The legal issues involved pursuant to federal law

[Presented to and published by the North East Academy of Legal Studies in Business]

By Professor Mitchell J. Kassoff^[1]

franchiselawyer@verizon.net

(973) 762-1776

www.franatty.cnc.net

This article addresses the issue of when a defendant voluntarily chooses to do business in a state outside of his business and personal home and is sued for actions taken in the foreign state. For the purposes of this article it will be assumed that the company is located in the State of Maryland and the litigation is taking place in the Southern District of New York (Manhattan).

A defendant is Not Entitled to a Protective Order Pursuant to Rule 26(c) of the Federal Rules of Civil Procedure as to the Place of the Deposition

It must first be noted that defendant has voluntarily chosen to do business in New York and have availed itself of all aspects connected with New York. It is further assumed that is its alleged that defendant defrauded a New York resident based on a nexus with New York. Therefore, this is not simply a place of trial, it is also a place in which defendant conducts its business.

In Havell v. Time, Inc.^[2] the Court stated that that notice for taking of deposition of an adverse party may be made returnable in district where action is pending, even though the adverse party resides outside the district and has not been served with subpoena.

In Fairhope Fabrics, Inc. v. Mowhawk Carpet Mills, Inc.^[3] a motion by defendant that depositions of its officers be taken in Amsterdam, New York, its headquarters, rather than in Boston where the action was brought, was denied where it appeared that defendant was qualified to do business in Massachusetts and had designated a person for service of process in Boston, thereby consenting to be sued in that district. That is precisely the facts in the instant case. In order for defendant to sell franchises in the State of New York it was required to execute a Consent to Service of Process (“Consent to Sue”) pursuant to New York Codes, Rules and Regulations^[4]. The Consent to Sue provides that defendant may be served by serving the New York State Secretary of State with any notice, process or pleading in any action or proceeding against it arising out of or in connection with the sale of franchises, or out of violation of the aforesaid laws of the State of New York and defendant consents that any such action or proceeding against it may be commenced in the courts located within the State of New York. Therefore, based on Fairhope Fabrics and 13 NYCRR §200.2(8), depositions must be taken in New York where this case is being tried.

In Mill-Run Tours, Inc. v. Khashoggi^[5] a

Travel agency filed a complaint against customers for failing to pay for airline tickets. Three discovery motions were brought before the court. First, customers moved for a protective order directing that their depositions be taken by written questions or that oral depositions be conducted where they resided. The court held that (1) customers’ depositions could not be taken by written questions and (2) the oral depositions would take place in New York in consideration of the factors of cost, convenience, and litigation efficiency. Second, travel agency moved for a protective order relieving it of the obligation of producing its president for deposition until customers’ depositions had taken place. Third, customers moved for sanctions because travel agency’s president failed to appear for deposition. The court held that travel agency was not entitled to a protective order and, as a sanction for the failure of its president to appear at previous deposition settings, customers did not have to appear for their depositions until sixty days after the deposition of travel agency’s president. [Emphasis added].^[6]

Therefore, under the holding Mill-Run Tours the depositions of defendant must take place in New York and defendant should be sanctioned for its failure to appear at its deposition.

In Federal Deposit Insurance Company v. LaAntillana, S.A^[7] the depositions involved defendants from Argentina. This is hardly the same case as defendants coming from Maryland. Also in LaAntillana and most significantly the only contact that the defendants had with New York was a bank account. In the instant case defendant had to agree to New York service of process as a condition of franchising. Finally, the stated that “[m]oreover, the FDIC failed to provide a memorandum of law, as required by U.S. Dist. Ct., S.D.N.Y., R. 3(b), and such failure was itself sufficient cause to grant the motions by default.”^[8] Therefore, this decision has no precedential value since the case was decided on the failure of plaintiff to follow the rules of the Court. That is not what has happened in this case.

