The U.S. Supreme Court Moves Toward Requiring Prospective Intervenors to Demonstrate Standing at the Outset

To intervene as of right in a federal lawsuit, a would-be party must, pursuant to Rule 24(a) of the Federal Rules of Civil Procedure, show that it (1) has an interest, (2) disposition of the case without intervention would, as a practical matter, impair or impede its interest, (3) the interest is inadequately represented by the existing parties, and (4) the motion is timely made. Until recently, prospective intervenors might have sought to take advantage of a circuit split on a question not specifically addressed by the Rule—must a prospective party demonstrate standing, and if so, when? The issue is not merely of academic concern, because if a potential intervenor must demonstrate standing, it will not simply be able to make broad statements of interest, but rather show injury-in-fact, redressability, and traceability. Three circuits, the Seventh, Eighth, and the D.C. Circuit, had previously held that one cannot intervene as of right under Rule 24(a) without a showing of Article III standing. The other Circuits, including the Second, have not imposed such a requirement.

The Supreme Court, in a June 5, 2017 decision, narrowly resolved the split and inched toward requiring that litigants who seek to intervene as of right under Rule 24 must demonstrate standing at the time that they seek to intervene. The Court’s ruling in Town of Chester, New York v. Laroe Estates, Inc., 137 S. Ct. 1645 (2017), illustrates the path the Court will likely take.

The genesis of the lawsuit was in 2001, when land developer Steven Sherman bought 400 acres of land in the town of Chester for $2.7 million. He intended to build a multi-use complex consisting of a housing subdivision, a golf course, a restaurant and shops. He soon became immersed in a “journey through the Town’s ever-changing labyrinth of red tape.” Sherman v. Chester, 752 F. 3d 554, 557 (2d Cir. 2014). To try to keep the project going, Sherman obtained a $6 million investment from Laroe Estates, which was backed by a mortgage and an agreement that Sherman would sell a number of parcels in the subdivision when it received regulatory approval. Although Laroe ended up paying Sherman more than $2.5 million, the investment couldn’t compensate for the repeated delays by the Town, and TD Bank began a foreclosure proceeding in 2013. The agreement between Sherman and Laroe remained in place.

Shortly before the foreclosure proceeding began, Sherman filed suit against the Town in a New York state court, contending that “the decade’s worth of red tape put in place” by the Town and its regulatory bodies had obstructed his plan. Id. at 558. He claimed that he was on the brink of personal bankruptcy. Id. at 560. His lawsuit included nine federal- and state-law claims against the Town, including a regulatory takings claim under the Fifth and Fourteenth Amendments. After the Town removed the case to the Southern District of New York, that court held that the takings claim was not ripe. The Second Circuit reversed and remanded. On remand, Lahoe sought to intervene. It claimed it was the equitable owner of the real property at issue, and that its status as equitable owner gave it an interest in the property. It also asserted that its interest would be impaired if it could not intervene, and asserted that Sherman “ha[d] his own agenda” and could not adequately represent its interest. When it moved to intervene, Laroe submitted a proposed complaint that included a regulatory taking claim that was identical to Sherman’s. It sought, in the draft complaint, a “judgment against [the Town] awarding [Laroe] damages,” namely, “compensation for the taking of Laroe’s interest in the subject real property.”

The district court denied the motion, saying that Laroe lacked standing on its own to bring a takings claim “based on its status as contract vendee to the property.” An equitable interest, the court concluded, was not sufficient. The Second Circuit again reversed. It acknowledged that there was split in the circuits, but concluded that the better view was that a proposed intervenor as of right does not have to demonstrate Article III standing. The Supreme Court began its analysis by noting that:

[o]ur standing decisions make clear that “‘standing is not dispensed in gross.’” Davis v. Federal Election Comm’n, 554 U. S. 724, 734 (2008) (quoting Lewis v. Casey, 518 U. S. 343, 358, n. 6 (1996); alteration omitted). To the contrary, “a plaintiff must demonstrate standing for each claim he seeks to press and for each form of relief that is sought.” Davis, supra, at 734 (internal quotation marks omitted); see, e.g., DaimlerChrysler, supra, at 352 (“[A]plaintiff must demonstrate standing separately for each form of relief sought”); Friends of the Earth, Inc. v. Laidlaw Environmental Services (TOC), Inc., 528 U. S. 167, 185 (2000) (same); Los Angeles v. Lyons, 461 U. S. 95, 105–106, and n. 7 (1983) (a plaintiff who has standing to seek damages must also demonstrate standing to pursue injunctive relief). The same principle applies when there are multiple plaintiffs.

Applying that rationale, the Court went on to conclude that:

[t]he same principle applies to intervenors of right. Although the context is different, the rule is the same: For all relief sought, there must be a litigant with standing, whether that litigant joins the lawsuit as a plaintiff, a coplaintiff, or an intervenor of right. Thus, at the least, an intervenor of right must demonstrate Article III standing when it seeks additional relief beyond that which the plaintiff requests. This result follows ineluctably from our Article III case law, so it is not surprising that both parties accept it (as does the United States as amicus curiae). See Brief for Petitioner 13 (arguing that an intervenor must always demonstrate standing); Brief for Respondent 28 (“[A]n intervenor who . . . seeks relief beyond that requested by a party with standing must satisfy Article III”); Brief for United States as Amicus Curiae 16 (An intervenor must demonstrate its own standing if it “seek[s] damages” or “injunctive relief that is broader than or different from the relief sought by the original plaintiff(s)”). In sum, an intervenor of right must have Article III standing in order to pursue relief that is different from that which is sought by a party with standing. That includes cases in which both the plaintiff and the intervenor seek separate money judgments in their own names.

