Tabatznik v. Turner
Filing
64
OPINION & ORDER re: 18 MOTION for Summary Judgment filed by Anthony Tabatznik, 20 MOTION for Attorney Fees , Interest and Costs filed by Anthony Tabatznik: As set forth above, Mr. Tabatznik's motion for summa ry judgment is granted and his motion for interest, fees, and costs is granted in part and denied in part. The Clerk of the Court is respectfully directed to close both motions (ECF Nos. 18 & 20). Mr. Tabatznik is instructed to electronically file an updated interest calculation with the Court within 10 days of the date of this Order. (Signed by Judge John F. Keenan on 3/30/2016) (tn)
USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: 03/30/2016
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
UNITED STATES DISTRICT COURT
-----------------------------------X
SOUTHERN DISTRICT OF NEW YORK
ANTHONY TABATZNIK,
:
-----------------------------------------------------------x
In re FANNIE MAE 2008 SECURITIES :
:
08 Civ. 7831 (PAC)
Plaintiff,
:
LITIGATION
:
09 MD 2013 (PAC)
:
: No. 14 Civ. 8135 (JFK)
-against:
:
OPINION & ORDER
:
OPINION & ORDER
-----------------------------------------------------------x
ANDREW TURNER,
:
:
Defendant.
:
-----------------------------------XStates District Judge:
HONORABLE PAUL A. CROTTY, United
APPEARANCES
FOR ANTHONY TABATZNIK
BACKGROUND1
Danielle L. Rose
Kimberly PerrottaofCole
The early years this decade saw a boom in home financing which was fueled, among
Rebecca G. Mangold
KOBREthings, by low interest rates and lax credit conditions. New lending instruments, such as
other & KIM LLP
FOR ANDREW TURNER
subprime mortgages (high credit risk loans) and Alt-A mortgages (low-documentation loans)
Victoria P. Lane
Nathan boom going. Borrowers played a role too; they took on unmanageable risks on the
kept the R. Sabourin
HINCKLEY, ALLEN & SNYDER
assumption that the market would continue to rise and that refinancing options would always be
JOHN F. KEENAN, United States District Judge:
available in the future. Lending discipline was lacking in the system. Mortgage originators did
Before the Court are Plaintiff Anthony Tabatznik’s motions
not hold these high-risk mortgage loans. Rather than carry the rising risk on their books, the
(1) for summary judgment to enforce the amount owed on a
originators sold their loans into the secondary mortgage market, often as securitized packages
promissory note (the “Note”) and (2) for interest, fees, and
known as mortgage-backed securities (“MBSs”). MBS markets grew almost exponentially.
costs.
But then the housing bubble burst. In 2006, the demand for housing dropped abruptly
With respect to the motion for summary judgment, Defendant
and home prices began to fall. In light of the changing housing market, banks modified their
Andrew Turner does not dispute that he is liable under the Note
lending practices and became unwilling to refinance home mortgages without refinancing.
but contends that the amount of his liability should be reduced
to account for Mr. Tabatznik’s alleged failures (1) to mitigate
1
Unless otherwise indicated, all references cited as “(¶ _)” or to the “Complaint” are to the Amended Complaint,
dated June 22, 2009. For purposes of this Motion, all allegations in the Amended Complaint are taken as true.
damages in connection with the Note and (2) to dispose of
1
1
collateral securing the Note in a commercially reasonable
manner.
Because the Court finds that Mr. Tabatznik has met his
burden in establishing Mr. Turner’s liability and that Mr.
Turner’s asserted defenses are precluded as a matter of law, Mr.
Tabatznik’s motion for summary judgment is granted.
As to Mr. Tabatznik’s motion for interest, fees, and costs,
Mr. Turner again does not dispute that he is liable for
prejudgment interest, as well as reasonable fees and costs.
However, he contends that the attorney’s fees and costs sought
by Mr. Tabatznik are not sufficiently substantiated and are
unreasonable, and that a lower rate of prejudgment interest
should apply.
The Court finds that (1) pursuant to the Note,
Mr. Tabatznik is entitled to prejudgment interest at the rates
sought; (2) Mr. Tabatznik is entitled to attorney’s fees and
partial costs for the work of his Kobre & Kim LLP counsel at the
reduced amounts set forth below; and (3) Mr. Tabatznik has
failed to provide sufficient information to determine the
reasonableness of (a) the fees of his counsel at the law firm of
Maclay Murray & Spens LLP or (b) the 2 percent administrative
fee charged by his counsel at Kobre & Kim.
Accordingly, Mr.
Tabatznik’s motion for interest, fees, and costs is granted in
part and denied in part.
2
I. Background
A. The Note
Plaintiff Anthony Tabatznik and Defendant Andrew Turner
entered into the Note on September 13, 2011. (See Pl.’s 56.1(d)
Statement ¶ 1 [hereinafter “56.1(d) Statement.])
Pursuant to
the Note, Mr. Tabatznik loaned Mr. Turner £2,425,000 to
facilitate certain transactions involving four companies with
which Mr. Turner was affiliated:
(1) THP-Parkhouse, Ltd.
(“THP”); (2) Parkhouse Manor Care Homes Limited (“Parkhouse
Manor”); (3) Aston Care Homes Limited (“Aston”); and (4) Turner
Healthcare Properties, Ltd. (Id. ¶¶ 1-2.)
The transactions
primarily related to the purchase by THP of a forty-eightbedroom care home in Scotland known as Parkhouse Manor, as well
as a related loan from THP to Aston. (Id. ¶ 2.)
The Note requires Mr. Turner to repay the principal under
the loan as follows: (a) £1,700,000 on September 30, 2012; (b)
£80,000 annually, on September 30 of each year, through 2020;
and (c) £85,000 plus all accrued and unpaid interest on
September 13, 2021, when the Note matures. (Id. ¶ 8.)
Pursuant
to the Note, Mr. Turner is also obligated to pay interest at a
rate of 8 percent per annum on the unpaid principal balance of
the loan. (Id. ¶ 9.)
The Note specifies more than 16 occurrences that constitute
“Events of Default,” including any failure by Mr. Turner “to
3
make payment when due, whether at stated maturity, by
acceleration, or otherwise, of any principal on the Loan.” (Id.
¶ 12.)
In the event of a default, certain rights and
obligations are triggered.
First, the Note provides Mr.
Tabatznik with the option to, by written notice to Mr. Turner,
accelerate payment by “declar[ing] the Loan to be forthwith due
and payable, together with accrued interest.” (Id. ¶ 15.)
In
addition, “in the case of any overdue amounts of principal or
interest,” Mr. Turner is required to pay interest on those
amounts at an increased rate of 10 percent upon demand by Mr.
Tabatznik. (Id. ¶ 13.)
The Note further requires Mr. Turner to
pay or reimburse Mr. Tabatznik for “all reasonable out-of-pocket
costs and expenses of [Mr. Tabatznik] (including, without
limitation, the reasonable fees and expenses of legal counsel)
in connection with . . . any Default and any enforcement or
collection proceedings resulting therefrom . . . .” (Id. ¶ 14.)
With respect to choice of law, the Note provides that it
“shall be governed by and construed in accordance with the law
of the State of New York, without regard to conflicts of law
principles thereof.” (Id. ¶ 16.)
The parties also submitted to
the nonexclusive jurisdiction of the state and federal courts of
New York “in any action or proceeding arising out of or relating
to [the] Note.” (Id. ¶ 17.)
4
Under the Note, Mr. Turner agreed to “pay all amounts due
under any Loan Document . . . without set-off or counterclaim.”
(Second Decl. of Rebecca G. Mangold Ex. 1 § 7 [hereinafter
“Second Mangold Decl.”])
B. Guaranty and Security Agreements
Through separate agreements executed the same day as the
Note, both THP and Parkhouse Manor guaranteed Mr. Turner’s
obligations under the Note. (See Aff. of Anthony Tabatznik
Ex. G. [hereinafter “Tabatznik Aff.”])
THP and Parkhouse Manor also executed three agreements (two
“Floating Charges” and one “Standard Security Agreement,”
together the “Security Agreements”) in Mr. Tabatznik’s favor
creating security interests in the personal property, goodwill,
and other assets associated with Parkhouse Manor, as well as in
Parkhouse Manor’s real property. (See Second Mangold Decl. Exs.
