Opinion
Civil Action 21 Civ. 10604 (JGK) (SLC)
09-08-2023
SCOTT HAYDEL, Plaintiff, v. EXPONENTIAL WEALTH INC., RYAN MICHAEL MURNANE, and CHRISTOPHER PAUL, Defendants.
TO THE HONORABLE JOHN G. KOELTL, United States District Judge:
REPORT AND RECOMMENDATION
SARAH L. CAVE, United States Magistrate Judge.
I. INTRODUCTION
On December 10, 2021, Plaintiff Scott Haydel (“Mr. Haydel”) commenced this action against Defendants Exponential Wealth Inc. (“EWI”), Ryan Michael Murnane (“Mr. Murnane”), and Christopher Paul (“Mr. Paul,” with EWI and Mr. Murnane, “Defendants”)), asserting claims under the federal Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961 et seq (“RICO”) and New York State law arising from Defendants' allegedly fraudulent scheme to induce Mr. Haydel to make four purchases of “collectible numismatic, seminumismatic, and bullion coins” that neither are worth the value at which they were purchased nor will ever attain the value Defendants represented they would. (ECF No. 2 ¶ 1 (the “Complaint”)).
The Complaint also asserted claims against Krystalynne Murnane (“Ms. Murnane”), which Mr. Haydel voluntarily dismissed on November 30, 2022. (ECF No. 73).
After Defendants failed to appear and defend in this action, the Honorable John G. Koeltl ordered that partial default judgment be entered in Mr. Haydel's favor against Defendants (ECF No. 40 (the “Default Order”)) and referred the matter for an inquest on damages. (ECF No. 41). Based on Mr. Haydel's unopposed damages submission (ECF Nos. 61 - 61-6 (the “Damages Submission”)), I respectfully recommend that:
1. Mr. Haydel be awarded:
a. Compensatory damages in the amount of $94,010.00;
b. Prejudgment interest on his compensatory damages at a rate of nine percent per annum, calculated from the dates of each of his four purchases, as follows:
i. on $9,201.00 from June 21, 2018 to the date of entry of judgment;
ii. on $7,799.00 from July 17, 2018 to the date of entry of judgment;
iii. on $58,410.00 from on November 8, 2018 to the date of entry of judgment; and iv. on $18,600.00 from August 13, 2020 to the date of entry of judgment.
c. Post-judgment interest pursuant to 28 U.S.C. § 1961,
d. Costs in the amount of $607.00.
2. Mr. Haydel's RICO claims, conspiracy claim under New York law, and requests for consequential damages, punitive damages, treble damages, attorneys' fees, an equitable accounting, and a constructive trust be DISMISSED as abandoned.
II. BACKGROUND
A. Factual Background
Unless otherwise indicated, the facts are taken from the Complaint and the Damages Submission. (ECF Nos 2; 61 - 61-6). Given Defendants' default, the Court accepts as true all well-pleaded factual allegations in the Complaint, except as to damages. See City of New York v. Mickalis Pawn Shop, LLC, 645 F.3d 114, 137 (2d Cir. 2011) (“It is an ‘ancient common law axiom' that a defendant who defaults thereby admits all ‘well-pleaded' factual allegations contained in the complaint.”) (quoting Vt. Teddy Bear Co. v. 1-800 Beargram Co., 373 F.3d 241, 246 (2d Cir. 2004)); Tropica Fresh v. Mr. G Int'l Produce Inc., No. 20 Civ. 748 (JGK), 2020 WL 3440120, at *2 (S.D.N.Y. June 23, 2020).
Unless otherwise indicated, all internal citations and quotation marks are omitted from case citations.
Mr. Haydel is a citizen and resident of Louisiana. (ECF No. 2 ¶ 7). EWI is a New York corporation with its principal place of business in New York City. (Id. ¶ 8). Mr. Murnane is a citizen and resident of New York, and is “the principal owner and a managing director” of EWI. (Id. ¶ 9). Mr. Paul is a citizen and resident of New York, and a managing director at EWI. (Id. ¶ 10).
The Complaint erroneously includes two paragraphs numbered “10.” (See ECF No. 2 at 4-5). The Court refers to the paragraph 10 appearing on the fifth page of the Complaint, relating to Mr. Paul. (Id. at 5).
Mr. Ryan and Mr. Paul own and operate EWI, which “markets and sells collectible numismatic, seminumismatic, and bullion coins directly to consumers over the telephone and via its website[.]” (ECF No. 2 ¶ 11). Mr. Haydel alleges that Defendants “make hundreds of intrastate and interstate sales calls per month” utilizing various “unlawful, false, misleading and unconscionable high-pressure sales tactics” to induce coin sales, including:
According to the Complaint:
The term “numismatic” refers to collectible coins whose value is based upon qualities other than the metal content of the coin, such as appearance, population, grade, rarity, etc. “Semi-numismatic” refers to a coin whose value partially derives from its numismatic value and partially from the value of its precious metal content. Bullion coins derive their value almost entirely from the fair market value of the precious metal content.(ECF No. 2 ¶ 12 n.1).
(i) fabricating stories about the origin and value of the coins;
(ii) representing qualities of the coins and guaranteeing the coin investments will substantially appreciate, knowing their representations are false and misleading;
(iii) convincing customers to “max out” their credit cards, to purchase “unique” coins-that, in fact, are not unique;
(iv) offering customers a “money back guarantee” with no intention of ever honoring the guarantee:
(v) advising customers to purchase unique and/or rare coins, when the coins are neither unique nor rare;
(vi) representing to customers that their coins will outperform other types of investments-without any specific underlying data supporting such assertions;
(vii) failing to follow client directives on the sale or purchase of coins; and
(viii) intentionally delaying transactions to obtain better margins that are not passed on to the customer.(Id. ¶ 12).