On the record, the Court was unable to determine how to apply its new standard. It noted that it was “unclear whether Laroe seeks the same relief as Sherman or instead seeks different relief, such as a money judgment against the Town in Laroe’s own name. Laroe’s complaint—the best evidence of the relief Laroe seeks—requests a judgment awarding damages to Laroe.” It further noted that “Laroe made statements that arguably indicated that Laroe is not seeking damages different from those sought by Sherman. In particular, Laroe’s counsel stated that he was ‘not saying that Sherman and [Laroe’s] damages are not the same damages,’ and insisted that there is ‘exactly one fund, and the town doesn’t have to do anything except turn over the fund.’” But in the “Court of Appeals briefing, Laroe argued that it—not Sherman—would be entitled to most of the damages from the takings claim…”

Stating that it was “unfortunate” that the Second Circuit didn’t provide greater clarity, the Court said that “[t]aken together, these representations at best leave it ambiguous whether Laroe is seeking damages for itself or is simply seeking the same damages sought by Sherman.” It remanded, stressing that “[t]his confusion needs to be dispelled. If Laroe wants only a money judgment of its own running directly against the Town, then it seeks damages different from those sought by Sherman and must establish its own Article III standing in order to intervene.”

The circuit split has now been resolved, at least with regard to prospective intervenors of right that seek remedies different from the current plaintiff(s). But the United States as an amicus had proposed a more stringent approach, one that the Court did not directly address but may eventually adopt. The United States argued that the Seventh, Eighth, and D.C. Circuits had imposed the right result, not because of a constitutional requirement, but rather because the wording of Rule 24 itself incorporates the injury-in-fact, traceability, and redressability requirements of standing. The government’s amicus brief argued for adoption of a rule that requires the demonstration of standing by every prospective intervenor at the outset of their participation in the litigation:

Construing Rule 24(a)(2) to call for a threshold showing that satisfies the requirements for Article III standing is consistent with the most natural reading of the Rule and with principles of efficient judicial administration. That interpretation also obviates the need to decide whether Article III would require a showing of standing as a prerequisite to intervention. Such a construction is particularly appropriate in light of the Rule’s requirement that an intervenor establish that his interests are not adequately protected by existing parties. A litigant who makes such a showing is particularly likely to alter the contours of the existing litigation in a way that would ultimately require an inquiry into the intervenor’s standing.

Also, in the government’s view, “[r]equiring a showing of standing before requiring parties and the judicial system to accept such burdens is consistent with Article III’s respect for the autonomy of the persons most likely to be affected by a judicial order and largely obviates the need for later inquiries into whether Article III authorizes the intervenor and the court to take particular steps.”

Satisfying Article III is, of course, not the only prerequisite for intervention as of right under Rule 24, but assuming the United States continues to take the position in litigation that would-be intervenors of right must always demonstrate standing at the outset of their participation in the litigation, it is only a matter of time before the Court takes up the issue again. When it does, it would not be surprising if the Court agrees.

False Advertising: Do You Know It When You See It?

Section 43(a) of the Lanham Act, codified at 15 U.S.C. § 1125, imposes liability on individuals and entities that, “in a commercial advertising or promotion, misrepresent[] the nature, characteristics, qualities, or geographic origin of [their] or another person’s goods, services, or commercial activities.” The principal purpose of the Act is to provide remedies to enterprises damaged by a wide variety of false statements made in such “commercial advertising or promotion.” As the Second Circuit noted in a seminal opinion, the passage of the Lanham Act “marked the creation of a ‘new statutory tort’ intended to secure a market-place free from deceitful marketing practices.” Johnson & Johnson v. Carter-Wallace, Inc., 631 F.2d 186, 189 (2d Cir. 1980) (citations omitted).

What exactly are these “deceitful marketing practices”? Answering this question—and avoiding Lanham Act liability—is crucial for businesses and individuals that intend to engage in significant marketing activity. For example, consider a business that gives its salespeople wide latitude to engage customers at the point of sale. Could that business be held responsible for the conduct of an errant salesperson who makes inaccurate disparaging statements about competitors’ products or services in an attempt to close the deal? What about a business that has specifically instructed its employees to contrast its product with competing products at the point of sale—could that business find itself facing liability if its employees make false statements to customers about the competition?

The Second Circuit has provided a framework to answer questions like those posed above. In Fashion Boutique of Short Hills, Inc. v. Fendi USA, Inc., 314 F.3d 48, 57 (2d Cir. 2002), the court held that the “touchstone of whether a defendant’s actions may be considered ‘commercial advertising or promotion’ under the Lanham Act is that the contested representations [were] part of an organized campaign to penetrate the relevant market.” By so holding, the Second Circuit excluded from the scope of the Act isolated or sporadic misrepresentations made by businesses and their employees. Post-Fendi Lanham Act claimants may only invoke the Act’s protections where they can demonstrate that there was an “organized campaign” of misrepresentations aimed at their products or services.

