Opinion
20 Civ. 4095 (RA) (GS)
07-10-2024
VENTURE GROUP ENTERPRISES, INC. Plaintiff, v. VONAGE BUSINESS INC., f/k/a VONAGE BUSINESS LTD., Defendant.
REPORT & RECOMMENDATION
GARY STEIN, UNITED STATES MAGISTRATE JUDGE
Defendant Vonage Business Inc. (“Vonage”) moves the Court for an award of expenses, including attorney's fees, pursuant to N.Y. Civil Practice Law Rules § 3220 (“CPLR 3220” or “Rule 3220”). (Dkt. No. 262). The motion raises important issues regarding the reach of CPLR 3220, which, so far as the Court's research reveals, has never been interpreted or applied in any reported federal decision. For the reasons set forth below, the undersigned recommends that Vonage's motion be DENIED.
BACKGROUND
A. Procedural History
Plaintiff Venture Group Enterprises, Inc. (“Venture”) commenced this action four years ago, alleging that Vonage breached a Channel Partner Agreement (“CPA”) entered into by the parties in 2015. (Dkt. No. 1 (“Complaint” or “Compl.”)). Venture asserted claims for breach of contract and other contract-related claims, seeking damages of not less than $10 million. (Id. ¶¶ 98-142). Vonage counterclaimed for breach of the CPA, unjust enrichment, common law fraud, consumer fraud, tortious interference, and violations of the Racketeer Influenced and Corrupt Organizations Act. (Dkt. No. 14 ¶¶ 125-178).
This litigation has been unusually contentious and has spawned several motions for sanctions, one of which was granted by Magistrate Judge Ona T. Wang. (See, e.g., Dkt. No. 113 (Vonage's motion for case-determinative sanctions for Venture's failure to preserve and produce relevant evidence of call recordings); Dkt. No. 120 (Venture's cross-motion for sanctions in the form of fees and costs associated with opposing Vonage's motion for sanctions); Dkt. No. 194 (Opinion & Order declining to impose sanctions on either Vonage or Venture); Dkt. No. 208 (Vonage's sanctions motion for attorney's fees and costs associated with Venture's sealing motions and Venture's purported misrepresentations regarding the call recordings); Dkt. No. 255 (Opinion & Order requiring Venture to pay $24,643.43 in Vonage's fees and costs in connection with Venture's meritless motions to seal)).
On October 5, 2020, before discovery commenced, Vonage served an “Offer to Liquidate Damages” on Venture pursuant to CPLR 3220. (Dkt. No. 264, Declaration of David J. Fioccola (“Fioccola Decl.”) ¶ 2 & Ex. A). The conditional offer stated that Vonage would allow judgment to be entered against it in the amount of $250,000, “if Vonage fails in its defense of plaintiff's claims.” (Id. Ex. A). Vonage states that it based its $250,000 offer on a limitation of liability provision in the CPA. (Id. ¶ 2). Venture did not accept the offer. (Id. ¶ 3).
Fact discovery lasted for over a year. Among other things, the parties produced hundreds of thousands of pages of documents and took twelve fact depositions. (Id. ¶ 4). Each side also proffered an expert witness on damages who issued an expert report and was deposed. (Id.).
At the close of discovery, Vonage moved for summary judgment on all of Venture's claims and on its own breach of contract counterclaim. (Dkt. Nos. 159-66). Venture opposed the motion and did not cross-move for summary judgment. (Dkt. Nos. 184-92). In an Opinion & Order dated October 6, 2023, the Honorable Ronnie Abrams granted Vonage's summary judgment motion in full. Venture Grp. Enterps., Inc. v. Vonage Bus. Inc., 2023 WL 6540703 (S.D.N.Y. Oct. 6, 2023). Trial on the remaining issues-damages on Vonage's breach of contract counterclaim, on which Vonage prevailed at summary judgment, and Vonage's pending counterclaim for fraud-is scheduled to begin on August 19, 2024. (Dkt. Nos. 246 & 305).
B. The Instant Motion
Vonage filed the instant motion for expenses pursuant to CPLR 3220 on January 5, 2024 (Dkt. No. 262), along with a supporting memorandum of law (Dkt. No. 263 (“Def. Br.”) and the Fioccola Declaration (Dkt. No. 264). Vonage seeks more than $4.9 million in attorney's fees and expenses incurred from October 6, 2020, the day after it made its Rule 3220 offer, through August 1, 2023, the last day of time entries before the Court's summary judgment ruling. (Def. Br. at 14; Fioccola Decl. ¶ 5). Vonage's counsel has provided detailed time and disbursement records supporting its request for these expenses. (Fioccola Decl. ¶¶ 6-33 & Exs. G & H).
Venture filed a brief in opposition to the motion, along with a declaration from counsel, on March 6, 2024. (Dkt. Nos. 306 (“Pl. Br.”), 307). Vonage filed a reply brief and declaration on March 20, 2024. (Dkt. Nos. 313 (“Reply”), 314).
Thereafter, the parties participated in a mediation which, as they advised Judge Abrams on May 31, 2024, proved unsuccessful. (See Dkt. Nos. 297 & 315, Dkt. Entries dated March 12 & April 8, 2024).
In the meantime, this case was reassigned from Magistrate Judge Wang to the undersigned on April 1, 2024.
