Opinion
22 Civ. 3069 (MKV) (GS)
03-21-2024
K2M DESIGN, INC., Plaintiff, v. DR. PETER K. SCHMIDT, GENE LIM, and FILMWEST GLOBAL PARTNERSHIP LLC, Defendants.
REPORT & RECOMMENDATION
GARY STEIN, UNITED STATES MAGISTRATE JUDGE
The adage “if it looks too good to be true, then it probably is,” looms large over this diversity action. Plaintiff K2M Design, Inc. (“K2M” or “Plaintiff”) asserts claims for breach of contract and unjust enrichment against Defendants Peter K. Schmidt (“Schmidt”), Gene Lim (“Lim”), and Filmwest Global Partnership, LLC (“Filmwest”), as well as a fraud claim against Defendant Lim only. Plaintiff now moves under Rule 55 of the Federal Rules of Civil Procedure for a default judgment against Schmidt due to his failure to appear in this action.
For the reasons set forth below, the undersigned respectfully recommends that the Honorable Mary Kay Vyskocil find Defendant Peter K. Schmidt liable for breach of contract, but not for unjust enrichment, and enter a judgment of default against Schmidt on Plaintiff's contract claim. If the Court adopts this proposed finding, the undersigned further recommends awarding Plaintiff $1,260,000 in damages plus pre- and post-judgment interest, as well as $192,522.44 in attorneys' fees and $3,593.28 in costs.
BACKGROUND
A. The Loan and Promissory Note
The relevant facts are taken primarily from (1) the Second Verified Amended Complaint (“SAC”) and the exhibits thereto (Dkt. No. 16) and (2) the two affidavits filed by Plaintiff's counsel, Stewart D. Roll, in support of Plaintiff's motion for a default judgment. (Dkt. Nos. 56 and 96).
Plaintiff is a Florida corporation with its principal place of business in Cleveland, Ohio. (SAC ¶ 1). Plaintiff and Defendant Lim are members of the Entrepreneurs' Organization (“EO”), a “global professional support network dedicated to advancing the discipline of entrepreneurship.” (Id. ¶ 14). EO maintains an online networking platform named DealExchange, which enables EO members to contact one another about business opportunities. (Id. at 4 n.3).
On October 27, 2021, Lim solicited DealExchange users' interest in making a lucrative loan to a then-undisclosed borrower. His message asked if anyone would want to lend $1 million for a 25% return within 60 days, adding: “Opportunity won't last long.” (Id. ¶ 16 & Ex. C). Within a few hours, Plaintiff's Chief Executive Officer, Scott Maloney (“Maloney”), responded: “Definitely interested.” (Id. ¶ 17 & Ex. C).
Lim proceeded to describe the prospective loan to Maloney in more detail. Lim represented that he was working with Schmidt, a Dusseldorf, Germany-based investor whose consulting firm, “Schmidt Consulting Group Inc.” (“Schmidt Consulting”), was hoping to secure a final round of funding for an investment in a holding company and assets in the UK and Switzerland. (Id. ¶¶ 2-3, 18-19 & Ex. D). Lim stated that his group had received more than $100 million in commitments from investors and needed the last $1 million “to close on the holding company so we can receive the funds.” (Id. ¶ 19 & Ex. D).
On November 1, 2021, Maloney sent Lim an email expressing concern over his “lack of knowledge about the existence of and the ability to collect” from Schmidt and Schmidt Consulting. (Id. ¶ 21). To mollify Maloney, Lim offered to guarantee payment of the loan both personally and through Defendant Filmwest, an entity which he controlled. (Id. ¶ 22). In exchange, the parties agreed to reduce the loan's interest rate from the initial 25% specified in Lim's DealExchange message to 20% (id.)-a still-seductive return of $200,000 in just 60 days.
Lim provided Maloney with a Promissory Note (the “Note”), which was signed by all parties as of November 2, 2021. (Id. ¶¶ 23, 25; Ex. A at 3). Maloney signed the Note on behalf of K2M and caused K2M to wire $1 million to Schmidt's bank account in Duesseldorf. (Id. ¶¶ 24, 43 & Ex. A ¶ VIII).
Under the Note, “Schmidt Consulting Group INC” is the Borrower and K2M is the Lender. (Id. Ex. A at 1). The Note is personally guaranteed by Schmidt, and signed by Schmidt as CEO on behalf of “Schmidt Consulting Group INC” as well as on behalf of himself as “Primary Guarantor.” (Id. ¶ 27 & Ex. A ¶¶ V, VII and p. 3). Lim signed the Note on behalf of himself and Filmwest as “Secondary Guarantor.” (Id. ¶ 28 & Ex. A ¶¶ VI, VII and p. 3).
The Note provides that the “unpaid principal and accrued interest shall be payable in full by no later than December 31, 2021.” (Id. Ex. A ¶ I). With a $1 million principal amount and an interest rate of 20%, the total amount due on December 31, 2021 was $1.2 million. (Id. ¶ 44).
The Note includes a 5% late charge for payments made more than five days after the December 31, 2021 due date and an option to K2M to declare a default when at least fifteen days have elapsed from the due date. (Id. Ex. A ¶ I). The Note also includes an obligation for Defendants to pay all of K2M's attorneys' fees and expenses related to any collection efforts. (Id.) Further, the Note contains a New York choice of law clause and a provision in which the parties submit to the jurisdiction of the state and federal courts in New York. (Id. Ex. A ¶ IV).
B. The Breach
December 31, 2021 came and went without any payment made on the Note. (Id. ¶¶ 31-32). On January 24, 2022, K2M sent a Notice of Default via an email addressed to Schmidt and Lim and demanded immediate repayment. (Id. ¶ 31 & Ex. F).On February 13, 2022, K2M sent another demand for repayment to Lim. (Id. ¶ 33 & Ex. F). These demands for repayment went unheeded. (Id. ¶¶ 32, 34).
The Notice of Default was sent by Maloney to Lim's email address. Maloney asked Lim to share it with Schmidt, “as I do not have [Schmidt's] email address.” (Id. Ex. F).
On March 7, 2022, Maloney emailed Lim with some disturbing results of his “interim research about the existence and location” of Schmidt. (Id. ¶ 35 & Ex. G). Among other things, Maloney's email noted that: (1) Maloney had “not located any evidence that Schmidt Consulting has an office in Dusseldorf, Germany;” (2) the fact that Schmidt Consulting's business name ended with “Inc.” suggested “this is a fake company as inc. doesn't exist in Europe;” (3) although the logo for Schmidt Consulting on the letterhead of the Note matched that for a “Schmidt Consulting Group, Inc.” located in Florida, a call to the Florida company revealed “no Peter Schmidt there[,] just a nice man named Gene;” and (4) the bank account to which K2M had wired the $1 million was in the name of “Kourosh Schmidt,” not Peter Schmidt. (Id. Ex. G).
