Opinion
513069/16
08-26-2019
PATRICIA YOUDEEM, D.D.S., P.C. d/b/a Franklin Dental Health, Plaintiff, v. "Karen WILLIAMS a/k/a Stephanie Williams," "Dulce Jones," and "Shatrisse Vinson a/k/a Trisse Vinson," "Annesha Gayle," said individuals believed to be, and/or having been identified as being, in wrongful possession of funds intended for plaintiff as alleged herein, Oshun Salon, LLC, J.P. Morgan Chase Bank, N.A., TD Bank, N.A., Square, Inc., Paymentech, LLC, Capitalone Bank, N.A., Wells Fargo Bank, N.A., Bank of America, N.A., and Santander Bank, N.A., Defendants.
Counsel for Plaintiff: Charles A. Stewart III, Esq., Stewart Occhipinti, LLP, One Exchange Plaza, 55 Broadway, Suite 1501, New York, New York 10006 Counsel for Defendant Square, Inc.: Isaac Zaur, Esq., Clarick Gueron Reisbaum LLP, 220 Fifth Avenue, 14th Floor, New York, New York 10001 Counsel for Defendant TD Bank, N.A.: Ronald M. Neumann, Esq., Zeichner Ellman & Krause LLP, 1211 Avenue of the Americas, New York, New York 10036 Counsel for Defendants JP Morgan Chase Bank, N.A. and Paymentech LLC: Christopher A. Pellegrini, Esq., Chuhak & Tecson, P.C., 68 West 238th Street, Suite A1, Bronx, New York 10463
Counsel for Plaintiff: Charles A. Stewart III, Esq., Stewart Occhipinti, LLP, One Exchange Plaza, 55 Broadway, Suite 1501, New York, New York 10006
Counsel for Defendant Square, Inc.: Isaac Zaur, Esq., Clarick Gueron Reisbaum LLP, 220 Fifth Avenue, 14th Floor, New York, New York 10001
Counsel for Defendant TD Bank, N.A.: Ronald M. Neumann, Esq., Zeichner Ellman & Krause LLP, 1211 Avenue of the Americas, New York, New York 10036
Counsel for Defendants JP Morgan Chase Bank, N.A. and Paymentech LLC: Christopher A. Pellegrini, Esq., Chuhak & Tecson, P.C., 68 West 238th Street, Suite A1, Bronx, New York 10463
Karen B. Rothenberg, J. In this action by plaintiff Patricia Youdeem, D.D.S., P.C. d/b/a Franklin Dental Health (FDH), defendant Square, Inc.(Square) moves, under motion sequence number 8, for an order, pursuant to CPLR 3212, granting it summary judgment dismissing FDH's complaint as against it. FDH cross-moves, under motion sequence number 10, for an order compelling Square to respond to its discovery demands or have its answer stricken.
Facts and Procedural Background
Patricia Youdeem (Youdeem), now known as Patricia Moezinia, is the sole shareholder of FDH, a dental practice in Brooklyn, New York. FDH opened in 1993 and was originally a large, seven-chair dental office. After Youdeem's husband passed away in August 2010, Youdeem downsized FDH by reducing the number of dental chairs from seven to two, and she began to work part-time. Youdeem then decided that she needed a new office manager to handle all administrative responsibilities associated with her dental practice. After placing a "help wanted" advertisement for a dental office manager, Youdeem found Karen Williams (Williams), who used the false name Stephanie Williams. Youdeem interviewed Williams and decided to hire her. Williams started working for FDH in 2011. Williams handled all administrative functions at the dental office, including the submission of claims to patients dental insurance carriers, while Youdeem focused on treating patients. Williams worked as an officer manager for FDH from 2011 until May 2016 when she quit.
From 2011 and continuing through 2016, Williams began stealing the insurance checks which were payable to FDH and Youdeem. Williams fraudulently indorsed and electronically deposited these checks at J.P. Morgan Chase Bank, N.A. (Chase), TD Bank, N.A. (TD Bank), and other banks into her own personal bank account and the personal bank accounts of her accomplices, Dulce Jones (Jones), Shatrisse Vinson a/k/a Trisse Vinson (Vinson), and Annesha Gayle (Gayle). Williams has confessed to diverting $708,582.70 worth of dental insurance reimbursement checks that were made payable to "Patricia Youdeem DDS PC," "Franklin Dental Health," or "Patricia Youdeem."
Payments for dental services were also made to FDH by patients using credit cards. The only credit card processing company that FDH had authorized to process its patients' credit card payments was Paymentech, LLC (Paymentech). However, on March 26, 2014, Williams applied for and opened an account with Square in FDH's name.