Between June 21, 2018, and August 13, 2020, Defendants “developed a professional relationship with [Mr. Haydel] and convinced him to purchase numismatic, semi-numismatic and bullion coins as investments.” (ECF Nos. 2 ¶ 13; 61 ¶ 2). In total, Mr. Haydel paid Defendants $98,510.00 for approximately 30 coins (the “Purchased Coins”) through four transactions (the “Transactions”), as follows: (i) on June 21, 2018, Mr. Haydel paid Defendants $9,201.00 for ten “SS Republic seated Liberty Silver” half-dollars (the “First Transaction”); (ii) on July 17, 2018, Mr. Haydel paid Defendants $7,799.00 for an unspecified number of “SS Republic” silver half dollars (the “Second Transaction”); (iii) on November 8, 2018, Mr. Haydel paid Defendants $62,910.00 for fifteen “Silver American Eagle” and three “Peace Dollar” coins (the “Third Transaction”); and (iv) on August 13, 2020, Mr. Haydel paid Defendants $18,600.00 for three “pre-sold Silver American Eagle coins” (the “Fourth Transaction”). (ECF No. 2 ¶¶ 1, 14; see ECF Nos. 61 ¶ 2; 61-1 - 61-6). “All purchases were made by check” (the “Checks”). (ECF No. 2 ¶ 14; see ECF No. 61-6).
Despite these payments, however, Mr. Haydel alleges that, with respect to the First, Second, and Fourth Transactions, he “never even as much as received the coins he supposedly purchased” and that Defendants “simply took his money.” (ECF No. 2 ¶ 1). With respect to the Third Transaction, Mr. Haydel alleges that, while he received the 18 coins he purchased (the “Received Coins”), they were “grossly overvalued.” (ECF No. 61 ¶ 3). Although Mr. Haydel paid Defendants $62,910.00 for the Received Coins, and Defendants represented that the Received Coins were valued at $84,500.00, Mr. Haydel had the Received Coins appraised by Paul Montgomery (“Mr. Montgomery”), an expert in the field of numismatics, who determined that, at the time of the Third Transaction, the Received Coins had a value of only $4,500.00. (Id. ¶¶ 24; see ECF No. 62).
Mr. Haydel alleges that Defendants induced the Transactions through fraudulent misrepresentations that: (i) Mr. Haydel “would realize a substantial return on his investment;” (ii) the Coins “were a safe investment;” and (iii) Mr. Haydel “would receive fair market value for the amount he paid for his coins.” (ECF No. 2 ¶ 13). Defendants misled Mr. Haydel “into believing the coins were a sound investment, that he was getting ‘good deals,' and that the coins were unique and/or rare.” (Id. ¶ 14). Defendants also “played a shell game, trading coins back and forth, and continually representing [to Mr. Haydel] that [he] was improving his financial status and the viability of his investments when he was not.” (Id. ¶ 13). Mr. Haydel paid “substantially more than the fair market price and incur[ed] immediate and substantial losses with each transaction.” (Id. ¶ 14). Defendants “falsely represented the current value of the coins with full knowledge that the coins were not worth the value at which they were purchased nor will the coins attain the return of investment as promised.” (Id. ¶ 33). Mr. Haydel “requested a full liquidation of his account, including the return of his invested funds[,]” but Defendants refused. (Id. ¶¶ 61, 65).
B. Procedural Background
On December 10, 2021, Mr. Haydel filed the Complaint, naming Defendants and Ms. Murnane (together, the “Original Defendants”). (ECF No. 1). Mr. Haydel asserted eleven claims-three under RICO (the “RICO Claims”) and eight under New York law (the “State Law Claims”). (ECF No. 2 ¶¶ 16-67). The RICO Claims include: (i) racketeering based on the predicate acts of mail and wire fraud as defined in 18 U.S.C. § 1961(b); (ii) violation of 18 U.S.C. § 1962(c), which makes it “unlawful for any person employed by or associated with any enterprise . . . to conduct or participate . . . in the conduct of such enterprise's affairs through a pattern of racketeering activity;” and (iii) conspiracy to violate 18 U.S.C § 1962(c). (Id. ¶¶ 16-31). The State Law Claims include: (i) fraud or fraudulent concealment (the “Fraud Claim”); (ii) negligent misrepresentation; (iii) negligence; (iv) violation of New York General Business Law (“GBL”) § 349 based on deceptive and unfair trade practices; (v) conspiracy; (vi) money had and received; (vii) unjust enrichment; and (viii) conversion. (Id. ¶¶ 32-67).
On December 13, 2021, Mr. Haydel re-filed the Complaint to correct docketing deficiencies. (ECF No. 2).
In the Complaint, Mr. Haydel purports to assert his negligent misrepresentation claim under Texas law. (ECF No. 2 ¶ 42). Given the complete lack of any connection to Texas, the Court infers that this was a typographical error and that Mr. Haydel intended to assert this claim under New York law.
Mr. Haydel served the Summons and Complaint on EWI on December 31, 2021 and on Mr. Murnane, Ms. Murnane, and Mr. Paul on January 11, 2022. (ECF Nos. 8-11). The deadline for EWI to answer, move, or otherwise respond to the Complaint was January 21, 2022, and for Mr. Murnane, Ms. Murnane, and Mr. Paul, February 1, 2022. (Id.) See Fed. R. Civ. P. 12(a)(1)(A)(i). After the Original Defendants failed to respond to the Complaint, Mr. Haydel requested certificates of default, which the Clerk of Court entered between February 25, 2022 and March 2, 2022. (ECF Nos. 22; 27; 28; 32).
On March 31, 2022, Mr. Haydel filed a motion (the “Motion”) “for a partial default judgment awarding damages in the amount of $ 98,510,” i.e., the total amount Mr. Haydel paid Defendants for the Purchased Coins. (ECF No. 35 ¶¶ 1-2; see ECF Nos. 33; 34). Mr. Haydel also requested prejudgment interest pursuant to New York Civil Practice Law and Rules (“CPLR”) § 5004 and costs in the amount of $587.00. (ECF No. 35 ¶¶ 4-5). Mr. Haydel served the Motion on the Original Defendants. (ECF No. 38).
On April 4, 2022, Judge Koeltl directed the Original Defendants to respond to the Motion by April 29, 2022. (ECF No. 37). On June 29, 2022, after the Original Defendants failed to respond to the Motion, Judge Koeltl entered the Default Order finding that Mr. Haydel “is entitled to partial default judgment as to all the defendants[,]” and referred the action for a damages inquest. (ECF No. 40 at 1; see ECF No. 41).