RULE 3220 OF N.Y. CIVIL PRACTICE LAW & RULES
CPLR 3220 provides, in full:
Offer to liquidate damages conditionally. At any time not later than ten days before trial, any party against whom a cause of action based upon contract, express or implied, is asserted may serve upon the claimant a written offer to allow judgment to be taken against him for a sum therein specified, with costs then accrued, if the party against whom the claim is asserted fails in his defense. If within ten days thereafter the claimant serves a written notice that he accepts the offer, and damages are awarded to him on the trial, they shall be assessed in the sum specified in the offer. If the offer is not so accepted and the claimant fails to obtain a more favorable judgment, he shall pay the expenses necessarily incurred by the party against whom the claim is asserted, for trying the issue of damages from the time of the offer. The expenses shall be ascertained by the judge or referee before whom the case is tried. An offer under this rule shall not be made known to the jury.
Rule 3220 “operates only in the realm of actions alleging the breach of an express or implied contract.” Hon. Mark C. Dillon, Practice Commentaries, McKinney's Cons. Laws of N.Y., C3220:1 (2021). Unlike an offer of compromise under CPLR 3221 (or its federal counterpart, an offer of judgment under Fed.R.Civ.P. 68), an offer to liquidate damages conditionally under CPLR 3220 is not an offer to end the case entirely; rather, it “is a concession by the defendant of a damages amount only, but not of underlying liability.” Id. The defendant may serve the offer at any time up to ten days before trial. Id. If the offer is accepted, the case proceeds to trial on the issue of liability alone, with damages fixed at the agreed-upon liquidated amount. Id. If the plaintiff rejects the offer, and the verdict at trial is equal to or less than the offer, “the plaintiff must indemnify the defendant for the expenses incurred in defending the case at the trial that would have been unnecessary had the offer been accepted.” Id.
While Rule 3220 provides for recovery of the offeror's “expenses,” it is “not clear precisely what is embraced by [that] term.” 7 Jack Weinstein, Harold B. Korn & Arthur R. Miller, New York Civil Practice: CPLR ¶ 3220.01, at 32-451 (2d ed. 2024). Based on the rule's text and legislative history, arguments could be made either way as to whether “expenses” includes attorney's fees. Id. at 32-451 to 452. But those arguments are, at present, beside the point, because recent New York decisions, including from both the First and Second Departments, make clear that attorney's fees are a recoverable form of “expenses” under CPLR 3220. See, e.g., Kirchoff-Consolidated Constr. Mgmt., LLC v. Dharmakaya, Inc., 186 A.D.3d 585, 588, 129 N.Y.S.3d 526, 529 (2d Dep't 2020); Free People of PA LLC v. Delshah 60 Ninth, LLC, 169 A.D.3d 622, 92 N.Y.S.3d 882 (1st Dep't 2019); Jemrock Enterps. LLC v. Konig, No. 703280/13, 2019 WL 7879363, at *1 (Sup. Ct. Queens Cnty. Dec. 13, 2019) (“Expenses pursuant to CPLR 3220 includes attorneys fees.”).
Although a version of CPLR 3220's offer to liquidate damages has been part of New York law since the Field Code in 1848, “it has seldom been used.” Weinstein-Korn-Miller, supra, ¶ 3220.03 at 32-450. The New York Court of Appeals has never addressed it. And searches of legal databases disclose no decision in the Second Circuit or any other federal court discussing or even citing CPLR 3220 or its predecessors, save for a 1973 decision noting that the defendant in that case did not make a CPLR 3220 offer. See Zimmer v. Wells Mgmt. Corp., 366 F.Supp. 215, 216 (S.D.N.Y. 1973).
DISCUSSION
A. Applicability of CPLR 3220 in a Federal Court Action
As a threshold matter, Venture argues that CPLR 3220 does not apply in this diversity action because it conflicts with, and is therefore preempted by, Rule 68 of the Federal Rules of Civil Procedure (“Rule 68”). (Pl. Br. at 5-8). Rule 68 provides that if a plaintiff turns down an offer of judgment from a defendant and ultimately obtains a judgment less favorable then the offer, the plaintiff must pay the defendant's “costs” incurred after the offer was made. Fed.R.Civ.P. 68(a), (d). Costs under Rule 68 are recoverable only if judgment has been entered for plaintiff, see Delta Air Lines v. August, 450 U.S. 346 (1981), and do not include attorney's fees unless separately provided for by the underlying substantive law, see Marek v. Chesny, 473 U.S. 1, 8-10 (1985). According to Venture, CPLR 3220 conflicts with Rule 68 because, unlike Rule 68, it allows for the defendant to recover expenses even when judgment has been entered in its favor and to recover attorney's fees. (Pl. Br. at 7-8). The Court finds Venture's argument unpersuasive.
1. Legal Principles
Under the rule of Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938), federal courts sitting in diversity apply state substantive law and federal procedural law. Gasperini v. Ctr. for Humanities, Inc., 518 U.S. 415, 427 (1996). Classification of a law as substantive or procedural can be a “challenging endeavor.” Id. But the Erie analysis is simplified when a state law conflicts with a Federal Rule of Civil Procedure: in such a situation, “the Federal Rule applies regardless of contrary state law” so long as it “is consonant with the Rules Enabling Act, 28 U.S.C. § 2072, and the Constitution.” Id. at 427 n.7; see also Watson v. NY Doe I, No. 19 Civ. 533 (JGK), 2023 WL 6540662, at *6 (S.D.N.Y. Oct. 6, 2023) (“When a Federal Rule of Civil Procedure and a state law address the same issue, the Federal Rule governs in federal court, unless the rule at issue violates the Rules Enabling Act.”).
