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.