Opinion
652616/2017
12-16-2020
PJD CORPORATE REALTY, INC., Plaintiff, v. HENRY GEORGE SCHOOL OF SOCIAL SCIENCE, Douglas Elliman Real Estate, Edinburgh Seven Seas LLC, Defendant.
Plaintiff: Dilworth Paxson LLP, 99 Park Avenue, Suite 320, New York, NY 10016, By: Patrick J. Dwyer, Esq. Defendant: Henry George School of Social Science and Douglas Elliman Real Estate, Robert C. Angelilo, Esq., 750 Lexington Avenue, 25th Fl., New York, NY 10022, By: Robert C. Angelilo, Esq. Defendant: Edinburgh Seven Seas LLC, Koss & Schonfeld, LLP, 90 John Street, Suite 503, New York, NY 10038, By: Jacob Schindelheim, Esq.
Plaintiff: Dilworth Paxson LLP, 99 Park Avenue, Suite 320, New York, NY 10016, By: Patrick J. Dwyer, Esq.
Defendant: Henry George School of Social Science and Douglas Elliman Real Estate, Robert C. Angelilo, Esq., 750 Lexington Avenue, 25th Fl., New York, NY 10022, By: Robert C. Angelilo, Esq.
Defendant: Edinburgh Seven Seas LLC, Koss & Schonfeld, LLP, 90 John Street, Suite 503, New York, NY 10038, By: Jacob Schindelheim, Esq.
Robert R. Reed, J.
The following e-filed documents, listed by NYSCEF document number (Motion 004) 125, 126, 127, 128, 129, 130, 131, 132, 133, 134, 135, 136, 137, 138, 139, 140, 141, 142, 145, 146, 147, 148, 149, 150, 151, 152, 153, 154, 155 were read on this motion for DISCOVERY.
In this motion (motion sequence number 004; NYSCEF Doc. No. 125), plaintiff PJD Corporate Realty, Inc. (PJD) seeks an order of the court compelling defendant Henry George School of Social Science (HGS) to produce documents previously demanded by PJD, but which were not produced or were allegedly redacted improperly by HGS. For the reasons stated herein, the relief requested in the motion is granted to the extent set forth below.
Background
The description below is based primarily upon PJD's amended complaint (AC; NYSCEF Doc. No. 128) filed against defendants HGS, Douglas Elliman Real Estate (Douglas Elliman) and Edinburgh Seven Seas LLC (Edinburgh), as well as PJD's memorandum of law in support of the instant motion to compel (PJD Brief; NYSCEF Doc. No. 126).
On July 7, 2015, HGS retained PJD to act as "exclusive broker" in connection with its search for new office space in New York City, pursuant to a letter that contained "an original termination date of January 31, 2016 that would automatically renew for six-month intervals, unless cancelled on 60-days prior notice" (Retention Letter; AC, ¶ 6). On January 8, 2017, HGS notified PJD that it would immediately terminate the Retention Letter and PJD's authorization to act as exclusive broker (AC, ¶ 7). On or about April 28, 2017, with the help of Douglas Elliman, HGS closed the transaction for the purchase of a building located at 149 East 38th Street, New York City (Property) that was owned and sold by Edinburgh; but HGS failed to recognize PJD as exclusive broker and prevented it from obtaining payment of a brokerage commission pursuant to the Retention Letter (AC, ¶ 10). The amended complaint asserts claims sounding in breach of contract, fraud, tortious interference of contract, conspiracy, among others.
Prior to the closing of the Property, PJD became aware of the "potential backdoor transaction" and wanted protection of its rights under the Retention Letter (PJD Brief at 1). Thus, PJD communicated with HGS and Douglas Elliman that PJD was entitled to be recognized as HGS's exclusive broker, which "ultimately" resulted in Douglas Elliman agreeing, pursuant to a letter dated March 31, 2017 (DE Letter), to "indemnify and hold HGS harmless from any claim by PJD for a brokerage commission if HGS would complete the purchase" (id. at 3). In the DE Letter, written by Douglas Elliman and addressed to HGS (NYSCEF Doc. No. 136), besides setting forth the indemnity and hold harmless provision, Douglas Elliman claimed that it was the sole broker that brought about the sale of the Property from Edinburgh to HGS, and stated that its commission would be paid by Edinburgh pursuant to a separate agreement (DE Letter, ¶¶ 1-2).
