Source: https://nysappeals.com/
Timestamp: 2019-04-18 15:29:37+00:00

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The game for the fate of daily fantasy sports in New York is on, and the State has scored first. Ok, ok. In appellate litigation, the losing party below always gets the ball first. And the State certainly lost below in this one. Judge Connolly of Supreme Court, Albany County held that daily fantasy sports were “gambling” prohibited by Article I, § 9 of the New York Constitution. But oftentimes the appellant’s opening brief leaves much to be desired, and much for the Court to decipher.
Not so here. The State has called on its stable of ready appellate lawyers, picked a great one—I know from personal experience because he’s beaten me in a case at the Court of Appeals before (still hurts now three years later)—and articulated a very strong argument for why the New York Legislature has the power to define what is and what is not gambling prohibited by the Constitution, how the Legislature exercised that power rationally here in deciding that the mixed skill and chance DFS games are not gambling, and how the courts should defer to that rationally supported legislative choice.
A number of plaintiffs challenged the law as a violation of the constitutional gambling ban, and they won. At least in part. Judge Connolly held that DFS was gambling and struck down most of the IFS law, but held that the Legislature acted within its power to decriminalize the games. So, as we stand now, DFS is unconstitutional gambling, but if the games are offered in New York nevertheless, the operators can’t be brought up on criminal charges.
In the State’s opening brief challenging Judge Connolly’s holding that the IFS Law is unconstitutional, the State makes the case that because the Constitution leaves the term “gambling” undefined, and specifically authorizes the Legislature to implement the constitutional ban, it has to be up to the Legislature to fill the gap by defining what is and what isn’t prohibited gambling. Specifically, the State builds its case on traditional notions of judicial deference to rational legislative decision making. The State points out that the Court of Appeals has repeatedly held that where the Constitution provides broad and undefined powers to the Legislature to implement a constitutional provision, as here, the courts must defer to the Legislature’s factual findings and rational implementations of that power. The State’s constitutional duty to care for the “needy” and to provide a “sound, basic education” are two such examples. Neither constitutional provision actually spells out what standard the State is required to meet, and so that job is left to the Legislature to undertake.
So too here, the State argues. Article I, § 9 of the Constitution bans “gambling” but expressly delegates to the Legislature to pass laws that carry out that command. Because the Legislature has outlined what prohibited “gambling” looks like in the criminal statutes, and undertook an extensive fact finding process in enacting the IFS Law, the State argues that it’s not for the courts to undermine the Legislature’s rational conclusion that DFS games are not prohibited gambling. As the IFS Law specifically found, they are not games of pure chance, but are instead based on a player’s skill in assembling a roster of real life athletes to compete against everyone else’s chosen rosters. DFS games, therefore, are not predominately contingent upon games outside of the player’s control, but on his or her player selection and roster management abilities.
As the State sees it, therefore, the IFS Law is just the Legislature’s latest exercise of its constitutional power to implement Article I, § 9 by defining what is and what is not prohibited gambling. That finding and policy judgment, which is based on extensive record evidence from the pre-enactment legislative hearings, is entitled to deference from the courts, the State argues.
The State also contends that Judge Connolly confused which constitutional standard should apply to evaluate whether DFS is a prohibited “game of chance.” From the adoption of the constitutional gambling ban, the State argues, the standard for deciding whether a game is prohibited has been whether skill or chance predominates while playing. Judge Connolly, however, used the “material degree” test that is derived from the statutory definitions of gambling under the Penal Law, not the dominating element standard required by the Constitution. Judge Connolly held that DFS was prohibited gambling because a material degree of chance was involved, notwithstanding that the players’ skill predominates. This was reversible error, the State contends. Because Judge Connolly accepted the Legislature’s factual finding that skill predominates over chance in DFS, that should have been the end of the Court’s inquiry and the IFS law should have been upheld.
