Disclosure of Electronically Stored Information (“ESI”) has become a staple in commercial cases.  Of course, with the vast number of documents and ESI being reviewed and the increased complexity in the review process, the risk of inadvertent production of privileged information is at its highest.  The inadvertent production of privileged material often leads to lengthy, costly litigation, the consequences of which can be disastrous to litigants.

While the most efficacious approach for addressing privilege waiver as a result of inadvertent disclosure would be an amendment to the CPLR, there’s no telling whether the Legislature will pass such an amendment, or when.  Accordingly, the subcommittee of the Commercial Division Advisory Council (the “Subcommittee”) has proposed an “interim measure” to address these concerns.  Specifically, the Subcommittee proposed a new amendment to Commercial Division Rule 11-g (which addresses confidentiality orders in the Commercial Division) to incorporate specific “privilege claw-back” language into the confidentiality order.  Parties employing the language would agree to:

  • Implement and adhere to reasonable procedures to prevent the disclosure of privileged information;
  • Take reasonable steps to correct errors when protected information is inadvertently produced;
  • Return or destroy copies of inadvertently produced protected information upon request of the producing party;
  • Neither challenge the producing party’s document review procedure or its efforts to rectify the production error, nor claim that the return of the protected information has caused the receiving party to suffer prejudice.

This language is consistent with existing New York case law regarding inadvertent privilege waiver, which provides that the inadvertent production of documents does not constitute a waiver if: (i) the producing party had no intention of producing the document; (ii) the producing party took reasonable steps to ensure that the document was not disclosed; (iii) the producing party took prompt action to rectify the inadvertent production; and (iv) the party receiving the inadvertently produced document would not suffer prejudice by having to return the document.  See, e.g., AFA Protective Sys., Inc., v City of New York, 13 AD3d 564, 565 [2d Dept 2004].

The proposed amendment seeks to protect litigants from the inadvertent disclosure of protected information and reduce the number of disputes arising from inadvertent productions.  And, by incorporating language consistent with New York case law, the proposed amendment ensures that the parties take steps necessary under New York law to avoid an inadvertent waiver and take prompt action to rectify the inadvertent production if it occurs.

There’s a little over a month left to chime in on this important proposed amendment.  Persons wishing to comment on the proposal should e-mail their submissions to rulecomments@nycourts.gov or write to: John W. McConnell, Esq., Counsel, Office of Court Administration, 25 Beaver Street, 11th Floor, New York, New York 10004.  Comments must be received no later than January 16, 2018.

Notwithstanding general public opinion of attorney ethics, most people (including attorneys) believe that an attorney cannot dump a client in the middle of litigation to represent the other side. However, attorneys in the First Department may be surprised to learn that, in certain circumstances, a representation adverse to their former clients, even in litigation arising from substantially similar facts and issues, is sometimes allowed. Justice Shirley W. Kornreich of the New York County Supreme Court recently discussed these circumstances in two related decisions (found here and here) over the past year (Omnivere, LLC v. Friedman, No. 154544/2016).

First, some brief factual background. In 2013, Marcie Balint sold her legal staffing company, B3, to various individuals and companies referred to in subsequent litigation as “the Friedman Parties,” who then sold B3 to Omnivere, LLC. In 2014, Balint, represented by attorney Robert Bernstein of Eaton & Van Winkle, sued Omnivere, LLC and the Friedman Parties to enforce a consulting agreement. In response, the Friedman Parties asserted a third-party claim against the former CEO of B3, Gadi Rosenfeld, for allegedly approving a version of Balint’s consulting agreement that was different from the version that had been authorized.

On October 20, 2014, Rosenfeld met with Bernstein and provided documents and information to assist Balint in her actions against Omnivere, LLC and the Friedman Parties. In exchange, Bernstein agreed to represent Rosenfeld at a reduced hourly rate in the Friedman Parties action only (in May 2015, Rosenfeld, represented by separate counsel, commenced an action against Omnivere, represented at the time by Perkins Coie, alleging nonpayment of consulting fees).

