad. You did nothing wrong and it paid off.” notes and with as much feeling as Lincoln ever put into Then when their son, their only child, married Mary, it? You’ll see.” John and Kate more than approved. They were ecstatic. “John, you are spoiling him. I hope you’re right but I To make it even more perfect, the newlyweds bought a don’t think so.” house near them. A bit expensive, Kate worried. But John Little John was always throwing his father’s name reassured her he was doing so well at work, he could around. Some people resented it. “Do you know who my manage, and “we can help a little, isn’t that what mom- father is? He knows both senators. He can handle any mies and daddies are for?” problem. Trust me.” The dream marriage got even better. Mary was expect- But problems came. John almost didn’t graduate with ing. John couldn’t do enough for them. Kate still worried. the rest of his class at Bishop Paul for repeatedly missing “They’re living over their heads.” some makeup classes in chemistry. “Please don’t worry. They love him at the company. John asked him, “Son, why don’t you go to Brother He’s going places.” Michael’s chemistry class? It’s an important subject. They But Kate was not reassured. And as the pediatricians may not let you graduate.” say: “Always listen to the mother.” “Dad, it’s so boring. Please fix it. I just can’t listen to The fateful moment came a few weeks later. It was that stuff anymore.” 1:30 a.m. There was a loud knocking at the door. Kate So Dad made sure he got invited to the Education and John had been asleep. Kate came downstairs with Conference for the whole state. He made sure he was the her husband behind her. It was their son. “Mom, I have keynote speaker. He praised Bishop Paul as an outstand- to talk to Dad.” ing example of what a great high school can accomplish. “What is it, John? You woke your mother and me.” His son graduated. “I’m sorry, Dad. Let’s talk. Mom, you can go back to Mother Kate took her son aside and read him the riot bed.” act. “Listen, you won’t always have your father.” “I’ll listen. What is it?” Kate knew it wasn’t good. “I’ll do better, Mom.” “Well, I borrowed a little money from work—without And he did. Good enough to get into Adams Univer- their knowing it. I got in a little over my head. I got other sity, almost an Ivy League school. No one was sure how. debts: for the new car, for Mary’s bracelet, for an invest- The cynics said it didn’t hurt that his father is now the ment I made.” state’s Public Works Commissioner (who gives out con- “Why didn’t you come to us right away, son? We tracts) and was even being considered for the nomination always try to help you.” to the U.S. Senate. “I don’t always like to bother you, Dad. I like to do In college there was only one really bad episode and that things on my own. But there’s an easy way out. The Baker was over a violation of the Honor Code. He was caught Company, my sometimes client, may put all their invest- copying an answer from another student’s paper. John and ments with us. That could mean millions. And my boss Kate visited their son every month, and Kate insisted that promised me a big bonus of two hundred fifty thousand her husband keep out of the punishment issued for violat- dollars if I land that total account. It means everything to ing the Honor Code. “He needs a lesson.” And for once John the company. That would end all my troubles. I could get did, and his son survived with a minor reprimand. out of debt, and I’m very close to getting it.” “You see, John. He can survive without you. Did you “That’s great, son.” learn something?” “But there’s one little catch, Dad. They want that con- “Maybe, Kate, but never forget he’s all we’ve got. Our tract with the county. The one you’ve been talking about only one. We have to be there for him. And never forget for all the repair work. I told them I’d talk to you.” how special he is.” “But John, I’m close to giving that contract to another “You can love too much, don’t you know that?” company. A lower bid with very good references.” John Duffy, Jr. graduated and went on to get a very “Dad, I really need this. I’m in trouble.” nice job with one of those fancy hedge funds. It definitely “Don’t pressure your father like that. He could get in didn’t hurt that Dad was a powerful man. Kate continued trouble.” Kate could feel trouble coming. to warn her husband. “He’ll never be able to fly if you “What trouble? The Baker Company is a great com- don’t let him go solo.” pany. And it means the world to me.” One day Dad got a visit from his son. “Dad, do you Kate was having none of it. “John, you’ve got to say know the Synder Biscuit Company? If I could land that ‘no’ to your son. Just say ‘no.’ It’s so easy. It’s just one account, they might consider me for partner.” syllable.” John, the father, felt he could make one phone call. “Dad, please. You’ve never let me down. Don’t start There’d be no compromise in it. And so he did and it now.”

NYSBA Journal | May 2016 | 27 SHORT STORY CONTEST

And so it came to pass, after John made the proper grey tabby at the town’s American Way Dance Company. phone calls, that the Baker Company got the coveted He slops wet food onto her dish and places in on the pet contract. Little John not only got the bonus, but his past food mat on the kitchen floor just under the window. little “borrowing” was forgiven. Next, Justice is served. The almost Doberman, some- You can guess the end of this story. And it came swift- what Yorkie who came to them pre-named by a retired ly. The U.S. Attorney had been following the transactions police detective, is well-trained in this ritual of “ladies of little John closely. There were wire taps. There was first.” He sits properly, waiting, his tail ever so lightly a cooperative witness. Little John had been injudicious thumping. When his food dish hits the floor, the snuff on the phone. Indictments followed: Little John and Big of Justice’s snout deep into his dry kibble scatters some John. Misuse of public office. morsels onto the food mat for his later rescue. When John Duffy, the Altar Boy, was indicted, all At the sound of her footstep hitting the bottom stair, who knew him were shocked, incredulous. “John Duffy the pets stop eating. Clara uses the time to clean a back wouldn’t even fix a traffic ticket.” paw. Justice resumes his sit pretty pose. Both look to The courthouse regulars all had a comment: “Never the kitchen archway as she steps through. Her coffee is judge a man ’til he’s dead and past all temptation.” poured and he hands her the already milked mug. No “It’s about time we started to clean up the corruption one speaks. in this state.” Husband and wife are practiced at this manner of John Duffy sat alone with Kate. She told him, “I know intentional silence. She walks to the table, leaning over you went out and got a gun. But that’s the easy way out. on the way to pat Justice on the head and to give Clara Take your punishment. This, too, will pass.” a long stroke from head through the tip of her fat tail. At John pled guilty and the sentence was lighter than the her place at the table are the sections of the newspaper prosecutor wanted. John had led an exemplary life, and that her husband has read. the judge summed it up well. “For a man like you, your She gives a perfunctory scan to the Auto and Sports disgrace is the worst punishment.” sections and deposits them into the newspaper recycle In the courthouse it was a topic of conversation for pile. She sets aside the News section for a later-in-the-day years. The Duffy Story. read, having caught the national and local news on TV “Well, finally, justice is served!” broadcast upstairs that morning. She immerses herself, “I guess everybody has a price.” happily, into the comics. It is, always, only after she has “He always had a soft spot for that kid. He never said drunk half of her coffee when they begin to talk. ‘no’ to him.” They eat a light breakfast of fruit, yogurt and toast, “Can you believe John the Pure would do a dumb and wash it down with the balance of the coffee before thing like that?” going upstairs to shower and dress for the day. Kate said it best: “You can love too much.” Less than 30 minutes later, they are both groomed and dressed. Both in suits. He always wears layers. Her suit Judith A. LaManna, Esq. is an arbitrator and mediator in Syracuse, N.Y. has a skirt. They check their appearance in the antique floor mirror and see reflected back a handsome couple, both with near blue-black dark hair and light complex- ions, both trim and posture perfect. They collect their bags and briefcases. He fishes This around and finds his glasses, the ones with the dark rims. Near the door they each lift off their sets of car keys from their key hooks. Taking turns, they each pet Justice and Clara. The pets walk away to their respective pet beds. He Morning closes and locks the outside door. By Judith A. LaManna This morning in the driveway, like all other mornings, he opens her car door for her. This morning, like all other Each morning, bright and early, he tiptoes down mornings, he leans over as she settles behind the driver’s the stairs, retrieves the morning paper from the end of seat. They kiss. This morning, however, and although no the driveway and returns to their kitchen. He thumbs one is nearby, she looks side-to-side, and then whispers through the paper. When he hears the sound of her mov- in his ear. ing about, he plugs in the coffee. This, it is his belief, is his “Be careful traveling down Interstate Route 81 today, most important mission of the day. Clark. There was a news report of another overnight As the coffee gurgling starts, their kitten, Clara (a Kryptonite spill.” name feminized from the Italian and roughly translated “I saw it, Lois,” he replies. “I’ll be careful.” to mean “truth”) begins to dance between his legs as if “Super,” she says. she has spent overnight rehearsing her role as the lead

28 | May 2016 | NYSBA Journal NYSBA Journal | May 2016 | 29 2014-2015 Review of UM/UIM/ SUM Law and Practice By Jonathan A. Dachs his is the second in a two-part series detailing changes in uninsured motorist (UM), underinsured motorist T(UIM) and supplementary uninsured motorist (SUM) law and practice in New York. The first part included general information and highlights vital to UM practice and appeared in the March/April issue of the Journal. This part will cover developments in UIM and SUM practice.

UNINSURED MOTORIST ISSUES

Insurer’s Duty to Provide Prompt Written Notice of injured parties” by encouraging the expeditious reso- Denial or Disclaimer1 lution of liability claims (citations omitted). To effect A vehicle is considered “uninsured” where it was covered this goal, the statute “establishe[s] an absolute rule that unduly delayed disclaimer of liability or denial by an insurance policy at the time of the accident, but the of coverage violates the rights of the insured [or] the insurer subsequently disclaimed or denied coverage. injured party” (citation omitted). Compared to tra- Insurance Law § 3420(d)(2) provides that if “an insurer ditional common-law waiver and estoppel defenses, shall disclaim liability or deny coverage for death or bodily section 3420(d)(2) creates a heightened standard for injury . . . it shall give written notice as soon as reasonably disclaimer that “depends merely on the passage of possible of such disclaimer or liability or denial of cover- time rather than on the insurer’s manifested intention age to the insured and the injured person or any other to release a right as in waiver, or on prejudice to the claimant.” As the Court of Appeals observed in KeySpan insured as in estoppel (citations omitted).” Gas East Corp. v. Munich Reinsurance America, Inc.,2 In Highrise Housing & Scaffolding, Inc. v. Liberty [t]he legislature enacted section 3420(d)(2) to “aid Insurance Underwriters, Inc.,3 the court stated that “if a claim falls within the scope of the policy’s insuring agreement, an insurer must issue a timely disclaimer Jonathan A. Dachs ([email protected]) is a member of the firm pursuant to Insurance Law §3420(d) to deny coverage of Shayne, Dachs, Sauer & Dachs, LLP, in Mineola, New York. Mr. Dachs based upon an exclusion.”4 Moreover, the court remind- is a graduate of Columbia College of Columbia University and received ed that “[e]xcess insurers have an obligation to disclaim his law degree from New York University Law School. He is the author of “Uninsured and Underinsured Motorist Protection,” 2 New Appleman pursuant to Insurance Law §3420(d).” New York Insurance Law, Chapter 28 (Lexis Nexis), and of a chapter on The Court of Appeals, in Country-Wide Ins. Co. v. UM/UIM and SUM (Pre- and Post-Regulation 35-D), which appears in Preferred Trucking Servs. Corp.,5 stated Weitz on Automobile Litigation: The No-Fault Handbook (New York State We have clarified the application of the statute by Trial Lawyers Institute). He is also the author of a regular, featured col- holding that “once the insurer has sufficient knowl- umn on Insurance Law in the New York Law Journal. edge of facts entitling it to disclaim, or knows that it will disclaim coverage, it must notify the policy-

30 | May 2016 | NYSBA Journal holder in writing as soon as is reasonably possible . . . deny coverage, and may be asserted by the insurer [T]imeliness of an insurer’s disclaimer is measured as a defense in an action on a judgment by an injured from the point in time when the insurer first learns party pursuant to Insurance Law § 3420 (a) (2) (cita- of the grounds for disclaimer of liability or denial of tions omitted). In order to establish a proper dis- coverage” (citation omitted). claimer based on its insured’s alleged noncooperation, an insurer is required to demonstrate that “it acted In Vermont Mut. Ins. Co., Inc. v. Mowery Constr., Inc.,6 diligently in seeking to bring about its insured’s coop- the court noted that “[a]n insurer’s decision to disclaim eration, that its efforts were reasonably calculated to liability insurance coverage must be given to the insured, obtain its insured’s cooperation, and that the attitude in writing, as soon as is reasonably practicable, ‘failing of its insured, after the cooperation of its insured was which the disclaimer or denial will be ineffective’ (cita- sought, was one of ‘willful and avowed obstruction’” tions omitted).” The court went on to say, “While the (citations omitted). The insurer has a “heavy” burden of proving lack of cooperation. timeliness of an insurer’s notice of disclaimer generally raises an issue of fact for a jury to decide, where, as here, In this case, the court held that the insurer’s submis- the basis for a disclaimer ‘was or should have been read- sions “were insufficient to sustain their prima facie bur- ily apparent before the onset of the delay,’ the delay will den on the cross motion for summary judgment.” be found to be unreasonable as matter of law (citations In Country-Wide Ins. Co. v. Preferred Trucking Servs. omitted). ‘Reasonableness of delay is measured from Corp.,15 the action against Preferred Trucking and its the time when the insurer learns of sufficient facts upon driver – insured by Country-Wide – was commenced in which to base the disclaimer’ (citations omitted).” March 2007. Throughout the spring of 2007, Country- The Court of Appeals, in KeySpan Gas East Corp. v. Wide made “numerous attempts” to contact Preferred’s Munich Reinsurance America, Inc.,7 also noted that § 3420(d) president and the driver – with no success. The president (2) applies only in a particular context – those insurance and driver did not respond to the lawsuit either, thus cases involving death and bodily injury claims that arise leading the plaintiff to file an application for a default out of a New York accident and were brought under a New judgment in September 2007. Country-Wide’s receipt York liability policy. The Court went on to say, from the plaintiff’s attorney of a copy of the default “Where . . . the underlying claim does not arise out motion on October 4, 2007 was its first notice of the law- of an accident involving bodily injury or death, the suit. Thus, on October 10, 2007, Country-Wide informed notice of disclaimer provisions set forth in Insurance Preferred and the driver by letter that it was exercising its Law §3420(d)(2) are inapplicable” (citations omitted). “right to issue a disclaimer of indemnity” and reserving In such cases, the insurer will not be barred from dis- its “right to disclaim any duty to defend” because of the claiming coverage “simply as a result of the passage insureds’ failure to cooperate. of time,” and its delay in giving notice of disclaimer should be considered under common-law waiver During the ensuing months, Preferred’s president con- and/or estoppel principles (citations omitted). tacted Country-Wide once to express his willingness to cooperate, but then proved impossible to reach. Country- In Mathis v. Am. Zurich Ins. Co.,8 the court reiterated Wide continued its efforts to contact the president and the that the restrictions of Ins. Law § 3420(d) do not apply driver through the summer of 2008. The law firm retained to a policy that was not issued or delivered in the state by Country-Wide to defend its insureds sent “mul- of New York and in B&R Consolidated, LLC v. Zurich tiple letters” to the driver advising him of a scheduled American Ins. Co.,9 and Key Fat Corp. v. Rutgers Cas. Ins. deposition and reminding him of the need to cooperate. Co.,10 the courts held that Ins. Law § 3420(d)(2) is also Additional efforts to reach the owner and driver after the inapplicable to claims that are not based on “death or court warned that the failure to appear for deposition bodily injury.” would result in the preclusion of evidence in support of The court held in Estee Lauder Inc. v. OneBeacon Ins. Preferred’s claims or defenses were futile. In July 2008, a Group, LLC11 that in a matter involving property damage Country-Wide investigator visited the president’s home claims, the court rules on the common law for the propo- for the sixth time and left a message for him with his sition that “[a] ground not raised in the letter of disclaim- wife. The owner failed to respond to this message. Three er may not later be asserted as an affirmative defense.” weeks later, another investigator was able to speak to the In QBE Ins. Corp. v. Jinx-Proof, Inc.,12 the court reiter- driver’s daughter, who advised that the driver did not ated the well-known rule that a reservation of rights letter speak English. On August 18, 2008, a Spanish-speaking is not effective as a denial or disclaimer.13 investigator finally reached the driver, who said that he One of the increasingly common grounds for denial or would cooperate. The next day, the lawyers wrote to the disclaimer of coverage is the non-cooperation defense. In driver in Spanish informing him of the upcoming deposi- West Street Properties, LLC v. American States Ins. Co.,14 the tion and his need to respond. The driver never responded court observed that to that letter. On October 13, 2008, the Spanish-speaking [t]he noncooperation of an insured party in the defense investigator again spoke to the driver, who told him (for of an action is a ground upon which an insurer may the first time) that he did not “care about the EBT date”

NYSBA Journal | May 2016 | 31 because of a “family situation.” Subsequent telephone constituted late notice of the accident and did not comply messages explaining the urgent need for the driver’s with terms of the Scottsdale policy. Scottsdale did not appearance were ignored, and the driver did not appear. send this letter to Sunset Park or Sierra Realty, but, rather, On October 16, 2008, the court granted the plaintiff’s only to GNY. motion to strike the defendant’s answer for failure to In affirming the Supreme Court’s grant of Sunset Park appear. On November 6, 2008, Country-Wide disclaimed and Sierra Realty’s motion for summary judgment declar- its obligation to defend and indemnify Preferred and the ing that Scottsdale was obligated to defend and indem- driver based upon refusal to cooperate. nify them, the Appellate Division, Second Department Addressing the question of whether the November 6, observed that where a primary insurer, like GNY, tenders 2008 disclaimer was timely as a matter of law, the Court a claim for defense and indemnification to an insurer, in of Appeals found compelling Country-Wide’s argument this case, Scottsdale, which issued a certificate of insur- that although it knew or should have known in July 2008 ance indicating that they are additional insureds, that that Preferred’s president would not cooperate, it was not insurer must comply with the disclaimer requirements of in a position to know that the driver would not cooper- Ins. Law § 3420(d)(2) by providing written notice of dis- ate until October 13, 2008, when he said he did not “care claimer of coverage to the additional insureds. According about the EBT date.” The Court noted that during most of to the court, the period between July and October “the situation with The fact that the tendering insurer provided untimely respect to [the driver] remained opaque.” Under the cir- notice of the accident “does not excuse the insurer’s cumstances of the numerous efforts and contacts had by unreasonable delay in disclaiming coverage” (citations Country-Wide with the driver and his family members, in omitted). The failure of Scottsdale to provide written which the driver “punctuated periods of noncompliance notice of disclaimer to 4401 and Sierra Realty rendered the disclaimer of coverage ineffective against them with sporadic cooperation or promises to cooperate,” the (citations omitted). Under the circumstances of this Court held that “Country-Wide established as a matter of case, GNY was not the real party in interest, such that law that its delay was reasonable.” As the Court further the notice of disclaimer to GNY would be rendered explained, the named insured was Preferred Trucking, effective as against 4401 and Sierra Realty.21 and its cooperation could occur through the driver. The driver, unlike the president, “had personal knowledge of In unanimously affirming the Appellate Division’s the accident and was in a position to provide a meaning- order, the Court of Appeals held that written notice of ful defense, or alternatively, testify in such a manner as disclaimer to the insured’s own carrier, but not to the to bind Preferred Trucking. As Country-Wide argues, as insureds themselves, did not meet the requirements of long as it was still seeking [the driver’s] cooperation in the disclaimer statute. As explained by the Court: good faith, it could not disclaim.”16 GNY was not an insured under Scottsdale’s policy; It is well-established that a proper notice of denial or it was another insurer. While GNY had acted on the disclaimer must apprise with a high degree of specificity insured’s behalf in sending notice of the claim to of the ground or grounds on which it is predicated.17 Scottsdale, that did not make GNY the insureds’ agent In 24 Fifth Owners, Inc. v. Sirius Am. Ins. Co.,18 the court for all purposes, or for the specific purpose that is relevant here: receipt of a notice of disclaimer. GNY’s rejected the plaintiff insured’s claim that the disclaimer let- interests were not necessarily the same as its insureds’ ter did not specify that the late notice defense was based in this litigation. There might have been a coverage on the time that had elapsed between the insured’s receipt dispute between GNY and the insureds, or plain- of the underlying complaint and its tender to the insurer tiff’s claim might have exceeded GNY’s policy limits. because the letter, which referenced the policy condition Because the insureds had their own interests at stake, relied upon, “sufficiently apprised plaintiffs that notice separate from that of GNY, they were entitled to notice was considered untimely relative to either event – the date delivered to them, or at least to an agent – perhaps of occurrence or of receipt of the lawsuit.”19 their attorney – who owed a duty of loyalty in this In Sierra v. 4401 Sunset Park, LLC,20 Scottsdale Ins. Co. matter to them only. As the Appellate Division correct- issued a certificate of insurance to 4401 Sunset Park, LLC ly held in Greater N.Y. Mut. Ins. Co. v. Chubb Indem. Ins. Co. (Sunset Park), and Sierra Realty, in accordance with a , 105 A.D.3d 523, 524, 963 N.Y.S.2d 218 (1st Dept. 2013), the obligation imposed by the Insurance Law construction agreement. On August 18, 2008, Juan Sierra is “to give timely notice of disclaimer to the mutual allegedly was injured while working in the building insureds . . . not to . . . another insurer.”22 under construction. On January 6, 2009, Sunset Park and Sierra Realty’s own insurer, Greater New York Insurance Moreover, the Court rejected Scottsdale’s argument Company (GNY), wrote to Scottsdale, tendering a claim that it had “substantially complied with the statute,” rely- for the defense and indemnification of the underlying ing upon Excelsior Ins. Co. v. Antretter Contracting Corp.23 action on behalf of Sunset Park and Sierra Realty. On and Cincinnati Ins. Cos. v. Sirius Am. Ins. Co.24 Indeed, the February 2, 2009, Scottsdale disclaimed coverage and court stated that “if Excelsior and Cincinnati are read to rejected the tender on the grounds that the GNY letter stand for the general proposition that notice to an addi-

