Mfrs. & Traders Trust Co. v. Client Server Direct, Inc.

• Decision Date: 22 December 2017
• Docket Number: 1242,CA 16–01441
• Citation: 156 A.D.3d 1364,68 N.Y.S.3d 280
• Parties: MANUFACTURERS AND TRADERS TRUST COMPANY, Plaintiff–Respondent, v. CLIENT SERVER DIRECT, INC., ACN Properties, LLC, Jeffrey T. Drilling, Holly Drilling, Defendants–Appellants, et al., Defendants. Client Server Direct, Inc., ACN Properties, LLC, Jeffrey T. Drilling, Holly Drilling and Leap Analytix, LLC, Third–Party Plaintiffs–Appellants, v. M & T Bank Corporation, Michael (Mick) Whipple, Alfred F. Luhr, III, and Mark Martin, Third Party Defendants–Respondents. (Appeal No. 2.)
• Court: New York Supreme Court — Appellate Division

156 A.D.3d 1364

68 N.Y.S.3d 280

MANUFACTURERS AND TRADERS TRUST COMPANY, Plaintiff–Respondent,

v.CLIENT SERVER DIRECT, INC., ACN Properties, LLC, Jeffrey T. Drilling, Holly Drilling, Defendants–Appellants, et al., Defendants.

Client Server Direct, Inc., ACN Properties, LLC, Jeffrey T. Drilling, Holly Drilling and Leap Analytix, LLC, Third–Party Plaintiffs–Appellants,

v.M & T Bank Corporation, Michael (Mick) Whipple, Alfred F. Luhr, III, and Mark Martin, Third Party Defendants–Respondents. (Appeal No. 2.)

1242

CA 16–01441

Supreme Court, Appellate Division, Fourth Department, New York.

Entered: December 22, 2017

PARLATO LAW, WILLIAMSVILLE, CHAITMAN LLP, NEW YORK CITY (HELEN D. CHAITMAN OF COUNSEL), FOR DEFENDANTS–APPELLANTS AND THIRD–PARTY PLAINTIFFS–APPELLANTS.

HODGSON RUSS LLP, BUFFALO (ROBERT J. FLUSKEY, JR., OF COUNSEL), FOR PLAINTIFF–RESPONDENT AND THIRD–PARTY DEFENDANTS–RESPONDENTS M & T BANK CORPORATION, ALFRED F. LUHR, III AND MARK MARTIN.

PERSONIUS MELBER LLP, BUFFALO (RODNEY O. PERSONIUS OF COUNSEL), FOR THIRD–PARTY DEFENDANT–RESPONDENT MICHAEL (MICK) WHIPPLE.

PRESENT: CENTRA, J.P., PERADOTTO, LINDLEY, NEMOYER, AND TROUTMAN, JJ.

MEMORANDUM AND ORDERMemorandum:

Plaintiff-third-party defendant Manufacturers and Traders Trust Company/M & T Bank Corporation (bank) commenced this action against defendants-third-party plaintiffs Jeffrey T. Drilling and Holly Drilling and their business entities, Client Server Direct, Inc. (CSD) and ACN Properties, LLC (ACN), to collect on two legitimate debt obligations issued by the bank upon which CSD and ACN allegedly defaulted. Defendants-third-party plaintiffs interposed counterclaims against the bank and, together with third-party plaintiff Leap Analytix, LLC (collectively, Drilling Parties), made third-party claims against third-party defendants Alfred F. Luhr, III and Mark Martin, i.e., two bank officers (collectively with the bank, M & T), and third-party defendant Michael (Mick) Whipple, a former loan officer with the bank. The Drilling Parties alleged that they suffered damages as a result of a fraudulent lending scheme in which Whipple, in the course of his employment with the bank, provided fraudulent loans to unrelated third parties using the credit and identity of the Drilling Parties and other nonparty entities.

Preliminarily, we note that the Drilling Parties filed a notice of appeal in appeal No. 1 from an order denying their motion for partial summary judgment on the issue of liability with respect to their claims against Whipple. The Drilling Parties elected not to perfect that appeal and, therefore, it is deemed abandoned and dismissed for failure to perfect it in a timely fashion (see 22 NYCRR 1000.12 [b]; Wright v. Shapiro, 101 A.D.3d 1682, 1682, 956 N.Y.S.2d 762 [4th Dept. 2012], lv denied 21 N.Y.3d 858, 970 N.Y.S.2d 496, 992 N.E.2d 424 [2013] ).

The remaining appeals relate to discovery issues. Turning first to the order in appeal No. 3, the Drilling Parties contend that Supreme Court erred in denying their motion to unseal the record. At the outset, we agree with the Drilling Parties that the court improperly denied the motion on the ground that it was an untimely motion for leave to reargue (see CPLR 2221[d][3] ). Contrary to M & T's contention, in issuing that part of its prior order sealing the record in response to a motion to compel and a cross motion for a protective order, the court, without notice to the parties, granted relief that was not requested and, therefore, that part of the prior order was issued sua sponte (see Northside Studios v. Treccagnoli, 262 A.D.2d 469, 469, 692 N.Y.S.2d 161 [2d Dept. 1999] ; see also USAA Fed. Sav. Bank v. Calvin, 145 A.D.3d 704, 706, 43 N.Y.S.3d 404 [2d Dept. 2016] ; Soggs v. Crocco [appeal No. 1], 184 A.D.2d 1021, 1021, 585 N.Y.S.2d 260 [4th Dept. 1992] ).

