New York Law Review

Tag: 2007

  • Estate of Boyle v. Smith, 871 N.E.2d 464 (N.Y. 2007): Equitable Estoppel and the Statute of Limitations in Abuse Cases

    Estate of Boyle v. Smith, 871 N.E.2d 464 (N.Y. 2007)

    A defendant may be equitably estopped from asserting a statute of limitations defense if their affirmative wrongdoing, such as fraud or concealment, prevented the plaintiff from timely filing suit, but the plaintiff must still demonstrate due diligence in pursuing their claim once the wrongdoing is discovered.

    Summary

    In this case involving allegations of sexual abuse by clergy, the New York Court of Appeals considered whether the defendant Diocese could be equitably estopped from asserting a statute of limitations defense. The plaintiffs argued that the Diocese’s deliberate concealment of abuse prevented them from filing timely lawsuits. The court affirmed the dismissal of the case, finding the plaintiffs’ allegations insufficiently specific to establish equitable estoppel. While acknowledging the possibility that the Diocese’s actions could warrant equitable estoppel, the court emphasized the plaintiffs’ obligation to demonstrate due diligence in pursuing their claims and that the allegations were not attributable to the plaintiffs here.

    Facts

    Plaintiffs, former parishioners, alleged they were sexually abused by priests in the Diocese of Brooklyn between the 1960s and early 1980s. They claimed the Diocese engaged in a covert policy to conceal the abuse, including transferring abusive priests, making secret payments to victims for their silence, and failing to investigate abuse complaints. All plaintiffs were adults by 1990 but did not file suit until 2002. They argued the Diocese should be equitably estopped from raising the statute of limitations due to their fraudulent concealment.

    Procedural History

    Plaintiffs filed suit in Supreme Court, Queens County, which granted the defendants’ motion to dismiss based on the statute of limitations. The Appellate Division, Second Department, affirmed, holding that plaintiffs possessed personal knowledge of the facts underlying their claims and failed to pursue them diligently. The Court of Appeals granted leave to appeal.

    Issue(s)

    1. Whether the defendant Diocese should be equitably estopped from asserting a statute of limitations defense due to alleged fraudulent concealment of sexual abuse.

    2. Whether the plaintiffs demonstrated due diligence in pursuing their claims, a necessary element for equitable estoppel.

    Holding

    1. No, because the plaintiffs’ allegations of fraudulent concealment were insufficiently specific and not attributable to the plaintiffs here.

    2. No, because plaintiffs did not make a sufficient case of the efforts made to comply with the requirement of due diligence.

    Court’s Reasoning

    The Court of Appeals acknowledged that equitable estoppel may bar a statute of limitations defense when a defendant’s affirmative wrongdoing prevents a plaintiff from filing suit. However, the court emphasized that the plaintiff must plead the allegations of affirmative wrongdoing with sufficient specificity. The court cited General Stencils v. Chiappa, 18 N.Y.2d 125, 128 (1966), stating that courts can bar the statute of limitations defense when “it is the defendant’s affirmative wrongdoing—a carefully concealed crime here—which produced the long delay between the accrual of the cause of action and the institution of the legal proceeding.” The court found the plaintiffs’ allegations of transfers, payments, and efforts to dissuade reporting criminal activities were too general and not specifically linked to the plaintiffs. Furthermore, the court reiterated that “due diligence on the part of a plaintiff in bringing the action is an essential element of equitable estoppel” (15 AD3d 338, 339-340 [2005]). Plaintiffs must demonstrate that they relied on the defendant’s fraud, misrepresentation, and deception to their detriment. While the dissenting judge argued for allowing the plaintiffs to replead their claims, the majority affirmed the dismissal, underscoring the need for specific allegations and a showing of due diligence to invoke equitable estoppel.

  • People v. Waldron, 8 N.Y.3d 463 (2007): Enforceability of Speedy Trial Waiver During Plea Negotiations

    People v. Waldron, 8 N.Y.3d 463 (2007)

    A defendant can waive their statutory speedy trial rights through a letter from counsel when the waiver is made to facilitate ongoing plea negotiations, and such a waiver does not require a contemporaneous record filed at the courthouse.

