Claim for Providing Material Support Under Antiterrorism Act Requires Knowing Support of Terrorist Organization, Not Terrorist Activities

On September 22, 2014, the Second Circuit issued a decision in Weiss v. National Westminster Bank PLC, No. 13-1618-CV, discussing the scienter required to state a claim for providing “material support and resources to a terrorist organization in violation of the Antiterrorism Act.”

In Weiss, the EDNY dismissed a an Antiterrorism Act claim, holding that such a claim requires knowing support of terrorist activities. The Second Circuit reversed, explaining:

While § 2333(a) does not include a mental state requirement on its face, it incorporates the knowledge requirement from § 2339B(a)(1), which prohibits the knowing provision of any material support to terrorist organizations without regard to the types of activities supported. . . .

Thus, to fulfill § 2339B(a)(1)’s scienter requirement, incorporated into § 2333(a), Plaintiffs must show that [the defendant] both knew that it was providing material support to Interpal and knew that Interpal engaged in terrorist activity. Section 2339B(a)(1) does not require a showing that NatWest knew it was providing material support for terrorist activity.

(Internal quotations and citations omitted) (emphasis added). The Second Circuit went on to explain that:

For the purposes of § 2339B(a)(1), a defendant has knowledge that an organization engages in terrorist activity if the defendant has actual knowledge of such activity or if the defendant exhibited deliberate indifference to whether the organization engages in such activity. . . . . Section 2339B(a)(1) explicitly incorporates the meaning of “engage in terrorist activity” from § 212(a)(3)(B) of the Immigration and Nationality Act, 8 U.S.C. § 1182(a)(3)(B)(iv)(IV), which defines “engage in terrorist activity” to include soliciting funds or other things of value for a terrorist organization described in clause (vi)(I). Clause (vi)(I) defines “terrorist organization” to mean an organization designated under section 1189 of this title, and § 1189 authorizes the Secretary of State to designate an organization as a foreign terrorist organization (“FTO”).

(Internal quotations and citations omitted) (emphasis added). Because Interpal was alleged to have “solicited funds for Hamas,” which has been designated as a terrorist organization, “Interpal engaged in terrorist activity within the meaning of Section 212(a)(3)(B) of the Immigration and Nationality Act.” To prevail, the plaintiff thus had to show that the defendant”provided material support to Interpal while having knowledge that, or exhibiting deliberate indifference to whether, Interpal solicited funds or other things of value for Hamas, regardless of whether those funds were used for terrorist or non-terrorist activities.”

Habeas Petitioner Entitled To Hearing On Whether Counsel Ignored Instruction To File Notice Of Appeal

On August 28, 2014, the Second Circuit issued a decision in Zazi v. United States, 13-2437-PR, holding that the EDNY erred in not holding a hearing on the question of whether a habeas corpus petitioner’s counsel ignored the petitioner’s instructions to file a notice of appeal.

In Zazi, the EDNY denied without hearing a petition for habeas corpus including a claim that the petitioner was “denied effective assistance of counsel by his lawyer’s failure to file a timely notice of appeal.” The Second Circuit reversed, explaining:

Our precedent holds that “a lawyer who disregards a defendant’s specific instruction to file a notice of appeal acts in a manner that is professionally unreasonable. Thus, even where, as here, a petitioner has waived his right to appeal, we have held that a claim that counsel failed to file a requested notice of appeal warrants a hearing before the district court to determine whether such a request was in fact made.

Because no such hearing was conducted here, on consent of the parties, we remand this case to the district court to conduct an evidentiary inquiry into [petitioner’s] claim that counsel was constitutionally ineffective in failing to file a requested notice of appeal, leaving the scope and nature of that hearing to the discretion of the district court.

(Internal citations omitted) (emphasis added).

Liens For Municipal Water And Sewer Charges Not Debts For the Purposes of the FDCPA

On August 27, 2014, the Second Circuit entered a decision in Boyd v. J.E. Robert Co., 12‐4422-CV, affirming a decision by the EDNY holding that water and sewer service liens were not debts for the purposes of the Fair Debt Collection Practices Act.

