© 2011 Nissenbaum Law Group, LLC
© 2011 Nissenbaum Law Group, LLC
On April 7, 2011, the First Department of New York’s Appellate Division upheld a trial court’s dismissal of a lawsuit for defamation. Akpinar v. Moran, 2011 WL 1311902 (1st Dept. 2011). The plaintiff, Reverend Dr. Bill Akpinar, sued attorney William Moran; Moran’s law firm; and the firm’s client, Wachovia Mortgage, FSB (“Wachovia”) for defamation. Akpinar alleged that Moran defamed him in a newspaper article about a pending criminal investigation into a mortgage fraud and a lawsuit brought against Akpinar by Wachovia alleging mortgage fraud.
When referring to Akpinar, Moran told the newspaper, “I’m looking forward to getting him under oath” and “I want to get to the bottom of many questions myself.” Id. Akpinar argued that when considered in the context under which the statements were made, they amounted to defamation. Akpinar claimed “that he lost $17 million in venture funding from unspecified individuals who read the [defamatory] statements.” Id.
The Appellate Division dismissed Akpinar’s complaint, holding that “a reasonable reader would understand the statements defendant made about plaintiff as mere allegations to be investigated rather than as facts.” Id. (Emphasis in original). The court reasoned that “the statements neither impute to him the commission of a serious crime nor tend to injure him in his trade, occupation or profession, and therefore do not constitute slander per se.” Id. Neither Akpinar’s reference to the pending criminal investigation nor the civil lawsuit were sufficient to establish a claim for “defamation by innuendo” – whether the statements are defamatory requires a balancing between the alleged defamatory words and the facts and circumstances that surround their publication.
The court also found Akpinar’s allegation that he lost “$17 million in venture funding from unspecified individuals” inadequate to plead special damages as required in a defamation action. Id. Finally, the court noted that Moran’s statements were protected under Civil Rights Law §74 as a “fair and true report of a judicial proceeding.” Id. The court similarly dismissed Akpinar’s claim for intentional infliction of emotional distress as duplicative of his defamation claim and on the ground that Moran’s statements were “not so outrageous in character, and so extreme in degree, as to go beyond all possible bounds of decency.” Id. Thus, the court upheld the decision of the trial court dismissing Akpinar’s lawsuit in its entirety.
© 2011 Nissenbaum Law Group, LLC
Penguin Group (USA) Inc. (“Penguin”), a New York corporation with its principal place of business in New York City, sued American Buddha, a not-for-profit corporation with its principal place of business in Arizona, for copyright infringement in the United States District Court for the Southern District of New York. Penguin claimed that American Buddha infringed upon copyrights owned by Penguin for four books. American Buddha allegedly published complete copies of those books on its two web sites, making them available free of charge to its 50,000 members and to anyone else with an Internet connection. The electronic copying and uploading of the books by American Buddha took place in either Oregon or Arizona. American Buddha claimed its right to copy and upload the books was protected by sections 107 and 108 of the Copyright Act, 17 U.S.C. §101 et seq., which govern fair use and reproduction by libraries and archives. Penguin disputed that any exception to the Copyright Act applied to American Buddha’s activities. Penguin Group (USA) Inc. v. American Buddha, CITATION
American Buddha moved to dismiss Penguin’s complaint on the ground that its ties to New York were too insubstantial for it to be subject to personal jurisdiction in that state. Penguin countered that American Buddha was subject to personal jurisdiction in New York under CPLR 302 (a) (3) (ii) as it committed a tortious act outside of New York that resulted in injuries in New York. American Buddha countered that CPLR 302 (a) (3) (ii) did not apply since Penguin did not suffer an injury within New York State. The District Court granted American Buddha’s motion to dismiss holding that Penguin sustained injury in either Oregon or Arizona, which was where the copying and uploading of the books occurred. The court reasoned that Penguin “suffered only a ‘purely derivative economic injury’ in New York based on its domicile here, which was insufficient to trigger CPLR 302 (a) (3) (ii).” Id. at p.3. Penguin appealed the decision of the District Court to New York’s Court of Appeals, which was asked to decide the following certified question:
“In copyright infringement cases involving the uploading of a copyrighted printed literary work onto the Internet, is the situs of injury for purposes of determining long-arm jurisdiction under N.Y. C.P.L.R. § 302 (a) (3) (ii) the location of the infringing action of the residence or location of the principal place of business of the copyright holder?”
