Opinion
17-MC-0360 (AT) (RWL)
10-18-2022
ESSAR STEEL ALGOMA, Plaintiff, v. SOUTHERN COAL SALES CORPORATION, et al., Defendants.
REPORT AND RECOMMENDATION TO HON. ANALISA TORRES: MOTION TO ENFORCE JUDGMENT
ROBERT W. LEHRBURGER, UNITED STATES MAGISTRATE JUDGE
Plaintiff Algoma Steel Inc., (“Algoma”) previously known as Essar Steel Algoma, Inc., filed this breach-of-contract action in 2017 seeking redress for Defendants' failure to deliver coal as required by the parties' supply agreement. On September 22, 2020, Algoma and Defendants entered into a Settlement Agreement, which was so-ordered by the Court (the “Settlement Agreement”). Not having received any settlement payments or delivery of coal as required under the Settlement Agreement, Algoma has moved to enforce the Settlement Agreement. (Dkt. 198.) For the reasons that follow, I recommend that Algoma's motion be granted and judgment entered in its favor in the amount of $5.75 million, plus interest and attorneys' fees.
The Defendants are Southern Coal Sales Corporation n/k/a Nevada Holdings, Inc.; Bluestone Resources Inc.; James C. Justice Companies, Inc.; James C. Justice Companies, LLC; Bluestone Industries, Inc.; Bluestone Coal Corporation; Bluestone Mineral, Inc.; Bluestone Energy Sales Corporation; A&G Coal Corporation; Tams Management Inc.; Encore Leasing LLC; Justice Family Farms, LLC; and Southern Coal Corporation.
The so-ordered Settlement Agreement appears at Dkt. 186, as well as Exhibit 1 to the Declaration of Ron Spina, filed August 29, 2022 at Dkt. 199-1 (“Spina Decl.”) and Exhibit 1 to the Declaration of Michael Moraca, filed August 29, 2022 at Dkt. 199-2 (“Moraca Decl.”) Both Spina and Moraca are employed by Algoma. Spina has responsibility for procurement of raw materials, such as coal. (Spina Decl. ¶ 3.) Moraca has responsibility for treasury and cash management. (Moraca Decl. ¶ 2.)
The matter was referred to me for report and recommendation on September 27, 2022. (Dkt. 208.) In making this recommendation, I have considered the parties' motion papers, correspondence, oral argument held on October 13, 2022, and all prior proceedings.
I. Algoma's Entitlement To Enforcement
Under the Settlement Agreement, Defendants agreed to either (1) pay Algoma a lump sum cash payment of $4.425 million at the time of execution of the Settlement Agreement, or (2) pay Algoma $5.75 million in installments over a three-year period or deliver coal to Algoma of equivalent value pursuant to an agreement for purchase and sale of coal incorporated into the Settlement Agreement. (Dkt. 186 § 2.) Defendants also agreed that failure to pay or deliver coal (as well as to fulfill other material obligations) as required under the Settlement Agreement would constitute an Event of Default. (Dkt. 186 § 2(c).) The parties agreed that any one or more Events of Default would accelerate the entire remaining settlement balance, which would be immediately due and owed to Algoma. (Dkt. 186 § 2(c)(ix).) Defendants breached their material obligations under the Settlement Agreement. They did not deliver any coal or make any payments (except for one pre-payment of interest). (Spina Decl. ¶ 14; Moraca Decl. ¶¶ 5-7.)
Algoma is entitled to enforcement of the Settlement Agreement under its existing terms. “A district court has the power to enforce summarily, on motion, a settlement agreement reached in a case that was pending before it.” Meetings & Expositions Inc. v. Tandy Corp., 490 F.2d 714, 717 (2d Cir. 1974); see also Omega Engineering, Inc. v. Omega, S.A., 432 F.3d 437, 444 (2d Cir. 2005) (stating that the power to enforce a settlement is “especially clear” when the settlement was reported to the court (quoting Janus Films, Inc. v. Miller, 801 F.2d 578, 583 (2d Cir. 1986)). For a court to retain ancillary jurisdiction over enforcement of a settlement, “a district court's order of dismissal must either (1) expressly retain jurisdiction over the settlement agreement, or (2) incorporate the terms of the settlement agreement in the order.” Thurston v. Flyfit Holdings, LLC, No. 18-CV-9044, 2020 WL 2904065, at *2 (S.D.N.Y. June 3, 2020) (citing Kokkonen v. Guardian Life Insurance Company of America, 511 U.S. 375, 381, 114 S.Ct. 1673 (1994)). Here, the parties followed the procedures necessary for the Court to retain jurisdiction over the Settlement Agreement. (See Dkt. 179.) The parties made the Settlement Agreement part of the public record (Dkt. 183-186), agreed in the Settlement Agreement that the Court would maintain jurisdiction for purposes of enforcement (Dkt. 186 § 3(a)), and requested that the Court maintain jurisdiction to enforce (Dkt. 182), which the Court so-ordered (Dkt. 186.)
