Opinion
01 Civ. 0293 (RLC) (AJP)
October 17, 2003
REPORT AND RECOMMENDATION
To the Honorable Robert L. Carter, United States District Judge:
On June 30, 2003, Judge Carter referred this matter to me for an inquest on damages after entering a default judgment for plaintiff Pacific Westeel, Inc. (Dkt. No. 5: 6/30/03 Order.) For the reasons set forth below, the Court should enter judgment for plaintiff Pacific Westeel against defendant D R Installation ("D R") for damages of $1,200,000, prejudgment interest at New York's statutory nine percent rate of $316,506 (through October 15, 2003), and costs of $150, for a total of $1.516.656.
FACTS
"Where, as here, 'the court determines that defendant is in default, the factual allegations of the complaint, except those relating to the amount of damages, will be taken as true.'" Chen v. Jenna Lane. Inc., 30 F. Supp.2d 622, 623 (S.D.N.Y. 1998) (Carter, DJ. Peck, MJ.) (quoting 10A C. Wright, A. Miller M. Kane, Federal Practice Procedure: Civil 3d § 2688 at 58-59 (3d ed. 1998)).
Accord. e.g., Medical Econ. Co., Inc. v. The HealthExchange, Inc., 01 Civ. 11262, 2003 WL 22346391 at *1 (S.D.N.Y. Oct. 15, 2003) (Peck, M.J.); Trustees of the Elevator Div. Ret. Benefit Plan v. Premier Elevator Co., 03 Civ. 2703, 2003 WL 22127912 at *1 (S.D.N.Y. Sept. 16, 2003); Cablevision Svs. New York City Corp. v. Torres, 02 Civ. 7602, 2003 WL 22078938 at *3 (S.D.N.Y. Sept. 9, 2003) (Peck, M.J.); Eastern Freight Ways v. Eastern Motor Freight, 02 Civ. 3138, 2003 WL 21540382 at *1 (S.D.N.Y. July 9, 2003) (Peck, M. J.), report rec. adopted as modified on other grounds, 2003 WL 21921270 (S.D.N.Y. Aug. 11, 2003); Schruefer v. Winthorpe Grant. Inc., 99 Civ. 9365, 2003 WL 21511157 at *1 (S.D.N.Y. July 2, 2003) (Peck, M. J.); Joy Lud Distribs. Int'l. Inc. v. Contini. 00 Civ. 5011, 2003 WL 554616 at *1 (S.D.N.Y. Feb. 28, 2003) (Peck, M.J.): Rolex Watch U.S.A., Inc. v. Brown, 01 Civ. 9155, 2002 WL 1226863 at *1 (S.D.N.Y. June 5, 2002) (Peck, M.J.);King Vision Pay-Per-View Corp. v. Drencia Rest. Corp., 01 Civ. 9777, 2002 WL 1000284 at *1 (S.D.N.Y. May 15, 2002) (Peck, M.J.);Ainbjnder v. Bernice Mining Contracting. Inc., 01 Civ. 2492, 2002 WL 461576 at *2 (S.D.N.Y. Mar. 26, 2002) (Peck, M.J.);Sterling Nat'l Bank v. A-1 Hotels Int'l. Inc., 00 Civ. 7352, 2002 WL 461574 at *3 (S.D.N.Y. Mar. 26, 2002) (Peck, M.J.); King Vision Pay-Per-View Corp. v. Papacito Lidia Luncheonette, Inc., 01 Civ. 7575, 2001 WL 1558269 at *1 (S.D.N.Y. Dec. 6, 2001) (Peck, M.J.);Trustees of the Pension Welfare Funds of the Moving Picture Mach. Operators Union, Local 306 v. Gordon's Film Co. (New York) Int'l Inc., 00 Civ. 8452, 2001WL1415145 at *1 (S.D.N.Y. Nov. 13, 2001) (Peck, M. J.): Coast To Coast Fabrics. Inc. v. Tracy Evans. Ltd., 00 Civ. 4417, 2001 WL 5037 at *1 (S.D.N.Y. Jan. 2, 2001) (Peck, M.J.); Starbucks Corp. v. Morgan, 99 Civ. 1404, 2000 WL 949665 at *1 (S.D.N.Y. July 11, 2000) (Peck, M. J.); King Vision Pay-Per-View. Ltd, v. New Paradise Rest., 99 Civ. 10020, 2000 WL 378053 at *1 (S.D.N. Y. Apr. 11, 2000) (Peck, M. J.); Independent Nat'l Distrib., Inc. v. Black Rain Communications, Inc., 94 Civ. 8464, 1996 WL 238401 at *2 (S.D.N.Y. Apr. 4, 1996) (Keenan, DJ. Peck, M.J.).
