Opinion
1:18-cv-8196 (JGK) (KHP)
07-01-2019
BANKUNITED, N.A., Plaintiff, v. BLUE WOLF INVESTMENTS, LLC, SEASONS PROPERTY MANAGEMENT LLC, ZVI BLOOM, and MAYER GOLD, Defendants.
REPORT AND RECOMMENDATION TO: THE HON. JOHN J. KOETL, UNITED STATES DISTRICT JUDGE
FROM: KATHARINE H. PARKER, UNITED STATES MAGISTRATE JUDGE
This is an action for breach of contract and fraud under New York law. Plaintiff BankUnited, N.A. commenced this suit seeking damages and expenses arising out of defaults on two loan agreements. The Defendants are guarantors of the loan agreements at issue. Two of the Defendants, Zvi Bloom and Blue Wolf Investments, LLC (collectively, the "Absent Defendants"), have not appeared in the action. Defendant Mayer Gold has appeared and answered the Amended Complaint. Plaintiff moves for a default judgment against the Absent Defendants pursuant to Rule 55 of the Federal Rules of Civil Procedure ("Rule 55"). For the following reasons, this Court respectfully recommends that the Plaintiff's motion for default judgment be GRANTED and that Plaintiff be awarded damages and fees in the amount of $9,315,753.33 ($9,142,402.98 in loan principals, interest, and late fees, plus $173,350.35 in attorneys' fees).
While there are other guarantors, they have not been named as defendants because they have filed for bankruptcy and are in the midst of bankruptcy proceedings. See Doc. No. 71-1 at 1 n.2-3. Defendant Seasons Property Management LLC was never served with the Amended Complaint because it is also in bankruptcy proceedings.
BACKGROUND
Defendants Bloom and Gold were co-owners of Seasons Corporate LLC ("Borrower" or "Seasons") and operated a chain of upscale kosher grocery stores called Seasons Kosher Supermarkets. Bloom and Gold started the business when they bought several grocery stores from Super Sol, Ltd. and others ("Supersol") in or around 2010. (Doc. No. 30, Amended Complaint ("Compl.") ¶ 43 & Ex. J.) In 2013, Seasons sought to restructure its debt and so negotiated and entered into an Amended Agreement of Sale, a Note, and a Consulting Agreement pursuant to which it agreed to make periodic payments to Supersol. In 2014, Seasons sought to renegotiate its debt to Supersol again, but the parties did not amend their agreements. In late 2015, Seasons defaulted on payments to Supersol under the Consulting Agreement. As a result, in October 2016, Supersol brought a claim against Seasons in a Beth Din arbitration. (Id.) On August 2, 2017, the Beth Din found in favor of Supersol and ordered Seasons and its owners to pay in excess of $8 million to Supersol. That award was then confirmed as a judgment by the New York State Supreme Court on May 1, 2018.
The Beth Din of America is a rabbinic court that serves the Jewish community of North America as a forum for arbitrating disputes through the Din Torah process according to Jewish law. The Beth Din regularly arbitrates a wide range of disputes among parties, ranging in value from small claims to litigation involving several million dollars. Prior to having a case heard by the Beth Din, litigants are required to enter into a binding arbitration agreement. The Beth Din conducts its proceedings in a manner that is consistent with the requirements of secular arbitration law, so that the rulings of the Beth Din are legally binding and enforceable in the secular court system. Beth Din of America, https://bethdin.org/about/ (last visited June 16, 2019).
While it was suffering financial difficulties and after defaulting on payments due to Supersol, Seasons sought financing from Plaintiff BankUnited, N.A. ("BankUnited"). On September 16, 2016, BankUnited agreed to lend Seasons $10 million. The loans were reflected in two Notes, one in the amount of $7.5 million and the other in the amount of $2.5 million, and were issued pursuant to two Loan Agreements. The Notes were secured by unconditional Guarantor Agreements pursuant to which Defendants Blue Wolf Investments, LLC, Zvi Bloom, and other entities not parties to this action, guaranteed the loan amounts. (Id. ¶¶ 1, 11-20, Exhibits ("Exs.") A-H.) As guarantors of the loan agreements, Absent Defendants Bloom and Blue Wolf Investments, LLC made a series of representations and warranties to Plaintiff, including that Defendants had disclosed any materially adverse facts about and any actions against the Borrower. (Id. ¶¶ 39-41.) All of the loan documents provide that New York law applies. (Id. ¶22, Exs. A & C at 4, Exs. B & D at 30, Exs. E & F at ¶ 24.)
BankUnited transferred the funds to Season. (Id. ¶¶ 11, 15, 68.) Seasons began making payments on the $7.5 million loan. On May 17, 2019, after learning of Supersol's judgment against Seasons, BankUnited notified the Defendants that they were in default on the two loans because, among other reasons, they failed to notify BankUnited of the Beth Din arbitration and judgment as required under the Loan Agreements and had failed to disclose to BankUnited that Seasons was in default of its obligations to Supersol when it executed the BankUnited loan documents. (Id. ¶¶ 39, 50-57, Ex. H.) On May 25, 2018, BankUnited notified Season and its guarantors (including the Absent Defendants) that it was accelerating the amounts due under the Loan Agreements. (Id., Ex. I.) It informed Seasons and its guarantors that $2,508,385.41 in principal and interest was due under the $2.5 million Note and $6,864,744.39 in principal and interest was due under the $7.5 million Note. (Id. ¶¶ 26-30 & Ex. I.) Neither Seasons nor any of its guarantors repaid the amounts demanded by BankUnited.
Plaintiff then commenced this action on September 7, 2018 against Seasons and all of its guarantors asserting breach of contract and fraud claims. (Id. ¶¶ 70, 80.) On or about September 17, 2018, Seasons filed for Chapter 11 bankruptcy. See In re: Seasons Corporate LLC, et al., 18-cv-45284 (E.D.N.Y.). Plaintiff filed its amended its complaint on October 16, 2018 naming only the Absent Defendants, Gold, and Seasons Property Management LLC (also a guarantor). On October 22, 2018, summonses were issued to all the Defendants. (See Compl.; Doc. Nos. 39-42.)
