Opinion
Civil Action 19 Civ. 9357 (GHW) (SLC)
07-06-2021
RAFAEL ACERO TORRES, et al., Plaintiffs, v. JAIRO ENRIQUE SANCHEZ and DILIA MARGARITA BAEZ, Defendants.
REPORT AND RECOMMENDATION
SARAH L. CAVE United States Magistrate Judge
TO THE HONORABLE GREGORY H. WOODS, United States District Judge:
I. INTRODUCTION
Rafael Acero Torres and 134 other Plaintiffs (together, “Plaintiffs”), allege that Defendants Jairo Enrique Sanchez and Dilia Margarita Baez (“Defendants”) violated Sections 6b(a) and 25(a) of the Commodities Exchange Act of 1933, 7 U.S.C. §§ 6b(a)(2)(A)-(C) & 25(a) (“Commodities Act”), Sections 1962(c) and (d), and 1964(c) of the Racketeer Influenced and Corrupt Organizations Act of 1970, 18 U.S.C. § 1962(c)-(d), 1964(c) (“RICO”), and New York law. (ECF No. 3 ¶ 2). Between May 15, 2003 and August 25, 2009 (the “Investment Period”), Plaintiffs invested funds for trading in foreign currency with Defendants' purported corporate entities FIT International Group (“FIT Group”), FIT International Corp. (“FIT Corp.”), and Forex Investment Team Inc. (“FIT New York”) (FIT Group, FIT Corp., and FIT New York, together “FIT”). (Id. ¶ 1). Plaintiffs allege that “Defendants orchestrated an international Ponzi scheme, stealing significantly in excess of $100 million from deceived investors, including Plaintiffs, in the United States and abroad.” (Id. ¶ 3).
Cgc Ltda. Inc. was named as a plaintiff in the Complaint but advised Plaintiffs' counsel that it no longer wishes to pursue its claims in this action, and will be excluded from any judgment. (See ECF No. 27 at 7 n.1). The Plaintiffs are: Rafael Acero Torres; Francisco Jose Agray Cortes; Maria Fernanda Amaya Martinez; Beatriz Angel de Salazar; Raul Eduardo Angulo Carmona; Julio Arango Echeverry; Cristina Arango Restrepo; Sergio Arango Saldariaga; Henry Hernan Bacca Moreno; Bayta Ltda.; Bel Air Trading Ltd.; Victor Rafael Beltran Martinez; Elsa Benedetti Ganda and Eduardo Zuluaga; Jose Edgar Betancourt Gomez; Hans Robert Blumenthal; Arturo Boada; Richar Jose Bocanegra Rosillo; Milagros Boo; Jose Camilo Cabra Monroy; William Cadena Urrea; Beatriz Camacho de Duran; Luis Fernando Cardona Mendez; Jaime Castaneda Borrero; Julio Cesar Cedeno; Raul Marcial Chamorro Casanova and Sara Maria Aguirre de Chamorro; Cooper Gay Suramerica Ltda.; Jose Gustavo Correa; Cranbrook Holdings Ltd.; Rafael Maria Cruz Villamil; Jorge Alfredo Delbouis Fuchs; Alfredo Leon Delbouis Molina; Luis Fernando Delgado Castano; Jairo Alberto Diaz Perdomo; Monica Sofia Dimate Castellanos; Leonor Duran; Maria Cristina Luisa Elena Duran; Maria Lucia Fernandez; Alexandra Fernandez Ospina and Hernando Emiliani Rivera; Rosa Stella Fleing de Diaz; Andres Fabian Galindo; Enrique Alfonso Galvis Gamboa; Juan Garcia Chavarria; Carlos Garza Hernandez; Gloria Garza Hernandez; Luis Fernando Gaviria Velasquez; German Dario Gomez; Tirso Javier Gomez and Lilian Cardona de Gomez; Ulla Gomez; Dario Gomez Jimenez; Ideraldo Luiz Goulart; Andres Guerra Martinez; Francisco Guerrero Bernal; Alberto Gutierrez Bernal; Hernan Dario Guzman Duarte; Andres Adolfo Hernandez; Cesar Augusto Hernandez; Gustavo Hernandez; Mauricio Herrera Forero; Inversiones Paal & Cia S. En C.; Jaime Alberto Iraheta; Francisco Antonio Iraheta; Saira Carolina Iraheta; Miguel E. Jaramillo; Adriana Maria Jimenez Diaz; Dora Elizabeth Josa Montero; Javier Octavio Junca Pelaez; Kapalejayo Inc.; Emilio Latorre Estrada; Alfonso Linares Porto; Francisco Leon Londono; Hernando Macias; Leonardo Mantilla Jacome; Luis Orlando Melo Castaneda; Catalina Maria Mendoza Pereyra; Margarita Luz Myriam Molano; Maria Molano Naffah; Javier and Isabel Montes; Jeanneth Alcira Mora Castro; Miguel Antonio Moreno Jimenez; Jemay Alcione Moyano Parra; Hernan Munoz Orozco; Hani Ibrahim Mustafa Hassan; Margarita Naffah de Molano and Jose Joaquin Molano; Roberto Naffah; Quenia Nunez Tovar; Martha Cecilia Ortiz Torres; Carlos Alberto Ospina Otalora; Carlos Eduardo Ospina Reyes; Jorge Nelson Ostos Lopez; Adriana Paez Martinez; Juan Carlos Parra and Alexandra Torres; Bernardo Parra Vasquez; Lucy Amparo Patino Franco; Gloria Ines Pelaez de Junca and Augusto Octavio Junca Laverde; Augusto Penaranda Sanjuan; Clara Stella Carmen Guillermina Pinzon de Naranjo; Clemencia Pinzon de Rubio; Maria Cristina Pulido De Lhuillier; Estrella Quintero Rodriguez; Jose Ignacio Quintero Rodriguez; Jose Ignacio Quintero Rozo; Nelson Quiroga; Alberto Recchi; Nicolas Restrepo Saldarriaga; Eduardo Restrepo Trujillo; Ciro Enrique Richardson Moreno; Victor Rincon; Amparo Rocha De Aragon; Maria Del Pilar Rocha Jaramillo; Blanca Rubio Chavez; Juan Carlos Rubio Pinzon; Oscar Salazar Mejia; Juan Camilo Saldarriaga Tascon; Armando Santamaria Hermida; Luis Dementrio Santos Jimenez; Juan Jose Sanz Adrados; Gonzalo Sepulveda Lozano; Edison Silva; Mario Rafael Pancracio Sojo Sanchez; Elaine M. Steffen; Flor Alba Talero De Valderrama; Ricardo Andres Tamayo Nino; Martha Susana Torres Acevedo and Hernan Jimenez; Jairo Alfonso Torres Lopez; Erica Barbra Tovar; Alvaro Trujillo Henao; Martha Eugenia Urdaneta Gutierrez; Mariela Valderrama; Rene Fernando Valderrama Talero; Gino Eduardo Valderrama Talero; Daniel Ricardo Vargas Reyes; Clara Ines Velasquez De Isaza; Antoine Yamhure; Daniel German Zamora Avila; and Ricardo Zurek. The Court notes that the spelling of certain Plaintiffs' names differs between Plaintiffs' filings. The Court uses the spelling reflected in the case caption.