32 | May 2016 | NYSBA Journal tional insured’s liability carrier serves as notice to the the removal of keys hidden from sight about the vehicle additional insured under section 3420(d)(2), those cases for convenience or emergency.’ Thus, to avoid liability should not be followed.”25 under the section, ‘a motorist need only ensure that the ignition key is “hidden from sight”’ and need not addi- Stolen Vehicle tionally conceal it so that the key is ‘not readily discover- A vehicle that is stolen is considered an “uninsured” able by a prospective car thief without extreme difficulty motor vehicle. The issue of whether, in fact, a vehicle (citations omitted).’”31 Here, the defendant’s testimony was used without the permission or consent (express or that someone could “probably” see the hide-away-box if implied) of the owner often presents a triable issue of fact he or she looked for it, and that “you would have a very for determination at a framed issue hearing. In general, small window as you are walking past it,” from which there is a strong presumption of permissive use, which you could “possibly” see the key, did not suffice to raise can be overcome by evidence to the contrary.26 an issue as to whether the key was “hidden from sight.” In Allstate Ins. Co. v. Rolon,27 the court held that The defendant testified that one would “have to kind of GEICO’s opposition to Allstate’s petition to stay arbitra- be peeking around a little bit” to find the key in the hide- tion, based upon its denial of coverage to the tortfeasor a-key box and the record established that the key was driver on the ground that he had been operating the not in plain view and that one would have to be actively vehicle without the permission of the vehicle’s owner, looking for it to find it. was insufficient because GEICO failed to come forward In State Farm Ins. Co. v. Walker-Pinckney,32 the court with any admissible evidence, such as an affidavit by held that the vehicle owner’s testimony that the vehicle its insured (the vehicle owner), or a police report of the was missing at the time of the accident, without more, vehicle’s theft. was insufficient to overcome the presumption of permis- In Allstate Ins. Co. v. Cristobal Peralta,28 the court held sive use. The sole witness at the framed issue hearing that the evidence at the framed issue hearing did not was the owner of the vehicle in question. His testimony overcome the presumption of permissive use. The evi- established that, at some point, he noticed that the vehicle dence established that the car keys were stolen hours was “missing,” that he reported this to the police, and before the accident and that such theft was reported to that, less than two days later, he ascertained that the the police. However, there was no evidence that the car vehicle had been towed to an impoundment lot. When was ever stolen or reported stolen. Under those circum- he recovered the vehicle, he saw that it had been seri- stances, the court could reject the contention that the car ously damaged; this was the first time he learned that the must have been driven by an unknown thief, and there vehicle had been in an accident. He did not know who was no basis to disturb the findings of the hearing court. was driving the vehicle at the time of the accident, and In Alvarez v. Bivens,29 the defendant parked his truck he did not give anyone permission to drive the vehicle at on the street near the old Yankee stadium. When he that time. However, he also testified that both he and his exited the truck, he locked it and placed a hide-a-key box wife had sets of keys to the vehicle, and that the wife was with the spare key inside the rear wheel frame. When the last one to park the vehicle before the owner noticed he returned later that night, the truck was gone and he it was “missing.” Moreover, when the owner recovered reported it stolen. When it was recovered by the police the vehicle from the impoundment lot, a set of keys was about three days later, the hide-a-key box was missing, inside the vehicle. No evidence was presented at the hear- but the police recovered the key that had been in the ing with respect to whether the wife was using or operat- box. In the meantime, two days after the alleged theft, ing the vehicle at the time of the accident, or whether she the plaintiff was struck by the stolen truck. Six days later, had given a third party permission to use the vehicle at an individual pled guilty to grand larceny in the fourth the time. Under those circumstances, the court held that degree, admitting that he stole the truck. “the evidence adduced at the hearing was not sufficient Under these facts, the court concluded that the defen- to overcome the presumption of permissive use.”33 dant “established by substantial evidence that his truck was stolen at the time of the accident, thereby rebutting Hit-and-Run the VTL §388 presumption that the motor vehicle was UM/SUM coverage is available to victims of accidents being operated with his consent.”30 The Court further involving a “hit-and-run,” i.e., an unidentified vehicle held that the plaintiff failed to raise an issue of fact that that leaves the scene of the accident. the defendant had violated VTL § 1210(a) – the “key in In Progressive Northwestern Ins. Co. v. Scott,34 the court the ignition” statute. Pursuant to that statute, “[n]o per- held that “[p]hysical contact is a condition precedent to son driving or in charge of a motor vehicle shall permit an arbitration based upon a hit-and-run accident involv- it to stand unattended without first stopping the engine, ing an unidentified vehicle” and that “[t]he insured has locking the ignition, removing the key from the vehicle.” the burden of establishing that the loss sustained was However, the statute further states that “‘the provision caused by an uninsured vehicle, namely, that physical for removing the key from the vehicle shall not require contact occurred, that the identity of the owner and oper-

NYSBA Journal | May 2016 | 33 ator of the offending vehicle could not be ascertained, knew he was seriously injured, petitioner undertook and that the insured’s efforts to ascertain such identity reasonable efforts to ascertain the identity of the vehicle were reasonable.” owner or operator” by filing a police report, canvassing When there is a genuine triable issue of fact with the mosque and surrounding area to locate possible eye- respect to whether a claimant’s vehicle had any physical witnesses, and obtaining surveillance footage depicting contact with an alleged hit-and-run vehicle, the appropri- the accident location – all of which proved unhelpful in ate procedure is to stay arbitration pending a hearing on identifying the operator or the license plate number of the that issue.35 offending vehicle. In Merchants Preferrred Ins. Co. v. Waldo,36 the respon- In some instances, a claim is made that the subject dent raised a triable issue of fact warranting a framed vehicle was identified by the claimant/insured, but was issue hearing to determine whether there was “physical not, in fact, involved in the subject accident. Such cases contact” between her vehicle and the hit-and-run vehicle often result in framed issue hearings to determine the by submitting an affidavit in which she averred that issue of involvement, with results dependent upon the another vehicle struck her vehicle when it changed lanes, specific facts of each case. and that the other vehicle “skimmed” her front bumper. For example, in Hertz Corp. v. Holmes,41 the court held In National Continental Ins. Co. v. Brojaj,37 the court that the uncontroverted evidence adduced at the hearing upheld the Supreme Court’s determination, based upon established involvement of the subject vehicle. At the the evidence presented at a framed issue hearing, that scene of the accident, the driver of the offending vehicle there was no contact between the truck driven by the went into a nearby house and came out with a telephone, respondent and an unidentified car. The court refused to and the claimant spoke on the phone to the driver’s upset the trial court’s conclusion that the respondent’s wife, who, inter alia, identified her place of employment. testimony was not credible. The offending driver moved the vehicle, which claim- Where the matter is determined after a hearing, the ant described as a silver SUV, and parked it down the appellate court’s power to review the evidence is “as block from the accident scene, and the claimant followed broad as that of the hearing court, taking into account in and pulled her vehicle approximately six feet behind it a close case the fact that the hearing court had the advan- and wrote down the plate number, which she gave to tage of seeing the witnesses (citations omitted).”38 the police when they arrived. The plate was registered In Yi Song He v. Motor Veh. Acc. Indem. Corp.,39 the court to a silver Mercury Mountaineer (an SUV), which was held that the petitioner, who was riding a bicycle when he owned by an individual who resided near the accident was hit by a vehicle that fled the scene, failed to establish scene. The driver admitted that his wife worked where that “all reasonable efforts” were made “to ascertain the claimant said she did, and there was no damage to the identity of the motor vehicle and of the owner and the vehicle. operator thereof,” where the police report identified two On the other hand, in Nationwide Mutual Ins. Co. v. witnesses and reflected that two license plates were iden- Joseph-Sanders,42 the court concluded, after a hearing, that tified as belonging to the offending vehicle. Contrary to the special referee’s determination that the subject vehicle the petitioner’s contention, the fact that one of the license was involved was not supported by any credible evidence. plates was identified as a “possible plate,” “does not The testimony at the framed issue hearing established that mean that there is no substantial evidence linking that immediately after the collision, which involved an alleged vehicle to the accident. Rather, it means that an investiga- unidentified vehicle, the driver of the offending vehicle got tion was required. Yet, petitioner has not identified any out of his green Ford Taurus and apologized to the claim- effort . . . to identify, or obtain information from the two ant, and was still present at the scene when the ambulance witnesses.” Accordingly, the court denied the petition to arrived. The police accident report did not indicate the sue the MVAIC. presence of a hit-and-run vehicle, and no evidence was On the other hand, in Alam v. Motor Veh. Acc. Indem. recovered at the scene pertaining to the identity of that Corp.,40 the court held that the petitioner met his bur- vehicle. The operator of another vehicle, which claimant’s den of establishing that the accident was one in which vehicle struck after being hit by the hit-and-run vehicle, the identity of the owner and operator of the offending testified that she identified a green Ford Taurus owned by vehicle was not ascertainable through reasonable efforts, Melvin Hammer as the offending vehicle upon observing where the petitioner was struck by a motor vehicle while it parked in the vicinity of the accident a day after the acci- crossing the street on his way to pray at a mosque, the dent. The testimony further established that after striking driver pulled over, exited the vehicle and approached the rear of the claimant’s vehicle, the offending vehicle the petitioner, the petitioner told the driver that he was backed up over a curb and struck a house. However, pho- fine, and, as a result, the driver left the scene. “Because tos of the vehicle showed only light scratches on the front petitioner did not believe he was seriously hurt, it was of the vehicle, consistent with Hammer’s testimony that reasonable that he did not ask the driver for identify- the vehicle had “wear and tear.” In addition, her in-court ing information at that time (citation omitted). Once he identification of Hammer, more than one year after the

34 | May 2016 | NYSBA Journal accident, was not credible. The other driver stated that she owner/operator of the second vehicle was dismissed on only observed him by “peeking out” from inside her car, the ground that her remedy against her co-employee was and described him as a “very older” or elderly man with limited to the recovery of Workers’ Compensation ben- a long beard and wearing traditional Hasidic clothing. efits (Workers’ Comp. Law § 29(6)). The plaintiff subse- However, in court, Mr. Hammer was clean-shaven and did quently commenced an action seeking SUM benefits from not dress in Hasidic garb, and testified that he was never the insurer of the host vehicle owned by her employer. Hasidic. Hammer consistently denied that his vehicle was The SUM insurer moved for summary judgment on the involved in the accident. ground, inter alia, that the plaintiff’s exclusive remedy In Government Employees Ins. Co. v. Boohit,43 the petitioner was the recovery of Workers’ Compensation benefits. established by admissible proof that a vehicle owned by the In reversing the trial court’s denial of that motion, the additional respondent was involved in the alleged accident. Fourth Department first observed that No objection was made to the admission of a police report plaintiff correctly contends that the exclusive remedy containing the license plate number of that vehicle. Thus, provision in Workers’ Compensation Law §29(6) does the evidence was presumed to have been unobjectionable, not bar all actions by injured employees against any and any error in its admission was deemed waived. In any employer’s insurer for SUM benefits. Although work- event, the contents of the police report were admissible ers’ compensation benefits generally are “exclusive and in place of any other liability whatsoever” (§11), the under the present sense impression exception to the hearsay statute “cannot be read to bar all suits to enforce con- rule since they were sufficiently corroborated by testimony tractual liabilities” (citation omitted). Because an action at the hearing. No basis existed in the record to disturb the to recover uninsured motorist benefits “is predicated on court’s credibility determinations. [the] insurer’s contractual obligation to assume the risk of loss associated with an uninsured motorist” (citation Cancellation/Termination omitted), the Workers’ Compensation Law does not Although not specifically listed as a separate catego- categorically bar such an action against an employer’s ry of an “uninsured” motor vehicle under Ins. Law insurer (citation omitted).47 § 3420(f)(1), a vehicle whose insurer timely and properly However, the court noted that the critical distinction canceled its policy prior to the date of the accident will be in this case was that the subject motor vehicle accident deemed an “uninsured motor vehicle.” involved two vehicles operated by co-employees. In Progressive Specialty Ins. Co. v. Alexis,44 the insurer’s As noted by the Court, the Uninsured Motorist Statute, cancellation was based upon the contention that the Ins. Law § 3420(f)(1), requires the payment of benefits in insured, who did not register the insured vehicle, did not the amount that the claimant “shall be entitled to recov- have an insurable interest in the vehicle. The court held er” as damages from an owner or operator of an unin- that this asserted ground was incorrect and held that the sured motor vehicle. Similarly, the SUM endorsement, cancellation was invalid. promulgated pursuant to Ins. Law § 3420(f)(2), requires The court in Motor Veh. Acc. Indem. Corp. v. American the payment of “all sums that the insured . . . shall be Country Ins. Co.45 held that by operation of Vehicle and legally entitled to recover as damages from the owner or Traffic Law § 313(1)(a) (VTL), subsequent coverage termi- operator of an uninsured motor vehicle because of bodily nates prior coverage as of the effective date and hour of the injury sustained by the insured (emphasis added).” As new coverage, irrespective of whether the initial insurer explained by the court, “Defendants’ contractual liability otherwise complied with the cancellation requirements to provide SUM benefits is therefore ‘premised in part’ of the VTL. upon the contingency of a third party’s tort liability.”48 Insofar as, pursuant to the plain language of the SUM Workers’ Compensation Defense endorsement, the plaintiff was not “legally entitled to In Hauber-Malota v. Philadelphia Ins. Cos.,46 deciding a recover damages” from the owner and operator of the “matter of first impression,” the court held that an offending vehicle because of the status of its operator as employee, injured in an accident while in the course of a co-employee, the plaintiff was not entitled to recover her employment, and who was barred by the exclusive SUM benefits under the policy. remedy provisions in the Workers’ Compensation Law from suing a co-employee based upon negligence, was UNDERINSURED MOTORIST ISSUES not entitled to SUM benefits under her employer’s automobile liability insurance policy. Trigger of Coverage In this case, the plaintiff was a passenger in a vehicle In Governmemt Employees Ins. Co. v. Lee,49 the claimant operated by her co-employee and owned by their com- was a passenger in a vehicle insured by Government mon employer, when that vehicle was rear-ended by Employees Ins. Co. (GEICO), with bodily injury and SUM another vehicle operated by another co-employee. All limits of $300,000 per person/$300,000 per accident. The involved were within the scope of their employment at alleged offending vehicle was insured by Allstate under the time of the accident. The plaintiff’s action against the an Allstate “split limit” policy, with bodily injury lim-

NYSBA Journal | May 2016 | 35 its of $100,000 per person/$300,000 per accident. After Consent to Settle receiving the full $100,000 available limits of the Allstate The mandatory uninsured motorist endorsement pro- policy, the plaintiff demanded arbitration of a SUM claim vides that coverage does not apply if the insured or against GEICO, arguing that the per-person liability cov- person entitled to payment under such coverage “shall erage afforded under the Allstate policy was less than the without written consent of the company, make any settle- per person liability coverage afforded under the GEICO ment with . . . any person or organization who may be policy. GEICO sought to stay arbitration on the ground legally liable therefor.” The SUM endorsement mandated that its SUM coverage was not triggered because both the by Regulation 35-D (11 N.Y.C.R.R. § 60-2.3(e)) contains a GEICO and the Allstate policy provided for aggregate specific exclusion for settlement without consent, as well liability limits of $300,000 per accident, and, therefore, the as a provision that states “an insured shall not otherwise tortfeasor was not an underinsured motorist. settle with any negligent party, without our written con- After noting that “the essential purpose of the [SUM] sent, such that our rights would be impaired.” statute [is] to provide the insured with the same level of In Progressive Northeastern Ins. Co. v. Cipolla,52 the protection he or she would provide to others were the court noted that pursuant to Condition 10 of the SUM insured a tortfeasor in a bodily injury accident (citation endorsement, the claimant/insured was required to give omitted),” and that “[t]he necessary analytical step, then, notice of any settlement to Progressive so that Progressive is to place the insured in the shoes of the tortfeasor and could “advance such settlement amounts to the insured ask whether the insured would have greater bodily injury in return for the cooperation of the insured” in a sub- coverage under the circumstances than the tortfeasor rogation action, and forbidden from settling his claim actually has (id.)” and “[t]he determination of whether against the tortfeasor “such that [Progressive’s] rights SUM benefits are available ‘requires a comparison of each would be impaired.” It was undisputed that the claim- policy’s bodily injury liability coverage as it in fact oper- ant/insured settled his claim against the tortfeasor for the ates under the policy terms applicable to that particular full amount of the tortfeasor’s policy limits, but did not coverage’ (id. at 688),” the court concluded that give Progressive timely notice of the settlement. When, a comparison of the two policies at issue, in light of thereafter, he made a claim for SUM benefits under the particular circumstances of this case, demonstrates Progressive’s policy, Progressive denied the claim based that an individual such as Lee would be afforded upon his unauthorized settlement. greater per-person bodily injury liability coverage In challenging the denial of coverage, the claimant/ under the GEICO policy than under the Allstate policy. insured argued that his unauthorized settlement did not Under the Allstate policy, Lee was limited to the recov- impair Progressive’s subrogation rights because he had ery, in tort, of $100,000. The GEICO policy – a single limit policy – provided $300,000 of liability coverage not provided a release to the tortfeasor. He did not dis- for bodily injury to any one injured person. Since the pute, however, that he discontinued his action against the per person bodily injury liability insurance limits of tortfeasor without Progressive’s consent and that, under coverage provided by the Allstate policy are in a lesser the terms of the settlement, the discontinuance was to amount than the per-person bodily injury liability be “with prejudice.” He also did not dispute that he was insurance limits of coverage provided by the GEICO required to provide the tortfeasor with a release. Under policy, the SUM provision of the GEICO policy was those circumstances, the court held that he failed to dem- triggered (citations omitted).50 onstrate that he did not impair Progressive’s subrogation rights, and, accordingly, granted Progressive’s petition to A proper notice of denial or disclaimer stay arbitration. must apprise with a high degree of In Ducz v. Progressive Northeastern Ins. Co.,53 the specificity of the ground or grounds on insured/claimant sent correspondence to the SUM insurer advising that a high-low arbitration was being offered which it is predicated. by the tortfeasor’s insurer, and advising of a potential claim under the SUM endorsement in the event that the In Unitrin Direct/Warner Ins. Co. v. Brand,51 the tort- arbitration award exceeded the tortfeasor’s policy limits. feasor had bodily injury liability coverage limits of The insured/claimant requested the SUM carrier’s con- $100,000/$300,000, and the injured claimant also had sent to proceed with the high-low arbitration, and the bodily injury liability limits of $100,000/$300,000. Insofar SUM carrier declined to consent because it did not want as SUM coverage is only triggered where the bodily injury to waive its right to subrogation against the tortfeasor. liability insurance limits of the policy covering the tortfea- Thereafter, the insured/claimant commenced a proceed- sor’s vehicle are less than the liability limits of the policy ing to compel the SUM carrier to consent to the high-low under which a party is seeking SUM benefits, and, here, arbitration and to proceed with SUM arbitration. The the tortfeasor’s limits were identical to the claimant’s, the court denied the insured/claimant’s application because: tortfeasor did not qualify as an underinsured driver, and (1) she failed to establish that she exhausted the tortfea- underinsured motorist coverage was not triggered. sor’s policy through settlement; and (2) the compelling

