Opinion
01 Civ. 2492 (JGK) (AJP)
March 26, 2002
REPORT AND RECOMMENDATION
On January 8, 2002, Judge Koeltl entered a default judgment for plaintiffs Robert Ainbinder and Robert Barra against defendants PP Coal Co. and Bernice Mining Contracting Inc. (Dkt. No. 50.) Plaintiffs reached settlement agreements with all defendants except Bernice and PP Coal. (See Dkt. Nos. 40, 41, 48, 55.) The complaint asserts claims for breach of contract and failure to repay loans (See Dkt. No. 1: Compl. ¶¶ 43-51, 57-60.)
For the reasons set forth below, (a) the Court should vacate the default against PP and dismiss plaintiffs' complaint against PP without prejudice, and (b) plaintiffs are free to pursue new and separate actions against Bernice based on the settlement assignments to plaintiffs after the complaint in this action, and (c) the Court should not award plaintiffs any damages on plaintiffs' breach of contract claim for plaintiffs' failure to submit proof of any damages.
FACTS
"Where, as here, 'the court determines that defendant is in default, the factual allegations of the complaint, except those relating to the amount of damages. will be taken as true.'" Chen v. Jenna Lane, Inc., 30 F. Supp.2d 622, 623 (S.D.N.Y. 1998) (Carter, D.J Peck, M.J) (quoting 10A C. Wright, A. Miller M. Kane, Federal Practice Procedure: Civil 2d § 2688 at 58-59 (3d ed. 1998)). The Complaint
Accord, e.g., King Vision Pay-Per-View Corp., Ltd. v. Papacito Lidi a Luncheonette, Inc., 01 Civ. 7575, 2001 WL 1558269 at 1 (S.D.N.Y. Dec. 6, 2001) (Peck, M.J.); Trustees of the Penson Welfare Funds of the Moving Picture Mach. Operators Union, Local 306 v. Gordon's Film Co. (New York's Int'l Inc., 00 Civ. 8452, 2001 WL 1415145 at 1 (S.D.N.Y. Nov. 13, 2001)(Peck, M.J); Coast to Coast Fabrics, Inc. v. Tracy Evans Ltd., 00 Civ. 4417, 2001 WL 5037 at 1 (S.D.N.Y. Jan. 2, 2001)(Peck, M.J): Starbucks Corp. v. Morgan, 99 Civ. 1404, 2000 WL 949665 at 1 (S.D.N.Y. July 11, 2000) (Peck, M.J.); King Vision Pay-Per-View, Ltd., v. New Paradise Rest., 99 Civ. 10020, 2000 WL 378053 at 1 (S.D.N.Y. Apr. 11, 2000) (Peck, M.J); Independent Nat'l Distrib., Inc. v. Black Rain Communications, Inc., 94 Civ. 8464, 1996 WL 238401 at 2 (S.D.N.Y. Apr. 4, 1996 (Keenan, D.J. Peck, M.J.).
The complaint alleges that Peter Pestusic "personally and corporately was engaged in a joint venture surface coal mine in Sullivan County Pennsylvania with the Plaintiffs." (Dkt. No. 1: Compl. ¶ 5.) The complaint further asserts that Pastusic was president of Bernice and PP Coal. (Id.)
On January 27, 1997, plaintiffs entered into an agreement with Pastusic by which plaintiffs would fund the mining of coal at the "Barca Pit" and Pastusic, through his companies, would do the mining. (Compl. ¶¶ 16-18 Ex. A.)
In February 1999, plaintiffs lent $50,000 to Pastusic and Bernice. (Compl. ¶¶ 22-24, 43 Ex. B.) That loan was never repaid. (Compl. ¶ 29.) In April 1999, plaintiffs advanced another $200,000 to Pastusic and Bernice. (Compl. ¶¶ 28, 30 Ex. C.) Pursuant to the January 1997 and April 1999 agreements, plaintiffs "gave Bernice $800,000 plus to commence surface mining of the Barca Pit site." (Compl. ¶ 48.) "Bernice breached all agreements with plaintiffs . . . by never commencing the mining of the Barca Pit site." (Compl. ¶ 49.) Plaintiffs also assert that "Pastusic funneled funds out of Bernice and into PP Coal," thus damaging plaintiffs. (Compl. ¶¶ 57-60.)
