Liberty Petroleum Realty, LLC v. Gulf Oil, L.P.

• Decision Date: 02 August 2018
• Docket Number: 6450N,Index 22163/15E
• Citation: 84 N.Y.S.3d 82,164 A.D.3d 401
• Parties: LIBERTY PETROLEUM REALTY, LLC, et al., Plaintiffs–Appellants, v. GULF OIL, L.P., et al., Defendants–Respondents.
• Court: New York Supreme Court — Appellate Division

164 A.D.3d 401

84 N.Y.S.3d 82

LIBERTY PETROLEUM REALTY, LLC, et al., Plaintiffs–Appellants,

v.GULF OIL, L.P., et al., Defendants–Respondents.

6450N

Index 22163/15E

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

ENTERED: AUGUST 2, 2018

Harfenist Kraut & Perlstein, LLP, Lake Success (Neil Torczyner of counsel), for appellants.

Steven Cohn, P.C., Carle Place (Jeffrey H. Weinberger of counsel), for respondents.

Richter, J.P., Gesmer, Oing, Singh, Moulton, JJ.

Order, Supreme Court, Bronx County (Laura G. Douglas, J.), entered July 11, 2017, which, to the extent appealed from as limited by the briefs, denied plaintiffs' motion to strike defendants' answer for their failure to respond completely to plaintiffs' discovery demands, and granted defendants' cross motion to quash the subpoena served upon defendants' counsel, unanimously modified, on the law, to grant the cross motion only to the extent that the subpoena sought documents, and remand to the motion court for further proceedings consistent with this order regarding the deposition of defendants' counsel, and otherwise affirmed, without costs.

Factual and Procedural Background

Plaintiffs are two distributors of wholesale motor fuel to gas stations. Defendant Cumberland Farms, Inc. (Cumberland) is the parent company for defendant Gulf Oil, L.P. (Gulf), a seller of wholesale motor fuel. Defendant Anjon of Greenlawn, Inc. (Anjon) is a licensed distributor of Gulf fuel.

Plaintiffs seek damages for tortious interference with contract as a result of defendants' alleged role in the rebranding of five nonparty franchises (the stations) from Mobil to Gulf. In 2008, each of the stations entered into a separate franchise agreement for a period of eight years with nonparty ExxonMobil Oil Corporation (Mobil). Pursuant to assignment agreements executed in 2010, Mobil conveyed its interest in each of the franchise agreements to one of the two plaintiffs in this action, which thereafter supplied the stations with Mobil fuel.

On July 5, 2011, the stations commenced an action in Queens County Supreme Court against the plaintiffs in this action entitled Go Green Realty Corp. et al. v. Liberty Petroleum Realty, LLC et al. , alleging fuel pricing irregularities. That action was removed to federal court on August 1, 2011, and by order dated March 30, 2015, the District Court granted summary judgment dismissing the stations' complaint and scheduled a trial on the counterclaims for violation of the franchise agreements and liquidated damages ( Go Green Realty Corp. v. Liberty Petroleum Realty LLC, 86 UCC Rep. Serv. 2d 256, 2015 WL 1499148 [S.D. N.Y.2015], affd 645 Fed.Appx. 105 [2d Cir.2016] ). Defendants in that action (plaintiffs in this action) ultimately prevailed on their counterclaims, and recovered liquidated damages and counsel fees due under the franchise agreements. Counsel for defendants in this action represented the stations in the Go Green litigation.

On April 17, 2015, plaintiffs commenced this action, in which they allege that, in or about April 2012, defendants entered into negotiations with the stations to supply Gulf fuel to them, and that, approximately one month later, the stations ceased buying Mobil fuel from plaintiffs, rebranded themselves from Mobil to Gulf stations, and began selling Gulf fuel purchased from Anjon. Plaintiffs allege that defendants' actions constitute tortious interference with the franchise agreements.

On November 3, 2016, plaintiffs served a subpoena on defendants' counsel seeking documents and deposition testimony about his communications with Gulf and/or Cumberland "in connection with their inducement of the breach of contract which forms the basis" of their five causes of action in this case for tortious interference. Although defendants' counsel now represents Gulf and Cumberland, there is no evidence that he represented them at any time prior to this litigation, including at the time of the events alleged in the complaint, the period as to which plaintiffs seeks discovery.

Counsel did not respond to the subpoena. In December 2016, plaintiffs, claiming that defendants had failed to comply with discovery, moved to strike defendants' answer pursuant to CPLR 3126. Defendants opposed the motion, and defendants' counsel cross-moved for a protective order to quash the subpoena served on him. The motion court denied plaintiffs' motion and granted the cross motion.