The “organized campaign” language, however, is imprecise. Whether false statements may be considered part of such a campaign depends how frequently and widely they are disseminated, according to the Second Circuit in Fendi. The fluid nature of the “widespread dissemination” inquiry can often make this question difficult for courts to resolve as a matter of law. Indeed, as one judge in the Southern District of New York noted, “[w]idespread dissemination is a fact-specific question that varies from case to case and industry to industry.” In re Connecticut Mobilecom, Inc., No. 02-1725 REG, 02-02519 WHP, 2003 WL 23021959, at *11 (S.D.N.Y. Dec. 23, 2003).

A recent Lanham Act counterclaim, dismissed at the pleading stage, illustrates the principles underpinning the dissemination inquiry. In Solmetex, LLC v. Dental Recycling of N. Am., Inc., No. 17-CV-860 (JSR), 2017 WL 2840282 (S.D.N.Y. June 26, 2017), the court dismissed a § 43(a) claim on the grounds that the counterclaim plaintiff had failed to adequately allege the existence of “commercial advertising or promotion.” Solmetex and Dental Recycling of North America (“DRNA”) are dental products businesses that “sell competing devices for removing particulate from dental office wastewater.” Id. at *1. In January 2017, Solmetex contacted a dental trade organization to claim that DRNA’s dental recycling device was untested and did not comply with industry safety standards. According to DRNA, these representations were false, as its product underwent testing and did in fact meet industry standards. Around the same time, Solmetex also contacted a representative of a dental products distributor to claim that DNRA’s competing product was not approved by the EPA. Id. at *2. DNRA’s lawsuit against Solmetex claimed that DRNA lost sales due to these misrepresentations. Id.

The court dismissed DRNA’s Lanham Act counterclaim. It held that DNRA failed to plead the “commercial advertising or promotion” required by the statute. Id. at *3. The court noted that although Solmetex may have made misrepresentations, those misrepresentations were “isolated.” DRNA failed to plead that the trade organization had actually repeated the Solmetex misrepresentations to its membership. Similarly, DRNA failed to plead that the misrepresentations to the dental distributor’s representative became widely disseminated, as the pleadings indicated that the representative passed along the falsehoods to only one purchaser.

Although courts in the Second Circuit have long been hesitant to characterize such isolated misrepresentations as “commercial advertising or promotion,” courts have been quick to emphasize that the inquiry is not one-size-fits-all. Businesses concerned about potential liability for false advertising under the Lanham Act should review their advertising policies and consult with counsel in the event that false representations have been disseminated to customers in the relevant market. Addressing and correcting misrepresentations before they become widespread is often the most prudent course of action for business owners concerned about the actions of their employees.

Blair Fensterstock Awarded Harlan Fiske Stone Society Award by Columbia Law School

Columbia Law School celebrated the members of the Harlan Fiske Stone Society with a reception at the Morgan Library in New York City on May 3.  The Harlan Fiske Stone Society recognizes the Law School’s most generous and ardent supporters.  The reception also marked the introduction of the Harlan Fiske Stone Society Award, a newly established honor, that recognizes an individual who exemplifies leadership, volunteer service, and community engagement with the Law School, as well as leadership in annual giving.  Dean Gillian Lester presented the inaugural award to Blair for his “unstinting commitment to Columbia Law School.”  “Always with a confident smile, always asking what more he can do, Blair is the ultimate Law School citizen who dedicates his time and energy to all of us,” said Dean Lester.

In response to this award, Blair gave the following address:

Dean Lester, Faculty, Family, Friends, and Members of the Harlan Fiske Stone Society. Thank you for the fabulous introduction.

It is indeed an honor for me to have been chosen to be the inaugural recipient of the Harlan Fiske Stone Society Award.

I accept this honor as a second generation Columbia Law Alumnus. I intend it be a foundational exemplar for my daughter, a third generation Columbia Law alumna, who is already chairing her 5th reunion class, and who was just selected to be on the Board of the Columbia Law Association.

I also accept this honor as a member of the class of 1975, who had a most successful 40th reunion two years ago. I applaud our classmates, as we approach our 45th with the same appreciation and love for our alma mater that we displayed with our excellent giving record on our 40th reunion. It is always easy to look good when your team is good.

Dean Lester, you have already made a remarkable imprint on our Law School. You have invigorated our alumni, you have laid out plans for substantial betterment of our physical plant, you have focused on our diversity and attractiveness to potential applicants all over the world, you have been a magnet for the attraction of outstanding educators, and, most of all, you have listened to our voices and our ideas. You have continued the tradition of our great deans in making it an honor to be a graduate of Columbia Law School, and to give freely of our time, our effort, and our affection.

Fellow Harlan Fiske Stone Society members, today we honor you and your incredible philanthropy. We honor you in the name of Harlan Fiske Stone, as a Dean of our Law School from 1910-1923, as Attorney General of the United States in 1924, and as a Justice and then Chief Justice of the Supreme Court from 1925-1946, when he passed away while reading his dissent from the bench in Girouard v. United States, 328 U.S. 61 (1946).

