Barkley v. United Property Group, LLC ( 2014 )

12-2909 (L)
Barkley v. United Property Group, LLC, et al.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
AMENDED 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.
1 At a stated term of the United States Court of Appeals
2 for the Second Circuit, held at the Thurgood Marshall United
3 States Courthouse, 40 Foley Square, in the City of New York,
4 on the 30th day of January, two thousand fourteen.
5
6 PRESENT: DENNIS JACOBS,
7 BARRINGTON D. PARKER,
8 DENNY CHIN,
9 Circuit Judges.
10
11 - - - - - - - - - - - - - - - - - - - -X
12 SANDRA C. BARKLEY, AKA Sandra C.
13 Barklay,
14 Plaintiff-Counter-Defendant-
15 Cross-Defendant, Appellee,
16
17 -v.- 12-2909-cv, 12-2912-cv,
18 12-3619-cv, 12-3621-cv
19
20 OLYMPIA MORTGAGE COMPANY,
21 Defendant-Counter-Claimant-
22 Cross-Defendant,
23
24 THOMAS MESSINA, DLJ MORTGAGE CAPITAL
25 LLC,
26 Defendants-Cross-Defendants-
27 Cross-Claimants,
28
1
1 ALLIANCE MORTGAGE CORPORATION, dba
2 Everyhome Mortgage Company, WILSHIRE
3 CREDIT CORPORATION, FEDERAL NATIONAL
4 MORTGAGE ASSOCIATION, XYZ CORPORATION
5 (Said name being fictitious, it being
6 the intention of Plaintiff to
7 designate any corporation having a
8 legal interest in Plaintiffs’
9 mortgages), JP MORGAN CHASE BANK, as
10 Trustee for the Home Equity Trust
11 Series 2003-3 submitted as deft for
12 Wilshire Credit Corporation and XYZ
13 Corporation, MICHAEL B. CHEATHAM,
14 CREDIT SUISSE FIRST BOSTON LLC,
15 CREDIT SUISSE FIRST BOSTON MORTGAGE
16 SECURITIES, INC., BENJAMIN TURNER,
17
18 Defendant-Cross-Defendants,
19
20 MICHAEL MASCIALE, CERTILMAN BALIN
21 ADLER & HYMAN, LLP,
22
23 Defendants,
24
25 UNITED PROPERTY GROUP, LLC, UNITED
26 HOMES, LLC, GALIT NETWORK, LLC, YARON
27 HERSHCO,
28
29 Defendants-Cross-Defendants-
30 Cross-Claimants-Appellants.*
31 - - - - - - - - - - - - - - - - - - - -X
32
33 FOR APPELLANTS: JASON P. SULTZER (Bryon L.
34 Friedman, on the brief),
35 Littleton Joyce Ughetta Park &
36 Kelly LLP, Purchase, New York.
37
38 DARREN OVED (Brian S. Tretter,
39 on the brief), Oved & Oved LLP,
40 New York, New York.
41
*
The Clerk of the Court is directed to amend the
caption as set forth above.
