Matter of Land

[*1] Matter of Land 2009 NY Slip Op 50157(U) [22 Misc 3d 1117(A)] Decided on January 6, 2009 Supreme Court, New York County Ling-Cohan, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 January 6, 2009
Supreme Court, New York County

In the Matter of the Application of Interim Lead, Plaintiffs Robert P. Land AND DR. DOUGLAS GEIGER for an Order, pursuant to CPLR 3102 (e), Directing Service of a Subpoena Upon LEON BLACK, DAVID I. FOLEY, HENRY KRAVIS, MARC S. LIPSCHULTZ, MICHAEL G. MACDOUGALL, STEPHEN A. SCHWARZMAN AND AARON J. STONE for Oral and Videotaped Depositions as ordered by Commissions and Orders issued by the Court Appointed Special Master in the Shawnee County District Court, Kansas action styled In re Kinder Morgan, Inc. Shareholders Litig., Case No. 06 C 801.



100796/08



Attorneys for plaintiff/petitioner:

Mario Alba, Jr.

Coughlin Stoia Geller Rudman & Robbins LLP

52 Duane St, 7th Floor

New York, NY 10007

(212) 693-1058

Attorneys for defendants/respondents Leon Black & Aaron J. Stone:

William J. Sushon

Mark S. Germann

O'Melveny & Myers LLP

7 Times Square

New York, NY 10036

(212) 326-2000

Attorneys for defendants/respondents Henry R. Kravis & Marc S. Lipschultz:

Peter E. Kazanoff

Janet A. Gochman

Simpson Thacher Bartlett LLP

425 Lexington Ave

New York, NY 10017

(212) 455-2000

Doris Ling-Cohan, J.

Motions sequence numbers 001 and 002 have been consolidated for disposition. In this case, plaintiffs, via subpoena issued in accordance with CPLR 3102 (e), seek to take depositions [*2]of non-parties Leon Black, Aaron J. Stone, Stephen A. Schwarzman, David I. Foley, Henry Kravis, Marc S. Lipschultz, and Michael G. MacDougall in connection with litigation pending in Kansas and Texas. The litigation in Kansas and Texas challenges the fairness of a management led-buyout of Kinder Morgan, Inc. Oral and videotaped depositions were ordered by letters rogatory and commissions issued by a court-appointed special master in the Texas action captioned Crescente v Kinder Morgan, Inc. et al., Cause No. 2006-33011 (164th Judicial District Court, Harris Co., Texas) and in a Kansas action captioned In re Kinder Morgan Inc. Shareholders Litig., Case No. 06 C 801 (Shawnee Co., Kansas, Division 12). On February 6, 2008, an order was filed pursuant to CPLR 3102 (e) in New York County Supreme Court, by the Honorable John E. Stackhouse, directing that the depositions of the non-parties take place in March of 2008.

The non-parties Leon Black, Aaron J. Stone, Henry Kravis, and Marc S. Lipschultz move pursuant to CPLR 2304 and 3103 (a), quashing the subpoenas for depositions. Kravis and Lipschultz also move for protective orders directing that the depositions do not take place.[FN1]

FACTUAL ALLEGATIONS

Kinder Morgan, Inc. (KMI) is an energy pipeline transporter and terminal operator. On May 29, 2006, KMI announced that it had received a management-led offer to acquire all of KMI's outstanding stock for $100 per share. The management-led investment group included Goldman Sachs Capital Partners (Goldman Sachs); American International Group, Inc.; The Carlyle Group; Riverstone Holdings, LLC; Richard Kinder, chief executive officer of KMI; and KMI directors and members of senior management including Park Sharper and David Kinder. As a result of the offer, KMI formed an independent committee to evaluate the fairness of the transaction and to solicit other offers of interest. After soliciting competing bids from potential bidders and conducting negotiations with the investors, KMI announced on August 28, 2006, that its board of directors had approved an agreement and plan of merger under which the investment group would acquire KMI for an increased price of $107.50 per share.

Just prior to KMI's announcement that it had received the offer, meetings were held in New York City in May of 2006, in which representatives of Goldman Sachs, Richard Kinder, Park Sharper and David Kinder met with representatives of potential financial sponsors regarding the acquisition of KMI via a management-led buyout.

In August of 2006, shareholders of KMI filed lawsuits in state court in both Texas and Kansas. In these actions, plaintiffs allege that KMI's directors as well as its officers breached their fiduciary duties by approving the management-led buyout of KMI at a low price which was unfair to KMI's shareholders, and that the private equity investors that participated in the buyout aided and abetted a breach of fiduciary duty.I. SEQUENCE 001

In sequence 001, Leon Black (Black) and Aaron J. Stone (Stone), move jointly to quash plaintiffs' subpoena for their depositions. Black is the chairman and chief executive officer and director of Apollo Global Management, LLC (Apollo), an alternative asset management firm. [*3]Stone is a partner of Apollo.

