Federal Practice Update – Four Decisions from the Eastern District

November 01, 2006

This article was reprinted with permission from The Suffolk Lawyer

Four Decisions from the Eastern District – Title VII Summary Judgment Denied; Summary Judgment Race Discrimination Granted

This month we review four decisions rendered by the Judges of the Eastern District of New York, Alfonse D’Amato Courthouse. In the first decision, the Honorable Thomas C. Platt denied an employer’s motion for summary judgment in a Title VII case. Next, we review a decision by the Honorable Joseph F. Bianco granting a motion for summary judgment in an employment discrimination action based on race. Lastly, we review two decisions by Magistrate Judge E. Thomas Boyle, one granting defendant’s motion to compel production of certain documents and denying plaintiff’s cross-motion for a protective order, and another denying an insurer’s motion for summary judgment.

In Kauffman v. Maxim Healthcare Services, Inc., No. 04-CV-2869, slip op. (E.D.N.Y. July 13, 2006), Plaintiff was employed by Defendant as an Account Manager. Maxim Healthcare Services (“Maxim”) provides nurses, home health care aides, and similar employees to nursing homes, hospitals and home health care agencies. Plaintiff claimed his termination violated Title VII of the Civil Right Act (“Title VII”) and the New York State Human Rights Law (“NYHRL”). Plaintiff, a white male, alleged he was terminated because of his association with women and/or nonwhite employees against whom Defendant discriminated and in retaliation for not following the alleged company policy which sought to minimize the hiring of women and/or nonwhite employees (the “Policy”).

Plaintiff had been promoted soon after his start with the company and had received a performance based bonus of stock options and a trip to Cancun. Soon after, he was asked to open and operate a local office for Maxim. Plaintiff alleged his troubles began when he hired a woman as his first recruiter for the local office. He claimed he was chastised for hiring her and that he was repeatedly encouraged to terminate her because Defendant was a “white male driven company.” Plaintiff refused to fire her and instead recommended her for a promotion when he was transferred to Defendant’s New Haven, Connecticut office; this office was an hour and a half away from Plaintiff’s home in Long Island. Plaintiff claimed he was further reprimanded when he hired another female recruiter. After she voluntarily left the company, Plaintiff was admonished for hiring, as her replacement, an African-American male. In July 2002, Plaintiff and his office were rewarded for good financial performance with a dinner at a nearby casino. But three months later, Plaintiff was terminated for “poor performance.” Plaintiff believed he was terminated in retaliation for complaining to his superiors about Maxim’s hiring policy and his unwillingness to follow it.

Judge Platt held that Plaintiff had standing to assert a claim under Title VII. Although the Second Circuit has not recognized third-party claims of association discrimination or retaliation as a valid cause of action, there is enough support from other courts in the Circuit to recognize these claims. Many courts have determined that to preclude these claims would go against the “express Congressional intent behind Title VII.”

As to the retaliation claim, the Court held that Title VII provides protection under either the “opposition clause” or the “participation clause.” Under the “opposition clause,” a plaintiff engages in protected activity when he opposes an employment practice that is unlawful under the Act. Under the “participation clause,” a plaintiff engages in protected activity when he participates in a proceeding brought under the Act. Judge Platt found that Plaintiff’s complaints to superiors about the Policy fell under the “opposition clause.” In order for a plaintiff’s activities to fall within the “opposition clause,” the plaintiff must have a “good faith, reasonable belief that the underlying employment practice [opposed to] was unlawful” and the employer must have “understood, or reasonably understood, that the Plaintiff’s opposition was directed at conduct prohibited by Title VII.” The Court found both requisites were present in this case. Moreover, Judge Platt dismissed Defendant’s argument that Plaintiff’s complaints were not enough to trigger the protection of the opposition clause because they had not been directed to upper management.

As to the discrimination claim, the Court held that Plaintiff had establish a prima facie case of discrimination and that Defendant had failed to show a legitimate, nondiscriminatory reason for the termination. It found that Maxim’s failure to follow its own “progressive discipline policy” supported Plaintiff’s argument that Defendant’s given reason for the termination [Plaintiff’s poor performance] was merely a pretext for discrimination and retaliation. Consequently, the Court denied Maxim’s motion for summary judgment on both, the retaliation and discrimination claims.

