NXIVM CORPORATION et al v. ROSS INSTITUTE et al

Filing 841

OPINION. Signed by Judge Katharine S. Hayden on 8/26/19. (cm, )

NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
NXIVM CORPORATION, formerly known
as EXECUTIVE SUCCESS PROGRAMS,
INC. and FIRST PRINCIPLES, INC.,

Civil No. 06-1051 (KSH) (CLW)

Plaintiffs,
OPINION

v.
MORRIS SUTTON, ROCHELLE SUTTON,
THE ROSS INTITUTE, RICK ROSS a/k/a
“RICKY” ROSS, STEPHANIE FRANCO,
PAUL MARTIN, Ph.D. and WELLSPRING
RETREAT, INC.,
Defendants.
RICK ROSS,
Counterclaim-Plaintiff,
v.
KEITH RANIERE, NANCY SALZMAN,
KRISTIN KEEFFE, INTERFOR, INC.,
JUVAL AVIV, JANE DOE, and JOHN
DOES 1-10,
Counterclaim-Defendants.

INTERFOR, INC. and JUVAL AVIV,
v.

Crossclaimants,

NXIVM CORPORATION, KEITH
RANIERE, NANCY SALZMAN and
KRISTIN KEEFFE,
Crossclaim Defendants.
Katharine S. Hayden, U.S.D.J.
I.

Introduction
On June 19 and 20, 2017, the Court held a bench trial between crossclaimant

Interfor, Inc. (“Interfor”) and crossclaim defendant NXIVM Corporation (“NXIVM”).
The trial arises from litigation that began in 2003, when NXIVM filed suit against
several parties in the Northern District of New York. Interfor was brought into the
action when defendant Rick Ross (“Ross”) asserted a counterclaim against it and
NXIVM for intrusion upon seclusion.

(D.E. 70.)

As a consequence, Interfor

crossclaimed against NXIVM for contractual indemnification pursuant to an indemnity
agreement (the “Indemnity Agreement”) between the two, seeking the attorneys’ fees
and costs incurred in defending itself and enforcing the Indemnity Agreement. (D.E.
101 (“Crossclaim”).) Interfor ultimately settled with Ross, and its crossclaim for
contractual indemnification against NXIVM is the sole subject of this opinion.

2

Pursuant to Fed. R. Civ. P. 52(a), which governs non-jury trials, the Court sets
forth its findings of fact and, separately, its conclusions of law. The appendix to this
opinion is a table of all documents admitted into evidence at trial.
Before proceeding with its opinion, the Court notes that NXIVM is no longer in
operation. For their roles in the organization, Keith Raniere (“Raniere”) and Nancy
Salzman (“Salzman”) were indicted in the Eastern District of New York. Salzman pled
guilty to one count of racketeering conspiracy on March 13, 2019. On June 19, 2019,
a jury convicted Raniere on seven counts, including charges related to sex trafficking,
racketeering, and forced labor conspiracy. The racketeering charges against Raniere
and Salzman included the underlying activity that they falsified evidence produced in
this action. That evidence is unrelated to and has no bearing on Interfor’s crossclaim
for contractual indemnification.
II.

Findings of Fact1
The Court finds the following facts as predicates for the parties’ underlying

dispute and the legal arguments advanced in their post-trial submissions. (D.E. 736-40,
After the close of Interfor’s case-in-chief, NXIVM moved for judgment on partial
findings pursuant to Fed. R. Civ. P. 52(c). (D.E. 725.) Fed. R. Civ. P. 52(c) provides
as follows:
1

If a party has been fully heard on an issue during a nonjury
trial and the court finds against the party on that issue, the
court may enter judgment against the party on a claim or
defense that, under the controlling law, can be maintained or
defeated only with a favorable finding on that issue. The
court may, however, decline to render any judgment until the
3

742-43.) The Court derives its findings of fact from the parties’ stipulation of facts, the
exhibits and depositions designations admitted at trial, and the credible trial testimony
of Juval Aviv (“Aviv”) and Robert J. Lack (“Lack”).
A.

NXIVM Retains Interfor’s Investigatory Services

NXIVM, formerly known as Executive Success Programs, was a “human
potential” company that offered seminars, executive training programs, and life
coaching. (D.E. 711, Final Pretrial Order (“PTO”), Stipulation of Facts (“SOF”) ¶ 4;
D.E. 733 (“6/19/17 Tr.”) at 12:9-14; D.E. 734-1 Interfor’s Deposition Designations of
Nancy Salzman (“Salzman Dep.”) at 11:17-19, 12:17-24.) Its “conceptual” founder,
Raniere, guided the overall direction and philosophy of the company. (Salzman Dep.
at 16:22-24; D.E. 734-1 Interfor’s Deposition Designations of Keith Raniere (“Raniere
Dep.”) at 23:1-6; D.E. 734-1 Interfor’s Deposition Designations of Barbara Bouchey
(“Bouchey Dep.”) at 156:25-157:3.) Salzman owned NXIVM, served as its president,

close of the evidence. A judgment on partial findings must
be supported by findings of fact and conclusions of law as
required by Rule 52(a).
“The rule’s objective is to ‘conserve[ ] time and resources by making it unnecessary for
the court to hear evidence on additional facts when the result would not be different
even if those additional facts were established.’” EBC, Inc. v. Clark Bldg. Sys., Inc., 618
F.3d 253, 272 (3d Cir. 2010) (alteration in original) (quoting 9 James Wm. Moore et al.,
Moore’s Federal Practice § 52.50[2] (3d ed. 2010)). The Court declined to render judgment
until the close of all evidence. Accordingly, its ruling on NXIVM’s Fed. R. Civ. P. 52(c)
motion and its opinion on the bench trial are itself identical and serve the same purpose.
See id. (“Of course, the court may opt to reserve judgment until all the evidence is in or
until the close of the non-movant’s case-in-chief.”).
4

and oversaw the development of its curriculum. (SOF ¶¶ 6-7.) In 2005 or 2006, Kristin
Keeffe (“Keeffe”) was given the title “legal liaison” at NXIVM for her responsibilities
that had commenced in 2003. (SOF ¶ 10; see also D.E. 734-1 Interfor’s Deposition
Designations of Kristin Keeffe (“Keeffe Dep.”) at 25:14-25.)

In that role, she

“facilitate[d] communication between NXIVM and its attorneys, as well as among
NXIVM’s attorneys.” (SOF ¶ 11; see also Keeffe Dep. at 26:2-7.)
Interfor “is a licensed international investigation and security consulting firm that
offers domestic and intelligence services to the legal, corporate, and financial
communities.” (SOF ¶ 1.) Aviv is Interfor’s President and CEO. (SOF ¶ 3.)
Sometime in 2004, Aviv first met NXIVM representatives Salzman, Keeffe, and
Joseph O’Hara (“O’Hara”), then outside counsel for NXIVM. (6/19/17 Tr. at 12:1913:15.) Aviv advised the three that if NXIVM wanted to retain Interfor, it would have
to be through counsel. (Id. at 12:24-13:1.) On September 2, 2004, O’Hara, acting on
behalf of NXIVM, formally retained Interfor’s services. (SOF ¶ 16; P3-001.) Keeffe
served as NXIVM’s “designated representative in conjunction with the services”
Interfor would be providing. (P3-001.)
Initially, the investigation that NXIVM retained Interfor to conduct focused on
a NXIVM member, Kristin Snyder, who had disappeared in Alaska. (P3-003 to P4004; 6/19/17 Tr. at 17:18-23.) NXIVM later expanded Interfor’s assignment to include
an investigation of Ross. (6/19/17 Tr. at 24:7-18; Salzman Dep. at 29:21-30:5; at Keeffe
Dep. at 42:12-43:3.). In connection with Interfor’s investigations, Aviv required that
5

NXIVM enter into an indemnity agreement, which he required from all Interfor clients.
(6/19/17 Tr. at 40:13-21; Salzman Dep. at 49:4-20.)
On November 23, 2004, Salzman executed the Indemnity Agreement on
NXIVM’s behalf. (SOF ¶ 21; P5-002 to P5-003.) The Indemnity Agreement provides
in full as follows:
This agreement is between Interfor, Inc. (“Interfor”), an
international investigation company headquartered in New
York, New York and NXIVM Corporation dba Executive
Success Programs (“NXIVM/ESP”), based in Albany, New
York.
Interfor is conducting an investigation for NXIVM/ESP.
NXIVM/ESP agrees to indemnify Interfor for any claim,
lawsuit, obligation, action, cause of action or cost or expense,
of any amount and nature whatsoever incurred by or
imposed upon Interfor as a result of, related to or in any way
in connection with or arising out of its investigation,
provided that such indemnity shall be limited to that part of
such investigation, or any part thereof, which was requested
and/or agreed to by NXIVM/ESP or disclosed to
NXIVM/ESP by Interfor without any objection thereto by
NXIVM/ESP.
Should any claim, lawsuit, obligation, action, cause of action
or cost or expense, of any amount and nature whatsoever be
incurred by or imposed upon Interfor, NXIVM/ESP agrees
to pay all costs and expenses immediately. Interfor shall not
be required to pay its expenses itself and then seek
compensation from NXIVM/ESP. Rather, NXIVM/ESP
must pay all costs and expenses immediately. NXIVM/ESP
agrees to consult Interfor regarding legal counsel.
Costs and expenses, as the term is used herein, shall include
but not be limited to, attorney fees and any other cost or
expense imposed upon or incurred by Interfor in the
6

