Opinion
97 Civ 4157 (RCC) (DFE).
December 18, 2000.
Lawrence L. Ginsburg, Esq., Lowenthal, Landau, Fischer Bring, P.C., New York, NY.
Dana B. Klinges, Esq., Wolf, Block, Schorr and Solis-Cohen, LLP, Philadelphia, PA.
REPORT AND RECOMMENDATION TO JUDGE CASEY
On November 5, 1997, Judge Sonia Sotomayor ordered default judgments against defendants American Polymer Group, Inc. ("Polymer") and John Marshall, a Polymer employee, on plaintiff's claims of (1) breach of contract; (2) fraud and deceit; (3) conversion; and (4) wire fraud under RICO, 18 U.S.C. § 1961et seq. Judge Sotomayor then referred this case to me for an inquest on damages.
I have dropped defendant S. Lawson's name from the caption. Judge Sotomayor declined to enter a default judgment against him, apparently because plaintiff failed to prove that service upon S. Lawson "was adequate under the law." See Judge Sotomayor's September 10, 1997 Memo Endorsed.
On January 16, 1998, I issued a Scheduling Order directing (1) plaintiff to send me an inquest memorandum on or before January 28, 1998; (2) the defendants to send me any opposing memoranda on or before February 11, 1998; and (3) the defendants to state whether they request a hearing for the purpose of cross-examining plaintiff's affiants and/or for calling their own witnesses. On January 28, 1998, plaintiff submitted an Inquest Memorandum seeking damages totaling $4,886,178.89. They served the defendants at their last known address, as did I. But both of my envelopes were returned by the Postal Service marked "MOVED" with no forwarding address shown. Apparently, the same thing happened when plaintiff attempted to serve its Inquest Memorandum. I heard nothing further from plaintiff, and it was my understanding that plaintiff did not wish to pursue a computation of damages.
On October 7, 1998, Judge Sotomayor was appointed to the Second Circuit and this case was reassigned to District Judge Richard C. Casey. A year later, on October 7, 1999, Judge Casey referred this case to me again for an inquest.
On November 2, 1999, I issued a Memorandum and Order, requiring plaintiff to submit additional evidence. Subsequently plaintiff submitted three more items: the 1/7/00 Declaration of B. Bhushan Rao, the 1/7/00 Declaration of Attorney Dana B. Klinges, and the 3/23/00 letter from Ms. Klinges, all with attachments.
At my request, plaintiff submitted supplemental exhibits, with letters dated August 8 and 11, 2000.
Background
In its Inquest Memorandum, plaintiff alleges the following facts:
1. During February and March 1997, plaintiff, a Singapore corporation, and defendant John Marshall engaged in negotiations for plaintiff to purchase PVC resin from the defendants. These negotiations took place almost exclusively by telephone and by facsimile messages. Marshall, located in New York, said that he was an employee of Polymer, and that Polymer could sell large quantities of PVC resin.
2. In March 1997, plaintiff and Polymer entered into two contracts wherein it was agreed that Polymer would deliver 820 metric tons of PVC resin to plaintiff at a price of $604,500.00. Consequently, plaintiff established three letters of credit in favor of Polymer — two with Hongkong Shanghai Banking Corp. ("HSBC") for $116,000.00 each, and one with Standard Chartered Bank ("SCB") for $372,500.00.
3. On or about April 16, 1997, a person purporting to represent Polymer presented for payment the three letters of credit. These were paid by the banks.
4. On or about April 21, 1997, defendants sent plaintiff documents stating that the PVC shipment was made on April 11, 1997 by Mitsui OSK Lines Ltd. ("Mitsui") . Shortly thereafter, plaintiff contacted Mitsui and learned that the PVC resin was not shipped on any Mitsui vessel.
