Opinion
02 Civ. 0353 (KMW) (KNF)
October 30, 2002
REPORT AND RECOMMENDATION
TO THE HONORABLE KIMBA M. WOOD, UNITED STATES DISTRICT JUDGE
I. INTRODUCTION
In this action, plaintiff Michael Miller ("Miller") alleges conversion, unjust enrichment, breach of contract, common law fraud, rescission, and failure to render an accounting against Martin Levin ("Levin"), Ontos Properties, LLC ("Ontos"), Group 12 Companies, LLC ("Group 12"), Group 12 Advertising, L.L.C. ("Group 12 Advertising") and Native Woodlands Properties, Inc., ("Native Woodlands") (collectively "defendants").
Plaintiff filed his Complaint in January 2002. On February 12, 2002, Group 12 served an Answer on plaintiff. Group 12's Answer was then withdrawn and the defendants moved to dismiss the Complaint. Thereafter, in April 2002, the defendants' attorneys sought and received permission to withdraw as counsel for the defendants. In May 2002, your Honor ordered that a default judgment be entered against the defendants for damages in the amount of $320,000, together with interest from December 22, 2001 through May 17, 2002, in the amount of $11,520, for a total of $331,520. The matter was then referred to the undersigned to conduct an inquest and to report and recommend the amount of punitive damages and attorneys' fees, if any, to be awarded to plaintiff against the defendants.
The Court directed plaintiff to file and serve proposed findings of fact and conclusions of law and an inquest memorandum setting forth his proof concerning punitive damages and his attorneys' fees. The defendants were directed to file and serve opposing memoranda, affidavits and exhibits, as well as any alternative findings of fact and conclusions of law, and to state whether a hearing was requested for the purpose of examining witnesses.
Plaintiff served and filed an affidavit and a memorandum of law in support of his application for punitive damages and attorneys' fees. The defendants did not respond to the Court's order for submissions. Plaintiffs submissions aver that he is entitled to punitive damages in an amount to be determined by the Court, and attorneys' fees in the amount of $79,442.67.
For the reasons stated below, I recommend that plaintiff be awarded $224,370.48: $150,000 in punitive damages and $74,370.48 in attorneys' fees.
II. BACKGROUND AND FACTS
Based on submissions by the plaintiff, the Complaint filed in the instant action — the allegations of which, perforce of defendants' default, must be accepted as true, except those relating to damages, 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) — and the Court's review of the entire court file maintained in this action, the following findings of fact are made:
Miller is a citizen of the State of New York. Levin is a citizen of the State of Michigan. Ontos and Group 12 are Florida limited liability companies. Group 12 Advertising is a Michigan limited liability company. Native Woodlands is a Nevada corporation. Ontos, Group 12, Group 12 Advertising and Native Woodlands (collectively "defendant companies") have their principal place of business at 4224 Oyster Bay Drive, Amelia Island, Florida. Levin is the founder and controlling member or shareholder of each of the defendant companies.
On December 18, 2001, Miller and Levin entered into a letter of understanding (the "Agreement") setting forth the terms of a joint venture to complete various real estate development projects, including a project to develop a large tract of property on Amelia Island, Florida (the "Islands Club"). The Islands Club was to be developed through Ontos, and plaintiff and Levin were each to make capital contributions to Ontos of approximately $450,000 for this purpose. In addition, Group 12 was to contribute approximately $7,200,000, which was the amount that Levin claimed Group 12 had invested in the Amelia Island property. The property was to be assigned by Group 12 to Ontos free and clear of all mortgages and debts.
Levin opened a bank account for Ontos at the Atlantic States Bank of Georgia at some time prior to December 18, 2001. Upon execution of the Agreement, plaintiff, at Levin's request, wired the sum of $120,000 to the Ontos bank account. Two days later, on December 20, 2001, plaintiff wired an additional sum of $200,000 to the Ontos bank account.
On December 19, 2001, Levin, without plaintiffs knowledge or consent, issued, or caused to be issued, three cashier's checks on the Ontos bank account. Two of the checks, in the amount, taken together, of $88,769.07, were made payable to Group 12; one of the checks, in the amount of $16,000, was made payable to Group 12 Advertising. The checks were issued to cover debts incurred by the defendants prior to December 18, 2001, and were unrelated to Islands Club development expenses.
