In this real estate lease dispute, defendants 501 SECOND STREET L.L.C. [501

Plaintiff GIHON, on October 18, 2001, entered into a 48-year triple net lease with defendant 501 LLC for the use of the subject premises, consisting of residential apartments and a ground floor commercial space. The premises covered by the lease for plaintiff's exclusive use did not include certain spaces in the building which were to remain under the exclusive control of defendants 501 LLC and the NASHES. Subsequent to the signing of the lease, the parties became embroiled in a protracted dispute over monetary obligations and other performance issues. Plaintiff GIHON commenced a breach of contract action on January 28, 2002 (Gihon, LLC v 501 Second Street, LLC, Kings County Supreme Court Index No. 3446/02) [the 2002 action], in which it sought, inter alia, a declaratory judgment, specific performance of the lease and incidental damages. During the course of this lawsuit, a subsequent action was commenced by plaintiff GIHON to set aside as fraudulent a previous conveyance of the property from 501 LLC to a related company (Gihon, LLC v 501 Second Street, LLC, Kings County Supreme Court Index No. 13933/2004) [the 2004 action]. The instant action, alleging claims for unlawful eviction and breach of lease, ensues from a March 27, [*2]2007-incident involving the changing of locks to the premises by plaintiff's locksmith and the confiscation of the keys to the new locks by defendants the NASHES with the assistance of the police. The 2004 action resulted in a judgment of $120,000 plus interest against defendants, entered on September 14, 2012, the amount of plaintiff's security deposit withheld by defendant 501 LLC. A satisfaction of this judgment was entered on February 13, 2014. Defendants assert that there are no judgments rendered against them in this litigation which remain unsatisfied.

Defendant 501 LLC, on January 17, 2013, conveyed the subject property to 187 7th Avenue Residences, LLC for $4,200,000.00. Andrew Weltchek, Esq. represented 501 LLC at the closing. Out of the proceeds of the sale, $250,000.00 was placed in escrow to cover the costs of judgments rendered against 501 LLC. As evidenced by copies of checks submitted by plaintiff GIHON, in its order to show cause for a temporary receiver, more than one million dollars from the January 17, 2013 sale proceeds were made payable to defendant DOROTHY NASH individually. Plaintiff GIHON argues that the payment of sale proceeds to defendant DOROTHY NASH constitutes a fraudulent conveyance under Debtor and Creditor Law [DCL] §§ 273, 273-a and 276, rendering 501 LLC insolvent and judgment proof. As a result, plaintiff GIHON seeks discovery from Mr. Weltchek, including deposing Mr. Weltchek about the closing of the sale of the property and the distribution of the sale proceeds. Further, plaintiff GIHON seeks the appointment of a trust company to act as a temporary receiver of the sale proceeds pending the ultimate determination of this action.

Plaintiff GIHON served a subpoena duces tecum, dated May 5, 2014, on Mr. Weltchek seeking documents for the period of November 1, 2012 to date relating, describing, evidencing, concerning and/or referring to: the Vigo mortgage with 501 LLC; the satisfaction of the Vigo mortgage; and, the transfer of title by 501 LLC to 187 7th Avenue Residences LLC of the subject property, including, without limitation, the contract of sale, the deed, the title reports and title insurance policy, any escrow and brokerage agreements, side letters or any other document executed prior to, and/or subsequent and relevant to the sale, payments made at the closing whether to 501 LLC, all or any of the Nashes or any other entity, in whatever form, including, but not limited to currency, check, certified and/or bank check, wire and/or electronic transfer of funds, and [*3]the closing statement delivered by Weltchek to 501 LLC and/or the Nashes.

CPLR § 3101, dealing with the scope of disclosure states in (a) "Generally. There shall be full disclosure of all matter material and necessary in the prosecution or defense of an action. regardless of the burden of proof by: . . . (4) any other person, upon notice stating the circumstances or reasons such disclosure is sought or required." "The phrase material and necessary' is 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.' (Allen v Crowell-Collier Publ. Co., 21 NY2d 403, 406 [1968])." (Yoshida v Hsueh-Chih Chin. 111 AD3d 704, 705 [2d Dept 2013]). Pursuant to the recent Court of Appeals decision in Kapon v Koch (23 NY3d 32, 34 [2014]), disclosure from a nonparty requires no more than a showing that the requested information is "material and necessary" to the prosecution or defense of an action. However, the Court in Kapon v Koch, at 34, instructed: the subpoenaing party must first sufficiently state the "circumstances or reasons" underlying the subpoena (either on the face of the subpoena itself or in a notice accompanying it), and the witness, in moving to quash, must establish either that the discovery sought is" utterly irrelevant" to the action or that the "futility of the process to uncover anything legitimate is inevitable or obvious." Should the [nonparty] witness meet this burden, the subpoenaing party must then establish that the discovery sought is "material and necessary" to the prosecution or defense of an action, i.e., that it is relevant. (See Ferolito v Arizona Beverages USA, LLC, 119 AD3d 642, 643 [2d Dept 2014]).

