Commercial Division Blog

Posted: October 10, 2019 / Categories Commercial, Discovery/Disclosure

Court Refuses to Apply Apex Doctrine to Quash Subpoena

On September 19, 2019, Justice Borrok of the New York County Commercial Division issued a decision in Vestis Invs. II, LLC v. Retail Ltd., 2019 NY Slip Op. 32810(U), refusing to apply the apex doctrine to quash a subpoena, explaining:

Sports Direct asserts that, pursuant to the "apex witness" rule, Vestis should not be permitted to take the deposition of a high-level corporate executive, absent a detailed showing that (a) Mr. Ashley has unique knowledge that is material and necessary to the prosecution or defense of this action and (b) that no less intrusive means of obtaining the information is available. The court disagrees.

The "apex witness" rule is a doctrine recognized by federal courts in New York which seeks to limit harassment and disruption to businesses by restricting requests to depose high-ranking corporate executives. Sports Direct fails to cite any authority demonstrating adoption of an "apex witness"rule under New York state law. The only case cited by Sports Direct is Daou v Huffington, 2013 WL 6162980, 2013 NY Slip Op. 30372 [U] [Sup Ct, NY County 2013]). Daou is inapposite, however, as the court in Daou merely held that a party cannot issue a subpoena to take the deposition of high-level corporate executive where the executive has no unique, relevant information. In fact, the court in Daou observed that high-level executives are not immune per se from discovery or from depositions. As discussed on the record, here, Vestis seeks to obtain crucial information that only Mr. Ashley can impart concerning the logic behind the $17 million offering price and what he understood to be included for that price as Additional Consideration in the LOI.

Sports Direct argues that Vestis should have to exhaust all other less intrusive means of gaining this information. It asserts that Mr. Ashley delegated the responsibility for the negotiation, documentation, and execution of the LOI transaction to a U.S.-based advisor, Howard Moher. It further asserts that Mr. Moher is the person who received the January 25 email from Lincoln that Vestis alleges reflects the actual terms of the parties' agreement, and he is the one who reviewed and commented on drafts of the LOI. Sports Direct also asserts that a U.K.-based consultant, Justin Barnes, served as a conduit for Mr. Ashley in the negotiations and would have any relevant information that Vestis might hope to obtain from Mr. Ashely. Sports Direct argues that it would be less intrusive to depose Mr. Moher or Mr. Barnes than it would be to depose Mr. Ashley in the United Kingdom and that Vestis cannot take the deposition of Mr. Ashley without first exhausting those less intrusive options. These arguments are unpersuasive.

In Kapon v Koch, the Court of Appeals directly addressed the issue of whether a subpoenaing party must demonstrate that the information sought is not available from any other source. In Kapon, the petitioners commenced a special proceeding to quash non-party subpoenas served upon them in a fraud action filed in California by the respondent, William Koch, relating to the alleged sale of counterfeit wine. One of the petitioners, John Kapon, was the Chief Executive Officer of Acker, Merrall & Condit Company, a New York corporation operating in New York as a retailer and auctioneer of fine and rare wines. The petition in the special proceeding sought to quash the subpoenas pursuant to CPLR § 2304 and, in the alternative, sought the imposition of a protective order pursuant to CPLR § 3101 to, inter alia, stay the non-party depositions until the completion of party depositions in the California action and limit the scope of the depositions to matters material and necessary to the California action.

The Supreme Court denied the motions to quash and for a protective order and the Appellate Division unanimously affirmed. In affirming the order of the Appellate Division, the Court of Appeals observed: Section 3101(a)(4) imposes no requirement that the subpoenaing party demonstrate that it cannot obtain the requested disclosure from any other source. Thus so long as the disclosure sought is relevant to the prosecution or defense of an action, it must be provided by the nonparty.

In short, Vestis has met its burden in demonstrating that Mr. Ashley has information that is material and necessary to its claims in this action. Vestis seeks to question Mr. Ashley concerning, among other things, a specific conversation between Mr. Ashley and Mr. Moher in which Mr. Ashley allegedly agreed to include as additional consideration in the LOI exactly the assets that are at issue in this case. To the extent that Sports Direct claims that Mr. Moher may also have this information, Vestis asserts that Mr. Moher indicated in his deposition that he does not recall the conversation in question or the basis for the $17 million. Thus, Mr. Ashley is the only person who can speak to the nature of the conversation.

(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 if you or a client has a question regarding discovery obligations (and what to do if a litigant is not honoring those obligations).