Inasmuch as there was no prior motion to seal the record, the Drilling Parties' subsequent motion seeking to unseal the record cannot be construed as a motion for leave to reargue and, indeed, the Drilling Parties appropriately did not identify it as such (see CPLR 2221[d][1] ). We therefore conclude that the court erred in determining that the Drilling Parties' motion was an untimely motion for leave to reargue (see Cheri Rest., Inc. v. Eoche, 144 A.D.3d 578, 579, 42 N.Y.S.3d 113 [1st Dept. 2016] ).

We nonetheless conclude that the court, in rendering a determination in the alternative, properly denied the Drilling Parties' motion on the merits. It is well established that "[t]here is a presumption that the public has [a] right of access to the courts to ensure the actual and perceived fairness of the judicial system, as the ‘bright light cast upon the judicial process by public observation diminishes the possibilities for injustice, incompetence, perjury, and fraud’ " ( Mancheski v. Gabelli Group Capital Partners, 39 A.D.3d 499, 501, 835 N.Y.S.2d 595 [2d Dept. 2007] ; see Maxim Inc. v. Feifer, 145 A.D.3d 516, 517, 43 N.Y.S.3d 313 [1st Dept. 2016] ; Fordham–Coleman v. National Fuel Gas Distrib. Corp., 42 A.D.3d 106, 115, 834 N.Y.S.2d 422 [4th Dept. 2007] ; Danco Labs. v. Chemical Works of Gedeon Richter, 274 A.D.2d 1, 7, 711 N.Y.S.2d 419 [1st Dept. 2000] ). Inasmuch as "confidentiality is the exception and not the rule ..., ‘the party seeking to seal court records has the burden to demonstrate compelling circumstances to justify restricting public access' " ( Maxim Inc., 145 A.D.3d at 517, 43 N.Y.S.3d 313 ). In conformance with those principles, the Uniform Rules for Trial Courts provide, in relevant part, that "a court shall not enter an order in any action or proceeding sealing the court records, whether in whole or in part, except upon a written finding of good cause, which shall specify the grounds thereof. In determining whether good cause has been shown, the court shall consider the interests of the public as well as of the parties" ( 22 NYCRR 216.1 ; see Fordham–Coleman, 42 A.D.3d at 115, 834 N.Y.S.2d 422 ). Although the term "good cause" is not defined in the rule, courts have held that "a sealing order should clearly be predicated upon a sound basis or legitimate need to take judicial action" ( Gryphon Dom. VI, LLC v. APP Intl. Fin. Co., B.V., 28 A.D.3d 322, 325, 814 N.Y.S.2d 110 [1st Dept. 2006] ; see Mosallem v. Berenson, 76 A.D.3d 345, 349, 905 N.Y.S.2d 575 [1st Dept. 2010] ; Fordham–Coleman, 42 A.D.3d at 115, 834 N.Y.S.2d 422 ). Inasmuch as "there is no absolute definition, a finding of good cause, in essence, ‘boils down to ... the prudent exercise of the court's discretion’ " ( AppleheadPictures LLC v. Perelman, 80 A.D.3d 181, 192, 913 N.Y.S.2d 165 [1st Dept. 2010];see Mancheski, 39 A.D.3d at 502, 835 N.Y.S.2d 595 ).

Here, in its written finding of good cause, the court found that the documents produced by M & T during discovery that the Drilling Parties sought to unseal included Whipple's entire email account, which contained thousands of confidential customer documents unrelated to the scheme underlying the claims in this action; bank account statements, financial statements, and loan and credit files of the bank's customers; and confidential credit analyses of such customers. In considering the interests of the bank, the court properly noted that, where, as here, third-party bank customer information is at issue, sealing orders are appropriate inasmuch as "[t]here [is] a compelling interest in sealing ... third-party financial information since disclosure could impinge on the privacy rights of third parties who clearly are not litigants" ( Mancheski, 39 A.D.3d at 502, 835 N.Y.S.2d 595 ).

With respect to the Drilling Parties' interests, the court properly concluded that the sealing order does not affect their ability to defend against M & T's claims or pursue their own claims in the action. Instead, the record supports M & T's assertion that the Drilling Parties sought to unseal the record for purposes that included bringing collateral pressure upon the bank with respect to matters unrelated to the merits of their claims by, for example, potentially engaging in online publication of record information. We conclude that the court did not err in determining, under the circumstances of this case, that such purposes were "outweighed by ensuring that the highly confidential ... [i]nformation remain[ed] confidential" (cf. Mosallem, 76 A.D.3d at 351, 905 N.Y.S.2d 575 ). Indeed, access to court records has been properly denied where, as here, "court files might ... become a vehicle for improper purposes" (Matter ofWNYT–TV v. Moynihan, 97 A.D.2d 555, 556, 467 N.Y.S.2d 734 [3d Dept. 1983], citing Nixon v. Warner Communications, 435 U.S. 589, 598, 98 S.Ct. 1306, 55 L.Ed.2d 570 [1978] ). In addition, while there is no doubt that a fraudulent lending scheme occurring in a major local bank is of public concern (see Mosallem, 76 A.D.3d at 350, ...