Opinion
600437/09
09-27-2011
BGC Partners Inc., Successor in Interest to eSPEED, INC., Plaintiff, v. Board of Trade of the City of Chicago, Inc., and Cme Group Inc., Defendants.
Counsel on the matter were Francis X. Riley III and Michael Rowan of Saul Ewing LLP for Plaintiff and Lauren E. Aguiar, Colm P. McInerney, Jerrold E. Salzman and Marcella Lape of Skadden, Arps, Slate, Meagher & Flom LLP for Defendant the Chicago Board of Trade.
, J.
Plaintiff BGC Partners Inc ("BGC"), successor in interest to eSpeed, Inc., moves, pursuant to CPLR 3214, to compel disclosure and for leave to amend the complaint pursuant to CPLR 3025 (b). Defendant Board of Trade of the City of Chicago, Inc. ("CBOT") opposes plaintiff's motion.
Background
On December 12, 2002, CBOT and eSpeed, Inc. ("eSpeed") entered into a "Network Agreement." Amended Complaint, ¶ 1; Affirmation of Michael Rowan, Esq. in Support of Plaintiff's Motion ("Rowan Affirm."), Ex. A (the "Network Agreement"). Under the Network Agreement, eSpeed agreed to provide services to CBOT, including providing licenses, software and equipment to enable authorized users of the Electronic Chicago Board of Trade (E-CBOT") to trade futures and options on futures at the CBOT using eSpeed's electronic trading platform (the "eSpeed System"). Amended Complaint, ¶ 1. In exchange, CBOT agreed to pay eSpeed eight cents per qualifying transaction, as described in paragraph 5(b)(4). Amended Complaint, ¶ 1; Rowan Affirm., Ex. A, ¶ 5(b)(4) (the "Covered Contracts").
CBOT alleges that in the fall of 2007 it became aware that eSpeed disclosed the financial terms of the Network Agreement to third parties. CBOT states that this disclosure violated the terms of the Network Agreement. Defendant Board of Trade of the City of Chicago, Inc.'s Brief in Opposition to Plaintiff BGC Partners, Inc.'s Motion ("CBOT Opp. Memo."), p. 3. On this basis, CBOT provided notice of material breach to eSpeed on October 9, 2007. Affirmation of Colm McInerney in Opposition to Plaintiff's Motion ("McInerney Opp. Affirm."), Ex. B. After eSpeed failed to cure the alleged breach, CBOT terminated the Network Agreement on December 14, 2007. McInerney Opp. Affirm., Ex. C. A.BGC's Claim for Damages
BGC filed its original complaint on February 11, 2009. BGC sought damages for breach of contract based upon CBOT's alleged failure to pay for E-CBOT orders placed via the eSpeed System. BGC also sought declaratory judgment declaring the parties' rights under the Network Agreement, including defendants' obligations to pay BGC for future E-CBOT orders placed via the eSpeed System and cleared by E-CBOT. McInerney Opp. Affirm., Ex. D.
Plaintiff filed the Amended Complaint on March 3, 2009. BGC specifically amended the prayer for relief to request the court to enter an order "awarding [BGC] damages caused by [defendants'] failure to pay [BGC] pursuant to the Network Agreement."
Amended Complaint, Prayer for Relief, ¶ (c); Plaintiff BGC Partners, Inc.'s Brief in Support of its Motions ("BGC Memo."), p. 4; CBOT Opp. Memo., pp. 4-5.
The Network Agreement ended on December 31, 2010. Plaintiff's demand for specific performance is therefore now moot, leaving plaintiff's claim for damages predominant.
BGC asserts that its request for damages includes a claim for consequential damages, lost profits. BGC contends that its prayer for relief, damages clause, asserts a claim for consequential damages. BGC further contends that CBOT was aware of BGC's claim for lost profits at least as of November 16, 2010, upon BGC's response to CBOT's Interrogatory Number 16, wherein BGC stated that it sought lost profits. Rowan Affirm., Ex. E, pp. 8-9; CBOT Opp. Memo., p. 6; BGC Memo., p. 5-6. B.BGC's Discovery Requests at Issue
BGC seeks to compel discovery from CBOT which BGC requested in its December 8, 2010 Second Notice to Produce. Rowan Affirm., Ex. D (the "Second Request"). Therein, BGC requested all documents evidencing any trades of U.S. Treasury-related products made through direct connections to CBOT or trading systems other than the eSpeed System, the identity of all customers making those trades, the volume of the trades and the revenue that CBOT earned from those trades. Id.
