Opinion
No. 00 Civ. 2838 (MBM) (KNF)
July 31, 2002
REPORT AND RECOMMENDATION
I. INTRODUCTION
In this action, plaintiff Chaman Lal Setia Exports Ltd. ("Setia") alleges breach of contract, common law fraud, negligent misrepresentation and violations of New York General Business Law ("NYGBL") §§ 349 and 350 (deceptive acts and practices, and false advertising respectively) against Renu Sawhney ("Sawhney"), SS Import Export, Inc. and Food Corporation International (collectively "defendants"). Upon defendants' failure to answer or otherwise respond to the complaint, your Honor ordered that a default judgment be entered against defendants. Your Honor then referred the matter to the undersigned to conduct an inquest and to report and recommend the amount of damages, if any, to be awarded to plaintiff against defendants.
The Court directed plaintiff to file and serve proposed findings of fact and conclusions of law and an inquest memorandum setting forth its proof of damages, costs of this action, and its attorney's fees. Each defendant was directed to file and serve opposing memoranda, affidavits and exhibits, as well as any alternative findings of fact and conclusions of law, and to state whether a hearing was requested for the purpose of examining witnesses.
Plaintiff served and filed an inquest memorandum, including proposed findings of fact and conclusions of law. Plaintiff also submitted the affidavit of Rajeev Setia, executive director of Setia, which had been prepared in support of Setia's motion for a default judgment.
Only Sawhney responded to the Court's order for submissions from defendants pertaining to the inquest. Sawhney submitted a letter to the Court in which she asserted that she is not personally responsible for the damages claimed by the plaintiff, that the defendants SS Import Export, Inc. and Food Corporation International, which are now dissolved, are wholly responsible for the damages alleged to have been suffered, and that she attempted previously to settle the matter with plaintiff. Sawhney did not dispute plaintiffs proposed factual findings or conclusions of law, and did not request a hearing.
Plaintiffs submissions aver that it is entitled to $31,730.00 in damages for defendants' failure to fulfill their contractual obligations; $15,342.78 in interest; $100,000.00 in damages for emotional distress; $50,000.00 in attorney's fees; and $20,000.00 in costs.
For the reasons stated below, I recommend that plaintiff be awarded $31,730.00 on its breach of contract claim, and prejudgment interest, calculated at the statutory rate of 9% per year, on the amount of $4,500.00, accruing on April 13, 1996, and on the amount of $27,230.00, accruing on June 13, 1996.
II. BACKGROUND AND FACTS
Based on submissions by the plaintiff the Complaint filed in the instant action — the allegations of which, perforce of defendants' default, must be accepted as true, except those relating to damages, see Cotton v. Slone, 4 F.3d 176, 181 (2d Cir. 1993); Greyhound Exhibitgroup, Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155, 158 (2d Cir. 1992) — and the Court's review of the entire court file maintained in this action, the following findings of fact are made:
On April 13, 2000, plaintiff commenced an action against defendants by filing a complaint alleging breach of contract, common law fraud, negligent misrepresentation, and violations of NYGBL §§ 349 and 350. Setia sought compensatory and punitive damages, interest, attorneys' fees, and costs.
Setia is a corporation formed and existing under the laws of India and is engaged in the export of premium Basmati rice. In January 1996, defendants purchased twenty metric tons of Basmati rice from Setia for the purchase price of $19,000.00. Complaint, ¶ 10, at 4. The payment terms required defendants to pay 10% of the purchase price in advance, 40% upon delivery, and the remaining 50% within thirty days of delivery. Id. Setia shipped and delivered the rice as agreed. In addition, Setia filed an Exchange Control Declaration with the appropriate authorities in India agreeing to remit foreign exchange representing the full export value of the goods sold within 180 days. Id. Plaintiff alleges that defendants were aware of this requirement in connection with the export of items from India, and entered into the agreement with plaintiff with full knowledge of the terms of plaintiffs undertaking. Id.
Defendants accepted delivery of the rice in New York. Defendants paid $2,500.00 in advance; upon delivery, defendants paid an additional $6,600.00. Thereafter, Sawhney issued to plaintiff two personal checks, for $5,400.00 and $4,500.00 respectively, for the balance due on the shipment. The check for $4,500.00 was returned by defendants' bank. At defendants' request, plaintiff attempted to redeposit the check, but was informed that Sawhney had placed a "stop payment" order on it. Setia notified defendants of this occurrence and demanded full payment. Id., ¶ 11, at 4-5.
