The most powerful word in the world pops up everywhere. Ironically, this is on Sandown Pier on the Isle of Wight (UK) — a place that has not changed for 30 years.
Ross Findon, Unsplash

Amid the hustle and bustle of the holiday season, and gearing up for the new year, the Commercial Division Advisory Council (the “Advisory Council”) was hard at work in proposing new rule changes. On December 26, 2024, the New York State Office of Court Administration issued a request seeking public commentary on a proposal, recommended by the Advisory Council, to amend Commercial Division Rules Section 22 NYCRR §202.70 (c) concerning non-commercial cases.

Section 22 NYCRR §202.70 (c)(5), in particular, provides that courts within the Commercial Division are not permitted to hear proceedings to enforce judgments, even where the required monetary threshold is met. Some Commercial Division judges have interpreted this rule as a bar to the enforcement of judgments, even if such judgments were obtained in the Commercial Division (see e.g., Gibson, Dunn & Crutcher LLP v World Class Capital Group LLC, Index No. 650318/2020 [Sup Ct, NY County Nov. 20, 2020]; J. Remora Maintenance LLC v Efromovich, 2018 WL 4963419, at *2 [Sup Ct, NY County Oct. 15, 2018]).

Section 22 NYCRR §202.70(c)(5) provides that:

(c) Non-commercial cases. The following will not be heard in the Commercial Division even if the monetary threshold is met:

*  *  *

(5) Proceedings to enforce a judgment regardless of the nature of the underlying case.

The proposed amendment seeks to clarify that the enforcement of judgments arising from cases decided in the Commercial Division are eligible to be enforced within the Commercial Division. The Advisory Council’s proposal seeks to amend the language of this rule to add the following:

(c) Non-commercial cases. The following will not be heard in the Commercial Division even if the monetary threshold is met:

*  *  *

(5) Except where the judgment in the underlying action or proceeding was obtained in the Commercial Division, proceedings to enforce a judgment regardless of the nature of the underlying case;

The Advisory Council also notes that its recommendation is consistent with existing case law (see e.g., Gibson, Dunn & Crutcher LLP v World Class Capital Group LLC, 194 AD 3d 567, 569 [1st Dept. 2021] [holding that 22 NYCRR §202.70(c)(5) “does not compel a finding that the Justices of the Commercial Division lack the authority to enforce their own judgments”]). In World Class Capital Group LLC, the First Department held that a petitioner seeking to enforce an order confirming an arbitration award entered by the Commercial Division does not need to commence a separate proceeding to enforce the judgment. Instead, the petitioner can file a motion in the underlying proceeding to enforce the judgment. The First Department held that it was reversible error to require the petitioner to commence a special proceeding to enforce a judgment that the same Commercial Division Court had already entered.

Presumably, this proposal will streamline the process for enforcing judgments decided by the Commercial Division. Moreover, this proposal will avoid the reassignment of commercial cases that require the business-law expertise of Commercial Division judges. If the proposal is enacted, litigants will be relieved of the burden and associated legal costs of initiating a separate proceeding to enforce such judgments, thereby promoting judicial efficiency and reducing potential for delays.

Public comments to the proposal are due no later than Friday, February 14, 2025, by email to rulecomments@nycourts.gov or by a written submission to David Nocenti, Esq., Counsel, Office of Court Administration, 25 Beaver Street, 10th FL, New York, New York, 10004.

One of the ongoing goals of the New York State Office of Court Administration (“OCA”) is to periodically update and refine the jurisdictional criteria for the Commercial Division to ensure that it exclusively handles complex commercial matters. As part of this effort, OCA has proposed an important change aimed at establishing a monetary threshold for cases seeking equitable or declaratory relief.

Currently, a case that is presumptively considered “commercial” and seeks equitable or declaratory relief is not required to meet any monetary threshold. However, on September 20, 2024, the OCA issued a Request for Public Comment on a proposal to amend 22 NYCRR § 202.70 (a) and (b), based on recommendations from the Commercial Division Advisory Council (“CDAC”). These proposed amendments would introduce a monetary threshold specifically for cases seeking equitable or declaratory relief within the Commercial Division. While the change may seem small, its implications for practitioners and litigants would be substantial.