Following Defendants' default in this action, the Honorable Gregory H. Woods granted in part Plaintiffs' motion for a default judgment, finding Defendants liable on each of Plaintiffs' claims and referring the matter for a damages inquest. (ECF No. 35 at 37). Following review of the entire record, I respectfully recommend that Plaintiffs be awarded total damages of $90,696,135.88, comprising (i) $18,010,930.14 in compensatory damages, (ii) $18,652,415.32 in pre-judgment interest, and (iii) $54,032,790.42 in RICO treble damages, as set forth on Exhibit A.
II. BACKGROUND
A. Factual Background
Due to Defendants' default, the Court accepts as true all of Plaintiffs' allegations in the Complaint. See Finkel v. Romanowicz, 577 F.3d 79, 84 (2d Cir. 2009); Agureyev v. H.K. Second Ave. Rest., Inc., No. 17 Civ. 7336 (SLC), 2021 WL 847977, at *3 (S.D.N.Y. Mar. 5, 2021).
Defendants held themselves out as experts in foreign currency trading, or “Forex, ” marketing themselves through different corporate entities, including FIT Switzerland and FIT Colombia. (ECF No. 3 ¶¶ 146, 150). Defendants “claimed to execute a proprietary Forex trading strategy through FIT Group, ” a purported New York entity that, “[i]n reality” was never incorporated, but “was merely a sham to avoid any legitimate, enforceable contractual relationships with investors.” (Id. ¶ 151). Defendants' primary means of soliciting clients, including Plaintiffs, was “through social connections.” (Id. ¶ 152). One such connection was Mauricio Vasquez Uribe (“Uribe”), a Colombian dentist who “advertised FIT Group and its purported stable returns to a substantial number of investors” through meetings at his brother's Miami, Florida home, his Colombia dental office, and investors' homes. (Id.) “In soliciting investors, Uribe gave them each the same presentation regarding FIT Group and its Forex trading strategy, and showed each investor the same video produced by Defendants regarding FIT Group.” (Id.) Uribe also showed potential investors his FIT Group investment statements, purporting to show profitable returns, and “fictitious, unenforceable trading agreements” with FIT Group. (Id.)
On May 12, 2003, Baez incorporated FIT Corp. for the purpose of opening bank accounts with JP Morgan Chase, N.A. (“JP Morgan”) and giving an added - but false - sense of legitimacy to Plaintiffs and other investors. (ECF No. 3 ¶ 153). Thereafter, Defendants, directly and through FIT, “showed investors false statements, promising consistent, profitable monthly returns of approximately 3-4% over several years, ” and “promised investors that their investments were protected because FIT had stop loss measures in place to limit any negative losses on investments.” (Id. ¶ 154). Defendants' false statements to Plaintiffs and other investors included fraudulently promising that:
• FIT Group had “all of the applicable required government approvals, licenses, and permits”;
• All customer accounts were segregated as a sub-account of one major FIT account;
• All customer accounts would have trades executed via the FIT account and FIT trading lines; and
• The automated FIT trading system would distribute profits and losses accordingly to all customers.(Id. ¶ 155).
“In reality, FIT Group did not exist, but rather was a device through which Defendants defrauded investors.” (ECF No. 3 ¶ 156). In addition, “Defendants did not segregate customer accounts” and “did not engage in Forex trading as represented, but devised a scheme merely to steal the funds that clients had invested with them.” (Id.) “Through FIT, Defendants collected over $100 million from Plaintiffs and other investors, ” but “never invested” that money in Forex trading, instead using “the funds for their own purposes.” (Id. ¶¶ 157-58).
In November 2008, Uribe began to have concerns about Defendants' operations after finding their New York offices to be empty, and warned investors to withdraw their money from FIT. (ECF No. 3 ¶ 163). “In December 2008, Defendants were forced to deposit over $6 million back into the FIT Corp. operating account at Bank of America to continue meeting withdrawals and redemptions.” (Id. ¶ 164). In January 2009, FIT released account statements “with uncharacteristically low, but still positive returns, ” and in February 2009, “FIT reported its first loss, showing uniformly negative returns of 1-2% for each investor.” (Id. ¶ 166). On these developments, “investors began requesting significant redemptions of their investments, ” which Defendants failed to honor. (Id. ¶ 167). In February 2009, “Defendants began to expressly refuse to provide withdrawals or redemptions to Plaintiffs and other investors, claiming that no client funds may be removed until all open positions in the market were closed.” (Id. ¶ 168). In March 2009, Plaintiffs and other investors unsuccessfully attempted to revoke the limited powers of attorney they had granted to FIT Group to trade on their behalf, and “FIT posted catastrophic losses purportedly up to between 70% and 80% of investor accounts.” (Id. ¶¶ 169-70).
