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INTERNATIONAL GEMMOLOGICAL INSTITUTE, INC. v. RAFAEIL

August 17, 2005.

INTERNATIONAL GEMMOLOGICAL INSTITUTE, INC., Plaintiff,
v.
ABE RAFAEIL, a/k/a EBRAHIM RAPHAEL, a/k/a "ABE," SHACE LULGJURAJ, SOL RAFAEIL, DOMANI INTERNATIONAL ENTERPRISES, EXPRESS FINE JEWELRY MANUFACTURING CORP., EURO ANTIQUES & GEMS, INC., a/k/a EURO ANTIQUES, NEW YORK RAFAEIL DIAMONDS, a/k/a RAFAEIL BROTHERS, a/k/a RAFAEIL DIAMOND CO., REX JEWELRY LTD. a/k/a REX JEWELERS, a/k/a REX JEWELRY, a/k/a REX OF NEW YORK, ROSEN DIAMOND CO., INC., a/k/a ROSEN DIAMONDS, a/k/a ROSEN, SR 2003 CORP., UBEX USA, INC., WHEEL OF THE WORLD AUTO CORP., YAFA JEWELRY INC., a/k/a YAFA, MANSOUR FARSIJANY, a/k/a "AMIR," JOHN DOE 1 (DOMANI), JOHN DOE 2 (EXPRESS), JOHN DOE 3 (EURO), JOHN DOE 4 (NEW YORK RAFAEIL), JOHN DOE 5 (SR 2003), JOHN DOE 6 (ROSEN DIAMOND), JOHN DOE 7 (UBEX), JOHN DOE 8 (WHEELS), and JOHN DOE 9 (YAFA), Defendants.



The opinion of the court was delivered by: JAMES FRANCIS, Magistrate Judge

REPORT AND RECOMMENDATION

This is an action brought pursuant to the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961, et seq. The plaintiff also brings pendant state law claims for conversion, fraud, breach of fiduciary duty, and unjust enrichment. Four defendants — Shace Lulgjuraj, Rosen Diamond Co., Inc. ("Rosen Diamonds"), Ubex USA, Inc. ("Ubex"), and Mansour Farsijany — failed to answer the complaint and default judgments were entered against them. The case was then referred to me for an inquest on damages against these defendants. Although the defaulting defendants were advised of the date of the inquest, they failed to appear. Therefore, the following findings are based on the evidence presented by the plaintiff.

Background

  International Gemmological Institute, Inc. ("IGI") is a New York corporation that specializes in certifying and appraising gems. (Complaint ("Compl."), ¶ 3). Defendant Shace Lulgjuraj worked for IGI from January 1995 until October 2000 and December 2001 until January 2003 as an assistant to the President. (Compl., ¶ 29). Ms. Lulgjuraj's responsibilities included preparing checks for vendors, recording check information in IGI's check book, and handling cancelled checks. (Compl., ¶ 31). With help from the other defendants, Ms. Lulgjuraj used her position to embezzle funds from IGI. (Compl., ¶ 33).

  At the behest of Abe Rafaeil, Ms. Lulgjuraj prepared checks with forged signatures for companies that were not entitled to receive money from IGI. (Compl., ¶¶ 35-36). These companies, with which Mr. Rafaeil was affiliated, included Domani International Enterprises, Euro Antiques & Gems, Inc., Express Fine Jewelry Manufacturing Corp., Rex Jewelry Ltd. ("Rex Jewelry"), Rosen Diamonds, Ubex, Yafa Jewelry Inc., and Wheel of the World Auto Corp. (Compl., ¶¶ 35-36). Mansour Farsijany was named as a defendant because he is a manager of Rex. (Compl., ¶ 17). The managers of the other companies are also identified as defendants, although their names are unknown. (Compl., ¶¶ 18-25).

