Value Wholesale, Inc. v. KB Insurance Co. Ltd

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

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VALUE WHOLESALE, INC.,

Plaintiff,

MEMORANDUM & ORDER

v.

18-cv-5887(KAM)(SMG)

KB INSURANCE CO. LTD.,

Defendant.

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KIYO A. MATSUMOTO, United States District Judge:

This action concerned the duty of defendant KB

Insurance Co., Ltd. (“KBIC”) to defend its insured, Value

Wholesale, Inc. (“Value”), in a trademark lawsuit before Judge

Carol Bagley Amon: Abbott Laboratories v. Adelphia Supply USA,

No. 15-cv-5826 (E.D.N.Y.) (the “Abbott Litigation”). This court

previously found, on summary judgment, that KBIC breached its

duty to defend Value in the Abbott Litigation. Now pending

before the court are the parties’ submissions regarding the

proper amount of damages to be awarded to Value.

For the reasons set forth below, the court finds that

KBIC owes Value $347,800.89 in damages, plus prejudgment

interest at a rate of nine percent per annum since April 4,

2018, and postjudgment interest as prescribed by 28 U.S.C. §

1961.

Background

The relevant factual background giving rise to this

action was set forth in the court’s March 31, 2020 Memorandum

and Order granting Value’s motion for partial summary judgment

with respect to KBIC’s liability for its breach of its duty to

defend. (See generally ECF No. 57, Memorandum and Order,

published as Value Wholesale, Inc. v. KB Ins. Co., 450 F. Supp.

3d 292 (E.D.N.Y. 2020).) The court summarizes that background

only briefly here.

Value is a pharmaceutical wholesaler. (See ECF No. 1,

Complaint (“Compl.”), ¶ 9; ECF No. 11, Answer (“Ans.”), ¶ 9.)

KBIC is a foreign insurance company that operates in the United

States through its manager, Leading Insurance Services, Inc., a

New Jersey corporation with its headquarters in Ridgefield Park,

New Jersey. (ECF No. 32, KBIC Objections to Rule 56.1

Statement, ¶¶ 1-2.) KBIC is licensed to issue insurance

policies in the State of New York. (Id.; see also Compl. ¶ 16;

Ans. ¶ 16.)

Value purchased a commercial insurance package from

KBIC covering the period from February 4, 2014 through February

4, 2015, and renewed the package for the period from February 4,

2015 through February 4, 2016 (the “Policy”). (Compl. ¶¶ 17-19;

Ans. ¶¶ 17-19; see ECF No. 33, Declaration of Matthew Kraus

(“Kraus Decl.”), Ex. D, Commercial General Liability Coverage

Form, Coverage B, Personal and Advertising Injury (“Pol.”)1.)

The package included a “Commercial General Liability Coverage

Part,” under which KBIC agreed to defend Value against any

lawsuits seeking damages resulting from covered “Personal and

Advertising Injuries.” (Pol. at 116.)

To trigger coverage and, consequently, KBIC’s duty to

defend, a complaint naming Value as a defendant had to allege an

injury arising out of one of a number of “qualifying offenses.”

(Id.) Value would be covered it if were sued for an injury

allegedly resulting from: (1) “[Value’s] use of another’s

advertising idea in [its] ‘advertisement’”; or (2) Value

“[i]nfringing upon another’s copyright, trade dress or slogan in

[its] ‘advertisement.’” (Id.) Advertisement, as used in these

provisions, was broadly defined as “a notice that is broadcast

or published to the general public or specific market segments

about [Value’s] goods, products or services for the purpose of

attracting customers or supporters.” (Id. at 105.) Even if a

claim would otherwise be covered, however, KBIC may not have

needed to provide coverage if one or more policy exclusions

applied. (See id. at 99.) There was, for example, an

“intentional acts exclusions,” which precluded coverage against

1 For ease of reference, citations to the Policy refer to the ECF pagination

of the version filed on the docket with Mr. Kraus’s declaration earlier in

this action.

claims arising from Value’s intentional conduct. (Id.)

Furthermore, the “intellectual property exclusion” precluded

coverage against claims arising from alleged intellectual

property infringement. (Id.)

In November 2015, Abbott Laboratories and related

companies (collectively, “Abbott”) filed a lawsuit in the

Eastern District of New York against Value and over one-hundred

other pharmaceutical distributers and pharmacies. Abbott v.

