Opinion
15-CV-00461 (JGK) (JLC)
12-19-2018
THE GUARDIAN LIFE INSURANCE COMPANY OF AMERICA, Plaintiff, v. THE WILLMS FINANCIAL NETWORK, LLC, Defendant.
REPORT & RECOMMENDATION JAMES L. COTT, United States Magistrate Judge.
To the Honorable John G. Koeltl, United States District Judge:
The Court granted plaintiff The Guardian Life Insurance Company of America's motion for a default judgment against defendant The Willms Financial Network, LLC on May 24, 2017. The case was subsequently referred to me for an inquest into damages. For the reasons stated below, I recommend that Guardian be awarded damages in the amount of $568,235.52.
I. BACKGROUND
A. Facts
The following facts, which are drawn from a review of Guardian's pleadings and supported by its submissions related to this inquest, are deemed established for the purpose of determining the damages to which it is entitled. See, e.g., Finkel v. Romanowicz, 577 F.3d 79, 84 (2d Cir. 2009) ("In light of [defendant's] default, a court is required to accept all of [plaintiff's] factual allegations as true and draw all reasonable inferences in its favor[.]") (citing Au Bon Pain Corp. v. Artect, Inc., 653 F.2d 61, 65 (2d Cir. 1981)).
Guardian is an insurance company providing life and disability insurance, retirement services, and investment products. Amended Complaint dated April 8, 2015 ("Amend. Compl."), Dkt. No. 9, ¶ 19. From on or about February 1, 2005 to on or about October 4, 2010, Willms Financial functioned as the Corporate General Agent of Guardian's Central Ohio agency. Id. ¶ 21. In this capacity, Willms Financial "solicited applications for life, disability, health, and group insurance as well as annuities and other products; aided in the maintenance of existing insurance policies, annuities, and other products; and serviced existing and new policyholders, annuitants, and beneficiaries." Id. ¶ 23.
As part of their business relationship, Guardian and Willms Financial entered into and executed various agreements and notes pursuant to which Guardian made loans to Willms Financial for the operating costs of the Central Ohio agency. Id. ¶¶ 24-25. These loans were to be repaid from the earnings of the Central Ohio agency. Id. ¶ 25. To the extent the loans were unpaid, they "became an interest-bearing indebtedness to Guardian payable upon demand." Id. Furthermore, at the end of each year, any outstanding unpaid interest was added to Willms Financial's indebtedness. Id. ¶ 26.
On or about October 4, 2010, Willms Financial's Corporate General Agency relationship with Guardian was terminated. Id. ¶ 30. On or about October 6, 2010, Guardian and Willms Financial entered into an agreement pursuant to which Willms Financial acknowledged its debt to Guardian as well as Guardian's "ability to withhold override and personal commissions otherwise due to" Willms Financial. Id. ¶ 31. In or about September 2012, Guardian made a demand upon Willms Financial for full repayment of its then outstanding indebtedness. Id. ¶ 34. Guardian has continued periodically to provide Willms Financial with statements setting forth its debt. Id. ¶ 33. However, to date, Willms Financial has failed to repay its loan debt. Id. ¶ 42.
In addition to the loan debt, the parties' agreements and notes also specified that any amounts paid by Guardian to settle complaints related to Willms Financial's breach of its "duties and responsibilities" would "constitute additional indebtedness" to Guardian. Id. ¶ 39. Following the termination of the parties' relationship, Guardian settled several complaints brought by customers against Willms Financial. Id. ¶ 41. To date, Willms Financial has failed to pay back the amounts related to those settlements to Guardian. Id. ¶ 42.
B. Procedural History
On January 22, 2015, Guardian filed a complaint against Willms Financial and its sole member and owner, Brian S. Willms ("Mr. Willms" and, together with Willms Financial, "Defendants"). Dkt. No. 1. Guardian filed an amended complaint on April 8, 2015, alleging causes of action for breach of contract, book account, account stated, unjust enrichment, and promissory estoppel against Defendants. Amend. Compl. ¶¶ 43-71. On May 15, 2015, Defendants, represented by counsel, answered the amended complaint. Dkt. No. 14.