2-3.)
Each of the Security Agreements contain a choice-of-law
provision stating that it “shall be governed by[,] and construed
in accordance with[,] the laws of Scotland.” (Id. Ex. 2 § 25.1;
id. Ex. 3 § 15.1.)
Mr. Turner is not a party to the Security
Agreements. (See id. Exs. 2-3)
C. Defaults and the First and Second Forbearance Agreements
The first payment under the Note in the amount of
£1,700,000 was due September 30, 2012. (56.1(d) Statement ¶ 20.)
5
Mr. Turner failed to make this payment. (Id.)
It is undisputed
that this constituted the first Event of Default. (Id.)
On May 28, 2013, the parties agreed to the first of three
forbearance arrangements (the “First Forbearance”). (Id. ¶ 22.)
Under the First Forbearance, Mr. Turner made a principal payment
of £100,000 and agreed to shorten the maturity date of the Note
to August 30, 2013. (Id.)
In exchange, Mr. Tabatznik agreed to
forego his rights in connection with the first Event of Default
until August 30, 2013, but reserved all rights to pursue relief
under the Note after that time. (Id.).
When the First Forbearance expired, Mr. Turner failed to
pay the remaining balance on the Note. (Id. ¶ 23.)
In an e-mail
dated August 30, 2013, Mr. Turner represented to Mr. Tabatznik
that he had reached a verbal agreement to sell Parkhouse Manor,
that the agreement required him to obtain a mortgage on the
property, and that the process would probably take “a couple of
months” to complete. (See Tabatznik Aff. Ex. C).
In response,
Mr. Tabatznik agreed to another forbearance arrangement (the
“Second Forbearance”), effective through November 30, 2013, to
allow Mr. Turner to sell the property and generate funds to
repay the Note. (56.1(d) Statement ¶ 26.)
The agreement called
for Mr. Turner to make principal payments of £100,000 and
£225,000. (Id. ¶ 29.)
Mr. Turner made the first payment in full
but paid only £219,584.93 of the second payment. (Id. ¶ 32.)
6
Under the Second Forbearance, Mr. Turner also agreed to a
provision providing for the waiver of his claims and defenses
under the Note. (Second Mangold Decl. Ex. 14 § F.2.)
D. Valuation of Parkhouse Manor
In connection with Mr. Turner’s attempt to sell Parkhouse
Manor, he engaged Christie & Co., a professional brokerage firm
in the United Kingdom, to perform an independent valuation.
(Aff. of Andrew Turner ¶ 11 [hereinafter “Turner Aff.”])
On
November 6, 2013, Christie & Co. issued a report that included
three separate valuations for Parkhouse Manor depending on the
circumstances of the sale.
Christie & Co. estimated that (1) if
Parkhouse Manor were sold as a solvent, operating business, its
market value would be £2,500,000; (2) if Parkhouse Manor were
sold as an operating business, but in a distressed condition
with a receiver or third party appointed to realize sale of the
assets, and with accounts and records not available for
inspection, the market value would be £1,825,000; and (3) if
Parkhouse Manor were sold while not in operation, with a
receiver or third party appointed to realize sale of the assets,
and with fixtures removed but licenses and permits in place, the
market value would be £1,100,000. (Turner Aff. Ex. B. at 2, 6,
31.)
Each of these valuations “exclude[d] any liability that
arises or could arise in respect of VAT [value added tax],
7
taxation and the costs of acquisition or realisation.” (Id. at
31.)
E. Third Forbearance
After the expiration of the Second Forbearance on November
30, 2013, the parties entered into a third and final forbearance
on December 10, 2013 (the “Third Forbearance”).
Under the Third
Forbearance, which was effective through January 31, 2014, Mr.
Turner acknowledged that the outstanding principal balance on
the Note was £2,005,415.07 as of November 29, 2013. (56.1(d)
Statement ¶ 35.)
Mr. Turner subsequently made a forbearance
payment of £205,415.07 on December 13, 2013, leaving a principal
balance of £1,800,000.00. (56.1(d) Statement ¶ 38.)
As with the
Second Forbearance, the Third Forbearance contained a provision
providing for the waiver and release of Mr. Turner’s claims and
defenses under the Note. (Second Mangold Decl. Ex. 15 § F.2.)
F. Insolvency and Administration Petition
Shortly before the Second Forbearance expired at the end of
January 2014, Mr. Tabatznik learned of an unpaid tax assessment
against Parkhouse Manor in the amount of £134,260.03. (First
Decl. of Timothy James Edward ¶ 11 [hereinafter “First Edward
Decl.”]; Decl. of Iain Mackenzie Young Ex. 1 [hereinafter “Young
Decl.”])
Mr. Tabatznik also learned that Parkhouse Manor had
been involuntarily placed into insolvency proceedings following
a petition by Her Majesty’s Revenue and Customs (“HRMC”), the
8
United Kingdom’s tax authority. (First Edward Decl. ¶ 11; Young
Decl. Ex. 1 at 6.)
In response to that petition, the Glasgow
Sheriff Court in Scotland had appointed a provisional liquidator1
to take control of Parkhouse Manor. (Young Decl. Ex. 1., at 6.)
On February 13, 2014, as a secured creditor of Parkhouse
Manor per the Guaranty and Security Agreements, Mr. Tabatznik
petitioned the Glasgow Sheriff Court for an order placing
Parkhouse Manor into administration—a statutory process in the
United Kingdom governed by the Insolvency Act 1986, of which the
closest equivalent in the United States is Chapter 11
bankruptcy. (See Young Decl. ¶ 7; id. Ex. 1.)
The goal of
administration would be to pull the company out of insolvency,
or if that was not possible, to secure a better recovery for the
company’s creditors than would be possible through liquidation.
(See id. Ex. 1, at 3; Stephen Aff. ¶ 8.)
1
Under Scottish law, an insolvent company can end up
in different types of proceedings, including
liquidation and administration. . . .
The goal of
a liquidation proceeding is to dissolve the
company, sell the company’s assets, and distribute
the proceeds to creditors. . . .
If the court
believes that the assets of the company are in
danger of being dissipated before the hearing, the
court will appoint a provisional liquidator to
operate the company in a way that preserves the
company’s assets.
(Aff. of James Stephen ¶¶ 6-7 [hereinafter “Stephen Aff.”];
accord COMPANIES HOUSE, LIQUIDATION AND INSOLVENCY (SCOTLAND) (2015)).
9
Mr. Turner asserts that, prior to January 2014, he was
unaware of the outstanding tax assessment against Parkhouse
Manor. (Turner Aff. ¶ 15.)
He further contends that at the time
the petition for administration was filed, he was “ready,
willing and able” to pay the tax assessment and had nearly
concluded negotiations with the government that would have
pulled Parkhouse Manor out of insolvency. (Id. ¶ 23.)
Mr.
Turner also claims that he had kept Mr. Tabatznik apprised of
his efforts. (Id. ¶ 25.)
The day before filing for administration, Mr. Tabatznik had
informed Mr. Turner of his intention to do so. (See Second
Mangold Decl. Ex. 16.)
According to Mr. Tabatznik, despite his
assurances that the tax assessment would be paid, Mr. Turner had
failed to articulate a clear plan for how and when that would be
done. (Id.)
In the same correspondence, Mr. Tabatznik informed
Mr. Turner that he was exercising his right to charge interest
on the outstanding balance owed under the Note at the postdefault rate of 10 percent from that day forward, as provided
for in Section 3 of the Note. (Id.)
Through a letter dated March 21, 2014, Mr. Tabatznik
demanded that Mr. Turner repay the full balance of the Note
immediately. (Id.)
Then, on March 25, 2014, the Glasgow Sheriff
Court granted Mr. Tabatznik’s petition for an order of
administration and appointed two administrators proposed by Mr.
10
Tabatznik (the “Joint Administrators”) to replace the
provisional liquidator. (Stephen Aff. ¶ 3.)
Both Joint
Administrators are insolvency practitioners at BDO LLP, a UK
limited partnership accountancy and business advisory firm. (See
Young Decl. Ex. 1; Stephen Aff. ¶ 2.)
G. Administration and Sale of Parkhouse Manor
The Joint Administrators reviewed Parkhouse Manor’s assets,
liabilities, and operations, and determined that there was no
realistic way to pull the company out of insolvency. (Stephen
Aff. ¶¶ 9-10.)