As I lay in bed the other morning, thinking about what I might say today, I thought about the walk I make every morning. I thought about the following question: what is it that binds us to Columbia Law School? As I walk by the southern gate of Trinity Church, I see, on almost a daily basis, the plaque that commemorates the founding of Columbia University there in 1754. Only yards away, I see the resting place of Alexander Hamilton. It furthers my quest to identify the answer to the age old question: what is it that binds us to Columbia Law School?

As I think about the post-Vietnam years when my classmates and I sat on metal benches outside of the classrooms at the Law School, as we ate our lunches there and discussed the pros and cons of Erie v. Tompkins and the ins and outs of constitutional law, I realize it was not the physical environment that binds us to the Law School.

As I think about our great deans who were at the law school in the early 70s through the present day, and all of the challenges to which they were entrusted. Deans Warren, Sovern, Rosenthal, Schmidt, Black, Liebman, Leebron, Schizer, and now Lester. We are indebted to your commitment to scholarship, to an evolving curriculum, and to the betterment of the Law School in every way possible.

As I think of the great educators to whom we were exposed, including Justice Ginsberg, and deceased Professors Lusky, Rosenthal, Goldschmidt, Murphy, Farnsworth, Smit, Greenberg, and others, I laud their commitment to teach us how to be lawyers, to think and act like lawyers, and to perpetuate the rule of law and the independence of the judiciary.

So, what is it that binds us to Columbia Law School? The ever intoxicating question that penetrates this very Harlan Fiske Stone Society? To me, the answer is fundamental and is inclusive of each and every thought I just mentioned. What binds us to Columbia Law School is OUR commitment to the perpetuation of a prominent law school education, by professors who are distinctively prominent in their specialized areas, to a commitment to be the best of the best and to work as hard as the hardest, to appreciate the slings and arrows of victory and defeat with dignity and exemplary fortitude, and most of all to attract great students and appreciate our future and fellow alumni.

What bind us to Columbia Law School is each and every one of you. Yes, you are what binds us to Columbia Law School. As I have said for many years, what makes a great athlete is competing with other great athletes. In our profession, what makes a great lawyer is working with, and against, other great lawyers – Columbia Law School graduates. For in the end, it is the competition that pushes us forward.

It is with that in mind, that I propose a toast to each of you and to Columbia Law School, a toast that it is rumored Justice Stone used on more than one occasion.

So I ask you to lift your glasses to the following toast:

The horse and mule live thirty years
And nothing know of wines and beers;
The goat and sheep at twenty die,
With never a taste of scotch or rye;
The cow drinks water by the ton,
And at eighteen is mostly done.
Without the aid of rum or gin
The dog at fifteen cashes in;
The cat in milk and water soaks,
And then at twelve years old it croaks;
The modest, sober, bone-dry hen
Lays eggs for nogs and dies at ten;
All animals are strictly dry;
They sinless live and swiftly die,
While sinful, gleeful, rum-soaked men
Survive for three score years and ten.
And some of us – a mighty few –
Stay pickled ’till we’re ninety-two.

May we all live until we are 92 and cherish our days and giving to Columbia Law School! Thank you again for this great honor. Let’s approach our reunions with eagerness to get together with our fellow classmates and to celebrate the greatest Law School in the world – Columbia Law School.


Prejudgment Interest in the Federal Courts—Does Federal or State Law Apply?

Litigants (and federal district courts) that address awards of prejudgment interest must determine whether state or federal law applies to calculate the amount of interest. For example, in a case brought in a federal district court in New York State, when the claims concern purely federal law, should interest be calculated based on a federal statute or on the 9% interest rate set forth in the New York State Civil Procedure Law and Rules Section 5004? The guidelines here, despite some outlier decisions, are straight-forward.  Click on the Following Link to Read Full Article.  Prejudgment Interest in the Federal Courts—Does Federal or State Law Apply?

Fensterstock & Partners defeats Motion to Dismiss in action by their client Nanomedicon

Fensterstock & Partners defeats a motion to dismiss in an action by their client, Nanomedicon, alleging breach of Confidentiality Agreement, Research Agreement, and Option and Exclusive Licensing Agreement, against New York Corporation and former professor at the State of New York at Stony Brook and Director of the Center for Nanomaterials and Sensor Development.  Decision denying Goma’s motion to dismiss

Fensterstock & Partners obtains decisive ruling for their client, defeating a motion to dismiss, in an action involving a stock purchase agreement

Fensterstock & Partners LLP obtains a decisive ruling for their client, Cypress Group Holdings, Inc., defeating a motion to dismiss, in an action involving a stock purchase agreement and alleging causes of action for breach of contract, indemnification, fraudulent concealment, common law fraud, and seeking a declaratory judgment.  Decision on Motion to Dismiss

Fensterstock & Partners LLP Secures Favorable Ruling in Archie Comics Dispute

In a dispute over who should control a trust owning the shares of Archie Comics, Acting Surrogate Thomas E. Walsh of the Westchester County Surrogate’s Court delivered a thoughtful and deliberate 12-page Decision rejecting the attack on Fensterstock & Partners’ client Nancy Silberkleit’s position as co-trustee.

To view a copy of Surrogate Walsh’s Decision and Order, please click here.