In response, Lim held a Zoom call with Maloney and said that K2M would be repaid by March 31, 2022. (Id. ¶ 38). Lim also provided Maloney with a “CIS/KYC” report for Schmidt, including a copy of Schmidt's German passport. (Id. ¶ 38 & Ex. B). The passport indicates that Schmidt's first name is Kourosh. (Id. Ex. B).
Nevertheless, Plaintiff seeks entry of a default judgment against “Peter K. Schmidt.” The Court assumes this is an intentional decision.
The loan was not repaid by March 31, 2022 either. Neither Schmidt Consulting nor any of the guarantors-Schmidt, Lim and Filmwest-have repaid K2M any of the amounts due on the Note. (See id. ¶¶ 39, 46; Dkt. No. 56 (“First Roll Aff.”) ¶ 13).
C. Procedural History
Plaintiff commenced this action on April 13, 2022, and filed the operative Complaint, the SAC, on July 27, 2022. (See Dkt Nos. 1, 16). The SAC asserts claims for breach of contract (Count I) and unjust enrichment (Count II) against Schmidt and Schmidt Consulting as well as Lim and Filmwest (together, the “Lim Defendants”). Subject-matter jurisdiction exists under 28 U.S.C. § 1332(a)(3), as there is complete diversity of citizenship between the parties and the amount in controversy exceeds $75,000. (SAC ¶ 12).
Specifically, K2M is a Florida corporation with its principal place of business in Ohio (SAC ¶ 1) and Schmidt is a citizen of Germany (id. ¶ 2), Schmidt Consulting is (as alleged in the SAC) a German company (id. ¶ 3), Lim is a citizen of California (id. ¶ 4), and Filmwest is a Montana LLC with its principal place of business in California whose member is a California citizen (id. ¶ 5).
Only the Lim Defendants have appeared in this action and responded to the SAC. (See Dkt. Nos. 6, 17). Schmidt was served with the SAC on August 11, 2022 but has not appeared. (See Dkt. No. 20). Plaintiff has voluntarily dismissed Schmidt Consulting from the case, having discovered that it is not affiliated with Schmidt and was sued incorrectly. (Dkt. No. 32 ¶ 13; Dkt. No. 41).K2M's German counsel has determined that Schmidt Consulting Group Inc. “is not an existing corporate entity in Germany.” (Dkt. No. 72 ¶ 9).
K2M subsequently submitted an affidavit in this action from Gene Schmidt, the CEO of the Florida-based Schmidt Consulting Group Inc., confirming that the company has no affiliation with Defendant Schmidt and did not authorize use of its logo on the Promissory Note. (Dkt. No. 92).
As the Lim Defendants and Plaintiff headed into discovery, Schmidt- through U.S.-based counsel-negotiated and executed a settlement agreement with Plaintiff purporting to resolve their dispute, effective as of October 25, 2022. (Dkt. No. 96 (“Second Roll Aff.”), ¶ 35 and Ex. E). In the settlement agreement, Schmidt agreed to pay K2M a total of $1,312,000 over the next year, beginning with a $400,000 payment on October 27, 2022. (Id. Ex. E at 1-2). However, Schmidt never made any payment under the terms of that agreement. (Id. ¶ 35).
As a result, on November 21, 2022, K2M applied for a Clerk's Certificate of Default against Schmidt. (Dkt. Nos. 37, 40). In response, Judge Vyskocil ordered K2M to show that it had validly served Schmidt in Germany. (Dkt. No. 42). K2M complied with the Court's directive (Dkt. No. 43) and on December 12, 2022, Judge Vyskocil found that service had been effectuated on Schmidt and directed entry of the Certificate of Default. (Dkt. No. 44).
Following the Clerk of Court's issuance of the Certificate of Default on December 13, 2022 (Dkt No. 45), K2M filed the instant motion on March 13, 2023, in the form of an affidavit from its counsel. (Dkt. No. 56). The motion was referred for Report and Recommendation to Magistrate Judge Gorenstein, the previously designated Magistrate Judge, who ordered K2M to provide further support for its claimed attorneys' fees. (Dkt. Nos. 93, 94). K2M's counsel filed an additional affidavit in response to this order on August 11, 2023. (Dkt. No. 96). The matter was reassigned to the undersigned on September 19, 2023.
DISCUSSION
A. Legal Standards
A party seeking a default judgment must follow the two-step procedure set forth in Federal Rule of Civil Procedure 55. Burns v. Scott, 635 F.Supp.3d 258, 271 (S.D.N.Y. 2022). First, the Clerk of the Court must enter a Certificate of Default under Rule 55(a). Id. Second, if the defaulting party still fails to appear or moves to set aside the default, the Court may enter a default judgment under Rule 55(b). Id. “Whether to enter a default judgment lies in the ‘sound discretion' of the trial court.” Id. (quoting Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 95 (2d Cir. 1993)).
“On a motion for default judgment after default has entered, a court is required to accept all of the plaintiff's factual allegations as true and draw all reasonable inferences in the plaintiff's favor, but it is also required to determine whether the plaintiff's allegations establish the defendant's liability as a matter of law.” Mirlis v. Greer, 80 F.4th 377, 383 (2d Cir. 2023) (cleaned up). “A district court retains discretion [on default] to require proof of necessary facts, and need not agree that the alleged facts constitute a valid cause of action.” Dong v. Ng, No. 08 Civ. 917 (JGK) (MHD), 2011 WL 2150544, at *1 (S.D.N.Y. Mar. 8, 2011) (quoting Finkel v. Romanowicz, 577 F.3d 79, 84 (2d Cir. 2009)). The court may rely on the relevant factual allegations found in the complaint and any additional affidavits filed by the plaintiff. Galeana v. Lemongrass on Broadway Corp., 120 F.Supp.3d 306, 313 (S.D.N.Y. 2014).
In determining whether to grant a default judgment, the court considers “(1) whether the defendant's default was willful; (2) whether the defendant has a meritorious defense to plaintiff's claims; and (3) the level of prejudice the nondefaulting party would suffer as a result of the denial of the motion for default judgment.” Pires v. UOB Holdings (USA) Inc., No. 20 Civ. 01612 (LTS) (GWG), 2022 WL 902464, at *2 (S.D.N.Y. Mar. 28, 2022) (cleaned up). When a party does willfully default, the court is “not required ‘to raise sua sponte affirmative defenses, which may, of course, be waived or forfeited, on behalf of an appearing party who elects not to pursue those defenses for itself.'” b.I.G.f.a.c.e. Ent. Inc. v. Young Money Ent., LLC, No. 15 Civ. 5878 (LTS), 2016 WL 5092598, at *2 (S.D.N.Y. Sept. 19, 2016) (quoting City of New York v. Mickalis Pawn Shop, LLC, 645 F.3d 114, 134-35 (2d Cir. 2011)).
