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Štefan Štefančík, Unsplash

The COVID-19 pandemic has unsurprisingly resulted in many people in the business community, including lawyers, transacting business remotely. With that uptick comes more contracts utilizing electronic signatures and remote depositions and notarizations. Not only is the use of an e-signature generally more convenient for the parties involved in a transaction, but an e-sig provides many more layers of security and protection from claims of forgery than a wet-signature because the process requires the user to confirm her identity to bind her signature to that identity through a digital certificate.

So what happens when there’s a contractual dispute, and one of the parties is seeking to enforce a contract while the counterparty is claiming that its electronic signature has been forged? On October 26, 2023, Justice Daniel J. Doyle of the Monroe County Commercial Division dealt with just that in  AJ Equity Group LLC v Office Connection, Inc., in which he held that the defendant’s mere denial that she e-signed an agreement was not sufficient to dismiss a breach of contract claim, but also that the plaintiff was not entitled to summary judgment on its breach claim for failure to explain the relevance and significance of the signature certificate showing that the electronic signature was valid.

Background

In March of this year, the plaintiff filed an action predicated on the defendant-seller’s purported breach of a Receivable Purchase Agreement (“Agreement”). Karen Minc (“Ms. Minc”) purportedly signed the Agreement on behalf of defendant-seller, and simultaneously executed a guarantee (“Guarantee”), by which she guaranteed the prompt and complete performance of defendant-seller’s obligations to the plaintiff. In both the Agreement and the Guarantee, Ms. Minc, a Michigan resident, consented to personal jurisdiction in New York and to service of process by mail. Just two months later, defendant-seller purportedly defaulted under the Agreement, and Ms. Minc purportedly defaulted under the Guarantee.

The plaintiff brought suit against the defendant-seller and Ms. Minc. In Ms. Minc’s Answer, she claimed that she did not enter into the Agreement or Guarantee and denied that her signature appeared anywhere on the documents. She also asserted affirmative defenses for lack of personal jurisdiction, as well as invalid and insufficient service of process.

Motion Practice and the Court’s Decision

Shortly after Ms. Minc filed her Answer, the plaintiff moved for summary judgment on its causes of action against the defendant-seller for breach of the Agreement and against Ms. Minc for breach of the Guarantee. Six days later, Ms. Minc filed a motion to dismiss the Complaint.

The Court granted summary judgment to the plaintiff as against the defendant-seller on the breach of contract claim because the plaintiff submitted an affidavit attaching the Agreement and remittance history, as well as a sworn statement verifying the defendant-seller’s default. 

With respect to Ms. Minc’s motion to dismiss, the essence of her argument was that she did not sign the Agreement, and as such, she did not consent to New York subject matter jurisdiction (as the Agreement’s terms stated New York law would apply), or personal jurisdiction (the Agreement allowed service of process by regular mail). The motion to dismiss was solely supported by a barebones affidavit in which Ms. Minc denied that she signed the Agreement and the Guarantee and that the signature on the documents was not hers.

In opposition, the plaintiff submitted a memorandum of law in which it pointed to an “e-signature” with a “signature certificate” on the documents that it claimed unequivocally showed that a “Karen Minc” at an IP address located in Michigan consented to an e-signature through her email address.  

While this appeared to be sufficient evidence that Ms. Minc actually signed the Guarantee, much to the plaintiff’s chagrin, the Court held that the mere existence of the e-signature coupled with the signature certificate was not by itself enough to establish the absence of a material issue of fact as to whether the Guarantee was signed by Ms. Minc. The Court thus denied summary judgment on breach of the Guarantee claim, holding in pertinent part:

“Although generally a bald allegation of forgery is insufficient to defeat a motion for summary judgment, in this case Ms. Minc’s denial of signature coupled with the plaintiff’s failure to submit evidence, or even explain, relative to the e-signature certificate creates an issue of fact necessitating denial of the motion. Although e-signatures are considered valid in New York, the plaintiff’s failure to explain the “signature certificate” prevents this Court from determining whether the procedures used complied with either the New York Electronic Signatures and Records Act (ERSA) (NY State Tech § 301 et seq.) or are sufficient for the Court to determine that defendant Karen Minc intended to be bound by the agreement.”

