14-4101
Pasternack v. Laboratory Corporation
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
____________________________
August Term 2014
(Argued: June 2, 2015 Decided: November 17, 2015)
Docket No. 14‐4101‐cv
____________________________
DOCTOR FRED L. PASTERNACK,
Plaintiff‐Appellant,
v.
LABORATORY CORPORATION OF AMERICA HOLDINGS, AKA LABCORP,
CHOICEPOINT, INC.,
Defendants‐Appellees.1
____________________________
ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK
Before:
WESLEY, HALL, and CHIN, Circuit Judges.
____________________________
1 The Clerk of Court is respectfully directed to amend the caption to conform with the
above.
Appeal from a judgment of the United States District Court for the
Southern District of New York (Gardephe, J.) dismissing plaintiff‐appellantʹs
claims against drug testing companies for purportedly mishandling a random
drug test. We consider (1) whether under New York negligence law a drug
testing company owes a duty of care to the subject of a drug test based on federal
regulations governing drug testing, and (2) whether under New York law a
fraud claim can be based on false representations made by a defendant to a third
party whose reliance on the representations results in injury to the plaintiff.
DECISION RESERVED AND QUESTIONS CERTIFIED.
____________________________
CYNTHIA S. ARATO (Daniel J. OʹNeill, on the brief),
Shapiro, Arato & Isserles LLP, New York,
New York, for Plaintiff‐Appellant.
ROBERT I. STEINER (Sean R. Flanagan, on the brief),
Kelley Drye & Warren, LLP, New York,
New York, for Defendant‐Appellee Laboratory
Corporation of America Holdings.
FREDERICK T. SMITH, Seyfarth Shaw LLP, Atlanta,
Georgia, for Defendant‐Appellee LexisNexis
Occupational Health Solutions Inc. (formerly
ChoicePoint, Inc.)
____________________________
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CHIN, Circuit Judge:
In this case, plaintiff‐appellant Fred Pasternack, a physician and
airplane pilot, was required to submit to a random drug test in accordance with
federal regulations governing aviation safety. He contends that defendants‐
appellees Laboratory Corporation of America Holdings (ʺLabCorpʺ) and
ChoicePoint, Inc. (ʺChoicePointʺ), the drug testing companies engaged to
administer the test, mishandled it.2 He brought this action below, seeking
damages for, inter alia, negligence and fraud. The district court (Gardephe, J.)
entered judgment on September 30, 2014, dismissing the action. Pasternack
appeals.
The appeal presents unresolved questions of New York law:
First, whether drug testing regulations and guidelines promulgated
by the Federal Aviation Agency (the ʺFAAʺ) and the Department of
Transportation (ʺDOTʺ) create a duty of care for drug testing laboratories and
test program administrators under New York negligence law; and
2 ChoicePoint was acquired by Reed Elsevier Inc. in 2008, and thereafter its drug
testing services were taken over by a subsidiary of the latter. We continue to refer to the
entity as ChoicePoint.
‐ 3 ‐
Second, whether a plaintiff may establish the reliance element of a
fraud claim under New York law by showing that a third party relied on a
defendantʹs false statements resulting in injury to the plaintiff.
Because these unresolved questions implicate significant New York
state interests and are determinative of this appeal, we reserve decision and
certify the questions to the New York Court of Appeals.
STATEMENT OF THE CASE
A. The Facts
The facts alleged in Pasternackʹs complaints are assumed to be true.3
They may be summarized as follows:
Doctor Fred Pasternack is a physician and part‐time pilot for
Northeastern Aviation Corporation (ʺNortheasternʺ) and an aerial advertising
business. Between 1978 and 2008, he was designated a Senior Aviation Medical
Examiner (ʺAMEʺ) for the FAA, giving him the authority to conduct FAA‐
mandated medical examinations for pilots. He has a private medical practice in
New York City, which includes performing AME certification examinations of
other pilots. He holds a number of certificates issued by the FAA.
3 As discussed below, Pasternackʹs factual allegations are contained in an
amended complaint and a second amended complaint.
‐ 4 ‐
The FAA has issued regulations requiring all aviation employees to
submit to random drug testing, as part of its mandate to ensure ʺsafety in air
commerce and national security.ʺ 49 U.S.C. § 44701(a)(5) (procedures for
transportation workplace drug and alcohol testing programs); see also 49 C.F.R.
pt. 40. On June 1, 2007, Pasternack was notified by Northeastern that he had
been selected for random drug testing. At that time, ChoicePoint was
responsible for administering Northeasternʹs drug testing program, and LabCorp
was responsible for performing specimen collection and testing.
