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NYSCEF DOC. NO. 1572 RECEIVED NYSCEF: 03/14/2023
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF WESTCHESTER
PAMELA GOLDSTEIN,
ELLYN & TONY BERK, as Administrators
of the Estate of Winifred Berk, and Index No. 60767/2018
PAUL BENJAMIN, on behalf of
themselves and all others similarly Hon. Linda S. Jamieson
situated, DECISION AND
[PROPOSED]
---------------------- ORDER
Plaintiffs,
Sequences 21 and 22
v.
HOULIHAN/LAWRENCE INC.,
Defendant.
WHEREAS on January 6, 2023, Class Plaintiffs moved before the Discovery
Referee, William P. Harrington, to quash Houlihan Lawrence’s demand to depose
200 absent class members, (the “Motion”);
WHEREAS the Discovery Referee heard the Motion upon reading Class
Plaintiffs’ letter motion to quash with exhibits; Houlihan Lawrence’s letter in
opposition to the Motion, dated January 13, 2023; and Class Plaintiffs’ letter in
further support of the Motion, dated January 20, 2023;, as well as other correspondence;
WHEREAS the Discovery Referee heard oral argument from the parties on
the Motion on January 31, 2023;
WHEREAS after due deliberation the Discovery Referee rendered a Twenty-
Fourth Report and Recommendation, dated February 11, 2023, whereby the Motion
was granted, in accordance with the recommendations set forth therein;
NOW, upon reading the Twenty-Fourth Report and Recommendation, dated
February 11, 2023, a copy of which is annexed hereto as Exhibit A; it is hereby,
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ORDERED that the Discovery Referee’s Twenty-Fourth Report and
Recommendation, dated February 11, 2023, is confirmed in its entirety pursuant to
CPLR 4403.
SO ORDERED.
Dated: White Plains, New York
_____________,
March 10 2023
______________________________
Hon. Linda S. Jamieson, J.S.C.
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EXHIBIT A
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SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF WESTCHESTER
PAMELA GOLDSTEIN, )
ELLYN & TONY BERK as Administrators of )
the Estate of Winifred Berk, and PAUL )
BENJAMIN, on behalf of themselves and all )
others similarly situated, ) Index No. 60767/2018
) Hon. Linda S. Jamieson
Plaintiffs, )
)
vs. )
)
HOULIHAN LA WREN CE INC. , )
)
Defendant. )
)
TWENTY-FOURTH REPORT AND RECOMMENDATION
OF DISCOVERY REFEREE
This Report and Recommendation addresses the motion of Defendant Houlihan
Lawrence Inc. ("HLI") to conduct depositions of two hundred (200) absent class members. The
arguments raised in the parties' various letter submissions, 1 as well as those advanced at the
January 31 , 2023 Hearing, have been considered. 2
PROCEDURAL HISTORY
The issue of absent class member depositions first arose in April of 2022. HLI initially
proposed to forego absent class member depositions if Plaintiffs would " ... stipulate that they
January 6, 2023 Submission Letter of Jeremy Vest re : Resolution of Issues
January 13, 2023 Letter of Robert MacGill in response to J. Yest Letter of 1/6/23
January 9, 2023 Letter of Robert MacGill regarding Expert Disclosure Stipulation
January 12, 2023 Email of Jeremy Yest re : Expert Disclosure Stipulation
January 13, 2023 Email of Robert MacGill re: Expert Disclosure Stipulation
January 20, 2023 Letter of Jeremy Yest re : Class Action Website, Class Representative Depositions
January 23, 2023 Letter of Robert MacGill in response to J. Yest 1/1 2/23 Submission
Hearing Transcript.
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will not provide testimony in any form from any absent class members." (April 7, 2022 R.
MacGill Ltr. , p. 2 - Ex. 11 to J. Vest January 20, 2023 Ltr.) (the "No Call Agreement").
Plaintiffs agreed with one caveat. HLI stated that it intended to call at trial all of its relevant sales
agents (stated to be more than one hundred (100)) to provide testimony concerning the propriety
of HLl ' s dual agency disclosures and rebutting Plaintiffs' allegations to the contrary. Based upon
HLI ' s stated strategy, Plaintiffs affirmatively agreed not to proffer any absent class members
evidence on its case in chief, but reserved the right to call a limited number of absent class
member witnesses on its rebuttal case to address oral trial testimony of HLI sales agents. HLI
rejected this conditional acceptance.3
HLI ' s absent class member deposition motion issue was initially briefed in conjunction
with the 15 th Report and Recommendation. However, HU requested the Court to defer a ruling
on this issue pending rulings on the then sub Judice HLI motions to amend the class definition
and compel arbitration.
The 15 th Report and Recommendation granted HLI ' s request for deferral. In so doing it
noted that well-settled law imposed a heavy burden on a party seeking absent class member
discovery, and that HLI must explain how the desired 200 depositions represented a fair
statistical representation of the class. (Docket # 1307, p. 7.)
HLI has now renewed its motion for permission to conduct the deposition of 200 absent
class members; each deposition to last no more than two hours. HLI asserts that its Constitutional
rights to defend itself in this litigation will be compromised if absent class member depositions
are not permitted.
As discussed below, Plaintiffs have now unconditionally agreed to the No Call Agreement.
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HLI asserts that it needs discovery from absent class members to understand the factual
predicates upon which HLI argues Plaintiffs' fiduciary breach and GBL § 349 claims are based;
that HLI sales agents allegedly failed to disclose, suppressed and/or concealed material
information concerning dual agency . (Ex. 2, p. 38, In. 12 to p. 40, In. 20; p. 70, ln. 1 to p. 71 , In.