The Court also denied Ms. Minc’s motion to dismiss finding that she did not meet her burden for dismissal based on “documentary evidence” under CPLR 3211(a)(1). While Ms. Minc provided an affidavit in which she denied that it was her signature on the documents, the Court stated “[n]either affidavits, deposition testimony, nor letters are considered documentary evidence within the intendment of CPLR 3211(a)(1)” because they are not unambiguous and thus cannot conclusively dispose of a plaintiff’s claim.

The Court also stated that it did not need to reach the jurisdictional and choice of law provisions raised in the motion to dismiss insofar as those arguments were “necessarily dependent” on whether Ms. Minc signed the agreement, and her affidavit was insufficient documentary evidence to establish that on a motion to dismiss.

Takeaway

The problem with the parties’ submissions on their motions in the AJ Equity Group case was the evidence, or lack thereof.

On the one hand, to obtain summary judgment it is necessary that the movant establish its cause of action or defense “sufficiently to warrant the court as a matter of law in directing judgment” in its favor (see CPLR 3212 [b]), and do so by tender of evidentiary proof in admissible form. Although the existence of the electronic signature and certificate should have been a slam dunk for the plaintiff, it failed to substantiate their relevance by proof in admissible form.

On the other hand, the defendant’s unsubstantiated sworn denial of signing the Agreement and Guarantee was not enough to warrant dismissal under CPLR 3211(a)(1) based on “documentary evidence.” The careful practitioner should be aware of the limits of this ground for dismissal before attempting to rely solely on an affidavit as to its proof.

Landscape,Of,An,Evening,Mood,With,Sunset,In,Scotland.,Isle

As many practitioners know, it is common to dismiss a complaint for pleading defects that are readily apparent.  However, another type of complaint has recently caused a significant amount of confusion in the Commercial Division – the third-party complaint. A recent decision from Bronx Commercial Division Justice Fidel E. Gomez  confirms as much, dismissing a third-party complaint where the third-party plaintiffs failed to plead any claims against the third-party defendant that were “rooted in indemnity or contribution.”

Background

In Green Castle A. Mgmt Corp. v B&V Dev., LLC,  Plaintiff, a general contractor engaged in building renovations, entered into a contract (the “Agreement”) with defendant B&V Development LLC (“B&V”), and its owner, Al Faella (“Faella”), to perform certain construction work at a project located in the Bronx. In connection with the Agreement, defendant MF Electrical Service Co, LLC (“MF Electrical”), which was owned by Faella, assumed the obligation to tender payment under the Agreement.

Despite Plaintiff performing his obligations under the Agreement, Defendants failed to pay Plaintiff’s final invoice. As a result, in or around June 2022, Plaintiff commenced a lawsuit against Defendants, alleging that Defendants breached their contractual obligations by failing to compensate Plaintiff under the Agreement. In response, in or around August 2022, B&V and Faella commenced a third-party action against Seamus Carey (“Carey”) the principal of Plaintiff. The third-party complaint consisted of various claims, including an accounting, unjust enrichment, attorneys’ fees, conversion, and diversion of trust funds.

During the course of the litigation, Carey brought a motion for summary judgment to dismiss the third-party complaint, arguing that he was never not a party to the Agreement and/or all acts he made were in his representative capacity as the principal of Plaintiff, not in his individual capacity.  In opposition, B&V and Faella argued that summary judgment was premature because discovery had not yet been completed.

Analysis

In its decision, the Court granted Carey’s motion for summary judgment to dismiss B&V and Faella’s third-party complaint, “but not for the reasons [argued] by [Carey].” Specifically, the Court explained that CPLR § 1007 states that third-party practice is allowed and/or “a defendant may proceed against a person not a party who is or may be liable to that defendant for all or part of plaintiff’s claim against that defendant.” Further, the Court cited to a significant amount of cases standing for the propositions that (i) “when a third-party action does not plead causes of action conditioned or arising from the main action against the defendant/third-party plaintiff, a third-party action is inappropriate”; and (ii) “a third-party action is limited to actions where a defendant seeks to hold a third-party liable for all of plaintiff’s claims against said defendant, meaning liability rooted in indemnity or contribution.”

Based on this case law, Justice Gomez found that because “the third-party complaint [was] utterly bereft of any claims for contribution and/or indemnification against the third-party defendant,” it must be dismissed in its entirety.

