Opinion
Index No. 655331/2021 Motion Seq. No. 003 Nyscef Doc. No. 80
11-03-2022
NEEDHAM & COMPANY, LLC, Plaintiff, v. UPHEALTH HOLDINGS, INC., UPHEALTH SERVICES, INC., Defendant.
Unpublished Opinion
MOTION DATE 10/11/2022
DECISION + ORDER ON MOTION
MARGARET A. CHAN J.S.C.
The following e-filed documents, listed by NYSCEF document number (Motion 003) 49, 50, 51, 52, 53, 54, 55, 56, 57, 58, 59, 60, 61, 62, 63, 64, 65, 66, 67, 68, 69, 70, 71, 72, 73, 74, 75 were read on this motion to/for QUASH SUBPOENA, FIX CONDITIONS
In this action arising from defendants' alleged failure to pay plaintiff Needham &Company, LLC a transaction fee for its services, defendants and nonparty Dr. Avi S. Katz (Dr. Katz, together with defendants, movants) move to quash plaintiffs subpoena duces tecum and ad testificandum under CPLR 2304 or, alternatively, for a protective order under CPLR 3103. Plaintiff opposes the motion.
Background
According to the complaint, defendant UpHealth Services, Inc. (Services) retained plaintiff Needham &Company, LLC under a letter agreement (NYSCEF # 10-the Engagement Agreement) as the "exclusive financial advisor" for Services' acquisition of certain "Target Companies" engaged in digital medicine (NYSCEF # 2-complaint, ¶ 1). Plaintiff alleges that Services and its successor, UpHealth Holdings, Inc. (Holdings) breached the Engagement Agreement by failing to pay a percentage-based transaction fee in connection with a business combination between a non-party GigCapital2, Inc (GigCapital2) and Holdings (id., ¶¶ 7-10). Dr. Katz is the founder, chairman and CEO of GigCapital2 and was involved in discussing the business combination (id., ¶ 30).
Defendants deny that the GigCapital2-Holdings combination is a "Transaction" under the Engagement Agreement for which plaintiff is entitled to a transaction fee (NYSCEF # 8-answer, ¶¶ 52, 55, 64) and assert that, at most, plaintiff is entitled to a transaction fee in connection with a contribution exchange between Services and Holdings and Holdings' acquisition of five target companies, which defendants deem to count as a "Transaction" (id., ¶ 68,' counterclaim, ¶¶ 4-7, 56, 67-72).
The subpoena sought to be quashed is directed to Dr. Katz, requiring him to appear for a deposition and produce documents related to (1) "the transaction fee referenced in the Complaint owed to Needham by Services and Holdings" and (2) the Engagement Agreement concerning any liability to Needham (NYSCEF # 51-Subpoena, Schedule A, ¶¶ 1-2). The subpoena attaches a copy of the complaint filed in this action and states that Dr. Katz has information about the transaction fee "as reflected in, among other things, emails that [Dr. Katz] sent on November 9 and 21, 2020, and January 28 and February 1, 2021" and "other information relevant to the claims and the defenses asserted in this action" (id., at 1).
Dr. Katz and defendants move to quash the subpoena, arguing that Dr. Katz has no unique or necessary and relevant knowledge regarding the Engagement Agreement. They also argue that plaintiff fails to demonstrate that the information it seeks is unavailable from other sources or not duplicable of discovery already taken by plaintiff. Alternatively, movants seek a protective order limiting any future depositions and document requests directed to Dr. Katz.
In opposition, plaintiff argues that this motion is frivolous as it knowingly misstates the applicable law. Specifically, plaintiff contends that Dr. Katz fails to meet his burden of showing that the discovery is utterly irrelevant or that the futility of uncovering anything legitimate is inevitable or obvious. Plaintiff also argues that the discovery directed to Dr. Katz is material and necessary to this action and is not duplicative of the discovery already taken.
In reply, movants counter that depositions of senior executives like Dr. Katz should be limited where the information sought is available from other sources and the senior executive has no unique knowledge. Movants also maintain that the documents sought would largely duplicate the documents plaintiff has already obtained.
