Opinion
02 Civ. 931 (WHP) (DF)
September 30, 2003
REPORT AND RECOMMENDATION
On February 6, 2002, plaintiff American Casualty Company of Reading, Pennsylvania ("American Casualty"), filed a complaint with this Court alleging breach of fiduciary duty, conversion of property, and breach of contract by defendant Morgan-White Underwriters, Inc. ("Morgan-White"). After refusing to accept service by mail, Morgan-White was personally served with a Summons and Complaint on March 25, 2002, pursuant to Rule 4(e)(1) of the Federal Rules of Civil Procedure.
In its submissions to the Court, Plaintiff refers to itself as "CNA." ( See, e.g., Complaint dated Feb. 5, 2002 ("Compl.") (Dkt. No. 1).) Because the Court has previously referred to Plaintiff as "American Casualty" ( see, e.g., Memorandum and Order dated Apr. 29, 2003 (Dkt. No. 13)), it will continue to do so, for the sake of uniformity.
Morgan-White did not answer the Complaint, and, on May 28, 2002, Judge Pauley granted American Casualty a default judgment, referring the matter to me to conduct an inquest and to report and recommend concerning damages. (Dkt. No. 6.) On July 2, 2002, I issued a Scheduling Order requiring American Casualty to serve and file Proposed Findings of Fact and Conclusions of Law ("Proposed Findings") no later than July 30, 2002. (Dkt. No. 8.) In that Order, I cautioned Morgan-White that if, by August 30, 2002, it did not respond to American Casualty's submissions or contact my chambers in writing to request an in-court hearing, it would be my intention to issue a report and recommendation on the basis of American Casualty's written submissions alone.
On July 30, 2002, American Casualty filed its Proposed Findings and supporting papers, along with an application for attorneys' fees (Dkt. No. 9); Morgan-White filed no response. By Order dated January 23, 2003, this Court afforded American Casualty an opportunity to supplement its submissions with further support for its attorneys' fees application. (Dkt. No. 10.) In the Court's Order, Morgan-White was cautioned that if it did not respond or contact my chambers to request an in-court hearing by February 19, 2003, I would report and recommend solely on the basis of American Casualty's submissions. On February 5, 2003, American Casualty filed a revised application for attorneys' fees and supporting papers, in accordance with the Court's Order (Dkt. Nos. 11, 12), and Morgan-White again filed no response.
By Order dated April 29, 2003, the Court gave American Casualty a second opportunity to supplement its submissions, this time to provide further support for its damages in relation to Morgan-White's failure to collect audit premiums. (Dkt. No. 13.) In that Order, I cautioned Morgan-White that, if it did not respond or request a hearing by May 27, 2003, I would report and recommend on American Casualty's written submissions alone. On May 13, 2003, in accordance with the Court's April 29 Order, American Casualty submitted Amended Proposed Findings of Fact and Conclusions of Law ("Am. Proposed Findings"). (Dkt. Nos. 14, 15.) To date, Morgan-White has filed no response to any of American Casualty's submissions, nor has it contacted my chambers to request a hearing.
For the reasons that follow, I recommend that, on the default judgment, American Casualty be awarded damages and attorneys' fees from Morgan-White as calculated below.
BACKGROUND
As alleged in the Complaint, and supported by the documentation submitted by American Casualty on this inquest, the relevant facts are as follows:
American Casualty is a property casualty insurance company incorporated under the laws of the State of Pennsylvania. Its principal place of business is in Chicago, Illinois, although it maintains offices in other locations, including New York City. (Am. Proposed Findings ¶ 1.) Morgan-White is an insurance underwriting agency incorporated under the laws of the State of Mississippi, with its principal place of business in Jackson, Mississippi. ( Id. ¶ 2.)
On July 1, 1997, American Casualty and Morgan-White entered into a Program Management Agreement (the "Agreement"). (Am. Proposed Findings ¶ 6; see also Compl. Ex. A.) Under the Agreement, Morgan-White served as an insurance broker for American Casualty, selling and binding certain workers compensation policies subject to American Casualty's underwriting guidelines, and collecting and paying to American Casualty all premiums associated with those policies. American Casualty authorized Morgan-White to deposit or invest the premiums it collected in a trust fund account (the "Trust Account") that it held as "fiduciary" for American Casualty, and to make payments to American Casualty from that account. (Am. Proposed Findings ¶ 7; see also Compl. Ex. A ¶ 4(D).)
In exchange for Morgan-White's services, American Casualty agreed that Morgan-White could retain, as commission, a percentage of the premiums paid or owed to American Casualty (or paid to Morgan-White for the benefit of American Casualty) in accordance with the rate set forth in Addendum C of the Agreement. (Am. Proposed Findings Eny-160404-Eny-041604-¶ 8; see also Compl. Ex. A ¶ 3.) The parties further agreed that, while Morgan-White could accept proposals for insurance from subproducers such as brokers, agents or solicitors ("Subproducers"), any amounts payable to any Subproducers for business under the Agreement would be Morgan-White's sole responsibility. (Compl. Ex. A ¶ 2(C); see also Am. Proposed Findings ¶ 8.) In addition, the parties agreed that "[e]xcept as may otherwise be set forth [in the Agreement], or agreed to in writing by [American Casualty], [American Casualty] shall not be responsible for any expenses of [Morgan-White] whatsoever." (Compl. Ex. A ¶ 8; see also Am. Proposed Findings ¶ 8.)