defense, investigation or settlement of any matter that is
subject to this Indemnity Agreement.
As NXIVM/ESP is [responsible] for the payment of any
settlement, NXIVM/ESP does not need to consult with
Interfor regarding the amount of any such settlement.
However, NXIVM/ESP cannot make any promises on
behalf of Interfor, or incur future obligations on Interfor as
part of any settlement.
In the event of any asserted claim, Interfor shall provide
NXIVM/ESP reasonably timely written notice of same, and
thereafter NXIVM/ESP shall at its own expense defend,
protect and save harmless Interfor against said claim or any
loss or liability thereunder.
In the further event that NXIVM/ESP shall fail to so defend
and/or indemnify Interfor, then in such instance Interfor
shall have full rights to defend, pay or settle any said claim
on its behalf without notice to undersigned and with full
rights to recourse against the undersigned for all fees, costs,
expenses and payments made or agreed to be paid or
discharge said claim.
Upon default, NXIVM/ESP further agrees to pay all
reasonable attorney fees necessary to enforce this agreement.
This agreement shall be unlimited as to amount or duration.
This agreement shall be binding upon and inure to the
benefit of the parties, their successors, assigns and personal
representative.
(P5-002 to P5-003.) Neither party disputes the validity of the Indemnity Agreement.2
(SOF ¶ 22.)
NXIVM suggests in its response to Interfor’s proposed findings of fact and
conclusions of law that it was under duress when it entered into the Indemnity
Agreement because Interfor pressured it by providing it with the contract and requiring

2

7

B.

The Ross Investigation

As stated above, NXIVM first tasked Interfor with investigating the
disappearance of Kristen Snyder. (6/19/17 Tr. at 17:14-18:12.) Soon after the
investigation began, however, it evolved to focus “on ascertaining the basis for Rick
Ross’[s] anti-NXIVM campaigning and related activities” (P20-012, Response No. 5),
which NXIVM described as “vicious false and fraudulent misrepresentations” about it.
(id., Response No. 6).
Interfor provided NXIVM with an investigative report on Ross dated November
23, 2004, which included a biography of Ross, financial information, and a list of people
with whom Ross communicated. (P7.) In collecting information for the report,
Interfor analyzed Ross’s garbage that had been left on the curb outside his residence.
(6/19/17 Tr. at 30:17-31:3.)
NXIVM knew about and approved of Interfor collecting Ross’s garbage as part
of its investigation. (Id. at 32:20-33:4, 34:6-8.) Keeffe discussed the Ross report with
Salzman (SOF ¶ 31; Keeffe Dep. 69:4-25), and O’Hara told Salzman that the report was
that it be executed shortly before a critical step in the Ross investigation. (D.E. 740 at
2.) NXIVM did not raise this argument in its pretrial papers or at trial. The Court will
therefore disregard it. See Sample v. Diecks, 885 F.2d 1099, 1106 (3d Cir. 1989) (“It is
well established that a trial judge possesses the discretion to prohibit parties from raising
matters they have failed to advance during the pretrial proceedings.”); Militello v. Allstate
Prop. & Cas. Ins. Co., No. 14-0240, 2016 WL 3254144, at *4 (M.D. Pa. June 14, 2016)
(“It is well established that failure to raise an issue in the district court constitutes a
waiver of that argument, and a trial judge has broad discretion to prohibit parties from
raising matters which they have failed to pursue in pretrial proceedings.” (citation and
internal quotation marks omitted)).
8

“necessary and important” (Salzman Dep. at 42:19-21). No NXIVM representative
objected to Interfor’s preparation of the Ross report or its contents. (Salzman Dep. at
91:6-9; D.E. 734-1 Interfor’s Deposition Designations of Joseph O’Hara (“O’Hara
Dep.”) at 135:9-13, 136:18-137:6; Bouchey Dep. at 201:24-202:6.) NXIVM forwarded
the Ross report to its public relations firm, Sitrick & Co. (“Sitrick”), as part of its
“damage control efforts in the wake of Rick Ross’[s] negative publicity campaign which
targeted NXIVM and Keith Raniere.” (SOF ¶ 32 (internal quotation marks omitted).)
On the same day NXIVM executed the Indemnity Agreement, Interfor
attempted a “sting” operation meeting with Ross, which was attended by Aviv, Anna
Moody (“Moody”), an Interfor case manager and attorney, Lynne Friedman, the head
of Interfor’s research department, and Ross. (SOF ¶ 24; 6/19/17 Tr. at 19:3-12, 37:1115, 40:25-41:1.) Before the “sting,” Aviv met with Raniere, Salzman, and Keeffe in
Albany, New York to discuss the plan. (6/19/17 Tr. at 37:16-22, 39:3-5.) The meeting
with Ross was recorded at NXIVM’s insistence. (Id. at 42:9-20.) Subsequently, Keeffe
informed Salzman, who later reported to Raniere, about what occurred at the meeting
with Ross. (SOF ¶¶ 25-26.) No one at NXIVM objected to the meeting. (6/19/17 Tr.
at 39:18-19; O’Hara Dep. at 138:12-139:9.) These events demonstrate the alignment
of NXIVM and Interfor in the investigation of Ross; Interfor’s transparency about what
steps it was taking for the investigation; and NXIVM’s acceptance of Interfor’s
undertakings.

9

NXIVM continued to use Interfor’s services until at least May 2005,
approximately six months after Interfor provided its written report on Ross. (SOF ¶
35.) Earlier, in February 2005, Keeffe had authorized Sitrick to use Interfor for
additional research and to contact it for source names, “including the identities of any
individuals who had been ‘de-programmed’ by Ross.” (SOF ¶ 36; Keeffe Dep. at 97:799:12.) And in the spring of 2005, NXIVM asked Interfor to conduct a background
check on the Sutton family. (6/19/17 Tr. at 46:12-19.) Stephanie Franco (“Franco”),
an original defendant in this litigation, was a member of the Sutton family, and on April
19, 2005, NXIVM filed an amended complaint that added Franco’s father Maurice
Sutton and his wife Rochelle Sutton as defendants. Amended Consolidated Complaint,
NXIVM Corp. v. The Ross Inst., No. 03-0976 (N.D.N.Y. Apr. 19, 2005), ECF No. 130.
C.

The Litigation and Interfor’s Crossclaim

When Interfor became involved with NXIVM, it had already sued Ross, Franco,
and others in the Northern District of New York in 2003. Complaint, NXIVM Corp.
v. The Ross Inst., No. 03-1051 (N.D.N.Y. Aug. 22, 2003), ECF No. 1; Complaint,
NXIVM Corp. v. The Ross Inst., No 03-0976 (N.D.N.Y. Aug. 6, 2003), ECF No. 1. As
part of that litigation, on July 11, 2006, Ross served a subpoena on Interfor, seeking
documents related to the Ross investigation. (SOF ¶ 38; P11.) On August 11, 2006, in
accordance with the Indemnity Agreement, NXIVM retained Friedman Kaplan Seiler
& Adelman LLP (“FKSA”) to represent Interfor in responding to and defending against
the subpoena. (SOF ¶ 41; P12.) Salzman signed the FKSA retainer agreement (the
10

“Retainer Agreement”) on NXIVM’s behalf (SOF ¶ 41; P12) and inserted a handwritten
addendum that stated:
NXIVM retains the right to terminate its ongoing liability for
all fees and expenses incurred pursuant to this retainer on
three days written notice, without prejudice to any
indemnification agreements that may exist between NXIVM
and Interfor. Such termination shall not impair NXIVM’s
obligation under this retainer agreement to pay fees and
expenses incurred before the effective date of such
termination.
(P12-003; see also SOF ¶ 42). The addendum was initialed by Salzman and Lack, a
partner at FKSA. (P12-003.) NXIVM paid FKSA a $25,000 retainer. (SOF ¶ 43.)
On January 11, 2007, after learning about Interfor’s investigation of him, Ross
filed a claim against NXIVM, Salzman, Raniere, Interfor, Aviv, and Moody for intrusion
upon seclusion. (D.E. 70.)
Per the Indemnity Agreement, NXIVM made payments to FKSA from
September 2006 through April 2007 totaling $165,619.18. (SOF ¶ 46.) On October
19, 2007, however, Paul Yesawich from Harris Beach, PLLC, NXIVM’s then outside
counsel, sent an e-mail to Heather Windt from FKSA informing her that “NXIVM will
not continue to reimburse or indemnify Interfor for expenses or liabilities incurred in
connection with this matter.” (SOF ¶ 50; P15-001.) NXIVM based its revocation on
its belief “that Interfor’s conduct in connection with it’s [sic] investigation went beyond
what the parties intended would be done, and beyond what NXIVM authorized Interfor
to do.” (P15-001.) Consequently, it stated that it had “no further obligation to
11

