Smith et al v. Smith, III et al
Filing
93
OPINION & ORDER re: 87 FIRST MOTION for Attorney Fees: For the reasons stated above, the Court awards plaintiffs $117,399.15 in reasonable attorneys' fees, denies plaintiffs' request for an award of prejudgment interest, and declines to issue a declaratory judgment. The Clerk of Court is respectfully directed to terminate the motion pending at docket 87 and to close this case. (Signed by Judge Paul A. Engelmayer on 4/22/2020) (jwh)
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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
JUDITH SMITH, derivatively on behalf of 50 East 69th
Street Corporation; DAVID EZEKIEL FAIRBANK,
derivatively on behalf of 50 East 69th Street Corporation;
and JUDITH SMITH as CO-TRUSTEE OF THE NANCY
A. FAIRBANK, JOHN TAYLOR FAIRBANK AND
NATHANIEL DAVID FAIRBANK TRUSTS, derivatively
on behalf of 50 East 69th Street Corporation,
17 Civ. 6648 (PAE)
OPINION & ORDER
Plaintiffs,
-vJAMES W. SMITH, III; NANCY K. SMITH; LUCINDA
SMITH HAY; and CENTER FOR SPECIALTY CARE,
INC.,
Defendants,
-and50 EAST 69th STREET CORPORATION,
Nominal Defendant.
PAUL A. ENGELMAYER, District Judge:
This decision resolves plaintiffs’ motion for attorneys’ fees and costs incurred in this
shareholder derivative action.
I.
Background
The Court assumes familiarity with the facts and procedural history of this case, including
as set forth in its April 19, 2019 summary judgment decision, which supplied a detailed history
of this litigation and the parties’ underlying disputes. See Dkt. 72 (“MSJ Op.”). Relevant here,
that decision granted summary judgment to defendant Center for Specialty Care (“CSC”), and to
the individual defendants on plaintiff-shareholders’ claim that defendants had breached their
fiduciary duty to 50 East 69th Street Corporation (“50 East”) by amending retroactively the
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terms of 50 East’s lease agreement with CSC so as to charge reduced, and allegedly belowmarket, annual rents. The Court denied, however, the individual defendants’ bid for summary
judgment on plaintiffs’ separate claim that these defendants had breached their fiduciary duty to
50 East and its shareholders by causing 50 East to make a $3.73 million “lease termination
payment” to CSC. As plaintiffs noted, because CSC had already breached the terms of its lease
with 50 East so as to justify 50 East’s terminating it, there was no need for 50 East to pay CSC to
induce it to terminate the lease early. Plaintiffs argued that the payment was instead motivated
by the individual defendants’ desire to fund CSC so that it could repay debts that it owed to some
of them. Recognizing that this claim was supported by formidable evidence, the Court permitted
it to stand and reach a jury.
Following the summary judgment decision, CSC voluntarily paid 50 East $4,245,727.40,
representing the $3.73 million lease termination payment plus “interest at a rate of 5%.” See Dkt. 83.
The parties then filed a joint letter setting forth their views on the issues that the Court’s
summary judgment ruling and CSC’s payment had left unresolved. Dkt. 85. In response, the
Court issued an order stating that “[a]lthough plaintiffs identify other ostensible open issues, the
only one identified that appears to the Court to be within the scope of this case concerns plaintiffs’
entitlement to attorneys’ fees.” Dkt. 86. The Court set a briefing schedule “to address and
resolve the issue of plaintiffs’ entitlement to attorneys’ fees.” Id.
On September 24, 2019, plaintiffs filed a motion for fees and a supporting memorandum
of law and exhibits. Dkt. 87 (“Pl. Mem.”). On October 7, 2019, defendants filed a memorandum
of law in opposition. Dkt. 88 (“Def. Mem.”). On October 14, 2019, plaintiffs filed a reply.
Dkt. 89 (“Pl. Reply”).
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II.
Discussion
The Court first resolves plaintiffs’ request for attorneys’ fees. The Court then addresses
plaintiffs’ request for prejudgment interest. Finally, the Court addresses plaintiffs’ request for a
declaratory judgment.
A.
Attorneys’ Fees
1.
