Elsevier Inc. v. Grossman et al
OPINION AND ORDER re: #297 MOTION for New Trial against Pierre Grossmann on the Issue of "Domestic Injury" Pursuant to Fed. R. Civ. P. 59(a). MOTION to Amend/Correct Complaint pursuant to Fed. R. Civ. P. 15 filed by Elsevier Ltd., Elsevier B.V., Elsevier Masson SAS, Elsevier Inc. For the reasons stated above, Plaintiffs' motion for a new trial as to Defendant Grossmann on the issue of domestic injury is GRANTED. Plaintiffs' motion for leave to file a Second Amended Complaint as to Defendants PTI and IBIS is also GRANTED. The Clerk of Court is directed to terminate the motion pending at docket entry 297. Plaintiffs must file their Second Amended Complaint on or before May 30, 2017. A trial regarding the issue of domestic injury is set to begin at 9:00 a.m. on January 8, 2018. The Court understands that Plaintiffs may wish to renew or file anew the motions contemplated in their motion papers. (Def. Br. 13 & n.4). The Court reminds Plaintiffs of Rule 4 of its Individual Rules of Practice in Civil Cases, which Rule governs the process Plaintiffs should follow to do so. (As further set forth in this Opinion and Order.) (Signed by Judge Katherine Polk Failla on 5/8/2017) Copies Mailed By Chambers. (mro)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
ELSEVIER INC., ELSEVIER B.V.,
ELSEVIER LTD., and ELSEVIER MASSON :
PIERRE GROSSMANN, IBIS CORP.,
INTERNACIONAIS, and JOHN DOE
DOC #: _________________
May 8, 2017
DATE FILED: ______________
12 Civ. 5121 (KPF)
OPINION AND ORDER
KATHERINE POLK FAILLA, District Judge:
On June 29, 2012, Plaintiffs Elsevier Inc., Elsevier B.V., Elsevier Ltd.,
and Elsevier Masson SAS (collectively, “Plaintiffs” or “Elsevier”) brought this
action against Defendants Publicações Técnicas Internacionais (“PTI”), IBIS
Corp. (“IBIS”), and Pierre Grossmann (“Grossmann” and, together with PTI and
IBIS, “Defendants”), alleging that Defendants had operated a scheme to
(i) obtain subscriptions to the journals sold by Plaintiffs at discounted rates
and (ii) to resell those journal subscriptions to institutions otherwise obligated
to pay full price for them. On May 8, 2015, the Court entered default judgment
against PTI and IBIS. Grossmann proceeded to trial.
On January 14, 2016, a jury determined that Grossmann had violated
the Racketeer Influenced and Corrupt Organizations Act (“RICO” or the “Act”),
18 U.S.C. §§ 1961-68, but that he had not engaged in a conspiracy to violate
the Act. The jury further determined that Grossman had breached one or more
contracts with Plaintiffs and that he had converted Plaintiffs’ property. The
jury awarded Plaintiffs $11,108 in damages for the RICO violation and $6,201
for the contractual breaches, but found that Plaintiffs had not been damaged
by the conversion of their property.
Post-trial, Grossmann filed a motion for judgment as a matter of law on
the RICO claim (the “RICO Motion”). The following day, Plaintiffs filed: (i) a
motion for judgment as a matter of law on the question of RICO damages or, in
the alternative, for a new trial solely on the question of RICO damages (the
“Damages Motion”); (ii) a motion for an award of damages and an entry of final
default judgment against PTI and IBIS (the “Motion for Final Default
Judgment”); and (iii) a motion for attorneys’ fees and costs under 18 U.S.C.
§ 1964(c) (the “Fee Motion”). In an Opinion and Order issued on August 4,
2016 (the “August 4 Opinion”), the Court granted the RICO Motion, but gave
Plaintiffs leave to request a new trial at which they could attempt to establish
RICO liability against Grossmann. The Damages Motion was denied; the
Motion for Final Default Judgment granted in part and denied in part; and the
Fee Motion denied without prejudice.
On February 15, 2017, Plaintiffs filed a motion (i) for a new trial against
Grossmann pursuant to Federal Rule of Civil Procedure 59 on the issue of
domestic injury with respect to Plaintiffs’ RICO claims and (ii) for leave to
amend Plaintiffs’ Amended Complaint pursuant to Federal Rule of Civil
Procedure 15 to set forth supplemental, domestic-injury allegations. For the
reasons outlined below, this motion is granted.
Factual and Procedural Background Prior to August 4, 2016
The bulk of the background relevant to this case has not changed in the
months since the Court outlined it in the August 4 Opinion. Therefore, to
avoid redundancy, the Court here incorporates by reference the factual and
procedural background statements set forth in that Opinion. See Elsevier, Inc.
v. Grossman, 199 F. Supp. 3d 768, 774-78 (S.D.N.Y. 2016), order clarified sub
nom. Elsevier Inc. v. Grossmann, No. 12 Civ. 5121 (KPF), 2016 WL 7077037
(S.D.N.Y. Dec. 2, 2016).
