MATSUMOTO, District Judge.
Plaintiffs Sandra Barkley, Mary Lodge, Dewitt Mathis, Sylvia Gibbons, Sylvia Gibbons as the Administrator of the Estate of Rodney Gibbons, Lisa McDale, Miles McDale, and Charlene Washington (collectively "plaintiffs") commenced this action against United Homes, LLC; United Property Group, LLC; Galit Network, LLC (the "UH Defendants"); Yaron Hershco ("Hershco"); Olympia Mortgage Corp. ("Olympia")
On May 9, 2011, jury selection and trial commenced in these actions. (ECF
Presently before the court are five post-trial motions by the parties. The court considers each motion separately. For the reasons set forth below, the court: (1) denies defendants' motions regarding interpretation of the jury verdict; (2) grants in part and denies in part defendants' motions for set-offs; (3) grants plaintiffs' motion for an award of interest; (4) grants plaintiffs' motion for a permanent injunction; and (5) denies plaintiff Mary Lodge's motion for injunctive relief to void her mortgage.
The UH Defendants and Hershco contend that "the verdict sheet's egregious inconsistencies and fundamental errors warrant correction before the Court reduces the verdict to judgment." (ECF No. 575, UH Defendants and Hershco Post-Verdict Motion # 1 ("UH Jury Int. Mot.") at 1.) These defendants argue that because "[t]he verdict sheet shows that the jury awarded the same compensatory damages under both the fraud and civil conspiracy causes of action ... [and] the plaintiffs introduced only one measure for damages for both counts ... each plaintiff should be entitled to only one recovery." (Id. at 2.) Specifically, the UH Defendants and Hershco argue that "a plaintiff seeking compensation for the same injury under different legal theories is ... entitled to only one recovery." (Id. (internal quotations and citation omitted).) Moreover, these defendants contend that "the civil conspiracy count is nothing more than an element of the fraud count and therefore cannot support an independent damage award." (Id. at 3.) The UH Defendants and Hershco rely on a recent decision by the New York Appellate Division, Hoeffner v. Orrick, Herrington & Sutcliffe LLP, 85 A.D.3d 457, 924 N.Y.S.2d 376 (2011), to support their argument that the conspiracy-to-defraud claim cannot sustain an independent measure of damages. (Id.) Finally, the UH Defendants and Hershco argue that "defendants have raised this issue well before the jury considered it, both in its summary judgment motion and pre-trial memorandum, and during the trial." (Id.)
Olympia contends that the jury correctly placed "the same figure in the verdict sheet under both ... fraud and conspiracy to defraud ... because the amount of damages
Plaintiffs oppose the motions concerning the interpretation of the jury verdict, arguing that defendants have failed to meet their burden to show that the jury has, in fact, duplicated damages. (ECF No. 585, Plaintiffs' Opposition to UH Jury Int. Mot. and Olympia Jury Int. Mot. ("Pl. Jury Int. Opp'n") at 2.) Specifically, plaintiffs contend that it is not enough for defendants to simply assert "that [the jury] allocated the damages under two different causes of action" and that "[t]he mere possibility of non-duplicative awards is enough to sustain the jury verdict." (Id. at 2-3 (internal quotations and citation omitted).) Plaintiffs assert that "in light of the various sources of plaintiffs' damages and the increased severity of those damages because of the conspiracy, the jury correctly determined that the plaintiffs suffered damages for fraud and conspiracy to defraud." (Id. at 4.) Moreover, plaintiffs argue, "[e]ven if a jury could not award additional damages for conspiracy ... it is reasonable to assume that the jury simply divided the damages for fraud between the two lines provided them on the verdict form." (Id.) Finally, plaintiffs argue that "defendants' failure to object to the verdict form, or to ask that the jury be polled to clarify any perceived duplication of damages, is fatal to their current arguments" because such failure "waived their right to raise" the issue. (Id. at 5, 8.)
The UH Defendants and Hershco reply that the cases upon which plaintiffs rely in their opposition "do not support their argument that the jury's duplicate awards under fraud and civil conspiracy theories should be allowed." (ECF No. 581, UH Defendants and Hershco Reply on Motion Concerning Verdict Sheet ("UH Reply") at 1.) Specifically, the UH Defendants and Hershco contend that in each of the cases cited by plaintiffs, "the jury was either explicitly instructed not to award duplicative damages or was polled afterwards to determine intent," and thus those cases are inapplicable here. (Id. at 4.) Further, these defendants argue that plaintiffs "continue to conflate theories of liabilities with damage," noting that although "plaintiffs contend they established a `variety' of damages ... they only established one injury." (Id.) Finally, in response to the argument that defendants waived their objection to the verdict sheet or polling of the jury, the UH Defendants and Hershco argue that "all of the defendants consistently and repeatedly objected to the plaintiff's civil conspiracy claim, which did not present a separate claim under New York law," and that "even a waived objection to a verdict sheet will not justify sustaining an obviously erroneous verdict." (Id. at 5.)
Olympia similarly replies that "[n]one of the cases cited [in plaintiffs' opposition] address [the] issue that a conspiracy to defraud cannot sustain an independent award of damages." (ECF No. 587, Olympia Reply Memorandum of Law Concerning Interpretation of the Jury Verdict ("Olympia Reply") at 2.) Olympia further argues that "there is no possibility of non-duplicative damages because, as a matter of law, New York simply does not permit additional damages to be awarded on a
Despite defendants' contentions, it is not clear from the verdict sheet that the jury awarded duplicative damages, and as set forth below, it is doubtful that the jury did so. Even assuming, but not finding, that the jury awarded duplicative damages, the court agrees with plaintiffs that defendants waived their objection to any duplicative damages by failing to offer a jury instruction that they now claim should have been given, failing to object to the jury instructions or the verdict sheet, and failing to request that the jury be polled on the issue prior to discharging the jury. "The Second Circuit has frequently addressed waiver in cases involving challenges based on some logical inconsistency within a verdict," and although not directly on point to the issue of whether defendants waived an objection to duplicative damages, "the court finds this line of precedent useful in so far as it elucidates the general principles underlying the doctrine of waiver." Bseirani v. Mahshie, 881 F.Supp. 778, 784 (N.D.N.Y.1995), aff'd, Nos. 95-9109, 95-9145, 1997 WL 3632 (2d Cir. Jan. 3, 1997).
"It is well established that a party waives its objection to any inconsistency in a jury verdict if it fails to object to the verdict prior to the excusing of the jury." Kosmynka v. Polaris Indus., Inc., 462 F.3d 74, 83 (2d Cir.2006); see also Lavoie v. Pac. Press & Shear Co., 975 F.2d 48, 55 (2d Cir.1992) ("Failure to object to a jury instruction or the form of an interrogatory prior to the jury retiring results in a waiver of that objection."); Jarvis v. Ford Motor Co., 283 F.3d 33, 56-57 (2d Cir.2002) (quoting Lavoie, 975 F.2d at 55). "The requirement of a timely exception is not merely a technicality. Its function is to give the court and the opposing party the opportunity to correct an error in the conduct of the trial." Kosmynka, 462 F.3d at 83 (internal quotations and citations omitted); see also Bseirani, 881 F.Supp. at 784 ("Waiver is particularly appropriate where counsel is or should be aware of the inconsistency in the verdict, and where resubmission to the jury would resolve the ambiguity, because the purpose of waiver is to promote the efficiency of trials by allowing the original deliberating body to reconcile inconsistencies without resort to the presentation of evidence to a different body." (internal quotations and citations omitted)).