The proposed amendments include minor but significant adjustments to the language of the rule. The revised language would require that cases seeking equitable or declaratory relief demonstrate that the value of the object of the action meets the prescribed monetary threshold. Specifically, the amended rules would read as follows:

(a) Except as set forth in paragraphs (4), (5), (11) and (12) of subdivision (b) of this section, the monetary thresholds of the Commercial Division, exclusive of punitive damages, interest, costs, disbursements and counsel fees claimed, are established as follows:

Albany County$50,000
Bronx County$75,000
Eighth Judicial District$100,000
Kings County$150,000
Nassau County$200,000
New York County$500,000
Onondaga County$50,000
Queens County$100,000
Seventh Judicial District$50,000
Suffolk County$100,000
Westchester County$100,000

(b) Commercial Cases

Actions in which the principal claims involve or consist of the following will be heard in the Commercial Division provided that the monetary threshold is met or, and for such actions that seek equitable or declaratory relief, satisfaction of the applicable monetary threshold shall be measured by the value of the object of the action.

By implementing this amendment, all cases seeking equitable or declaratory relief would be required to substantiate that “value of the object of the action” meets the threshold established for the Commercial Division. The term “value of the object of the action” is a legal standard commonly used in federal courts to determine whether a case meets the monetary requirements for diversity jurisdiction. The CDAC has indicated that applying this standard would not pose significant difficulties, as prior case law, notably Hunt v. Washington State Apple Advertising Commission, 432 U.S. 333 (1977), provides a well-established framework for evaluating the monetary value of such claims.

If enacted, judges in the Commercial Division would likely rely on federal case law to assess whether the value of the action meets the monetary threshold. In the Second Circuit, that value is typically determined from the plaintiff’s perspective, based on the value of the benefit the plaintiff seeks, the right being protected, or the injury being avoided.

Notably, the proposed amendment does not apply to all commercial cases. It explicitly exempts certain categories from the new monetary threshold requirements, including shareholder derivative actions, commercial class actions, actions seeking corporate dissolution, and Article 75 proceedings related to international arbitrations. These exceptions reflect the unique nature of these types of cases, which generally involve complex legal and factual issues that warrant consideration in the Commercial Division, irrespective of the monetary value involved.

The rationale for the proposed change is straightforward. The Commercial Division Justices in New York County have expressed concerns that the absence of a monetary threshold for equitable and declaratory relief cases has allowed certain matters that do not align with the Commercial Division’s intended scope to draw disproportionately on its resources. By establishing clearer jurisdictional limits, the proposed amendment aims to ensure that the Commercial Division remains focused on the high-stakes, complex commercial matters it was designed to handle.

In response to the OCA’s request for public comment, the New York City Bar Association raised two primary points. First, it recommended that only subsection (b) be modified to include the following clarification:

Actions in which the principal claims involve or consist of the following will be heard in the Commercial Division, provided that (i) the monetary threshold is met, or (ii) equitable or declaratory relief is sought and the value of the object of the action meets the monetary threshold, except that for actions brought under paragraphs (4), (5), (11), or (12) herein, the value of the object of the action need not meet the monetary threshold.

This proposed revision aims to simplify the process by limiting changes to subsection (b) alone, which it argues would streamline the amendment. The New York City Bar also raised concerns regarding the practical application of the term “value of the object of the action,” seeking clarification on how plaintiffs should substantiate this value and whether procedural devices such as the Request for Judicial Intervention would need modification.

With the period for public comment now closed, the OCA will consider these responses as it finalizes the proposed amendments. Should the amendments be enacted, they would have significant implications for practitioners in the Commercial Division. Currently, a presumptively commercial case seeking equitable or declaratory relief does not need to demonstrate the value of its requested relief. Under the new rule, however, litigants would be required to provide more detailed pleadings to establish that the value of their case satisfies the monetary threshold.

Moreover, questions remain regarding how Commercial Division judges will interpret and apply the “value of the object of the action” standard. Whether judges adopt their own interpretation or align more closely with federal precedent remains an open question. Regardless, if this rule is adopted, it will certainly reshape the practice of law within the Commercial Division, making it crucial for litigants to consider not only the substantive legal merits of their cases but also the monetary thresholds that will govern jurisdictional eligibility.

In summary, the proposed amendment is a critical step in refining the jurisdictional boundaries of the Commercial Division. While the change may appear modest, its potential impact on practice in the Division would be substantial. Practitioners should stay attuned to further developments as this proposal moves toward implementation, as it may require significant adjustments in litigation strategy and case preparation within the Commercial Division.

