William Koch, in the wine cellar of his home in Palm Beach, Fla. in 2009, holds a bottle of wine once thought to belong to Thomas Jefferson. Koch subpoened nonparties in connection with his suit, claiming he was sold counterfeit rare wine by Rudy Kurniawan through Acker, Merrall & Condit, a New York-based dealer.
William Koch, in the wine cellar of his home in Palm Beach, Fla. in 2009, holds a bottle of wine once thought to belong to Thomas Jefferson. Koch subpoened nonparties in connection with his suit, claiming he was sold counterfeit rare wine by Rudy Kurniawan through Acker, Merrall & Condit, a New York-based dealer. (South Florida Sun-Sentinel/Landov)

CLI Editor’s Note: This story intially appeared in The New York Law Journal on April 7.

ALBANY – The Court of Appeals has clarified the standard for enforcing subpoenas to nonparties in litigation, an issue that had split the Appellate Division into two camps.

The court ruled in Matter of Kapon v. Koch, 63, that the way the First and Fourth departments interpreted amendments to CPLR 3101(a)(4) was the “appropriate” one, largely because it better adhered to New York’s “liberal” discovery policies than the interpretation by the Second and Third departments did.

The ruling was the first time in 30 years that the state’s highest court weighed in on this issue, which affects lawyers in New York on a daily basis, particularly those in commercial law.

Quoting Allen v. Crowell-Collier Publishing Co., 21 NY2d 403 (1968), Judge Eugene Pigott Jr. (See Profile) wrote for the court that by interpreting the words “material and necessary” in the CPLR as defining the need for information sought in nonparty subpoenas, the court was requiring “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.”

Prior to the CPLR amendments, litigants subpoenaing nonparties needed a court order showing “adequate special circumstances” to compel disclosure. The statute was amended in 1984 to say that the subpoenaing party had the burden of establishing the “circumstances or reasons” for discovery upon a motion to quash. Pigott said it was over that issue that the state’s mid-level appeals courts split in their interpretation.

The Second and Third Departments, while requiring subpoenaing parties to show that the nonparty information was “material and necessary,” held that they would quash subpoenas if the moving party failed to show that the information sought could not be obtained from other sources.

The First and Fourth Department required no such showing, except from the subpoenaed nonparty, Pigott said.

“Section 3101(a)(4) imposes no requirement that the subpoenaing party demonstrate that it cannot obtain the requested disclosure from any other source,” Pigott wrote. “Thus, so long as the disclosure sought is relevant to the prosecution or defense of an action, it must be provided by the nonparty.”

The effect of the split has been to create more hurdles for litigants seeking to subpoena nonparties in the Second or Third departments than in the First and Fourth departments, Pigott said.

The Court of Appeals said representative rulings spelling out the correct standard on nonparty subpoenas were Velez v. Hunts Point Multi-Serv. Ctr., 29 AD3d 104 (2006), by the First Department and Hauzniger v. Hauzinger, 43 AD3d 1289 (2007), by the Fourth Department.

The court clarified the issues on April 3 in a case involving the wine collector William Koch and subpoenas he sought in his California Superior Court action claiming that he was sold 149 bottles of counterfeit rare wine by Rudy Kurniawan through Acker, Merrall & Condit, a New York-based dealer in fine and rare wines.

Koch sued Kurniawan for fraud in 2009. He is seeking enforcement by New York courts of subpoenas he issued in 2012 to two nonparties in the California fraud case, Acker, Merrall & Condit’s chief executive officer John Kapon and an employee of the wine dealership, Justin Christoph.

Koch also sued Acker, Merrall & Condit in a separate action in New York in 2008. That suit, Koch v. AMC, 601220/2008, is in Manhattan Supreme Court.

Discovery in the New York case expired in 2010. Kapon and Christoph have contended that Koch is subpoenaing them in connection with the California case to compel their testimony he cannot get in the New York action because the discovery deadline has passed.

Kurniawan, 37, of Arcadia, Calif., was convicted in the Southern District of one count each of mail fraud and wire fraud in December for engaging in a scheme to make and sell counterfeit vintage wine. He is awaiting sentencing.

The Court of Appeals affirmed findings by a First Department panel and Supreme Court Justice Michael Stallman denying motions by Kapon and Christoph to quash Koch’s subpoenas.

Pigott wrote that the lower courts were correct in finding that Kapon and Christoph “failed to meet their burden of establishing that their deposition testimonies were irrelevant to the California action.”

Chief Judge Jonathan Lippman (See Profile) and Judges Victoria Graffeo (See Profile), Susan Phillips Read (See Profile), Jenny Rivera (See Profile) and Sheila Abdus-Salaam (See Profile) joined in Pigott’s ruling.

Judge Robert Smith (See Profile) took no part in the decision.

Mark Zauderer of Flemming Zulack Williamson Zauderer said practitioners in a number of areas, especially commercial law, will find the Court of Appeals’ ruling important because it eliminated an inconsistency in the appellate courts.

“It clarifies a very basic rule for discovery that has been the subject of differing opinions and often confusion,” Zauderer, who is not involved in the Kapon litigation, said. “It essentially places the standards for nonparty discovery on the same basis as party discovery. I think, equally importantly, it brings New York into line with the prevailing standard in courts in other states and in the federal courts.”

Zauderer added that, “Litigants should not have to calculate or be subject to the fortuity of differing discovery rules in adjoining or nearby counties and I think consistency of rules is a desirable end in litigation of all kinds.”

Moez Kaba of Irell & Manella in Los Angeles argued for Koch. He agreed with Zauderer that the ruling was a significant one on a procedural issue.

“It’s the first time the high court has spoken on this issue since the Legislature’s amendments in 1984,” Kaba said in an interview. “Getting that sort of clarity, I thought, was really important.”

Commercial cases frequently require discovery from nonparties because of their complexity, Kaba said in an interview.

Kapon and Christoph were represented by Paul Shechtman of Zuckerman Spaeder.

“From my clients’ point of view, I’m disappointed,” Shechtman said of the ruling. “But from the perspective of the New York bar, this is an issue that has gone unsettled for too long and clarity is not unimportant.”