    Summary

    Defendant Waldron was arrested for engaging in obscene acts with children. His counsel initiated plea negotiations, deliberately delaying proceedings to potentially secure a better deal. Counsel sent a letter to the District Attorney waiving Waldron’s speedy trial rights to allow for ongoing negotiations. Subsequently, Waldron filed a pro se speedy trial motion. The court denied the motion, and Waldron was convicted. The New York Court of Appeals held that Waldron waived his statutory speedy trial rights and that his constitutional rights were not violated because the delay was primarily attributable to the defense’s plea bargaining strategy.

    Facts

    Matthew Waldron was arrested on January 23, 2000, for engaging in obscene acts with children. On February 1, 2000, a psychiatric exam was ordered. On March 20, 2000, Waldron retained new counsel, George Aney, who initiated plea negotiations with the District Attorney. Aney deliberately delayed the case to improve the potential plea offer, a strategy he communicated to Waldron. On July 11, 2000, Aney sent a letter to the District Attorney waiving Waldron’s speedy trial rights to schedule a dispositional hearing on or before September 15, 2000, for the purpose of avoiding the children testifying before the Grand Jury. Negotiations continued until November, and the offer was reduced. On November 30, 2000, Waldron filed a pro se speedy trial motion and discharged Aney.

    Procedural History

    Waldron was indicted on December 14, 2000, and arraigned on December 20, 2000. The Herkimer County Court denied Waldron’s speedy trial motion after a hearing. Waldron was convicted on July 12, 2001. The Appellate Division modified the sentence but affirmed the conviction, holding that Waldron had waived his speedy trial rights during plea negotiations. A Justice of the Appellate Division granted Waldron permission to appeal to the Court of Appeals.

    Issue(s)

    Whether a preindictment delay from July 11, 2000, to November 30, 2000, was properly excluded from time charged against the People when defense counsel engaged in plea negotiations during that period and sent a letter expressly waiving defendant’s speedy trial rights.

    Holding

    Yes, because defendant waived his statutory speedy trial rights through his attorney’s letter and conduct during plea negotiations, and his constitutional speedy trial rights were not violated because the delay was primarily for his benefit.

    Court’s Reasoning

    The Court of Appeals reasoned that CPL 30.30(1)(a) requires the People to be ready for trial within six months of the commencement of a criminal action, excluding days chargeable to the defense. The court found the period between July 11 and November 30 excludable because Aney explicitly waived speedy trial rights to complete ongoing plea negotiations, and Waldron was aware of this strategy. The court noted that while the July letter could have been clearer, “the letter, read in light of the negotiations that preceded and followed it, as described in Aney’s testimony, was a waiver of the delay between July 11 and November 30 because that was the time used by the defendant to negotiate with the District Attorney.” The Court rejected Waldron’s argument that CPL 30.30(4)(b) required a contemporaneous record of consent, clarifying that this section applies only to continuances granted by the court and does not prevent a defendant from waiving their right through counsel’s letter. Furthermore, the court applied the People v. Taranovich factors to determine whether the delay violated Waldron’s constitutional right to a speedy trial. While the delay was lengthy, it ultimately benefited Waldron by resulting in a reduced sentence offer, and the serious nature of the charges justified careful handling by the District Attorney. Balancing these factors, the Court concluded that Waldron’s constitutional rights were not violated.

  • Niagara Mohawk Power Corp. v. Town of Oyster Bay, 8 N.Y.3d 746 (2007): Defining ‘Benefit’ in Special Ad Valorem Levies

    8 N.Y.3d 746 (2007)

    For real property to be considered ‘benefited’ and subject to a special ad valorem levy, it must be capable of receiving the service funded by the levy, based on its innate features and legally permissible uses, not the particularities of its owners or occupants.

    Summary

    Niagara Mohawk challenged special ad valorem levies imposed by several towns for water, garbage, and sewer districts, arguing that its transmission and distribution facilities were not benefited by these services. The Court of Appeals addressed whether these facilities, situated on land not necessarily owned by Niagara Mohawk, could be considered ‘benefited’ property. Referencing *New York Tel. Co. v. Supervisor of Town of Oyster Bay*, the court clarified that ‘benefit’ is determined by the property’s inherent capabilities, not its current use or ownership. The Court found that the Town of Bethlehem and Tonawanda levies were valid, but the Town of Watertown levy required further factual determination. This case clarifies the standard for determining what constitutes a ‘benefited’ property in the context of special district levies.