The complaint asserts that defendant D R failed to perform its contractual obligations pursuant to an agreement between the parties entered into on approximately December 6, 1999, for the installation of a pallet rail system by defendant D R for plaintiff Pacific Westeel. (Dkt. No. 1: Compl. ¶¶ 6-11.) Due to defendant D R's breach, plaintiff Pacific Westeel hired an outside contractor, MHE, to complete the project and now seeks the difference between the cost as agreed upon by the defendant ($1,600,000) and the costs paid to MHE to complete the project ($3,642,829.20), minus a credit to defendant D R ($500,000), resulting in damages of $1,542,829.90, plus interest and costs. (Dkt. No. 10: Szczepanski 8/13/03 Supp. Aff. ¶¶ 2, 10-11.) The complaint, however, sought damages of $1,200,000 plus $160,000, plus interest and costs. (Compl. ¶¶ 14, 16.)
Judge Carter granted plaintiff Pacific Westeel a default judgment against defendant D R and referred the matter to me for an inquest. (Dkt. No. 5: 6/30/03 Order.) By Order dated July 3, 2003, this Court directed an inquest on written submissions. (Dkt. No. 6: 7/3/03 Order.) Because plaintiff Pacific Westeel's initial inquest submission did not say who Douglas Carter was nor whether he had personal knowledge of the facts in his affidavit, the Court directed plaintiff Pacific Westeel to file supplemental inquest papers to cure its deficiencies. (Dkt. No. 8: 7/31/03 Order.) The Court has not received any submissions from defendant D R opposing the inquest, and the deadline for receipt of such papers has long passed.
ANALYSIS
Inquest Damages
The Second Circuit has approved the holding of an inquest by affidavit, without an in-person court hearing, "'as long as [the Court has] ensured that there was a basis for the damages specified in the default judgment.'" Transatlantic Marine Claims Agency. Inc. v. Ace Shipping Corp., 109 F.3d 105, 111 (2d Cir. 1997) (quoting Fustok v. ContiCommodity Servs., Inc., 873 F.2d 38, 40 (2d Cir. 1989)).
Accord. e.g., cases cited in fn.1 above; see also. e.g., Chen v. Jenna Lane. Inc., 30 F. Supp.2d 622, 624 (S.D.N.Y. 1998) (Carter, DJ. Peck, M. J.); Semi Conductor Materials. Inc. v. Agriculture Inputs Corp., 96 Civ. 7902, 1998 WL 388503 at *8 (S.D.N.Y. June 23, 1998) (Kaplan, DJ. Peck, MJ.).
Plaintiff Pacific Westeel's supplemental affidavits show that the total cost incurred to install the pallett railing that can be substantiated was $3,642,829.20. (See, e.g., Dkt. No. 10: Szczepanski 8/13/03 Supp. Aff. ¶ 2.) Subtracting the price plaintiff Pacific Westeel contracted to pay defendant D R ($1,600,000) and the credit to defendant D R for extra work it received under its contract with the project owner, GPS Management Services ($500,000), leaves damages of $1,542,829.20. (See, e.g., Dkt. No. 10: Szczepanski 8/13/03 Supp. Aff. ¶¶ 2, 10-11). However, both plaintiff Pacific Westeel's complaint and initial submission in support of its default judgment claim requested only $1,200,000 in damages (plus $170.00 in costs). (Dkt. No. 1: Compl. ¶¶ 14, 16; Pacific Westeel 7/29/03 Br. at 5 ("In order for Pacific to be put in the same position it would have been if D R had not breached the contract, it would be entitled to $1,573,775.69. . . . However, Pacific pled and is seeking, only $1,200,000 plus interest and costs for D R's breach."); Szczepanski 7/29/03 Aff. ¶ 12 ("Pacific Westeel seeks judgment for the liquidated amount of $1,200,000 plus interest. . .").)
Attorney Kevin Szczepanski's Supplemental Affirmation summarizes the relevant portions of Pacific Westeel's client affidavits. (See Dkt. Nos. 11-15: McDicken, Carter, Berger, Cirillo and Duncan Affs.) Citation to Mr. Szczepanski's Supplemental Affirmation is for convenience; the Court has reviewed the client affidavits summarized therein.
