The opinion of the court was delivered by: Conboy, District Judge:
Plaintiffs Gennaro Mecca and Florence Warehouse, Inc.,
brought this action against defendants Gibraltar Corporation
of America ("Gibraltar") and Irwin Schwartz (collectively, the
"Gibraltar Defendants") and Joseph P. Contreras, alleging
violations of the Racketeer Influenced and Corrupt
Organizations Act ("R.I.C.O."), Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934, Sections 12(2) and 15 of
the Securities Act of 1933, and common law fraud and
misrepresentation, negligent misrepresentation, breach of duty
to disclose and breach of contract. After a nine-week trial,
from January 9 through March 14, 1990, the jury returned a
verdict in favor of the plaintiffs on only their Sections
12(2) and 15 claims, finding Contreras primarily liable and
the Gibraltar defendants liable as control persons. The
jury awarded plaintiffs $900,000 in damages. In a
supplemental. proceeding on the Gibraltar Defendants' claim
for contribution from Contreras, the jury apportioned the
damages among the defendants as follows: 60% to Gibraltar, 20%
to Schwartz, and 20% to Contreras.
All three defendants now move for judgment notwithstanding
the verdict ("j.n.o.v.") pursuant to Rule 50(b) of the Federal
Rules of Civil Procedure, or in the alternative, for a new
trial pursuant to Rule 59 of the Federal Rules of Civil
Procedure. In addition, the plaintiffs move for an award of
prejudgment interest. For the reasons set forth below, the
motions are denied.
I. MOTIONS FOR JUDGMENT NOTWITHSTANDING THE VERDICT
"Judgment n.o.v. may be entered only if, without weighing
the credibility of the witnesses or otherwise considering the
weight of the evidence, there can be but one conclusion as to
the verdict that reasonable [persons] could have reached."
Heller v. Champion Int'l Corp., 891 F.2d 432, 434 (2d Cir.
1989) (quotation marks and citations omitted). Thus, a motion
for j.n.o.v. should be granted when:
"(1) there is such a complete absence of evidence
supporting the verdict that the jury's findings
could only have been the result of sheer surmise
and conjecture, or
(2) there is such an overwhelming amount of
evidence in favor of the movant that reasonable
and fair minded men [and women] could not arrive
at a verdict against him."
Katara v. D.E. Jones Commodities, 835 F.2d 966, 970 (2d Cir.
1987) (quoting Mattivi v. South African Marine Corp.,
"Huguenot", 618 F.2d 163, 167-68 (2d Cir. 1980)). In ruling on
the j.n.o.v. motions, we must "consider the evidence in the
light most favorable to the party against whom the motion was
made and . . . give that party the benefit of all reasonable
inferences that the jury might have drawn in his favor from the
evidence." Smith v. Lightning Bolt Productions, 861 F.2d 363,
367 (2d Cir. 1988).
We note at the outset that, as a general matter, the
Gibraltar Defendants paint a very rosy picture of the trial,
fully crediting Irwin Schwartz's testimony and highlighting
their "full exonerat[ion] on all claims other than control
person liability," Gibraltar Defendants' Reply Memorandum in
Support of Their Post-Trial Motions and Memorandum in
Opposition to Plaintiffs' Cross-Motion for Pre-Judgment
Interest ("Gibraltar Defendants' Reply Mem.") at 28, which the
Gibraltar Defendants characterize as a "strict liability"
claim. Id. at 3, n. 1 and 28. As the plaintiffs point out,
however, the Gibraltar Defendants were not necessarily "fully
exonerated" of wrongdoing on the claims where liability was not
found, as those claims required plaintiffs to prove reliance
and causation, elements that are not required on a Section
12(2) claim. Plaintiffs' Reply Memorandum of Law in Further
Support of Their Cross-Motion for Prejudgment Interest ("Pltf.
Reply Mem.") at 5, n. 4. Moreover, control person liability in
connection with Section 12(2) is not a "strict liability"
provision; the Gibraltar Defendants could have avoided
liability if they had proven to the jury by a preponderance of
the evidence either that they lacked knowledge of or reasonable
ground to believe the existence of the facts by reason of which
Contreras's liability was found to exist, or that they acted in
good faith. As discussed below, the jury reasonably rejected
both of these defenses. Thus, the Gibraltar Defendants'
depiction of the trial as a nearly complete vindication that
somehow entitles them to credit all of Irwin Schwartz's
testimony is inaccurate and incomplete.
