New York Law Review

Tag: 2012

  • Hudson Valley Federal Credit Union v. New York State Department of Taxation and Finance, 19 N.Y.3d 21 (2012): State Mortgage Recording Tax Applies to Federal Credit Unions

    Hudson Valley Federal Credit Union v. New York State Department of Taxation and Finance, 19 N.Y.3d 21 (2012)

    Federal credit unions are not exempt from New York State’s mortgage recording tax (MRT) under the Federal Credit Union Act (FCUA) or the Supremacy Clause, as the FCUA does not explicitly exempt mortgages and federal credit unions are not so closely connected to the federal government as to be inseparable entities.

    Summary

    Hudson Valley Federal Credit Union challenged the imposition of New York’s MRT on mortgages issued by the credit union, arguing that the FCUA exempts federal credit unions from state taxation and that, as federal instrumentalities, they are immune under the Supremacy Clause. The New York Court of Appeals held that the FCUA’s tax exemption for federal credit unions does not extend to the MRT because the statute does not explicitly mention mortgages and federal credit unions are not inseparable from the federal government. The Court emphasized the principle that tax exemptions are narrowly construed and that Congress knows how to explicitly exempt mortgages when it intends to do so.

    Facts

    Hudson Valley Federal Credit Union, a federal credit union, commenced a declaratory judgment action against the New York State Department of Taxation and Finance, challenging the applicability of the MRT to mortgages issued to its members. The Credit Union argued that federal law exempted them from paying the state tax.

    Procedural History

    The Supreme Court dismissed Hudson Valley’s complaint. The Appellate Division affirmed the Supreme Court’s decision. The New York Court of Appeals granted Hudson Valley leave to appeal.

    Issue(s)

    1. Whether the Federal Credit Union Act (FCUA) exempts federal credit unions from paying New York State’s mortgage recording tax (MRT) on mortgages they issue.

    2. Whether federal credit unions are federal instrumentalities so closely connected to the government that they are immune from the MRT under the Supremacy Clause.

    Holding

    1. No, because the FCUA does not explicitly exempt mortgages from state taxation, and tax exemptions are narrowly construed.

    2. No, because federal credit unions are not so closely connected to the United States Government that they cannot realistically be viewed as separate entities with respect to mortgage-lending activities.

    Court’s Reasoning

    The Court first addressed the statutory interpretation of the FCUA, noting the general rule that tax exemptions are strictly construed against the party claiming the exemption. The Court highlighted that when Congress intends to immunize mortgages of federally chartered lending entities from state taxation, it does so explicitly in other statutes, such as the National Housing Act and the Farm Credit Act of 1971. The FCUA, in contrast, does not mention mortgages or loans. “Given the uniform choice of language in these other federal acts, one would expect that if federal credit union mortgages were intended to be excluded from state MRTs, such immunity would have been plainly stated in the FCUA.”

    The Court rejected Hudson Valley’s argument that the term “property” in the FCUA should be broadly construed to include mortgage loans. The legislative history of the FCUA indicates that, at the time the exemption was enacted, federal credit unions were not even empowered to issue mortgage loans. Therefore, Congress could not have intended the exemption to apply to this activity.

    The Court distinguished Supreme Court cases cited by Hudson Valley, noting that those cases involved federal acts that explicitly referred to “advances,” “loans,” and “mortgages.”

    Finally, the Court rejected the Supremacy Clause argument, stating that although federal credit unions are regulated by a federal agency, they are wholly owned, funded, and managed by their members. The directors have significant autonomy in administering the credit unions’ daily operations. Therefore, federal credit unions are not so “closely connected” to the government as to be inseparable entities. The court stated that “tax immunity is appropriate in only one circumstance: when the levy falls on the United States itself, or on an agency or instrumentality so closely connected to the Government that the two cannot realistically be viewed as separate entities, at least insofar as the activity being taxed is concerned” quoting United States v. New Mexico, 455 U.S. 720, 735 (1982)

  • Knapp v. Hughes, 19 N.Y.3d 672 (2012): Conveyance of Land Bordering Water Includes Submerged Land Absent Clear Intent Otherwise

    Knapp v. Hughes, 19 N.Y.3d 672 (2012)

    A conveyance of land on a pond or stream includes the land under the pond or stream to the center of the water, unless a contrary intention is made clear in the deed.

    Summary

    This case addresses the question of whether a deed conveying waterfront property also conveys the land under the adjacent water. The plaintiffs and defendants both claimed ownership of the submerged land under Perch Pond adjacent to the defendant’s property. The dispute arose from the interpretation of two 1973 deeds. The Court of Appeals held that the conveyance of land along the edge of a pond includes the land under the water to the center of the pond, unless the deed contains a clear expression to the contrary. The Court emphasized the importance of clear and express language to reserve rights to underwater land, clarifying that using terms like “edge” or “shore” is insufficient.

