Gentry T. Beach, et al., Plaintiffs-Respondents,
Touradji Capital Management, LP, Defendant-Appellant. Touradji Capital Management, et al., Counterclaim Plaintiffs-Appellants,
Gentry T. Beach, et al., Counterclaim Defendants-Respondents. Touradji Capital Management, LP, et al., Counterclaim Plaintiffs-Appellants, Deeprock Venture Partners, LP, Counterclaim Plaintiffs,
Vollero Beach Capital Partners LLC, et al., Counterclaim Defendants-Respondents.
Kellogg, Hansen, Todd, Figel & Frederick, PLLC, New York
(Aaron M. Panner of counsel), for appellants.
Stolper Group, LLP, New York (Michael Stolper of counsel),
for Gentry T. Beach and Robert A. Vollero, respondents.
Richter, J.P., Gische, Webber, Gesmer, JJ.
Supreme Court, New York County (Andrew Borrok, J.), entered
June 10, 2019, in favor of plaintiffs/counterclaim
defendants, unanimously reversed, on the law, without costs,
and the matter remanded for a new trial.
appeal centers around an employment compensation dispute
between defendant Touradji Capital Management (TCM), a
commodities hedge fund, and two of its former portfolio
managers, plaintiffs Gentry T. Beach and Robert A. Vollero.
Plaintiffs brought this action alleging that TCM breached the
parties' oral employment contracts. TCM and its principal
Paul Touradji (together appellants) asserted counterclaims,
including a breach of fiduciary duty claim against each
plaintiff. Central to those causes of action are allegations
that plaintiffs violated certain regulations of the
Securities and Exchange Commission (SEC) while employed at
TCM, and that Vollero destroyed his handwritten notes of his
conversations with Touradji, replacing them with
word-processed versions that progressively became more
favorable to plaintiffs.
to trial, plaintiffs' counsel asked appellants to produce
documents related to the SEC claim, arguing that they should
have been produced in response to previous discovery demands.
When appellants did not respond to that request, plaintiffs
asked the court to strike the breach of fiduciary duty
counterclaims absent immediate production, and appellants
responded that they were under no obligation to produce the
documents based on the prior requests. At a pretrial
conference for which there is no transcript, the court
apparently "asked" appellants to turn over the SEC
communications, but did not sign an order to that effect, and
the documents were not produced at that time.
opening statement, counsel for appellants told the jury that
the SEC had made a "finding" that plaintiffs
"violated the securities laws." Plaintiffs'
counsel objected, arguing that the SEC document upon which
appellants' counsel relied was not a finding, but rather
a settlement agreement between the SEC and TCM that did not
explicitly state that plaintiffs had violated any SEC
regulations. Appellants' counsel responded that, although
the SEC settlement did not identify plaintiffs by name, it
nevertheless stated its "finding" that the
violations were made by "two former employees of
[TCM]." Appellants' counsel told the court that it
was prepared to introduce evidence showing that those two
employees were plaintiffs.
reviewing the SEC settlement agreement, the court, as a
curative measure, directed appellants' counsel to clarify
his remarks to the jury. Counsel told the jury that the SEC
rule violation was against TCM, and that the SEC did not
identify plaintiffs in the agreement. Counsel also stated
that he intended to introduce evidence showing that the two
unnamed employees referenced in the agreement are, in fact,
plaintiffs. The court read the operative parts of the
settlement agreement into the record, and entered the entire
agreement into evidence.
court also ordered appellants to turn over TCM's
communications with the SEC. After appellants produced the
SEC communications, the court identified three earlier
discovery demands to which the documents were purportedly
responsive. The court concluded that appellants had an
ongoing obligation to produce those communications in
response to these prior demands. As a sanction, the court
precluded appellants from relying on the SEC violations as a
basis for their fiduciary duty counterclaims, and told the
jury that all references to the SEC violations were stricken
from the record. The court also precluded appellants from
making any reference to plaintiffs' alleged spoliation of
evidence (i.e., Vollero's destruction of his handwritten
notes of conversations with Touradji). The jury subsequently
rendered a verdict finding in favor of plaintiffs on the
breach of contract claims, and against appellants on their
counterclaims. Appellants appeal from the subsequent
appellants argue that counsel's remarks to the jury about
the SEC's findings were accurate, but even if they were
not, any misstatement was trivial and did not require a cure.