In March 1996, defendants purchased an additional forty-two metric tons of Basmati rice from plaintiff for the purchase price of $37,800.00. Id., ¶ 12, at 5. The payment terms for the second shipment of rice required defendants to pay 40% of the purchase price upon delivery and 60% of the purchase price within thirty days of delivery. Id. Defendants paid $3,600.00 toward the purchase in advance. Setia shipped the rice, and filed the requisite currency exchange declaration with the appropriate authorities in India as it had done in connection with defendants' previous order. Id., ¶ 12, at 5. However, when the shipment reached New York, defendants refused to pay 40% of the purchase price, as they had agreed to do. Consequently, Setia was forced to store the rice in New York and to incur the attendant storage and demurrage costs. Id., ¶ 13, at 5. Unable to find another buyer for the rice, Setia then released the rice to defendants, relying on defendant Sawhney's representation that she had buyers for the rice and would pay the entire purchase price "within a few weeks." Defendants accepted delivery of the rice. Thereafter, Sawhney issued personal checks, from her bank accounts in India, in the amount of 300,000 Rupees, or $6,880.00, as partial payment for the second shipment. A balance of $27,230.00 remained due and owing. Id. ¶ 15, at 5-6.
Plaintiff contends that, as a result of defendants' failure to abide by the terms of their agreements, plaintiff has suffered a series of financial and professional injuries, including the loss of preferential financing rates from certain banks in India, the loss of other business opportunities, and the threat of exposure to civil and criminal penalties for defaulting on its commitment to the Indian government to remit foreign exchange representing the export value of the goods sold to the defendants. Plaintiff also contends that, in an attempt to avoid the penalties associated with its default, plaintiffs officers have incurred legal fees and spent numerous hours responding to law enforcement authorities and officials of the Reserve Bank of India, the Indian Ministry of Commerce, and the Indian Economic Intelligence Bureau.
In response to Setia's request for prompt payment of the balances due on the rice shipments, Sawhney promised to pay the amount due within one year, in monthly installments. Relying on this promise, Setia made corresponding assurances to law enforcement authorities and government officials in India. However, defendants have failed to make any payments. Id., ¶ 22, at 8. Plaintiff contends that the necessity of responding to authorities in India, and the threat of civil and criminal penalties, have caused plaintiff emotional distress, humiliation and mental suffering.
Plaintiff claims that a balance of $4,500.00 remains due and owing on the January 1996 shipment of rice to the defendants, and that a balance of $27,230.00 remains due and owing on the March 1996 shipment. Hence, plaintiff avers that the total outstanding balance due and owing for the goods sold and delivered to defendants by plaintiff is $31,730.00.
Plaintiff also claims that interest accrued, at the rate of 10%, on the overdue balance of $4,500.00, from March 6, 1996 to March 5, 2001, in the amount of $2,250.00, and on the overdue balance of $27,230.00, from May 14, 1996 to March 5, 2001, in the amount of $13,092.78. Plaintiff derives the rate of interest applied in calculating these amounts from the rate plaintiff was required to pay to the Punjab National Bank in India as a result of the defendants' failure to perform their contractual obligations. Plaintiff asserts that since it had to pay interest to the bank at 10%, "the same interest ought to be applied to the claims herein."
In addition, plaintiff claims that it is entitled to compensation for emotional distress, humiliation and mental suffering in the amount of $100,000.00; attorney's fees in the amount of $50,000.00; and costs, including compensation for the time spent by Setia's officers responding to financial and government officials, in the amount of $20,000.00.
In support of its application, Setia submitted the affidavit of its executive director, Rajeev Setia, attesting to the facts recited in plaintiffs inquest memorandum. Attached to the affidavit are, inter alia: (i) an invoice, packing list, and bill of lading prepared in connection with the January 1996 shipment of rice; (ii) correspondence with the defendants and certain freight carriers concerning the March 1996 shipment of rice; (iii) a letter to the defendants, dated September 9, 1996, demanding payment and affirming that, if defendants failed to remit the balances due, "very strict penal action" would be taken against plaintiffs (iv) additional demand letters dated October 1996 through March 1998; (v) insurance documents; (vi) currency exchange declarations prepared in connection with the shipments of rice; (vii) correspondence with the Punjab National Bank in India regarding plaintiffs application for permission to extend the period for "realization of export proceeds;" and (viii) correspondence with Sawhney concerning her attempts to fulfill the terms of the contracts entered into with plaintiff.