After motions to dismiss plaintiff's amended complaint were filed by HGS and Douglas Elliman (motion sequence number 002) and by Edinburgh (motion sequence number 003), but before any "substantive discovery" was obtained from Douglas Elliman or Edinburgh, in an order dated March 29, 2019 (Prior Order; NYSCEF Doc. No. 146), this court granted the motions to dismiss in favor of Douglas Elliman and Edinburgh (holding that neither owed any obligation to PJD). The Prior Order indicated, however, that the claims against HGS would continue to stand (at least until the conclusion of discovery that could support a motion for summary judgment) for the reasons stated in the record, as reflected in the transcript of oral argument on the motions. On appeal, the Prior Order was unanimously affirmed by the Appellate Division of the First Department on June 11, 2020 ( PJD Corp. Realty, Inc. v. Henry George Sch. of Social Science , 184 AD3d 440 [1st Dept 2020] [Appellate Decision; NYSCEF Doc. No. 144).
In support of its motion, besides filing the PJD Brief, plaintiff submitted an affirmation of its counsel Patrick Dwyer (Dwyer Affirmation; NYSCEF Doc. No. 127). The substance of the Dwyer Affirmation and the PDJ Brief is discussed below, along with HGS's opposition thereto.
The Parties' Divergent Positions
In the Dwyer Affirmation, plaintiff's counsel states that PJD has demanded all documents related to the Property transaction, and, despite multiple requests, HGS "has failed to produce certain documents, or to produce documents in complete format without redactions of otherwise responsive materials under the guise of an improper claim of attorney-client privilege" (Dwyer Affirmation, ¶ 4). Counsel also states that, in response to repeated demands, HGS produced a privilege log (NYSCEF Doc. No. 132), which purportedly substantiates its reason for withholding some documents in their entirety and others produced with redactions, based on attorney-client privilege (id., ¶¶ 5-8 [discussing various entries in the privilege log and related documents] ). Counsel further states that HGS belatedly produced an additional 20 pages of documents on April 29, 2020 (NYSCEF Doc. No. 137), but did not produce a privilege log for the additional pages, and that, as such, these documents must be produced in full without redaction (id., ¶ 12). Counsel further asserts that an e-mail produced by HGS (NYSCEF Doc. No. 138) made reference to a "deal sheet" involving Douglas Elliman, HGS and Edinburgh, and that the deal sheet must be produced because it is a "potentially informative yet improperly withheld document" (id., ¶ 13). Furthermore, counsel asserts that HGS never produced an "executed brokerage agreement with Douglas Elliman," even though HGS has conceded that Douglas Elliman "was acting as a broker for both the buyer and the seller in the transaction" (id., ¶ 14).