On April 2, 2014, the Joint Administrators
placed Parkhouse Manor up for sale through Christie & Co. at a
list price of £2,000,000. (Turner Aff. ¶ 30.)
In mid-2014, a
buyer submitted an offer to purchase the company, but the deal
ultimately fell through. (Stephen Aff. ¶ 13.)
Because Parkhouse
Manor was in administration, the nursing home was not legally
permitted to admit new residents but was required to maintain
the same level of staffing, and the business began operating at
a loss. (Id. ¶ 15.)
H. Initiation of this Action
On September 9, 2014, Mr. Tabatznik filed suit against Mr.
Turner in the Commercial Division of the New York State Supreme
Court (New York County), bringing the action as a motion for
summary judgment in lieu of complaint under N.Y. C.P.L.R.
§ 3213. (See Notice of Removal.)
11
Mr. Turner removed the case to
this Court on October 9, 2014, on the basis of diversity
jurisdiction.2 (Id.)
for, discovery.
Mr. Turner requested, and the Court allowed
On March 16, 2015, Mr. Tabatznik renewed his
motion for summary judgment and also moved for interest, costs,
and attorney’s fees.
Mr. Turner requested that the Court stay
consideration of the motions while the sale of Parkhouse Manor
was pending.
Following several delays, Parkhouse Manor was sold on June
12, 2015, for £1,325,000. (See Second Mangold Decl. Ex. 4.)
After reductions for operating losses during Parkhouse Manor’s
sale; investments made to the premises in anticipation of sale;
and taxes, fees, and others costs, the net recovery from the
sale was £727,000. (Id.)
Mr. Tabatznik received a payment of
£650,000 from the sale on July 7, 2015. (See Letter from
Danielle L. Rose, Esq., ECF No. 47, at 4 n.3.)
As of August 12,
2015, Mr. Tabatznik was expected to receive the remaining
£77,000 at a later date but had deducted the full net proceeds
2
Upon removal, a Section 3213 motion is converted to a motion
for summary judgment under Rule 56 of the Federal Rules of Civil
Procedure. See Valley Nat’l Bank v. Oxygen Unlimited, LLC, No.
10 Civ. 5815, 2010 WL 5422508, at *2 (S.D.N.Y. Dec. 23, 2010)
(“Plaintiff’s motion for summary judgment in lieu of complaint
will be treated as a motion for summary judgment made under Rule
56 of the Federal Rules and the papers already submitted to be a
complaint and answer.”).
12
of £727,000 from the amount owed on the Note, leaving a
principal balance of £1,073,000. (Id.)
Following the sale, Mr. Turner sought supplemental briefing
to address the effect of the sale on his liability, which the
Court allowed.
II. Motion for Summary Judgment
A. Legal Standard
“[S]ummary judgment is appropriate where there exists no
genuine issue of material fact and, based on the undisputed
facts, the moving party is entitled to judgment as a matter of
law.” Easterling v. Collecto, Inc., 692 F.3d 229, 233 (2d Cir.
2012) (internal quotation marks omitted).
When reviewing a
motion for summary judgment, a court must “resolve all
ambiguities and draw all permissible factual inferences in
favor” of the nonmoving party. Winfield v. Trottier, 710 F.3d
49, 52-53 (2d Cir. 2013) (internal quotation marks omitted).
B. Prima Facie Case
Under New York law, to make out a prima facie case for
recovery on a promissory note “a plaintiff must simply show
proof of a note and failure to make payment.” Camofi Master LDC
v. Coll. P’ship, Inc., 452 F. Supp. 2d 462, 470 (S.D.N.Y. 2006)
(quoting Eisenstein v. Kelly Music & Entm’t Corp., No. 97 Civ.
4649(DC), 1998 WL 289734, at *4 (S.D.N.Y. June 4, 1998)).
“When
a note holder has established a prima facie claim, the burden
13
shifts to the defendant to prove the ‘existence of a triable
issue of fact in the form of a bona fide defense against the
note.’” Id. (quoting Nat’l Union Fire Ins. Co. of Pittsburgh,
Pa. v. Keenan, No. 93 Civ. 6784(LLS), 2005 WL 736233, at *1
(S.D.N.Y. Mar. 31, 2005)).
Here, it is undisputed that Mr. Tabatznik and Mr. Turner
entered into a promissory note in the amount of £2,425,000, and
that Mr. Turner defaulted on his payment obligations under the
Note. (56.1(d) Statement ¶¶ 1, 20; see also Def. Mem., ECF No.
33, at 1 (“Defendant does not deny that he is liable under the
Note . . . .”).)
Thus, Mr. Tabatznik has established a prima
facie claim for recovery on the Note.
The burden therefore
shifts to Mr. Turner to present evidence from which a reasonable
jury could find a bona fide defense to payment.
C. Mr. Turner’s Defenses
Although Mr. Turner does not dispute that he is liable
under the Note, he raises two defenses challenging the amount of
his liability.
First, Mr. Turner argues that there is a
disputed issue of material fact regarding whether Tabatznik
failed to mitigate damages by petitioning the Scottish court to
put Parkhouse Manor into involuntary administration rather than
allowing Mr. Turner additional time to attempt to pull Parkhouse
Manor out of insolvency.
Second, Mr. Turner contends that there
is a material dispute of fact regarding whether the sale of
14
Parkhouse manor was conducted in a commercially reasonable
manner.
As explained below, both arguments are unavailing.
1. Failure to Mitigate Damages
Under New York law, “[a] plaintiff in a contract case is
required to take reasonable actions to minimize its damages.”
Coastal Power Int’l, Ltd. v. Transcon. Capital Corp., 10 F.
Supp. 2d 345, 370 (S.D.N.Y. 1998); accord Wechsler v. Hunt
Health Sys., Ltd., 330 F. Supp. 2d 383, 427 (S.D.N.Y. 2004).
In
asserting failure to mitigate damages as a defense, the
defendant bears the burden of introducing evidence to prove that
the plaintiff could have lessened its damages and acted
unreasonably in failing to do so. See Wechsler, 330 F. Supp. 2d
at 427.
So long as the plaintiff acts “within the range of
reason, the defendant is liable for further damages resulting
therefrom.” Id. (quoting Ellerman Lines Ltd. v. The Steamship
President Harding, 288 F.2d 288, 290 (2d Cir. 1961) (Friendly,
J.)).
Here, Mr. Turner argues that Mr. Tabatznik failed to
mitigate damages on the Note by bringing Parkhouse Manor into
involuntary administration rather than allowing Mr. Turner
additional time to attempt to pull Parkhouse Manor out of
liquidation.
Mr. Turner contends that as a result of Mr.
Tabatznik’s actions, Parkhouse Manor was sold for less than it
would have been otherwise.
15
As an initial matter, the Court questions whether, based on
the record, any reasonable jury could find that Mr. Tabatznik
acted outside the range of reason in exercising his right as a
secured creditor to petition the Scottish courts for an order of
administration.
At the time the petition for administration was
filed, over 16 months had elapsed since Mr. Turner first
defaulted on the Note, and Mr. Tabatznik had agreed to three
separate forbearances.
The Court also notes that before the
petition was filed, Parkhouse Manor was already involved in
liquidation proceedings initiated by HRMC.
Although Mr. Turner
asserts in his affidavit that he was “ready, willing and able”
to pay the overdue tax assessment and pull Parkhouse Manor out
of liquidation through negotiations with the government, he
fails to specify how he planned to do so or to provide any
supporting documentation demonstrating that the government had
agreed to a resolution.
In any event, however, Mr. Turner waived his right to
protest payment under the Note by agreeing to “pay all amounts
due under any Loan Document . . . without set-off or
counterclaim.” (Second Mangold Decl. Ex. 1 § 7; see also id. § 1
(defining “Loan Document” to include the Note.))
“Under New
York law, such a waiver among sophisticated parties is effective
to overcome virtually any defense to enforcement.” Camofi Master
LDC, 452 F. Supp. 2d at 477 (quoting Internet Law Library, Inc.