36 | May 2016 | NYSBA Journal 17. See General Accident Ins. Group v. Cirucci, 46 N.Y.2d 862, 864, 414 N.Y.S.2d of consent to the high-low agreement was not relief that 512 (1979). could be sought nor granted in a CPLR art. 75 proceed- 18. 124 A.D.3d 551, 998 N.Y.S.2d 632 (1st Dep’t 2015). ing. 19. Id. at *1. See also JLS Industries, Inc. v. Delos Ins. Co., 127 A.D.3d 645, 9 N.Y.S.3d 19 (1st Dep’t 2015). Offset/Reduction in Coverage 20. 101 A.D.3d 983, 957 N.Y.S.2d 219 (2d Dep’t 2012), aff’d, 24 N.Y.3d 514, 2 In Government Employees Ins. Co. v. Terrelonge,54 the court N.Y.S.3d 8 (2014). held that the provision in the SUM endorsement that lim- 21. Id. at 985. ited SUM payments to the difference between the limits 22. Sierra, 24 N.Y.3d at 518–19. of SUM coverage and the insurance payments received 23. 262 A.D.2d 124, 693 N.Y.S.2d 100 (1st Dep’t 1999). by the claimant from any person legally liable for the 24. 51 A.D.3d 1365, 856 N.Y.S.2d 800 (4th Dep’t 2008). claimant’s bodily injuries was not ambiguous, and must, 25. Id. at 519. therefore, be enforced. Thus, where the tortfeasor’s cover- 26. State Farm Ins. Co. v. Walker-Pinckney, 118 A.D.3d 712, 986 N.Y.S.2d 626 age of $25,000 was tendered, and the difference between (2d Dep’t 2014). the SUM policy limit of $25,000 and the amount offered 27. 120 A.D.3d 1117, 992 N.Y.S.2d 411 (1st Dep’t 2014). by the tortfeasor – also $25,000 – was zero, the petition to 28. 128 A.D.3d 569, 10 N.Y.S.3d 51 (1st Dep’t 2015). stay was granted. 29. 114 A.D.3d 526, 980 N.Y.S.2d 425 (1st Dep’t 2014). In Santoro v. GEICO,55 the court held that where the 30. Id. at 527. defendant’s policy included “Supplementary Uninsured/ 31. Id. Underinsured Motorist” (SUM) coverage in the amount 32. 118 A.D.3d 712, 986 N.Y.S.2d 626 (2d Dep’t 2014). of $300,000, the plaintiff’s alleged damages in an action 33. Id. at 714. for breach of contract against the SUM carrier were 34. 123 A.D.3d 932, 932, 999 N.Y.S.2d 442 (2d Dep’t 2014). limited to $275,000 because the plaintiff had previously 35. See Allstate Ins. Co. v. Carraro, 130 A.D.3d 1021, 13 N.Y.S.3d 843 (2d received the sum of $25,000 from the tortfeasor’s insurer. Dep’t 2015). See also Merchants Preferred Ins. Co. v. Waldo, 125 A.D.3d 864, 4 The court also noted that while “‘consequential dam- N.Y.S.3d 246 (2d Dep’t 2015). ages resulting from a breach of the covenant of good faith 36. 125 A.D.3d 864. and fair dealing may be asserted in an insurance contract 37. 114 A.D.3d 614, 980 N.Y.S.2d 765 (1st Dep’t 2014). context, so long as the damages were within the contem- 38. State Farm Mut. Auto. Ins. Co. v. Watson, 128 A.D.3d 841, 842, 7 N.Y.S.3d plation of the parties as the probable result of a breach at 910 (2d Dep’t 2015); see also GEICO v. Selin, 119 A.D.3d 568, 987 N.Y.S.2d 898 (2d Dep’t 2014); AutoOne Ins. Co. v. Fernandez, 119 A.D.3d 677, 989 N.Y.S.2d 56 the time of or prior to contracting’ (citation omitted), the 619 (2d Dep’t 2014) (insured has the burden of establishing by a fair prepon- only consequential damages asserted by the plaintiff are an derance of the evidence that there was a hit-and-run accident with an unin- attorney’s fee and costs and disbursements resulting from sured vehicle, including all the elements of a hit-and-run). this affirmative litigation, which are not recoverable.”57 39. 128 A.D.3d 525, 525, 9 N.Y.S.3d 53 (1st Dep’t 2015). 40. 127 A.D.3d 585, 586, 7 N.Y.S.3d 135 (1st Dep’t 2015). 1. Insurance Law § 3420(d)(2) (Ins. Law). 41. 127 A.D.3d 1193, 10 N.Y.S.3d 92 (2d Dep’t 2015). 2. 23 N.Y.3d 583, 590, 992 N.Y.S.2d 185 (2014). 42. 121 A.D.3d 1003, 996 N.Y.S.2d 57 (2d Dep’t 2014). 3. 116 A.D.3d 647, 647, 984 N.Y.S.2d 366 (1st Dep’t 2014). 43. 122 A.D.3d 525, 997 N.Y.S.2d 384 (1st Dep’t 2014). 4. See Matter of Worcester Ins. Co. v. Bettenhauser, 95 N.Y.2d 185, 189–90, 44. 122 A.D.3d 745, 996 N.Y.S.2d 173 (2d Dep’t 2014). 712 N.Y.S.2d 433 (2000); Zappone v. Home Ins. Co., 55 N.Y.2d 131, 136–37, 447 N.Y.S.2d 911 (1982). 45. 126 A.D.3d 657, 4 N.Y.S.3d 487 (1st Dep’t 2015). 5. 22 N.Y.3d 571, 575–76, 983 N.Y.S.2d 460 (2014). 46. 121 A.D.3d 327, 991 N.Y.S.2d 190 (4th Dep’t 2014). 6. 122 A.D.3d 974, 975, 996 N.Y.S.2d 747 (3d Dep’t 2014). 47. Id. at 329. 7. 23 N.Y.3d 583, 590–91, 992 N.Y.S.2d 185 (2014). 48. Id. at 330. 8. 127 A.D.3d 622, 5 N.Y.S.3d 872 (1st Dep’t 2015). 49. 120 A.D.3d 497, 991 N.Y.S.2d 105 (2d Dep’t 2014). 9. 120 A.D.3d 1366, 993 N.Y.S.2d 121 (2d Dep’t 2014). 50. Id. at 499. 10. 120 A.D.3d 1195, 922 N.Y.S.2d 327 (2d Dep’t 2014), motion for lv. to appeal 51. 120 A.D.3d 698, 993 N.Y.S.2d 37 (2d Dep’t 2014). denied, 25 N.Y.3d 905, 10 N.Y.S.3d 524 (2015). 52. 119 A.D.3d 946, 946–47, 990 N.Y.S.2d 569 (2d Dep’t 2014). 11. 130 A.D.3d 497, 498, 14 N.Y.S.3d 415 (1st Dep’t 2015). 53. 113 A.D.3d 849, 978 N.Y.S.2d 906 (2d Dep’t 2014). 12. 102 A.D.3d 508, 959 N.Y.S.2d 19 (1st Dep’t 2013), aff’d, 22 N.Y.3d 1105, 54. 126 A.D.3d 792, 5 N.Y.S.3d 288 (2d Dep’t 2015). 983 N.Y.S.2d 465 (2014). 55. 117 A.D.3d 1026, 1027, 986 N.Y.S.2d 572 (2d Dep’t 2014). 13. See Dachs, N. and Dachs, J., Court of Appeals Decisions: “Jinx-Proof” 56. See Panasia Estates, Inc. v. Hudson Ins. Co., 10 N.Y.3d 200, 203, 856 and “Reservation of Rights Letters,” N.Y.L.J., May 13, 2014, p. 3, col. 1. See also N.Y.S.2d 513 (2008). Vermont Mut. Ins. Co., Inc. v. Mowery Constr. Inc., 122 A.D.3d 974, 996 N.Y.S.2d 747 (3d Dep’t 2014). 57. See New York Univ. v. Continental Ins. Co., 87 N.Y.2d 308, 324, 639 N.Y.S.2d 283 (1995); Mighty Midgets v. Centennial Ins. Co., 47 N.Y.2d 12, 21, 416 14. 124 A.D.3d 876, 878–79, 3 N.Y.S.3d 58 (2d Dep’t 2015). N.Y.S.2d 559 (1979); Stein, LLC v. Lawyers Tit. Ins. Corp., 100 A.D.3d 622, 953 15. 22 N.Y.3d 571, 983 N.Y.S.2d 460 (2014). N.Y.S.2d 303 (2d Dep’t 2012). 16. Id. at 572. See Dachs, N. and Dachs, J., Court of Appeals Clarifies Timeliness of Non-Cooperation Disclaimer, N.Y.L.J., Mar. 11, 2014, p. 3, vol. 1.

NYSBA Journal | May 2016 | 37 Dino E. Medina serves as general counsel at Complete Discovery Source, Inc. (CDS), a leading provider of electronic discovery services and a leading developer of data management solutions. In this capacity, Mr. Medina advises CDS on a variety of legal matters, including employment issues, contract drafting and negotiation strategies, dispute resolution, data privacy, security and compliance. Mr. Medina is a member of the New York Bar and the Electronic Discovery Committee of the New York State Bar Association. He teaches and speaks frequently on eDiscovery hot topics and best practices for deployment of legal technology. Mr. Medina lives on Long Island, New York with his wife and two children. This article is for informational purposes only and is not intended to constitute legal advice or to be relied upon.

Defensible Cybersecurity Tailoring an Organization’s Security Posture to Applicable Legal Standards By Dino E. Medina t’s not surprising that security experts now regularly the security measures of law firms and corporate entities, use phrases like “There are companies that have been respectively, with the goal of creating greater account- Ihacked, companies that don’t know they’ve been ability for the security of their sensitive electronic data. hacked, and companies that refuse to recognize they These organizations have responded by hiring outside have been hacked.” Although the storage of sensitive consulting firms to build custom information security information in the digital space is the modern, conve- management systems. nient, cost-effective norm for law firms and the corporate What looks solid on the surface may sit on unstable entities they serve, the potential for misappropriation of ground. The creation of a typical information security this information is greater than ever. Over the past couple management system entails conducting a risk assessment, of years, data breaches stemming from both hackers and creating security policies and testing the effectiveness of inadvertent disclosures have increased exponentially. those policies. While a well-designed information secu- Everyone is talking about security, but how does such rity management system can provide a superficial level of talk translate to a provable, defensible cybersecurity pro- assurance to stakeholders, the failure to place applicable gram? Law firm clients, corporate investors and regula- legal standards for data security at the forefront of each tors (collectively, stakeholders), now closely scrutinize stage of the program-building process is likely to result in

38 | May 2016 | NYSBA Journal the subject entity’s inability to mitigate damages should • Sensitivity of the information an actual data breach occur. • The likelihood of disclosure if additional safeguards John Verry, managing partner at Pivot Point Security, are not employed explains, • The cost of employing additional safeguards It’s hard to over-emphasize the value of strong risk • The difficulty of implementing the safeguards assessment capabilities when building a comprehen- • The extent to which the safeguards negatively sive and provable information security program. It impact the lawyer’s ability to represent clients gen- is only through the broader consideration of “non- erally traditional” information-related risks such as physical Personally Identifiable Information (PII) is any infor- security, employees, contractual risk, laws/regula- mation about an individual maintained by an entity, tions, vendors and partners that an organization can protect itself from the diverse threats that are often the including (1) any information that can be used to dis- cause of today’s largest breaches. tinguish or trace an individual‘s identity (e.g., name, Social Security number, date of birth); and (2) any other To better explore this issue, we set forth the elements information that is linked or linkable to an individual used to assess an entity’s security posture prior to the (e.g., medical, financial and employment information). policy planning stage, offer a set of best practices to Forty-seven states have implemented such laws and each guide policy development, identify the types of accredi- requires appropriate administrative, technical and physi- tations available to such entities and illustrate how cal safeguards for PII. incorporation of applicable legal standards into each of Protected Health Information (PHI) is information these processes results in the most effective security risk traceable to a patient by one or more of 18 identifiers mitigation system. that relate to medical condition, diagnosis or treatment,4 including: Key Risk Assessment Considerations • Name There are a number of formal data security risk assess- • License number ment methodologies in existence, each with a different • Dates (e.g., birth, admission, discharge, death) name applied to legitimize its application to a particular • Vehicle identifiers data type, industry, or set of activities. However, there are • Address two elements that tie them all together – their purpose • Medical device identifiers is to understand what risks exist to the entity applying • Phone number them, and to document the likelihood and impact of each • Fax number known risk.1 The central question in any data security • URLs risk assessment is: Are the precautions an entity takes to • IP address secure its electronic data effective at controlling the types • Email address of risks the entity faces? • Biometric identifiers • Facial photographs Identify Sensitive Data and Categorize It According • Social Security number to Applicable Legal Standard • Health plan number The first step in the assessment process is to evaluate the • Medical record number sensitive data types the subject entity creates, collects, • Account number maintains or transmits, and categorize this data based on • Any other unique identifier the legal framework governing its protection. Law firms The Health Insurance Portability and Accountability and their corporate clients hold a variety of sensitive data Act (HIPAA) Security Rule requires appropriate admin- types, each requiring a different standard for protection. istrative, physical and technical safeguards to ensure Here are some examples of sensitive data types and the the confidentiality, integrity and security of electronic legal standard(s) applicable to the security of each. PHI. The standard for satisfaction of the Security Rule is The security of information an attorney learns during encryption of electronic PHI. the representation of a client, including a corporate client, The security of intellectual property (IP) is typically is governed by ethical standards for attorney conduct. governed by contract, applying a standard of care that For example, the American Bar Association’s Model Rule the party receiving IP information uses to protect its 1.6(c) states “a lawyer shall make reasonable efforts to own information of like importance. IP, whether in prevent the inadvertent or unauthorized disclosure of, the form of patents, trademarks, copyrights or trade or unauthorized access to the representation of a client.”2 secrets, may be more valuable than an entity’s physi- The comments to Rule 1.6 set forth factors that are to be cal assets. According to the Commission on the Theft used to determine the reasonableness of an attorney’s of American Intellectual Property, U.S. companies lose efforts to secure his or her client’s information. They hundreds of billions of dollars each year as a result of include the below items.3 IP theft.5

NYSBA Journal | May 2016 | 39 Once sensitive data and the legal standards applicable • Closely link the legal standards governing security to their security are identified, it is time to understand of the sensitive data to the policy requirements; and analyze the entity’s security risks. For this step, • Include verification of the entity’s continuing com- it is necessary to examine all forms of risk that poten- pliance with the policies; tially impact security of sensitive data, including without • Incorporate comprehensive employee training with limitation, regulatory risk, technical risk (i.e., gaps in periodic updates into the program, since studies the entity’s physical and virtual security infrastructure), have found that educating employees is vital to risk of human error (e.g., susceptibility to phishing, ran- reducing data breaches;8 somware or malware attacks), risks in physical security • Ensure third-party security risks are effectively infrastructure (i.e., all points of entry into areas where managed; sensitive data resides, including buildings, offices and • Via contract, make certain they are legally bound server rooms), and risks in virtual security infrastructure to maintain data security in accordance with stan (e.g., network access controls, software access controls, dards applicable to your sensitive data types, and password protocols, and encryption of data in motion • Stipulate audit requirements, recognizing the and data at rest6). third-party vendors’ confidentiality obligations to other clients. Assemble the Team The next step in the assessment is to evaluate the entity’s Third-Party Verifications internal resources and assemble a team with the types of If an entity’s underlying information security methodol- expertise necessary to thoroughly address the organiza- ogy is properly designed and effectively implemented, tion’s risk posture. There are four categories of personnel external security verifications can both instill confidence required for this step: in stakeholders and substantially mitigate damages in the • Legal personnel to advise with respect to the laws event of a security breach. They can be used to test a law applicable to the data the entity holds; firm or corporate entity’s own data security controls and • Technical personnel to advise with respect to soft- those of its outside contractors. Various levels of external ware and infrastructure; testing, audits and security accreditations are available, • Accounting personnel to advise with respect to the including the following – listed in order of testing rigor: costs versus benefits of existing cyber-risk controls; • SSAE-16 SOC 1 (Standard for security controls and impacting financial reporting) • C-suite personnel for analysis of business processes • SOC 2 (Standard for security, availability, processing applicable to sensitive data, whether there’s existing integrity, confidentiality or privacy of information) organizational buy-in of risk mitigation strategies, • ISO-27001: 2013 (International standard for informa- and whether existing security controls are inhibiting tion security) the entity’s growth progress. • PCI DSS (Payment Card Industry standard for mer- The final component of the security assessment stage chants) is to bring the entity’s key teams together to link the • FedRAMP (U.S. Government standard for cloud ser- business processes that access sensitive data, the people vices providers) and technology used to support those processes, and the existing security structure to evaluate areas of risk. This SSAE-16 SOC1 Type 2 Standard task requires the drafting of a risk assessment report in The Auditing Standards Board (ASB) of the Ameri- order to comprehensively address data security risks. can Institute of Certified Public Accountants (AICPA) Law firms and corporate entities should consider engag- published the Statement on Standards for Attestation ing an outside expert to assist in this task, as holes in risk Engagements (SSAE) No. 16 – Reporting on Controls at a assessment documentation will result in an ineffective Service Organization – in January 2010. The ASB defines cybersecurity program. a service organization as one that provides services to “user entities,” for which these services are likely to be Drafting Effective Information Security Risk relevant to the user entities’ own internal controls for Management Policies financial reporting.9 The term “user entity” is simply an Once the law firm or corporate entity has assessed its data entity utilizing the services of a service organization. security risks using this framework, it needs to carefully The SSAE 16 standard requires a service organization craft information security management policies to control to describe its “system” (i.e., the services the organization these risks.7 To meaningfully address an organization’s provides, along with the supporting processes, policies, risk profile, the risk assessment report and legal stan- procedures, personnel and operational undertakings that dards governing security of the data must guide policy constitute the service organization’s core activities rel- development. When drafting the policies, remember to evant to user entities). In addition, management of the include the following, often-overlooked, aspects: service organization must make a number of affirmative,

40 | May 2016 | NYSBA Journal written representations regarding its systems and the organization collects, uses, retains, discloses and appropriateness of the design and operating efficacy of disposes of for user entities the organization’s controls in satisfying their objectives10 An entity employing the SOC 2 framework may omit – for purposes of this article, the objective is information one or more of the five TSPs from the scope of its audit, security, and the areas requiring management representa- provided each of the omitted TSPs is not applicable to the tions follow. system under audit.12 • Management’s description of the service organiza- Similar to an SSAE 16 information security audit, a tion’s “system” has to fairly and accurately repre- SOC 2 audit would include testing of the subject entity’s sent the “system” as implemented throughout the integrity, security and privacy of client data; however, time period subject to testing, which is typically six there are two key differences: (1) as noted above, the months. SOC 2 TSPs include testing of additional system avail- • The control objectives referenced in management’s ability and information privacy controls; and (2) SOC 2 description of the service organization’s “sys- is tailored to technology and cloud computing service tem” have to have been appropriately designed to organizations, incorporating the TSPs in accordance with achieve those control objectives throughout the time the Attestation Standards (AT) Section 101. Law firms period subject to testing; again, to be effective, the and corporate entities storing client data in electronic control objectives must closely track applicable legal form should consider SOC 2–based third-party compli- standards. ance examinations as an alternative to SSAE 16 to bolster • The controls have to have been consistently applied security and soften exposure should a data breach occur. throughout the time period subject to testing. An SSAE 16 information security audit and resulting ISO-27001: 2013 Standard report would include testing of the integrity, security and The International Organization for Standardization privacy of client data. Entities providing material out- (ISO) and International Electrotechnical Commission sourcing services to other entities (e.g., a law firm hosting (IEC) Joint Technical Committee published the ISO/ client data for litigation purposes) would be well-advised IEC 27001:2013 information security standard in October to consider SSAE 16 third-party compliance examinations 2013. It is a benchmarks-driven, internationally accepted as a means of providing ongoing data privacy assurances specification for establishing, implementing, maintain- to stakeholders and mitigating damages when a data ing and continually improving an entity’s information breach occurs. security management system (ISMS), covering both the entity’s internal sensitive information as well as sensitive

Once sensitive data and the legal standards applicable to their security are identified, it is time to understand and analyze the entity’s security risks.