    Facts

    The defendants owned land on the shore of Perch Pond. Plaintiffs and defendants both claimed ownership of the land under the pond adjacent to the defendants’ waterfront land, thus disputing the rights to use that part of the pond. The Furlanos previously owned both the waterfront and submerged land. In 1973, the Furlanos conveyed land “along the waters [sic] edge of Perch Pond” and “along the edge of Perch Pond” to the defendants’ predecessors in title. In 1993, the Furlanos conveyed their remaining waterfront property to the plaintiffs’ predecessors in title, including “all remaining lands of Grantors.” The plaintiffs argued the 1973 deeds only conveyed the land next to the water, not under it, and therefore the submerged land passed to them via the 1993 deed.

    Procedural History

    The plaintiffs brought an action to enjoin the defendants from using the underwater property. The Supreme Court granted summary judgment to the defendants. The Appellate Division modified the Supreme Court’s ruling in favor of the plaintiffs, holding that the 1973 deeds set the boundaries at the “edge” of the pond, touching the land but not the water. The Court of Appeals granted defendants leave to appeal, bringing up for review the Appellate Division’s earlier order on summary judgment.

    Issue(s)

    Whether a deed conveying land “along the edge” of a pond includes the land under the water to the center of the pond, absent an express reservation of rights to the underwater land in the deed.

    Holding

    Yes, because New York law presumes that a conveyance of land on a pond includes the land under the pond to the center of the water unless a contrary intention is clearly expressed in the deed.

    Court’s Reasoning

    The Court of Appeals relied on established New York law and policy considerations to support its holding. The court cited precedent, including Gouverneur v National Ice Co., Seneca Nation v Knight, Stewart v Turney, and White v Knickerbocker Ice Co., to highlight the longstanding rule that a purchase of waterfront property is presumed to include the adjacent underwater land. The Court emphasized that the value of small, non-navigable lakes and ponds is mainly in their relation to the adjacent lands, supporting the presumption that a grantor intends to convey ownership under the water. The Court stated, “If the grantor desires to retain his title to the land . . . underneath the water the presumption must be negatived by express words or by such a description as clearly excludes it from the land conveyed.”

    The Court addressed inconsistent dictum in prior cases that suggested small changes in the words of a deed could create a reservation of underwater rights. The Court explicitly rejected these dictums, stating that “The effect of a grant should not turn on such fine distinctions as that between ‘side’ and ‘edge.’” To make a plain and express reservation of rights to underwater land, a grantor must do more than use the word “edge” or “shore” in a deed; they must clearly state that the land under water is not conveyed. The Court found no intention to withhold underwater lands in the Furlanos’ 1973 conveyance. Therefore, the deeds were read as conveying such land to the center of the pond to the defendants’ predecessors.

  • Baba-Ali v. State, 19 N.Y.3d 627 (2012): Establishing Liability for Wrongful Conviction Based on Prosecutorial Misconduct

    Baba-Ali v. State, 19 N.Y.3d 627 (2012)

    To establish liability for wrongful conviction under Court of Claims Act § 8-b, a claimant must prove, by clear and convincing evidence, that their conviction was procured by fraud or misrepresentation on the part of the prosecution, and that the delayed disclosure of exculpatory evidence was a procuring cause of the wrongful conviction.

    Summary

    Amine Baba-Ali sued the State of New York for unjust conviction and imprisonment after his conviction for sex offenses against his daughter was reversed. The Appellate Division reversed the conviction, citing ineffective assistance of counsel and a Brady violation (failure to disclose exculpatory evidence). Baba-Ali claimed prosecutorial misconduct, specifically the withholding of a medical report that showed no signs of abuse. The Court of Appeals held that while the Appellate Division’s decisions provided sufficient documentary evidence to bring the claim under Court of Claims Act § 8-b, summary judgment for the claimant was inappropriate because there were triable issues of fact as to the timing of the disclosure and the prosecutor’s intent, which were crucial to determining whether the conviction was procured by fraud.

    Facts

    Baba-Ali was convicted in 1989 of sex offenses against his four-year-old daughter based largely on a doctor’s testimony about signs of abuse. A key piece of exculpatory evidence, a medical report from Children’s Hospital of Philadelphia (CHOP) taken shortly after the alleged abuse, showed no evidence of abuse and an intact hymen. This report was not presented to the grand jury and was allegedly withheld from the defense until the eve of trial.

