During the final quarter of 2012 and into the holidays, while counsel were nestled snug in their beds, the four departments of New York’s Appellate Division remained busy filling their stockings with jurisprudential sugar plums (provided the lawyers were nice and not naughty). Below, we examine some of the notable legal advancements that the state’s intermediate appellate courts left for New York lawyers in 2012′s closing weeks.

First Department

Stop-and-Frisk. The New York City Police Department (NYPD) can no longer be frisky with personal information collected from the hundreds of thousands of people caught in the cross hairs of the department’s stop-and-frisk program. In Lino v. City of New York,1 a unanimous, unsigned decision, the First Department ruled that information from stop-and-frisk targets must be sealed and cannot be used for subsequent police investigations.

When police stop and question people on the street, they must complete a form known as a UF-250. The UF-250 records information about the encounter, including the individual’s name and home address. Under the criminal procedure law, upon termination of a criminal action or proceeding in a person’s favor, “all official records and papers…shall be sealed and not made available to any person or public or private agency.”2 Nonetheless, information from UF-250s is apparently retained indefinitely in a database for use in future investigations.

In Lino, plaintiffs Clive Lino and Daryl Khan were arrested and issued summonses as the result of stop-and-frisk encounters. The summonses were later dismissed. Still, their personal information may have remained in the UF-250 database.

The First Department held that people in Lino’s and Khan’s position have a private right of action against New York City to prevent disclosure of their stop-and-frisk information. Plaintiffs need not await a “readily apparent prospective injury” before seeking relief, the court noted. It “makes little sense for plaintiffs to have to wait until their job applications are in the mail or they are about to appear for job interviews before they have standing to bring a cause of action against the effect of unsealed records.”

Parole. A criminal offender who is incompetent to stand trial also cannot be subjected to a parole revocation hearing, the First Department ruled in Matter of Lopez v. Evans,3 a unanimous decision written by Justice David Friedman.

Edwin Lopez was sentenced to 15 years to life for second-degree murder in the 1970s, and was released in 1994 to lifetime parole supervision. In 2008, while in a mental hospital, Lopez allegedly assaulted another patient in a dispute over what television station to watch. He was charged with third-degree assault and two lesser offenses. Those charges were dismissed after Lopez was found mentally incompetent to stand trial. Based on the same incident, however, an administrative law judge ruled that Lopez had violated his parole and recommended 24 months of additional imprisonment, which the parole board accepted. Lopez appealed, arguing that he was unfit to defend himself at the parole revocation hearing. An administrative panel rejected the appeal, however, stating that “mental illness is not an excuse for a parole violation.”

The First Department reversed. The justices agreed with Lopez that “the basic requirements of due process applicable to a parole revocation hearing” preclude going forward with such a proceeding where “the parolee is not mentally competent to participate in the hearing or to assist his counsel in doing so.” The parole board has the authority to determine a defendant’s mental competency for that purpose, the court held.

Second Department

Airline Regulation. Stuck on the tarmac? Don’t complain to the state courts for relief—the Second Department has found that federal law preempts such claims.

In Biscone v. JetBlue Airways,4 Katharine Biscone sued JetBlue for false imprisonment and other torts after being confined for more than 11 hours while her flight was stranded on the tarmac at JFK airport. Among other things, Biscone alleged that the airplane’s sanitary systems stopped working during the 11 hours in limbo, while the crew intimidated passengers who demanded to be released from the plane. JetBlue moved to dismiss, arguing that Biscone’s tort claims were preempted by the federal Airline Deregulation Act of 1978, which displaces state laws “related to a price, route, or service of an air carrier.”5

In a unanimous decision authored by Justice Leonard Austin, the court sided with JetBlue, affirming dismissal of claims for false imprisonment, intentional infliction of emotional distress, and fraud and deceit. “[T]he provision of food, water, clean air, and toilet facilities, as well as the ability to deplane after a prolonged period on the tarmac, all relate to and implicate an airline service,” the Second Department observed. Biscone’s intentional tort claims “directly address[ed] the provision of those services.”

