Opinion
19175/99.
Decided September 28, 2004.
Talkin Muccigrosso Roberts, NY, NY, Attorney for Plaintiff.
Mark H Stofsky, Esq., Brooklyn, NY, Attorney for Defendant.
In this case defendants have failed to comply with two discovery orders. Their dilatory behavior has unduly delayed the resolution of this action. Plaintiff has moved, pursuant to CPLR § 3126 (3), to strike defendants' answer because of their continued disobedience to court ordered discovery. In Kihl v. Pfeffer, 94 NY2d 118, 123 (1999), Chief Judge Kaye, for a unanimous court, instructed that:
If the credibility of court orders and the integrity of our judicial system are to be maintained, a litigant cannot ignore court orders with impunity.
Indeed, the Legislature, recognizing the need for courts to be able to command compliance with their disclosure directives, has specifically provided that a "court may make such orders . . . as are just," including dismissal of an action (CPLR 3126). Finally, we underscore that compliance with a disclosure order requires both a timely response and one that evinces a good-faith effort to address the requests meaningfully. As will be explained below, defendants' multiple failures to comply in a timely manner with discovery orders and defendants' lack of good faith to attempt to address plaintiff's discovery requests require this Court to grant plaintiff's motion and strike defendants' answer.
Statement of facts and procedural history
This case involves a contract dispute. In July 1995 the parties entered into a contract (exhibit D of cross-motion). Plaintiff received "the exclusive license to conduct its photography and video business upon the business premises of the restaurant nightclub [operated by May Entertainment Group, Inc.] at 1035 Brighton Beach Avenue, Brooklyn, New York," for $60,000, payable in four installments. It is undisputed that plaintiff made the first three payments, totaling $45,000. The final $15,000 payment was due "within three (3) months after the restaurant opens for business." Defendant Bronstein signed the agreement as President of defendant corporation. Defendant May leased the premises from Oceana Holding Corporation, the owner of the property, for ten years. (Bronstein deposition, exhibit E of cross-motion, p. 6). Defendant Bronstein, on p. 5 of his deposition, admitted that he was one of only three shareholders in tenant defendant May, and he admitted, on p. 6 of his deposition, that he was also a shareholder and officer of landlord Oceana. The May restaurant opened in December 1996 and closed in August 1997 (Bronstein deposition, p. 26). Subsequent to that date, a new tenant rented the premises from Oceana and currently occupied the space (Bronstein deposition, p. 26 and p. 30). In his deposition, p. 26, lines 19 to 22, defendant Bronstein admitted being the landlord to the current tenants.
Plaintiff, on or about May 24, 1999, commenced the instant breach of contract action by summons and complaint. Issue was joined with defendants' answer filed and served or about July 9, 1999. Plaintiff and defendant Bronstein gave depositions on January 30, 2001. On October 3, 2002, a Request for Judicial Intervention was filed and a Preliminary Conference (P.C.) was conducted on November 4, 2002.
The P.C. order (exhibit A of motion) stated that: defendant to provide to the extent available, Lease for premises for 1996 to present, S.L.A. licenses and correspondences, Authorizations for defendant's IRS records 1996 to present, contracts or leases w/tenants of premises since 1996, any books or records Relating to premises from 1996 to present. [Sic]
Further, the P.C. order stated that the discovery "end date" is May 3, 2003, and the note of issue due date is June 3, 2003. The attorneys for both plaintiff and defendants signed the P.C. order on the third page, below the statement that "THE PARTIES HAVING APPEARED FOR A PRELIMINARY CONFERENCE ON THIS DATE HAVE REVIEWED THE TERMS AND/OR CONDITIONS OF THIS ORDER AND HEREBY CONSENT TO SAME." [Emphasis added]
Defendants failed to provide any of the above-enumerated discovery items. The case was stricken from the calendar because plaintiff could not file a note of issue in a timely fashion (paragraph 11 of affirmation in support of motion). Defendants, in their affirmation in opposition, do not refute this.
