Norddeutsche Landesbank Girozentrale v Tilton

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Norddeutsche Landesbank Girozentrale v Tilton 2018 NY Slip Op 31003(U) May 24, 2018 Supreme Court, New York County Docket Number: 651695/2015 Judge: Eileen Bransten Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various New York State and local government sources, including the New York State Unified Court System's eCourts Service. This opinion is uncorrected and not selected for official publication. [*FILED: NEW YORK COUNTY CLERK 05/24/2018 04:33 PM 1] NYSCEF DOC. NO. 566 INDEX NO. 651695/2015 RECEIVED NYSCEF: 05/24/2018 SUPREME COURT OF THE STATE OF NEW YORK NEW YORK COUNTY PRESENT: _J:tQ.N. EILEENJ~1~~-NSTEN PART !AS MOTION 3 Justice ------------------------------------------------------------------------------X INDEX NO, NORDDEUTSCHE LANDESBANK GIROZENTRALE, HANNOVER FUNDING COMPANY LLC, _____§§1_~-~-?gOIJL... MOTION DATE 02/23/20·18 Plaintiff, -vLYNN TILTON, PATRIARCH PARTNERS, LLC, PATRIARCH PARTNERS XIV. LLC,PATRIARCH PARTNERS XV, LLC, DECISION AND ORDER Defendant. --------------------------------------------------------------------------------X The foHowing e-filed documents, listed by NYSCEF document number (Motion 010) 430, 431, 432, 433. 434,435,436,437,438,439,440,441,442,443,444,445,446,448,467,468.469,470,471,472,473, 474,475,476,477,478, 479,496,497, 500 were read on this motion to/for -----,.····---------------------~.....,.Q_l_§_GQY_S_f3Y ____ ,, _____________________________________ _ Upon the fr)regoing docmnents, it CHECK ONE: CASE DISPOSED GRANTED 0 NON-FINAL DISPOSITION DENIED GRANTED IN PART APPUCATION; SETTLE ORDER SUBMIT ORDER CHECK IF APPROPRIATE: INCLUDES TRANSFE!'VREASSIGN FIDUCIARY APPOINTMENT 1 of 10 D D OTHER REFERENCE [*FILED: NEW YORK COUNTY CLERK 05/24/2018 04:33 PM 2] NYSCEF DOC. NO. 566 INDEX NO. 651695/2015 RECEIVED NYSCEF: 05/24/2018 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NE\VYORK: lAS .PART 3 -----------------------------------------------------------------------}( NORDDEUTSCHE LANDESBANK GIROZENTRALE, HANNOVER FUNDING COMPANY LLC, Plaintiffs, -v- Index No. 651695/2015 Motion Date: 2/23/2018 Motion Seq. No. OJ 0 LYNN TILTON, PATRIARCH PARTNERS, LLC, PATRIARCH PARTNERS XIV, LLC, PATRIARCH PARTNERS XV, LLC, DECISION AND ORDER Defendants. -----------------------------------------------------------------------X BRANSTEN, J. In this action, Plaintiffs Norddeutsche Landesbank Girozentrnle and Hannover Funding Company LLC allege Defendants Lynn Tilton; Patriarch Partners, LLC; Patriarch Partners XIV, LLC; and Patriarch Partners XV, LLC (collectively "Patriarch") committed fi:aud in connection \Vith their rnanagernent of two collateralized debt obligation C'CDO") funds: Zohar II 2005-1, Limited and Zohar HI, Limited (collectively, the "Zohar Funds"). Presently before the Court is Defendants' motion for a protective order. For the following reasons, Defendants' motion is denied, 2 of 10 [*FILED: NEW YORK COUNTY CLERK 05/24/2018 04:33 PM 3] NYSCEF DOC. NO. 566 RECEIVED NYSCEF: 05/24/2018 Norddeutsche v. Tilton ()11 INDEX NO. 651695/2015 Index No. 651695/2015 Page 2 of9 Se11ter11ber 2-7~ rrlt)\letl f{Jr a r)r(}lectl\le ·' Piaintiff frorn (I) obtaining tax Infonnation relating to the Zohar Funds and. (2) taking the Schedule 1099s from ekven dff:fen.:nt rnanufactudng cornparni.:s the Zohm· Funds had 3.Ild a .2C~ 1.2 Plaintiffs also sought to take the depositions of Jeffrey Bmvden and Fred Goldberg, rv1r. Bowden is an accountant at Anchin, Block & Anchin and former employee of Defendant Patriarch Partners, LLC ("Patriarch"). On August 18, 2017, Carlos I\tiercado, the controller of Patriarch, testified that the final databases were sent to And1in~ Block & Anchin. Pl.aintiffs sought to depose lVIr, Bowden regarding the tax databases, the book-to-tax analyses~ the Portfolio Companies m.vned by the Zohar Funds) and any equity distributions the Portfolio Companies made to the Zohar Funds. Mr. Goldberg is a tax attorney at Skadden, Arps, Slate, Meagher & Flom LLP who represented 