9.) HLI argues it needs to ascertain the "effect Houlihan Lawrence' s agency disclosures had on
[the absent class members]. " (R. MacGill 1/13/23 Ltr. At p. 5.)
At the Hearing, HLI offered to proceed with absent class member depositions on an
iterative basis, beginning with forty (40) depositions of absent class members to be selected by
HLI.
Plaintiffs object to any absent class member depositions. Plaintiffs argue that HLI has not
satisfied its heavy burden under applicable law to justify absent class member depositions; that
the 200 depositions (now reduced to an initial 40) are neither a fair statistical representation of
the class, nor required by HLI to secure evidence necessary to defend this action.
In an effort to resolve this issue, Plaintiffs have now unequivocally agreed to HLI's No
Call Agreement. Therefore, Plaintiffs argue that absent class member depositions are not
necessary . Plaintiffs further argue HLI can defend this litigation and address every alleged act of
misrepresentation, suppression or concealment, through the trial testimony of its own sales
agents and managers which Plaintiffs have now agreed not to rebut through absent class member
testimony.
Plaintiffs further argue that since they do not have to prove "reliance" upon any of HLI ' s
acts of misrepresentation suppression or concealment to prevail on their fiduciary breach and
GBL § 349 causes of action, HLI's purported need for such testimony is without merit.
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DISCUSSION
The limited jurisprudence discussing absent class member discovery is consistent with
the reality it is the rare exception to the general rule. See McPhail v. First Command Fin.
Planning, Inc., 251 F.R.D. 514, 2008 U.S. Dist. LEXIS 83873 (S.D. Ca. 2008) and the cases
cited therein.
Courts which have granted absent class member discovery have done so where the
requesting party has established:
.. . ( 1) the discovery is not designed to take undue advantage of class
members or to reduce the size of the class, (2) the discovery is
necessary, (3) responding to the disco very requests would not
require the assistance of counsel, and (4) the discovery seeks
information that is not already known by the proponent. McPhail,
supra, at IO citing Clark v. Universal Buildings, Inc. , 501 F.2d 324,
340-42 (7 th Cir. 1974).
(i) Undue Advantage of Class Members or Potential Reduction of the Size of the
Class
HLI has reduced the requested number of absent class member depositions from two
hundred (200) to forty (40). The estimated size of the class is twenty thousand (20,000).
Therefore, based upon this record forty (40) absent class depositions would not take undue
advantage of class members or potentially reduce the size of the class. 4
(ii) The Necessity of Absent Class Member Depositions
The necessity of absent class member discovery turns on the nature of the misconduct
which HLI is alleged to have engaged and whether absent class member deposition testimony is
necessary for HLI to defend Plaintiffs' fiduciary breach and GBL § 349 causes of action.
Therefore, an analysis of the elements of proof of each claim is appropriate.
4
This is not to say that two hundred (200) depositions would not have that impact. This determination is not
a straight linear calculation.
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Under New York law, to prevail on a claim for breach of fiduciary duty a party must
establish ( 1) the existence of a fiduciary duty and (2) misconduct by the fiduciary which (3)
causes damage to the plaintiff. Precision Glass Tinting Inc. v. Long, 293 A.D.2d 594 (2d Dept.
2002). It is well-settled that a real estate agent owes a fiduciary duty to its client. Baldeo v.
Majeed, 150 A.D .2d 942 (2d Dept. 2017). Therefore, no absent class member discovery is
needed as to this element. Class member discovery is also not necessary (at this point) with
respect to damages. Plaintiffs allege damage theories based upon the commissions received by
HLI from 10,000 dual agent single-family transactions at issue. This information is exclusively
within HLI's possession and does not require absent class member depositions.
This reduces the analysis of whether HLI needs absent class member discovery concerning
Plaintiffs' allegations regarding HLI ' s failure to disclose, conceal or suppress material facts which
support both causes of action. See generally, Goldstein v. Houlihan Lawrence Inc., Dkt. No. 370,
pp. 12-16.
As pied, Plaintiffs' fiduciary breach and GBL § 349 causes of action are based upon
HLI ' s alleged failure to properly disclose its dual agency policy as required by New York law.
Plaintiffs' Third Amended Complaint alleges that HLI "failed to disclose all material information
necessary for the class members to decide whether or not to consent to dual agency .. . including
downsides, risks and options" (Dkt. 557, ,r 99); failed to disclose it was acting as a dual agent
without the written consent of both parties to the transaction (Id. , ,r 100); failed to disclose to
buyers and sellers the financial incentives for HLI (Id. , ,r 102); and intentionally mislead class
members and concealed and suppressed material facts to induce buyers and sellers to unwittingly
agree to dual agency (Id. , ~ 102).
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HLI argues that absent class member depositions are necessary to "question class
members regarding the effect of Houlihan' s agency disclosures and advertising had upon them."
(Jan. 13, 2023 R. MacGill Ltr.). HLI further asserts that since the named Plaintiffs can only offer
evidence relating to a small number of transactions, some of which did not involve an agent
receiving an in-house dual agency bonus (i.e., the Berks), HLI needs absent class member
depositions to develop evidence from absent class members to rebut the Plaintiffs' allegations of
dual agency misconduct.
HLI ' s arguments are not credited and are inconsistent with its own No Call Agreement.
