Opinion
Index No. 653189/2018
04-10-2020
RP BUSINESS MARKETING, INC., Plaintiff, v. TIMLIN INDUSTRIES, INC., Defendant.
For plaintiff RP Busines Marketing, Inc., Wing Keung Chiu, Oleg A. Mestechkin, and Nancy Lam, Mestechkin Law Group P.C., 1733 Sheepshead Bay Rd Ste 29, Brooklyn, NY 11235. For defendant Timlin Industries, Anthony Paul Balsamo, 111 John Street, Suite 800, New York, NY 10038 For defendant SM Consulting, LLC and Stephen McCleskey, David Carter Casagrande, Joseph Mure Jr. & Associates, 26 Court Street, Suite 2601, Brooklyn, NY 11242.
For plaintiff RP Busines Marketing, Inc., Wing Keung Chiu, Oleg A. Mestechkin, and Nancy Lam, Mestechkin Law Group P.C., 1733 Sheepshead Bay Rd Ste 29, Brooklyn, NY 11235.
For defendant Timlin Industries, Anthony Paul Balsamo, 111 John Street, Suite 800, New York, NY 10038
For defendant SM Consulting, LLC and Stephen McCleskey, David Carter Casagrande, Joseph Mure Jr. & Associates, 26 Court Street, Suite 2601, Brooklyn, NY 11242.
Andrew Borrok, J.
The following e-filed documents, listed by NYSCEF document number (Motion 005) 83, 84, 85, 86, 87, 88, 89, 92, 93, 94, 95, 96, 97, 98, 99, 100, 101, 102, 103, 104, 105, 106, 107, 108, 140, 141, 142, 143 were read on this motion to/for DISMISSAL
The following e-filed documents, listed by NYSCEF document number (Motion 006) 109, 110, 111, 112, 113, 114, 115, 116, 117, 118, 119, 133, 136, 145, 146, 147 were read on this motion to/for ENFORCE/EXEC JUDGMENT OR ORDER
The following e-filed documents, listed by NYSCEF document number (Motion 007) 120, 121, 122, 123, 124, 125, 126, 128, 129, 130, 131, 132, 134, 137, 138, 144 were read on this motion to/for ORDER OF PROTECTION
The following e-filed documents, listed by NYSCEF document number (Motion 008) 148, 149, 150, 151, 152, 153, 154, 155, 156 were read on this motion to/for DISCOVERY
Upon the foregoing documents and for the reasons set forth below (i) Stephen McCleskey and SM Consulting's (SMC , and together with Mr. McCleskey, the SM Parties ) motion (Mtn. Seq. No. 005) to dismiss RP Business Marketing, Inc.'s (RP ) first amended complaint (the FAC ) as filed against them pursuant to CPLR § 3211 (a) (8) is denied, (ii) RP's cross-motion for an order pursuant to CPLR §§ 305 (c), 2001, and 5019 (a) amending the caption, nunc pro tunc , to correct the names of the defendants is granted as unopposed, (iii) RP's motion (Mtn. Seq. No. 006) for sanctions against Timlin Industries, Inc. (Timlin ) pursuant to CPLR § 3126 for violating the court's order dated October 9, 2019 compelling Timlin to produce certain documents is granted in part as set forth below, (iv) Timlin's motion (Mtn. Seq. No. 007) for a protective order pursuant to CPLR § 3120 suppressing the use of bank records obtained from non-party US Bank, N.A (US Bank ) is denied, and (v) Timlin's motion (Mtn. Seq. No. 008) to compel RP to produce certain documents and to produce Tiana Wilson and Kaye Washington for depositions is granted in part.
I. THE RELEVANT FACTS AND CIRCUMSTANCES
Timlin is a telemarketing services company that makes cold calls to businesses from call lists to promote the services of its clients. One of its clients was RP. RP provides services to merchants including debit and credit card processing services, point of sale systems, electronic payment systems, cash advances, and business loans and lines of credit. Timlin alleges that it worked with another company, SMC, which is owned and operated by Mr. McCleskey. SMC hires and trains incarcerated individuals to work for Timlin's telesales business.
In this action, RP seeks an injunction and money damages against Timlin for breach of a certain Exclusive Telemarketing Services Agreement (the ETSA ), dated October 20, 2017, by and between RP and Timlin (NYSCEF Doc. No. 100). Pursuant to the ETSA, Timlin agreed to "provide certain telemarketing services ... to [RP] on a strictly exclusive basis" (ETSA, ¶ 1 [a] ). In addition, pursuant to Paragraph 2 of the ETSA, RP was required to provide Timlin with a database of leads and telemarketing scripts for each product (id. , ¶¶ 2 [a], [c] ).
Paragraph 5 (a) of the ETSA provides:
Exclusivity . Timlin's provision of Services to Client is exclusive to Client. Timlin may not, directly or indirectly, provide the Services or any variation thereof to any other third party who would be in direct competition of Client. Timlin will have 90 days from the signing of this contract to finish up any currently existing businesses that fall into that category. "Direct competition" shall mean any third party that markets merchant services and electronic payments as well as alternative loans and business financing" (id. , ¶ 5 [a] ).
