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Recent New Jersey Decision on MSOs and Succession Agreements Banner Image

Recent New Jersey Decision on MSOs and Succession Agreements

Month: June 2021

Recent New Jersey Decision on MSOs and Succession Agreements

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For more information about this blog post, please contact Khaled J. Klele, Ryan M. Magee, or Labinot Alexander Berlajolli.

A recent decision issued by the New Jersey Appellate Division addressed the issue of the corporate practice of dentistry and succession agreements.

In Galkin, et al. v. SmileDirectClub, LLC, et al., Docket No. A-2867-19, the New Jersey Appellate Division considered whether the nature of the defendants’ relationship violated the New Jersey Dental Practice Act.

Defendant SmileDirectClub, LLC (“SDC”) is a dental support organization that offers non‑clinical support services to licensed dentists. Additionally, the SDC sources clear aligners to straighten teeth from an FDA‑certified manufacturer and impression kits from a lab for its clients, including the defendant Smile of New Jersey (“SNJ”).

SNJ is a New Jersey company located in Tennessee that provides telehealth dental services to patients in New Jersey, but it has no physical offices in New Jersey. SNJ contracted with SDC for non-clinical administrative services, including billing and records management, as well as sourcing the above aligners.

Plaintiffs Scott D. Galkin, D.M.D. and the New Jersey Dental Association filed suit alleging that the defendants’ were engaging in the unlawful corporate practice of dentistry. The trial court granted summary judgment in favor of the defendants finding that the SDC did not “control clinical treatment to patients or the dentists with whom it contracts.” The plaintiffs appealed.

On appeal, the Appellate Division affirmed the trial court’s finding of summary judgment in favor of the defendants, and rejected the plaintiffs’ argument that the defendants’ relationship was akin to those involved in Allstate Insurance Co. v. Schick, 328 N.J. Super. 611 (Law Div. 1999) and Allstate Insurance Co. v. Northfield Medical Center, 228 N.J. 596 (2017).

In doing so, the Appellate Division found that SDC did not practice dentistry or control the licensed dentist who owed SNJ. Just as important, the Appellate Division rejected the plaintiffs' argument that a “succession agreement between SDC and SNJ would allow SDC to effectively take ownership of SNJ through an SDC designee.” In rejecting that argument, the Appellate Division held:

“However, the succession agreement requires SNJ be owned by a New Jersey-licensed orthodontist or dentist. Thus, the safeguards in place in the agreements maintain management and ownership of SNJ under the Dental Practice Act; its operations and those of SDC must comport with the statute.”

It appears, therefore, that under these specific circumstances, the Appellate Division did not find that the succession agreement violated the corporate practice of dentistry since SNJ maintained clinical control and treatment of the patients.

Fifth Circuit Affirms Bankruptcy Court Order in Lien Priority Dispute

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The Fifth Circuit recently affirmed a Bankruptcy Court’s order, finding that a bank's properly perfected security interest in a debtor’s assets had priority over oil producers’ unfiled, unperfected security interests in oil proceeds, but did not have priority over a statutory lien granted to certain producers under the Oklahoma Lien Act. See Matter of First River Energy, L.L.C., 986 F.3d 914 (5th Cir. 2021). In the case, First River Energy, LLC (the “Debtor”), a Delaware limited liability company headquartered in Texas, filed a petition for Chapter 11 bankruptcy. A month prior to filing, the Debtor purchased crude oil and condensate from Texas and Oklahoma producers (collectively the “Producers”), which it sold to downstream purchasers, but failed to compensate the Producers. The Producers asserted first-priority, perfected purchase money security interests in the proceeds of the oil and condensate pursuant to Texas UCC § 9.343 and the Oklahoma Lien Act. However, Deutsche Bank Trust Company Americas, as Agent for various secured lenders (collectively as the “Bank”), also asserted a first-priority claim to the sale proceeds based on a UCC-1 financing statement filed with the Delaware Department of State in 2015. The Bankruptcy Court first concluded that Delaware law governed the validity, perfection and priority of the parties’ liens. Notwithstanding Texas UCC § 9.343, the Court held that the Bank’s valid, perfected security interests in the Debtor’s accounts and proceeds had priority over unperfected or later-filed secured claims of the Texas Producers. The court also concluded, however, that the Bank’s interests were subordinate to the statutory liens asserted by the Oklahoma Producers.