1\.1s, Tflton, Plaintiffs sought to depose l\1r, Golderg regarding a 2012 3 of 10 [*FILED: NEW YORK COUNTY CLERK 05/24/2018 04:33 PM 4] NYSCEF DOC. NO. 566 INDEX NO. 651695/2015 RECEIVED NYSCEF: 05/24/2018 Norddeutsche v. Tilton Index No. 651695/2015 Page 3 of9 presentation fvlr. Goldberg presented to the IRS regarding the Zohar .Funds, in vvhich he represented that recovery on the loans made by the Zohar Funds were "speculative," Defendants argued that the tax information, including Ivfr. Bowden and Mc Goldberg's testi:mony, was Iv1s, Tilton's personal tax infom1ation, The Court found the tax information belonged to the Zohar Funds and \Vas not purely fvfa. Tilton's personal tax infom1ation. Kim Affim1. Ex. A. at 26:25-35:21. 1vforeover, the Court held Plaintiffs had demonstrated the infom1ation was rnaterial and necessarv to their claim because the "' infon11ation revealed equity distributions that were allegedly misappropriated by Defendants, Id. at 35:17-18, Accordingly, by Decision and Order dated January 9, 2018, this Court denied Defendants' .First Protective Order l\.1otion. Defendants appealed the Court's decision, which is cunently pending before the First Department. Defendants nmv move· for a protective order pursuant to CPLR 31 03: ( 1) prohibiting the discovery of tax-related infiJrmation that post-dates April 2012; (2) requiring that any deposition of Fred Goldberg and Jeffrey Bovvden proceed in the first instance by \Vrltten question; and (3) requiring, if necessary, any oral depositions of ~.tir. Goldberg or lvlr. Bowden occur only upon further order of the Court upon a showing of good cause. 4 of 10 [*FILED: NEW YORK COUNTY CLERK 05/24/2018 04:33 PM 5] NYSCEF DOC. NO. 566 INDEX NO. 651695/2015 RECEIVED NYSCEF: 05/24/2018 Norddeutsche v. Tilton Index No. 651695i2015 Page 4 of9 A, Legal Standard Pursuant to CPLR 3101, there shall be "full disclosure of all matter material and necessary" to prosecute or defend an action, The words "'material and necessary" have been interpreted liberally to require disclosure of any facts "bearing on the controversy which vviH assist preparation for trial by sharpening the issues and reducing delay and prolixity." Allen v. Crowell-Collier Pub. Co., 21N.Y.2d403, 406 (1968). The Court also has broad power to regulate discovery to prevent abuse. Barouh Eaton Allen Corp, v. Int 'l Bus. lvfachs. Corp., 76 A,D.2d 873, 873 (2d Dep't 1980). A court has the power to issue a protective order regulating the use of any disclosure device pursuant to CPLR 3103{a). \lv'here the disclosure process is being used to "harass or unduly burden a party, a protective order eliminating that abuse is necessary and proper." See Barouh, 76 A.D.2d at 874. B. Post-2012 Tax Information Defendants request the Court issue a protective order prohibiting discovery of taxrelated information after the year 2012. Defendants argue any tax-related information post-dating 2012 is irrelevant to Plaintiffs, fraud claim because Plaintiffs voluntarily sold their investments in April 2012, Plaintiffs argue the post~20 I2 tax information is relevant because De fondants continued to manage the Zohar fonds after 2012 and the information may he relevant to the elements of fraudulent inducement~ namely falsity, scienter, and loss causation. 5 of 10 [*FILED: NEW YORK COUNTY CLERK 05/24/2018 04:33 PM 6] NYSCEF DOC. NO. 566 INDEX NO. 651695/2015 RECEIVED NYSCEF: 05/24/2018 Norddeutsche v. Tilton Index No. 651695/2015 Page 5 of9 Defendants have already produced post-2012 tax documents in this action, including 83 tax databases, 13 book-to-tax documents, numerous Schedules K-1 and Forms 1099, and copies of the 2012 IRS presentation. l\tfaloney Aiiim1. ~f~f 10-12. Plaintiffs asse1i these documents contain relevant information to this action, specifically that Defendants extracted equity distributions from the Zohar Funds, reported to Zohar investors that loans were perfonning well when they told the IRS otherwise, and continued to lend Zohar Fund monies to the Portfolio Companies. Kim Affim1, ~ 17. Plaintiffs argue that the post-2012 documents relate to a pattern of fraudulent activity, In some cases, evidence of defondant's subsequent conduct .may be relevant to defendant's fraudulent intentions. See Adelaide Prods., Inc. v. BKN Int'! AG, 15 A.D3d 316, 316 (1st Dep't 2005). l\tforeover, Defendants have not requested to cl.aw-back the post-2012 documents they have already produced. 