Fuchs v Volz

[*1] Fuchs v Volz 2023 NY Slip Op 50575(U) Decided on June 14, 2023 Supreme Court, New York County Lebovits, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 14, 2023
Supreme Court, New York County

Dallin Fuchs and JULIE FUCHS, Plaintiffs,

against

Catherine Volz, ANDREW VOLZ, Defendant.



Index No. 653508/2022


Queller, Fisher, Washor, Fuchs & Kool, and the Law Office of William A. Gallina, LLP, New York, NY (Brian S. Schwartz of counsel), for plaintiffs.

Kishner Miller Himes P.C., New York, NY (Bryan W. Kishner, Ryan O. Miller, and Patrick J. Rohan of counsel), for defendants.
Gerald Lebovits, J.

BACKGROUND

Defendants, Catherine and Andrew Volz, entered into a contract with plaintiffs, Dallin and Julie Fuchs, to purchase a condominium apartment located at 316 East 22nd Street in Manhattan. Defendants paid a deposit of $449,500.00 held in escrow with plaintiffs' attorney in accordance with the contract terms. Plaintiffs claim that defendants failed to purchase the apartment by the agreed-upon closing date. (NYSCEF No. 1 at 2-3.) Accordingly, they brought a cause of action for anticipatory repudiation seeking the release of the deposit to the plaintiffs as their liquidated damages under paragraphs 3 (a) (i) and 16 of the contract. (NYSCEF No. 2 at ¶ 3 and 16.)

Defendants oppose allowing plaintiffs to retain the deposit. In addition, defendants claim that plaintiffs have breached by failing to address or take action regarding the title objection and issuing an improper "time of the essence" notice demanding that they close on the apartment. (NYSCEF No. 5 at ¶ 184; NYSCEF No. 5 at ¶ 200-201.) Defendants argue that a title objection exists because of an alleged discrepancy between the square footage of the apartment listed in the condominium declaration as 2,422 square feet, and a bank appraisal defendants submitted to the court measuring the square footage as 2,200 square feet. (Id. at ¶ 177-182.) Because of this alleged reduction in square footage, defendants claim that they were unable to obtain financing from their lender in the amount needed to pay the contract's purchase price. (Id.)

Defendants claim that an objection to title exists because the alleged discrepancy in square footage interfered with their ability to obtain financing and the declaration document was not a permitted exception in the purchaser's rider. (Id.) Accordingly, defendants argue, pursuant to paragraph 46 of seller's rider to the contract, that they were entitled to either a reasonable adjournment of the closing date for the purpose of curing the title objection, or to cancel the contract and receive a return of the deposit. (Id. at ¶ 183.)

In October 2022, plaintiffs served two document demands on defendants seeking access to a variety of defendants' financial documents, including their rental agreement at 122 East 25th Street, 2nd Floor, in New York County and information related to their mortgage loan application for the condominium at 316 East 22nd Street. Plaintiffs also demanded any appraisal of the apartment. (NYSCEF No. 11 at 3-9.)

Plaintiffs allege that defendants have failed to comply with discovery demands dated October 4 and 6, 2022, which allotted 20 days for them to respond. (Id.) Defense counsel attempted to negotiate an extension of time until November 30; however, plaintiffs' counsel rejected their offer and sent an additional letter on October 26 demanding compliance with discovery. (NYSCEF No. 12 at 1-2.) Plaintiffs issued five non-party subpoenas, which defendants objected to in a letter on October 25. (NYSCEF No. 13 at 1-2.) Ultimately, defendants did not respond with a counterclaim and opposition to plaintiffs' discovery demands until November 17, a few weeks outside the time allotted for compliance. (NYSCEF No. 14.)

Plaintiffs now move under CPLR 3126 to strike defendants' answer for willful failure to comply with discovery or, in the alternative, to compel defendants to comply with the outstanding discovery demands by a date certain or have their answer stricken.

DISCUSSION

CPLR 3126 provides that a pleading may be struck as a penalty for failure to comply with disclosure. (Fish & Richardson, P.C. v Schindler, 75 AD3d 219, 220 [1st Dept 2010].) But striking an answer pursuant to CPLR 3126 is a drastic remedy and should not be invoked unless the party "seeking disclosure demonstrates conclusively that the failure to disclose was wilful, contumacious or due to bad faith." (Hassan v Manhattan & Bronx Surface Transit Operating Authority, 286 AD2d 303, 304 [1st Dept 2001]; Gross v Edmer Sanitary Supply Co., 201 AD2d 390, 391 [1st Dept 1994].) The willful and contumacious nature of a party's default can generally be inferred from a repeated failure to respond to demands or comply with disclosure orders in tandem with inadequate excuses for default. (See Watson v City of NY, 157 AD3d 510, 512 [1st Dept 2018].)

