The opinion
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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PHOENIX INSURANCE COMPANY, LTD.
a/s/o KRAMER ELECTRONICS, LTD.,
REPORT AND
Plaintiff, RECOMMENDATION
23-cv-8822 (DG)(SIL)
-against-
TAPEMAKER SALES COMPANY, INC. d/b/a
TAPEMAKER SALES, INC. and/or
TAPEMAKER,
Defendant.
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STEVEN I. LOCKE, United States Magistrate Judge:
Presently before the Court in this insurance subrogation action, on referral
from the Honorable Diane Gujarati for Report and Recommendation, is Plaintiff
Phoenix Insurance Company, Ltd. a/s/o Kramer Electronics, Ltd.’s motion for default
judgment pursuant to Rule 55 of the Federal Rules of Civil Procedure (“Fed. R. Civ.
P.”). See Docket Entry (“DE”) [13]. By way of a Complaint dated November 30, 2023,
Plaintiff commenced this action against Defendant Tapemaker Sales Company, Inc.
d/b/a Tapemaker Sales, Inc. and/or Tapemaker (“Defendant” or “Tapemaker”) seeking
to recover amounts that Phoenix paid to Kramer Electronics, Ltd. (“Kramer”)
pursuant to an insurance policy. DE [1]. For the reasons set forth herein, the Court
respectfully recommends that Plaintiff’s motion be granted in part and denied in part,
and that Plaintiff be granted leave to submit adequate substantiation of the damages
it seeks to recover.
I. BACKGROUND
A. Facts
All relevant facts are taken from the Complaint, pleadings, affidavits, and
exhibits submitted in support of the instant motion. Plaintiff Phoenix Insurance
Company, Ltd. (“Plaintiff” or “Phoenix”) is an insurance company headquartered in
Givatayim, Israel. See Complaint (“Compl.”), DE [1], ¶ 4. Kramer is a global provider
of electronic audio-visual equipment and components based in Tel Aviv, Israel. Id. at
¶ 5. Tapemaker provides “warehousing services” and has a place of business located
at 48 Urban Avenue, Westbury, New York. Id. at ¶ 6. At all relevant times, Phoenix
insured the audio-visual equipment and components that Kramer stored in
Tapemaker’s warehouse located in Westbury, New York. Id. at ¶ 4.
For “numerous decades,” Tapemaker provided warehousing and order
fulfillment services for Kramer at Defendant’s warehouse located at 48 Urban
Avenue, Westbury, New York (the “Warehouse”). Id. at ¶ 8. Although Kramer and
Tapemaker did not have a formal written contractual relationship, Tapemaker
charged Kramer $40,000 per month for its services, which Kramer paid. Id. at ¶ 9.
At all relevant times, Phoenix insured Kramer, providing coverage for, among other
things, loss and/or damage to Kramer’s inventory while stored in the Warehouse (the
“Insurance Contract”). Id. at ¶ 12.
On or about December 4, 2020, a fire broke out in the Warehouse, resulting in
heavy damage and/or destruction to Kramer’s inventory. Id. at ¶¶ 10-11. Pursuant
to the Insurance Contract, Phoenix has made payments to Kramer because of damage
caused to Kramer’s inventory by the fire. Id. at ¶ 13. Phoenix alleges that it is
subrogated to the rights of its insured with respect to all claims for the damage
sustained to Kramer’s inventory, and that it has therefore “sustained damages in the
amount of at least $1,001,852 plus interest, attorneys fees, and costs, no part of which
has been paid.” Id. at ¶¶ 14-15.
B. Procedural History
On November 30, 2023, Plaintiff commenced this action against Defendant,
seeking to recover amounts it has paid to Kramer because of the fire at Defendant’s
Warehouse. DE [1]. On February 5, 2024, Plaintiff served the Complaint and
Summons on Defendant. See DE [6]. On May 2, 2024, this Court held an initial
conference, at which Defendant failed to appear. See DE [8]. On May 22, 2024, after
the deadline for Defendant to answer or otherwise respond to Plaintiff’s Complaint
had passed, Plaintiff requested that the Court issue a certificate of default against
Defendant. See DE [10]. The Clerk of Court entered a Notice of Default against
Defendant on May 23, 2024. See DE [11].
