Henry v. Concord Limousine, Inc., et al
Filing
21
MEMORANDUM & ORDER denying 11 Motion to Dismiss; granting in part and denying in part 19 Motion to Amend/Correct/Supplement. For the foregoing reasons, Defendants' motion for leave to amend their Answer and Counterclaim is GRANTED IN PART and DENIED IN PART, Plaintiff's motion to dismiss Defendants' Disgorgement Counterclaim is DENIED, and Plaintiff's request to strike paragraph 10 of the Disgorgement Counterclaim is DENIED AS MOOT. Defendants' motion for leave to amend is GRANTED insofar as it amplifies the factual allegations supporting the Disgorgement Counterclaim, deletes paragraph 10 of the Disgorgement Counterclaim, and adds the proposed Second, Sixth, and Seventh Affirmative Defenses. Defendants' ; motion for leave to amend is DENIED insofar as it seeks to add the proposed Second and Third Counterclaims and the proposed Fourth and Fifth Affirmative Defenses. The Clerk of the Court is directed to docket the proposed Amended Answer and Counterc laim as the operative Answer and Counterclaim. However, the Amended Answer and Counterclaim remains operative only to the extent that it is consistent with the Court's rulings explained above. So Ordered by Judge Joanna Seybert on 1/24/2014. C/ECF (Valle, Christine)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
---------------------------------------X
GERARD HENRY,
Plaintiff,
MEMORANDUM & ORDER
13-CV-0494(JS)(WDW)
-againstCONCORD LIMOUSINE, INC.; CONCORD
LIMOUSINE I, LCC; ALEX GAVRILOV; and
IRINA GAVRILOV, individually,
Defendants.
---------------------------------------X
APPEARANCES
For Plaintiff:
Jodi Jill Jaffe, Esq.
Lawrence Office Park
Building 2, Suite 220
168 Franklin Corner Road
Lawrenceville, NJ 08648
Alan Nathan Walkow, Esq.
Walkow Law Office
901 West Park Avenue, Suite 202
Long Branch, NJ 07740
For Defendants:
Eric Brian Kaviar, Esq.
712 Third Avenue
Brooklyn, NY 11232
SEYBERT, District Judge:
Plaintiff
action
against
Gerard
defendants
Henry
(“Plaintiff”)
Concord
Limousine,
commenced
Inc.,
this
Concord
Limousine 1, LLC (collectively, “Concord”), Alex Gavrilov, and
Irina
Gavrilov
(together
with
Alex
Gavrilov
and
Concord,
“Defendants”) to recover under the Fair Labor Standards Act and
the New York Labor Law for alleged unpaid wages and overtime.
Defendants filed an Answer and Counterclaim that includes one
counterclaim seeking to disgorge financial kickbacks Plaintiff
allegedly received during the course of his employment.
before
the
Court
counterclaim
are
for
(1)
lack
Plaintiff’s
of
subject
motion
matter
to
Presently
dismiss
the
jurisdiction;
(2)
Plaintiff’s request to strike paragraph 10 of the counterclaim;
and (3) Defendants’ motion to amend their initial Answer and
Counterclaim.
For the reasons set forth below, Plaintiff’s motion
to dismiss is DENIED, Defendants’ motion to amend is GRANTED IN
PART and DENIED IN PART, and Plaintiff’s request to strike is
DENIED AS MOOT.
BACKGROUND
On January 28, 2013, Plaintiff, who formerly worked
either as a dispatcher (according to Plaintiff) or an “executive
managing
others
in
the
dispatch
facility”
(according
to
Defendants) at Defendants’ transportation business, commenced this
action against Defendants to recover under the Fair Labor Standards
Act and the New York Labor Law for alleged unpaid wages and
overtime.
(Docket Entry 1.)
On
April
14,
2013,
Defendants
filed
an
Answer
and
Counterclaim asserting one counterclaim seeking to disgorge bribes
Plaintiff allegedly received during the course of his employment
(the “Disgorgement Counterclaim”).
2013,
Plaintiff
moved
to
(Docket Entry 10.)
dismiss
Defendants’
On May 5,
Disgorgement
Counterclaim and also asked the Court to strike paragraph 10 of
2
the Disgorgement Counterclaim.