Square is a California-based corporation, which provides payment processing services for individuals and small businesses. Using Square's card reader, users can access Square's platform on their mobile devices, such as mobile phones, iPads, or tablets, and start accepting credit and debit card payments from their customers. When an individual or small business uses Square's platform, a customer's funds are "captured" and then deposited (minus a processing fee) into the individual or small business' bank account.
FDH never authorized Williams to open a Square account in its name. In order to open a Square account, a merchant must electronically agree to Square's Seller Agreement. FDH never agreed to Square's Seller Agreement and was completely unaware that Williams had opened the Square account. Williams, rather than using Paymentech, FDH's authorized credit card processing company, used her Square account to "capture" the credit card payments of dental patients and deposit these payments into her own bank account. Thus, by using the Square platform, Williams was able to divert payments from FDH dental patients to her own personal bank account. Between March 26, 2014 and April 15, 2016, the Square account opened by Williams accepted payments from FDH's patients using the statement descriptions (i.e., the identity of the merchant that appears on a cardholder's statement) "FDH," "Franklin Dental Health" and "Franklin Dental Health Salon."
After one of Youdeem's patients, David Eaton (David), provided her with a copy of his credit card statement, she discovered that David's credit card payment had been processed by a Square account, which, as noted above, was a not a payment processing company affiliated with FDH or authorized to be used by it. At that point, Youdeem questioned Karen about this Square payment. While this situation with David's credit card payment was being reviewed, Williams abruptly quit. Shortly thereafter, Youdeem began to discover Williams' crimes, and filed a police report. Williams was arrested, and, on July 12, 2018, Williams pleaded guilty to various crimes, including committing grand larceny against FDH. Williams went to prison in September 2017 and currently remains incarcerated.
On July 28, 2016, FDH filed this action, by a summons with notice, against Square, Chase, TD Bank, Williams, Vinson, Gayle, Oshun Salon, LLC (who was allegedly involved in Williams' fraudulent scheme), Paymentech, and other banks. On October 21, 2016, FDH filed a supplemental summons and a verified complaint. FDH, in its complaint, alleges that Square, along with the other named defendants, is liable to it for "monies had and received/conversion/ UCC 3-419 ." Square has acknowledged that FDH's theory of liability against it is that it enabled Williams to steal money from FDH by using a Square account to accept FDH's patients' credit cards and divert the funds from the credit cards to Williams' own bank account.
On June 29, 2018, in response to a court compliance order, FDH served supplemental discovery requests upon all defendants, which included discovery demands specifically aimed at Square. Also on June 29, 2018, Square moved, under motion sequence number four, to dismiss FDH's action against it and to compel arbitration of the claims asserted by FDH. On August 1, 2018, FDH cross-moved, under motion sequence number five, to extend the time for service of the summons and complaint upon Square, pursuant to CPLR 306-b, and to compel Square to answer its complaint and respond to its discovery requests.
By a decision and order dated October 15, 2018, the court denied Square's motion in its entirety. The court held that Square's Seller Agreement, which was relied upon by Square in support of its motion to dismiss and to compel arbitration since it contained an arbitration clause, was wholly inapplicable because FDH did not sign Square's Seller Agreement, which was fraudulently entered into by Williams without FDH's knowledge or consent. The court found that FDH's cross motion was moot insofar as it sought to extend the time for service of FDH's summons and complaint upon Square because Square's counsel had previously accepted service of the summons and complaint. The court ordered Square to answer FDH's complaint and respond to FDH's document requests within 30 days after service of the decision and order with notice of entry. FDH, as discussed below, contends that Square has failed to fully produce all of the demanded documents in compliance with the court's October 15, 2018 decision and order. On April 3, 2019, Square filed its instant motion. On June 7, 2019, FDH filed its instant cross motion.
By a Stipulation Adjourning Summary Judgment Motions (Doc. No. 175), dated July 22, 2019, executed by the attorneys for FDH, TD Bank, Chase, and Square, TD Bank and Chase agreed that the return date of their motions for summary judgment (motion sequence numbers seven and nine) would be adjourned to October 10, 2019, with their reply papers due to be filed by October 3, 2019, in order for them to mediate their disputes.
