Magnesium Corporation of America et al v. The Renco Group, Inc. et al
Filing
423
MEMORANDUM AND ORDER. For the foregoing reasons, the motion by Defendants The Renco Group, Ira Rennert, and the Trustees of the Rennert Trust for judgment as a matter of law is GRANTED with respect to Plaintiff's claims for unjust enrichment and punitive damages, and DENIED in all other respects. The same Defendants' motion for a new trial is DENIED. The remaining Defendants' motion for judgment as a matter of law is DENIED as moot. Plaintiff's motion to alter or amend the j udgment to increase the amount of prejudgment interest is DENIED. Because the Trustees of the Rennert Trust were liable only for Plaintiffs unjust enrichment claim, the Clerk is requested to amend the judgment to indicate that Plaintiff shall take no thing from Defendant Trustees of the Rennert Trust. The Clerk is requested to further amend the judgment to remove any punitive damages award. The judgment shall otherwise remain the same in all respects. This resolves Docket Nos. 402, 407, and 408. The Clerk is requested to terminate the case. Denying 402 Motion for Judgment as a Matter of Law; Granting in part and denying in part 407 Motion for Judgment as a Matter of Law; Denying 408 Motion to Alter Judgment. (Signed by Judge Alison J. Nathan on 8/19/2015) (rjm)
USDC SDNY
DOCUMENT
ELECTRON! CALLY FILED
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
DOC#:
DATE
I1i~rn1lliiT920fS
Lee E. Buchwald,
Plaintiff,
13-cv-7948 (AJN)
-vMEMORANDUM &
ORDER
The Renco Group, eta!.,
Defendants.
ALISON J. NATHAN, District Judge:
This matter came before the Court for a jury trial beginning on February 2, 2015. On
February 27,2015, the jury returned a unanimous verdict in Plaintiffs favor on claims of
fraudulent conveyance, aiding and abetting fraudulent conveyance, breach of fiduciary duty,
aiding and abetting breach of fiduciary duty, and unjust enrichment. The jury awarded Plaintiff
compensatory damages of $101,000,000 against Defendant The Renco Group, Inc., and
$16,220,000 against Defendants Ira Rennert and the Trustees of the Renco Trusts, jointly and
severally; the jury also assessed $1,000,000 in punitive damages against The Renco Group, Inc.
On March 16,2015, the Court in its discretion determined that the appropriate rate of
prejudgment interest was six percent per year, see Dkt. No. 342, and on March 23, 2015, the
Clerk entered final judgment, see Dkt. No. 389.
Now before the Court are three post-judgment motions: (1) a motion for judgment as a
matter of law or a new trial under Federal Rules of Civil Procedure 50 and 59 filed by
Defendants The Renco Group, Inc., Ira Rennert, and the Trustees of the Rennert Trusts; (2) a
motion for judgment as a matter of law filed by Defendants Legge, Ogaard, Thayer, Kaplan,
Brown, Ryan, Sadlowski, and the estate of Defendant D 'Atri, in the event that a new trial is
1
granted; and (3) a motion by Plaintiff to amend the judgment in order to award a higher rate of
prejudgment interest.
For the following reasons, the motion by The Renco Group, Ira Rennert, and the Trustees
ofthe Rennert Trusts for judgment as a matter of law is GRANTED IN PART and DENIED IN
PART. The same Defendants' motion for a new trial is DENIED. The remaining Defendants'
motion for judgment as a matter of law is DENIED AS MOOT. And Plaintiff's motion to amend
the award of prejudgment interest is DENIED.
I.
Background
This matter arises from the 2001 bankruptcies of Magnesium Corporation of America,
Inc. (MagCorp) and Renco Metals, Inc., which were wholly owned subsidiaries of Defendant
The Renco Group, Inc. Plaintiff Lee Buchwald is the trustee in bankruptcy for MagCorp and
Renco Metals (collectively, the "Debtor Corporations" or "Debtors"). In 2003, Plaintiff initiated
an adversary proceeding against, inter alia, The Renco Group, its officers and directors, and the
trustees of trusts established by Defendant Ira Rennert, who is the Chairman and Chief Executive
Officer of The Renco Group. All other Defendants named in the Amended Complaint were
either dismissed by the Bankruptcy Court or settled with Plaintiff.
In 2013, the Court, then in the person of Judge Sweet, granted Plaintiff's unopposed
motion to withdraw the reference from the Bankruptcy Court in order to pursue a jury trial, after
Defendants declined to consent to a jury trial in the Bankruptcy Court. See Dkt. Nos. 1 & 4. The
Court, now the undersigned, resolved Defendants' Daubert motions on August 21, 2014, see
Dkt. No. 36, and resolved the parties' motions in limine (or reserved them for trial) at a
conference held on December 19, 2014. See Dkt. No. 175 (Order summarizing rulings). Trial
began with jury selection on February 2, 2015.
Presentation of evidence began on February 3, 2015 and concluded on February 19,2015.
In addition to party witnesses and ce1tain depositions of non-party witnesses either read into the
record or played for the jury as videos, the jury heard testimony from several experts. These
included, for Plaintiff, Dr. John Veranth, a professor of pharmacology and toxicology at the
2
University of Utah, see Tr. 826; Douglas Allen, an environmental liability consultant, see
Tr. 1512; and Jason Frank, a valuation professional, see Tr. 1755. Expert witnesses for
Defendants included Robert Powell, a civil engineer and hydrogeologist, see Tr. 2024; Stephen
Johnson, an environmental consultant, see Tr. 2076; Robert Edgar, a consultant for marketing in
raw materials, see Tr. 2148; and Roger Grabowski, a valuation expert, see Tr. 2211.
Furthermore, video was shown to the jury of deposition testimony by Plaintiff's expert Robin
Adams, who passed away before trial, see Tr. 1912.
The Court conducted a charging conference that lasted the entire day on February 20,
2015 and most ofthe day on February 23,2015. The jury heard summations on February 24,
2015, and was instructed and began deliberations on February 25,2015. It returned its
unanimous verdict on February 27,2015. As reflected on the final verdict form, see Ct. Ex. 25
(Dkt. No. 327-27), the jury found as follows:
•
In favor of all Defendants on Plaintiff's claim of fraudulent transfers under the
Bankruptcy Code;
•
In favor of Plaintiff against Defendants Ira Rennert and The Renco Group on
Plaintiff's claim of fraudulent conveyance under New York law, with an award of
$101,000,000 in damages against The Renco Group and $16,222,000 against Ira
Rennert; no damages against all other Individual Defendants, and no liability
against the Trustees of the Rennert Trusts;
•
In favor of Plaintiff against Defendant Ira Rennert on Plaintiff's claim of aiding
and abetting fraudulent conveyance, with an award of $16,222,000 in damages;
•
In favor of Plaintiff against Defendants Ira Rennert and The Renco Group on
Plaintiff's claims of breach of fiduciary duty and/or aiding and abetting breach of
fiduciary duty, with damages in the amount of$101,000,000 against The Renco
Group and $16,222,000 against Ira Rennert; no damages against Defendants
Legge, Thayer, Kaplan, Brown, and Fay, and no liability against Defendants
Ogaard, D' Atri, Ryan, and Sadlowski;
3
•
Punitive damages of$1,000,000 against Defendant The Renco Group, see Ct. Ex.
26 (Dkt. No. 327-28);
•
In favor of Defendant Ira Rennert on Plaintiff's claims of unlawful dividends and
unlawful stock redemptions; and
•
In favor of Plaintiff against Ira Rennert and the Trustees of the Renco Trust on
Plaintiff's claim of unjust enrichment, with damages in the amount of
$16,222,000
The Court decided Plaintiff's motion for prejudgment interest on March 16,2015, see
Dkt. No. 342, and judgment was entered on March 23, 2015, see Dkt. No. 389. The instant
motions were timely filed on April 20, 2015.
II.
Standard for Rule 50 and Rule 59 Motions
Federal Rule of Civil Procedure 50 permits a court to enter judgment as a matter of law
"[i]f a party has been fully heard on an issue ... and the court finds that a reasonable jury would
not have a legally sufficient evidentiary basis to find for the party on that issue .... " Fed. R. Civ.
P. 50( a). Such a motion must be raised before the case is submitted to the jury, but a party may
renew after judgment a motion made during trial. Fed. R. Civ. P. 50(b ). A party may not raise
new grounds for judgment as a matter of law after trial under Rule 50(b), but is limited to those
grounds "specifically raised" in the party's pre-verdict motion under Rule 50( a). GaldieriAmbrosini v. Nat'! Realty & Dev. Corp., 136 F.3d 276,286 (2d Cir. 1998).
The standard for obtaining judgment as a matter of law under Rule 50 is a stringent one.
See Velez v. City of New York, 730 F.3d 128, 134 (2d Cir. 2013). Such a motion will be granted
only if, after making all credibility assessments and drawing all reasonable inferences against the
moving party, "a reasonable juror would have been compelled to accept the view of the moving
party." Zellner v. Summerlin, 494 F.3d 344, 370-71 (2d Cir. 2007) (quoting Piesco v. Koch, 12
F.3d 332,343 (2d Cir. 1993)). The Court must assume thatjurors need not wholesale accept any
witness's testimony, but can believe some parts while rejecting others. Haywood v. Koehler, 78
F.3d 101, 105 (2d Cir. 1996). A moving party's "incontrovertible evidence" will be taken by the
4
Court to establish the proposition in question only if "it so utterly discredits the opposing party's
version that no reasonable juror could fail to believe the version advanced by the moving party."
Zellner, 494 F.3d at 371 (citing Scott v. Harris, 550 U.S. 372, 380 (2007)). And the Court will
not subvert any finding of fact implicit in the jury's findings if it has adequate support in the
record. !d. As the Second Circuit has stated, judgment as a matter of law should be granted
against a jury verdict only if the moving party shows "such a complete absence of evidence
supporting the verdict that the jury's findings could only have been the result of sheer surmise
and conjecture." In re Joint E. & S. Dist. Asbestos Litig., 52 F.3d 1124, 1131 (2d Cir. 1995)
(quoting Samuels v. Air Tramp. Local 504, 992 F.2d 12, 14 (2d Cir. 1993)) (quotation marks
omitted).
A party may also, at the same time it makes a post-trial motion under Rule 50(b), raise a
motion for a new trial under Federal Rule of Civil Procedure 59, which a court may grant "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)(l)(A). Ordinarily, a motion for a new trial should be granted only when the
Court "is convinced that the jury has reached a seriously erroneous result or that the verdict is a
miscarriage of justice." R.R. Love, Ltd. v. TVT Music, Inc., 282 F. App'x 91, 93 (2d Cir. 2008)
(summary order) (quoting DeFalco v. Bernas, 244 F.3d 286, 305 (2d Cir. 2001)). Such
circumstances include when the verdict is against the weight of the evidence. DLC Mgmt. Corp.
v. Town of Hyde Park, 163 F.3d 124, 133 (2d Cir. 1998) (citing Byrd v. Blue Ridge Rural Elec.
Co-Op, 356 U.S. 525, 540 (1958)). Unlike when evaluating a Rule 50 motion, a court may
independently weigh the evidence when evaluating a motion for a new trial, and can grant the
motion despite the existence of "substantial evidence" supporting the verdict. DLC Mgmt., 163
F.3d at 134. Even so, Rule 59 is not an invitation to second-guess the jury; the verdict must be
"egregious" to warrant a new trial, and the court should rarely disturb the jury's credibility
determinations. !d. (citing Dunlap-McCuller v. Riese Org., 980 F.2d 153, 158 (2d Cir. 1992)).
III.
Preservation of Arguments
5
At the conclusion of Plaintiff's case, Defendants moved for a directed verdict on the
grounds that:
(1) Utah law, rather than New York law, governed Plaintiff's claims of fraudulent
conveyance against the "Utah Defendants" (that is, all defendants other than The
Renco Group, Ira Rennert, and the Trustees of the Rennert Trusts), see Tr. 1981:81982:18.
(2) Claims based on transfers to The Renco Group prior to July 31, 1997 were timebarred because Utah law governed those claims as well, see Tr. 1982:19-1983:14.
(3) Plaintiff's evidence of fraudulent conveyances against the "Utah defendants" was
legally insufficient because Plaintiff did not demonstrate a lack of reasonably
equivalent value, see Tr. 1983: 15-1984: 13.
(4) Plaintiff presented insufficient evidence of fraudulent conveyances because the
Trustee had not shown Frank's testimony was reliable under Federal Rule of
Evidence 702, and thus Defendants' Daubert motion should have been granted and
his testimony excluded, see Tr. 1984:14-1985:12.
