it would be anomalous to rule that the investor may have this period during which to speculate but may not enjoy all the benefits of stock ownership, including dividends, while doing so.
By the same token, this same reasoning provides a logical point at which to cut off plaintiff's right to recover dividends. Under the rule, the injured investor is entitled to the highest intermediate value of the stock during a reasonable time after discovery of the wrong, during which time the investor may study the market and determine whether it is prudent to repurchase the stock. Given this benefit, it is reasonable to expect that the investor will decide either to repurchase or to not repurchase the stock during that time. Therefore, it is fair to burden the investor with the natural consequences of such action. If the investor were to decide that it was prudent to repurchase, one of the benefits of such repurchase would be entitlement to dividends, but at the investor's own risk. On the other hand, if the investor were to decide it was imprudent to repurchase, then a consequence of such inaction would be no further entitlement to dividends. Either way, the investor's entitlement to dividends solely at the wrongdoer's expense must be cut off at the point where the investor was in a position to make an informed decision with regard to the stock.
I realize that Schultz, supra, 716 F.2d at 140, states that "the injured party is not actually required to enter the market to determine when he might have done so." However, an injured investor may not use this "no duty to repurchase" rule to recover as damages dividends declared on a stock after the investor was in a position to himself reenter the market if he so desired. Schultz was limited to the question of when to value the stock; in that regard it can work no injustice on the wrongdoer to award the investor the benefit of the highest intermediate value of the stock within a reasonable time, whether or not the investor took any action with regard to the stock during that time. Indeed, as the Schultz court observed, a hard and fast rule requiring repurchase might require an investor to reinvest in the lost stock ". . . when steadily falling prices render such an investment imprudent, [and] would frustrate a rule which seeks to make an investor whole." Id. 716 F.2d at 140.
However, irrespective of the investor's activity or inactivity during the reasonable time after discovery of the wrong, the very reason for fixing stock value within such a reasonable time is because it would be ". . . unjust to award as damages the value attained by the stock at a point in time well after an injured party who wanted to continue speculating in the market knew his shares were lost and could have replaced them." Id. Similarly, it would be unjust to award as damages dividends declared on stock after an investor knew the stock was missing and had sufficient time to replace it. Accordingly, plaintiff may recover the aggregate dividends declared on 1,500 shares of Lubrizol only between October 24, 1983, the date BBSI caused the certificate representing the shares to be canceled, and April 19, 1988, the date on which the stock reached its highest intermediate value.
The trial evidence as to dividends is comprehensive. Exhibit 32, admitted into evidence at trial, consists of eight photocopied pages of Moody's Dividend Record, showing the dividends paid on Lubrizol Corporation stock from 1983 through 1990. Exhibit 31, also admitted into evidence at trial, is a table accurately summarizing the showing the dividends paid on Lubrizol Corporation stock from 1983 through 1990. Exhibit 31, also admitted into evidence at trial, is a table accurately summarizing the relevant information contained in Exhibit 32. For ease of reference, trial Exhibit 31 is attached to this Decision and Order as Appendix A.
The evidence shows that plaintiff received $ 405.00 in dividends in 1983 and thereafter received no more dividends. According to Exhibit 32, this was the dividend declared on July 25, 1983 and payable September 9, 1983. Thereafter, dividends to which plaintiff is entitled were declared in the last quarter of 1983, in each of the four quarters of 1984, 1985, 1986 and 1987, and in the first quarter of 1988.
Referring to Appendix A hereto, plaintiff may recover $ 405.00 representing 1983 dividends, $ 1,680.00 representing 1984, $ 1,740.00 representing 1985, $ 1,755.00 representing 1986, $ 1,830.00 representing 1987 and $ 480.00 representing the first dividend paid in 1988, for a total of $ 7,890.00.
c. Prejudgment Interest
Finally, pursuant to 28 U.S.C. § 1961 and New York CPLR 5001, et seq., plaintiff, as he argues (plaintiff's memo, at 5), is entitled to recover prejudgment interest at the rate of 9% per annum on each dividend he did not receive. Such rate of interest shall be calculated on each dividend from the date the dividend was payable, as set forth in Appendix A hereto, to the date of the entry of judgment.
