Opinion
602229/05.
Decided February 2, 2007.
Attorneys Plaintiff: Laura G. Weiss, Esq.
Attorneys for Defendant: Marjorie G. Adler, Esq., Uncyk, Borenkind Nadler, LLP.
Defendants move pursuant to CPLR 3126(a), (b) and (c) to: (i) have all outstanding issues resolved in their favor; (ii) preclude plaintiffs' use as evidence of all material they have failed to produce in discovery; (iii) strike plaintiffs' answer and affirmative defenses to defendants' counterclaims; and, (iv) recover from plaintiffs costs and attorneys' fees incurred by defendants in connection with the instant motion.
Plaintiffs cross-move to dismiss defendants' third, fourth, fifth and sixth counterclaims.
FACTS
Plaintiffs, two television advertising production companies, brought this action by order to show cause to prevent photographer Stephen Laughlin ("Laughlin"), his company, Art Overnite, Inc. ("Art ON") and his wife Denise, Art ON's executive producer, from using certain work products each side credits itself with creating (the "work products"). Through their ex parte order to show cause, plaintiffs obtained a temporary restraining order barring defendants from using the work products.
In his affidavit in support of the temporary restraining order sought in plaintiffs' order to show cause, Marty Napoleon ("Napoleon"), the president of both plaintiffs, averred that Laughlin, who had an exclusive and confidential relationship with plaintiffs, merely took photographs which were used by plaintiffs in the process of creating the work products. Violating the parties' exclusivity arrangements and the confidentiality duty owed to plaintiffs' clients, defendants then misappropriated and altered plaintiffs' work and used the work products, including identifying client information, as work samples to enhance their own business, thereby damaging plaintiffs' business and reputation with plaintiffs' own clients. Napoleon also professed that he was not trying to restrain defendants from "fairly" competing with plaintiffs, but rather to prevent them from "jeopardiz[ing] the health of the [p]laintiffs' business by [competing] so unfairly" (exhibit 1 to defendants' moving papers, ¶ 12).
Defendants' version of the facts, which better comports with the evidence, is that Laughlin, who worked for himself and had no contract with plaintiffs or their clients, took over a thousand pictures on each job, out of which plaintiffs purchased one-time print rights to an average of forty images. Plaintiffs, who were defendants' main clients, sought to have defendants work exclusively for them but were not willing to pay defendants' price for that exclusivity. When defendants turned them down and started to solicit business from other prospective clients, plaintiffs brought this action to thwart defendants' efforts.
PROCEDURAL BACKGROUND
Various motions and conferences followed the inception of this action, primarily centering around defendants' efforts to vacate the TRO, which was eventually modified by stipulation in August 2005 to limit the restraint on defendants to bar the use of images in which the product or model used were easily identifiable without authorization from plaintiffs' clients. More motion practice followed, including two motions (seq. nos. 005 and 006) in which plaintiffs unsuccessfully tried to reinterpret that stipulation to mean that plaintiffs' approval was required prior to defendants' use of any and all images taken in connection with plaintiffs.
In March 2006, having failed in their efforts to restrain defendants into inactivity and unable to obtain defendants' consent to proceed by stipulation, plaintiffs moved to discontinue this action. In response to that motion, the court dismissed plaintiffs' complaint with prejudice and severed defendants' counterclaims, which are all that now remain of this acrimonious litigation.
After the discontinuance of plaintiff's claims, discovery issues rose to the forefront and led to two court orders and the instant motion by defendants for sanctions pursuant to CPLR 3126.
