Usov v. Marc Lazar Inc. ( 2018 )

17-3970-cv
Usov v. Marc Lazar Inc.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY
FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN
CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE
EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION
“SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON
ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second Circuit, held at
the Thurgood Marshall United States Courthouse, at 40 Foley Square, in the City of New
York, on the 16th day of November, two thousand eighteen.
PRESENT: JOHN M. WALKER, JR.,
PIERRE N. LEVAL,
CHRISTOPHER F. DRONEY,
Circuit Judges.
________________________________________________
GEORGY USOV,
Plaintiff-Appellee,
v. No. 17-3970-cv
MARC LAZAR INC.,
Defendant-Appellant,
MARC LAZAR,
Defendant.
________________________________________________
FOR PLAINTIFF-APPELLEE: RICHARD A. ROTH, The Roth Law Firm, PLLC,
New York, NY.
FOR DEFENDANT-APPELLANT: MARVIN NEIMAN, Neiman & Maranz P.C., New
York, NY
Appeal from a judgment of the United States District Court for the Southern District
of New York (Sweet, J.).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED,
AND DECREED that the order of the district court is AFFIRMED.
This action is a dispute among diamond merchants, with much of its history
occurring in New York City. Defendant-Appellant Marc Lazar Inc. (“MLI”) appeals from
a final judgment of the United States District Court for the Southern District of New York,
in favor of Plaintiff-Appellee Georgy Usov. Usov brought New York state-law claims for
breach of contract, unjust enrichment, and account stated, arising out of MLI’s purported
failure to compensate Usov for his share of the value of diamond collections that Usov and
his related entities had consigned to MLI. Following a bench trial, the district court issued
a decision on August 10, 2017, finding that Usov had proved his claims for breach of
contract and account stated.1 The district court then considered submissions as to damages
and, on August 30, 2017, entered judgment for Usov in the amount of $5,134,672.16. On
November 14, 2017, it granted MLI’s motion to reconsider, but denied its application to
amend the judgment. We otherwise assume the parties’ familiarity with the underlying
facts and the procedural history of the case.
On appeal, MLI first contends that the district court lacked subject matter
jurisdiction. Next, MLI argues that the district court made erroneous findings and
improperly weighed certain evidence, resulting in a damages award that was excessive and
not justified by the evidence.
“We review the district court’s factual findings regarding subject matter jurisdiction
for clear error and its legal conclusion as to whether subject matter jurisdiction exists de
novo.” Oscar Gruss & Son, Inc. v. Hollander, 337 F.3d 186, 193 (2d Cir. 2003). We also
review other factual findings made at a bench trial for clear error, with particular deference
to credibility determinations. See Phoenix Global Ventures, LLC v. Phoenix Hotel Assocs.,
Ltd., 422 F.3d 72, 76 (2d Cir. 2005). In addition, “we accord great deference to the district
court’s resolution of evidentiary conflicts, its choices among competing inferences
to be drawn from the evidence, and its decision as to what weight to
assign particular evidence.” Freedom Holdings, Inc. v. Cuomo, 624 F.3d 38, 54 (2d Cir.
2010) (citing Anderson v. Bessemer City, 470 U.S. 564, 573–74 (1985)).
1. Subject Matter Jurisdiction
MLI argues that the district court lacked subject matter jurisdiction based on
diversity of citizenship pursuant to 28 U.S.C. § 1332 because non-party Elena Harris
1
The district court did not address Usov’s unjust enrichment claim because it was duplicative of the claim
for breach of contract.
2
(“Harris”) was the “real party in interest,” and she, like the defendants, is a citizen of New
York.2 Harris is Usov’s daughter, and she was married to Harvey Harris (“Harvey”), who
originally owned the diamond assets and died in 2010. MLI contends that Usov and Harris
strategically and collusively named as a plaintiff only Usov, a Russian citizen, so as to
maintain diversity of citizenship.