Adelphia Supply USA, No. 15-cv-5826 (E.D.N.Y.). Value retained

the law firm Stern & Schurin LLP (“Stern & Schurin”) to defend

it in the Abbott Litigation. One of Value’s co-defendants in

the Abbott Litigation, MedPlus, Inc. (“MedPlus”) retained the

same law firm for its defense.

Abbott alleged that the defendants engaged in a

wrongful scheme to “import[], advertise[] and . . .

distribut[e]” boxes of international blood glucose test strips

produced by Abbott, which were not approved for domestic sale in

the United States. (ECF No. 73, Declaration of Steven Stern

(“Stern Decl.”), Ex. B, Abbott’s Second Amended Complaint

(“Abbott Compl.”), ¶ 15.) Abbott’s complaint alleged that

Abbott’s harm resulted, at least in part, from the defendants’

advertising activities:

Defendants’ unauthorized importation, advertisement,

and subsequent distribution causes, or is likely to

cause, consumer confusion, mistake, and deception to the

detriment of Abbott. . . . As a result of Abbott’s

extensive branding, marketing, sales, and quality

control efforts . . . patients in the United States

expect a certain quality, packaging, and overall image

from Abbott for FreeStyle test strips. When such

patients encounter the diverted international FreeStyle

test strips, which bear certain of Abbott’s trademarks

but which are materially different from what U.S.

patients expect [as described above], they are likely to

be confused and, indeed, disappointed. . . . And the

advertisement and sales of diverted international

FreeStyle test strips cause great damage to Abbott and

the goodwill of Abbott’s valuable trademarks.

(Id. ¶ 15 (emphasis added).) Abbott also explained in its

initial discovery disclosures that its demand for monetary

damages was based on “all ill-gotten profits from Defendants’

importation, purchase, marketing, advertisement, distribution,

sale, offer for sale, and/or use in commerce in the United

States of diverted international FreeStyle test strips.”

(Compl., Ex. F, Initial Disclosures in Abbott Litigation, at 4

(emphasis added).) Based on the alleged conduct and resulting

harm, Abbott asserted claims for, inter alia, trademark

infringement under Section 32 of the Lanham Act, 15 U.S.C. §

1114(1); unfair competition under Section 43(a) of the Lanham

Act, 15 U.S.C. § 1125(a)(i)(A); and trademark dilution under

Section 43(c) of the Lanham Act, 15 U.S.C. § 1125(c). (Abbott

Compl. ¶¶ 563-71, 572-78, 582-86.)

On March 29, 2016, Value tendered Abbott’s Second

Amended Complaint to KBIC. (Kraus Decl., Ex. E, Tender.) Value

asserted that the complaint alleged a qualifying advertising

injury, triggering KBIC’s duty to defend. (Id.) KBIC declined

coverage, arguing that Abbott’s complaint did not allege a

causal nexus between its injuries and Value’s advertising

activities and that, even if it had, exclusions in the policy

applied. (Kraus Decl., Ex. F, Disclaimer). Value asked KBIC to

reconsider, to no avail. (Kraus Decl. Ex. G, Request for

Reconsideration, and Ex. H, Supplemental Disclaimer.)

Procedural History

KBIC’s disclaimer of its duty to defend Value spawned

two lawsuits: (1) a state court action between Continental

Casualty Company (“Continental”) (Value’s other insurer) and

KBIC, in which Continental sought a declaration that KBIC owed

Value a duty to defend under the terms of the Policy and,

accordingly, had to reimburse Continental for the money

Continental had spent providing Value with a defense, see

Continental Casualty Company v. KB Insurance Co., Ltd., Index

No. 652103/2018, slip op. (N.Y. Sup. Ct. May 31, 2019), appeal

filed, Index No. 2019-4978 (N.Y. App. Div. 2019); and (2) the

instant federal action initiated by Value against KBIC, which

sought identical declaratory relief and, accordingly,

compensation for the unpaid defense costs Value incurred in the

Abbott Litigation, and a declaration that KBIC must defend Value

going forward in the Abbott Litigation.

In the instant case, following the state court’s

decision in the Continental action that KBIC had a duty to

defend Value, the parties moved for summary judgment in this

action. (See ECF Nos. 24-27, 31-39.) On March 31, 2020, this

court granted Value’s motion for partial summary judgment as to

liability on KBIC’s duty to defend, and denied KBIC’s motion for

summary judgment. The court ruled that (1) the state court

decision in Continental did not prevent this court from

determining whether KBIC owed damages to Value, 450 F. Supp. 3d

at 302-03; and (2) KBIC breached its duty to defend Value, id.

at 303-07. The court therefore granted Value’s motion, and

directed the parties to appear for an inquest on damages. Id.

at 308. In a letter to the court dated April 14, 2020, KBIC

represented “that it will defend Value on a going forward

basis.” (ECF No. 58, KBIC Letter, at 1.)

