New York State Law Digest: March 2024

3.4.2024

By Editor: David L. Ferstendig

CASE LAW DEVELOPMENTS

Court of Appeals Holds That Division of Human Rights Rationally Concluded That Threat of Litigation Can Qualify as Required Adverse Action to Support Retaliation Claim

But Rules That DHR Improperly Shifted Burden on Whether Activity Was Protected

In Matter of Clifton Park Apts., LLC v. New York State Div. of Human Rights, 2024 N.Y. Slip Op. 00793 (Feb. 15, 2024), the issue was whether a threat of litigation can qualify as the required adverse action to support a retaliation claim under the New York State Human Rights Law. That statute provides that it is unlawful to retaliate against a person for opposing discriminatory practices, filing a discrimination (human rights) complaint, or engaging in other protected activity. To sustain a retaliation claim, the plaintiff has the burden to establish that “(1) they have ‘engaged in protected activity,’ (2) the defendant ‘was aware that’ the plaintiff ‘participated in’ the protected activity, (3) the plaintiff suffered adverse action based upon the activity, and (4) ‘there is a causal connection between the protected activity and the adverse action’ (citation omitted).” Id. at *5.

CityVision Services, Inc. (CityVision) is a Texas-based not-for-profit corporation engaged in the prevention of housing discrimination. It arranges to have its agents pose as prospective tenants to determine whether housing facilities are engaging in discrimination. In 2016, a CityVision employee, Leigh Renner, called Clifton Park Apartments, LLC, owner of Pine Ridge II Apartments (Pine Ridge), a New York housing facility, purportedly trying to rent an apartment for her and her three young children. CityVision then filed a complaint with the Division of Human Rights (DHR), claiming that Pine Ridge had discriminated against Renner by steering her to a different apartment complex upon learning that she had three children. DHR investigated the complaint but dismissed it, concluding that there was no probable cause to support a finding that Pine Ridge had engaged in familial status discrimination.

Pine Ridge’s attorney, David H. Pentkowski, then sent a letter to CityVision and Renner stating that Pine Ridge considered the allegations in CityVision’s DHR complaint to be “false, fraudulent and libelous” and that Pine Ridge was “looking to” CityVision and Renner “personally for the damages that” Pine Ridge “sustained as a result of this wrongful conduct.” The letter warned that if CityVision and Renner did not respond within a stated time, Pine Ridge would “assume that” they did “not intend to take responsibility for these actions and [would] proceed accordingly.” CityVision then filed a second complaint, alleging retaliation for filing the first complaint.

At a public hearing before an Administrative Law Judge (ALJ), an employee of CityVision testified that the staff was “shocked” when they received Pentkowski’s letter and “had to scramble around . . . to locate counsel,” resulting in the diversion of resources. The ALJ recommended a finding that Pentkowski’s threatening letter constituted unlawful retaliation, a damages award payable to CityVision, and a civil fine. Significantly, with respect to the first element of the retaliation claim (that CityVision engaged in protected activity), the ALJ placed the burden on Pine Ridge and Pentkowski to establish that CityVision’s initial discrimination complaint was “made in bad faith” and concluded that they failed to meet that burden. DHR adopted the ALJ’s recommendation, but also awarded counsel fees.

Petitioners (Pine Ridge and Pentkowski) then commenced this proceeding challenging DHR’s determination, and DHR filed a cross-petition to enforce it. The petition and cross-petition were transferred to the Appellate Division, which annulled the determination and granted the petition.

Only two of the four elements to establish the retaliation claim were at issue here: whether CityVision was engaged in protected activity and whether it suffered an adverse action based upon that activity. The Court of Appeals first dealt with the latter element. It referred to the United States Supreme Court decision in Burlington N. & S. F. R. Co. v White, 548 U.S. 53 (2006), which addressed the antiretaliation provision of Title VII of the Civil Rights Act of 1964 relating to employment discrimination. In Burlington, the Supreme Court ruled that the adverse action element is satisfied when “a reasonable employee would have found the challenged action materially adverse” in that “it well might have dissuaded a reasonable worker from making or supporting a charge of discrimination.” Burlington, 548 U.S. at 68.

The Court of Appeals noted that neither party disputed that the standard enunciated in Burlington applied here to determine whether there was an adverse action under the Human Right Law. The Court stated that the Appellate Division was wrong in concluding that the Pentkowski letter could not amount to adverse action as a matter of law. Instead, determining whether a threat of litigation amounts to adverse action is properly left to a fact-specific determination. A per se rule precluding litigation threats from constituting adverse action would impermissibly restrict New York’s antiretaliation statute in violation of the legislative directive to construe the Human Rights Law liberally to eliminate discrimination in this State (citations omitted).

