Doctor Fred L. Pasternack, Appellant,v.Laboratory Corporation of America Holdings,, et al., Respondents.

Brief

N.Y.June 1, 2016

To Be Argued By: CYNTHIA S. ARATO Time Requested: 30 Minutes CTQ-2015-00004 United States Court of Appeals for the Second Circuit Case No. 14-4101-cv Court of Appeals STATE OF NEW YORK DOCTOR FRED L. PASTERNACK, Plaintiff-Appellant, —against— LABORATORY CORPORATION OF AMERICA HOLDINGS, a/ k /a LABCORP, CHOICEPOINT, INC., Defendants-Respondents. REPLY BRIEF FOR PLAINTIFF-APPELLANT d CYNTHIA S. ARATO DANIEL J. O’NEILL SHAPIRO ARATO LLP 500 Fifth Avenue, 40th Floor New York, New York 10110 Telephone: (212) 257-4880 Facsimile: (212) 202-6417 Attorneys for Plaintiff-Appellant Doctor Fred L. Pasternack April 18, 2016 TABLE OF CONTENTS PAGE TABLE OF AUTHORITIES ................................................................................... iii INTRODUCTION ..................................................................................................... 1 POINT I. FAA DRUG TEST ADMINISTRATORS OWE TEST SUBJECTS A DUTY OF CARE, AND NEGLIGENCE CLAIMS FOR BREACH OF THAT DUTY MUST REST ON VIOLATIONS OF THE FEDERAL REGULATIONS AND GUIDELINES ............................................................. 3 A. The First Certified Question Should Be Reformulated So That The Court May Determine Whether The Common Law Provides A Duty Of Care ......................................................................................... 3 B. Landon Establishes That FAA Drug Test Administrators Owe A Common-Law Duty Of Care To Their Test Subjects And That The Duty Should Apply To All Parts Of The Testing Process ........................ 4 C. Negligence Claims Concerning FAA Drug Tests Must Rely On The Federal Drug-Testing Rules; The Rules Preempt Any Claims That Are “Independent” Of Them .......................................................... 12 D. The Federal Regulatory Scheme Invites State-Law Negligence Claims Precisely Because There Is No Private Right Of Action To Enforce The Drug-Testing Rules ....................................................... 17 E. Alternatively, The Regulations And Guidelines Establish A Duty Of Care ....................................................................................... 20 F. The Broad Question Before The Court Does Not Depend On The Specific Regulations And Guidelines In Pasternack’s Case; They Are Actionable In Any Event ........................................................ 23 POINT II. A THIRD PARTY’S RELIANCE SATISFIES THE RELIANCE ELEMENT FOR FRAUD ........................................................... 29 ii A. Fraud Is Not Limited to Statements Intended To Reach Or Influence The Plaintiff ............................................................................ 29 B. The SIPC Decision Is Inapposite ............................................................ 30 C. The Third-Party Reliance Doctrine Derives From New York’s Strong Policy Against False Statements And Deceit .............................. 33 D. LabCorp’s Other Arguments Are Both Beyond The Scope Of The Certified Question And Wrong ................................................... 35 CONCLUSION ........................................................................................................ 38 iii TABLE OF AUTHORITIES PAGE Cases Abdullah v. American Airlines, Inc., 181 F.3d 363 (3d Cir. 1999) ................................................................................. 19 Arfa v. Zamir, 17 N.Y.3d 737 (2011) .......................................................................................... 34 Balistrieri v. Express Drug Screening, LLC, No. 04-C-0989, 2008 WL 906236 (E.D. Wis. Mar. 31, 2008) ................. 7, 16, 17 Braverman v. Bendiner & Schlesinger, Inc., 121 A.D.3d 353 (2d Dep’t 2014) .................................................................. 11, 12 Brennan v. New York City Hous. Auth., 302 A.D.2d 483, 485 (2d Dep’t 2003) ................................................................. 27 Buxton Mfg. Co. v. Valiant Moving & Storage, Inc., 239 A.D.2d 657 (2d Dept. 1997) ......................................................................... 29 Chan v. City of New York, 1 F.3d 96 (2d Cir. 1993) ....................................................................................... 18 Cooper v. Weissblatt, 277 N.Y.S. 709 (2d Dep’t 1935) ............................................................. 29, 33, 37 Derdiarian v. Felix Contracting Corp., 51 N.Y.2d 308 (1980) ............................................................................................ 8 Desser v. Schatz, 182 A.D.2d 478 (1st Dept. 1992) ............................................................ 30, 33, 37 Drake v. Delta Air Lines, Inc., 147 F.3d 169 (2d Cir. 1998) ................................................................................. 13 Drake v. Delta Airlines, Inc., 923 F. Supp. 387 (E.D.N.Y. 1996) ...................................................................... 13 iv Drake v. Lab. Corp. of Am. Holdings, 458 F.3d 48 (2d Cir. 2006) .............................................. 10, 13, 14, 15, 17, 18, 19 Drake v. Lab. Corp. of Am. Holdings, 290 F. Supp. 2d 352 (E.D.N.Y. 2003) ................................................................... 7 Drake v. Lab. Corp. of Am. Holdings, 02-CV-1924 (FB)(RML), 2007 WL 776818 (E.D.N.Y. Mar. 13, 2007) ...................................................................................... 7 Duncan v Afton, Inc., 991 P.2d 739 (Wyo. 1999) ..................................................................................... 7 Espinal v. Melville Snow Contractors, Inc., 98 N.Y.2d 136 (2002) ............................................................................................ 9 Jacobsen v. New York City Health & Hosps. Corp., No. 12 Civ. 7460 (JPO), 2013 WL 4565037 (S.D.N.Y. Aug. 28, 2013) ............. 20 Lacondeguy v. Adapa, No. 2:10-CV-1917-JAM-KJM, 2011 WL 9572 (E.D. Cal. Jan. 3, 2011) ............. 7 Landon v. Kroll Laboratory Specialists, Inc., 22 N.Y.3d 1 (2013) ...................................................................................... passim Landry v. Gen. Motors Corp., 210 A.D.2d 898 (4th Dep’t 1994) ........................................................................ 19 Lerner v. Fleet Bank, N.A., 459 F.3d 273 (2d Cir. 2006) ................................................................................. 35 Lipton v. Documation, Inc., 734 F.2d 740 (11th Cir. 1984) ............................................................................. 34 Logan v. Bennington Coll. Corp., 72 F.3d 1017 (2d Cir. 1995) ................................................................................. 12 Lopes v. Rostad, 45 N.Y.2d 617 (1978) .......................................................................................... 20 v Lynn v. Mount Sinai Med. Ctr., Inc., 692 So. 2d 1002 (Fla. Dist. Ct. App. 1997) ........................................................... 7 Manfredonia v. Am. Airlines, Inc., 68 A.D.2d 131 (2d Dep’t 1979) .................................................................... 20, 21 Mandarin Trading Ltd. v. Wildenstein, 16 N.Y.3d 173 (2011) .......................................................................................... 35 McCormack v. Mt. Sinai Hosp., 88 A.D.2d 947 (2d Dep’t 1982) ........................................................................... 24 Milanese v. Rust-Oleum Corp., 244 F.3d 104 (2d Cir. 2001) ................................................................................. 20 Newin Corp. v. Hartford Acc. & Indem. Co., 37 N.Y.2d 211 (1975) .......................................................................................... 37 Pasternack v. Huerta, 513 F. App’x 1 (D.C. Cir. 2013) ............................................................. 12, 25, 36 Rice v. Manley, 66 N.Y. 82 (1876) ......................................................................................... 32, 37 Rosenberg v. MetLife, Inc., 8 N.Y.3d 359 (2007) ............................................................................................ 37 Ruffing v. Union Carbide Corp., 308 A.D.2d 526 (2d Dep’t 2003) ......................................................................... 30 Salomon v. Roche Compucherm Labs., Inc., 909 F. Supp. 126 (E.D.N.Y. 1995) ...................................................................... 20 Securities Investor Protection Corp. v. BDO Seidman, L.L.P., 95 N.Y.2d 702 (2001) ............................................................................. 30, 31, 32 Sharpe v St. Luke’s Hosp., 821 A.2d 1215 (Pa. 2003) ..................................................................................6, 7 Simon v. Schenectady N. Congregation of Jehovah’s Witnesses, 132 A.D. 2d 313 (3d Dep’t 1987) ........................................................................ 12 vi Siotkas v. LabOne, Inc., 594 F. Supp. 2d 259 (E.D.N.Y. 2009) ................................................................... 