In the Matter of John Kapon, et al., Appellants,v.William I. Koch, Respondent.BriefN.Y.February 19, 2014To be Argued by: PAUL SHECHTMAN (Time Requested: 30 Minutes) APL-2013-00163 New York County Clerk’s Index No. 102660/12 Court of Appeals of the State of New York In the Matter of a Petition to Quash Subpoena Ad Testificandum and/or for a Protective Order JOHN KAPON and JUSTIN CHRISTOPH, Petitioners-Appellants, – against – WILLIAM I. KOCH, Respondent-Respondent, In Connection with an action pending in the Superior Court of the State of California entitled: William I. Koch v. Rudy Kurniawan, BC421581 REPLY BRIEF FOR PETITIONERS-APPELLANTS ZUCKERMAN SPAEDER LLP Attorneys for Petitioners-Appellants 1185 Avenue of the Americas, 31st Floor New York, New York 10036 Tel.: (212) 704-9600 Fax: (212) 704-4256 Dated: October 25, 2013 TABLE OF CONTENTS PAGE TABLE OF AUTHORITIES .................................................................................... .ii A. The courts below erred in placing the burden on appellants to show that their deposition testimony was irrelevant to the California action .................................................................................... ! B. Koch has not met his burden of showing that open-ended depositions are required ................................................................................... 5 C. The courts below should have limited the use of appellants' depositions to the California action ................................................................. 7 CONCLUSION ........................................................................................................ IO 1 TABLE OF AUTHORITIES PAGE CASES Allen v. Crowell-Collier Publ. Co., 21 N.Y.2d 403 (1968) ....................................... 2 Anheuser-Busch, Inc. v. Abrams, 71 N.Y.2d 327 (1988) ......................................... 2 Catalano v. Moreland, 299 A.D.2d 881 (4th Dept. 2002) ......................................... 3 Cirale v. 80 Pine St. Corp., 35 N.Y.2d 113 (1974) .................................................... 1 Hyatt v. State of Cal. Franchise Tax Bd., 105 A.D.3d 186 (2d Dept. 2013) ............. 2 Kenford Co. v. County of Erie, 41 A.D.2d 586 (4th Dept. 1973) ............................. 4 Kooper v. Kooper, 74 A.D.3d 6 (2d Dept. 2010) .............................................. 2, 4, 5 Matter of Ayliffe & Cos., 166 A.D.2d 223 (1990) .................................................... 2 Matter of Troy Sand & Gravel Co., Inc. v. Town ofNassau, 80 A.D.3d 199 (3d Dept. 2010) ........................................................... 2-3, 4, 5 Velez v. Hunts Point Multi-Serv. Ctr., Inc., 29 A.D.3d 104 (1st Dept. 2006) ....................................................................................... 3, 4-5 Williams v. Johnson and Johnson, 50 F .R.D. 31 (S.D.N.Y. 1970) ........................... 8 OTHER AUTHORITIES 1985 Report of the Advisory Committee on Civil Practice ....................................... 5 CPLR §3101(a)(4) ............................................................................................. 1, 4, 5 CPLR § 3 119 ........................................................................................................... 2, 7 11 This reply brief is respectfully submitted in further support of the efforts of appellants John Kapon and Justin Christoph to have reasonable limits imposed on the out-of-state subpoenas issued to them by appellee William Koch. In his brief, Koch describes the issue as whether the courts below "abused their broad discretion" in upholding the subpoenas. K. Br. 11-12.1 But the questions here are ones of law and are of broad importance. A. The courts below erred in placing the burden on appellants to show that their deposition testimony was irrelevant to the California action. Koch argues that we have presented "a revisionist history" of New York law with respect to discovery from non-party witnesses. K. Br. 15-16. In his view, New York courts have never recognized a distinction between parties and non-parties for purpose of the enforcement of a subpoena for pre-trial disclosures. As discussed below, however, the revisionism is Koch's, not ours. 1. Koch first argues that even before the 1984 amendment to CPLR § 31 0 1 (a)( 4 ), New York courts authorized "full and broad disclosure" from non-parties and thus read the "special circumstances" requirement out of the law. K. Br. 14-15. That, however, was not this Court's approach. In Cirale v. 80 Pine St. Corp., 35 N.Y.2d 113 (1974), this Court emphasized that CPLR §3101(a)(4), as then written, provided a "limitation" on New York's policy of broad pre-trial "K. Br." refers to Koch's brief to this Court; "A. Br." refers to appellants' initial brief. 