Opinion
02 Civ. 6380 (RCC)(FM)
October 9, 2003
REPORT AND RECOMMENDATION TO THE HONORABLE RICHARD C. CASEY
I. Introduction
On February 13, 2003, Your Honor signed a default judgment against defendants China Online, Inc. ("COL") and Lyric Hughes ("Hughes"), which subsequently was formally entered on the Court's docket on July 29, 2003. (See Docket No. 12). After the judgment was signed, the matter was referred to me to conduct an inquest regarding the damages, if any, to be awarded to plaintiff Kathleen Priest ("Priest"), a former COL employee. (Docket No. 9).
By order dated May 20, 2003, I directed Priest to serve papers setting forth proof of her damages, as well as proposed findings of fact and conclusions of law. (Docket No. 10). The defendants, in turn, were given until July 7, 2003 to file opposition papers, (id.), but have failed to respond.
For the reasons set forth below, I recommend that Priest be awarded damages against COL in the amount of $25,884.94, consisting of unpaid wages in the amount of $13,305, liquidated damages in the amount of $3,326, prejudgment interest in the amount of $1,359.68, attorneys' fees in the amount of $7,636, and $258.26 in costs. I further recommend that no damages be awarded against Hughes.
II. Standard of Review
Following a defendant's default, all well — pleaded allegations concerning issues other than damages must be accepted as true. See Cotton v. Slone. 4 F.3d 176, 181 (2d Cir. 1993); Greyhound Exhibitgroup. Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155, 158 (2d Cir. 1992); Time Warner Cable of New York City v. Barnes. 13 F. Supp.2d 543, 547 (S.D.N.Y. 1998); Cablevision Sys. New York City Corp. v. Lokshin. 980 F. Supp. 107, 111 (E.D.N.Y. 1997).
Additionally, although a plaintiff seeking to recover damages against a defaulting defendant must prove its claim through the submission of evidence, the Court need not hold a hearing as long as (i) it has determined the proper rule for calculating damages on the claim, see Credit Lyonnais Sees. (USA), Inc. v. Alcantara. 183 F.3d 151, 155 (2d Cir. 1999), and (ii) the Plaintiff's evidence establishes, with reasonable certainty, the basis for the damages specified in the default judgment. See Transatlantic Marine Claims Agency. Inc. v. Ace Shipping Corp., 109 F.3d 105, 111 (2d Cir. 1997): Fustok v. ContiCommodity Servs. Inc., 873 F.2d 38, 40 (2d Cir. 1989).
Here, as set forth below, the complaint and other submissions made by Priest are sufficient to determine the damages to which she is entitled.
III. Facts
The undisputed allegations set forth in Priest's complaint establish the following:
COL is a corporation licensed to do business in the State of New York which is headquartered at 900 North Michigan Avenue, Chicago, Illinois. (Compl. ¶ 5). Hughes is the owner and Chief Executive Officer of COL. (Id. ¶ 6). As such, she had "authority over all personnel matters, including hiring and firing." (Id).
In March 1998, Priest began working for COL as a "marketing and media expert" in its Media Business Development Department, where she initially earned a salary of $6,500 per month. (See Id. ¶¶ 7-8; Priest Aff. ¶ 2). In March 2000, her salary was increased to $8,500 per month. (Compl. ¶ 10).
In April 2001, Priest closed a substantial revenue deal for COL which resulted in its receipt of a $250,000 cash deposit. (Id. ¶¶ 12-13). Nevertheless, beginning the following month, COL failed to pay wages to any of its 66 employees. (Id. ¶ 15). For that reason, Priest stopped working for COL on June 1, 2001. (See id. ¶ 16).
In September 2001, COL paid Priest and its other employees fifty percent of their overdue pay. Accordingly, Priest received $7,500 of the $15,000 she was owed. (Id. ¶¶ 17-18). It appears that the balance that Priest was due for this period was eventually paid because she does not seek to recover this sum.
Priest returned to COL's employ in October 2001, under an arrangement by which COL agreed to pay her $1,000 to $3,000 per month for part time work. (Id. ¶ 19). She subsequently agreed to continue working for COL at a salary of $80 per hour. (Priest Aff. ¶ 5). In December 2001, Priest worked a total of 52 hours, entitling her to gross wages in the amount of $4,160, but was paid only $1,646.24, leaving an unpaid balance of approximately $2513. (Id. ¶ 7).
