Plaintiffs move for an order pursuant to CPLR 3124 compelling Defendants to respond to its interrogatory demand dated May 2, 2005 and its notice for discovery and inspection dated May 5, 2005.

Most states require the owners of motor vehicles to maintain certain statutory minimum liability insurance on the vehicle as a condition for registering the vehicle. States have created the assigned risk pool which permits owners of motor vehicles who have bad driving records, numerous accidents or limited driving experience and who cannot obtain insurance through normal insurance sources to obtain the statutorily required insurance.

As a condition of being permitted to write automobile insurance in a state, an insurance company must agree to accept a share of the assigned risk pool. The premiums that an insurance company may charge a driver placed in the assigned risk pool is regulated and limited by the state.

Because the premiums that the states permit insurance carriers to charge may be insufficient to cover the risk, states permit insurance carriers to buy out of the assigned risk pool. Other insurance carriers assume the assigned risk obligations of the insurance carriers that buy out of the assigned risk pool. Under the provisions of such an arrangement, the insurance carrier assuming the obligations of another insurance carrier is paid all of the premiums received by the carrier assigning its assigned risk obligations and is paid an additional fixed amount. The agreements by which one insurance carrier assumes the assigned risk obligations of another carrier are called Limited Assignment Distribution ("LAD") agreements.

A significant portion of Robert Plan's business involves its assumption of the assigned risk obligations of insurance carriers that want to buy out of their assigned risk obligations.

Robert Plan alleges that, during the period 1999 and 2001, it provided confidential and/or proprietary information to the Defendants (collectively "One Beacon") pursuant to the provisions of confidentiality and/or non-disclosure agreements. Robert Plan alleges that One Beacon misappropriated and misused Robert Plan's trade secrets or confidential material to go into competition with Robert Plan and to solicit business from Robert Plan's customers. Robert Plan seeks to recover compensatory and punitive damages resulting from One Beacon's alleged actions.

Robert Plan has served interrogatories dated May 2, 2005 and a notice for discovery and inspection dated May 5, 2005 seeking documents and information regarding the profits earned by One Beacon on its LAD assigned risk business during the years 2002 and 2003.

The law of New York on damages for misappropriation and misuse of confidential information is clear and well settled. The injured party may recover the profits it lost as [*2]a result of the defendant's misuse or misappropriation of confidential material. Suburban Graphics Supply Corp. v. Nagel, 5 AD3d 633 (2nd Dept. 2004); and Allan Dampf, P.C. v. Bloom, 127 AD2d 719 (2nd Dept. 1987). See also, Town & Country House & Home Service, Inc. v. Newberry, 3 NY2d 554 (1957); Michel Cosmetics, Inc. v. Tsirkas, 282 NY 195 (1940); and Barone v. Marcisak, 96 AD2d 816 (2nd Dept. 1983).

Plaintiff must establish that the profits it lost when the defendant actually diverted and did business with plaintiff's customers. Allan Dampf, P.C. v Bloom, supra. See also, Abernathy-Thomas Engineering Co. v. Pall Corp., 103 F.Supp2d 582 (E.D.NY 2000).

CPLR 3101(a) provides for discovery of by a party to an action of "...all matter material and necessary in the prosecution of the action...regardless of the burden of proof." A party will be required to produce material which can be used as evidence in chief, for rebuttal or for cross-examination. Allen v. Crowell-Collier Publishing Co., 21 NY2d 403 (1968); and Wind v. Eli Lilly & Co., 164 AD2d 885 (2nd Dept. 1990). A party may also obtain discovery of documents that are not admissible in evidence if the production of the documents may lead to the disclosure of admissible evidence. Southampton Taxpayers Against Reassessment v. Assessor of the Village of Southampton, 176 AD2d 795 (2nd Dept. 1991); and Fell v. Presbyterian Hospital in the City of New York, 98 AD2d 624 (1st Dept. 1983).

The party seeking discovery has the burden of establishing that the production of the demanded material or information will lead to the discovery of evidence relevant to the case while the party opposing discovery has the burden of establishing that the material is irrelevant, privileged or confidential. Crazytown Furniture, Inc. v. Brooklyn Union Gas Co., 150 AD2d 420 (2nd Dept. 1989); and Carp v. Marcus, 116 AD2d 854 (3rd Dept. 1986).

