This matter is before the Court for decision on 1) the Order to Show Cause filed by Defendants on December 29, 2010 (motion sequence number 1), and 2) the cross motion filed by Plaintiff on March 21, 2011 (motion sequence number 2), both of which were submitted on April 1, 2011. For the reasons set forth below, the Court 1) directs that, pending further order of the Court, enforcement of the subpoenas at issue remains stayed; 2) reserves decision on the Order to Show Cause and cross motion, pending the parties' compliance with the so-ordered [*2]stipulation dated March 10, 2011; and 3) directs that these motions shall appear on the Court's calendar on April 28, 2011, when the matter is scheduled for a Preliminary Conference. On that date, assuming that the parties have not resolved the issues raised by the Order to Show Cause and cross motion, the Court will permit counsel for the parties to submit additional briefs addressing how the parties' production pursuant to the March 10, 2011 stipulation should bear on the Court's decision on the Order to Show Cause and motion.

BACKGROUND

A. Relief Sought

Defendants move for an Order, pursuant to CPLR §§ 2304, 3106, 3101(a)(4) and 2201, 1) staying the enforcement of three Non-Party Duces Tecum and Ad Testificandum subpoenas ("Subpoenas") until Defendants' motion is decided; 2) quashing the Subpoenas; or, in the alternative, 3) staying the enforcement of the Subpoenas until the parties have completed document production and party depositions and Plaintiff has demonstrated sufficient circumstances necessitating non-party discovery pursuant to CPLR § 3101(a)(4).

Plaintiff opposes Defendants' Order to Show Cause and cross moves for an Order, pursuant to CPLR § 3124, compelling Defendants to produce documents related to the World Trade Center Cases as requested in Plaintiff's Request for Production of Documents.

B. The Parties' History

The Complaint (Ex. B to Maltz Aff. in Supp.) alleges as follows:

Defendant Keith Silverstein ("Silverstein") was, and is, a shareholder or partner of Defendants Silverstein Hurwitz & Stern, LLP ("SH & S"), Silverstein & Stern, LLP ("S & S"), Keith D. Silverstein & Associates, P.C. ("S & A") and Silverstein Law Group, P.C. ("SLG"). In 1994, Plaintiff Adam Hurwitz ("Hurwitz") and Silverstein formed Silverstein & Hurwitz, P.C. ("Law Firm") which specialized in personal injury and insurance defense matters.

Silverstein and Hurwitz were each 50% shareholders of the Law Firm, and Silverstein was an officer and director of the Law Firm. There was no written shareholder agreement regarding the Law Firm, but the existing agreement ("Law Firm Agreement") between Silverstein and Hurwitz provided, inter alia, that all Law Firm fees and revenue would be "split evenly" (Compl. at ¶ 21) between Hurwitz and Silverstein. The Law Firm Agreement also required that all legal cases or matters about which Hurwitz or Silverstein was consulted were retained in the name of the Law Firm, other than cases originated by Cliff Stern ("Stern"). With respect to fees earned by SH & S for cases not originated by Stern, Hurwitz was entitled to receive one-third (1/3) of those fees.

Hurwitz and Silverstein dissolved the Law Firm ("Dissolution") no earlier than April of 2005 and no later than April of 2006. Prior to the Dissolution, Hurwitz attempted to discuss with Silverstein the winding up of the Law Firm, but Silverstein prevented Hurwitz from participating in the winding up. Silverstein also has denied Hurwitz access to the books and records of the Law Firm to which he is entitled by virtue of his status as a 50% shareholder of the Law Firm.

