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The Demise of DOMA

Posted: July 28th, 2013

Awhile back I wrote about the difficulties for same-sex couples with respect to their estate planning. Well, if you haven’t heard by now, things have gotten easier for those in New York. I don’t normally write about case law, but when the Supreme Court of the United States (SCOTUS) speaks, even I try to listen. In this instance the case was U.S. v. Windsor.As a quick refresher, in 1996 President Bill Clinton signed into law the Defense of Marriage Act (DOMA). One of the things it said was that marriage is defined as being between a man and a woman. Thus all Federal statutes, rules and regulations were required to follow that concept.

In the Windsor case, Edith Windsor married Thea Spyer in New York. When Thea died, the federal government said that the estate could not use the unlimited marital deduction for federal estate taxes and had to pay over $360,000. Last month SCOTUS decreed that DOMA is unconstitutional as a deprivation of equal liberty and was in violation of the Fifth Amendment. As long as the couple were married in a state that legally recognizes such marriages, the federal government must also recognize the marriage. That now opens up over 1,100 federal benefits to those couples.

But here’s the rub. They did not say that state laws not allowing gay marriages are unconstitutional or illegal. The Justices said only that the federal government could not make that distinction between the types of marriages.

In New York, that’s OK because same-sex couples are allowed to get married. That means, for example, the married couple can now file both state and federal income tax returns the same way. On both of those they are a married couple and can file jointly and take advantage of all the marital deductions.

The couple would still have a problem if they tried that in Florida. Since Florida does not recognize same-sex marriages, they couldn’t get married there. They would have to file separate state and federal tax returns as single people. It gets even more confusing (and troublesome) if they got married in New York and then moved to Florida. They would then file a joint federal return as a married couple, but still have to file the state’s return as single people. The same would hold true for estate tax returns. The reverse of the Windsor case would now hold true. The estate could now take advantage of the marital deduction on the federal returns, but not on the state.

So, the bottom line is that it’s getting better for same-sex couples, but it’s still not the same as for opposite-sex couples. The best advice I can give is to see an Estate Planning attorney to discuss your particular situation. Making sure that all your wishes are in writing through a Will or a trust is always the best way of going.

Tidal Wetlands Permits and the Importance of Maintaining Old Bulkheads in Good Repair

Posted: July 25th, 2013

If you own waterfront property and have a functional bulkhead that is at least 100’ long and has been in place since before August 1977, you have a very valuable asset. According to the regulations of the New York State Department of Environmental Conservation (“DEC”), anything landward of such a bulkhead is not subject to the DEC’s wetlands jurisdiction. In contrast, if the property is not bulkheaded or the bulkhead is less than 100’ long or was constructed after August 1977, then any construction in the area within 300 feet landward of the tidal wetland boundary is likely subject to tidal wetlands regulations, and will require a DEC tidal wetlands permit. All too often, people overlook the importance of their pre-August 1977 bulkhead being “functional”, and, through failure to apply routine maintenance, find that the DEC is claiming work done behind the bulkhead should have been done pursuant to a Tidal Wetlands permit. In such situations, it is not uncommon for DEC to require any structure built without a required permit to be removed and to impose substantial penalties on the offender.

What is a “functional bulkhead”? Essentially, it is a bulkhead that functions as designed and is maintained in working order. Factors considered by the DEC in the determination of functionality include: if more than 50% of the footprint of the structure is missing; if the structural integrity is compromised; if the tidal wetland boundary has moved landward of the bulkhead; and, if sections are missing. In practice, the DEC tends to err on the side of caution and often will declare even a slightly damaged bulkhead non-functional if it fails to operate as designed. For example, if the bulkhead does not prevent soil from eroding into the water or the wetlands from moving landward, it may be deemed non-functional and the DEC will assert jurisdiction landward of the bulkhead.

The DEC’s regulations allow ordinary maintenance and repair, not involving expansion or substantial restoration, reconstruction or modification, to be performed without a permit. While this should be done regardless of when the bulkhead was constructed to avoid having to obtain a tidal wetlands permit in order to make substantial repairs, for the reasons set out above, it is critically important that the property owner regularly perform routine maintenance if the bulkhead was built prior to August 1977.

