Opinion
00 Civ. 7352 (GEL)(AJP)
March 26, 2002
REPORT AND RECOMMENDATION
By Order dated January 11, 2002 (and entered on the docket on January 28, 2002), Judge Lynch granted a default judgment for plaintiff Sterling National Bank ("Sterling") against all defendants, and referral the matter to me for an inquest on damages. (Dkt. No. 26: 1/28/02 Order.) The complaint in this action asserts claims under RICO, for common law fraud and for breach of contract. (Dkt. No. 1: Compl.) See also Sterling Nat'l Bank v. A-1 Hotels Int'l, Inc., 00 Civ. 7352, 2001 WL 282687 (S.D.N.Y. Mar. 22, 2001) (Lynch, D.J.).
For the reasons set forth below, the Court would enter judgment for plaintiff Sterling National Bank against all defendants for $755,361.41.
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, D.J. Peck, M.J.) (quoting 10A C. Wright, A. Miller M. Kane, Federal Practice Procedure: Civil 2d § 2688 at 58-59 (3d ed. 1998)).
Accord, e.g., King Vision Pay-Per-View Corp., Ltd. v. Papacito Lidi a 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, 2001 WL 1415145 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, D.J. Peck, M.J.).
Judge Lynch's prior opinion in this case, familiarity with which is assumed, summarized the allegations of the complaint, as follows:
1. Parties
Sterling is in the business of providing, among other services "credit card services to merchants." (Compl. ¶¶ 2, 11.) Defendant Jacob Laufer ("Laufer") is the President and sole or majority shareholder of defendant A-1 Hotels International Inc. ("A-1 Hotels") (id. ¶ 4), a New York corporation engaged in the principal business of booking hotel reservations for corporations and individuals throughout the United States and in resort areas outside the United States (id. ¶ 10). Defendant Norman Goldstein is the operating and managing officer and Vice President of A-1 Hotels. (id. ¶ 5.) Defendant Mattie Goldstein is the wife of defendant Norman Goldstein, the son of defendant Laufer, and sole or majority shareholder of defendant 78th Realty Corporation ("78th Pealty"). (Id. ¶ 6.)
2. Facts
Except where noted, the following material facts are alleged in plaintiff's Complaint and accepted as true for purposes of defendant's motion. In December 1996, A-1 Hotels entered into a Merchant Agreement ("Agreement") with Sterling. (Id. ¶ 11.) The Agreement provided that A-1 Hotels would accept customer charges on Visa and MasterCard, reserve hotel rooms for customers, and pay the hotel. (Id. ¶ 12.) Sterling agreed to process and purchase the debt resulting from such customer charges. (Id.) Pursuant to the Agreement, Sterling contracted with a third-party transaction processor, First Data Corporation ("First Data"), to process all Visa and MasterCard transactions submitted to Sterling by A-1 Hotels. (Id. ¶ 13.) The Agreement guaranteed the validity of all charges presented by A-1 Hotels to plaintiff Sterling and then to Sterling's transaction processor. (Id. ¶ 14.)
Sometime in 1998, defendants Laufer and Norman Goldstein began intentionally to submit charges they knew to have been unauthorized by customers of A-1 Hotels (Id. ¶ 11.) These charges, submitted through mail, wire, and other instrumentalities of interstate commerce (Id.), included charges for inter alia unauthorized or nonexisting hotel reservations, amounts in excess of valid charges, and services not provided by the hotel or already paid for by the customer (Id. ¶ 18 Ex. 1). Laufer and Norman Goldstein submitted in excess of two-hundred such charges to Sterling over the course of approximately two years (Id.) When the holders of the cards objected to unauthorized charges, defendants failed to justify the charges to Sterling. (Id. ¶ 21.) As a result, Sterling alleges it was defrauded in an amount exceeding $750,000. (Id. ¶ 22.)
The Complaint further alleges that in March 1999, to provide security for the payment of a portion of A-1 Hotels' obligation to Sterling and to keep open its account in furtherance of its scheme to defraud Sterling, defendant Matti[e] Goldstein signed a $100,000 check on the amount of 78th Realty. This check was returned to Sterling unpaid for insufficient funds (Id. ¶ 24.)
3. The Complaint
Sterling filed its complaint on September 28, 2000. . . .
Sterling's first case of action ("Count I") alleges a violation of RICO, 18 U.S.C. § 1962(c), against all defendants except A-1 Hotels. Specfically, it alleges that defendants participated in the conduct of A-1 Hotels' affairs through a pattern of racketeering activity, by intentionally using the mails and wires to further a scheme to defraud Sterling for their own gain, in violation of 18 U.S.C. § 1341 and 1343, and thereby caused Sterling damages excess of $750,000. (Id. ¶¶ 26-32.)
Sterling's third cause of action ("Count III") alleges common law fraud against all defendants on grounds that defendants made material false representations as to the authenticity and accuracy of customers' charges with the intent of deceiving Sterling and First Data and causing Sterling to make payment to First Data in the amount of the unauthorized charges. (Id. ¶¶ 39-43.)
Sterling's fourth cause of action ("Count IV") alleges breach of contract against defendant A-1 Hotels, Laufer and Norman Goldstein on grounds that those defendants are in breach of their agreement to reimburse plaintiff for unauthorized charges. (Id. ¶¶ 44-51.)