Supplementing the Dwyer Affirmation, PJD asserts that the contested documents that were improperly withheld or produced with redactions were shared with or originated with third party Douglas Elliman, in contrast with documents that reflect communications between a client (HGS in this case) and its attorney for the purpose of obtaining legal advice, and that, accordingly, the attorney-client privilege does not apply, and "the documents must be turned over to PJD as discoverable materials" (PJD Brief at 4; citing, among other cases, Spectrum Sys. Intl. Corp. v. Chemical Bank , 78 NY2d 371 [1991] [Spectrum] [attorney-client privilege attaches to communications between attorney and client for purpose of obtaining legal advice; failure to maintain confidentiality waives the privilege] ). PJD also asserts that, to the extent HGS claims that it has an agency relationship with Douglas Elliman, the claim is unavailing because HGS never produced an executed agreement reflecting a brokerage relationship with Douglas Elliman, and, as such, there is no viable claim that the documents shared between HGS, its counsel and Douglas Elliman are entitled to any privilege from disclosure (PJD Brief at 4). PJD further asserts that the "most fatal point" to any claim of an agency relationship for creating an attorney-client privilege is the inclusion of the hold harmless provision in the DE Letter, which reflected Douglas Elliman's "bare-faced inducement" for HGS to "falsely deny PJD as its exclusive broker" so as to deny PJD a brokerage commission (id. at 5). Thus, PJD argues that the documents exchanged between HGS, its counsel and Douglas Elliman were in furtherance of a fraudulent scheme to deprive PJD of its commission, and the documents exchanged between "duplicitous partners" cannot come under the umbrella of the attorney-client privilege (PJD Brief at 6, citing Art Capital Group LLC v. Rose, 54 AD3d 276 [1st Dept 2008] ). Furthermore, PJD asserts that the yet-to-be-produced "deal sheet" has "no apparent privilege and should be turned over immediately" (PJD Brief at 6).
In its opposition to the motion to compel (HGS Opp.; NYSCEF Doc. No. 152), HGS contends that there are five reason for denying the motion (HGS Opp. at 2-10). First, email communications between HGS and its attorney, "with no other individual copied or included," are entitled to attorney-client privilege protection and need not be produced (id. at 4, citing Spectrum , 78 NY2d at 377 ). Second, emails between HGS, its attorney and its real estate agent Douglas Elliman are also protected by the privilege and the "agency exception to any purported waiver" (HGS Opp. at 5, citing Gama Aviation Inc. v. Sandton Capital Partners , L.P., 99 AD3d 423, 424 [1st Dept 2012] [Gama ] ). Third, emails between HGS, its attorney and Douglas Elliman are further protected by the "common interest" or "joint defense" privilege (HGS Opp. at 7, citing Omni Health & Fitness Complex of Pelham, Inc. v. P/A-Acadia Pelman Manor , 33 Misc 3d 1211 [A], 2011 NY Slip Op 51895 [U] [Sup Ct, Westchester County 2011] ). Fourth, PJD's invocation of the "crime fraud exception" to the attorney-client privilege is "absurd" and contrary to the rulings in the Prior Order and the Appellate Decision, which dismissed claims based on alleged conspiracy among HGS, Douglas Elliman and Edinburgh (HGS Opp. at 8). Fifth, as discovery is ongoing, additional documents that have not been produced can be obtained by PJD via demands on HGS for the same; and any issue regarding privilege "can be explored at deposition, and [a] denial of this motion can be without prejudice to renew after the close of discovery" (id. at 10).
Discussion
It is well-established that for the attorney-client privilege to apply the communication from the attorney to the client must be made for the purpose of facilitating the rendition of legal advice in the course of a professional relationship, and the communication must be primarily of a legal character; however, the privilege is only limited to the communications, not the underlying facts ( Spectrum , 78 NY2d at 377-378 ) [internal citation omitted] ). Because the privilege shields pertinent information from disclosure and becomes "an obstacle to the truth-finding process," it must be narrowly applied or construed, and the party seeking the protection must bear the burden of establishing entitlement to such privilege ( Ambac Assur. Corp. v. Countrywide Home Loans, Inc., 27 NY3d 616, 624 [2016] [Ambac ] ).