In Boyd, the EDNY dismissed the plaintiffs’ putative class action alleging “that defendants obtained unauthorized attorneys’ fees and costs in connection with actions to foreclose liens on plaintiffs’ properties arising out of unpaid municipal property taxes and water and sewer charges” in violation of the FDCPA, holding that the liens involved “did not involve a ‘debt’ as defined by the FDCPA.” The Second Circuit affirmed, explaining:

In order to maintain an FDCPA action, the allegedly unlawful behavior must occur in connection with collection of a “debt.” The FDCPA defines “debt” as “any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment.” 15 U.S.C. § 1692a(5) (emphasis supplied).

We have not addressed the question of whether New York City’s mandatory water and sewer charges involve “debt” within the meaning of the FDCPA. In Beggs v. Rossi, we held that municipal taxes levied automatically in connection with ownership of personal property do not involve a “transaction” as that term is understood under the FDCPA and, accordingly, are not “debt” for purposes of the FDCPA. 145 F.3d 511, 512 (2d Cir. 1998). We now conclude that the New York City water and sewer charges also do not involve “debt” under the FDCPA. Rather, the relationship between plaintiffs and the City with respect to such charges is akin to “taxpayer and taxing authority,” and “does not encompass that type of pro tanto exchange which the statutory definition envisages.” Beggs, 145 F.3d at 512.

Like property taxes, New York City water and sewer charges are levied, in some amount, as an incident to property ownership in New York. In addition, the actions to foreclose the liens in question were instituted pursuant to New York law governing “tax liens.” Further, the city ordinance governing foreclosure of water and sewer liens requires that they be conducted “in the same manner as a lien for [] taxes.” N.Y. Pub. Auth. L. § 1045‐j(5). In light of the foregoing, the charges at issue are best treated as akin to the municipal property taxes discussed in Beggs and, accordingly, outside the scope of the FDCPA.

Pro Se Plaintiff Should Have Been Allowed To Amend Complaint

On August 19, 2014, the Second Circuit issued a decision in Garay v. Novartis Pharmaceuticals Corp., 13-3762-CV, reversing a denial by the EDNY of leave to amend a complaint that had been dismissed on the pleadings.

In Garay, the EDNY dismissed with prejudice a pro se plaintiff’s age discrimination and retaliation claims. The Second Circuit affirmed the dismissal, but reversed the EDNY’s refusal to allow the plaintiff to file an amended complaint, explaining:

While the District Court’s ruling was otherwise sound, it erred in denying [the plaintiff] leave to amend her complaint on futility grounds. As a general rule, leave to amend should be freely given, and a pro se litigant in particular should be afforded every reasonable opportunity to demonstrate that she has a valid claim. We have thus held that a pro se complaint should not be dismissed without the Court granting leave to amend at least once when a liberal reading of the complaint gives any indication that a valid claim might be stated. An amendment to a pleading is futile if the proposed claim could not withstand a motion to dismiss pursuant to Rule 12(b)(6).

(Internal quotations and citations omitted). After reviewing the plaintiff’s opposition to the defendant’s motion for judgment on the pleadings, the Second Circuit concluded that she should have been allowed to file an amended complaint because such an amendment might not have been futile in light of her allegations regarding retaliation.

Defendant Liable for Malicious Prosecution Even Though No Actual Prosecution Took Place

On July 30, 2014, the Second Circuit issued a decision in Stampf v. Trigg, Docket No. 11-3225-CV, affirming an EDNY decision finding a defendant liable for malicious prosecution.

In Stampf, a defendant, Trigg, accused the plaintiff, her co-worker Stampf, of touching her inappropriately and filed a complaint with the MTA police.  Trigg’s complaint led to Stampf’s arrest, during which she “was handcuffed” in front of co-workers, “placed in a police car,” “held in a locked cell for approximately four hours, and “issued a desk appearance ticket (‘DAT’), which listed Forcible Touching as the offense charged.”  Stampf was subsequently released and no criminal complaint ever was filed against her. However, Stampf’s employer, the LIRR, suspended her for 21 days without pay; “an arbitration panel convened pursuant to the Railway Labor Act and affirmed the” LIRR’s “determination that [the plaintiff] violated [its] Anti-Harassment Policy, but reduced the suspension to ten days and awarded [the plaintiff] compensation for lost time.”