For good measure, the State even argues that the law satisfies the statutory material degree standard, because the “Legislature heard a wealth of expert opinion, witness testimony, and statistical studies supporting the view that skill was such a dominant element in success at interactive fantasy sports contests that the role of chance was ‘overwhelmingly immaterial'” (State’s App Div Brf, at 34). The Legislature was entitled to credit that evidence, and the Court should defer to it as well, the State contends.
Next, the State argues that Judge Connolly’s conclusion that the DFS players exercise no control over the sporting events on which DFS is scored focuses on the wrong contest. It’s not the real world games that DFS players are playing in. They’re playing in separate contests over which they exercise substantial control. They choose which undervalued players to roster, which stacks to try to take advantage of, and which potential overvalued busts to avoid. In doing so, they meaningfully influence the outcome of the DFS games in which they play. Thus, the State argues, the Legislature rationally decided that DFS games “are not wagers on future contingent events not under the contestants’ control or influence,” which would be prohibited (State’s App Div Brf, at 35, quoting Racing Law § 1400 [l] [b]).
Finally, the State asserts that the Legislature rationally found that DFS is a bona fide contest for prizes where the players are required to pay an entrance fee to play and use their skill to influence the outcome. This, the State contends, is not gambling, and is just like when the owner of a horse pays an entrance fee to race the horse for the chance to win the purse. The Court of Appeals has held that that isn’t unconstitutional gambling, and thus neither is DFS, the State argues.
Coming into this appeal, I wasn’t very confident about the State’s chances to have Judge Connolly’s decision reversed. But the State’s reframing of the issues to ones focused on legislative policy making and the deference owed to those decisions by the court, so long as they are rational, has considerably strengthened their case. If the State succeeds in convincing the Appellate Division that this case is all about a legislative policy choice to allow DFS in New York, a decision with which the judiciary shouldn’t interfere, the State has a strong case to defend the IFS law and have Judge Connolly’s decision overturned. Indeed, given the very heavy burden that the plaintiffs face to show that the law is unconstitutional beyond a reasonable doubt, and the strong case for judicial deference that the State has made, this is turning out to be a much closer case than I had originally thought. I’ll be watching closely to see how the Plaintiffs now respond.
In Arrowhead Capital Finance, Ltd. v Cheyne Specialty Finance Fund L.P., the Court held that the failure of a nonresident attorney to comply with the physical office requirement in Judiciary Law § 470 at the time an action is commenced does not render the action a nullity. The opinion resolved a split between the First Department, which has held that any action taken by a nonresident attorney who fails to maintain a physical office in New York as required under Judiciary Law § 470 is a nullity, and the Second and Third Departments, which have permitted nonresident attorneys to cure a Judiciary Law § 470 violation by obtaining an attorney with a New York office or by application for admission pro hac vice by appropriate counsel.
Beyond clarifying the effect of a nonresident attorney’s violation of the physical office requirement in Judiciary Law § 470, the Court’s decision in Arrowhead includes a notable practice point that should not be overlooked.
In its motion for leave to appeal, Arrowhead limited its appeal “to the extent that the Appellate Division failed to reverse and remand the Order and Judgment of Supreme Court dismissing [its] Complaint as a ‘nullity’” for the Judiciary Law § 470 violation. The Judiciary Law § 470 dismissal, however, only related to the breach of contract and fiduciary duty claims that survived Defendant’s first motion to dismiss. By limiting its appeal to the distinct Judiciary Law § 470 issue, and not appealing the dismissal of its other claims, Arrowhead precluded the Court from reviewing the propriety of Defendant’s first motion to dismiss (see Quain v Buzzetta Constr. Corp, 69 NY2d 376, 380 ). Thus, the Court granted defendant’s motion to strike the portion of Arrowhead’s brief addressed to defendant’s first motion to dismiss.
It is unclear whether Arrowhead’s decision to limit the appeal was strategic. Certainly, crystalizing an issue of first impression doesn’t hurt a party’s chances of having its motion for leave to appeal granted. But, by limiting the appeal, you give up other issues that could have otherwise been raised. Attorneys should be wary of the Court’s rule in Quain and only limit their appeals if they are willing to relinquish their rights to challenge other issues in the case.