Supreme Court Defines “Supervisor” for Purposes of Harassment Claims

Posted: July 22nd, 2013

An employer’s liability for workplace harassment could turn on whether the harasser meets the Supreme Court’s newly adopted definition of “supervisor” of the victim, according to the Court’s opinion in Vance v. Ball State University, handed down on June 24, 2013.

Petitioner Maetta Vance, an African-American woman, had worked in the Ball State’s Banquet and Catering Department since 1989. Over the course of her employment there, Vance made numerous complaints regarding her interactions with Saundra Davis, a white catering specialist in her department. Vance filed complaints with the university and charges with the Equal Employment Opportunity Commission (EEOC), alleging racial harassment and discrimination, mainly stemming from her interactions with Davis.

Despite these efforts, the problem persisted. Vance eventually filed a lawsuit in 2006 in the United States District Court for the Southern District of Indiana, alleging that she had been subjected to a racially hostile work environment in violation of Title VII of the 1964 Civil Rights Act. Vance alleged that Ball State was liable for the hostile work environment created by Davis, whom Vance alleged was her supervisor.

Under Title VII, an employer’s liability for workplace harassment depends on whether the harasser is considered a co-worker or a supervisor. If the harasser is the victim’s co-worker, the employer may defend itself simply by showing that it was not negligent in addressing harassment complaints. However, if the harasser is the victim’s supervisor and no “significant change in employment status” occurs, such as the victim’s firing or demotion, the employer may avoid liability only by establishing that “(1) the employer exercise reasonable care to prevent and correct any harassing behavior and (2) that the plaintiff unreasonable failed to take advantage of the preventive or corrective opportunities that the employer provided.” If a significant change in employment status does occur, the employer is strictly liable.

In Vance’s case, the District Court granted Ball State’s motion for summary judgment, finding that the university was not vicariously liable for Davis’s actions because Davis, who did not have firing power over Vance, was not, in fact, Vance’s supervisor. The Seventh Circuit affirmed, and eventually so did the Supreme Court. The Court rejected the “nebulous” definition of “supervisor” in the EEOC guidelines, instead specifically defining “supervisor” as an employee who has the power “to take tangible employment actions against the victim, i.e., to effect a ‘significant change in employment status, such as hiring, firing, failing to promote, reassignment with significantly different responsibilities, or a decision causing a significant change in benefits.’”

Writing for the majority, Justice Alito explained that, in the Court’s mind, the newly adopted definition of “supervisor” would eliminate the question of supervisor status from a trial, which in turn “will focus the efforts of the parties, who will be able to present their cases in a way that conforms to the framework that the jury will apply.”

But Justice Ginsburg, joined by Justices Breyer, Sotomayor, and Kagan, argued in her dissent that the majority’s decision “ignores the conditions under which the members of the work force labor, and disserves the objective of Title VII to prevent discrimination from infecting the Nation’s workplaces.” The majority’s definition of “supervisor,” according to Justice Ginsburg, “strikes from the supervisory category employees who control the day-to-day schedules and assignments of others.” Although Justice Ginsburg herself questioned whether Davis would qualify as Vance’s supervisor even under this more relaxed definition, she lamented that “the Court has seized upon Vance’s thin case to narrow the definition of supervisor, and thereby manifestly limit Title VII’s protections against workplace harassment.”

Employers should take care not to view this employer-friendly decision as shielding them from hostile workplace claims. Instead, employers should take the opportunity to review their internal policies to ensure they provide for the prompt investigation of any such allegations and that employees are trained and remain up-to-date with Equal Employment Opportunity laws.

New York Navigation Law Update

Posted: July 11th, 2013

New York’s Navigation Law deals with oil spills, who must clean them up, and who must pay for the damage. Despite the name, the law applies to discharges of petroleum on land that may adversely impact the “waters of the State,” which include groundwater. Some recent court decisions are of interest.

Benjamin v. Keyspan Corp., 104 A.D.3d 891 (2nd Dept. 2013).