The Second Circuit has applied these same principles, which govern objections to inconsistencies in jury verdicts, to cases that address the waiver of duplicative damages
189 Fed.Appx. 3, 4 (2d Cir.2006). In Bseirani, the Second Circuit, citing Lavoie, held that because the defendant "did not object to the instruction on duplication grounds" or "seek clarification from the jury," his argument that the damages awarded by the jury were duplicative was waived. 1997 WL 3632, at *1-2. These cases, though unpublished, provide guidance in applying the doctrine of waiver to duplicative damages objections.
Here, defendants raise the duplicative damages issue for the first time in their post-trial motions. All parties had multiple opportunities to submit proposed jury instructions and proposed verdict sheets prior to trial and prior to charging the jury. Yet the UH Defendants, Hershco, and Olympia all failed to request a jury instruction that specifically addressed the risk that the jury might award duplicative damages for fraud and conspiracy to defraud. The court notes that although the UH Defendants and Hershco originally requested a general instruction concerning duplicative damages, they withdrew the request in their amended proposed jury charges and did not raise the issue at the charging conference or with respect to the proposed verdict sheets. (Compare ECF No. 540, Proposed Jury Instructions by UH Defendants and Hershco, with ECF No. 543, Amended Proposed Jury Instructions by UH Defendants and Hershco.) Olympia completely failed to submit any requests for jury charges or a proposed verdict sheet prior to trial, as ordered. Indeed, Olympia submitted no requests until the last week of the three-week trial, and on May 26, 2011, requested only one instruction relating to the knowledge element of the conspiracy-to-defraud charge. (See Tr. XIV at 34-38, 92-98; ECF No. 565, Plaintiffs' and Defendants' Supplemental Proposed Jury Charges.) Moreover, that same day, the court held a charging conference during which all parties had yet another opportunity to request changes to the proposed jury charges and verdict sheet. (See Tr. XIV.) In fact, the court provided the parties with three different versions of the jury charges in an attempt to incorporate the parties' requests. (See ECF Nos. 562, 563, Draft Jury Instructions; ECF No. 564, Jury Instructions.) Although defendants requested a number of other changes to the charges, they failed to request an instruction on duplicative damages for the fraud and conspiracy-to-defraud charges or object to its omission.
Defendants also had ample opportunity to submit proposed verdict sheets and object to plaintiffs' proposed verdict sheets, but again failed to do so until now. On April 4, 2011, prior to the commencement of this three-week trial, plaintiffs submitted their proposed verdict sheets, which contained a separate line for each award of damages for fraud and conspiracy to defraud. (ECF No. 536, Plaintiffs' Proposed Verdict Sheet.) No defendant submitted proposed verdict sheets, although they had been ordered to do so. (See ECF No. 495, Pretrial Scheduling Order ¶ 6(v).) After the final pretrial conference, the court directed the parties to meet and confer in an attempt to resolve any disputes regarding pretrial submissions — including jury instructions — and to agree on proposed verdict sheets. (See Minute Order dated 4/11/2011.) On April 15, 2011, plaintiffs
Finally, after the verdicts were published by the court and before the jury was discharged, defendants had the opportunity to request clarification from the jury regarding what they now claim is a duplication of damages. In fact, at the request of the UH Defendants, the jurors were polled after the verdicts were published, but no request was made for clarification. (Tr. XVII at 4, 51.) Before the jurors were discharged, Hershco requested only that the jurors receive an instruction regarding communications with counsel. (Id. at 52.) After the jurors were discharged, defendants raised several matters to be addressed through post-trial motions. (Id. at 53-56.) At no point did the UH Defendants, Hershco, or Olympia mention the duplicative damages issue they now raise in the instant motions.
The court is unconvinced by defendants' arguments that no objection was necessary or, in the alternative, that the issue was preserved by moving to dismiss or moving for summary judgment on the conspiracy-to-defraud count. None of the defendants ever objected specifically to the charge regarding conspiracy to defraud; at most, all the parties discussed appropriate language for the charge with respect to the form of agreement among co-conspirators, and Olympia belatedly objected only to language regarding the extent of the knowledge element for fraud. (See, e.g., Tr. XIV 11-14; id. at 34-37 ("I didn't make a submission with respect to the charge ...." Mr. Grannis, counsel for Olympia, asked for "an instruction to the jury that says Olympia has to know [that statements] are fraudulent just like a direct participant.").)
Moreover, the issue raised in the instant motions is not whether the conspiracy-to-defraud charge should have been submitted to the jury. As the parties point out, the UH Defendants and Hershco sought dismissal and summary judgment on the conspiracy-to-defraud claim, which the court denied in the Memorandum and Order denying defendants' motions for summary judgment. (See ECF No. 485, Memorandum and Order dated 9/13/2010.) The court also acknowledges that in the Joint Pretrial Order, defendants raised the defense that there is no separate cause of action for conspiracy to defraud (see ECF No. 537, Joint Pretrial Order at 12, 14, 16), and the court agrees. The issue presented in the defendants' post-verdict motions, however, is separate and distinct: here, defendants question whether the award of damages for fraud and conspiracy to defraud was duplicative. Indeed, Olympia acknowledges that "[t]he question now before the Court is not whether conspiracy to defraud should have gone before the jury as a separate claim but how the jury verdict should be interpreted as written." (Olympia Jury Int. Mem. at 3-4.) As participants in the drafting of the jury instructions and verdict sheets, defendants
Defendants' "failure to raise a timely objection deprived the court and the parties of their most effective and efficient means of resolving the issue of whether their award was duplicative." Bseirani, 881 F.Supp. at 784-85. As such, the court finds that defendants waived any objection to the jury award as duplicative. See id.; Bseirani, 1997 WL 3632, at *2 (holding that defendant "had either to seek clarification from the jury or be held to have waived the argument that the damages are duplicative"); Metron, 189 Fed.Appx. at 4 (holding that defendants waived any objection to duplicative damages by failing "to raise this issue in their request to charge or at the charging conference, or to lodge a timely objection, or to request that the court poll the jury").
Even in the absence of a waiver, the defendants have not shown that the damages are duplicative. It is well settled that "when a plaintiff seeks compensation for the same damages under different legal theories of wrongdoing, the plaintiff should receive compensation for an item of damages only once." Gentile v. Cnty. of Suffolk, 926 F.2d 142, 153 (2d Cir.1991); Conway v. Icahn & Co., 16 F.3d 504, 511 (2d Cir.1994). The court agrees with defendants that the conspiracy-to-defraud count "cannot have its own independent measure of damages." Hoeffner, 924 N.Y.S.2d at 377-78. "However, a jury may assess one amount of damages and divide that amount between two applicable counts." Galazo v. Pieksza, No. 3:01-CV-01589, 2005 WL 3312765, at *2 (D.Conn. Dec. 6, 2005); see also Gentile, 926 F.2d at 154; Bseirani, 881 F.Supp. at 786. "Where the jury has divided damages between two theories of liability[,] the awards are not duplicative." Galazo, 2005 WL 3312765, at *2.
In Gentile, for example, the Second Circuit found that defendants had not shown with "any degree of certainty" that damages awarded under both state and federal causes of actions were duplicative where "plaintiffs presented substantial evidence indicating that they suffered from multiple injuries." 926 F.2d at 153-54. The court noted that "defendants do not demonstrate that a jury's award is duplicative merely by noting that it allocated the damages under two different causes of action." Id. at 154. Although defendants argued that "the fact that the jury divided their award for each plaintiff into two equal parts ... indicate[d] that the jury impermissibly compensated each plaintiff twice for identical injuries," the Second Circuit found that "it [was] equally conceivable that the jury... merely split the total amount equally between the state and federal causes of action in announcing their award to the court on the form submitted to it." Id. at 153-54. The Court, therefore, denied the defendants' motion to set aside that portion of the jury verdict as duplicative. Id. at 154 ("Under all the circumstances, we simply do not think that we would be justified in upsetting the jury's award in whole or in part.").