(5) There was insufficient evidence on Plaintiff's common-law claims against
Defendants Sadlowski, Ryan, Brown, Thayer, Kaplan, D' Atri, Legge, and Ogaard,
see Tr. 1985:13-1990:22.
1
(6) There was insufficient evidence to show that Defendant Renneti received a benefit, or
what the value of that benefit was, for Plaintiff's unjust enrichment claim, see Tr.
1990:23-1992:6.
See also Dkt. No. 300 (Defendants' written Rule 50 submission at close of Plaintiff's case,
making same arguments). Defendant now raises Rule 50 arguments that were not raised before
the verdict: that Defendant Rennert is entitled to judgment as a matter of law on Plaintiff's
fraudulent conveyance and breach of fiduciary duty claims, and that Plaintiff did not present
1
Because the jury assessed no damages against these Defendants and the Court has not ordered a new trial
on any of these claims (nor has Plaintiff moved for one), the Court does not recount these arguments in detail.
6
evidence showing insolvency before July 1996. Those arguments are waived, although as
explained below, the Court finds that they would fail even if preserved.
IV.
Evidence of Insolvency
Defendants' first argument for judgment as a matter of law, or in the alternative for a new
trial, is that the testimony of Plaintiffs expert Jason Frank should have been excluded as
unreliable under Federal Rule of Evidence 702 and Daubert v. Merrell Dow Pharmaceuticals,
509 U.S. 579 (1993). Although the Court determined before trial that Frank's testimony should
not be excluded under Daubert, see Dkt. No. 36 (Daubert Order), Defendants now argue that
Frank's trial testimony exposed fatal errors in his methodology that require the Court to revisit
its conclusion and strike Frank's testimony. And without that testimony, Defendants contend,
Plaintiff failed to introduce sufficient evidence to allow a rational jury to find that the Debtors
were insolvent2 when the conveyances at issue were made-a necessary element of Plaintiff's
fraudulent conveyance claim.
The Court finds that Frank's testimony met Daubert's benchmark for reliability and
therefore was appropriate for presentation to the jury. Furthermore, Frank's testimony contained
sufficient evidence of insolvency to support the jury's verdict and damages award in favor of
Plaintiff, and the Court will not disturb the jury's conclusion on the grounds that such a verdict
was against the clear weight of the evidence. The Court therefore denies Defendants' Rule 50
and 59 motions as they relate to the inadequacy of Frank's testimony and Plaintiffs evidence of
insolvency.
A. Background
1. Defendants' Daubert Motion
Both federal and New York law make transfers by an insolvent entity fraudulent as to
creditors without regard to the transferor's state of mind. See 11 U.S.C. § 548; N.Y. Debtor &
2
For the sake of convenience, the Court will use "insolvency" in this section to refer to all three definitions
of insolvency in the jury instructions: liabilities exceeding assets, unreasonably small capital, and inability to pay
debts as they come due. See Tr. 2907:12-25.
7
Creditor Law§ 273. Whether an entity is solvent at the time of a given transfer is ordinarily a
question of fact for the jury. See In re Actrade Fin. Techs. Ltd., 337 B.R. 791, 803 (Bankr.
S.D.N.Y. 2005) (citing In re Roblin Indus., 78 F.3d 30,35 (2d Cir. 1996)). Accordingly, in order
to succeed on his claims of fraudulent transfer and fraudulent conveyance, Plaintiff was required
to establish the Debtors' insolvency by a preponderance of the evidence.
To that end, Plaintiff engaged Frank as an expert in corporate valuation. Frank rendered
before trial a "solvency opinion" as to Renco Metals and MagCorp, and found both companies to
be insolvent as measured on three dates during the period when the challenged transfers
occurred: July 31, 1996; October 31, 1997; and October 31, 1998. Frank used a valuation
method known as "discounted cash flow" analysis, which involves projecting a company's cash
flows several years into the future based on estimated revenues and expenses, calculating a
"terminal value" for the company at the end of the projection period, and then discounting the
future cash flows and terminal value to their present value. See Daubert Order at 3 (Dkt. No.
36). Frank also considered two alternative valuation methods, one based on using "comparable
companies' stock prices as a multiple of certain performance metrics," and another based on "the
value placed on similar companies in the context of mergers and acquisitions transactions during
the relevant time frame." !d. Ultimately, however, Frank discarded these latter two analyses
because he concluded that any potentially comparable companies were too dissimilar to Renco
Metals to provide a useful basis for determining its solvency. !d. at 3-4.
Defendants moved before trial to preclude Frank's testimony under Federal Rule of
Evidence 702, arguing that Plaintiffs had not established the reliability of Frank's methodology
as is required under Daubert. As explained in greater detail in the Court's Daubert order,
Defendants' motion keyed on Frank's calculation ofRenco Metals's "Weighted Average Cost of
Capital," which is a component of the overall discounted cash flow analysis. The Weighted
Average Cost of Capital is, as the name suggests, the average "cost" associated with a
company's debt and its equity, weighted according to the pmiion of the company's capital
structure constituted by each form of capital (debt and equity). See Daubert Order at 8-9. To
8
determine the cost of equity, Frank used an approach known as the Capital Asset Pricing Model.
In simplified form, the model uses three factors to project a company's rate of return: the riskfree rate, the market risk premium, and beta, which is a variable that reflects the risk of the asset
in question compared to other risks of the same type.
Defendants did not object to Frank's use ofthe Capital Asset Pricing Model generally,
but they did find fault with Frank's calculation of risk. Frank used an "industry beta" to capture
the risk of equity investments in the same industry as Renco Metals generally, and also included
a "company-specific risk premium" and a "size-risk premium" in his calculations to "capture
specific attributes of the company that justified a higher overall rate of return (or cost of
capital)." Daubert Order at 9. Defendants argued that Frank's analysis of the company-specific
risk premium, size risk premium, and market risk premium were all erroneous, and so divorced
from accepted methodologies that Frank should be precluded from testifying.
The Court denied Defendants' motion as to Frank in all respects. See Dkt. No. 36. In its
order, the Court noted that the company-specific risk premium is a commonly used measure that
has been admitted as a part of expert testimony in many cases, and further that Frank's pmiicular
choice of the relevant company-specific risk premium in his expert report was plausibly
explained, and partook only in the normal amount of qualitative (rather than quantitative)
analysis that generally characterizes expert evaluation of a company-specific risk premium. ld.
at 11-14. As the Court noted at the time, "company-specific premiums are necessarily somewhat
subjective and Frank's specific choices can readily be addressed on cross-examination." Jd. at
15. The Court rejected Defendants' other challenges to Frank's methodology as well, finding
generally that Frank's conclusions were based on an application of accepted methodologies, and
that any errors or portions of Frank's opinion that were underexplained were of the sort that are
appropriately grounds for cross-examination at trial and determination by the jury, rather than
grounds for preclusion of his testimony.
2. Frank's Trial Testimony
9
At trial, Frank testified consistently with his opinion that he did not find a company that
would serve as a good comparison to MagCorp or Renco Metals in order to make a valuation
using a comparable-company method. Tr. 1761:13-15. He testified that "good comparables" are
companies that are "similar in nature in how they do business," with a similar financial
performance, that operate in similar locations, and that are affected by "outside forces" in similar
ways. Tr. 1762:5-13.
As to the "income method" for valuing the company, Frank testified that he first
estimated what the companies' cash flows would be in the future. He began with management's
projections, but deemed them unreliable and unrealistic. Tr. 1762:20-22. For example, he
disagreed with their assertion that the price of magnesium would stay flat at $1.78 for seven
years. Tr. 1762:22-24. He also concluded that management's projections about expenses were
incorrect because the company assumed that using new cell technology would lower the cost,
which proved not to be the case. Tr. 1763:1-2. He explained that to arrive at his projections for
revenue, he used Mr. (Robin) Adams's expert opinion, and "CRU's forecasts" for the price of
magnesium into the future. Tr. 1763:5-8. To determine expenses, he looked at MagCorp's
actual operating expenses for its previous 12 months of activity, as well as the operating
expenses of Sabel, another former subsidiary of the Renco Group. Tr. 1763:9-15.
Frank explained to the jury his method for calculating the weighted average cost of
capital, and it was generally in line with what he had represented in his expert rep01i before trial.
He testified that to determine the equity component, he looked at the risk-free rate of return, the
equity risk premium, and the size risk premium, all of which were determined based on wellknown "outside sources." Tr. 1764:18-1765:11.
Frank then turned to the company-specific risk premium, which he explained could not
be pulled from an existing source, but rather must be determined by an exercise of professional
judgment. Tr. 1765:17-21. He explained that "any characteristic" could go in to determining the
company-specific risk premium, including financial, technological, environmental, operational,
and managerial factors. Tr. 1765:21-23. For Renco Metals and MagCorp, Frank testified that
10
his evaluation of the company-specific risk was based on "four main categories": (1) the risk the
companies faced in attempting to comply with Clean Air Act and NESHAP regulations; (2) risk
from the company's technology and the need to improve to stay competitive, as explained by Dr.
Veranth; (3) the risk that the companies would not be able to maintain their level of profitability
because the company made aggressive projections for the future from the standpoint of a high
point in performance; and (4) the company's overall liquidity and ability to pay debts. Tr.
1766:7-1767:9.
Frank then explained the final component of weighted average cost of capital, which is
debt. He testified that he used the company's actual debt rate of roughly 11.5%, and "taxeffected" it. Tr. 1767:20-23. After applying a discount rate for an average participant in the
specific nonferrous metals industry, Frank concluded that the Debtors' weighted average cost of
capital was approximately 23% in July 1996, 24% in October 1997, and 22.5% in October 1998.
Tr. 1768:2-18.
Frank addressed Grabowski's use of guideline companies in his direct testimony. He
explained that he disagreed with Grabowski's decision to use Alcoa, Phelps Dodge, Alumax,
Kaiser, and others as guideline companies because of "unique risks" facing MagCorp. Tr.
1771:13-20. Specifically, he pointed to the fact that all of these supposed comparators were
"huge multinational billion-dollar companies" with operations around the globe, whereas
MagCorp had operations only on the Great Salt Lake. Tr. 1771:19-24. This led to heightened
environmental and technological risks for MagCorp, said Frank. Tr. 1771 :24-1772:1.
Frank further detailed five other points of disagreement with Grabowski that did not
pertain specifically to guideline companies, but did affect the overall solvency opinion. These
were: (1) Grabowski's assumption that the price of magnesium would stay at $1.78 for the entire
seven-year period of the forecast; (2) his assumption that Alcan technology was working and
would reduce costs; (3) his failure to include risks specific to MagCorp, such as environmental
risks and technology risks; (4) his assumption that MagCorp could borrow approximately $300
11
million at 11.5% interest; and (5) his assumption that MagCorp had a cash surplus. Tr. 1772:21774:6.
On cross-examination, Frank was asked about his use of comparative analysis, and
specifically about his decision that there were no guideline companies that could effectively be
compared to MagCorp or Renco Metals. He admitted that the literature on the subject no longer
uses the term "comparative" company and instead uses "guideline companies," and
acknowledged that Grabowski had criticized the definition of guideline companies that he had
employed. Tr. 1840:15-1841:8. Frank testified that the "overall premise" of the methodology
was that companies have to be "exactly the same" and share the "exact same risk," Tr. 1849: 1618, and stated that he had not put forth a source for his definition in his testimony, Tr. 1850:5-10.
Frank explained that he disagreed with Grabowski's conclusions that certain companies
were guideline companies because he did not believe that Grabowski's analysis showed them to
be "true comparables." Tr. 1854:8-9. For example, he explained that Reynolds Metals is a
"multibillion, multinational company that does many things beyond production of just a metal."
Tr. 1854:10-14.
3. Daubert Standard
Though Defendants raise their argument in pari as an attack on Frank's overall credibility
and not wholly as a renewed Daubert motion, much of their argument attacks his methodology
as unreliable and suggests that it should be excluded under the Daubert standard. See, e.g., Def.
Mot. at 4 (Dkt. No. 409). In particular, Defendants state that "[n]ew evidence that came to light
during trial" demonstrated that Frank's methodology was unreliable, id., and they otherwise rely
on caselaw construing the admissibility of expert testimony, see id. at 6. Accordingly, the Court
will begin by setting out the Daubert standard in order to guide its analysis.
Under Daubert and its progeny, the Court must determine whether proffered expert
testimony has a sufficiently reliable foundation before it may be considered by the trier of fact.