    Procedural History

    The Appellate Division reversed Baba-Ali’s conviction in 1992 and ordered a new trial, citing ineffective assistance of counsel and a Brady violation. The People’s motion to amend the decision to remove the prosecutorial misconduct rationale was denied. After a re-examination revealed inconsistencies in the initial medical findings, the indictment was dismissed. Baba-Ali then sued the State. The Court of Claims denied both the State’s motion to dismiss and Baba-Ali’s cross-motion for summary judgment. The Appellate Division affirmed the denial of the State’s motion but reversed the denial of Baba-Ali’s cross-motion, granting him summary judgment on liability. The Court of Appeals granted leave to appeal.

    Issue(s)

    1. Whether the Appellate Division’s reversal of Baba-Ali’s conviction was based on prosecutorial misconduct amounting to fraud within the meaning of CPL 440.10(1)(b), thus satisfying the predicate for a claim under Court of Claims Act § 8-b.

    2. Whether the delayed disclosure of the exculpatory CHOP records was a procuring cause of Baba-Ali’s wrongful conviction.

    3. Whether the Appellate Division properly granted summary judgment to Baba-Ali on the issue of liability.

    Holding

    1. Yes, because the Appellate Division explicitly found that the prosecutor’s deliberate withholding of exculpatory material amounted to a fraud on the court, fitting the description of CPL 440.10(1)(b).

    2. This is a question of fact to be determined at trial, because the court could not determine as a matter of law that the wrongful verdict was solely attributable to ineffective assistance of counsel and not also significantly procured by the alleged prosecutorial misconduct.

    3. No, because there were triable issues of fact regarding the timing of the disclosure of the CHOP records and the intent of the prosecutor, which precluded a determination that Baba-Ali had proven his claim by clear and convincing evidence.

    Court’s Reasoning

    The Court of Appeals acknowledged the deeply flawed nature of the criminal case against Baba-Ali, noting the exculpatory nature of the CHOP records. The Court found that the Appellate Division’s decisions provided sufficient documentary evidence to place the claim within one of the allowed CPL 440.10 predicates for a Court of Claims Act § 8-b claim. However, the Court disagreed with the Appellate Division’s grant of summary judgment, finding that triable issues of fact remained. The Court reasoned that the timing of the disclosure of the CHOP records and the intent of the prosecutor were critical to determining whether prosecutorial misconduct procured the conviction. The court emphasized that even though the records were ultimately disclosed, the late disclosure could have diminished their exculpatory utility. The Court stated, “Proof of a matter, particularly one as serious as prosecutorial fraud, cannot be clear and convincing if it is not shown to be actually rooted in the facts, but is instead based in essential part solely on an attorney’s second-hand impression of the facts.” The Court remanded the case to the Court of Claims for further proceedings, instructing that the factual disputes must be resolved at trial to determine whether the stringent requirements for proving wrongful conviction based on prosecutorial misconduct had been met.

  • Georgia Malone & Co., Inc. v. Rieder, 19 N.Y.3d 511 (2012): Establishing the Necessary Relationship for Unjust Enrichment Claims

    Georgia Malone & Co., Inc. v. Rieder, 19 N.Y.3d 511 (2012)

    To succeed on a claim for unjust enrichment, a plaintiff must demonstrate that (1) the defendant was enriched, (2) at the plaintiff’s expense, and (3) that it is against equity and good conscience to permit the defendant to retain what is sought, and that the connection between the enriched party and the party conferring the benefit is not too attenuated.

    Summary

    Georgia Malone & Co. sued Rosewood Realty Group for unjust enrichment, alleging that Rosewood used Malone’s due diligence materials to close a real estate deal and collect a commission, without compensating Malone. The New York Court of Appeals affirmed the dismissal of the unjust enrichment claim, holding that Malone failed to establish a sufficiently direct relationship with Rosewood to sustain the claim. The Court emphasized that while privity is not required, the connection between the plaintiff and defendant must not be too attenuated, and the defendant must be aware of the plaintiff’s existence.

    Facts

    Malone, a real estate broker, performed due diligence work for potential buyers (the Rieders) of commercial properties. The Rieders ultimately did not purchase the properties from CenterRock. Subsequently, CenterRock provided Malone’s due diligence materials to Rosewood, another real estate broker. Rosewood then used these materials to facilitate a sale of the properties to a different buyer, earning a commission. Malone claimed that Rosewood was aware that the diligence materials were generated by Malone.

    Procedural History

    Malone sued Rosewood for unjust enrichment. The Supreme Court dismissed the claim. The Appellate Division affirmed. The New York Court of Appeals granted leave to appeal and affirmed the dismissal.

    Issue(s)

    Whether Malone established a sufficiently direct relationship with Rosewood to sustain a claim for unjust enrichment, given that Rosewood received the benefit of Malone’s work through an intermediary (CenterRock and the Rieders).

