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Hallinan v. Republic Bank & Trust Co.

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK


September 7, 2007

CHARLES M. HALLINAN, PLAINTIFF,
v.
REPUBLIC BANK & TRUST COMPANY, DEFENDANT.

The opinion of the court was delivered by: Hon. Harold Baer, Jr., District Judge

OPINION AND ORDER

Defendant Republic Bank & Trust Company ("Defendant" or "Republic") moves for a post-trial judgment as a matter of law pursuant to Fed. R. Civ. P. 50(b), or in the alternative, for a new trial pursuant to Fed. R. Civ. P. 59.

For the reasons detailed more fully below, Republic's motion for judgment as a matter of law is denied as to all parts but one. Republic's motion for a new trial is denied in its entirety.

I. BACKGROUND

A short recounting of the proceedings at trial will be provided here at the outset. Additional facts will be provided as they relate to Republic's particular post-trial motions.

The case arose following disputes between Defendant Republic Bank & Trust Co. and the company Benefits Express, LLC ("Benefits"). Benefits was in the business of providing banking services to "underserved" individuals, and was later the subject of an acquisition by Republic. Thereafter, Plaintiff Charles Hallinan ("Plaintiff" or "Hallinan") brought this breach of contract claim against Republic.*fn1 Hallinan's breach claim stemmed from a 2001 contract signed by Hallinan, Republic, and Benefits pursuant to which Hallinan loaned money to Benefits that was then paid directly to Republic. See generally Hallinan v. Republic Bank & Trust Co., 2007 U.S. Dist. LEXIS 503, at *3-8 (S.D.N.Y. 2007) (denying summary judgment to Republic on Hallinan's breach of contract claim). Hallinan produced evidence at trial that showed that he ultimately paid $359,577.31 to Benefits pursuant to the 2001 contract. See Plaintiff's Trial Exhibit ("Pl. Ex.") 10.

In 2003, Benefits brought claims against Republic that were resolved by arbitration on March 24, 2006. See Def. Ex. I; see generally Hallinan v. Republic Bank & Trust Co., 2007 U.S. Dist. LEXIS 503, at *20 (S.D.N.Y. 2007). Hallinan, on behalf of Benefits, paid by his own account a total of $83,195.45 towards Benefits' litigation costs against Republic.*fn2 According to evidence proffered by Republic at trial of this action (and not disputed by Hallinan), Hallinan in fact paid a total of $97,689.45 towards Benefits' litigation costs.*fn3

The Benefits-Republic arbitrator, inter alia, awarded Benefits $275,624 (excluding interest) as a result of Republic's breach of the 2001 contract vis-à-vis Republic. Def. Ex. I. In my January 8, 2007 Opinion, I held that the arbitrator's decision collaterally estopped Republic from arguing that it did not breach the 2001 contract vis-àvis Hallinan. Hallinan v. Republic Bank & Trust Co., 2007 U.S. Dist. LEXIS 503, at *41-42.

Accordingly, I conducted a jury trial, from January 29 through January 31, 2007, to determine two questions: 1) whether privity existed between Hallinan and Benefits at the time of the Benefits-Republic arbitration;*fn4 and if not, 2) the damages Hallinan was separately owed by Republic, if any, because of Republic's breach of the 2001 contract.*fn5

Republic argued strenuously at trial that Hallinan was a shareholder of Benefits, rather than a creditor, that Benefits accordingly owed Hallinan a fiduciary duty, and thus that privity existed between Hallinan and Benefits at the time of the prior arbitration.

Regarding the first question of privity, the jury, on its verdict sheet, was asked, "Do you find by a preponderance of the evidence that privity existed between Plaintiff Charles Hallinan and Benefits Express, LLC at the prior arbitration between Benefits and Defendant Republic Bank?" The jury answered, "No." See Judgment, Feb. 2, 2007, Docket Entry #80, 06-cv-185 (S.D.N.Y.) ("Judgment").

The second question on the verdict sheet asked, "Do you find by a preponderance of the evidence that Defendant Republic Bank owes damages to Plaintiff Charles Hallinan for its breach of the 2001 contract?" The jury answered, "Yes." See Judgment. The jury found that Republic owed Hallinan $456,272.76 in resultant damages. Id. Regarding prejudgment interest, the jury foreperson handwrote on the verdict sheet that "[p]rejudgment interest shall be calculated based on each amount stated from each payment date stated on Plaintiffs' exhibit 10 and [D]efendants' exhibit R." Id.; see also Trial Transcript ("Tr.") 483:20-22. Plaintiffs' Exhibit 10 listed the payments that Hallinan had made to Benefits pursuant to the 2001 contract, totaling $359,577.31, and the respective dates of payment. See Pl. Ex. 10. Defendants' Exhibit R showed copies of several, but not all, of the checks that Hallinan had paid in support of Benefits' arbitration.*fn6 See Def. Ex. R. The total amount of the checks listed in Exhibit R is either $57,854.69 (if one counts the duplicate copy provided by Defendant of the December 30, 2004 check for $6,000), or $51,854.69 (not counting the duplicate $6,000 check). The Clerk of the Court, in the final judgment, computed prejudgment interest on both the $6,000 check and its duplicate copy -- thus computing prejudgment interest on a total amount of $57,854.69 (regarding the monies listed in Defendant's Exhibit R).*fn7 See Judgment.