Amorgianos v. Nat'! R.R. Passenger Corp., 303 F.3d 256, 265 (2d Cir. 2002). This inquiry
largely involves considering the "indicia of reliability" laid out in Federal Rule of Evidence 702:
12
"(1) that the testimony is grounded on sufficient facts or data; (2) that the testimony is the
product of reliable principles and methods; and (3) that the witness has applied the principles and
methods reliably to the facts of the case." Amorgianos, 303 F.3d at 265 (quoting Fed. R. Evid.
702) (internal quotation marks omitted). There is no rote list of factors to be considered when
evaluating a Daubert motion, and the inquiry is designed to be flexible to respond to the context
and circumstances of each case. !d. at 266. Nevertheless, whether the theory can and has been
tested, whether it has been subject to peer review, the technique's potential rate of error, and
whether the technique has been "generally accepted" in the relevant professional or academic
community have all been identified as relevant considerations. See Daubert, 509 U.S. at 593-94;
Kumho Tire Co. v. Carmichael, 526 U.S. 137, 147 (1999) (applying Daubert to all expert
testimony, not just scientific testimony).
Minor flaws in reasoning and "slight modification[ s]" of reliable methods do not, on their
own, require exclusion. Rather, to require exclusion of expert testimony under Rule 702, the
flaws in the expert's conclusion must be sufficiently large that he or she "lacks good grounds for
his or her conclusions." Amorgianos, 303 F.3d at 267 (quoting In re Paoli R.R. Yard PCB Litig.,
35 F.3d 717, 746 (3d Cir. 1994)) (internal quotation marks omitted). It is appropriate to allow
weaknesses in an expert opinion to be pointed out on cross-examination instead of completely
excluding the testimony because of the existence of some weaknesses. Olin Corp. v. Certain
Underwriters at Lloyd's London, 468 F.3d 120, 134 (2d Cir. 2006).
B. Analysis
Defendants' motion attacks the adequacy of Frank's analysis on two fronts. It first
argues that Frank's chosen company-specific risk premium was selected based on a flawed and
unrealiable analysis, and therefore undermines his solvency opinion such that no rational jury
could use it to find insolvency. Second, Defendants fault Frank for rejecting the "market
approach" to corporate valuation, arguing that he excluded it without reason and based on a
faulty understanding of what constitutes a "guideline company." Neither argument entitles
Defendants to post-judgment relief.
13
1. Company-Specific Risk Premium
Defendants seek to undermine Frank's use of a company-specific risk premium from a
number of angles. They call the entire concept of company-specific risk "dangerous," see Def.
Mem. at 6 (Dkt. No. 409), and state that Frank failed to adequately justify the company-specific
risk premiums he used when evaluating Renco Metals's solvency. Specifically, they suggest that
Frank erred by failing to compare Renco Metals to other companies to determine whether its
risks were unique; by presenting no evidence that the factors Frank found to be unique to Renco
Metals were appropriate considerations; by "double-counting" the risk presented by certain
factors and applying other factors out of context; and by·using a "massive" company-specific
risk premium. Defendants also claim that Frank failed to proffer support from the stand for his
reasons for choosing certain risk factors as part of his analysis.
The unifying problem with Defendants' arguments is that they present "deficiencies" that
were appropriately called to the jury's attention rather than the Court's. The question of whether
Renco Metals and MagCorp were solvent at the times of the disputed transfers presented the jury
with a fairly standard battle of the experts. The Court's province in these circumstances is not to
determine, whether Defendants' solvency expert, Robert Grabowski, was more credible than
Frank, or whether the jury should have accepted Grabowski's conclusions-which is what much
of Defendants' motion appears to argue. See Pl. Mem. at 9 (Grabowski "demonstrated"
benchmark companies were not different), 10 (explaining "Grabowski's view"), 12 (Grabwoski
"explained the proper use of guideline companies"), 13 (Grabowski "identified several
guidelines companies"). Instead, the Court's more limited role is to (1) determine whether
Frank's testimony meets the threshold of reliability for presentation to the jury under Daubert,
and (2) determine after the verdict whether the record contains evidence that would permit the
jury to find as it did. As the Supreme Court advised in Daubert, "[ v]igorous cross-examination,
presentation of contrary evidence, and careful instruction on the burden of proof are the
traditional and appropriate means of attacking shaky but admissible evidence." 509 U.S. at 596.
Defendants' motion asks the Court to trespass beyond its role as gatekeeper into the jury's realm
14
of determining the credibility of Plaintiffs admissible evidence. See Amorgianos, 303 F.3d at
267-68 ("[T]he district court's Daubert gatekeeping role does not permit the district court, in
ruling on evidentiary sufficiency, to reject admissible expert testimony.").
As an important preliminary matter, it is undisputed that the Capital Asset Pricing Model
generally, and the use of company-specific risk premium in general, are part of accepted
methodologies in corporate valuation and that neither on its own undermines the adequacy of
Frank's testimony. See generally Daubert Order at 10-11 (Dkt. No. 36). The concept of
company-specific risk premium has both its academic and judicial critics, but such criticism is
not on its own grounds for striking Frank's testimony or calling the jury's verdict into question,
particularly in light of the fact that even critics have accepted expert testimony about companyspecific risk as sufficiently reliable evidence. See, e.g., Del. Open MRI Radiology Assocs., P.A.
v. Kessler, 898 A.2d 290, 339 (Del. Ch. 2006). With that in mind, the Court turns to Defendants'
specific grounds for striking Frank's testimony, or in the alternative finding it unreliable.
a. Comparison to Benchmark Companies & Factors That Made the Debtors Unique
First, Defendants' argument that Frank's methodology for fixing a company-specific risk
premium was fatally flawed misstates both the record and the literature about company-specific
risk. Defendants hone in on two aspects of Frank's analysis that they claim were inadequately
explained: his conclusion that benchmark companies did not provide a good comparison from
which to determine the debtors' company-specific risk, and his conclusion that certain factors
created risks specific to the Debtors. In both instances, however, Frank's explanations allowed
the jury rationally to conclude that he employed reliable methods, and the deficiencies that
Defendants identify involve matters there were appropriately left for determination by the finder
of fact.
In the first instance, Defendants' contention that Frank erred by refusing to compare the
debtors to benchmark companies is not accurate. Frank testified that he did attempt to draw a
comparison to other companies, and it was his judgment that none of the companies that might
otherwise serve for comparison were sufficiently similar to MagCorp or Renco Metals to be
15
useful for analysis. Tr. 1761 :2-15; Tr. 1762:4-13. Defendants focus on Frank's response that
"the answer is no" when asked whether he compared the debtors to other companies to determine
company-specific risk, see Tr. 1861:5-8, but in context it was clear that Frank's intent was to
state that he believed other companies did not offer an adequate comparison, not that he entirely
eschewed any attempt at this mode of analysis. He further stated in the same general portion of
his testimony that he knew that the company-specific risk premium should be determined by
"try[ing] to compare the uniqueness of the company you're trying to identify, the risks, to other
companies ifthey share those risks." Tr. 1862:22-24. He went on to testify that he "did not see
any company that had unique risks to technology and environment that MagCorp had during the
relevant period," Tr. 1863:3-5, and that he and his team looked at "10-Ks" and the "public
information that was disclosed" for potentially comparable companies, and found that none of
them had the "unique risks to technology and environment" that MagCorp and Renco Metals
faced during the time period. Tr. 1863:3-9.
Moreover, the Court does not agree with Defendants' assertion that a company-specific
risk premium must be based on "specific quantitatively observed differences" from benchmark
companies, see Tr. 2256:21-23, to be admissible. Though Grabowski testified that this was the
appropriate way to determine company-specific risk premium, the Court concludes that the
academic literature in the field, and the "generally accepted" method of determining companyspecific risk, does not require such quantitative precision for admissibility. There is ample
authority stating that company-specific risk cannot be determined in such a purely quantitative
way. See Israel Shaked & Robert Reilly, American Bankruptcy Institute, A Practical Guide to
Bankruptcy Valuation 30 (2013) ("[T]here is no generally accepted model, formula, equation or
method to quantitatively measure the CSRP [company-specific risk premium]. The only 'model'
available to measure the SCRP is the analyst's informed professional judgment, based on the
analyst's studied consideration of various recognized factors."); Shannon P. Pratt & Roger J.
Grabowski, Cost ofCapital288 (2010) ("Many analysts are able to express qualitative reasons
for company-specific risk adjustments but rarely can provide data relating these qualified factors
16
to actual measurements in expected return."). In other words, a method of assigning companyspecific risk based on qualitative factors is sufficiently reliable in light of the factors considered
under Daubert, see 509 U.S. at 593-94. Frank's use of such factors was therefore appropriately
considered by the jury.
Similarly, the factors that Frank testified that he relied on when determining the debtors'
company-specific risk were both consistent with the accepted methodology for determining
company-specific risk and sufficiently justified to substantiate the jury's verdict. Frank
identified several risks that he found specific to the Debtor Companies compared to others in the
field, including: ( 1) the need for new technology to stay competitive; (2) potential environmental
liabilities and regulatory issues; (3) the risk that management had projected future performance
too aggressively; (4) lack of liquidity; and (5) lack of product or geographical diversification.
See Tr. 1766:9-1771:24. All of these factors are well within the range of considerations that
experts use to determine company-specific risk, and otherwise reflect a sufficiently sound
methodology for the purpose of consideration by the jury. See, e.g., Sharon P. Pratt & Alina V.
Niculita, Valuing a Business 202-03 (5th ed. 2008) (Dkt. No. 16-43) (listing factors).
Insofar as Defendants argue that the factors Frank considered were not adequately
justified by facts proving them to be unique to the Debtors, their argument turns on points of
disagreement they identify between Frank's testimony and Grabowski's. For example, they
argue that Grabowski "explained" that Reynolds Metals was not more diversified than Renco
Metals, Def. Mem. at 9 (Dkt. No. 409), and that other companies had similarly described
technology risks, id. at 10. Whether to believe Frank or Grabowski on these and similar points
was a quintessential jury question, and Defendants' recourse when contesting the factual
underpinnings of Frank's otherwise sufficiently reliable testimony was cross-examination and
presentation of countervailing evidence. Defendants did both, and the jury appears to have found
Frank's version more credible. Frank, for his part, offered sufficient factual justification to make
the jury's reliance on his conclusions reasonable; fair inferences were available from his
testimony that the Debtors faced unique risks when compared to the benchmark companies
17
Grabowski offered, and that other factors-such as "aggressive projections"-spoke to more
systematic failures at MagCorp that generated unique risk. And Frank was not, of course,
required to trace the entire causal chain of his expert reasoning back to the academic
underpinnings of his conclusions every time he gave an answer from the stand. See Glossip v.
Gross, No. 14-7955, 576 U.S._, slip op. at 28 n.8 (U.S. June 29, 2015) ("[I]t would be
unusual for an expert testifying on the stand to punctuate each sentence with a citation to a
[scholarly] journal.").
Defendants had ample opportunity at trial to argue to the jury why Frank's conclusions
about the debtors' company-specific risk should not be accepted, both when cross-examining
Frank and on direct examination of Grabowski. They took repeated advantage of these
opportunities. See Tr. 1860:5-1864:7; Tr. 1875:8-1880:11; Tr. 1881 :14-1886:8; Tr. 1889:121890:22; Tr. 1910:5-1911:1; Tr. 2256:1 0-2258:9; Tr. 2261:3-2263:13. The jury was not swayed,
and similarly was not convinced by Grabowski's testimony that he would not use a valuation
method dependent on company-specific risk at all in these circumstances, see Tr. 2256:212257:6. The jury's apparent decision to credit Frank's testimony was neither irrational nor
against the weight ofthe evidence. Moreover, even if the Court would have come to a different
conclusion than the jury-a matter on which the Court renders no opinion-the Court could not
grant a new trial merely because it disagreed with the jury's assessment of the credibility of
Frank's testimony. See Readle v. Credit Agricole Jndosuez, 670 F.3d 411, 418 (2d Cir. 2012)
(citing United States v. Landau, 155 F.3d 93, 104 (2d Cir. 1998)). The verdict may not be
undermined on these grounds.
b. Double-Counting, Contingent Liabilities, & The Size of the Company-Specific Risk
Premium
Defendants also argue that the unreliability of Frank's testimony was demonstrated by his
"double-counting" of certain factors that reduced the debtors' value, irrationally pushing his
valuation toward insolvency. This argument is newly presented post-trial, and to the extent that
it is not waived, Defendants have failed to show that it seriously undermines Frank's testimony.
