Overstock.com v. Morgan Stanley & Co.

• Citation: 2012 NY Slip Op 30036
• Decision Date: 11 January 2012
• Docket Number: Index No.: 113303/10
• Court: United States State Supreme Court (New York)
• Parties: In the Matter of the Application of OVERSTOCK.COM, a Delaware Corporation, KENNETH CARPENTER, an individual, OLIVIER CHENG, an individual, MARY HELBURN, an individual, HUGO D. BARRON, an individual, DAVID TRENT, an individual, and MARK MONT AG, an individual, Petitioners, For an Order for the issuance of a subpoena for the deposition and production of documents by TIMOTHY J. YOUNG, and BUCKLEY & YOUNG, LLC, Respondents, For use in an action pending in the State of California entitled OVERST0CK.COM, et al., Plaintiffs, v. MORGAN STANLEY & CO., INC., et al, Defendants.

2012 NY Slip Op 30036

In the Matter of the Application of OVERSTOCK.COM a Delaware Corporation, KENNETH CARPENTER an individual, OLIVIER CHENG, an individual, MARY HELBURN an individual, HUGO D. BARRON, an individual DAVID TRENT, an individual, and MARK MONT AG, an individual, Petitioners, For an Order for the issuance of a subpoena for the deposition and production of documents by TIMOTHY J. YOUNG, and BUCKLEY & YOUNG, LLC, Respondents, For use in an action pending in the State of California entitled OVERST0CK.COM, et al., Plaintiffs, v. MORGAN STANLEY & CO., INC., et al, Defendants.

Index No.: 113303/10

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: CIVIL TERM: PART 19

Dated: January 4, 2012

Dated: January 11, 2012

Submission Date: 8/03/11

DECISION AND ORDER

For Petitioners:

Gibbons, P.C.

For Respondents:

Proskauer Rose LLP

Papers considered in review of this motion to compel deposition testimony:

Notice of Motion .......................1

Aff in Support...............................2

Mem of Law..............................3

Aff in Opp................................4

Mem of Law............................5

Reply Aff...............................6

Mem of Law...........................7

HON. SALIANN SCARPULLA, J.

Petitioner Overstock.com ("Overstock) is a plaintiff in a California litigation against various entities who are alleged to have engaged in trading activity of Overstock's securities from 2004 to 2007, in concert with individuals including Timothy J. Young ("Young"), a New York resident. On June 14, 2006, non-party Young was deposed by regulators from the American Stock Exchange ("Amex") relating to this trading activity.

In connection with the California litigation, Overstock sought to depose Young. The deposition took place on April 5, 2011, at which time Young invoked his Fifth Amendment privilege in response to all questions asked, other than his name and oath. Overstock now moves to compel non-party witness Young to sit for a continued deposition and answer all the questions that were posed to him at the April 5, 2011 deposition, and to complete his December 7, 2010 document production.¹

Overstock argues that Young has failed to establish a reasonable basis for his assertion of the Fifth Amendment privilege, as he has not demonstrated that a real danger of prosecution exists. Overstock asserts that by refusing to answer any questions at his deposition, he has failed to establish a foundation for his assertion of the Fifth Amendment privilege, and has failed to demonstrate that he has a reasonable cause toinvoke the privilege based on a real danger. In addition, Overstock argues that Young waived his Fifth Amendment privilege by testifying at the Amex deposition on June 14, 2006. Lastly, Overstock asserts that Young impermissibly asserted a blanket refusal to answer questions at the deposition, and Young should be ordered to answer, at a minimum, questions which Overstock contends could not be used against him by the prosecutions of future criminal proceedings.

