New York State Law Digest: June 2024

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New York State Law Digest: June 2024

CASE LAW DEVELOPMENTS

Court of Appeals Clarifies the Internal Affairs Doctrine, Applying the Law of the State of Incorporation in a Choice of Law Analysis

Court Also Finds Appellate Division Properly Took Judicial Notice of Foreign-Scots Law

Generally, under New York’s choice of law analysis, the courts apply the forum’s law to procedural questions and the law of the jurisdiction with the most significant relationship to the underlying dispute to the substantive issues. In Eccles v. Shamrock Capital Advisors, LLC, 2024 N.Y. Slip Op. 02841 (May 23, 2024), the Court of Appeals was required “to resolve questions that frequently confront our courts in the course of international business disputes.”

This case implicated the “internal affairs doctrine,” which provides that where the matters arise from a corporation’s internal affairs, including the relationships between directors and shareholders, generally the law of the place of incorporation is to be applied. This is based on the belief “that the place of incorporation generally has the greatest interest in having its law apply to questions regarding the internal affairs of a corporation, such as ‘the relationship between shareholders and directors.’” Id. at *20. Citing to and quoting a United States Supreme Court decision, the Court of Appeals explained that the underlying policy of the doctrine is to ensure

that “only one [s]tate should have the authority to regulate a corporation’s internal affairs—matters peculiar to the relationships among or between the corporation and its current officers, directors, and shareholders—because otherwise a corporation could be faced with conflicting demands.” In other words, the doctrine “serves the vital need for a single, constant[,] and equal law to avoid the fragmentation of continuing interdependent internal relationships.” In addition to providing consistency to legal obligations, the internal affairs doctrine also protects the interests and expectations of shareholders by giving effect to their choice as to what jurisdiction’s laws will govern the corporation’s affairs (citations omitted).

Id. at *16.

Although the internal affairs doctrine has been applied generally, the Court of Appeals had not addressed it in the context of where it might not apply to corporate governance claims. Thus, the Court here in Eccles confirms that “[c]onsistent with New York’s established interest analysis approach to choice-of-law issues,” the substantive law of the place of incorporation applies to disputes involving the internal affairs of a corporation with rare exceptions. Rather than establish any broad exceptions, however, the Court ruled that presumptively the place of incorporation is applicable to causes of action arising from the company’s internal affairs and provided guidelines for overcoming that presumption. Thus,

in order to overcome this presumption and establish the applicability of New York law, a party must demonstrate both that (1) the interest of the place of incorporation is minimal—i.e., that the company has virtually no contact with the place of incorporation other than the fact of its incorporation, and (2) New York has a dominant interest in applying its own substantive law.

Id. at *20–21.

The Court rejected the plaintiff’s balancing of contacts test, as undermining consistency and predictability critical to a corporation’s internal affairs:

This method could result in a company’s directors being subject to conflicting duties, and the law applicable to their actions changing depending on where suit is brought and who the plaintiffs might be. It could also lead the applicable law to depend on highly variable factors such as where a deal is negotiated, where its records are kept, and where its shareholders live.

Id. at *21.

The Court also held that the Appellate Division properly took judicial notice of foreign law (here, Scots law). The Court noted that, while under common law courts did not take judicial notice of foreign law and parties were instead required to plead and prove it as a matter of fact, that was changed by statute. Now, it is the judge who is to make foreign law determinations as questions of law.

CPLR 4511(b) provides that

[e]very court may take judicial notice without request of private acts and resolutions of the congress of the United States and of the legislature of the state; . . . and the laws of foreign countries or their political subdivisions. Judicial notice shall be taken of matters specified in this subdivision if a party requests it, furnishes the court sufficient information to enable it to comply with the request, and has given each adverse party notice of his intention to request it. . . .

Moreover “[w]hether a matter is judicially noticed or proof is taken, every matter specified in this section shall be determined by the judge or referee, and included in his or her findings or charged to the jury. . . .” CPLR 4511(c). Finally, the court is to “consider any testimony, document, information or argument on the subject, whether offered by a party or discovered through its own research.” CPLR 4511(d).