On appeal, the Fifth Circuit affirmed. First, the Court held that Delaware law applied, noting that Texas UCC § 9.301(1) governs the perfection, effect of perfection, and priority of security interests by applying the local law of the jurisdiction where “a debtor is located.” Because the Debtor is a limited liability company, it was considered to be located in Delaware, its state of organization. Next, the Court addressed the priority of the parties’ respective liens. Relying on Texas UCC § 9.343, “which grants a first priority purchase money security interest in oil and gas produced in Texas as well as proceeds in the hands of any ‘first purchaser[,]’” the Texas Producers argued that they had a first-priority lien on the cash proceeds. Conversely, the Oklahoma Producers argued that they held a first, prior and automatically perfected lien pursuant to the Oklahoma Lien Act, which creates a state statutory lien not connected with the UCC. The Court noted that Delaware UCC law requires filing financing statements with its state authorities to perfect security interests in goods, inventory and proceeds and determines priority according to the first-to-file rule. Here, the Bank’s financing statements were perfected and continuously updated since 2015. Thus, the Court found that the Texas Producers’ lien was subordinate to the Bank’s first-in-time filings, noting that the Texas Producers “[were] out of luck under Delaware UCC law, which does not recognize the priority of their unfiled, unperfected security interests in proceeds under Texas UCC Section 9.343.” However, the Court found that the Oklahoma Producers had a first-priority statutory lien in the proceeds, noting that “[a]lthough Delaware law contains no statutory lien provision similar to the Oklahoma Lien Act, the Delaware UCC does not preempt statutory liens created by other states.”

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Desiree McDonald at dmcdonald@riker.com, or Andrew Raimondi at araimondi@riker.com.

Second Circuit Interprets Guidance from New York Court of Appeals on Pre-Foreclosure Mailing Burden of Proof, Filings

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Following guidance from the New York Court of Appeals, the United States Court of Appeals for the Second Circuit recently affirmed that a lender complied with the New York Real Property Actions and Proceedings Law (“RPAPL”) when it deviated from its usual mailing procedures, but where that deviation was not material to the proper mailing of the notice, as well as when its filing with the Superintendent of Financial Services only listed information as to one borrower when the loan in question had multiple borrowers. See CIT Bank N.A. v. Schiffman, 2021 WL 2172177 (2d Cir. May 28, 2021).  In the case, the Lender initiated a foreclosure action in the District Court for the Eastern District of New York on a loan which had been assigned to it. The Lender moved for summary judgment, which was granted.

On appeal, Defendant argued that the Lender had failed to prove compliance with § 1304 and § 1306 of the RPAPL.  As to RPAPL § 1304, Defendant argued that the Lender had failed to adequately establish that it had served Defendant with the notice required to give a borrower ninety days’ notice before commencing a foreclosure action. The Lender proffered an affidavit from one of its employees which stated that the company used a standard procedure to generate the notice in question and mailed it to Defendant, which was sufficient to create a presumption that notice was proper. However, Defendant in return countered with evidence that Lender had not followed its standard practice in this instance, because the notice had not been created “upon default” as per Lender’s standard procedures, but nearly one year after the mortgage payment was missed. Finding no cases in New York determining what specific showing a defendant must make to properly rebut proof of compliance, the Second Circuit certified a question to the New York Court of Appeals, asking: “[W]hat showing must the defendant make to render inadequate the plaintiff’s proof of compliance with § 1304?” As to RPAPL §1306, Defendant argued that Lender’s pre-foreclosure filing with the Superintendent of Financial Services was deficient because the loan was a multi-borrower loan, but the filing only contained information as to one of the two borrowers. Again, the Second Circuit found no New York cases clarifying this issue, so it certified the following question to the New York Court of Appeals: “When there are multiple borrowers on a single loan, does RPAPL § 1306 require that a lender’s filing include information about all borrowers, or . . . require that a lender’s filing include information about one borrower?”

