On April 28, 2023, Justice Reed of the New York County Commercial Division issued decisions on motions to bifurcate proceedings, compel discovery, and impose sanctions in ASM Capital, LP v. Four Wood Capital Partners, LLC, Index No. 657238/2019, 78 Misc.3d 1230(a) (Sup. Ct. N.Y. Cnty. Apr. 28, 2023). The decisions provide examples of both common discovery issues—with compelling disclosure—and uncommon discovery issues—with bifurcation and discovery sanctions.
ASM Capital involves allegations of a stolen business opportunity in the waters between Florida and Georgia. The plaintiffs—ASM Capital, LP and Sanford Scott and Co. LLC (collectively “ASM”)—claimed that they retained two of the defendants—Christopher Ragucci through his company Worldwide Group LLC (collectively “Worldwide”)—to help ASM acquire operating rights for a deep-water port in Nassau County, Florida. ASM aimed to develop this port along with a potential industrial property across the river in neighboring St. Marys, Georgia. ASM alleged that Worldwide and a third defendant, Four Wood Capital Partners LLC, “secretly acquired [the port] on their own, stealing the valuable opportunity for themselves.”
ASM brought suit against the defendants in 2019, alleging, inter alia, breach of contract and breach of fiduciary duties. The case was initially assigned to Justice Sherwood. The parties went through discovery, with Worldwide making a production of 78 documents in September of 2020. ASM claimed that this production was deficient. Worldwide then made another production in January of 2021, of 142 pages. ASM claimed that this production, too, was deficient.
After Justice Sherwood retired, the case was reassigned to Justice Reed.
Worldwide moved to bifurcate and sever the case—limiting discovery to liability; ASM opposed and also cross-moved to compel discovery and seek sanctions against Worldwide for its alleged discovery abuses.
The Commercial Division Court began by addressing the issue of bifurcation and severance. Justice Reed noted that “[s]everance may be granted where the severing of claims will expedite the resolution of a case”; however, “a separate trial should not be ordered where the nature of the damages has an important bearing on the issues of liability.”
The Court found nature of the claims here did not support bifurcation. This, despite Worldwide’s argument that liability turns on whether they owed a duty to ASM in the purchase of the port, while damages turn on any lost profits related to ASM’s failure to acquire that port. The Court observed that for breach of contract claims, “the nonbreaching party may recover general damages that are the natural and probable consequence of the breach”; “[t]hus, the facts that may support a finding of liability for contractual breach . . . may also be the evidence that supports a finding of damages.” Here, the Court observed that “Worldwide’s alleged actions in acquiring the subject property . . . may speak to the measure of recovery plaintiffs are afforded under their contractual claims” and their quasi-contractual theories as well. As such, the Court declined to bifurcate the case at this stage.
Justice Reed then addressed ASM’s efforts to compel discovery from Worldwide. The Court observed that “[a]lthough New York courts generally favor open and liberal discovery,” there are limits and motions to compel are properly denied if discovery demands are overbroad. While Worldwide’s opposition did not address the merits of ASM’s demands, the Court held that “here, each one of plaintiffs’ identified demands contains overbroad language seeking ‘any’ and ‘all’ documents related to nonparty companies, contracts, and communications. These demands, without proper tailoring as to time, place and scope are palpably improper.” Therefore, the Court denied ASM’s motion to compel.
Finally, the Court dealt with the motion for sanctions. Justice Reed noted that, “[p]ursuant to CPLR 3126, a court may impose sanctions upon a party where it has willfully failed to produce relevant discovery.” Here, the Court held that while Worldwide’s relevance objections—interposed right before ASM’s cross motion—were “unsubstantiated, defendants’ objections on the basis of ‘relevancy’ do not rise to the level of willful or contumacious conduct sufficient to impose sanctions.” That, as the Court explained, would require something like “a party’s repeated failure to comply with court-ordered discovery, coupled with inadequate explanations for the failures to comply or a failure to comply with court-ordered discovery over an extended period of time.” Since, Worldwide’s conduct did not rise to that level, the Court denied ASM’s motion for sanctions.
The decision in ASM Capital provides examples of how a Commercial Division Court approaches both a common discovery issue, with the motion to compel, as well as uncommon issues, like motions to bifurcate and impose sanctions.