The opinion
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
--------------------------------------X
VISIONS IN LEARNING INC. and FEED THE
STARVING CHILDREN LLC, MEMORANDUM AND ORDER
Plaintiffs, 18-CV-5042(KAM)(LGD)
-against-
VERITY, INC., ADAM RESIER, XYZ ENTITIES
1-10, and JOHN DOES 1-10,
Defendants.
--------------------------------------X
KIYO A. MATSUMOTO, United States District Judge:
Plaintiffs Visions in Learning Inc. (“VIL”) and Feed the
Starving Children LLC (“FSC”) bring the above-captioned action
against Defendants Verity, Inc. (“Verity”) and Adam Reiser,
alleging a fraudulent investment scheme and seeking a declaratory
judgment and monetary damages. Currently before the Court is
Plaintiffs’ supplemental, third motion for entry of default
judgment.1 (ECF No. 28, Letter, (“Supp. Mot.”); ECF No. 11, Motion
for Default Judgment (“Mot.”).) On November 17, 2022, Magistrate
Judge Lee G. Dunst issued a report and recommendation (“R&R”),
1 Judge Bianco, who previously was assigned to the case, granted Plaintiffs’
first motion for default judgment on February 20, 2019. (ECF No. 16, Order
Granting Motion for Default Judgment.) Judge Bianco referred the motion to
then-assigned Magistrate Judge Locke for a Report and Recommendation (“R&R”) to
determine appropriate remedies. Judge Locke, for reasons set forth in a R&R,
(ECF No. 20), recommended that the Plaintiffs’ motion be denied without
prejudice to renew, and Judge Mauskopf adopted the R&R on February 11, 2021.
(ECF No. 27.) As discussed below, the issue of monetary damages is the sole
issue before the Court in this Memorandum and Order.
recommending that Plaintiffs’ supplemental motion be denied with
prejudice. (ECF No. 29, R&R.) Plaintiffs timely filed objections.
(ECF No. 30, Objections.) For the reasons set forth below, the
Court ADOPTS Magistrate Judge Dunst’s well-reasoned R&R and DENIES
with prejudice Plaintiffs’ supplemental motion.
BACKGROUND
I. Factual Background
Plaintiffs VIL and FSC commenced this action on September 6,
2018, against Defendants Verity, Reiser, and XYZ Entities 1-10 and
John Does 1-10, asserting claims under Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934.2 15 U.S.C. §§ 78j(b), 78t(a);
(ECF No. 1, Complaint (“Compl.”).) This Court has subject matter
jurisdiction pursuant to 15 U.S.C. § 78aa and 28 U.S.C. § 1331.
Plaintiff VIL is a New York not-for-profit corporation and
the sole member of FSC, a limited liability company. (Compl. at
¶¶ 17-18.) Plaintiff FSC was formerly known as BAD Holdings, LLC.
2 Defendants XYZ Entities 1-10 and John Does 1-10 have never been served or
identified. The complaint alleges XYZ Entities 1-10 include “business entities
that are affiliated with Verity and Reiser that participated in the transactions
alleged herein but are currently unknown to Plaintiffs.” (Compl. at 5.) It
alleges that John Does 1-10 include “directors, officers, managers, and
affiliates of Verity who participated in the transactions alleged herein but
are currently unknown to Plaintiffs.” (Id.) The complaint does not make any
allegations against either unnamed party, except to note that “John Doe
defendants owe . . . fiduciary duties to Plaintiffs.” (Id. at 25.) Given that
there are no allegations in the complaint against Defendants XYZ Entities 1-10
or John Does 1-10, that Defendants XYZ Entities 1-10 and John Does 1-10 were
never served, that the motion for default judgment was requested only against
Defendants Verity and Reiser, and that default judgment was granted only against
Defendants Verity and Reiser, the Court dismisses Defendants XYZ Entities 1-10
and John Does 1-10 as parties and directs the Clerk of Court to terminate
Defendants XYZ Entities 1-10 and John Does 1-10 from the caption of this case.
(ECF Nos. 1, 11, 13.)
