Courts Issue a 'Big Gulp' of Significant Decisions

, New York Law Journal

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E. Leo Milonas
E. Leo Milonas

The four Departments of the Appellate Division recently completed a super-sized quarter, issuing a big gulp of weighty decisions to litigants and counsel thirsty for guidance where the law is fluid.

Bubbling at the top of the tank, of course, was the First Department's 29-page opus setting aside New York City's ban on large, sugary soft drinks. Additionally, the state's intermediate appellate courts advanced the law in a broad range of other areas, including civil procedure, shareholders' derivative claims, sentencing, and Workers' Compensation. Some thirst-quenching highlights follow.

First Department

Health Law. New Yorkers remain free to order sugary soft drinks in portions larger than 16 ounces after the First Department struck down New York City's large-soda ban in Matter of New York Statewide Coalition of Hispanic Chambers of Commerce v. New York City Dept. of Health & Mental Hygiene.1 The appellate panel unanimously held that the Board of Health's "portion cap" rule exceeded its lawfully delegated authority and violated the principle of separation of powers.

The portion cap prohibited restaurants, movie theatres and other food service establishments from selling sugary beverages in containers larger than 16 ounces. Bypassing the City Council, the Board of Health promulgated and enacted the rule unilaterally "to protect New Yorkers from the obesity epidemic."

Writing for the court, Justice Dianne Renwick observed that an administrative agency like the Board of Health, as an arm of the executive branch, "may only effect policy mandated by statute and cannot exercise sweeping power to create whatever rule they deem necessary."

Focusing on the portion cap rule's inclusion of numerous exceptions, Renwick found that the rule was a "compromise measure" that set policy rather than implementing a statute. For example, supermarkets, convenience stores and bodegas were exempted, and consumers could still order two 16-ounce servings at once. "[T]he Board did not fill a gap in an existing regulatory scheme," Renwick concluded, "but instead wrote on a clean slate."

The Court of Appeals this week granted the Bloomberg administration's motion for leave to appeal.

Attorney Fees. Only in America can a lawyer commence a derivative suit before a corporate decision is made and, after the corporation's board votes, dismiss the lawsuit and apply for attorney fees because the corporation must have changed its behavior in response to the lawsuit. Now, the First Department is putting an end to that gambit. In Central Laborers' Pension Fund v. Blankfein,2 the appellate court barred a derivative plaintiff's counsel from recovering attorney fees when a pre-suit demand on the board was neither made nor excused. Fees are not recoverable in those circumstances even if the litigation brings about the plaintiffs' desired outcome and substantially benefits the corporation.

In Central Laborers, the plaintiff shareholders sued Goldman Sachs Group in December 2009, alleging that Goldman's yet-to-be-announced compensation for 2009 would be excessive in light of the 2008 financial meltdown. One month later, Goldman announced that its compensation for 2009 would be lower than 2008 when compared to net revenues. The plaintiffs then moved to dismiss their case and sought attorney fees, taking credit for the reduction and asserting that Goldman's announcement had "essentially conceded the merits of Plaintiffs' claims."

The plaintiffs, however, had sued without making the demand on the board required by the Business Corporation Law.3 In a unanimous decision authored by Justice David Friedman, the First Department construed the pre-suit demand requirement as a prerequisite for recovering fees. "To award fees to a derivative plaintiff who has neither made a demand nor alleged demand futility…would reward that plaintiff for unjustifiably wresting the management of the corporation from those to whom it is entrusted by law and by the rest of the shareholders," the court explained.

Second Department

Witnesses. A 15-year-old victim traumatized by sexual abuse at the hands of her father could have a therapeutic comfort dog by her side when she testified against him, the Second Department ruled unanimously in People v. Tohom,4 a case of first impression in New York.

The victim, J, was abused by her father between the ages of 11 and 15. J's therapist found that the presence of Rose, a therapy dog, calmed J and helped her express herself.

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