    Holding

    No, because the connection between Malone and Rosewood was too attenuated, and there were no direct dealings between them that would support an unjust enrichment claim.

    Court’s Reasoning

    The Court of Appeals emphasized that while privity is not required for an unjust enrichment claim, there must be a sufficiently close relationship between the parties. The Court cited Sperry v Crompton Corp., stating that the connection between the party conferring the benefit and the enriched party cannot be “too attenuated.” The court found that Malone’s relationship with Rosewood was too attenuated because Rosewood received the benefit of Malone’s work through CenterRock and the Rieders. There was no evidence of direct contact or dealings between Malone and Rosewood, and Rosewood was not aware that Malone expected to be compensated by Rosewood directly. The Court distinguished the case from situations where the defendant directly induced the plaintiff to perform services or knowingly exploited the plaintiff’s work. The Court reasoned that allowing Malone’s claim to proceed would create an unreasonable burden on commercial transactions, requiring parties to investigate the source of all information they receive. The dissent argued that Rosewood’s awareness that the diligence materials originated from Malone, a competitor, was sufficient to establish the necessary connection. Chief Judge Lippman, dissenting, stated, “[W]e indicated that ‘an awareness’ by defendant of plaintiffs existence was sufficient for an unjust enrichment claim.” (16 NY3d at 182). The dissent also argued that the majority’s ruling condoned willful ignorance, as Rosewood should have inquired about the circumstances of the materials’ transmission given Malone’s name on the documents.

  • People v. Sinha, 19 N.Y.3d 934 (2012): Prosecution’s Duty to Disclose Evidence and its Impact on Multiple Counts

    People v. Sinha, 19 N.Y.3d 934 (2012)

    When a Brady violation results in the reversal of some counts in a multi-count indictment, reversal of the remaining counts is required only if there is a reasonable possibility that the evidence supporting the tainted counts influenced the guilty verdicts on the other counts.

    Summary

    Sinha, a teacher, was convicted on several charges stemming from relationships with two underage students. After conviction, she moved to vacate, arguing the prosecution violated disclosure obligations by belatedly disclosing emails and failing to disclose other information used to impeach a victim. The Appellate Division reversed the bribing a witness conviction but affirmed the remaining counts. The Court of Appeals affirmed, holding that the disclosure errors related only to the impeachment of one victim, and the trial judge carefully instructed the jury to consider each count separately. There was strong evidence of guilt regarding the other convictions, and the defendant essentially conceded guilt on the misdemeanor counts. The Court found no reasonable possibility that the errors influenced the other convictions.

    Facts

    Defendant, a teacher, was accused of having inappropriate relationships with two underage students at her school.

    During the trial, the prosecution introduced evidence including emails and testimony from the students.

    After the conviction, it was revealed that the prosecution had belatedly disclosed some emails and failed to disclose other information that could have been used to impeach one of the alleged victims.

    The prosecution had provided a “mirror” copy of the contents of the defendant’s computer hard drive to the defense, as well as forensic reports.

    Procedural History

    Defendant was convicted in the trial court.

    Defendant moved to vacate her conviction under CPL 440.10, arguing prosecutorial misconduct in failing to disclose exculpatory evidence.

    The Appellate Division modified the judgment, reversing the conviction for bribing a witness and remanding that charge for a new trial, but otherwise affirmed the judgment.

    Defendant appealed to the New York Court of Appeals.

    Issue(s)

    1. Whether the disclosure failures by the prosecution required reversal of all remaining counts of the conviction, beyond the count already reversed by the Appellate Division.

    2. Whether the People failed to comply with CPL 240.20(1)(c) by not providing printouts of emails recovered from the defendant’s computer prior to trial.

    Holding

    1. No, because there was no reasonable possibility that the evidence supporting the tainted count influenced the guilty verdicts on the other convictions.

    2. No, because the People properly complied with section 240.20 when they gave defense counsel copies of the forensic reports prepared by the investigators who analyzed the hard drive and provided a mirror copy of the hard drive itself.

    Court’s Reasoning

    Regarding the first issue, the Court of Appeals applied the rule articulated in People v. Daly, 14 N.Y.3d 848, 849 (2010), stating that reversal of jointly tried counts is required only if there is a ‘reasonable possibility that the evidence supporting the . . . tainted counts influenced the guilty verdicts on the other [counts]’ quoting People v Baghai-Kermani, 84 NY2d 525, 532 (1994).

    The Court emphasized that the disclosure errors related only to the impeachment of one of the two alleged victims, and the trial judge carefully instructed the jury to decide each count, pertaining to each victim, separately.

    The Court also noted the strong evidence of the defendant’s guilt with respect to the remaining convictions and that the defendant essentially conceded guilt at trial on the misdemeanor counts.

