Opinion
19978/05.
November 16, 2009.
The following papers read on this motion:
Notice of Motion ..................................... X Memorandum of Law .................................... XX Reply Memorandum of Law .............................. XThis motion, by defendants, for an order:
a. Granting leave to reargue pursuant to CPLR 2221 defendants' motion for summary judgment upon the basis that this Court overlooked or misapprehended certain matters of law and/or fact;
b. In the event that such leave is granted that such reargument then and there proceed; and
c. Granting defendants, Louis Zak and Power Systems International, Inc. such other and further relief as the Court may deem just, equitable and proper, including costs and reasonable attorneys' fees,
is determined as hereinafter set forth.
Preliminarily, it is significant to note that the defendants restrict the focus of the motion to reargue to their attorneys' argument that ". . . the fundamental goal of punitive damages will not be advanced by awarding such damages in this simple, private tort action . . ." [Memorandum of Law, p. 2].
Counsel for the defendants asserts that the Court has misinterpreted the applicable case law in that permitting an award of punitive damages is contradictory to public policy and such permission will not further such policy goals. Counsel avers that the Jefferies Quarterdeck evaluation, which forms the basis for the plaintiffs' fraud allegation and punitive damages claim, was one of four different evaluations by separate investment bankers, and made certain "Modeling Assumptions". Counsel further avers that the plaintiffs, as prospective purchasers, were fully informed and supplied with financial statements, income statements and balance sheets for the years 2001 through 2003 and the first half of 2004, and plaintiff Sieger's brother made an evaluation of PSI, nearly approximating the eventual purchase price of the defendant Zak's 100% interest in PSI; and notes that when 14 months later PSI was purchased by a third party, the contractual liquidity event prompted additional $200,000 payments to each plaintiff. Counsel argues that the primary purpose of punitive damages is to prevent future similar conduct by the wrongdoer and to punish gross and wanton injury by a defendant and prevent future harm to the public; that no such component exists herein because the alleged fraud was not aimed at the public, but, at worst, a very private transaction. Counsel further argues that applicable case law supports denial of punitive damages where the alleged fraud and a breach of fiduciary duty is a private one; it must be a wrongful action that is so wantonly dishonest as to approach a criminal approach to civil obligations. Counsel contends that to permit punitive damages would also permit a double recovery through the defendant's disgorgement of all the compensation obtained by the defendant. Counsel asserts that a punitive damage award and disgorgement would double the deterrence damages.
The plaintiffs' attorney asserts that this motion is impermissible in that it seeks to present arguments not previously made; that the Court's determination was comprehensive and complete, and addressed the applicable arguments. He further asserts that the record clearly shows that the defendant Zak conspired with the PSI business consultant to partly conceal pertinent business information; and that the defendants' recitation of the facts is a distortion of the actual record. He contends that the defendants are repeating arguments already made on the previous motion for summary judgment. He avers that the defendants wrongly assert that the intentional misconduct must be directed at the public in order to justify an award of punitive damages, and supports his contention with applicable case law. He avers that this Court correctly ruled that a punitive damages award is appropriate in tort actions alleging breach of fiduciary duty and fraud so long as there is an elevated degree of intent, malice, vindictiveness or reckless conduct. Counsel argues that defendants' argument, that an award of punitive damages is redundant, is improper on this motion because it is asserted herein for the first time, that disgorgement of profits for fraud is compatible with an award of punitive damages. He further argues that there is, indeed, ample evidence to justify an award of punitive damages, in that the defendant Zak was aware of his fiduciary duty and secretly pursued his own interests, and relates the evidentiary bases upon which he relies.
In reply, the defendants' counsel argues that the lack of due diligence by the plaintiffs, who are highly sophisticated and knowledgeable businessmen, had led to this controversy, and that lack of due diligence mitigates any behavior by the defendants as to the issue of punitive damages. Counsel avers that the plaintiffs have conceded that the public policy of deterrence is not benefitted by an award of punitive damages herein; that the nature of the subject report upon which the plaintiffs rest was that of a contingent future value of the corporation — a prediction of future worth if certain events were to occur. Counsel contends that the point that the court misconstrued is the lack of a public impact in the plaintiffs' fraud claim, and supports his assertion with case law that focuses on the public policy aspect of punitive damages. Counsel asserts that the plaintiffs' attorney does not address the defendants' argument that the defendants will, by the underlying order at issue herein, effectuate a double recovery, and that is against public policy. They further assert that the policy of New York courts is to award disgorgement of profits or compensation, but not punitive damages as well. The defendants argue that in this motion the plaintiffs request that the Court to determine damages is not permitted.
DECISION
"A motion for leave to reargue is addressed to the sound discretion of the court which decided the prior motion and may be granted upon a showing that the court overlooked or misapprehended the facts or law, or for some reason mistakenly arrived at its earlier decision (see E.W. Howell Co., Inc. v S.A.F. La Sala Corp. , 36 AD3d 653, 654; Carrillo v PM Realty Group , 16 AD3d 611; Viola v City of New York , 13 AD3d 439, 440)".
( Beverage Marketing USA, Inc. v South Beach Beverage Company, Inc. , 58 AD3d 657, 873 NYS2d 84, 2 nd Dept., 2009).