Fensterstock & Partners LLP Wins Appeal; First Department Compels Arbitration and Grants Discovery

In a lawsuit seeking 32% of RFD-TV, a rural lifestyle television network, a unanimous New York Appellate Court has reversed the lower court and granted Fensterstock & Partners’ motion to compel arbitration before the American Arbitration Association (“AAA”).

Citing the plain language of a 1997 Financing Agreement, the Court held that each of the parties to the Agreement, including the primary shareholder and founder of RFD-TV, are bound by the Agreement’s arbitration clause, and each of RFD-TV’s subsidiaries, although non-signatories to the agreement, will be subject to discovery in the arbitration in order to determine if they also must arbitrate, should discovery support theories of veil piercing, alter-ego, equitable estoppel, or de facto merger.

This case is RURAL MEDIA GROUP v. FELTNER, C. ELVIN, Index No. 651045/2011. To view a copy of the Decision and Order of the Supreme Court, Appellate Division, First Department, please click here.

Port Authority to Pay $5.2 Million Verdict in 1993 WTC Bombing Suit

The Port Authority of New York and New Jersey will finally pay a $5.2 million jury verdict to Linda Nash, 72, a New York woman gravely injured during the February 25, 1993 World Trade Center bombing. The Port Authority had fought the verdict tooth and nail, disingenuously maintaining that a related consolidated case precluded her action and award.

On February 11, 2016 the Court of Appeals denied the Port Authority’s motion for leave to appeal to the Appellate Division, First Department, bringing this 23-year-long legal battle to an exhausted but just end — Nash’s verdict is poised to exceed $10 million with interest.

Read more from the New York Law Journal here.

nash NYLJ



Fensterstock & Partners LLP Wins Summary Judgment

Fensterstock & Partners LLP wins summary judgment for defendants Sandra Dyche and SD Assets, LLC in an action brought by defendants’ former attorney, McCallion & Associates, LLP. The Honorable Joan A. Madden, Justice of the Supreme Court, New York County, dismissed all causes of action against defendants. In this excellent outcome, Fensterstock & Partners’ clients will earn and retain approximately $7 million for their work on the EB-5 investor visa program administered by the United States Department of Homeland Security.

Justice Madden also granted defendants summary judgment on one of their counterclaims in the amount of $390,445.39, plus interest.

The case is McCallion & Associates, LLP v. Sandra Dyche, et al., Index No. 157793/13. To view a copy of Justice Madden’s Memorandum Decision and Order, please click here.


Fensterstock & Partners LLP recently obtained Federal Employees’ Group Life Insurance (“FEGLI”) coverage on behalf of the late Judge Harold Baer’s estate. We were able to achieve this successful result without having to expose our client to the stress and expense of litigation, when we brought to light certain questionable practices used to improperly deny insurance coverage not only to our client, but also undoubtedly to thousands of federal employees and their families.

FEGLI is a term life insurance program that was first established in 1954 and generally covers federal employees and their family members. FEGLI life insurance coverage is provided through Metropolitan Life Insurance Company (“MetLife”), which has been the program’s only contractor in its 60-year history. In addition to basic life insurance, FEGLI offers accidental death and dismemberment insurance (“AD&D”), which may be granted up to 100% of the amount of basic life insurance coverage.

A typical FEGLI policy permits AD&D coverage only when the policy-holder “. . . sustained bodily injuries solely through violent, external and accidental means, and within one year thereafter shall have [died].” But what does it mean to be injured by “accidental means” as opposed to “by accident”? Knowing the correct answer could make a world of difference to thousands of federal employees and their families, who are wrongfully denied coverage.

The situation that our client faced proved to be illuminating. Judge Baer was an especially distinguished judge in the United States District Court for the Southern District of New York from 1994 until he died last May when, tragically, he accidentally fell down a flight of stairs. Autopsy reports indisputably confirmed that Judge Baer’s death was caused by his accidental fall. And yet, MetLife initially refused to provide coverage.

According to MetLife, Judge Baer’s fatal, accidental fall was not a death by “accidental means.” Relying on Belcher v. Metropolitan Life Insurance Co., 943 F.2d 51 (6th Cir. 1991), MetLife took the position that under what it has referred to as a “federal common law” definition, death by “accidental means” occurs only when “the means by which the result occurred [were] accidental.” Belcher, 943 F.2d at * 3. Following MetLife’s argument to its logical conclusion, our client was not entitled to coverage because Judge Baer intended to walk down the stairs; never mind, according to MetLife, that Judge Baer accidentally and fatally fell down the stairs.

What MetLife ignored is that in New York, any distinction between “accidental means” and “accidental” was abolished long ago. Indeed, in New York, these terms are interchangeable and both mean “accident.” Addressing the issue over 75 years ago in Landress v. Phoenix Mutual Life Insurance, 291 U.S. 491, 499 (1934), Justice Cardozo famously wrote:

The attempted distinction between accidental results and accidental means will plunge this branch of the law into a Serbonian Bog.

Following Justice Cardozo’s famous words, the courts of several other states have ruled similarly to New York on the issue, and called Belcher into question. For example, in James v. Metropolitan Life Insurance Co.,896 F.Supp. 1006 (D. Nev. 1995), the Court stated, “As an unpublished decision, Belcher is of limited force in its own circuit and is not binding in this district. Moreover, the Belcher court did not explain why it was necessary to apply federal common law, rather than state law, to give meaning to the term ‘accidental means’ in the FEGLI policy.” Moreover, it appears that in James, after MetLife filed an unsuccessful summary judgment motion, it reached a settlement agreement with the plaintiff to jointly request that the Court withdraw the adverse decision! See James, 915 F.Supp. 1108 (D. Nev. 1996).