Republic timely filed their post-trial motion for judgment as a matter of law pursuant to Fed. R. Civ. P. 50(b), or in the alternative, for a new trial pursuant to Fed. R. Civ. P. 59, on various grounds. Regarding Republic's motion for judgment as a matter of law, Republic specifically argues, despite the jury verdict, that a) Hallinan and Benefits were in privity, and thus Hallinan is precluded by res judicata from recovering against Republic; b) Hallinan waived his right to bring this action under the doctrine of "election of remedies" and c) regarding the portion of the judgment that compensated Hallinan for the legal fees he paid on behalf of Benefits, such fees are not recoverable as a matter of law in a breach of contract action. Regarding Republic's motion for a new trial, Republic specifically argues that a) various charges provided by the Court relating to privity were erroneous or prejudical; b) Hallinan's closing argument improperly referred to matters outside the evidence; and c) the Court's exclusion of certain testimony improperly prejudiced Republic's efforts to pursue their defenses of "waiver" or "election of remedies."

II. STANDARD OF REVIEW

A. Standard for Judgment as a Matter of Law Pursuant to Rule 50(b)

Defendant's Exhibit R included as its sixth check a duplicate copy of the December 30, 2004 check for $6,000 that Hallinan paid to the American Arbitration Association. (Although the duplicate copy has additional handwriting in the "Memo" section, it is clear that it is the same check, because the check number is the same.)

Defendant's Exhibit R omitted, however, the final check that Hallinan listed on his Plaintiff's Exhibit 14 as paid January 27, 2006, for $31,340.76, by Hallinan Capital Corp. to Bartels & Feureisen LLP. (A copy of that check was, however, included in Defendant's Exhibit EE, although the jury did not refer to Defendant's Exhibit EE in its verdict.)

Rule 50(b) states, in pertinent part, that "the movant may renew its request for judgment as a matter of law by filing a motion no later than 10 days after entry of judgment. [and] may alternatively request a new trial or join a motion for a new trial under Rule 59. In ruling on a renewed motion, the court may: (1) if a verdict was returned: (A) allow the judgment to stand, (B) order a new trial, or (C) direct entry of judgment as a matter of law." See generally Remee Prods. Corp. v. Sho-Me Power Elec. Coop., 2003 U.S. Dist. LEXIS 494, at *5 (S.D.N.Y. 2003) (Baer, J.), quoting Fed. R. Civ. P. 50(b).

To decide whether judgment as a matter of law is warranted, the Court must decide "whether the evidence is such that, without weighing the credibility of witnesses or otherwise considering the weight of the evidence, there can be but one conclusion as to the verdict that reasonable [people] could have reached." Mallis v. Bankers Trust Co., 717 F.2d 683, 688 (2d Cir. 1983) (internal citations and quotations omitted). The trial court should grant judgment as a matter of law only when: (1) there is such a complete absence of evidence supporting the verdict that the jury's findings could only have been the result of sheer surmise and conjecture; or (2) there is such an overwhelming amount of evidence in favor of the movant that reasonable and fair minded people could not arrive at a verdict against the movant. Lambert v. Genesee Hosp., 10 F.3d 46, 56 (2d Cir. 1993), cert. denied, 511 U.S. 1052, 128 L.Ed. 2d 339, 114 S.Ct. 1612 (1994). On a motion for judgment as a matter of law, the district court "must view the evidence in the light most favorable to the party against which the motion was made . . . making all credibility assessments and drawing all inferences in favor of the non-movant." EEOC v. Ethan Allen, Inc., 44 F.3d 116, 119 (2d Cir. 1994) (internal citations omitted).

B. Standard for Motion for a New Trial Pursuant to Rule 59(a)

Rule 59(a) states, in pertinent part, that "[a] new trial may be granted to all or any of the parties and on all or part of the issues . . . in an action in which there has been a trial by jury, for any of the reasons for which new trials have heretofore been granted in actions at law in the courts of the United States." See generally Remee Prods. Corp. v. Sho-Me Power Elec. Coop., 2003 U.S. Dist. LEXIS 494, at *7, quoting Fed. R. Civ. P. 50(b).