HLI ' s potential liability for its dual agency disclosures can be fulsomely defended by the
testimony of HLI' s agents and managers. They can testify at length, and without rebuttal by
absent class members, regarding the propriety of HLI dual agency disclosures and disavow any
strategy to mislead, conceal or suppress information to clients. They can avoid class liability by
offering testimony that its in-house training successfully taught its agents to make adequate
disclosures; its dual agency disclosure forms and scripts, if any, did not contain material
omissions; or undisclosed bonuses were not offered to sales agents to incentivize dual agency .
Moreover, the class members "reliance", if any, is not relevant. Stated another way,
Plaintiffs do not have to prove, nor HLI disprove, reliance. If HLI ' s dual agency disclosures
conformed with Real Property Law 443(4)(a), then class Plaintiffs' reliance on same is
immaterial. See, e.g. , Stutman v. Chemical Bank, 95 N .Y.2d 24, 30 (2000) (reliance is not an
element of a section 349 claim); McGuire v. Huntress, 83 A.D.3d 1418, 1420 (4 th Dept. 2011)
(reliance is not an element of a cause of action for breach of fiduciary duty) . HLI will not be held
liable under either GBL § 349 or a fiduciary breach theory regardless of absent class members'
reliance, if any, upon those lawful dual agency disclosures or the "effect" they had upon class
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members. Indeed, by stipulating not to off any absent class member testimony for any purpose at
trial, Plaintiffs have effectively agreed to an order of preclusion that arguably has placed
themselves in an evidentiary box. The 100-plus sales agents HLI promises to call at trial will be
free to testify about the propriety of their dual agency disclosures without absent class rebuttal.
McPhail is particularly illustrative. There, the plaintiff class alleged that the defendant
financial company had violated the Securities Exchange Act of 1934 by engaging in false and
misleading statements in the sale of financial products. In initially granting class certification, the
Court ruled that the proof gave rise to a rebuttal presumption of reliance in favor of the plaintiff
class - an essential element of liability. In response, the defendant then sought absent class
member discovery in the form of interrogatories and depositions in an effort to secure evidence
to rebut the class-wide presumption of reliance.5 The McP hail defendant argued absent class
member discovery was needed to rebut the presumption.
The McPhail court disagreed, noting that the defendant had "multiple means by which
they may seek to rebut the presumption ofreliance" (id. , p. 517), stating in pertinent part:
With regard to the second factor, Defendants have failed to show
that the proposed discovery is necessary. The presumption of
reliance found in this case rests upon a showing by Plaintiffs that the
script used by Defendants' sales representatives contained material
misrepresentations, and that the sales representatives can rebut the
presumption of reliance by rebutting proof of the elements giving
rise to the presumption, i.e. , by showing that the script did not
contain material misrepresentations, or that the oral representations
were not uniform (i.e., that the sales representatives were not taught
the script or that, even if they were, they did not follow it). (Citations
omitted). Indeed, Defendants have already indicated their intent to
demonstrate both these points at trial.
***
As noted above, unlike McPhail, reliance is not a critical element of liability which HLI must rebut; nor did
this Court' s class certification order extend to Plaintiffs the benefit of any rebuttable presumption.
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Defendants can present testimony at trial from their sales personnel,
district managers and/or officers on each of these points in order to
attempt to rebut the presumption of reliance on a class-wide basis.
There is accordingly no need for discovery of the absent class
members.
McPhail, supra at pp. 12-13.
The McPhail rationale applies with equal force here. Plaintiffs' theory of the case is
based upon alleged inadequate HLI written dual agency written and oral disclosures. The written
disclosures signed by Plaintiffs' class members reside in their transactional file and therefore, do
not require absent class member depositions. 6
At trial, HLI can and presumably will offer its own dual agency documentation, executed
by the class representatives, and the testimony of all its sales agents, managers and officers to
rebut each of the Plaintiffs' allegations of dual agency related misconduct. Simply stated, HLI
does not need the deposition testimony of absent class members to defend the remaining causes
of action.
This reality is confirmed by the No Call Agreement HLI initially offered in April 2022 to
obviate the need for absent class member depositions. Plaintiffs have now agreed not to offer any
proof for any purpose from absent class members at trial , and that agreement will be reduced to a
formal order. There have been no substantive changes in Plaintiffs' claims or theories of the case
since April oflast year which would render the No Call Agreement ineffectual. Indeed, HLI ' s
failure to address the No Call Agreement is conspicuous.
The legal authorities relied upon by I-ILi are distinguishable and not persuasive. Bruhle v.
Price Waterhouse Coopers Int'!. , No. 03-23044 CIV, 2010 U.S. Dist. LEXIS 129504 (S.D. Fla.
6
Plaintiffs allege that certain transactional files do not contain the executed dual agency disclosures. The
significance of that allegation will await trial.
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Dec. 8, 2010) involved a class action alleging claims for securities fraud and breach of fiduciary
duty in which the defendant sought absent class member discovery. In certifying the class, the
Court specifically found that class members reliance upon the alleged deceptive acts of the
defendant, as well as the reasonableness of that reliance, were necessary elements of plaintiffs'
security fraud claims. Unlike the No Call Agreement in the instant action, the Court observed
that to satisfy the reasonable reliance burden of proof essential to a liability finding, plaintiffs
would have to present testimony of "class representative and the other [absent] class members"
(emphasis in original)(Jd., p. 8). Since the plaintiffs had the "unrestricted ability to discover"
which absent class members would be the strongest witness," (id. , at 8), the Court granted the
defendant' s request for discovery (interrogatories and depositions) from 37 class members of
their choice.
In sharp contrast, here the Plaintiffs will be barred from calling any absent class member
by virtue of the No Call Agreement. Further, unlike Bruhle, HLI does not need to rebut a
presumption of reliance. Therefore, unlike the Bruhle defendant, HLI does not need to develop
proof from absent class members.