To aid the parties and trial court, adding a clarifying clause to the decretal saying expressly that only the claims dismissed for the Judiciary Law § 470 violation remain to be litigated on remand would go a long way. Although this may appear straightforward in this case, many times the Court’s decisions on jurisdiction and reviewability leave parties scratching their heads about what to do next to fix the issues. The Court should try to help address those issues in its decisions to the best it can.
Everyone admits that the backlog of pending appeals in the Appellate Division, Second Department is a problem. As Presiding Justice Alan Scheinkman acknowledged in an op-ed in the NY Law Journal last fall, “it can take as long as 18 months for a civil appeal to obtain a place on the court’s day calendar and then more time for a decision to be rendered.” That’s 18 months after an appeal is fully briefed. And to get that far in the first place it could take up to a year from when the notice of appeal is served. So, in reality, the Second Department is often looking at appeals that are pending for almost three years before they are decided.
Recognizing this huge issue, Presiding Justice Alan Scheinkman of the Second Department announced a number of procedural reforms in September 2018 that were designed to decrease the Court’s backlog of appeals. First, the Court increased its oral argument calendars from 20 to 24 cases per day. That’s a good first start. Judge Scheinkman also noted that the Court would use specialized benches for an additional sitting in some long delayed matrimonial, Commercial Division, and land use and zoning appeals.
Extension motions should be confined, as the rule says, to limited circumstances where good cause exists, such as where an unexpected health issue or other unforeseeable event has occurred.
In addition to Presiding Justice Scheinkman’s reforms, a proposal was introduced in the Legislature last year to split the Second Department into two separate courts—a North division covering appeals from Dutchess, Orange, Putnam, Rockland, and Westchester counties and a South division covering appeals from Brooklyn, Queens, Nassau, and Suffolk counties.
That’s an interesting proposal, but there are two catches. First, the bill received little support last year and died in the Judiciary Committee of the NY Assembly, the only house in which the bill was introduced. Second, splitting the Second Department requires a constitutional amendment. The NY Constitution expressly provides that there shall be 4 departments of the Appellate Division, and specifies their boundaries.
And the constitutional amendment process is a long and troublesome one. The proposed amendment first has to pass in two successive legislatures, and then be approved by the people of this State at a general election. Normal people, however, aren’t generally thinking about how to fix the backlog of appeals in the Second Department and whether splitting it in two makes sense for the judiciary. So, finding the necessary support for a constitutional amendment may prove difficult.
The Second Department covers the 2nd, 9th, 10th, 11th, and 13th Judicial Districts, while the First Department covers the 1st and 12th, the Third Department covers the 3rd, 4th, and 6th, and the Fourth Department covers the rest.
So, how can the Legislature change the boundaries of the Second Department to reduce its backlog of appeals? Well, it’s all just moving pieces to a puzzle. The 9th Judicial District could become part of the Third Department. Or maybe just move Putnam, Dutchess, and Orange counties into the 3rd Judicial District, which would take them from the Second Department into the Third. Or to get all crazy with it, move Onondaga County into the 6th Judicial District, trade the 5th Judicial District from the Third Department to the Fourth in exchange for the 6th Judicial District, make the 9th Judicial District part of the Third Department, and send the 2nd Judicial District to the First Department. Oh, plus a player to be named later and cash considerations. The possibilities are endless. I’m fairly certain that it’s been more than ten years since the Legislature changed the boundaries of the Appellate Division, so this option is on the table.
So here, because the Second Department has been unable to decide all of its appeals within any reasonable period of time, it could be time for the four Appellate Division Presiding Justices to call a meeting of the families and transfer a bunch of Second Department appeals upstate. The Third and Fourth Departments decide fewer appeals after oral argument each year than the Second (1,579 in the Third Department and 1,444 in the Fourth Department compared to 3,815 in the Second Department in 2017).