SOC 2 Standard information entrusted to the entity by third parties.13 The The AICPA Assurance Services Executive Committee ISO/IEC 27001:2013 standard includes requirements for released the current version of the Service Organization the assessment and treatment of an entity’s information Control (SOC) 2 framework in January 2014. SOC 2 is a security risks that are custom-designed to address the criteria-based framework that reports on a service orga- entity’s specific information security risk profile. Organi- nization’s controls over one or more of the below Trust zations meeting this security standard may gain an offi- Services Principles (TSPs).11 cial certification issued by an independent and accredited • Security of a service organization’s system (see certification body upon successful completion of a formal SSAE 16 for “system” definition) audit process. • Availability of a service organization’s system ISO certifications are effective for three-year peri- • Processing integrity of a service organization’s sys- ods, provided the entity successfully completes inter- tem im annual spot inspections which demonstrate its • Confidentiality of the information that the service ongoing compliance with the customized ISMS. More organization’s system processes or maintains for than the SSAE and SOC 2 attestations, the ISO/IEC user entities 27001:2013 standard and its related benchmarks can • Privacy of personal information that the service act as guidelines for entities wishing to design defen-

NYSBA Journal | May 2016 | 41 sible data security protocols. The benchmarks cover 14 FedRAMP domains: Finally, the most comprehensive data security attestation is • Information security policies tailored to legal/regu- the Federal Risk and Authorization Management Program latory requirements (FedRAMP). FedRAMP was implemented in December 2011 • Organization of information security to provide assurances regarding the security of government • Human Resources security (pre-employment, dur- data stored in cloud environments. It is a government-wide, ing employment and post-employment) standardized approach to security assessment, authorization • Asset management and continuous monitoring for cloud-based products and • Access control services.15 FedRAMP certification is a requirement for law • Cryptography firms and corporate entities seeking to host government data • Physical security in a cloud-based (i.e., Internet-accessible) format. • Operations security The FedRAMP process incorporates the following • Communications security five-step approach to certify a cloud-based service pro- • System acquisition, development and maintenance vider’s (CSP) authorization to host government data: • Supplier relationships 1. Authorization Initiation: Federal agencies or CSPs • Information security incident management initiate the FedRAMP process by pursuing a secu- • Information security aspects of business continuity rity authorization. There are two sub-steps to com- • Compliance with ISMS policies and applicable laws plete here. • Submit a formalized request for Authority to PCI Standard Operate (ATO) as a government CSP to the The Payment Card Industry (PCI) Security Standards FedRAMP Joint Authorization Board (JAB); Council launched the PCI Data Security Standard (DSS) • Document and implement the required security in December 2004. The PCI DSS applies to any merchant, controls and policies based on the level of risk including any law firm or other corporate entity, which posed by the types of government data at issue processes, stores or transmits credit card information. and the type of cloud system in which the CSP It requires a robust set of administrative, technical and will store that data. Entities with other security physical security controls, including:14 accreditations (e.g., ISO/IEC 27001:2013) can • Install and maintain a firewall configuration to pro- leverage existing policies for this sub-step to save tect cardholder data time, money and resources. • Prohibit the use of vendor-supplied defaults for sys- 2. Security Assessment: The security assessment pro- tem passwords and other security parameters cess must be conducted by an accredited third-party • Protect stored cardholder data assessment organization (3PAO) and incorporates a • Encrypt transmission of cardholder data across set of baseline security controls for information tech- open, public networks nology systems developed by the National Institute • Protect all systems against malware, and regularly of Standards and Testing (i.e., NIST SP 800-53 Rev. 3). update anti-virus software or programs 3. Review: 3PAOs send security assessment packages • Develop and maintain secure systems and applica- to the FedRAMP JAB for review. tions 4. Authorization: CSPs continue to work with federal • Restrict access to cardholder data by business need- executive departments and agencies to obtain ATO to-know permissions. • Assign a unique user ID to each person with com- 5. Ongoing Compliance: Once an ATO is granted, puter access ongoing security assessment and authorization • Restrict physical access to cardholder data activities must be satisfied to maintain the ATO. • Track and monitor all access to network resources The common link to all cyber security programs is and cardholder data their focus on the subject entity’s operational controls • Regularly test security systems and processes within a risk framework that is acceptable to that entity.16 • Maintain a policy that addresses information secu- The primary factors that influence an entity’s acceptable rity for all personnel levels of risk include: It is important to note that although all merchants that • Legal requirements process, store or transmit cardholder data must imple- • Client-specific requirements ment and adhere to the PCI DSS, formal certification of • Amount of physical and monetary resources avail- PCI DSS compliance is not required for all merchants, able for data security particularly smaller ones. Nonetheless, to avoid liability • Types of data held for fraud associated with theft of cardholder data, law • Business sector in which the entity operates firms and other entities subject to PCI DSS are wise to Law firms and the corporate entities they serve act as vast undergo formal audits. repositories of both commercially sensitive information and

42 | May 2016 | NYSBA Journal web or other Internet protocols, while data at rest is data in computer storage PII, including PHI. The unauthorized disclosure of this kind (e.g., data on a file server, hard drive or backup tape). of information could have a devastating effect on the respon- 7. In addition to written policies, implementation of technical controls/ sible entity’s reputation, financial position and, ultimately, standards/procedures (e.g., a state-of-the-art firewall, ant-virus software) is the entity’s ability to remain in business. Given the potential essential to a comprehensive cyber risk management program. losses at stake when a data breach occurs, law firms and cor- 8. http://www.cio.com/article/2384855/compliance/most-data-breaches- caused-by-human-error--system-glitches. porate entities must develop comprehensive cybersecurity 9. http://www.ssae16.org/important-elements-ssae16/what-is-a-service- programs, placing chief importance on the legal standards organization. relevant to protecting their sensitive information. 10. Id.

1. https://www.optiv.com/blog/conducting-a-risk-assessment-key-com- 11. http://www.ssae16.org/white-papers/soc-2-reporting-framework- ponents-you-cant-ignore. essentials-part-i. 2. http://www.americanbar.org/groups/professional_responsibility/ 12. Id. publications/model_rules_of_professional_conduct/rule_1_6_confidential- 13. http://www.iso.org/iso/catalogue_detail?csnumber=54534. ity_of_information. 14. http://searchsecurity.techtarget.com/definition/PCI-DSS-12-require- 3. Id. ments. Though framed as a legal standard herein, the PCI DSS is used by finan- 4. See 45 C.F.R. § 164.103. cial institutions as a formal risk assessment and compliance tool for merchants. 5. http://www.ipcommission.org/report/IP_Commission_Report_052213. 15. https://www.fedramp.gov/about-us/about/. pdf, p. 1. 16. In the case of a FedRAMP-based cybersecurity program, acceptable risk 6. Data in motion is data that is exiting an entity’s network via email, the levels are ultimately determined by the government agency engaging the CSP.

From the NYSBA Book Store Preparing For and Trying the Civil Lawsuit, 2d Ed, 2016 Rev

More than 30 of New York State’s leading trial practitioners and other experts reveal the techniques and tactics they have found most effective when trying a civil lawsuit. The new practitioner will benefit from this book’s comprehensive coverage of the topic. A thorough discussion of pretrial preparation and investigation will aid the attorney in obtaining an advantageous settlement even if the case never goes to trial. The numerous practice tips from some of the leading practitioners in New York State will provide excellent background for representing your client, whenever your case goes to trial.

Especially helpful are the excerpts from actual trial transcripts, which illustrate the effectiveness of certain lines of questioning. Experienced trial attorneys will benefit by using the book to supplement and reinforce their own methods of practice. The 2016 Revision includes updates to the previous edition, as well as a new chapter on Attorney-Client Privilege.

Free shipping and handling within the continental U.S. The cost for shipping and handling outside the continental U.S. will be added to your order. Prices do not include applicable sales tax. Get the Information Edge NEW YORK STATE BAR ASSOCIATION 1.800.582.2452 www.nysba.org/pubs Mention Code: PUB8291

NYSBA Journal | May 2016 | 43 CPLR 3404 Dismissals of Civil Causes “for Neglect to Prosecute” By Kenneth R. Kirby

Introduction Kenneth R. Kirby is an Assistant County Attorney who represents the Section 3404 of the N.Y. Civil Practice Law and Rules County of Erie in a variety of matters, including the defense of personal injury and civil rights claims and the litigation of contractual disputes (CPLR) provides, involving the county or its departments or officers. Previously, he was in A case in the supreme court or a county court marked private practice, representing assureds and other individual, corporate, “off” or struck from the calendar or unanswered on and governmental clients in personal injury, professional malpractice, a clerk’s calendar call, and not restored within one insurance coverage, premises and products liability litigation, as well as in year thereafter, shall be deemed abandoned and shall commercial, construction accident, contract, and motor vehicle accident be dismissed without costs for neglect to prosecute. litigation. Mr. Kirby has argued or briefed more than 100 appeals in all The clerk shall make an appropriate entry without the New York and federal appellate courts. necessity of an order.

44 | May 2016 | NYSBA Journal The thesis of this article is that CPLR 3404 applies in “actually ready for trial . . . shall [not] be on the Trial all instances in which a note of issue is vacated and, there- Calendar,” i.e., is removed therefrom by automatic opera- fore, the case is, concomitantly, “struck from the [trial] tion of the court’s vacation, upon such motion (or, on the calendar” and not restored thereto within one year. In court’s own motion8), of the note of issue. other words, no differentiation should be made between This is why 22 N.Y.C.R.R. § 202.21(e) requires that (1) cases in which a note of issue is vacated and the case, “[i]f the motion to vacate a note of issue is granted, a copy therefore, is “struck” from the calendar because discov- of the order vacating the note of issue shall be served ery is, contrary to the contents of an inaccurate certificate upon the clerk of the trial court”9 so that the said “clerk of readiness, incomplete not due to reasons beyond the of the trial court” will strike the case from the trial court’s control of the filer, and (2) cases in which a note of issue trial calendar upon receipt of “the order vacating the note is vacated and/or the case is “marked ‘off’ or struck from of issue.” Therefore, any order that vacates a note of issue the calendar or goes unanswered on a clerk’s calendar in a pending Supreme Court or County Court case oper- call” for other reasons. To understand why this is so, it is ates to “strike [that case] from the [trial] calendar.”10 useful to review some principles of law. CPLR 3404 Applies to Instances Where a Note of Principles of Law Issue Is Stricken Due to Incomplete Discovery; Cases First, “[i]n New York practice under the CPLR, the filing Holding to the Contrary Were Wrongly Decided of a ‘note of issue’ is the thing that gets the case onto the A line of mostly Second Department cases has held that court’s ‘calendar’ to await trial.”1 As stated by the court when a court grants an order vacating a note of issue in Bierzynski v. N.Y. Cent. R. R. Co.,2 “[a] case is placed and/or striking the action from the trial calendar because on the calendar for trial by filing a timely and adequate discovery is incomplete, such an order note of issue (citations omitted).” At the very moment a [i]s not equivalent to an order marking “off” or strik- party files a note of issue (together with the concomitant ing the case from the trial calendar pursuant to CPLR certificate of readiness and the requisite proof of service 3404. Rather, [such an order] place[s] the action back upon all other parties3), “the case goes onto the court’s into pre-note of issue status (see Travis v. Cuff, 28 Islam v. Katz Realty Co. ‘calendar’ to await trial.”4 It is imperative, therefore, that A.D.3d 749, 750 [2006]; , 296 A.D.2d 566, 568 [2002]; Basssetti v. Nour, 287 A.D.2d a party appreciate the legal import and gravity of filing a 126, 132 [2001]).11 note of issue and certificate of readiness: “‘The filing of a note of issue . . . is tantamount to asserting that all pretrial According to this line of cases, CPLR 3404 “d[oes] not proceedings have been completed and that the case is in provide a basis for the court to dismiss the action” where a trial posture.’ (Siragusa v. Teal’s Express, 96 A.D.2d 749, a note of issue was vacated due to incomplete discovery 750.)”5 Hence, a party should not lightly or cavalierly file because such cases have been (constructively) returned to a note of issue and certificate of readiness if that party “pre-note of issue” status12 by virtue of such vacation and knows either that he requires more discovery or that “CPLR 3404 is inapplicable to pre-note of issue cases.”13 there exist any outstanding requests for discovery. This reasoning is flawed, however, because it’s cir- Second, once a case, by virtue of the filing of a note of cular. In Lopez v. Imperial Delivery Service, Inc.,14 the issue and certificate of readiness with proof of due service Second Department defined the respective spheres of upon all parties entitled to notice thereof, is placed on operation of CPLR 3404 and CPLR 3216, stating that the trial calendar, discovery is, as of that moment, closed CPLR 3404 applies only to post-note of issue cases unless a timely motion to vacate the note of issue, made (and, then, the author would note, only to those that within the strict 20-day time limit following the service have been “marked ‘off’ or struck from the calendar or of the note of issue and certificate of readiness that is unanswered on a clerk’s calendar call, and not restored imposed by 22 N.Y.C.R.R. § 202.21(e), is granted.6 within one year thereafter”) and CPLR 3216’s 90-day If, as stated in Riggle, the purpose of the statement demand for note of issue provisions applies only to pre- of readiness rule is to “insure that only those actions in note of issue cases.15 which all the preliminary proceedings have been com- Yet, the Second Department has declined to apply pleted, and which are actually ready for trial, shall be CPLR 3404 in post-note of issue cases in which, upon on the Trial Calendar,” then, conversely, the purpose of a defendant’s motion to vacate or strike a note of issue requiring any non-filing party, within 20 days after ser- due to the certificate of readiness being in error and/or vice of a note of issue and certificate of readiness, “[to] because discovery is incomplete, the note of issue had . . . upon affidavit showing in what respects the case is been vacated and/or the case struck from the calendar. not ready for trial . . . move to vacate the note of issue if The Second Department has, in several cases, avoided it appears that a material fact in the certificate of readi- applying CPLR 3404 to dismiss cases that should have ness is incorrect, or that the certificate of readiness fails been dismissed “for neglect to prosecute” for the plain- to comply with the requirements of this section in some tiff’s failure to restore the case to the trial calendar within material respect”7 is to insure that any case that is not one year after the vacation of actually filed notes of issue

NYSBA Journal | May 2016 | 45 and the concomitant striking of those cases from the cal- call, and not restored within one year thereafter.”24 To endar, by employing the constructive fiction that that entire class of cases CPLR 3404 applies and unambig- [w]hen an action is stricken from the trial calendar as uously directs that if such a case is “not restored within a result of the vacatur of the note of issue [because one year [it] shall be deemed abandoned and shall be dis- discovery had not been completed], the action returns missed without costs for neglect to prosecute.” Further, to pre-note of issue status [citations omitted]. Since “[t]he clerk shall make an appropriate entry without the CPLR 3404 is inapplicable in an action in pre-note of necessity of an order.”25 issue status, that statute did not provide a basis for the CPLR 3404 draws no distinctions among cases within dismissal of the action (see Galati v. C. Raimondo & Sons Constr. Co., Inc., 35 A.D.3d [805] at 806; Travis v. Cuff, 28 that class based on the reason why a case was marked A.D.3d 749, 750 [2006]).16 off or struck from the calendar or went unanswered on a court’s calendar call. Hence, when a note of issue is The over-arching problem with these Second Depart- vacated,26 the reason why the note of issue was vacated ment cases is that if, constructively, a case in which a note is immaterial to the operation of CPLR 3404 once one of issue was actually filed but vacated is somehow trans- year has thereafter elapsed without the case having been mogrified into a “pre-note of issue case” merely by virtue restored to the trial calendar. of the most common reason why a filed note of issue Why is this so? Among other reasons, because once a is vacated – incomplete discovery – in what sphere can case is on the trial calendar and no longer subject to a 22 CPLR 3404 any longer operate? If, as is undisputed, CPLR N.Y.C.R.R. § 202.21(e) motion to vacate note of issue,27 3404 does not apply to cases in which a note of issue no further discovery is allowed in a case in which a note has not yet been filed, how cramped and limited will its of issue has been filed and not vacated,28 except upon sphere of operation be if cases in which notes of issue a showing of “unusual or unanticipated circumstances have actually been filed – which cases, by logical defini- [that] develop subsequent to the filing of a note of issue tion, qualify as “post-note of issue” cases – but which are and certificate of readiness which require additional pre- deemed to have constructively “revert[ed] to pre-note of trial proceedings to prevent substantial prejudice.”29 For issue status” because discovery is incomplete17 are, on this reason, appellate courts have held it error for a trial that account, removed from its reach? Under this reason- court not to strike a case from the trial calendar when ing, CPLR 3404 is virtually construed out of existence. discovery is incomplete and the defendant has, upon that Under the Second Department’s reasoning, CPLR 3404 ground, successfully moved to vacate the note of issue. is permitted operation neither pre-note of issue nor, in For example, where a defendant was, upon a motion the most typical instances, post-note of issue. Thus, it is to vacate, granted an order permitting examinations essentially stripped of virtually any utility to automati- before trial of the plaintiff and other witnesses but not cally clear a court’s calendar of abandoned or neglected striking the case from the trial calendar, “[i]t was error,” cases, particularly in the Eighth Judicial District, where the Appellate Division ruled, “for the court to deny virtually the only way a case is struck from the calendar defendant’s motion to strike the case from the Trial is via an order vacating a note of issue granted upon a 22 Calendar (citations omitted)” in light of the trial court’s N.Y.C.R.R. § 202.21(e) motion to vacate because discovery “implicit[] finding that defendant did not have a reason- is not complete. able opportunity to complete discovery before plaintiff In the Eighth Judicial District,18 “calendar calls” are filed the note of issue and certificate of readiness.”30 virtually non-existent. Cases are typically “struck from Hence, the vacation of a note of issue due to incomplete the calendar”19 only as a consequence of a timely 22 discovery, ipso facto, effectuates a striking of the case from N.Y.C.R.R. § 202.21 motion to vacate a note of issue, a the trial calendar.31 That the Hoffman and Eisenberg cases motion that is usually brought because the certificate of were correctly decided is confirmed by 22 N.Y.C.R.R. § readiness has inaccurately alleged that “pretrial proceed- 202.21(e)’s requirement that “[i]f the motion to vacate a ings”20 are complete. Therefore, if an order that has both note of issue is granted, a copy of the order vacating the (1) vacated a note of issue and (2) concomitantly stricken note of issue shall be served upon the clerk of the trial a case from the trial calendar21 were to be “deemed” to court” because, for what other purpose does that require- have, constructively, transmogrified the case from its ment logically exist if not to ensure that clerk’s striking of actual post-note of issue status to, imaginatively, a pre- the case from the trial court’s calendar? note of issue status, CPLR 3404 – being applicable only to Returning, momentarily, to first principles: because post-note of issue cases22 – will be eviscerated. the last sentence of CPLR 3402(a) requires that immedi- The court in Lopez made mistaken reference to “a case ately upon a party’s filing a note of issue (and, a certifi- marked off pursuant to CPLR 3404 . . . .”23 Cases are cate of readiness) accompanied by the requisite proof of not “marked off pursuant to CPLR 3404.” Rather, by its service thereof upon the other parties, “[t]he clerk shall express terms, CPLR 3404 applies to post-note of issue enter the case upon the calendar as of the date of filing of the cases that have already been “marked ‘off’ or struck from note of issue,”32 there is no deferring entry of the case the calendar or [gone] unanswered on a clerk’s calendar upon the calendar to see if any other party moves to

46 | May 2016 | NYSBA Journal It follows, as a rule of general application, that if the vacate the note of issue within the 20-day period pre- legislative intent is clear no attempt at construction scribed by 22 N.Y.C.R.R. § 202.21(e) for the bringing of should or will be made.40 such a motion, or, to see if any such motion is granted. Therefore, contrary to the Second Department’s reason- As already observed, by its express terms, CPLR 3404 ing, once a note of issue has been filed, a case cannot does not differentiate among cases to which it applies logically be “deemed” to have reverted to pre-note of based on the reason(s) why the case was “struck” or issue status if, subsequently, the note of issue is vacated “marked off” the trial calendar or “went unanswered on for the reason that discovery has not been completed a clerk’s calendar call” and was not, thereafter, restored because the case already was on the trial calendar before the to the calendar within one year. Therefore, because an motion to vacate was made. order that vacates a note of issue necessarily operates to For purposes of CPLR 3404, in other words, the strike a case from the trial calendar41 and because CPLR moment the note of issue is filed, a case is both (1) a “post- 3404 includes no exception for cases in which the note of note of issue” case and (2) entered on the trial calendar. issue is vacated and the case concomitantly stricken from Ergo, upon a court’s vacating of the note of issue, the case the calendar because discovery is incomplete, an order is concomitantly struck from the trial calendar.33 Hence, the that vacates a note of issue for that reason (or, any other case, without more, becomes one in which, under CPLR reason) strikes the case from the trial calendar within 3404, restoration must be effectuated within one year or the meaning, intendment, and operation of CPLR 3404, else the case shall be “dismissed . . . for neglect to pros- whether the note of issue was vacated because it was pre- ecute” by an “appropriate entry of the clerk without the maturely filed before discovery was complete (e.g., Hebert necessity of a motion.”34 v. Chaudrey42) or for any other reason.