There are instances in which an award of damages may result in a finding of duplicative damages. In Conway, for example, the court found duplicate damages where the "theories of recovery were based on a single set of facts, ... the economic loss sustained was predicated on
The instant cases, however, are distinguishable. Here, as in Gentile, plaintiffs submitted "substantial evidence indicating that they suffered from multiple injuries." 926 F.2d at 153. Specifically, plaintiffs presented substantial evidence of the following injuries: (1) damages suffered due to the over-appraisal of properties; (2) damages suffered due to abusive financing and lending practices; (3) excess closing costs; (4) past cost of repairs; and (5) future cost of repairs. (See generally Tr. XIII at 77-100 (presenting a summary of damages evidence at trial).) Unlike Conway, therefore, this is not a case in which plaintiffs suffered "but one injury." See Conway, 16 F.3d at 512.
Nor does the court find that the aggregate damages award for the fraud claims is excessive, as the Second Circuit did in Bender. See 78 F.3d at 794. Plaintiffs presented the testimony of appraisal expert Dominick Pompeo, who testified that plaintiffs' homes had been over-appraised at the time of closing. (See generally Tr. VII.) Specifically, Mr. Pompeo testified that, based on his retrospective appraisals of the plaintiffs' properties, the properties were over-appraised as follows: (1) 21 Marconi Place, Dewitt Mathis' home, was over-appraised by $133,000 (id. at 43-44); (2) 2126 Union Street, Miles and Lisa McDale's home, was over-appraised by $150,000 (id. at 49-50); (3) 2422 Dean Street, Charlene Washington's home, was over-appraised by $157,000 (id. at 51-52); (4) 249 Halsey Street, Mary Lodge's home, was over-appraised by $185,000 (id. at 56-57); (5) 557 Hancock Street, Sandra Barkley's home, was over-appraised by $124,000 (id. at 57-58); and (6) 1148 Halsey Street, Sylvia and Rodney Gibbons' home, was over-appraised by $114,000 (id. at 59-60).
In addition, at trial, all plaintiffs testified and presented photographs of the numerous problems they experienced with their properties. Miles and Lisa McDale had a flood in their basement, resulting in the loss of important papers, clothing, and other personal belongings; leaking radiators; cement crashing down from the ceiling above their entryway; water leaking from the upstairs bathroom into a light fixture; dangerous electrical wiring; clogged drainage pipes resulting in a raw sewage backup in the house; and a gap in the floor of their daughter's bedroom through which the light from the boiler room below could be seen. (Tr. II at 18-27; Pl. Ex. 2637.) Mary Lodge had water leaking into the house; holes in the floors and rotten wood floors hidden under the carpet; poor heating in the winter; cracked cement on the stoop; pipe bursts in the wintertime; improperly installed broken kitchen tiles; and rodent infestation. (Tr. III 58-65; Pl. Ex. 2637.) Sylvia and Rodney Gibbons had uneven and bumpy floors, later discovered to be due to drywall, cardboard, and other trash left underneath the carpets; leaning and leaky sinks; water leaking from the stoop and roof; drafty windows without appropriate screens; flooding in the backyard; rotted wood on the floors; improperly installed broken kitchen tiles; and raw sewage coming into the basement
Further, plaintiffs presented the testimony of construction expert Sirivishnu Khalsa, who testified about the estimated cost of repairing plaintiffs' properties using basic quality materials. (See generally Tr. VI.) According to his unrebutted testimony, the cost of repairs would be as follows: (1) $72,005.50 for 1148 Halsey Street, Sylvia and Rodney Gibbons' home (id. at 105); (2) $57,214.75 for 21 Marconi Place, Dewitt Mathis' home (id. at 112); (3) $29,288.50 for 2422 Dean Street, Charlene Washington's home (id. at 117); (4) $52,120.00 for 2126 Union Street, Miles and Lisa McDale's home (id. at 120); (5) $49,583.00 for 557 Hancock Street, Sandra Barkley's home (id. at 124); and (6) $82,689.00 for 249 Halsey Street, Mary Lodge's home (id. at 129).
In light of this and other abundant evidence presented at the trial, the aggregate damages award to each of the plaintiffs was adequate, but not excessive. These cases, therefore, are distinguishable from Bender in that the court does not find the aggregate damages figure to be excessive and therefore duplicative.
Defendants "point[] to no evidence, other than the award itself, to support [their] claim of double recovery. By merely asking the court to draw from the jury award an inference of duplic[ation] the defendant[s] ha[ve] failed to sustain [their] burden." Galazo, 2005 WL 3312765, at *3 (citing Gentile, 926 F.2d at 154). The Second Circuit held that "defendants do not demonstrate that a jury's award is duplicative merely by noting that it allocated the damages under two different causes of action." Gentile, 926 F.2d at 154. But that is all the UH Defendants, Hershco, and Olympia have done here. Consequently, defendants have failed to show "with any degree of certainty" that the jury awards are duplicative. See id. at 153-54; see also Aldrich v. Thomson McKinnon Secs., Inc., 756 F.2d 243 (2d Cir.1985) (finding that the jury meant to award the aggregate amount of damages); Galazo, 2005 WL 3312765, at *3 (finding that "the defendant has not supported his double recovery argument with any evidence," and therefore "the probabilities are balanced between the possibility that the jury duplicated awards or whether they merely split one award between two applicable claims" and "the court will draw
The UH Defendants and Hershco argue that Gentile and other cases finding that a damages award was not duplicative are distinguishable because "[i]n each of those cases, the jury was either explicitly instructed not to award duplicative damages or was polled afterwards to determine intent" and "[h]ere, no such instruction was given, and no such poll was taken." (UH Reply at 4.) Defendants, however, should not now be heard to complain that a jury instruction regarding duplicative damages should have been given, or that the jury should have been polled to determine intent, when defendants failed to propose such an instruction despite numerous opportunities to do so before and during the three-week trial, and failed to request that the jury be polled to clarify what defendants now claim is a duplicative damages award.
Further, although an instruction explicitly addressing duplicative damages was not read to the jury, the charges clearly instructed the jury on the measure of damages to be assessed as to the fraud claims together, instead of providing separate instructions for individual measures of damages for fraud and conspiracy to defraud. (See ECF No. 564, Jury Instructions at 40.) Even now, defendants cannot establish that the damages awarded were duplicative rather than allocated among the multiple injuries presented by plaintiffs at trial. See Martinez v. Port Auth. of New York and New Jersey, 445 F.3d 158, 161 (2d Cir.2006) ("Although it would have been preferable had the District Court specifically instructed the jury to avoid duplicative damage awards in this case, defendants have failed to establish `with any degree of certainty' that such double-counting actually or likely occurred in this particular case." (quoting Gentile, 926 F.2d at 154) (footnote omitted)).
For the foregoing reasons, defendants' motions for interpretation of the jury verdict as awarding duplicative damages are denied.
The UH Defendants and Hershco also assert that "the wrong entities were placed on the verdict sheet." (UH Jury Int. Mot. at 4.) Specifically, the UH Defendants and Hershco argue that "all three `United Homes' entities ... for all six plaintiffs" were included on the verdict sheets even though "each transaction involved one or two of the entities, but in no case all three." (Id.) Accordingly, these defendants contend that "the uninvolved entity should not have been on the verdict sheet for that plaintiff." (Id.)