Discussion
In Kapon v Koch (23 N.Y.3d 32 [2014]), the Court of Appeals outlined the corresponding burdens on a motion to quash non-party subpoena. The subpoena is facially sufficient if the subpoenaing party states the "circumstances or reasons" that support disclosure from the non-party "either on the face of the subpoena itself or in a notice accompanying it" (Kapon, 23 N.Y.3d at 39). Notably, "[i]t is the one moving to vacate the subpoena who has the burden of establishing" that "the futility of the process to uncover anything legitimate is inevitable or obvious ... or [that] the information sought is utterly irrelevant to any proper inquiry" (id., at 38-39 [emphasis added]). Should the movant meet this burden, the subpoenaing party then must establish that the discovery sought is "material and necessary," which standard has been interpreted liberally as allowing disclosure of any facts that is relevant to the prosecution or defense of the action (id., at 38; see also Forman v Henkin, 30 N.Y.3d 656, 661 [2018] ["material and necessary-i.e., relevant."]).
Here, the subpoena plainly satisfies the minimal notice requirement as it includes the reasons for seeking the disclosure by stating that Dr. Katz "ha[s] information concerning the transaction fee owed to [plaintiff] by [defendants], as reflected in, among other things, emails that [Dr. Katz] sent on November 9 and 21, 2020, and January 28 and February 1, 2021" and attaching a copy of the complaint (NYSCEF #51).
Moreover, movants have failed to meet their burden of demonstrating that the information sought in the subpoena is utterly irrelevant to this action. Movants argue that Dr. Katz was not involved in the negotiation or drafting of the Engagement Agreement, which was executed months before he interacted with Services in his capacity as GigCapital2's CEO. Movants also allege that while Dr. Katz has knowledge about the transaction that occurred under the Engagement Agreement, that knowledge is "neither unique nor particularly relevant" (NYSCEF #52, at 6-7).
The crux of the dispute in this action is whether the business combination between GigCapital2 and Holdings constitutes a "Transaction" as defined in the Engagement Agreement that gives rise to a fee owed to plaintiff. In light of Dr. Katz's role as GigCapital2's CEO in the company's combination with Holdings which is central to plaintiff s claims, Dr. Katz's conclusory denial of relevancy is not sufficient to establish that "the discovery sought is utterly irrelevant" (Kapon, 23 N.Y.3d at 38). Moreover, even though plaintiff does not bear the initial burden of establishing that the information sought is relevant, it is reasonable to infer from the emails referred to by plaintiff in its subpoena and opposition brief that Dr. Katz has knowledge pertaining to the issue (see e.g. NYSCEF # 68-Flanders Exh N [email dated September 21, 2020, on which Dr. Katz was copied, included a summary of a call about the GigCapital2-Holdings business combination and indicated Dr. Katz's knowledge regarding how that business combination should be structured]; NYSCEF # 72-Flanders Exh P [email dated November 21, 2020, sent from Dr. Katz, suggesting that Dr. Katz has knowledge regarding Needham's "engagement and the fees that they will be owned on the combination with GigCapital2"]; NYSCEF # 66-Flanders Exhibit L [email dated January 28, 2021, sent from Dr. Katz to Needham concerning Needham's transaction fees]).
The court is also not persuaded by movants' argument that due to Dr. Katz's senior-executive status, any deposition directed to him should be restricted because the information sought is available from elsewhere and he has no unique knowledge. Significantly, as plaintiff points out, Kapon has made clear that the subpoenaing party is not required to show that it cannot obtain the requested disclosure from any other source before it can seek the same from non-party (Kapon, 23 N.Y.3d at 38,' Lyons v N.Y. City Economic Dev. Corp., 2021 NY Slip Op 31670[U], 10 [Sup Ct, NY County 2021]). In this regard, movants counter that plaintiffs reliance on Kapon misses the mark because Kapon only set the rule for non-party depositions but did not address any limitations on senior-executive depositions.
The cases relied on by movants in arguing that non-party discovery is available only upon a showing of special circumstances such as that the information sought cannot be obtained from other sources were abrogated by Kapon and contain no longer good law (see e.g. NYSCEF # 52-movants' brief, at 7'9, citing the following cases'Tannenbaum v City of N. Y., 30 A.D.3d 357 [1st Dept 2006]; Dioguardi v St. John's Riverside Hosp., 144 A.D.2d 333 [2d Dept 1988]; Cerasaro v Cerasaro, 9 A.D.3d 663 [3d Dept 2004]).
