Opinion
07 Civ. 3219 (PKC) (DF)
05-22-2011
GMA ACCESSORIES, INC., Plaintiff, v. ELECTRIC WONDERLAND, Inc., et al., Defendants.
Copies to: Kathryn C. Haertel, Esq. The Bostany Law Firm, PLLC 75 Wall Street, Ste. 24F New York, NY 10005 Jeffrey Sonnabend, Esq. SonnabendLaw 600 Prospect Avenue Brooklyn, NY 11215-6012
MEMORANDUM AND ORDER
DEBRA FREEMAN, United States Magistrate Judge :
Before the Court is a motion by Electric Wonderland, Inc. ("Electric Wonderland") and non-party Jean-Marc Flack ("Flack") to quash a subpoena served by GMA Accessories, Inc., ("GMA") on Flack. The subpoena, which requests both documents and Flack's appearance at a deposition, was served by GMA pursuant to Rule 69 of the Federal Rules of Civil Procedure, in aid of execution of a default judgment previously entered by this Court against defendant Showroom Seven Studios, Inc. (See Subpoena, dated Dec. 13, 2011 (Dkt. 428) ("Subpoena").)
"Showroom Seven Studios, Inc." is not intended to refer to either "Showroom Seven International" or "Showroom Seven," both initially named and eventually terminated as defendants in this action.
For the reasons discussed below, the motion to quash the Subpoena (Dkt. 429) is granted in part and denied in part.
BACKGROUND
A. The "CHARLOTTE" Trademark Litigation
GMA filed its initial Complaint in this litigation in April 2007, claiming, inter alia, that it had sole ownership of the mark "CHARLOTTE" and that defendants, including Showroom Seven Studios, Inc., had infringed its rights in that mark. (Complaint, dated April 20, 2007 (Dkt. 1) ("Compl.").) GMA later amended its Complaint, adding Electric Wonderland as a defendant. (See Third Amended Complaint, dated Apr. 1, 2008 (Dkt. 164) ("Third Am. Compl.").)
The trademark case against Electric Wonderland was terminated on April 11, 2012, after a jury returned a verdict in Electric Wonderland's favor on GMA's trademark infringement claim. (See Judgment, dated Apr. 12, 2012 (Dkt. 453).)
According to representations made to the Court by counsel for Electric Wonderland, Showroom Seven Studios, Inc. "was a photography studio run by principals of Electric Wonderland. It was not involved in sales activities and was not a showroom." (Defendant Electric Wonderland, Inc. d/b/a Showroom Seven International's Opposition to Plaintiff's Motion for Entry of Default Judgment, dated Nov. 6, 2009 (Dkt. 323), at 6 n.5.) The principal executive office for Showroom Seven Studios, Inc. was 498 Seventh Avenue, 24th floor, New York, New York. (See id. Ex. 1, at 2.) Showroom Seven Studios, Inc. is currently listed by the Division of Corporations of the New York Department of State as inactive, having dissolved on September 2, 2003. (Id.) From the information submitted by GMA, it appears, that, prior to the dissolution of Showroom Seven Studios, Inc., Flack was a partial owner and an officer of that company. (See Declaration of Kathryn C. Haertel, dated Dec. 22, 2011 (Dkt. 430) ("Haertel Decl."), at ¶ 3; see also id. Ex. C, at 23:2-23:5.)
Flack is also the principal shareholder, President and Managing Director of Electric Wonderland, also a New York corporation. (Declaration of Jean-Marc Flack, dated Nov. 23, 2009 (Dkt. 336), at ¶ 1.) According to GMA, Electric Wonderland "began its operations out of the same location as Showroom Seven Studios Inc." (Memorandum of Law in Opposition to Motion To Quash Subpoena, dated Dec. 22, 2011 (Dkt. 431) ("Opp. Mem."), at 5.) Flack has previously explained that Electric Wonderland "provides showroom services to the fashion industry[,]" which involves showing "its clients' products to prospective wholesale purchasers." (Declaration of Jean-Marc Flack, dated Sept. 12, 2008 (Dkt. 271), at ¶ 2.) Sometimes, Electric Wonderland "brokers and/or processes orders from wholesale purchasers for fulfillment by clients[,]" and, when it does so, it receives commissions on those brokered sales. (Id.) Charlotte Solnicki ("Solnicki") was a client of Electric Wonderland from "May, 2003 through approximately November 2007." (Id. at ¶ 3.) Electric Wonderland provided Solnicki showroom services and brokered sales for Solnicki, receiving commissions for the latter. (Id.)