On June 30, 2023, the Court ordered Mr. Haydel to file the Damages Submission by August 1, 2022, and the Original Defendants to respond by August 22, 2022. (ECF No. 42 (the “First Scheduling Order”)). The Court warned the Original Defendants that if they failed to respond to the Damages Submission or otherwise contact the Court to request an in-court hearing, the inquest would be decided on Mr. Haydel's submission alone without a hearing. (Id. ¶ 2). Mr. Haydel served the First Scheduling Order on the Original Defendants. (ECF No. 47).
On July 18, 2022, Ms. Murnane filed a request to vacate the certificate of default and Default Order as to her. (EF No. 43 (the “Request”)). On July 26, 2022, at Mr. Haydel's request, the Court adjourned sine die Mr. Haydel's deadline to file the Damages Submission pending Judge Koeltl's resolution of the Request. (ECF No. 45 (the “Second Scheduling Order”)). Mr. Haydel served the Second Scheduling Order on the Original Defendants. (ECF No. 48).
On September 8, 2022, Judge Koeltl granted the Request, and vacated the Default Order as to Ms. Murnane. (ECF No. 56). On September 13, 2022, the Court ordered Mr. Haydel to file the Damages Submission by October 4, 2022, and Defendants to respond by October 25, 2022. (ECF No. 57 (the “Third Scheduling Order”)). The Court again warned Defendants that if they failed to respond to the Damages Submission or otherwise contact the Court to request an incourt hearing, the inquest would be decided on Mr. Haydel's submission alone without a hearing. (Id. ¶ 2). The Court also noted that it would “not issue its report and recommendation on damages against the Defaulting Defendants until liability as to all Defendants has been determined.” (Id. at 2). On September 13, 2022. Mr. Haydel served the Third Scheduling Order on the Defendants. (ECF No. 65).
On October 4, 2022, Mr. Haydel filed, and served on Defendants, the Damages Submission. (ECF Nos. 61 - 61-6; 64). In a declaration (the “Declaration”) filed with the Damages Submission, Mr. Haydel states that he seeks “damages for out-of-pocket losses in the amount of $94,010,” i.e., the total amount he paid for the Purchased Coins less the $4,500.00 value of the Received Coins. (ECF No 61 ¶ 1). The Damages Submission also includes a declaration from Mr. Montgomery, attesting to his appraisal of the Purchased Coins. (ECF No. 62).
On November 30, 2022, Mr. Haydel voluntarily dismissed his claims against Ms. Murnane. (ECF No. 73).
To date, Defendants have not responded to the Complaint or Damages Submission or contacted the Court to request an in-person hearing.
III. LEGAL STANDARDS
A. Obtaining a Default Judgment
A party seeking a default judgment must follow the two-step procedure set forth in Federal Rule of Civil Procedure 55. See Bricklayers & Allied Craftworkers Loc. 2 v. Moulton Masonry & Constr., LLC, 779 F.3d 182, 186-87 (2d Cir. 2015); Fed.R.Civ.P. 55. First, under Rule 55(a), where a party has failed to plead or otherwise defend in an action, the Clerk of the Court must enter a certificate of default. See Fed.R.Civ.P. 55(a). Second, after entry of the default, if the party still fails to appear or move to set aside the default, the Court may enter a default judgment. See Fed.R.Civ.P. 55(b)(2). Whether to enter a default judgment lies in the “sound discretion” of the trial court. Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 95 (2d Cir. 1993). Because a default judgment is an “extreme sanction” that courts are to use as a tool of last resort, Meehan v. Snow, 652 F.2d 274, 277 (2d Cir. 1981), the district court must “carefully balance the concern of expeditiously adjudicating cases, on the one hand, against the responsibility of giving litigants a chance to be heard, on the other.” Fermin v. Las Delicias Peruanas Rest., Inc., 93 F.Supp.3d 19, 29 (E.D.N.Y. Mar. 19, 2015) (citing Enron, 10 F.3d at 96).
In considering whether to enter a default judgment, district courts are “guided by the same factors [that] apply to a motion to set aside entry of a default.” First Mercury Ins. Co. v. Schnabel Roofing of Long Is., Inc., No. 10 Civ. 4398 (JS) (AKT), 2011 WL 883757, at *1 (E.D.N.Y. Mar. 11, 2011). “These factors include: (1) whether the default was willful; (2) whether ignoring the default would prejudice the opposing party; and (3) whether the defaulting party has presented a meritorious defense.” J & J Sports Prods. Inc. v. 1400 Forest Ave. Rest. Corp., No. 13 Civ. 4299 (FB) (VMS), 2014 WL 4467774, at *4 (E.D.N.Y. Sept. 10, 2014) (citing Swarna v. Al-Awadi, 622 F.3d 123, 142 (2d Cir. 2010)); see Enron, 10 F.3d at 96 (noting that “[a]lthough the factors examined in deciding whether to set aside a default or a default judgment are the same, courts apply the factors more rigorously in the case of a default judgment because the concepts of finality and litigation repose are more deeply implicated in the latter action”).
B. Determining Liability
A defendant's default is deemed “a concession of all well-pleaded allegations of liability,” Rovio Entm't, Ltd. v. Allstar Vending, Inc., 97 F.Supp.3d 536, 545 (S.D.N.Y. 2015), but a default “only establishes a defendant's liability if those allegations are sufficient to state a cause of action against the defendants.” Gesualdi v. Quadrozzi Equip. Leasing Corp., 629 Fed.Appx. 111, 113 (2d Cir. 2015). The Court must determine “whether the allegations in [the] complaint establish the defendants' liability as a matter of law.” Id. If the Court finds that the well-pleaded allegations establish liability, the Court then analyzes “whether plaintiff has provided adequate support for [his requested] relief.” Gucci Am., Inc. v. Tyrrell-Miller, 678 F.Supp.2d 117, 119 (S.D.N.Y. 2008). If, however, the Court finds that the complaint fails to state a claim on which relief may be granted, the Court may not award damages, “even if the post-default inquest submissions supply the missing information.” Perez v. 50 Food Corp., No. 17 Civ. 7837 (AT) (BCM), 2019 WL 7403983, at *4 (S.D.N.Y. Dec. 4, 2019), adopted by, 2020 WL 30344 (S.D.N.Y. Jan. 2, 2020).