(Docket Entry 11.)
Before the
Court could address Plaintiff’s pending motion to dismiss and
request to strike, however, Defendants filed a motion for leave to
amend their Answer and Counterclaim on November 21, 2013.1
Court
will
first
summarize
the
allegations
of
The
Defendants’
Disgorgement Counterclaim before highlighting some of the key
amendments contained in Defendants’ proposed Amended Answer and
Counterclaim.
I.
The Disgorgement Counterclaim
Concord
dispatch
facility
Commission.2
is
by
a
transportation
the
(Countercl.,
New
York
Docket
company
City
Entry
licensed
Taxi
10,
¶
as
and
Limousine
8.)
Concord
Defendants apparently sought Plaintiff’s consent to amend but
Plaintiff refused. (See Kaviar Certification, Docket Entry 191, ¶ 8.) However, despite not granting consent to Defendants,
Plaintiff has not filed an opposition to Defendants’ motion to
amend.
1
As noted above, there are two related company defendants in
this action--Concord Limousine, Inc. and Concord Limousine 1,
LLC. Defendants’ initial counterclaim identified only Concord
Limousine, Inc. as a counterclaim defendant and requested
damages only on behalf of Concord Limousine, Inc. (See
Countercl. ¶¶ 7-11.) In addition, although counsel
electronically filed the initial Answer and Counterclaim on
behalf of all Defendants, the introductory paragraph to the
filed document identified only Concord Limousine, Inc. as
answering Plaintiff’s Complaint. Defendants’ proposed Amended
Answer and Counterclaim addresses these errors by including all
four Defendants in the introductory paragraph and also by
including Concord Limousine 1, LLC as a counterclaim defendant.
Plaintiff did not bring these errors to the Court’s attention
when it filed its motion to dismiss the initial counterclaim
and, in fact, referred to the Answer and Counterclaim as being
2
3
a
essentially
acts
“independent
agreements.”
as
a
middle
man
between
contractors/drivers,”
(Countercl. ¶ 8.)
with
its
whom
customers
Concord
and
“has
The drivers let Concord know when
they are available to pick up a customer and Concord sends the
drivers
available
transportation
jobs.
(Countercl.
¶¶
8-9.)
Concord company policy provides that transportation jobs are to be
dispatched to the drivers on a first-come, first-served basis.
(Countercl. ¶ 9.)
Accordingly, pursuant to the company policy,
Concord employees are supposed to dispatch the first available job
to the first driver to contact Concord.
remuneration
depending
on
the
The driver then “receives
length
of
the
ride.”
(Countercl. ¶ 8.)
On or about September 1, 2009, Concord hired Plaintiff,
and “thereafter he was elevated to the position of an executive
managing
others
(Countercl. ¶ 7.)
in
the
dispatch
facility
of
Concord.”
Defendants allege that Plaintiff, in his role
as an executive, violated Concord’s company policy of dispatching
jobs
on
a
first-come,
transportation
kickbacks.
jobs
out
first-served
of
(Countercl. ¶ 9.)
turn
in
basis
by
exchange
giving
for
drivers
financial
They further allege that Concord
warned Plaintiff that “this was against the company policy, a theft
asserted by all Defendants. Accordingly, the Court construes
the initial answer as properly filed by all Defendants and the
initial counterclaim as properly asserted by both Concord
companies.
4
against the non participating [sic] drivers, and plaintiff was
instructed not to do so by his supervisor, Vice President Atif
Waheed.”
(Countercl. ¶ 9.)
Despite the warning, Plaintiff continued to award jobs
out of turn in exchange for kickbacks.
(Countercl. ¶ 9.)
On or
about November 6, 2012, Concord terminated Plaintiff following
Plaintiff’s admission that he was “taking these bribes from drivers
to be given rides out of turn . . . .” (Countercl. ¶ 9.)
Paragraph 10 of the Disgorgement Counterclaim alleges
that
Plaintiff
applied
for
unemployment
benefits
after
his
separation from Concord but that the New York State Department of
Labor
determined
transportation
that
jobs
for
Plaintiff
financial
was
indeed
kickbacks.
diverting
Paragraph
10
specifically alleges:
The plaintiff next applied for unemployment
benefits after his separation from Concord.