At some point during the following year (when, exactly, was the subject of debate between the parties), Bernstein claimed to have become aware that Rosenfeld assisted the Friedman Parties in lying to Omnivere about the financial condition of B3 and other companies that Omnivere purchased from the Friedman Parties. In September of 2015, Balint settled with Omnivere, and together they joined forces with Bernstein as counsel in the remaining litigations with the Friedman Parties and Rosenfeld. Consequently, in November of 2015 Bernstein withdrew as counsel to Rosenfeld and replaced Perkins Coie as counsel of record to Omnivere.

On May 27, 2016, Omnivere commenced a new action against the Friedman Parties asserting causes of action for fraud, breaches of the asset purchase agreement governing the sale of B3, and conversion. Although Rosenfeld was not a named defendant, Omnivere’s complaint alleged Rosenfeld’s participation in the fraudulent scheme. If Omnivere prevails, Rosenfeld will lose shares of Omnivere equity.

Based on Bernstein’s prior representation of Rosenfeld, the Friedman Parties and Rosenfeld moved to disqualify Bernstein. Justice Kornreich denied the motion.

The Friedman Parties’ motion was denied because they had never been former clients of Bernstein and therefore lacked standing. The court held that it lacked authority to grant disqualification motions to non-clients, especially where such motions were intended as a litigation tactic, because the power to sanction attorneys for ethical violations is “principally vested in the Appellate Divisions.”

As for Rosenfeld’s motion, the court found that there was insufficient proof that Rosenfeld had actually provided information to Bernstein during the prior representation that would be prejudicial to Rosenfeld. Citing the First Department’s decision in Mayers v Stone Castle Partners, LLC, 126 AD3d 1, 6 (1st Dept 2015), the court held that rather than simply resolving all doubts in favor of disqualification to avoid the appearance of impropriety, as was required under the old rules, disqualification should be denied if “the conveyed information did not have the potential to be significantly harmful to the former client in the matter from which he seeks to disqualify counsel.” This standard required an evidentiary hearing to determine what information was actually conveyed from Rosenfeld to Bernstein and whether it had the potential to be significantly harmful to Rosenfeld. The Special Referree conducted a two-day hearing and issued a report finding that no “confidences that were harmful to Rosenfeld” had been disclosed to Bernstein.

Justice Kornreich appeared to have had misgivings about the proper application of the First Department’s decision in Mayers, noting that other Appellate Division Departments (as well as the First Department, occasionally) still apply the rule that doubts must be resolved in favor of disqualification. Justice Kornreich therefore explicitly appealed to the First Department for additional “guidance” on the continued applicability of this rule, as well as whether the requirement that the conveyed information have the potential to be “significantly harmful” is consistent with the Court of Appeal’s apparent holding to the contrary in Tekni-Plex, Inc. v Meyner & Landis, 89 NY2d 123, 131 (1996) (“By mandating disqualification irrespective of any actual detriment—that is, ‘even when there may not, in fact, be any conflict of interest’—the rule also avoids any suggestion of impropriety on the part of the attorney.”). Indeed, other recent decisions by the First Department involving legal professionals “switching sides” indicates continued adherence to the rule that “whether there is a conflict of interest must be resolved in favor of disqualification.” See USA Recycling, Inc. v Baldwin Endico Realty Assocs., Inc., 147 AD3d 697 (1st Dept 2017).

Until further clarification is received from the First Department, attorneys for now may evaluate representations adverse to former clients based on whether there would be actual prejudice to the former client, without regard to the appearance of impropriety or unfairness to other (non-client) parties.

So you were just retained on what could become a high-profile case.  The stakes are high, and it’s unclear how this will play in the media.  The issue may arise based on the parties to the case, the nature of the claims, or both.  Either way, as part of your litigation strategy, you decide that the assistance and guidance of a public relations or media crisis management firm is wise and necessary to render effective counsel.  You prepare your standard Kovel letter, and retain the PR consultant to assist.  As part of that engagement, you advise both consultant and client that it is essential that  you — as counsel — be copied on all communications so as to ensure the protection of privileged communications.  Is this enough protection to guard against the PR consultant from being compelled to disclose communications?  Maybe not.