When the parties originally executed Addendum C to the Agreement on July 1, 1997, they agreed that Morgan-White's gross rate of commission would be 14 percent, but that the Addendum would "be revised annually by both parties." (Compl. Ex. A, Addendum C; see also Am. Proposed Findings ¶ 9.) In accordance with that provision, the parties agreed on March 29, 1999 that Morgan-White's gross rate of commission would be 13.5 percent, effective December 1, 1998 ( see Compl. Ex. A, Revision No. 1 Addendum C; see also Am. Proposed Findings ¶ 10), and they agreed on February 15, 2000 that the rate would be 2.5 percent, effective March 1, 2000 (Compl. Ex. A, Revision No. 2 Addendum C; see also Am. Proposed Findings ¶ 11)
In conjunction with its performance under the Agreement, Morgan-White regularly notified American Casualty as to what policies Morgan-White had sold and the amounts of the premiums for those policies. (Am. Proposed Findings ¶ 12.) In return, American Casualty sent Morgan-White monthly "account current" statements that reflected, for each of those policies, the premiums owed and Morgan-White's rate of commission. ( Id. ¶ 13.) Morgan-White then returned the "account current" statements to American Casualty, specifying the policies for which it was remitting payment; American Casualty interpreted those specifications as affirmative indications of Morgan-White's agreement with the premium amounts and rates of commission shown on the statements. ( Id. ¶ 14.)
A. Morgan-White's Misuse of Trust Account Funds
In a June 2001 audit, American Casualty discovered that Morgan-White, having executed the February 15, 2000 revision that reduced its commission to 2.5 percent, and having apparently returned "account current" statements reflecting that revision ( see id.), had removed funds from the Trust Account for commissions in excess of the new rate ( id. ¶ 15). In addition, Morgan-White had used Trust Account funds for other unauthorized purposes, including, but not limited to, paying Subproducers and making payments in connection with policies issued by the insurance carrier with which it did business prior to its relationship with American Casualty. ( Id.; see also id. ¶ 5.) Upon discovering that Morgan-White had improperly withdrawn funds from the Trust Account, American Casualty promptly demanded that Morgan-White return all such funds. ( Id. ¶ 16.) However, Morgan-White failed to return the misappropriated monies in accordance with American Casualty's demand. ( Id.)
B. Morgan-White's Failure To Pay Uncollected Audit Premiums
Under Section 4 of the Agreement, Morgan-White agreed to complete premium audits of American Casualty's insureds, and to present those audits to the insureds within 120 days of the expiration of the relevant policies. ( Id. ¶ 17; see also Compl. Ex. A ¶ 4(C).) In addition, Morgan-White agreed that if, after reasonable efforts, it was unable to collect any interim or final additional premiums developed as due and owing by the audits within 90 days from the end of the month in which the account was billed, it could return the related statements to American Casualty and be relieved of responsibility for collecting such audit premiums. (Am. Proposed Findings If 18; see also Compl. Ex. A ¶ 4(C).) Morgan-White further agreed, however, that if it failed either to return the audit statements regarding the unpaid premiums within the specified time or to arrange in writing with American Casualty for a longer collection period, it would be responsible for paying the outstanding audit premiums to American Casualty. (Am. Proposed Findings ¶ 18; see also Compl. Ex. A ¶ 4(C).)
In numerous instances, Morgan-White failed either to return the audit premium statements to American Casualty in a timely manner or to arrange for a longer collection period, and further failed to pay the audit premiums due to American Casualty. (Am. Proposed Findings ¶ 19; see also Amended Affidavit of Wayne P. Cordi, sworn to May 8, 2003, attached as Exhibit B to Amended Proposed Findings ("Am. Cordi Aff"), ¶ 9.)
C. Morgan-White's Failure To Cancel Delinquent Accounts and Pay Uncollected Premiums
Under Paragraph 4(B) of the Agreement, Morgan-White was required to make reasonable efforts to collect all premiums owed under the policies it sold for American Casualty, and to cancel the coverage of delinquent insureds in the event premiums were not paid within a certain time period. Specifically, Paragraph 4(B) provides:
[i]f, after reasonable effort by [Morgan-White] to collect premium, any premium has not been paid by the insured to [Morgan-White] or to any Subproducer, within the time period provided in Paragraph A above, [Morgan-White] shall promptly cancel such Insured's insurance coverage for nonpayment of premium.