However after a review of the information by the
Department of Labor of New York (“DOL”) by notice
of determination to claimant the DOL determined
that he was ‘accepting payments from drivers for
jobs”, and that he admitted doing so. Based upon
this finding the DOL held that his actions were
detrimental to the employer’s interest and rose to
the level of misconduct.
The plaintiff has not
appealed this determination. Upon information and
belief the time to appeal this determination has
passed.
(Countercl. ¶ 10.)
Based on the foregoing allegations, Concord
seeks as damages “the amounts of financial diversions the plaintiff
has made.”
(Countercl. ¶ 11.)
5
II.
The Proposed Amended Answer and Counterclaim
On November 21, 2013, Defendants filed a motion for leave
to amend their Answer and Counterclaim.
Amended
Answer
and
factual
allegations
Counterclaim
as
the
Defendants’ proposed
generally
initial
contains
Answer
and
the
same
Counterclaim.
Briefly, however, the Court takes this opportunity to highlight
some of the key amendments contained in the proposed Amended Answer
and Counterclaim.
The
proposed
pleading
amplifies
the
facts
of
the
Disgorgement Counterclaim by describing specific transactions in
which
Plaintiff
kickbacks.
awarded
transportation
jobs
in
exchange
for
(Proposed Amended Answer and Counterclaim (“PAAC”),
Docket Entry 19-5, ¶ 15.)
It also adds two new causes of action
for punitive damages and nominal damages.
(PAAC ¶¶ 17-19.)
With respect to the answer, the proposed pleading adds
three new affirmative defenses of set-off, failure to state a cause
of action against defendant Alex Gavrilov, and failure to state a
cause of action against defendant Irina Gavrilov.
11.)
(PAAC ¶¶ 6, 8-
It also deletes the allegations of paragraph 10 of the
Disgorgement Counterclaim regarding Plaintiff’s proceeding before
the Department of Labor and seeks to convert those allegations to
the affirmative defenses of collateral estoppel and res judicata.
(PAAC ¶¶ 8-9.)
6
DISCUSSION
The
dismiss
the
Court
will
first
Disgorgement
address
Counterclaim
Plaintiff’s
in
motion
conjunction
to
with
Defendants’ motion to amend the Disgorgement Counterclaim and to
add new counterclaims for punitive and nominal damages.
The Court
will then turn to Defendants’ motion to amend the answer to add
affirmative defenses.
I.
Plaintiff’s Motion to Dismiss and Defendants’ Motion to Amend
the Disgorgement Counterclaim and to Add New Counterclaims
Plaintiff moves to dismiss the Disgorgement Counterclaim
for lack of subject matter jurisdiction pursuant to Federal Rule
of Civil Procedure 12(b)(1) arguing that Defendants lack standing
to assert it.
Although Defendants have since moved for leave to
amend, the proposed amendments to the Disgorgement Counterclaim
only seek (1) to amplify the facts supporting it and (2) to delete
paragraph 10 of the Disgorgement Counterclaim.
Plaintiff has not
opposed
therefore
the
motion
to
amend.
The
Court
GRANTS
Defendants’ motion for leave to amend insofar as it amplifies the
facts and deletes paragraph 10.
See Gov’t of India v. Cargill,
Inc., 445 F. Supp. 714, 723 (S.D.N.Y. 1978) (granting motion for
leave to amend complaint where (1) amended complaint only amplified
the allegations in the original complaint and in “no material way
alter[ed]
the
basic
charges
leveled
against
[defendant]”
and
(2) defendant failed to make a showing that the amendments would
7
prejudice its defense).
Accordingly, Plaintiff’s motion to strike
paragraph 10 of the Disgorgement Counterclaim is DENIED AS MOOT,
and
the
Court
considers
the
amended
counterclaim
to
be
the
operative claim for the purpose of deciding Plaintiff’s motion to
dismiss for lack of standing.
A.
Legal Standards of Review
1.
Rule 12(b)(1) Motion to Dismiss
“A case is properly dismissed for lack of subject matter
jurisdiction under Rule 12(b)(1) when the district court lacks the
statutory or constitutional power to adjudicate it.”