On October 8, 2015, Defendants' counsel filed a motion to withdraw. Dkt. No. 27. By order dated December 22, 2015, the Court granted counsel's motion. Dkt. No. 33. Noting that a corporate entity "must be represented by counsel," the Court gave Willms Financial "30 days to appear by new counsel." Id. On January 25, 2016, the Court issued an order staying the case for 45 days "to allow the parties to discuss possible settlement." Dkt. No. 36. The order also provided that if Willms Financial failed to obtain counsel by March 8, 2016, Guardian "may proceed to obtain a certificate of default and move by order to show cause for a default judgment" against Willms Financial. Id. Mr. Willms was permitted to represent himself pro se. Id.
Over the next several months, the parties engaged in limited discovery and settlement discussions, which were ultimately unsuccessful. At no time did Willms Financial obtain new counsel.
Accordingly, on February 10, 2017, Guardian requested that a default be entered against Willms Financial. Dkt. No. 66. On February 13, 2017, the Clerk's Office entered a certificate of default against Willms Financial. Dkt. No. 67. On May 2, 2017, the Court scheduled a show cause hearing as to why an order should not be entered granting a default judgment against Willms Financial. Dkt. No. 73. The hearing was held on May 24, 2017, and Willms Financial failed to appear. Accordingly, by order dated May 24, 2017, the Court entered a default judgment against Willms Financial. Dkt. No. 76.
By letter dated June 22, 2017, Guardian informed the Court that Willms Financial had filed a petition for Chapter 7 bankruptcy in the U.S. Bankruptcy Court for the Southern District of Ohio. Dkt. No. 79. As a result, on December 5, 2017, the Court stayed the above-captioned case pending the resolution of Willms Financial's bankruptcy proceeding. Dkt. No. 85. By letter dated April 20, 2018, Guardian informed the Court that the bankruptcy court had closed Willms Financial's Chapter 7 proceeding. Dkt. No. 87. In addition to Willms Financial's bankruptcy proceeding, Mr. Willms had also filed for Chapter 7 bankruptcy in his personal capacity in the U.S. Bankruptcy Court for the Southern District of Ohio on February 28, 2017. See Dkt. No. 72 (notice of bankruptcy reporting Mr. Willms's personal bankruptcy proceeding). Mr. Willms was granted a discharge pursuant to 11 U.S.C. § 727 in his personal bankruptcy proceeding. In re Brian Scott Willms, 17-BK-51105, Dkt. No. 19 (Bankr. S.D. Ohio June 13, 2017) (order of discharge).
Consequently, in light of Defendants' respective bankruptcy proceedings, the Court issued an order on April 24, 2018: (1) dismissing, with prejudice, Guardian's claims against Mr. Willms on consent of the parties, and (2) referring Guardian's claims against Willms Financial to me to conduct an inquest into damages as well as to consider any arguments of the parties with respect to the effect of the closure of Willms Financial's bankruptcy proceeding. Dkt. No. 88.
On May 1, 2018, I issued an order establishing a schedule for the parties' inquest submissions. Dkt. No. 89. On May 21, 2018, Guardian filed its inquest submission, seeking damages in a total amount of $2,002,326.44. Dkt. No. 90. In support of its claim for damages, Guardian submitted proposed findings of fact and conclusions of law ("Proposed Findings"), Dkt. No. 90-1; a declaration from Ziad Darwiche, a Director in Agency Finance at Guardian ("Darwiche Decl."), Dkt. No. 90-2; a declaration from Jackie Wilson, a Case Analyst in Individual Market Compliance at Guardian ("Wilson Decl."), Dkt. No. 90-3; and a proposed default judgment, Dkt. No. 90-4.
On June 14, 2018, the Court received, by mail, an inquest submission from Mr. Willms on behalf of Willms Financial. Dkt. No. 92. Mr. Willms's submission enclosed a letter dated June 11, 2018 from Matthew Thompson, the attorney who had represented Willms Financial in its Chapter 7 bankruptcy proceeding. In the June 11 letter, Mr. Thompson stated, among other things, that if Guardian was asserting its damages claim against Willms Financial in order to "surreptitiously collect or to financially harm Brian Willms, then that action would be a violation of the discharge injunction under 11 U.S.C. [§] 727 in his personal Chapter 7 bankruptcy." Id. In response, on June 21, 2018, Guardian filed a letter stating that moving forward with the inquest would not violate the order of discharge that had been issued in Mr. Willms's personal bankruptcy proceeding. Dkt. No. 94. On June 27, 2018, Mr. Willms submitted another letter, stating that, in light of Willms Financial's bankruptcy, "[i]t would be a complete waste of the court[']s time" to continue with the inquest, and requesting that the Court "dismiss this case immediately with prejudice." Dkt. No. 95.