On July 26, 2024, Plaintiff filed the instant motion for default judgment
against Tapemaker pursuant to Fed. R. Civ. P. 55, see DE [13], which Judge Gujarati
referred to this Court for a Report and Recommendation. See July 31, 2024 Electronic
Order. For the reasons set forth herein, the Court respectfully recommends that
Plaintiff’s motion be granted in part and denied in part as to Defendant’s liability,
and that Plaintiff be granted leave to submit adequate substantiation of the damages
it seeks to recover.
II. LEGAL STANDARD
Motions for default judgment are governed by Fed. R. Civ. P. 55, which
provides for a two-step process. See Fed. R. Civ. P. 55; Priestley v. Headminder, Inc.,
647 F.3d 497, 504-05 (2d Cir. 2011). Initially, the moving party must obtain a
certificate of default from the Clerk of the Court. See Fed. R. Civ. P. 55(a). Once the
certificate of default is issued, the moving party may apply for entry of a default
judgment. Id. at 55(b). Where a default occurs, the well-pleaded factual allegations
set forth in a complaint relating to liability are deemed true. Vermont Teddy Bear
Co., Inc. v. 1-800 Beargram Co., 373 F.3d 241, 246 (2d Cir. 2004); see Fed. R. Civ. P.
8(b)(6) (“An allegation – other than one relating to the amount of damages – is
admitted if a responsive pleading is required and the allegation is not denied.”).
A plaintiff seeking a default judgment must demonstrate that its
“uncontroverted allegations, without more, establish the defendant’s liability on each
asserted cause of action.” Gunawan v. Sake Sushi Rest., 897 F. Supp. 2d 76, 83
(E.D.N.Y. 2012). In determining whether to grant a motion for default judgment, the
court has the “responsibility to ensure that the factual allegations, accepted as true,
provide a proper basis for liability and relief.” Ferrera v. Tire Shop Ctr., No. 14-CV-
4657, 2015 WL 3562624, at *2 (E.D.N.Y. Apr. 6, 2015), report and recommendation
adopted, 2015 WL 3604078 (E.D.N.Y. June 5, 2015) (internal quotation marks and
citation omitted). Accordingly, prior to entering a default judgment, the court must
determine whether the plaintiff’s allegations establish the defendant’s liability “as a
matter of law.” Bricklayers & Allied Craftworkers Local 2, Albany, N.Y. Pension Fund
v. Moulton Masonry & Constr., LLC, 779 F.3d 182, 187 (2d Cir. 2015). Once liability
has been established, “[t]he court must also determine the amount of damages, actual
or statutory, that may be assessed.” Lyons P’ship, L.P. v. D & L Amusement & Entm’t,
Inc., 702 F. Supp. 2d 104, 111 (E.D.N.Y. 2010).
III. DISCUSSION
Plaintiff seeks to recover $1,001,852 for the amount it has allegedly paid to
Kramer because of damage caused by the fire in Tapemaker’s Warehouse. See Compl.
¶ 35. In its Complaint, Plaintiff asserts causes of action for: (1) breach of an implied-
in-fact contract; (2) negligence; and (3) breach of bailment. For the reasons set forth
herein, the Court respectfully recommends that default judgment be entered with
respect to Plaintiff’s claims for negligence and breach of bailment, and that Plaintiff
be granted leave to submit adequate substantiation of the damages it seeks to
recover.
A. Liability
1. Subrogee’s Ability to Recover
As an initial matter, under New York law, “[i]t is the very essence of
subrogation that a subrogee stands in the shoes of the subrogor and is entitled to all
of the latter’s rights, benefits and remedies.” Travelers Indem. Co. of Conn. v. The
Losco Group, Inc., 136 F. Supp. 2d 253, 255 (S.D.N.Y. 2001) (quoting Spier v. Erber,
759 F. Supp. 1024, 1027 (S.D.N.Y. 1991)); see also Fed. Ins. Co. v. CLE Transp., Inc.,
No. 18-CV-11119, 2020 WL 1503455, at *2 n.3 (S.D.N.Y. Mar. 30, 2020) (observing
that the plaintiff insurer was “an insurer-subrogee and therefore [stood] in the shoes
of . . . its insured”); Everest Reinsurance Co. v. Collector’s Fantasy of Brooklyn, Inc.,
No. 09-CV-5015, 2012 WL 2953955, at *3 (E.D.N.Y. July 19, 2012) (holding that the
plaintiff had a “viable subrogation claim, which vested when [the insurer] paid [the
insured] for its losses” in accordance with an insurance policy); Bankers Standard
Ins. Co. v. R.C. Complete Landscaping, No. 17-CV-4415, 2019 WL 2437160, at *2
(E.D.N.Y. Feb. 27, 2019) (granting default judgment for property damage in
subrogation action). Therefore, in evaluating the instant motion for default
judgment, the Court considers whether Kramer would have a right to recover from
Tapemaker because of damages caused by the fire in the Warehouse.
