Opinion
Index No. XXXXXX/20XX
05-13-2022
M.Z., Plaintiff, v. M.Z., Defendant.
Plaintiff-wife is represented by Boies Schiller & Flexner, LLP, Charles Fox Miller, Esq. Defendant-husband is represented by Cohen Clair Lans Greifer Thorpe & Rottenstreich, LLP, Shannon Simpson, Esq.
Unpublished Opinion
Plaintiff-wife is represented by Boies Schiller & Flexner, LLP, Charles Fox Miller, Esq.
Defendant-husband is represented by Cohen Clair Lans Greifer Thorpe & Rottenstreich, LLP, Shannon Simpson, Esq.
KATHLEEN WATERMAN-MARSHALL, J.S.C.
The following e-filed documents, listed by NYSCEF document number (Motion 002) 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, 44, 45, 46, 47, 48, 49, 50, 51, 52, 53, 54, 55, 56, 57, 58, 59, 60, 61, 62, 63, 64, 65, 66, 67, 68, 69, 70, 71, 72, 73, 74, 75, 76, 77, 78, 79, 80, 81, 82, 83, 84, 85, 86, 87, 88, 89, 90, 91, 92, 93, 94, 95, 96, 97, 98, 99, 100, 101, 102, 103, 104, 105, 106, 107, 108, 109, 110, 111, 112, 113, 114, 115, 116, 117, 118, 119, 120, 121, 122, 123, 124, 125, 126, 127, 128, 129, 130, 131, 132, 133, 134, 135, 136, 137, 138, 139 were read on this motion to/for DISCOVERY.
Upon the foregoing documents, the motion by Plaintiff M.Z. ("Wife") for an order compelling third-party [XXXX & X] ("the firm") to produce documents in response to a July 6, 2021 Subpoena, compelling Defendant M.Z. ("Husband") to produce certain outstanding discovery, and appointing a referee to oversee discovery, is granted in part. Upon the same record, the cross-motion by the firm for a protective order prohibiting Wife from seeking further discovery from the firm, is granted; and the cross-motion by Husband for a protective order vis-à-vis discovery from the firm, compelling Wife to produce certain outstanding discovery, permitting Husband access to the marital apartment to obtain his personal belongings, and for other relief, is granted.
Brief Background
This is a two-decade long marriage during which Husband, a partner at the firm in the Capital Markets practice, was the sole wage earner. One of the main marital assets is Husband's partnership interest in the firm. The parties also own two homes: an apartment in Manhattan (the "marital apartment") and a house in East Hampton. They have two sons, one in college and one on the way to college.
Wife commenced this divorce action on November 15, 2020. By stipulation So-Ordered by the Court on December 15, 2020 (the "So-Ordered Stipulation"), Wife was granted exclusive use and occupancy of the marital apartment and Husband was granted exclusive use and occupancy of the East Hampton home, and the parties agreed to "cooperate with each other to permit the removal of personal items from the residences."
Thereafter, the parties engaged in "ongoing, voluntary disclosure" and each hired an expert to value Husband's partnership interest in the firm. In the normal course, Wife requested Husband's documents for his personal finances and those relating to his partnership interest in the firm; Husband requested Wife's personal financial documents and those relating to her interest in family companies and trusts. The record shows that, over the course of the last two years, each side produced certain documents and information.
The record also shows that, early in the litigation, Husband made it clear that the firm would require a confidentiality agreement before producing documents related to Husband's partnership and practice. Negotiations over the terms of the confidentiality agreement lasted several months. Apparently dissatisfied with those negotiations, and despite her agreement that Husband would produce the firm documents, on July 6, 2021 Wife served the firm with a Subpoena requesting seventeen (17) categories of documents covering Husband's financial information as well as the financial and other sensitive confidential and proprietary information of the entire firm partnership (the "Subpoena"). The firm served written responses and objections to the Subpoena and advised of its willingness to meet and confer to discuss same and its intention to produce responsive material.