indemnify Interfor for expenses or liabilities in this matter.” (Id.) When the October
19, 2007 e-mail was sent, NXIVM owed FKSA approximately $64,000. (6/19/17 Tr.
at 156:17-20.)
On November 7, 2007, FKSA filed crossclaims on behalf of Interfor, Aviv, and
Moody asserting the following causes of action: (i) contractual indemnification by
Interfor against NXIVM, (ii) common law indemnification by Interfor, Aviv, and
Moody against NXIVM, Raniere, Salzman, and Keeffe, (iii) contribution by Interfor,
Aviv, and Moody against NXIVM, Raniere, Salzman, and Keeffe, and (iv) defamation
by Aviv against NXIVM. (SOF ¶ 51; Crossclaim.)
In September 2008, defended by its insurance carrier, Interfor settled Ross’s
counterclaim for intrusion upon seclusion for $25,000 without admitting liability.
(6/19/17 Tr. at 57:24-58:12, 174:16-21; P17-003 ¶ 9.) Interfor paid $5,000 of the
settlement itself and its insurer paid the balance. (6/19/17 Tr. at 58:13-15.) By
stipulation, Ross’s counterclaims against Interfor, Aviv, and Moody were dismissed
with prejudice and without costs on September 23, 2008. (D.E. 194.) By the time of
this bench trial, NXIVM owed Interfor, not including interest, $1,392,432.18 for
FKSA’s fees and costs. (6/19/17 Tr. at 166:24-167:5.)
In 2012, Interfor filed a motion for summary judgment on its crossclaim for
contractual indemnification. (D.E. 462; D.E. 467.) NXIVM opposed and cross moved
for summary judgment on various grounds, including that it objected to Interfor’s
investigation of Ross, relieving it of its responsibility to pay legal fees and costs under
12

the Indemnity Agreement. (D.E. 478; D.E. 481.) On June 26, 2013, the Court denied
the motions, finding in its summary judgment opinion that “a genuine issue of material
fact exists [] whether Interfor’s actions with regards to the Ross investigation were
approved by NXIVM.” (D.E. 504 at 4.) The Court identified the following facts as
being “hotly disputed”: “whether NXIVM personnel never objected to Interfor’s
work[;] whether NXIVM requested the Ross investigation; whether NXIVM suggested
the ex parte contact with Ross; whether Interfor conducted a raid of Ross’s garbage;
whether NXIVM ratified Interfor’s conduct; whether Interfor delivered a report on
Ross that reported on Ross’s activities; and whether Interfor engaged in illegal activity.”
(Id. at 4-5 (footnotes omitted).)
The Court’s written summary judgment opinion of 2013 (see generally id.)
establishes that up until the bench trial, NXIVM’s consent (or lack thereof) to the Ross
investigation was a driving force behind the dispute between these parties, generating
the attorneys’ fees and costs Interfor seeks to recover. Close to the bench trial,
however, NXIVM—without any prior indication—abandoned its avowed position,
conceding and even emphasizing that it had consented to the Ross investigation. In its
brief supporting a motion under Fed. R. Civ. P. 52(c) seeking judgment on Interfor’s
claim (D.E. 725), NXIVM advanced a new legal theory that shifted the focus from
NXIVM’s consent to Interfor’s intent. NXIVM went so far as to state: “[t]he more
NXIVM cheered on and endorsed those intentional acts [by Interfor], the less likely any
New York court would ever permit Interfor to be indemnified for its own intentional
13

actions.” (Id. at 1.) Post trial, in its response to Interfor’s proposed findings of fact and
conclusions of law, NXIVM takes the position that it “matters not how much assent
Aviv claims NXIVM gave him.” (D.E. 704 at 6.)
In its post-trial submissions, Interfor objects to NXIVM’s about-face, correctly
pointing out that:
During most of the 10 years of litigation between Interfor
and NXIVM, NXIVM argued vigorously that it never asked
Interfor to investigate Rick Ross (see, e.g., NXIVM Trial Br.,
June 5, 2017, at 5 (“NXIVM had no idea Interfor had been
investigating Ross prior to November 23, 2004”)) and that it
did not breach the Indemnity Agreement because it objected
to Interfor’s investigative work—both when that work was
done in 2004, and again in October 2007, after it stopped
paying Friedman Kaplan’s bills (id. at 6, 17-18; see also D.E.
481, at 14-15 (“every single thing that Ross complains against
Interfor is an action to which, at some point, NXIVM
objected”)). Indeed, NXIVM’s alleged objections were the
primary basis upon which in early 2013, NXIVM opposed
Interfor’s motion for summary judgment. (D.E. 481, at 1112, 14-15.) In an opinion dated June 26, 2013, Judge
Cavanaugh denied Interfor’s motion, finding “that a genuine
issue of material fact exists in whether Interfor’s actions with
regards to the Ross investigation were approved by
NXIVM.” (D.E. 504, at 4.) That order necessitated the trial
that occurred in this case four years later.
(D.E. 739 at 1 (footnote omitted).) As a result, Interfor asks the Court to find that
judicial estoppel bars NXIVM from taking its current position that it consented to the
Ross investigation. (D.E. 736 (“Interfor Proposed Findings”) ¶¶ 161-177.) The Court,
however, does not have the option to ignore its fact-finding role. In any event, as
discussed below, NXIVM failed to offer any proof at trial to support its argument that
14

Interfor may not enforce the Indemnity Agreement. It is therefore unnecessary for the
Court to address whether judicial estoppel applies.3
III.

Conclusions of Law
The trial and the parties’ post-trial submissions reveal that there are very few

relevant facts in dispute. Rather, the parties primarily rely on legal theories as to why
or why not NXIVM is obligated to indemnify Interfor under the Indemnity Agreement.
Interfor is seeking a judgment of $1,369,157.51, plus not-yet-calculated trial fees
and expenses. This amount consists of (i) the attorneys’ fees and costs Interfor incurred
in efforts to enforce the Indemnity Agreement , (ii) the attorneys’ fees and costs Interfor
incurred in defending against claims arising out of the investigations that it undertook
for NXIVM, and (iii) Interfor’s $5,000 contribution to the settlement payment to Ross.4
Interfor also maintains that it is entitled to prejudgment interest at a rate of 9% under
New York law.

After this litigation was transferred to the undersigned (D.E. 533), counts 2 (common
law indemnification) and 3 (contribution) of Interfor, Aviv, and Moody’s crossclaims
against NXIVM, Raniere, Salzman, and Keeffe were dismissed by stipulation. (D.E.
581.) As trial approached, Aviv dropped his defamation crossclaim against NXIVM.
Thereafter, the Court entertained and ruled on various summary judgment motions
filed by NXIVM and the other parties to this litigation regarding causes of action that
were not asserted by or against Interfor. (D.E. 603-04, 606-08, 610, 614, 622, 625-26;
D.E. 643 (ruling).)
4
The amount sought by Interfor excludes the attorneys’ fees and costs attributable to
the dismissed common-law contractual indemnification and contribution claims
($23,274.67) and defamation claim ($68,643.17). (See D.E. 736-1.)
3

15

NXIVM makes three overarching arguments in defense: (1) New York public
policy prohibits Interfor from enforcing the Indemnity Agreement because the acts it
committed in the course of the Ross investigation were intentional torts, active
negligence, inequitable, and/or illegal; (2) Interfor failed to mitigate damages; and (3)
the attorneys’ fees and costs sought by Interfor are unreasonable.
A.

New York Public Policy Does Not Bar Interfor’s Crossclaim for
Contractual Indemnification

The parties aver that New York law governs Interfor’s crossclaim for contractual
indemnification. (See Interfor Proposed Findings ¶ 219 (“[B]oth parties agree, New
York law governs Interfor’s contractual indemnification claim.”); D.E. 737 (“NXIVM
Proposed Findings”) ¶ 56 (“New York law applies to this dispute, as the indemnity
agreement provides.”).) The Court agrees.
The Court noted in a prior opinion that this action was transferred from the
Northern District of New York pursuant to 28 U.S.C. § 1404(a). (D.E. 642 at 11.)
Following transfer, when “[f]aced with a choice-of-law question, federal courts in the
district to which the case has been transferred under § 1404(a) must apply the law of
the transferor state,” Lafferty v. St. Riel, 495 F.3d 72, 76 (3d Cir. 2007) (citing Van Dusen
v. Barrack, 376 U.S. 612, 639 (1964)), including its choice-of-law rules, see De Puy Inc. v.
Biomedical Eng’g Tr., 216 F. Supp. 2d 358, 382 (D.N.J. 2001) (Lechner, J.) (concluding
that the transferor court’s choice-of-law rules governed the defendant’s counterclaim),
aff’d, Pappas v. DePuy Orthopaedics, Inc., 33 F. App’x 35 (3d Cir. 2002). This is so even for
16

