Motion to Compel in Ke Kailani Partners, Llc, a Hawaii limited liability company v. Michael J. Fuchs| Trellis.Law

On February 13, 2014 a Motion-Secondary was filed involving a dispute between Ke Kailani Partners, Llc, A Hawaii Limited Liability Company, and Michael J. Fuchs, for Other Special Proceeding in the District Court of New York County.

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FILED: NEW YORK COUNTY CLERK 03/14/2014 INDEX NO. 151302/2014
NYSCEF DOC. NO. 21 RECEIVED NYSCEF: 03/14/2014

SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
----------------------------------------------------------------------- X
KE KAILANI PARTNERS, LLC, : Index No. 151302/2014
:
Petitioner, : Motion Sequence
: No. 001
v. :
:
:
MICHAEL J. FUCHS, :
:
Respondent, :
:
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REPLY MEMORANDUM
OF LAW IN SUPPORT OF PETITIONER’S MOTION
TO COMPEL PURSUANT TO CPLR 3119 AND 3124

DECHERT LLP
Dennis H. Hranitzky
Gordon Sung
1095 Avenue of Americas
New York, NY 10036
Tel.: (212) 698-3500

Attorneys for Petitioner
Ke Kailani Partners, LLC

Of Counsel:
STARN O'TOOLE MARCUS & FISHER
Sharon V. Lovejoy
Andrew J. Lautenbach
Pacific Guardian Center, Makai Tower
733 Bishop Street, Suite 1900
Honolulu, HI 96813
Tel.: (808) 537-6100

15181277
TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES ......................................................................................................... ii
PRELIMINARY STATEMENT ................................................................................................... 1
ARGUMENT ................................................................................................................................. 2
I. ASSET DISCOVERY THROUGH CPLR 3119 IS PERMISSIBLE ................................ 2
II. PETITIONER‟S CLEAR UNDERSTANDING HAS BEEN THAT THIS
COURT DID NOT INTEND TO CONSTRAIN THE HAWAII COURT ....................... 4
III. THE HAWAII DISCOVERY ORDER DOES NOT PURPORT TO OVERRULE
THIS COURT‟S STAY ORDER....................................................................................... 6
CONCLUSION .............................................................................................................................. 8

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TABLE OF AUTHORITIES

CASES

All Seasons Services, Inc. v. Guildner,
89 Conn.App. 781 (Conn. App. 2005) .......................................................................................6

Guadagno v. Diamond Tours & Travel,
59 A.D.2d 685 (N.Y. App. Div. 1st Dep‟t 1977)................................................................1, 2, 3

Hyatt v. Cal. Franchise Tax Bd.,
105 A.D.3d 186 (N.Y. App. Div. 2d Dep‟t 2013) .....................................................................7

Ipswich Bay Glass Co., Inc. v. Champion Aluminum Corp.,
No. 114234/11, 2012 N.Y. Misc. LEXIS 4666 (N.Y. Sup. Ct. Sept. 26, 2012) ........................4

Koehler v. Bank of Bermuda Limited,
911 N.E.2d 825 (NY 2009) ........................................................................................................5

Kooper v. Kooper,
74 A.D.3d 6 (N.Y. App. Div. 2d Dep‟t 2010) ...........................................................................3

Palazzetti Import/Export, Inc. v. Morson,
No. 98 Civ. 722, 2002 WL 562654 (S.D.N.Y. Apr. 16, 2002) ..................................................6

STATUTES

CPLR 3101.......................................................................................................................................3

CPLR 3102 (e) .................................................................................................................................2

CPLR 3119............................................................................................................................. passim

CPLR 3119 (a)(1) ............................................................................................................................2

CPLR 3119(b)(4) .............................................................................................................................2

CPLR 3119 (f)..................................................................................................................................7

CPLR 3120.......................................................................................................................................4

CPLR 5223 (3) .................................................................................................................................3

CPLR 5224.......................................................................................................................................3

CPLR 5224 (1) .................................................................................................................................3

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CPLR 5224 (2) .................................................................................................................................3

OTHER AUTHORITIES

David D. Siegel, NEW YORK PRACTICE, § 509 (5th Ed. 2012) .........................................................4

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Petitioner Ke Kailani Partners, LLC submits this reply memorandum of law in further

support of its motion to compel Respondent Fuchs‟s compliance with the Subpoena issued by the

Hawaii Court in the Hawaii Action, and served in New York pursuant CPLR 3119.1

PRELIMINARY STATEMENT

Ultimately, the disposition of this motion, and the concurrent motion filed by

Respondent, turns on whether this Court intended its Stay of enforcement related activity in New

York to preclude the enforcement of a subpoena issued by the Hawaii Court, in the Hawaii

Action, to facilitate the enforcement proceedings pending there, and which was served in New

York under Section 3119 of the CPLR. As the papers previously submitted make clear, the

parties have very different understandings of whether the Court intended its Stay to apply to such

a subpoena, and it will obviously be up to the Court to settle that question.

