Federal Practice Update

February 01, 2004

This month we review three decisions rendered by the Judges of the Eastern District of New York, Alfonse D’Amato Courthouse. In the first decision, the Honorable Arthur D. Spatt grants a motion to intervene. The Honorable Thomas C. Platt affirms and adopts a report and recommendation of Magistrate Judge Wall in a copyright infringement case. Finally, Judge Spatt grants a motion to confirm an arbitration award in a securities case.

In Long Island Trucking, Inc. v. Brooks Pharmacy , CV-02-2302 (ADS) (E.D.N.Y. Dec. 9, 2003), plaintiff carrier sued Brooks Pharmacy alleging liability for services rendered in invoices. Non-party Transportation Factoring, Inc. (“Transfac”) moved to intervene on the basis that Transfac entered into two factoring agreements with carrier on its accounts receivable, including defendants. As a result, Transfac claims to have a security interest in all accounts, bills and most, if not all, of assets. In an unrelated action, Transfac sued a carrier for breach of the factoring agreements. In its motion to intervene, Transfac claimed it was the outright owner or at the least the holder of the security interest of all of plaintiff’s claims against Brooks Pharmacy.

Judge Spatt considered the factors in determining whether Transfac could intervene as of right under FRCP 24(a)(2). The court concluded that Transfac met all factors, including the timeliness of the application. In considering the timeliness issue, the Court weighed the relative prejudice if the motion was granted in light of the discovery deadline that had passed. The Court concluded that Transfac will, in fact, suffer prejudice if it was not permitted to intervene.

In Krause v. Titleserv, Inc. , 98-CV-5756 (TCP) (E.D.N.Y. Oct. 30, 2003), plaintiff William Krause was a former computer programming consultant for Titleserv, a title service agency. During his work as a consultant to defendant, he create over 35 computer programs constituting Titleserv’s operating systems. Eight of those programs were the subject of a copyright case filed by Mr. Kraus. Upon Mr. Kraus’ departure from Titleserv, Titleserv commenced an action for return of the source codes. Mr. Krause, in turn, sought copyright protection for his programs. Titleserv in the interim reverse engineered the programs. Titleserv then moved for summary judgment against plaintiff on the copyright claims. Magistrate Judge William D. Wall issued a report and recommended finding for defendants. The Report agreed with Titleserv that its use and modification of Mr. Kraus’ program was an authorized modification of plaintiff’s program. The Court agreed with Magistrate Judge Wall that Titleserv owned a copy of the programs and only adapted them as an essential step in their utilization. In addition to granting summary judgment for defendants, the Court also adopted Magistrate Judge Wall’s denial of defendants’ cross-motion for sanctions.

In Glazer v. AA Premier Realty, Ltd. , CV-02-6484 (ADS) (E.D.N.Y. Nov. 25, 2003), an investor commenced an action for violations of the Securities Exchange Act of 1934 as well as RICO and various common-law claims, based upon representations by defendant that plaintiff could achieve a guaranteed yield of investment. As a result of promises made by defendants, plaintiff withdrew money from her annuity account and deposited it with defendants. The matter was ultimately submitted to binding arbitration and after an arbitration hearing, a finding in favor of the investor, the investor moved to confirm the award.

The Court noted that judicial review of an arbitration award is “extremely limited” and that the Second Circuit has made clear that the award must be confirmed as long as it offers “barely colorable justification” for the outcome. In analyzing the four instances when a court may vacate an arbitration award under the Federal Arbitration Act (9 U.S.C. § 10), the Court reasoned that none of the situations were present in the case. In addition to the narrow exceptions provided by § 10(a) of the FAA, the federal common law has permitted a court to vacate an award when the arbitrator “manifestly disregards” the law in reaching the decision or where an award is “irrational”. In Glazer , the Court found that each of the conclusions reached by the arbitrator were rational based upon the facts presented in the case.

The author is a Partner at Farrell Fritz, P.C., and a member of that firm’s Commercial Litigation Practice Group.

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