Takeaway

The Green Castle decision serves as an important reminder that a third-party complaint is not a broad stage for airing out a laundry list of claims and/or grievances against a defendant, but rather a limited opportunity from which to identify other parties that may be responsible for some or all of the plaintiff’s damages.  

Another picture I took today at the botanical garden. I admit they painted the door the color corresponding to the place ;)
Pawel Czerwinski, Unsplash

The burden of establishing personal jurisdiction over a defendant rests with the plaintiff. Service of process is a necessary component of jurisdiction, and it is not complete until proof of service is filed. Ordinarily, defective service of process is not a jurisdictional defect and does not warrant dismissal. But when it comes to “affix and mail” service under CPLR § 308(4), the statutory requirement of “due diligence” must be strictly observed, otherwise dismissal may result.  A recent decision from Manhattan Commercial Division Justice Robert Reed in Arena Special Opportunities Fund, LLC v McDermott discusses just how much diligence is required.

Background

Sections 308(1) and (2) of the CPLR establish standard methods of personal service. Under section 308(1), the summons may be served on the defendant, directly, anywhere “within the state.” Under section 308(2), the summons may be left with a person of suitable age and discretion at the defendant’s “actual place of business, dwelling place or usual place of abode” and subsequently mailed to the defendant’s “last known residence” or “actual place of business.”

Section 308(4) of the CPLR provides for situations “where service under paragraphs one and two cannot be made with due diligence.” The due diligence requirement may be satisfied by “a few visits on different occasions and at different times to the defendant’s residence or place of business when the defendant could reasonably be expected to be found at such location at those times” (Mid-Island Mortgage Corp. v. Drapal, 175 AD3d 1289, 1290 [2d Dept 2019]).

Failure to exercise due diligence, however, may result in dismissal under CPLR § 3211(a)(8) for lack of personal jurisdiction. For example, in Mid-Island Mortgage Corp., the process server attempted to serve the defendant at his home four times despite knowing that the defendant was away on active military service. Thus, the attempts were not made when the defendant “could reasonably be expected to be found” at home, and the complaint was dismissed.

Analysis

In Arena Special Opportunities Fund, the plaintiffs commenced an action to recover damages from the defendant stemming from his failure to honor a personal guarantee of payment obligations under a loan agreement. The defendant moved to dismiss the action for improper service. The process server had made four attempts to personally serve the defendant at his last known residential address at 6712 Sycamore Glen Dr. But the residence was located within a gated community, which prevented the process server from accessing it. Consequently, the process server attempted to serve the papers “by posting the documents in a conspicuous place at the premises” and mailing them to the residence.

The plaintiffs did not confirm that the defendant still lived at 6712 Sycamore Glen Dr. and offered no facts indicating that they tried to verify his address. The defendant claimed he no longer lived at 6712 Sycamore Glen Dr., and that a title search would have revealed as much. The plaintiffs countered that it was reasonable to attempt service at that address because defendant had listed it as his residence on the loan agreement and personal guaranty, which were the subject of the action.

The court held that did not amount to due diligence under CPLR § 308(4). The plaintiffs did not attempt to serve the defendant at his place of business, though they knew its exact location. They did not try to ascertain the defendant’s then-current address or confirm that he still lived at the address where they attempted service. Although the defendant did list the Sycamore Glen address in connection with the loan agreement, those documents were more than a year old and the plaintiffs could have reasonably anticipated that the defendant might change his residence within that time.

Accordingly, the attempted service was defective as a matter of law, and the court granted the defendant’s motion to dismiss the action.

Conclusion

The decision in Arena Special Opportunities Fund reaffirms the importance of ascertaining a defendant’s whereabouts. The due diligence component of CPLR § 308(4) will not be satisfied by “affix and mail” service—regardless of how many attempts at service are made—unless the plaintiff has genuinely inquired as to the defendant’s actual dwelling place and actual place of business.

Secret
Kristina Flour, Unsplash

The attorney-client privilege is an old and well-known evidentiary privilege. It fosters candor between attorney and client, protects confidential information from being revealed to others, and ensures that the attorney can render accurate and competent legal advice. On occasion, the privilege extends to third parties. For instance, the “common interest doctrine” may protect communications between business entities with common interests in a lawsuit. A recent decision from Manhattan Commercial Division Justice Robert R. Reed, West 87 LP v. Paul Hastings LLP, exemplifies how instrumental the doctrine can be in commercial practice.