Algoma has indisputably established Defendants' breach of the Settlement Agreement. “Settlement agreements are contracts that, once entered into, are binding and conclusive.” Tendilla v. 1465 Espresso Bar LLC, No. 18-CV-5991, 2021 WL 2209873, at *2 (S.D.N.Y. June 1, 2021) (Nathan, J.) (citing Powell v. Omnicom, 497 F.3d 124, 128 (2d Cir. 2007)). Under New York law, which the parties agreed governs the Settlement Agreement (Dkt. 186 § 9), a claim for breach of contract requires proof of (1) existence of a valid contract, (2) plaintiff's performance, (3) defendant's breach, and (4) damages resulting from the breach. Tendilla, 2021 WL 2209873 at *2 (citing Johnson v. Nextel Communications, Inc., 660 F.3d 131, 142 (2d Cir. 2011)); Ashmore v. CGI Group Inc., 138 F.Supp.3d 329, 347 (S.D.N.Y. 2015) (Torres, J.).
Each of the requisite elements are met here. The Settlement Agreement is a valid contract agreed to by the parties. Defendants acknowledged as much in the Settlement Agreement itself. (Dkt. 186 § 1(a)(i).) Algoma has performed its obligations under the Settlement Agreement such as they are, and Defendants do not argue otherwise. Defendants' breach also has been indisputably established. Defendants were obligated to either pay a lump sum of $4.425 million, or, absent such payment, either make timely coal deliveries or three installment payments of $1,916,666.00 to Algoma - one upon execution of the Settlement Agreement and the others by July 31, 2021 and July 31, 2022. (Dkt. 186 § 2(a)(i)-(iii).) Defendants did not pay the lump sum, did not meet any of the deadlines, and have neither delivered any coal nor made any of the installment payments to Algoma. As a result, Algoma has not received the value of what it bargained for and has been damaged by that amount, which totals $5.75 million.
Algoma's essential obligation under the Settlement Agreement was its release of claims related to the subject of the lawsuit.
II. Defendants' Flawed Invocation Of Rule 60(b)
In opposing Algoma's motion to enforce the judgment, Defendants do not contest their failure to comply with the obligations of the Settlement Agreement. Instead, they assert that “exceptional circumstances” warrant reformation of the so-ordered Settlement Agreement pursuant to Rule 60(b) of the Federal Rules of Civil Procedure, which provides discretion to a court to relieve a party from a “final judgment, order, or proceeding” for any one of five specific reasons (none of which apply here) or for “any other reason that justifies relief.” Rule 60(b)(1)-(6). More specifically, Defendants argue that they could not comply with the Settlement Agreement because their sole source of operating capital, a company named Greensill Capital (UK) Limited (“Greensill”), became insolvent in March 2021 - an event that Defendants learned of from press reports “in early 2021.” Defendants contend that they are “now prepared to ship coal to Algoma ... similar to the arrangement contemplated in the Settlement Agreement.” (Ball Decl. ¶ 11.) At the same time, however, Defendants assert that they do not have the ability to pay a $5.75 million judgment. (Ball Decl. ¶ 12.)
Dkt. 206 at 2; see Declaration of Stephen Ball, filed September 26, 2022 (Dkt. 207-1) ¶ 9 (“Ball Decl.”).
The circumstances set forth by Defendants do not justify relief under Rule 60(b). First, although Rule 60(b)(6) “constitutes a grand reservoir of equitable power to do justice in a particular case” and may be “properly invoked where there are extraordinary circumstances, or where the judgment may work an extreme and undue hardship,” Matarese v. LeFevre, 801 F.2d 98, 106 (2d Cir. 1986) (internal quotation marks and citations omitted), Defendants' financial hardship hardly qualifies. Indeed, financial difficulty is not a valid excuse for failure to perform contractual obligations. See Ebert v. Holiday Inn, 628 Fed.Appx. 21, 23 (2d Cir. 2015) (“[e]conomic hardship, even to the extent of bankruptcy or insolvency, does not excuse performance”); 407 East 61st Garage, Inc. v. Savoy Fifth Avenue Corp., 23 N.Y.2d 275, 281, 244 N.Y.S.2d 338 (1968) (“where impossibility or difficulty of performance is occasioned only by financial difficulty or economic hardship, even to the extent of insolvency or bankruptcy, performance of a contract is not excused”); Sumarni, Inc. v. Levicon Development Associates, L.P., 194 A.D.2d 535, 536, 598 N.Y.S.2d 573 (2d Dep't 1993) (affirming award of damages for breach of contract where defendant could not meet payment obligations “because the market conditions had plunged”).