The decision whether to grant a new trial following a jury trial under Rule 59 is "committed to the sound discretion of the trial judge." Metromedia Co. v. Fugazy, 983 F.2d 350, 363 (2d Cir. 1992), cert. denied, 508 U.S. 952, 124 L.Ed. 2d 662, 113 S.Ct. 2445 (1993). However, the trial judge should exercise such discretion only in "the most extraordinary circumstances." United States v. Locascio, 6 F.3d 924, 949 (2d Cir. 1993). Further, the power of a district court to grant a new trial based on the weight of the evidence is limited to instances in which the court is "convinced that the jury has reached a seriously erroneous result or that the verdict is a miscarriage of justice." Ishay v. City of New York, 158 F. Supp. 2d 261, 263 (E.D.N.Y. 2001), quoting Hugo Boss Fashions, Inc. v. Fed. Ins. Co., 252 F.3d 608, 623 (2d Cir. 2001). In considering whether a verdict is so "seriously erroneous" as to justify a new trial, the district court "is free to weigh the evidence and 'need not view [the evidence] in the light most favorable to the verdict winner.'" Farrier v. Waterford Bd. of Educ., 277 F.3d 633, 634 (2d Cir. 2002), quoting DCL Mgmt. Corp. v. Town of Hyde Park, 163 F.3d 124, 134 (2d Cir. 1998). In addition, "before a [district] court may set aside a special verdict as inconsistent and remand the case for a new trial, it must make every attempt 'to reconcile the jury's findings, by exegesis if necessary.'" The Cayuga Indian Nation of New York v. Pataki, 165 F. Supp. 2d 266, 281 (N.D.N.Y. 2001), quoting Turley v. Police Dep't of N.Y.,167 F.3d 757, 760 (2d Cir. 1999) (other citation omitted). In assessing whether a given verdict is inconsistent, the Second Circuit has held that "where the district court properly instructed the jury . . ., there is a strong presumption that the jury in reaching its verdict complied with those instructions," and that "[a] jury's verdict reached after proper instructions must be upheld where there is a reasonable explanation for the jury's seemingly inconsistent answers." Id. at 282-83 (internal citations omitted).

III. DISCUSSION

I will first address Republic's motions for judgment as a matter of law. I will then address Republic's motions for a new trial.

A. Republic's Motions for Judgment as a Matter of Law

i. Republic's Argument That Hallinan and Benefits Were In Privity, and Thus Hallinan's Breach Claim Was Precluded By Res Judicata As A Matter of Law

Republic first requests judgment as a matter of law on the grounds that Hallinan and Benefits were in privity at the time of Benefits' prior arbitration, and thus that principles of res judicata bar Hallinan's claims.*fn8

A determination in a prior judicial proceeding estops a claim by a nonparty only if that nonparty was in privity with a party to that proceeding -- i.e., if the nonparty was "represented by a party to the prior proceeding, or exercised some degree of actual control over the presentation on behalf of a party to that proceeding. Stichting ter behartiging van de belangen van oudaandeelhouders in het kapitaal van Saybolt Int'l B.V. v. Schreiber, 327 F.3d 173, 184-85 (2d Cir. 2003) ("Stichting"). The Second Circuit recognizes "privity based on representation only if the interests of the person alleged to be in privity were 'represented [in the prior proceeding] by another vested with the authority of representation.'" Id. at 185 (citations omitted). This Circuit has "thus found privity where a party to a previous suit was, at the time of the litigation, acting as either a fiduciary or organizational agent of the person against whom preclusion is asserted." Id. (collecting cases).

In those cases where this Circuit has applied the doctrine of privity to a person who was not represented by a fiduciary or agent in the previous litigation, there was a finding that "that person nonetheless exercised some degree of actual control over the presentation of a party's case at the previous proceeding." Stichting at 185 (citations omitted). Preclusion can thus apply against a person who, although not party to the previous litigation, served in a representative capacity to direct that litigation, or who "formulated an overarching strategy for the two actions." Id. (citations omitted).

Republic first argues that the evidence at trial establishes as a matter of law that Hallinan was "represented" by Benefits at Benefits' prior arbitration against Republic in such a manner as to establish privity.*fn9 As I noted in my January 8, 2007 Opinion, since Benefits admittedly owed a fiduciary duty to its shareholders, the key inquiry was whether Hallinan had some independent interest in the 2001 contract aside from his shareholder's interest in Benefits. See Hallinan v. Republic Bank & Trust Co., 2007 U.S. Dist. LEXIS 503, at *28-35 ("If Hallinan signed the 2001 Overdraft Contract as a 'shareholder,' his interests in recovering for breach of that contract are in all likelihood encompassed by his status as a 'shareholder.'"). Yet Hallinan and Kessler, Benefits' President, both testified at trial that Hallinan was not a shareholder, but a creditor. See Tr. 81:8-12, 245:3-5. Kessler pointed to the fact that Benefits' tax returns did not list Hallinan as a shareholder. Tr. 343:4-8. Indeed, Republic's Answer stated that "Hallinan is a creditor of Benefits Express." See Answer ¶ 5. That language was read to the jury as a judicial admission. See Tr. 347:4-6. The presentation of such facts and others, while hotly contested, are the essence of what a jury trial is all about and here the evidence proved sufficient for the jury to find that Hallinan was not a shareholder of Benefits, that Hallinan was accordingly not "represented" by Benefits at the prior arbitration, and thus that privity did not exist on those grounds.