However, Respondent‟s arguments that the Court is somehow legally barred from

enforcing the Subpoena are completely without merit. The case that respondent primarily relies

on for the proposition that CPLR 3119 may not be used to serve out-of-state subpoenas that seek

asset discovery, plainly does not apply to CPLR 3119—which was enacted over 30 years after

that case. See Opp. 8-9 (citing Guadagno v. Diamond Tours & Travel, 59 A.D.2d 685 (N.Y.

App. Div. 1st Dep‟t 1977). More importantly, CPLR 3119 has its own set of definitions, distinct

from those that apply to the rest of Article 31, which unambiguously extend its application to

any out-of-state subpoena, whether seeking enforcement related discovery, or any other types of

information.

1
Capitalized terms have the same meanings defined in Petitioner‟s Opening Brief.
Finally, Respondent relies on a contorted-beyond-recognition interpretation of the First

Department‟s holding in Guadagno to support his broad proposition that Article 31 does not

apply to asset discovery. In fact, that case merely made a common sense finding that before

judgment had been rendered in that case, discovery of assets was unrelated and immaterial to any

pending issues on the merits in that case. Respondent‟s arguments are therefore meritless. For

these reasons and as discussed below, Petitioner‟s motion to compel should be granted.

ARGUMENT

I. Asset Discovery Through CPLR 3119 Is Permissible

The relevant statutes, on their face, confirm that there is no legal bar preventing this

Court from enforcing the Subpoena. CPLR 3102 (e) governs the methods of obtaining

disclosure in New York in connection with an “action pending in another jurisdiction.” It

explicitly sanctions two devices: CPLR 3119, or, where a commission has been issued by an out

of state sister-court, a New York court may issue any appropriate order to facilitate discovery.

CPLR 3119 (b)(4) provides that an “out-of-state subpoena” may be served in New York

by an attorney licensed to practice in New York. CPLR 3119 (a)(1) defines an “out-of-state

subpoena” as follows: “a subpoena issued under authority of a court of record of a state other

than this state.” Thus, any subpoena “issued under authority” of a sister-state court may be

served in New York under CPLR 3119 (b)(4)—there is no limitation that the out-of-state

subpoena must seek only pre-trial discovery, nor exclusions for subpoenas that seek asset

discovery. Here, the Hawaii Action is still “pending in another jurisdiction.” Lautenbach Aff.

¶1. And the Subpoena was issued under authority of the Hawaii Court. See Sung Aff. Ex. 1.

The Subpoena is therefore entirely proper, procedurally.

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Respondent‟s specious argument—that asset discovery in connection with an out-of-state

action is inappropriate under CPLR 3119—relies wholly on shoddy and reckless reading of case

law. Citing Guadagno v. Diamond Tours & Travel, Respondent represents to the Court that

asset discovery is “outside the scope of discovery as contemplated by CPLR 3101.” Opp. at 8-0

(citing 59 A.D.2d 685 (1st Dep‟t 1977)). Guadagno, however, actually holds that asset discovery

sought in that case was “unrelated and immaterial to the issues” that will be presented in that

case’s trial. Id. No reasonable reading of Guadagno permits the conclusion that the Appellate

Division has held that all asset discovery is outside the scope of discovery contemplated under

Article 31.2 In fact, even in actions pending in New York, the Appellate Division has explicitly

recognized that asset discovery may be appropriate under Article 31. See Kooper v. Kooper, 74

A.D.3d 6, 10-11 (N.Y. App. Div. 2d Dep‟t 2010) (matrimonial action). In any event, Guadagno

is plainly inapplicable because it does not deal with discovery sought in connection with an out-

of-state action.

Respondent‟s argument to evade compliance with the Subpoena—that the Subpoena is

technically flawed since procedural devices under Article 31 are only appropriate for pre-trial

non-asset related discovery—bears no logical support. In fact, there is nothing restrictive about

the scope of the post-judgment subpoenas authorized under CPLR 5224—instead, it provides for

an additional discovery device not provided for under the general Article 31 disclosure

2
In fact, Guadagno’s holding is premised on the fundamental rule of discovery in New
York, that CPLR 3101 “provides that the scope of disclosure shall include all evidence and
material necessary in the presentation or defense of an action.” Id. There is nothing about
Guadagno’s holding that suggests if that case had been at a procedural posture where asset
discovery was material to the proceedings, that discovery under Article 31 would be prohibited
because it is procedurally improper.

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provisions: the information subpoena. See CPLR 5223 (3). Otherwise, the deposition subpoena

authorized under CPLR 5224 (1), and the subpoena duces tecum authorized under CPLR 5224

(2), are “the proximate equivalent of the pretrial discovery device[s] of CPLR 3120.” David D.