The Court of Appeals rendered a decision on the two certified questions on March 30, 2021. See CIT Bank N.A. v. Schiffman, 2021 WL 1177940 (N.Y. March 30, 2021). On the first question, the court found that a presumption of mailing may be rebutted by a “denial of receipt plus proof of a material deviation from an aspect of office procedure that would call into doubt whether the notice was properly mailed, impacting the likelihood of delivery to the intended recipient.” Based on this guidance, the Second Circuit found that Defendant’s showing of a deviation from office procedure did not meet this standard, as when the notice was created was immaterial to whether “the notice was properly prepared and mailed” under the statute. As to the second question, the Court of Appeals found that “RPAPL 1306 is satisfied as long as one borrower is listed.” Therefore, the Second Circuit found in this matter that because Lender timely submitted a filing with all the required information as to one borrower, it had complied with the statute. Lender, the Court held, “is therefore entitled to summary judgment in its favor.”

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Desiree McDonald at dmcdonald@riker.com, or Andrew Raimondi at araimondi@riker.com.

New Jersey Legislation From Nursing Homes to COVID-19 Task Forces

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For more information about this blog post, please contact Khaled J. Klele, Ryan M. Magee, or Labinot Alexander Berlajolli.

New Nursing Home Legislation Regarding Statewide Assessment

S3032, which passed both the Senate and Assembly, requires the Department of Health (“DOH”) to conduct a statewide nursing home infection control and prevention infrastructure assessment and, based on that assessment, develop a statewide nursing home infection control and prevention infrastructure improvement plan. The statute expressly requires the DOH to request recommendations from the New Jersey Task Force on Long-Term Care Quality and Safety established pursuant to P.L.2020, c.88. The assessment is to be completed within one year after the effective date of the statute, which will become law after executed by the Governor. No later than 180 days after the assessment is completed, the DOH will be required to develop the statewide nursing home infection control and prevention infrastructure improvement plan.

New Jersey Enters Psychology Interjurisdictional Compact

A4205 enters New Jersey into the Psychology Interjurisdictional Compact, which was established by the Association of State and Provincial Psychology Boards in 2015. The compact allows a psychologist licensed in a member state who meets certain criteria to provide telepsychology services and limited in-person, face-to-face psychological services in other member states, without the need for individual licensure in those other states. Psychologists providing services in a member state are subject to that state’s scope of practice requirements and may be subject to professional disciplinary action in the member state. This statute passed both the Senate and Assembly and awaits the Governor’s approval.

New Jersey Establishes COVID‑19 Pandemic Task Force on Racial and Health Disparities

A4004, which was just signed into law by the Governor, establishes a COVID‑19 Pandemic Task Force on Racial and Health Disparities (the “Task Force”) in the DOH. The purpose of the Task Force is, among other things, to study the ways in which the COVID‑19 pandemic has disproportionately affected New Jersey’s minority and vulnerable communities and to develop effective strategies to address and eliminate the racial, ethnic, and health disparities that exist with respect to access to high-quality healthcare and utilization of healthcare services by members of minority and vulnerable communities. The Task Force shall submit a report to the Governor no later than one year after the public health emergency is lifted, which, as we mentioned in our last Update, happened on June 4, 2021 and will be effective July 4, 2021.

New Legislation for Nurses, Certified Nurse Aides, and Temporary Nurse Aides

The New Jersey General Assembly and Senate also recently passed two statutes, A5059 and A5353, relating to nurses, certified nurse aides, and temporary nurse aides. These statutes will become law upon execution by the Governor.

