Azrak v Carter Enters. LLC

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Azrak v Carter Enters. LLC 2020 NY Slip Op 34036(U) December 7, 2020 Supreme Court, Kings County Docket Number: 510149/15 Judge: Lawrence S. Knipel 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: 1] KINGS COUNTY CLERK 12/08/2020 11:51 AM NYSCEF DOC. NO. 522 INDEX NO. 510149/2015 RECEIVED NYSCEF: 12/08/2020 At an IAS Te1m, Part Com1n 4 of the Supreke Court ofthe State of New York, held in and for tl1e County of Kings, at the Courthouse, at 360 Adams Street, Brooklyn, New York, on the ! 7th day of December, 2020. . PRESENT: HON. LAWRENCE KNIPEL, Justice. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -X DIANA AZRAK, individually, and on behalf of, CARTER INDUSTRIE·s, INC., Plaintiff, - against - Index No. 510149/15 CARTER ENTERPRJSES LLC, SAUL WOLF, CARTER INDUSTRIES, INC., CHAIM WOLF, THE Erz CHAIM CHARITABLE TRUST, and Erz CHAIM FOUNDATION, Defendants. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -X The following e-filed papers read 11erein: NYSCEF Doc. Nos. Notice of Motion/Order to Show Cause/ Petition/Cross Motion and Affidavits (Affirmations) Annexed'-----~--- 468-487 495-512 Opposing Affidavit (Affirmation) _ _ _ _ _ _ _ __ 496-514 515-518 Reply Affidavit (Affirmation) _ _ _ _ _ _ _ _ __ 515-518 519 Upon the foregoing papers in this shareholder derivative action, plaintiffDianaAzra.k, individually and on behalf of Carter Industries, Inc. (Azrak) moves (in motion sequence [mot. seq.] 22) for an order: (I) compelling defendants Saul Wolf, Carter Industries, In.c. (Carter lndustries), Carter Enterprises LLC (Carter Enterprises) and Chaim Wdlf . (collectively, defendants) to produce all responsivedocu1nents pursuant to this court's Mar4h 1 of 14 [*FILED: 2] KINGS COUNTY CLERK 12/08/2020 11:51 AM NYSCEF DOC. NO. 522 INDEX NO. 510149/2015 RECEIVED NYSCEF: 12/08/2020 13, 2020 discovery order (Discovery Order) within 14 days, pursuant to CPLR3124, and ~2) if defendants fail to produce all responsive documents pursuant to the Discovery Orcler within 14 days, compelling defendants to produce their hard drives and other data sour~es for forensic imaging, pursuant to CPLR3124. Defendant Carter Industries cross-moves (in mot. seq. 23) for an order: dismissiiig plaintiffs complaint for non-compliance with the Discovery Order, pursuant to CPLR 3126, and (2) compelling plaintiff to provide all outstanding discovery in accordance with the Discovery Order, pursuant to CPLR 3124. Background TJ1is Share/10/der Derivative Action As described in greater detail in the court's (Rothenberg, J.) July 12, 2018 Order, Azrak commenced this shareholder derivative action seeking to obtain an interest in Crui~r Industries and damages-because defendants allegedly misappropriated business opportuniti*s from Carter Industries. Carter Industries was allegedly formed in 1995 by Saul Wolf and Marvin Azrak, plaintiffs late husband. Azrak alleges that Saul Wolf and her husband each held 50% of the issued shares of Carter Industries, and that, after her husband passed aw~y on January 22, 2008, she then became the owner of her late husband's 50% share in Carter Industries. In their verified answer, defendants explicitly "deny that Di;:ma Azrak is an own~r of Fifty Percent of the issued and outstanding shares of (Carter] Industries ... " and assertep an affirmative defense challenging Azrak's standing to prosecute this action. 