B. Personal Jurisdiction
As an initial matter, the Court considers whether it has personal jurisdiction over Schmidt, a German citizen residing in Germany. In this Circuit, when defendants fail to appear in civil suits, district courts may sua sponte review their jurisdiction over non-appearing defendants. See Sinoying Logistics Pte Ltd. v. Yi Dan Xin Trading Corp., 619 F.3d 207, 213 (2d Cir. 2010) (“Because personal jurisdiction can be waived by a party, a district court should not raise personal jurisdiction sua sponte when a defendant has appeared and consented . . . to the jurisdiction of the Court. But when a Defendant declines to appear . . . before a court grants a motion for default judgment, it may first assure itself that is has personal jurisdiction over the defendant.”) (cleaned up).
K2M does not contend, nor do its factual allegations suggest, that New York's long-arm statute, N.Y. C.P.L.R. § 302, confers personal jurisdiction over Schmidt. Instead, K2M's motion for a default judgment asserts that the Court has personal jurisdiction over Schmidt pursuant to Paragraph IV of the Note. (First Roll Aff. ¶ 5). Paragraph IV of the Note, entitled “Governing Law and Jurisdiction,” provides, in pertinent part:
This Note shall be construed in accordance with the laws of the State of New York and the Parties hereby submit to the jurisdiction of the state and federal courts in New York.(SAC Ex. A ¶ IV).
It is well settled that “[p]arties can consent to personal jurisdiction through forum-selection clauses in contractual agreements.” D.H. Blair & Co. v. Gottdiener, 462 F.3d 95, 103 (2d Cir. 2006). This is the case even where the party otherwise lacks minimum contacts with the forum state. Gen. Elec. Int'l, Inc. v. Thorco Shipping Am., Inc., No. 21 Civ. 6154 (JPC), 2022 WL 1748410, at *5 (S.D.N.Y. May 31, 2022). “Thus, ‘[w]here an agreement contains a valid and enforceable forum selection clause, . . . it is not necessary to analyze jurisdiction under New York's long-arm statute or federal constitutional requirements of due process.'” Id. (quoting Export-Import Bank of U.S. v. Hi-Films S.A. de C.V., No. 09 Civ. 3573 (PGG), 2010 WL 3743826, at *4 (S.D.N.Y. Sept. 24, 2010)).
“Courts uphold contractual clauses consenting to jurisdiction if they were reasonably communicated to the [defendant], they were not obtained through fraud or overreaching, and their enforcement would not be unreasonable and unjust.” Platina Bulk Carriers Pte Ltd. v. Praxis Energy Agents DMCC, No. 20 Civ. 4892 (NRB), 2021 WL 4137528, at *3 (S.D.N.Y. Sept. 10, 2021) (citing D.H. Bair & Co., 462 F.3d at 103); see also AKF, Inc. v. Arnold Bros. Forest Prods., Inc., No. 20 Civ. 7708 (GBD) (BCM), 2023 WL 5310243, at *3 (S.D.N.Y. Apr. 28, 2023) (“Forum selection clauses are ‘prima facie valid and should be enforced unless enforcement is shown by the resisting party to be unreasonable under the circumstances.'”) (quoting M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10 (1972)).
Because Schmidt has defaulted, he has not raised any objection to the validity or enforceability of the consent-to-jurisdiction clause in this case. Nor does the Court perceive any such pitfall. The clause is clearly set forth in Paragraph IV of the Note, a short and relatively simple instrument containing only eight paragraphs of terms. Nothing suggests it would be unjust for K2M to enforce the clause against Schmidt; indeed, K2M did not even draft the Note, which bears the letterhead of Schmidt Consulting.
Accordingly, this Court finds that personal jurisdiction over Schmidt exists by virtue of the consent-to-jurisdiction clause in Paragraph IV of the Note. See, e.g., JVM Holdgs. LLC v. iAERO Grp. HoldCo 3 LLC, No. 22 Civ. 6098 (VSB) (RWL), 2023 WL 1809369, at *1 (S.D.N.Y. Jan. 26, 2023) (“The Court has personal jurisdiction over [the defaulting defendant] because, under the Redemption Agreement, [defendant] agreed to submit to jurisdiction of the Southern District of New York.”); AKF, 2023 WL 5310243, at *3-4 (finding that defaulting defendants consented to personal jurisdiction based on clause stating that they “submit[] to the jurisdiction” of the New York courts).
In contrast, the Court need not conduct a sua sponte venue analysis because a non-appearing defendant waives its right to challenge venue by failing to appear. See Alonso v. New Day Top Trading, Inc., No. 18 Civ. 4745 (PAE) (DCF), 2021 WL 4691320, at *1 n.3 (S.D.N.Y. Oct. 7, 2021) (holding defendant's failure to appear waived any objection to venue) (citing Hoffman v. Blaski, 363, U.S. 335, 343 (1960) (“a defendant, properly served with process by a court having subject matter jurisdiction, waives venue by failing seasonably to assert it, or even simply by making default”)).
C. Liability on Plaintiff's Claims
1. Schmidt Is Liable for Breach of Contract
Turning to the issue of liability, the Court notes that, since Schmidt has never appeared in this action, answered the SAC, or responded to the motion for default judgment, (1) Schmidt's default is willful; (2) Schmidt has not presented any meritorious defense to K2M's claims; and (3) K2M would be prejudiced if denied judgment by default. These factors thus all weigh in K2M's favor. See Pires, 2022 WL 902464, at *2.
The Court still must independently analyze whether K2M's factual allegations, taken as true, establish Schmidt's liability for breach of contract. Because the Note contains a New York choice-of-law clause (see SAC Ex. A ¶ IV), the Court applies New York law in analyzing Schmidt's liability. See, e.g., Mindspirit, LLC v. Evalueserve Ltd., 346 F.Supp.3d 552, 583 (S.D.N.Y. 2018) (“‘a New York choice-of-law clause in a contract . . . demonstrates the parties' intent that courts not conduct a conflict of laws analysis'”) (quoting Ministers & Missionaries Benefit Bd v. Snow, 26 N.Y.3d 466, 468 (2015)); see also Berkely Assur. Co. v. MacDonald-Miller Fac. Solutions, Inc., No. 19 Civ. 7627 (JPO), 2019 WL 6841419, at *2 (S.D.N.Y. Dec. 16, 2019) (“under New York law, in the case of certain contracts covering high-value transactions-i.e., transactions covering at least $250,000-a choice of law clause selecting New York law will be honored regardless any event, in consenting to personal jurisdiction in Paragraph IV, Schmidt also consented to venue in this District. See Coface v. Optique Du Monde, Ltd., 521 F.Supp. 500, 506 (S.D.N.Y. 1980). of the contacts between the state and the transaction”) (citing N.Y. Gen. Oblig. L. § 5-1401(1)) (cleaned up).