CBOT responded to BGC's Second Request on December 28, 2010. Rowan Affirm., Ex. E ("CBOT's Response"). CBOT objected to the Second Request in its entirety, and refused to produce the information that BGC requested. CBOT contended, and continued to argue in letters following the response and in this motion, that the material requested by BGC is neither relevant to BGC's claims nor reasonably calculated to lead to the discovery of admissible evidence. Rowan Affirm., Exs. E, G.
BGC contested CBOT's response in a January 11, 2011 letter. Rowan Affirm., Ex. F. BGC asserted in its letter that the requested discovery was relevant to its damages claim and to its defense of CBOT's counterclaim. BGC's only specification of its damages claim was for "the damages suffered by BGC as a result of CBOT's breach of the Network Agreement." Id., p. 1.
In CBOT's January 21, 2011 response, CBOT stated that it had produced documents related to the eSpeed System. CBOT contended that those documents alone were relevant to BGC's asserted claims in the Amended Complaint, and the additional documents would be relevant only to an unasserted claim of lost profits. CBOT further asserted that paragraph 10 of the Network Agreement limited any possible recovery for BGC from a consequential damages claim to $250,000. CBOT Opp. Memo., p. 7-8; Rowan Aff., Ex. G.
The parties exchanged additional letters regarding the Second Request on February 16th and 18th, 2011. Rowan Affirm., Exs. H, I. The parties further provided letters to this court on March 30, 2011 (Rowan Affirm., Ex. J) and April 26, 2011. McInerney Affirm., Ex. O. C.BGC's Motion to Compel and For Leave to Amend the Complaint
BGC brought the instant motion to compel disclosure pursuant to the Second Request and for leave to amend the Amended Complaint on May 23, 2011. Oral argument was heard on August 9, 2011, and the motion was fully submitted the following day.
Analysis
I.Plaintiff's Motion to Compel Disclosure Pursuant to CPLR 3124
CPLR 3124 provides that a party seeking disclosure may move to compel compliance "[i]f a person fails to respond to or comply with any request, notice, interrogatory, demand, question or order under this article." CPLR § 3101(a) entitles parties to "full disclosure of all matter material and necessary in the prosecution or defense of an action, regardless of the burden of proof." What is "material and necessary" is left to the sound discretion of this court, and includes "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." Andon v. 302—304 Mott Street, 94 NY2d 740, 746-7 (2000). The burden of demonstrating that requested discovery material is protected from production is on the party demanding the protection. See Mavrikis v. Brooklyn Union Gas Co., 196 AD2d 689, 690 (1st Dep't 1993) citing Koump v. Smith, 25 NY2d 287, 294 (1969).
CBOT, as the party arguing against production of the BGC-requested material, first contends that the Second Requests seeks to obtain documents unrelated to any claim asserted by BGC, and that the documents may only be relevant to an unasserted claim for lost profits. CBOT asserts that because BGC has not asserted lost profits in the Amended Complaint, it has not provided notice of the claim as required under CPLR § 3013. CBOT further asserts that the requested material is not relevant to any BGC defense of CBOT's counterclaim.
CBOT argues second that BGC may not here rely upon the legal principles allowing the conformation of pleading to proof.
Finally, CBOT alleges that BGC is incorrect that New York law allows discovery of all documents related to damages, whether or not plaintiff sets forth a claim for damages in its complaint, and that New York's liberal standard for discovery is applicable to its Second Request.
A.Relevancy of the Second Request to BGC's Claims
CBOT first contends that the Second Request seeks only documents relevant to a claim for lost profits, a request that BGC has not asserted. CBOT argues that the Second Request is therefore impermissible under CPLR § 3013.
BGC asserts in opposition that it has asserted a claim for lost profit damages. BGC argues that it has requested damages related to orders of Covered Contracts that would have been made through its eSpeed System but for CBOT's breach of the Network Agreement. BGC Memo., p. 9. BGC argues that evidence of its claim for lost profits damages is first found in paragraph 26 of the Amended Complaint. Paragraph 26, part of BGC's claim for declaratory judgment, states, in its entirety:
26.By virtue of the foregoing, Plaintiff is entitled to a Declaratory Judgment declaring the parties' rights under the Network Agreement, and specifically with respect to Defendants' obligation to pay Plaintiff for all future E-CBOT orders placed via the eSpeed System and cleared by E-CBOT.
BGC argues that the phrase "all future E-CBOT orders" supports its claim for lost profits
The court disagrees with BGC's first argument. The phrase that BGC asserts in support is directly related to the end of that sentence, and may not be read by itself. Properly read, BGC has specifically requested its rights, and damages, regarding orders placed via BGC's eSpeed System and cleared by E-CBOT. BGC implicates no other trading systems and BGC makes no contention regarding orders that would have been placed through the eSpeed System but for CBOT's alleged breach.