Makarova v.
United States, 201 F.3d 110, 113 (2d Cir. 2000) (citing FED. R.
CIV. P. 12(b)(1)); see also Morrison v. Nat’l Austl. Bank Ltd., 547
F.3d 167, 170 (2d Cir. 2008), aff’d, 561 U.S. 247, 130 S. Ct. 2869,
177 L. Ed. 2d 535 (2010).
The Court must accept as true the
factual allegations contained in the counterclaim, but it will not
draw
argumentative
defendant
because
affirmatively.
inferences
subject
in
matter
favor
of
the
jurisdiction
counterclaim
must
be
shown
See Morrison, 547 F.3d at 170 (stating principles
with respect to facts alleged in a complaint); Atl. Mut. Ins. Co.
v. Balfour Maclaine Int’l Ltd., 968 F.2d 196, 198 (2d Cir. 1992)
(“[A]rgumentative inferences favorable to the party asserting
jurisdiction
should
jurisdiction
bears
not
the
be
drawn.”).
burden
of
8
The
establishing
party
asserting
subject
matter
jurisdiction by a preponderance of the evidence.
Morrison, 547
F.3d at 170.
2.
Motion to Amend
Courts should grant leave to amend a pleading “when
justice so requires.”
FED. R. CIV. P. 15(a)(2).
Leave to amend
should be granted unless there is evidence of undue delay, bad
faith, undue prejudice to the non-movant, or futility.
See
Milanese v. Rust–Oleum Corp., 244 F.3d 104, 110 (2d Cir. 2001).
To determine whether an amended claim is futile, courts analyze
whether the proposed pleading would withstand a motion to dismiss
under Federal Rule of Civil Procedure 12(b)(6).
See Dougherty v.
Town of N. Hempstead Bd. of Zoning Appeal, 282 F.3d 83, 88 (2d
Cir. 2002).
B.
Concord Has Standing to Assert the Disgorgement Counterclaim
Concord alleges that Plaintiff violated Concord company
policy by dispatching transportation jobs to drivers out of turn
in exchange for financial kickbacks.
(PAAC ¶ 14.)
Concord seeks
to disgorge the alleged kickbacks that Plaintiff received.
¶ 16.)
(PAAC
Plaintiff argues that Concord lacks standing to bring this
claim because the allegations that “Plaintiff received ‘financial
kickbacks
from
drivers’
and
that
Plaintiff
committed
‘theft
against the non participating [sic] drivers’. . . . fail to reflect
a concrete and personal injury to Defendants.”
Entry 11-1, at 4.)
The Court disagrees.
9
(Pl.’s Br., Docket
Under Article III of the United States Constitution,
federal courts are confined “to adjudicating actual ‘cases’ and
‘controversies.’”
Allen v. Wright, 468 U.S. 737, 750, 104 S. Ct.
3315, 82 L. Ed. 2d 556 (1984); see also U.S. CONST., art. III, § 2.
“This
limitation
standing.”
is
effectuated
through
the
requirement
of
Cooper v. U.S. Postal Serv., 577 F.3d 479, 489 (2d
Cir. 2009) (citing Valley Forge Christian Coll. v. Ams. United for
Separation of Church & State, Inc., 454 U.S. 464, 471-72, 102 S.
Ct. 752, 70 L. Ed. 2d 700 (1982)); see also United States v.
Grundhoefer, 916 F.2d 788, 791 (2d Cir. 1990).
There are three
requirements to establish Article III standing: “(1) the plaintiff
must have suffered an injury-in-fact; (2) there must be a causal
connection between the injury and the conduct at issue; and (3) the
injury must be likely to be redressed by a favorable decision.”
Cooper, 577 F.3d at 489; see also Allen, 468 U.S. at 751 (“A
plaintiff must allege personal injury fairly traceable to the
defendant’s allegedly unlawful conduct and likely to be redressed
by the requested relief.”); Lujan v. Defenders of Wildlife, 504
U.S. 555, 560, 112 S. Ct. 2130, 119 L. Ed. 2d 351 (1992).
New
doctrine.
