Stenovich v. Wachtell, Lipton

• Decision Date: 02 January 2003
• Citation: 756 N.Y.S.2d 367,195 Misc.2d 99
• Court: New York Supreme Court
• Parties: In the Matter of LELAND STENOVICH, on Behalf of Himself and All Others Similarly Situated, Petitioner,<BR>v.<BR>WACHTELL, LIPTON, ROSEN & KATZ, Respondent.

195 Misc.2d 99

756 N.Y.S.2d 367

In the Matter of LELAND STENOVICH, on Behalf of Himself and All Others Similarly Situated, Petitioner,

v.WACHTELL, LIPTON, ROSEN & KATZ, Respondent.

January 2, 2003.

Milberg Weiss Bershad Hynes & Lerach (Benjamin Y. Kaufman, Art Leahy and Trisha McCormick of counsel), for petitioner.

Wachtell, Lipton, Rosen & Katz (Michael A. Charish of counsel), respondent pro se.

Howard, Rice, Nemerovski, Canaday, Falk & Rabkin, San Francisco, California (Noah B. Novogrodsky, of the California Bar, admitted pro hac vice, of counsel), for First Security Board of Directors.

OPINION OF THE COURT

CHARLES J. TEJADA, J.

Introduction

Pursuant to New York Civil Practice Law and Rules §§ 3102 and 3124, petitioner seeks an order directing Wachtell, Lipton, Rosen & Katz (Wachtell Lipton), a New York law firm, to produce certain documents demanded by petitioner but withheld by respondent on the grounds of attorney-client privilege and work product doctrine. Petitioner was represented by Benjamin Y. Kaufman, Art Leahy and Trisha McCormick of Milberg Weiss Bershad Hynes & Lerach. Noah B. Novogrodsky of Howard, Rice, Nemerovski, Canaday Falk & Rabkin in San Francisco appeared for the First Security Board of Directors. Michael A. Charish of Wachtell Lipton appeared for the firm.

On September 29, 2000, petitioner Leland Stenovich filed a class action complaint for breach of fiduciary duty in the Third Judicial District Court, County of Salt Lake, State of Utah, against several of the officers and directors of First Security Corporation (First Security). On September 17, 2001, petitioner Stenovich and others filed an amended complaint for breach of fiduciary duty. Petitioner alleges that under Utah law, First Security's Board of Directors breached their fiduciary duties of care, candor and loyalty to the class by committing First Security to a merger with Wells Fargo & Co. (Wells Fargo) for an inadequate price.

Specifically, petitioner alleges, in part, in his complaint that: "notwithstanding the positive strategic consideration that had led to the Zions merger in the first instance, and notwithstanding the tens of millions of dollars spent on that merger, to spite Zions' management for what defendant Eccles perceived to be a personal affront, Eccles and the other defendants quickly initiated and pursued a merger with Wells Fargo, embracing a course exactly opposite to First Security's prior long-term strategic plan," that, "defendants ignored their fiduciary duty to First Security shareholders to obtain the best deal practicable under the circumstances," that, "defendant Eccles * * * struck a deal that same day to sell First Security for a price substantially below what Eccles knew he could obtain from Zions," that, "Eccles expressly conditioned the sale of First Security to Wells Fargo on securing for himself a payment for life of approximately $1,000,000 per year for little apparent work, a $500,000 per year payment to his wife should she survive him, a $1,500,000 birthday present bonus on Eccles' 70th birthday, and options for 185,000 shares of Wells Fargo stock (compared with options for 60,000 shares under the defunct Zions agreement)," that, "the First Security Board of Directors approved and publicly announced the Wells Fargo merger, secure in the knowledge that Wells Fargo had agreed to indemnify each and all of the members of the Board of Directors against any breaches of fiduciary duty or other claims arising from their vote approving the Wells Fargo deal," that, "while the Board of Directors allegedly received an `oral' opinion from J.P. Morgan & Co. expressing the view that from a `financial point of view' the Wells Fargo offer was fair, the Board of Directors knew J.P. Morgan was not independent and had not had sufficient time to reasonably evaluate the `fairness' of the deal and knew that J.P. Morgan would be paid over $10 million for its `opinion,' if—but only if—the Wells Fargo deal were completed," and that, "J.P. Morgan `window dressed' the acquisition price in First Security's June 26, 2000 Proxy Statement-Prospectus to make the value of the transaction appear more attractive than it was."

Wachtell Lipton acted as First Security's counsel during the negotiations with Zions and Wells Fargo.

