The
legal issues involved pursuant to federal
[Presented to and published by the
North East Academy of Legal Studies in Business]
By Professor Mitchell J. Kassoff[1]
(973) 762-1776
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 a
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
[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).
[18] 1991 U.S. Dist. LEXIS 10093 at *1.