16
v. Southridge Capital Mgmt., LLC, No. 01 CIV. 6600 (RLC), 2005
WL 3370542, at *7 (S.D.N.Y. Dec. 12, 2005)) (holding that
fraudulent inducement defense was barred by provision in
promissory notes providing that “[e]ach payment of principal and
of interest shall be paid . . . without setoff or
counterclaim”); see also Internet Law Library, 2005 WL 3370542,
at *7 (examining nearly identical waiver and finding that it
barred fraud defense), aff’d sub nom. ITIS Holdings Inc. v.
Southridge Capital Mgmt. LLC, 329 F. App’x 299 (2d Cir. 2009).
Mr. Turner is a sophisticated businessman who has been in
the nursing home industry for nearly 40 years and served as
founder, chairman, and chief executive officer of a nursing home
enterprise with sales of over $3.5 billion. (Turner Aff. ¶ 2.)
He was also represented by counsel in connection with the Note
and related transactions. (See 56.1(d) Statement ¶ 4.)
As a
result, the Court finds that Mr. Turner’s waiver of his right to
protest payment under the Note is enforceable and precludes his
asserted defense for failure to mitigate damages.3
3
In addition to the waiver provision in the Note, the Second and
Third Forbearance agreements each contain a waiver and release
of claims. (See Second Mangold Decl. Ex. 14 § F.2; id. Ex. 15 §
F.2.) Because the Court finds that the terms of the Note are
sufficient to bar Mr. Turner’s failure to mitigate damages
defense, the Court declines to consider whether the Second and
Third Forbearance agreements also preclude that defense.
17
2. Commercial Reasonableness
Mr. Turner next argues that to recover on the Note, Mr.
Tabatznik must establish, pursuant to Article 9 of the New York
Uniform Commercial Code (“U.C.C.”), that the sale of Parkhouse
Manor was conducted in a commercially reasonable manner. See
N.Y. U.C.C. § 9-605 (requiring that “[e]very aspect of a
disposition of collateral, including the method, manner, time,
place, and other terms, must be commercially reasonable”).
According to Mr. Turner, because material issues of fact exist
regarding the commercial reasonableness of the Parkhouse Manor
sale, summary judgment is inappropriate.
The Court first notes that the New York U.C.C. does not
apply to real property, which accounted for a substantial
portion of the value associated with the Parkhouse Manor sale.
See N.Y. U.C.C. § 9-109(d)(11) (“This article does not apply to
. . . the creation or transfer of an interest in or lien on real
property.”); State Bank of Albany v. Fioravanti, 51 N.Y.2d 638,
643 (1980).
Thus, even if the New York U.C.C. did apply, it
would not apply to the sale of the real property associated with
Parkhouse Manor.
In any event, the New York U.C.C. does not control Mr.
Tabatznik’s obligations with respect to the security interests
in Parkhouse Manor because those interests are governed by
Scottish law.
Each Security Agreement provides that it “shall
18
be governed by[,] and construed in accordance with[,] the laws
of Scotland.” (Second Mangold Decl. Ex. 2 § 25.1; id. Ex. 3
§ 15.1.)
In addition, the Security Agreements create and define
the rights and obligations of the parties in connection with
Scottish statutory provisions.
For example, the Floating
Charges set forth the procedures by which Mr. Tabatznik may,
after an Event of Default, “appoint one or more persons to be an
Administrator in accordance with paragraph 14 of Schedule B1 to
the Insolvency Act 1986.” (Id. Ex. 2 § 9.1.4.)
Although the Note is governed by New York law, the Note
specifically acknowledges that the security interests were
created pursuant to the separate Security Agreements. (See id.
Ex. 1 § 9(p) (“Each of the Mortgage, the Floating Charges and
the Pledges will create in favor of [Mr. Tabatznik] a legal,
valid, enforceable and perfected security interest in all right,
title, and interest of Turner Healthcare, Aston or the
Guarantors . . . .”); see also id. § 1 (defining “Mortgage” as
“the Standard Security and Assignation of Rents.”))
The Note
further recognizes that different law applies to the agreements
by defining “Floating Charges” as the “Scottish Law floating
charges over the assets of the Guarantors.” (Id. § 1.)
While the weight of New York authority holds that the New
York U.C.C.’s commercial reasonableness requirement is not
waivable, see Bank of China v. Chan, 937 F.2d 780, 785 (2d Cir.
19
1991), here, the Note and Security Agreement demonstrate that
the parties intended the security interests to be governed by a
different body of law.
Such an agreement is enforceable under
New York choice of law principles so long as the chosen
jurisdiction bears a reasonable relation to the transaction. See
N.Y. U.C.C. § 1-301; Hartford Fire Ins. Co. v. Orient Overseas
Containers Lines (UK) Ltd., 230 F.3d 549, 556 (2d Cir. 2000)
(“New York law is clear in cases involving a contract with an
express choice-of-law provision:
Absent fraud or violation of
public policy, a court is to apply the law selected in the
contract as long the state selected has sufficient contacts with
the transaction.”).
Here, the transaction bears a reasonable
relation to Scotland, where Parkhouse Manor is located, and Mr.
Turner does not contend that the choice of Scottish law in the
Security Agreements is unenforceable or violates public policy.
As a result, commercial unreasonableness under Article 9 of the
New York U.C.C. does not provide a valid defense to enforcement
of the Note.
D. Conclusion
In sum, because Mr. Tabatznik has established a prima facie
claim for enforcement of the Note and Mr. Turner has failed to
respond with evidence from which a reasonable jury could find a
bona fide defense to payment, Mr. Tabatznik’s motion for summary
20
judgment to enforce the principal balance of £1,073,000 owed on
the Note is granted.
III. Motion for Interest, Fees, and Costs
In addition to summary judgment on the principal balance
under the Note, Mr. Tabatznik seeks to recover prejudgment
interest on the principal, as well as fees and costs incurred in
connection with enforcement.
As set forth below, the motion for
interests, fees, and costs is granted in part and denied in
part.
A. Interest
Under New York law, a plaintiff in a breach of contract
action is entitled to recover prejudgment interest. See NML
Capital v. Rep. of Arg., 17 N.Y.3d 250, 258 (2011) (citing N.Y.
C.P.L.R. § 5001).
The appropriate rate of prejudgment interest
“varies depending on the nature and terms of the contract.” Id.
Where the parties set a contractual rate, that rate is used to
calculate prejudgment interest accruing on principal prior to
the loan’s maturity or a default in performance. See id.
The
parties may further specify the rate that will apply in the
event of a default or acceleration of the debt. Id. at 262.
If
the agreement fails to provide the applicable rate, New York’s
statutory rate will apply. Id. at 258.
In this case, the Note provides for an ordinary interest
rate of 8 percent. (Second Mangold Decl. Ex. 1 § 3.)
21
The Note
further specifies that “in the case of any overdue amounts of
principal or interest, [Mr. Turner] shall pay interest on such
overdue amounts, on demand by [Mr. Tabatznik], at a rate per
annum equal to the ordinary interest rate provided above, plus
an additional 2.00% per annum.” (Id.)
Mr. Turner paid interest
on the Note through January 31, 2014, which accrued at the
ordinary rate of 8 percent. (56.1(d) Statement ¶ 47.)
At that
time, Mr. Turner had overpaid the accrued interest by £13,185,
but made no further interest payments to Mr. Tabatznik. (Id.)
It is undisputed that between February 1, 2014, and March
21, 2014, when Mr. Tabatznik accelerated payment, interest
accrued according to the rates specified in the Note—
specifically, 8 percent per annum from February 1, 2014, through
February 11, 2014; and 10 percent per annum from February 12,
2014, through March 20, 2014.
However, Mr. Turner contends that
after the acceleration of the loan, the contractual rate of 10
percent ceased to apply because (1) under New York law, interest
is “unearned” after acceleration and (2) the Note does not
specify that the default rate applies following acceleration.
The Court disagrees.
First, Mr. Turner’s reference to “unearned” interest is
misplaced.
As the New York Court of Appeals has explained,
“[u]nearned interest issues usually arise when repayment of the
loan is to occur in installments of combined principal and
22
interest over an extended time period and interest is
precomputed at loan commencement based on the assumption that
the loan will continue until full maturity.” NML Capital, 17
N.Y.3d at 268 n.5 (2011).
When interest is pre-calculated in
that way and the loan is repaid earlier than expected, the
future interest payments are “unearned” and unrecoverable unless
the parties have agreed otherwise. See id.