Under New York law, “the elements of a claim for breach of contract are: ‘[1] the existence of a contract, [2] the plaintiff's performance thereunder, [3] the defendant's breach thereof, and [4] resulting damages.'” Alpha Cap. Anstalt v. Real Goods Solar, Inc., 311 F.Supp.3d 623, 628 (S.D.N.Y. 2018) (quoting Harris v. Seward Park Hous. Corp., 79 A.D.3d 425, 426, 913 N.Y.S.2d 161, 162 (1st Dep't 2010)); accord, e.g., Terwilliger v. Terwilliger, 206 F.3d 240, 246 (2d Cir. 2000); JVM, 2023 WL 1809369, at *3.
Plaintiff has “proven each element of the breach of contract claim with respect to” the Note. Interglobo Customs Broker, Inc. v. Sunderland Brothers Co., No. 19 Civ. 5723 (GBD) (JLC), 2019 WL 5996281, at *5 (S.D.N.Y. Nov. 14, 2019), report and recommendation adopted by 2020 WL 409685 (S.D.N.Y. Jan. 24, 2020). First, K2M has provided a duly executed copy of the Note signed by Maloney, Lim, and Schmidt, the latter both on behalf of Schmidt Consulting and individually as a guarantor. (SAC Ex. A at p. 3). The Note contains clear and definite promises for Schmidt Consulting to pay K2M $1.2 million by the end of 2021 in exchange for K2M's $1 million loan (id. at 1), and for Schmidt to personally guarantee that payment (id. ¶ V). A valid contract thus exists.
Second, K2M has established that it performed its part of the bargain by wiring Schmidt the $1 million on or about November 2, 2021. (Id. ¶¶ 23-24; First Roll Aff. ¶ 12).
Third, K2M has established the element of breach by showing that the Note was not paid by the end of 2021, or any time thereafter. (SAC ¶ 30 & Ex. F; First Roll Aff. ¶¶ 13-14). K2M suggests that Schmidt can be held liable for this breach both as “the Maker and Personal Guarantor of the Note.” (First Roll Aff. ¶ 9). In what capacity Schmidt can be held liable warrants further discussion.
On the face of the Note, it is “Schmidt Consulting Group INC,” not Schmidt, who is designated as the “Borrower” and makes the “promise[] to pay” K2M $1.2 million by the end of 2021. (SAC Ex. A at 1). However, as described above, the “Schmidt Consulting Group INC” that undertook this obligation does not exist and, while there is an entity in Florida by the name of “Schmidt Consulting Group Inc.,” it has no affiliation with Schmidt and Schmidt had no authority to act on behalf of that entity. Under New York law, it is well established that “‘[o]ne who signs an agreement on behalf of a nonexistent principal may himself be held liable on that agreement.'” P.T. Eka Sari Lorena Airlines v. Air Transport Group Inc., No. 08 Civ. 5469 (AKH), 2009 WL 1360921, at *2 (S.D.N.Y. May 15, 2009) (quoting Grutman v. Katz, 202 A.D.2d 293, 294, 608 N.Y.S.2d 663, 664 (1st Dep't 1994)); accord, e.g., BCI Constr., Inc. v. Whelan, 67 A.D.3d 1102, 1103, 888 N.Y.S.2d 272, 273 (3d Dep't 2009). That is the case here and hence Schmidt may himself be held liable as the obligor under the Note.
Alternatively, Schmidt may also be held liable for the breach as a guarantor under Paragraph V of the Note, which states that “[t]his note is personally guaranteed by the undersigned, Prof. Dr. Peter K. Schmidt.” (SAC Ex. A ¶ V). See Nemesis 2 LLC v. Paladino, No. 19 Civ. 3373 (RA), 2019 WL 6215386, at *8 (S.D.N.Y. Nov. 21, 2019) (granting summary judgment in favor of plaintiff due to guarantor's breach of obligation to repay promissory note); Nemesis 2 LLC v. Salvati, No. 19 Civ. 3373 (RA), 2020 WL 2306444, at *4-5 (S.D.N.Y. May 8, 2020) (granting default judgment under virtually the same facts as Paladino against a non-appearing guarantor).
Fourth, and as more fully described below, K2M has sufficiently shown damages resulting from the breach through its allegations that it has not been paid any of the outstanding principal, interest, or other amounts due under the Note. (SAC ¶ 46; First Roll Aff. ¶¶ 14-15). Plaintiff has therefore established Schmidt's liability for breach of contract on Count I.
2. Plaintiff's Unjust Enrichment Claim Is Duplicative
To prevail on a claim of unjust enrichment under New York law, “a plaintiff must show that (1) the other party was enriched, (2) at that party's expense, and (3) that it is against equity and good conscience to permit the other party to retain what is sought to be recovered.” Mandarin Trading Ltd. v. Wildenstein, 16 N.Y.3d 173, 182 (2011) (cleaned up). However, “[a]n unjust enrichment claim is not available where it simply duplicates, or replaces, a conventional contract or tort claim.” Corsello v. Verizon N.Y., Inc., 18 N.Y.3d 777, 790 (2012) (citations omitted); see also Beeck v. Manhattan Coll., 537 F.Supp.3d 584, 589 (S.D.N.Y. 2021) (“Where an unjust enrichment claim duplicates a claim for breach of a valid, enforceable contractual obligation, the unjust enrichment claim must be dismissed.”).
K2M's alternative unjust enrichment claim against Schmidt rests on the theory that K2M conferred a “substantial benefit” upon Schmidt; that K2M relied on Schmidt's promise to repay the loan; and that due to Schmidt's failure to repay the loan, he “continue[s] to enjoy and retain the benefits” thereof. (SAC ¶¶ 51-54). These allegations rely on precisely the same set of facts as K2M's breach of contract claim. See Freedom Mortg. Corp. v. Tschernia, No. 20 Civ. 1206 (AJN), 2021 WL 1163807, at *5 (S.D.N.Y. Mar. 26, 2021) (“Each of these theories stands or falls on the exact same facts as [Plaintiff's] contract claims.”); see also Corsello, 18 N.Y.3d at 791 (“To the extent [the breach of contract] claim[] succeed[s], the unjust enrichment claim is duplicative; if [Plaintiff's] other claim[] [is] defective, an unjust enrichment claim cannot remedy the defects. The unjust enrichment claim should be dismissed.”). Finding no facts, as pled against Schmidt, that differentiate K2M's breach of contract and unjust enrichment claims, the Court concludes that K2M's motion for a default judgment on its unjust enrichment claim should be denied and Count II should be dismissed.
D. Damages
The Court now turns to the question of the damages to be awarded for Schmidt's breach of contract. K2M seeks damages in the amount of $1,260,000-a number derived from the unpaid principal amount of the loan ($1,000,000), interest thereon ($200,000), and the 5% late charge ($60,000) for failure to pay within fifteen days after the due date-plus $234,173.78 in requested attorneys' fees and costs. (Second Roll Aff. at 12). In support of this request, K2M has provided two separate affidavits from its counsel, Stewart D. Roll, along with various exhibits attached to those affidavits. (See Dkt. Nos. 56 and 96).
