Opinion
93 Civ. 6084 (BSJ), 93 Civ. 6083 (BSJ)
June 5, 2001
MEMORANDUM OPINION
After trial resulting in a jury verdict for plaintiffs Global Fur Canada Ltd. and J.K. Walkden Ltd., defendant Lord Taylor has moved pursuant to Fed.R.Civ.P. 59(a) and 59(e) for a new trial or in the alternative for an amended judgment. Lord Taylor asserts four grounds for its motion: (1) the jury's finding that commissions deducted by Lord Taylor from third-party Furrari's fur sales proceeds were not ordinary course deductions was contrary to the weight of the evidence; (2) the jury's finding that Lord Taylor on September 1, 1990 possessed $671,622 in fur sales proceeds derived from the sale of Global furs was contrary to the weight of the evidence; (3) the Court erred in excluding plaintiffs' exhibit 170 from evidence, and (4) the Court erred when it failed to include in the jury verdict sheet a question asking whether plaintiffs had waived their security interest.
The standard on a motion for a new trial is strict. A district court may in its discretion grant a new trial only when it is convinced that the jury's verdict was so seriously erroneous as to constitute a miscarriage of justice. See Sharkey v. Lasmo (Aul Ltd.), 55 F. Supp.2d 279 (S.D.N.Y. 1999), aff'd 214 F.3d 371 (2d Cir. 2000) In deciding such a motion,
[t]he trial judge, exercising a mature judicial discretion, should view the verdict in the overall setting of the trial; consider the character of the evidence and the complexity or simplicity of the legal principles which the jury was bound to apply to the facts; and abstain from interfering with the verdict unless it is quite clear that the jury has reached a seriously erroneous result. The judge's duty is essentially to see that there is no miscarriage of justice. If convinced that there has been then it is his duty to set the verdict aside; otherwise not.Bevevino v. Saydjari, 574 F.2d 676, 684 (2d Cir. 1978) . The party requesting a new trial must prove that "the evidence is so one-sided and contrary to the jury's verdict that there is only one reasonable conclusion as to the proper judgment." Dailey v. Societe Generale, 108 F.3d 451, 459 n. 2 (2d Cir. 1997). Lord Taylor has not demonstrated that the jury's verdict was so seriously erroneous as to constitute a miscarriage of justice, and for the reasons set forth below its motion is denied.
I. The Licensing Fees
Lord Taylor first argues that the jury's determination that its deduction of license fees from Furrari's fur sales proceeds was not made in the ordinary course of business was contrary to the weight of the evidence presented at trial.
Witness testimony from both plaintiffs and defendant established that throughout the parties' relationship, Furrari agreed to pay Lord Taylor a percentage of its fur sales proceeds to cover its rent obligation. However, plaintiffs elicited testimony at trial, particularly from Mary Stanisci, the accountant at Lord Taylor responsible for the Furrari account, that Lord Taylor sometimes deferred receipt of the license fees and that the timing and the consistency of the deductions was irregular. For example, Ms. Stanisci's testimony demonstrated that in 1989, Lord Taylor deferred payment of all of Furrari's expenses during the winter months and agreed to be paid in March. Ms. Stanisci testified at length that Lord Taylor during this time period created reports called DUNS reports which contained a column headed "prior balance." Plaintiffs accordingly argued that the license fees were removed from the ordinary course of business by virtue of the fact that when they were later deducted they were by necessity deducted in order to satisfy an antecedent debt. The jury was specifically instructed, in determining whether Lord Taylor's deductions were made in the ordinary course of business:
In considering what is routine, you may consider such factors as size, frequency, whether Furrari received value in return and whether the payment was on a debt overdue, due, or not yet due. Payments for pre-existing debts and future liabilities may be inferior to the security interest of secured parties and may not be Payments in the ordinary course.
Tr. at 1198 (emphasis added). Accordingly, the jury could reasonably have found, in conformance with the charge and in light of Ms. Stanisci's testimony, that Lord Taylor's deduction of license fees was outside the ordinary course of business because Lord Taylor's deferred license fee deductions were made to satisfy an antecedent debt.