The collapse of FIT revealed that “Defendants never traded these positions, but merely manufactured false reports of losses on paper transactions that they purposely selected after the fact to defraud investors.” (ECF No. 3 ¶ 170). Instead of “investing client funds in the particular Forex trading strategy they had promised, Defendants merely parked clients' funds in various JP Morgan, Bank of America, HSBC, UBS, and Wachovia bank accounts and used the money to fund their fraudulent operation to promote their Ponzi scheme.” (Id. ¶ 179). In addition, Defendants “paid themselves and friends, and misappropriated substantial funds to other business ventures, including Swiss, Panamanian, and Colombian sham companies controlled by Defendants.” (Id.)
B. Procedural Background
1. Prior investor lawsuits
On March 10, 2010, the first investor lawsuit arising out of Defendants' fraudulent scheme and the collapse of FIT was filed. (See Bolivar v. FIT Int'l Grp. Corp., No. 10 Civ. 2128 (PGG) (S.D.N.Y.) (“Bolivar I”)). The plaintiffs in Bolivar I asserted claims for fraud, breach of fiduciary duty, conversion, unjust enrichment, Exchange Act violations, RICO violations, and negligence. (Bolivar I, ECF No. 1 ¶¶ 65-112). On August 22, 2011, after numerous warnings and orders, the Honorable Paul G. Gardephe dismissed Bolivar I for failure to prosecute. (Bolivar I, ECF No. 17 at 3-6). Judge Gardephe denied the plaintiffs' subsequent motion to vacate the order of dismissal, finding a “complete lack of diligence” on the part of plaintiffs' counsel. (Bolivar I, ECF No. 23 at 5, 8).
On February 1, 2012, investors filed another complaint asserting the same claims as in Bolivar I. (See Bolivar v. FIT Int'l Grp. Corp., No. 12 Civ. 781 (PGG) (DF) (S.D.N.Y.) (“Bolivar II”)). Following service, the Bolivar II defendants - Sanchez, Baez, FIT New York, and FIT Corp. - failed to appear and the Clerk of the Court issued a certificate of default as to all of them. (Bolivar II, ECF No. 24). On January 14, 2015, Judge Gardephe granted the Bolivar II plaintiffs' motion for class certification. (Bolivar II, ECF No. 33). On October 8, 2015, Judge Gardephe issued an Order of Default, accepting as true the plaintiffs' allegations against the defaulting defendants, and referred the matter to the Honorable Debra Freeman for a damages inquest. (Bolivar II, ECF Nos. 38, 39). On March 16, 2017, Judge Freeman issued a report and recommendation recommending that (i) the Bolivar II class be decertified, (ii) the three named plaintiffs be awarded damages, including treble RICO damages and pre-judgment interest, (iii) plaintiffs be awarded costs of $350.00, and (iv) the defendants be held jointly and severally liable. See Bolivar v. FIT Int'l Grp. Corp., No. 12 Civ. 781, 2017 WL 11473766, at *33 (S.D.N.Y. Mar. 16, 2017) (“Bolivar II R&R”). On September 20, 2019, Judge Gardephe adopted the Bolivar II R&R in its entirety, decertifying the class and entering judgment for the three named plaintiffs in the amounts that Judge Freeman had recommended. See Bolivar v. FIT Int'l Grp. Corp., No. 12 Civ. 781 (PGG) (DF), 2019 WL 4565067, at *3 (S.D.N.Y. Sept. 20, 2019) (“Bolivar II Order”).
Judge Freeman recommended that all four Bolivar II defendants be held jointly and severally liable for the treble damages and costs, and that Sanchez, Baez, and FIT New York be held jointly and severally liable for the pre-judgment interest awards. See Bolivar II R&R, 2017 WL 11473766, at *33.
In 2014, Daniel Zamora (“Zamora”) and CGC, Inc. (“CGC”), also FIT investors, filed a third lawsuit, Zamora v. JP Morgan Chase Bank, N.A., No. 14 Civ. 5344 (WHP) (SN) (S.D.N.Y.) (the “Zamora Action”). The plaintiffs in the Zamora Action asserted 17 claims, including wire fraud, RICO, and common law claims, against JP Morgan Chase Bank, N.A. and JP Morgan Chase & Co. (together “JP Morgan”), as well as Sanchez, Baez, FIT Corp., and FIT New York. (Zamora Action, ECF No. 25 ¶¶ 46-140). JP Morgan moved for dismissal, which the Court granted; Sanchez, Baez, and the FIT defendants failed to appear and were held in default. (Zamora Action, ECF Nos. 40, 63, 67, 77, 80-81, 83, 85, 99). On May 10, 2019, the Honorable Sarah Netburn issued a report and recommendation recommending that default judgment based on RICO violations be entered against Sanchez, Baez, and FIT Corp., plaintiffs be awarded over $9.7 million in damages for which Sanchez, Baez, and FIT Corp. be jointly and severally liable, and plaintiffs be awarded postjudgment interest. See Zamora v. JP Morgan Chase Bank, N.A., No. 14 Civ. 5344, 2019 WL 3401693, at *9 (S.D.N.Y. May 10, 2019) (the “Zamora R&R”). On June 7, 2019, the Honorable William H. Pauley III adopted the Zamora R&R in its entirety and entered judgment for Zamora and CGC consistent with Judge Netburn's recommendations. See Zamora v. FIT Int'l Grp. Corp., No. 14 Civ. 5344, 2019 WL 2416941, at *1 (S.D.N.Y. June 7, 2019) (the “Zamora Order”).