Similarly, if the
outstanding balance on the loan is accelerated, the creditor
will not ordinarily be able to recover the previously scheduled
future interest payments in addition to prejudgment interest on
the accelerated amount of the loan because this would allow
double recovery of interest on the same principal. See Capital
Ventures Int’l v. Republic of Arg., 552 F.3d 289, 296-97 (2d
Cir. 2009).
None of these restrictions preclude prejudgment interest in
this case.
The outstanding principal has not been repaid, and
Mr. Tabatznik seeks only to recover contractual prejudgment
interest, not all those additional interest payments that would
have come due had the Note continued to maturity through
September 2021.
Mr. Turner’s argument that the default rate does not apply
post-acceleration under the terms of the Note is likewise
unavailing.
The Note provides that the default rate of 10
percent would apply to “any overdue amounts of principal or
23
interest.” (Second Mangold Decl. Ex. 1 § 3.)
When Mr. Tabatznik
demanded full payment of the principal balance of £1,800,000 on
March 21, 2014, that amount became “forthwith due and payable”
under Section 12 of the Note. (See id. § 12.)
Thus, interest
continued to accrue at the rate of 10 percent per annum on the
outstanding balance of principal after acceleration.
In light of the Court’s determination that he is entitled
to unpaid prejudgment interest, Mr. Tabatznik is directed to,
within 10 days of the date of this Order, electronically file an
updated interest calculation in accordance with the Court’s
findings.
The interest calculation should reflect any
deductions from the outstanding principal based on payments
received from the sale of Parkhouse Manor since Mr. Tabatznik’s
last submission to the Court.
B. Attorney’s Fees and Costs
Under Section 17 of the Note, Mr. Turner agreed to pay or
reimburse Mr. Tabatznik for reasonable out-of-pocket costs and
expenses “including, without limitation, the reasonable fees and
expenses” of various legal counsel associated with certain
events. (Second Mangold Decl. Ex. 1 § 17.)
Mr. Tabatznik seeks
to recover both his attorney’s fees associated with this
litigation (“Kobre & Kim Fee Application”) and his attorney’s
fees associated with Scottish administration proceedings (“MMS
Fee Application”) under Section 17.
24
1. Legal Standard
New York follows the so-called American Rule that
“attorneys’ fees are the ordinary incidents of litigation and
may not be awarded to the prevailing party unless authorized by
agreement between the parties . . . .” Oscar Gruss & Son, Inc.
v. Hollander, 337 F.3d 186, 199 (2d Cir. 2003).
“[P]arties may
agree by contract to permit recovery of attorneys’ fees, and a
federal court will enforce contractual rights to attorneys’ fees
if the contract is valid under applicable state law.” U.S Fid. &
Guar. Co. v. Braspetro Oil Servs. Co., 369 F.3d 34, 74 (2d Cir.
2004).
The fee applicant bears the burden of demonstrating
entitlement to an award, Hensley v. Eckerhart, 461 U.S. 424, 437
(1983), and contracts shifting attorney’s fees “must be strictly
construed to avoid inferring duties that the parties did not
intend to create.” U.S. Fid. & Guar. Co., 369 F.3d at 75.
If a contract provides a plaintiff the right to recover
attorney’s fees, the court must calculate a “presumptively
reasonable fee.” Arbor Hill Concerned Citizens Neighborhood
Ass’n v. Cty. of Albany, 522 F.3d 182, 190 (2d Cir. 2007).
A
presumptively reasonable fee equals the product of a reasonable
hourly rate in the community and the reasonable number of hours
required by the case. Millea v. Metro-N. R.R. Co., 658 F.3d 154,
166 (2d Cir. 2011).
25
The first variable in the presumptively reasonable fee
equation—the reasonable hourly rate in the community—is the rate
a paying client in the district where the court sits would be
willing to pay. Arbor Hill, 552 F.3d at 190.
To determine this
number, the Second Circuit directs its district courts to
consider “all of the case-specific variables that [it] and other
circuits have identified as relevant to the reasonableness of
attorney’s fees in setting a reasonable hourly rate.” Id.4
4
These factors are numerous. The Arbor Hill court identifies
at least twenty-one. These include: (1) the complexity and
difficulty of the case, (2) the available expertise and capacity
of the client’s other counsel (if any), (3) the resources
required to prosecute the case effectively (taking account of
the resources being marshaled on the other side but not
endorsing scorched earth tactics), (4) the timing demands of the
case, (5) whether an attorney might have an interest
(independent of that of his client) in achieving the ends of the
litigation or might initiate representation himself, (6) whether
an attorney might have acted pro bono (such that a client might
be aware that the attorney expected low or non-existent
remuneration), (7) other returns (such as reputation, etc.) that
an attorney might expect from the representation, (8) the time
and labor required, (9) the novelty and difficulty of the
questions, (10) the level of skill required to perform the legal
service properly, (11) the preclusion of employment by the
attorney due to acceptance of the case, (12) the attorney’s
customary hourly rate, (13) whether the fee is fixed or
contingent, (14) the time limitations imposed by the client or
the circumstances, (15) the amount involved in the case and the
results obtained, (16) the experience, reputation, and ability
of the attorneys, (17) the “undesirability” of the case,
(18) the nature and length of the professional relationship with
the client, (19) awards in similar cases, (20) that a
reasonable, paying client wishes to spend the minimum necessary
to litigate the case effectively, and (21) that a reasonable,
paying client might be able to negotiate with his or her
attorneys, using their desire to obtain reputational benefits
26
The second variable is the reasonable number of hours
required by the case.
While the fee applicant bears the burden
of documenting the appropriate hours expended, Hensley, 461 U.S.
at 437, “the district court does not play the role of an
uninformed arbiter [and] may look to its own familiarity with
the case and its experience generally as well as to the
evidentiary submissions and arguments of the parties.” DiFilippo
v. Morizio, 759 F.2d 231, 236 (2d Cir. 1985).
This
determination asks “whether, at the time the work was performed,
a reasonable attorney would have engaged in similar time
expenditures.” Grant v. Bethlehem Steel Corp., 973 F.2d 96, 99
(2d Cir. 1992).
“Where the documentation of hours is
inadequate, the district court may reduce the award
accordingly.” Hensley, 461 U.S. at 433.
Additionally, an award of attorney’s fees “include[s] those
reasonable out-of-pocket expenses incurred by attorneys and
ordinarily charged to their clients.” LeBlanc-Sternberg v.
Fletcher, 143 F.3d 748, 763 (2d Cir. 1998) (quoting U.S.
Football League v. Nat’l Football League, 887 F.2d 408, 416 (2d
Cir. 1996)).
Such expenses exclude an “attorney’s ordinary
overhead,” but typically include reproduction, travel,
telephone, and legal research expenses. Id.
that might accrue from being associated with the case. Arbor
Hill, 522 F.3d at 184, 186 n.3, 190.
27
2. The Kobre & Kim Fee Application
Mr. Turner argues that Mr. Tabatznik’s Kobre & Kim Fee
Application should be denied or reduced because (1) the
attorney’s and support staff’s fees are unreasonable, (2) the
time billed is unreasonable, (3) the documentation for certain
months is insufficient, and (4) Section 17 of the Note does not
permit Mr. Tabatznik to recover “fees on fees.”
For the reasons
stated below, Mr. Tabatznik’s Kobre & Kim Fee Application is
approved as modified.
a. Kobre & Kim’s Reasonable Hourly Rate
Kobre & Kim assigned a team of two attorneys and two
paralegals to Mr. Tabatznik’s case. (See Decl. of Danielle L.
Rose ¶ 8 (Feb. 2, 2015) [hereinafter “First Rose Decl.”].)
The
attorneys are partner Danielle L. Rose, whose billing rate is
$825, and associate Kimberly Cole, whose billing rate is $560.5
(Id. ¶¶ 8-11.)
The paralegals are “senior legal analyst” Emily
Wanger, whose billing rate is $375, and “litigation assistant”
5
Kobre & Kim promoted Ms. Cole to partner in January 2015.
(Mem. of Law in Support of Pl. Anthony Tabatznik’s Mot. for
Interest, Fees & Costs 11 n.6 [hereinafter, “Mem.”]; Reply Mem.
of Law in Support of Pl. Anthony Tabatznik’s Mot. for Interest,
Fees & Costs 7 n.5 [hereinafter, “Reply”].) It continued to
bill Mr. Tabatznik for Ms. Cole’s work at her associate rate
through February 2, 2015, thereafter, associate Rebecca G.
