Knopf v. Sanford

• Decision Date: 18 July 2019
• Docket Number: 113227/2009
• Citation: 106 N.Y.S.3d 777,65 Misc.3d 463
• Parties: Michael KNOPF, Norma Knopf, and Delphi Capital Management, LLC, Plaintiffs, v. Michael SANFORD, Pursuit Holdings, LLC, Sanford Partners, LP, MH Sanford & Co., LLC, and Wyndclyffe, LLC, Defendants.
• Court: New York Supreme Court

65 Misc.3d 463

106 N.Y.S.3d 777

Michael KNOPF, Norma Knopf, and Delphi Capital Management, LLC, Plaintiffs,

v.Michael SANFORD, Pursuit Holdings, LLC, Sanford Partners, LP, MH Sanford & Co., LLC, and Wyndclyffe, LLC, Defendants.

113227/2009

Supreme Court, New York County, New York.

Decided July 18, 2019

BerryLaw PLLC, New York City (Eric W. Berry of counsel), for plaintiffs.

Michael Hayden Sanford pro se.

Dorsey & Whitney LLP and Nathaniel H. Akerman, New York City (Nathaniel H. Akerman, Amanda M. Prentice, and Peter M. Lancaster, pro hac vice, of counsel), for non-parties Dorsey & Whitney, LLP, and Nathaniel H. Akerman, Esq.

Feldman & Associates, PLLC (Edward S. Feldman of counsel), for non-parties Feldman & Associates, PLLC, and Edward S. Feldman, Esq.

Gerald Lebovits, J.

The present motions arise out of a long history of litigation between plaintiffs, Norma and Michael I. Knopf, and defendant Michael H. Sanford, and are related to the Knopfs' efforts to enforce a money judgment this court entered on February 22, 2018, for $9,867,832.61 against defendant Pursuit Holdings, LLC (Pursuit), Sanford's hedge fund.¹ (See Knopf v. Sanford , 2018 N.Y. Slip Op. 30611 [U], 2018 WL 1769299 [Sup. Ct, N.Y. County 2018].)

In particular, in May 2018, plaintiffs served subpoenas on Sanford, as a judgment debtor, and two non-parties, Dorsey & Whitney, LLP, and Nathaniel (Nick) H. Akerman, Esq., to obtain information to enforce the judgment against Pursuit. (Sanford Subpoena, NYSCEF No. 239; Dorsey & Whitney Subpoena, NYSCEF No. 158; Akerman Subpoena, NYSCEF No. 162.)

In April 2019, plaintiffs served subpoenas on non-parties Edward S. Feldman, Esq., and Citibank, seeking additional information to enforce the judgment against Pursuit. (See Feldman and Citibank Subpoenas, NYSCEF No. 388.)

This revised decision and order, which resolves litigation over the subpoenas, addresses motion sequences 030, 032, and 033, consolidated here for disposition.

On their face, these motions relate directly only to subpoenas the Knopfs issued to trace Sanford and Pursuit's assets. But to resolve whether the subpoenas should be quashed or enforced, this court must also evaluate the Knopfs' two chief allegations: First, that to prevent the Knopfs from collecting on a potential judgment, Sanford corruptly influenced an attorney and his wife, then a special master in the Appellate Division, First Judicial Department. And second, that a First Department order from June 2016 has inadvertently but incorrectly shielded Sanford's wrongdoing.

This court does not undertake the evaluation of these issues lightly — nor fail to recognize the anomaly inherent in an acting Justice of the Supreme Court's assessing the circumstances of the issuance of an order by a five-member panel of the First Department, which reviews this court's decisions. Yet upon much consideration, this court concludes that such an evaluation is necessary to resolve the important motions before it.

To aid in collecting their judgment, the Knopfs seek, among other things, communications between Sanford and several of his attorneys. The Knopfs contend that they are entitled to those communications, notwithstanding the attorney-client privilege, in part because Pursuit and Sanford have each waived the privilege as to the Knopfs. This court agrees that Pursuit and Sanford have waived the privilege, as set forth in more detail below. (See infra at Subsection II.C.1.)²

The Knopfs also argue, though, that the attorney-client privilege has been broken , because probable cause allegedly exists to believe that Sanford (and possibly others) engaged in wrongful or fraudulent acts and used attorney-client communications to further those acts.

In essence, the Knopfs contend that Sanford went to extraordinary lengths to evade an October 2015 First Department interim order that required him to escrow any proceeds from the sale of real property owned by Pursuit. The Knopfs further allege that the First Department intended its escrow order to preserve funds to help satisfy a potential multi-million-dollar damages award against Sanford and Pursuit in the Knopfs' favor.