(Id. at ¶ 2.) Defendant Verity is a corporation, formerly known
as Certified Inc. (Id. at ¶ 19.) Defendant Reiser is the
president, secretary, treasurer, chief executive officer, and sole
directory of Verity. (Id. at ¶ 20.)
In 2017, Verity undertook a private placement of Class B
common shares. (Id. at ¶ 2.) It enlisted professional promoters,
including Andy Badolato, to assist in selling the shares. (Id.)
To compensate Badolato, Verity issued 4,000,000 shares of Class B
common stock to FSC (then known as BAD Holdings LLC), an entity
designated by Badolato. (Id. at ¶¶ 2, 34.) In connection with
the private placement, Verity issued a private placement
memorandum, which stated that Class B shares were non-assessable.
(Id. at ¶¶ 3, 31.)
On January 15, 2018, however, Verity sent a letter to Class
B shareholders, including BAD Holdings LLC, notifying them of a
capital call. (Id. at ¶¶ 3-4, 37; ECF No. 28-4, Exhibit 2 –
Capital Call Letter (“Ex. 2”).) The letter stated that BAD
Holdings LLC owed $10,668,000 to Verity (then known as Certified
Inc.), calculated from 4,000,000 Common B shares valued at $2.66
per share. (Ecf No. 1, Compl. at ¶¶ 3-4; ECF No. 28-4, Ex. 2 at
1.) It also stated that ““ALL NON-CONTRIBUTORS IN THE COMMON B
SERIES CALL WILL BE RETURNED TO TREASURY FOR RESALE.” (ECF No. 1,
Compl. at ¶¶ 3-4; ECF No. 28-4, Ex. 2 at 1.) BAD Holdings did not
comply with the letter, and Verity revoked its Class B shares.
(ECF No. 1, Compl. at ¶¶ 5-6.)
Additionally, Reiser had agreed in 2017 to donate 10,000 Class
A shares from his personal shares to VIL. Instead of doing so,
however, Reiser had transferred Class B shares to VIL. (Id. at ¶¶
11, 55.) Although Reiser later agreed to exchange these Class B
shares for Class A shares, he never did so. (Id. at ¶ 56.)
Based on the above allegations, Plaintiffs asserted the
following causes of action: (i) breach of fiduciary duties; (ii)
violation of Section 10(b) of the Securities Exchange Act; (iii)
violation of Section 20(a) of the Securities Exchange Act; (iv)
conversion; (v) breach of contract; (vi) breach of the implied
covenant of good faith and fair dealing; and (vii) fraudulent
inducement. (ECF No. 1, Compl. at ¶¶ 55-160.)
II. Procedural History
Plaintiffs’ action, filed on September 6, 2018, was assigned
to then United States District Judge Joseph F. Bianco. (ECF No.
1, Compl.) Plaintiffs’ executed summonses were filed on October
3, 2018. (ECF Nos. 6-7.) Plaintiffs requested a certificate of
default on November 27, 2018, which was entered by the Clerk of
Court based on Defendants’ failure to appear or otherwise defend
the action. (ECF Nos. 9-10.) Plaintiffs filed a motion for
default judgment on January 11, 2019, seeking various forms of
relief, including (i) a declaratory judgment that the capital call
was ultra vires, unauthorized, illegal, void and invalid; (ii) a
declaratory judgment that FSC was the holder of 4,000,000 Class B
shares; (iii) an injunction preventing Defendants from engaging in
actions that did not recognize FSC’s 4,000,000 shares; and (iv)
damages in the amount of $39,996,000, based on “the value of the
shares that were given to FSC in consideration of Badolato’s
efforts on behalf of [Verity] but then later rescinded by
[Verity],” plus statutory pre-judgment interest. (ECF No. 11,
Mot. at 10-17.)
On February 20, 2019, Judge Bianco granted default but noted
that Plaintiffs had “not made evidentiary submissions in
connection with the application for a default judgment.” (ECF No.
16, Order, at 2.) Accordingly, Judge Bianco referred the motion
to Magistrate Judge Steven I. Locke for an R&R “to address the
issue of damages and other relief sought by plaintiffs.” (Id.)