In this lawsuit, GMA claimed, inter alia, that Showroom Seven Studios, Inc. and Electric Wonderland engaged in trademark infringement and the sale of counterfeit goods by providing their services to Solnicki, to the extent Solnicki's products were labeled "Charlotte Solnicki," a mark that allegedly infringed GMA's "CHARLOTTE" mark. (See Third Am. Compl. at ¶¶ 71-81, 97-100.) Flack was both deposed and called as a witness at the trial of GMA's trademark infringement claims against Electric Wonderland.
Showroom Seven Studios, Inc., though, failed to file an answer after being served with the initial Summons and Complaint. Upon receiving permission from the Honorable Laura Taylor Swain, U.S.D.J. (see Order, dated June 1, 2007 (Dkt. 23)), GMA sought entry of a default judgment against Showroom Seven Studios, Inc. (see Motion for Default Judgment as to Girlshop, Inc. and Showroom Seven Studios, Inc., dated June 19, 2007 (Dkt. 32)). Judge Swain granted the motion, leaving the issue of damages for the Court to consider "in the context of the resolution of the damages claims against the other defendants insofar as the damages claims against the other defendants relate to the same sales and merchandising activities." (Memorandum Order Granting Default Judgment Motions and Injunction, dated Aug. 29, 2007 (Dkt. 61), at 5.)
The matter was later reassigned to the Honorable Judge P. Kevin Castel, U.S.D.J. (See Notice of Reassignment, dated June 5, 2009 (Dkt. 301).) GMA subsequently filed a Notice of Settlement, and requested a hearing on damages against Showroom Seven Studios, Inc. (Notice of Settlement, dated Feb. 19, 2010 (Dkt. 343).) Judge Castel then issued an Order (1) noting that, pursuant to Rule 58(c)(2)(B) of the Federal Rules of Civil Procedure, the judgment against Showroom Seven Studios, Inc. was deemed final 150 days following the entry of the Order granting judgment in the civil docket; and (2) directing GMA to inform the Court if it intended to proceed with a damages inquest. (See Order, dated Mar. 17, 2010 (Dkt. 346), at 2-3.) If so, GMA was directed to file affidavits setting forth the proof that it intended to present, in light of the fact that Showroom Seven Studios, Inc. had dissolved on September 2, 2003, and both the Complaint and Amended Complaint alleged infringement occurring "after December 2004." (See id. at 3 (citing Compl. at ¶ 34; Amended Complaint, dated May 7, 2007 (Dkt. 9), at ¶ 36).)
GMA responded to this Order by filing a brief regarding its claimed damages against Showroom Seven Studios, Inc., only devoting once sentence to the argument that "Defendant's dissolution does not insulate it" from a finding of infringement. (See Plaintiff's Damages Brief as to Showroom Seven Studios, Inc., dated Mar. 31, 2010 (Dkt. 347), at 1.) Judge Castel then ordered GMA to show cause why the default judgment against Showroom Seven Studios, Inc. should not be vacated, specifically asking GMA to address whether Showroom Seven Studios, Inc. could be held liable for actions allegedly taken after the corporation dissolved. (See Order, dated Sept. 28, 2011 (Dkt. 419), at 2.) GMA submitted a memorandum of law addressing this issue, relying on Briarpatch Limited v. Thomas, 265 F. Supp. 2d 219, 223 (S.D.N.Y. 2003), for the proposition that "'a corporation's dissolution does not insulate it from liability for its post dissolution misconduct.'" (Plaintiff's Supplemental Memorandum of Law in Support of Statutory Damages as to Showroom Seven Studios, Inc., dated Oct. 7, 2011 (Dkt. 421), at 1-2 (quoting Briarpatch, 265 F. Supp. 2d at 223).) Judge Castel accepted GMA's argument and proceeded to enter a default judgment against Showroom Seven Studios, Inc. in the amount of $27,659.42. (Judgment Against Showroom Seven Studios, Inc, dated Nov. 1, 2011 (Dkt. 425).) To date, Showroom Seven Studios, Inc. has neither responded to nor appealed this action, nor has it satisfied the judgment against it.