The ETSA further provides:
Injunctive Relief . If the provisions of Section 5 are violated in whole or in part, Client shall be entitled upon application to any court of proper jurisdiction, to a temporary restraining order or preliminary injunction to restrain and enjoin Timlin and its affiliates, officers, directors, agents and principals from such violation without prejudice as to any other remedies Client may have at law or in equity without the necessity of posting a bond. In addition, in the event of a breach of this Section 5, Timlin shall be deemed to be in default under this Agreement (id. , ¶ 5 [d] ).
In addition, Paragraph 5 (c) of the ETSA contains a non-solicitation and non-compete provision, which provides:
Non-Solicitation; Non-Competition . During the term of this Agreement and for a period of One (1) year thereafter (regardless of the reason for termination), Timlin covenants and agrees that it will not, directly or indirectly, either for itself or for any party, including its directors, officers and principals: ... (iii) provide Services or engage in any telemarketing campaigns or other such marketing efforts to any other third party that competes with or is the same or similar business of Client in the United States or in Canada which shall include, but not be limited to, any third party that provides products or services similar to the services provided by Client and its affiliates.
And, as relevant to the instant motion, Paragraph 8 provides:
(i) Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to any conflict of laws principles.
(j) Venue . In the event of any dispute between the parties regarding the terms and conditions of this Agreement or the performance of any transaction between the parties contemplated herein, any legal action, suit, or proceeding resulting therefrom may only be instituted in a state or federal court in the State of New York and each party agrees not to assert, by way of motion, as a defense, or otherwise, in any such action, suit, or proceeding, any claim that it is not subject personally to the jurisdiction of such court, that the action, suit, or proceeding is brought in an inconvenient forum, that the venue of the action, suit, or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court. Each party further irrevocably submits to the jurisdiction of any such court in any such action, suit, or proceeding.
RP initially commenced this action by filing a summons and complaint, dated June 26, 2018 (NYSCEF Doc. No. 1), alleging that Timlin breached the exclusivity and non-compete clauses of the ETSA by working with RP's competitors. Timlin filed an answer and counterclaims seeking damages for breach of the ETSA, alleging that RP provided leads that were already three or four years old or were "duplicate leads," i.e. , leads that RP provided to other call centers, and that such leads were therefore "useless," and that RP interfered with Timlin's ability to perform its obligations under the ETSA and caused it to incur monetary damages. It is undisputed that the court has personal jurisdiction over Timlin pursuant to Paragraph 8 (j) of the ETSA and because Timlin has appeared in this action without challenging jurisdiction. The issue on this motion, as further discussed below, is whether the court has jurisdiction over the SM Parties.
At the outset of discovery, RP took the position that Mr. McCleskey was the Timlin employee primarily responsible for breaching the ETSA. As discovery progressed, Timlin took the position that Mr. McCleskey was not actually an employee but a subcontractor with his own company, SMC. RP then moved for leave to amend the complaint to add the SM Parties as defendants and to allege that they were the alter egos of Timlin (NYSCEF Doc. No. 30). By decision and order dated August 14, 2019, the court granted RP's motion (NYSCEF Doc. No. 51). RP served the FAC on the SM Parties on August 21, 2019, and the SM Parties now move to dismiss the FAC.
II. DISCUSSION
Pursuant to CPLR § 3211 (a) (8), a party may move for judgment dismissing the complaint on the ground that the court lacks personal jurisdiction. To survive a motion to dismiss pursuant to CPLR § 3211 (a) (8), "the plaintiff need only make a prima facie showing that the defendant is subject to the personal jurisdiction of the court" ( Whitcraft v Runyon , 123 AD3d 811, 812 [2014] ).
A. The SM Parties' Motion to Dismiss is Denied
a. General Jurisdiction
A court may exercise general jurisdiction over a defendant pursuant to CPLR § 301 on all causes of action where the defendant's ties to New York "are so ‘continuous and systematic’ as to render them essentially at home in the forum state" ( Goodyear Dunlop Tires Operations, S.A. v Brown , 564 US 915, 919 [2011], quoting International Shoe Co. v Washington , 326 U.S. 310, 317 [1945] ). "For an individual, the paradigm forum for the exercise of general jurisdiction is the individual's domicile" (Goodyear , 654 US at 924). And for a corporation, the paradigm forums are "the place of incorporation and [its] principal place of business" ( Daimler AG v Bauman , 571 US 117, 137 [2014] ). Only in an "exceptional case" will a corporation be subject to general jurisdiction in any other forum ( id. , at 138 n 19 ).
Here, RP argues that the SM Parties are subject to general jurisdiction pursuant to CPLR § 301 because they have had continuous and systematic business dealings with a company based in New York. Specifically, RP alleges that the SM Parties did significant business with Federated, a New York-based company and one of RP's competitors, for at least one year, and that they sent invoices to Federated in New York and derived at least $140,000 in revenue from Federated for their services (Pl. Mem. in Opp., at 10). RP argues that based on these contacts with New York, the SM Parties are essentially "at home" here. The court disagrees.