II. Brown's Cross-Claims
The Second Circuit also directed that I resolve Brown's cross-claims. 947 F.2d at 601. In its Answer to plaintiff's amended complaint, Brown asserted two cross-claims against BBSI. The first cross-claim seeks indemnification from BBSI on the grounds that if plaintiff obtains a judgment against Brown, Brown's liability would have been caused by BBSI's "negligence, carelessness, fault or other illegal conduct. . . ." The second cross-claim seeks contractual indemnification pursuant to the terms of the Agreement between Brown and BBSI.
a. First Cross-Claim
Brown argues that BBSI should indemnify it because ". . . plaintiff's loss is entirely and exclusively the result of BBSI's improper conduct." (Brown's memo, at 2). Thus, this claim is one for "implied indemnification," whereby one party may shift the entire loss to another ". . . because of a separate duty owed by the indemnitee by the indemnitor, or because one of the two parties is considered actively negligent or the primary or principal wrongdoer." Bellevue South Associates v. HRH Constr. Corp., 78 N.Y.2d 282, 296, 574 N.Y.S.2d 165, 171, 579 N.E.2d 195 (1991).
In this case, not only was BBSI primarily responsible for non-delivery of the securities to plaintiff, but its failure to deliver them was in breach of a specific duty it owed to Brown under the Agreement.
I found in my previous Decision and Order that plaintiff purchased and paid for 1,500 shares of Lubrizol Corporation common stock, but never received a stock certificate evidencing his ownership. On September 19, 1983, BBSI falsely, although not necessarily intentionally, represented that it had delivered the stock to plaintiff. Thereafter, BBSI, by signing plaintiff's name to a stock power and guaranteeing the false signature, caused the stock certificate representing the 1,500 shares registered in plaintiff's name to be canceled. 759 F. Supp. at 995-96. These actions prevented the delivery of the shares to plaintiff. Thus, I find that BBSI was primarily responsible for the non-delivery.
Further, BBSI owed Brown an obligation under the Agreement to deliver securities to Brown's customers when so instructed. (Agreement, P3.4.6). As a direct result of BBSI's breach of this obligation, plaintiff failed to receive his securities and suffered damages as a result. In this regard, this case is analogous to Mas v. Two Bridges Associates, 75 N.Y.2d 680, 555 N.Y.S.2d 669, 554 N.E.2d 1257 (1990), in which the plaintiff recovered from the owner of a building and from an elevator company for injuries she sustained when an elevator in the building malfunctioned. The court found that the owner of the building was entitled to "implied indemnity" from the elevator company for that portion of plaintiff's damages attributable to the elevator company's failure to maintain and repair the elevator.
The court so found because the elevator company ". . . had voluntarily promised that it would inspect, repair and maintain the elevator and the Owner was entitled to rely on that promise and recover under settled rules of indemnity." Id., 75 N.Y.2d at 691, 555 N.Y.S.2d at 675.
Likewise, BBSI promised Brown it would deliver securities to Brown's customers. Because it did not, plaintiff suffered damages. Therefore, Brown is entitled to rely on BBSI's promise and recover from BBSI on its first cross-claim.
b. Second Cross-Claim
Brown may also recover on its second cross-claim, which seeks contractual indemnity. A copy of the Agreement was admitted into evidence at trial as Exhibit 17. Paragraph 6.2 relates to BBSI's obligation to indemnify Brown and states in relevant part:
BBSI agrees to indemnify Correspondent [Brown] . . . and hold . . . Correspondent . . . harmless from and against any Claim arising out of or resulting from: (a) any failure or any alleged failure by BBSI (or any of its officers, directors, employees or agents) to carry out any responsibility assigned to it or assumed by it under this Agreement. . . .
The Second Circuit found that BBSI breached its obligations under the Agreement in failing to deliver the 1,500 shares of Lubrizol to plaintiff. This is a "failure . . . by BBSI . . .to carry out [a] responsibility assigned to it . . . under this Agreement." Accordingly, BBSI is bound to indemnify and hold Brown harmless from plaintiff's claim against Brown for failure to deliver the 1,500 shares of Lubrizol.
BBSI argues that the Agreement provides for cross-indemnities, and points to paragraph 6.1 of the Agreement, which states in relevant part:
Correspondent [Brown] hereby agrees to indemnify BBSI . . . and hold . . . BBSI . . . harmless from and against any costs, losses, claims, liabilities, fines, penalties, damages and expenses (including reasonable attorneys' and accountants' fees) (collectively, the "Claims") arising out of or resulting from: (a) any failure or any alleged failure by Correspondent . . . to carry out any responsibility assigned to it or assumed by it under this Agreement; (b) any Claims made by any Customer against . . . BBSI . . . otherwise arising out of this Agreement or BBSI's performance of services hereunder; and (c) any breach of the representations and warranties made by Correspondent in or pursuant to this Agreement.
However, BBSI is not entitled to indemnity under this paragraph. To the extent that BBSI relies on subsections (a) or (c) of paragraph 6.1, there has been no finding that Brown has failed to "carry out any responsibility assigned to it under [the] Agreement." Rather, Brown's liability to plaintiff is based upon breach of a contract it had directly with plaintiff.