First, the evidence was sufficient to support a finding that
the Gibraltar Defendants controlled Contreras. As the Court
instructed the jury, control means possession of direct or
indirect power over the primary violator, so that "[e]ven
indirect means of discipline or influence short of actual
direction fulfill the requirement" of control. Tr. 5711.*fn1
There was ample evidence of the Gibraltar defendants'
influence over Contreras. Even before learning of Contreras's
prebilling and unauthorized movement of equipment, Gibraltar
had power over him, because Corona needed financing, and
Gibraltar retained discretion as to how much financing to
provide. Tr. 4254. Had Gibraltar ceased financing, Corona
would have been unable to continue doing business, rendering
Contreras personally liable on his guarantees to Gibraltar and
to the noteholders of Contreras Enterprises. Tr. 1676-77,
1839, 4254-55, 4370-71.
According to the Gibraltar Defendants, such influence was no
different from the influence any lender exercises over its
debtors. After the Gibraltar Defendants' discovery of
Contreras's misconduct on Washington's Birthday in 1985,
however, the evidence showed that their power over Contreras
intensified, as they became more of a partner to Contreras
than a lender. As Contreras was no doubt aware, his frauds,
which constituted crimes, entitled Gibraltar to declare an
immediate default and to have criminal charges brought against
him. Tr. 1839. Instead, Schwartz told Contreras he would not
go to the Attorney General "if [they] worked together and
[Contreras told] the truth." Tr. 1793. Consequently, Contreras
submitted to the occupation by Harvey Friedman of Corona's
Denville offices, and he permitted Sheldon Stein to oversee
the inventory at Corona's Whippany facility. Tr. 1821-22.
Moreover, Gibraltar required Estee Lauder to pay for a
shipment in advance, although Contreras thought this would
hurt relations with Corona's most important customer. Tr.
1835-36, 2086-87, 4265-68. Contreras also depended on
Gibraltar's consent to the shipment of additional equipment to
Mexico, which was crucial to the survival of his business. Tr.
201-02, 3565, 3681-82. Finally, during Contreras's
negotiations with Mecca and his representatives, he failed to
disclose the reasons for Gibraltar's termination of funding,
behavior consistent with Gibraltar's control and Schwartz's
own misleading conduct. Tr. 251-54, 3024-25. The jury was
entitled, based on these examples, to find that Gibraltar
exercised control over Contreras much more threatening and
pervasive than that of an ordinary lender.
Second, the jury could reasonably have concluded that the
Gibraltar Defendants did not prove they lacked knowledge of or
reasonable ground to believe the existence of facts by reason
of which Contreras was found liable.*fn2 For example, the
evidence showed that the Gibraltar Defendants knew that
Contreras was selling a security, since 1) between March 26
and April 15, 1985, Jay Benenson advised
Schwartz that negotiations were going forward and that Mecca
was "going to take an option position to acquire the stock of
the two companies," Tr. 3855, and 2) both John Mazzanti (Tr.
383) and Jay Benenson (Tr. 3860-61) testified that the options
were read aloud at the closing at Gibraltar's offices. The
jury could also have inferred that the Gibraltar Defendants
knew that Contreras was making material misrepresentations and
omissions, as there were frequent conversations between
Contreras and Schwartz during the period that the plaintiffs
negotiated their investment. Tr. 1821, 1987-90. Moreover, the
jury could have concluded, both the Gibraltar Defendants and
Contreras concealed from plaintiffs the history of pre-billing
and unauthorized movement of equipment. Tr. 322-23,
Third, the jury was entitled to find, based on evidence that
the Gibraltar Defendants gave the plaintiffs misleading
answers to inquiries about Corona and Contreras, that the
Gibraltar Defendants did not prove their good faith defense.
We recognize that Schwartz told plaintiffs that Contreras was
"a high liver," Tr. 322-23, 3851-52, and that Gibraltar would
no longer lend to Corona because the company's losses were
leading to a point where Gibraltar would no longer be secure,
Tr. 324. Schwartz was nevertheless far from "brutally honest,"
Memorandum in Support of Gibraltar Defendants' Motion for
Judgment Notwithstanding the Verdict or, in the Alternative,
for a New Trial ("Gibraltar Defendants Mem.") at 24, with the
plaintiffs, as he "admittedly did not tell plaintiffs about
the pro forma invoicing." Id. In addition, Schwartz's testimony
about having informed Jay Benenson about the unauthorized
movement of equipment to Mexico was contradicted. Tr. 3851-53.
Thus, the jury could reasonably have rejected the ...