On May 23, 2006, Stone attended a meeting with KMI representatives in New York City regarding a potential acquisition of KMI. Stone maintains that also in attendance at the meeting were representatives from KMI, Goldman Sachs, American International Group, Inc., Texas Pacific Group, Kholberg Kravis Roberts & Co., and The Blackstone Group. (Stone Aff., ¶ 5). Although Black did not attend that meeting, he attended a later meeting at Goldman Sachs which also took place on May 23, 2006. Shortly after the meetings took place, Apollo declined to participate in the transaction.

After commencing litigation regarding the buyout, on September 26, 2007, plaintiffs subpoenaed documents from Apollo concerning information it received from the investor group and Apollo's analysis of the potential buyout. In response, Apollo maintains that it produced more than 3,000 pages of documents concerning its six-day consideration of a transaction with KMI.

On February 11, 2008, plaintiffs served subpoenas on Black and Stone seeking testimony with respect to the meetings which they attended on May 23, 2006. Black and Stone contend that plaintiffs cannot show that their involvement was significant enough to justify the burden of taking two depositions; that plaintiffs fail to specify the reasons such disclosure is sought; that plaintiffs have not pointed to evidence to suggest that Black and Stone could offer relevant testimony which would add or differ from the party testimony; and that testimony of Black should not be allowed due to his high level position as chief executive officer and head of Apollo.

II. SEQUENCE 002

In sequence 002, non-parties Henry R. Kravis (Kravis) and Marc S. Lipschultz (Lipschultz) move jointly to quash the deposition subpoenas issued by plaintiffs and for protective orders. Kravis is the co-founder of Kholberg, Kravis & Roberts & Co. LP (KKR), a private equity firm, and Lipschultz, is a senior executive and member.

On May 23, 2006, Lipschultz attended a meeting concerning the buyout of KMI which lasted about three hours at Goldman Sachs's offices and a second "break-out meeting" which lasted for one and a half hours which Kravis also attended. Subsequently, KKR decided not to participate in the KMI transaction, as it deemed the purchase price to be too high. On February 7, 2008, plaintiffs served subpoenas on Kravis and Lipschultz. Kravis and Lipschultz contend that the depositions are burdensome; that they are duplicative and unnecessary; that the subpoenas provide no notice or explanation as to the circumstances or necessity of such depositions; and that Kravis and Lipschultz are both high level corporate officials who should not be subject to the depositions.

DISCUSSION

The scope as to disclosure of a non-party is governed by CPLR 3101 which provides full disclosure of all evidence "material and necessary." See CPLR 3101. The Court of Appeals has held that "[t]he words, material and necessary', are, in our view, to be interpreted liberally to require disclosure, upon request, of any facts bearing on the controversy which will assist preparation for trial by sharpening the issues and reducing delay and prolixity. The test is one of usefulness and reason." Allen v Crowell-Collier Pub. Co., 21 NY2d 403, 406 (1968).

Here, plaintiffs seek the depositions of the non-parties pursuant to CPLR 3102 (e) in [*4]connection with the litigation pending in Kansas state court. CPLR 3102 (e) states: [w]hen under any mandate, writ or commission issued out of any court of record in any other state, territory, district or foreign jurisdiction, or whenever upon notice or agreement, it is required to take the testimony of a witness in the state, he may be compelled to appear and testify in the same manner and by the same process as may be employed for the purpose of taking testimony in actions pending in the state. The supreme court or a county court shall make any appropriate order in aid of taking such a deposition.

The First Department examined what factors it should consider regarding objections to the decisions of out of state commissions in Matter of Ayliffe & Cos., (166 AD2d 223 [1st Dept 1990]). There, the court held: [t]he court's inquiry with respect to objections raised by persons required to testify pursuant to CPLR 3102 (e) is limited to determining (1) whether the witnesses' fundamental rights are preserved; (2) whether the scope of inquiry falls within the issues of the pending out-of-State action; and (3) whether the examination is fair. The courts will not prejudge the materiality or the competency of the evidence in a cause pending in another jurisdiction and will afford the widest possible latitude in the conduct of such examinations.

Id. at 224 (citations and internal quotations omitted).

Here, Justice Walsh, a special master who was provided with the power to resolve any discovery disputes by the Texas state court, authorized the non-party subpoenas and stated that the testimony from each individual was "discoverable" and "potentially relevant." Although the non-parties contend that plaintiffs have not satisfied the requirements for obtaining non-party discovery under New York law, as they provide no notice or explanation as to the circumstances or reasons as to why plaintiffs need the depositions, both the subpoenas and Judge Stackhouse's order pursuant to CPLR 3102 (e) explain that the subpoenas concern the meetings of May 21-23, 2008. Judge Stackhouse's order which was to be served with the subpoenas states: [t]hese depositions are authorized by the court appointed Special Master in theShawnee County District Court, Kansas action entitled In re Kinder Morgan, Inc. Shareholders Litig., Case No. 06 C 801, and are in regards to the May 23, 2006 meeting held of potential equity investors in New York City regarding a potential acquisition of Kinder Morgan, Inc. via a management-led buyout ... .