The Debtors in the Chapter 11 proceeding are Blue Gold Equities LLC, Central Avenue Market LLC, Amsterdam Avenue Market LLC, Wilmot Road Market LLC (8020), Seasons Express Inwood LLC, Seasons Lakewood LLC, Seasons Maryland LLC, Seasons Clifton LLC, Seasons Cleveland LLC, Lawrence Supermarket LLC, Upper West Side Supermarket LLC, and Seasons Corporate LLC.
Absent Defendant Blue Wolf was served process on October 23, 2019; Absent Defendant Bloom was served on October 25, 2019. (Doc. Nos. 44, 46.) The Absent Defendants failed to answer or otherwise move with respect to the Amended Complaint, and the Clerk of Court entered certificates of default against the Absent Defendants on December 10, 2018. (Doc. Nos. 56-57.) On January 28, 2019, Plaintiff and Defendant Mayer Gold (the only Defendant to appear) consented to the jurisdiction of this Court pursuant to 28 U.S.C. § 636. (Doc. No. 66.)
Plaintiff now requests that a default judgment be granted as to the Absent Defendants in the sum of $9,335,023.48, consisting of the amounts owed under the Loan Agreements including interest and fees due under the loan documents in the event of a default, as well as attorneys' fees and costs and post-judgement interest. (Doc. No. 82-1 at 3-4.) This Court issued an Order to Show Cause, which was served to the Absent Defendants along with Plaintiff's motion for default judgment and its supporting papers on April 4, 2019. (Doc. Nos. 72-73, 75.) On April 16, 2019, this Court held an Order to Show Cause Hearing. (Doc. No. 76.) Despite being afforded notice of the hearing, the Absent Defendants did not appear or file any submissions. The following recommendations are based on the evidence presented at the hearing and information submitted by Plaintiff.
Plaintiff requested costs. However, the requested amount of attorneys' fees was the same as the amount that was requested for "attorneys' fees and costs." As such, the Court does not and will not address separate costs. See Antongeorgi Supp. Decl. ¶ 5.
DISCUSSION
A. Default Judgement
Rule 55 governs judgments against a party that has failed to plead or otherwise defend itself in an action. Priestley v. Headminder, Inc., 647 F.3d 497, 504-05 (2d Cir. 2011); Pac. M. Int'l Corp. v. Raman Int'l Gems, Ltd., 888 F. Supp. 2d 385, 392 (S.D.N.Y. 2012). Rule 55 requires the Clerk of the Court, upon notification from the moving party, to note the default of the party failing to defend the suit. Priestley 647 F.3d at 555 (citing Fed. R. Civ. P. 55). Once the Clerk issues a certificate of default, the moving party may apply for entry of default judgment, pursuant to Rule 55(b). Pac. M. Int'l, 888 F. Supp. 2d at 392. A default constitutes an admission of all well-pled factual allegations in the complaint, and the allegations, as they pertain to liability, are deemed true. Finkel v. Romanowicz, 577 F.3d 79, 83 n. 6 (2d Cir.2009) (noting that an entry of default establishes liability). However, Plaintiff is not entitled to default judgment as a matter of right. Bricklayers & Allied Craftworkers Local 2, Albany, N.Y. Pension Fund v. Moulton Masonry & Const., LLC, 779 F.3d 182, 187 (2d Cir. 2015). Plaintiff bears the burden to demonstrate that its uncontroverted allegations, without more, establish the defendant's liability on each asserted cause of action. Id.; see also Morales v. Mw Bronx, Inc., No. 15-CV-6296 (TPG), 2016 WL 4084159, at *4 (S.D.N.Y. Aug. 1, 2016) (collecting cases).
Here, Plaintiff has satisfied the procedural requirements of Rule 55 by submitting requests for entries of default and a motion for default judgment. (See Doc. Nos. 47-48, 56-57, 71.) In determining whether to grant a motion for default judgment, courts within this District consider three factors: "(1) whether the defendant's default was willful; (2) whether defendant has a meritorious defense to plaintiff's claims; and (3) the level of prejudice the non-defaulting party would suffer as a result of the denial of the motion for default judgment." Nespresso USA, Inc. v. Africa Am. Coffee Trading Co. LLC, No. 15CV5553-LTS, 2016 WL 3162118, at *2 (S.D.N.Y. June 2, 2016) (quoting Indymac Bank, F.S.B. v. National Settlement Agency, Inc., No. 07-cv-6865 (LTS) (GWG), 2007 WL 4468652, at *1 (S.D.N.Y. Dec. 20, 2007)); see also Guggenheim Capital, LLC v. Birnbaum, 722 F.3d 444, 455 (2d Cir. 2013) (applying the first two factors in review of lower court's grant of a default judgment).