At one point, counsel for Electric Wonderland, appearing as such, requested that the Court "refrain from acting on [GMA's] 'motion' [seeking judgment against Showroom Seven Studios, Inc. and requesting a damages hearing] and, in addition, moved for sanctions against GMA for filing its frivolous 'motion.'" In response to that request, Judge Castel noted: "Electric Wonderland's counsel has entered an appearance on behalf of Electric Wonderland only, and in his letter he does not purport to represent Showroom Seven Studios or provide a reason why his client has standing to oppose the entry of an order that is not directed at his client." (Order, dated Mar. 17, 2010 (Dkt. 346), at 2.)
B. The Subpoena and Pending Motion To Quash
In aid of satisfying the default judgment, GMA served the Subpoena on Flack on December 14, 2011 (see Proof of Service; dated Dec. 14, 2011 (Dkt. 428-1)), commanding that he appear for a deposition on January 9, 2012, and that he produce the following documents:
All federal, state and local income tax returns for Showroom Seven Studios, Inc. ("SSI"), and Jean Marc Flack for 2002-2009. All credit card records which show monies collected by you in connection with Charlotte products. All bank records for SSI from 2002 to 2009. All lease agreements entered into by you or SSI from 2002-2009.(Subpoena). Attached to the Subpoena was a check made payable to Jean Marc Flack, in the amount of $45.00. (See Dkt. 433-1.)
Following service of the Subpoena, Electric Wonderland and Flack joined in a motion to quash (see Motion To Quash Subpoena, dated Dec. 20, 2011 (Dkt. 429) ("Motion to Quash")), arguing that the Subpoena was untimely, as discovery had closed in the underlying trademark litigation on January 29, 2010 (see id. at 1). Electric Wonderland and Flack further argued that the document demands contained in the Subpoena were overly broad because (1) the request for credit card records did not include any temporal limits or "specify the scope of transactions which would be considered 'connected' to Charlotte products," and (2) Showroom Seven Studios, Inc. did not exist at the time of the alleged infringement, and "did not exist for the period of time [from 2002 to 2009] for which records [were] sought." (Id. at 3.) Additionally, Electric Wonderland and Flack asserted that both Showroom Seven Studios, Inc.'s tax returns and Flack's personal tax returns were protected material. (Id. at 2,)
GMA filed an opposition to the motion, requesting that this Court enforce the Subpoena. (See Opp. Mem. at 1.) As a preliminary matter, GMA argued in its opposition that, because the Subpoena was served in aid of execution of a judgment, the underlying discovery deadlines were irrelevant, and that Rule 69 (relating to the enforcement of judgments) should be held to govern in this instance. (See id. at 3-4.) GMA also argued that the Subpoena was properly served pursuant to both the Federal Rules of Civil Procedure and New York State law. (See id.) Additionally, GMA asserted that it was appropriate to seek post-judgment discovery from Flack because he was an officer of the judgment debtor (id. at 4-5), and because the requested documents "may reveal hidden or concealed assets that have been transferred to [Flack], as the company's owner, at any time before or even after the dissolution date" (id. at 8). Finally, GMA argued that its requests for financial documents - including credit card records, lease agreements, bank records, and tax returns - were both appropriate and within the bounds of discovery routinely permitted pursuant to Rule 69. (Id. at 5-8.)