A party does not have to comply with a discovery demand that is palpably improper. A discovery demand is palpably improper if it seeks material that is not relevant to the issues in the litigation or seeks discovery of material that is privileged or confidential. Bell v. Cobble Hill Health Center, -A.D.3d- , 2005 WL 2659499 (2nd Dept. 2005); and Titlserve, Inc. v. Zenobio, 210 AD2d 314 (2nd Dept. 1994).

Robert Plan's interrogatories dated May 2, 2005 and notice for discovery dated May 5, 2005 are palpably improper since a response will not produce material that can be used as evidence in chief, for rebuttal or for cross-examination. Additionally, the production of the demanded material will not lead to the disclosure of admissible evidence.

Robert Plan seeks this discovery of the demanded material in connection with its claim for damages. Robert Plan asserts that it has the option of recovering either the profits it lost or the profit One Beacon earned through the use of Robert Plan's confidential or privileged material. Robert Plan does not have such an election. Robert Plan's damages are limited to the profits it lost. It may not recover the profit One Beacon made. Allan Dampf, P.C. v. Bloom, supra.

Robert Plan's assertion that it is entitled to recover the profits One Beacon earned through the use of Robert Plan's confidential or proprietary information is based upon decisions of the courts of other states. See, Sandare Chemical Co. v. Wako [*3]International, 820 S.W.2d 21 (Tex. App. 1991); Melo-Tone Vending, Inc. v. Sherry, Inc., 39 Mass. App. Ct. 315. (Mass. App. 1995); Jet Spray Cooler, Inc. v. Crampton, 377 Mass. 159 (1979); and Intellsports, LLC v. Fitzgerald, 2004 WL 794458 (Kan.App. 2004).

A trial court is required to apply the most recent controlling decisions of the Appellate Division in which it is located. See, Miller v. Miller, 109 Misc 2d 982 (Sup.Ct., Suffolk Co. 1981); Matter of Weinbaum, 51 Misc 2d 538 (Surr.Co., Nassau Co. 1966); and 28 NY Jur2d Courts and Judges §215. The controlling law in the Second Department on the issue of damages for misappropriation and/or misuse of confidential information is Suburban Graphics Design Corp. v. Nagel, supra; and Allen Dampf, P.C. v. Bloom, supra. Both of these cases hold that the measure of damages for misappropriation or illegal use of confidential information is the profits lost by the plaintiff as a result of defendant's misuse of the confidential information.

Robert Plan's reliance upon Gomez v. Bicknell, 302 AD2d 107 (2nd Dept. 2002) is misplaced. Gomez reiterates the law of damages in a claim against an employee for breach of fiduciary duty. See, Diamond v. Oreamuno, 24 NY2d 494 (1969). Robert Plan does not allege that its relationship with One Beacon or its predecessors was one of confidence or fiduciary in nature beyond its contractual relationship. George Cohen Agency, Inc. v. Donald S. Perlman Agency, Inc., 114 AD2d 930, 931 (2nd Dept. 1995), app. den., 68 NY2d 603 (1986). See also, Aaron Ferer & Sons, Ltd. v. Chase Manhattan Bank, NA, 731 F.2d 112, 123 (2nd Cir.1984). Thus, the measure of damages established by Diamond and Gomez is not applicable to this case.

The only possible relevant information sought is the names of the Robert Plan customers with whom One Beacon did business. However, when a discovery demand is palpably improper, the appropriate remedy is to strike the entire demand. Village of Mamaroneck v. State, 16 AD3d 674 (2nd Dept. 2005); and Curran v. Upjohn Co., 122 AD2d 929 (2nd Dept. 1986).

Accordingly, it is

ORDERED, that Robert Plan's motion to compel discovery is denied; and it is

further,

ORDERED, that Robert Plan's interrogatories dated May 2, 2005 and notice for discovery and inspection dated May 5, 2005 are hereby stricken.

This constitutes the decision and order of this Court.

Dated: Mineola, NY _____________________________

November 23, 2005 Hon. LEONARD B. AUSTIN, J.S.C.

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