Interior,View,Of,Court,Room,Office,Conference,Table

The Executive Committee of the Commercial and Federal Litigation Section of the New York State Bar Association hosted a very special guest speaker at its final meeting of 2024: The Honorable Timothy S. Driscoll from the Commercial Division of Nassau County. Justice Driscoll opened the meeting with some general points about how he runs his courtroom; discussed his preference for in-person appearances and hearings; and shared his views on how AI is affecting the practice of law.

However, the highlight of Justice Driscoll’s discussion detailed how to effectively utilize his new technologically-advanced courtroom. Justice Driscoll recently decked out his courtroom with a few large monitors and with smaller monitors at each counsel table, the witness stand, and the bench. The litigators connect their personal computers to the monitor at the counsel table, and each monitor throughout the courtroom mirrors the exhibits that the litigators display from their computers.

When asked about how to prepare for such a digital trial or hearing, Justice Driscoll’s message can be summed up by the old adage “practice makes perfect.” Justice Driscoll offered up his courtroom––so long as he is not on the bench––to any litigators set to appear before him to practice using the technology. Practicing with the technology is essential, especially because Justice Driscoll may set a “chess clock” time limit for presenting your case. You can call his courtroom clerk to schedule a time to come in and practice.

First-year associates typically do not see the inside of the courtroom, but I was fortunate enough to work on a Farrell Fritz trial team for Justice Driscoll’s first trial using the new technology back in mid-October. Having experienced a five-day trial, I have some additional recommendations to make Justice Driscoll’s courtroom seem a little less daunting.

First, I echo Justice Driscoll’s emphasis on practice. About a week before the first day of trial, I scheduled an afternoon to test the technology. I brought my computer ready with three different types of exhibits: a photo; an expert report; and an excel sheet. That way, I knew exactly how each type of exhibit would appear to an audience. In addition, I practiced with all of the tools available on the counsel table monitor including highlighting; circling; drawing; and other visual effects.

Second, come prepared with a backup computer pre-loaded with all exhibits that you intend to display. After four days of trial in which my computer operated flawlessly, on day five, my computer froze at possibly the worst time: during the questioning of a witness. I had a spare laptop ready, and the examination of the witness continued without a hitch. Having to restart a laptop, or even ask the court for a brief recess, can halt the momentum and flow of the trial or hearing.

Finally, related to the point on having a spare computer ready, make sure to bring other necessary equipment, such as a power strip; laptop chargers; and, if your computer does not come equipped with an HDMI port, an adapter. The only connectivity input available is an HDMI cord, so without an HDMI port or an adapter, litigators cannot display their screens.

In short, Justice Driscoll’s futuristic courtroom may one day become the norm in the Commercial Division. Having been only the first to attempt (at least in Justice Driscoll’s courtroom) to conquer the digital presentation of evidence, I am sure potentially unforeseen issues will arise. However, by heeding Justice Driscoll’s advice and familiarizing yourself with the technology prior to your trial or hearing, you will maximize your time and efficiently present evidence to Justice Driscoll, a jury, or both.

Here at New York Commercial Division Practice, we make a point of highlighting the advantages of practicing in the Commercial Division.  For example, in Have Commercial Dispute, Will Travel (to New York) | New York Commercial Division Practice, we discussed the reasons why practitioners and their clients are (or should be) willing to travel to New York from out of state (or even internationally) to have their commercial disputes resolved.  Similarly, in Commercial Litigation in New York State Courts, 5th Edition, Chapter 39, “Practice Before the Commercial Division”:  A Review | New York Commercial Division Practice, we provided a detailed analysis of the practices and procedures of the Commercial Division as a choice-worthy venue for litigation.  Among other things, the Commercial Division’s status as one of the premier venues for complex business litigation also has the welcome consequence of being a major driver of New York’s economic growth.

That’s the message of a recent article titled “NYSBA Works To Bring Hundreds of Millions of Dollars in Legal Fees to N.Y.,” in which NYSBA President Domenick Napoletano discusses the collaborative efforts of the NYSBA and the Commercial Division Advisory Council to attract commercial litigation to New York.  

This initiative is designed to benefit both NYSBA members and the state’s economy, as attracting a larger volume of commercial litigation to New York creates more opportunities for practitioners (and industry-adjacent experts, consultants, vendors, etc.) to engage in high-value legal work by bringing hundreds of millions of dollars in legal fees into the state. 