In re Nati '! W. Life Ins. Deferred Annuities Litig. , No. 05-cv-1018, 2010 U.S. Dist.
LEXIS 123089 (S.D. Cal. 2010) is also distinguishable. There the plaintiff class of senior
citizens alleged the defendant insurer orchestrated a scheme to fraudulently induce plaintiffs'
illiquid deferred annuities which, by their nature, were inappropriate investment vehicles for
senior citizens. Plaintiffs alleged that the sales agents misrepresented the nature of the annuities,
and failed to disclose the sales commissions received by the agents, in violation of the Federal
RICO statute and California state statutes.
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Like the Bruhle court, the court observed that the plaintiffs class' s reliance on the alleged
misrepresentation of the defendant's sales agents was relevant because "reliance may be ' a
significant mile post on the road to [RICO] causation. "' (Id. , 379 F.3d 654, 664 (9 th Cir. 2004).
Therefore, the court permitted defendant to conduct the depositions of sixteen (16) absent class
members.
There is no similar evidentiary "milepost" present here. This is not a RI CO case. The
Plaintiffs' "reliance" is not an element of proof for either GBL § 349 or fiduciary breach
liability. HLI does not need to disprove the Plaintiffs' class's reliance on any of the alleged acts
of dual agency misrepresentations, concealment or suppression. Rather, it must rebut the
Plaintiffs' core allegation that it failed to properly disclose its dual agency policy as required
New York law. Absent class Plaintiffs' depositions are not necessary for that purpose.
The balance of the cases cited by HLI are either inapposite or simply support the
fundamental premise that absent class member discovery is strongly disfavored. 7
Since the information HLI seeks through absent class member depositions is not
necessary, there is no need to discuss at length the remaining two Clark factors. However, it
should be noted that the non-party class members who might be subject to a deposition would
inevitably and necessarily need the advice of counsel at a minimum to ( 1) understand the legal
significance of a deposition and (2) prepare for same.
7
Walmart Stores, Inc. v. Dukes, 564 U.S. 338, 367 (2011) (grant of class certification reversed on grounds of
lack of commonality under Rule 23(a)(2) F.R.Civ.P. and grounds unrelated to instant action); ?Ludeman v. Northern
Leasing Systems, Inc., No. 101059/04, 2013 N.Y. Misc. LEXIS 4309 (N.Y. Co. 2013) (absent class member
discovery denied); Redmondv. Moody 's Inv. Services, No. 92 CIV 9161 , 1995 U.S. Dist. LEXIS 6277 (S.D.N.Y.
May 10, 1995) (absent class member depositions denied); Murray v. Allied Signal, Inc., 177 A.D.2d 984 (4 th Dept.
1991) (absent class member discovery denied); In Re Warner Chilcott Sec Lit. , No. 06 CIV 11515, 2008 U.S. Dist.
LEXIS (S.D.N.Y. 2008) (absent member class discovery granted without opposition); Indergit v. Rite Aid Corp., No.
08 CIV 9361, 2015 U.S. Dist. LEXIS 160355 (S.D.N.Y ., Nov . 30, 2015) (eight (8) absent class depositions granted
without opposition); State of New York v. Myers, 22 Misc. 3d 809, 2008 N.Y. Misc. LEXIS 7268 (Albany Co. 2008)
(defendants ' motion to dismiss granted); Alix v. Wal-Mart Stores, Inc., 16 Misc. 3d. 844, 2007 N.Y. Misc. LEXIS
4321 (N.Y. Co. 2007) (class certification motion denied).
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Based on the foregoing, HLI ' s motion to conduct absent class member depositions is
denied on the condition that Plaintiffs are precluded at trial from offering absent class member
testimony for any purpose.
CONCLUSION
I respectfully report and recommend that the parties' discovery motions be decided
consistent with the foregoing recommendations. 8
Dated: White Plains, New York
February 11 , 2023
William P. Harrington
Discovery Referee
TO: All Counsel via NYSCEF
8
The remaining arguments of the parties otherwise not addressed herein have been considered and not
credited.