“If subject matter jurisdiction is lacking, the action must be dismissed.” Oscar
Gruss, 337 F.3d at 193 (quoting Lyndonville Sav. Bank & Trust Co. v. Lussier, 211 F.3d
697, 700 (2d Cir. 2000)). Federal courts have diversity-based subject matter jurisdiction
over controversies between, inter alia, “citizens of a State and citizens or subjects of a
foreign state.” 28 U.S.C. § 1332(a)(2). “It is firmly established that ‘citizens’ for purposes
of a federal court’s diversity jurisdiction ‘must be real and substantial parties to the
controversy.’” Oscar Gruss, 337 F.3d at 193 (quoting Navarro Sav. Ass’n v. Lee, 446 U.S.
458, 460 (1980)). As a result, “[w]e will not deem [a party’s] citizenship controlling when
it acts merely as an agent representing the interests of others. In such a case, the citizenship
of the represented individuals controls for diversity purposes, as they are the real and
substantial parties to the dispute.” Airlines Reporting Corp. v. S & N Travel, Inc., 58 F.3d
857, 862 (2d Cir. 1995).
MLI’s argument based on Airlines Reporting has no application here. Usov was not
a mere agent; he had been the titular owner since well before the dispute arose. Thus, Usov
had a real interest in the diamonds, even if he held them for the eventual benefit of Harris,
as Usov’s heir and ultimate beneficiary.
In arguing to the contrary, MLI relies on two statements in the district court’s
opinion which followed the bench trial. First, the district court stated in the introductory
paragraph that Usov “is the father of Elena Harris . . . and seeks judgment on her behalf.”
App’x at 385. Second, the district court made a finding that MLI’s owner, Marc Lazar,
was not a credible witness and that Harris, “although . . . an interested party,” was credible.
App’x at 386–87. From these statements, MLI contends that the district court found not
only that Harris had a financial interest in the litigation, but also that Usov lacked such an
interest. MLI contends that Usov acted solely as Harris’s agent for the purpose of creating
diversity, which was thus collusively obtained, and was invalid.
The district court statements, however, did not mean what MLI contends. The
district court found that, in 2006, Usov and Harvey formed Pinnacle Trading Limited
(“Pinnacle”) to receive the diamond assets at issue in this case. Harvey wished to transfer
the assets to Pinnacle because he was concerned about his health. Usov was the sole owner
of Pinnacle, and Harris worked for Pinnacle as a consultant primarily responsible for
diamond trading. Harris—at Usov’s direction—met with Harvey and Lazar in 2006 to
2
There is no dispute that the requirements for federal question jurisdiction pursuant to 28 U.S.C. § 1331
were not satisfied.
3
execute a consignment agreement between Pinnacle and MLI, and it was confirmed at that
meeting that Pinnacle was the owner of the diamonds. In 2008, Pinnacle transferred the
diamonds to Mervia Investments, S.A. (“Mervia”). The district court expressly found that
Usov formed Mervia in 2008 and was its sole owner. Then, in 2011, Usov, with Harris’s
assistance, terminated Mervia and transferred all the diamond assets to himself.
Thus, the district court’s statement that Usov sought judgment on behalf of his
daughter was clearly only an observation that Harris, as Usov’s heir and ultimate
beneficiary, would benefit from her father prevailing in this lawsuit. The district court
neither stated nor implied that Usov was not the legitimate titular owner with a true interest
in preserving the assets placed in his hands by his son-in-law. Rather, the district court
found that Usov owned companies that owned the diamond assets from 2006 until 2011
and that he personally owned the assets from 2011 onward—well before the events giving
rise to this dispute.
Moreover, as the context of that statement makes clear, when the district court found
Harris to be a credible witness notwithstanding that she was an “interested” party, the court
was using the term in a broad sense as bearing on her credibility. While it is correct that
Harris was “interested” in this litigation in that she stood to potentially benefit financially,
it does not follow that she was a “real party in interest” for purposes of diversity
jurisdiction. The district court was correct in its conclusion that diversity jurisdiction
existed.
MLI’s remaining arguments as to subject matter jurisdiction are also unpersuasive.
