Stein et al v. Northern Assurance Company of America et al

Filing 100

MEMORANDUM AND ORDER: SO ORDERED that Owner plaintiffs motion for judgmentpursuant to FRCP 54(b) and statutory interest is hereby GRANTED to the extentset forth above. Owner plaintiffs request for attorneys fees for bringing their Order to Show Cause is hereby DENIED. Owner plaintiffs counsel is to submit a judgment on notice as set forth above. Ordered by Senior Judge Thomas C. Platt on 5/9/2011. (Glueckert, Lisa)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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JUDITH STEIN, as an Executor of the
ESTATE OF KENNETH F. STEIN, JR.,
GWENDOLYN ZEGEL and JUDITH STEIN
in their capacities as TRUSTEES of a
Testamentary Trust created under the Last Will
and Testament of KENNETH F. STEIN, JR.,
JUDITH STEIN, individually and as a
beneficiary of the Estate of KENNETH F.
STEIN, JR., DAVID S.J. NEUFELD, as an
Executor of the Estate of KENNETH F. STEIN,
JR., SAYVILLE FERRY SERVICE, INC.,
STEIN’S MARINE LIFT, INC., and KFS
CORP.,

09-CV-1029(TCP)(AKT)
MEMORANDUM
AND ORDER

Plaintiffs,
-againstTHE NORTHERN ASSURANCE COMPANY
OF AMERICA, and ONEBEACON AMERICA
INSURANCE COMPANY d/b/a INTERNATIONAL
MARINE UNDERWRITERS and JOHN DOE
and JANE DOES Nos. 1-4,
Defendants.
----------------------------------------------------X
PLATT, District Judge.
Before the Court is Owner Plaintiffs’ Order to Show Cause
requesting that defendants show cause why an Order should not be entered: (1)
directing defendants to remit the sum of $126,873.97 plus interest to Owner
plaintiffs forthwith; (2) directing entry of judgment pursuant to Federal Rule of
Civil Procedure 54(b) in favor of Owner plaintiffs in the sum of $126,873.97 plus
interest; (3) granting sanctions and attorneys’ fees to Owner plaintiffs in such
amount as to be determined by the Court to be reasonable and fair given the