C. Determining Damages
Once liability has been established, the Court must “conduct an inquiry in order to ascertain the amount of damages with reasonable certainty.” Am. Jewish Comm. v. Berman, No. 15 Civ. 5983 (LAK) (JLC), 2016 WL 3365313, at *3 (S.D.N.Y. June 15, 2016), 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 damages.” Dunn v. Advanced Credit Recovery Inc., No. 11 Civ. 4023 (PAE) (JLC), 2012 WL 676350, at *2 (S.D.N.Y. Mar. 1, 2012). The evidence the plaintiff submits must be admissible. See Poulos v. City of New York, No. 14 Civ. 3023 (LTS) (BCM), 2018 WL 3750508, at *2 (S.D.N.Y. July 13, 2018), adopted by, 2018 WL 3745661 (S.D.N.Y. Aug. 6, 2018); see also House v. Kent Worldwide Mach. Works, Inc., 359 Fed.Appx. 206, 207 (2d Cir. 2010) (summary order) (“[D]amages must be based on admissible evidence.”). If the documents the plaintiff has submitted provide a “sufficient basis from which to evaluate the fairness of” the requested damages, the Court need not conduct an evidentiary hearing. Fustok v. ContiCommodity Servs. Inc., 873 F.2d 38, 40 (2d Cir. 1989); see Transatlantic Marine Claims Agency, Inc. v. Ace Shipping Corp., 109 F.3d 105, 111 (2d Cir. 1997) (noting that a court may determine appropriate damages based on affidavits and documentary evidence “as long as [the court has] ensured that there [is] a basis for the damages specified in the default judgment”).
IV.DISCUSSION
A. Abandoned Claims and Requested Relief
In the Complaint, Mr. Haydel asserted the RICO Claims against Mr. Ryan and Mr. Paul, and the State Law Claims against all Defendants. (ECF No. 2 ¶¶ 16-67). He requested various forms of relief, including (i) actual and consequential damages, (ii) punitive damages, (iii) treble damages for his RICO Claims, (iv) attorneys' fees, (v) costs, (vi) an equitable accounting, (vii) a constructive trust, and (viii) pre- and post-judgment interest. (Id. ¶¶ 75-78).
In the Motion, however, Mr. Haydel only seeks “partial default judgment” against Defendants “in the amount of $98,510.00,” i.e., the amount he paid Defendants for the Purchased Coins, plus pre- and post-judgment interest and costs. (ECF No. 33; see ECF Nos. 34 ¶ 1; 35 ¶¶ 4-5; 36). In his Damages Submission, Mr. Haydel reduced the requested damages award to $94,010.00, to reflect the $4,500.00 value of the Received Coins (i.e., $98,510.00 less $4,500.00), (ECF No. 61 ¶ 1), and submitted “Proposed Conclusions of Law,” which, in their entirety, state:
To the degree that plaintiff is required to make a prima facie showing of liability by the defaulting defendants, it is submitted that the facts set forth in his declaration are more than sufficient to substantiate several of the causes of action set forth in the complaint, which alleges claims sounding in fraud (¶¶ 32-28); negligent misrepresentation (¶¶ 39-42); negligence (¶¶ 43-44); violations of New York General Business Law § 349 (Deceptive and Unfair Trade Practices); Money Had and Received (¶¶ 55-56); Unjust Enrichment (¶¶ 57-58); and Conversion (¶¶ 59-67). For purposes of the present application it is unnecessary for the Court to reach the allegations in the complaint's RICO claims (18 U.S.C. § 1962 et seq.) and the various other forms of damages sought therein.(ECF No. 63 at 3-4 (emphasis added)).
Accordingly, based on Mr. Haydel's statements and omissions in the Motion and the Damages Submission, I respectfully recommend the Court deem abandoned his RICO Claims and his conspiracy claim under New York law, which he fails even to mention in his Proposed Conclusions of Law, as well as his requests for consequential damages, punitive damages, treble damages, attorneys' fees, an equitable accounting, and a constructive trust. See Arch Specialty Ins. Co. v. Canbert Inc., No. 19 Civ. 5920 (EK) (PK), 2021 WL 1200329, at *3 n.3 (E.D.N.Y. Mar. 9, 2021) (recommending that claim asserted in complaint but “not discussed in the Motion” for default judgment be deemed abandoned), adopted by, 2021 WL 1193004 (E.D.N.Y. Mar. 30, 2021); Time Inc. Retail v. Newsways Servs., Inc., No. 16 Civ. 9479 (VSB) (JLC), 2018 WL 316995, at *4 (S.D.N.Y. Jan. 8, 2018) (deeming abandoned requests in complaint for attorneys' fees, costs, and pre-judgment interest where the plaintiff failed to provide legal or documentary support for the requests in its motion for default judgment), adopted by, 2018 WL 2332067 (S.D.N.Y. May 22, 2018); Melgadejo v. S & D Fruits & Vegetables Inc., No. 12 Civ. 6852 (RA) (HBP), 2015 WL 10353140, at *2, n.1 (S.D.N.Y. Oct. 23, 2015) (deeming abandoned requests in complaint for pre-and post-judgment interest and damages for conversion where the plaintiff did “not seek recovery for these items” in his damages submission), adopted by, 2016 WL 554843 (S.D.N.Y. Feb. 9, 2016); Maldonado v. Landzign Corp., No. 15 Civ. 3054 (DRH) (GRB), 2016 WL 4186815, at *4 n.3 (E.D.N.Y. July 14, 2016) (deeming abandoned request for pre-judgment interest made in the complaint but not mentioned in papers supporting motion for default), adopted by, 2016 WL 4186982 (E.D.N.Y. Aug. 8, 2016); Mason Tenders Dist. Council Welfare Fund v. Ciro Randazzo Builders, Inc., No. 03 Civ. 2677 (RMB) (JCF), 2004 WL 1152933, at *1 n.1 (S.D.N.Y. May 24, 2004) (deeming claims against one defendant abandoned where the plaintiff “sought no relief against [that defendant] in the request for a default judgment or in the Proposed Findings of Fact and Conclusions of Law”), adopted by, 2004 WL 1462220 (S.D.N.Y. June 28, 2004); Pac. Westeel, Inc. v. D & R Installation, No. 01 Civ. 293 (RLC) (AJP), 2003 WL 22359512, at *3 n.4 (S.D.N.Y. Oct. 17, 2003) (declining to award certain damages requested in complaint where plaintiff “appeared to have abandoned any amount over $1,200,000 in its initial inquest brief and attorney affidavit” and its “supplemental inquest papers [did] not explain any change in position (indeed, the supplemental papers totally ignore[d] the issue)”), adopted by, No. 01 Civ. 293 (RLC) (AJP), Order dated Jan. 30, 2004, (ECF No. 20).