Prior to the Dissolution, the Law Firm 1) leased office space in Manhattan ("Leased Office") pursuant to a written lease ("Lease"); 2) owned furniture, fixtures and equipment ("Fixtures") at the Leased office; 3) had employees ("Employees"); and 4) possessed other items necessary to support its practice ("Miscellaneous Assets"). Silverstein used the Lease office, Fixtures, Employees and Miscellaneous Assets for his own use and the use of one or more of the Defendants. [*3]

Prior to advising Hurwitz of the Dissolution, Silverstein contacted, or arranged for others to contact, the Law Firm's clients ("Clients") and solicited them to retain him or another Defendant, without Hurwitz' knowledge or consent. Silverstein also collected fees from the Clients and failed to distribute them to S & H or Hurwitz.

Prior to the Dissolution, without Hurwitz' knowledge or consent, 1) Silverstein and the law firm of Worby, Groner, Edelman and Napoli Bern, LLP ("Worby Firm") prepared a form retainer agreement for prospective clients that listed Silverstein as lead counsel and the Leased Office as the office address; 2) Silverstein affiliated himself with the Worby Firm ("Silverstein/Worby Association"); 3) Silverstein diverted cases and/or matters to the Worby Firm ("Worby Diverted Matters"); and 4) Silverstein promoted the Silverstein/Worby Association using the assets of the Law Firm. The Worby Diverted Matters resulted in, or will result in, legal fees to Silverstein and/or the other Defendants that properly belong to the Law Firm.

Prior to the Dissolution, without Hurwitz' knowledge or consent, Silverstein also

1) affiliated himself ("Silverstein/Oshman Association") with the firm of Oshman & Mirisola ("Oshman Firm"); and 2) engaged in activity to promote the Oshman Firm, using Law Firm assets. The Oshman Diverted Matters also resulted in, or will result in, legal fees to Silverstein and/or the other Defendants that belong to the Law Firm. Silverstein allegedly engaged in similar activity with the law firm of Hannon & Boyers, P.A. ("Hannon Firm").

After the Dissolution, Silverstein, without Hurwitz' knowledge and consent, determined how fees for the Law Firm Cases would be distributed to the Defendants. In addition, Silverstein withdrew certain Law Firm fees from its escrow account, without notice to Hurwitz, and used those funds to pay for expenses benefitting Silverstein, including unauthorized management fees ("Improper Management Fees"). Hurwitz affirms that he has not made a demand to the Law Firm's board of directors because such a demand would be futile.

The Complaint contains nine (9) causes of action: 1) against the Defendants for a declaratory judgment as to the date of Dissolution and Hurwitz' entitlement to certain fees,

2) against Silverstein for breach of the Law Firm Agreement, 3) against Silverstein for breach of fiduciary duty, 4) against all Defendants, except Silverstein, for aiding and abetting breach of fiduciary duty, 5) for an accounting of the Law Firm and SH & S, 6) against the Defendants for misappropriation/conversion, 7) for an inspection of the books and records of the Law Firm and SH & S, 8) for apportionment of fees/unjust enrichment/recoupment, and 9) against all Defendants, except Silverstein, under the theories of agency/alter ego.

On December 28, 2010, the parties entered into a stipulation ("December Stipulation"), that was so-ordered by the Court, providing that 1) the Subpoenas were stayed pending the argument on January 25, 2011; 2) the non-parties would comply with the Court's directive as to the Subpoenas; and 3) on or before January 10, 2011, Defendants would notify Plaintiff's counsel if they would provide the documents requested in the Subpoenas.

Counsel for Defendants ("Defendants' Counsel") affirms as follows in his Affirmation in Support:

Hurwitz and Silverstein were partners in the Law Firm which opened in 1994, but there was never a partnership agreement between them. In or about 2003, Stern, Silverstein and Hurwitz formed SH & S, but the Law Firm remained viable "for limited purposes including handling insurance defense clients" (Maltz Aff. in Supp. at ¶ 4).

In or about 2003, Silverstein and Stern observed Hurwitz acting erratically by failing to [*4]appear at the office for long periods of time and refusing to handle cases ("Abandonment"). Certain clients complained about Hurwitz and some terminated their relationship with Silverstein and Hurwitz as a result of Hurwitz' behavior. The Law Firm was dissolved prior to April of 2005, the date alleged by Plaintiff.