Penalties authorized by CPLR 3126 generally are focused on preventing a party who has refused to disclose evidence from "affirmatively exploiting or benefiting from the unavailability of the proof during the pending civil action." (DiDomenico v C & S Aeromatik Supplies, Inc., 252 AD2d 49 [2d Dept 1998] [internal quotation marks omitted], quoting Sands v News Am. Publ., 161 AD2d 30, 37 [1st Dept 1990].)

Under CPLR 3101 (a) parties are entitled to "full disclosure of all matter material and necessary in the prosecution or defense of an action, regardless of the burden of proof." (CPLR 3101.) Determinations about whether matter is material and necessary are left to the court's discretion and includes "any facts bearing on the controversy which will assist preparation for trial by sharpening the issues of and reducing delay and prolixity. The test is one of usefulness and reason." (Andon v 302-304 Mott St. Assocs., 94 NY2d 740, 746 [2000], citing Allen v Crowell-Collier Publ. Co., 21 NY2d 403, 406 [1968].) When weighing whether to grant a discovery request, courts consider New York's strong policy of open disclosure and "any special burden to be borne by the opposing party." (Forman v Henkin, 30 NY3d 656, 662 [2018], quoting Kavanagh v Ogden Allied Maintenance Corp., 92 NY2d 952, 954 [1998] [internal quotation marks omitted].)

I. Plaintiffs' Motion to Strike Defendants' Answer

Plaintiffs have not demonstrated, and it is not apparent from the record, that defendants' default was willful and contumacious. There is no evidence that defendants complied with discovery within the allotted time, and they did not offer an excuse explaining their inaction. Nevertheless, defendants' conduct cannot accurately be described as willful and contumacious. (See e.g. Roug Kang Wang v Chien-Tsang Lin, 94 AD3d 850, 852 [2d Dept 2012] [contumacious conduct found only after failure to comply with court order, and multiple unresponsive and evasive answers at deposition]; accord Henderson-Jones v. City of NY, 87 AD3d 498, 505 [1st [*2]Dept 2011].) Ultimately, the imposition of penalties under CPLR 3126 is inappropriate here, given that defendants likely did not benefit from the brief delay in discovery and that their conduct was not willful and contumacious.

A. Plaintiffs' First Notice for Discovery and Inspection

Defendants claim that the first notice for discovery and inspection seeking documentation related to defendants' rental apartment, located at 122 East 25th Street, 2nd Floor, in New York County, is wholly unrelated and irrelevant to any issue in this action. (NYSCEF No. 29 at 14.)

Plaintiffs specifically seek copies of rental agreements currently in effect or executed by either defendant tenant at the property, or their landlord relative to the property. (NYSCEF No. 11.) They also seek copies of any documents, records, financial statements, or writings submitted by defendants relative to the rental of that property. The current rental agreement in effect for the property was obtained through a non-party subpoena by plaintiffs. Plaintiffs claim that the rental documentation is material with reference to their claim that defendants have moved on from their contract of sale and were not ready, willing, or able to close on the condominium deal. (NYSCEF No. 37.)

The matter at issue here is material and necessary for the cause of action brought against defendants for anticipatory breach and breach of contract for sale of the condominium. In determining whether defendants breached it will be necessary to ascertain whether they did repudiate the contract for sale and, if they did, when that repudiation occurred. A rental lease executed by defendants this year as tenants for an entirely different apartment just before the disputed contractual closing date of the condominium is clearly relevant and material to determining when and if repudiation occurred. Likewise, previous rental leases, and all documentation involving defendants regarding the rental property are material and relevant to demonstrating when an intent to repudiate formed. Defendants should have access to the rental lease for the property they are currently living in. Defendants must supply these leases or provide a clear and convincing reason explaining why they are unable to comply.

B. Plaintiffs' Second Notice for Discovery and Inspection

1. Plaintiffs in discovery demands 1-18 request any and all documents, information, materials, and correspondence relating to any mortgage application of defendants for 316 East 22nd Street, Unit 4, in New York County. This includes financial records, emails "from" and "to" Andrew Volz or Catherine Volz relative to the application, and correspondence relative to the application with their broker, attorney, and loan officers. (NYSCEF No. 11 at 7-9.)