    Regarding the second issue, the Court analyzed CPL 240.20 (1) (c), which requires the prosecutor to disclose any written report or document concerning a scientific test or experiment.

    The Court found that the prosecution complied with the statute by providing defense counsel a “mirror” copy of the contents of the defendant’s computer’s hard drive, copies of other computer disks, and the forensic reports prepared by a detective who analyzed the hard drive.

    The court stated, “The People properly complied with section 240.20 when they gave defense counsel copies of the forensic reports, prepared by the investigators who analyzed the hard drive. Those were the only “reports or documents” concerning scientific tests or experiments performed on the hard drive.”

    The Court distinguished the case from situations where the documents could only have been produced through the expertise of a qualified expert.

  • Matter of N.J.R. Assoc. v. Tausend, 19 N.Y.3d 503 (2012): Determining Forum for Statute of Limitations Challenge in Arbitration

    Matter of N.J.R. Assoc. v. Tausend, 19 N.Y.3d 503 (2012)

    When a party initiates and participates in arbitration, they cannot later seek a court order to block counterclaims from being arbitrated by raising a statute of limitations defense; the timeliness challenge must be decided by the arbitrator.

    Summary

    This case addresses whether a court or an arbitrator should resolve a statute of limitations challenge to counterclaims in an arbitration proceeding. Ronald Tausend formed a partnership (NJR) with his children, Nicole and Jeffrey, to purchase properties from a trust. Years later, a dispute arose, and after Nicole initiated legal action, NJR demanded arbitration. Nicole asserted counterclaims, and NJR then sought to stay arbitration of those counterclaims based on the statute of limitations. The Court of Appeals held that, because NJR initiated and participated in the arbitration, the timeliness issue must be decided by the arbitrator.

    Facts

    Ronald Tausend, along with his children Nicole and Jeffrey, were beneficiaries of a trust. The trust owned two New York City buildings. In 1985, Ronald formed NJR Associates, a partnership, with Nicole and Jeffrey to acquire these properties. The partnership agreement contained an arbitration clause and a New York choice of law provision. NJR purchased the properties from the trust for $1.9 million and shortly after sold the air rights for one of the buildings for $1.75 million. Later, the remaining interest in that property was sold for $10.25 million. In 2005, Ronald surrendered his interest in the trust, and the remaining principal was distributed to Nicole and Jeffrey. In 2008, Nicole’s request for information about the property sale was rejected, leading her to commence a legal proceeding.

    Procedural History

    Nicole initiated a CPLR article 78 proceeding to access partnership documents. NJR responded by demanding arbitration, prompting Nicole to petition for a stay of arbitration. Supreme Court denied the stay, ordering arbitration, which was affirmed by the Appellate Division. Nicole asserted counterclaims in the arbitration, leading NJR to seek a court stay of arbitration regarding the counterclaims based on the statute of limitations. Supreme Court granted NJR’s petition. The Appellate Division modified, dismissing NJR’s petition, stating CPLR 7503(b) barred the partnership from obtaining a stay because it initiated and participated in arbitration. The Court of Appeals granted leave to appeal.

    Issue(s)

    Whether a party who initiates and participates in arbitration can later seek a court order to stay arbitration of counterclaims based on the statute of limitations, or whether the timeliness challenge must be decided by the arbitrator.

    Holding

    No, because NJR initiated and participated in the arbitration, the timeliness challenge to Nicole’s counterclaims must be decided by the arbitrator.

    Court’s Reasoning

    The Court considered both the Federal Arbitration Act (FAA) and New York law. Under the FAA, statute of limitations defenses are presumptively reserved to the arbitrator. While New York law allows a threshold issue of timeliness to be asserted in court, a contract can adopt the New York rule if it specifies that New York law governs both the agreement and its enforcement. The partnership agreement here lacked the critical “enforcement” language to invoke the New York rule. Therefore, under the FAA, the timeliness question must be resolved by the arbitrator.

    Under New York law (CPLR 7503[b]), a statute of limitations defense can be raised in state court by a party who has not participated in the arbitration. The Court found that NJR’s actions constituted participation because NJR initiated arbitration, successfully defended against Nicole’s petition to stay arbitration, received an application to compel arbitration regarding the counterclaims, and sought a court order to prevent the counterclaims from being considered. The court stated, “It is also inconsistent for NJR to assert that Nicole’s counterclaims are not arbitrable—a party cannot compel arbitration of its own causes of action, prevent its adversary from obtaining judicial relief and then ask a court to block the adversary’s counterclaims from being arbitrated by raising a statute of limitations defense”. The court determined that arbitration should proceed if there is at least one arbitrable issue. Because NJR initiated and participated in arbitration, the timeliness challenge to the counterclaims must be decided by an arbitrator.

