THE PEOPLE OF THE STATE OF NEW YORK, by ERIC T. SCHNEIDERMAN, Attorney General ofthe State ofNew York, Plaintiffs, - against- JOHN C. MOORE, ROBERT HINKLE, MICHAEL LAKOW, DIANA PIKULSKI, HAYWARD R. PRESSMAN, LESLIE PRIGGEN, JOHN S. RAINEY, MARGARET SANTULLI, AND THOROUGHBRED RETIREMENT FOUNDATION, INC., Defendants. Index No. 401004-12 lAS Part 61 Assigned to: Hon. Anil C. Singh PLAINTIFFS' MEMORANDUM OF LAW IN OPPOSITION TO DEFENDANTS' MOTION TO STAY DISCOVERY PENDING APPEAL Plaintiffs, the People of the State ofNew York, by their attorney, ERIC T. SCHNEIDERMAN, Attorney General ofthe State ofNew York ("Attorney General"), respectfully submit this Memorandum of Law, together with the Affidavit of David E. Nachman, in opposition to Defendants' Motion to Stay Discovery Pending Appeal. 1 PRELIMINARY STATEMENT Having failed in their Hail Mary attempt to obtain the dismissal of the Attorney General's lawsuit at the pleadings stage, the directors and officers ofthe Thoroughbred Retirement Foundation, Inc. ("TRF"), now seek to delay these proceedings further by taking a needless appeal from the Court's decision denying their motion to dismiss and demanding a stay of 1 "Defs. Mem." refers to the Memorandum of Law in Support of Defendants' Motion to Stay Discovery Pending Appeal, dated September 21,2012. Citations to "Ostrager" refer to the Affidavit of Barry R. Ostrager, dated September 21,2012. Citations to "Nachman" refer to the Affidavit of David E. Nachman, sworn to September 27,2012. discovery for many months pending the results oftheir appeal. So unwilling are Defendants to let the Attorney General find out what's really going on at TRF's farms and with its horses, that TRF has refused, without any legal basis, to await the Court's decision on its baseless motion to stay discovery: it takes the arrogant and untenable position that the mere pendency of its motion relieves TRF of any obligation even to "deal with" the Attorney General's discovery demands. 2 These stonewalling tactics, blatantly improper in any situation, are particularly objectionable in a case where the health and welfare of more than 1,000 retired Thoroughbred race horses are at stake. The claim that substantial harm will result from complying with the Attorney General's routine discovery demands is absurd in a case where Defendants are represented by one ofthe world's largest law firms, which has its bills in this litigation paid by TRF insurance proceeds and has ample experience managing discovery in cases involving millions of pages of documents. Moreover, the upcoming inspections will be conducted by the Attorney General's own veterinary experts and therefore require next to no TRF time or resources, and, notwithstanding Defendants' heated rhetoric, the document discovery sought by the Attorney General is targeted and reasonable and the universe of responsive documents likely is not large, given that TRF has a small staff and only one office. Further delay, on the other hand, will be highly prejudicial to the Attorney General's efforts to vindicate the public's interest in the proper administration ofTRF and to protect the horses in its charge from neglect and suffering, and will not serve the interests ofjudicial economy. While the appeal that is the basis for TRF's motion to stay has virtually no chance of 2 On September 26,2012, the Attorney General was informed by counsel to Defendants, "It is the TRF's position that the pending motion stay's [sic] the TRF's obligation to deal with the discovery notices inasmuch as proceeding with the discovery you have requested could moot the motion." Nachman Ex. 8. 2 succeeding, it will be many months before it is resolved. We are fast approaching winter, the time of year when the chronic inadequacy ofthe support and care that TRF provides at many of its facilities is exacerbated by the higher costs of maintaining the horses in cold weather conditions. TRF's strenuous resistance to inspections by outside experts is alarming, and casts doubt on its renewed assertions that the herd remains in excellent health. Documents recently obtained by the Attorney General demonstrate that TRF's financial situation continues to deteriorate and its debt continues to mount, despite its much-vaunted fundraising initiatives in recent months. In these circumstances, additional delay in moving this case forward to trial could have dire consequences for the horses that it is the mission of TRF to safeguard. ARGUMENT Defendants seek a stay of discovery under Section 220I of the Civil Practice Law and Rules ("CPLR"), pending the outcome of their appeal ofthe Court's September 17,2012 Decision and Order denying Defendants' motion to dismiss in all respects (the "Order,,).3 Section 2201 provides that "the court in which an action is pending may grant a stay of proceedings in a proper case, upon such terms as may be just." CPLR 2201. A stay "can easily be a drastic remedy" and should only be granted for "[s]ome excellent reason." SIEGEL, PRACTICE COMMENTARIES, McKinney's Cons. Laws ofNew York, Book 7B, C:2201:7. See, e.g., Congel v. Malfitano, Index No. 2007/220, 2010 WL 8354946 (Sup. Ct. Dutchess Co. March 22, 2010) ("Before imposing a stay, the court must ensure the case merits the remedy's drastic nature. ") (citations omitted). Indeed, "the existence of a pending appeal, standing alone, does 3 Defendants also purport to seek a stay under CPLR 5519(c), which provides that a court "may stay all proceedings to enforce the judgment or order appealed from pending an appeal" (emphasis added). Because the Order (Ostrager Ex. A) is only the denial of a motion to dismiss, enforcement is not at issue, and therefore Section 5519(c) is not a proper statutory basis for seeking a stay of proceedings in this action. 