A5059 requires the DOH to establish certain nursing education and professional advancement programs. Under the statute, the Board of Nursing must review the current nursing curriculum and education and clinical experience requirements and modify them, as appropriate, to incorporate the Nursing Home Infection Preventionist Training Course. The DOH shall do the same with respect to certified nursing aides.

A5353 allows for certification of temporary nurse aides who, during the COVID‑19 public health emergency: (1) successfully completed a training program and competency assessment authorized under a Centers for Medicare & Medicaid Services (“CMS”) waiver; (2) worked a minimum of 80 hours under the supervision of a licensed professional nurse; (3) successfully completed a criminal history record background check; and (4) successfully completed a State‑approved nurse aide written examination in no more than three attempts. Once signed into law, the statute will be effective immediately and shall expire 90 days after the end of the public health emergency.

DHS to Develop Emergency Response Plan Related to Individuals With Developmental Disabilities

A4138 requires the Department of Human Services (“DHS”) to develop and oversee the implementation of a public emergency response plan for persons and entities that are licensed to provide services to individuals with developmental disabilities. DHS will be required to develop the plan within 60 days after the date of the statute’s enactment and post the initial response plan and any revised response plan on the DHS Internet website. This statute passed both the Senate and Assembly and awaits the Governor’s approval.

Legislation on the SNAP Program

A2281, passed by both the Senate and Assembly, requires the Commissioner of Human Services to review and streamline the application process for senior citizens who wish to participate in the New Jersey Supplemental Nutrition Assistance Program (“SNAP”), to the maximum extent permissible under federal law. The goal of the streamlining process would be to ensure that the number of senior SNAP participants either matches or exceeds New Jersey’s overall SNAP participation rates. In streamlining the SNAP application process for seniors, the Commissioner is required to, among other things, develop and make available a simplified SNAP application and authorize and establish appropriate procedures to facilitate the cross enrollment of eligible seniors in the State Medicaid program and SNAP.

NJDOH Eliminates COVID-19 Testing Requirement For ASCs and Hospitals, but DCA Has Not For Surgical Practices

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For more information about this blog post, please contact Khaled J. Klele, Ryan M. Magee, or Labinot Alexander Berlajolli.

On June 16, 2021, the New Jersey Department of Health (“NJDOH”) updated its guidance, Executive Directive 20-016, on the resumption of elective surgeries at licensed Ambulatory Surgical Centers (“ASC”).  Among other changes, pursuant to the updated guidance, patients no longer have to obtain COVID-19 testing or self-quarantine prior to a surgical procedure at an ASC if the patient has been fully vaccinated for two weeks.  Similarly, patients who tested positive for COVID-19 in the last ninety (90) days before their procedure, completed the appropriate isolation and are asymptomatic no longer have to obtain COVID-19 testing or self-quarantine.  Patients are required to provide proof that they meet the criteria.  Patients that do not meet the criteria are required to obtain COVID-19 testing and self-quarantine.

NJDOH issued a similar COVID-19 testing update for hospitals, Executive Directive No. 20-018.

The Division of Consumer Affairs (“DCA”) recently revised its guidance, DCA Administrative Order No. 2021-11, regarding office-based procedures, including procedures in registered surgical practices.  However, the DCA has yet to eliminate COVID-19 testing for vaccinated patients or patients who previously tested positive for COVID-19.