The Court in Eccles then provided a road map how a court is to approach whether to take judicial notice of foreign law and concluded that, while a court should provide detailed findings, a hearing is not required:

A court should consider the merits of expert affidavits and other submitted materials, make a determination as to their sufficiency, and take judicial notice of foreign law as it deems appropriate. In making this “sufficiency” determination, a court must consider not just the materials submitted by the party making the request, but those materials provided by the non-requesting party in opposition, including contrary authority or material which supports their own request. While the court, in its discretion, might defer decision on the motion and choose to hold a hearing so that it may conduct additional inquiry into the foreign law question, we hold that such a hearing is not mandated as a matter of course. Nothing in the text of CPLR 4511 or other CPLR provisions purports to require a hearing when there is a dispute as to the content of foreign law so long as the court has “sufficient information” to determine that law without one. Indeed, the idea that a hearing is required and a motion to dismiss must be denied or deferred every time there is some dispute regarding foreign law contravenes CPLR 4511’s goal of treating foreign law as a legal issue, rather than a factual one. Nonetheless, a court taking judicial notice of foreign law should always endeavor to provide detailed findings as to what the law of the foreign jurisdiction is and how it applies to the case at hand in order to facilitate appellate review (see CPLR 4511 [c]).

Id. at *24–25.

The Court found that the Appellate Division here was not in error in taking judicial notice of Scots law without conducting a hearing based on the “voluminous materials” provided by the parties.

Court of Appeals Holds That Board’s Determination That Injury Was Not Caused By “Accident” Was Supported by Substantial Evidence

But Refuses to Adopt Rule That a Co-Worker’s Purposeful Acts Can Never Form the Basis for an Award of Accidental Disability Retirement Benefits

In Matter of Michele Rawlins v. Teachers’ Retirement Sys. of City of New York, 2024 N.Y. Slip Op. 02840 (May 23, 2024), the petitioner, a former school principal, claimed that she was diagnosed with posttraumatic stress syndrome and became unable to perform the responsibilities of her job after several incidents at her former school in which a disgruntled former school cook left her feeling threatened and harassed. In the last incident in 2019, the former worker returned to the school and confronted a school safety officer, demanding that petitioner return some of his possessions. Petitioner alleged that she witnessed the confrontation from a nearby room, believed the worker’s remarks had “sexual overtones,” and felt that she was placed in fear for her life. While the police were called to the scene, the former employee was not arrested. The petitioner never returned to work.

The Teachers’ Retirement System of the City of New York (TRS) Medical Board (Board) denied the petitioner’s application for accidental disability retirement (ADR) benefits (that are generally more generous than performance of duty disability retirement benefits). The petitioner brought this proceeding to annul the Board’s determination and the trial court denied the petition and dismissed the proceeding. The Appellate Division affirmed, finding that the Board “rationally found that petitioner’s injuries resulted not from an accident in the work setting but from ‘[p]urposeful conduct’ by a former coworker, which ‘is not an accident within the meaning of the pension statute’ (citation omitted).” Id. at *3.

The Court of Appeals affirmed. The Court noted that to be entitled to ADR, a TRS member needs to establish that the disability resulted from an “accident” in the performance of their duties; because neither the applicable statute or regulation provide a definition of “accident,” the Court has “adopt[ed] the commonsense definition of a ‘sudden, fortuitous mischance, unexpected, out of the ordinary, and injurious in impact’”; and, thus, an accident is “a sudden, unexpected event that was not a risk inherent in the work performed.” Id. The Court emphasized that (i) in the first instance the Medical Board is to determine whether a TRS member suffers from a disability resulting from a service-related accident, and (ii) the Board’s determination denying ADR “generally will not be disturbed if it is based on substantial evidence; that is, if it is rationally supported by the record viewed as a whole (citations omitted).” Id. at *4.

While the Court agreed that the Board’s determination was supported by substantial evidence, it disagreed with the Appellate Division’s conclusion that the Board’s determination was rational merely because the alleged accident was caused by a coworker’s “purposeful acts.” The Court refused to adopt a rule that purposeful conduct by coworkers can never be the basis for an ADR award, holding that the analysis remains the same where a member’s disability allegedly resulted from a third party’s intentional act.

Applying this reasoning to the facts of this case, the Court found that the record supported the Board’s determination that the petitioner’s injuries did not result from an event that was sudden, fortuitous, and unexpected:

Although petitioner claims that her PTSD was brought on by the April 2019 occurrence, that event was merely the latest of a series of incidents in which the food-service worker trespassed on school property and acted in a confrontational manner toward petitioner, causing her significant stress and anxiety. As early as February 2019, petitioner informed school officials that the employee was continuously disobeying instructions to keep away from the school and that she was “concerned about the students and the building staff that have to endure his confrontational behavior.” Following another incident in March, petitioner wrote that she “d[id] not feel comfortable with [the employee] given his behavior in the school.”

Id. at *5–6.