With respect to HGS's assertion that this privilege affords the email communications between it and its attorney absolute immunity from discovery (i.e. 11 of the 37 emails identified in the privilege log), the Court of Appeals has ruled that "whether a particular document is or is not protected is necessarily a fact-specific determination . . . most often requiring in camera review" (Spectrum , 78NY2d at 378 [internal citation omitted] ). Indeed, the Court reached the conclusion that the report prepared by defendant Chemical Bank's outside counsel, which was retained to perform a fraud investigation and to render legal services, was entitled to attorney-client privilege only after the Court's own review of the report and the undisputed facts in the record ( id. at 379 ). Notably, the Court also observed that "it would have been better practice for the trial court in this case," before deciding whether to grant Chemical Bank's motion for a protective order, "to have conducted an in camera review ‘to have allowed for a more informed determination as to whether the information was indeed protected from disclosure’ " ( id. at 381 [internal citation omitted] ). Therefore, the 11 emails identified in the privilege log must be produced by HGS for an in camera review.
As to HGS's claim that the attorney-client privilege extends to all communications with Douglas Elliman based on the "agency exception" theory described in the Gama decision, the claim to entitlement must be also "narrowly construed" ( Spectrum , 78 NY2d at 377 ; Ambac , 27 NY3d at 624 [privilege is "strictly confined within the narrowest possible limits consistent with the logic of its principle"] ). Notably, while the First Department stated in Gama that the exception "exists for one serving as an agent of either attorney or client" ( Gama , 99 AD3d at 424 ), it did not discuss the relationship between the third-party (identified in the decision as "Alireza Ittibadieh") with the plaintiff or its attorney, even though the decision unequivocally also stated that "attorney-client communications shared with a third-party generally are not privileged" ( id. at 424 [internal quotation marks and citation omitted] ). Therefore, HGS's reliance on Gama , without further explanation, is misplaced.
It is also clear that only communications made after establishment of the agency relationship are protected by the privilege ( Robert V. Straus Prods. v. Pollard , 289 AD2d 130, 131 [1st Dept 2001] ). Hence, all communications between HGS, its counsel and Douglas Elliman before Douglas Elliman became HGS's broker, which are at issue here, are not entitled to privilege protection. Further, while Douglas Elliman served as the "sole broker" for the transaction with Edinburgh, the assertion of an "agency exception" appears to be undermined by the DE Letter, in which Douglas Elliman agreed to hold HGS harmless in the event a brokerage commission dispute arose in connection with the transaction. Indeed, as argued by PJD in its reply brief (PJD Reply; NYSCEF Doc. No. 155), if HGS and Douglas Elliman were in an agency relationship, there was no need to insist on the hold harmless agreement because, according to PJD, both HGS and Douglas Elliman knew that PJD was the "exclusive broker" for HGS under the Retainer Letter (PJD Reply at 6). Moreover, it has been held that the agency exception only applies where the presence of the third party is necessary to enable or facilitate the attorney-client communication and the client has a reasonable expectation of confidentiality ( Ambac , 27 NY3d at 624-625 ). No such showing has been made here.
In the years since Gama was decided, the First Department has revisited the agency exception on various occasions. Recently, in Matter of Energy & Envtl. Legal Inst. v. Attorney Gen. of the State of NY , 162 AD3d 458 (1st Dept 2018), the First Department ruled that the respondent's right to assert the agency exception (specifically, the inter- or intra-agency exemption to FOIL) as to an email sent to it was "not waived," where the sender added a third party to the "cc" field of the email and "instructed the third party to print attached materials and deliver them to respondent, in the absence of any expectation that the third party would review the substance of those materials or disclose them to others" ( id. at 458, citing Gama ). Based on this ruling, the agency exception seems to be dependent upon the role played by the particular third-party agent and upon the client's reasonable expectation of that third-party agent maintaining confidentiality of the communication (see also La Suisse Societe d'Assurances Sur La Vie v. Kraus , 62 F Supp 3d 358, 365-366 [SD NY 2014] [insurance broker was not an agent of the policyholders in their action against the insurer, and thus communications between policyholders' attorney and broker regarding such action were not protected by attorney-client privilege, as there was no evidence that policyholders authorized broker to act as agent for purpose of seeking legal advice] ). Here, HGS has not presented evidence, in the form of an affidavit from a person with personal knowledge of the facts, to support the application of the agency exception with respect to its communications with Douglas Elliman. Instead, HGS argues that, even if there is a dispute regarding whether Douglas Elliman served as agent for purposes of the agency exception, "if Plaintiff believes that there is any question in this regard, it is free to explore that at deposition, and [a] denial of this motion can be without prejudice to renew after the close of discovery" (HGS Opp. at 6). Because HGS has not met its burden of establishing entitlement to the extension of the attorney-client privilege under the agency exception theory, its second reason for denying the motion to compel is unavailing.