defendants’ conduct; and (4) such other relief as this Court deems warranted.
For the following reasons, Owner plaintiffs’ motion for judgment
pursuant to FRCP 54(b) is hereby GRANTED. Owner plaintiffs’ request for
statutory interest is also GRANTED. Owner plaintiffs’ request for attorney’s fees
for bringing their Order to Show Cause is hereby DENIED. Owner plaintiffs’
counsel is to submit a judgment on notice as set forth herein.
I. BACKGROUND
Relevant Facts
The Court assumes the parties’ familiarity with the facts of this
case as set forth in the Court’s Memorandum and Order dated January 25,
2011(“Order”) and will only repeat those facts necessary to decide Owner
Plaintiffs’ (“Owners”) order to show cause.
The non-corporate plaintiffs, captioned above, separately own five
parcels of real property located on the east side of River Road in Sayville, Suffolk
County, New York, and are collectively referred to herein as the “Owners.”
Defendants Northern Assurance Company of America (“Northern”) and
OneBeacon America Insurance Company (“OneBeacon”) are each Massachusetts
corporations authorized by the New York State Insurance Department to issue
insurance policies. The Owners previously moved this Court for summary
judgment against defendants Northern and OneBeacon as to the Owners’ breach
of contract claim and request for a declaratory judgment. Summary judgment was
granted as to the Owner’s breach of contract claim based on their insurers’ duty to
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defend. DE 76 at p. 44. The Owners’ request for a declaratory judgment was
granted to the extent that the insurers’ were directed to provide a defense for the
Owners until such time as their duty ceases. Id. The insurers were also directed
to pay the Owners’ defense costs for the underlying New York State Supreme
Court case pending in Suffolk County, New York retroactive to September 16,
2008, until their duty to defend ceases. Id.
After the Order was filed, the Owners’ attorney advised
defendants’ counsel of the actual expenses incurred by the Owners in defending
the underlying action from September 16, 2008 through November 30, 2010,
which amounted to $270,234.60 in legal fees and $12,359.00 in costs for a total
sum due of $282,593.60. Aff. O’Leary ¶ 5; Exh. A. The sum of $55,719.63 was
paid by defendant OneBeacon leaving a balance due of $226,873.97. Aff.
O’Leary at ¶ 5.
Defendants’ counsel inquired as to the hourly rates Owner
plaintiffs’ counsel would charge defendants in the future and directed that
Owners’ counsel forward invoices for future services directly to one Robert
Wheeler (“Wheeler”) of International Marine Underwriters. Id. at ¶ 6. Owners’
counsel then wrote to Wheeler providing him with a copy of the Order and an
itemized invoice of the Owners’ expenses for the period December 6, 2010
through February 15, 2011 in the sum of $8,115.50. Id.; Exh.B.
Wheeler advised that he was not yet familiar with the matter and,
thereafter, he was out of the office on vacation. Aff. O’Leary ¶ 7. On March 17,
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2011, the Owners’ counsel again communicated with Wheeler and advised him
that the balance due should be remitted to “Neufeld & O’Leary, as Attorneys” and
that the February 15 invoice in the sum of $8,115.50 remained unpaid. On April
1, 2011, Wheeler advised the Owners’ attorneys that he could not pay this amount
as he was unsure of what he was required to do, but that he would remit
$100,000.00 as a “good faith payment.” Id. Owner plaintiffs’ counsel advised
Wheeler that, pursuant to the Order, defendant insurers were required to make
payment in full. Id. On April 7, 2011, a check in the sum of $100,00.00,
containing the written notation “without prejudice” in two places, was received by
Owner plaintiffs’ counsel, resulting in a shortfall of $134,989.47. Id.
Defendants point out that the Order did not set forth an amount of
damages to be paid and that the Owners’ summary judgment motion did not
address the amount of defense costs allegedly incurred in the underlying action.
Aff. Wamsur ¶ 5. Furthermore, defendants take issue with the fact that the
Owners’ attorney merely submitted an affidavit stating the amount of legal fees
due and costs incurred in the underlying action. Id. at ¶ 6. While the Owners
maintain that they do not have to produce any legal invoices or other support of
their damages claim, defendants contend that they are entitled to documentation
detailing the legal services provided and establishing the actual amounts expended
to support the Owners defense costs prior to the entry of judgment. Id. at ¶ 8.

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II. DISCUSSION
A.

Owner Plaintiffs’ Request for Partial Judgment
1.

