Frank v Morgans Hotel Group Mgt. LLC
Annotate this CaseDecided on January 13, 2020
Supreme Court, New York County
Ilana Frank, Plaintiff,
against
Morgans Hotel Group Management LLC, MORGANS HOTEL GROUP CO., SKYBAR HOLDINGS, LLC, Defendants.
154100/2016
German Rubinstein LLP, New York, NY (Steven J. German of counsel), for plaintiff.
Nicholas Goodman & Associates, PLLC, New York, NY (Patrick L. Selvey of counsel), for defendants Morgans Hotel Group Management LLC and Morgans Hotel Group Co.
Gerald Lebovits, J.
This discovery motion arises from a deposition dispute in a personal-injury action. Plaintiff, Ilana Frank, alleges that while a patron of the bar at a hotel owned and operated by defendants (collectively, Morgans), she fell and seriously injured her foot due to unsafe conditions on the premises.
In discovery, Morgans produced nonparty Steven Benjamin for deposition as a person with knowledge of the circumstances of the accident. At the time of Frank's fall in 2015, Morgans employed Benjamin as its director of risk management. Benjamin now functions as Morgans' director of risk management on a contract basis. During Benjamin's deposition, counsel for Frank sought to question him about, among other things, (i) communications between Benjamin and Morgans' outside counsel (Nicholas Goodman & Associates), and (ii) a conversation that Benjamin had with another Morgans employee (Schantel Mansfield) in a three-way conference call among Benjamin, Mansfield, and a Nicholas Goodman attorney. In each instance, counsel for Morgans objected and directed Benjamin not to answer these questions, asserting that Benjamin was shielded by the attorney-client privilege as the functional equivalent of a Morgans employee.
Frank asks this court to determine whether Morgans validly asserted privilege over the disputed conversations involving Benjamin. Morgans does not object to Frank's request for a privilege determination; it merely argues that its counsel's assertions of privilege were proper.
DISCUSSION
I. Whether the Attorney-Client Privilege Shielded Benjamin's Conversations with Counsel for Morgans
A. The "Functional Equivalent of an Employee" Privilege Doctrine
The attorney-client privilege has been codified in New York at CPLR 4503. It applies to "a confidential communication made between the attorney or his or her employee and the client in the course of professional employment"—i.e., for the purpose of obtaining or supplying legal advice or other legal services. (CPLR 4503 [a] [1]; see also Rossi v Blue Cross & Blue Shield of Greater New York, 73 NY2d 588, 593 [1989].)
"Corporations, as other clients, may avail themselves of the attorney-client privilege for confidential communications with attorneys relating to their legal matters," whether that attorney is in-house or outside counsel. (Rossi, 73 NY2d at 592.) The privilege thus applies to communications "between a corporation's employees and the corporation's in-house" or outside counsel "for the purpose of providing legal advice to the corporation." (Stock v Schnader Harrison Segal & Lewis LLP, 142 AD3d 210, 216 [1st Dept 2016].)
It is undisputed that Benjamin's conversations with the outside counsel representing Morgans in this action were confidential and made for the purpose of facilitating counsel's provision of legal services to Morgans in the action. It is also undisputed, though, that at the time of those conversations Benjamin was no longer an employee of Morgans, but instead retained as a consultant for Morgans on a contract basis. The question is thus whether Benjamin comes within Morgans' attorney-client privilege regardless.
Counsel for Morgans contended, both in the deposition and on the present motion, that the privilege shielded Benjamin's communications with counsel because Benjamin was the "functional equivalent" of a Morgans employee. (See Aff. of Patrick L. Selvey, NYSCEF No. 84, at 3-5; Deposition Tr. NYSCEF No. 74, at Tr. 43:22-44:13, 48:19-49:5.) Under this doctrine, the attorney-client privilege will shield otherwise-qualifying communications between a corporation's counsel and an individual providing services to the corporation on a contract basis, where the individual is, functionally speaking, acting as a corporate employee rather than a fully independent contractor. (See Pecile v Titan Capital Grp., 119 AD3d 446, 447 [1st Dept 2014], citing Matter of Copper Mkt. Antitrust Litig., 200 FRD 213, 219-219 [SDNY April 30, 2001].[FN1] )
The attorney-client privilege must be "narrowly construed," because the "privilege shields from disclosure pertinent information and therefore 'constitutes an 'obstacle' to the truth-finding process.'" (Ambac Assur. Corp. v Countrywide Home Loans, Inc., 27 NY3d 616, 623 [2016], quoting Matter of Jacqueline F., 47 NY2d 215, 219 [1979].) Since the functional-equivalent doctrine expands the scope of the privilege further, it, too, must be carefully defined [*2]and narrowly applied.