Magistrate Judge Locke recommended that Plaintiffs’ request
for damages and additional relief be denied without prejudice and
with leave to renew. (ECF No. 20, R&R, at 6.) Magistrate Judge
Locke noted that Plaintiffs had not supplemented their motion with
any documentary evidence despite Judge Bianco’s order stating that
he could not determine damages due to a lack of evidence. (Id. at
5.) Plaintiffs moved for reconsideration on the R&R, stating that
they had not been granted an opportunity to present documentation
at a hearing.3 (ECF No. 21, Letter Motion for Reconsideration.)
Magistrate Judge Locke denied the motion for reconsideration,
stating that Plaintiffs could instead renew their prior motion and
provide evidentiary submissions at that time. (ECF Nos. 21, 24.)
Plaintiffs also filed objections to the R&R. (ECF No. 23,
Objections to R&R.)
On May 21, 2019, the case was reassigned to Judge Roslynn R.
Mauskopf. Judge Mauskopf addressed Plaintiffs’ objections to
Magistrate Judge Locke’s R&R, in an order adopting the R&R in its
entirety. (ECF No. 27, Order Adopting R&R.) Judge Mauskopf agreed
that the Court could not determine whether Plaintiffs were entitled
to relief without evidence. (Id. at 7.) She stated that it should
be “no surprise to [P]laintiffs that documentary evidence is needed
to support their requests for relief,” based on Judge Bianco’s
order, and that Plaintiffs were “requesting damages but never
adduced evidence to substantiate the valuation of the shares.”
(Id.) Further, Judge Mauskopf noted that Plaintiffs were seeking
“double recovery”; they had requested both a declaration that they
owned 4,000,000 Class B shares and financial recompense for the
3 In the motion for reconsideration, Plaintiffs’ attorney stated that after the
motion for damages was referred to Magistrate Judge Locke, he twice “contacted
chambers to inquire as to the Court’s procedures either for setting a hearing
on relief and damages or for submitting supplemental papers for the Court’s
consideration.” (ECF No. 21, Letter Motion for Reconsideration.) He stated
that “[e]ach time, [he] was directed not to take any action.” (Id.) The record
does not establish contact from Plaintiffs’ attorney, such as a letter. Any ex
parte contact or communication between Plaintiffs’ attorney and Magistrate Judge
Locke is not otherwise reflected in the record.
value of those shares. (Id.) Judge Mauskopf directed Plaintiffs
to supplement their motion to clarify the relief sought. (Id. at
8.)
Plaintiffs filed a supplemental motion for default judgment,
including a declaration, an affirmation, and four exhibits. (ECF
No. 28, Supp. Mot. at 1.) Plaintiffs clarified that they seek
only monetary relief, “for the monetary value of the shares,” in
the amount of $41 million. (Id.; ECF No. 28-2, Affidavit of Chaim
Muskrat, at ¶ 2.)
On July 6, 2021, this case was reassigned to the undersigned
and the supplemental motion for default judgment subsequently was
referred to Magistrate Judge Dunst. (See 9/30/22 Or.) On October
14, 2022, Magistrate Judge Dunst issued an order inviting Plaintiff
to provide “any update or supplement” to the motion. (10/14/22
Or.) Plaintiffs did not file additional submissions.
On November 17, 2022, Magistrate Judge Dunst issued an R&R
recommending that the Court deny the supplemental motion with
prejudice. (ECF No. 29, R&R, at 1.) Magistrate Judge Dunst found
that Plaintiffs had “once again failed”, after four years, to
provide sufficient evidence supporting their claim for $41 million
in monetary relief and that the supplemental filings did not
establish the damages requested to a “reasonable certainty.” (Id.
at 5.) Magistrate Judge Dunst noted that the Chaim Muskrat
affidavit (“Muskrat Affidavit”) submitted in support of
Plaintiffs’ motion, identifying four supplemental exhibits, was
incomplete and did not establish Mr. Muskrat’s specific
association with Plaintiffs or his personal knowledge of the
exhibits. (Id. at 6.) The exhibits thus lacked a foundation, and
did not provide sufficient information to establish a $41 million
value for the shares at issue. (Id.) Accordingly, Magistrate
Judge Dunst recommended denying Plaintiffs’ motion for default
judgment with prejudice, given that Plaintiffs had been provided
multiple opportunities to present sufficient evidence regarding
their alleged damages but had failed to do so. (Id. at 7.)