  • Oddo Asset Management v. Barclays Bank PLC, 19 N.Y.3d 584 (2012): Fiduciary Duty in Structured Investment Vehicles

    19 N.Y.3d 584 (2012)

    In an arm’s length transaction between a debtor and a note-holding creditor, no fiduciary duty exists absent a special relationship of confidence and trust demonstrating a higher level of reliance.

    Summary

    Oddo Asset Management sued Barclays and Standard & Poor’s (S&P) for aiding and abetting breach of fiduciary duty and tortious interference related to the collapse of two structured investment vehicles (SIV-Lites). Oddo, a mezzanine noteholder, claimed the collateral managers of the SIV-Lites breached their fiduciary duty by acquiring impaired sub-prime mortgage-backed securities at inflated prices, and that Barclays and S&P aided this breach. The court held that the collateral managers did not owe a fiduciary duty to Oddo, as the relationship was an arm’s length transaction, and Oddo failed to demonstrate an underlying breach of contract for its tortious interference claim. Thus, the claims were dismissed.

    Facts

    Barclays created Golden Key and Mainsail, two SIV-Lites, and selected Avendis and Solent as collateral managers, respectively. The collateral managers were responsible for investing the proceeds raised from issued notes. Oddo purchased mezzanine notes in Golden Key and Mainsail. Barclays sold warehoused mortgage-backed securities to the SIV-Lites. S&P rated the mezzanine notes AAA. Oddo alleged the warehoused securities were toxic, and their acquisition caused significant losses to the SIV-Lites. The SIV-Lites ultimately collapsed, causing Oddo to lose its investment. Oddo claimed that Avendis and Solent breached their fiduciary duty to the investors of Mainsail and Golden Key, and that Barclays and S&P aided and abetted these breaches.

    Procedural History

    Oddo sued Barclays, S&P, and Solent in New York Supreme Court. The Supreme Court dismissed the claims against Solent for lack of personal jurisdiction and all claims against Barclays and S&P for failure to state a cause of action. The Appellate Division affirmed. The New York Court of Appeals granted leave to appeal and affirmed the Appellate Division’s order.

    Issue(s)

    1. Whether the collateral managers of the SIV-Lites owed a fiduciary duty to Oddo, a mezzanine noteholder.

    2. Whether Barclays tortiously interfered with Oddo’s contracts with Golden Key and Mainsail.

    Holding

    1. No, because there was no special relationship of confidence and trust between the collateral managers and Oddo to establish a fiduciary duty.

    2. No, because there was no actual breach of contract by Golden Key and Mainsail.

    Court’s Reasoning

    The court reasoned that a fiduciary relationship arises when one party is under a duty to act for the benefit of another. Such a relationship is fact-specific and grounded in a higher level of trust than is normally present in arm’s length business transactions. Generally, there is no fiduciary obligation in a contractual arm’s length relationship between a debtor and a note-holding creditor because there is no special relationship of confidence and trust. Even though the mezzanine notes had some equity-like features, there was no factual basis to elevate Oddo’s rights to those of a shareholder. The court noted that “if [the parties] do not create their own relationship of higher trust, courts should not ordinarily transport them to the higher realm of relationship and fashion the stricter duty for them” (quoting Northeast Gen. Corp. v Wellington Adv., 82 NY2d 158, 162 [1993]).

    The court further stated that Oddo had no contractual relationship with Avendis and Solent and no direct dealings with them, precluding a finding of higher trust. Because no fiduciary duty was owed, Barclays and S&P could not be liable for aiding and abetting a breach of fiduciary duty.

    Regarding the tortious interference claim, the court stated that a valid contract, the defendant’s knowledge of the contract, intentional procurement of a breach, an actual breach, and resulting damages must be shown. Here, Golden Key and Mainsail never breached their contractual obligations to Oddo by expanding their investment portfolios and acquiring the additional securities. The court emphasized that “the Warehousing Party [Barclays] has agreed to acquire specified Investments for the Issuer [Golden Key and Mainsail] … and hold them for purchase by, or transfer to, the Issuer. The Issuer will . . . purchase . . . the Warehousing Investments; provided, that the Issuer will not purchase or take delivery of any Warehousing Investment that at the time of purchase or delivery by it is not an Eligible Investment.” The warehousing provision required the SIV-Lites to pay Barclays’ purchase price, regardless of market fluctuations. Because there was no underlying breach of contract, the tortious interference claim failed.

  • Marchand v. Village of Bayville, 19 N.Y.3d 618 (2012): Establishes Requirements for a Private Road to Become a Public Street

    Marchand v. Village of Bayville, 19 N.Y.3d 618 (2012)

    A private road does not become a public street under Village Law § 6-626 unless the village maintains and repairs the road.

