Court Of Appeals #9

The Court of Appeals finished 2015, and the Lippman era as Chief Judge, deciding an assortment of legal questions. The Court addressed contract law involving choice of law provisions; arbitration clauses; and contractual indemnification. In the tort law arena, the Court considered a legal malpractice claim; expanded the scope of potential plaintiffs for a healthcare providers duty to warn its patient; and clarified the meaning of trivial in sidewalk and staircase slip-and-fall cases. In other cases, the Court adjudicated when an individual has standing to challenge local government action; examined the requirements for a whistleblower recovery; and considered custody issues involving grandparents.

Does the inclusion of a New York choice-of-law provision in a contract demonstrate the parties' intent that courts not conduct a conflict-of-law analysis? Answer: Yes.

Ministers & Missionaries Benefit Bd. v. Snow, 2015 NY Slip Op 09186 (decided on December 15, 2015)

The Court of Appeals began with the observation that:

In IRB-Brasil Resseguros, S.A. v Inepar Invs., S.A. [2012], this Court held that, where parties include a New York choice-of-law clause in a contract, such a provision demonstrates the parties' intent that courts not conduct a conflict-of-laws analysis...We now extend that holding to contracts that do not fall under General Obligations Law § 5-1401, and clarify that this rule obviates the application of both common-law conflict-of-laws principles and statutory choice-of-law directives, unless the parties expressly indicate otherwise.

Plaintiff, a New York not-for-profit corporation, administers a retirement plan and a death benefit plan for ministers and missionaries. Decedent Clark Flesher was a minister enrolled in both plans. He named his then-wife, defendant LeAnn Snow, as his primary beneficiary and her father, defendant Leon Snow, as the contingent beneficiary. Both plans state that are governed by and construed in accordance with the laws of the State of New York.

After he and LeAnn Snow divorced, Flesher moved to Colorado and died there. His will, naming his sister, Michele Arnoldy, as personal representative of the estate, was admitted to probate in Colorado. Flesher never changed his beneficiary designations under the plans. Because the plan was unsure to whom the plan benefits should be paid after Flesher's death under the law of either state, Ms. Snow could not receive the benefit.

The conflict involved whether or not Lee Ann's father was the proper recipient. Under Colorado law the answer was no. New York law would allow him to receive the benefits. The plan commenced a federal interpleader action against Flesher's Estate, [the personal representative of the Estate], LeAnn Snow and Leon Snow.

Southern District of New York (Forrest, J.) directed the plan to pay the disputed funds to Arnoldy, as representative of the Estate.

The Second Circuit Court of Appeals, however determined that there were important and unanswered questions of New York law and, therefore, certified two questions to the Court of Appeals before deciding the appeal.

"(1) Whether a governing-law provision that states that the contract will be governed by and construed in accordance with the laws of the State of New York, in a contract not consummated pursuant to New York General Obligations Law section 5-1401, requires the application of New York Estates, Powers & Trusts Law section 3-5.1 (b) (2), a New York statute that may, in turn, require application of the law of another state?

(2) If so, whether a person's entitlement to proceeds under a death benefit or retirement plan, paid upon the death of the person making the designation, constitutes 'personal property . . . not disposed of by will' within the meaning of New York Estates, Powers & Trusts Law section 3-5.1 (b) (2)?"

The Court noted that "The first certified question essentially asks us how to interpret the phrase 'laws of . . .New York' in those contractual provisions."

The Court of Appeals held:

Our conclusion in the IRB case — that when parties include a choice-of-law provision in a contract, they intend application of only that state's "substantive law"...is equally applicable to the contracts now before us. If New York's common-law conflict-of-laws principles should not apply when the parties have chosen New York law to govern their dispute — a point on which all parties to this appeal agree — and EPTL 3-5.1 (b) (2) simply represents a common-law conflicts principle that has been codified into statute, that provision should not be considered in resolving this dispute.

