Opinion
1:20-cv-05640 (VSB) (SDA)
04-30-2021
Label Health, LLC, Plaintiff, v. Haywire Consulting, Inc. et al., Defendants.
HONORABLE VERNON S. BRODERICK, UNITED STATES DISTRICT JUDGE
REPORT AND RECOMMENDATION
STEWART D. AARON UNITED STATES MAGISTRATE JUDGE
By Order dated February 19, 2021, the Court entered a default against Defendants Haywire Consulting, Inc. (“Haywire”) and Matthew Blackwell (“Blackwell”) (collectively, “Defendants”) on the issue of liability and referred this case to me for an inquest on damages. (See 2/19/21 Order, ECF No. 24.) For the reasons set forth below, I respectfully recommend that the Court enter judgment against Defendants in the amount of $104,750.00 in damages, along with pre-judgment interest calculated as specified, and $400.00 in costs.
BACKGROUND
A. Established Facts as a Result of Defendants' Default
The facts set forth below are drawn from Plaintiff's Proposed Findings of Fact contained in ECF No. 27, ¶¶ 1 to 11. In light of Defendants' default, the Court accepts Plaintiff's allegations as true, except for those pertaining to damages. See, e.g., Finkel v. Romanowicz, 577 F.3d 79, 84 (2d Cir. 2009).
Plaintiff, Label Health, LLC (“Label Health” or “Plaintiff”), is a single-member New York limited liability corporation formed in 2020 in order to sell personal protective equipment (“PPE”), such as nitrile gloves, to institutional customers during the COVID-19 pandemic. (See Compl., ECF No. 1, ¶¶ 1, 7.) Defendant Haywire is a Texas corporation with its principal place of business in Texas that acquires PPE on behalf of buyers. (See id. ¶¶ 2, 9.) Defendant Blackwell, a Texas citizen, is the founder and sole owner of Haywire. (See id. ¶¶ 3, 10.)
Label Health's two members are citizens of the State of New York. (See D. Miller 3/30/21 Aff., ECF No. 33.)
On or about May 4, 2020, Label Health contacted Haywire and Blackwell regarding the purchase of 7, 650, 000 units of nitrile gloves. (See Compl. ¶ 10.) Haywire and Blackwell assured Label Health that they could deliver such gloves within 10 to 14 days. (See id. ¶ 11; D. Miller 1/25/21 Aff., ECF No. 27-1, ¶ 4.) Over the course of several conversations, Blackwell made representations to Label Health related to his history of providing PPE and his capability to deliver the gloves, which representations Blackwell knew to be false when he made them. (See Compl. ¶¶ 12, 37, 39.) Label Health relied upon the representations that were made in deciding to order the gloves from Defendants. (See id. ¶¶ 13, 41.)
On May 6, 2020, Label Health issued an order to purchase 7, 650, 000 nitrile gloves, which order was confirmed by Blackwell. (See Compl. ¶ 13; D. Miller 1/25/21 Aff. ¶ 5; 5/6/20 Emails, ECF No. 27-2.) Also on May 6, 2020, Label Health wired Haywire a deposit in the amount of $114,750.00, representing 25% of the purchase price of the 7, 650, 000 nitrile gloves. (See Compl. ¶ 15; D. Miller 1/25/21 Aff. ¶ 5; Wiring Instructions, ECF No. 27-3.) Over the next few days, Blackwell repeatedly stated that gloves were in production. (Compl. ¶ 16.) On May 14, 2020, Label Health inquired as to the status of the order and was assured by Blackwell that the order would be filled. (See D. Miller 1/25/21 Aff. ¶ 6.)
On May 20, 2020, Label Health informed Blackwell that, if Defendants did not provide additional information regarding the status of the order, Label Health would cancel the order and demand a refund. (See Compl. ¶ 20; D. Miller 1/25/21 Aff. ¶ 8.) Blackwell responded that he was having “problems” with his “Malaysia contacts, ” and that he would refund to Label Health the monies it had paid. (See Compl. ¶ 21; D. Miller 1/25/21 Aff. ¶ 9.) On May 25, 2020, Blackwell sent a text message to Label Health stating: “I'll refund your money and we'll part ways.” (See Text Messages, ECF No. 27-4, at 3.)