Background

The attorney-client privilege, codified in CPLR § 4503(a), protects certain communications between attorney and client. New York recognizes by statute three categories of privileged materials: privileged matter, attorney work product, and trial-preparation materials (CPLR 3101[b], [c], [d]). Privileged matter includes confidential communications between an attorney and client made to obtain or provide legal advice. Attorney work product and trial-preparation materials include materials prepared by an attorney that contain legal analysis or strategy, along with statements made prior to and during litigation. The party asserting the privilege must establish entitlement to it and show that confidentiality has not been waived.

In general, communications between an attorney and client lose their confidential status if they are made in the presence of, or subsequently disclosed to, a third party. For example, the presence of a client’s friend or relative at an attorney-client meeting could potentially waive the privilege, as could sending an email to someone summarizing the attorney’s advice.

The common-interest doctrine carves out an exception to this rule. Under this doctrine, attorney-client communications disclosed to a third party remain privileged if that party shares a common legal interest in pending or anticipated litigation. This exception ultimately prevented the disclosure of communications between a limited liability company and its part owner in West 87 LP v. Paul Hastings LLP.

Analysis

In West 87 LP v. Paul Hastings LLP, the plaintiffs—a group of limited liability companies with various interests in a real-estate development project—sued defendant Paul Hastings LLP for legal malpractice. Defendant had represented plaintiffs in the execution of lease agreements for the project, and plaintiffs claimed that defendant failed to properly draft a rent-escalation clause in a lease for the development.

During discovery, plaintiffs produced documents that contained communications between themselves and one of their owners, Quadrum Global, who was not a party to the litigation. Plaintiffs moved for a protective order to shield from disclosure several communications between themselves and Quadrum, which they claimed were privileged. The withheld documents included communications conveying information provided by outside legal counsel, information obtained from outside legal counsel to evaluate claims against defendant, communications about drafting the malpractice complaint, discussions about prior and anticipated legal advice, and requests for legal advice relevant to the litigation.

Plaintiffs conceded that the withheld communications were not actually between attorney and client, and that they did not include their attorneys as senders or recipients. Rather, the communications were between plaintiffs’ representatives and Quadrum’s representatives. Plaintiffs argued that either the attorney-client privilege, the attorney work-product privilege, or the trial-preparation privilege shielded these communications from disclosure.

The court agreed that the common-interest doctrine applied. It reasoned that plaintiffs’ and Quadrum’s representatives were “interrelated,” and their communications addressed the pending litigation, litigation strategies, and the preparation of materials relevant to the litigation. Thus, even these communications between non-party entities and non-lawyers were protected from disclosure because of the parties’ “common legal interests” in the lawsuit.

Conclusion

West 87 LP demonstrates just how useful the common-interest doctrine can be to commercial litigators. A client in some corporate form, like West 87 LP, may well share ownership interests with non-party entities who wish to stay abreast of pending or anticipated litigation. In those instances, the client is likely safe to share privileged communications with such a party, so long as they share “common legal interests” in the litigation.

Nonetheless, the prudent litigator should be cautious. It makes sense that the court in West 87 LP applied the common-interest doctrine to communications with a company’s part owner; Quadrum’s ownership interest necessarily made it interested in the outcome of the litigation. But what if Quadrum were, for example, a subcontractor? Or perhaps a friend’s business embroiled in similar litigation? In those instances, the client may be better served by keeping its attorney’s advice to itself. Otherwise, the privilege may be waived, and those communications may be discoverable.

Boy,With,Hands,Covering,Eyes,Playing,Hide,And,Seek,In

The old game of “hide-and-seek” brings many of us back to our childhood as one of our favorite ways to pass time during the summer. As commercial practitioners know, the concept of serving a summons and complaint in a case can be similar to playing an adult version of “hide-and-seek.”  However, the days in which service of a summons and complaint can only be accomplished by physical delivery to a defendant seem outdated in our ever-growing technology reliant society. A recent decision from Manhattan Commercial Division Justice Robert R. Reed confirms as much, finding that service of process by email will suffice when dealing with an elusive litigant.

Background

In Jun Gao v Coconut Beach/Haw., LLC, Plaintiff was solicited by several defendants, including Jason Ding (“Defendant”), to invest in the development of a luxury hotel in Hawaii (the “Project”), which would purportedly qualify Plaintiff for an EB-5 Immigrant Investor Green Card. Plaintiff then entered into an agreement with defendants, whereby Plaintiff agreed to invest $550,000 into the Project (the “Agreement”). Over the next two years, several issues occurred with the construction of the Project.