In Gottwald v. Sebert, a case involving singer-songwriter and recording artist Kesha, Justice Shirley Kornreich ordered non-party Sunshine Sachs (the PR consultant) to produce certain documents identified on its privilege log.  The court held that the communications with the PR agency were not necessary for the rendering of legal advice.  Simply copying an attorney on the communication is not enough to invoke the attorney client privilege.  In footnote 7, the court raised an issue with respect to draft complaints logged and whether they were protected by the work product doctrine, which the court noted “is less likely to result in a waiver than with the attorney-client privilege.”  Following the court’s decision, counsel for defendant submitted a letter addressing the work product issue and why it prevented disclosure of certain materials.  The parties have been ordered to address this issue at an upcoming court conference in December.

Hiring a PR consultant to assist counsel navigate the media minefield, although wise, can be risky.  The court in Gottwald  analyzed the growing body of case law in this area, particularly in the federal courts within the Second Circuit, which seem to lean toward not finding “necessity” for the PR consultant’s involvement, but they are more apt consider application of the attorney work product doctrine.  Of course, unlike privilege, work product may, under certain circumstances be invaded, see Fed. R. Civ. P. 26(b)(3)(A).

There are several key decisions from the federal courts on this issue, namely, In re Chevron (SDNY; Kaplan, J.), Calvin Klein Trademark Trust v. Wachner (SDNY; Rakoff, J.), and Bloomingburg Jewish Educ. Ctr. v. Vill. of Bloomingburg (SDNY; Forrest, J.), that are a “must read” before engaging a PR consultant.  In New York, there is a scarcity of decisions, but the First Department in 2014 ruled in Pecile v. Titan Cap. Group, LLC that communications with a PR consultant do not per se waive the privilege.   The common thread in all of these authorities is to determine whether the particular communications with the PR consultant are necessary in order for counsel to render informed legal advice to the client.

 

“The expert discovery rules are promulgated so no party will be ‘sandbagged’ or surprised by another expert’s opinion” – Manhattan Commercial Division Justice Eileen Bransten

Several weeks ago, we reviewed some of the newer Commercial Division Rules and reported on a couple of recent decisions from Justice Shirley Werner Korneich of the Manhattan Commercial Division applying one of those Rules, Rule 11-c, concerning nonparty electronic discovery.  We follow up this week as promised with a look at another recent new-rule application from the same court.

Earlier this year, Justice Eileen Bransten, whose similarly-insightful decisions also are regular fodder for this blog, addressed issues concerning expert disclosure under Commercial Division Rule 13(c) in Singh v PGA Tour, Inc.Sandbagger

In Singh, the plaintiff, a professional golfer and member of the defendant PGA Tour, sued the Tour alleging that he had been humiliated by an arbitrary administration of the Tour’s anti-doping program and that the Tour wrongfully withheld his prize monies.  Singh had used a product called “deer antler spray” between seasons to address knee and back problems.  Sports Illustrated later posted an article about the spray on its website, referencing Singh’s use and suggesting that he had used it in violation of the Tour’s drug policy.  Singh responded by providing the Tour with a bottle of the spray for testing.  The initial results were negative for steroids but positive for a separate prohibited substance called “IGF-1.”  The Tour suspended Singh and held his 2013 prize money in escrow.  Singh challenged the Tour’s determination in arbitration.

The World Anti-Doping Agency, from which the Tour adopted its list of prohibited substances, subsequently determined that deer-antler spray was not a prohibited substance.  As a result, the Tour dropped its disciplinary action against Singh, and the arbitration was discontinued on the eve of the hearing.  Singh then sued the Tour in the Manhattan Commercial Division.

In the course of expert discovery in the Supreme Court action, Singh submitted a second, expert “reply report,” which the Tour challenged under Commercial Division Rule 13(c) as “impermissibly including new opinions which were not included in the first report.”  Specifically, Singh’s expert reply contained certain newly-obtained “consumer data” leading Singh to conclude that the “Tour suspension reduced the favorable criteria that marketing executives would use in their decision-making process in evaluating Singh’s viability as a spokesperson/endorser/advocate.”

Rule 13(c) mandates that an expert report contain, among other things, “a complete statement of all opinions the witness will express and the basis and the reasons for them,” as well as “the data or other information considered by the witness in forming the opinion(s).”  Quoting from The Chief Judge’s Task Force on Commercial Litigation in the 21st Century, Justice Bransten noted in her decision that “this rule was promulgated in an effort to harmonize the disclosure rules of our state and federal courts,” and that the Commercial Division looks to the Federal Rules of Civil Procedure “for guidance on expert disclosure issues.”  Federal Rule 26(a)(2)(B) mandates that an expert report contain the same statement, data, and information cited above, and Federal Rule 37(c)(1) provides that if a party fails to do so, “the party is not allowed to use that information or witness to supply evidence on a motion, at a hearing, or at trial.”