Matter of Clifton Park Apts., LLC, 2024 N.Y. Slip Op. 00793 at *7.
The Court noted that its “review of DHR’s analysis concerning whether CityVision and Renner satisfied the adverse action element is limited”; its function was to assess whether DHR’s “determination is supported by substantial evidence on the record”; “the reviewing court should review the whole record to determine whether there is a rational basis in it for the findings of fact supporting the agency’s decision”; and “DHR’s determinations are accorded substantial deference when” it “acts within [its] area of expertness,” and “identifying discriminatory acts . . . requires expertness (citations omitted).” Id. at *8.

A unanimous Court of Appeals ruled that, in this case, DHR’s determination that the litigation threat in the letter was an adverse action was rational and supported by substantial evidence:
Here, DHR concluded that Pentkowski’s letter threatened litigation and that such threats could have dissuaded a reasonable person from bringing the original discrimination charge. Initially, DHR rationally concluded that the letter threatened litigation. The letter specifically stated that Pine Ridge was looking to CityVision and Renner for damages and warned that Pine Ridge would proceed as necessary to obtain such damages. Further, the record established that Pentkowski’s letter “shocked” CityVision’s employees and forced CityVision to expend resources and “scramble . . . to locate counsel” to address the threat. In the circumstances presented, it was rational for DHR to conclude that the threatening letter caused CityVision to divert resources and could have dissuaded a person from pursuing a discrimination claim to protect their rights under the Human Rights Law. Indeed, a potential plaintiff might be chilled from filing a discrimination complaint when weighing the harm caused by the threat of retaliatory litigation, let alone the injury potentially occasioned by actual retaliatory litigation.

Id. at *8–9.

The Court then returned to the first element, that is, whether CityVision was engaged in protected activity. Here, the Court concluded that DHR improperly placed the burden on Pine Ridge and Pentkowski to establish that CityVision’s allegations in the initial DHR complaint were made in bad faith. In fact, Appellate Division and DHR precedent requires CityVision and Renner to demonstrate that they were engaged in protected activity by showing that the initial complaint was based on a reasonable belief that Pine Ridge had engaged in unlawful housing discrimination . . . As the Appellate Division concluded, DHR failed to “undertake any analysis as to whether CityVision reasonably believed that Pine Ridge” had engaged in a discriminatory practice during the test call. Because DHR failed to make any non-conclusory factual findings on this issue, remittal is necessary so that DHR may determine whether CityVision and Renner established the first element of the retaliation claim (citations omitted).

Id. at *10.

Court of Appeals Holds That “Direct Physical Loss or Damage” Coverage Requires Material Alteration or Complete and Persistent Dispossession of Insured Property

Finds No Coverage for Restaurants for Business Interruption Losses Arising Out of Pandemic

Consolidated Rest. Operations, Inc. v. Westport Ins. Corp., 2024 N.Y. Slip Op. 00795 (Feb. 15, 2024), involves the interpretation of a commercial property insurance policy’s coverage for “direct physical loss or damage to insured property.” Specifically, the question was whether business interruptions (including the cessation of in-person dining) resulting from the actual or possible presence of COVID-19 in plaintiff’s restaurants caused “direct physical loss or damage” to its property. A unanimous Court of Appeals held that “direct physical loss or damage” necessarily requires a material alteration or a complete and persistent dispossession of the insured’s property, not alleged here.

The plaintiff, Consolidated Restaurant Operations (CRO), is the owner and operator of numerous restaurants. Before the pandemic, it obtained from the defendant Westport Insurance Corporation (the insurer) an “all-risk” commercial property insurance policy, including business interruption coverage, covering the period from July 1, 2019 through July 1, 2020. The insuring agreement, expressly governed by New York law, insured “all risks of direct physical loss or damage to insured property” and business interruption losses “directly resulting from direct physical loss or damage” to the insured property.

As we are all aware, the coronavirus led to a global pandemic which, in addition to taking a huge human health and mortality toll, devastated business owners. Businesses had to increase dramatically safety measures in their facilities, and restaurants had to suspend indoor dining as a result of various executive orders. It is in this context that the plaintiff, claiming a significant reduction in revenue, filed a claim with the defendant stating it had suffered direct physical loss or damage to its property because of the actual or threatened presence of the virus in and on its property. After the defendant-insurer denied coverage, plaintiff brought this action for a declaration that its losses were covered under the policy and for breach of contract damages. Defendant moved to dismiss the complaint asserting that the plaintiff could not meet the “direct physical loss or damage” threshold, because in order to trigger coverage there needed to be some form of actual, physical damage to the insured property. The trial court granted the motion and the Appellate Division affirmed.