Given this recommendation, the Court limits its analysis to the claims and relief discussed in the Motion and Damages Submission, i.e., Mr. Haydel's State Law Claims for fraud, negligent misrepresentation, negligence, violation of GBL § 349, money had and received, unjust enrichment, and conversion, and his requests for compensatory damages, pre- and postjudgment interest, and costs. (See ECF Nos. 33; 34 ¶ 1; 35 ¶¶ 4-5; 36; 63 at 3-4).
B. Jurisdiction and Venue
The Court has subject-matter jurisdiction over this action. Mr. Haydel is a citizen of Louisiana, and each Defendant is a citizen of New York. (ECF No. 2 ¶¶ 7-10). The parties are thus citizens of different states. In the Complaint, Mr. Haydel sought damages of at least $121,759.70 (see ECF No. 2 ¶ 1) and in the Damages Submission, $94,010.00 (see ECF No. 61 ¶ 1), both of which are above the $75,000.00 threshold required by 28 U.S.C. § 1332. Therefore, the Court has diversity jurisdiction over this matter. See Bleecker v. Zetian Sys., Inc., No. 12 Civ. 2151 (DLC), 2013 WL 5951162, at *4 (S.D.N.Y. Nov. 1, 2013).
In the Complaint, Mr. Haydel asserted that the Court has subject-matter jurisdiction based on the existence of a federal question, i.e., the RICO Claims. (ECF No. 2 ¶ 5 (citing 28 U.S.C. § 1331)). As discussed above, however, the Court finds that Mr. Haydel has abandoned his RICO Claims. (See § IV.A supra).
The Court also has personal jurisdiction over Defendants. Personal jurisdiction is “a necessary prerequisite to entry of a default judgment.” Reilly v. Plot Commerce, No. 15 Civ. 5118 (PAE) (BCM), 2016 WL 6837895, at *2 (S.D.N.Y. Oct. 31, 2016), adopted by, 2016 WL 5107058 (E.D.N.Y. Sept. 19, 2016). The Court has personal jurisdiction over the EWI, which is a New York corporation located in this District, as well as Mr. Murnane and Mr. Paul, who own and operate EWI and reside in this District. (ECF No. 2 ¶¶ 8-10). Mr. Haydel also properly served each Defendant. (ECF Nos. 8; 10; 11).
Venue is proper because EWI is a New York corporation that operates in this District, and because the events and omissions giving rise to Mr. Haydel's claims occurred in this District. (ECF No. 2 ¶¶ 5, 6, 8, 13). See 28 U.S.C. §§ 1391(b)(1)-(2).
C. Default Judgment
In accordance with the two-step process in Rule 55, the Clerk of the Court entered certificates of default as to all Defendants (ECF Nos. 22; 27; 32), and Judge Koeltl entered the Default Order. (ECF No. 40). Furthermore, an analysis of the relevant factors set forth above reveals first that the Court can infer, from Defendants' failure to submit any written reply to Mr. Haydel's Damages Submission, after having been properly served, that their default was willful. See Indymac Bank, F.S.B. v. Nat'l Settlement Agency, Inc., No. 07 Civ. 6865 (LTS) (GWG), 2007 WL 4468652, at *1 (S.D.N.Y. Dec. 20, 2007) (finding that a failure to respond to a complaint and subsequent motion for default judgment “indicate[s] willful conduct”). Second, delaying entry of a default judgment might prejudice Mr. Haydel, “as there are no additional steps available to secure relief in this Court.” Bridge Oil Ltd. v. Emerald Reefer Lines, LLC, No. 06 Civ. 14226 (RLC) (RLE), 2008 WL 5560868, at *2 (S.D.N.Y. Oct. 27, 2008). Third, “having failed to file an answer or otherwise participate in the litigation, [Defendants] cannot establish a meritorious defense.” Bisnow LLC v. Lopez-Pierre, No. 20 Civ. 3441 (PAE) (SLC), 2022 WL 17540573, at *8 (S.D.N.Y. Nov. 2, 2022), adopted by, 2022 WL 17540349 (S.D.N.Y. Dec. 5, 2022). Thus, because the requirements of Rule 55 are satisfied and the relevant factors weigh in Mr. Haydel's favor, the Court finds that entry of default judgment is proper in this case.
D. Liability
1. The Fraud Claim
“To prevail on a common law fraud claim under New York law, a plaintiff must prove: (1) a misrepresentation or omission of material fact; (2) that the defendant knew to be false; (3) that the defendant made with the intention of inducing reliance; (4) upon which the plaintiff reasonably relied; and (5) that caused injury to the plaintiff.” Alm v. Spence, No. 19 Civ. 4005 (GBD) (RWL), 2022 WL 17826554, at *6 (S.D.N.Y. Dec. 15, 2022), adopted as modified on other grounds by, 2023 WL 3967790 (S.D.N.Y. June 13, 2023). Allegations of fraud must be pled with particularity. See Fed.R.Civ.P. 9(b).