Justice Bransten granted the Tour’s motion to strike Singh’s expert reply, finding that “the new analysis, information, opinion and data contained within Plaintiff’s Reply Expert Report violates Commercial Division Rule 13(c) and FRCP 26.”  Noting the “egregiousness of the belated disclosure,” Justice Bransten cautioned Commercial Division practitioners that Rule 13(c) does not provide for “an opportunity for a party to ‘correct’ the deficiencies and omissions made in an initial expert report — including addition of new data and opinions, particularly when that data was available to the expert at the time the initial report was issued” or for an expert “to say what he neglected to say in his opening report.”

The rules of golf prohibit a player from “sandbagging” or deceiving others about their knowledge, intentions, and abilities.  As Justice Bransten’s recent decision in Singh v PGA Tour, Inc. makes clear, the same goes for the Commercial Division Rules regarding expert disclosure.

**Nota Bene** – Readers interested in hearing from Commercial Division Justices directly on lessons to be drawn from the implementation of some of these new rules and rule-changes should register for the upcoming Bench & Bar Forum sponsored by the NYSBA Commercial & Federal Litigation Section.  The program, entitled “True Innovation and Efficiency: New York County Commercial Division Justices Discuss the Success of the New Commercial Division Rules,” is scheduled for the evening of November 27th at Foley & Lardner LLP.

Under Delaware law, the decision to commence litigation on behalf of a corporation is, of course,  a fundamental exercise of business judgment, which decision rests with the Board of Directors.  A shareholder, therefore, cannot bring a derivative action without pleading that a demand on the corporation to do so had been made, or that such demand would have been “futile.”  The shareholder, therefore, has an initial decision to make:  make the demand, or plead futility. 

Recently, in Reese v. Andreotti, Justice O. Peter Sherwood dismissed a derivative action brought by a shareholder who made the demand, which was rejected by the Board.    Relying on Delaware law, the court noted that the mere making of a demand is a tacit acknowledgment by the shareholder that there is an absence of facts that would support a “futility” argument (citing Spiegel v. Buntrock).  Mere disagreement with the Board’s conclusion is simply not sufficient to raise doubts about the Board’s good faith and whether it acted on an informed basis.  Similarly, the court held that by making a demand, a shareholder is effectively conceding that his demand can be fairly assessed and thereby waives any later claim that the Board members were conflicted.

How about the availability of discovery to determine the reasonableness of the Board’s rejection of the demand?  “No” says the court, relying on both Delaware law and New York law, which come to the same conclusion:  plaintiffs are not entitled to discovery to assess the reasonableness of the Board’s rejection.

Making a demand or pleading futility becomes an important, strategic first step in any derivative action.  There are presumptions and ramifications that must be considered before the chosen course is charted and demand is made.

 

 

Under what circumstances do customer information and business operations constitute “trade secrets” that may be enjoined from use by a former employee ? A recent decision by Justice Elizabeth H. Emerson on this issue serves as a stark reminder that a preliminary injunction requires “clear and convincing” proof that the information is truly a secret.

In Devos, Ltd v. United Returns, Inc., recently-troubled pharmaceutical-return company Devos sought to enjoin its former employees from operating a competitor, United Returns, pursuant to business tort law and non-compete/solicitation provisions contained in the former employees’ employment contracts. In August 2015, Devos obtained a temporary restraining order and sought a preliminary injunction, which United Returns subsequently moved to vacate. 

The court denied the preliminary injunction and vacated the temporary restraints. After finding that the non-compete provisions included in the restrictive covenants were overly broad, the court found that the restrictive covenants were unnecessary, as well. As for Devos’ business tort claims involving misappropriation of trade secrets, the court found that “clear and convincing evidence” of a trade secret was lacking. In particular, the court rejected Devos’ contention that its customer information and business operations were “trade secrets” that United Returns had unfairly exploited to obtain competitive advantages. Crucially, there was no evidence that Devos had taken measures to protect its customer lists from disclosure; in fact, United Returns submitted evidence that the names of Devos’ customers were publicly available and well known within the industry.