Evidence on the Inquest
By Order dated February 14, 2002, I set up a schedule for submission of evidence and briefs on the inquest by plaintiffs and the defaulted defendants. (Dkt. No. 56: 2/14/02 Order.)
On or about February 25, 2002, Ainbinder submitted an affirmation in support of plaintiffs' inquest damages request, attached to which was a one page listing of "realized" damages of $1,486,000 and "unrealized" damages of $13,350,000. (Dkt. No. 58: 2/25/02 Ainbinder Aff. Ex. A.)
The Court responded that Ainbinder's submission was "woefully insufficient," explaining:
Perhaps because plaintiffs Ainbinder and Barra are pro se, their inquest damage papers are woefully insufficient. They read more like a "wish list," or in any event a listing of claimed damages, rather than proof of same. Plaintiffs are to supplement their inquest papers by March 8, 2002 with affidavits, as well as any documentary proof (such as any Notes in issue), that in admissible evidentiary form supports their claim for damages. The new papers must be "stand alone" — all proof of damages must be contained therein.
The Court strongly recommends that plaintiffs retain counsel. On the current submission, the Court would not award plaintiffs any damages, despite the default.
Defendants' response papers are extended to March 22, 2002, and any reply papers from plaintiffs are due March 29, 2002.
(Dkt. No. 59: 2/27/02 Order, emphasis in original.)
Ainbinder responded with an affirmation received on March 8, 2002. (Dkt. No. 61: 3/8/02 Ainbinder Aff.)
As to PP Coal, plaintiffs conceded that they are "unable to prove their [damages] allegations," explaining:
6. Plaintiffs alleged in their complaint that Peter Pastusic funneled funds out of Bernice Mining Contracting Inc. into PP Coal Co. for his personnel [sic] use.
7. Due to the fact that PP Coal Co. has never answered Plaintiffs' Complaint and no discovery or trial has commenced, Plaintiffs are unable to prove their allegations.
(Dkt. No. 61: 3/8/02 Ainbinder Aff. ¶¶ 6-7.)
As to Bernice, plaintiffs submitted proof as to three claims: First, $500,000, based on plaintiffs' settlement agreement with Lisa Pastusic, which assigned to plaintiffs her claim of $500,000 against Bernice. (3/8/02 Ainbinder Aff. ¶ 1 Ex. A.) Second, $980,000, based on plaintiffs' settlement agreement with the state of Peter Pastusic, which assigned to plaintiffs $980,000 of a $2 million note claim against Bernice. (3/8/02 Ainbinder Aff. ¶ 2 Ex. B.) Third, damages on plaintiffs' breach of contract claim against Bernice pursuant to the January 27, 1997 agreement, attaching copies of a wire transfer for $100,000 and checks totaling $484,500 from plaintiffs to Bernice. (3/8/02 Ainbinder Aff. ¶¶ 3-5 Ex. C.) On all three bases, plaintiffs seek $2,064,500 from Bernice (3/8/02 Ainbinder Aff., Wherefore Clause ¶ A), plus attorney fees (Id. ¶ B).