As a result, in or around January 2020, Plaintiff and defendants entered into a withdrawal agreement, whereby defendants agreed to pay Plaintiff his initial investment of $550,000 (the “Withdrawal Agreement”). Despite many assurances, defendants failed to pay Plaintiff under the terms of the Withdrawal Agreement.

Plaintiff then commenced a litigation against defendants, alleging that defendants breached their contractual obligations by failing to fully compensate Plaintiff under the Withdrawal Agreement. During the course of litigation, Plaintiff filed a motion to serve Defendant via an alternate method of service pursuant to CPLR § 308(5) , which provides that “[p]ersonal service upon a natural person shall be made …  in such manner as the court, upon motion without notice, directs, if service is impracticable under paragraphs one, two and four of this section.”

In describing for the court his unsuccessful efforts to serve Defendant, Plaintiff stated that he (i) performed a Westlaw Edge search that produced two addresses for Defendant in two different states (Illinois and California); (ii) attempted service on Defendant on seven different occasions at the Illinois and California addresses; (iii) sent demand letters to Defendant’s last known business address, which were all returned as “undeliverable”; and (iv) had his counsel personally visit Defendant’s last known business address, only to be told by the front desk concierge that none of the companies were tenants in the building. However, Plaintiff advised the court that he was aware of Defendant’s email address and was successful in sending Defendant a copy of the demand letter during the course of the litigation.

In its decision, the court first focused on the “impracticability” requirement of CPLR § 308(5), observing that its meaning depended on the facts and circumstances of the case. Based on its review, the court held that Plaintiff demonstrated numerous attempts to effect personal service on Defendant, as well as Plaintiff’s diligence in searching for an alternate address (personal and business) where Defendant could be served. The Court then focused on the method of alternate service (i.e. email) and whether it was an acceptable form of service. The court noted that the First Department held in (NMR e-Tailing LLC v Oak Inv. Partners, 216 AD3d 572 [1st Dept 2023]), that a plaintiff can properly effectuate service by email, and granted Plaintiff’s motion for alternate service upon Defendant.

Upshot

In sum, the Coconut Beach decision serves as an important reminder that allowing for alternative methods of service (i.e. email) may put an end to certain hide-and-seek tactics and/or gamesmanship. That said, as advances in technology continue to shape the legal industry, it will be interesting to see how adaptable courts will be in allowing service of process via other digital platforms and/or methods (i.e. TikTok, Twitter a/k/a “X,” and Instagram).   

Disclosure,-,Word,On,A,Graph,With,Pencils,And,A

Section 3101(a) of the CPLR provides for the “full disclosure of all matter material and necessary in the prosecution or defense of an action.” This standard requires the disclosure “of any facts which will assist preparation for trial by sharpening the issues and reducing delay and prolixity” (Madia v CBS Corp, 146 AD3d 424, 424-425 [1st Dept 2017]). Under CPLR 3124, a party making a motion to compel discovery must demonstrate that the discovery sought is “material and necessary” and must meet the test of “usefulness and reason.” But, parties are at liberty to narrow the, otherwise, broad statutory discovery guidelines provided by the CPLR. A recent decision from Justice Robert Reed of the Manhattan Commercial Division in Latin Mkts. Brazil, LLC v McArdle reminds us that the court will abide by the terms of a voluntary waiver of discoverable materials absent any mistake, fraud, collusion, or accident.

Background

McArdle involved post-employment restrictive covenants that provided for “non-disclosure of confidential information, non-solicitation of employees and clients, and a non-compete clause” which Defendants Mr. Mallon and Mr. McArdle (collectively the “Defendants”) – former employees – signed upon their resignation from their Plaintiff-employer Markets Group (“Plaintiff” or “Company”).The duration of the non-solicit and non-compete clauses to which Defendants consented to lasted from July 2020 through July 2021.

Analysis

Plaintiff alleged that Defendants were in breach of the post-employment restrictive covenants because Defendants used confidential information to compete with Plaintiff and to tortiously interfere with Plaintiff’s business relationships. Plaintiff alleged that throughout document discovery, Defendants’ violation was demonstrated by documents showing their formation of the competing company while under Plaintiff’s employ; their downloading of confidential information before leaving the Company; and transferring this information to their personal email accounts. Plaintiff moved to compel the discovery of Defendants’ texts and social media messages from three-months prior and after the formation of Defendants’ competing company in July 2020.