Second Circuit Reverses District Court, Holds Debt Collector Did Not Violate FDCPA When It Sent Proposed Settlement Notice That Did Not Include Interest

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The United States Court of Appeals for the Second Circuit recently reversed a District Court and held that a debt collector did not violate the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. §1692e, when it sent a letter that offered settlement amounts if the debtor paid by a date certain, but did not include language stating that the debt would continue accruing interest and/or fees if the specified amounts were not paid by that date.  See Cortez v. Forster & Garbus, LLP, 2021 WL 2274290 (2d Cir. June 4, 2021).  In the case, Defendant debt collector sent a letter to Plaintiff which stated that “this office has been authorized to advise you that a settlement of the above account can be arranged” and made three settlement offers to satisfy Plaintiff’s debt, if such payment was made by a certain date. Plaintiff then brought an action in the United States District Court for the Eastern District of New York under the FDCPA and citing Avila v. Riexinger & Associates, LLC, which held that collectors are required, “when they notify consumers of their account balance, to disclose that the balance may increase due to interest and fees.” Avila v. Riexinger & Associates, LLC, 817 F.3d 72, 76 (2d Cir. 2016). Defendant filed a motion for summary judgment and the District Court denied and granted summary judgment for plaintiff sua sponte, holding that the debt collector’s letter was not in conformance with Avila. This decision was discussed in a prior blog post.

The Second Circuit reversed and remanded, ordering that the District Court enter judgment in favor of Defendant. The Court clarified that the holding of Avila is that a debt collector “will not be subject to liability under [the FDCPA] for failing to disclose” in a collection notice whether an account is accruing interest and fees so long as the notice “clearly states that the holder of the debt will accept payment of the amount set forth in full satisfaction of the debt if payment is made by a specified date.” Avila, 817 F.3d at 76. Therefore, a debt collector must either disclose that interest and fees continue to accrue or offer to extinguish the debt in exchange for a specified payment. Id. Here, the Court stated that “even when viewed from the perspective of the least sophisticated consumer,” the debt collector’s notice “could only be reasonably read one way: as extending an offer to clear the outstanding debt upon payment of the specified amount(s) by the specified date(s). Since this sole reasonable interpretation was accurate, the notice did not violate the FDCPA.”

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Desiree McDonald at dmcdonald@riker.com, or Andrew Raimondi at araimondi@riker.com.

Telemedicine and the End of New Jersey's Public Health Emergency

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For more information about this blog post, please contact Khaled J. Klele, Ryan M. Magee, or Labinot Alexander Berlajolli.

As noted in our June 9, 2021 healthcare Law Update, Governor Murphy signed A5820 into law, ending the COVID‑19 public health emergency. With the exception of fourteen executive orders specifically identified in A5820, all executive orders issued in response to the public health emergency are set to expire 30 days following the effective date of the law, i.e., July 4, 2021.  With certain exceptions, under A5820, any administrative orders, directives, or waivers issued by a State agency that relied on the existence of the public health emergency are extended until January 11, 2022.

What does this mean for telemedicine in New Jersey? Telemedicine was expanded in New Jersey by both agency action and statute. In addition, the agency action and statute relied on not only the public health emergency but also Governor Murphy’s declaration of a state of emergency, which A5820 did not revoke and continues to this day.

For example, Bulletin No. 20-07 issued by the Department of Banking and Insurance (“DOBI”) requires health insurance carriers in New Jersey to “cover, without cost-sharing (i.e., copayments, deductibles, or coinsurance), any healthcare services or supplies delivered or obtained via telemedicine or telehealth as required by P.L 2020, c.7.”  Bulletin No. 20-07 also requires, among other things, that health insurance carriers pay telemedicine visits at the same rate as in-person visits for in-network providers.  Bulletin No. 20-07 expressly states that it shall remain in effect for “the duration of the state of emergency and public health emergency . . .” (emphasis added).

Similarly, DCA Administrative Order No. 2020-15 and DCA Waiver No. W-2020-14, which allows the use of telemedicine in connection with prescribing controlled substances in certain circumstances, state that they shall remain in effect “until whichever of the following occurs first: (1) the end of the state of emergency or public health emergency . . . whichever is later . . .” (emphasis added).