For instance, the 2011 Final Report by the NYSBA Task Force on New York Law in International Matters noted the significant impact on law-firm revenue if the volume of business disputes were to increase:

“[I]f the business of dispute resolution in New York were to increase by 10%-20%, it could produce approximately $200 to $400 million in incremental revenues annually for law firms in New York.”

This projection underscores the substantial financial gains that could be realized with even a modest inflow of dispute resolution to New York.  Notably, the Task Force’s projected influx of hundreds of millions of dollars in legal fees was anticipated over 13 years ago, even before the establishment of the Commercial Division Advisory Council.  Today, the Advisory Council’s goals are much higher.

So how are the most influential members of the NYSBA working to drive increased litigation traffic to New York? 

One way is by reemphasizing the Commercial Division’s well-earned reputation.  As Mr. Napoletano notes, “[t]he Commercial Division is renowned as one of the world’s most efficient venues for the resolution of commercial disputes. The excellent reputation of the Commercial Division attracts commercial litigation to New York State which might otherwise be brought in other states or countries.”

In addition, the NYSBA is using a variety of resources, including an informative film (see https://vimeo.com/195552034) and informational flyers (see Commercial-Division-Advisory-Council-BCNYS-Flyer.pdf) to inform businesses about the advantages of litigating in New York.

This initiative is a strategic move that is expected to have a far-reaching impact on the economic landscape of New York, anticipated not only to generate substantial revenue for law firms but also to attract and retain businesses, which in turn contributes to job creation and tax-revenue growth in the state.

The Proclamation issued by the New York City Council in December 20, 2018, underscored the significant value of the Commercial Division, stating that “New York owes much of its world-class status as an economic engine to its world-class court: the Commercial Division of the New York Supreme Court.”  The Proclamation further emphasizes that:

“The Commercial Division is uniquely qualified to increase taxable revenue for the City of New York while stimulating job growth. It strengthens New York City’s ability to attract and retain businesses, which add jobs, fuel demand for real property, and increase tax revenue. The tax revenues from local businesses also provide financial support for the New York State judicial system[.]”

In sum, the NYSBA and the Commercial Division Advisory Council continue to collaborate in making New York a premier destination for commercial litigation.  This should be welcome news to us all, as their initiative not only benefits lawyers and law firms but the state’s economy as a whole.   

Promissory,Note,Grunge,Concept

As many practitioners are aware, the litigation process in New York often feels like a tortoise race, with many cases taking years to resolve. Section 3213 of the CPLR (“Summary Judgment in Lieu of Complaint”) is a bit of an outlier in New York practice, as it provides a mechanism to streamline cases without bearing the delay of protracted litigation. However, because a  CPLR 3213  motion provides for a remedy which precludes a litigant from presenting his evidence to a judge or jury, courts heavily scrutinize this type of motion.

For example, courts tend to dismiss CPLR 3213  motions where the instrument for payment (e.g., a promissory note) requires “outside proof … other than simple proof of nonpayment or a similar de minimis deviation from the face of the document” (Kitchen Winners NY, Inc. v Triptow, 226 AD3d 989, 991 [2d Dept 2024]). But what happens when an additional document (e.g., a Heter Iska) is required to be executed under religious law in connection with a promissory note? This question was recently addressed by Kings County Commercial Division Justice Leon Ruchelsman  in Junik v 61 N. 11 LLC.  

Background and Analysis

In Junik, defendant 61 N. 11 LLC (“61 North”) and the individual defendants (collectively “Defendants”) executed and delivered to plaintiffs Dov Junik (“Junik”), and DSJ Holdings, LLC (“DSJ”) (collectively, “Plaintiffs”) the following documents: (i) a promissory note for $1 million dollars between 61 North and Plaintiffs to be paid over 24 months (the “Note”); and (ii) personal guaranties of the individual defendants, guaranteeing up to fifty (50) percent of the alleged indebtedness of 61 North (the “Guarantees”).

That same day, Junik and one of the individual defendants entered into a Shtar Isko (“Heter Iska”), which is “a device developed in the 12th to 14th centuries to overcome the Biblical prohibition against charging interest by one Jew to another” (Khaimov v Fuzailov, 2020 WL 1059620 [Sup Ct, Queens County 2020]). While certain payments were made towards the principal amount of the Note, Defendants ultimately defaulted on the Note and ceased making payments.