7 Spiker v. Sanjivan PLLC, No. CV-13-00334-PHX-GMS, 2013 WL 5200209 (D. Ariz. Sept. 16, 2013) ................................................................................. 7, 21 Uhr v. E. Greenbush Cent. Sch. Dist., 94 N.Y.2d 32 (1999) ............................................................................................ 19 Wallace v. Parks Corp., 212 A.D.2d 132 (4th Dep’t 1995) ................................................................. 15, 20 Warshaw v. Concentra Health Servs., 719 F. Supp. 2d 484 (E.D. Pa. 2010) ................................................................6, 7 Yenem Corp. v. 281 Broadway Holdings, 18 N.Y.3d 481 (2012) .......................................................................................... 24 Statutes, Regulations and Rules Federal Aviation Act (“FAAct”), 49 U.S.C. §§ 40101 et seq. ..... 1, 2, 10, 17, 18, 19 Federal Hazardous Substances Act, 15 U.S.C. § 1261 et seq. .......................... 15, 20 14 C.F.R. § 120.11 ..................................................................................................... 9 49 C.F.R. Part 40, Subpart F (§§ 40.81-40.113) ...................................................... 15 49 C.F.R. § 40.1 ......................................................................................................... 6 49 C.F.R. § 40.3 ....................................................................................................... 24 49 C.F.R. § 40.61 ....................................................................................................... 6 49 C.F.R. § 40.87 ..................................................................................................... 15 49 C.F.R. § 40.121 ................................................................................................... 22 49 C.F.R. § 40.123 .................................................................................. 6, 22, 26, 27 vii 49 C.F.R. § 40.129 ............................................................................................ 22, 28 49 C.F.R. § 40.131 ............................................................................................ 22, 28 49 C.F.R. § 40.133 ................................................................................................... 22 49 C.F.R. § 40.135 ............................................................................................ 22, 28 49 C.F.R. § 40.137 ................................................................................................... 22 49 C.F.R. § 40.145 ............................................................................................ 22, 28 49 C.F.R. § 40.153 ............................................................................................ 22, 28 49 C.F.R. § 40.159 ................................................................................................... 22 49 C.F.R. § 40.163 ................................................................................................... 28 49 C.F.R. § 40.171 ................................................................................................... 22 49 C.F.R. § 40.209 ..................................................................................................... 6 49 C.F.R. § 40.355 ................................................................................................... 27 Other Authorities United States Department of Transportation, Urine Specimen Collection Guidelines, Revised Dec. 2006 ....................... passim Dan B. Dobbs et al., THE LAW OF TORTS § 671 (2d ed.) ....................................................................... 34 Appellants Br., Drake v. Lab. Corp. of Am. Holdings, 2005 WL 5165546 (Apr. 5, 2005) ................................................................................................ 14, 17 INTRODUCTION This Court should reject Respondents’ efforts to cabin the Court’s consideration of the important common-law question at the heart of this case: do drug test administrators owe their test subjects a duty of care under the common law when conducting drug tests governed by the FAAct? Respondents argue that this Court should not answer the question simply because it is not the one the Second Circuit asked. They suggest it would be inappropriate for the Court even to consider the question because that would somehow require the Court to “credit” Pasternack’s answer. They claim that this Court’s ruling in Landon is wholly “inapplicable” merely because it did not involve identical facts. And they contend that the duty cannot exist simply because that would entail an “extension of precedent.” This Court can and should resolve the question under the common law, and it should answer the question “yes.” Respondents devote much of their briefs to convincing this Court that no prior case has recognized a duty outside of specimen evaluation or covering MROs. Even if Respondents were right, they would be focusing on the wrong point. The question for this Court is not whether other courts have recognized the duty before; the question is whether this Court should recognize the duty now. 2 Respondents have virtually nothing to say about this dispositive point. Accordingly, they provide no reason why the common law should stop at specimen evaluation or only some actors in the drug testing chain. This Court recognized a broad duty of care in Landon, and that duty—either from the face of Landon or by extension based on the policy reasons articulated in the Court’s opinion—should reach other critical aspects, and other critical participants, in the drug testing process. Respondents non-policy based arguments are wrong as a matter of law. There is no legal reason why Pasternack’s negligence claims must be “independent” of the federal regulations, and the claims will not “interfere” with the federal regime. To the contrary, because of federal preemption principles, the claims cannot exist unless they are based on a regulatory violation and nothing else. It is also no bar that the FAAct provides no private right of action. To the contrary, the FAAct invites state-law negligence claims to provide victims of testing errors with civil redress, and the lack of that private right is a primary reason for allowing those negligence claims to proceed. In any event, the federal regulations create the duty of care because they were promulgated, in part, to protect a narrowly tailored class of drug test subjects, and Pasternack falls within their protective orbit. 3 This Court should also affirm its century-old precedent that a plaintiff can recover in fraud when a defendant intentionally makes false statements on which a third party relies, and where the plaintiff is directly harmed by that reliance. LabCorp again provides no policy-based reason why the Court should now invalidate this “third-party reliance” doctrine. Because third-party reliance is the law of New York and derives from the State’s intolerance for deceit in any form, the Court should reaffirm that doctrine. POINT I. FAA DRUG TEST ADMINISTRATORS OWE TEST SUBJECTS A DUTY OF CARE, AND NEGLIGENCE CLAIMS FOR BREACH OF THAT DUTY MUST REST ON VIOLATIONS OF THE FEDERAL REGULATIONS AND GUIDELINES A. The First Certified Question Should Be Reformulated So That The Court May Determine Whether The Common Law Provides A Duty Of Care Because a duty of care can, and usually does, have its source in the common law, it is appropriate for the Court to determine whether the common law supports a duty of care here, either directly under Landon or as a next logical extension of Landon. As presented by the Second Circuit, the first certified question presumes that a duty of care can arise only from FAA and DOT regulations and does not give the Court the opportunity to identify another source. The Court should not limit its consideration of the duty issue based on the Second Circuit’s phrasing, 4 particularly where the Second Circuit invited this Court to modify the question and to add additional questions that pertain to the circumstances of the appeal. Respondents contend that the Court should not consider the common-law question now because it hasn’t considered the question before. (CP 13 (arguing that Landon did not deal with MROs); LC 16-17 (arguing that Landon did not concern the testing errors present in this case)). But whether the common law provides the source of a duty in this case presents an important question of New York law. If the question is open, as Respondents suggest, that is all the more reason why this Court should entertain it.1 ChoicePoint, in fact, concedes the point. It acknowledges that a duty of care to act in accord with the DOT regulations can be found in common law, and states that the Court “may wish to reformulate the [question] to address the fact.” (CP 14).2 B. Landon Establishes That FAA Drug Test Administrators Owe A Common-Law Duty Of Care To Their Test Subjects And That The Duty Should Apply To All Parts Of The Testing Process FAA drug test administrators owe their subjects a duty of care directly under Landon or as an appropriate extension of Landon. In Landon, the Court held that a drug test administrator owes its test subject a common-law duty of care “to 1 Pasternack’s reformulated question does not require this Court to accept Pasternack’s position regarding Landon’s scope (CP 13); it asks this Court to consider it. (Br. 6, 26 (asking the Court to consider “whether” the common-law duty recognized in Landon applies)). 