In reply, Electric Wonderland and Flack raised several new arguments, including that the Subpoena should be considered defective because (1) it did not state the method by which the deposition would be recorded, (2) GMA had supposedly failed to provide Flack with a proper fee for his attendance and mileage, and (3) GMA had failed to provide all parties with advance notice of the Subpoena. (Reply Brief in Support of Motion to Quash Subpoena, dated Dec. 28, 2011 (Dkt. 432) ("Reply Br. in Supp. of Mot. to Quash Subpoena"), at 2.) Electric Wonderland and Flack also argued that it was improper to seek disclosure from Flack, including disclosure regarding his personal assets, when Flack was not the judgment debtor, but rather only a non-party officer of the judgment debtor. (Id. at 3.)
DISCUSSION
I. ELECTRIC WONDERLAND'S LACK OF STANDING
As a preliminary matter, Electric Wonderland has not established that it has standing to challenge the Subpoena served on Flack. Generally, "[i]n the absence of a claim of privilege[,] a party usually does not have standing to object to a subpoena directed to a non-party witness." Langford v. Chrysler Motors Corp., 513 F.2d 1121, 1126 (2d Cir. 1975). Although "a party may have a sufficient privacy interest in the confidentiality of records pertaining to their personal financial affairs so as to give them standing to challenge [a] subpoena[]," Electric Wonderland has not claimed any such privacy interest here, or any privilege, and it thus lacks standing to challenge the Subpoena. In re Flag Telecom Holdings, Ltd. Sec. Litig., No. 02 Civ. 3400 (WCC), 2006 U.S. Dist. LEXIS 69140, at *5 (S.D.N.Y. Sept. 13, 2006) (internal quotations and citations omitted).
Nonetheless, the Court will consider the pending motion to quash, as Flack, himself, has joined in the motion. As the Subpoena seeks Flack's testimony and personal documents, Flack plainly has standing to move to quash the Subpoena.
II. FLACK'S CHALLENGE TO THE SUBPOENA
A. Applicable Legal Standards
1. Federal Rules Regarding Post-Judgment Discovery
As the Subpoena at issue was served in aid of the default judgment entered against Showroom Seven Studios, Inc., Rule 69 of the Federal Rules of Civil Procedure governs the instant motion. That Rule provides, in relevant part:
In aid of the judgment or execution, the judgment creditor or a successor in interest whose interest appears of record may obtain discovery from any person - including the judgment debtor - as provided in these rules or by the procedure of the state where the court is located.Fed. R. Civ. P. 69(a)(2). This Rule has been interpreted to permit judgment creditors "wide latitude in using the discovery devices provided by the Federal Rules in post-judgment proceedings." Gibbons v. Smith, No. 01 Civ. 1224 (LAP), 2010 U.S. Dist. LEXIS 13938, at *6 (S.D.N.Y. Feb. 9, 2010) (citing Fed. R. Civ. P. 69(a)(2)). As set out in the Rule, a judgment creditor may also utilize any discovery procedures that are authorized by the forum state, in aid of execution of the judgment.
The plain language of Rule 69 permits post-judgment discovery - which would include both deposition and document discovery - from "any person." Fed. R. Civ. P. 69(a)(2). In its efforts to enforce a judgment, "the judgment creditor must be given the freedom to make a broad inquiry to discover hidden or concealed assets of the judgment debtor." Costamar Shipping Co. v. Kim-Sail, Ltd., No. 95 Civ. 3349 (KTD), 1995 U.S. Dist. LEXIS 18430, at *8 (quoting Cassion Corp. v. County West Bldg. Corp., 62 F.R.D. 331, 334 (E.D. Pa. 1974)). As a general matter, however, post-judgment discovery against a non-party should be "limited to a search for the [judgment debtor's] hidden assets." Id. (citing Magnaleasing, Inc. v. Staten Island Mall, 76 F.R.D. 559, 561-62 (S.D.N.Y 1977)).
