The opinion of the court was delivered by: HAROLD BAER, JR.
HAROLD BAER, JR., District Judge:*
This nonjury trial came on to be heard before me on January 20, 1995. Plaintiffs, who supplied a short term loan to KTK Holdings ("KTK"), a failed holding company, bring this action to recover losses suffered as a result of alleged fraudulent inducement by defendants. Plaintiffs contend that defendants deliberately provided them with false and misleading information about KTK and its principal officer, Jim Dondich. The complaint asserts a common law claim and this Court has jurisdiction by reason of diversity of citizenship under 28 U.S.C. § 1332.
For the reasons stated below, plaintiffs are awarded $ 50,000.00 in damages.
In these conversations, Waugh represented that his firm did investment banking for KTK Holdings, Pls.' Ex. 1 at 2, and was trying to raise one million dollars in short term bridge financing to "gear up" for KTK's new six million dollar contract with the City of Chicago, id. Waugh told Goodman that he had already secured $ 500,000.00 and that he would raise and transfer the other $ 500,000.00 within 35 to 60 days. Id. at 3; Tr. at 18 (Goodman). In fact, Waugh had neither secured $ 500,000.00 nor did KTK have a contract with Chicago. Tr. at 45-46 (Waugh). Further, Waugh falsely represented that he had been conducting research on KTK for four to five months and that KTK would be structuring a ten million dollar bond issue to build a new plant in Detroit. Pls.' Ex. 1 at 2.
Goodman then relayed to Waugh that Jim Dondich of KTK asked Goodman to make a $ 100,000.00 bridge loan. Pursuant to this conversation, Goodman and Waugh agreed to each contribute $ 50,000.00, Pls.' Ex. 2 at 2, and that Goodman's transfer would be contingent on Waugh's first wiring his share, Pls.' Ex. 3 at 1. Waugh represented that there were insignificant risks involved in this transaction, explaining that he knew and worked closely with Jim Dondich and that he--Waugh--had his "fingers wrapped around" KTK. Pls.' Ex. 1 at 9-10.
Prior to transferring his money, Goodman telephoned Waugh in New York City and asked whether Waugh had wired $ 50,000.00 to KTK in Houma, Louisiana. Waugh told Goodman that he had wired it, Tr. at 18 (Goodman), and provided Goodman with wire confirmation numbers which, subsequent to Goodman's transfer to KTK, Goodman discovered to be false, Pls.' Ex. 4 at 1.
Under New York common law, to prove fraud, a plaintiff must show (1) that there was a material, false representation, (2) made with knowledge of its falsity, (3) an intent to defraud (4) reliance, and (5) damage. Kregos v. Associated Press, 3 F.3d 656, 665 (2d Cir. 1993) (citing Diduck v. Kaszycki & Sons Contractors, Inc., 974 F.2d 270, 274 (2d Cir. 1992)), cert. denied, 114 S. Ct. 1056, 127 L. Ed. 2d 376 (1994); May Dep't Stores Co. v. Int'l Leasing Corp., Inc., 1 F.3d 138, 141 (2d Cir. 1993); see also Katara v. D.E. Jones Commodities, Inc., 835 F.2d 966, 970-71 (2d Cir. 1987) (citing Van Alen v. Dominick & Dominick, Inc., 441 F. Supp. 389, 403 (S.D.N.Y. 1976), aff'd, 560 F.2d 547 (2d Cir. 1977)). Plaintiffs bear the burden of proving fraud by clear and convincing evidence. Katara, 835 F.2d at 971; Ajax Hardware Mfg. Corp. v. Industrial Plants Corp., 569 F.2d 181, 186 (2d Cir. 1977).
Plaintiffs have met that burden in this case. The substance of the four recorded phone conversations and the testimony adduced at trial evidence a pattern of false representations relied on by plaintiffs and directed at inducing them to wire funds that defendants knew would never be recovered. Defendant Waugh represented that he was the investment banker for KTK, that he had done due diligence on the company, that KTK had secured a lucrative six million dollar contract with the City of Chicago, that he was putting his own accountants and attorneys into the company, that he had raised $ 500,000.00, and that he had put in an additional $ 50,000.00 of his own money. The evidence demonstrates that none of this ever occurred.
B. Defendants' failure to benefit from the fraud