On June 5, 2007, at approximately 1:10 p.m., Pasternack arrived at
LabCorpʹs testing site in Manhattan, with a chain‐of‐custody form (ʺCCFʺ). He
provided a urine sample, but Theresa Montalvo, a LabCorp worker, informed
him that the sample contained an insufficient amount of urine for testing.
Montalvo told Pasternack to wait in the waiting area. Pasternack did so, but
because he had a 2:30 p.m. appointment to see a patient, he believed that he
would not be able to produce enough urine before he had to leave for the
appointment. Consequently, he advised Montalvo that he would have to leave
and that he would return later to provide the sample. Montalvo asked him when
he was planning to return, and she told him that she would have to advise his
‐ 5 ‐
employer that he was leaving the collection site. Pasternack told her she was free
to tell his employer, and that he would come back the next morning. Montalvo
did not tell Pasternack that if he left the collection site he would be designated a
ʺrefusal to test,ʺ and he claims that he did not know that leaving the test site
could constitute a ʺrefusalʺ to test. Pasternack contends that he would have
waited at the site if Montalvo had told him this.
Pasternack left the testing site to meet his patient. Approximately
three hours later, around 4:00 p.m., he returned. Montalvo told him that she
would have to call his employer. She did so, calling the General Manager for
Northeastern, who told her that LabCorp could take a second urine sample from
Pasternack. She noted on Pasternackʹs CCF that he had left and returned, and
that Northeastern had approved the second collection. Pasternack provided
another urine sample; this time there was a sufficient quantity of urine. His
specimen tested negative.
Pasternackʹs CCF was later reviewed by a Medical Review Officer
(the ʺMROʺ) at ChoicePoint. Based on the notation on the CCF that Pasternack
had left the testing site, the MRO determined that Pasternack had left the
collection site before the test was completed. ChoicePoint then notifed the FAA
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that Pasternack had refused a drug test. The MRO designated Pasternack as a
ʺrefusal to testʺ even though LabCorp had not checked the ʺno specimen
providedʺ box on the CCF, and even though Northeastern had authorized
Montalvo by phone to collect the second sample when Pasternack returned to the
site later that day.
On June 15, 2007, Northeastern learned that Pasternackʹs June 5,
2007 drug test had been designated by ChoicePoint as a ʺrefusal to test.ʺ
Thereafter, the FAA conducted an investigation into Pasternackʹs purported
refusal to test, during which Montalvo purportedly made false representations to
the investigators about Pasternackʹs conduct. On November 20, 2007, in reliance
on the misrepresentations, the FAA revoked all of Pasternackʹs airman
certificates. By letter dated February 21, 2008, the FAA terminated his AME
designation due to his ʺunacceptable lack of regard for the importance ofʺ FAA
regulations and for his ʺrefusal to take a random drug test.ʺ J.A. at 56. As a
consequence, Pasternack was unable to pilot any flights or perform pilot medical
examinations or otherwise function as an AME.
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B. Prior Proceedings
1. The Licensing Proceedings
Pasternack appealed the termination of his AME designation to the
FAA, and the appeal was denied. He also appealed the FAAʹs revocation of his
pilot certificates to an Administrative Law Judge (ʺALJʺ) of the National
Transportation Safety Board (the ʺNTSBʺ). The ALJ upheld the revocation. He
then appealed to the NTSB, which also upheld the revocation.
Pasternack appealed the NTSBʹs decision to the D.C. Circuit Court of
Appeals. On February 26, 2010, the D.C. Circuit remanded the matter to the
NTSB, holding that the NTSBʹs finding that Pasternack had ʺrefusedʺ to test was
not supported by substantial evidence. Pasternack v. NTSB, 596 F.3d 836, 838
(D.C. Cir. 2010). While it was undisputed that Montalvo did not advise
Pasternack that he would be deemed a ʺrefusal to testʺ if he left, the NTSB argued
that Montalvo did not have an ʺopportunityʺ to explain the policy because of
Pasternackʹs behavior at and hurried departure from the collection site. Id. at
837‐40. The D.C. Circuit found, however, that it was ʺutterly implausibleʺ that
Montalvo did not have time to tell Pasternack that if he left it would be deemed a
ʺrefusal.ʺ Id. at 839.