claims asserted after transfer, such as Interfor’s crossclaim here. See Ghorbanian v.
Guardian Life Ins. Co. of Am., No. 14-1396, 2016 WL 4467941, at *4 (W.D. Wash. Mar.
2, 2016) (applying the choice-of-law rules of the transferor court to determine whether
allowing the defendant to amend its answer to assert a counterclaim after transfer would
be futile); Competitive Techs. v. Fujitsu Ltd., 286 F. Supp. 2d 1118, 1157 (N.D. Cal. 2003)
(explaining that, pursuant 28 U.S.C. § 1404(a), the choice-of-law rules of the transferor
court “appl[y] not only to the transferred claims but also to any counterclaims, even if
the counterclaims are asserted after the case has been transferred”); De Puy, 216 F. Supp.
2d at 382 (concluding that the transferor court choice-of-law rules governed the
defendant’s counterclaim that was asserted after transfer). Thus the Court must apply
New York choice-of-law rules to determine which state’s law governs Interfor’s
crossclaim for contractual indemnification.
New York choice-of-law rules dictate that New York contract law controls
because it is the state with the most significant relationship to the Indemnity
Agreement. See Matter of Allstate Ins. Co., 613 N.E.2d 936, 939-40 (1993) (finding that
courts should use the “center or gravity” or “grouping of contacts” test to determine
what state’s law governs a contract cause of action). The Indemnity Agreement was
executed in New York, the parties are located in New York, and the subject matter of
the contract’s performance was in New York. See J.R. v. E.M., 997 N.Y.S.2d 669, 669
(N.Y. Sup. Ct. 2014) (“To determine which law governs under the grouping of contacts
theory of conflict of laws, the court must look to the following factors: []the place of
17

contracting, negotiation and performance; the location of the subject matter of the
contract; and the domicile of the contracting parties.” (citing Allstate, 613 N.E.2d at
940).)
Turning to the parties’ substantive arguments, NXIVM contends it violates New
York public policy for a party to obtain indemnification for damages and costs arising
from claims that allege intentional torts or active negligence, such as Ross’s
counterclaim for intrusion upon seclusion. Interfor responds that New York public
policy does not preclude a party from seeking indemnification if the trier of fact never
found an intent to injure another, including—as is the case here—a situation where the
party settles without admitting liability.
Under New York law, “indemnification provisions are invalid on public policy
grounds ‘only to the extent that they purport to indemnify a party for damages flowing
from the intentional causation of injury.’” Marolf v. Rapid Response Monitoring Servs. Inc.,
89 N.Y.S.3d 496, 497 (N.Y. App. Div. 2018) (quoting Austro v. Niagara Mohawk Power
Corp., 487 N.E.2d 267, 267 (N.Y. 1985)); accord Goodman v. Port Auth. of New York &
New Jersey, 850 F. Supp. 2d 363, 390 (S.D.N.Y. 2012). “But the public policy exception
for intentionally harmful conduct is a narrow one, under which it must be established
not only that the [indemnitee] acted intentionally but, further, that it acted with the
intent to harm or injure others.” J.P. Morgan Sec. Inc. v. Vigilant Ins. Co., 992 N.E.2d
1076, 1081 (N.Y. 2013). Stated differently, New York public policy only prohibits
indemnification when the fact finder determines that the indemnitee intended to cause
18

harm. See CBS Corp. v. Eaton Corp., No. 07-11344, 2010 WL 1375169, at *2 (S.D.N.Y.
Mar. 30, 2010) (“New York courts have held that so long as the indemnity contract’s
terms would apply to intentional conduct, an indemnified party is entitled to legal
defense fees in cases alleging intentional or fraudulent wrongdoing until the indemnified
party is found by the finder of fact to have acted intentionally or fraudulently.”); Pub.
Serv. Mut. Ins. Co. v. Goldfarb, 425 N.E.2d 810, 814 (N.Y. 1981) (explaining that an insurer
would be obligated to pay a judgment against the insured if the trier of fact determined
that he caused unintentional injury); Live Invest, Inc. v. Morgan, 64 N.Y.S.3d 466, 471
(N.Y. Sup. Ct. 2017) (“However, where no finding of an intent to injure has been made,
nothing in the public policy of this State precludes indemnity for compensatory
damages flowing from a defendant’s volitional act.”). It therefore follows that it is not
violative of New York public policy for a party to obtain indemnification for costs
arising from a claim it settled without an admission of liability or wrongdoing.

See

Gibbs-Alfano v. Burton, 281 F.3d 12, 21 (2d Cir. 2002) (observing that there was no legal
authority that would preclude a party from seeking indemnification for claims it settled
without admitting liability); In re Residential Capital, LLC, 524 B.R. 563, 596 (Bankr.
S.D.N.Y. 2015) (“RFC settled the claims for which it seeks indemnification without
admitting liability. Thus, the Court concludes that the Plaintiff’s indemnity claims may
proceed under New York law . . . .”).
Gibbs-Alfano, on which Interfor relies, is particularly instructive. There, a boat
club operated pursuant to several license agreements granted by the local government,
19

one of which contained “a broad indemnification clause” pursuant to which the boat
club agreed to indemnify the local government for any liability arising out of the
performance of the license agreement and for any costs or expenses related to
defending any claims. Gibbs-Alfano, 281 F. 3d at 15. An African American woman and
her husband sued the boat club and the local government for discrimination. Id. at 1516.
The local government settled with the plaintiffs and pursued indemnification
from the boat club. Id. at 18. The district court declined to enforce the indemnification
provision in the license agreement on the ground that the settlement was evidence that
the local government was to some degree responsible for the alleged discrimination. Id.
The Second Circuit reversed, holding that “in the absence of a judgment of intentional
conduct . . . , we do not find any reason under New York public policy to hold the
Indemnification Clause unenforceable.”

Id. at 21.

Indeed, the Second Circuit

emphasized that the boat club did “not cite[] any case, and we found none, where a
New York court declined to enforce an otherwise valid indemnification agreement
between parties where the party seeking indemnification settled, without admitting
liability, claims against it alleging intentional wrongdoing.” Id.
As counter, NXIVM points to Barbagallo v. Marcum LLP, No. 11-1358, 2012 WL
1664238 (E.D.N.Y. May 11, 2012), in which a former employee argued that an
indemnification provision in his employment contract was void as against New York
public policy because its broad language encompassed intentional torts. Id. at *4. The
20

court agreed without considering whether the former employee would have a duty to
indemnify if the fact finder determined that the employer acted without intending to
injure another. Id. at *4-5. In reaching that conclusion, the court disregarded contrary
authority applying New York law that had held that broadly worded indemnification
provisions, which could plausibly cover intentional tort claims, should be enforced
insofar as the indemnitee is not found to have acted with an intent to harm a third party.
See, e.g., Gibbs-Alfano, 281 F.3d at 21 (“[I]n the absence of a judgment of intentional
conduct on the part of the Town Defendants, we do not find any reason under New
York public policy to hold the Indemnification Clause unenforceable.”); CBS Corp.,
2010 WL 1375169, at *2 (“New York courts have held that so long as the indemnity
contract’s terms would apply to intentional conduct, an indemnified party is entitled to
legal defense fees in cases alleging intentional or fraudulent wrongdoing until the
indemnified party is found by the finder of fact to have acted intentionally or
fraudulently.”). Indeed, the New York Court of Appeals in Public Service Mutual Insurance
Co. v. Goldfarb—a case cited by the Barbagallo court—found an insurer’s duty to
indemnify an insured in defending against civil claims turned on whether, despite the
insured having been convicted criminally for the same alleged conduct, the fact finder
determined in a civil trial that he intended to commit injury. Goldfarb, 425 N.E.2d at
814. The Court of Appeals first observed that:
Whether such coverage is permissible [sic] depends upon
whether the insured, in committing his criminal act, intended
to cause injury. One who intentionally injures another may
21

not be indemnified for any civil liability thus incurred.
However, one whose intentional act causes an unintended
injury may be so indemnified.
Id. Thus the Court of Appeals concluded that “the insurer would be obligated to pay
any judgment against [the insured] for compensatory damages only, assuming, of
course, that the trier of fact determined, in a special verdict, that such unintended injury
occurred.” Id. 5
NXIVM cites other cases that purportedly echo the court’s conclusion in
Barbagallo. To the contrary, those decisions are inapposite for following reasons: (i) the
party was seeking indemnification for any future liability it would incur if the fact finder
determined that it intended to commit injury 6; (ii) the alleged intentional conduct fell
squarely within an express exclusion in the indemnification provision/contract or
statute at issue7; (iii) the party’s indemnification claim was brought under New York
NXIVM also cites Aldridge v. Brodman, 954 N.Y.S.2d 359, 362 (N.Y. App. Div. 2012),
as in accord with Barbagallo, but the court in Aldridge failed to even consider Goldfarb,
which is controlling authority for that court.
6
See, e.g., Goodman, 850 F. Supp. 2d at 389 (concluding that the defendant was not
entitled to indemnification for any potential future liability if the plaintiff proved the
defendant’s intent to harm at trial); In re Green, 207 B.R. 762, 763-64 (S.D.N.Y. 1997)
(granting judgment on the pleadings to the third-party defendants because New York
public policy precluded the third-party plaintiff from seeking indemnification “for any
liability he may have” for defrauding plaintiffs); Aquilio v. Manaker, No. 90-45, 1991 WL
207473, at *16 (N.D.N.Y. Oct. 10, 1991) (dismissing the defendants’ counterclaims for
negligence and contribution on the ground that they sought payment if trier of fact
found them liable on plaintiffs’ complaint that alleged intentional torts).
7
See, e.g., Goodman, 850 F. Supp. 2d at 389 (denying the defendant’s claim for contractual
indemnification because the agreement “expressly excludes from indemnification ‘risks
occasioned solely by affirmative willful acts’”); Willard v. Preferred Mut. Ins. Co., 662
N.Y.S.2d 342, 343 (N.Y. App. Div. 1997) (finding that the plaintiff’s conduct fell within
5