18
The academic literature on company-specific risk implicitly reveals that factors that are properly
considered when determining such risk may also have implications elsewhere in the company's
valuation. For example, while legal and litigation costs may affect company-specific risk, it is
clear that such costs may also impose direct financial burdens on a company. See Pratt &
Niculita, supra.
The most emphatic double-counting charge levied by Defendants involves Frank's use of
contingent environmental liabilities as a factor in setting the debtors' company-specific risk.
Defendants argue that Frank claimed that environmental factors were "the important factor in his
solvency analysis." Def. Mem. at 10 (Dkt. No. 409) (quoting Tr. 1828:11-12). This selective
quotation misstates the record; Frank was responding to questions about the manner in which he
used environmental liabilities, and stated that, as it involved environmental liabilities, "the
important factor in [his] solvency analysis was knowing that there is environmental exposure at
the site; that anyone would know if they were going to do [due] diligence." Tr. 1828:11-14
(transcription error corrected). Frank's point was that the extent of environmental contamination
on the debtors' sites would lower any reasonable valuation of the companies, independent of the
specific amount of contingent liability they faced. At any rate, Frank also testified that the
debtors were insolvent "before the consideration of contingent liabilities," Tr. 1759:1-2, 5-6, 910. It was up to Defendants to undermine this conclusion with cross-examination and evidence
of their own.
Finally, Defendants' argument that Frank's chosen company-specific risk was "massive"
compared to that used in other cases is not enough to undermine the general acceptability of
Frank's testimony. The figures chosen did not reveal Frank's methodology to be unsound, and
the jury was appropriately tasked with determining whether Frank's figures should be accepted.
2. The Market Approach
In addition to their arguments based on Frank's assignment of a company-specific risk
premium, Defendants also assert that Frank's testimony was critically undermined by his failure
to apply the so-called "market approach" to corporate valuation. Grabowksi employed this
19
method, which involves comparing the target company to "guideline companies" that are similar
to the company under evaluation. Defendants state that Frank neglected the market approach
"[f]or no good reason," and that he failed to faithfully apply the accepted standard for choosing
guideline companies. See Def. Mem. at 11-13 (Dkt. No. 409).
Because the market approach was primarily relied on by Defendants, it was their
responsibility-not Plaintiffs-to present evidence of this method. They did so through
Grabowski, see Tr. 2227:19-2230:22, and also cross-examined Frank about his reasons for
rejecting the market approach, see Tr. 1842:16-1846:13. Frank's testimony that he did not find
the market approach apposite for evaluating the debtors did not undermine his general solvency
analysis under the Capital Asset Pricing Model, and his rejection of the market approach does
not present grounds for otherwise excluding or striking his sufficiently competent analysis. It
was the trier of fact's task to choose between two competent and competing expert methods of
valuation; the Court will not disturb the verdict on the grounds that Frank should have been
forced to testify about a valuation method that he opined could not be appropriately applied.
Additionally, the errors in Frank's understanding of the market approach asserted by
Defendants do not present grounds for excluding his testimony, even if there were a coordinate
Daubert principle that an expert must have reliable reasons for rejecting a certain model.
Specifically, Grabowski's testimony that Frank used an "old obsolete definition" of "guideline
companies" in his analysis, Tr. 2229:18, and that Frank should not have required as much
similarity between guideline companies as he did, Tr. 1840:15-1841:10, falls into the category of
"minor errors" that do not require exclusion of expert testimony (if indeed they are errors at all).
See Amorgianos, 303 F.3d at 267. This is particularly true in light of Frank's decision not to
apply the market approach, which means any errors in his understanding of that approach did not
affect his ultimate solvency analysis under the approach that he applied. The remedy for
exposing any error in Frank's treatment of the market approach was cross-examination. Nothing
about that cross-examination, or Grabowski's presentation of an alternative theory, was so
devastating to Frank's testimony that it undermines the validity of the verdict.
20
Defendants' final argument on this score is that Plaintiff offered in his summation
separate, unsupported theories on valuation that were "so flawed that had they actually been part
of Frank's testimony, they would not have come close to satisfying the Daubert standard." De f.
Mem. at 14 (Dkt. No. 409). Of course, any deficient argument by counsel does not expose flaws
in Frank's expert opinion, particularly in light of Defendants' admission that counsel's flawed
arguments were not grounded in Frank's testimony. Of the specific portions of the summation
that Defendants identify, one was met with a sustained objection, and the other was an attempt to
identify purported inaccuracies in Grabowski's testimony. See Tr. 2823:23-2824:11; 2828:142829:6. Nothing in Plaintiffs summation infected Frank's testimony such that the verdict must
be vacated and a new trial granted.
In sum, Defendants' attacks on Frank's rejection of the market approach neither
demonstrate that a reasonable jury could not find in Plaintiffs favor, nor prove the jury's verdict
to be against the weight of the evidence.
3. Pre-July 1996 Analysis
As a final note on Frank's testimony, Defendants claim in a footnote argument that Frank
offered no analysis of the Debtor Companies' solvency before July 1996, and therefore judgment
must be entered for Plaintiffs on any transfers made before that date. See Def. Mem. 13-14 &
n.5; Def. Reply Mem. 2-3. This argument was not made in Defendants' Rule 50 motion during
trial, and therefore is not preserved for a post-trial motion. See Tr. 1985:8-1992:21 (Rule 50
motion); see also Dkt. No. 300 (Defendant's written Rule 50 submission during trial). At any
rate, Defendants do not explain why a fair inference of insolvency for the months before that
valuation was not available to the jury, and no new trial on this narrow question is warranted.
V.
Un,just Enrichment
The Court now turns to the motion by Defendants Ira Rennert and the Trustees of the
Rennert Trusts for judgment as a matter oflaw on Plaintiffs claim of unjust emichment. For the
purposes of this section, "Defendants" will refer only to Rennert and the Trustees.
21
Defendants argue that the evidence was insufficient to demonstrate that Rennert was
enriched at Plaintiff's expense by the transfers from MagCorp and Renco Metals. Plaintiff's
theory at trial was that The Renco Group used the funds transferred away from the debtors in the
form of dividend payments to purchase land and build a home for Defendants in Sagaponack,
New York, and that these transactions were made by a wholly-owned subsidiary of The Renco
Group, Blue Turtles, which was formed expressly for that purpose. The jury was instructed that:
Unjust enrichment occurs when one person or entity has obtained money,
property, or a direct benefit from another person or entity, that the recipient is not
entitled to receive and under such circumstances that, in fairness and good
conscience, the money, property or direct benefit should not be retained. In those
circumstances, the law requires that person who received the direct benefit to
repay, return the property to, or compensate the other person.
The Court further instructed the jury that it had to make "three findings" as to unjust enrichment.
The first was whether "Defendants ... received a direct benefit from the debtor companies." If
and only if the jury found that he had, it was instructed to "determine whether the debtor
companies were harmed by conveying this direct benefit." Finally, the jury was instructed to
consider damages if it found both of these questions in Plaintiff's favor. Tr. 2927:24-2928:8.
3
An unjust enrichment claim under New York law has three elements: (1) that the
defendant received a direct benefit, (2) that it was received at the plaintiff's expense, and (3) that
"equity and good conscience" require the defendant to return the benefit. Kaye v. Grossman, 202
F.3d 611,616 (2d Cir. 2000). Before trial, the parties disputed in the course of in limine briefing
3
The Court notes that there is an apparent split of authority in New York Jaw over whether a jury may
resolve an unjust enrichment. At least one court has stated, in conformity with New York's pattern jury instructions,
that a jury may determine only the existence of underlying facts necessary to finding unjust enrichment, and that it is
left to the court to make the equitable determination whether the enrichment was unjust. See Learning Annex
Holdings, LLC v. Rich Global, LLC, No. 09-cv-4432 (SAS), 2011 WL 2732550, at *1 n.3 (S.D.N.Y. July 11, 2011)
(citing New York Pattern Jury Instructions: In st. 4:2 comment). However, a number of cases decided both in this
circuit and in New York's state courts have implicitly approved a jury's entry of a verdict on all aspects of an unjust
enrichment claim. See Saunders v. Kline, 75 A.D.2d 531, 531 (N.Y. App. Div. 1980), ajf'd 421 N.E.2d 113, 114
(N.Y. 1981 ); Kaye v. Grossman, 202 F.3d 611, 616 (2d Cir. 2000); Oorah, Inc. v. Schick, 552 F. App'x 20, 23 (2d
Cir. 2014); Scott v. Health Care Plan, Inc., 247 A.D.2d 822,822-23 (N.Y. App. Div. 1998); MacQuesten Gen.
Contracting, Inc. v. !-ICE, Inc., 296 F. Supp. 2d 437,447 (S.D.N.Y. 2003). A possible distinction may exist between
quasi-contractual unjust enrichment claims and ones that sound more in tort, but the Court need not decide the
question, as Defendants do not now suggest that the claim should not have been submitted to the jury.
22
whether Plaintiffs had proffered evidence of a benefit at all, and the Court determined that,
because "a benefit can include when a person is saved expense or loss," provision of rent-free
housing can constitute a benefit even absent permanent transfer of ownership. See Dkt. No. 182
at 47:1-8. The parties also disputed whether Plaintiff could establish that the benefit conveyed to
Defendants was sufficiently direct, and the Court concluded that"[ w]hether Plaintiff can
demonstrate that connection is a question of the sufficiency of the evidence, and that would ...
be premature to decide at this stage." !d. at 48:8-10. Defendants' motion focuses on this
question of whether the benefit conveyed was sufficiently direct.
For the benefit to be "direct," the defendant must either be put in possession of the
benefit, or otherwise obtain financial relief because of the benefit; it is not enough that the funds
"indirectly" benefit the defendant-for example, by providing a financial boon to someone close
to the defendant. Kaye, 202 F.3d at 616 (explaining that a loan that enabled defendant's
daughter to continue at college was not sufficiently direct as to defendant); see also M+J Savitt,
Inc. v. Savitt, No. 08-cv-8535 (DLC), 2009 WL 691278, at* 10 (S.D.N.Y. Mar. 17, 2009)
(dismissing claim of unjust enrichment based on loan made to third party, despite allegations that
defendant did not have to make similar payments because of plaintiffs loan). Put differently, a
benefit is direct when it or its functional equivalent4 is in the defendant's possession to return.
Defendants argue that Plaintiff presented no evidence showing that they directly
benefited from the challenged transfers, because there is no evidence that those same funds were
used by Blue Turtles to purchase the land in Sagaponack. At trial, the jury heard testimony that
Blue Turtles purchased the land in Sagaponack four months after a $75 million dividend was
paid from Renco Metals to the Renco Group in 1996. Tr. 590:5-22 (Rennert Testimony), that all
of the money used to fund Blue Turtles came from the Renco Group, Tr. 1054:23-1055:3 (Fay
Testimony), and that Rennert ultimately used that land for a personal residence, Tr. 590:23-24
(Rennert Testimony). They further heard testimony that the land on which the Sagaponack
4
"Functional equivalent," in these circumstances, refers to something like debt relief. The notion is that a
defendant may no longer possess the physical asset, but still retains its direct economic equivalent.
23
residence was built cost Blue Turtles $11 million, Tr. 611:13 (Rennert Testimony). Defendants
suggest that this set of facts alone-that Blue Turtles purchased the land sometime after the $75
million dividend was paid to Renco Group-is not enough for a rational jury to conclude that
funds originating with Renco Metals were ultimately used to convey a benefit on Defendants.
Plaintiff does not contest the underlying state of the evidence. Rather, his response is
bottomed on the notion that, based on the timing of the land purchase and the fact that Blue
Turtles was funded entirely by The Renco Group, the jury could reasonably infer that the funds
used for the Sagaponack land purchase came from the funds originally taken from Renco Metals.
Even if no direct line can be traced back to the transfers, says Plaintiff, the dividend made money
available for the Sagaponack purchase by freeing up funds that would otherwise have to go
toward other obligations belonging to the Renco Group.
Based on all of the evidence presented, an inference was available to the jury that the
dividend payment either provided The Renco Group with the funds to purchase the Sagaponack
property or freed up the funds to otherwise enable The Renco Group to purchase the property,
but there was no available inference that the benefitfrom the Debtors accrued to an entity other
than The Renco Group or Blue Turtles. 5 The undisputed evidence is that The Renco Group
transferred to its subsidiary Blue Turtles the money to purchase the Sagaponack prope1iy, see Tr.