The instant action was initiated on January 19, 2002, when Utah State Court Judge Homer F. Wilkinson granted petitioner's ex parte motion for a commission to obtain an order from the Supreme Court, State of New York, County of New York, to issue subpoenas for production of documents on Wachtell Lipton. On January 31, 2002, pursuant to CPLR 3102 (e), a Justice of the New York Supreme Court, New York County, ordered the issuance of petitioner's subpoena duces tecum. Thereafter, on February 2, 2002, petitioner served the subpoena duces tecum on Wachtell Lipton for the production of documents. On April 13, 2002, in response to petitioner's subpoena duces tecum, Wachtell Lipton produced the privilege log, listing over 640 documents.

Before going to the merits of petitioner's application, this court must address two threshold issues raised by respondent. First, respondent contends that this court should defer to a Utah court's ruling on motions to compel disclosure because similar issues are raised in the Utah and New York motions and some of the documents at issue are the same. However, this court finds that the motions to compel filed by petitioner in Utah concerned Wells Fargo and First Security and not Wachtell Lipton. Moreover, "whether a particular document is or is not protected [by the attorney-client privilege or work product doctrine] is necessarily a fact-specific determination most often requiring in camera review." (Spectrum Sys. Intl. Corp. v Chemical Bank, 78 NY2d 371, 378 [1991] [internal citations omitted].) Nothing in the record before this court supports respondent's contention that a Utah court's determination of a motion to compel disclosure of documents withheld by Wells Fargo and First Security will address the evidentiary exceptions to the attorney-client privilege and work product doctrine asserted by Wachtell Lipton. Respondent merely asserts that the documents in question before a Utah court are similar or the same as those at issue in this proceeding, a fact, given respondent's opposition to disclosure, which petitioner would have no way of determining.

Also, respondent's contention that this court should defer to a Utah court fails to address the fact that the attorney-client relationship between First Security and Wachtell Lipton is based in New York, that Wachtell Lipton is a New York law firm, that the documents it is withholding are located in New York, and that respondent claims a privilege under New York law. It also fails to address whether any of these issues are before a Utah court. Lastly, this contention fails to acknowledge that the Utah court's issuance of a commission to obtain an order from the Supreme Court, State of New York, County of New York, to issue subpoenas for production of documents, supports a conclusion that New York law applies. The commission, which was issued based on good cause was deemed "necessary and proper" to obtain documents from Wachtell Lipton. Clearly, the Utah court has ruled that it is not only necessary but "proper" for a New York court to issue a subpoena duces tecum and entertain any objection to disclosure under New York law.

Consequently, under New York law, the petitioner followed the proper procedure in filing his motion to compel in New York. It is well settled that when a subpoena issues from the State of New York, a motion to compel based on the subpoena must also be filed in New York, even when the underlying case is filed in another state. (Matter of Dauer v Prudential Ins. Co., 247 AD2d 350 [1st Dept 1998].)

Second, respondent asserts that, under a "choice of law" analysis, Utah law should apply. In legal disputes which involve contacts with different states, New York applies the law of the jurisdiction with the most significant or greater interest in having its law applied to the controversy. (Babcock v Jackson, 12 NY2d 473 [1963].) Two separate inquiries are thereby required to determine the greater interest: (1) what are the significant contacts and in which jurisdiction are they located, and (2) whether the purpose of the law is to regulate conduct or to allocate loss.

The guiding principle in making this inquiry is that in a choice of law analysis involving a standard of care, or laws that regulate conduct to prevent injuries from occurring, "the law of the place * * * will usually have a predominate, if not exclusive concern * * * because the locus jurisdiction's interests * * * assume critical importance and outweigh any interests of common-domicile jurisdiction." (Schultz v Boy Scouts of Am., 65 NY2d 189, 198 [1985] [internal quotation marks omitted].)

Here, the petitioner, a citizen and domiciliary of Utah, filed a class action complaint in the State of Utah alleging various breaches of Utah law by the officers and directors of First Security. First Security is a Utah corporation with its principal place of business in Utah. However, petitioner first obtained a commission and then filed the instant motion to compel in New York based on a subpoena issued by a New York Supreme Court Justice. That subpoena directed a New York based law firm to produce certain documents it claims are privileged. Furthermore, when a discovery dispute involves an attorney-client relationship with a New York attorney, New York privilege law applies. (Matter of Walsh v Herrick, 40 Misc 2d 413 [Sup Ct 1963].) Applying the guiding principle of Babcock, this court finds that the facts giving rise to the underlying claim and the contact between the parties concern the attorney-client privilege and work product doctrine and that these are conduct regulating principles. (Babcock v Jackson, 12 NY2d 473; Erie R.R. Co. v Tompkins, 304 US 64...