All three of the foregoing factors weigh in Plaintiff's favor. First, the Absent Defendants' failure to make an appearance or to respond to either Plaintiff's Amended Complaint or Motion for Default Judgment are indicative of willful conduct. See Sayeg v. Azuly, No. 14CV4096LTSRLE, 2016 WL 5234597, at *4 (S.D.N.Y. Aug. 12, 2016), adopted by, No. 14-CV-4096-LTS-RLE, 2016 WL 5108132 (S.D.N.Y. Sept. 20, 2016) ("By not appearing, the Court considers [defendant's] default willful."); Indymac, 2007 WL 4468652, at *1 (holding that non-appearance and failure to respond to a complaint or motion for default judgment indicate willful conduct). Further, the Absent Defendants had notice and numerous opportunities to respond (see Doc. Nos. 44, 46, 52, 55, 75), but have not done so. See Sayeg 2016 WL 5234597, at *4 ("[Defendant] clearly knew about this litigation, and willfully disregarded it by not taking any action to defend it."). Second, there is no information before the Court regarding any meritorious defense to Plaintiff's claims because the Absent Defendants failed to make an appearance. See Indymac, 2007 WL 4468652, at *1; see also Sayeg, 2016 WL 5234597, at *4 (holding that failure "to present any evidence, or even submit a conclusory denial" shows that defendant has not presented a meritorious defense). Third, Plaintiff will be prejudiced if denied the ability to seek judgment by default because it has no other means of relief against the Absent Defendants. See Indymac, 2007 WL 4468652, at *1 ("Finally, denying the motion would be unfairly prejudicial to Plaintiff, because [defendants] have failed to appear, defend, or plead in response to any of the substantive allegations in Plaintiff's Complaint."); see also Sayeg, 2016 WL 5234597, at *4 (finding that the need to "engage in costly discovery to meet his burden of proof if the case were to proceed to trial" against an absent defendant as evidence of prejudice).
The Court has reviewed the Amended Complaint and attachments thereto and finds that Plaintiff pled facts sufficient to establish its claims of breach of contract and fraud under New York law. (See Compl. ¶¶ 64-80.) The elements of a New York breach of contract claim are: (1) the existence of an agreement, (2) adequate performance of the contract by the plaintiff, (3) breach of contract by the defendant, and (4) damages. DeFlora Lake Dev. Assocs., Inc. v. Park, 654 F. App'x 9, 10 (2d Cir. 2016) (citing Harsco Corp. v. Segui, 91 F.3d 337, 348 (2d Cir. 1996); U.S. Nonwovens Corp. v. Pack Line Corp., 4 N.Y.S.3d 868, 868 (N.Y. Sup. 2015). Plaintiff's Amended Complaint alleged that there were a series of Guarantor Agreements between Plaintiff and Absent Defendants for loans issued to the Borrower. (Compl., ¶¶ 12-18, 24, 67, Exs. A-E.). Plaintiff alleged that it performed accordingly by issuing the funds to the Borrower. (Id. ¶ 68). Plaintiff pled that Absent Defendants' material misrepresentations, including failures to notify the Plaintiff as to a judgement against the Borrower and the Borrower's missed payments of existing obligations to other creditors (including Supersol), breached the loan and guaranty agreements with Plaintiff. (Id. ¶ 28, 53, 69). Plaintiff has shown that it was damaged by the breach (i.e., it has not been repaid principal and interest on the loans it issued to Borrower). (Id. ¶ 70.) Thus, Plaintiff has sufficiently pled facts to state a claim for breach of contract.
Plaintiff has likewise sufficiently pled facts to state a claim of fraud. The elements of a fraud claim under New York law are: (1) a material misrepresentation of a fact, (2) knowledge of its falsity, (3) an intent to induce reliance, (4) justifiable reliance by the plaintiff, and (5) damages. IKB Int'l S.A. v. Bank of Am. Corp., 584 F. App'x 26, 27 (2d Cir. 2014) (citing Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553, 559 (2009)). Plaintiff has sufficiently alleged that the Absent Defendants and/or Borrower made material misrepresentations to it when procuring the loans by failing to notify Plaintiff of Borrower's missed payments to Supersol and providing a fake consulting agreement, not the actual agreement with Supersol. (Compl., ¶¶ 62, 63, 72, 73, 74.). Plaintiff has sufficiently pled knowledge of falsity (Id. ¶ 76, intent to induce reliance (id.), and Plaintiff's justifiable reliance (id. ¶ 77-78) insofar as it has alleged that the misrepresentations referenced above led Plaintiff to issue the loans to the Borrower (id. ¶ 79). Plaintiff would not have loaned Borrower $10 million, or may have loaned Borrower money on different terms, had it known that Borrower did not have the means to pay back the loans and the terms of the actual consulting agreement with Supersol. Plaintiff has been damaged because Borrower and its guarantors have not paid back the loan and, except for the Absent Defendants and Gold, have filed for bankruptcy. Because the Absent Defendants did not consent to my jurisdiction, having failed to appear in this action, this motion must be resolved by report and recommendation. For the reasons set forth above, I respectfully recommend that a default judgment be granted against the Absent Defendants.
B. Damages
1. Damages Legal Standard
Though a party's default is considered a concession of all well-pled allegations of liability, it is not considered an admission of damages, and there must be an evidentiary basis for the damages sought. Bricklayers, 799 F.3d 182 at 189; Int'l Ass'n of Heat & Frost Insulators v. Affiliated Envtl. Servs. NJ, Inc., No. 15-CV-6909-LTS, 2017 WL 5153565, at *3-4 (S.D.N.Y. Nov. 6, 2017). While courts often conduct an inquest hearing to determine the appropriate award, an inquest hearing is not required, and courts have awarded damages by relying solely on the papers provided by plaintiff. Bricklayers, 799 F.3d 182 at 189. The Court finds that an inquest hearing is not necessary here, as the appropriate award can be determined based on the papers proffered by Plaintiff.
The damages Plaintiff seeks are contractual in nature. Under New York law, it is a "fundamental principle" that an award of damages for breach of contract "should put the plaintiff in the same economic position he would have been in had the defendant fulfilled the contract." Lucente v. Int'l Bus. Machines Corp., 310 F.3d 243, 262 (2d Cir. 2002) (citation omitted). Where the contract at issue gives rise to a monetary payment obligation, then the amount owed should be awarded as damages. Arch Ins. Co. v. Precision Stone, Inc., 584 F.3d 33, 41 (2d Cir. 2009). Additionally, where "a contract provides for interest to be paid at a specified rate . . . the contract rate of interest, rather than the [statutory rate], governs . . . until the contract is merged in a judgment." N.Y. C.P.L.R. § 5001(a); see also NML Capital v. Republic of Arg., 621 F.3d 230, 239 (2d Cir. 2010) (citing Section 5001(a)).