Plaintiffs oppose the "belated" motion concerning the entities on the verdict sheets, arguing that "[t]he jury found that all of the defendants engaged in a conspiracy to defraud each one of the individual plaintiffs." (Pl. Jury Int. Opp'n at 8.) Further, plaintiffs argue that "`United Homes' was the trade name for [all] companies," and that there was "ample evidence to support the jury's finding that all the defendant companies were utilized by Yaron Hershco as a single entity to perpetrate his fraudulent property-flipping scheme...." (Id. at 9.) Therefore, plaintiffs argue, "there is a factual basis to hold each company
In response, the UH Defendants and Hershco argue that "[t]he verdict's special interrogatories concerning the pierce-the-veil claims cannot reasonably be read to support a judgment against an entity that was not involved in a particular transaction." (UH Reply at 6.) The UH Defendants and Hershco argue that the piercing-the-corporate-veil questions were directed at determining the liability of Hershco, and that "[n]othing in these special interrogatories can be read as suggesting the jury made any finding about the entities' activities, that it found that any one company was separately liable for a transaction it was not involved in, or that any one company dominated another." (Id. at 7.)
For the same reasons outlined above, the court finds that the UH Defendants and Hershco waived any objection to the entities listed on the verdict sheets. The UH Defendants and Hershco failed to object to any of the multiple versions of the jury charges or verdict sheets prior to submitting the cases to the jury. Moreover, these defendants failed to object after the jury returned a verdict against all United Homes entities in all six actions. Having failed to raise the objection in a timely manner, the court finds that the UH Defendants and Hershco have waived any objection to the entities listed on the verdict sheets. See, e.g., Kosmynka, 462 F.3d at 83; Jarvis, 283 F.3d at 56-57; Lavoie, 975 F.2d at 55.
Even in the absence of a waiver of the objection, the court would still find that the evidence was sufficient to support a finding of liability as to all United Homes entities. The court agrees with the UH Defendants and Hershco that not all United Homes entities were directly involved in the sales transactions with all the plaintiffs. For example, in the Joint Pretrial Order, the parties stipulated that United Property Group, LLC was the only entity directly involved in the sale transaction for the home of plaintiff Sandra Barkley. (See ECF No. 537-2, Joint Pretrial Order, Ex. A, Stipulated Facts ¶¶ 1-4.)
The evidence, however, was sufficient to establish that all entities participated in the conspiracy to perpetrate the fraudulent property-flipping schemes. Plaintiffs presented evidence that United Homes, LLC; United Property Group, LLC; and Galit Network, LLC failed to observe corporate formalities, such that one or more entities financed the operations of the other entities. (See generally Tr. XI at 96-173.) Expert witness Alan Blass testified that Hershco used the United Homes entities "as a man with 21 pockets in his coat constantly moving cash from one pocket to another as he needed it, whether it was for cash flow purposes or for lending purposes or for some other unknown purposes." (Id. at 108; see also id. at 76-95 (deposition testimony of Boaz Smorlarchik, United Homes representative, regarding entities' practices).) Mr. Blass testified that "all of the corporate lines were totally blurred" among the United Homes entities, such that it could not be determined "where [a particular company] was operating," "who was working for" that company, which company was borrowing money from others, or "where each of the loans stood." (Tr. XI at 121.) Moreover, all three United Homes entities were involved in the advertising of the United Homes services. (See, e.g. Pl. Exs. 2716, 2719,
The UH Defendants and Hershco argue that the pierce-the-corporate veil finding against Hershco cannot be interpreted as a finding of liability against the individual companies. (UH Reply at 6-7.) Nonetheless, it is not just the jury's corporate veil-piercing finding that is relevant, but also the facts supporting that finding. The same facts that support piercing the corporate veil — the failure to observe corporate formalities and treatment of each United Homes entity as an extension of the others — also support a finding of liability for each entity (United Homes, LLC; United Property Group, LLC; and Galit Network, LLC) for having participated, directly or indirectly, in the fraudulent property-flipping scheme affecting plaintiffs. Consequently, the UH Defendants' and Hershco's motion concerning the interpretation of the jury verdict with respect to the entities listed on the verdict sheets is denied.
The UH Defendants and Hershco argue that under New York General Obligations Law Section 15-108 ("Section 15-108") they are "entitled to an offset equal to the compensation the [plaintiffs] received from all the settling defendants for the same injury." (ECF No. 577, UH Defendants and Hershco Post-Verdict Motion #2 ("UH Set-Off Mot.") at 2.) These defendants contend that "the requirement for applying section 15-108 is whether the settlement payment represented compensation for the same injuries as the verdict's compensatory award." (Id. at 3.) Thus, because "plaintiffs' position here was that all of the defendants, whether settling or non-settling, contributed to the same injuries, to wit, the so called inflated values of the subject homes and financing to purchase such homes," the UH Defendants and Hershco argue that they are entitled to a set-off equal to the amount of any settlement. (Id. at 4.)
Olympia likewise argues that "[t]he settlements in this action were clearly for the `same injury'" as required for application of Section 15-108. (ECF No. 578-3, Olympia Memorandum of Law in Support of Reduction of Jury Verdict by Amount of Settlements ("Olympia Set-Off Mem.") at 1.) Olympia contends that "[t]he [settling defendants] were all sued as joint tortfeasors along with Olympia," and that these defendants "were given general releases of all claims including the fraud and conspiracy to defraud claims for which Olympia was found liable." (Id.) Therefore, Olympia argues, "[t]he verdict against Olympia is ... plainly subject to reduction in the amount of the settlements." (Id.)
Plaintiffs concede that "[t]he settlements reached with some of the settling defendants present no difficulty for the application of Section 15-108." (ECF No. 590, Plaintiffs' Opposition to UH Set-Off Mot. and Olympia Set-Off Mem. ("Pl. Set-Off Opp'n") at 7.) Plaintiffs, however, argue that some of the settlements "do not lend themselves to set-off under Section 15-108." (Id.) First, plaintiffs argue that "[a]ny settlement with a Rule 19 party against whom no claims have been alleged
The UH Defendants and Hershco reply that "[g]iven the Plaintiffs' refusal to provide an alternate calculation [of set-offs] or disclose information that would allow for such a calculation, the defendants' offset calculation should be accepted and applied." (ECF No. 588, UH Defendants and Hershco Reply on Motion for Offset ("UH Set-Off Reply") at 2.) The UH Defendants and Hershco argue that plaintiffs "cannot now escape the effect of section 15-108 by suggesting the settling defendants resolved federal claims along with state claims" and that "it is the resulting proven injury, not the theory for recovery[,] that determines whether an offset is proper." (Id. at 5.) The UH Defendants and Hershco further contend that the mortgage restructurings and satisfactions "must be considered in the analysis" because they "resulted in forgiveness of debt, measurable in dollars" and because "the evidence Plaintiffs point to does not support their contention that the damage evidence reflected the settlements." (Id. at 9-10.) Finally, the UH Defendants and Hershco argue that because "[t]he whole point of bringing in a `required' party under Rule 19 is to protect the defendant from paying double damages," "[t]he settling defendants' status as `required' under Rule 19 only buttresses the defendants['] claim for offsets." (Id. at 10.)
