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Nature's Plus Nordic A/S v. Natural Organics, Inc.

United States District Court, E.D. New York

April 14, 2015

NATURE'S PLUS NORDIC A/S, Plaintiff,
v.
NATURAL ORGANICS, INC., HOUSE OF NATURE A/S, ORGANIC HOUSE A/S, and HANS KARE LUNDESTAD, Defendants

Page 601

For the Plaintiff: Ernest E. Badway, Esq., Christopher R. Kinkade, Esq., Gerard P. Norton, Esq., Of Counsel, Fox Rothschild LLP, Lawrenceville, NJ.

For Natural Organics, Inc., Defendant: Kevin Schlosser, Esq., Daniel B. Rinaldi, Esq., Michael J. Antongiovanni, Esq., Of Counsel, Meyer, Suozzi, English & Klein, P.C., Garden City, NY.

NO APPEARANCES: The Defendants House of Nature A/S; Organic House A/S; and Hans Kare Lundestad.

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MEMORANDUM OF DECISION AND ORDER

ARTHUR D. SPATT, United States District Judge.

Familiarity with the factual and procedural history of this case is presumed.

On October 2, 2009, the Plaintiff Nature's Plus Nordic A/S (" NPN" or the " Plaintiff" ) commenced this action asserting various state law claims against the Defendant Natural Organics, Inc. (" NOI" ) and the former Defendants House of Nature A/S (" House of Nature" ), Hans Kare Lundestad (" Lundestad" ), and Organic House A/S (" Organic House" ), including breach of contract based on a Distributorship Agreement entered into between NPN (then known as Benevo A/S) and NOI. NPN also raised a claim for a violation of the New York Franchise Sales Act (" NYFSA" ), General Business Law § § 681 et seq.

On September 21, 2011, the Court entered a default judgment against Organic House, but to avoid inconsistent judgments, deferred calculation of damages pending resolution of NPN's claims against the non-defaulting Defendants.

On February 7, 2012, the Court entered a default judgment against House of Nature and Lundestad but again, to avoid inconsistent judgments, deferred calculation of damages pending resolution of NPN's claims against the non-defaulting Defendant, NOI.

On November 6, 2013, as relevant here, the Court granted in part and denied in part a motion by NOI for partial summary judgment dismissing NPN's breach contract and NYFSA claims.

On August 29, 2014, at the Court's request, the parties submitted a stipulation for the trial amending the caption to remove the defaulting Defendants.

On September 2, 2014, the Court " So Ordered" that stipulation.

The Court held a jury trial from January 7, 2015 through January 23, 2015.

At the trial, NPN offered an exhibit, marked no. 84, that enumerated the specific amounts it sought as " Out-of-Pocket" expenses in reliance upon the contract. The exhibit listed " Payment of Debt"

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as $2,964,481; " Advertising of [Nature's Plus Products in 2008] as $741,772; " Advertising of [Nature's Plus Products in 2009]" as $163,739; " Products in Inventory when [NOI] Breached" as $430,079; and " Employee Severance Pay" as $133,192 for a total of $4,433,263. NPN also sought lost profits.

On January 23, 2015, a unanimous jury verdict was rendered in favor of NPN in the amount of $4,433,263, the precise amount listed in Exhibit 84, for " out of pocket expenses during the term of the contract to August 6, 2009" which NOI breached. The jury awarded zero damages to NPN for alleged lost profits during the term of the contract, from 2009 to 2017.

Thereafter, NPN made an oral motion pursuant to Federal Rule of Civil Procedure (" Fed. R. Civ. P." ) 50 for judgment as a matter of law. The Court denied that motion, but granted NPN's request to reserve its right to file a formal Rule 50 motion. Counsel for NOI expressed his intention to make a Rule 50 and Rule 59 motion within 28 days of the entry of judgment as required by those rules.