2. This action
On October 11, 2019, Plaintiffs filed the Complaint in this action, naming only Sanchez and Baez as Defendants. (ECF No. 3). As in Bolivar I and Bolivar II, the Complaint asserted claims for fraud, breach of fiduciary duty, conversion, unjust enrichment, commodities fraud and control person liability under the Exchange Act, RICO, and negligence. (ECF No. 3 ¶¶ 180-225).
On November 5, 2019, the Clerk of the Court served Sanchez and Baez with the summons, Complaint, and other filings by Federal Express, pursuant to Federal Rule of Civil Procedure 4(f)(2)(C)(ii). (ECF Nos. 11, 12, 26-2). On November 7, 2019, as confirmed by an affidavit of service filed by Plaintiffs' counsel, Defendants each received these materials. (ECF Nos. 13, 26-3). Under Federal Rule of Civil Procedure 12(a)(1)(A)(i), by November 28, 2019, Defendants were required to answer, move, or otherwise respond to the Complaint, but failed to do so. (See ECF No. 26 ¶ 8).
On July 6, 2020, the Court requested that Plaintiffs submit a proposal to move the case forward. (ECF No. 16). On July 10, 2020, Plaintiffs advised the Court that they intended to request a certificate of default, which the Clerk of the Court issued the same day. (ECF Nos. 19, 20). On August 14, 2020, the Court ordered Plaintiffs to move for default judgment. (ECF No. 21). On August 28, 2020, Plaintiffs moved by order to show cause for a default judgment against Defendants. (ECF Nos. 22-27 (the “Motion”)).
On September 9, 2020, Judge Woods entered an order to show cause directing Defendants to appear on October 8, 2020 at 10:00 a.m. and show cause why a default judgment should not be entered against them. (ECF No. 28 (the “OTSC”)). On September 12, 2020, Plaintiffs served the OTSC and the Motion papers on Defendants by Federal Express, which delivered the materials to Defendants on September 15, 2020. (ECF No. 29). On September 30, 2020, Judge Woods issued an order rescheduling the OTSC hearing to October 19, 2020, and ordered Plaintiffs to serve a copy of his order on Defendants. (ECF No. 30 (the “9/30/20 Order”)). On October 5, 2020, Plaintiffs served on Defendants a copy of the 9/30/20 Order by Federal Express, which delivered the materials to Defendants on October 8, 2020. (ECF No. 31).
On October 19, 2020, Judge Woods held a telephone hearing on the OTSC. (ECF No. 35). Plaintiffs' counsel appeared, but Defendants did not appear either personally or through counsel. (Id. at 2). Judge Woods first found that the Court had both subject matter jurisdiction over the dispute, as well as personal jurisdiction over Defendants, (Id. at 8-13), before turning to the question whether Plaintiffs had adequately pled the elements of each of their claims. After reviewing the allegations in the Complaint and the annexed exhibits, Judge Woods found that Plaintiffs had adequately pleaded the elements of each of their eight claims, and found “that Defendants are liable.” (Id. at 14-37). After the hearing, Judge Woods entered an order “find[ing] Defendants liable for each of Plaintiffs' asserted claims as a result of Defendants' default, ” (ECF No. 32 (the “10/19/20 Order”)), and referred the matter for a damages inquest. (ECF No. 33). Plaintiffs served the 10/19/20 Order and the amended referral on Defendants by Federal Express. (ECF No. 34).
The Court respectfully notes that, although Judge Woods found that Plaintiffs had adequately alleged each of the elements of control person liability under the Exchange Act (ECF No. 35 at 24-25), in fact “there is no private right of action for control person liability under Section 13b of the” Exchange Act, as Plaintiffs sought to allege in Count VI of the Complaint (ECF No. 3 ¶¶ 210-13). Bolivar II R&R, 2017 WL 11473766, at *14 n.11 (citing In re Platinum & Palladium Commodities Litig., 828 F.Supp.2d 588, 600 (S.D.N.Y. 2011) and 7 U.S.C. § 13c(b)). Had Defendants appeared in this action, they might have advanced this argument.
On March 2, 2021, this Court held a conference, at which Plaintiffs, but not Defendants, appeared, to discuss the damages inquest. (ECF minute entry Mar. 2, 2021). On May 19, 2021, this Court issued an order directing Plaintiffs to inform the Court whether the Plaintiff named Daniel German Zamora Avila (“Zamora Avila”) in this action was the same person as Zamora, the plaintiff in the Zamora Action, and if so, why the damages award in that action should not be set off against any damages awarded to him in this action. (ECF No. 39).
On May 26, 2021, Plaintiffs' counsel filed a letter confirming that Zamora Avila is the same person as the plaintiff in the Zamora Action. (ECF No. 40 (the “5/26/21 Letter”)). Plaintiffs' counsel advised the Court that Zamora Avila's claimed damages in this action “arise out of a personal investment account” and that the damages he was awarded in the Zamora Action “concern a separate and distinct investment account . . . held by Cgc. Ltda. Inc.” (Id.). That same day, the Court directed Plaintiffs to file an affidavit by Zamora Avila attesting to the factual representations in the 5/26/21 Letter. (ECF No. 41). In particular, the Court directed Zamora Avila to address his identity, his participation in the Zamora Action, the investment accounts at issue, and why there is no risk of double recovery by him. (Id. at 2)
On June 8, 2021, Plaintiffs filed an affidavit by Zamora Avila confirming that he and CGC, a corporation domiciled in the Republic of Panama and of which Zamora Avila is the president and legal representative, were plaintiffs in the Zamora Action. (ECF No. 42-1 ¶ 3). Zamora Avila attested that his dealings with Defendants involved two FIT investment accounts: a personal investment account (FIT Account No. 6028) and an investment account held by CGC (FIT Account No. 61ZA54). (Id. ¶ 4). He further attested that any references to FIT Account No. 6028 in the Zamora Action were “only intended to explain . . . how [Zamora Avila] was introduced to Defendants and FIT and to explain how the second investment account came to exist” and that “the damages claimed [in the Zamora Action] arose out of transactions undertaken on behalf of CGC[, ] Inc. only in the context of its investment account.” (Id. ¶¶ 5-6). Zamora Avila also advised the Court that, while the Zamora Action was pending, he retained counsel to file the Complaint in this action, intending for both his personal damages and those of CGC to be included in the claim, but that, once default judgment was entered in the Zamora Action in favor of CGC, he advised counsel to stop pursing CGC's claims in this action. (Id. ¶ 7-8). Finally, Zamora Avila stated that counsel omitted CGC's claims from the Motion, and that the damages claimed here represent only the value of FIT Account No. 6028. (Id. ¶¶ 9-10).
