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Thursday, February 19, 2009

Collapse. The Second Circuit is usually not shy to certify unclear questions of New York law to the New York State Court of Appeals. But in Dalton v. Harleyville Worcester Mutual Ins. Co. it declined to do so. The definition of what constitutes a "collapse" of a building had not been decided by the Court of Appeals, and the Second and Third Departments of the Appellate Division have taken different views. Rather than certifying the question to the Court of Appeals, the Court decided that the term was ambiguous and should be resolved against the insurer.

I would anticipate a motion for rehearing, asking that the issue be certified. The case involved the all too common occurrence of an insurance company disclaiming liability for damage that appears to be covered by the policy. Perhaps that is the reason that the Court acted as it did. The decision can be found here.

Tuesday, February 17, 2009

Calorie Counting. The Second Circuit has upheld New York City Health Code 81.50, which requires roughly 10% of the restaurants in New York City, including chains such as McDonlads, Burger King and Kentucky Fried Chicken, to post calorie content information on their menus and menu boards. The Court held that the statute was not preempted by federal law and did not violate the restaurants' freedom of speech.

The decision in New York State Restaurant Ass'n v. New York City Board of Health can be found here.

Monday, February 16, 2009

Champerty -- Certified Questions. In Trust for Certificate Holders of the Merrill Lynch Mortgage Investors Pass-Through Certificates Series 1999-C1, by and through Otix Capital Markets, LLC, as Master Servicer and Special Servicer v. Love Funding Corp., the Trust had sued Love Funding Corp. for breach of certain representations and warranties in a mortgage-loan-purchase agreement governing the origination of certain commercial loans held by the Trust. Love Funding asserted that the claim was champertous because the Trust had purchased the interest from USB Real Securities, Inc. for the sole purpose of suing Love Funding. After a bench trial, the District Court held that the assignment of interest from USB to the Trust was void as champertous and entered judgment for Love Funding. The Trust appealed.

The Second Circuit held that resolution of the appeal depended on significant and unsettled questions of New York law and certified those questions to the New York State Court of Appeals. The questions certified are:

1. Is it sufficient as a matter of law to find that a party accepted a challenged assignment with the "primary" intent proscribed by New York Judiciary Law 489(1), or must there be a finding of "sole" intent?

2. As a matter of law, does a party commit champerty when it "buys a lawsuit" that it could not otherwise have pursued if its purpose is thereby to collect damages for losses on a debt instrument in which it holds a pre-existing proprietary interest?

3. (a) As a matter of law, does a party commit champerty when, as the holder of a defaulted debt obligation, it acquires the right to pursue a lawsuit against a third party in order to collect more damages through that litigation than it had demanded in settlement from the assignor?

(b) Is the answer to question 3(a) affected by the fact that the challenged assignment enabled the assignee to exercise the assignor's indemnification rights for reasonable costs and attorneys' fees?

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