2 Pasternack has no objection to ChoicePoint’s proposed question (CP 14) except that it is confined to MROs and is thus too narrow. If the Court were to consider ChoicePoint’s question, the answer to it would be “yes.” 5 perform his drug test in keeping with relevant professional standards.” 22 N.Y.3d at 6-7. The Court reached this result because carelessness or misconduct in the testing process can lead to a profoundly damaging test report, and because policy reasons justify holding the drug tester accountable. Id.; see Br. 28-29. Respondents seek to confine Landon to its facts, so as to exempt them from any duty of care. (CP 17, 19 and LC 21 (suggesting that Landon should apply only when negligence results in the loss of liberty)); (CP 28 and LC 17, 21 (Landon should be limited to false positive tests)); (CP 2, 17-20, 22-24 (Landon didn’t concern, and thus can’t extend to, MROs)); (LC 13, 17-25 (Landon concerned, and must be confined to, laboratory errors)). Landon does not foreclose a finding of duty here simply because the case involved different facts and different actors. What matters are Landon’s policies—not its precise facts.3 As an initial matter, the claim in Landon was not limited to the defendant’s mistaken laboratory testing of the plaintiff’s specimen. In fact, there was no dispute that the physical test was carefully performed. See Landon, 22 N.Y.3d at 11 (Pigott, J. dissenting) (noting that Landon did not allege “that Kroll misplaced plaintiff’s sample, tested the wrong sample, improperly collected the sample or even reported inaccurate results”). The plaintiff challenged the laboratory’s 3 Respondents contend that Landon’s ruling must remain limited to its facts because “Landon made clear that its finding . . . was ‘under the[] circumstances’” of that case. (CP 19). The Court used that phrase when discussing the strong policy-based reasons for its ruling, not any specific fact. 22 N.Y.3d at 6-7. Those policy reasons apply equally here. See infra at 6-10. 6 interpretation of the laboratory results and its issuance of an alleged false positive report to the probation department without appropriate disclaimers. See id. at 4-5. On its face, therefore, the Landon duty embraces parts of the testing process beyond the scientific testing steps conducted by a laboratory.4 In any event, even if Landon’s holding does not automatically cover errors in the testing process beyond scientific testing, its analysis and policy rationale apply with equal force to the errors here. In Warshaw v. Concentra Health Services, 719 F. Supp. 2d 484 (E.D. Pa. 2010), for example, a defendant testing company contended that it owed no duty of care under Pennsylvania law for “the processing or reporting” of a drug test, even though that State’s highest court had recognized that a laboratory owed a duty of care when collecting and handling test specimens. Id. at 505 (citing Sharpe v. St. Luke’s Hosp., 821 A.2d 1215 (2003)). There, as here, the State’s highest court recognized the duty after evaluating applicable societal and policy-based reasons. Id. Accordingly, the district court concluded that the prior Pennsylvania decision’s analysis “applie[d] wholesale” to the case before it as well. Id. As the court explained: 4 Nor does Landon’s use of the term “testing” signal that its holding must be limited to misconduct only in a lab. (LC 17, 21). The “testing process” for FAA and DOT tests begins after “the employee enters the collection site” (49 C.F.R. § 40.61(b)); does not end until the MRO has completed its review and associated duties (49 C.F.R. § 40.123 (delineating the MRO’s responsibilities in “testing”)); and is “conduct[ed]” and “administer[ed]” by collectors, laboratories and MROs together—not laboratories alone (49 C.F.R. §§ 40.1(a), 40.209(a)). 7 [The administrator]’s argument that it owed Warshaw no duty of care is foreclosed by the Pennsylvania Supreme Court’s decision in [Sharpe]. The Sharpe court held that a hospital that collected a drug sample from an employee at the employer’s request owed the employee “a duty of reasonable care with regard to collection and handling of her urine specimen for . . . employment-related drug testing.” Id. at 1221. . . . Although the duty theorized by Warshaw relates to the processing or reporting of a drug test, and not its collection or handling, Sharpe’s analysis . . . applies wholesale to this case. . . . Sharpe’s view of the public interest is easily extended to cover situations in which a drug test allegedly leads to the erroneous perception of illegal drug use. Accordingly, even though Sharpe concerned the collection and handling of a drug test, not the processing or reporting of that test, its analysis controls. Id. at 505-06.5 5 Respondents are also incorrect that Pasternack’s other cited cases involve only specimen mishandling. See, e.g., Spiker v. Sanjivan PLLC, No. CV-13-00334-PHX-GMS, 2013 WL 5200209, at *11-12 (D. Ariz. Sept. 16, 2013) (negligence claims challenging an MRO’s review of laboratory test results and third-party administrator’s supervision of employer’s drug testing program); Lacondeguy v. Adapa, No. 2:10-CV-1917-JAM-KJM, 2011 WL 9572, at *4 (E.D. Cal. Jan. 3, 2011) (allegation that MRO falsely reported a “positive” test result instead of a “refusal to test” stated negligence claim); Siotkas v. LabOne, Inc., 594 F. Supp. 2d 259, 272 (E.D.N.Y. 2009) (defendant failed to employ supervisors with the proper credentials); Drake v. Lab. Corp. of Am. Holdings, 290 F. Supp. 2d 352, 357 (E.D.N.Y. 2003) (MRO approved unlawful re-test and reported results to employer; duty recognized in No. 02-CV-1924 (FB)(RML), 2007 WL 776818, at *3 (E.D.N.Y. Mar. 13, 2007)); Balistrieri v. Express Drug Screening, LLC, No. 04-C- 0989, 2008 WL 906236, at *15 (E.D. Wis. Mar. 31, 2008) (collector of the opposite gender was present in the collection room with her supervisor and, a as result, plaintiff was unable to produce a urine specimen and was deemed a “refusal”); Duncan v. Afton, Inc., 991 P.2d 739, 741 (Wyo. 1999) (claims involving document falsification); Lynn v. Mount Sinai Med. Ctr., Inc., 692 So. 2d 1002, 1003 (Fla. Dist. Ct. App. 1997) (collector failed to tell test subject to remain with her specimen while it was being sealed and transferred for testing). 8 LabCorp does not address the policy considerations that propelled this Court’s recognition of the duty of care in Landon and which control here. 22 N.Y.3d at 6-7. ChoicePoint’s attempts to distinguish the points are unavailing. 1. Launching a Force or Instrument of Harm. ChoicePoint argues that it owes no duty to Pasternack because the FAA and ALJ made their own determinations after ChoicePoint wrongfully reported him as a refusal. (CP 25- 27). In other words, ChoicePoint argues that its negligence should be excused because other actors were available to correct its error. Yet, Landon rejects that argument: even though it was the probation department—not Kroll—that ultimately decided to initiate court proceedings to have Landon incarcerated, the Court found that Kroll owed a duty to its test subject because its report “launche[d] a force or instrument of harm.” 22 N.Y.3d at 6. The same is true here. After engaging with him about the details of his departure, LabCorp failed to give Pasternack the required instructions and warning that would have stopped him from leaving the testing facility, and ChoicePoint then issued an unauthorized report labeling him a refusal to test, which together led to the FAA’s revocation of his airman’s certificates. (Br. 33).6 Both actors therefore, “advanced to such a 6 ChoicePoint’s arguments go to causation and not the existence of a duty. Ultimately it is for the trier of fact to determine whether LabCorp and ChoicePoint caused Pasternack’s injuries. Even so, it is settled law that a negligent defendant remains liable even when a later actor intervenes, as long as the later actor’s conduct is “a normal or foreseeable consequence of the situation created by the defendant’s negligence.” Derdiarian v. Felix Contracting Corp., 51 9 point as to have launched . . . [the] harm.” Espinal v. Melville Snow Contractors, Inc., 98 N.Y.2d 136, 139 (2002). The FAA, moreover, did not correct Appellees’ mistakes. It, too, wrongfully found Pasternack a refusal to test, just as the probation department in Landon found that Landon violated the terms of his probation. Pasternack eventually was vindicated but only after a lengthy court battle involving two trips to the D.C. Circuit. As Landon demonstrates, just because the FAA also got it wrong is not a reason to immunize Respondents from their own negligent acts. 2. The Harm Is Not Remote or Attenuated. ChoicePoint contends that it could not have reasonably foreseen the consequences of reporting Pasternack as a refusal to test. (CP 27). Yet the FAA and DOT Regulations provide that refusing a test is tantamount to a positive test result or worse (Br. 11), and a refusal to submit to a drug test is grounds for revocation of an airman’s certificate. See 14 C.F.R. § 120.11(b). Federal law requires MROs to know these rules (Br. 34), as ChoicePoint acknowledges (CP 30 n.23). 