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.

A wooden gavel.
Tingey Injury Law Firm, Unsplash

As any practitioner litigating a case before the Commercial Division knows, and as we have mentioned time and again on this blog, it is critical to know the Part Rules of the particular judge assigned to your case.  But getting to know your judge – including the judge’s individual preferences and style – may be just as important.

On March 21, 2023, the Commercial & Federal Litigation Section of the New York State Bar Association hosted the latest in its series of virtual programs pairing young lawyers with Commercial Division judges. The programs are geared to addressing what young lawyers should know about appearing before the judges and providing some practice tips.  

The special guest for the March 21 event was Nassau County Commercial Division Justice Timothy S. Driscoll and was co-moderated in part by Farrell Fritz’s very own James Maguire, a frequent contributor to this blog.

In addition to letting the attendees get a glimpse into his background and some of his personal interests, as well as regaling them with colorful stories of his tenure as a practicing attorney and judge, Justice Driscoll provided very useful practice tips for practitioners who come before him. Below is a summary of some of the key takeaways from the conversation.

  • Get in the Courtroom and Know Your Case Through and Through

Justice Driscoll noted at the outset of the conversation that getting as much experience as you can in the courtroom – even if that just means carrying a senior lawyer’s litigation bag – is critical. As he noted, “the courtroom is the front row seat to the greatest show on earth, which is humanity.”

Justice Driscoll also stressed the importance of being well-prepared and understanding what your case is about and its inflection points of both strength and weakness. He mentioned specifically that lawyers in the Commercial Division are particularly adept at this, and the high-level intellectual stimulation is what gets him so excited about being a judge in the Commercial Division and coming to work every morning.

  • Understand the Principles of Civility

One of Justice Driscoll’s biggest pet peeves is when litigators do not respect their adversaries and do not understand the principles of civility. Justice Driscoll advised that ad hominem attacks and excessive adjectives and adverbs within your legal brief designed to diminish your opponent’s position, as well as interruptions during oral argument, are both unappreciated and a waste of time.  As Justice Driscoll stated, rather than addressing your adversary at oral argument, “you are talking to the Court, and the Court is talking to you.”  

  • Legal Writing: Get to the Point and Provide Binding Authority

Justice Driscoll emphasized that when it comes to legal writing, the most important thing to keep in mind is to get to the point! He stressed that many practitioners lose sight of the main goal of a legal brief, which is to tell the judge (1) what you want him to do, and (2) why he should do it.  For Justice Driscoll, the “why” should be supported by recent, binding, primary authority (no obscure cases from before he was born or from a trial court across the country) ideally from the New York Court of Appeals or the Appellate Division. He further advised that, while long string cites of authority might show off your research skills, they do not help a litigant’s cause in the same way that analogies to the facts of the binding precedential cases do. Justice Driscoll also emphasized the importance of a strong Preliminary Statement within a legal brief since that is the only place within which to make pure legal argument without the fear of citation. 

  • Justice Driscoll’s Method of Reviewing Legal Briefs

Justice Driscoll also shared invaluable insight into his brief-reviewing process.  He noted that he always starts by reviewing the papers in reverse chronological order: reply brief first, then the opposition, and then the opening brief.   For that reason, he cautioned that reply papers should not merely regurgitate arguments made in the opening brief since it is the ultimate opportunity to tell the Court point blank why your adversary is wrong and why you are right.  He stressed that because reply papers provide the benefit of the last word, the opportunity to submit reply papers should always be taken advantage of.

When reviewing a legal brief, Justice Driscoll advised that he scans the brief’s Table of Contents and point headings since those are the “skeleton” of the brief and assist him with easily navigating through thousands of words and getting to the bottom line.  For that reason, it is important that brief headings be made argumentative with the word “because” baked in (i.e., “The First Cause of Action Should Be Dismissed Because . . .”)

