119 A.D.3d 642
N.Y. App. Div.2014Background
- Consolidated hybrid action seeking dissolution of several LLCs and judicial dissolution/valuation under BCL §1118, involving Ferolito as plaintiff/petitioner and nonparty Morgan Stanley as target of a subpoena.
- Ferolito served a subpoena duces tecum on Morgan Stanley in April 2011 seeking production of documents.
- A referee, overseeing discovery, granted Ferolito’s request to compel Morgan Stanley to comply in June 2013; Morgan Stanley moved to vacate, and Ferolito cross-moved under CPLR 3124.
- Supreme Court, September 26, 2013, granted Ferolito’s cross-motion in effect; Morgan Stanley appealed.
- The subpoena’s paragraphs 11–19 sought documents later deemed to contain trade secrets; Morgan Stanley argued disclosure would reveal trade secrets.
- Appellate Division modified the order, denying production of trade-secret documents (paragraphs 11–19) and affirmed the rest as modified.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the subpoena compelled nonparty production under Kapon framework | Ferolito maintains relevance and necessity for valuation evidence. | Morgan Stanley argues insufficient showing of materiality and need under Kapon. | Subpoena satisfied notice; burden shifted; Morgan Stanley failed to show irrelevance, but Ferolito did show materiality. |
| Whether trade secrets in paragraphs 11–19 were legally producible | Documents were necessary to value the company. | Trade secrets must be protected; disclosure not indispensable. | Morgan Stanley showed trade secrets; Ferolito failed to prove indispensable disclosure. |
| Whether the court should compel disclosure of trade-secret documents | Disclosures aid truthfinding for valuation. | Trade secrets cannot be disclosed; no alternative means established. | Docs 11–19 not compelled; branches denied; order affirmed as modified. |
Key Cases Cited
- Allen v. Crowell-Collier Publ. Co., 21 N.Y.2d 403 (N.Y. 1968) (scope of liberal discovery in CPLR 3101(a))
- Matter of Kapon v Koch, NY3d __ (2014) (nonparty discovery requires material and necessary information; burdens shift with notice)
- Carecore Natl., LLC v New York State Assn. of Med. Imaging Providers, Inc., 24 A.D.3d 488 (1st Dep’t 2005) (trade secrets require indispensability for compelled disclosure)
- Drake v Herrman, 261 N.Y. 414 (N.Y. 1932) (trade secret protection and disclosure standards)
- Hunt v Odd Job Trading, 44 A.D.3d 714 (2d Dep’t 2007) (trade secret considerations in discovery)
- Deas v Carson Prods. Co., 172 A.D.2d 795 (4th Dep’t 1991) (limits on disclosure for trade secrets)
- Curtis v Complete Foam Insulation Corp., 116 A.D.2d 907 (2d Dep’t 1986) (indispensable information standard for trade secrets)
- Laro Maintenance Corp. v Culkin, 267 A.D.2d 431 (3d Dep’t 1999) (initial burden shifting on trade secret objections)
- Ashland Mgt. v Janien, 82 N.Y.2d 395 (N.Y. 1993) (trade secrets and discovery balancing)
- City of Schenectady v O’Keeffe, 50 A.D.3d 1384 (3d Dep’t 2008) (burden shifting in protective orders and discovery)