Besides the above agency actions, the New Jersey Legislature passed A3843, which provides nearly the same expansion as Bulletin No. 20-07. In addition, A3860 was passed, which allows out-of-state physicians to engage in telemedicine visits with patients in New Jersey in connection with COVID-19 even though the physician is not licensed in New Jersey.  In July 2020, S2467 became law, and it extended both A3860 and A3843 for “90 days following the end of both the public health emergency and the state of emergency . . .” (emphasis added).

Considering that the state of emergency has not expired, it appears that the telemedicine expansion offered under A3860 and A3843 will continue beyond January 11, 2022 unless the Governor moves to end the state of emergency, or the Legislature and DOBI take action to clarify the above statutes and agency actions.

Keep in mind that the federal waivers instituted by Centers for Medicare and Medicaid Services will continue with regard to Medicare beneficiaries since the Federal Government has not withdrawn the national Public Health Emergency.

New Jersey Court Holds that Ingress/Egress Easement May be Modified to Accommodate Parking

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The Superior Court of New Jersey, Chancery Division, recently found that an easement for ingress and egress granted from one property to another can be modified to allow for parking where the intent of the grantor and the Township’s parking ordinances dictate as such. See Rasulova v. Aguila, BER-C-39-21, (N.J. Super. Ct. Ch. Div. 2021). In 2000, Jonathan Lesko bought 116 and 118 Grove Street in Mahwah, New Jersey, also known as Lots 57, 58, 59, and 60. A driveway (the “cutout lot”), which was previously a public road and had been conveyed in part by the Township to the owners of Lots 57 and 58, adjoined those lots. Lesko subdivided the lots into two residential homes, and due to the location of the lots, 116 Grove Street functionally had two driveways, a large driveway in front of the house and then the cutout lot, while 118 Grove Street had no driveway nor access to Grove Street. Township ordinances prohibit off-street parking, and also require that residential dwellings have a minimum of two parking spots. In 2005, while Lesko still owned all of the lots, he granted “as owner of Lots 57 and 58” an easement for the cutout lot area “in favor of Lots 59 and 60 . . . for ingress and egress,” among other things. Following Lesko’s subdivision project, 116 and 118 Grove Streets were conveyed to respective owners, who eventually conveyed the properties (separately) to Plaintiff (the 116 Grove owner) and Defendant (the 118 Grove owner). Throughout that time, “Defendant [was] consistently parking on that easement area.”  Beginning in 2020, Plaintiff had “a need to use that easement area to access a parking lot that is located next to the easement area,” which was often blocked off because Defendant was parked in the cutout lot. Plaintiff brought suit against Defendant, seeking relief preventing Defendant from parking in the easement area.

Following a trial, the Court ruled in favor of Defendant and dismissed Plaintiff’s claims. The Court found that although the easement granted from the 116 Grove lots to the 118 Grove lots only allowed for ingress and egress, the Court could use “the intent of the conveyor [of the easement as] normally determined by the language of the conveyance read as an entirety and in light of the surrounding circumstances” to interpret the easement’s purpose. Here, Mr. Lesko, the grantor of the easement, testified that the purpose of the easement was to allow for the 118 Grove owner to use the cutout lot as a driveway, given the lack of parking that would be available to the owner otherwise. Furthermore, the Court found that the Township ordinances concerning parking supported this conclusion, as street parking was prohibited and residential dwellings were required to have a minimum of two off-street parking lots. Lastly, the Court found that any burden incurred by Plaintiff in having to move or rearrange cars when Defendant used the cutout lot was an “inconvenience” and “regrettable,” but “remedying said inconvenience by finding Defendant is not entitled to use the easement is wholly inequitable.” Therefore, the Court ruled that “Plaintiff, or any subsequent property owner, is prohibited from blocking ingress, egress, or parking of at least two vehicles belonging to or authorized by Defendant, or any subsequent owner of 118 Grove Street, within the easement area.”

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Desiree McDonald at dmcdonald@riker.com, or Andrew Raimondi at araimondi@riker.com.