After further litigation over the expert discovery

relevant to the inquest on damages, the result of which allowed

the parties to submit the numerous filings, replies, and expert

declarations that are now before the court, the parties

submitted their papers setting forth their respective positions

on damages. (ECF No. 72, Value’s Opening Memorandum in Support

of Claim for Monetary Damages (“Value Mem.”); ECF No. 74, KBIC’s

Opening Memorandum in Opposition (“KBIC Mem.”); ECF No. 76,

Value’s Memorandum in Opposition to KBIC’s Opening Memorandum

(“Value Mem. in Opp.”); ECF No. 79, KBIC’s Memorandum in

Opposition to Value’s Memorandum; ECF No. 80, Value’s Reply

Memorandum in Support of Claim for Monetary Damages (“Value

Reply Mem.”); ECF No. 82, KBIC’s Reply Memorandum in Further

Support of its Opening Memorandum (“KBIC Reply Mem.”); ECF No.

85, Value’s Sur-Reply Memorandum in Further Opposition to KBIC’s

Memorandum (“Value Sur-Reply”).2) The parties have agreed to

rely solely on their numerous submissions, and have stipulated

to the admissibility of the declarations and exhibits filed in

support. (See ECF No. 88, Stipulation.)

Legal Standard

“Where an insurer breaches the duty to defend, it must

pay damages in the form of attorneys’ fees and litigation

expenses reasonably incurred by the insured in defending the

underlying action.” United Parcel Serv. v. Lexington Ins. Grp.,

983 F. Supp. 2d 258, 267–68 (S.D.N.Y. 2013). “Generally, the

insurer will be liable for defense costs from the time that the

duty was triggered (i.e., when a complaint alleging facts

arguably entitling the insured to coverage is made) until it is

determined that the actual facts place the case outside the

coverage provided.” Id. at 268 (quoting Maryland Cas. Co. v.

2 In addition to their briefs, the parties also rely on several expert reports

from purported experts in the field of attorneys’ fees and legal billing

practices. Value relies on expert submissions from Steven A. Tasher (see ECF

Nos. 78, 86), and KBIC relies on a submission from Elise S. Frejka (see ECF

No. 84).

W.R. Grace & Co., No. 88-cv-4337, 1994 WL 167962, at *5

(S.D.N.Y. Apr. 29, 1994)).

Discussion

Value argues that it is entitled to a total of

$833,460.15 in damages, which is (1) the amount in attorneys’

fees Value incurred defending the Abbot Litigation that remain

unpaid by Continental ($683,678.39), plus (2) interest at a rate

of nine percent ($149,781.76 as of the date of Value’s latest

submission). (Value Mem. at 9; Value Sur-Reply at 9.) KBIC

argues that (1) Value is not entitled to damages because it was

fully compensated by its other insurer, Continental (KBIC Mem.

at 6-7); (2) the fees charged by Value’s attorneys were

unreasonable (id. at 9-13); (3) KBIC is not liable for any fees

incurred by MedPlus, which was a co-defendant in the Abbot

Litigation and was represented by the same law firm that

represented Value (id. at 13-15); and (4) KBIC should not be

liable for prejudgment interest (id. at 15-16).

I. Value’s Entitlement to Attorneys’ Fees from KBIC

KBIC argues that Value “conceded that Continental has

provided it with a full and complete defense in the Abbott”

Litigation, and that any award of damages from KBIC would be a

“double recovery.” (KBIC Mem. at 7.) Value counters that “the

pleadings and documents in this case reflect that Value has

never conceded that [Continental] provided it with a complete

defense in the Abbott Litigation,” and that any such argument is

waived because it “should have been raised long ago during

summary judgment when liability remained undecided.” (Value

Mem. in Opp. at 3, 5.)

On August 23, 2018, Value, MedPlus, and Continental

entered into a Memorandum of Understanding and settlement

agreement to “resolve all disputes relating to all past bills

issued to [Continental] for [its] obligations to [its] insureds

in connection with the Abbott Litigation . . . through December

31, 2017.” (Stern Decl., Ex. F, ¶ 2.) Under the settlement,

Continental agreed to pay Stern & Schurin, who represented Value

and MedPlus in the Abbott Litigation, a total of $545,000 “for

past legal fees and disbursements incurred through December 31,

2017 on behalf of MedPlus and Value Wholesale.” (Id. ¶ 3.) The

agreement stated that it would “not discharge or impair any

claims of Value Wholesale against its other insurers for non-

payment of past and future defense costs incurred in connection

with the Abbott Litigation.” (Id. ¶ 8.)

