Nonparty subpoenas are a useful discovery tool in commercial disputes. Particularly when the dispute involves access to or control over funds on deposit with a financial institution, the institution’s account statements, and transaction records may be critical. But stringent requirements are imposed on a party seeking disclosure from a nonparty. If the requesting party does not include sufficient detail in the subpoena to demonstrate its relevance to the pleadings, then its request might prove fruitless. A recent decision from Manhattan Commercial Division Justice Robert Reed in UKI Freedom LLC v Organization for the Defense of Four Freedoms for Ukraine, Inc. exemplifies such a shortfall.

Background

Under CPLR 3101(a)(4), a party may obtain disclosure from a nonparty of “matter material and necessary in the prosecution or defense of an action.” When disclosure is sought from a nonparty, “more stringent requirements are imposed on the party seeking disclosure” (Velez v Hunts Point Multi-Serv. Ctr., Inc., 29 AD3d 104, 108 [1st Dept. 2006]). In practice, these “more stringent requirements” are fairly minimal, but the subpoenaing party must at least “sufficiently state the ‘circumstances or reasons’ underlying the subpoena” (Kapon v Koch, 23 NY3d 32, 34 [2014]).

The nonparty, or another party to the action, may move to quash the subpoena but bears “the initial burden of establishing either that the requested disclosure is utterly irrelevant to the action or that the futility of the process to uncover anything legitimate is inevitable or obvious” (Wells Fargo Bank, N.A. v Confino, 175 AD3d 533, 534-35 [2d Dept. 2019] [internal quotations omitted]). If the movant meets this burden, then the burden shifts to the subpoenaing party to “establish that the discovery sought is material and necessary to the prosecution of the action” (id. at 535).

Analysis

UKI Freedom LLC involved an action for, among other things, a declaratory judgment of commercial-tenant harassment. During discovery, the defendant issued nonparty subpoenas to Ukrainian National Federal Credit Union (“UNFCU”), B King Chick LLC, and Berger Fink LLP, seeking information about a loan UNFCU had given the defendant, the mortgage that secured the loan, the assignment and transfer of the loan and mortgage from UNFCU to B King Chick LLC, and a foreclosure action on the mortgage. The plaintiff moved to quash the subpoenas.

Initially, the defendant sought this disclosure in relation to a counterclaim for tortious interference, which was dismissed after the subpoenas were issued. The defendant argued that the subpoenas remained “material and necessary” to its affirmative defenses in the action, insofar as the subpoenas sought “to recover any and all business records and financial records relating to [the defendant] …,” and that the demanded records were “crucial for [the defendant] to try to recreate its business records and financial transactions …”  

The plaintiff succeeded in demonstrating that the nonparty subpoenas were “utterly irrelevant” to the action because the defendant’s affirmative defenses were “improperly asserted in a conclusory manner without any detail or factual allegations, and [were] themselves subject to dismissal.” The defendant also failed to explain how the information they sought relating to the assignment of the loan or mortgage could give rise to affirmative defenses. Consequently, the Court granted the plaintiff’s motion to quash the nonparty subpoenas.

Takeaway

The decision in UKI Freedom LLC demonstrates that conclusory pleadings can ultimately frustrate nonparty disclosure. Indeed, had the defendant asserted affirmative defenses that were not conclusory and included sufficient detail and factual allegations, the relevance of the nonparty subpoenas would have been more apparent, and the plaintiff might have obtained the discovery it sought.

Photo of Shane Magnetti Shane Magnetti

Shane Magnetti is a litigator in the estate litigation and commercial litigation groups. His practice on the estate litigation side includes Article 81 guardianship proceedings and removal proceedings. On the commercial litigation side, Shane represents clients in state and federal courts, focusing on…

Shane Magnetti is a litigator in the estate litigation and commercial litigation groups. His practice on the estate litigation side includes Article 81 guardianship proceedings and removal proceedings. On the commercial litigation side, Shane represents clients in state and federal courts, focusing on complex commercial disputes in areas including real estate, general business torts, and contract disputes.

Before joining Farrell Fritz, Shane worked at the Bronx County District Attorney’s Office. As an Assistant District Attorney in the Appeals Bureau, he litigated direct appeals in the Appellate Division, First Department and New York State Court of Appeals.

While in law school, Shane interned with the Queens District Attorney’s Office and served as Notes and Comments Editor on the St. John’s Law Review.