After observing Hurwitz' erratic behavior, Silverstein learned that Hurwitz was meeting with other attorneys about forming a new firm. In light of that information, Silverstein created S & A and SLG. Hurwitz was never a partner, or had a proprietary interest, in S & A, never worked as an associate or employee of these firms, and no agreement existed that precluded Silverstein from forming these entities.

At or about the time of the Abandonment, Silverstein attracted clients injured in the World Trade Center on September 11th ("WTC Cases") who subsequently retained S & A. Hurwitz was not involved in retaining those clients and did not participate in the work involved in the WTC Cases. Silverstein worked, instead, with the Worby Firm and Napoli Bern Ripka, LLP ("Napoli Firm"), who are the non-party witnesses ("Non-Parties") to whom the Subpoenas are directed. The legal fees ("WTC Fees") that S & A will receive for the WTC Cases are one of the disputed issues in this action.

In their Verified Answer ("Answer") (Ex. C to Maltz Aff. in Supp.), Defendants assert that, as a result of his Abandonment, Hurwitz forfeited his right to certain relief, including an accounting and distribution of S & H's assets. Notwithstanding their position, Defendants provided Plaintiff with extensive discovery and access to files. Defendants' Counsel affirms, however, that Plaintiff's review of those files was "stalled" (Maltz Aff. in Supp. at ¶ 13) when Hurwitz, without his attorney's participation, filed a lien ("Lien") with the Non-Parties to prevent them from paying WTC fees to S & A. Plaintiff denied Defendants' request that he withdraw the Lien and subsequently filed the Subpoenas, which he also refused to withdraw, despite Defendants' request.^[FN1]The Subpoenas (Ex. A to Maltz Aff. in Supp.) request numerous documents regarding the WTC litigation, including but not limitedto documents 1) identifying clients referred to the Worby Firm and for whom the Worby Firm provided legal services;

2) concerning discussions between the Defendants and the Worby Firm regarding Defendants' affiliation with the Worby Firm; and 3) concerning emails sent to or from Silverstein regarding the referral of legal matters to the Worby Firm.

Defendants' Counsel submits that the Subpoenas are premature, as they were issued prior to completion of discovery in the instant action. Approximately 10,000 of the WTC Cases, some of which involved S & A's participation, have been settled. Counsel for the Non-Parties has authorized Defendants' Counsel to represent to the Court that compliance with the Subpoenas would be extremely burdensome and costly, and they join in Defendants' application to quash.

In his Affirmation in Opposition/Support, Hurwitz affirms as follows:

Hurwitz outlines the formation of S & H, the nature of its work and the circumstances under which he and Silverstein came to work with Stern. He affirms that SH & S was "an entity in name only" that "was primarily formed to provide [Stern] with greater name recognition and status as a "partner" associated with the then well-established S & H" (Hurwitz Aff. in Opp.Supp. at ¶ 6). [*5]

Hurwitz affirms, further, than in late 2003, the Law Firm moved to larger offices, and Hurwitz and Silverstein provided personal guarantees for the lease on those offices. Hurwitz and Silverstein incurred extensive expenses in decorating those offices which were borne entirely by the Law Firm. Hurwitz submits that Silverstein's participation in these investments, as well as their joint participation in work and leisure-related travel and investment in advertising for the Law Firm, belies his claims regarding Hurwitz' erratic behavior.

While the parties disagree as to the date of the Dissolution, Hurwitz notes that he has proposed a specific date of Dissolution, March 10, 2006, but Defendants have not identified a specific date. This dispute is significant, inter alia, in light of case law holding that assets, including contingency fee cases, are valued on the date of dissolution.