Damas v. Barboza Willis v. City of New York In Damas v. Barboza,35 the trial court had twice stricken Surprisingly, even when a trial court took pains to notes of issue – once on April 15, 1987 and the second expressly indicate that the case was stricken from the trial time on July 14, 1988. Later, the case was deemed dis- calendar, the Second Department did not give effect to missed for neglect to prosecute by operation of CPLR the plain language of CPLR 3404. In Willis v. City of New 3404. Upon the plaintiff’s appeal from the trial court’s York,43 the plaintiff had moved, inter alia, to compel dis- order that had denied the plaintiff’s motion “to vacate covery, and the defendants, in response, cross-moved to a dismissal which occurred pursuant to CPLR 3404,” have the complaint deemed dismissed pursuant to CPLR the plaintiff contended, “[t]he striking of a note of issue 3404. In Willis, because the Plaintiff had not allotted time for the defen- [p]laintiffs’ action was “stricken from the trial schedul- dant to complete discovery does not constitute a striking ing calendar” on April 9, 2008 * * *. Plaintiffs’ instant from the calendar under CPLR 3404.”36 Agreeing with motion, which does not even seek to restore the action, the defendants that “the above captioned matter has was served on January 18, 2012, more than three years been placed upon the Trial Calendar and ‘marked off’ or and nine months after the case was stricken from the calendar.44 otherwise had its Note of Issue stricken removing the same from the Trial Calendar,”37 the Second Department rejected the The trial court construed CPLR 3404 to be applicable plaintiff’s argument, stating and, thus, granted the defendants’ cross-motions to deem The plaintiff’s contention on appeal that the action the complaint dismissed “for neglect to prosecute” inas- was not on the trial calendar and therefore was not much as the case had been stricken from the court’s trial struck from the calendar when the court struck [the] scheduling calendar “more than three years and nine note of issue is without merit. Filing of the note of issue months” before the “[p]laintiffs moved, inter alia, to com- and certificate of readiness placed the action on the calendar pel discovery from defendants” but “d[id] not even seek (see, CPLR 3402[a], 22 NYCRR 202.21[a]; 202.22[a][3], to restore the action [to the trial calendar].”45 [a][4]).38 Notwithstanding the foregoing, the Second Depart- Yet, in its other cases discussed herein, the Second ment reversed the trial court’s order of dismissal. The Department has deviated from its holding in the Damas court held: case, thereby improperly “trespass[ing] . . . upon the leg- Contrary to the respondents’ contention, . . . the islative domain.”39 As is stated therein, Supreme Court’s order dated April 9, 2008, was effec- Some statutes are framed in language so plain that an tive to return the action to pre-note of issue status46 attempt to construe them is superfluous. The function of (see Dokaj v Ruxton Tower Ltd. Partnership, 55 A.D.3d the courts is to enforce statutes, not to usurp the power 661, 661-662 [2008] [an inapposite case in which the of legislation, and to interpret a statute where there is court struck a note of issue based on incomplete dis- no need for interpretation, to conjecture about or to covery and a note of issue was not thereafter refiled]). add to or to subtract from words having a definite meaning, Since CPLR 3404 was inapplicable to this pre-note of or to engraft exceptions where none exist are trespasses by a issue action,47 it did not provide a basis for dismissal court upon the legislative domain. of the action (string citation omitted).48

NYSBA Journal | May 2016 | 47 The Second Department even remonstrated with the CPLR 321653 in order to prod the plaintiff to prosecute the defendants, telling them, case and then that defendant must move for dismissal if a [t]he respondents were required to comply with CPLR note of issue is not filed within the 90-day statutory period. 3216 [i.e., the 90-day demand for note of issue statute] But because the onus is on the plaintiff to diligently pros- in order to obtain a dismissal of the action based on ecute his or her case,54 once a plaintiff has had his note of the plaintiffs’ alleged failure to prosecute this case (see issue vacated and, ergo, his case is struck from the calendar, Arroyo v. Board of Educ. of City of N.Y. 110 A.D.3d 17, 19 the onus should remain with the plaintiff, within one year [2013]; Lopez v. Imperial Delivery Serv., 282 A.D.2d 190, of the order vacating his note of issue and striking the case 194 [2001]).49 from the calendar, to restore the action to the calendar, For the Second Department, the plaintiff’s failure to upon pain of incurring CPLR 3404’s automatic dismissal move to restore the action to the court’s trial calendar of his action for neglect to prosecute if he does not do within one year of the action’s having been stricken so. A defendant should not be put to the extra burden of therefrom was, somehow, insufficient to trigger CPLR resorting to CPLR 3216’s 90-day note of issue demand 3404’s automatic dismissal provision. But why and how provisions in order to facilitate a subsequent motion to could this be? Wasn’t the trial court’s express striking of dismiss for want of prosecution55 where a plaintiff has the action from the court’s “trial scheduling calendar” already incorrectly certified the case as trial-ready, thereby enough to fall squarely within the qualifying language necessitating, in the first instance, that defendant’s (prior) of CPLR 3404, to wit, “[a] case in the supreme court . . 22 N.Y.C.R.R. § 202.21(e) motion to vacate note of issue. . struck from the calendar”? The Second Department’s reversal of the Supreme Court’s order of dismissal in Wil- Conclusion lis was, therefore, error, for, as already discussed, clear The Second Department’s line of decisions holding that words of a statute are required to be given their clear and cases in which a note of issue was actually filed and served, intended effect by courts.50 By not applying CPLR 3404 but the note of issue was vacated because discovery, con- in a situation where the case was, expressly, stricken from the trary to a plaintiff’s (mis)representation, was not complete, trial calendar, the Second Department in Willis effectively constructively revert to a “pre-note of issue status” so as to “subtract[ed] from words having a definite meaning” render CPLR 3404 inapplicable, is incompatible with the and/or “engraft[ed]” onto CPLR 3404 “[an] exception [to plain, unambiguous and mandatory language of CPLR that statute’s application] where none exist[s],” thereby Rule 3404 – statutory language to which courts owe fidel- “trespass[ing] upon the legislative domain” (contrary, ity.56 For this reason, it should not be followed. Rather, any incidentally, to its own precedent in Damas v. Barboza,51 order vacating a note of issue and/or by which a case is discussed above). struck from the court’s trial calendar – even those doing so One final objection must be registered to the Second because discovery is incomplete – should be construed as Department’s line of cases holding that an order vacat- activating the one-year period within which the plaintiff ing a note of issue due to incomplete discovery returns a must, in order to avoid a CPLR 3404 automatic dismissal, case to a pre-note of issue status. By virtue of these cases, restore the case to the trial calendar.57 Only if CPLR 3404 is a defendant in the Second Department who has already so construed will its language be given its proper full leg- been compelled, by virtue of the premature filing of a islative effect and purpose, consistent with 1 McKinney’s note of issue, to bring a motion to vacate a note of issue Cons. L. of N.Y., Statutes, § 76, which states, because a plaintiff did not take seriously the gravity of the When the language is explicit, the courts are bound to representation made to court and opposing counsel that is seek for the intention in the words of the act itself to the extent that they are not at liberty to suppose or to hold that the Legislature had an intention other than their language imports. Where the language of the Any order that vacates a note of issue statute is clear and unambiguous [as is CPLR 3404’s language], the intent of the framers is to be first sought in a pending Supreme Court or in the words and language employed.58 County Court case operates to “strike 1. 7B McKinney’s Cons. L. of N. Y. (Annot.), C3402:1 (Professor David D. [that case] from the [trial] calendar. Siegel’s Practice Commentaries) (main vol., pp. 14–15). 2. 59 Misc. 2d 315, 317 (Sup. Ct., Erie Co. 1969). 3. See 22 N.Y.C.R.R. § 202.21(a)(), which states, in pertinent part, implicit in his filing a note of issue and certificate of readi- General. No action or special proceeding shall be deemed ready ness – that is to say, “ ‘that all pretrial proceedings have for trial unless there is first filed a note of issue accompanied by a certificate of readiness, with proof of service on all parties entitled been completed and that the case is in a trial posture[]’ to notice, in the form prescribed by this section. (Siragusa v. Teal’s Express, 96 A.D.2d 749, 750, 465 N.Y.S.2d 4. Siegel’s Practice Commentaries, C3402:1. 52 321).” – is unfairly compelled, thereafter, to resort to the 5. Gray v. Crouse-Irving Mem. Hosp., Inc., et al., 107 A.D.2d 1038, 1039 (4th 90-day note of issue demand procedures prescribed by Dep’t 1985).

48 | May 2016 | NYSBA Journal 6. See Riggle v. Buffalo. Gen. Hosp., 52 A.D.2d 751, 752 (4th Dep’t 1976) (“ 34. CPLR 3404. ‘The purpose of this statement [i.e., “certificate”] of readiness rule is to insure 35. 206 A.D.2d 346 (2d Dep’t 1994). that only those actions in which all the preliminary proceedings [i.e., discovery] have been completed, and which are actually ready for trial, shall be on 36. Id., Brief for Plaintiff-Appellant, p. 4. the Trial Calendar. To effectuate such purpose the rule [precluding post-note 37. Id., Respondents’ Brief, p. 10. discovery] must be strictly enforced’ (Cerrone v. S’Doia, 11 A.D.2d 350, 352, 38. Id. at 346–47 (emphasis supplied). 206 N.Y.S.2d 95, 97).”); see also 22 N.Y.C.R.R. § 202.21(e). 39. 1 McKinney’s Cons. L. of N.Y., Statutes, § 76 (“Statutes too clear for con- 7. 22 N.Y.C.R.R. § 202.21(e). struction”). 8. See id. 40. Id. at p. 168 (emphasis supplied) (footnotes omitted). 9. Emphasis supplied. 41. Unless, perhaps, the court explicitly orders otherwise, citing extraordi- 10. See Hoffman Music Shop. Inc. v. Honeywell Prot. Servs., 106 A.D.2d 857, 858 nary circumstances. (4th Dep’t 1984). 42. 119 A.D.3d 1170, 1171 (3d Dep’t 2014) (in which, in reversing Supreme 11. Galati v. C. Raimondo & Sons Constr. Co., Inc., et al., 35 A.D.3d 805, 806 (2d Court and granting the defendant’s motion to dismiss the complaint pursuant Dep’t 2006); see also Montalvo v. Mumpus Restorations, Inc., 110 A.D.3d 1045, to CPLR 3404, the Appellate Division observed, 1046 (2d Dep’t 2013); Lane v. N.Y.C. Hous. Auth., 62 A.D.3d 961, 961 (2d Dep’t After joinder of issue and limited discovery, [the plaintiffs] filed a 2009); Suburban Restoration Co., Inc. v. Viglotti, 54 A.D.3d 750, 750–51 (2d Dep’t note of issue in October 2009. Supreme Court then issued an order 2008). setting a day certain for trial and, soon thereafter, defendant moved 12. Notwithstanding, this author observes, the anomaly that in actuality, a to vacate the note of issue based on plaintiffs’ failure to comply note of issue had been filed. with outstanding discovery demands. In January 2010, Supreme 13. Galati, 35 A.D.3d at 806, citing Lopez v. Imperial Delivery Service, 282 Court issued a conditional order granting the motion. When plain- A.D.2d 190, 198 (2d Dep’t 2001). tiffs failed to comply with the conditional order, defendant again moved for vacatur of the note of issue in July 2010. Supreme Court 14. 282 A.D.2d 190 (2d Dep’t 2001). granted the motion, vacated the note of issue and struck the matter 15. Id. at 198. from the trial calendar in a September 2010 order. When plaintiffs filed a new note of issue almost two years later in August 2012, 16. Dokaj v. Ruxton Tower Ltd. P’ship, 55 A.D.3d 661, 661–62 (2d Dep’t 2008). defendant moved to dismiss the complaint pursuant to CPLR 3404 17. Id. at 661. [which statute, the Appellate Division noted, “provides that ‘[a] 18. Encompassing Allegany, Cattaraugus, Chautauqua, Erie, Genesee, Niag- case . . . marked “off” or struck from the calendar or unanswered on ara, Orleans and Wyoming counties. a clerk’s calendar call, and not restored within one year thereafter, shall be deemed abandoned and shall be dismissed without costs 19. CPLR 3404. for neglect to prosecute’” (CPLR 3404). 20. Essentially, a euphemism for discovery. 43. 113 A.D.3d 674 (2d Dep’t 2014). 21. Since the filing of a note of issue is the necessary condition precedent 44. Willis v. City of New York, 2012 WL 10646739 at *1 (Sup. Ct., Queens Co. to a case going onto the trial calendar, the note of issue’s vacation must, per- 2012), rev’d, 113 A.D.3d 674 (2d Dep’t 2014). force, result in the case going off the trial calendar. 45. Id. at *1. 22. Lopez, 282 A.D.2d 190, 199 (2d Dep’t 2001) (holding, “CPLR 3404 should be reserved strictly for cases that have reached the trial calendar”). 46. Even though, as the trial court observed, “the April 9, 2008 Order did not place the action into pre-note of issue status as the Order did not vacate 23. Id. at 197. the note of issue (citations omitted).” Id. 24. Schmidt v. Mack, 46 A.D.3d 1205, 1206, 849 N.Y.S.2d 99 (3d Dep’t 2007) 47. Query: How could “this . . . action” be a “pre-note of issue action,” given (“That statute [referring to CPLR 3404] applies in post-note of issue situations that the note of issue was not vacated (see note 32, supra)? (see Lopez v. Imperial Delivery Serv., 282 A.D.2d at 199, 725 N.Y.S.2d 57), but by its own terms it concerns only cases ‘marked “off” or struck from the calen- 48. Willis, 113 A.D.3d at 674–75. dar or unanswered on a clerk’s calendar call’ (CPLR 3404).”). 49. Id. at 675. 25. CPLR 3404. 50. 1 McKinney’s Cons. L. of N.Y., Statutes, § 76 (“Statutes too clear for con- 26. And the case, concomitantly, stricken from the trial calendar. struction”). 27. Which motion must be brought within 20 days of the filing and service 51. 206 A.D.2d 346 (2d Dep’t 1994). of the note of issue. 22 N.Y.C.R.R. § 202.21(e). 52. Gray v. Crouse-Irving Mem. Hosp., Inc., et al., 107 A.D.2d 1038, 1039. 28. Stanovick v. Donner-Hanna Coke Corp., 116 A.D.2d 1000, 1000 (4th Dep’t 53. See discussion of Willis, above. 1986); Gray v. Crouse-Irving Mem. Hosp., 107 A.D.2d 1038, 1039–40 (4th Dep’t 54. Hutnik v. Brodsky, 17 A.D.2d 808 (1st Dep’t 1962) (cited, approvingly, in 1985); Riggle v. Buffalo. Gen. Hosp., 52 A.D.2d 751, 752–53 (4th Dep’t 1976). Sedita v. Moskow, 106 A.D.2d 564, 564 (2d Dep’t 1984)). 29. 22 N.Y.C.R.R. § 202.21(d). 55. Assuming, that is, that the plaintiff does not file a note of issue within 30. Hoffman Music Shop, Inc. v. Honeywell Protection Servs., 106 A.D.2d 857, the requisite 90 days. 858 (4th Dep’t 1984). Accord, Eisenberg v. Eisenberg, 16 A.D.2d 825, 825–26 (2d 56. 1 McKinney’s Cons. L. of N.Y., Statutes, § 76. Dep’t 1962) (“It is not disputed that this action was not ready for trial when the note of issue and statement of readiness were filed. Hence, the action 57. This is not unfair to plaintiffs, for, in the event that discovery has not should have been struck from the calendar on defendant’s timely application been completed due to a defendant’s or someone else’s fault or neglect, 22 therefor [citations omitted].”). N.Y.C.R.R. § 202.21(d) provides: 31. At least in the absence of a court’s explicitly indicating, on account of Pretrial proceedings. Where a party is prevented from filing a note special circumstances, to the contrary. of issue and certificate of readiness because a pretrial proceeding has not been completed for any reason beyond the control of the 32. CPLR 3402(a) (emphasis supplied). party, the court, upon motion supported by affidavit, may permit 33. See, e.g., Carte v. Segall, 134 A.D.2d 396 (2d Dep’t 1987) (ruling that upon the party to file a note of issue upon such conditions as the court the defendant’s motion for an order, inter alia, vacating the note of issue and deems appropriate. certificate of readiness, “[t]he court of first instance erroneously refused to 58. 1 McKinney’s Cons. L. of N.Y., Statutes, § 76, at pp. 170–71 (footnotes strike the action from the calendar pending further discovery . . . which has yet omitted). to be completed, of which the plaintiffs were clearly cognizant when they filed the certificate of readiness falsely declaring that preliminary proceedings had been either completed or waived [citation omitted]” (emphasis supplied)).

NYSBA Journal | May 2016 | 49 NEW MEMBERS WELCOMED

FIRST DISTRICT Margarita Guadalupe Jerry Jia-wei Fang Jaclyn C. Hosty Ritika Chandresh Lakhani Mateo Todd Aceves Caulfield Rong Fang Michael Matthew Howald Naresh C. Lall Joshua Paul Acosta Jacqueline Cavallaro David Eli Farber Kyle Stanley Howard Georg Christian Langheld Brian John Adelmann Karen Cavalli Abiola Oluwafunke Fasehun Ariel Hsiung Clare Kyle Lascelles Melanie Rae Adelson Sarah Bo-hwa Chai James Michael Fee Zachary Thomas Hudson Alexander Stephen Lee Se Young Ahn Diane Dean-i Chan Thomas M. Fergus John Patrick Hunt Andrew Edward Lee Matthew Savage Aibel Corey S. Chapin Sean Andrew Fernandez- Shane Alexander Hunt Boram Lee Thelma Akpan Kaitlyn Elizabeth Charette Ledon Brian Jeffrey McConnell Matthew Jay Lefkowitz Areal Renee Allen-Stewart Carl Solomon Charles Sarah Louise Fine Hurd Shanna Ariel Lehrman Daniel R. 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Monastra Halimah Ifedayo Famuyide Derek J. Hoss Jared James Lacertosa Sean Paul Mooney 50 | May 2016 | NYSBA Journal Peter Christopher Mordue Nicoletta Maria Ranieri Shainee Saumil Shah Yiqi Wang Paul Joseph Wooten Michele A. Moreno Natalie Raphael Lance Wayne Shapiro Alexis Drewes Wanzenberg Rebecca Ashley Zimmer David Morgenstern Arjun Ravi Nathan Todd Shapiro Alex Nicole Washington THIRD DISTRICT Benjamin Moskowitz Daniel Frederick Rayner Zachary Baron Shemtob Reyhan Anthony Watson Elizabeth Anne Connor Pedram Moussavi Andrew Michael Reardon Andrew Mitchell Sher Xuanxuan Wei Victoria Rose Graf Matthew John Mulligan Anthony Joseph Reda Sarah Anne Sheridan Benjamin Healey Weissman Emily Rose Grandolfo William Nahill Lindsay Tailer Reed Anna Mckenzie Shifflet Emily Moore Whitcher Jeneeta Carnella Howe Anjali Jayanand Nair Megan C. Reinhardt Matthew Jesse Shore Francis Kieran White Theresa Schillaci Emily Stephens Naphtal Jacob Reuben Reisberg Steven William Shuldman Mara Anne Wilber Sara Ann Smaila Steven F. Napolitano Justin Warren Reiter Jacquelyn Shulman Paul Felipe Williamson Taylor Louise Napolitano Tamara Relis Stephen David Silverman Alison Marie Wolf FOURTH DISTRICT Nithya Narayanan John Zhong Ren Lindsey Nicole Simmons Jacob Simon Wolf Justin R. Markovits Timothy Cummings Nash Christina Maria Rich David Victor Simon Natalie Sing Yee Wong William Van Zyverden Tiffany Mihee-kwon Woo Matthew David Nemeth Stanley Eric Richards Madeline Lillie Sims FIFTH DISTRICT Samuel Pitkin Niles Cristina Marie Riggio Megan Siniscalchi Andrew Alexander Wooden Consuelo Valenzuela Blaise Niosi Hannah Elaine Robbins Lauren Michelle Sirois John Youie Woodruff Lickstein Allegra Ausilia Noonan Rhina M. Roberts Jenna Ilyse Skoller Wesley Dean Worrel SEVENTH DISTRICT Paul Michael O’Brien Kristina Michelle Rochester Alexandra Lipschultz Sobol Meredith Ann Wren Lewis Anthony Steverson Rebecca Danielle O’Brien Jacob Charles Rodriguez Matthew Charles Sommer Wenyang Wu Evan Vincent Thompson Thomas Patrick O’Connor Lisamariel Rodriguez Tony Zhangtong Song Duan Xu Frank Oliver Thea Elizabeth Rogers Matthew John Sorensen Shiyu Xu NINTH DISTRICT Riley Thomas Orloff Daniella Esther Rohr Kacey Hoi-lam Sou Jili Xue Rebecca M. Abel John Kofi Osei-Tutu Nicole Ilona Romano-Ferreira Megan Danielle Sparks Kelly Han Yamashita John Astarita Kyle Kofi Owusu Jordan Miner Romanoff Kyle Nicholas Spies Chunmeng Yang Antoney Bechara Azer Shaun Antony Daniel Palmer Leigh Gabrielle Rome Michael Earl Spinelli Wenjun Yang Matthew T. Bennett Evelyn Yue Pang Marc P. Rosenberg Paulina Stanfel Alexander Troy Yarbrough Alvin Fletcher Benton Ashley Megan Pappas Chelsey Morgan Rosenbloom Benjamen Sean Starkweather Jordan Bianca Yellen Robert Brestowski Vishal J. Parikh Edwin Alexander Rosenfield Justin Brett Stein Yue Yin Katherine Victoria Charles Minkyu Park Matthew Cory Rosenthal Rachel Olivia Stein Matthew Byron Zanedis Michael Coppa Lee Clifford Parnes Sean Joseph Rosenthal Evan Lo Re Steinberg Aaliya Zaveri Donald B. Da Parma Khushbu Pinakin Patel Zoe Elizabeth Rosenthal Amy Elizabeth Stephenson Samuel Jacob Zeitlin James Thomas Farris Rajvi Patel Misha Erin Ross Caroline B. Stern Aida Aida Zerai Christiana Mary Fraser Katelyn Jeanne Patton Steven Hart Rotchtin Renee Gabriella Stern Hanbing Zhang Jennifer Bloom Fried Maryanne Veronica Paul Jillian Joan Rothman C. Evan Stewart Zining Zhu William Henry Gagas Kevin Michael Paulsen Carole Angeline Rosette Alexandria Rachel Strauss Kathleen Anne Zink Roisin Genevieve Paige Alyssa Pavone Rouffet Michael Ellis Strauss Cindy Elizabeth Zuniga Grzegorzewski Arie Alon Peled Yehuda Mayer Rubel Kaya Sugiyama Keny Zurita Alexandria Gray Harris Tengteng Peng Carl William Rush Sarah Michelle Sullivan Caitlin Dey Harrison SECOND DISTRICT Lauren Jane Perkowski Cydney Jill Russell Dao Sun Patrick D. Hickey Corey Steven Allen Alexa Rae Perlman Peter Sharbel Saba Samuel Sverdlov Robert Tranquillo Iaropoli Torie Alisa Atkinson Alexandra Kotomi Perry Caroline Marie Sacerdote Eliza Max Sweren-Becker Kaela Jean Joyner Adam Shumway Bird-Ridnell Sean Adam Petterson Roya Sadiqi Kevin Ryan Szu-tu David James Kenny Vinnette Kamille Campbell Nell Zora Peyser Weston Robert Sager Holly Tao Nicolas F. Kory Jennifer Chang Emily Louise Phillips Rebecca Lynn Salk Suhaydee Tejeda Alyson Leigh Kuritzky Ashley Blair Cohen Evan Michael Piercey Debra Lorraine Salvato Kristy Marie Tholanikunnel Mary Jennings Mahon Amandine Chlo Alize Antonio Javier Pietrantoni Jordan Stephen Salzman Anna Tkacheva Edvin Markisich Delusinne Ashlee Ann Pinto Daniel S. Samovici Darien Barbiere Toriello Christopher Pezzullo Brett Andrew Dolin Rose Clarice Plager-Unger Jason M. Sandler Luis Arturo Torres Cervantes Justin Allen Pifer Zachary Lee Dorado Matthew H. Platt Andrew Robert Santimays Amanda Kimberly Toy Anthony Joseph Ruggeri Stephen John Ekblom Christina Marie Plummer Alyssa Patricia Sapienza Toni Veselinova Tsvetanova Matthew Monther Samradli Julia Lea Elmaleh-Sachs Julian James Zuba Polaris Stefan Savic Brittany Lynn Turner Cassia Ray Schaeffer Tana Marie Forrester Jaak Poldma Catherine Anne Savio Timur Tusiray Ray Serina Philip Michael Guffy Anthony Pollak Danielle Zanie Sawaya Sean Thomas Twomey Patricia Stringel Shepard Hilda Morales Hahn Ann Tillinghast Porter Travis Lee Scheft Eitan Yoel Ulmer Daniel B. Sullivan Kellisia Jocintha Hazlewood Ryan Alexander Post Blake Butler Schell Brandon Ken Une Daniel Francis Sullivan Marney Avidan Kimmel Ransel Newcombe Potter Samantha Hope Scheller Adam Paul Unger Adrienne Lena Thiel Robert E. Lee Haresh K. Prasad Eugene Michael Schlesinger Saskia Alexandra Valencia Ying Li TENTH DISTRICT Jason Williams Prince Samantha Leslie Schnier Ignacio Martin Valenzuela Elizabeth Toni Lundi Sylvia Ayass Jessica L. Prince Rachel A. Schuldiner Nieto Grzegorz Matryba Courtney Ann Bihn Matthew Prutting Jillian Marie Schuster Michael Oliver Van Den Berg Elizabeth Grace McCullum Alexander Doyle Bopp Daisy Puente Sarah Elizabeth Schuster Deepa Vanamali Deborah Frances Megdal Erin Branigan Samantha Leigh Pullman Nathan Reint Schuur Colleen Rose Vecchione Kenneth Blaine Miller Steven Ching Tyler J. Quanbeck Bart R. Schwartz Chase Alexander Vine Natalya Rutchyk Wayne Matthew Cox Lise Elizabeth Rahdert Aaron Schwed Satbir Walia Samantha Marie Santo Mark Robert Damiano Aamir Habib Rahman Linda Ann Sciuto Libbie Leigh Walker Michael Thomas Sheehy Kamille Dean Yasaman Rahmani-givi Julia Holbrook Sear Melanie Marie Walker Soo-young Shin Robert E. Demeusy Stephen Francis Raiola Jenna Allyn Segal Patricia Julie Walsh Sofya Slepak Brian Thomas Denzler Monica Teresa Ramirez De Jason H. Seiler Alexandra Wan Wang Colin D. Speaker Matthew James Domanick Arellano Marisa Jaclyn Seiss Menglu Wang William Patrick Weber Corrinne Patricia Donaldson Tathyane Ramos Vosgerau Alexander Setzepfandt Xiaoye Wang Manuel Wegrostek Anthony Joseph Dubartell