Sterling's fifth cause of action ("Count V") alleges that Mattie Goldstein and 78th Realty are liable for $100,000, the amount of the unpaid check submitted to Sterling in March, 1999. (Id. ¶¶ 52-53.)Sterling Nat'l Bank v. A-1 Hotels Int'l, Inc., 00 Civ. 7352, 2001 WL 282687 at 1-2 (S.D.N Y Mar. 22, 2001)(Lynch, D.J) (fn. omitted; discussion of the second cause of action omitted because Judge Lynch dismissed that claim).
Evidence on the Inquest
By Order dated February 8, 2002, I required plaintiff Sterling "to submit any further papers in support of damages, supplementing their Order to Show Cause submission (Dkt. No. 24), by February 14, 2002." (Dkt. No. 27: 2/8/02 Order.) Sterling decided to rely solely on its prior Order to Show Cause submission. (See Dkt. No. 28: Plaintiff's Letter to Court.)
Plainliff Sterling's Order to Show Cause submission included an affidavit from Dawn DeLuca, Assistant Vice President of Sterling National Bank. (Dkt. No. 24: DeLuca Aff.) DeLuca's affidavit attached copies of Sterling's records of A-1 Hotel's bank statements for the period May 2000 to November 2000. (DeLuca Aff. Exs. W1-W7.) As explained in the DeLuca Affidavit, those business records show a deficit in A-1 Hotel's account of $755,361.41. (DeLuca Aff. ¶¶ 1-7 Exs. W1-W7.)
Only defendant Mattie Goldstein responded to the Court's order for submissions from defendants regarding the inquest. (Dkt. No. 29: 2/21/02 M. Goldstein Aff.) Goldstein stated that after the 78th Road Realty Corp. check for $100,000 payable to Sterling on behalf of A-1 Hotels was returned for insufficient funds, $185,284.25 was wire transferred to Sterling on behalf of A1 Hotels, and $100,000 of that was to "make good" for the prior unpaid check. (2/21/02 M. Goldstein Aff. ¶¶ 2-5.)
Sterling responded that its previously submitted records credited A-1 Hotel's account for the $185,284.25 wire transfer. (Dkt. No. 31: 3/1/02 Turchin Aff. ¶ 2.) In fact, the exhibits to the DeLuca Affidavit reflect the $185,284.25 credit to A-1 Hotels' account (See Dkt. No. 24: DeLuca Aff. Ex. W3 at p. 3).
ANALYSIS
The Second Circuit hasapproved 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. Conti Commodity Servs. Inc., 873 F.2d 38, 40 (2d Cir. 1989)). Indeed, while counsel for defendant Mattie Goldstein initially requested a hearing with live witnesses (Dkt. No. 29: 2/22/02 Letter to Court from Defense Counsel; see also Dkt. No. 30: 2/27/02 Order), Goldstein's counsel subsequently withdrew that request (Dkt. No. 33: 2/28/02 Letter to Court from Defense Counsel).
Accord, e.g., King Vision Pay-Per-View Corp., Ltd. v. Papacito Lidi a 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 Pictures Mach. Operators Union, Local 306 v. Gordon's Film Co. (New York) Int'l Inc., 00 Civ. 8452, 2001 WL 1415145 at 1 (S.D.N.Y. Nov. 13, 2001)(Peck, M.J.); Coast to Coast Farics 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 2 (S.D.N.Y. July 11, 2000) (Peck, M.J.); King Vision Pav-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); Chen v. Jenna Lane, Inc. 30 F. Supp.2d 622, 624 (S.D.N.Y. 1998) (Carter, D.J Peck, M.J.); see also, e.g., Semi Conductor Materials, Inc. v. Agriculture Inputs Corp., 96 Civ. 7902, 1998 WL 388503 at 8 (S.D.N.Y. June 23, 1998) (Kaplan, D.J. Peck, M.J).
Defendants joint and several liability on counts 1 (RICO) and 3 (fraud) are established by the allegations of the complaint and Judge Lynch's granting of the default judgment. Sterling National Bank's business records establish that defendants owe Sterling $755,361.41. (See pages 5-6 above.) The only defendant who submitted any evidence or argument with respect to the inquest is Mattie Goldstein, who focused on the fifth cause of action, the $100,000 unpaid check. (Dkt. No. 29: 2/21/02 M. Goldstein Aff.; see Dkt. No. 1: Compl. ¶ 53.) That issue is of no importance, since Ms. Goldstein is liable on the first and third causes of action and it is clear from Sterling's records that the wire transfer she refers to already was credited to A-1 Hotel's account with Sterling. Thus, Ms. Goldstein and her codefendants owe plaintiff Sterling National Bank $755,361.41 on the first and third causes of action. (See pages 5-6 above.)
CONCLUSION
For the reasons stated above, the Court should enter judgment for plaintiff Sterling National Bank against all defendants for $755,361.41.
FILING OF OBJECTIONS TO THIS REPORT AND RECOMMENDATION
Pursuant to 28 U.S.C. § 636(b)(i) 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 Gerard E Lynch, 40 Centre Street, Room 803, and to my chambers 500 Pearl Street, Room 1370. Any requests for an extension of time for filing objections must be directed to Judge Lynch. Failure to file objections will result in a waiver of those objections for purposes of appeal. Thomas v. Arn, 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).