[FI LED : NEW YORK COUNTY CLERK 0 9 /19 / 2 0121

INDEX NO .
RECEIVED NYSCEF:

154717/2012 NYSCEF DOC. NO . 38

09/19/2012

SUPREME COURT OF THE STATE OF NEW YORK - NEW YORK COUNTY

PRESENT:

PART_ 10

HON.JUDITH J. GISCHE
Justice

INDEX NO.

MOTION DATE

001
The following papers, numbered 1 to

were read on this motion to/for ------PAPERS NUMBERED

Notice of Motion/ Order to Show Cause - Affidavits - Exhibits ...

Answering Affidavits - Exhibits ------------(

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Replying Affidavits -------------------

Yes

Cross-Motion:

No

Upon the foregoing papers, it is ordered that this motion UNFILED JUDGMENT
This Judgment has not been entered by the County

Clerk and notice of entry cannot be served

based hereon. T o obtain entry, c ounsel or
authoriz ed representative
must
EFile
a
"'Request
for
Entry of Judgment", Proposed
Judgment, and any supporting d o c u m e n t s o n
t .e NY SCEF syst e m.

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PETITION IS DECIDED IN ACCORDANCE WITH

THE ACCOMPANYING MEMORANDUM DECISION, ORDERAND

JUDGMENT

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September 14, 2012

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HON. JUDITH J. GISCHE

check one:

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FINAL DISPOSITION

Check if appropriate:

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=1 SUBMIT ORDER/ JUDG.

INAL DISPOSITION

D REFERENCE
SETTLE ORDER/ JUDG.

SUPREME COURT OF THE STATE OF NEW YORK

DECISION, ORDER AND

10
------------------------------------------------------- -------x

JUDGMENT

COUNTY OF NEW YORK:IAS PART

Tunnel Associates, LLC, Mitchell Rutter and

Jacob Frydman,
Petitioners
-against-

Index No.:
Seq. No.:

I
PRESENT:

Warren Diamond f/k/a Warren Weissman and

Scott Diamond,
Respondents.

J.S.C.

-------------------x

Recitation, as required by CPLR 2219 [a] of the papers considered in the review of this
petition and motion(s):

Papers
Numbered
Pets' Notice of Pet/Pet and OSC w/YDS affirm, MR, JF affids........................................1
Resps' x/m (appt receiver) w/SC affid, exhs...................................................................2
WO affid in support and opp (sep back), exhs . . . . . . . . . . . . . . . . . . . . . . . . . . 3
IK affirm in support and opp (sep back), exh.............................................................4
Pets' reply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Upon the foregoing papers, the decision, order and Judgment of the court is as
follows:
GISCHE J.:

This is a special proceeding commenced under CPLR 3102 [c] for discovery in
advance of filing a complaint (i.e. "pre-action discovery). Petitioner seeks an order allowing it to
serve the respondents with notices for the production of documents.
Petitioners also seek copies of one of the respondent's tax returns and to depose both
respondents (CPLR 3101, 3106, 3107 and 3120). Respondents oppose the motion and
have cross moved for the appointment of a receiver.
Background and Argument

-Page 1 of 7-

I
I

154717/12E
001

Hon. Judith J. Gische

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IIII
I
I

I
I

Mitchell Rutter ("Rutter") and Jacob Frydman ("Frydman") are members of

Tunnel Associates, LLC ("Tunnel"). Tunnel and non-party Corem Capital Partners, LLC
("Corem") are the owners of 500 Lincoln, LLC ("500 Lincoln"). 500 Lincoln is the sole
member of 500 Lincoln Owner, LLC ("500 Owner"). 500 Owner is the owner of
valuable

real property located on Tenth Avenue, between

1
38

and 39 Streets ("property")

wherein OHL has a triple net lease. Various prior disputes and accusations among the
petitioners and Warren Diamond resulted in a flurry of litigation. Those prior cases
were eventually settled when the 500 Lincoln, Tunnel, Corem, Warren Diamond,
Frydman, Rutter, other individuals and other business entities entered into a settlement
agreement made as of November 3, 2012 ("settlement agreement").
A dispute has apparently arisen between the petitioners and Warren Diamond
regarding whether Warren Diamond has violated the terms of the settlement
agreement. Briefly, as part of the settlement agreement, the parties and Warren
Diamond agreed that Warren Diamond would transfer his interests in a number of
identified entities to a trust ("Diamond Trust"). One dispute is over whether the
Diamond Trust was established, whether it needed to be a "blind trust," as
petitioners aver, and whether Warren Diamond and Scott Diamond, Warren's son,
can collaborate regarding the holdings of the trust. Although the parties apparently
agreed that the settlement agreement allows Scott Diamond to succeed as trustee
upon the happening of certain events, they disagree about whether Scott Diamond
can act as trustee in his individual capacity or as the managing member of an LLC
like his predecessor did .
This has led to disputes between petitioners on the one hand, and Warren and Scott
Diamond, on the other hand.
-page 2 of 7-

