People v. Bayrock Grp. LLC

2017 NY Slip Op 30358(U)

THE PEOPLE OF THE STATE OF NEW YORK ex rel.Qui Tarn "The Bayrock Qui Tarn Litigation partnership," Plaintiff, v. BAYROCK GROUP LLC, et al., Defendants.

Index No. 101478/2015

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: PART 45

RECEIVED: February 27, 2017

February 24, 2017

NYSCEF DOC. NO. 106

DECISION AND ORDER

HON. ANIL C. SINGH, J.:

Defendants Julius Schwarz, Brian Halberg, Israel J. Weinreich (s/h/a Jerry Weinrich), Elliot Pisem and Adam Gilbert move for an order pursuant to 22 NYCRR 216.1: a) permitting (i) the moving defendants to file tax return documents (and/or supplemental affidavits or other documents giving specific income numbers and similar data derived from those tax returns) under seal and (ii) the parties to file papers referring to such tax returns under seal, with redacted copies to be publicly filed, and b) barring plaintiff/relator and its counsel from publicly disclosing the contents of the sealed documents. Plaintiff/relator opposes the motion and cross-moves for an order allowing the defendants to file tax returns under temporary seal so that plaintiff/relator could then move for unsealing, including by redaction.

Separately, the New York Attorney General's Office has submitted a letter application asking the court to strike plaintiff/relator's affirmation dated February 10, 2017, contending that the relator's attorney - who represents relator and not the State of New York - improperly claims to represent that State itself and purports, without authorization, to express the positions of the State. Plaintiff opposes the State's letter application by letters dated February 15, 2017, and February 20, 2017.

Sealing

The moving defendants contend that their personal financial information will be subject to misuse if it is not protected by sealing and redaction.

In response, Frederick M. Oberlander, counsel for plaintiff/relator, states, "I ... represent the People of the State of New York in suing defendants, pursuant to the New York False Claims Act section 190, for damages arising from their tax fraud" (Oberlander Affirm., p. 1, para. 1). Counsel argues that defendants should not be permitted to seal their personal income tax returns as it would hinder the public from engaging in citizens' constitutional oversight over courts.

In New York, there is a strong presumption favoring public legal proceedings and against sealing files without good cause shown (Matter ofTwentieth Century Fox Film Corp., 190 A.D.2d 483 [1^st Dept., 1993]). The First Department summarized the principles regarding the sealing of records in Applehead Pictures LLC v. Perelman, 80 A.D.3d 181 [1^st Dept., 2010]. The Court wrote:

Uniform Rules for Trial Courts (22 NYCRR) section 216.1(a) provides that "a court shall not enter an order in any action or proceeding sealing the court records, whether in whole or in part, except upon a written finding of good cause, which shall specify the grounds thereof," and requires the court to "consider the interest of the public as well as of the parties." The presumption of the benefit of public access to court proceedings takes precedence, and sealing of court papers is permitted only to serve compelling objectives, such as when the need for secrecy outweighs the public's right to access, e.g., in the case of trade secrets. Thus, the court is required to make its own inquiry to determine whether sealing is warranted, and the court will not approve wholesale sealing of motion papers, even when both sides to the litigation request sealing. Since there is no absolute definition, a finding of good cause, in essence, boils down to the prudent exercise of the court's discretion.

(Applehead, 80 A.D.3d at 191-92) (internal quotation marks and citations omitted).

"Although the term 'good cause' is not defined, a sealing order should clearly be predicated upon a sound basis or legitimate need to take judicial action" (Mosallem v. Berenson, 76 A.D.3d 345, 349 [1^st Dept., 2010]) (internal quotation marks and citation omitted). "A finding of 'good cause' "presupposes that public access to the documents will likely result in harm to a compelling interest of themovant" (id.).

Courts have consistently granted sealing orders when the information sought to be sealed touches on a matter traditionally treated confidentially, such as personal medical records (see, for example, John C. v. Martha A., 156 Misc.2d 222, 230-32 [N.Y. City Civ. Ct., 1992] (sealing the entire court file in a landlord/tenant matter because information about respondent's HIV status was interspersed throughout the record)).

Like medical records, tax returns contain confidential, sensitive information. Medical records contain private information about our personal health. Likewise, tax records contain private information about our personal finances.

Here, defendants maintain that: a) many of the underlying tax return documents are jointly-filed returns; and b) the privacy interests of spouses who are not parties to this litigation are in jeopardy. Accordingly, we find that defendants have a legitimate expectation of privacy.

By contrast, the plaintiff/relator has not adequately identified any genuine, substantial public interest that would be served by public access to the non-public information of the defendants.

Where, as here, a sealing order preserves the confidentiality of materials involving the internal finances of a party and are of minimal public interest", goodcause has been shown for documents to be filed under seal (D'Amour v. Ohrenstein & Brown, LLP, 17 Misc.3d 1130(A) [Sup. Ct., N.Y. Co., 2007] (permitting defendants to file income tax returns under seal where returns included schedules pertaining to individuals who were not parties to the litigation)).

Relator/Counsel's Representation

The New York State False Claims Act allows a private person to bring a qui tam action to recover damages on behalf of such person and the State of...