    Facts

    Niagara Mohawk owns and operates transmission and distribution facilities for electricity and natural gas. Several towns imposed special ad valorem levies on these facilities to fund water, garbage, and sewer districts. Niagara Mohawk challenged these levies, arguing that its facilities did not benefit from the services. The facilities include poles, wires, insulators, and pipelines. The land on which these facilities are located may or may not be owned by Niagara Mohawk.

    Procedural History

    In *Bethlehem* and *Watertown*, the trial courts and Appellate Division initially dismissed Niagara Mohawk’s challenges as time-barred under Town Law § 195(2). In *Tonawanda*, the trial court ruled on the merits, finding Niagara Mohawk’s property benefited from the garbage district; the Appellate Division affirmed. The Court of Appeals then heard all three cases, applying its precedent from *New York Tel. Co. v. Supervisor of Town of Oyster Bay*.

    Issue(s)

    1. Whether Town Law § 195(2) bars a plenary action challenging a town’s authority to impose a special ad valorem levy.

    2. Whether Niagara Mohawk’s transmission and distribution facilities are ‘benefited’ by the respective town services (water, garbage, sewer) such that special ad valorem levies are justified.

    Holding

    1. No, because section 195(2) does not preclude a plenary action contesting a town’s authority or jurisdiction to impose a special ad valorem levy.

    2. For Bethlehem (water district): Yes, because the fire protection provided by the water district benefits Niagara Mohawk’s facilities by mitigating fire risks associated with gas leaks and downed wires.
    For Tonawanda (garbage district): Yes, because the properties have a theoretical potential to generate garbage, and currently produce landscaping debris.
    For Watertown (sewer district): Remanded, because the record lacks sufficient evidence to determine if the sewer district benefits Niagara Mohawk’s facilities, specifically regarding storm sewers and property ownership.

    Court’s Reasoning

    The Court relied heavily on its prior decision in *New York Tel. Co. v. Supervisor of Town of Oyster Bay*, stating that “for real property to be ‘benefited,’ it must be capable of receiving the service funded by the special ad valorem levy.” The Court emphasized that this determination is based on the “innate features and legally permissible uses of the property, not the particularities of its owners or occupants.” In *Bethlehem*, the Court found a direct benefit because the water district’s firefighting capabilities protected Niagara Mohawk’s facilities from fire hazards. In *Tonawanda*, the potential for garbage generation, even if currently limited to landscaping debris, satisfied the ‘benefit’ requirement. Regarding *Watertown*, the Court found the record incomplete, requiring further determination of land ownership and the scope of the sewer district’s services. The court stated special ad valorem levies are unauthorized where the “inherent characteristics of the subject properties preclude them from receiving [the particular municipal] services”.

  • Academy Bus, Inc. v. Board of Education, 8 N.Y.3d 530 (2007): Strict Compliance with Notice of Claim Requirements

    Academy Bus, Inc. v. Board of Education, 8 N.Y.3d 530 (2007)

    Statutory requirements conditioning a suit against a governmental entity must be strictly construed, even when the entity has actual knowledge of the claim or has not demonstrated actual prejudice.

    Summary

    Academy Bus, Inc. sued the New York City Department of Education for breach of contract, alleging underpayment for student transportation services due to a misapplied formula. Although the bus company initially filed timely notices of claim, it failed to file subsequent notices for underpayments accruing after the lawsuit began. The New York Court of Appeals held that despite the ongoing litigation and the Department’s awareness of the dispute, strict compliance with Education Law § 3813(1) required the bus company to file new notices of claim for damages accruing post-litigation. The Court emphasized the need for strict construction of statutes conditioning suits against governmental entities to avoid uncertainty and disputes.

    Facts

    Academy Bus, Inc. had long-term contracts with the New York City Department of Education to transport students. These contracts stipulated increased payments to the bus companies for specific cost increases related to bus monitors. A disagreement arose in 1995 concerning the application of the contractual formula used to calculate these payments. The bus companies contended the Department of Education misapplied the formula, resulting in underpayments. The companies filed initial notices of claim regarding underpayments for the 1995-1996 school year and the initial months of the 1996-1997 school year. After filing these notices, the companies initiated a lawsuit against the Department for breach of contract, seeking damages and an injunction to compel proper formula application.