Accepted as true, Mr. Haydel's allegations are sufficient to establish his Fraud Claim. He asserts that Defendants, through false and misleading statements, fraudulently convinced Mr. Haydel to enter the Transactions for the Purchased Coins. Among several material factual misrepresentations and omissions, Defendants falsely advised Mr. Haydel that: (i) he “would realize a substantial return on his investment;” (ii) the Purchased Coins “were a safe investment;” and (iii) he “would receive fair market value for the amount he paid for his coins.” (ECF No. 2 ¶ 13). Defendants also misled Mr. Haydel “into believing the coins . . . were unique and/or rare[,]” (id. ¶ 14), and “played a shell game, trading coins back and forth, and continually representing [to Mr. Haydel] that [he] was improving his financial status and the viability of his investments when he was not.” (Id. ¶ 13). Mr. Haydel alleges that Defendants “falsely represented the current value of the coins with full knowledge that the coins were not worth the value at which they were purchased nor will the coins attain the return of investment as promised.” (Id. ¶ 33). Defendants made these misrepresentations “with the intent that [Mr. Haydel] rely upon them and with full knowledge that such representations were false when made.” (Id. ¶ 34). In reliance on these misrepresentations, Mr. Haydel paid Defendants a total of $98,510.00 across the four Transactions for the Purchased Coins. (Id. ¶ 14; ECF No. 61 ¶ 2). In return, however, Defendants only delivered the Received Coins with respect to the Third Transaction, which Mr. Montgomery valued at only $4,500.00, resulting in an out-of-pocket loss of $94,010.00. (ECF Nos. 2 ¶ 1; 61 ¶ 3-4).
These “allegations satisfy the material misrepresentation element of a New York common law fraud claim and the heightened pleading standards of Rule 9(b).” Am. Transit Ins. Co. v. Bilyk, 514 F.Supp.3d 463, 475 (E.D.N.Y. 2021) (granting default judgment against individual and corporate defendants on fraud claim where the plaintiff alleged that the “defendants knowingly made material misrepresentations in submitting insurance claims to plaintiff, including misrepresenting the nature, quality, and cost of the medical supplies, the amount they were entitled to be reimbursed, and whether the invoiced items were actually supplied to patients”); see Alm, 2022 WL 17826554, at *1 (granting default judgment on fraud claim against defendant who “promoted and solicited investments in several cryptocurrency investment funds” and “squandered [the] Plaintiffs' [] investments and converted Plaintiffs' funds for himself”); Herzi v. Haute-Garonne, No. 15 Civ. 7702 (RJS), 2016 WL 11785952, at *2 (S.D.N.Y. June 21, 2016) (granting default judgment to defendant on fraud counterclaim based on allegations that plaintiff “knowingly misrepresent[ed]-in Plaintiff's billing records and invoices to Defendant-the nature and scope of the work that Plaintiff performed on behalf of Defendant . . .; that Defendant relied on these misrepresentations; and that Defendant was injured as a result because it personally paid Plaintiff approximately $1,761,341.90 for work that Plaintiff did not actually perform”); cf. Marini v. Adamo, 995 F.Supp.2d 155, 163 (E.D.N.Y. 2014) (following bench trial, finding corporate and individual defendants liable for fraud under New York law where the defendants “defrauded [the plaintiff] by making a series of false and material misrepresentations in order to induce [the plaintiff] to buy numerous coins from [the defendants], for investment purposes, at grossly inflated values over a period of several years”), aff'd, 644 Fed.Appx. 33 (2d Cir. 2016). Defendants are therefore liable, jointly and severally, for fraud. See Torres v. Sanchez, No. 19 Civ. 9357 (GHW) (SLC), 2021 WL 3115713, at *9 (S.D.N.Y. July 6, 2021) (collecting cases), adopted sub nom., Acero Torres v. Sanchez, 2021 WL 3115435 (S.D.N.Y. July 21, 2021).
2. The Remaining State Law Claims
Because the Court finds that Mr. Haydel has established Defendants' liability as to the Fraud Claim, and since “the entirety of the relief sought by [Mr. Haydel] can be awarded under [this] cause[] of action, this Court need not assess [Defendants'] liability under the remaining” State Law Claims. Plaza Motors of Brooklyn, Inc. v. Rivera, No. 19 Civ. 6336 (LDH) (RLM), 2020 WL 9814102, at *6 n.6 (E.D.N.Y. Sept. 17, 2020), adopted by, 19 Civ. 6336 (LDH) (RLM), Order dated Nov. 30, 2020; see Label Health, LLC v. Haywire Consulting, Inc., No. 20 Civ. 5640 (VSB) (SDA), 2021 WL 2269885, at *4 n.8 (S.D.N.Y. Apr. 30, 2021) (“Since Plaintiff has obtained complete monetary relief against Defendant Haywire on Plaintiff's breach of contract claim, the Court need not consider the fraudulent inducement claim insofar as it is pled against Haywire.”), adopted by, 2021 WL 2269819 (S.D.N.Y. June 3, 2021); PAPS v. GME Ent., Inc., No. 09 Civ. 2508 MHD, 2012 WL 5873584, at *7 (S.D.N.Y. Nov. 19, 2012) (where plaintiff sought single amount of damages on multiple theories, one of which he satisfied, declining to “consider his alternative legal theories”); Dorn v. Berson, No. 09 Civ. 2717 (ADS) (AKT), 2012 WL 1004907, at *6 (E.D.N.Y. Mar. 1, 2012) (declining to “analyze the other theories for which Plaintiff seeks a lesser amount of recovery” where defendant was liable on claim that “yield[ed] the highest recovery” on default judgment), adopted by, 2012 WL 1004905 (E.D.N.Y. Mar. 23, 2012); cf. Indu Craft, Inc. v. Bank of Baroda, 47 F.3d 490, 497 (2d Cir. 1995) (“A plaintiff seeking compensation for the same injury under different legal theories is of course only entitled to one recovery.”). Accordingly, the Court analyzes the relief Mr. Haydel may recover on his Fraud Claim.