In affirming the Appellate Division order, the Court of Appeals noted that insurance policies are governed by the same general principles of contract interpretation; unambiguous provisions are to be given “their plain and ordinary meaning, and the interpretation of such provisions is a question of law for the court”; and any ambiguity must be construed in favor of the insured and against the insurer.

The Court first addressed the meaning of the relevant policy provisions. It referenced the words “direct,” “physical” and “loss,” as defined in the dictionary and interpreted the phrase in question as follows: “[B]ecause the words ‘direct’ and ‘physical’ both modify the phrase ‘loss or damage,’ we read the phrase ‘direct physical loss or damage’ to mean ‘direct physical loss’ or ‘direct physical damage. ‘Physical damage’ must be understood to require a material physical alteration to the property—one that is perceptible, even if not visible to the naked eye (citations omitted).” Id. at *9–10.

The Court rejected the plaintiff’s contention that the relevant phrase (“direct physical loss”) included “impaired functionality and either a partial or complete loss of use for a limited period of time.” It found this interpretation “untenable” because it would collapse coverage for “direct physical loss” into coverage for “loss of use.” “[L]osing a thing is conceptually different than losing the functional use of that thing for a period of time.” To take a practical example, forgetting the password to unlock one’s phone is quite different than losing possession of it entirely because it has been stolen or inadvertently left somewhere. “This distinction is clear enough that had the parties intended the policy to cover a loss of use of property, they would have said so explicitly.” “Direct physical loss” thus requires more than loss of use; it requires an actual, complete dispossession (citations omitted).

Id. at *10–11.
The Court found support for its interpretation in other provisions in the policy. For example,
[t]he “Time Element” provision provides coverage for “TIME ELEMENT loss, during the Period of Liability, directly resulting from direct physical loss or damage . . . to the INSURED PROPERTY.” Thus, the insured must suffer direct physical loss that in turn causes “time element” (i.e., business interruption) losses. Reading “direct physical loss” to include loss of use is circular and fails to give distinct meaning to the two concepts.

Id. at *11.

The Court refused to address whether a claim of persistent contamination or the restaurants’ total uninhabitability would amount to “actual material dispossession” and thus “direct physical loss” because the plaintiff did not make such allegations:
Indeed, CRO’s complaint makes clear that neither of those conditions is met. Although the complaint alleges that the coronavirus rendered its restaurants “unusable” such that it had to “suspend[ ] or severely curtail[ ] [its] operations” and “limit[ ] [its] on-premises dining and operations,” it does not allege a complete shutdown—for example, that its employees could not enter the restaurants or that they could not provide take-out and delivery services. And while CRO alleges that it was “forced to close 30 restaurants,” nowhere does it allege that those closures were because the properties themselves were contaminated to the point of uninhabitability, as opposed to prudent economic decisions in light of lost “foot-traffic.”

Id. at *14–15.

The Court added that allegations of remediation efforts “even if useful to facilitate in-person dining, do not establish that the restaurants were completely uninhabitable until property was repaired or replaced. Nor does CRO allege a permanent impact; its complaint alleges only that the coronavirus ‘can survive on surfaces for days and even weeks’ (citations omitted).” Id. at *15–16.

It pointed out that its interpretation of the phrase “direct physical loss or damage” comported with federal court decisions applying New York law in COVID-19 insurance coverage cases, and decisions from other jurisdictions “notwithstanding variation in their precise understandings of the term ‘direct physical loss or damage.’” Id. at *17.
Finally, the Court rejected the insured’s argument that, regardless, they had sufficiently alleged a physical alteration of the property:
CRO does not allege there was any need to repair or replace insured property; only business interruption losses are identified. Other allegations in the complaint concern the risk that the coronavirus poses to humans, not property. And even as to whether the coronavirus was actually present in its restaurants, CRO offered contradictory allegations, stating in its complaint that “the virus might not actually be present at the Restaurants.” Even generously construed to allege that various surfaces in the restaurants became vectors for transmission of the coronavirus, CRO “fails to identify . . . a single item that it had to replace, anything that changed, or that was actually damaged at any of its properties.” As the Appellate Division found, “[n]othing stopped working.” And the allegations themselves confirm that the presence of the coronavirus was temporary.

Id. at *18–19.

First Department Rules That Repeal of the Emergency or Disaster Treatment Protection Act Was Not Retroactive

Joins Third and Fourth Departments

In early 2020, at the beginning of the pandemic, the governor signed executive orders declaring a disaster emergency in New York State. He also provided that health care workers “shall be immune from civil liability for any injury or death alleged to have been sustained directly as a result of an act or omission by such medical professional in the course of providing medical services in support of the State’s response to the COVID-19 outbreak, unless it is established that such injury or death was caused by the gross negligence of such medical professional.” The New York State legislature then enacted the Emergency or Disaster Treatment Protection Act (the EDTPA), providing that health care workers were immune from potential liability arising from actions related to the care of COVID patients. Significantly, while the EDTPA was signed into law on April 3, 2020, the legislature expressly stated that the immunity was in effect immediately, retroactive from the beginning of Governor Cuomo’s March 7, 2020 declaration of a state of emergency, and that it would apply to acts or omissions that occurred on or after the date of the emergency declaration.

