Opinion
01 Civ. 0285 (SHS)(KNF).
July 15, 2003.
REPORT AND RECOMMENDATION
I. INTRODUCTION
In this action, plaintiffs Shirley D. Sack ("Sack") and Shirley D. Sack, Ltd. ("Sack, Ltd.") (collectively "plaintiffs") allege breach of contract against Kenneth Lawton ("Lawton" or "defendant") and Salvatore Romero ("Romero"). Upon Lawton's failure to answer or otherwise respond to the complaint, United States District Judge Allen G. Schwartz ordered that a default judgment be entered against him. Judge Schwartz then referred the matter to the undersigned to conduct an inquest and to report and recommend the amount of damages, if any, to be awarded to plaintiffs against the defendant.
Defendant Romero was not served with the complaint and, therefore, was not named in the default judgment. Accordingly, this report and recommendation addresses only those claims made against Lawton.
The Court directed plaintiffs to file and serve proposed findings of fact and conclusions of law and an inquest memorandum setting forth their proof of damages, costs of this action, and their attorney's fees. The defendant was directed to file and serve opposing memoranda, affidavits and exhibits, as well as any alternative findings of fact and conclusions of law he deemed appropriate, and to state whether a hearing was requested for the purpose of examining witnesses.
In support of their request for damages, plaintiffs served and filed proposed findings of fact and conclusions of law, the declaration of plaintiff Sack, the declaration of plaintiff's counsel, John Harris, and a memorandum of law. The defendant submitted two writings in opposition to plaintiffs' inquest submissions. In April 2003, this case was reassigned to your Honor.
Plaintiffs' submissions aver that they are entitled to $17,000,000 in contract damages, $3,000,000 in consequential damages, $1,849,617.10 in interest, attorney's fees and costs.
For the reasons set forth below I recommend that plaintiffs be awarded $12,000,000 in contract damages and prejudgment interest, calculated at the statutory rate of 9% per year, on the amount of $12,000,000, accruing on August 23, 2000.
II. BACKGROUND AND FACTS
Based on submissions by the parties, the complaint filed in defendant's 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 review of the entire court file maintained in this action, the following findings of fact are made:
Sack is a citizen of the state of New York and the president of Sack, Ltd. Sack, Ltd. is a corporation organized and existing under the laws of the state of New York. Lawton is a citizen of the state of North Carolina.
Plaintiffs are the owners of a drawing by the Italian Renaissance artist Raphael, entitled "St. Benedict Receiving Mauro and Placido." The drawing is referred to, by the plaintiffs and others, as the "Modello." Sack avers that the Modello is a unique work of art: an original drawing, with provenance proven beyond question, executed solely by Raphael, and dated 1503-1504 by New York's Metropolitan Museum of Art.
The plaintiffs acquired the work approximately ten years ago; in or about July 2000, plaintiffs offered the Modello for sale. At the time of the offering, the Modello was appraised and determined to be authentic. The work is insured for $12,000,000 by Lloyds of London. Several prospective buyers, including a museum, expressed interest in the Modello; in addition, the plaintiffs received several offers for the drawing. On August 23, 2000, the plaintiffs, acting through their agent, Alan M. Stewart ("Stewart"), entered into an agreement with Lawton whereby Lawton agreed to purchase the Modello for $12,000,000. According to Sack, there was no indication from Lawton that the sale was subject to any further agreement or conditions, and Lawton agreed that the purchase price would be transferred by wire to Stewart's International Capital Management ("ICM") account in New York City.
The sale of the Modello was memorialized in a document entitled "Bill of Sale," dated August 23, 2000, and executed by Stewart and Lawton. The Modello remained in the possession of the plaintiffs pending payment by Lawton of the purchase price. However, Lawton failed to pay any part of the purchase price, despite numerous demands by the plaintiffs, as well as representations by Lawton that the funds were, or would be, forthcoming.
According to Sack, when it became clear that Lawton would not pay the purchase price for the Modello, she attempted to find other buyers for the work. To this end, she displayed the work at a gallery in New York City and publicized its availability among art dealers and members of the art community. However, she was unable to find another buyer for the work at a price comparable to the price agreed upon by Lawton. In addition, Sack contends, since the bill of sale to Lawton is fully executed and has never been cancelled, she may be unable to convey clear title to the work, in the event that she finds a buyer and attempts to consummate an unconditional sale.