Siegel, NEW YORK PRACTICE, § 509, p. 892 (5th Ed. 2012). Because information sought pursuant

to an out-of-state discovery under CPLR 3119 “shall be disclosed … so long as the information

sought is „material and necessary‟ to the prosecution or defense of an action,” Kapon v. Koch,

the Subpoena here is valid. 105 A.D.3d 650, 651 (N.Y. App. Div. 1st Dep‟t 2013). The

documents and testimony sought by the Subpoena are undisputedly “material and necessary” to

the prosecution of the Hawaii Action. See Ipswich Bay Glass Co., Inc. v. Champion Aluminum

Corp., No. 114234/11, 2012 N.Y. Misc. LEXIS 4666, 15-16 (N.Y. Sup. Ct. Sept. 26, 2012)

(reasonable to seek, e.g., records of assets and transactions in enforcement).

II. Petitioner’s Clear Understanding Has Been That This
Court Did Not Intend To Constrain The Hawaii Court

As explained in Petitioner‟s Memorandum of Law In Opposition to Respondents‟ Motion

To Quash, filed on March 4, 2014 in the New York Enforcement Action, Motion Sequence No.

005, it has always been Petitioner‟s clear understanding that the Court did not intend the New

York Stay to constrain the Hawaii Court from ordering whatever process, including discovery, it

may deem appropriate in order to advance the judgment enforcement proceedings pending before

it in Hawaii. Petitioner based this understanding, in part, on the Court‟s July 15, 2013 ruling, in

which Your Honor stated:

[T]his Court is not stopping the enforcement of the
Hawaii judgment in Hawaii. Anything that the Hawaiian
Court wants to do, it’s free to do. This Court is not, in any
way, reaching out beyond the borders of New York and

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taking its long reach to Hawaii and requiring that you don‟t
enforce.

Sung Aff. Ex. 5 (NY 7/15/13 Tr.) at 7:10-16 (emphasis added).

Petitioner‟s understanding of the intended scope of the New York Stay was further

underscored by the portion of the July 15, 2013 argument that took place before the court

reporter arrived. As the Court may recall, the undersigned counsel for Petitioner explained to the

Court that Petitioner was considering seeking an injunction from the Hawaii Court directing

Fuchs to bring personal property located in New York into Hawaii for the purpose of satisfying

the judgment. Hranitzky Aff. ¶9. The undersigned counsel further explained that to Petitioner‟s

knowledge, such relief—which parallels the type of relief the New York Court of Appeals held is

available in New York in its decision in Koehler v. Bank of Bermuda Limited, 911 N.E.2d 825

(NY 2009)—may also be available in Hawaii. Id. Finally, counsel for Petitioner asked the Court

whether it intended the New York Stay to preclude Petitioner from obtaining such an injunction

to the extent that the injunction required Respondents to bring property located in New York to

Hawaii to satisfy the judgment. Id. It is unfortunate that this colloquy was not transcribed. But

undersigned counsel clearly recalls the Court responding to that question by stating that it had no

intention to constrain the courts in Hawaii from taking any action they deem appropriate to

enforce the Hawaii judgment. Id. Considered in the context of the exchange that led to this

statement, Petitioner understood the Court to be saying that the New York Stay was not intended

to constrain the Hawaii Court, and has no effect on relief ordered by that court that may spill

over into New York—but rather, applies only to process originating in the courts of New York

for the purposes of enforcing the domesticated New York judgment.

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Regardless, while it is ultimately for this Court to decide the intended scope of the Stay, it

speaks volumes that Respondents have not cited a single authority supporting their claim that by

posting a bond in New York, “Fuchs bought [] peace in New York until the Hawaii appeal is

concluded.” Opp. at 7. The fact is, a stay of enforcement pending appeal has absolutely no legal

significance on whether post-judgment asset discovery may go forward. See, e.g. All Seasons

Services, Inc. v. Guildner, 89 Conn.App. 781, 789 (Conn. App. 2005) (permitting asset discovery

and noting “neither the examination of the judgment debtor nor the service of postjudgment

interrogatories is a proceeding to enforce or carry out the judgment.”); Palazzetti Import/Export,

Inc. v. Morson, No. 98 Civ. 722, 2002 WL 562654, at *4 (S.D.N.Y. Apr. 16, 2002) (ordering

judgment debtor to “cooperate fully” with creditor‟s efforts to undertake asset discovery during a

stay of enforcement). Respondent‟s argument that he “bought peace” by posting a bond in New

York, and therefore is unconditionally immune from any asset-discovery ordered by the Hawaii

Court, is meritless.

