Motion-Secondary: Peter Stern, Express Trade Capital, Inc. v. Oleg Ardachev, Air Cargo Services, Llc, Delex Inc., Delex Air Cargo Llc. (Delaware), Delex Air Cargo Llc. (Washington)

On October 08, 2013 a Motion-Secondary was filed involving a dispute between Express Trade Capital, Inc., Peter Stern, and Air Cargo Services, Llc, Delex Air Cargo Llc., Delex Inc., Oleg Ardachev, for Commercial (General) in the District Court of New York County.

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FILED: NEW YORK COUNTY CLERK 11/14/2016 03:05 PM INDEX NO. 653476/2013
NYSCEF DOC. NO. 114 RECEIVED NYSCEF: 11/14/2016

SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
-----------------------------------------x
PETER STERN and EXPRESS TRADE CAPITAL,
INC., Index No. 653476/13
(J. Hagler)
Plaintiffs,

-against-

OLEO ARDACHEV, AIR CARGO SERVICES L.L.C.,
DELEX INC., DELEX AIR CARGO, LLC, a Delaware
limited liability company, and DELEX AIR CARGO,
LLC, a Washington limited liability company,

Defendants.

-----------------------------------------x

PLAINTIFFS' MEMORANDUM OF LAW
IN OPPOSITION TO MOTION TO QUASH SUBPOENA

DIAMOND MCCARTHY LLP
489 FIFTH A VENUE, 20TH FLOOR
NEWYORK,NEWYORK 10017
(212) 430-5400

Attorneys for Plaintiffs

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TABLE OF CONTENTS

PRELIMINARY STATEMENT ................................................................................................... I

STATEMENT OF FACTS ........................................................................................................... !

ARGUMENT ............................................................................................................................... 4

I. THE MOTION SHOULD BE DENIED BECAUSE THE SUBPOENA
IS NOT "PALPABLY IMPROPER" .................................................................... 4

II. ANY SENSITIVE FINANCIAL INFORMATION CAN EASILY BE
PROTECTED WITH A STANDARD CONFIDENTIALITY ORDER .............. 6

CONCLUSION ............................................................................................................................. 6

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TABLE OF AUTHORTIES

Allen v. Crowell-Collier Publ. Co., 21 N.Y.2d 403, 288 N.Y.S.2d 449 (1968) ......................... .4

Anheuser-Busch, Inc. v. Abrams, 71 N.Y.2d 327, 525 N.Y.S.2d 816 (1988) .............................. 5

Bouton v. Suffolk Co., 125 A.D.2d 620, 509 N.Y.S.2d 846 (2d Dep't 1986) ............................... 5

Helfant v Rappoport. 14 A.D.2d 764, 220 N.Y.S.2d 285 (1st Dep't 1961) .................................. 5

Kapon v. Koch, 23 N.Y.3d 32,988 N.Y.S.2d 559 (2014) ........................................................... .4

Matter of Dairymen's League Coop. Assn., 274 A.D. 595-596,
84 N.Y.S.2d 74 (1st Dep't 1948) ....................................................................................... 5

Peri v State ofNew York, 54 A.D.2d 997,388 N.Y.S.2d 54 (3d Dep't 1986) .............................. 5

Ritschl v Village of Highland Falls, 92 A.D.2d 586,459 N.Y.S.2d 473 (2d Dep't 1983) ........... 5

Statutes

CPLR §3101 .................................................................................................................................. 4

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PRELIMINARY STATEMENT

In response to this action- which seeks more than $500,000 owed for Defendant Ardachev's

January 2009 purchase of Plaintiff Peter Stem's 50% ownership interest in Air Cargo Services, LLC

("ACS") --the Defendants claim that no such sale ever occurred, and that Mr. Stem has remained a

50% owner of ACS from 2009 through today.

The Defendants' claim is problematic, however, because there is evidence that, beginning in

January 2009, Ardachev fraudulently transferred ACS's assets to the affiliated co-defendants.

Now, on this motion to quash the Plaintiffs' subpoena (the "Motion"), the Defendants claim that Mr.

Stem should not be allowed to obtain discovery about these asset transfers, on the ground that such

documents bearing on the Defendants' fraud are somehow irrelevant. This is wrong.

The Plaintiffs should be permitted to discover the extent of the fraud.

The Defendants' Motion to quash should be denied.

STATEMENT OF FACTS

The 50/50 Joint Venture

In 2003, Stem entered into a 50/50 joint venture (the "Joint Venture") with Defendant

Ardachev to operate a freight forwarding business at JFK Airport. (See Stem Aff. 1 ~2)

In 2004, Ardachev and Stem formed ACS for the continued operation of their Joint Venture.

(!d. ~3)

1
"Stem Aff' refers to the accompanying Affidavit of Peter Stem, sworn to on November 10,2016.