Here, decisions of the U.S. District Court for the Southern District of New York concerning this doctrine provide useful guidance. The overall inquiry, these decisions suggest, is whether a consultant or other contractor has in practice "assum[ed] the functions and duties of [a] full-time employee" and has been "so thoroughly integrated" into the corporation's structure that he or she "is a de facto employee of the company." (Asia Pulp & Paper, 232 FRD at 113; see also e.g. Matter of Copper Mkt. Antitrust Litig., 200 FRD at 291 [holding that a contractor should be treated as the functional equivalent of a division of the client corporation because the contractor "was, essentially, incorporated into [the corporation's staff] to perform a corporate function that was necessary in the context" of the corporation's affairs at the relevant time].)
Courts thus look at criteria such as "whether the consultant had primary responsibility for a key corporate job" and could make decisions on the corporation's behalf, whether the consultant enjoyed "a continuous and close working relationship" with "the company's principals on matters critical to the company's position in litigation," and whether "the consultant is likely to possess information possessed by no one else at the company." (Asia Pulp & Paper, 232 FRD at 113; see also William Tell Servs., 46 Misc 3d at 582 [applying the Asia Pulp & Paper criteria]; Mt. McKinley Ins. Co. 2017 NY Slip Op 30704 [U], at *18-*20 [listing additional criteria].)
B. Application of the "Functional Equivalent" Doctrine to This Case
This court concludes that, applying these doctrinal criteria to the present case, Benjamin qualifies as the functional equivalent of a Morgans employee.[FN2] Benjamin was previously employed by Morgans as its director of risk management from 2007 to 2018 [FN3] ; after his position with the corporation was eliminated, he was immediately retained as a consultant to perform many of the same duties, retaining the title of director of risk management. (See NYSCEF No. 74, at Tr. 20-21; NYSCEF No. 85, at ¶¶ 2, 7, 8.) Benjamin has a Morgans email address, a Morgans phone number, and access to a Morgans file server. (See NYSCEF No. 74, at Tr. 16, 25, 59; NYSCEF No. 85, at ¶ 8.)
In his current capacity as a consultant serving as director of risk management for Morgans, Benjamin retains responsibility for performing significant corporate functions: among other things, managing Morgans' insurance programs nationwide (including negotiating the terms and conditions of Morgans' various insurance policies), and working with Morgans' financial staff regarding insurance-related budget and loss-forecasting issues. (NYSCEF No. 74, at Tr. 11, 21-22; NYSCEF No. 85, at ¶ 3.) Benjamin is the only individual performing the duties and functions of the director of risk management role for Morgans, and is the only individual at Morgans with the requisite knowledge and experience of its insurance programs and the overall landscape of claims and litigation brought against it. (NYSCEF No. 85, at ¶ 9.)
Benjamin also continues to have decision-making authority on corporate matters: With respect to suits brought against Morgans, Benjamin is responsible for assigning defense counsel to represent Morgans, and has authority to make settlement offers within certain insurance policy limits.[FN4] (Id. at ¶ 4.) Benjamin reports directly to a corporate principal, namely Morgans' general counsel; and he has a direct line of communication with Morgans' chief operating officer. (Id. at ¶ 10.)
In short, although as a formal matter Benjamin is now serving as a corporate consultant rather than an employee, in practice he is performing "the functions and duties of [a] full-time employee" while being "thoroughly integrated" into the corporation's structure and staff. (Asia Pulp & Paper, 232 FRD at 113.) In these circumstances, to treat Benjamin as equivalent to an independent third party for privilege purposes, rather than as the functional equivalent of a corporate employee, would exalt form over substance. This court concludes, therefore, that with respect to the conversations between Benjamin and counsel for Morgans that are at issue here, Benjamin is shielded by Morgans' attorney-client privilege.
