Opinion
113227/2009
09-10-2019
Michael KNOPF, Norma Knopf, and Delphi Capital Management, LLC, Plaintiffs, v. Michael SANFORD, Pursuit Holdings, LLC, Sanford Partners, LP, MH Sanford & Co., LLC, and Wyndclyffe, LLC, Defendants.
This is the latest order in the long-running litigation between plaintiffs, Norma and Michael I. Knopf, and defendant Michael H. Sanford. This order relates to the Knopfs' efforts to enforce a money judgment this court entered on February 22, 2018, for $9,867,832.61 against defendant Pursuit Holdings, LLC (Pursuit), Sanford's hedge fund. (See Knopf v. Sanford, 2018 NY Slip Op. 30611 [U] [Sup Ct, NY County 2018].) This order addresses whether Sanford must disclose to the Knopfs certain attorney-client communications submitted to this court for in camera review. The court's analysis of this privilege issue takes into account new information the court has recently received regarding (mis)conduct of Sanford and his attorneys.
BACKGROUND
As relevant here, the Knopfs served a document subpoena on Sanford on May 9, 2018, to obtain information to enforce the judgment against Pursuit. The subpoena sought among other things all communications between Sanford and James M. McGuire, Esq., from August 1, 2015 through February 7, 2016, inclusive. McGuire, a former Associate Justice of the Appellate Division, First Department, previously represented Sanford.
Sanford moved to quash the subpoena. He argued, among other things, that the attorney-client privilege shielded the communications sought by the Knopfs' subpoena. The Knopfs cross-moved to enforce. (See id. at 32.) In their cross-motion, the Knopfs argued that Sanford's attorney-client privilege as to these communications had been broken, because probable cause existed to believe that Sanford had engaged in wrongful acts and used attorney-client communications to further those acts. The Knopfs contended, in essence, that Sanford had gone to extraordinary lengths to evade an October 2015 First Department interim order that required him to escrow any proceeds from the sale of real property owned by Pursuit. The First Department intended its order to preserve funds to help satisfy a potential multi-million-dollar damages award against Sanford and Pursuit in the Knopfs' favor.
These issues are discussed in much greater detail in this court's July 18, 2019, order deciding Sanford's motion to quash and the Knopfs' cross-motion to enforce. (See Revised Decision & Order, Mot. Seq. 030, NYSCEF No. 449), reported at Knopf v. Sanford (2019 NY Slip Op. 29220 [Sup Ct, NY County 2019].) This court's summary is provided for the reader's convenience.
On December 29, 2015, a full panel of the First Department denied Sanford's motion to vacate the October 2015 escrow order.
Two weeks after the Court denied Sanford's motion to vacate, Sanford retained an attorney (Frank M. Esposito, Esq.) whose wife (Melissa Ringel, Esq.) was a First Department special master and a former Principal Appellate Law Clerk for three years to then-Justice McGuire. The next day, Sanford directed his other attorneys (Nathaniel H. Akerman, Esq., and Edward S. Feldman, Esq.) to make an ex parte telephone call to Ringel. The Knopfs alleged in their cross-motion to enforce that the phone call was intended to secure the (inaccurate) conclusion from Ringel, in her capacity as an Appellate Division attorney, that the First Department's escrow order had been dissolved already by a different First Department ruling. The Knopfs contended that (i) when Sanford's attorneys spoke to Ringel, she conveniently (and improperly) gave the conclusion regarding the escrow order that Sanford needed; (ii) Sanford was able to use Ringel's opinion to sell Pursuit's real property for $3 million without putting any of the proceeds into escrow; and (iii) Sanford successfully dissipated 85% of the $3 million in sale proceeds before the Knopfs learned what he had done.
The Knopfs further claimed that when they asked the First Department to hold Sanford in contempt and force him to disgorge the sale proceeds he dissipated, Sanford's attorneys, including McGuire, argued that they had merely relied on the opinion of an unnamed Appellate Division attorney — without revealing the deeply dubious circumstances under which Ringel had given that opinion to Akerman and Feldman.