Sure, this option would tax the Third and Fourth Department Justices with more work, but overall it should reduce the time that it takes to have appeals decided throughout the State. A little increase in the times from notice of appeal to decision in the Third and Fourth Departments should be more than offset by the significant reduction in the Second Department. And the caseload would be spread out across the four Appellate Division departments more equitably.
There are solutions to fix the huge backlog of undecided appeals in the Second Department. The courts just need to know where to look. Although Presiding Justice Scheinkman’s efforts are certainly laudable, and may well help reduce the problem to an extent, I think the time has come for more drastic action than adding 4 more cases to the daily argument calendar can provide. The time is here to look to our Constitution and use the powers that the Legislature and Judiciary have been granted to change the boundaries of the Appellate Division departments or transfer Second Department appeals to other departments. Indeed, three years for an appeal is just too long for any party to have to wait.
Court of Appeals January Session Arguments of Interest: U.S. Bank National Association v DLJ Mortgage Capital, Inc.
If you thought the fallout from the residential mortgage foreclosure had run its course by now, you’d be wrong. For in the New York courts (and many others, I’m sure), litigation over bad mortgages lives on, and once again finds its way to the New York Court of Appeals. This time, the Court is asked to decide a number of procedural issues in lawsuits over breaches of the representations and warranties about the quality of the mortgages placed in a number of RMBS trusts, and will hear oral arguments tomorrow, January 9, 2019.
In these breach of contract actions, DLJ placed thousands of mortgages worth nearly $4 billion into residential mortgage backed securities trusts for which U.S. Bank was the trustee. In No. 6, an investor in the trusts, the Federal Housing Finance Agency, sued DLJ for breach of its representations and warranties about the mortgages, but was forced to substitute U.S. Bank because the trust agreement strictly limited suits by investors. Only the trustee could bring suit on behalf of the investors, the agreement said, so FHFA lacked standing. After U.S. Bank was substituted, Supreme Court dismissed the action with prejudice anyway, which barred U.S. Bank from refiling it under CPLR 205(a).
The Appellate Division, First Department affirmed the dismissal with prejudice, reasoning that U.S. Bank was not a “plaintiff” to which the 6-month CPLR 205(a) extension to refile could apply. Nor could U.S. Bank’s claims relate back to the prior action because, the Court held, there was no “valid preexisting action” to which the newly filed action could relate back to.
In No. 7, the issue is slightly different. U.S Bank actually filed this action directly, but failed to comply with a condition precedent to suit, namely, serving notice on both DLJ and Ameriquest as the originator of the loans that it was invoking the trust agreement’s repurchase obligations. Because U.S. Bank failed to comply with the condition precedent before commencing the action, Supreme Court dismissed the action, without prejudice to refiling. The Appellate Division, First Department again affirmed, this time reasoning that U.S. Bank could refile within 6 months under CPLR 205(a) after complying with the stated condition precedent to suit.
I’ve always wanted to know who qualifies as a “plaintiff” under CPLR 205(a), and now we’ll all get to find out! Also notably, one of these cases is being argued by #AppellateTwitter luminary Bob Loeb (@BobLoeb on Twitter). I’ll be heading down to the Court to watch the arguments in person tomorrow, but if you aren’t in Albany, then I strongly recommend watching the Court of Appeals’ livestream of arguments, which can be found here.
Court of Appeals January Session Arguments of Interest: Arrowhead Capital Finance, Ltd. v Cheyne Specialty Finance Fund L.P.
The Court of Appeals begins the new year with one week of oral arguments that features a critical issue effecting multi-state practice of law in New York. On January 9, 2019, the second day of oral arguments, the Court will determine whether the failure of a plaintiff’s nonresident attorney to maintain an in-state office at the time the action was commenced, in violation of Judiciary Law § 470, renders the action a nullity and requires dismissal of the action (the Court’s case summary can be found here).
No. 4 Arrowhead Capital Finance, Ltd. v Cheyne Specialty Finance Fund L.P.
