Surrogate's Court, Queens County, September 18, 2019

Pryor Cashman LLP, New York City (Marion R. Harris of counsel), for Warren Cole and another, nonparties.

Robinson Borg Leinwand Greene Genovese & Gluck, P.C., New York City (Philip T. Simpson of counsel), for Emmie Gabbay, respondent.

The Abramson Law Group, PLLC, New York City (Howard A. Wintner of counsel), for Joseph Elghanayan, respondent.

Nonparties Warren Cole and Second Avenue Owner LLC moved pursuant to CPLR 3122 (d) to compel respondents Emmie Gabbay and Joseph Elghanayan to defray the reasonable production expenses, including $92,076.04 for legal fees, incurred in responding to subpoenas duces tecum in this and a related proceeding. By decision and order dated April 24, 2019, the motion was denied without prejudice to renewal upon proper papers which would include unredacted invoices setting forth a description of the [*2]legal services rendered, together with an itemization of time spent determining which documents to withhold on the basis of relevancy or privilege. The nonparties now move to renew.

Involved in this proceeding is a trust with a remaining value in excess of $48 million. Objections have been filed to the accounting alleging, inter alia, that the trustees improperly made payments to Cole and his company.

Cole and his company were hired by the petitioners as real estate consultants to assist in the development of a certain parcel of real property owned by the trust located on Second Avenue in Manhattan. Pursuant to the development agreement Cole was to receive up to $1 million as a development fee. Objectants contend that despite receiving $6,000 to $7,500 per month for several years, the property was never developed. It is further alleged that Cole received over $700,000 in consultant fees and was paid over $800,000 for purported expenses for which the petitioners did not provide any documentation. In addition to the foregoing, it is alleged Cole was paid a $6 million termination fee, without any explanation by the petitioners as to the basis for the fee.

Respondent Gabbay issued a subpoena duces tecum and ad testificandum in this trustee's accounting proceeding to Cole,{**66 Misc 3d at 337} and a subpoena duces tecum to Second Avenue, of which Cole is the sole member. Both subpoenas call for the production of the same documents.

Several days earlier in a related executor's accounting proceeding, respondent Elghanayan had issued a subpoena duces tecum and ad testificandum to Cole as well. That subpoena scheduled the deposition of Cole for the same date and location as the subpoena issued in this proceeding.

The petitioners subsequently moved to quash the subpoenas and for a protective order. The motion was ultimately withdrawn by stipulation between the parties which provided a procedure for only the fiduciaries to review responsive documents for privilege prior to production.

Through a series of telephone calls and emails over a period of months, nonparties' attorney communicated with Elghanayan's and Gabbay's attorneys relative to setting the dates for production of the documents and Cole's deposition. In the course of these exchanges, movants' attorney inquired of respondents as "to whose attention invoices for the payment of Mr. Cole's reasonable costs of production should be directed." Later, in response to an assertion by Gabbay's attorney that objection by the nonparties to responding to the document demands would be untimely, movants' attorney requested confirmation as to whether the "assertion of waiver is intended to avoid any obligation to defray my clients' reasonable costs of production under CPLR § 3122 (d)," and "[i]f it is not, please identify to whom invoices may be directed once they are available." In response to this email Elghanayan's attorney responded, "Phil's client and mine will share equally in the reasonable costs of reproduction."

A few days later movants' attorney advised respondents' attorneys that approximately 20,000 electronically stored files had been collected from Cole that would need to be reviewed before production. Some discussion was had between the attorneys in an attempt to limit the number of records that would have to be reviewed, such as excluding direct communications between the parties or from other third parties who were served subpoenas or by narrowing the 14 year time period covered by the subpoenas, but no agreement was reached.

Over the period of the next several weeks, the documents collected in response to the [*3]subpoenas were reviewed by movants' attorney and junior associates in their offices. There were 19,583 electronic records considered potentially responsive to{**66 Misc 3d at 338} respondents' subpoenas that were collected and reviewed. Of those records, the movants deemed 11,650 responsive and not privileged, and provided copies of them to the attorney for the trustees for their own privilege review.

Thereafter, movants' attorney advised respondents' attorneys in an email of the completion of the document review, and in regard to movants' costs of complying with the subpoenas he added "pursuant to our prior agreement that your clients will defray those reasonable costs pursuant to CPLR 3122 (d), attached please find invoices for payment." The payment sought included not only the costs for retrieving and reproducing the documents, but also for movants' legal fees. Respondents' attorneys, while agreeing to pay for the "reproduction" costs, strongly objected to paying movants' legal fees.