Under New York law, where two insurers provide

concurrent coverage, the insured is “allowed . . . to recover

the whole amount from either insurer.” Consol. Edison Co. of

N.Y. v. Allstate Ins. Co., 98 N.Y.2d 208, 223 (N.Y. 2002)

(citing York-Buffalo Motor Express v. Nat’l Fire & Marine Ins.

Co., 294 N.Y. 467, 473 (N.Y. 1945)). If the insured recovers an

amount from one insurer, and that insurer “pays more than its

fair share for a loss covered by multiple insurers,” “New York

law recognizes a cause of action for pro rata contribution” from

the co-insurers. Nat’l Cas. Co. v. Vigilant Ins. Co., 466 F.

Supp. 2d 533, 540 (S.D.N.Y. 2006) (citing Maryland Cas. Co. v.

W.R. Grace & Co., 218 F.3d 204, 210 (2d Cir. 2000)).

KBIC is correct that Value cannot recover money from

KBIC for fees that were already paid by Continental. Value’s

request, however, is for the fees above and beyond amounts it

already received from Continental. For legal work performed

through the fourth quarter of 2017, when the settlement with

Continental was reached, Stern & Schurin had rendered eleven

invoices in connection with the Abbott Litigation, totaling

nearly $1.7 million in fees and costs. (Stern Decl., Ex. H; see

Value Mem. at 7.) In Value’s request for fees related to that

time period, Value subtracted all amounts paid by Continental

either as part of the August 2018 settlement or otherwise. (See

Value Mem. at 5-7.) Thus, although Stern & Schurin charged

nearly $1.7 million during that time period, Value’s request for

damages from KBIC for the same time period is for only

$529,082.84.3 (Id. at 7.)

3 Value’s total request also includes $154,595.55 in fees incurred for legal

work beginning in the first quarter of 2018, a period not covered by the

settlement with Continental.

As KBIC concedes, “each insurer’s duty is separate and

independent from the others.” (KBIC Mem. at 6.) Under New York

law, Value would be entitled to recover the full amount charged

for defending the Abbott Litigation from either of its insurers

that owed it a duty to defend. Therefore, if Continental had

not made any payments, Value plausibly could have recovered the

full amount charged by Stern & Schurin from KBIC. Thus, Value

is entitled to recover from KBIC what it has requested: the

outstanding amount of defense costs charged by Stern & Schurin

that remain unpaid after payments made by Continental. Such an

award does not constitute a double recovery, because these are

fees charged in connection with defending the Abbott Litigation,

which have not been paid, but which KBIC should have been paying

from the outset. Accordingly, KBIC owes Value damages in the

amount of reasonable fees and costs that were not already paid

by Continental.

II. The Reasonableness of the Attorneys’ Fees Incurred

KBIC next argues that the fees charged by Stern &

Schurin during the course of the Abbott Litigation were

unreasonable. (KBIC Mem. at 9-13.) KBIC argues both that the

rates charged were too high, and that the amount of hours

expended were too many. Though the substantive documents filed

in the Abbott Litigation were filed under seal, KBIC points to

several examples in Stern & Schurin’s invoices of what it argues

were unreasonable amounts of work. For example, KBIC cites an

attorney spending 137.5 hours to “create a memorandum regarding

pre-motion conference letters,” and attorneys spending 187 total

hours “on the Rule 56.1 statement.” (Id. at 10.)

To support its arguments regarding the purported

unreasonableness of the attorneys’ fees incurred by Value, KBIC

relies on multiple cases involving the shifting of attorneys’

fees in civil rights litigation to plaintiffs’ counsel who

likely worked on contingency. (See, e.g., KBIC Mem. at 9

(citing Arbor Hill Concerned Citizens Neighborhood Ass’n v. Cty.

of Albany, 484 F.3d 162 (2d Cir. 2007), which involved fee-

shifting under the Voting Rights Act); and 13 (citing Hensley v.