In its motion, Plaintiff requests damages of $9,335,023.48, comprised of unpaid principal amounts, late fees and accrued but unpaid interest on the loans as of February 15, 2019, and attorneys' fees and costs. (See Doc. No. 82-1 at ¶5, Supplemental Declaration of Monica Antongeorgi dated June 21, 2019 ("Antongeorgi Supp. Decl.") This number breaks down as follows: $8,484,328.55 of principal ($5,984,382.55 on the first loan, $2,500,000 on the second), $612,401.67 in interest ($414,341.20 on the first loan, $198,060.47 on the second), and $45,618.76 in late fees ($31,290.40 on the first loan and $14,328.36 on the second), as well as $192,620.50 in attorneys' fees and costs. (Antongeorgi Supp. Decl. ¶ 5.)
To start, the loan agreements permit acceleration of the amounts due. The agreements state if "any Event of Default . . . occurs in the performance or observance of any term or agreement or condition in the [Loan Agreements] . . . then at the option of [Plaintiff], the entire outstanding principal balance together with interest thereon shall become immediately due and payable." (Exs. A & C at 3.) And, as noted above, Plaintiff elected to accelerate the amounts due and provided notice to the Defendants of its election in May 2018. Thus, the Court finds that the loan amounts are properly accelerated.
Because the loan amounts were properly accelerated, the Court next calculates the amounts owed. So that this Court could properly evaluate the claimed damages, the Court ordered Plaintiff to provide a series of documents detailing the amounts owed, including an Excel spreadsheet explaining its calculations. (See Doc. Nos. 77, 81.) That spreadsheet, provided to the Court on June 10, 2019, computed interest through February 28, 2019 and made additional adjustments to the computations. First, it rounded down to the penny per diem interest. Second, it applied a 10.46% per annum interest rate instead of a 10.5% per annum interest rate to the $2.5 million loan after the contractual variable interest rate period expired. The total loan amount under this revised computation as of February 15, 2018 is $9,157,173.44, which breaks down as follows: $5,999,153.68 + $2,500,000 in principal (total $8,499,153.68); $31,290.40 + $14,328.36 in late fees (total $45,618.76), and $414,341.20 + $198,060.50 in interest (total =$612,401.70). After further questioning by the Court, Plaintiff submitted a final calculation that corrected a set-off payment discrepancy detailed below. (Doc. No. 82-5 ("Amended Calculation").) The total requested as per the Antongeorgi Supplemental Declaration and the Amended Calculation is $9,142,402.98, consisting of: $5,984,382.55 + $2,500,000 in principal (total=$8,484,328.55), $414,341.20 + $198,060.47 in interest (total= $612,401.67), and $45,618.76 in late fees ($31,290.40 on the first loan and $14,328.36 on the second). The Court used this most recent computation, together with the provisions for the late fees and interest to be charged upon default under the loan agreements, in evaluating Plaintiff's request for damages.
The calculation of the subtotals as of February 15, 2019 in the Excel spreadsheet, including late fees, was $9,181,078.44. Notably, this is higher than the subtotal amount of $9,160,005.89 requested in Plaintiff's Brief. See Doc. No. 71-1. That result was due to a programming error in the Excel that included interest from February 15, 2019 through to February 28, 2019. The Amended Calculation and spreadsheet also differed in the amount of contractual interest due as of acceleration under the $7.5 million Note. This Recommendation uses the number provided in the latest Amended Calculation.
According to the first affidavit of Monica Antongeorgi, Senior Vice President in the Workout & Recovery Department of BankUnited, Borrower owes $5,994,809.23 in principal on the $7.5 million Note and the entire $2.5 million under the $2.5 million Note. (Doc. No. 71-13.) This amount is the $6,844,647.79 less three payments made by Borrower: $569,476.72 paid on June 5, 2018, $92,371.91 paid on August 16, 2018, and $187,989.93 paid on September 10, 2018 as laid out in the calculation provided by Defendant on June 10, 2019. The Court notes that $6,844,647.79 was the amount of principal demanded by BankUnited in May 2018. (Compl., Ex. I.) The May 2018 demand letter also noted that BankUnited would set-off $932,840.31 from the amounts due from Borrower's and its guarantors' accounts at BankUnited.
Finding the calculation submitted by Plaintiff unsatisfactory, the Court asked for additional computations to show how the set-off amounts were accounted for in Plaintiff's calculations. (See. Doc. No. 81.) In her supplemental declaration to the Court, Ms. Antongeorgi explained that upon "[a] further in-depth analysis . . . Plaintiff actually set off funds against the . . . $7.50MM Loan in the total amount of $880,361.84." (Antongeorgi Supp. Decl. ¶ 4.) To substantiate this calculation, Plaintiff appended various checking account statements. (See Doc. Nos. 82-2, 82-3, 82-4.) The Court notes that these accounts are not the accounts described in the May 2018 demand letter. (Compare Antongeorgi Supp. Decl. ¶ 4 with Compl., Ex. I.) However, the Court will take the Ms. Antongeorgi's Supplemental Declaration, made under penalty of perjury, as true, and therefore treats the stated set-off amounts as the only set-offs. The primary change is a higher set-off amount, from $569,476.72 to $600,000 for the June 5, 2018 payments. In addition to the Supplemental Declaration, Plaintiff also appended an Amended Calculation which reflected the new set-off amounts. (Amended Calculation.) As per the Amended Calculation, the changed amount is the principal of $6,844,647.79 less three off-set payments: $600,000 paid on June 5, $92,371.91 paid on August 16, 2018, and $187,989.93 paid on September 10, 2018. (See Antongeorgi Supp. Decl. ¶ 4; Amended Calculation.) The Amended Calculation also includes $20,096.60 in accrued contract interest on the $7.5 million loan, which is a change from the $4,344.45 in accrued contract interest in the spreadsheet calculation. Because the Note provides that the accelerated amount is "the entire outstanding principal balance together with interest thereon," the accrued interest of $20,096.60 becomes part of the principal for the purposes of the default interest rate calculation, thereby making the principal on the $7.5 million Note equal $5,984,382.55. (See Compl., Ex. A at 3.) The Court's review of the loan statements does not show any additional payments to the $7.5 million Note account (LN 1513000340). Thus, the Court finds that the principal amount for the $7.5 million Note is properly substantiated by Plaintiff. As per the terms of the $2.5 million Note, the principal, for the purposes of the default interest calculation, should be $2,508,385.14, which is the principal amount plus the contracted interest upon default. (See id.; Amended Calculation.) However, the Plaintiff has asked for a principal amount of $2,500,000 and based its default rate calculations on that, and so the Court will use that lower number. The Court finds that Plaintiff is owed $8,484,382.55 of principal.