On December 21, 2001, Levin, without plaintiffs knowledge or consent, issued eight cashier's checks on the Ontos Bank account. Six of the checks, in the amount, taken together, of $132,475.52, were made payable to Group 12; one check, in the amount of $6,000, was made payable to Group 12 Advertising. These checks also were issued to pay debts incurred by the defendants prior to the execution of the Agreement, and were unrelated to the Islands Club project. The eighth check, in the amount of $50,000, was made payable to Aircore, a company to which Levin owed money for repairs made to his private plane. On the same day, Levin also wired $11,000 from the Ontos bank account to the law firm Reicker, Van Dam, Barker Block, in payment of legal fees incurred by the defendants in connection with a matter unrelated to the Islands Club project. Thus, Levin, who made no deposits at any time into the Ontos bank account, withdrew from it a total of $304,244.59 between December 19, 2001, and January 3, 2002.
The Complaint states that the checks were issued on December 19, 2001; however, plaintiffs submissions reveal that one of the checks — made payable to Group 12 in the amount of $5,000 — is dated January 3, 2002.
Plaintiff contends that his capital contributions to Ontos were fraudulently induced by Levin through a series of lies and misrepresentations. Specifically, plaintiff contends that the Islands Club project was merely a clever scheme to induce plaintiff to invest in Ontos so that Levin could misappropriate plaintiffs funds for Levin's personal use.
Plaintiff contends that he commenced the instant action as soon as he discovered Levin's fraudulent intentions. According to plaintiff, when Levin realized that his misconduct had been discovered, he maliciously set out to injure plaintiff further by fraudulently conveying assets out of one or more of the defendant companies. Thus, plaintiff contends, Levin's behavior caused him to incur excessive and unnecessary legal fees by requiring him to commence an action in Nassau County, Florida, against Ontos and a third party, Autospace, Inc., to set aside the fraudulent conveyance of assets out of the defendant companies. Plaintiff contends that unnecessary legal fees were incurred in the instant litigation, as well, in opposing Levin's motion to dismiss the complaint. Plaintiff alleges that the sole purpose of the motion to dismiss the complaint was to delay prosecution of this matter so that Levin and the defendant companies could secrete their assets and render any judgment against them worthless. Plaintiff suggests Levin made false representations to his counsel concerning his fraudulent acts and used counsel to further his improper course of conduct. Plaintiff notes that defendants' counsel, upon discovering that the checks they received from Levin for legal fees were dishonored by Levin's bank, sought and received permission to withdraw as counsel to the defendants.
Plaintiff asserts that Levin's conduct is part of a pattern aimed at the general public as evidenced by the fact that, among other things: (i) Levin was arrested recently in Michigan for passing approximately $30,000 in bad checks and is now awaiting trial; (ii) Levin's former partner has commenced an action against Levin in federal court in Illinois for fraud, breach of contract, breach of fiduciary duty and misappropriating funds; in that action, damages of $6,000,000 have been alleged; (iii) Levin's partner has commenced a shareholder derivative action against Levin and the defendant companies; and (iv) the Attorney General of the State of Florida has issued a warrant for Levin's arrest for passing bad payroll checks to employees of the defendant companies.
Plaintiffs Complaint, alleging conversion, unjust enrichment, breach of contract, common law fraud, rescission, and failure to render an accounting, and seeking compensatory and punitive damages, was filed in January 2002. As noted above, in May 2002, your Honor ordered that a default judgment be entered against the defendants for damages in the amount of $320,000, together with interest in the amount of $11,520, for a total of $331,520. The matter was referred to the undersigned to determine the amount, if any, of punitive damages and attorneys' fees that should be awarded. Plaintiffs submissions aver that plaintiff is entitled to punitive damages against the defendants in an amount to be determined by the Court, and attorneys' fees in the amount of $79,442.67.