Discussion
Pre-action disclosure is only available where a petitioner demonstrates that he or
she has a meritorious cause of action and that the information sought is material and
necessary to the actionable wrong (see Bi shop v Stevenson Commons Assoc., LP., 74
AD3d 640, 641 [201O], Iv denied 16 NY3d 702 [2011]). If the disclosure sought is not
necessary for the putative plaintiff to frame a complaint against the respondents, then
petitioner's application pursuant to CPLR 3102 [c] will be denied (Matter of Thomas v
MasterCard Advisors, LLC, 74 AD3d 464 [1st Dept 2010]). Pre-action discovery may
not be used to explore alternative, unspecified theories of liability that may also exist
(Matter of Leo v City of New York, 63 AD3d 533 [1st Dept 2009]) nor can it be a "fishing
expedition to ascertain whether a cause of action exists" (Liberty I mports v Bourguet,
146 AD2d 535, 536 [19891). Typically a petitioner seeking discovery under CPLR
3102 [c] needs to have certain ephemeral evidence preserved for trial ( Bishop v
Stevenson Commons Assoc ., L.P., supra [surveillance videotapes]) , or does not know
who to sue and needs to obtain the names of prospective defendants (East Hampton
Union Free School Dist. v . Sandpebble Builders, I nc., 66 A.D.3d 122 [2nd Dept.
2009]).
Here, petitioners state they have meritorious claims against the respondents, but
profess they are unable to articulate and bring causes of action against them, unless
they obtain discovery in advance of filing the complaint. For the reasons that follow, the
petition for pre-action disclosure is denied because petitioners have not shown that pre
action disclosure is necessary for them to frame a complaint.
Petitioners state certain facts in support of their petition. For example, they state
that Warren Diamond has breached material terms of their settlement agreement.
-Page 3 of 7-

Although they may not know the full details or extent of the breach, they believe that
Scott Diamond has asserted managerial rights in 500 Lincoln which he does not have.
They also know that 500 Lincoln's bank account was frozen and that this disrupted
petitioner's business operations. They suspect these negative actions were taken by
Scott Diamond at the direction of Warren Diamond and accuse Scott Diamond of being
his father's "puppet." Petitioners also claim the Diamonds have a joint savings account,
and suspect Warren Diamond never set up a trust account, as he was required to do,
another alleged violation of their settlement agreement.
Despite "knowledge" of these facts and knowing the identities of the persons that
are the subject of their claims, petitioners still claim to have insufficient information to
bring an action. Specifically, petitioners express concerns that they do not know who to
bring their claims against and that the settlement agreement contains an arbitration
clause. Although Warren Diamond is a signatory to that agreement, Scott Diamond is
not. Petitioners propose to serve a virtual laundry list of discovery demands. Among
the 44 demands made are the following: proof the Diamond Trust was established, that
there is a trust operating account, tax documents for the trust, all communication
between Warren Diamond and the various entities and individuals that are parties to the
settlement agreement, all communication between Warren and Scott Diamond and
OHL, all documents concerning the predecessor trustee, all documents concerning
communions between Scott Diamond, the predecessor trustee, and attorneys.
Petitioner's also seek to depose Warren and Scott Diamond.
Petitioners have not shown pre-action disclosure is necessary for them to frame
a complaint. It appears that their real concern is that once they serve the complaint, it
-Page 4 of 7-

may be subject to a motion to dismiss. Pre-action discovery should not be used as