    Procedural History

    The bus companies sued the Department of Education in Supreme Court. In July 2001, the companies moved for summary judgment, arguing the formula applied by the Department resulted in underpayment. The Supreme Court granted partial summary judgment for the school years covered by the initial notices of claim (pre-litigation). The court denied injunctive relief. The bus companies also sought to file a supplemental complaint to include claims for subsequent school years (post-litigation), but the Supreme Court denied this request due to the lack of new notices of claim. The Appellate Division modified the Supreme Court’s judgment, allowing the supplemental complaint. The Court of Appeals reversed the Appellate Division’s decision, remitting the case to the Supreme Court.

    Issue(s)

    Whether an action against a municipality, which includes a request for injunctive relief, satisfies the statutory notice of claim requirements for damages accruing after the lawsuit has commenced.

    Holding

    No, because Education Law § 3813(1) requires strict compliance, meaning that plaintiffs must file new notices of claim even when the action seeks an injunction and damages based on the same legal theory as the damages that come afterwards.

    Court’s Reasoning

    The Court of Appeals emphasized that Education Law § 3813(1) contains no exceptions to the notice rule for contract disputes already in litigation. It acknowledged the bus companies’ argument that the request for an injunction should have alerted the Department to the contractual basis of their objection and that the lawsuit itself should serve as adequate notice for future claims. However, the Court explicitly rejected this argument, citing its long-held position that “statutory requirements conditioning suit [against a governmental entity] must be strictly construed.” The Court reasoned that relaxing this strict construction would lead to uncertainty and potential disputes over what constitutes adequate notice. The Court stated, “We have repeatedly rejected, and now reject again, proposals to compromise the strict statutory notice of claim requirement, because to do so would lead to uncertainty and vexatious disputes.” The Court further reasoned that allowing the injunction request to serve as a substitute for a notice of claim would create ambiguity and raise questions about the sufficiency of similar pleadings in other disputes. The court noted that continuing to file notices of claim is not overly burdensome and avoids confusion. Thus, the Court prioritized adherence to the statutory text and the policy of protecting the public fisc, even in the face of potential procedural obstacles to resolving the dispute on its merits.

  • Holdampf v. Port Authority, 8 N.Y.3d 465 (2007): No Duty Owed to Household Members Exposed to Employee’s Asbestos-Contaminated Clothing

    Holdampf v. Port Authority of New York and New Jersey, 8 N.Y.3d 465 (2007)

    An employer does not owe a duty of care to a non-employee, such as a household member, who allegedly suffers injury from exposure to a substance carried home on an employee’s work clothes, even if the employer knows the employee handles the substance.

    Summary

    Elizabeth Holdampf sued the Port Authority, alleging she contracted mesothelioma from asbestos exposure while laundering her husband John’s work clothes. John, a Port Authority employee, handled asbestos-containing products but often brought his soiled uniforms home despite the availability of a laundry service. The New York Court of Appeals held that the Port Authority did not owe a duty of care to Elizabeth, reasoning that extending such a duty would create limitless liability and that no special relationship existed between the Port Authority and Elizabeth to warrant imposing such a duty. The court reversed the Appellate Division’s decision and reinstated the Supreme Court’s summary judgment in favor of the Port Authority.

    Facts

    John Holdampf worked for the Port Authority from 1960 to 1996, handling asbestos-containing products. The Port Authority provided uniforms and a laundry service, but John often took his soiled work clothes home to be laundered by his wife, Elizabeth. Elizabeth Holdampf testified that her husband informed her in the 1970s that he handled asbestos at work and that she was exposed to asbestos when washing his uniforms. In August 2001, Elizabeth was diagnosed with mesothelioma.

    Procedural History

    Plaintiffs sued various asbestos manufacturers and suppliers, later adding the Port Authority as a defendant. The Supreme Court granted the Port Authority’s motion for summary judgment, citing Widera v. Ettco Wire & Cable Corp., and holding there was no duty to the plaintiff. The Appellate Division modified the order, reinstating the negligence claim against the Port Authority. The Appellate Division granted leave to appeal, certifying the question of whether its order was properly made.

    Issue(s)

    Whether the Port Authority owed a duty of care to Elizabeth Holdampf, a non-employee, for injuries allegedly caused by exposure to asbestos dust from her husband’s work clothes laundered at home.

    Holding

    No, because an employer’s duty to provide a safe workplace does not extend to the household members of its employees, absent a special relationship or direct control over the third party’s actions.