Olympia replies, first, that "[t]here is simply no reason to exempt payments received from Rule 19 parties from set-off" because "Section 15-108 stems from the fundamental common law rule that prohibits plaintiffs from obtaining a double recovery and is applicable irrespective of whether the person providing the compensation is in fact legally liable for the injury." (ECF No. 589, Olympia Reply on Motion for Set-Offs ("Olympia Set-Offs Reply") at 1-2.) Moreover, Olympia argues that it is not even clear "that in fact the settlements were funded solely by the Rule 19 defendants," and that "the Court should permit
Section 15-108 of New York General Obligations Law provides that non-settling defendants are entitled to a monetary offset against the amount of a compensatory damages verdict. Specifically, the statute provides that,
N.Y. Gen. Oblig. Law § 15-108(a) (McKinney 2007). Under Section 15-108, the permitted reduction is the greatest of the amount stipulated as consideration for the release, the amount actually paid for the release, or the settling tortfeasor's equitable share of the damages. Id.; see also Whalen, 680 N.Y.S.2d 435, 703 N.E.2d at 248; Chubb & Son Inc. v. Kelleher, No. 92-CV-4484, 2006 WL 2728636, at *5 (E.D.N.Y. Mar. 30, 2006); Nu-Chem Labs., Inc. v. Dynamic Labs., Inc., No. 96-CV-5886, 2001 WL 35981560, at *23 (E.D.N.Y. Mar. 30, 2001). In the absence of any finding regarding the settling of defendants' equitable share of plaintiffs' damages, the appropriate measure is either the actual amount paid for each release, or the amount stipulated as consideration for the release. See Whalen, 680 N.Y.S.2d 435, 703 N.E.2d at 248.
The court agrees with plaintiffs that defendants are not entitled to set-offs
One court in this Circuit has analyzed specifically whether Section 15-108 is applicable to parties not liable in tort. See Halpern v. Rosenbloom, 459 F.Supp. 1346 (S.D.N.Y.1978). The Halpern court concluded, after reviewing the legislative history and statutory structure of Section 15-108, that "[t]he necessary inference is that when the legislature, in a title that otherwise deals with obligors, used `tortfeasor' in § 15-108, their intention was to restrict the application of § 15-108 to tortfeasors in the traditional sense of the word" and that "[j]udicial expansion of the term to include `obligors' would be unwarranted." Id. at 1353.
Although Halpern was decided in 1978, the court has not found, nor do defendants point to, any cases correcting or overruling its holding. Finding the analysis in Halpern persuasive, the court holds that Section 15-108 applies only to "tortfeasors in the traditional sense of the word." Id. The statute, therefore, does not apply to Rule 19 defendants sued by plaintiffs as necessary parties. The Rule 19 defendants were not sued as joint tortfeasors, and plaintiffs did not claim that these defendants were liable in tort. Rather, the Rule 19 defendants were sued because of their interest or potential interest in the plaintiffs' mortgages as either holders or servicers of the loans. Because the Rule 19 defendants are not "tortfeasors in the traditional sense of the word," Id. at 1354, the UH Defendants, Hershco, and Olympia are not entitled to set-offs based on plaintiffs' settlements with these defendants. Acknowledging that the New York Court of Appeals has held, in the context of Section 15-108, that "the possibility of double recovery should be avoided," Whalen, 680 N.Y.S.2d 435, 703 N.E.2d at 248, this court notes that the Whalen case did not specifically address the issue of settlement with necessary parties, as opposed to tortfeasors. Because the Rule 19 defendants are not tortfeasors with the trial defendants, any settlement would not result in a double recovery.
The court also agrees with plaintiffs that a pro tanto reduction of damages is not appropriate in this case. The language of Section 15-108 clearly establishes that a non-settling defendant is entitled to a set-off only when an agreement with a settling defendant is for "the same injury" alleged against the non-settling defendant. N.Y. Gen. Oblig. Law § 15-108(a). "For General Obligations Law § 15-108(a) to apply ... the defendant and joint tortfeasor must have caused the same injury to the plaintiff." In re CBI Holding Co., 419 B.R. 553, 575 (S.D.N.Y.2009) (citing Ackerman, 683 N.Y.S.2d at 196) (emphasis added). "Where payments made by a settling defendant are not for the same injury as that allegedly caused by a non-settling defendant, § 15-108 has no office to perform and the settling defendant, once liability is established and quantified, is not entitled to an offset." Hulko v. Connell, No. 83 CIV. 7760, 1990 WL 139022, at *3 (S.D.N.Y. Sept. 18, 1990) (citing Getty Petroleum Corp. v. Island Transp. Corp., 862 F.2d 10, 15-16 (2d Cir.1988); Whitney v. Citibank, N.A., 782 F.2d 1106, 1118 (2d Cir.1986)).
Here, the scope of the settlements with some of the defendants is broader than the damages for which the jury found the non-settling defendants liable. In particular, some settlements covered release of federal and state discrimination claims, for which plaintiffs claimed substantial non-economic damages, in addition to economic harms. (See Tr. XV at 78 (asking the jury to award $200,000 to each plaintiff for emotional damages).) The fraud, conspiracy-to-defraud, and deceptive practices claims, for which the defendants were found liable at trial, allowed plaintiffs to recover damages only for economic harms. Some of the settlements, therefore, were not entirely for the "same injury," as required for application of Section 15-108.
Olympia concedes that some of the settlements that cover non-economic harms are not for the "same injury" as that for which Olympia was found liable for at trial. (See Olympia Set-Offs Reply at 4.) Olympia argues, however, that plaintiffs' argument against a pro tanto reduction has been rejected by the Second Circuit in Singer v. Olympia Brewing Co., 878 F.2d 596 (2d Cir.1989). The court notes, as an initial matter, that Singer relied on federal common law, and not Section 15-108. Singer, 878 F.2d at 600. More importantly, the argument advanced by the plaintiff in Singer was not that the settlement with another defendant related to a different injury than that for which the non-settling defendant had been found liable at trial. Rather, the plaintiff argued that because a particular claim against the settling defendant exposed that defendant to treble damages, the set-off calculation should be made from the highest amount of "provable damages." Id. The argument advanced by plaintiffs here — that the scope of the settlements with some defendants is broader than the jury verdict — was not addressed by the Second Circuit in Singer.
Similarly, the other case cited by Olympia, Casey v. New York, 119 A.D.2d 363, 507 N.Y.S.2d 159 (1986), did not address the question at issue here. In Casey, the New York Appellate Division addressed
Although some of the settlements were not entirely for the "same injury" for which defendants were found liable at trial, the court agrees with Olympia that there is a degree of overlap. These settlements were broader in scope only in that the settlements covered the non-economic harms alleged by plaintiffs under the discrimination claims. The economic harms, however, were identical. Therefore, although a dollar-for-dollar reduction is not appropriate, the compensatory damages awarded to plaintiffs at trial must be set off to some extent to reflect these settlements. Having reviewed the pleadings, the record, and the parties' submissions, the court finds that defendants are entitled to a set-off equal to fifty-eight percent of the settlement amounts. This is, on average, the percentage of the total damages proven by plaintiffs corresponding to economic harms.
Because the terms of the settlement agreements at issue are confidential, the court will enter a separate order, filed under seal, setting forth the set-off calculations. Based on its calculations, the court grants in part and denies in part defendants' motions for set-offs and reduces the compensatory damages awards to plaintiffs as follows: (1) Sandra Barkley, from $91,000 to $83,460; (2) Sylvia and Rodney Gibbons, from $116,000 to $10,490; (3) Mary Lodge, from $101,000 to $58,100; (4) Dewitt Mathis, from $131,000 to $106,640; (5) Miles and Lisa McDale, from $151,000 to $127,800; and (6) Charlene Washington, from $51,000 to $24,900.