(Compl. Ex. A ¶ 4(B); see also Am. Proposed Findings ¶ 20.) Further, under Paragraph 4(A), Morgan-White was required to pay all premiums (net of commissions) to American Casualty within a specified time, whether or not it had actually collected those premiums:
[Morgan-White] shall retain out of such premiums the compensation due [Morgan-White] at the rates of commissions shown in Addendum C attached hereto or otherwise agreed upon in writing and the net premiums shall be due [American Casualty] (whether collected by [Morgan-White] or not) and shall be paid by [Morgan-White] so as to reach [American Casualty] not later than forty five (45) days after the end of the month in which the policy is rendered.
(Compl. Ex. A ¶ 4(A); see also Am. Proposed Findings ¶ 21.)
In several instances, Morgan-White failed to make reasonable efforts to collect premiums, to cancel policies where insureds failed to make required premium payments, and/or to pay to American Casualty all net premiums due on the delinquent accounts. (Am. Proposed Findings ¶ 22; see also Am. Cordi Aff. ¶¶ 11-12.)
DISCUSSION
In its Amended Proposed Findings and Conclusions and supporting papers, American Casualty requests an award of damages for: (1) Morgan-White's misappropriation of funds from the Trust Account; (2) Morgan-White's failure to pay uncollected audit premiums to American Casualty; and (3) Morgan-White's failure to cancel policies where the insureds did not make required premium payments, and to pay all net premiums due on those policies. American Casualty also seeks prejudgment interest, and an additional $33,600.05 in attorneys' fees and costs.
Without a response from Morgan-White, this Court must assess whether American Casualty has sufficiently demonstrated the amounts in question. Although "a default judgment entered on well-pleaded allegations in a complaint establishes a defendant's liability," it does not reach the issue of damages. Bambu Sales, Inc. v. Ozak Trading, Inc., 58 F.3d 849, 854 (2d Cir. 1995) (quoting Trans World Airlines, Inc. v. Hughes, 449 F.2d 51, 69 (2d Cir. 1971), rev'don other grounds, 409 U.S. 363 (1973)). A plaintiff must therefore substantiate a claim with evidence to prove the extent of damages. See Trehan v. Von Tarkanyi, 63 B.R. 1001, 1008 n. 12 (S.D.N.Y. 1986) (plaintiff must introduce evidence to prove damages suffered and the court will then determine whether the relief flows from the facts) (citing Flaks v. Koegel, 504 F.2d 702, 707 (2d Cir. 1974)). Although the Court may hold a hearing to assess those damages, a hearing is not required where a sufficient basis on which to make a calculation exists. See Fed.R.Civ.P. 55(b)(2) (court may conduct hearings on damages "as it deems necessary and proper"); see also Tamarin v. Adam Caterers, Inc., 13 F.3d 51, 54 (2d Cir. 1993) (judges are given much discretion to determine whether an inquest need be held); Action S.A. v. Marc Rich Co., 951 F.2d 504, 508 (2d Cir. 1991) (Fed.R.Civ.P. 55(b)(2) "allows but does not require . . . a hearing").
I. COMPENSATORY DAMAGES
A. Damages for Morgan-White's Misappropriation of Funds from the Trust Account
A fair reading of Paragraph 4(D) of the Agreement is that Morgan-White was only authorized to hold collected premiums in the Trust Account as a fiduciary for American Casualty, and was not permitted to remove or use those funds for any purpose other than to remit payments to American Casualty. American Casualty has adequately demonstrated, by way of a sworn accountant's affidavit and supporting spreadsheet, that, as of February 4, 2002, Morgan-White had misappropriated $637,773.04 in premiums held in the Trust Account. ( See Am. Proposed Findings ¶ 38; Am. Cordi Aff. ¶¶ 4-6; Ex. 1 (spreadsheet showing the difference between the amount due American Casualty and the Trust Account balance as of February 4, 2002).)
Morgan-White's failure to remit Trust Account funds to American Casualty caused American Casualty to incur expenses that would have otherwise been covered by those funds. American Casualty contends that, under ¶ 6(B) of the Agreement, Morgan-White is now responsible to cover those expenses. ( See Am. Proposed Findings ¶ 38; see also Compl. Ex. A ¶ 6(B) (providing that Morgan-White "shall indemnify and hold [American Casualty] harmless against all expenses . . . arising as a result of: (1) [Morgan-White's] acts, errors or omissions").)
Considered together, the Agreement and the Cordi affidavit provide a "sufficient basis from which to evaluate the fairness" of American Casualty's claimed damages with respect to the Trust Account. See Fustok v. ContiCommodity Servs. Inc., 873 F.2d 38, 40 (2d Cir. 1989) (detailed affidavits and documentary evidence, supplemented by judge's knowledge of the record, constituted sufficient basis from which to evaluate damages claim). As there is adequate evidentiary support for the damages claimed, I recommend that American Casualty be awarded $637,773.04 in damages for Trust Account funds misappropriated by Morgan-White.