2
1 FOR APPELLEES: SARA MANAUGH (Pavita
2 Krishnaswamy, South Brooklyn
3 Legal Services, Brooklyn, New
4 York, Jean Constantine-Davis,
5 AARP Foundation Litigation,
6 Washington, D.C., J. Christopher
7 Jensen, Cowan, Liebowitz &
8 Latman, P.C., New York, New
9 York, on the brief), South
10 Brooklyn Legal Services,
11 Brooklyn, New York.
12
13 Appeal from a judgment of the United States District
14 Court for the Eastern District of New York (Matsumoto, J.).
15
16 UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED
17 AND DECREED that the judgment of the district court be
18 AFFIRMED.
19
20 Defendants Yaron Hershco and his companies, United
21 Homes LLC, United Property Group LLC, and Galit Network LLC
22 (collectively, “United Homes”) appeal from the final
23 judgment of the United States District Court for the Eastern
24 District of New York (Matsumoto, J.) awarding compensatory
25 and punitive damages to six home buyers--Sandra Barkley,
26 Mary Lodge, Dewitt Mathis, Lisa & Miles McDale, Charlene
27 Washington, and Sylvia Gibbons (collectively, the
28 “Buyers”)--who were sold defective and damaged homes
29 represented as “newly renovated” by the Defendants. The
30 Defendants argue that the district court erred in: (1)
31 consolidating the six cases for trial; (2) denying the
32 Defendants’ post-trial motion for judgment as a matter of
33 law (“JMOL”) under Fed. R. Civ. P. 50(b), which argued that
34 the properties were sold “as is,” the alleged
35 misrepresentations were merely a breach of contract, and
36 subjective property valuations cannot support fraud claims;
37 and (3) calculating damages and attorney’s fee awards.
38 Separately, Hershco argues that (4) the evidence was
39 insufficient to pierce the corporate veil. We assume the
40 parties’ familiarity with the underlying facts, the
41 procedural history, and the issues presented for review.
42
43 1. “The trial court has broad discretion to determine
44 whether consolidation is appropriate.” Johnson v. Celotex
3
1 Corp., 899 F.2d 1281, 1284 (2d Cir. 1990) (citations
2 omitted). In making this determination, the court considers
3 “[w]hether the specific risks of prejudice and possible
4 confusion [are] overborne by the risk of inconsistent
5 adjudications of common factual and legal issues, the burden
6 on parties, witnesses, and available judicial resources
7 posed by multiple lawsuits, the length of time required to
8 conclude multiple suits as against a single one, and the
9 relative expense to all concerned of the single-trial,
10 multiple-trial alternatives.” Id. at 1285 (citation
11 omitted) (second alteration in original).
12
13 The district court applied Johnson, finding
14 “significant benefits” of consolidation--common questions of
15 law and fact, efficiency, and the avoidance of possibly
16 inconsistent verdicts--and only minimal potential prejudice.
17 There was no abuse of discretion.
18
19 2. The district court’s ruling on a post-verdict motion
20 for JMOL under Rule 50(b) is reviewed de novo. Runner v.
21 N.Y. Stock Exch., Inc., 568 F.3d 383, 386 (2d Cir. 2009). A
22 Rule 50 motion may be granted only if, “after viewing the
23 evidence in the light most favorable to the non-moving party
24 and drawing all reasonable inferences in favor of the
25 non-moving party, [the district court] finds that there is
26 insufficient evidence to support the verdict.” Fabri v.
27 United Techs. Int'l, Inc., 387 F.3d 109, 119 (2d Cir. 2004).
28
29 Section 12 of each sale contract contained a “specific
30 merger clause” that the property was sold “as is.” However,
31 there was no testimony at trial about the specific merger
32 clause, and United Homes did not raise any argument related
33 to the clause in its Fed. R. Civ. P. 50(a) motion prior to
34 the verdict. Any such argument was not properly preserved
35 and is therefore waived. See, e.g., Samuels v. Air
36 Transport Local 504, 992 F.2d 12, 14 (2d Cir. 1993) (“[The
37 Federal Rules of Civil Procedure] limit the grounds for
38 judgment n.o.v. to those specifically raised in the prior
39 motion for a directed verdict.”).
40
41 Alleged wrongdoing that merely constitutes a breach of
42 contract cannot constitute fraud. See Van Neil v. Berger,
43 632 N.Y.S.2d 48, 48 (4th Dep’t 1995) (“A cause of action for
44 fraud is not stated where the only fraud alleged relates to
4
1 a breach of contract”). However, where a party makes
2 misrepresentations to induce the other party to enter a
3 contract, the fraud claim is sustained. See Deerfield
4 Comm’ns Corp. v. Chesebrough-Ponds, 68 N.Y.2d 954, 956
5 (1986). At trial, the Buyers presented evidence that, to
6 convince the Buyers to purchase, United Homes promised
7 “fully renovated” homes and repeatedly assured that all
8 necessary repairs would be completed before closing. Yet,
9 at the same time, United Homes concealed rotten flooring,
10 leaking roofs, debris, electrical and plumbing problems, and
11 water damage. A jury could reasonably find that this
12 constituted fraud.