3. Profound, Potentially Life-Altering, Consequences. Respondents have nothing to say about this factor, except to imply that Landon is different because it involved a probationer. Respondents’ do not dispute, however, that avoiding “profound, potentially life-altering, consequences for a test subject”—and N.Y.2d 308, 315 (1980). Here, the risk that the FAA would wrongly revoke Pasternack’s certificates was a foreseeable consequence. 10 the integrity of the testing process generally—depends on the due care of the test administrators at each stage of the testing process. (Br. 35). 4. Appellees Are in the Best Position to Prevent the Harm. For the reasons above, Landon belies ChoicePoint’s argument that “the FAA and the ALJ were in the best position to prevent” the harm to Pasternack. (CP 26). 5. No Apparent Statutory Remedy. Pasternack does not have an adequate remedy under the Federal Aviation Act (“FAAct”) just because he ultimately got his license restored through administrative proceedings. (LC 32- 33). The Second Circuit has already rejected this argument—when LabCorp asserted it in Drake v. Laboratory Corporation of America Holdings, 458 F.3d 48 (2d Cir. 2006). (Br. 36, 42-43). Here the FAAct provides no remedy for Pasternack’s economic injuries, including lost income, and the fees and costs he incurred pursuing his administrative remedies. Choice Point, finally, splits hairs when it contends that Landon concerned a false positive test and this case concerns a false refusal to test report. (CP 28). The harm from a false refusal is the same, or worse, than a false positive test. (Br. 11). Unable to distinguish the Landon factors, ChoicePoint concludes, without explanation, that holding MROs to a duty of care “could have prodigious implications, opening the floodgates to baseless claims against MROs when a donor’s explanation for his conduct, whether it be leaving a collection site, 11 attempting to provide an adulterated or substituted specimen, failing to sign testing forms, or other disruptive behavior, is rejected by a MRO,” such that doctors will be dissuaded from doing the job or provide expert opinions. (CP 28-29). But all of these examples (save for leaving a site, a subject on which the MRO is not allowed to report) concern the discretion that an MRO is supposed to exercise when performing its duties under the FAA and DOT regime. That is not what Pasternack challenges. Pasternack is challenging ChoicePoint’s failure to conduct any investigation in violation of the DOT Regulations, and ChoicePoint’s violation of the DOT Regulation that barred it from reaching any conclusion on his supposed “refusal to test” status in the first place. Based on the actual laboratory analysis of Pasternack’s specimen, the only result ChoicePoint was authorized by regulation to report was “negative.” Finally, the Second Department’s decision in Braverman v. Bendiner & Schlesinger, Inc., 121 A.D.3d 353 (2d Dep’t 2014), does not “demonstrate” that the Landon duty should not apply. (See CP 22-24; LC 18-20). In Braverman, the Appellate Division declined to find that a laboratory had a duty to label a positive drug result as appropriate for clinical, but not forensic, purposes. But the Court did so for two reasons absent here. First, the plaintiff’s claim was “unsupported by reference to statutory, regulatory, or professional standards.” Id. at 359. Second, the plaintiff had not alleged, and could not allege, that the report was false or 12 suspect. Id. at 360. Accordingly, the Court found that the plaintiff’s complaint was about “the mere denial of a benefit.” Id. In contrast to Braverman, Pasternack’s claim is based on regulatory standards. And Pasternack is challenging neither the denial of some gratuitous benefit nor a correct positive test report. He is challenging ChoicePoint’s failure to conduct the investigation that the DOT Regulations required and ChoicePoint’s affirmative act of wrongly reporting him a refusal to test—when he was not—in violations of federal regulations that prohibited ChoicePoint from issuing any such report in the first place. He is also challenging LabCorp’s failure to give him instructions, explanations and warnings to which he was entitled under the federal regulations and guidelines and for giving him a false sense of safety after engaging with him about the details of his departure. Pasternack v. Huerta, 513 F. App’x 1 (D.C. Cir. 2013). That is far from the “mere denial” of the never before recognized benefit in Braverman.7 C. Negligence Claims Concerning FAA Drug Tests Must Rely On The Federal Drug-Testing Rules; The Rules Preempt Any Claims That Are “Independent” Of Them ChoicePoint acknowledges, and LabCorp does not seem to dispute, that where a common-law duty exists, violations of applicable regulations and 7 Respondents also rely on other similarly inapt cases that, like Braverman, did not involve any violation of federal regulatory requirements. See Logan v. Bennington Coll. Corp., 72 F.3d 1017 (2d Cir. 1995); Simon v. Schenectady N. Congregation of Jehovah’s Witnesses, 132 A.D. 2d 313 (3d Dep’t 1987) (CP 30). 13 guidelines, like the DOT drug-testing Regulations and Guidelines here, are considered “some evidence” of negligence. (CP 37; Br. 23-25). Nevertheless, Respondents argue that it would be improper to recognize a common-law duty of care here because such duty would not be “independent” of the DOT Regulations and Guidelines. (CP 19-20; LC 4, 13, 20). LabCorp cites to a single sentence from the district court’s decision in the Drake litigation for this supposed standard (LC 31), but both Respondents ignore the Second Circuit’s ruling in that case, which establishes that Pasternack’s clams can—and must—rely on the federal regulatory regime. Drake involved two lawsuits. In the first, the plaintiff asserted claims against his employer directly under the DOT and FAA drug testing regulations. The district court dismissed the claims, finding that the regulations do not afford a private right of action, and the Second Circuit affirmed. Drake v. Delta Air Lines, Inc., 147 F.3d 169 (2d Cir. 1998); Drake v. Delta Airlines, Inc., 923 F. Supp. 387 (E.D.N.Y. 1996). The plaintiff then brought a new action against LabCorp and other actors involved in his drug test. Drake asserted claims for negligence on the grounds that the defendants violated the DOT Regulations and other federal regulations, as well as “industry standards and protocols,” in connection with his drug test. Drake, 458 F.3d at 54. 14 LabCorp moved to dismiss, arguing that the Federal Aviation Act preempted plaintiff’s negligence claims. Appellants Br., 2005 WL 5165546 (Apr. 5, 2005). The Second Circuit rejected LabCorp’s preemption argument—and allowed Drake’s negligence claims to proceed—to the extent they claimed violations of the federal standards. 458 F.3d at 62-65. As the court explained: [S]tate common law plays no role in determining whether the defendants-appellants have breached the duties established by the federal regulations. The claim, instead, is that if such federal duties have been breached, there are state law causes of action for relief. If that is indeed Drake’s claim, the subject matter covered, it seems to us, is not the substantive standards of the federal regulations, but the relief that is available for violations of those standards. . . . . . . . [T]he federal government’s intent to preempt substantive state-law standards does not necessarily imply an intent to preempt state-law remedies for violations of federal standards. Id. at 63-64. In contrast, federal preemption principles prevented Drake from “asserting that conduct addressed by the federal regulations is ‘wrongful’ under state law although it does not violate the federal regulations” or, indeed, under any “standards and protocols” other than those in the federal requirements. Id. at 65. Drake thus did not allow plaintiff’s negligence claims to proceed because they were independent from the DOT Regulations, as LabCorp wrongly states. Drake allowed the claims to proceed because they were dependent upon those 15 rules and nothing else. See also Wallace v. Parks Corp., 212 A.D.2d 132, 141 (2d Dep’t 1995) (permitting negligence claim based on violations of the Federal Hazardous Substances Act because the Act preempts “State actions only to the limited extent that