1 discovery when a subpoena was issued to a non-party. Disclosure from a non- party could "only be had 'where the court on motion determines that there are adequate special circumstances."' 35 N.Y.2d at 116. And the Court emphasized that "the bare assertion of special circumstances [was not] sufficient; there must be specific support for the claim." Id. at 117. On that basis, it quashed a subpoena for a document that was relevant to the action. Thus, this Court took the then-existing "special circumstances" requirement seriously. 2. Koch next argues that, after the 1984 amendment, a non-party, like a party, has the burden of establishing that the requested discovery is "utterly irrelevant." K. Br. 19-23.2 As Koch sees it, that is the rule in every Appellate Division. But that is not so. In Kooper v. Kooper, 74 A.D.3d 6 (2d Dept. 2010), the Second Department ruled that "[a] motion to quash is ... properly granted where the party issuing the subpoena has failed to show that the disclosure sought cannot be obtained from sources other than the nonparty." Id. at 16-17. In Matter of Troy Sand & Gravel Co., Inc. v. Town of Nassau, 80 A.D.3d 199 (3d Dept. 2 Several of the cases that Koch cites involve discovery requests to a ]2illJY or are otherwise inapplicable here. See,~' Allen v. Crowell-Collier Publ. Co., 21 N.Y.2d 403, 405 (1968)("plaintiffs submitted certain interrogatories to the defendant"); Anheuser-Busch, Inc. v. Abrams, 71 N.Y.2d 327 (1988)(Attomey General served interrogatories upon beer wholesalers in connection with antitrust investigation); Hyatt v. State of Cal. Franchise Tax Bd., 105 A.D.3d 186 (2d Dept. 2013)(Califomia agency issued administrative subpoena to petitioner in connection with tax investigation); Matter of Ayliffe & Cos., 166 A.D.2d 223, 224 (1990)(out- of-state subpoena was issued prior to enactment of CPLR §3119 so that New York court did not "prejudge the materiality or the competency of the evidence"). 2 201 0), the Third Department held that "something more than mere relevance or materiality must be shown to obtain disclosure from a nonparty witness." Id. at 202; see also id. at 203 (quashing subpoena because issuing party could not establish "that it [was] unable to obtain the information ... from other sources"). And the Fourth Department puts the burden squarely on the issuing party "to demonstrate that the [matters] sought [from a non-party are] material and necessary." Catalano v. Moreland, 299 A.D.2d 881, 882 (4th Dept. 2002). Thus, other than the First Department, none of the Appellate Divisions applies the "utterly irrelevant" standard in non-party cases.3 3 As we said in our opening brief, the First Department's cases are all over the lot. Indeed, as recently as December 2010, the Third Department characterized the First Department's position this way. The First Department at one point ... required only a showing of materiality and necessity -- the standard that applies to parties -- to obtain discovery from nonparties . . . . More recently, however, the Court has recognized that "[f]or disclosure purposes, a party is distinguished from a nonparty and where disclosure is sought against a nonparty more stringent requirements are imposed on the party seeking disclosure" (Velez v. Hunts Point Multi- Serv. Ctr., Inc., 29 A.D.3d 104, 108 (2006)) . . . . The First Department now requires a showing of "special circumstances or that the information sought was relevant and could not be obtained from other sources" (Tannenbaum v. City ofNew York, 30 A.D.3d 357, 358- 359 (2006)). Troy Sand, 80 A.D.3d at 202 n.*. 3 3. What has motivated the Appellant Divisions to distinguish between parties and non-parties has been clearly stated: "[a]s a matter of policy, nonparties ordinarily should not be burdened with responding to subpoenas for lawsuits in which they have no stake ... unless the particular circumstances of the case require their involvement." Kooper, 74 A.D.3d at 18. Federal law may not recognize that policy, K. Br. 15 n.6, but New York and federal law frequently depart. 