Health Insurance. In tort cases, problems may arise when medical expenses are paid by a health insurance plan. Health plans typically provide themselves with a lien over the participant’s tort judgment or settlement. As a result, successful plaintiffs and their counsel may be unpleasantly surprised to find their recoveries captured by insurers.

To avoid that result, New York in 2009 passed a statute protecting personal injury recoveries from claims for subrogation or reimbursement by benefit providers, except where there is a statutory right of reimbursement.6 In Trezza v. Trezza,7 however, a unanimous panel of the Second Department held that federal law preempted the New York statute as applied to Medicare Advantage plans.

Writing for the court, Justice Thomas Dickerson cited the Medicare Act’s provision that the standards established under Medicare Part C “shall supersede any State law or regulation” with respect to Medicare Advantage plans, and a related regulation providing that states “cannot take away” an organization’s right under federal law to bill for services for which Medicare is not the primary payer.8 Dickerson concluded that those provisions protect the ability of insurers who provide Medicare Advantage plans to create rights of reimbursement for themselves by contract.

Joint Tenancy. Girlfriends should know about their boyfriends’ financial shenanigans. When those shenanigans concern property the couple holds as joint tenants, banks should know as well.

In Smith v. Bank of America,9 Teresa Smith had given her boyfriend David Hassid an equal share of her property in Port Washington, which the couple then held as joint tenants with the right of survivorship. Unbeknownst to Smith, in 2006 Hassid took out a $300,000 loan from Bank of America, secured by a mortgage on the property. After Hassid died, the bank declared the loan in default. Smith sued for a declaratory judgment that, upon Hassid’s death, the mortgage was extinguished by operation of law. The bank responded that Hassid’s mortgage had destroyed the tenants’ unity of interest, one of the elements required to support a joint tenancy.

Writing for a unanimous panel, Justice Cheryl Chambers remarked that the issue presented—whether a mortgage given by one joint tenant without the other’s knowledge severs the joint tenancy—arises so rarely that it is like “a comet in our law.” Citing a property treatise, she observed that only “a rare (or negligent)” lender would “accept a mortgage from a joint tenant without first seeing that the joint tenancy was severed or that all the joint tenants had signed.”

In New York, Chambers continued, a mortgage “is considered a lien secured by real property.” Thus (unlike “title theory” states), a mortgage in New York does not transfer legal title to the lender. Nor did Bank of America’s mortgage instrument contain language “evincing Hassid’s intent to sever the joint tenancy.”

Consequently, the Second Department held, the mortgage “ceased to exist” upon Hassid’s death “and his interest in the subject property passed to [Smith] free and clear of the mortgage.”

Third Department

Grand Jury. Indictments should not be based on “rank hearsay,” no matter how likely a conviction may ultimately be, the Third Department reminded the criminal justice bar in People v. Gordon.10

In the case of defendant Kevin Gordon, indicted and convicted for first-degree robbery and attempted assault, the Third Department took the unusual step of dismissing the indictment following the defendant’s conviction because the grand jury presentation was “fundamentally flawed.” After being asked before the grand jury whether he ever learned the identity of the masked man who had robbed him, the witness, a convenience store clerk, stated (without explanation): “somebody told me his name was Kevin Gordon.” The grand jury transcript contained other questions and answers to the same effect.

Although “defects in a grand jury presentation are rarely grounds for reversal, especially where there has been a trial on the merits that resulted in defendant’s conviction,” Justice E. Michael Kavanagh wrote for a unanimous panel that dismissal of the indictment is still warranted “where prosecutorial wrongdoing, fraudulent conduct or errors potentially prejudice the ultimate decision reached by the grand jury.”

In this case, the proof of Gordon’s guilt “was by no means overwhelming.” Thus, Kavanagh explained, “[i]t is inconceivable on this record that this [hearsay] evidence, all of which was inadmissible, did not have a prejudicial impact on the grand jury in terms of its resolution of this [identification] issue and its decision to charge defendant with this robbery and attempted assault.”