    Court’s Reasoning

    The court emphasized that the threshold question in a negligence action is whether the defendant owes a legally recognized duty of care to the plaintiff. Foreseeability alone does not define duty; it only determines the scope of the duty once established. The court noted its reluctance to extend liability for failure to control the conduct of others, citing concerns about limitless liability and the unfairness of imposing liability for another’s acts. The Court distinguished the Port Authority’s position as an employer from a landowner discharging toxins into the atmosphere, as in Baker v. Vanderbilt Co., where a duty to the surrounding community was recognized. The court found no special relationship between the Port Authority and Elizabeth Holdampf. It stated that extending a duty to household members would lead to limitless liability and would be difficult to confine to specific relationships. “[T]he ‘specter of limitless liability’ is banished only when ‘the class of potential plaintiffs to whom the duty is owed is circumscribed by the relationship’” (Hamilton, 96 N.Y.2d at 233). Because there was no relationship between the Port Authority and Elizabeth Holdampf, no duty existed. The court also found that the provision of laundry services by the Port Authority was relevant to whether the Port Authority breached a duty, but did not create one where it otherwise would not exist.

  • People v. Hernandez, 8 N.Y.3d 814 (2007): Proof Required for Ineffective Assistance of Counsel Claim Based on Failure to Communicate Plea Offer

    People v. Hernandez, 8 N.Y.3d 814 (2007)

    A defendant claiming ineffective assistance of counsel due to the failure to communicate a plea offer must demonstrate that a plea offer was made, that counsel failed to inform them of the offer, and that they would have been willing to accept the offer.

    Summary

    The New York Court of Appeals affirmed the Appellate Division’s order, holding that the defendant failed to demonstrate ineffective assistance of counsel. The defendant claimed his attorney did not inform him of a plea offer and that he would have accepted it. The Court of Appeals found the defendant’s self-serving statement insufficient, especially considering he had rejected a similar plea offer shortly before and his attorney believed the charges were likely to be dismissed due to a missing witness. The court emphasized the defendant’s burden to substantiate his claim of willingness to accept the plea offer.

    Facts

    The defendant claimed his attorney failed to inform him of a plea offer. He asserted that he would have accepted the plea offer if it had been communicated to him, even though he maintained his innocence. The defendant had previously rejected a similar plea offer. The defendant’s trial counsel affirmed that, around the time of the alleged uncommunicated plea offer, he believed the charges against the defendant were likely to be dismissed because the prosecution could not locate a necessary witness.

    Procedural History

    The case originated in a trial court where the defendant was convicted. The defendant appealed, alleging ineffective assistance of counsel. The Appellate Division affirmed the conviction. The New York Court of Appeals granted leave to appeal to consider the ineffective assistance claim.

    Issue(s)

    Whether the defendant met his burden of demonstrating ineffective assistance of counsel by showing that a plea offer was made, that defense counsel failed to inform him of that offer, and that he would have been willing to accept the offer.

    Holding

    No, because the defendant’s self-serving statement that he would have accepted the plea offer, without more, was insufficient to warrant a hearing given his prior rejection of a similar offer and his trial counsel’s belief that the charges were likely to be dismissed.

    Court’s Reasoning

    The Court of Appeals stated that to prevail on a claim of ineffective assistance of counsel based on a failure to communicate a plea offer, the defendant bears the burden to demonstrate “that a plea offer was made, that defense counsel failed to inform him of that offer, and that he would have been willing to accept the offer” (People v Rogers, 8 AD3d 888, 890-891 [3d Dept 2004]). The court found the defendant’s self-serving statement of willingness to accept the plea offer inadequate, given that he had rejected a similar offer and his attorney believed the charges would be dismissed. The court implicitly reasoned that the defendant’s prior actions and the circumstances surrounding the case undermined the credibility of his claim. This decision highlights the need for more than just the defendant’s assertion to prove prejudice in such claims, particularly when there is evidence suggesting the defendant’s unwillingness to plead guilty or the potential for a favorable outcome at trial. The court emphasized that the defendant’s self-serving statement, ‘without more,’ was insufficient. This implies the need for corroborating evidence or circumstances supporting the claim that the defendant would have accepted the plea offer. The court’s decision reinforces the principle that a defendant must demonstrate a reasonable probability that, but for counsel’s errors, the outcome of the proceedings would have been different.