‐ 8 ‐
On remand, the ALJ again held that Pasternack had refused to test.
The NTSB again affirmed, and Pasternack again appealed to the D.C. Circuit. On
March 22, 2013, the D.C. Circuit ruled in favor of Pasternack again, holding that
ʺsubstantial evidence does not support the NTSBʹs determination that the
collector did not impliedly give Dr. Pasternack permission to leave,ʺ and
reversing the NTSB. Pasternack v. Huerta, 513 F. App’x 1, 2 (D.C. Cir. 2013). The
FAA thereafter reinstated Pasternackʹs airman certificates and AME designation
and expunged his record of any reference to a drug test refusal.
2. The Proceedings Below
On June 3, 2010, Pasternack commenced this action against LabCorp
and ChoicePoint, seeking to recover damages for defendantsʹ alleged tortious
and fraudulent conduct in administering the random drug test.4 Specifically,
Pasternack alleged that he suffered damages as a result of the loss of his AME
certification and airman certificates.
On August 1, 2011, the district court granted ChoicePointʹs motion
to dismiss. Pasternack v. Lab. Corp. of Am., No. 10 Civ. 4426, 2011 WL 3478732, at
*15 (S.D.N.Y. Aug. 1, 2011) (ʺPasternack Iʺ). On September 6, 2012, the district
4 Pasternack based jurisdiction on diversity of citizenship of the parties. See 28
U.S.C. § 1332.
‐ 9 ‐
court granted Pasternackʹs motion for leave to file a second amended complaint
as to LabCorp, but denied Pasternackʹs motion for leave to amend his complaint
as to ChoicePoint, concluding that it would be futile. Pasternack v. Lab. Corp. of
Am., 892 F. Supp. 2d 540 (Sept. 6, 2012) (ʺPasternack IIʺ). On September 12, 2012,
Pasternack filed a second amended complaint, asserting claims for negligence,
gross negligence, negligent misrepresentation, fraud, and injurious falsehood
against LabCorp. On September 29, 2014, the district court granted LabCorpʹs
motion to dismiss. Pasternack v. Lab. Corp. of Am., No. 10 Civ. 4426, 2014 WL
4832299, at *21 (S.D.N.Y. Sept. 29, 2014) (ʺPasternack IIIʺ). On September 30, 2014,
the district court entered judgment against Pasternack and closed the case.
This appeal followed.
DISCUSSION
We review de novo the dismissal of a complaint under Federal Rule
of Civil Procedure 12(b)(6), accepting as true all allegations in the complaint and
drawing all reasonable inferences in favor of the non‐moving party. Starr Intʹl
Co. v. Fed. Reserve Bank of N.Y., 742 F.3d 37, 40 (2d Cir. 2014).
We may certify questions ʺwhere the New York Court of Appeals
has not spoken clearly on an issue and we are unable to predict, based on other
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decisions by New York courts, how the Court of Appeals would answer a certain
question.ʺ Tire Engʹg & Distribution L.L.C. v. Bank of China Ltd., 740 F.3d 108, 114
(2d Cir. 2014) (internal quotation marks omitted). Certification is permitted
where ʺwe encounter ʹdeterminative questions of New York law . . . for which no
controlling precedent of the Court of Appeals exists.ʹʺ Caronia v. Philip Morris
USA, Inc., 715 F.3d 417, 450 (2d Cir. 2013) (quoting N.Y. Ct. App. Local R.
500.27(a)). Our decision to certify is made after considering three questions:
(1) whether the New York Court of Appeals has
addressed the issue and, if not, whether the decisions of
other New York courts permit us to predict how the
Court of Appeals would resolve it; (2) whether the
question is of importance to the state and may require
value judgments and public policy choices; and (3)
whether the certified question is determinative of a
claim before us.
Osterweil v. Bartlett, 706 F.3d 139, 142 (2d Cir. 2013) (quoting Barenboim v.
Starbucks Corp., 698 F.3d 104, 109 (2d Cir. 2012)).
This appeal presents two issues: (a) whether under New York
negligence law a drug testing company owes a duty of care to the subject of a
drug test based on federal regulations governing drug testing, and (b) whether
under New York law a fraud claim can be based on false representations made
‐ 11 ‐
by a defendant to a third party whose reliance on the representations results in
injury to the plaintiff.
