Category: Remedies

Second Circuit Certifies Question to New York of Appeals on Unsettled Issue of Whether the New York Public Health Law Creates a Private Cause of Action

Case Name: Haar v. Nationwide Mutual Fire Ins. Co. – Second Circuit

Date of Opinion: March 13, 2019

Opinion by: Judge Katzmann, Judge Hall, and Judge Lynch (per curiam)

Summary:

In 2012 and 2013, Robert D. Haar (“Haar”), an orthopedic surgeon, provided treatment to several patients injured in car accidents for which Nationwide Mutual Fire Insurance Company (“Nationwide”) was the insurer. After treating these patients, Haar submitted the claims to Nationwide for payment of the medical treatment he provided. Nationwide denied one claim in full and denied three others in part. Nationwide based the full denial on a Peer Review Report which stated that there was no cause and effect relationship between the injuries treated and the alleged incident. For the other three claims, Nationwide based its decision on the applicable fee schedule, rather than any issue with the medical treatment provided. Nationwide then submitted a complaint to the New York State Office of Professional Medical Conduct (“OPMC”). On January 27, 2017, the OPMC notified Haar that it had concluded an investigation and would not take any disciplinary action.

Harr then initiated this suit under N.Y. Public Health Law section 230(11)(b) against Nationwide, alleging that Nationwide had submitted a bad faith report about him with the OPMC. On November 30, 2017 the United States District Court for the Southern District of New York dismissed Haar’s complaint, finding that the New York Court of Appeals, were it faced with the question, would find that the statute does not create a private right of action. Because the issue turns on a question of state law for which no controlling decisions of the New York Court of Appeals exist, and given a split in the Appellate Division, the Second Circuit certified this question to the Court of Appeals, pursuant to 22 N.Y.C.R.R. § 500.27 and 2d Cir. R. 27.2(a).

The Second Circuit stated that New York courts are to consider three factors when determining whether an implied private right of action exists under a statute: (1) whether the plaintiff is one of the class for whose particular benefit the statute was enacted; (2) whether recognition of a private right of action would promote the legislative purpose; and (3) whether creation of such a right would be consistent with the legislative scheme. The district court had held that the overall statutory scheme was not enacted for the benefit of individuals against whom reports were made but, rather, to create a scheme to regulate medical misconduct.

The Second Circuit noted that, in relation to the second factor, the Court of Appeals has articulated the purpose of section 230(11)(b) as encouraging complaints by individuals who would otherwise be reluctant to provide information regarding errant doctors for fear of litigation, and has written that the creation of an implied right of action would “chill such complaints.”  Nevertheless, the Second Circuit found that the Court of Appeals had not squarely ruled on the issue of whether a private right of action exists under the statute and New York’s Appellate Division has been split over this issue for over a decade.  Accordingly, although the parties did not request certification, the Second Circuit certified the dispositive question of law – does New York Public Health Law Section 230(11)(b) create a private cause of action for bad faith and malicious reporting to the Office of Professional Medical Conduct –  to the New York Court of Appeals.

Summary by: Caitlin Ens

To read the full opinion, please visit this link.

Second Circuit Affirms $92.8 Million Civil Penalty for Insider Trading Violations

Case Name: SEC v. Raj Rajaratnam, et al.

Date of Opinion: March 5, 2019

Opinion by: Judge Lynch

Summary:

In 2011, Raj Rajaratnam, former hedge fund manager of Galleon Management, LP, was indicted in the Southern District of New York on nine counts of securities fraud under Section 17(a) of the federal Securities Act and Section 10(b) and Rule 10b-5 of the Exchange Act. Rajaratnam’s criminal indictment was based on his insider trading of the stock of five different companies, in addition to five counts of conspiracy to commit insider trading.

On the day of his arrest, the Securities and Exchange Commission (“SEC”) filed a related civil action against Rajaratnam in the Southern District of New York. The SEC based its civil allegations on the same insider trading conduct charged in the criminal case, as well as additional violations of the Securities and Exchange Acts stemming from Rajaratnam’s alleged purchases and sales of stock in certain companies based on material nonpublic information. In the civil action, the SEC sought an injunction against further securities violations, disgorgement of Rajaratnam’s gains from the alleged violations, and a civil monetary penalty under Section 21A of the Exchange Act.