B. Damages for Morgan-White's Failure to Pay Uncollected Audit Premiums
As set out in greater detail above ( see supra at 5-6), and in this Court's prior Order dated April 29, 2003 (Dkt. No. 13), Paragraph 4(C) of the Agreement obligated Morgan-White to pay to American Casualty any uncollected premiums developed through premium audits, unless Morgan-White returned the audit premium statements to American Casualty within 90 days from the end of the months in which the accounts were billed, or arranged in writing for a longer collection period. American Casualty has now put forth evidence showing that it incurred a loss of $145,258.04 as a result of Morgan-White's failure to pay uncollected audit premiums on accounts where it neither returned the audit premium statements in a timely manner, nor arranged for an extension of its time for collection. ( See Am. Proposed Findings ¶ 39.) American Casualty's evidence is again presented in the form of a sworn accountant's affidavit, with an attached spreadsheet listing all uncollectible premiums that exceeded the 90-day notification period. ( See Am. Cordi Aff. ¶ 9; Ex. 2.)
Having found that the accountant's affidavit and spreadsheet initially submitted by American Casualty raised questions as to the appropriateness of the amount American Casualty claimed in those documents for unpaid audit premiums, the Court requested a supplemental submission with regard to the basis for that amount. ( See Dkt. No. 13 (Order dated April 29, 2003).) The amended affidavit and spreadsheet American Casualty submitted in response to the Court's request acknowledge and correct an error in the prior submissions ( see Am. Cordi Aff. ¶ 9; Ex. 2), and thereby resolve the Court's concerns.
As this evidence adequately demonstrates the appropriateness of the amount requested, I recommend that American Casualty be awarded $145,258.04 in damages resulting from Morgan-White's failure to pay uncollected audit premiums.
C. Damages for Morgan-White's Failure To Cancel Delinquent Policies and Pay the Outstanding Premiums
Finally, under Paragraphs 4(A) and (B) of the Agreement, Morgan-White was required to make reasonable efforts to collect premiums, and, where the insureds did not make required payments, to cancel delinquent policies. Where it failed to cancel delinquent policies, Morgan-White was further responsible for paying the outstanding premiums to American Casualty. ( See Compl. Ex. A ¶¶ 4(A)-(B).) In addition to the damages claimed above, American Casualty requests $20,206.91 in outstanding premiums due on a single delinquent policy, which Morgan-White failed to cancel, and as to which Morgan-White failed to take responsibility for payment of the amounts due. ( See Am. Proposed Findings ¶ 36.)
Although American Casualty has demonstrated by affidavit that Morgan-White failed to cancel several delinquent policies ( See Am. Cordi Aff. ¶ 12), American Casualty only seeks damages on this claim with respect to a single policy, because it has already calculated its damages with respect to the other policies in connection with its separate claim that Morgan-White failed to collect audit premiums. ( See Am. Proposed Findings ¶ 40; Am. Cordi Aff. ¶¶ 12-13; Ex. 3.)
Again, American Casualty supports its damages claim with a sworn accountant's affidavit, with information regarding the relevant policy attached. ( See Am. Cordi Aff. ¶¶ 12-13; Ex. 3.) American Casualty has adequately demonstrated through these submissions that, as a result of Morgan-White's failure to collect premiums or to cancel policies for nonpayment, American Casualty suffered damages in the amount of $20,206.91. I therefore recommend that this amount be awarded.
II. PREJUDGMENT INTEREST A. Applicable Law
Whether prejudgment interest should be awarded is considered a matter of substantive law. Schwimmer v. Allstate Ins. Co., 176 F.3d 648, 650 (2d Cir. 1999) (citing Marfia v. T.C. Ziraat Bankasi, 147 F.3d 83, 90 (2d Cir. 1998)). Federal courts exercising diversity jurisdiction must apply the choice of law rules of the forum state, here New York, to determine what substantive law applies. See id.; see also 28 U.S.C. § 1652; Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941); Erie R.R. v. Tompkins, 304 U.S. 64, 74-77 (1938). New York's approach to a choice of laws determination is to "giv[e] controlling effect to the law of the jurisdiction which, because of its relationship or contact with the occurrence or the parties, has the greatest concern with the specific issue raised in the litigation." Loebig v. Larucci, 572 F.2d 81, 84 (2d Cir. 1978) (quoting Babcock v. Jackson, 12 N.Y.2d 473, 481 (1963)).