In support of his application, plaintiff submitted, in addition to an affidavit and a memorandum of law, the following documentary evidence: (a) a copy of the Agreement; (b) a copy of an advice of debit, dated December 18, 2001, issued by The Bank of New York to plaintiff, in the amount of $120,000, identifying Ontos as the beneficiary and Atlantic States Bank of Georgia as the recipient of the funds; (c) a copy of an advice of debit, dated December 20, 2001, issued by The Bank of New York to plaintiff, in the amount of $200,000, identifying Ontos as the beneficiary and Atlantic States Bank of Georgia as the recipient of the funds; (d) copies of cashier's checks issued by Atlantic States Bank of Georgia on the Ontos bank account, dated December 19, 2001, through January 3, 2002, as described earlier in this writing; (e) a copy of a wire transfer instruction for the amount of $11,000, naming the law firm Reicker, Van Dam, Barker Block as beneficiary and Ontos as customer.
III. CONCLUSIONS OF LAW
A default judgment in an action establishes liability, but damages must be established by the plaintiff in a post-default inquest. See Cappetta v. Lippman, 913 F. Supp. 302, 304 (S.D.N.Y. 1996) (citing Flaks v. Koegel, 504 F.2d 702, 707 [2d Cir. 1974]). In conducting an inquest, the court need not hold a hearing "as long as it [has] ensured that there was a basis for the damages specified in the default judgment." Transatlantic Marine Claims Agency. Inc. v. Ace Shipping Corp., 109 F.3d 105, 111 (2d Cir. 1997). The court may rely on affidavits or documentary evidence in evaluating the fairness of the sum requested. See Tamarin v. Adam Caterers, Inc., 13 F.3d 51, 54 (2d Cir. 1993).
"Under New York law, the purpose of awarding punitive damages is not to make the victim whole but to punish the defendant and to deter egregious conduct." Canelle v. Russian Tea Room Realty LLC, No. 01 Civ. 0616, 2002 WL 287750, at *6 (S.D.N.Y. Feb. 27 2002) (citing Rocanova v. Equitable Life Assurance Soc'y of the United States, 83 N.Y.2d 603, 613, 612 N.Y.S.2d 339, 342). In otherwise private fraud and deceit actions arising out of a contractual relationship, punitive damages may be recovered provided the fraud is directed at the public generally and "involves high moral culpability." Walker v. Sheldon, 10 N.Y.2d 401, 405, 223 N.Y.S.2d 488, 491 (1961); see also Canelle, 2002 WL 287750, at *5-6; Baxter Diagnostics, Inc. v. Novatek Med., Inc., No. 94 Civ. 5220, 1998 WL 665138, at *2 (S.D.N.Y. Sept. 25, 1998); Riordan v. Nationwide Mut. Fire Ins. Co., 756 F. Supp. 732, 740 (S.D.N.Y. 1990). Thus, in order to recover punitive damages, a private party must demonstrate egregious tortious conduct by which he or she was aggrieved, and also must show that the conduct was part of a pattern of similar conduct directed at the public generally. See Canelle, 2002 WL 287750, at *6.
The imposition of punitive damages is discretionary with the finder of fact. See Mar Oil S.A. v. Morrissey, 982 F.2d 830, 844 (2d Cir. 1993). Where a party has defaulted on a common law fraud claim, an award of punitive damages is permissible. See Wilson v. Car Land Diagnostics Center, Inc., No. 99 Civ. 9570, 2001 WL 1491280, at *4 (S.D.N.Y. Nov. 26, 2001); Flaks, 504 F.2d at 706.
Since the defendants have defaulted on plaintiffs common law fraud claim, punitive damages may be awarded in this case. Plaintiffs submissions establish that Levin deliberately and systematically defrauded plaintiff for profit. In addition, Levin's conduct toward plaintiff is part of a pattern of similar conduct which constitutes a fraud upon the public evincing "a high degree of moral turpitude and . . ., a criminal indifference to civil obligations." Walker, 10 N.Y.2d at 405, 223 N.Y.S.2d at 491. Therefore, the Court finds that an award of punitive damages is appropriate in this case.
In determining the amount of punitive damages to award, a court should consider, inter alia, "the amount of actual damages recovered, the relative wealth of the particular defendants as well as their standing or social position, the particular nature of the defendant's acts and the possibility of those acts being repeated in the future." Schoenholtz v. Doniger, 657 F. Supp. 899, 916 (S.D.N.Y. 1987). Levin engaged in a fraudulent scheme that was "not an isolated transaction incident to an otherwise legitimate business, but a gross and wanton fraud upon the public." Walker, 10 N.Y.2d at 406, 223 N.Y.S.2d at 492. The Islands Club development project was, from the outset, merely a scheme designed to permit Levin to misappropriate plaintiffs funds for Levin's personal use. Although Levin agreed to make a capital contribution to the project, he made no such contribution; instead, he used funds contributed to the project by plaintiff to pay debts incurred at an earlier date that were unrelated to the project. In addition, among other things, Levin is subject to arrest in Florida for passing bad payroll checks to employees of the defendant companies, and has engaged in frivolous litigation in the instant action, causing plaintiff to incur unnecessary and excessive legal fees.