DISCOVERY ISSUES
Plaintiffs, without any apparent excuse, have certainly been dilatory in complying with defendants' discovery demands. However, it appears that the bulk of the outstanding discovery was provided by plaintiffs after the filing of defendants' motion for sanctions pursuant to CPLR 3126. Given such (albeit belated) compliance, the court finds that plaintiffs' conduct does not constitute the "deliberate and willful refusal to disclose" which warrants the striking of a pleading pursuant to CPLR 3126 (see Washington v. Alco Auto Sales, 199 AD2d 165 [1st Dept 1993]; see also Lowitt v. Korelitz, 152 AD2d 506 [1st Dept 1989]). Such conduct, including the flouting of this court's discovery orders, does, however, warrant the imposition of motion costs (see Board of Managers of the Atrium Condominium v. West 79th Street Corp., 17 AD3d 108, 109 [1st Dept 2005]).
To the extent that plaintiffs have failed to comply with this court's discovery orders, they shall be precluded from offering those documents into evidence (see CPLR 3126; Crowley v. Montefiore Hospital and Medical Center, 128 AD2d 443, 444 [1st Dept 1987]). Should any non-disclosed documents prove to be dispositive on a particular issue, that issue shall be resolved in defendants' favor (see CPLR 3216). The objections, cavilling and excuses ( e.g., plaintiffs do not have to disclose anything because defendants' counterclaims have no merit and should be dismissed) by plaintiffs' counsel at best belong in timely served objections to discovery demands, not in an affidavit opposing a CPLR 3126 motion after the court has ordered the disclosure. Any further discovery disputes shall be dealt with through the procedure mandated by Local Rule 10 and also by this Part's discovery orders.
COUNTERCLAIMS
Defendants' third, fourth, fifth and sixth counterclaims, at issue here, are not finely crafted, or even labelled.
The third counterclaim essentially states defendants' version of the facts and suggests claims for conversion, fraud, misappropriation, malicious prosecution and abuse of process.
Defendants' fourth and fifth counterclaims, best dubbed prayers for relief rather than causes of action, seek damages for lost future profits (4th cause of action) and expenses incurred "because of this action" (5th cause of action).
The sixth counterclaim, in which defendants seek punitive damages, alleges fraud on the court "engaged in with the sole purpose of harassing and/or maliciously injuring defendants" (¶ 29), and sounds in abuse of process, malicious prosecution and intentional interference with business opportunity/economic advantage.
MOTION TO DISMISS
Plaintiffs do not ground their motion to dismiss on any particular provision of the CPLR — or even on the CPLR itself. From counsel's arguments, it appears that plaintiffs' attack is based on claims of facial insufficiency. Hence, the court will treat plaintiffs' cross-motion as one made pursuant to CPLR 3211(a)[7].
"Upon a Rule 3211(a)(7) motion to dismiss a cause of action . . . we look to the substance rather than to the form. . . . Looseness, verbosity and excursiveness, must be overlooked on such a motion if any cause of action can be spelled out from the four corners of the pleading. . . . [A] pleading will not be dismissed for insufficiency merely because it is inartistically drawn. . . . However imperfectly, informally or even illogically the facts may be stated, a complaint, attacked for insufficiency, is deemed to allege 'whatever can be implied from its statements by fair and reasonable intendment'" ( Foley v. D'Agostino, 21 AD2d 60, 64-66 [1st Dept 1964]). "The test on a motion to dismiss for insufficiency of the pleadings is not whether the plaintiff has artfully drafted the complaint but whether, deeming the complaint to allege whatever can be reasonably implied from its statements, a cause of action can be sustained" ( Ambassador Factors v. Kandel Company, 215 AD2d 305, 306 [1st Dept 1995], citations omitted).
Furthermore, in determining such a motion to dismiss, the pleading at issue is to be liberally construed, the facts alleged therein accepted as true, and the non-movants accorded the benefit of every possible favorable inference; the court must decide "only whether the facts as alleged fit within any cognizable legal theory" ( Leon v. Martinez, 84 NY2d 83, 87-88; CBS Corporation v. Dumsday, 268 AD2d 350, 352 [1st Dept 2000]). In addition, the "court may freely consider affidavits submitted by the [defendants] to remedy any defects in the [counterclaims] . . . and 'the criterion is whether the proponent of the pleading has a cause of action, not whether he has stated one'" ( Leon v. Martinez, supra, 84 NY2d at 88, citations omitted; Wiener v. Lazard Freres Co., 241 AD2d 114, 120 [1st Dept 1998]).
