Court Rejects Apex Doctrine Challenge to Executive's Deposition

On May 15, 2020, Justice Cohen of the New York County Commercial Division issued a decision in J.T. Magen & Co. Inc. v. Nissan N. Am., Inc., 2020 NY Slip Op. 31374(U), rejecting an apex doctrine challenge to an executive's deposition, explaining:

In order to prevent unreasonable annoyance, expense, embarrassment, disadvantage, or other prejudice to any person, [] the Court may make a protective order denying, limiting, conditioning or regulating the use of any disclosure device. To that end, senior corporate executives with no discernible personal involvement in a dispute, other than by virtue of heading the corporation named in the lawsuit, should not be deposed absent a showing that he or she uniquely possesses relevant information that renders his or her deposition necessary.

At the same time, high-ranking officials are not exempt from a deposition based solely on their title or position in a company or organization and, because principles relating to apex witnesses are in tension with the broad availability of discovery, it is important to excuse a witness from giving testimony only in compelling circumstances.

Here, J.T. Magen has made a sufficient showing that Mr. Flatto uniquely possesses at least some relevant information pertaining to critical fact disputes in this case. For context, one important fact issue concerns the process through which Georgetown released money to tenants, like BICOM, to reimburse them for expenses incurred in renovating the car dealerships. To receive this tenant improvement allowance ("TIA") from Georgetown, BICOM needed to meet certain conditions, including the submission of an unconditional lien waiver purportedly verifying that J.T. Magen was fully paid the amount reflected in the lien waiver. Georgetown alleges that J.T. Magen conspired with BICOM to defraud Georgetown by submitting false lien waivers and other documents, thus inducing Georgetown to release TIA money to which BICOM and J.T. Magen were not entitled. J.T. Magen, for its part, contends that "Georgetown knew that J.T. Magen had not been paid the full amount reflected in the lien waiver" and therefore could not have justifiably relied on it to release TIA money. As the Court noted in denying J. T. Magen' s motion for summary judgment, the TIA process in place for the Project is one of several issues on which the factual record warrants further development.

And that is where Mr. Flatto enters the picture: although he delegated day-to-day supervision of the Project to subordinates, discovery to date suggests that Mr. Flatto maintained some personal involvement with the TIA process and other tenant matters throughout. Mr. Flatto appears in, or was referred to, on dozens of emails concerning the Project between December 2015 and March 2017. These emails include discussions about the TIA and specific requisitions; direct exchanges between Mr. Flatto and Gary Flom, BICOM's principal, about a possible partnership; and information from Georgetown personnel and others about the progress of the Project. Further, Mr. Flatto attended Project meetings, and was updated regularly on various matters, not just related to the BICOM project, but the entire project from Georgetown's financing to tenant inquiries, to the status of TI payments. Mr. Flatto was also the signatory on Georgetown's lease with BICOM. Moreover, for at least some aspects of the Project, Mr. Flatto may be in unique possession of information, including his direct communications with Mr. Flom and to the extent he can testify about events that his subordinates could not recall at their own depositions.

Granted, as a CEO in charge of shepherding multiple projects at multiple sites, Mr. Flatto's involvement in this particular Project may have been limited. But clearly, he was involved. And that separates this case from the line of other cases, cited by Georgetown, in which courts have shielded high-ranking officials whose involvement with a particular dispute was undisputedly speculative, tangential, or non-existent.

In sum, J.T. Magen is entitled to test, with evidence of Mr. Flatto's communications in hand, Mr. Flatto's assertion that he possesses no unique, non-duplicative knowledge relevant to the claims or defenses in this action.

(Internal quotations and citations omitted).

A big part of complex commercial litigation is giving, receiving and evaluating evidence (this is called "discovery"). The scope of discovery in New York is broad, but as this decision shows, it is not unlimited. The question addressed here was whether one of a company's senior executives could be deposed (the answer here was yes). Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client has a question regarding discovery obligations (and what to do if a litigant is not honoring those obligations).