Pryor Cashman obtained a significant victory for its client before the Second Department of New York’s Appellate Division and in the process helped to establish new law regarding the rights of parties to challenge out-of-state subpoenas served upon New York citizens.

In Gilbert Hyatt v. California Franchise Tax Board, Pryor Cashman represents a successful and well-known patent inventor who is challenging an adverse tax decision issued by the California Franchise Tax Board (“FTB”). In the pending California tax proceedings, the FTB availed itself of New York’s recently amended CPLR 3119, which governs out-of-state subpoenas, and served subpoenas upon deponents in New York. The New York Legislature had amended CPLR 3119 in 2011 to permit out-of-state subpoenas to be issued more expediently by licensed New York attorneys instead of having to be “commissioned” by New York courts.

Pryor Cashman, representing Hyatt, challenged the FTB’s subpoenas as overbroad relative to the issues in dispute between the parties in California. The FTB contended that Hyatt lacked standing to challenge the subpoenas and alternatively argued that the “Full Faith and Credit Clause” to the U.S. Constitution barred the New York courts from examining the subpoenas under the new CPLR 3119 because the subpoenas originated from a California court. The FTB also argued that the New York courts were disabled from modifying and narrowing the subpoenas under the new rule pursuant to principles of comity.

The Appellate Division, Second Department agreed with Pryor Cashman’s arguments and rejected each of these challenges and interpretations of Rule 3119 by the FTB. 

In a lengthy decision, the Court held that Hyatt had a proprietary interest in the information subpoenaed in New York and thus had standing to challenge the subpoenas. The Court also rejected the FTB’s “Full Faith and Credit Clause” argument, finding instead that judicial review in New York under the new CPLR 3119 is appropriate when, as here, an out-of-state subpoena was never the subject of actual judicial review by the issuing state (in this case the FTB’s subpoenas were approved by a California court clerk). 

The Appellate Court further agreed with Pryor Cashman that New York courts have the right under the new CPLR 3119 to modify out-of-state subpoenas that are plainly overbroad relative to the issues being disputed in another forum (as the Court found to be the case with the FTB’s subpoenas). 

The Second Department’s ruling should be a major guidepost to litigants involved in out-of-state subpoena practice in New York following the amendment of CPLR 3119. The ruling particularly establishes the rights of opposing parties to seek meaningful review and protection from New York courts in connection with out-of-state subpoenas.

Pryor Cashman Litigation Partner Ilene Farkas and Associates Eric Fishman and Eric Dowell represented Hyatt on the successful appeal.

To read the Court’s decision in Gilbert Hyatt v. California Franchise Tax Board in its entirety, please click here.