“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.

 

 

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.

Statutorily imposed deadlines are not optional for commercial litigants; this much should be obvious. Notwithstanding, and despite numerous technological calendaring options available to commercial litigators, deadlines are blown in the Commercial Division, including the mother of all deadlines: the defendant’s time to answer or otherwise move against a complaint (see CPLR 3012). As should also be obvious, the defaulting defendant’s request for a “Get out of Jail Free Card” – a motion to extend the time to appear or plead (see CPLR § 3012 [d]) – will not be taken lightly.

A recent ruling provides such a reminder.  In State Farm Mut. Auto Ins. Co. v. Austin Diagnostic Med., P.C., the Appellate Division, Second Department recently considered the Queen’s County Commercial Division’s (Dufficy, J.) denial of such a motion. State Farm commenced the action seeking a declaratory judgment that it was not obligated to pay certain no-fault insurance benefits to the defendant. The defendant blew its deadline and, three and a half months late, filed its answer. State Farm rejected the answer and the defendant moved to extend its time to answer, “or in the alternative, to compel the plaintiff to accept” it.

In affirming the Commercial Division’s denial of the motion, the Appellate Division offered a clear reminder of the defaulting defendant’s bright-line burden: in addition to providing a reasonable excuse for its delay, it must demonstrate that it has a potentially meritorious defense. The Appellate Division held that the documents offered in support of a potentially meritorious defense – the untimely answer, which was verified by the defendant’s attorney, and an affirmation of the defendant’s attorney – were insufficient because the attorney lacked personal knowledge of the facts.

The take-away here is fundamental, but critical: do what you must to avoid a default and, if you do miss your deadline, be sure your motion for an extension establishes a reasonable excuse for the delay and a potentially meritorious defense, both of which are attested to by someone having personal knowledge of those facts.

Visitors to this blog may recall our recent posts (here and here) concerning the individual practice rules of Manhattan Commercial Division Justice Bransten and Queens County Commercial Division Justices Gray and Livote.  “Check the rules!”, was the cautionary theme of those posts.

But just how much of a stickler for compliance can one expect a judge to be with respect to the part’s individual rules?  And is there any precedent for enforcement – perhaps even some case law that can be cited by a party affected by a non-compliance?

More and more, counsel are being reminded of the importance of following the rules in the Commercial Division.  In at least two decisions this year, Manhattan Commercial Division Justice Shirley Werner Kornreich gave such reminders to the bar when she admonished the parties for violating her part rules in the context of summary judgment motions.

With respect to motion papers filed in her court, particularly motions for summary judgment, Justice Kornreich’s “Practices in Part 54” clearly require, among other things, that:

·       “all e-filed documents must be OCR Text Searchable PDFs”;

·       all memoranda of law must include “cover pages, tables of contents, and tables of authorities, all three of which are mandatory”;

·       “the parties shall . . . prepare and file one joint Rule 19-a statement of material facts at least three weeks before the summary judgment motion is filed” and that “[i]f the parties cannot agree on a joint statement, no Rule 19-a statement of facts may be filed”; and that

·       “[i]f summary judgment briefs cite to deposition testimony, a complete copy of that deposition transcript must be filed.”

Simple enough, right?  Maybe not.

In Lau v Lazar, which involved cross-motions for summary judgment concerning the ownership and operation of an outpatient surgical center, Justice Kornreich reprimanded the parties for “substantially delay[ing] the court in resolving the instant motions” due to their filing of lengthy briefs that “lack[ed] tables of contents and authorities, that [we]re not text-searchable, and that contain[ed] almost no case law in violation of this part’s rules.”  Justice Kornreich also scolded the parties for “submit[ting] fact statements without citations to the record, forcing the court to piece together the factual background from the parties’ exhibits, which . . . did not include complete deposition transcripts.”

In Arizona Premium Fin. Co., Inc. v American Tr. Ins. Co., which involved cross-motions for summary judgment concerning the return of unearned insurance premiums, Justice Kornreich threw out altogether the defendant’s “proposed statement of material facts, which was submitted in violation of this part’s rules,” because the parties otherwise “were unable to agree on a joint statement of undisputed facts.”

You are remembered for the rules you break“, remarked Gen. Douglas MacArthur.  In the Commercial Division, however, you don’t want to be remembered as the one who broke the rules.  Justice Kornreich’s recent Lau and Arizona Premium decisions serve as another, best-practices reminder for the Commercial Division practitioner to first “check the rules”, then follow them!