Copies of the records are stored on a USB flash drive which, in the absence of payment of the expenses, movants are withholding from respondents pending resolution of the issue by the court.

In support of the motion movants have included as exhibits invoices from an electronic discovery vendor that was hired to facilitate the collection, hosting and production of the records totaling $5,571.28. Also submitted are copies of invoices for attorney's fees in the amount of $92,076.04, together with time records annexed.

The costs for producing documents associated in complying with a subpoena can often be significant. In recognition thereof, CPLR 3122 (d) provides that "[t]he reasonable production expenses of a non-party witness shall be defrayed by the party seeking discovery."^[FN1] The rationale for the rule is manifestly clear; a nonparty should not be burdened with shouldering the costs of litigation to which the nonparty is unrelated. What is not as clear, however, is what constitutes "reasonable production expenses," as the term is not defined in the rule.

In addition to the cost of the actual copying or reproducing of the documents, there are labor related costs in the search, retrieval and production of the documents, and often the expense of an e-discovery professional. Logically these costs incurred by a nonparty should unarguably be compensable as reasonable production expenses.

Movants, however, contend that in addition to those expenses, legal fees incurred in the process of reviewing the documents{**66 Misc 3d at 339} for compliance with the subpoenas are also reasonable expenses recoverable under the rule.

There is no specific reference to attorney's fees in the statute. The Practice Commentaries to the rule, while noting the omission of a specific reference to attorney's fees, suggest that the court would be empowered to direct the payment of attorney's fees, "particularly where any substantial right of the nonparty witness is involved and representation by an attorney is needed," referring the reader to the Commercial Division Rules (Uniform Rules for Trial Cts [22 NYCRR] § 202.70 [g]), and an opinion predating the statute in Matter of Stauderman (56 Misc 2d 580 [1968]) as authority therefore (see Patrick M. Connors, Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, CPLR 3122:4 at 395 [2018 ed]).

While there is a dearth of Surrogate's Court opinions on this issue, other courts, though [*4]few in number, have had occasion to opine regarding the ability of nonparties to collect legal fees in such circumstances. In support of their position, movants cite four nisi prius decisions indicating that production related expenses of a nonparty may include attorney's fees (see e.g. Finkelman v Klaus, 17 Misc 3d 1138[A], 2007 NY Slip Op 52331[U] [2007]; Parklex Assoc. v Parklex Assoc., Inc., 33 Misc 3d 1216[A], 2011 NY Slip Op 51951[U] [2011]; Peters v Peters, 2016 NY Slip Op 31254[U] [2016]; Mayer v Marron, 2018 NY Slip Op 30229[U] [2018]).

The court in Finkelman, while indicating that reasonable production costs may include legal fees, also stated that "the responding party does bear the costs associated with withholding documents from production due to relevancy or privilege" (see Finkelman v Klaus, 2007 NY Slip Op 52331[U], *5). Parklex incidently comments on the issue in a footnote, citing Finkelman as authority for awarding full compensation to a nonparty, including attorney's fees (see Parklex Assoc. v Parklex Assoc., Inc., 2011 NY Slip Op 51951[U], *6 n 8). In Peters, the nonparty requested $13,912 for attorney's fees incurred in partially responding to the subpoena and $29,475 in anticipated costs to fully comply with the subpoena. The court awarded $1,480 in attorney's fees, declining to award attorney's fees with respect to time spent conferring with defendants' counsel or determining which documents to withhold on the basis of privilege or relevancy, citing Finkelman (see Peters v Peters, 2016 NY Slip Op 31254[U], *4-5). The Mayer court, citing Parklex as authority that attorney's fees are a production related{**66 Misc 3d at 340} expense, referred the reasonableness of the fee request to a Special Referee for determination (see Mayer v Marron, 2018 NY Slip Op 30229[U], *24).

Upon the court's reading of the statute, case law,^[FN2] commentaries and various court rules for the commercial parts, and considering the rationale underlying the rule, the court is of the opinion that legal fees incurred by a nonparty conducting e-discovery in complying with a subpoena are potentially reimbursable in Surrogate's Court proceedings. Such legal expenses, however, must be reasonable. Furthermore, in the absence of a prior agreement between the demanding party and the nonparty, such fees are subject to the exercise of the court's power to limit or deny them to prevent unreasonable expense or other prejudice to any person as the circumstances may present (see CPLR 3103 [a]).