Finally, Justice Driscoll advised that since he reads so many sets of legal papers throughout the day, he appreciates when briefs are easy to read and “visually appealing.” To that end, he suggested that practitioners use a font that “jumps off the page” like Century Schoolbook or Georgia (rather than the default font of Times New Roman).

The Commercial Division’s recent conversation with Justice Driscoll reinforces the idea that getting to know the audience – i.e., your Judge – is an invaluable tool for legal advocacy that should always be taken advantage of.  Litigators should use their best efforts to learn about the judges of the Commercial Division and attend programs where they can gain insight into their likes and dislikes.  Whether legal briefs will eventually deviate from Times New Roman . . . well, that remains to be seen!

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Commercial Division Rule 11-b governs a party’s obligation to produce a log of documents withheld on the basis of privilege.  Enacted in 2014, Rule 11-b substantially streamlines the privilege log process by encouraging parties, “where appropriate,” to exchange categorical privilege logs, rather than document-by-document logs.  Rule 11-b instructs the parties to meet-and-confer over the issue, and the parties may use “any reasoned method of organizing the documents” into categories, which are to be provided to the requesting party in lieu of a document-by-document log.

With the streamlined process of providing a categorical privilege log comes potentially severe penalties for failing to comply with Rule 11-b, as a recent decision from Manhattan Commercial Division Justice Melissa Crane, Lis v Lancaster, No. 650855/2019 (NY County January 12, 2023), demonstrates.

Lis v. Lancaster features a dispute concerning the ownership of an industrial recycling company with apparently scant observance of corporate formalities: Andrew Lis alleges that he is a 50% owner of the now-successful company, while Jason Lancaster maintains that he is the sole owner, and that Lis is merely an employee. 

Lis requested in discovery communications between Lancaster and a law firm that helped in the formation of the business, Liskow and Lewis (“L&L”).  Responding to those discovery demands, Lancaster advised Lis (and the Court) that he requested and received documents from L&L, and that he produced anything responsive to Lis’ demands.  Lancaster’s privilege log did not identify any documents from L&L being withheld on the grounds of privilege or attorney work product.

The Court later allowed Lis to pursue a third-party subpoena directly to L&L for discovery into the “limited to the issue of whether the parties were partners or employer/employee.”  In response to the subpoena, L&L produced—this time directly to Lis—more documents than Lancaster had previously produced to Lis. These documents included a L&L internal email indicating that Lancaster was referred to L&L “for a corporate attorney to assist with a partnership agreement and other business matters,” and an attorney’s handwritten notes possibly describing a joint venture or other business arrangement between Lis and Lancaster.

Upon the discovery of the withheld material, Lis moved to have Lancaster’s answer stricken for his non-compliance with his discovery obligations.  Lancaster argued that he had no obligation to produce the withheld material because they constituted attorney work product protected from disclosure.  But Lancaster could not explain why those materials were not included on its privilege log when he withheld them from his initial production of L&L materials. 

Justice Crane held that by withholding the responsive documents without including them on his privilege log, Lancaster engaged in willful and contumacious discovery misconduct:

Accordingly, defendants should have produced at least some of the documents in the L&L production, and if they wanted to protect other L&L documents under the attorney work product doctrine, they should have identified them in an updated privilege log.

While not shy in her criticism of Lancaster’s discovery tactics, Justice Crane declined to strike Lancaster’s answer, finding that such a penalty would be too severe.  Instead, she invited Lis to move for attorneys’ fees for having to make the motion:

Nevertheless, the court declines to strike defendants’ pleadings pursuant to CPLR 3126 for defendants’ failures regarding their L&L production.  Such a drastic remedy is not warranted here.  However, the court finds that it is appropriate to impose sanctions, in the form of costs and fees, for defendants’ frivolous L&L discovery conduct (see 22 NYCRR 130-1.1).  Because plaintiff did not seek or support this alternative relief in this motion, there is no basis in this record to now award plaintiff attorneys’ fees.  Accordingly, plaintiff is permitted to make a new motion for sanctions, in the form of its reasonable attorneys’ fees and costs for making Motion Seq. No. 09 and 10, in a new motion within 20 days of the date of this decision and order.