Stated differently, New York courts should not engage in any conflicts analysis where the parties include a choice-of-law provision in their contract, even if the contract is one that does not fall within General Obligations Law § 5-1401. That provision applies only to contracts for transactions involving an aggregate of over $250,000, but it specifically states that "[n]othing contained [herein] shall be construed to limit or deny the enforcement of any provision respecting choice of law in any other contract"...While IRB does not entirely answer the current question because that case does not address the applicability of a statutory choice-of-law directive, logic dictates that, by including a choice-of-law provision in their contracts, the parties intended for only New York substantive law to apply...A contrary interpretation is conceivable. However, we should apply the most reasonable interpretation of the contract language that effectuates the parties' intended and expressed choice of law...To do otherwise — by applying New York's statutory conflict-of-laws principles, even if doing so results in the application of the substantive law of another state — would contravene the primary purpose of including a choice-of-law provision in a contract — namely, to avoid a conflict-of-laws analysis and its associated time and expense. Such an interpretation would also interfere with, and ignore, the parties' intent, contrary to the basic tenets of contract interpretation.

Moreover, allowing the application of a statutory choice-of-law directive would mean that the contracts here could be interpreted differently for each plan member, depending on where the member was domiciled at the time of his or her death. It seems unlikely that MMBB intended to have its contracts — a retirement plan and a death benefit plan — interpreted in many different ways based on the whim and movements of its plan members. The intention to provide for predictable results regarding the distribution of funds to beneficiaries is particularly apt for these plans, which are issued to ministers and missionaries, who presumably are more likely than the general population to move often and who may live in all parts of the world, not just in different states. Contractually planning for the application of New York substantive law regarding benefit distribution would provide stability, certainty, predictability and convenience..., so that MMBB could easily determine who should receive plan benefits.

Conversely, if application of the statutory choice-of-law provision — EPTL 3-5.1 (b) (2) — was required, it would be necessary for MMBB to keep abreast of the laws of all other states and nations to ensure that it paid the proper beneficiaries, which would invite the very uncertainties that MMBB and the plan members presumably intended to avoid. While it might appear to be a simple task to determine a decedent's domicile at the time of his or her death, that will not always be the case. Therefore, we hold that, when parties include a choice-of-law provision in a contract, they intend that the law of the chosen state — and no other state — will be applied. In such a situation, the chosen state's substantive law — but not its common-law conflict-of-laws principles or statutory choice-of-law directives — is to be applied, unless the parties expressly indicate otherwise.

Was the Federal Arbitration Act applicable to the dispute and, if so, did the plaintiffs waive their right to arbitrate by pursuing litigation? Answer: The FAA did apply to the dispute; however, the plaintiffs waived their right to arbitration.

Cusimano v. Schnurr, 2015 NY Slip Op 09232 (decided on December 16, 2015)

In his last civil case opinion on the Court, Chief Judge Lippman addressed the Federal Arbitration Act and waiver of the right to arbitrate.

The appeal involved commercial agreements entered into among family members (New York residents) regarding family-owned entities. Each agreement contained an arbitration clause.

The first agreement covered a family limited partnership (FLIP) that was formed to own, acquire and develop real property in New York, but now owned property in Florida that it leased to a CVS drug store.

The second agreement related to a limited liability company owned by sisters with its principal place of business is in Port Washington, New York. The company indirectly owned an interest in a Marriott hotel in Plainview, New York.

Also at issue was a third agreement by which one sister sold her interest in one of the "Seaview Corporations," — 60 Seaview — to her sister. The Seaview Corporations were formed by the sisters and their father, and own two commercial buildings in Port Washington, New York.

The action that ended in the Court of Appeals was commenced in New York County in August 2011 and alleged fraud and malpractice against the family's accountants for work they had performed between 1991 and 2009, including allegations that they had aided and abetted fraud of father and sister who were not named as defendants. Before defendants responded to the complaint, plaintiffs moved to disqualify defendants' counsel. Plaintiffs also served three nonparty subpoenas. During oral argument on the motion to disqualify, defense counsel maintained that the matter "belongs in arbitration."

Defendants successfully moved to dismiss the...