  • People v. Bryant, 8 N.Y.3d 530 (2007): Sufficiency of Allegations to Warrant a Suppression Hearing

    People v. Bryant, 8 N.Y.3d 530 (2007)

    A defendant is not automatically entitled to a Mapp/Dunaway hearing on a suppression motion; the defendant’s factual allegations must be sufficiently specific and detailed to warrant a hearing.

    Summary

    This case clarifies the standard for determining when a defendant is entitled to a hearing on a motion to suppress evidence. The Court of Appeals held that the defendant’s allegations were too conclusory to warrant a hearing because the defendant failed to adequately controvert a post-arrest statement that established probable cause for the arrest. The Court emphasized that the motion’s context, the face of the pleadings, and the defendant’s access to information are relevant factors in evaluating the sufficiency of the allegations.

    Facts

    The defendant, Bryant, was arrested and charged with robbery-related crimes. After his arrest, Bryant provided a written statement to the police, which was disclosed to him along with the People’s voluntary disclosure form. In the statement, Bryant admitted that he knew the police were looking for him because “one of the officers was with” one of the robbery victims, so he ran. He also stated that he threw a gun away before his arrest.

    Procedural History

    Bryant moved to suppress evidence, arguing that his arrest was unlawful. The suppression court denied the Mapp/Dunaway portion of the motion without a hearing. The Appellate Division affirmed the suppression court’s decision. Bryant appealed to the New York Court of Appeals.

    Issue(s)

    Whether the suppression court committed reversible error by denying the defendant’s suppression motion without a hearing, where the defendant’s allegations were deemed too conclusory given the context of the motion and the information available to him.

    Holding

    No, because the defendant’s allegations in support of his motion were too conclusory to warrant a hearing. His post-arrest statement, disclosed to him, described events close in time and place to one of the charged crimes, and the statement on its face established probable cause for the arrest, which the defendant failed to controvert in his motion papers.

    Court’s Reasoning

    The Court of Appeals affirmed the Appellate Division’s order, holding that the suppression court did not commit reversible error. The Court relied on People v. Mendoza, 82 NY2d 415, 426 (1993) and People v. Jones, 95 NY2d 721, 728-729 (2001), stating that the decision should be based on “(1) the face of the pleadings, (2) assessed in conjunction with the context of the motion, and (3) defendant’s access to information.” The Court noted that the defendant’s post-arrest statement provided probable cause for his arrest. The statement indicated that Bryant knew the police were looking for him and that he discarded a gun before being apprehended. Because Bryant’s motion papers failed to adequately challenge the probable cause established by his own statement, his allegations were deemed too conclusory to warrant a hearing. The Court reasoned that a hearing is only required when the defendant presents factual allegations that raise a legitimate question about the legality of the police conduct. The court emphasized that a defendant must offer specific factual allegations; mere conclusory statements are insufficient to trigger a hearing.

  • In re eToys, Inc. Sec. Litig., 16 Misc.3d 22 (N.Y. App. Div. 2007): Fiduciary Duty of Underwriter to Disclose Conflicts

    In re eToys, Inc. Sec. Litig., 16 Misc.3d 22 (N.Y. App. Div. 2007)

    A lead managing underwriter in a firm commitment underwriting owes a fiduciary duty to the issuer to disclose conflicts of interest in connection with the pricing of securities.

    Summary

    This case addresses whether a lead managing underwriter owes a fiduciary duty to the issuer regarding the pricing of an initial public offering (IPO), specifically concerning potential conflicts of interest. The New York Appellate Division held that such a duty exists, requiring the underwriter to disclose compensation arrangements with its customers that could influence the IPO’s pricing. This decision hinged on the underwriter’s advisory role extending beyond the underwriting agreement itself. The dissent argued against imposing a fiduciary duty in an arm’s-length transaction between sophisticated parties, suggesting the matter is better addressed by regulatory bodies.

    Facts

    eToys, Inc., now bankrupt, claimed that Goldman Sachs & Co., the lead managing underwriter for its IPO, underpriced its stock at $20 per share. This allegedly allowed Goldman to profit from secret side deals with preferred customers. These customers were allegedly obligated to kick back a portion of any profits they made on aftermarket sales of eToys’ securities allocated to them at the IPO. eToys asserted that it understood the offering price would be set primarily by reference to then current market conditions and the anticipated demand for eToys’ shares.

