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DIGIULIO v. ROBIN

United States District Court, Southern District of New York


May 14, 2003

MARK J. DIGIULIO, PLAINTIFF, AGAINST FRANKLIN ROBIN, DEFENDANTS.

The opinion of the court was delivered by: Constance Baker Motley, United States District Judge

MEMORANDUM OPINION AMENDING PREVIOUS ORDER

In his Memorandum in Support of his Motion for Summary Judgment in the above-captioned case, plaintiff requested that the court direct the Clerk of the Court to enter Judgment in plaintiffs favor "for the sum certain of $165,020.00, plus interest from November 7, 2000." Pl.'s Mem. in Sup. at 1. There was no explicit discussion (or any legal argument) anywhere in either party's papers regarding an appropriate date to commence calculating interest with respect to damages. The court granted plaintiffs motion and awarded him $165,020.00 with interest but did not specify a date upon which to begin computing that interest. See DiGiulio v. Robin, 2003 WL 21018828, at *6 (S.D.N.Y May 6, 2003) ("DiGiulio I").

Each party has now written to the court with reference to when to begin calculating interest. For the reasons that follow, the court awards plaintiff interest at a rate of four and one half percent per annum from November 7, 2000 to November 6, 2001 and at a rate of nine percent per annum thereafter.

BACKGROUND

The facts of the case were recited at length in DiGiulio I and familiarity with them is presumed. Briefly, plaintiff Mark DiGiulio ("DiGiulio") resided next door to an apartment owned but not inhabited by defendant Franklin Robin ("Robin"). When the occupant of the apartment died, DiGiulio offered to buy it from Robin for $225,000.00. Robin agreed, and the two parties entered a contract for the sale of the apartment. Soon thereafter, DiGiulio assigned his rights in the contract to Carl and Marsha Hewitt ("the Hewitts") for the sum of $395,000.00. Robin agreed in a separate writing to allow DiGiulio to assign his rights to a third party in exchange for his agreeing to pay the "flip tax" on the apartment. When Robin learned how much the Hewitts were paying DiGiulio, however, he refused to proceed to closing. He claimed that DiGiulio had defrauded him by telling him that $225,000.00 was the fair market value for the apartment and that he knew that price was fair because comparable apartments in the building had sold for approximately that amount. The court granted plaintiffs motion for summary judgment because under New York law a claim of fraud must fail when it is premised upon a misrepresentation as to value, and especially when the party claiming to have been defrauded made no effort to ascertain the actual value of the property sold. See DiGiulio I, 2003 WL 21018828, at *3-5. Robin, represented by independent counsel during the relevant transactions, had neither consulted a real estate agent nor made inquiries of the co-op board as to the value of his apartment.

Originally, the Hewitts joined DiGiulio in suing Robin, seeking specific performance on the contract. Robin and the Hewitts settled, however, with the Hewitts paying Robin $225,000.00 for the apartment. Judge Batts, to whom this case was previously assigned, approved the settlement on November 6, 2001. See Pl.'s Ex. 16 ("Settlement Order") & Ex. 17 ("Settlement Agreement"). The action was thus converted from one seeking the equitable solution of specific performance to one at law seeking damages in the amount of $165,020.90 plus interest. That sum represents the difference in price between what DiGiulio and the Hewitts offered to pay for the apartment minus certain expenses (hereinafter "the profit"). Pursuant to the Settlement Agreement, the Hewitts paid the amount of the profit into an escrow account to be distributed upon disposition of this lawsuit. Settlement Agreement, ¶ 1(d).

DISCUSSION

Plaintiff argues that November 7, 2000 is the correct date to begin calculating interest since that is when defendant notified plaintiff that he was unwilling to proceed to closing. Letter from Jonathan D. Warner dated May 8, 2003 at 1. Defendant, however, argues either that there should be no pre-judgment interest awarded at all or, in the alternative, that December 6, 2001 is the correct date to begin calculating interest on damages. Letter from Kevin N. Starkey dated May 12, 2003 at 2.*fn1 December 6, 2001 is the date when defendant closed the sale of the apartment with the Hewitts, pursuant to the court-approved Settlement Agreement. See Pl.'s 56.1 Statement, ¶ 22. Since plaintiff had initially sought specific performance, defendant's attorney explains, damages were not incurred until after the closing on December 6, 2001. Letter from Kevin N. Starkey at 2. Under New York law, "[i]nterest 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." N.Y.C.P.L.R § 5001(b) (emphasis added).

There is a tension between competing directives of New York's Civil Practice Law and Rules as applied to this case. On the one hand, defendant is technically correct that determined damages were not incurred until the action was converted from one at equity to one at law and defendant closed on the sale of the apartment with the Hewitts. Furthermore, New York law specifies that "in an action of an equitable nature, interest and the rate and date from which it shall be computed shall be in the court's discretion." N.Y.C.P.L.R. § 5001(a). In other words, had the Hewitts and Robin not reached a settlement and instead the Hewitts and DiGiulio had won specific performance, it would have been up to the court to determine what rate of interest was due starting from what date. On the other hand, it is well-settled that "the purpose of awarding interest is to make an aggreived party whole." Spodek v. Park Property Development Associates, 759 N.E.2d 760, 762. If defendant had proceeded to closing under the original contract, plaintiff would have pocketed the profit then. In order to make plaintiff whole, the court should award him interest on the profit from the date on which he would have received it. Defendant, by expressing his refusal to honor the contract, fixed that date on November 7, 2000.

The tension is lessened, however, upon an examination of the origin of the make-whole rule cited in Spodek. Chief Judge Cardozo explained the purpose of the rule thus:

While the dispute as to value was going on, the defendant had the benefit of the money, and the plaintiff was without it. Interest must be added if we are to make the plaintiff whole. . . . If [defendant] chose to keep the money, it should pay for what it kept. There would be obvious injustice if interest were to be lost as the result of a slight discrepancy between the claim and the award.
Id. (quoting Prager v. New Jersey Fid. & Plate Glass Ins. Co., 156 N.E. 76, 78 (1927)). In Cardozo's rationale, the injustice in not awarding interest is not merely that plaintiff has lost as a result of defendant's behavior, but also that defendant has profited. If Robin had received the profit to which DiGiulio was entitled on November 7, 2000, then his retaining, and presumably earning interest on it, during the pendency of this lawsuit would have benefitted him while depriving DiGiulio. Defendant did not, however, receive this money on November 7, 2000; by the terms of the Settlement Agreement, the Hewitts paid the amount of the profit into an escrow account when they closed on the apartment on December 6, 2001. Settlement Agreement, ¶ 1(d).

The court has decided that the best way to reconcile the two rules for awarding interest is to treat this action as one at equity until November 6, 2001 and one at law since. Accordingly, the court will apply its equitable discretion to the interest rate prior to November 6, 2001 and the statutory rate from that date forward. While it would not be fair to force DiGiulio to surrender all of the accumulated interest which he would have earned between November 7, 2000 and November 6, 2001 had Robin performed pursuant to the contract, for the reasons explained in the preceding paragraph, it would not be fair to place the entire burden on Robin, either.*fn2

In light of the foregoing, DiGiulio I is amended as follows: the Clerk of the Court is hereby ordered to enter Judgment in plaintiffs favor for the sum certain of $165,020.00 plus interest at the following rates: 1) from November 7, 2000 to November 6, 2001 at a rate of four and one half percent per annum; and 2) from November 6, 2001 at the statutory rate of nine percent per annum. N.Y.C.P.L.R. § 5004. The Clerk of the Court is further ordered to release to plaintiff's counsel all funds held in connection with this case.

SO ORDERED.


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