In this case, American Casualty has demonstrated that New York has numerous contacts with the occurrences that gave rise to its claim. ( See Am. Proposed Findings ¶ 3.) The contract at issue was proposed, negotiated, and executed in New York; much of the parties' correspondence and interactions in connection with the contractual relationship were conducted through American Casualty's New York office and by its New York employees; and, in certain instances, American Casualty's New York office was the place to which Morgan-White remitted payment. ( See id.). The Court finds that the significance of these contacts renders New York the jurisdiction with "the greatest concern" with this litigation, and will therefore apply New York law with regard to prejudgment interest. See Dep't of Econ. Dev. v. Arthur Andersen Co., 747 F. Supp. 922, 936 (S.D.N.Y. 1990) (applying New York law because, inter alia, contract at issue was partly negotiated in New York, and monies due under contract were drawn on New York banks). New York law allows for the award of prejudgment interest in the contexts of breach of fiduciary duty, conversion of property and breach of contract. See N.Y. C.P.L.R. § 5001 (McKinney 1992); Clarendon Nat'l Ins. Co. v. GWTA Ins. Servs., Inc., No. 00 Civ. 5620 (DLC), 2002 WL 31082953, at *3 (S.D.N.Y. Sept. 17, 2002) (prejudgment interest awarded to insurer who sued administrator of contracts for breach of contract and breach of fiduciary duty); Delia Pietra v. New York, 510 N.Y.S.2d 334, 337 (4th Dep't 1986) (awarding prejudgment interest on damages for conversion of property). Such interest allows a plaintiff to be "made whole for [its] loss." Waterside Ocean Navigation Co. v. Int'l Navigation Ltd., 737 F.2d 150, 154 (2d Cir. 1984); see also West Virginia v. United States, 479 U.S. 305, 310 (1986) ("Prejudgment interest is an element of complete compensation.").
The Court notes that the Agreement between American Casualty and Morgan-White contains a "choice of law" clause, which states that its terms "shall be construed according to the laws of the State of Illinois." (Compl. Ex. A ¶ 21.) The laws of Illinois and New York, however, appear to be substantially similar with respect to the availability of prejudgment interest. Compare, e.g., Campbell ex rel. Campbell v. Metro. Prop. Cas. Ins. Co., 239 F.3d 179, 186 (2d Cir. 2001), with Medcom Holding Co. v. Baxter Travenol Labs., 200 F.3d 518, 519-20 (7th Cir. 1999). Where there is no significant difference between the laws of the two states in question, the Court need not reach the choice of law issue. USAchem, Inc. v. Goldstein, 512 F.2d 163, 167 (2d Cir. 1975) (applying New York law in case involving New York contract with Texas choice-of-law provision). Furthermore, American Casualty's submissions indicate that it consents to the choice of New York law ( See Am. Proposed Findings ¶¶ 3, 38-40), and Morgan-White has not opposed American Casualty's proposed application of New York law.
In the absence of an agreement between the parties or statutory law to the contrary, prejudgment interest is awarded at a rate of 9 percent per annum, calculated from the earliest ascertainable date on which the cause of action existed. See N.Y. C.P.L.R. §§ 5001 and 5004 (McKinney 1992); Marfia, 147 F.3d at 90. Where damages were incurred at various points in time, the Court may separately compute interest upon the separate components of the damages award. See N.Y. C.P.L.R. § 5001(b); see also DVCi Techs., Inc. v. Timessquaremedia.com, Inc., No. 00 Civ. 0207VMRLE, 2000 WL 33159189, at *3 (S.D.N.Y. Nov. 29, 2000) (calculating interest from three separate dates upon which payments were due).
Under Illinois law, prejudgment interest is applied at the rate of 5 percent. 815 Ill. Comp. Stat. Ann. 205/2 (West 2003). As this Court has concluded, however, that the applicability of prejudgment interest should be determined under New York law, the Court will also apply the New York prejudgment interest rate to an award of such interest. The Court notes that, in failing to respond on this inquest, Morgan-White has made no objection to the application of the higher rate. Further, applying the higher rate should not unduly prejudice Morgan-White, because, as discussed further below, American Casualty has asked the Court to adopt a conservative prejudgment interest calculation, by which American Casualty would forego certain interest to which it would likely be entitled. ( See discussion infra at 14-17, regarding the dates from which American Casualty has requested that the Court award prejudgment interest on each of its claims.)
B. Amounts of Prejudgment Interest Requested
In this case, American Casualty requests prejudgment interest as of three separate dates. With regard to Morgan-White's misappropriation of collected premiums from the Trust Account, American Casualty requests that interest on its claimed $637,773.04 in damages be calculated as of August 30, 2001, the date on which it demanded that Morgan-White return the improperly withdrawn funds. ( See Am. Cordi Aff. ¶¶ 5-6; Ex. 1.) With regard to Morgan-White's failure to pay uncollected audit premiums, American Casualty requests that interest on its claimed $145,258.04 in damages be calculated as of April 30, 2001, the date on which Morgan-White submitted multiple "Return of Uncollectible Audit" notices to American Casualty. ( See id. ¶¶ 9-10; Ex. 2.) Finally, with respect to Morgan-White's failure to pay uncollected premiums on a delinquent policy, American Casualty requests that interest on its claimed $20,206.91 in damages be calculated as of November 19, 2000, which apparently would have been the 45th day after the end of the month in which Morgan-White should have demanded payment from the insured on that policy. Under the terms of the Agreement, by failing to cancel the policy for nonpayment at that point, Morgan-White became responsible for the outstanding premiums. ( Id. ¶¶ 12-14; Ex. 3.)