A. The Negligence Claims
1. Applicable Law
The elements of a negligence claim under New York law are: ʺ(i) a
duty owed to the plaintiff by the defendant; (ii) breach of that duty; and
(iii) injury substantially caused by that breach.ʺ Lombard v. Booz‐Allen &
Hamilton, Inc., 280 F.3d 209, 215 (2d Cir. 2002) (citing Merino v. New York City
Transit Auth., 218 A.D.2d 451 (1st Depʹt 1996)). If the defendant owes no duty to
the plaintiff, the action must fail. ʺAlthough juries determine whether and to
what extent a particular duty was breached, it is for the courts first to determine
whether any duty exists.ʺ Darby v. Compagnie Natʹl Air France, 96 N.Y.2d 343, 347
(2001). ʺ[T]he definition of the existence and scope of an alleged tortfeasorʹs duty
is usually a legal, policy‐laden declaration reserved for Judges to make prior to
submitting anything to fact‐finding or jury consideration.ʺ Palka v. Servicemaster
Mgmt. Servs. Corp., 83 N.Y.2d 579, 585 (1994).
The district court dismissed the negligence claims against LabCorp
and ChoicePoint, holding that, under New York law, a drug testing company
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owes no duty of care to properly interpret and apply federal drug testing
regulations and guidelines promulgated by the FAA and the DOT. Hence, it is
necessary to briefly summarize the relevant regulatory provisions. We outlined
the regulatory scheme at issue in Drake v. Lab. Corp. of Am. Holdings, 458 F.3d 48
(2d Cir. 2006) (ʺDrake IIʺ):
Pursuant to [the power granted by the Federal Aviation
Act] . . . the FAA promulgated regulations mandating
that all aviation‐industry employees who perform
safety‐sensitive functions be subjected to random drug‐
testing. . . . The FAA regulations incorporate by
reference DOT regulations that set out detailed
protocols to be followed by drug‐testing laboratories.
The DOT regulations provide, among other things, that
laboratories must use chain‐of‐custody procedures to
document each time a urine specimen is handled or
transferred, that an employerʹs designated MRO must
review and certify test results before the laboratory
reports them to the employer, and that laboratories
must report test results to an MRO in writing.
Id. at 56‐57 (citations omitted). Though the DOT regulations set out rules for the
conduct of drug tests, they ʺdo not specifically address negligence on the part of
drug‐testing laboratories or otherwise establish the minimum standard of care to
be exercised by laboratory personnel.ʺ Id. at 57.
‐ 13 ‐
a. Duties of the Specimen Collector
ʺThe procedures for collection of urine under [49 C.F.R. pt. 40] are
very specific and must be followed whenever a DOT‐required urine specimen
collection is performed.ʺ DOT, Urine Specimen Collection Guidelines at 3 (Dec.
2006) (ʺ2006 Urine Specimen Collection Guidelinesʺ).5 Collectors ʺmust be
knowledgeableʺ about the regulations and procedures. 49 C.F.R. § 40.33(a).
Under the regulations, an employee is deemed to ʺhave refused to take a drug
testʺ when he ʺ[f]ail[s] to remain at the testing site until the testing process is
complete.ʺ 49 C.F.R. § 40.191(a)(2).
Section 40.193 sets forth a ʺshy bladderʺ protocol ‐‐ the procedures
that apply when an employee does not provide a sufficient amount of urine for a
drug test. In that circumstance, the collector ʺmust . . . [u]rge the employee to
drink up to 40 ounces of fluid, distributed reasonably through a period of up to
5 These guidelines have since been revised and the following note has been added to the
ʺshy bladderʺ protocol, which has been moved from § 7 to § 8:
Note: As with other collections situations, there is no requirement for the
collector to inform the employee in a shy bladder situation that failure to
remain at the collection site or otherwise fails to cooperate with the testing
process constitutes a refusal. It is a best practice for the collector to inform
the employee that such behavior could lead an employer to determine that
a refusal occurred.
DOT, Urine Specimen Collection Guidelines (July 2014) at 21,
https://www.fta.dot.gov/documents/Urine_Specimen_ Collection_
Guidelines_July3_2014_A.pdf.