BGC further argues that paragraph (c) of its Prayer for Relief supports a claim for lost damages. Paragraph (c) requests an order:
(c)awarding plaintiff BGC Partners Inc. damages caused by defendants Board of Trade of the City of Chicago Inc. and CME Group Inc.'s failure to pay plaintiff BGC Partners, Inc. pursuant to the network agreement;
BGC asserts that its Prayer for Relief "expressly seeks an award of all damages caused by' CBOT's termination of its payment obligation," and that Prayer for Relief Paragraph (c) therefore "unambiguously articulates a claim for damages/losses arising from Covered Contract orders that BGC could have arranged to be routed through [its] eSpeed System but for CBOT decision [sic] not to pay in the future for those orders" BGC's Memo., p. 9 (emphasis in original). BGC's argument reaches too far. BGC has requested damaged caused by defendants' failure to pay BGC pursuant to the Network Agreement. The request for relief states or implies nothing about damages for future trades that could have been arranged to be routed through the eSpeed System (id.). BGC requests only damages for defendants' alleged failure to pay for trades covered by the Network Agreement. BGC's second argument based upon the Amended Complaint thus also fails.
CBOT has correctly shown that BGC has not asserted a claim for lost profits in its Amended Complaint. CBOT has therefore met its burden showing that the requested documents are immune from production based on this aspect of CBOT's argument.
B.Relevancy of the Second Request to BGC's Defense to CBOT's Counterclaim
In support of its motion to compel, BGC next contends that the material sought in its Second Request is necessary to its defense to CBOT's counterclaim for breach of the implied covenant of good faith and fair dealing. BGC asserts that the information is "relevant to demonstrate the benefits that BGC conferred on CBOT by its performance under the Network Agreement" and that the material "will show that CBOT realized an increase both in trading volume and revenue as a result of BGC's efforts." BGC Memo, p. 11.
CBOT's counterclaim asserts that BGC disclosed the economic terms of the Network Agreement to CBOT market participants and offered to share a portion of the money BGC received from CBOT for BGC-originating trades if the market participant were to divert its trades from existing CBOT channels and instead use BGC's eSpeed System. CBOT asserts that BGC was not allowed to disclose the economic terms of the Network Agreement. CBOT further asserts that BGC's diversion of its customers to BGC's own system did not assist in the Network Agreement's purpose to expand the availability of E-CBOT, but instead merely generated money to BGC for orders that otherwise would have been submitted through another system already utilizing E-CBOT. See Defendant Board of Trade of the City of Chicago, Inc.'s Answer to Amended Complaint. CBOT's claim focuses on the trading by its existing customers whom BGC allegedly approached and attempted to convert to the BGC eSpeed system.
First, BGC fails to assert how the material it seeks in the Second Request will assist it in showing that it took no actions that may have had the effect of harming defendants' rights to receive the benefits of the Network Agreement. 511 W. 232nd Owners Corp. v Jennifer Realty Co., 98 NY2d 144, 153 (2002).
Second, while the court sees some merit in BGC's argument that it may raise a defense by showing an increase in electronic trading, the counterclaim focuses on increased trading via BGC's eSpeed system. The Second Request as it stands is thus overbroad. CBOT asserts in its counterclaim that the eSpeed system was a means by itself to increase access to E-CBOT, not that the system was a means to increase trading in other systems with access to E-CBOT. Specific non-eSpeed material, as opposed to overall information and trade numbers, is thus unrelated to the counterclaim. As per the Network Agreement, and the counterclaim as based thereon, the relevant evidence is any increase in trading as caused by trades made via the eSpeed System as compared to the E-CBOT as a whole.
BGC's argument to compel production pursuant to the Second Request based upon CBOT's counterclaim is denied.
C.BGC's Argument Regarding Conforming Pleadings
BGC asserts that it is entitled to amplify its pleadings through its own discovery responses. BGC Memo., pp. 9-10. BGC argues that the pleadings, including its response to CBOT's interrogatories, have placed CBOT on notice of its assertion of a claim for lost profits.
BGC contends that, under Saldivar v. I.J. White Corp., 9 AD3d 357 (2d Dep't 2004), BGC's discovery responses "can and should be used to amplify [its] allegations and damages" and "amendments to [its] pleadings consistent with those discovery responses must be permitted." BGC Memo., p. 10. BGC's argument outstrips the case. In Saldivar, the plaintiffs were permitted to amend their complaint to conform with facts uncovered during discovery. In contrast, BGC seeks to extend its complaint not with facts discovered from the opposing party but with discovery responses it put forward. Saldivar and BGC's assertions are incongruous.