A challenge to "the veracity of some of the statements in the pleadings . . . merely raises triable issues of fact" to be resolved at trial ( L/M Ninety CM Corp. v. 2431 Broadway Realty Co., 170 AD2d 373, 374 [1st Dept 1991]). Not only is the court's inquiry limited to ascertaining whether the pleading states any cause of action rather than whether there is evidentiary support for the complaint . . ., but it may not even express an opinion as to whether plaintiff will ultimately be able to establish the truth of these averments ( 219 Broadway Corp. v. Alexander's Inc., supra, 46 NY2d 506, citing Guggenheimer v. Ginzburg, 43 NY2d 268, 275).
DISCUSSION
Plaintiffs argue that defendants have no standing to seek damages because the TRO granted to plaintiffs was not conditioned on their posting of an undertaking. This disingenuous argument is offensive to the court.
Unlike a preliminary injunction, where an undertaking is mandated by statute (CPLR 6212[b]), the posting of an undertaking prior to issuance of a TRO is discretionary with the court (CPLR 6313[c]). Plaintiffs sought — and obtained — the TRO through an ex parte order to show cause without notice to defendants, thereby depriving defendants of the opportunity to argue to the court that an undertaking was warranted in this case. Having thus neutralized defendants at the court's discretionary phase, plaintiffs cannot now in good faith argue that defendants must also be deprived of a remedy because they were initially deprived of a voice.
It is true that the general rule, derived from the common law (for genesis and evolution of this rule, see Gross v. Shields, 130 Misc 2d 641 [Sup Ct, NY Co, Greenfield, J, 1985]), is that a party who in good faith improperly obtains a restraint on another's actions is not liable for damages flowing from such restraint (see General Electric Company v. Metals Resources Group Limited, 293 AD2d 417, 419 [1st Dept 2002]; Honeywell, Inc. v. Technical Building Services, Inc., 103 AD2d 433, 435 [3rd Dept 1984]) other than by virtue of the contractual obligations imposed by an undertaking, if one is required to be posted (see Thompson v. Topsoe, 237 AD2d 113, 113-114 [1st Dept 1997]; RS Paralegal Recovery Services, Inc. v. Poughkeepsie Savings Bank FSB, 190 AD2d 660, 660-661 [2nd Dept 1993]). However, the key to this freedom to litigate issues with impunity is that the parties act in good faith. Lack of an undertaking does not prevent a defendant who makes "a showing of plaintiff's bad faith under circumstances amounting to malicious prosecution [from recovering] damages resulting from an improperly issued temporary restraining order" ( Doran Associates, Inc. v. Envirogas, Inc., 112 AD2d 766, 768 [4th Dept 1985], app dism 66 NY2d 758).
Plaintiffs' argument that defendants cannot claim such malice borders on the frivolous. Defendants' counterclaims clearly allege malice by plaintiffs in bringing this action and seeking the TRO (6th counterclaim) and state a claim for malicious prosecution (3rd and 6th counterclaims). As discussed above, for purposes of a motion to dismiss, the allegations in the counterclaims must be deemed true. Furthermore, "the question of whether [plaintiffs] acted without probable cause and with actual malice cannot be determined as a matter of law. There are factual issues for consideration for a jury" ( Anderson v. Pegalis, 150 AD2d 315, 316 [2nd Dept 1989]). At any rate, defendants need not prove actual malice to prevail. "[A]n inference of malice may be drawn from a showing that the plaintiff lacked probable cause to maintain the action" ( 35-45 May Associates v. Mayloc Associates, 162 AD2d 389, 390 [1st Dept 1990]). Deeming true defendants' allegations that Napoleon committed fraud on the court, malice can certainly be implied in this case.