5. Plaintiff never received the PVC resin from the defendants.
In its Inquest Memorandum, plaintiff claimed damages of $4,886,178.89, consisting of the following six items. First. The combined amount of the three letters of credit — $604,500.00, plus interest and costs paid to the banks. The bank costs were $1,528.98 ($432.18 for HSBC and $1,096.80 for SCB), and as of December 31, 1997, the interest was $39,167.91 ($15,741.26 for HSBC and $23,426.65 for SCB). Second. Lost profits that plaintiff would have received had it sold the PVC resin to three other parties, Hawk Petroleum PTE Ltd. ("Hawk"), Imperial Plastic Corporation PTE Ltd. ("Imperial") and Kwong Yu Industries (Singapore) PTE Ltd. ("Kwong"), which would have been approximately $26,400.00 ($20,000.00 from the sale to Hawk, $3,200.00 from the sale to Imperial, and $3,200.00 from the sale to Kwong). Third. Settlement payments plaintiff was compelled to make to Hawk and Imperial for its failure to provide the PVC resin — totaling $14,000.00 ($6,000.00 to Hawk and $8,000.00 to Imperial). Fourth. More than $87,000.00 in attorneys' fees and costs incurred in connection with several lawsuits involving the defendants' conduct and the plaintiff's failure to deliver the PVC to third parties. Fifth. $2,056,791.00 in treble damages under RICO. Sixth. $2,056,791.00 in punitive damages for fraud.
On March 23, 2000, Ms. Klinges informed me that plaintiff did not wish to pursue its claims for attorneys' fees and punitive damages. Annexed to her letter was a copy of a bill for $6,281.96 from Thacher Associates, LLC ("Thacher"), which was paid by her firm in January 1999. Plaintiff hired Thacher, a private investigation service, to obtain information about the FBI's investigation of the defendants. See Klinges's 1/7/00 Declaration, ¶¶ 6-10.
On August 8, 2000, Ms. Klinges clarified Exhibit A to Mr. Rao's 1/7/00 Declaration by explaining that the phone bills already submitted to the Court list the day then the month in the "call, date, time" column, as opposed to the month then the day. She also discussed the details of the SCB settlement and the status of the HSBC lawsuit.
On August 11, 2000, Ms. Klinges forwarded a clearer copy of the Kwong contract.
I will now discuss each of the plaintiff's items of damage and my recommendations.
1. Recovery for the letters of credit. bank fees and debit interest
Plaintiff's Inquest Memorandum, at the top of page 2, states (as does ¶ 4 of J.K. Gopalratnam's declaration) that plaintiff entered into two contracts to purchase 820 metric tons of PVC resin, and that it established three letters of credit — two for $116,000.00 each and one for $372,500.00 — to purchase the resin. In the first Sales Contract, dated March 10, 1997, Polymer agreed to sell 320 metric tons of PVC resin at $725.00 per metric ton, totaling $232,000.00. See 1/7/00 Klinges Decl., Exh. A. In the second Sales Contract, dated March 18 and 19, 1997, Polymer agreed to sell 500 metric tons of PVC resin at $745.00 per metric ton, totaling $372,500.00. See 10/9/00 Klinges Aff., Exh. C. Exhibit A to the Inquest Memorandum is a copy of an HSBC bank statement showing two withdrawals from plaintiff's bank account, each in the amount of $116,216.09. Exhibit B to the Inquest Memorandum is a copy of a SCB bank statement showing a withdrawal from plaintiff's bank account in the amount of $373,596.80.
In its Inquest Memorandum, plaintiff alleged that the bank costs were $1,528.98 ($432.18 for HSBC and $1,096.80 for SCB), and as of December 31, 1997, the interest was $39,167.91 ($15,741.26 for HSBC and $23,426.65 for SCB). In my 11/2/99 Memorandum and Order, I directed plaintiff to submit (a) evidence showing that the $39,167.91 debit interest charged by HSBC and SCB was related solely to the payment of the letters of credit to Polymer and (b) the HSBC and SCB bank statements for March and April 1997.
On January 7, 2000, plaintiff submitted B. Bhushan Rao's declaration. Rao is plaintiff's Vice President of Commodities. At ¶ 11, Rao stated:
Furthermore, Wilson was charged a penalty rate of interest by its banks, Hong Kong Shanghai Banking Corporation and Standard Chartered Bank. There was no reason for the penalty rate of interest other than the events complained of in the Complaint. Prior to these events, Wilson had been in good standing with its banks. Attached as Exhibit "B" are true and correct copies of bank statements from both banks for the months of March and April of 1997.