The normal statute of limitations for a claim of damage to property from petroleum contamination is three years from when the property owner knew or should have known of the problem. In this case, defendant Keyspan showed that the plaintiff had agreed to the installation of monitoring wells on his property, had participated in a survey regarding possible contamination in the area, and was notified of monitoring and testing results in the vicinity of the property at least eight years before the plaintiff filed suit. Thus, the action was dismissed as time-barred.

This decision from the Appellate Division, which has jurisdiction over Nassau, Suffolk, Staten Island, Brooklyn, Queens, Westchester, Dutchess, Rockland, Orange and Putnam Counties, underscores the importance of timely action by a property owner who knows or reasonably suspects that his property has been contaminated.

State of New York v. Zurich American Insurance Co., 106 A.D.3d 1222 (3rd Dept., 2013).

The Navigation Law allows any injured party to recover damages, not only from the “discharger”, but also from that person’s insurance company, by suing the insurance company directly. In this case, New York State expended over $124,000 to clean up contamination at a gas station in Northport, SuffolkCounty. It then tried to recover its costs by commencing an action against Zurich. However, Zurich had already obtained a declaratory judgment against its insured, stating that the claim is not covered under the policy. It argued that this decision meant that it could not be now sued by the State.

The Appellate Division disagreed. It pointed out that the State had not been a party to the earlier lawsuit and was therefore not bound by that court’s decision. The State must be given its own opportunity to convince the court that the policy covers the discharge. Of course, if it cannot, the insurance company will be off the hook. Another possibility is that, to avoid litigation costs, Zurich will agree to pay some of the cleanup costs as part of a settlement agreement.

Thus, if there is a dispute over policy coverage of a petroleum spill, the insurance carrier should add as a party to any lawsuit the injured party who may have incurred costs as a result of the discharge. That will create “collateral estoppel”, i.e. be binding on all the participating parties and deter subsequent litigation. Of course, the downside of including the State in a declaratory judgment action is that doing so will guarantee that the State becomes aware of the potential insurance coverage.

State of New York v. C. J. Burth Services, Inc., 39 Misc. 3d 1221(A) (Sup. Ct. Albany Co. 2013).

Anyone who violated the Navigation Law may be subject to penalties of up to $25,000 per day, with each day of a continuing violation counting as a new offense. In this case, the State asked the court to impose these penalties on the owners of a gas station, even though the latter claimed that they did not cause any spill and that the contamination had occurred years earlier before they had purchased the property. The State’s rationale was that, once they became aware of the contamination, “defendants failed to take all necessary actions to abate [it]”, by rejecting the Department of Environmental Conservation’s proposed stipulation about the work that had to be done and not doing any cleanup on their own. The court agreed that penalties could be imposed in this instance and set the matter for trial.

The important lesson to be learned from this case is that the net of Navigation Law liability can ensnare not only the person who causes a spill and his/her insurance company, but also a subsequent owner who discovers the contamination and does nothing to address it. To avoid heavy penalties, the innocent owner may consider applying to the Brownfields Program as a “volunteer”. This status allows the owner to limit the cleanup to the boundaries of the property without requiring him or her to investigate and remediate the off-site contaminant plume.

June 2013 Legal Brief – Firm Newsletter

Posted: June 28th, 2013

Obama Plans to Take Action Against Patent Trolls

Posted: June 28th, 2013

Tags: intellectual property

President Obama announced earlier this month a set of executive actions directed at cracking down on patent-holding firms that interfere with competition and abuse the patent system.

The Wall Street Journal reports that these “patent trolls” are forcing technology companies, financial institutions and others into costly lawsuits to protect their products by collecting large numbers of patents and then pursuing licensing fees while not actually producing any products themselves. Many technology companies have dealt with multiple lawsuits from so-called “patent trolls,” which aim to make money primarily through licensing fees.

These firms, also known as non-practicing entities (NPE) or patent assertion entities (PAE), say they are doing nothing wrong, just using patents that were legally granted by the U.S. Patent and Trademark Office. They say they promote a fair market by protecting smaller inventors.