Mr. Thompson has not entered an appearance in this case for Willms Financial. "It is well established that 'a corporation, which is an artificial entity that can only act through agents, cannot proceed pro se.'" Commonwealth Advisors Inc. v. Wells Fargo Bank, Nat'l Ass'n, 15-CV-7834 (JMF), 2016 WL 3542462, at *3 (S.D.N.Y. June 23, 2016) (quoting Jones v. Niagara Frontier Transp. Auth., 722 F.2d 20, 22 (2d Cir. 1983)). Moreover, Mr. Willms, a non-lawyer, cannot represent Willms Financial notwithstanding his having submitted opposition papers on its behalf. "[A] layperson may not represent a separate legal entity such as a corporation." Lattanzio v. COMTA, 481 F.3d 137, 139 (2d Cir. 2007).
On August 13, 2018, I issued an order directing Guardian to supplement its inquest submissions relating to the "customer complaint settlement debt" it claimed was owed by Willms Financial because Guardian had failed to submit documentary evidence or any other materials establishing these alleged damages. Dkt. No. 96. After two extensions, on September 21, 2018, Guardian submitted its supplemental statement of damages ("Pl. Damage Calc."), along with declarations and exhibits concerning the customer complaint settlement agreements. Guardian now seeks damages in a total amount of $1,992,683.11. Dkt. No. 102.
II. DISCUSSION
A. Legal Standard
"Even when a default judgment is warranted based on a party's failure to defend, the allegations in the complaint with respect to the amount of the damages are not deemed true. The district court must instead conduct an inquiry in order to ascertain the amount of damages with reasonable certainty." Am. Jewish Comm. v. Berman, 15-CV-5983 (LAK) (JLC), 2016 WL 3365313, at *3 (S.D.N.Y. June 15, 2016) (quoting Credit Lyonnais Sec. (USA), Inc. v. Alcantara, 183 F.3d 151, 155 (2d Cir. 1999)), adopted by, 2016 WL 4532201 (S.D.N.Y. Aug. 29, 2016). A plaintiff "bears the burden of establishing its entitlement to recovery and thus must substantiate its claim with evidence to prove the extent of its damages." Id. (alterations omitted) (quoting Dunn v. Advanced Credit Recovery Inc., 11-CV-4023 (PAE) (JLC), 2012 WL 676350, at *2 (S.D.N.Y. Mar. 1, 2012)). "To establish damages upon default, a plaintiff must demonstrate that the 'compensation sought relates to the damages that naturally flow from the injuries pleaded.'" Id. (alteration omitted) (quoting Greyhound Exhibitgroup, Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155, 159 (2d Cir. 1992)).
"Under New York law, a successful plaintiff in a breach of contract action is entitled to damages in the 'amount necessary to put the plaintiff in the same economic position he would have been in had the defendant fulfilled his contract.'" Id. at *5 (quoting Scholastic, Inc. v. Snap TV, Inc., 09-CV-4349 (GBD) (GWG), 2011 WL 1330246, at *3 (S.D.N.Y. Apr. 8, 2011)). Where damages are susceptible to simple mathematical calculation and the declarations and documentary evidence provide a "sufficient basis from which to evaluate the fairness" of the requested damages, no evidentiary hearing is necessary. Id. at *4 (quoting Fustok v. ContiCommodity Servs. Inc., 873 F.2d 38, 40 (2d Cir. 1989)); see also Winik Media LLC v. One Up Games, LLC, 16-CV-2483 (DAB) (JLC), 2017 WL 4539292, at *3 (S.D.N.Y. Oct. 11, 2017) (forgoing evidentiary hearing because damages were susceptible to simple mathematical calculation), adopted by, 2018 WL 1918610 (S.D.N.Y. Apr. 19, 2018).
As discussed below, the Court concludes that New York law applies in this case.
B. Analysis
Before assessing Guardian's damages, two threshold issues must be resolved: (1) whether Willms Financial's bankruptcy proceeding precludes the Court from moving forward with the inquest; and (2) whether Guardian's breach of contract claims should be analyzed under New York or Ohio law. Each issue is reviewed in turn.
