FILED NEW YORK COUNTY CLERK 09/11/2012 INDEX NO. 653444/2011 NYSCEF DOC. NO. 34 RECEIVED NYSCEF 09/11/2012 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK --------------------------------------------------------------- X SLAM BRANDS, INC. Index No. 653444/2011 Plaintiff, v. WELLS FARGO TRADE CAPITAL SERVICES, INC., d/b/a WELLS FARGO TRADE CAPITAL, INC., f/k/a WELLS FARGO CENTURY, INC., Defendant. ------------------------------------------------------------- X MEMORANDUM OF LAW IN SUPPORT OF PLAINTIFF S MOTION TO COMPEL THE PRODUCTION OF DOCUMENTS AND INFORMATION Adam J. Gana Christopher L. Lufrano NAPOLI BERN RIPKA SHKOLNIK, LLP 350 Fifth Avenue, Suite 7413 New York, New York 10118 Tel. (212) 267-3700 Email agana@napolibern.com Attorneys for Plaintiff
Plaintiff Slam Brands, Inc., by and through the undersigned counsel, respectfully submits this memorandum of law in support of its motion to compel Defendant Wells Fargo Trade Capital Services, Inc., d/b/a Wells Fargo Trade Capital, Inc., f/k/a Wells Fargo Century, Inc. (collectively referred to as Wells Fargo ), to produce the following documents and information (the Motion to Compel ). PROCEDURAL HISTORY On March 5, 2012, Plaintiff served Defendant with its First Request for the Production of Documents ( First Requests ). Affidavit of Adam J. Gana ( Gana Aff. ), Exhibit ( Ex. ) A. On March 22, 2012, Defendant provided Plaintiff with its objections and responses to Plaintiff s First Requests ( Defendant s Response ). On May 16, 2012, Plaintiff provided Defendant with a deficiency letter detailing Defendant s production insufficiencies ( Insufficiency Letter ). Gana Aff., Ex. B. In the Insufficiency Letter, Plaintiff noted that Defendant objected to several categories of documents that Plaintiff maintains are relevant to issues in dispute. On June 8, 2012, Plaintiff served Defendant with a supplemental request for documents and information related to Defendant s employee, Kevin Sullivan, deposition ( Supplemental Requests ). See Gana Aff., Ex. C. On July 10, 2012, Defendant provided Plaintiff with its objections and responses to Plaintiff s Supplemental Request ( Defendant s Response to Supplemental Requests ). On August 20, 2012, Plaintiff provided Defendant with a second insufficiency letter detailing Defendant s production insufficiencies in connection with the outstanding items related to Plaintiff s First Requests, as well as Defendant s Response to Supplemental Requests ( Second Insufficiency Letter ). Gana Aff., Ex. D. On September 7, 2012, Defendant provided Plaintiff with its objections and responses to Plaintiff s Second Insufficiency Letter ( Weinick Letter ). Gana Affi., Ex. E. The parties have met and conferred 1
telephonically on two occasions about these discovery disputes and have been unable to resolve them. Plaintiff has taken all reasonable measures to resolve its discovery conflicts with Defendant in good faith; however, as of the date of this Motion to Compel, Defendant has maintained its meritless objections to relevant documents requests. Accordingly, Plaintiff seeks an order compelling the production of all documents relevant to these requests. FACTUAL BACKGROUND On September 28, 2005, Slams Brands and Wells Fargo executed a contract ( Factoring Agreement ) whereby Slam Brands agreed to assign and sell all of its account receivables to Wells Fargo. See Compl., Ex. A, 1.1. The Factoring Agreement states in relevant part Client shall submit to Factor the principal terms of each customers orders for written credit approval. Factor may, in its discretion, approve in writing all or a portion of Client s customers orders either by establishing a credit line limited to a specific amount for a specific customer, or by approving all or a portion of a proposed purchase order submitted by Client ( Approved Receivables ). No credit approval shall be effective unless in writing and unless the goods are shipped or the services rendered within the time specified in the written approval or within 30 days after the approval is given See Compl., Ex. A, 1.2 (emphasis added). Accordingly, if Wells Fargo established a credit line for a specific customer or approved a purchase order, then the receivable was deemed an Approved Receivable (Id.) or referred to as a Non-Recourse Receivable. On April 1, 2007, the Parties executed an amendment to the Factoring Agreement ( First Amendment ), which lowered the factoring commission that Slam Brands paid to Wells Fargo for the factoring of Recourse Receivables. The First Amendment states in relevant part Notwithstanding anything to the contrary in this Agreement, with respect to each of Target, Wal-Mart and Costco and such other customers of client that Factor agrees to from time to time in 2
