Opinion
97 Civ. 0084 (VM) cons. w/, 97 Civ. 5116 (VM)
September 11, 2003
DECISION AND ORDER
By order dated September 4, 2002, the Court granted plaintiffs Anglo-Iberia Underwriting Management Company ("AI") and Industrial Re International, Inc. ("IR," and collectively with AI, "Plaintiff's") a default judgment against two of the defendants to this action, Daniel J. Lodderhose ("Lodderhose") and Prio Adhi Sartono ("Sartono," and collectively with Lodderhose, "Defendants"). Plaintiff's moved for damages against those defendants, and submitted the affidavit ("Pi. Aff.") of Rene A. Gutierrez ("Gutierrez") in support. Gutierrez is the President of AI and IR. For the reasons set forth below, the Court finds Lodderhose and Sartono jointly and severally liable to AI in the amount of $2,133,094.95, and directs entry of judgment against them in that amount.
I. BACKGROUND
The factual background is derived from two complaints which the Court later consolidated into the present lawsuit. See Anglo-Iberia Underwriting Mgmt. Co. v. P.T. Jamsostek, No. 97 Civ. 5116, Docket #1 (S.D.N.Y. July 15, 1997); Anglo-Iberia Underwriting Mqmt. Co. v. Lodderhose, No. 97 Civ. 84, Docket #1 (S.D.N.Y. January 7, 1997).
AI, a reinsurance underwriting manager, and IR, a reinsurance intermediary, entered into an agreement with an enterprise called P.T. Astek (Persero) and also known as P.T. Jamostek (Persero) ("Astek"). Astek, which is owned by the Indonesian government, purportedly agreed to reinsure a portfolio of reinsurance risk for certain AI client companies. The collapse of this agreement constitututes the crux of the lawsuit.
Sartono and Lodderhose, among others, arranged the transaction from the Astek side. Sartono, an Asktek employee, hired Lodderhose and his firm to be the exclusive global reinsurance managers for Astek, and all correspondence with Astek was to be directed through them. Sartoro and Lodderhose represented to AI and IR that Sartono was a director of Astek and that he was authorized to enter into reinsurance arrangements on its behalf. They also represented that Astek was authorized to write international reinsurance. The agreement failed because these representations were false.
Sartoro was a low-level Asktek employee, not a director, and he was not authorized to enter contracts on Astek's behalf. According to affidavits filed as part of a previous motion, Astek is a statutorily-created enterprise that administers Indonesia's social security system, and it is prohibited by statute from conducting any other insurance business.See Anglo-Iberia Underwriting Mqmt. Co. v. P.T. Jamsostek, No. 97 Civ. 5116, Docket #11, at 2-3 (S.D.N.Y. Feb. 27, 1998) (P.T. Jamsostek Motion to Dismiss). Those affidavits state that Sartono confessed to having misappropriated Astek's letterhead and official stamp and was fired. Id. at 8-9. A previous order of the Court agreed that Sartono had misappropriated Astek's name "as part of a scheme to misrepresent his authority to engage in reinsurance activity."Anglo-Iberia Underwriting Mqmt. Co. v. P.T. Jamsostek, No. 97 Civ. 5116, 1999 WL 76909, at *3 (S.D.N.Y. Feb. 16, 1999). The other defendants, including Lodderhose, had reason to suspect that Sartono was a fraud, but they failed to investigate.
When these facts came to light, Plaintiff's stopped paying the premiums and brought this lawsuit. Plaintiff's' complaint asserts various claims against Sartoro and Lodderhose, including breach of contract, fraud and misrepresentation, and state and federal racketeering.
Previous orders of the Court include a more detailed review of the facts and the other parties. See Anglo-Iberia Underwriting Mamt. Co. v. Lodderhose, 224 F. Supp.2d 679, 681-83 (S.D.N.Y. 2002); Anglo-Iberia Underwriting Mgmt. Co. v. P.T. Jamsostek, No. 97 Civ. 5116, 1998 WL 289711, at *l-2 (S.D.N.Y. June 4, 1998).
II. DISCUSSION
A. STANDARD FOR DEFAULT JUDGMENT DAMAGES
When the Court enters a default judgment, it must "accept as true all of the factual allegations of the complaint," Au Bon Pain Corp. v. Artect, Inc., 653 F.2d 61, 65 (2d Cir. 1981), but "the amount of damages are not deemed true." Credit Lvonnais Securities (USA) v. Alcantara, 183 F.3d 151, 152 (2d Cir. 1999). The Court must "conduct an inquiry in order to ascertain the amount of damages with reasonable certainty." Id. This inquiry "involves two tasks: determining the proper rule for calculating damages on such a claim, and assessing plaintiff's evidence supporting the damages to be determined under this rule." Id. In calculating damages, the Court "need not agree that the alleged facts constitute a valid cause of action." Au Bon Pain, 653 F.2d at 65.
Accordingly, the Court will consider to what extent Plaintiff's, via their complaint and the Gutierrez affidavit, have demonstrated "with reasonable certainty" they are legally entitled to damages. The Court has wide discretion in this regard. See Sony Corp. v. Elm State Elecs., Inc., 800 F.2d 317, 321 (2d. Cir. 1986) (reviewing default damages for abuse of discretion).