SMC is an Idaho corporation with its principal place of business in Idaho and Mr. McCleskey is a domiciliary of Idaho. In his affidavit in support of the SM Parties' motion to dismiss, Mr. McCleskey states that SMC has never maintained offices in New York or had employees based in New York, and has never advertised in New York or solicited business in New York (McCleskey Aff., ¶¶ 5-7). And, Mr. McCleskey states that he has only visited New York once in his life, more than seven years ago, and that his sole visit was unrelated to the subject matter of this lawsuit (id. , ¶ 4). The SM Parties' transactions with Federated, discussed in more detail below, are too attenuated to render them "at home" in New York. Accordingly, RP has not provided a basis for the court to assert general jurisdiction over the SM Parties.
b. Long Arm Jurisdiction
A court in New York may also exercise personal jurisdiction over a non-domiciliary defendant where (i) the court has long-arm jurisdiction over the defendant under CPLR § 302, and (ii) the exercise of such jurisdiction comports with due process ( Williams v Beemiller, Inc. , 33 NY3d 523, 528 [2019] ). As the Court of Appeals has explained, "[i]f either the statutory or constitutional prerequisite is lacking, the action may not proceed" (id. ). Unlike general jurisdiction, long-arm or specific jurisdiction "is confined to adjudication of issues deriving from, or connected with, the very controversy that establishes jurisdiction" ( Goodyear , 564 US at 919 ). In other words, "the suit must aris[e] out of or relat[e] to the defendant's contacts with the forum " ( Bristol-Myers Squibb Co. v. Superior Court of California, San Francisco Cty. , 137 S Ct 1773, 1780 [2017] [emphasis in original] [internal quotation marks and citation omitted] ).
New York's long-arm statute provides that, "a court may exercise personal jurisdiction over any non-domiciliary ... who in person or through an agent ... transacts any business within the state or contracts anywhere to supply goods or services in the state" ( CPLR § 302 [a] [1] ). This is a "single act statute," meaning that "proof of one transaction in New York is sufficient to invoke jurisdiction, even though the defendant never enters New York, so long as the defendant's activities here were purposeful and there is a substantial relationship between the transaction and the claim asserted" ( Kreutter v McFadden Oil Corp. , 71 NY2d 460, 467 [1988] ). "A non-domiciliary defendant transacts business in New York when ‘on his or her own initiative[,] the non-domiciliary projects himself or herself into this state to engage in a sustained and substantial transaction of business’ " ( D & R Global Selections, S.L. v Bodega Olegario Falcon Pineiro , 29 NY3d 292, 298 [2017], quoting Paterno v Laser Spine Inst. , 24 NY3d 370, 377 [2014] ).
And, the exercise of personal jurisdiction must also comport with due process ( D & R Global Selections, S.L. , 29 NY3d at 299 ). Due process requires that a defendant must have sufficient minimum contacts with New York such that the defendant should reasonably expect to be hailed into court here (LaMarca v Pak-Mor Mfg. Co. , 95 NYd 210, 216 [2000], quoting World-Wide Volkswagen Corp. v Woodson , 444 US 286, 297 [1980] ), and that requiring the non-domiciliary to defend the action in New York comports with "traditional notions of fair play and substantial justice" ( LaMarca , 95 NY2d at 216, quoting Intern. Shoe Co. v Washington , 326 US 310, 316 [1945] ).
The SM Parties argue that the allegations in the FAC do not support long-arm jurisdiction pursuant to CPLR § 302 because the SM Parties merely performed telemarketing services for Federated remotely from Idaho and sent invoices to Federated by mail, but they never entered New York or solicited business in New York. The argument is unavailing.
Although Mr. McCleskey denies that he solicited business in New York and asserts that the SM Parties have no contacts with New York, these conclusory self-serving denials are contradicted by the evidence submitted by RP in opposition to the instant motion which demonstrates that SMC did business with and sent at least seven invoices to a New York-based company for at least one year and received $140,000.00 for its services. Put another way, RP alleges that the SM Parties reached into New York and formed a substantial business relationship with a New York-based company, who is a direct competitor of RP, and which relationship now forms the basis for the instant lawsuit. In support of their position, RP proffers emails and invoices as evidence of the SM Parties' business dealings in New York. By contrast, Mr. McCleskey merely submits a conclusory denial, and otherwise fails to offer an explanation of SM Parties' business relationship with Federated in New York, which relationship allegedly is evidence of a breach of the ETSA.
RP has also established that the causes of action asserted in the FAC have an "articulable nexus" or "substantial relationship" with the SM Parties' transaction of business in New York ( Licci v Lebanese Can. Bank, SAL , 20 NY3d 327, 340 [2012] ). The causes of action in the FAC for breach of contract, unfair competition, breach of fiduciary duty, and tortious interference with prospective economic advantage all relate to the allegations that Timlin used the SM Parties as a vehicle to do business with one or more of RP's competitors in violation of the ETSA. As discussed, the transactions giving rise to long-arm jurisdiction are between the SM Parties and Federated, one of RP's direct competitors. And, by reaching into New York and forming a substantial business relationship, the SM Parties have purposefully availed themselves of the privilege of doing business in New York ( Paterno v Laser Spine Inst. , 24 NY3d 370, 377 [2014] ). Accordingly, the allegations in the FAC and the evidence submitted by RP establish the court's long-arm jurisdiction over the SM Parties.
