Bashian & Papantoniou, P.C.

Supreme Court Rules to Limit Ability of Plaintiff to Sue State Employers for FMLA Violations

The Family and Medical Leave Act, passed in 1993, permits individuals to sue their employers for failing to provide time away from work under certain circumstances, including time to recover from an illness. The Supreme Court this week, in Coleman v. Court of Appeals of Maryland (10-1016), ruled that Congress did not have the authority to permit plaintiffs to sue their employers when those employers are states. “Documented discrimination against women in the general workplace is a persistent unfortunate reality, and we must assume, a still prevalent wrong. An explicit purpose of the Congress in adopting the FMLA was to improve workplace conditions for women. But states may not be subject to suits for damages based on violations of a comprehensive statute unless Congress has identified a specific pattern of constitutional violations by state employers,” wrote Justice Kennedy in the court’s plurality opinion. Additionally, for states to be sued under FMLA, “Congress must… tailor a remedy congruent and proportional to the documented violations. [Congress] failed to do so when it allowed employees to sue state for violations of the FMLA’s self-care provision.” 

In Coleman, the plaintiff, employed by the state of Maryland, requested a ten day medical leave pursuant to the FMLA, and his requested was denied. The plaintiff then sued the state for damages under the FMLA, and his case was dismissed. While Maryland acknowledges that it must abide by the substantive provisions of the FMLA and provide leave to its employees, state employees may not file suits against their employers when those employers violate the FMLA.

While a majority of the court agrees, Justice Ginsburg authored a forceful dissent, joined by Justices Breyer, Sotomayor, and Kanag, in which she wrote that “Congress … reduced employers’ incentives to prefer men over women, advanced women’s economic opportunities, and laid the foundation for a more egalitarian relationship at home and at work.” However, Ginsburg added, “at least the damage is contained. The self-care provision remains valid Commerce Clause legislation and therefore applies, undiluted, in the private sector.” Under this decision, employees may still request a judge to reverse potential violations, and the Department of Labor may still sue a state employer and gain monetary relief for harmed employees, noted Ginsburg.

Justice Department Files False Claim Act Against AT&T, Alleges Participation in Fraud

The Justice Department has filed a suit against AT&T, alleging that AT&T knowingly permitted its IP Relay system to be used fraudulently by users overseas, and then received reimbursement from the federal government for that use.

The 1990 Americans with Disabilities Act led to the creation of a nationwide telecommunications relay service, know as IP Relay, for deaf and speech-disabled people to communicate through phone lines. Pursuant to the Act, phone carriers implement the system and are reimbursed by the federal government. AT&T received $16 million in federal reimbursements in the last two and a half years alone.

The federal complaint alleges that AT&T deliberately employed a verification system that would not detect fraud, and that the company permitted the fraudulent use of its IP Relay system in order to collect government reimbursements. Fraudulent use of this system is popular among oversees con artists who intend to defraud American merchants, according to the National Law Journal.

The complaint states, “AT&T adopted electronic registration procedures that it knew would not verify that each user was located at the U.S. mailing address provided. AT&T also failed to adopt any procedure to detect and/or prevent dozens of fraudulent users from registering with the same U.S. mailing address, despite knowing that this was occurring on its system.”

For its part, AT&T denies the allegations and maintains that it is bound by federal law to complete all calls by customers who identify themselves as disabled.  The suit was spurred by whistleblower Constance Lyttle, a former employee of AT&T. The Justice Department is seeking the money paid to AT&T in reimbursements, along with $11,000 in treble damages for each abuse

Manhattan, Bronx Courts Require Party Who Produces Discovery to Bear the Cost of Production

The New York Appellate Division, First Department, whose rulings are binding upon state courts in Manhattan and the Bronx, has ruled that the cost of producing discovery should be borne by the party who produces that discovery. The February 28 decision, U.S. Bank National Association v. Greenpoint Mortgage Funding Inc., applies to both physical and electronic documents, and permits courts to shift the cost of the production to the party seeking those documents in the courts’ discretion if a request would be too burdensome to the producing party.

Prior to this decision, there was no clear standard articulated in the statutes governing discovery, including the CPLR. The First Department panel was persuaded by the “strong public policy favoring resolving disputes on their merits,” which would be better served by this more liberal discovery standard, rather deterring plaintiffs from seeking discovery by making them bear the costs.

This ruling adopts the Zubulake standard, used in many federal courts since 2003, including the Southern District of New York, located in Manhattan.

Sanctions Upheld Against Attorney Alleging 9/11 Conspiracy

The Second Circuit Court of Appeals unanimously upheld sanctions against one attorney who called for the judges hearing their appeal to recuse themselves. The attorneys, representing a 9/11 victim, sued members of the Bush administration, arguing that a bomb explosion, and not an aircraft impact, caused damage to the Pentagon on September 11, 2011, injuring the plaintiff. Judge Denny Chin, of the Southern District of New York, dismissed the plaintiff’s case, characterizing the complaint as “cynical delusion and fantasy.”