2. Breach of Implied-In-Fact Contract
Under New York law, “a contract may be implied where inferences may be
drawn from the facts and circumstances of the case and the intention of the parties
as indicated by their conduct.” Transcience Corp. v. Big Time Toys, LLC, 50 F. Supp.
3d 441, 455 (S.D.N.Y. 2014). “An implied-in-fact contract is equally binding as an
express contract; therefore, an implied in fact contract requires proof of the same
elements to establish an express contract—mutuality of intent, offer and acceptance,
lack of ambiguity, and consideration.” Patsy’s Italian Rest., Inc. v. Banas, 508 F.
Supp. 2d 194, 218 (E.D.N.Y. 2007); see also Keybank Nat’l Ass’n v. Med. Records
Retrieval, Inc., No. 20-CV-4960, 2022 WL 903060, at *4 (E.D.N.Y. Mar. 28, 2022)
(“The elements to establish a prima facie claim of breach of contract under New York
law are (1) the existence of an agreement, (2) adequate performance of the contract
by the plaintiff, (3) breach of contract by the defendant, and (4) damages.”) (internal
quotations omitted).
Plaintiff’s allegations, even accepted as true, are insufficient to establish a
claim for breach of an implied-in-fact contract. By Plaintiff’s own admission, Kramer
and Tapemaker did not have an explicit written contract detailing the nature of their
relationship or any obligations arising thereunder. See Plaintiff’s Memorandum of
Law in Support of Motion for Default Judgment (“Pl.’s Mem.”), DE [13-1] at 7.
Instead, Plaintiff alleges that the parties’ course of conduct spanning several decades
establishes an implied-in-fact contract. See Compl. ¶¶ 8, 16-23. Plaintiff alleges that
Tapemaker breached its implied-in-fact contract because “Tapemaker failed to
reasonably exercise care with respect to Kramer’s property stored in its warehouse.”
Id. at ¶ 20. However, Plaintiff does not allege the terms of any such implied-in-fact
contract, including any obligations that Tapemaker may have had arising
thereunder, or how Tapemaker breached any such obligations. In the absence of a
written agreement or any allegations concerning Tapemaker’s obligations under the
implied-in-fact contract, the Court is unable to conclude that Tapemaker breached its
agreement with Kramer.
Therefore, the Court respectfully recommends that Plaintiff’s motion for
default judgment be denied with respect to its claim for breach of an implied-in-fact
contract.
3. Negligence
To establish a claim for negligence, “a plaintiff must show ‘(1) the existence of
a duty on defendant’s part as to plaintiff; (2) a breach of this duty; and (3) injury to
the plaintiff as a result thereof.’” State Farm Fire & Cas. Co. v. Advanced Chimney,
Inc., No. 13-CV-4608, 2014 WL 4438899, at *6 (E.D.N.Y. Aug. 11, 2014) (quoting
Caronia v. Philip Morris USA, Inc., 715 F.3d 417, 428 (2d Cir. 2013)).
Plaintiff’s allegations, accepted as true, are sufficient to establish a cause of
action for negligence. Phoenix alleges that Tapemaker owed Kramer a duty of care
for the property Kramer stored in the Warehouse, that Tapemaker breached this duty
by failing to prevent and/or rapidly extinguish the fire that broke out in the
Warehouse, and that Tapemaker’s breach of its duty of care caused damages to the
property that Kramer stored in the Warehouse. See Compl. ¶¶ 24-29. Plaintiff
further alleges that it made insurance payments to Kramer because of these
damages. Id. at ¶ 29.