Discussion
Square's Motion
In support of its motion, Square argues that the legal theories asserted in FDH's complaint are insufficient to state a cognizable claim against it. Square contends that it cannot be held liable under the theory of money had and received. The requisite elements of a cause of action for money had and received are: "(1) the defendant received money belonging to the plaintiff, (2) the defendant benefitted from receipt of the money, and (3) under principles of equity and good conscience, the defendant should not be permitted to keep the money" ( Goel v. Ramachandran , 111 A.D.3d 783, 790, 975 N.Y.S.2d 428 [2d Dept. 2013] ; see also Matter of Witbeck , 245 A.D.2d 848, 850, 666 N.Y.S.2d 315 [3d Dept. 1997] ; Rocks & Jeans v. Lakeview Auto Sales & Serv. , 184 A.D.2d 502, 502, 584 N.Y.S.2d 169 [2d Dept. 1992] ). Square contends that this claim cannot be sustained against it because it is not in possession of any money belonging to FDH since the monies from FDH's patients were, through Williams' use of the Square account, already deposited in Williams' personal bank account, and it does not retain any of these monies (except for the fees it charged Williams for the use of the Square account) (see Goel , 111 A.D.3d at 790, 975 N.Y.S.2d 428 ).
Square further contends that it cannot be held liable for conversion. "A conversion takes place when someone, intentionally and without authority, assumes or exercises control over personal property belonging to someone else, interfering with that person's right of possession" ( Colavito v. New York Organ Donor Network, Inc. , 8 N.Y.3d 43, 49-50, 827 N.Y.S.2d 96, 860 N.E.2d 713 [2006] ; see also State of New York v. Seventh Regiment Fund , 98 N.Y.2d 249, 259, 746 N.Y.S.2d 637, 774 N.E.2d 702 [2002] ; William Doyle Galleries, Inc. v. Stettner , 167 A.D.3d 501, 505, 91 N.Y.S.3d 13 [1st Dept. 2018] ). The two essential elements for stating a claim for conversion are: "(1) [the] plaintiff's possessory right or interest in the property" and "(2) [the] defendant's dominion over the property or interference with it, in derogation of [the] plaintiff's rights" ( Colavito , 8 N.Y.3d at 50, 827 N.Y.S.2d 96, 860 N.E.2d 713 ). Square does not deny that by permitting Williams to open a Square account, it interfered with FDH's possession of the funds paid by patients rightfully belonging to FDH. Rather, Square asserts that there can be no claim for conversion against it because any interference by it with property belonging to FDH was not intentional. Square states that it had no knowledge of any scheme by Williams to defraud FDH, and that it provided no conscious assistance to any such scheme.
Square also asserts that FDH cannot allege a claim for conversion against it pursuant to UCC 3-419 . UCC 3-419 (1) (c) provides that "[a]n instrument is converted when ... it is paid on a forged indorsement." Under UCC 3-419 (3), a bank may be held liable for conversion if it failed to act in accordance with reasonable commercial standards applicable to that bank in allowing one who is not the true owner of a business to open a checking account in a business' name, resulting in the conversion of checks payable to that business. For a bank to be considered to have acted in a commercially reasonable manner in opening a checking account, the person opening the account, who claims to be the representative of the business must present documents, such as a certificate of incorporation, a corporate resolution, and a copy the person's driver's license (see e.g. Manhattan Med. Diagnostic & Rehabilitation, P.C. v. Wachovia Nat. Bank, N.A. , 49 A.D.3d 461, 461, 857 N.Y.S.2d 55 [1st Dept. 2008] ).
Square argues, UCC 3-419 is inapplicable to Square because UCC 3-419 applies only to negotiable instruments. Square is not a bank, it does not accept checks or any other negotiable instruments, and the payment processing services provided by it do not technically fall within the definition of a "negotiable instrument" under UCC 3-104 . Therefore, Square's actions cannot constitute a conversion pursuant to UCC 3-419 .
While Square's actions are analogous to those under which a duty of commercial reasonableness would apply under UCC 3-419 with respect to negotiable instruments, the technology of Square's card reader and the card payment processing services which Square provides were unknown at the time the UCC was drafted. As a result, the UCC does not set forth any specifically defined duty applicable to the card payment processing services which Square provides. Rather, Square's card payment processing services appear to be unregulated by the UCC, the Banking Law, or any other statutory provisions. Nevertheless, this does not preclude liability from being imposed upon Square under common-law principles.