III. DISCUSSION
A. Legal Standard
Pursuant to Federal Rule of Civil Procedure 55, courts follow “a two-step procedure . . . for the entry of judgment against a party who fails to defend: the entry of a default, and the entry of a default judgment.” McDermott v. NYFirestore.com, Inc., No. 18 Civ. 10853 (AJN) (SLC), 2021 WL 952455, at *1 (S.D.N.Y. Jan. 15, 2021) (internal citations omitted), adopted by 2021 WL 950507, at *1 (S.D.N.Y. Mar. 12, 2021). In this case, the Clerk of the Court has entered default against Defendants, and Judge Woods has determined that Defendants are liable to Plaintiffs on each claim in the Complaint. (ECF Nos. 20, 21, 32, 35). Defendants' default is not an admission as to damages, and therefore “[t]he district court must instead conduct an inquiry in order to ascertain the amount of damages with reasonable certainty.” Malibu Media, LLC v. Greenwood, No. 17 Civ. 1099 (PAE) (SLC), 2019 WL 7580083, at *2 (S.D.N.Y. Dec. 17, 2019) (quoting Am. Jewish Comm. v. Berman, No. 15 Civ. 5983 (LAK) (JLC), 2016 WL 3365313, at *3 (S.D.N.Y. June 15, 2016)), adopted by 2016 WL 4532201 (S.D.N.Y. Aug. 29, 2016). Therefore, “the sole remaining issue before the court is whether the plaintiff[s] ha[ve] provided adequate support for the relief [they] seek[].” Bleecker v. Zetian Sys., Inc., No. 12 Civ. 2151 (DLC), 2013 WL 5951162, at *6 (S.D.N.Y. Nov. 1, 2013).
To determine the appropriate amount of damages, a court must: (1) “determin[e] the proper rule for calculating damages” on the particular claims for which the defendants are liable; and (2) “assess[] plaintiff's evidence supporting the damages to be determined under this rule.” Begum v. Ariba Disc., Inc., No. 12 Civ. 6620 (DLC), 2015 WL 223780, at *4 (S.D.N.Y. Jan. 16, 2015) (quoting Credit Lyonnais Sec. (USA), Inc. v. Alcantara, 183 F.3d 151, 155 (2d Cir. 1999)). Plaintiffs “bear[] the burden of establishing [their] entitlement to recovery and thus must substantiate [their] claim with evidence to prove the extent of damages.” Dunn v. Advanced Credit Recovery Inc., No. 11 Civ. 4023 (PAE) (JLC), 2012 WL 676350, at *2 (S.D.N.Y. Mar. 1, 2012). The damages Plaintiffs seek must “relate to the damages that naturally flow from the injuries pleaded.” Am. Jewish Comm., 2016 WL 3365313, at *3 (quoting Greyhound Exhibitgroup, Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155, 158 (2d Cir. 1992) (alteration omitted).
If the claimed damages are “not susceptible to simple mathematical calculation, Federal Rule of Civil Procedure 55(b)(2) gives courts discretion to determine whether an evidentiary hearing is necessary or whether to rely on detailed affidavits or documentary evidence.” Am. Jewish Comm., 2016 WL 3365313, at *4 (internal citation omitted). If the plaintiff's damages submission provides a “sufficient basis from which to evaluate the fairness of” the requested damages, the court need not conduct an evidentiary hearing. Fustok v. ContiCommodity Servs., Inc, 873 F.2d 38, 40 (2d Cir. 1989); see Action S.A. v. Marc Rich & Co., 951 F.2d 504, 508 (2d Cir. 1991) (explaining that Rule 55(b)(2) “allows but does not require the district judge to conduct a hearing”).
Notwithstanding a defendant's liability under more than one damages theory, “double damages for the injury are not permitted.” Fleurentin v. McDowell, No. 05 Civ. 4274 (ARR) (CLP), 2009 WL 2969686, at *14 (E.D.N.Y. Sept. 16, 2009). In other words, a plaintiff “may not receive an award of damages more than once.” Fleurentin, 2009 WL 2969686, at *14.