Subsequent Procedural Background
In its August 4 Opinion, the Court granted Grossmann’s RICO Motion,
and denied Plaintiffs’ Damages Motion. (Dkt. #222). However, the Court gave
Plaintiffs leave (i) to request a new trial at which they could establish RICO
liability against Grossmann and (ii) to move for leave to amend the Amended
On February 15, 2017, Plaintiffs filed a motion (i) for a new trial against
Grossmann pursuant to Federal Rule of Civil Procedure 59 on the issue of
For convenience, the Court will refer to Plaintiffs’ brief in support of their motion for a
new trial and for leave to amend the Amended Complaint as “Pl. Br.” (Dkt. #300);
Grossmann’s emails opposing Plaintiffs’ motion as “Def. February Opp.” (Dkt. #302) and
“Def. March Opp.” (Dkt. #318); and Plaintiffs’ letter reply as “Pl. Reply” (Dkt. #322). The
Court will refer to the Declaration of Maribel Burgos filed in support of Plaintiffs’ motion
as “Burgos Decl.,” and the exhibits attached thereto by their letter designation as
“Burgos Decl., Ex. [X]” (Dkt. #298).
domestic injury with respect to Plaintiffs’ RICO claims and (ii) for leave to
amend Plaintiffs’ Amended Complaint pursuant to Federal Rule of Civil
Procedure 15 to set forth domestic-injury allegations to supplement their RICO
and RICO conspiracy claims against PTI and IBIS. (Dkt. #297-300).
Grossmann opposed Plaintiffs’ motion in two emails, the first of which he sent
to the Court on February 20, 2017 (Dkt. #302), and the second of which he
sent to Plaintiffs on March 8, 2017 (Dkt. #318). Plaintiffs filed a letter reply on
March 20, 2017. (Dkt. #322).
Plaintiffs’ Motion for a New Trial with Regard to Domestic Injury
For clarity, the Court here will revisit the legal standards it applied in the
August 4 Opinion and describe any subsequent changes thereto.
Federal Rule of Civil Procedure 59
Federal Rule of Civil Procedure 59 gives a court discretion to “grant a
new trial on all or some of the issues” in a case after a jury trial has been held
“for any reason for which a new trial has heretofore been granted in an action
at law in federal court.” Fed. R. Civ. P. 59(a)(1)(A). The Second Circuit has
acknowledged that an “intervening change in controlling law” can be an
appropriate basis for granting a new trial under Rule 59. LiButti v. United
States, 178 F.3d 114, 119 (2d Cir. 1999); see also Sass v. MTA Bus Co., 6 F.
Supp. 3d 229, 238 (E.D.N.Y.) (granting a new trial based on a change in the
governing law), adhered to on reconsideration, 6 F. Supp. 3d 238 (E.D.N.Y.
2014). But see LiButti, 178 F.3d at 119 (“Usually, an intervening change in
controlling law is a basis for an amendment of the judgment, rather than a new
trial.”). The Second Circuit has also recognized that courts have discretion to
grant a new trial where doing so is necessary to prevent a miscarriage of
justice. See Hygh v. Jacobs, 961 F.2d 359, 365 (2d Cir. 1992) (noting that trial
court has discretion to grant Rule 59 motions to avoid verdict constituting “a
miscarriage of justice” (internal quotation mark omitted) (quoting Smith v.
Lightning Bolt Prods., Inc., 861 F.2d 363, 370 (2d Cir. 1988)); Fioto v.
Manhattan Woods Golf Enters., LLC., 304 F. Supp. 2d 541, 545 (S.D.N.Y. 2004)
(same), aff’d sub nom. Fioto v. Manhattan Woods Enters. LLC, 123 F. App’x 26
(2d Cir. 2005) (summary order).
The Racketeer Influenced and Corrupt Organizations Act
Congress enacted RICO to combat “racketeering activity.” RJR Nabisco,
Inc. v. European Cmty., __ U.S. __, 136 S. Ct. 2090, 2096-97 (2016). A “pattern
of racketeering activity” occurs when an individual commits two or more
predicate offenses within a ten-year period, see 18 U.S.C. § 1961(5); those
predicate offenses are related to one another, see H.J. Inc. v. Nw. Bell Tel. Co.,
492 U.S. 229, 239 (1989); and the predicates “amount to or pose a threat of
continued criminal activity,” id.
The heart of RICO is 18 U.S.C. § 1962, which creates four substantive
prohibitions against “racketeering activity.” This case concerns the third and
fourth prohibitions. The third prohibition reads:
It shall be unlawful for any person employed by or
associated with any enterprise engaged in, or the
activities of which affect, interstate or foreign
commerce, to conduct or participate, directly or
indirectly, in the conduct of such enterprise’s affairs
through a pattern of racketeering activity or collection
of unlawful debt.
Id. § 1962(c). The fourth prohibition makes it unlawful for anyone to conspire
to violate any part of § 1962. Id. § 1962(d).
