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BANK OF CHINA v. SUB-ZERO

May 16, 2005.

BANK OF CHINA, Plaintiff,
v.
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.

  FACTS

  "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:
Principal $3,452,424.50 Interest through 4/18/05 1,599,420.24 _____________ $5,051,844.74
  plus interest of $839.13 per day from April 19, 2005 until judgment is entered.

  ANALYSIS

  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 ...


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