Opinion
19 Civ. 1817 (VB)(JCM)
02-22-2022
ROBERT JAMIESON, JUDITH JAMIESON, ROBERT JAMIESON AS TRUSTEE FOR THE RAYMOND DAVID JAMIESON IRREVOCABLE GRANDCHILDREN'S TRUST, and JUDITH JAMIESON AS TRUSTEE FOR THE JAMIESON FAMILY FOUNDATION, Plaintiffs, v. SECURITIES AMERICA, INC., SECURITIES AMERICA ADVISORS, INC., HECTOR A. MAY, VANIA MAY BELL, and EXECUTIVE COMPENSATION PLANNERS, INC., Defendants.
REPORT AND RECOMMENDATION
JUDITH C. MCCARTHY, UNITED STATES MAGISTRATE JUDGE.
Plaintiffs Robert Jamieson, on his own behalf and as trustee for the Raymond David Jamieson Irrevocable Grandchildren's Trust, and Judith Jamieson, on her own behalf and as trustee for the Jamieson Family Foundation, (collectively, “Plaintiffs”), seek to recover a default judgment in the amount of $53,191,588 in damages against Defendants Hector A. May (“Hector May”) and Executive Compensation Planners, Inc. (“ECP”) (collectively, “Defendants”). (Docket No. 86). Plaintiff filed the instant complaint on February 26, 2019, alleging claims of securities fraud, fraudulent concealment, fraud, breach of fiduciary duty, negligence, unjust enrichment and conversion against Defendants Hector May and ECP. (Docket No. 1). On August 30, 2021, the Honorable Vincent L. Briccetti granted a default judgment as to liability on all of Plaintiffs' claims against Defendants Hector May and ECP. (Docket No. 84). Following entry of the default judgment, this matter was referred to the undersigned to conduct an inquest on damages. (Docket No. 83). Presently before the Court are Plaintiffs' motion for default judgment as to damages, (Docket No. 86); the accompanying declarations of Allegra A. Noonan, Judith Jamieson and Craig McCann, and exhibits attached thereto, (Docket Nos. 87-89); and Plaintiffs' memorandum of law in support of their motion, (Docket No. 90). For the reasons set forth herein, I respectfully recommend awarding Plaintiffs' compensatory damages for the relevant period of fraudulent activity - 2001 through February 2018 - using the same formula as presented in Craig McCann's declaration, and finding that punitive damages are warranted in this case in an amount equal to the amount of compensatory damages awarded. I also respectfully recommend awarding post-judgment interest, which Plaintiffs are entitled to as a matter of right.
I. BACKGROUND
In May 1999, Plaintiffs hired Hector May as their financial advisor, at the recommendation of Robert Jamieson's father. (Docket Nos. 1 ¶¶ 29-31; 88 ¶¶ 4-5). Over the course of the following twenty years, Hector May entrenched himself in Plaintiffs' lives as a close, trusted friend, attending family weddings, graduations and funerals, and emotionally supporting the family when Robert Jamieson suffered a serious hemorrhagic stroke. (Docket Nos. 1 ¶¶ 33-34; 88 ¶¶ 7-8).
Beginning in 2001, Defendants devised a scheme to defraud Plaintiffs of their money. (Docket No. 1 ¶ 47). As their financial advisor, Hector May recommended that Plaintiffs open approximately twenty brokerage accounts, invest primarily in municipal bonds, and withdraw money from the brokerage accounts to wire it into a purported custodial account, which in reality was held by Hector May's company, ECP, and controlled by his daughter, Vania May Bell. (Docket Nos. 1 ¶¶ 49-53; 88 ¶¶ 20-21, 25). Hector May also continuously presented Plaintiffs with false account statements that inflated their actual account balances by millions of dollars. (Docket Nos. 1 ¶ 55; 88 ¶ 23).