Justice Michael Garson, on January 7, 2004, ordered (exhibit B of motion) the case restored to the active calendar, with discovery to be completed by February 16, 2004 and a note of issue to be filed by February 27, 2004. Defendants' counsel states that he requested a letter from plaintiff's counsel setting forth outstanding discovery (paragraph 9 of affirmation in opposition). Plaintiff's counsel sent a letter to defendants' counsel, dated January 16, 2004 (exhibit G of cross-motion), which stated that everything was still outstanding from the November 4, 2002 P.C. order except for State Liquor Authority records.
In paragraph 10 of his affirmation in opposition, defendants' counsel states, "I responded with a letter dated February 18, 2004 [Emphasis added] enclosing a tax authorization for the corporate defendant's tax records and informing counsel for the plaintiff that there are no other documents in possession of the defendant that they are requesting." This letter (exhibit H of cross-motion) specifically claims, "my client informs me that he is not in possession of any contracts, leases or books and records relating to the premises from 1996 to present." This letter is dated two days after discovery was ordered completed by Justice Garson.
On February 23, 2004, plaintiff's counsel filed and served the instant motion to: strike defendants' answer because of defendants' "adamant refusal and failure to respond to and comply with Court-ordered discovery demands/directions"; extending the time to file a note of issue, with an inquest to take place after the filing of a note of issue and payment of any requisite fees; related preclusion and compulsion relief; and, such other relief "as this court may deem just and proper." Defendants, on March 17, 2004, filed and served a cross-motion for summary judgment to: dismiss defendant Bronstein individually; or in the alternative for a protective order directing that defendant Bronstein not provide any authorizations for his income tax returns.
CPLR § 3126 penalties for failure to comply with discovery orders
The failure of a party to comply with discovery orders in the instant case is similar to the discovery failure in Kihl v. Pfeffer, supra. In Kihl, the parties consented to a Nassau County Supreme Court discovery order at a March 18, 1996 P.C. Discovery was ordered to be completed within six months, and plaintiff was to respond to interrogatories of defendant Honda Motor Company within 30 days of receipt of the interrogatories. Later, on March 18, 1996, Honda served plaintiff with interrogatories. After not receiving any response, on September 13, 1996, almost five months after the court-mandated deadline, Honda moved to strike plaintiff's complaint or compel a response. Plaintiff opposed Honda's motion and served responses on December 10, 1996. Honda continued to seek dismissal on the grounds that the responses were "inadequate and totally unresponsive in clear violation of the Court's Order," Kihl, at 121. On March 31, 1997, the trial judge granted Honda's motion to dismiss for failure to comply with the P.C. order, unless plaintiff adequately responded within 20 days after the second discovery order was served on plaintiff's counsel. Honda claimed it served the new order on June 6, 1997. An issue, not germane to the instant case, arose with respect to whether plaintiff was properly served.
The trial judge struck the complaint on February 9, 1998. The Second Department affirmed, with two dissents on the issue of service of the second order. This brought Kihl to the Court of Appeals as of right, pursuant to CPLR § 5601 (a). Putting aside the service issue, in which the Court of Appeals ruled for Honda, Judge Kaye, at 122, affirmed the striking of the complaint by instructing that:
when a party fails to comply with a court order and frustrates the disclosure scheme set forth in the CPLR, it is well within the Trial Judge's discretion to dismiss the complaint (Zletz v. Wetanson, 67 N.Y.2d 711, 713, 499 N.Y.S.2d 933, 490 N.E.2d 852).
In the instant case, defendants failed to comply with the discovery that they consented to in the November 4, 2002 P.C. order and further ordered by Justice Garson on January 7, 2004. Defendants' counsel does not offer any excuse for his failure to comply with the discovery order in his affirmation in opposition to the instant motion. An examination of the court file for the instant case, shows that in his December 22, 2003 affirmation in opposition to the motion to restore the case to the calendar, defendant's counsel stated in paragraph 10 that, "[p]laintiff's abandonment of the matter is inexcusable," but he offers no explanation for defendants' failure to comply with the November 4, 2003 P.C. order.