The plaintiff’s attorneys appealed to the Second Circuit, which upheld the dismissal. The attorneys subsequently filed a motion requesting that the appellate judges who upheld the dismissal recuse themselves, arguing that the judges had a “severe bias” against them and were motived by personal emotions, precluded them from ruling reasonably.

That same panel of judges ruled that the attorneys “acted in bad faith in demanding the recusal of the three panel members and any like-minded colleagues” and ordered sanctions of $15,000, in addition to double what the government spent to defend the claims, against one of the attorneys. The attorney has 30 days to comply with the court’s order

California Ban on Same-Sex Marriage Reversed by Ninth Circuit Court of Appeals

Proposition 8, the voter-approved referendum banning gay marriage in California, was recently ruled to be unconstitutional by the Ninth Circuit Court of Appeals. Proposition 8 was passed in California in 2008 with 52% of the vote.

In 2010, Federal District Judge Vaughn R. Walker ruled that preventing same-sex couples from marrying violates both the Due Process and Equal Protections clauses of the US Constitution. While the Ninth Circuit upheld Judge Walker’s decision, it framed the legal question more narrowly, focusing not on the right for same-sex couples to marry, but on the treatment of domestic partnerships. The Ninth Circuit ruled that the disparate treatment of domestic partners in California, when compared with married couples, violates the Equal Protections clause. 

Writing for the majority, Judge Stephen R. Reinhart wrote, “All that Proposition 8 accomplished was to take away from same-sex couples the right to be granted marriage licenses and thus legally to use the designation ‘marriage’…. Proposition 8 serves no purpose, and has no effect, other than to lessen the status and human dignity of gay men and lesbians in California.”

 However, a stay imposed by Judge Walker preventing same-sex couples remains in effect for two weeks following the ruling, preventing same-sex marriages from taking place immediately in California. The final question regarding whether same-sex couples have a Constitutional right to marry in California is not likely to be answered until the Supreme Court rules on an appeal from the Ninth Circuit’s ruling, or declines to entertain an appeal, which would be viewed by many as a tacit endorsement of this decision.

New York Attorney General Sues Banking Giants Over Fraudulent Foreclosures

New York Attorney General Eric Schneiderman filed a lawsuit in a Brooklyn Supreme Court alleging that banking giants Bank of America, JP Morgan Chase, and Wells Fargo created and maintained a mortgage database and then used that information to institute defective foreclosure proceedings against homeowners. Mr. Schneiderman alleges that the banks created this private mortgage electronic registry system, or MERS, as a tool to make it nearly impossible for homeowners to track which bank or entity in fact owned the home or issued the mortgage for the home in question. In essence, the complaint alleges that large banks created a private system with inaccurate records to more easily conduct fraudulent foreclosure proceedings against homeowners, while limiting the ability of those homeowners to defend themselves against foreclosure.

“The banks created the MERS system as an end-run around the property recording system, to facilitate the rapid securitization and sale of mortgages,” Schneiderman said, through his press office. “Once the mortgages went sour, these same banks brought foreclosure proceedings en masse based on deceptive and fraudulent court submissions, seeking to take homes away from people with little regard for basic legal requirements or the rule of law.”

The lawsuit states that “by creating this bizarre and complex end-around of the traditional public recording system, banks achieved their primary goal — over 70 million mortgage loans, including millions of subprime loans, have been registered in the MERS system and the industry has saved more than $2 billion in recording fees.”

The lawsuit seeks an end to this practice, along with civil damages and payments to victimized homeowners.

Trial Update: Trial of Allen Stanford of Stanford Financial Group begins

The trial of R. Allen Stanford, a money manager and chairman of the now defunct Stanford Financial Group, began on Monday, January 23, 2012.  Stanford has been accused of running a $7.2 billion Ponzi scheme after being arrested in 2009 in Virginia.  As with most fraudulent Ponzi schemes, Stanford Financial Group was investigated by the SEC, FBI, and the Financial Industry Regulatory Authority (FINRA), a major U.S. private-sector oversight body, to determine how Stanford International Bank was able to consistently make higher-than-market returns to its depositors.  The complaint alleges that Stanford defrauded more than 20,000 investors through the sale of bogus certificates of deposit at Stanford International Bank, Ltd., a financial institution created by Stanford and based in Antigua.

Several aspects surrounding this case will make for an interesting trial.  First, Stanford was the victim of a vicious prison beating in 2009 stemming from an altercation regarding use of the telephone.  He now claims that he has lost all memory and that he cannot recall the details of his business and banking operations.  Second, Stanford has filed a lawsuit accusing federal prosecutors, the FBI and the SEC of his complaint terms “abusive law enforcement,” and adamantly adhering to his claim of innocence.  The suit seeks $7.2 billion in damages, which, coincidentally, is about the same amount that he is accused of stealing in the Ponzi scheme.  Stanford has also filed suit against insurer Lloyd’s of London, claiming that Lloyd’s should be held liable for his legal fees as part of the Director’s and Officer’s policy held by Stanford Financial Group.  However, after it was determined that Lloyd’s did not have to pay, Stanford is now attempting to have the U.S. taxpayer pick up his legal fees through his claim that he is indigent.