Entitlement to Fees
Plaintiffs seek attorneys’ fees for having obtained a benefit for 50 East—the repayment to
50 East of the $3.73 million plus interest—through their derivative suit. See Mills v. Elec.
Auto-Lite Co., 396 U.S. 375, 390–93, 396–97 (1970). Defendants concede that a fee award is
appropriate in light of plaintiffs having catalyzed this beneficial outcome for 50 East, but dispute
the amount that plaintiffs are due given that a substantial portion of plaintiffs’ claims (those
relating to the lease renegotiations) were rejected at summary judgment. Def. Mem. at 5–6.
The Court agrees with all parties that plaintiffs are clearly entitled to attorneys’ fees
under the common-benefit doctrine, which “often applies ‘in shareholder derivative actions, to
award fees indirectly against other shareholders benefitting from the law suit by taxing the
nominal corporate defendant.’” In re Citigroup S’holder Derivative Litig., No. 12 Civ. 3114
(JPO), 2013 WL 4441511, at *3 (S.D.N.Y. Aug. 19, 2013) (quoting Christensen v. Kiewit-Murdock
Inv. Corp., 815 F.2d 206, 211 (2d Cir. 1987)), aff’d sub nom. Moskal v. Pandit, 576 F. App’x 33
(2d Cir. 2014); see also Mills, 396 U.S. at 396–97; Koppel v. Wien, 743 F.2d 129, 134–35
(2d Cir. 1984); Brautigam v. Bratt, No. 98 Civ. 9060 (JSM), 2000 WL 1264289, at *1
(S.D.N.Y. Sept. 5, 2000). The issue is the proper amount of the fee award.
2.
Plaintiffs’ Reasonable Fees
“The district court retains discretion to determine . . . what constitutes a ‘reasonable’
fee.” LeBlanc-Sternberg v. Fletcher, 143 F.3d 748, 758 (2d Cir. 1998). The starting point for
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this analysis is the “presumptively reasonable fee,” or lodestar, which is calculated by
multiplying a reasonable hourly rate by the reasonable number of hours required by the case.
Millea v. Metro-N. R.R. Co., 658 F.3d 154, 166 (2d Cir. 2011); Arbor Hill Concerned Citizens
Neighborhood Ass’n v. County of Albany, 522 F.3d 182, 183 (2d Cir. 2008); see also Perdue v.
Kenny A. ex rel. Winn, 559 U.S. 542, 551–52 (2010); Hensley v. Eckerhart, 461 U.S. 424, 433
(1983). This calculation provides an “initial estimate” or “rough approximation” of the
reasonable fee. See Perdue, 559 U.S. at 556; Hensley, 461 U.S. at 433.
“In determining what fee is reasonable, the court takes account of claimed hours that it
views as excessive, redundant, or otherwise unnecessary.” Bliven v. Hunt, 579 F.3d 204, 213
(2d Cir. 2009) (internal quotation marks omitted). In doing so, a court may properly draw on its
“first-hand knowledge of [the] litigation and its extensive contact with the parties.” Luciano v.
Olsten Corp., 109 F.3d 111, 117 (2d Cir. 1997). Where the Court finds the number of hours
stated disproportionate to the work performed, the Court should reduce the stated hours accordingly.
See Hensley, 461 U.S. at 434; Seitzman v. Sun Life Assurance Co. of Can., 311 F.3d 477, 487
(2d Cir. 2002).
“‘[T]he most critical factor’ in a district court’s determination of what constitutes
reasonable attorney[s]’ fees in a given case ‘is the degree of success obtained’ by the plaintiff.”
Barfield v. N.Y.C. Health & Hosps. Corp., 537 F.3d 132, 152 (2d Cir. 2008) (quoting Farrar v.