(Gochman Affirm., ex. C). Therefore, as the non-parties had notice of the scope of the depositions, their argument that they did not know the circumstances or reasons as to why disclosure is sought is without merit.

As there is no dispute that the non-parties were in attendance at the meetings which discussed the buyout of KMI, and as the information which is sought is relevant as it relates to the information communicated to the companies regarding the transaction, the depositions should be permitted to proceed. Although the non-parties maintain that the depositions of the defendants have taken place, plaintiffs should be entitled to discovery from individuals that were present at the meeting that do not have an interest in the litigation. "A showing that a nonparty witness has information or knowledge of facts needed by a party to prepare fully for a trial is an [*5]adequate ground to require disclosure from the nonparty witness." Desai v Blue Shield of Northeastern New York, Inc., 128 AD2d 1021, 1022 (3d Dept 1987); see also Desideri v Brown, 184 AD2d 247 (1st Dept 1992) (holding that a nonparty witness with knowledge of facts should be subjected to a deposition). Here, the non-party depositions could offer insight as to what occurred and what information was presented at the May 23, 2006 meetings beyond what has been already presented by the defendants. Therefore, such information should be made available to the plaintiffs.

Although the non-parties contend that having two individuals from each company testify could result in the disclosure of duplicative information, such argument should have been made to the court which made the initial determination as the First Department has held that:

"[t]he courts will not prejudge the materiality or the competency of the evidence in a cause pending in another jurisdiction and will afford the widest possible latitude in the conduct of such examinations . . . [a]ccordingly, appellant's arguments respecting the necessity for or duplicity of such testimony would be more appropriately addressed to the . . . court which made such determination."

Matter of Ayliffe, 166 AD2d at 224. Furthermore, in Matter of Raquel Welch, (183 Misc 2d 890 [Sup Ct, New York County, 2000]), the Supreme Court of New York County followed the holding of Ayliffe and held "[i]t is appropriate for the sister State court which has the underlying case, and is therefore in a better position to determine the appropriate scope of disclosure, to make the threshold determination as whether to permit discovery. The New York court's role is necessarily more limited." Id. at 891.

The non-parties also contend that they did not have an opportunity to appear before Justice Walsh prior to the subpoenas being issued and that this court has no basis to find that Justice Walsh was apprised of the relevant facts regarding the non-parties prior to issuing the subpoenas. Although the court notes these arguments, it does not appear that the non-parties have moved to vacate the commissions of Justice Walsh in the Texas or Kansas courts where the litigation is pending.

The non-parties also argue that as Black, Kravis, and Lipschultz are high-level corporate officials of their respective companies, plaintiffs are prohibited from taking their depositions, since the information is obtainable from other sources. The First Department has held that where information is available from other witnesses, heads of a corporation need not be deposed. See Nauka v Plenum Publ. Corp., 266 AD2d 157 (1st Dept 1999) (holding that the court was proper when it vacated the notices to take depositions of a president and three directors as the information sought was obtainable from other deponents). Here, the information sought cannot be obtained from other individuals as the information is specific to those individuals that attended the May 23, 2006 meeting. Therefore, the non-parties' argument that they are not obligated to testify due to their high level positions, would be inapplicable to the present situation, given that the information cannot be obtained from other employees. Further, such argument should properly be made before the initial determining court.

Plaintiffs maintain that the depositions will not be burdensome to the non-parties, that the location of the depositions will be conveniently located for all of the non-parties and that each deposition will last no more than two hours. Furthermore, the topic of the depositions is narrow [*6]as it will solely involve the meeting each individual attended. Therefore, plaintiffs claim that any burden on the non-parties will be minimal.

The First Department has held that "[a] subpoena will be quashed . . . where the material requested is utterly irrelevant to any proper inquiry." General Electric Co. v Rabin, 184 AD2d 391, 392 (1st Dept 1992). Here, the testimony which plaintiffs seek to obtain from the non-parties is relevant to the underlying action as it will potentially discuss the non-parties' observations from the May 23, 2006 KMI buyout meetings, and since the testimony can only be provided by those individuals that attended the meetings, the non-parties' motions to quash the subpoenas and for protective orders, is denied.

CONCLUSION AND ORDER

Accordingly, it is

ORDERED that the motion to quash the subpoenas of Leon Black and Aaron J. Stone (motion sequence 001) is denied; and it is further

ORDERED that the motion to quash the subpoenas of Henry Kravis and Marc S. Lipschultz and for a protective order (motion sequence 002) is denied; it is further

ORDERED that within 30 days of entry of this order, plaintiffs shall serve a copy of this order upon all parties and movants, with notice of entry.

Dated: January __, 2009

________________________

Hon. Doris Ling-Cohan, J.S.C. C:\htformat\f5015790.txt Footnotes

Footnote 1: Although plaintiffs submit opposition to the motions of Stephen A. Schwarzman, David Foley, and Michael G. MacDougall, these non-parties have not filed motions to quash the subpoenas in the Kansas action, but filed motions to quash subpoenas in the Texas action.