Rupert v. Sellers

CourtNew York Supreme Court Appellate Division
Citation48 A.D.2d 265,368 N.Y.S.2d 904
PartiesPhilip P. RUPERT, Jr., and Rupert & Lutz Agency, Inc., Respondents, v. Charles J. SELLERS, Jr., and Charles J. Sellers and Co., Inc., Appellants.
Decision Date06 June 1975

Jaeckle, Fleischmann & Mugel, Buffalo, for appellants (Edward J. Murty, Jr., Buffalo, of counsel).

Harris, Beach & Wilcox, Rochester, for respondents (Edward H. Fox, Rochester, of counsel).



WITMER, Justice.

Defendants appeal from an order denying their motions for protective orders against plaintiffs' notices (1) to examine before trial three non-party witnesses and (2) for production and discovery (a) of defendants' income tax returns for the years 1969--1973 and correspondence between defendants and said three non-party witnesses, plus other documents and (b) of 'all record cards in the possession of defendants for every policy holder who is or at any time on or after June 8, 1970 has been a member of the Monroe County Medical Society regarding insurance policies issued by Commercial Insurance Company for which defendants or either of them serve or at any time served as agents'; and granting plaintiffs' cross-motion under CPLR 3104 that the disclosure proceeding be supervised by a justice of the supreme court. The action is to recover damages for libel, slander, unfair insurance practices and wrongful interference with contract.

In reliance on Cirale v. 80 Pine Street Corp., 35 N.Y.2d 113, 359 N.Y.S.2d 1, 316 N.E.2d 301, defendants contend that Special Term erred in permitting plaintiffs to examine before trial the three nonparty witnesses who were officers of the Monroe County Medical society at the time that defendants replaced plaintiffs as Administrator of group insurance for members of the Society. Those witnesses are Donald M. Irish, Executive Secretary, Dr. Robert C. Webster, former President, and Dr. John G. Hamilton, former Chairman of the Economics Committee of the Society. Since this appeal was instituted, Mr. Irish has died, and so we are now concerned only with the examination of Doctors Webster and Hamilton.

Defendants assert that plaintiffs are not entitled to examine these witnesses because they have not shown that special circumstances exist to justify it. Plaintiffs contend, however, that these witnesses are the ones who primarily made the recommendation and secured the Society's decision to terminate plaintiffs as Administrator of its group insurance plan and substitute defendants therefor, and that they were the principal persons to whom defendants addressed their alleged libelous and slanderous statements concerning plaintiffs, which induced them to act. At Special Term these witnesses opposed the notice to examine them, but they have not appealed from the order herein. Special Term concluded that the allegation that these witnesses took a leading part in terminating plaintiffs' connection with the Society is a showing of special circumstances from which it is reasonable to assume that they will be unfriendly to plaintiffs' action herein, and thus justifies their examination before trial. Although on an application to examine non-party witnesses plaintiffs might be well advised to show that they had unsuccessfully endeavored to interview them, we hold that Special Term was justified in its determination in the circumstances of this case (see Cirale v. 80 Pine Street Corp., supra; Allen v. Crowell-Collier Pub. Co., 21 N.Y.2d 403, 406, 288 N.Y.S.2d 449, 451, 235 N.E.2d 430, 431; Braswell v. Birch Properties, Inc., 42 A.D.2d 1028, 348 N.Y.S.2d 432; Kenford Co. v. County of Erie, 41 A.D.2d 586, 340 N.Y.S.2d 300; Sobel v. Bess, 39 A.D.2d 778, 332 N.Y.S.2d 719; Polisar v. Linz, 39 A.D.2d 544, 331 N.Y.S.2d 742; Southbridge Finishing Co. v. Golding, 2 A.D.2d 430, 156 N.Y.S.2d 542).

With respect to the record cards maintained by defendants concerning the members of the Medical Society who are insured in the group plan, it appears that the information thereon may be material on the issue of whether defendants spoke and wrote the truth in their representations to the Society that they could provide better coverage at better rates, which led to plaintiffs' removal and defendants' substitution for them as Administrator of the plan. The cards may also be relevant on the issue of plaintiffs' compensatory damages.

Defendants contend that such cards are confidential business records and that inspection of them by plaintiffs might grant plaintiffs unfair and improper competitive advantages, and that such cards are privileged. In view of the relevancy of the cards upon the issues in this action, plaintiffs are entitled to inspect them. Such right of inspection, however, must be considered in light of defendants' property interest in the cards, which defendants are entitled to protect. The order authorizing such inspection should be modified, therefore, to add a provision enjoining plaintiffs from soliciting or servicing, in competition with defendants, any member of the Society whose card is inspected by plaintiffs in this discovery proceeding (see Joe Ritter Ski Shop, Inc. v. Gustafsson, 20 A.D.2d 637, 246 N.Y.S.2d 266).

