United States District Court, S.D. New York
May 16, 2005.
BANK OF CHINA, Plaintiff,
SUB-ZERO, INC., et al., Defendants.
The opinion of the court was delivered by: ANDREW PECK, Magistrate Judge
REPORT AND RECOMMENDATION
To the Honorable Richard M. Berman, United States District Judge:
On August 14, 2003, Judge Berman entered an Amended Default
Judgment against defendants Sub-Zero, Inc., Crossroad Footwear,
Inc., and T.R.B. Systems (China), Inc. (Dkt. No. 22.) The action
continued at that point against defendants Sino-North America
(U.S.A.) Co., Inc. and Huaken International Trading, Inc. (See
Dkt. No. 58: Bank of China Inquest Br. at 3.) On the eve of
trial, counsel for Sino and Huaken informed Judge Berman that his
clients would not appear for trial or defend the case. (Id.) On
or about June 17, 2004, Judge Berman entered a Default Judgment
against defendants Sino and Huaken. (Dkt. No. 52.) The case was
referred to me for an inquest on or about March 31, 2005. (See
Dkt. Nos. 55-56; see also Dkt. Nos. 37, 40.) For the reasons set forth below, the Court should grant
judgment to the Bank of China against defendants Sub-Zero,
Crossroad, TRB, Sino and Huaken, jointly and severally, for
$5,204,704.40 plus $839.13 per day in interest from April 19,
2005 through the date of judgment.
"Where, as here, `the court determines that defendant is in
default, the factual allegations of the complaint, except those
relating to the amount of damages, will be taken as true.'"
Chen v. Jenna Lane, Inc., 30 F. Supp. 2d 622, 623 (S.D.N.Y.
1998) (Carter, D.J. & Peck, M.J.) (quoting C. Wright, A. Miller &
M. Kane, Federal Practice & Procedure: Civil 3d § 2688 at 58-59
(3d ed. 1998)).
The complaint alleges that the Bank of China (hereafter, the
"Bank") entered into a trade finance credit facility for $4.5
million with Sub-Zero. (Dkt. No. 1: Compl. ¶¶ 16-17.) The purpose
of the facility was to provide Sub-Zero with financing to
purchase goods, which would then serve as collateral for the loan
extended to the borrower. (Id. ¶ 18.)
During 1998 and 1999, Sub-Zero requested eight letters of
credit pursuant to the credit facility, for transactions that
turned out to be sham and fraudulent, involving, inter alia,
Sino, TRB and Crossroad. (Compl. ¶¶ 22-51.) The complaint asserts
a fraud claim. (Compl. ¶¶ 59-64.)
The Credit Facility was evidenced by a Master Promissory Note
dated September 14, 1998. (Dkt. No. 60: Goldfeld Aff. Ex. F: Zhao
Aff. ¶ 5 & Ex. H: Master Promissory Note.) The Note provided for
interest on all advances at Prime plus 1%, and on default, Prime
plus 3%. (Zhao Aff. ¶ 5 & Ex. H: Note ¶¶ 2, 10.) In addition, the Note provided
for attorneys' fees and other costs of collection in the event of
a default. (Zhao Aff. ¶ 23 & Ex. H: Note ¶ 6.)
The Bank's records show that as of the time of default (July
30, 1999), the outstanding principal balance was $3,452,424.50.
(Zhao Aff. ¶¶ 7-9 & Exs. I-K.) The Bank accrued interest through
July 30, 1999 at Prime plus 1%. (Zhao Aff. ¶ 10.) Beginning on
July 31, 1999, the Bank accrued interest at the default rate of
Prime plus 3%. (Zhao Aff. ¶¶ 11-12 & Ex. I.) Pre and post default
interest through the date of Zhao's affidavit, April 18, 2005,
was $1,599,420.24, and continues to accrue thereafter at the rate
of $839.13 per day. (Zhao Aff. ¶¶ 13-14 & Ex. I.)
Thus, the Bank is entitled to:
Interest through 4/18/05 1,599,420.24
plus interest of $839.13 per day from April 19, 2005 until
judgment is entered.
The Second Circuit has approved the holding of an inquest by
affidavit, without an in-person court hearing, "`as long as [the
Court has] ensured that there was a basis for the damages
specified in the default judgment.'" Transatlantic Marine Claims
Agency, Inc. v. Ace Shipping Corp., 109 F.3d 105, 111 (2d Cir.
1997) (quoting Fustok v. Conti Commodity Servs., Inc.,
873 F.2d 38, 40 (2d Cir. 1989)). The Bank asserts that all the defendants acted in concert to
defraud the Bank. (See page 2 above.) Under New York law, joint
tortfeasors are jointly and severally liable for the damages
resulting from their concerted conduct. This is known as
"doctrine of concerted action liability" and it imposes joint and
several liability upon persons who act in pursuance of a common
plan to commit a tortious act. See, e.g., Rastelli v.