Legal Standard
Federal Rule of Civil Procedure (“FRCP”) 54(b) provides that

when an “action presents more than one claim for relief–whether as a claim,
counterclaim, crossclaim, or third-party claim–or when multiple parties are
involved, the court may direct entry of a final judgment as to one or more, but
fewer than all, claims or parties only if the court expressly determines that there is
no just reason for delay.” In deciding whether to grant a FRCP 54(b) motion, a
district court must first satisfy itself that it is dealing with a “ ‘final judgment.’ It
must be a ‘judgment’ in the sense that it is a decision upon a cognizable claim for
relief, and it must be ‘final’ in the sense that it is ‘an ultimate disposition of an
individual claim entered in the course of a multiple claims action.’ ” CurtissWright Corp. v. General Elec. Co., 446 U.S. 1, 7 (1980) (quoting Sears, Roebuck
& Co. v. Mackey, 351 U.S. 427, 436 (1956)). Finality “depends on the existence
of a decision by the District Court that ‘ends the litigation on the merits and leaves
nothing for the court to do but execute the judgment.’ ” Coopers & Lybrand v.
Livesay, 437 U.S. 463, 467 (1978) (quoting Catlin v. United States, 324 U.S. 229,
233 (1945)).
Upon determining finality, the district court must then determine
“whether there is any just reason for delay.” Curtiss-Wright Corp., 446 U.S. at 8.
“[I]n deciding whether there are no just reasons to delay the appeal of individual
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final judgments in setting[s] such as this, a district court must take into account
judicial administrative interests as well as the equities involved.” Id. Judicial
administrative interests are properly served when disposition on the remaining
claims does not moot a decision made by an appellate court or require it to decide
an issue more than once. Ginett v. Computer Task Group, Inc., 962 F.2d 1085,
1095 (2d Cir. 1992).
The Second Circuit Court of Appeals has held that where a party is
legally entitled to immediate execution of a final judgment, “he should be able to
execute upon it now, and should not be penalized for combining his separate
claims . . . in one complaint.” Id. at 1098. “This is exactly the sort of ‘hardship
and denial of justice through delay’ that rule 54(b) was designed to eliminate.” Id.
(quoting Dickinson v. Petroleum Conversion Corp., 338 U.S. 507, 511 (1950)).
“[W]here a plaintiff might be prejudiced by a delay in recovering a monetary
award,” a district court may properly find that there is no just reason for delay.
Advanced Magnetics, Inc. v. Bayfront Partners, Inc., 106 F.3d 11, 16 (2d Cir.
1997).
In Campbell v. Westmoreland Farm, Inc., the Second Circuit held
that “there must be some danger of hardship or injustice through delay which
would be alleviated by immediate appeal” in granting a 54(b) motion. 403 F.2d
939, 941 (2d Cir. 1968). The Second Circuit also adopted the Third Circuit Court
of Appeals admonition that 54(b) orders “ ‘should not be entered routinely or as a
courtesy or accommodation to counsel. The power which this Rule confers upon
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the trial judge should be used only ‘in the infrequent harsh case’ as an instrument
for the improved administration of justice.’ ” Id. at 942 (quoting Panichella v.
Pennsylvania R.R., 252 F.2d 452, 455 (3d Cir. 1958)).
2.

Owner Plaintiffs’ Breach of Contract Claim
In this case, there is no dispute that this Court’s grant of summary

judgment to Owner plaintiffs as to their breach of contract claim was final. DE 76
at p. 29. The Court held that defendants are obligated to defend their insureds
until the duty to defend ceases. Id. No further action is necessary to decide this
claim as to the Owner plaintiffs.1 To the extent the corporate plaintiffs also
complained of breach of contract, by the plain language of FRCP 54(b), a court
may grant a final judgment even when there are multiple parties. See Byrne v.
Telesector Resources Group, Inc., No. 04-CV-076, 2007 WL 2403721, at *1
(W.D.N.Y. Aug. 20, 2007) (noting that final judgment may be entered where: “(1)
Multiple claims or multiple parties must be present, (2) at least one claim, or the
rights and liabilities of at least one party, must be finally decided within the
meaning of 28 U.S.C. § 1291, and (3) the district court must make ‘an express
determination that there is no just reason for delay’ and expressly direct the clerk
to enter judgment.”) (quoting Information Res., Inc. v. The Dun and Bradstreet
Corp., 294 F.3d 447, 451 (2d Cir. 2002)). Thus, as to the Owner plaintiffs, this
claim was decided on the merits and is final.
1. As to the corporate plaintiffs captioned herein, the Court held, inter alia, that defendants were
not obliged to provide a defense because said plaintiffs were not named in the underlying New
York State Supreme Court lawsuit. DE 76 at p. 40.