‐ 14 ‐
three hours,ʺ unless the person provides a sufficient urine specimen before the
three‐hour period has elapsed. 49 C.F.R. § 40.193(b)(2). If an employee ʺrefuses
to make the attempt to provide a new urine specimen or leaves the collection site
before the collection process is complete,ʺ the collector is instructed to
discontinue the collection and note that fact on the CCF. 49 C.F.R.
§ 40.193(b)(3). These actions are deemed ʺa refusal to test.ʺ Id. See also 2006
Urine Specimen Collection Guidelines § 7(3)‐(4).
b. Duties of the MRO
The DOT regulations likewise impose obligations on MROs with
respect to drug testing procedures. In general, an MRO ʺmust act to investigate
and correct problems where possible and notify appropriate parties (e.g., [U.S.
Department of Health and Human Services], DOT, employers, service agents)
where assistance is needed, (e.g., cancelled or problematic tests, incorrect results,
problems with blind specimens).ʺ 49 C.F.R. § 40.123(e). Of particular relevance
is § 40.355, which provides that an MRO ʺmust not make a determination that an
employee has refused a drug or alcohol test. This is a non‐delegable duty of the
actual employer.ʺ 49 C.F.R. § 40.355(i). An MRO, however, may ʺprovide advice
and information to employers regarding refusal‐to‐test issues.ʺ Id.
‐ 15 ‐
2. Application
In his claims against ChoicePoint, Pasternack alleges that the MRO
wrongfully determined that his leaving the testing site constituted a ʺrefusal to
testʺ and wrongfully communicated that determination to Northeastern.
Pasternack premised his motion for leave to amend his Amended Complaint as
to ChoicePoint on the theory that the MRO violated two DOT regulations in
particular.
First, Pasternack relies on 49 C.F.R. § 40.123(e), which provides that
the MRO ʺmust act to investigate and correct problems where possible and notify
appropriate parties . . . where assistance is needed . . . .ʺ The district court held
that ʺas a matter of law . . . any obligation imposed by this regulation is ‐‐ in the
context of this case ‐‐ too vague to serve as the basis for a negligence action.ʺ
Pasternack II, 892 F. Supp. 2d at 554.
Second, Pasternack points to 49 C.F.R. § 40.355(i), which provides
that the MRO ʺmust not make a determination that an employee has refused a
drug or alcohol test,ʺ and that the ability to make such a determination ʺis a non‐
delegable duty of the actual employer.ʺ Pasternack alleges that ChoicePoint
‐ 16 ‐
violated this regulation by transmitting to Northeastern a one‐page form that
reported Dr. Pasternack as a ʺrefusal to test.ʺ
The district court rejected this argument. First, the district court
held that if ChoicePointʹs violation of § 40.355(i) were sufficient to establish a
claim, that would essentially grant test subjects a private right of action for
violation of FAA and DOT regulations, a concept which this Court has rejected.
Pasternack II, 892 F. Supp. 2d at 555 n.7 (citing Drake II, 458 F.3d at 64) (Federal
Aviation Act ʺdoes not provide a private right of action for violations of FAA
drug‐testing regulationsʺ)). Second, the district court held that Pasternack would
therefore have to identify a state law negligence claim to proceed, and ʺno case
suggest[s] that a violation of 49 C.F.R. § 40.355(i) provides a basis for a
negligence action under New York law.ʺ Id. at 555. Thus, the district court
denied Pasternackʹs motion for leave to amend as to ChoicePoint. Id. at 556‐57.
In his Second Amended Complaint, Pasternack alleges that LabCorp
breached a duty to him by failing to comply with the DOT Regulations and
Guidelines. Specifically, Pasternack alleges that LabCorp breached its duty by
failing to (i) explain the ʺshy bladderʺ procedure to him, (ii) urge him to wait and
drink fluid, and (iii) inform him that he was required to remain at the testing site
‐ 17 ‐
and that leaving could result in a ʺrefusal to test.ʺ The Guidelines and the
Regulations, both of which are non‐binding, call for such explanations and
warnings. See 49 C.F.R. §§ 40.191, 40.193, 40.33; 2006 Urine Specimen Collection
Guidelines § 7(3)‐(4).
