14‐4101‐cv Pasternack v. Laboratory Corporation of America Holdings, et al.

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT ____________________________

August Term 2014

(Argued: June 2, 2015 Decided: November 17, 2015 Amended: November 23, 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 official caption to conform to

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, a second amended complaint as to LabCorp and a proposed second amended complaint as to ChoicePoint. ‐ 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

(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

‐ 6 ‐

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.

‐ 7 ‐

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,

(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.

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

.

‐ 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,

(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,

, 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

. ‐ 9 ‐

court granted Pasternackʹs motion for leave to file a proposed 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.,

(Sept. 6, 2012) (ʺPasternack IIʺ). On September

12, 2012, Pasternack filed a second amended complaint as to LabCorp, 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,

, 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.,

(2d Cir. 2014).

‐ 10 ‐

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

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.,

(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.,

(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,

(2d Cir. 2013) (quoting Barenboim v.

Starbucks Corp.,

(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

‐ 11 ‐

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.

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.,

(2d Cir. 2002) (citing Merino v. New York City

Transit Auth.,

(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,

(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.,

(1994).

‐ 12 ‐

The district court dismissed the negligence claims against LabCorp

and ChoicePoint, holding that, under New York law, a drug testing company

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,

(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.

(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

(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.

(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.

(b)(3). These actions are deemed ʺa refusal to test.ʺ

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

(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

(i). An MRO, however, may ʺprovide advice

and information to employers regarding refusal‐to‐test issues.ʺ

‐ 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 and the

FAA. 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

(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,

.

Second, Pasternack points to

(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

violated this regulation by transmitting to Northeastern a one‐page form that

‐ 16 ‐

reported Dr. Pasternack as a ʺrefusal to test,ʺ and by notifying the FAA that Dr.

Pasternack had refused a drug test.

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,

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

(i) provides a basis for a

negligence action under New York law.ʺ

. Thus, the district court

denied Pasternackʹs motion for leave to amend as to ChoicePoint.

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 Both the Regulations, which

are binding on drug‐test administrators, and the non‐binding Guidelines call for

such explanations and warnings. See

, 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,

, 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

.

In dismissing the negligence claims against LabCorp and

ChoicePoint, the district court distinguished this case from three cases in which

the laboratory or MRO directly mishandled the urine specimen. See, e.g., Drake v.

Lab. Corp. of Am., No. 02‐CV‐1924,

, at *2‐3 (E.D.N.Y. Mar. 13,

2007) (ʺDrake IIIʺ), on remand from

(2d Cir. 2006) (MRO allegedly sent

someone elseʹs sample to toxicology laboratory, but claimed sample belonged to

‐ 18 ‐

plaintiff); Coleman v. Town of Hempstead,

(E.D.N.Y. 1999)

(laboratory allegedly failed to maintain seal on plaintiffʹs urine sample); Santiago

v. Greyhound Lines, Inc.,

(N.D.N.Y. 1997) (plaintiffʹs urine

sample tested positive for cocaine while contained in bottle on which plaintiffʹs

signature had been forged). Pasternack did not allege that the defendants

directly mishandled his urine sample.

Pasternack relies heavily on the recent decision of the New York

Court of Appeals in Landon v. Kroll Lab. Specialists, Inc.,

(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.

. 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

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

‐ 19 ‐

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 such as the duty of care applicable to drug testing companies.

Additionally, 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.,

(1999). The parties in this case principally

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

‐ 20 ‐

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,

(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.,

(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

Group, LLC v. City of New York,

(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.,

(quoting Crigger v.

Fahnestock & Co.,

(2d Cir. 2006)).

‐ 21 ‐

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,

, at *15‐16 (collecting cases); compare, e.g.,

Briarpatch Ltd., L.P. v. Frankfurt Garbus Klein & Selz, P.C.,

(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.,

, 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,

(1880); Rice v. Manley,

(1876); Bruff v. Mali,

(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

‐ 22 ‐

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,

. 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,

(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:

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

‐ 23 ‐

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.

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.

‐ 24 ‐