NYSBA Journal | May 2016 | 51 Joseph F. Dunne Ting Shao Timothy Arnold Conway Richard James Alexander Samantha Miriam Rosen- Evan A. Esswein Aaron Michael Spurlock Elizabeth Arden Cook Kelly Lawlor Ashley E. Fertig Mariya Stetsyna Rose Mary Culver Brian Patrick Kenney Sarah Lily Rosenbluth Kelly Marie Gans Anam Usman Frank Christopher Dal Lago Upasana Khatri-chhetri Jessica Xingyun Rothenberg Alexa Paige Gordon Sarah Elizabeth Verbil Jeremy Maxwell Dale Philip Singh Khinda Emily Teresa Rubino Edward H. Grimmett Bridget Marie Woebbe Stephanie Marie Dameshghi Homam Khoshaim Danielle Marie Rudkin Stephen James Hekimian Yan Yang Elizabeth Katherine Dann Youngkeun Kim Sean Joshua Rush Matthew Seth Heymann Yan Rong Yang Sylviane Omotola Degbey Apemwoyah Kisob Alaric- Laurie Ann Rybak Rachel Erin Horn Jiancheng Zhu John Joseph Delionado lorenzo Morgan Sack Meital Johanes Rosso Javier J. Diaz Andrew J. Kornblau Robert Lee Sallander TWELFTH DISTRICT Shivani Kapur Mark A. Digesu Yoana Nikolaeva Lauran Marie San Roman Shivani Amadis Alamo Joseph John Karlya Janet Marie Doherty Kostadinova-Dencheva Guijarro Jasmine Nicole Archer Lucas J. Kessler James Robert Duncan Arthur Kutoroff Talia Bari Saypoff L. Darlene Beato Jerry Lagomarsine Thaddeus Caldwell Eagles Kaisa Kuusk Barbara Rosann Schabert Emily Isabela Chalela Cynthia Jeanette Liba Aayah Amr Osman El-naggar Sol Kwon Marc Ian Schmelkin Cadesby Brawner Cooper Tung-yu Charlie Liu Gregory R. Faulkner Devon Elizabeth Lash James Andrew Sealey Daniel Curbelo Zeidman Christopher Joseph Mango Keith Hamilton Fichtelman Jonathan Scott Lasser Jonathan Bernard Selden Katherine Elizabeth De Maria Alex Gregory Marinello Adam Cory Finkel Michele Antoinette Lebron Tomohiro Sengoku Ian Samuel Dooley Megan Elizabeth Martino Benjamin Flam Ming Lei Bogyeong Seol Morgan Raleigh Everhart Bianca Mayard Francois Allison Flood Mark Ethan Levengood Alex Nicholas Settle Emily Van Waning Galvin James Walter Meehan Sean Michael Fontes Cunren Li Nehal Shah Bryson Nathaniel Gillard Michael Moradi Lindsey Anne Forrester Wenjing Li Donghwan Shin John G. E. Marck Kelly Elizabeth Moynihan Archer Claudia Linares Shizu Shiono Glenys Mireya Rosario Michael Frederick Nielsen Caleb Jonathan Fountain Edan Scott Lisovicz Glen H. Shrayer Margie Troncoso Karen Nora Michael Kingsley Freedman Alex Lo Luba Shur James J. Wen Matthew Brian Ortiz Scott Jay Freedman Alexandra Loprete Joseph Siciliano Yifei Zheng Gary Anthony Pagliarello Ahron Friedman Francesca Loreto Belinda Byrd Sifford Nicholas Alfred Pedersen THIRTEENTH DISTRICT Jason Boyd Friedman Daniel Alan Loveland Seth Todd Silverman Cassandre Marie Plantin Ahmed Javaid Victoria Amber Gammill Raymond Ka Luk Joo Yeon Song Kelly E. Porcelli Anna Lisa Katz Wen Sheng Gao Xueke Luo Mengru Song Maximilian J. Querci OUT-OF-STATE Nicole Marie Geraci Douglas Neil Mackillop Marie Linette Soueid Maximilian M. Querci Sarah Fay Abelson Thomas D. Gianturco Emily Linnea Mahoney Joe Travis Stroud Kimberly Michelle Saasto Dennis Marc Abrams Harold Anson Glasser Robert Miano Maina Takashi Suzuki James Patrick Scahill Nardos Tsegaye Alemu Sean Thomas Gloth Laura Adams Marchini Matthew P. Tabakman George Owen Schoenwaelder Mohammed Saud Alrasheed Alexander Damien Gonzalez Joshua Adam Markovits James Robert Tager Samuil Serebryanyy Moise Marcel Amouofo Robert Daniel Gordon William G. McCullough Anna-maria Katariina Debora Shamoilia Morgan Andrews Gabriele Goulet Caroline Merck Tamminen Jeremy Ryan Siegel Ryan Spencer Baasch Margaret G. Graf Juan Jose Michelen Karima Tanfous Jordan Michael Silber Sandra Bahous Doron Natan Greenberg Radha Mohan Matthew R. Tavares Maxwell Ian Slone Nicole Barillaro Amrit Gupta Alyssa Monteleon Ben Raymond Teeger Kimberly Sara Stewart Jacqueline Lauren Barkett Brendan Francis Haggerty Anastasios Moraitis Joanne Thelmo David J. Trompeter Emily Jane Barnet Avery Scott Halfon Shinichiro Mori Jing Tian Paul David Van Wie L. Darlene Beato Katherine Clark Harris Nicole Cecile Moriniere Karen Tonoyan Bianca Adele Vitale Edward Christopher Beeler Cathy Ho Hartsfield Michael Noblett Allison Kate Turbiville Lynn Wenkert John M. Bergin Daniel John Hay David Norkin Susan Kay Tvrdy Zachary W Zetlin Anjali Biala Dongmei He Randall J. Norman Eugene Uchechukwu James Andrew Hoeffner Barbara Anne O’Donnell Ubawike ELEVENTH DISTRICT Alexandre Bien-aime Bastien Kevin John Holt John Anthony O’Reilly Ingvar Ulpre Danielle Jordan Arbogast Edward Joseph Bradley Victoria Virginia Horrock Julie Chika Obi Tania Vajsova-Jones Christopher S. Bae Daniel Joseph Brennan Yu-ting Huang Sung Eun Eun Oh Rian Kathleen Vernon Aleah Benisatto Benajmin Stuart Britz Elizabeth Lynn Hubbard Arisa Ohki Ines Vicente Xavier Griffith Dimitry Benjamin Claire Madeleine Simonne Jessica Nicole Hutchinson Pauline Marie Orban Paul W. Wagenbach Nicholas Thurman Cooper Bustany Katie Sara Hyman Jae Woo Park Jiaqi Wang Brian Eddings David C. Buxbaum Michelle Brooke Iorio Jaeyeon Park Wei-po Wang Michael Gluck Anthony Rosario Caguioa Mikito Ishida Lauren Alyssa Parra Cameron Philip Watson Thomson Tin Suen Ho Amy Sullivan Cahill Omair Rooman Jaffer Peter Lawrence John Pashler Brett Reece Weinstein Khalid Iqbal Kate Judd Calendar Aurash Jamali Sharon M. Peace Courtney Riva Weinstein Jamell Gellis Isidor Mercedes Caral-pons Woohyuk Jang Harriet Pearson Richard Louis Alec Wolf Daniel Evan Kelly Eric Andras Carosia Christopher Marcus Jaquez Rina Pedroza Pahlavan Brenda Catherine Wylie Kristen Nipper Komander Kathleen Ann Carrigan Mercedes Leigh Jefferis Anne Elisabeth Pelletier Su Yang Bryan Michael Kotowski Peter Lorentz Cassizzi Cedric Elise Michel Jenart Mariana Pendas Fernandez Cong Yao Zhirong Liu Michael Lawrence Chapman Xiaotong Jia Frank Peretore Kaidi Yu Joseph Gedalya Mark Chen-yu Chen Ding Jin Michael Shaw Perry Xinru Yu Alexander Huixing McCabe Ji Chen Rachel Nicole Johnson Mark Joseph Pesce Ruihua Zhang Katherine Anne McCabe Mingshi Chen Michael Casimer Jozefczyk Matthew James Pires Tianye Zhang Joseph Paul Muscarella Weixi Chen Misato Kaise Katherine Alexandria Poulos Joseph Yan Jun Zhu Amanda O’Keefe Michelle Chinaza Chikezie Meir S. Kalish Wenyang Qi Craig H. Zimmerman Sara Player Bradley Alexander Cohen Ryota Kaneko Kimberly Michele Rhoten Aurelien Christophe Marie Susan Wonji Rhee Kristen Dawn Colburn Phillip John Kardis Khadijah Ameerah Robinson Zuber Soomin Ryu Timothy Joseph Collazzi Robert Andrew Kauffman N’yella Maya Rogers Kathryn Chupka Schultz Marta Colomar-Garcia

52 | May 2016 | NYSBA Journal BOOK REVIEW BY MARK H. ALCOTT Commercial Litigation in New York State Courts, 4th Ed. Edited by Robert L. Haig (Thomson Reuters, 2015)

ob Haig has just issued the verve – is one of the last published read § 113:10 and its footnote 1, is Fourth Edition of his iconic scholarly works of her prolific career. different in New York than in Florida. Btreatise, Commercial Litigation in Given the vast scope of prior edi- Commercial Litigation Fourth is par- New York State Courts (Commercial Liti- tions, it is astounding to see that Com- ticularly valuable when dealing with gation Fourth) and, as hard as it might mercial Litigation Fourth is two volumes the Commercial Division of the N.Y. be to believe, this one is even bigger, greater, 2,400 pages longer and 22 Supreme Court. That is understand- better and more comprehensive than chapters richer than its most recent able. In 1995, Mr. Haig co-chaired Chief the three voluminous editions that predecessor (published five years ear- Judge Kaye’s Commercial Courts Task preceded it. lier). There could be no more vivid Force, whose efforts implemented the Like its predecessors, published demonstration of the dynamism of Commercial Division, and he currently periodically over the past 20 years, New York commercial litigation, or serves as chief of the Commercial Divi- Commercial Litigation Fourth employs the centrality of New York’s courts to sion Advisory Counsel. The Commer- the unique Haig formula of analyz- business dispute resolution, than this cial Division has expanded rapidly ing both New York procedural law extraordinary growth. since its creation 20 years ago; it now and substantive commercial law, and And what are the new issues that encompasses 28 judges in 10 counties. then exploring strategies designed to warrant such encyclopedic treatment? It has significantly updated and mod- produce a favorable outcome by utiliz- They include, among other things, ernized its procedures and practices, ing both. It is not only an outstand- mediation and other nonbinding ADR; and Commercial Litigation Fourth is an ing scholarly work on the commercial preliminary and compliance confer- invaluable guide to advocates who jurisprudence of the New York courts ences and orders; project finance and litigate in its precincts. but also an invaluable practical com- infrastructure; securitization and struc- Those who rely on Commercial Liti- pendium of check lists, forms, guide- tured finance; energy; commercial leas- gation Fourth can take comfort in know- lines, jury charges, pleadings, etc. – in ing; international arbitration; and well ing that it will never become dated. Mr. short, everything that is needed to over a dozen more, each of which has Haig, his stable of dedicated authors, handle such cases from intake confer- its own chapter. and his colleagues at Thomson Reuters ence to final appeal. The comprehensive scope and relentlessly update the work by pub- The principal authors are ideally contemporary perspective of Commer- lishing annual pocket parts. Surely you suited to this task, since they include cial Litigation Fourth can be gleaned remember pocket parts. They are the some of New York’s finest commercial by examining the chapter on social hard copy predecessors of electronic litigators, in-house counsel, scholars media – a subject that did not exist revisions, and they are alive and well and judges. In the latter category are when the first edition was published in the world of Commercial Litigation the two most recent Chief Judges of the 20 years ago. For the technophobes, in New York State Courts. Indeed, one Court of Appeals – Jonathan Lippman the chapter includes an introductory of the singular achievements of Com- and the late Judith Kaye. The presence discussion of “What is social media?” mercial Litigation Fourth is the way it of Chief Judge Kaye’s contribution is followed by a description of some seamlessly integrates the pocket parts particularly meaningful, since she had leading sites and a glossary of terms. that previously accompanied the ear- authored the initial chapters in each If you want to know the difference lier editions. One can assume with of the first two editions, and her piece between Instagram and Flickr, trust “a high degree of confidence,” as our in Commercial Litigation Fourth – writ- me you’ll find it here. The chapter transactional lawyer sisters and broth- ten with her characteristic insight and goes on to discuss the impact of social ers say, that the practice of issuing media on legal ethics, an increasingly annual pocket parts will continue, so important subject, and to pose the that Commercial Litigation Fourth will Mark H. Alcott, of Paul, Weiss, Rifkind, Whar- provocative question: “Can a com- remain contemporary and relevant – ton & Garrison LLP, served as President of the New York State Bar Association and Chair of its mercial litigator ‘friend’ a judge he at least until the Fifth Edition is pub- Commercial and Federal Litigation Section. appears before on Facebook?” Hint: lished, a decade or two from now, as it the answer, for which you’ll have to surely will be.