Plaintiff GIHON states that in the subpoena and notice to take Mr. Weltchek's deposition, the reason why discovery is sought is that "the witness has personal knowledge, material and relevant documents and information concerning [the sale of the subject property] and the disposition of all consideration generated thereby." In their order to show cause to quash, defendants do not establish that the discovery sought is "utterly irrelevant" to the action or that the "futility of the process to uncover anything legitimate is inevitable or obvious." The information sought is relevant to determine whether or not the sale of the property and/or distribution of proceeds to defendant DOROTHY NASH constitutes a fraudulent conveyance under the DCL, which in turn is relevant to the ability of plaintiff GIHON to collect any judgment against defendant 501 LLC ultimately rendered in the instant action. Moreover, the evidence sought by plaintiff GIHON is not particularly burdensome. It is limited to documents and information typically provided in conjunction with the closing of real property.Defendants argue that the subpoena seeks material or information protected by attorney-client privilege. In Matter of Nassau County Grand Jury Subpoena Duces Tecum Dated June 24, 2003 (4 NY3d 665, 679 [2005]), the Court of Appeals held:

The attorney-client privilege protects confidential communications

between a lawyer and client relating to legal advice sought by the

client (see Matter of Priest v Hennessey, 51 NY2d 62 [1980]; see also

CPLR 4503). The person who asserts the privilege has the burden of

proving the above elements. Communications regarding "the identity

of a client and information about fees paid by the client" are not generally

protected under the privilege, nor are communications regarding the

payment of legal fees by a third person (51 NY2d at 69).

Therefore, defendants' order to show cause to quash the subpoena duces tecum and notice to take a deposition of nonparty Andrew Weltchek, Esq. is denied.

Plaintiff GIHON seeks to appoint a trust company to act as a receiver of the January 17, 2013 sale proceeds, pursuant to Banking Law § 100 (3) (a). This section provides that:

limitations contained in this chapter, the following powers: . . .

Upon motion of a person having an apparent interest in property which

is the subject of an action in the supreme or a county court, a temporary

receiver of the property may be appointed, before or after service of

summons and at any time prior to judgment, or during the pendency of

an appeal, where there is danger that the property will be removed from

the state, or lost, materially injured or destroyed.

Plaintiff GIHON fails to meet this elevated burden. While plaintiff recites the litigation history between the parties and highlights certain orders rendered for and against defendants 501 LLC and RACHEL NASH, this does not demonstrate that the proceeds of the January 17, 2013 sale paid to defendant DOROTHY NASH will be "removed from the state, or lost, materially injured or destroyed." Assuming there is a determination that the conveyance of the property or the delivery of sale proceeds to defendant DOROTHY NASH constitutes a fraudulent conveyance, there is no basis, beyond mere speculation, on which to conclude that funds sufficient to pay a judgment rendered in this action will be unavailable. Therefore, plaintiff GIHON's order to show cause for the appointment of a temporary receiver is denied.

Accordingly, it is

ORDERED, that the order to show cause of defendants 501 SECOND STREET L.L.C., DOROTHY NASH, RACHEL NASH and ESTHER NASH individually and doing business as 501 SECOND STREET HOLDING CORP., pursuant to CPLR §§ 2304, 3101 (b) and (c), to quash a judicial subpoena duces tecum and notice to take a deposition of nonparty Andrew Weltchek, Esq. is denied; and it is further

ORDERED, that the order to show cause of plaintiff GIHON LLC (GIHON), pursuant to CPLR § 6401 and Banking Law § 100 (3) (a), to appoint a trust company to act as a temporary receiver of certain funds from the proceeds arising from 501 LLC's sale of the subject property at 501Second Street, Brooklyn, New York, on January 17, 2013, is denied.

This constitutes the decision and order of the court.

ENTER

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