On September 12, 2024, Justice Reed of the New York County Commercial Division issued a decision in Matter of Arad 2 LLC v. Hamo, 2024 NY Slip Op. 51265(U), holding that evidence disclosed in settlement discussions is not thereby shielded from disclosure in discovery, explaining:
Generally speaking, and as applicable to discovery in every litigation, there shall be full disclosure of all matter material and necessary in the prosecution or defense of an action. The words, material and necessary, are to be interpreted liberally to require disclosure, upon request, of any facts bearing on the controversy which will assist preparation for trial by sharpening the issues and reducing delay and prolixity. The test is one of usefulness and reason. If there is any possibility that the information is sought in good faith for possible use as evidence-in-chief or in rebuttal or for cross-examination, it should be considered evidence material in the prosecution or defense.
. . .
It is not uncommon that parties challenge the disclosure of documents and information related to a settlement. CPLR §4547 is often cited for the proposition that information obtained during settlement proceedings is privileged. However, the statute expressly states that the provisions of this section shall not require the exclusion of any evidence, which is otherwise discoverable, solely because such evidence was presented during the course of compromise negotiations. Furthermore, the exclusion established by this section shall not limit the admissibility of such evidence when it is offered for another purpose.
Accordingly, documents relating to settlement are admissible for purposes other than proof of liability, and discoverable if they are material and necessary to the prosecution or defense of an action. The question for this court is whether the information sought from the City settlement is material and necessary to resolving a justiciable issue in this case.
Presently, this is an action for dissolution and breach of fiduciary duty, premised upon a claim that the managing member of jointly held limited liability companies is mismanaging and mishandling the companies, while engaging in impermissible self-dealing. To the extent that information exists, which speaks to the handling of properties owned by companies that are the subject of this suit, such information is discoverable. The words material and necessary are liberally construed.
(Internal quotations and citations omitted).