22

common law—as opposed to a contract—which bars indemnification when there are
mere allegations of intentional wrongdoing8; and (iv) the question presented to the
court was whether federal—not New York—public policy prohibited indemnification
for violations of federal securities law. 9
Alternatively, assuming a trier of fact must first find that a party intended to
commit injury before a claim for contractual indemnification will be denied, NXIVM
contends that such a rule only applies to regulated insurers. Not so. Courts have found
that principle equally applicable to non-insurers as well. See, e.g., Gibbs-Alfano, 281 F.3d
at 21 (finding that, “in the absence of a judgment of intentional conduct,” there was no
basis under New York public policy to invalidate an indemnification clause in a contract
between two non-insurers); CBS Corp., 2010 WL 1375169, at *2 (granting summary
judgment to plaintiff on its claim for contractual indemnification against a non-insurer
because it “was never found liable of intentional misconduct and was never assessed
punitive damages”).

the intentional act exclusion of an insurance policy); Memorandum Opinion, Shaw v.
Spitzer, No. 400845/2004 (N.Y. Sup. Ct. Sept. 9, 2004) (concluding that the government
did not have a duty to indemnify the plaintiff because the statute at issue expressly
excluded intentional acts committed outside the scope of employment, such as
plaintiff’s alleged sexual harassment).
8
See, e.g., Campers’ World Int’l, Inc. v. Perry Ellis Int’l, Inc., No. 02-453, 2002 WL 1870243,
at *6 (S.D.N.Y. Aug. 13, 2002) (dismissing claim for common-law indemnification
because the underling claims were all intentional torts).
9
See, e.g., In re Livent Sec. Litig., 193 F. Supp. 2d 750, 754 (S.D.N.Y. 2002); Ades v. Deloitte
& Touche, No. 90-4959, 1993 WL 362364, at *22-23 (S.D.N.Y. Sept. 17, 1993).
23

Here, Interfor and Ross settled without an admission of liability or wrongdoing
on Interfor’s part, and it was never established that Interfor acted with an intent to
harm Ross. (6/19/17 Tr. at 57:24-58:12, 174:16-21; P17-003 ¶ 9.) That alone
eviscerates NXIVM’s trial position and obligates it to indemnify Interfor pursuant to
the Indemnity Agreement. Gibbs-Alfano, 281 F.3d at 21. But, even had Interfor and
Ross not settled, NXIVM has failed to put forth one scintilla of evidence showing that
Interfor intended to injure Ross. Instead NXIVM offers one conclusory proposed
finding of fact: “Interfor required NXIVM to sign the indemnity agreement minutes
before the ex parte meeting with Ross.”10 (NXIVM Proposed Findings ¶ 65.) The Court
is asked to draw the weak inference that Interfor intended to harm Ross by insulating
itself against any litigation damages prior to meeting with him.
This argument fails for two reasons. First, NXIVM has conceded that the
Indemnity Agreement is valid.

(SOF ¶ 22.) Second, indemnity agreements are

commonly included in contracts, particularly in industries such as Interfor’s that run the

NXIVM also points to statements by Magistrate Judge Randolph F. Treece in a
related case in the Northern District of New York and Magistrate Judge Mark Falk in
this action that it claims establishes that the Interfor committed common law fraud (an
intentional act). To the contrary, Magistrate Judges Treece and Falk made no such
findings. Rather, Magistrate Falk, in resolving a discovery dispute, but ‘[w]ithout
deciding the issue,” posited that there was a reasonable basis to vitiate the attorneyclient privilege under the crime-fraud exception because “Ross presented the Court
with a sufficient basis to conclude that a common law fraud itself occurred.” (D.E. 71
at 111:1-3.) And Magistrate Judge Treece reached a similar conclusion in the matter
before him. NXIVM Corp. v. O’Hara, 241 F.R.D. 109, 134–37 (N.D.N.Y. 2007).
10

24

risk of legal claims. Simply procuring insurance prior to acting does not indicate that
one intends to harm another.
The only factual evidence presented at trial concerning Interfor’s intent was
Aviv’s testimony. He stated that neither he nor Interfor intended to injure Ross.
(6/19/17 Tr. at 37:2-4.) Because NXIXM established no facts to the contrary, the
Court finds no impediment to Interfor’s entitlement to enforce the Indemnity
Agreement.
B.

Interfor Has Not Failed to Mitigate Damages11

NXIVM argues that it presented evidence at trial that shows Interfor could have
mitigated damages by (i) informing its insurance carrier earlier that Ross had asserted
the counterclaim for intrusion upon seclusion against it, and (ii) invoking an arbitration
provision in the Retainer Agreement to compel NXIVM to arbitrate this dispute as
soon as it settled with Ross.12
In the PTO, NXIVM also raised defenses of unclean hands, waiver, repudiation,
laches, and that it does not have a duty to indemnify Interfor for fees and costs it
incurred after settling with Ross. (PTO, Legal Issues, ¶¶ 8, 10, 11, 14, 15.) NXIVM,
however, neglected to address these defenses in its pre-trial brief or during trial. It has
therefore waived them. See Porter v. NationsCredit Consumer Disc. Co., No. 03-3768, 2007
WL 674709, at *2 (E.D. Pa. Feb. 28, 2007) (“The Third Circuit has held that a party
waives an affirmative defense when it does not attempt to establish the defense before
or at trial and that merely raising the defense in an answer is insufficient to avoid
waiver.”), aff’d, Porter v. Nationacredit Consumer Disc. Co., 285 F. App’x 871 (3d Cir. 2008);
Kilbarr Corp. v. Bus. Sys., Inc., B.V., 679 F. Supp. 422, 427 (D.N.J. 1988) (Bissell, J.) (“A
defendant’s decision not to raise a defense in the trial of a particular action is a waiver
of that defense . . . .”), aff’d, 869 F.2d 589 (3d Cir. 1989).
12
In its pre-trial brief, NXIVM also argued that Interfor failed to mitigated damages
because it did not seek to bifurcate is contractual indemnification claim for trial earlier.
11

25

“In a breach of contract action, a plaintiff ordinarily has a duty to mitigate the
damages that he incurs.” U.S. Bank Nat. Ass’n v. Ables & Hall Builders, 696 F. Supp. 2d
428, 440 (S.D.N.Y. 2010). Nevertheless, “it is not required that the injured party
actually mitigate its damages. Rather, ‘if plaintiff takes such [mitigating] action within
the range of reason,’ the breaching party remains liable if such reasonable attempts at
mitigation fail.” APL Co. PTE v. Blue Water Shipping U.S. Inc., 592 F.3d 108, 111 (2d
Cir. 2010) (alteration in original) (quoting Ellerman Lines, Ltd. v. The President Harding,
288 F.2d 288, 290 (2d Cir. 1961)). “The party alleging a failure to mitigate bears the
burden of proving that the injured party failed to make reasonable efforts to mitigate
its damages.” Palm Bay Int’l, Inc. v. Marchesi Di Barolo S.p.A., No. 09-601, 2009 WL
3757054, at *4 (E.D.N.Y. Nov. 9, 2009). Critically, a court examining a plaintiff’s
efforts to mitigate damages must “determine whether the mitigation efforts actually
chosen in those unaccustomed shoes were reasonable, not whether hindsight suggests
that an objectively better choice was available.” APL, 592 F.3d at 112.
As an initial matter, NXIVM’s mitigation arguments ask the Court to examine
hypothetical steps Interfor could have taken to reduce FKSA’s attorneys’ fees and costs.
It is not appropriate for the Court to engage in such an inquiry. See Smith v. Positive
NXIVM did not offer any evidence regarding this alleged shortcoming at trial. In
addition, NXIVM contends that Interfor could have mitigated damages by having Aviv
drop his defamation claim earlier. Interfor, however, is not seeking attorneys’ fees or
costs associated with Aviv’s defamation claim. (See D.E. 734 (“6/20/17 Tr.”) at 18:2224.) Thus whether or not Aviv should or could have dropped his defamation claim
earlier is beside the point.
26

Prods., 419 F. Supp. 2d 437, 449–50 (S.D.N.Y. 2005) (“The rule of mitigation of
damages may not be invoked by a contract breaker as a basis for hypercritical
examination of the conduct of the injured party or merely for the purpose of showing
that the injured person might have taken steps which seemed wiser or would have been
more advantageous to the defaulter.”). Furthermore, NXIVM failed to offer any
evidence at trial showing the amount by which Interfor’s damages would have been
reduced had it informed its insurer earlier or invoked the arbitration provision in the
Retainer Agreement. This alone dooms NXIVM’s mitigation defense. See SogemAfrimet, Inc. v. M/V Ikan Selayang, 951 F. Supp. 429, 444 (S.D.N.Y. 1996) (“[D]efendant
has failed both in demonstrating that the measures taken by plaintiff did not constitute
a reasonable effort [to mitigate damages] and in showing the portion of the loss caused
by plaintiff’s failure to take additional steps.”), aff’d, 122 F.3d 1057 (2d Cir. 1997);
Eskenazi v. Mackoul, 905 N.Y.S.2d 169, 171 (N.Y. App. Div. 2010) (“A party seeking to
avail itself of the affirmative defense of failure to mitigate damages must establish that
the injured party failed to make diligent efforts to mitigate its damages, and the extent
to which such efforts would have diminished those damages.”). In any event, the facts
that were established at trial demonstrate that Interfor could not have mitigated its
damages by taking the steps NXIVM suggests.
First, that Interfor could have mitigated damages by notifying its insurer earlier
is not supported by evidence showing how those efforts “would have diminished
[Interfor’s] damages.” LaSalle Bank Nat. Ass’n v. Nomura Asset Capital Corp., 899
27