Eckerhart, 461 U.S. 424 (1983), which involved fee-shifting

under 42 U.S.C. § 1988).) While those cases are instructive,

they are not directly on point for the circumstance presented

here. The inquiry for a court when it must award fees to a

plaintiff who has paid none pursuant to the fee-shifting

provisions contained in certain civil rights statutes, such as

the one before the Second Circuit in the Arbor Hill line of

cases, is “what a reasonable, paying client would be willing to

pay[.]” Arbor Hill Concerned Citizens Neighborhood Ass’n v.

Cty. of Albany, 522 F.3d 182, 192 (2d Cir. 2008). The reason

the court needs to engage in that inquiry, and attempt to

ascertain what a reasonable client would have paid, is because

of the purpose of the civil rights fee-shifting statutes: to

encourage quality lawyers to take civil rights cases from

clients who may have meritorious claims, but cannot afford to

pay an attorney. In those cases, “[a] plaintiff . . . has

little incentive to negotiate a rate structure with his attorney

prior to the litigation,” and so the court must determine what

it deems to be a reasonable fee, in light of a number of

factors. Id.

Here, the court is not faced with a situation in which

it must award fees, pursuant to a fee-shifting statute, to a

plaintiff’s lawyer who did not yet receive any fees. Rather,

the question before this court is the amount of damages owed by

KBIC as a result of its breach of its contractual duty to defend

Value. In such a situation, the amount of damages is the

“attorneys’ fees and litigation expenses reasonably incurred by

the insured in defending the underlying action.” United Parcel

Serv., 983 F. Supp. 2d at 267–68. Though the fees must have

been reasonably incurred, the reasonableness inquiry is slightly

different than the one at issue in Arbor Hill and its progeny.

“Where an insurer has breached its duty to defend, the insured’s

fees are presumed to be reasonable and the burden shifts to the

insurer to establish that the fees are unreasonable.” Olin

Corp. v. Ins. Co. of N. Am., 218 F. Supp. 3d 212, 228 (S.D.N.Y.

2016); see also Diplomatic Man, Inc. v. Nike, Inc., No. 08-cv-

139, 2009 WL 935674, at *6 (S.D.N.Y. Apr. 7, 2009) (where a

“sophisticated business client[] has paid [its] bills,

presumably after careful review by its general counsel or other

senior business executives,” that “is prima facie evidence of

the reasonableness of the amount [of fees] as a whole”).

The rates charged by Stern & Schurin in connection

with the Abbott Litigation up until July 1, 2018 were $550 per

hour for partners, and $325 for associates. (Stern Decl. ¶ 8.)

After July 1, 2018, Stern & Schurin’s rates increased slightly

to $600 and $400 per hour, respectively. (Id. ¶ 10.) Though

these rates are slightly higher than the rates often awarded

under fee-shifting statues, see Small v. New York City Transit

Auth., No. 03-cv-2139, 2014 WL 1236619, at *5 (E.D.N.Y. Mar. 25,

2014) (recognizing up to $450 for partners and $300 for

associates as the high end of hourly rates in the Eastern

District “determined to be reasonable in civil rights cases”)

(emphasis added), they are not unreasonable rates for a paying

client to incur in connection with a complex trademark

infringement suit brought by a sophisticated medical device

company. Indeed, KBIC paid its own legal expert, a member at

Frejka PLLC, $550 per hour to review the invoices submitted by

Stern & Schurin and to submit an affidavit in support of KBIC’s

argument that the invoices were unreasonable. (ECF No. 84,

Declaration of Elise S. Frejka (“Frejka Decl.”), ¶ 5.) If $550

was a reasonable hourly rate for KBIC to pay its attorney

expert, it was also a reasonable rate for Value to pay to defend

itself in litigation with even higher stakes.

Nor does the court find that the hours expended by the

Stern & Schurin attorneys were unreasonable for the purpose of

awarding damages. While KBIC paid its own attorney expert to

spend numerous hours reviewing Stern & Schurin’s invoices to

locate what it contends are examples of “comically exorbitant”

time spent by Stern & Schurin on the Abbott Litigation (KBIC

Mem. at 9), the Supreme Court has directed that in determining

the reasonableness of attorneys’ fees, “trial courts need not,

and indeed should not, become green-eyeshade accountants,” Fox

v. Vice, 563 U.S. 826, 838 (2011). “[T]rial courts may take

into account their overall sense of a suit, and may use

estimates in calculating and allocating an attorney’s time.”

Id.