After we pointed this out to MetLife, it agreed to pay full AD&D coverage to our client. But the proper outcome that we were able to obtain for our client appears to be all too uncommon. Perhaps a closer look is warranted whenever FEGLI AD&D coverage is denied to our hard-working federal employees and their families.

Civil RICO: Distinction Without A Difference?

The Racketeer Influenced and Corrupt Organizations Act (“RICO”) prohibits a “person” from engaging in a “pattern of racketeering activity” in connection with an “enterprise.” In the decades that followed Congress’ enactment of RICO in 1970, prosecutors used the statute to criminally indict and convict many of the most notorious members of organized crime, such as the Lucchese and Gambino crime families, to name just a few. But, increasingly over the years, private plaintiffs’ attorneys in civil actions have used RICO, which has both criminal and civil components, to trump up state law claims into federal claims for greater money damages. As the Supreme Court observed in Sedima S.P.R.L. v. Imrex Co., 473 U.S. 479, 499 (1985), “Instead of being used against mobsters and organized criminals, [RICO] has become a tool for everyday fraud cases.”

Surely this is not what Congress intended, yet it comes as no surprise. After all, RICO permits a court to award triple damages and attorney’s fees to a successful plaintiff. Moreover, the ruinous impact of being labeled as a “racketeer” often leaves a RICO defendant with a “Hobson’s choice”: settle the lawsuit, or accept the risk of tremendous damages. Ironically, this is the exact scenario that RICO was designed to prevent. As Justice Marshall observed in his dissenting opinion in Sedima, “It is thus not surprising that civil RICO has been used for extortive purposes, giving rise to the very evils that it was designed to combat.” Sedima, 473 U.S. 506.

Corporate defendants, especially those that plaintiffs perceive as having pockets deep enough to pay triple damages, frequently find themselves at the heart of civil RICO cases. That is not to say that the civil RICO plaintiff must not first overcome certain special pleading hurdles to hold the corporate defendant liable. Among the most significant of these hurdles is the so-called “rule of distinctness,” which minimally requires that the RICO “person” and the RICO “enterprise” must be distinct from each other. As the Supreme Court explained in Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 164 (2001), a plaintiff who pleads that a “corporate employee is the ‘person’ and the corporation is the ‘enterprise’ violates the rule of distinctness.” Thus, to successfully plead a RICO violation against a corporate defendant, a plaintiff is required to allege, as the RICO “person,” an actor who is not employed by the corporate defendant.

It appears, however, that rather than thwart civil RICO abuses, the “distinctness” rule has served only to expand civil RICO’s reach to non-employees who would not otherwise be named as RICO defendants. For instance, in Riverwoods Chappaqua Corp. v. Marine Midland Bank, N.A., 30 F.3d 339 (2d Cir. 1994), the plaintiff alleged a corporation’s non-employee agents, together with the corporation’s employees, as the RICO “persons,” and the corporation as the “enterprise.” Does adding in a corporation’s agents, who do not work directly for the corporate defendant, create sufficient distinctness from the corporation? The answer depends on what jurisdiction you are in. In Riverwoods, the Second Circuit answered “no” to this question. The Third, Fourth and Seventh Circuits generally agree. However, the Sixth, Ninth and Eleventh Circuits disagree, and generally hold that as long as the non-employee agent is legally distinct from the corporation, the rule of distinctness is not violated.

Given the circuit split on how tight the “distinctness” requirement should be, the Supreme Court should settle the issue. Yet, on the two occasions that the issue was presented to the Supreme Court, it declined to rule. Specifically, in Mohawk Industries v. Williams, et al., 547 U.S. 516 (2006), the Supreme Court initially granted certiorari to answer the question, “Whether a corporation and its agents can constitute an association-in-fact RICO enterprise and whether a company’s hiring of its own employees may constitute participation in the conduct of an enterprise that is distinct from the company itself,” but it then declined to answer the question on the ground that certiorari was “improvidently granted.” A year later, the Supreme Court rejected a second petition for certiorari on the same question. See Mohawk Industries v. Williams, et al., 549 U.S. 1260 (2007).

But, does “distinction” – no matter how strictly or loosely applied – really make any difference? Unless the Supreme Court were to rule that corporations can never be part of a group of “persons” associated together to form an “enterprise,” legitimate corporations with deep-pockets will always be subject to financially draining civil RICO suits, and plaintiffs will always find new and creative ways to rope in non-employee actors, including innocent ones, to create the mere appearance of “distinctness.” On the other hand, if the Supreme Court were to rule the other way, the statute’s purpose of preventing the infiltration of racketeering activity into legitimate enterprises may become frustrated.

As jurisprudence in this area develops, it will be interesting to see whether or not tightening of the “distinctness” requirement has any real chilling effect on meritless civil RICO lawsuits against corporate defendants. One thing is for certain: unless and until the issue is settled, legitimate corporations, as well as their agents and others who are closely associated with them, should anticipate and budget for baseless civil RICO lawsuits.

