Sher v. RBC Capital Markets, LLC
ORDER denying 155 Motion to Alter or Amend the Judgment Pursuant to Rule 59(e). Signed by Judge George Levi Russell, III on 9/14/2016. (krs, Deputy Clerk)
UNITED STATES DISTRICT COURT
DISTRICT OF MARYLAND
GEORGE L. RUSSELL, III
United States District Judge
101 West Lombard Street
Baltimore, Maryland 21201
September 14, 2016
MEMORANDUM TO COUNSEL RE:
Joel I. Sher v. RBC Capital Markets, LLC
Civil Action No. GLR-11-1998
Pending before the Court is Defendant’s, RBC Capital Markets, LLC (“RBC”), Motion to
Alter or Amend the Judgment Pursuant to Federal Rule of Civil Procedure 59(e) (ECF No. 155).
No hearing is necessary. See Local Rule 105.6 (D.Md. 2016). For the reasons outlined below,
the Court will deny the Motion.
On August 26, 2015, the Court issued an Order denying RBC’s Motion for Summary
Judgment, granting Plaintiff’s, Joel I. Sher, Chapter 11 Trustee for Thornburg, Inc. (the
“Trustee”), Cross Motion for Summary Judgment, and entering judgment in favor of the Trustee
in the amount of $26,259,188 plus prejudgment interest at New York’s statutory rate of 9% from
August 14, 2007 though the date of judgment. (ECF No. 153). On September 22, 2015, RBC
filed the present Motion to Alter or Amend the Judgment Pursuant to Rule 59(e) (ECF No. 155),
arguing the Court clearly erred in applying state law to determine the prejudgment interest
award. The Trustee filed an Opposition on October 9, 2015 (ECF No. 157), and RBC submitted
a Reply on October 26, 2015 (ECF No. 158).
The Court may only alter or amend a final judgment under Rule 59(e) in three
circumstances: “(1) to accommodate an intervening change in controlling law; (2) to account for
new evidence not available at trial; or (3) to correct a clear error of law or prevent manifest
injustice.” Pac. Ins. Co. v. Am. Nat’l Fire Ins. Co., 148 F.3d 396, 403 (4th Cir. 1998). Rule
59(e) “permits a district court to correct its own errors, ‘sparing the parties and the appellate
courts the burden of unnecessary appellate proceedings.’” Id. (citation omitted). Altering or
amending a final judgment “is an extraordinary remedy which should be used sparingly.” Id.
(quoting 11 Wright et al., Federal Practice & Procedure § 2810.1, at 124 (2d ed. 1995)).
Accordingly, a party may not use a Rule 59(e) motion “to raise arguments which could have
been raised prior to the issuance of the judgment” or “to argue a case under a novel legal theory
that the party had the ability to address in the first instance.” Id.
When a party argues that Rule 59(e) relief is necessary to correct a clear error of law or to
prevent manifest injustice, mere disagreement with the Court’s previous decision will not suffice.
U.S. ex rel. Becker v. Westinghouse Savannah River Co., 305 F.3d 284, 290 (4th Cir. 2002)
(quoting Hutchinson v. Staton, 994 F.2d 1076, 1082 (4th Cir. 1993)). Rather, to justify altering
or amending a judgment on this basis, “the prior judgment cannot be ‘just maybe or probably
wrong; it must . . . strike [the court] as wrong with the force of a five-week-old, unrefrigerated
dead fish.’” Fontell v. Hassett, 891 F.Supp.2d 739, 741 (D.Md. 2012) (alteration in original)
(quoting TFWS, Inc. v. Franchot, 572 F.3d 186, 194 (4th Cir. 2009)). Hence, a “factually
supported and legally justified” decision does not constitute clear error. See Hutchinson, 994
F.2d at 1081–82.