A conflict exists between a state law and a Federal Rule if the Federal Rule “answers the question in dispute,” Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., 559 U.S. 393, 398 (2010), that is to say, if it is “sufficiently broad to control the issue before the Court,” Walker v. Armco Steel Corp., 446 U.S. 740, 749-50 (1980). See Carroll v. Trump, 590 F.Supp.3d 575, 582 (S.D.N.Y. 2022). A conflict can exist even if the federal and state rules are not “perfectly coextensive and equally applicable to the issue at hand.” Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 26 n.4 (1988). But if each rule “can exist side by side, . . . each controlling its own intended sphere of coverage without conflict,” then the Federal Rule does not displace the state rule. Walker, 446 U.S. at 752; see also id. at 750 (where there is “no Federal Rule which covers the point in dispute, Erie commands the enforcement of state law”) (cleaned up).
If the court decides there is no conflict with federal law, it should proceed to conduct a traditional Erie analysis and determine whether the state law is “procedural” or “substantive.” Belfiore v. Proctor & Gamble Co., 311 F.R.D. 29, 54 (E.D.N.Y. 2015) (“If no conflict is present, the court must determine whether the state law is procedural or substantive.”); Allegrino v. Sachetti, No. 3:14-cv-01865-VAB, 2015 WL 3948986, at *5 (D. Conn. June 29, 2015) (where no conflict exists, “traditional Erie principles” apply); see Shady Grove, 559 U.S. at 398 (“We do not wade into Erie's murky waters unless the federal rule is inapplicable or invalid.”).
2. Application
Although the parties have not cited, and the Court has not found, any Second Circuit authority concerning the preemptive effect of Rule 68 on state laws, several decisions in other circuits have addressed this issue, with varying results. Venture cites two cases (Pl. Br. at 6-7) holding that Rule 68 preempts state laws authorizing an award of attorney's fees or other enhanced remedies to a prevailing defendant who served a rejected offer of judgment or settlement. See Goldberg v. Pac. Indem. Co., 627 F.3d 752, 757-58 (9th Cir. 2010) (finding that Arizona Rule of Civil Procedure 68, which allows recovery of double costs and expert witness fees to a prevailing defendant, conflicts with Rule 68 because the two rules “occupy the same field of operation in situations where a defendant makes an offer of judgment”) (citation omitted); D.S. v. East Porter Cnty. School Corp., 981 F.Supp.2d 805, 814-20 (N.D. Ind. 2013) (Rule 68 and Indiana rule authorizing attorney's fees to prevailing defendant who makes offer of settlement in tort action “cover the identical issue because both address a defendant's offer of settlement”).
Other courts, however, have held that Rule 68 does not conflict with state laws authorizing an award of attorney's fees to a prevailing defendant where the plaintiff spurned an offer of judgment or settlement. See Scottsdale Ins. Co. v. Tolliver, 636 F.3d 1273, 1277-79 (10th Cir. 2011) (finding no conflict because Oklahoma offer-of-judgment statute “does nothing to impede the operation of Rule 68” but instead “provides a party with the additional advantage of recovering attorney's fees”); Menchise v. Akerman Senterfitt, 532 F.3d 1146, 1152-53 (11th Cir. 2008) (Florida statute and Rule 68 “do not conflict” because the former “provides for the recovery of attorney's fees and other costs, but Rule 68 provides for an award of only costs”); Tanker Management, Inc. v. Brunson, 918 F.2d 1524, 1528 (11th Cir. 1990) (reaching same conclusion as to earlier Florida statute providing for prevailing defendant to recover attorney's fees if plaintiff unreasonably rejected settlement offer or offer of judgment); see also Gil de Rebollo v. Miami Heat Ass'ns., 137 F.3d 56, 66 & n.7 (1st Cir. 1998) (finding no conflict between Rule 68 and Puerto Rico offer-of-judgment statute authorizing recovery of attorney's fees in a case where the defendant prevails, because in that situation “Rule 68 [does] not apply,” but finding a conflict does exist where the plaintiff obtains a judgment, because then both rules “ostensibly apply” and “would result in a different award”).
While instructive, these cases are not controlling on the issue here, and the Court need not pick a side in the debate they reflect. That is because CPLR 3220 is materially different from the state statutes and rules involved in those cases. Those state laws, like Rule 68, address offers of judgment (or settlement). As Vonage notes (Reply at 2), New York, too, has its own counterpart to Rule 68. But it is CPLR 3221, not CPLR 3220. CPLR 3221 allows the defendant to make an “offer to allow judgment” and mandates that, if the plaintiff rejects the offer and fails to obtain a more favorable judgment, the plaintiff cannot recover its costs and instead must pay the defendant's costs. See N.Y. C.P.L.R. § 3221. But Vonage did not make an offer of judgment pursuant to CPLR 3221 or pursuant to Rule 68.
“Costs” under CPLR 3221 do not include attorney's fees. See, e.g., Ramires v. AGDG Car Wash Corp., 227 A.D.3d 1014, 210 N.Y.S.3d 498, 499 (2nd Dep't 2024); Blacklink Transp. Consultants PTY Ltd. v. Von Summer, 18 Misc.3d 1113(A), 856 N.Y.S.2d 496 (Sup. Ct. N.Y. Cnty. 2008). This limits the utility of the provision, as is also the case with Rule 68, which may explain why there is no reported litigation over which rule to apply in a federal diversity action in New York.