Plaintiffs timely filed objections to the R&R. (ECF No. 30,
Objection to R&R.) First, they object to the R&R’s “implication”
that Plaintiffs had caused unnecessary delay in the case, noting
that the four-year delay was due to reassignments to different
judges, delay in court orders, and the coronavirus pandemic. (Id.
at 1.) Second, they object to the R&R’s conclusion that the
exhibits lack a foundation, arguing that the Muskrat Affidavit
provided sufficient authentication. (Id.) Third, they object to
the R&R’s conclusion that the information provided was
insufficient to establish the value of the revoked shares, stating
the following:
The damages theory in this case is clear—a certain number
of shares of a certain value were taken from FSC. The
documents set forth Verity’s pricing of those shares—
[and] given Verity’s failure to respond to books and
records demands or participate in this case (which would
have entailed discovery) and the fact that Verity is not
publicly traded, this is the best estimate available for
the value of the shares . . . The mathematical
calculation of $10/share times 4,000,000 shares arrives
at a total monetary damages figure for FSC of
$40,000,000.
(Id. at 2.) Plaintiffs further argue that their exhibits suffice
to establish that FSC’s shares were revoked. (Id. at 2-3.)
Finally, they object that the motion should not be denied with
prejudice when no evidentiary hearing has been held. (Id. at 3.)
Plaintiffs do not reveal what evidence would be presented at
an evidentiary hearing that could not have been submitted in
support of their third motion. Nor do Plaintiffs explain why
detailed affidavits with supporting documents were not submitted
in support of their motion.
LEGAL STANDARD
The Court “may accept, reject, or modify, in whole or in part,
the findings or recommendations made by the magistrate judge.” 28
U.S.C. § 636(b)(1). If a party makes specific and timely written
objections to a magistrate judge’s findings and recommendations,
the Court conducts a de novo review of “those portions of the
report . . . to which objection is made.” Id.; see also Fed. R.
Civ. P. 72(b)(3). “Where no objection to a Report and
Recommendation has been timely made, the district court need only
satisfy itself that there is no clear error on the face of the
record.” Minto v. Molloy Coll., No. 16-cv-276 (KAM), 2021 WL
804386, at *1 (E.D.N.Y. Mar. 3, 2021) (internal quotation marks
and citation omitted). Moreover, where “the objecting party makes
only conclusory or general objections, or simply reiterates the
original arguments, the Court will review the [R&R] strictly for
clear error.” Id. (internal quotation marks and citations
omitted).
On a default judgment motion, the defendant is deemed to have
admitted all well-pleaded factual allegations in the plaintiff’s
complaint, except for claims relating to damages. See Cement &
Concrete Workers Dist. Council Welfare Fund v. Metrofoundation
Contractors, Inc., 699 F.3d 230, 234 (2d Cir. 2012); see also
Greyhound Exhibitgroup, Inc. v. E.L.U.L. Realty Corp., 973 F.2d
155, 158 (2d Cir. 1992). Instead, once default is established,
the plaintiff bears the burden of showing an entitlement to
recovery. Windward Bora, LLC v. Brown, No. 21-CV-03147 (KAM),
2022 WL 875100, at *3 (E.D.N.Y. Mar. 24, 2022) (citing Danser v.
Bagir Int'l, 571 F. App'x 54, 55 (2d Cir. 2014) (summary order)).
A district court must ensure that the plaintiff has proved
the amount of damages to a “reasonable certainty.” Credit Lyonnais
Secs. (USA), Inc. v. Alcantara, 183 F.3d 151, 155 (2d Cir. 1999).
