Tyco International, et al v. Swartz
OPINION: This is an action brought by Tyco against its former Chief Financial Officer Mark Swartz. Swartz and his then-co-defendant Dennis Kozlowski, the former Tyco CEO, were convicted in New York state court on numerous criminal charges in connecti on with a scheme by the two of them to enrich themselves by abusing various Tyco compensation programs. This civil action is to recover the portion of Tyco's damages stemming from that scheme that are attributable to Swartz...Accordingly, Tyco is entitled to $19,910,070 in interest on its conversion claim. (Signed by Judge Thomas P. Griesa on 3/19/2013) (mt)
UNITED STATES DISTRICf COURT
SOUTHERN DISTRICr OF NEW YORK
TYCO INTERNATIONAL LTD. and TYCO
INTERNATIONAL (US) INC,
DATE FILED: t\:4, l',20~
03 Civ. 2247
This is an action brought by Tyco against its former Chief Financial Officer Mark
Swartz. Swartz and his then-co-defendant Dennis Kozlowski, the former Tyco CEO, were
convicted in New York state court on numerous criminal charges in connection with a
scheme by the two of them to enrich themselves by abusing various Tyco compensation
programs. This civil action is to recover the portion of Tyco's damages stemming from
that scheme that are attributable to Swartz. The court granted summary judgment in
Tyco's favor on March 3, 2011 on the issue of Swartz's liability for breach of fiduciary duty,
inducing breach of fiduciary duty, and conversion. The court held that these claims were
resjudicata, since Swartz's criminal convictions were conclusive and binding on this court
in determining his civil liability. A trial was then held in October of 2012 to determine the
appropriate damages for Tyco's breach of fiduciary duty claim.
This motion relates only to the remaining question of Tyco' s damages on the New
York state law conversion claim. And, narrowing the issue even further, Swartz has already
repaid the sums actually converted in the form of restitution ordered issued by the criminal
court. That court did not, however, order Swartz to pay interest on that sum. Tyco moves,
therefore, for prejudgment interest on this amount.
The parties agree that Swartz paid $37,773,101 in restitution to Tyco. This
reflects amounts Swartz owed Tyco under four criminal counts:
On Count 4 he repaid $16,610,687 relating to the "TyCom IPO."
On Count 6 he repaid $12,844,632 relating to "ADT Automotive."
On Count 7 he repaid $1,200,000 relating to "One Central park West."
On Count 9 he repaid $7,117,782 relating to a "FLAG transaction."
The parties also agree that, if New York's statutory pre-judgment interest rate, 9%,
were to apply, the interest Swartz would owe totals $19,910,070.
What the parties do not agree on, however, is whether it is appropriate for this
statutory rate to be applied equally to the amounts Swartz converted given the facts
underlying each of dlese criminal counts. In essence, Swartz argues that some of these
counts cover S\VaTtz's abuse of programs that by their terms provided for Tyco to collect
less than 9% interest Thus, he argues, Tyco would receive an unfair windfall were the
N ew York statutory interest rate to be applied equally to each of the amounts he converted.
He also contends that, because Swartz's assets were frozen, he got no benefit from the
converted money. Accordingly, it is unfair to require him to pay interest on it.
However, despite whatever intuitive appeal these arguments may have, the court
cannot entertain them.
New York law provides that prejudgment interest "shall be recovered" on claims for
conversion, NY CPLR § 5001 (a), and that prejudgment interest "shall be at the rate of nine
per centum per annum," l'I'Y CPLR §5004. The decisions of the Second Circuit, the
decisions of the New York state courts, and the statutory laws of Kew York all make clear
that, in a case such as this one, the court has no discretion whatever to apply any interest
rate other than 9% even if an argument may be made that this award would amount to an
unfair vvindfall for the plaintiff. See, e.g, Gussack Realty Co. v.Xerox Corp., 224 F.3d 85,
93 (2d Cir. 2000); Mallis v. Bankers Trust Co., 717 F.2d 683,694-95 (2d Cir. 1983);
United Bank Ltd. v. Cosmic Int'l, Inc., 542 F.2d 868, 878 (2d Cir. 1976); Davenport v.
Martin, 4 A.D.3d 873, 874, 771 N.Y.S.2d 460 (2004); Dean v. Iohn B. Pike & Son, Inc.,
145 A.D.2d 942, 943,536 N.Y.S.2d 314, 315 (1988).
Accordingly, Tyco is entitled to $19,910,070 in interest on its conversion claim .
Dated: New York, New York
~&'-~--~-United States DistrictJudge
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