CPLR 3220 is not an offer-of-judgment statute. Its ambit is much narrower: it addresses offers to liquidate damages in contract cases. Unlike an offer of judgment, an offer under CPLR 3220, if accepted, does not terminate the litigation because the issue of liability remains. Thus, whereas the purpose of Rule 68 is to encourage settlement and put an end to litigation, Marek, 473 U.S. at 5, “CPLR 3220 was designed to create an inducement toward the removal of the ‘damages issue' from the consideration of the jury where only ‘liability' is in dispute,” Hirsh v. City Store Front Gates Mfg. Corp., 70 Misc.2d 733, 334 N.Y.S.2d 942, 943 (Civ. Ct. Queens Cnty. 1972). Nothing in Rule 68 speaks to the question raised by a motion for expenses under CPLR 3220: whether the plaintiff is liable to pay the defendant's expenses in trying the issue of damages because it refused to stipulate to the amount of damages.
Simply put, then, Rule 68 does not “answer[] the question in dispute.” Shady Grove, 559 U.S. at 398. Nor is it “sufficiently broad” to “control the issue before the Court” or “cover the point in dispute.” Walker, 446 U.S. at 749-50. Both Rule 68 and CPLR 3220 “can exist side by side, . . . each controlling its own intended sphere of coverage without conflict.” Id. at 752. Indeed, nothing prevented Vonage (or would prevent any defendant) from making both an offer to liquidate damages under CPLR 3220 (allowing it to recover its post-offer attorney's fees associated with trying the issue of damages whether it prevails on liability or not) and an offer of judgment under Rule 68 (allowing it to recover its post-offer costs if plaintiff obtains a judgment less than the offer).
Making offers under both rules would not be duplicative. The CPLR 3220 offer would make it possible for the defendant to obtain a portion of its attorney's fees, which is not normally an option under Rule 68. Conversely, the Rule 68 offer would make it possible for the defendant to recover costs related to liability issues, which would not be allowed under CPLR 3220.
Unlike in the cases relied upon by Venture, therefore, it cannot be said that “the purposes underlying Federal Rule 68 are sufficiently coextensive with the asserted purposes of [CPLR 3220] to indicate that the federal rule occupies [New York's] field of operation,” Goldberg, 627 F.3d at 757-58, or that both Rule 68 and CPLR 3220 “cover the identical issue,” D.S., 981 F.Supp.2d at 819. In fact, in Goldberg “defendants' offer of judgment was made pursuant to Federal Rule 68,” and defendants invoked Arizona Rule 68 only after they had prevailed at trial (because a prevailing defendant is unable to recover costs under Federal Rule 68). Goldberg, 627 F.3d at 756-57. Here, Vonage made no offer of judgment at all.
Rather, this case is more like S.A. Healy Co. v. Milwaukee Metropolitan Sewerage District, 60 F.3d 305 (7th Cir. 1995), in which the Seventh Circuit found no conflict between Rule 68 and a Wisconsin statute that allowed a plaintiff to recover costs if it made a settlement demand that was rejected and then procured a larger judgment at trial. The district court had denied the plaintiff's motion for costs under the Wisconsin law on the ground that Rule 68 (which allows only defendants, not plaintiffs, to make offers of judgment) “occupies the field of settlement offers in federal litigation and precludes the application of state rules dealing with the subject.” Id. at 307. In an opinion by Judge Posner, the Seventh Circuit reversed, finding no conflict because plaintiff's ability to make an offer under the Wisconsin rule did not prevent the defendant from making its own offer under Rule 68 and thus enforcement of the Wisconsin rule did not “tread on the toes of Rule 68.” Id. at 311. Likewise, CPLR 3220 does not “tread on the toes of Rule 68.” The two rules dance in different rooms.
Having found no conflict between CPLR 3220 and Rule 68, the Court proceeds to the next step of the analysis and concludes that CPLR 3220 must be considered “substantive” for Erie purposes. In enacting CPLR 3220, the New York Legislature gave defendants in contract actions a tool to avoid the expenses associated with defending against meritless damages claims. “Because there is no federal rule providing a defendant with this same protection, we must conclude that not applying this statute would lead to forum shopping-a plaintiff will choose federal over state court to avoid providing a defendant with this option.” Scottsdale Ins. Co., 636 F.3d at 1280. CPLR 3220 is substantive in this sense. See S.A. Healy, 60 F.3d at 310 (“where the state procedural rule, though undeniably ‘procedural' in the ordinary sense of the term, is limited to a particular substantive area, such as contract law,” that is a “pretty easy” case for enforcing the state rule).
Venture makes no argument that CPLR 3220 is procedural and not substantive for Erie purposes. Nevertheless, the Court analyzes this issue not only for the sake of completeness, but also because the substantive nature of CPLR 3220 bears on the “conflict” analysis itself and buttresses the Court's conclusion that no conflict exists. See Shady Grove, 559 U.S. at 422 (Stevens, J., concurring) (“the second step of the inquiry may well bleed back into the first”); Gasperini, 518 U.S. at 427 n.7 (“[f]ederal courts have interpreted the Federal Rules . . . with sensitivity to important state interests and regulatory policies”); Walker, 440 U.S. at 752 (stating that “Rule 3 does not replace such policy determinations under state law” in finding it did not conflict with state statute of limitations).