Obama has constructed a five-step plan with a total of seven legislative changes, which will be released as part of a White House report on patent trolls. The plan includes a recommendation that the U.S. Patent and Trademark Office create rules that require patent owners to be identified and a request for Congress to pass legislation that puts sanctions on questionable lawsuits filed by patent-holding firms.

Additionally, Obama hopes to cut down on the International Trade Commission’s involvement in patent disputes. Claims filed with the ITC are often resolved more quickly than standard federal lawsuits. The Obama administration would like Congress to change certain ITC legal standards and ensure that the agency has flexibility in hiring its judges. Officials say that the President will order a review of existing procedures at the ITC. Reliance on the ITC has not been limited to patent trolls, as a number of technology companies such as Apple, Samsung, and Google have increasingly used the International Trade Commission to settle a number of patent disputes. The so-called “Smartphone Patent Wars” have ballooned in recent years and today, several major companies spend more on patent litigation and defensive acquisition than on research and development.

According to President Obama, patent-holding firms are a drain on progress. The firms, he says, “don’t actually produce anything themselves. They’re just trying to essentially leverage and hijack someone else’s idea to see if they can extort some money out of them.”

The US patent system is meant to reward Americans for their hard work, risk-taking and creativity and encourage innovation and invention. But in recent years, there has been an explosion of abusive patent litigation designed not to enforce intellectual property rights, but to threaten companies in order to extract settlements costing the economy billions of dollars.

According to the White House blog, in the last two years the number of lawsuits brought by patent trolls has nearly tripled, and account for 62% of all patent lawsuits in America. All told, the victims of patent trolls paid $29 billion in 2011, a 400% increase from 2005 — not to mention tens of billions dollars more in lost shareholder value.

It’s a problem not limited to wealthy multinational corporations and venture capitalists, but small business owners as well. Businesses of any size are vulnerable to these tactics. The White House estimates that last year patent trolls sent out over 100,000 demand letters, threatening everyone from Fortune 500 companies to corner coffee shops and even regular consumers to pay a settlement or face a day in court.

Obama’s initiative will help protect against frivolous litigation, and deter patent trolls from simply racking up licensing fees through the threat of litigation. This firm will be closely watching the bills being introduced under Obama’s plan as it will greatly affect the number and type of patent litigations that can be brought by these NPEs.

Derivative Claims in Landlord/Tenant Court

Posted: June 24th, 2013

By Patrick McCormick

In a case of apparent first impression in New York, in Gorbrook Associates Inc., and Norman Fishman, derivatively on behalf of Gorbrook Associates, Inc., v. Ilene Silverstein, John Doe and Jane Doe1, Judge Scott Fairgrieve held that the summary holdover proceeding was properly instituted derivatively by a shareholder on behalf of the corporation.

The petition alleged that petitioner Norman Fishman was an officer and owned 25 shares of Gorbrook and that Fishman and Allen Silverstein were the only directors of Gorbrook. As set forth in the decision, the petition further alleged that Ilene Silverstein was the daughter of Allen Silverstein and sister of Eric Silverstein and that Allen Silverstein and/or Eric Silverstein “arranged for Ilene Silverstein and her husband to move into the premises without a lease or contractual or statutory grant, authority or other basis.” Further still, the petition alleged that Fishman had demanded that Allen Silverstein cooperate or not interfere with Gorbrook’s efforts to secure use and occupancy payments from Ilene or to remove Ilene and her husband from possession of the premises; that Allen Silverstein was aware that Fishman wanted to collect such payments or to obtain possession of the premises; that Allen Silverstein refused to cooperate with Gorbrook’s efforts and that Allen Silverstein opposed the relief sought in the petition so that “it would have been futile for N. Fishman to attempt to secure the approval of A. Silverstein to seek such relief assuming arguendo that such approval was necessary.” A thirty day notice to quit was served and upon the refusal to vacate the premises the holdover proceeding was commenced. Respondents moved to dismiss under CPLR 3211(A)(7) alleging that Norman Fishman did not have authority to bring the proceeding and that a shareholder could not maintain a summary proceeding derivatively.