Plaintiff argued that the communications sought were relevant to the adjudication of the case and are narrowly tailored to the needs of the case. Plaintiff contended that these communications were likely to show which of Plaintiff’s clients Defendants attempted to solicit and contact, as well as any other conversations of improperly utilizing Plaintiff’s confidential materials.

The ESI stipulation to which Plaintiff consented stated that “the following sources of ESI information do not warrant collection, search, review or production: (a) Voicemail, text messages, personal phones or tablets and instant messages.” The court, therefore, denied Plaintiff’s motion to compel because the ESI stipulation explicitly prohibited the disclosure that Plaintiff sought and because Plaintiff failed to demonstrate any mistake, fraud, duress or coercion that would call for the overturning of the stipulation.

Conclusion

While the CPLR provides broad statutory discovery guidelines, parties are free to limit the discovery sought. In sum, absent any mistake, fraud, duress or coercion, courts will adhere to the narrow scope of discovery consented to by the parties.

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Mario Verduzco, Unsplash

Section 3104 of the CPLR authorizes courts to appoint a judge or referee to supervise disclosure proceedings. The appointed referee enjoys “all the powers of the court” to resolve discovery disputes. A party seeking review of a referee’s order must, within five days after the order is made, file a motion in the court in which the action is pending. Lawyers involved in supervised disclosure proceedings should be familiar with the requirements for review contained in CPLR 3104(d). In a recent decision from New York County’s Commercial Division, Justice Robert R. Reed reminds us that only strict adherence to those requirements will suffice to obtain review.

Background:

In Oldcastle Precast, Inc., v. Steiner Building NYC, LLC et al., plaintiff entered a contract with defendants to manufacture, furnish, and install pre-cast concrete structures for construction of a film and television soundstage complex in the Brooklyn Navy Yard. Plaintiff brought suit against defendants for breach of contract, alleging that defendants failed to pay the balance due after plaintiff completed performance.

The parties engaged in extensive discovery disputes, so the court appointed a special referee under CPLR 3104(a) to facilitate a resolution. After multiple conferences and letter-orders, the referee decreed that discovery was complete and directed the parties to advise the court of her determination.  

Several weeks later, plaintiff advised the court that discovery had concluded and filed a note of issue and certificate of readiness. Defendants moved to vacate the note of issue under 22 NYCRR 202.21(e) on the grounds that discovery was not complete. They claimed the referee left open “two significant discovery issues” that precluded the filing of a valid note of issue: (1) whether plaintiff should be sanctioned for spoliation of evidence; and (2) the propriety of plaintiff’s rebuttal expert reports and defendants’ sur-rebuttal expert reports.

Analysis:

The court denied defendants’ motion to vacate the note of issue. It determined that the spoliation issue was already pending in connection with defendants’ motion for summary judgment, therefore it would be decided on that motion and did not warrant vacatur of the note of issue. Further, the propriety of plaintiff’s rebuttal expert reports—which the referee expressly declined to rule upon and deferred to the court—could be addressed instead by a motion in limine and did not warrant vacatur of the note of issue.

The decision’s apex addressed the propriety of defendants’ “supplemental” sur-rebuttal expert reports, which the referee had precluded. By letter-order, she determined that the supplemental reports were late and lengthy; the date for expert depositions was imminent by then, and there already had been protracted discovery delays. To allow defendants’ voluminous submissions would require postponement of the expert depositions and cause more delays.

Defendants took exception to this ruling. They argued that the referee’s preclusion of their supplemental expert reports was inconsistent with her decision to defer the propriety of plaintiff’s rebuttal expert reports to the court. The referee allowed the parties to file letter-submissions on the issue to preserve their arguments for appeal, and the parties submitted their letters three days after the ruling.

The court declined to review the referee’s ruling on defendants’ motion to vacate the note of issue. It asserted that defendants should have sought the remedy prescribed by CPLR 3104(d), which would have required them to file a motion for review with the court within five days of the date of the referee’s order. But they failed to do so, and their letter-submission to the referee did not reserve their right to challenge the decision in court. In short, only strict adherence to CPLR 3104(d) would suffice to contest the referee’s decision, and any attempt to do so beyond the statute’s five-day timeline was untimely.