Hurwitz also disputes Defendants' description of Silverstein's involvement in the World Trade Center Cases and affiliation with the Worby Firm. Hurwitz provides a copy of an e-mail from Defendants' prior counsel to Plaintiff's counsel dated June 8, 2006 (Ex. E to Hurwitz Aff. in Supp./Opp.). The e-mail, in discussing the World Trade Cases, refers to "63 cases signed up on or before April 5, 2005." Hurwitz affirms that, at that time, Defendants took the position that the date of Dissolution was April 5, 2005.

Hurwitz also avers that Silverstein's discussions with the Worby Firm concerning the formation of a co-counsel relationship began years before the Dissolution. Prior to leaving the Law Firm's offices, Hurwitz discovered, on the Law Firm's computers, a form retainer agreement reflecting Silverstein's affiliation with the Worby Firm. At that time, the Law Firm was incurring significant expenses that inured to Silverstein's benefit. In addition, S & A, which Defendants submit was the firm retained by the WTC Clients, did not come into existence until November 2005, as reflected by the documentation provided (Ex. G to Hurwitz Aff. in Supp./Opp.). Hurwitz also reaffirms the truth of the allegations in the Complaint regarding Silverstein's failure to distribute profits to him.

Hurwitz affirms, further, that Defendants have refused to produce the documents sought in the Subpoenas. Therefore, the Court should reject their argument that the Court should deny Plaintiff's application pending the completion of party discovery. Hurwitz provides an e-mail from Defendants' Counsel to Plaintiff's counsel dated October 26, 2010 (Ex. D to Hurwitz Aff. in Supp./Opp.) in which he stated that Hurwitz "was gone before the WTC cases came in and...had absolutely no connection to those cases" and that this was an issue "for which there is no flexibility." Hurwitz affirms that Defendants have not only failed to comply with their discovery obligations, but have also deprived Hurwitz of his right to view the Law Firm's books and records.

In his Affirmation in Further Support, Defendants' Counsel submits that discovery regarding WTC Cases should be permitted only for cases retained on or before April 31, 2005, and Defendants are prepared to provide all relevant documents, and necessary authorizations, regarding that subset of cases. Defendants' Counsel also disputes Plaintiff's claims regarding Defendants' failure to provide discovery, and lists the extensive discovery that Defendants have provided.

Defendants' Counsel affirms, further, that Defendants learned in May of 2006 that Plaintiff obtained an entire backup of the Law Firm's computer from the firm's technology vendor. In support, Defendants provide an Affidavit of Pradeep Singh ("Singh") (Ex. C to Maltz Aff. in Further Supp.), the President and owner of Management Information and Technology Consultants, Inc. Singh affirms, inter alia, that 1) his company provided computer support to the [*6]Law Firm as of January 2003, also provided support to SH & S and now provides support to S & S; 2) Hurwitz used a computer, provided by Singh's company, which had unrestricted access to all data generated by the Law Firm, and this access continued when Stern joined the firm under the name SH & S; 3) on May 12, 2006, Hurwitz advised Singh that he was leaving the Law Firm and requested a backup tape with data from the server, which Singh provided after consulting with Silverstein; 4) Hurwitz was responsible for taking home the daily backup tape of the Law Firm's data, which included all data regarding the Law Firm; and 5) Hurwitz also removed computer equipment from his office which would allow him to gain access to "all of the data generated by the firm from its inception up to the date he took possession of the tapes and his personal computer" (Singh Aff. at ¶ 4).

In his Affirmation in Further Support, Plaintiff disputes Defendants' claims regarding the extent to which they have provided discovery.