Lord Taylor contends, however, that
it was inconsistent for the jury to have not allowed a deduction for license fees once it found that Lord Taylor had met the threshold requirements for ordinary course business deductions (i.e. no lack of good faith and lack of knowledge of plaintiffs' security agreements.)
Def.'s Reply Memo, at 4. As an initial matter, it is unclear whether the jury found that Lord Taylor's license fee deductions were made in good faith and without knowlege of prejudice to the plaintiffs. Lord Taylor presumes that the jury so found because it found that some of Lord Taylor's other deductions, for example those for American Express credit card fees, were within the ordinary course and therefore were made in good faith, and that therefore that finding of good faith applies equally to all of Lord Taylor's deductions. However, even if the jury found that Lord Taylor acted in good faith, the jury's finding that some deductions were within the ordinary course of business but the license fee deductions were outside the ordinary course of business is neither internally inconsistent nor inconsistent with the jury charge.
The charge makes clear that in order to prove the ordinary course of business affirmative defense, Lord Taylor had the burden of demonstrating that the deductions were made in good faith and that they were routine. The Court instructed the jury that it "should consider whether the payments were received in accordance with pre-existing and established procedures. You should consider whether the payments were made in the routine operation of the debtor's business." Tr. at 1198. If the jury found that Lord Taylor's deductions were taken in bad faith, the deductions would have been outside the ordinary course of business no matter how routine, and Lord Taylor's ordinary course defense would have failed at the threshold. However, if Lord Taylor convinced the jury that it acted in good faith, only the threshold aspect of Lord Taylor's burden was satisfied. In order to prevail on its ordinary course defense, Lord Taylor also had to demonstrate that the deductions were routine.
Because the jury could have found that the license fee deductions were taken in good faith but were taken in an irregular manner with respect to their amount and timing, and because the jury could also have found that the American Express fees were taken in good faith and in a regular manner, the jury's special verdict disallowing Lord Taylor's deductions for license fees can be easily reconciled with its special verdict permitting Lord Taylor's deductions for American Express fees. See Brooks v. Brattleboro Mem'l Hosp., 958 F.2d 525, 529 (2d Cir. 1992) (if there exists a reading that would reconcile arguably contradictory special verdicts, a court should adopt that reading); Auwood v. Harry Brandt Booking Office. Inc., 850 F.2d 884, 891 (2d Cir. 1988) (same) . The Court adopts this reading of the jury's special verdicts; defendant's motion on this ground is denied.
II. The Amount of Proceeds Held
Lord Taylor next argues that the jury's determination that Lord Taylor possessed $671,622 in proceeds from sales of Global furs at Lord Taylor on or after September 1, 1990 was erroneous. Lord Taylor claims that the jury's calculation was based on a flawed methodology presented by plaintiffs' attorneys. See Def.'s Memo. at 12.
Plaintiffs arrived at the $671, 622 figure by multiplying the total amount of Furrari fur sales proceeds at Lord Taylor during the relevant time period ($3,198,002) by 21 percent, the percentage of sales attributable to furs provided to Furrari by plaintiff Global. See id. at 11, Tr. at 1176. Presumably adopting this methodology, the jury found that on September 1, 1990, Lord Taylor possessed $671, 622 from the sale of Global Furs. See Exh. B to Pl.'s Memo. Lord Taylor argues that the methodology provided by plaintiffs' counsel was flawed (1) because it is an unacceptable method of tracing sales proceeds and (2) because it failed to account for the fact that Lord Taylor had repaid Furrari in part. Neither argument is persuasive.
First, plaintiffs' method of tracing proceeds is not flawed and has been previously endorsed, most notably by the First Circuit. See In re Halmar Distrib. Inc., 968 F.2d 121, 122 (1st Cir. 1992), on remand, 232 B.R. 18 (Bankr. D. Mass. 1999) (tracing as identifiable proceeds "a pro-rata share of the commingled account" and holding secured party entitled to 10.2% of proceeds collected during the period); see also Mid-State Sales Co. v. Mountain Empire Danyman's Ass'n, 741 P.2d 342, 344 (Cola. Ct. App. 1987) (tracing as identifiable proceeds 52.5% of milk sales proceeds where creditor had security interest in 42 of 80 debtor's 80 cows).