When damages are “neither susceptible of mathematical computation
nor liquidated as of the default,” courts usually require “an
evidentiary proceeding in which the defendant has the opportunity
to contest the amount.” Greyhound, 973 F.2d at 158. Courts have
discretion, however, under Federal Rule of Civil Procedure
55(b)(2), to “determine whether an evidentiary hearing is
necessary or whether to rely on detailed affidavits or documentary
evidence.” Windward Bora, 2022 WL 875100, at *3 (internal
quotation marks and citations omitted). Either way, a court cannot
“just accept [a plaintiff’s] statement of the damages.”
Transatlantic Marine Claims Agency, Inc. v. Ace Shipping Corp.,
Div. of Ace Young Inc., 109 F.3d 105, 111 (2d Cir. 1997). “Proof
of damages must therefore be based on admissible, authenticated
evidence.” Trustees of Loc. 522 Pension Fund v. Tri-Boro & Rest.
Supply Co., No. 12-CV-0163 (KAM), 2013 WL 685377, at *3 (E.D.N.Y.
Feb. 24, 2013) (citations omitted); see also Tamarin v. Adam
Caterers, Inc., 13 F.3d 51, 54 (2d. Cir. 1993); House v. Kent
Worldwide Mach. Works, Inc., 359 F. App'x 206, 207 (2d Cir.
2010)(summary order) (interpreting a reasonable certainty to mean
that “even when the defendant defaults and is not present to
object, damages must be based on admissible evidence”).
DISCUSSION
Upon de novo review, the Court agrees with Magistrate Judge
Dunst’s well-reasoned R&R that the Court cannot determine the
amount of damages to a “reasonable certainty.” Credit Lyonnais,
183 F.3d at 155. Prior to the supplemental motion, Plaintiffs
provided no documentation to establish their entitlement to $41
million in damages beyond the complaint and memorandum in support
of their motion for default judgment. In their supplemental
motion, Plaintiffs submit only a cover letter, a declaration by
Plaintiffs’ attorney, Michael B. Ershowsky (“Ershowsky
Declaration”), the Muskrat Affidavit, and four exhibits totaling
eight pages. (ECF Nos. 28—28-6.) The Ershowsky Declaration
clarifies that Plaintiffs seek as relief “only the monetary relief
demanded in the Complaint . . . for the monetary value of the
shares,” which the Muskrat Affidavit asserts, without adequate
evidentiary support, is $41 million. (ECF No. 28-1, Ershowsky
Declaration, at 1; Muskrat Affidavit at 4.)
The Court again is prevented from determining damages to a
reasonable certainty because the exhibits that relate to the value
of the shares are not properly authenticated and thus not
admissible. Three of the four exhibits concern the number and the
value of the shares: Exhibit 1, four pages of Defendants’ private
placement memorandum; Exhibit 2, Defendants’ capital call letter;
and Exhibit 4, a statement of securities holdings from Transfer
Online.4 (ECF Nos. 28-3, Exhibit 1 (“Ex. 1.”); Ex. 2; ECF No. 28-6,
Exhibit 4 (“Ex. 4”).) The Ershowsky Declaration states only that
Mr. Ershowsky is “fully familiar with the facts and circumstances
underlying [the] proceeding” and that Plaintiffs’ request for
4 Exhibit 3, the only exhibit that does not refer to the value or number of the
shares at issue, documents BAD Holdings LLC’s name change to FSC, certified by
the Wyoming Secretary of State. (ECF No. 28-4, Exhibit 3, (“Ex. 3”).) Exhibit
3 therefore is properly authenticated under Federal Rule of Evidence 902(1).
damages is “supported by documentary and further testamentary
evidence set forth in the [Muskrat Affidavit].” (ECF No. 28-1 at
1.) These statements are insufficient to authenticate the exhibits
under Federal Rule of Evidence 901. See Trustees of Loc. 522
Pension Fund, 2013 WL 685377, at *4 (finding that affidavit by
attorney alleging only that he was “familiar with the facts of
[the] case” was too conclusory to establish damages). Further,
Plaintiffs have not provided any document establishing when FSC
allegedly was issued 4,000,000 Class B shares; establishing the
value of the 4,000,000 Class B shares at the time they were issued
to FSC; or establishing the difference in value between Class A
and Class B shares.