Attorney's fees are not included in the calculation here, because they are not recoverable in the absence of contractual or statutory obligation. (See Dkt. No. 61: 3/8/02 Ainbinder Aff. Ex C, no provision in contract regarding attorney's fees.) See also Coker v. Bank of America, 984 F. Supp. 757, 762 n. 2 (S.D.N.Y. 1997) (Keenan, D.J Peck, M.J.) (citing Alyeska Pipline Serv. Co. v. Wilderness Society, 421 U.S. 240, 257, 95 S.Ct. 1612, 1621 (1975) ("absent statute or enforceable contract, litigants pay their own attorneys' fees.")). Moreover, since plaintiffs appeared in this action pro se, they are not entitled to attorneys fees. See Iannaccone v. Law, No. 00-6185, 2001 WL 40589 at 1 (2d Cir. Jan. 17, 2001), cert. denied, 122 S.Ct. 213 (2001); accord, e.g., Kay v. Ehrler, 499 U.S. 432, 436-37, 111 S.Ct. 1435, 1437-38 (1991); Kuzma v. Internal Revenue Serv., 821 F.2d 930, 931 (2d Cir. 1987); Crooker v. U.S. Dep't of the Treasury, 634 F.2d 48, 49 (2d Cir. 1980).
ANALYSIS
The Second Circuit has approved the holding of an inquest by affidavit without an in-person court hearing, "'as long as [the Court has ensured that there was a basis for the damages specified in the default judgment.'" Transatlantic Marine Claims Agency, Inc. v. Ace Shipping Corp., 109 F.3d 105, 111 (2d Cir. 1997) (quoting Fustok v. Conti Commodity Servs. Inc., 873 F.2d 38, 40 (2d Cir. 1989)). PP CoalAs to PP Coal, plaintiffs hale candidly admitted that because PP has defaulted and plaintiffs had no discovery as to PP, "Plaintiffs are unable to prove their allegations." (Dkt. No. 61: 3/8/02 Ainbinder Aff. ¶ 7.) Thus, plaintiffs cannot be awarded damages against PP. PP, however, should not be allowed to benefit from its default. Accordingly, I sua sponte recommend that the Court vacate the default judgment against PP and dismiss plaintiffs' claim against PP without prejudice.
Bernice
Plaintiffs seek damages against Bernice based on assignments of rights from Lisa Pastusic and the state of Peter Pastusic that plaintiffs received in settlement of their claims in this lawsuit against those defendants. The complaint, however, did not assert claims based on those settlement-assignments, since they did not tale place until after the complaint was filed. Rule 54(c) of the Faderal Rules of Civil Procedure provides that a "judgment by default shall not be different in kind from or exceed in amount that prayed for in the demand for judgment." As explained by Professors Wright and Miller:
The first sentence of Rule 54(c) states that a judgment by default is limited to the relief demanded in the complaint. The theory of this provision is that the defending party should be able to decide on the basis of the relief requested in the original pleading whether to expend the time, effort, and money necessary to defend the action. It would be fundamentally unfair to have the complaint lead defendant to believe that only a certain type and dimension of relief was being sought and then, should defendant attempt to limit the scope and size of the potential judgment by not appearing or otherwise defaulting, allow the court to give a different type of relief or a larger damage award. . . . In sum, then, a default judgment may not extend to matters outside the issues raised by the pleadings or beyond the scope of the relief demanded. A judgment in a default case that awards relief that either is more than or different in kind from that requested originally is null and void and defendant may attack it collaterally in another proceeding.
10 Wright, Miller Kane, Federal Practice Procedure: Civil 3d § 2663 (1998) (fns. omitted); accord, e.g., Semi Conductor Materials, Inc. v. Agriculture Input Corp., 96 Civ. 7907, 1997 WL 566083 at 2 (S.D.N.Y. Aug. 19, 1997) (Kaplan, D.J Peck, M.J); see also, e.g., Riggs, Ferris Greer v. Lillibridge, 316 F.2d 60, 62-63 (2d Cir. 1963); Levesque v. Kelly Communications, Inc., 91 Civ. 7045, 1993 WL 22113 at 6 (S.D.N.Y. Jan. 25, 1993); Maria B. Watson S.A. v. Maurier, 685 F. Supp. 910, 912 (S.D.N.Y. 1988); 10 Moore, Moore's Federal Practice § 54.71 (3d ed. 2001).