While RICO establishes criminal penalties for violations of § 1962, see 18
U.S.C. § 1963, it also creates a private right of action for individuals who are
harmed by racketeering activity, see id. § 1964. Section 1964 provides, in
relevant part, that “[a]ny person injured in his business or property by reason
of a violation of section 1962 of this chapter may sue therefor in any
appropriate United States district court and shall recover threefold the
damages he sustains and the cost of the suit, including a reasonable attorney’s
fee[.]” Id. § 1964(c).
In RJR Nabisco, Inc. v. European Community, __ U.S. __, (2016), the
Supreme Court considered RICO’s extraterritoriality. Affirming the strength of
the judiciary’s presumption against extraterritoriality, the Court outlined the
two-step process according to which a court must analyze that presumption’s
applicability to a given statute. RJR Nabisco, 136 S. Ct. at 2100-01. At the
first step, a court asks “whether the presumption against extraterritoriality has
been rebutted — that is, whether the statute gives a clear, affirmative
indication that it applies extraterritorially.” Id. at 2101. The court “must ask
this question regardless of whether the statute in question regulates conduct,
affords relief, or merely confers jurisdiction.” Id. If the statute applies
extraterritorially, then the court’s inquiry is at its end. See id.
However, if there is nothing in the statute to rebut the presumption
against extraterritoriality, the court must proceed to the second step of the
analysis, which requires the court to consider whether the case involves a
domestic or extraterritorial application of the relevant law. RJR Nabisco, 136 S.
Ct. at 2101. A court “do[es] this by looking to the statute’s ‘focus’”:
If the conduct relevant to the statute’s focus occurred
in the United States, then the case involves a
permissible domestic application even if other conduct
occurred abroad; but if the conduct relevant to the focus
occurred in a foreign country, then the case involves an
impermissible extraterritorial application regardless of
any other conduct that occurred in U.S. territory.
Id.; accord Matter of Warrant to Search a Certain E-Mail Account Controlled &
Maintained by Microsoft Corp., 829 F.3d 197, 216-17 (2d Cir. 2016).
In RJR Nabisco, the Supreme Court applied this two-step framework to
determine the extent to which the “substantive prohibitions in § 1962 may
apply to foreign conduct.” 136 S. Ct. at 2101. At step one, the Court found
that § 1962 “gives a clear, affirmative indication that [it] applies to foreign
racketeering activity — but only to the extent that the predicates alleged in a
particular case themselves apply extraterritorially.” Id. at 2102. Thus, for any
crime to constitute a proper predicate act under RICO, the crime must involve:
(i) a violation of a statute that applies extraterritorially or (ii) domestic conduct
that is relevant to the “focus” of a domestic criminal statute. See id. at 210102.
After considering the extraterritorial reach of § 1962, the Supreme Court
went on to decide whether § 1964 — which creates a private right of action for
“[a]ny person injured in his business or property by reason of a violation of
section 1962” — also applies extraterritorially. RJR Nabisco, 136 S. Ct. at 2106
(quoting 18 U.S.C. § 1964). The Court explained that it “separately appl[ied]
the presumption against extraterritoriality to RICO’s cause of action despite
[its] conclusion that the presumption ha[d] been overcome with respect to
RICO’s substantive prohibitions.” Id. And “[n]othing in § 1964(c) provides a
clear indication that Congress intended to create a private right of action for
injuries suffered outside of the United States.” Id. at 2108. Thus, the Court
concluded, “[s]ection 1964(c) requires a civil RICO plaintiff to allege and prove a
domestic injury to business or property and does not allow recovery for foreign
injuries.” Id. at 2111. The Court acknowledged that “[t]he application of this
rule in any given case will not always be self-evident,” but declined to articulate
a definition of a “domestic injury to business or property,” leaving that question
for another case. Id.
Courts to consider this question left open by RJR Nabisco have diverged
in their analysis thereof. 2 See City of Almaty, Kazakhstan v. Ablyazov, No. 15
These courts have all been district courts; the definition of a “domestic injury” for
purposes of RICO is “an issue that has not yet been squarely addressed by any Court of
Civ. 5345 (AJN), 2017 WL 1424326, at *2 (S.D.N.Y. Apr. 20, 2017) (“[C]ourts
both within this District and around the country have adopted varying
approaches to assessing the novel domestic-injury question that could at least
potentially yield differing determinations.”). Indeed, “two separate, and
apparently conflicting, lines of reasoning have emerged from these opinions.
The first line ... focuses on where the alleged injury was suffered. The second
line ... focuses on where the conduct occurred that caused the injury.” Cevdet
Aksüt Oğullari Koll. Sti v. Cavusoglu, Civ. No. 2:14-3362, 2017 WL 1157862, at
*4 (D.N.J. Mar. 28, 2017) (collecting cases). 3
This Court has taken the former approach. In its August 4 Opinion, the
Court concluded that
in the RICO context, courts should employ a more
flexible inquiry to determine where an injury occurs.