This court denied Sanford's motion to quash in an order issued July 18, 2019. (See Knopf , 2019 NY Slip Op. 29220.) This court concluded that the Knopfs had established probable cause to believe that Sanford had committed wrongful acts in failing to escrow millions in sale proceeds notwithstanding a First Department court order and that Sanford might have used communications with McGuire to further this wrongful act. (See id. at *32-*33, *36.) This court therefore ordered Sanford to submit to the court for in camera review all communications between him and McGuire that were responsive to the Knopfs' subpoena. (Id. at *37.)
Sanford complied with the order and submitted documents in electronic form for this court to review in camera and determine what must be disclosed. (See NYSCEF No. 453.) This court has completed that review. Its determinations are set forth below.
DISCUSSION
The question this court must now answer is whether, upon review of the communications submitted by Sanford, probable cause exists to believe those communications to have been made in furtherance of a wrongful act or acts — here, Sanford's wrongful but successful efforts to sell the penthouse without putting the proceeds into escrow to satisfy his debt to the Knopfs and Sanford's wrongful but successful efforts to cause the First Department to overlook his evasion of the Court's escrow order. (See Matter of New York City Asbestos Litig. , 109 AD3d 7, 10-11 [1st Dept 2013] ; Matter of Grand Jury Subpoena , 1 AD3d 172, 173 [1st Dept 2003].) If probable cause exists, then Sanford must disclose the communications to the Knopfs. If not, the communications remain shielded by the attorney-client privilege and need not be disclosed.
A. Additional Evidence that Sanford Used Attorney-Client Communications toFurther Wrongful Acts.
This court's analysis of the communications submitted by Sanford—and the degree of scrutiny the court applies to those communications—must take into account the additional information regarding the conduct of Sanford and his attorneys that has been provided to the court since its order of July 18, 2019.
In particular, on August 23, 2019, Eric W. Berry, Esq., counsel to the Knopfs, submitted to the court further documents and communications that he had recently obtained relating to the January 12, 2016, call between Akerman, Feldman, and Ringel. (See NYSCEF Nos. 460 and 461.) Berry's cover letter stated that these materials had largely been produced to him by a law firm, Dorsey & Whitney LLP, in compliance with a May 23, 2018, subpoena he had served on Dorsey & Whitney, seeking communications between Sanford and Akerman (a Dorsey & Whitney partner). These materials further support the Knopfs' allegations that Sanford, with the assistance of his then-counsel, committed wrongful acts against the Knopfs.
In its July 18, 2019, order, this court denied Dorsey & Whitney's motion to quash this subpoena and granted the Knopfs' cross-motion to enforce the subpoena. (See Knopf , 2019 NY Slip Op. 29220, at *28-*29, *31-*36, *37.)
This court notified Akerman, Feldman, and Sanford of Berry's submission to give them an opportunity to respond to that submission if they wished to do so. Akerman and Feldman did not submit responses; Sanford notified the court that he intended to respond, but he did not do so.
First , these materials show that Akerman and Feldman's characterizations of the January 12 call were false. As noted above, during the January 12 call Ringel stated to Akerman and Feldman that Sanford could sell a valuable Park Avenue penthouse condominium unit without putting the sale proceeds into escrow — notwithstanding a First Department court order requiring escrow. At the time of the call, Ringel's husband, Esposito, was also representing Sanford. ( Knopf , 2019 NY Slip Op. 29220, at *8, *10.) Ringel thus had a conflict of interest when she gave this opinion to Akerman and Feldman.
In a related federal action that (among other things) attacked Ringel's conduct relating to the January 12 call, Berry deposed Akerman and Feldman about the circumstances of the call. Akerman gave explicit and detailed testimony that he and Feldman had spoken to Ringel, in particular, only by chance—that Akerman had called the general line at the First Department Clerk's Office and had been transferred by the Clerk's Office to Ringel. (Id. at *12.)
Feldman similarly testified at his deposition that the call was placed to a general First Department number rather than specifically to Ringel. (Id. ) Additionally, Feldman stated to this court at oral argument on a related motion in May 2019 that (i) the idea to call the First Department to clarify the status of the escrow order came from Akerman; (ii) Feldman's recollection was that Akerman was transferred to Ringel rather than calling her directly; and (iii) Feldman did not ask for Ringel's position at the court "[b]ecause [he] was already connected to Mr. Akerman and ...assumed Mr. Akerman knew who he was calling." (Transcript, Index No. 153821/2019, NYSCEF No. 102, at 56-59.)
