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granting fee award of $482,840.25 for litigation of unpaid past and future payments and related costs of $11,731,386.46, based on market rates in New York and Brazil
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03 Civ. 5077 (DAB) (FM).
March 20, 2007
REPORT AND RECOMMENDATION TO THE HONORABLE DEBORAH A. BATTS
I. Introduction
This action arises out of an Aircraft Lease Agreement ("Lease") between plaintiff C.I.T. Leasing Corporation ("CIT"), as lessor, and defendant Brasmex — Brasil Minas Express Ltda. ("Brasmex"), as lessee. Defendant Master Minerais Ltda. ("Master Minerais") guaranteed the payment and performance of Brasmex's obligations under the Lease (the "Guarantee"). Brasmex defaulted under the Lease by failing to make required payments for rent and maintenance. After defaulting, Brasmex also refused to return the leased aircraft ("Aircraft"). CIT then commenced this action on July 9, 2003, seeking injunctive relief and damages for amounts due under the Lease and Guarantee.
The parties eventually reached a settlement agreement pursuant to which they reinstated and amended the Lease. However, Brasmex breached the settlement agreement, resulting in the termination of the Lease and settlement agreement on August 20, 2003. After being notified of the termination, Brasmex again refused to return the Aircraft. CIT then reinstated its application for injunctive relief before this Court and commenced parallel legal proceedings in Brazil to repossess the Aircraft. CIT eventually regained possession of the Aircraft through the Brazilian proceedings on December 17, 2003.
On March 10, 2005, Your Honor directed that a default judgment be entered against both defendants and referred this matter to me to conduct an inquest regarding the damages, if any, to be awarded to CIT. (Docket No. 34). Thereafter, by order dated March 23, 2005, I directed CIT to serve and file its papers by May 18, 2005, and gave the defendants until June 6, 2005, to respond. (Docket No. 37). CIT filed its inquest papers on May 18, 2005. (Docket Nos. 38-41). To date, however, the defendants have not retained counsel to appear on their behalf, nor have they submitted any opposition papers or contacted the Court.
Your Honor's order granting this relief mistakenly states that "Defendant's Motion for Default Judgment is hereby GRANTED." (Id. at 2). Since CIT was the only party seeking a default judgment, it is clear that the motion granted was CIT's motion.
For the reasons set forth below, I recommend that CIT be awarded damages in the amount of $11,731,386.46 and attorneys' fees and related expenses in the amount of $482,840.25, or a total of $12,214,226.71, plus prejudgment interest at the rate of nine percent per annum.
II. Standard of Review
In light of the defendants' default, CIT's well-pleaded allegations concerning issues other than damages must be accepted as true. See Cotton v. Slone, 4 F.3d 176, 181 (2d Cir. 1993);Greyhound Exhibitgroup, Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155, 158 (2d Cir. 1992); Fundex Capital Corp. v. Rochelle, No. 05 Civ. 2972 (RMB) (JCF), 2006 WL 547794, at *2 (S.D.N.Y. Mar. 7, 2006). Additionally, although a plaintiff seeking to recover damages against a defaulting defendant must prove its claim through the submission of evidence, the Court need not hold a hearing as long as (i) it has determined the proper rule for calculating damages on the claim, see Credit Lyonnais Secs. (USA), Inc. v. Alcantara, 183 F.3d 151, 155 (2d Cir. 1999), and (ii) the plaintiff's evidence establishes, with reasonable certainty, the basis for the damages specified in the default judgment. See Transatlantic Marine Claims Agency, Inc. v. Ace Shipping Corp., 109 F.3d 105, 111 (2d Cir. 1997); Bank of China v. Sub-Zero, Inc., No. 02 Civ. 4457 (RMB) (AJP), 2005 WL 1149780, at *2 (May 16, 2005). Here, both of these requirements have been met.
III. Facts
On the basis of CIT's complaint and inquest papers, I find as follows:
A. Parties and Jurisdiction
CIT is a Delaware corporation with its principal place of business in New York. (Decl. of John Michael Walling, sworn to on Mar. 13, 2005 ("Walling Decl."), ¶ 17). Defendants Brasmex and Master Minerais each are Brazilian corporations, maintaining a principal place of business in Minas Gerais, Brazil. (Id. ¶¶ 18, 19). Accordingly, because there is complete diversity and the amount in controversy is substantially more than $75,000, this Court has subject matter jurisdiction over this matter pursuant to 28 U.S.C. § 1332.