CPLR 3220 also is substantive insofar as it provides for an award of attorney's fees. See Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 259 n.31 (1975) (“In an ordinary diversity case where the state law does not run counter to a valid federal statute or rule of court, and usually it will not, state law denying the right to attorney's fees or giving a right thereto, which reflects a substantial policy of the state, should be followed.”) (cleaned up); Mid-Hudson Catskill Rural Migrant Ministry, Inc. v. Fine Host Corp., 418 F.3d 168, 177 (2d Cir. 2000) (in diversity action, “[w]e apply New York substantive law to resolve the dispute regarding [a party's] entitlement to attorney's fees”); Antaeus Enterps., Inc. v. SD-Barn Real Estate, L.L.C., 480 F.Supp.2d 734, 745 (S.D.N.Y. 2007) (“Issues of attorneys' fees are considered substantive for Erie purposes.”); see also MRO Commc'ns Inc. v. AT&T Corp., 197 F.3d 1276, 1282-83 (9th Cir. 1999) (since “Nevada law permits a prevailing defendant to recover attorneys' fees incurred after an offer of judgment is rejected by the plaintiff,” it would be a “violation of the national policy described in [Erie]” to not apply that law “simply because the forum is federal”).
For these reasons, the Court finds that CPLR 3220 is not preempted by Rule 68 and should be applied in this diversity action.
The Court, however, rejects Vonage's additional argument that Venture should be “estopped” from arguing that CPLR 3220 is inapplicable because in January 2024 Venture served its own Rule 3220 offer to liquidate damages on Vonage's counterclaims. (Reply at 1-2). Vonage relies on the doctrine of “judicial estoppel,” but that doctrine applies only when a party's former inconsistent position “has been adopted in some way by the court in an earlier proceeding.” Ashmore v. CGI Group, Inc., 923 F.3d 260, 272 (2d Cir. 2019). That did not happen here, as Venture's CPLR 3220 offer was never communicated to, let alone adopted by, the Court. Vonage also invokes the doctrine of equitable estoppel, but does not explain how it relied on Venture's Rule 3220 offer to its detriment. U.S. D.I.D. Corp. v. Windstream Commc'ns, Inc., 775 F.3d 128, 136 (2d Cir. 2014) (“An essential element of equitable estoppel is detrimental reliance on the adverse party's misrepresentations.”) (cleaned up).
B. Since Venture's Claims Were Dismissed Prior to Trial, Vonage Is Not Entitled to Relief Under CPLR 3220
Turning to the merits, the principal dispute between the parties is whether CPLR 3220 affords relief in a situation where, as here, the defendant prevailed on summary judgment without a trial. Vonage argues that it does; Venture argues that it does not. (Def. Br. at 7-9; Pl. Br. at 8-12). Based on its assessment of New York law, the Court agrees with Venture.
“We begin, as we must, with a careful examination of the statutory text.” Jones v. Cattaraugus-Little Valley Cent. School Dist., 96 F.4th 539, 542 (2d Cir. 2024) (construing CPLR provision) (cleaned up). CPLR 3220 provides that if an offer to liquidate damages is not accepted and the plaintiff fails to obtain a more favorable judgment, the plaintiff “shall pay the expenses necessarily incurred by the [defendant], for trying the issue of damages from the time of the offer.” (Emphasis added). The Rule goes on to say that the expenses “shall be ascertained by the judge or referee before whom the case is tried.” (Emphasis added).
The plain language of CPLR 3220 appears to contemplate a trial before the defendant is entitled to recover its expenses. To “try” a case means “[t]o examine judicially; to examine and resolve (a dispute) by means of a trial,” Try, Black's Law Dictionary (12th ed. 2024), and while “trial” can mean different things in different contexts, in common parlance, and in decisions of the New York courts, “‘[a] summary judgment proceeding is not a trial.'” Macedonia v. Fontanelli, 12 Misc.2d 1082, 173 N.Y.S.2d 936, 940 (Sup. Ct. Kings Cnty. 1958) (denying plaintiff's request for body execution because relevant provision of Civil Practice Act allowed such relief only after a “trial of the action” and plaintiff had prevailed on summary judgment) (quoting Collins v. Toombs, 271 A.D. 160, 63 N.Y.S.2d 545, 546 (3d Dep't 1946)); accord Greiss v. Feldman, 228 N.Y.S.2d 381, 382 (Sup. Ct. Nassau Cnty. 1962); see also Vizzi v. Town of Islip, 71 Misc.2d 483, 336 N.Y.S.2d 520, 522 (Sup. Ct. Nassau Cnty. 1972) (“summary judgment is not a trial” within meaning of CPLR venue provision); Wrobel v. Call, 142 Misc. 610, 255 N.Y.S. 258 (Sup. Ct. Montgomery Cnty. 1932) (denying application for trial fee made by plaintiff who won on summary judgment; “[m]anifestly a trial contemplates something more than a mere inspection of pleadings and affidavits in order to ascertain if a genuine issue is presented”).