Stampf subsequently sued Trigg, the LIRR “and other defendants” in the EDNY “asserting violations of the Federal Employers Liability Act (‘FELA’) and 42 U.S.C. § 1983; state law claims of false arrest, malicious prosecution, negligent and intentional infliction of emotional distress; and violations of state and city human rights laws.” The EDNY granted the defendants summary judgment on all of Stampf’s claims except her “malicious prosecution against Trigg . . . and her discrimination claims against the LIRR.” At trial, “the jury found Trigg liable for malicious prosecution and awarded Stampf damages of $200,000 for past mental and emotional suffering, $100,000 for future mental and emotional suffering, $30,000 as compensation for out-of-pocket losses, and $150,000 as punitive damages, totaling $480,000.”

On appeal, the Second Circuit affirmed the jury’s finding of liability but found the damages excessive. As to liability, the Second Circuit explained:

To establish a malicious prosecution claim under New York law, a plaintiff must prove (1) the initiation or continuation of a criminal proceeding against plaintiff; (2) termination of the proceeding in plaintiff’s favor; (3) lack of probable cause for commencing the proceeding; and (4) actual malice as a motivation for defendant’s actions. . . . .

As to the first element, the Second Circuit held that the MTA’s issuance of a DAT to Stampf constituted “the initiation or continuation of a criminal proceeding.” It explained:

In Rosario v. Amalgamated Ladies’ Garment Cutters’ Union, Local 10, 605 F.2d 1228, 1249-50 (2d Cir. 1979), . . . this court concluded that a New York court would rule that the issuance of [a Desk] Appearance Ticket commences a prosecution for purposes of determining whether an action for malicious prosecution lies. The Rosario court reasoned:

[When a DAT is issued,] the accused bears the inconvenience and expense of appearing in court and, perhaps more important, is subject to the anxiety induced by a pending criminal charge. Moreover, if others learn that charges have been lodged against the accused, his character is no less traduced because the accusation is contained in an Appearance Ticket rather than in a summons.

Trigg urges us to reject our holding in Rosario in light of the subsequent New York Civil Court decision in McClellan v. New York City Transit Authority, 444 N.Y.S.2d 985 (Civ. Ct., Kings Co. 1981). McClellan ruled that the issuance of a D.A.T. by the police, without a concomitant filing of an accusatory instrument, or other judicial intervention, is not the commencement of a criminal action and cannot support a cause of action for malicious prosecution. The court noted its respectful disagreement with the United States Court of Appeals for the Second Circuit.

However, the Appellate Division, Fourth Department has explicitly declined to follow McClellan and instead adopted Rosario’s reasoning, holding that a DAT was sufficient to support a claim of malicious prosecution. See Snead v. Aegis Sec., Inc., 482 N.Y.S.2d 159, 160-61 (4th Dep’t 1984). Likewise, in reversing the dismissal of a malicious prosecution claim, the Third Department, citing Snead, treated the issuance of a DAT as constituting initiation of a criminal proceeding. Allen v. Town of Colonie, 583 N.Y.S.2d 24, 26 (3d Dep’t 1992).

Trigg also relies on the Second Department’s ruling in Stile v. City of New York, 569 N.Y.S.2d 129 (2d Dep’t 1991), which dismissed a malicious prosecution claim on the ground that such a claim may arise only after an arraignment or indictment or some other evaluation by a neutral body that the charges were warranted. However, Stile is not on point because the plaintiff in that case was not issued a DAT or any other command to appear in court.

We recognize that several courts of first instance, following the language of Stile, have ruled that a DAT does not initiate a criminal proceeding. Nonetheless, in view of the fact that the Second Department has never held that a DAT does not initiate a criminal proceeding for the purposes of a malicious prosecution claim, and that the Third and Fourth Departments in Snead and Allen held, in accordance with Rosario, that it does, we adhere to the position we took in Rosario that, under New York law, the issuance of a DAT sufficiently initiates a criminal prosecution to sustain a claim of malicious prosecution.

(Internal quotations and citations omitted).

