HASSN v. ARMOUTH INTERNATIONAL INC (2022)

This motion arises from the latest iteration of an ongoing discovery dispute in this commercial contract action. Plaintiff manufactures clothing. It sold its clothing to defendant, which in turn supplied the clothing to various retailers. Plaintiff sued over defendant's alleged failure to pay for clothing that plaintiff had supplied to it. Defendant counterclaimed, alleging that plaintiff's clothing was defectively made and that resulting returns from defendant's retail customers had cost defendant substantial sums.

The parties have repeatedly clashed over the adequacy of the discovery that defendant has provided plaintiff relating to defendant's counterclaim. Defendant now moves for leave to amend its counterclaim in light of newly provided discovery; plaintiff cross-moves to strike the counterclaim. Defendant's motion is denied; plaintiff's cross-motion is granted.

BACKGROUND

This is the second time plaintiff has moved to strike defendant's counterclaim for failure to provide the same basic court-ordered discovery. (See Hassn v Armouth Intl. Inc., 2021 NY Slip Op 50421[U] [Sup Ct, NY County May 14, 2021] [resolving prior motion].)

In late November 2020, plaintiff sent defendant a good-faith letter requesting defendant to supplement its initial document production. (See NYSCEF No. 33.) Among other things, the good-faith letter sought additional documents and details about (i) the styles and quantities of clothing supplied by plaintiff that were defective; (ii) how much of the assertedly defective clothing was sold; (iii) how much of the assertedly defective clothing was returned (by whom and in what styles and quantities); (iii) costs incurred by defendant as a result of the returns, such as chargebacks and shipping and warehousing fees; and (iv) the current location of the returned clothing. (See id. at 2-3.) The good-faith letter also specifically asked defendant for an explanation for any responsive documents that defendant was unable to produce. (See id.) Defendant's response to plaintiff's good-faith letter, although undertaking to conduct a further search for certain categories of documents, largely stood on defendant's initial production—including the core question of what clothing, in which styles and quantities, had been returned to defendant as defective.

Plaintiff then requested a conference with this court to resolve the parties’ dispute over the adequacy of defendant's document production. The court conducted an extended telephonic conference with the parties on this issue in December 2020. Following the conference, this court issued a conference order directing plaintiff to serve focused supplemental interrogatories and document requests (see NYSCEF No. 27), which plaintiff did (see NYSCEF No. 35). Defendant provided a supplemental document production in mid-January 2021. (See NYSCEF No. 36.)

Plaintiff, believing that defendant's document production remained insufficient (see NYSCEF No. 37 [good-faith email]), moved in motion sequence 002 to strike defendant's counterclaim or to compel defendant to further supplement its discovery responses. (See NYSCEF No. 28 [notice of motion]). Defendant opposed the motion, attaching a further supplemental document production (see NYSCEF No. 66). Defendant also cross-moved for sanctions on the ground that plaintiff's motion was (assertedly) harassing and grounded in part on false statements. (See NYSCEF No. 38 [notice of motion].)

This court issued a decision and order on motion sequence 002 in May 2021 granting plaintiff's motion in part and denying it in part. This court concluded, based on a detailed review of defendant's supplemental document productions, that the productions “do not come close to remedying the deficiencies that plaintiff (and, for that matter, this court) identified in defendant's prior discovery responses.”¹ (Hassn, 2021 NY Slip Op 50421[U], at *2.) The court “decline[d] at this time, though, to impose the severe sanction of striking defendant's counterclaim altogether.” (Id.) Instead, the court opted to afford defendant one more chance. The court gave defendant 30 more days to provide specific categories of discovery—still relating to the basic questions of what styles and quantities of clothing were rejected by defendant's customers as defective and returned on that basis, and what costs had been incurred and what revenue lost by defendant as a result.² (See id. at *2-*3.) If, however, defendant failed to timely provide this discovery without good cause shown, defendant's counterclaim would be stricken by the court on plaintiff's written request. (See id. at *3.)