First, the court should determine what type of injury a
RICO plaintiff has suffered. If the plaintiff has suffered
an injury to his or her business, the court should ask
where substantial negative business consequences
occurred. By contrast, if the plaintiff has suffered an
injury to his or her property, the court should ask where
the plaintiff parted with the property or where the
property was damaged.
Appeals.” City of Almaty, Kazakhstan v. Ablyazov, No. 15 Civ. 5345 (AJN), 2017 WL
1424326, at *2 (S.D.N.Y. Apr. 20, 2017).
“Another district court has arguably developed a third approach, which borrows from a
test used to determine whether the federal antitrust statutes may reach anticompetitive
behavior occurring outside of the U.S. and asks whether the RICO defendant’s ‘conduct
is intended to or has produced substantial effects in the United States.’” City of Almaty,
Kazakhstan v. Ablyazov, No. 15 Civ. 5345 (AJN), 2016 WL 7756629, at *8 n.9 (S.D.N.Y.
Dec. 23, 2016) (quoting Union Comm. Servs. Ltd. v. FCA Int’l Ops. LLC, No. 16 Civ.
10925 (JEL), 2016 WL 6650399, at *4-5 (E.D. Mich. Nov. 10, 2016)), motion to certify
appeal denied, No. 15 Civ. 5345 (AJN), 2017 WL 1424326 (S.D.N.Y. Apr. 20, 2017).
This Court considered such an approach in its August 4 Opinion and expressly rejected
it. See Elsevier, Inc. v. Grossman, 199 F. Supp. 3d 768, 785-86 (S.D.N.Y. 2016), order
clarified sub nom. Elsevier Inc. v. Grossmann, No. 12 Civ. 5121 (KPF), 2016 WL 7077037
(S.D.N.Y. Dec. 2, 2016).
Elsevier, 199 F. Supp. 3d at 786. Clearly, the Court’s focus was on where an
alleged injury was suffered by a RICO plaintiff, rather than where the alleged
predicate acts were committed by a RICO defendant. See id.
The majority of other courts to consider the question have followed suit.
See Cevdet Aksüt Oğullari Koll. Sti, 2017 WL 1157862, at *4-5 (collecting cases)
(“[M]ost of the courts appear to have focused on where plaintiffs’ injuries were
felt.”). Other courts within this Circuit, for example, have adopted a version of
the injury-focused approach derived by analogy to New York State’s choice-oflaw statute, N.Y. C.P.L.R. § 202. See Bascuñan v. Daniel Yarur ELS Amended
ComplaintA, No. 15 Civ. 2009 (GBD), 2016 WL 5475998, at *4-6 (S.D.N.Y.
Sept. 28, 2016); see also City of Almaty, Kazakhstan v. Ablyazov, No. 15 Civ.
5345 (AJN), 2016 WL 7756629, at *7-9 (S.D.N.Y. Dec. 23, 2016) (adopting
Bascuñan’s holding that “[t]he appropriate subject of the inquiry required by
RJR Nabisco is not the location of the ... purportedly injurious conduct but the
location where the injury itself arose,” though also expressing “hesitation to
broadly endorse an absolutist version of the rule that would, for example,
categorically preclude foreign corporations with business operations or
property interests maintained in the U.S. from bringing RICO actions to recover
for injuries to those assets”). Under this approach, a court looks to “where the
economic impact of [an] injury was ultimately felt,” which is typically the state
of a plaintiff’s residence or, in the case of a foreign corporation, either where it
maintains a principal place of business or its place of incorporation.
Bascuñan, 2016 WL 5475998, at *4 (quoting Deutsche ZentralGenossenchaftsbank AG v. HSBC N. Am. Holdings, Inc., No. 12 Civ. 4025 (AT),
2013 WL 6667601, at *6 (S.D.N.Y. Dec. 17, 2013)). Courts “ask two commonsense questions: ‘[i] who became poorer, and [ii] where did they become
poorer.’” Id. (quoting Deutsche Zentral-Genossenchaftsbank AG, 2013 WL
6667601, at *6).
This approach is similar to that adopted by most courts outside this
Circuit. See, e.g., Cevdet Aksüt Oğullari Koll. Sti, 2017 WL 1157862, at *5 (“The
Court, therefore, concludes that the only relevant inquiry is where Plaintiff’s
injury occurred — i.e. where the impact of Plaintiff’s injury was felt — and not
where the predicate acts occurred.”); Absolute Activist Value Master Fund Ltd. v.