Square concedes that FDH has repeatedly advised it that FDH's theory of liability as against it is that Square was negligent in providing a credit card reader and Square account for "Franklin Dental Health" which was linked to Williams' personal bank account. While FDH did not label any of its causes of action as one for negligence, the court may conform the pleadings to the proof presented, and a plaintiff is not bound by technical inaccuracies in naming a cause of action in its complaint. As the Court of Appeals has long ago held, "it is enough now that a pleader state the facts making out a cause of action," and "it matters not whether [the plaintiff] gives a name to the cause of action at all or even that [the plaintiff] gives it a wrong name" ( Diemer v. Diemer , 8 N.Y.2d 206, 212, 203 N.Y.S.2d 829, 168 N.E.2d 654 [1960] ). Thus, it does not matter that FDH may have mislabeled its cause of action; it is enough if FDH has stated a viable cause of action (see CPLR 3026, 3013 ; Pullin v. Feinsod , 142 A.D.2d 561, 562, 530 N.Y.S.2d 226 [2d Dept. 1988] ).
Square, throughout its papers, heavily relies on the fact that it is not a bank, and, contends that it, therefore, owed no duty to FDH since the UCC does not apply to it, as there were no checks or other negotiable instruments involved. As previously noted, however, the UCC was codified prior to the invention of Square's new technology, and the UCC's failure to encompass it does not strip FDH of the protections afforded to it under a common-law negligence theory of liability.
FDH's claim is that Square negligently opened a Square account in the name of FDH, which was linked to Williams' personal bank account. Square contends that it did not owe any duty to FDH to prevent it from being the victim of fraud. However, Square failed to take any steps to ensure that the application purporting to be created by FDH was legitimate. Square enabled Williams to accomplish her fraudulent scheme by providing her with a platform which allowed her to steal the credit card payments from FDH's patients that were intended for FDH.
By simply logging onto the Internet and contacting Square, Williams was able to create an account with Square for FDH, which she used to steal credit card payments intended for FDH. FDH did not enter into any agreement with Square, and it never authorized Williams to open a Square account. FDH never authorized Square to receive payments on its behalf, and such payments were not delivered to FDH. Square does not state that Williams presented it with any documents whatsoever to show that she had any authority to open a Square account on behalf of FDH. Square does not deny that it performed no investigation with respect to Williams' application to open a Square account, and that it did not attempt to determine whether FDH was a legitimate company, whether Williams had authority to open a Square account on behalf of FDH, or whether the bank account to which it deposited payments by FDH's patients were actually affiliated with FDH.
Square relies on Oddo v. Queens Vil. Comm. for Mental Health for Jamaica Community Adolescent Program, Inc. , 28 N.Y.3d 731, 735-736, 49 N.Y.S.3d 358, 71 N.E.3d 946 (2017) (internal quotation marks omitted), for the propositions that "there is no "duty to control the conduct of third persons to prevent them from causing injury to others," and that "liability for the negligent acts of third persons generally arises when the defendant has authority to control the actions of such third persons." Square argues that it owed no duty to FDH to prevent the criminal misuse of Square's service by FDH's employee, Williams, since it had no authority to control Williams' conduct to prevent her from causing injury to FDH.
This argument must be rejected. While Square claims that it had no authority to control Williams' conduct to prevent her from causing injury to FDH, Square could easily have controlled Williams' conduct of opening a Square account by requiring proof of her authority to do so, and, upon such failure to show such authority, by refusing to allow Williams to open an account in FDH's name.
"In order to prevail on a negligence claim, ‘a plaintiff must demonstrate (1) a duty owed by the defendant to the plaintiff, (2) a breach thereof, and (3) injury proximately resulting therefrom’ " ( Pasternack v. Laboratory Corp. of Am. Holdings , 27 N.Y.3d 817, 825, 37 N.Y.S.3d 750, 59 N.E.3d 485 [2016], rearg denied 28 N.Y.3d 956, 38 N.Y.S.3d 525, 60 N.E.3d 421 [2016], quoting Solomon v. City of New York , 66 N.Y.2d 1026, 1027, 499 N.Y.S.2d 392, 489 N.E.2d 1294 [1985] ). "In the absence of a duty, as a matter of law, there can be no liability" ( Pasternack , 27 N.Y.3d at 825, 37 N.Y.S.3d 750, 59 N.E.3d 485 ; see also Solomon , 66 N.Y.2d at 1028, 499 N.Y.S.2d 392, 489 N.E.2d 1294 ; Lauer v. City of New York , 95 N.Y.2d 95, 100, 711 N.Y.S.2d 112, 733 N.E.2d 184 [2000] ). "The definition and scope of an alleged tortfeasor's duty owed to a plaintiff is a question of law" to be determined by the court ( Pasternack , 27 N.Y.3d at 825, 37 N.Y.S.3d 750, 59 N.E.3d 485 ; see also Davis v. South Nassau Communities Hosp. , 26 N.Y.3d 563, 572, 26 N.Y.S.3d 231, 46 N.E.3d 614 [2015] ; Palka v. Servicemaster Mgt. Servs. Corp. , 83 N.Y.2d 579, 585, 611 N.Y.S.2d 817, 634 N.E.2d 189 [1994] ; Eiseman v. State of New York , 70 N.Y.2d 175, 189, 518 N.Y.S.2d 608, 511 N.E.2d 1128 [1987] ).