In contesting Morgans' assertion of attorney-client privilege, Frank focuses primarily on the Asia Pulp & Paper criterion that "the consultant is likely to possess information possessed by no one else at the company." (232 FRD at 113.) It is undisputed that Morgans indicated in discovery responses that both Benjamin and the current director of security of the hotel at which Frank was injured (Schantel Mansfield) have knowledge of, and will be called at trial to testify about, the incident in which Frank injured her foot. (See Response to Plaintiff's Notices for Discovery & Inspection, NYSCEF No. 75, at ¶¶ 22, 25.) Frank asserts that since Benjamin thus is not the only one at Morgans who has "information . . . concerning the facts of this accident," Benjamin cannot qualify as a de facto of employee of Morgans. (See Reply Mem., NYSCEF No. 87, at ¶ 3; see also Mem. of Law, NYSCEF No. 78, at 2-3 [same].) This court is not persuaded.
The "unique information" criterion can be probative in this context because an individual who holds information possessed by no one else at a corporation is more likely to be integrated within the corporation's structure and acting on behalf of the corporation rather than as an "outsider." Thus, in Matter of Bieter, the case from which Asia Pulp & Paper drew the "unique information criterion," the Eighth Circuit emphasized that the consultant in the case had been intimately involved with the company's land-development efforts underlying the litigation, that he had been the corporation's sole representative at meetings with local officials and prospective tenants on the property, and that he had thereby gained information "possessed by no other." (16 F3d 929, 938 [8th Cir 1994].)
In this case, on the other hand, the record reflects that due to Benjamin's place in the Morgans organizational hierarchy, other individuals besides Benjamin would be likely to have knowledge of the details of an accident irrespective of whether Benjamin was acting as an independent third party or as a de facto Morgans employee. In particular, Benjamin's deposition testimony reflected that each hotel's security director—not the corporation's overall director of risk management—is responsible for overseeing day-to-day safety and security at the hotel (see NYSCEF No. 74, at 24, 69-71, 96-97); and that the security director is responsible for providing [*3]Benjamin notice and information about an accident at a given hotel location, should one occur (see NYSCEF No. 74, at Tr. 60-63). And the record suggests that if an accident at a Morgans hotel leads to a lawsuit, both the hotel's security director (here, Mansfield) and Benjamin would likely have become familiar with the details of the accident. That fact, without more, thus says little about whether Benjamin is sufficiently integrated into Morgans' corporate structure to be the functional equivalent of a Morgans employee.
II. Whether the Attorney-Client Privilege Shielded Benjamin's Conversation with Mansfield
Frank also contests Benjamin's assertion of privilege over the details of what Benjamin discussed with Mansfield during their conference call with Morgans' counsel. Frank contends that during Benjamin's deposition, counsel for Morgans asserted attorney-client privilege and directed Benjamin not to answer questions "about underlying factual information about the incident" that had been "discussed between Benjamin, Mansfield," and counsel. (NYSCEF No. 78, at 4 [emphasis removed].) This putative decision by counsel "to limit Plaintiff's access to underlying factual information about the incident that was discussed between Benjamin, Mansfield and [counsel] is improper." (NYSCEF No. 87, at 2 [emphasis in original].)
The deposition transcript reflects, however, that in the portion of the deposition at issue, counsel for Frank did not ask Benjamin about the underlying facts of the incident. Instead, counsel questioned Benjamin about what he had discussed with Mansfield—including whether they had talked about "the facts of the occurrence," as distinct from what those facts were. (See NYSCEF No. 74, at Tr. 47-50.) That is quite different.
To be sure, as Frank has emphasized (see NYSCEF No. 74, at Tr. 49-50; No. 78, at 4), a phone call between two clients does not become privileged merely because their attorney is also on the call, any more than a memorandum becomes privileged merely because it is sent to an attorney (see Spectrum Sys. Intl. Corp. v Chemical Bank, 78 NY2d 371, 379 [1991]). But here, counsel for Morgans expressly represented at the deposition that the call "was a legal conversation regarding the preparation for this case wherein we discussed legal theory, strategy, et cetera, of the sort that is protected by attorney-client privilege." (NYSCEF No. 74, at 49:21-50:3.)