The Note account numbers for both loans was included as part of Plaintiff's motion for default judgment. See Doc. No. 71-14.
Rather than adding the contract interest amount to the principal upon which the default interest is calculated, Plaintiff here added the $8,385.14 to the accrued interest amount.
The loan agreements provide for late charges of five percent of the amount overdue for any installment overdue for more than ten days. (See id., Exs. A & C at 3.) As such, the agreements also entitle Plaintiff to charge late fees for the outstanding amounts due on the loans. The Court has double checked the calculation for the late fees requested and finds them to be appropriate. Thus, Plaintiffs are entitled to a total of $45,618.76 in late fees under the two loan agreements.
The loan agreements have different interest provisions based on different dates. Interest under the $7.5 million Note is payable on a different time schedule than the $2.5 million Note. Under the $7.5 million Note, interest from September 16, 2016 through March 31, 2017 is a "variable rate equal to the greater of (i) 3.68%; or (ii) fifty (50) basis points (0.50%) above" the U.S. Prime Rate and from April 1, 2017 through the remainder of the term interest is the "per annum rate equal to the greater of: (i) 3.68%; or (ii) the five (5) year Treasury Rate . . . in effect two (2) business days prior to April 1, 2017 plus 250 basis points (2.50%)." (Id., Ex. A at 1.) According to the terms of the $2.5 million Note, interest from September 16, 2016 through September 30, 2018 is charged at "a variable rate equal to the greater of (i) 3.68%; or (ii) fifty (50) basis points (0.50%) above" the U.S. Prime Rate and, effective October 1, 2018 through the remainder of the Note's term, interest is charged at "a per annum rate equal to the greater of (i) 3.68%; or (ii) the five(5) year Treasury Rate . . . in effect two business days prior to October 1, 2018 plus 250 basis points (2.50%)." (Id., Ex. C at 1.)
The Notes both provide that the accelerated balance "shall bear interest from the date of [] default at a rate of five percent (5%) per annum over the interest rate or the maximum rate of interest allowed by law, whichever is less." (Id., Exs. A & C at 3.) For its damages demand, Plaintiff has applied the default rate applicable to the $7.5 million loan from May 25, 2018 through February 28, 2019 at the default interest rate of 9.57%. (See Amended Calculation.) As 2.5% and 5% are fixed terms, the only variable is the "Treasury Rate," which is defined as "the weekly average yield on the U.S. Treasury Securities with a constant maturity of five (5) years as published . . . in Federal Reserve Board Statistical Release H.15." (Compl, Ex. A at 1; see also Ex. C at 1.) A default interest rate of 9.57% means that the Treasury Rate that Plaintiff used was 2.07%, which would have been calculated as of April 2017. However, the Court's review of the applicable rates during this time period show that the Treasury Rate should be approximately 1.94%-1.96%. Using 1.96% for the default rate calculation means an operative default rate of 9.46%. Applying this rate to the principal amount on the $7.5 million Note results in a per diem rate of $1,572.56 (the product of the principal of $5,984,382.55 multiplied by the interest rate of 9.46%, which is then divided by the 360-day year used in the Notes). There are 267 days between May 24, 2018 and February 15, 2019. However, the Plaintiff uses 260 days as the basis for its default interest calculation, so the Court will do the same. (See Amended Calculation.) Thus, the Court finds that $408,865.60 in interest on the $7.5 million Note, resulting in a total sum of $6,393,248.15 ($5,984,382.55 in principal plus $408,865.60 in interest), is appropriate.
For the $2.5 million loan, Plaintiff used a variable interest rate calculation of 5% above the Prime Rate for the period from May 25, 2018 through the end of September 2018 and then subsequently charged a contract rate consisting of the five-year Treasury Rate plus 250 basis points (calculated as of October 1, 2018). Upon default, an additional 5% was added the interest rate at each relevant period to determine the default rate. The Court has double checked these computations, and they appear in order. Thus, the Court finds that $198,060.50 (interest at default rates plus $8,385.44 in accrued contract interest as of May 24, 2018) on the $2.5 million Note, resulting in a total sum of $2,698,060.50 ($2,500,000 in principal plus $198,060.50 in interest) is appropriate.