The Second Circuit rejected the argument that Trigg “played [no] role in the issuance of the DAT,” holding that “[i]n order to initiate a criminal proceeding for the purposes of a malicious prosecution claim, Trigg need not have explicitly named each element of a particular crime[ and i]nstead, it must be shown that the defendant played an active role in the prosecution, such as giving advice and encouragement or importuning the authorities to act,” something which she clearly did.

Finally, the Second Circuit rejected the argument that “the proceeding” against Stampf did not terminate in her favor, explaining that a “dismissal without prejudice qualifies as a final, favorable termination if the dismissal represents the formal abandonment of the proceedings by the public prosecutor.”

Second Circuit Affirms EDNY Award Of Attorneys’ Fees Against Civil Rights Plaintiff

On July 21, 2014, the Second Circuit issued a decision in Carter v. Incorporated Village of Ocean Beach, 13-815-CV, affirming an award by the EDNY of attorneys’ fees to defendants in a civil rights action.

In Carter, the “[p]laintiffs, five former seasonal and part-time police officers . . . pursued a variety of wrongful termination and defamation claims against” a collection of defendants, including Suffolk County and several of its employees and agencies (the “County Defendants”). The plaintiffs dismissed some of their claims and the EDNY “granted summary judgment to all Defendants” on the remaining claims. After that ruling was affirmed by the Second Circuit, the EDNY “awarded attorney’s fees and costs to the County Defendants.” The plaintiffs appealed. The Second Circuit affirmed.

One issue raised by the plaintiffs was that the EDNY awarded fees to the County Defendants on claims that were not addressed by the EDNY summary judgment decision. The Second Circuit rejected the argument, explaining:

Plaintiffs rely on Nemeroff v. Abelson, 620 F.2d 339, 350‐51 (2d Cir. 1980) (per curiam), which observed that generally the defendant is not considered the prevailing party when, as here, there is a voluntary dismissal of the action by the plaintiff with prejudice. Plaintiffs argue that they therefore cannot be held liable for any fees and costs that the County Defendants would have incurred anyway to defend against the claims that were dismissed voluntarily. But Nemeroff’s general statement of fee-shifting law was dictum because the order of dismissal in that case expressly reserved defendants’ right to move for costs. The court had no occasion to apply the rule it posited. Moreover, the only authority Nemeroff cited, Mobile Power Enterprises, Inc. v. Power Vac, Inc., 496 F.2d 1311, 1312 (10th Cir. 1974), has since been overruled by a unanimous en banc Tenth Circuit, which explained that Mobile Power was illogical, a misreading of both the Federal Rules and earlier precedent, and contrary to the decisions of most other courts. Nemeroff is also in tension with subsequent case law from the Supreme Court. In Buckhannon, the Supreme Court held that, to prevail for purposes of attorney’s fees, a party (the plaintiff in that case) must have gained through the litigation a material alteration of the legal relationship of the parties. A voluntary dismissal of an action with prejudice works such alteration, because it constitutes an adjudication on the merits for purposes of res judicata, and any action so dismissed could not be brought again. Because the Nemeroff dictum suggests to the contrary, and has no redeeming justification, we reject it.

(Internal quotations and citations omitted) (emphasis added). Having dealt with the precedent of Nemeroff, the Second Circuit went on to affirm because the combination of their victory on summary judgment and the voluntary dismissal meant that “the victory for the County Defendants was total,” and that the plaintiffs “are barred by res judicata from relitigating any of” their claims.

With respect to the plaintiffs’ state law claims, over which the EDNY declined to exercise jurisdiction (and thus which were not determined on the merits by the EDNY), the Second Circuit explained:

Other courts have ruled that a declination to exercise supplemental jurisdiction is insufficient to confer prevailing party status on a defendant, since those claims could later be refiled. In the circumstances of this case, however, a state court had dismissed the state law claims on the pleadings before the district court resolved the motion for attorney’s fees in the federal case. Accordingly, there was no chance that these claims would be refiled, and the defendants are properly considered prevailing parties on these claims. Moreover, the state law claims against the County Defendants were frivolous for the same reason that the federal claims were frivolous: the County Defendants had nothing to do with the alleged improper termination and the defamation underlying Plaintiffs’ complaint.