612:6-9, and evidence was presented that would allow a rational jury to find that Blue Turtles
conveyed a benefit on Defendants by purchasing the property that would ultimately be used for
his home-even though ownership of the home was at no point transferred to Rennert, see Tr.
432:9-13. While The Renco Group and Blue Turtles may have conveyed a benefit to
Defendants, the property-for the purpose of returning what was allegedly unjustly taken from
Plaintiff-still resides in Blue Turtles's possession, not Defendants'. To the extent Defendants
have received any benefit, it is the value ofthe use of property, which was not in the relevant
period Plaintiff's to transfer to Rennert; even assuming that some of the funds used to purchase
5
Plaintiff has not argued that the corporate veil should be pierced as to either entity.
24
the home could be traced back to Renco Metals, the rental value from use of the land thereafter
cannot be traced directly back to anything transferred away from the Debtor Companies.
Furthermore, even if the benefit of Rennert's rent-free land use could be traced directly
back to the Debtors, Plaintiffs evidence was insufficient to establish an appropriate measure of
damages. The only benefit that Plaintiffs evidence showed that Defendants received was
Rennert's rent-free use ofthe Sagaponack property. However, Plaintiff presented no evidence of
the fair rental value of the property; Plaintiffs evidence showed either the value of the property
itself, or the amount of transfers from the Debtors to the Renco Group. The fact that the
damages awarded by the jury on Plaintiffs unjust enrichment claim were equal to the amount of
fraudulent conveyances for which the jury found Rennert responsibile indicates that the jury did
not consider the actual rental value of the property when assessing damages. See Ct. Ex. 25
(Dkt. No. 327-27) (verdict form). And the lack of any evidence on which a rational jury could
have made an assessment of the rental value indicates that Plaintiff failed to carry his evidentiary
burden. No rational jury could find an appropriate measure of damages on the evidence
presented.
The Court therefore must grant Defendants' motion for judgment as a matter oflaw on
the unjust enrichment claim. Because Plaintiffs damages award against the Trustees of the
Rennert Trusts was premised only on this cause of action, the judgment shall be amended to
reflect that Plaintiff shall take no damages from that Defendant. The damages for unjust
enrichment being otherwise redundant of damages otherwise properly assessed against
Defendant Ira Rennert, the judgment shall not be amended as to Rennert.
VI.
Fraudulent Conveyance and Breach of Fiduciary Duty
Defendants further argue that judgment as a matter of law should be entered in Rennert's
favor on Plaintiffs fraudulent conveyance and breach of fiduciary duty claims against him. This
argument was not raised in Defendants' Rule 50 motion made at trial, and therefore is not
25
preserved for a post-trial Rule 50 motion. 6 Defendants do not appear to move for a new trial on
these claims, see Def. Mem. at 21-22, but even if they had, the jury's verdict was not against the
weight of the evidence.
Defendants also argue that the jury's $16,222,000 damages award against Rennert for
breach of fiduciary duty is necessarily duplicative of the $101,000,000 award against The Renco
Group, and must be vacated. This argument is underdeveloped, but appears to depend on the
notion that $101,000,000 is the make-whole amount for Plaintiffs because the jury found
$101 ,000,000 in damages against The Renco Group for fraudulent conveyances, and therefore
any amount in excess of that must not have been fraudulent, and could not support a breach of
fiduciary duty claim. Defendants do not otherwise suggest that there was insufficient evidence
to demonstrate a breach of fiduciary duty, nor that Rennert had to personally be in possession of
the funds to be held liable for a breach of fiduciary duty. Furthermore, they do not-and could
not, based on the evidence presented at trial-argue that Plaintiff did not present evidence of
losses greater than $101,000,000 to the Debtor Companies. Defendants have cited no authority
for the proposition that because Rennert did not receive any fraudulent transfers himself, the
damages for his breach of fiduciary duty must be capped at the amount of the fraudulent transfers
to the Renco Group, outside of an Eastern District of New York case stating the general
proposition a plaintiff cannot receive double recovery. See Zaretsky v. New Century Mortg.
Corp., No. 08-cv-378 (DRH) (WDW), 2011 WL 7121621, at *2 (E.D.N.Y. Oct. 3, 2011).
Defendants appear to have abandoned this argument in their reply brief, or at least do not
mention it, and as presented to the Court it is wholly Jacking in any reason to vacate the damages
award.
6
Defendants cite the transcript of their Rule 50 motion in an attempt to show preservation, but the portion
they cite is from their argument that a directed verdict should be entered on the unjust enrichment claim:
"Consequently, regardless of whether one wants to accept for the purposes of the jury the issue of whether the $10
million came from the dividends or not, there is an absence of any evidence to show the benefit that Mr. Rennert
received, i.e. the damages that >vmild be the benefit of'the unjust enrichment claim." Tr. 1992:2-6 (portion omitted
from Defendants' brief italicized). Neither Defendants' oral nor written Rule 50 submissions mentioned the
fraudulent conveyance or breach of fiduciary duty claims against Rennert.
26
The Court notes that Defendants have not moved against the jury's determination that
Rennert is liable for aiding and abetting fraudulent conveyances for damages, or the jury's award
of $16,220,000 in damages on that claim. That verdict is therefore left undisturbed as well.
VII.
Punitive Damages
The Court now turns to Defendants' argument that the punitive damages award against
The Renco Group must be vacated because Delaware law would not permit punitive damages for
a breach of fiduciary duty. 7 The Court reserved this question during trial, Tr. 2601:5-6, and now
concludes that punitive damages are not available on Plaintiffs claim.
In Delaware, the Court of Chancery has exclusive jurisdiction over claims of breach of
fiduciary duty. See McMahon v. New Castle Assocs., 532 A.2d 601, 604 (Del. Ch. 1987);
Reybold Venture Grp. XI-A, LLC v. At!. Meridian Crossing, LCC, Civ. A. No. 08C-02-481
(RRC), 2009 WL 143107, at *3 (Del. Super. Ct. Jan. 20, 2009). And the Court of Chancery has
explained that it may enter punitive damages only when the legislature has expressly authorized
them by statute, which is not the case for breach of fiduciary duty by corporate directors. Adams
v. Calvarese Farms Maint. Corp., Civ. A. No. 4262 (VCP), 2010 WL 3944961, at *21 n.204
(Del. Ch. Sept. 17, 20 10); see also Gesojf v. IIC Indus., Inc., 902 A.2d 1130, 1154 (Del. Ch.
2006) (stating that court cannot award punitive damages in fiduciary duty action). In one
instance, the First Circuit did not contest a district court's conclusion that punitive damages are
available for a breach of fiduciary duty under Delaware law, although the district court did not
cite the basis for its conclusion that Delaware law permits such damages, and the First Circuit
ultimately affirmed a decision not to award punitive damages. See Niehoff v. Maynard, 299 F.3d
41, 52-53 (1st Cir. 2002). Based on the above-cited Comi of Chancery cases that flatly
7
The punitive damages claim was presented to the jury based only on Plaintiff's claims for breach of
fiduciary duty and aiding and abetting breach of fiduciary duty, both of which were brought under Delaware law.
To the extent that Plaintiff suggests in its memorandum that his "aiding and abetting fraudulent conveyance" claim
would sustain a punitive damages award, he seeks to insert something he has never before pleaded or asked for at
the post-trial stage. See Pl. Resp. at 24 (Dkt. No. 415). It is too late to assert any potential claim for punitive
damages on this theory now.
27
contradict Niehoff s implicit conclusion that punitive damages are available, the Court concludes
that Niehoff does not set forth an accurate statement of Delaware law.
Plaintiff argues that the Delaware case law holding punitive damages unavailable reflects
only a "jurisdictional limit" rather than a substantive rule, and that Delaware's substantive law
does permit punitive damages on a breach of fiduciary duty claim. Claiming that the Chancery
Court's inability to award damages is a matter of the "separation of law and equity" in Delaware,
Plaintiff contends that a federal court, which does not face the same separation, need only look to
Delaware's "substantive" law to find that punitive damages are available. In effect, Plaintiff
argues that punitive damages for breach of fiduciary duty claims under Delaware law available
only outside of Delaware's own courts.
From a formal standpoint, Plaintiff appears to argue that Delaware's distinction between
equitable claims heard in the Court of Chancery and legal claims heard in the Superior Court,
and the concomitant restriction on Chancery's ability to award punitive damages, is a
"procedural" rather than "substantive" aspect of Delaware law. Thus, implies Plaintiff, a federal
court applying the rule that federal courts sitting in diversity apply state substantive law and
federal procedural law, see Gasperini v. Ctr. for Humanities, Inc., 518 U.S. 415, 427 (1996);
Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938), would ignore Delaware's "procedural" limitation
on punitive damages. Federal law governs what is substantive and what is procedural for Erie
purposes. See Liberty Synergistics Inc. v. Microflo Ltd., 718 F.3d 138, 152 (2d Cir. 2013). And
what is "substantive law" for Erie purposes is not the same as what a state defines as substantive
law, or what might be considered substantive for conflict-of-laws purposes. See Sun Oil Co. v.
Wortman, 486 U.S. 717, 726 (1988). Therefore, when determining whether a state rule that
straddles both categorizations should be applied in federal court, a court must consider "the twin
aims of the Erie rule: discouragement of forum-shopping and avoidance of inequitable
administration ofthe laws." Gasperini, 518 U.S. at 428 (quoting Hanna v. Plumer, 380 U.S.
460, 468 (1965)).
28
The availability of punitive damages on state claims in federal courts is generally
governed by state law under Erie. See Browning-Ferris Indus. ofVt., Inc. v. Kelco Disposal,
Inc., 492 U.S. 257,278-79 (1989); see also Motorola Credit Corp. v. Uzan, 509 F.3d 74,80 (2d
Cir. 2007). Even understood as an argument that punitive damages are somehow "available" and
yet jurisdictionally barred under Delaware law, the question is whether application of Delaware's
prohibition on punitive damages in Chancery would "have so important an effect upon the
fortunes of one or both of the litigants that failure to [apply] it would [unfairly discriminate
against citizens of the forum State, or] be likely to cause a plaintiff to choose the federal court?"
Gasperini, 518 U.S. at 428 (quoting Hanna, 380 U.S. at 468 n.9) (alterations in original).
Here, failure to apply the prohibition on punitive damages in fiduciary duties claims,
based on Delaware's "procedural" rule allowing such claims to proceed only in Chancery, would
produce all of the harms Erie sought to avoid. A different set of remedies would obtain for those
applying Delaware law in Delaware and thus applying the same law outside of it. While not
exactly a "statutory cap on damages" in the most straightforward sense, Delaware's rule partakes
ofthe same characteristics, and a statutory cap on damages is patently substantive. See
Gasperini, 518 U.S. at 428. The Court will not order an award of punitive damages wholly
unavailable to a plaintiff litigating in Delaware courts based on some sleight-of-hand that makes
Delaware law on punitive damages different in federal court than state court. Cf BrowningFerris Indus. ofVt., Inc. v. Kelco Disposal, Inc., 496 U.S. 257,278 (1989) ("In a diversity action,
or in any other lawsuit where state law provides the basis of decision, the propriety of an award
of punitive damages for the conduct in question, and the factors the jury may consider in
determining their amount, are questions of state law.").
Because the Court has determined that punitive damages are unavailable under Delaware
law on Plaintiffs claim, it need not address Defendants' alternative argument that Plaintiff did
not present evidence of maliciousness necessary to sustain a punitive damages award. The
punitive damages award must be vacated.
VIII.
Alternative Arguments for a New Trial
29
Defendants raise two further arguments that, while not presenting grounds for judgment
as a matter of law, they contend warrant a new trial under Rule 59. First, they state that Plaintiff
was erroneously permitted to present "highly prejudicial, non-probative" evidence of the
environmental conditions at the Debtors' magnesium plant. Second, they characterize the verdict
as an "impermissible compromise" that cannot be permitted to stand. Neither argument bears
scrutiny.
A. Environmental Evidence
1. Admission of Environmental Evidence
During trial, Plaintiff presented evidence of environmental contamination at MagCorp's
facility in Rowley, Utah, as probative of both the contingent liabilities that the debtor companies
were likely to face, and a factor that could lower the overall valuation of the debtor companies.