Following an eight-week trial in the criminal case, a jury found Rajaratnam guilty on all counts, and he was sentenced to 132 months’ imprisonment and ordered to pay a $10 million criminal fine and a court-imposed forfeiture of $53.8 million. Following Rajaratnam’s conviction and sentencing, the SEC moved for partial summary judgment on the civil insider trading claims that formed the basis of Rajaratnam’s criminal conviction. Rajaratnam conceded liability based on principles of equitable estoppel, leaving the amount of the civil penalty as the sole issue for the district court to decide on summary judgment. The district court accepted Rajaratnam’s calculation that the “total profit gained and loss avoided” from the insider trades was $30,935,235, and that he personally gained approximately $4.7 million.  It then determined that the language of Section 21A imposing a penalty of “three times the profit gained or loss avoided” was not limited to a penalty equal to three times Rajaratnam’s personal gains of $4.7 million. Rather, the court held, the penalty extended to the total profit of nearly $31 million from the illegal trades he secured. Based on this reading of the statute, and considerations of Rajaratnam’s “egregious” violations, the district court imposed the maximum civil penalty of $92,805,705.

On appeal before the Second Circuit, Rajaratnam made two main arguments. First, he argued, as he did in the district court, that Section 21A penalties are not permitted to exceed three times of his personal profit gained or loss avoided. Second, Rajaratnam argued that the district court abused its discretion in imposing the maximum penalty because it impermissibly relied on his wealth and ability to pay and ignored the criminal penalties previously imposed on him.

In analyzing the permissible extent of a Section 21A penalty, the Second Circuit relied on the plain meaning of the statute and case law, and agreed with the district court that Section 21A “permits a civil penalty to be based on the total profit resulting from the violation.” The Court also found that the district court’s interpretation of Section 21A was consistent with the congressional intent of federal securities laws to allow civil penalties based on the total profit resulting from a violation, rather than merely the profit earned by the defendant. Moreover, the Court determined that the lower court’s penalty effectuated the purpose of Section 21A to deter the exact conduct that Rajaratnam had been found liable for (both criminally and civilly).

As to Rajaratnam’s abuse of discretion argument, the Second Circuit relied on its own precedent, as well as the precedent of other circuits, in determining that the district court permissibly considered Rajaratnam’s wealth and ability to pay in imposing the civil penalty. Specifically, the Court found that the district court had undertaken “a careful and thoughtful analysis of the factors bearing on the appropriate penalty.” Moreover, the Court determined that the district court properly considered Rajaratnam’s criminal penalty in calculating his civil penalty, and Section 21A contemplates and permits the imposition of civil penalties in addition to criminal penalties.

Accordingly, the Second Circuit affirmed the district court’s imposition of a $92,805,705 civil penalty against Rajaratnam.

To read the full opinion, visit http://www.ca2.uscourts.gov/decisions/isysquery/d872ecd2-6641-4f7b-aeed-672dd427c454/6/doc/11-5124_op.pdf#xml=http://www.ca2.uscourts.gov/decisions/isysquery/d872ecd2-6641-4f7b-aeed-672dd427c454/6/hilite/

Summary by: Amy O’Brien​

 

 

Second Circuit Denies En Banc Review of Decision Upholding Private Damages Remedy under the Religious Freedom Restoration Act

Case Name: Tanvir v. Tanzin

Date of Opinion: February 14, 2019

Opinion by: En banc. Judge Pooler and Chief Judge Katzmann Concur in Denial of Rehearing En Banc; Judges Jacobs, Cabranes, and Sullivan Dissent

Summary:

In the underlying case, plaintiffs sued federal law enforcement officials and officers alleging that they were put on a national “No Fly” list, despite not posing an aviation threat, in retaliation for their declining to serve as FBI informants reporting on fellow Muslims. Plaintiffs alleged defendants’ actions constituted a substantial burden on their exercise of religion in violation of the Religious Freedom Restoration Act (“RFRA”).  The United States District Court for the Southern District of New York dismissed the complaint, in relevant part, on the ground that the RFRA does not permit private parties to recover monetary damages against federal officers sued in their individual capacities. Plaintiffs appealed and, on June 25, 2018, a Second Circuit panel consisting of Chief Judge Katzmann and Circuit Judges Pooler and Lynch reversed, holding that the RFRA does permit private recovery of money damages against federal officers sued in their individual capacities.

Following the June 2018 decision, an active judge of the Second Circuit requested a poll on whether to rehear the case en banc. A majority of the Second Circuit declined the en banc review, and Judge Pooler issued a written concurrence, joined by Chief Judge Katzmann, in support of the panel’s original ruling that the RFRA permits a private action for monetary damages.  Judges Jacobs and Cabranes each issued a written dissent to the denial of the en banc review and joined the other, and Judge Sullivan joined both dissents.

The concurring judges contend that, contrary to the position taken in the dissenting opinions, the holding that a private action for monetary damages exists in this case is grounded in the express provisions for relief set out in the RFRA, and is not a judicially implied right of action that represents an extension of the Supreme Courts’ 1971 decision in Bivens v. Six Unknown Named Agents of the Federal Bureau of NarcoticsContinue reading