In her August 8, 2000 letter, Ms. Klinges stated that the lawsuit brought by plaintiff against SCB had been resolved:
. . . Wilson Impex has reached a settlement with Standard Chartered Bank ("SCB"). The original amount of the overdraft for the SCB Letter of Credit was $330,716.52. The parties agreed to a settlement amount of $25,000.00. The overdraft was then calculated as the principal sum of $330,716.52, less the $25,000.00 settlement amount, leaving a net of $305,716.52. The interest, pursuant to the parties' settlement agreement, was calculated at a rate of SIBOR plus 2% from May 2, 1997. Thus, on February 1, 1999, Wilson transferred to SCB the amount of $343,081.87, which represented payment of the discounted sum of $305,716.52 plus the accrued interest of $37,365.35. In other words, Wilson Impex's total damages vis-a-vis SCB were $343,081.87.
She also stated that the lawsuit against HSBC is still pending.
Accordingly, in the first category (recovery for letters of credit, bank fees and debit interest), I recommend that the Court award plaintiff damages against American Polymer Group, Inc. and John Marshall, jointly and severally, in the amount of $591,255.31 plus interest and costs. The $591,255.31 figure represents the combined amount of the two HSBC letters of credit ($232,432.18 which is the actual contract price plus costs), plus interest as of December 31, 1997 ($15,741.26), plus plaintiff's total damages regarding the SCB letter of credit after the settlement was effectuated ($343,081.87). See Klinges's 8/8/00 letter; P1. Inquest Memo. p. 3; and ¶ 6, 12, 13 of Gopalratnam's 1/27/98 Decl.
2. Recovery for lost profits
Plaintiff claims that it incurred lost profits because it could have resold the PVC resin to the three third parties — Hawk, Imperial and Kwong. To support its claim, plaintiff submits the affidavit of J.K. Gopalratnam and copies of the contracts entered into by plaintiff with the three parties (see Inquest Memo., Exhibits C, E and G). By comparing the sales price in these contracts with the price the plaintiff paid the defendants for the resin (i.e., one shipment of 500 metric tons of PVC resin at $745.00 per metric ton and one shipment of 160 metric tons of PVC resin at $725.00 per metric ton, see Order to Show Cause, Exhibits C D), plaintiff would have earned a gross profit of $20,000.00 on the Hawk contract ($392,500.00 - $372,500.00 $20,000.00), a gross profit of $3,200.00 on the Imperial contract ($119,200.00 - $116,000.00 $3,200.00) and a gross profit of $3,200.00 on the Kwong contract ($119,200.00 - $116,000.00 $3,200.00). See 1/27/98 Gopalratnam Decl. ¶¶ 14, 16 and 18.
I recommend that the Court award plaintiff damages against American Polymer Group, Inc. and John Marshall, jointly and severally, for lost profits in the amount of $24,650.00 plus interest. This amount represents the lost profits of $20,000.00 for the resale of the resin to Hawk, plus $3,200.00 for the resale of the resin to Imperial, plus $3,200.00 for the resale of the resin to Kwong, minus the plaintiff's anticipated expenses of $1,750.00 for bank charges. See 1/7/00 Rao Decl. ¶ 9.
3. Payments to Hawk and Imperial
In my 11/2/99 Memorandum and Order, I found that plaintiff adequately explained its expenditure of $14,000.00 for the settlement payments it made to Hawk and Imperial. Accordingly, I recommend that plaintiff-be awarded damages against American Polymer Group, Inc. and John Marshall, jointly and severally, in the amount of $14,000.00 for these payments.
4. Legal fees and Punitive damages for fraud and conversion; Payment to Private investigator
In her March 23 letter, Ms. Klinges informed me that plaintiff did not wish to pursue its claims for attorney fees and punitive damages. Accordingly, I do not recommend that the Court award plaintiff legal fees and punitive damages.