It is well settled that reargument may be granted where the Court has overlooked or misapprehended some factual matter or legal authority ( Melendez v Methodist Hospital , 203 AD2d 435, 610 NYS2d 855, 2 nd Dept., 1994; see also, Ebasco Constructors, Inc. v A.M.S. Construction Co., Inc. , 195 AD2d 439, 599 NYS2d 866, Second Dept., 1993). It is within the discretion of the Court to grant a motion for reargument ( Lear v New York Helicopter Corp. , 192 AD2d 645, 597 NYS2d 411, Second Dept., 1993; see also, Swenning v Wankel , 140 AD2d 428, Second Dept., 1988).
Upon reargument, this Court has re-examined the facts and the law, and acknowledges that, upon defendants' counsel's clarified re-statement of the applicable factual and legal circumstances, it misapprehended the applicable facts and law. Accordingly, the defendants' motion to reargue that portion of this Court's order, dated June 10, 2009, which denied the defendants' motion for summary judgment to dismiss the plaintiffs' punitive damages cause of action, is granted. Upon such determination, the Court reconsiders that portion of the underlying order which determined the plaintiffs' punitive damages claim.
Herein, the relevant factual basis is structured on an alleged breach of fiduciary duty and the obligation of the fiduciary to make full disclosure of all material facts, to wit: that the defendants failed to disclose a May 2004 report from the investment banker Jeffries Quarterdeck that qualifiedly valued the corporation at $35 — 40 million, and the plaintiffs were not informed of a proposed "merger formula" with Bea Maurer which would have more favorably valued their shares of stock.
A key component of the defendants' argument herein is that the plaintiffs were, as sophisticated investors and businessmen, to some degree, obligated to act with due diligence, i.e., that the company may have been worth more at that time than the defendants were offering. Moreover, of equal significance is the qualified nature of the Jeffries Quarterdeck evaluation, in that the value was implied by that entity's premise that the company's future value was based on future performance and expectation. The seminal case in New York that explained the parameters of an award of punitive or exemplary damages is Walker v Sheldon ( 10 NY2d 401, 1961). That court explained that ". . . there may be a recovery of exemplary damages in fraud and deceit actions where the fraud, aimed at the public generally, is gross and involves high moral culpability . . ." [where] the defendant's conduct evinced a high degree of moral turpitude and demonstrated such wanton dishonesty as to imply a criminal indifference to civil obligations. ( supra , p. 405). That punitive damages are recoverable in tort is not in question herein, so a breach of fiduciary claim can precipitate such an award if more than actual malice — as defined in New York Times Co. v Sullivan , (376 U.S.254, 280, 1964) ["knowledge that it [the statement] was false or with reckless disregard of whether it was false or not"] — is present. (see Prozeralik v Capital Cities Communications, Inc. , 82 NY2d 466, 605 NYS2d 218, 1993). The malice necessary for an award of punitive damages is more than the mere commission of a tort.
"To sustain a claim for punitive damages in tort, one of the following must be shown: intentional or deliberate wrongdoing, aggravating or outrageous circumstances, a fraudulent or evil motive, or a conscious act that willfully and wantonly disregards the rights of another ( Swersky v Dreyer Traub , 219 AD2d 321, 328, 643 NyS2d 33)".
( Don Buchwald Associates, Inc. v Rich , 281 AD2d 229, 723 NYS2d 8, 1 st Dept., 2001).
While the plaintiffs have shown that the Jeffries Quarterdeck report was intentionally omitted from their database, the plaintiffs have not demonstrated, as a matter of law, that it was a wrong, i.e., that the defendants have proven, at the time of the transaction, that the report was more than hopeful speculation of the future value of the corporation. With respect to the appellation of aggravating or outrageous circumstances, an intense perusal of the factual basis of that report does not necessarily prove such circumstance. The wrong must be more than intentional, it must strongly imply a criminal activity and intent to the civil obligations and must evince an outrage approximating a reaction to a crime (see Ross v Louise Wise Services, Inc. , 8 NY3d 478, 489, 836 NYS2d 509, 2007). While the intent was present, and the inferrable motive is that it was monetary in nature, and the factual basis of the report mitigates the wilfulness of the defendants' action to a degree that obviates an award of punitive damages.
Additionally, an examination of the relationship between the parties results in what appears to be an amalgam of a fiduciary relationship and an arms length relationship. The relationship between the parties, taken as a whole, and considering the sophistication of the plaintiffs and the transaction at issue herein, strongly bespeaks an arms-length transaction, not a fiduciary relationship that was breached. (see Wit Holding Corp. v Klein , 282 AD2d 527, 724 NYS2d 66, 2 nd Dept., 2001). Put another way, "When the directors and majority shareholders . . . are independent and negotiate at arms length, it is more likely that the negotiations will reflect the final terms of the transaction will be the best attainable" ( Alpert v 28 William St. Corp. , 63 NY2d 557, 570, 1984). While factually distinguishable, the overweening consideration of the even playing field is equally compelling.
"A fiduciary relationship may exist where one party reposes confidence in another and reasonably relies on the other's superior expertise or knowledge" (PJI 3:59, Comment, p. 557). In this court's view, the plaintiffs have not succeeded in demonstrating that sort of relationship which belies such a finding.
Accordingly, the defendants' motion to reargue is granted , and upon reargument, that portion of defendants' motion to dismiss the plaintiff's claim for punitive damages is granted ,