Although the Muskrat Affidavit provides more detail than the
Ershowsky Declaration, it too fails to lay the foundation for
admissible evidence. It states that Muskrat is “an authorized
representative for the plaintiffs in this action,” but does not
establish (1) Muskrat’s first-hand knowledge of the facts he
attests to, (2) whether he was a custodian of the relevant records,
or (3) if he reviewed records supporting the facts attested to.
(Muskrat Affidavit at 1); see also Trustees of Loc. 522 Pension
Fund, 2013 WL 685377, at *4 (finding there was “no indication that
[plaintiff attorney’s] conclusory statements regarding plaintiffs’
damages [were] based on his first-hand knowledge or such other
source such that the contents of such statements would be
admissible in evidence” (alterations, internal quotation marks,
and citations omitted)). Nor does Mr. Muskrat submit authenticated
records in support of the facts asserted. (Muskrat Affidavit at
1.)
Plaintiffs object to Magistrate Judge Dunst’s conclusion that
the exhibits lack a proper foundation on the ground that evidence
may be authenticated by “testimony that an item is what it is
claimed to be” under Federal Rule of Evidence 901(b)(1). Fed. R.
Evid. 901(b)(1); (ECF No. 30 at 1.) Rule 901(b)(1), however,
requires “[t]estimony of a witness with knowledge.”5 Fed. R. Evid.
901(b)(1) (emphasis added). Courts regularly find that “[t]he
absence of an affidavit by a person with actual knowledge of the
facts . . . deprives the court of the ability to make an independent
assessment of the damages to be awarded.” Trustees of Loc. 522
Pension Fund, 2013 WL 685377, at *4; see also Annuity, Welfare &
Apprenticeship Skill Improvement & Safety Funds of Int'l Union of
Operating Eng’rs Loc. 15, AFL-CIO v. Midwest REM Enters., Inc.,
No. 20-CV-05896 (KAM), 2021 WL 2809794, at *6 (E.D.N.Y. July 6,
2021) (finding insufficient authentication where affidavits by
plaintiff’s attorney and fund administrator did not testify to
personal knowledge or to reviewing records); Int'l Bhd. of Elec.
5 It is true that Muskrat’s name is on Exhibit 4, a statement of holdings stating
that Plaintiff VIL and Muskrat have 10,000 shares of Verity (then known as
Certified Inc.). (ECF No. 28-6.) But that does not establish Muskrat’s
knowledge as to Exhibits 1 and 2, which Plaintiffs assert describe the value of
the shares. (ECF Nos. 28-3, 28-4.)
Workers Loc. 106 v. Marker Elec. Contracting, Inc., No. 16-CV-932
(FPG), 2018 WL 4327815, at *7 (W.D.N.Y. Sept. 10, 2018) (requiring
“affidavits from individuals with actual knowledge of the facts
. . . and the underlying records”); LaBarbera v. Rockwala Inc.,
No. 06-CV-6641 (CPS), 2007 WL 3353869, at *5 (E.D.N.Y. Nov. 8,
2007) (adopting report and recommendation to deny default
judgment) (noting that affidavit “makes no assertion” regarding
being “the custodian of [relevant] records or otherwise
responsible for maintaining them”).
Even if the Court assumes the documents are properly
authenticated, on de novo review, the Court agrees with Magistrate
Judge Dunst that the exhibits do not establish to a “reasonable
certainty” that Plaintiffs are owed $41 million in damages.
Magistrate Judge Dunst noted that Exhibit 2 contains “only select
pages from what appears to be a larger document,” and that the few
other exhibits do not provide sufficient support to find to a
“reasonable certainty” the substantial sum claimed by Plaintiffs,
especially given the lack of documentary evidence that Defendants
ever actually revoked Plaintiffs’ shares or promised to exchange
Class A shares for Class B shares. (ECF No. 29 at 6.)