B. PLAINTIFFS' ALLEGED DAMAGES
AI claims losses of $711,031.65 for premiums it paid to defendants, which were never returned. Pl. Aff. ¶ 15(a). AI provides photocopies of the checks it wrote to Astek and of bank transfer orders. These losses are recoverable as the actual pecuniary losses resulting from the fraud,see Lama Holding Co. v. Smith Barney Inc., 88 N.Y.2d 413, 421 (1996) (measure of damages for fraud is "out-of-pocket" rule), and the court credits AI's evidence in this regard.
AI also claims it paid claims made by reinsureds "in the reasonably estimated sum of $1,100,000." PI. aff. at ¶ 15(b). AI provides no explanation of how it arrived at this sum, nor any verification of this sum, besides the Gutierrez affidavit itself. The Court concludes that AI has not demonstrated this measure of damage with reasonable certainty.
AI next claims it lost the opportunity to earn substantial management fees. Pl. aff. ¶ 15(c). According to tax records, AI's management fees dropped from $918,917 to $179,214 between 1996 and 1997, allegedly because of the failed Astek deal. AI has not earned any fees since. AI claims that, but for Defendants' breach of contract: and tortious conduct, it could have continued the agreement with Astek or another reinsurer and thereby earned fees for at least 25 years. It argues that its losses at the "conservative rate of $739,703 per year" — the fee difference from 1996 to 1997 — would have totaled over $18 million. Pl. Aff. at ¶ 15(c) (iv). The Court disagrees.
Initially, it is far from clear that AI could have earned the same fees in 1996 as in 1997, had the Astek agreement not collapsed. AI merely invites the Court to assume that the Astek agreement, to the exclusion of any other possible factor, accounts for the difference. Moreover, AI has failed to explain in any detail what provisions of the Astek agreement, in conjunction with other reinsurance arrangements, would have resulted in fees totaling over $700,000 per year. The Court concludes that AI' s speculative assertions about future management fees fail to demonstrate damages with reasonable certainty and are thereby unrecoverable.
Similarly, IR claims it lost substantial brokerage commissions. Pi. Aff. ¶ 15(d). It claims that its commissions dropped from $652,119 to $530,924 between 1997 and 1998, and that it made no commissions thereafter. IR calculates that at its 1997 rate of around $600,000 in fees, it would have earned over $15 million over the next 25 years. Pl. Aff. ¶ 15(d)(v). Again, the Court disagrees.
It is unclear how IR arrived at these figures. The records it attached to the Gutierrez affidavit show that IR earned $617,650 in commissions and fees in 1998 and $495,500 in commissions and fees in 1999. Even if the record accurately reflected the representations in the Gutierrez affidavit, the Court would conclude that these fees are speculative and thus unrecoverable.
IR has not explained in any detail how the collapse of the Astek agreement accounted for the losses, to the exclusion of other factors, nor has it explained how the Astek agreement, if successful, would have resulted in any particular amount of fees. Thus, the Court concludes that IR has not demonstrated its assertions of future commission with reasonable certainty.
Next, Plaintiff's assert that the damage to their reputations, as a direct result of Defendants' conduct, caused them to close their businesses. They assert Defendants should be ordered to pay $10,000,000 for the business closure. PI. Aff. ¶ 15(e). Plaintiff's provide no explanation of how they arrived at the figure of $10,000,000. The Court: must accept the facts in the complaint as true — namely, that Defendants' caused AI and IR to close — but the Court need not uncritically accept an entirely unsubstantiated figure. The Court concludes that these damages are speculative and thus not recoverable.
Plaintiff's allege they have incurred legal fees of an estimated $575,000 in defending claims against them arising out of the failed Astek agreement, and in prosecuting the present claims against Defendants. Pl. Aff. ¶ 15(g). Again, they provide no explanation as to how they arrived at that figure. They attach a copy of a complaint of a lawsuit brought against AI and IR, and assert that at least $225,000 of the legal fees are attributable to that lawsuit. The Court cannot possibly conclude, with any certainty, that these companies spent over $500,000 in legal fees from the mere fact that a complaint was filed. Without more, these costs are not recoverable at this time. Plaintiff's shall have leave to file a supplemental application for reasonable and sufficiently documented attorneys fees and costs incurred in connection with prosecuting this action.
AI and IR urge the Court to treble the damages under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 and 1962, or as a measure of punitive damages. Pl. Aff. ¶ 15(f). Plaintiff's have successfully pled a cause of action under RICO, and the statute states that such plaintiffs "shall recover threefold the damages . . ." 18 U.S.C. § 1964(c) (emphasis added). Accordingly, the Court orders a judgment in the amount of three times the award to AI, or $2,133,094.95.
Although a previous order of the Court dismissed the RICO claims as inadequately plead, the Court permitted plaintiffs to re-plead those claims within 15 days. See P.T. Jamsostek, 1998 WL 289711, at *6. Plaintiff's then submitted an amended complaint, which cured the defect. P.T. Jamsostek, No. 97 Civ. 5116, Docket Entry #23 (filed June 17, 1998).
3. Order
For the reasons discussed above, it is herebyORDERED that defendants Daniel J. Lodderhose and Prio Adhi Sartono are found liable, jointly and severally, to plaintiff Anglo-Iberia Underwriting Management Company and the Clerk of Court is directed to enter judgment in the amount of $2,133,094.95, and it is further
ORDERED that within twenty (20) days of the date of this order Plaintiff's may file a supplemental application for reasonable attorney's fees and costs incurred in prosecuting this action.
The Clerk of Court is directed to close this case.