Opinion
18-CV-7303 (JMF) (OTW)
09-30-2022
SHANCHUN YU and RUILI JIN, Plaintiffs, v. DIGUOJIAOYU, INC. d/b/a DIGUO EDU, et al., Defendants.
REPORT AND RECOMMENDATION
ONA T. WANG, MAGISTRATE JUDGE
Plaintiffs Shanchun Yu (“Plaintiff Yu”) and Ruili Jin (“Plaintiff Jin”) (collectively, “Plaintiffs”) seek recovery of damages, on inquest, from Defendants Diguojiaoyu Inc. and Shuntao Zhang (“Defendants”). On December 17, 2019, Plaintiffs obtained a default judgment from Defendants on all claims. (ECF 72). For the following reasons, I recommend that:
• Plaintiff Yu be awarded $45,000 in compensatory damages;
• Plaintiff Jin be awarded $45,000 in compensatory damages;
• Plaintiffs be awarded $5,284 in costs; and
• Plaintiffs be awarded post-judgment interest, to accrue at the statutory rate set by 28 U.S.C. § 1961 from the date of the Award to the date judgment is entered in this action.
I. BACKGROUND
The facts set forth herein are taken from Plaintiff's Second Amended Complaint (Second Amended Complaint, dated Feb. 25, 2019 (“SAC”) (ECF 32)), the allegations of which are accepted as true as a result of Defendants' default (see Discussion infra at Section II.A).
Plaintiffs are citizens of the People's Republic of China. (SAC ¶¶ 1-2). Plaintiffs allege that Defendants made fraudulent misrepresentations to Plaintiffs concerning the application process for admission to various universities in the United States. (SAC ¶¶ 6-7). Specifically, Plaintiff Yu alleges that she was approached by Defendants, who convinced her to apply to Columbia University's Masters program. (SAC ¶ 34-37). After paying Defendants approximately $45,000, Defendants instructed Plaintiff Yu to send an official copy of her college transcript to a California address provided by Defendants. (SAC ¶¶ 40-42). Plaintiff Yu was “unaware of the application process,” which would have required her to send her application materials directly to the university, instead of through a third party. (SAC ¶ 42). Plaintiff Yu was then admitted to Columbia University's School of Professional Studies and began studying there. (SAC ¶ 45). In May of 2018, Plaintiff Yu was expelled from Columbia University for submitting fabricated application materials. (SAC ¶ 51).
Plaintiff Jin was similarly approached by Defendants' agents to apply to Boston University while she was studying at Stony Brook University. (SAC ¶¶ 53-56). After paying Defendants $45,000, Plaintiff Jin provided her transcript to Defendants, who later sent her an altered transcript. (SAC ¶¶ 65-71). Plaintiff Jin alleges that she was instructed not to open the package containing the altered transcript, which was then sent to Boston University. (SAC ¶¶ 70-72). Soon after, Plaintiff Jin was expelled from Stony Brook University for submitting falsified application materials to Boston University. (SAC ¶¶ 73-74).
B. Procedural History
Plaintiffs subsequently commenced the instant action on August 13, 2018. (ECF0 1). In their Amended Complaint, Plaintiffs sought money damages and punitive damages for claims sounding in fraud, fraudulent misrepresentation, unjust enrichment, and defamation. (SAC ¶¶ 89-124). On December 17, 2019, Judge Furman entered default judgment against Defendants for their repeated failures to comply with Court orders and fulfill discovery obligations, and referred the matter to me for an inquest on the issue of damages. (ECF 72).