On June 8, 2020, Haywire refunded the sum of $10,000.00 to Label Health. (See Compl. ¶ 26; D. Miller 1/25/21 Aff. ¶ 14; Wire Transfer Receipt, ECF No. 27-5.) Defendants have failed to refund to Label Health the balance of the deposit paid and still owe the sum of $104,750.00 to Label Health, despite repeated demands for payment. (See Compl. ¶¶ 27-29; D. Miller 1/25/21 Aff. ¶¶ 15-16.)
B. Procedural History
On July 21, 2020, Plaintiff filed its Complaint asserting breach of contract and fraudulent inducement claims against Defendants. (See Compl. ¶¶ 30-42.) After having been served with a copy of the Complaint (see Affs. of Service, ECF Nos. 3, 4), the Defendants failed to answer.
On January 6, 2021, the Clerk of Court entered a Certificate of Default against Defendants. (Cert. of Default, ECF No. 12.) On January 29, 2021, the Court ordered Defendants to show cause as to why a default judgment should not be entered. (1/29/21 Order, ECF No. 22.) The Order to Show Cause hearing was held on February 18, 2021, but Defendants failed to appear. (See 2/19/21 Order at 1.) Thus, the Court entered a default against Defendants on the issue of liability and referred this case to me for an inquest on damages. (Id. at 2.)
By Order dated February 22, 2021, I directed Plaintiff to file Proposed Findings of Fact, as well as Proposed Conclusions of Law (or a memorandum of law in lieu thereof), no later than March 24, 2021, and directed Defendants to file any response no later than April 21, 2021. (2/22/21 Order, ECF No. 26.)
On March 17, 2021, Plaintiff filed its Proposed Findings of Fact and Conclusions of Law, with an accompanying affidavit. (Proposed Findings & Conclusions, ECF No. 27.) Defendant has not responded.
DISCUSSION
“In the default judgment context, the only issue that usually needs to be decided is whether the plaintiff has provided adequate support for the damages or other relief [it] seeks.” Bracken v. MH Pillars Inc., 290 F.Supp.3d 258, 261 (S.D.N.Y. 2017). “However, when entry of a default judgment is sought against a party who has failed to plead or otherwise defend, the district court has an affirmative duty to look into its jurisdiction both over the subject matter and the parties.” Id. at 262 (citations and internal quotation marks omitted). In the present case, this Court has subject matter jurisdiction because there is complete diversity of citizenship between Plaintiff and Defendants and the amount in controversy exceeds $75,000.00. See 28 U.S.C. § 1332(a)(1). In addition, since Defendants contracted to supply goods into the State of New York, personal jurisdiction exists over them. See Fica Frio, Ltd. v. Seinfeld, 434 F.Supp.3d 80, 86 (S.D.N.Y. 2020) (finding personal jurisdiction over entity that contracted to supply goods in New York).
Plaintiff is an LLC, and a limited liability company “takes the citizenship of each of its members.” See Bayerische Landesbank, New York Branch v. Aladdin Capital Mgmt. LLC, 692 F.3d 42, 49 (2d Cir. 2012) (citing Handelsman v. Bedford Vill. Assoc. Ltd. P'ship, 213 F.3d 48, 51-52 (2d Cir. 2000)). Each of Plaintiff's members is a citizen of New York, while Defendants are citizens of Texas; thus, complete diversity of citizenship exists.
The Court thus turns its attention to the damages to which Plaintiff is entitled. “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, No. 15-CV-05983 (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, 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. at *3 (alterations and citation omitted).
Although the Court may hold a hearing to assess damages, a hearing is not required where, as here, a sufficient basis on which to make a calculation exists. See Fed. R. Civ. P. 55(b)(2); see also Bricklayers & Allied Craftworkers Local 2, Albany, N.Y. Pension Fund v. Moulton Masonry & Const., LLC, 779 F.3d 182, 189 (2d Cir. 2015) (quoting Action S.A. v. Marc Rich & Co., 951 F.2d 504, 508 (2d Cir. 1991)). Here, I rely on Plaintiff's sworn affidavit to determine whether the requested damages are appropriate.