Republic next argues that the evidence at trial establishes, as a matter of law, that Hallinan controlled Benefits' prior arbitration against Republic in such a manner as to establish privity. Republic cites to the fact that Hallinan paid for the vast majority of Benefits' legal fees as evidence of Hallinan's control. Hallinan, however, proffered evidence and testimony at trial that, inter alia, Benefits' lawyer David Feureisen did not represent Hallinan nor have an attorney-client relationship with him; that Hallinan did not participate in strategy decisions regarding the litigation, such as the drafting of the Complaint, the selection of witnesses and exhibits, or the selection of an arbitrator; and that Hallinan did not participate in the arbitration except as a witness. See, e.g., Tr. 95:20-98:12, 162:21-163:10, 164:8-24, 171:14-173:8. Again, the jury heard it all and concluded that the evidence was sufficient to prove by a preponderance of the evidence that no privity existed here and voted unanimously to that effect.

Third, Republic argues that because Benefits was in the "zone of insolvency" at the time of its prior arbitration, it owed a fiduciary duty to its creditors, such as Hallinan, that establishes privity between Hallinan and Benefits and thus precludes Hallinan's breach claim as a matter of law. See, e.g., In re Adelphia Communs. Corp., 323 B.R. 345, 386 n.140 (Bankr. S.D.N.Y. 2005) ("when a corporation becomes insolvent or enters into the zone of insolvency, the fiduciary duties of a corporation expand from its stockholders to its creditors."), citing, e.g., In re STN Enterprises, 779 F.2d 901, 904 (2d Cir. 1985). Republic cites to the fact that in the spring of 2003, when Benefits brought its claims against Republic, Benefits owed its creditors more than $500,000, and Hallinan specifically more than $350,000. See Def. Ex. K. Benefits sold its assets to Republic for an amount less than those debts (i.e. $200,000) in the spring of 2003, and the Benefits-Republic arbitrator later found $200,000 to be the fair market value of those assets. Def. Ex. I.

Republic, however, did not raise the "zone of insolvency" defense at any point in this litigation, up to and including trial.*fn10 Republic did not raise the "zone of insolvency" issue in its Rule 50(a) motion. See Galdieri-Ambrosini v. National Realty & Dev. Corp., 136 F.3d 276, 286 (2d Cir. 1998) (Rule 50(b) post-trial motion is "limited to those grounds that were specifically raised in the prior [Rule 50(a)] motion".). Republic did not submit a jury instruction as to the "zone of insolvency" defense, nor did it object when the jury instructions did not mention the "zone of insolvency." See Fed. R. Civ. P. 51(d)(1)(B).*fn11 Republic did not object to the verdict sheet, which likewise did not pose a question regarding the "zone of insolvency."*fn12 Republic's counsel did not mention "zone of insolvency" once in her summation. See Tr. 402:5-423:5. Indeed, when the jury, with two lawyers among its ranks, asked for an instruction on the law regarding "zone of insolvency,"*fn13 Republic's counsel explicitly waived its opposition to Hallinan's objection to the jury being so instructed. See Tr. 473:5-11 ("I will concede the issue.. We didn't raise it. [A]s much it would benefit us, I don't think it would be proper to instruct the jury on it at this point.").

Rather, Republic repeatedly asserted that Hallinan was owed a fiduciary duty as a shareholder, rather than a creditor.*fn14 Republic cannot "shift gears" after trial, conduct additional research, and resuscitate -- indeed, initiate -- a new defense now. At any number of points, Republic waived its "zone of insolvency" defense.

Even if Republic somehow did not waive its "zone of insolvency" defense, insolvency is properly a question of fact for the jury. See In re Airmont Knitting & Undergarment Co., 182 F.2d 740, 741-42 (2d Cir. 1950); see also Europlast, Ltd. v. Oak Switch Sys., 10 F.3d 1266, 1271 (7th Cir. 1993) (Court, noting that "the trier of fact is most qualified to determine the question of insolvency," declined to grant judgment as a matter of law on a breach of contract claim where defendant asserted an "insolvency" defense").*fn15 Moreover, privity, the ultimate issue here, is a "fact-specific" determination.

See Stichting, 327 F.3d at 186. I see no reason to disturb the jury's finding that privity did not exist between Hallinan and Benefits. Republic's motion for judgment as a matter of law on these grounds is denied.

ii. Republic's Argument That Hallinan Waived His Breach Claim Against Republic

Republic argues that it is entitled to judgment as a matter of law on the grounds that Hallinan's breach claim is precluded by the doctrine of election of remedies. "The New York doctrine of election of remedies provides that upon learning of a breach, a party must choose between terminating the contract and continuing performance. If a party chooses to continue performance, it must give notice of breach to the other side, or it waives its rights to sue the breaching party." RBFC One, LLC v. Zeeks, Inc., 367 F. Supp. 2d 604, 610 (S.D.N.Y. 2005); see also Lazard Freres & Co. v. Crown Sterling Management, 901 F. Supp. 133, 136 (S.D.N.Y. 1995) ("the power to terminate a continuing contract because of a particular breach of that contract is a power of election."), citing Apex Pool Equip. Corp. v. Lee, 419 F.2d 556, 562 (2d Cir. 1969).