B. Factual Background
On July 26, 2002, the Bank of New York ("BoNY"), as lessor, entered into the Lease with Brasmex, as lessee. (Id. ¶ 3 Ex. 1 (Lease)). Pursuant to the Lease, BoNY leased the Aircraft to Brasmex in return for monthly payments of Basic Rent and Maintenance Reserves. (Id. ¶ 6). That same day, in order to induce BoNY to enter into the Lease, Master Minerais executed the Guarantee. (Id. ¶ 4 Ex. 2 (Guarantee)). Subsequently, on September 5, 2002, Brasmex, BoNY, and CIT entered into a Notice, Acknowledgment and Amendment, pursuant to which BoNY assigned to CIT all of its rights under the Lease. (Id. ¶ 3 Ex. 1 (Notice, Acknowledgment and Amendment)). The Guarantee provides that the
Maintenance Reserves are payments for inspection and maintenance services required to comply with Federal Aviation Administration and Brazilian Civil Aviation Authority regulations. (See Lease Ex. C).
Guaranteed Party may at any time sell, assign, transfer, or otherwise dispose of its interest in all or any part of this Guarantee [or] the Lease. . . . [A]ny purchaser, assignee, transferee, successor or other party acquiring the Guaranteed Party's interest shall have the same rights as the Guaranteed Party so conveyed and shall be deemed and declared a "Guaranteed Party" hereunder.
(Guarantee § 8). Accordingly, by operation of the Amendment, CIT became the lessor under the Lease and a "Guaranteed Party" under the Guarantee.
After Brasmex defaulted on its obligations to pay Basic Rent and Maintenance Reserves, CIT notified Brasmex of its default and demanded immediate payment of the past due amounts by letters dated April 16 and May 21, 2003. (Walling Decl. ¶ 7). Subsequently, by letter to Brasmax dated June 7, 2003, CIT terminated the Lease because the default had not been cured; CIT also demanded that the Aircraft be returned. (Id. ¶ 8).
On July 9, 2003, after Brasmex failed to return the Aircraft or cure its default, CIT commenced this action seeking injunctive relief. (Id. ¶ 9). Before Your Honor had an opportunity to rule on CIT's application for injunctive relief, the parties reached a Confidential Settlement Agreement ("Settlement Agreement") on August 7, 2003, which reinstated and amended the Lease. (Id. ¶ 10). The Settlement Agreement further provided for a rescheduling of the outstanding Basic Rent and required Brasmex to obtain a letter of credit to cover the unpaid Maintenance Reserves. (Id.). Thereafter, however, Brasmex breached the Settlement Agreement by failing to make a required $198,000 payment on August 12, 2003, and by failing to provide a letter of credit by August 14, 2003. (Id. ¶ 11). Accordingly, by letters to Brasmex dated August 20 and 29, 2003, CIT terminated the Settlement Agreement and Lease and again demanded the return of the Aircraft. (Id. ¶¶ 12-13).
On September 24, 2003, having not received the Aircraft from Brasmex, CIT reinstated its application before this Court for injunctive relief and commenced legal proceedings in Brazil to recover the Aircraft. (Id. ¶¶ 14-15). Through the Brazilian proceedings, CIT was able to recover the Aircraft on December 17, 2003, after which it was returned to the United States on December 1, 2004. (Id. ¶ 15).
C. Damages
1. Unpaid Rent
Article 18.5 of the Lease provides that the "Lessee shall be liable for any and all accrued and unpaid Rent." (Lease art. 18.5). Brasmex failed to make its required monthly rent payments of $198,000 from May 19, 2003, to July 19, 2003, for a total of $594,000 (3 mos. x $198,000). (Walling Decl. ¶ 24; Compl. ¶ 23). Against this amount, Brasmex is entitled to credit of $4,000 for an excess payment that it previously had made, as well as a credit of $120,000 for a payment that it made pursuant to the Settlement Agreement. (Id.). The net unpaid rent is therefore $470,000. (Walling Decl. ¶ 24).
2. Future Rent
Under Article 18.4 of the Lease, in the event of a default, CIT also is entitled to recover
all Rent and other amounts that would have been due hereunder during the Lease Term if an event of Default had not occurred . . . calculated on a present value basis using a discount rate of four percent (4%) per annum, discounted to the earlier of the date on which Lessor obtains possession of the Aircraft or Lessee makes an effective tender thereof.
(Lease art. 18.4). Thus, CIT is also entitled to post-default rent from August 2003 through September 2007, which is the end of the Lease Term. (See Walling Decl. ¶ 26). Pursuant to the Lease, Brasmex would have been required to make monthly rent payments of $198,000 from August 2003 through November 2004 (16 months), and $217,000 from December 2004 through September 2007 (34 months). (See id.). Therefore, the additional post-default rent to which CIT is entitled is $10,546,000. (Id.). After this sum is discounted to present value, using a four percent discount rate, CIT is entitled to additional rent in the amount of $9,715,485. (Id.).