Mangold, whose billing rate is also $560, replaced Ms. Cole.
(See generally Notice of Appearance by Rebecca G. Mangold, ECF
No. 35 (Mar. 17, 2015); Decl. of Rebecca G. Mangold, ECF No. 471 (Aug. 12, 2015); id. Ex. 2.)
28
Jessica Maynor, whose billing rate is $185. (Id. ¶ 11.)
Various
other senior legal analysts and litigation assistants provided
services for discrete tasks at rates equal to Mses. Wanger and
Maynor. (Id. ¶ 10.)
(1) Reasonable Rate for Attorneys
Mses. Rose, Cole, and Mangold are each highly qualified
commercial litigators.
After receiving her Bachelor of Arts
degree from Princeton University and her Juris Doctor degree
from Harvard Law School, Ms. Rose clerked for Judge Sand in the
Southern District of New York. (First Rose Decl. ¶ 9; id. Ex.
II.)
She entered private practice in 2002. (First Rose Decl.
¶ 9; id. Ex. II.)
Ms. Cole received her Bachelor of Arts degree
from American University and her Juris Doctor degree from
Georgetown University Law Center. (First Rose Decl. ¶ 9; id. Ex.
II.)
She then clerked for Judge Bates in the D.C. District
Court and entered private practice in 2006. (First Rose Decl.
¶ 9; id. Ex. II.)
Ms. Mangold received her Bachelor of Arts
degree from U.C.L.A. and her Juris Doctor degree from Harvard
Law School. (Rebecca G. Mangold, KOBRE & KIM,
http://kobrekim.com/our-team/lawyers/rebecca-g.-mangold/ (last
visited Mar. 30, 2016).)
She then clerked for Judge Martini in
the District of New Jersey and entered private practice in 2009.
(Id.; Attorney Search, N.Y. ST. UNIFIED CT. SYS.,
29
https://iapps.courts.state.ny.us/attorney/AttorneySearch (last
visited Mar. 30, 2016).)
Mr. Tabatznik supports his argument that Kobre & Kim’s
rates are reasonable in part by citation to Ceglia v.
Zuckerburg, No. 10 Civ. 569A(F), 2012 WL 503810, at *15
(W.D.N.Y. Feb. 14, 2012), and In re AOL Time Warner Shareholder
Derivative Litigation, No. 02 Civ. 6302(CM), 2010 WL 363113, at
*13 (S.D.N.Y. Feb. 1, 2010). (See Reply 9.)
These cases offer
limited guidance for the case before this Court.
Ceglia involved attorney’s fees imposed as a sanction in
connection with an accelerated motion to compel. Ceglia, 2012 WL
503810, at *3.
Attorney’s fees as sanctions may serve in some
part as compensation, but the principal objective of such an
award is to deter abusive litigation practices. Id. at *7.
Moreover, Ceglia involved “forensic procedures not typically
seen in th[at] court,” involving computer and technology
proficiency as well as handwriting and document authentication
and “the litigation skills, technical knowledge, and experience
of counsel capable of marshaling such relevant evidence and
expertise.” Id. at *11.
Even so, the Western District of New
York did not find rates as high as those here to be reasonable.
Rather, counsel voluntarily reduced its rates by 25 percent,
resulting in rates for junior associates of $337.50 and for
senior partners of $716.25. Id. at *15.
30
In re AOL involved attorney’s fees arising out of classaction litigation’s “common fund doctrine.” In re AOL, 2010 WL
363113, at *4.
In re AOL was “the last in a trilogy of large
scale matters” and “raise[d] some complicated and novel issues,
including . . . cutting-edge changes in corporate governance.”
Id. at *1.
The Court found ranges of rates for paralegals from
$90 to $250, for associates from $175 to $550, and for partners
from $300 to $850, to be “relatively high” but reasonable. Id.
at *13.
By contrast, this Court has recently considered awards of
attorney’s fees in an action to enforce a promissory note on at
least two occasions. See Rubenstein v. Advanced Equities, Inc.,
No. 13 Civ. 1502 (PGG), 2015 WL 585561 (Feb. 10, 2015); Nautilus
Neurosciences, Inc. v. Fares, No. 13 Civ. 1078 (SAS), 2014 WL
1492481 (Apr. 16, 2014).
In Nautilus, the Court determined that
rates voluntarily discounted by 10 percent to $603 for a partner
admitted to the bar in 1987 and $337.50 for an associate
admitted to the bar in 2011 were reasonable. Nautilus, 2014 WL
1492481, at *2-3.
In Rubenstein, the Court determined that
rates of $525 for partners with between twenty and thirty years’
experience and a “blended” rate of $350 for associates with
experience ranging from recent law school graduate to nine years
were reasonable. Rubenstein, 2015 WL 585561, at *6-7.
31
Additionally, this enforcement action is not overly
complex.
Mr. Tabatznik’s counsel does not suggest that its
particular expertise, like in Ceglia, or any novel issues raised
by the facts, like in In re AOL, warrant a significant upward
departure in the reasonable rates charged by attorneys in the
Southern District of New York for representation in cases
seeking enforcement of promissory notes.
Nevertheless, this
action does involve multiple transactions and the law of several
jurisdictions, and these elements complicate what typically may
be a routine cause of action.
Therefore, this case required a
higher level of skill to perform the legal service properly than
a run-of-the-mill enforcement action and an extreme downward
departure from Kobre & Kim’s customary rates is also not
warranted.
Balancing the factors identified by the Second Circuit in
Arbor Hill and enumerated above, Kobre & Kim’s fees should be
reduced in order to reflect a reasonable hourly rate for
attorney services in this matter.
The Court will apply a
partner rate of $650 and an associate rate $425.
(2) The Reasonable Rate for Non-Attorneys
Mr. Tabatznik’s briefing and affidavits fail to provide any
description for the distinction between a “legal analyst” or
“litigation assistant” or how one in either position qualifies
as “senior.” (See First Rose Decl. ¶¶ 9-10.)
32
The “senior”
designation does not affect billing rates, as all legal analysts
on this matter billed at $375 and all litigation assistants
billed at $185.
Both rates exceed the reasonable rate in this
district for paralegal services.
In Rubenstein, this Court rejected a paralegal rate of
$275, concluding that the paralegal rate in the Southern
District of New York was generally “significantly below” $275.
Rubenstein, 2015 WL 585561, at *7.
$140 per hour. Id.
The court applied a rate of
Review of contemporaneous cases in the
Southern District of New York—albeit for different causes of
action—suggest that paralegal fees range between $100 and $280.
See, e.g., Doe v. Unum Life Ins. Co. of Am., No. 12 Civ.
9327(LAK)(AJP), 2016 WL 335867, at *6 (S.D.N.Y. Jan. 28, 2016)
(approving $200 paralegal rate); Tackney v. WB Imico Lexington
Fee, LLC, No. 10 Civ. 2734(PGG), 2015 WL 1190096, at *5
(S.D.N.Y. Mar. 16, 2015) (approving $135 paralegal rate); Genger
v. Genger, No. 14 Civ. 5683, 2015 WL 1011718, at *3 (S.D.N.Y.
Mar. 9, 2015) (approving a paralegal rate of $260-80 even though
it “might reflect some degree of largesse”); Sprint Commc’ns Co.
v. Chong, No. 13 Civ. 3846 (RA), 2014 WL 6611484, at *8
(S.D.N.Y. Nov. 21, 2014) (approving $180-205 paralegal rate);
Berrian v. City of N.Y., No. 13 Civ. 1719(DLC)(DF), 2014 WL
6611356, at *7 (S.D.N.Y. July 28, 2014) (approving $100
paralegal rate).
33
As with the attorney rates, the Mr. Tabatznik does not
suggest that any particular expertise, novel issue, or other
Arbor Hill factor arose to warrant an increase in the paralegal
rate.
Considering the complexity of this multitransaction,
multijurisdictional case, the Court will apply a paralegal rate
of $200.
b. Kobre & Kim’s Reasonable Expended Time
In addition to determining the presumptively reasonable
fee, the Court must determine the reasonable number of hours
required by the case.
This analysis requires the Court to
exclude “hours that are excessive, redundant, or otherwise
unnecessary.” Hensley, 461 U.S. at 434.