Plaintiff asserts two claims in its Complaint: Breach of Contract (Count I) and Fraud in the Inducement (Count II). The Court considers each of these in turn below.
I. Breach Of Contract Claim Against Defendant Haywire
In order to establish a claim for breach of contract under New York law, a plaintiff must prove “(1) the existence of a contract between itself and that defendant, (2) performance of the plaintiff's obligations under the contract, (3) breach of the contract, and (4) damages to the plaintiff caused by the defendant's breach.” In re M/V MSC FLAMINIA, 339 F.Supp.3d 185, 241-42 (S.D.N.Y. 2018) (citation omitted). In the present case, based upon the allegations of the Complaint, Plaintiff has established each of the elements for a breach of contract claim against Defendant Haywire.
Because this is a diversity action, the Court must apply the choice of law rules of the forum state. See Seidel v. Houston Cas. Co., 375 F.Supp.2d 211, 218 (S.D.N.Y. 2005) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941)). Under New York law, “in the absence of a strong countervailing public policy, the parties to litigation may consent by their conduct to the law to be applied.” Walter E. Heller & Co. v. Video Innovations, Inc., 730 F.2d 50, 52 (2d Cir. 1984) (citations omitted); see also Chung v. Sano, No. 10-CV-02301 (DLI), 2011 WL 1303292, at *7 (E.D.N.Y. Feb. 25, 2011) (applying New York law when neither party raised the issue of choice of law), adopted, 2011 WL 1298891 (E.D.N.Y. Mar. 31, 2011). Here, Plaintiff relies on New York law and Defendants have defaulted. Under these circumstances, the Court will apply New York state law in considering Plaintiff's claims for relief.
Since no contract existed between Plaintiff and Defendant Blackwell, Plaintiff has not established a breach of contract claim against Blackwell. However, as discussed in Section II, infra, Plaintiff has established a fraudulent inducement claim against Blackwell.
“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.'” Am. Jewish Comm., 2016 WL 3365313, at *5 (quoting Scholastic, Inc. v. Snap TV, Inc., No. 09-CV-4349 (GBD) (GWG), 2011 WL 1330246, at *3 (S.D.N.Y. Apr. 8, 2011)). Based upon Plaintiff's submissions, the Court finds that Plaintiff has established that, in order to put it in the same economic position it would have been in absent the breach by Defendant Haywire, Plaintiff is entitled to damages from Haywire in the amount of $104,750.00, which is the net amount paid by Plaintiff for Defendant's undelivered goods.
As set forth earlier, Plaintiff had paid $114,750.00, but Defendants returned $10,000.00 to Plaintiff. See Background Section A, supra.
II. Fraudulent Inducement Claim Against Defendant Blackwell
In its Complaint, Plaintiff asserts a claim for fraudulent inducement against Defendant Blackwell. (See Compl. ¶¶ 36-42.) The elements of a claim for fraudulent inducement under New York law are as follows: “(1) a misrepresentation or omission of material fact; (2) which the defendant knew to be false; (3) which the defendant made with the intention of inducing reliance; (4) upon which the plaintiff reasonably relied; and (5) which caused injury to the plaintiff.” Wynn v. AC Rochester, 273 F.3d 153, 156 (2d Cir. 2001). Plaintiff alleges that Blackwell knowingly made false representations to Plaintiff regarding Defendants' capacity to deliver PPE to Plaintiff and that Plaintiff relied upon those misrepresentations, which caused injury to Plaintiff (see Compl. ¶¶ 37-42), thus stating a fraudulent inducement claim against Blackwell.
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.
“Damages under a claim of fraudulent inducement . . . provide indemnity for [the] loss suffered through that inducement.” Lam v. Am. Exp. Co., 265 F.Supp.2d 225, 232 (S.D.N.Y. 2003) (citations and internal quotation marks omitted). Here, Plaintiff lost $104,750.00 due to Blackwell's inducement and is entitled to that amount in damages from Blackwell.