Several months ago, on June 21, 2004, the Appellate Division, Second Department issued two decisions, affirming Supreme Court dismissals of cases for failure of a party to comply with discovery orders. Each decision cited Kihl. In Royal Caterers, LLC, v. Marine Midland, 8 A.D.3d 549, the Court held that:
Plaintiff's repeated failure to comply with court-ordered discovery and their failure to timely pay monetary sanctions imposed was clearly willful, deliberate, and contumacious conduct. Thus, the Supreme Court, providently exercised its discretion in dismissing their complaint ( see Kihl v. Pfeffer, 94 N.Y.2d 118, 120-124, 700 N.Y.S.2d 87, 722 N.E.2d 55; [further citations omitted].) . . .
In Wilson v. Galicia Contracting Restoration Corp., 8 A.D.3d 560, the defendant failed to show any meritorious defense and justifiable excuse for:
its two-year long pattern of failure to response to discovery demands, court orders, or the conditional order to strike the answer. Given the extent of the inactivity, the Supreme Court providently exercised its discretion in striking the answer ( see Kihl v. Pfeffer, 94 N.Y.2d 118, 120-124, 700 N.Y.S.2d 87, 722 N.E.2d 55).
CPLR § 3126 (3) authorizes the striking of "pleadings or parts thereof" if a party "refuses to obey an order for disclosure or wilfully fails to disclose information which the court finds ought to have been disclosed." As noted above in Royal Caterers, LLC, for the court to strike a pleading, the offending party's conduct must be "willful, deliberate, and contumacious." Webster's New Collegiate Dictionary defines contumacious as "stubbornly disobedient." In Harris v. City of New York, 211 A.D.2d 663 (2d Dept 1995), the court stated that "[I]t is well settled that the drastic remedy of striking an answer is inappropriate absent a clear showing that the failure to comply with discovery demands is willful, contumacious, or in bad faith [citations omitted]."
The Appellate Division, Second Department has held that trial courts may strike pleadings for a party's willful, deliberate and contumacious failure to comply with disclosure orders and a party's failure to offer any reasonable excuse for delay. In Frias v. Fortini, 240 A.D.2d 467 (1997) the Court affirmed the Supreme Court's dismissal of plaintiff's complaint for failure to comply with two discovery orders to provide medical authorizations in a personal injury action. The Court held that:
It is equally well settled that where a party disobeys a court order and by his or her conduct frustrates the disclosure scheme provided by the CPLR, dismissal of a pleading is within the broad discretion of the trial court ( see, Zletz v. Wetanson, 67 N.Y.2d 711, 713 . . .; Brady v. County of Nassau, 234 A.D.2d 408 . . .; Eagle Star Ins. Co. Of Am. v. Behar, 207 A.D.2d 326 . . .). Furthermore, the absence of an excuse for the delay in responding to discovery demands, and the delaying party's failure to object to the demands, supports an inference that the failure to comply was willful ( see, Brady v. County of Nassau, supra; Mills v. Ducille, 170 A.D.2d 657, . . .).
Further, in Espinal v. City of New York, 264 AD2d 806 (2d Dept 1999) the Court affirmed the striking of defendant's answer because "defendants' willful and contumacious conduct can be inferred from their repeated failures to comply with orders directing disclosure and the inadequate excuses offered to excuse their failure to comply." See Polanco v. Duran, 278 AD2d 397 (2d Dept 2000); Conch Associates, Inc., v. PMCC Mortgage Corp., 303AD2d 538 (2d Dept 2003); Beneficial Mortgage Corporation v. Lawrence, 5 AD3d 339 (2d Dept 2004); Mendez v. City of New York, 7 AD3d 766 (2d Dept 2004); Rowell v. Joyce, 2004 NY Slip Op 06487 (2d Dept September 7, 2004); Kroll v. Parkway Plaza Joint Venture, 2004 NY Slip Op 06517 (2d Dept September 13, 2004).
The Appellate Division, First Department held in Kutner v. Feiden, Dweck Sladkus, 223 A.D.2d 488 (1996), at 489, that:
Defendants' disobedience of a series of court orders directing the production of documentary material . . . constituted precisely the sort of dilatory and obstructive, and thus contumacious, conduct warranting the striking of their answers ( see, Zletz v. Wetanson, 67 N.Y.2d 711, . . . [further citations omitted]).