The Court of Appeals determined that the location of the infringing action for purposes of New York’s long-arm jurisdiction was the location of the principal place of business of the copyright holder. Under N.Y. C.P.L.R. § 302 (a) (3) (ii) long-arm jurisdiction may be exercised by a New York court when, 1) the defendant commits a tortious act outside New York; 2) the plaintiff’s cause of action arose from that tortious act; 3) the tortious act caused an injury to a person or property in New York; 4) the defendant expected or should reasonably have expected to act to have consequences in New York; and 5) the defendant derived substantial revenue from interstate or international commerce. The only issue to be decided by the Court of Appeals was the third element – “whether an out-of-state act of copyright infringement has caused injury in New York.” Id. at p.5-6.
While acknowledging that determining the location of the injury was more difficult when the alleged infringement involved the Internet, the court was persuaded by two factors to decide that “ a New York copyright owner alleging infringement sustains an in-state injury pursuant to CPLR 302 (a) (3) (ii) when its printed literary work is uploaded without permission onto the Internet for public access.” Id. at p.9. First, the intended consequences of American Buddha’s activities – the instantaneous availability of works copyrighted by Penguin on American Buddha’s web site for anyone, in New York or elsewhere, with an Internet connection to download and read the works free of charge.
Second, the unique bundle of rights given to copyright owners tipped the balance in favor of determining New York as the situs of injury. These five “exclusive rights” include, the right of reproduction; the right to prepare derivative works; the right to distribute copies by sale, rental, lease or lending; the right to perform the work publicly; and the right to display the work publicly. 17 U.S.C. §106. As a result, a copyright owner has an “overarching ‘right to exclude others from using his property.’” Id. citing eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 392 (2006).
Combining the aforementioned factors led the court to reason that a New York copyright holder “whose copyright is infringed suffers something more than … indirect financial loss.” Id. at p.11. For example, one potential harm of copyright infringement is the loss or diminishment of the incentive to publish or write. Id. at p. 11. A tort committed outside of New York that was likely to cause harm through the loss of business inside of New York was “sufficient to establish personal jurisdiction regardless of whether damages were likely recoverable or even ascertainable.” Id. at p.12.
Further, there was no dispute that American Buddha’s web sites were accessible by any New Yorker with an Internet connection. Therefore, “an injury allegedly inflicted by digital piracy is felt throughout the United States, which necessarily includes New York.” Id. at p.12. The court also distinguished the uploading of copyrighted books to the Internet from traditional commercial tort cases where the injury was generally linked to the place where sales or customers were lost. The location of the infringement in such cases was unimportant since the goal was to make the copyrighted works available to anyone with an Internet connection, including those in New York. Thus, “the concurrence of these two elements – the function and nature of the Internet and the diverse ownership rights enjoyed by copyright holders situated in New York – leads us to … conclude that the alleged injury in this case occurred in New York.” Id. at p.13.
© 2011 Nissenbaum Law Group, LLC
In 2008, the legislature of New York State amended its Tax Law to require out-of-state sellers to pay state taxes if they use New York residents to solicit business from other New York residents through a web site.
Under New York’s Tax Law (the “Tax Law”) an out-of-state seller is presumed to be
“soliciting business [in New York] through an independent contractor or other representative if the seller enters into an agreement with a resident of this state under which the resident, for a commission or other consideration, directly or indirectly refers potential customers, whether by a link on an internet website or otherwise, to the seller, if the cumulative gross receipts from sales by the seller to customers in the state who are referred to the seller by all residents with this type of an arrangement with the seller is in excess of ten thousand dollars during the preceding four quarterly periods ending on the last day of February, May, August, and November.”
New York Tax Law §1101(b)(8)(vi).
Two days after the amendment to the Tax Law took effect, Internet vendors, Amazon.com LLC (“Amazon”) and Overstock.com (“Overstock”), initiated separate lawsuits in New York State Court against the New York State Department of Taxation and Finance claiming that Tax Law §1101(b)(8)(vi) was unconstitutional as amended. Amazon claimed the statute violated the Commerce, Due Process and Equal Protection Clauses of the United States Constitution. Overstock claimed the statute violated the Commerce Clause of the United States Constitution.
In early 2009, the trial court heard the State of New York’s motions to dismiss each complaint and, in two separate orders, dismissed the lawsuits filed by Amazon and Overstock. The trial court rejected all arguments made by Amazon and Overstock that the statute was unconstitutional. Amazon and Overstock each appealed their respective decision to New York State’s Appellate Division, First Department.
On appeal, Amazon claimed that the statute was unconstitutional as applied because it lacked a “substantial nexus” to the State of New York. Amazon.com, LLC v. New York State Dep’t of Taxation & Fin., 2010 N.Y.SlipOp. 07823 (1st Dep’t 2010). Amazon also took the position that the statute violated “the Due Process Clause because, facially and as applied, it enacts an irrational and irrebuttable presumption, and is also vague.” Id. Lastly, Amazon argued that the statute violated the Equal Protection Clause because it specifically targeted Amazon. Id.