Thus, "disclosure concerning the assets of a non-party is generally not contemplated by Rule 69(a)." Magnaleasing, 76 F.R.D. at 562 (citations omitted); accord Costamar, 1995 U.S. Dist. LEXIS 18430, at *8. Inquiry into the assets of a non-party is only permitted "where the relationship between the judgment debtor and the non-party is sufficient to raise a reasonable doubt as to the bona fides of the transfer of assets between them." Magnaleasing. 76 F.R.D. at 562 (internal citation omitted); see also Uniden Corp. of America v. Duce Trading Co., LTD, No. 89 Civ. 0878E, 1993 U.S. Dist. LEXIS 10441, at *2 (W.D.N.Y. July 19, 1993) (noting that post-judgment discovery concerning the assets of a non-party requires "a somewhat heightened showing of necessity and relevance - i.e., at least some demonstration of concealed or fraudulent transfers or alterego relationship with the judgment debtor") (citations omitted); Costamar, 1995 U.S. Dist. LEXIS 18430, at *9 (stating that, for the court to permit discovery regarding a non-party's assets, "the mere allegation of an alter ego relationship is insufficient; it must be supported by facts showing the basis for the assertion") (citation omitted).
Rule 45 of the Federal Rules of Civil Procedure governs the issuance of subpoenas, regardless of the context of issuance, and provides the framework for motions to quash. Under Rule 45(c)(3), the court must modify or quash a subpoena that:
(i) fails to allow a reasonable time to comply;
(ii) requires a person who is neither a party nor a party's officer to travel more than 100 miles from where that person resides, is employed, or regularly transacts business
in person - except that, subject to Rule 45(c)(3)(B)(iii), the person may be commanded to attend a trial by traveling from any such place within the state where the trial is held;Fed. R. Civ. P. 45(c)(3)(A). The court is also permitted, under Rule 45, to modify or quash a subpoena if compliance with the subpoena would require:
(iii) requires disclosure of privileged or other protected matter, if no exception or waiver applies; or
(iv) subjects a person to undue burden.
(i) disclosing a trade secret or other confidential research, development, or commercial information;Fed. R. Civ. P. 45(c)(3)(B). As discovery under the Federal Rules is limited in scope to that which is "relevant to any party's claim or defense," Fed. R. Civ. P. 26(b)(1), the court may also quash or modify a subpoena that calls for irrelevant information. "Once the party issuing the subpoena has demonstrated the relevance of the requested documents, the party seeking to quash the subpoena bears the burden of demonstrating that the subpoena is over-broad, duplicative, or unduly burdensome." Kings way Fin. Servs. v. Pricewaterhouse-Coopers LLP, No. 03 Civ. 5560 (RMB) (HBP), 2008 U.S. Dist. LEXIS 77018, at *14 (S.D.N.Y. Oct. 2, 2008) (citing Sea Tow Int'l, Inc. v. Pontin, 246 F.R.D. 421, 424 (E.D.N.Y. 2007)).
(ii) disclosing an unretained expert's opinion or information that does not describe specific occurrences in dispute and results from the expert's study that was not requested by a party; or
(iii) a person who is neither a party nor a party's officer to incur substantial expense to travel more than 100 miles to attend trial.
2. New York State Procedure
In this case, New York is the forum state, and thus discovery pursuant to New York procedures would be permissible here, under Rule 69. See Fed. R. Civ. P. 69(a)(2). Like the Federal Rules, the relevant New York rules allow for broad post-judgment discovery. See D'Avenza S.P.A. v. Garrick & Co., No. 96 Civ. 0166 (DLC)(KNF), 1998 U.S. Dist. LEXIS 243, at *7 (S.D.N.Y. Jan. 14, 1998) (quoting ICD Group, Inc. v. Israel Foreign Trade Co. (USA) Inc., et al., 638 N.Y.S.2d 430, 430 (1st Dep't 1996)). Specifically, Section 5223 of the New York Civil Practice Law and Rules provides:
At any time before a judgment is satisfied or vacated, the judgment creditor may compel disclosure of all matter relevant to the satisfaction of the judgment, by serving upon any person a subpoena, which shall specify all of the parties to the action, the date of the judgment, the court in which it was entered, the amount of the judgment and the amount then due thereon, and shall state that false swearing or failure to comply with the subpoena is punishable as a contempt of court.N.Y.C.P.L.R. § 5223. Rule 5224 then sets out the types of subpoenas permitted; both subpoenas requiring deposition attendance and subpoenas duces tecum (requiring the production of documents) are permitted under this rule. N.Y.C.P.L.R. 5224.
