Harvey M. Stone and Richard H. Dolan
Harvey M. Stone and Richard H. Dolan ()

This column reports on several significant, representative decisions handed down recently in the U.S. District Court for the Eastern District of New York. Chief Judge Dora L. Irizarry dismissed civil rights and related claims by international airline passengers because they were preempted by the Montreal Convention. Judge Kiyo A. Matsumoto ordered a severance in a two-defendant criminal case to prevent the risk of severe prejudice to one of the defendants. And Judge Frederic Block ruled on various claims in an action for damages under the Visual Artists Rights Act of 1990.

Preemption: Montreal Convention

In Alam v. American Airlines Group, 16 CV 251 (EDNY, March 17, 2017), Chief Judge Irizarry found civil rights and other claims by international airline passengers to be preempted by the Convention for the Unification of Certain Rules for International Carriage by Air (the Montreal Convention).

The four plaintiffs had taken a trip from New York to Toronto for a birthday celebration. Two are Muslims of Bengali descent; one is Muslim of Syrian descent; one is a Sikh of Punjabi descent. The complaint alleged that, after boarding their American Airlines return flight to New York, plaintiffs were removed and told that, as they made the crew uncomfortable, it would not fly with them aboard. They were allowed onto the next flight to New York. Plaintiffs sued the airline under federal and state anti-discrimination laws, and also asserted state contract and negligence claims.

Irizarry dismissed all of their claims as preempted by the Montreal Convention, which “governs the uniform system of liability for international air carriers.” Slip op. 6. The Montreal Convention replaced the Warsaw Convention but retained many of its provisions, including identical language in each Convention’s Article 17 allowing recovery from an air carrier for an injury that “took place on board the aircraft or in the course of any of the operations of embarking or disembarking.” Slip op. 9 (quoting Conventions). Article 29 of each Convention provides that compensation for such injuries can be recovered from a carrier only as set forth in the Convention.

Because the events plaintiffs complained of occurred after they had obtained boarding passes, the claims fell within the reach of King v. Am. Airlines, 184 F.3d 352 (2d Cir. 2002), in which the Second Circuit had found preemption under the Warsaw Convention on similar facts. The Second Circuit had found that “to carve out an exception to the Warsaw Convention’s preemption clause for discrimination claims … ‘would eviscerate the uniformity that is the animating purpose behind the Convention.’” Slip op. 8 (quoting King v. Am. Airlines). The identity of the relevant language between the Conventions confirmed that nothing in the Montreal Convention warranted a change from the holding in King.

Plaintiffs’ attempt to characterize their claims as arising from defendants’ failure to perform a contract, or discrimination in making or performing a contract, was futile. Such claims are equally subject to preemption. In addition, plaintiffs alleged a delay in performance—they conceded they were put on the following flight to New York—and therefore could not state a claim for non-performance. Slip op. 10-12.

Severance Granted

In United States v. Shkreli, 15 CR 637 (EDNY, April 19, 2017), Judge Matsumoto granted severance motions, over the government’s objection, in a two-defendant criminal case where the second defendant planned to prove that he was merely one of the other defendant’s many victims, a strategy that would turn the trial into a double prosecution against the first defendant.

The indictment charged Martin Shkreli and Evan Greebel with securities fraud, primarily in connection with the operation of (1) two hedge funds (collectively, MSMB) in the health care sector; and (2) a biopharmaceutical company that eventually became publicly traded (Retrophin). Shkreli founded and managed MSMB and Retrophin. Greebel, a partner in the New York office of Katten Muchin Rosenman, acted as counsel to these entities and worked closely with Shkreli, providing legal advice and other legal services to him and the entities, serving as acting secretary at Retrophin board meetings, and directly communicating with many of that company’s investors.

The first six counts of the eight-count indictment charged Shkreli with securities fraud through misrepresentations and omissions, fabricated records and more. Count seven charged both defendants with a conspiracy described as the “Retrophin Misappropriation Scheme.” Count eight charged both defendants with another conspiracy, the “Retrophin Unrestricted Shares Scheme.”

