New York Legal Update

Court of Appeals Rejects Fraudulent Inducement To Enter Into Employment Tort

Today, the Court of Appeals rejected an exception, or way around, New York's at-will employment principles by dismissing a so called fraudulent inducement to enter into employment cause of action - Smalley v Dreyfus Corp., 2008 NY Slip Op 01252.

In the case before the Court, plaintiff Gerald Thunelius, was a director of Dreyfus' Taxable Fixed Income Group (TFIG). He heard a rumor that Mellon Financial Corporation, Dreyfus' parent corporation, made an offer to acquire the fund management company of Standish Ayer & Woods. When asked, Dreyfus' chief executive officer (CEO) told Thunelius that no merger had occurred or was being considered. Relying on those assurances, plaintiff Martin Fetherston in December 2002 accepted employment in the TFIG. Mellon acquired Standish in March 2001. Between 2001 and 2004, Thunelius repeatedly asked Dreyfus' officers whether there were plans to merge the TFIG with Standish, and they denied any planned merger. During these years, plaintiffs Kenneth Smalley, Darlene Haut and Michael Allen allege that they accepted jobs with the TFIG in reliance on the denials by Dreyfus' officers. The plaintiffs conceded that they were at-will employees

It was further alleged that in April 2004, Dreyfus' CEO told the TFIG that any merger of the group into Standish was "off the table," and that the group would remain intact for at least another year. By early fall 2004, merger rumors resurfaced, which at the time Dreyfus' officers refused to confirm or deny. In late 2004, the two groups merged, and in February 2005 — four years after the alleged merger discussions began — Dreyfus fired every member of the TFIG.

The five sued Dreyfus and others, asserting several causes of action, including one for fraudulent inducement. The Supreme Court dismissed the entire complaint noting that at-will employees cannot reasonably rely upon their employers' promises of continued employment, and that these employees failed to allege injuries apart from their termination. The Appellate Division, four-one, modified Supreme Court's order by reinstating the fraudulent inducement claim, concluding that Dreyfus misrepresented a present material fact and that the plaintiffs alleged injuries distinct from termination.

However, the Court of Appeals reversed the Appellate Division and dismissed the fraudulent inducement cause of action.

Most employment in New York is "at-will" meaning that either the employer or the employee generally may terminate the at-will employment for any reason, or for no reason. And the Court of Appeals stated that New York law is clear that absent a constitutionally impermissible purpose, a statutory proscription, or an express limitation in an individual contract of employment, an employer's right at any time to terminate an employment at will remains unimpaired (quote and citation omitted). The Court also noted that it had repeatedly refused to recognize exceptions to, or pathways around, these principles.

The Court then stated that the core of plaintiffs' claim was that they reasonably relied on no-merger promises in accepting and continuing employment with Dreyfus, and in eschewing other job opportunities. Thus, the plaintiffs alleged no injury separate and distinct from termination of their at-will employment. The Court stated:

In that the length of employment is not a material term of at-will employment, a party cannot be injured merely by the termination of the contract — neither party can be said to have reasonably relied upon the other's promise not to terminate the contract. Absent injury independent of termination, plaintiffs cannot recover damages for what is at bottom an alleged breach of contract in the guise of a tort.

Nurse Exposed To HIV Virus May Seek Damages For Emotional Distress Beyond Six Months

The New York courts have previously determined that nurses who have been negligently exposed to the HIV virus through a scientifically accepted method of transmission of the virus may recover damages for emotional distress because of the fear of developing AIDS. But one appellate court has limited the time period for which one can recover such damages to 6 months after the exposure because the scientific evidence suggests that 95% of HIV-positive individuals will test positive within six months after exposure. Thus, an individual exposed to the virus can be reasonably assured that he or she is free of infection if tests conducted six months after the exposure are negative (see, Brown v New York City Health and Hosps. Corp., 225 AD2d 36 [2d Dept 1996]). 

However, the Court of Appeals relaxed this time frame yesterday in Ornstein v New York City Health & Hosps. Corp., 2008 NY Slip Op 01027. The facts in that case were as follows. On September 1, 2000, while working as a nurse on a per diem basis at Bellevue Hospital in Manhattan, plaintiff and a nurse's aide began bathing a critically-ill patient suffering from AIDS. As she was turning the patient, plaintiff was stuck in the thumb by a hypodermic needle that had been left in the patient's bed by an intern. Because the needle contained blood, plaintiff was immediately treated with anti-viral medications for potential HIV exposure. She remained on these medications for two months, suffering side effects that continued for several months thereafter including nausea and neuropathy in her hands and feet. Plaintiff also promptly commenced a regimen of periodic HIV testing. The plaintiff was tested every three months for a period of two years following her exposure but consistently tested negative for infection with HIV. She commenced an action against the new York City Health and Hospitals Corporation alleging negligent infliction of emotional distress.