As a preliminary matter, the Trustee argues RBC’s Rule 59(e) Motion is procedurally
barred. First, RBC is precluded from using Rule 59(e) to challenge the prejudgment interest
award because in its summary judgment briefs, RBC did not oppose the Trustee’s request for
prejudgment interest. In other words, RBC waived its right to contest the Court’s prejudgment
interest award. To be sure, “[a] motion under Rule 59(e) is not authorized to enable a party to
complete presenting his case after the court has ruled against him.” Pac. Ins. Co., 148 F.3d at
403 (citation omitted). At the summary judgment stage, however, RBC argued it is not liable for
breaching the parties’ Master Purchase Agreement and, therefore, the Trustee is not entitled to
any damages. (See generally Def.’s Mem. Supp. Mot. Summ. J., ECF No. 131). Because
prejudgment interest is an element of damages, RBC implicitly argued against an award of
prejudgment interest. See Eden v. Amoco Oil Co., 741 F.Supp. 1192, 1196 (D.Md. 1990). What
is more, the Trustee cites no authority for the proposition that a defendant must argue why the
plaintiff is not entitled to every specific form of damages when the defendant contests all
Second, the Trustee contends Rule 59(e) is only an appropriate vehicle to resolve
prejudgment interest claims when a plaintiff wins a damage award and then, after judgment is
entered, moves to add prejudgment interest to the award. According to the Trustee, only the
plaintiff should be permitted to “wait to see” if the Court finds the defendant liable and awards
damages. (Pl.’s Mem. Opp’n Def.’s Mot. Alter or Amend J. at 9, ECF No. 157). At least one
court in the Fourth Circuit, however, has permitted a defendant to use a Rule 59(e) motion to
challenge a prejudgment interest award. See Attard Indus., Inc. v. U.S. Fire Ins. Co., No.
1:10CV121 AJT/TRJ, 2010 WL 4670704, at *1, *4 (E.D.Va. Nov. 9, 2010). Furthermore, as a
matter of equity, it would be unfair to permit a plaintiff to wait to address prejudgment interest
until after a final judgment, but prohibit a defendant from also doing so, especially when the
defendant contests all liability. Accordingly, the Court rejects both of the Trustee’s arguments
and concludes RBC’s Rule 59(e) Motion is not procedurally barred.
RBC argues the Court clearly erred when it applied state law to determine the
prejudgment interest award because the law applicable to prejudgment interest depends upon the
basis of jurisdiction, not the nature of the underlying claim. RBC asserts that because the
Court’s jurisdiction is based on federal bankruptcy statutes, not diversity of citizenship, the Court
must apply federal law. RBC highlights that the Trustee originally filed this action in bankruptcy
court, invoking jurisdiction based on 28 U.S.C. §§ 157 and 1334, not § 1332. (See Compl. ECF
No. 8). After the Court granted RBC’s Motion to Withdraw the Reference, the Trustee filed an
Amended Complaint that also invoked bankruptcy jurisdiction. (See Am. Compl. ¶ 3, ECF No.
RBC contends that under federal law, the Court must exercise its discretion in
determining a prejudgment interest award. In exercising this discretion, RBC argues the Court
should decline to apply New York’s 9% prejudgment interest rate for three reasons: (1) it is
excessive and unreasonable in light of market rates prevailing over the prejudgment period; (2) it
is substantially in excess of what the Trustee earned on its capital prior to the bankruptcy
petition; and (3) it is orders of magnitude greater than what the Trustee has lawfully been
permitted to earn managing the estate’s cash, consistent with limitations imposed by the United
States Bankruptcy Code.
RBC also maintains 9% interest wrongfully punishes RBC and creates an unwarranted
windfall for the Trustee, emphasizing that the prejudgment interest totals $18,997,212.87—72%
of the compensatory damages award. To fairly compensate the Trustee for the use of its capital,
RBC asserts the Court should award 1.15% interest for the period from the date of default to the
date of bankruptcy petition and 1% interest for the remaining prejudgment period.
Here, when awarding prejudgment interest at New York’s statutory rate, the Court cited
Marine Midland Bank v. Kilbane, 573 F.Supp. 469, 471 (D.Md. 1983). In Marine Midland, this
Court explained that under Klaxon v. Stentor Electric Manufacturing Co., 313 U.S. 487 (1941),
district courts sitting in diversity must apply the choice of law rules of the forum state. Marine
Midland, 573 F.Supp. at 470, 471. Because Maryland’s choice of law rules provide that courts
will honor choice of law provisions in contracts and the guaranty between the parties provided
that it “shall be construed under the laws of New York state,” this Court applied New York law
to the issue of prejudgment interest. Id.