Nor did the manner in which Devos conducted its business constitute a “trade secret.” United Returns introduced evidence that Devos’ systems and processes were used throughout the pharmaceutical-return industry, and “an employee’s recollection of information pertaining to the specific needs and business habits of particular customers is not confidential.” Thus, the court reaffirmed and applied the elements of “secrecy”: (1) substantial exclusivity of knowledge of the process or compilation of information and (2) the employment of precautionary measures to preserve such exclusive knowledge by limiting legitimate access by others.

Devos’ failure to meet its evidentiary burden demonstrates how important it is for employers to restrict access to important customer records. But even where efforts have been made to maintain the secrecy of customers’ information, a former employee still cannot be prevented from using that information if it could be easily obtained from publicly available sources.  For example, in Sasqua Group v. Courtney, the Eastern District of New York dismissed a misappropriation action because the  plaintiff’s allegedly “confidential” customer information database could have been duplicated through simple (though lengthy) internet searches. By contrast, in Freedom Calls Foundation v. Bukstel, the Eastern District of New York held that it would be very difficult to duplicate the plaintiff’s efforts in compiling its list of non-profit donors and clients because their personal contact information was not publicly known outside of the industry.  

Merely because a well-trained former employee has successfully competed does not prove that confidential information was misappropriated–all the more reason to take care when drafting non-compete provisions. Absent such an effective provision, Devos serves as a cautionary tale that institutional knowledge sometimes must jump a high hurdle before it can be protected as a trade secret.

ADRTwo recent amendments to the Commercial Division Rules, designed to encourage alternative dispute resolution, will go into effect on January 1, 2018.

The amendment to Rule 10 requires counsel to certify that they have discussed with their clients the availability of alternative dispute resolution options in their case. Specifically, counsel will be required to submit a statement at the preliminary conference, and at each subsequent compliance or status conference, certifying that counsel has discussed the availability of ADR with the client and stating whether the client is “presently willing to pursue mediation at some point in the litigation.”

If the parties indicate their willingness to mediate, the Rule 11 amendment will require counsel to jointly propose in the preliminary conference order a date by which the mediator shall be selected.

The new amendments ensure that the option to pursue mediation is communicated to parties at a relatively early stage in the case, before substantial legal fees are incurred in discovery and motion practice, and before parties become too steadfast in their respective positions. Moreover, by requiring counsel to discuss with their clients the possibility of ADR, the amendments provide a mechanism by which counsel can candidly discuss with their clients the “pros and cons” of ADR in a way that does not signal weakness or lack of confidence in their position.

The amendments to Rules 10 and 11 are in line with federal court local rules which similarly require counsel to discuss the possibility of ADR with their clients and adversaries (see e.g. S.D.N.Y. Local Rule 83.9(d) [“In all cases . . . each party shall consider the use mediation . . . and shall report” to court]; W.D.N.Y. Local Rule 16(b)(3)(B).

The new amendments do not in any way alter Rule 3 of the Commercial Division Rules, which permits the court to direct, or counsel to seek, the appointment of a mediator at any stage of the action.

 

Personal jurisdiction analysis is often the enemy of 1L’s tackling that doozy of a CivPro exam. Outside of  that 10-page fact pattern requiring consideration of Helicopteros Nacionales de Colombia, SA v. Hall, International Shoe Co. v. Washington, and World-Wide Volkswagen Corp. v. Woodsonthis is normally a seamless endeavor for commercial litigators. But what happens when plaintiff’s counsel lacks sufficient information to adequately establish personal jurisdiction in opposition to a CPLR § 3211 (a) (8) motion?

The obvious answer is that the defendant’s motion will be granted. But that is not the only answer. In some cases, the court will deny the motion and grant the plaintiff jurisdictional discovery. In considering the New York County Commercial Division’s (Scarpulla, J.) grant of a CPLR § 3211 (a) (8) motion, the Appellate Division, First Department in Universal Inv. Advisory SA v. Bakrie Telecom PTE, Ltd., offered insight into when this relief is appropriate.