New York courts have rejected the more expansive, atextual reading of CPLR 3220 advanced by Vonage. Most notably, in Saul v. Cahan, the lower court awarded the defendant his attorney's fees pursuant to CPLR 3220 after granting his motion to dismiss the complaint. While observing that “the plain language of the statute appears to contemplate at least the commencement of a trial before a party could recover attorney's fees pursuant to CPLR 3220,” the lower court believed it was bound by Morgan v. Kunker, 268 A.D.2d 749, 704 N.Y.S.2d 158 (3d Dep't 2000) (discussed infra), to award fees “absent contrary direction from the Appellate Division, Second Department.” Saul v. Cahan, 50 Misc.3d 1228(A), at *2, 36 N.Y.S.3d 50 (Sup. Ct. Queens Cnty. 2016).
Such contrary direction was soon forthcoming. On appeal, the Second Department unanimously reversed the lower court's award, holding that “the plain language of CPLR 3220” manifested “the Legislature's intent that, where the claimant has not accepted the offer, the commencement of a trial is a condition precedent to imposing liability upon the claimant for the opposing party's expenses.” Saul v. Cahan, 153 A.D.3d 951, 61 N.Y.S.3d 116, 119 (2d Dep't 2017) (emphasis added). The court further reasoned that even if the language of CPLR 3220 could arguably support the defendant's request for attorney's fees, “the public policy of the American Rule”-that each party to a lawsuit generally must pay its own attorney's fees, no matter who wins-“militates against adoption of that interpretation.” Id.
In OLS Limousine Service, Inc. v. Century Business Solutions, Index No. 601366/2017, 2021 N.Y. Misc. LEXIS 57406 (Sup. Ct. Nassau Cnty. Sept. 30, 2021), the Supreme Court, Nassau County applied the Second Department's ruling in Saul to deny a CPLR 3220 motion in the same circumstance as is involved in this case: where the defendant prevailed on summary judgment. Like Vonage here (see Def. Br. at 8), the defendant attempted to distinguish Saul “on the grounds that the case involved a CPLR 3211 motion to dismiss rather than a CPLR 3212 motion for summary judgment.” Id. at *3. The court found this argument “unavailing,” explaining that, as determined in Saul, the language of CPLR 3220 is “clear and unambiguous” and “the provision does not apply where, as here, there has been no trial of damages.” Id. at *4.
Two Justices of the Commercial Division of the Supreme Court, New York County, have likewise held that a trial is a prerequisite to an award of expenses under CPLR 3220. See First Equity Realty v. The Harmony Group, II, No. 650273/2015, 2022 WL 11228746, at *3 (Sup. Ct. N.Y. Cnty. Oct. 19, 2022) (Cohen, J.) (following Second Department's holding in Saul and holding that “there can be no recovery of expenses with respect to Count II because that claim did not proceed to trial”) (emphasis omitted); Loeb Enterps. II, LLC v. Florence, No. 653521/2018, 2020 WL 2572387, at *3 (Sup. Ct. N.Y. Cnty. Apr. 7, 2020) (Borrok, J.) (“CPLR 3220 only permits a party to recover attorney's fees after a trial has been commenced”); see also Dillon, Practice Commentaries, supra, C:3220:1 (“Defense counsel in Saul may have earned points for original thinking, but the terms of the statute do not allow CPLR 3220 to be used as a mechanism for recovering legal fees that are not otherwise recoverable, absent a trial of the action.”).
While the First Department has not addressed this issue, it has approved awards of attorney's fees under CPLR 3220 only where a trial had taken place, Free People of PA, 92 N.Y.S.3d at 882, or at least had commenced, Abreu v. Barkin & Assoc. Realty, Inc., 115 A.D.3d 624, 982 N.Y.S.2d 752 (1st Dep't 2014).
Like the lower court in Saul, Vonage relies on Morgan v. Kunker, supra. (Def. Br. 8; Reply at 4-5). In that case, the Third Department reversed the lower court's grant of summary judgment to plaintiff and instead granted summary judgment in favor of defendants. The court then stated, without explanation or analysis, that, in light of plaintiff's rejection of defendants' Rule 3220 offer to liquidate damages, “the matter must be remitted to Supreme Court solely for a determination of defendants' necessary expenses.” Morgan, 704 N.Y.S.2d at 160. Vonage contends that the “Morgan rule” awarding pretrial expenses where the defendant prevails at summary judgment is “the right one” and should be followed in lieu of the contrary authority cited above. (Def. Br. at 8; Reply at 5).
Vonage vastly overstates the precedential import of Morgan. Morgan does not articulate a “rule” or even a holding that an award of expenses is proper under CPLR 3220 in the absence of a trial. Nothing in the court's opinion indicates that the Third Department analyzed that issue or that it was the subject of adversarial briefing. At most it can be said that the Third Department assumed that expenses are recoverable under CPLR 3220 by a defendant who prevails on summary judgment. But such a sub silentio “assumption has no precedential value” where the issue was not “briefed, argued, or decided” by the court. Getty Petroleum Corp. v. Bartco Petroleum Corp., 858 F.2d 103, 113 (2d Cir. 1988) (cleaned up).
Since the lower court had granted summary judgment to plaintiff and awarded the full amount of damages sought by plaintiff, see id. at 159, it had no occasion to address CPLR 3220. Thus, when it.
In any event, in the 24 years since Morgan was decided, no court has cited it for the proposition advanced by Vonage-save for the lower court's decision in Saul, which was promptly reversed by the Second Department. The Court views the more recent rulings by the Second Department in Saul and by the courts in OLS Limousine, First Equity, and Loeb Enterps. (as well as Justice Dillon's Practice Commentaries in McKinney's) to be far more direct, persuasive, and authoritative expressions of New York law than the meager support Morgan provides for Vonage's position.