Plaintiffs object to Magistrate Judge Dunst’s finding that
the exhibits do not establish the value of the shares at issue to
a “reasonable certainty.” (ECF No. 30 at 3); Credit Lyonnais, 183
F.3d at 155. They assert that the Court is required to accept the
factual allegations in the complaint as true, including the
allegation that Defendants illegally revoked Plaintiffs’ shares.
(Id.)
Because defendants are “deemed to have admitted all well-
pleaded factual allegations” in a complaint upon entry of default
judgment, Windward Bora, 2022 WL 875100, at *3, the Court must
assume liability on behalf of the Defendants, including that they
(1) wrongfully revoked Plaintiffs’ shares and (2) provided VIL
with 10,000 Class A, rather than Class B, shares. The Court,
however, does not assume that factual allegations related to
damages are true, including the alleged difference in value between
Class A and Class B shares. See Cement & Concrete Workers Dist.
Council Welfare Fund, 699 F.3d at 234. Instead, the Court
maintains “an independent obligation to determine whether damages
to be awarded are appropriate.” LG Cap. Funding, LLC v. M Line
Holdings, Inc., 422 F. Supp. 3d 739, 746 (E.D.N.Y. 2018). That
obligation “does not change simply because one party is in
default.” Id.
This Court, like Magistrate Judge Dunst, cannot conclude with
reasonable certainty that Plaintiffs are entitled to $41 million
in damages. In support of establishing the value of the shares,
Plaintiffs have provided only the cover page, pages 7 and 8 (titled
“Summary of the Offering”), and page 41 (titled “Capitalization
Tables”) of the private placement memorandum. (Ex. 1 at 2-5.)
Although Plaintiffs need not submit needlessly cumulative
information, it is not clear from Plaintiffs’ submission why only
a summary of the purported terms of the private placement was
provided in support of their motion, rather than the full terms.
(Id.) As the Court noted above, Plaintiffs also have not provided
any document establishing when FSC allegedly was issued 4,000,000
Class B shares or establishing the value of the 4,000,000 Class B
shares at the time they were issued to FSC. As also noted above,
Plaintiffs have not established to a reasonable certainty the
difference in value between Class A and Class B shares, such that
VIL suffered a loss from being granted Class B shares instead of
Class A shares.
Finally, even if the Court found that Plaintiffs’ damages
allegations were sufficiently supported by evidence, Plaintiffs’
submissions do not yield $41 million in damages. The Muskrat
Affidavit asserts that Plaintiffs are entitled to $41 million.
(Muskrat Affidavit at 1.) It calculates that FSC suffered a loss
of 4,000,000 shares at $10 per share, yielding $40,000,000 in
damages. (Id. at 2.) It also calculates that VIL suffered a loss
of 10,000 shares, at $10 per share, yielding $100,000 in damages.
(Id.) The total calculation provided by Plaintiffs’ inadequately
documented submissions amounts to $40,100,000 in damages.
Plaintiffs have not established another loss justifying the
remaining $900,000 requested.6
Accordingly, the Court is unable to determine the damages
amount to a “reasonable certainty” based on the submitted
documentary evidence. Credit Lyonnais, 183 F.3d at 155. Judge
Bianco granted Plaintiffs’ initial motion for default judgment on
February 20, 2019. “[A] default judgment establishes whether a
plaintiff suffered damage; it does not, however, establish the
amount of those damages.” Greyhound, 973 F.2d at 161 (Altimari,
J., concurring). Judge Bianco noted in his order that Plaintiffs
had “not made evidentiary submissions” and thus issued a referral
“to address the issue of damages and other relief sought by
plaintiffs.” (ECF No. 16, Order, at 2.) Since then, two district
court judges, including this Court, and two magistrate judges have
been unable to determine damages to a “reasonable certainty,”
despite granting numerous opportunities to Plaintiffs to
supplement their submissions. Courts have denied damages awards
where plaintiffs repeatedly fail to establish damages to a
reasonable certainty. See Louis Hornick & Co. v. Darbyco, Inc.,
No. 12-CV-5892 (VSB) (DCF), 2015 WL 13745787, at *1 (S.D.N.Y. Aug.