“The guiding principle
to determine whether redundancy has occurred is the ‘degree of
effort reasonably needed to prevail in this litigation.’”
Rubenstein, 2015 WL 585561, at *8 (quoting N.Y. State Ass’n for
Retarded Children v. Carey, 711 F.2d 1136, 1146 (2d Cir. 1983)).
While the Second Circuit “do[es] not require that the court
set forth item-by-item findings concerning what may be countless
objections to individual billing items,” a district court must
ensure that counsel exercises “billing judgment,” complying with
ethical and market restraints that counsel would encounter in
billing its own clients. Lunday v. City of Albany, 42 F.3d 131,
134 (2d Cir. 1994).
A court may deduct a reasonable percentage
34
of the number of hours claimed “as a practical means of trimming
fat from a fee application.” Carey, 711 F.2d at 1146.
Mr. Tabatznik submits itemized billing records covering the
period from July 1, 2014, through June 30, 2015. (See First Rose
Decl. Ex. I; Second Decl. of Danielle L. Rose Ex. B; First
Mangold Decl. Ex. A.)
These billing records total 108.6 partner
hours, 282.5 associate hours, and 419.1 paralegal hours.
Mr.
Turner singles out several entries as examples of redundancy and
objects to Mr. Tabatznik’s counsel’s use of “block-billing,”
i.e. the grouping together of tasks performed on a single day
with one associated total hour figure.
The Court has carefully reviewed Mr. Tabatznik’s counsel’s
billing entries and its explanation for those entries identified
by Mr. Turner as redundant and finds that the hours expended by
Mr. Tabatznik’s counsel are reasonable.
Mr. Tabatznik’s
counsel’s billing records demonstrate that it maintained a lean
staff of two attorneys and two paralegals and it assigned tasks
according to appropriate experience level.
Associate and
paralegal level work accounted for more than 82 percent of the
time spent on this case. See Rubenstein, 2015 WL 585561, at *8.
Mr. Tabatznik’s counsel has provided lengthy, detailed
descriptions of all of the work for which Mr. Tabatznik seeks to
recover attorney’s fees.
The Court declines to apply a
reduction for Mr. Tabatznik’s counsel’s use of block billing.
35
While block billing may impede the court’s efforts to evaluate
the reasonableness of any of the listed activities, see Berry v.
Deutsche Bank Tr. Co., 632 F. Supp. 2d 300, 306 (S.D.N.Y. 2009),
that is not the case here.
Mr. Tabatznik’s counsel’s block
billing entries aggregate only several tasks per day and provide
sufficient detail about each task for the Court to determine
that the total amount of time devoted to those tasks is
reasonable.
Additionally, Mr. Tabatznik’s counsel employed a litigation
strategy aimed at keeping costs low, which Mr. Turner’s own
actions ultimately prevented.
Mr. Tabatznik originally filed a
motion for summary judgment in lieu of complaint in state court.
Mr. Turner removed the action to federal court, sought a stay of
the action pending the resolution of the Scottish administration
proceedings, and sought largely unnecessary discovery.
While
Mr. Turner’s choice of litigation strategy is his own to make,
where he has agreed to pay Mr. Tabatznik’s fees, those too are
his own to bear. See Nautilus, 2014 WL 1492481, at *3.
Accordingly, the Court finds that the 108.6 partner hours,
282.5 associate hours, and 419.1 paralegal hours expended by
Kobre & Kim are reasonable.
c. Kobre & Kim’s Documentation
In addition to challenging Mr. Tabatznik’s counsel’s use of
block billing, Mr. Turner argues that the billing records are
36
insufficient due to certain redactions.
This argument is
unpersuasive.
State law governs privilege in a civil case where state law
supplies the rule of decision. FED. R. EVID. 501.
Under New York
law, attorney’s bills and time records are not necessarily
protected by attorney-client privilege. See DiBella v. Hopkins,
403 F.3d 102, 120 (2d Cir. 2005).
When such records are
“detailed in showing services, conversations, and conferences
between counsel and others to such an extent that to allow
access to the material would disclose trial strategy, and reveal
the legal work that has been done by the party’s attorneys,”
however, the records are protected by attorney-client privilege
in New York. Id. (alterations omitted) (quoting Licensing Corp.
of Am. v. Nat’l Hockey League Players Ass’n, 153 Misc. 2d 126,
128 (N.Y. Sup. Ct. 1992)).
Mr. Tabatznik’s redaction of billing records is limited to
descriptions of specific work performed that would disclose
trial strategy and reveal the legal work that counsel performed.
These redactions do not impede the Court’s ability to determine
whether the hours attributed to the work performed was
reasonable.
Accordingly, the Court will not reduce the
presumptively reasonable fee because of these reasonable
redactions.
37
d. Kobre & Kim’s Fees on Fees
Mr. Turner contests Mr. Tabatznik’s right to recover for
time that his counsel spent working on the fee application
itself.
“In New York, ‘an award of fees on fees must be based
on a statute or on an agreement.’” 546-552 W. 146th St. LLC v.
Arfa, 99 A.D.3d 117, 120 (1st Dep’t 2012) (quoting Sage Realty
Corp. v. Proskauer Rose, 288 A.D.2d 14, 15 (1st Dep’t 2001)).
New York courts require that the parties’ intention to shift
costs for fees on fees be “unmistakably clear from the language
of the promise.” Id. (quoting Hooper Assoc. v. AGS Computs., 74
N.Y.2d 487, 492 (1989)).
The first paragraph of Section 17 of the Note is as
follows:
Expenses, etc. [Mr. Turner] agrees to pay or
reimburse [Mr. Tabatznik] for (a) all reasonable outof-pocket costs and expenses of [Mr. Tabatznik]
(including, without limitation, the reasonable fees and
expenses of Wachtell, Lipton, Rosen & Katz, New York
counsel to [Mr. Tabatznik], and Maclay Murray & Spens,
Scottish counsel to [Mr. Tabatznik]) in connection with
(i) the negotiation, preparation, execution and delivery
of this Note and the other Loan Documents and the making
of the Loan; provided that such costs and expenses shall
not exceed in the aggregate GBP£25,000 and (ii) the
negotiation
or
preparation
or
any
modification,
supplement or waiver of any of the terms of this Note or
any of the other Loan Documents (whether or not
consummated); (b) all reasonable out-of-pocket costs and
expenses
of
[Mr.
Tabatznik]
(including,
without
limitation, the reasonable fees and expenses of legal
counsel) in connection with (i) any Default and any
enforcement
or
collection
proceedings
resulting
therefrom, including without limitation, all manner of
participation
in
or
other
involvement
with
38
(x) bankruptcy,
insolvency,
sequestration,
receivership,
foreclosure,
winding
up
or
other
liquidation proceedings, (y) judicial or regulatory
proceedings and (z) workout, restructuring or other
negotiations or proceedings (whether or not the workout,
restructuring or transaction contemplated thereby is
consummated) and (b) [sic] the enforcement of this
Section 17; and (c) all transfer, stamp, documentary or
similar taxes assessments or charges levied by any
Governmental Authority in respect of this Note or any of
the other Loan Documents or any other document referred
to herein or therein and all costs, expenses, taxes,
assessments and other charges incurred in connection
with any filing, registration, recording or perfection
of any security interest contemplated by any Loan
Document or any other document referred to therein.
(Second Mangold Decl. Ex. 1 § 17.)
Mr. Turner argues that the language “[Mr. Turner] agrees to
pay or reimburse [Mr. Tabatznik] for . . .
(b) all reasonable
out-of-pocket costs and expenses of [Mr. Tabatznik] (including,
without limitation, the reasonable fees and expenses of legal
counsel) in connection with . . . (b) [sic] the enforcement of
this Section 17 . . . ,” is not an unmistakably clear
manifestation of his intention to cover the fees for enforcing
section 17.
He claims that the typographical error that creates
two subsections (b) causes ambiguity as to whether the “the
enforcement of this Section 17” language includes “reasonable
fees and expenses of legal counsel.”
Mr. Turner urges this
Court to read the second subsection (b) as an independent
subsection, so that Section 17 would read in pertinent part:
“[Mr. Turner] agrees to pay or reimburse [Mr. Tabatznik] for
39
. . . (b) the enforcement of this Section 17 . . . .”