In Gary v. Lutheran Social Services of Metropolitan New York Inc., No. 04-CV-2843, slip op. (E.D.N.Y. July 13, 2006), Plaintiff brought an action against his former employer for employment discrimination based on his race. Plaintiff, an African-American male, had been a cook for Defendant at the Muhlenberg Residence (the “Residence”), a supportive housing program operated by Defendant. The Residence was a program funded in part by the U.S. Department of Housing and Urban Development (“HUD”), At the end of 2002, the HUD grant was reduced by 50% and Defendant was forced to lay off those employees whose positions were funded exclusively through HUD. Plaintiff was among those employees that were laid off. He was notified that his position would be eliminated as of August 2003. Three other individuals were laid off at that time, a case manager, a vocational coordinator, and a rental agent. Two of these three individuals were African-American and the third was Caucasian. The positions of vocational coordinator and rental agent were the only ones of that kind. The rental agent position was never refilled and the other two were eventually refilled by African-Americans.

After Plaintiff’s position (“Cook”) was eliminated, the duties continued to be performed by a volunteer, Mr. Valez. Mr. Valez was of Hispanic descent. He worked as a volunteer cook until Defendant received renewed HUD funding at which time he was hired into the paid cook position. When Mr. Valez resigned, the new cook hired was African-American. Plaintiff was not re-called for the position, nor did he re-apply.

Plaintiff’s claim was analyzed under the McDonnell Douglas framework, which requires a plaintiff to show (1) membership in a protected class; (2) satisfactory job performance; (3) an adverse employment action; and (4) that the adverse employment action occurred under circumstances giving rise to an inference of discrimination. Once plaintiff establishes a prima facie case of discrimination the burden shifts to the defendant to “articulate some legitimate, non-discriminatory reason for the termination.” If the defendant meets its burden, the burden shifts back to the plaintiff to show that the reason proffered by the employer was a pretext for discrimination. Here, the Court assumed that Plaintiff had established a prima facie case. In turn, Defendant put forth the loss of HUD funding as the non-discriminatory reason for the termination. Judge Bianco then proceeded to consider the ultimate question, “whether plaintiff has presented sufficient evidence from which a reasonable jury could find race discrimination by examining each parties’ evidence individually and then proceeding to evaluate the evidence as a whole.”

Although Plaintiff argued that he was immediately replaced by a Hispanic employee, that three out of the four employees terminated were African-American, that the HUD grant did not fund the cook position, and that regardless of the grant, there was funding for his position from other sources, Defendant unequivocally demonstrated that the replacement was a volunteer, all the other positions were also HUD funded, and that the HUD grant did fund the cook position.

Defendant’s payroll records showed that Valez did not become a new hire until March 2004. He had not become a paid employee until seven months after Plaintiff’s termination. Furthermore, the cook position had been held by an African-American employee for five out of the six previous years. Defendant’s uncontroverted evidence demonstrated that the reason why those particular employees had been terminated was because they held positions funded by HUD funding. In fact, when funding became available for two of those positions they were filled by African-Americans.

On the other hand, Plaintiff failed to put forth any evidence to support its position that the cook position was not funded by the HUD grant. Judge Bianco held that even if the cook position had not been funded by the HUD grant, Plaintiff had not provided any evidence to support discriminatory intent, and that absent such evidence, “it is not the function of a fact-finder to second-guess business decisions, or to question a corporation’s means to achieve a legitimate goal.” The Court found that Plaintiff’s claims were only supported by pure speculation and that he had failed to produce evidence to support a finding that the legitimate, non-discriminatory reason given by Defendant was a pretext. Because Plaintiff failed to raise a genuine question of fact, the Court granted Defendant’s motion for summary judgment.

In Chembio Diagnostic Systems, Inc. v. Saliva Diagnostic System, Inc., 236 F.R.D. 129 (E.D.N.Y. 2006), Plaintiff sought a declaratory judgment that its diagnostic device did not infringe on Saliva Diagnostic System’s (“SDS”) patent (“Patent”) and Defendant counterclaimed for patent infringement. Plaintiff sold a device that tested for HIV under the trademark “Sure Check HIV.” This testing kit was pending FDA approval. SDS sold a product called “Saliva Hema-Strip,” another on-site diagnostic device. SDS claimed that Plaintiff’s device was an exact copy of its Saliva Hema-Strip. Plaintiff and Defendant used to have a business relationship that involved Defendant’s Hema-Strip, but that relationship ended in 2003.

Plaintiff filed the complaint in March 2004 and in November of that year SDS served its first set of interrogatories and document requests. Plaintiff responded by objecting to many of the requests on the grounds that they were not relevant to a claim or defense in the action and that they constituted trade secrets. In January 2006, the Court approved a Stipulation and Order providing that certain highly sensitive information could be designated “Highly Confidential-Counsel Only” by the producing party. This information would only be disclosed to counsel, experts not objected to by the producing party, the Court, outside services consultants or jury consulting services. In February, SDS moved to compel responses to its document requests since it allegedly produced the same categories of documents which Plaintiff was refusing to produce.

