As litigators in the Commercial Division, everyone knows that discovery can be particularly burdensome and time consuming.  This is especially true when you have clients that are very protective of their information.  The Commercial Division already has anticipated this by offering attorneys a model confidentiality agreement, which in some cases can be further negotiated by the parties for their additional protection.

In Callsome Solutions Inc. v. Google Inc., the parties, as Google would come to regret, included an Attorneys’ Eyes Only (“AEO”) provision in their confidentiality agreement.  Manhattan Commercial Division Justice Andrea Masley scolded and sanctioned Google for its AEO designation of hundreds of documents and thousands of lines of deposition testimony.  The Court stated that the “AEO designation was reserved for truly secret documents” and that it should be used “as sparingly as possible.”  This is because “improper designations, not only delay, but also impact. . . the communications between [client] and its attorney.”   Therefore, in designating documents AEO, litigators must take careful consideration to limit the documents with that designation and make sure those documents are only designated in good faith.

In Callsome, the parties entered into stipulated confidentiality agreement that called for two tiers of confidentiality: (1) confidential; and (2) highly confidential – attorneys’ eyes only.   The latter designation was designed to protect confidential information that is “extremely sensitive.”  After Google designated hundreds of documents and thousands of lines of deposition testimony, the plaintiff requested that Google de-designate groups of documents and testimony, Google then engaged in a “slow trickle” of de-designation.

In issuing sanctions against Google, it was not just Google’s over-designations that irritated the court, it was also the “slow trickle” of corrections.  Specifically, the Court found that this “trickle” did not “rectify the initial improper designations.”  Further, Google even attempted to use the corrections as a negotiation tactic within the litigation, attempting to extract concessions from the plaintiff.  The Court found that “[n]o public policy is served by crediting Google’s purported offer to compromise. . .” because “AEO designations are not negotiable.”

A party cannot over designate documents then hold the improperly designated documents hostage until the adversary surrenders.  Such conduct will not be countenanced by this court.

The Court held that “Google’s conduct flouts widely accepted rules of civility embedded in New York litigation and in particular the Commercial Division,” and that it “effectively prevented the expeditious resolution of this litigation.”  The Court further held that Google engaged in frivolous conduct warranting sanctions under 22 NYCRR Section 130-1.1.

The first takeaway here is that confidential designations of any kind, particularly AEO designations should be made in good faith.  Second is that after designating documents AEO, when faced with a request to de-designate, you should ensure that you do not delay the litigation by refusing to do so or attempt to use your designations as a negotiating tactic.  Make sure you have a good faith basis for your designation, and stick to your guns.

 

However, if you believe that a document does not warrant such designation, but your client is still skittish, you can, as the Court suggested, amend (or draft) the confidentiality agreement to guarantee your client further protections such as providing for financial penalties in the event of a breach.  Over designation only delays litigation and shifts the burden to your opponent, which is never appropriate.

A general release: the end of a litigation or relinquishment of a right? Every attorney and litigant often breathes a sigh of relief when a litigation comes to a conclusion. But is that always the case? Not when the release covers more than may have been intended.

In a recent decision by Commercial Division Justice Andrea Masley, the Court held that a general form release, which settled a dispute involving one piece of artwork within an allegedly stolen collection of several other pieces of artwork, barred Plaintiff from bringing a subsequent action to recover any other pieces within the collection.

In Frenk v. Solomon, Paul Westheim (“Westheim”), a famous Jewish art critic who specialized in German expressionist art, fled Nazi Germany in 1933 and entrusted his art collection with an art dealer in Berlin, Ms. Weidler (“Weidler”). Westheim later married Ms. Westheim-Frenk. After World War II, Weidler claimed that the art collection was destroyed in the war, but Plaintiff (Westheim-Frenk’s daughter) alleged that Weidler stole Westheim’s art collection and sold it in separate pieces.

In 1973, late Westheim’s wife (“Westheim-Frenk”) commenced an action against Weidler, because Weidler sold a paining from Westheim’s art collection (the “First Action”). That matter settled before discovery and was “discontinued ‘with prejudice.’” Westheim-Frenk, represented by New York counsel, executed a blanket release (the “Release”), discharging Weidler, her “heirs, executors, administrators, successors and assigns” from all claims that Westheim-Frenk “ever had, now have, or which [Ms. Wetheim-Frenk] or [her] heirs, executors, or administrators, hereafter can, shall or may have.” In consideration for the Release, Plaintiff’s mother received $7,500.00, which is equivalent to about $40,000.00 today.

In or about January of 2013, Plaintiff initiated the instant action against the executors of Weidler’s estate and her heirs, seeking to recover the valuable artwork from Westheim’s art collection, as well as damages and a judgment declaring that she was entitled to the artwork.

Following discovery, the defendants moved for summary judgment alleging that the Release and stipulation discontinuing the First Action barred Plaintiff’s claim under the doctrine of res judicata; and nothing in the broad Release was “intended to be narrowly applied to any one painting, but rather, to the entire collection.” The terms of the broad Release bar Plaintiff from bringing an action against Weidler, or her “heirs, executors, administrators, successors and assigns.” Because the defendants demonstrated the prima facie defense of release, the burden shifted to Plaintiff to evidence material issues of fact to defeat summary judgement. See Aoki v. Aoki.

In seeking to limit the broad Release, Plaintiff argues that the subject of the First Action was the artwork, entitled Portrait of Dr. Robert Freund, and, thus, that the Release applied only to that piece. Alternatively, Plaintiff argues that Westheim-Frenk was fraudulently induced by Weidler to execute the Release and, thus, the defendants should be estopped from using the Release. However, the defendants objected to Plaintiff’s use of parol evidence. Justice Masley held that because the Release contained a standardized form, the court “must be flexible in the application of the parol evidence rule.”