Second, any payment from Lord Taylor to Furrari did not alter plaintiffs' secured interests. Plaintiffs' counsel stipulated that the maximum amount of funds from Furrari sales Lord Taylor was holding was $2,177,298, not $3,198,002, because Lord Taylor had repaid to Furrari the difference. See Pl's Memo. at 12, Tr. at 1223. Lord Taylor argues that the jury's finding should have been based on the product of $2,177,298 and 21 percent, rather than the product of $3,198,002 and 21 percent. However, the $671,622 secured account is not reduced on a pro rata basis by the fact that Lord Taylor repaid Furrari in part, because there is no evidence that Furrari in turn repaid Global on a pro rata basis, thereby reducing the amount of Global's security interest. Even after Lord Taylor repaid Furrari in part, Lord Taylor still held $2,177,298 in proceeds from the sales of Furrari furs at Lord Taylor, and Global still had a secured interest in those proceeds. Based on the evidence presented at trial, the jury could reasonably have found that Global had $671,622 in secured proceeds in that account. That finding is consistent with the law that secured proceeds remain in an account as long as that account is equal to or greater than the secured amount. See Sony Corp. v. Bank One, 865 F.2d 131, 138 (4th Cir. 1996). The account owing to Furrari at Lord Taylor after Lord Taylor repaid Furrari in part totalled $2,177,298, an amount much greater than the amount of Global's secured interest in the account, $671,622. Accordingly, the jury did not err in finding that Lord Taylor held $671,622 in secured proceeds owing to Global.
III. The Exclusion of Plaintiffs' Exhibit 170
Lord Taylor next argues that plaintiffs' exhibit 170 was erroneously excluded from evidence. PX 170 was comprised of a Notice of Proposed Stipulation and Order and an attached Stipulation and Order signed by the bankruptcy trustee in the Furrari bankruptcy proceedings. See Ex. F to Def.'s Memo. Lord Taylor moved to admit PX 170 into evidence in support of its contention that its deduction of ordinary course business expenses chargeable to Furrari was proper. To that end, Lord Taylor sought to admit the portion of the stipulation that reads
WHEREAS, Lord Taylor has asserted certain offsets against the Funds, which the Trustee deems meritorious, which offsets substantially exceed the amount of the Funds Lord Taylor is holding . . . .See id. (emphasis added). After allowing the parties to brief the issue, the Court denied Lord Taylor's motion to admit PX 170 under the residual exception to the hearsay rule, Fed.R.Evid. 807. The residual exception articulated in Rule 807 is to be applied "very rarely, and only in exceptional circumstances." Parsons v. Honeywell. Inc., 929 F.2d 901, 907 (2d Cir. 1991). It provides
A statement not specifically covered by Rule 803 or 804 but having equivalent circumstantial guarantees of trustworthiness, is not excluded by the hearsay rule, if the court determines that (A) the statement is offered as evidence of a material fact; (B) the statement is more probative on the point for which it is offered than any other evidence which the proponent can procure through reasonable efforts; and (C) the general purposes to these rules and the interests of justice will best be served by admission of the statement into evidence.
Lord Taylor has not persuasively argued that its motion to admit PX 170 presented the Court with the rare and exceptional circumstances required to invoke Rule 807. Although PX 170 bears some circumstantial guarantees of trustworthiness simply by virtue of the fact that it issues from the trustee in bankruptcy, because of its lack of specificity its admission would have been unduly prejudicial to the plaintiffs. This is so because it is unclear from the portion of the document sought to be admitted what "offsets" the trustee was referring to, what he meant by "meritorious" and whether it can be construed to mean "within the ordinary course of business", as Lord Taylor wished to argue. This ambiguity illustrates that PX 170 is not "more probative on the point for which it is offered than any other evidence which the proponent can procure through reasonable efforts" and therefore does not fall within the residual exception. Fed.R.Evid. 807(B). Lord Taylor could reasonably have called the bankruptcy trustee who signed the document, Kenneth Silverman, to testify as to what he meant by "meritorious"; indeed the plaintiffs and the Court both indicated that testimony from the trustee himself would be preferable. Silverman's testimony would have been more probative than the document and could have been procured through Lord Taylor's reasonable efforts; Lord Taylor simply chose not to depose him or call him as a witness. As a result, PX 170 did not qualify for the residual exception to the hearsay rule, and Lord Taylor's motion for a new trial on the ground that the Court's refusal to admit PX 170 was erroneous is denied.