N.Y.S.2d 15, 17 (N.Y. App. Div. 2010). This argument presumes that Interfor’s insurer
would have paid FKSA’s fees and costs, but both Aviv’s and Lack’s unrebutted
testimony established that Interfor’s insurer would not defend it against claims arising
from its investigations or pursue its crossclaim against NXIVM. (6/19/17 Tr. at 60:961:4; 6/20/17 Tr. at 16:24-17:7.) To be sure, if Interfor contacted its insurer earlier,
the Ross counterclaim may have been settled sooner, thereby eliminating some of the
work for which FKSA billed. But, Interfor had a reasonable basis not to do that
because, as Lack credibly explained, NXIVM initially had honored its obligation under
the Indemnity Agreement. (6/20/17 Tr. at 16:3-21.) Accordingly, the Court will not
speculate about whether Interfor contacting its insurer at an earlier date would have
been an “objectively better choice” in “hindsight.” APL, 592 F.3d at 112.
As for the arbitration provision in the Retainer Agreement, contrary to NXIVM’s
contention, it does not afford Interfor the right to compel NXIVM to arbitrate this
dispute. The arbitration provision provides as follows:
In the event of a fee dispute, NXIVM or Interfor may have
the right to seek arbitration; we will provide the necessary
information regarding arbitration in the event of a fee
dispute or upon request. Our obligations to each other shall
be governed by the internal laws of the State of New Jersey.
(P12-002.) This provision makes clear that either NXIVM or Interfor may request
arbitration to resolve a dispute with FKSA over any fees that it billed. It does not,
however, permit Interfor to compel NXIVM (or vice versa) to arbitrate a dispute
between them. Indeed, as Interfor points out, the arbitration provision reflects the
28

procedures set forth in the then-current version N.J. Ct. R. 1:20A-3(a)(1), which
governs arbitration between attorneys and clients or third parties in the event of a fee
dispute. 13 Moreover, if the Court were to accept NXIVM’s argument that Interfor
could seek arbitration, then NXIVM also had that right. Yet NXIVM never invoked
it.
The trial evidence established that Interfor made reasonable efforts to mitigate
its damages. Lack testified that (i) Interfor contacted NXIVM about a potential
settlement in October 2008, but NXIVM did not respond (6/20/17 Tr. at 28:8-20); (ii)
on behalf of Interfor FKSA attended only 14 of the 39 deposition days in the case
(6/19/17 Tr. at 168:18-21); and (iii) Interfor elected not to participate in a mediation
that only involved the other parties’ claims (id. at 168:23-169:7). Those steps were
aimed at and accomplished mitigation, and the Court need not question whether
Interfor could have done more.
C.

Interfor’s Request for Attorneys’ Fees and Costs is Reasonable
1.

New York Law Governs the Court’s Reasonableness Analysis

While the parties agree that New York law applies to Interfor’s crossclaim for
contractual indemnification, they disagree on whether New York (Interfor) or New
Jersey (NXIVM) law governs the Court’s analysis of the reasonableness of the attorneys’
fees and costs Interfor seeks. Pursuant to New York choice-of-law rules, which the

13

The Retainer Agreement has a New Jersey choice-of-law provision. (P12-002.)
29

Court must apply for the reasons discussed above, New York law controls any issues
regarding the reasonableness of the attorneys’ fees sought by Interfor. See Manheim
Auto. Fin. Servs., Inc. v. Fleet Funding Corp., No. 09-435, 2010 WL 1692954, at *6
(E.D.N.Y. Mar. 22, 2010) (“New York law governs the procedural issue of attorneys’
fees and costs in this breach of contract action.”), adopted by, No. 09-4357, 2010 WL
1688565 (E.D.N.Y. Apr. 22, 2010).
2.

FKSA’s Fees and Costs are Reasonable

Before proceeding to its reasonableness analysis, the Court must first address
Interfor’s threshold argument that the Indemnity Agreement does not impose a
reasonableness requirement on the attorneys’ fees and costs it incurred in defending
against the claims arising from its investigations because, while the clause providing for
fees and costs associated with enforcing the Indemnity Agreement states that those
expenses must be reasonable, there is no such limitation in the clause pertaining to
defense costs. (See P5-002.) From a solely textual standpoint, this argument has appeal,
but it is well settled under New York law that a court must infer that a contract
providing for attorneys’ fees and costs—whether through indemnification or fee
shifting—contains a reasonableness requirement. See Diggs v. Oscar De La Renta, LLC,
94 N.Y.S.3d 574, 577 (N.Y. App. Div. 2019) (“An award of attorney’s fees, whether
pursuant to agreement or statute, must be reasonable and not excessive.”); Solow Mgmt.
Corp. v. Tanger, 797 N.Y.S.2d 456, 457 (N.Y. App. Div. 2005) (“Before ordering one

30

party to pay another party’s attorneys’ fees, the court always has the authority and
responsibility to determine that the claim for fees is reasonable.”).
In New York, factors considered by a court when evaluating whether attorneys’
fees are reasonable “include the time and labor expended, the difficulty of the questions
involved and the required skill to handle the problems presented, the attorney’s
experience, ability, and reputation, the amount involved, the customary fee charged for
such services, and the results obtained.” In re Estate of Dessauer, 946 N.Y.S.2d 760, 761
(N.Y. App. Div. 2012); accord Diaz v. Audi of Am., Inc., 873 N.Y.S.2d 308, 311 (N.Y.
App. Div. 2008).
NXIVM first takes issue with FKSA’s rates, while failing to suggest what a
reasonable rate should be. “As a general rule, the ‘reasonable hourly rate [for an
attorney] should be based on the customary fee charged for similar services by lawyers
in the community with like experience and of comparable reputation . . . .” Gamache v.
Steinhaus, 776 N.Y.S.2d 310, 311 (N.Y. App. Div. 2004) (alteration in original) (quoting
Getty Petroleum Corp. v. G.M. Triple S. Corp., 589 N.Y.S.2d 577, 578 (N.Y. App. Div.
1992)). In the Retainer Agreement, NXIVM expressly agreed to the rates billed by
FKSA.
[FKSA] will bill NXIVM at our regularly hourly rates as in
effect from time to time, which currently range from $250
per hour to $750 per hour for our attorneys, and from $115
per hour to $200 per hour for our legal assistants. My
[Robert J. Lack] current rate is $650 per hour, and that of my
associate Heather Windt is $360 per hour.
31

(P12-001.) NXIVM did not object to and paid FKSA’s invoices at those rates from
August 2006 through January 2007. (SOF ¶¶ 46-48; 6/19/17 Tr. at 154:14-22.) The
fact that NXIVM agreed to and paid FKSA at the rates in the Retainer Agreement is
prima facie evidence that they are reasonable. See Melodrama Publ’g, LLC v. Santiago, No.
12-7830, 2015 WL 2380521, at *5 (S.D.N.Y. May 19, 2015) (“The fact that Melodrama
paid the Firm these rates for legal services strongly suggests that they are fair and
reasonable.”), adopted by, 2015 WL 7288639 (S.D.N.Y. Nov. 16, 2015); Diplomatic Man,
Inc. v. Nike, Inc., No. 08-139, 2009 WL 935674, at *6 (S.D.N.Y. Apr. 7, 2009) (finding
that the hourly rates charged by counsel were reasonable because the client had paid at
those rates).
After NXIVM’s attempted repudiation, the rates billed by FKSA increased with
changes in the market and experience of the attorneys working on the matter. (6/19/17
Tr. at 153:12-24.) By the time of trial, Lack’s rate had increased to $995 per hour, and
the rates for associates, such as Heather Windt, increased to $495 per hour. (Id. at
153:19-24.)