1. Willms Financial's Bankruptcy Proceeding Does Not Preclude the Court from Moving Forward with the Inquest
As mentioned, Willms Financial filed a petition for Chapter 7 bankruptcy in the U.S. Bankruptcy Court for the Southern District of Ohio; the proceeding was commenced on May 23, 2017 and closed on January 19, 2018. As Guardian observes, Willms Financial's bankruptcy proceeding was closed without a discharge. Proposed Findings at 12, ¶ 27. In fact, the docket sheet for Willms Financial's bankruptcy proceeding contains a note specifically stating: "discharge not applicable." See id., Ex. A (screenshot of docket sheet). Willms Financial and Mr. Willms have not provided, and this Court is not aware of, any evidence suggesting that Willms Financial's debts have been discharged.
In the Proposed Findings, the "proposed findings of fact" (pages 1 to 8) and the "proposed conclusions of law" (pages 8 to 13) contain separate paragraph numbering. As such, pincites to the Proposed Findings include both a page number and an applicable paragraph number.
In addition, there is also no evidence that Mr. Willms's personal Chapter 7 bankruptcy proceeding has had the effect of "discharging" Willms Financial's debts. Willms Financial was not a party to Mr. Willms's personal bankruptcy proceeding. Even if it was a party, Willms Financial would have been ineligible for a discharge under Section 727 of the Bankruptcy Code, as this provision does not apply to a debtor who "is not an individual." 11 U.S.C. § 727(a)(1); see, e.g., Cohen v. Utica First Ins. Co., 436 F. Supp. 2d 517, 522 n.2 (E.D.N.Y. 2006) ("Under 11 U.S.C. § 727, a corporation that files under Chapter 7 does not qualify for a discharge of its debts.") (citing Section 727(a)(1)).
Thus, neither Mr. Willms's nor Willms Financial's respective bankruptcy proceeding prevents this Court from moving forward with the inquest in this case.
2. Willms Financial's Breach of Contract Claims Should be Analyzed under New York Law
Guardian appears to assume that its breach of contract claims against Willms Financial should be analyzed under New York law. See Proposed Findings at 10-11, ¶¶ 23, 25 (citing New York law and decisions from this District). However, Guardian has not furnished the Court with copies of the agreements and notes that it entered into as part of its business relationship with Willms Financial, nor does Guardian identify an applicable governing law provision. In the absence of such evidence, the Court turns to choice of law principles to determine what law should apply in this case.
In general, in diversity actions like this one, New York choice of law principles dictate that "the choice of law for contract claims is determined by a 'center of gravity' analysis." Conceria Vignola SRL v. AXA Holdings, LLC, 09-CV-6684 (GBD) (DF), 2010 WL 3377476, at *2 (S.D.N.Y. Aug. 3, 2010) (citations omitted), adopted by, 2010 WL 3385260 (S.D.N.Y. Aug. 23, 2010). "This analysis determines the contract's 'center of gravity' by examining 'the place of contracting, negotiation and performance; the location of the subject matter of the contract; and the domicile of the contracting parties.'" Id. (quoting GlobalNet Financial.Com, Inc. v. Frank Crystal & Co., 449 F.3d 377, 383 (2d Cir. 2006)). However, when a plaintiff fails to plead "facts sufficient to establish which jurisdiction has the most significant contacts under the 'center of gravity' approach," courts apply "New York law to the breach of contract claim, adopting the law upon which the plaintiffs rely in their inquest memorandum." Nwagboli v. Teamwork Transp. Corp., 08-CV-4562 (JGK) (KNF), 2009 WL 4797777, at *3 n.2 (S.D.N.Y. Dec. 7, 2009), adopted by, 08-CV-4562 (JGK) (KNF), Dkt. No. 39 (S.D.N.Y. Mar. 9, 2010).
Here, Guardian asserts that it is incorporated and maintains its principal office in New York, while Willms Financial is incorporated and maintains its principal office in Ohio. Darwiche Decl. ¶¶ 4-5. However, other than specifying the domicile of the parties, Guardian does not identify the place of contracting, negotiation, and performance of the parties' agreements and notes, or the location of the subject matter of those agreements and notes. See GlobalNet Financial.Com, Inc., 449 F.3d at 383. Furthermore, although Willms Financial served as the Corporate General Agent for Guardian's Central Ohio Agency, Darwiche Decl. ¶ 9, it is unclear whether Willms Financial was expected to perform its contractual obligations and serve customers exclusively in Ohio. Accordingly, because the record is not sufficiently developed to allow for a determination as to which jurisdiction has the most significant contacts in a "center of gravity" analysis, I will apply New York law to Guardian's breach of contract claims.