The analysis of the location of the deposition in LaAntillana is quite applicable to the instant case. The Southern District held that:

Although it is impossible to conclude from his affirmation, plaintiff’s counsel is possibly a solo practitioner. Accordingly, were the depositions to be held in Argentina, plaintiff’s counsel would have to make burdensome schedule changes in order to attend the depositions. Mill-Run, 124 F.R.D. at 551. Defendant’s New York counsel are employed by large firms which realistically makes their trip to Argentina less difficult to schedule. However, if the depositions were held in New York, the only inconvenience to either party’s counsel would be to Mr. Alejandro Allende, defendants Frias and Waterhouse’s Argentine counsel who, due to his clients’ inability to communicate effectively in English, would need to accompany defendants to New York.^[9]

Therefore, based upon the holding in LaAntillana the depositions must take place in New York.

In the case of Frederick v. Columbia University^[10] in which the location of an expert witness was in dispute. The Southern District held:

Plaintiff contended that the expert was unable to travel to New York for a two-day deposition because of his emergency “on-call” schedule. The expert made himself available to be deposed in California only on two days divided by a weekend. Besides travel to California, this arrangement required five to six days of defendants’ time. They argued that factors such as cost and convenience weighed in favor of an order compelling the expert to be deposed in New York. The magistrate found defendants’ arguments to be persuasive. The expert consented to appear as an expert witness in the case and no doubt was aware he would need to be available for trial in New York. Plaintiff presented no compelling evidence to justify burdening defendants with the substantial costs of traveling to California for six days in order to accommodate the expert’s schedule. Plaintiff chose the expert and should produce the deponent without creating unreasonable litigation expenses for defendants.^[11]

Therefore, pursuant to the holding of Frederick, depositions must take place in New York since defendant chose to do business in this state.

In Six West Retail Acquisition, Inc. v. Sony Theatre Management Corporation^[12] the Southern District stated that:

The Federal Rules set very liberal limits on the scope of discovery. A party may inquire about “any matter, not privileged, that is relevant to a claim or defense,” and “for good cause, the court may order discovery of any matter relevant to the subject matter involved in the action.” Fed. R. Civ. P. 26(b)(1). Moreover, “highly-placed executives are not immune from discovery[, and] ‘the fact that [an executive] has a busy schedule'” cannot shield that witness from being deposed. Consolidated Rail Corp. v. Primary Industries Corp., 1993 U.S. Dist. LEXIS 12600, *2, No. 92 Civ. 4927, 1993 WL 364471, at *1 (S.D.N.Y. Sept. 10, 1993) (quoting CBS, Inc. v. Ahern, 102 F.R.D. 820, 822 (S.D.N.Y. 1984)). Even where, as in this case, a high-ranking corporate officer denies personal knowledge of the issues at hand, this “claim . . . is subject to testing by the examining party.” Consolidated Rail Corp., 1993 WL 364471,at *1 (citation omitted). [Emphasis added].^[13]

The Court in Six West Retail Acquisition dealt with the deposition of witnesses from Japan who would be required to bring their Japanese counsel as well as have their New York counsel present. In fact, it is quite the opposite, since defendant’s counsel has a Manhattan office; they are closer to New York than they are to Maryland. Therefore, the cost factor mandates that the depositions take place in New York.

The Southern District in Six West Retail Acquisition also raised the issue of having counsel from a large law firm travel and travel by a solo practitioner. The Southern District stated that:

Plaintiff’s counsel will be placed under some burden if required to travel to Japan for an opportunity to question these witnesses. Nevertheless, Six West’s attorneys, seasoned litigators from a law firm with nationwide offices, have substantial resources and experience to accomplish this. See La Antillana, 1990 WL 155727, at *3 (comparing significant burden of travel on solo practitioner with mere inconvenience to attorneys at a large firm).^[14]

The Southern District also examined the practical aspects of the taking of depositions. The Southern District stated that:

Considerations of efficient litigation cut slightly against taking depositions outside of New York. The records relevant to these proceedings are primarily located here. Additionally, judicial supervision of overseas depositions by telephone may be difficult. See Mill-Run Tours, 124 F.R.D. at 551. However, there is little indication that such supervision is going to be necessary. While parties in this case have had their share of disagreements, these disputes have not been characterized by any “unusual degree of acrimony.” La Antillana, 1990 WL 155727, at *3. [Emphasis added].^[15]

Based on the facts of the case, the Southern District’s decision in Six West Retail Acquisition mandates that the depositions be held in New York where the supervision of the Court might be required. Therefore, defendant cannot complain that the depositions take place in New York (where its counsel maintains an office) when its very method of conducting litigation might make this venue necessary.