Devine, No. 15-cv-328, 2017 WL 519066, at *19-20 (M.D. Fla. Feb. 8, 2017)
(“Defendant is correct to the extent she argues that the focus of the matter is
the geographic location of the injury to plaintiffs, not the location of a
defendant’s wrongful acts”); Exeed Indus., LLC v. Younis, No. 15 C 14, 2016 WL
6599949, at *3 (N.D. Ill. Nov. 8, 2016) (finding foreign plaintiffs did not suffer a
domestic injury because “the injury alleged was not initially suffered by
Plaintiffs in the United States, nor have Plaintiffs maintained a United States
presence”). A minority of courts elsewhere, however, have looked to the place
where the RICO-predicate acts that caused the alleged injury occurred. See,
e.g., Akishev v. Kapustin, No. CV 13-7152 (NLH) (AMD), 2016 WL 7165714, at
*8 (D.N.J. Dec. 8, 2016) (finding domestic injury because defendants chose “to
operate their fraudulent scheme from New Jersey and Pennsylvania,” such that
“the locus delecti of the crimes committed is the United States”); Tatung Co.,
Ltd. v. Shu Tze Hsu, No. SA CV 13-1743 (DOC) (ANX), 2016 WL 6683201, at *78 (C.D. Cal. Nov. 14, 2016) (declining to follow Bascuñan because conduct of
defendants so clearly targeted California that “[i]t would be absurd to find that
such activity did not result in a domestic injury to Plaintiff”).
The August 4 Opinion’s Domestic-Injury Directive
In the August 4 Opinion, the Court applied its domestic-injury analysis
to Plaintiffs’ evidence at trial and found that neither of Plaintiffs’ alleged
injuries — the alleged competitive injury to Plaintiffs’ business and alleged
parting with property under false pretenses — was a “domestic injury” for
purposes of RICO. Elsevier, 199 F. Supp. 3d at 787-90. The Court considered
the strictures of Federal Rules of Civil Procedure 59 and 15, however, and
concluded that “it would be permissible to order a new trial on the issue of
domestic injury at this juncture.” Id. at 792. Because the Court did “not
believe it would be advisable to hold a second trial unless Plaintiffs [were]
capable of introducing more information on the issue of domestic injury”
though, it directed Plaintiffs to “renew their Rule 59 motion,” but only if that
motion were “accompanied by a proffer of the evidence that would be offered at
a trial on the issue of domestic injury.” Id. With regard to Plaintiffs’ assertion
that they had parted with property under false pretenses, the Court suggested
that Plaintiffs’ proffer should indicate that Plaintiffs’ journals left their control
in the United States because they were shipped from the United States and/or
authorized for shipment by Plaintiffs’ employees in the United States. Id. at
Plaintiffs’ Proffer and Grossmann’s Objections
Plaintiffs renewed their motion for a new trial on February 15, 2017.
(Dkt. #297-300). An accompanying declaration thereto “set forth the evidence
that Elsevier intends to use to prove that it suffered domestic injury by parting
with property under false pretenses.” (Pl. Br. 7). This evidence “show[s] that
31 of the 51 subscriptions” at issue in this litigation “were shipped from the
United States.” (Id. (citing Burgos Decl. ¶¶ 7-22, Ex. B-E, K)). Of the
remaining subscriptions, Plaintiffs proffer that “the customer service
representatives who processed 17 of these orders and authorized the shipment
of those journals” were located “in either Orlando, Florida or Saint Louis,
Missouri, at the time [they] authorized the shipments.” (Id. (citing Burgos Decl.
¶¶ 23-42, Ex. F-K)).
Grossmann objects to Plaintiffs’ motion and proffer on a variety of bases,
many of which are outside the scope of this Opinion. The bulk of Grossmann’s
objections in the first of his email oppositions, for example, consist of
challenges to the credibility of Plaintiffs’ witnesses at trial. (Def. February
Opp.). Grossmann also alleges that Plaintiffs engaged in “exclusionary
practice[s]” and “extortion of Brazilian content providers competitors
companies,” and that all of Plaintiffs’ allegations are false. (Id.).
Grossmann offers more specifics in his second opposition. Therein,
Grossmann alleges that the “Maribel Burgos declaration is a lie” that was
“invented” by Plaintiffs’ counsel and a trial witness. (Def. March Opp.).
Grossmann argues that there could never be “a RICO domestic injury” in this
case, because there were no shipments or authorizations thereof with regard to
physical journals. (Id.). Since 2000, Grossmann claims, research institutions,
libraries, and universities in Brazil have acquired only access to online
journals, i.e., “content they never physically acquire.” (Id.).
Plaintiffs’ Motion for a New Trial with Regard to
Domestic Injury Is Granted
As indicated in its August 4 Opinion, the Court believes that it “would be
permissible to order a new trial on the issue of domestic injury at this
juncture.” Elsevier, 199 F. Supp. 3d at 792. The Court held that “[u]nder
these circumstances, justice demands that Plaintiffs be given some opportunity
to introduce evidence regarding the location of their injury.” Id. Now, Plaintiffs
have indicated that at a new trial in this case, they would introduce evidence
that all but three of the 51 journals at issue in this case were shipped from
and/or authorized to be shipped from within the United States. (Def. Br. 7).
The Court finds this proffer satisfactory, and grants Plaintiff’s motion for a new
trial on the issue of domestic injury. 4
In reaching this conclusion, the Court has considered and rejected
Grossmann’s arguments regarding the falsity of Plaintiffs’ evidence. Plaintiffs’
The Court notes for the benefit of the parties that the standard for domestic injury in
this Circuit is still in flux. The Court of Appeals heard argument regarding Judge
Daniels’s decision in Bascuñan v. Daniel Yarur ELS Amended ComplaintA, No. 15 Civ.