To the extent that the SM Parties rely on Bloomgarden v Lanza (143 AD3d 850 [2d Dept 2016] ) to argue that they are not subject to long-arm jurisdiction because they merely performed services outside of New York without physically entering New York and only sent an invoice by mail, their reliance is misplaced. In Bloomgarden , the plaintiffs sued attorneys who lived in California for legal malpractice in connection with the their representation of the plaintiffs in an action brought in Florida against attorneys in Florida ( id. at 851 ). The trial court granted the defendants' motion to dismiss the complaint for lack of personal jurisdiction and the plaintiffs appealed (id. ). The Appellate Division, Second Department affirmed, holding that "the plaintiffs failed to show that the defendants actively projected themselves into New York to engage in a sustained and substantial transaction of business within New York, thereby purposefully availing themselves of the privilege of conducting activities in New York" (id. at 852). The Court explained that,
[t]he defendants communicated from California with the plaintiffs in New York via mail, telephone, and email because the plaintiffs were New York domiciliaries, not because the defendants were actively participating in transactions in New York, and the communications with the plaintiffs in New York all concerned the services that the defendants were performing in Florida (id. ).
Here, unlike the in Bloomgarden , RP has made a prima facie showing that the SM Parties reached into New York and engaged in a sustained and substantial transaction of business with Federated, a New York business. In other words, in Bloomgarden , the defendants' only contacts with New York were its communications with the plaintiffs who just happened to live in New York about a legal matter in Florida. In this case, by contrast, the SM Parties' communications and business relationship with a New York company were far more purposeful and substantial in that the SM Parties' were reaching into New York and advancing Federated's New York business.
The Court of Appeals decision in Parke-Bernet Galleries, Inc. v Franklin (26 NY2d 13 [1970] ) is more instructive. In Parke-Bernet , the defendant, a resident of California, sent two letters to the plaintiff, an art auctioneer, indicating his intent to bid for a painting at an upcoming action at the plaintiff's gallery in New York City ( id. at 15 ). On the evening of the auction, the defendant contacted the gallery by phone to communicate his bids for two works of art (id. ). The defendant was the highest bidder for both paintings. However, after the plaintiff submitted a bill to the defendant, the defendant failed to remit any payments ( id. at 15-16 ). The plaintiff sued and the defendant moved to dismiss, arguing New York lacked personal jurisdiction ( id. at 16 ). Following a hearing before a Referee, the Special Term granted the motion to dismiss and the Appellate Division affirmed (id. ). The Court of Appeals reversed ( id. at 19 ). In sustaining personal jurisdiction over the defendant, The Court of Appeals explained that the case
falls between the situation where a defendant was physically present at the time the contract was made—the clearest sort of case in which our courts would have 302 jurisdiction (see Longines-Wittnauer Watch Co. v Barnes & Reinecke , 15 NY2d 443, supra ; Harry Winston, Inc. v Waldfogel, D.C. , 292 F Supp 473 )—and the situation where a defendant merely telephones a single order from outside the State—a case in which our courts would not have such jurisdiction (see, e.g. , Katz & Son Billiard Prods. v Correale & Sons , 20 NY2d 903 ).
(id. at 17). The Court of Appeals held that the defendant purposefully availed himself of the privileges of doing business in New York by "project[ing] himself into the auction room" to participate in the auction, and that "[t]his activity far exceeded the simple placing of an order by telephone" (id. at 18).
Here, the facts in support of long arm jurisdiction are more compelling. The SM Parties have effectively projected themselves into New York by forming a business relationship with Federated in New York and communicating with Federated on a regular basis, including by mailing at least seven invoices to them in New York and collecting payments from, presumably, New York — i.e., as in Parker-Bernet , this activity far exceeds placing a single order by telephone. Although the SM Parties have not been forthcoming regarding their contacts with New York at this early stage of discovery, the allegations in the FAC and the evidence submitted by RP support a finding that the SM parties have purposefully availed themselves of the privileges of doing business in New York.
In addition, RP argues that the corporate veil should be pierced to obtain personal jurisdiction over the SM Parties as the alter egos of Timlin. As an initial matter, to the extent that the SM Parties argue that Delaware law should apply with respect to RP's alter ego claims, the court notes that the argument fails. The first step under New York's choice of law analysis is to determine whether there is an actual conflict between the jurisdictions involved, and where there is no actual conflict, New York law applies ( Matter of Allstate Inc. Co. (Stolarz) , 81 NY2d 219, 223 [1993] ; Elson v Defren , 283 AD2d 109, 114 [1st Dept 2001] ). There is no actual conflict here because the analysis to determine alter ego liability is substantially the same under New York law and Delaware law ( LiquidX Inc. v Brooklawn Capital, LLC , 254 F Supp 3d 609, 616 [SD NY 2017] ). For the avoidance of doubt, the choice of law provision set forth under Paragraph 8 (i) of the Agreement is immaterial as the SM Parties were not parties to the Agreement.