Judiciary Law § 470 provides that “[a] person, regularly admitted to practice as an attorney and counsellor, in the courts of record of this state, whose office for the transaction of law business is within the state, may practice as such attorney or counsellor, although he resides in an adjoining state.” Upon the certified question from the Second Circuit as to “the minimum requirements necessary to satisfy the statutory directive that nonresident attorneys maintain an office within the State ‘for the transaction of law business under Judiciary Law § 470,” the Court of Appeals held “the statute requires nonresident attorneys to maintain a physical office in New York” (Schoenefeld v State, 25 NY3d 22, 25 ).
Arrowhead Capital Finance, Ltd. v Cheyne Specialty Finance Fund L.P. seeks to answer a question left unanswered by the Court of Appeals in Schoenefeld—what is the effect of a nonresident attorney’s failure to comply with the minimum requirements of Judiciary Law § 470.
Barry Goldin is an attorney licensed to practice law in the State of New York who maintains an office in Allentown, Pennsylvania. In June 2014, Goldin, commenced this action on Arrowhead’s behalf against Cheyne, Arrowhead’s general partner, for breach of two trust agreements. The complaint that Goldin filed listed his Allentown office address with its telephone and fax numbers as well as an address at 240 Madison Avenue in Manhattan.
After Cheyne successfully moved to dismiss all of Arrowhead’s claims except for breach of fiduciary duty and breach of contract, Cheyne sought permission to file a second motion to dismiss the action on the ground that Goldin violated Judiciary Law § 470. Specifically, Cheyne argued that the Madison Avenue address listed on the complaint “is not an actual law office occupied by [Goldin], or, for that matter, anyone else.” In response to the motion, the New York law firm of Wollmuth Maher & Deutsche filed a notice of appearance as co-counsel for Arrowhead in the action. Goldin posited that the second motion to dismiss should be denied because any violation of Judiciary Law § 470 was cured by Wollmuth’s appearance as co-counsel.
The Appellate Division, First Department disagreed, holding that “[p]laintiff’s subsequent retention of cocounsel with an in-state office did not cure the violation, since the commencement of the action in violation of Judiciary Law § 470 was a nullity.” The First Department’s “nullity” rule directly conflicts with precedent from the Second and Third Department which permit a nonresident attorney to cure a Judiciary Law § 470 violation by obtaining a new counsel with a New York office or by filing a pro hac vice application (see, e.g., Elm Mgt. Corp. v Sprung, 33 AD3d 753 [2d Dept 2006]; Stegemann v Rensselaer County Sheriff’s Off., 153 AD3d 1053 [3d Dept 2017]).
The Court of Appeals resolution of this issue with have a great impact on the future of multi-state practice in New York. Certainly, unwitting plaintiffs should not be punished for their attorneys’ violation of Judiciary Law § 470. Conversely, clients should not be able to refute actions taken by their nonresident attorneys on their clients’ behalf merely because the attorney has violated Judiciary Law § 470. However, is judicial economy served by dismissing actions without prejudice for an attorney’s failure to maintain bricks and mortar in New York? After all, the nonresident attorney Goldin in Arrowhead is licensed to practice law in the New York. And isn’t that why New York adopted the Uniform Bar Exam, to make it easier to maintain a multi-state practice?
Interestingly, Goldin is scheduled to present Arrowhead’s oral argument of the appeal before the Court of Appeals, even though doing so is technically a violation of section 470. By allowing that to occur, could the Court be signaling that Goldin’s affiliation with Wollmuth, a New York City firm, was sufficient to cure his violation? We shall see.
E-filing appeals in the Appellate Division has expanded again. This time to ring in the new year, the Fourth Department announced that it would expand its e-filing program to all civil appeals on a voluntary basis. Before, the Fourth Department had limited e-filed appeals to Commercial Division matters, Surrogate’s Court matters, and all matters that were e-filed in Supreme Court below. Now, all an appellant needs to do is e-file the appeal in the first instance and serve on the respondents a notice of e-filing, and the required Entry of Initial Information for Electronic Filing (22 NYCRR § 1245.3). That’s it.
