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Euro Pacific Capital Inc. v. Bohai Pharmaceuticals Group, Inc.

United States District Court, S.D. New York

March 28, 2018

EURO PACIFIC CAPITAL INC., individually and in its capacity as Investor Representative and attorney-in-fact for BRUCE WALKER RAVENEL, et al., Plaintiffs,
v.
BOHAI PHARMACEUTICALS GROUP, INC., Defendant.

          ORDER

          VICTOR MARRERO U.S.D.J.

         Plaintiff Euro Pacific Capital Inc. ("Euro Pacific"), individually and in its capacity as investor representative and attorney-in-fact for numerous individual investors, brought this action against Bohai Pharmaceuticals Group, Inc. ("Bohai") asserting causes of action for breach of contract, breach of covenant, and breach of the implied covenant of good faith and fair dealing.[1] ("First Amended Complaint, " see Dkt. No. 13.)

         By Order dated April 15, 2016, the Court entered a default judgment against Bohai (see Dkt. No. 42) and subsequently referred the case to Magistrate Judge James Cott for an inquest on damages (see Dkt. No. 48). Upon reviewing Euro Pacific's inquest submissions, Magistrate Judge Cott recommended that this Court deny Euro Pacific's motion for damages without prejudice to renewal with respect to the requests for money damages and attorneys' fees and costs. ("Initial Report, " see Dkt. No. 53.)

         On October 11, 2017, Euro Pacific filed objections to the Initial Report (see Dkt. No. 59), and on October 26, 2017, the Court returned the matter to Magistrate Judge Cott with instructions to: (1) receive into evidence the Affirmation of David Graff (Dkt. No. 60) and the Affidavit of Peter Chema dated October 11, 2017, with accompanying exhibits (Dkt. Nos. 61, 61-1-61-21); (2) reconsider Euro Pacific's motion for an inquest into damages, upon review of the additional evidence; and (3) provide the Court with an updated Report and Recommendation. (See Dkt. No. 62.) On February 13, 2018, Magistrate Judge Cott ordered Euro Pacific to file a further submission, and Euro Pacific complied. (See Dkt. Nos. 66, 67.)

         Magistrate Judge Cott issued a revised Report and Recommendation on March 9, 2018 ("Revised Report, " see Dkt. No. 68), a copy of which is attached and incorporated herein, recommending that this Court grant Euro Pacific's request for $6, 843, 549 in damages, as well as prejudgment interest on that award at a rate of 9% per annum beginning April 5, 2016 and continuing until the date of entry of judgment. Magistrate Judge Cott also recommended that Euro Pacific be awarded $107, 194.40 in attorneys' fees, and $9, 793.87 in costs. Objections to the Revised Report were due by March 23, 2018. No objections were filed.

         A district court evaluating a Magistrate Judge's report may adopt those portions of the report to which no "specific, written objection" is made, as long as the factual and legal bases supporting the findings and conclusions set forth in those sections are not clearly erroneous or contrary to law. Fed.R.Civ.P. 72(b); see also Thomas v. Arn, 474 U.S. 140, 149 (1985); Greene v. WCI Holdings Corp., 956 F.Supp. 509, 513 (S.D.N.Y. 1997). The Court is not required to review any portion of a Magistrate Judge's report that is not the subject of an objection. See Thomas, 474 U.S. at 149. A district judge may accept, set aside, or modify, in whole or in part, the findings and recommendations of the Magistrate Judge as to such matters. See Fed.R.Civ.P. 72(b); DeLuca v. Lord, 858 F.Supp. 1330, 1345 (S.D.N.Y. 1994).

         Upon a review of the Revised Report and applicable legal authorities, the Court concludes that the findings, reasoning, and legal support for the recommendations made in the Revised Report are not clearly erroneous or contrary to law and are thus warranted. Accordingly, for substantially the reasons set forth in the Revised Report, the Court adopts the Revised Report's factual and legal analyses and determinations, as well as its substantive recommendations, in their entirety as the Court's ruling on Euro Pacific's underlying motion for an inquest on damages.