Rule 54(c) of the Federal Rules of Civil Procedure provides that a "judgment by default shall not be different in kind from or exceed in amount that prayed for in the demand for judgment." As explained by Professors Wright and Miller:
The first sentence of Rule 54(c) states that a judgment by default is limited to the relief demanded in the complaint. The theory of this provision is that the defending party should be able to decide on the basis of the relief requested in the original pleading whether to expend the time, effort, and money necessary to defend the action. It would be fundamentally unfair to have the complaint lead defendant to believe that only a certain type and dimension of relief was being sought and then, should defendant attempt to limit the scope and size of the potential judgment by not appearing or otherwise defaulting, allow the court to give a different type of relief or a larger damage award. . . . In sum, then, a default judgment may not extend to matters outside the issues raised by the pleadings or beyond the scope of the relief demanded. A judgment in a default case that awards relief that either is more than or different in kind from that requested originally is null and void and defendant may attack it collaterally in another proceeding.
10 Wright, Miller Kane, Federal Practice Procedure: Civil 3d § 2663 (1998) (fns. omitted); accord. e.g., Ainbinder v. Bernice Mining Contracting. Inc., 01 Civ. 2492, 2002 WL 461576 at *3 (S.D.N.Y. Mar. 26, 2002) (Peck, MJ.);Semi Conductor Materials. Inc. v. Agriculture Input Corp., 96 Civ. 7907, 1997 WL 566083 at *2 (S.D.N.Y. Aug. 19, 1997) (Kaplan, DJ. Peck, MJ.); see also. e.g., Riggs. Ferris Greer v. Lillibridge, 316 F.2d 60, 62-63 (2d Cir. 1963); Levesque v. Kelly Communications. Inc., 91 Civ. 7045, 1993 WL 22113 at *6 (S.D.N.Y. Jan. 25, 1993); Marina B. Creation S.A. v. deMaurier, 685 F. Supp. 910, 912 (S.D.N.Y. 1988); 10 Moore's Federal Practice § 54.71 (3d ed. 2001).
Because plaintiff Pacific Westeel's complaint requested $1,200,000 (Dkt. No. 1: Compl. ¶ 14), the Court may not exceed that amount and the Court should award plaintiff Pacific Westeel $1,200,000 in damages. Prejudgment Interest
The complaint also sought an additional $160,000 for amounts Pacific Westeel paid "to satisfy obligations to D R's employees and subcontractors." (Compl. ¶ 16.) While the Court could award plaintiff that additional $160,000, plaintiff Pacific Westeel appeared to have abandoned any amount over $1,200,000 in its initial inquest brief and attorney affidavit. Since Pacific Westeel's supplemental inquest papers do not explain any change in position (indeed, the supplemental papers totally ignore the issue), the Court believes it appropriate to limit plaintiff's recovery to $1,200,000.
It is well settled that state law applies to an award of prejudgment interest in a diversity action in federal court. See. e.g., Baker v. Dorfman, 239 F.3d 415, 425 (2d Cir. 2000); Stanford Square, L.L.C. v. Nomura Asset Capital Corp., 232 F. Supp.2d 289, 291-92 (S.D.N.Y. 2002). Under New York Law, "[i]nterest shall be recovered upon a sum awarded because of a breach of performance of a contract . . ." C.P.L.R. § 5001(a). New York's statutory prejudgment interest rate is nine percent per annum. C.P.L.R. § 5004.
The Court must then determine on which date should the interest begin to accrue. Plaintiff Pacific Westeel argues that the interest should begin to accrue from the point of the breach, citing United States v. Walsh, 240 F. Supp. 1019, 1021 (D.C.N.Y. 1965). (Pacific Westeel Br. at 5-6.) However, Pacific Westeel's reliance on Walsh is misplaced because Walsh merely reaffirms the first portion of C.P.L.R. § 5001(b) which provides that "[i]nterest shall be computed from the earliest ascertainable date the cause of action existed . . ." C.P.L.R. § 5001(b). New York Courts have explained the primary reason behind awarding prejudgment interest at the earliest ascertainable date:
"[T]he award of interest is founded on the theory that there has been a deprivation of use of money or its equivalent and that the sole function of interest is to make whole the party aggrieved. It is not to provide a windfall for either party." Thus, the ascertainable date "assumes that whatever damages are sought are shown to have been sustained at least by that time."155 Henry Owners Corp. v. Lovlyn Realty Co., 231 A.D.2d 559, 560, 647 N.Y. So.2d 30, 31 (2d Dep't 1996) (citations omitted).