Under New York law, where a court has personal jurisdiction over a defendant, the court also has jurisdiction over the defendant's alter ego ( Southern New Eng. Tel. Co. v Global NAPs Inc. , 624 F 3d 123, 138 [2d Cir 2010] ), and such jurisdiction over the alter ego does not offend due process ( Transfield ER Cape Ltd. v Indus. Carriers, Inc. , 571 F 3d 221, 224 [2d Cir 2009] ). To plead an alter ego relationship, a plaintiff generally must allege: (i) "complete domination of the corporation in respect to the transaction attacked," and (ii) "that such domination was used to commit a fraud or wrong against the plaintiff which resulted in plaintiff's injury" ( Baby Phat Holding Co., LLC v Kellwood Co. , 123 AD3d 405, 407 [1st Dept 2014] ). In deciding if a party may be deemed an alter ego, courts consider several factors, including:
the disregard of corporate formalities; inadequate capitalization; intermingling of funds; overlap in ownership, officers, directors and personnel; common office space or telephone numbers; the degree of discretion demonstrated by the allegedly dominated corporation; whether dealings between the entities are at arm's length; whether the corporations are treated as independent profit centers; and the payment or guaranty of the corporation's debts by the dominating entity. No one factor is dispositive ( Fantazia Intern. Corp. v CPL Furs New York, Inc. , 67 AD3d 511, 512, citing Freeman v Complex Computing Co. , 119 F 3d 1044, 1053 [2nd Cir 1997] ).
In the FAC, RP alleges that the SM Parties: (i) have worked for Timlin for over ten years, (ii) manage the majority of Timlin's day-to-day operations, (iii) handle 90% of Timlin's business, (iv) discuss nearly all business matters with Timlin's management, and (v) work approximately 40 hours per week for Timlin (FAC ¶¶ 20 [a]-[h] ). RP further alleges that the SM Parties and Timlin share common office space as Mr. McCleskey has a desk from which he conducts work out of Timlin's office space and uses two of the four email addresses on the Timlin server (id. , ¶¶ 20 [b], [c] ). And RP alleges that unlike other Timlin employees, Mr. McCleskey was not required to seek approval from Timlin prior to signing a new client, and that the SM Parties and Timlin therefore did not deal at arms length (id. , ¶ 20 [f] ). Finally, RP alleges that the SM Parties "actively took part in the actions which harmed Plaintiff and about which Plaintiff complains in this action" (FAC, ¶ 58), which it argues supports the inference of Timlin's domination and control.
And, significantly, documents produced by the SM Parties in response to RP's initial discovery demands further support RP's allegations grounding alter ego jurisdiction. By way of example, RP submits an email, dated March 28, 2018, with the subject line "Fed," from Mr. McCleskey to Kaye Werner, a shareholder at Timlin, in which Mr. McCleskey writes: "I have the next deposit of 25k from Fed. Will you be taking 21 k again?" (NYSCEF Doc. No. 105), and a reply email, dated March 29, 2018, in which Ms. Werner responds: "Here's the invoice for 21 k that I'll be taking from your account" (id. ). Notably, Mr. McCleskey was using a Timlin email address: timlincontactcenter@gmail.com (id. ). Attached to the correspondence is an invoice for work performed by the SM Parties for Federated (id. ).
This evidence suggests that Timlin was receiving payments for work performed by the SM Parties on behalf of Federated, which supports RP's theory that Timlin used the SM Parties to provide services for Federated, a competitor of RP, which it could not do directly without violating the ETSA. Further, bank records of Timlin's account at US Bank submitted by RP show that the $21,000.00 payment referenced in the emails was transferred internally from one Timlin account to another (NYSCEF Doc. No. 107). This is indicative of a shared bank account, commingling of funds, or a lack of corporate formalities. Based on the allegations in the FAC, considered in light of the evidence submitted by RP, RP has made a prima facie showing of alter ego jurisdiction over the SM Parties.
Finally, RP alleges, in the alternative, that the SM Parties are agents of Timlin (FAC ¶¶ 19, 58, 59). Under New York law, "a court may have jurisdiction over the dominated corporation if it has jurisdiction over the principal," ( Avilon Automotive Group v Leontiev , 168 AD3d 78, 89 [1st Dept 2019] ). As the First Department has explained
[t]o establish that a defendant acted through an agent, a plaintiff must "convince the court that [the New York actors] engaged in purposeful activities in this State in relation to [the] transaction for the benefit of and with the knowledge and consent of [the defendant] and that [the defendant] exercised some control over [the New York actors]" ( Coast to Coast Energy, Inc. v Gasarch , 149 AD3d 485, 486-487 [1st Dept 2017], quoting Kreutter v McFadden Oil Corp , 71 NY2d 460, 467 [1988] ).