As an initial matter, Akerman and Feldman's deposition testimony is contradicted by telephone records secured by the New York State Office of Court Administration's Inspector General's Office indicating that the call was placed from Dorsey & Whitney to Ringel's direct line, rather than to the main line at the First Department Clerk's Office. ( Knopf , 2019 NY Slip Op. 29220, at *12.)
The materials Berry submitted to this court on August 23, 2019, further suggest that Akerman and Feldman's representations regarding the circumstances of the January 12 call were untrue. Those materials include an email from Feldman to Akerman on January 11, 2016, in which Feldman wrote that he needed to set up a "time for a conference call" that would include "the Appellate Division Clerk" to "confirm that no restrains exist on the sale" of the penthouse apartment; and that once Feldman had determined "when everyone is available," he would "call the clerk to get her time and availability." (NYSCEF No. 461, at 6 [emphasis added].)
This email demonstrates that Feldman, contrary to his statements to this court, was involved in setting up the January 12 call; that Akerman and Feldman had made a plan to telephone a specific person at the First Department; and that both Akerman and Feldman knew the identify of the person whom they were going to call, as shown by the fact that Feldman knew the gender of that person. And phone records indicate that Akerman and Feldman carried through with this plan the following day by calling Ringel directly.
Yet when the Knopfs later challenged the propriety of the call, Akerman gave sworn testimony that he had intended to call only the main line at the First Department Clerk's Office — and that he had double-checked with the person who answered his call that he had reached the Clerk's Office in particular. (See NYSCEF No. 174, at 37-39, 50.) And Feldman testified at a deposition — and represented to this court at argument — that he had relied on Akerman to do the legwork and had not known whom Akerman was going to call. (See Index No. 153821/2019, NYSCEF No. 102, at 57, 59.)
Second , the materials Berry provided on August 23, 2019, undermine the argument Sanford and his attorneys made that Sanford had relied on the advice of counsel in selling the penthouse unit without escrowing the proceeds. Akerman gave Sanford a memorandum that memorialized the conversation with Ringel and set out Ringel's explanation for why Sanford was not required to put the penthouse sale proceeds into escrow. Sanford and his attorneys, including both Akerman and McGuire, would later cite that memorandum to the First Department in arguing that Sanford had acted properly and in reliance on the advice of counsel in selling the penthouse without escrowing the proceeds. (See Knopf , 2019 NY Slip Op. 292290, at *19-*20 & n 45.)
The materials Berry provided on August 23, 2019, show, however, that on the day of the call itself, Akerman emailed a rough Word draft of this memorandum to Sanford for him to edit—and that Sanford had a significant influence on Akerman's final memo. For example, it was Sanford who provided the crucial language in Akerman's memo, addressed to Sanford, that the escrow order had been "dissolved as a matter of law upon the issuance" of a different First Department order issued in November 2015. (Compare NYSCEF No. 461, at 8 [Sanford's markup], with NYSCEF No. 463 [final version of memo].)
Moreover, other language in the memo describing the relationship between the October and November 2015 orders closely tracked an email that Sanford had sent to Akerman and Feldman the day before , prior to the call. (Compare NYSCEF No. 461, at 4 [January 11 email from Sanford], with id. at 8 [Akerman's draft memorandum].)
Sanford even went so far as to request that Akerman "put on a Dorsey document code at lower left side like all of your docs have" to "make[ ] it real and traceable"; and Akerman complied. (Compare NYSCEF No. 461, at 9-10 [Akerman draft of memo at 5:18 P.M. on January 12, 2016], with id. at 14 [email from Sanford at 6:17 P.M. requesting document code], with NYSCEF No. 463 [final version of memo containing document code].)
In other words, Sanford was closely involved in preparing the very memorandum that he and his attorneys would later argue to the First Department entitled him to rely upon as legal advice provided to him by his counsel, so as to defend himself against the Knops' contempt motion for violating the First Department's escrow order. Yet neither Sanford nor Akerman later disclosed that Sanford had helped draft his counsel's advice to himself.