On appeal, Overstock claimed that the statute violated the Commerce Clause, both on its face and as applied to Overstock, and that it violated the Due Process Clause because of its vagueness. Id. The Appellate Division considered the appeals by Amazon and Overstock at the same time.
When considering the facial challenges to the Tax Law, the court noted that, generally, facial challenges to a statute’s constitutionality are disfavored and that “parties challenging a duly enacted statute face the initial burden of demonstrating the statute’s invalidity ‘beyond a reasonable doubt.’” Id. citing LaValle v. Hayden, 98 N.Y.2d 155, 161 (2002). Courts are also required to “avoid, if possible, interpreting a presumptively valid statute in a way that will needlessly render it unconstitutional.” Id. citing LaValle, 98 N.Y.2d at 161.
The Appellate Division determined that the test for determining whether a state tax violated the Commerce Clause developed in Matter of Moran Towing Corp. v. Urbach was applicable. 99 N.Y.2d 443 (2003). Under that test, a tax will be upheld, 1) when the tax is applied to an activity with a substantial nexus with the taxing State; 2) is fairly apportioned; 3) does not discriminate against interstate commerce; and 4) is fairly related to services provided by the State.” Moran Towing, 99 N.Y.2d at 449. The challenges to the tax by Amazon and Overstock implicated only the first prong; whether the activity involved had a substantial nexus with the taxing state.
In order to find that Amazon had a substantial nexus with New York, Amazon must maintain a physical presence within that state that need not be substantial, but is more than the slightest presence. Such a nexus “may be manifested by the presence in the taxing State of the vendor’s property or the conduct of economic activities in the taxing State performed by the vendor’s personnel or on its behalf.” Amazon.com, LLC 2010 N.Y.SlipOp. 07823. After applying that analysis to the facts, the court held that the Tax Law did not violate the Commerce Clause. The tax was imposed upon an out-of-state vendor “only where the vendor enters into a business-referral agreement with a New York State resident, and only when that resident receives a commission based on a sale in New York. The statute does not target the out-of-state vendor’s sales through agents who are not New York residents. Thus, the nexus requirement is satisfied.” Id.
The court reasoned that New York had a legitimate basis upon which to conclude that in-state agents would engage in direct solicitation, rather than simply advertising. The Tax Law created a presumption that the New York agent for an out-of-state vendor would solicit business in New York. The statute provides out-of-state vendors with an “escape hatch” in that the vendor may include in its contract with the in-state agent a provision prohibiting the agent from engaging in solicitation activities in New York that would refer potential customers to the out-of-state vendor. In that instance, the in-state agent is responsible for providing an annual certification that it has not engaged in any prohibited solicitation activities. Based upon this reasoning, the court held that the facial challenge to the Tax Law failed because a set of circumstances existed under which the statute would be valid, i.e. when a New York agent proactively solicits business within New York which results in a sale by Amazon or Overstock and a commission to the agent.
The Appellate Division also analyzed the claim that the statutory presumption violated the Due Process Clause of the U.S. Constitution. The court noted that the general test for assessing the validity of a presumption “is that there be a rational connection between the basic facts proven and the ultimate fact presumed.” Id. citing County Court of Ulster Cty v. Allen, 442 U.S. 140, 165 (1979). The test in New York is even more stringent, “the connection must assure ‘a reasonably high degree of probability’ that the presumed fact follows from those proved directly.” Id. citing People v. Leyva, 38 N.Y.2d 160, 166 (1975). The presumption made by the statute – that in-state solicitation occurs when an in-state agent is paid a commission on a per sale basis after a New York purchaser accesses the out-of-state vendor’s web site and “clicks” through to make a purchase on that web site – was not considered an irrational one by the court. In fact, the court reasoned that solicitation by the in-state agent was an extremely plausible and likely way for that agent to raise revenues. Thus, the court held that the statutory presumption did not violate the Due Process Clause.
The court also held that the Tax Law was not unconstitutionally vague on its face. The court reasoned that the terms “or indirectly,” “or other consideration,” and “solicitation” as used in the statute were not confusing at all. Instead, the terms were easily definable in the context of the statute’s purpose. For example, “or indirectly” refers to the in-state agent referring a consumer to an out-of-state vendor’s web site by any manner other than a direct click, perhaps by sending that consumer an e-mail. “Or other consideration” refers to compensation to in-state agents that is other than direct payment. For example, a bonus program or discounts on the out-of-state vendor’s goods. Finally, “solicitation” was not an imprecise term requiring a specific meaning when used in the context of the Tax Law. Whether an in-state agent’s activities amount to “solicitation” may be determined using the traditional definition of the word.