At any rate, even if Ohio law were to be found to apply to Guardian's breach of contract claims for purpose of this inquest, the analysis would be the same. Under Ohio law, just like New York law, "damages awarded for a breach of contract should place the injured party in as good a position as it would have been in but for the breach." Eggert v. Meritain Health, Inc., 428 F. App'x 558, 563 (6th Cir. 2011) (quoting Textron Fin. Corp. v. Nationwide Mut. Ins. Co., 684 N.E.2d 1261, 1266 (Ohio Ct. App. 1996)).
3. Guardian's Damages Claims
Guardian seeks to recover a total of $1,992,683.11 in damages. Pl. Damage Calc. ¶ 7. These damages consist of two components. The first is loan debt owed by Willms Financial to Guardian. Id. ¶ 4. The second is customer complaint settlement debt owed by Willms Financial to Guardian. Id. ¶ 5. Each component is reviewed below.
a. Damages for Failure to Pay Loan Debt
To establish the amount of loan debt owed, Guardian has submitted two debt statements, attached as Exhibit A to the Darwiche declaration. The first debt statement, labeled 1S002U, sets forth Willms Financial's unsecured loan debt as of April 30, 2018 (the "Unsecured Loan Statement"); the second debt statement, labeled 1S002, sets forth the secured loan debt, also as of April 30, 2018 (the "Secured Loan Statement"). See Darwiche Decl. ¶ 26 & Ex. A. Both statements itemize the underlying invoices issued by Guardian for each loan category (including amounts debited and credited, if any, as part of each invoice), and the resulting balance owed by Willms Financial for each invoice. See id. According to the Unsecured Loan Statement, the total balance owed by Willms Financial on its unsecured debt is $541,440.41, and the total accrued interest is $10,851.50. And according to the Secured Loan Statement, the total balance owed by Willms Financial on its secured debt is $15,682.25, and the total accrued interest is $261.36. Combining the amounts owed by Willms Financial on its unsecured and secured loan debt, including interest, yields a total of $568,235.52.
Darwiche's sworn declaration, as supported by the Unsecured Loan Statement and Secured Loan Statement, is sufficient to establish the amount owed by Willms Financial on its loan debt. See, e.g., Li & Fung (Trading) Ltd. v. Contemporary Streetwear, LLC, 11-CV-2022 (CM) (DF), 2013 WL 3757080, at *6 (S.D.N.Y. June 6, 2013) (noting, in action for account stated and breach of contract, plaintiff's invoices, corroborating vendor invoices, and declarations by plaintiff's employee were "typical of the type of evidence that has been held sufficient to support an award of damages upon a defendant's default"), adopted by, 2013 WL 3744119 (S.D.N.Y. June 28, 2013); Conceria Vignola SRL, 2010 WL 3377476, at *3-4 (recommending award of damages, after default, based on copies of invoices and supporting affidavit).
Therefore, I recommend that Guardian be awarded damages in an amount of $568,235.52 representing the total sum of the loan debt owed by Willms Financial.
b. Damages for Failure to Pay Customer Complaint Settlement Debt
Guardian also seeks to recover damages from settlements it reached with customers of Willms Financial. Guardian contends that "pursuant to the Agreements and Notes, any amounts paid by Guardian to settle complaints related to any breach of [Willms Financial's] duties and responsibilities constitute additional indebtedness . . . ." Amend. Compl. ¶ 39. To establish the amount of damages owed, Guardian first submitted eight settlement agreements, attached as Exhibits A through H to the Wilson declaration. In her declaration, Wilson provided the redacted names of the policyholders associated with each settlement, the dates of settlement, the loss to Guardian, and a brief explanation of the loss to Guardian. See Wilson Decl. ¶ 6. After I requested supplemental information, including "additional evidence, authorities, and legal arguments," Dkt. No. 96, Guardian provided a supplemental statement of damages that included declarations from Senior Case Analyst Denisemarie Stoudt, Case Analyst Michele Bush, and Wilson. Dkt. Nos. 102-1 to 102-6. Guardian attached several exhibits to these declarations, which included customer complaint letters, Guardian's initial response letters, evidence of customers' transactions with Willms Financial, the settlement agreements, and evidence that Guardian paid the settlements. Guardian did not provide additional authorities or legal arguments to support its damage calculations.