With respect to the scope of permissible discovery against non-parties, New York's post-judgment disclosure law again allows for discovery similar to that permitted under the Federal Rules. Under New York law, the judgment creditor may examine third parties not named in an action, in order to determine if the judgment debtor has improperly transferred or concealed assets that could satisfy the judgment. D'Avenza, 1998 U.S. Dist. LEXIS 243, at *8 (citing Young v. Torelli, 522 N.Y.S.2d 918 (2d Dep't 1987)); see also Jacobson v. Moller & Moller, No. CV 2002-6316 (ERK)(MDG), 2007 U.S. Dist. LEXIS 48646, at *3-5 (E.D.N.Y. July 5, 2007). While the discovery standard is broad, "[t]hat is not to say, however, that the plaintiff may embark on a fishing expedition." D'Avenza, 1998 U.S. Dist. LEXIS 243, at *9. Rather, "a judgment creditor should tailor its requests appropriately, in order to foster compliance and to achieve its ultimate goal, to wit, having its judgment satisfied." Id.
B. Propriety of GMA's Subpoena of Flack
1. Technical Defects
Flack now argues that the Subpoena directed to him should be quashed in its entirety because: (1) GMA failed to state the method of recording the deposition; (2) there was no witness fee tendered; and (3) insufficient notice of the Subpoena was served on the parties to this litigation. (Reply Br. in Supp. of Mot. to Quash Subpoena, at 2.) As a threshold matter, the Court notes that each of these arguments was raised for the first time on reply, and that the Court therefore need not consider them. See, e.g., Gruss v. Zwirn, 276 F.R.D. 115, 142 (S.D.N.Y. 2011) (citation omitted). In any event, in the interest of efficient case management, none of these defects should be considered fatal.
The amount that must be paid as a witness fee to a subpoenaed witness is set out in 28 U.S.C. § 1821. Flack seems to suggest that he received no witness fee at all, although, as noted above, GMA has provided the Court with a copy of a check made out to Flack, in the amount of $45.00, with "Subpoena" written in the memo section of the check. (See Dkt. 433-1.) If Flack is complaining that the amount of his fee was not properly calculated under Section 1821, then he has failed to explain this in his submissions to the Court, but he can raise the issue separately with GMA, and GMA is directed to follow the requirements of Section 1821 to ensure that Flack receives proper compensation for his appearance at any deposition.
As for the other technical defects raised by Flack, it is true that, under Rule 45, "[a] subpoena commanding attendance at a deposition must state the method for recording the testimony." Fed. R. Civ. P. 45(a)(1)(B). It is also true that, under Rule 45, when a subpoena "commands the production of documents . . . , then before it is served, a notice must be served on each party." Fed. R. Civ. P. 45(a)(1)(D). Based on the record presented to the Court, it does not appear that GMS met either of these requirements, although, at this point - with GMA's claims against Electric Wonderland having been resolved at trial in Electric Wonderland's favor - there may not be any more active "parties" as to whom notice must be given. As for the method of recording the deposition, GMA is directed to inform Flack, at least 14 days prior to any rescheduled deposition date, of the recording method to be used.
The Court also notes that it is clear that Electric Wonderland received actual notice of the Subpoena, given that it filed a motion to quash.
2. Scope of the Subpoena
Flack's arguments regarding the overbreadth of the Subpoena are largely persuasive. As Flack served as a principal of Showroom Seven Studios, Inc., it is appropriate for GMA to conduct a focused deposition of Flack, for the purpose of exploring whether he has knowledge regarding the existence of any Showroom Seven Studios, Inc. assets, or regarding the transfer of any such assets to Flack or to any other person or entity. It is further appropriate for GMA to seek the production of documents that may be in Flack's possession, custody or control, and that may reveal information regarding Showroom Seven Studios, Inc.'s assets or its transfers of assets. At this time, however, GMA has not demonstrated the propriety of seeking testimony from Flack regarding his personal assets, or of seeking Flack's personal financial records (or records that might relate to Flack's work for Electric Wonderland), where such testimony or documents bear no relation to the assets or asset transfers of the judgment debtor. In addition, under the law of this circuit, GMA has not made an adequate showing to justify the disclosure of Flack's personal tax returns.