3 not merit the remedy." Id. See also Integra Bank North v. Gordon, 164 Misc.2d 691, 695 (Sup. Ct. Chautauqua Co. 1995) (same). The stay sought by Defendants would only unnecessarily delay the proceedings to remove the defendant directors from the TRF board and further jeopardize the safety of the TRF herd. I. Proceeding with Discovery Will Not Cause Substantial Harm to TRF Proceeding with the discovery that the Attorney General seeks in this action will not cause "substantial, unnecessary harm to Defendants" or interfere with TRF's fundraising efforts. 4 Defs. Mem. at 2,3. The Amended Notice of Entry and Inspection and To Produce Documents ("Amended Notice") (Ostrager Ex. F) simply seeks access to TRF facilities for the Attorney General's veterinary inspectors, as well as ancillary records for review incidental to the inspections, such as horse inventory lists and records of recent veterinarian visits. Defendants conceal from the Court the fact that the Amended Notice was served on TRF on May 7, 2012, over four months ago. Nachman' 2. Not only did TRF fail to object to the Amended Notice as burdensome at the time, it readily agreed in writing to "facilitate and cooperate with [the] contemplated inspections" and produce the documents sought on an expedited basis, within 10 or 20 days. See id. , 3, Exs. 1,2. This is the very same Amended Notice and agreed timetable for production that Defendants now unconvincingly decry as "'Rambo' discovery tactics." Defs. Mem. at 4. The Court should not sanction Defendants' effort to renege on their commitment to pennit the inspections. Defendants have had ample time -- over four months -- to prepare the limited documentary materials sought by the Amended Notice and notify TRF's facilities. The document discovery sought by the Attorney General's Notice to Produce Documents, served on September 20,2012 (''Notice to Produce") (Ostrager Ex. E) is riot "outrageous," nor 4 While it may be that many charities rely heavily on end-of-year fundraising, TRF's largest fundraising push of the year, its annual gala in Saratoga Springs, New York, already took place on August 5, 2012. 4 will it require ''tremendous expenditures of the lRF's time and money," as Defendants claim. Defs. Mem. at 2,5. Notwithstanding Defendants' hyperbole, the actual requests for documents cover only 6 pages ofthe Notice to Produce and simply identify core documents relevant to the Attorney General's claims. See Ostrager Ex. Eat 5-10. Many of the requests seek narrow categories of basic corporate records that should be readily retrievable from TRF's files. s Defendants emphasize that TRF is "a small not-for-profit corporation with a four-person staff," Defs. Mem. at 2, but this merely suggests that the task of producing the requested documents should not be onerous because the materials are unlikely to be voluminous or scattered across multiple locations. Defendants' protestations that they do not have the staff resources to locate and copy responsive documents for production ring particularly hollow in light of the enormous litigation support resources available to Defendants through their counsel, Simpson Thacher & Bartlett LLP ("Simpson Thacher"), "one of the world's leading global law firms." Nachman Ex. 4. At least two Simpson Thacher attorneys, partner Barry Ostrager and associate Jonathan Zelig, are working on this case, and no fewer than three members of the firm's support staff (two paralegals and the managing clerk) are copied on all electronic filings in this case. See id. 6, Ex. 5. The Defendants are using the proceeds of an insurance policy to pay their legal fees, and counsel has indicated that he intends to rely on the availability of that multi-million dollar war chest to litigate this case as vigorously as he and his clients deem necessary. Id. 4, Ex. 3. Certainly Defendants' motion practice in the litigation thus far, including motion papers seeking S See, e.g., Notice to Produce Requests Nos. 7 (board meeting minutes and documents identifying current and former directors), 12 (documents identifying TRF bank and credit card accounts), 17 (documents identifying current and former TRF employees and contractors), 18 (lRF's written policies), 21 (director and officers liability insurance policy and related communications). 