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awarding pretrial, prejudgment interest on a fraudulent conveyance claim, but noting that the court could only find one other case (In re Cardon Realty Corp., 146 B.R. 72, 81 (Bankr. W.D.N.Y. 1992)) that had done so
Summary of this case from U.S. v. MazzeoOpinion
95 Civ. 9818 (RWS)
January 10, 2001
Steven G. Storch, Esq., Janis Ettinger, Esq., Lita Beth Torres, Esq., New York, NY, Attorney for Plaintiff.
Douglas J. Good, Esq., Christine McInerney, Esq., Mineola, NY, Elliot L. Schaeffer, Esq., Lance N. Olitt, Esq., New York, NY, Attorney for Defendants.
OPINION
Plaintiff Robert Shamis ("Shamis"), as assignee of Wishbone Trading Company Limited ("Wishbone"), has moved pursuant to Rule 59(e) or 60(b) to amend the October 24, 2000 judgment (1) to include prejudgment interest against defendants Ambassador Factors Corporation d/b/a Ambassador Factors, a division of Finova Capital Corporation ("Ambassador"), S. Roberts, Inc. ("S. Roberts"), Jay Vee, Inc. ("Jay Vee"), and Nathan Korman a/k/a Lawrence Korman ("Korman"), (collectively, "defendants"); (2) to reflect the amount of punitive damages awarded against the defendants in this Court's opinion of September 21, 2000; and (3) to amend the caption to delete reference to defendant Mahoney Cohen Company, C.P.A., P.C. f/k/a Mahoney Cohen Rashba Pockart Company, P.C. ("Mahoney Cohen"), who settled with Shamis before judgment was entered. Ambassador, joined by the remaining defendants, opposes the motion on the grounds that it is untimely, and, in the alternative, challenges the proposed date on which interest should be awarded. In addition, Ambassador opposes the motion to amend the caption, and takes no position on the recalculation of interest or punitive damages as to the other defendants.
For the reasons set forth below, the motion is granted in part and denied in part.
The Parties
Plaintiff Shamis is a citizen of Israel and a British national, and at all times relevant to this action, was a shareholder, officer and director of Wishbone. Shamis is Wishbone's assignee.
Wishbone was a Hong Kong-based apparel exporter that shipped goods primarily to the United States. In December 1993, Wishbone was placed in receivership and ultimately liquidated in accordance with Hong Kong law.
Defendant S. Roberts is a bankrupt New York-based wholesale distributor of women's dresses.
Defendant Jay Vee is a successor corporate entity of S. Roberts.
Defendant Korman was an officer and a 60% stockholder of S. Roberts.
Defendant Ambassador is a Rhode Island corporation that provides account receivable factoring services between importers and distributors in the garment industry.
Defendant Mahoney Cohen is a New York-based accounting company that performs private and public accounting, as well as related consulting and auditing services.
Prior Proceedings
The prior proceedings of this action are set forth in the prior opinions of the Court, familiarity with which is assumed. See Shamis v. Ambassador Factors Corp., No. 95 Civ. 9818 (RWS), 2000 WL 1368049 (S.D.N.Y. Sept. 21, 2000) ("Shamis VI"); Shamis v. Ambassador Factors Corp., 187 F.R.D. 148 (S.D.N.Y. 1999) ("Shamis V"); Shamis v. Ambassador Factors Corp., 34 F. Supp.2d 879 (S.D.N.Y. 1999) ("Shamis IV"); Shamis v. Ambassador Factors Corp., No. 95 Civ. 9818, 1998 WL 75828 (S.D.N.Y. Feb. 20, 1998) ("Shamis III"); Shamis v. Ambassador Factors Corp., No. 95 Civ. 9818, 1997 WL 473577 (S.D.N.Y. Aug. 18, 1997) ("Shamis II"); Shamis v. Ambassador Factors Corp., No. 95 Civ. 9818, 1996 WL 457320 (S.D.N.Y. Aug. 14, 1996) ("Shamis I"). Proceedings relevant to the instant motions are set forth below.