III. CONCLUSIONS OF LAW
A default judgment in an action establishes liability, but is not a concession of damages. See Cappetta v. Lippman, 913 F. Supp. 302, 304 (S.D.N.Y. 1996) (citing Flaks v. Koegel, 504 F.2d 702, 707 [2d Cir. 1974]). Damages must be established by the plaintiff in a post-default inquest. See id. In conducting an inquest, the court need not hold a hearing "as long as it [has] ensured that there was a basis for the damages specified in the default judgment." Transatlantic Marine Claims Agency, Inc. v. Ace Shipping Corp., 109 F.3d 105, 111 (2d Cir. 1997). The court may rely on affidavits or documentary evidence in evaluating the fairness of the sum requested. See Tamarin v. Adam Caterers, Inc., 13 F.3d 51, 54 (2d Cir. 1993).
The general rule for measuring damages for a breach of contract is "the amount necessary to put the plaintiff in the same economic position he would have been in had the defendant fulfilled his contract." Indu Craft, Inc. v. Bank of Baroda, 47 F.3d 490, 495 (2d Cir. 1995). Under New York law, which governs this diversity action, once a buyer accepts goods, a seller may recover the contract price. See New York Uniform Commercial Code § 2-607(1); Cayuga Press of Ithaca, Inc. v. Lithografiks, Inc., 211 A.D.2d 908, 910, 621 N.Y.S.2d 187, 188 (App. Div.3d Dep't 1995); Knic Knac Agencies v. Masterpiece Apparel, Ltd., No. 94 Civ. 1073, 1999 WL 156379, at *9 (S.D.N.Y. Mar. 22, 1999).
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." United States Naval Inst. v. Charter Communications, Inc., 936 F.2d 692, 698 (2d Cir. 1991) (citing New York Civil Practice Law and Rules ("CPLR") §§ 5001 and 5002). The most pertinent New York statute provides, in relevant part, "[i]nterest shall be recovered upon a sum awarded because of a breach of performance of a contract. . . ." CPLR § 5001(a). The CPLR provides further that "[i]nterest shall be computed from the earliest ascertainable date the cause of action existed. . . ." CPLR § 5001(b). When "damages were incurred at various times," interest shall be "computed upon
each item from the date it was incurred or upon all of the damages from a single reasonable intermediate date." Id. In New York, the statutory rate for prejudgment interest in a breach of contract action is 9% per annum. See CPLR § 5004.
In the instant action, defendants' joint and several liability is established by the allegations made in the complaint and your Honor's granting of a default judgment. In addition, plaintiff has provided the Court with sufficient documentary proof to establish that it is entitled to the amount claimed to be owed for defendants' breach of contract. Furthermore, plaintiff is entitled to prejudgment interest under New York law. However, the Court is not persuaded that plaintiff is entitled to 10% interest on the balance due and owing (the rate of interest Setia was required to pay to Punjab National Bank in India), or that plaintiff is entitled to the amounts claimed to be owed for emotional distress, attorney's fees and costs.
The material submitted by plaintiff in connection with the inquest, including the affidavit of Rajeev Setia and plaintiffs business records, establishes that Setia shipped goods to the defendants and that $31,730.00 remains due and owing on the shipments. Accordingly, based upon the record evidence, defendants owe Setia $31,730.00 for the goods they received but for which they failed to make the requisite payment.
In addition, Setia is entitled to prejudgment interest from the date the breach occurred until the date of final judgment. Since damages were incurred at different times, interest shall be computed upon each item from the date damages were incurred. See CPLR § 5001(b). In this case, plaintiffs submissions establish that, with respect to the January 1996 shipment, the breach of the parties' contract occurred on or about April 13, 1996, or thirty days after the delivery date, and that with respect to the March 1996 shipment, the breach of the parties' contract occurred on or about June 13, 1996, or thirty days after the date of delivery. Accordingly, Setia is entitled to prejudgment interest at the statutory rate of 9% per year on the amount of $4,500.00, accruing on April 13, 1996, and on the amount of $27,230.00, accruing on June 13, 1996.
Plaintiff claims that it is entitled to 10% interest on the balance due from defendants for the goods sold and delivered, because plaintiff was required to pay that rate of interest to the Punjab National Bank in India, after defendants failed to meet the terms of their contracts. The Court does not agree.
None of the documents provided by plaintiff substantiates this claim. Moreover, under New York law, the court has no discretion to award prejudgment interest at a rate higher than the statutory rate. See CPLR § 5001(a); see also Oy Saimaa Lines Logistics Ltd. v. Mozaica-New York, Inc., 193 F.R.D. 87, 90 (E.D.N.Y. 2000) (citing United Bank Ltd. v. Cosmic Int'l, Inc., 542 F.2d 868, 878 [2d Cir. 1976]). Accordingly, defendants should not be required to pay an amount for prejudgment interest beyond the amount fixed by statute.