Mr.
Turner’s argument continues that, since this reading would
eliminate an explicit reference to attorney’s fees with regards
to enforcement of Section 17, the parties’ intent for Mr. Turner
to pay fees on fees is not unmistakably clear, and should not be
enforced. (Def.’s Supp. Reply 4-7.)
Mr. Turner offers one ground to support his reading:
the
placement of the conjunction “and” before both subsection (z)
and second subsection (b).
This, he claims, is proof that the
first subsection (b) was only supposed to have one subsection
(i) containing three subparts (x), (y), and (z). (Id.)
The Court believes Mr. Turner’s reading to be particularly
strained for several reasons, including that such a reading
ignores the conjunction “and” prior to subsection (c) and
ignores the presence of secondary (e.g., subsection (i)) and
tertiary (e.g., subparts (x), (y), (z)) divisions within the
first subsection (b).
The clause is unambiguous and makes it
unmistakably clear that the parties intended Mr. Turner to pay
or reimburse Mr. Tabatznik for the fees on fees.
Under New York law, unambiguous contract provisions must be
given their plain and ordinary meaning. Universal Am. Corp. v.
Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 25 N.Y.3d 675, 680
(2015).
Under Mr. Turner’s reading, he agreed to pay or
reimburse Mr. Tabatznik for the enforcement of Section 17
40
itself.
This agreement is in addition to the agreement to pay
or reimburse for the underlying litigation and attorney’s fees
in subsection (i)(y) of the first subsection (b) of Section 17.
In order to “enforce” Section 17, Mr. Tabatznik must necessarily
file the fee application at issue here.
It is common practice for New York courts to refer to the
dictionary to determine the plain and ordinary meaning of words
to a contract. Mazzola v. Cty. of Suffolk, 143 A.D.2d 734, 735
(2d Dep’t 1988).
Black’s Law Dictionary defines “enforcement”
as “[t]he act or process of compelling compliance with a law,
mandate, command, decree, or agreement.” Enforcement, BLACK’S LAW
DICTIONARY (10th ed. 2014).
Similarly, Webster’s Third New
International Dictionary defines “enforcement” as “the act of
enforcing:
such as . . . the compelling of the fulfillment (as
of a law or order).” Enforcement, WEBSTER’S THIRD NEW INT’L DICTIONARY,
UNABRIDGED (2016).
Thus, standing alone, the agreement to pay for
the “enforcement” of Section 17 envisions payment for the fee
application here, which is the “act or process of compelling
compliance” available to Mr. Tabatznik.
Alternatively, under New York law, “courts may as a matter
of interpretation carry out the intention of a contract by
transposing, rejecting, or supplying words to make the meaning
of the contract more clear.” Wallace v. 600 Partners Co., 86
N.Y.2d 543, 547 (1995).
“However, such an approach is
41
appropriate only in those limited instances where some absurdity
has been identified or the contract would otherwise be
unenforceable either in whole or in part.” Id.; accord Ross v.
Shearman, 95 A.D.3d 1100, 1101 (2d Dep’t 2012) (holding that a
contract providing for payment of a losing party’s attorney’s
fees was absurd and reading the contract to require payment of
the prevailing party’s attorney’s fees).
Here, Mr. Turner’s reading of Section 17 would render the
clause a nullity and, therefore, unenforceable.
Mr. Turner’s
agreement “to pay or reimburse [Mr. Tabatznik] for . . . (b) the
enforcement of this Section 17 . . . ,” but not including “the
reasonable fees and expenses of legal counsel in connection
with” its enforcement would foreclose recovery for Mr. Tabatznik
of the only expenses related to enforcement of Section 17.
Accordingly, the Court will transpose the second subsection (b)
to become subsection (ii) under the first subsection (b).
Section 17 shall read, in pertinent part:
“[Mr. Turner] agrees
to pay or reimburse [Mr. Tabatznik] for . . . (b) all reasonable
out-of-pocket costs and expenses of [Mr. Tabatznik] (including,
without limitation, the reasonable fees and expenses of legal
counsel) in connection with . . . (ii) the enforcement of this
Section 17.”
42
3.
The MMS Fee Application
Mr. Turner also argues that Mr. Tabatznik’s MMS Fee
Application should be denied or reduced because (1) the
documentation for MMS’s fees is insufficient and (2) Mr.
Tabatznik fails to satisfy his burden of demonstrating that the
fees and work performed in a foreign legal proceeding were
reasonable. (See Def.’s Opp’n 15-16; Def.’s Sur-Reply 3).
For
the reasons stated below, Mr. Tabatznik’s MMS Fee Application is
denied.
While it is ultimately within the court’s discretion to
determine the reasonableness of the requested fee, “the burden
is on the fee applicant to produce satisfactory evidence—in
addition to the attorney’s own affidavits—that the requested
rates are in line with those prevailing in the community for
similar services by lawyers of reasonably comparable skill,
experience and reputation.” Blum v. Stenson, 465 U.S. 886, 895
n.11 (1984).
Ideally, evidence of the prevailing market rate
should include affidavits from attorneys with similar
qualifications stating “the affiant’s personal knowledge of
specific rates charged by other lawyers for similar litigation,
data about fees awarded in analogous cases, evidence of the fee
applicant’s rates during the relevant time period, and evidence
submitted by other fee applicants in like cases.” Wilder v.
43
Bernstein, 975 F. Supp. 276, 281 (S.D.N.Y. 1997); accord Ceglia,
2012 WL 503810, at *14.
Mr. Tabatznik has provided no evidence of the prevailing
market rate for attorneys who provide their services in
administration proceedings in Glasgow, Scotland.
Therefore Mr.
Tabatznik has failed to meet his burden to produce satisfactory
evidence of the prevailing rates in the relevant community.
Accordingly, the Court denies the MMS Fee Application.
D. Costs
The fee applicant also bears the burden of adequately
documenting and itemizing the costs it requests. See Brig v.
Port Auth. Trans Hudson, No. 12 Civ. 5371(RPP), 2014 WL 1318345,
at *6 (S.D.N.Y. Mar. 28, 2014); see also Tr. of Empire State
Carpenters Annuity v. Fourmen Constr., Inc., No. 15 Civ. 3252,
2016 WL 146245 (E.D.N.Y. Jan. 13, 2016); cf. S. & E.D.N.Y. LOCAL
CIV. R. 54.1(a) (“The bill of costs shall include an affidavit
that the costs claimed are allowable by law, are correctly
stated and were necessarily incurred.
Bills for the costs
claimed shall be attached as exhibits.”)
The Kobre & Kim Fee Application itemizes three costs:
(1)
$305.00 in electronic filing fees to the Clerk of the Supreme
Court of New York; (2) $310.00 in process server fees; and (3)
$163.00 in vendor charges associated with document production.
44
(See First Rose Decl. ¶¶ 12, 14; id. Ex. I.)
In addition, it
seeks to recover for a “2% Administrative Charge” on each bill,
which totals $7,231.42.
Ms. Rose explains that this 2 percent
fee is charged “in lieu of costs and disbursements that law
firms routinely charge on an itemized basis, including regular
online legal research fees, international and domestic longdistance telecommunications fees, late night work expenses,
routine duplication, and other similar items.” (Second Rose
Decl. ¶ 7.)
By contrast, the MMS Fee Application provides
detailed and itemized disbursements totaling £1,101.73. (See
First Edward Decl. Ex. 2; Second Decl. of Timothy James Edward
Ex. A.)
The Court finds that Mr. Tabatznik has met his burden for
costs of $778.00 for the electronic filing fees, process server
fees, and vendor charges associated with the Kobre & Kim Fee
Application and £1,101.73 for the various costs individually
identified and itemized by the MMS Fee Application.
The
remaining unitemized and undocumented charges subsumed in Kobre
& Kim’s blanket 2 percent administrative charge are denied.
Conclusion
As set forth above, Mr. Tabatznik’s motion for summary
judgment is granted and his motion for interest, fees, and costs
is granted in part and denied in part.
The Clerk of the Court
is respectfully directed to close both motions (ECF Nos. 18 &
45
20).
Mr. Tabatznik is instructed to electronically file an
updated interest calculation with the Court within 10 days of
the date of this Order.
SO ORDERED.
Dated:
New York, New York
March 30, 2016
Han. John F. Keenan
United States District Judge
46
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