writing, each Receivable due and payable by such customer shall not be or become an Approved Receivable, shall be with full recourse to Client [Slam Brands] and the commission payable to Factor shall be equal to 0.25% of the gross amount of such Receivable. See Compl., Ex. B, 4.1. Slam Brands paid Wells Fargo 0.65% to factor Non-Recourse Receivables, for which Wells Fargo assumed the credit risk of the customer, and Slam Brands paid 0.25% for Wells Fargo to factor Recourse Receivables, for which Slam Brands accepted the credit risk of the customer. From the end of August 2008 through the end of September 2008, Slam Brands assigned Circuit City account receivables ( Circuit City Receivables ) in the amount of $1,566,101.62 to Wells Fargo. Pl. Compl., Ex. D. Slam Brands assigned the Circuit City Receivables to Wells Fargo which it approved and deemed Non-Recourse Receivables. Therefore, Wells Fargo assumed the risk associated with nonpayment of these Circuit City receivables. Pl. Coml., 18. Circuit City satisfied a portion of the aforementioned outstanding account receivables; however, a remaining balance of $1,137,813.12 was still owed to Slam Brands by the end of October 2008. On November 8, 2008, Circuit City filed a petition for bankruptcy protection under Chapter 11 of the bankruptcy code ( Circuit City Bankruptcy ). Pl. Compl., 23. On December 3, 2008, Wells Fargo filed a Proof of Claim against Circuit City in the amount of $1,137,813.12. Pl. Compl., 28. As of the date of this Motion, neither Wells Fargo nor Circuit City has satisfied their financial obligations with respect to the Circuit City Receivables. ARGUMENT Pursuant to CPLR 3101(a), [t]here shall be full disclosure of all evidence material and necessary in the prosecution or defense of an action, regardless of the burden of proof. In re New York County DES Litig., 171 A.D.2d 119, 122-23, 575 N.Y.S.2d 19, 22 (1st Dep t 1991) 3
Liberal discovery is favored and pretrial disclosure extends not only to proof that is admissible but also to matters that may lead to the disclosure of admissible proof. Twenty Four Hour Fuel Oil Corp. v. Hunter Ambulance Inc., 226 A.D.2d 175, 175-76, 640 N.Y.S.2d 114, 114 (1st Dep t 1996) (citations omitted). I. Plaintiff Seeks Documents Relevant to the Issues in Dispute and/or Defendant s Defenses A. The Standard Factoring Agreement (Supplemental Request No. 1) Supplemental Request No. 1 seeks the standard factoring agreement Wells Fargo utilized with other clients during the relevant time period. Defendant objects to the production of this document on the basis that the standard agreement is privileged, confidential, irrelevant to the issues in this litigation, and is not reasonably calculated to lead to the discovery of admissible evidence. Aff., Ex. D, pg. 1. The Parties agree that one of the primary issues in this matter is whether the Circuit City account receivables were factored at factor risk, as Slam Brands contends, or were factored at client risk, as Wells Fargo contends. As a result, the Parties clearly maintain two different interpretations of the Factoring Agreement, and amendments thereto. [W]here words used in a written contract are susceptible of more than one interpretation, the courts will look at the surrounding circumstances existing when the contract was entered into, the situation of the parties and the subject matter of the instrument and parol evidence may be admissible to clear up any ambiguity in the language employed. Korff v. Corbett, 18 A.D.3d 248, 251, 794 N.Y.S.2d 374, 377 (1 st Dept. 2005) (quoting Smith v. Smith, 277 App.Div. 694, 695, 102 N.Y.S.2d 584 (1 st Dept. 1951)). Wells Fargo s standard factoring agreement is highly relevant and constitutes parol evidence that should be produced to clarify ambiguous language contained in the Factoring Agreement. See Id., at 377. In particular, the Parties disagree as to the Written Credit 4
Approval process outlined in Section 1.2 of the Factoring Agreement, as well as several other terms employed in the Factoring Agreement, including but not limited to, the interpretation of the terms recourse receivables and non-recourse receivables. Therefore, the standard factoring agreement may assist the Parties (and the Court) in interpreting the language contained in the Factoring Agreement and the amendments thereto. Further, Wells Fargo s objection to Request No. 1 on grounds of privilege is without merit since the standard factoring agreement at issue was in existence in 2006, five years prior to the commencement of this litigation, and also shared with countless third-parties. Accordingly, Plaintiff respectfully requests this Court to order Wells Fargo to produce these documents. B. Wells Fargo s Compliance Manuals (First Request No. 24) The Credit Policy and Credit Policy Approval Grid (Supplemental Request No. 2) First Request No. 24 and Supplemental Request No. 2 seeks compliance, policy, procedure, memoranda, manuals, handbooks, etc. in effect during the relevant time period regarding Wells Fargo s factoring of non-recourse and recourse receivables. Defendant objects to the production of these documents on the grounds of undue burden, irrelevance, confidentiality, overbreadth, control, and privilege. Gana Aff., Ex. B. As a preliminary matter, Wells Fargo has not explained, because it cannot, how the production of its compliance policies and procedures could possibly represent an undue burden or violate confidentiality or privilege protections. Furthermore, Wells Fargo s credit policies and procedures are relevant to Plaintiff s allegations and Defendant s defenses. Throughout these proceedings Wells Fargo has repeatedly taken the position that Slam Brands did not have credit protection for the Circuit City Receivables because Slam Brands did not affirmatively request or maintain credit approval for the Circuit City Receivables. Def. s Ans. 64. However, Wells Fargo has not produced one 5