Finally, the Guarantor Agreements set forth the Absent Defendants' obligation to pay amounts owed under the loan agreements are provided for in the Guarantor Agreements. (See Compl., Exs. E & F at § 2.) The Guarantor Agreements for both loans specifically state that "Guarantor unconditionally guarantees to [Plaintiff] (i) the prompt and unconditional payment of the Loan and the interest thereon . . . as the same shall become due and payable . . . whether at stated maturity, by acceleration or otherwise, and any and all sums of money that . . . may have become due and payable." (Id.) Further, the Guarantor Agreements are "an absolute, unconditional, present and continuing guaranty of payment and performance." (Id.) The Court also notes that under New York law, an action may be brought against the guarantors without also suing the borrower. See, e.g., JP Morgan Chase Bank, N.A. v. Reifler, No. 11 CIV. 4016 (DAB), 2012 WL 12925172 (S.D.N.Y. Sept. 5, 2012) (granting summary judgment against guarantor in a similar case governed by New York law where the borrower was not a party); accord Marcus Dairy, Inc. v. Jacene Realty Corp., 225 A.D.2d 528, 528 (1996) (noting that under "New York law, a guarantee agreement is separate and distinct from the contract between lender and borrower," in a case where creditor plaintiff filed suit only against guarantor). Additionally, under the Guarantor Agreements, each guarantor is jointly and severally liable for the amounts due. (Id. at § 27.) Thus, the Court finds it is appropriate to enter judgment against the Absent Defendants, who were guarantors of the two loans, in the amount of $9,142,402.98.
C. Attorneys' Fees
Plaintiffs have further requested attorneys' fees and costs of $192,620.50. (Antongeorgi Supp. Decl. ¶ 5.) As noted previously, the requested amount is the same as the amount requested for attorneys' fees alone. Reasonable attorneys' fees and costs are provided for in the Guarantor Agreements. (See Compl., Exs. E & F at ¶ 2.) The Guarantor Agreements specifically state guarantors are responsible for "payment in full of any and all reasonable expenses that may be paid or incurred by the [Plaintiff] in the collection of all or any portion of the Guarantor's obligations . . . including, without limitation, reasonable attorneys' fees." (Id.) In a case where the contract at issue provides for an award of attorneys' fees and costs, "the court will order the losing party to pay whatever amounts have been expended by the prevailing party, so long as the amounts are not unreasonable." Inter-American Dev. Bank v. Venti S.A., No. 15cv4063 (PAE), 2016 WL 642381, at *1-2 (S.D.N.Y. Feb. 17, 2016) (citing Diamond D Enters. USA, Inc. v. Steinsvaag, 979 F.2d 14, 19 (2d Cir. 1992)); accord Sidley Holding Corp. v. Ruderman, No. 08CIV.2513(WHP)(MHD), 2009 WL 6047187, at *16 (S.D.N.Y. Dec. 30, 2009) ("Under New York law a provision in a contract or guaranty for the reimbursement of attorneys' fees is reimbursable"). Where a court awards attorneys' fees pursuant to a valid contractual provision, "it has broad discretion in doing so, and an award of such fees may be set aside only for abuse of discretion." U.S. Fidelity and Guar. Co. v. Braspetro Oil Servs. Co., 369 F.3d 34, 74 (2d Cir. 2004) (internal quotation marks and citation omitted).
A district court exercises "considerable discretion" in awarding attorneys' fees. Arbor Hill Concerned Citizens Neighborhood Ass'n v. Cty. of Albany & Albany Cty. Bd. of Elections, 522 F.3d 182, 190 (2d Cir. 2008); see also McDaniel v. Cty. of Schenectady, 595 F.3d 411 (2d Cir. 2010). "The party seeking fees bears the burden of demonstrating that its requested fees are reasonable." Wat Bey v. City of New York, No. 01 CIV. 09406 (AJN), 2013 WL 12082743, at *32 (S.D.N.Y. Sept. 4, 2013), aff'd sub nom. Rivera v. City of New York, 594 F. App'x 2 (2d Cir. 2014) (quoting Abel v. Town Sports Int'l, LLC, No. 09-CV-10388 (DF), 2012 WL 6720919, at *26 (S.D.N.Y. Dec. 18, 2012)). Attorneys' fees are awarded by determining a presumptively reasonable fee, or "lodestar," reached by multiplying a reasonable hourly rate by the number of hours reasonably expended. Id. (citing Millea v. Metro-North R. R. Co., 658 F.3d 154, 166 (2d Cir. 2011)); see also Bergerson v. N.Y. State Office of Mental Health, Central N.Y. Psychiatric Ctr., 652 F.3d 277, 289-90 (2d Cir. 2011). When evaluating hourly rates, the Court looks at "what a reasonable, paying client would be willing to pay, given that such a party wishes to spend the minimum necessary to litigate the case effectively." Bergerson, 652 F.3d at 289 (internal quotation marks and citation omitted). The Court may also consider case-specific factors to adjust the fee. See Arbor Hill, 522 F.3d at 186 n.3 (listing case specific factors to consider). The Second Circuit's "forum rule" generally requires use of "the hourly rates employed in the district in which the reviewing court sits in calculating the presumptively reasonable fee." Id. at 290 (internal quotation marks and citation omitted); see also Restivo v. Hessemann, 846 F.3d 547, 590 (2d Cir. 2017), cert. denied, 138 S. Ct. 644 (2018) (noting that rates are "generally [] the market rates prevailing in the community for similar services by lawyers of reasonably comparable skill, experience, and reputation" (citation omitted)). The "forum rule" applies even where the fees requested are different than those prevailing in the districts where an attorney typically resides. See Simmons v. New York City Transit Auth., 575 F.3d 170, 176-77 (2d Cir. 2009). The Court may also use its own experience and knowledge of rates charged in the community to assess the reasonableness of rates sought. Bhungalia Family, LLC v. Agarwal, 317 F. Supp. 3d 727, 739 (S.D.N.Y. 2018) (citing Miele v. New York State Teamsters Conf. Pension & Ret. Fund, 831 F.2d 407, 409 (2d Cir. 1987).