How Much Privacy for Airbnb Users?

Airbnb, a company through which homeowners can rent out their homes to travelers, was sued this month by a group of New Yorkers who listed their apartments through the Airbnb website. The New York Attorney General’s office has been investigating possible violations in home-renting, and Airbnb recently helped the process along by agreeing to provide anonymous information about Airbnb hosts. Airbnb informed hosts that their information was furnished to the Attorney General, and have since refused to provide further information requested by the AG, including identifying information.

The hosts claim that Airbnb would violate their privacy by sharing their personal information with the AG. But should these hosts reasonably expect privacy when using a site like Airbnb? A person has “no legitimate expectation of privacy in information he voluntarily turns over to third parties.” Smith v. Maryland, 442 U.S. 735, 743-44 (1979). In particular, individuals communicating through a service provided by an intermediary – in Smith, a telephone call routed through a telephone company – voluntarily conveys information to the phone company. Airbnb is similar; hosts communicate with renters via a third-party provider. Plenty of New York cases over the past several years have held that an internet user does not have a reasonable expectation of privacy in his communications. (For example, the Second Circuit did so in United States v. Lifshitz, 369 F.3d 173 (2d Cir.2004).) As such, how can a host who lists his apartment on Airbnb expect to keep all the information pertaining to that listing private? He is availing himself of the communication channels Airbnb offers; should he not realize and be aware that his information may be shareable?

In fact, Airbnb sets out in its privacy policy that users “acknowledge, consent and agree that Airbnb may access, preserve and disclose your account information and Collective Content if required to do so by law or in a good faith belief that such access, preservation or disclosure is reasonably necessary to (a) respond to claims asserted against Airbnb; (b) comply with legal process (for example, subpoenas and warrants)” etc. As such, it would be unreasonable for a host to expect that his information would be kept completely private, especially since this situation – a subpoena – is one of the specific situations set forth as a time Airbnb might share the users’ information.

Moreover, to the extent the hosts are concerned about being a target of, or witnesses in, the AG’s investigation, they still have the same rights as any other subpoenaed party under the law. First, the AG is within its rights to issue a subpoena to Airbnb. A provider of internet communication conduits can be subpoenaed. See People v. Harris, 36 Misc.3d 613, 945 N.Y.S.2d 505 (N.Y.City Crim.Ct. 2012). Indeed, under New York’s General Business Law § 343, the AG may “in his discretion either require or permit” any person or entity which “shall have engaged in or engages in or is about to engage in any act or practice […] prohibited or declared to be illegal” to file “with him a statement in writing under oath or otherwise as to all the facts and circumstances concerning the subject matter which he believes is to be to the public interest to investigate.”

Further, the AG “is empowered to subpoena witnesses, compel their attendance, examine them under oath … and require the production of any books or papers which he deems relevant or material to the inquiry.” Thus, the AG’s subpoena power is broad, and grants the AG the authority to determine what he believes to be relevant. The “witnesses” the AG might want to compel could include the hosts. It is possible, then, that the hosts’ attempt to block Airbnb from providing their information to the AG is a violation of this statute. This comes into sharp focus in light of the fact that a party subpoenaed by the AG – such as, potentially, the hosts if their information is shared with the AG – still has the right to move to quash or modify such a subpoena. See id. Thus, the hosts would still have the opportunity to fight giving into becoming part of the AG’s investigation once subpoenaed.

In short, the Airbnb hosts seem to be keen on hiding behind vague notions of privacy, but they have failed to regard the privacy terms to which they agreed, their rights if subpoenaed, and the AG’s authority in this regard.

F&P Wins Extended Injunction Against Former Employee of Internet Advertising Company.

Today, F&P won a modified and extended preliminary injunction in the case AYDigital, Inc. v. Mendel, Rubius Inc., and Rubius LLC before Justice Marcy Friedman of the New York State Supreme Court, New York County.  The preliminary injunction enforces the restrictive covenants in AYDigital’s Sales Representative Agreement against its former employee, Steven Mendel.  AYDigital is a digital marketing agency with offices in New York City.

Does The Standard For Invoking The Reporter’s Privilege Need To Be Changed?

Last week, the Supreme Court declined to hear the appeal of James Risen, a New York Times journalist who was subpoenaed to testify in the prosecution of former CIA operative Jeffrey A. Sterling.  Prosecutors believe Sterling leaked classified information to Risen about a CIA plan to sabotage Iran’s nuclear program.  Risen moved to quash the subpoena, arguing that he could not give up his sources.  The lower court’s decision to quash the subpoena was reversed by the Fourth Circuit, which determined that the First Amendment does not exempt a reporter from testifying about “criminal conduct that the reporter personally witnessed or participated in.”  The decision refers to Branzburg v. Hayes, 408 U.S. 665 (1972), where the Supreme Court determined that a journalist could not invoke the reporter’s privilege to avoid testifying in a criminal matter.  Risen has indicated that he would sooner go to jail than testify.