On or around 2004, Plaintiffs deposited $12.5 million into the brokerage account handled by Hector May; so the accounts had a total of $14,061,269 in them at that time. (Docket No. 88 ¶ 15). They also provided Hector May with instructions on how they wanted the funds invested. (Docket Nos. 88 ¶16; 88-2). Plaintiffs deposited more than $15 million into the twenty different brokerage accounts set up by Defendants. (Docket No. 1 ¶ 47, 54). However, in February 2018, when Judith Jamieson decided to move the family's funds to a different brokerage firm, Plaintiffs learned that their investment accounts had only $51,313 in them. (Docket Nos. 1 ¶¶ 9195; 88 ¶¶ 34-39).
On July 31, 2019, Hector May was sentenced to thirteen years in prison for (1) conspiracy to commit wire fraud, and (2) investment advisor fraud in connection with his fraudulent scheme involving Plaintiffs and other victims. (Docket No. 87-1).
Plaintiffs filed the instant action on February 26, 2019, (Docket No. 1), and on May 13, 2019, a certificate of default was entered against Defendants Hector May and ECP. (Docket No. 42). In December 2019, Plaintiffs initiated an arbitration against Defendants Securities America, Inc. and Securities America Advisors, Inc., and ultimately settled their claims against them for $9,500,000. (Docket Nos. 87 ¶¶ 5-7; 87-3, 87-4, 87-5).
On July 9, 2021, Plaintiffs filed a motion for a default judgment against Defendants Hector May and ECP. (Docket Nos. 72-79). A hearing was scheduled for August 30, 2021. (Docket No. 80). Defendants Hector May and ECP did not appear, despite being served, and despite Plaintiffs making arrangements with FCI Danbury for Hector May to appear. (Docket No. 87 ¶ 8). As a result of Defendants' failure to appear, Judge Briccetti entered a default judgment on August 30, 2021, against Defendants Hector May and ECP and referred the matter to the undersigned to conduct a damages inquest. (Docket No. 84).
Defendant Hector May was incarcerated at FCI Danbury at the time of the hearing.
II. DISCUSSION
Plaintiffs seek compensatory and punitive damages against Defendants Hector May and ECP in the amount of $53,191,588. (Docket No. 90 at 6).
A. Legal Standards
“In the context of an inquest on damages after default, the burden is on the plaintiff to establish the amount of damages sought to be recovered... When assessing damages, a court cannot rely on the plaintiff's statement of the damages.” Allgaier v. Peterson, No. 13-CV-5112(VB)(LMS), 2019 WL 7606045, at *4 (S.D.N.Y. Aug. 13, 2019), report and recommendation adopted in part, 2019 WL 5558194 (S.D.N.Y. Oct. 29, 2019) (internal quotations omitted). Rather, the Court must determine whether Plaintiff “has presented sufficient evidence to enable the Court to ascertain with reasonable certainty the amount of damages recoverable ....” Avalon Risk Management Insurance Agency, LLC v. Rossano, No. 12-CV-3934(LGS)(DF), 2016 WL 2851435, at * 3 (S.D.N.Y. March 31, 2016) (citing N.Y. Dist. Council of Carpenters Pension Fund v. Perimeter Interiors, Inc., 657 F.Supp.2d 410, 422 (S.D.N.Y. 2009)).
If Defendants do not have access to cases cited herein that are available only by electronic database, then they may request copies from Plaintiff's counsel. See Local Civ. R. 7.2 (“Upon request, counsel shall provide the pro se litigant with copies of such unpublished cases and other authorities as are cited in a decision of the Court and were not previously cited by any party.”).
“In New York, the damages recoverable in tort actions cannot be contingent, uncertain, or speculative; but if the fact is established that the plaintiff has sustained an actionable injury as the direct result of the defendant's wrongful act, [only] reasonable certainty as to the amount of that injury ... is required.” New York Youth Club v. Town of Harrison, No. 12-CV-7534 (CS), 2016 WL 3676690, at *2 (S.D.N.Y. July 6, 2016) (quoting Wallace v. Suffolk Cty. Police Dep't, 809 F.Supp.2d 73, 81 (E.D.N.Y. 2011) (alterations in original)). Additionally, Plaintiff is “not obligated to offer a mathematically precise measurement of [its] damages.” Electro-Miniatures Corp. v. Wendon Co., Inc., 771 F.2d 23, 27 (2d Cir. 1985). Where plaintiff's injury is “not susceptible to exact measurement because of the defendant's conduct, [there is] some latitude to ‘make a just and reasonable estimate of damages based on relevant data.'” Id. (citing Bigelow v. R.K.O. Radio Pictures, Inc., 327 U.S. 251, 264 (1946)).
