UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
March 17, 2009
JUSTIN HOMKOW, PLAINTIFF,
MUSIKA RECORDS, INC., ALEXANDER LIM, RAFAEL AGUDELO, AND JOHN DOES NOS. 1-10, DEFENDANTS.
The opinion of the court was delivered by: Kimba M. Wood, U.S.D.J.
OPINION AND ORDER
Plaintiff Justin Homkow ("Plaintiff") filed this action against Defendants Musika Records, Inc. ("Musika Records"); Alexander Lim ("Lim"); Rafael Agudelo ("Agudelo"); and John Does Nos. 1-10 (collectively, "Defendants"). Plaintiff moves for sanctions against John H. Harris ("Harris"), Defendants' counsel.
The Court granted Plaintiff a default judgment against Defendants on the following claims: (1) fraud, (2) breach of contract, (3) unjust enrichment, (4) conversion, (5) replevin, (6) accounting, (7) constructive trust, (8) breach of fiduciary duty, (9) misrepresentation, (10) violation of New York General Business Law § 349, and (11) copyright infringement.*fn1 These claims arose after Plaintiff hired Defendants to produce an orchestral recording entitled "The Music of George Washington's Life: A Symphonic Journey" (the "Washington Music Project"). The Court referred the action to Magistrate Judge Katz for an inquest into damages.*fn2
On March 20, 2008, Plaintiff moved for sanctions against Defendants and Harris, alleging that they acted in bad faith in their dealings with the Court and Plaintiff.
On September 10, 2009, Magistrate Judge Katz issued a Report and Recommendation (the "Report"). The thorough and well-reasoned Report recommends that the Court award Plaintiff damages for breach of contract,*fn3 prejudgment interest on the damages award, and injunctive relief. The Report also recommends that:
(1) the Court use its inherent power to impose sanctions on Defendants for making false statements to the Court in bad faith, (2) the Court sanction Defendants in an amount equal to Plaintiff's attorney's fees and costs, (3) this sanction amount be awarded to Plaintiff, and (4) the Court not sanction Harris.
Plaintiff and Defendants both filed timely written objections to the Report's recommendations regarding sanctions. For the following reasons, the Court adopts the Report's recommendations in their entirety.
II. Findings as to Damages and Equitable Relief
Parties do not object to the Report's recommendations as to how the Court should rule on Plaintiff's damages and equitable relief claims. Therefore, the Court reviews these recommendations for clear error. See 28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 72(b) advisory committee's note.
The Report recommends that the Court (1) award compensatory and incidental damages for breach of contract and the corresponding prejudgment interest, (2) deny the Plaintiff's request for damages based on lost profits, conversion, and breach of fiduciary duty, (3) deny the equitable relief requested by Plaintiff -- replevin, accounting, and constructive trust, and (4) award sua sponte injunctive relief by requiring Defendants to return to Plaintiff any Washington Music Project materials in their possession, requiring Defendants to provide a sworn affidavit indicating that all Washington Music Project materials have been returned to Plaintiff, and enjoining Defendants from using or exploiting in any manner the Washington Music Project materials.*fn4
The Court finds these portions of the Report to be well-reasoned and free of any "clear error on the face of the record" and therefore adopts the Report's recommendations. Fed. R. Civ. P. 72(b) advisory committee's note; see also Rodriguez v. Morton, 2009 U.S. Dist. LEXIS 12470, *2 (S.D.N.Y. Feb. 13, 2009).
Accordingly, the Court GRANTS Plaintiff compensatory damages in the amount of $25,494.00, incidental damages in the amount of $6,878.63, and prejudgment interest on the total damages ($32,372.63) at a rate of 9%, from the date of breach (May 8, 2003) to the date of judgment (March 17, 2009).
The Court also GRANTS the following injunctive relief: (1) Defendants shall return to Plaintiff any Washington Music Project materials in their possession to Plaintiff, (2) Defendants shall submit a sworn affidavit to the Court stating that they have returned any Washington Music Project materials in their possession to Plaintiff, and (3) Defendants are enjoined from using or exploiting in any fashion any of the Washington Music Project materials.
The Court DENIES Plaintiff's request for damages on the basis of conversion, lost profits, and breach of fiduciary duty. The Court also DENIES Plaintiff's request for equitable relief based on replevin, accounting, and constructive trust.
III. Findings as to Sanctions
The Report concludes that Defendants acted in bad faith when they made contradictory statements to the Court and to Plaintiff regarding whether Defendants had the sought-after Master digital tapes in their possession and whether Defendants had provided these Master tapes to the Plaintiff. The Report also concludes that Harris did not act in bad faith when discussing the Master tapes with the Court.