an amulet against a possible CPLR 3211 pre-answer motion to dismiss. Phrased
differently, CPLR 3102 [c] should not be used by the putative plaintiff to insure it
brings the best lawsuit possible. The allegations petitioners assert appear to be
sufficient to frame a complaint. Any infirmities in the complaint, if attacked, could be
addressed through CPLR 3025 [b] which permits amended or supplemental
pleadings. CPLR 3025 [b] specifically provides that leave to amend "shall be freely
given" absent prejudice or surprise (Mccaskey. Davies and Associates. I nc. v. New
York City Health & Hospitals Corp., 59 N.Y.2d 755 [1983]; McGhee v. Odell, 96 A.D .3d
449 [1st Dept 2012]). Petitioners' concern that disputes involving Warren Diamond may
have to be arbitrated does not present a reason pre-action discovery is necessary. The
settlement agreement provides for what it provides and it is up to petitioners to chart
their legal course.
Once a case is begun, discovery is available to the parties. Article 31 sets
forth all the discovery devices that are available. Although the parties argue
whether the discovery petitioners seek is available to them - ever- this dispute is
premature and the court will not issue an advisory opinion on discovery in a case
that has not yet been commenced. Nor will the court address disputes among the
parties about whether their settlement agreement allows, or does not allow, any
of the actions that are alleged to have taken. Some of these disputes turn on
contract interpretation.
Efforts by the petitioners to depict the Warren Diamond as "dishonest" or
involved in organized crime is unavailing. CPLR 3102 does not require a sympathy or
opprobrium analysis . Rather, the court's analysis under CPLR 3102 [c] is simply on

-Page 5 of 7-

whether a putative plaintiff has enough information to frame a complaint. Even the
most compelling plaintiff may be denied pre-action discovery if s/he otherwise does not
satisfy the requirements for such disclosure.
After careful consideration, and for the reasons provided, the petition for
disclosure in advance of filing the complaint is denied.
Turning to the cross motion, respondents request that the court impose a
receivership because the petitioners are using automatic transfer payments to bypass
having Scott Diamond sign checks. Scott Diamond claims this is part of petitioners'
plan to divest him of his managerial rights in 500 Lincoln. CPLR 6401[a] authorizes
the appointment of a receiver where "there is danger that the property will be removed
from the state, or lost, materially injured or destroyed." The appointment may be made
upon the motion of "a person having an apparent interest in property which is the
subject of an action in the supreme or a county court, a temporary receiver of the
property may be appointed, before or after service of summons..." Scott Diamond
argues that this special proceeding is an "action" within the meaning of the statute when
read in conjunction with CPLR 105 [b]. Examining CPLR 3102 [c], it is clear that a
petition under this section of the law is a method for obtaining disclosure "before an
action is commenced" (see Bishop v Stevenson Commons Assoc., L.P., supra). Since
the relief sought in the petition is disclosure and whether granted or denied results in
a judgment ending the special proceeding, a petition under CPLR 3102 [c] may not
be an "action" for the purposes of Article 64.
Even if this special proceeding is indeed an "action" for purposes of Article
64, the appointment of a receiver is an extreme remedy to be invoked only where

-Page 6 of 7-

necessary for the protection of the parties (CPLR 6401; In re Armienti, 309
A.D.2d 659, 661 [151 Dept. 2003]). The moving party seeking that relief must show
there is a danger of irreparable loss. Generally a court will not appoint a receiver
until a proper case has been established (In re Armienti , supra at 661). Here,
respondents have not shown that a substantive right in property is in jeopardy and
there is no basis to appoint a receiver on unpleaded claims.
Having decided that petitioners have not shown that disclosure is necessary
in order for them to frame a complaint, the petition is denied. The cross motion for
a receiver is also denied. The denial is without prejudice.
In accordance with the
foregoing, It is hereby
ORDERED AND ADJUDGED that the petition for pre-action disclosure (CPLR
3102[c]) is denied; and it is further
ORDERED that the cross motion for a receiver is denied without prejudice;
and it is further
ORDERED that any relief requested but not directly addressed is hereby
denied; and it is further
ORDERED that this constitutes the DECISION, ORDER AND JUDGMENT of
the
Court.
New York, New York
September 14, 2012

N
"""'"9

So Ordered:

U N F I L E D
J U D G M E N T
This Judgment has not been entered by the County
Clerk and notice of entry cannot be served based
hereon . To obtain entry, c ounsel or au.thoriz,.ed
representative must EFile a "'Request for"Eijifry oi
7Judgment", Proposed Judgment ,and any
supporting d o.c u m e n t s o n t h e N Y S C
EF syst em.