Plaintiffs also demand any documents or writings that indicate, imply, or state that the square footage of the above condominium is inaccurate, along with any appraisal reports or bank appraisals received or created with regards to a mortgage application for the condo. (Id.) Additionally, plaintiffs demand any documents that would indicate that Citizens bank, its agents, servants, or employees are aware of any inconsistency between the square footage of the condo [*3]measured by any appraiser and the measured square footage of the condo as defined in the condo declaration and/or bylaws. (Id.)

Furthermore, plaintiffs demand any document, writing, or statement of any kind that states or indicates that any language in the condo declaration or bylaws interfered with defendants' ability to obtain a mortgage loan commitment for any particular amount, and/or for less than the full amount applied for. (Id.) Plaintiffs also demand any and all documents, writings, statements, emails, and communications of any kind relative to the parking garage, parking space at the aforesaid location, membership in the LLC for parking, value of said parking, and consideration or discussion of whether such parking could or would serve to secure any part of a mortgage commitment regarding the subject property. (Id.) Finally, they demand all documents and records that reflect any and all liabilities and assets defendants, liquid or otherwise, received or obtained at any point during the application process and written responses from defendants to any and all questionnaires. (Id.)

Defendants argue that their loan application with Citizens Bank and their correspondence with their loan officer has no relevance to the underlying action. (NYSCEF no. 29 at 7.) They also argue that the documents related to their rental apartment in Manhattan are wholly unrelated to the current matter. (Id. at 9.) Finally, they argue that their financial data and records are irrelevant. (Id. at 7.)

Based on the arguments and claims brought by plaintiffs in their complaint and affirmation, discovery demands 1-18 are material and necessary for the prosecution or defense of their action for breach of contract. Discovery demands 1-8 are material and necessary because they provide information directly relevant to the mortgage application that plaintiffs allege that defendants claim the contract for sale was contingent on and which defendants claim that they failed to obtain in the expected amount (NYSCEF No. 1 at ¶ 21-25; NYSCEF No. 5 at ¶180.) Discovery demands 9-16 are material and necessary because they also are directly relevant to the mortgage application at issue and the claim by defendants that the condominium declaration or bylaws interfered with their acquisition of an adequate mortgage. (NYSCEF No. 1 at ¶ 51-52, 54; NYSCEF No. 5 at ¶173-180.) Discovery demand 17 is material and necessary because it is directly relevant to whether defendants had the ability to purchase the apartment, and whether they maintained a positive net worth pursuant to 44 (f) of the Condominium Contract of Sale. (NYSCEF No. 1 at ¶ 31; NYSCEF No. 2 at 21.) Finally, discovery demand 18 is material and necessary because defendants' responses to questionnaires will be useful and are a reasonable request for this matter.

None of the demands above is especially burdensome, aside from discovery demand 17 relating to defendants' net worth. Because the demands above are limited to the period of the mortgage application process, the usefulness of the information in resolving this dispute outweighs any possible additional burden on the defendants.

2. Plaintiffs in discovery demands 19-23 request all bank statements received regarding defendants, all 401(k) statements regarding defendants, all statements of net worth regarding defendants, and any and all written communication via-email or otherwise from or to defendants. [*4](NYSCEF No. 11 at 11.) None of these requests is material or necessary in prosecution and defense of an action for breach of contract.

Defendants' bank statements in perpetuity are not necessary or reasonable for the resolution of this dispute, and neither are their 401k statements or statements of net worth without any temporal limitations. Unbridled access to any and all written communication to or from defendants is also not only irrelevant, but also unreasonable and unnecessary for the speedy and just resolution of this dispute. Additionally, these requests are all especially burdensome for defendants to comply with, given the lack of any temporal limitations.

II. Defendants' Cross-motion

In opposition to plaintiffs' motion defendants Catherine and Andrew Volz cross-move for the following:

(1) a protective order under CPLR 3103 (a) and (c) limiting the use and restricting the distribution of plaintiffs' personal financial information obtained through five non-party subpoenas served by plaintiffs;(2) a protective order under CPLR 3103 (a) limiting and/or vacating plaintiffs' two improper notices to admit;(3) a protective order limiting or vacating the two notices for discovery and Inspection of documents;(4) an order of suppression under CPLR 3103 (c) suppressing the information and documentation improperly obtained by plaintiffs; and(5) an order under CPLR 3104 appointing a referee to supervise discovery in this matter.

CPLR 3103 "governs the subject of 'protective orders' for disclosure abuses and confers broad discretion upon a court to fashion appropriate remedies both where abuses are threatened . . . and where they have already occurred." (Lipin v Bender, 84 NY2d 562, 570 [1994].)