1 See Kim Affim1. ~ I 6. Plaintiffs also assert Defendants have put their conduct as Collateral IYfanagers of the Zohar Funds, through their resignation in rvfarch 2016, at issue by arguing Plaintiffs should have held their Zohar notes until maturity. Parties are entitled to discovery relating to arguments af:finnatively raised as a defense. See Croston v. lvfonteflore I-losp., 191A.D.2d295, 295 (1st Dep't 1993); NY City Asbestos Litig. v< A.O. Smith Water Prods. Co., 2014 \VL 2623897, at *1-2 (Sup. Ct. N.Y, Cnty. June 11, 2014) (Hietler, J,), 1 While Defendants have requested Plaintiffs not use or rely on those documents in this proceeding, they have not sought to claw-back those documents. l\tlaloney Affirm. 11 11- 12. 6 of 10 [*FILED: NEW YORK COUNTY CLERK 05/24/2018 04:33 PM 7] NYSCEF DOC. NO. 566 INDEX NO. 651695/2015 RECEIVED NYSCEF: 05/24/2018 Norddeutsche v. Tilton Index No. 651695/2015 Page 6 of9 Thus, the Court finds there is a colorable argument to seek the tax-related documents to establish Defendants' pattern of conduct and to rebut Defendants' affirmative defense, Defendants further argue the request for documents is unduly broad because Plaintiffs seek tax information for the years after they sold their interests in the Zohar Funds. Defendants cite to Casey v. Prudential S'ecurities, Inc., 268 A.D)d 833 (3d Dep't 2000) in support of their argument. In that case, Plaintiff commenced a putative class action against Defendant Prudential Securities, Inc. for alleged fraudulent misrepresentations that induced him to buy stocks, which he ultimately sold at a l.oss. The trial court denied Prudential's request for a protective order prohibiting discovery beyond the date of Plaintiff's sale of the stock. Casey, 268 A.D.2d at 834. On appeal the Third Department reversed, holding that plaintiffs request for documents was unduly broad because it concerned transactions that occmTed after plaintiff sold his stock and limiting defendanf s disclosure to the period that plaintiff mvned the stock. Id at 836. Defendants argue Casey is applicable here because Plaintiffs are seeking information post-dating the sale of their interests in the Zohar Fundso Hmvever, Casey dealt with discovery prior to class certification, \Vhich was an important consideration in the Third DepartmenCs decision to limit discovery to the time period when Plaintiff held the shares. In addition, the Third Department found that the discovery request was unduly broad in light of the volume of trades in the categories of securities subject to disclosure. Casey, 268 A.D.2d at 836. Here, Defendants have not made any argument regarding the burden of producing the post-2012 documents, 7 of 10 [*FILED: NEW YORK COUNTY CLERK 05/24/2018 04:33 PM 8] NYSCEF DOC. NO. 566 INDEX NO. 651695/2015 RECEIVED NYSCEF: 05/24/2018 Norddeutsche v. Tilton Index No. 651695/2015 Page 7 of9 The Court finds Defondants have not met their burden of establishing that Plaintiffa~ discovery requests for post-2012 tax information \Vere merely intended to harass or unduly burden Defendants. See Barouh Eaton Allen Corp. v. Int 'l Bus..Machs. Cmp., 76 A.D,2d 873, 874 (2d Dep't 1980), Accordingly, Defendants' motion for a protective order regarding the post-2012 tax-infom1ation is DENIED. Nevertheless, the Court notes that there should be a limit to the relevant time period of discoverable taxrelated information. Plaintiffs offered to establish 2015 as the cut-off date for discovery. Therefore, discovery will be limited to the production of tax-related information through the year 2015. C. Depositions ofMr. Bowden and Afr. Goldberg Defendants also request that :Mr. Goldberg and :rv1r. Bowden's depositions proceed in the first instance