As discussed above, RP alleges that Timlin, acting through the SM Parties, used RP's proprietary information to solicit and provide telemarketing services to RP's known competitors in violation of the exclusivity provision and restrictive covenants set forth in the ETSA (FAC, ¶¶ 37-38, 40-42). The emails, invoices, and bank records submitted by RP in opposition to the instant motion establish that Timlin had knowledge of the SM Parties' business relationship with at least one of RP's competitors (i.e. , Federated), and support the inference that they consented to their business dealings. In addition, the evidence suggests that the SM Parties were acting for the benefit of Timlin because the emails and bank records show that Mr. McCleskey wired payments directly to Timlin that the SM Parties received from Federated. And, the allegations in the FAC and the evidence submitted by RP support the inference that Timlin exercised control over the SM Parties in that (i) Mr. McCleskey used a Timlin email account, (ii) the funds were transferred from one Timlin account to another, and (iii) the vast majority of the funds ($21,000.00 out of $25,000.00) were transferred directly to Timlin. This is also sufficient to establish jurisdiction over the SM Parties.
In other words, in addition to long arm jurisdiction, the Plaintiffs have pleaded (and offered admissible evidence supporting) at least a prima facie case of personal jurisdiction based on both the alter ego and agency theories which the SM Parties have failed to effectively rebut. Accordingly, there are three grounds for personal jurisdiction over the SM Parties and their motion to dismiss is therefore denied.
B. RP's Motion for Sanctions Against Timlin is Granted in Part
In motion sequence 006, RP moves to compel Timlin to produce documents in response to Demand No. 16 of the Plaintiff's Second Request for Production of Documents and to make a witness available to testify as to such information if needed. RP also seeks an award of the reasonable costs incurred by RP in bringing this motion as sanctions against Timlin pursuant to CPLR § 3126 for failing to comply with a court order compelling the production of responsive documents.
RP previously moved (Mtn. Seq. No. 004) on September 16, 2019 for an order compelling Timlin to produce documents responsive to the Plaintiff's Second Demand for Production, which included requests for Timlin's financials (NYSCEF Doc. No. 114). As relevant to the instant motion, Request No. 16 seeks copies of all of Timlin's financial statements reflecting revenues, costs, and profits from 2015 to the present (id. ). By decision and order, dated October 9, 2019 (the October 9 Order ), the court granted RP's motion and ordered Timlin to respond to all outstanding document demands by October 31, 2019 (NYSCEF Doc. No. 111).
RP alleges that Timlin has produced certain responsive documents but has failed to produce any financial statements as required pursuant to the October 9 Order. On November 1, 2019, Timlin produced an affidavit of Timthy Kloos, Timlin's President, stating in sum and substance that all responsive contracts, invoices, and billing statements had been produced, but Mr. Kloos' affidavit does not address the financial statements (NYSCEF Doc. No. 117). RP sent a deficiency letter to Timlin, dated November 11, 2019, outlining its perceived deficiencies in Timlin's document production including Timlin's failure to produce financial statements (NYSCEF Doc. No. 118). Timlin responded by letter, dated November 14, 2019, stating: "please be advised that the financial information you are demanding is privileged, confidential and proprietary and not related to income from other merchant service providers which has been fully disclosed," and asserting that the information sought is not relevant (NYSCEF Doc. No. 119). In opposition to the instant motion, Timlin re-asserts its position as set forth in its November 14 letter, i.e. , that the financial information is privileged, confidential, and irrelevant. Simply put, the court disagrees.
The financial statements sought by RP are material and necessary to RP's claims in this action. Significantly, email communications between the SM Parties and Timlin produced by the SM Parties indicate that Timlin received revenue from the SM Parties for work performed for Federated, a competitor of RP. Based on these communications, RP is entitled to review Timlin's financial statements to determine whether Timlin received other revenue relating to work performed for Federated or other competitors. Any financial statements showing such revenue would be directly relevant to RP's theory that Timlin used the SM Parties as a vehicle through which Timlin could do business with one or more of RP's competitors, which they were prohibited from doing under the ETSA. Therefore, the portion of RP's motion seeking an order compelling the production of documents responsive to Request No. 16 and compelling Timlin to produce a witness to testify as to such information is granted.
However, the imposition of sanctions, which is generally considered a drastic remedy, is not appropriate at this time. Pursuant to CPLR § 3126, where a party "refuses to obey an order for disclosure or wilfully fails to disclose information which the court finds ought to have been disclosed pursuant to this article, the court may make such orders with regard to the failure or refusal as are just," which may include an award of costs and attorneys' fees ( Maxim, Inc. v Feifer , 161 AD3d 551, 554 [1st Dept 2018] ; Connors, Practice Commentaries, McKinney's Cons Law of NY, Book 7B, CPLR 3126:1, at 475—476). Here, Timlin attempted to comply with the October 9 Order by producing written responses and objections to RP's demands, making a significant document production, and producing a Jackson Affidavit regarding its efforts to locate and produce all documents that it in good faith believed that it was obligated to produce. Although a complete production has not yet been made, RP has not demonstrated that to date Timlin's conduct has been willful or contumacious such that sanctions would be warranted. Accordingly, that portion of RP's motion seeking sanctions against Timlin is denied.