The court is not aware of any evidence that McGuire knew that Sanford had helped draft the "Akerman-to-Sanford" memorandum.
To the contrary, while the memo was being drafted, Sanford asked Akerman to "send [the memorandum] with a fresh email (no chain) with Subject line: Record of Today's Call" — thereby concealing the numerous emails between Sanford and Akerman in which Sanford supplied input on the substance and appearance of Akerman's memo to himself. (NYSCEF No. 461, at 14.)
In short: The materials Berry provided to this court on August 23 further indicate that Sanford deliberately and wrongfully sought a way to evade the restrictions of an extant escrow court order from the First Department — and that Sanford used communications between himself and his attorneys to further this wrongful act.
This additional evidence was not before the First Department when the Court issued an order in June 2016 that denied the Knopfs' motion to have Sanford held in contempt for his actions relating to the sale of the penthouse unit, in which the Court wrote that the escrow order was no longer in effect at the time of the sale. (Cf. Knopf , 2019 NY Slip Op. 29220, at *33-*36 [explaining why the Court's June 2016 order did not preclude a finding that Sanford committed a wrongful act and used attorney-client communications in furtherance of that act].)
B. Whether Sanford Used the Subpoenaed Communications with McGuire toFurther Wrongful Acts.
In light of the additional evidence provided by Berry, this court gave heightened, searching scrutiny to the subpoenaed Sanford-McGuire emails to assess whether probable cause exists to believe that any of those emails furthered Sanford's wrongful efforts to evade being held accountable by the First Department for his evasion of the Court's escrow order.
Having conducted this searching inquiry, this court lacks probable cause to believe that any communication Sanford turned over for in camera review furthered wrongful acts so as to come within the scope of that exception to the attorney-client privilege. Some of the communications would (unsurprisingly) shed light on the overall nature and scope of McGuire's representation of Sanford; but that is quite different from establishing probable cause that the communications aided Sanford in committing wrongdoing. This court therefore concludes that the Knopfs' May 9, 2018, subpoena does not require Sanford to disclose the attorney-client communications he submitted to the court for review on August 5, 2019.
As noted above, the subpoena for these communications was limited to the period August 1, 2015, to February 7, 2016, inclusive. This court expresses no opinion on any other communications between Sanford and McGuire.
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That conclusion is not, however, the end of the matter. At the time of the communications in question, McGuire was a partner at the Dechert law firm. The materials Berry provided to this court on August 23, 2019, include emails to Berry from a current partner at Dechert that briefly summarize communications between Sanford and McGuire that were found in Dechert's computer system. (See NYSCEF No. 462.) And at least one of those communications — an email sent by Sanford to McGuire on February 1, 2016, at 3:35 P.M. — appears to have been omitted from Sanford's production to this court and, as described, might contain information relevant to the wrongful-act inquiry. (See id. at 4.) It is unclear why Sanford failed to submit that particular email to this court for its review; or whether Sanford also failed to submit other responsive emails.
Sanford is therefore directed, within seven days, to provide this email to the court for its review; to conduct a renewed search of his email system for any responsive emails that he failed previously to submit to the court; and to provide a sworn affidavit explaining his failure to produce the February 1, 2016, 3:35 P.M., email and attesting to his renewed search for responsive documents. Sanford is hereby warned that any failure to comply with this directive may be grounds for holding him in contempt of court.
Accordingly, it is
ORDERED that as to the emails that Sanford submitted to this court on August 5, 2019, for its in camera review, item 6 of the Knopfs' May 9, 2018 document subpoena to Sanford is quashed on the ground of the attorney-client privilege; and it is further
ORDERED that within seven days Sanford shall submit to this court for its in camera review the email that he sent to McGuire on February 1, 2016, at 3:35 P.M.; and it is further
ORDERED that within seven days Sanford shall conduct a renewed search of his emails for any other communications with McGuire that are responsive to item 6 of the Knopfs' subpoena but were not previously submitted to this court, and shall submit any such emails to the court for in camera review; and it is further
ORDERED that within seven days Sanford shall provide this court with a sworn affidavit explaining his failure to submit the February 1 email and attesting to his renewed search for responsive emails.