Connecticut Supreme Court Holds Lender Entitled to Tribal Sovereign Immunity as an “Arm of the Tribe”

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In a case of first impression, the Connecticut Supreme Court recently held that (1) an entity claiming “arm of the tribe” status for purposes of tribal sovereign immunity bears the burden of proving entitlement to that status; and (2) tribal immunity extends to an officer of the entity, so long as the officer acted within the scope of his or her authority and the tribe, rather than the individual officer, is the real party in interest. See Great Plains Lending, LLC v. Dep’t of Banking, 2021 WL 2021823 (Conn. May 20, 2021). In the case, the Connecticut Department of Banking issued temporary cease and desist orders, orders that restitution be paid to Connecticut residents, and a notice of intent to impose civil penalties to two lenders after an investigation by the Department revealed that the lenders issued consumer loans via the Internet without a license and with interest rates that exceeded Connecticut’s usury and banking laws. Great Plains Lending, LLC (“Great Plains”) and American Web Loan, Inc., doing business as Clear Creek Lending (“Clear Creek”) (collectively, the “lenders”) were created under tribal law, namely, the Otoe-Missouria Tribe of Indians Limited Liability Company Act and the Otoe-Missouria Tribe of Indians Corporation Act. Thus, the lenders asserted that (1) they were arms of the Otoe-Missouria Tribe of Indians (the “Tribe”) and entitled to tribal sovereign immunity, and (2) the Tribe’s Chairman who served as secretary and treasurer of both lenders was also entitled to sovereign immunity because he was acting within his official capacity.  The Commissioner denied the lenders’ motion to dismiss, concluding that “the administrative action of the department was not a ‘suit’ from which the plaintiffs enjoyed trial sovereign immunity.”

On appeal, the Connecticut Supreme Court reversed and remanded. As an initial matter, the Court held that an entity claiming to be an arm of that tribe bears the burden of demonstrating the existence of that relationship and that it is entitled to share in tribal sovereign immunity. However, “once the entity proves by a preponderance of the evidence that it is an arm of the tribe, the burden shifts back to the party seeking to overcome tribal sovereign immunity to prove that such immunity has been waived or abrogated as a matter of law.” Next, the Court determined that the proper standard to determine whether the lenders were arms of the tribe was the Breakthrough test. In Breakthrough Mgmt. Grp., Inc. v. Chukchansi Gold Casino & Resort, the Tenth Circuit held that to determine whether an entity may share a tribe’s sovereign immunity, the court must consider: (1) the method of creation of the economic entities, (2) the purpose of those entities, (3) the structure, ownership, and management of the entities, including the amount of control the tribe has over them, (4) the tribe’s intent with respect to sharing its sovereign immunity, (5) “the financial relationship between the tribe and the entities,” and (6) the “policies underlying tribal sovereign immunity and its connection to tribal economic development, and whether those policies are served by granting immunity to the economic entities.” See Breakthrough Mgmt. Grp., Inc. v. Chukchansi Gold Casino & Resort, 629 F.3d 1173 (10th Cir. 2010).  However, like the Fourth, Ninth, and Tenth Circuits, the Court here adopted only the first five factors. The Court concluded that Great Plains was an arm of the tribe as a matter of law and was entitled to sovereign immunity, but that there was not enough evidence to conclude the same with regard to Clear Creek. Specifically, the record did not contain evidence of Clear Creek’s stated purposes, the Tribe’s control of Clear Creek or of its structure or management or intent to extend immunity, or whether any profits or funds from Clear Creek were directed towards the Tribe. With regard to the Tribe’s Chairman, the Court found that because the Tribe was the real party in interest and the Chairman acted within the scope of his authority, he was also entitled to sovereign immunity solely as an official of Great Plains.

Given the foregoing, the Connecticut Supreme Court reversed and remanded with direction to dismiss the administrative proceedings against Great Plains and vacate the civil penalties imposed against the Chairman in his capacity as an officer of Great Plains. However, with regard to Clear Creek, the Court remanded the case to determine whether Clear Creek is an arm of the tribe and whether the Chairman was entitled to sovereign immunity concerning his actions as an official of Clear Creek.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Desiree McDonald at dmcdonald@riker.com, or Andrew Raimondi at araimondi@riker.com.