C. Timlin's Motion for a Protective Order is Denied
In motion sequence 007, Timlin seeks a protective order suppressing the use of certain bank records obtained by RP from non-party US Bank. Pursuant to CPLR § 3120, a party may serve a subpoena on a third party at any time after commencement of an action "to produce and permit the party seeking discovery, or someone acting on his or her behalf, to inspect, copy, test or photograph any designated documents or any things which are in the possession, custody or control of the party or person served" ( CPLR § 3120 [1] [i] ). The subpoena must describe the items sought and set forth the time, place, and manner of the inspection, copying, or testing of the items ( id. , § 3120 [2] ). In addition, the party issuing the subpoena is required to "serve a copy of the subpoena upon all other parties and, within five days of compliance therewith, in whole or in part, give to each party notice that the items produced in response thereto are available for inspection and copying, specifying the time and place thereof" ( id. , § 3120 [3] ).
In support of its motion, Timlin argues that RP failed to serve the non-party subpoena on counsel for all defendants, (ii) the bank records are privileged and confidential, and (iii) that in any event, they are irrelevant. Timlin's arguments, however, fail.
First, RP submits an affidavit of service, dated November 18, 2019, showing that the subpoena was, in fact, served by First Class Mail on all defendants (NYSCEF Doc. No. 129). Second, Timlin argues that "plaintiff is not entitled to disclosure of the bank records, as the records are privileged and confidential and financial information of unrelated transactions" (Balsamo Aff., ¶ 4). However, "the burden of proving each element of the privilege rests upon the party asserting it ( Priest v Hennessy , 51 NY2d 62, 69 [1980] ), and here, Timlin fails to identify the basis for its assertion of privilege or to prove any of the required elements. Accordingly, no claim of privilege can be made herein. Nor does Timlin explain why the financial statements are confidential. In any event, and significantly, Timlin's concerns regarding confidential information can be addressed by entering into a confidentiality stipulation with RP. Third, the financial statements sought by RP are material and necessary to RP's claims in this action because, as discussed above, they will track any payments that Timlin may have received from RP's competitors in violation of the exclusivity clause of the ETSA. Therefore, Timlin's motion for a protective order is denied.
D. Timlin's Motion to Compel is Granted in Part
In motion sequence 008, Timlin moves for an order compelling RP to produce documents responsive to its Post Deposition Demands for Discovery (the Post EBT Demands ), dated November 12, 2019 (NYSCEF Doc. No. 150), and compelling RP to produce Tiana Wilson and Kay Washington for depositions pursuant to its Notices of Examination Before Trial (the Deposition Notices ), dated December 10, 2019 (NYSCEF Doc. No. 151).
Timlin seeks, among other things, documents and information relating to RP's allegation that it was forced to rebuild a new call center as a result of Timlin's actions, including any relevant leases, documents and information concerning "cash discount" programs, telemarketing service agreements, payment information for all telemarketers, and sources of leads. Timlin also served the Deposition Notices on RP seeking the depositions of Tiana Wilson and Kay Washington, two RP employees who were working with Timlin during the period of the contract and who Timlin asserts have knowledge of the quality of leads submitted by RP, the number of call centers operated by RP in competition with Timlin, and about information concerning "duplicate leads," which had to be cancelled. Timlin alleges that RP failed to respond to the Post EBT Demands or Deposition Notices.
By email, dated January 2, 2020, from RP to Timlin, RP stated that it was in receipt of Timlin's Deposition Notices, but was rejecting them as untimely as the time to take depositions had already passed in accordance with the October 9 Order, in which the court ordered that all depositions were to be completed by November 29, 2019 (NYSCEF Doc. No. 152). Timlin sent a good faith letter to RP, dated January 23, 2020, stating that the depositions are necessary to its claims and defenses and requesting that the parties work in good faith to resolve their discovery disputes (NYCSEF Doc. No. 153). RP did not respond and Timlin brought the instant motion.
In its opposition papers, RP argues that (i) it has already produced many of the documents sought and will produce any outstanding documents to the extent that production would not be improper, (ii) Timlin's Deposition Notices are untimely, but it will produce the witnesses if the court extends the discovery deadlines, (iii) to the extent the Post EBT Demands seek records of non-parties, RP has no ability to compel production of such documents, and (iv) Request Nos. 1, 2, 32, and 33 are irrelevant.
First, RP asserts that it has already produced over 1,000 pages of responsive documents in good faith. To the extent that Timlin claims that there are any outstanding documents, RP has agreed to continue collecting documents and to produce any outstanding responsive documents as soon as possible. Therefore, Timlin's motion to compel is granted with respect to Request Nos. 6, 7, 10, 11, 18, 19, 22, 23 and 26-31, and RP shall begin to produce any outstanding documents promptly and on a rolling basis, with all outstanding production to be completed within 60 days of the date of this decision and order.