After a jury trial, a verdict was rendered on May 1, 2000, awarding damages as follows: $7.2 million on the common law fraud claim, with S. Roberts, Korman, Ambassador, and Mahoney Cohen each responsible for 25%; $2 million on the breach of contract claim, with S. Roberts and Ambassador each responsible for 50%; $3 million on the accounting malpractice claim against Mahoney Cohen; $3 million on the negligent misrepresentation claim against Mahoney Cohen; $2,656,551 on the fraudulent conveyance claim, with S. Roberts and Jay Vee responsible for 33% each, and Korman responsible for 34%; $5.1 million on the goods sold and delivered claim against S. Roberts; and $10 million in punitive damages, apportioned as follows: S. Roberts, 10%; Jay Vee, 10%, Korman, 10%, Mahoney Cohen, 35%, Ambassador, 35%.
On September 21, 2000, this Court granted in part defendants' motion for judgment as a matter of law, and set aside the jury's finding of liability on the common law fraud claim. Shamis VI, 1998 WL 75828. The opinion calculated that the jury's total $10 million punitive damage award should be remitted to $2,661,268.77, by reducing the total punitive damage award by 73%, the percentage of the total compensatory fraud damage award represented by the common law fraud claim. Id. at *22. Furthermore, the opinion calculated that each defendant found liable for the remaining fraud claim, fraudulent conveyance, should share equal responsibility, or $887,089.59, for the punitive damage liability. Id. The parties were invited to submit proposed settlements.
The parties suggested several modifications of the abovementioned calculations in letter briefs submitted in support of their proposed settlements. Shamis, obviously concerned with the defendants' ability to pay such large awards, argued in a September 25, 2000 submission that it should recover a total of $5.1 million in compensatory damages, and that liability should be apportioned jointly and severally among the defendants up to the amount awarded by the jury against each defendant on each claim, to ensure that Shamis could collect the total award. Shamis proposed splitting the punitive damage award between S. Roberts, Jay Vee, and Korman ("the S. Roberts defendants") as per the September 21, 2000 opinion, in addition to post-judgment interest.
In its September 27, 2000 submission in support of its cross-notice of settlement, the S. Roberts defendants noted that the September 21, 2000 opinion neglected to account for the fact that the jury found Mahoney Cohen to have been liable for 35% of the punitive award. In addition, these defendants contested what they construed as Shamis's attempt to hold Jay Vee and Korman liable for the $5.1 million goods sold and delivered verdict, for which only S. Roberts was found liable by the jury. Finally, the S. Roberts defendants submitted that the $2,656,551.00 fraudulent conveyance award against S. Roberts, Korman, and Ambassador was duplicative of the $2 million breach of contract award the jury issued against S. Roberts and Ambassador.
Ambassador, contending that it owed Shamis no payment if Mahoney Cohen's settlement with Shamis equaled the total reduced compensatory damage award of $5.1 million, moved that the settlement terms be disclosed. In the alternative, Ambassador joined the S. Roberts defendants in proposing to reduce the total damage award by the percentage of fault that would have been borne by Mahoney Cohen but for the settlement. In addition, Ambassador objected to Shamis's proposed imposition of joint and several liability.
Shamis and Ambassador responded to each other's proposals and reiterated their positions in letters subsequently submitted to the Court. On October 27, 2000, the Court issued a judgment that comported with the September 21, 2000 opinion in all respects, except that (1) joint and several liability was imposed against the S. Roberts defendants for the fraudulent conveyance award; and (2) the punitive damages assessed against the S. Roberts defendants were reduced by 35% to reflect Mahoney Cohen's share of responsibility, as ascertained by the jury. Oct. 27, 2000 Judgment at ¶ 3. Due to some unfortunately ***inartful phrasing, however, the joint and several liability was not also applied to the punitive damage award, which instead apportioned equal responsibility among the S. Roberts defendants as in the September 21, 2000 opinion.