NYSBA Journal | May 2016 | 53 ATTORNEY PROFESSIONALISM FORUM

To the Forum: your description of your night at the viewed as marking a split with the I am an associate in the M&A group bar, both your non-lawyer friend and Second Circuit’s decision in U.S. v. at an Am Law 100 firm. After a deal my the associate in your group may have Newman, 773 F.3d 438 (2d Cir. 2014). team and I had been working on for violated the laws prohibiting insider In Newman, the Second Circuit months closed, a few of the associates trading; the rules governing attorneys’ stated that the tipper must stand to and I decided to go out to a bar to professional conduct also may have benefit from transmitting the insider celebrate. “Work hard, play hard,” as been violated. “Insider trading” refers information to the tippee in order for they say in big law. Because I had to the purchase or sale of a security a jury to conclude that the tipper has been so tied up on this deal and had while in possession of improperly breached his fiduciary duty, and the not had much time out of the office to obtained material, nonpublic tippee must have actual knowledge socialize, I decided to invite a few of information about a company whose that the tipper received such a benefit my non-lawyer friends out to the bar shares are traded. The term “tipping” and that the information they have to meet us. refers to the improper disclosure of received is confidential insider It only took a few drinks in before material non-public information to information. Id. at 452. The Court the lawyers and non-lawyers alike in another person or entity that trades in expressed the view that the benefit our group were all having a great time. the security. The anti-fraud provisions must be more concrete than just a Just before 2 a.m., as I was getting of the federal securities laws and SEC relationship of casual friends, and must ready to leave, I overheard an associate regulations promulgated thereunder involve actual or potential pecuniary sitting next to me talking to one of my are the provisions which govern gain or something similarly valuable non-lawyer friends. The associate was insider trading. Recent Developments in in nature. Id. slurring his words and sounded like Insider Trading, 41 The Lawyer’s Brief, In Salmon, the Court took a very he had a few too many drinks. What I Oct. 15, 2011. different track and focused on the overheard was alarming – the associate Except in the limited case of trading close familial relationship between the was talking to my non-lawyer friend on information concerning tender parties. The defendant was trading on about a major and highly confidential offers, an essential element of such information he received from a friend, M&A deal that the firm was currently liability is that the parties engage who in turn received information from engaged in. I was tired and ready in fraud. Courts have held that the his brother, a trader at Citigroup. The to call it a night, so I decided not tipping of inside information must trader brother testified at trial that he to interrupt the conversation and I involve a breach of fiduciary duty. grabbed my coat and left. I didn’t think In the context of insider trading, the The Attorney Professionalism Committee much more about the incident. elements of such a breach are: (a) a invites our readers to send in comments Two weeks later, I met up with my duty not to disclose the information; or alternate views to the responses non-lawyer friend for lunch. During (b) knowledge, or acting in reckless printed below, as well as additional our lunch, he casually mentioned to disregard that the tippee will trade on hypothetical fact patterns or scenarios to me that after the conversation he had the information; and (c) receipt of a be considered for future columns. Send two weeks ago with the associate at benefit in exchange for such disclosure. your comments or questions to: NYSBA, the bar, he had decided to invest in the See U.S. v. Newman, 773 F.3d 438 (2d One Elk Street, Albany, NY 12207, Attn: stock of the company being purchased Cir. 2014); S.E.C. v. Obus, 693 F.3d 276 Attorney Professionalism Forum, or by in the major deal the associate in my (2d Cir. 2012). Clearly, the associate- email to [email protected]. group had told him about. tipper was under an obligation not This column is made possible through Now I’m starting to worry about the to disclose the information about the the efforts of the NYSBA’s Committee on serious implications of this bar night! deal. The associate’s liability also Attorney Professionalism. Fact patterns, Should I report the associate in my depends on whether the associate names, characters and locations presented group, and if so, to whom? Does the knew or acted in reckless disregard in this column are fictitious, and any resem- firm, the associate or my non-lawyer that your non-lawyer friend would use blance to actual events or to actual persons, friend have potential liability for the information to trade in securities. living or dead, is entirely coincidental. These insider trading? What policies should The associate’s liability also requires columns are intended to stimulate thought my law firm have in place regarding a showing that the associate received a and discussion on the subject of attorney divulging such insider information? “benefit” by making the tip, since that professionalism. The views expressed are Sincerely, is an element of breach of fiduciary those of the authors, and not those of the N. O. Insider duty. What constitutes a “benefit” is an Attorney Professionalism Committee or issue that is currently before the U.S. the NYSBA. They are not official opinions Dear N.O. Insider: Supreme Court in U.S. v. Salmon, 792 on ethical or professional matters, nor The answer to your question requires F.3d 1087 (9th Cir. 2015). The Ninth should they be cited as such. several levels of analysis. Based on Circuit’s opinion in Salmon has been

54 | May 2016 | NYSBA Journal did not receive any “benefit” in return the District Court. In reversing the about a lawyer’s fitness to practice. for providing his brother with the dismissal, the Second Circuit had to See Kathryn W. Tate, The Boundaries of inside information, and only did it out reconcile two apparently inconsistent Professional Self-Policing: Must a Law of brotherly love. The Ninth Circuit definitions of scienter, both articulated Firm Prevent and Report a Firm Member’s (in an opinion written by Judge Rakoff by the Supreme Court: Ernst & Ernst v. Securities Trading on the Basis of Client sitting by designation) held that the Hochfelder, 425 U.S. 185, 193, n.12 (1976), Confidences?, 40 U. Kan. L. Rev. 807, familial ties between the tipper and the where the Court defined scienter as 837 (1992). tippee made it unnecessary to show “a mental state embracing intent to Generally speaking, violations of the tipper received a tangible benefit, deceive, manipulate, or defraud” and state corporate securities acts, blue inferring that a benefit can be assumed Dirks v. S.E.C., 463 U.S. 646, 660 (1983), sky laws, or federal securities laws based on the familial relationship. But where the Court indicated that scienter and regulations, are grounds for now that Salmon is before the Supreme could be satisfied by establishing not disciplinary action against an attorney. Court that may not be the end of the only what a tippee actually knew, but J.P. Ludington, Annotation, Violation story. Hopefully, the Court will clarify also what he “should have known.” of securities regulations as ground of how the “benefit” standard should be Attempting to reconcile the two cases, disciplinary action against attorney, interpreted. in Obus, the Second Circuit held that a 18 A.L.R.3d 1408 (1968). In a recent In the situation that you describe, tippee need not have actual knowledge case, In re Kluger, 102 A.D.3d 168, the associate was likely acting with of (or be reckless with respect to) the 169 (1st Dep’t 2013), an attorney was knowledge, or at the least, acting in existence of the tipper’s duty, the breach automatically disbarred on the ground reckless disregard that the non-lawyer of that duty, or the confidentiality of that he was convicted of a crime which friend would trade on the inside the information. Rather, the SEC now would be a felony if committed in information he revealed. The associate need only show that a tippee knew or New York. Respondent Matthew was discussing the details of a non- should have known of these things, Kluger pleaded guilty to conspiracy public merger and had to know that he allowing courts to impose liability to commit securities fraud and other was revealing client confidences in the for something closer to negligence. crimes for participating in an insider process. We think that he should have However, we note that the level and trading scheme in which he stole known that he was taking a high risk standard of knowledge by the tippee confidential nonpublic information that the non-lawyer friend might trade for liability is different between a related to approximately 30 corporate on the information being revealed criminal case and an SEC case, with mergers and acquisition transactions to him. With respect to the benefit the standard in a criminal case being being handled by the law firms that requirement articulated in Newman higher. United States v. Whitman, 904 F. employed him. The First Department and Salmon, however, it is not clear Supp. 2d 363, 365, 2012 WL 5505080, at held that because Kluger’s criminal that the associate received a “benefit.” *1 (S.D.N.Y. Nov. 19, 2012). offenses would be felonies if charged Maybe it is possible that the associate Looking at the non-lawyer friend’s under New York law, they were a was in the spirit of the moment simply conduct, he would probably satisfy proper predicate for automatic talking about the deal to show off in the scienter requirements articulated disbarment. Id. at 170. front of friends. It is uncertain whether in Obus because at the time he received Insider trading is a violation of Rule he received any kind of pecuniary the insider information, he knew or 1.6 of the NYRPC, which provides: benefit. should have known that the associate “A lawyer shall not knowingly reveal But assuming that there was some had a duty of confidentiality that he confidential information, as defined kind of benefit, then your non-lawyer was breaching by sharing details of the in this Rule, or use such information friend (the “tippee”) could also face M&A deal. to the disadvantage of a client or for insider trading liability, especially if it Turning now to the associate in the advantage of the lawyer or a third can be shown that the friend knew or your group, in addition to being person. . . .” In addition to violating should have known that the disclosure possibly guilty of insider trading client confidences, insider trading is by the associate constituted a breach of and facing liability under the federal also illegal conduct, and therefore, it a duty. Several years ago, the Second securities laws, the associate may have is a violation of Rule 8.4, Misconduct, Circuit issued a decision that gives us also violated the New York Rules of which provides that a lawyer or law some guidance on the requirements Professional Conduct (NYRPC) and firm shall not “(b) engage in illegal of scienter as they apply to tipper and could face disciplinary action. It is conduct that adversely reflects on the tippee liability in a civil case brought important to note that a lawyer who lawyer’s honesty, trustworthiness by the SEC. In S.E.C. v. Obus, 693 F.3d engages in insider trading breaches or fitness as a lawyer; (c) engage in 276 (2d Cir. 2012), the Second Circuit two basic elements of the attorney- conduct involving dishonesty, fraud, considered an appeal of a dismissal client relationship – attorney loyalty deceit or misrepresentation.” of insider trading claims following and confidentiality. A violation of The next question is whether the a grant of summary judgment by either of these duties raises issues law firm has potential liability. Rule

NYSBA Journal | May 2016 | 55 5.1, Responsibilities of Law Firms, about which the firm has inside shoes, we would want to confront our Partners, Managers and Supervisory information, (2) prohibiting all trading fellow associate about the bar night. Lawyers, holds, in relevant part, that in client securities, (3) prohibiting all But the real question is – should you do “(a) A law firm shall make reasonable equity trading, (4) applying policies to more? Rule 8.3, Reporting Professional efforts to ensure that all lawyers in non-client securities, (5) maintaining Misconduct, tells us that “(a) A lawyer the firm conform to these Rules. (b) restricted lists that law firm personnel who knows that another lawyer has (1) A lawyer with management are required to consult before engaging committed a violation of the Rules responsibility in a law firm shall make in trading, (6) circulating periodic of Professional Conduct that raises a reasonable efforts to ensure that other reminders to all firm employees about substantial question as to that lawyer’s lawyers in the law firm conform to the laws against insider trading and honesty, trustworthiness or fitness as these Rules.” the duty not to disclose confidential a lawyer shall report such knowledge When it comes to liability for information, and (7) circulating to a tribunal or other authority insider trading, if the law firm has carefully worded new matter/new empowered to investigate or act upon procedures in place that are reasonably client information around the firm in such violation.” However, an attorney designed to prevent insider trading, order to avoid disclosure of material should use professional judgment then the firm has a defense to liability. inside information about clients and and discretion when determining Jonathan Eisenberg, Protecting Against other corporations. Id. at 148–49. whether and how to report a colleague. Insider Trading Liability, 22 Securities & Such policies should be designed to Specifically, an attorney should evaluate Commodities Regulation 87, 87 (1989). prevent trading not only in securities whether there is sufficient knowledge In fact, the SEC has promulgated a of the law firm’s clients, but also of as to fraudulent conduct that triggers regulation which creates an affirmative the companies which the law firm a reporting obligation. Moreover, if an defense to insider trading if the person does not represent but are involved attorney merely has a suspicion of a or company has “implemented in the subject transactions. A law firm violation of the Rules of Professional reasonable policies and procedures, that does not have internal policies Conduct, then reporting is optional. taking into consideration the nature and procedures in place to prevent See Threatening Disciplinary Action of the person’s business, to ensure insider trading can face enormous Against Attorneys in New York, 1 NYSBA that individuals making investment consequences – including negative NYLitigator 47, 48 (Spring 2016) decisions would not violate the laws publicity, professional embarrassment, (discussing Nassau Cnty. Bar Ass’n prohibiting trading on the basis of and permanent damage to a firm’s Ethics Op. 1998-12 (1998)). As stated material nonpublic information.” 17 reputation as a repository for client in one source, “[a]cts involving fraud, C.F.R. § 240.10b5-1. confidences, as well as disciplinary deception, misrepresentation, or lack of The goals of insider trading action against individual attorneys. Id. trust (e.g., lying, backdating documents, preventative policies are twofold – to at 146. creating false evidence, stealing from an both make it less likely that insider Finally, let us talk about you. First, attorney trust account) should always trading will occur and also, if it does it is important to point out that Rule trigger a reporting obligation.” Roy D. occur, to provide the law firm employer 5.1(d), Responsibilities of Law Firms, Simon, Simon’s New York Rules of with a defense to derivative liability. Partners, Managers and Supervisory Professional Conduct Annotated 1913 Daniel L. Goelzer, et al., Insider Trading Lawyer, holds that: “A lawyer shall (2016). Although some may see this and Section 16 Compliance Procedures be responsible for a violation of these as a close question, from the facts that for Corporations and Law Firms, The Rules by another lawyer if: (1) the you have described, we do not believe American Law Institute, May 2, 1991, lawyer orders or directs the specific that your fellow associate’s behavior at 130. There is no one catch-all policy conduct or, with knowledge of the creates an obligation on your part to or procedure that every law firm specific conduct, ratifies it; or (2) report him. should follow. Law firm managers the lawyer is a partner in a law firm Sincerely, should tailor policies to fit the unique or is a lawyer who individually or The Forum by circumstances of his or her respective together with other lawyers possesses Vincent J. Syracuse, Esq. firm. For example, a firm that regularly comparable managerial responsibility ([email protected]) and handles mergers and acquisitions in a law firm in which the other lawyer Ralph A. Siciliano, Esq. involving exchange-traded securities practices or is a lawyer who has ([email protected]) and should have more extensive policies supervisory authority over the other Maryann C. Stallone, Esq. than a matrimonial firm. Id. at 147. lawyer. . . .” ([email protected]) and Depending on the nature and extent We do not believe that this rule Hannah Furst, Esq. of a law firm’s practice involving applies to you since you are not in ([email protected]) publicly traded securities, some a supervisory position and have Tannenbaum Helpern Syracuse & specific policies to consider are: (1) not ratified or sanctioned the other Hirschtritt LLP prohibiting trading in client securities associate’s behavior. If we were in your

56 | May 2016 | NYSBA Journal QUESTION FOR THE without considering the opposition. judge asked if the motion was being NEXT ATTORNEY The matter was adjourned for another withdrawn in light of the production, appearance. I had to request an adjournment and PROFESSIONALISM FORUM After my successful motion to make another court appearance when dismiss, defense counsel was not I discovered that the response was still I represent the plaintiff in a breach responding to routine discovery not complete. of fiduciary duty suit. My client has demands. When I tried to address it at My client is getting increasingly a very good claim, but the defense a court conference, a per diem attorney frustrated with the rising cost of counsel is stalling the case at every appeared for the defendant with no litigation because of my multiple turn. For example, on a motion to knowledge of the case. He said he court appearances that were dismiss boilerplate affirmative would pass the message on to counsel adjourned without progress and my defenses and counterclaims, which and the conference was a complete motion to obtain routine discovery. were completely unsupported by facts, waste of time. At another conference, The client is especially angry defendant’s counsel e-filed opposition I waited for over two hours before the because they know the defendant just before midnight the day before defense counsel appeared, told the law isn’t incurring the same legal costs. oral argument. Due to the late filing, clerk that he would respond to my Is there any recourse against a party I didn’t even realize there was demands, and then didn’t produce or attorney that delays a case, and opposition to the motion until I got to anything. forces my client to incur legal fees, court. I did not have a chance to read Eventually I had to make a by submitting last-minute filings the opposition or the cases cited before discovery motion. At oral argument that delay the resolution of a motion? the argument and defendant’s counsel for the motion, defendant’s counsel Is there any recourse for sending handed up a copy of the opposition handed me a large box of documents per diem attorneys to a conference, to the judge at the oral argument. that were purportedly responsive to with no knowledge of the case, or Even though I objected to the late my demands. Since I didn’t have a showing up two hours late? submission of opposition, the court chance to review all of the documents Sincerely, was reluctant to decide the motion before the argument, when the G. U. Areslow In Memoriam

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NYSBA Journal | May 2016 | 57 The Legal Writer determining where disputes can be adju- contracting party who has an obliga- Continued from Page 64 dicated. Absent any unreasonableness tion to perform a duty under the con- ER, or is found to be withholding tips or a forum non-conveniens defense, these tract shifts the duty to another person.37 from the bussers, then this employment provisions are usually enforceable.28 Example: “Assignment and Delegation. contract shall automatically terminate Forum-selection provisions can also Consultant has neither the right nor and the EMPLOYEE-WAITER waives include language outlining the accept- the power to assign any of Consultant’s the right to receive a notice to quit.”18 able ways to serve process.29 rights or delegate any of Consultant’s Imposing consequences for breaching duties under this Agreement by opera- covenants allows the parties to tailor the • Amendments and Waivers tion of the law or otherwise without the transaction to their needs. Contracts normally include a no-oral- Company’s prior written consent. Any amendments provision. This provision attempt to assign or delegate without General Provisions provides that parties may not amend this consent is void.”38 This provision Also known as miscellaneous or an agreement except in writing. In New prevents the consultant, without the boilerplate provisions, general provi- York, the First Department has held that company’s consent, from subcontracting sions “appear at the end of a contract emails clearly detailing modifications to to a third party or from assigning pay- and address assorted issues related be made in a contract and clearly express- ment rights under the contract without to the contract.”19 Drafters should ing all parties’ unqualified acceptance of the company’s consent.39 include the following general provi- those modifications constitute “signed Contracts should address both assign- sions in every contract.20 writings” for an amendment clause.30 To ment and delegation.40 Many lawyers ensure a strict policy to amend a contract, include a prohibition against unconsent- • Final and Complete Provisions you may draft your provision this way: ed assignment but exclude delegation.41 The first general provision drafters “The parties may amend this Agreement Each should be included.42 should include establishes that the con- only by the parties’ written agreement tract is final and complete. This ensures that identifies itself as an amendment • Counterparts Provision that the agreement can’t “be contradicted to this Agreement.”31 Contracts often Contracts have a counterparts provi- or supplemented by prior or contempo- include jury-trial waivers. Jury trials are sion when not all the parties can attend raneous agreements.”21 This provision inherent in the Constitution; a waiver the agreement’s signing, such as when will avoid any future issue with the of this right is enforceable only if it’s the parties are from different states parol evidence rule.22 In general, parties “knowing, intentional, and voluntary.”32 or countries. A counterpart is consid- should limit any items to the contract.23 Courts will look at whether the waiver ered “a duplicate original that parties Avoid using the word “shall” in these was specifically negotiated during the sign.”43 Signed separate counterparts provisions. Example: “This Agreement drafting process or whether the waiver is constitute a fully executed original.44 shall constitute the entire agreement” is prominently displayed in the contract.33 The language of a counterpart provi- better stated simply as “This Agreement Jury waivers are more likely enforced sion is usually: “Each Party is permitted constitutes the entire agreement.”24 if the parties to the contract have equal to execute this Agreement in multiple bargaining strength.34 counterparts, each of which will be • Choice-of-Law Provisions deemed an original and all of which It is beneficial for drafters to include • Non-Waiver Provisions taken together will constitute one and a provision that decides which jurisdic- It’s common for contracts to include the same instrument.”45 tion’s laws will govern the agreement. a non-waiver clause. The clause pro- This is known as a choice-of-law provi- tects a party that excuses the other • Damage-Disclaimer Provisions sion, which forecloses future disputes party’s non-compliance with contract An attorney’s goal in contract draft- between the parties about which laws terms from later losing the right to ing is to limit the client’s liability. A govern the contract.25 If that provision enforce the terms of the contract. damage disclaimer will help achieve is absent, the general rule is that the law this goal by limiting the type of dam- of the jurisdiction with the most sub- • Assignment and Delegation ages a party can receive following a stantial relationship to the transaction Provisions contract breach.46 The provision might governs, but the parties may disagree In the case of a contract that contem- look like this: “In no event will Con- on which jurisdiction that is.26 If the plates a continuing relationship between sultant be liable to the Company for parties choose the state during negotia- the parties, provisions should cover any special, incidental, or consequential tions, they have the option of tailoring assignment and delegation.35 An assign- damages for any breach of this Agree- the contract to the state’s laws.27 ment of rights occurs when a party ment, even if advised of the possibility that has the right to receive a perfor- of such damages.”47 Without a damage- • Forum-Selection Provisions mance under the contract shifts to a third disclaimer provision, a breaching party In addition to determining which law party the right to receive performance.36 might be liable for things like lost prof- governs, contracts include provisions A delegation of duties occurs when a its resulting from the breach.48

58 | May 2016 | NYSBA Journal If a seller asks for a damage disclaim- to cover the costs of the buyer’s defense because of the occurrence of a specified er or a limitation-of-liability provision and damage award.58 event.70 Drafters must take into account but the buyer objects, make the provi- Without an indemnification provi- the possibility of uncontrollable events sions reciprocal.49 Draft these provisions sion, the buyer could bring a breach- and include provisions to protect their so that they apply both to the seller and of-contract claim. This claim wouldn’t clients.71 If the other party objects to the the buyer. Here’s the above damage require the supplier to pay the buyer’s force majeure language, it may make disclaimer redrafted to be reciprocal: “In cost as an indemnification provision the provision reciprocal to protect both no event will either party be liable to the would.59 parties.72 Example: “Force Majeure. A other party for any special, incidental, or An indemnification provision party shall not be liable for any failure consequential damages for any breach shields one party from the other’s of or delay in the performance of this of this agreement, even if advised of mistakes or misconduct.60 Unless it’s Agreement for the period that such the possibility of such damages.”50 This unmistakably clear that the indemni- failure or delay is due to causes beyond compromise, though, is unlikely to be of fication provision covers attorney fees its reasonable control, including but not much value. A buyer will have to pay the that arise from disputes between the limited to acts of God, war, fires, floods, same amount in damages whether the parties, New York courts won’t inter- explosions, riots, hurricane, terrorism, contract does or doesn’t include a recip- pret it to cover these disputes.61 vandalism, strikes or labor disputes, rocal limitation-of-liability provision and There’re limitations to indemnifica- embargoes, government orders, or any damage disclaimer.51 tion provisions. For example, a “basket” other force majeure event.” A damage disclaimer is often drafted is when indemnification isn’t for claims in all capital letters to make it con- less than a specific amount.62 The limi- • Severability Clause Provisions spicuous and to help a party rebut tation on the maximum amount of pay- This provision provides that if any a later allegation that the provision ments under an indemnification provi- part of the contract is found invalid, is unenforceable as unconscionable.52 sion is known as a “cap.”63 An indem- the remaining provisions will continue When disclaimers are easily noticed in a nification provision can be limited by in effect.73 This provision should be contract, there can’t be a claim that one a termination provision in two ways.64 drafted with extreme caution because party was unaware of the disclaimer. Example: “[A] cut-off of indemnification of the consequences of continuing with- if the event giving rise to the indemnifi- out all the initial parties to the contract. • Indemnification Provisions cation claim arises after the cut-off date, The parties should consider including Indemnification provisions hold par- and a cut-off if the claim is made after a a right to terminate the contract if the ties responsible for costs and expenses certain date.”65 invalid provision destroys the core of that other parties incur.53 The right of the contractual relationship. a party to recover through indemnifi- • Insurance-Requirement cation is based on objective intent dis- Provisions Conclusion Clause and played by the parties in the contract.54 To enable the recovery of costs and Signature Blocks Contractual-indemnification claims are expenses, indemnification provisions Most contracts end with a conclud- dismissed when there’re no express are usually followed by an insurance ing clause followed by signature blocks. indemnification provisions or if there’s requirement.66 Insurance requirements A concluding paragraph would resem- no implication of an indemnification enable a party to receive money it’s ble the following: “To evidence the par- obligation.55 The best way to secure this owed under indemnification, even if ties’ agreement to this Agreement, they type of provision is to draft an express the other party can’t pay a judgment indemnification provision.56 against it.67 MEMBERSHIP TOTALS Here’s an example of an indemnifi- The specifics regarding policy lim- cation provision from an agreement to its, scope of coverage, and other terms sell tires for golf carts: “Supplier shall are negotiable and should be tailored to New Regular Members indemnify buyer from any claim, suit, the specific contractual relationship.68 1/1/16-4/7/16______3,099 action, proceeding, investigation, judg- For example, “an insurance provision New Law Student Members ment, deficiency, demand, damage, set- in a services agreement should require 1/1/16-4/7/16______591 tlement, liability, attorney fee, as and the service provider to have profes- when incurred, arising out of, in connec- sional-liability insurance that covers Total Regular Members tion with, or based on any products sold losses from errors and omissions in as of 4/7/16______53,462 under this agreement.”57 If a tire fails performing services.”69 Total Law Student Members and injures the purchaser, the purchaser as of 4/7/16______3,790 can bring a products-liability action. The • Force Majeure Provisions suit “arises out of” a product sold under A force majeure provision excuses Total Membership as of the agreement and obligates the supplier from liability a party unable to per- 4/7/16______57,252 form the obligations under a contract