    Procedural History

    The committee of unsecured creditors of eToys, Inc., brought a claim against Goldman Sachs. The lower court initially dismissed the claim. The New York Appellate Division reversed the lower court’s decision, allowing the breach of fiduciary duty claim to proceed.

    Issue(s)

    Whether a lead managing underwriter of an IPO owes a fiduciary duty to the issuer to disclose potential conflicts of interest related to the pricing of securities, specifically concerning compensation arrangements with the underwriter’s preferred customers.

    Holding

    Yes, because based on communications with Goldman, it was eToys’ understanding that the offering price for eToys’ common shares was to be set primarily by reference to then current market conditions and the anticipated demand for eToys’ shares, establishing an advisory relationship independent of the underwriting agreement.

    Court’s Reasoning

    The court reasoned that a fiduciary duty could arise from an advisory relationship that was independent of the underwriting agreement. It found that the lead underwriter’s role extended beyond merely fulfilling the underwriting agreement, potentially creating a relationship of trust and confidence with the issuer. The court emphasized the importance of transparency and disclosure in financial transactions, particularly in the context of IPOs. The court stated that documentary evidence didn’t negate the claim that an advisory relationship existed. The court imposed “a fiduciary duty… requiring disclosure of [a lead underwriter’s] compensation arrangements with its customers.”

    The dissenting judge argued that eToys was a sophisticated, well-counseled business entity, making a fiduciary duty inappropriate in this arm’s-length transaction. The dissent also highlighted that the offering price was a negotiated term in the underwriting agreement, a purchase contract between eToys and Goldman Sachs. The dissent cautioned against injecting uncertainty into a complex subject already under regulatory scrutiny by the SEC and SROs, suggesting that specialized regulators are better equipped to address these issues.

  • People v. Inserra, 9 N.Y.3d 30 (2007): Knowledge of Order of Protection Inferred from Signature

    People v. Inserra, 9 N.Y.3d 30 (2007)

    A defendant’s signature on an order of protection is sufficient to infer knowledge of the order’s contents for the purposes of a criminal contempt charge.

    Summary

    Inserra was convicted of criminal contempt for violating an order of protection. The information alleged that his name appeared on the signature line of the order. The Appellate Term reversed, finding this insufficient to establish knowledge of the order’s contents. The New York Court of Appeals reversed, holding that a defendant’s signature on the signature line of an order of protection is sufficient to allege knowledge of its contents, fulfilling an essential element of criminal contempt. The Court reasoned that the signature implies awareness of the order’s terms, which are typically written clearly and concisely.

    Facts

    Inserra was subject to an order of protection directing him to stay away from his ex-girlfriend and her home, school, business, and place of employment and to refrain from assaulting, stalking, or harassing her. The People presented evidence that Inserra banged on the protected person’s apartment door, shouting and demanding to be admitted, violating the order. The sworn deposition of the police officer stated that he “examined a copy of [the] o[r]der of protection and that the defendant’s name appears on the line for the defendant’s signature.”

    Procedural History

    A Queens County Criminal Court jury found Inserra guilty of second-degree criminal contempt. Inserra appealed to the Appellate Term, arguing the information failed to allege he had knowledge of the order’s terms. The Appellate Term reversed the conviction and dismissed the information. The People appealed to the New York Court of Appeals, which reversed the Appellate Term’s order.

    Issue(s)

    Whether a defendant’s name on the signature line of an order of protection adequately supports an allegation that the defendant knew of the order’s contents for the purposes of a charge of criminal contempt.

    Holding

    Yes, because defendant’s name on the signature line sufficiently alleges that defendant received and read the terms of the order of protection, enabling an inference that he was aware of its contents.

    Court’s Reasoning

    The Court of Appeals reasoned that the factual allegations must establish, if true, every element of the crime charged and the defendant’s commission of each. The Court distinguished this case from People v. McCowan, where the defendant was merely informed that “an order” had been issued against him. Here, Inserra’s signature on the order’s signature line suggests he received and read the terms of the order. The Court stated, “defendant’s name on the signature line of the order enables us to infer that he was aware of its contents, which are written on a single page in simple language and clear, legible type.”