An Injury Resulting From an Assault Occurring in the Course of a Worker’s Employment Is Presumed to Be Compensable, Absent Substantial Evidence to the Contrary

Lack of Evidence With Respect to the Motivation for Assault Does Not Rebut Presumption

Workers’ Compensation Law § 21(1) provides that “[i]n any proceeding for the enforcement of a claim for compensation under this chapter, it shall be presumed in the absence of substantial evidence to the contrary . . . [t]hat the claim comes within the provision of this chapter.” In Matter of Timperio v. Bronx-Lebanon Hosp., 2024 N.Y. Slip Op. 02723 (May 16, 2024), the Court ruled that in circumstances involving assaults taking place at work, the absence of evidence concerning the assault’s motivation does not rebut the presumption.

A former doctor-employee (Bello) of the defendant hospital (BLH) entered the hospital wearing a white doctor’s coat and carrying, among other things, a loaded AR-15 rifle and gasoline in a juice container. The petitioner Timperio was working as a first-year resident in a non-public area on the 16th floor when Bello shot him and others (killing a doctor) and set fire to the nursing station before killing himself. Prior to the shooting, Bello and Timperio were strangers, never worked at the same time at the hospital, and had no other prior contact.

BLH provided notice to the Workers’ Compensation Board (WCB) of Timperio’s injuries and the matter proceeded before a Workers’ Compensation Law Judge (WCLJ). Separately, Timperio brought a federal court negligence action against BLH and the store that sold the rifle Bello used in the shooting. The court refused to dismiss the action, holding that Timperio’s injuries were not compensable because “there [was] no evidence suggesting that the shooting originated in work-related differences” (as opposed to pure personal animosity). It then stayed the action pending resolution of the workers’ compensation claim. However, a WCLJ ruled that Timperio’s injuries were compensable under the WCL, and the WCB affirmed.

The Appellate Division reversed, explaining that to be compensable under the WCL, an injury has to arise “out of and in the course of a [worker’s] employment,” and under WCL § 21(1), an injury that arises in the course of employment is presumed also to have arisen out of that employment. Significantly, the Appellate Division quoted the Court of Appeals decision in Matter of Seymour v Rivera Appliances Corp., 28 N.Y.2d 406, 409 (1971), that “[a]n award of compensation may be sustained even though the result of an assault, so long as there is any nexus, however slender, between the motivation for the assault and the employment.” The Appellate Division found there to be no nexus here, however, holding that the lack of record evidence establishing any employment-related animus “was sufficient to rebut the presumption” in WCL § 21(1) and that the claim thus was not compensable.

In reversing the Appellate Division order, the Court of Appeals noted that WCB determinations must be upheld if supported in the record by substantial evidence; a claim is covered under the WCL absent substantial evidence to the contrary establishing that it was not the workplace that exposed the employee to harm; “where the assault occurs in the course of employment and there is no evidence as to its motivation, the presumption is triggered and is not rebutted (citation omitted)”; and “[o]nce it has been established that an employee was assaulted ‘in the course of’ employment, the presumption—unless rebutted—obviates the need for an affirmative showing that the assault arose ‘out of’ the employment.” Id. at *5.

The Court found that the Appellate Division had “essentially inverted” the Court’s “nexus” standard “by requiring the Board to come forward with evidence of a nexus to employment.” Rather, the Court’s precedent stand

for the principle that “an assault which arose in the course of employment is presumed to have arisen out of the employment, absent substantial evidence that the assault was motivated by purely personal animosity.” To the extent the Appellate Division has read [the precedent] to require an additional affirmative showing of a “nexus” with employment when there is a workplace assault, such a showing is not required.

Id. at *5–6.

The Court stated that its interpretation comported with WCL § 21(1)’s text and the WCL purpose to “‘protect[ ] work[ers] and their dependents from want in case of injury’ on the job.” Id. at *6.

Here, the WCL § 21(1) presumption was triggered since there was no dispute that the assault happened during the course of Mr. Timperio’s employment. Conversely, it was undisputed that there was no evidence in the record as to the motivation for the assault or that there was a prior relationship between Bello and Timperio. In fact, they did not know each other, never worked together, and never communicated in the past. Thus, the Court concluded that the Appellate Division erroneously concluded that the claim was not compensable.

Second Department Focuses on CPLR 205-a’s Requirement That Service Be “Completed” as Opposed to “Effected” Within Six Months

Holds Action to be Untimely Because CPLR 308(4) Service Was Not “Complete” Until 10 Days After Filing of Proof of Service, After the Expiration of the Six-Month Period

In the December 2023 Law Digest, we discussed the Foreclosure Abuse Prevention Act (FAPA), signed into law on December 30, 2022, in which CPLR 205-a was added. It concerns an action upon a CPLR 213(4) instrument (bond, note, or mortgage) and provides that a second action can be commenced within six months of the termination of a prior action (including service within that time period), even if the statute of limitations has run in the interim. We noted that while CPLR 205-a is similar to CPLR 205, the six-month extension applicable in other cases, it differs in a few significant ways. We referenced, among other things, the expansion of the neglect exclusion, thereby making the provision inapplicable in more circumstances.