On November 15, 2000, Shamis moved pursuant to Rule 59(e) or 60(b), Fed.R.Civ.P., (1) to amend the October 27, 2000 judgment to include prejudgment interest against all defendants; (2) to correct the judgment to reflect punitive damages as per the September 21, 2000 opinion; and (3) to amend the caption to reflect that Mahoney Cohen was no longer a party to the action. Shamis proposed a prejudgment interest award as of November 20, 1989, for the contract-based claims, and as of July 1, 1991, for the fraudulent conveyance claim. Ambassador filed a response brief on November 30, 2000, arguinq that Shamis's motion was untimely; suggesting that if prejudgment interest were assessed, it should be awarded from no earlier than December 15, 1992, or April 1994; and opposing the motion to amend the caption. Korman filed an opposition brief on December 12, 2000, echoing Ambassador's opposition, opposing any award of prejudgment interest against it on the fraudulent conveyance claim, and opposing any amendment to the punitive damage award. Shamis filed a reply brief and declaration on December 13, 2000, and oral argument was heard the same day, whereupon the motion was deemed fully submitted. Shamis withdrew the motion to amend the caption on the record during oral argument.
Discussion I. Timeliness of Motion
As a preliminary matter, the timeliness of the motion must be addressed. Shamis served the motion upon the defendants on November 14, 2000, but did not file it until November 15, 2000, eleven business days after judgment was entered. Rule 59(e) requires that "[a]ny motion to alter or amend a judgment shall be filed no later than 10 days after entry of the judgment." Fed.R.Civ.P. 59(e). Shamis contends that he mistakenly believed that service was sufficient to satisfy the 10-day period under Rule 59(e), and notes that the Rule was "recently" amended to move from a service" rule to a "filing" rule. See Fed.R.Civ.P. 59 (e), Adv. Comm. Notes, 1995 Amendments. District courts have no discretion to waive the 10-day time limit pursuant to Rule 59(e).
Rule 6(a) of the Federal Rules of Civil Procedure provides that weekends and "legal holiday[s]" shall be excluded from the computation of time for periods less than eleven days. Rule 6(a) enumerates Veteran's Day (November 10, 2000) as a legal federal holiday. In addition, Rule 6 (a) provides that "any other day appointed as a holiday by the President or the Congress of the United States, or by the state in which the district court is held," shall be excluded from computation. Although this Court was open for business on Election Day, November 7, 2000, New York statute renders it a legal holiday. N.Y. Civ. Serv. App. § 21.1 (b) (West 2000) ("The days prescribed by law for the observance of . . . Election Day . . . shall be observed as [a] holiday . . . ."). Therefore, the Rule 59(e) motion would have been timely if filed on November 14, 2000, but was one day late.
However, the defendants have been on notice since the filing of each version of the complaint that Shamis sought to collect prejudgment interest on any eventual award. This intention was memorialized again in the amended joint pretrial order endorsed at the April 6, 2000 final pretrial conference days before trial began. Shamis also addressed the issue of prejudgment interest during the trial, when he admitted Exhibit 247, a printout from the Federal Reserve Web site listing the prime rate for relevant dates, in support of the prejudgment interest component of its case. Finally, immediately following the jury charge, Shamis clarified that he had not waived the issue of prejudgment interest, and the Court agreed that the subject would be dealt with at a later date.
Given that all parties have been on notice of Shamis's intention to seek prejudgment interest since the trial, in light of the long and complex litigation that has preceded this opinion and the fact that Shamis raised both Rules 50(e) and 60 as grounds for the motion, justice requires that Shamis be permitted to raise the question of prejudgment interest in the instant motion, pursuant to Fed.R.Civ.P. 60(b). See United States v. Clark, 984 F.2d 31, 33 (2d Cir. 1993) (post-trial motions filed after the ten-day period specified in Rule 59(e) may properly be considered as motions for relief pursuant to Rule 60(b)). Rule 60(b) provides: "On motion and upon such terms as are just, the court may relieve a party or a party's legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect. . . ."
The question of the appropriate apportionment of the punitive damage award will also be reconsidered here, pursuant to Rule 60(a), so that the Court may rectify the discrepancy in the October 27, 2000 judgment between the imposition of joint and several liability on the fraud claim and equal division of punitive damages.