Increased hourly rates were expressly contemplated by the Retainer

Agreement where it states FKSA “will bill NXIVM at our regularly hourly rates in effect
from time to time.” (P12-001 (emphasis added); see also 6/19/17 Tr. at 153:8-10 (Lack
testified that “the agreement provided that the rates would be charged as our regular
hourly rates as i[n] effect[] from time to time. Which means they are subject to periodic
adjustment.”).) Interfor offered evidence demonstrating the experience and expertise
of the FKSA attorneys that worked on the matter as a basis for the fees they billed.
32

(P90; P91; P92; P93.) By contrast, NXIVM offered no trial evidence about an
alternative reasonable New Jersey rate.14 Moreover, it is disingenuous for NXIVM to
argue that FKSA’s rates are unreasonable when, according to Lack, it likely paid higher
rates for Latham & Watkins LLP’s representation of Keeffe. (6/20/17 Tr. at 7:248:23.) The Court accepts Lack’s testimony as truthful and adequate to support its
finding that the rates billed by FKSA are reasonable.
NXIVM argues that Interfor may not recover for the majority of the entries in
the FKSA invoices because the descriptions of the work are too vague and duplicative;
the invoices reflect block billing and contain minor redactions; or the invoices involve
work that should have been delegated to associates or paralegals.15 In general, courts
assess whether entries are sufficiently detailed to permit a conclusion about the
reasonableness of the hours claimed. See Canada Dry Delaware Valley Bottling Co. v. Hornell
Brewing Co., No. 11-4308, 2013 WL 6171660, at *5-6 (S.D.N.Y. Nov. 25, 2013)
(explaining that redacted entries need only be “sufficiently detailed” so as to allow the
court to ascertain the number of hours spent and that, with respect to block billing, “[i]t
is not necessary to know the exact number of minutes spent nor the precise activity to

While the diversity of the New Jersey bar makes a hypothetical reasonable rate
difficult to establish, NXIVM’s failure to make any attempt significantly weakens its
position.
15
NXIVM lets loose a scattershot of other grounds why it claims FKSA’s fees are
unreasonable, including that work was unnecessary, completed by unidentified
attorneys or staff, or unrelated to claims arising from Interfor’s investigations. As
explained below, Lack’s testimony at trial adequately addressed these concerns.
14

33

which each hour was devoted nor the specific attainments of each attorney” (citation
and internal quotation marks omitted)); Raniola v. Bratton, No. 96-4482, 2003 WL
1907865, at *4 (S.D.N.Y. Apr. 21, 2003) (“Although some of the entries are fairly
general, terms such as ‘case preparation’ or ‘meeting’ by one attorney with another are
sufficiently concrete, when viewed in context, to permit the court to make a judgement
about the reasonableness of the total hours claimed.”); Bonnie & Co. Fashions v. Bankers
Tr. Co., 970 F. Supp. 333, 342 (S.D.N.Y. 1997) (“[W]here an attorney’s time entries are
vague, courts may attempt to decipher them by reference to the context in which these
entries occur [to determine] what work was involved.” (alteration in original) (citation
and internal quotation marks omitted)); Freidman v. Yakov, 30 N.Y.S.3d 58, 60 (N.Y.
App. Div. 2016) (explaining that block billing does not render the amount of attorneys’
fees sought “per se unreasonable”); J. Remora Maint. LLC v. Efromovich, 960 N.Y.S.2d
27, 29 (N.Y. App. Div. 2013) (finding that block billing did not make the requested
attorneys’ fees unreasonable because “the evidence before the special referee adequately
presented him with the opportunity to assess the reasonableness of the fees”). Further,
a court should not second guess staffing decisions where the work reflects the
collaborative process between attorneys or the reasonable delegation of tasks. See New
York State Ass’n for Retarded Children, Inc. v. Carey, 711 F.2d 1136, 1146 (2d Cir. 1983)
(“[P]revailing parties are not barred as a matter of law from receiving fees for sending
a second attorney to depositions or an extra lawyer into court to observe and assist.”);
Barbour v. City of White Plains, No. 07-3014, 2013 WL 5526234, at *6 (S.D.N.Y. Oct. 7,
34

2013) (“[I]t is not uncommon for parties to recover attorney’s fees for the collaboration
of multiple attorneys on a case, when the district court decides that such collaboration
is appropriate given the scope and complexity of the litigation.”); Lilly v. Cnty. of Orange,
910 F. Supp. 945, 951 (S.D.N.Y. 1996) (“The proper test is an ex ante, not ex post,
inquiry whether or not certain tasks should have been assigned to more junior level
attorneys.”).
FKSA’s invoices for its legal work through May 31, 2017, are sufficiently detailed
for the Court to ascertain the type of work completed and hours billed. The entries
reflect appropriate staffing decisions and delegation of work to associates and
paralegals—indeed, NXIVM has little basis to complain when associates and paralegals
billed 79% of the work performed. (6/20/17 Tr. at 11:14-16.) The Court had the
benefit of Lack’s trial testimony, approximately 121 transcript pages in length, much of
which reflects his effective push back against cross examination. Lack testified that
FKSA staffed the case “leanly” with only himself and one or two associates working on
the matter at a time (6/19/17 Tr. at 168:9-15) and limited its role in parts of the case
that were not “germane to Interfor’s claims” (id. at 168:16-18). He reviewed and
“trimmed” excess work from bills before they were sent to Interfor. (Id. at 169:8-12).
Lack further testified that FKSA took care in ensuring that it only billed Interfor for
compensable work because it knew NXIVM would scrutinize the bills:
Q. I guess that comes back to my question. When there’s
no client really taking responsibility for checking and
35

question your bills, isn’t that sort of a risky invitation to—
for a blank check basically?
A. No. Actually in this context it is quite the contrary. We
knew, while Mr. Aviv did not question our bills, that
NXIVM would do so in the context of this litigation. And
so we fully expected each and every one of our bills to be
put under the microscope by your client [NXIVM] and
yourself.
(6/20/17 Tr. at 55:19-56:2.)
In sum, the Court finds that the Interfor is entitled to recover reasonable fees
and costs totaling $1,369,157.51, which includes the $5,000 contribution Interfor paid
toward the Ross settlement. 16 The parties shall file supplemental submissions in
accordance with the accompanying order to address the attorneys’ fees and costs
Interfor is entitled to recover for FKSA’s work from after May 31, 2017. 17
D.

New York Law Governs the Calculation of Prejudgment Interest

The parties disagree about whether prejudgment interest should be calculated
under New York (Interfor) or New Jersey (NXIVM) law. Under New York choice-oflaw rules, “the law of the jurisdiction that determines liability governs the award of pre-

This sum excludes the amounts that Interfor reasonably allocated to pursuing Aviv’s
defamation claim, and that Interfor reasonably identified as attributable to the
common-law (non-contractual) indemnification and contribution claims briefly
pursued on behalf of Interfor, Aviv, and Moody. (See D.E. 736-1.)
17
Interfor submitted a declaration on September 8, 2017, attaching unpaid FKSA
invoices for the months of June, July, and August 2017. (D.E. 746.) For ease of
reference, the Court directs Interfor to resubmit these invoices so that there is one allinclusive catalog reflecting the attorneys’ fees and costs it seeks to recover from after
May 31, 2017.
16

36

judgment interest.” Am. Trucking & Transportation Ins. Co., RRG v. Liberty Mut. Ins. Co.,
765 F. App’x 571, 573 (2d Cir. 2019).

As such, because Interfor’s contractual

indemnification claim was governed by New York law (a matter NXIVM does not
dispute), New York law thus controls the award of prejudgment interest. See Culwick v.
Wood, 384 F. Supp. 3d 328, 350 (E.D.N.Y. 2019) (finding that, under New York choiceof-law rules, because New Jersey law controlled a breach of contract claim, it also
governed any award of prejudgment interest); Cohen Lans LLP v. Naseman, No. 14-4045,
2017 WL 477775, at *9 (S.D.N.Y. Feb. 3, 2017) (applying New York’s prejudgment
interest rate to a contract claim governed by New York law).
In New York, CPLR § 5001(a) provides that prejudgment “[i]nterest shall be
recovered upon a sum awarded because of a breach of performance of a contract.” It
is calculated using a non-compounding 9% annual rate from the time the cause of action
accrued, or “[w]here 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.” CPLR § 5001(b); CPLR § 5004. The
parties shall include a calculation of prejudgment interest on all damages in their
supplemental submissions.

37

IV.

Conclusion
For the foregoing reasons, the Court enters judgment in favor of crossclaim

plaintiff Interfor against NXIVM for contractual indemnification. An appropriate
order will follow.
/s/ Katharine S. Hayden
Katharine S. Hayden, U.S.D.J.

Dated: August 26, 2019

38

APPENDIX
Exhibits Admitted Into Evidence
Ex.
P2

Description of Exhibit
“Tragic death linked to New York ‘cult’” by Rick Ross, January 28, 2004

P3

Interfor/O’Hara Retainer Agreement and Cover Letter, September 1,
2004

P4

Email Chain Between Keeffe/O’Hara/Barasch, November 5, 2004

P5

Interfor/NXIVM Indemnity Agreement (with fax cover sheet),
November 23, 2004

P6

Printout from Interfor Conference Room Scheduling System

P7

Interfor Status Report re: Rick Ross, November 23, 2004

P8

Email Chain Between J. Lloyd & R. Emmers, February 22, 2005

P9

Interfor Payment Register for NXIVM

P10

“Stress in the Family” by Chet Hardin, Metroland Online

P11

Ross Subpoena to Interfor, July 11, 2006

P12

FKSA/NXIVM Retainer Letter, August 11, 2006

P13

Ross Counterclaim Against Interfor, January 11, 2007

P14

ESP Check No. 15083 for Payment to FKSA, April 20, 2007

P15

Email from P. Yesawich to H. Windt, October 19, 2007

P16

Interfor Crossclaim Against NXIVM, November 7, 2007

P17

Confidential Settlement Agreement and Release between Ross and
Interfor/Aviv/Moody, September 9, 2008

P19

Keeffe Declaration in Support of NXIVM Motion to Quash (with Exs. A,
B, excerpt from C), August 7, 2006