they impose additional or different labeling requirements than those imposed under Federal law”). If Respondents were correct, and negligence claims could only be brought under state law if they were “independent of” the DOT Regulations and Guidelines, then no aggrieved plaintiff could ever bring a negligence claim regarding any DOT- and FAA-mandated drug test. That anomalous result would govern all aspects of the FAA and DOT drug testing regimes, and not just the shy bladder and refusal to test scenarios at issue in Pasternack’s case. Indeed, the FAA and DOT Regulations and Guidelines contain detailed prescriptions for every stage of the testing process including the “classic” laboratory testing that Respondents concede is subject to a duty of care. See 49 C.F.R. Part 40, Subpart F (§§ 40.81- 40.113); see also Drake, 458 F.3d at 61 (the FAA regulations “lay out” the “steps” “in considerable detail” “from the selection of drugs to test for to the handling of test results”) For example, the DOT Regulations specify the cutoff concentrations that laboratories “must use . . . for initial and confirmatory drug tests,” 49 C.F.R. § 40.87—the core issue in Landon. Under Drake, a laboratory that applies an 16 erroneous cut-off level to a pilot’s specimen can be liable in negligence only for violating this federal regulation, yet this negligence claim would be impermissible under Respondents’ “independence” standard. Seen in this true light, Respondents’ theory falls apart, and it should be rejected. In any event, the claims in Landon were not “independent” of government regulations. (LC 13, 20, 22). Landon claimed that his test administrator owed him a common-law duty of care and breached that duty by, inter alia, violating guidelines issued by the United States Department of Health and Human Services Substance Abuse and Mental Health Service Administration (“SAMSHA”) and New York State Department of Health Laboratory standards, and because its report failed to disclose information reflected in SAMSHA’s proposed federal guidelines. 22 N.Y.3d at 4-5.8 LabCorp similarly fails to distinguish the many cases that Pasternack cited that also involve negligence claims based on the DOT Regulations. (Br. 25 & n.9, 32-33; see LC 35-36). In each of those cases, just like here, the plaintiff based his negligence claim on a common-law duty of care and relied on the violation of the DOT Regulations to establish the breach of that duty.9 8 LabCorp asserts that “[t]he SAMHSA Guidelines, while instructive, were not the standard that plaintiff was complaining that Kroll breached.” (LC 22). But Landon claimed that the defendant negligently used too low of a cutoff level because it was below both the SAMHSA standards and the standards recommended by the manufacturer of the testing device. 22 N.Y.3d at 4-5. 9 LabCorp relies on Balistrieri because it rejected a negligence claim based on the collector’s failure to explain the “shy bladder” procedures. (LC 35). The court granted summary judgment because the facts demonstrated that the plaintiff knew the procedures. The ruling was about 17 Finally, negligence claims based on violations of the DOT Regulations will not “interfere” with the regulatory scheme, as Respondents wrongly contend. (LC 34). As the Second Circuit has recognized, as long as the negligence claims seek to enforce the regulations and nothing more, “[i]t is difficult to see how state-law remedies for violations of the FAA regulations would detract from the uniformity of the program or interfere with its effective administration.” Drake, 458 F.3d at 65. D. The Federal Regulatory Scheme Invites State-Law Negligence Claims Precisely Because There Is No Private Right Of Action To Enforce The Drug-Testing Rules Drake explains the fallacy of Respondents’ argument that Pasternack’s negligence claims fail because there is no private right of action under the FAAct. (CP 24-25; LP 25, 30-33, 36-37). LabCorp argued in Drake that because “[t]here is no private right of action to enforce FAA drug testing regulations,” the plaintiff “should not be permitted to recast his allegations of regulatory violations as putative state law claims.” 2005 WL 5165546. The Second Circuit rejected that argument, and held that plaintiffs can bring state-law negligence claims premised on violations of DOT-issued standards despite the lack of a private right of action. Drake, 458 F.3d at 62-65. causation; it had nothing to do with Respondents’ supposed “independence” standard. 2008 WL 906236, at *15. 18 In fact, the lack of a private right of action was a significant reason for allowing the negligence claims to proceed. Id. at 64. Although, as Respondents note (LC 36), the FAA regulations establish a “comprehensive” regulatory scheme, the Second Circuit recognized that it did not provide test subjects with full compensation for their loss. Id. at 61, 64. Instead, the FAAct welcomed state law claims through a “savings clause” which provides that “a remedy” under the FAAct “is in addition to,” and does not “abridge,” “any other remedies provided by law” and which “clearly indicates that the Act’s remedies are not intended to be exclusive . . . .” Id. at 58. As the court explained: [T]he FAAct does not provide a private right of action for violations of FAA drug-testing regulations. ‘It is difficult to believe that Congress would, without comment, remove all means of judicial recourse for those injured by illegal conduct.’ And here, Congress has indeed commented on the matter, stating in the FAAct’s saving clause that it does not intend for the Act to leave injured parties without remedy. . . . . When states provide remedies for violations of FAA regulations, they are in effect responding to the FAAct’s express invitation to fill the gaps in its deliberately incomplete remedial scheme. Id. at 64 (internal citations omitted).10 10 LabCorp relies on Chan v. City of New York, 1 F.3d 96 (2d Cir. 1993), to contend that no duty of care can exist if there is no private right of action. (LC 36; see also CP 24). But Chan states that a state law cause of action is foreclosed only “if Congress had manifested its intention to foreclose such a remedy.” Id. at 104. As set forth above, Congress has invited state-law torts to provide remedies under the FAAct. Drake, 458 F.3d at 63-65. 19 The Court, accordingly, concluded that there was “no persuasive reason . . . to deprive aggrieved employees of legal recourse against persons involved in the commercial enterprise of testing for drugs who would otherwise apparently enjoy immunity from liability despite their alleged failure to comply with federal law.” Id. at 65; see also Abdullah v. American Airlines, Inc., 181 F.3d 363, 375 (3d Cir. 1999) (concluding, based on the FAAct’s saving clause, “that the traditional state and territorial law remedies continue to exist” for violations of FAA regulations).11 As noted, in Uhr v. E. Greenbush Cent. Sch. Dist., 94 N.Y.2d 32 (1999), the Court did not view a lack of a private right of action in a regulatory scheme as barring a common-law duty of care. (Br. 44). It is beside the point that the Court ultimately imposed no duty on the facts of that case. (LC 32). If the lack of a private right of action barred all common-law duties, the Court would have answered the negligence/duty question on that basis, rather than on other grounds. Moreover, courts regularly look at violations of regulations, rules and ordinances as “some evidence of negligence” informing the standard of care when there is no private right of action. Compare, e.g., Landry v. Gen. Motors Corp., 11 LabCorp posits that “the clause does not envision tort claims arising from the administrative procedures apart from the actual collection and testing process.” (LC 33). The clause contains no such limits. ChoicePoint claims that the clause precludes Pasternack’s claims because Drake stated that only “some tort claims arising from regulated drug testing will be viable.” (CP 39). Drake does not distinguish among the various FAA regulations, or suggest that violations of some FAA regulations are actionable and violations of other FAA regulations are not. Drake holds that negligence claims based on the FAA’s and DOT’s standards are permitted, and claims based on other sources are not. 458 F.3d at 65. 