Conclusion:

As the Oldcastle decision shows, CPLR 3104(d) is the exclusive mechanism for prompt judicial review of a special referee’s order. Practitioners should be mindful to heed the statute’s five-day timeline in any supervised discovery proceeding, and to lodge their objections by filing a motion before the assigned judge rather than by submitting a letter to the referee. Otherwise, review will have to await an appeal from the final judgment.

Real,Estate,Purchase,And,Sale,Transaction,Litigation.,Sale,Of,Real

Commercial Division Rule 11-f establishes that a party may serve a notice or subpoena on any legal or commercial entity. Upon receiving this notice, the responding party must then designate and produce a corporate representative for the deposition, who is prepared to testify about information known or reasonably available to the entity concerning topics listed in the deposition notice. While a corporate representative deposition may serve as a great discovery tool, it may also serve as a dangerous trap. In a recent decision from the Manhattan Commercial Division, Justice Andrea Masley reminds us that parties who attempt to depose an additional corporate representative of the same entity are fighting a losing battle.

Background

In Phillips Auctioneers LLC v Grosso, the plaintiff, an auction house that specializes in the sale of 20th century and contemporary art, entered into a consignment agreement (the “Agreement”) with defendant, for a drawing (the “Work”) that Defendant represented as being made by the late American artist Cy Twombly.

Under the Agreement, Plaintiff advanced Defendant $1,500,000, which Defendant agreed to repay by a certain date. In addition, Defendant agreed (i) to pay Plaintiff’s out-of-pocket costs and a withdrawal fee equal to 25% of Plaintiff’s pre-sale estimate for the Work if Plaintiffs withdrew the Work from sale under certain circumstances; and (ii) expressly warranted that the Work was authentic and had disclosed all material information regarding the Work that might affect its sale or value.

During the verification process, Plaintiff received information from the Cy Twombly Foundation (the “Foundation”), which raised serious concerns regarding the Work’s authenticity. As a result, Plaintiffs commenced an action against Defendant, alleging that Defendant breached his contractual obligations to Plaintiff for failing to (i) furnish material information to Plaintiff concerning the Work’s authenticity, and (ii) repay the advance and withdrawal fee. In response, Defendant filed an Answer with Counterclaims against Plaintiff for breach of fiduciary duty, alleging that Plaintiff failed disclose material information it received from the Foundation, which resulted in the Work’s withdrawal for sale.

During the course of litigation, Defendant served the Foundation with a non-party deposition subpoena. As a result, the Foundation designated David Baum as its corporate witness, who was eventually deposed by Defendant’s counsel. Seven months after Mr. Baum’s deposition, Defendant filed a motion pursuant to CPLR 3124, to compel the deposition of Nicola Del Roscio as an additional corporate witness for the Foundation, along with additional relevant documents. In opposition, Plaintiff argued that the additional deposition was unnecessary, as the Foundation’s corporate witness, Mr. Baum, was an adequate witness who answered all relevant questions during his deposition.

In reviewing the motion, the Court acknowledged the standard for requesting an additional deposition is as follows, “[t]he party moving for an additional deposition must demonstrate that (1) the representatives already deposed had insufficient knowledge, or were otherwise inadequate, and (2) there is a substantial likelihood that the persons sought for depositions possess information which is material and necessary to the prosecution of the case” (Nunez v Chase Manhattan Bank, 71 AD3d 967, 968 [2d Dept 2010]). Based on this standard, along with a review of Mr. Baum’s deposition testimony, Justice Masley found that Defendant failed to demonstrate the first element, as Mr. Baum had sufficient knowledge and/or was an adequate corporate representative of the Foundation. In addition, the Court acknowledged that the additional information and/or discovery that Defendant sought from Mr. Del Roscio was unrelated to whether or not Plaintiff breached his obligations under the Agreement. As a result, the Court denied Defendant’s motion to compel the deposition of Mr. Del Roscio as an additional corporate witness for the Foundation.

Conclusion

In sum, the Grosso decision demonstrates that parties will face an uphill battle when seeking an additional deposition of a corporate representative. Moving forward, counselors preparing to take a deposition of a corporate representative must put forth significant time and planning in order to avoid the onerous burden needed to obtain an additional deposition.