Plaintiffs argue that they are entitled to an award of pre-judgment interest on the verdicts entered by the jury against the UH Defendants, Hershco, and Olympia. (ECF No. 592, Plaintiffs' Cross-Motion for an Award of Interest ("Pl. Int. Mot.") at 5.
Plaintiffs note that "[f]ederal courts determining state law claims are mandated to apply state laws to computations of interest," so "it is mandatory to apply New York State laws to the computation of interest in this matter." (Id. at 6-7.) Plaintiffs point to New York Civil Practice Law and Rules ("C.P.L.R.") §§ 5001-04 for the proposition that pre-judgment interest "is recoverable as a matter of right," where "an act or omission depriving or otherwise interfering with title to, or possession or enjoyment of, property has occurred," such as in the instant cases. (Id. at 7 (quoting C.P.L.R. § 5001(a)).) Plaintiffs further contend that, because § 5001(b) provides that "interest shall be computed from the earliest ascertainable date the cause of action existed," pre-judgment interest should be
The UH Defendants and Hershco oppose plaintiffs' cross-motion for an award of interest. (See ECF No. 596, UH Defendants and Hershco Opposition to Plaintiffs' Motion for Interest ("UH Int. Opp'n").) The UH Defendants and Hershco contend that, "[c]ontrary to the Plaintiffs' contention, determining whether to award pre-judgment interest always rests within the Court's discretion." (Id. at 2.) The UH Defendants and Hershco acknowledge that C.P.L.R. § 5001(a) states that "interest shall be recovered," but argue that "in actual practice the award is discretionary." (Id. (quoting C.P.L.R. § 5001(a)) (emphasis in original).)
Arguing that the court should, in its discretion, refuse to award plaintiffs' pre-judgment interest here, the UH Defendants and Hershco contend that "[p]laintiffs are already receiving enhanced compensation in the form of punitive damages,... so additional interest is not necessary to compensate them." (Id. at 3.) Further, they argue that because "[t]he compensatory damages in this case reflected the differences between the houses' inflated prices and their actual values" and plaintiffs "funded those [inflated] payments with borrowed funds from the mortgage lenders, not with out-of-pocket payments... [p]laintiffs cannot be said to have lost the use of that [borrowed] money." (Id. at 3-4.) The UH Defendants and Hershco also argue that, because "the jury did not itemize its verdict to specify how much of its award represented the borrowed funds and how much (if any) might have represented out-of-pocket payments ... [t]here is no basis to parse the verdict to determine which part might actually constitute out-of-pocket payments." (Id. at 4.)
The UH Defendants and Hershco contend that, if prejudgment interest is to be awarded, then pursuant to New York General Business Law § 349, "pre-judgment interest should run from the date of verdict, not from some earlier date." (Id. at 5.) Alternatively, the UH Defendants and Hershco argue that "interest should not run from before the date the complaint was filed," since, under C.P.L.R. § 5001, "the verdict does not specify when the jury found the cause of action existed ... [and] it cannot be determined when ... various mortgage interest payments might have been made." (Id. at 6.)
Olympia also opposes plaintiffs' cross-motion for an award of interest, arguing that "[p]laintiffs have already obtained their interest from the jury." (ECF No. 597, Olympia Memorandum of Law in Opposition to an Award of Interest ("Olympia Int. Opp'n") at 2.) Olympia contends that, since "[p]laintiffs sought from the jury interest on the money that they had to pay for borrowing the funds to buy these properties," they "may not seek yet additional interest." (Id.) Olympia argues that it would be a "windfall" to give plaintiffs additional interest and "would put [plaintiffs] not simply in the same position [they were] in prior to the fraud but in a better position." (Id.) Olympia further notes that inflation through 2009 was built into the repair estimates provided at trial, so "it would be improper to award interest on top of that." (Id. at 3.)
Plaintiffs reply that "New York law mandates an award of prejudgment interest on compensatory damages awarded for fraud." (ECF No. 595, Plaintiffs' Reply Memorandum of Law in Further Support of Cross-Motion for an Award of Interest ("Pl. Int. Reply") at 2.) Plaintiffs note that the cases cited by the UH Defendants and Hershco for their contention that pre-judgment interest is awarded at the court's
In their reply, plaintiffs also contend that, "[w]ithout a specific explanation from the jury, and in light of the discrepancy between Plaintiffs' requested compensatory damages and those awarded, no evidence of the jury's intent exists and any statement purporting to explain its intent is pure speculation." (Id. at 5.) Thus, plaintiffs contend that defendants' assertion that the jury considered or awarded prejudgment interest in its verdict "is completely unfounded." (Id.) Furthermore, plaintiffs note that, "[e]ven if it were somehow possible to determine that all of the jury's compensatory damage awards were intended to compensate Plaintiffs for their payments of excess interest, Plaintiffs would still be entitled to prejudgment interest," because "excess interest" and "prejudgment interest" are distinct. (Id. at 6 (emphasis in original).)
Plaintiffs take further issue with defendants' contention that an award of interest would be unwarranted because plaintiffs borrowed the money to pay the inflated prices on their respective homes. Plaintiffs argue that, when plaintiffs closed on their mortgages, "the money [then] belonged to Plaintiffs, and they were obligated to repay it." (Id. at 7.) Plaintiffs also state that "each Plaintiff made significant payments on their mortgages" and paid "vastly inflated prices for their shoddily-renovated houses which ... resulted in Plaintiffs losing further money in various fees, refinance charges, and, in [one plaintiff's] case, outright loss of her home." (Id. at 7-8.) Finally, plaintiffs contend that, under C.P.L.R. § 5001(b), "the earliest ascertainable date [plaintiffs'] cause of action existed" was the date on which each plaintiff closed on his or home, respectively, because, "[a]t that moment, plaintiffs paid too much for their houses, took title to houses that were not newly renovated as advertised and had hidden defects and decisively fell prey to the concerted action of United Homes." (Id. at 8.) Plaintiffs conclude that, "[g]iven the voluminous evidence in this case, and its lengthy journey to trial, the Court is uniquely qualified to" fix the date from which pre-judgment interest is to be computed. (Id. at 9.)
Plaintiffs are entitled to an award of pre-judgment interest under New York law. Section 5001 of the C.P.L.R. provides that
N.Y. C.P.L.R. § 5001(a). "Under New York law, awarding prejudgment interest on damages awarded for fraud is mandatory." In re Crazy Eddie Secs. Litig., 948 F.Supp. 1154, 1166 (E.D.N.Y.1996); see also Huang v. Sy, 62 A.D.3d 660, 878 N.Y.S.2d 398, 400 (2009) ("The Supreme Court properly awarded pre-verdict interest as a matter of right pursuant to CPLR 5001(a) upon the principal sum awarded in connection with the plaintiffs' causes of
The court is unconvinced by defendants' argument that plaintiffs are not entitled to an award of pre-judgment interest because they financed the purchase of their homes with loans and therefore cannot be said to have lost the use of borrowed money. Plaintiffs are correct that, once plaintiffs closed on the properties, the loan proceeds became their property. Plaintiffs have a continuing obligation to repay the loans, and are entitled to interest for the loss of enjoyment of that property as a result of the fraud. Cf. Mallis v. Bankers Trust Co., 717 F.2d 683, 695 (2d Cir.1983) ("We conclude, therefore, that [defendant's] tortious actions resulting in the loss of plaintiffs' loan proceeds were `act[s] or omission[s] depriving or otherwise interfering with title to, or possession or enjoyment of, property' under § 5001(a). Accordingly, we hold that plaintiffs are entitled to prejudgment interest as a matter of right." (quoting § 5001(a))).