For one, MLI contends that a “presumption of collusion” applies here. Assuming without
deciding that this is correct, any such presumption is overcome. As previously stated, the
arrangement placing Harvey’s diamonds under Usov’s ownership, even if made for the
benefit of Usov’s daughter, was established long before this dispute arose. Usov’s
ownership thus was not part of a scheme to create diversity of citizenship for litigation
purposes.
In addition, MLI suggests in its opening brief—and explicitly argues in its reply
brief—that Usov never owned the diamond assets until 2011. In MLI’s view, Harvey, and
then Harris after Harvey’s death, developed a plan to create diversity jurisdiction. In
support, MLI points to an email from Mervia’s director of investments in 2010 stating that
Harris “has been the sole and beneficial owner of [Mervia] since 2008.” App’x at 354.
The email was inadmissible hearsay, and its author did not testify. The fact that the district
court explicitly found that Usov owned Mervia shows that the court considered the hearsay
in a bench trial only for what it was worth, and found the contrary of what the email stated
on the basis of proper evidence.
We therefore agree with the district court’s exercise of subject matter jurisdiction,
based on the facts it found.
4
2. Damages
a. Value of Diamond Inventory in MLI’s Possession
MLI next contends that the district court’s damages award was excessive because
the district court made fact-finding errors resulting in a valuation for the diamond assets at
issue of approximately $5 million rather than $2 million.
The district court made the following pertinent findings after weighing the
evidence.3 As an initial matter, it bears repeating that the district court specifically found
that Harris was a credible witness and that Lazar was not. As a result, it credited Harris’s
versions of what transpired in certain meetings (which she also audio-recorded) with Lazar
in 2012,4 as well as her accounts of what she and Lazar said but was not captured on the
recordings. For example, the district court credited Harris’s testimony that, in 2012, MLI
prepared a spreadsheet (referred to as “Exhibit 11” at trial) which estimated the market
value of the diamond inventory at issue at approximately $5 million.5 Harris testified that,
at a meeting in July 2012, she and Lazar discussed MLI’s valuation in Exhibit 11 and that
she then “was supposed to do [her] own due diligence and look around and see if we agree
on that number.” App’x at 97, 401, 419. After the meeting, Harris did her own valuation
(referred to as “Exhibit 18”), which was nearly the same as Lazar’s $5 million calculation.
Harris and Lazar then met again in October 2012, at which time they discussed, among
other things, Lazar purchasing Usov’s share. In doing so, Harris approvingly referred back
to Lazar’s 2012 valuation of Usov’s two-thirds share as worth approximately $3.2 million,
and Lazar reminded Harris that valuing the diamond assets as a whole required adding his
one-third share to that figure. Adding the two shares together would equal approximately
$5 million. The district court thus found that the agreed market value of the diamonds was
approximately $5 million.6
3
The district court made findings and weighed evidence in its opinion following a bench trial, its order
entering judgment, and its order denying MLI’s motion to reconsider and amend the judgment.
4
The transcripts of these meetings were before the district court.
5
The document stated that Usov’s two-thirds share was worth around $3.3 million, resulting in a total
valuation of approximately $5 million.
6
MLI’s challenges are limited to the district court’s weighing of certain evidence and factual findings. And
so, it does not argue, for example, that even if the district court properly gave weight to the 2012 valuations,
it improperly found that Harris and MLI agreed to a figure. See, e.g., Abbott, Duncan & Wiener v. Ragusa,
625 N.Y.S.2d 178, 178 (N.Y. App. Div. 1995) (stating that one of the elements of a claim for account stated
is mutual assent to an owed balance). The argument is deemed waived accordingly. Norton v. Sam's
Club, 145 F.3d 114, 117 (2d Cir. 1998) (“Issues not sufficiently argued in the briefs are
considered waived and normally will not be addressed on appeal.”).