On the last day within the period set by the court, defendant moved for leave to amend its counterclaim and for a stay. Defendant requests leave to include more detailed allegations about defendant's claimed damages—supported by a further supplemental document production—and asks the court to stay its discovery obligations under the May 2021 order pending consideration of the proposed amendment. (See NYSCEF Nos. 71 [notice of motion], 72 [mem. of law], 79 [proposed amended answer].) Plaintiff, objecting to defendant proceeding in this manner, has filed a letter asking this court to strike defendant's counterclaim pursuant to the May 2021 order. (See NYSCEF No. 83.) Plaintiff has also cross-moved for that relief. (See NYSCEF No. 86 [notice of motion].)

DISCUSSION

Defendant's motion is somewhat peculiar, in two respects. First, the requested amendment would, in essence, fill out and further specify the details of defendant's counterclaim. But the point of contention between the parties, and the subject of this court's May 2021 order, was not whether the defendant's counterclaim allegations were sufficiently clear and detailed to enable plaintiff to determine what kinds of discovery it should be seeking, going forward. Rather, plaintiff has repeatedly sought, and this court has repeatedly ordered defendant to provide, more detailed documentation of the allegations that plaintiff already understands to support defendant's counterclaim. More specific pleading cannot, standing alone, cure a failure of discovery.

Second, and relatedly, it is unclear why defendant is moving for a stay at all. That is, defendant's motion papers in support of leave to amend “attach[ ] 8 (8) exhibits of evidentiary documentation” and a Jackson affidavit—demonstrating, according to defendant, that “the proposed amendments are not devoid of merit.” (NYSCEF No. 72 at 11, 12.) Defendant submitted these materials by the deadline set by the court.³ If this further supplemental discovery production is adequate, then defendant has sufficiently complied with this court's May 2021 order regardless whether the court also grants leave to amend.

In short: If the documents submitted by defendant in support of its motion remedy the shortcomings in defendant's prior productions, no stay is needed. Conversely, if these documents do not fill defendant's production gaps, defendant's proposed amendment to its counterclaim would not on its own be enough to ward off this court from striking the counterclaim under the terms of the May 2021 order, stay or no stay.

Accordingly, the branch of defendant's motion for a stay is denied as academic. The question is only whether defendant's supporting documentary submission suffices to remedy the shortcomings that plaintiff and this court have identified in defendant's prior productions.⁴ This court concludes that defendant's submission is not sufficient—and therefore that defendant's counterclaim should be stricken.

As discussed above and in this court's May 2021 order, a central question with respect to defendant's counterclaim is how much of plaintiff's clothing, and in which styles, was rejected as defective by which retailers, and returned or charged back to defendants as a result. Defendant still has not provided documents that answer this basic question.

For example, defendant has, for the second time, submitted three paid invoices received from plaintiff for shipped clothing. (Compare NYSCEF No. 79 at 25-30, with NYSCEF No. 47.) Those invoices comprise thousands of cartons of clothing in at least six styles. Defendant's submission does not include any new information about rejection of part or all of that clothing. Defendant includes only a series of email exchanges with one retailer (Zulily LLC) that were (i) already included in a past production; (ii) pertain to only one or perhaps two styles of clothing (out of half a dozen); and (iii) reflect the return of fewer than 200 cartons of clothing (out of thousands of cartons). (See NYSCEF No. 79 at 58-63.)

Defendant has, to be sure, provided three new documents from Zulily reflecting chargebacks that Zulily made to defendant.⁵ But defendant has not provided any documents that might connect these chargebacks to (i) particular styles (and quantities) of clothing that were (ii) originally supplied by plaintiff to defendant and sold by defendant to Zulily and that (iii) Zulily later rejected as defective. For that matter, all three of the chargeback documents were generated after plaintiff brought this action, and two of the three came after defendant filed its counterclaim—indeed, after the deadline for defendant's initial document production in support of that counterclaim. (See NYSCEF No. 1 [complaint; NYSCEF No. 20 [counterclaim]; NYSCEF No. 24 at 1 [preliminary conference order]; NYSCEF No. 79 at 65-67 [chargebacks].)

