Connolly v Han-Tsien Tuan

[*1] Connolly v Han-Tsien Tuan 2006 NY Slip Op 51158(U) [12 Misc 3d 1172(A)] Decided on June 23, 2006 Supreme Court, New York County Fried, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on June 23, 2006
Supreme Court, New York County

Kerry Connolly, Plaintiffs,

against

Han-Tsien Tuan, Dean Cho, Tuan & Cho, LLP, and Tuan, Connolly & Cho, LLP, Defendants.



602768/05



For Plaintiff:

Kerry Connolly, Esq.

Plaintiff Pro Se and

James Sandnes, of counsel

One Battery Park Plaza

22nd Floor

New York, New York 10004

For Defendants:

Tuan & Cho, LLP

by: Dean T. Cho

225 Broadway, Suite 2900

New York, New York 10007

Bernard J. Fried, J.

This action involves disputes between an attorney and her former law firm, her former partners and a new firm created by the former partners. The parties had previously settled their disputes by way of agreement, one arranging for an organized departure from the firm of Plaintiff, Kerry Connolly ("Connolly"), and requiring Defendants to make certain periodic payments to Connolly. But, the settlement agreement itself gave rise to even more disputes.

Defendants claim that, among other things, Plaintiff, Kerry Connolly, failed and refused to return to Defendants, as required in the settlement agreement, certain electronic files held on Connolly's laptop computer. After making the first two payments, Defendants ceased making periodic payments to Connolly.

Connolly promptly brought the dispute before me by way of an Order to Show Cause, in [*2]which she explained that she had provided Defendants with hard copies of most of the electronic files, but that her hard drive "crashed" a few days after execution of the settlement agreement and after a technician hired by Defendants serviced Connolly's laptop. The damaged hard drive is the property of Connolly, and, in addition to several files belonging to Defendants, contains privileged documents from attorney-client relationships entered into by Connolly before joining Defendants' firm and confidential information personal to Connolly and her husband. Connolly argues that hard copies of the electronic files were sufficient to satisfy her obligations under the settlement agreement, and that she did not repudiate her obligations under the agreement. Connolly admits that her hard drive may hold copies of certain electronic documents belonging to Defendants.

There also was a dispute as to whether the Defendants breached the agreement by discontinuing Connolly's internet access during November 2005. The agreement required Defendants to provide Connolly with access to her office during that month.

I referred the dispute to a Special Referee to hear and report. After attempted mediation, Special Referee Lowenstein heard the parties and issued a report and recommendation. Connolly moved to modify and confirm the report and recommendation (Motion Sequence No.003), submitting papers on her motion and appearing for argument on May 18, 2006 at the scheduled time. Defendants submitted papers in opposition to the motion, but failed to appear for argument. I granted Connolly's motion on default.

Pursuant to CPLR §§ 2001, 2005, and 5015(a)(1), Defendants now move (Motion Sequence #004) to vacate the default judgment granted against them on May 18, 2006. Defendants claim that, through no fault of their own, they failed to receive timely notice of the date and time of the appearance. Defendants offer printed copies of a report generated by the Future Court Appearance System, a report listing all of their firms' appearances for May 18, 2006. This matter does not appear on that list.

They argue that the default should be excused or disregarded because it resulted from a mistake, it causes no prejudice to Plaintiff and there are valid defenses to the underlying motion to modify and confirm.

Connolly opposes the motion to vacate and cross-moves to enter judgment, contending that Defendants had sufficient notice of the hearing through either the CourtAlert or Future Court Appearance System; and, therefore, Defendants' failure to appear was not excusable. Plaintiff also argues that Defendants' defenses bear no merit. Connolly notes that the May 18, 2006 argument may be found on the Future Court Appearance System if a search is performed under the name and index number of the action rather than by firm name, as Defendants had executed their search.

During argument on the motion to vacate, I expressed my inclination to grant the motion to vacate and also heard argument on the underlying motion to modify and confirm the report and recommendation of the referee.

The default order issued in Motion Sequence #003 is hereby vacated and Connolly's cross-motion to enter judgment is denied as moot. I now turn to the merits of the motion to modify and confirm the report and recommendation of the referee.

By order dated December 19, 2005, I referred the following issues to a Special Referee to hear and report:

1. Did defendants fail to make certain required payments to the plaintiff on November 15, 2005, December 1, 2005 and December 15, 2005? [*3]

2. Was plaintiff obligated to provide defendants with electronic copies of documents the plaintiff created on her personal laptop computer as a precondition to the receipt of payments from the defendant?

3. Is the plaintiff required to provide her hard drive without restriction to defendants and if so should the plaintiff pay the cost of data restoration or can the hard copies filed in court suffice in this regard?

4. Was the plaintiff under the settlement agreement obligated to provide defendants with copies of all documents in cases she worked on for defendants, either hard copies or electronic copies including all correspondence she prepared and received in the cases, without the need for duplication?

5. Whether the plaintiff repudiated an agreement between the parties by asserting that she had no obligation to provide the documents?