20 210 A.D.2d 898, 898 (4th Dep’t 1994) (violations of OSHA regulations can be “some evidence of negligence”), with Jacobsen v. New York City Health & Hosps. Corp., No. 12 Civ. 7460 (JPO), 2013 WL 4565037, at *7 (S.D.N.Y. Aug. 28, 2013) (“[E]mployees do not have a private right of action under OSHA.”). See also Wallace, 212 A.D.2d at 141 (Federal Hazardous Substances Act did not provide a cause of action, but plaintiff could bring “a State action in negligence that is based upon a violation of the Federal labeling standards”). Accord Milanese v. Rust-Oleum Corp., 244 F.3d 104, 110 (2d Cir. 2001) (“Although there is no federal private right of action under the FHSA, a state negligence claim lies for failure to comply with the federal, FHSA-mandated labeling requirements.” (internal citation omitted)). E. Alternatively, The Regulations And Guidelines Establish A Duty Of Care Even if this Court were to answer the Second Circuit’s question as written, the Court should hold that the FAA and DOT Regulations and Guidelines create the requisite duty of care because they protect a narrow class of test subjects and Pasternack falls within that protective orbit. (Br. 41-43).12 12 LabCorp’s arguments rely on the test for determining whether regulations give rise to a private right of action (LC 25-36), not whether they establish a duty of care. See Salomon v. Roche Compucherm Labs., Inc., 909 F. Supp. 126, 128 (E.D.N.Y. 1995); Manfredonia v. Am. Airlines, Inc., 68 A.D.2d 131, 139 (2d Dep’t 1979). The critical questions for the duty analysis are whether the regulations were enacted “to protect only a limited class of individuals” and whether the plaintiff is “within [their] protective orbit.” Lopes v. Rostad, 45 N.Y.2d 617, 623 (1978) (internal quotation marks omitted). 21 Respondents argue that the FAA and DOT Regulations and Guidelines protect only airline passengers and the general public and not the employee test subjects. (LC 12, 14, 26-28). Indisputably, the drug-testing program is intended to increase aviation safety. (Br. 7). But that is not its only purpose. The DOT Regulations and Guidelines are designed to ensure that drug tests are performed properly—not just to catch drug users but to make sure that innocent parties aren’t wrongly accused. Respondents’ arguments to the contrary—even if supported by a handful of case cites13—cannot be reconciled with the regulatory history and the regulations themselves. Both clearly express the regulators’ intent to protect employees against the harms of false test reports. (Br. 10, 36, 39-40, 42; see also CP 26 n.21 (acknowledging that the Secretary of Transportation required MRO involvement to balance safety interests with “protection of employees from unfair consequences of the process”). LabCorp argues that the regulators expressed no interest in protecting employees and were concerned with avoiding only false positive results and not their functional equivalent, the false refusal to test. (LC 29). But the FAA and DOT explained that the drug-testing framework as a whole, including its collection 13 Spiker, one of the decisions that LabCorp cites (LC 27), nonetheless held that the DOT Regulations “provide guidance as to the standard of reasonable care.” 2013 WL 5200209, at *14. LabCorp cites Manfredonia, 68 A.D.2d 131, out of context. (LC 27). The FAA regulation in that case prohibited airlines from serving alcohol to intoxicated passengers; that is why the court recognized that the regulation demonstrated an interest in passenger safety. 22 procedures, is intended to protect test subjects. (Br. 39-40, 42). The DOT Regulations for collectors—including that they explain the test procedures and consequences to test subjects (Br. 10)—bear this out. The Regulations for MROs are the same. Their requirements strive to avoid false reports (49 C.F.R. §§ 40.121(b)(1)-(2), 40.123(c), 40.129(a)(4), 40.131(a),(c), 40.133(d), 40.137(b),(d), 40.145(d),(g)(2)(i), 40.153, 40.159(a)(3), 40.171(b)(2)) and to maintain test subject confidentiality (49 C.F.R. §§ 40.123(g), 40.129(g)(2)). And they mandate that MROs warn test subjects about potentially adverse consequences of their conduct so those consequences can be avoided. 49 C.F.R. §§ 40.131(b)(1), 40.135(c)-(e). The DOT was not just concerned with false positive results; it recognized that the consequences of a refusal can be “more severe” than a positive result, and so it required collectors to warn their test subjects to avoid such a result. (Br. 10-11). LabCorp, finally, lodges the remarkable assertion that “[r]equiring all testing personnel to correctly interpret and adhere to every guideline, rule and regulation is inconsistent with the purpose of the DOT Regulations.” (LC 28; see also id. at 34 (“Implying a standard of care in all regulations would interfere with the FAA’s desire to regulate drug testing . . . .”). But all of the rules are important and they are there to be followed. Requiring drug testing personnel to adhere to them and providing a remedy for their breach cannot be inconsistent with their purpose. 23 ChoicePoint is also wrong in asserting that recognizing a duty from the regulations would transform Pasternack’s claims into negligence per se. (CP 38). Recognizing a duty does not render a defendant automatically liable for any violation of the regulations, as would be the case under a per se standard. The violation is merely “some evidence” of negligence, and so the jury can consider the totality of the circumstances in determining whether the defendant breached its duty. F. The Broad Question Before The Court Does Not Depend On The Specific Regulations And Guidelines In Pasternack’s Case; They Are Actionable In Any Event Respondents also argue that, even if the DOT Regulations can generally support a negligence claim (see CP 14; LC 35), this Court should find that the particular regulations and guidelines at issue are somehow different, and beyond any duty of care. (CP 31-34; LC 36). As an initial matter, the Second Circuit’s question—whether taken as-is or reformulated—concerns whether a test subject can sue in negligence under New York law for violations of the FAA and DOT Regulations and Guidelines as a whole. The question has broad and important implications, and it affects every employee who is subject to drug testing under the DOT or FAA testing programs—not just the particular facts of Pasternack’s case. The Court should decline Respondents request to parse the specific federal rules and answer the 24 question narrowly, only as it relates to the select regulations and guidelines in this case. In any event, Respondents are wrong. 1. LabCorp argues that it owes no duty to guide test subjects through the collection process because that would require it to be an “instrument for good.” (LC 19-20). But that is one of the collectors’ defined roles in the collection process. “The collector is the one individual in the testing process with whom all employees have direct, face-to-face contact,” Guidelines at 3, and so collectors must “instruct[] and assist[] employees at a collection site.” 49 C.F.R. § 40.3. It is only reasonable that they be required to carry out that function with due care. 2. LabCorp cannot rely on a July 2014 DOT publication and the 2014 Guidelines (LC 14-15, 28, 29, 37-38) that were published seven years after Pasternack’s drug test. See Yenem Corp. v. 281 Broadway Holdings, 18 N.Y.3d 481, 489 & n.2 (2012) (provision of New York City Administrative Code in effect at the time of incident was standard for plaintiff’s negligence claim, even though provision was subsequently repealed); McCormack v. Mt. Sinai Hosp., 88 A.D.2d 947, 947 (2d Dep’t 1982) (violation of hospital’s “manuals and other written rules” in place at time of alleged malpractice were evidence of negligence; manuals and rules issued eight years later were not relevant). At the time of Pasternack’s test, the Guidelines required LabCorp to “specifically tell the employee that he or she is 25 not permitted to leave the collection site and if they do so, that it will be considered a refusal to test.” Guidelines at 20. In any event, the 2014 publication continues to recommend that collectors inform the test subject that leaving the facility “could lead an employer to determine that a refusal occurred.” (LC-ADD-21). 3. The DOT shy bladder requirements are not “unrelated to a collectors’ duty to perform a test in a reasonable manner” and thus “inadmissible.” (LC 39- 41). LabCorp relies on cases involving “licensing” or “awareness training” regulations which did not regulate the specific conduct in dispute, or establish any standard of care, and thus had no bearing on any plaintiffs’ claimed injury. The DOT Regulations and Guidelines here “specif[y] the correct method” of performing a drug test (LC 39), and thus are directly relevant to Pasternack’s claim that he was injured by a test that the defendants failed to properly perform in accordance with that specified approach. 4. LabCorp would not have “been wrong” if it told Pasternack that leaving would be deemed a refusal. (LC 4, 18). The D.C. Circuit did not hold that leaving a collection facility is never a refusal—only that leaving without permission is a refusal, Pasternack v. Huerta, 513 F. App’x at 2, and it has never been LabCorp’s position in this litigation (or before the FAA) that it gave Pasternack permission to leave. To the contrary, LabCorp has maintained that Pasternack was uncooperative during the test and prevented Montalvo from 26 informing him of the consequences of his departure. (A-259 - A-260). If LabCorp had agreed from the outset that Montalvo had given Pasternack permission to leave, LabCorp would not have had to (falsely) blame Pasternack for Montalvo’s own failure to warn. Instead, LabCorp understood that it was required to warn Pasternack in accordance with the federal rules, which is why its employee lied to the FAA about the reasons she failed to do so. (A-172 ¶ 33). Since LabCorp’s position was that Pasternack did not have the requisite permission to leave, it would not have been “erroneous” (LC 4) for LabCorp to give Pasternack the required warning about the consequences of an unexcused departure. LabCorp’s failure made Pasternack the unwitting victim of the FAA’s regulatory regime. 