LabCorp moved to dismiss, and the district court granted the
motion. Pasternack III, 2014 WL 4832299, at *1. The district court found that
Pasternackʹs negligence claims against LabCorp were ʺpremised solely on
violations of the DOT Regulations and Guidelines,ʺ and ʺPasternack has cited no
case suggesting that a violation of the DOT Regulations or Guidelines that he
relies on gives rise to a negligence claim under New York law . . . . Pasternack
has likewise cited no case suggesting that the omissions alleged here . . . give rise
to a cognizable breach of the duty of care under New York law.ʺ Id. at *13.
In dismissing the negligence claims against LabCorp and
ChoicePoint, the district court distinguished this case from three cases in which a
drug testing laboratory or MRO had a contractual relationship with its test
subjects by virtue of the test subjectsʹ employment with the lab or MRO. In each
of these cases, the laboratory or MRO directly mishandled the urine specimen.
See, e.g., Drake v. Lab. Corp. of Am., No. 02‐CV‐1924, 2007 WL 776818, at *2‐3
‐ 18 ‐
(E.D.N.Y. Mar. 13, 2007) (ʺDrake IIIʺ), on remand from 458 F.3d 48 (2d Cir. 2006)
(MRO allegedly sent someone elseʹs sample to toxicology laboratory, but claimed
sample belonged to plaintiff); Coleman v. Town of Hempstead, 30 F. Supp. 2d 356,
365 (E.D.N.Y. 1999) (laboratory allegedly failed to maintain seal on plaintiffʹs
urine sample); Santiago v. Greyhound Lines, Inc., 956 F. Supp. 144, 153 (N.D.N.Y.
1997) (plaintiffʹs urine sample tested positive for cocaine while contained in
bottle on which plaintiffʹs signature had been forged). Here, Pasternack neither
had a contractual relationship with LabCorp or ChoicePoint, nor did these
defendants directly mishandle his urine sample.
Pasternack relies heavily on the recent decision of the New York
Court of Appeals in Landon v. Kroll Lab. Specialists, Inc., 22 N.Y.3d 1 (2013), where
the Court of Appeals affirmed the denial of a motion to dismiss a claim brought
by a probationer against a drug testing laboratory for purportedly failing to use
reasonable care in ʺthe testing of [his] biological sample,ʺ which caused a false
positive test result. Id. at 6. Pasternack argues that Landon controls here. In
contrast, defendants argue that, in light of our holding in Drake II that there is no
private right of action for violations of federal testing regulations, a test
‐ 19 ‐
administrator does not owe a duty of reasonable care based on federal
governmental regulations and guidelines.
First, we note that the New York Court of Appeals has not
addressed the issue before us, for Landon did not address the question of whether
the federal regulatory scheme creates a duty of care for drug testing companies.
Decisions of other New York courts do not permit us to confidently predict how
the Court of Appeals would rule. Second, the issue implicates important matters
of state law ‐‐ the duty of care applicable to drug testing companies. The DOT
regulations apply not just to the airline industry, but to other transportation
industries as well, and questions of public safety are implicated. Third, the
certified question is determinative of Pasternackʹs negligence claims; if the
federal regulations and guidelines do not create a duty of care, the claims fail.
Accordingly, we certify the question to the New York Court of Appeals.
B. The Fraud Claims
Under New York law, the elements of a fraud claim are ʺa
representation of material fact, falsity, scienter, reliance and injury.ʺ Small v.
Lorillard Tobacco Co., 94 N.Y.2d 43, 57 (1999). The parties in this case principally
‐ 20 ‐
disagree over whether, for purposes of establishing the elements of a fraud claim
under New York law, ʺrelianceʺ can be a third partyʹs rather than the plaintiffʹs.
Pasternack contends that the investigators ‐‐ third parties rather than
Pasternack himself ‐‐ relied on LabCorpʹs false statements, to his detriment. He
alleges that LabCorpʹs employee, Montalvo, made false statements to the FAA
investigators, which induced the investigators to conclude that Pasternack had
prevented Montalvo from giving him the warnings required by the regulations.