In the instant case, defendants partially complied with the discovery orders by disclosing correspondence with the State Liquor Authority. Two days after Justice Garson's discovery deadline, defendants' counsel provided tax authorizations to plaintiff's counsel. A defendant's pattern of partial compliance with discovery requests and court orders, with no reasonable excuse, has been held to be "willful and contumacious conduct." See Cauley v. Long Island Railroad Company, 234 AD2d 252 (2d Dept 1996); La Valle v. City of New York Department of Sanitation, 240 AD2d 639 (2d Dept 1997); United States Fire Insurance Company v. J.R. Greene, Inc., 272 AD2d 148 (1st Dept 2000).
Proposed protective order for defendants' tax returns
In the instant case, defendants request in their cross-motion that this Court issue a protective order to preclude plaintiff's counsel from receiving tax records of defendant Bronstein. Defendants' claim that these records have no probative value and that they are requested to harass and annoy defendant Bronstein. Contrary to this assertion, with defendants' failure to comply with court orders and claim that the business records of defendant May can't be located, defendant Bronstein's tax records are necessary for plaintiff to get a clearer picture of how the operations of May, Oceana Holding Corp. and defendant Bronstein worked together. In defendant Bronstein's deposition he admitted that he is a stockholder and officer of both Oceana and May. The nature of his relationship with May and Oceana raises serious questions about the propriety of the contract between plaintiff and defendants. The tax authorizations are necessary to determine if the corporate veil of May can be pierced. The Appellate Division, First Department, held in Forum Insurance Company v. Texarkoma Transportation Co., 229 AD2d 341, 342 (1996) that:
Under New York law, the corporate veil can be pierced where there has been, inter alia, a failure to adhere to corporate formalities, inadequate capitalization, use of corporate funds for personal purpose, overlap in ownership and directorship, or common use of office space and equipment (Wm. Passalacqua Bldrs. v. Resnick Developers South, 933 F.2d 131, 139 [2nd Cir.]).
In Matter of Morris v. New York State Dept. of Taxation and Finance, 82 NY2d 135, 141 (1993) the Court of Appeals held that:
The party seeking to pierce the corporate veil must establish that the owners, through their domination, abused the privilege of doing business in the corporate form to perpetrate a wrong or injustice against that party such that a court in equity will intervene ( see, Guptill, supra, at 365 [Matter of Guptill Holding Corp. v. State of New York, 33 AD2d 362]; National Labor Relations Bd. v. Greater Kan. City Roofing, 2 F3d 1047, 1052-1053).
In the instant case, plaintiff needed defendant Bronstein's tax authorizations to determine if there were grounds to pierce the corporate veil. See Giarguaro S. p. A., v. Amko International Trading, Inc., 300 AD2d 349 (2d Dept 2002).
While the disclosure of tax returns is disfavored because of their confidential nature, in the instant case, with the absence of defendant May's corporate records, plaintiff has shown the overriding necessity to produce defendant Bronstein's tax returns. Matthews Industrial Piping Co., Inc., v. Mobil Oil Corporation, 114 AD2d 772 (1st Dept 1985); Latture v. Smith, p/k/a LL Cool J, 304 AD2d 534 (2d Dept 2003); Samide v. Roman Catholic Diocese of Brooklyn, 5 AD3d 463 (2d Dept 2004).
Striking of an answer similar to defendant defaulting
The striking of a defendant's answer, pursuant to CPLR § 3126 (3), for defendant's willful, deliberate and contumacious refusal to comply with discovery orders is equivalent to defendant's defaulting in answering the summons and complaint. Fappiano v. City of New York, 5 AD3d 627 (2d Dept 2004). If defendants' answer is stricken an inquest must be conducted to determine damages. Hudson v. City of New York, 267 AD2d 351, 352 (2d Dept 1999).
Conclusion
Plaintiff's motion to strike defendants' answer due to defendants' willful, deliberate and contumacious failure to comply with two court orders for discovery is granted.
Defendants' cross-motion for summary judgment to dismiss defendant Bronstein individually, or in the alternative, for a protective order directing that defendant Bronstein not provide any authorizations for income tax returns is denied in its entirety.
The Clerk is directed to schedule an inquest on the issue of damages.
This constitutes the decision and order of the court.