Defendants have not identified any legal authority in their briefing or at oral argument supporting a court's reformation of a so-ordered settlement agreement based on a party's financial hardship. That is not surprising. Defendants claim to be able to deliver coal now, but what will stop them from seeking further reformation of their agreement should their financial fortunes again collapse? Both the sanctity of the contract and of the Court's orders would be undermined by what Defendants seek to do here. Indeed, this case originated precisely because of Defendants' earlier failure to deliver sufficient coal as contractually required. More than five years have passed since then without any recompense to Algoma. Rule 60(b)(6) “should be liberally construed when substantial justice will thus be served.” Matarese, 801 F.2d at 106 (internal quotation marks and citations omitted). In this instance, justice would be disserved by relieving Defendants of their agreed-upon obligations.
The cases cited by Defendants all are inapt or otherwise unhelpful to Defendants. See Rufo v. Inmates of Suffolk County Jail, 502 U.S. 367, 112 S.Ct. 748 (1992) (addressing sheriff's request for modification of consent decree concerning jail conditions and construction of new jail); Congregation Mischknois Lavier Yakov, Inc. v. Board of Trustees for Village of Airmont, 301 Fed.Appx. 14 (2d Cir. 2008) (affirming denial of Rule 60(b) motion seeking relief from so-ordered settlement based on alleged attorney error); Radack v. Norwegian America Line Agency, Inc., 318 F.2d 538 (2d Cir. 1963) (vacating judgment based on procedural failure to serve notice of entry of judgment); Brown v. Webber, No. 18-CV-9618, 2022 WL 1124901 (S.D.N.Y. Apr. 14, 2022) (granting Rule 60(b) motion to vacate dismissal based on excusable neglect); Smith v. City of New York, No. 12-CV-4851, 2014 WL 6783194 (E.D.N.Y. Dec. 2, 2014) (allowing action challenging stipulation and release to proceed where court had concerns about inmate's competence).
The litigation has been all the more strung along by Defendants' serial replacement of their legal counsel.
There is an additional reason why Defendants' invocation of Rule 60(b)(6) is a nonstarter. A motion seeking relief under Rule 60(b) “must be made within a reasonable time.” Rule 60(c)(1). Whether a Rule 60(b) motion is made within a reasonable time depends on the circumstances of the case and a balancing of the interest in finality with the reasons for delay. PRC Harris, Inc. v. Boeing Company, 700 F.2d 894, 897 (2d Cir. 1983).
The Settlement Agreement was so-ordered on September 22, 2020. By their own admission, Defendants first learned of the collapse of their capital source in early 2021. Yet the first time they raised the prospect of relief with the Court was in response to Algoma's motion to enforce the Settlement Agreement on September 26, 2022. Had Defendants believed relief was necessary, they should have sought it far earlier. See Truskoski v. ESPN, Inc., 60 F.3d 74, 77 (2d Cir. 1995) (holding that movant “plainly did not seek relief from the judgment within a reasonable time” when relief was sought at least eleven and no more than eighteen months after discovering grounds for the motion).
Defendants argue that they waited until their financial situation was shored up sufficiently to be able to resume delivery of coal. By that reasoning, Defendants would have been free to put off seeking relief no matter how long it took to turn around their finances. Defendants' excuse does not make the passage of approximately eighteen months a reasonable period of time, and Defendants have cited no authority for the proposition that a party seeking relief under Rule 60(b) may wait to do so until it believes it is in a sufficient position to perform under modified terms. Defendants did not seek relief pursuant to Rule 60(b) within a reasonable time.