5 dismissal of over 350 pages, demonstrates their wherewithal to engage in a "scorched earth" legal defense. The Attorney General is confident that the Simpson Thacher attorneys, paralegals and other members of the team handling this case for Defendants are skilled and experienced at rapidly collecting and producing documents in response to discovery demands on behalf of the firm's clients. II. A Stay of Discovery Would Prejudice the Attorney General's Efforts to Safeguard the Welfare ofTRF's Horses A stay of discovery for many months pending Defendants' appeal will be highly prejudicial to the Attorney General's efforts to vindicate the public's interest in the proper administration ofTRF and the protection of the living animals in its charge, with winter around the comer and every indication that more horses will suffer and die from the combination of inadequate care and seasonal conditions. It is critical that the inspections ofTRF horses and facilities proceed, because the herd has not been evaluated systematically by any outside veterinary expert since early 2011, when Dr. Stacey Huntington uncovered scores of undernourished and distressed horses and a pervasive failure to provide basic maintenance care to the herd, but was fired by the TRF board before she could complete her inspections. The horses continue to be at high risk in part because TRF's fmances remain in total disarray. Recent TRF financial reports demonstrate that TRF has "veered further offplan" with a budget variance of$142,000 as of July 31, 2012, and a projected cash shortfall of$86,000 in November for a three-month period alone. Nachman Ex. 6. As of the beginning of September 2012, TRF had a grand total of $6,500 in unrestricted cash in its general operating account, with approximately $423,000 in unpaid bills at the time, much of it overdue to the facilities that care for the horses. Id. TRF also has sunken deeper into debt: the financial reports reveal additional, previously undisclosed borrowing of $350,000 as of late July. Id. 6 The need to identify TRF horses at risk of serious and imminent hann and swiftly seek corrective action, as well as the public's interest in this case proceeding to trial, far exceeds any minor inconvenience that complying with the Attorney General's ordinary discovery demands may pose to the Defendants. III. A Stay Pending Resolution of Defendants' Appeal Will Not Serve the Interests of Judicial Economy Staying discovery in this action pending resolution of Defendants' appeal will not serve the interests ofjudicial economy. It is Defendants' meritless appeal and the instant motion -- not the Attorney General's discovery demands -- that are needlessly taxing scarce judicial resources. In the words ofTRF's Chairman, defendant John C. Moore, as reported by the press recently, '''This is going to proceed toward a trial.'" Nachman Ex. 7. Ultimately no judicial resources would be saved by delay in these proceedings pending the denial of Defendants' appeal. The three cases cited by Defendants each involved parallel proceedings in another state or federal trial court with overlapping factual or legal issues, a factor not present in this litigation. 6 Cf JP Foodservice Distribs., Inc. v. PricewaterhouseCoopers LLP, 291 A.D.2d 323, 324 (Ist Dep't 2002) (denying CPLR 2201 motion for stay based on pendency of related action in the same court to the extent it seeks stay of discovery). Here, the Court properly denied Defendants' motion to dismiss in a straightforward and well-reasoned Order, which the Attorney General fully expects will be affIrmed on appeal. Defendants have "failed to proffer any circumstances to merit the exceptional relief [they are] requesting beyond the mere truism that moving forward with discovery ... would be a waste ofjudicial resources in the event that [they are] successful 6 See Defs. Mem. at 3,4,5, citing Morreale v. Morreale, 84 A.D.3d 1187 (2d Dep't 2011) (stay pending related Surrogate's Court proceeding), Chan v. Zoullas, 943 N.Y.S.2d 790 (Sup. Ct. N.Y. Co. 2012) (stay pending related federal court action), and Zonghetti v. Jeromack, 541 N.Y.S.2d 235 (2d Dep't 1989) (stay pending related criminal proceedings). None ofthese cases granted a stay based on the pendency of an appeal, much less an appeal of an interlocutory order. 7 with [their] appeals." op. cit. (denying CPLR 2201 stay where appeals "are in very early stages of development"). Given the burdens on the court Defendants' assertion that a stay pending their appeal -- only just filed -- would necessitate a delay of only "a couple of months" (Defs. Mem. at 6) is not realistic. During the many months that the appeal is pending, discovery in this action should proceed without the need for significant intervention by the Court, barring obstructionism or further dilatory tactics from the Defendants. CONCLUSION For the reasons set forth above, the Court should deny motion for a stay and direct that discovery proceed expeditiously. September 28,2012 ERIC T. SCHNEIDERMAN Attorney General ofthe State ofNew York Attorneyfor Plaintiffs OfCounsel: By:
SCOTT R. WILSON Senior Advisor and Special Counsel to the Attorney General Office of the Attorney General of the State ofNew York 120 25th Floor New New York 10271 Tel. (212) 416-8050 Atty. Reg. No. 4601068 JASON R. Bureau Chief, Charities Bureau DAVID E. NACHMAN, Enforcement Section Chief and Senior Counsel CLAIRE EVANS, Assistant Attorney General 8
Index No.: 401004-12
SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK
THE PEOPLE OF THE STATE OF NEW YORK, by ERIC T. SCHNEIDERMAN, Attorney General of the State of New York,
Plaintiffs,
- against -
JOHN C. MOORE, ROBERT HINKLE, MICHAEL LAKOW, DIANA PIKULSKI, HAYWARD R. PRESSMAN, LESLIE PRIGGEN, JOHN S. RAINEY, MARGARET SANTULLI, AND THOROUGHBRED RETIREMENT FOUNDATION, INC.,
Defendants.
PLAINTIFFS' MEMORANDUM OF LAW IN OPPOSITION TO DEFENDANTS MOTION TO STAY DISCOVERY PENDING APPEAL
ERIC T. SCHNEIDERMAN, Attorney General Attorney David Nachman 120 Broadway, Charities Bureau New York, NY 10271 _________________________________ Tel. (212) 416-8390