As a result of Defendants’ default, Plaintiffs commenced an action by way of a CPLR 3213 motion for summary judgment in lieu of complaint. In their opposition papers, Defendants argued that “the mere existence of the [Heter Iska], warrants the denial of Plaintiffs’ motion, as the [Heter Iska] is a document consisting of outside proof which was entered into at the same time as the Note, and clearly alters the terms of the Note.” Specifically, Defendants highlighted that the Heter Iska created significant ambiguities: (i) it made zero reference to DSJ or 61 North, two of the three parties to the Note; (ii) three out of the four individual defendants did not sign the Heter Iska; and (iii) the individual defendant who did sign the Heter Iska did not sign the Note.

In his decision, Justice Ruchelsman acknowledged that while the Heter Iska contains different terms than the Note, the Note “clearly evidences a loan and obligations pursuant to that note … unaffected by a Heter Iska” since a Heter Iska is merely a “compliance in form with Hebraic law and does not actually create any partnership, joint venture, or some other profit-sharing Agreement.” Accordingly, the Court held the existence of the Heter Iska did not create any questions of fact concerning the content of the Note, and granted Plaintiffs’ motion for summary judgment in lieu of complaint.

Takeaway

On its face, the Junik decision demonstrates that certain documents, such as a Heter Iska, are the exception to the “outside proof” rule under CPLR 3213 motions. However, the decision leaves open the question of how much outside proof is too much or excessive for purposes of a CPLR 3213 motion. To avoid this potential issue, parties should either (i) avoid drafting any additional documents in connection with a promissory note; or (ii) make sure that any additional documents drafted in connection with a promissory note are drafted carefully to avoid a potential ambiguity.  

Baseball scoreboard against a beautiful sky.
Ray Shrewsberry, Unsplash

As my colleague, Matt Donovan, recently blogged, it is essential for litigants to “play[] nice in the litigation sandbox” or risk facing the ire of the Justices in the Commercial Division. Many litigants might think they are playing “nicely” by asserting “good cause” in their arguments. But what does it actually mean to have “good cause”? As illustrated by some recent decisions by Manhattan ComDiv Justice Robert Reed, a finding of good cause will depend on the circumstances, evidence, and respective law.

Case Spotlight #1: Designs by F.M.C. v. Unique First Ltd.  

In Designs, Justice Reed dealt with two motions seeking withdrawal as counsel. In assessing both motions, Justice Reed reiterated that an “attorney must demonstrate that good cause exists to end the relationship with the client.” Without showing good cause, a motion to withdraw will be denied.

In the first motion, Justice Reed granted withdrawal as there was sufficient evidence submitted to demonstrate that the attorney’s purported appearance for an entity was “caused by mistake.” The evidence showed that when the attorney appeared on behalf of the entity, he believed his client owned the entity and that he therefore was representing it. When the attorney learned during a deposition that this was not the case, he immediately moved to withdraw. Since there was no evidence that the entity wanted/authorized the attorney to represent it, Justice Reed found sufficient good cause.

Likewise, in the second motion, Justice Reed also found sufficient good cause to grant the motion to withdraw. In that motion, the attorney, by way of affirmation, submitted evidence that the client did not intend to cooperate with the attorney and wished to appoint new counsel. Accordingly, Justice Reed granted the motion to withdraw.

Good Cause: 1, Gamesmanship: 0.

Case Spotlight #2: In Subify LLC v. Ace Hat Collection, Inc.

In Ace Hat Collection, Inc., an attorney moved to withdraw because he ceased working for the law firm by which he was employed when the client initially retained him. The attorney represented that he could not contact the client after the change in firm and did not receive the client’s consent.

In denying this motion, Justice Reed looked to the law. He reasoned that the law required the attorney to give the client reasonable notice he was withdrawing from representation. Justice Reed found that the attorney submitted no evidence of this fact.

Further, Justice Reed looked to the factual circumstances of the case. Justice Reed detailed the lack of evidence put forth by the attorney that would show “an irretrievable breakdown in the relationship or failure of cooperation by the client in representation.” As such, Justice Reed held that there was no good cause and denied the motion.  

Good Cause: 1, Gamesmanship: 1.