Finally, James Davis, the former CFO of Stanford Financial Group and Stanford’s college roommate at Baylor University, will testify as the government’s key witness.  Davis has already pled guilty and hopes that his testimony will lead to a lighter prison sentence at his own sentencing.  There is no doubt that these juicy details ensure that Stanford’s trial will be one to watch.

Plea of guilty entered in $135 Million Medical Equipment Fraud Scheme

Bruce Donner, owner of Donner Medical Marketing, Inc., recently pled guilty to his role in a $135 million phony lease scheme.  The case, U.S. v. Bruce Donner, was heard in U.S. District Court in New Jersey before Judge Susan Wigenton.

According to prosecutors, Donner provided false medical equipment invoices to Charles Schwartz, the owner of Allied Health Care Services, Inc.  The invoices stated that Donner was providing various medical equipment to Allied when, in reality, no such equipment existed.  Schwartz then used the fake invoices to convince banks to enter into leasing agreements in which the banks would buy the equipment and then lease it to Schwartz. The bank payments were sent to Donner, who forwarded most of the money to a dummy corporation set up by Schwartz.  Donner kept a portion of the money, over $4.1 million, for himself as “commissions”. 

Overall, over fifty banks were defrauded, causing losses of more than $80 million. By pleading guilty to mail fraud, Donner faces up to 20 years in prison, as well as a fine of $250,000 or double the gross loss resulting from his offense.

The entire text of the article can be found here.

General Patent Corporation Sues Wi-Lan in the Wake of a Failed Acquisition

New York patent firm General Patent Corporation (“GPC”) is suing the Canadian Ottawa-based patent and licensing company Wi-Lan for fraud and misappropriation of confidential information. The claims allege that Wi-Lan faked an interest in acquiring GPC in order to gain access to its private trade secrets. It is further alleged that at the time a term sheet was signed in April 2011, Wi-Lan deliberately concealed facts that it knew or should have known would make a completion of the transaction impossible. Thus, after signing the term sheet, Wi-Lan became privy to a number of confidential documents for the sole purpose of finalizing an acquisition it allegedly knew would never happen. 

Furthermore, GPC highlights that Wi-Lan hired Paul Lerner, its general counsel of General Patent who had allegedly told GPC that he was leaving the company due to his desire for retirement. However, Lerner is allegedly currently setting up shop in Stamford Connecticut at Wi-Lan’s new office where he holds the title of senior general counsel. GPC notes that accepting this job with one of their competitors is a breach of Lerner’s non-compete agreement, which should have prevented him from working for any competing entity for one year following the termination of his employment. Ironically, Wi-Lan announced the appointment of Lerner at their new office to promote the growth of the company’s partnership-licensing business.

The suit is scheduled to be heard on October 11 this year. A U.S. District Court Judge will rule on whether or not Wi-Lan will be able to use or disclose any of the confidential information it has discovered as well as Mr. Lerner’s fate at his new place of employment.

The Mets Battlefield in Court Continues

Brothers-in-law Fred Wilpon and Saul Katz, co-owners of the New York Mets, were given some relief in what had the potential to be a $1 billion lawsuit. Currently, nine of the eleven counts in the complaint of Irving Picard, the court-appointed trustee of assets seized from Bernie Madoff, have been dismissed. The two men, along with several others connected to the team’s ownership group, Sterling Equities, were brought before the court on allegations of fraudulently earning money via involvement in a Ponzi scheme with the notorious Madoff.

All counts relating to constructive fraud have been dismissed, however, Picard still stands to gain up to $383 million. A paramount allegation that still remains to be litigated is whether or not Wilpon and Katz earned nearly $300 million in fictitious profits by investing in a Ponzi scheme that they knew to be fraudulent.  According to U.S. District Judge Jed Rakoff, Picard can recover up to $83 million in fictitious profits and $300 in principal. The two require separate standards of proof. To recover fictitious profits, Picard will only need to show that defendants Wilpon and Katz did not provide any sort of value for the monies they received. This should not prove to be a difficult feat seeing as the defendants, if portrayed as intelligible investors, would have known their profits to be entirely unrealistic given their investments. Somewhat more of a challenge however, will be obtaining the proof necessary to succeed in recovering the principal. Rakoff noted that Picard must prove that defendants were “intentionally blind” to Madoff’s fraudulent and illegal actions. Thus, Picard will need to establish that Wilpon and Katz had substantial and informed suspicions of Madoff’s fraudulence and evidence of their states of mind.

With the New York Mets losing tens of millions of dollars each year, this lawsuit does not bold well for Wilpon and Katz’s hold on their ownership of the team.