The district court dismissed the fraud claims, holding that under New York law a
fraud claim cannot be based on a false representation made to and relied upon
by a third party whose reliance causes injury to the plaintiff. The district court
relied on a strand of Second Circuit cases holding that New York fraud law does
not contemplate third‐party reliance. See Cement & Concrete Workers Dist. Council
Welfare Fund v. Lollo, 148 F.3d 194, 196 (2d Cir. 1998) (ʺ[A] plaintiff does not
establish the reliance element of fraud for purposes of . . . New York law by
showing only that a third party relied on a defendantʹs false statements.ʺ); City of
New York v. Smokes‐Spirits.com, Inc., 541 F.3d 425, 454 (2d Cir. 2008)
(ʺ[A]llegations of third‐party reliance . . . are insufficient to make out a common
law fraud claim under New York law.ʺ), rev’d on other grounds sub nom. Hemi
‐ 21 ‐
Group, LLC v. City of New York, 559 U.S. 1 (2010). Instead, these decisions hold
that a plaintiff asserting a fraud claim must ʺplead ʹreasonable reliance on the part
of the plaintiff.ʹʺ Smokes‐Spirits.com, Inc., 541 F.3d at 454 (quoting Crigger v.
Fahnestock & Co., 443 F.3d 230, 234 (2d Cir. 2006)).
Despite the holdings in Lollo and Smokes‐Spirits, Appellate Division
courts as well as the federal district courts are divided on the issue. See
Pasternack III, 2014 WL 4832299, at *15‐16 (collecting cases); compare, e.g.,
Briarpatch Ltd., L.P. v. Frankfurt Garbus Klein & Selz, P.C., 13 A.D.3d 296, 297 (1st
Depʹt 2004) (holding that fraud claims were properly dismissed where ʺ[t]he only
alleged misrepresentation concerned a letter from defendant . . . to a third party,
on which plaintiffs [could not] and [did] not claim relianceʺ), with Buxton Mfg.
Co. v. Valiant Moving & Storage, Inc., 239 A.D.2d 452, 453‐54 (2d Depʹt 1997)
(holding that defendant could be liable for fraud for false statements made to
and relied on by Department of Agriculture, resulting in injury to plaintiff).
The New York Court of Appeals has not directly addressed the question,
but the Appellate Division cases that have endorsed third‐party reliance have
generally done so by relying on a line of cases originating with three New York
Court of Appeals cases from the 1800s. See Eaton, Cole & Burnham Co. v. Avery, 83
‐ 22 ‐
N.Y. 31 (1880); Rice v. Manley, 66 N.Y. 82 (1876); Bruff v. Mali, 36 N.Y. 200 (1867).
As the district court notes, however, the three cases are distinguishable. In Eaton
and Bruff, the third parties acted as conduits to relay the false statements to the
plaintiffs, who then relied on the false statements to their detriment. Eaton, 83
N.Y. at 33, 35; Bruff, 36 N.Y. at 200‐02, 206. Rice expressly declined to resolve the
issue, noting in dicta that ʺit matters not whether false representations be made to
the party injured or to a third party.ʺ Rice, 66 N.Y. at 87. Eaton, Bruff, and Rice
thus do not answer the question before us.
Certification is appropriate in this case because (1) the New York
Court of Appeals has not directly addressed the issue of third‐party reliance in a
fraud case and the decisions of other New York courts do not permit us to
predict how the Court of Appeals would resolve the issue; (2) the question is
important to the state and implicates issues of policy; and (3) the question is
ʺdeterminative of a claim before us.ʺ In re Thelen LLP, 736 F.3d 213, 224 (2d Cir.
2013) (internal quotation marks omitted).
CONCLUSION
We reserve decision, and for the reasons stated above, we certify the
following questions of law to the New York Court of Appeals:
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First, whether drug testing regulations and guidelines promulgated
by the FAA and DOT create a duty of care for drug testing laboratories and
program administrators under New York negligence law; and
Second, whether a plaintiff may establish the reliance element of a
fraud claim under New York law by showing that a third party relied on a
defendantʹs false statements resulting in injury to the plaintiff.
The Court of Appeals is not limited to the particular questions
stated. Rather, the Court of Appeals may modify the certified questions, and
may direct the parties to address any other issues that may pertain to the
circumstances presented in this appeal.
This panel retains jurisdiction and will consider any issues that
remain on appeal once the New York Court of Appeals has ruled.
It is therefore ORDERED that the Clerk of this Court transmit to the
Clerk of the Court of Appeals of the State of New York a Certificate, as set forth
below, together with complete sets of briefs and appendices, and the records
filed in this Court by the parties.
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CERTIFICATE
The foregoing is hereby certified to the Court of Appeals of the State
of New York pursuant to Second Circuit Local Rule 27.2 and New York Codes,
Rules, and Regulations Title 22, § 500.27(a), as ordered by the United States
Court of Appeals for the Second Circuit.
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