Defendant is Not Entitled to a Protective Order Pursuant to Rule 26(c) of the Federal Rules of Civil Procedure as to the Persons to be Deposed

Defendant might cite Cleveland v. PALMBY^[16]in support of it motion. In Cleveland the person sought to be deposed was a non-party witness. In the instant case the person sought to be deposed is not only an employee of the defendant, but is part of the management team. Therefore, the holding of Cleveland has no bearing on this case and is meaningless. The fact that defendant has chosen this case that is completely off point demonstrates the weakness of its argument.

In Mercantum (United States) Corp. v. Chilean Line Inc.^[17]since the Southern District held that:

Defendants noticed the deposition one of plaintiffs’ officers. The individual (senior officer), was the president of one of the plaintiffs and sole director of the other plaintiff. Defendants sought the senior officer’s deposition because he allegedly participated in substantially all the discussions that gave rise to plaintiffs’ allegations of fraud and misrepresentation. Plaintiffs resisted the deposition on several grounds including, inter alia, the fact that it was burdensome for the senior officer to appear because he lived in Chile for much of the year and that the senior officer’s son (junior officer) had made himself available to be deposed. The junior officer was also an officer of both plaintiffs and was familiar with their business. The court found that although Fed. R. Civ. P. 30(b)(6) allowed a corporation to designate the officers who had relevant knowledge to testify on its behalf, the provision did not preclude an opposing party from naming a specific officer or director to be deposed. The court held that defendants clearly had a right to take the senior officer’s deposition. [Emphasis added].^[18]

Based on Mercantum plaintiff has the right to designate the persons who will be subject to depositions. This most certainly includes at a bare minimum all persons named by defendant who have been named as having knowledge of this case.

CONCLUSION

Based upon a company doing business in a foreign state, such a defendant should be ordered to produce all employees and officers at the situs of the trial.

[1] Mitchell J. Kassoff, Esq. (franchiselawyer@verizon.net) is a tenured professor of law and taxation at Pace University in New York City. He is a past Chairman of the American Bar Association Committee on the Use of Computer Produced Data and a Consultant to the National Conference of State Tax Judges. He received his Bachelor’s of Science degree in Public Accounting magna cum laude from the State University of New York at Albany and his Juris Doctor from the University of Virginia School of Law.

[2] 1 F.R.D. 439 (SDNY 1940).

[3] 140 F.Supp. 31 (DC Mass 1956).

[4] Title 13, Chapter VII, §200.3(8).

[5] 124 F.R.D. 547; 1989 U.S. Dist. LEXIS 10223, 14 Fed. R.Serv. 3d (Callaghan) 948 (SDNY 1989).

[6] 124 F.R.D. at 547.

[7] 1990 U.S. Dist. LEXIS 13246 (SDNY 1990).

[8] 1990 U.S. Dist. LEXIS 13246 (SDNY 1990) at *1.

[9] 1990 U.S. Dist. LEXIS 13246 at *6.

[10] 2003 U.S. Dist. LEXIS 1604 (SDNY 2003).

[11] 2003 U.S. Dist. LEXIS 1604 (SDNY 2003) at *1.

[12] 203 F.R.D. 98 (SDNY 2001).

[13] 203 F.R.D. at 102.

[14] 203 F.R.D. at 108.

[15] 203 F.R.D. at 108.

[16] 75 F.R.D. 654, 1977 U.S. Dist. LEXIS 17319 (W.D. Okla. 1977).

[17] 1991 U.S. Dist. LEXIS 10093 (SDNY 1991).