Deutsche Bank Nat’l Trust Co. v. Heitner, 2024 N.Y. Slip Op. 02170 (2d Dep’t April 24, 2024), points out another difference between CPLR 205 and CPLR 205-a, which while appearing to be subtle, compels the Second Department to find a significant distinction in the difference. Heitner involved a foreclosure action in which the defendants moved to dismiss the action as time-barred. The defendants alleged that the statute of limitations began to run on the entire debt in 2009, when the plaintiff commenced a 2009 foreclosure action and elected to call due the entire amount secured by the mortgage; the plaintiff did not bring this action until more than six years later; and thus, the action was untimely. In opposition, the plaintiff claimed the action was timely under CPLR 205(a). The court noted, however, that CPLR 205-a applied, and that section requires that the second action be commenced within six months following termination of the action and further mandates that “service upon the original defendant is completed within such six-month period (emphasis added).”

The Second Department pointed to the use of the word “completed,” as opposed to the language employed in CPLR 205(a), which states that service be “effected” within the six-month period. As a result, the court concluded that where plaintiff attempts nail-and-mail service under CPLR 308(4), as occurred here, service was not “complete,” as per the language in CPLR 308(4), until 10 days after filing of the proof of service, rendering the benefits of CPLR 205-a inapplicable:

Since the plaintiff filed proof of service on April 19, 2019, service on the defendants was completed on April 29, 2019. It is undisputed that the 2009 foreclosure action was terminated on October 24, 2018, such that the six-month extension period provided by CPLR 205-a expired on April 24, 2019, five days before service upon the defendants was “completed.” Accordingly, the instant action was not timely commenced under CPLR 205-a, and therefore, the Supreme Court properly granted the defendants’ motion pursuant to CPLR 3211(a)(5) to dismiss the complaint insofar as asserted against them as time-barred.

Id. at *4.

Second Department Joins First and Fourth Departments in Holding That CPLR 214-g Revives Claims Brought by New York Resident With Respect to Abuse Occurring Outside of the State

Child Victims Act Evinces Clear Intent to Benefit New York Survivors of Sexual Abuse Regardless of Where the Abuse Occurred

In prior editions of the Law Digest, we discussed CPLR 214-g, which was added as part of a comprehensive omnibus bill signed into law as the Child Victims Act (CVA), reviving for one year previously time-barred actions arising out of a claim for child sexual abuse. The revival period was subsequently extended to two years. We also reported on S.H. v. Diocese of Brooklyn, 205 A.D.3d 180 (2d Dep’t 2022), in which the court ruled that CPLR 214-g is unavailable to nonresident plaintiffs where the alleged abuse occurred outside of New York.

Subsequently, the First and Fourth Departments held in Samuel W. v. United Synagogue of Conservative Judaism, 219 A.D.3d 421 (1st Dep’t 2023), and Shapiro v. Syracuse Univ., 208 A.D. 3d 958 (4th Dep’t 2022), that CPLR 214-g did apply where the plaintiff was a resident even where the abuse occurred outside of New York. The Second Department has now joined.

In Smith v. Pro Camps, Ltd., 2024 N.Y. Slip Op. 02074 (2d Dep’t April 17, 2024), the court rejected the argument that the application of CPLR 214-g here was an “extraterritorial application”:

The appellants’ focus on the location of the alleged wrongdoing is misplaced in this context, because the subject of CPLR 214-g is not the wrongful conduct itself, but rather the statute of limitations or notice of claim requirements that barred some New Yorkers from recovering damages for the underlying wrongdoing. CPLR 214-g did not criminalize or penalize behavior that was previously lawful, nor did it create a new private right of action. Rather, the statute revived prior claims or causes of action that already existed but were barred either because of the expiration of the applicable statute of limitations or the plaintiff’s failure to file a timely notice of claim (see id. § 214-g).

Id. at *5–6.
The court looked to the CVA’s legislative history as evincing “a clear intent to benefit New York survivors of sexual abuse,” and concluded that “CPLR 214-g was enacted specifically ‘for the benefit of New York residents’ to ‘“open the doors of justice to the thousands of survivors of child sexual abuse in New York State”’(citations omitted).” Id. at *6.