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The outstanding claim in plaintiffs’ Second Amended Complaint
with respect to the Owner plaintiffs is for defendants’ breach of its fiduciary
duties to plaintiffs coupled with a request for punitive damages and attorneys’ fees
and costs.2 The Owner plaintiffs’ outstanding claim for breach of fiduciary duty
and punitive damages3 is separate from their breach of contract claim, however,
because the elements necessary to prove each claim differ significantly even
though they rely on similar facts. DE 76 at pp. 43-44. See United Bank of Kuwait
PLC v. Enventure Energy Enhanced Oil Recovery, 763 F. Supp. 729, 731
(S.D.N.Y. 1990) (“Rule 54(b) certification is permissible if the claim in question
is separate and distinct from the remaining claims and if there is no just reason for
delay in the entry of final judgment on the claim.”). An appeal based on final
judgment of the breach of contract claim would not result in multiple appellate
decisions, nor would it render a decision on that claim moot because a breach of
fiduciary duty claim is dependant on establishing a tort independent of the breach
of contract claim. DE 76 at p. 43.
Furthermore, insureds herein, i.e., the Owner plaintiffs, have
expended significant sums in defending the underlying lawsuit. As set forth

2. Owner plaintiffs’ request for a declaratory judgment as to defendants’ obligation to defend the
Owners until defendants’ duty to defend ceases was also granted pursuant to the Order. DE 76 at
p. 29.
3. Plaintiffs did not move for summary judgment on defendants’ purported breach of their
fiduciary duties. Accordingly, that claim was not addressed in the Order. Defendants moved for
summary judgment as to plaintiffs’ request for punitive damages. Plaintiffs’ request for leave to
amend that portion of their complaint was granted and defendants were granted permission to
renew their motion for summary judgment on plaintiffs’ punitive damage claim upon receipt of
plaintiffs’ amended complaint.

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above, FRCP 54(b) is concerned with avoiding delay in the entry of a final
judgment where a monetary award has been granted in a multiple claim case.
3.

The Insurers’ Duty to Pay Reasonable Fees in Defending its
Insured
Defendants oppose Owner plaintiffs’ FRCP 54(b) motion on the

ground that they are obligated to pay only “reasonable attorneys’s fees and costs in
providing a defense to their insureds. Defendants contend that the Order does not
set forth an amount of damages to be paid to the Owners and that plaintiffs’
summary judgment motion did not address the amount of defense costs incurred
in the underlying case. Mem. in Opp. at p. 1. Defendants argue, therefore, that
plaintiffs must produce documentation detailing the legal services provided,
including legal invoices and time records, in order to establish the reasonableness
of the defense costs. Id. at p. 3. Furthermore, defendants contend that the lack of
evidence of reasonable fees and costs amounts to a just reason for delaying entry
of judgment on the Owners’ breach of contract claim.
“Generally, where an insured is forced to defend an action due to
the insurer’s wrongful refusal to provide a defense, the insured is entitled to
recover the reasonable counsel fees incurred.” Cunniff v. Westfield, Inc., 829 F.
Supp. 55, 58 (E.D.N.Y. 1993) (citing U. S. Fidelity and Guaranty Co. v. Copfer,
400 N.E.2d 298, 298 (N.Y. 1979)). See U.S. Underwriters Ins. Co. v.
Weatherization, Inc., 21 F. Supp. 2d 318, 326 (S.D.N.Y. 1998) (“Where, as here,
an insured is forced to defend an action because the insurer wrongfully refused to
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provide a defense, the insured is entitled to recover its reasonable defense costs,
including attorney’s fees.”); Burroughs Wellcome Co. v. Commercial Union Ins.
Co., 713 F. Supp. 694, 697 (S.D.N.Y. 1989) (“As a general rule, a breach of the
covenant to defend makes the insurer liable to the insured for the reasonable
counsel fees and necessary expenses incurred.”).
In U.S. Underwriters Ins. Co. v. Weatherization, Inc., the district
court held that an affirmation by the insured’s attorney setting forth the legal fees
and costs owed by the insurer was “insufficient to permit an award to be made by
this court which has a duty to determine the reasonableness of the amount.” 21 F.
Supp. 2d 318, 328 (S.D.N.Y. 1998). That court also held that a “fee applicant
bears the burden of adequately documenting the request, including the hours
expended and the hourly rate applied to those hours.” Id.
As plaintiffs’ counsel notes, however, this is not an attorney’s fee
application. Reply Mem. at pp. 3-4. Rather, the Order held that defendants
breached their insurance contracts with the Owner plaintiffs. Defendants were,
therefore, directed to provide a defense for the insureds, i.e., those identified as
Owner plaintiffs. Defendants were also deemed responsible for the Owner
plaintiffs’ defense costs incurred from September 16, 2008 until their duty to
defend ceases. DE 76 at p. 29. Accordingly, this case is distinguishable from an
application for attorney’s fees. See Smart Style Industries, Inc. v. Pennsylvania
General Insurance Co., 947 F. Supp. 102, 104 (S.D.N.Y. 1996) (“As plaintiffs
point out, I do not have before me an application for a fee award. Rather, this is a
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breach of contract case[.] The distinction is important because I am not
considering whether plaintiffs are entitled to attorneys’ fees as a matter of
statutory entitlement.”). Defendants’ arguments, then, with respect to the law for
fee applications is misplaced because plaintiffs merely have to prove breach of
contract damages.
4.