We turn now to consideration of plaintiffs' right to inspect defendants' income tax returns for the years 1969--1973 as bearing on both compensatory and punitive damages.

With respect to compensatory damages plaintiffs contend that such tax returns will be material on the issue of the amount of income that defendants have obtained through their administration of the group fund. We fail to see how such returns will be helpful in plaintiffs' proof in this regard. Defendants are engaged in a broad insurance business in western New York. Although its profit or loss from the business which it has received from Monroe County Medical Society is undoubtedly reflected in its income tax returns, it is most unlikely that it would be specifically shown therein, so as to aid the Court in determining defendants' financial gain in administering the Group fund. Regardless of whether other records of defendants may be examined by plaintiffs to ascertain such financial gain, we hold that examination of defendants' income tax returns would be too general a discovery, and would not be justified on the issue of compensatory damages.

The issue of punitive or exemplary damages, however, is another matter. Because the law in New York on the question of the proof of defendant' wealth in an action for such damages has not been declared by statute or the Court of Appeals, the matter merits consideration in some depth.

It is clear that with respect to compensatory damages the wealth of either party has no bearing in law, and hence it is not discoverable. In Laidlaw v. Sage, 158 N.Y. 73, at p. 103, 52 N.E. 679, at p. 690, the court expressed the philosophy for such rule as follows:

'It has ever been the theory of our government, and a cardinal principle of our jurisprudence, that the rich and poor stand alike in courts of justice, and that neither the wealth of the one nor the poverty of the other shall be permitted to affect the administrati of the law. Evidence of the wealth of a party is never admissible, directly or otherwise, unless in those exceptional cases, where position or wealth is necessarily involved in determining the damages sustained.'

The general rule with respect to compensatory damages is followed in cases wherein, for example, plaintiff seeks discovery of defendant's insurance policy (Simpson v. Foundation Co., 201 N.Y. 479, 490, 95 N.E. 10, 14; Mosca v. Pensky, 42 A.D.2d 708, 345 N.Y.S.2d 606). However, defendant's wealth was deemed a proper subject of inquiry in an action for compensatory damages wherein plaintiff sought recovery for fraudulent inducement of marriage (Huff v. Vose, 245 App.Div. 83, 280 N.Y.S. 953); and the existence of insurance may be sought on the issue of compensatory damages in an appropriate case (Oltarsh v. Aetna Insurance Co., 15 N.Y.2d 111, 118, 256 N.Y.S.2d 577, 582, 204 N.E.2d 622, 625).

For centuries the courts have awarded punitive or exemplary damages in cases where the defendant with malice has injured the plaintiff (Note: Exemplary Damages in the Law of Torts, 70 Harvard Law Review, 517, 518). A very few States do not permit punitive damages at all (see 25 C.J.S. Damages § 126(3), Note 10; e.g., Texas Publ. Utilities Corp. v. Edwards, Tex.Civ.App., 99 S.W.2d 420), and at one time our Court of Appeals expressed its disapproval of them (Dain v. wycoff, 7 N.Y. 191). But the principle has survived and even flourished, to the extent that in Walker v. Sheldon, 10 N.Y.2d 401, 223 N.Y.S.2d 488, 179 N.E.2d 497, its application was extended to actions in fraud and deceit. In Walker the court stressed that exemplary damages are awarded to punish the defendant and to deter malicious acts which harm others, and it stated (p. 405, 223 N.Y.S.2d p. 491, 179 N.E.2d p. 498) that the amount of punitive damages is in the hands of the jury (citing Kujek v. Goldman, 150 N.Y. 176, 180, 44 N.E. 773, 774), but added that the award is subject to judicial review. The courts have exercised such power (see Faulk v. Aware, Inc., 19 A.D.2d 464, 244 N.Y.S.2d 259, affd. 14 N.Y.2d 899, 250 N.Y.S.2d 64, 199 N.E.2d 163). The Walker court said nothing, however, about the nature of the evidence (apart from the extent of defendant's malicious acts) which could be presented to the jury to guide it in fixing the amount of the award.

In I.H.P. Corp. v. 210 Central Park, 16 A.D.2d 461, 467, 228 N.Y.S.2d 883, 889, affd. 12 N.Y.2d 329, 239 N.Y.S.2d 547, 189 N.E.2d 812, Justice Breitel, as he then was, wrote, 'There is no rigid formula by which the amount of punitive damages is fixed, although they should bear some reasonable relation to the harm done and the Flagrancy of the conduct causing it', citing 14 N.Y.Jur., Damages, § 188. In 1 N.Y. PJI 625 this...

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