Plaintiff also attempted to identify a transaction between Ms. Weidler and Westheim-Frenk in support of her claim that the Release only pertained to the single painting. Plaintiff argued that in 1976, when Weidler attempted to sell another piece from Westheim’s collection, Weidler entered into an agreement to split the sale amount of the artwork—a deal which would clearly not make sense if the Release pertained to all the artwork in Westheim’s collection. On the other hand, the defendants identify a letter from Westheim-Frenk stating that she understood that nothing could be done regarding all future artwork that may turn up. Next, Plaintiff argued that it is inconceivable that the low settlement amount from the First Action ($7,500.00) would have covered all the other valuable artwork. Justice Masley, however, rejected these conclusory arguments, holding that Plaintiff’s “evidence of conduct and intent is inconclusive” in light of the clear and unambiguous language of the Release.

In that regard, the First Department has held that “to hold a release forever hostage to legal afterthoughts basically vitiates the nature of the release.” See Aoki v. Aoki. Although Plaintiff argued that the Release should be set aside because Weidler used fraud to obtain same, Justice Masley held that in order to set aside the Release on the ground of fraud, Plaintiff had to establish that the fraud was separate from the subject of the Release, in addition to all the basic elements of fraud. Plaintiff, however, failed to identify any of Weidler’s misrepresentations at the time the Release was executed. In fact, there was no support for a claim that Westheim-Frenk was defrauded when she signed the release. Interestingly, Justice Masley held that plaintiff’s mother “failed to condition the Release on the truth of the information . . . i.e. that there were no other artworks from Westheim’s collection.” The Court finally also determined that Weidler did not waive the Release and Plaintiff did not present any evidence demonstrating that Weidler “intentionally relinquish[ed] a known right.”

Accordingly, because the Release was clear and unambiguous, the Court granted the defendants’ motion for summary judgment and dismissed the action.

Takeaway: Be especially precautious when drafting a release for a client, making sure not to waive any of their rights. Here, Justice Masley recognized that Plaintiff’s mother was represented by counsel when entering into the general release. This could potentially open you to a malpractice lawsuit.

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It has been almost one year since the New York legislature amended CPLR 503(a) to provide for venue in “the county in which a substantial part of the events or omissions giving rise to the claim occurred.” Yet a recent decision by Commercial Division Justice Andrea Masley shows that some practitioners have either forgotten about the amendments or never got the memo. But have no fear—the court held that a plaintiff who fails to properly designate venue on the summons may nonetheless submit alternative grounds for the original venue designation in an affidavit responding to a demand to transfer venue.

In Faustino v. Amin, the plaintiff asserted derivative claims of theft and misallocation of inventory, including Kanye West’s Adidas Yeezys and Jeff Staple x Nike SB footwear, against co-owners of Lower East Side “sneaker destinationExtra Butter. The summons incorrectly alleged that venue was proper in New York County because the nominal defendant’s principal place of business was New York County. Although Extra Butter’s flagship retail store was in fact located in New York County, the nominal defendant’s articles of incorporation designated Suffolk County as the principal place of business. Accordingly, defendants filed and served a demand to change venue to Nassau County, where the defendants claimed was geographically convenient to the parties and material witnesses.

In response to this demand to transfer venue, the plaintiff filed an affidavit stating that the alleged theft and other relevant events occurred at Extra Butter’s Lower East Side location, and venue was therefore proper under CPLR 503(a). Defendants then moved to transfer venue, without addressing in their motion whether material events occurred in New York County (or even acknowledging the amended language in CPLR 503[a]). Defendants’ argued instead that the plaintiff had forfeited his right to select venue by falsely alleging in the summons that venue was proper based on residence, and that defendants were therefore entitled as of right to transfer venue to Nassau County.

The court rejected defendants’ arguments based on the parties’ residence. Pursuant to CPLR 503(a), as amended in 2017, the events giving rise to the parties’ dispute sufficiently conferred venue in New York County. The court further held that Plaintiff did not forfeit his right to designate venue in New York County by falsely alleging the nominal defendants’ New York County residence as the basis for venue, because Plaintiff’s complaint and affidavit responding to the demand to change venue set forth events giving rise to the claim in New York County. As for the convenience of the parties and witnesses, the Court held that geographic proximity to the parties was not, on its own, a sufficient basis to transfer venue.

The court further addressed inadequacies in defendants’ argument concerning the convenience to witnesses. Because defendants did not provide a detailed account of the proposed witnesses’ identities, the nature and materiality of their anticipated testimony, and the manner in which they would be inconvenienced, the court denied the discretionary request to transfer venue. The court held, citing the First Department’s decision in Hernandez v Rodriguez, 5 AD3d 269, 269-270 [1st Dept 2004], that such a showing was an essential prerequisite to change venue based on inconvenience to witnesses. Fatal to the Defendants’ motion with respect to the inconvenience of witnesses was that there was no evidence in the record that Defendants had ever contacted the witnesses to inquire as to the inconvenience of New York County.

The court’s decision in Faustino v. Amin thus serves as an important reminder to practitioners that parties who conduct business in a far-away county may be required to defend claims there arising out of such business, even if none of the parties or witnesses are residents of that county. To avoid venue based on inconvenience, the movant must offer detailed and compelling proof based on first-hand contact with potential witnesses.

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