On April 6, 2021, the legislature repealed the EDTPA with the new legislation stating that “[t]his act shall take effect immediately.”

In Hasan v. Terrace Acquisitions II, LLC, 2024 N.Y. Slip Op. 00739 (1st Dep’t Feb. 13, 2024), the decedent died due to COVID-19 related complications on May 6, 2020.

The plaintiff asserted that the repeal of the EDTPA was retroactive and, thus, the defendant was not immune from liability for actions that occurred while the EDTPA was still in effect.

The First Department disagreed. It stated that “[w]here legislation, ‘if applied to past conduct, would impact substantive rights and have retroactive effect, the presumption against retroactivity is triggered’ (citations omitted).” Thus, “‘[i]t takes a clear expression of the legislative purpose . . . to justify a retroactive application of a statute (citations omitted).’” Id. at *3.

Here, the court found that the statute’s language did “not evince an intent to make the repeal retroactive.” In fact, while the statutory text in connection with the enactment of the statute did use such retroactive language, that was not true with respect to the statutory text repealing the EDTPA. Moreover, the other factors to consider when determining whether a statute is to be applied retroactively did not show such intent. For example,
[p]laintiff does not argue that the repeal rewrote “an unintended judicial interpretation.” Nor did the repeal “reaffirm[] a legislative judgment,” as the legislature terminated the previous year’s grant of immunity. Furthermore, although “the fact that a statute is to take effect immediately” does evince a sense of urgency, the Court of Appeals has found that for purposes of determining retroactive application, the meaning of the phrase “take effect immediately” is “equivocal” (citations omitted).

Id. at *4.

The court added that the mere classification of a statute as remedial does “not automatically overcome the strong presumption of prospectivity, as the term ‘remedial’ may ‘broadly encompass any attempt to supply some defect or abridge some superfluity in the former law’ (citation omitted).” Id. at *4–5. Finally, the legislative history did not support the plaintiff’s argument.

The court then applied the EDTPA to the case and found that the defendant was entitled to immunity and the facts negated any finding of gross negligence, which would have removed the immunity.

In Hasan, the First Department joined the Third and Fourth Departments in finding that the repeal of the
EDTPA was not retroactive. See Whitehead v. Pine Haven Operating LLC, 222 A.D.3d 104 (3d Dep’t 2023) (“Based upon all of the foregoing, and noting that the retroactive application of the repeal of the EDTPA would merely punish healthcare providers ‘for past conduct they cannot change — an objective [that has been] deemed illegitimate as a justification for retroactivity,’ we hold that the repeal of the EDTPA was not retroactive (citations omitted)”); Ruth v. Elderwood at Amherst, 209 A.D.3d 1281 (4th Dept 2022).

Toll Applies Irrespective of Whether the Plaintiff Has Actually Been Deprived of An Opportunity to Commence an Action

COVID Toll Lives On

In the August 2020 edition of the Law Digest (and in subsequent editions), we delved deeply into the scope of the COVID-19 toll. (Yes, we can now unequivocally call it a toll since all four Appellate Division Departments agree!) As we explained, “[a] toll ‘stops the clock’ for statute of limitations purposes during a period that begins with the event that gives rise to the toll and ends with the expiration of the time allotted or the lifting of whatever disability was the reason for the toll.”

In State of New York v. Williams, 2024 N.Y. Slip Op. 00709 (4th Dep’t Feb. 9, 2024), the Appellate Division concluded that the applicable statute of limitations was six years (for a quantum meruit cause of action); the cause of action accrued on January 4, 2015; there were 289 days remaining in the limitation period when the COVID toll went into effect on March 20, 2020, and “thereafter the ‘statute of limitations began to run again, expiring on [August 19, 2021]”; and therefore the action was timely commenced on August 17, 2021.

The Fourth Department rejected the trial court’s conclusion that the toll was inapplicable because the State could have commenced the action before March 20, 2020, or between November 3, 2020 and January 4, 2021:

“[A] toll operates to compensate a claimant for the shortening of the statutory period in which it must commence . . . an action, irrespective of whether the stay has actually deprived the claimant of any opportunity to do so.” Thus, the State was entitled to the benefit of tolling of the statute of limitations for the 228-day period set forth in the executive orders (citations omitted).
Id. at *3.