Pursuant to Federal Rule of Civil Procedure 55(b), a court may, but is not required to, hold a hearing to determine the amount of damages. Fed.R.Civ.P. 55(b)(2); see Fustok v. ContiCommodity Servs. Inc., 873 F.2d 38, 40 (2d Cir. 1989) (“By its terms, 55(b)(2) leaves the decision of whether a hearing is necessary to the discretion of the district court.”); see also Action S.A. v. Marc Rich & Co., 951 F.2d 504, 508 (2d Cir. 1991). The Second Circuit has upheld damages determinations made on the basis of affidavits and other documentary evidence without a hearing “as long as the Court is ensured that there was a basis for the damages specified in the default judgment.” Chen v. Jenna Lane, Inc., 30 F.Supp.2d 622, 624 (S.D.N.Y. 1998) (awarding damages based on evidence for the inquest in the form of affidavits and exhibits, including charts and calculations); see also Med. Econ. Co. v. Healthexchange, Inc., 01-CV-11262(KMW)(AJP), 2003 WL 22346391, at *2 (S.D.N.Y. Oct. 15, 2003) (relying on a copy of the original contract, which outlined the payment schedule over the life of the contract, copies of the invoices documenting the payments due and not paid, and a table calculating the late payments owed in determining the amount of damages to award).
B. Compensatory Damages
The Second Circuit has held that in cases of investment advisor fraud, the proper measure of damages is calculated by taking “the initial value of the portfolio, adjust[ing] it by the percentage change in an appropriate index during the [relevant] period, and subtract[ing] the value of the portfolio at the end of the period.” Rolf v. Blyth, Eastman Dillon & Co., 637 F.2d 77, 84 (2d Cir. 1980); see Allgaier, 2019 WL 7606045, at *6 (applying the same formula to compute damages that Plaintiff sustained due to Defendants' management of his investments resulting in claims of breach of fiduciary duty, fraud, negligence, breach of contract, and fiduciary defalcation); see also Med. Assocs. of Hamburg, P.C. v. Advest, Inc., No. CIV-85-837E, 1989 WL 75142, at *2 (W.D.N.Y. July 5, 1989) (applying the same formula to calculate losses sustained as a result of the defendant brokers' alleged mismanagement of certain investment accounts even where the stock market increased rather than declined in the relevant period).
Plaintiffs' expert, Craig McCann, used this formula to conclude that the $14,061,269 that Plaintiffs invested into the brokerage accounts managed by Defendants would be valued at $31,345,794 as of October 26, 2021 had the money been properly invested. (Docket No. 89 ¶ 14, 22). McCann analyzed what Plaintiffs' investments would be worth if Defendants invested their funds according to Plaintiffs' 2004 written instructions, which directed Defendants to invest approximately $3.5 million of the $12.5 million deposit in short-term bonds and approximately $8.6 million in laddered bonds with longer maturity dates. (Id. at ¶ 17). As the $8.6 million bonds matured, the instructions directed that the proceeds would be invested in equity securities. (Id.). Plaintiffs also anticipated making withdrawals of approximately $29,000 per month to cover their living expenses, which decreased to $20,000 once their children graduated from college, and then increased again due to inflation. (Id. at ¶ 17-18; Docket No. 90 at 8). To determine how the market fluctuated during this time period, McCann constructed diversified portfolios using the S&P 500 Index Fund and the Intermediate-Term Bond Index Fund. (Id. at ¶ 20). McCann concluded that had the $14.1 million been invested in accordance with the 2004 instructions, and after deductions for the monthly withdrawals, Plaintiffs' investments would have grown to $31,397,107. (Id. at ¶ 21). From this amount, he subtracted the $51,313 that Plaintiffs had remaining in their brokerage accounts when they discovered the fraud in February 2018, leaving a total damages calculation of $31,345,794. (Id. at ¶ 19, 22).