1. Legal Standard
Unlike a finding of liability on a default motion, a district court “need not- and indeed cannot-rely on the plaintiff's unsupported allegations to establish its damages.” GlobeRunners Inc. v. Envtl. Packaging Techs. Holdings, Inc., No. 18 Civ. 4939 (JGK) (BCM), 2020 WL 1865536, at *3 (S.D.N.Y. Mar. 6, 2020) (citing Greyhound Exhibitgroup v. E.L.U.L. Realty Corp., 973 F.2d 155, 158 (2d Cir. 1992)). Instead, the Court must find “an evidentiary basis for the damages sought by plaintiff, and a district court may determine there is sufficient evidence either based upon evidence presented at a hearing or upon a review of detailed affidavits and documentary evidence.” Cement & Concrete Workers Dist. Council Welfare Fund, Pension Fund, Annuity Fund, Educ. & Training Fund & Other Funds v. Metro Found. Contrs. Inc., 699 F.3d 230, 234 (2d Cir. 2012). When evaluating a plaintiff's evidence, a default judgment's damages calculation “must not differ in kind from, or exceed in amount, what is demanded in the pleadings.” Fed.R.Civ.P. 54(c).
Under Fed.R.Civ.P. 55(b), a hearing on damages is not obligatory. See Fed.R.Civ.P. 55(b)(2); Fustok v. Conticommodity Servs. Inc., 873 F.2d 38, 40 (2d Cir. 1989) (“By its terms, 55(b)(2) leaves the decision of whether a hearing is necessary to the discretion of the district court.”). “The Second Circuit has upheld damages determinations made on the basis of affidavits and other documentary evidence without a hearing ‘as long as the Court is ensured that there was a basis for the damages specified in the default judgment.”' Jamieson as Trustee for Raymond David Jamieson Irrevocable Grandchildren's Trust v. Sec. Am., No. 19 Civ. 1817 (VB) (JCM), 2022 WL 20399724, at *3 (S.D.N.Y. Feb. 22, 2022) (quoting Chen v. Jenna Lane, Inc., 30 F.Supp.2d 622, 624 (S.D.N.Y. 1998)), report and recommendation adopted by 2022 WL 1304590 (S.D.N.Y. May 2, 2022).
Although a damages hearing has not been held in this case, the Court is satisfied the evidence provided in the First and Second Roll Affidavits is sufficient to make a reliable damages determination under Fed.R.Civ.P. 55.
In a breach of contract action, a court should “begin[] its analysis with the ‘fundamental principle that 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.'” Paypolitan OU v. Marchesoni, No. 21 Civ. 5397 (RA) (RWL), 2022 WL 17541091, at *5 (S.D.N.Y. Aug. 26, 2022) (quoting Lucente v. Int'l Business Machines Corp., 310 F.3d 243, 262 (2d Cir. 2002)), report and recommendation adopted by 2022 WL 17541749 (S.D.N.Y. Dec. 6, 2022). In addition, “[i]t is settled Second Circuit law that in a breach of contract case, damages are calculated at the time of the breach.” Boyce v. Soundview Tech. Grp., Inc., 464 F.3d 376, 384 (2d Cir. 2006).
Damages for breach of contract may include “(1) general or market damages; and (2) special or consequential damages.” Schonfeld v. Hilliard, 218 F.3d 164, 175 (2d Cir. 2000) (cleaned up). The difference between these two types of damages is explained as follows: “[a] plaintiff is seeking general damages when he tries to recover the value of the very performance promised,” while consequential damages “compensate a plaintiff for additional losses (other than the value of the promised performance) that are incurred as a result of the defendant's breach.” Id. at 175-76 (cleaned up).
2. Unpaid Principal, Interest, and Late Charge
The main components of K2M's damages claim are straightforward and readily established by the evidence before the Court. The terms of the Note demonstrate that Schmidt was required to pay to K2M: (1) the “unpaid principal” of $1 million by December 31, 2021; (2) “accrued interest” of $200,000 by that same date; and (3) a “late charge equal to five percent (5%) of the payment due”-or $60,000, representing 5% of $1.2 million-if payment was not made within five days of December 31, 2021. (SAC Ex. A at 1). And K2M has shown that Schmidt paid none of these amounts. (First Roll Aff. ¶¶ 13-14).
Indeed, in the settlement agreement that was executed in October 2022, Schmidt effectively acknowledged his liability to K2M for these amounts. The $1.312 million that Schmidt agreed to pay (but did not pay) to K2M in that settlement agreement included each of (1) the $1 million unpaid principal, (2) the $200,000 in interest, and (3) the $60,000 late charge (as well as $52,000 in attorneys' fees incurred by K2M up to that point). (Second Roll Aff. ¶ 35 & Ex. E).
Accordingly, K2M has sufficiently shown that it is entitled to contract damages of $1,260,000 representing unpaid principal, interest, and a late charge.
The $1.2 million in unpaid principal and interest constitutes general damages, i.e., the very performance promised. Whether the $60,000 late fee is characterized as general or consequential damages is immaterial. See JVM, 2023 WL 1809369, at *3 (awarding plaintiff 5% late fee charge and noting that “whether characterized as general or consequential, [plaintiff's] damages are readily calculated”).
3. Prejudgment Interest
Although the SAC makes a demand for prejudgment interest on K2M's claim for breach (SAC ¶¶ 10, 47-48), neither the First Roll Affidavit nor the Second Roll Affidavit submitted in support of K2M's motion for a default judgment renews that demand. (See First Roll Aff. ¶ 15 (specifying the relief sought on this motion without mentioning prejudgment interest); Second Roll Aff. at 12 (same)). Nevertheless, under New York law, “a plaintiff who prevails on a claim for breach of contract is entitled to prejudgment interest as a matter of right.” U.S. Naval Inst. v. Charter Comm'ns, Inc., 936 F.2d 692, 698 (2d Cir. 1991); see N.Y. C.P.L.R. § 5001(a) (stating that prejudgment interest “shall be recovered upon a sum awarded because of a breach of performance of a contract”) (emphasis added). “Section 5001 imposes an affirmative mandate on trial courts; they have no discretion not to award prejudgment interest under New York law.” Gussack Realty Co. v. Xerox Corp., 224 F.3d 85, 93 (2d Cir. 2000); see also Katzman v. Helen of Troy Tex. Corp., No. 12 Civ. 4220 (PAE), 2013 WL 1496952, at *2 (S.D.N.Y. Apr. 11, 2013) (“[a] long line of case law has held that prejudgment interest is mandatory” in breach of contract cases under New York law).
Thus, courts have awarded prejudgment interest in breach of contract cases even where plaintiff did not seek such relief in its complaint or at any point up through trial. See, e.g., Stanford Square, L.L.C. v. Nomura Asset Cap. Corp., 232 F.Supp.2d 289, 290-91 (S.D.N.Y. 2002) (“[Plaintiff] did not waive recovery of prejudgment interest . . . by failing to request prejudgment interest in its pleadings or at trial.”); see also Global Auto, Inc. v. Hitrinov, No. 13 Civ. 2479 (PKC) (RER), 2022 WL 593613, at *4 (E.D.N.Y. Feb. 28, 2022) (awarding prejudgment interest as mandatory under N.Y. C.P.L.R. § 5002 even though counterclaim-plaintiffs did not request it in their motion for default judgment). Accordingly, the Court finds that an award of prejudgment interest is required even though K2M's motion papers did not specifically seek such an award.