Under CPLR 3103 (a), protective orders regulating the use of disclosure devices can be granted by the court to "prevent unreasonable annoyance, expense, embarrassment, disadvantage, or other prejudice to any person or the courts." The court can issue a protective order "on its own initiative, or on motion of any party or of any person from whom discovery is sought." (Id.) The court must "strike a balance by weighing the parties' conflicting interests in light of the facts of the particular case before it." (Mahoney v Turner Constr. Co., 61 AD3d 101, 106 [1st Dept 2009] [internal quotation marks omitted], quoting Cynthia B. v New Rochelle Hosp. Med. Ctr., 60 NY2d 452, 461 [1983].)

CPLR 3120 provides that "after commencement of an action, any party may serve on any other party a notice or on any other person a subpoena duces tecum." Further, "the party issuing a subpoena duces tecum . . . shall at the same time serve a copy of the subpoena upon all other parties and, within five days of compliance therewith, in whole or in part, give to each party notice that the items produced in response thereto are available for inspection and copying, [*5]specifying the time and place thereof." (Id.) In the case of a nonparty, CPLR 3101 requires a subpoena to provide notice "stating the circumstances or reasons such disclosure is sought or required." Notice must be included on "either the face of the subpoena or in a notice accompanying it, the circumstances or reasons such disclosure is required." (Matter of Kapon v Koch, 23 NY3d 32, 39 [2014].) However, an application to "quash a subpoena should be granted '[o]nly where the futility of the process to uncover anything legitimate is inevitable or obvious' . . . or where the information sought is 'utterly irrelevant to any proper inquiry.'" (Matter of Kapon v Koch, 23 NY3d 32, 38 [2014].)

Under CPLR 3103 (c), if "any disclosure under this article has been improperly or irregularly obtained so that a substantial right of a party is prejudiced, the court, on motion, may make an appropriate order, including an order that the information be suppressed." One crucial consideration in determining whether a substantial right of a party has been prejudiced is whether the information obtained would have, "in any event . . . have to be produced in the ordinary course of discovery." (Coast to Coast Energy, Inc. v Gasarch, 77 AD3d 589, 589 [1st Dept 2010].)

A notice to admit may be used to request admissions regarding "the genuineness of any papers or documents, . . . or of the truth of any matters of fact set forth in the request, as to which the party requesting the admission reasonably believes there can be no substantial dispute at the trial and which are within the knowledge of such other party or can be ascertained by him upon reasonable inquiry." (CPLR 3123.) A notice to admit may not seek admission that goes to the heart of a material issue in the case. (See Stanger v Morgan, 100 AD3d 545, 546 [1st Dept 2012].)

A. Plaintiff's Non-Party Subpoenas

Plaintiffs served subpoenas on five non-parties: Bank of America, N.A., UBS Financial Services, 122 East 25th Street Condominium, Rani Mahdavi Emandi, and Citizens Bank. Defendants claim that all five of these subpoenas are defective facially because plaintiffs have failed to provide "any notice of the reasons and circumstances the discovery was being sought from the targeted non-party," as required by CPLR 3101 (a) (4). (NYSCEF No. 29 at 12.) Defendants are correct that the subpoenas do not to provide notice. But that does not mean that a CPLR 3103 (a) protective order or a CPLR 3103 (c) order of suppression should be granted regarding all the subpoenas. The financial, appraisal, and rental information gathered through the subpoenas to Bank of America, N.A., UBS Financial Services, 122 East 25th Street Condominium, and Rani Mahdavi Emandi, was that which "in any event would have been produced in the ordinary course of discovery." (Coast to Coast Energy, Inc., 77 AD3d 589 [1st Dept 2010].) Additionally, the financial, appraisal, and rental information gathered through the subpoenas is unlikely to result in unreasonable annoyance, expense, or prejudice. Therefore, the information gathered from Bank of America, N.A., UBS Financial Services, 122 East 25th Street Condominium, and Rani Mahdavi Emani does not warrant a suppressive order.

However, some information plaintiffs acquired from Citizens Bank would not have been obtained through discovery. Specifically, demands 19-23 requesting all bank statements, all [*6]401(k) statements, all statements of net worth, and any and all written communication regarding defendants would not have been obtained through the ordinary course of discovery. (NYSCEF No. 20 at 4-5.) Therefore, the court finds it appropriate to suppress only the information obtained through demands 19-23 of the subpoena served upon Citizens Bank.