E. Damages
Having determined Defendants' liability for fraud, the Court must determine whether Mr. Haydel has provided sufficient evidence to support his claimed damages, and if so, the amount of damages to be awarded. See Transatlantic Marine, 109 F.3d at 111; Bleecker, 2013 WL 5951162, at *6. In his Damages Submission, Mr. Haydel has provided, inter alia, the Declaration attesting to the Transactions, and copies the Checks showing the dates and amounts paid for each of the Transactions. (ECF Nos. 61; 61-5; 61-6). Despite warnings, Defendants have not responded to the Court's orders or the Damages Submission or provided any contrary evidence. (ECF Nos. 36; 57). The Court finds that Mr. Haydel has met his evidentiary burden of proving damages, and that an in-person hearing is unnecessary because his Damages Submission, combined with Defendants' admissions resulting from their default, constitute a sufficient basis from which to evaluate the fairness of his damages request. See Fustok, 873 F.2d at 40; Bos. Sci. Corp. v. N.Y. Ctr. for Specialty Surgery, No. 14 Civ. 6170 (RRM), 2015 WL 13227994, at *3 (E.D.N.Y. Aug. 31, 2015), adopted by, 2016 WL 8711378 (E.D.N.Y. Jan. 29, 2016); see also Alm, 2022 WL 17826554, at *8 (finding that hearing was not required to calculate fraud damages where the plaintiffs provided declarations attesting to their “their investments, withdrawals, and net losses”); Torres, 2021 WL 3115713, at *6 (S.D.N.Y. July 6, 2021) (finding that hearing was not required to calculate fraud damages where the plaintiffs provided documentation showing, and affidavits attesting to, fraudulently induced deposits). From this evidence, the Court will next analyze the appropriate amounts of compensatory damages and pre- and post-judgment interest.
1. Compensatory Damages
“Under New York law, fraud damages are limited to ‘out-of-pocket' expenses, which only include damages for actual pecuniary loss directly resulting from the fraud.” Bolivar v. FIT Int'l Grp. Corp., No. 12 Civ. 781 (PGG) (DF), 2017 WL 11473766, at *20 (S.D.N.Y. Mar. 16, 2017), adopted by, 2019 WL 4565067 (S.D.N.Y. Sept. 20, 2019). Fraud damages do not include “recovery of profits which would have been realized in the absence of fraud.” Negrete v. Citibank, N.A., 187 F.Supp.3d 454, 467 (S.D.N.Y. 2016), aff'd, 759 Fed.Appx. 42 (2d Cir. 2019); see Lama Holding Co. v. Smith Barney Inc., 88 N.Y.2d 413, 421 (1996) (“Damages are to be calculated to compensate plaintiffs for what they lost because of the fraud, not to compensate them for what they might have gained.”). “Fraud damages ‘must be the direct, immediate, and proximate result' of the defendant's misrepresentations, and ‘must also be independent of other causes.'” Bolivar, 2017 WL 11473766, at *20 (quoting Kregos v. Associated Press, 3 F.3d 656, 665 (2d Cir. 1993)).
Mr. Haydel requests “damages for out-of-pocket losses in the amount of $94,010,” representing the $98,510.00 he paid for the Purchased Coins less the $4,500.00 value of the Received Coins. (ECF No. 61 ¶ 1). Mr. Haydel has provided copies of the Checks reflecting the $98,510.00 he paid across the four Transactions, and Mr. Montgomery's opinion as to the $4,500.00 value of the Received Coins as of the date of the Third Transaction. (ECF Nos. 61-6; 62). The Court finds that $94,010.00 accurately reflects Mr. Haydel's out-of-pocket losses and, accordingly, recommends that that Mr. Haydel be awarded $94,010.00 in compensatory damages.
2. Prejudgment Interest
Mr. Haydel seeks an award of prejudgment interest. (ECF Nos. 2 at 2 ¶ (a)(i); 33). New York law mandates an award of pre-judgment interest on fraud damages. See Mfrs. Hanover Tr. Co. v. Drysdale Sec. Corp., 801 F.2d 13, 28 (2d Cir. 1986); Gov't Emps. Ins. Co. v. Alrof, Inc., No. 11 Civ. 4028 (SLT) (RER), 2013 WL 9600668, at *11 (E.D.N.Y. July 19, 2013) (“Under New York law, awarding pre-judgment interest on damages awarded for fraud is mandatory.”), adopted sub nom., Gov't Emps. Ins. Co. v. Park Slope Med. & Surgical Supply, Inc., No. 11 Civ. 4028 (SLT) (RER), 2013 WL 5209415 (E.D.N.Y. Sept. 13, 2013); Lukaszuk v. Sudeen, No. Civ. 02 Civ. 5143 (JGM) (DG), 2007 WL 4699018, at *7 (E.D.N.Y. Nov. 27, 2007), adopted by, 2008 WL 11520362 (E.D.N.Y. Jan. 11, 2008). Federal courts look to state law to determine the appropriate interest rate. See SEC v. Musella, 748 F.Supp. 1028, 1043 (S.D.N.Y. 1989), aff'd, 898 F.2d 138 (2d Cir. 1990).
Under New York law,
Interest shall be computed from the earliest ascertainable date the cause of action existed, except that interest upon damages incurred thereafter shall be computed from the date incurred. Where such damages were incurred at various times, interest shall be computed upon each time from the date it was incurred or upon all of the damages from a single reasonable intermediate date.CPLR § 5001(b). Accordingly, pre-judgment interest on a fraud claim under New York law accrues from the date the cause of action accrued at the statutory rate of nine percent per annum. See Lukaszuk, 2007 WL 4699018, at *7; CPLR § 5004. Pre-judgment interest is calculated on a simple interest basis. See Marfia v. T.C. Ziraat Bankasi, 147 F.3d 83, 90 (2d Cir. 1998); Lukaszuk, 2007 WL 4699018, at *7. A “per diem is calculated by multiplying the daily interest rate [(0.09/365)] by the principal.” Alrof, 2013 WL 9600668, at *12, n.11. The per diem interest is then multiplied by the number of days in the relevant period to compute the pre-judgment interest award. See Eurosteel Corp., 2003 WL 470575, at *4.