" ‘Courts resolve legal duty questions by resort to common concepts of morality, logic and consideration of the social consequences of imposing the duty’ " ( Davis , 26 N.Y.3d at 572, 26 N.Y.S.3d 231, 46 N.E.3d 614, quoting Tenuto v. Lederle Labs., Div. of Am. Cyanamid Co. , 90 N.Y.2d 606, 612, 665 N.Y.S.2d 17, 687 N.E.2d 1300 [1997] ). The imposition of a duty "rest[s] on policy considerations of whether [the] plaintiff's interests are entitled to legal protection against [the] defendant's conduct" ( Eiseman , 70 N.Y.2d at 189-190, 518 N.Y.S.2d 608, 511 N.E.2d 1128 ). "Courts 'fix the duty point by balancing factors, including the reasonable expectations of [the] parties and society generally, the proliferation of claims, the likelihood of unlimited or insurer-like liability, disproportionate risk and reparation allocation, and public policies affecting the expansion or limitation of new channels of liability" ( Pasternack , 27 N.Y.3d at 825, 37 N.Y.S.3d 750, 59 N.E.3d 485, quoting 532 Madison Ave. Gourmet Foods v. Finlandia Ctr. , 96 N.Y.2d 280, 288, 727 N.Y.S.2d 49, 750 N.E.2d 1097 [2001], rearg denied 96 N.Y.2d 938, 733 N.Y.S.2d 377, 759 N.E.2d 376 [2001] ; see also Gilson v. Metropolitan Opera , 5 N.Y.3d 574, 576-577, 807 N.Y.S.2d 588, 841 N.E.2d 747 [2005] ).
It cannot be disputed that the reasonable expectations of business owners, the parties, and society generally are that a payment processing company would not permit an unauthorized person to create an account, without any proof that it is authorized to do so, to divert credit card payments intended for them. To find the absence of such a duty would defeat these reasonable expectations.
Imposing a duty upon Square under the circumstances presented here would not result in the proliferation of claims. The duty which Square seeks to exempt itself from may be analogized to the duty of a bank to verify the identity of a business opening an account. As discussed above, the UCC already imposes upon banks a duty of commercial reasonableness in identifying those who open accounts with them, and there is no reason that imposing such a duty upon Square would result in a more onerous burden upon Square. While a bank opening a corporate account for a customer requires the customer to verify the propriety of the account, Square allegedly allowed Williams access to its platform simply because she contacted them over the Internet. There is no reason to exempt Square from acting in a commercially reasonable manner. Such a duty would not result in a disproportionate risk upon Square, as opposed to the business whose identity has been misused.
A critical consideration in determining whether a duty exists is whether ‘the defendant's relationship with either the tortfeasor or the plaintiff places the defendant in the best position to protect against the risk of harm’ " ( Davis , 26 N.Y.3d at 572, 26 N.Y.S.3d 231, 46 N.E.3d 614, quoting Hamilton v. Beretta U.S.A. Corp. , 96 N.Y.2d 222, 233, 727 N.Y.S.2d 7, 750 N.E.2d 1055 [2001] ). Square argues that FDH was in the best position to protect against Williams' malfeasance and that this absolves it of any liability. However, Square does not explain how FDH would have learned about the Square account, or how FDH could have protected against Williams' creation of a Square account in FDH's name. While Square relies on the fact that Williams was employed by FDH and its principal, Youdeem, FDH and Youdeem did not give Williams permission or authority to fraudulently open an account with Square.
It is Square that is in the best position to confirm that an application from an alleged business is legitimate. Square could have obtained a federal identification number and ensured that the bank in which credit card proceeds were deposited was actually associated with the business. If this had been done here, Square would have learned that the bank account, in which it had deposited the funds derived from FDH's patients, did not belong to FDH. To find an absence of a duty here, as urged by Square, would run counter to the public policy of deterring the commission of crimes through the use of another's identity. As technological advances have made possible the kind of crime committed by Williams, the law must safeguard against technologies that have the potential to foster such crimes. Indeed, the failure to exercise basic commercial reasonableness in permitting accounts to be opened over the Internet is ripe with opportunity for pervasive fraud and criminal activity. Square cannot be permitted to turn a blind eye to potential fraud by simply claiming that it has no duty to the victim of the fraud. Square provided the vehicle by which Williams' criminal scheme could be accomplished. A failure to exercise care in screening prospective accounts fosters and invites criminal activity. The fact that Square has used a newly created technology, which has not been made subject to the UCC or other statutes or regulations, should not absolve it from any duty that is imposed upon more traditional commercial transactions. Thus, Square's argument that it has no duty is untenable and must be rejected.