Thereafter and into the fall of 2021, the firm and Husband produced thousands of pages of documents. In addition, the attorneys for the parties had conferences with the Court, and video calls with the firm and Wife's expert regarding the scope and timing of document production. In tacit if not express recognition that the demands for the firm's firm-wide, sensitive and proprietary information, not relating specifically to Husband and his small minority partnership interest, seek immaterial and irrelevant information, Wife's expert agreed on September 29, 2021 to prepare a report based upon documents already produced by the firm and those to be produced (and which were produced on October 13, 2021).
Notwithstanding the firm's and Husband's substantial document production (consisting of over 10,000 pages), Wife, again dissatisfied, made the instant motion, precipitating the firm and Husband's cross-motion. In support of their respective claims herein, the parties submit affidavits of their respective forensic experts. Wife's expert claims that document production from Husband and the firm is insufficient to value his partnership interest. Husband's expert claims that everything needed to value his partnership interest has been produced.
The Firm
The record does not bear out Wife's allegations of delay and obfuscation on the part of the firm (or Husband) and the Court is hard-pressed to find a valid basis for Wife's purported outrage. To the contrary, at the time of the April 13 oral argument of the motion, the firm had produced all of the documents properly requested in the Subpoena and as agreed to with Wife's expert. The firm's document production encompassed more than information about Husband's capital account and included, inter alia, documents relating to work-in-progress for which Husband is the engagement attorney and relating to income and billables for attorneys in the Capital Markets practice. On the record at oral argument, Wife's attorneys withdrew Request 17 for the firm's leases and conceded that only Requests 1, 2, and 3 remained open.
However, these open Requests do not seek documents that are relevant or material to the valuation of Husband's minority partnership interest in the firm. Rather, they are broad sweeping requests for firm-wide, sensitive and proprietary information that go far beyond any relevance to assessing Husband's capital in the firm and the compensation and benefits he receives from his partnership interest. See Burns v Burns, 84 N.Y.2d 369, 375-376 (1994) (while valuation of husband's interest in law firm not limited value of his capital account, wife not entitled to "unfettered access to the firm's financial records"); see also Haron v Azoulay, 132 A.D.3d 475 (1st Dept 2015) (court properly quashed Subpoena served upon plaintiff's employer in divorce action as "defendant had already received all relevant documentation regarding plaintiff's compensation and salary, including a neutral report on his earning capacity").
Request 1 seeks the firm's annual financial statements for calendar years 2015-2020; Request 2 seeks the firm's interim financial statements for January-November 2019 and January-November 2020; and Request 3 seeks the firm's business, federal, state income tax returns for 2015-2020. The record establishes that the firm is a privately-held partnership, that its financial information and statements are available only to certain financial executives in the firm and to partners only upon request and under strict confidentiality and security requirements. The firm's financial statements contain sensitive and confidential information about, inter alia, the firm's assets, loans, contracts, and other proprietary information that could be used by its competitors, like Wife's attorneys. Thus, the firm's financial statements contain trade secrets (see generally Ashland Mgmt. Inc. v Janien, 82 N.Y.2d 395 [1993][setting forth factors court to consider in determining trade secret claim]), and its proprietary information is entitled to protection from disclosure (see Ferolito v Arizona Beverages USA, LLC, 119 A.D.3d 642, 644 (2nd Dept 2014) (subpoena seeking disclosure of trade secrets should be quashed). Somewhat similarly, Wife has not made the "strong showing of necessity" required to warrant production of the firm's tax returns that contain private and confidential financial information. Weingarten v Braun, 158 A.D.3d 519, 519-20 (1st Dept 2018). To the extent that the strength and stability of the firm as a going-concern is relevant to an excess earnings method of valuation, such information can be ascertained from publicly available information. Indeed, Wife's own expert agreed to prepare a valuation based on the information the firm and Husband already produced, and Husband's expert demonstrates in his affidavit that such information is indeed sufficient to accomplish the task.