5. Section 40.123(e), which states that MROs “must act to investigate and correct problems where possible and notify appropriate parties (e.g., HHS, DOT, employers, service agents) where assistance is needed . . . .” does not assist ChoicePoint. (CP 32-34). This provision does not identify parties to whom ChoicePoint owes a duty, so its omission of the word “employees” does not prove that ChoicePoint owes no duty to its test subjects. The provision provides that when the MRO needs assistance from others, it must notify them, so that the assistance will be provided. If anything, then, it illustrates the need for MROs to 27 conduct accurate and complete investigations to protect test subjects from the consequences of erroneous test results.14 6. Section 40.123(d), which disclaims a doctor-patient relationship between MROs and test subjects, does not immunize ChoicePoint from common- law negligence regarding erroneous reporting. (CP 32-33). At most, it bars Pasternack from suing ChoicePoint for malpractice. 7. Section 40.355(i) does not establish that only Pasternack’s employer owed him a duty. (CP 34). That section establishes that ChoicePoint had no authority to report Pasternack as a refusal to test, because the determination was a “non-delegable” duty of Pasternack’s employer. The provision establishes ChoicePoint’s violation; it does not disclaim a duty. Similarly, Section 40.355(o), which makes the “the employer subject to enforcement action” by the DOT, does not shift ChoicePoint’s civil liability to Northeastern. (CP 34). The fact that the employer may also be liable does not immunize the MRO, as the anti-waiver provisions of the DOT Regulations make clear. (Br. 43). 8. ChoicePoint cannot argue that it merely provided “advice and information” to Northeastern. (CP 34). Pasternack alleged in his pleading that 14 ChoicePoint also concludes, with no analysis, that the duty to investigate is “too vague” to support a negligence claim. (CP 33). Brennan v. New York City Hous. Auth., 302 A.D.2d 483 (2d Dep’t 2003), demonstrates that courts regularly enforce a duty to investigate. Id. at 485. 28 ChoicePoint officially reported Pasternack to both Northeastern and the FAA as a “refusal to test.” 9. ChoicePoint argues that there is no federal regulation requiring it to have specified in its report the supposed reason that Pasternack was a “refusal to test,” which is all that it reported to the FAA. (CP 35 n.26). ChoicePoint’s argument is too clever for its own good. There is no federal regulation detailing how an MRO should report on Pasternack in this setting because MROs are not supposed to issue such a report in the first place. Where MROs are allowed to report subjects as refusals, they must provide “the reason for the refusal determination.” 49 C.F.R. § 40.163(c)(9).15 10. Pasternack did not “waive” any arguments by addressing various DOT Regulations and allegations only in the fact section of his opening brief. (CP 31, 35 n.26). Pasternack had no reason to argue them, however, because the question before the Court is broad, and not limited to the particular facts of Pasternack’s case. It will be for the Second Circuit to decide whether Pasternack’s 15 This is not the MRO’s only obligation when reporting a subject a refusal. MROs must also “contact the employee directly (i.e., actually talk to the employee) on a confidential basis” to discuss the test and conduct an interview. 49 C.F.R. §§ 40.129(a)(4), 40.131(a), 40.135. During this conversation the MRO is required to offer the employee the opportunity to present a “legitimate” explanation for the MRO’s findings, may provide “reasonable assistance” to the employee, and must notify the employee of his right to have further specimen testing performed. 49 C.F.R. §§ 40.145(d),(g)(2)(i), 40.153. The MRO can enlist the employer’s help to reach the employee, but the MRO is prohibited from informing the employer about the test results until the MRO speaks with the test subject first. 49 C.F.R. § 40.131(c)(2)(ii). 29 pleadings state a claim in light of the guidance that this Court gives on the general question of negligence law. POINT II. A THIRD PARTY’S RELIANCE SATISFIES THE RELIANCE ELEMENT FOR FRAUD A. Fraud Is Not Limited To Statements Intended To Reach Or Influence The Plaintiff LabCorp asserts that false statements made to a third party give rise to a fraud claim only when the statements were “made for the purpose of being communicated to plaintiff or made so as to reach or influence the action of the plaintiff.” (LC 46; see also LC 4, 46, 50). While courts surely have authorized fraud claims premised on this third-party-as-conduit scenario, that is not the only circumstance in which fraud claims based on statements to third parties are allowed. Based on this Court’s precedents, many federal and State courts— including the First and Second Appellate Division Departments—have embraced third-party reliance in cases in which the defendants’ misstatements were clearly not intended to deceive the plaintiff. (Br. 47-48 & n.16). LabCorp thus ignores many federal court decisions upholding third-party reliance under New York law. (LC 41-42; see Br. 48 n.16). LabCorp also ignores the Second Department’s decision in Cooper v. Weissblatt, 277 N.Y.S. 709 (2d Dep’t 1935) (see Br. 47, 54), and acknowledges but makes no attempt to distinguish Buxton Mfg. Co. v. Valiant Moving & Storage, Inc., 239 A.D.2d 452 30 (2d Dep’t 1997), or Ruffing v. Union Carbide Corp., 308 A.D.2d 526 (2d Dep’t 2003). (See Br. 47, 54; LC 49). None of those cases involved misrepresentations that were intended to reach or influence the plaintiff. And LabCorp mis-describes Desser v. Schatz, 182 A.D.2d 478 (1st Dep’t 1992). (LC 48). The defendants in Desser owed an outstanding debt to the plaintiff but falsely told a bank that they had paid it off. Id. at 479. Relying on that misrepresentation, the bank issued a satisfaction of mortgage which extinguished the plaintiff’s mortgage interest and left her without recourse for defendants’ unpaid debt. Id. The defendants did not intend their statement to reach or influence the plaintiff; the statement was about the plaintiff, and so she would have instantly known that it was false. Rather, the defendants intended their statement to influence a third party, with the intended and predictable result of harming the plaintiff. LabCorp’s misrepresentations to the FAA follow that same fact pattern. B. The SIPC Decision Is Inapposite LabCorp contends that this Court rejected the third-party reliance doctrine in Securities Investor Protection Corp. v. BDO Seidman, L.L.P., 95 N.Y.2d 702 (2001) (“SIPC”) (see LC 43-44). That case is about first-party reliance. It does not address third-party reliance, and it did not reject the doctrine. Rather, the question in that case was whether the plaintiff could legally rely on a false 31 statement that the defendant made to a third party where the third party did not communicate those misrepresentations to the plaintiff. (LC 43). SIPC is a federally-mandated insurance corporation designed to protect customers from loss if their brokerage firms fail. 95 N.Y.2d at 707. SIPC sued the accounting firm BDO Seidman (“BDO”) over an audit report that BDO had prepared for a brokerage firm that SIPC insured. SIPC alleged that the report concealed the brokerage firm’s precarious financial health. Id. at 706-07. BDO did not submit the report to SIPA; it submitted the report to the National Association of Securities Dealers (“NASD”). As a result, SIPC alleged, the NASD did not alert SIPC that the firm was having financial difficulty, and SIPC did not initiate a protective proceeding until the year the firm filed for bankruptcy, by which time it had to expend over $8 million to compensate customers and cover costs. Id. at 708. SIPC alleged that it was harmed because it relied on the NASD’s silence in foregoing action against the brokerage firm. Id. at 709. This Court rejected plaintiff’s “no news is good news” theory of fraud. Id. It held that SIPC could not state a cause of action against BDO because the law requires some reliance on the defendant’s misrepresentation and as SIPC “conceded in the complaint,” it relied “on the implication of the NASD’s silence, not on representations from BDO.” Id. The record, moreover, demonstrated that BDO had provided the NASD with negative information about the brokerage firm 32 and the NASD had exercised its