Commercial Division Says “No Chance” on “Second Chance” Deposition of a Corporate Representative
May 25, 2023
Commercial Division Rule 11-f establishes that a party may serve a notice or subpoena on any legal or commercial entity. Upon receiving this notice, the responding party must then designate and produce a corporate representative for the deposition, who is prepared to testify about information known or reasonably available to the entity concerning topics listed in the deposition notice. While a corporate representative deposition may serve as a great discovery tool, it may also serve as a dangerous trap. In a recent decision from the Manhattan Commercial Division, Justice Andrea Masley reminds us that parties who attempt to depose an additional corporate representative of the same entity are fighting a losing battle.
In Phillips Auctioneers LLC v Grosso, the plaintiff, an auction house that specializes in the sale of 20th century and contemporary art, entered into a consignment agreement (the “Agreement”) with defendant, for a drawing (the “Work”) that Defendant represented as being made by the late American artist Cy Twombly.
Under the Agreement, Plaintiff advanced Defendant $1,500,000, which Defendant agreed to repay by a certain date. In addition, Defendant agreed (i) to pay Plaintiff’s out-of-pocket costs and a withdrawal fee equal to 25% of Plaintiff’s pre-sale estimate for the Work if Plaintiffs withdrew the Work from sale under certain circumstances; and (ii) expressly warranted that the Work was authentic and had disclosed all material information regarding the Work that might affect its sale or value.
During the verification process, Plaintiff received information from the Cy Twombly Foundation (the “Foundation”), which raised serious concerns regarding the Work’s authenticity. As a result, Plaintiffs commenced an action against Defendant, alleging that Defendant breached his contractual obligations to Plaintiff for failing to (i) furnish material information to Plaintiff concerning the Work’s authenticity, and (ii) repay the advance and withdrawal fee. In response, Defendant filed an Answer with Counterclaims against Plaintiff for breach of fiduciary duty, alleging that Plaintiff failed disclose material information it received from the Foundation, which resulted in the Work’s withdrawal for sale.
During the course of litigation, Defendant served the Foundation with a non-party deposition subpoena. As a result, the Foundation designated David Baum as its corporate witness, who was eventually deposed by Defendant’s counsel. Seven months after Mr. Baum’s deposition, Defendant filed a motion pursuant to CPLR 3124, to compel the deposition of Nicola Del Roscio as an additional corporate witness for the Foundation, along with additional relevant documents. In opposition, Plaintiff argued that the additional deposition was unnecessary, as the Foundation’s corporate witness, Mr. Baum, was an adequate witness who answered all relevant questions during his deposition.
In reviewing the motion, the Court acknowledged the standard for requesting an additional deposition is as follows, “[t]he party moving for an additional deposition must demonstrate that (1) the representatives already deposed had insufficient knowledge, or were otherwise inadequate, and (2) there is a substantial likelihood that the persons sought for depositions possess information which is material and necessary to the prosecution of the case” (Nunez v Chase Manhattan Bank, 71 AD3d 967, 968 [2d Dept 2010]). Based on this standard, along with a review of Mr. Baum’s deposition testimony, Justice Masley found that Defendant failed to demonstrate the first element, as Mr. Baum had sufficient knowledge and/or was an adequate corporate representative of the Foundation. In addition, the Court acknowledged that the additional information and/or discovery that Defendant sought from Mr. Del Roscio was unrelated to whether or not Plaintiff breached his obligations under the Agreement. As a result, the Court denied Defendant’s motion to compel the deposition of Mr. Del Roscio as an additional corporate witness for the Foundation.
In sum, the Grosso decision demonstrates that parties will face an uphill battle when seeking an additional deposition of a corporate representative. Moving forward, counselors preparing to take a deposition of a corporate representative must put forth significant time and planning in order to avoid the onerous burden needed to obtain an additional deposition.