    Summary

    Ronald and Margaret Marchand sued the Village of Bayville to quiet title to a dirt road (“Travelled Way”) running through their property. The Village claimed the road was a public street under Village Law § 6-626 due to public use for over ten years. The Court of Appeals reversed the lower court’s decision in favor of the Village, holding that public use alone is insufficient. The Court reaffirmed the requirement that the Village must also maintain and repair the road to establish it as a public street. The Court reasoned that public responsibility for maintenance and repair is essential for a road to be considered public.

    Facts

    Ronald and Margaret Marchand owned property in the Village of Bayville through which a dirt road, the “Travelled Way,” ran. The Village obtained a permit to perform drainage work under the road. The Marchands challenged the permit, asserting the road was private property. The Village claimed the road was a public street because the public had used it for over ten years.
    The Village admitted it did not maintain or repair the road; the Marchands and their predecessors performed those duties. The Village argued that services like police and fire protection, snow plowing, water main maintenance, and garbage pickup constituted taking the road “in charge.”

    Procedural History

    The Supreme Court, after a nonjury trial, ruled in favor of the Village, declaring the Travelled Way a village street. The Appellate Division affirmed. The Court of Appeals granted leave to appeal.

    Issue(s)

    Whether a private road becomes a public street under Village Law § 6-626 when the public uses it for over ten years, but the village does not maintain or repair it.

    Holding

    No, because Village Law § 6-626 requires not only public use for ten years or more but also that the village maintain and repair the road. The Village’s provision of general services, like police protection and snow removal, does not constitute maintaining or repairing the road.

    Court’s Reasoning

    The Court of Appeals relied on its prior decisions in Speir v. Town of New Utrecht, 121 N.Y. 420 (1890), People v. Sutherland, 252 N.Y. 86 (1929), and Impastato v. Village of Catskill, 43 N.Y.2d 888 (1978), to reaffirm the principle that a road is not public unless the public takes responsibility for its maintenance and repair. The Court emphasized that “[t]he road must not only be traveled upon, but it must be kept in repair or taken in charge and adopted by the public authorities” (quoting Speir, 121 N.Y. at 429-430). The Court rejected the Village’s argument that providing general services such as police and fire protection, snow removal, and garbage collection constituted taking the road “in charge,” holding that these services are insufficient without actual maintenance and repair.
    The Court quoted Impastato v. Village of Catskill, noting that “[n]aked use by the public is not enough, as plaintiffs must further demonstrate that the village has continuously maintained and repaired the alleged street and, thus, assumed control thereof during the period of time in question” (55 AD2d 714, 715 [3d Dept 1976]).
    The Court reasoned that this rule is fair because it ensures that the public takes responsibility for maintaining roads that are considered public.

  • Campaign for Fiscal Equity, Inc. v. State, 19 N.Y.3d 72 (2012): Upholding the Judiciary’s Role in Defining a Sound Basic Education

    Campaign for Fiscal Equity, Inc. v. State, 19 N.Y.3d 72 (2012)

    The judiciary has a crucial role in interpreting the Education Article of the New York State Constitution and defining what constitutes a “sound basic education,” ensuring that the state fulfills its constitutional obligation to provide such an education to all children.

    Summary

    This case addresses whether the judiciary should defer to the legislative and executive branches in defining and funding a “sound basic education” as required by the Education Article of the New York State Constitution. The Court of Appeals held that the judiciary has a critical role in defining a sound basic education, referencing previous decisions in Campaign for Fiscal Equity v. State of New York (CFE I and CFE II). The court emphasized that abandoning this role would entrust the legislative and executive branches with both interpreting the Education Article and acting as their own constitutional watchdogs, which violates the separation of powers. The concurrence emphasized the judiciary’s responsibility to safeguard the constitutional rights of schoolchildren and ensure the state’s compliance with its educational obligations.

    Facts

    The plaintiffs, Campaign for Fiscal Equity, Inc., argued that the State of New York failed to provide adequate funding for public schools, particularly in New York City, thereby denying students their constitutional right to a sound basic education. They contended that the existing funding mechanisms and educational resources were insufficient to meet the constitutional mandate as defined in prior CFE cases.

    Procedural History

    The case reached the New York Court of Appeals after a series of legal challenges regarding the State’s compliance with the Education Article. The prior CFE cases established the right to a sound basic education and directed the State to reform its funding system. This appeal concerned the ongoing adequacy of the State’s efforts to meet those mandates.

    Issue(s)

    Whether the judiciary should defer to the legislative and executive branches in defining the scope of the State’s constitutional duty under the Education Article and, conversely, the scope of the constitutional rights of schoolchildren.