own discretion in evaluating that information. Because of that discretion, “SIPC’s reliance on silence from the NASD cannot be equated with its reliance on any affirmative misrepresentation or concealment of material fact by BDO.” Id. at 710. Accordingly, although the alleged fraud in SIPC involved a third party, it was not a third-party reliance case. Third-party reliance involves a defendant’s misrepresentation to a third party; the third parties’ reliance on the misstatement; and resulting harm to the plaintiff. The plaintiff in these cases does not itself rely on the misrepresentation, but the plaintiff is nevertheless harmed. Unlike these third-party reliance cases, the plaintiff in SIPC was attempting to sue over its own reliance on the defendant’s misrepresentation as processed by the NASD—a variant of the third-party-as-conduit scenario. In this case, by contrast, Pasternack’s claim is that a third party (the FAA) relied on LabCorp’s false statements, and that Pasternack was directly and foreseeably harmed when the FAA relied on those statements, which caused the FAA to revoke his airman’s certificates and AME designation. Unlike SIPC, Pasternack’s claim thus presents the prototypical third-party reliance claim that New York courts have embraced for over a century. See, e.g., Rice v. Manley, 66 N.Y. 82 (1876) (cheese merchant’s reliance on defendant’s false statement that plaintiff no longer wished to buy cheese from him directly harmed plaintiff, 33 because the merchant sold the cheese to defendant instead); Desser, 182 A.D.2d 478 (bank’s reliance on defendants’ false statement that defendants had paid off their debt to plaintiff directly harmed plaintiff, because the bank extinguished plaintiff’s mortgage interest); Cooper, 277 N.Y.S. 709 (tribunal’s reliance on defendants’ false statements directly harmed plaintiff, because the tribunal issued a ruling adverse to plaintiff). C. The Third-Party Reliance Doctrine Derives From New York’s Strong Policy Against False Statements And Deceit LabCorp does not dispute that New York’s long abhorrence for fraud and deceit in all its forms gave rise to the third-party reliance doctrine and supports affirming it in cases like this. (Br. 49-55). Nor does LabCorp give any policy- based reason for endorsing the “reach or influence” limitation it seeks to impose. There is no policy justification for that limitation. A plaintiff does not suffer less harm when a third party relies on a misrepresentation to the plaintiff’s detriment than when the plaintiff relies. (Br. 50). And the defendant’s deception is equally wrongful. (Br. 51-52). The only difference is how the defendant carries out its unlawful aim: in the first scenario the defendant deceives the plaintiff; in the second scenario, the third party. But the plaintiff is harmed in both settings. LabCorp states that fraud is the “intentional direct causation of injury to the plaintiff.” (LC 44; see also LC 50). But that same intent and causation can be found in both first-party reliance and third-party reliance scenarios. Indeed, the 34 reliance element in fraud law is related to causation: it ensures that there is a sufficiently close link between the defendant’s conduct and the plaintiff’s harm, and that the plaintiff is not simply trying to shift blame to the defendant ex post facto. See Arfa v. Zamir, 17 N.Y.3d 737, 739 (2011) (affirming dismissal of fraud claim because plaintiff could not have justifiably relied on defendant’s statements given its pre-existing knowledge about defendant). See also Lipton v. Documation, Inc., 734 F.2d 740, 742 (11th Cir. 1984) (reliance “is a means of establishing the ‘causal link between the misrepresentation or omission and the injuries suffered by the private plaintiff’. . . .”); Dan B. Dobbs et al., THE LAW OF TORTS § 671 (2d ed.) (“The requirement of reliance is one of the requirements of causation in misrepresentation cases—if the plaintiff has not relied, the misrepresentation has caused no harm.”). That purpose is not served only by first-party reliance. It is also served when a third party justifiably relies on the defendant’s false statements and the plaintiff is foreseeably harmed as a direct result. (Br. 54-55). The requisite nexus between the defendant’s conduct and the plaintiff’s injury is met where, as here, the plaintiff was the only foreseeable victim of the defendant’s false representations and the harm to the plaintiff flowed from the third party’s reliance. 35 D. LabCorp’s Other Arguments Are Both Beyond The Scope Of The Certified Question And Wrong LabCorp makes several arguments that are beyond the scope of the certified question, which focuses solely on third-party reliance. (LC 52-55). In any event, each of LabCorp’s arguments is specious. 1. Pasternack properly alleged LabCorp’s fraudulent intent by alleging that LabCorp knew its statements were false and that it intended for the FAA to act on them. Mandarin Trading Ltd. v. Wildenstein, 16 N.Y.3d 173, 178 (2011); see Lerner v. Fleet Bank, N.A., 459 F.3d 273, 290-91 (2d Cir. 2006) (fraudulent intent can be established via “strong circumstantial evidence of conscious misbehavior or recklessness”). Pasternack alleges that Montalvo knew that her statements were false because she was the one who interacted with him. (See A-169 - A-173 ¶¶ 18- 27, 33-35). And Pasternack alleges that Montalvo intentionally lied to the FAA “to shield both LabCorp and herself from blame” for violating the governing regulations and guidelines and to induce the FAA “to conclude that Dr. Pasternack precluded LabCorp from fulfilling its obligations.” (A-172 ¶ 33; A-179 - A-180 ¶ 68). In this setting, Pasternack is not required to allege that Montalvo spoke her untruths because she wanted him to lose his certifications. (LC 52-53). 2. For these same reasons, Pasternack properly alleged LabCorp’s benefit from the misstatement: to shield Montalvo and the company from any consequence flowing from their violations. 36 3. LabCorp argues that Pasternack’s pleading does not adequately allege causation because, it contends, “the FAA determined that [Pasternack] ‘refused to test’ because he left the LabCorp Facility, not because he was on the phone or uncooperative.” (LC 53-54). In support, LabCorp cites to an NTSB decision which quotes from an amended FAA order issued months after the fact, and to the ALJ’s own findings. Neither of these decisions cite to the FAA’s original revocation order, in which the FAA found that Pasternack failed to follow Montalvo’s instructions and talked on his phone during the collection process, just as Montalvo had falsely stated. (See A-180 ¶ 69 (alleging that the FAA relied on Montalvo’s false statements that Pasternack was on his phone and rushed out of the facility, and her failure to disclose that he told her he would return)). Moreover, when the FAA subsequently tried to defend its revocation in the administrative proceedings, it contended that Pasternack had “refused” his test because he did not have permission to leave, which was bound up in Montalvo’s false statements that Pasternack was disruptive and rushed out of the facility. See Pasternack v. Huerta, 513 F. App’x at 2. Thus, even if the FAA did not revoke Pasternack’s licenses and certificates on the independent ground that he was allegedly uncooperative, as LabCorp contends, Montalvo’s statements were inextricably intertwined with the FAA’s views regarding whether he left the facility with permission. 37 LabCorp also contends that Pasternack’s injuries were caused by the FAA and the ALJ, not LabCorp. (LC 54). That is just another way of saying third-party reliance should never count. The harm in every third-party reliance case is caused by an act taken by a third party, and not the defendant, because the defendant misled that third party about the true facts. See, e.g., Rice, 66 N.Y. 82; Desser, 182 A.D.2d 478; Cooper, 277 N.Y.S. 709 (see supra at 32-33). In any event, LabCorp’s causation arguments raise questions of fact that are for later in the litigation. 4. Finally, LabCorp asserts that witness immunity should protect its knowing misrepresentations to the FAA investigators. (LC 55). However, the case on which LabCorp relies, Rosenberg v. MetLife, Inc., 8 N.Y.3d 359 (2007), concerned immunity from defamation; the immunity does not apply to a claim of fraud. See Newin Corp. v. Hartford Acc. & Indem. Co., 37 N.Y.2d 211, 217 (1975) (“A cause of action for fraud and deceit will lie . . . where [a witness’] perjury is merely a means to the accomplishment of a larger fraudulent scheme.”). 38 CONCLUSION For the foregoing reasons and the reasons stated in Pasternack’s opening brief, this Court should modify the first certified question and answer both questions in the affirmative. Dated: New York, New York April 18, 2016 /s/ Daniel J. O’Neill Cynthia S. Arato Daniel J. O’Neill SHAPIRO ARATO LLP 500 Fifth Avenue, 40th Floor New York, New York 10110 (212) 257-4880 Attorneys for Plaintiff-Appellant Fred L. Pasternack