Case Spotlight #3: Sumec Textile & Light Indus. Co., Ltd. v. Zee Co. Apparel Corp.

Finally, Justice Reed once again dealt with good cause, albeit under different circumstances, in Sumec Textile. The case dealt with a discovery dispute over whether the deposition of plaintiff’s representative should take place in New York or virtually.

Plaintiff’s counsel argued there was good cause for the deposition to be conducted virtually, as the witness resided in China, which would result in unduly burdensome expenses to the plaintiff. Plaintiff also argued that the witness was the principal caretaker for a young child and her elderly parents, thus making it difficult for her to leave China.

Defendant argued that mere inconvenience was not good cause to avoid the obligation to produce a witness for a deposition in New York. Defendant argued that it was defendant’s right to conduct the deposition in person, so that defendant could better assess credibility and present physical evidence relevant to the case.

Looking at the circumstances, Justice Reed ruled there was no good cause to warrant a virtual deposition. Justice Reed reasoned that plaintiff specifically chose New York as a venue and thus “could not reasonably argue to be aggrieved by the accompanying obligations.” Thus, absent good cause, Justice Reed held that the deposition must take place in New York.

Good Cause: 1, Gamesmanship: 2.

Takeaway

Although these cases found more gamesmanship than good cause, in reality there is no true scoreboard for a finding of good cause. As seen by Justice Reed’s decisions, a finding of good cause will vary given the circumstances.

However, litigants can take one thing to the bank — simply stating good cause will not be enough. When asserting good cause, litigants should strive to focus their arguments around relevant law and to submit sufficient factual evidence to support their position.

Alarm,Clock,On,Autumn,Leaves,Natural,Background

Having recently set our clocks back at the end of this year’s Daylight Savings Time, we here at New York Commercial Division Practice wanted to alert our readers to an upcoming, decidedly forward-looking NY Bar event.  On Wednesday, November 13, 2024, from 5:30 to 8:30 pm, the Commercial and Federal Litigation Section of the New York Bar Association will host an interactive event – Taking the Lead 2024: Empowering Women Lawyers in Commercial Cases; Winning Strategies and Techniques for Trial. The event will showcase women commercial litigators and will feature a mock trial presentation with opening and closing statements and direct and cross-examinations of witnesses, followed by a critique of the presentation by distinguished members of a judiciary panel.

The judiciary panel will consist of:

  • Hon. Judge Shira Scheindlin (ret.), Boies Schiller Flexner LLP
  • Hon. Judge Jessica Clarke, U.S. District Court Judge for the Southern District of New York
  • Hon. Judge Anne Donnelly, U.S. District Court Judge for the Eastern District of New York
  • Hon. Justice Anar Rathod Patel, Commercial Division of the Supreme Court of the State of New York, New York County
  • Hon. Justice Joseph Risi, Commercial Division of the Supreme Court of the State of New York, Queens County

The Taking the Lead event also will feature an awards ceremony for the presentation of the Hon. Shira A. Scheindlin Award for Excellence in the Courtroom, and the Hon. Judith S. Kaye Commercial and Federal Litigation Scholarship.  

First introduced in 2016, the Scheindlin Award is presented in November, on or around the date when women received the right to vote in New York State in 1917.  The Judith S. Kaye Scholarship was established with the goal of increasing the number of women prepared to serve as first chair in commercial litigation cases.  Both awards recognize female litigators who demonstrate excellence in commercial litigation and a strong commitment to mentoring junior attorneys in the legal community.

The Taking the Lead event will be held at the Daniel Patrick Moynihan United States Courthouse, Ceremonial Courtroom, in Manhattan. 

Below is a link to learn more about this program, including online registration:

Taking the Lead 2024: Winning Strategies and Techniques for Commercial Cases – New York State Bar Association

As one of the panelists, I am excited to be a part of this event and am looking forward to seeing you there!

Financial,Dispute,Occurs,When,There,Is,A,Disagreement,Over,Money

Under CPLR §§ 3111 and 3122(d), “[t]he reasonable production expenses of a non-party witness shall be defrayed by the party seeking discovery.” The Commercial Division Rules at Appendix A (“Guidelines for the Discovery of ESI”) define “reasonable production expenses” to include:

  1. Reasonable fees charged by outside counsel and e-discovery consultants;
  2. Reasonable costs incurred in connection with the identification, preservation, collection, processing, hosting, use of advanced analytical software applications and other technologies, review for relevance and privilege, preparation of a privilege log (to the extent one is requested), and production;
  3. Reasonable costs associated with disruption to the non-party’s normal business operations, provided such costs are quantifiable and warranted by the facts and circumstances; and
  4. Other costs reasonably identified by the non-party.