This Court retains jurisdiction to entertain a Rule 60 motion notwithstanding the fact that the parties have filed appeals of the September 21, 2000 verdict and the October 27, 2000 judgment. Rule 60(b) grants district courts jurisdiction to correct inadvertent errors in judgments upon motion filed "within a reasonable time," within one year of judgment. Fed.R.Civ.P. 60(b). Rule 4 of the Rules of Appellate Procedure provides that a notice of appeal filed after judgment is entered but before posttrial motions have been decided does not become effective until "the order disposing of the last such remaining motion is entered." Fed.R.App.P. 4(a)(4)(B)(i). Although the filing of an appeal generally divests district courts of jurisdiction over "those aspects of the case involved in the appeal," Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 58, 103 S.Ct. 400, 74 L.Ed.2d 225 (1982), district courts, which are better suited than appeals courts to address post-trial motions, retain jurisdiction over 60(b) motions, see Stone v. I.N.S., 514 U.S. 386, 401-02, 115 S. Ct. 1537, 1547-48, 131 L.Ed.2d 465 (1995) ("the pendency of an appeal does not affect the district court's power to grant Rule 60 relief . . . Either before or after filing his appeal, the litigant may also file a Rule 60(b) motion for relief with the district court."); Standard Oil Co. of California v. United States, 429 U.S. 17, 19, 97 S.Ct. 31, 50 L.Ed.2d 21 (1976) ("the trial court is in a much better position to pass upon the issues presented in a motion pursuant to Rule 60(b).").
Therefore, this Court retains jurisdiction over the instant application, construed as a motion pursuant to Rule 60(b). See Fobian v. Storage Technology Corp., 164 F.3d 887, 888 (4th Cir. 1999) (finding that district court retained jurisdiction over 60(b) motion filed just under one year from date of judgment despite intervening filing of appeal).
II. Prejudgment Interest on Compensatory Damages
Shamis moves for an award of interest on compensatory contract damages as of November 20, 1989, the date on which the contract was entered and the earliest date on which they contend their causes of action accrued, because he contends that the defendants entered the contract with no intention of performing. See Shamis Mem. at 4. New York law governs any such award in this diversity case. See Baker v. Dorfman, No. 1351, Docket No. 99-7528, 2000 WL 1233349, *8 (2d Cir. Sept. 1, 2000). In addition, Shamis proposes that prejudgment interest should be awarded on the fraudulent conveyance award as of July 1, 1991, the date of the transfer of S. Roberts inventory to Jay Vee.
A. Claims Meriting the Assessment of Prejudqment Interest
Shamis contends that he should receive prejudgment interest on the compensatory damages awarded for the breach of contract, goods sold and delivered, and fraudulent conveyance claims. Under New York law, "prejudgment interest is normally recoverable as a matter of right in an action at law for breach of contract." Graham v. James, 144 F.3d 229, 239 (2d Cir. 1998) (quoting Adams v. Lindblad Travel, Inc., 730 F.2d 89, 93 (2d Cir. 1984) (internal quotations omitted). New York's Civil Practice Law and Rules ("C.P.L.R.") § 5001 provide that "[i]nterest shall be recovered upon a sum awarded because of a breach of performance of a contract, or because of an act or omission depriving or otherwise interfering with title to or possession or enjoyment of property." N Y C.P.L.R. § 5001(a) (McKinney 2000). Therefore, the damages awarded for breach of contract and goods sold and delivered are both subject to the imposition of prejudgment interest at the statutory rate. See, e.g.,Graham, 144 F.3d at 239 (breach of contract); Valley Juice Ltd., Inc. v. Evian Waters of France, Inc., 87 F.3d 604, 614 (2d Cir. 1996) (imposing prejudgment interest on goods sold and delivered verdict pursuant to § 5001); Reforestacion Cafetalera Agro-Industrial S.A. v. Campesino Food Corp., No. 97 CIV. 5553 (RCC), 1999 WL 4964, *4 (S.D.N.Y. Jan. 6, 1999) (same). The mandatory imposition of prejudgment interest for these damage awards is appropriate, in the words of Judge Cardozo, because "[w]hile the dispute as to value was going on, the defendant had the benefit of the money, and the plaintiff was without it. Interest must be added if we are to make the plaintiff whole. . . . Interest is now held to be an incident of 'just compensation.'" Prager v. New Jersey Fidelity Plate Glass Ins. Co., 245 N.Y. 1, 5-6, 156 N.E. 76, 77 (1927).
Shamis properly recognizes that the punitive damage awards are not subject to the assessment of prejudgment interest under New York law. See Baker, 2000 WL 1233349, at *12 n. 5.