In order to punish Levin and to set an example that will deter similar conduct in the future, $150,000 in punitive damages should be awarded to plaintiff against the defendants. See e.g, Wilson, 2001 WL 1491280, at *4 (finding punitive damages of $4,000 appropriate where defendant defaulted on a common law fraud claim and compensatory damages were $6,000). Given the facts and circumstances of this case, and the amount of compensatory damages for which defendants are liable, this amount of punitive damages is neither draconian nor a token amount. See Schoenholtz, 675 F. Supp. at 916.
As a general rule, attorneys' fees are not recoverable by the successful party in the absence of express statutory or contractual authority. See Technical Career Insts., Inc. v. Local 2110. United Auto Workers. AFL-CIO, No. 00 Civ. 9786, 2002 WL 441170, at *5 (S.D.N.Y. Mar. 21, 2002); Astor Holdings, Inc. v. Roski, No. 01 Civ. 1905, 2002 WL 72936, at *22 (S.D.N.Y. Jan. 17, 2002). However, when such authority is absent, a court may award the prevailing party attorneys' fees "where the other party has conducted an action 'in bad faith, vexatiously, wantonly, or for oppressive reasons.'" Mar Oil, 982 F.2d at 844 (quotingF.D. Rich Co. v. United States ex rel. Indus. Lumber Co., 417 U.S. 116, 129, 94 S.Ct. 2157, 2165); see also Technical Career Insts., 2002 WL 441170, at *5. In addition, under New York law, where "through the wrongful act of his present adversary, a person is involved in earlier litigation with a third person in bringing or defending an action to protect his interests, he is entitled to recover the reasonable value of attorneys' fees and other expenses thereby suffered or incurred." See Alloy Briquetting Corp. v. Niagara Vest. Inc., 802 F. Supp. 943 (W.D.N.Y. 1992) (quoting Shindler v. Lamb, 25 Misc.2d 810, 812, 211 N.Y.S.2d 762, 765, aff'd, 10 A.D.2d 826, 200 N.Y.S.2d 346, aff'd, 9 N.Y.2d 621, 210 N.Y.S.2d 226) (internal quotation marks omitted).
Although there is no statutory or contractual authorization for attorneys' fees in this case, the exception to the ordinary rule applies. Plaintiff was required, through Levin's misconduct, to commence an action against Ontos and a third party, Autospace, Inc., in order to prevent Levin from conveying assets out of the defendant companies. Moreover, in the instant litigation, Levin has conducted his defense in bad faith by filing a frivolous motion to dismiss the complaint. Therefore, the Court finds that an award of attorneys' fees is warranted here.
When fixing a reasonable rate for attorney fees, it is appropriate for a court to consider and to apply the prevailing market rates in the relevant community for similar legal work of lawyers of reasonably comparable skill, experience and reputation. See Blum v. Stenson, 465 U.S. 886, 895 n. 11, 104 S.Ct. 1541, 1547 n. 11 (1984). In addition, it is permissible for a court to rely upon its own knowledge of private firm hourly rates in deciding what reasonable attorney fees are in the community. Miele v. N.Y. State Teamsters Conf. Pens. Retirement Fund, 831 F.2d 407, 409 (2d Cir. 1987).
In the Second Circuit, a party seeking an award of attorney fees must 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). Attorney fee applications that do not contain such supporting data "should normally be disallowed." Id. at 1154.
In prosecuting the Florida action against Ontos and Autospace, Inc., plaintiff engaged the service of the law firm Bedell, Dittmar, DeVault, Pillans Coxe, P.A. In prosecuting the instant litigation, plaintiff engaged the service of the law firm Sexter Warmflash, P.C. Plaintiff submitted to the Court monthly invoices he received from each firm for the legal services he was provided. (See Exhibits A and B to Affidavit of Michael Miller.) In addition, plaintiff has submitted contemporaneous records for each firm's personnel, as required in this judicial circuit. The time records describe, for each attorney and paralegal who participated in the prosecution of these actions, the date on which the service(s) was provided by the attorney(s), the hours expended by the attorney(s), and the nature of the work performed by the attorney(s).