2009 (GBD), 2016 WL 5475998 (S.D.N.Y. Sept. 28, 2016), on April 28, 2017. In any
new trial, the parties will be expected to heed any guidance offered by the Circuit in its
resolution of the Bascuñan appeal.
proffered evidence, as well as the evidence already introduced at the first trial
in this case, establishes that the subscriptions at issue in this case involved
print journals, which Plaintiffs now indicate were shipped and/or authorized
for shipment from within the United States. Grossmann argues without basis
that the signed and sworn Burgos Declaration is fraudulent, offering only his
own unsigned and unsworn contentions to prove its invalidity. (See Def. March
Opp.). This is insufficient. Grossmann is welcome to challenge the validity of
Plaintiffs’ evidence at the new trial in this case; such credibility determinations
are properly the province of a jury.
Plaintiffs’ Motion to Amend Is Granted
Federal Rules of Civil Procedure 55(c) and 60(b)
Different rules govern a court’s consideration of entries of default and
default judgments. Federal Rule of Civil Procedure 55 dictates that a “court
may set aside an entry of default for good cause, and it may set aside a final
default judgment under Rule 60(b).” Fed. R. Civ. P. 55(c). Rule 60(b) permits a
court to “relieve a party or its legal representative from a final judgment” for
certain enumerated reasons, including because “the judgment is void; ... or
applying it prospectively is no longer equitable,” or for “any other reason that
justifies relief.” Fed. R. Civ. P. 60(b).
“In considering whether to relieve a party of a default, a district court
must consider three factors: [i] whether the default was willful; [ii] whether
setting the default aside would prejudice the adversary; and [iii] whether a
meritorious defense is presented.” Swarna v. Al-Awadi, 622 F.3d 123, 142 (2d
Cir. 2010); accord Bricklayers & Allied Craftworkers Local 2, Albany, N.Y.
Pension Fund v. Moulton Masonry & Constr., LLC, 779 F.3d 182, 186 (2d Cir.
2015). A court may also consider “[o]ther relevant equitable factors ... , for
instance, whether the failure to follow a rule of procedure was a mistake made
in good faith and whether the entry of default would bring about a harsh or
unfair result.” Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 96 (2d Cir. 1993).
“Although the factors examined in deciding whether to set aside a default or a
default judgment are the same, courts apply the factors more rigorously in the
case of a default judgment, because the concepts of finality and litigation
repose are more deeply implicated in the latter action.” Id. (citation omitted).
Federal Rules of Civil Procedure 15 and 16
Federal Rule of Civil Procedure 15(a) governs pretrial amendments of the
pleadings. Rule 15(a)(2) permits a party to “amend its pleading only with the
opposing party’s written consent or the court’s leave.” Fed. R. Civ. P. 15(a)(2).
Courts are to “freely give leave when justice so requires.” Id.; see also, e.g.,
McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 200 (2d Cir. 2007);
Otegbade v. N.Y.C. Admin. for Children Servs., No. 12 Civ. 6298 (KPF), 2015 WL
851631, at *2 (S.D.N.Y. Feb. 27, 2015). “This permissive standard is
consistent with [the Second Circuit’s] ‘strong preference for resolving disputes
on the merits.’” Williams v. Citigroup Inc., 659 F.3d 208, 212-13 (2d Cir. 2011)
(per curiam) (quoting New York v. Green, 420 F.3d 99, 104 (2d Cir. 2005)).
However, where amendment is sought after a court “has already filed a
scheduling order that limits the parties’ ability to amend the pleadings, ‘the
lenient standard under Rule 15(a), which provides leave to amend shall be
freely given, must be balanced against the requirement in Rule 16(b) that the
Court’s scheduling order shall not be modified except upon a showing of good
cause.’” Gorman v. Covidien Sales, LLC, No. 13 Civ. 6486 (KPF), 2014 WL
7404071, at *2 (S.D.N.Y. Dec. 31, 2014) (quoting Grochowski v. Phx. Constr.,
318 F.3d 80, 86 (2d Cir. 2003)); see also Fed. R. Civ. P. 16(b)(4). “Whether
good cause exists requires the court to inquire into the ‘diligence of the moving
party.’” Gorman, 2014 WL 7404071, at *2 (quoting Holmes v. Grubman, 568
F.3d 329, 335 (2d Cir. 2009)). A court “also may consider other relevant
factors, including, in particular, whether allowing the amendment of the
pleading at this stage of the litigation will prejudice defendants.” Kassner v.
2nd Ave. Delicatessen Inc., 496 F.3d 229, 244 (2d Cir. 2007); see also Block v.
First Blood Assocs., 988 F.2d 344, 350 (2d Cir. 1993) (“The rule in this Circuit
has been to allow a party to amend its pleadings in the absence of a showing
by the nonmovant of prejudice or bad faith.”).
