Opinion
Index No. 655823/2020 MOTION SEQ. No. 002
01-11-2023
GERALD KATZOFF, GFB RESTAURANT CORP., Plaintiff, v. BSP AGENCY, LLC, PROVIDENCE DEBT FUND III L.P., BENEFIT STREET PARTNERS SMA LM L.P., BENEFIT STREET PARTNERS SMA-C L.P., PROVIDENCE DEBT FUND III MASTER (NON-US) FUND L.P., BENEFIT STREET PARTNERS SMA-C SPV L.P. Defendant.
Unpublished Opinion
MOTION DATE 09/30/2022
DECISION + ORDER ON MOTION
HON. MARGARET A. CHAN
The following e-filed documents, listed by NYSCEF document number (Motion 002) 53, 54, 55, 56, 57, 58, 59, 60, 64, 65, 66, 67, 68, 71, 72, 73, 74, 75, 76, 77, 78, 79, 80 were read on this motion to/for DISCOVERY
In this action alleging defendants' wrongful conduct, including tortious interference with non-party Brian Galligan's contracts with plaintiffs, plaintiffs move under CPLR 3124 for an order compelling defendants to produce documents in response to plaintiffs' first set of document requests.
Plaintiff Gerald Katzoff is the Chairman and Manager of the II Mulino restaurant group (II Mulino) which is co-owned and co-operated by non-party Brian Galligan, an experienced restauranteur (NYSCEF # 1 - complaint, ¶ 2). In 2002, Katzoff provided the capital for the acquisition of the original II Mulino restaurant while Galligan agreed to use his expertise to operate the restaurant (id., ¶¶ 46-48). Plaintiff GFB Restaurant Corp. (GFB) is the entity that owns the original II Mulino restaurant. Under Katzoff and Galligan's partnership, II Mulino eventually expanded from a single location into a fine dining restaurant group with sixteen locations (id., ¶ 52).
Beginning in June 2015, defendants BSP Agency, LLC, Providence Debt Fund III, L.P., Benefit Street Partners SMA LM L.P., Benefit Street Partners SMA-C L.P., Providence Debt Fund III Master (Non-US) Fund L.P., and Benefit Street Partners SMA-C SPV L.P. (collectively, BSP) entered into various agreements with non-party borrowers (Borrowers) to provide loans to II Mulino restaurants for their expansion (id., ¶¶ 54, 61). The Borrowers eventually defaulted on the loans in July 2020, and Katzoff filed bankruptcy petitions on behalf of fifteen II Mulino entities (id., ¶ 180). In the bankruptcy sale, BSP acquired the assets of II Mulino (NYSCEF # 39-Tr. 7-12-21 Oral Argument, 32:14-33:6, 35:1-8).
On October 29, 2020, plaintiffs commenced this action by filing a summons and complaint, essentially alleging that defendants engaged in so-called "loan-to-own scheme" by using allegedly fraudulently induced loans and personal guarantees to improperly seize ownership and control of II Mulino (complaint, ¶ 1). The complaint alleges four causes of actions: (1) lender liability, (2) tortious interference with contracts, (3) tortious interference with prospective business relations, and (4) fraudulent inducement (id., ¶¶ 191-210). By Decision and Order dated December 22, 2021, the court granted defendants' motion to dismiss in part, dismissing the first, third, and fourth causes of action, leaving the second cause of action for tortious interference with contracts the only cause of action in this action (NYSCEF # 42).
With respect to the sole surviving claim, plaintiffs allege that under a consulting agreement, Galligan is prohibited from competing with the original II Mulino restaurant (complaint, ¶ 49). Further, under three operating agreements, Galligan and Katzoff each owe contractual and fiduciary duties to II Mulino and to each other (id., ¶¶ 51-52, 89, 91-92). Plaintiffs allege that BSP tortiously interfered with Galligan's contractual and fiduciary obligations to plaintiffs by, among other things, prohibiting Galligan from working for any II Mulino entities that were not borrowers or guarantors under the BSP loans (complaint, ¶¶5, 50, 198).
The document requests sought to be compelled (Requests) are directed to BSP. In its responses and objections, BSP refuses to produce documents in response to 77 out of the total 87 document requests (Request Nos. 6-28, 30, 32, 35-85, 87) on the grounds that these requests are purportedly irrelevant to the sole remaining claim and are based on allegations in the complaint related to the already-dismissed claims. For the remaining requests (Request Nos. 1-5, 29, 31, 33-34, 86), plaintiffs allege that BSP only produced a limited amount of responsive documents. The parties were unable to resolve their discovery disputes.
Plaintiffs now move to compel BSP to produce documents in response to all 87 Requests, arguing that they are relevant to the remaining claim since they pertain to BSP's "loan-to-own scheme," which was "the motive and intent behind BSP's tortious interference with Galligan's contracts" (NYSCEF # 59 - pltfs' brief at 2). Plaintiffs further argue that BSP cannot cherry-pick documents that it "unilaterally deems to be 'relevantt']" instead of "all documents responsive" to the requests (id. at 17-18). In opposition, besides refusing to comply with the document requests because those requests are unreasonable and disproportionate as they seek documents relating to the claims already dismissed, BSP claims that it has produced all relevant and responsive documents and thus fulfilled its discovery obligation.