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Ardachev's Purchase of 50% Ownership for $500,000

In January, 2009, Stem entered into an agreement (the "Agreement") with Ardachev

whereby Ardachev purchased Stem's 50% ownership interest in ACS. (!d. ,-r4)

Pursuant to the parties' Agreement, which is evidenced by, among other things, a writing

signed by Ardachev, Stem sold his 50% ownership interest to Ardachev for $400,000, if such

amount was paid by July, 2012, or the price was agreed to be $500,000 if the purchase price was

paid after July, 2014. (!d. ,-r5 and Ex. A)

Douglas Milo, the outside accountant for the Defendants, has provided a sworn Affidavit

that Mr. Milo also understood that in 2009 there was an Agreement between Stem and Ardachev for

the purchase and sale of Stem's 50% ownership interest in ACS. (!d. ,-r6 and Ex. B)

Plaintiffs Have Received No Information about the Joint Venture Since 2009

Since January 2009, Stem has ceased to be involved with the business of ACS. (!d. ,-r7)

Since January 2009, Stem has received no money and no economic benefit from ACS. (!d.

,-rs)

Since January, 2009, Stem has received no financial information about ACS. (!d. ,-r9)

Despite Stem's sale of Stem's 50% ownership to Ardachev, and despite demand for the

amount due under the Agreement, Stem has received nothing. (!d. ,-r1 0)

Ardachev's Position that Stern Has Remained a 50% Owner Since 2009

Rather than pay what is owed, Ardachev has taken the position in this action that no such

purchase/sale Agreement exists. In other words, according to Defendants, Stem remains a 50%

owner of ACS at all times from 2009 through today. (!d. ,-rll) (See also Defendants' Counsel's

Moving Affirmation at Para. 12; "Defendants dispute the existence of the enforceable contract

between the parties and deny Plaintiffs' allegations and claimed damages").

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The problem with Ardachev's theory about Stem still being an owner of ACS is that Stem

has received no money, and no information, from ACS since January, 2009. (!d. ~12)

This is the reason why Plaintiffs' counsel issued the instant Subpoena to the Defendants'

accountants, i.e.,so that the Plaintiffs can ascertain the amount of damages owed based on the

Defendants' theory of this case. (See Seidman Aff. 2 at Ex. B)

Ardachev Commits Fraud by Denuding the Joint Venture

Unfortunately, rather than pay what is owed for the past more than six years of Stem's

alleged 50% ownership of ACS, Ardachev has committed fraud. (!d. ~13)

The former manager of ACS and the Delex Defendants, Arthur Hish, has provided a sworn

Affidavit that explains Ardachev's fraud and explains why the documents sought by the Subpoena

are relevant. (!d. ~14 and Ex. C)

Mr. Hish's testimony is that "[a]round 2009, Mr. Ardachev instructed myself, and ACS and

Delex employees that all Delex and ACS accounts were to be converted and transferred to Delex 2

[Defendant Delex Air Cargo LLC] when possible." (Exhibit C, page 2) (Emphasis added).

Based on the Arthur Hish Affidavit attesting to Ardachev's fraud, these documents sought by

the Subpoena -the documents relating to the financial condition of the Defendants and financial

transfers between and among them-- are relevant to prove the value of ACS and the amount of

damages caused by Ardachev's fraud. (!d.~16)

2
"Seidman Aff' refers to the accompanying Affirmation of Lon J. Seidman of November 14, 2016.

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A Confidentiality Stipulation/Order Can Protect the Financial Documents

Defendants' counsel is wrong that Express Trade and Delex are business competitors. They

are not. Plaintiff Express Trade is primarily in the financial services business. Freight forwarding

and logistics services are only a small and ancillary part of Express Trade's business. (Stern Aff.

~18)

In any event, and more importantly, the Plaintiffs are willing to treat the financial documents

produced pursuant to the Subpoena as Confidential and for purposes of this litigation only.

The Plaintiffs are prepared to protect the document by use of a Confidentiality Stipulation

and Order issued by the Court.

ARGUMENT

THE MOTION SHOULD BE DENIED
BECAUSE THE SUBPOENA IS NOT "PALPABLY IMPROPER"

The Motion to quash should be denied because the Subpoena is not "palpably improper."

To the contrary, the Subpoena properly seeks discovery concerning the financial information

of ACS, a company that, according to the Defendants, Plaintiff Sterns owns 50%.

It is well-settled that the scope of discovery in New York practice is very broad. The Court

of Appeals has held that the "material and necessary" standard "is the appropriate one and is in

keeping with this state's policy ofliberal discovery. The words "material and necessary" as used in

[CPLR] section 3101 must "be interpreted liberally to require disclosure, upon request, of any facts

bearing on the controversy which will assist preparation for trial by sharpening the issues and

reducing delay and prolixity. " Kapon v. Koch, 23 N.Y.3d 32, 988 N.Y.S.2d 559, 565 (2014).