6. The extent that the plaintiff's access to the internet at the defendants' office after November 1, 2005 affected the parties' settlement agreement?

The Special Referee held a hearing on February 8, 2006, where both parties offered exhibits, including copies of the settlement agreement, and testimony from Kerry Connolly and Han-Hsien Tuan. On March 27, 2006, the Special Referee issued a report and recommendation, in which he found that (1) Defendants failed to properly make payments required under the agreement; (2) Connolly retains possession of the hard drive from her laptop computer and the laptop computer may contain electronic files which are the property of Defendants; (3) Connolly need not grant unrestricted access to any recoverable files from the hard drive but is required to provide to Defendants all electronic files in her possession that are the property of Defendants; (4) Connolly should pay the cost of any attempt to recover data from the drive; (5) Connolly did not repudiate the settlement agreement; and (6) discontinuance of internet service did not constitute a breach of the settlement agreement.

The Special Referee then recommended that a Special Master be assigned to the case and that Defendants be ordered to pay all money owed to Connolly into an escrow account opened by the Special Master. In addition, Connolly should turnover to the Special Master the hard drive, and the Special Master should hire a third-party to determine whether any data could be restored from the drive, review any files recovered from the drive and return to Defendants any files belonging to them.

In her motion to modify and confirm, Connolly agreed with most of the Special Referee's findings, including the finding that Defendants had improperly withheld payment under the settlement agreement. However, Connolly argues that the report and recommendation should be modified to eliminate the need for a Special Master. She contends that Defendants should be ordered to make payments directly to her, rather than to an escrow account, and that, if any data is recoverable from the hard drive, she should review the data to determine which files are the property of Defendants and return them accordingly. She contends that the settlement agreement should be enforced according to its terms, and the settlement agreement possesses no requirement for a Special Master or other third-party to govern the making of payments or the return of files. [*4]

Also, Connolly disagrees with the Special Referee's finding that she should bear the cost of data restoration, but is willing to bear the cost so long as she receives the withheld payments and interest calculated from the dates those payments were due.

Arguing that the Special Referee's findings are inconsistent with the evidence and the law, Defendants ask me to reject the report and recommendation, find that Connolly repudiated the agreement and award Defendants damages for Connolly's breach of the settlement agreement. Despite the fact that Connolly returned to Defendants all physical documents and hard copies of most of the electronic documents, Defendants argue that she forfeited any rights to payment under the agreement because she failed to turn over all of the firms' electronic files. They argue that her initial opposition to returning electronic documents constituted a repudiation of the agreement. And, at oral argument held on June 19, 2006, Defendants presented another theory to support their contention that Connolly forfeited her benefits under the settlement agreement - that she bore the risk of loss on her obligation to return the firm's intangible property.

On a motion to confirm a referee's report, a court should confirm if the record substantially supports the referee's findings. (Baker v. Kohler, 28 AD3d 375, 375 [1st Dep't 2006]; Thomas v. Thomas, 21 AD3d 949, 949-50 [2d Dep't 2005]). Courts have the power to confirm or reject, in whole or in part, the findings and recommendations of a referee. (See Barrett v. Stone, 236 AD2d 323, 323-24 [1st Dep't 1997]; Garrick-Aug Associates Store Leasing, Inc. v. Shefa Land Corp., 270 AD2d 68, 69 [1st Dep't 2001]).

Here, the record substantially supports the referee's findings that Defendants had an obligation to make the payments specified in the agreement, that Connolly had an obligation to return to Defendants any electronic files in her possession, that Defendants had no right to unrestricted access to the drive, and that discontinuance of Connolly's internet access did not breach the agreement. The settlement agreement clearly describes when and how Defendants were to make payments to Connolly, and they had no right to the self-help remedy of stopping payments. In addition to a reimbursement of $4,074.41, Defendant Tuan, Connolly & Cho, LLP was required to make bi-monthly payments of $3,833.34 beginning November 1, 2005 and ending October 15, 2006. Defendant Han-Hsien Tuan was required to pay Connolly $5,000 by December 31, 2005 and $3,000 by March 31, 2006. Of these payments, Connolly received only the $4,074.41 reimbursement and the first two of the bi-monthly payments of $3,833.34, and, during the Special Referee's hearing Defendants admitted to making no further payments. No payments have been made since that hearing.

Furthermore, the record substantially supports the referee's finding that Connolly must return all of Defendants' electronic files in her possession. The agreement states that Connolly must return all of the firm's property, including "tangible and intangible" property. Because this obligation lies with her, the referee found that she should bear the cost of returning the files, including the cost of attempting recovery of any files remaining on the hard drive. The referee also properly found no evidence of repudiation by Connolly.

However, I do not find evidence in the record to support the referee's recommendation that a Special Master be appointed to hold in escrow Defendants' payments and to govern recovery and review of the files on the damaged hard drive. The terms of the settlement agreement are clear and unambiguous, and they do not require the parties to make payments into escrow or retain a third-party to supervise the making of payments and the return of files.