The Court deduces this from Paragraphs 4(A) and (B) of the Agreement, and from Exhibit 3 to American Casualty's accountant's amended affidavit.
For the reasons discussed below, these three dates are reasonable points from which to calculate prejudgment interest. 1. Prejudgment Interest on Misappropriated Trust Account Funds
American Casualty claims that Morgan-White's misappropriation of funds from the Trust Account is actionable as a breach of fiduciary duty, as conversion of property, and as a breach of contract. ( See Am. Proposed Findings ¶¶ 26-33.) A cause of action for breach of fiduciary duty accrues on the occurrence of a wrongful transaction, see Glynwill Invs., N. V. v. Prudential Secs., Inc., No. 92 Civ. 9267 (CSH), 1995 WL 362500, at *3 (S.D.N.Y. June 16, 1995) (citations omitted), which, in this case, was the date or dates on which Morgan-White withdrew funds from the Trust Account without American Casualty's authorization ( See Am. Proposed Findings ¶ 15). A cause of action for conversion of property accrues when the defendant begins "commercially exploiting" that property as his own, see Songbyrd, Inc. v. Estate of Grossman, 206 F.3d 172, 182 (2d Cir. 2000) (citing Sporn v. MCA Records, 58 N.Y.2d 482 (1983)), which, in this case, was the date or dates on which Morgan-White used Trust Account funds for unauthorized purposes. ( See Am. Proposed Findings ¶ 15.) Finally, in the absence of a contractually-specified payment date, a cause of action for breach of contract accrues when payment is demanded, see Stanford Square, L.L.C. v. Nomura Asset Capital Corp., 232 F. Supp.2d 289, 292 (S.D.N.Y. 2002), which, in this case, was August 30, 2001. ( See Am. Cordi Aff. ¶ 5.)
American Casualty is entitled to request prejudgment interest from the earliest ascertainable date on which a particular cause of action existed. See N.Y. C.P.L.R. §§ 5001 and 5004 (McKinney 1992); Marfia, 147 F.3d at 90. Nonetheless, and without regard to the fact that, on its breach-of-fiduciary-duty and conversion claims, it could well be entitled to prejudgment interest from an earlier date or dates, American Casualty has only requested that such interest be calculated from August 30, 2001, when it finally made a demand for payment of the misappropriated funds. As this appears to be the latest of the possible dates on which its misappropriation claims could be deemed to have accrued, American Casualty's proposed calculation of prejudgment interest on the misappropriated amounts is conservative and inherently reasonable.
2. Prejudgment Interest on Uncollected Audit Premiums
American Casualty claims that Morgan-White breached the Agreement by failing to pay uncollected audit premiums. With respect to the 49 occasions on which Morgan-White failed either to return uncollected premiums to American Casualty or to otherwise relieve itself from responsibility for them, American Casualty requests prejudgment interest from April 30, 2001, on the ground that "[a]ll of these breaches occurred no later than" that date. (Am. Cordi Aff. ¶ 10.) In fact, it appears that many of the 49 breaches may have actually occurred earlier than that date, on March 27, 2001. ( See id. Ex. 2.)
As discussed above, American Casualty is entitled to request prejudgment interest from the earliest ascertainable date on which its cause of action existed; yet, here, American Casualty is again requesting interest from what appears to be the latest date on which the alleged contract breaches could be deemed to have occurred. For this reason, the Court again finds American Casualty's request to be reasonable.
3. Prejudgment Interest on Premiums Owed on Delinquent Policies
Finally, American Casualty asks the Court to calculate prejudgment interest from November 19, 2000, on the damages that resulted from Morgan-White's failure to pay uncollected premiums on the one delinquent policy not covered by American Casualty's separate claim for unpaid audit premiums. November 19, 2000 appears to be the date when Morgan-White became contractually obligated to pay the outstanding premiums on the one policy in question. ( See Am. Compl. Ex. A ¶¶ 4(A)-(B); Am. Cordi Aff. ¶ 14).) This date therefore appears to be the appropriate date for the calculation of prejudgment interest as to these unpaid premiums. See Stanford Square, L.L.C., 232 F. Supp.2d at 292 (where contract specifies date on which it will be deemed to have been breached, prejudgment interest calculated from that date).