We agree with the court that appellants' counsel did not
fairly describe the SEC's findings in the opening
statement. While not outrightly false, counsel's
statement that the SEC found that plaintiffs had violated the
securities laws was misleading and required correction. It is
undisputed that the settlement agreement does not implicate
plaintiffs by name. That counsel was prepared to subsequently
show that plaintiffs were in fact the employees referenced in
the agreement does not alter the fact that the SEC made no
specific finding of wrongdoing as to plaintiffs. The curative
measure taken by the court requiring appellants' counsel
to clarify his remarks was appropriate, and no further
sanction was warranted.
appellants contend that they committed no discovery
violations, but even if they did, the court's preclusion
orders constituted an excessive sanction that deprived them
of a fair trial . Plaintiffs maintain, and the court
agreed, that appellants violated their discovery obligations
by failing to produce the SEC documents in response to prior
pretrial demands. Appellants counter that plaintiffs'
litigation conduct constituted a waiver of post-note of issue
discovery on the SEC issue, and that even if such discovery
were proper, the documents in question bear, at most, a
tenuous connection to only two of plaintiffs' earlier
demands. We need not determine whether a discovery omission
occurred, because even if the SEC communications should have
been turned over prior to the trial, the delay in the
document production did not warrant the severe sanctions
to CPLR 3126, if a party "refuses to obey an order for
disclosure or wilfully fails to disclose information which
the court finds ought to have been disclosed..., the court
may make such orders with regard to the failure or refusal as
are just." Although "[i]t is within the trial
court's discretion to determine the nature and degree of
the penalty," "[t]he sanction should be
commensurate with the particular disobedience it is designed
to punish, and go no further than that" (Merrill
Lynch, Pierce, Fenner & Smith, Inc. v Global Strat
Inc., 22 N.Y.3d 877, 880  [internal quotation
marks omitted]). Further, "the drastic remedy of
striking a party's pleading... for failure to comply with
a discovery order is appropriate only where [it is]
conclusively demonstrate[d] that the non-disclosure was
willful, contumacious or due to bad faith"
(Henderson-Jones v City of New York, 87 A.D.3d 498,
504 [1st Dept 2011] [internal quotation marks omitted]).
the court here did not strike a pleading, its ruling could
fairly be viewed as having done so, since the precluded
evidence was critical to the fiduciary duty claims. Moreover,
the court's drastic sanctions were disproportionate to
the alleged discovery malfeasance. It is unclear why a short
continuance to give plaintiffs time to review the
newly-produced documents would not have been a viable option,
or why further curative instructions would not have sufficed.
The record as a whole does not support a finding of
willfulness or bad faith so as to justify the severe
sanctions imposed (see Corrigan v New York City Tr.
Auth., 144 A.D.3d 495, 496 [1st Dept 2016] [because the
discovery failures were not wilful or contumacious or in bad
faith, the court's drastic sanction of striking the
answer and precluding evidence at trial was unwarranted]). No
basis exists to indicate that this was anything other than a
disagreement over the scope of discovery. Indeed, the court
at trial stated that the alleged discovery omissions
"appear not to have been in bad faith."
there support in the record for plaintiffs' current
assertion that appellants refused to obey a discovery order
issued at the pretrial conference. Although a transcript of
the pretrial conference does not exist, the court expressly
acknowledged at trial that it did not issue a discovery
order, but merely "asked" appellants to produce the
documents. The court further observed that when appellants
were subsequently "order[ed]" to produce the
material, appellants complied. Likewise, ...