Lien Law. Subcontractors working on a project have a mechanic’s lien that they can foreclose if they remain unpaid. But, they also have a separate statutory remedy: an action under article 3-A of New York’s Lien Law, which imposes a trust on construction funds to assure that subcontractors are paid for their work.

In Professional Drywall v. Rivergate Development,11 the Third Department considered whether a subcontractor can maintain both types of actions simultaneously. In a unanimous decision authored by Justice Leslie E. Stein, the court held that the answer is “yes.”

The plaintiff had entered into a subcontract with defendant Rivergate Development for work on a large housing project. After disagreements arose between the plaintiff and Rivergate, the plaintiff filed a mechanic’s lien for approximately $138,000. Rivergate deposited approximately $142,000 with the county clerk to discharge the lien. Plaintiff then sued Rivergate under Lien Law article 3-A while also seeking to foreclose its mechanic’s lien.

By statute, the trust under Lien Law Article 3-A continues “until every trust claim arising at any time prior to the completion of the…subcontract has been paid or discharged, or until all such assets have been applied for the purposes of the trust.”12 As Stein explained, the owner or general contractor therefore “becomes a fiduciary” over the accounts received, and using such funds for any purpose other than paying project costs “constitutes a diversion of the funds and a breach of the fiduciary’s duty.”

Even discharge of the subcontractor’s lien by a cash deposit will not relieve the fiduciary of its obligation. Only payment suffices. “[D]efendants must fulfill their fiduciary duties with regard to the article 3-A trust until such time as the merits of the subcontractors’ claims are judicially or otherwise determined and any amounts determined to be owed are actually paid,” the court held.

Fourth Department

Sexting. Harmonizing the Penal Law with modern technology in People v. Holmes,13 the Fourth Department upheld a conviction based on “sexting”—sending sexually explicit text messages—because the defendant’s cell phone was functionally a computer.

Convicted of sending explicit cell phone texts to a teenage girl, defendant Marlek Holmes contended on appeal that his conduct did not utilize a “computer communication system” and therefore did not violate the Penal Law’s prohibition against sending indecent material to minors.14

In New York’s first appellate ruling on this issue, the Fourth Department disagreed. A smartphone is “not merely a telephone,” the court reasoned in its unanimous, unsigned memorandum. Rather, such phones satisfy the Penal Law’s definition of a computer: “a device…which, by manipulation of electronic…impulses…can automatically perform…logical, storage or retrieval operations with or on computer data” or “any connected or directly related device, equipment or facility which enables such computer to…communicate to or from a person.”15

E. Leo Milonas is a litigation partner at Pillsbury Winthrop Shaw Pittman. He is a former associate justice of the Appellate Division, First Department, and the former Chief Administrative Judge of the State of New York. Frederick A. Brodie is a litigation partner in Pillsbury’s New York office. Pillsbury litigation associates Tamara Zakim, Aubrey Charette and Tameka M. Beckford-Young assisted in preparing this column.

Endnotes:

1. 2012 N.Y. Slip Op. 08783 (1st Dept. Dec. 20, 2012).

2. CPL §§160.50, 160.55.

3. 2012 N.Y. Slip Op. 09188 (1st Dept. Dec. 27, 2012).

4. 2012 N.Y. Slip Op. 09019 (2d Dept. Dec. 26, 2012)

5. 49 U.S.C. §41713(b)(1).

6. G.O.L. §5-335.

7. 2012 N.Y. Slip Op. 09048 (2d Dept. Dec. 26, 2012)

8. 42 U.S.C. §1395w-26(b)(3); 42 C.F.R. 422.108(f).

9. 2012 N.Y. Slip Op. 08718 (2d Dept. Dec. 19, 2012)

10. 2012 N.Y. Slip Op. 09099 (3d Dept. Dec. 27, 2012).

11. 2012 N.Y. Slip Op. 07254 (3d Dept. Nov. 1, 2012).

12. Lien Law §70(3).

13. 2012 N.Y. Slip Op. 08906 (4th Dept. Dec. 21, 2012).

14. Penal Law §235.22.

15. Penal Law §156.00(1).