Though the Court acknowledges that "[t]he names, personal identifiers, and account numbers of the policyholders have been redacted in accordance with the Confidentiality Provisions contained in [the settlement agreements]," Guardian did not seek permission to make redactions in its filings. Wilson Decl. ¶ 5.
Based on a review of Guardian's proposed conclusions of law and other cases it has brought in this District (as well as one in the Southern District of Texas) to which it cites as authority, the Court concludes that Guardian has not invoked the customer complaint settlement debt clause in other suits against its General Agents and Agencies (and thus has not previously obtained damages for such alleged debts). Notwithstanding that the enforcement of this clause and collection related thereto thus appears to be a unique issue presented to the Court, Guardian did not provide the underlying agreements and notes documenting this clause or any additional clarifying information. As described by Guardian, the contract term contains no limits to its discretion in settling customer complaints; at the end of the day, it contends that Willms Financial is simply liable for the final agreed-upon amount, whatever it may be. Guardian thus asks the Court to allow it to collect the final amounts in full.
Guardian contends that "[its] entitlement to the entry of Judgment against former General Agents and General Agencies, like [Willms Financial] herein, and the acceptance of Guardian's Debt Statements and books and records for establishment of debt amounts due to Guardian have been determined by this Court . . ." Proposed Findings at 11, ¶ 25. However, this statement is inaccurate as the cases cited by Guardian only involve loan debt contract clauses, not customer complaint settlement debt clauses.
While Guardian did not cite to and the Court did not find any direct authority regarding settlement debt damages, the decision in TIG Ins. Co. v. Newmont Min. Corp. provides a useful framework by analogy. 413 F. Supp. 2d 273 (S.D.N.Y. 2005), aff'd, 226 F. App'x 49 (2d Cir. 2007). In TIG Ins. Co., plaintiff TIG was an insurance company that had issued "Environmental Impairment Liability insurance policies" to defendant Newmont Mining Company. After Newmont incurred millions of dollars in costs from environmental claims brought by the State of Colorado, TIG and Newmont reached a settlement agreement concerning insurance coverage. Newmont was to remit 20 percent of any net recovery from settlements with its comprehensive general liability ("CGL") insurers to TIG. The settlement agreement gave Newmont "'the sole right, without interference' to settle its actions with the CGL insurers 'in such manner as Newmont believes to be appropriate.'" Id. at 276. After Newmont reached a settlement with a CGL insurer, TIG alleged that Newmont "improperly withheld amounts of [the settlement] from its calculation [of how much to remit to TIG]." Id. at 279. Though Newmont's allocation "did not directly breach any provision of the Agreement," the court concluded that "implied in the Agreement is the covenant of good faith and fair dealing. . . ." Id. at 282 (citing Power Travel Int'l, Inc. v. Am. Airlines, Inc., 257 F. Supp. 2d 701, 706 (S.D.N.Y. 2003)). Accordingly, the court still analyzed "whether Newmont exercised its discretion in allocating the . . . settlement recovery 'arbitrarily or irrationally,' or in an attempt to withhold the benefits of the Agreement from TIG." Id. at 282-83 (quoting Dalton v. Educ. Testing Serv., 87 N.Y.2d 384, 389 (1995)).
In this case, the Court must similarly evaluate whether Guardian exercised its discretion "arbitrarily or irrationally" when it settled customer complaints with third parties. However, Guardian's submissions do not provide enough information for the Court to make such a determination. Its supplemental submissions only demonstrate the following: 1) customers of Willms Financial complained about the behavior of the company and of Brian Willms; and 2) Guardian entered into settlement negotiations with those customers and paid settlements. Despite being given two opportunities to do so, Guardian does not explain: 1) how the settlement amounts correspond to Willms Financial's purported breach of its duties and responsibilities; or 2) why the final settlement amounts were reasonable and thus justifiable as default damages.