13
14 In New York, a valuation of property provided by the
15 seller generally will not support a fraud action because
16 “the purchaser must rely on his own judgment as to value.”
17 Seis v. Plaisantin, 65 N.Y.S. 70 (App. Div. 1900). However,
18 an inflated appraisal may support a fraud claim if the buyer
19 is tricked by the seller and the buyer is not versed in home
20 values. Merry Realty Co. v. Martin, 169 N.Y.S. 696, 698
21 (Sup. Ct. Kings Cty. 1918), aff’d sub nom. Merry Realty Co.
22 v. Shamokin & Hollis Real Estate Co., 174 N.Y.S. 627 (2d
23 Dep’t 1919), rev’d on other grounds, 230 N.Y. 316 (1921)
24 (holding that a “representation as to value becomes an
25 allegation of fact and not merely an expression of opinion”
26 where the buyer “is induced by the seller to forbear making
27 inquiry, and damage results”). Here, a jury could find that
28 concealment of the true property conditions and the steering
29 of inexperienced Buyers to United Homes’ appraisers
30 prevented the Buyers from discovering or seeking to
31 determine the actual value of the properties.
32
33 3. “Punitive damages are warranted where the conduct of
34 the party being held liable evidences a high degree of moral
35 culpability, or where the conduct is so flagrant as to
36 transcend mere carelessness, or where the conduct
37 constitutes willful or wanton negligence or recklessness.”
38 Buckholz v Maple Garden Apts., LLC, 832 N.Y.S.2d 255 (2d
39 Dep’t 2007). Reviewing the record de novo, we see nothing
40 to upset the jury’s finding that the conduct of United
41 Homes--perpetuation of a scheme that lured inexperienced,
42 low-income individuals into purchasing damaged homes that
5
1 they could not afford--was “so flagrant as to transcend mere
2 carelessness.”1
3
4 We review a district court’s award of attorney’s fees
5 for abuse of discretion. McDaniel v. Cnty. of Schenectady,
6 595 F.3d 411, 416 (2d Cir. 2010). An abuse of discretion
7 could consist of an erroneous view of the law or a decision
8 that, while not necessarily the product of a legal error or
9 a clearly erroneous factual finding, cannot be located
10 within the range of permissible decisions. See Zervos v.
11 Verizon New York, Inc., 252 F.3d 163, 169 (2d Cir. 2001).
12 United Homes argues that the fee award of over $2 million
13 (more than twice the amount of the recovery) is outside the
14 range of permissible decisions, and that the award was
15 excessive because the Buyers (who did not prevail on their
16 discrimination claims) enjoyed only limited success at
17 trial.
18
19 An attorney’s fee award should take into account a
20 plaintiff’s partial success. Hensley v. Eckerhart, 461 U.S.
21 424, 436 (1983) (“If . . . a plaintiff has achieved only
22 partial or limited success, the product of hours reasonably
23 expended on the litigation as a whole times a reasonable
24 hourly rate may be an excessive amount.”). The district
25 court applied Hensley, and excluded from the fee award
26 calculation all hours billed exclusively to the unsuccessful
27 discrimination claims. The district court also noted that
28 the $1.1 million judgment provided “substantial relief” to
29 the plaintiffs, and represented a “substantial degree of
30 success at trial.” There was no abuse of discretion.