Analysis

We find that the motion court properly quashed the subpoena to the extent that it sought documents.¹ We further find that the motion court should not have granted counsel's request for a protective order prohibiting his deposition, and that the matter should be remanded for further proceedings on that issue. If, after further proceedings, the motion court denies counsel's request for a protective order, the deposition should proceed without prejudice to counsel's objection to specific questions the answers to which would reveal privileged or otherwise protected information ( CPLR 3101 ). Unlike the motion court, we reach those conclusions based on state law rather than federal law. Finally, we find that the motion court properly denied plaintiffs' motion.

CPLR 3101(a) requires "full disclosure of all matter material and necessary in the prosecution or defense of an action." While trial courts "undoubtedly possess a wide discretion to decide whether information sought is ‘material and necessary’ to the prosecution or defense of an action," such discretion is not unlimited ( Allen v. Crowell-Collier Pub. Co., 21 N.Y.2d 403, 406, 288 N.Y.S.2d 449, 235 N.E.2d 430 [1968] ), and disclosure is required where it will "assist preparation for trial by sharpening the issues and reducing delay and prolixity" ( id. ).

At the same time, the CPLR protects from discovery attorney work product, and, when affirmatively raised as it is here, privileged communications ( CPLR 3101[b], [c] ), and permits a court to issue a protective order "denying, limiting, conditioning or regulating the use of any disclosure device" where necessary "to prevent unreasonable annoyance, expense, embarrassment, disadvantage, or other prejudice to any person or the courts" ( CPLR 3103[a] ).

An individual or entity who seeks a protective order bears the initial burden to show either that the discovery sought is irrelevant or that it is obvious the process will not lead to legitimate discovery. Once this burden is met, the subpoenaing party must "establish that the discovery sought is ‘material and necessary’ to the prosecution or defense of an action, i.e., that it is relevant" ( Matter of Kapon v. Koch, 23 N.Y.3d 32, 34, 988 N.Y.S.2d 559, 11 N.E.3d 709 [2014] ; see also Spectrum Sys. Intl. Corp. v. Chemical Bank, 78 N.Y.2d 371, 377, 575 N.Y.S.2d 809, 581 N.E.2d 1055 [1991] ). When the individual seeking a protective order asserts attorney work product and/or privilege, "the burden of establishing any right to protection is on the party asserting it; the protection claimed must be narrowly construed; and its application must be consistent with the purposes underlying the immunity" ( Spectrum Sys., 78 N.Y.2d at 377, 575 N.Y.S.2d 809, 581 N.E.2d 1055 ).

Shelton v. American Motors Corp.

In deciding the motion to quash, the motion court relied exclusively on Shelton v. American Motors Corp. , 805 F.2d 1323 (8th Cir.1986), and three New York trial court decisions which rely on Shelton.² For the reasons discussed below, we hold that Shelton is inconsistent with New York law.

Shelton was a wrongful death action in which the plaintiffs sought to depose the defendant's in-house counsel, who had assisted in the litigation. When counsel refused to answer certain questions at her deposition, citing attorney work product and attorney-client privilege, the District Court granted the plaintiffs's motion seeking a default judgment as a sanction. On appeal, the Eighth Circuit held that, while opposing counsel are not immune from being deposed, the practice should be limited to circumstances in which the party seeking the deposition shows that: (1) no other means exist to obtain the information; (2) the information sought is relevant and nonprivileged; and (3) the information is "crucial" to preparation of the case ( id. at 1327 ).

However, the test articulated in Shelton is not consistent with New York State law. As discussed above, under New York law, the individual or entity seeking a protective order bears the initial burden to show that the information sought is irrelevant or that the process will not lead to legitimate discovery, and only then does the burden shift to the subpoenaing party to demonstrate that the information sought is material and necessary ( Kapon, 23 N.Y.3d at 34, 988 N.Y.S.2d 559, 11 N.E.3d 709 ). In contrast, Shelton places the initial burden on the party seeking disclosure ( Shelton, 805 F.2d at 1326–1327 ). Accordingly, New York courts may not properly apply the test articulated in Shelton.

Plaintiffs' Subpoena of Documents from Counsel

Applying New York law, the protective order was properly granted to the extent that it sought documents from defendants' counsel. Counsel met his initial burden to show that the retainer, rental and lease agreements sought are not relevant to plaintiffs' claims, and plaintiffs failed to demonstrate that they are "material and necessary" ( Kapon at 34, 988 N.Y.S.2d 559, 11 N.E.3d 709 ).³ Counsel also asserted in the motion court that the balance of the documents sought from him have already been produced to plaintiffs in this litigation and/or in the Go Green litigation. Plaintiffs did not dispute that they had received these documents, but merely speculated that counsel might produce a slightly different version. Accordingly, plaintiffs failed to demonstrate that counsel's duplicative production of these documents is necessary to their prosecution of this action ( id. ).

Deposition of Opposing Counsel

Neither this Court nor the Court of Appeals has established a clear...