For all of the above reasons, I recommend that American Casualty be awarded prejudgment interest at the rate of 9 percent per annum, as follows:
(a) on $637,773.04 (damages for misappropriated Trust Account funds): from August 30, 2001, until the date the judgment is entered on the dock et;
(b) on $145.258.04 (damages for unpaid audit premiums): from April 30, 2001, until the date the judgment is entered on the docket; and
(c) on $20.206.91 (damages for unpaid premiums on a specified delinquent policy): from November 19, 2000, until the date the judgment is entered on the docket.III. ATTORNEYS' FEES
American Casualty requests attorneys' fees in the amount of $33,415.05. ( See Am. Proposed Findings ¶ 41; Supplemental Affidavit of R. John Street, sworn to February 3, 2003, attached as Exhibit C to Amended Proposed Findings ("Supp. Street Aff"), ¶ 13; Declaration of Robert M. Kaplan, sworn to February 5, 2003, attached as Exhibit D to Amended Proposed Findings ("Supp. Kaplan Decl."), ¶ 8.) In support of this request, American Casualty cites Paragraph 6(B) of the Agreement, which provides that Morgan-White "shall indemnify and hold [American Casualty] harmless against all expenses . . . including attorneys' fees . . . arising as a result of (1) [Morgan-White's] acts, errors or omissions." (Compl. Ex. A ¶ 6(B).) Based on this provision of the parties' contract, American Casualty is entitled to its reasonable attorneys' fees. See, e.g., Kaleidoscope Media Group, Inc. v. Entm't Solutions, Inc., No. 97 Civ. 9369, 2001 WL 849532, at *4 (S.D.N.Y. July 19, 2001) (attorneys' fees recoverable on default judgment where parties had previously contracted that such fees would be recoverable in the event of a breach of contract).
The Street Affidavit and Kaplan Declaration were originally submitted by American Casualty on February 5, 2003, in accordance with the Court's Order that American Casualty supplement its attorneys' fees submission. Duplicates of those documents are attached to the Amended Proposed Findings, as Exhibits C and D, respectively.
In determining appropriate fees, the Court generally employs the "lodestar" method, which looks to the number of hours reasonably expended in performing the legal work at issue, and then multiplies that number by a reasonable hourly rate for counsel's services. Hensley v. Eckerhart, 461 U.S. 424, 433 (1983). When fixing a reasonable rate for attorneys' fees, courts may consider and apply "market rates 'prevailing in the community for similar services by lawyers of reasonably comparable skill, experience, and reputation.'" Gierlinger v. Gleason, 160 F.3d 858, 882 (2d Cir. 1998) (quoting Blum v. Stenson, 465 U.S. 886, 896 n. 11 (1984)). A court may rely on its "own knowledge of private firm hourly rates in the community" in determining reasonable attorneys' fees. Miele v. N.Y. State Teamsters Conference Pension Ret. Fund, 831 F.2d 407, 409 (2d Cir. 1987). The relevant "community" is the district in which the case was brought, and in the Southern District of New York, Manhattan rates are considered the standard. S.W. ex rel. N.W. v. Ed. of Educ., 257 F. Supp.2d 600, 603-04 (S.D.N.Y. 2003) (citing In re Agent Orange Prod. Liab. Litig., 818 F.2d 226, 232 (2d Cir. 1987); Knoeffler v. Town of Mamakating, 126 F. Supp.2d 305, 313 (S.D.N.Y. 2000); see also Rotella v. Ed. of Educ., No. CV 01-0434 (NGG), 2002 WL 59106, at *2 (E.D.N.Y. Jan. 17, 2002) (awarding fees at prevailing Eastern District of New York rate to Florida attorney admitted pro hac vice).
The Second Circuit requires a party seeking attorneys' fees to support its request with contemporaneous time records that show, "for each attorney, the date, the hours expended, and the nature of the work done." TV. Y. State Ass'n for Retarded Children, Inc. v. Carey, 711 F.2d 1136, 1148 (2d Cir. 1983). Here, American Casualty has provided this type of information for the work of attorneys from each of the two law firms that represented American Casualty in connection with this case — the Chicago firm of Wildman, Harrold, Alien Dixon ("Wildman, Harrold"), and the New York firm of Robson Ferber Frost Chan Essner, LLP ("Robson Ferber"). An attorney from each of these firms has submitted an affidavit to the Court setting out the names of the attorneys who worked on this matter, their professional experience, the number of hours they devoted to this action, and the nature of the work performed. ( See Supp. Street Aff; Supp. Kaplan Decl.)
The affidavit submitted by R. John Street, Esq., of Wildman, Harold, demonstrates that three attorneys at that firm spent a total of 120.50 hours on this matter, and charged American Casualty $28,615.05 in legal fees, which reflects a 10-percent discount from the firm's usual and customary hourly rates. ( See Supp. Street Aff. ¶ 6.) These attorneys' hours and the rates they charged in this case were as follows:
R. John Street (partner) 11.3 hours @ $274.50/hour 32.6 hours @ $283.50/hour
Lisa Simmons (partner) 14.1 hours @ $274.50/hour 0.3 hours @ $283.50/hour
Rebecca Alfert (associate) 62.2 hours @ $198/hour
( Id. ¶¶ 11-12.) The services performed by these attorneys included obtaining and reviewing pertinent background information and documents, preparing the summons and complaint, communicating with New York counsel, obtaining a default judgment, and submitting papers to establish American Casualty's damages. ( See id. ¶ 11.)