I will, however, recommend that the plaintiff be awarded damages against American Polymer Group, Inc. and John Marshall, jointly and severally, in the amount of $6,281.96 plus interest. This amount represents the fee a private investigator charged the plaintiff to obtain information about the FBI's investigation of the defendants. See Klinges's 3/23/00 letter.
5. Treble damages under RICO
In my 11/2/99 Memorandum and Order, I wrote:
To establish a claim for a civil violation under RICO, "a plaintiff must show that he was injured by defendants' (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity." Cofacredit, S.A. v. Windsor Plumbing Supply Co., Inc., 187 F.3d 229, 242 (2d Cir. 1999), quoting, Azrielli v. Cohen Law Offices, 21 F.3d 512, 520 (2d Cir. 1994). Once this is established, the RICO statute provides for an award of treble damages:
Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney's fee . . .18 U.S.C. § 1964 (c).
RICO defines a "pattern of racketeering activity" as one that requires "'at least two acts of racketeering activity' committed in a 10 year period." Cofacredit, 187 F.3d at 242, quoting, 18 U.S.C. § 1961 (5). In this Circuit, a plaintiff can establish a pattern of racketeering activity by (1) proving that a series of related predicate acts occurred over a substantial period of time — no less than two years; or (2) showing that there was a threat of continuing criminal activity beyond the period during which the predicate acts were performed. See Cofacredit, 187 F.3d at 242. See also H.J., Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 242, 109 S.Ct. 2893, 2902 (1989) ("Predicate acts extending over a few weeks or months and threatening no future criminal conduct do not satisfy this requirement: Congress was concerned in RICO with long-term criminal conduct."); GICC Capital Corp. v. Technology Finance Group. Inc., 67 F.3d 463, 467-68 (2d Cir. 1995) (11 months is an insufficient amount of time to establish a pattern of racketeering activity).
Plaintiff has not met its burden of proof for two reasons. First, the wire fraud acts (i.e., the negotiations occurring between plaintiff and defendant Wilson by telephone and facsimile) occurred for less than a two-month period. Second, there is insufficient evidence to support a finding that the RICO crimes were, and continue to be, a regular means by which the defendants conduct their business. Instead, the evidence shows that the defendants engaged in a "short-lived scheme to defraud a handful of victims through racketeering activity." Cofacredit, 187 F.3d at 244. Their scheme necessarily came to an end when they disappeared shortly after they obtained the money from the letters of credit. The Second Circuit has held that "an 'inherently terminable' scheme does not imply a threat of continued racketeering activity." Cofacredit, 187 F.3d at 244. Consequently, I cannot recommend that the Court award plaintiff any damages for its RICO cause of action.
Plaintiff did not address my findings on the RICO issue in any of its supplemental papers, nor did it submit legal authority to support the proposition that it is entitled to punitive damages. Accordingly, I do not recommend that the Court award plaintiff damages for its RICO cause of action.
CONCLUSION
I recommend that the Court award plaintiff the following damages against American Polymer Group, Inc. and John Marshall, jointly and severally:
1. $591,255.31 (for the letters of credit, bank fees, and debit interest)
2. $24,650.00 (lost profits)
3. $14,000.00 (payments to Hawk and Imperial)
4. $6,281.96 (payment to private investigator)
TOTAL: $636,187.27 together with interest at 9% per annum from February 1, 1999. That date is the latest of the various dates when plaintiff suffered items of damage; it is the date when plaintiff "Wilson transferred to SCB the amount of $343,081.87 . . . ." See Klinges's 8/8/00 letter.
Pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure, any party may object to this recommendation within 10 business days after being served with a copy, by filing written objections with the Clerk of the U.S. District Court and mailing copies (a) to the opposing party, (b) to the Hon. Richard C. Casey, U.S.D.J. at Room 1950, 500 Pearl Street, New York, N.Y. 10007 and (c) to me at Room 1360, 500 Pearl Street. Failure to file objections within 10 business days will preclude appellate review. Thomas v. Arn, 474 U.S. 140 (1985);Wesolek v. Canadair Ltd., 838 F.2d 55, 58 (2d Cir. 1988). Any request for an extension of time must be addressed to the District Judge.