York
law
recognizes
the
“faithless
servant”
Under this doctrine, which is grounded in the law of
agency, an employee “is obligated ‘to be loyal to his employer and
is prohibited from acting in any manner inconsistent with his
agency or trust and is at all times bound to exercise the utmost
10
good
faith
and
loyalty
in
the
performance
of
his
duties.’”
Phansalkar v. Anderson Weinroth & Co., L.P., 344 F.3d 184, 200 (2d
Cir. 2003) (quoting W. Elec. Co. v. Brenner, 41 N.Y.2d 291, 295,
392 N.Y.S.2d 409, 360 N.E.2d 1091 (1977)).
A faithless employee
forfeits the right to compensation during the period of disloyalty
even when “the services were beneficial to the principal or [when]
the principal suffered no provable damage as a result of the breach
of fidelity by the agent.”
Id. (quoting Feiger v. Iral Jewelry,
Ltd., 41 N.Y.2d 928, 929, 394 N.Y.S.2d 626, 363 N.E.2d 350 (1977)).
Thus, “the act of being disloyal to one’s employer is itself
sufficient grounds for disgorging all compensation received during
the period of liability, and does not depend on actual harm to the
employer.”
Consol. Edison Co. v. Zebler, No. 603678/09, 2013 WL
4467291, at *2 (N.Y. Sup. Ct. Aug. 20, 2013).
Of relevance here, under the faithless servant doctrine,
an employer also is entitled to disgorge the value of any bribes
or kickbacks received by a faithless employee.
British Am. & E.
Co. v. Wirth Ltd., 592 F.2d 75, 79 (2d Cir. 1979) (“[W]here there
is an agency relationship, the principal is entitled to recover
any monies paid as commercial bribes to his agent.”); W. Elec.
Co., 41 N.Y.2d at 295, 392 N.Y.S.2d at 412, 360 N.E.2d at 1094
(“[A]ny compensation secretly or improperly received from others
beyond the compensation to which the employee is entitled is deemed
to be held by him on a constructive trust for his employer.”);
11
Wechsler v. Bowman, 285 N.Y. 284, 292, 34 N.E.2d 322, 326 (1941)
(holding that “the principal is entitled to recover from his
unfaithful agent any commission paid by the principal and all
moneys paid by a purchaser whether as a bribe to the agent of the
seller or otherwise . . . .”); Zebler, 2013 WL 4467291, at *3-5
(granting
employer’s
motion
to
recover
$50,000
employee through “bribery-kickback scheme”).
obtained
by
Thus, contrary to
Plaintiff’s argument, Concord clearly has standing to assert a
claim
against
Plaintiff
seeking
kickbacks received by Plaintiff.
disgorgement
of
the
alleged
Accordingly, Plaintiff’s motion
to dismiss the Disgorgement Counterclaim for lack of standing is
DENIED.
C.
Defendants’ Proposed Second and Third Counterclaims for
Punitive and Nominal Damages Are Futile
Defendants also seek leave to add two new counterclaims
for punitive and nominal damages.
Because these counterclaims are
futile, Defendants’ motion for leave to add them is DENIED.3
Defendants’ proposed Second Counterclaim alleges a claim
for punitive damages.
(PAAC ¶¶ 17-18.)
However, it is well
settled under New York law that punitive damages may not be
asserted as a separate cause of action.
Martin v. Dickson, 100 F.
App’x 14, 16 (2d Cir. 2004) (affirming district court’s dismissal
It should be noted that Defendants make no effort whatsoever to
explain why the proposed Second and Third Counterclaims are not
futile.
3
12
of separate cause of action for punitive damages because “there is
no separate cause of action in New York for punitive damages”);
Weir Metro Ambu–Serv., Inc. v. Turner, 57 N.Y.2d 911, 912, 456
N.Y.S.2d 757, 757, 442 N.E.2d 1268, 1268 (1982) (“[P]unitive
damages may not be sought as a separate cause of action.”); Paisley
v. Coin Device Corp., 5 A.D.3d 748, 750, 773 N.Y.S.2d 582, 582
(2nd Dep’t 2004) (dismissing cause of action for punitive damages
because “no separate cause of action for punitive damages lies for
pleading
purposes”).