document, including but not limited to the Factoring Agreement, which details the specific procedure for requesting credit approval or even that a client must request written credit approval. Indeed, Defendant has identified no less than four independent processes that relate to Wells Fargo s factoring relationship with Slam Brands (Weinick Letter, pgs. 3-4); yet, Defendant has failed to produce a single document related to these processes. On the other hand, Slam Brands maintains that it had written credit approval for the Circuit City Receivables and that it requested credit approval through the detailed financial forecasting process (that culminated in the Credit Modification Request), as well as assigning accounts receivable in accord with said financial forecasts. Pl. Compl., 7-18. As a result, Wells Fargo s policies and procedures will likely lead to the discovery of admissible evidence concerning, inter alia, Defendant s Written Credit Approval process; the designation of recourse versus nonrecourse receivables; and the establishment of client and customer credit lines. Accordingly, Plaintiff respectfully requests this Court order Wells Fargo to produce these documents, or affirmatively state these documents do not exist. C. Documents Requesting or Evidencing the Renewal of the Circuit City Credit Line (Supplemental Request No. 5) Supplemental Request No. 5 seeks documents demonstrating Slam Brands requests for a renewal of the Circuit City credit line or documents evidencing Wells Fargo s renewal of the Circuit City credit line from 2005 to 2011. In response, Defendant identified two documents that it deemed responsive to Request No. 5 and evidencing that a credit line was in place for Circuit City in 2006 and 2007. Defendant did not produce or identify any documents demonstrating Slam Brands requests for renewal of the Circuit City credit lines in 2006 and 2007. Defendant s position with respect to Request No. 5 is untenable. Slam Brands assigned Circuit City receivables to Wells Fargo for approximately three years, and the Parties agree that 6
Wells Fargo maintained at least two separate credit lines for Slam Brands with respect to Circuit City. 1 However, Wells Fargo has failed to produce any documents evidencing Slam Brands request for credit approval except for the forecasting analysis, which Slam Brand s maintains was the only way in which it requested written approval throughout the relationship. It stands to reason that if Wells Fargo actually had a separate credit approval request process that Wells Fargo would have records that demonstrate Slam Brands requested credit for the two credit lines that were allegedly placed in 2006 and 2007. Slam Brands maintains that it received written credit approval from Wells Fargo for the Circuit City Receivables and that it requested credit approval through the detailed financial forecasting process (that culminated in the Credit Modification Request). Pl. Compl., 7-18. Defendant s lack of production with respect to the 2006 and 2007 Circuit City credit lines demonstrates that the aforementioned process was followed by the Parties, and not some esoteric and unsubstantiated credit approval process. As a result, Plaintiff respectfully requests that the Court order Wells Fargo to produce all documents evidencing Slam Brands requests and Wells Fargo s renewal of the Circuit City credit lines in 2006 and 2007. In the event that Well Fargo does not possess such documents, then Plaintiffs respectfully request that this Court draw a negative inference against Defendant and infer that Defendant did not maintain a standardized credit approval request process during the relevant time period, but rather adhered to the process described above. 1 Wells Fargo s records indicate that it maintained a credit line for Circuit City on behalf of Slam Brands from December 6, 2005 until May 31, 2006 (WF_SB002878) and from July 25, 2007 until December 31, 2007 (WF_SB108246). 7
CONCLUSION For all of the foregoing reasons, Plaintiffs respectfully request that this Court grant Plaintiff s motion to compel the production of documents and information and grant Plaintiff such other and further relief as this Court deems just and proper. Dated September 11, 2012 New York, NY NAPOLI BERN RIPKA SHKOLNIK, LLP By Adam J. Gana Christopher L. Lufrano 350 Fifth Avenue, Suite 7413 New York, New York 10118 Telephone (212) 267-3700 Fax (212) 587-0031 E-Mail agana@napolibern.com Attorneys for Plaintiffs 8
CERTIFICATE OF SERVICE I HEREBY CERTIFY that on September 11, 2012, the foregoing was sent via electronic filing to Eric B. Weinick, Esq. Richard Haddad, Esq. Otterbourg, Steindler, Houston & Rosen, P.C. 230 Park Avenue New York, New York 10169 Dated September 11, 2012 Sincerely, NAPOLI BERN RIPKA SHKOLNIK LLP By Rachel Allen 350 Fifth Avenue, Suite 7413 New York, NY 10118 (212) 267-3700, Ext. 1157 rallen@napolibern.com 9