On February 6, 2015, NPN moved for (1) entry of judgment in the amount of $4,433,263 based on the January 23, 2015 verdict; (2) pre-judgment interest in the amount of $2,667,213.69 as provided by Section 5001, et seq., of the New York Civil Practice Law and Rules (" CPLR" ); (3) post-judgment interest at the statutory rate calculated from the date of the entry of the judgment pursuant to 28 U.S.C. § 1961(a); and (4) costs in the amount of $629,582.53 pursuant to 28 U.S.C. § 1920, Fed.R.Civ.P. 54(d)(1), and Local Civil Rule 54.1.

On February 13, 2015, NPN filed an amended motion for (1) entry of judgment in the amount of $4,433,263 based on the January 23, 2015 verdict; (2) pre-judgment interest in the amount of $2,180,801.01; (3) post-judgment interest at the federal statutory rate calculated from the date of the entry of the judgment; and (4) costs in the amount of $150,272.83.

On February 20, 2015, NOI moved pursuant to Fed.R.Civ.P. 50 for judgment as a matter of law, or, in the alternative, pursuant to Fed.R.Civ.P. 59 for a new trial.

By order dated February 21, 2015, the Court granted that part of NPN's motion dated February 6, 2015 seeking entry of judgment in the amount of $4,433,263 based on that jury verdict. The Court denied as duplicative NPN's amended motion dated February 13, 2015 seeking entry of judgment in the amount of $4,433,263 based on the January 23, 2015 jury verdict. The Court reserved decision on the other pending motions.

On February 24, 2015, the Clerk of the Court entered judgment based on the verdict.

On March 6, 2015, NOI appealed the judgment to the United States Court of Appeals for the Second Circuit.

On March 9, 2015, NOI moved by order to show cause pursuant to Fed.R.Civ.P. 62(d) for (1) approval of its supersedeas bond in the amount of $4,433,263 and (2) granting a stay of execution of the judgment pending resolution of NOI's appeal to the Second Circuit.

On March 10, 2015, the Court issued an order directing NPN not to execute on the judgment or initiate proceedings to enforce the judgment pending resolution of NOI's March 9, 2015 motion.

On March 11, 2015, NPN filed a letter indicating that it would not be filing an opposition to the NOI's motion by order to show cause.

On March 13, 2015, the Court (1) granted NOI's motion by order to show cause;

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(2) approved the supersedeas bond; and (3) stayed NPN from executing on the judgment pending resolution of NOI's appeal to the Second Circuit.

On March 26, 2015, NPN moved pursuant to Fed.R.Civ.P. 55(b)(2) for entry of judgment awarding it (1) damages in the amount of $4,433,263 as determined by the jury's verdict of January 23, 2015; (2) pre-judgment interest in the amount of $2,180,801.01, as provided by Section 5001, et seq., of the CPLR; (3) damages in the amount of $136,670.02 for the claims contained in Counts 5 through 11 of the First Amended Complaint, dated January 26, 2011; (4) punitive damages in the amount of $136,670.02 based upon the First Amended Complaint; (5) attorneys' fees and costs in the amount of $1,189,954.40; (6) post-judgment interest at the federal statutory rate calculated from the date of the entry of the judgment; and (7) costs in the amount of $150,272.83 pursuant to 28 U.S.C. § 1920, Fed.R.Civ.P. 54(d)(1), and Local Civil Rule 54.1.

On March 27, 2015, the Court (1) vacated the " So Ordered" September 2, 2014 stipulation; (2) directed the Clerk of the Court to reinstate House of Nature, Organic House, and Lundestad as Defendants in this action; (3) denied as unnecessary that part of the March 26, 2015 motion for entry of judgment based on the jury verdict in light of the February 24, 2015 entry of judgment; (4) reserved decision on that part of the March 26, 2015 motion seeking pre-judgment interest; and (5) and referred the balance of the requested relief in the March 26, 2015 motion to United States Magistrate Judge A. Kathleen Tomlinson for a recommendation as to whether damages should be awarded, including reasonable attorneys' fees, costs, and interest against House of Nature, Organic House, and Lundestad.