To the extent that BBSI relies upon subparagraph (b), paragraph 6.3 of the Agreement states in relevant part:
Whenever any Claim arises for indemnification hereunder, the party seeking indemnification shall give prompt notice (the "Notice of Claim") of the Claim to the indemnifying party, and when known, the facts forming the basis for such claim.
There is no evidence that BBSI ever complied with paragraph 6.3 and provided Brown with a Notice of Claim for indemnity,
and there can be absolutely no dispute that BBSI has not asserted a cross-claim against Brown in this lawsuit.
Further, paragraph 5.3 of the Agreement provides:
If an error is made in the execution or settlement of a Trade, or if a Customer suffers any loss by reason of an error of BBSI or Correspondent, the parties shall determine which party is responsible for the error by comparison of available hard copy records maintained by BBSI and/or Correspondent. The responsible (or paying) party shall promptly reimburse the other party or the Customer, as the case may be, for any amounts paid or losses incurred as a direct result of the error.
As I have discussed infra, I find that the failure to deliver the securities was a result of BBSI's error. Therefore, pursuant to paragraph 5.3, BBSI is responsible for the "amounts paid or losses incurred as a direct result of the error."
Accordingly, I find that Brown may also recover on its second cross-claim against BBSI, seeking indemnification pursuant to the Agreement.
For the reasons more fully articulated above, plaintiff is entitled to recover $ 57,750.00 for the lost shares of Lubrizol, $ 7,890.00 in dividends plaintiff did not receive and prejudgment interest on each dividend, calculated at 9% per annum in accordance with CPLR 5004, from the date the dividend was payable to the date judgment is entered. Further, defendant Brown is entitled to indemnification from defendant BBSI for any amounts Brown pays to plaintiff pursuant to the terms of this Decision and Order.
IT HEREBY IS ORDERED, that plaintiff is entitled to recover the following damages caused by defendants' breach of contract:
(1) $ 57,750.00, representing the value of 1,500 shares of the common stock of Lubrizol Corporation on April 19, 1988; and
(2) $ 7,890.00, representing the aggregate dividends paid on 1,500 shares of the common stock of Lubrizol Corporation between October 24, 1983 and April 19, 1988; and
(3) interest on each of the unpaid dividends at 9% per annum, calculated from the date each dividend was payable to the date of the entry of judgment.
FURTHER, that judgment is rendered in favor of defendant Harold C. Brown & Co., Inc. on its cross-claims against defendant Bradford Broker Settlement, Inc., n/k/a Fidata Corporation.
FURTHER, that within ten (10) days of the date of this Decision and Order, plaintiff shall file and serve a memoranda calculating the amount of interest due him pursuant to this Decision and Order.
FURTHER, that within ten (10) days thereafter, defendants shall file and serve a response thereto, if any.
FURTHER, that this Court will thereafter, by separate Order, direct the Clerk of the Court to enter final judgment in accordance with this Decision and Order.
Dated: April 6, 1992
Buffalo, New York
WILLIAM M. SKRETNY
United States District Judge
Dividends on 1500 Shares Lubrizol Corp.
Period 10/1/83 - 12/31/90
Year Date Date Rate Amount Subtotal
1983 11/10 12/09 .27 405.00 405.00
1984 2/10 3/09 .27 405.00
5/10 6/08 .27 405.00
8/10 9/10 .29 435.00
11/09 12/10 .29 435.00 1,680.00
1985 2/08 3/08 .29 435.00
5/10 6/10 .29 435.00
8/09 9/10 .29 435.00
11/09 12/10 .29 435.00 1,740.00
1986 2/20 3/10 .29 435.00
5/09 6/10 .29 435.00
8/08 9/10 .29 435.00
11/09 1/2/87 .30 450.00 1,755.00
1987 2/10 3/10 .30 450.00
5/08 6/10 .30 450.00
8/10 9/10 .30 450.00
11/10 1/4/88 .32 480.00 1,830.00
1988 2/10 3/10 .32 480.00
5/10 6/10 .32 480.00
8/10 9/09 .32 480.00
11/10 12/09 .34 510.00 1,950.00
1989 2/10 3/10 .34 510.00
5/10 6/09 .34 510.00
8/10 9/08 .34 510.00
11/10 12/08 .36 540.00 2,070.00
1990 2/09 3/09 .36 540.00
5/10 6/08 .36 540.00
8/10 9/10 .36 540.00
11/09 12/10 .38 570.00 2,190.00
Grand Total: 13,620.00
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