Republic cites Barry Kessler's testimony that in January 2002, Republic Bank represented that they "wouldn't live up to the terms of [the] agreement unless there was some other additional security. placed with the bank." Tr. 308:22-309:4. Kessler testified that he informed Hallinan of that "[not] too long after." Tr. 315:7-8. Hallinan stopped making payments to Benefits in April 2002. Pl. Ex. 10. Hallinan testified that he did not give written notice to Republic that they were in breach of the 2001 contract from the signing of the contract through spring 2003. Tr. 128:24-129:4.

Hallinan first argues that Republic waived the affirmative defense of election of remedies because it failed to plead it in its Answer.*fn16 See Fed. R. Civ. P. 8(c) ("In pleading to a preceding pleading, a party shall set forth affirmatively. any other matter constituting an avoidance or affirmative defense"); see also Medcom Holding Co. v. Baxter Travenol Lab., 984 F.2d 223, 228 n.2 (7th Cir. 1993) ("Election of remedies is usually treated as an affirmative defense that must be raised in the answer to the complaint."). However, "when issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings." Natl Mkt. Share, Inc. v. Sterling Nat'l Bank, Inc., 392 F.3d 520, 526 (2d Cir. 2004), citing Fed. R. Civ. P. 15(b); Luria Bros. & Co. v. Alliance Assurance Co., 780 F.2d 1082, 1089 (2d Cir. 1986). Here, Republic argued in its motion for summary judgment that Hallinan's breach claim was barred by the doctrine of election of remedies. See Defendant's Memorandum in Support of Summary Judgment, Oct. 20, 2006, at 22-23. Hallinan opposed that argument on the merits, without any reference to the fact that Republic failed to raise the defense in their Answer. See Memorandum of Plaintiff. in Opposition to Defendant's Motion for Summary Judgment, Nov. 10, 2006, at 24-25. Republic continued to press the issue at trial. I decline to find that Republic waived the defense of election of remedies because it failed to plead it in its answer.

However, Republic does not meet the stringent standard required for judgment as a matter of law on this issue. Typically, where courts find that a breach claim is barred by the doctrine of "election of remedies," the claimant has not only continued to perform under the contract, but received benefits under the contract. See Arp Films, Inc. v. Marvel Entertainment Group, Inc., 952 F.2d 643, 649 (2d Cir. 1991) ("[Plaintiff's] decision to continue receiving benefits pursuant to the [contract] was tantamount to an election to affirm the contract.") (citing cases). Here, Hallinan's actions generally amount to inaction, rather than affirmative steps to continue to perform the contract.*fn17

Moreover, it is unclear what benefit Hallinan received, if any, under the contract. Republic has not shown the type of "overwhelming evidence" in support of their defense here that warrants judgment as a matter of law. See Lambert v. Genesee Hosp., 10 F.3d 46, 56.

iii. Republic's Argument That Hallinan's Payment of Legal Fees to Benefits Is Not Recoverable As A Matter of Law

Republic argues that the portion of the jury's verdict over and above Hallinan's investments in Benefits -- i.e., $96,695.45 -- represented Hallinan's payments on behalf of Benefits towards Benefits' litigation costs, and further, that Hallinan's recovery of those payments was erroneous as a matter of law, as Hallinan cannot recover attorneys fees paid to a third party pursuant to an ordinary breach of contract claim. Indeed, Republic notes that Hallinan did not seek to recover those attorneys' fees and costs at trial; rather, Hallinan sought to recover the monies he loaned to Benefits, and what he characterized as the value of his "unexercised option" to purchase shares of Benefits.*fn18

Hallinan argues, however that the Court should not disturb the jury's award of damages, as it is unclear whether the jury did, in fact, compensate Hallinan for Benefits' attorneys' fees and litigation costs. "It is well settled that calculation of damages is the province of the jury." Ismail v. Cohen, 899 F.2d 183, 186 (2d Cir. 1990); see also Taxi Weekly, Inc. v. Metropolitan Taxicab Bd. of Trade, Inc., 539 F.2d 907, 913 (2d Cir. 1976) (Court declined to revise jury's calculation of damages where an "adequate basis" existed for the jury's award). Hallinan avers that the jury, when it awarded Hallinan $456,272.76, might have based that award in part on the value of Hallinan's "unexercised option."

Hallinan is correct that this Court should not overturn the jury's award where any "adequate basis" exists to support it. Accordingly, this Court will not engage in a de novo review of the factual underpinnings of the verdict. Still, that cannot mean that this Court lacks any power to review a jury's award where the basis upon which it rests -- if that basis is clear and unequivocal -- is erroneous as a matter of law. Accordingly, I will determine which portion of the jury's verdict compensates Hallinan, in a manner that is clear, unequivocal, and susceptible of no other reasonable interpretation, for his payments to Benefits for Benefits' litigation, and then consider whether such an award is not recoverable by Hallinan as a matter of law.