Matsumoto rejected defendants’ argument that a severance was required because of mutually antagonistic defenses. Shkreli intended to show at trial that he relied on Greebel’s legal advice and that Greebel was fully aware of all relevant information. Greebel intended to show that Shkreli lied and failed to disclose material information to him and others at the firm.

As the court explained, the defenses are not mutually antagonistic because they do not necessarily “require” the jury to find one defendant guilty if it accepts the other’s defense. Slip op. 11-16.

Nor did asserted “spillover prejudice” necessitate a severance. Slip op. 16-18.

But under the “unique circumstances” here, trying defendants together could well deprive Shkreli of a fair trial:

A joint trial would place on Shkreli an unfair and heavy burden in defending himself against both the government and Greebel. Severance is granted because of the stated intention of Greebel’s counsel … that Greebel’s defense team will act as a second prosecutor against Shkreli, by arguing that Shkreli is guilty and that Greebel is, himself, just another victim of Shkreli’s fraud.

Slip op. 19. Beyond that, the constant objections and side bars related to these issues would “disrupt the flow of the trial” and confuse the jury, while the mutual finger pointing by defendants and, worse, the “double prosecution” of Shkreli would be unduly prejudicial. Slip op. 19-23.

Visual Artists Rights Act of 1990

In Cohen v. G&M Realty L.P., 13 CV 5612 (EDNY, March 31, 2017), an action arising from the destruction of aerosol art when the “5Pointz” buildings in Long Island City were razed, Judge Block denied motions for summary judgment, while dismissing plaintiffs’ state law claims and defendants’ counterclaim for abuse of process. The court had previously denied plaintiffs’ request for a preliminary injunction to halt the destruction of the buildings.

Plaintiff Jonathan Cohen became curator of the aerosol art on “5Pointz” in 2002, and the buildings became “a mecca for high-end works by internationally recognized aerosol artists.” Slip op. 3. The owners destroyed the 5Pointz buildings in 2013 to replace them with luxury rentals and affordable housing. Plaintiffs brought claims under the Visual Artists Rights Act of 1990 (VARA), 17 U.S.C. §106A, seeking monetary damages, and state law claims for intentional infliction of emotional distress, conversion and property damage.

If a piece of art covered by VARA is destroyed, VARA provides for compensation if it is determined that plaintiffs’ works were of “recognized stature.” Both plaintiffs and defendants presented expert witnesses to construe the criteria for “recognized stature” under VARA. Block concluded that the two experts’ “divergent analyses” created a triable issue of fact, foreclosing summary judgment for either party.

Defendants argued that plaintiffs’ expert report focused on the “recognized stature” of the artist rather than the work. Block found a legal basis for the expert’s methodology under VARA. Courts have accepted “inferring a particular work‘s recognized stature on the basis of its creator‘s reputation … or employing iconoclastic and disputable aesthetic theories.” Slip op. 7. Plaintiffs’ expert also met the Daubert minimum in that she used a variety of factors to reach her conclusion regarding the stature of plaintiffs’ work, “including Cohen’s multiple commissions from such entities as Coors, Heineken, Swatch, and Deutsche Bank; another’s commission from some of Brazil’s famous brands; a third one’s hiring by celebrity clients and a public park; the opinions of leading museum professionals and other artists; the individual artist’s social media followers and their works’ google hits; flattering newspaper accounts …; academic approval; private and public exhibitions of the artists’ other work …; numerous awards,” and so on. Slip op. 8-9.

VARA preempts all equivalent legal and equitable rights under common law or state statute relating to works of visual art. Thus, plaintiffs’ claims for conversion, property damage and intentional infliction of emotional distress depended on the viability of their VARA claims and were preempted by that statute, which authorizes court interference with defendants’ right to demolish their own property. Slip op. 11-15.

Defendants asserted a counterclaim for abuse of process based on what they claimed was Cohen’s improper purpose of bringing an action to preserve 5Pointz as a tourist attraction. Because plaintiffs had the right under VARA to seek a preliminary injunction, “no cognizable claim for abuse of process can possibly exist.” Slip op. 10.