Similarly brazen is plaintiffs' argument that because their complaint was voluntarily discontinued rather than dismissed it cannot be said that there was an adjudication of the merits in defendants' favor.
First of all, although a favorable determination is a necessary element of a claim for malicious prosecution ( Colon v. City of New York, 67 NY2d 78, 82, rearg den 61 NY2d 670), the pertinence of such determination in this context (and in the cases relied on by plaintiffs) is to the question of whether the condition precedent to a defendant's right to recovery on an undertaking imposed by CPLR 6312(b) has been met, and the merits to be evaluated are the merits of the restraint obtained by plaintiffs, not the merits of their complaint. "[T]he contingency fixed by the statute on which depends a defendant's right to recover damages on a CPLR 6312(b) undertaking" is "the clause in CPLR 6312(b) 'if it is finally determined that plaintiff was not entitled to an injunction.' . . . [T]he statute refers to a final determination that the plaintiffs were not entitled to the preliminary injunction, rather than a determination with respect to their right to a permanent injunction or other favorable outcome on the merits of the main action. The proper focus is on the propriety of the issuance of the preliminary injunction when it was granted at the commencement of the action" ( Margolies v. Encounter, Inc., 42 NY2d 475, 478-479). Since no undertaking is at issue here, the whole issue is of questionable relevance to plaintiffs' cross-motion.
At any rate, it is a defendant's unqualified consent to the discontinuance of a plaintiff's claims rather than that discontinuance in itself which precludes a determination of the merits of those claims for these purposes. "[W]hen defendant consents to the discontinuance of the action without reserving his rights on the undertaking, there can be no recovery on the bond because there can be no such final determination . . ., but when, without defendant's consent, plaintiff discontinues the action, his doing so is equivalent to a determination that he was not entitled to the injunction and permits defendant to recover on the bond" ( J.A. Preston Corporation v. Fabrication Enterprises, Inc., 68 NY2d 387, 404). Defendants herein opposed the discontinuance of plaintiffs' claims without the concomitant imposition of sanctions and damages (see Laughlin affidavit at exhibit 1 to Adler's opposing affidavit). Furthermore, in granting — with prejudice — plaintiffs' motion to discontinue their claims against defendants, the court specifically stated that "the result [of the discontinuance] is that plaintiff does not prevail on its claims" and awarded defendants a prevailing party's statutory costs based on that result (motion seq. no. 007, at defendants' exhibit 6).
Plaintiffs' final argument, that defendants cannot prove that they suffered specified damages as a result of plaintiffs' actions in this litigation, is also unavailing.
Whether or not defendants can prove the damages they seek in their counterclaims is the precise question to be determined at trial. The argument that defendants cannot prove such damages is just that — an argument for plaintiffs to make at trial, when defendants will have the burden of proof. It is not a ground on which to dismiss the counterclaims before trial, where the burden is on plaintiffs, as movants, to establish that defendants cannot state a viable cause of action applying the liberal standards set forth above. Plaintiffs have not met that burden. As a line of last defense, plaintiffs argue, without reliance on caselaw, that any award of damages to defendants must be restricted to exclude time attributable to the defendants' own delay in seeking to lift the TRO, so only the damages defendants can prove they sustained after they first moved to vacate the TRO (August 2) and before the TRO was modified on consent (August 15) are compensable. Again, this is an argument for trial. Accordingly, it is
ORDERED that:
1.defendants' motion pursuant to CPLR 3126 is granted only to the extent that plaintiffs shall be precluded from using as evidence any documents previously ordered disclosed by this court which have not yet been produced, and if such documents are dispositive on any issue, that issue shall be resolved in defendants' favor.
2.defendants are awarded motion costs of $100.00 in the making of this motion.
3.plaintiffs' cross-motion to dismiss defendants' third, fourth, fifth and sixth counterclaims is denied in its entirety.