In support of its motion, Overstock submits an affirmation by its attorney styled "Affirmation of Good Faith in Support of Petitioner's Motion to Compel Disclosure." However, the Affirmation fails to indicate any efforts taken by the attorney to confer with opposing counsel in a good faith effort to resolve the discovery disputes since the April 5, 2011 deposition. It merely states, in pertinent part, that counsel for Overstock and counsel for respondents "communicated several times regarding the prospective deposition and documents that were being produced . . . . I understand that [counsel for Overstock and counsel for respondents] engaged in a series of oral communications between December 7, 2010 and April 5, 2011 in which counsel for the witness Mr. Young informed [counsel for Overstock] that Mr. Young would not testify in any respect beyond providing his name and address."

In opposition, respondents Buckley & Young LLC and Young (collectively "respondents") assert that the motion is procedurally defective as Overstock failed to comply with the good faith conference requirement of Uniform Rule 202.7. In addition, respondents assert that Overstock fails to mention that Young is the subject of an ongoinginvestigation by the Securities and Exchange Commission ("SEC"), which forms the basis of Young's reasonable fear of prosecution, and of which Overstock was aware. Respondents assert that Young's testimony at the Amex deposition did not waive his Fifth Amendment rights, and instead assert that Young properly invoked his rights. In addition, respondents assert that they have produced all documents responsive to Overstock's request, and that costs for this motion should be imposed against Overstock.

In their reply papers, Overstock reiterates that its counsel discussed Young's anticipated deposition and invocation of his Fifth Amendment privilege many times, and that upon learning of his intention to invoke the his Fifth Amendment privilege, counsel for Overstock informed respondents' counsel that Overstock would "be forced" to move to compel his testimony. Overstock further asserts that there was a discussion of Young's anticipated invocation of his Fifth Amendment rights many times between December 2010 and April 2011, and that Young has no real fear of prosecution. Overstock also contends that Young's document production is "seemingly incomplete," and that costs should be assessed against Young.

Discussion

Summary denial of a motion to compel is "mandated when it is made without a proper affirmation of good faith as required by 22 NYCRR 202.7(a)." Sixty-Six Crosby Assocs. v. Berger & Kramer, L.L.P., 256 A.D.2d 26 (1st Dep't 1998). Here, Overstock fails to include a proper good faith affirmation. As discussed above, the "Affirmation of Good Faith" submitted in support of Overstock's motion to compel fails to detail anyefforts taken by Overstock's counsel to confer with respondents' counsel in a good faith effort to resolve the discovery issues since Young invoked his Fifth Amendment privilege at the April 5, 2011 deposition. Lacking that, the motion to compel must be denied. See Fulton v. Allstate Ins. Co., 14 A.D.3d 380, 382 (1st Dep't 2005).

However, even had Overstock included the required affirmation of good faith, its motion to compel still lacks merit. '"An individual may invoke the Fifth Amendment to decline to answer a deposition question when the individual has reasonable cause to apprehend that answering the question will provide the government with evidence to fuel a criminal prosecution." Bleidner v. East 51s' Street Development Co., LLC, 30 Misc. 3d 521, 530 (Sup. Ct. N.Y. Co. 2010) (quoting Lopez v. City of New York, 2007 U.S. Dist. LEXIS 55545 (E.D.N.Y. 2007)). "The danger of self-incrimination must be real, not remote or speculative." Bleidner, 30 Misc. 3d at 351 (quotation omitted). "[T]he witness is the best judge of whether an answer will tend to incriminate him, since he is obviously in possession of more facts than are known to the court or other parties." David Webb, Inc. v. Rosenstiel, 66 Misc. 2d 29, 33 (Sup. Ct. N.Y. Co. 1970), aff'd 36 A.D.2d 691 (1st Dep't 1971). See also State of New York v. Carey Resources, Inc., 97 A.D.2d 508, 509 (2d Dep't 1983) ("[t]he witness is generally the best judge of whether an answer may tend to be incriminating . . . .") (citations omitted).

Overstock contends that Young fails to establish that he has reasonable cause to fear danger of prosecution from answering the questions posed at the April 5, 2011 deposition. However, as Young was in receipt of SEC subpoenas to produce documentsand testify, and was aware of an...