Second Circuit Affirms Standing to Allege Violation of State Mortgage Satisfaction Statute in Federal Court

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In a case of first impression with Constitutional implications, the Second Circuit found that a mortgagor had standing to sue under Article III of the Constitution in Federal Court for a lender’s violation of a state mortgage satisfaction statute. Maddox v. Bank of New York Mellon Tr. Co., N.A., 2021 WL 1846308 (2d Cir. May 10, 2021). In October 2000, the Maddox sisters entered into a mortgage loan on their property in Buffalo, which was later assigned to BNY Mellon. In September 2014, the property was sold, and in connection with that sale, the loan was paid off and the debt discharged on October 5, 2014. However, BNY Mellon failed to file a satisfaction of mortgage with the Erie County Clerk’s Office until nearly one year later, on September 22, 2015. This violated New York State's mortgage satisfaction statute, R.P.L. § 275(1), which requires the mortgage lender to file a certificate of discharge within 30 days of the full repayment of the debt. Despite the fact that R.P.L. § 275 is a State statute, the Maddoxes brought a putative class action against BNY Mellon in the United States District Court for the Western District of New York, seeking damages under R.P.L. § 275. BNY Mellon moved for judgment on the pleadings, arguing, among other things, that the Maddoxes lacked standing under Article III of the US Constitution, as the Maddoxes “suffered no actual damages in relation to the alleged failure to record the satisfaction” and thus “failed to plead a concrete harm.” The Maddoxes argued, in turn, that the Bank’s period of noncompliance impaired access to accurate financial information about them and created a false impression about their credit status during this period, and that it created a “sufficiently real risk of other concrete and particularized harms,” for example, a potential failure to obtain financing for other properties or damages to personal credit. They also argued that because the New York legislature recognized a right to be free of these harms by creating a state statute, and because these harms were similar to those which can be pleaded at common law, Article III standing could be found. The District Court agreed with the Maddoxes and denied BNY Mellon’s motion for judgment, but also certified the question for interlocutory appeal with the Second Circuit Court of Appeals.

On appeal, the Second Circuit in a split decision upheld the denial of the motion for judgment on the pleadings and agreed that the Maddoxes had Article III standing to bring their claim in federal court. The Court held that the New York statute at issue created a “legally protected interest” in a mortgagor’s right to a timely discharge as well as a “substantive right” to protect against the failure to receive a timely discharge, “permit[ting] individuals to seek judicial redress.” The Court additionally found that the Maddoxes’ allegations of potential “reputational harm” arising from the false impression that their debt was still due, and the potential “reduced creditworthiness” arising from the same showed a “concrete and particularized” harm sufficient to confer standing. Circuit Judge Dennis Jacobs filed a dissenting opinion in this matter, stating that “[b]y statute, New York creates a private right to collect an escalating cash penalty . . . up to $1500 . . . that’s it,” and that this penalty could easily be recovered in New York small claims court. Judge Jacobs also noted that the statute at issue did not provide for enforcement by class action, and that by allowing the Maddoxes to proceed in federal court, the Court facilitated “a spinning of wheels that advances no interest but that of counsel.” The majority attempted to counter this dissent in its opinion, stating that despite the relatively low penalty amount, the statute still “sought in part to protect mortgagors when it required timely recording” and that, as to the dissent’s class action concerns, “questions about potential aggregation of claims generally should have no bearing of the Article III standing inquiry[.]” Therefore, the Court found that the Maddoxes had standing and affirmed the District Court’s order denying BNY Mellon’s motion for judgment on the pleadings.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Desiree McDonald at dmcdonald@riker.com, or Andrew Raimondi at araimondi@riker.com.

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