The opinion of the court was delivered by: Honorable Harold Baer, Jr., District Judge
In a second Summary Order issued August 27, 2007, the Second Circuit Court of Appeals affirmed in part and vacated in part this Court's May 18, 2006 Opinion and Order. Valjean Manufacturing Inc., et al. v. Michael Werdiger, Inc., Richard Werdiger, 05-0939-cv, 2007 U.S. App. LEXIS 20475 (2d Cir. Aug. 27, 2007); 03cv6185, 2006 U.S. Dist. LEXIS 30221 (S.D.N.Y. May 18, 2006). The case was remanded to clarify three discrete issues. These issues were briefed by the parties and oral argument was held on February 13, 2008. Thereafter, I asked the parties to submit their calculations or evidence to support the disputed items and provide stipulated calculations where possible. My 2006 Opinion and Order is clarified as follows.
The facts as determined by this Court after a four-day bench trial are set forth in the September 2, 2004 Opinion and Order, familiarity with which is presumed. Valjean Mfg. Inc. v. Werdiger, 2004 U.S. Dist. LEXIS 17580, 2004 WL 1948752 (S.D.N.Y. September 2, 2004). Valjean Manufacturing ("Valjean") and Michael Werdiger, Inc. ("MWI") entered into a Manufacturing and Security Agreement ("MSA") on October 3, 1994. Pursuant to the terms of the MSA, Valjean would manufacture, design, and sell jewelry while MWI, also a manufacturer of jewelry, provided the financing. MWI terminated the MSA on June 30, 2003.
I found that MWI breached the agreement by its failure to provide an accounting of the relationship as required by the MSA. I made findings according to five "mega-topics" namely:
1) proceeds due Valjean pursuant to Section 5.1 of the MSA ("Valjean Payments"); 2) "Contract Labor" billing; 3) "Expense Reimbursements,"; 4) duty rebate on import jewelry; and 5) "Credits" due MWI. Valjean, 2006 U.S. Dist. LEXIS 30221, at *2. I initially awarded approximately $6.6 million to Valjean and then reduced it to $4,739,826 following remand by the Circuit Court in 2005. The parties appealed portions of that decision. The three issues remaining and resolved by this opinion are: 1) a reassessment of interest due to the Defendant on cash advances made to Valjean throughout the course of the parties' relationship; 2) profit, if any, owed to Defendants for diamonds in Indian-made Jewelry; and 3) whether the Defendant expended $200,000 in trade show and marketing expenses up to December 31, 1995 on behalf of the Plaintiffs, all that was required by the MSA.
As noted in an earlier opinion, after much vacillation as to whether the MSA or one or more of the many oral modifications should control, the parties finally decided and agreed to rely on the MSA to determine damages and amounts owed to each party, and it is in reliance on the MSA that my clarifications are based. See Valjean, 2006 U.S. Dist. LEXIS 30221, at *11. The relevant provisions of the MSA relied upon to resolve the issues here are the following: 1) for interest on cash advances, sections 2.2, 2.4 and 5.1 of the MSA; 2) for 15% profit on diamonds in Indian-made jewelry, Definitions for "Diamond Value" and "MWI Costs" and 5.1 of the MSA; and 3) section 3.4 for trade show and marketing expenditures.
The Second Circuit affirmed my decision to award MWI interest for Cash Advances it made to Valjean during the course of the parties' relationship, but remanded for reconsideration of the amount awarded. Valjean, 2007 U.S. App. LEXIS 20475, at *2. Specifically, the Court sought an explanation as to why I accrued interest from the first advance to the end of the contractual relationship when I had found that MWI had underpaid Valjean from time to time over the course of their relationship. Id., at *3. With that guidance and more briefing and oral argument, Ifind that the interest number must be adjusted to take account of underpayments by MWI to Valjean. For the reasons below, the $4,850,140 million in interest on Cash Advances is reduced to $615,636.
The MSA was structured to pay Valjean for its manufacture of the jewelry after MWI received payment for the Valjean jewelry it sold. MSA, § 5.1;*fn1 Valjean, 2006 U.S. Dist. LEXIS 30221, at *25. This is called the "Valjean Payment." Soon after the MSA was negotiated, Valjean required more cash and opined that it could not stay afloat without more money not tied to sales of its jewelry by MWI. The parties then entered into another agreement, the so-called 35% Agreement, which provided that Valjean would receive funds from MWI before MWI received payment for goods sold so that Valjean could cover its operating expenses and continue to produce the jewelry.*fn2 (MWI Brief on Second Remand, Exh. S, 35% Agreement of Jan. 2, 1995); 2006 U.S. Dist. LEXIS 30221, at *25.
I found, and the Circuit agreed, that advance payments were requested by Valjean as a Cash Advance under the terms of the MSA and that MWI made these Cash Advances to Valjean over the course of their contractual relationship. 2007 App. LEXIS 20475, at *2. Cash Advances are defined as any draws under the "Line of Credit." MSA, "Cash Advances." Section 2.2 of the MSA provides that cash advances only occur upon the request of Valjean. MSA, § 2.2. Interest was to "accrue on all the outstanding Cash Advances [made by MWI to Valjean] at an annual rate equal to MWI's weighted average cost of funds borrowed from its principal bank lenders." MSA, § 2.4. Pursuant to section 5.1 of the MSA, interest on Cash Advances was to be payable monthly.
After an initial advance of $857,005.55 to Valjean in October 1994, the monthly Valjean Payments quickly and consistently exceeded what MWI advanced to Valjean under the 35% Agreement. To the extent that the Cash Advances made according to the 35% Agreement exceeded the Valjean Payment under § 5.1 of the MSA, Valjean owes MWI interest. But once Valjean Payments exceeded Cash Advances to Valjean, and the cumulative balance no longer reflected outstanding amounts owed to MWI, Valjean incurred no further interest.
At the end of the relationship, Valjean Payments (i.e. what MWI owed to Valjean) totaled $48,360,629.33,*fn3 whereas MWI had advanced a total of $43,305,591.92, reflecting total underpayments to Valjean of ...