These allegations, accepted as true, are sufficient to establish a claim for
negligence. See State Farm Fire & Cas. Co., 2014 WL 4438899, at *8 (holding that
the plaintiff stated a claim for negligence where the plaintiff suffered damages as a
result of a fire that the defendant caused); Interested Underwriters at Lloyd’s v.
Atlantic Fine Art Servs., Inc., No. 11-CV-569, 2011 WL 13377385, at *3 (E.D.N.Y.
Nov. 18, 2011) (finding allegations of negligence to be sufficient where a bailee failed
to return the property in question); Everest Reinsurance Co. v. PRBK, LLC, No. 09-
CV-5607, 2010 WL 5490950, at *2 (E.D.N.Y. Dec. 10, 2010) (Report and
Recommendation), adopted by 2011 WL 13924 (E.D.N.Y. Jan. 4, 2011) (granting
motion for default judgment for negligence where the defendant directly and
proximately caused the plaintiff’s damages).
Therefore, the Court respectfully recommends that Plaintiff’s motion for
default judgment be granted with respect to its claim for negligence.
4. Breach of Bailment
To establish a bailment under New York law, the plaintiff must show “the
intent to create a bailment, delivery of possession of the bailed items, and acceptance
of the items by the bailee.” Allianz Global Corp. & Specialty v. MSC “Moneterey”, No.
13-CV-7563, 2014 WL 4631891, at *3 (S.D.N.Y. Sept. 16, 2014) (quoting Chilewich
Partners v. M.V. Alligator Fortune, 853 F. Supp. 744, 756 (S.D.N.Y. 1994)). “[I]t is
essential to a finding of bailment that the bailor’s property be taken into the
possession of the bailee, so that the bailee is responsible for its care and custody.”
Herrington v. Verrilli, 151 F. Supp. 2d 449, 457 (S.D.N.Y. 2001) (citing Osborn v.
Cline, 263 N.Y. 434, 437, 189 N.E. 483 (1934)). A breach of bailment occurs where
“the bailee failed to ‘exercise care and diligence in protecting and keeping safe’ the
bailee’s property.” Wallace v. Health Quest Sys., Inc., No. 20-CV-545, 2021 WL
1109727, at *13 (S.D.N.Y. Mar. 23, 2021) (quoting Mack v. Davidson, 55 A.D.2d 1027,
1028, 391 N.Y.S.2d 497 (4th Dep’t 1977)).
Plaintiff alleges that Tapemaker was a bailee of inventory belonging to Kramer
and delivered to Tapemaker’s Warehouse. See Compl. ¶ 31. Phoenix further alleges
that Tapemaker, as bailee, had a duty to keep and care for Kramer’s inventory, which
Tapemaker breached by allowing the inventory to be damaged and/or destroyed by
the fire in the Warehouse. Id. at ¶¶ 32-34. These allegations, accepted as true, are
sufficient to establish a claim for breach of bailment. See Wallace, 2021 WL 1109727,
at *13; Davis v. Brown, No. 12-CV-1906, 2015 WL 1475711, at *3-4 (E.D.N.Y. Mar.
31, 2015) (holding that the plaintiff stated a claim for breach of bailment where the
defendant took possession and control over the property at issue and agreed to assure
its security); Interested Underwriters at Lloyd’s, 2011 WL 13377385, at *3. Therefore,
the Court respectfully recommends that Plaintiff’s motion for default judgment be
granted with respect to its claim for breach of bailment.
B. Damages
Once liability is established, the court must ascertain damages with
“reasonable certainty.” Hosking v. New World Mortgage, Inc., 570 F. App’x 28, 31 (2d
Cir. 2014); Team Air Express, Inc. v. A. Heffco Techs., Inc., No. 06-CV-2742, 2008 WL
3165892, at * 3 (E.D.N.Y. Aug. 6, 2008) (Report and Recommendation), adopted by
2008 WL 4790460 (E.D.N.Y. Oct. 28, 2008) (“While a party’s default is deemed to
constitute a concession of all well-pleaded allegations of liability, it is not considered
an admission of damages.” (internal quotation marks and citation omitted)).