Nor does the court find defendants' remaining contentions persuasive. The awards of punitive damages are unrelated to an award of pre-judgment interest. Punitive damages are intended to punish defendants for willful and knowing violations of the law and morally repugnant conduct. Pre-judgment interest, on the other hand, is intended to reward plaintiffs for the loss of enjoyment of property as a result of the fraud. Nor are damages for excess interest paid on predatory loans the equivalent of pre-judgment interest. The excess interest measures the loss plaintiffs suffered as a result of the fraud, whereas the pre-judgment interest award compensates plaintiffs for the deprivation of property due to that loss. Finally, although it is true that repair costs were adjusted in plaintiffs' damages presentation, the prices were adjusted downward to reflect lower prices in the market. Such adjustment is not the equivalent of an award of pre-judgment interest.
Consequently, the court finds that plaintiffs are entitled to an award of pre-judgment interest at nine percent, per annum, the rate prescribed by New York law. N.Y. C.P.L.R. § 5004 ("Interest shall be at the rate of nine per centum per annum, except where otherwise provided by statute.").
The court finds that pre-judgment interest on plaintiffs' awards accrues from an intermediate date, falling somewhere between the date of closing on the plaintiffs' properties and the last date damages accrued. Section 5001 of the C.P.L.R. provides that
N.Y. C.P.L.R. § 5001(b). Although plaintiffs are correct that the "earliest ascertainable date the cause of action existed" is the date of the closing on plaintiffs' properties, some of the damages — namely, the excess interest paid on the predatory mortgages and repair costs incurred by the plaintiffs — were incurred at later
The dates on which plaintiffs closed on their properties is undisputed: (1) Sandra Barkley closed on her house on January 14, 2003; (2) Sylvia and Rodney Gibbons closed on their house on November 12, 2002; (3) Mary Lodge closed on her house on January 16, 2003; (4) Dewitt Mathis closed on his house on September 17, 2002; (5) Miles and Lisa McDale closed on their house on November 15, 2002; and (6) Charlene Washington closed on her house on January 13, 2003. The dates when damages were last incurred, however, is not clear from the record. For instance, although the evidence presented a trial showed that plaintiffs incurred expenses in repairs for their properties, the last date on which plaintiffs incurred such expenses is unknown to the court. Moreover, it is unclear how these dates compare to the last date on which plaintiffs made payments on their mortgages, thereby incurring damages for excess interest. By February 7, 2012, plaintiffs shall submit a calculation of pre-judgment interest for each plaintiff, computed at nine percent per annum and accruing from a reasonable intermediate date, and submit documentation in support of the calculation of such reasonable intermediate date.
Plaintiffs also argue that, pursuant to Section 5002 of the C.P.L.R., "plaintiffs are... entitled to an award of interest from the date the verdict was rendered to the date of entry of the final judgment." (Pl. Int. Mot. at 8.) Plaintiffs further argue that, "pursuant to both New York State and federal law, the plaintiffs are also entitled to an award of post-judgment interest upon entry of judgment." (Id.) Plaintiffs note that, under 28 U.S.C. § 1961, "an award of post-judgment interest is mandatory in any civil case where money damages are recovered." (Id. at 9.)
The UH Defendants and Hershco contend that "there is no need, basis, or ability to compute post judgment interest at this time," but "concede that once judgment is entered, interest will accrue at the federal rate under 28 U.S.C. § 1961." (UH Int. Opp'n 1.) Olympia did not address the issue of post-judgment interest. (See generally Olympia Int. Opp'n.)
Defendants do not dispute that plaintiffs are entitled to recover post-judgment interest pursuant to 28 U.S.C. § 1961 once judgment is entered. Nor does the court find any reason why such award of interest is not warranted.
Consequently, plaintiffs are entitled to recover post-judgment interest at the rate prescribed by law.
Plaintiffs move for a permanent injunction against the UH Defendants and Hershco, enjoining these defendants "from engaging in deceptive acts and practices in the conduct of their business." (ECF No. 582-2, Plaintiffs' Motion for Injunctive Relief
(Id. at 7.)
The UH Defendants and Hershco oppose plaintiffs' motion for a permanent injunction. (ECF No. 583, UH Defendants and Hershco Opposition to Plaintiffs' Motion for Injunctive Relief ("UH Inj. Opp'n").) These defendants argue that "[i]t is well established that the right to injunctive relief depends on a finding of irreparable harm" and that "given the jury's verdict awarding sufficient monetary damages to compensate the plaintiffs, injunctive relief is not available." (Id. at 2-3.) The UH Defendants and Hershco also argue that "plaintiffs do not demonstrate any current or ongoing activities, on either side, that would warrant prospective injunctive relief," and further argue that the cases cited by the plaintiffs' do not support injunctive relief here because those cases involved "governmental actions." (Id. at 3-4.) Further, the UH Defendants and Hershco argue that "injunctive relief would be inappropriate here because nothing in the record establishes that the UH Defendants harmed any other consumer or potential consumer other than the plaintiffs' themselves, and each plaintiff based his or her claim on the sale of a specific, unique home, not on common conduct that affected consumers at large." (Id. at 8.) The UH Defendants and Hershco argue that plaintiffs failed to demonstrate that they are entitled to the relief requested, and that "the injunctive relief they are seeking is improperly overbroad and vague." (Id. at 9.)
Plaintiffs reply by arguing that these defendants erroneously rely on the federal standard for granting a permanent injunction, when the relief requested is governed instead by G.B.L. § 349. (ECF No. 584, Plaintiffs' Reply Memorandum of Law in Support of Motion for Injunctive Relief ("Pl. Inj. Reply") at 3-4.) When "the injunctive relief sought is statutory," plaintiffs argue, the traditional equity grounds for injunctive relief do not apply. (Id.) Further, plaintiffs argue that, contrary to the defendants' contention, "New York courts extend injunctive relief even when the complained-of conduct was voluntarily discontinued." (Id. at 5.) According to plaintiffs, nothing in the statute, case law, or legislative history supports the distinction between actions brought by individuals
Section 349 of the General Business Law makes it unlawful to engage in "[d]eceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service" in New York State. N.Y. Gen. Bus. Law § 349(a). The statute allows the attorney general of New York to enjoin deceptive acts or practices and seek restitution on behalf of the people of New York. Id. § 349(b). Further, the statute provides that
Id. § 349(h). "Although originally written to enable the state attorney general to file suit, the statute was amended in 1980 to include a private right of action, `to afford additional protection for consumers, allowing them to bring suit on their own behalf without relying on the attorney general for enforcement.'" City of New York v. Cyco. Net, Inc., 383 F.Supp.2d 526, 561 (S.D.N.Y. 2005) (quoting Blue Cross and Blue Shield of New Jersey, Inc. v. Philip Morris USA Inc., 3 N.Y.3d 200, 785 N.Y.S.2d 399, 818 N.E.2d 1140 (2004)).