P20

Keeffe Responses/Objections to Ross’s First Set of Interrogatories to
NXIVM, February 1, 2008

Ex.
P21

Description of Exhibit
NXIVM First Amended Responses to Ross’s Second Set of
Interrogatories to NXIVM, February 1, 2008

P22

Notice of Rule 30(b)(6) Deposition, June 3, 2009

P23

Excerpt from NXIVM’s Opposition to Motion for Partial Summary
Judgment by Interfor, Inc., January 18, 2013

P25B

Unpaid Interfor Legal Bills, Ross Settlement, and Prejudgment Interest
Thereon as of June 9, 2017

P26

FKSA Invoice No. 1718, dated Mar. 8, 2007, for the period covering
February 1-28, 2007 (summary version)

P27

FKSA Invoice No. 1718, dated Mar. 8, 2007, for the period covering
February 1-28, 2007 (full version)

P28

FKSA Invoice No. 1741, dated Apr. 6, 2007, for the period covering
March 1-31, 2007

P29

FKSA Invoice No. 1768, dated May 7, 2007, for the period covering April
1-30, 2007

P30

FKSA Invoice No. 1783, dated June 7, 2007, for the period covering May
1-31, 2007

P31

FKSA Invoice No. 1831, dated August 8, 2007, for the period covering
June 1-July 31, 2007

P32

FKSA Invoice No. 1863, dated November 14, 2007, for the period
covering August 1-October 31, 2007

P33

FKSA Invoice No. 1890, dated January 17, 2008, for the period covering
November 1-December 31, 2007

P34

FKSA Invoice No. 1911, dated March 6, 2008, for the period covering
January 1-31, 2008

P35

FKSA Invoice No. 1913, dated March 21, 2008, for the period covering
February 1-29, 2008

P36

FKSA Invoice No. 1936, dated May 20, 2008, for the period covering
March 1-April 30, 2008

2

Ex.
P37

Description of Exhibit
FKSA Invoice No. 1954, dated June 16, 2008, for the period covering
May 1-31, 2008

P38

FKSA Invoice No. 1957, dated July 11, 2008, for the period covering June
1-30, 2008

P39

FKSA Invoice No. 1986, dated August 18, 2008, for the period covering
July 1-31, 2008

P40

FKSA Invoice No. 2006, dated September 25, 2008, for the period
covering August 1-31, 2008

P41

FKSA Invoice No. 2047, dated November 10, 2008, for the period
covering September 1-30, 2008

P42

FKSA Invoice No. 2048, dated November 10, 2008, for the period
covering October 1-31, 2008

P43

FKSA Invoice No. 2076, dated December 8, 2008, for the period
covering November 1-30, 2008

P44

FKSA Invoice No. 2094, dated January 9, 2009, for the period covering
December 1-31, 2008

P45

FKSA Invoice No. 2121, dated February 9, 2009, for the period covering
January 1-31, 2009

P46

FKSA Invoice No. 2138, dated March 17, 2009, for the period covering
February 1-28, 2009

P47

FKSA Invoice No. 2167, dated April 13, 2009, for the period covering
March 1-31, 2009

P48

FKSA Invoice No. 2183, dated May 8, 2009, for the period covering April
1-30, 2009

P49

FKSA Invoice No. 2206, dated June 8, 2009, for the period covering May
1-31, 2009

P50

FKSA Invoice No. 2250, dated July 21, 2009, for the period covering June
1-30, 2009

P51

FKSA Invoice No. 2269, dated August 17, 2009, for the period covering
July 1-31, 2009
3

Ex.
P52

Description of Exhibit
FKSA Invoice No. 2279, dated September 9, 2009, for the period
covering August 1-31, 2009

P53

FKSA Invoice No. 2296, dated October 21, 2009, for the period covering
September 1-30, 2009

P54

FKSA Invoice No. 2313, dated November 20, 2009, for the period
covering October 1-31, 2009

P55

FKSA Invoice No. 2331, dated February 1, 2010, for the period covering
November 1-December 31, 2009

P56

FKSA Invoice No. 2346, dated February 26, 2010, for the period covering
January 1-31, 2010

P57

FKSA Invoice No. 2359, dated March 18, 2010, for the period covering
February 1-28, 2010

P58

FKSA Invoice No. 2382, dated May 11, 2010, for the period covering
March 1-April 30, 2010

P59

FKSA Invoice No. 2401, dated August 5, 2010, for the period covering
May 1-July 31, 2010

P60

FKSA Invoice No. 2414, dated September 13, 2010, for the period
covering August 1-31, 2010

P61

FKSA Invoice No. 2425, dated October 21, 2010, for the period covering
September 1-30, 2010

P62

FKSA Invoice No. 2446, dated January 18, 2011, for the period covering
October 1-December 31, 2010

P63

FKSA Invoice No. 2474, dated April 13, 2011, for the period covering
January 1-March 31, 2011

P64

FKSA Invoice No. 2501, dated July 18, 2011, for the period covering
April 1-June 30, 2011

P65

FKSA Invoice No. 2510, dated August 8, 2011, for the period covering
July 1-31, 2011

P66

FKSA Invoice No. 2518, dated September 9, 2011, for the period
covering August 1-31, 2011
4

Ex.
P67

Description of Exhibit
FKSA Invoice No. 2527, dated October 10, 2010, for the period covering
September 1-30, 2011

P68

FKSA Invoice No. 2531, dated November 7, 2011, for the period
covering October 1-31, 2011

P69

FKSA Invoice No. 2551, dated December 5, 2011, for the period
covering November 1-30, 2011

P70

FKSA Invoice No. 2557, dated January 5, 2012, for the period covering
December 1-31, 2011

P71

FKSA Invoice No. 2608, dated April 13, 2012, for the period covering
January 1-March 31, 2012

P72

FKSA Invoice No. 2632, dated July 9, 2012, for the period covering April
1-June 30, 2012

P73

FKSA Invoice No. 2675, dated December 5, 2012, for the period
covering July 1-November 30, 2012

P74

FKSA Invoice No. 2687, dated January 14, 2013, for the period covering
December 1-31, 2012

P75

FKSA Invoice No. 2700, dated February 26, 2013, for the period covering
January 1-31, 2013

P76

FKSA Invoice No. 2703, dated April 12, 2013, for the period covering
February 1-March 31, 2013

P77

FKSA Invoice No. 2752, dated January 8, 2014, for the period covering
April 1-December 31, 2013

P78

FKSA Invoice No. 2777, dated August 7, 2014, for the period covering
January 1-June 30, 2014

P79

FKSA Invoice No. 2792, dated January 7, 2015, for the period covering
July 1-December 31, 2014

P80

FKSA Invoice No. 2856, dated January 5, 2016, for the period covering
January 1-December 31, 2015

P81

FKSA Invoice No. 2885, dated July 6, 2016, for the period covering
January 1-June 30, 2016
5

Ex.
P82

Description of Exhibit
FKSA Invoice No. 2938, dated February 8, 2017, for the period covering
January 1-31, 2017

P83

FKSA Invoice No. 2952, dated April 5, 2017, for the period covering
February 1-March 31, 2017

P84

FKSA Invoice No. 2963, dated May 10, 2017, for the period covering
April 1-30, 2017

P85

FKSA invoice for the period covering May 1-31, 2017

P87B

Allocation of Interfor Legal Fees Among Defense of Ross Counterclaim,
Enforcement of Indemnification Claim, and Defamation Claim as of May
31, 2017

P88B

Interfor Legal Bills by Year, by Level of Timekeeper through May 31,
2017

P89B

Summary of Legal Services Rendered through May 31, 2017

P90

FKSA website biography: Robert J. Lack

P91

FKSA website biography: Robert S. Landy

P92

FKSA website biography: Heather J. Windt

P93

FKSA website biography: Andrew M. Englander

P94

Declaration of Robert D. Crockett in Support of Motion for Admission
Pro Hac Vice, January 26, 2017

P97

October 8, 2008 letter enclosing Interfor check re: Ross Settlement

P104

Exhibits B-I to NXIVM Trial Brief

D7

September 1, 2004 Terms of Engagement Letter between Interfor and
O’Hara; signed by O’Hara on September 2, 2004

D8

September 20, 2004 (first date) Activities Log

D17

June 6, 2005 letter from Aviv to Judd Bernstein of Law Office of Judd
Bernstein

D19

September 22, 2008 Stipulation & Order Dismissing Counterclaim as to
Interfor, Inc., Juval Aviv, and Anna Moody

Court 1

June 22, 2017 Stipulation re: Plaintiff’s Exhibit 104
6

Deposition Designations
Ex.
P99

Description of Exhibit
Interfor Deposition Designations for Salzman

P100

Interfor Deposition Designations for Raniere

P101

Interfor Deposition Designations for Keeffe

P102

Interfor Deposition Designations for O’Hara

P103

Interfor Deposition Designations for Bouchey

D21

NXIVM Deposition Designations for Keeffe 18

D22

NXIVM Deposition Designations for O’Hara

The Court sustained a hearsay objection raised by Interfor to lines 133:21-134:2 for
NXIVM’s designations from Keeffe’s deposition. (6/20/17 Tr. at 96:15-21.)

18

7