 

 

 

 

 

As any seasoned commercial litigator knows, courts are generally loathe to overturn the independent decisions of arbitrators.

New York County Commercial Division Justice Charles E. Ramos recently examined the standard for doing so in Daesang Corp. v NutraSweet Co., a dispute arising from Daesang Corporation’s attempted $79,250,000 sale of its aspartame business to iconic sweetener brand NutraSweet.

Daesang commenced the breach of contract action when NutraSweet attempted to exercise its right to rescind the purchase transaction based upon the filing of a suit against the parties by a class of aspartame purchasers for alleged violations of federal antitrust laws. The parties stipulated to the jurisdiction of the International Chamber of Commerce (“ICC”), which ultimately issued a written award dismissing all of NutraSweet’s counterclaims and defenses and awarded Daesang damages of over $100 million. Daesang then commenced the instant proceeding to confirm the ICC’s award, which NutraSweet moved to vacate.

Acknowledging the “presumption in favor of upholding arbitration awards,” Justice Ramos further observed that such deference is not limitless.   The Court explained that an arbitration award may be vacated only if it a) violates a ground set forth in Section 10 of the Federal Arbitration Act; or b) was rendered in “manifest disregard” of the law.

Justice Ramos determined this to be the rare case, finding two exceptional aspects of the ICC’s award to Daesang warranting vacatur. First, the Court held that with respect to NutraSweet’s defense and counterclaim for equitable rescission based on fraud in the inducement, the ICC disregarded, and in fact ignored the “well-established principle that a fraud claim can be based on a breach of contractual warranties where the misrepresentations are of present facts.”

Second, the Court found that the ICC’s outright refusal to consider NutraSweet’s breach of contract counterclaim, which the ICC concluded NutraSweet waived during its closing argument, went “beyond a mere error in law or facts, and amount[ed] to an egregious dereliction of duty.” The Court explained that, beyond the fact that NutraSweet submitted witness statements, live and expert testimony, and took cross-examination on the counterclaim, the portion of the transcript that the ICC based its decision on failed entirely to address the breach of contract counterclaim.

While the Commercial Division’s decision was a sweet success for NutraSweet, this case should serve as a stark reminder to commercial litigators that a successful motion to vacate an arbitration award requires a finding of truly egregious errors and/or “manifest disregard” for well-established law.

 

Several weeks ago, we reported on some recent updates to Manhattan Commercial Division Justice Bransten’s individual practice rules. New York commercial litigators should take note of some recent changes in the Queens County Commercial Division as well.

According to an official announcement from the Queens County Commercial Division, as of April 3, 2017, all Commercial Division motions made before Justices Marguerite A. Grays or Leonard Livote must be made returnable directly before either judge in their respective Commercial Division Parts and on their respective motion days (as opposed to the Queens County’s Centralized Motion Part or “CMP”), with the corresponding Notices of Motion or Proposed Orders to Show Cause bearing the words “COMMERCIAL DIVISION” in boldfaced type.

Justice Grays’s individual practice rules and Justice Livote’s individual practice rules, particularly with respect to Commercial Division motions made before them (again, as opposed to the CMP), are virtually identical. Some specifics worth noting:

• Both judges designate Tuesdays as their motion day, first call at 10:00 a.m.;

• Both judges emphasize the above-referenced “COMMERCIAL DIVISION” marking requirement, cautioning that non-compliance “may result in the motion being calendared in the CMP”;

• Both judges require that all moving papers be filed in hard copy in the Motion Support Office “at least five business days prior to the scheduled return date.” All answering papers, cross-motions, and replies, on the other hand, “will be accepted only on the return date in the Part”;

• Both judges require in-person appearances by counsel or pro se litigants on the return date of all disclosure motions and Orders to Show Cause, cautioning that such “papers will not be accepted from a calendar service”; and

• Both judges require that all applications for adjournment be made in person on the return date. Again, “calendar service or non-attorneys will not be permitted to make applications for adjournments.”

These are welcome distinctions for litigants interested in prosecuting and/or defending their commercial cases expeditiously. Before April 3, 2017, a commercial litigator wishing to make a motion in the Queens County Commercial Division was left to navigate the many and specific procedures of the CMP where motions are seemingly ever subject to the prospect of being “administratively rescheduled,” “marked off,” outright “discarded,” or otherwise delayed because of some other emboldened, highlighted, and/or underscored procedural particularity.