Hobby, 506 U.S. 103, 114 (1992)) (citing Kassim v. City of Schenectady, 415 F.3d 246, 254
(2d Cir. 2005); Pino v. Locascio, 101 F.3d 235, 237–38 (2d Cir. 1996)). “Where ‘a plaintiff has
achieved only partial or limited success, the product of hours reasonably expended on the litigation
as a whole times a reasonable hourly rate may be an excessive amount,’ even if plaintiff’s
‘claims were interrelated, nonfrivolous, and raised in good faith.’” Williams v. Epic Sec. Corp.,
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368 F. Supp. 3d 651, 656 (S.D.N.Y. 2019) (quoting Hensley, 461 U.S. at 436). But see
Mugavero v. Arms Acres, Inc., No. 03 Civ. 5724 (PGG), 2010 WL 451045, at *3
(S.D.N.Y. Feb. 9,2010) (“Work on ultimately unsuccessful claims is compensable as long as
those claims are not ‘wholly unrelated’ to the claims plaintiff succeeded on at trial,” although
“[a] downward adjustment may still be appropriate . . . when a plaintiff succeeded on only some
of his claims for relief.” (quoting Lunday v. City of Albany, 42 F.3d 131, 134 (2d Cir. 1994)
(internal quotation marks and citations omitted)). However, “[t]here is no precise rule or
formula” for assessing the reasonableness of fees. Hensley, 461 U.S. at 436.
Where the lines between time spent on successful versus unsuccessful claims are
“blurry[,] a court need not become enmeshed in a meticulous analysis of every detailed facet of
the professional representation to determine the proper award, nor should a request for attorney[s]’
fees result in a second major litigation.” Mugavero, 2010 WL 451045, at *3 (internal quotation
marks, citations, and alterations omitted). Rather, “the court has discretion simply to deduct a
reasonable percentage of the number of hours claimed as a practical means of trimming fat from
a fee application.” Rodriguez ex rel. Kelly v. McLoughlin, 84 F. Supp. 2d 417, 425 (S.D.N.Y. 1999)
(quoting Kirsch v. Fleet St., Ltd., 148 F.3d 149, 173 (2d Cir. 1998) (internal quotation marks
omitted)); see also Marion S. Mishkin Law Office v. Lopalo, 767 F.3d 144, 150 (2d Cir. 2014);
McDonald ex rel. Prendergast v. Pension Plan of the NYSA-ILA Pension Tr. Fund, 450 F.3d 91,
96 (2d Cir. 2006); COR, LLC v. First Standard Fin. Co., LLC, No. 17 Civ. 2190 (PAE),
2019 WL 1090480, at *3 (S.D.N.Y. Mar. 8, 2019). That is because “it is less important that
judges attain exactitude, than that they use their experience with the case, as well as their
experience with the practice of law, to assess the reasonableness of the hours spent.” Amato v.
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City of Saratoga Springs, 991 F. Supp. 62, 66 (N.D.N.Y. 1998) (citing Clarke v. Franke,
960 F.2d 1146, 1153 (2d Cir. 1992)); see also Luciano, 109 F.3d at 117.
Here, plaintiffs’ counsel seek a total of $146,809 in attorneys’ fees, reflecting 423.25
hours of legal work, plus $9,723.20 in costs, for a total of $156,532.20.1 This sum reflects the
entire amount paid by their clients.2 Defendants do not contest “the reasonableness of the hourly
rates charged by [p]laintiffs’ counsel,” Def. Mem. at 9, but argue that the Court should award
only 25% of the requested fees because only one of plaintiffs’ claims—regarding the ostensible
“lease termination payment” that 50 East chose to pay to CSC—survived summary judgment, id.
at 10.
Defendants are correct that plaintiffs advanced multiple, distinct claims and, on these
claims, originally sought to recover a total of $27 million in damages. Defendants are also correct
that on summary judgment, the Court dismissed the set of claims that stood to secure the majority
of these damages: for 50 East’s repeated, and allegedly improper, reductions of CSC’s rent.
Plaintiffs had sought approximately $14 million in damages on these claims. Instead, the Court
held that only one of plaintiffs’ claims could reach a jury: their claim that 50 East had elected
needlessly to pay the $3.73 million “lease termination payment” to tenant CSC, which was
owned by family members of the majority owners of 50 East. On this claim, the Court held,
factual disputes, “as to which a jury’s assessment of witness credibility may prove decisive,”
1
“[Attorney] Anthony Cannatella worked as counsel for 196 hours at a rate varying from $395 to
$415 per hour for a total of $79,675 . . . [attorney] Christine Wallace worked as counsel for 219
hours at a rate varying from $295 to $305 per hour for a total of $64,790.00 . . . [and] Kaitlin
Zask worked as legal assistant for 8.25 hours at a rate of $155 per hour plus expenses for a total
of $2,344.” Pl. Mem. at 10.