Plaintiffs contend that, during the period they were attempting to secure payment for the Modello, Lawton was seeking buyers for the work, even though he had not yet paid for it. According to the plaintiffs, as a result of Lawton's marketing activity, the value of the work was compromised to the extent that it had acquired the aura of a commodity, to be bought and sold for monetary gain rather than for its intrinsic value as a work of art.
At the time Stewart was negotiating the sale of the Modello on behalf of the plaintiffs, Lawton offered to sell plaintiffs a work by the artist Giovanni Bellini, entitled "Madonna and Child." This work is referred to by the plaintiffs as the "Bellini." On or about August 30, 2000, Lawton entered into an agreement with Stewart whereby Stewart became his exclusive agent with respect to the sale of the Bellini. The terms of their agreement were set forth in a commission agreement dated September 18, 2000, and executed by Stewart and Lawton. The commission agreement stated, among other things, that Lawton and Romero were the sole lawful owners of the Bellini and, as such, possessed the legal right to sell, convey and transfer the work without restriction.
Sack states that it was her intention to resell the Bellini immediately after purchasing it, and that she agreed to pay Lawton $10,000,000 for the Bellini after ascertaining that she could resell the work to prospective buyers for $15,000,000. However, according to Sack, after Lawton agreed to sell the Bellini, she was informed that Lawton was not the owner of the work and was not authorized to offer it for sale, and, furthermore, that the true owner did not wish to sell the work to Sack. As a result, Lawton failed to surrender the Bellini to the plaintiffs or to accept payment in connection with their agreement to purchase the work.
Plaintiffs aver that Lawton breached his contract with them for the sale of the Modello and that, although they have reasonably attempted to resell the drawing in order to mitigate the damages caused by the breach, they have been unable to do so, in whole or in part. Plaintiffs also contend that Lawton breached his contract with them concerning the purchase of the Bellini and that they have sustained damages in connection with the breach in the amount of their anticipated profit upon resale of the work. Thus, plaintiffs seek damages in connection with the contract for the sale of the Modello in an amount equal to the purchase price, that is, $12,000,000, as well as interest, and consequential damages in the amount of $3,000,000. In connection with the contract for the purchase of the Bellini, plaintiffs seek damages equal to their anticipated profit, that is, $5,000,000.
Lawton has opposed plaintiffs' claims for damages. In a letter dated February 18, 2002, Lawton denied having breached the contracts at issue in this case and asserted that the Modello was "last traded publicly in London at a Christie's sale in 1989, for under $60K." Lawton also submitted what purports to be a declaration, setting forth essentially the same contentions concerning plaintiffs' damages claims as those contained in his earlier letter. However, the "declaration" is neither signed nor attested.
In support of their application for damages, plaintiffs submitted, inter alia: (i) a copy of the August 23, 2000 bill of sale conveying the Modello to Lawton for a sum of $12,000,000; (ii) a copy of the September 18, 2000 commission agreement setting forth the terms of Stewart's agency arrangement with Lawton with respect to the sale of the Bellini; (iii) the declaration of Stewart in support of plaintiffs' motion for a default judgment against Lawton; and (iv) a statement of the interest claimed to be due on plaintiffs' contractual damages.
III. CONCLUSIONS OF LAW
A default judgment in an action establishes liability, but is not a concession of damages. 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]). Damages must be established by the plaintiff in a post-default inquest. See id. 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).
The general rule for measuring damages for a breach of contract is "the amount necessary to put the plaintiff in the same economic position he would have been in had the defendant fulfilled his contract." Indu Craft, Inc. v. Bank of Baroda, 47 F.3d 490, 495 (2d Cir. 1995). Under New York law, which governs this diversity action, in a case involving the breach of a contract for the sale of goods, a seller may recover the entire contract price, "if the seller is unable to resell [the goods] at a reasonable price or the circumstances reasonably indicate that such effort will be unavailing." Uniform Commercial Code ("UCC") § 2-709(1)(b); see also Hyosung America. Inc. v. Sumagh Textile Co., Ltd., 137 F.3d 75, 80-81 (2d Cir. 1998); Creations by Roselynn v. Costanza, 189 Misc.2d 600, 601, 734 N.Y.S.2d 803, 804-805 (App. Term 2d Dep't 2001).
