New York State Law Digest: May 2024

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New York State Law Digest: May 2024

CASE LAW DEVELOPMENTS

Entity That Acquires All of Another Entity’s Liabilities and Assets Without a Merger Nevertheless Inherits Acquired Entity’s Status for Purposes of Specific Personal Jurisdiction

Court of Appeals Applies Factors Previously Considered in Successor Liability Context

In Lelchook v. Société Générale de Banque au Liban SAL, 2024 N.Y. Slip Op. 02081 (April 18, 2024), the New York State Court of Appeals was asked two certified questions by the United States Court of Appeals for the Second Circuit, only one of which required an answer: “Under New York law, does an entity that acquires all of another entity’s liabilities and assets, but does not merge with that entity, inherit the acquired entity’s status for purposes of specific personal jurisdiction?” The Court answered the question in the affirmative.

Plaintiffs are 21 U.S. citizens who were harmed, and the estate and family members of a U.S. citizen who was killed, in 2006 rocket attacks in Israel by the Hizbollah terrorist organization. The plaintiffs claim that in the years prior to the attacks, the Lebanese Canadian Bank (LCB) provided extensive financial services to Hizbollah. This included million-dollar wire transfers that LCB made through a New York-based correspondent bank. In a prior separate 2008 action, in which many of the same plaintiffs here sued LCB, the Court of Appeals held (also in response to certified questions) that the pleadings established a jurisdictional predicate (transaction of business), including the required nexus over LCB under CPLR 302. The Second Circuit then determined that exercising jurisdiction over LCB comported with due process.

The plaintiffs brought similar claims against SGBL, as LCB’s successor, in federal district court. They asserted that SGBL inherited LCB’s jurisdictional status, subjecting it to personal jurisdiction in New York because it “assumed and bears successor liability for LCB’s liability to the plaintiffs.” They pointed to a June 2011 purchase agreement between LCB and SGBL, in which LCB transferred all its assets and liabilities to SGBL. Moreover, plaintiffs noted that although LCB continued to exist at least to the extent of defending itself in litigation, it was insolvent. The district court dismissed the action for lack of personal jurisdiction, and, on appeal, the Second Circuit certified two questions, including the one referenced above.

The Court of Appeals noted that if plaintiffs’ jurisdictional theory was correct, then LCB’s contacts with New York, rather than SGBL’s, would be relevant. As a result, the question was “whether the jurisdictional status of a predecessor entity may be imputed to a successor who acquires all assets and liabilities.” It rejected SGBL’s argument that the language in CPLR 302 referencing an agent’s acts possibly giving rise to personal jurisdiction, meant “that successor jurisdiction is available only where the successor and predecessor are ‘one and the same’ because they are alter egos, or via a merger or corporate reorganization. Applying the principle of expressio unius est exclusio alterius, SGBL contends that CPLR 302 precludes successor jurisdiction in all other circumstances.” Id. at *6. The Court insisted that the text of CPLR 302 did not support such a conclusion and it has not been shown that “the legislature even contemplated theories of successor jurisdiction, let alone meant to preclude it in a sale of all assets and liabilities.” Id.

The Court had never previously decided whether a successor corporation can inherit a predecessor’s jurisdictional status. However, the Court has dealt with the issue of successor liability. Thus, the Court looked for guidance to the exceptions to the rule that a purchaser of assets only is not liable for the seller’s torts for guidance. Those exceptions are where