Under Rule 15 or 16, leave to amend may be denied if the amendment
would be futile. See, e.g., Knife Rights, Inc. v. Vance, 802 F.3d 377, 389 (2d
Cir. 2015). Amendment is futile if the “amended portion of the complaint
would fail to state a cause of action.” Parker v. Columbia Pictures Indus., 204
F.3d 326, 339 (2d Cir. 2000); see also Kassner, 496 F.3d at 244 (holding that
amended complaint must be “sufficient to withstand a motion to dismiss under
[Federal Rule of Civil Procedure] 12(b)(6)”). Leave to amend may also be denied
“when a party has been given ample prior opportunity to allege a claim,” De
Jesus v. Sears, Roebuck & Co., Inc., 87 F.3d 65, 72 (2d Cir. 1996), or “where
the motion is made after an inordinate delay, no satisfactory explanation is
offered for the delay, and the amendment would prejudice the defendant,” Cerni
v. J.P. Morgan Sec. LLC, 208 F. Supp. 3d 533, 543-44 (S.D.N.Y. 2016) (internal
quotation mark omitted) (quoting Kenney v. Clay, 172 F. Supp. 3d 628, 643
The Default Judgment Against PTI and IBIS as to
Liability on Plaintiffs’ RICO and RICO Conspiracy Claims
Is Set Aside
As explained in the August 4 Opinion and as relevant here, IBIS and PTI
defaulted for a second time in this action in early 2015. (See Dkt. #55, 65-66).
On April 7, 2015, this Court issued a second Order to Show Cause why default
judgment should not be entered against the two corporate Defendants. (Dkt.
#70). And following a hearing on May 8, 2015, the Court “ordered, adjudged[,]
and decreed that Plaintiffs have judgment against [D]efendants IBIS and PTI as
to liability on those claims in Plaintiffs’ Amended Complaint remaining after the
Court’s January 5, 2015 Opinion and Order.” (Dkt. #80 (capitalization
omitted)). The Court deferred an inquest on damages, however, “until a
disposition of the claims against defendant Pierre Grossman[n].” (Id.).
After Grossmann’s trial, Plaintiffs moved for the entry of damages,
prejudgment interest, and a final default judgment against PTI and IBIS. (Dkt.
#187-88). Typically, such a motion is not necessary because a default
judgment is a final judgment that can be appealed. Swarna, 622 F.3d at 140.
But where a court’s entry of default judgment is “conditional” on the resolution
“of the proper amount of damages” at a damages inquest, it “should more
appropriately be understood as an entry of default.” Id. The Second Circuit
therefore has directed that “the entry of a default judgment conditional on an
inquest on damages is an interlocutory act and therefore not ordinarily
In the August 4 Opinion, the Court found that Plaintiffs could not obtain
final default judgment on the RICO claim or the RICO conspiracy claim brought
against PTI and IBIS because the Amended Complaint did not plead a domestic
injury to business or property, such that the Amended Complaint did not state
a RICO claim. Elsevier, 199 F. Supp. 3d at 794-95. Because “Plaintiffs [had]
not yet been to trial against PTI and IBIS” though, the Court declined to
“dismiss the RICO and RICO conspiracy claims against PTI and IBIS outright.”
Id. at 795. Instead, the Court permitted Plaintiffs to file “for leave to amend
their pleadings (against PTI and IBIS) to allege domestic injury to business or
property.” Id. Plaintiffs did so on February 15, 2017. (Dkt. #297-300).
Plaintiffs did not move to set aside the existing default judgment.
However, Federal Rule of Civil Procedure 55 dictates that a “court may set
aside an entry of default for good cause, and it may set aside a default
judgment under Rule 60(b).” Fed. R. Civ. P. 55(c). Because “Rule 55(c) ... does
not refer to a motion,” it has been interpreted to permit courts to “set aside an
entry of default sua sponte, for good cause.” Negrin v. Kalina, No. 09 Civ. 6234
(BSJ) (KNF), 2012 WL 4074992, at *2 (S.D.N.Y. Sept. 11, 2012). Rule 60(b), by
contrast, permits a Court to vacate a default judgment only “[o]n motion and
just terms.” Fed. R. Civ. P. 60(b).
Accordingly, the Court considers sua sponte whether its conditional
default judgment, properly considered an entry of default, against Defendants
PTI and IBIS should be set aside for good cause. See Fed. R. Civ. P. 55(c). The
Court finds that it should be. There is no dispute that PTI and IBIS willfully
defaulted. However, events subsequent to their default lead this Court to
believe that the conditional default judgment against these Defendants cannot
stand. In the August 4 Opinion, for example, the Court determined that “the
Amended Complaint does not state a RICO claim.” Elsevier, 199 F. Supp. 3d at
795. The Court believes therefore that PTI and IBIS have a meritorious defense
in this action as currently pleaded: They cannot be held liable on Plaintiffs’
RICO and RICO conspiracy claims because Plaintiffs have failed to plead their
claims adequately. Indeed, as the Court recognized in the August 4 Opinion,
the Court “cannot enter final judgment based on a defective pleading.” Id.