Here’s the only catch. Because the Fourth Department hasn’t yet made e-filing mandatory, the other parties still can decide not to e-file the appeal. But why would you do that? Outside of unfamiliarity with the e-filing system, I can’t see any reason not to consent. Plus, the Court encourages e-filing in all matters in which it is allowed, and advises that the e-filing program will continue to expand as 2019 progresses. You wouldn’t want to shrug off the Court’s preference for e-filing, would you? I sure wouldn’t.
Finally, the Fourth Department advises that the e-filing program will continue to expand as 2019 proceeds, which can only mean a move to mandatory e-filing in all civil appeals. That’s where the Third Department is, and the First and Second are getting closer too. This is yet another positive step for e-filing in New York, and a great way to start 2019. Happy New Year!
The Appellate Division rounded out the 2017-18 term with only two more leave grants. That makes only 13 Appellate Division leave grants for the entire 2017-18 term, which is well off the mark of 38 grants during the 2016-17 term. So what explains the change? Could it be that Chief Judge DiFiore quietly told the Appellate Division Justices to stop granting leave to appeal to the Court of Appeals because the Court wants to control its own docket? I certainly hope not (and I have thoughts on that that are best left for a different time). But such a huge drop off in Appellate Division leave grants must have some explanation.
In total for the 2017-18 term, the Appellate Division granted leave in 6 cases from the Second Department, 5 from the First Department, 2 from the Fourth Department, and none from the Third Department. That mostly follows the pattern from last year that most Appellate Division leave grants come from the downstate departments, while the upstate departments are more stingy in sending cases directly to the Court of Appeals.
Here’s a quick look at the two new Appellate Division leave grants from April, May, and June 2018.
Question presented: Whether the tenants’ apartments in a building receiving Real Property Tax Law § 421-g tax benefits are subject to rent stabilization or should have been deregulated under the luxury vacancy control provisions of Rent Stabilization Law of 1969 [Administrative Code of City of NY] § 26-504.2(a).
Supreme Court, New York County, among other things, denied the landlord’s motion for summary judgment, granted the tenants’ cross motion for partial summary judgment, declared that the tenants’ apartments are subject to rent stabilization, and ordered that a special referee be designated to hear and determine the amount of the rent overcharges and the amount of attorneys’ fees and costs incurred by the tenants in litigating this action. The Appellate Division, First Department reversed, granted the landlord’s motion for summary judgment to the extent of declaring that the tenants’ apartments were properly deregulated and are not subject to rent stabilization, denied the tenants’ cross motion, vacated the orders regarding the special referee, and remanded the matter for further proceedings.
Question presented: In an action for a judgment declaring that two commercial leases are in full force and effect and that the plaintiffs are not in violation of their obligations under the leases, and seeking a Yellowstone injunction to prevent landlord from terminating leases or commencing summary proceeding for eviction, whether written leases negotiated at arm’s length by commercial tenants may include a waiver of the right to declarative relief that is enforceable at law, or whether such a waiver is void and unenforceable as a matter of public policy.
Supreme Court, Kings County, denied plaintiffs’ motion for a Yellowstone injunction and granted defendant’s cross motion for summary judgment dismissing the complaint. The Appellate Division, Second Department affirmed.
The New York Appellate Division e-filing program has gone so well that the Second Department is expanding it again. After a limited start in March that only included appeals originating from Westchester County, and then Suffolk in July, the Court has decided to include all appeals from orders in the Ninth Judicial District beginning on December 3, 2018.
The e-filing system has not only worked well for the courts and attorneys who practice frequently in the Appellate Division, but it has also opened up previously hard to get case documents for public view. If there’s an Appellate Division case you’re interested in, you can now just go to the NYSCEF e-filing system and search for the case as a guest. No login or payment necessary, unlike the federal courts’ PACER system. Better access to the courts and case documents is always a good thing.
As the Appellate Division e-filing system evolves, there are a few changes I’d love to see, like being able to search for cases with specific issues or motions. But for now, the transition to appellate e-filing has gone about as well as could have been expected. And the Clerk’s Offices in each of the courts deserves plenty of credit for that.

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