Before considering the claims of Amazon and Overstock that “as applied” the statute violated the Commerce Clause, Due Process Clause and Equal Protection Clause, the court determined that those issues were ripe for resolution. The court reasoned that the New York Department of Taxation and Finance (“DTF”) would seek to enforce the Tax Law against Amazon and Overstock. Thus, the threat of harm to Amazon and Overstock was direct and immediate. “Where threatened action by government is concerned, we do not require a plaintiff to expose himself to liability before bringing suit to challenge the basis for the threat – for example, the constitutionality of a law threatened to be enforced.” Id. citing MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 128-29 (2007).
The court refused to determine whether the statute as applied to Amazon and Overstock violated either the Commerce Clause or the Due Process Clause. The court reasoned that there was insufficient evidence in the record to make such a determination and remanded the case to the trial court for additional discovery on those claims.
Finally, the court determined that the statute as applied to Amazon did not violate the Equal Protection Clause. First, Amazon could not establish that it was exclusively targeted as the statute also applied to Overstock. Second, Amazon could not establish that it was treated differently than out-of-state vendors that did not maintain in-state agents like Amazon. The court reasoned that those vendors were not similarly situated, so there was no proof that Amazon “was singled out with an ‘evil eye and an unequal hand, so as practically to make unjust and illegal discriminations between persons in similar circumstances.’” Id. citing Bower Assoc. v. Town of Pleasant Val., 2 N.Y.3d 617, 631 (2004).
In conclusion, the court held that New York Tax Law §1101(b)(8)(vi) was constitutional on its face and did not violate the Equal Protection Clause as applied to Amazon or Overstock. The court reinstated the complaints filed by Amazon and Overstock and ordered further discovery on the issues of whether the Tax Law violated the Commerce Clause or Due Process Clause.
© 2011 Nissenbaum Law Group, LLC
The Second Circuit of the United States Court of Appeals recently dismissed a defamation lawsuit brought by a private citizen against the mayor of Yonkers, New York. Zherka v. Amicone, 2011 WL 710462 (2d Cir. 2011).
Selim Zherka, a citizen of Westchester County, New York, publishes the Westchester Guardian, a weekly local newspaper. In 2007, the Guardian was highly critical of Philip Amicone, the Mayor of Yonkers, accusing him and his administration of corruption, fiscal mismanagement and police brutality. Zherka claimed in his lawsuit that Amicone retaliated against him for making those accusations by publicly defaming him at a campaign event. According to Zherka, Amicone called him a “convicted drug dealer,” an “Albanian monster” and a “thug.” Amicone also said that Zherka would open “drug dens” and “strip clubs” throughout Yonkers and “loot” the “pension funds” of Yonkers’s residents if Amicone was not re-elected Mayor of Yonkers.
Zherka sued Amicone in the United States District Court for the Southern District of New York for violation of his First Amendment rights and per se defamation under New York common law. Amicone admitted being present at the campaign event, but denied making any of the statements. Amicone moved to dismiss Zherka’s lawsuit for failure to state a claim upon which relief could be granted. The District Court granted Amicone’s motion and dismissed Zherka’s First Amendment claim with prejudice and dismissed his defamation claim under New York common law without prejudice. Zherka appealed that decision to the Court of Appeals.
The Court of Appeals affirmed the District Court’s ruling and upheld the dismissal of Zherka’s First Amendment claim and his common law defamation claim. The Court reasoned that Zherka could not establish that Amicone’s retaliatory comments “chilled” his speech in any way – that is, that they caused Zherka to refrain from speaking – which is required to establish a First Amendment violation under 42 U.S.C.A. §1983. Id. at *2.
Zherka argued that the injury presumed as a result of his claim of per se defamation under New York common law was sufficient to establish an injury under §1983. The Court disagreed, reasoning that Zherka’s alleged injury under New York common law was insufficient to serve as a substitute for the actual “chilling” of speech. In fact, the Court found that Amicone’s comments seemed to influence Zherka to speak, rather than chill his speech. For example, following Amicone’s comments Zherka published articles critical of Amicone with headlines such as “Mayor Amicone Stumbles Over the First Amendment,” “Dumb, Dumber and Dumbest,” and “Scrooge Amicone-Rapes Taxpayers; Rewards Cronies.” Id. at *2.
Thus, the Court held that Zherka could not establish an injury sufficient to prove a violation of §1983. In conclusion, the Court stated:
Retaliatory insults or accusations may wound one’s soul, but by themselves they fail to cross the threshold of measurable harm required to move government response to public complaint from the forum of free speech into federal court.
The arena of political discourse can at time be rough and tough. Public officials must expect that their decisions will be subjected to withering scrutiny from the populace. A public official’s response to that criticism is subject to limits, but the injury inflicted by that response must be real. Without that limitation, the Constitution would change from the guarantor of free speech to the silencer of public debate.
Id. at *3.
© 2011 Nissenbaum Law Group, LLC