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.
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.
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
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 ...