Data,Security,Concept

Under Section 216.1(a) of the Uniform Rules for Trial Courts (“Section 216.1(a)”), courts are authorized to seal documents “upon a written finding of good cause, which shall specify the grounds thereof.” Section 216.1(a) states that “whether good cause has been shown, the court shall consider the interests of the public as well as of the parties.”  A recent decision from Justice Andrea Masley of the Manhattan Commercial Division in Aydus Worldwide DMCC v. Teva Pharmaceuticals Industries Ltd., serves as a gentle reminder that documents merely marked as “confidential,” “private,” or for “Attorneys’ Eyes Only” are not a sufficient to demonstrate “good cause,” triggering the court’s judicial discretion to seal the record.

Background

Defendant Teva Pharmaceutical Industries Ltd. (“Defendant”) moved for an order, under Section 216.1 (a), to seal unredacted versions of Plaintiff Zydus Worldwide DMCC’s (“Plaintiff”) Interrogatory Responses and Plaintiff’s Memorandum of law. Defendant argued that because the documents contain nonpublic financial and business information that the Plaintiff, itself, designated as for “Attorneys Eyes Only,” those documents therefore should be sealed in their entirety. Defendant, in its moving papers, further argued that “private companies have a compelling interest in maintaining the confidentiality of information that if disclosed, would harm their competitive standing.”

The Aydus Court’s Holding

The Aydus Court acknowledged that, in a business context, courts have exercised their discretion in sealing the record, in circumstances where the disclosure of documents “could threaten a business’s competitive advantage.” In addition, the Aydus Court stated that records containing financial information may only be sealed when no showing has been made regarding relevant public interest in the event that such information will be revealed.

The party seeking to seal the records has the burden to show that “compelling circumstances [exist] to justify restricting public access” to the documents. The Aydus Court found that the Defendant failed to satisfy its burden. Defendant merely argued that the documents were “designated as Attorneys’ Eyes Only” by the Plaintiff and failed to explain how the information in these documents, if disclosed, would be damaging to the parties or nonparties.

As a result, the Aydus Court denied Defendant’s motion because Defendant did not demonstrate “good cause” to redact any of the information at issue or seal the records in their entirety. The Aydus Court further highlighted that the “mere the fact that [a party] has designated the documents at issue as “Attorneys’ Eyes Only” is not itself a basis for sealing them or redacting information from them.” Similarly, even though parties may have mutually agreed to seal the record, consent does not circumvent the “good cause” requirement of Section 216.1 (a).

Upshot

Demonstrating that “good cause” exists for purposes of sealing records is a substantial burden for parties to overcome. Parties seeking to seal the records must look beyond how documents are designated and have a sufficient basis in making a motion to seal.

Did you know that the New York State United Court System publishes an annual report covering the advances, challenges, and achievements in and by our New York State courts over the past year? If you did not, now is the time to head over to the NYCourts website and browse the recently released 45th Annual Report covering the 2022 calendar year.

The Annual Report is a visual reminder that we practice in “one of the largest, busiest, most complex court systems in the world,” as Acting Chief Administrative Judge Tamiko Amaker describes. Accompanied by vivid photos of some of the people and places involved with our courts, the 2022 Annual Report highlights the UCS’s initiatives toward equal justice within the courts (pgs. 15-23) and public access to justice (pgs. 25-39), as well as a fiscal overview of the UCS (pg. 55), and caseload statistics (pgs. 59-69).

Of particular interest to readers of this blog is the feature on the Commercial Division.

Since its creation in 1995, the Commercial Division of the New York State Supreme Court has transformed business litigation and made the State a preferred forum for complex business disputes. Renowned as one of the world’s most efficient venues for the resolution of commercial disputes and located in the world’s leading financial center, the Commercial Division is available to businesses of all sizes, both inside and outside the State of New York

Ever advancing the ball in substantive areas of the law and procedural rules and practices, the Commercial Division adopted and enacted 11 of the new procedural rules and amendments proposed by the Commercial Division Advisory Council in 2022 (which this blog has spotlighted), to wit:

As we move further into 2023, keep an eye on this blog for updates on developments in the Commercial Division’s rules and practices. As we’ve said before, always check the rules!

Hat tip to Chair of the Advisory Council and friend-of-the-blog, Robert L. Haig, for continuing to share with us the good work being done by the Advisory Council throughout the year.