Accordingly, because plaintiffs' settlement-related assignments occurred after the filing of the complaint and obviously therefore are not referred to in the complaint, plaintiffs cannot recover on those assignment claims on this inquest. Plaintiffs, of course, a-a free to commence a new action against Bernice on the assigned claims.
As to plaintiffs' "direct" claim against Bernice for breach of the January 1997 agreement, plaintiffs have proved that they paid $584,500 to Bernice. (Dkt. No. 61: 3/8/02 Ainbinder Aff. ¶ 5 Exs. C3 C4.) However, the January 1997 agreement required plaintiffs to pay $25,000 for an option (id. Ex. C1: 1/97 Agmt. ¶ 1), $50,000 to purchase a 50% interest in the mining lease (id. 1/97 Agmt. ¶ 4), and up to $45,000 for equipment (id. ¶ 5). In addition, the April 1999 supplemental agreement appears to require plaintiffs to contribute an additional $200,000. (id. Ex. C2: 4/99 Agmt. ¶ 2.)
If plaintiffs were seeking to rescind the ageements and recover the money they contributed into the mining transaction, that would be one thing. But, to the contrary, plaintiffs still vary much want to mine the Barca Pit. There is no doubt that, in this mining deal, plaintiffs got the shaft. While the Court assumes that plaintiffs have been damaged by Bernice's breach of the January 1997 agreement, plaintiffs have not proved the amount of my such damages. Absent proof of damages on an inquest, the Court cannot award damages.
CONCLUSION
For the reasons set forth above, (a) the Court should vacate the default against PP and dismiss plaintiffs' complaint against PP without prejudice, and (b) plaintiffs are free to pursue new and separate actions against Bernice based on the settlement assignments to plaintiffs after the complaint in this action, and (c) the Court should not award plaintiffs any damages on plaintiffs' breach of contract claim for plaintiffs' failure to submit proof of any damages (if plaintiffs therefore would want the default against Bernice vacated and the case against Bernice dismissed without prejudice, plaintiffs should so request and if plaintiffs do so, the Court should grant that request).
SERVICE
Plaintiffs are to serve this Report and Recommendation on PP and Bernice, and file proof of service with the Clerk of Court.
FILING OF OBJECTIONS TO THIS REPORT AND RECOMMENDATION
Pursuant to 28 U.S.C. § 636(B)(1) and Rule 72(b) of the Federal Rules of Civil Procedure, the parties shall have ten (10) days from service of this Report to file written objections. See also Fed. R Civ. P.6. Such objections (and any responses to objections) shall be filed with the Clerk of the Court, with courtesy copies delivered to the chambers of the Honorable John G. Koeltl, 500 Pearl Street, Room 1030, and to my chambers 500 Pearl Street, Room 1370. Any requests for an extension of time for filing objections must be directed to Judge Koeltl. Failure to file objections will result in a waiver of those objections for purposes of appeal. Thomas v. Arn, 474 U.S. 140, 106 S.Ct. 466 (1985); IUE AFL-CIO Pension Fund v. Herrmann, 9 F.3d 1049, 1054 (2d Cir. 1993), cert. denied, 513 U.S. 822, 115 S.Ct. 86 (1994); Roldan v. Racatte, 984 F.2d 85, 89 (2d Cir. 1993); Frank v. Johnson, 968 F.2d 298, 300 (2d Cir.), cert. denied, 506 U.S. 1038, 113 S.Ct. 825 (1992); Small v. Secretary of Health Human Servs, 892 F.2d 15, 16 (2d Cir. 1989);Wesolek v. Canadair Ltd., 838 F.2d 55, 57-59 (2d Cir. 1988); McCarthy v. Manson, 714 F.2d 234, 237-38 (2d Cir. 1983); 28 U.S.C. § 636(b)(1); Fed.R.Civ.P.72, 6(a), 6(e).