On November 20, 2025, the First Department issued a decision in Sherman v. Zampella, 2025 NY Slip Op. 06397, holding that a discovery sanction was inappropriate because of insufficient evidence of an intentional refusal to provide discovery, explaining:
A discovery sanction resolving an issue against the party from whom discovery is sought under CPLR 3126(1) is a drastic one, which requires the moving party to demonstrate a pattern of deliberate, contumacious delay, as opposed to aberrant behavior in the context of otherwise substantial compliance with discovery demands, or a failure to comply based upon a mistaken interpretation of what was required to be produced. The court improvidently imposed the conditional sanction for two reasons.
First, the record at the time did not establish a pattern of willful and contumacious delay. Plaintiff’s motion demanding the personal wallet addresses was made in January 2023, and the record does not demonstrate that defendants established a sustained course of noncompliance in the short time between the making of the motion and the rendering of the conditional order on February 27, 2023. Prior to plaintiff’s January 2023 motion to compel, defendants produced several witnesses for depositions, and more than 10,000 pages of documents, including audited financial statements, Cottonwood’s wallet addresses, emails and other communications, licensing documents, and corporate records.
Second, the motion court’s February 27, 2023 order was based on defendants’ failure to produce documents showing in flows from Zampella to Cottonwood. However, plaintiff’s discovery demands did not seek discovery of documentation of transfers from Zampella to Cottonwood. Rather, they sought discovery of documentation of transfers from Cottonwood to Zampella and from Cottonwood to defendant Coindado. Further, the conditional order did not require the disclosure of any documentation but only of digital wallet addresses. When defendant was instructed in a clerk’s subsequent email to produce documentation of inflows or be sanctioned, the clerk clarified, upon request by plaintiff, that this referred to transfers from Cottonwood to Zampella.
Since the motion court’s February 27, 2023 order imposing conditional sanctions for noncompliance was an improvident exercise of discretion, there was no basis for the March 14, 2023 order imposing discovery sanctions.
(Internal quotations and citations omitted).