Plaintiffs argue that even if the state law claims were frivolous, fees cannot be imposed without adjudication of these claims by the federal court. This argument is implicitly at odds with [the Supreme Court’s decision in] Fox, in which the district court granted summary judgment on the federal claims (which were frivolous) and remanded the state claims (which were not). The issue was how to allocate between work associated with the former and work associated with the latter; the Supreme Court held that plaintiffs could be liable only for costs and fees that the defendant would not have incurred but for the frivolous claims. If Plaintiffs were correct, there would have been no need in Fox to draw a line between claims that were frivolous and those that were not: claims remanded to state court would never be subject to fee-shifting.

(Internal citations omitted). Finally, as to the plaintiffs’ argument that “no fees should have been awarded as to all their” claims other than federal civil rights claims, the Second Circuit explained that:

The state claims in Fox were not specifically listed in § 1988. Under Plaintiffs’ logic, the Court would have disposed of the appeal by explaining that fees associated with those claims were unavailable, without reference to frivolousness. More importantly, Plaintiffs’ argument distorts the text of § 1988, which provides that in any action or proceeding to enforce a federal civil rights provision, the prevailing party may be entitled to fees. Plaintiffs’ action sought to enforce (inter alia) federal civil rights provisions, and the County Defendants prevailed.

(Internal quotations omitted).

Takings Claim Not Ripe Until Process For Obtaining Compensation Complete, Even If Taking Already Has Occurred

On July 16, 2014, the Second Circuit issued a decision in Kurtz v. Verizon New York, Inc., 13-3900-CV, affirming a decision by the EDNY that the plaintiffs had not stated a takings claim because, even though the takings already had occurred, they had not yet exhausted all of their state remedies to obtain compensation for the taking.

In Kurtz, a putative class alleged that “Verizon installed multi-unit terminal boxes on their property without just compensation,” and, because it did so using New York’s power of eminent domain, this constituted a taking. The EDNY dismissed the complaint, holding that the claim was not ripe because the plaintiffs had not yet exhausted their state law remedies to obtain compensation from Verizon. The Second Circuit affirmed, explaining:

To test the ripeness of a constitutional takings claim in federal court, we consult Williamson County. In that case, a plaintiff owner of a tract of land sued a Tennessee regional planning commission alleging that the commission’s application of various zoning laws and regulations to the plaintiff’s property amounted to an unconstitutional taking under the Fifth Amendment. Williamson County held that the claim was unripe: a plaintiff alleging a Fifth Amendment taking of a property interest must show that (1) the state regulatory entity has rendered a final decision on the matter, and (2) the plaintiff has sought just compensation by means of an available state procedure. As to finality, a claim that the application of government regulations effects a taking of a property interest is not ripe until the government entity charged with implementing the regulations has reached a final decision regarding the application of the regulations to the property at issue. . . .

The Fifth Amendment’s proscription of a taking without just compensation underlies Williamson County‘s exhaustion requirement: the Fifth Amendment does not require that just compensation be paid in advance of, or contemporaneously with, the taking; all that is required is that a reasonable, certain and adequate provision for obtaining compensation exist at the time of the taking. Therefore, if a State provides an adequate procedure for seeking just compensation, the property owner cannot claim a violation of the Just Compensation Clause until it has used the procedure and been denied just compensation. . . .

Plaintiffs argue that Williamson County was a case about regulatory takings, and that it does not govern claims in which, as in theirs, the taking is physical. We disagree. The finality and exhaustion requirements are both derived from elements that must be shown in any takings claim: [i] a taking [ ii] without just compensation. So Williamson County applies to all takings claims.

(Internal quotations and citations omitted).

Court Erred In Considering Only The Cost Of Incarceration During The Government Shutdown In Sentencing Defendant To Probation

On July 9, 2014, the Second Circuit issued a decision in United States v. Park, 13-4142-CR, reversing an EDNY decision sentencing a defendant to probation rather than imprisonment “based solely on its belief that the government could not afford the cost of incarceration during a so-called “government shut-down.”

In Park, the defendant pled guilty to one count of tax evasion. The defendant had prior convictions, but the EDNY sentenced the defendant to probation rather than imprisonment, explaining:

I would probably give a period of incarceration if not for the financial pressures that the Court has, the court system and the government has. Especially low-level federal employees at the present time. And we really can’t afford the luxury of paying another $28,000 to keep this person in jail under the circumstances . . . .