19, 2015), report and recommendation adopted, No. 12-CV-5892
(VSB), 2015 WL 9478239 (S.D.N.Y. Dec. 29, 2015) (“Plaintiff failed
to establish damages with reasonable certainty, despite having
6 Plaintiffs request interest on both losses. (ECF No. 28-3.) They do not
provide calculations, however, to establish an interest payment of $900,000.
been advised of the inadequacy of its submissions and directed to
supplement its inquest submissions . . . [the Court] decline[s] to
award Plaintiff any damages.”); see also Garden City Boxing Club,
Inc. v. Borinquen 444 Ass’n, No. 05-CV-3691 (ARR) (RML), 2008 WL
842452, at *3 (E.D.N.Y. Mar. 28, 2008) (adopting report and
recommendation) (“Since it is clear that plaintiff did not take
advantage of the opportunity it was given to cure the glaring
deficiencies in its first motion for default judgment, I recommend
that its current motion be denied with prejudice and that no
damages be awarded.”).
Plaintiffs object to Magistrate Judge Dunst’s recommendation
that their supplemental motion be denied with prejudice, arguing
that Magistrate Judge Dunst never held an evidentiary hearing and
that if “an in-person inquest been held, the various issues . . .
could have been addressed.” (ECF No. 30 at 3.) Plaintiffs do not
reveal what evidence would have been presented at a hearing to
establish their damages. (Id.) Plaintiffs cite to Edelman Arts,
Inc. v. Spoelstra, in which a judge in the Southern District of
New York declined to adopt a R&R recommending that no damages be
awarded: the judge found that the magistrate judge did not take
all “necessary steps to establish damages with reasonable
certainty” because it had not held an evidentiary hearing. No.
17-CV-4789 (JGK), 2020 WL 2131351, at *5-6 (S.D.N.Y. May 5, 2020)
(quoting Transatlantic Marine, 109 F.3d at 111). Edelman cites to
Transatlantic Marine, in which the Second Circuit held that the
district court “failed to take the necessary steps to establish
damages with reasonable certainty” where it held no evidentiary
hearing but instead accepted the plaintiff’s statement of damages.
109 F.3d at 111. In Transatlantic Marine, the Second Circuit
acknowledged that “the District Court may not have been obligated
to hold an evidentiary hearing” if it could decide damages based
on documentary evidence. Id. The specific issue addressed by the
Second Circuit was that the district court had “simply accepted at
face value” the plaintiff’s unsupported statement regarding
damages, which “did not satisfy the court's obligation to ensure
that the damages were appropriate.” Id.
Here, by contrast, this Court, along with Magistrate Judge
Dunst, has thoroughly reviewed Plaintiff’s evidentiary submissions
prior to concluding that it is unable to determine damages to a
“reasonable certainty.” Credit Lyonnais, 183 F.3d at 155; see
also Garden City Boxing Club, 2008 WL 842452 at *2 (approving an
award of zero damages without holding an evidentiary hearing).
Given that courts have discretion under Federal Rule of Civil
Procedure 55(b)(2) to “determine whether an evidentiary hearing is
necessary or whether to rely on detailed affidavits or documentary
evidence,” Windward Bora, 2022 WL 875100, at *3 (internal quotation
marks and citations omitted), this Court may determine a damages
award without holding an evidentiary hearing.
Accordingly, on de novo review, the Court adopts the R&R’s
recommendation to deny with prejudice Plaintiffs’ supplemental
motion for monetary damages.
CONCLUSION
For the forgoing reasons, Plaintiffs’ supplemental motion for
monetary damages is denied with prejudice. The Clerk of Court is
respectfully directed to enter a judgment in favor of Plaintiffs,
with an award of $0 in damages, and close this case.
SO ORDERED
Dated: January 30, 2023
Brooklyn, New York
\ “_——s
ry 9 oa * “tire
HON. KIYO A. MATSUMOTO
United States District Judge
Eastern District of New York
21