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FILED: WESTCHESTER COUNTY CLERK 03/14/2023 02:11 PM INDEX NO. 60767/2018 NYSCEF DOC. NO. 1572 RECEIVED NYSCEF: 03/14/2023 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF WESTCHESTER PAMELA GOLDSTEIN, ELLYN & TONY BERK, as Administrators of the Estate of Winifred Berk, and Index No. 60767/2018 PAUL BENJAMIN, on behalf of themselves and all others similarly Hon. Linda S. Jamieson situated, DECISION AND [PROPOSED] ---------------------- ORDER Plaintiffs, Sequences 21 and 22 v. HOULIHAN/LAWRENCE INC., Defendant. WHEREAS on January 6, 2023, Class Plaintiffs moved before the Discovery Referee, William P. Harrington, to quash Houlihan Lawrence’s demand to depose 200 absent class members, (the “Motion”); WHEREAS the Discovery Referee heard the Motion upon reading Class Plaintiffs’ letter motion to quash with exhibits; Houlihan Lawrence’s letter in opposition to the Motion, dated January 13, 2023; and Class Plaintiffs’ letter in further support of the Motion, dated January 20, 2023;, as well as other correspondence; WHEREAS the Discovery Referee heard oral argument from the parties on the Motion on January 31, 2023; WHEREAS after due deliberation the Discovery Referee rendered a Twenty- Fourth Report and Recommendation, dated February 11, 2023, whereby the Motion was granted, in accordance with the recommendations set forth therein; NOW, upon reading the Twenty-Fourth Report and Recommendation, dated February 11, 2023, a copy of which is annexed hereto as Exhibit A; it is hereby, 1 of 14 FILED: WESTCHESTER COUNTY CLERK 03/14/2023 02:11 PM INDEX NO. 60767/2018 NYSCEF DOC. NO. 1572 RECEIVED NYSCEF: 03/14/2023 ORDERED that the Discovery Referee’s Twenty-Fourth Report and Recommendation, dated February 11, 2023, is confirmed in its entirety pursuant to CPLR 4403. SO ORDERED. Dated: White Plains, New York _____________, March 10 2023 ______________________________ Hon. Linda S. Jamieson, J.S.C. 2 2 of 14 FILED: WESTCHESTER COUNTY CLERK 03/14/2023 02:11 PM INDEX NO. 60767/2018 NYSCEF DOC. NO. 1572 RECEIVED NYSCEF: 03/14/2023 EXHIBIT A 3 of 14 FILED: WESTCHESTER COUNTY CLERK 03/14/2023 02:11 PM INDEX NO. 60767/2018 NYSCEF DOC. NO. 1572 1540 RECEIVED NYSCEF: 03/14/2023 02/11/2023 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF WESTCHESTER PAMELA GOLDSTEIN, ) ELLYN & TONY BERK as Administrators of ) the Estate of Winifred Berk, and PAUL ) BENJAMIN, on behalf of themselves and all ) others similarly situated, ) Index No. 60767/2018 ) Hon. Linda S. Jamieson Plaintiffs, ) ) vs. ) ) HOULIHAN LA WREN CE INC. , ) ) Defendant. ) ) TWENTY-FOURTH REPORT AND RECOMMENDATION OF DISCOVERY REFEREE This Report and Recommendation addresses the motion of Defendant Houlihan Lawrence Inc. ("HLI") to conduct depositions of two hundred (200) absent class members. The arguments raised in the parties' various letter submissions, 1 as well as those advanced at the January 31 , 2023 Hearing, have been considered. 2 PROCEDURAL HISTORY The issue of absent class member depositions first arose in April of 2022. HLI initially proposed to forego absent class member depositions if Plaintiffs would " ... stipulate that they January 6, 2023 Submission Letter of Jeremy Vest re : Resolution of Issues January 13, 2023 Letter of Robert MacGill in response to J. Yest Letter of 1/6/23 January 9, 2023 Letter of Robert MacGill regarding Expert Disclosure Stipulation January 12, 2023 Email of Jeremy Yest re : Expert Disclosure Stipulation January 13, 2023 Email of Robert MacGill re: Expert Disclosure Stipulation January 20, 2023 Letter of Jeremy Yest re : Class Action Website, Class Representative Depositions January 23, 2023 Letter of Robert MacGill in response to J. Yest 1/1 2/23 Submission Hearing Transcript. 1 1 of 14 4 11 FILED: WESTCHESTER COUNTY CLERK 03/14/2023 02:11 PM INDEX NO. 60767/2018 NYSCEF DOC. NO. 1572 1540 RECEIVED NYSCEF: 03/14/2023 02/11/2023 will not provide testimony in any form from any absent class members." (April 7, 2022 R. MacGill Ltr. , p. 2 - Ex. 11 to J. Vest January 20, 2023 Ltr.) (the "No Call Agreement"). Plaintiffs agreed with one caveat. HLI stated that it intended to call at trial all of its relevant sales agents (stated to be more than one hundred (100)) to provide testimony concerning the propriety of HLl ' s dual agency disclosures and rebutting Plaintiffs' allegations to the contrary. Based upon HLI ' s stated strategy, Plaintiffs affirmatively agreed not to proffer any absent class members evidence on its case in chief, but reserved the right to call a limited number of absent class member witnesses on its rebuttal case to address oral trial testimony of HLI sales agents. HLI rejected this conditional acceptance.3 HLI ' s absent class member deposition motion issue was initially briefed in conjunction with the 15 th Report and Recommendation. However, HU requested the Court to defer a ruling on this issue pending rulings on the then sub Judice HLI motions to amend the class definition and compel arbitration. The 15 th Report and Recommendation granted HLI ' s request for deferral. In so doing it noted that well-settled law imposed a heavy burden on a party seeking absent class member discovery, and that HLI must explain how the desired 200 depositions represented a fair statistical representation of the class. (Docket # 1307, p. 7.) HLI has now renewed its motion for permission to conduct the deposition of 200 absent class members; each deposition to last no more than two hours. HLI asserts that its Constitutional rights to defend itself in this litigation will be compromised if absent class member depositions are not permitted. As discussed below, Plaintiffs have now unconditionally agreed to the No Call Agreement. 