First, Guardian contends that "[Willms Financial] expressly agreed to repay . . . all amounts paid by Guardian to settle complaints related to any breach of [Willms Financial's] duties and responsibilities." Amend. Compl. ¶ 58 (emphasis added). Thus, to assess damages, the Court would necessarily need to analyze how much of the final settlement amount in each case stemmed from Willms Financial's breach of its duties and responsibilities. However, Guardian provides only customer allegations of Brian Willms's behavior, and does not substantiate the allegations with its own analysis. See Declaration of Denisemarie Stoudt ("Stoudt Decl.") ¶¶ 5-6, Dkt. No. 102-1; Declaration of Michele Bush ("Bush Decl.") ¶¶ 5-9, 18-22, Dkt. No. 102-2; Supplemental Declaration of Jackie Wilson ¶¶ 5-9, 15-19, 25-26, 33-37, 45-49, Dkt. No. 102-3. As Guardian's submissions do not even define Willms Financial's duties and responsibilities, the Court cannot determine if its alleged misconduct constitutes a breach. If Willms Financial did not breach its duties and responsibilities, and Guardian settled with the customers for other reasons, then Willms Financial should not be held liable for some or all of the final settlement amounts. Guardian has not provided enough information to determine this issue.
Citations to page numbers in Exhibits of the Stoudt and Bush Declarations will refer to the pagination of the ECF filing.
For example, in the case of L___ S___ and R ___ S___, Denisemarie Stoudt in her declaration simply restates the customers' "alleg[ations] that [Willms Financial] had provided them with misleading information regarding insurance coverage and cash flow options, and that financial benefit illustrations had not been accurate versus [Willms Financial's] presentations." Stoudt Decl. ¶ 5. In response to the customers' complaints, Guardian stated in its initial reply letter that it would initiate "a thorough investigation into [the customers'] claims." Stoudt Decl., Ex. A at 9. But Guardian does not provide a record of its investigation or explain how the behavior described by the customer constituted a breach of Willms Financial's "duties and responsibilities." Moreover, the settlement agreement does not even mention Willms Financial or Brian Willms. Stout Decl., Ex. E at 42.
For example, in the complaint from G. C___ O ___, the customer stated: "I feel completely betrayed by Guardian, and since they have a duty to make sure their licensed agents are honest, and that these agents have a fiduciary duty to watch their clients['] funds, and comply with their clients['] desires. I am taking a leap of faith by staying with Guardian, and not reporting our experiences to the state department of insurance." Bush Decl., Ex. J at 110. This statement provides an example of Guardian's own incentive to settle beyond compensating the customer for Willms Financial's alleged breach of its duties and responsibilities.
Second, even if Willms Financial breached its duties and responsibilities, and that breach was the sole reason for the settlements, Guardian provides no support for whether the amounts of damages it seeks are reasonable. See TIG Ins. Co., 413 F. Supp. 2d at 284. The final settlement amounts do not correlate to the damages alleged by customers. And yet Guardian offers no explanation, case law, formulas, or analogous settlements to demonstrate it properly exercised its discretion in settling customer complaints for the amounts that it did.
For example, in the settlement with G. C___ O ___, Bush states:
21. . . . G. C___ O ___ claimed he asked [Willms Financial] numerous times for an amount that he could contribute to paid up additions, but could never get an answer to this question. [Willms Financial] asked that he
fund an account with Park Avenue Securities so that an automatic deduction could fund the monthly premiums. The funds in the money market account earned little to no interest for over 2 years.Bush Decl. ¶¶ 21-23. In this settlement claim, the customer complained of lost interest of $3,000 to $4,000 due to Willms Financial's advice. In response, Guardian provided him a new policy, and yet in its inquest submission sought damages of $66,270 to be borne by Willms Financial. Id. ¶ 29. Guardian's submission jumps from customer allegations (¶ 22) to "an amicable resolution of the complaint was ultimately reached . . ." (¶ 23), with no clarifying information to fill the gaps. Guardian simply does not explain how the customer's allegation of damages translated into the damages it now seeks against Willms Financial. Cf. TIG Ins. Co., 413 F. Supp. 2d at 284 (finding party had demonstrated settlement allocation was one of "several reasonable allocation possibilities," and "was reasonable when viewed in the context of then-prevailing case law" and allocations made in previous settlements).