The Appellate Division, First Department, recently addressed the reasonableness of non-party production costs in the context of ESI discovery in Barons Media, LLC v. Shapiro Legal Group, PLLC, 2024 NY Slip Op 05301 [1st Dept Oct. 24, 2024]. The court considered the non-party’s motion for reimbursement of “reasonable production expenses” incurred while producing ESI pursuant to a subpoena issued by the petitioner, Barons Media, LLC (“Barons”). Under the Commercial Division’s ESI Guidelines, “reasonable production costs” may include reasonable fees charged by outside counsel and e-discovery consultants for gathering and reviewing documents for relevance and privilege before production, in addition to those charged by vendors involved in the harvesting and storage of ESI.

The Lower Court Decision:

The lower court (Manhattan Com. Div. Justice Joel M. Cohen) found that the non-party was only allowed two-thirds of its requested reimbursement costs. The non-party argued that all of its requested expenses were due under the Commercial Division’s Guidelines. Barons argued that the non-party’s claimed expenses, including its attorney’s fees, were inflated and were incurred by its own malfeasance in resisting discovery. The court found that, because Barons’ discovery requests were not “narrowly tailored to discovering information it could obtain only from [the non-party],” the non-party was entitled to two-thirds of its requested reimbursement costs. However, the court did not award the non-party the full amount requested, presumably in agreement with Barons that inflated costs and the cost of resisting discovery should not be included in the reimbursement.

The Appellate Decision:

On appeal, the non-party argued that it was due the full amount requested because each expense fell under the scope of the Commercial Division’s ESI Guidelines. The non-party submitted a detailed schedule based on invoices submitted by counsel and ESI vendors, reflecting that the costs were largely incurred by the review, organization, and compilation of responsive materials by outside counsel. Barons argued that the non-party cannot recover the costs associated with reviewing or withholding documents from production due to relevance.

Ultimately, the First Department determined that, after weighing “all relevant factors,” the lower court appropriately concluded that the non-party was only entitled to recover two-thirds of the claimed expenses. The court agreed with Barons that some expenses related to activities associated with withholding materials and found that the outside counsel’s billing rate “may have been unreasonable.”

Takeaway:

While Barons Media does not create new law, the First Department’s rationale for limiting the non-party’s recovery to two-thirds of the requested expenses is significant. The court’s statement that “insofar as some of the entries reflect activities associated with withholding materials” means that these costs, along with outside counsel’s potentially unreasonable billing rate, were the basis for awarding the non-party only two-thirds of its requested expenses. Consequently, attorneys for non-party witnesses should be aware that they may not be reimbursed for costs incurred from withholding information from the party seeking discovery. This should also be a warning for those requesting broad discovery from a non-party, as opposed to “narrowly tailoring” their requests to non-parties to avoid reimbursement fees.

Quick stop on a roadtrip
Tom Strecker, Unsplash

Every commercial litigator is familiar with the burdens at the discovery phase of litigation, whether it is a dispute over production, privilege, or just the sheer volume and cost (both time and money) associated. Be that as it may, discovery also serves a critical and necessary purpose in commercial litigation. Determining what to ask for and how to get it is an art, and a skilled litigator’s strategy for doing so can shape the conduct of litigation. 

Commercial litigators often are faced with interstate discovery. When so confronted, litigators will dust off each adopting state’s version of the Uniform Interstate Depositions and Discovery Act and employ the simple procedures applicable to those interstate courts to have deposition and discovery subpoenas issued to the out-of-state non-party.  

But what happens when the discovery sought is outside the territorial jurisdiction of the United States? The Commercial Division, as provided in South32 Chile Copper Holdings Pty Ltd. v Sumitomo Metal Mining Co., Ltd., et al., presided over by the Honorable Robert R. Reed of the New York State Supreme Court, New York County, Commercial Division have those instances covered via the Hauge Convention of 1970 on the Taking of Evidence Abroad in Civil Matters (the “Convention”).