In some breach of contract cases, the parties agree that no trial is necessary and ask the court to decide the dispute on the papers via competing motions for summary judgment. In such a situation, the summary judgment proceeding might more plausibly be viewed as the functional equivalent of a trial for Rule 3220 purposes. But that is not the case here. Venture did not cross-move for summary judgment and it maintained, in opposition to Vonage's summary judgment motion, that “[a] trial is required to resolve the parties' competing claims of breach.” (Dkt. No. 184 at 3). The Court thus need not express any opinion about the applicability of CPLR 3220 where the parties have agreed to have their dispute resolved by the court without a trial.
Vonage argues that the New York courts' prevailing interpretation of CPLR 3220 is “belied by the plain and unambiguous statutory text,” pointing to the Rule's language permitting the offeror to recover its expenses incurred “from the date of the offer.” (Reply at 5) (emphasis omitted). According to Vonage, unless recoverable expenses under CPLR 3220 include all expenses after the offer was remitted the matter back to Supreme Court “for a determination under CPLR concerning defendants' necessary expenses,” id. at 160, the Third Department did not reverse any ruling by the lower court that CPLR 3220 was inapplicable. made, this language would be “rendered superfluous.” (Id; see also Def. Br. at 9). But courts can include pretrial expenses in an award under CPLR 3220 in cases that go to trial, so long as they were necessarily incurred in trying the damages issue. In fact, the trial judge in one case did precisely that, awarding the defendant fees incurred after the date of its offer “pertaining to pre-trial preparation” as well as “the trial itself.” Free People of PA v. Delshah 60 Ninth, LLC, Index No. 650654/2017, Decision & Order, at 7 (Sup. Ct. N.Y. Cnty. Nov. 21, 2017) (attached as Dkt. No. 264 Ex. M). As that case illustrates, interpreting CPLR 3220 as New York courts have done, unlike Vonage's proposed interpretation, gives effect to both the language requiring commencement of trial as a condition precedent to an award and the language entitling the offeror to expenses from the date of the offer.
Vonage also argues that it would be more logical and consistent with the policy goals of CPLR 3220 if defendants who prevail on summary judgment after making an offer to liquidate damages were entitled to recover their attorney's fees. (Reply at 5-6). It also argues that it would be fair to compel Venture to pay its fees because “Venture forced a meritless claim through costly discovery and pre-trial briefing, driving up unnecessary expenses and unduly burdening the Court.” (Id. at 6). But these are not valid reasons to bend CPLR 3220 beyond how it is written and has been construed. If the scope of the Rule-which Vonage itself describes as a “substantive rule of New York contract law” (Reply at 2)-is to be expanded, that is a task for the New York Legislature or the New York courts, not a federal court sitting in diversity.
Accordingly, the Court concludes that, since no trial took place, Vonage is not eligible for an award of expenses under CPLR 3220 for “trying the issue of damages.”
C. Vonage Improperly Requests Expenses Beyond Those Incurred in Litigating Damages Issues
In addition to the unavailability of a CPLR 3220 award in the absence of a trial, Vonage's motion for expenses fails for a separate and independent reason. Where an award of expenses is proper, CPLR 3220 limits the award to “the expenses necessarily incurred by” the offeror “for trying the issue of damages from the time of the offer.” (Emphasis added). As the text makes clear, “CPLR 3220 provides for a recovery of ‘expenses' only for ‘trying the issue of damages from the time of the offer.'” First Equity Realty, 2022 WL 11228746, at *2 (emphasis added); see also Dillon, Practice Commentaries, supra, C:3220:1 (court can make an award of attorney's fees and costs “only to the extent of the damages portion of the trial,” as “issues of liability . . . are not within the scope or intendment of CPLR 3220”).
Vonage's motion, however, is not limited to the fees it incurred in litigating issues of damages. Vonage unabashedly asserts it is also entitled to recover fees it incurred in litigating issues of liability, i.e., “fees incurred in proving Venture breached the CPA and Vonage did not.” (Def. Br. at 11). The $4.9 million in attorney's fees and expenses it seeks encompasses all fees and expenses incurred since October 6, 2020 through August 1, 2023, except for (i) fees relating to Venture's successful motion to dismiss Vonage's counterclaims that did not involve contract breaches; (ii) the $24,643.63 in fees Judge Wang awarded in connection with Venture's sealing motions; and (iii) roughly $82,000 in fees that are already sought by Vonage under Rule 37 in its pending motion for sanctions. (Id. at 13-14; Dkt. No. 208).
In other words, Vonage seeks recovery of virtually all fees incurred in litigating both liability and damages issues. By way of example, Vonage seeks all of its fees incurred in litigating the summary judgment motion decided last year, even though only about four of its 52 pages of summary judgment briefing, and 13 of the 147 paragraphs in its Rule 56.1 Statement, related to damages. (See Dkt. Nos. 161 at 9-10, 15-18, 198, 223; Dkt. No. 163 ¶¶ 114-21, 143-47). Vonage likewise seeks all fees related to the extensive discovery in this case, even though much of, and presumably the bulk of, the discovery concerned liability rather than damages issues. Moreover, Vonage seeks all fees related to litigating its own counterclaims (with the sole exception noted above), even though those counterclaims raise no prospect of a damages award against Vonage.