The relevant defendants were an Indonesian telecommunications company (“BTEL”), its parent company (“B & B”), and certain of its directors and commissioners (“Individual Defendants”). Under an indenture, a subsidiary of BTEL (the “Issuer”) issued on BTEL’s behalf $380 million of guaranteed senior notes (“Notes”) that were offered in international financial markets. BTEL then received the $380 million in proceeds from the offering through an intercompany loan from the Issuer, and issued an unconditional guarantee of the Issuer’s payment obligations under the Notes. Plaintiffs, holders of 25% of the Notes, commenced the underlying suit after BTEL defaulted in making the interest payments required under the indenture, which contained a New York forum selection clause. Of particular importance, neither the Individual Defendants nor B & B were signatories to the Indenture (“Non-Signatories”).

The Commercial Division held that the court lacked personal jurisdiction over the Non-Signatories for two reasons: 1) because as non-signatories to the indenture, they could not be bound by the forum selection clause; and 2) the plaintiffs failed to satisfy the “closely related theory,” (see Tate & Lyle Ingredients Ams., Inc. v. Whitefox Tech. USA, Inc.) under which a signatory to a contract may invoke a forum selection clause against a non-signatory if the non-signatory is so closely related to the signatory that enforcement of the forum selection clause against the non-signatory is foreseeable.

In addressing the closely related theory, the First Department explained further that a finding of personal jurisdiction based on a forum selection clause may be appropriate where the non-signatory has an ownership or controlling interest in the signatory, or where the signatory and non-signatory were jointly involved in the decision-making process. In ruling that the dismissal motion should have been denied without prejudice as to the Non-Signatories and that parties should have been permitted to conduct jurisdictional discovery, the First Department held that the plaintiffs demonstrated that facts may exist, which would satisfy the closely related theory. Specifically, the plaintiffs alleged that the Non-Signatories – the Individual Defendants through their senior management positions, power and decision-making authority, and B & B as BTEL’s parent company and principal shareholder – authorized, participated in, and promoted the offering and caused the offering memoranda to be distributed in the marketplace.

The key guidance from the First Department is that jurisdictional discovery is appropriate when information may exist to support a finding of jurisdiction, and where that information cannot without discovery be known by the plaintiff. Not surprisingly, this tracks nearly identically CPLR § 3211 (d), entitled “Facts unavailable to opposing party.” As the First Department explained, the plaintiff’s allegations in Universal Advisory SA warranted jurisdictional discovery regarding the Non-Signatories actual knowledge and role and responsibilities in the offering, because that information “may result in a determination that the nonsignatories are indeed ‘closely related’ to the signing parties, [and] is a fact that cannot be presently known to plaintiff, but rather is within the exclusive control of defendants.”

As we have come to expect, the Commercial Division Advisory Council periodically makes recommendations to amend and/or supplement the Rules of the Commercial Division, many of which are eventually adopted following a solicitation process for public comment by the Office of Court Administration.

In 2015, as a host of new Commercial Division rules and amendments were being rolled out, the NYSBA Commercial and Federal Litigation Section sponsored several panels throughout the metro-area to discuss the impact of the new rules on the various county bar associations.  At the time, Commercial Division practitioners and judges alike were still figuring out how and under what circumstances the new rules – concerning, among other things, interrogatory limitations, categorical privilege logs, nonparty electronic discovery, and expert disclosure – would be applied in their cases.  It’s been a couple years, so let’s take a look at some recent decisions to see how some of these rules are being applied.

Manhattan Commercial Division Justice Shirley Werner Kornreich, whose thoughtful decisions are no strangers to this blog, has at least twice this year addressed Commercial Division Rule 11-c concerning nonparty electronic discovery.  Under Rule 11-c and the corresponding guidelines found in Appendix A to the Rules of the Commercial Division, “[t]he requesting party shall defray the nonparty’s reasonable production expenses” – including, for example, “fees charged by outside counsel and e-discovery consultants” and “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 . . . , and production.”