III. Pre-Judgment Interest
Plaintiff also seeks prejudgment interest. (See Proposed Findings & Conclusions ¶ 26.) New York law provides that prejudgment interest of 9% per annum “shall be recovered” for claims arising from “breach of performance of a contract” or “an act or omission depriving or otherwise interfering with title to, or possession or enjoyment of, property.” N.Y. C.P.L.R. §§ 5001(a), 5004. The latter provision covers fraud-based claims. See Amusement Indus., Inc. v. Stern, No. 07-CV-11586 (LAK) (GWG), 2016 WL 7009194, at *2 (S.D.N.Y. Nov. 30, 2016), adopted, 2017 WL 57851 (S.D.N.Y. Jan. 4, 2017), aff'd, 721 Fed.Appx. 9 (2d Cir. 2018). Thus, Plaintiff is entitled to prejudgment interest both for its breach of contract claim against Haywire and its fraudulent inducement claim against Blackwell.
Interest is “computed from the earliest ascertainable date the cause of action existed.” N.Y. C.P.L.R. § 5001(b). Here, interest should run from May 25, 2020, which is the date that Defendants acknowledged their inability to deliver the PPE. (See Proposed Findings & Conclusions ¶ 26.) Interest should be calculated at the rate of 9% per annum from May 25, 2020 until the date that judgment is entered.
III. Attorneys' Fees and Costs
Plaintiff also seeks to recover its attorneys' fees and costs. (See Proposed Findings & Conclusions ¶ 27.) “The awarding of attorneys' fees in diversity cases is governed by state law.” Glassman-Brown v. Pouring Wine, LLC, No. 14-CV-03763 (TPG) (KNF), 2015 WL 5853802, at *7 (S.D.N.Y. Aug. 5, 2015) (alterations omitted) (quoting Grand Union Co. v. Cord Meyer Dev. Co., 761 F.2d 141, 147 (2d Cir. 1985)), adopted in part, 2015 WL 5853807 (S.D.N.Y. Oct. 7, 2015). New York law appears to preclude the award of attorneys' fees here, see Oscar Gruss & Son, Inc. v. Hollander, 337 F.3d 186, 199 (2d Cir. 2003) (“Under the general rule in New York, attorneys' fees are the ordinary incidents of litigation and may not be awarded to the prevailing party unless authorized by agreement between the parties, statute, or court rule.”), and Plaintiff has offered no authority under New York law for the award of attorneys' fees.
Plaintiff argues that it should be awarded attorneys' fees due to Defendants' bad faith, citing Oliveri v. Thompson, 803 F.2d 1265 (2d Cir. 1986). However, Oliveri is inapt since, in that case, defendants had engaged in bad faith conduct in the case pending in federal court. Here, by contrast, Defendants never appeared before this Court. Thus, they did not engage in bad faith before the Court.
Although Plaintiff seeks recovery of its costs, Plaintiff has failed to set forth what costs it has incurred. Thus, there is no basis upon which to award costs, except in one respect. The Court takes judicial notice that Plaintiff paid a $400.00 filing fee and thus imposes $400.00 in costs.
CONCLUSION
For the foregoing reasons, I respectfully recommend that the Court enter judgment against Defendants Haywire and Blackwell, jointly and severally, in the amount of $104,750.00 in damages, along with pre-judgment interest at 9% per annum from May 25, 2020, and $400.00 in costs.
The Clerk of Court is respectfully requested to mail a copy of this Report and Recommendation to the Defendants at the following addresses:
Haywire Consulting, Inc.
3610-2 N. Josey Lane, Suite 223
Carrollton, TX 75007
Matthew Blackwell
334 Franchi Way
New Braunfels, TX 78130
SO ORDERED.
Dated: New York, New York
NOTICE OF PROCEDURE FOR FILING OBJECTIONS TO THIS 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 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), 6(d), 72(b). Any requests for an extension of time for filing objections must be addressed to Judge Broderick.
FAILURE TO OBJECT WITHIN FOURTEEN (14) DAYS WILL RESULT IN A WAIVER OF OBJECTIONS AND WILL PRECLUDE APPELLATE REVIEW. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6(a), 6(d), 72(b); Thomas v. Arn, 474 U.S. 140 (1985).