Consequently, the court concludes that Square had a duty to comply with reasonable commercial standards. FDH asserts that Square has breached this duty, and that, as a proximate result and consequence of Square's breach, it suffered financial loss. Thus, contrary to Square's argument, FDH has a viable claim against Square. Therefore, Square is not entitled to summary judgment dismissing FDH's complaint on the basis that it did not owe FDH a duty or that FDH has not stated a cognizable claim against it.
Square, in support of its motion, further contends that this action should be dismissed in favor of arbitration. Square reiterates its argument, which was previously rejected by the court, in its October 15, 2018 decision and order, that FDH is contractually bound to arbitrate this dispute because Square's Seller Agreement, to which a merchant must electronically agree to open a Square account, contains an arbitration clause. Square asserts that it does not matter that FDH never signed the Seller Agreement. Square claims that Williams was FDH's agent and, as such, Williams had the authority to bind FDH to the Seller Agreement and the arbitration clause contained in it.
Square argues that it is now in possession of Youdeem's deposition, which was taken on February 14, 2019, which shows that Williams was given broad authority as Youdeem's office manager. Square points to Youdeem's deposition testimony regarding the scope of Williams' management of FDH's financial and business operations. Specifically, Square cites Youdeem's deposition testimony that Williams "had control of [Youdeem's] office," that Williams "knew that she was in charge of running [Youdeem's] practice", and that Williams was "in charge of communicating with the outside world" (Youdeem's deposition tr at 36, 144, 156). However, Youdeem did not confer Williams with authority to engage in a fraudulent and criminal scheme to steal patients' payments by using Square as a platform to accomplish this, and such conduct was outside of the scope of Williams' employment and the authority granted to her pursuant to such employment (see Weiss v. Hager , 151 A.D.3d 906, 908, 58 N.Y.S.3d 403 [2d Dept. 2017] ; Melbourne v. New York Life Ins. Co. , 271 A.D.2d 296, 298-299, 707 N.Y.S.2d 64 [1st Dept. 2000] ). Williams' criminal conduct was not "generally foreseeable [nor] a natural incident of [her] employment" ( Judith M. v. Sisters of Charity Hosp. , 93 N.Y.2d 932, 933, 693 N.Y.S.2d 67, 715 N.E.2d 95 [1999] ; Weiss , 151 A.D.3d at 907, 58 N.Y.S.3d 403 ). Furthermore, the "creation of an agency for some purpose does not automatically invest the agent with apparent authority to bind the principal without limitation" ( Weiss , 151 A.D.3d at 907, 58 N.Y.S.3d 403 ; see also Edinburg Volunteer Fire Co., Inc. v. Danko Emergency Equip. Co. , 55 A.D.3d 1108, 1110, 867 N.Y.S.2d 547 [3d Dept. 2008] ). Thus, while Williams was in charge of accepting payments from patients, she was only authorized by FDH to use Paymentech as a credit card processing company to process FDH's customers' credit card payments, and not to create a new account with Square and have the credit card payments placed into Williams' personal account.
"Essential to the creation of apparent authority are words or conduct of the principal, communicated to a third party, that give rise to the appearance and belief that the agent possesses authority to enter into a transaction" ( Hallock v. State of New York , 64 N.Y.2d 224, 231, 485 N.Y.S.2d 510, 474 N.E.2d 1178 [1984] ; see also Wood v. Carter Co. , 273 A.D.2d 7, 7, 708 N.Y.S.2d 107 [1st Dept. 2000] ). "The agent cannot by his or her own acts imbue himself or herself with apparent authority" ( Hallock , 64 N.Y.2d at 231, 485 N.Y.S.2d 510, 474 N.E.2d 1178 ). Square points to no specific words or actions of FDH or Youdeem which clothed Williams with the apparent authority to open a Square account (see Weiss , 151 A.D.3d at 908, 58 N.Y.S.3d 403 ; Fleet Credit Corp. v. Cabin Serv. Co. , 192 A.D.2d 421, 424, 596 N.Y.S.2d 801 [1st Dept. 1993] ).