The time records of the law firm Bedell, Dittmar, De Vault, Pillans Coxe, P.A. indicate that, during the period January 10, 2002, through May 31, 2002, plaintiff incurred attorney fees through work performed by the following personnel: Charles P. Pillans III — 1 hr @ $275 per hour; Henry M. Coxe, III — .6 hr @ $275 per hour; Allan F. Brooke II — 23.5 hr @ $175 per hour; O. David Barksdale — .3 hr @ $175 per hour; R. H. Farnell II — .3 hr @ $175 per hour; Aaron Metcalf — 90.4 hr @ $140 per hour; P. Michelle Bedoya — 2.3 hr @ $90 per hour; and Andrea Bailey — 3.9 hr @ $65 per hour. Based upon the Court's review of these time records, the Court concludes that $18,390.11 in attorneys' fees and costs were incurred by Miller through work performed by personnel of the law firm Bedell, Dittmar, De Vault, Pillans Coxe, P.A.
The time records of the law firm Sexter Warmflash, P.C. indicate that, during the period January 31, 2002, through May 30, 2002, plaintiff incurred attorney fees through work performed by the following personnel: David Warmflash — 52.5 hr @ $365 per hour; James J. Noumair — 127.70 hr @ $190 per hour; Michael Present — 24.5 hr @ $275 per hour. Based upon the Court's review of these time records, the Court concludes that $55,980.37 in attorneys' fees and costs were incurred by Miller through work performed by personnel of the law firm Sexter Warmflash, P.C.
Although the personnel referenced in the time records of Sexter Warmflash, P.C. are identified only by their initials — D. W., J. N. and M. P. — rather than by their full names, plaintiffs submissions include competent evidence permitting a determination of the names corresponding to the initials in each case.
Therefore, based upon the nature of the case, the Court's review of the submissions by plaintiff, which outlined the services performed by his counsel, and the Court's understanding of the hourly rates charged by private law firms in the community, the Court concludes that a total of $74,370.48 in attorneys' fees and costs were reasonably incurred by Miller in this action.
Plaintiff seeks attorneys' fees for work performed during June 2002 by the law firms whose services he engaged. However, in the absence of contemporaneous time records providing the requisite data to support an award of attorneys' fees for that period, that portion of the award should not be made.
* * *
Plaintiff shall serve defendants with a copy of this Report and Recommendation and shall submit proof of service to the Court.IV. RECOMMENDATION
For the reasons set forth above, I recommend an award to the plaintiff of $224,370.48: $150,000 in punitive damages and $74,370.48 in attorneys' fees.
V. FILING OF OBJECTIONS TO THIS REPORT AND RECOMMENDATION
Pursuant to 28 U.S.C. § 636 (b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure, the parties shall have ten (10) days from service of this Report to file written objections. See also, Fed.R.Civ.P. 6. Such objections, and any responses to objections, shall be filed with the Clerk of Court, with courtesy copies delivered to the chambers of the Honorable Kimba M. Wood, 500 Pearl Street, Room 1610, New York, New York, 10007, and to the chambers of the undersigned, 40 Foley Square, Room 540, New York, New York, 10007. Any requests for an extension of time for filing objections must be directed to Judge Wood. FAILURE TO FILE OBJECTIONS WITHIN TEN (10) DAYS WILL RESULT IN A WAIVER OF OBJECTIONS AND WILL PRECLUDE APPELLATE REVIEW. See Thomas v. Arn 474 U.S. 140 (1985); IUE AFL-CIO Pension Fund v. Herrmann, 9 F.3d 1049, 1054 (2d Cir. 1993); Frank v. Johnson, 968 F.2d 298, 300 (2d Cir. 1992);Wesolek v. Canadair Ltd., 838 F.2d 55, 57-59 (2d Cir. 1988); McCarthy v. Manson, 714 F.2d 234, 237-38 (2d Cir. 1983).
Respectfully submitted