New York law specifies a 9% rate of prejudgment interest per annum. N.Y. C.P.L.R. § 5004. In a contract case, interest normally accrues from the date of breach. Nasdaq, Inc. v. Exchange Traded Mgrs. Grp., LLC, 431 F.Supp.3d 176, 274 (S.D.N.Y. 2019). Here, the prejudgment interest award should run from January 6, 2022, when Schmidt's breach was complete. Although the $1.2 million in principal and interest was due on December 31, 2021, K2M is already receiving a 5% late charge for Schmidt's failure to pay between that date and January 6, 2022, and to award K2M interest during that period in addition would be duplicative.
“Courts in this District have been inconsistent on whether a breach of contract plaintiff can recover both late fees and prejudgment interest.” Voice Tele Servs. Inc. v. Blu-Dot Telecoms Ltd., No. 19 Civ. 5252 (JGK) (OTW), 2019 WL 6497507, at *3 (S.D.N.Y. Dec. 2, 2019) (comparing cases). These cases, however, involve late fees calculated on a monthly or other basis over time. See id. A one-time late charge, such as the 5% charge here, does not implicate the same concerns with a potential double.
Thus, the Court recommends awarding K2M prejudgment interest of 9% on the $1,260,000 in unpaid principal, interest and late charges from January 6, 2022 until the date that judgment is entered. This equates to $310.68 per day.
The Court exercises its discretion to decline awarding prejudgment interest on attorneys' fees and costs. See AKF, 2023 WL 5310243, at *6 n.4. (“No [prejudgment] interest should be awarded on the portion of the judgment comprising attorneys' fees and costs.”).
4. Post-Judgment Interest
Finally, post-judgment interest is likewise “mandatory” under 28 U.S.C. § 1961(a). Schipani v. McLeod, 541 F.3d 158, 164-65 (2d Cir. 2008) (noting that in a diversity case, “postjudgment interest is governed by federal statute” and that “we have consistently held that an award of postjudgment interest is mandatory”). Accordingly, once entered, the judgment will bear postjudgment interest at the federal statutory rate pursuant to 28 U.S.C. § 1961(a).
5. Attorneys' Fees
The default rule in the United States is that “each party . . . bear[s] its attorney's fees.” Hallinan v. Republic Bank & Trust Co., 519 F.Supp.2d 340, 354 (S.D.N.Y. 2007) (citing Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240, 247, 257, 269-71 (1975)). However, “[u]nder New York law, a contract that provides for an award of reasonable attorneys' fees to the prevailing party in an action to recovery. See TIG Ins. Co. v. Newmont Mining Corp., No. 04 Civ. 4105 (SAS), 2005 WL 2446234, at *3 n.40 (S.D.N.Y. Oct. 4, 2005) (citing Goldman v. Rosen, 9 Misc.3d 778, 781, 800 N.Y.S.2d 638, 640 (Civ. Ct. N.Y. Cnty. Aug. 29, 2005) (awarding prejudgment interest on the principal amount of the judgment, which included a “one-time late charge,” because the late charge was not “interest”)). enforce the contract is enforceable if the contractual language is sufficiently clear.” NetJets Aviation, Inc. v. LHC Communs., LLC, 537 F.3d 168, 175 (2d Cir. 2008).
Here, Paragraph I of the Note states clearly: “All attorney fees and expenses associated with the collection of amounts due to Lender [i.e., K2M] will be additionally due and payable by the Partiesto the Lender.” (SAC Ex. A ¶ I). Such a contractual provision is a proper basis for K2M to recover its attorneys' fees and expenses in this action. See, e.g., HTV Indus., Inc. v. Agarwal, 317 F.Supp.3d 707, 719 (S.D.N.Y. 2018) (enforcing similar provision in promissory note).
Although “Parties” is not a defined term in the Note, it plainly encompasses Schmidt.
K2M has requested $230,580.50 in attorneys' fees, which appears to represent all fees incurred from January 20, 2022 through August 10, 2023 by the two law firms it retained in this matter: its Ohio-based counsel, Gertsburg Licata Co., LPA (“Gertsburg Licata”), and its German counsel, Arqis Rechtsanwalte (“Arqis”). (Second Roll Aff. ¶ 33). Though the relevant provision contains the word “[a]ll,” the Note's language does not end the inquiry because the Court must still scrutinize the fees to determine if they are reasonable. See Denim Habit, LLC v. NJC Boston, LLC, No. 13 Civ. 6084 (ADS) (SIL), 2016 WL 2992124, at *4 (E.D.N.Y. May 23, 2016) (“regardless of the specific contractual language, . . . courts must scrutinize fee requests to ascertain whether they are reasonable”) (cleaned up); Toporoff Eng'rs, P.C. v. Fireman's Fund Ins. Co., No. 00 Civ. 5963 (NT), 2006 WL 1539341, at *2 (S.D.N.Y. June 5, 2006) (“Although the Indemnity Agreement clearly states that the Indemnitors are liable for ‘attorneys fees and other expenses' those fees must be reasonable in nature.”) (cleaned up).
In this Circuit, district courts use the “presumptively reasonable fee” standard. Arbor Hill Concerned Citizens Neighborhood Ass'n v. County of Albany, 522 F.3d 182, 190 (2d Cir. 2008). Known as the lodestar, this fee is “the product of a reasonable hourly rate and the reasonable number of hours required by the case.” Millea v. Metro-N. R.R. Co., 658 F.3d 154, 166 (2d Cir. 2011). While this calculation alone may be sufficient, a district court also must consider the twelve factors outlined in Johnson v. Ga. Highway Express, Inc., 488 F.2d 714 (5th Cir. 1974), and endorsed by the Second Circuit in Arbor Hill, 522 F.3d at 186-87 n.3.
These factors are: “(1) the time and labor required; (2) the novelty and difficulty of the questions; (3) the level of skill required to perform the legal service properly; (4) the preclusion of employment by the attorney due to acceptance of the case; (5) the attorney's customary hourly rate; (6) whether the fee is fixed or contingent; (7) the time limitations imposed by the client or the circumstances; (8) the amount involved in the case and the results obtained; (9) the experience, reputation, and ability of the attorneys; (10) the undesirability of the case; (11) the nature and length of the professional relationship with the client; and (12) awards in similar cases.” See id. (cleaned up).