2 2 of 14 5 11 FILED: WESTCHESTER COUNTY CLERK 03/14/2023 02:11 PM INDEX NO. 60767/2018 NYSCEF DOC. NO. 1572 1540 RECEIVED NYSCEF: 03/14/2023 02/11/2023 HLI asserts that it needs discovery from absent class members to understand the factual predicates upon which HLI argues Plaintiffs' fiduciary breach and GBL § 349 claims are based; that HLI sales agents allegedly failed to disclose, suppressed and/or concealed material information concerning dual agency . (Ex. 2, p. 38, In. 12 to p. 40, In. 20; p. 70, ln. 1 to p. 71 , In. 9.) HLI argues it needs to ascertain the "effect Houlihan Lawrence' s agency disclosures had on [the absent class members]. " (R. MacGill 1/13/23 Ltr. At p. 5.) At the Hearing, HLI offered to proceed with absent class member depositions on an iterative basis, beginning with forty (40) depositions of absent class members to be selected by HLI. Plaintiffs object to any absent class member depositions. Plaintiffs argue that HLI has not satisfied its heavy burden under applicable law to justify absent class member depositions; that the 200 depositions (now reduced to an initial 40) are neither a fair statistical representation of the class, nor required by HLI to secure evidence necessary to defend this action. In an effort to resolve this issue, Plaintiffs have now unequivocally agreed to HLI's No Call Agreement. Therefore, Plaintiffs argue that absent class member depositions are not necessary . Plaintiffs further argue HLI can defend this litigation and address every alleged act of misrepresentation, suppression or concealment, through the trial testimony of its own sales agents and managers which Plaintiffs have now agreed not to rebut through absent class member testimony. Plaintiffs further argue that since they do not have to prove "reliance" upon any of HLI ' s acts of misrepresentation suppression or concealment to prevail on their fiduciary breach and GBL § 349 causes of action, HLI's purported need for such testimony is without merit. 3 3 of 14 6 11 FILED: WESTCHESTER COUNTY CLERK 03/14/2023 02:11 PM INDEX NO. 60767/2018 NYSCEF DOC. NO. 1572 1540 RECEIVED NYSCEF: 03/14/2023 02/11/2023 DISCUSSION The limited jurisprudence discussing absent class member discovery is consistent with the reality it is the rare exception to the general rule. See McPhail v. First Command Fin. Planning, Inc., 251 F.R.D. 514, 2008 U.S. Dist. LEXIS 83873 (S.D. Ca. 2008) and the cases cited therein. Courts which have granted absent class member discovery have done so where the requesting party has established: .. . ( 1) the discovery is not designed to take undue advantage of class members or to reduce the size of the class, (2) the discovery is necessary, (3) responding to the disco very requests would not require the assistance of counsel, and (4) the discovery seeks information that is not already known by the proponent. McPhail, supra, at IO citing Clark v. Universal Buildings, Inc. , 501 F.2d 324, 340-42 (7 th Cir. 1974). (i) Undue Advantage of Class Members or Potential Reduction of the Size of the Class HLI has reduced the requested number of absent class member depositions from two hundred (200) to forty (40). The estimated size of the class is twenty thousand (20,000). Therefore, based upon this record forty (40) absent class depositions would not take undue advantage of class members or potentially reduce the size of the class. 4 (ii) The Necessity of Absent Class Member Depositions The necessity of absent class member discovery turns on the nature of the misconduct which HLI is alleged to have engaged and whether absent class member deposition testimony is necessary for HLI to defend Plaintiffs' fiduciary breach and GBL § 349 causes of action. Therefore, an analysis of the elements of proof of each claim is appropriate. 4 This is not to say that two hundred (200) depositions would not have that impact. This determination is not a straight linear calculation. 4 4 of 14 7 11 FILED: WESTCHESTER COUNTY CLERK 03/14/2023 02:11 PM INDEX NO. 60767/2018 NYSCEF DOC. NO. 1572 1540 RECEIVED NYSCEF: 03/14/2023 02/11/2023 Under New York law, to prevail on a claim for breach of fiduciary duty a party must establish ( 1) the existence of a fiduciary duty and (2) misconduct by the fiduciary which (3) causes damage to the plaintiff. Precision Glass Tinting Inc. v. Long, 293 A.D.2d 594 (2d Dept. 2002). It is well-settled that a real estate agent owes a fiduciary duty to its client. Baldeo v. Majeed, 150 A.D .2d 942 (2d Dept. 2017). Therefore, no absent class member discovery is needed as to this element. Class member discovery is also not necessary (at this point) with respect to damages. Plaintiffs allege damage theories based upon the commissions received by HLI from 10,000 dual agent single-family transactions at issue. This information is exclusively within HLI's possession and does not require absent class member depositions. This reduces the analysis of whether HLI needs absent class member discovery concerning Plaintiffs' allegations regarding HLI ' s failure to disclose, conceal or suppress material facts which support both causes of action. See generally, Goldstein v. Houlihan Lawrence Inc., Dkt. No. 370, pp. 12-16. As pied, Plaintiffs' fiduciary breach and GBL § 349 causes of action are based upon HLI ' s alleged failure to properly disclose its dual agency policy as required by New York law. Plaintiffs' Third Amended Complaint alleges that HLI "failed to disclose all material information necessary for the class members to decide whether or not to consent to dual agency .. . including downsides, risks and options" (Dkt. 557, ,r 99); failed to disclose it was acting as a dual agent without the written consent of both parties to the transaction (Id. , ,r 100); failed to disclose to buyers and sellers the financial incentives for HLI (Id. , ,r 102); and intentionally mislead class members and concealed and suppressed material facts to induce buyers and sellers to unwittingly agree to dual agency (Id. , ~ 102). 