Goodyear Tire & Rubber Co., 79 N.Y.2d 289, 295,
582 N.Y.S.2d 373, 375 (1992); Hymowitz v. Eli Lilly & Co., 73 N.Y.2d 487,
506, 541 N.Y.S.2d 941, 946, cert. denied, 493 U.S. 944,
110 S. Ct. 350 (1989); Caravan v. Galuski, 2 A.D.3d 1039, 1041,
769 N.Y.S.2d 629, 632 (3d Dep't 2003), appeal denied, 2 N.Y.3d 707,
781 N.Y.S.2d 288 (2004); Perry v. City of New York,
170 A.D.2d 350, 351, 566 N.Y.S.2d 262, 263 (1st Dep't 1991).
Moreover, in fraud cases, courts have held joint tortfeasors
jointly and severally liable for the plaintiff's damages,
regardless of the degree of each defendant's participation or
culpability in the overall scheme, and regardless of the amount
of benefit they received. See, e.g., Fidelity Funding of
California, Inc. v. Reinhold, 79 F. Supp. 2d 110, 123
(E.D.N.Y. 1997) (citing Merrill Lynch v. Arcturus Builders,
Inc., 159 A.D.2d 283, 284-85, 552 N.Y.S.2d 287, 288-89 (1st
Dep't 1990)); Lumbard v. Maglia, Inc., 621 F. Supp. 1529,
1536-37 (S.D.N.Y. 1985) (citing cases); American Transit Ins.
Co. v. Faison, 242 A.D.2d 201, 201, 661 N.Y.S.2d 624, 625 (1st
Dep't 1997); City of New York v. Lead Indus. Ass'n, Inc.,
190 A.D.2d 173, 177-78, 597 N.Y.S.2d 698, 700-01 (1st Dep't 1993);
see also, e.g., in re Worldcom, Inc. Sec. Lit., 02 Civ.
3288, 2005 WL 613107 at *6 (S.D.N.Y. Mar. 15, 2005) (""Under
joint and several liability, <when two or more persons' torts
together cause an injury, each tortfeasor is liable to the victim
for the total damages.' Under this doctrine, a `tortfeasor is not relieved of liability for the entire harm he
caused just because another's negligence was also a factor in
effecting the injury.'") (citations omitted).
Accordingly, defendants Sub-Zero, Crossroad, TRB, Sino and
Huaken are jointly and severally liable to the Bank of China for
$5,051,844.74 plus $839.13 interest per day from April 19, 2005
until the date of judgment.
On default, the Bank is entitled to attorneys' fees pursuant to
the Note. (See pages 2-3 above.)
The Court finds the attorneys' hourly rates, as set out in
attorney Christopher Brady's affidavit (Dkt. No. 60: Goldfeld
Aff. Ex. R: Brady 4/18/05 Aff. ¶¶ 3-10), to be reasonable, based
on my knowledge of rates in New York City, especially for
commercial litigation, based on prior reported decisions, prior
fee submissions before me, and my years of practicing in New York
City before being appointed to the Bench.
The Bank's counsel's original submission, however, merely gave
the total amount for fees and disbursements, without the required
contemporaneous billing records. (Brady 4/18/05 Aff. ¶¶ 16-17.)
Accordingly, I ordered the Bank to submit contemporaneous time
records and support for disbursements (Dkt. No. 61: 4/21/05
Order), which the Bank did (Dkt. No. 62: Brady 4/25/05 Supp. Aff.
& Exs. A-C).
The Court has reviewed the time charge records, which total
$142,948. (Brady 4/25/05 Supp. Aff. Ex. A.) The Court is pleased
to see that counsel already "wrote off" certain time, especially for internal conferences. (See id.) Nevertheless,
based on the period when the Court was supervising pretrial
proceedings in this case, and my review of the time records, the
Court believes a reduction in fees of 7% is appropriate.
Accordingly, the Court reduces the amount for attorneys' fees
from $142,948 to $132,941.64.
The Court has reviewed the $19,918.10 sought for disbursements
(the bulk of which was for process server and deposition
transcript fees) and finds them to be appropriate. (See Brady
4/25/05 Supp. Aff. ¶¶ 4-5 & Exs. B-C.)
Accordingly, the Bank also is entitled to judgment for
$152,859.74 for attorneys' fees and disbursements.
The Court should enter judgment for the Bank of China jointly
and severally against defendants Sub-Zero, Crossroad, TRB, Sino
and Huaken, for $5,204,704.40 ($5,051,844.74 of principal and
interest through April 18, 2005, plus attorneys' fees and
expenses of $152,859.74) plus interest of $839.13 per day from
April 19, 2005 through the date of judgment.
Plaintiff's counsel is to serve this Report and Recommendation
on defendants and file proof of service with the Clerk of Court. FILING OF OBJECTIONS TO THIS REPORT AND RECOMMENDATION
Pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal
Rules of Civil Procedure, the parties shall have ten (10) days
from service of this Report to file written objections. See
also Fed.R.Civ.P. 6. Such objections (and any responses to
objections) shall be filed with the Clerk of the Court, with
courtesy copies delivered to the chambers of the Honorable
Richard M. Berman, 40 Centre Street, Room 201, and to my
chambers, 500 Pearl Street, Room 1370. Any requests for an
extension of time for filing objections must be directed to Judge
Berman. Failure to file objections will result in a waiver of
those objections for purposes of appeal. Thomas v. Arn,
474 U.S. 140, 106 S.Ct. 466 (1985); IUE AFL-CIO Pension Fund v.
Herrmann, 9 F.3d 1049, 1054 (2d Cir. 1993); cert. denied,
513 U.S. 822, 115 S. Ct. 86 (1994); Roldan v. Racette,
984 F.2d 85, 89 (2d Cir. 1993); Frank v. Johnson, 968 F.2d 298, 300
(2d Cir.), cert. denied, 506 U.S. 1038, 113 S. Ct. 825 (1992);
Small v. Secretary of Health & Human Servs., 892 F.2d 15, 16
(2d Cir. 1989); Wesolek v. Canadair Ltd., 838 F.2d 55, 57-59
(2d Cir. 1988); McCarthy v. Manson, 714 F.2d 234, 237-38 (2d
Cir. 1983); 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 72, 6(a),
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