Not surprisingly, there is more to the story. The moving and opposing papers revealed that Ilene Silverstein had entered into a contract to purchase the subject premises and that the contract was signed by Fishman. When the closing did not occur after the declaration of a “time of the essence” closing date, Gorbrook, by Fishman, terminated the contract and an action was commenced in Nassau Supreme Court wherein Ilene Silverstein sought a declaratory judgment that the contract was valid. Ilene Silverstein also alleged in an affidavit that Fishman owned 25% of Gorbrook’s shares, that Allen Silverstein owned 25% of the shares; 25% were owned by her sister-in-law Robin Silverstein and 25% were owned by Rita Fishman as beneficiary of the estate of Ted Fishman, Norman’s brother. Ilene also alleged that there were 3 directors of Gorbrook: Norman Fishman, Allen Silverstein and Robin Silverstein. Ilene also alleged that she moved into the premises with Fishman’s consent. Robin Silverstein submitted an affidavit wherein she claimed she was a 25% shareholder and was a director and secretary of Gorbrook and that Fishman commenced the proceeding “on his own volition and does not have authority to evict Ilene Silverstein.” Allen Silverstein submitted an affidavit claiming he owned 25% of the shares and was a director with Robin Silverstein and that he was the vice-president of Gorbrook. The Silversteins alleged that Fishman did not have authority to commence the summary proceeding and that the proceeding was vindictive and designed to force Allen Silverstein to make financial concessions in a dissolution proceeding for Gorbrook.

Norman Fishman submitted an affidavit stating that: “Respondents are trying to use Allen Silverstein and Robin Silverstein’s membership on the board of directors to prevent Gorbrook and Norman Fishman from acting derivatively on behalf of Gorbrook”; that he “has a 31.25% ownership interest and that Allen Silverstein has a 18.75% interest”; that the “only two members of the board are Norman Fishman and Allen Silverstein”; and that neither the sale contract or any modification permitted occupancy of the premises and that he protested the occupancy.

Judge Fairgrieve held that “a derivative action may be maintained by Norman Fishman on behalf of the corporation Gorbrook.” The court reasoned that “[t]he economic benefit of the summary proceeding belongs to the corporation and not to Norman Fishman, individually . . . Any recovery from a shareholder’s derivative suits inures to Gorbrook and not to the shareholder who instituted the suit . . . Thus any recovery belongs to the corporation. Since the corporation is the owner of the premises and will receive the benefit of the summary proceeding an action may be brought pursuant to RPAPL §721 because Gorbrook is the owner of the property.” The Court also found that Fishman’s pleading adequately pled grounds establishing that a demand on the board of directors to initiate the summary proceeding would be futile and that sufficient specific facts were alleged showing that the other directors would not be impartial and therefore, because “Gorbrook has the right to protest and enjoy the economic benefits to be derived from ownership of said premises . . . this summary proceeding may be brought by Norman Fishman derivatively on behalf of Gorbrook Associates.”

The Court’s Decision/Order is worthy of review not only for the discussion of the viability of the derivative claim but also for the Court’s analysis and determination that Norman Fishman did not have the authority as a director and treasurer to institute the proceeding directly in the name of Gorbrook. This proceeding and the Court’s Decision confirm that sometimes summary eviction proceedings can involve complex issues usually reserved for Supreme Court litigation.

1 District Court of Nassau County, First District, L&T Part, Index Number LT-004906-10, Decided May 14, 2013

College Kids Are Adults

Posted: June 23rd, 2013

By: Martin Glass, Esq. email

Tags: estate planning

The summer before my oldest went off to college, we all went for an orientation weekend. While there, he went off and did his thing and my wife and I went off and did ours. In one of our parent orientation seminars we were reminded that, now that he is 18, he is officially an “adult” in the eyes of the law. We, as parents, would no longer have the automatic legal right to make his healthcare decisions, have access to his healthcare records in an emergency, or be included in any of his financial decisions. Who was paying their enormous bill was irrelevant. His life became private and confidential.