  In exchange for the forged checks, Ms. Lulgjuraj received money and gifts from Mr. Rafaeil. The checks were then sold or cashed by Mr. Rafaeil and the other defendants. (Compl., ¶¶ 35-36). When the cancelled checks were returned to IGI, Ms. Lulgjuraj intercepted them to prevent detection. (Compl., ¶ 43). In order to camouflage her scheme, Ms. Lulgjuraj also falsified company records by claiming the checks were paid to companies with which IGI ordinarily conducted business. (Compl., ¶ 44). This alleged illegal activity occurred from January 1995 until December 2002. (Compl., ¶¶ 35, 48-55).

  The plaintiff commenced this action on February 25, 2005. Several defendants answered the Complaint, and the suit against them is ongoing. Ms. Lulgjuraj, Rosen Diamonds, Ubex, and Mr. Farsijany, however, failed to answer. Accordingly, the Honorable John G. Koeltl, U.S.D.J., entered default judgments against them and referred the case to me for an inquest on damages.

  Discussion

  A. Prematurity

  Rex Jewelry asserts that this inquest is premature and has asked me to delay determining damages until after the liability of the remaining defendants has been decided. This request appears to be motivated by concerns about the precedential effect my determination will have on any ultimate jury trial. While other courts have granted similar requests in the past, I find that the balance of the equities in the instant case favors my proceeding with the inquest at this time.

  The principles governing the default of some but not all defendants in a litigation derive from Frow v. De La Vega, 82 U.S. 552 (1872). See Garafola v. Ecker Restoration Corp., No. 94 Civ. 7999, 1996 WL 312346, at *1 (S.D.N.Y. June 10, 1996). In Frow, eight defendants were accused of jointly defrauding the plaintiff. 82 U.S. at 552-53. One defendant, Frow, defaulted, while the rest proceeded to trial and prevailed against the plaintiff. See id. at 553. The plaintiff then sought to enforce the default judgment against Frow, who appealed. See id. Finding the situation "unseemly and absurd, as well as unauthorized by law," the Supreme Court set aside the default judgment. Id. at 554.

  Frow has been interpreted to prohibit entry of a default judgment against one of several defendants where the theory of recovery is joint liability, such that no one defendant may be liable unless all defendants are liable. See U.S. Securities & Futures Corp. v. Irvine, No. 00 Civ. 2322, 2001 U.S. Dist. LEXIS 25167, at *11 (S.D.N.Y. May 23, 2001); 10 James Wm. Moore et al., Moore's Federal Practice § 55.25 at 55-46 (3d ed. 1999). In such a case, the defaulting defendant is barred from participating in further proceedings on the merits, but would be exonerated if the other defendants prevail. See Garafola, 1996 WL 312346, at *1.

  In cases where the theory of recovery is joint and several liability, however, Frow does not directly apply. See Garafola, 1996 WL 312346, at *2. Since each defendant is accused of individually causing the entire injury, it would not be inconsistent to hold some but not all defendants liable. See Farberware, Inc. v. Groben, No. 89 Civ. 6240, 1991 WL 123964, at *3 (S.D.N.Y. July 3, 1991). Therefore, in joint and several liability cases the court may enter a default judgment against any defendant that fails to appear. See Montcalm Publishing Corp. v. Ryan, 807 F. Supp. 975, 978 (S.D.N.Y. 1992). Many courts, however, have refused to assess damages against defaulting defendants in these cases since doing so presents the possibility of judgments inconsistent with jury awards against the non-defaulting parties. See Lawrence v. Vaman Trading Co., No. 92 Civ. 0377, 1993 WL 190266, at *2 (S.D.N.Y. May 28, 1993). Instead, these courts have consolidated the inquest with the damages aspect of the trial. See Farberware, 1991 WL 123964, at *3.

  The main justification for requiring such a delay has been judicial economy. See Miele v. Greyling, No. 94 Civ. 3674, 1995 WL 217554, at *3 (S.D.N.Y. April 13, 1995); In re Uranium Antitrust Litigation, 617 F.2d 1248, 1262 (7th Cir. 1980). Here, however, the strain on judicial resources is so slight that ...


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