Plaintiffs untimely filed their first attempt at proposed findings of fact and conclusions of law on March 2, 2021. (ECF 81). Subsequently, I ordered Plaintiffs to file a corrected version of their inquest submission, noting that Plaintiffs' filing was deficient because it was not signed by Plaintiffs' counsel, included pages that were dark, illegible, and/or lacking English translations, did not provide supporting documentation for attorney's fees and costs, included exhibits without declarations or affidavits attesting to their authenticity and contents, and was not accompanied by proof of service. (ECF 82). Plaintiffs' “corrected” filings still contained multiple errors (ECF 90), and I directed them to submit their inquest papers a third time (ECF 94). While Plaintiffs' latest submission (ECF 93) still contains some errors, I find that the Court has enough information to recommend the above-mentioned awards. Defendants have submitted no papers in opposition.
II. DISCUSSION
A. Default Judgment and Inquest Standard
The Clerk of Court must enter default against a defendant who has failed to plead or otherwise defend an action, and that failure is shown by affidavit or otherwise. (Fed. R. Civ. P. 55(a)). Following a default judgment, all well-pleaded factual allegations of the complaint, except those relating to damages, are accepted as true, and a “factual allegation will be deemed not well-pled only in ‘very narrow, exceptional circumstances.'” Cartright v. Lodge, No. 15-CV-9939 (KMW) (RLE), 2017 WL 1194241, at *4 (quoting Trans World Airlines, Inc. v. Hughes, 308 F.Supp. 679, 683 (S.D.N.Y. 1969)).
At an inquest on damages, the plaintiff bears the burden of establishing an amount of damages with reasonable certainty. RGI Brands LLC v. Cognac Brisset-Aurige, S.A.R.L., No. 12-CV-1369 (LGS) (AJP), 2013 WL 1668206, at *6 (S.D.N.Y. Apr. 18, 2013). An inquest into damages may be conducted without an evidentiary hearing. See Tamarin v. Adam Caterers, Inc., 13 F.3d 51, 53-54 (2d Cir. 1993); Maldonado v. La Nueva Rampa, Inc., No. 10-CV-8195 (LLS) (JLC), 2012 WL 1669341, at *2 (S.D.N.Y. May 14, 2012) (“[A] hearing is not required where a sufficient basis on which to make a calculation exists.”). Where a defaulting defendant has not made any submission on a damages inquest, “the court may determine the adequacy of the plaintiff's damages claim based on its submitted proofs.” Lenard v. Design Studio, 889 F.Supp.2d 518, 527 (S.D.N.Y. 2012).
B. Liability
Plaintiffs allege common law fraud and fraudulent misrepresentation, unjust enrichment, aiding and abetting fraud, defamation, and violations of New York's Executive and General Business laws. By virtue of their default, I find that Defendants have conceded liability as to the allegations set forth in the SAC on Plaintiffs' claims for fraud, unjust enrichment, violations of New York General Business Law § 349. See Taizhou Zhongneng Imp. & Exp. Co. v. Koutsobinas, 509 Fed.Appx. 54, 56 (2d Cir. 2013) (defaulting defendant's liability depends on whether “allegations are sufficient to state a cause of action”). I find, however, that Plaintiffs have not sufficiently alleged claims for violations of New York Executive Law § 63 or provide support for their defamation claim.
1. Fraud against all Defendants
Under New York law, the elements of common law fraud are: “(1) a material misrepresentation or omission of fact; (2) made with knowledge of its falsity; (3) with scienter or an intent to defraud; (4) upon which the plaintiff reasonably relied; and (5) such reliance caused damage to the plaintiff.” Dover Ltd. v. A.B. Watley, Inc., 423 F.Supp.2d 303, 327 (S.D.N.Y. 2006) (citations omitted). “Claims of common law fraud must satisfy the requirements of Rule 9(b).” Healthcare Fin. Group v. Bank Leumi USA, 669 F.Supp.2d 344, 348 (S.D.N.Y. 2009). Under this standard, the complaint must (1) specify the alleged fraudulent statements; (2) identify the speaker; (3) state where, when and to whom the statements were made; and (4) explain why the statements were fraudulent. See Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir. 1993). A plaintiff must also “allege facts that give rise to a strong inference of fraudulent intent.” See Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1128 (2d Cir. 1994).