The Rule 50 and 59 motions are fully briefed, as is the amended motion for pre-judgment interest, post-judgment interest, and costs, which the Court considers in turn.

For the reasons set forth, (1) NOI's Rule 50 motion is granted in part and denied in part; (2) NOI's Rule 59 motion is denied; and (3) NPN's motion for pre-judgment interest, post-judgment interest, and costs is denied without prejudice to renew in accordance with the Court's rulings on NOI's Rule 50 motion.

I. DISCUSSION

A. The Rule 50 Motion

Rule 50(a) provides for the entry of a judgment as a matter of law on any issue, before submitting the matter to a jury, where " the court finds that a reasonable jury would not have a legally sufficient evidentiary basis to find for the party on that issue." Such a motion may, as here, be renewed after trial under subsection (b) of that Rule.

A court may grant a motion under Rule 50(b) " only if after viewing the evidence in the light most favorable to the non-moving party and drawing all reasonable inferences in favor of the non-moving party, it finds that there is insufficient evidence to support the verdict." Fabri v. United Technologies Int'l, Inc., 387 F.3d 109, 119 (2d Cir. 2004). Importantly, the trial court " cannot set aside the jury's credibility findings and cannot find for the movant based on evidence the jury was entitled to discredit." Id.; Barrella v. Vill. of Freeport, 43 F.Supp.3d 136, 173 (E.D.N.Y. 2014)(quoting Fabri).

In this case, Henning Nielsen, Chief Executive Officer of Dermagruppen, which had acquired 96% ownership of NPN at the time of the amended complaint and later 100% ownership, testified that NPN,

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prior to NOI's breach, spent $741,772 in 2008 and $163,739 in 2009 on advertising and marketing activities that included the purchase of promotional materials that instantly became useless as a result of the breach. (Trans. 256-260.) Similarly, Nielsen testified that NPN's product inventory, with a market value of $450,000 at the time of the breach, had to be discarded because NOI refused to take the inventory back. (Id. a 280-82.)

Here, NOI first challenges the award of out-of-pocket expenses, including for certain advertising costs, unsold inventory, and severance pay, on the basis that the expenses were paid with money borrowed from non-parties such as NPN's parent company, the former Defendant Dermagruppen, and were never repaid. In this regard, NOI contends that an award of out-of-pocket expenses under these circumstances runs contrary to the well-established principle of contract damages that a non-breaching party cannot be placed in a better position than it would have occupied had the breach not occurred.

Relatedly, NOI relies on the prior holding of this Court that " [Dermagruppen's] status as a sole shareholder or parent company of NPN [does not] give it standing to sue. . . . The fact that . . . a principal shareholder . . . is incidentally injured by an injury to the corporation does not confer . . . standing to sue on the basis of either that indirect injury or the direct injury to the corporation . . . ." Nature's Plus Nordic A/S v. Natural Organics, Inc., 980 F.Supp.2d 400, 409 (E.D.N.Y. 2013)(internal quotation marks omitted).

NOI previously made this argument before the issuance of jury instructions (Doc No. 331, at 3.). However, the Court did not issue a jury instruction requiring NPN to prove that the expenditures for which it sought reimbursement were actually paid from its own funds, rather than through loans or advances from non-parties, which it never repaid.

United States District Judge Shira A. Scheindlin recently delineated the two different forms of redress under New York law in breach of contract suits, namely, " expectation damages" and " reliance damages."

Expectation damages provide the injured party with the benefit she would have enjoyed had no breach occurred-- i.e., they aim to fulfill the injured party's expectations from the contract.13 Reliance damages, by contrast, seek to restore the injured party to the position she was in before the contract was formed. They allow for recovery of " expenditures [the injured party] made in reliance on defendant's representations and that he otherwise would not have made." Under New York law, when expectation damages defy precise calculation, reliance damages are the appropriate remedy.

World of Boxing LLC v. King, No. 14-cv-3791 (SAS), 2015 WL 427225, at *2 (S.D.N.Y. February 2, 2015)(citations omitted).