4. In Koch's view, when the Appellate Divisions "have suggested 'that something more than mere relevance is required' for non-party discovery, they refer to 3101(a)(4)'s requirement that the subpoenaing party provide 'notice stating the circumstances or reasons such disclosure is sought or required."' K. Br. 17. But that, too, is not so. In Kooper and Troy Sand, the Second and Third Departments were not referring to a notice requirement. They were interpreting CPLR §3101(a)(4) to impose a meaningful burden on the issuing party to show that a subpoena to a non-party is needed. Indeed, as Koch notes, the notice requirement is "nominal," Kenford Co. v. County of Erie, 41 A.D.2d 586, 586 (4th Dept. 1973 ), and some courts have held that the failure to give notice is not fatal and may be remedied in response to a motion to quash. See,~' Velez v. Hunts 4 Point Multi-Serv. Ctr., Inc., 29 A.D.3d 104 (1st Dept. 2006).4 Notice is not what Kooper and Troy Sand were about. 5. Tellingly, in its 1985 Report, the Advisory Committee on Civil Practice expressed its regret that the Legislature had not abolished the distinction between party and non-party witnesses in 1984. It wrote this: A new provision was enacted ( CPLR 31 0 1 (a)( 4)) to provide for a notice and subpoena procedure for nonparty witnesses, under which circumstances or reasons for the disclosure would have to be shown. The Committee had originally proposed abolition of any special circumstances requirement to justify the requested disclosure of nonparty witnesses. 1985 Report of the Advisory Committee on Civil Practice at 42. If Koch's version of history were correct, this lament would not have been written. As the Report shows, those closest to the scene recognized that the 1984 amendment retained a distinction between parties and non-parties -- that it put the burden on the issuing party to show the reason that disclosure from a non-party witness was needed. B. Koch has not met his burden of showing that open-ended depositions are required. If our interpretation of CPLR §310l(a)(4) is sound, then the burden should have been on Koch to show that open-ended depositions were needed for 4 The notice given here said only that "[t]his Subpoena is being served upon you because you possess evidence and/or information material to the issues in this action." (R. 41, 52). 5 him to be prepared for trial in the California action. In his brief, Koch claims that "[e]ven if [he] had the burden to prove relevance, he has done so." K. Br. 23. As the record now stands, however, Koch has not been put to that test. Supreme Court found only that it "[could] not say that questions regarding AMC's 'historical internal practices or procedures' would be irrelevant ... to the issues of the fraud allegations against Kurniawan in the California action." (R. 17-18). And the First Department affirmed that ruling because appellants had "failed to show that the requested deposition testimony is irrelevant to the prosecution of the California action." (R. 752-53). In effect, Koch asks this Court to confirm a factual finding that no court has made. We reiterate here what was said in our initial brief. An open-ended deposition should not be ordered unless Koch can articulate the reason why inquiry beyond the 149 bottles at issue in the California action is required. Likewise, Koch should be called on to explain why questioning appellants about AMC's "historical internal practices or procedures" is needed. We recognize that Koch would like to investigate every facet of AMC's business; he is a self-described "crusader" against counterfeit wines.5 But this is a deposition in aid of a lawsuit, not a crusade, and appropriate limits on questioning should be imposed. 5 D. Jacobs, "In Billionaire's Legal Crusade Against Counterfeit Wine, Money is the Least of It," Forbes 4/08/13. 6 C. The courts below should have limited the use of appellants' depositions to the California action. 1. Koch never seriously addresses our main point here: that under CPLR §3119, it was for Justice Stallman to decide whether the depositions could be used against appellants in the New York action. Leaving that issue to the California court to decide was plain error. R. 18 (Justice Stallman: "[a] limitation on the use of the non-party depositions beyond their use in the California Action should be made to the California court"). As time has shown, the California court has no interest in the issue. See A. Br. 19 n.9. Moreover, contrary to Koch's claim, appellants are not "forum shopping." K. Br. 33. Rather, they are appealing because the courts below did not decide an issue that was theirs to decide. 