The method McCann used to calculate damages was proper and generally in accordance with Second Circuit law, except he erred in calculating damages through October 2021, the date of his declaration, rather than the relevant period of fraudulent activity. The relevant period for calculating damages in an investment advisor fraud is the period during which the fraudulent investments were occurring. See, e.g., Rolf, 637 F.2d at 84 (discussing the relevant period for calculating stock market decline as “during the aiding and abetting period”); see also Allgaier, 2019 WL 7606045, at *6 (discussing the relevant period as the time between when the misconduct began and ended). Here, Plaintiffs discovered Defendants' fraud in February of 2018, when Plaintiff Judith Jamieson arranged for another brokerage firm to initiate a transfer of the accounts and discovered that the money in the accounts totaled only $51,313. (Docket Nos. 1, ¶¶ 91-95; 88 ¶ 34-39). Once the fraud was discovered, Defendants' misconduct was thwarted. Therefore, Plaintiffs can only recover damages through February 2018 rather than through October 2021. Accordingly, I respectfully recommend granting Plaintiffs' request for compensatory damages using the same formula that McCann outlined, but with damages only running through February 2018.
C. Punitive Damages
In addition to compensatory damages, Plaintiffs seek punitive damages in an amount equal to compensatory damages. (Docket No. 90 at 13). “[I]n order to state a claim for punitive damages, a claimant must allege conduct which (1) is aimed at the public generally, (2) involves a fraud evincing a high degree of moral turpitude[, ] and (3) demonstrates such wanton dishonesty as to imply a criminal indifference to civil obligations.” Koch v. Rodenstock, No. 06-CIV-6586(BSJ)(DF), 2012 WL 5844187, at *11 (S.D.N.Y. May 9, 2012), report and recommendation adopted, 2012 WL 5845455 (S.D.N.Y. Nov. 19, 2012). “[T]he conduct for which courts generally award punitive damages is that which is ‘close to criminality,' being variously described as ‘utter recklessness,' ‘reckless and of a criminal nature,' ‘wanton or malicious,' and ‘gross and outrageous.'” Koch v. Greenberg, 14 F.Supp.3d 247, 273 (S.D.N.Y. 2014), aff'd, 626 Fed.Appx. 335 (2d Cir. 2015). “Punitive damages are meant to deter future behavior, but are limited to an amount necessary to reach that aim.” Cartright v. Lodge, 15-CV-9939(KMW)(RLE), 2017 WL 1194241, at *7 (S.D.N.Y. Mar. 30, 2017). “Under New York law, punitive damages are allowable in tort cases involving claims for fraud [and] breach of fiduciary duty ... even if there is no harm aimed at the general public ‘so long as the very high threshold of moral culpability is satisfied.'” Blank v. Baronowski, 959 F.Supp. 172, 179 (S.D.N.Y. 1997); see also Renaissance Search Partners v. Renaissance Ltd. LLC, No. 12-CV-5638(DLC), 2014 WL 4928945, at *6 (S.D.N.Y. Oct. 1, 2014).