3. Maintenance Reserves
The Lease further requires Brasmex to pay monthly Maintenance Reserves. (See Lease arts. 3.2, 5.7 Ex. C). Brasmex failed to make any payments for Maintenance Reserves from November 2002 through May 2003. (Walling Decl. ¶ 27). CIT therefore is entitled to recover $864,134.30 pursuant to this provision of the Lease. (Id.).
4. Costs and Expenses Incurred in Connection with the Repossession and Remarketing of the Aircraft
The Lease also provides that if CIT repossesses the Aircraft, Brasmex will be liable for
all reasonable expenses, disbursements, costs and fees incurred in (i) repossessing, storing, preserving, shipping, maintaining, repairing and refurbishing any of the Repossessed Items to the condition required by Article 16 hereof and (ii) preparing any of the Repossessed Items for sale or lease, advertising the sale or lease of any of the Repossessed Items and selling or releasing any of the Repossessed Items.
(Lease art. 18.7(b)).
Here, Brasmex did not voluntarily surrender the Aircraft. (Walling Decl. ¶¶ 12-15). Accordingly, CIT was required to expend the following monies to regain possession of the Aircraft:
• The sum of $41,838.41 paid to Infraero, the Brazilian public body responsible for the organization and management of airports, for parking the Aircraft and other expenses, such as "landing fees, air navigation charges, visual and radio charges." (Id. ¶ 39 Ex. 4).
• The sum of $11,615.25 paid to Consultoria Nacional e Internacional — Airways Internacional — Aerospace Consultants to obtain the approvals needed to export the Aircraft to the United States and deregister the Aircraft from the Brazilian registry. (Id. ¶ 40 Ex. 4).
• The sum of $1,499.59 paid to RPM Consultoria Aeronáutica for the lease of a microfilm reader. (Id. ¶ 41 Ex. 4).
• The sum of $11,245.57 paid to Store Tecnologia Ltda. for digitalization services. (Id. ¶ 42 Ex. 4).
• The sum of $43,474.11 paid to Proair Serviços Auxiliares de Transporte Aéreo Ltda. to secure the Aircraft. (Id. ¶ 43 Ex. 4).
Thus, the total expenses paid to third parties for expenses unrelated to the lawsuits that CIT filed here and in Brazil are $109,672.93 ($41,838.41 + $11,615.25 + $1,499.59 + $11,245.57 + $43,474.11).
After recovering the Aircraft through the Brazilian legal proceedings, CIT also paid a total of $572,094.23 for expenses relating to the Aircraft's maintenance and storage, the flight from Brazil to the United States, fuel, materials, and remarketing expenses. (See id. ¶¶ 51-54 Ex. 5).
CIT therefore is entitled to recover $681,767.16 ($109,672.93 + $572,094.23) pursuant to Article 18.7(b) of the Lease.
5. Attorneys' Fees and Related Expenses
The Lease further provides that Brasmex "shall be liable . . . for all reasonable legal fees and other costs and expenses incurred by reason of the occurrence of any Default or Event of Default." (Lease art. 18.5). Similarly, Master Minarais' Guarantee provides that Master Minarais "agrees to pay to the Guaranteed Party any and all reasonable expenses (including reasonable legal fees and expenses) incurred by the Guaranteed Party in enforcing this Guarantee." (Guarantee § 17).
In the United States, CIT retained the law firm of Holland Knight LLP ("Holland Knight") to prosecute this suit. To date, CIT has paid Holland Knight a total of $128,747.31, consisting of $122,046.36 in legal fees and $6,700.95 in reimbursable costs. (Decl. of Christopher G. Kelly, Esq., sworn to on May 18, 2005 ("Kelly Decl."), ¶ 25).
In connection with the parallel Brazilian proceedings, CIT retained the law firm of Xavier, Bernardes, Brança ("XBB") in São Paulo, Brazil, to help CIT repossess the Aircraft. (Walling Decl. ¶ 30). From April 30, 2003, to December 13, 2004, CIT paid to XBB $313,204.15 for its legal assistance. (Id. ¶¶ 34-36; see also id. Ex. 3 (XBB invoices)). In addition, CIT paid the sum of $8,185.05 to Humberto Theodoro Junior, an expert in Brazilian civil procedure, for legal advice regarding an interlocutory appeal by CIT. (Id. ¶ 45 Ex. 4). Finally, CIT paid $4,457.72 to Gleber, Pinheiro, Mourão e Raso Advogados, a firm that assisted XBB as local counsel. (Id. ¶ 46 Ex. 4).