BGC's further contends that Loomis v. Civetta Corinno Constr. Corp., 54 NY2d 18 (1st Dep't 1981) supports its argument that discovery relevant to damages which could be alleged, even if not alleged, should be granted. However, Loomis merely supports the now well-settled conclusion that, in the absence of prejudice to the defendant, a motion to amend an ad damnum clause should generally be granted. Id., p. 23. The case does not allow for discovery unfettered by the claims asserted. The case is therefore unavailing to BGC's arguments.
BGC has not presented grounds for its assertion that discovery may be compelled based on its own discovery response, or that its discovery response may be considered an "amplified pleading." Further, conformation of the pleadings occurs after trial, and primarily without objection of the opposing party. See, e.g., Gonfiantini v. Zino, 184 AD2d 368, 369-70 (1st Dep't 1992).
CBOT's argument that BGC has not made a claim for lost profits upon which to base the Second Request therefore prevails.
D.The Liberal Discovery Standard of CPLR § 3101
BGC next argues that its Second Request is consistent with the liberal discovery standard of CPLR § 3101. This court is well aware and fully supports liberal discovery. However, liberal discovery is used to obtain material and necessary facts that may be used to sharpen issues for trial. Andon ex rel. Andon v. 302-304 Mott Street Associates, 94 NY2d 740, 746 (2000). BGC's requested discovery will not do so. Upon full review of the proffered Second Request and the arguments herein, in this court's discretion CBOT has provided sufficient reasons against production of the requested documents. BGC has not asserted a claim for lost profits, but claims based upon breach of the Network Agreement.
BGC has not shown the requested discovery, as currently stated, to be necessary and material either to its case in chief or its defense with regard to CBOT's counterclaim at issue. Id.; see, e.g., Kassis Management, Inc. v. Verizon New York, Inc., 29 Misc 3d 1209(A), *4 (Sup. Ct., NY County 2010) citing Ashland Management, Inc. v. Janien, 82 NY2d 395, 403 (1993) (providing elements of proof necessary to prove lost profit damages); see also C.K.S. Ice Cream Co., Inc. v. Frusen Gladje Franchise, Inc., 172 AD2d 206, 208 (1st Dep't 1991) citing Kenford Co., Inc. v. Erie County; 67 NY2d 257, 261-62 (1986). To the extent that BGC's discovery request is pertinent to an allowed claim of lost profits, it is overbroad. BGC's motion to compel is therefore denied.
II.Plaintiff's Motion to Amend the Complaint Pursuant to CPLR 3025(b)
Plaintiff further moves for permission to amend its complaint for a second time pursuant to 3025(b). BGC asserts that leave to amend is appropriate as the nature of the action has changed to one for damages, the amendment would allow it to clarify its damages requests and the proposed amendment is supported by CPLR 3025(b)'s liberal standard to amend.
It is fundamental that leave to amend a pleading should be freely granted, so long as there is no surprise or prejudice to the opposing party. See CPLR 3025(b); Solomon Holding Corp. v. Golia, 55 AD3d 507, 507 (1st Dep't 2008). Mere delay is insufficient to defeat a motion for leave to amend. Sheppard v. Blitman/Atlas Bldg. Corp., 288 AD2d 33, (1st Dep't 2001). "Prejudice requires some indication that the defendant has been hindered in the preparation of his case or has been prevented from taking some measure in support of his position.'" Cherebin v. Empress Ambulance Serv., Inc., 43 AD3d 364, 365 (1st Dep't 2007) quoting Loomis v. Civetta Corinno Constr. Corp., 54 NY2d 18, 23(1981).
A.The Proposed Second Amended Complaint Would Not Surprise CBOT
BGC argues that that CBOT will not be surprised by the proposed Second Amended Complaint. See Rowan Affirm., Ex. M. BGC first contends that CBOT is aware that the nature of action has changed post termination of the Network Agreement and that it expressly sought consequential damages in its Amended Complaint.
While CBOT is aware that the Network Agreement has ended, as stated in Section I, supra, BGC has not stated a claim for consequential damages in its Amended Complaint. The argument therefore does not provide a basis for lack of surprise.
BGC next argues that CBOT was aware of its alleged claim for consequential damages from at least November 16, 2010, the date of its responses to CBOT's interrogatories. BGC asserts that CBOT was on notice of alleged claim prior to the taking of any depositions in this matter.