III. Defendants' Application To File A Separate Motion For Relief
In addition to defending against Algoma's motion to enforce the Settlement Agreement based on Rule 60(b), Defendants have requested the Court to forestall the inevitable by allowing Defendants to affirmatively file a Rule 60(b) motion. (Dkt. 206.) That request should be denied. The arguments Defendants advance in their application to move under Rule 60(b) are identical to those fully set forth in Defendants' opposition to Algoma's motion to enforce. (Compare Dkt. 206 with Dkt. 207.) Further briefing would be pointless. The reasons already set forth above for granting Algoma's motion fully address and resolve Defendants' Rule 60(b) arguments.
IV. Algoma's Right To Attorneys' Fees
In addition to the $5.75 million due to Algoma under the Settlement Agreement, Algoma requests an award of its attorneys' fees expended to enforce it. Defendants argue that Algoma is not entitled to attorneys' fees because it has not met the necessary conditions for their recovery.
The Settlement Agreement provides for an award of reasonable attorneys' fees to Algoma “in enforcing the Consent Judgment.” (Dkt. 186 § 14.) The referenced Consent Judgment was executed concurrently with the Settlement Agreement and may be entered by Algoma upon an Event of Default. (Dkt. 186 § 3(c).) The amount to be awarded to Algoma under the Consent Judgment mirrors that of the Settlement Agreement: $4.425 million which could be satisfied with a lump sum payment, or, instead, coal deliveries or cash installments valued at $5.75 million. (Dkt. 183-2.) Defendants did none of those, and the installment dates all have expired. Accordingly, Algoma seeks to enforce the full cash amount that would have been paid in installments - $5.75 million - not merely the $4.425 million that would have been paid as a lump sum.
Defendants contend that Algoma may not recover its attorneys' fees to enforce the Settlement Agreement because Algoma has not moved for entry or enforcement of the Consent Judgment. That argument elevates form over substance. An Event of Default has occurred thus entitling Algoma to entry of the Consent Judgment. The relief contemplated by the Consent Judgment is fully subsumed in the amount of the judgment to which Algoma is entitled, even without entry of the Consent Judgment. See Algoma Reply at 7 (“[F]or the sake of clarity and judicial efficiency,” Algoma has “requested a judgment only for the full settlement amount. Put another way, Algoma is, contrary to Defendants' contention, seeking to enforce the Consent Judgment - including the smaller, lesser-included $4.425 million judgment - as part of a larger $5.75 million judgment, even if it is not separately seeking entry of it”) (emphasis in original). If Algoma had moved both for entry of the Consent Judgment and for entry of a second judgment for $1.325 million (the difference between the full amount at issue and the Consent Judgment amount), Defendants' argument vanishes. There is no need for Algoma to jump through the extra hoop (and incur additional attorneys' fees) based on an unduly narrow construction of the Settlement Agreement.
“Algoma Reply” refers to Plaintiff Algoma Steel Inc.'s Reply In Support Of Motion To Enforce Settlement Agreement (Dkt. 211.)
That said, the distinction between enforcement of the Consent Judgment and the Settlement Agreement may come into play in the event that Algoma expends incrementally more attorneys' fees and costs to collect on any amount above $4.425 million. In that event, Algoma arguably would be enforcing amounts due pursuant to the Settlement Agreement only, not the Consent Judgment, and therefore would not be entitled to recovery of those attorneys' fees and costs. That is a question for the future, however, and need not be resolved here. The only attorneys' fees at issue here are those expended in connection with Algoma's instant motion to enforce. Those fees should be awarded pursuant to the Settlement Agreement.
Conclusion
For the foregoing reasons, I recommend that (1) Plaintiff's motion to enforce the judgment be GRANTED; (2) Defendants' request to move to reform the Settlement Agreement pursuant to Fed.R.Civ.P. 60(b) be DENIED; and (3) judgment entered in favor of Plaintiff against Defendants in the amount of $5.75 million, plus post-judgment interest, and reasonable attorneys' fees expended in connection with Algoma's motion to enforce the Settlement Agreement. Plaintiff should be directed to submit an application for attorneys' fees with the appropriate supporting material.
Objections And Right To Appeal
Pursuant to 28 U.S.C. § 636(b)(1) and Rules 72, 6(a), and 6(d) of the Federal Rules Of Civil Procedure, the parties shall have fourteen (14) days to file written objections to this Report And Recommendation. Such objections shall be filed with the Clerk of the Court, with extra copies delivered to the Chambers of the Honorable Analisa Torres, United States Courthouse, 500 Pearl Street, New York, New York 10007, and to the Chambers of the undersigned, United States Courthouse, 500 Pearl Street, New York, New York 10007. Failure to file timely objections will result in a waiver of objections and will preclude appellate review.