Hertz Corp. v. Avis, Inc.

• Decision Date: 29 January 1985
• Citation: 106 A.D.2d 246,485 N.Y.S.2d 51
• Parties: , 225 U.S.P.Q. 981 The HERTZ CORPORATION, Plaintiff-Respondent, v. AVIS, INC., Defendant-Appellant.
• Court: New York Supreme Court — Appellate Division

Page 51

485 N.Y.S.2d 51

106 A.D.2d 246, 225 U.S.P.Q. 981

The HERTZ CORPORATION, Plaintiff-Respondent, v. AVIS, INC., Defendant-Appellant.

Supreme Court, Appellate Division,

First Department.

Jan. 29, 1985.

Steven J. Stein, New York City, of counsel (Barry G. Felder and Steven M. Kayman, New York City, with him on brief; Proskauer, Rose, Goetz & Mendelsohn, New York City, attorneys), for defendant-appellant.

William E. Kelly, New York City, of counsel (Lane & Mittendorf and Cravath, Swaine & Moore, New York City, attorneys), for plaintiff-respondent.

Before SANDLER, J.P., and ASCH, BLOOM, LYNCH and ALEXANDER, JJ.

SANDLER, Justice Presiding.

The question presented is whether in an action for unfair competition a large corporation (plaintiff Hertz) can require its major competitor (defendant Avis) to compile and reveal over 120,000 pages of highly confidential financial records in the absence of a claim that Avis' alleged misappropriation of Hertz's trade secrets resulted in a loss of profits to Hertz. We believe Special Term erred, in the order here appealed from, in directing such a disclosure.

The complaint, served September 30, 1982, alleges, as here relevant, that in April 1982 Joseph V. Vittoria left Hertz's employ to become the president of Avis, taking with him confidential documents and trade secrets, which were thereafter used by Avis to "reverse substantial business losses" and "correct operational deficiencies". The complaint further alleges that Avis solicited and hired Hertz management personnel in order to gain access to " 'inside' information" concerning Hertz's operations and finances. Hertz sought, in addition to injunctive relief, actual damages in an amount yet to be determined (but later alleged in their motion papers to exceed $25 million) plus punitive damages of $25 million.

Special Term (Leonard N. Cohen, J.) denied Hertz's application for preliminary injunctive relief, finding, on the basis of extensive affidavits and memoranda submitted by both parties: (1) that Avis did not use unethical or unfair methods to induce Hertz employees to join Avis; (2) that the information and data characterized by Hertz as "trade secrets" constituted merely information ordinarily possessed by managerial personnel with general familiarity, experience and knowledge of the car rental industry; (3) that Hertz had not demonstrated that Vittoria was such a uniquely valuable employee or that his continued employment by Avis raised a threat that he might disclose Hertz's trade secrets so as to warrant enjoining his employment by Avis; and finally (4) that "the circumstances when viewed as a whole against the background of our free competitive economic system demonstrate neither the plaintiff's probable success on the merits nor imminent harm or injury to the plaintiff's worldwide business enterprise."

In the course of extensive discovery proceedings over a period of one and one-half years Avis tried, without success, to determine the factual basis for Hertz's claim of actual damages. At one deposition Hertz's chief financial officer in response to several questions denied any knowledge of Hertz's profits during the relevant periods, and declined to answer questions relating to the profits of Hertz' Rent-A-Car Division, at the direction of counsel. He testified that neither he nor any other financial officer of Hertz had ever been consulted with regard to the claim of actual damages and did not recall ever seeing the complaint. On December 7, 1983 Avis submitted to Hertz document requests for balance sheets and profit and loss statements of the Hertz Corporation on a monthly and annual basis from 1980 to date, and similar documents from Hertz Europe Ltd. and Hertz International Ltd. Hertz objected to providing that information on the grounds of "Confidential business information, irrelevant, unduly burdensome and harassing." A possible unstated explanation for Hertz's disinclination to provide factual data showing financial injury was revealed on March 2, 1984, when counsel for Avis cited newspaper articles appearing in October of 1983 that reported record sales by Hertz contributing to a 34% rise in profits of its parent company, RCA.

Meanwhile Hertz, by notice of discovery and inspection dated February 17, 1984, demanded that Avis produce for inspection and copying on March 5, 1974:

1. All statements of results of operations, profit and loss statements, balance sheets, and subsidiary reports and statements of assets and liabilities on a monthly, quarterly, and annual basis for all levels of operations from the city, district, or fleet owner level up to the rent-a-car division level of Avis, Inc., including monthly operating reports and city operating reports from January 1, 1970 through June 30, 1983.

2. All Avis fleet planning documents, including VAMP, WAR, Trend X and Trend Z, Buy/Sell, WHIZ, and Transient Car reports (and all predecessor reports or reports having the same function as each of the foregoing named reports), and rental, revenue, and fleet forecasts, as were generated from the period January 1, 1970 through June 30, 1983.

Hertz also demanded all commentary, analysis and reports that refer, relate or pertain to the aforesaid documents, and all reports and letters to Avis' directors, shareholders, or executives of Avis and its parent company showing Avis' operations results, but the order appealed from directed Avis to disclose only documents described in paragraphs 1 and 2 above. It is not without procedural significance that Hertz mailed its February 17, 1984 notice to produce on February 22, because on February 21, 1984 Hertz had already moved to compel production of the documents sought therein, i.e. before the notice had even been mailed to Avis. Despite this unorthodox motion practice, it appears that the merits were adequately addressed before Special Term, and it is sufficient merely to note that the sequence of service was facially inconsistent with New York Supreme Court Rule 660.8(b)(6)(ii) (22 NYCRR) requiring an affidavit by the moving party that the parties attempted but were unable to resolve by agreement the issues raised by the motion without the intervention of the court.

When the motion was argued on March 16, 1984 before Special Term (William P. McCooe, J.) counsel for Hertz conceded, for the first time, that Hertz had lost no profits by reason of the acts alleged in the complaint. Nevertheless, the court ordered that Avis produce the documents demanded in paragraphs 1 and 2 of the February 17 notice to produce, although limited to the fiscal years commencing in 1980 (instead of 1970 as demanded by Hertz) and concluding June 30, 1983. Special Term's memorandum stated that "Documents should be produced unless violative of a constitutional right, privilege or palpably improper. Freedco Products v. N.Y. Telephone Co., 47 A.D.2d 654 Watson v. State of New York, 53 A.D.2d 798 The holding of these cases, however, is that at an examination before trial, questions should be freely permitted and answered, unless violative of a witness' constitutional rights or a privilege recognized in law, or are palpably irrelevant, since all objections other than as to form are preserved for trial and may be raised at that time. Implicit in this formulation is the recognition that questions answered at an examination before trial, even though not "palpably" improper or irrelevant, may still appropriately be excluded upon timely objection, in the exercise of discretion. The true test is one of usefulness and reason. Allen v. Crowell-Collier Pub. Co., 21 N.Y.2d 403, 406, 288 N.Y.S.2d 449, 235 N.E.2d 430. Thus, even information "reasonably calculated to lead to relevant evidence may be beyond the scope of disclosure because it is more trouble to gather than it is worth." Durst, Fuchsberg and Kleiner, Modern New York Discovery, Section 17:2 at p. 428.

The "palpably improper" test has also been applied to permit a court to reach the merits concerning the propriety of a...