Defendants’
proposed
punitive damages is therefore futile.
counterclaim
for
Accordingly, Defendants’
motion for leave to add a separate cause of action for punitive
damages is DENIED.
Defendants’
proposed
damages is similarly futile.
Third
Counterclaim
(PAAC ¶ 19.)
for
nominal
Nominal damages are a
form of relief; they do not constitute a separate cause of action.
See BLACK’S LAW DICTIONARY 392 (6th ed. 1990) (defining nominal damages
as a “trifling sum awarded to a plaintiff in an action where there
is no substantial loss or injury to be compensated, but still the
law recognizes a technical invasion of [plaintiff’s] rights or a
breach of the defendant’s duty, or in cases where, although there
has been a real injury, the plaintiff’s evidence fails to show its
amount”).
otherwise.
Defendants
do
not
cite
any
authority
suggesting
Defendants’ proposed counterclaim for nominal damages
is therefore futile.
Accordingly, Defendants’ motion for leave to
13
amend to add a separate cause of action for nominal damages is
DENIED.
III. Defendants’ Motion to Amend the Answer
Defendants also move for leave to amend their answer to
assert five new affirmative defenses.
The Court will first set
forth the standards for a motion for leave to add affirmative
defenses before turning to each proposed affirmative defense.
A defendant does not need to plead all known affirmative
defenses at the time of the first answer.
Ragin v. Harry Macklowe
Real Estate Co., 126 F.R.D. 475, 478 (S.D.N.Y. 1989).
the
proposed
amendment
does
not
prejudice
the
As long as
plaintiff,
a
defendant is not precluded from amending the answer to include
affirmative defenses about which the defendant had knowledge. Id.;
Tavares v. Lawrence & Memorial Hosp., No. 11-CV-770, 2013 WL
1385266, at *4 (D. Conn. 2013).
A defendant's motion to amend
“should be denied only for such reasons as undue delay, bad faith
or undue prejudice to the opposing party.” Ragin, 126 F.R.D. at
478 (internal quotation marks and citation omitted).
Furthermore,
“unless a proposed amendment is clearly frivolous or legally
insufficient on its face, the substantive merits of a claim or
defense should not be considered on a motion to amend.”
Goldberg
v. Roth, No. 99-CV-11591, 2001 WL 1622201, at *6 (S.D.N.Y. 2001)
(internal quotation marks and citation omitted).
14
As
previously
noted,
Plaintiff
Defendants’ motion for leave to amend.
has
not
opposed
The Court does not find
that Defendants’ proposed amendments are the product of any proven
undue delay or bad faith.
Moreover, there is no evidence that the
proposed amendments will result in prejudice to Plaintiff.
Thus,
the only issue, then, is whether Defendants’ affirmative defenses
present “at least a colorable defense.”
A.
Ragin, 126 F.R.D. at 479.
Defendants’ Proposed Second Affirmative Defense of a
Set-Off Raises a Colorable Defense
Although not eloquently pleaded, Defendants’ proposed
Second Affirmative Defense appears to assert that Plaintiff’s
claims for unpaid wages should be set off by the amount of wages
that Concord paid Plaintiff during the period of Plaintiff’s
alleged disloyalty.
(See PAAC ¶ 6 (“Had defendants known that
plaintiff acted disloyal during his employment, the defendants
would not have paid the plaintiff wages that plaintiff would have
otherwise been entitled to during the period of disloyalty.”).)
As discussed above, under the faithless servant doctrine, “a
faithless employee forfeits the right to compensation, at least
for services that are tainted by the dishonesty and perhaps more
broadly.”
Markbrieter v. Barry L. Feinberg, M.D., P.C., No. 09-
CV-5573, 2010 WL 334887, at *2 (S.D.N.Y. Jan. 29, 2010).
Thus,
the doctrine “does give rise to a partial defense on a theory of
recoupment or setoff.”
Id. (denying plaintiff’s motion to strike
15
affirmative defense asserting the faithless servant doctrine).
Accordingly, the proposed Second Affirmative Defense states at
least
a
colorable
defense
and
the
Court
therefore
GRANTS
Defendants’ motion for leave to add the proposed Second Affirmative
Defense.