         ORDER

         Accordingly, it is hereby

         ORDERED that the Revised Report and Recommendation of Magistrate Judge James Cott dated March 9, 2018 (Dkt. No. 68) is adopted in its entirety, and the application of plaintiff Euro Pacific Capital Inc. ("Euro Pacific"), individually and in its capacity as investor representative and attorney-in-fact for numerous individual investors, for an award of damages is GRANTED; and it is further

         ORDERED that the Clerk of Court is directed to enter judgment in favor of Euro Pacific and against defendant Bohai Pharmaceuticals Group, Inc. for $6, 843, 549 in damages, as well as prejudgment interest on that award at a rate of 9% per annum beginning April 5, 2016 and continuing until the date of entry of judgment, in addition to $107, 194.4 0 in attorneys' fees, and $9, 793.87 in costs. The Clerk of Court is further directed to terminate all pending motions and close this case.

         SO ORDERED.

         15-CV-4410 (VM) (JLC)

         REPORT AND RECOMMENDATION

          James L. Cott, United States Magistrate Judge.

         On April 15, 2016, the Court entered default in this breach of contract action in favor of plaintiff Euro Pacific Capital, Inc., individually and in its capacity as investor representative and attorney-in-fact for numerous individual investors, against Defendant Bohai Pharmaceuticals Group, Inc. The case was subsequently referred to me to conduct an inquest into damages. For the reasons set forth below, I recommend granting Euro Pacific's request for $6, 843, 549 in damages, as well as prejudgment interest on that award at a rate of 9% per annum beginning April 5, 2016 and continuing until the date of entry of judgment. I also recommend that Euro Pacific be awarded $107, 194.40 in attorneys' fees, and $9, 793.87 in costs.

         I. BACKGROUND

         A. Facts[1]

         The following facts, which are drawn from a review of Euro Pacific's pleadings and supported by its submissions related to this inquest, are deemed established for the purpose of determining the damages to which it is entitled. See, e.g., Finkel v. Romanowicz, 577 F.3d 79, 84 (2d Cir. 2009) ("In light of [defendant's] default, a court is required to accept all of [plaintiffs] factual allegations as true and draw all reasonable inferences in its favor [.]") (citing Au Bon Pain Corp. v. Artect, Inc., 653 F.2d 61, 65 (2d Cir. 1981)).[2]

         Euro Pacific is an investment company incorporated under the laws of California with its principal place of business in Connecticut. Supp. Chema Aff. ¶ 6. Bohai is a Nevada company with its principal place of business in China. Supp. Chema Aff. ¶ 4. Bohai produces, manufactures, and distributes herbal pharmaceuticals. Supp. Chema Aff. ¶ 5.

         On or about January 5, 2010, a group of 124 investors represented by Euro Pacific invested $11, 100, 000.00 in Bohai. Supp. Chema Aff. ¶¶ 2, 8; Compl. ¶ 12. The investment was carried out through the purchase of promissory notes (the "Notes"). Compl. ¶ 11.[3] In exchange for $2.00, investors were issued a $2.00 convertible note (a "Note"), with each Note to be repaid in full by January 5, 2012 with 8% annual interest. Id. ¶¶ 11, 15; Supp. Chema Aff. ¶ 13; Supp. Chema Aff. Ex. 4 (Note). Euro Pacific also entered into a Securities Purchase Agreement with Bohai, which governed the purchase of the Notes. Compl. ¶ 19; Supp. Chema Aff. Ex. 3 (Securities Purchase Agreement). The Securities Purchase Agreement was also signed by each investor. Supp. Chema Aff. ¶ 9; Supp. Chema Aff. Ex. 10 (signed pages).