Although this court is not necessarily bound by counsel for Morgans' characterization of the call, Frank provides no basis for this court to reject that characterization, or to believe that Benjamin and Mansfield merely engaged in a conversation about the factual background of the case with counsel for Morgans silently on the line. (See Roswell Park Cancer Institute Corp. v Sodexo America, LLC, 68 AD3d 1720, 1721-1722 [4th Dept 2009] [accepting counsel's representation that his communications with clients had been for the purpose of providing legal rather than business advice].) The call among Benjamin, Mansfield, and their counsel is therefore shielded by the attorney-client privilege, and counsel for Morgans properly directed Benjamin not to answer questions about what he had discussed with Mansfield during that call.
III. Whether the Attorney-Client Privilege Shielded Benjamin's Conversation with His Counsel During Benjamin's Deposition
Finally, Frank asserts that counsel for Morgans improperly paused Benjamin's deposition for seven minutes to discuss with him a photograph that counsel for Frank had produced at the deposition, that that the ensuing conversation between Benjamin and counsel for Morgans was not privileged, and that Frank's counsel should, therefore, be able to question Benjamin about the conversation. (See NYSCEF No. 78, at 4-6; see also NYSCEF No. 74, at Tr. 148-154.) But the [*4]transcript reflects that counsel for Frank did, without objection, ask Benjamin several questions about the substance of what Benjamin and his attorney had discussed during the deposition break—including whether the attorney had coached Benjamin about how to answer those very questions. (See NYSCEF No. 74, at Tr. 155:12-156:15.)
In response to these questions, Benjamin testified that his attorney had not asked him any questions about the photograph or coached him; but instead that he had merely volunteered as soon as they left the deposition room that he did not "know what this [was] a picture of for sure," and that he "[could] not comment on anything" relating to the photograph. (Id. at Tr. 155:24-156:15.) Counsel for Morgans also represented on the record that "the majority" of the break was actually spent by Benjamin "on a private phone call unrelated to this case," rather than on extended "conferencing . . . regarding the photograph you produced." (Id. at Tr. 155:3-10.) Frank provides no basis now to reject either Benjamin's testimony about the deposition break or counsel for Morgans' representations. In these circumstances, the court concludes that Frank has not established a basis to question Benjamin further on this topic.
Accordingly, it is hereby
ORDERED that the conversations at issue between Benjamin and counsel for Morgans were shielded by the attorney-client privilege, and that counsel properly directed Benjamin at his deposition not to answer questions about what he had discussed with counsel during those conversations; and it is further
ORDERED that the phone call at issue among Benjamin, Mansfield, and counsel for Morgans was shielded by the attorney-client privilege, and that counsel properly directed Benjamin at his deposition not to answer questions about what he had discussed with Mansfield during that call; and it is further
ORDERED that Benjamin may decline to answer further questions about what he and his counsel discussed during the contested break in Benjamin's deposition.
DATE 1/13/2020
GERALD LEBOVITS, J.S.C. Footnotes
Footnote 1: See also Gottwald v Sebert (58 Misc 3d 625, 629 & n 4 [Sup Ct, NY County 2017]); William Tell Servs., LLC v Capital Fin. Planning, LLC (46 Misc 3d 577, 582 [Sup Ct, Rensselaer County, 2014]), citing Export-Import Bank of the U.S. v Asia Pulp & Paper Co. (232 FRD 103, 113 [SDNY Nov. 8, 2005]); Mt. McKinley Ins. Co. v Corning Inc. (Index No. 602454/2002, 2017 NY Slip Op 30704 [U], at *16-*21 [Sup Ct, NY County Dec. 3, 2009].)
Footnote 2: In applying the functional-equivalent criteria here, this court has relied on factual representations made by Benjamin at his deposition and in an affidavit (see NYSCEF Nos. 74, 85)—the accuracy of which Frank has not disputed.
Footnote 3: Morgans was acquired by SBE ENT Holdings, LLC, in 2016. See NYSCEF No. 74, at Tr. 20. The difference between Morgans and SBE is not material here; for simplicity, the court refers to both defendants and SBE as "Morgans."
Footnote 4: Indeed, Benjamin represents that he, through Morgans' insurance carrier, was responsible for assigning Nicholas Goodman & Associates to represent Morgans in this very case. See NYSCEF No. 85, at ¶ 5.
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