2 of 14 [*FILED: 3] KINGS COUNTY CLERK 12/08/2020 11:51 AM NYSCEF DOC. NO. 522 INDEX NO. 510149/2015 RECEIVED NYSCEF: 12/08/2020 By orders dated July 12, 2018 and March 6, 2019, this action was bifurcated, and the issue of Azrak's alleged ownership interest in Carter Industries is to be decided first. On October 10, 2019, Azrak moved to amend the complaint to add Marvin Azrali's estate as a party, to inodify the court's prior orders that bifurcated the action and to compel defendants to produce documents responsive to her discovery requests. T/1e Discovery Order On March 13, 2020, this court issued the Discovery Order, which required the parties to produce certain categories of documents regarding the preliminary issue of Azrak;'s alleged ownership of Carter Industries. The Discovery Order required defendants to produ~e certain documents in respon.se to Azrak's Fourth Set of Requests for Production Of Documents. The Discovery Order directed Carter Enterprises to produce: (1) communicatioi;ts regarding Marvin Azrak, Diana Azrak, Raymond Azrak or Albert Azrak; (2) documents regarding the 2017 sale of Saul Wolfs ownership interest in Carter Industries; and (3) documents and communications that Carter Erlterprises intends to introduce as evidence in this litigation. The Discovery Order directed Saul Wolf to produce: (!)documents regarding t~e 2017 sale of his ownership interest in Carter Industries to Ephraim, Adler, Abraham Backenroth; (2) documents regarding any person's or entity's ownership interest in Cart~r Industries; (3) communications regarding Marvin Azrak, Diana Azrak, Raymond Azrak qr Albert Azrak; and (4) documents and communications that Saul Wolf intends to introduC:e 3 of 14 [*FILED: 4] KINGS COUNTY CLERK 12/08/2020 11:51 AM NYSCEF DOC. NO. 522 INDEX NO. 510149/2015 RECEIVED NYSCEF: 12/08/2020 as evidence in this litigation. The Discovery Order directed Chaim Wolf to produce: (I) communications regardi(lg Marvin Azrak, Diana Azrak, Raymond Azrak or Albert Azrak, and (2) documents aiid co1nmunications that Chaim Wolf intends to introduce as evidence in this litigation. The Discovery Order required Carter Industries to produce: (!)its tax returns sin¢e 2007; (2) documents regarding the 2017 sale of Saul Wolfs ownership interest in Carter Industries to Ephraim, Adler, Abraham Backenroth; (3) documents regarding any persoii's or entity's ownership interest in Carter Industries since 2006; (4) all form K-ls issued i)y Carter Industries since 2006; (5) documents that identify all current and former officets, employees and/or shareholders of Carter Industries from 2007 to the present; ((5) communications regarding Marvin Azral(, Diana Azrak, Raymond Azrak or Albert Azrak; and (7) documents and communications that Carter Industries intends to introduce $s evidence in this litigation. The Discovery Order required Azrak to produce documents in response to certain requests in Carter Industries' May 28, 2019 Good Faith Letter and Notice of Discovery arid Inspection. Specifically, Azrak was directed to produce: (I) documents regarding shares of stocl( and ownership of Carter Industries; (2) documents regarding Marvin and Diaria Azrak's acquisition and ownership of shares in Carter Industries; (3) documents regarding. the appraisal of Carter Industries; (4) documents filed in Kings County Surrogate's Couit regarding Marvin Azrak's estate; and (5) Marvin Azrak's will and Diana Azrak's will. Azrak was also directed to "re-review, in g?od faith, all previously produced redacte~ 4 of 14 [*FILED: 5] KINGS COUNTY CLERK 12/08/2020 11:51 AM NYSCEF DOC. NO. 522 INDEX NO. 510149/2015 RECEIVED NYSCEF: 12/08/2020 docu1nents and produce unredacted versions of any information related to [her] clai~ed ownership of Carter Industries, or produce unredacted documents to Justice Knipel for an.in ca1nera review. The Discovery Order provides that "[a]ll ofthe aforementioned requests and responses thereto shall be limited to the issue of the claimed ownership of Plaintiff, Diana Azrak, bf Carter Industries." Azrak's Instant Motion to Compel Azrak now moves for an order compelling defendants to produce all responsiVe docu1nents pursuant to the Discovery Order, and if defendants fail to produce su6h responsive documents, compelling defendants to produce their hard drives and other data sources for forensic i1naging. Azrak's counsel asserts that "[a]lthough Plaintiff has produced to Defendants all documents required by the Discovery Order, Defendants have failed to do the same'." According to Azrak's counsel, defendants Saul Wolf, Chaim Wolf and Carter