Here, KBIC has pointed to examples where a reasonable

mind could find that the hours spent by Value’s attorneys

appeared excessive. In general, however, the total hours

expended by Stern & Schurin on the Abbott Litigation appear to

be reasonable given the context that it was a complex trademark

dispute in federal court that remains pending five years after

it was filed. And there was no reason that Value, a paying

commercial client, would have tolerated repeated excessive

billing, given that KBIC was contesting its duty to defend, and

had KBIC been successful, Value may well have ended up on the

hook for all of the fees charged by Stern & Schurin. As Judge

Richard Posner has persuasively written, when there is

“uncertainty about reimbursement, [an insured has] an incentive

to minimize its legal expenses (for it might not be able to

shift them); and where there are market incentives to economize,

there is no occasion for a painstaking judicial review.” Taco

Bell Corp. v. Cont’l Cas. Co., 388 F.3d 1069, 1075–76 (7th Cir.

2004).

Accordingly, the court finds that the amount of

damages requested by Value are not unreasonable based on the

rates charged or the hours billed by Stern & Schurin.

III. Legal Fees for Work Defending Only MedPlus

Next, KBIC argues that that it should not be liable

for fees incurred by MedPlus, and that the majority of the Stern

& Schurin invoices submitted by Value were directed only to

MedPlus, a co-defendant of Value’s in the Abbott Litigation

which Stern & Schurin also represented. (KBIC Mem. at 13-15.)

KBIC proposes that the court only award fees supported by time

entries that explicitly state that the legal work was performed

for Value, plus half of the fees supported by entries that were

performed for both Value and MedPlus (other than time spent

communicating with Continental), which KBIC contends is

$1,262,848.81. (KBIC Reply Mem. at 17-18.) Given KBIC’s status

as a co-insurer with Continental, KBIC argues that it is liable

for only half that amount, $631,424.41, minus the money already

paid by Continental (which is greater than that amount, leaving

KBIC with purportedly no liability). (Id.) Value argues that

it is not necessary to cut the fees in half merely because

another co-defendant benefited from the same legal work, and

that nothing in the bills alters KBIC’s obligation to pay the

total fees incurred by Value. (Value Sur-Reply at 5-6.)

In New York, “the law is clear that the party seeking

to allocate expenses bears the burden of proving what amount of

allocation is appropriate once the insured has made a prima

facie showing that certain amounts were spent in its defense.”

High Point Design, LLC v. LM Ins. Corp., No. 14-cv-7878, 2016 WL

426594, at *3 (S.D.N.Y. Feb. 3, 2016) (citing Health-Chem Corp.

v. Nat’l Union Fire Ins. Co. of Pittsburgh, 559 N.Y.S.2d 435

(N.Y. Sup. Ct. 1990)). “[T]he amount that should be allocated

to the non-covered parties, and thus not recouped from the

insurer, are any ‘additional expenses’ which would not have

occurred but for the inclusion of the non-covered defendants.”

Id. at *4.

There is no doubt that KBIC had a duty to defend Value

regardless of whether MedPlus was included as a defendant in the

Abbott Litigation, and regardless of whether Value and MedPlus

retained the same law firm. As KBIC acknowledges, much of the

work performed by Stern & Schurin was “performed for MedPlus and

Value.” (KBIC Reply Mem. at 17.) If the work was performed in

part for Value, it follows that the work would have still been

performed, solely for the benefit of Value, even if MedPlus were

not a defendant. Under New York law, merely because another

defendant benefitted from the work does not completely or

partially absolve KBIC from its obligations. See High Point

Design, 2016 WL 426594, at *4 (“[T]here is no support in

precedent or logic by which an insurer’s obligation to defend

its insured is steadily diminished as the insured’s opponent in

the underlying action adds parties to the insured’s side of the

caption.”).

Given that MedPlus also benefited from the work for

which KBIC is liable, KBIC may be entitled to seek contribution

from MedPlus or its insurers. See U.S. Fire Ins. Co. v. Fed.

Ins. Co., 858 F.2d 882, 885 (2d Cir. 1988) (recognizing a “well-

settled equitable right to contribution” under New York law

“where there is concurrent insurance” coverage). But that is

not the issue now before the court. The issue now is the amount

KBIC owes Value as a result of its duty to defend. The correct

result is that KBIC is liable for the work performed by Stern &

Schurin that benefitted Value, or that benefitted Value and

MedPlus jointly. See High Point Design, 2016 WL 426594, at *4

(When an insurer breaches its duty to defend, it is “required

. . . to pay [the insured]’s defense costs – nothing more, and

nothing less.”).