Here, one might argue, why won’t Risen just testify?  The prosecution needs him, and Risen’s source has already been indicted and will likely be convicted.  In essence, this particular source has been found out, and is highly unlikely to continue to leak information after standing trial for having done so, especially if convicted.  However, Risen would likely argue that protecting a source, even if that particular source is no longer useful, is still of paramount importance, perhaps because it could affect the journalist’s reputation going forward.  In that sense, the journalist’s livelihood is at stake.  For Risen, for instance, giving up one source could have a chilling effect, depriving him of other confidential sources upon which he could have otherwise relied who became too scared to give him information for fear he would not maintain the confidentiality.   However, on the other hand, a journalist should not have carte blanche to ignore subpoenas.  At times, the journalist is the best – or perhaps even the only – source of testimony.  How can we serve justice while still recognizing a journalists’ need to protect his sources?

First, the Branzburg standard upon which the Fourth Circuit relied in finding that Risen was not protected from testifying against Sterling is at once too harsh and too vague.  It simply states that a journalist cannot claim a reporter’s privilege to avoid testifying in a criminal case.  This opens up a vast world of topics for which a reporter simply cannot protect his sources.  More specific parameters are needed.  The Supreme Court could have heard Risen’s appeal and sketched the contours of the rudimentary Branchburg holding.  For example, perhaps the general requirement for a journalist to testify in a criminal matter could have been equipped with some carve-outs or exceptions.  For instance, the Supreme Court could have found that journalists can still be protected where there are other witnesses available to testify on the topics for which the journalists’ testimony is sought, or perhaps there could be certain types or topics of criminal matters for which a journalist can maintain the reporter’s privilege.

Second, the nature and scope of the sanctions against uncooperative journalists must be examined.  Jail time is not the only available sanction for noncompliance with a subpoena. Perhaps in the case of a journalist protecting a source, it should not even be considered.  Is there any reason, after all, why a monetary sanction alone would be insufficient?  Although Attorney General Eric Holder has hinted that Risen will not be sanctioned with jail time, journalists in similar positions have received prison sentences before.  For instance, in the early 2000’s, journalist Judith Miller was subpoenaed to testify about her sources in reporting on the Valerie Plame affair.  Miller refused to testify, and was held in contempt and sentenced to 18 months in prison.  Given the similarities between Miller and Risen, a prison sentence for Risen seems a distinct possibility.  We are not dealing with criminals here, but rather, with professionals who must dig deep in order to find good facts.  They often would not get those facts if they could not promise anonymity to their sources.  This is not journalists’ fault; it is simply sometimes the only way to get the information they need.  In essence, then, protecting their sources is part of doing their jobs.

Although the precise contours of a new standard in this arena cannot be exhaustively reviewed here, the Risen case at least makes clear that the standard for reporter’s privilege must change.  As it now stands, it serves neither justice nor the journalist’s need to provide quality news to the public.  On one hand, criminal cases are being sidetracked by squabbles over subpoenas, and on the other, journalists’ integrity and future livelihoods are threatened.

Blair Fensterstock Discusses Class Arbitration with Law360.

Blair Fensterstock, Managing Partner of F&P, discussed the Supreme Court’s decision in Crockett v. Reed Elsevier with Law360 today.  At issue in the Crockett case were legal issues vital to the arbitration of business disputes:  Who decides whether an arbitration clause authorizes, permits, or prohibits class arbitration – the arbitrator, or the court?  How should arbitration clauses that do not explicitly discuss class arbitration procedures be interpreted?  Are consumer adhesion contracts unconscionable if they prohibit class arbitration?

Fensterstock told Law360 that the Supreme Court missed an opportunity to clarify the distinction in class actions between substantive arbitrability — if the dispute fits within the parameters of the agreed to arbitration, and procedural arbitrability — if the clause permits class arbitration and if the court or the arbitration panel should decide the issue.  “The court has let stand existing differences among the circuits on these issues, which will undoubtedly be litigated in the future in various fora,” Fensterstock said. “However, we are confident that these issues will be presented again to the court. We are also confident that class action arbitration will continue to be a fertile area for disputes.”

F&P Wins Injunction Against Former Employee of Internet Advertising Company.

Today, F&P won a preliminary injunction in the case AYDigital, Inc. v. Mendel, Rubius Inc., and Rubius LLC before Justice Marcy Friedman of the New York State Supreme Court, New York County.  The preliminary injunction enforces the restrictive covenants in AYDigital’s Sales Representative Agreement against its former employee, Steven Mendel.  AYDigital is a digital marketing agency with offices in New York City.

F&P Wins Summary Judgment for New York Company in Federal Court in California.

F&P won summary judgment today in the United States District Court for the Central District of California today for the New York company Synergy International Optronics, LLC, a manufacturer of military and aerospace optics.  The case is Tai Ham v. Synergy International Optronics, LLC, et al., 12-CV-8642 (JCG).

Judge Will Midonick Passes.

It is with a deep heart and a saddened soul that the Fensterstock & Partners family mourns the passing of Judge Will Midonick.  His humor, his intelligence, and his guidance are at the foundation of our law firm.  His teachings, his masterful wording, and his tutoring leave an enduring impression on our firm and on each of our lawyers.

Will was a special person in many ways.  His stories were intriguing and there were very few individuals who have passed through our doors who were not touched by his kindness.  For Will, life was the adventure and the law was the door for that adventure.

We will miss Will; however, we know that he will forever have an everlasting impact on our practice, our lives, and our ethics.  He was a very special person indeed.

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