I find that Plaintiffs have satisfied the elements of a common law fraud claim. Plaintiffs allege that Defendants disseminated deceptive information regarding their success rates for student admission into prestigious universities (SAC ¶ 23a) and then induced those students to send to Defendants transcripts that Defendants then fraudulently altered. (SAC ¶ 23c-d). Plaintiffs allege that as a result of Defendants' misrepresentations, Plaintiffs were expelled from their respective universities. (SAC ¶¶ 52, 74). Plaintiffs further identify Defendants' representatives as the specific individuals who persuaded them to utilize Defendants' services and to submit fraudulent transcripts. (SAC ¶¶ 30-41, 59-73).
2. Unjust Enrichment against all Defendants
Under New York law, a plaintiff claiming unjust enrichment must plead and prove (1) that the defendant was enriched, (2) that the enrichment was at the plaintiff's expense, and (3) that the circumstances are such that in equity and good conscience the defendant should return the money or property to the plaintiff.” Golden Pac. Bancorp v. FDIC, 273 F.3d 509, 512 (2d Cir. 2001). Here, Plaintiffs have adequately pled an unjust enrichment claim. Plaintiffs have alleged that Defendants have received approximately $90,000 that they procured from Plaintiffs through fraudulent statements and misrepresentations. (SAC ¶¶ 40, 43-44, 64-65).
3. Aiding and Abetting Fraud as to Defendant Zhang
To establish aiding and abetting fraud under New York law, plaintiffs must show: (1) the existence of a fraud; (2) the defendant's knowledge of the fraud; (3) that the defendant provided substantial assistance to advance the fraud's commission. Gov't Emps. Ins. Co. v. Infinity Health Prod., Ltd., No. 10-CV-5611 JG JMA, 2012 WL 1427796, at *6 (E.D.N.Y. Apr. 6, 2012), report and recommendation adopted, No. 10-CV-5611 JG JMA, 2012 WL 1432213 (E.D.N.Y. Apr. 25, 2012). As discussed above, Plaintiffs have adequately shown that Defendant Diguojiaoyu, Inc. perpetrated a fraud; they have similarly shown that Defendant Zhang persuaded Plaintiffs to use Defendant Diguojiaoyu's fraudulent services. (SAC ¶¶ 30-41, 59-73).
4. Violations of New York Executive Law § 63 (12) against all Defendants
New York Executive Law § 63(12) permits the Attorney General to intervene on behalf of the people of the state to seek injunctive relief and money damages against any person engaging in repeated fraudulent or illegal acts in business transactions. Because § 63(12) authorizes suit only by the Attorney General, Plaintiffs do not have standing to bring this claim and accordingly cannot maintain it against Defendants. People of State of New York, by Abrams v. Holiday Inns, Inc., No. 83-CV-564S, 1992 WL 532169, at *6 (W.D.N.Y. Aug. 28, 1992), adhered to on reconsideration sub nom. People of State of N.Y. by Abrams v. Holiday Inns, Inc., No. 83-CV-564S, 1993 WL 30933 (W.D.N.Y. Jan. 28, 1993).
5. Violations of New York General Business Law § 349
Section 349 of New York's General Business law makes unlawful “[d]eceptive acts or practices in the conduct of any business, trade” in New York. N.Y. Gen. Bus. Law § 349(a). The statute provides for a private right of action brought against anyone injured as a result of “any violation of this section.” Id. §349(h). In order to state a claim under the statute, “a plaintiff must demonstrate that (1) the defendant's deceptive acts were directed at consumers, (2) the acts are misleading in a material way, and (3) the plaintiff has been injured as a result.” Campbell v. Bank of New York Mellon Tr. Co., No. 11 CIV. 1588 CS PED, 2012 WL 2952852, at *8 (S.D.N.Y. May 8, 2012), report and recommendation adopted sub nom. Campbell v. Bank of New York Tr. Co., No. 11-CV-1588 CS PED, 2012 WL 2953967 (S.D.N.Y. July 18, 2012).
