Opinion
00 CIV. 5620 (DLC)
September 13, 2002
David L. Fox, Felcher Fox Litner, P.C., New York, NY. Attorney for Plaintiff.
OPINION AND ORDER
An order of default was entered against GWTA Insurance Service, Inc. ("GWTA") in this action on February 2, 2001. On June 11, 2001, the case was referred to Magistrate Judge Katz for an inquest on damages. For the reasons that follow, Judge Katz's Report and Recommendation of August 1, 2002 ("Report") is adopted. The claims against the remaining defendant having been dismissed pursuant to a settlement agreement, judgment is entered for the plaintiff.
BACKGROUND
The facts described in Judge Katz's Report and summarized here are drawn from the plaintiff's complaint and taken as true on the defendant's default. Greyhound Exhibitgroup, Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155, 159 (2d Cir. 1992).
In November 1994, plaintiff Clarendon National Insurance Company ("Clarendon") and GWTA entered into an agreement pursuant to which GWTA would administer certain worker's compensation insurance service contracts on Clarendon's behalf. Under the agreement, GWTA was required to collect premium payments, hold the funds in a segregated account, and transmit the payments to Clarendon. GWTA was entitled to a commission on transmitted funds.
The contract between Clarendon and GWTA also included an indemnification clause, pursuant to which GWTA agreed to indemnify Clarendon for all "costs or expenses, including without limitation, attorneys fees, disbursements and court costs, . incurred by Clarendon . . . and which arise from or are related to, directly or indirectly, . . . the breach or non-performance of any of GWTA's obligations under this Agreement."
In September 1998, Interamericas Insurance Services, Inc. ("Interamericas") entered into two guaranty agreements with Clarendon pursuant to which Interamericas guaranteed (1) payment of the premiums that GWTA's was required to collect and transmit to Clarendon ("premium guarantee"), and (2) Clarendon's losses incurred on the insurance contracts ("loss guarantee")
After the agreement between Clarendon and GWTA was terminated, Clarendon discovered that in 1995 and 1996, GWTA had failed to transmit over three million dollars in premiums owed to Clarendon. As of the end of 1999, Clarendon had also sustained losses of over six million on its insurance contracts.
On July 28, 2000, Clarendon sued GWTA and Interamericas for breach of contract and breach of fiduciary duty and Interamericas for breach of the guarantee agreements. An order of default was entered against GWTA on February 2, 2001. The claims against Interamericas were dismissed with prejudice pursuant to a stipulation of dismissal on June 29, 2001.
At the inquest, Clarendon withdrew its claim for conversion against GWTA and Interamericas.
The matter was referred to Judge Katz for an inquest, who held an evidentiary hearing on January 23, 2001. GWTA did not oppose the plaintiff's submissions on damages and did not participate in the hearing. Judge Katz recommended an award of damages in the amount of $3,041,002.00 and costs and attorney's fees of $269,154.75, for a total award of $3,310,156.75. No objections to the Report have been filed.
DISCUSSION
A reviewing court "may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate." 28 U.S.C. § 636(b)(1)(C) . "To accept the report and recommendation of a magistrate, to which no timely objection has been made, a district court need only satisfy itself that there is no clear error on the face of the record." Nelson v. Smith, 618 F. Supp. 1186, 1189 (S.D.N.Y. 1985); see also Pizarro v. Bartlett, 776 F. Supp. 815, 817 (S.D.N.Y. 1991)
I find no facial error in the Report. Clarendon was entitled to damages sufficient to place it in a position as good as it would have occupied but for GWTA's breach of contract. Indu Craft, Inc. v. Bank of Baroda, 47 F.3d 490, 495 (2d Cir. 1995) (New York law). Judge Katz's finding that Clarendon suffered damages in the amount of $3,041,002.00 in (1) premiums paid to GWTA but not transmitted to Clarendon and (2) premiums owed but not collected by GWTA, was reasonable and adequately supported. He did not err in accepting plaintiff's accounting expert's estimates of premiums owed because the estimates were conservative and based on standard industry assumptions, and because the lack of more specific figures was due to GWTA's failure to conduct required audits of insureds and to produce its own records. See Bridgestone/Firestone, Inc. v. Recovery Credit Serv., Inc., 98 F.3d 13, 19 (2d Cir. 1996); see also Indu Craft, 47 F.3d at 496 (amount of damages need only be proven with "reasonable certainty" because the "wrongdoer must shoulder the burden of the uncertainty regarding the amount of damages") Judge Katz also correctly determined that although GWTA would have been entitled to commissions on funds it transmitted to Clarendon, it was not entitled to a reduction in the amount of the award because it had failed to perform under the agreement. See, e.g., Bernard v. Las Americas Comm., Inc., 84 F.3d 103, 109 (2d Cir. 1996) (breach excuses other party's failure to perform).
Each of the three agreements provides that it is to be governed by New York law.
The Report also correctly determined that the confidential settlement reached between Clarendon and Interamericas, who acted, in part, as GWTA's surety, should not be applied as a setoff to Clarendon's recovery from GWTA. Since the amount of Clarendon's settlement with Interamericas did not exceed the amount owed pursuant to the loss guarantee, an award based on the premiums owed to Clarendon by GWTA will not result in a double recovery.
The award of attorney's fees is likewise reasonable, both in terms of the number of hours and the hourly rates allowed. The provision in the agreement between GWTA and Clarendon providing for attorney's fees was "unmistakably clear." Bridgestone, 98 F.3d at 21 (citation omitted); see also Hooper Assoc. v. AGS Computers, Inc., 74 N.Y.2d 487, 491-92 (1989). Judge Katz subtracted $140 that the plaintiff conceded was improperly billed and discounted the fee request by fifteen percent to account for (1) time spent litigating the loss guarantee claim against Interamericas, and (2) the rates claimed for one paralegal and for administrative staff that he found to be excessive and unsubstantiated See, e.g., Terminate Control Co. v. Horowitz, 28 F.3d 1335, 1342-43 (2d Cir. 1994) (approving across-the-board discount) . Although Judge Katz did not further reduce the award to reflect the litigation of the premium guarantee claim against Interamericas, that claim — as a claim that both arose from and was related to GWTA's breach — fell within the ambit of the GWTA indemnification clause.
CONCLUSION
For the reasons stated above, Judge Katz's Report is adopted. Plaintiffs are also entitled to prejudgment interest at the statutory rate of nine percent "from a single reasonable intermediate date." N.Y. C.P.L.R. § 5001(b) (McKinney 2002). Because the losses occurred in 1995 and 1996, interest will be calculated on $3,041,002.00 from January 1, 1996. Consequently, the plaintiff is awarded $3,041,002.00 in damages, $269,154.75 in attorney's fees and costs, and $1,835,598.80 in prejudgment interest. The Clerk of Court is directed to enter judgment in favor of the plaintiff and against defendant GWTA in an amount of $5,145,755.55 and close the case.
I further find that GWTA having made no objections to the Report, and the Report having advised that failure to object will preclude appellate review of this Order, GWTA has waived its right to appeal. United States v. Male Juvenile, 121 F.3d 34, 38 (2d Cir. 1997); Small v. Sec'y of Health Human Serv., 892 F.2d 15, 16 (2d Cir. 1989) (per curiam).