B.
Defendants’ Proposed Sixth and Seventh Affirmative
Defenses of Failure to State a Claim Raise a Colorable
Defense
The proposed Sixth and Seventh Affirmative Defenses
assert that Plaintiff has failed to state a causes of action
against defendants Alex Gavrilov and Irina Gavrilov.
¶¶ 10-11.)
colorable
(See PAAC
At this stage, these affirmative defenses raise a
defense
and
the
Court
therefore
GRANTS
Defendants’
motion for leave to add the proposed Sixth and Seventh Affirmative
Defenses.
C.
Defendants’ Proposed Fourth and Fifth Affirmative
Defenses of Collateral Estoppel and Res Judicata Are
Futile
Finally,
Defendants
also
seek
leave
to
convert
the
allegations of paragraph 10 of the Disgorgement Counterclaim to
affirmative defenses of collateral estoppel and res judicata. (See
PAAC ¶¶ 8-9.) The Disgorgement Counterclaim alleged that Plaintiff
applied
for
Concord
and
subsequently
unemployment
that
issued
the
a
benefits
New
York
notice
of
after
his
termination
State
Department
determination
of
finding
from
Labor
that
Plaintiff was in fact accepting financial kickbacks from Concord’s
16
drivers.
(Countercl. ¶ 10.)
Thus, according to Defendants,
Plaintiff is precluded from litigating the issue of “whether or
not Plaintiff accepted payments from the Concord drivers . . . .”
(PAAC
¶¶
8-9.)
The
Court
disagrees
that
these
are
proper
affirmative defenses because the Department of Labor’s alleged
determination would not have preclusive effect in this action under
New York law.
When
a
state
agency
“‘acting
in
a
judicial
capacity . . . resolves disputed issues of fact properly before it
which the parties have had an adequate opportunity to litigate,’
federal
courts
must
give
the
agency’s
factfinding
the
same
preclusive effect to which it would be entitled in the State’s
courts.”
Obiajulu v. City of Rochester, 975 F. Supp. 469, 471
(W.D.N.Y. 1997) (quoting Univ. of Tenn. v. Elliott, 478 U.S. 788,
799, 106 S. Ct. 3220, 92 L. Ed. 2d 635 (1986)).
However, the New
York State Labor Law expressly prohibits unemployment proceedings
from having any preclusive effect in subsequent litigation, with
a few enumerated exceptions, all of which do not apply in this
case.
Section 623(2) of the New York State Labor Law states:
No finding of fact or law contained in a
decision rendered pursuant to this article by
a referee, the appeal board or a court shall
preclude the litigation of any issue of fact
or law in any subsequent action or proceeding;
provided, however, that this subdivision shall
not apply to causes of action which (i) arise
under this article, (ii) seek to collect or
challenge
liability
for
unemployment
17
insurance contributions, (iii) seek to recover
overpayments
of
unemployment
insurance
benefits, or (iv) allege that a claimant or
employer was denied constitutional rights in
connection
with
the
administrative
processing,
hearing,
determination
or
decision of a claim for benefits or assessment
of liability for unemployment insurance
contributions.
N.Y. LAB. LAW § 623(2).
Applying this statute, numerous district
courts in this Circuit and state courts in New York have declined
to give preclusive effect to decisions rendered in unemployment
proceedings.
See, e.g., Cody v. Darden Restaurants, No. 12-CV-
0484, 2012 WL 6863922, at *4 (E.D.N.Y. Oct. 11, 2012) (“[Labor Law
§ 623(2)] has been interpreted to bar Department of Labor decisions
such as the one rendered in this action from having a preclusive
effect in subsequent litigation.”), report and recommendation
adopted by 2013 WL 170367 (E.D.N.Y. Jan. 11, 2013); Payton v. City
Univ. of N.Y., 453 F. Supp. 2d 775, 787 (S.D.N.Y. 2006) (“Labor
Law
§
623(2)
provides
that
unemployment
proceedings
have
no
preclusive effect on court proceedings.”); Strong v. N.Y. City
Dep’t Educ., 62 A.D.3d 592, 593, 880 N.Y.S.2d 39, 40 (1st Dep’t
2009) (“[T]he finding of the Unemployment Insurance Appeal Board
that petitioner did not engage in corporeal punishment lacks
preclusive effect.” (citing N.Y. LAB. LAW § 623(2))); Wooten v. N.Y.