I find that Plaintiffs have adequately established a claim under this statute. Plaintiffs have alleged that Defendants marketed themselves as “Education Consultants” (SAC ¶¶ 17-21), engaged in fraudulent schemes to persuade prospective students to submit altered materials to universities (SAC ¶ 23), and that Plaintiffs were expelled from their universities as a result. (SAC ¶¶ 52, 74).
6. Defamation as to all Defendants
While Plaintiffs allege defamation against Defendants (SAC ¶¶85-88), they provide no supporting documentation of their defamation claim. Neither of Plaintiffs' affidavits make reference to defamation conducted by Defendants against Plaintiffs. Even if the Court were to make a finding on liability, it could not award damages. Accordingly, the Court declines to reach the question of defamation liability.
C. Damages
1. Compensatory Damages
Plaintiffs ask for an award of at least $500,000 in compensatory damages from all defendants. The Court declines to recommend this full amount. First, Plaintiffs' most recent submission to the Court still contains deficient supporting documentation: some of Plaintiffs' inquest papers are still illegible (see ECF 93-1 at 2; 93-4 at 1; 93-8; 93-9), and many of them are written in Chinese, with no accompanying English translation. (See ECF 93-2; 93-3; 93-4; 93-5; 93-6; 93-9; 93-10). This is despite the fact that the Court has directed Plaintiffs to submit corrected papers three times, twice through direct orders and once on a telephone conferencewith Plaintiffs' counsel. (See ECF 85; 89; 92). The Court could recommend that no damages be awarded on this basis alone. See Griffiths v. Francillon, No. CV 10-3101(JFB) (GRB), 2012 WL 1341077, at *1, (E.D.N.Y. Jan. 30, 2012) (recommending that no damages be awarded because motion papers alone were insufficient to support an award of damages), report and recommendation adopted, 2012 WL 1354481, at *1, 2012 U.S. Dist. LEXIS 54683, at *3 (E.D.N.Y. Apr. 13, 2012).
In fact, at the March 3, 2021, conference with Plaintiffs' counsel, the Court explicitly stated that some documents attached to the inquest submission “appear to be in Chinese, and they need translations attached. There are some items that are just illegible.” (ECF 85, Tr. 5-6:23-5).
However, the Court notes that Plaintiffs have made some necessary corrections to their papers sufficient for the Court to ascertain a damages number, and have provided sworn affidavits attesting to the expenses Plaintiffs incurred as a result of Defendants' fraudulent statements. Accordingly, the Court recommends that Plaintiff Jin be awarded $45,000 in compensatory damages, the amount that she transferred to Defendants for their services. (ECF 93-14 at ¶ 7). Similarly, the Court recommends that Plaintiff Yu be awarded $45,000 in compensatory damages, the amount that she transferred to Defendants for their services. (ECF 93-15 ¶ 6). The Court declines to award Plaintiffs damages for expenses incurred for school tuition, flight tickets, and living costs. Plaintiffs have not demonstrated that they would not have attended an American university had they not engaged Defendants' services.
2. Punitive Damages
Plaintiffs also seek an award of at least $100,000 in punitive damages. (ECF 93 at 18). In New York, punitive damages are available where the conduct at issue is actionable as an independent tort; involves a high degree of moral culpability; and is part of a pattern directed at the public generally. New York Univ. v. Cont'l Ins. Co., 87 N.Y.2d 308, 316, 662 N.E.2d 763, 767 (1995). Here, Plaintiffs have not shown that Defendants' conduct was so outrageous or egregious that it warrants a substantial punitive damage award, beyond bare allegations that Defendants lured nameless other unwitting students into their fraudulent scheme. See Mayline Enterprises, Inc. v. Milea Truck Sales Corp., 641 F.Supp.2d 304, 312 (S.D.N.Y. 2009) (declining to award punitive damages where plaintiff had proven only a single incident of fraud even though plaintiff alleged that the fraud was directed at the general public).