Consequently, the record establishes and so this Court finds that the firm has fully met its obligation to respond to the July 6, 2021 Subpoena by producing documents relevant and material to the valuation of Husband's minority partnership interest in the firm. The Court further finds that the open Subpoena Requests seek documents and information that are neither material nor relevant to such valuation, constitute an impermissible fishing expedition (see Haron v Azoulay, supra ), and are otherwise protected from disclosure as confidential proprietary business information (see Ferolito v Arizona Beverages USA, LLC, supra; Weingarten v Braun, supra).
Accordingly, the firm is entitled to a protective order prohibiting Wife from seeking any further discovery from it. CPLR 3103(a).
Outstanding Party Discovery
Husband has produced thousands of pages of documents (about 7,500) responsive to Wife's demands. It appears that, if anything, the only outstanding documents are some updated personal bank and/or credit card statements for 2021 and 2022, as well as his W-2s, K-1s and other income documents for the same time period. On the other hand, Wife has failed to produce documents relating to G.G. and its related entities and trusts, in which Wife is a partner and from which she receives income and distributions.
As counsel conceded on the record during oral argument, the parties' obligation to produce their respective financial information is continuing; this obligation is set forth in the Preliminary Conference Order and is consistent with New York's policy of liberal discovery embodied in CPLR 3101. See Preliminary Conference Order dated December 8, 2020 (NYSCEF Doc. 19; pages 5-6); see generally Forman v Henkin, 30 N.Y.3d 656, 661 (2018) (phrase "material and necessary' in CPLR 3101 is "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"). Although Husband's post-commencement earnings are indeed his separate property, his post-commencement finances may be relevant to maintenance claims (if any) and other financial matters, including any claim for credits for marital liabilities paid from post-commencement income.
Accordingly, Husband is directed to produce any outstanding and updated personal financial documents (as set forth in the first paragraph of this subsection), on a rolling basis. Wife is directed to produce the outstanding documents for G.G. and its related entities and trusts within forty-five (45) days hereof, and to produce updated bank, credit card, and other financial statements on a rolling basis.
Request for Referee to Oversee Discovery
This case does not require a Referee to assist in discovery proceedings. Although Husband is a partner in an international law firm, and Wife apparently has interests in some family companies and trusts, the case does not present with complex or difficult discovery issues requiring extra-judicial oversight. Consequently, Wife's request for the appointment of a private Referee to oversee discovery, is denied.
Access to Marital Home
The So-Ordered Stipulation requires the parties to cooperate with each other so that they may remove their personal belongings from their homes. Husband demonstrated on this motion that he has not retrieved all of his belonging from the marital apartment of which Wife has exclusive use and occupancy. Consequently, Wife is directed to comply with the So-Ordered Stipulation forthwith, and to identify a neutral third-party to accompany Husband in the martial apartment in order for him to remove his remaining personal belongings.
ORDERED that Wife's motion to compel is granted solely to the extent that Husband shall produce updated personal financial information (bank statements, credit card statements, income documents) for 2021 and 2022 on a rolling basis; the motion is otherwise denied; and it is further
ORDERED that the cross-motion by the firm for a protective order as to the July 6, 2021 Subpoena, and that part of the cross-motion by Husband as seeks a protective order on such Subpoena, are each granted. The firm has fully met its obligation to respond to the July 6, 2021 Subpoena. The firm is not required to produce any further or additional documents, and Wife is precluded from seeking further discovery from the firm; and it is further
ORDERED that Husband's motion to compel Wife to produce documents relating to G.G. and its related entities and trusts, is granted. Wife shall produce all requested documents for G.G. and its related entities and trusts within forty-five (45) days hereof; she shall also produce updated personal financial information (bank statements, credit card statements, and other financial statements) for 2021 and 2022 on a rolling basis; and it is further
ORDERED that Wife shall comply with the So-Ordered Stipulation forthwith and grant Husband access to the marital apartment with a neutral third-party to be agreed upon by the parties, to assist him in removing his personal belongings from the marital apartment.