After the First Department issued its escrow order, Sanford moved to vacate it. A full panel of the Court denied Sanford's motion. Shortly afterward, Sanford retained an attorney (Frank M. Esposito, Esq.) whose wife (Melissa Ringel, Esq.) was a First Department special master. The Knopfs contend that the day after Esposito was retained, Sanford directed his other attorneys to make an ex parte telephone call to Ringel. The Knopfs claim that this phone call was intended merely to secure a conclusion from Ringel (in her capacity as an Appellate Division attorney) that the First Department's interim escrow order, which the parties knew the Appellate Division had just refused to vacate, had actually been dissolved already by a different First Department ruling that had not even mentioned the interim escrow order.

The Knopfs contend that when Sanford's attorneys spoke to Ringel, she conveniently and improperly gave the advice Sanford needed for the buyer of the property to be willing to close on the sale; and that with Ringel's opinion in hand, Sanford was able to sell Pursuit's real property for $3 million without putting any of the proceeds into escrow — violating the Court's October 2015 escrow order.

The Knopfs claim that Sanford successfully dissipated 85% of the $3 million in sale proceeds before the Knopfs figured out what Sanford had done. They further claim that when they asked the First Department to hold Sanford in contempt and force him to disgorge the sale proceeds he had dissipated, Sanford's attorneys argued that they had merely relied on the opinion of an Appellate Division attorney — without revealing to the Appellate Division that the attorney who profferred the legal advice was the wife of one of Sanford's attorneys; that she had spoken to Sanford's other attorneys outside the scope of her job responsibilities; and that she had done so without opposing counsel on the line.

These allegations of conspiracy against Sanford and his prominent attorneys would ordinarily appear implausible and far-fetched. Indeed, a U.S. District Judge for the Southern District of New York in a related federal action had sanctioned counsel for the Knopfs — and the Knopfs themselves — in part for making those very allegations.³

But this court takes note that in July 2017, the Presiding Justice of the First Department asked the Inspector General of the New York State Office of Court Administration to investigate the Knopfs' allegations; and that following a thorough investigation, the Inspector General's Office issued a March 16, 2018, report that confirmed many of the Knopfs' allegations.

The Inspector General's report found that the conversation between Ringel and Sanford's attorneys — which allowed Pursuit's property to be sold without escrowing the proceeds — was ex parte and improper. The report concluded that Ringel's "involvement in this matter is extremely troubling and at the very least created an appearance of impropriety and reflects poorly on the impartiality of the court." (OCA Report, NYSCEF No. 164, at 20.) Additionally, after receiving the OCA Report, the federal District Court substantially reduced the sanctions against the Knopfs and their counsel. According to the District Court, the report's contents made the Knopfs' allegations of conspiracy plausible and raised many questions about Esposito and Ringel's conduct.

It is also true, however, that in June 2016 a panel of the First Department issued an order denying the Knopfs' subsequent motion to hold Sanford in contempt and disgorge the sale proceeds; and that the Court explained in a revised version of this order that it denied contempt based on the Court's legal conclusion that the Court itself had vacated the escrow order before Sanford sold Pursuit's property.

Nonetheless, this court concludes, reluctantly, that the First Department's revised June 2016 order refusing to hold Sanford in contempt does not, for the purposes of the current motions to quash or enforce subpoenas, exonerate Sanford or his attorneys.

The evidence indicates that Sanford was able to close on the PHC sale only through quietly obtaining ex parte and erroneous legal advice from the wife of one of his own attorneys. The First Department's revised order of June 2016 did not retroactively cure the wrongfulness of this conduct.

Additionally, when opposing the Knopfs' contempt motion in spring 2016, Sanford's attorneys withheld from the Court material information about Sanford's misconduct and the circumstances under which Sanford was able to sell Pursuit's property. If the First Department panel that issued the June 2016 order had known the truth about what happened in their Court when it considered the Knopfs' contempt motion, the Justices might have rejected Sanford's claim that the escrow order had already been dissolved when Pursuit sold the PHC — and therefore ruled against him, rather than for him.

Full disclosure would have alerted the First Department to the unusual and unethical steps Sanford undertook to keep the Knopfs from satisfying an imminent damages award.

It is under these uncommon circumstances that this court concludes that the First Department's revised June 2016 denial-of-contempt order does not alone require this court to find, for present purposes, that Sanford acted ethically or lawfully in selling Pursuit's property without escrowing the proceeds.⁴

And ample probable cause compels this court to conclude instead that Sanford acted wrongly regarding the sale of Pursuit's property (and the dissipation of the sale proceeds), and that he used communications with his attorneys to further his wrongdoing.

The wrongful-act exception to the attorney-client privilege therefore applies, and movants are required to produce the documents and information the Knopfs seek notwithstanding movants' assertion of the...