SDS sought documents categorized as “infringement discovery” or “damage discovery.” It argued that such discovery was relevant to its infringement counterclaim because it went to the operation of Plaintiff’s device, the results of its testing, and how it performed. Plaintiff objected on the ground that they were irrelevant. SDS requested (1) all FDA related documents; (2) manufacturing protocols; (3) summaries of FDA trials; (4) research and development relating to the Hema Strip/Sure Check HIV product and (5) communications with vendors. Plaintiff objected and sought a protective order concerning those documents.

The Patent protects a sample kit which is made up of a container with a chamber, a top opening, and a bottom opening. A sample of blood would be obtained through the bottom opening and be forced into the chamber for reaction with the test strip inside the chamber. The Patent protects both a method and a device. It protects a “method for collecting a sample of liquid specimen for analytical testing consisting essentially of the steps of …” The “consisting essentially of” language, a term of art in patent law, was at the heart of the dispute. It is interpreted to allow for the inclusion of additional components not listed in the claim of the patent, as long as they do not “materially affect the basic and novel properties of the invention.” As such, depending on the specifics of the allegedly infringing device, these “extra components” may determine whether there is an actual claim for infringement.

The extra components in question were the upper and lower “frits” which were included in Plaintiff’s device. Plaintiff claimed the frits were additional elements that “materially affect the basic and novel properties of the invention,” and as such it placed its device outside of the “consisting essentially of” language. Thus, there was no infringement. Plaintiff alleged that the lower frit was essential to their device because without it the mixture of the sample and the solution inside the device would splash through the barrel of the device and it would not be properly absorbed by the test strip. SDS submitted an affidavit of an expert who stated that experiments had shown that Plaintiff’s device worked accurately even without the lower frit and therefore she believed the frit did not “materially affect the basic and novel properties of the invention.” The degree of absorbency of the lower frit was also disputed.

Additionally, the parties disputed the significance of the test strip to the Patent. Because SDS would have to establish that Plaintiff’s test strip was equivalent to the strip covered by the Patent, it argued discovery pertaining to Plaintiff’s test strip was necessary. Plaintiff in turn argued that the chemistry of its test strip was irrelevant because these test strips were “well known in the prior art.” Also, it claimed its test strip and device were proprietary trade secrets and its disclosure would cause irreparable harm. The Court agreed with Plaintiff as to the confidential nature of the information and asked that the Defendant show that disclosure was justified because the information was relevant and necessary.

As to the documents categorized as “infringement discovery,” information pertaining to the method of sample acquisition and to the test strip, Judge Boyle held that Defendant had demonstrated that documents relating to Plaintiff’s FDA application, which generally requires extensive testing data and description of the manufacturing and materials used, were relevant and necessary because they addressed the particulars of the presence or absence of the frits which were at the heart of the dispute (“how the device works and whether the frits are absorbent and/or have a material effect on the basic and novel properties of the invention.”). Judge Boyle also found that although Plaintiff was correct in arguing that the chemistry of the strip was not protected by the patent, Defendant was entitled to discovery relating to the chemistry of the strip because it was necessary in order for Defendant to rebut Plaintiff’s statements that the strip did not work properly without the frits. Plaintiff’s motion for a protective order was denied as to both the frits and the test strip, pursuant to the terms of the January 2006 Stipulation.

SDS argued that information regarding communications with vendors may be evidence of Plaintiff’s willful copying of its device. SDSt’s CFO had stated in his declaration that he had become aware, through one of its vendors, that Plaintiff was ordering 100,000 units of the “Hema Strip Barrel.” SDS argued communications with vendors may reveal that Plaintiff was ordering products designed for and used by SDS, which could prove willfulness on the part of the Plaintiff. Here again, the protective order was denied, pursuant to the Stipulation.

As to “damages discovery,” the Court held that documents which would assist in establishing the amount of a reasonable royalty and/or lost profits were discoverable, this included information relating to Plaintiff’s manufacturing costs, vendor communications, and customer purchases.

In Cohen v. Utica First Insurance Company, 436 F.Supp.2d 517 (E.D.N.Y. 2006), Plaintiff was seeking to recover the value of an insurance policy between Defendant and Mario’s Painting Company (“Mario’s”), a company which was insured under a policy issued by Defendant. The policy between Mario’s and Defendant was sold to Mario’s by George Wagner Associates, Inc. (“Wagner Associates”). The action arose from a fire that occurred on August 12, 1998, which destroyed Plaintiff’s house. At the time of the fire, several contractors were working on the property, one of which was Mario’s.