Respondents argue that even if attorney's fees are recoverable by a nonparty for responding to a subpoena requesting the production of documents, Cole is not the ordinary innocent nonparty bystander the rule is intended to protect. They argue that he was intimately involved with the trustees in the management of the trust properties, as well as in a failed development project for which he received millions of dollars in improper payments which is the genesis for seeking surcharges against the executors-trustees. But for the fact that involved here are a trust and an estate accounting proceeding rather than a plenary action, respondents argue that Cole would have been named as a defendant. Therefore, they posit, he bears some responsibility with respect to the surcharges sought, and consequently he should be treated as if he were a party and be required to pay his own expenses of producing responsive documents.

Respondents also argue that movants' attorney was fully aware that consent was only [*5]given to pay the reasonable costs of "reproduction," and that despite numerous emails and telephone conversations, movants' attorney never indicated that attorney's fees would be sought in addition to reproduction costs. Respondents contend that it was incumbent on movants' attorney to have informed them that attorney's fees would be sought.{**66 Misc 3d at 341}

Respondents further assert that the amount movants are seeking in attorney's fees for a single document production is "outrageous." They question why it was necessary to employ four attorneys and two e-discovery specialists to review the documents. Respondents also argue that there are certain items for which fees should not be recovered, such as time spent preparing responses and objections to the subpoenas, communications with and the transmission of documents to the trustees' attorney and other interactions with the petitioners on privilege matters.

In response to respondents' contention that Cole should be treated as responsible for his own legal fees, movants argue that, regardless of Cole's alleged business relationship with the trustees, he still is nothing more than a nonparty with respect to the accounting proceedings, and therefore, entitled to the reasonable production costs, including attorney's fees that were incurred.

Movants also contend that given the breadth of the subpoenas, which respondents did not agree to limit, they were required to review nearly 20,000 electronic records, which was a time-consuming and expensive endeavor. Counsel, working with the e-discovery specialists and associate attorneys, spent 173 hours to review and produce the electronic records for production resulting from the respondents' refusal to consider what they categorize as reasonable limitations.

While Surrogate's Court does not have rules governing e-discovery, a review of such rules in the federal courts as well as the Commercial Parts of Nassau and New York City are instructive. Clearly, the procedure followed by the movants and respondents in this matter did not remotely comply with any of these guidelines, especially with respect to the discussion of costs. While the parties were free to chart their own procedural course, the guidance of the official court rules is instructive to the court's resolution of this dispute, especially in the absence of an explicit written agreement.

Also, the underlying dispute here concerns whether or not the fiduciaries fulfilled their duties in administering this estate as executors and trustees. No showing has been made in any of the papers as to why the information sought from Cole could not be gleaned from the fiduciaries' own records or how the fiduciaries' documents were inadequate. Respondents, therefore, can not be heard to complain about the costs involved in getting additional material from a third party, especially after its production.{**66 Misc 3d at 342}

On the other hand, many of the cases state that counsel fees for review of documents for privilege and relevancy should be borne by the producing party, and not all of the services provided herein, as set forth in the time sheets submitted, should be reimbursable.

Given the above and having considered the breadth of the subpoenas' demands; the failure to reach an agreement on reducing the scope of the subpoenas as to certain documents; the lack of prior notice given to the respondents that movants would seek reimbursement for their legal fees; Cole's relationship with the trustees in the management of the trust; and excluding certain expenses for conferring with the trustees' counsel, preparing objections to the subpoenas and the like, the court directs that in addition to the $5,571.28 electronic discovery vendor expense, movants are to be reimbursed for their reasonable legal fees and expenses in the amount of[*6]$40,000.

Accordingly, the motion of Warren Cole and Second Avenue Owner LLC pursuant to CPLR 3122 (d) to compel respondents Emmie Gabbay and Joseph Elghanayan to defray the reasonable production expenses in connection with respondents' subpoenas is granted in the amount of $45,571.28.

Given the length of time this matter has been pending, movants shall produce copies of the records to respondents forthwith, and respondents shall remit payment within 30 days of receipt of the records.

In all other respects, the motion is denied.