The same is not necessarily true with regard to

instances where legal work performed by Stern & Schurin

benefitted only MedPlus, because such work did not occur as a

result of Value being sued in the Abbott Litigation. KBIC’s

expert identified certain time entries from Stern & Schurin’s

invoices that related solely to work on behalf of MedPlus,

totaling $335,877.50 in fees, and entries relating solely to

Stern & Schurin’s communications with Continental, totaling

$14,800 in fees. (Frejka Decl., ¶¶ 21-25.)

The former category, work performed solely for the

benefit of MedPlus (which included a motion for summary judgment

filed solely on behalf of MedPlus), constitutes “additional

expenses” that KBIC is not liable for as a result of its breach

of its duty to defend Value. Value initially argued that KBIC

had failed to “provide any analysis which allocates the defense

costs attributable solely to MedPlus . . . .” (Value Reply Mem.

at 11.) After KBIC submitted an expert report identifying

certain of the time entries as being related only to work on

behalf of MedPlus, Value did not offer alternative

categorizations, and conceded that KBIC is entitled to deduct

the time expended only on behalf of MedPlus. (Value Sur-Reply

at 5.)4 Accordingly, KBIC has met its burden to show that it is

not liable for the $335,877.50 billed by Stern & Schurin for

work benefitting only MedPlus, and the court will deduct that

amount from Value’s request for damages.

The time spent by Stern & Schurin communicating with

Continental presents a closer call. KBIC argues, without much

elaboration, that “[i]t would be inappropriate to allocate those

cost[s] to KBIC.” (KBIC Reply Mem. at 17 n.21.) Value avers,

also without much focus on the Continental-specific time, that

“it is clearly improper for KBIC to deduct anything other than

‘MedPlus Specific Time.’” (Value Sur-Reply at 5.)

The court finds that KBIC is liable for time that

Stern & Schurin spent communicating with Value’s other insurer,

Continental. The time entries reflect that this time consisted

of lawyers providing routine information and updates on the

Abbott Litigation to Continental. (See, e.g., Frejka Decl., Ex.

C, at 1 (“Email to Pam Ellingson at [Continental] with Abbott

settlement demand to Value Wholesale”).) The fact that this

work stemmed directly as a result of the Abbott Litigation, and

was included on the invoices provided to the client, weighs in

4 Value’s expert argues that KBIC’s analysis is flawed because work “that

generally benefitted MedPlus would benefit Value.” (ECF No. 86, Sur-Reply

Expert Report of Steven A. Tasher, at 18.) However, Mr. Tasher offers only

one example of a time entry categorized as MedPlus-specific that would have

also benefitted Value, and he did not undertake his own analysis to weed out

the MedPlus-specific entries.

favor of holding KBIC liable for it. As one of the insurers

owing Value a duty to defend, it was reasonable for Continental

to want to be kept informed about the progress of the

litigation. The need for the work only existed because Value

had been sued by Abbott, and so the resulting legal costs are

considered “defense costs.” KBIC has not met its burden to show

that these costs should be allocated elsewhere. KBIC also had a

duty to defend Value, and KBIC’s self-imposed absence from the

status calls should not redound to its benefit.

Accordingly, KBIC is liable for the full amount of

fees requested by Value (which did not include fees already paid

by Continental), minus fees charged solely in connection with

defending MedPlus. The full amount requested by Value is

$683,678.39. (Value Mem. at 9; Value Sur-Reply at 9.)

Subtracting the $335,877.50 that was billed by Stern & Schurin

for work that benefitted only MedPlus results in a damages award

of $347,800.89.

IV. Prejudgment and Postjudgment Interest

Value requests prejudgment interest of nine percent,

compounded annually, on the outstanding amount of fees owed by

KBIC, calculated based on the specific amount that remains due

on each of Stern & Schurin’s invoices. (Value Sur-Reply at 8-

9.) KBIC counters that no interest should be awarded because

interest was not authorized by the retainer agreement between

Stern & Schurin and Value. (KBIC Reply Mem. at 18.) KBIC also

argues that even if Value is entitled to interest, it is

impossible for the court to determine how and when Stern &

Schurin’s invoices were partially paid, and thus impossible to

calculate the amount of interested based on Value’s proposed

approach. (Id. at 19.)

Under New York law, “[i]nterest shall be recovered

upon a sum awarded because of a breach of performance of a

contract,” and the “interest and the rate and date from which it

shall be computed shall be in the court’s discretion.” N.Y.