Moreover, Square could rely on the appearance of authority only to the extent that such reliance was reasonable (see Hallock , 64 N.Y.2d at 231, 485 N.Y.S.2d 510, 474 N.E.2d 1178 ; Weiss , 151 A.D.3d at 908, 58 N.Y.S.3d 403 ). Here, there was a duty of reasonable inquiry into Williams' actual authority to open a Square account on behalf of FDH (see Weiss , 151 A.D.3d at 908, 58 N.Y.S.3d 403 ). As discussed above, there is no showing by Square that it made any such reasonable inquiry. Thus, FDH was not bound by Square's Seller Agreement or the arbitration clause contained therein, and FDH is not required to submit this dispute to arbitration.
Square additionally argues that FDH's complaint as against it should be dismissed on the ground that such complaint was untimely served upon it. Square notes that FDH's original summons with notice was e-filed on July 28, 2016, and the supplemental summons and complaint were e-filed on October 21, 2016. Square states that, therefore, the time to serve the supplemental summons and complaint expired on February 20, 2017, which is 120 days after October 21, 2016. Square asserts that it was not served with the summons until July 25, 2017, which is 155 days after the expiration of the 120-day statutory period.
CPLR 306-b permits the court to extend the time for service. The court, in its October 15, 2018 decision and order, has already ruled that FDH's motion to extend the time for service, pursuant to CPLR 306-b, was moot since Square previously accepted service of the supplemental summons and complaint. Thus, inasmuch as the court has already ruled on this issue, Square's attempt to revisit this previously decided issue is improper.
FDH's Cross Motion
On November 30, 2018, Square served written responses and objections to FDH's discovery demands pursuant to the court's October 15, 2018 decision and order. Although Square set forth a number of objections in its responses, Square stated, in response to certain discovery requests, that "Square will produce non-privileged documents responsive to this request, to the extent they can be located following a good faith and reasonable search." Square agreed to provide documents responsive to the following discovery requests:
"1. All [d]ocuments provided by [Square] to a representative of the Manhattan District Attorney, the New [York] Police Department or any government agency investigating purported criminal conduct committed by any of the individual defendants named above, including, without limitation,... Williams;
2. All documents or communications that support or relate to any of [Square's] affirmative defenses to the claims in the [c]omplaint;
3. All communications between [Square] and any party in this case [r]elating to the allegations in the [c]omplaint, the criminal proceedings against ... Williams, or the subject matter of the action;
4. All [d]ocuments relating to credit card transactions processed by [Square] for [FDH], or for someone purporting to be [FDH];
5. All [d]ocuments or communications between [Square] and [FDH];
6. All [d]ocuments or [c]ommunications between [Square] and any [p]erson purporting to act on behalf of [FDH];
7. All [d]ocuments prepared by [Square] relating to credit card transactions processed by [Square] for [FDH], or for someone purporting to be [FDH];
8. All [d]ocuments [r]elating to [Square's] policies, procedures and guidelines in effect from January 1, 2011 to December 31, 2017 for opening an account with [Square] for the purpose of processing credit card transactions."
FDH states that despite Square's representation that Square would provide it with the documents responsive to the above requests, Square produced just a single document reflecting credit card transactions processed by Square for Williams, while she was purporting to act as FDH. FDH specifically notes that it did not receive copies of the communications between Square and Williams nor a copy of Square's guidelines, which are highly pertinent to the issues in this action.
In opposition to FDH's cross motion, Square's counsel, Isaac B. Zaur, Esq. (Mr. Zaur), a member of the law firm Clarick Gueron Reisbaum LLP, points to a November 14, 2018 email by him to FDH's counsel, Charles A. Stewart, III, Esq. (Mr. Stewart), a member of the law firm Stewart Occhipinti, LLP, in which Mr. Zaur stated that he was looking forward to working with Mr. Stewart towards the eventual resolution of this matter, and that he would "make the document production by the end of the week," which would consist "primarily" of an Excel spreadsheet, listing all activity on the subject account. Mr. Zaur relies on Mr. Stewart's response to this email, also on November 14, 2018, which stated "all I've ever asked for was a list of the charges [that] Williams sent through Square. If I get that, I will promptly make you a fair settlement offer." Mr. Zaur argues that this shows that Mr. Stewart sought no further discovery than the spreadsheet.
This argument is rejected. This email by Mr. Stewart, which was in the context of discussing a settlement offer, was made before Mr. Stewart actually viewed the information contained on the spreadsheet, and does not show that Mr. Zaur waived his further document requests. Indeed, as noted above, Mr. Zaur had stated that he would be making the document production at the end of that week.