When evaluating hours expended, the Court must make "a conscientious and detailed inquiry into the validity of the representations that a certain number of hours were usefully and reasonably expended." Haley v. Pataki, 106 F.3d 478, 484 (2d Cir. 1997) (quoting Lunday v. City of Albany, 42 F.3d 131, 134 (2d Cir. 1994)). "In determining whether hours are excessive the critical inquiry is whether, at the time the work was performed, a reasonable attorney would have engaged in similar time expenditures." Samms v. Abrams, 198 F. Supp. 3d 311, 322 (S.D.N.Y. 2016) (quoting Grant v. Martinez, 973 F.2d 96, 99 (2d Cir. 1992) (internal quotation marks omitted)). "Hours that are excessive, redundant, or otherwise unnecessary, are to be excluded . . . and in dealing with such surplusage, the court has discretion simply to deduct a reasonable percentage of the number of hours claimed as a practical means of trimming fat from a fee application." Kirsch v. Fleet St., Ltd., 148 F.3d 149, 173 (2d Cir. 1998) (internal citations and quotation marks omitted); accord Alicea v. City of New York, 272 F. Supp. 3d 603, 608-09 (S.D.N.Y. 2017).
The Court also looks at the nature of the legal matter and reason for the fee award in considering the reasonable rate and reasonable time spent on a matter. Complex cases requiring particular attorney skills and experience may command higher attorney rates, as may cases requiring retention of a firm with the resources needed to prosecute a case effectively. See Arbor Hill, 522 F.3d at 184, 187-188.
Duane Morris LLP ("DM"), Plaintiff's counsel, is one of the largest law firms in the United States with more than 600 attorneys worldwide. DM commands commensurate rates. Plaintiff's attorney's fees application included both the "standard" rates billed by the DM attorneys, as well as the rates charged to Plaintiff as a "preferred client." (Doc. No. 82.) Here, the following attorneys billed time on this matter at the following hourly rates: Jonathan Petrakis, a partner at DM's Philadelphia office with 35 years' experience ($900 standard, $595 preferred); Jay Steinman, a partner in DM's Miami office with 35 years' experience ($850 standard, $595 preferred); Louise Melchor, a senior associate in DM's Philadelphia office with more than 10 years' experience ($735 standard, $495 in 2018 and $525 in 2019 preferred); Patricia Heer, a former Special Counsel at DM with more than 10 years' experience ($525); Kevin Potere, a senior associate at DM's New York office with approximately 10 years' experience ($715 standard, $495 preferred); and Steven Knipfelberg, a mid-level associate at DM's Newark office with about 8 years' experience ($570 standard, $470 in 2018 and $515 in 2019 preferred). All of these lawyers attended reputable law schools and are experienced in the financial industry and the type of loan transactions at issue in this case. Finally, a paralegal, Albert Knapp, who is a graduate of University of Chicago and has 25 years' experience also billed time to this matter at the rate of $200 ($405 standard) per hour. The fees and hours requested are as follows:
| Attorney/Paralegal | Position | Hourly Rate | Hours Billed2 |
|---|---|---|---|
| Jonathan M. Petrakis | Partner | $595.00 | 98.5 |
| Jay Steinman, P.A. | Partner | $595.00 | 0.7 |
| Louise Melchor | Associate | $495.00 in 2018 and$525.00 in 2019 | 117.6 in 2018 and5.2 in 2019 |
| Patricia Heer | Associate (former) | $525.00 | 81.7 |
| Kevin P. Potere | Associate | $495.00 | 15.4 |
| Steven T. Knipfelberg | Associate | $470.00 in 2018 and$515.00 in 2019 | 32.0 in 2018 and10.0 m 2019 |
| Albert G. Knapp | Paralegal | $200.00 | 9.7 |
Following the "forum rule," courts in this District have determined that hourly rates ranging from $250 to $1,260 per hour, for attorneys' work on a commercial litigation matter are reasonable. Vista Outdoor Inc. v. Reeves Family Tr., No. 16 CIV. 5766, 2018 WL 3104631, at *5-6 (S.D.N.Y. May 24, 2018) (approving rates up to $1,260 for partners; collecting cases); U.S. Bank Nat'l Ass'n v. Dexia Real Estate Capital Markets, No. 12 Civ. 9412 (PAE), 2016 WL 6996176, at *8 (S.D.N.Y. Nov. 30, 2016) (citing Themis Capital v. Democratic Republic of Congo, No. 09 Civ. 1652 (PAE), 2014 WL 4379100, at *7 (S.D.N.Y. Sept. 4, 2014)); Weiwei Gao v. Sidhu, No. 11 CIV. 2711 WHP JCF, 2013 WL 2896995, at *6 (S.D.N.Y. June 13, 2013) (collecting cases). The Court therefore finds that the preferred rates billed to Plaintiff are reasonable. All of the preferred rates requested fall within the range awarded by courts in this District for similarly experienced attorneys. Themis, 2014 WL 4379100, at *7 ("[P]artner billing rates in excess of $1,000 an hour . . . are by now not uncommon in the context of complex commercial litigation."); Weiwei Gao v. Sidhu, 2013 WL 2896995, at *6. Paralegal fees are also reimbursable, and the reasonableness of the fees is determined similarly to attorneys' fees. Bhungalia, 317 F. Supp. 3d at 740. The Court finds that the rate of $200 per hour for a paralegal with more than 25 years is reasonable and in line with market rates in this District. See Microban Prod. Co. v. Iskin Inc., No. 14CV05980 (RA) (DF), 2016 WL 4411349, at *13 (S.D.N.Y. Feb. 23, 2016), adopted by, No. 14-CV-05980 (RA), 2016 WL 4411414 (S.D.N.Y. Aug. 18, 2016) (finding a rate of $200 per hour reasonable for a "managing clerk" with five years of experience); Sub-Zero, Inc. v. Sub Zero NY Refrigeration & Appliances Servs., Inc., No. 13-CV-2548 KMW JLC, 2014 WL 1303434, at *9 (S.D.N.Y. Apr. 1, 2014) (collecting cases).