IV. Failure to Include Waiver in the Verdict Form
The final ground asserted in support of Lord Taylor's motion is the Court's refusal to include a specific question regarding its waiver defense in the jury's special verdict form. However, counsel for Lord Taylor explicitly approved the Court's exclusion of a specific verdict form question addressing waiver provided that the Court instructed the jury that if it found that the plaintiffs had waived their security interests, the defendant was not liable for conversion or impairment of security interest. The following colloquy took place:
THE COURT: I need to know if there are any changes to the verdict sheet.
MR. BOYLE: There are no waiver questions.
THE COURT: That is right because I think it is no longer — they are going to be charged that if they find a waiver they can't find any —
MR. BOYLE: OK.
THE COURT: That is in the charge.
. . . .
MR. BOYLE: Your Honor, I am fine with this question form as long as what you were going to say in the instruction is if they find a waiver, they don't need to complete the form.
THE COURT: What I am telling them in the jury charge is that if they find a waiver, there is no conversion or impairment of security . . . if the jury finds that you have proven waiver, then they cannot find that Walkden has proven by a preponderance that we [sic] are liable and they know that from the charge.
Although I do not recall specifically my words in this colloquy, I presume that I said "you," referring to defendant Lord Taylor, rather than "we," as that is the most sensible reading of the dialogue.
MR. BOYLE: OK. OK.
Tr. at 1179-1181.
The Court then instructed the jury on waiver as follows, in pertinent part:
The waiver can either be express, or, as claimed in this case, implied by proof of knowing conduct that is inconsistent with the right to restrict the use of the proceeds. If you find that Global and/or Walkden waived or authorized the disposition of those proceeds to Lord Taylor, then Global, if it engaged in such conduct or Walkden, if it did, cannot claim any damages for conversion or impairment of security against Lord Taylor.
Tr. at 1200. After the instruction but before the jury began deliberating, counsel for Lord Taylor indicated that it had misunderstood the earlier colloquy and requested that a waiver question be included in the verdict form. The Court denied Lord Taylor's request. See Tr. at 1205-06.
The formulation of special verdict questions rests in the sound discretion of the trial judge. See Vichare v. AMBAC, 106 F.3d 457, 465 (2d Cir. 1997), Cann v. Ford Motor Co., 658 F.2d 54, 58 (2d Cir. 1981). The Court's special verdict questions must be read in conjunction with the judge's charge to the jury. Romano v. Howarth, 998 F.2d 101, 104 (2d Cir. 1993). Reversal is warranted if the questions mislead or confuse the jury, or if they inaccurately frame the issues to be resolved by the jury. Id.
In this case, the Court exercised its discretion, in order to present a simpler and less confusing form to the jury, when it denied Lord Taylor's request to include a specific question regarding waiver in the special verdict form. When read in conjunction with the charge given, the special verdict form did not inaccurately frame the issues for the jury or mislead or confuse it. The jury charge made clear that if the jury found that plaintiffs had waived their security interests, the jury could not find Lord Taylor liable for conversion or impairment of security interest. Verdict form questions 1, 2, 5 and 6 asked whether Walkden and Global, respectively, had proved by a preponderance of the evidence that Lord Taylor was liable for conversion or impairment of security interest. The jury charge made abundantly clear that subsumed within those questions was the issue of whether or not either plaintiff had waived its security interest. Accordingly, the Court did not abuse its discretion in drafting the verdict form and a new trial is not warranted.
Conclusion
For the foregoing reasons, defendant's motion is denied.
SO ORDERED:
____________________________________ Barbara S. Jones UNITED STATES DISTRICT JUDGE
New York, New York June 5, 2001