The Court explained during trial that the use of such evidence required the Court to "draw and
police" a "very fact specific, deeply context-specific line" as to what was admissible, Tr. 103 7:24, as "[t]here [had] to be connections made between allegations of toxicity and other wrongdoing
that tie [into] probative value that outweighs the prejudice," Tr. 1036:21-23. As Defendants'
argument implicitly notes, the question of which side of the line certain pieces of evidence fell
on came up repeatedly during trial, and the Court made a number of rulings admitting evidence
over Defendants' Rule 403 objections. But to consider all ofthese rulings as demonstrative of a
single, overarching decision to permit introduction of a category of "environmental evidence"
mischaracterizes the record, depriving it of the nuance that went into each decision.
Some of the motions that Defendants cite as illustrations of instances where Plaintiffs
were permitted to present environmental evidence to the jury are demonstrative of the factspecific lines that were drawn. Defendants' motion in limine to preclude evidence of the
environmental reputation ofthe Renco Group and ofMagCorp's "Toxic Release Inventory
reports," see Dkt. Nos. 68 & 69, for example, presented evidence on both sides of the line. The
Court granted the motion to preclude evidence of The Renco Group's "reputation" as being far
more prejudicial than probative of the debtors' valuation. But it declined to preclude
30
presentation of the Toxic Release Inventory reports, which more directly tended to show
MagCorp's need to upgrade its facilities in order to comply with foreseeable environmental
regulation, which in turn was probative of the value of the company's assets and its solvency.
See generally Order Dec. 23, 2014 (Dkt. No. 176) (discussing the Court's reasoning).
The other examples of "prejudicial" environmental evidence that Defendants point to
were evaluated under similar reasoning, and the Court is confident that they did not cause undue
prejudice. Indeed, some of the objections during trial that Defendants now identify as bases for
their motion were not, at trial, Rule 402 or 403 objections at all, but rather objections on other
evidentiary grounds such as foundation. See Dkt. No. 82 (motion in limine to exclude
"undisclosed expert opinion testimony"); Tr. 1531:18-1534:4 (testimony of Plaintiff's expert
Douglas Allen). Elsewhere, Defendants point to evidence that was admitted only after
Defendants opened the door to it. See Tr. 1045:16-20. In general, the scattershot nature ofthe
evidentiary decisions that Defendants rely on in their motion serves to underscore the Court's
conclusion that it drew a line at trial that permitted Plaintiff to present probative evidence while
keeping out evidence that presented a substantial risk of prejudice to Defendants when compared
to its probative value.
2. Probability Evidence of Contingent Liabilities
Defendants next argue that, even if Plaintiff's environmental evidence could have been
relevant, it was rendered irrelevant because Plaintiff did not introduce evidence that permitted
the jury to determine the probability of contingent liabilities coming to pass. See Def. Mem. at
25 (Dkt. No. 409). Largely, this appears to be more a question of whether Plaintiff presented
sufficient proof rather than one of relevance; the argument that the evidence was inadequate does
not deprive it of its "tendency to make the existence of any fact that is of consequence to the
determination of the action more probable or less probable than it would be without the
evidence." McKoy v. North Carolina, 494 U.S. 433,440 (1990) (quotation mark omitted).
Furthermore, Plaintiff's expert Douglas Allen testified that the debtors were likely to face
contingent liabilities, and direct evidence of conditions leading to such liabilities was relevant to
31
support his testimony. Defendants offer no reason why a precise estimate of contingent
liabilities was required to make the issue relevant to the jury. The Court need not speculate as to
what actually occurred in the jury room, but merely notes that the evidence was relevant, and did
not become unduly prejudicial to Defendants because of a lack of detailed probability analysis.
3. Defendants' Post-Transfer Evidence
Defendants also argue that the Court permitted Plaintiff to introduce evidence of
environmental conditions at the Rowley facility from after the time period when the transfers
took place, while denying Defendants the opportunity to present evidence taken from the posttransfer period. The Court explained at trial that this was a mischaracterization of its rulings, and
that Defendants were not barred from presenting post-transfer evidence. See Tr. 2874:8-2890:8.
Each of the general types of evidence that Defendants now argue they were improperly
prevented from introducing were properly excluded on grounds other than the timeframe in
which the evidence arose.
Defendants first point to the Court's exclusion of proposed testimony by Defendant Ron
Thayer that the EPA had extended a non-finalized offer to settle the debtors' environmental
liability in ongoing litigation under the Resource Conservation and Recovery Act (RCRA) in the
District of Utah. However, the Court, after giving Defendants an opportunity to respond and
explaining that there might be a substantive opening to introducing the evidence, see Tr.
1686:16, excluded it under Federal Rule of Evidence 408 and as hearsay, as well as on grounds
of unfair surprise. See Tr. 1686:16-1687:15 (explaining that Defendants were not precluded
from offering evidence that the debtors had not, to that date, been subjected to any environmental
liability).
Defendants further state that the Court erred by preventing them from introducing
evidence of the procedural history of, and "litigation events" in, the Utah RCRA action.
However, the Court's ruling-which restrained both parties-indicated that the parties could not
present a de novo legal argument about the meaning of RCRA, in an attempt to relitigate the
Utah proceedings in front of the jury. See Pretrial Hr'g 75:22-80:16 (Dkt. No. 182); Order of
32
Dec. 23, 2014 at 3 (Dkt. No. 175). The Court explained that the question of whether the parties'
interpretation of the law was correct in the present day was irrelevant to determining the
existence of contingent liabilities in 1996-98, and that there was an intolerable likelihood of juror
confusion if they were permitted to do so. Nevertheless, the Court informed the parties that they
"may still present argument and evidence related to [the] debtor corporations' contingent
liabilities in '96 to '98, which may include evidence regarding the EPA[' s] and Defendants'
interpretation of the law at the time; that is to say, the dispute and the likelihood that such
interpretation would succeed." Tr. 78:23-79:3.
The Court similarly excluded evidence of the now-vacated district court opinion in the
Utah action. The probative value of that opinion, which was vacated by the Tenth Circuit, was
low, particularly when compared to the likelihood that lay jurors would be substantially misled
by evidence of the litigation history in that case. Presenting the evidence would have required a
mini-lesson in civil procedure for the jurors, and much of its probative value appeared to depend
on jurors being confused about the effect ofthe district court's since-vacated initial opinion.
Even with this ruling, Defendants were permitted to introduce evidence that no environmental
liability had been imposed on Mag Corp, and they made much out of that fact. See Tr. 1586:6-8,
Tr. 1897:4-13, Tr. 2277:20-2278:4 (asking Grabowski about liability not imposed for 15 years);
Tr. 2701:17-21 (summation) ("What's the bottom line? The bottom line is we are sitting here in
2012 [sic]. There has been zero finding of liability for environmental violations. It is a wall that
stands before the Plaintiff and his experts and they want you to ignore that wall.").
Ultimately, the Court is satisfied that the Defendants were not deprived of the opportunity
to present relevant, admissible evidence, and the jury was not unfairly prejudiced by any
environmental evidence that was admitted. The jury returned a measured and reasonable verdict,
which bore a rational relationship to the evidence, and was not unduly punitive in its treatment of
Defendants nor otherwise demonstrative of inflamed passions. The environmental evidence that
was admitted was relevant to the jury's task, and not unduly prejudicial compared to its probative
33
weight. Even if there were some close calls at the margins, the environmental evidence could
not have caused sufficient prejudice to make a new trial appropriate.
B. The Verdict
Finally, Defendants maintain that a new trial is required because the jury returned an
improper compromise verdict. No indications of a juror compromise were present, and the Court
cannot order a new trial on this basis.
1. Compromise Verdict Standard
For a court to conclude that a jury's verdict reflects an impermissible compromise, "the
record itself viewed in its entirety must clearly demonstrate the compromise character of the
verdict." Ajax Hardware Mfg. Corp. v. Indus. Plants Corp., 569 F.2d 181, 184 (2d Cir. 1977)
(quoting Maher v. Isthmian S.S. Co., 253 F.2d 414,419 (2d Cir. 1958)). In Maher, the Second
Circuit stated that a verdict must be "inconsistent with the facts adduced at trial if the reviewing
court is to reverse it on the ground that of an improper compromise of the jury." 253 F.3d at
416-17; see also Vichare v. AMBAC Inc., 106 F.3d 457,463 (2d Cir. 1996) ("Traditionally, in
order to constitute an impermissible compromise the verdict must, at least, be inconsistent with
the facts adduced at trial."). A substantial reduction in damages, out of keeping with the
evidence and despite a finding of liability, is a common feature of compromise verdicts, although
even substantially reduced damages in conflict with the theory of liability offered at trial are not
enough; there must also be "other indicia" of compromise such as "a close question of liability"
or difficulty injury deliberations. Atkins v. New York City, 143 F.3d 100, 104 (2d Cir. 1998);
Diamond D Enters. USA, Inc. v. Steinsvaag, 979 F.2d 14, 17 (2d Cir. 1992). In the absence of a
verdict in conflict with the facts, some potential indicia of compromise-such as jurors' request
to make a pre-verdict statement expressing their frustration with the law-will not suffice absent
an affirmative indication that the verdict actually was a compromise. See Vichare, 106 F.3d at
461-64; see also Aczel v. Labonia, 584 F.3d 52, 58-60 (2d Cir. 2009) (finding compromise
verdict when juror note indicated that jurors were "trying to compromise"); Stephenson v. Doe,
34
332 F.3d 68, 80 (2d Cir. 2003) (remanding for new trial in light of jury instructions that
effectively permitted jury to compromise).
Here, Defendants do not argue that the jury substantially lowered the damages liability as
a result of a compromise, that the Court's instructions gave the jury tacit permission to
compromise, or that the jury gave any affirmative indication that it intended or desired to
compromise. Instead, Defendants suggest that the jury must have comprised because: (1)
liability was a "close question" based on the verdict form; (2) the jury at one point asked to break
for the evening because of a "temporary" impasse, and at another point indicated an impasse and
were given a modified Allen charge; and (3) there were "fundamental inconsistencies" in the
verdict. Even accepting all of Defendants' propositions as true, they would not lead to an
"inescapable inference" that the jury ultimately reached a verdict by impermissibly
compromising. The first two of these factors, if credited, would merely be "plus" factors used to
demonstrate a compromise when some basic ground for finding a compromise, such as a low
damages award contradicted by the evidence, is already apparent. And the final factor
Defendants posit, "fundamental inconsistencies" in the verdict, is contrary to Defendants'
positions at trial regarding the jury instructions and verdict form. At any rate, Defendants'
interpretation ofthe events at the end of trial does not hold up to scrutiny. This case involved a
good deal of technical evidence accumulated over the course of three weeks during trial, and
slightly more than two days of deliberation was in no way unexpected. The Court has every
confidence that the jurors undertook their task with fidelity to the Court's instructions. Contrary
to Defendants' assertions and self-serving inferences from events that took place toward the end
of trial, there are no indications that the jury compromised when arriving at its verdict.
2. Background on the Jury's Deliberations and Verdict
A reexamination of the events at trial after the close of the evidence demonstrates the
failure of Defendants' contention regarding a compromise verdict, and puts the Defendants'
early and repeated motions for a mistrial into context.
35
The Court charged the jury on the morning ofFebruary 25,2015. See Tr. 2893:7. The
jury sent thirteen notes over the course of its deliberations before ultimately reaching a verdict on
the afternoon of February 27,2015. See Tr. 3054:16. The first three notes all asked for certain
pieces of evidence or bits of testimony from trial, with no further commentary from the jury.
The fourth note, received roughly twenty minutes before five o'clock on February 25, asked for
the solvency opinions of Plaintiff's and Defendants' experts (Frank and Grabowski), and further
indicated that "we [the jury] are at a temporary impasse with respect to solvency. Perhaps we
need to break until tomorrow." Ct. Ex. 15. The fifth note, however, stated that "[i]n order to
Answer #6 we need to know the total amount received for [various Defendants]." Ct. Ex. 16.
Because the verdict form directed the jurors to answer Question 6, which was a question of
damages for the fraudulent transfer claim under bankruptcy law, only if it had found insolvency
under at least one of the three federal definitions of the term provided in Questions 1 through 3,
there was an available-but by no means inescapable-inference that the jury had already
answered at least one of those questions in Plaintiff's favor.
Though there was no direct indication from the jury that they had in fact resolved any
questions in Plaintiff's favor, Defendants were on a hair trigger to move the Court for a mistrial
after this first indication that the jury might not return a swift verdict in their favor. The jury's
next (and seventh) note asked for witness testimony, but the following note stated,"Unfortunately-we cannot agree on# 1 and therefore we are hung. I am sorry." Ct. Ex. 19.