Enterprises ''have i1ot produced a single document." Regarding Saul Wolf, Azrak's counsel asserts that: "Saul Wolf admits that he possesses documents which the Discovery Order requires him to produce- including documents concerning the purported sale ot'his interest in Carter Industries in March 2017 and correspondence with Plaintiffs late husband, Marvin Azrak - but asserts that he is exe1npt from complying with the Discover Order because he does not possess any documents beyond those that Carter Industries has produced or that he believes Carter Industries will produce - a legally baseless claim which Saul Wolf has asserted throughout this litigation to avoid producing a single document in discovery." 5 of 14 [*FILED: 6] KINGS COUNTY CLERK 12/08/2020 11:51 AM NYSCEF DOC. NO. 522 INDEX NO. 510149/2015 RECEIVED NYSCEF: 12/08/2020 Azrak submits copies of correspondence between Saul Wolf and Marvin Azrak, her !itte husband, regarding Marvin Azrak's ownership interest in Carter Industries, and asserts that "[t]he Discovery Order required Saul Wolf to produce the foregoing letters to Marvin Azn\k, along with other responsive correspondence, but he never did." Regarding Carter Industries, Azral<'s counsel asserts that: "Carter Industries produced its tax returns and 21 pages of other documents, but failed to produce entire categories of documents required by the Discovery Order, including any of its co1n1nunication_s with Plaintiff, whom Carter Industries has treated as a shareholder since 2007, or any documents shared in due diligence with the purported purchasers of Saul Wolf's share of Carter Industries, who after the purported sale reached out to Plaintiff calling her their 'partner,' indicating that they had learned during the sale process that Plaintiff was a Carter Industries shareholder." In addition~ Azrak contends that Carter Industries failed to produce documents regarding h~r ownership interest in Carter Industries and documents identifying all current and form~r shareholders of Carter Industries. Azrak contends that "[g]iven that Defendants have once again demonstrated that they cannot be trusted to cull and produce responsive documents, Defendants should also be compelled to produce their hard drives and other data sources for forensic imaging." Azrak notes that "[n]either Saul Wolf nor Carter Industries have produced any electronically stored information fro1n Saul Wolfs company email,account ... "and "Saul Wolf has not produced any personal emails or other correspondence with Marvin Azrak, h(S fonner partner in Carter Industries and Plaintiffs deceased husband." 6 of 14 [*FILED: 7] KINGS COUNTY CLERK 12/08/2020 11:51 AM NYSCEF DOC. NO. 522 INDEX NO. 510149/2015 RECEIVED NYSCEF: 12/08/2020 Defendants' Opposition and Carter [11d11stries' Cross Motion to Compel Carter Industries opposes Azrak's motion to cornpel and cross-moves to dismiss the complaint for Azrak's nonco1npliance with the Discovery Order, or, alternatively, for ~n order compelling Azrak to provide all outstanding discovery in accordance with the Discovery Order. Carter Industries' counsel argues that Azrak "has failed to meaningfully respond to Defendant's discovery demands" and thatAzrak "attempts to use this motion as a mechanispi to compel discovery from [Carter] Industries that far exceeds the limited scope of discovery that was ordered ... in the March Discovery Order." Specifically, Carter Industries argues that Azrak "focuses on" documents regarding the negotiations and due diligence conducted in connection with the 2017 sale of Saul Wolfs ownership interest in Carter Industrie:s, which is "a category of documents that are completely unresponsive and irrelevant to the directives outlined in the March Discovery Order." Defense counsel asserts that Azr~k "disregards" this court's "explicit limitations of the supplemental production to arty additional documents in the parties' possession, custody or control that were responsive atjd limited to Plaintiffs claimed ownership of [Carter] Industries." Carter Industries also argues that Azrak is not entitled to an order requiring defendants to produce their hard drives and other data sources for forensic imaging since there is "no evidence that docu1nents weie being intentionally withheld or destroyed." Regarding its cross motion, Carter Industries argues that Azral( failed to produce an~ documents regarding Marvin Azrak's estate, including court filings related to 7 of 14 Marvi~ [*FILED: 8] KINGS COUNTY CLERK 12/08/2020 11:51 AM NYSCEF DOC. NO. 522 INDEX NO. 510149/2015 RECEIVED NYSCEF: 12/08/2020 Azrak's estate. Carter Industries assert$ that "this would include docu1nents reflecting ~r related to Plaintiffs alleged ownership of [Carter] Industries, or whether or not Marvin Azrak ever transferred, or purported to transfer, any ownership interest in or any shares Pf Carter Industries, Inc. to Plaintiff." In addition, Carter Industries claims that Azrak "fail¢d to produce unredacted versions of the few records concerning the estate that she hhs produced[,]" "[t]o date, a completely unredacted version of the will has not been produce\!, despite a confidentiality order governing the discovery in this case" and "Plaintiff also fail~d to produce unredacted versions of the federal or state tax returns for the Estate of Marvin Azrak and related tax pay1nent records." Carter Enterprises and Chaim Wolf, in opposition to Azrak's motion to compel, adopt the arguments set forth by Carter Industries and assert that they "are not in possession of arly discovery materials that would be responsive to the plaintiffs de1nands as they relate to the issue of plaintiffs alleged ownership interest in Carter Industries ... " Saul Wolf, in opposition to Azrak's motion to cornpet sub1nits an attorney affir1natia'n arguing that "Mr. Wolf has no responsive documents other than what Carter Industri~s already produced." Notably, defense counsel asserts that "Mr. Wolf admitted only that the~e are docu1nents witl1in his custody, possession, or control that are the same as the documents that Carter Industries has already produced to Plaintiff in this action" and "Plaintiff has failed to identify a single legitimate reason why Mr. Wolf should have to go through th¢ exercise of re-producing [those] documents ... " 8 of 14 [*FILED: 9] KINGS COUNTY CLERK 12/08/2020 11:51 AM NYSCEF DOC. NO. 522 INDEX NO. 510149/2015 RECEIVED NYSCEF: 12/08/2020 Azrak's Opposition to tile Cross Motion and Reply Azrak, in reply, asserts that"[dJefendants' respective oppositions fail to meaningfu(ly address their failure to comply with the Discovery Order." Azrak argues that "Sam Wolf doubles down on the novel position that he is exempt from producing relevant, responsiYe docu1nents in his possession, custody or control ... because Carter Industries has purported~y already produced them[,]" which is contrary to the law. Azrak contends that Carter Industries attempts to justify its deficient documeht production by relying on its past production of documents, however, "[w ]hat Carter Industries fails to inention is that its prior productions were actually haphazard docun1eht dumps consisting largely of invoices from suppliers and other documents having not.hirl,g whatsoever to do with tl1e issue of Plaintiff's ownership of Carter Industries." Azrak asser~s tl1at Carter Industries has offered no excuse for its failure to produce the following categori¢s of documents: (I) documents regarding the negotiation and due diligence conducted in connection with the 2017 sale of Saul Wolfs ownership interest in Carter Industries; (4) documents concerning Azrak's ownership interest in Carter Industries; (3) documents identifying all current and former shareholders of Carter Industries; and (4) communicatiori,s with Azrak and/or me1nbers of her family, including co1nmunications from Saul Wolr:s Carter Industries email account. Azrak asserts that Carter Enterprises and Chaim Wolfrequested and obtained lengthy (49-day) extensions of time to comply with the