In their inquest papers, Plaintiffs attached no proof that Defendants' marketed their services to the public at large.
3. Attorney's Fees and Costs
Lastly, Plaintiffs ask for an award of $50,000 in attorney's fees, plus post-judgment interest. (ECF 93 at 18). Courts may award attorney's fees and costs for violations of New York General Business Law § 349, and where defendants have defaulted. Whitehead v. Mix Unit, LLC, No. 17CIV9476VSBJLC, 2019 WL 384446, at *5 (S.D.N.Y. Jan. 31, 2019), report and recommendation adopted, No. 17-CV-9476 (VSB), 2019 WL 1746007 (S.D.N.Y. Apr. 18, 2019) (noting that “courts have found that compensation, including attorney's fees and costs, are appropriate where a defendant has defaulted”).
In support, Plaintiffs' counsel has attached billing invoices associated with prosecuting and obtaining judgment in this matter, with total fees listed as $13,879. Entries post-dating December 17, 2019, have been submitted with sufficient details including dates, description of services rendered, and hours expended. The number of hours spent on certain tasks, such as drafting letters to the Court and corresponding with clients is reasonable. However, Plaintiffs have not properly listed entries from the commencement of the action. They have instead simply identified all work done before December 17, 2019, as “Previous Balance Ordered” and noted it as incurring $8,595, without listing or identifying the work done to accrue the balance.
Accordingly, Plaintiffs are not entitled to attorneys' fees from before December 17, 2019, but I find that they are entitled to attorney's fees incurred after that date. I therefore recommend that Plaintiffs be awarded $5,284 in attorney's fees.
4. Post-Judgment Interest
I recommend that Plaintiffs' request for post-judgment interest at the statutory rate (ECF 93 at 19) also be granted. “28 U.S.C. § 1961(a) mandates post-judgment interest for civil money judgments recovered in federal district court.” Trs. of the N.Y. City Dist. Council of Carpenters Pension Fund v. S&S Kings Corp., No. 19-CV-01052 (RA), 2019 WL 4412705, at *4 (S.D.N.Y. Sept. 16, 2019) (confirming arbitration award and granting pre- and post-judgment interest) (citing Westinghouse Credit Corp. v. D'Urso, 371 F.3d 96, 100 (2d Cir. 2004)). “‘[P]ost-judgment interest ‘shall be calculated from the date of the entry of the judgment.'” Id. (quoting 28 U.S.C. § 1961(a)).
D. Conclusion
For the reasons set forth above, I recommend that Plaintiff Yu be awarded $45,000.00 in compensatory damages, Plaintiff Jin be awarded $45,000.00 in compensatory damages, and that Plaintiffs be awarded $5,284 in attorney's fees. I further recommend that Plaintiffs' request for post-judgment interest be GRANTED, with interest to accrue at the statutory rate set by 28 U.S.C. § 1961 from the date of the Award to the date judgment is entered in this action.
E. Objections
In accordance with 28 U.S.C. §636(b)(1) and Fed.R.Civ.P. 72(b), the parties shall have fourteen (14) days (including weekends and holidays) from receipt of this Report to file written objections. See also FED. R. CIV. P. 6. A party may respond to any objections within fourteen (14) days after being served. Such objections, and any responses to objections, shall be addressed to the Honorable Jesse M. Furman, United States District Judge. Any requests for an extension of time for filing objections must be directed to Judge Furman.
FAILURE TO FILE OBJECTIONS WITHIN FOURTEEN (14) DAYS WILL RESULT IN A WAIVER OF OBJECTIONS AND WILL PRECLUDE APPELLATE REVIEW. See Thomas v. Arn, 474 U.S. 140, 155 (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, 58 (2d Cir. 1988); McCarthy v. Manson, 714 F.2d 234, 237-38 (2d Cir. 1983).
Respectfully submitted,