In late 2001 and early 2002, Hughes suggested that Priest move from Santa Fe, New Mexico, to New York City because many of COL's existing and potential future clients were located there and she consequently would have "more work." (Compl. ¶ 20; Priest Aff. ¶¶ 2, 8). Relying on those statements, Priest relocated to New York, incurring approximately $1,600 in moving expenses. (Compl. ¶ 21; Priest Aff. ¶ 9).
On April 10, 2002, Priest was put in charge of COL's Media Business Development team in New York, and Hughes promised to pay her a salary of $7,500 per month in this new position. (Compl. ¶ 23; Priest Aff. ¶ 11). Later that month, however, Priest's paycheck for the month of March failed to clear. (Compl. ¶ 24). When Priest expressed concern, Hughes promised to "take care of [Priest] personally after [her] own children" and promoted her to the position of Vice President of Marketing and Media Business Development. (Id ¶¶ 25-27). Because of Hughes' promise and the promotion she received, Priest decided to remain with COL and did not look for other employment opportunities. (See id. ¶ 28). Nevertheless, Priest was never paid any sums for her work during the period from April 10 through the end of May. (Compl. ¶ 29-30; Priest Aff. ¶¶ 16-20). Unable to continue working without pay, Priest left COL's employ on June 3, 2002. (Compl. ¶ 31; See Priest Aff. ¶ 20).
For her work in April, Priest was entitled to be paid $5,542. (Priest Aff. ¶ 16 Ex. D). For her work in May, Priest was entitled to an additional $5,250. (Id. ¶ 18 Ex. D). On or about July 16, 2002, Priest submitted an invoice to COL seeking to be paid for this work. (Id. Ex. D). Despite that invoice, she has received no payments from COL, nor has COL paid its 33 other employees. (Compl. ¶¶ 32-33; Priest Aff. ¶ 27).
III. Discussion
A. Breach of Contract
A plaintiff seeking to recover on a breach of contract theory must establish (1) the existence of a contract; (2) its performance of the contract; (3) breach by the other party; and (4) damages. Rexnord Holdings. Inc. v. Bidermann. 21 F.3d 522, 525 (2d Cir. 1994); Banda v. Haro. 2003 WL 21639453, at *2 (S.D.N.Y. Jan. 10, 2001). Here, it appears that a contract was formed in March 1998, when Priest agreed to provide services to COL in exchange for a salary. Additionally, Priest has shown that she worked for COL at agreed rates of compensation, but was not paid all of the money she was owed. This is all that Priest must show to establish her breach of contract claim.
Priest is therefore entitled to "the amount necessary to put [her] in the same economic position [s]he would have been in had the defendant[s] fulfilled [the] contract." See Chaman Lal Setia Exports. Ltd, v. Sawhney. 2003 WL 21649652, at *4 (S.D.N.Y. May 28, 2003) (quoting Indu Craft. Inc. v. Bank of Baroda. 47 F.3d 490, 495 (2d Cir. 1995)). In this case, that sum is $13,305, consisting of $2,513 for her work in December 2001, $5,542 for her work in April 2002, and $5,250 for her work in May 2002. There has been no showing, however, that Hughes was Priest's employer or that Hughes is the alter ego of COL. Accordingly, these past due wages are only recoverable against COL.
B. Prejudgment Interest
Priest is also entitled to prejudgment interest. Under the New York Civil Practice and Rules ("CPLR"), a party prevailing in a breach of contract action is entitled to prejudgment interest "as a matter of right." See CPLR §§ 5001, 5002; United States Naval Inst. v. Charter Communications. Inc., 936 F.2d 692, 698 (2d Cir. 1991). CPLR § 5001(b) provides that such prejudgment interest "shall be computed from the earliest ascertainable date the cause of action existed," and, in the event that damages were incurred at various times, "upon each item from the date it was incurred or upon all of the damages from a single reasonable intermediate date." The statutory prejudgment interest rate in a breach of contract action is nine percent per annum. See Chaman Lal Setia Exports. 2003 WL 21649652, at *8 (citing CPLR § 5004).