Discovery Order, "but now claim, with nb explanation whatsoever, to have no responsive documents." Azrak requests an orde',r 9 of 14 [*FILED: 10] KINGS COUNTY CLERK 12/08/2020 11:51 AM NYSCEF DOC. NO. 522 INDEX NO. 510149/2015 RECEIVED NYSCEF: 12/08/2020 "compelling Carter Enterprises and Chaim Wolf to produce all documents required by the Discovery Order and ... to certify under oath that they have conducted a diligent, good faith .' search of their records." Azrak also challenges defendants' claim that certain categories of docu1nents do riot ' exist or are irrelevant to the issue of her ownership interest in Carter Industries. Azrhk: argues tl1at defendants' assertion that no responsive documents exist regarding tre negotiations and due diligence conducted in connection with the 2017 sale of Saul Wolfs ownership interest in Carter Industries is incredible, since the purported purchasers of S~Ul Wolf's shares subsequently communicated with Azrak as their new "patiner." Azrak asseits that documents concerning the negotiations and due diligence process "indisputably wou/d mention Plaintiff, the owner of the other half of the company." Azrak also argues that correspondence regarding Marvin Azrak, her late husband, are. relevant to the issue of her ownership interest in Carter Industries since she inherit_ed hbr Carter Industries shares fro1n hi1n. Azral( asserts that "given that Marvin's interest in tqe co1npany was transt'erred to [11er], his ownership of the company is foundational to the issJe of [her] ownership." Azrak further argues that ''in negotiating the scope of the Discovery Order, Defendants insisted that it include those requests related to Marvin's ownership.~" Azraknotes that defendants previously requested, and she produced, all documents regarding Marvin Azrak's ownership interest in Carter Industries, and therefore, defendants "canndt now disclai1n their relevance. H Azrak, in opposition to Carter Industries' cross motion to co1npel, notes that "Cartet 10 of 14 [*FILED: 11] KINGS COUNTY CLERK 12/08/2020 11:51 AM NYSCEF DOC. NO. 522 INDEX NO. 510149/2015 RECEIVED NYSCEF: 12/08/2020 Industries has continued its pattern of responding to Plaintiffs motions to compel with pto fonna cross-motions" and asserts that the instant cross 1notion is "frivolous." Azrak assei;ts that Carter Industries' cross motion "boils down to two 1neritless gripes": (1) that Azral<l's document production was deficient because it included relatively few documents, but ignor¢s the fact that in 20 I 8 Azrak already produced more than 1,000 pages of documents regardil\g her alleged status as a Carter Industries shareholder, and (2) that Azrak produced certain redacted documents and has not yet sub1nitted unredacted docu1nents to the court for an in camera inspection. Azrak· asserts that she redacted all infor1nation that is um.elated to tQ.e issue of her ownership of Carter Industries, as authorized by the Discovery Order, and that she is "ready and willing to sub1nit these docu1nents for in camera review as soon as the Court provides directions_ concerning how to do so in light of Covid-19 concerns and relat~d court closures." Discussion CPLR 3124 provides that "[i]f a person fails to respond to or comply with any request, notice, interrogatory, _de1nand, question or order under this article ... the party seeking disclosure may move to compel compliance or a response." "In general, the supervision qf disclosure is left to the broad discretion of the trial court, which 1nust balance the partie~' ' competing interests" (JPMorgan Chase Bank, Nat. Ass 'n v Levenson, 149 AD3d 1053, 105~ [2017] [internal quotation marks omitted]). Here,_ Saul Wolf ad1nits that there are documents in his possession, custody or co11tr~l ' that are responsive to the Discovery Order, yet he refuses to produce such documents becaus~ 11 of 14 [*FILED: 12] KINGS COUNTY CLERK 12/08/2020 11:51 AM NYSCEF DOC. NO. 522 INDEX NO. 510149/2015 RECEIVED NYSCEF: 12/08/2020 he claims that they have already been