“(1) [a corporation] expressly or impliedly assumed the predecessor’s tort liability, (2) there was a consolidation or merger of seller and purchaser, (3) the purchasing corporation was a mere continuation of the selling corporation, or (4) the transaction is entered into fraudulently to escape such obligations” (citations omitted).
Id. at *7–8.
The Court referenced the rationales applied in its prior decision in Semenetz v. Sherling & Walden, Inc., 7 N.Y.3d 194 (2006), in which it rejected the “product line” exception to successor liability in the circumstance where a successor does not assume broad liabilities but acquires most of a manufacturing business’s assets and continues to produce its line of products. Finding those “considerations” to be “helpful touchstones in considering successor jurisdiction,” the Court touched on the following factors, including
the impact of our rule on parties to a potential acquisition, whether imputing jurisdiction fairly reflects the reasonable assumptions and expectations of the parties to such transactions, whether doing so induces responsible parties to internalize responsibility for risks they create, and the impact of imputing jurisdiction on those injured by a predecessor’s acts (citations omitted).
Id. at *10.
The Court concluded that these factors militated in favor of finding successor jurisdiction when a successor purchases all assets and liabilities:
An express assumption of all assets and liabilities is not akin to the limited acquisition in Semenetz, which involved only the purchase and continuation of a product line. Sophisticated corporate entities such as SGBL will undoubtedly engage in robust due diligence before agreeing to acquire all assets and liabilities of another entity. In doing so, they should understand where jurisdiction over such liabilities may lie and the potential cost if ultimately found liable, and will presumably negotiate a purchase price that is discounted by that prospect (citations omitted).
Id. at *10–11.
In fact, when it entered into the agreement with LCB, SGBL would have known of LCB’s potential exposure in New York with respect to the terrorist attacks, including the facts that (1) LCB had been designated a primary money laundering concern by the U.S. Department of Treasury, (2) the 2008 action against LCB involved nearly identical allegations to those asserted here, and (3) “although the exact parameters of successor jurisdiction under New York law may not have been settled in 2011, ‘[t]he great weight’ of authority at the time permitted imputation whenever the forum state’s law would hold the successor liable. Under these circumstances, SGBL should reasonably have anticipated being subject to jurisdiction over LCB’s liabilities in New York (citations omitted).”
The Court cautioned against a contrary conclusion:
Allowing a successor to acquire all assets and liabilities, but escape jurisdiction in a forum where its predecessor would have been answerable for those liabilities, would allow those assets to be shielded from direct claims for those liabilities in that forum. . . Injured parties would be left to directly sue the successor in a forum that may well be less favorable, with respect to both the likely outcome and available mechanisms to enforce a judgment.
Id. at *12
The Court also pointed to the possibility that following the sale of assets, a predecessor may no longer be able to satisfy a judgment against it, which appears to be the case here. “[A]lthough plaintiffs allege that LCB had substantial assets in 2010, LCB stated in 2017 that it was ‘defunct, insolvent, and unable to pay any judgment rendered against it’ (citation omitted).” Id. at *13.

First Department Finds CPLR 3211(g) “Substantial Basis” Standard Relating to Anti-SLAPP Law More Exacting Than Liberal Pleading Standard Applicable to CPLR 3211(a)(7) Motions

Thus, a Complaint That Fails to State Cause of Action Also Necessarily Lacks a “Substantial Basis”

Karl Reeves, C.E.I.N.Y. Corp. v. Associated Newspapers, Ltd., 2024 N.Y. Slip Op. 01898 (1st Dep’t April 9, 2024), concerns the relationship between the standards applicable to a motion brought under CPLR 3211(g), relating to the anti-strategic lawsuit against public participation (anti-SLAPP) law and a CPLR 3211(a)(7) motion. Anti-SLAPP laws provide defendants a way to dismiss meritless retaliatory lawsuits filed against them for exercising speech, press, assembly, petition, or association rights. In 1992, CPLR 3211(g) and CPLR 3212(h) were added together with two new sections of the Civil Rights Law with respect to “actions involving public petition and participation.” Subsequently, 2020 amendments extended the protection of the statute to a broader class of individuals (including public communications on any nonprivate matter), applicable here, and made an award of attorneys’ fees mandatory. The statute permits defendants to “maintain an action, claim, cross claim or counterclaim to recover damages, including costs and attorney’s fees, from any person who commenced or continued such action.” Civil Rights Law § 70-a (1).
On a CPLR 3211(a)(7) motion, the defendant initially bears the burden to demonstrate that the action or claim is a SLAPP suit. Once that burden is satisfied, the burden shifts to the plaintiff to establish that its claim has a “substantial basis in law.” If that burden is not met, the claim is to be dismissed, and the prevailing defendant is entitled to an award of attorneys’ fees.
The First Department first addressed the “substantial basis” standard. The court noted that the 1992 legislative history suggested that it was something more than a “reasonable” basis applicable in other actions; the few cases applying the original 1992 law did not offer “any definitive construction”; and the legislative history of the 2020 amendments does not clarify the meaning of “substantial basis.” Taken together, the court maintained that the legislative history and case law did little “other than to indicate that substantial basis is more than frivolous and more than the ordinary CPLR 3211(a)(7) standard.”