CIT also incurred the following costs and expenses related to the Brazilian proceedings:
• Court-related expenses in the Tribunal de Alçada do Estado de Minas Gerais in the amount of $288.51. (Id. ¶ 44 Ex. 4).
• Travel and hotel expenses in the amount of $14,226.21. (Id. ¶ 47 Ex. 4).
• Translation fees in the amount of $4,625.16. (Id.).
• Notary services in the amount of $8,579.37. (Id.).
• "Other expenses, including those related to photocopying, telephone, mail, and courier services," in the amount of $2,860.94. (See id.).
Although these expenses total $15,045.10, in its papers CIT seeks only $14,226.21.
In its inquest papers, CIT seeks $2,943.47 for these expenses, although they actually total only $2,860.94. (See id.).
Accordingly, CIT paid a total of $353,566.17 for attorneys' fees and related expenses in connection with its parallel proceedings in Brazil.
IV. Discussion
The Lease and Guarantee provide that they are to be construed by New York law. (Lease art. 19.2; Guarantee § 12(a)).
A. Breach of Contract
Under New York law, a breach of contract is established by showing: (i) the existence of an agreement; (ii) the plaintiff's adequate performance of that agreement; (iii) a breach by the defendant; and (iv) damages. See Log On Am., Inc. v. Promethean Asset Mgmt. LLC, 223 F. Supp. 2d 435, 451 (S.D.N.Y. 2001) (citingHarsco Corp. v. Segui, 91 F.3d 337, 338 (2d Cir. 1996)); Johnson v. City of New York, No. 99 Civ. 165 (DAB), 2000 WL 377514, at *5 (S.D.N.Y. Apr. 12, 2000).
Here, the existence of an agreement between Brasmex and BoNY is shown by the signed Lease. BoNY clearly performed its obligations under the Lease by providing Brasmex with the Aircraft. Brasmex thereafter breached the Lease, however, by failing make the required monthly payments and maintenance reserves. As set forth above, the Lease specifies the damages to be paid in the event that a party breaches the agreement.
B. Breach of Guaranty
Under New York law, to make out a prima facie case of breach of a guarantee, a plaintiff must show: (i) an absolute and unconditional guarantee; (ii) the underlying debt; and (iii) a failure of the guarantor to perform under the guarantee. Fundex Capital Corp., 2006 WL 547794, at *2 (citing Buffalo Erie Reg'l Dev. Corp. v. World Auto Parts, Inc., 761 N.Y.S.2d 893, 894 (4th Dep't 2003);Kensington House Co. v. Oram, 739 N.Y.S.2d 572, 572-73 (1st Dep't 2002); City of New York v. Clarose Cinema Corp., 681 N.Y.S.2d 251, 253 (1st Dep't 1998)).
Here, CIT has established all three elements. First, Master Minerais entered into a guarantee of Brasmex's obligations under the Lease, which, by its terms, is absolute and unconditional. (Guarantee § 1). Second, CIT has established that Brasmex has defaulted on the Lease and the sums that it consequently is owed. Finally, by not making payment of those sums following the filing of this lawsuit, Master Minerais has failed to honor its Guarantee. CIT therefore is entitled to recover damages from Master Minerais.
C. Attorneys' Fees and Related Expenses
Under New York law, "[a] contract provision that in the event of default in paying the obligation the debtor will pay to the creditor the reasonable expenses of collecting the debt has long been recognized as lawful and proper." Mead v. First Trust Deposit Co., 400 N.Y.S.2d 936, 938 (4th Dep't 1977) (citing Roe v. Smyth, 278 N.Y. 364, 368-69 (1938); Waxman v. Williamson, 256 N.Y. 117, 122-23 (1931)).
A variety of factors informs the court's determination of whether a requested amount of attorneys' fees is reasonable or unreasonable, including "the difficulty of the questions involved; the skill required to handle the problem; the time and labor required; the lawyer's experience, ability and reputation; the customary fee charged by the Bar for similar services; and the amount involved."F.H. Krear Co. v. Nineteen Named Trustees, 810 F.2d 1250, 1263 (2d Cir. 1987) (quoting In re Schaich, 391 N.Y.S.2d 135, 136 (2d Dep't 1977)).