With these factors in mind, Plaintiff has provided contemporaneous time records for thirteen timekeepers spread across the Gertsburg Licata and Arqis law firms. (First Roll Aff. Ex. C; Second Roll Aff. ¶¶ 21-25 and Ex. B). In its evaluation of whether the timekeepers' rates are reasonable, the Court need not undertake a bifurcated geographical analysis because “[i]n the Southern District of New York, the prevailing rates are those of Manhattan attorneys.” S.W. ex rel. N.W. v. Bd. of Educ., 257 F.Supp.2d 600, 604 (S.D.N.Y. 2003). Instead, the Court proceeds by classifying groups of attorneys by title to determine the reasonableness of their respective billing rates.
Stewart Roll, Louis Licata, Maximilian Julian, Eugene Friedman, and Dimitrios Christopoulos are all partners who performed varying degrees of work on this case. (See Second Roll Aff. ¶ 25). Their hourly rates range from $350 for Mr. Julian to Mr. Christopoulos's $450 per hour. In a “straightforward breach of contract action,” courts in this District “have found partner rates in the range of $375 to $650 to be reasonable.” Glob. Brand Holdings, LLC v. Accessories Direct Int'l USA, Inc., No. 17 Civ. 7137 (LAK) (SLC), 2020 WL 9762874, at *7 (S.D.N.Y. May 29, 2020) (citing Carlton Group, Ltd. v. Par-La-Ville Hotels & Residences Ltd., No. 14 Civ. 10139 (ALC), 2016 WL 3659922, at *3 (S.D.N.Y. Jun. 30, 2016) (collecting cases holding $450 to be a reasonable hourly rate for experienced partners and senior attorneys practicing in this district); Tabatznik v. Turner, No. 14 Civ. 8135 (JFK), 2016 WL 1267792, at *11-12 (S.D.N.Y. Mar. 30, 2016) (adjusting partner hourly rate to $650 in a case enforcing a promissory note); 615 Bldg. Co., LLC v. Rudnick, No. 13 Civ. 215 (GBD) (RLE), 2015 WL 4605655, at *3 (S.D.N.Y. July 31, 2015) (approving partner hourly rates up to $475 as the upper bound of a median range in this District); Nautilus Neurosciences, Inc. v. Fares, No. 13 Civ. 1078 (SAS), 2014 WL 1492481, at *3 (S.D.N.Y. Apr. 16, 2014) (hourly rate of $603 for partner was reasonable in an action to enforce promissory note)). The Court thus recommends finding the respective partners' fees to be reasonable, as they are all well below $600 an hour.
Meanwhile, Oliver Thomas, Randi Nine, Dr. Waldemar Rembold, and Jennifer Catherine Sauder are all listed as having various non-partner titles in the Second Roll Affidavit. (Second Roll Aff. ¶ 25). Their billing rates range from Mr. Thomas's $275 per hour to Dr. Rembold's $400 an hour, and for each lawyer, affiant Roll claims that each rate was commensurate with their respective levels of experience. (Id.). As with the partners, courts in this District have found rates such as these to be reasonable for non-partners and associates at varying levels in similar cases. See Lyda v. Fremantlemedia N. Am., No. 10 Civ. 4773 (DAB) (FM), 2016 WL 4574390, at *4 (S.D.N.Y. Jul. 11, 2016) (evaluating nationwide survey rates in 2012 which found the seventy-fifth percentile of associate rates to be nearly $400 per hour and finding the “blended rate” of $360 appropriate); Ursa Minor Ltd. v. AON Financial Prods., Inc., No. 00 Civ. 2474 (AGS), 2001 WL 1842042, at *7 (S.D.N.Y. May 30, 2001) (finding reasonable $285 per hour for a mid-level associate, and $335 per hour for a senior associate); Rubenstein v. Advanced Equitities, Inc., No. 13 Civ. 1502 (PGG), 2015 WL 585561, at *6-7 (S.D.N.Y. Feb. 10, 2015) (approving a mixed billing rate for senior and junior associates at $350 per hour). The Court agrees with Plaintiff that the rates charged are reasonable. In support of this finding, the Court notes that over 98% of the non-partner attorney billing on this case belonged to Mr. Thomas, whose rate as a junior associate was lowest at $275 per hour.
It is unclear to the Court what Dr. Rembold's title is at Arqis.
Finally, the affidavit lists four paraprofessional timekeepers: Lorgia Morales, Ana Avila, Natalie Schaffer, and Todd Kalin. (Second Roll. Aff. ¶ 25). Each paraprofessional's rate ranged from $150 per hour to $200 per hour. As with the previous analyses, courts in this District have found such rates to be reasonable. See Top Jet Enters. v. Kulowiec, No. 21 Misc. 789 (RA) (KHP), 2022 WL 1184245 (S.D.N.Y. Apr. 21, 2022) (“With respect to the time sought for non-attorney staff, courts in this District generally find that reasonable hourly rates for paralegal and litigation support staff range from $150 to $240.”) (citing Tatintsian v. Vorotyntsev, No. 16 Civ. 7203 (GHW), 2020 WL 2836718, at *5 (S.D.N.Y. June 1, 2020) (“$150 per hour is reasonable for a paralegal in a complex commercial litigation matter”); H.B. Auto. Grp., Inc. v. Kia Motors Am., Inc., No. 13 Civ. 4441 (VEC) (DF), 2018 WL 4017698, at *9 (S.D.N.Y. July 25, 2018) (senior paralegal rate reduced to $200 per hour), report and recommendation adopted by 2018 WL 4007636 (S.D.N.Y. Aug. 22, 2018); Vista Outdoor Inc. v. Reeves Fam. Tr., No. 16 Civ. 5766 (JSR), 2018 WL 3104631, at *7 (S.D.N.Y. May 24, 2018) (“courts in this District typically award rates not to exceed $200 per hour for paralegals.”)). Considering these authorities, the Court finds the fees for the four paraprofessionals listed in the supplemental Roll affidavit to be reasonable.
Having found Plaintiff's counsel's rates to be reasonable for all its timekeepers, the Court turns to the time spent on this case. In support of recovering about 740 hours' worth of work, Plaintiff submitted contemporaneous time records accounting for this time. (First Roll Aff. Ex C; Second Roll. Aff. Ex. C). Upon reviewing these records, the Court notes the vast majority of time spent on this case belongs to Mr. Thomas (502.24 of 739.89 hours). Mr. Thomas-like other timekeepers-frequently “block billed,” which is the practice “of aggregating multiple tasks into one billing entry.” Wise v. Kelly, 620 F.Supp.2d 435, 450 (S.D.N.Y. 2008) (cleaned up).
See, e.g., Entry dated April 7, 2023 for four hours: “Schmidt Promissory Note: Multiple correspondence with Attorney Chabrowe regarding proposed pre-motion conference letter; drafting and finalization of pre-motion conference letter, request for case management conference adjournment and virtual conference, and case status update; drafting and finalization of Local Rule 56.1 statement and Affidavit of Scott C. Maloney in support.” (Second Roll Aff. Ex. B).