Since the contracts at issue in this case are for the purchase and sale of goods, Article 2 of New York's Uniform Commercial Code applies.
An aggrieved seller may also recover incidental damages, that is, "commercially reasonable charges incurred in [for example] stopping delivery [or] in the transportation, care and custody of goods after the buyer's breach. . . ." UCC § 2-710; see also UCC §§ 2-708 and 2-709. Since the purpose of providing incidental damages "is only to put the seller in as good a position as performance would have done," incidental damages under the UCC "are limited to out-of-pocket expenses." Ernst Steel Corp. v. Horn Constr. Div., Halliburton Co., 104 A.D.2d 55, 64, 481 N.Y.S.2d 833, 840 (App.Div. 4th Dep't 1984).
Although New York's commercial code provides for incidental damages in the event of a breach by a buyer, there is no comparable provision allowing an aggrieved seller to recover consequential damages. See Associated Metals Minerals Corp. v. Sharon Steel Corp., 590 F. Supp. 18, 21 (S.D.N.Y. 1983) (citing Petroleo Brasileiro, S.A., Petrobras v. Ameropan Oil Corp., 372 F. Supp. 503, 508 [E.D.N.Y. 1974]).
Under New York law, "a plaintiff who prevails on a claim for breach of contract is entitled to prejudgment interest as a matter of right." United States Naval Inst. v. Charter Communications, Inc., 936 F.2d 692, 698 (2d Cir. 1991) (citing New York Civil Practice Law and Rules ["CPLR"] §§ 5001 and 5002). The most pertinent New York statute provides, in relevant part, "[i]nterest shall be recovered upon a sum awarded because of a breach of performance of a contract. . . ." CPLR § 5001(a). The CPLR further provides that "[i]nterest shall be computed from the earliest ascertainable date the cause of action existed. . . ." CPLR § 5001(b). When "damages were incurred at various times," interest shall be "computed upon each item from the date it was incurred or upon all of the damages from a single reasonable intermediate date." Id. In New York, the statutory rate for prejudgment interest in a breach of contract action is 9% per annum. See CPLR § 5004.
The Modello Contract
Based on a review of the parties' submissions in this case, the Court finds that plaintiffs have provided sufficient documentary proof to establish that they are entitled to the amount claimed to be owed for Lawton's breach of the contract for the sale of the Modello. Furthermore, plaintiffs are entitled to prejudgment interest under New York law. However, the Court is not persuaded that plaintiffs are entitled to recover the amount claimed to be owed as consequential damages.
The material submitted by plaintiffs in connection with this inquest establishes that plaintiffs entered into a contract with Lawton for the sale of the Modello for a sum of $12,000,000 and that Lawton failed to pay any part of the purchase price. There is no evidence that the Modello has been resold. Moreover, plaintiffs have established that, under the circumstances, they are unable to resell the Modello at a reasonable price. Accordingly, based on the record evidence, Lawton owes the plaintiffs $12,000,000, the contract price of the Modello.
In addition, plaintiffs are entitled to prejudgment interest from the date the breach of the Modello contract occurred, until the date of final judgment. Under the terms of the Modello contract, payment of the purchase price to Stewart's ICM account, in the form of a "confirmed good funds Fed Fund Wire Transfer," was due on the date the contract was executed. Thus, the breach of the parties' contract occurred on August 23, 2000. Accordingly, plaintiffs are entitled to prejudgment interest at the statutory rate of 9% per year on the amount of $12,000,000, accruing on August 23, 2000.
Plaintiffs claim that they are entitled to $3,000,000 in consequential damages caused by the breach of the Modello contract. As stated above, New York's commercial code, as set forth in the UCC, does not provide the remedy of consequential damages for an aggrieved seller. Plaintiffs may not, therefore, recover consequential damages under the UCC.