In support of its application for attorneys' fees, CIT originally submitted the declaration of Christopher G. Kelly, Esq., a member of Holland Knight, which included redacted copies of the invoices paid by CIT. CIT also has submitted the statements of its Brazilian counsel, XBB. After reviewing these submissions, I directed CIT to submit unredacted copies of the Holland Knight invoices for in camera review.
The Kelly Declaration and Holland Knight invoices establish that CIT has paid Holland Knight a total of $128,747.31, consisting of $122,046.36 in legal fees and $6,700.95 in expenses. (Kelly Decl. ¶ 25). I find that the hourly rate charged by each timekeeper is consistent with the timekeeper's experience and current market rates in the New York metropolitan area. I further find that the time charged for specific tasks is reasonable. Accordingly, CIT is entitled to recover the sum of $122,046.36 as the value of the services rendered by Holland Knight.
The disbursements billed by Holland Knight include charges for such items as copying, faxes, and computerized legal research for which no unit costs are set forth. Nonetheless, I note that the total disbursements amount to only about five percent of the time charges incurred and that CIT evidently paid these costs without questioning them. For these reasons, I find that it is reasonable to award CIT $6,700.95 for the expenses that Holland Knight incurred in the course of providing its services.
In support of its application to recover the attorneys' fees attributable to XBB's services, CIT originally submitted redacted invoices. Once again, I requested unredacted invoices which were furnished to me. Although I obviously am unfamiliar with prevailing rates for legal services in Brazil, the fact that CIT paid XBB without any assurance that it would in fact be able to recover XBB's fees from the defendants suggests that the rates charged by XBB for its time and disbursements were commercially reasonable, and I so find. The unredacted XBB invoices nevertheless contain several time entries for which no work description has been furnished or which inadvertently remained redacted. These entries are insufficient to warrant an award of attorneys' fees. See New York State Ass'n for Retarded Children, Inc. v. Carey, 711 F.2d 1136, 1147-48 (2d Cir. 1983) (applications for attorneys' fees should specify, for each attorney, the nature of the work done). Accordingly, the amount that CIT may recover for XBB's services and expenses related to the Brazilian proceedings should be reduced by $2,334.17, entitling CIT to recover $351,232 ($353,566.17 — $2,334.17).
The fees to be deducted are as follows: $1,525 billed by Maria Lynch on December 16, 2003, and May 21, July 5, and August 25, 2004; $46.67 billed by André Thiollier on December 16, 2003; $452.50 billed by Luis Azevedo on April 1 and 4, and July 6, 2004; $230 billed by Ana Derenusson on May 10, 2004; and $80 billed by Julia Camargo on July 8, 2004.
D. Prejudgment Interest
Under New York law, "[p]rejudgment interest in a breach of contract action is mandated," Gizzi v. Hall, 767 N.Y.S.2d 469, 472 (3d Dep't 2003), because "the purpose of awarding interest is to make an aggrieved party whole," Spodek v. Park Prop. Dev. Assocs., 96 N.Y.2d 577, 581 (2001). CIT therefore is entitled to recover prejudgment interest at the rate of nine percent per annum on its damages award. See CPLR §§ 5001, 5004 (McKinney 2004). To simplify the calculation, CIT should be awarded prejudgment interest on the damages resulting from the breach of the Lease from September 2005, the approximate midpoint of the unpaid Future Rent; on the sums paid to third parties other than XBB from December 17, 2003, when CIT recovered possession of the Aircraft; on the sums paid to XBB from December 13, 2004, the date of XBB's last invoice; and on Holland Knight's fees and disbursements from March 10, 2005, when Your Honor determined that CIT was entitled to a default judgment.
V. Conclusion
CIT should be awarded damages against defendants Brasmex and Master Minerais in the amount of $11,731,386.46 and attorneys' fees and related expenses in the amount of $482,840.25, or a total of $12,214,226.71, plus prejudgment interest at the rate of nine percent per annum calculated as set forth herein.
VI. Notice of Procedure for Filing of Objections to this Report and Recommendation
The parties are hereby directed that if they have objections to this Report and Recommendation, they must, within ten days from today, make them in writing, file them with the Clerk of the Court, and send copies to the chambers of the Honorable Deborah A. Batts and to the chambers of the undersigned, at the United States Courthouse, 500 Pearl Street, New York, New York 10007, and to any opposing parties. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6(a), 6(e), 72(b). Any requests for an extension of time for filing objections must be directed to Judge Batts. The failure to file timely objections will result in a waiver of those objections for purposes of appeal. See Thomas v. Arn, 474 U.S. 140 (1985); Frank v. Johnson, 968 F.2d 298, 300 (2d Cir. 1992); 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6(a), 6(e), 72(b).