III. The Hawaii Discovery Order Does Not
Purport To Overrule This Court’s Stay Order

Respondent erroneously characterizes Petitioner‟s position—Petitioner does not argue

that the Hawaii Discovery Order overrules the New York Stay. See Opp. at 10. Nor does the

Hawaii Discovery Order itself purport to overrule the Stay ordered by this Court.

What is lost on Respondent is that the import of the Hawaii Discovery Order is twofold:

first, because Fuchs has already argued to the Hawaii Court that the Subpoena violates the New

York Stay, both in its motion papers filed with the Hawaii Court and during oral argument on the

Hawaii Discovery Motion, the Hawaii Court has expressly rejected the legal position that Fuchs

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now advances3; second, the Subpoena has been judicially reviewed by the Hawaii Court because:

(i) it reviewed Petitioner‟s Hawaii Discovery Motion, which contained the identical list of

documents called for in the Subpoena, and called for the discovery to be by way of subpoena,

before issuing a ruling, (ii) it rejected Fuchs‟ legal objection to the Subpoena based on the New

York Stay, and (iii) it was apprised of the fact that the discovery sought by Petitioner may spill

into New York, all before issuing the Hawaii Discovery Order which authorized the Clerk of the

Hawaii Court to issue the Subpoena.4

In such situations, Appellate Division precedent holds that a court reviewing a CPLR

3119 subpoena must “afford the widest possible latitude in out-of-state disclosure … when a

court of another state has already reviewed the subpoena.” Hyatt v. Cal. Franchise Tax Bd., 105

A.D.3d 186, 202 (N.Y. App. Div. 2d Dep‟t 2013). Fuchs offers no arguments and cites no legal

authority whatsoever to refute Petitioner‟s actual argument: that the Subpoena has been judicially

reviewed, as defined by the Appellate Division, and thus Fuchs should be compelled to comply

on that basis. See Petitioner‟s 2/12/14 Mem. at 9-10.

What Petitioner has respectfully requested in the instant motion is to give effect to a

sister-state court‟s ruling under the doctrine of comity, which permeates through the legislative

3
See Lautenbach Aff. Ex. 2 (Hawaii 12/24/13 Tr.) at 4:12-15 (Mr. Dubin, Hawaii
counsel for Fuchs: “And for Your Honor to require Mr. Fuchs to do various things by disclosing
assets in New York or sitting for his deposition in that regard we feel would be a violation of the
stay order in New York.”).
4
Compare Lautenbach Aff. Ex. 1 (Hawaii Discovery Motion) at 3-6 with Sung Aff. Ex. 1
(Subpoena) “Exhibit A” (documents demanded in the Subpoena identical to those requested by
Petitioner in its motion papers, which was reviewed by the Hawaii Court before it granted the
Hawaii Discovery Order.); Lautenbach Aff. Ex. 2 (Hawaii 12/24/13 Tr.) at 11:2-4 (The Hawaii
Court: “[b]ut as far as if you can depose [Fuchs] elsewhere, I don‟t have a problem with that.
You have to find him in New York, wherever he might be.”).

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intent of CPLR 3119. See CPLR 3119 (f) (“consideration shall be given to the need to promote

uniformity of the law ….”). As described earlier, asset discovery while enforcement has been

stayed, pending appeal, is common place. There is no legal bar to such post-judgment discovery,

and indeed, a court is free to make that decision on a case-by-case basis. Here, Fuchs has been

before the Hawaii Court since the Hawaii Action was initiated on October 27, 2009. The Hawaii

Court is therefore far more familiar with the underlying facts and the Hawaii laws implicated by

Fuchs‟s appeal—which may be pending for another year or more. Thus, while the Hawaii

Discovery Order in no way overrules the Stay entered by this Court, it should be respected, and,

Fuchs should be ordered to comply with the Subpoena.

CONCLUSION

For the foregoing reasons, this Court should grant Petitioner‟s Motion to Compel and

issue an order: (i) directing Fuchs to produce all responsive documents demanded by the

Subpoena; and (ii) appear for the deposition commanded by the Subpoena.

Dated: New York, New York
March 14, 2014

Respectfully submitted,

DECHERT LLP

By: /S/Gordon Sung
Dennis H. Hranitzky
Gordon Sung
1095 Avenue of Americas
New York, New York 10036
Tel.: (212) 698-3500

Attorneys for Petitioner
Ke Kailani Partners, LLC

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Of Counsel
STARN O'TOOLE MARCUS & FISHER
Sharon V. Lovejoy
Andrew J. Lautenbach
Pacific Guardian Center, Makai Tower
733 Bishop Street, Suite 1900
Honolulu, HI 96813
Tel.: (808) 537-6100]

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Shlomo Hagler Track Judge’s New Case

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Document Filed Date

March 14, 2014

Case Filing Date

February 13, 2014

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Motion-Secondary: Ke Kailani Partners, Llc, a Hawaii limited liability company v. Michael J. Fuchs

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