D'Avenza, cited above (see supra at 2) and by GMA in its brief (see Opp. Mem. at 6), is instructive. In that case, the Court considered the extent to which a plaintiff/judgment creditor should be permitted to seek and obtain financial records from a non-party who had served as the president and sole shareholder of the judgment debtor. See generally D'Avenza, 1998 U.S. Dist. LEXIS 243. The Court noted that the non-party witness had controlled the disposition of the judgment debtor's assets. Id. at *7. Further, the plaintiff contended that the business later conducted by the witness was "the same as that conducted by the judgment debtor, with the same customer base." Id. at *7-8. Based on this, the plaintiff argued that the disclosures sought from the witness were "necessary to determine (1) if the judgment debtor transferred its assets to [the witness] or to an entity with which [the witness] [was] associated to avoid its creditors, and (2) whether such transfers, if any, were controlled by [the witness]." Id. at *8.
Although the Court noted that the plaintiff was "entitled to examine third parties to determine if a judgment debtor ha[d] concealed or transferred assets applicable to satisfying its judgment," id. (citation omitted), the Court nonetheless concluded that the document subpoena that had been served by the plaintiff was overly broad, as the subpoena sought "a wide range of proprietary information from [the witness] or from entities in which he ha[d] an interest, regardless of whether such information relate[d] to or may be said to be reasonably related to the judgment debtor, its assets, or suspected transfers of its assets," id. at *10. While stating that, "through the deposition testimony sought or through the review of the documents permitted by the Court at this time, [the] plaintiff may be able to demonstrate that a valid basis exists upon which to demand disclosure of a wider assortment of documents," id., the Court limited the subpoena, in the first instance, to permit disclosure of only those documents which "appear[ed] to be reasonably related to ascertaining the status or whereabouts of [the judgment debtor's] assets," id.
In this case, GMA has not represented to the Court that Flack was the sole shareholder of Showroom Seven Studios, Inc. (see supra at 2), or that he was the person who controlled the disposition of Showroom Seven Studios, Inc's assets. In addition, GMA has not shown that the business operated by Showroom Seven Studios, Inc. was the same as the business now operated by Electric Wonderland, in which Flack has an ownership interest. To the contrary, there is evidence in the record that Showroom Seven Studios, Inc. and Electric Wonderland were engaged in different types of business activities. Thus, in this case, the rationale for permitting discovery of Flack's assets is less, not more, compelling than the rationale for such discovery that was advanced by the judgment debtor in D'Avenza. Essentially, GMA has shown no reason here to diverge from the usual rule that a non-party, like Flack, should only be examined and required to produce documents regarding the assets of the judgment debtor and potential transfers of such assets, not regarding his own personal assets or finances. See Magnaleasing, 76 F.R.D. at 562; Costamar, 1995 U.S. Dist. LEXIS 18430, at *8.
As stated above, Electric Wonderland has represented to the Court that Showroom Seven Studios, Inc. was a photography studio that neither operated as a showroom nor had any involvement in selling merchandise, whereas Electric Wonderland provides showroom services to the fashion industry and sometimes brokers sales. (See supra at 2-3.)
Certainly, GMA has not shown a reason to require Flack to produce his personal tax returns at this juncture. In general, "[c]ourts have been reluctant to require disclosure of tax returns because of both 'the private nature of the sensitive information contained therein' and 'the public interest in encouraging the filing by taxpayers of complete and accurate returns.'" Rahman v. Smith & Wollensky Rest. Grp., Inc., No. 06 Civ. 6198 (LAK) (JCF), 2007 U.S. Dist. LEXIS 37642, at *19 (S.D.N.Y. May 24, 2007) (quoting Smith v. Bader, 83 F.R.D. 437, 438 (S.D.N.Y. 1979)). In discovery under the Federal Rules, the party seeking production of tax returns bears the burden of establishing not only (a) that the returns are "relevant," but also (b) that there is a "compelling need" for production of the returns because the relevant information they would reveal is not otherwise readily obtainable. Ellis v. City of New York, 243 F.R.D. 109, 112 (S.D.N.Y. 2007) (citing Rahman, 2007 U.S. Dist. LEXIS 37642, at *7).