by written questions or, in the alternative, oral depositions occur only upon a showing of good cause. Pursuant to CPLR 3108, "[a] deposition may be taken on written questions when the examining party and the deponent so stipulate or when the testimony is to be taken \Vithout the state,~' Defendants assert there wm be numerous privilege objections raised during Ivfr. Bowden and rv1r. Goldberg's depositions based on .lvfr. Bowden's role as l\1s. Tilton's accountant and l\tfr. Goldberg's role as l'v1s, Tilton's personal tax attorney" As noted at the December 13, 2017 conference, the invocation of the attorney-client privilege may not be used as a blanket privilege to avoid deposition. Kim Affirm. Ex. A at 43: 10-44: 11. 8 of 10 [*FILED: NEW YORK COUNTY CLERK 05/24/2018 04:33 PM 9] INDEX NO. 651695/2015 NYSCEF DOC. NO. 566 RECEIVED NYSCEF: 05/24/2018 Norddeutsche v. Tilton Index No. 651695/2015 Page 8 of9 Wl1ile the Court is cognizant of the potential issues regarding privilege that may arise during depositions, both :rv1r. Bovvden and Mr, Goldberg wm be represented by counsel \Vho will make the appropriate objections to any questions that may call for privileged information or may otherwise expose the deponent to potential sanctions. 2 Defendants also contend there is nothing to be gained fi:om the spontaneity of an oral deposition. In ~ll4atter ofA·1iller, 233 A.D.2d 236 (1st Dep't 1996), the Surrogate's Court permitted the deposition of decedent's counsel to proceed by written questions due to the vvitness's concerns about inadvertently divulging privileged information and the fact that "'nothing was to be gained by the spontaneity of an oral deposition." A1atter of }.;filler, 233 A.D.2d at 237. Here, Defendants have not shown that '•nothing would be gained by the spontaneity of oral deposition." The mere risk of inadvertent disclosure alone is insufficient to require deposition proceed by written questions. In addition, the Court notes Plaintiffs have sought to take !v1r. Bowden and Mr. Goldberg's depositions since August and September 2017, respectively. This case was commenced in May 2015 and discovery still not been completed. The Court finds that proceeding with written deposition questions would only prolong the completion of depositions and would not be an effective cost saving mechanism for either party. 2 The parties are reminded that any objections shall be noted, the ansvver shall be given, and the deposition shall proceed, as provided in Section 221.l(a) of the New York Codes, Rules, and Regulations. In addition, the objection should be stated succinctly and "framed so as not to suggest an answer to the deponent.'?. 22 N.Y.C.R.R. § 22 l. I (b ). 9 of 10 [*FILED: NEW YORK COUNTY CLERK 05/24/2018 04:33 PM 10] NYSCEF DOC. NO. 566 INDEX NO. 651695/2015 RECEIVED NYSCEF: 05/24/2018 Norddeutsche v. Tilton Index No. 651695/2015 Page 9 of9 The parties are entitled to proceed with discovery as they see fit. \Vhile a movant has the option of conducting deposition by written question, pursuant to CPLR 3108, that does not preclude the other party from electing to proceed with an oral deposition. See Lane Bryant, Inc. v. Cohen, 86 A.D.2d 805, 805 (lst Dep't 1982). Here, Plaintiff.s do not consent to conducting the depositions by written questions. Therefore, the Court finds that proceeding \-Vith vvritten deposition questions would not be an appropriate discovery mechanism in this instance. Finally, the Court has already mled that the parties should proceed with rv"lr, Bowden and Mr. Goldberg's depositions. Thus, the Court finds Plaintiffs do not need to make any further shmving of good cause to conduct oral depositions. Accordingly, Defendants' motion for a protective order requiring l\1r. Bowden and l\1r. Goldberg's deposition proceed by written question or alternatively requiring Plaintiffs to show good cause to conduct oral depositions is DENIED, Accordingly, Defendants' motion for a protective order is DENIED. Dated: New York, New York May ~,2018 ENTER 10 of 10

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