    The Court emphasized the pleading standard, stating that, based on the officer’s deposition, the allegations, if true, were sufficient to establish that Inserra violated each element of the crime charged, including his knowledge of the order of protection’s contents. The Court also rejected Inserra’s argument that the information failed to allege a violation by omitting a statement that the protected person was at home when Inserra banged on the door, noting the order prohibited Inserra from going near the protected person’s home, whether or not she was present. The dissent is not discussed as there was none.

  • Louis Dreyfus Energy Corp. v. MG Capital Corp., 9 N.Y.3d 487 (2007): Enforceability of Guaranty After Expiration Date

    Louis Dreyfus Energy Corp. v. MG Capital Corp., 9 N.Y.3d 487 (2007)

    A continuing guaranty containing an expiration date requires the guarantor to pay obligations that were contractually binding before the expiration, even if not yet due and payable until after the expiration, unless the guaranty explicitly states otherwise.

    Summary

    Louis Dreyfus Energy Corp. (LDEC) sought payment from MG Capital Corp. based on a guaranty for contracts between LDEC and MG Refining and Marketing, Inc. (MGRM). The guaranty had an expiration date. The contracts were signed before the guaranty expired, but the payment obligations arose after the expiration date. The court held that the guaranty covered these obligations because it was a continuing guaranty intended to protect LDEC, and the contract did not explicitly state that expiration would relieve MG Capital of obligations under existing contracts. The court reasoned that the purpose of the guaranty would be defeated if it did not cover existing contractual obligations.

    Facts

    LDEC and MGRM had a business relationship where each party’s obligations were guaranteed by their parent companies.
    MG Capital issued a guaranty on July 28, 1993, guaranteeing MGRM’s payments to LDEC.
    On September 27, 1993, LDEC and MGRM entered two contracts where MGRM’s obligations were conditional on future prices of petroleum.
    The MG Capital guaranty expired on September 30, 1994.
    In 1996, the conditions triggering MGRM’s obligations were met, and LDEC demanded payment from MG Capital, which MG Capital refused to pay.

    Procedural History

    LDEC sued MGRM, seeking a declaration that the contracts were valid.
    LDEC amended the complaint to add MG Capital as a defendant, suing under the MG Capital Guaranty.
    Supreme Court granted MG Capital’s motion for summary judgment, stating the guaranty expired before LDEC suffered damages.
    The Appellate Division affirmed.
    The New York Court of Appeals reversed, denying MG Capital’s motion for summary judgment.

    Issue(s)

    Whether a continuing guaranty with an expiration date requires the guarantor to pay obligations that became contractually binding before the expiration date, but were not yet due and payable until after the expiration date, where the guaranty does not explicitly address the consequences of expiration.

    Holding

    Yes, because the guaranty was intended to cover all contractual obligations that MGRM entered into before the guaranty expired, and because the guaranty did not explicitly state that expiration would relieve MG Capital of those obligations.

    Court’s Reasoning

    The court reasoned that while the guaranty contract was silent on whether the parties intended the guaranty to cover obligations that became binding before, but due and payable after, its expiration date, the surrounding circumstances indicated that such coverage was intended. The court noted the existing multi-year relationship between LDEC and MGRM involving parent guaranties, suggesting that neither party wanted to risk relying on the other’s unsupported credit. The court also emphasized that the purpose of a continuing guaranty is to secure parties entering contracts, ensuring that debts will be protected by the guaranty. The court distinguished between revocation and expiration; while the guaranty specified that revocation would not affect liability for pre-revocation contracts, it was silent on expiration. However, the court inferred that the parties intended expiration to have the same effect as revocation. The court referenced Restatement (Third) of Suretyship and Guaranty § 16, which suggests that a continuing guarantor remains liable for obligations incurred before termination. The court also cited Corn Exch. Bank Trust Co. v Gifford, 268 NY 153 (1935), which suggests that “prior to revocation” will not automatically be read into every commitment made by a guarantor. The court contrasted the MG Capital Guaranty with the LDC Guaranty, noting that the key difference was the expiration date, implying that the parties likely did not understand this difference to be of vast significance. Finally, the court noted the ‘obvious purpose’ of the MG Capital Guaranty was to allow LDEC to continue to deal with MGRM “without suffering insecurity (due to lack of legal recourse).” The court reasoned that if the guaranty expired for existing contractual obligations, then the guaranty would fail to serve its intended purpose.