While this same two-prong standard applies in the post-judgment context, see Libaire v. Kaplan, 760 F. Supp. 2d 288, 294 (E.D.N.Y. 2011), courts have generally granted motions to compel the production of the tax returns of the judgment debtor, see id. at 294-95 (citing cases, and finding that (a) tax returns of judgment debtor were "clearly relevant" to enforcement efforts, as they would provide information regarding judgment debtor's assets and liabilities, and (b) the judgment debtor's general lack of cooperation in discovery provided "compelling need" for production). In addition, where a non-party witness is the sole shareholder of a corporate judgment debtor and has been responsible for disposing of the judgment debtor's assets, production of the witness's tax returns may be appropriate to assist the judgment creditor in locating those assets. See D'Avenza, 1998 U.S. Dist. 243, at *8-11 (allowing limited production of witness's tax returns). In this case, though, while the Court accepts that GMA is entitled to obtain Showroom Seven Studios, Inc.'s tax returns, there is no basis, on the record put forward by GMA, for the Court to find that Flack's personal tax returns are either relevant to enforcement of the judgment against Showroom Seven Studios, Inc., or that GMA has a compelling need for their production.
Accordingly, GMA's Subpoena to Flack must be modified, pursuant to Rule 45(c), See, e.g., id. at *10. Taking each requested category of documents in turn, the Subpoena is modified to permit disclosure of the following documents, to the extent such documents are within Flack's possession, custody or control:
(1) All federal, state and local income tax returns for Showroom Seven Studios, Inc. for the period from 2002 to 2009, but not Flack's personal income tax returns;As for GMA's request to conduct Flack's deposition, GMA may ask Flack questions about Showroom Seven Studios, Inc.'s assets and about any transfers of those assets. If, through questioning, GMA develops a record that suggests that Showroom Seven Studios, Inc. made any concealed, fraudulent, or otherwise improper asset transfers to Flack so as to avoid enforcement of the judgment against it, then GMA may return to the Court to seek leave to obtain further discovery from Flack, based on that record.
(2) All credit card records that show monies collected or paid by Showroom Seven Studios, Inc. (or collected or paid by any person, including Flack, on behalf of Showroom Seven Studios, Inc.), in connection with Charlotte products, for the period from 2002 to 2009;
(3) All bank records of Showroom Seven Studios, Inc. for the period from 2002 to 2009; and
(4) All lease agreements entered into by Showroom Seven Studios, Inc. (or by any person, including Flack, on behalf of Showroom Seven Studios, Inc.) during the period from 2002 to 2009, or covering that period.
GMA argues that, even though Showroom Seven Studios, Inc. was dissolved in 2003, discovery of post-2003 records should be permitted because, if such records exist, "they would not only show who is currently operating Showroom Seven Studios, Inc., but also who is benefitting by the company's operations beyond its date of dissolution." (Opp. Mem. at 7.)
Although the Subpoena does not contain a time-period limitation for the requested credit card records, the Subpoena is otherwise limited to the period from 2002 to 2009, and the Court assumes that the same limitation would be reasonable for every category of documents sought.
CONCLUSION
For all of the above reasons, the motion of Electric Wonderland and Flack to quash the Subpoena is (a) denied for lack of standing, to the extent the motion is brought by Electric Wonderland, and (b) granted in part and denied in part, as set forth above, to the extent the motion is brought by Flack. In addition, at least 14 days prior to Flack's deposition pursuant to the Subpoena, GMA is directed to provide Flack with notice of the method that will be used to record the deposition. Dated: New York, New York
May 22, 2011
SO ORDERED
/s/_________
DEBRA FREEMAN
United States Magistrate Judge
Copies to:
Kathryn C. Haertel, Esq. The Bostany Law Firm, PLLC 75 Wall Street, Ste. 24F New York, NY 10005 Jeffrey Sonnabend, Esq. SonnabendLaw 600 Prospect Avenue Brooklyn, NY 11215-6012