There shall be "full disclosure of all matter material and necessary in the prosecution or defense of an action" (CPLR 3101[a]). The words "material and necessary" are "liberally interpreted to require disclosure, upon request, of any facts bearing on the controversy which will assist in sharpening the issues for trial" (Roman Catholic Church of Good Shepherd v Tempco Sys., 202 A.D.2d 257, 257-258 [1st Dept 1994]). Disclosure is thus not limited to "evidence directly related to issues raised by the pleadings" (Allen v Crowell-Collier Publ. Co., 21 N.Y.2d 403, 408 [1968]). At the same time, "unlimited disclosure is not permitted" (Harris v Pathmark Stores, Inc., 48 A.D.3d 631, 632 [2d Dept 2008]), and "under [New York] ... discovery statutes and case law, ... the need for discovery must be weighed against any special burden to be borne by the opposing part" (Forman v Henkin, 30 N.Y.3d 656, 662 [2018] [citations omitted]; see also Preamble to Rule 11 of the Commercial Division Rules ["It is important that counsel's discovery requests... are both proportional and reasonable in light of the complexity of the case and the amount of proof that is required for the cause of action"]).
Under this standard, the court finds that the information sought in Request Nos. 6-28, 35-85 and 87 are not "material and necessary-i.e., relevant" to the sole remaining claim for BSP's tortious interference with Galligan's contracts (Forman, 30 N.Y.3d at 661]). Instead, these document requests mostly relate to BSP's alleged "loan-to-own scheme" that underlies plaintiffs' other claims, all of which were dismissed by the court.
The court is not persuaded by plaintiffs' argument that they are entitled to discovery of documents related to BSP's "loan-to-own scheme" since BSP's interference of Galligan's contracts was part of the scheme. The elements for a tortious interference with contract claim include the existence of a valid contract with a third party, the defendant's knowledge of the contract, the defendant's intentional and improper procuring of a breach, and damages (White Plains Coat & Apron Co., Inc. v Cintas Corp., 8 N.Y.3d 422, 426 [2007]). While BSP's motive and intent for interfering with Galligan's contracts may arguably relate to BSP's "intentional and improper procuring of a breach," the relevancy is too attenuated, and it is unduly burdensome for discovery into the yearslong history between the parties and issues unrelated to the claim (see Martin A. v Gross, 171 A.D.2d 491, 491 [1st Dept 1991] [finding document request that seeks system-wide planning and policies is overbroad]).
Also, Request Nos. 1-5 and 86 should be stricken as they lack specificity and are unduly burdensome and overbroad (see NYSCEF # 55, Request No.1 [seeking all documents relating to the allegations in the complaint], Nos. 2;5 [seeking all documents relating to the consulting agreement and operating agreements], and No. 86 [seeking all communications with BSP regarding II Mulino, Katzoff, and/or Galligan]) (Harris, 48 A.D.3d 631; Bill v Cobble Hill Health Center, Inc., 22 A.D.3d 620, 621 [2d Dept 2005]; see also Preamble to Commercial Division Rule 11).
On the other hand, Request Nos. 29-34, to most of which BSP does not object, are relevant to the tortious interference with contracts claim. The information sought in the Requests relates to the interaction between BSP and Galligan concerning, for instance, Galligan's services and employment with II Mulino and contractual obligations to plaintiffs and II Mulino entities, thus are material and necessary to plaintiffs' prosecution of the sole remaining claim (Furman, 30 N.Y.3d at 661). These Requests are also sufficiently specific to place BSP on notice of the exact nature of the particular information being sought (Tempco Sys., 202 A.D.2d at 257). Therefore, BSP is compelled to produce documents only to the extent that are responsive to Request Nos. 29-34.
The parties also dispute whether BSP's prior production in response to Request Nos. 6-28, 30, 32, 35-85, 87 were incomplete and included only the documents that BSP unilaterally deems relevant. In this connection, BSP shall provide an affidavit averring that all responsive, non-privileged documents have been produced when it makes the production in compliance with this order. In case the parties disagree as to whether there exist additional responsive, non-privileged documents yet not produced by BSP, the parties shall meet and confer to resolve the dispute to the best extent possible and may contact the court's law clerk (ywang@nycourts.gov) to schedule a discovery conference.
Accordingly, it is
ORDERED that plaintiffs' motion to compel document production is granted in part as to document Request Nos. 29-34 and is otherwise denied; and it is further
ORDERED that within 30 days of the entry of this order, defendants are directed to produce documents responsive to Request Nos. 29-34 that have not previously been produced and provide an affidavit averring that all responsive, non-privileged documents in its possession, custody, or control have been produced.