By relying on Marine Midland, the Court implicitly concluded that it had diversity
jurisdiction over this matter. This conclusion, however, was erroneous because the Trustee never
pled complete diversity of citizenship or invoked 28 U.S.C. § 1332. Nevertheless, the Trustees
argue, this error was “harmless” because even in the absence of diversity jurisdiction, In re
Merritt Dredging Co., Inc. (“Merrit Dredging”), 839 F.2d 203 (4th Cir. 1988) justifies the
Court’s application of New York law. The Court agrees.
In Merrit Dredging, the Court held that when dealing with bankruptcy cases, a district
court should apply the conflict of law rules of the forum to resolve issues of state law. Id. at
205–06. This case began as a bankruptcy proceeding and prejudgment interest is an issue of
state substantive law. See In re Vulcan Materials Co., 674 F.Supp.2d 756, 772 (E.D.Va. 2009)
(explaining that prejudgment interest is an issue of state substantive law), aff’d sub nom. Vulcan
Materials Co. v. Massiah, 645 F.3d 249 (4th Cir. 2011); see also In re Exxon Valdez, 484 F.3d
1098, 1102 (9th Cir. 2007) (explaining that the “usual rule” is “that prejudgment interest is an
aspect of the substantive state law claim”). Accordingly, the Court concludes it did not clearly
err when it applied New York’s prejudgment interest rate because Merrit Dredging justifies the
Court’s decision. See Hutchinson, 994 F.2d at 1081–82 (explaining that a “legally justified”
decision does not constitute clear error).
Although it is not a Fourth Circuit case, Maternally Yours v. Your Maternity Shop, 234
F.2d 538 (2d Cir. 1956) also justifies the Court’s decision. The Second Circuit explicitly stated
that “it is the source of the right sued upon, and not the ground on which federal jurisdiction over
the case is founded, which determines the governing law.” Id. at 540 n.1. As such, “the Erie
doctrine applies, whatever the ground for federal jurisdiction, to any issue or claim which has its
source in state law.” Id. In Klaxon, the Supreme Court extended the Erie doctrine to choice of
law rules. 313 U.S. at 496. Thus, notwithstanding that the Court’s jurisdiction over this case is
based on federal bankruptcy statutes, under both Merritt Dredging and Maternally Yours,
Maryland’s choice of law rules apply because prejudgment interest has its source in state law.
See Adrian v. Town of Yorktown, 620 F.3d 104, 107 (2d Cir. 2010) (“[P]rejudgment interest is a
matter of substantive law[.]”); In re Vulcan Materials Co., 674 F.Supp.2d at 772.
RBC further argues the Court clearly erred in applying New York’s prejudgment interest
rate because 9% interest is unconstitutional as applied to this case. RBC asserts 9% interest is so
disproportionate to the rate Thornburg earned on its investments prior to filing for bankruptcy
and the rate the Trustee has earned managing the estate’s cash that it violates due process. RBC
also maintains 9% prejudgment interest violates due process because it bears no rational
relationship to the purpose of the statute. Federal district courts in New York have consistently
concluded that New York’s 9% prejudgment interest rate does not violate due process. See, e.g.,
Newman v. Novartis Pharm. Corp., 50 F.Supp.3d 394, 397 (E.D.N.Y. 2014) (“Despite the
Defendant’s claims to the contrary, there is nothing unconstitutional about New York state’s
imposition of a nine percent prejudgment interest rate.”); Citibank, N.A. v. Barclays Bank, PLC,
28 F.Supp.3d 174, 183 (S.D.N.Y. 2013) (“The New York statute providing for 9% prejudgment
interest is not a violation of due process.”). Thus, the Court further concludes it did not clearly
err in applying New York’s prejudgment interest rate.
For the foregoing reasons, RBC’s Motion to Alter or Amend the Judgment Pursuant to
Rule 59(e) (ECF No. 155) is DENIED. Despite the informal nature of this memorandum, it shall
constitute an Order of this Court and the Clerk is directed to docket it accordingly.
Very truly yours,
George L. Russell, III
United States District Judge
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