Yet, movants fail to cite any applicable authority adopting any additional limitation or exception for senior-executive depositions. Specifically, movants inappropriately rely on Nauka v Plenum Publ. Corp., 266 A.D.2d 157 (1st Dept 1999). The First Department in Nauka vacated the subpoenas not because the deponents were senior executives but because the information sought "was readily obtainable from other deponents"-a ground later rejected in Kapon (Nauka, 266 A.D.2d at 157; Kapon, 23 N.Y.3d at 38). Movants also rely on another pre-Kapon case: Daou v Huffington, 2013 WL 6162980 (Sup Ct, NY County, Feb. 14, 2013). While the court in Daou did not foreclose the parties' use of the term "apex deposition rule," it did not acknowledge any additional limitation for senior-executive depositions that departs from the standards set forth in Kapon (Daou, 2013 WL 6162980, *7; Thomson, 51 Mise 3d at 1056 [noting that Kapon "does not even acknowledge such an exemption or exception for the depositions of senior executives, even though one of the petitioners in that case was the chief executive officer of the nonparty corporation"]). In fact, the court in Daou observed that senior executives are "not immune joerse from discovery or from depositions" (Daou, 2013 WL 6162980, *7). As discussed above, plaintiff has demonstrated that the information sought from Dr. Katz is relevant to its claims. Therefore, absent a showing that plaintiff subpoenaed Dr. Katz solely in order to harass GigCapital2, plaintiff is entitled to depose Dr. Katz.
The "apex deposition rule" is a doctrine recognized in federal courts that "seeks to limit harassment and disruption to businesses by restricting requests to depose high-ranking corporate executives" (Vestis Invs. II, LLC v. SportsDirect.com Retail Ltd., 2019 NY Slip Op 32810[U], 5 [Sup Ct, NY County 2019]; Thomson v Zillow, Inc., 51 Mise 3d 1050, 1055 [Sup Ct, NY County 2016]).
Additionally, movants argue that the documents sought from Dr. Katz are duplicative of the discovery previously provided. This argument is insufficient since the subpoenaing party is not required to show that it cannot obtain the requested disclosure from any other source (Kapon, 23 N.Y.3d at 38). Further, although some correspondence that Dr. Katz had with defendants and/or plaintiff have been produced by the parties and would be duplicative if sought again from Dr. Katz, it appears that some documents are missing and certain material regarding communications Dr. Katz had with non-parties about Needham's engagement and the fee (e.g. Dr.Katz's financial advisors) were not produced and not available from another source. The court also does not find the disclosure sought to be overly duplicative or voluminous. Thus, the motion to quash plaintiffs subpoena is denied.
For example, plaintiff argues that it has discovered "a number of highly relevant emails from Dr. Katz that Defendants did not produce" (NYSCEF # 53-plaintiffs opp, at 13-14), with examples given in a letter (NYSCEF # 69-Flanders Exhibit O). In reply, counsel for defendants and Dr. Katz countered that "for many of those documents, defendants had produced similar or identical documents" (NYSCEF # 75-Lesser Exhibit A).
In the alternative, movants request for a protective order limiting further discovery requests directed to Dr. Katz. CPLR 3103 "permits a court to issue a protective order 'denying, limiting, conditioning or regulating the use of any disclosure device' where necessary 'to prevent unreasonable annoyance, expense, embarrassment, disadvantage, or other prejudice to any person or the courts'" (Liberty Petroleum Realty, LLC v Gulf Oil, L.P., 164 A.D.3d 401, 403 [1st Dept 2018] [quoting CPLR 3103[a]]). "Trial courts are vested with broad discretion to issue appropriate protective orders to limit discovery.... [T]his discretion is to be exercised with the competing interests of the parties and the truth-finding goal of the discovery process in mind" (Nunez v Peikarian, 208 A.D.3d 670, 671 [2d Dept 2022]). Here, movants have not made the requisite showing needed to warrant the issuance of a protective order.
To the extent not specifically addressed here, the court finds the movants' remaining arguments to be without merit.
Conclusion
Accordingly, it is hereby
ORDERED that defendants and non-party Dr. Avi S. Katz's motion to quash plaintiffs Subpoena Duces Tecum and Ad Testificandum, or alternatively, enter a protective order with regard to the subpoena is denied.