         On or about December 28, 2011, a week before the Notes' original maturity date, Euro Pacific and Bohai amended the Notes, extending the maturity date to April 5, 2012 and increasing the interest rate to 12%. Supp. Chema Aff. ¶ 13; Supp. Chema Aff. Ex. 12 (first amendment to Notes). Over the course of the next two and a half years, Euro Pacific and Bohai agreed to four more amendments, each extending the maturity date and maintaining an interest rate of 12%. Supp. Chema Aff. ¶¶ 14-17; Supp. Chema Aff. Ex. 13-16 (second, third, fourth, and fifth amendments to Notes). The maturity date set by the fifth and final amendment was April 5, 2016. Supp. Chema Aff. ¶ 17; Supp. Chema Aff. Ex. 16 (providing April 5, 2016 date).

         Between April 2012 and March 2014, Bohai made ten payments on the Notes, totaling $4, 284, 049, which were first applied to the interest and then to the principal. Supp. Chema Aff. ¶¶ 20-21.[4] However, after March 2014, Bohai stopped making payments on the Notes. Supp. Chema Aff. ¶¶ 20-22. As of the maturity date of April 5, 2016, a total of $6, 843, 549 was due to the noteholders, comprised of $4, 987, 021 in outstanding principal and $1, 856, 528 in unpaid interest. Supp. Chema Aff. ¶ 26; Chema Decl. ¶¶ 7-8 (citing to Supp. Chema Aff. Ex. 18 at 4) (tables listing outstanding principal and unpaid interest owed to noteholders as of maturity date).[5]

         B. Procedural History

         On June 8, 2015, Euro Pacific filed this breach of contract action against Bohai. Compl. ¶¶ 40-72.[6] Bohai initially appeared with counsel and engaged in motion practice. October 26 Order at 1. Subsequently, however, the Court granted Bohai's attorney's motion to withdraw. Id. at 2. Bohai having failed to answer or otherwise make an appearance following the withdrawal of its counsel, the Court entered default judgment against it on April 15, 2016. Id.

         Almost nine months later, Euro Pacific moved for an inquest on damages. Motion for Inquest, dated January 13, 2017 (Dkt. No. 44).[7] In its motion, Euro Pacific sought damages of $8, 677, 552.46 for the outstanding principal and unpaid interest on the Notes, as well as attorneys' fees and costs of $147, 174.30. Id. at 4.[8] Following a referral to conduct an inquest, I recommended that the Court deny the requests for monetary damages and attorneys' fees and costs without prejudice to renewal, on the grounds that Euro Pacific had not submitted sufficient evidence to establish compensatory damages with reasonable certainty and had failed to establish that the requested attorneys' fees and costs were reasonable. Euro Pac. Capital, Inc., 2017 WL 3208036, at *8-14.

         After receiving two extensions, see Dkt. Nos. 55 & 58, on October 11, 2017, Euro Pacific timely filed its objections to my Initial Report. Objections (Dkt. No. 59). In support of its objections, Euro Pacific submitted a supplemental affidavit from Chema and a supplemental affirmation from Graff.

         On October 26, 2017, the Court agreed that, based on the record before it, compensatory damages and attorneys' fees and costs should be denied. October 26 Order at 5-6. The Court then directed that I receive into evidence Chema's supplemental affidavit and Graff's supplemental affirmation with accompanying exhibits, reconsider the inquest motion upon the new record, and issue a revised Report and Recommendation. Id. at 7. Upon review of Chema's supplemental affidavit, I found that it did not provide a sufficient basis upon which to determine damages for interest with reasonable certainty, and ordered a further submission. Order, dated Feb. 13, 2018, Dkt. No. 66. Accordingly, on February 16, 2018, Euro Pacific filed a declaration of Peter Chema to address the Court's expressed concerns.

         II. DISCUSSION

         Euro Pacific seeks an award of $6, 843, 549-which is the amount of outstanding principal and unpaid interest due to the investors on the date of the Notes' maturity-as well as prejudgment interest on that ...


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