5 5 of 14 8 11 FILED: WESTCHESTER COUNTY CLERK 03/14/2023 02:11 PM INDEX NO. 60767/2018 NYSCEF DOC. NO. 1572 1540 RECEIVED NYSCEF: 03/14/2023 02/11/2023 HLI argues that absent class member depositions are necessary to "question class members regarding the effect of Houlihan' s agency disclosures and advertising had upon them." (Jan. 13, 2023 R. MacGill Ltr.). HLI further asserts that since the named Plaintiffs can only offer evidence relating to a small number of transactions, some of which did not involve an agent receiving an in-house dual agency bonus (i.e., the Berks), HLI needs absent class member depositions to develop evidence from absent class members to rebut the Plaintiffs' allegations of dual agency misconduct. HLI ' s arguments are not credited and are inconsistent with its own No Call Agreement. HLI ' s potential liability for its dual agency disclosures can be fulsomely defended by the testimony of HLI' s agents and managers. They can testify at length, and without rebuttal by absent class members, regarding the propriety of HLI dual agency disclosures and disavow any strategy to mislead, conceal or suppress information to clients. They can avoid class liability by offering testimony that its in-house training successfully taught its agents to make adequate disclosures; its dual agency disclosure forms and scripts, if any, did not contain material omissions; or undisclosed bonuses were not offered to sales agents to incentivize dual agency . Moreover, the class members "reliance", if any, is not relevant. Stated another way, Plaintiffs do not have to prove, nor HLI disprove, reliance. If HLI ' s dual agency disclosures conformed with Real Property Law 443(4)(a), then class Plaintiffs' reliance on same is immaterial. See, e.g. , Stutman v. Chemical Bank, 95 N .Y.2d 24, 30 (2000) (reliance is not an element of a section 349 claim); McGuire v. Huntress, 83 A.D.3d 1418, 1420 (4 th Dept. 2011) (reliance is not an element of a cause of action for breach of fiduciary duty) . HLI will not be held liable under either GBL § 349 or a fiduciary breach theory regardless of absent class members' reliance, if any, upon those lawful dual agency disclosures or the "effect" they had upon class 6 6 of 14 9 11 FILED: WESTCHESTER COUNTY CLERK 03/14/2023 02:11 PM INDEX NO. 60767/2018 NYSCEF DOC. NO. 1572 1540 RECEIVED NYSCEF: 03/14/2023 02/11/2023 members. Indeed, by stipulating not to off any absent class member testimony for any purpose at trial, Plaintiffs have effectively agreed to an order of preclusion that arguably has placed themselves in an evidentiary box. The 100-plus sales agents HLI promises to call at trial will be free to testify about the propriety of their dual agency disclosures without absent class rebuttal. McPhail is particularly illustrative. There, the plaintiff class alleged that the defendant financial company had violated the Securities Exchange Act of 1934 by engaging in false and misleading statements in the sale of financial products. In initially granting class certification, the Court ruled that the proof gave rise to a rebuttal presumption of reliance in favor of the plaintiff class - an essential element of liability. In response, the defendant then sought absent class member discovery in the form of interrogatories and depositions in an effort to secure evidence to rebut the class-wide presumption of reliance.5 The McP hail defendant argued absent class member discovery was needed to rebut the presumption. The McPhail court disagreed, noting that the defendant had "multiple means by which they may seek to rebut the presumption ofreliance" (id. , p. 517), stating in pertinent part: With regard to the second factor, Defendants have failed to show that the proposed discovery is necessary. The presumption of reliance found in this case rests upon a showing by Plaintiffs that the script used by Defendants' sales representatives contained material misrepresentations, and that the sales representatives can rebut the presumption of reliance by rebutting proof of the elements giving rise to the presumption, i.e. , by showing that the script did not contain material misrepresentations, or that the oral representations were not uniform (i.e., that the sales representatives were not taught the script or that, even if they were, they did not follow it). (Citations omitted). Indeed, Defendants have already indicated their intent to demonstrate both these points at trial. *** As noted above, unlike McPhail, reliance is not a critical element of liability which HLI must rebut; nor did this Court' s class certification order extend to Plaintiffs the benefit of any rebuttable presumption. 7 10 7 of of 11 14 FILED: WESTCHESTER COUNTY CLERK 03/14/2023 02:11 PM INDEX NO. 60767/2018 NYSCEF DOC. NO. 1572 1540 RECEIVED NYSCEF: 03/14/2023 02/11/2023 Defendants can present testimony at trial from their sales personnel, district managers and/or officers on each of these points in order to attempt to rebut the presumption of reliance on a class-wide basis. There is accordingly no need for discovery of the absent class members. McPhail, supra at pp. 12-13. The McPhail rationale applies with equal force here. Plaintiffs' theory of the case is based upon alleged inadequate HLI written dual agency written and oral disclosures. The written disclosures signed by Plaintiffs' class members reside in their transactional file and therefore, do not require absent class member depositions. 6 At trial, HLI can and presumably will offer its own dual agency documentation, executed by the class representatives, and the testimony of all its sales agents, managers and officers to rebut each of the Plaintiffs' allegations of dual agency related misconduct. Simply stated, HLI does not need the deposition testimony of absent class members to defend the remaining causes of action. This reality is confirmed by the No Call Agreement HLI initially offered in April 2022 to obviate the need for absent class member depositions. Plaintiffs have now agreed not to offer any proof for any purpose from absent class members at trial , and that agreement will be reduced to a formal order. There have been no substantive changes in Plaintiffs' claims or theories of the case since April oflast year which would render the No Call Agreement ineffectual. Indeed, HLI ' s failure to address the No Call Agreement is conspicuous. The legal authorities relied upon by I-ILi are distinguishable and not persuasive. Bruhle v. Price Waterhouse Coopers Int'!. , No. 03-23044 CIV, 2010 U.S. Dist. LEXIS 129504 (S.D. Fla. 6 Plaintiffs allege that certain transactional files do not contain the executed dual agency disclosures. The significance of that allegation will await trial. 