Lis subsequently sought more than $30,000 in attorneys’ fees and costs.

The takeaway: materials withheld on the grounds of privilege must be included on a privilege log.  Failure to do so may result not only in a waiver of any potentially applicable privilege, but also in costly discovery sanctions, as Lis v Lancaster demonstrates.

Street,Sign,The,Direction,Way,To,Forgiveness,Versus,Revenge

It is no secret that employees are often the most likely people to misappropriate an employer’s confidential information or valuable trade secrets. In this particular situation, employers have many options at their disposal, including asserting a claim under the faithless-servant doctrine. In a recent decision from the Manhattan Commercial Division, Justice Melissa A. Crane reminds us just how powerful the doctrines of faithless servant and res judicata can be against revenge-seeking faithless employees.

Background

In Nichtberger v Paramount Painting Group, LLC, et al., the plaintiff, a commercial-painting contractor in the New York City area (“Plaintiff”), was seeking to keep his company afloat following the 2008 Recession. In 2009, Plaintiff entered into an employment agreement (the “Employment Agreement”) with defendants, also a commercial-painting company (“Defendants”), whereby Plaintiff would serve as president of defendant Paramount Painting Group, LLC (“PPG”). As part of the Employment Agreement, Plaintiff was paid an annual salary of $208,000, and entitled to 50% of the first $3 million in PPG’s net profits, as well as 25% of net profit above $4 million. From 2009 to 2019, Defendants paid Plaintiff more than $2 million in salary.

In March 2019, Defendants discovered that Plaintiff was engaging in a diversion scheme, whereby Plaintiff deposited checks from certain PPG customers into a separate checking account. As a result, Plaintiff immediately resigned from PPG. Soon after, Plaintiff was forced to defend himself in both a criminal lawsuit brought by the New York District Attorney’s Office and a civil lawsuit brought by Defendants, seeking claims for conversion, constructive trust, and faithless-servant doctrine.

In May 2021, Plaintiff pleaded guilty to Grand Larceny in the Second Degree. Pursuant to the plea agreement, Plaintiff was ordered to pay $1.4 million in restitution to PPG. Thereafter, in October 2021, Plaintiff entered into a stipulation with Defendants for approximately $3 million, which included his $1.4 restitution payment from the criminal proceeding.

Faced with a $3 million judgment, in or around March 2022, Plaintiff commenced an action against Defendants, alleging that Defendants breached their contractual obligations to Plaintiff by failing to fully compensate him his salary and bonus between 2011 through 2019. In response, Defendants filed a motion to dismiss the complaint, arguing that Plaintiff’s plea agreement and previous admission that he acted as a “faithless servant” barred all claims for compensation in the form of salary, bonus, and/or profit sharing. In response, Plaintiff argued that his previous admission, along with the doctrine of res judicata, did not prevent him from his entitlement to compensation prior to his first disloyal act.

Justice Crane rejected Plaintiff’s argument for two reasons. First, the Court acknowledged that Plaintiff’s claims for compensation for previous unpaid salary and bonuses was barred by the doctrine of res judicata due to the court’s previous ruling that Plaintiff could not recover compensation under the faithless-servant doctrine. Second, the Court stated that insofar as its previous decision was not res judicata, Plaintiff’s claims would be time-barred, since Plaintiff admitted that he “systematically” stole from Defendants from 2012 to 2019.

Upshot

The Nichtberger decision serves as a reminder to litigators that the faithless-servant doctrine remains a potent weapon for employers faced with an employee who allegedly acts disloyally during his/her employment. Perhaps more importantly, Nichtberger may serve as valuable precedent for any “wayward and unruly agent” who seeks to take a second bite at victimizing their previous employer.