Accordingly, the Court must assess whether Plaintiff has produced sufficient
evidence of the damages it seeks. See Gutman v. Klein, No. 03-CV-1570, 2010 WL
4975593, at *1 (E.D.N.Y. Aug. 19, 2010) (Report and Recommendation), adopted by
2010 WL 4916722 (E.D.N.Y. Nov. 24, 2010).
The Court has discretion to determine whether an evidentiary hearing is
necessary to determine damages not susceptible of simple mathematical calculation.
See Fed. R. Civ. P. 55(b)(2); In re Crazy Eddie Sec. Litig., 948 F. Supp. 1154, 1160
(E.D.N.Y. 1995) (citations omitted). “[T]he moving party bears the burden of
providing a reasonable basis for determination of damages and should not be awarded
damages if the evidence is not adequate.” Id. (citing Au Bon Pain Corp. v. Artect, Inc.,
653 F.2d 61, 65 (2d Cir. 1981)); Sullivan v. Marble Unique Corp., No. 10-CV-3582,
2011 WL 5401987, at *2 (E.D.N.Y. Aug. 30, 2011) (Report and Recommendation),
adopted by 2011 WL 5402898 (E.D.N.Y. Nov. 4, 2011) (“On a motion for default
judgment, a plaintiff has the burden to prove damages to the Court with a ‘reasonable
certainty.’”).
Here, Plaintiff fails to allege facts or provide evidence sufficient to establish
the damages it seeks to recover. Although Phoenix alleges that it has “been damaged
in the amount of at least $1,001,852,” see Compl. ¶ 35, Phoenix provides no
substantiation for any such claim. Therefore, Plaintiff has failed to meet its burden
of proof with respect damages. See U.S. Bank Nat’l Ass’n v. Kozikowski, No. 19-CV-
783, 2022 WL 4596753, at *4 (E.D.N.Y. Sept. 30, 2022) (declining to award damages
but permitting the party seeking a default judgment to submit additional evidence to
substantiate its damages); Designer Greetings, Inc. v. Shah, No. 14-CV-5936, 2016
WL 1029496, at *1 (E.D.N.Y. Mar. 15, 2016) (declining to enter award of damages,
but permitting the plaintiff to submit substantiation of the damages it sought to
recover).
Nevertheless, given the transactional nature of Plaintiff’s claims and the
potential damages it seeks, the Court does not consider a hearing on damages to be
necessary. Instead, the Court recommends that Plaintiff be granted leave to submit
an affidavit with adequate evidence to substantiate its damages. Designer Greetings,
Inc., 2016 WL 1029496, at *1; Hutchins v. Palmer, No. 12-CV-5927, 2018 WL
2031941, at *6 (E.D.N.Y. Feb. 9, 2018) (Report and Recommendation), adopted by
2018 WL 1202639 (E.D.N.Y. Mar. 8, 2018) (recommending that an unsubstantiated
request for damages be denied on a motion for default judgment).
IV. CONCLUSION
For the reasons set forth above, the Court respectfully recommends that
Plaintiff’s motion for a default judgment be granted in part and denied in part, and
that Plaintiff be granted leave to submit further substantiation of its claim for
damages.
V. OBJECTIONS
A copy of this Report and Recommendation is being served on Plaintiff by
electronic filing on the date below. Plaintiff is directed to serve a copy of it on
Defendant via first-class mail and promptly file proof of service by ECF. Any
objections to this Report and Recommendation must be filed with the Clerk of the
Court within fourteen days. See 28 U.S.C. §636(b)(1); Fed. R. Civ. P. 72; Fed. R. Civ.
P. 6(a) and 6(d). Failure to file objections within this period waives the right to appeal
the District Court’s Order. See Ferrer v. Woliver, No. 05-CV-3696, 2008 WL 4951035,
at *2 (2d Cir. Nov. 20, 2008); Beverly v. Walker, 118 F.3d 900, 902 (2d Cir. 1997);
Savoie v. Merchants Bank, 84 F.3d 52, 60 (2d Cir. 1996).
Dated: Central Islip, New York
October 11, 2024
/s/ Steven I. Locke
STEVEN I. LOCKE
United States Magistrate Judge