    Holding

    No, because abandoning the judiciary’s role in defining a “sound basic education” would entrust the legislative and executive branches with the judicial task of interpreting the Education Article and cast them in the role of being their own constitutional watchdogs, violating the separation of powers.

    Court’s Reasoning

    The court reasoned that the judiciary has a constitutional duty to interpret the Education Article and define the parameters of a sound basic education. This ensures that the State provides all children with the opportunity to acquire basic literacy, calculating, and verbal skills necessary to function productively as civic participants. The court emphasized the importance of judicial oversight to prevent the legislative and executive branches from unilaterally defining and limiting the scope of the State’s educational obligations.

    The concurrence highlighted the potential dangers of allowing the political branches to be the sole arbiters of educational adequacy. Drawing a comparison to New Hampshire’s experience, where the courts initially deferred to the legislature, the concurrence emphasized that deference has its limits and that constitutional rights must be enforced to remain meaningful. Citing Board of Educ., Levittown Union Free School Dist. v Nyquist, the court stated, “it is nevertheless the responsibility of the courts to adjudicate contentions that actions taken by the Legislature and the executive fail to conform to the mandates of the Constitutions which constrain the activities of all three branches.”

    The court further reasoned that judicial intervention is necessary when the education available is “so palpably inadequate that the courts must intervene, determine the extent of the inadequacy and order the problem to be solved at State expense” (citing CFE I, Simons, J., dissenting). The court emphasized that parsing out what the Education Article actually requires ensures that all branches of government fulfill their constitutional mandates.

  • People v. Kelley, 19 N.Y.3d 888 (2012): Fair Trial Rights and Late Disclosure of DNA Evidence

    19 N.Y.3d 888 (2012)

    The late disclosure of critical DNA evidence by the prosecution, after the defendant has already presented a defense predicated on the absence of such evidence, can violate the defendant’s right to a fair trial, requiring a new trial on affected charges.

    Summary

    Kelley was convicted of multiple charges, including course of sexual conduct against a child and endangering the welfare of a child. The prosecution initially disclosed DNA evidence from the victim’s underwear that excluded Kelley as a contributor. However, towards the end of the trial, the prosecution revealed new DNA evidence from a towel, purportedly used by Kelley during the alleged acts, which matched Kelley’s DNA. The defense had built its strategy on the lack of DNA evidence. The New York Court of Appeals held that the late disclosure of the towel DNA evidence prejudiced Kelley, undermining his right to a fair trial on the sex offense charges and the endangering the welfare of a child charges, but affirmed the contempt charges because Kelley admitted guilt.

    Facts

    Kelley was charged with sexually abusing his daughter. The victim’s mother provided the police with the daughter’s underwear and a towel the daughter claimed Kelley ejaculated on after the alleged abuse. Initial DNA testing on the underwear excluded Kelley. The defense strategy focused on the absence of DNA evidence. Late in the trial, the prosecution revealed that the towel contained Kelley’s semen and female DNA (but not the daughter’s). The daughter claimed that Kelley regularly ejaculated on a towel after intercourse.

    Procedural History

    Kelley was convicted in the trial court of first-degree course of sexual conduct against a child, endangering the welfare of a child, and criminal contempt. The Appellate Division affirmed the conviction. The New York Court of Appeals granted leave to appeal.

    Issue(s)

    Whether the trial court erred in admitting DNA evidence late in the trial that contradicted the prosecution’s earlier disclosures and undermined the defendant’s established defense strategy, thereby violating the defendant’s right to a fair trial.

    Holding

    Yes, because the late disclosure of DNA evidence relating to the semen on the towel violated defendant’s right to a fair trial by precluding him from presenting a new defense theory. However, the error was harmless as to the criminal contempt charges because defendant admitted his guilt regarding those crimes.

    Court’s Reasoning

    The Court reasoned that the timing of the DNA evidence disclosure was critical. By the time the prosecution revealed the towel evidence, Kelley had already presented his defense, which heavily relied on the absence of DNA linking him to the crime. Introducing the DNA evidence at that late stage effectively prevented Kelley from adjusting his defense strategy and undermined the core of his case. The Court emphasized that “the trial was too far along for defense counsel to present a new defense theory.” The daughter’s testimony about Kelley’s habit of ejaculating on a towel further corroborated her accusations and prejudiced Kelley. The Court cited People v. Goins, 73 NY2d 989, 991 (1989). The Court found that the trial court should have precluded the evidence or declared a mistrial. The error was harmless for the contempt charges because Kelley admitted guilt. The Court focused on the prejudice to the defendant, stating “defendant’s contention that there was no DNA evidence to corroborate the charges had been placed before the jury, defendant had already testified and the trial was too far along for defense counsel to present a new defense theory.”