Plaintiffs are entitled to an injunction barring the UH Defendants and Hershco from engaging in deceptive acts and practices. To obtain an injunction under G.B.L. § 349, plaintiffs need only show that the defendants engaged in "deceptive acts or practices," as defined under the statute. "When an injunction is expressly authorized by statute, the standard preliminary injunction test is not applied. Instead, the Court must look to the `statutory conditions for injunctive relief,' and may issue a preliminary injunction if those conditions are met." United States v. Broccolo, No. 06-CV-2812, 2006 WL 3690648, at *1 (S.D.N.Y. Dec. 13, 2006) (quoting SEC v. Mgmt. Dynamics, Inc., 515 F.2d 801, 808 (2d Cir.1975)). Cf. People ex rel. Spitzer v. Applied Card Sys., Inc., 27 A.D.3d 104, 805 N.Y.S.2d 175, 177 (2005) (noting that in claim for injunction "[a]s to the claims alleging deceptive business practices... under General Business Law § []349[], the Attorney General was required to establish that respondents engaged `in an act or practice that is deceptive or misleading in a material way and that [the consumer] has been injured by reason thereof'") (quoting Small v. Lorillard Tobacco Co., 94 N.Y.2d 43, 698 N.Y.S.2d 615, 720 N.E.2d 892 (1999) (internal citations omitted)); People ex rel. Spitzer v. Gen. Elec. Co., Inc., 302 A.D.2d 314, 756 N.Y.S.2d 520, 523 (2003) (noting that in action for injunction "under General Business Law § 349, the plaintiff must prove that the challenged act or practice was misleading in a material way, and the deceptive practice must be likely to mislead a reasonable consumer acting reasonably under the circumstances" (internal quotations and citation omitted)).
Therefore, "[t]he contention that [] plaintiff[s] failed to prove the existence
Here, plaintiffs have already established at trial that the UH Defendants and Hershco engaged in deceptive acts or practices with respect to the sales of properties, in violation of G.B.L. § 349. The jury found each of the UH Defendants and Hershco guilty of violating the statute. (See Verdict.) Having satisfied the "`statutory conditions for injunctive relief,'" the court may issue the injunction against defendants. Broccolo, 2006 WL 3690648, at *1 (quoting SEC v. Mgmt. Dynamics, 515 F.2d at 808).
The fact that individual plaintiffs, and not a government entity, are seeking the injunction is irrelevant. The clear language of the statute provides that "any person who has been injured by reason of any violation of this section may bring an action in his own name to enjoin such unlawful act or practice." N.Y. Gen. Bus. Law § 349(h) (emphasis added). In fact, the statute was amended in 1980 precisely "to include a private right of action, `to afford additional protection for consumers, allowing them to bring suit on their own behalf without relying on the attorney general for enforcement.'" Cyco.Net, Inc., 383 F.Supp.2d at 561-62 (quoting Blue Cross, 785 N.Y.S.2d 399, 818 N.E.2d at 1143). Nor is it relevant that plaintiffs sought and recovered damages at trial, since the statute allows a plaintiff to "bring an action in his own name to enjoin such unlawful act or practice, an action to recover his actual damages or fifty dollars, whichever is greater, or both such actions." Id. (emphasis added).
Consequently, the court finds that plaintiffs are entitled to a permanent injunction under G.B.L. § 349 barring the UH Defendants and Hershco from engaging in deceptive acts or practices. Accordingly, the court permanently enjoins the UH Defendants and Hershco from:
In addition, the court grants a permanent injunction directing the UH Defendants and Hershco to advise potential homeowners to seek independent appraisers,
Plaintiff Mary Lodge ("Lodge") moves for injunctive relief, asking the court "to invoke its equitable power to void the first mortgage on her home." (ECF
The Bayview Defendants and Olympia oppose Lodge's motion to void her mortgage. The Bayview Defendants first contend that "[a] contract that was fraudulently induced is voidable, and therefore gives rise to the defrauded party's right to request rescission" but that such a contract is not "void." (ECF
Lodge replies that "[r]estitution and restoration to the status quo is irrelevant where, as here, there has been a finding of fraud." (ECF
"A contract induced by fraud... is subject to rescission, rendering it unenforceable by the culpable party." Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Wise Metals Group, LLC, 19 A.D.3d 273, 798 N.Y.S.2d 14, 16 (2005). The extraordinary remedy of rescission is an equitable remedy and it is "to be invoked only when there is lacking [a] complete and adequate remedy at law and where the status quo may be substantially restored." Rudman v. Cowles Commc'ns, 30 N.Y.2d 1, 330 N.Y.S.2d 33, 280 N.E.2d 867, 874 (1972). When a contract is rescinded, its "effect is to declare the contract void from its inception and to ... restore the parties to status quo." Symphony Space v. Pergola Props., 214 A.D.2d 66, 631 N.Y.S.2d 136, 144 (1995) (internal quotation marks and citation omitted).
In a reversal of the traditional "election of remedies" doctrine, which precluded a plaintiff from obtaining both damages from a fraudulently induced contract and rescission of that same contract, New York law now provides that,
N.Y. C.P.L.R. § 3002(e); see also Spainerman Gallery, Profit Sharing Plan v. Merritt, No. 00 Civ. 5712, 2003 WL 289704, at *6-7 (S.D.N.Y. Feb. 6, 2003) (noting change from "election of remedies" doctrine to C.P.L.R. § 3002(e) allowing plaintiff to recover damages and obtain rescission).
The court recognizes that under C.P.L.R. § 3002(e), Lodge is not barred from seeking rescission of her mortgage merely because the jury has awarded monetary damages. See N.Y. C.P.L.R. § 3002(e). Under New York law, Lodge is "allowed to obtain complete relief" in this action, including rescission of her mortgage. Id.
Still, although the "election of remedies" doctrine no longer bars a plaintiff from obtaining both damages and rescission, the "effect [of rescission] is to declare the contract void from its inception and to ... restore the parties to status quo." Symphony Space, 631 N.Y.S.2d at 144 (internal quotation marks and citation omitted). "Rescission is not appropriate where ... the status quo cannot be substantially restored." Singh v. Carrington,
In the instant action, Lodge does not seek to restore the status quo. Instead, Lodge asks for monetary damages and cancellation of her mortgage so she will no longer have an obligation to pay the Bayview Defendants, all while keeping her house. This does not return Lodge and the Bayview Defendants to the respective positions they were in before the mortgage was entered into; rather, this leaves Lodge in a better position than that in which she would have been had the fraud not occurred.
It is true that the mortgage payments are based on the over-appraised value of the house and abusive financing, and that the poor condition of the house will require Lodge to invest in repairs in the future. In awarding Lodge $101,000 in compensatory damages, the jury took into consideration the evidence of over-appraised value, abusive financing, and need for future repairs. (See Tr. XIII at 94-97 (presentation of monetary damages to the jury, including damages due to over-appraisal, damages relating to financing, and damages due to the poor condition of the house).) Lodge cannot present evidence of these items of damages to the jury and request a monetary award based on such evidence, receive such award, and then claim that the mere possibility that the jury did not award damages fully compensating Lodge for these losses warrants the extraordinary remedy of rescission.
"Rescission is not appropriate where, as here, the status quo cannot be substantially restored." Singh, 796 N.Y.S.2d at 669 (internal quotations and citation omitted). The court has not found, nor does Lodge cite, a single case holding that this basic rule is inapplicable in cases involving fraud in the inducement. Nor can the court conceive of any reason why returning the parties to the status quo is not applicable in such cases.
Consequently, Lodge's motion for injunctive relief rescinding her first mortgage is denied.
For the foregoing reasons, the court: (1) denies defendants' motions regarding interpretation of the jury verdict; (2) grants in part and denies in part defendants' motions for set-offs; (3) grants plaintiffs' motion for an award of interest; (4) grants plaintiffs' motion for a permanent injunction; and (5) denies plaintiff Mary Lodge's motion for injunctive relief voiding her mortgage.