Vonage's justification for this massive overreach is that “the key issue to resolving Venture's damages was determining which party breached the CPA and which party could enforce that contract.” (Def. Br. at 13). It repeatedly asserts that it defeated Venture's “damages claim” by establishing that it was Venture, not Vonage, that breached the parties' agreement. (Id. at 11, 13; Reply at 8). This is mere sophistry. Venture did not assert a “damages claim.” It asserted a claim for breach of contract (and related claims), which necessarily raised issues of (1) liability and (2) damages. CPLR 3220 plainly requires that the court distinguish between the two and limit any award to damages issues only. Issues of breach are about liability, not damages. Vonage cannot evade that distinction or CPLR 3220's clear command by reclassifying all work done on the case as pertaining to Venture's “damages claim.”
Vonage relies (Def. Br. at 11; Reply at 7) on the trial judge's decision in Free People of PA awarding the defendant all of its attorney's fees pertaining to pre-trial preparation and trial because “[t]he underlying facts of this case, the pertinent contractual provisions, and the nature of the declaratory relief established that the issue of liability and damages are inextricably intertwined.” Free People of PA, Index No. 650654/2017, supra, at 6. But in that case, “liability was but a nominal issue compared to that of damages as it was undisputed that [defendant] failed to deliver the premises in accordance with the Lease.” Id. (emphasis added). That is not the case here. Instead, Vonage vehemently, and successfully, disputed that it breached the CPA. Judge Abrams granted Vonage's motion for summary judgment solely on the ground that it had not breached the CPA, without reaching any question of damages. Venture Grp., 2023 WL 6540703, at *6-10.
In an attempt to fit within the rationale of Free People of PA, Vonage argues that “Venture knew it breached the CPA before it even filed this lawsuit,” “Vonage learned of Venture's CPA breaches no later than May 21, 2021,” and “[f]rom that point on, the litigation focused on the connected issues of causation and damages.” (Reply at 8). Vonage does not explain how these assertions establish that issues of liability and damages were “intertwined” in this case, and the Court discerns no such linkage. To the contrary, it is evident from Judge Abrams' summary judgment decision that the principal contested issues were whether Vonage properly terminated the CPA, whether Venture's breaches of the CPA gave Vonage the right to do so, and whether Venture had a good election of remedies defense- these are liability issues simpliciter, not issues of “causation” or “damages.”
Equally unexplained and perplexing is Vonage's insistence that “[a]ny attempt to parse the expenses Vonage incurred in defeating Venture's liability arguments and claim for damages is an exercise in futility.” (Reply at 7). The two federal cases Vonage cites, Quaratino v. Tiffany & Co., 166 F.3d 422 (2d Cir. 1999) and Bonnie & Co. Fashions v. Bankers Tr. Co., 970 F.Supp. 333 (S.D.N.Y. 1997), have nothing to do with CPLR 3220 but instead award attorney's fees for intertwined claims. Those cases do not support Vonage's argument that it is impossible to distinguish between fees incurred in connection with liability issues, on the one hand, and damages issues on the other, as the plain language of CPLR 3220 instructs be done.
As “even a cursory review of [Vonage's] application for expenses indicates that [it] seek[s] recovery beyond the scope of what is permissible under CPLR 3220,” First Equity Realty, 2022 WL 11228746, at *2, Vonage's motion must be denied for this reason as well. Because Vonage has failed to establish that it is entitled to any award of expenses under CPLR 3220, the Court need not resolve the parties' disputes over whether Vonage's claimed attorney's fees and expenses are properly documented and reasonable. (See Def. Br. at 11-5; Pl. Br. at 16-22; Reply at 8-10).
Nor is there any need for the Court to reach Venture's argument that Vonage is not entitled to recover attorney's fees under Federal Rule of Civil Procedure 37(c)(2). (Pl. Br. at 22-25). As Venture notes (id. at 22), Vonage's moving brief suggests that Venture violated Rule 37(c)(2) by refusing to admit certain facts in answering Vonage's Requests for Admission. (Def. Br. at 10). But nothing in Vonage's moving papers states that it is moving for relief under Rule 37(c)(2), and Vonage's reply brief makes clear that it is not, referencing Rule 37(c)(2) only once (in a footnote), as “illustrative” of why Vonage should be able to recover fees under Rule 3220. (Reply at 8 n.9).
CONCLUSION
For the reasons set forth above, the undersigned respectfully recommends that Defendant's motion for expenses be DENIED.
NOTICE OF PROCEDURE FOR FILING OBJECTIONS TO THIS REPORT AND RECOMMENDATION
Pursuant to 28 U.S.C. Section 636(b)(1) and Fed.R.Civ.P. 72(b), the parties shall have fourteen days, inclusive of weekends and holidays, from the date of this Report and Recommendation to file written objections thereto. see also Fed. R. Civ. 6(a), (b), and (d). Any such objections shall be filed with the Clerk of Court. Any request for an extension of time to file objections must be directed to Judge Abrams. A failure to file timely objections will preclude appellate review. See Thomas v. Arn, 474 U.S. 140 (1985); Wagner v. Wagner, LLP v. Atkinson, Haskins, Nellis, Brittingham, Gladd & Carwile, P.C., 596 F.3d 84, 92 (2d Cir. 2010).