The Second Circuit reversed, explaining:

[W]e conclude that the District Court committed procedural error in imposing a term of probation in lieu of imprisonment for two reasons. First, the only sentencing factor the District Court deemed relevant was the cost of incarceration to the government and the economic problems allegedly caused by the government shut-down.  . . .  The Court therefore committed procedural error by refusing to consider the § 3553(a) factors in deciding what is an appropriate sentence.

Second, and equally problematic, is that the cost of incarceration to the government—the Court’s sole justification for imposing a term of probation rather than incarceration—is not a relevant sentencing factor under the applicable statutes. [B]ased on the plain language of § 3553(a), no sentencing factor can reasonably be read to encompass the cost of incarceration. Nor does the statute permit the sentencing court to balance the cost of incarceration against the sentencing goals enumerated in § 3553(a).

(Internal quotations and citations omitted) (emphasis added). The Second Circuit went on to hold that not only was the sentence procedurally unreasonable, it also was–based on the record as it stood–substantively unreasonable, given the defendant’s conduct and prior convictions.

Notice Of Breach And Opportunity To Cure Not Required When Breach Not Curable

On June 25, 2014, the Second Circuit issued a decision in Giuffre Hyundai v. Hyundai Motor America, Docket No. 13–1886, holding that contractual obligations to provide notice and an opportunity to cure a breach of contract can be excused.

In Giuffre Hyundai, the defendant “terminated its contract with” the plaintiff car dealer “after a New York State court concluded that the dealer had engaged in fraudulent, illegal, and deceptive business practices—a clear breach of the contract terms.” The plaintiff brought suit in the EDNY, alleging that the termination violated “section 463 of the New York Vehicle and Traffic Law, which provides protections to motor vehicle franchisees in their dealings with automobile manufacturers” because it was not provided notice and an opportunity to cure. The EDNY granted the defendant summary judgment, which the Second Circuit affirmed. One issue addressed by the Second Circuit was whether New York contract law excused a party from an obligation to provide notice of a breach and an opportunity to cure it when the breach could not be cured. Holding that it did, the Second Circuit affirmed the EDNY’s decision, explaining:

New York common law will not require strict compliance with a contractual notice-and-cure provision if providing an opportunity to cure would be useless, or if the breach undermines the entire contractual relationship such that it cannot be cured. In particular, New York law permits a party to terminate a contract immediately, without affording the breaching party notice and opportunity to cure when the breaching party’s misfeasance is incurable and when the cure is unfeasible. When contracting parties agree to a notice-and-cure provision, it is reasonable to assume that they do so with the assumption that the breaches which would be used to terminate the contract would be curable breaches. It is no less reasonable to presume that the legislature operated under the same expectation in drafting section 463.

(Internal quotations and citations omitted) (emphasis added).

Probate Exception Does Not Bar RICO Claims

On June 27, 2014, the Second Circuit issued a decision in Leskinen v. Halsey, 13-1157-CV, limiting the application of the probate exception to federal jurisdiction.

In Leskinen, the EDNY dismissed a plaintiff’s RICO and related state-law claims against “various relatives and other participants in the sale of real property once owned by her late grandmother,” holding “that the probate exception to federal jurisdiction precluded its adjudication of [the plaintiff’s] claims because they directly target the administration of her grandmother’s estate, including the allegedly improper disposition of real property.” While the Second Circuit ultimately found alternate grounds to uphold the EDNY’s dismissal, it held that the probate exception did not apply, explaining:

This court . . . has narrowly construed the probate exception to apply only if a plaintiff seeks either to (1) administer an estate, probate a will, or do any other purely probate matter, or (2) to reach a res in the custody of a state court. Nothing in the record demonstrates that [the plaintiff] seeks to reach a res in the custody of a state court. Insofar as she sues for racketeering, common law fraud, willful negligence, and negligent misrepresentation, the relief sought may be at odds with concluded state probate proceedings, but the claims do not themselves ask the district court to administer an estate, probate a will, or perform another purely probate matter. In such circumstances, we cannot conclude that federal jurisdiction is lacking.

(Internal quotations and citations omitted) (emphasis added).