2. Koch cites several cases in which courts have declined to limit the use of a deposition to the case it is to be taken in. K. Br. 27-28. None of those cases, however, presents the circumstances that exist here: a subpoena issued in an action that is unlikely ever to go to trial (the California action) against the backdrop of a related action in which there is a discovery cut-off (the New Yo~k action) by a party who has twice been cautioned against using discovery in one action to circumvent a discovery deadline in another. See A. Br. 16-17. Case law may favor the "collaborative" use of discovery between proceedings, but where "the spectre of misuse of the fruits of discovery" is great, courts have been willing 7 to intervene to prevent its occurrence. Williams v. Johnson and Johnson, 50 F.R.D. 31,32-33 (S.D.N.Y. 1970).6 3. Koch writes that Magistrate Judge Freeman's actions in Greenberg are "irrelevant to the question[] presented in this appeal" because she ultimately "approved Koch's discovery requests, albeit subject to certain limitations." K. Br. 28-29 (emphasis added). But the "certain limitations" that Magistrate Judge Freeman imposed were precisely the limits that appellants sought below and that the courts declined to impose: a prohibition on the use of depositions "in any other action, unless such testimony is independently discoverable in the other action, within the scope of any discovery rulings, including deadlines, set by the court in which the other action is pending." (R. 244). Not only was that limitation proper, it was essential given the Magistrate Judge's well-founded concern that the subpoenas Koch issued in Greenberg were being used to circumvent discovery cut-offs in other Koch actions. (R. 260, 294).7 6 As Koch sees it, our contention that he is seeking to take discovery in the California action to circumvent a discovery deadline in the New York action "makes no sense [since] there is no deadline to circumvent." K. Br. 26. But that is not true. Koch is correct that discovery in the New York action has been reopened but only for the limited purpose of allowing him to explore AMC's relationship with Kurniawan. Open-ended depositions are not contemplated. Moreover, AMC has recently asked the court there to reconsider its ruling or, at least, to limit it to document production. See A. Br. 17 n.8. 7 Koch writes that appellants "fear that their deposition testimony will inculpate them in Kurniawan's fraud." K. Br. 26. But appellants have no such fear. After a lengthy investigation, federal prosecutors concluded that Kurniawan 8 4. As expected, Koch argues that appellants have a "simple remedy" if he is proceeding impermissibly: they can "seek to exclude the [deposition] testimony in the New York Action." K. Br. 32. We have already expressed our view that that is no remedy. A. Br. 18-19. If Koch obtains broad depositions in the California action, he will undoubtedly argue that those depositions are matters of public record and therefore presumptively admissible here. Once out of the bag, depositions, like cats, are not easily put back in. For all these reasons, the courts below should have limited the use of appellants' depositions to the California action. "pawn[ ed] off prodigious quantities of fraudulent wine ... to unsuspecting auction houses." See R. 184-86, Press Release of United States Attorney's Office, Southern District ofNew York (emphasis added). 9 CONCLUSION For these reasons and those in our original submission, the decision below should be reversed. Dated: New York, New York October 25, 2013 Respectfully submitted, ZUCKE~SPAEDERLLP /~ By: f-1. • Paul Shechtman Brian K. Mahanna 1185 A venue of the Americas 31st Floor New York, NY 10036 (212) 704-9600 Attorneys for Petitioners-Appellants John Kapon and Justin Christoph Andrew J. Weinstein The Weinstein Law Firm PLLC 800 Third Avenue 18th Floor New York, NY 10022 (212) 582-8900 Attorney for Petitioner-Appellant John Kapon To: Morvillo, Abramowitz, Grand, Iason, & Anello, P.C. Edward M. Spiro 565 Fifth Avenue New York, NY 10017 Attorneys for Respondent 10