Upon receiving the note, which was the first indication that the jury felt that they might have
irresolvable differences (the earlier note suggested that the impasse was temporary), the Court
proposed giving the jury a modified Allen charge. See Tr. 3020:16-21. Defendants objected,
suggesting that the charge was "unnecessary" in light of the jurors' expressed disagreement, and
stating that declaring a mistrial was appropriate at that point. Tr. 3022:15-19. The Court noted
that it was very premature to call a mistrial at that stage for three reasons. First, there remained
the possibility of a partial verdict and no need for a mistrial on all charges based on an expressed
deadlock as to question one. Tr. 3022:22-23. Second, and more importantly, the jurors'
36
attention, questions, and demonstrated ability to follow directions during trial gave the Court
every reason to believe that the jury could follow a balanced and proper modified Allen charge.
Tr. 3023:8-14; 3031:23-3032:3. And third, because the note was received around 3:30p.m. on
February 26, 2015, see Ct. Ex. 19, the jury had been deliberating for only about a day and a half
after receiving three weeks' worth of evidence at trial. See Tr. 3027:1 0-17; 3031:15-22.
Accordingly, the Court gave the jury the following modified Allen charge over Defendants'
objection:
I have received [a] note from you, that you have not been able to reach a
unanimous verdict with respect to all questions. This case is important for the
plaintiff and for the defendants. Both parties, as well as the Court, have expended
a great deal of time, effort, and resources in seeking resolution of this dispute. It
is desirable if a verdict can be reached that this be done, both from the viewpoint
of the plaintiff and of the defendants. But as I stated in my instructions to you,
your verdict must represent the conscientious judgment of each juror.
It is normal for jurors to have differences. This is quite common. While
you may have honest differences of opinion with your fellow jurors during the
deliberations, each of you should seriously consider the arguments and opinions
of the other jurors. Do not hesitate to change your opinion if after discussions of
the issues and consideration of the facts and evidence in this case you are
persuaded that a change of your original opinion is justified. Again, I emphasize
that no juror should vote for a verdict unless it represents his or her conscientious
judgment.
Tr. 3030:7-3031:1. Defendants do not now argue that giving a modified Allen charge was
improper, or that the content of the modified Allen charge was improper.
The jury resumed deliberations until it sent another note at roughly 4:15 p.m. It stated,
"We need a break from the room. One juror is having a panic attack." Ct. Ex. 20; Tr. 3032:6-23.
The Court called the jury into the courtroom and instructed the jurors to take a 10-15 minute
break, and to then send a note indicating whether they wanted to break for the day. Tr. 3032:223033:6. After the jury left the courtroom, Defendants immediately raised their second motion for
a mistrial, which the Court denied. The jury returned and indicated that they wished to continue
deliberations until 5 p.m., and then return the next day to deliberate further. Ct. Ex. 21; Tr.
3034:3-4. The Court agreed with that procedure, and the parties had no objections. Tr. 3034:53035:20.
37
The jury returned the following morning, February 27,2015. After sending two notes
asking for evidence and clarification of the verdict form, the jury sent another note at roughly
11 :30 a.m., stating, "We're getting close. We need 112 hr break. Thank you." Ct. Ex. 24; Tr.
3052:12-13. The jury took their break, returned, and continued deliberating up to and through
lunch.
That afternoon, the jury indicated that it had reached a verdict. As the verdict was being
read, however, the foreperson indicated that the jury had recorded its answer on the punitive
damages questions incorrectly. Tr. 3057:11-18. The Court finished reading the verdict and
polled the jury; the jurors indicated unanimity except as to the punitive damages as written on the
form. Tr. 3058:12-18. The Court then saw counsel at sidebar, and received counsel's agreement
to an instruction allowing further deliberation on the punitive damages question until they
unanimously indicated the correct number. Tr. 3060:7-15. The Comi also asked counsel, "Is
there anything else on here that you identify as a reason, once we resolve this, that the jury
cannot be dismissed?" Tr. 3060:16-18. Counsel for both parties answered that there was not.
Tr. 3060:19-20.
After the jury returned to the jury room for further deliberations, the Court asked counsel
if there was "anything to take up." Tr. 3061:9. Defendants' counsel responded, "Not until after
you dismiss the jury, Your Honor." Tr. 3061:10-11. The jury returned with a verdict on punitive
damages shortly thereafter, and the Court asked counsel, after reading that verdict and polling the
jurors, whether there was any reason that the jury could not be dismissed-giving counsel a third
opportunity to raise any issues with the verdict. Tr. 3062:3-4. Again, both parties indicated that
there was not. Tr. 3062:5-6. Moments after the jury was dismissed, Defendants' counsel moved
for a mistrial based on a "dramatic inconsistency in the verdict." Tr. 3063:6-7. The Court
denied Defendants' motion, and further explained its reasoning for denying the motion in a
written order filed on March 4, 2015. See Dkt. No. 325.
3. Analysis
38
As the Court noted above, Defendants adopted the strategy of seeking any thin reed on
which to base a mistrial motion from the first indication that the jury might return a verdict in
Plaintiffs favor. Once the verdict was read, however, Defendants chose to abstain from making
a motion based on the supposedly inconsistent or compromise verdict until after the jury was
dismissed, despite being given three opportunities to raise any issues with the verdict while the
jury was still impaneled. Indeed, the second time the Court asked whether there were any issues
to take up after the jury had rendered the bulk of its verdict, Defendants' counsel indicated, "Not
until after you dismiss the jury." Tr. 3061 :10-11. In other words, Defendants apparent! y had
already conceived of their final mistrial motion based on the alleged inconsistency or
compromise nature of the verdict, and made a tactical decision to forego raising it until after the
jury was no longer able to address the asserted error. While such maneuvering might be enough
to hold that Defendants waived any claims based on the verdict, the Court need not rely solely on
procedural grounds. The motion should be denied substantively as well.
a. Lack of Compromise
First, there was no indication of compromise in the verdict, in the sense that Defendants'
liability for damages was substantially reduced by the jury's decisions. The fraudulent
conveyance and fraudulent transfer claims involved the same transfers, and the jury did not
award Plaintiffs an irrationally small or even substantially reduced amount of damages on the
fraudulent conveyance claim when compared with the evidence in this case. It would make little
sense for the jury, as a "compromise," to award full or near-full damages, and ones that were
supported by the record.
Second, and unlike the Second Circuit cases finding a compromise verdict without
diminished damages, there was neither a communication from the jury indicating that it might
reach a compromise verdict, nor an instruction to the jury indicating that it could reach such a
compromise. Defendants' argument that the modified Allen charge "inadvertently prompted the
jury to break its deadlock" by compromising is a matter of pure conjecture at best, pmiicularly
because they find no error in the charge itself. The modified Allen charge in fact made it clear
39
that the jury could not compromise: "But as I stated in my instructions to you, your verdict must
represent the conscientious judgment of each juror. ... Again, I emphasize that no juror should
vote for a verdict unless it represents his or her conscientious judgment." Tr. 3030:14-3031: 1.
Third, the jury gave multiple indications that they were considering the evidence
carefully and following the Court's instructions. They sent several notes asking for further
evidence and testimony, including a note asking for testimony the morning after a juror had a
"panic attack." See Ct. Ex. 12. Contrary to Defendants' assertion, the "panic attack"-which the
Court noted was "not that unusual," Tr. 3033: 11-does not contribute to an "inescapable
inference" that the ultimate verdict rendered was a compromise. Any problem was resolved with
a 10-15 minute break, and there was no further indication of a juror similarly feeling panicked.
See Tr. 3032:22-23 (giving jury break). Nor is there any indication that the panic attack was
induced by a need to compromise; the jurors had spent a full day in a windowless room at that
point. The jury even decided to go back to work after the break. See Tr. 3034:4. There is
simply no reason to infer that the "panic attack" contributed in any way to a compromise verdict,
particularly given the lack of any other indicia of compromise. The Defendants' arguments to
the contrary border on the frivolous.
b. Defendants' Renewed Inconsistent Verdict Claim
To the extent Defendants argue that "fundamental inconsistencies" in the jury's verdict
demonstrate a compromise, their motion is a transparent attempt to sneak an argument that they
have already waived in through the back door. As the Court has explained, Defendants agreed to
jury instructions and a verdict form that required the jury to consider Plaintiff's claims for
fraudulent transfer under the Bankruptcy Code and fraudulent conveyance under New York law
completely separately. When the jury decided the two claims differently, Defendants
intentionally forewent raising the possibility of inconsistent verdicts until immediately after the
jury had been dismissed, making it impossible to allow the jury to resolve any alleged
inconsistency-a task that the Court has every confidence the jury could readily have performed.
The Court denied Defendants' oral motion for a mistrial after the jury had been dismissed, Tr.
40
3066:1-5, and issued a further order detailing the reasons for that denial, see Order Mar. 4, 2015
(Dkt. No. 325). In a footnote, Defendants suggest that waiver should not bar consideration of
their inconsistent-verdict claim because the waiver rule applies only to what Defendants call
"pure inconsistent-verdict claims," which they state are cases where the "jury might have been
able to reconcile its verdict had it been given the chance." Def. Mem. at 34 n.15 (Dkt. No. 409).
Contrary to Defendants' suggestions, even if it were necessary to "fix" the verdict, there was no
reason why the jury that heard this case could not have done so. The notion that the jury was
"troubled," as Defendants put it, is fanciful at best and, in the Court's judgment, contrary to fact.
Moreover, because much of Defendants' argument that the verdict was a compromise depends
on the notion that the verdict was inconsistent, their argument here becomes entirely circular: the
jury was "troubled" because they returned an inconsistent verdict, but could not fix their
inconsistent verdict because they were "troubled." This argument does not hold water.
To permit a party that waived its objection to an inconsistent verdict by failing to timely
raise to later make the same argument under the guise of alleging a "compromise verdict" would
undermine the Second Circuit's clear waiver rule for inconsistent verdict claims. Furthermore, it
was Defendants' position at the charging conference that the Bankruptcy Code claim for
fraudulent transfers and the New York law claim for fraudulent conveyances required separate
instructions and separate answers on the verdict form-an argument that implied the possibility
that the jury could reach different verdicts on the two claims. Defendants state in their brief that
the "jury instructions and verdict form were not incorrect, but rather that the jury simply failed to
apply them correctly and in a logical manner." Def. Mem. at 34 n.15 (Dkt. No. 409). To later
claim that such a verdict was evidence of an impermissible compromise is, intentionally or
unintentionally, to rig the game, setting in motion ahead of time a potential way out of an
unfavorable verdict. The Court finds the argument unconvincing, and not an accurate
description of what occurred at trial.
Defendants' citation to Schaafsma v. Morin Vt. Corp., 802 F.2d 629, 634-35 (2d Cir.
1986), does not change the waiver analysis. Schaafsma involved an inconsistency between
41
interrogatory answers on the verdict sheet and the general verdict. See id. at 634. Even though
the terms of Federal Rule of Civil Procedure 49(b) "make it the responsibility of a trial judge to
resolve the inconsistency even when no objection is made," Schaafsma, 802 F.2d at 634 (internal
quotation marks omitted), the most that can be said here is that Rule 49(b) simply does not apply
here, because the jury's response to the verdict form's question regarding liability for fraudulent
conveyances under New York law was not a general verdict question to be compared to its
answers to special verdict questions regarding fraudulent transfers under the Bankruptcy Code.
The verdict form made clear that the jury was to answer the New York-law question regardless
of its answers to the federal-law questions, even though further analysis of federal-law liability
was cut off if the jury did not find insolvency under the federal definition. It would be
unreasonable, and untrue, to now cast Questions 1-3 on the verdict form as interrogatories
leading toward a general verdict on the New York-law claim in Question 7. Such a reading is
directly contrary to the parties' agreed understanding when considering the verdict form. And
even if, as Defendants argue based on Denny v. Ford Motor Co., 42 F.3d 106, 111 (2d Cir.
1994), waiver principles are applied on a case-by-case basis when inconsistent verdicts are
involved-a dubious statement, given the Second Circuit's more recent statement that "[i]t is
well established that a party waives its objection to any inconsistency in a jury verdict if it fails
to object to the verdict prior to the excusing of the jury," Kosmynka v. Polaris Indus., Inc., 462
F.3d 74, 83 (2d Cir. 2006)-the Court finds that this would be a poor case for relieving
Defendants of the effects of waiver, given their strategic choice not to bring up the possibility of
an inconsistent verdict until immediately after the jury was dismissed. See discussion supra at
38. Even Denny states that, if a defendant can see an inconsistency and knows that it will result
in judgment for its opponent, "it is hard to see why the defendant should be allowed to sit by
silently and yet be granted a new trial" after the judgment. Denny, 42 F. 3d at 111.