Moreover, although an aggrieved seller is entitled to recover incidental damages under the UCC, in this case, plaintiffs have failed to support a claim for incidental damages by submitting documentation describing the types of charges or out-of-pocket expenses to which they were subject as a result of the breach. Consequently, the Court has no basis for determining the amount, if any, of incidental damages plaintiffs have reasonably incurred. See, e.g., Ernst Steel Corp., 104 A.D.2d at 60, 481 N.Y.S.2d at 837 (finding that, although damages will rarely be denied because the amount is uncertain, there must be a reasonable basis for the determination so that the amount may be obtained with some exactness); Derami, Inc. v. John B. Cabot Inc., 277 A.D. 852, 98 N.Y.S.2d 34, 35 (App Div. 1st Dep't 1950) (denying recovery for incidental damages for breach of contract where expenses were not itemized or supported by vouchers, or shown to be necessary). Accordingly, plaintiffs are not entitled to recover incidental damages in connection with the breach of the Modello contract.
The Bellini Contract
"In an action for breach of contract, a plaintiff is entitled to recover lost profits only if he can establish both the existence and the amount of such damages with reasonable certainty." Schonfeld v. Hilliard, 218 F.3d 164, 172 (2d Cir. 2000) (citing Kenford Co. v. County of Erie, 67 N.Y.2d 257, 261, 502 N.Y.S.2d 131, 132). Such damages "may not be merely speculative, possible or imaginary." Id. Moreover, a plaintiff seeking to recover damages for lost profits must prove that such damages were foreseeable and within the contemplation of the parties at the time the contract was made. See id.;American List Corp. v. U.S. News and World Report, Inc., 75 N.Y.2d 38, 43, 550 N.Y.S.2d 590, 593 (1989).
In the instant action, plaintiffs seek damages in the amount of their anticipated profit from the resale of the Bellini. In support of their claim, plaintiffs have submitted, inter alia, the September 18, 2000 commission fee agreement executed by Stewart and Lawton, and the statements of Sack and Stewart, as set forth in their respective declarations, attesting to the fact that Sack had agreed to purchase the Bellini from Lawton for $10,000,000, that she intended to resell the work immediately, and that Stewart, acting on Sack's behalf, had received a number of offers, including at least one offer in the amount of $15,000,000. Absent from plaintiffs' submissions, however, is any documentary proof that Sack ever entered into a contract with Lawton for the purchase of the Bellini. Consequently, plaintiffs have failed to establish with reasonable certainty either the existence or the amount of their alleged lost profits. In addition, since plaintiffs have not provided to the Court any documentary evidence of a contract for the sale of the Bellini, they cannot be heard to say that damages for lost profits were within the contemplation of the parties at the time a contract was made. Therefore, the Court finds that an award of damages for the breach of the Bellini contract would not be appropriate in this case.
Attorney's Fees
Plaintiffs state that they intend to seek recovery of their attorney's fees incurred in prosecuting this action against the defendant. 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.
Plaintiffs have failed to provide any contemporaneous billing records setting forth the name(s) of the attorney(s) who worked on this matter, the hourly rate at which the attorney(s) was compensated, or the nature of the work performed. Therefore, based on the record evidence, the Court finds that plaintiffs are not entitled to recover the attorney's fees they claim to have incurred in connection with this action.
IV. RECOMMENDATION
For the reasons set forth above, I recommend the plaintiffs be awarded damages in the amount of $12,000,000 on their claim for breach of the contract for the sale of the Modello, and prejudgment interest, to be calculated by the Clerk of Court at a rate of 9% per year, on $12,000,000, accruing on August 23, 2000.
* * *
Plaintiffs shall serve a copy of this Report and Recommendation upon the defendant and submit proof of service to the Clerk of Court.
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 Sidney H. Stein, 500 Pearl Street, Room 1010, 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 Stein. FAILURE TO FILE OBJECTIONS WITHIN TEN (10) DAYS WILL RESULT IN A WAIVER OF OBJECTIONS AND WILL PRECLUDE APPELLATE REVIEW. See Thomas v. Am 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).