Plaintiff Pacific Westeel's submissions demonstrate that damages were not incurred at the time of the breach, but rather at various times following the breach, when Pacific Westeel had to make payments for others to complete the work that D R contracted to perform. (See, e.g., Dkt. No. 13: Berger 9/3/03 Aff. Exs. A-D.) Interest in this case is guided more precisely by the second sentence of C.P.L.R. § 5001(b), which states: "Where such damages were incurred at various times, interest shall be computed upon each item from the date it was incurred or upon all the damages from a single reasonable intermediate date." C.P.L.R. § 5001(b). As such, it is not proper to allow interest to accrue from the time of the breach. See, e.g., 155 Henry Owners Corp. v. Lovlyn Realty Co., 231 A.D.2d at 560, 647 N.Y.S.2d at 31.
C.P.L.R. § 5001(b) leaves to the Court's discretion whether to calculate prejudgment interest from (1) the date when each portion of damages was incurred or (2) a single reasonable intermediate date which can be used to simplify calculations. See also, e.g., Marfia v. T.C. Ziraat Bankasi, 147 F.3d 83, 91 (2d Cir. 1998) (citing155 Henry Owners Corp. v. Lovlyn Realty Co.): David Siegel, Practice Commentaries to C.P.L.R. § 5001 at 359 ("When precision isn't practicable, [§ 5001(b)] allows the fact-trier to select 'a single reasonable intermediate date' from which the interest may be computed on all of the items together."). Because calculating interest based on each individual item would be impractical, the Court should fix a "reasonable intermediate date" in order to simplify the calculations. In determining this date, the Court has substantial discretion. See, e.g., Conway v. Icahn Co., 16 F.3d 504, 512 (2d Cir. 1994):Kookmin Bank v. B.G. Fashion. Inc., 99 Civ. 8622, 2000 WL 1880315 at *4 (S.D.N.Y. Dec. 28, 2000).
The last significant payment made by plaintiff Pacific Westeel regarding the project at issue was on November 9, 2000. (Carter 7/29/03 Aff. Ex. E.) Accordingly, prejudgment interest at nine percent per annum on the damages should accrue from that date forward. Prejudgment interest from that date through October 15, 2003 is $316,506. Costs
Nine percent per annum is.02465 percent per day. On $1,200,000, interest is $295.80 per day. There were 1070 days between November 9, 2000 and October 15, 2003. Interest therefore is $316,506.
The Court should also award plaintiff Pacific Westeel $150.00 for cost of the clerk's filing fee. However, the Court should deny Pacific Westeel's request for a $20.00 statutory filing fee for filing a default judgment (Szczepanski 7/29/03 Aff. ¶ 13) because plaintiff Pacific Westeel's counsel failed to explain what this fee is, as directed by the Court's Order dated July 31, 2003. (Dkt. No. 8: 7/31/03 Order.) (The Court assumes it might be an applicable fee in state court but it is not a fee this Court charges.)
CONCLUSION
For the reasons set forth above, the Court should award plaintiff Pacific Westeel $1,200,000, plus prejudgment interest through October 15, 2003 of $316,506, plus costs of $150, for a total of $1,516,656. FILING OF OBJECTIONS TO THIS REPORT AND RECOMMENDATION
Pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure, the parties shall have ten (10) days from service of this Report to file written objections. See also Fed.R.Civ.P. 6. Such objections (and any responses to objections) shall be filed with the Clerk of the Court, with courtesy copies delivered to the chambers of the Honorable Robert L. Carter, 500 Pearl Street, Room 2220, and to my chambers, 500 Pearl Street, Room 1370. Any requests for an extension of time for filing objections must be directed to Judge Carter. Failure to file objections will result in a waiver of those objections for purposes of appeal. Thomas v. Am. 474 U.S. 140, 106 S.Ct. 466 (1985): IUE AFL-CIO Pension Fund v. Herrmann, 9 F.3d 1049, 1054 (2d Cir. 1993), cert. denied, 513 U.S. 822, 115 S.Ct. 86 (1994); Roldan v. Racette, 984 F.2d 85, 89 (2d Cir. 1993): Frank v. Johnson, 968 F.2d 298, 300 (2d Cir.), cert. denied, 506 U.S. 1038, 113 S.Ct. 825 (1992):Small v. Secretary of Health Human Servs., 892 F.2d 15.16 (2d Cir. 1989): Wesolek v. Canadair Ltd., 838 F.2d 55, 57-59 (2d Cir. 1988): McCarthy v. Manson, 714 F.2d 234, 237-38 (2d Cir. 1983); 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 72, 6(a), 6(e).