The Court next turns to the time spent by the attorneys. As a preliminary matter, DM charged for time spent in the initial, pre-litigation, attempts to collect on the loan and in ancillary matters related to the Seasons bankruptcy. The Guarantor Agreements expressly provide for the reimbursement of attorneys' fees "in the collection of all or any portion of the Guarantor's obligations hereunder or the exercise or enforcement of anything . . . rights, powers, privileges, remedies and interests of the Lender under the Loan Documents." (Exs. E & F at ¶ 2.) Thus, the attorneys' fees incurred as part of the collection activity prior to the commencement of the instant litigation and as part of the bankruptcy matters are reimbursable. See Bhungalia, 317 F. Supp. 3d at 741-42 (finding fees incurred in pre-litigation collection activity were reimbursable); Sidley, 2009 WL 6047187, at *18 (finding that fees in a related state court proceeding were also reimbursable); Ford Motor Credit Co. v. Miller, 990 F. Supp. 107, 112 (N.D.N.Y. 1998) (permitting plaintiff to recover fees from related bankruptcy and state court proceedings).
As to the attorney hours worked, the Court is mindful that hours that are "excessive, redundant, or otherwise unnecessary" must be excluded from an attorneys' fee award. Payne v. Kirkland, No. 14-cv-7098 (ALC), 2017 WL 5952707, at *5 (S.D.N.Y. Nov. 30, 2017). The Court may also "reduce the fees requested for billing entries that are vague and do not sufficiently demonstrate what counsel did." Dixon v. Agbai, No. 15-cv-850 (AT) (AJP), 2016 WL 3702749, at *17 (S.D.N.Y. July 8, 2016). In its discretion, a court may also apply an "across-the-board" reduction where pervasive deficiencies are plain from the face of counsel's records, for example, where counsel are billing at attorney rates for work properly performed by support staff or where entries are too vague to support an award of fees. Id., at *18. Similar percentage reductions are also applied when work could have been handled by junior attorneys, but instead was handled by senior attorneys. Bhungalia, 317 F. Supp. 3d at 741.
The Court has carefully reviewed the time records Plaintiff has provided detailing the time spent on each task in support of its application for fees. The Court finds that they are neither impermissibly broad nor vague. See Themis, 2014 WL 4379100, at *7 (reducing fees when time entries were impermissibly broad; collecting cases where fee awards were reduced for vagueness or other inconsistencies). However, in its review of the records, the Court has found entries that it deems to be redundant or excessive. These entries include time spent on communications internally or with the client, time spent drafting documents, time spent budgeting for the litigation, and time spent in regard to non-defaulting Defendant Mayer Gold. See Bhungalia, 317 F. Supp. 3d at 741 (noting that courts reduce stated hours when the "number of hours is greater than that which should have been required for the work produced"); Anthony v. Franklin First Fin., Ltd., 844 F. Supp. 2d 504, 509 (S.D.N.Y. 2012) (reducing attorneys' fees for unnecessary billing of, inter alia, for internal meetings between attorneys assigned to the case).
The Court notes that there were no junior attorneys assigned to this matter; the most junior attorney had eight years of experience. Mr. Petrakis (35 years of experience), Ms. Melchor (10 years of experience), and Ms. Heer (10 years of experience) billed the broad majority of the hours on this matter which involved a relatively straightforward contract claim with defaulting defendants. See Bhungalia, 317 F. Supp. 3d at 744 (reducing fees by 25% percent in a similar default case where a partner did work that could have been assigned to a junior attorney). This Court therefore recommends an overall 10% reduction of time billed. See id. (collecting cases where courts reduced time for, inter alia, senior attorneys billing for junior level work and expending time "excessive in light of default posture of the case"). The totality of the hours that Plaintiff requested at the rates presented equal $192,611.50. As such, the Court recommends an award of $173,350.35, representing a 10% reduction in the fees requested.
The Court recommends that the requested damages and fees in the amount of $9,315,753.33 ($9,142,402.98 in loan principals, interest, and late fees + $173,350.35 in attorneys' fees) be awarded to Plaintiffs and against Absent Defendants, along with statutory post-judgment interest. See 28 U.S.C. § 1961.
CONCLUSION
For the reasons set forth above, this Court respectfully recommends that default judgment be granted against the Absent Defendants and judgment be entered against the Absent Defendants and in favor of Plaintiff in the amount $9,353,082.39 plus contractual interest, to be computed in the same matter through the date of judgment, along with statutory post-judgment interest pursuant to 28 U.S.C. § 1961. Dated: July 1, 2019
New York, New York
/s/_________
KATHARINE H. PARKER
United States Magistrate Judge
NOTICE:
The Defendant shall have fourteen days from the service of this Report and Recommendation to file written objections pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure (i.e. by May 15, 2019). See also Fed. R. Civ. P. 6(a) , (d) (adding three additional days only when service is made under Fed. R. Civ. P. 5(b)(2)(C) (mail) , (D) (leaving with the clerk), or (F) (other means consented to by the parties)). Plaintiff shall have fourteen days from the service of this Report and Recommendation to file written objections pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure (i.e. by May 15, 2019).
If the Plaintiff files written objections to this Report and Recommendation, the Defendant may respond to Plaintiff's objections within fourteen days after being served with a copy. Fed. R. Civ. P. 72(b)(2). Alternatively, if Defendant file written objections, the Plaintiff may respond to such objections within fourteen days after being served with a copy. Fed. R. Civ. P. 72(b)(2); see also Fed. R. Civ. P. 6(a) , (d). Such objections shall be filed with the Clerk of the Court, with courtesy copies delivered to the chambers of the Honorable John G. Koeltl at the United States Courthouse, 500 Pearl Street, New York, New York 10007, and to any opposing parties. See 28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 6(a) , 6(d), 72(b). Any requests for an extension of time for filing objections must be addressed to Judge Kaplan. The failure to file these timely objections will result in a waiver of those objections for purposes of appeal. See 28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 6(a) , 6(d), 72(b); Thomas v. Arn , 474 U.S. 140 (1985).