The Dispute and Litigation

Plaintiff, South32 Chile Copper Holdings Pty Ltd. (“Plaintiff”), initiated an action against defendants, Sumitomo Metal Mining Co., Ltd. and Sumitomo Corp. (collectively “Defendants”), seeking to hold Defendants responsible for Dutch tax liabilities for Chilean gold mine operations that Plaintiff acquired as part of a transaction with Defendants.   

During the discovery phase of the litigation, Plaintiff moved the Court to obtain documents from the US affiliates of certain non-party entities in the Netherlands and the United Kingdom, each of which are alleged to have: (1) given tax advice regarding the Dutch tax liability; and (2) having relevant information surrounding the parties’ sale and purchase agreements that are purported to confer the Dutch
tax liability. Defendants also moved to obtain documents from a Netherlands entity which is alleged to have provided advice regarding the filing and preparation of the tax returns at issue, which led to the Dutch tax liability. Plaintiff’s discovery motions went uncontested. 

What Is the Hague Evidence Convention?

The Convention is a multilateral treaty signed by over 60 countries, which was designed to aid parties in seeking discovery from international non-parties via a system of signatory central authorities. In sum, a litigant in the New York Commercial Division seeking pre-trial discovery from a non-party in a foreign jurisdiction that is a member of the Convention can apply to the New York Court for issuance of a “Letter of Request for Judicial Assistance” (“Letter”) finding the discovery requests at issue to be sufficient for issuance of the Letter. The Letter is then submitted to a Central Authority of the signatory state where the evidence is located and, if in compliance with the Convention and the laws of the signatory state, will be executed by an authority within that signatory state. The executing authority will notify the parties subject to the discovery request and provide the opportunity to be heard.

What Must Be Considered by the New York Court? 

In South32 Chile Copper Holdings Pty Ltd., the parties sought tax documents and information from tax consultants that provided advice related to the Dutch tax liability.  Upon the requests of both parties, Justice Reed analyzed three different elements necessary to issue a Letter including: 

  1. That the “documents sought are both material and necessary to the legal claims in the matter” [citing Allen v Crowell-Collier Pub. Co., 235 NY2d 403 [1968]).
  2. “That ‘the method of discovery sought will result in the disclosure of relevant evidence or is reasonably calculated to lead to the discovery of information bearing on the claims’” [quoting Abrams v Pecile, 83 AD3d 527, 528 [1st Dept 2011] [internal quotation omitted]); and     
  3. “That the information sought is ‘crucial to the resolution of a key issue in this case’” [quoting Kahn v Leo Schacter Diamonds, LLC, 139 AD3d 635 [1st Dept 2016]). 

In analyzing these elements, Justice Reed found that the tax documents sought, or the advice procured by the non-parties, was central to the tax liability at issue. The Court held that the information sought by Plaintiff and Defendants was “crucial to the resolution of a key issue in the case” and therefore granted each of the motions issuing a Letter to each of the non-parties. 

The Takeaway

Though seemingly daunting, commercial litigators must keep in mind that discovery from outside the territorial jurisdiction of the United States is available, and that there is a tried-and-true process under the Convention for obtaining it. Parties need not forego obtaining crucial international discovery, and the Commercial Division can assist by issuing a Letter upon the requisite showing.

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I think it’s fair to say that Commercial Division judges have little time for discovery disputes.  If one peruses the individual practice rules of many of the ComDiv judges, one typically finds language all but prohibiting discovery motions.  And ComDiv Rule 14, which itself provides that “[d]iscovery disputes are preferred to be resolved through court conference as opposed to motion practice,” expressly gives the judges the discretion to do so (“If the court’s Part Rules address discovery disputes, those Part Rules will govern discovery disputes in a pending case”).  If a particular ComDiv judge’s individual rules are silent on the matter, then the default rule in Rule 14 applies.  In which case, counsel are restricted to (i) making a good-faith attempt to resolve the dispute(s) amongst themselves; and (ii) if unsuccessful on their own, submitting competing letters outlining their respective positions and asking for the opportunity to conference the dispute(s) with the court. 

Commercial Division judges also have little time for attorney gamesmanship.  Again, the ComDiv Rules expressly support this sentiment, as one need look no further than the Preamble to the Rules, which was amended some five years ago to insist on, among other things, “that the practicing bar be held rigorously to a standard of commitment and professionalism of the highest caliber.”  This includes conduct at depositions. 

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