Second, although the court ordered that all depositions in this matter be completed by November 29, 2019 and the Deposition Notices for these two witnesses were not served until December 10, 2019, Timlin is entitled to take the depositions of Ms. Wilson and Ms. Washington as they are employees of Timlin and may have relevant information regarding Timlin's counterclaims and defenses. Timlin would be significantly prejudiced if it is not permitted to take these depositions. And, importantly, RP has indicated that it will not object to producing these witnesses for depositions if the court extends the deadline for depositions. Accordingly, Timlin's motion to compel is granted as it relates to the depositions of Ms. Wilson and Ms. Washington and RP shall produce these witnesses for depositions as soon as practicable.
Third, Timlin's motion to compel is denied as it relates to the Post EBT Demands seeking certain documents concerning non-parties Canadian Payments Services, LLC (Request Nos. 3, 5, 8, 12, 16, 20, 24), YM Global Express Corp. (Request Nos. 4, 5, 9, 13, 17, 21, 25), and Richard Evans (Request Nos. 14, 15, 16, 17). RP has stated that these requests seek documents about non-parties that are not in RP's possession, custody, or control, and Timlin has not shown otherwise. A party cannot be compelled to produce documents not in its possession, custody, or control ( CPLR §§ 3120(1)(i), 3111 ; Vaz v New York City Trans. Auth. , 85 AD3d 902, 903 [2d Dept 2011] ). The proper mechanism to seek such documents is to serve the non-parties with subpoenas pursuant to CPLR § 3120. Therefore, that portion of Timlin's motion to compel documents in response to Request Nos. 3, 4, 5, 8, 9, 12, 13, 14, 15, 16, 17, 20, 21, and 25 from the above-referenced non-parties is denied.
With respect to Request Nos. 1 and 2, which seek RP and its parent company's leases for their office space, such disclosure is not relevant to any of Timlin's claims or defenses. It is well settled that "[i]t is incumbent on the party seeking disclosure to demonstrate that the method of discovery sought will result in the disclosure of relevant evidence or is reasonably calculated to lead to the discovery of information bearing on the claims" ( Crazytown Furniture, Inc. v Brooklyn Union Gas Co. , 150 AD2d 420, 421 [2d Dept 1989] ). Timlin fails to meet its burden to explain why these leases are material and necessary to RP's claims or Timlin's counterclaims. RP alleges that Timlin breached the ETSA and that it was required to create and staff a new call center, but nowhere does RP allege that it was required to lease additional space.
However, the motion to compel is granted as it relates to Demand Nos. 32 and 33, which seek records of all cash discount accounts that were transferred from RP and its parent company to non-party Slice Business Marketing. The documents sought in these requests are material and necessary to Timlin's counterclaims for damages arising from RP's alleged conduct in sharing leads and appointment settings for certain cash discount programs that were to be sent exclusively to Timlin pursuant to the ETSA.
Accordingly, it is
ORDERED that Stephen McCleskey and SM Consulting's motion (Mtn Seq. No. 005) to dismiss the first amended complaint as asserted against them is denied; and it is further
ORDERED that these defendants are directed to file an answer to the first amended complaint within 30 days; and it is further
ORDERED that RP Business Marketing, Inc.'s motion pursuant to CPLR §§ 305(c), 2001 and 5019(a), to amend the caption, nun pro tunc , by replacing the name of Defendants "SM CONSULTING, LLC d/b/a S & M CONSULTING" and "STEVE MCCLESKEY" with "SM CONSULTING" and "STEPHENMCCLESKEY A/K/A STEVE MCCLESKEY," is granted without opposition; and it is further
ORDERED that the caption is amended to read as follows:
RP BUSINESS MARKETING, INC.,
Plaintiff,
vs
TIMLIN INDUSTRIES, INC., S & M CONSULTING,
and STEPHEN MCCLESKEY A/K/A STEVE MCCLESKEY,
Defendants.
; and it is further
ORDERED that within 30 days of entry of this order plaintiff shall serve a copy, with notice of entry, upon all parties, the County Clerk, and the Clerk of Trial Support (Room 148, 60 Centre St.), who shall mark their records to reflect the amendment to the caption; and it is further
ORDERED that RP Business Marketing, Inc.'s motion (Mtn. Seq. No. 006) is granted in part solely to the extent that Timlin Industries, Inc. Shall produce documents responsive to Request No. 16 of Plaintiff's Second Request for Production of Documents and shall, upon proper notice by RP Business Marketing, Inc., make a witness available to testify regarding the contents of such documents within 60 days of the date of the decision and order herein; and it is further
ORDERED that Timlin Industries, Inc.'s motion (Mtn. Seq. No. 007) for a protective order is denied; and it is further
ORDERED that Timlin Industries, Inc.'s motion (Mtn. Seq. No. 008) to compel is granted in part solely to the extent that RP Business Marketing, Inc. shall produce documents responsive to Request Nos. 6, 7, 10, 11, 18, 19, 22, 23, 26-31, 32 and 33 of Timlin Industries, Inc.'s Post Deposition Demands for Discovery within 60 days of the date of the decision and order herein, and RP Business Marketing, Inc. Shall produce Ms. Wilson and Ms. Washington for depositions within 90 days of the date of the decision and order herein, and is otherwise denied.