Mr. Zaur further asserts that on January 10 and 11, 2019, Mr. Stewart asked him to inquire about the potential availability of additional data related to the spreadsheet, namely, whether cardholder names were associated with credit card numbers for each transaction. Mr. Zaur sets forth that after consulting with Square, he explained to Mr. Stewart that this specific data was not collected in that way and, therefore, would not be provided. Mr. Zaur asserts that Mr. Stewart replied that, in any event, he did not believe the additional data was necessary. Mr. Zaur also asserts that Lauren Valle, Esq. (Ms. Valle), another member of the law firm representing FDH, did not schedule a deposition of a corporate representative of Square. Mr. Zaur contends that since Mr. Stewart asked for the names of the credit card holders and Ms. Valle did not schedule a deposition of a corporate representative of Square, he assumed that FDH was satisfied with the detailed spreadsheet Square had provided as its document production as the only discovery that FDH wanted.
However, discovery was still ongoing in January 2019, and there was no representation by FDH that the spreadsheet satisfied Square's discovery obligations. While a note of issue was filed on May 30, 2018, as required by the court's central compliance part order, dated December 18, 2017, and directions provided to counsel at a May 25, 2018 final pre-note conference, the court, in a January 8, 2019 order on consent, directed that discovery be completed by February 15, 2019.
Mr. Stewart explains that prior to the filing of this cross motion, he demanded the production of documents promised by Square. In response to a February 15, 2019 email from Mr. Zaur, which stated that "Square isn't planning to make any additional production beyond the spreadsheet already produced," Mr. Stewart stated that he "understood [that] all parties were abiding by the court's order which required document production by today [i.e., February 15, 2019]." In a February 19, 2019 email, Mr. Zaur responded that he believed the spreadsheet satisfied FDH's document production request. In a February 19, 2019 email in response, Mr. Stewart stated that Mr. Zaur had specifically indicated that he would provide the above documents, which went "beyond the spreadsheet." Mr. Stewart demanded, in this email, that Mr. Zaur produce these documents.
Mr. Zaur states that Square objects to the production of any further documents due to the passage of time. However, discovery has been ongoing following the filing of FDH's note of issue, as acknowledged by the parties in stipulations extending the time to file their summary judgment motions. Any delay was the result of Square's own failure to fully comply with the court's October 15, 2018 decision and order. Thus, there is no prejudice to Square in ordering it to comply with the outstanding document demands by FDH at this time.
Mr. Zaur further points to the fact that on June 7, 2018, FDH's counsel publicly e-filed portions of Square's spreadsheet, which Square considered to be confidential, in connection with the opposition to Square's motion for summary judgment, notwithstanding the prior assurance that the spreadsheet would be treated as confidential under a stipulation for the protection and exchange of confidential information in this matter. Mr. Zaur concedes, however, that upon bringing this issue to Mr. Stewart's attention, Mr. Stewart promptly took steps to remove the confidential portions of that filing from public view. Specifically, Mr. Stewart moved, under motion sequence number 11, to permanently seal the document at issue and to replace it with a redacted version, and such motion was granted on July 11, 2019.
Any inadvertent noncompliance by FDH with the stipulation for the protection and exchange of confidential information, which has been corrected, is not a reason to preclude further disclosure. Rather, the parties are reminded to adhere to this stipulated protective order.
CPLR 3101 (a) (1) provides that "[t]here shall be full disclosure of all matter material and necessary in the prosecution or defense of an action, regardless of the burden of proof, by ... a party." Here, the disclosure sought by FDH is relevant, material, and necessary to its claims against Square. Thus, an order compelling such disclosure is warranted (see CPLR 3124 ). While FDH seeks an order striking Square's answer for its failure to comply with the requested disclosure, such drastic relief is not warranted since Square contends that its failure to comply was not willful or contumacious (see CPLR 3126 ; Nunez v. Laidlaw , 150 A.D.3d 1124, 1125, 52 N.Y.S.3d 653 [2d Dept. 2017] ).
Conclusion
Accordingly, Square's motion for summary judgment dismissing FDH's complaint as against it is denied. FDH's cross motion is granted to the extent that Square is directed to serve all documents in its possession that are responsive to FDH's outstanding demands for discovery and inspection within 20 days of service on Square of a copy of this decision and order with notice of entry. If no such documents exist, Square is directed to so state in a sworn affidavit by an officer or someone with personal knowledge of the facts, within such 20-day time period.
This constitutes the decision and order of the court.