Levine v. City Med Association, decided by the Appellate Division of the Supreme Court of New York, Second Department was an interesting case in how civil discovery provisions apply to an action for breach of contract. Discovery, generally, is the ability of either party to a lawsuit to compel the other side to turn over relevant evidence, whether copies of physical documents, deposition of witnesses, records, scientific data, etc. Discovery is a critical phase of any trial as evidence forms a fundamental foundation upon which to build a case or a defense.
Background of the Case
The plaintiff, Mr. Levine was a physician who sold his medical practice to the defendant, and as part of the deal the two parties entered into a contract. This contract provided that Mr. Levine, the plaintiff, would continue working at the practice on behalf of the defendant, in a reduced, part-time capacity. The contract also contained what is known as a “restrictive covenant.” This was basically an agreement limiting the plaintiff’s ability to compete with the defendant; such agreements are not uncommon when a business is sold, because otherwise the seller of the business, familiar with the area and the customer base, could turn right around and open a competing business. In this case, the covenant included both a time limitation and a geographic limitation on the plaintiff’s ability to seek similar employment after leaving the defendant’s practice.
In 2010 the plaintiff left defendant’s employment and filed a lawsuit for breach of contract. He alleged basically that defendant did not pay him the agreed-upon compensation formalized in the contract. The defendant counterclaimed, alleging that plaintiff had violated the non-compete covenant in the contract. As part of the counterclaim, defendant sought discovery of plaintiff’s tax records from 2007 to 2011. Plaintiff refused to turn them over, but the lower court granted the defendant’s motion to compel production of these records. Plaintiff then appealed the order to the appellate division, second department.
Motion to Compel
The appellate division first articulated the applicable standard in New York State for discovery and the discovery of tax records in particular. Following general principles present in the Federal Rules of Evidence, New York State has a broad concept of discovery – however discovery is not unlimited. The Supreme Court (confusingly, in New York the lowest level of civil trial court is known as the Supreme Court, with the Appellate Division being the next higher court in succession) possesses a great deal of discretion to grant or refuse discovery. However, tax information in particular requires a “strong showing” that these records are indispensable to the case and cannot be obtained via other methods.
The Appellate division first ruled that since Levine was employed by defendant from 2007 to 2010, records relevant to the defendant’s alleged failure to pay are presumably in possession of the defendant, and the tax records are NOT indispensable. The only records that matter are the records after Levine left the defendant in 2010, which shed light on whether or not he breached the contract. Thus the court modified the order to require production of only those tax documents from 2010 and 2011.
Discovery is frequently a tool abused by the other side to go on a fishing expedition or to look for confidential business information to gain a competitive advantage. It is crucial to retain counsel experienced with discovery. Please do not hesitate to contact our office for a consultation.