B. Plaintiffs' Notices to Admit

The scope of notices to admit is limited to admissions about the genuineness of documents and the truth of statements that are unlikely to be contested at trial. Plaintiffs may not use their notices to admit to obtain admissions from defendants about material issues in the case, such as the existence of a mortgage contingency, whether defendants obtained a mortgage commitment, and defendants' (lack of) knowledge of encumbrances on the property. (NYSCEF No. 25 at 2-7.) This information should be obtained through discovery. A notice to admit "may not be employed as a substitute for other disclosure devices." (Taylor v Blair, 116 AD2d 204, 206 [1st Dept 1986].) Plaintiffs' attempts to seek admission of statements from defendants, defendants' lender, and the accuracy of sworn testimony is also improper for a notice to admit. This information should be obtained through discovery.

Given these principles, defendants need respond only to the following requests in the first notice to admit: Nos. 12, 28, 30, 33-35, 43-46, 50-51, 57, and 73-80. Defendants must comply with all requests in the second notice to admit.

C. Plaintiffs' Notices for Discovery and Inspection and Non-Party Subpoenas

Defendants argue that the documents about their rental apartment sought in plaintiffs' first notice for discovery and inspection are wholly unrelated to the current issue in this action. Therefore, defendants claim that they should not have to comply with the demands from the first notice. They also argue that that the information sought is "of a confidential and private nature" and that plaintiff's discovery demands generally are "extraordinarily broad and seek information and documentation which has no bearing on this case." (NYSCEF No. 29 at 16-17.) Both arguments are unpersuasive. The material in the first notice is necessary in the prosecution or defense of an action for anticipatory breach, and therefore a protective order vacating or limiting the demands is improper.

For the same reasons, a protective order vacating or limiting the demands 1-18 in plaintiffs' second notice for discovery and inspection is improper.

However, discovery demands 19-23 consist of overly broad requests seeking documents that are almost certainly irrelevant to the issues in the case. Plaintiffs demand all of defendants' 401k statements, bank statements, statements of net worth, and any and all written communication by email or otherwise from or to defendants. Not only do these demands lack any temporal limitation to the relevant time period at issue in this case, they are irrelevant to the anticipatory breach of contract cause of action. Therefore, defendants need not respond to discovery demands 19-23 in plaintiffs' second discovery notice.

To the extent that plaintiffs acquired information from Citizens Bank regarding defendants' 401k statements, bank statements, and any and all written communication regarding defendants outside of demands 1-18 of their subpoena upon Citizens Bank, that information is suppressed. The information would not have been obtained ordinarily in the course of discovery; it is irrelevant to the issues in this case.

D. Defendants' Request for Appointment of a Referee

CPLR 3104 (a) allows the court to appoint a referee to supervise all or part of a disclosure procedure. Defendants claim that the appointment of a referee is appropriate because plaintiffs have abused the discovery process by "issuing numerous improper discovery demands in an attempt to harass and intimidate Defendants, and will likely continue to do so." (NYSCEF No. 29 at 18.) Defendants' reference to Capoccia v Brognano (126 AD2d 323, 328 [3d Dept 1987]) is distinguishable on the grounds that it involved a pro se party and considerable harassment. (Id.) Defendants' reference to Lowitt v Korelitz (152 AD2d 506, 508 [1st Dept 1989]) involved considerable obstreperous behavior by plaintiffs' counsel, including harassment of the defendant at multiple depositions. (Id.) Although a lack of cooperation and hostility between parties can result in needing a referee, as defendants assert, the court finds in this case that the appointment of a referee is unnecessary.

Accordingly, for the foregoing reasons, it is

ORDERED that the branch of plaintiffs' motion under CPLR 3126 seeking to strike the defendants' answer is denied; and it is further

ORDERED that the branch of plaintiffs' motion under CPLR 3124 to compel defendants to provide discovery is granted in part and denied in part as set forth above, and all discovery required by this order to be produced must be provided by defendants to plaintiffs within 50 days of entry of this order; and it is further

ORDERED that the branch of defendants' cross-motion under CPLR 3103 shielding defendants from having to respond to plaintiffs' notices of discovery and inspection and notices to admit is granted in part and denied in part as set forth above; and it is further

ORDERED that the branch of defendants' cross-motion under CPLR 3103 to suppress the information and documents obtained by plaintiffs through the five non-party subpoenas is granted in part and denied in part as set forth above; and it is further

ORDERED that the branch of defendants' motion seeking appointment of a referee to supervise discovery is denied.

6/14/2023