The First Department then looked for guidance to a 1996 amendment adding (i) CPLR 214-d establishing, among other things, a 90-day notice of claim requirement for injuries resulting from work performed by certain enumerated professionals more than 10 years earlier; and (ii) CPLR 3211(h) and 3212(i), mirroring the “substantial basis” burden-shifting standard. The sponsors memorandum there stated that: “The ‘substantial basis’ standard is intended to mean such relevant proof as a reasonable mind may accept as adequate to support a conclusion or ultimate fact. It is intended to be less than a ‘preponderance of the evidence standard.’” The memorandum referenced the Court of Appeals decision in 300 Gramatan Avenue Associates v State Division of Human Rights, 45 N.Y.2d 176 (1978) “on the meaning of ‘substantial evidence,’ the standard employed in judicial review of administrative determinations made subsequent to an evidentiary hearing.” Id. at *17.
Since CPLR 3211(g) and (h) are “sister parts of the same statute,” where the same word or term is used in different places, “it will be presumed to be used in the same sense throughout.” The court cautioned, however,
that this should not mean that caselaw applying “substantial evidence” in the article 78 context may be applied unreservedly in CPLR 3211 cases when questions of “substantial basis” arise. One critical distinguishing factor is that the article 78 “substantial evidence” standard is applied in review of quasi-judicial determinations following an evidentiary hearing. By contrast, CPLR 3211(g) provides for no evidentiary hearing (citations omitted).
Id. at *19.
The First Department referred back to its own precedent enunciating a “practical test,” “‘whether the allegations and evidence presented would require submission to a jury as a question of fact.’ Procedurally, the ‘substantial evidence’ standard has been equated with the ordinary summary judgment standard, in that each seeks to determine whether there are triable issues of material fact (citations omitted).” Id. In fact,
[a]s enhanced by the 2020 amendments, CPLR 3211(g) contemplates an adjudication based upon the submission of affidavits (see CPLR 3211[g][2]), with special provision for discovery upon an application by the party opposing the CPLR 3211(g) motion. This unique discovery provision, exclusive to CPLR 3211(g), is tailored to aid a party summon “facts essential to justify its opposition” to an anti-SLAPP action, claim, cross-claim or counterclaim (CPLR 3211[g][3]) and thereby show a substantial basis for their claims.
Id. at *20.
The court clarified that
[u]nder the CPLR 3211(a)(7) standard, the question is whether a cognizable cause of action is manifested, presuming the complaint’s factual allegations to be true, and according the pleading the benefit of every possible favorable inference. By contrast, a court reviewing the sufficiency of a pleading under CPLR 3211(g) must look beyond the face of the pleadings to determine whether the claim alleged is supported by substantial evidence (citations omitted).
Id.
Thus, because the CPLR 3211(g) “substantial basis” standard is a more “rigorous” one than the CPLR 3211(a)(7) standard, the court concluded that a complaint which fails to state a cause of action also necessarily lacks a “substantial basis.”
In this case, the court held that the trial court properly concluded that plaintiffs failed to state a claim under CPLR 3211(a). “Plaintiffs failed to show that their claims have a substantial basis; they cannot state a claim or raise an issue of triable fact.” In fact, plaintiffs, in their opposition did not address the “substantial basis” issue, instead asserting that CPLR 3211(g) simply did not apply.
A concurring opinion agreed that the action should be dismissed and attorneys’ fees awarded. However, while it acknowledged that, in general, a CPLR 3211(a)(7) dismissal indicates that the action is without a “substantial basis,” here that was not true because of the trial court’s additional findings in its decision on the motion. They included
that the action was commenced under a cognizable legal theory and, that, although plaintiffs’ arguments opposing the pre-answer dismissal motion were not persuasive, the action was not frivolous. . . I also believe that the better practice would be for Supreme Court to analyze a CPLR 3211(g) motion regardless of whether a CPLR 3211(a)(7) is granted or denied.
Id. at *25.

Court Limits Attorneys’ Fees

In the July 2023 edition of the Law Digest, we referred to the decision in Gottwald v. Sebert, 40 N.Y.3d 240 (2023), in which the Court of Appeals ruled that although the 2020 anti-SLAPP statute amendments did not apply retroactively, they did to the continuation of the action beyond the amendments’ effective date. Similarly, here in Karl Reeves, the First Department remanded the case to the trial court but ruled that “the calculation of attorneys’ fees awarded in the instant action should begin as of November 10, 2020, the effective date of the 2020 amendments.”

Court Holds Earlier Untimely Rejected Notice of Claim Did Not Provide NYCTA With Actual Knowledge of the Essential Facts Constituting the Claim

Petitioner Also Failed to Establish the Other Factors on Her Application to File a Late Notice of Claim

In last month’s edition of the Law Digest, we reported on the Court of Appeals decision in Matter of Jaime v. City of New York, 2024 N.Y. Slip Op. 01581 (March 21, 2024), in which the Court found that the lower courts had abused their discretion in two cases in granting the petitioners leave to serve late notices of claim. Specifically, the Court found that the lower courts improperly concluded that the City’s participation in the intentional tort or its possession of records underlying the events provided the City with the requisite actual knowledge of the essential facts constituting the claims pursuant to General Municipal Law § 50-e.

In Matter of Guerre v. New York City Transit Auth., 2024 N.Y. Slip Op. 02052 (2d Dep’t April 17, 2024), the petitioner alleged that in March 2022 she was injured when she tripped on a staircase inside a Brooklyn subway station. The New York City Transit Authority (NYCTA) rejected petitioner’s late notice of claim served one day after the required 90-day period and disallowed the claim because of the untimely service. In November 2022, the petitioner brought this proceeding for leave to serve a late notice of claim or to deem the late notice of claim timely served nunc pro tunc. The trial court granted the petition.