The affidavit submitted by Robert M. Kaplan, Esq., of Robson Ferber, shows that Mr. Kaplan was the only attorney at his firm who worked on this matter. His submission shows that he spent a total of 16 hours working on the case, at an hourly rate of $300/hour. The firm thus charged American Casualty $4,800 in legal fees for Mr. Kaplan's services, which included obtaining and reviewing background information and documents, reviewing and revising the complaint, arranging for service of the summons and complaint, communicating with Wildman, Harrold, appearing for a conference with the Court, and reviewing and revising American Casualty's submissions in support of its application for a default judgment. ( See Supp. Kaplan Decl. ¶¶ 5-8.)
Based on my review of the submitted attorney time records, the hours expended on this case by attorneys from both firms appear reasonable, given the nature of the work they performed. Further, the rates charged by counsel — from $198/hour to $300/hour — are within the range of prevailing market rates in this district for attorneys of similar experience. As of the date of their submissions, the Wildman, Harrold partners each had 15 years' practice experience, and their associate had six years' experience; the Robson Ferber attorney had over 20 years' experience. ( See Supp. Street Aff. ¶¶ 7-9; Supp. Kaplan Decl. ¶ 5.) On applications of similarly-experienced counsel, this Court has previously accepted billing rates similar to or higher than those requested here. See, e.g., In re Arbitration Between P.M.I. Trading, Ltd. v. Farstad Oil, Inc., 160 F. Supp.2d 614, 614-15 (S.D.N.Y. 2001) ($300/hour was reasonable for partner with over 12 years' experience); Berlinsky v. Alcatel Alsthom Compagnie Generale D'Electricite, 970 F. Supp. 348, 351 (S.D.N.Y. 1997) ($225 to $295/hour was reasonable for New York law firm associate).
As indicated above, even where counsel is from another jurisdiction, it is appropriate for the Court to look to its own district to determine prevailing market rates. ( See supra at 18.) It should be noted, however, that Chicago counsel in this case have not sought to take advantage of the slightly higher rates that may be available here, as their requested fees also fall within the range that Courts in Chicago have upheld as reasonable for that jurisdiction. See, e.g., RKI, Inc. v. Grimes, 233 F. Supp.2d 1018, 1020 (N.D. Ill. 2002) ($265-$290/hour and $135-220/hour reasonable for partners and associates, respectively). This dispels any potential inference that Chicago counsel brought this action in New York for the purpose of obtaining higher fees. See Polk v. N.Y. State Dep't of Corr. Servs., 722 F.2d 23, 25 (2d Cir. 1983) (noting that fee award may provide incentive for counsel to file case improperly in high-rate district).
As both the documented hours and hourly rates appear reasonable, I recommend that American Casualty be awarded its requested attorneys' fees, in the amount of $33,415.05.
IV. COSTS
In addition to attorneys' fees, American Casualty also seeks recovery of $185.00 in costs for the prosecution of this action. That amount covers a $150.00 Clerk's fee and a $35.00 Process Server's fee. ( See Am. Proposed Findings Ex. E.) As both of those costs are reimbursable, see 28 U.S.C. § 1920(1) (clerk's fee); U.S. ex rel. Evergreen Pipeline Const. Co. v. Merritt Meridian Const. Corp., 95 F.3d 153, 172 (2d Cir. 1996) (although not listed as taxable cost under 28 U.S.C. § 1920, reasonable process server fee is recoverable in connection with award of attorneys' fees), I recommend that they be awarded to American Casualty.
CONCLUSION
For the foregoing reasons, I recommend that American Casualty be awarded:(1) damages in the amount of $803,237.99;
(2) prejudgment interest on each of the separate components of the total damages award, as follows:
a. 9% interest on $637,773.04, from August 30, 2001, until the date the judgment is entered on the docket;
b. 9% interest on $145,258.04, from April 30, 2001, until the date the judgment is entred on the docket;
c. 9% interest on $20,206.91, from November 19, 2000, until the date the judgment is entered on the docket;
(3) attorneys' fees in the amount of $33,415.05; and
(4) costs in the amount of $185.00.
Pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure, the parties shall have ten (10) days from service of this Report to file written objections. See also Fed.R.Civ.P. 6. Such objections, and any responses to objections, shall be filed with the Clerk of Court, with courtesy copies delivered to the chambers of the Honorable William H. Pauley III, United States Courthouse, 40 Centre Street, Room 234, New York, New York 10007, and to the chambers of the undersigned, United States Courthouse, 40 Centre Street, Room 631, New York, New York, 10007. Any requests for an extension of time for filing objections must be directed to Judge Pauley. FAILURE TO FILE OBJECTIONS WITHIN TEN (10) DAYS WILL RESULT IN A WAIVER OF OBJECTIONS AND WILL PRECLUDE APPELLATE REVIEW. See Thomas v. Arn, 474 U.S. 140, 155 (1985); IUE AFL-CIO Pension Fund v. Hermann, 9 F.3d 1049, 1054 (2d Cir. 1993); Frank v. Johnson, 968 F.2d 298, 300 (2d Cir. 1992); Wesolek v. Canadair Ltd., 838 F.2d 55, 58 (2d Cir. 1988); McCarthy v. Manson, 714 F.2d 234, 237-38 (2d Cir. 1983).