The jury's award of $456,272.76 is fairly said to be comprised of two parts -- one definite, and one less so. The first part is the $359,577.31 that Hallinan testified that he invested in Benefits. It is clear that the jury awarded Hallinan this money on that basis because the jury specifically stated that prejudgment interest shall be calculated in part "based on each amount stated from each payment date stated on Plaintiff's exhibit 10," which is a chart that details Hallinan's payments into Benefits that totaled $359,577.31.*fn19

Republic does not challenge this portion of the award.

The second part of the award is the remaining $96,695.45 over and above Hallinan's $359,577.31 investment. As Republic notes, the jury also specifically stated that prejudgment interest shall be calculated "based on each amount stated from each payment date stated on. [D]efendant's exhibit R." See Judgment. Yet under no possible calculation do those checks listed in Defendant's Exhibit R add up to an amount equaling the difference between the payments listed in Plaintiff's Exhibit 10 (i.e. $359,577.31) and the total verdict of $456,272.76 -- i.e., $96,695.45. Nor do those checks listed in Defendants' Exhibit R add up to either the amount of money that Hallinan testified he paid towards Benefits' litigation costs (i.e., $83,195.45) or the amount of money that the evidence in toto showed Hallinan paid towards Benefits' litigation costs (i.e., $97,689.45).*fn20 Rather, the checks listed in Defendant's Exhibit R add up to either $57,854.69 (if one counts the duplicate copy of the December 30, 2004 check for $6,000, as the Clerk of the Court did when it computed prejudgment interest), or a total of $51,854.69 (not counting the duplicate $6,000 check).

It is clear, unequivocal, and susceptible of no other reasonable interpretation that the jury intended to compensate Hallinan for the payments of Benefits' legal fees and costs listed in Defendant's Exhibit R. Accordingly, I will consider whether the $57,854.69 of payments listed in Defendant's Exhibit R, upon which the Clerk calculated prejudgment interest, are recoverable by Hallinan as a matter of law.*fn21 (I decline to question the jury's award of the remaining $38,840.76.)*fn22

The default "American Rule" requires each party to bear its attorney's fees. See Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240, 247, 257, 269-71 (1975) ("Alyeska Pipeline") (Court held that attorneys' fees may generally be awarded only pursuant to statute, noting "the general rule that, absent statute or enforceable contract, litigants pay their own attorneys' fees").*fn23 "There is no. right to an award of attorney's fees on an ordinary claim of breach of contract." United States Naval Inst. v. Charter Communications, Inc., 936 F.2d 692, 698 (2d Cir. 1991), citing Alyeska Pipeline, 421 U.S. at 247. Accordingly, Republic essentially argues, if Hallinan could not recover his own attorneys' fees and costs from Republic in this action, it follows a fortiori that Hallinan cannot recover Benefits' attorneys fees and costs in another action from Republic in this action.

Hallinan argues that "[c]onsequential damages may include out-of-pocket expenses stemming from related litigation." Limited, Inc. v. McCrory Corp., 683 F. Supp. 387, 393 (S.D.N.Y. 1988), citing, e.g., Central Trust Co. v. Goldman, 70 A.D.2d 767, 767-68 (N.Y. App. Div. 1979) (attorney's fees recoverable if they are "the proximate and natural consequence of defendants' tortious act which requires plaintiff to defend or bring an action against a third party"), appeal dismissed, 394 N.E.2d 290 (N.Y. 1979). However, the caselaw Hallinan cites provides that such consequential damages might be recoverable in a tort action -- not a contract action. See Limited, Inc. v. McCrory Corp., 683 F. Supp. 387, 391 (plaintiff alleged fraud, negligence, and RICO claims); Central Trust Co. v. Goldman, 70 A.D.2d 767, 767 (plaintiff alleged fraud and malpractice claims). "It is well-settled law in [New York] that consequential damages are not recoverable in an action to recover damages for breach of contract in the absence of the plaintiff's 'showing that such damages were foreseeable and within the contemplation of the parties at the time the contract was made.'"*fn24 Martin v. Metropolitan Prop. & Cas. Ins. Co., 238 A.D.2d 389, 390 (N.Y. App. Div. 1997), citing, e.g., American List Corp. v. U.S. News & World Report, Inc., 549 N.E.2d 1161 (N.Y. 1989). No evidence at trial showed or implied that Republic foresaw at the time of the contract that Hallinan might volunteer to pay Benefits' future legal fees and costs in litigation to which Hallinan was not a party.*fn25

Hallinan's arguments do not warrant departure from the standard rule that a litigant may not be awarded attorneys' fees and costs on a breach of contract claim. Accordingly, no legal authority supports Hallinan's recovery of such fees and costs here. I grant in part Republic's motion for judgment notwithstanding the verdict and vacate the portion of the jury's award that compensated Hallinan for his payments of Benefits' legal fees -- i.e., the $57,854.69 listed in Defendant's Exhibit R, plus the prejudgment interest stemming therefrom.*fn26