B. Application of Legal Standard
1. A hearing is not required.
The Court finds that Plaintiffs' counsel's declaration and accompanying exhibits provide a sufficient basis on which to calculate damages, such that a hearing is not required. See Allstate Ins. Co. v. Williams, No. 13 Civ. 2893 (RJD) (JMA), 2014 WL 6900121, at *5 (E.D.N.Y. Dec. 5, 2014); Action, 951 F.2d at 508; Bolivar II R&R, 2017 WL 11473766, at *6; Gov't Emps. Ins. Co. v. Alrof, Inc., No. 11 Civ. 4028 (SLT) (RER), 2013 WL 9600668, at *10 (E.D.N.Y. July 19, 2013), adopted sub nom. Gov't Emps. Ins. Co. v. Park Slope Med. & Surgical Supply, Inc., No. 11 Civ. 4028 (SLT) (RER), 2013 WL 5209415 (E.D.N.Y. Sept. 13, 2013); Zamora R&R, 2019 WL 3401693, at *8. As set forth above, Plaintiffs have provided supporting documentation showing their deposits to and withdrawals from the bank accounts Defendants maintained, as well as a calculation of the amount of each Plaintiffs' out-of-pocket loss. (ECF Nos. 26-7-26-142). These calculations are simple enough that the Court has been able to verify them - with some corrections as set forth below - such that an affidavit of an accountant or financial professional is not necessary. Cf. Zamora R&R, 2019 WL 3401693, at *8 (noting that plaintiffs submitted accountants' affidavit affirming total net deposits). Accordingly, the Court has reviewed the supporting documentation provided for each Plaintiff, calculated the total amount of deposits and the total amount of withdrawals to arrive at each Plaintiff's out-of-pocket losses (which, in their Statement of Damages (ECF No. 23), Plaintiffs refer to as “Actual Damages”) and computed pre-judgment interest and treble damages.
In addition, based on Zamora Avila's sworn representations in his affidavit (see § II.B.2, supra), the Court is satisfied that there is no risk of double recovery and, therefore, the damages awarded to him in this action need not be set off against the damages award in the Zamora Action.
Finally, Plaintiffs' fraud and RICO claims “cover the full extent of the damages that Plaintiffs seek, in that, while the underlying damages would be the same, the fraud claim . . . provides for prejudgment interest . . . and the RICO claim . . . provides for treble damages.” Bolivar II R&R, 2017 WL 11473766, at *14. And, as noted above, Plaintiffs may not recover duplicative damages on different theories of liability. (See § III.A, supra). Accordingly, as Judge Freeman did in Bolivar II, the Court has only computed damages for Plaintiffs' fraud and RICO claims. See Bolivar II R&R, 2017 WL 11473766, at *14.
2. Fraud claim
a. Legal standard
“Under New York law, fraud damages are limited to ‘out-of-pocket' expenses, which only include damages for ‘actual pecuniary loss' directly resulting from the fraud.” Bolivar II R&R, 2017 WL 11473766, at *20 (quoting Negrete v. Citibank, N.A., 187 F.Supp.3d 454, 467 (S.D.N.Y. 2016), aff'd, 759 Fed.Appx. 42 (2d Cir. 2019) (internal citations omitted)). Fraud damages do not include “recovery of profits which would have been realized in the absence of fraud.” Negrete, 187 F.Supp.3d at 467 (quoting Highland Cap. Mgmt., L.P. v. Schneider, 533 F.Supp.2d 345, 357 (S.D.N.Y. 2008)); see Lama Holding Co. v. Smith Barney Inc., 646 N.Y.S.2d 76, 80 (1996) (“Damages are to be calculated to compensate plaintiffs for what they lost because of the fraud, not to compensate them for what they might have gained.”). “Fraud damages ‘must be the direct, immediate and proximate result' of the defendant's misrepresentations, and ‘must also be independent of other causes.'” Bolivar II R&R, 2017 WL 11473766, at *20 (quoting Kregos v. Associated Press, 3 F.3d 656, 665 (2d Cir. 1993) (internal citations omitted)).
b. Application
Plaintiffs request compensatory damages equivalent to the amounts they deposited with the Defendants less the amounts they withdrew. (ECF No. 23 at 2-9, 26 at 4-11). Plaintiffs have provided a summary of the amounts deposited and withdrawn for each Plaintiff, corroborated by supporting documentation. (ECF Nos. 26-7-26-142). As noted above, unlike the Zamora Action, see Zamora R&R, 2019 WL 3401693, at *8, Plaintiffs have elected not to submit an accountants' affidavit affirming the calculation of net deposits. The Court has, however, examined Plaintiffs' supporting documentation and conducted its own independent calculation of the net out-of-pocket losses for each Plaintiff, in the process of which it found several corrections to Plaintiffs' own calculations. Specifically, the Court found: (i) that Plaintiffs' calculation of “Amounts Deposited” was incorrect, i.e., either not supported by the documents submitted or contained a miscalculation, for twelve Plaintiffs; (ii) that Plaintiffs' calculation of “Amounts Withdrawn” was incorrect for eight Plaintiffs; (iii) that Plaintiffs' calculation of “Actual Damages” was incorrect for 15 Plaintiffs; (iv) that Plaintiffs' calculation of “Prejudgment Interest” was incorrect for every Plaintiff; and (v) that Plaintiffs' calculation of “RICO Treble Damages” was incorrect for 17 Plaintiffs. Although Plaintiffs have not submitted sworn declarations verifying their losses as in Bolivar II, 2017 WL 11473766, at *22, as Judge Woods has found, by their default Defendants have admitted that “[a]s a direct and proximate cause of Defendants' wrongful conduct, Plaintiffs suffered damages . . .” (ECF No. 3 ¶¶ 186, 191, 197, 203, 209, 225). Accordingly, the Court recommends that Plaintiffs be awarded damages equivalent to their Out-of-Pocket Losses caused by Defendants' fraud in the amounts the Court has calculated as reflected on Exhibit A.
Plaintiffs' calculation of “Amounts Deposited” was incorrect for the following twelve plaintiffs: Maria Fernanda Amaya Martinez; Alfredo Leon Delbouis Molina; Carlos Garza Hernandez; Ulla Gomez; Luis Orlando Melo Castaneda; Margarita Luz Myriam Molano; Margarita Maria Molano Naffah; Hernan Munoz Orozco; Hani Ibrahim Mustafa Hassan; Margarita Naffah de Molano and Jose Joaquin Molano; Gonzalo Sepulveda Lozano; and Gino Eduardo Valderrama Talero.