22. G. C___ O ___ advised Guardian that he could have left the money in his company checking account, which at the time was earning 2-3%, and or put it in short term vehicles earning more. He concluded that [Willms Financial's] advice cost him interest on the $200,000, declining in balance, over 2 years, potentially $3,000-$4,000 and other damages. . . .
23. An amicable resolution of the complaint was ultimately reached in June, 2013. Guardian agreed to refund all premiums paid on the initial life insurance policy issued to G. C___ O ___ less a term charge for the coverage already provided. Guardian further agreed to let G. C___ O ___retain a $500,000 Ten Pay Whole Life Insurance Policy issued at his current rating class with an effective date of June 15, 2009.
As a second example, in the settlement with L___ and R ___ S___, the customers alleged their damages included "the selling of $80,000 in stocks and bonds; mortgaging of home in the amount of $147,000; mortgaging of farm in the amount of $64,000; and loss of net worth of about $300,000." Stoudt. Decl. ¶ 7. Stoudt's scattered handwritten notes do not explain these damages in any useful detail. She does not clarify how the customers came up with their loss of net worth of $300,000. Her notes simply state the customers' net worth before they bought the policies and their then-current net worth. Stoudt Decl., Ex. B at 13. The record is unclear if that amount even resulted from interactions with Willms Financial, or if that amount already encompasses the loss from mortgages and stocks.
Without further explanation, Guardian eventually settled with the customers for $280,000 and two life policies with death benefits of $100,000 each that require no premiums, for a total of $480,000. Stoudt Decl. ¶ 10. In calculating damages owed by Willms Financial, Guardian deducted the premiums that the customers had already paid, $211,618.23, and found that Willms Financial owed $268,381.77. Id. ¶¶ 12-14. However, in the original statement of damages, Wilson states the amount owed by Willms Financial represents the "loss comprised of the cost to Guardian to repay the mortgage incurred by policyholders [L___ and R ___ S___]." Wilson Decl. ¶ 6. Yet the mortgages for the farm and house totaled $211,000. Stoudt Decl. ¶ 7. Guardian paid a total of $480,000 to the customers with no clarification of how that amount relates to its own explanation of loss.
In sum, the Court lacks confidence in Guardian's submissions in light of these unsupported and unexplained requests for damages. The Court has already provided an additional opportunity for Guardian to supplement its inquest submission, and explicitly requested additional evidence, authorities, and legal arguments. Nonetheless, Guardian has still failed to substantiate its damages with reasonable certainty. Accordingly, on this record the Court should not award any damages for the customer complaint settlement debt. See, e.g., Louis Hornick & Co. v. Darbyco, Inc., 12-CV-5892 (VSB) (DCF), Dkt. No. 100 (S.D.N.Y. Aug. 19, 2015), adopted by, 2015 WL 9478239, at *1 (S.D.N.Y. Dec. 29, 2015) ("Plaintiff failed to establish damages with reasonable certainty, despite having been advised of the inadequacy of its submissions and directed to supplement its inquest submissions to show the bases for its damages calculations.").
III. CONCLUSION
For the reasons set forth above, I recommend that Guardian be awarded damages in the amount of $568,235.52 for the loan debt owed by Willms Financial, but no damages for the settlement debt. Guardian is directed to send a copy of this report and recommendation to Willms Financial within three days of the date of this Report and Recommendation and file proof of service to that effect.
PROCEDURE FOR FILING 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 fourteen (14) days from service of this Report to file written objections. See also Fed. R. Civ. P. 6. Such objections, and any responses to such objections, shall be filed with the Clerk of Court, with courtesy copies delivered to the chambers of the Honorable John G. Koeltl and to the chambers of the undersigned, United States Courthouse, 500 Pearl Street, New York, New York, 10007. Any requests for an extension of time for filing objections must be directed to Judge Koeltl.
FAILURE TO FILE OBJECTIONS WITHIN FOURTEEN (14) DAYS WILL RESULT IN A WAIVER OF OBJECTIONS AND WILL PRECLUDE APPELLATE REVIEW. 28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 72. See Thomas v. Arn, 474 U.S. 140 (1985); Wagner & Wagner, LLP v. Atkinson, Haskins, Nellis, Brittingham, Gladd & Carwile, P.C., 596 F.3d 84, 92 (2d Cir. 2010). Dated: December 19, 2018
New York, New York
/s/_________
JAMES L. COTT
United States Magistrate Judge