Defendant also has provided a Jackson affidavit from its principal, Charles Armouth. (See NYSCEF No. 81.) The affidavit claims that defendant's failure to provide more documents, and for that matter more detailed allegations in the counterclaim, was because an office move led to “a number of files” being either lost or misplaced by defendant's moving company. (Id. at ¶ 5.) This affidavit, however, is not sufficient, either.⁶

As an initial matter, the affidavit is somewhat vague about what files were misplaced by defendant's movers, and about why defendant has some documents relating to its purchase and resale of plaintiff's clothing, but not others. (See NYSCEF No. 81 at ¶¶ 5-6.) More fundamentally, the office move that Armouth references occurred in June 2020, i.e., before defendant filed its counterclaim. (See id. at ¶ 4; see also NYSCEF No. 20.) But this affidavit is the first time defendant has suggested—over more than a year of increasingly heated back-and-forth about discovery—that the crucial documents that might support its counterclaim were lost in an office move.⁷ The affidavit does not explain that delay.

Additionally, many of the documents that defendant have provided to plaintiff—including the limited documents evidencing returns from Zulily to defendant (see NYSCEF No. 79 at 58-63)—were generated in electronic form. Armouth's Jackson affidavit does not explain why other documents relating to rejection, returns, and chargebacks from Zulily (or other customers of defendant) were generated only in hardcopy, such that they would have been in files misplaced by defendant's moving company. (Nor does the affidavit suggest that the moving company lost or misplaced defendant's hard drives, as well as some of its hardcopy files.)

The Armouth Jackson affidavit thus is not sufficient to explain or justify defendant's repeated, ongoing, and extensive failure to produce documents supporting its counterclaim, notwithstanding multiple court orders to do so.

Accordingly, for the foregoing reasons, it is hereby

ORDERED that the branch of defendant's motion under CPLR 2201 for a stay of this court's May 2021 order is denied; and it is further

ORDERED that plaintiff's cross-motion to strike defendant's counterclaim is granted, and the counterclaim is dismissed, with costs and disbursements to be awarded by the Clerk on a proper submission of a bill of costs at the close of the case; and it is further

ORDERED that the branch of defendant's motion under CPLR 3025 for leave to amend the counterclaim is denied as academic.

FOOTNOTES

1.   For similar reasons, this court also concluded that defendant's cross-motion for sanctions was meritless. (See Hassn, 2021 NY Slip Op 50421[U], at *3 & n 2.)

2.   This court also directed defendant to provide a Jackson affidavit of diligent search if it did not possess any documents in a given category. (See id. at *2, citing Jackson v City of New York, 185 AD2d 768 [1st Dept 1992].)

3.   The May 2021 order had, strictly speaking, required defendant to submit these materials within 30 days—i.e., June 14, 2021, not June 21. (See Hassn, 2021 NY Slip Op 50421[U], at *2, *3.) But defendant later sought, and this court granted, a one-week extension of that deadline on the ground that it was unclear from the order whether the 30-day submission deadline ran from the order's entry or from service of notice of entry.

4.   Defendant does not contend that it is aware of other responsive, unproduced documents in its possession beyond those provided in support of the current motion. And the Jackson affidavit of its principal indicates otherwise. (See NYSCEF No. 81 at ¶ 7.)

5.   Defendant also has provided other invoices sent from plaintiff to defendant for shipments of clothing; and other invoices from third parties for the cost of receiving and transporting those shipments. (See NYSCEF No. 79 at 33-56.) The relevance of these documents to defendant's counterclaim, standing alone, is obscure.

6.   On the same day that defendant filed this motion, it apparently served a document subpoena on Zulily for documents relating to the business dealings between the two parties. (See NYSCEF No. 80.) Defendant has not, however, since contacted the court about whether and to what extent it received relevant documents from Zulily in response to the subpoena.

7.   Both plaintiff's November 2020 good-faith letter and its December 2020 supplemental document demands requested defendant to state whether and why defendant was unable to produce otherwise-responsive documents. (See generally NYSCEF No. 33 [good-faith letter]; see NYSCEF No. 35 at Instructions ¶ 12 [supplemental demands].)

Gerald Lebovits, J.