On March 10, 2011, the Court so-ordered a stipulation ("March Stipulation") (Ex. A to P's Memorandum of Law in Opp./Supp.) requiring 1) Defendants, on or before April 11, 2011, to produce the general ledger from the computer system of the Law Firm and SH & S on CD or DVD in native format; 2) Plaintiff, on or before March 21, 2011, to send a list of ten (10) sample cases from the Law Firm or SH & S to be searched on Defendants' computer; 3) Defendants, on or before April 18, 2011, to produce all computer data and files for those ten (10) cases;

4) Defendants, on or before April 18, 2011, to answer Plaintiff's Interrogatories, and5) Defendants, on or before March 21, 2011, to answer Plaintiff's March 4, 2011 letter regarding document production. The Court also directed that a Preliminary Conference will take place onApril 28, 2011 at 9:30 a.m. and that computer personnel shall be present if the pending issues are not resolved.

C. The Parties' Positions

Defendants submit that 1) the Court should quash the Subpoenas because Plaintiff has not established sufficient circumstances warranting discovery from a non-party; 2) the Subpoenas fail to provide adequate notice regarding the reason that disclosure is sought; and3) at a minimum, the Court should not require the Non-Parties to comply with the Subpoenas until the parties have completed discovery and it is established that the information sought in the Subpoenas is not available from another source.

Plaintiff opposes Defendants' application, and submits that the Court should grant Plaintiff's cross motion, on the grounds that 1) Plaintiff has made the requisite showing to warrant non-party discovery in light of the fact that a) the Worby Firm is in unique possession of documents and information related to the WTC Cases; and b) the Worby Firm is the law firm to which Silverstein referred all the WTC Cases that he obtained, and is counsel of record to all the plaintiffs in the WTC Cases; 2) Defendants have taken the position that they will not produce documents regarding the WTC Cases; 3) Defendants have frustrated Plaintiff's efforts to conduct discovery; 4) the evidence requested by the Subpoenas is not unduly burdensome or costly given the Worby Firm's extensive involvement in and knowledge of the WTC Cases; and 4) the documentation requested in the Subpoenas should be provided prior to party depositions, so that the records produced pursuant to those Subpoenas may be used by counsel during those depositions.

RULING OF THE COURT

CPLR § 3101(a) provides that there shall be full disclosure of all evidence material and necessary in the prosecution or defense of an action, regardless of the burden of proof. See Allen [*7]v. Cromwell-Collier Pub. Co., 21 NY2d 403, 406 (1968); Spectrum Systems International Corporation v. Chemical Bank, 78 NY2d 371 (1991); Quevedo v. Eichner, 29 AD3d 554 (2d Dept. 2006). The Court of Appeals in Allen held that "[t]he words material and necessary' are . . . to be interpreted liberally to require 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. The test is one of usefulness and reason." Id. See also Andon v. 302-304 Mott Street Assocs., 94 NY2d 740, 746 (2000); Spectrum Systems International Corporation v. Chemical Bank, supra; Parise v. Good Samaritan Hosp., 36 AD3d 678 (2d Dept. 2007). This statute embodies the policy determination that liberal discovery encourages fair and effective resolution of disputes on the merits, minimizing the possibility for ambush and unfair surprise. Spectrum Systems, 78 NY2dat 376, citing 3A Weinstein-Korn-Miller, NY Civ. Prac. ¶¶ 3101.01-3101.03.

CPLR § 3103(a) provides that "a court may make a protective order conditioning or regulating the use of any disclosure device...to prevent unreasonable annoyance, expense, embarrassment, disadvantage or other prejudice to any person or the courts." The CPLR also establishes three categories of protected materials, also supported by policy considerations:1) privileged matter, which is immune from discovery pursuant to § CPLR 3101(b), 2) attorney's work product, which is also immune from discovery pursuant to CPLR § 3101(c), and 3) trial preparation materials, which are subject to disclosure only on a showing of substantial need and undue hardship in obtaining the substantial equivalent of the materials by other means, pursuant to CPLR § 3101(d)(2). Spectrum Systems, 78 NY2d at 376-377. The burden of establishing any right to protection is on the party asserting it, the protection claimed must be narrowly construed and its application must be consistent with the purposes underlying the immunity. Spectrum Systems at 377.