5
MLI advances several arguments for why certain of the district court’s findings and
weighing of certain evidence were erroneous, none of which is convincing. First, it
contends that the district court should have relied instead on a 2008 spreadsheet, which
showed a total valuation of only approximately $2 million. MLI contends that “this was
the only inventory list ever produced by Usov [or Harris] in the case” and that, because
Usov did not disclose a more current amount, this shows that the valuation never changed
from 2008. App. Br. at 14. However, the district court found that Lazar himself, and
Harris, prepared updated valuations in 2012. It thus was not error for the district court to
give little weight to the earlier 2008 valuation.
MLI also argues that the district court erred in relying on Harris’s testimony in
concluding that Harris and MLI agreed to the valuation set forth in Exhibit 11 and that MLI
had prepared it. MLI contends that these conclusions were supported only by Harris’s
testimony but not by statements in the recordings that Harris had made of some of her
meetings with Lazar in 2012. But, even if so, Lazar himself maintained at trial that the
“tapes have breaks” and “inaudibles.” App’x at 172. Accordingly, it was not error for the
district court to credit Harris’s testimony about discussion that may not have been audible
on the recordings. Moreover, MLI has not shown that the district court clearly erred in
finding Harris credible—and Lazar not.
MLI also contends that the valuation Harris and Lazar agreed on at the October 2012
meeting reflected retail (or “asking”) prices rather than the market value, which—MLI
asserts—would be significantly lower.7 But MLI does not cite to anything in the record to
show how much less the market value would be than the asking or retail prices. MLI also
argues that Harris’s offer to sell Usov’s share for around $1.7 million “cash today” cannot
be consistent with the parties having agreed that Usov’s share was worth around $3.2
million at market valuation, because the discount would have been too high. In MLI’s
view, this must have meant that the $3.2 million figure was merely a retail value, that
Usov’s share was actually worth around $2 million at a (lower) market value, and that the
total market valuation of the diamond assets was only around $3 million or less. The
district court, however, credited Harris’s testimony on this issue. We conclude that the
district court did not err as to this conclusion or the others that MLI challenges with regard
to the value of the diamond assets.
b. Bonus for Improving the Red Stone
MLI also contends that the judgment should be reduced by $1.5 million to account
for a 33% bonus to which it was entitled for making improvements to the “Red Stone.”8
7
The parties agree that the damages calculation should be based on market value.
8
The Red Stone was one of the diamonds that Usov consigned to MLI. MLI contends that it made grading
“improvements” to the Red Stone such that it became certifiable pursuant to the Gemological Institute of
America and increased in value tenfold.
6
The district court held that MLI had failed to prove the existence of such an agreement,
and it declined to amend the judgment. In support, MLI points to a 2005 email reflecting
that Harvey had offered MLI a similar bonus percentage for improving a different stone.
MLI also produced an email that Mervia’s manager sent to Lazar in 2010, referring to a
red stone of a different weight and stating that “[t]he original agreement was for 30% but
following colour upgrade of the red stone the participation was to be increased to 33%.”
App’x at 359. MLI contends that the 2010 email was merely “wrong on the details” and
evinces that the parties had agreed to an additional 33% bonus for MLI, in addition to the
33% to which it was already entitled. App. Br. at 24–26. The district court found that this
evidence was too insubstantial to prove that the parties had agreed to a 33% bonus for work
on the Red Stone.
Usov contends that the district court did not clearly err in its weighing of the
evidence, and he also points to Lazar’s testimony at trial, stating that “we didn’t have an
agreement” about a bonus. App’x at 135. “We deferred [agreeing] . . . and said let’s see
how much we actually sell it for.” Id. In Usov’s view, Lazar thus plainly admitted that no
bonus agreement had been reached. In its reply, MLI fails to respond to Usov’s argument
in this regard, thus effectively conceding the point. Given this testimony and the little
evidence otherwise, we find no error in the district court’s determination that MLI had
failed to prove it was entitled to a bonus for improving the Red Stone.
The district court therefore properly granted judgment in favor of Usov in the
amount of $5,134,672.16. We have considered MLI’s remaining arguments and conclude
they are without merit. Accordingly, the order of the district court is AFFIRMED.
FOR THE COURT:
Catherine O=Hagan Wolfe, Clerk of Court
7