B. Republic's Motions for a New Trial

i. The Court's Charges Relating to Privity

Regarding privity, I instructed the jury at trial in this manner:

"As a threshold matter, you must determine whether privity existed between Hallinan and Benefits at the time of the prior arbitration. Privity exists if Hallinan was represented during the prior legal proceeding by another. 'vested with the authority of representation,' or if Hallinan exercised 'some degree of actual control' over the presentation of Benefits' case in the prior proceeding."*fn27

In determining whether Hallinan was represented during the prior legal proceeding by another 'vested with the authority of representation,' you should first determine whether. from a preponderance [of the credible evidence] whether Hallinan was a shareholder of Benefits at the time of the prior arbitration. Privity can exist where the party in the prior proceeding acted in a fiduciary capacity in protecting the non-party's interest."*fn28

A company has a fiduciary duty to act for the benefit of its shareholders. Thus, you may consider the fact of whether or not Hallinan was a shareholder of Benefits in determining whether privity existed between Hallinan and Benefits at the time of the prior arbitration. However, if you determine that Hallinan was a shareholder of Benefits, that did not automatically establish privity between Hallinan and Benefits. There is no bright line rule as to whether or not shareholders are in privity with their corporation.*fn29 You must consider all the facts and determine whether Hallinan was in privity [in] a prior proceeding by another vested with the authority of representation.

Privity also exists if the non-party to the prior proceeding. exercised 'some degree of actual control] over the presentation of the parties' case in the prior proceeding, such as formulating [an] overarching strategy over the parties' case, or deciding what legal theories and evidence should be advanced.*fn30 Thus, you may also find privity if the plaintiff exercised some degree of actual control over the representation or presentation of Benefits' case in the prior arbitration. Again, all the circumstances must be considered, and it is from all the circumstances that you may infer whether or not there was participation amounting to a sharing and control of the litigation."*fn31

See Tr. 448:10-450:3.

Republic argues that this instruction was erroneous, and warrants a new trial. Republic's argument is as follows. First, according to Republic, New York law provides for a "broader" formulation of privity by representation than the "federal common law" cited by this Circuit in Stichting, 327 F.3d 173, 184-85, and other cases. According to Republic, whereas the Circuit requires "representation by another vested with the authority of representation," New York law allows for privity if one's rights or obligations are "conditioned on" or "derivative of" the prior litigant's. Compare Stichting, 327 F.3d at 185, with Juan C. v. R.C. Cortines, 679 N.E.2d 1061, 1065 (N.Y. 1997) ("Juan C"), citing D'Arata v. New York Cent. Mut. Fire Ins. Co., 564 N.E.2d 634, 637 (N.Y. 1990); see also Beatus v. Gerbia, 4 F.Supp.2d 256, 260 (S.D.N.Y. 1998). That said, under Erie R. Co. v. Tompkins, 304 U.S. 64 (1938), Republic concludes that since the issue of privity involves substantive considerations of relationships between parties, a federal court sitting in diversity should apply the law of privity of the forum state. See Federal Ins. Co. v. Gates Learjet Corp., 823 F.2d 383, 386 (10th Cir. 1987). Accordingly, Republic avers, I erred when I declined to instruct the jury on the "broader" New York law of privity containing Republic's preferred "conditioned on" or "derivative of" language.*fn32

Republic errs, though, when it characterizes its proffered language as a substantively different and "broader" doctrine of New York privity law than the instructions I provided the jury. Rather, "the federal doctrine [of res judicata] uses privity in a way similar to its use under New York law." Chase Manhattan Bank, N.A. v. Celotex Corp., 56 F.3d 343, 346 (2d Cir. 1995) (in a diversity action, where the issue of privity is addressed, both federal and New York law lead to the same result), citing, e.g., Watts v. Swiss Bank Corp., 265 N.E.2d 739, 743 (N.Y. 1970); Expert Elec., Inc. v. Levine, 554 F.2d 1227, 1233 (2d Cir. 1977).

A closer look at New York caselaw reveals that the "conditioned on" or "derivative of" language of Juan C is merely descriptive as to general principles of privity. Indeed, the Juan C Court prefaced the "conditioned on" or "derivative of" language with the disclaimer "in general," and went on to note that the "the term privity does not have a technical and well-defined meaning." Juan C., 679 N.E.2d at 1065, citing Watts v. Swiss Bank Corp., 265 N.E.2d 739, 743 (N.Y. 1970).*fn33 The New York Court of Appeals' most recent articulation of privity principles does not even mention the "conditioned on" or "derivative of" language. See Buechel v. Bain, 766 N.E.2d 914, 920 (N.Y. 2001).*fn34 That said, the paradigmatic formulation of privity repeated consistently by the New York Court of Appeals echoes the language used by the Second Circuit, and the language I used, to the extent relevant, in my jury instructions. See Watts v. Swiss Bank Corp., 265 N.E.2d at 743 (the term privity "includes those who are successors to a property interest, those who control an action although not formal parties to it, those whose interests are represented by a party to the action, and possibly coparties to a prior action."), cited approvingly, Chase Manhattan Bank, N.A. v. Celotex Corp., 56 F.3d at 346; see also Buechel v. Bain, 766 N.E.2d at 920 (similar); Ferris v. Cuevas, 118 F.3d 122, 126 (2d Cir. 1997) (similar, interpreting New York law).