Plaintiff also claims that it is entitled to $100,000.00 in damages based on the emotional distress suffered by plaintiffs officer(s) as a result of litigating this action against defendants, and $20,000.00 for the time spent in responding to various financial institutions and government agencies in India. While plaintiffs submissions establish that Setia's officers engaged in correspondence with the relevant authorities, no documentation is provided regarding the actual expenses incurred in connection with this activity or the amount of compensation owed as a result of the time spent in this endeavor. While it is the purpose of a damages award in a breach of contract action to place the aggrieved party in the same economic position that it would have been in absent the breach, the court nevertheless is obligated to "establish damages with a reasonable certainty," and not "just accept [plaintiffs] statement of the damages." Transatlantic Marine Claims, 109 F.3d at 111. Accordingly, defendants should not be required to compensate plaintiff for the costs it incurred in prosecuting this action.
With respect to Setia's claim for damages associated with emotional distress, the Court finds: a) no cause of action for emotional distress was alleged in the complaint; and b) plaintiff is a corporate entity. As such, plaintiff is an inanimate object, thus, not susceptible to emotional distress. In any event, even if Setia could validly assert a claim for emotional distress, it has submitted no documents in support of its claim for damages for emotional distress. Where the evidence of a plaintiffs emotional injury is unsubstantiated, "[t]he mere statement of injury does not rise to the level of proof required" by the Court. Cappetta, 913 F. Supp. at 305. Accordingly, defendants should not be required to pay damages for emotional distress.
Plaintiff also claims that it is entitled to attorney's fees in the amount of $50,000.00 When fixing a reasonable rate for attorney fees, it is appropriate for a court to consider and to apply the prevailing market rates in the relevant community for similar legal work of lawyers of reasonably comparable skill, experience and reputation. See Blum v. Stenson, 465 U.S. 886, 895 n. 11, 104 S.Ct. 1541, 1547 n. 11 (1984). In addition, it is permissible for a court to rely upon its own knowledge of private firm hourly rates in deciding what reasonable attorney fees are in the community. Miele v. N.Y. State Teamsters Conf. Pens. Retirement Fund., 831 F.2d 407, 409 (2d Cir. 1987).
In the Second Circuit, a party seeking an award of attorney's fees must support that request with contemporaneous time records that show, "for each attorney, the date, the hours expended, and the nature of the work done." New York State Ass'n for Retarded Children, Inc. v. Carey, 711 F.2d 1136, 1154 (2d Cir. 1983). Attorney fee applications that do not contain such supporting data "should normally be disallowed." Id. at 1154.
Plaintiff has failed to provide any contemporaneous billing records setting forth the name(s) of the attorney(s) who worked on this matter, the hourly rate at which the attorney(s) was compensated, or the nature of the work done. Therefore, based on the record evidence, the Court finds that plaintiff is not entitled to recover the attorney's fees it claims to have incurred in connection with this action.
IV. RECOMMENDATION
For the reasons set forth above, I recommend that plaintiff be awarded damages in the amount of $31,730.00 on its breach of contract claim, and prejudgment interest, to be calculated by the Clerk of Court at a rate of 9% per year, on the amount of $4,500.00, accruing on April 13, 1996, and on the amount of $27,230.00, accruing on June 13, 1996.
* * *
Plaintiff shall serve a copy of this Report and Recommendation upon the defendants and submit proof of service to the Clerk of Court.
V. FILING OF OBJECTIONS TO THIS REPORT AND RECOMMENDATION
Pursuant to 28 U.S.C. § 636 (b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure, the parties shall have ten (10) days from service of this Report to file written objections. See also, Fed.R.Civ.P. 6. Such objections, and any responses to objections, shall be filed with the Clerk of Court, with courtesy copies delivered to the chambers of the Honorable Michael B. Mukasey, 500 Pearl Street, Room 2240, New York, New York, 10007, and to the chambers of the undersigned, 40 Foley Square, Room 540, New York, New York, 10007. Any requests for an extension of time for filing objections must be directed to Judge Mukasey. FAILURE TO FILE OBJECTIONS WITHIN TEN (10) DAYS WILL RESULT IN A WAIVER OF OBJECTIONS AND WILL PRECLUDE APPELLATE REVIEW. See Thomas v. Arn, 474 U.S. 140 (1985); IUE AFL-CIO Pension Fund v. Herrmann, 9 F.3d 1049, 1054 (2d Cir. 1993); Frank v. Johnson, 968 F.2d 298, 300 (2d Cir. 1992); Wesolek v. Canadair Ltd., 838 F.2d 55, 57-59 (2d Cir. 1988); McCarthy v. Manson, 714 F.2d 234, 237-38 (2d Cir. 1983).