CBOT asserts only that it would be subject to inequitable surprise should the court allow the Second Amended Complaint. CBOT's argument is unsupported.
Based on the BGC's interrogatory response and immediately subsequent letters between the parties, the court finds that allowing the Second Amended Complaint would not inequitably surprise CBOT. Further, as per below, CBOT would not be prevented from obtaining discovery necessary to defend or combat the claim.
B.The Proposed Second Amended Complaint
Would Not Significantly Prejudice CBOT CBOT contends that it would suffer significant prejudice were BGC permitted to amend its complaint to add a claim for consequential damages. CBOT contends that it would have briefed previous issues differently had the issue of consequential damages been present, and argues that significant duplication of deposition and other discovery would be necessary. CBOT further argues that BGC has not provided excuse for its delay in moving to amend its complaint to add the claim for lost profits.
CBOT accurately states that the issues that would arise upon allowing BGC a Second Amended Complaint "could certainly have been more efficiently considered simultaneously" with currently-asserted claims. However, the inconvenience asserted does not rise to the level of significant prejudice. Rather, prejudice extends from hindrance, and any prejudice from adding an additional claim for lost profits may here be remedied. Cf. Kocourek v. Booz Allen Hamilton Inc., 85 AD3d 502, 504 (1st Dep't 2011). This court may extend discovery to allow requests pointedly directed to lost profits and any additional or revisited depositions may be limited solely to the lost profits issue.
In the absence of significant prejudice, mere delay is insufficient to deny a motion for leave to amend a pleading. Sheppard v. Blitman/Atlas Building Corp., 288 AD2d 33, 34 (1st Dep't 2001). CBOT has been on notice that BGC was to levy a claim for lost profits and CBOT — as well as BGC — will be provided the opportunity to collect discovery pertinent to the claim.
C.BGC's Proposed Second Amended Complaint is not Palpably Insufficient
While leave to amend is to be freely given absent surprise or prejudice, in order to conserve judicial resources, examination of the merits underlying the proposed amendment is mandated. See Thompson v. Cooper, 24 AD3d 203, 205 (1st Dep't 2005).
BGC has posited in its moving papers sufficient allegations for its claims for lost profits to allow the claim to move forward. CBOT has raised significant defenses to BGC's claim for lost profit damages, including possible limitation of BGC's damages by case law and contract between the parties. While these arguments appear strong at first blush, they do not warrant denial of the motion for leave to amend the complaint for a second time.
The merits of the proposed claim are not palpably insufficient, and BGC's motion for leave to amend its complaint for a second time is granted.
D.Ongoing Discovery Must Bear Directly
Upon the Elements of Proof Necessary for a Claim of Lost Profit
BGC bears a heavy burden to show, inter alia, that any alleged lost profit damage is allowed, or not disallowed, by agreement between the parties, that the alleged lost profits are more than speculative and that lost profits were within the contemplation of the parties. See Ashland Management, Inc. v. Janien, 82 NY2d 395, 403-04 (1993). The Second Request is overbroad to prove the issue, and, thus, BGC's motion to compel discovery based thereon is denied despite allowance of the Second Amended Complaint.
While the court may not, despite CBOT's requests, make pre-emptive rulings on other discovery requests not yet propounded, and thus not yet subject to contest, it is self-evident that discovery on lost profits will be limited to that which the parties contemplated in relation to the contract, including BGC's eSpeed system and its relation with CBOT. BGC will be hard-pressed, for illustrative purposes, to posit a valid reason for information regarding the identification of CBOT customers making trades not on the eSpeed system or the revenue of CBOT as a whole.
Order
For the foregoing reasons, it is hereby:
ORDERED that plaintiff BGC Partners Inc., successor in interest to eSpeed, Inc.'s motion to compel discovery is denied; and it is further
ORDERED that plaintiff BGC Partners Inc., successor in interest to eSpeed, Inc.'s motion to amend its complaint for a second time is granted, and the proposed Second Amended Complaint in the proposed form annexed to the moving papers shall be deemed served upon service of a copy of this order with notice of entry thereof; and it is further
ORDERED that the defendant Board of Trade of the City of Chicago shall serve an answer to the Second Amended Complaint or otherwise respond thereto within 20 days from the date of said service; and it is further
ORDERED that counsel are directed to appear for a status conference in Room 442, 60 Centre Street, on October 18, 2011 at 10 a.m.
Dated: New York, New York
September 27, 2011
ENTER:
Hon. Eileen Bransten, J.S.C.