produced by Carter Industries. To the extent Saul Wblf is in possession, custody or co11trol of any documents subject to production und-er the Discovery Order, he is directed to produce such docu1nents, regardless of the productibn previously made by Carter Industries. Defendants attempt to avoid disclosure by narrowly interpreting this court's Discov9ry Order to exclude certain categories of responsive documents is rejected. Defendants directed to produce all documents regarding i11 connection with the ~re the negotiations and due diligence conduct¢d ' 2017 sale of Saul Wolfs ownership interest in Carter Industries, sinpe ' such documents undoubtably would reference the owner of the re1naining shares in Car(er Industries. Furthermore, defendants inustproduce all communications regarding Azral<'s l~te ' husband, Marvin Azrak, since Diana Azrak allegedly inherited her Carter Industries shar~s from Marvin Azrak. In addition, Carter Industries has inexplicably failed to produce documents concemir\g Azrak's ownership interest in Carter Industries, documents identifying all current and forrn~r . ' shareholders of Carter Industries and communications with Azrak and/or me1nbers ofh~r family, including co1nmunications from Saul Wolfs Carter Industries email account. Cart~r Industries is compelled to produce the foregoing categories of documents, as previousl.Y required under tl1e Discovery Order. Carter Industries' cross motion is only granted to the extent that Azrak is compelle~ to submit all previously produced, redacted· docu1nents to the court for an in camer,a inspection, as previously directed in the Discovery Order. Accordingly, it is 12 of 14 [*FILED: 13] KINGS COUNTY CLERK 12/08/2020 11:51 AM NYSCEF DOC. NO. 522 INDEX NO. 510149/2015 RECEIVED NYSCEF: 12/08/2020 ORDERED that Azrak's motion (in mot. seq. 22) is only granted to the extent th~t: ( 1) Saul Wolf is hereby compelled to produce within 14 days after service of this order with notice of entry thereof: (a) all documents regarding the 2017 sale of his ownership interest in Carter Industries to Ephraim, Adler, Abraham Backenroth; (b) all documents regarding any person's or entity's ownership interest in ~arter Industries; and (c) all communicatiohs regarding Marvin Azrak, Diana Azrak, Raymond Azrak or Albert Azrak, including communications from his Carter Industries email account; (2) Carter Industries is hereby compelled to produce within 14 days after service of this order with notice of entry there6f: (a) all documents regarding the negotiations and due diligence conducted in connection with the 2017 sale of Saul Wolfs ownership interest in Carter Industries; (b) all communications regarding Marvin Azralc; (c) all docu1nents concerning Azral('s ownership interest in Carter Industries, (d) all documents identifying current and former shareholders of Carter Industries; and (e) all communications with Azrak (\Ild/or members of her family, includirtg cotmnunications from Saul Wolfs Carter Industries email account; and (3) Carter Enterprises ai1d Chaim Wolf are hereby compelled to produce within 14 days after service of this order with notice of entry thereof all documents required by the Discovery Order and to certify under oath that they have conducted a diligent, good faith search of their records. Azrak'.s motion is otherwise denied; and it is further ORDERED that Carter Industries' cross motion (in mot. seq. 23) is only granted tp the extent that Azrak is hereby directed to submit unredacted copies of all documen~s previously produced by Azrak in redacted form to this court for an in crunera review witl1i~ 13 of 14 [*FILED: 14] KINGS COUNTY CLERK 12/08/2020 11:51 AM NYSCEF DOC. NO. 522 INDEX NO. 510149/2015 RECEIVED NYSCEF: 12/08/2020 14 days after service of this order with notice of entry thereof. Carter Industries' crOss motion is otherwise denied. This constitutes the decision and order of the court. ENTER, J. Justice Lawrence l<nlpel 14 of 14

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