Amid the hustle and bustle of getting your kids off to college, it is easy to forget that you need to make sure they have signed a healthcare proxy and a HIPAA authorization form. (HIPAA is the federal law which prohibits physicians and hospitals from disclosing confidential medical records to anyone other than the patient, unless the patient has expressly authorized another person to have access to his records.) The consequences of forgetting these simple forms can be tragic. If something should happen to your child while at college (such as an injury or illness), you do not want to be told by some doctor or hospital employee in a far-off state that they cannot even talk with you about your child’s medical status.

This is especially true when the potential harm is so easily prevented. With a healthcare proxy, your child signs a document appointing you as their healthcare agent, who will be authorized to make healthcare decisions for them if they ever become unable to make their own decisions. In addition, your child can leave a living will, in which they can specify what kind of end-of-life medical treatments they want (or do not want).

With a HIPAA authorization, your child simply names the person or persons to whom medical personnel may release his or her medical information. This includes the person named as their healthcare agent, but may include others, such as siblings.

Lastly, your child should sign a Durable Power of Attorney. Just because you’re the one actually paying the school’s tuition does not automatically allow you to see his financial records. A Power of Attorney naming you as the Agent will allow you access to his bank accounts, along with his school loans and other financial documents. A Power of Attorney is a bit different from a Healthcare Proxy in the fact that you are given the power immediately after it is signed and you keep the power even if your child becomes incapacitated.

A few years later, my daughter’s college has actually made this a bit easier. They have a form that they give to all incoming students where the student can name who is allowed to talk to the Bursar and Financial Aid Office. Unfortunately, that still can leave you with a problem should you need to speak with a bank regarding your child’s loans.

These documents may seem trivial and typically are not looked at on the same level as a Last Will and Testament, but they should be. Actually, for a young adult with not a lot of “stuff” or assets, these documents can be more important, as they can have an immediate impact on a potentially critical situation.

Supreme Court Focuses on Arbitrations and Class Actions

Posted: June 23rd, 2013

According to Justice Elena Kagan, the Supreme Court’s recent decision confirming a corporation’s ability to require arbitration in the event of a dispute is “Too darn bad.” The June 20, 2013 decision in American Express Co. v. Italian Colors Restaurant (No. 12-133) considered the situation of an Oakland, California restaurant which, along with other merchants, had commenced a class action lawsuit against American Express for violations of the Sherman and Clayton federal antitrust acts. According to Italian Colors and its fellow merchants, American Express used its monopoly power in the credit card market to force merchants to accept credit cards at rates 30% higher than the fees for competing cards.

The credit card agreements between American Express and each of its merchants require that all disputes be resolved by arbitration, and provide that there “shall be no right or authority for any Claims to be arbitrated on a class action basis.” Citing these agreements, American Express moved to dismiss the class action and to compel individual arbitration with each merchant under the Federal Arbitration Act. In opposition to the motion, the merchants submitted an affidavit from an economist who estimated that the expert analysis required to prove the merchants’ antitrust claims could cost “at least several hundred thousand dollars, and might exceed $1 million,” while each plaintiff’s maximum recovery would be $38,549. Even so, the District Court granted the motion, but the Court of Appeals reversed, finding that the merchants “would incur prohibitive costs if compelled to arbitrate under the class action waiver.” If all of the merchants could share the costs in a class action, pursuing these claims would be much more feasible.

Although the merchants argued that requiring each of them to individually arbitrate their claims would violate federal antitrust laws, the Supreme Court disagreed, finding that Congress had established the legality of binding arbitration agreements (such as that at issue in this case). As Justice Antonin Scalia, writing for the majority, noted: “the antitrust laws do not guarantee an affordable procedural path to the vindication of every claim.” The Court found that even with a class action off the table, each merchant still had a remedy, albeit an expensive one: “the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy.” The Court’s decision essentially validated the credit card company’s contract mandating arbitration and eliminating the possibility of a class action.

While some observers lauded the decision as an endorsement of alternative dispute resolution and a win for contractual freedom, others, such as Justice Kagan, voiced their concern. Recognizing that cost effectively barred Italian Colors from proving its case outside a class action setting, Justice Kagan wrote that under the majority’s decision, “Amex has insulated itself from antitrust liability — even if it has in fact violated the law. The monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse.”