It appears that Priest was typically paid monthly at the beginning of the following month. Accordingly, her December 2001 pay was due on January 4, 2002, the first weekday of the month. Nevertheless, it appears that for the work performed in April and May 2002, Priest first billed COL on July 16, 2002. (See Priest Aff. Ex. D). She concedes in her inquest papers that this is the date from which prejudgment interest should run for those two months. The prejudgment interest that she is due is therefore $1359.69 (($2,513 × .09/365 × 571 = $353.82) + ($10,792 × .09/365 × 378 = $1,005.87)).
C. Fraud
Under New York law, a plaintiff cannot transmute a garden variety contract claim into a fraud claim. See Saleemi v. Pencom Sys., Inc., 2000 WL 640647, at *4 (S.D.N.Y. May 17, 2000). Accordingly, a fraud action "cannot exist when the fraud claim arises out of the same facts as a beach of contract claim with the sole additional allegation that the defendant never intended to fulfill its express contractual obligations."Turnbull v. Kling, 1999 WL 672561, at *4 (S.D.N.Y. Aug. 26, 1999) (quoting PI. Inc. v. Quality Prods. Inc., 907 F. Supp. 752, 761 (S.D.N.Y. 1995)). On the other hand, an "action for fraud can be maintained on the basis of allegations that a party made a collateral or extraneous misrepresentation that served as an inducement to the contract." Id.
The complaint in this action identifies three allegedly fraudulent statements made by Hughes. First, Hughes allegedly told Priest that she would have more work if she relocated to New York. (Compl. ¶ 20). Second, after Priest moved to New York, Hughes supposedly told her that COL's financial status was viable. (Id. ¶ 23). Third, after the March paycheck bounced, Hughes allegedly stated that she would take care of Priest "personally after [her] own children." (Id. ¶ 26).
In Stewart v. Jackson Nash. 976 F.2d 86 (2d Cir. 1992), an attorney alleged that she had moved from another law firm to Jackson Nash based upon "four misrepresentations: (1) 'Jackson had recently secured a large environmental law client'; (2) 'Jackson was in the process of establishing an environmental law department'; (3) '[she would] head the environmental law department'; and (4) '[she would] be expected to service the firm's substantial existing environmental law client.'"Id. at 89. The Second Circuit found that misrepresentations (1) and (2) stated a viable fraud in the inducement claim because they related to "present fact," rather than constituting "'promissory statement[s] as to what will be done in the future,' which give rise only to a breach of contract claim." Id. (citing Deerfield Commun. v. Chesebrough-Pond's. 68 N.Y.2d 954 (1986)) (quoting Citibank v. Plapinger. 66 N.Y.2d 90 (1985)). The court further held that misrepresentation (3) gave rise to a potential fraud claim because the plaintiff asserted that Jackson Nash knew its promise was false at the time it was made, which made it an assertion of present fact. Id. Finally, the court concluded that to the extent misrepresentation (4) did not overlap with misrepresentation (1), it was "a future promise and would not be actionable." Id. at 90.
Here, the statement that Priest would have more work if she moved to New York is a forward-looking statement which cannot be the basis of a fraud claim in the absence of any allegation that it was false when made. The second statement, to the effect that COL was financially sound, is a statement of present fact which the complaint alleges was false when made. The difficulty that Priest faces, however, is that she had already moved to New York at the time it was made. As a consequence, even if Priest relied on this statement by not seeking alternative employment, the alleged misrepresentation is not "collateral or extraneous" to her employment contract. Accordingly, this statement cannot give rise to a separate fraud or fraud in the inducement claim.
Finally, Hughes' statement that she would take care of Priest "personally after [her] own children" is plainly a promise of future performance. Priest's complaint also fails to allege that Hughes had no intent to perform when she made the promise. For these reasons, Hughes' promise of payment is not a basis for bringing a separate fraudulent inducement claim.
Priest therefore is not entitled to any additional damages on her fraud in the inducement claim.