None of Defendants' assetted grounds for finding a compromise verdict-a "close
question" of liability, "difficult" deliberations, and an inconsistent verdict-supports their
assertion that the jury impermissibility compromised. Their motion is legally insufficient, and
42
much of their argument is at odds with the record. The Court finds no grounds for granting a
new trial on this basis.
IX.
Individual Defendants' Motion for Judgment as a Matter of Law
Defendants Michael Legge, Todd Ogaard, Ron Thayer, Howard Kaplan, Lee Brown,
Michael Ryan, Dennis Sadlowski, and the Estate of Justin D' Atri (the "Individual Defendants")
have also moved for judgment as a matter of law on the claims against them. The jury assessed
no damages against these Defendants, and they have raised their motion in case the Court
granted a new trial in response to the motion by Defendants Ira Rennert, The Renco Group, and
the Trustees of the Rennert Trusts. See Def. Mem. at 1 (Dkt. No. 403). Because the Court
herein denies the motion for a new trial, the Court denies the Individual Defendants' motion as
moot.
X.
Plaintifrs Motion for Prejudgment Interest
The Court now turns to Plaintiff's motion under Federal Rule of Civil Procedure 59(e) to
alter or amend the judgment in order to impose a rate of prejudgment interest "at or closer to"
nine percent per annum, and to begin the accumulation of prejudgment interest as of July 2,
2000. On March 16, 2015, the Court granted prejudgment interest at a rate of six percent per
annum to begin from August 2, 200 1, which was less than the nine percent Plaintiff had
requested but more than the rate proposed by Defendants, which would have been equal to the
federal statutory rate ofpostjudgment interest (roughly 0.25%). The Court assumes familiarity
with its reasoning in the March 16, 2015 order. See Dkt. No. 342
Under Rule 59( e), a court may alter or amend a judgment "to correct a clear error oflaw
or prevent manifest injustice." JNG Global v. United Parcel Serv. Oasis Supply Corp., 757 F.3d
92,96 (2d Cir. 2014). Plaintiff asserts that two errors in the Court's March 16, 2015 Order
should be corrected. First, he contends that interest should begin to run from July 2, 2000, as the
date the Debtors stopped paying interest on the Notes. Second, he states that the prejudgment
interest should more closely reflect the actual yield on corporate bonds with similar risk
43
profiles-that is, domestic semi-annual B-rated corporate bonds-in the same time frame. The
Court does not find either argument convincing.
1. The Date to Begin Interest
Taking up first Plaintiffs argument about the starting date for interest, the Court
concludes that Plaintiff does not offer an adequate explanation as to why the date when Debtors
first ceased paying interest on the Notes is the correct date to begin prejudgment interest. As the
Court stated in the March 16, 2015 Order, Plaintiffs right of recovery arose from the bankruptcy
filing. See Order at 10 (Dkt. No. 342); In re Nelson Co., 117 B.R. 813, 818 (Bankr. E. D. Pa.
1990). Regardless of whether the funds recovered here ultimately compensate the bondholders
as creditors of the corporation, what is at issue in this action is those damages arising from the
Debtors' bankruptcy. MagCorp's and Renco Metals's failure to pay interest due to the
bondholders before they went bankrupt is a different claim, and the damages resulting from those
missed payments are not at issue in this action. To fix prejudgment interest based on that earlier
date, which is not based on the Debtors' bankruptcy, would stretch the concept of prejudgment
interest past its breaking point, and convert it into additional recovery of damages. It is more
appropriate to fix prejudgment interest from the date that Plaintiffs claims arose.
2. The Amount of Prejudgment Interest
Plaintiff also moves the Court to increase the prejudgment interest rate to reflect the
average B-rated bond yields in the relevant period. The Court notes that Plaintiff had the
opportunity to raise this argument before judgment, and did not do so. Regardless, the Court
would not amend the rate of prejudgment interest even if this argument were not waived.
The Court does not agree with Plaintiff that the average "Yield to Worst" forB-rated
domestic corporate bonds represents the appropriate rate for prejudgment interest. Basing
prejudgment interest on actual interest rates that individual investors might have hypothetically
earned-for example, by investing the money in bonds similar to those offered by the debtorsinjects a "needless variable" into the question of prejudgment interest. See Indep. Bulk Transp.,
Inc. v. Vessel Morania Abaca, 676 F.2d 23, 27 (2d Cir. 1982). The Second Circuit has stated
44
that prevailing parties are entitled to "income which the monetary damages would have earned,
and that should be measured by interest on short-term, risk-free obligations." !d.; accord McCoy
v. Goldberg, 810 F. Supp. 539,547 (S.D.N.Y. 1993). In the absence of specific evidence from
Plaintiff on what this rate ofreturn would be, the Court at least believes that the risk-based rate
of return on B-rated corporate bonds overstates it.
Furthermore, Plaintiffs argument that using comparable B-rated bonds sufficiently
takes into account the risk of such investments only further proves that such rates cannot reliably
used to determine prejudgment interest. Plaintiff states that such bonds have default rates of less
than two percent, and make no mention of how such rates might affect the overall anticipated
rate of return. See Pl. Reply Mem. at 12. The exhibits that Plaintiff has provided state that "over
a five-year period a portfolio of B-rated issuers defaulted at a 26.5% average rate between 1983
and 2010." See Dkt. No. 410-7 (Ex. D at 60). To be sure, Plaintiffhas presented a Moody's
report indicating that the speculative-grade default rate in 2010 ended at 3 .2%, although the
report also called that rate "below average." 8 The Court does not cite these materials in an effort
to determine which is more accurate and should prevail, but rather to reinforce the notion that
using the return rate on speculative-grade investments is a variable that need not form part of the
prejudgment interest rate.
Plaintiffs argument that increasing the interest rate will necessarily inure to the benefit of
unsecured creditors proves too much. Plaintiff has not presented evidence or argument that even
recovery of the full amount of damages plus recovery of all interest requested will fully
compensate the Debtors' creditors. If the Court were guided solely by considerations of
restoring to unsecured creditors all of the harm done, it could theoretically do so by imposing an
absurdly high interest rate, which would make up for any shortfall in recovery otherwise
available. But doing so would contravene the purpose of postjudgment interest, which is not to
create additional recovery based on the "underlying laws," Pl. Mem. at 7, but simply to
8
See Corporate Default and Recovery Rates, 1920-2010, Moody's Investor Service, Feb. 28,2011, at 1-2,
available at http://efinance.org.cn/cn/FEben/Corporate%20Default%20and%20Recovery%20Rates, 1920-20 I O.pdf.
45
compensate Plaintiffs for the lost time-value of money in the damages award. See, e.g., Kassis
v. Teachers' Ins. &AnnuityAss'n, 13 A.D.3d 165,165 (N.Y. App. Div. 2004). The equities may
make prejudgment interest inappropriate if a defendant acted innocently. See Wickham
Contracting Co. v. Local Union No. 3, Int'l Bhd. of Elec. Workers, AFL-C/0, 955 F.2d 831, 834
(2d Cir. 1992). However, it does not follow that the Court has equitable discretion to amplify an
award of prejudgment interest to compensate creditors in ways untethered to the lost time-value
of their investments. For the same reason, the Court continues to believe that secondary
investors' lack oflegitimate expectation in interim use of the invested funds counsels against the
full nine percent statutory award.
Plaintiff further suggests that considering the secondary purchase of Debtors' bonds
when setting the rate of prejudgment interest risks undercompensating original noteholders. See,
e.g. Pl. Mem. At 6 (Dkt. No. 408). As the Court noted in its original decision on prejudgment
interest, "some portion of the current bondholders who stand to recover are not the original
bondholders who were deprived of the use of their funds." Dkt. No. 342 at 7. This was one
equitable factor guiding the Court's analysis, and the Court weighed the existence ofboth
original and secondary noteholders in its equitable analysis of the appropriate prejudgment
interest rate. The Court does not consider the existence of secondary noteholders dispositive,
and believes that the equities would be served by the six percent rate regardless of whether the
debt were held entirely by original noteholders or not. In a case such as this one where both
original and secondary noteholders are involved, weighing the equities requires the Comi to
consider the class of individuals who stand to recover as a whole, and determining a rate that best
serves competing equitable interests. The coexistence of both types of noteholders tugs in
separate directions when the equities are weighed, and the Court concludes that the six percent
figure is the best accommodation of these competing interests.
Finally, Plaintiff's argument that prejudgment interest should be higher relies, at least in
part, on the notion that Defendants are "bad actors." See Pl. Mem. at 12 ("[T]here is no reason to
protect [Defendants] against the consequences of their misconduct."); Pl. Reply Mem. at 14
46
("Defendants should not benefit unfairly from the use of other people's money."); id. at 14-15
(discussing interest rates Defendants "would have to pay to borrow the money that was
wrongfitlly taken"). Prejudgment interest is compensatory, not punitive. See 0 'Quinn v. N. Y
Univ. Med. Ctr., 933 F. Supp. 341,344 (S.D.N.Y. 1996). Again, that equitable considerations
may factor in to the prejudgment interest award does not give the Court leeway to convert
prejudgment interest into a form of punishment.
The Court notes that Defendants have suggested that the Court could reconsider and
adjust the amount of prejudgment interest downward if it "chooses to reconsider" the interest rate
determination. See Def. Mem. at 9. Because the Defendants have not raised a motion of their
own to reconsider the rate of prejudgment interest, the Court declines to do so based on
Defendants' suggestion (which would have been untimely at the time it was made). Even so, the
Court wishes briefly to address Defendants' suggestion that In re Palermo, 739 F.3d 99 (2d Cir.
2014), left open the question of whether New York or federal law governs prejudgment interest
under 11 U.S.C. § 544(b). Regardless of whether the briefing in Palermo contested the district
9
court's authority to award prejudgment interest under the New York statute, the opinion
expressly considered the matter:
The question of whether prejudgment interest should be awarded in an avoidance
and recovery action brought under federal bankruptcy law is an open one in our
Court. Many of the courts in this Circuit look to the source of the law underlying
plaintiffs claims: claims that arise out of federal law are governed by federal
rules, claims arising out of state law are governed by state rules .... We agree this
is the proper.fi'ameworkfor the analysis.
Palermo, 739 F.3d at 107 (emphasis added) (citations omitted). To the extent that Palermo
suggested that a federal award for violation of 11 U.S.C. § 550(a) would also be permissible, see
Palermo, 739 F.3d at 107 n.S, it clearly did not say that such a decision was the only permissible
alternative. Furthermore, insofar as the summary order in Goldman Sachs Execution &
9
In fact, it appears that the Defendant-Appellant in Palermo implicitly conceded that New York law could
apply. See Appellant's Reply Brief at 28, In re Palermo, 739 F.3d 99 (2d Cir. 2014), 2012 WL 820464, at *28.
47
Clearing, L.P. v. Official Unsecured Creditors' Comm. o,[ Bayou Grp., LLC, 491 F. App'x 201,
206 (2d Cir. 20 12), appears to be the contrary, the Court finds it better to apply the reasoning of
the later-decided Palermo. At any rate, prejudgment interest is discretionary under federal law
as well. SeeN Y Marine & Gen. Ins. Co. v. Trade line (L. L. C), 266 F.3d 112, 131 (2d Cir.
2001). While the Court based some of its reasoning around the New York statutory rate in the
March 16, 2015 Order, the Court's discretion would similarly be guided to fix the six percent,
non-compounding interest rate under federal law.
XI.
Conclusion
For the foregoing reasons, the motion by Defendants The Renco Group, Ira Rennert, and
the Trustees of the Rennert Trust for judgment as a matter of law is GRANTED with respect to
Plaintiffs claims for unjust enrichment and punitive damages, and DENIED in all other respects.
The same Defendants' motion for a new trial is DENIED. The remaining Defendants' motion
for judgment as a matter of law is DENIED as moot. Plaintiffs motion to alter or amend the
judgment to increase the amount of prejudgment interest is DENIED.
Because the Trustees of the Rennert Trust were liable only for Plaintiffs unjust
enrichment claim, the Clerk is requested to amend the judgment to indicate that Plaintiff shall
take nothing from Defendant Trustees ofthe Rennert Trust. The Clerk is requested to further
amend the judgment to remove any punitive damages award. The judgment shall otherwise
remain the same in all respects.
This resolves Docket Nos. 402, 407, and 408. The Clerk is requested to terminate the
case.
SO ORDERED.
United States District Judge
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