The Appellate Division reversed. The court dispensed with the contention that the NYCTA had acquired actual knowledge of the essential facts constituting the claim within a reasonable time after the expiration of the 90-day statutory period. Specifically, the court held that the rejected late notice of claim served by the petitioner was a nullity and did not provide such actual knowledge. Moreover, (i) the petitioner offered no other evidence that was sufficient to provide the NYCTA with actual knowledge, and (ii) a letter sent by petitioner’s counsel during the 90-day period was insufficient “because it did not describe the specific location of the incident, the cause of the petitioner’s fall, or how the NYCTA was liable (citations omitted).” Id. at *4.
The court also found that the petitioner had failed to establish a reasonable excuse for her failure to timely serve the notice of claim, for the delay in bringing the proceeding, or that the NYCTA would not be substantially prejudiced by the delay.

Primary Assumption of Risk Doctrine Applied Where Plaintiff Injured During Sparring in Brazilian Jiu Jitsu Class

In View of Plaintiff’s Voluntary Participation and Training and Experience, Court Finds He Had Full Appreciation of Risks Involved in Sparring Game

Again, we return to the primary assumption of risk doctrine, here in the context of martial arts. To review, yet one more time, a form of primary assumption of risk doctrine has survived the adoption of comparative fault in New York with respect to athletic and recreative activities, based on a premise that “[o]ne who takes part in . . . a sport, accepts the dangers that inhere in it so far as they are obvious and necessary.”

In Santana v. Torres BJJ, LLC, 2024 N.Y. Slip Op. 01946 (2d Dep’t April 10, 2024), the plaintiff, a New York City police officer since 2011, alleged that he was injured in April 2019 while participating in sparring exercises in a Brazilian jiu jitsu class at defendant’s facility. The owner and instructor testified, among other things, that plaintiff was a “beginner” at jiu jitsu; that participants were given safety instructions; that students could opt out of the sparring exercises; and that while broken bones were not “typical” in jiu jitsu, there had seen “quite a few” broken bones in both jiu jitsu training and competition.

Plaintiff had attended 10 introductory jiu jitsu classes at the facility before the incident, which included sparring exercises in each class (although the plaintiff had not previously participated in the particular sparring game in which he was injured). Before joining defendant’s facility, plaintiff had taken 20 beginner classes at a mixed martial arts gym and 10 classes at a studio teaching “Ji Kun Do.” Moreover, as part of his police officer training, the plaintiff was instructed how to handle encounters with offenders who might be physically violent; part of the training included some instruction in “grappling”; and as an officer he had made approximately 440 arrests, with approximately five of them involving physical restraint.

In finding that the primary assumption of risk doctrine applied barring the plaintiff’s recovery, the court emphasized the plaintiff’s voluntary participation in the sparring game. Moreover,
the plaintiff had significant experience with martial arts classes, having attended approximately 10 introductory jiu jitsu classes at Essential, during which he participated in other sparring activities, and approximately 30 other introductory level martial arts classes in the three-year period immediately preceding the accident. Moreover, the plaintiff admitted that he had received some training in “grappling” during his training to become a police officer. Given the plaintiff’s experience, he had a full appreciation of the risks involved in the sparring game, including the risk of broken bones (citations omitted).
Id. at *4–5.

But the Doctrine Does Not Apply to Weightlifting Injury Sustained by College Soccer Player

The Injury Was Not Inherent in the Sport He Was Playing

In Mazze v. Manhattanville Coll., 2024 N.Y. Slip Op. 02046 (2d Dep’t April 17, 2024), the plaintiff, a member of Manhattanville College’s varsity soccer team, claimed to have sustained a back injury while performing a squat exercise during a weight training session. The defendants moved for summary judgment on the ground, among others, that the action was barred by the doctrine of assumption of risk. The trial court denied the motion. In affirming, the Second Department noted that the doctrine “applies only when the injury-producing risk is inherent in the sport the player is practicing,” which was not the case here:
Here, the defendants failed to establish, prima facie, that the plaintiff, by joining the soccer team, assumed the risk of a weightlifting injury or that such an injury is inherent in the sport of soccer. Moreover, the defendants failed to eliminate all triable issues of fact as to whether the defendants unreasonably increased the risk by failing to provide proper supervision and instruction and whether the defendants compelled the plaintiff to perform the squat exercise despite his expressed concerns when an assistant coach allegedly told the plaintiff that he would be removed from the soccer team if he did not perform the squat exercise (citations omitted).
Id. at *3.

As I begin my 10th year as editor, I would like to thank all those at the NYSBA, and particularly Reyna and Lori, who assist in getting the Digest out monthly. Thank you also to the readers for their comments, suggestions, generosity of spirit and encouragement. -David