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METROMEDIA CO. v. FUGAZY

December 5, 1990

METROMEDIA COMPANY, PLAINTIFF,
v.
WILLIAM D. FUGAZY, TRAVELCO, INC., FUGAZY INTERNATIONAL CORPORATION, AND ROY D. FUGAZY, DEFENDANTS AND THIRD-PARTY PLAINTIFFS, V. JOHN W. KLUGE, THIRD-PARTY DEFENDANT. METROMEDIA COMPANY, PLAINTIFF, V. WILLIAM D. FUGAZY, SR., AND ROY D. FUGAZY, DEFENDANTS.



The opinion of the court was delivered by: Robert L. Carter, District Judge.

OPINION

I.

The facts of this case up to December 22, 1988, are set out in the court's earlier opinion, Metromedia Co. v. Fugazy, No. 87 Civ. 2597 (RLC) (S.D.N.Y. Dec. 22, 1988) (1988 WL 140773, 1988 U.S.Dist.LEXIS 14645) (Carter, J.). However, in light of subsequent developments, and for the convenience of the reader, they are repeated here.

On March 21, 1985, plaintiff Metromedia Company ("Metromedia") entered a stock purchase agreement with defendants William D. Fugazy, Travelco, Inc. ("Travelco"), and Fugazy International Corporation ("International"), whereby Metromedia acquired 800 newly issued shares of common stock in Fugazy Express, Inc. ("Express"), representing an 80% interest in Express.*fn1 In July, 1986, Express filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. § 1101 et seq., and in March, 1987, it converted its Chapter 11 reorganization proceeding to a liquidation under Chapter 7 of the Bankruptcy Code. Id. §§ 701 et seq.

Alleging that the defendants wrongfully misrepresented and/or failed to state material facts regarding the financial condition of Express, Metromedia filed the two actions consolidated here. Metromedia claimed damages for violations of § 12(2) of the Securities Act of 1933, 15 U.S.C. § 77l(2); § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j; Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5; and the Racketeer Influenced and Corrupt Organizations statute ("RICO"), 18 U.S.C. § 1962(b)-(d), as well as for common-law fraud, negligent misrepresentation, and breach of warranty. The predicate offenses alleged in support of the RICO claim were bankruptcy fraud under 18 U.S.C. § 152, mail fraud under 18 U.S.C. § 1341, wire fraud under 18 U.S.C. § 1343, and securities fraud under § 10(b), Rule 10b-5, and § 12(2).

Defendants asserted various defenses, and William Fugazy alleged a counterclaim for breach of an employment agreement between himself and Express on the theory that Express was an alter ego of Metromedia.*fn2 Defendants also impleaded third-party defendant John W. Kluge, claiming that he had signed a "hold harmless" agreement promising to indemnify defendants, and that he was a controlling person of Express liable under § 15 of the Securities Act and § 20 of the Securities Exchange Act. 15 U.S.C. § 70o, 78t.

The case came on for jury trial beginning on May 16, 1990. The court granted a directed verdict for Metromedia against William Fugazy, Travelco and International on the claim of breach of warranty, Tr. 2089, 2091, dismissed William Fugazy's counterclaim, Tr. 2087, and dismissed the defendants' controlling-person claim against Kluge. Tr. 2090. The other claims were submitted to the jury.

With respect to the predicate offense of bankruptcy fraud under the RICO claim, the bankruptcy court for this district had ruled on May 15, 1990, that William Fugazy and Roy Fugazy had engaged in acts constituting that offense. In re Fugazy Express, Inc. (Shimer v. Fugazy), 114 B.R. 865 (Bankr.S.D.N Y 1990).*fn3 This court ruled that the bankruptcy court's findings collaterally estopped William and Roy Fugazy from denying the bankruptcy fraud, Tr. 2091, and instructed the jury to find that the defendants had committed bankruptcy fraud.

On June 6, 1990, by special verdict, the jury found William Fugazy liable under § 12(2) and RICO. As for the requisite predicate acts for the RICO claim, the jury found that William Fugazy had committed mail fraud, wire fraud, securities fraud under § 12(2) and (as instructed by the court) bankruptcy fraud. The jury rejected the plaintiff's other claims and the defendants' third-party claim.

The jury awarded $15,553,930.89 in damages. Tr. 2301, 2304. The court trebled the verdict as to William Fugazy, as provided in the RICO statute, 18 U.S.C. § 1964(c), to $46,661,792.67. Tr. 2308. The judgment was approved by the court on June 27, 1990, and entered on the docket on July 6, 1990.

On July 16, 1990, William Fugazy filed a voluntary petition with the bankruptcy court for relief under Chapter 11 of the Bankruptcy Code. 11 U.S.C. § 1101 et seq. Consequently, the present action was automatically stayed under 11 U.S.C. § 362. Nonetheless, on July 20, the defendants (except Roy Fugazy) filed a motion with this court for judgment notwithstanding the verdict or, alternatively, a new trial. On September 4, the bankruptcy court entered an order modifying the automatic stay

  to the extent necessary . . . (A) to permit the
  Debtor to pursue Debtor's post-trial motion for
  judgment n.o.v. in the Metromedia action . . . and
  (B) to permit all other parties to pursue
  post-trial motion practice in the Metromedia
  Action in connection with Debtor's motion for
  judgment n.o.v. . . .

In re Fugazy, No. 90 B 20688 (HS), slip order at 1-2 (Bankr.S.D.N.Y. Sept. 4, 1990). With respect to Fugazy's motion for judgment n.o.v., the modification is retroactive to July 20, 1990. Id. at 2.

II.

In considering a motion for judgment n.o.v., the court must view the evidence in the light most favorable to the non-moving party. Simblest v. Maynard, 427 F.2d 1, 4 (2d Cir. 1970); Unijax, Inc. v. Champion Int'l, Inc., 516 F. Supp. 941, 950 (S.D.N.Y. 1981) (Carter, J.), aff'd, 683 F.2d 678 (2d Cir. 1982). The motion "will be granted only if (1) there is a complete absence of probative evidence to support the verdict for the non-movant[,] or (2) the evidence is so strongly or overwhelmingly in favor of the movant that reasonable and fair minded [jurors] in the exercise of impartial judgment could not arrive at a verdict against [the movant]." Armstrong v. Commerce Tankers ...


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