Relying on Brown, the defendants argued that plaintiff should be restricted to presenting the jury proof that she experienced mental anguish for only a period of six months following the needle-stick incident.

However, the Court of Appeals rejected a bright line 6 month rule. First, the Court stated that the 6 month rule did not make sense in this case because the plaintiff was never advised that her risk of testing positive in the future would dramatically decrease, if not virtually cease, once she tested negative at the six-month juncture. She was also unaware of this fact from her own medical training. In fact, the plaintiff testified that her fear of contracting HIV from the needle-stick incident continued until she tested negative in June 2002, about a year-and-a-half after exposure. In addition, the Court stated that the 6 month rule established by Brown did not account for the fact that a plaintiff exposed to HIV may suffer injuries that are distinct from the fear of contracting the virus. For instance, the plaintiff offered medical proof that she continued to suffer from post-traumatic stress disorder even after her concern that she had contracted the virus was alleviated. Plaintiff testified that she lost income because she was never able to return to per diem hospital work after the incident due to her fear of similar future exposure incidents. In addition, while her HIV status was uncertain, she was unable to engage in direct patient care but had to confine her duties to office work. She stated that, after it was determined that she had not contracted the virus, she continued to suffer from post-traumatic stress disorder and that this condition was a contributing factor in her decision to permanently change the nature of her employment from direct patient care to teaching. The Court found that if this evidence was believed, a rational jury could find that plaintiff's psychiatric condition and resulting loss of income were directly related to the exposure incident, warranting monetary recovery. The Court noted that the defendant was still free to introduce scientific and medical evidence at trial that the plaintiff's fear of AIDS was unreasonable at some point, but it was simply unwilling to adopt the bright line 6 month rule. Thus, the Court ordered a new trial on damages.

Tobacco Companies Not Liable For Failure To Warn Non-Smokers Of Health Risks Of Environmental Tobacco Smoke

Tobacco companies won a significant victory last Friday against claims by non-smokers that the companies should have warned them of the health risks of environmental tobacco smoke. The Appellate Division, Fourth Department held any such claims that tobacco companies were negligent in failing to warn nonsmokers of the health risks of environmental tobacco smoke (ETS) after the year 1969 were preempted by the Federal Cigarette Labeling and Advertising Act (15 USC § 1331 et seq.) - Tormey v American Tobacco Co., 2008 NY Slip Op 00770.

The Federal Cigarette Labeling and Advertising Act requires cigarette manufacturers to place on their packages one of four Surgeon General Warnings, none of which relate to the health effects to non-smokers of environmental tobacco smoke (see, 15 USC § 1333). In addition, the Act goes on to provide:

No requirement or prohibition based on smoking and health shall be imposed under State law with respect to the advertising or promotion of any cigarettes the packages of which are labeled in conformity with the provisions of this chapter (15 USC § 1334 [b]).

Thus, as long as cigarette packing contains one of the four specified labels, nothing under State law can require additional warnings. The Court found that a failure to warn of the risks of environmental tobacco smoke was necessarily "based on smoking and health" and was therefore is preempted by the Act. In addition, the Court found that requiring tobacco companies to provide warnings to nonsmokers would necessarily involve "advertising or promotion" of cigarettes, the regulation of which the Court found was also prohibited by the Act (15 USC § 1334 [b]).

Street Corner Magazines/Catalogues - Can You Trash Them?

If you live in any sizable town, you've probably seen them on your downtown street corner - those little plastic kiosks that contain free copies of the local magazine, Pennysaver, employment guide, real estate listings, alternative healing directory, the Onion, or the Village Voice. Certainly, if you live in Manhattan you've seen that catalogue from the Learning Annex.  Well, has the question ever come to your mind - Can I take all of those free copies and chuck them out?  The First Department answered that question today in Learning Annex Holdings, LLC v Gittelman, 2008 NY Slip Op 00993.

In that case, one Martin Gittelman removed every copy of the Learning Annex's catalogue from its magazine/catalogue distribution box located on a street corner in Gittelman's neighborhood and threw them in the garbage because, in his view, they contributed to litter in the area. The Learning Annex sued for (1) tortious interference with prospective business relations, (2) conversion, and (3) prima facie tort. The First Department upheld the dismissal of all causes of action. The Court stated the tortious interference claim was not viable since the Learning Annex failed to identify any specific customers it would have obtained but for Gittelman's actions. The conversion cause of action failed because the catalogues were free for the taking and anyone could take as many as they desired and therefore, the Learning Annex could not cannot demonstrate a superior possessory right to the catalogues. And finally, the Court found that the prima facie tort cause of action could not survive because a reasonable jury could not conclude that Gittelman was motivated solely by "disinterested malevolence," and the Learning Annex failed to sufficiently establish that it sustained special damages.

So, the next time you pass one of those little plastic street corner boxes, take one copy, take five, take as many as you want, and do with them what you will.