The purpose of a subpoena duces tecum is to compel the production of specific documents that are relevant and material to facts at issue in a pending judicial proceeding. Velez v. Hunts Point Multi-Service Center, Inc., 29 AD3d 104, 112 (1st Dept. 2006). The court should grant a motion to quash a subpoena duces tecum only when the materials sought are utterly irrelevant to any proper inquiry. Id.; New Hampshire Ins. Co. v. Varda, Inc., 261 AD2d 135 (1st Dept. 1999); Matter of Reuters Ltd. v. Dow Jones Telerate, 231 AD2d 337, 341 (1st Dept. 1997). The burden of establishing that the requested documents and records are utterly irrelevant is on the person being subpoenaed. Gertz v. Richards, 233 AD2d 366 (2d Dept. 1996).

While CPLR § 3120 was amended effective September 1, 2003 to dispense with the requirement of a motion and require only the service of a subpoena duces tecum on a non-party witness for production of documents, the subpoena must specify the time, place and manner of making the inspection, copy, test or photograph, and set forth individually or by category the items to be inspected and describing each item and category with reasonable particularity. Velez, 29 AD3d at 109. The amendment did not change the requirement of CPLR § 3101(a)(4) that, where disclosure is sought from a nonparty, the nonparty shall be given notice stating the circumstances or reasons such disclosure is sought or required. Id. at 111.

In Kooper v. Kooper, 74 AD3d 6 (2d Dept. 2010), the Second Department discussed the issue of whether it is appropriate to continue to require a showing of special circumstances with respect to nonparty discovery. The Second Department concluded that, in light of its elimination from CPLR § 3101(a)(4), further application of the special circumstances standard is disapproved, except with respect to discovery from expert witnesses, for which applicable [*8]statutory language remains (see CPLR § 3101(d)(1)(iii)). Id. at 16. Thus, on a motion to quash a subpoena duces tecum or for a protective order, in assessing whether the circumstances or reasons for a particular demand warrant discovery from a nonparty, those circumstances and reasons need not be shown to be "special circumstances." Id.

Kooper declined to set forth a comprehensive list of circumstances or reasons that would be deemed sufficient to warrant nonparty discovery in every case, noting that

circumstances vary from case to case. 74 AD3d at 17. The supervision of discovery, settling of reasonable terms and conditions for disclosure, and determination of whether a particular discovery demand is appropriate are all matters within the discretion of the trial court, which must balance competing interests. Id., citing, inter alia, Wander v. St. John's Univ., 67 AD3d 904, 905 (2d Dept. 2009).

The Court's decision on the Order to Show Cause and cross motion will depend, in part, on 1) the Court's determination regarding the extent to which the parties have complied with their discovery obligations, about which the parties have presented conflicting affidavits, and2) the extent to which the Court concludes that the information sought by the Subpoenas, which appears to be relevant and necessary, can be obtained from the Defendants. Those issues may be amplified by the responses provided pursuant to the March Stipulation.

In light of the foregoing, the Court directs that, pending further Order of the Court, enforcement of the Subpoenas remains stayed. The Court reserves decision on the Order to Show Cause and cross motion, pending the parties' compliance with the March Stipulation. The Court directs that these motions shall appear on the Court's calendar on April 28, 2011, when the matter is scheduled for a Preliminary Conference. On that date, assuming that the parties have not resolved the issues raised by the Order to Show Cause and cross motion, the Court will permit counsel for the parties to submit additional briefs addressing how the parties' production pursuant to the March Stipulation should bear on the Court's decision on the Order to Show Cause and cross motion.All matters not decided herein are hereby denied.

This constitutes the decision and order of the Court.

The Court reminds counsel for the parties of their required appearance before the Court for a Preliminary Conference on April 28, 2011 at 9:30 a.m.

ENTER

DATED: Mineola, NY

April 18, 2011__________________________

HON. TIMOTHY S. DRISCOLL

J.S.C.