2
In response to defendants’ contention that not all of these fees were in fact billed to plaintiffs,
Def. Mem. at 9–10, plaintiffs explain that $7,171.41 in costs were invoiced directly by third
party providers, Pl. Reply at 3.
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precluded entry of summary judgment. See MSJ Op. at 31. Reasoning that the $3.73 million
ultimately returned to 50 East represents 13% of the total damages sought by plaintiffs, and 21%
“of the two claims . . . analyzed in depth” in the Court’s summary judgment opinion, defendants
argue that “an award of no more than 25% of the amount [plaintiffs’] counsel billed is more than
commensurate with any claimed benefit to 50 East.” Def. Mem. at 10.
The Court agrees with defendants that, given plaintiffs’ mixed record in this litigation,
some reduction is warranted from plaintiffs’ bid to recoup all their fees. The Court, however,
does not agree that a reduction nearly as drastic as defendants urge is in order. That is so for two
reasons.
First, plaintiffs’ recovery of nearly $4.25 million for 50 East was a consequential
achievement. It is undisputed that this money would not have been repaid to 50 East absent
plaintiffs’ counsel’s vigorous prosecution of this lawsuit. And while the Court found that issues
of credibility required that the determination of liability on this claim be resolved by a jury, the
evidentiary record put plaintiffs in a strong position to prevail on this claim. Plaintiffs’ counsel
developed solid, if not compelling, evidence of self-dealing by 50 East’s majority owners. This
evidence would have permitted a jury easily to find that, for personal reasons as opposed to the
pursuit of the best interests of 50 East, these majority owners had chosen to pay 50 East’s tenant
CSC, owned by their family members, a multi-million dollar “lease termination payment” that
was arguably unnecessary given CSC’s material breach (for non-payment of rent) of its lease
with 50 East. In the face of this evidence, it is little surprise that defendants wholly capitulated
on this claim following the summary judgment decision. Plaintiffs’ counsel achieved this outcome
in the face of this vigorous, and high-quality, lawyering by estimable defense counsel.
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Second, the Court’s judgment—drawing on its detailed familiarity with this longstanding
litigation—is that the various claims that plaintiffs pursued were interwoven, and inextricably so.
The two claims arose from the same broad narrative involving the rental history of 50 East 69th
Street involving tenant CSC. Further, deposition witnesses, and to some degree documents, were
common to both plaintiffs’ unsuccessful rent renegotiation claims and plaintiffs’ viable
lease-termination-payment claim. Defendants’ implicit thesis that the work that plaintiffs’
counsel performed on the two claims was hermetically separate is incorrect. To be sure, some
evidence related uniquely to the unsuccessful claims, and significant hours were devoted to
unsuccessful advocacy in support of those claims. In the end, though, a significant amount of the
total time plaintiffs’ counsel spent on this matter would have been necessary even had counsel,
from the get-go, pursued only the one viable claim. And there is no indication—and defendants
have not so argued—that any of the litigation in this matter was brought in bad faith.
All factors considered, and viewing the reasonable fee holistically and not by a line-itemby-line-item assessment of plaintiffs’ counsel’s time entries, the Court’s judgment is that a
reasonable fee award in this case would compensate plaintiffs’ counsel for 75% of the hours
worked and costs incurred, for a total award of $117,399.15. The Court awards that sum to
plaintiffs.
B.
Prejudgment Interest
Plaintiffs next seek an additional payment of 4% interest on the $3.73 million paid to
50 East, which would bring the total amount of interest paid by defendants to 9%. Plaintiffs
contend that this is appropriate because New York, by statute, sets the rate for prejudgment
interest at 9%. Pl. Mem. at 11–13 (citing N.Y. CPLR § 5001). This claim is easily set aside.
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New York’s Civil Practice Laws and Rules (“CPLR”) § 5001, entitled “[i]nterest to
verdict, report or decision,” provides that:
Interest shall be recovered upon a sum awarded because of a breach of
performance of a contract, or because of an act or omission depriving or otherwise
interfering with title to, or possession or enjoyment of, property, except that in an
action of an equitable nature, interest and the rate and date from which it shall be
computed shall be in the court’s discretion.