Plaintiffs' calculation of “Amounts Withdrawn” was incorrect for the following eight plaintiffs: Tirso Javier Gomez and Lilian Cardona de Gomez; Inversiones Paal & Cia S. En C.; Margarita Luz Myriam Molano; Maria Molano Naffah; Hernan Munoz Orozco; Hani Ibrahim Mustafa Hassan; Margarita Naffah de Molano and Jose Joaquin Molano; and Jose Ignacio Quintero Rodriguez.
Plaintiffs' calculation of “Actual Damages” (which the Court refers to as “Out-of-Pocket Losses” in Exhibit A) was incorrect for the following 15 plaintiffs: Maria Fernanda Amaya Martinez; Alfredo Leon Delbouis Molina; Carlos Garza Hernandez; Tirso Javier Gomez and Lilian Cardona de Gomez; Ulla Gomez; Inversiones Paal & Cia S. En C.; Luis Orlando Melo Castaneda; Margarita Luz Myriam Molano; Maria Molano Naffah; Hernan Munoz Orozco; Hani Ibrahim Mustafa Hassan; Margarita Naffah de Molano and Jose Joaquin Molano; Jose Ignacio Quintero Rodriguez; Gonzalo Sepulveda Lozano; and Gino Eduardo Valderrama Talero. Moreover, for three of those 15 plaintiffs - Margarita Luz Myriam Molano; Maria Molano Naffah; and Margarita Naffah de Molano and Jose Joaquin Molano - Plaintiffs' substantiating documentation supports a finding of negative Out-of-Pocket Losses (i.e., the amount deposited was less than the amount withdrawn). For purposes of calculating the Court's recommended figures, Out-of Pocket Losses for each of these Plaintiffs was $0.00. The Court notes that, as a result, in Exhibit A, Plaintiffs' total “Out-of-Pocket Losses” does not equal their total “Deposits” less their total “Withdrawals.”
While Plaintiffs correctly note that pre-judgment interest is calculated at 9% per annum on each Plaintiff's Out-of-Pocket loss (ECF No. 23 at 2 n.2), Plaintiffs did not provide the specific formula used to derive their claimed pre-judgment interest award. Pre-judgment interest is computed as the “per diem” interest (principal*(0.09/365)) multiplied by the number of days in the pre-judgment interest period (here, 4, 200). See Eurosteel Corp. v. M/V KOGGEGRACHT, No. 01 Civ. 7731 (DLC) (FM), 2003 WL 470575, at *4 (S.D.N.Y. Jan. 20, 2003), adopted by, No. 01 Civ. 7731 (DLC), 2003 WL 1872652 (S.D.N.Y. Apr. 11, 2003). The Court's application of this formula - which resulted in pre-judgment interest calculations different from each of those listed in Plaintiffs' Statement of Damages - resulted in the figures reflected in Exhibit A.
Plaintiffs' calculation of “RICO Treble Damages” was incorrect for the following 17 plaintiffs: Maria Fernanda Amaya Martinez; Rafael Maria Cruz Villamil; Alfredo Leon Delbouis Molina; Alexandra Fernandez Ospina and Hernando Emiliani Rivera; Carlos Garza Hernandez; Tirso Javier Gomez and Lilian Cardona de Gomez; Ulla Gomez; Inversiones Paal & Cia S. En C.; Luis Orlando Melo Castaneda; Margarita Luz Myriam Molano; Maria Molano Naffah; Hernan Munoz Orozco; Hani Ibrahim Mustafa Hassan; Margarita Naffah de Molano and Jose Joaquin Molano; Jose Ignacio Quintero Rodriguez; Gonzalo Sepulveda Lozano; and Gino Eduardo Valderrama Talero.
3. RICO claims
a. Legal standard
“RICO damages must be ‘sufficient to place the plaintiff in the same financial position he would have occupied absent the illegal conduct.'” Bolivar II R&R, 2017 WL 11473766, at *20 (quoting Bankers Tr. v. Rhoades, 859 F.2d 1096, 1106 (2d Cir. 1988)); Zamora R&R, 2019 WL 3401693, at *8 (same). Like fraud damages, the appropriate measure of RICO damages “is the total amount plaintiffs invested in the fraudulent scheme, but does not include lost profits.” Lukaszuk v. Sudeen, No. 02 Civ. 5143 (JG) (MDG), 2007 WL 4699018, at *6 (E.D.N.Y. Nov. 27, 2007) (calculating plaintiff's damages as the amount of principal he invested in scheme that was both a fraudulent scheme and a RICO enterprise). A successful RICO plaintiff “may not recover for speculative losses or where the amount of damages is unprovable.” Makowski v. United Bhd. Of Carpenters & Joiners of Am., No. 08 Civ. 6150 (PAC), 2010 WL 3026510, at *8 (S.D.N.Y. Aug. 2, 2010) (internal citations omitted). In addition, a RICO plaintiff is “only entitled to damages proximately caused by the predicate acts” of the RICO violation. In re Crazy Eddie Sec. Litig., 948 F.Supp. 1154, 1165 (E.D.N.Y. 1996). “Treble damages under RICO are mandatory.” Zamora R&R, 2019 WL 3401693, at *8 (citing MDO Dev. Corp. v. Kelly, 735 F.Supp. 591, 593 (S.D.N.Y. 1990)).
b. Application
Due to the mandatory nature of treble damages for RICO violations, the Court respectfully recommends that each Plaintiff be awarded treble damages, or three times the amount of their Out-of-Pocket Losses as calculated for the fraud claims, as reflected in Exhibit A. See Zamora R&R, 2019 WL 3401693, at *8; Bolivar II R&R, 2017 WL 11473766, at *23.
4. Pre-judgment interest
a. Legal standard
The RICO statute does not specifically provide for pre-judgment interest, but district courts have discretion to award pre-judgment interest. See Lukaszuk, 2007 WL 4699018, at *7 (collecting cases). Where, however, “treble damages are adequate to compensate plaintiffs, an award of pre-judgment interest would generally be inappropriate.” Id. (collecting cases).