Courts have awarded punitive damages in similar fraud and conversion cases where defendants acted with knowledge of the “high ... probability of harm” they were causing, “with reckless indifference to the consequences” and where they “continuously” made “actionable misrepresentations.” See Am. Fin. Servs. Grp. v. Treasure Bay Gaming & Resorts, Inc., No. 99 CIV-1068(NT), 2000 WL 815894, at *14 (S.D.N.Y. June 23, 2000); see also Rodenstock, 2012 WL 5844187, at *11 (awarding punitive damages where defendant “made concerted efforts to forge indicia of authenticity” and “made knowingly false statements” in selling wine that he claimed was Thomas Jefferson wine). Courts have also considered defendants misuse of positions of trust in granting punitive damages awards. See Renaissance Search Partners 2014 WL 4928945, at *6 (“Miller's wanton betrayal of his former business partners and his gross misuse of his position of trust .. .warrant the imposition of punitive damages here.”); Artcurial, S.A. v. Lowenthal, 763 F.Supp. 768, 769 (S.D.N.Y. 1991) (finding that Defendant “acted in gross disregard of his contractual obligations” and he “breached the duty of trust between himself as one who held himself out as an art dealer and his purchaser.”). In a similar case, punitive damages were awarded because the defendant's conduct was found to be “extraordinarily egregious, malicious, willful, and wanton” where the defendant “took advantage of [p]laintiff, a recent widow; grossly exploited [p]laintiffs desire to provide a secure financial future for herself and her disabled son; stole money from [p]laintiff under the guise of being [plaintiff's friend and trusted advisor; and then repeatedly covered up [the] actions so that they would not be discovered by [p]laintiff” Jones v. Dana, No. 06-CV-0159(RPP), 2006 WL 1153358, at *26 (S.D.N.Y. May 2, 2006).
Here, the high threshold for moral culpability is met, warranting punitive damages. Hector May used his position of trust within Plaintiffs' family, ingraining himself into the family unit through attending deeply personal family events over decades, only to knowingly and intentionally breach that trust and steal millions of dollars from Plaintiffs. Further, the details of Defendants' scheme to defraud highlight its knowing and intentional nature. Hector May asked Plaintiffs to open approximately twenty brokerage accounts, making it difficult for Plaintiffs to track their finances. (Docket Nos. 1 ¶¶ 49-50; 88 ¶¶ 20(a)). Then, he directed Plaintiffs to continuously wire amounts to a non-existent custodial account from which he stole the funds. (Docket Nos. 1 ¶¶ 51-53; 88 ¶¶ 20(b), 21, 25). Finally, Defendants sent Plaintiffs false account statements to mislead them into believing that their funds were growing. (Docket Nos. 1, ¶ 55; 88 ¶ 23). At Hector May's sentencing in his criminal case, Judge Briccetti remarked that “May not only robbed his clients of their retirement savings, he also robbed them of their [peace] of mind. And in doing so, he caused them profound emotional harm ... his conduct was appalling, it was reprehensible and it was evil.” (Docket No. 87-1 at 43:11-17). Consequently, punitive damages are warranted here.
Plaintiffs seek an award of punitive damages in an amount equal to the compensatory damages awarded. (Docket No. 90 at 16).
The Supreme Court has outlined three guideposts to consider in determining punitive damages: (1) the degree of reprehensibility of the defendant's misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded and the civil penalties authorized or imposed in comparable cases... The most important indicium of the reasonableness of a punitive damages award is the degree of reprehensibility of the defendant's conduct.Lukaszuk v. Sudeen, No. CV 02-5143(JG)(MDG), 2007 WL 4699018, at *9-*10 (E.D.N.Y. Nov. 27, 2007), report and recommendation adopted, 2008 WL 11520362 (E.D.N.Y. Jan. 11, 2008) (citing State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 418 (2003)). Though there is no rigid benchmark or ratio required between punitive and compensatory damages, the Supreme Court has acknowledged that “[w]hen compensatory damages are substantial, then a lesser ratio, perhaps only equal to compensatory damages, can reach the outermost limit of the due process guarantee.” Campbell, 538 U.S. 408 at 425. There is broad support in the Second Circuit for awarding an amount of punitive damages equal to compensatory damages in fraud and breach of fiduciary duty cases. Cont'l Indus. Grp., Inc. v. Altunkilic, No. 14-CV-790(AT)(JLC), 2020 WL 3884312, at *8 (S.D.N.Y. July 1, 2020) (awarding an equal amount of punitive damages where actual damages totaled approximately ten million dollars in a case of misappropriation of a company's confidential and proprietary information, because “where the amount of actual damages is already significant.. .an equal amount in punitive damages should be sufficient to accomplish the dual purposes of punishment and deterrence”); see Rodenstock, 2012 WL 5844187, at *12 (awarding equal compensatory and punitive damages where Defendant led Plaintiff to purchase counterfeit bottles of rare wine); see also Pure Power Boot Camp, Inc. v. Warrior Fitness Boot Camp, LLC, 813 F.Supp.2d 489, 528 (S.D.N.Y. 2011) (granting punitive damages award for breach of fiduciary duty against one disloyal employee in the amount of double the compensatory damages, and for another in an amount equal to the compensatory damages); see also Bo Zhang v. N. Cty. Beautification Co., Inc., No. 12-CV-721(WMS)(MJR), 2016 WL 9559897, at *6 (W.D.N.Y. May 5, 2016) (awarding punitive damages equal to compensatory damages in a case stemming from a fraudulent immigration assistance program).