Accordingly, the Report recommends that the Court sanction Defendants pursuant to its inherent authority to sanction, and that the sanctions should be in the amount of Plaintiff's attorney's fees and costs from the date of stipulation in state court (April 20, 2004) to the date of default judgment (December 6, 2005). Chambers v. NASCO, Inc., 501 U.S. 32, 45-46 (U.S. 1991) (relying on the inherent authority of the court, "[a] court may assess attorney's fees when a party has acted in bad faith, vexatiously, wantonly, or for oppressive reasons)(internal quotations omitted). The Report also recommends that Harris not be sanctioned.
The parties object to the Report's recommendations. For the reasons stated below, the Court adopts the Report's recommendations as to sanctions in their entirety.
A. Plaintiff's Objection to the Report
Plaintiff's sole objection to the Report is that it recommends that Harris not be sanctioned. Plaintiff challenges this recommendation, arguing that Harris could not have made the "mutually exclusive and self-contradictory false statements" to the Court in his capacity as Defendants' counsel unless he had acted in bad faith. (Plaintiff's Letter Brief in Reply to Defendants' Objections to the Report, at 2.)
Because the motion for sanctions is a non-dispositive motion, the Court reviews this recommendation for clear error.*fn5
Fed. R. Civ. P. 72(a).
The Court finds no clear error in this portion of the Report. Magistrate Judge Katz properly laid out and applied the standard for sanctioning counsel pursuant to 28 U.S.C. § 1927 and the inherent authority of the court. The standard for these sanctions is that Plaintiff must show "clear evidence that (1) the offending party's claims were entirely without color, and (2) the claims were brought in bad faith." Eisemann v. Greene, 204 F.3d 393, 396 (2d Cir. 2000).
The Report explained that, although Harris made facially inconsistent statements, Plaintiff has not met its burden of establishing that Harris acted in bad faith. Plaintiff did not provide evidence that Harris knew the statements he made on behalf of his clients were false or intentionally misleading.
Rather, the Report views the record as, at most, supporting a finding that Harris "did a woefully inadequate job of investigating his client's assertions," which is not tantamount to bad faith.*fn6 (Report, at 46.) Accordingly, the Report concludes there is no basis for sanctioning him. (Report, at 45.)
The Court finds no clear error in the Report's conclusion that Plaintiff had not met his burden on showing that Harris had acted in bad faith. The Court therefore adopts the Report's recommendation that Harris should not be sanctioned and DENIES Plaintiff's motion for sanctions against Harris.
B. Defendants' Objections to Sanctions
Defendants' three objections to the Report's sanctions recommendations are based on arguments that were not previously raised by Defendants in their briefing before Magistrate Judge Katz. The three objections are: (1) the Court's imposition of sanctions is precluded by the equitable doctrine of laches; (2) the term "Masters" was ambiguous and therefore Defendants' statements regarding the Masters were neither false nor misleading;*fn7 and (3) Defendants should not be required to pay all of Plaintiff's attorney's fees and costs because most of these fees and costs were not incurred while the Plaintiff was pursuing the Master tapes.*fn8
Because these arguments were not raised in the briefing provided to Magistrate Judge Katz, the Court declines to consider these argument now.*fn9 Orix Fin. Servs. v. Thunder Ridge Energy, Inc., 2006 U.S. Dist. LEXIS 54673, *12-13 (S.D.N.Y. Mar. 7, 2006)("The Court need not consider at the objection stage any legal argument not presented to the Magistrate Judge.").
C. Remaining Claims
The Report's unobjected to recommendations regarding sanctions -- including the recommendations that Rule 11 sanctions not be awarded, and that the Plaintiff should be awarded $35,895.46 for attorney's fees and costs, rather than the $36,546.31 Plaintiff requested -- are free from clear error. Accordingly, the Court adopts the Report in its entirety.
The Court GRANTS Plaintiff's request for damages of $32,372.63 plus prejudgment interest at a rate of 9% from the date of breach to the date of judgment. The Court GRANTS injunctive relief, thereby requiring Defendants (1) to return to Plaintiff any Washington Mustic Project materials, and (2) to provide a swoen affidavit to the Court stating that all the materials have been returned to Plaintiff. The Court also enjoins Defendants from using or exploiting in any manner the materials of the Washington Music Project.
The Court GRANTS Plaintiff's motion for sanctions against Defendants [Docket Entry 61.] Accordingly, Defendants are required to pay Plaintiff $35,895.46 in attorney's fees and costs. All other requests for damages or relief are DENIED.
The Clerk of the Court is directed to close this case. Any pending motions are moot.