With respect to Plaintiffs' fraud claims, New York law mandates an award of pre-judgment interest on fraud damages. See Mfrs. Hanover Tr. Co. v. Drysdale Sec. Corp., 801 F.2d 13, 28 (2d Cir. 1986); Alrof, 2013 WL 9600668, at *11 (“Under New York law, awarding pre-judgment interest on damages awarded for fraud is mandatory.” (quoting Crazy Eddie, 948 F.Supp. at 1166)); Lukaszuk, 2007 WL 4699018, at *7; Tosto v. Zelaya, No. 99 Civ. 11864, 2003 U.S. Dist. LEXIS 8085, at *23 (S.D.N.Y. May 12, 2003). A federal court looks to state law to determine the appropriate interest rate. See SEC v. Musella, 748 F.Supp. 1028, 1043 (S.D.N.Y. 1989), aff'd, 898 F.2d 138 (2d Cir. 1990). Under New York law,
Interest shall be computed from the earliest ascertainable date the cause of action existed, except that interest upon damages incurred thereafter shall be computed from the date incurred. Where such damages were incurred at various times, interest shall be computed upon each time from the date it was incurred or upon all of the damages from a single reasonable intermediate date.N.Y. C.P.L.R. § 5001(b). Accordingly, pre-judgment interest on a fraud claim under New York law accrues as of the date the cause of action accrued, at the statutory rate of 9%. See Lukaszuk, 2007 WL 4699018, at *7; N.Y. C.P.L.R. § 5004. Pre-judgment interest is calculated on a simple interest basis. See Marfia v. T.C. Ziraat Bankasi, 147 F.3d 83, 90 (2d Cir. 1998); Lukaszuk, 2007 WL 4699018, at *7. A “per diem is calculated by multiplying the daily interest rate [(0.09/365)] by the principal.” Alrof, 2013 WL 9600668, at *12, n.11. As previously noted (supra note 7), the per diem interest is then multiplied by the number of days in the relevant period to compute the pre-judgment interest award. See Eurosteel Corp., 2003 WL 470575, at *4.
b. Application
Plaintiffs request an award of pre-judgment interest calculated at a rate of 9% from February 28, 2009. (ECF Nos. 23 at 2-9; 26 at 4-11). Although Plaintiffs do not explain their choice of this date in the Motion, the Court infers from the Complaint that this is the last date on which Plaintiffs were able to make withdrawals from their FIT accounts. (See ECF No. 3 ¶ 168 (“By February 2009, Defendants began to expressly refuse to provide withdrawals or redemptions to Plaintiffs and other investors . . .”)). The Court agrees that this is an appropriate, and, in a case where Plaintiffs made deposits at widely varying times, convenient “single reasonable intermediate date” to use for the calculation of pre-judgment interest. N.Y. C.P.L.R. § 5001(b); see Asllani v. Hoti, No. 19 Civ. 1106 (PGG) (RWL), 2020 WL 5755166, at *10 (S.D.N.Y. Mar. 31, 2020), adopted by, No. 19 Civ. 1106 (PGG) (RWL), 2020 WL 5439761 (S.D.N.Y. Sept. 10, 2020). Here, because Plaintiffs will receive treble damages on their RICO claims, I recommend that pre-judgment interest be awarded on Plaintiffs' fraud, but not their RICO, claim. See Alrof, 2013 WL 9600668, at *11 (declining to award pre-judgment interest on RICO claims for which treble damages were awarded).
5. Joint and several liability
Defendants are jointly and severally liable for the damages caused by their RICO violations and fraudulent conduct. See Zamora R&R, 2019 WL 3401693, at *8 (recommending that Baez, Sanchez, and FIT International be jointly and severally liable for full amount of damages); Alrof, 2013 WL 9600668, at *12 (recommending that defendants be jointly and severally liable for fraud, unjust enrichment, and aiding and abetting claims); Lukaszuk, 2007 WL 4699018, at *6 (recommending that defendants who committed RICO violations and fraud be jointly and severally liable for all damages); Sterling Nat'l Bank v. A-1 Hotels Int'l, Inc., No. 00 Civ. 7532, 2002 WL 461574, at *3 (S.D.N.Y. Mar. 26, 2002) (recommending joint and several liability against defendants, some of which were liable for RICO violations, and some of which were liable for fraud). Accordingly, I recommend that the Court's award of damages state that Plaintiffs are entitled to “a single award of damages, ” for the “full amount” of which Defendants are “jointly and severally liable.” Fleurentin, 2009 WL 2969686, at *14.
6. Attorneys' fees and costs
A plaintiff who prevails on a RICO claim is also entitled to an award of reasonable attorneys' fees and costs. 18 U.S.C. § 1964(c); see Stochastic Decisions, Inc. v. DiDomenico, 995 F.2d 1158, 1167 (2d Cir. 1993). Plaintiffs have not submitted time records or receipts for costs that would support such an award. Therefore, I recommend that, at present, the judgment exclude an award of attorneys' fees and costs. See Int'l Gemmological Inst., Inc. v. Rafaeil, No. 05 Civ. 2395 (JGK) (JCF), 2005 WL 3880222, at *7 (S.D.N.Y. Aug. 17, 2005) (noting that attorneys' fees and costs are available to prevailing RICO plaintiff but recommending exclusion from judgment for lack of supporting documentation).
IV. CONCLUSION
For the reasons set forth above, I respectfully recommend that Plaintiffs be awarded total damages of $90,696,135.88, comprised of (i) $18,010,930.14 in compensatory damages, (ii) $18,652,415.32 in pre-judgment interest, and (iii) $54,032,790.42 in RICO treble damages as set forth on Exhibit A.
Plaintiffs are directed to serve a copy of this Report and Recommendation on each Defendant and file proof of service on the docket.