Mr. Haydel seeks an award of pre-judgment interest at New York's nine-percent statutory rate on his damages for each of the Transactions on the date he incurred them, i.e.: (i) for the First Transaction, on $9,201.00 from June 21, 2018; (ii) for the Second Transactions, on $7,799.00 from July 17, 2018; (iii) for the Third Transaction, on $62,910.00 from on November 8, 2018; and (iv) for the Fourth Transaction, on $18,600.00 from August 13, 2020. (ECF No. 35 ¶¶ 4(a)-(d)). Mr. Haydel's request for prejudgment interest on his damages related to the Third Transaction on the principal amount of $62,910.00, i.e., the total amount he paid to Defendants for the Third Transaction fails to reflect the $4,500.00 value of the Received Coins that Defendants provided Mr. Haydel in connection with the Third Transaction. (ECF No. 35 ¶ 4(c)). Accordingly, any prejudgment interest on the Third Transaction may be awarded only as to $58,410.00 ($62,190.00 less $4,500.00).
Given the relatively few Transactions, the Court finds Mr. Haydel's proposal to be reasonable, and recommends that he be awarded prejudgment interest on his compensatory damages at a rate of nine percent per year, calculated as follows:
(i) on $9,201.00 from June 21, 2018 to the date of entry of judgment;
(ii) on $7,799.00 from July 17, 2018 to the date of entry of judgment;
(iii) on $58,410.00 from on November 8, 2018 to the date of entry of judgment; and
(iv) on $18,600.00 from August 13, 2020 to the date of entry of judgment.
3. Post-judgment Interest
Mr. Haydel also seeks post-judgment interest. (ECF Nos. 2 at 22 ¶ (a)(i); 33). The applicable federal statute provides that “[i]nterest shall be allowed on any money judgment in a civil case recovered in a district court . . . calculated from the date of entry of the judgment, at a rate equal to the weekly average 1-year constant maturity Treasury yield, as published by the Board of Governors of the Federal Reserve System, for the calendar week preceding . . . the date of the judgment.” 28 U.S.C. § 1961. The Second Circuit has explained that an award of postjudgment interest is mandatory. See Schipani v. McLeod, 541 F.3d 158, 165 (2d Cir. 2008). Given the mandatory nature of post-judgment interest, the Court respectfully recommends that Mr. Haydel be awarded post-judgment interest in an amount consistent with 28 U.S.C. § 1961.
4. Costs
Mr. Haydel requests costs in the amount of $607.00, consisting of: (1) the court filing fee ($402.00) and (2) service costs ($205.00). (ECF Nos. 35 ¶ 5; 36). The Federal Rules of Civil Procedure provide that, “costs-other than attorney's fees-should be allowed to the prevailing party” unless a federal statute, the federal rules, or a court order provides otherwise. Fed.R.Civ.P. 54(d)(1). Recoverable costs are “those reasonable out-of-pocket expenses incurred by attorneys and ordinarily charged to their clients.” LeBlanc-Sternberg v. Fletcher, 143 F.3d 748, 763 (2d Cir. 1998).
In a declaration filed with the Motion, Mr. Haydel's counsel states that Mr. Haydel requests an award of costs in the amount of $587.00, consisting of the $402.00 filing fee and $185.00 in service costs. (ECF No. 35 ¶ 5). The receipts accompanying the Motion, however, reflect that Mr. Haydel incurred $205.00 in service costs, resulting in total costs of $607.00, not $587.00. (ECF No. 36 at 4-6).
In support of his request for these costs, Mr. Haydel has submitted invoices that substantiate the claimed amounts. (ECF No. 36 at 3-6). See Sanchez v. Jyp Foods Inc., No. 16-CV-4472 (JLC), 2018 WL 4502008, at *17 (S.D.N.Y. Sept. 20, 2018) (noting that adequate substantiation is required for award of costs). The Court may also take judicial notice of the filing fee reflected on the docket. (ECF No. 1). See Inga v. Nesama Food Corp., No. 20 Civ. 909 (ALC) (SLC), 2021 WL 3624666, at *15 (S.D.N.Y. July 30, 2021) (collecting cases), adopted by, 2021 WL 3617191 (S.D.N.Y. Aug. 16, 2021). The Court therefore recommends that Mr. Haydel be awarded $607.00 in costs.
V.CONCLUSION
For the reasons set forth above, I respectfully recommend that:
1. Mr. Haydel be awarded:
a. Compensatory damages in the amount of $94,010.00;
b. Prejudgment interest on his compensatory damages at a rate of nine percent per annum, calculated as follows:
i. on $9,201.00 from June 21, 2018 to the date of entry of judgment;
ii. on $7,799.00 from July 17, 2018 to the date of entry of judgment;
iii. on $58,410.00 from on November 8, 2018 to the date of entry of judgment; and iv. on $18,600.00 from August 13, 2020 to the date of entry of judgment.
c. Post-judgment interest pursuant to 28 U.S.C. § 1961,
d. Costs in the amount of $607.00.
2. Mr. Haydel's RICO claims, his conspiracy claim under New York law, and his requests for consequential damages, punitive damages, treble damages, attorneys' fees, an equitable accounting, and a constructive trust be DISMISSED as abandoned.
Mr. Haydel shall serve a copy of this Report and Recommendation on Defendants and, by September 12, 2023, file proof of service on the docket.
NOTICE OF PROCEDURE FOR FILING OBJECTIONA TO THIA REPORT AND RECOMMENDATION
The parties shall have fourteen (14) days (including weekends and holidays) from service of this Report and Recommendation to file written objections pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure. See also Fed.R.Civ.P. 6(a), (d) (adding three additional days when service is made under Fed.R.Civ.P. 5(b)(2)(C), (D) or (F)). A party may respond to another party's objections within fourteen (14) days after being served with a copy. Fed.R.Civ.P. 72(b)(2). Such objections, and any response to objections, shall be filed with the Clerk of the Court. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6(a), (d), 72(b). Any requests for an extension of time for filing objections must be addressed to Judge Koeltl.
FAILURE TO OBJECT WITHIN FOURTEEN (14) DAYA WILL REAULT IN A WAIVER OF OBJECTIONS AND WILL PRECLUDE APPELLATE REVIEW. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6(a), (d), 72(b); Thomas v. Arn, 474 U.S. 140 (1985).