Though block-billing is not outlawed in the Second Circuit, it is common for courts in this District to “trim[] fat from a fee application” by way of electing a uniformly applied percentage reduction. McDonald v. Pension Plan of the NYSA-ILA Pension Trust Fund, 450 F.3d 91, 96 (2d Cir. 2006) (cleaned up); Triumph Constr. Corp. v. N.Y.C. Council of Carpenters Pension Fund, No. 12 Civ. 8297 (KPF), 2014 WL 6879851, at *2 (S.D.N.Y. Dec. 8, 2014); see also N.Y. Assoc. for Retarded Children v. Carey, 711 F.2d 1136, 1146 (2d Cir. 1983) (“it is unrealistic to expect a trial judge to evaluate and rule on every entry in an application”).
Mindful that this case has involved significant discovery and motion practice against the appearing Lim Defendants, as well as good faith efforts with German counsel to locate and serve Schmidt and then negotiate the October 2022 settlement with Schmidt's U.S.-based lawyer, the Court elects to apply only a 5% reduction in fees while finding the time spent on the case to be otherwise reasonable. As such, the Court recommends reducing Plaintiff's fee award from the requested $230,580.50 to $219,051.47 (a reduction of $11,529.03).
To be sure, a large portion of K2M's attorneys' fees have been expended pursuing its claims against the Lim Defendants-who are actively litigating the case-rather than Schmidt and Schmidt Consulting. Nonetheless, K2M's fees in seeking to collect from the Lim Defendants amounts due to K2M under the Note are recoverable against Schmidt, regardless of whether they are also recoverable against the Lim Defendants. See Omni Consulting Grp., Inc. v. Marina Consulting, Inc., No. 01 Civ. 511A, 2011 WL 815101, at *2 (W.D.N.Y. Mar. 2, 2011) (holding both defaulting defendant and appearing defendant jointly and severally liable for plaintiff's attorneys' fees under contractual fee-shifting provision and rejecting apportionment); Goldberg v. Blue Ridge Farms, Inc., No. 04 Civ. 5098 (CPS), 2005 WL 1796116, at *2 (E.D.N.Y. July 26, 2005) (holding co-promisors on single promissory note liable for attorneys' fees plaintiff incurred in litigating dispute against other co-promisor; “joint and several liability between co-promisors on a contract commonly extends to attorneys' fees awards”); see also Rai v. WB Imico Lexington Fee, LLC, 09 Civ. 9586 (PGG), 2017 WL 1215004, at *7-8 (S.D.N.Y. Mar. 31, 2017). That result is especially fair here. It surely was foreseeable to Schmidt that, if he elected to default on his obligations, K2M would pursue remedies against the Lim Defendants, the only U.S.-based parties to the Note.
That said, K2M has chosen to assert not only claims for breach of contract and unjust enrichment against the Lim Defendants, but also a fraud claim against Lim. (SAC ¶¶ 58-70). It seeks, inter alia, punitive damages on its fraud claim, which go beyond its contractual remedies under the Note. (Id. ¶ 70). Arguably, the fees related to K2M's fraud claim are not “associated with the collection of amounts due to [K2M]” under the Note. (Id. Ex. A ¶ I). The Court, in its discretion, does not believe it would be appropriate to impose joint and several liability against Schmidt with respect to K2M's legal fees incurred in pursuing a fraud claim against Lim. See Koster v. Perales, 903 F.2d 131, 139 (2d Cir. 1990) (“the district court may allocate the fee award between the responsible parties . . . where the claim[] against [a] defendant [is] separate and distinct....”), partially abrogated on other grounds by Buckhannon Bd. & Care Home, Inc. v. W.Va. Dep't of Health & Human Res., 532 U.S. 598 (2001).
A review of the docket and the billing records submitted by K2M on this motion indicates that K2M's lawyers have devoted relatively little time to the fraud claim against Lim as opposed to the contract-based claims against Schmidt and the Lim Defendants. However, clearly some time was spent on the fraud claim. The Court believes a reasonable estimate is 5% of K2M's overall attorneys' fees. As such, the Court recommends a further 5% reduction in Plaintiff's fee request of $11,529.03, reducing the award to $207,522.44.
Finally, a review of the Second Roll Affidavit shows that K2M seeks to recover fees incurred in the preparation of the affidavit itself. (Second Roll Aff. Ex. B). While so-called “fees on fees” are recoverable in this district if they are deemed to be reasonable, B.B. v. N.Y.C. Dep't of Educ., No. 17 Civ. 4255 (VEC) (SDA), 2018 WL 1229732, at *3 (S.D.N.Y. Mar. 8, 2018), the Court may nevertheless exercise its discretion to limit such an award. See, e.g., SA Luxury Expeditions, LLC v. Schleien, No. 22 Civ. 3825 (VEC), 2023 WL 8072914, at *4 (S.D.N.Y. Nov. 21, 2023) (applying a 50% reduction to a request for “fees on fees”). Fees are unreasonable where they are “excessive, redundant, or otherwise unnecessary.” Hensley v. Eckerhart, 461 U.S. 424, 433-34 (1983).
Here, the preparation of the Second Roll Affidavit occurred as a result of the insufficiency of the First Roll Affidavit, as noted in Judge Gorenstein's July 28, 2023 Order. (Dkt. No. 94). Between July 29, 2023 and the filing of the Second Roll Affidavit on August 11, 2023, K2M's attorneys billed about $20,000, according to the time records. While the Court cannot determine precisely how much time was spent during this period on preparation of the Second Roll Affidavit, the overwhelming majority of the time entries relate to that document. (Second Roll Aff. Ex. B). As such, the Court elects to further reduce Plaintiff's fee award by an additional $15,000. Accordingly, the Court recommends an attorneys' fee award for Plaintiff of $192,522.44.
In summary, Plaintiff's initial $230,580.50 request has been reduced by $11,529.03 for block billing, $11,529.03 for litigation on the Lim fraud claim only, and $15,000 for Plaintiff's attempt to recover fees on fees in preparation of the Second Roll Affidavit.
6. Costs
K2M further requests an award of $3,593.28 for litigation costs. These costs also fall within the language in Paragraph I of the Note allowing recovery of Plaintiff's “attorney fees and expenses associated with the collection of amounts due” Plaintiff. (SAC Ex. A ¶ I). Plaintiff has provided line-item records accounting for each cost, and delineated whether such cost was born by Plaintiff's U.S.-based counsel, or its Germany-based counterparts. (Second Roll Aff. Ex. C). Having reviewed these records, the Court finds these costs to be reasonable and recommends awarding them in full.
CONCLUSION
For the foregoing reasons, the undersigned recommends that: (1) Defendant Peter K. Schmidt be found liable for breach of contract and judgment be entered against Schmidt on Count I; (2) Plaintiff's claim for unjust enrichment against Schmidt in Count II be dismissed; and (3) Plaintiff be awarded $1,260,000 in damages on its breach of contract claim against Schmidt, plus pre- and postjudgment interest, as well as $192,522.44 in attorneys' fees and $3,593.28 in costs.