Owner Plaintiff’s Breach of Contract Damages
“A basic principle of damages in a contract action is that the

injured party should be left in as good a position as it would have been had the
contract been fully performed, and that the injured party should not recover more
from the breach than it would have gained had the contract been fully performed.”
Bogdan and Faist P.C. v. CAI Wireless Systems, Inc., 295 A.D.2d 849, 853-54
(N.Y. App. Div. 2002). “It is well established that in actions for breach of
contract, the nonbreaching party may recover general damages which are the
natural and probable consequence of the breach.” Kenford Co., Inc. v. County of
Erie, 537 N.E.2d 176, 178 (N.Y. 1989). A plaintiff has the burden of proving
damages with reasonable certainty. ESPN, Inc. v. Office of Commissioner of
Baseball, 76 F. Supp. 2d 416, 418 (S.D.N.Y. 1999). Damages “may not be
speculative, but must be directly traceable to the defendants’ alleged
wrongdoing.” Brown v. City of New York, No. 95-CV-3693, 2001 WL 1111520,
at *3 (S.D.N.Y. Sept. 21, 2001) (citing Kenford Co., Inc., 537 N.E.2d at 178).
In the first instance, it is beyond dispute that Owner plaintiffs’

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damages arose out of defendants’ breach of the terms of the insurance policy. In
addition, the Court has studied the attorney time sheets submitted by plaintiffs and
is satisfied that the time billed is appropriate considering the underlying action,
the facts of which the Court became familiar with while considering plaintiffs’
summary judgment motion. Reply Aff., Exh. F. Plaintiffs’ law firms hourly rates
are also reasonable, especially considering that rather than billing at its customary
hourly rate for partners in the amount of $340-$350 and associates in the amount
of $170-$230, the firm billed between $289-$315 for partners and between
$148.50-$207 for associates. Furthermore, defendants previously remitted the
sum of $55,719.63 for services rendered through and including September 15,
2008, without reservation and without questioning the reasonableness of the fees.
Reply Aff. ¶ 3, Exh. D. Similarly, the Court has studied the costs from the New
York State Court action and have found those to be reasonable given the scope of
the underlying matter. Reply Aff., Exh. G.
Moreover, defendants, who have been in possession of this
information since it was filed on April 28, 2011, have not objected to Owner
plaintiffs’ attorney’s reply affidavit and exhibits which include the firm’s billable
hours and breakdown of costs, by requesting leave of the Court to file a sur-reply
or supplemental affidavit. Accordingly, the Court finds that Owner plaintiffs’
damages were foreseeable and that they have sufficiently proven their entitlement
to same.

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5.