Prior to this litigation, Plaintiff had commenced an action against Mario’s, which resulted in a default judgment against Mario’s. In the current action, Plaintiff sought to enforce Defendant’s duty to indemnify Mario’s with respect to the prior judgment. Defendant moved for summary judgment on grounds that notice of the fire was untimely and that Wagner Associates was not its agent, thus, was not authorized to receive notice.

Mario’s was owned and operated by Mr. and Mrs. Llobell. Mr. Llobell testified that on or about August 12 or 13, he told his wife to call the insurance broker to notify him of the fire. Although he believed the fire was not his fault, based on his action and his conversations with the fire marshal and insurance investigator, Mr. Llobell believed that notifying the insurance broker was what he was “supposed to do.” Ms. Llobell called the broker the day after the fire. She testified that Mr. Wagner, the principal of Wagner Associates, had told her that nothing had to be done unless they were served with papers. She also testified that she believed Mr. Wagner was the contact person for Defendant and that she was not aware of any duty to contact Defendant directly. Ms. Llobell did not follow-up this phone call with any other action and it was not until she received the summons and complaint that she spoke to Mr. Wagner again. On March 1999, the Llobells sent a letter to Mr. Wagner with a copy of the summons and complaint. Defendant received notice of the loss by letter dated April 8, 1999, which contained the Llobells’ letter to Wagner and the summons and complaint. In turn, Mario’s received a letter from Defendant notifying them that it would not defend or indemnify Mario’s because it failed to report the loss in a timely manner. The fire occurred in August 1998 and Defendant had not received notice until April 8, 1999.

Mr. Wagner testified that he was authorized to receive notice of loss on behalf of Defendant and that although it was not stated specifically in his contract with Defendant, it was “very standard in the industry” to do so. He further testified that unlike other companies, Defendant did not require losses to be reported to it directly. Mr. Wagner had a broker’s and an agent’s license. He also testified that in 1998 he was authorized to bind policies on behalf of Defendant.

In New York, “an insurance broker is the agent of the insured, not the insurance company, and the notice to an insurance broker, absent exceptional circumstances …, is not notice to the insurer.” In order for a broker to become an agent of the insurer, there must be some action on the part of the insurer from which authority to represent the insurer may be inferred. Acts such as selling a policy or using the term “agent” do not create an agency relationship. The determination of the existence of such relationship is very fact specific. Plaintiff argued Wagner was Defendant’s agent and had actual and express authority to accept notice of loss on Defendant’s behalf. Plaintiff relied on Wagner’s deposition testimony and in the language in the policy issued to Mario’s. The policy itself had a section for the name of the insured and adjacent to it was a space for “agent,” along with “agent’s” identification number, which on Mario’s policy was filled in with “George Wagner Associates, Inc.” This section of the policy along with another section, which provided that in case of an occurrence “the Insured must promptly give notice to us or our agent,” formed the basis of Plaintiff’s argument that Wagner was an agent of Defendant.

Defendant argued that the mere label of “agent” was not conclusive of the “nature” of the relationship and that Wagner was only an agent for certain purposes. In support of its argument, Defendant relied on their agreement with Wagner, which detailed certain authorized actions and which excluded the authority to received notice of loss. Judge Boyle held that because the insured did not have access to this agreement, it was not on notice of those provisions, thus the agreement could not be binding on the insured. Furthermore, there was no dispute that Defendant had accepted notice from Wagner without any objections or comments. The Court found Defendant’s actions conflicted directly with its contention that Wagner was not an agent for notice purposes. The Court also reviewed the facts under the doctrine of apparent authority and held that it also favored denial of summary judgment.

Lastly, Judge Boyle considered the reason for the delay in providing notice. Under New York law, “[a]bsent a valid excuse, a failure to satisfy the notice requirement vitiates the policy, and the insurer need not show prejudice before it can assert the defense of noncompliance.” One valid excuse is found in circumstances where the insured reasonably relies on statements of the insurance broker and these statements form the basis for the delay in providing notice. Another exception to the notice requirement exists where the insured fails to give timely notice because of its “good-faith belief of nonliability.” It appeared from the facts presented by the Llobells that both exceptions could apply but it would depend on the reasonableness of the insured’s explanations and beliefs. The Court found that the issue of whether the delay was excusable was a question of fact for the jury and therefore denied summary judgment.

The author, James M. Wicks, is a Member of Farrell Fritz, P.C., and a member of the firm’s Commercial Litigation Practice Group. The author expresses his gratitude to Andrea Rodriguez, an associate at Farrell Fritz, who assisted in the preparation of this article.

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