As noted above, HGS argues that the communications at issue are protected by the common interest privilege, and that the instant motion should be denied for this independent reason. PJD counters that, after issuance of the Prior Order and the Appellate Decision, its claims against Douglas Elliman have been dismissed and, thus, the common interest defense must fail (PJD Reply at 9). In Ambac , the Court of Appeals analyzed the common interest defense, and held that the defense should not be applied "in the absence of pending or anticipated litigation," because "any benefits that may attend such an expansion of the doctrine are outweighed by the substantial loss of relevant evidence, as well as the potential for abuse" ( Ambac , 27 NY3d at 629 ). Here, the record reflects that (1) in the DE Letter, dated March 13, 2017, Douglas Elliman agreed to hold HGS harmless if a broker commission dispute were to arise in connection with the Property transaction; (2) the original complaint was filed only against HGS on May 15, 2017; and (3) the amended complaint filed on August 13, 2018 added Douglas Elliman and Edinburgh as defendants. Based on the foregoing, it could be reasonably argued that the DE Letter, in which the hold harmless arrangement was made, is the document that reflected the parties' earliest concern of an "anticipated litigation" arising from the Property transaction. Accordingly, all communications between HGS and Douglas Elliman that predated March 13, 2017 are not entitled to the common interest defense and these documents must be produced.
As also noted above, HGS argues that, because the Prior Order and the Appellate Decision dismissed all claims against Douglas Elliman and Edinburgh, no conspiracy theory exists to support PJD's asserted crime fraud exception to attorney-client privilege. HGS also argues that the fraud claim against it must be dismissed because no entity is obligated to pay PJD a commission. These arguments are unpersuasive because, as pointed out by PJD, the issue of whether PJD can prevail on its claim against HGS was not before the First Department, and, even if the First Department ruled that there was no obligation on the part of Edinburgh to pay a commission because there is no contract between PJD and Edinburgh, the First Department did not conclude there is no obligation on the part of HGS (PJD Reply at 9). Also, because this motion is about the production of documents subject to an alleged privilege protection, not the resolution of claims, HGS must file an appropriate motion for a dismissal of claims ( Diamond State Ins. Co. v. Utica First Ins. Co. , 37 AD3d 160, 161 [1st Dept 2007] [discovery motion is not the proper vehicle for the resolution of substantive claims] ).
As its fifth and last argument, HGS asserts that there are no outstanding responsive documents that have not been produced, other than those identified in the privilege log, and that even if there were, there is ongoing discovery and plaintiff is free to serve additional document demands. This argument is without merit because ongoing discovery does not relieve HGS of its obligation to produce responsive documents, as New York law requires a full disclosure of all relevant materials and documents necessary to prosecute and defend an action, except for those specifically identified in the statute ( CPLR 3101 ). Also, as pointed out by PJD, despite three sets of document demands made upon HGS, it has yet to produce all relevant documents, including the "deal sheet" and other emails that are allegedly protected by attorney-client privilege (PJD Reply at 2-3). In short, HGS cannot use "ongoing discovery" as an excuse to evade its obligations to respond to document production demands. Such a tactic only serves to further delay the resolution of this litigation.
Conclusion
Based on all of the foregoing reasons, it is hereby
ORDERED that the relief requested by plaintiff in the instant motion to compel discovery (motion sequence number 004) is granted to the extent set forth above; and it is further
ORDERED that defendant Henry George School of Science is directed to submit the relevant documents to this court for an in camera review, as described above.