As Hallinan notes, Republic is not entitled to proffer every conceivable formulation of privity to the jury. Rather, "a trial court has discretion in the style and wording of jury instructions, so long as the instructions, taken as a whole, do not mislead the jury as to the proper legal standard, or [in]adequately inform the jury of the law." Parker v. Sony Pictures Entm't, Inc., 260 F.3d 100, 106 (2d Cir. 2001) (citations and formatting omitted). The instructions given to the jury adequately informed the jury of the proper legal standard here. Based on the evidence presented, the jury had sufficient evidence to determine that privity did not exist between Hallinan and Benefits. Republic's argument for a new trial on these grounds is unavailing.

Two other arguments by Republic for a new trial relating to instructions given to the jury are worthy of mention. First, Republic argues that I erroneously provided a supplemental instruction to the jury that Republic bore the burden of proving privity. After receiving a note from the jury asking "In regard to privity, who has the burden of proof?" I told the jury, "It is as it usually is, the party who is asserting, the party. who is trying to prove a point or an issue has the burden. In this case, Republic is trying to prove this issue. So I don't think there is much question but that in this particular situation they have the burden of proof." See Tr. 478:10-17. The instruction was proper. "The general rule is that the party that asserts the affirmative of an issue has the burden of proving the facts essential to its claim." National Communs. Ass'n v. AT&T Corp., 238 F.3d 124, 131 (2d Cir. 2001). Additionally, as an affirmative defense, Republic bears the burden of proof on privity. Cf. Alesayi Bev. Corp. v. Canada Dry Corp., 947 F. Supp. 658, 665 n.10 (S.D.N.Y. 1996) ("[as] an affirmative defense, the party asserting res judicata bears the burden of proof that the doctrine is applicable."). Republic's argument is unavailing.*fn35

Secondly, Republic argues that a short colloquy I had with the jury regarding res judicata when the jury asked for a supplemental instruction on privity prejudiced Republic's rights so much that it deserves a new trial. I stated to the jury, in relevant part, ".[T]he underlying issue with respect to privity is res judicata. Res judicata is really my decision to make and it is not yours." Tr. 479: 6-8. Republic avers that this instruction somehow implied that res judicata and privity had already been decided in Hallinan's favor. Notwithstanding that Republic did not object at that time, I stated the law neutrally, and correctly. See, e.g., Energycresent, Inc. v. Creative Modules Enterprises, Inc., 183 A.D.2d 804 (N.Y. App. Div. 1992) ("the issue of the applicability of res judicata. presents a question of law, not of fact."). Republic's argument is similarly unavailing.*fn36

ii. Hallinan's Closing Argument

Republic objects that Hallinan's counsel made inappropriate and prejudicial remarks during summation, such as referring to Republic as a "bully."*fn37 Such argument does not warrant a new trial. "Not every improper or poorly supported remark made in summation irreparably taints the proceedings; only if counsel's conduct created undue prejudice or passion which played upon the sympathy of the jury, should a new trial be granted." Marcic v. Reinauer Transp. Cos., 397 F.3d 120, 127 (2d Cir. 2005) (Court declined to grant new trial because counsel did not "engage in personal attacks on opposing counsel, nor did he utilize epithets or slurs, or appeal to the jury's regional, economic, or other prejudices.").*fn38

iii. The Court's Exclusion of Testimony Relating to Republic's "Waiver" Defenses

Republic moves, in the alternative to its argument for judgment as a matter of law, for a new trial on the grounds that this Court's exclusion of evidence relating to events from 2003 onward prejudiced Republic's ability to mount their "waiver" and "election of remedies" arguments.

I excluded evidence relating to the 2003 purchase of Benefits by Republic, in part because Hallinan's claims related only to the 2001 contract between the parties, and in part because I did not want to prejudice Republic by allowing evidence of any "duress" by Republic upon Benefits relating to that sale.*fn39 Republic has identified no evidence that it would have offered that would have materially changed the outcome regarding their "waiver" and "election of remedies" arguments. For similar reasons to those articulated in Section III.A.ii above, Republic's motion on these grounds is denied.

IV. CONCLUSION

For the foregoing reasons, Republic's motion for judgment as a matter of law is DENIED except insofar as the portion of the judgment that compensated Hallinan for his payments of Benefits' legal fees -- i.e., the $57,854.69 listed in Defendant's Exhibit R, plus the prejudgment interest stemming therefrom -- is VACATED. Republic's motion for a new trial is DENIED in its entirety.

The Clerk of the Court is directed to close this matter and remove it from my docket.

SO ORDERED.


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