However, prejudgment interest is not limited solely to contract actions. Courts interpreting § 5001 "have without qualification awarded interest as a matter of right whenever any tortious conduct causes pecuniary damage to tangible or intangible property interests."Baker, 2000 WL 1233349, at *9 (quoting Mallis v. Bankers Trust Co., 717 F.2d 683, 692 n. 13 (2d Cir. 1983)) (emphasis added). Shamis contends that the fraudulent conveyance award also falls under this rule, because the jury found that the S. Roberts defendants' tortious conduct damaged the inventory Wishbone supplied, its credit lines, and its business as a whole. (Pltf. Mem. at 7.) Although N.Y. C.P.L.R. § 5002 requires the imposition of interest between the verdict and entry of final judgment,see Kovler v. Kovler, 253 B.R. 592, 603 (Bankr. S.D.N Y 2000), a search of cases applying § 5001 yielded only one case in which a court has imposed pretrial, prejudgment interest on a fraudulent conveyance award.Cardon Realty Corp. v. Singleton, 146 B.R. 71, 81 (Bankr. W.D.N.Y. 1992).
Despite the lack of authority on this particular type of fraud, fraudulent conveyance is but one species of tortious conduct for which the Second Circuit has held that prejudgment interest is recoverable.See also Lewis v. S.L. E., Inc., 831 F.2d 37; 38 (2d Cir. 1987) (defendant required to pay prejudgment interest as a matter of right on amount awarded to remedy waste of corporate assets); Quintel Corp. v. Citibank, N.A., 606 F. Supp. 898, 913 (S.D.N.Y. 1985) (prejudgment interest awarded as matter of right in common law fraud case). InMallis, the Court noted that even before the enactment of § 5001, prevailing plaintiffs had a right to prejudgment interest on awards for intentional torts for interference with property rights. Because § 5001 was intended to "'expand the right to interest in property damage actions,'" the Mallis Court held that a common law fraud award was encompassed by § 5001(a). 717 F.2d at 694 (quoting DeLong Corporation v. Morrison-Knudsen Co., 14 N.Y.2d 346, 349, 251 N.Y.S.2d 657, 200 N.E.2d 557 (N.Y. 1964)). As the fraudulent conveyance the jury found the S. Roberts defendants to have committed was a tortious act that interfered with Wishbone's inventory, credit and reputation, prejudgment interest will appropriately be assessed for that award pursuant to § 5001(a).
B. Date From Which Prejudgment Interest Will Be Assessed
Interest must be computed from "the earliest ascertainable date the cause of action existed," N.Y. C.P.L.R. § 5001(b) (McKinney 2000), at the statutory rate of nine percent per year, N.Y. C.P.L.R. § 5004 (McKinney 2000). If the damages were incurred on various dates, district courts in their discretion may impose interest from a reasonable intermediate date. N.Y. C.P.L.R. § 5001(b), (c) (McKinney 2000);see Marfia v. T.C. Ziraat Bankasi, 147 F.3d 83, 91 (2d Cir. 1998) (citing 155 Henry Owners Corp. v. Loylyn Realty Co., 231 A.D.2d 559, 647 N.Y.S.2d 30, 32 (N.Y.App.Div. 199 6).
1. Contract and Goods Sold and Delivered Awards
The jury was not asked to return a verdict as to when the breach of contract and goods sold and delivered claims accrued. Shamis contends that because the defendants entered into the contract with no intent to perform, it was breached immediately, and prejudgment interest should be imposed as of the contract date, November 20, 1989. However, as discussed in more depth in the September 21, 2000 opinion, the jury could reasonably have inferred that these causes of action accrued at any number of moments: when (1) 5. Roberts failed to submit proofs of delivery to Wishbone in violation of the Master Agreement; (2) 5. Roberts transferred its inventory to Jay Vee for factoring and thereby defeated Wishbone's "first and prior security interest" under the Master Agreement, the Assignment of Factoring Proceeds Agreement ("AFP"), and the Security Agreement, as well as its promises not to transfer collateral or to direct a third party to transfer do so without Wishbone's prior written consent; (3) Ambassador failed to pay Wishbone a percentage of monies due pursuant to the AFP when Ambassador began to factor S. Roberts inventory through Jay Vee; or when (4) Ambassador learned of, and failed to disclose, material information regarding adverse influences on Wishbone's security interest in S. Roberts inventory, such as S. Roberts's prebilling, mounting chargeback levels, and factoring through Jay Vee. See Shamis VI, 2000 WL 1368049, at *2-*11, 17-*19.