In the instant case, Plaintiffs seek over $30 million in compensatory damages, an amount that I recommend be adjusted to account for the fact that the relevant period ended in February 2018. Given the egregiousness of the crime, the extraordinary lengths that Hector May went to conceal his actions and ingratiate himself with his victims, the more than twenty years that he perpetrated this fraud and stole millions of dollars, and the degree of reprehensibility of his conduct, a punitive damages award equal to the compensatory damages is warranted in this case. Further, comparable cases support this ratio between compensatory and punitive damages. Accordingly, I respectfully recommend finding that punitive damages in an amount equal to the amount of the compensatory damages awarded would be sufficient to accomplish the dual purposes of punishment and deterrence.
D. Post-Judgment Interest
Plaintiffs do not seek post-judgment interest in their default judgment motion papers. However, “post-judgment interest is mandated by federal statute... on any money judgment in a civil case recovered in a district court.” Cont'l Indus. Grp., Inc., 2020 WL 3884312, at *9 (citing 28 U.S.C. § 1961(a)). The post-judgment interest is “calculated from the date of the entry of the judgment, at a rate equal to the weekly average 1-year constant maturity Treasury yield, as published by the. Federal Reserve System, for the calendar week preceding the date of the judgment.” Deng v. 278 Gramercy Park Grp. LLC, No. 12-cv-7803(DLC)(JLC), 2014 WL 1016853, at *11 (S.D.N.Y. Mar. 14, 2014), report and recommendation adopted, 2014 WL 4996255 (S.D.N.Y. Oct. 7, 2014). Accordingly, I respectfully recommend awarding Plaintiffs post-judgment interest as a matter of right.
III. CONCLUSION
For the foregoing reasons, I respectfully recommend awarding compensatory damages from 2001 through February 2018 using the same formula that McCann outlined in his declaration. I also respectfully recommend awarding punitive damages in an amount equal to the compensatory damages award, and post-judgment interest.
The Clerk is respectfully requested to mail a copy of this Report & Recommendation to the pro se Defendants.
IV. NOTICE
Pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b)(2) of the Federal Rules of Civil Procedure, the parties shall have fourteen (14) days from receipt of this Report and Recommendation to serve and file written objections. See Fed.R.Civ.P. 6(a) and (d) (rules for computing time). If copies of this Report and Recommendation are served upon the parties by mail, the parties shall have seventeen (17) days from receipt of the same to file and serve written objections. See Fed.R.Civ.P. 6(d). Objections and responses to objections, if any, shall be filed with the Clerk of the Court, with extra copies delivered to the chambers of the Honorable Vincent L. Briccetti at the United States District Court, Southern District of New York, 300 Quarropas Street, White Plains, New York, 10601, and to the chambers of the undersigned at said Courthouse.
Requests for extensions of time to file objections must be made to the Honorable Vincent L. Briccetti and not to the undersigned. Failure to file timely objections to this Report and Recommendation will preclude later appellate review of any order of judgment that will be rendered. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6(a), 6(b), 6(d), 72(b); Caidor v. Onondaga Cnty., 517 F.3d 601, 604 (2d Cir. 2008).