(quoting Allen v. Crowell-Collier Publ. Co., 21 N.Y.2d 403,406,288 N.Y.S.2d 449 (1968)).

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Thus, "so long as the disclosure sought is relevant to the prosecution or defense of an action,

it must be provided by the nonparty" !d.

As a result ofNew York's broad disclosure standard, "[a]n application to quash a subpoena

should be granted ' [o]nly where the futility of the process to uncover anything legitimate is

inevitable or obvious' ... or where the information sought is 'utterly irrelevant to any proper inquiry'

"!d. (citing Anheuser-Busch, Inc. v. Abrams, 71 N.Y.2d 327,331-332,525 N.Y.S.2d 816 (1988).

The burden of proof is on the party seeking to quash. See Matter ofDairymen's League Coop. Assn.,

274 A.D. 595-596, 84 N.Y.S.2d 74 (1st Dep't 1948). This is often referred to as the "palpably

improper" test.

A demand is "palpably improper" "when the information it seeks is not discoverable at all."

Bouton v. Suffolk Co., 125 A.D.2d 620509 N.Y.S.2d 846 (2d Dep't 1986). Typically, in order to

prove that a discovery demand is "palpably improper," the movant is required to prove that the

demand is unduly burdensome. See, e.g., Ritschl v Village ofHighland Falls, 92 A.D.2d 586, 459

N.Y.S.2d473 (2d Dep't 1983); Peri v State ofNew York, 54 A.D.2d 997,388 N.Y.S.2d 54 (3dDep't

1986); Helfant v Rappoport. 14 A.D.2d 764, 220 N.Y.S.2d 285 (1st Dep't 1961).

Here, the Defendants have failed to meet their burden of proving that the Subpoena is

palpably improper. In fact, there are three reasons why the Subpoena seeks discovery that is

appropriate and discoverable:

First, the Defendants' position in this action is that there was no 2009 sale of Stem's 50%

ACS ownership interest. See Defendants' Moving Affirm at Para. 12; ("Defendants dispute the

existence of the enforceable contract between the parties and deny Plaintiffs' allegations and claimed

damages"). As a result, the Defendants' position in this action is that for the past seven years, up

through and including today, Peter Stem has remained a 50% owner of ACS. Therefore, Mr. Stem is

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entitled to discovery concerning ACS's financial condition and its financial transactions, especially

since he has received no such information since the beginning of2009.

Second, the Defendants' former General Manager has provided an Affidavit that explains

that, starting in the beginning of2009, Ardachev began fraudulently diverting ACS's assets to the

co-defendants. As a result, Mr. Stem is entitled to obtain complete discovery concerning ACS's

transactions with the related defendants to determine the amount of damages caused by Ardachev' s

fraud.

Third, the Subpoena does not impose an undue burden on anyone. The Subpoenaed party,

Liberta & Milo, has lodged no objection. Moreover, the Defendants' objection that the financial

information needs to be protected can be easily addressed by a Confidentiality Order.

Thus, the Defendants have failed to prove that the Subpoena is probably improper.

ANY SENSITIVE FINANCIAL INFORMATION CAN EASILY
BE PROTECTED WITH A STANDARD CONFIDENTIALITY ORDER

A Confidentiality Order can easily protect the financial information sought by the Subpoena.

Defendants' counsel is wrong when he says that the parties are business competitors. They

are not. The Plaintiffs do not compete with the Defendants in the marketplace. (Stem Aff.~l8).

But more importantly, in terms of protecting financial information, the Plaintiffs have agreed

to treat tax returns and similar financial information as confidential and for purposes of this litigation

only.

In fact, the Plaintiffs proposed that the parties enter into a confidentiality agreement and order

(Seidman Aff. ~13). Instead of moving forward with entry of a Confidentiality Agreement,

however, the Defendants filed this Motion to Quash. (/d.)

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CONCLUSION

Ardachev should not be able to have it both ways.

Ardachev should not be allowed to evade his obligation to pay Stem the more than $500,000

owed pursuant to the Agreement-- on the theory that at all times since January, 2009 Stem has

remained a 50% owner of the Joint Venture -- while also evading Stem's right to discovery

concerning the financial transactions of the Joint Venture which were apparently orchestrated by

Ardachev in an attempt to defraud.

The Motion to quash should be denied.

Dated: New York, New York
November 14,2016

DIAMOND McCARTHY LLP

Attorneys for Plaintiffs

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Case Info

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Shlomo Hagler Track Judge’s New Case

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Document Filed Date

November 14, 2016

Case Filing Date

October 08, 2013

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