(citing Cement & Concrete Workers Dist. Council Welfare Fund, Pension Fund,
Annuity Fund, Educ. & Training Fund & Other Funds v. Metro Found.
Contractors Inc., 699 F.3d 230, 234 (2d Cir. 2012) (explaining that “a party’s
default is deemed to constitute a concession of all well pleaded allegations of
liability”)). Maintaining the entry of default in these circumstances would
surely “bring about a harsh or unfair result.” Enron Oil Corp., 10 F.3d at 96.
Alternatively, vacating the default judgment against PTI and IBIS will not
prejudice either side. It is in the interests of Plaintiffs, which entities seek to
amend their pleadings against these parties, and it does not prejudice PTI and
IBIS, which entities have chosen not to participate in these pleadings for over
two years. The Court’s conditional default judgment against Defendants PTI
and IBIS with regard to their RICO and RICO conspiracy claims is therefore set
Plaintiffs Are Granted Leave to File a Second Amended
Complaint as to PTI and IBIS
Good cause also supports Plaintiffs’ motion to amend. Courts in this
Circuit have found good cause to support amendment when plaintiffs have
diligently sought leave upon a change in controlling law. See, e.g., Syntel
Sterling Best Shores Mauritius Ltd. v. Trizetto Grp., Inc., No. 15 Civ. 211 (LGS)
(RLE), 2016 WL 5338550, at *3 (S.D.N.Y. Sept. 23, 2016) (citing McGuire v.
Warren, 207 F. App’x 34, 36-37 (2d Cir. 2006) (summary order) (permitting
plaintiff to amend complaint to meet change in applicable law since complaint
was filed)); Woodworth v. Erie Ins. Co., No. 05 Civ. 6344 (CJS), 2009 WL
1652258, at *3 (W.D.N.Y. June 12, 2009), report and recommendation adopted
as modified, No. 05 Civ. 6344 (CJS), 2009 WL 3671930 (W.D.N.Y. Oct. 29,
2009) (“The ‘good cause’ standard may be satisfied by a showing that the
substantive law changed, or that the moving party discovered new evidence,
following the scheduling deadline.”). But see Grochowski, 318 F.3d at 86
(finding the standard was not met where party delayed inexecusably for over
one year following a change in the law).
Here, Plaintiffs have diligently sought leave to amend upon a change in
RICO law. RICO law regarding domestic injury changed on June 20, 2016,
long after the Rule 16 scheduling order’s May 9, 2015 deadline for motions to
amend the pleadings. And Plaintiffs promptly sought leave to amend their
pleadings following the Court’s issuance of the August 4 Opinion. Plaintiffs’
diligence in addressing the intervening change in RICO law counsels in favor of
Consideration of other relevant factors favors the same result. First,
permitting an amendment at this stage in the litigation will not prejudice PTI or
IBIS, because neither PTI nor IBIS has participated in this case since 2014. As
is particularly relevant here, these entities have not opposed Plaintiffs’ motion
for leave to amend. Amendment therefore is unlikely to cause Defendants to
expend resources in discovery or trial preparation or to delay significantly the
resolution of this case. See Ruotolo v. City of N.Y., 514 F.3d 184, 192 (2d Cir.
2008). Second, Plaintiffs’ amendment will not be futile. The “amended portion
of the complaint” will not “fail to state a cause of action,” but rather will correct
those portions of the Amended Complaint that currently fail to state a cause of
action. Parker, 204 F.3d at 339. Third, Plaintiffs have not been given “ample
prior opportunity to allege” their domestic injury. De Jesus, 87 F.3d at 72.
This is Plaintiffs’ first opportunity to do so. For these reasons, Plaintiffs’
motion for leave to amend their pleading with regard to their RICO and RICO
conspiracy claims against Defendants PTI and IBIS is granted.
For the reasons stated above, Plaintiffs’ motion for a new trial as to
Defendant Grossmann on the issue of domestic injury is GRANTED. Plaintiffs’
motion for leave to file a Second Amended Complaint as to Defendants PTI and
IBIS is also GRANTED. The Clerk of Court is directed to terminate the motion
pending at docket entry 297.
Plaintiffs must file their Second Amended Complaint on or before May
30, 2017. A trial regarding the issue of domestic injury is set to begin at 9:00
a.m. on January 8, 2018. The Court understands that Plaintiffs may wish to
renew or file anew the motions contemplated in their motion papers. (Def.
Br. 13 & n.4). The Court reminds Plaintiffs of Rule 4 of its Individual Rules of
Practice in Civil Cases, which Rule governs the process Plaintiffs should follow
to do so.
May 8, 2017
New York, New York
KATHERINE POLK FAILLA
United States District Judge
A copy of this Order was mailed by Chambers to:
100 Hilton Ave
Garden City, NY 11530
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