C.P.L.R. § 5001(a). “Interest shall be computed from the

earliest ascertainable date the cause of action existed, except

that interest upon damages incurred thereafter shall be computed

from the date incurred.” Id. § 5001(b). “Where such damages

were incurred at various times, interest shall be computed upon

each item from the date it was incurred or upon all of the

damages from a single reasonable intermediate date.” Id.

“Interest shall be at the rate of nine per centum per annum,

except where otherwise provided by statute.” Id. § 5004.

The direction in the New York Civil Practice Law and

Rules that prejudgment interest “shall be recovered” means that

such interest is mandatory when a defendant is found to have

breached a contract under New York law. See, e.g., New England

Ins. Co. v. Healthcare Underwriters Mut. Ins. Co., 352 F.3d 599,

606 (2d Cir. 2003) (“Under New York law, ‘prejudgment interest

is normally recoverable as a matter of right in an action at law

for breach of contract.’”) (quoting Graham v. James, 144 F.3d

229, 239 (2d Cir.1998)). In arguing that interest should not be

awarded because interest was not contemplated in the retainer

agreement between Stern & Schurin and Value (see KBIC Reply Mem.

at 18), KBIC relies on cases that declined to award prejudgment

interest under federal law, see Hop Hing Produces Inc. v. Lin

Zhang Trading Co., No. 11-cv-03259, 2013 WL 3990761, at *6

(E.D.N.Y. Aug. 5, 2013) (declining to award prejudgment interest

under the Perishable Agricultural Commodities Act); Poppy’s

Wholesale Produce Inc. v. S & S Grocery of N.Y. Corp., No. 11-

cv-4337, 2012 WL 2373629, at *1 (E.D.N.Y. June 22, 2012) (same).

For a breach of contract claim under New York law, the rule that

prejudgment interest is mandatory plainly applies.

The payments that were already made to Stern & Schurin

were apparently applied to the outstanding invoices on a pro-

rata basis, and Value has calculated the total amount of

interest due by applying the nine percent rate to each

individual invoice (based on the amount of money still

outstanding and the number of days it has been outstanding).

(See Value Sur-Reply at 8.) KBIC argues that in the event

interest is owed, Value’s method of calculating interest is

improper because there is no evidence showing how the pro-rata

payments were applied.

The court agrees with KBIC that the most transparent

approach is to calculate interest from the midpoint of the due

dates of the oldest and most recent outstanding invoices.

Where, as here, the interest stems from numerous unpaid

obligations over a period of time, the court may calculate

interest “from a single reasonable intermediate date.” N.Y.

C.P.L.R. § 5001(b); see Oy Saimaa Lines Logistics Ltd. v.

Mozaica-New York, Inc., 193 F.R.D. 87, 91 (E.D.N.Y. 2000)

(recommending “that the interest at the statutory rate of nine

percent per year should be calculated as of . . . the midpoint

between” when the “the outstanding invoices were due”).

The invoices do not list payment due dates, but for

purposes of calculating interest, the court will assume that

payments were due 30 days after the date of each invoice (which

was generally when the next invoice was issued). The oldest

outstanding invoice is dated July 29, 2016 (Stern Decl., Ex. H,

at -10267), and so the court assumes the oldest outstanding

payment was due 30 days later, on August 28, 2016. The most

recent outstanding invoice before the court is dated October 11,

2019 (id., Ex. G, at -10304), which the court assumes was due 30

days later, on November 10, 2019. The midpoint between August

28, 2016 and November 10, 2019 is April 4, 2018.

Accordingly, the court will award Value prejudgment

interest at a rate of nine percent per annum on the total

damages award, calculated from April 4, 2018, until the date of

entry of judgment. As Value requests (see Value Mem. at 11),

the court will allow Value to submit a proposed calculation of

prejudgment interest before judgment is entered. Finally,

postjudgment interest shall be awarded as provided by 28 U.S.C.

1961. See 28 U.S.C. 1961(a) (“Interest shall be allowed on any

money judgment in a civil case recovered in a district court.”).

Conclusion

For the foregoing reasons, KBIC owes Value $347,800.89

in damages, and prejudgment interest at a rate of nine percent

per annum since April 4, 2018, as a result of its breach of the

duty to defend Value. Within seven days of this Memorandum and

Order, Value shall submit its proposed calculation of

prejudgment interest, and the parties shall file a joint letter

setting forth whether any outstanding issues remain in this

case, and if so, how they intend to proceed, or whether judgment

should be entered and the case can be closed.

SO ORDERED.

Dated: November 2, 2020

Brooklyn, New York

/s/

Hon. Kiyo A. Matsumoto

United States District Judge