Indeed, reliance damages " are about restoration" and " strive to " place [injured parties] in the same position as they were prior to the execution of the contract," not to bestow a " windfall" on injured parties." Id. at *5 (citation and quotation marks omitted); see United States Naval Inst. v. Charter Communications, Inc., 936 F.2d 692, 696 (2d Cir. 1991)(" Since the purpose of damages for breach of contract is to compensate the injured party for the loss caused by the breach, those damages are generally measured by the plaintiff's actual loss. While on occasion the defendant's profits are used as the measure of damages, this generally occurs when those profits tend to

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define the plaintiff's loss, for an award of the defendant's profits where they greatly exceed the plaintiff's loss and there has been no tortious conduct on the part of the defendant would tend to be punitive, and punitive awards are not part of the law of contract damages." (citations omitted)); Freund v. Washington Square Press, Inc., 34 N.Y.2d 379, 382, 357 N.Y.S.2d 857, 314 N.E.2d 419 (1974)(" Money damages are substitutional relief designed . . . to put the injured party in as good a position as he would have been put by full performance of the contract, at the least cost to the defendant," and " the injured party should not recover more from the breach than he would have gained had the contract been fully performed." (citations and internal quotation marks omitted)).

Relatedly, " [r]eliance damages concern money spent by the plaintiff in preparation for or partial performance of the agreement, not investments made by third parties." 24/7 Records, Inc. v. Sony Music Entm't, Inc., 566 F.Supp.2d 305, 319 (S.D.N.Y. 2008).

However, as NOI appears to concede (Doc No. 365, at 5.), an individual or entity's undertaking of debt obligations as opposed to investments in reliance upon a contract, whether from a third party or the contractual counterpart, are recoverable under New York law. See Elvin Assocs. v. Aretha Franklin, 735 F.Supp. 1177, 1183 (S.D.N.Y. 1990)(reliance damages were awarded to a musical producer, who relied on Aretha Franklin's promise to star in a musical, for custom-made costumes, a $12,500 production fee, the amounts paid to the composer, unpaid debts to a collaborator and choreographer, and debts to potential investors for $72,155, which they lost in the failed venture); McKinley Allsopp, Inc. v. Jetborne Int'l, Inc., No. 89 CIV. 1489 (PNL), 1990 WL 138959, at *9 (S.D.N.Y. Sept. 19, 1990)(" Jetborne has proved by a preponderance of the evidence, first, that Jetborne incurred a debt to McKinley of $250,000 and failed to redeem the debt when that was possible in reasonable reliance upon McKinley's 'highly confident' letter and contractual obligation to use its best efforts to secure financing of the Allmat acquisition, which obligation McKinley breached. Second, Jetborne has proved that but for McKinley's breached promises it would not have incurred that debt,and third, that McKinley could reasonably have foreseen that Jetborne would incur this obligation in reliance." )

In this case, there is some confusion over whether the monies transferred from Dermagruppen to NPN, which were used to pay for certain of NPN's operating expenses, were in the form of a debt, an investment, or some other form.

In its post-trial papers, NPN states it " has not alleged that it assumed any debt of Dermagruppen, nor did it," presumably in part because NPN takes the position that the form and source of the funds is legally irrelevant. (Doc No. 355, at 6.) However, this position seems to be at odds with some of the testimony cited later including that of one of its witnesses, Berit Abrahamsen, an NPN executive.

However, if NPN is asserting that these monies were investments of some kind by Dermagruppen in NPN, then, consistent with the decision in 24/7 Records, they would not be recoverable as reliance damages to NPN, even if NPN sought this investment in reliance on the contract.

NOI characterizes the subject money transfers as " loan[s] or (source of funds)[.]" (Doc No. 365, at 3.) At other points, NOI describes the transfers as " loan[s]" or " loan proceeds" but simultaneously claims that the evidence showed

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there was no money owing. (Id. at 5-7, 10).

Relevant here, Nielsen testified in questioning by counsel for NPN:

Q: Mr. Nielsen, when you acquired NPN, what if any ...

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