8 11 8 of of 11 14 FILED: WESTCHESTER COUNTY CLERK 03/14/2023 02:11 PM INDEX NO. 60767/2018 NYSCEF DOC. NO. 1572 1540 RECEIVED NYSCEF: 03/14/2023 02/11/2023 Dec. 8, 2010) involved a class action alleging claims for securities fraud and breach of fiduciary duty in which the defendant sought absent class member discovery. In certifying the class, the Court specifically found that class members reliance upon the alleged deceptive acts of the defendant, as well as the reasonableness of that reliance, were necessary elements of plaintiffs' security fraud claims. Unlike the No Call Agreement in the instant action, the Court observed that to satisfy the reasonable reliance burden of proof essential to a liability finding, plaintiffs would have to present testimony of "class representative and the other [absent] class members" (emphasis in original)(Jd., p. 8). Since the plaintiffs had the "unrestricted ability to discover" which absent class members would be the strongest witness," (id. , at 8), the Court granted the defendant' s request for discovery (interrogatories and depositions) from 37 class members of their choice. In sharp contrast, here the Plaintiffs will be barred from calling any absent class member by virtue of the No Call Agreement. Further, unlike Bruhle, HLI does not need to rebut a presumption of reliance. Therefore, unlike the Bruhle defendant, HLI does not need to develop proof from absent class members. In re Nati '! W. Life Ins. Deferred Annuities Litig. , No. 05-cv-1018, 2010 U.S. Dist. LEXIS 123089 (S.D. Cal. 2010) is also distinguishable. There the plaintiff class of senior citizens alleged the defendant insurer orchestrated a scheme to fraudulently induce plaintiffs' illiquid deferred annuities which, by their nature, were inappropriate investment vehicles for senior citizens. Plaintiffs alleged that the sales agents misrepresented the nature of the annuities, and failed to disclose the sales commissions received by the agents, in violation of the Federal RICO statute and California state statutes. 9 12 9 of of 11 14 FILED: WESTCHESTER COUNTY CLERK 03/14/2023 02:11 PM INDEX NO. 60767/2018 NYSCEF DOC. NO. 1572 1540 RECEIVED NYSCEF: 03/14/2023 02/11/2023 Like the Bruhle court, the court observed that the plaintiffs class' s reliance on the alleged misrepresentation of the defendant's sales agents was relevant because "reliance may be ' a significant mile post on the road to [RICO] causation. "' (Id. , 379 F.3d 654, 664 (9 th Cir. 2004). Therefore, the court permitted defendant to conduct the depositions of sixteen (16) absent class members. There is no similar evidentiary "milepost" present here. This is not a RI CO case. The Plaintiffs' "reliance" is not an element of proof for either GBL § 349 or fiduciary breach liability. HLI does not need to disprove the Plaintiffs' class's reliance on any of the alleged acts of dual agency misrepresentations, concealment or suppression. Rather, it must rebut the Plaintiffs' core allegation that it failed to properly disclose its dual agency policy as required New York law. Absent class Plaintiffs' depositions are not necessary for that purpose. The balance of the cases cited by HLI are either inapposite or simply support the fundamental premise that absent class member discovery is strongly disfavored. 7 Since the information HLI seeks through absent class member depositions is not necessary, there is no need to discuss at length the remaining two Clark factors. However, it should be noted that the non-party class members who might be subject to a deposition would inevitably and necessarily need the advice of counsel at a minimum to ( 1) understand the legal significance of a deposition and (2) prepare for same. 7 Walmart Stores, Inc. v. Dukes, 564 U.S. 338, 367 (2011) (grant of class certification reversed on grounds of lack of commonality under Rule 23(a)(2) F.R.Civ.P. and grounds unrelated to instant action); ?Ludeman v. Northern Leasing Systems, Inc., No. 101059/04, 2013 N.Y. Misc. LEXIS 4309 (N.Y. Co. 2013) (absent class member discovery denied); Redmondv. Moody 's Inv. Services, No. 92 CIV 9161 , 1995 U.S. Dist. LEXIS 6277 (S.D.N.Y. May 10, 1995) (absent class member depositions denied); Murray v. Allied Signal, Inc., 177 A.D.2d 984 (4 th Dept. 1991) (absent class member discovery denied); In Re Warner Chilcott Sec Lit. , No. 06 CIV 11515, 2008 U.S. Dist. LEXIS (S.D.N.Y. 2008) (absent member class discovery granted without opposition); Indergit v. Rite Aid Corp., No. 08 CIV 9361, 2015 U.S. Dist. LEXIS 160355 (S.D.N.Y ., Nov . 30, 2015) (eight (8) absent class depositions granted without opposition); State of New York v. Myers, 22 Misc. 3d 809, 2008 N.Y. Misc. LEXIS 7268 (Albany Co. 2008) (defendants ' motion to dismiss granted); Alix v. Wal-Mart Stores, Inc., 16 Misc. 3d. 844, 2007 N.Y. Misc. LEXIS 4321 (N.Y. Co. 2007) (class certification motion denied). 10 of 14 13 11 FILED: WESTCHESTER COUNTY CLERK 03/14/2023 02:11 PM INDEX NO. 60767/2018 NYSCEF DOC. NO. 1572 1540 RECEIVED NYSCEF: 03/14/2023 02/11/2023 Based on the foregoing, HLI ' s motion to conduct absent class member depositions is denied on the condition that Plaintiffs are precluded at trial from offering absent class member testimony for any purpose. CONCLUSION I respectfully report and recommend that the parties' discovery motions be decided consistent with the foregoing recommendations. 8 Dated: White Plains, New York February 11 , 2023 William P. Harrington Discovery Referee TO: All Counsel via NYSCEF 8 The remaining arguments of the parties otherwise not addressed herein have been considered and not credited. 11 11 of 14 14 11