NYSBA Journal | May 2016 | 59 Gerald Lebovits ([email protected]), an 36. Restatement (Second) of Contracts § 316 cmt. c have executed and delivered it on the acting Supreme Court justice in Manhattan, is (1981). 74 date set forth in the preamble.” Make an adjunct professor of law at Columbia, Ford- 37. Id. § 318. sure the names in the signature blocks ham, NYU, and New York Law School. For their 38. Sjostrom, supra note 7, at 21. correspond to the names provided in research, he thanks judicial interns Katrina Borra 39. Id. the preamble of the contract.75 The sig- (NYU), Anne Easton (NYLS), Ryan Jerome and 40. Id. nature block for a corporation, partner- Dilshat Shalumov (Fordham), Tamar Rosen (Bing- 41. Id. ship, or limited-liability company must hamton), Elizabeth Sandercock (CUNY), and Ian 42. Id. reflect the name of the entity and that Steinberg (Cardozo). 43. Stark, supra note 1, at 235. the signer has representative power.76 44. Id. at 236. 45. Martorana I, supra note 24, at 126. Example: “For a natural person, a line 46. Id. at 23. with the person’s name underneath is 1. Tina L. Stark, Drafting Contracts: How and Why Lawyers Do What They Do 191–92 (2d ed. 47. Id. used” and “[f]or a corporate or limited 2014). 48. Sjostrom, supra note 7, at 23. liability company signatory, the signa- 2. Charles M. Fox, Working with Contracts: What 49. Martorana I, supra note 24, at 23. ture block will be set up to identify both Law School Doesn’t Teach You 26 (Prac. L. Inst. 2d 50. Id. at 24. ed. 2013). the entity that is signing and the iden- 51. Id. 3. Stark, supra note 1, at 193–96. tity and capacity of the person actually 52. Sjostrom, supra note 7, at 24. 4. Id. at 193. signing for such entity.”77 53. Id. 5. Id. at 195. If a party is an entity, the name 54. Construction and Application, Contractual Id. 6. at 196. Indemnity, 21 Carmody-Wait 2d § 123:90. should be placed in all capitals above 7. William K. Sjostrom, Jr., An Introduction to 55. Id. the signature line.78 Additionally, “if Contract Drafting 20 (2d ed. 2013). 56. Id. the signatory for a legal-entity party 8. Stark, supra note 1, at 192. 57. Adapted from Sjostrom, supra note 7, at 25. is itself an entity . . . a signature block 9. Id. at 198. 58. Id. 79 10. Id. at 192. within a signature block is required.” 59. Id. at 26. 11. Id. at 206. Signature blocks should be aligned to 60. Cal. Civ. Code § 2772; see Weissman v. Sinorm Id. the right side of the page, one above the 12. at 206–07. Deli, 88 N.Y.2d 437, 446, 669 N.E.2d 242, 246, 646 other.80 Put the notation “Date:” to note 13. Id. at 207. N.Y.S.2d 308, 312 (1996). the date of signing.81 14. Id. 61. Hooper Assoc., Ltd. v. AGS Computers, Inc., 74 15. Id. N.Y.2d 487, 492, 548 N.E.2d 903, 905, 549 N.Y.S.2d 16. Scott J. Burnham, Drafting and Analyzing 365, 367 (1989). Schedules and Exhibits Contracts 262 (3d ed. 2003). 62. Fox, supra note 2, at 27. Schedules and exhibits aren’t con- 17. Id. 63. Id. tained within the body of the contract 18. Adapted from Burnham, id. 64. Id. but are referred to in the body and form 19. Jonathan C. Lipson, What’s Amiss? The Lawyer- 65. Id. part of the contract.82 A clear and spe- ing Interest in “Miscellaneous” Contract Provisions, 65 66. Sjostrom, supra note 7, at 26. Consumer Fin. L.Q. Rep. 151, 151 (2011). cific reference to a schedule or exhibit 67. Id. at 27. 20. See Sjostrom, supra note 7, at 11. 83 68. Id. is sufficient. To avoid other interpreta- 21. Id. at 10. tions, define the agreement to include 69. Id. at 28. 22. N.Y. Gen. Oblig. L. § 15-301. 70. Jacobson, supra note 35, at 83. the schedules and exhibits. For example: supra 23. Sjostrom, note 7, at 10. 71. Id. “‘Agreement’ means this Lease Agree- 24. Vincent R. Martorana, Supplemental Outline, 72. Sjostrom, supra note 7, at 29. The Nuts and Bolts of Contract Drafting: From Basic ment and its Schedules and Exhibits, 73. Stark, supra note 1, at 231. each as amended from time to time.”84 to Advanced Topics 44 (N.Y. St. B. Ass’n, CLE, June 2015) (Martorana I). 74. Id. at 241. Schedules normally refer to the dis- 25. N.Y. Prac., Com. Litig. in New York State 75. Sjostrom, supra note 7, at 12. closed information referred to in the Courts § 75:13, at 4B (3d ed. 2014). 76. Stark, supra note 1, at 244–45 (citing Stewart representations and warranties, and 26. Id. Coach Indus., Inc. v. Moore, 512 F. Supp. 879, 884 (D. are identified by numbers of the provi- 27. Sjostrom, supra note 7, at 10. Ohio 1981)). sion that requires the schedule.85 Par- 28. Martorana I, supra note 24, at 115. 77. Fox, supra note 2, at 155. 29. Id. 78. Kenneth A. Adams, A Manual of Style for ties that want agreements or other Contract Drafting 125 (3d ed. 2013). documents related to the contract to 30. Vincent Martorana, Intermediate Concepts in Drafting Contracts 34 (N.Y. St. B. Ass’n, CLE, March 79. Id. at 126. be part of the contract attach them as 2015) (Martorana II) (citing Stevens v. Publicis, S.A., 80. Id. exhibits. 86 The latter are identified by 50 A.D.3d 253, 254-55, 854 N.Y.S.2d 690, 692 (1st 81. Id. sequential letters or numbers: Exhibit Dept. 2008)). 82. See Stark, supra note 1, at 53. 1, Exhibit 2, Exhibit 3.87 31. Stark, supra note 1, at 232. 83. Id. (citing United Cal. Bank v. Prudential Ins. Co. In the next issue of the Journal, the 32. Martorana I, supra note 24, at 117. of Am., 681 P.2d 390, 420 (Ariz. App. 1983)). 33. Id. Legal Writer concludes its series on con- 84. Adapted from id. at 5. 34. Id. 85. Id. at 55. tract drafting with techniques to draft 35. See M.H. Sam Jacobson, A Checklist for Drafting 86. Id. contracts clearly and unambiguously. Good Contracts, 5 J. Ass’n Legal Writing Directors 79, 87. Id. at 56. 83–84 (2008).

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62 | May 2016 | NYSBA Journal 2015-2016 OFFICERS MEMBERS OF THE HOUSE OF DELEGATES

David P. Miranda First District Spirer, Laren E. Gerace, Donald Richard Thaler, Jessica D. President + * Alcott, Mark H. Spiro, Edward M. + * Getnick, Michael E. Wallach, Sherry Levin Albany Alden, Steven M. * Standard, Kenneth G. Hage, J. K., Weathers, Wendy M. Arenson, Gregory K. Stenson Desamours, Mrs. LaRose, Stuart J. Weis, Robert A. Claire P. Gutekunst Brown, Earamichia Lisa M. * Richardson, M. Catherine Welch, Kelly M. President-Elect Chakansky, Michael I. Tesser, Lewis F. Westlake, Jean Marie Yonkers Chambers, Hon. Cheryl E. Udell, Jeffrey A. Williams, James M. Chang, Vincent Ted Ugurlayan, Anahid M. Tenth District Sixth District Sharon Stern Gerstman Cilenti, Maria Valet, Thomas P. Barcham, Deborah Seldes Barreiro, Alyssa M. Treasurer Davino, Margaret J. Whittingham, Kaylin L. Block, Justin M. Grossman, Peter G. Davis, Tracee E. + * Younger, Stephen P. * Bracken, John P. Buffalo Lewis, Richard C. Dean, Robert S. Zuchlewski, Pearl + * Madigan, Kathryn Grant Burns, Carole A. Ellen G. Makofsky Finerty, Margaret J. Calcagni, John R. Second District McKeegan, Bruce J. First, Marie-Eleana Secretary Aidala, Arthur L. Saleeby, Lauren Ann Christopher, John P. Flynn, Erin Kathleen Garden City Ajaiyeoba, Abayomi O. Shafer, Robert M. Clarke, Christopher Justin * Forger, Alexander D. Bonina, Andrea E. Cooper, Ilene S. Glenn Lau-Kee Freedman, Hon. Helen E. Seventh District Chandrasekhar, Jai K. Fishberg, Gerard Friedman, Richard B. Baker, Bruce J. Immediate Past President Fallek, Andrew M. Franchina, Emily F. Gallagher, Pamela Lee Bleakley, Paul Wendell New York Kamins, Hon. Barry Gann, Marc Galligan, Michael W. Brown, T. Andrew Klass, Richard A. Glover, Dorian Ronald Glass, David L. Buholtz, Eileen E. Lonuzzi, John Gross, John H. VICE-PRESIDENTS Goldberg, Evan M. + * Buzard, A. Vincent McKay, Hon. Joseph Harper, Robert Matthew First District Goldfarb, David Kevin Hetherington, Bryan D. Hillman, Jennifer F. Goodman, Hon. Emily J. Jackson, LaMarr J. Taa R. Grays, New York Napoletano, Domenick Karson, Scott M. Grays, Taa R. Lawrence, C. Bruce Lapp, Charles E., III Michael Miller, New York Romero, Manuel A. + Gutekunst, Claire P. Seddio, Hon. Frank R. McCafferty, Keith + * Levin, A. Thomas Second District Himes, Jay L. + Shautsova, Alena Modica, Steven V. Makofsky, Ellen G. Hoffman, Stephen D. * Moore, James C. Dominick Napoletano, Brooklyn Simmons, Karen P. Mancuso, Peter J. Hollyer, Arthur Rene Spodek, Hon. Ellen M. Moretti, Mark J. McCarthy, Robert F. Third District Honig, Jonathan Sunshine, Hon. Jeffrey S. * Palermo, Anthony Robert Meisenheimer, Patricia M. Hermes Fernandez, Albany Hyland, Nicole Isobel Yeung-Ha, Pauline Rowe, Neil J. * Pruzansky, Joshua M. Jaglom, Drew + * Schraver, David M. * Rice, Thomas O. Fourth District Kenney, John J. Third District Shaw, Mrs. Linda R. Strenger, Sanford Matthew R. Coseo, Ballston Spa Kiesel, Michael T. Bauman, Hon. Harold J. Tilton, Samuel O. Tarver, Terrence Lee * King, Henry L. Baxter, Kathleen Mulligan * Vigdor, Justin L. Tully, Rosemarie Fifth District Kobak, James B., Jr. Behe, Jana Springer * Witmer, G. Robert, Jr. Weinblatt, Richard A. Koch, Adrienne Beth Calareso, Mrs. JulieAnn Wicks, James M. Stuart J. Larose, Syracuse Eighth District + * Lau-Kee, Glenn Coffey, Daniel W. Bloom, Laurie Styka Sixth District + * Leber, Bernice K. Collura, Thomas J. Eleventh District Brown, Joseph Scott Lessard, Stephen Charles Crummey, Hon. Peter G. Alomar, Karina E. Alyssa M. Barreiro, Binghamton * Doyle, Vincent E., III Lindenauer, Susan B. Fernandez, Hermes Bruno, Frank, Jr. Effman, Norman P. Seventh District Ling-Cohan, Hon. Doris Gerbini, Jean F. Carola, Joseph, III Fisher, Cheryl Smith T. Andrew Brown, Rochester Maroney, Thomas J. Greenberg, Henry M. Cohen, David Louis * Freedman, Maryann Martin, Deborah L. Grogan, Elizabeth Janas Gutierrez, Richard M. Saccomando Eighth District Miller, Michael Heath, Hon. Helena + * James, Seymour W., Jr. Gerstman, Sharon Stern Cheryl Smith Fisher, Buffalo Minkowitz, Martin Higgins, John Eric Lee, Chanwoo Halpern, Ralph L. Morales, Rosevelie Hines, Erica M. Samuels, Violet E. * Hassett, Paul Michael Ninth District Marquez Kean, Elena DeFio Terranova, Arthur N. Hills, Bethany Sherry Levin Wallach, Mount Kisco Moses, Hon. Barbara Mandell, Adam Trent Wimpfheimer, Steven O’Donnell, Hon. John F. Carol Meacham, Norma G. Tenth District O’Donnell, Thomas M. Twelfth District Moskowitz, Hon. Meyers, David W. Ogden, Hon. E Jeannette Calderón, Carlos M. Scott M. Karson, Melville Karla + Miranda, David P. Pajak, David J. Marinaccio, Michael A. Nathanson, Malvina Onderdonk, Marne L. Eleventh District Ryan, Michael J. Millon, Steven E. Needham, Andrew W. Prudente, Stephen C. Smith, Sheldon Keith * Pfeifer, Maxwell S. Richard M. Gutierrez, Forest Hills Otis, Andrew D. Rivera, Sandra Spitler, Kevin W. Weinberger, Richard Prager, Bruce J. Rosiny, Frank R. Twelfth District Sullivan, Kevin J. Radding, Rory J. Ryba, Hon. Christina L. Thirteenth District Steven E. Millon, Bronx Raskin, Debra L. Silver, Janet Ninth District Gaffney, Michael J. Reitzfeld, Alan D. Thirteenth District * Yanas, John J. Barrett, Maura A. Hall, Thomas J. Richter, Hon. Rosalyn Burns, Stephanie L. Marangos, Denise Michael J. Gaffney, Staten Island Fourth District Robb, Kathy Fox, Michael L. Marangos, John Z. Coseo, Matthew R. Robertson, Edwin David Goldenberg, Ira S. Martin, Edwina Frances Cox, James S. Rodner, Stephen B. Goldschmidt, Sylvia McGinn, Sheila T. MEMBERS-AT-LARGE OF THE Jones, Barry J. Rothenberg, David S. Hyer, James L. Mulhall, Robert A. EXECUTIVE COMMITTEE King, Barbara J. Rothstein, Alan Keiser, Laurence Scheinberg, Elliott Nowotny, Maria G. James R. Barnes Safer, Jay G. Klein, David M. Rodriguez, Patricia L. R. Out-of-State Sarkozi, Paul D. McCarron, John R., Jr. David Louis Cohen Sciocchetti, Nancy Jochmans, Hilary F. Scanlon, Kathleen Marie * Miller, Henry G. Walsh, Joseph M. Sheehan, John B. Michael L. Fox Schnabel, David H. Morrissey, Dr. Mary Beth Wildgrube, Michelle H. Michael W. Galligan Sen, Diana S. Quaranta Wood, Jeremiah * Seymour, Whitney * Ostertag, Robert L. Evan M. Goldberg North, Jr. Fifth District Owens, Jill C. Shamoon, Rona G. Ira S. Goldenberg Connor, Mairead E. Protter, Howard Sigmond, Carol Ann Bryan D. Hetherington Dotzler, Anne Burak Ranni, Joseph J. Silkenat, James R. Fennell, Timothy J. Riley, James K. Elena DeFio Kean Silverman, Paul H. Gensini, Gioia A. Starkman, Mark T. Edwina Frances Martin Sonberg, Hon. Michael R. John S. Marwell Bruce J. Prager Sheldon Keith Smith † Delegate to American Bar Association House of Delegates * Past President

NYSBA Journal | May 2016 | 63 THE LEGAL WRITER BY GERALD LEBOVITS

Making Offers No One Can Refuse: Effective Contract Drafting — Part 4

n the last issue of this five-part days’ written notice to Consultant fol- • Remedies series, the Legal Writer discussed the lowing any breach of this Agreement by Drafters must prepare for worst-pos- Isubstantive provisions of a contract. Consultant.”7 Because parties generally sible scenarios. Every time a contract In this issue, we discuss endgame and disfavor unfriendly terminations, con- imposes an obligation on one or both boilerplate provisions. tracts may provide for a grace period, parties, the drafter should ask: “What which is a period of time in which the happens if the party doesn’t do it?”16 Endgame Provisions allegedly breaching party may cure a You may realize that you need to add Endgame provisions provide for the breach.8 Monetary and nonmonetary “further obligations or impose a sanc- exit strategies. They include default, consequences, such as injunctive relief, remedy, and termination provisions. In liquidated damages, and indemnities, drafting endgame provisions, consider might result from unfriendly termina- Terminations may be termination events, the contractual con- tions.9 sequences of the termination notice, the Because termination notices have neutral, friendly, or date the contract terminates, whether substantial consequences, make them unfriendly. common-law rights survive, whether effective only upon delivery by national any specific contract provisions survive, courier or personal delivery to ensure and dispute-resolution provisions.1 that the date of receipt is undisputed.10 tion for breach.”17 Example: “Employee- waiter shall wait tables on Thursday, • Termination • Dispute-Resolution Provisions Friday, and Saturday evenings and A termination provision or clause, Because contract parties may dis- shall share 10% of earned tips with the one of the most common contractual agree on a matter, many contracts bussers each night at close out.” This remedies, allows one or both parties include dispute-resolution provisions.11 provision states three obligations of the to terminate the agreement before the Parties can agree to adjudicate, arbitrate, employee-waiter: (1) to wait tables; (2) term has run.2 Terminations may be mediate, or rely on some other dispute- to wait tables on three specified nights neutral, friendly, or unfriendly.3 Neu- resolution mechanism.12 The contract a week; and (3) to share 10% of tips tral terminations allow the agreement “should include governing law, forum with the bussers each night at close to end when neither party is at fault.4 selection, and service of process provi- out. In drafting this language, consider Friendly terminations occur when each sions.”13 Depending on the parties, it the effect of breaching each of these party fulfills its obligations and may may also include waiving rights, such obligations: what happens if (1) the provide for additional obligations to as a venue objection or a jury trial, or a waiter doesn’t wait tables; (2) the waiter tie up loose ends, such as returning a requirement for the losing party to pay shows up, but on a Tuesday instead of security deposit or the premises to the the prevailing party’s reasonable attor- a Thursday, Friday or Saturday; or (3) landlord in good condition.5 Discuss ney fees and other expenses if litigation the waiter shows up on the appropri- with your client whether the contract’s arises.14 Parties who decide to arbitrate ate nights but doesn’t share 10% of tips term should automatically end unless may include a detailed provision speci- with the bussers? a party exercises an option to renew or fying the disputes to be arbitrated, rules Remedies in a situation like the one whether the term should automatically that will govern arbitration, location of above can be taken care of with a sweep- renew unless one party sends a termi- arbitration, governing law, qualifica- ing default provision, such as: “TERMI- nation notice. tions of arbitrators, method of choos- NATION: It is agreed in the event the Unfriendly terminations are usu- ing arbitrators, payment of expenses EMPLOYEE-WAITER fails to show up ally the result of a breach of contract.6 relating to arbitration, and finality of at work on the specified days in this con- Example: “Termination. The Company arbitration.15 tract without prior notice to EMPLOY- may terminate this agreement upon ten Continued on Page 58

64 | May 2016 | NYSBA Journal NYSBABOOKS

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