D. Liquidated Damages
Priest also seeks to recover liquidated damages under the New York Labor Law. Section 191(1)(c) of the Labor Law provides that workers such as Ms. Priest must be paid their wages "in accordance with the agreed terms of employment, but not less frequently than once in each month and not later than the last day of the month following the month in which they are earned." N.Y. Lab. Law § 191(1)(c) (McKinney 2002). Section 198 of the Labor Law sets forth the consequences of an employer failing to compensate an employee:
In any action instituted upon a wage claim by an employee or the commissioner in which the employee prevails, the court shall allow such employee reasonable attorney's fees and, upon a finding that the employer's failure to pay the wage required by this article was willful, an additional amount as liquidated damages equal to twenty-five percent of the total amount of the wages to be due.
N.Y. Lab. Law § 198(1)(a) (McKinney 2002).
Here, although Priest was paid as an independent contractor, her complaint sets forth facts which confirm that she was, in fact, a COL employee. (Compl. ¶¶ 4, 8). Additionally, her complaint alleges that COL's failure to pay her was willful. (Id. ¶ 41). This allegation must be accepted as true in light of the default judgment. Accordingly, Ms. Priest is entitled to recover liquidated damages from COL in the amount of $3,326.25 ($13,305 ($2,513 + $5,542 + $5,250)× .25).
E. Attorneys' Fees
Under Sections 198 and 663 of the New York Labor Law, a prevailing plaintiff is entitled to recover her reasonable attorneys' fees. In this case, Priest alleges that she incurred attorneys' fees in the amount of $7,636 for 29.24 hours of time expended on this action. (Shen Affirm. ¶¶ 4, 7, 8).
Second Circuit precedent requires that a party seeking an award of attorneys' fees support that request with contemporaneous time records that show "for each attorney, the date, the hours expended, and the nature of the work done." New York State Ass'n for Retarded Children. Inc. v. Carey. 711 F.2d 1136, 1154 (2d Cir. 1983). Fee applications that do not contain such supporting data "should normally be disallowed." Id.See also Kingvision Pay-Per-View. Ltd, v. The Body Shop. 2002 WL 393091, at *5 (S.D.N.Y. Mar. 13, 2002) (denying attorneys' fees because, even though requested amount of $1,000 was reasonable, required details were not provided).
When fixing a reasonable rate for attorneys' fees, a court may consider and apply prevailing market rates "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)). Moreover, a court may rely on its own knowledge of private firm hourly rates in estimating reasonable attorneys' fees. Miele v. New York State Teamsters Conference Pension and Ret. Fund. 831 F.2d 407, 409 (2d Cir. 1987).
In this case, Michael Shen, a partner at Michael Shen Associates P.C., with twenty years of experience in employment law, billed approximately 10.5 hours at an hourly rate of $325. (Shen Affirm. ¶¶ 3-6 Ex. F). Laura Goldberg, an associate at his firm with about four years of litigation experience, billed approximately 18.5 hours at a rate of $225 per hour. (Id. ¶ 7 Ex. F). I find that these rates are reasonable for lawyers with similar experience practicing at firms of comparable size. Additionally, having reviewed the detailed time entries, I find that the time expended on this matter was reasonable. Priest is therefore entitled to recover attorneys' fees in the amount of $7,636.
F. Costs
Ms. Priest also seeks to recover $258.26 in costs, consisting of $95 for process service, the $150 fee for filing the summons and complaint, and $13.26 for sending a certified letter to the defendants. (Goldberg Affirm. Ex. G). These items are properly taxable as costs.
V. Conclusion
For the reasons set forth above, I recommend that Priest be awarded damages in the amount of $25,884.94 against Defendant China Online, Inc., and no damages against Defendant Lyric Hughes.
VI. Notice of Procedure for Filing of Objections to this Report and Recommendation
The parties are hereby directed that if they have any objections to this Report and Recommendation, they must, within ten (10) days from today, make them in writing, file them with the Clerk of the Court, and send copies to the chambers of the Honorable Judge Richard Conway Casey, United States District Judge, at the United States Courthouse, 500 Pearl Street, New York, New York, 10007, and to the chambers of the undersigned, at the United States Courthouse, 500 Pearl Street, New York, New York, 10007, and to any opposing parties. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6(a), 6(e), 72(b). Any requests for an extension of time for filing objections must be directed to Judge Casey. Any failure to file timely objections will result in a waiver of those objections for the purposes of appeal. See Thomas v. Arn. 474 U.S. 140 (1985); 28 U.S.C. § 636 (b)(1); Fed.R.Civ.P. 6(a), 6(e), 72(b).