Statutory Interest Pursuant to CPLR § 5001
Pursuant to New York’s Civil Practice Law and Rules (“CPLR”) §

5001(a), “[i]nterest shall be recovered upon a sum awarded because of a breach of
performance of a contract . . . .” Pursuant to CPLR 5004, the amount of “prejudgment interest to be awarded pursuant to a breach of contract claim is nine
percent per annum.” Turner Const. Co. v. American Mfrs. Mut. Ins. Co., 485 F.
Supp. 2d 480, 490 (S.D.N.Y. 2007). “[U]nder New York law, the awarding of
interest on breach of contract claims . . . is non-discretionary.” Id. See U.S. Naval
Institute v. Charter Communications, Inc., 936 F.2d 692, 698 (2d Cir. 1991)
(“Under New York law . . . a plaintiff who prevails on a claim for breach of
contract is entitled to prejudgment interest as a matter of right.”); Langenberg v.
Sofair, No. 03-CV-8339, 2006 WL 3518197, at *7 (S.D.N.Y. Dec. 7, 2006)
(awarding prejudgment interest pursuant to New York law in a breach of contract
case).
In addition to the non-discretionary nature of an award of
prejudgment interest under New York law, Owner plaintiffs’ counsel swore that
his firm “received payment of $270,234.60 for legal fees and $12,359 in expenses
in connection with the defense of the claims interposed against the Owner
plaintiffs in defense of the underlying Supreme Court action through November
30, 2010.” Aff. O’Leary ¶ 5. Given the significant sum that plaintiffs were “outof-pocket” based on defendants erroneous refusal to provide them with a defense,
prejudgment interest in this case is also equitable. Plaintiffs are therefore entitled
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to prejudgment interest at the rate of nine percent per annum.
Having previously determined that a final decision was made on
Owner plaintiffs’ breach of contract claim, the Court holds that plaintiffs are
entitled to a final judgment on that claim given the monetary nature of their
damages, including the interest to which they are also entitled. The request for
judgment pursuant to 54(b) is hereby granted. The Owners are to submit a
proposed judgment, on notice, in conformity with this Order. The proposed
judgment should also set forth the payments made by defendants for which they
should be credited. Statutory interest should be computed as set forth in CPLR §
5001(b).
B.

Owner Plaintiffs’ Request for Attorneys’ Fees for Bringing Their
Order to Show Cause
With respect to Owner plaintiffs’ request for attorneys’ fees for

bringing the instant order to show cause, the “American Rule provides that
‘attorney’s fees are incidents of litigation and a prevailing party may not collect
them from the loser unless an award is authorized by agreement between the
parties, statute or court rule.’ ” Baker v. Health Management Systems, Inc., 772
N.E.2d 1099, 1104 (N.Y. 2002) (quoting Hooper Assoc. v. AGS Computers, 548
N.E.2d 903, 904 (N.Y. 1989)). Owner plaintiffs’ request for attorneys’ fees are,
therefore, denied.
Court does note, however, that since its Order was filed,
defendants have disregarded plaintiffs’ request for payment, except for the
$100,000 payment containing the “with prejudice” notation. Instead, they appear
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to sit idly by, denying plaintiffs’ requests for payments and forcing them to make
applications to the Court. Thus, defendants continue to be in breach of the
insurance contracts and, indeed, their conduct borders on contempt of the Order.
If defendants continue to refuse to remit, in a timely manner, to the
Owners their reasonable defense costs as instructed, without a tangible good faith
basis for not doing so, and plaintiffs are forced to make additional applications to
the Court, attorney’s fees in the form of sanctions may be awarded upon a proper
application.
III. CONCLUSION
For the foregoing reasons, Owner plaintiffs’ motion for judgment
pursuant to FRCP 54(b) and statutory interest is hereby GRANTED to the extent
set forth above. Owner plaintiffs’ request for attorney’s fees for bringing their
Order to Show Cause is hereby DENIED. Owner plaintiffs’ counsel is to submit
a judgment on notice as set forth above.
SO ORDERED.
Dated: May 9, 2011
Central Islip, New York

/s/
Thomas C. Platt, U.S.D.J.

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