In light of the multitude of theories under which the jury could have arrived at its verdict on these claims, the Court will exercise its discretion pursuant to § 5001(b) to set a reasonable intermediate date between the time the contract was entered and the time this action was filed, from which prejudgment interest shall be imposed. The contract was entered on November 20, 1989, and the earliest act that could be construed as a breach was the S. Roberts's failure to remit the first monthly financial statements as per the Master Agreement, and when Ambassador failed to notify Wishbone about S. Roberts's increasing chargeback rate during the same time period. Choosing a median date between the two poles represented by the earliest breach of contract and the date this action was filed, prejudgment interest on the breach of contract and goods sold and delivered awards will be assessed from Friday, November 20, 1992. 2. Fraudulent Conveyance Award
This date coincidentally approximates Ambassador's suggested date, December 15, 1992, which is a median between July, 1991 and April 1994, the period during which the Ambassador/Jay Vee factoring relationship was active.
S. Roberts transferred all its assets to Jay Vee in July of 1991 in a fraudulent conveyance that defeated Wishbone's security interest. Because Jay Vee was formed on July 1, 1991, for the purpose of taking over S. Roberts's business, that is the earliest ascertainable date on which the cause of action for fraudulent conveyance accrued. Prejudgment interest shall be assessed on the fraudulent conveyance award at the statutory rate from July 1, 1991.
III. Joint and Several Liability for the Fraud
Korman objects to the imposition of joint and several liability among the defendants for the fraudulent conveyance. Based upon the parties' submissions after the September 21, 2000 opinion, and in light of the concerted conduct taken by them, the Court deemed joint and several liability between the S. Roberts defendants to be appropriate and so held in the October 27, 2000 judgment. However, upon reconsideration pursuant to this motion, there is a dearth of legal support for the imposition of joint and several liability between transferors and transferees in a fraudulent conveyance. See, e.g., In re Eric J. Blatstein, 244 B.R. 290, 301 (Bankr. E.D. Pa. Jan. 21, 2000) (noting trustee's inability to locate any authority imposing joint and several liability on the transferor and transferee of a fraudulent conveyance); Cardon Realty, 146 B.R. at 81 (declining to impose joint and several liability in fraudulent conveyance case brought under state and federal laws, because "Plaintiff has not provided and the Court has not found any authority for such relief on these causes of action.").
Therefore, the ¶ 3 of the judgment will be amended to delete reference to joint and several liability among the S. Roberts defendants for the fraudulent conveyance claim, and corresponding punitive damages.
IV. Punitive Damage Award
Finally, Shamis moves to correct the apportionment of the punitive damage award as assessed in the judgment to conform with that calculated in the September 21, 2000 opinion on the grounds that the judgment apportionment was "clearly the result of mistake or oversight." (Shamis Mem. at 9.)
Shamis's contention is only partially true. As set forth above, the Court considered the parties' applications before entering judgment pursuant to the September 21, 2000 opinion. Finding meritorious the position that the punitive damage award must be reduced to account for the share of fault the jury allocated to Mahoney Cohen, the Court reduced the $2,656,551 from the opinion by 35%, arriving at a total of $1,729,824.70 in punitive damages due. However, rather than carrying the joint and several liability from the fraudulent conveyance award into the corresponding punitive damage award, the judgment apportioned "equal responsibility" for the punitive damages, or $576,608.23 for each of the three S. Roberts defendants as per the jury's findings. In light of Section III, supra, this figure will remain in effect.
Conclusion
For the foregoing reasons, the October 27, 2000 judgment shall be amended in the First Amended Judgment to impose (1) prejudgment interest on the $2 million contract and $5.1 million goods sold and delivered claims from November 20, 1992 at the statutory rate; (2) prejudgment interest on the $2,656,551 fraudulent conveyance claim from July 1, 1991 at the statutory rate; (3) $576,608.23 against each of the three S. Roberts defendants in punitive damages. Joint and several liability shall not be imposed for either the compensatory or punitive damages corresponding to the fraudulent conveyance award.
It is so ordered.