Recently, in Gottwald v Sebert, Justice Kornreich addressed Rule 11-c in the context of a motion to compel production of documents by a nonparty public-relations firm hired by pop star, “Kesha” Sebert, in connection with her allegations of sexual assault, battery, and harassment against her former manager and producer, “Dr. Luke” Gottwald.  Justice Kornreich granted Dr. Luke’s motion, assessing any burden on the PR firm as “minimal,” given that “hit count caps can be used to keep costs reasonable”; that hit counts for the limited time period in which the firm was involved “should be minimal or nonexistent”; and that Dr. Luke “must reimburse [the firm] for the reasonable costs of . . . review[ing] documents for responsiveness to the subpoena, and log[ging] those that are purportedly privileged.”

Earlier this year, in Bank of NY v WMC Mtge., LLC, Justice Kornreich addressed Rule 11-c in the context of motions to quash nonparty subpoenas in a RMBS put-back case.  In denying the motions, Justice Kornreich similarly assessed the burden on the nonparties as “relatively minimal,” given that the defendant serving the subpoenas “will have to defray the [nonparties’] reasonable document collection, review, and production costs, including certain legal fees.”

Justice Kornreich also addressed Rule 11-b (b) concerning the “categorical” versus “document-by-document” approach to logging of privileged materials in Bank of N.Y. Mellon.  Under Rule 11-b (b) (1), specifically, the Commercial Division had expressed a “preference . . . for the parties to use categorical designations, where appropriate, to reduce the time and costs associated with preparing privilege logs.”  Referencing the parties’ prior meet-and-confer on the subject, Justice Kornreich ruled that “a categorical privilege log, in the first instance, will be employed for the sake of cost efficiency,” and that once the defendant serving the subpoenas “is made aware of the hit count totals associated with the [nonparties’] privilege designations,” it may then “elect . . . to pursue such purportedly privileged documents in light of the legal fees necessary to do so.”

Be sure to check back in a few weeks when we take a look at a couple more recent decisions applying some of these newer Commercial Division rules.  In the meantime, Commercial Division practitioners, particularly those on the receiving end of a nonparty subpoena seeking ESI, should be mindful that the rules defraying the costs of e-discovery appear to have minimized the effect of the commonly-asserted “unduly burdensome” objection.

Can a claim for equitable or common-law indemnification co-exist with a claim for express or contractual indemnification?

In Live Invest, Inc. v. Morgan Justice Emerson says “no”, when the claim seeks to recover for the defendant’s wrongdoing (e.g., breach of contract) as opposed to simply trying to hold a defendant liable based on vicarious liability.

In Live Invest, the court was faced with a motion to dismiss  a third-party action brought by Jericho Capital Corp. (“Jericho”) against Gamma Enterprises, LLC (“Gamma”).  The main action alleged claims seeking to pierce the corporate veil against an individual and several entities, including Jericho.  On motions to dismiss the main action, the court dismissed all but Jericho, see Order, and Order 2, Live Invest v. Morgan (Jan. 13, 2017).   Jericho then pursued the third-party action against Gamma, asserting three causes of action, all premised on variations of indemnification.   The first claim, for express or contractual, based liability on a clause in the Purchase Agreement between Jericho and Gamma, stating that Gamma, “agrees to indemnity and hold harmless [Jericho]. . . from. . . any and all manner of loss, suits, claims,or causes of action. . . arising out of. . . Delta.”  The latter two claims were based on equitable and common-law indemnification.

Noting that equitable or common-law indemnification generally applies when one is held responsible by operation of law due to the relationship of the parties, such as vicarious liability, the dismissed the two equitable claims since the contract itself is claimed to have been breached.  Therefore, the court reasoned, the claim is properly premised for the breach, not by reason of the relationship of the parties.

Interestingly, as to the express or contractual indemnification claim, Gamma raised the threshold issues of whether that claim was “premature” and if the claim for indemnification was incompatible with plaintiff’s veil-piercing claim, see Gamma’s Memorandum of Law.  The Court rejected both arguments.  Finding first that although public policy will render unenforceable contracts that purport to indemnify one for conduct that involves an “intent to harm”, the court here found that nothing precludes indemnification for damages flowing from a mere “volitional act” where no finding of intent to harm has been made.  As to the incompatibility argument, Justice Emerson found that the indemnification and veil-piercing actions could co-exist.  The court reasoned that a claim based on an alter-ego theory is a “procedural device”, not a substantive remedy.  It “merely furnishes a means for a complainant to reach a second corporation or individual”.