31
32 Nor was the size of the fee award unreasonable when
33 compared to the recovery. While “New York courts have
1
United Homes also argues that punitive damages are
not available for violation of Section 349 of New York
General Business Law (“GBL § 349"), and that the district
court insufficiently reduced the damage award to account for
settling defendants under N.Y. General Obligations Law § 15-
108(a). However, punitive damages may be awarded for a
violation of GBL § 349, Wilner v Allstate Ins. Co., 71
A.D.3d 155, 167 (N.Y. 2010), and the setoff calculation was
correct for the reasons set out in the district court’s
January 27, 2012 Memorandum & Order.
6
1 stated that, as a general rule, they will rarely find
2 reasonable an award to a plaintiff that exceeds the amount
3 involved in the litigation,” F.H. Krear & Co. v. Nineteen
4 Named Trustees, 810 F.2d 1250, 1264 (2d Cir. 1987),
5 attorney’s fees awarded under GBL § 349 need not be
6 proportional. See Diaz v. Paragon Motors of Woodside, Inc.,
7 No. 03-6466, 2007 WL 2903920, at *8 (E.D.N.Y. Oct. 1, 2007).
8 This litigation spanned seven years, involved dozens of
9 attorneys and numerous paralegals, and achieved a
10 substantial recovery for the plaintiffs. The award was
11 within the range of permissible decisions.
12
13 4. New York law allows for “piercing the corporate veil”
14 when the corporation is so dominated by an individual that
15 it primarily conducts the individual’s business rather than
16 its own, and through this domination, a wrong is committed
17 against a third party. See, e.g., Wm. Passalacqua Builders,
18 Inc. v. Resnick Developers S., Inc., 933 F.2d 131, 138 (2d
19 Cir. 1991) (“Liability therefore may be predicated . . .
20 upon complete control by the dominating corporation that
21 leads to a wrong against third parties.”). Herscho moved
22 for JMOL post-verdict, challenging the sufficiency of the
23 evidence of both domination and the commission of a wrong
24 through that domination. We review the district court’s
25 denial of this motion de novo. Runner v. N.Y. Stock Exch.,
26 Inc., 568 F.3d 383, 386 (2d Cir. 2009).
27
28 Herscho’s argument that he did not “dominate” the
29 United Homes entities was not properly preserved and is
30 therefore waived. A post-verdict motion for JMOL under Fed.
31 Rawle Civ. P. 50(b) must be premised on grounds specified in a
32 Rule 50(a) motion made prior to the submission of the case
33 to the jury. See Lore v. City of Syracuse, 670 F.3d 127,
34 153 (2d Cir. 2012). Hershco failed to challenge the
35 “domination” prong in his Rule 50(a) motion; moreover, he
36 conceded the sufficiency of the evidence for purposes of
37 that motion: “[The] two factors necessary for piercing the
38 corporate veil include complete domination, dominion and
39 control, which assuming for this argument they’ve met
40 through the testimony of [Plaintiffs’ expert] Alan Blass.”
41
42 Regarding the second prong, Hershco argues that there
43 was no evidence of a connection between Hershco’s domination
44 of United Homes and the fraud perpetrated on the Buyers.
7
1 However, the record indicates that Hershco manipulated the
2 United Homes entities, undercapitalizing them and moving
3 money freely among them to pay salaries, marketing,
4 construction, and closing costs. That intermingling
5 afforded Hershco the opportunity to quickly purchase and
6 resell more properties, furthering the scheme. And Hershco
7 himself signed the deeds of sale for each Buyer’s home. The
8 evidence was sufficient for a reasonable juror to conclude
9 that Hershco’s domination was the proximate cause of the
10 Buyers’ injuries. See Freeman v. Complex Computing Co., 119
11 F.3d 1044, 1053 (2d Cir. 1997).
12
13 For the foregoing reasons, and finding no merit in
14 United Homes’ and Hershco’s other arguments, we hereby
15 AFFIRM the judgment of the district court.
16
17 FOR THE COURT:
18 CATHERINE O’HAGAN WOLFE, CLERK
19
8