Defendants should make payments directly to Connolly, as required by the agreement, and [*5]Connolly should attempt to recover files from her hard drive and, if successful, return any recovered files that belong to the Defendants. The expense and complication of a Special Master is not necessary for the parties to fully perform their contractual obligations.

Connolly seeks to recover from Defendants the sum of $56,317.24, representing a portion of a client retainer fee and the bi-monthly payments remaining unpaid through June 15, 2006, and $8,222.41, representing the amount owed by Han-Hsien Tuan. Both sums also include interest calculated from the dates upon which the underlying payments were due, as specified in the settlement agreement.

I confirm that part of the report and recommendation finding that Defendants failed to make payments as required under the agreement, that Connolly did not repudiate the agreement, that Connolly had an obligation to return to Defendants their electronic documents, and that Defendants did not breach the agreement by discontinuing Connolly's internet access. Furthermore, I find that Connolly has correctly calculated the amounts owed to her but unpaid by Defendants. I reject that part of the report and recommendation requiring the appointment of a Special Master to hold in escrow Defendants' payments and supervise the recovery and review of files from the hard drive.

At argument held on June 19, 2006, I ordered Connolly to send to me, by letter, a list of three data-recovery service providers capable of attempting to recover data from the damaged hard drive and including quotations of the cost of recovery attempt. By letter dated June 21, 2006, Connolly provided such a list. The service provider with the lowest fee, Best Buy/The Geek Squad ("Best Buy") quoted a flat fee of $199.00 during a telephone conversation with Connolly held on June 20, 2006. Connolly explained that she could hand-deliver the drive to Best Buy and provided a copy of the company's general website, which identifies the various services offered by the company but does not specifically address its data recovery services.

The second provider charged a minimum fee of $175.00 for evaluation of the drive and a fee of $1050 in the case of successful data recovery. The third provider quoted a price range, from $299-$1499, depending on the complexity of the damage. In her letter, Connolly suggests that I choose the lowest cost data-recovery service provider.

Defendants, by letter dated June 21, 2006, opposed selection of the lowest cost provider, arguing that the difference in price quotations indicated poor service, lack of proper training and lack of expertise in data recovery. In part, Defendants base their theory on language on Best Buy's website that describes its personnel as "mobile, badge-toting individuals."

Upon review of these letters, and the attached exhibits, I find that Best Buy is a satisfactory data-recovery service provider and reject Defendants arguments in opposition. Defendants arguments are based solely on the information contained on Best Buy's homepage, information not directly relevant to data-recovery services, and the difference in price quotations. Even though there is difference between the various price quotations, the price quoted by Best Buy is not so dissimilar from those of the other provider to justify Defendants concern. In fact, Best Buy's quotation is close to the lower end of the various prices quoted by the other providers.

Accordingly, it is

ORDERED that defendants motion to vacate (Motion Sequence #004) is granted and my order of May 18, 2006 is hereby vacated; and it is further

ORDERED that Kerry Connolly's cross-motion to enter judgment is denied as moot; and it [*6]is further

ORDERED that the motion to modify and confirm (Motion Sequence #003) is granted in part and rejected in part; and it is further

ADJUDGED THAT Plaintiff Kerry Connolly does recover of Defendants TUAN, CONNOLLY & CHO, LLP and TUAN & CHO, LLP, with offices at 225 Broadway, New York, New York, the sum of $56,317.24, with interest thereon at the legal rate, from June 19, 2006, and with $_____________ costs and disbursements amounting, in all, in the sum of $_____________ and plaintiff shall have execution therefore; and it is further

ADJUDGED THAT Plaintiff Kerry Connolly does recover of Defendant HAN-HSIEN TUAN, of the town of Summit, New Jersey, the sum of $8,222.41, with interest thereon at the legal rate, from June 19, 2006, and with $_____________ costs and disbursements amounting, in all, in the sum of $_____________ and plaintiff shall have execution therefore; and it is further

ADJUDGED THAT Defendants TUAN, CONNOLLY & CHO, LLP and TUAN & CHO, LLP make periodic payments, in accordance withe the settlement agreement between the parties and dated November 1, 2005, to Kerry Connolly, at her residence address in the amount and on the dates as follows:

July 1 2006,833.33 July 15 2006,833.34 August 1 2006,833.33 August 15 2006,833.33 September 1 2006,833.34 September 15 2006,833.33 October 1 2006,833.33 October 15 2006,833.34

and that a failure to make timely payments will be deemed a contempt of Court and punished as such; and it is further

ORDERED that all remaining issues in this action are hereby severed and continued; and it is further

ORDERED that Kerry Connolly cause her damaged hard drive to be sent to Best Buy/The Geek Squad, the data recovery service-provider identified in Kerry Connolly's letter of June 21, 2006; that data recovery be attempted; that Kerry Connolly return to Defendants their electronic files recovered from the drive, if any such files are recovered, along with an affidavit stating that she has returned all of Defendants' electronic files that were in her possession; and that her failure to do so will be deemed a contempt of court and punished as such.

Dated: ____________ [*7]

ENTER:

_________________________

J.S.C.

_________________________

County Clerk