CPLR § 5001(a) (emphasis added). In this case, prejudgment interest is not available to
plaintiffs for the simple reason that there has been no “sum awarded” by the Court. The Court
did not resolve liability on any claim in plaintiffs’ favor. Rather, following the Court’s summary
judgment decision, defendants chose to moot the sole unresolved claim by repaying 50 East the
full $3.73 million lease termination payment that plaintiffs challenged on behalf of 50 East.
Because there has been no judgment for plaintiffs, there is no statutory charter for an award of
prejudgment interest. The Court therefore denies this request.
C.
Declaratory Relief
Finally, the Court considers plaintiffs’ request for a declaratory judgment. In their
motion for attorneys’ fees, plaintiffs request, without elaboration, “a declaratory judgment on
whether the balance of the issues have been deemed moot as a result of the repayment, whether
the interest on the payment acknowledged by this Court is prejudgment interest for the breach of
fiduciary duty, and whether the Lease Termination Agreement is void.” Pl. Mem. at 5.
Defendants object that this request seeks a procedurally improper advisory opinion. Def. Mem.
at 12–13. In their reply, plaintiffs argue that “[e]very final judgment should, ‘grant the relief to
which each party is entitled, even if the party has not demanded that relief in its pleadings,’”
Pl. Reply at 5 (quoting Fed. R. Civ. P. 54), and that “[d]eclaratory relief may be granted if doing
so serves a useful purpose,” id.
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The Court does not find the entry of declaratory relief warranted here. Rule 54 is
inapposite because the Court has not rendered a “final judgment” as to the merits of the sole
remaining claim in this case. See Fed. R. Civ. P. 54(a) (“‘Judgment’ as used in these rules
includes a decree and any order from which an appeal lies.”). Defendants mooted that issue by
paying 50 East the entire sum at issue—the $3.73 million that 50 East had previously paid to
CSC as an ostensible lease termination payment. Defendants’ action disposed of plaintiffs’
surviving derivative claim, which sought solely money damages. And having now resolved the
question of attorneys’ fees, the litigation of this matter is complete.3
Plaintiffs nevertheless contend that “many issues” remain “unresolved.” Pl. Reply at 5.
In the lay sense, that is surely so. But the Court’s role is not to answer abstract questions but to
resolve cases and controversies. Defendants’ payment of the entire sum sought here has mooted
any controversy, along with any need for the Court to resolve the now-abstract questions that
plaintiffs wish answered about the propriety of defendants’ historical conduct. See Nike, Inc. v.
Already, LLC, 663 F.3d 89, 95 (2d Cir. 2011) (“The Declaratory Judgment Act does not expand
the subject matter jurisdiction of the federal courts . . . the Supreme Court [has] explained that
the phrase ‘[in a] case of actual controversy’ in the Act refers to the type of Cases and
Controversies that are justiciable under Article III.” (internal quotation marks omitted) (citing
MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007))), aff’d, 568 U.S. 85, 133 (2013).
With the payment of the $3.73 million plus interest, and the later sale of the building, the Court
is confident that defendants have met their “formidable burden” of showing that their “voluntary
3
Plaintiffs raise for the first time in their motion for attorneys’ fees the question of “whether the
Lease Termination Agreement is void.” Pl. Mem. at 5. It is far too late to ask the Court to
address this question, which was neither raised in plaintiffs’ complaint nor addressed in the
summary judgment litigation.
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compliance moots [this] case” because “it is absolutely clear the allegedly wrongful behavior
could not reasonably be expected to recur.” Friends of the Earth, Inc. v. Laidlaw Envtl. Servs.
(TOC), Inc., 528 U.S. 167, 190 (2000). Finally, because this litigation solely raised backwardlooking questions about defendants’ stewardship of 50 East, there are no issues fairly raised
about plaintiffs’ or defendants’ rights or responsibilities going forward. Plaintiffs’ request for a
declaratory judgment is therefore denied.
CONCLUSION
For the reasons stated above, the Court awards plaintiffs $117,399.15 in reasonable
attorneys’ fees, denies plaintiffs’ request for an award of prejudgment interest, and declines to
issue a declaratory judgment. The Clerk of Court is respectfully directed to terminate the motion
pending at docket 87 and to close this case.
SO ORDERED.
PaJA.�
____________________________
Paul A. Engelmayer
United States District Judge
Dated: April 22, 2020
New York, New York
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