City Dep’t of Gen. Servs., 207 A.D.2d 754, 754, 617 N.Y.S.2d 3, 4
(1st Dep’t 1994) (“The determination of the Unemployment Insurance
Appeal Board that petitioner was terminated in retaliation for
18
filing a complaint is without preclusive effect in this action.”).
Thus, Defendants’ collateral estoppel and res judicata defenses
are futile because they are legally insufficient under New York
law.
Even if Labor Law § 623 did not apply, however, the
Department of Labor’s notice of determination would not have
preclusive
effect
here
because
unreviewed
quasi-judicial
administrative determinations are given preclusive effect only if
the agency is “acting in adjudicatory, as opposed to investigatory,
capacity . . . .
[and] employ[s] procedures substantially similar
to those used in a court of law.” McLean v. Metro. Jewish Geriatric
Ctr., No. 11-CV-3065, 2013 WL 5744467, at *6 (E.D.N.Y. Oct. 23,
2013) (internal quotation marks and citations omitted).
Defendants
only
allege
that
Plaintiff
submitted
a
Here,
claim
for
unemployment benefits to the Department of Labor and that, after
reviewing the information, the Department issued a “notice of
determination.”
Defendants do not allege that the Department held
a hearing nor do they allege that Plaintiff had the opportunity to
challenge Defendants’ evidence.
In fact, they allege that no
appeal took place, making it clear that there were no quasijudicial proceedings.
The Court cannot apply preclusive effect to
this type of administrative proceeding.
See id. (finding that
“Determination and Order” of the New York State Division of Human
Rights did not have preclusive effect because, inter alia, the
19
Division did not hold a “confrontation conference” where “the
parties have the opportunity to present evidence and confront each
other’s witnesses and evidence”); Miner v City of Glens Falls, No.
89-CV-0918, 1992 WL 349668, at *15-16 (N.D.N.Y. Nov. 12, 1992)
(finding that “Notice of Determination” issued by the New York
State Department of Labor did not have preclusive effect because
“[n]ot
until
plaintiff
appealed
the
decision,
and
an
Administrative Law Judge (“ALJ”) held a series of hearings and
made findings of fact after giving the parties an opportunity to
litigate
disputed
proceeding
occur
estoppel
issues,
to
effect”),
did
which
this
court
must
accord
999
F.2d
655
(2d
aff’d,
the
type
of
administrative
collateral
Cir.
1993).
Accordingly, Defendants’ proposed Fourth and Fifth Affirmative
Defenses of collateral estoppel and res judicata are futile and
Defendants’ motion to add these defenses is DENIED.
CONCLUSION
For the foregoing reasons, Defendants’ motion for leave
to amend their Answer and Counterclaim is GRANTED IN PART and
DENIED
IN
PART,
Plaintiff’s
motion
to
dismiss
Defendants’
Disgorgement Counterclaim is DENIED, and Plaintiff’s request to
strike paragraph 10 of the Disgorgement Counterclaim is DENIED AS
MOOT.
Defendants’ motion for leave to amend is GRANTED insofar
as
it
amplifies
the
factual
20
allegations
supporting
the
Disgorgement
Counterclaim,
deletes
paragraph
10
of
the
Disgorgement Counterclaim, and adds the proposed Second, Sixth,
and Seventh Affirmative Defenses.
Defendants’ motion for leave to
amend is DENIED insofar as it seeks to add the proposed Second and
Third Counterclaims and the proposed Fourth and Fifth Affirmative
Defenses.
The Clerk of the Court is directed to docket the proposed
Amended
Answer
Counterclaim.
and
Counterclaim
However,
the
as
Amended
the
operative
Answer
and
Answer
and
Counterclaim
remains operative only to the extent that it is consistent with
the Court’s rulings explained above.
SO ORDERED.
/s/ JOANNA SEYBERT______
Joanna Seybert, U.S.D.J.
Dated:
January __24__, 2014
Central Islip, NY
21
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