Colon v. Blades, No. 3:2007cv01380 - Document 228 (D.P.R. 2010)

Court Description: OPINION AND ORDER directing the Clerk to enter a partial final judgment in favor of Rubn Blades re 133 MOTION for Default Judgment as to Martinez, Morgalo and Associates, LLC. filed by Ruben Blades Signed by Chief Mag. Judge Justo Arenas on 6/15/2010.(nydi)

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1 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO 2 3 4 WILLIAM ANTHONY COLà N, 5 6 Plaintiff 7 v. 8 10 RUBà N BLADES, ROBERTO MORGALO, MARTà NEZ, MORGALO & ASSOCIATES, 11 Defendants 12 RUBà N BLADES, 9 CIVIL 07-1380 (JA) 13 Cross-Plaintiff 14 15 v. 16 ROBERTO MORGALO, in his personal capacity and as owner and member of MARTà NEZ, MORGALO & ASSOCIATES, LLC; MARTà NEZ, MORGALO & ASSOCIATES, LLC., 17 18 19 20 Cross-Defendants 21 22 OPINION AND ORDER 23 This matter is before the court on motion for default judgment filed on 24 25 March 1, 2010 by cross-plaintiff Rubén Blades against cross-defendant Martínez, 26 Morgalo & Associates, Inc., (hereinafter M.M.A. ). (Docket No. 133.) A hearing 27 on damages was held on April 5, 2010. (Docket No. 163.) 28 1 CIVIL 07-1380 (JA) 2 2 3 I. FACTUAL AND PROCEDURAL BACKGROUND 4 5 In 2002, Roberto Morgalo, Arturo Martínez, and their company M.M.A. 6 entered into negotiations to book a concert featuring a musical performance 7 between William Anthony Colón and Mr. Blades to commemorate the album 8 Siembra originally released in 1978. (Docket No. 56, at 4, ¶ 12.) 9 10 On or about January, 2003, Mr. Morgalo s company acting as an agent on 11 behalf of Mr. Blades and Mr. Colón, entered into an Engagement Contract with 12 DISSAR Productions to hold the concert in May, 2003, at the Estadio Hiram 13 Bithorn in San Juan, Puerto Rico. (Docket No. 14-5.) According to the contract, 14 15 Mr. Colón and Mr. Blades were to receive a $350,000 all-inclusive fee, except for 16 sound and lights, as compensation for their performance. (Id. at 1.) Mr. Blades 17 and Mr. Colón would each receive fifty percent (50%) of the fee after all of the 18 concert expenses were paid. (Docket No. 56, at 5, ¶ 14.) 19 20 On May 4, 2007, seeking the collection of monies which he alleged were 21 owed to him, Mr. Colón filed a complaint against Mr. Blades, Mr. Morgalo, and 22 M.M.A. alleging that Mr. Blades was solely responsible for breaching the contract. 23 (Docket No. 1.) On April 29, 2008, Mr. Colón filed an amended complaint to 24 which Mr. Blades replied on May 9, 2008. (Docket Nos. 45 & 48.) On June 5, 25 26 27 28 2008, Mr. Blades sought indemnification from Mr. Morgalo in his personal capacity 1 CIVIL 07-1380 (JA) 3 2 3 and as owner and member of M.M.A., and also from M.M.A. by filing a cross claim 4 5 which was amended on July 29, 2008. (Docket Nos. 49 & 56.) 6 Mr. Morgalo also filed a defamation claim against Mr. Blades and his 7 company, Blades Productions, Inc., in the United States District Court for the 8 Southern District of New York on May 2, 2008. (Docket No. 58-2.) The claim was 9 10 consolidated with this action on August 12, 2008. (Id.) On September 2, 2008, 11 Mr. Morgalo answered Mr. Colón s amended complaint as well as Mr. Blades 12 amended cross claim (Docket Nos. 66 & 67) and on October 17, 2008, Mr. Blades 13 answered Mr. Morgalo s defamation claim. (Docket No. 73.) That claim was 14 15 dismissed on March 31, 2010. (Docket No. 154.) 16 On April 21, 2009, Mr. Morgalo waived service of summons specifically on 17 behalf of M.M.A. pursuant to Federal Rule of Civil Procedure 4(d). (Docket No. 18 97.) On February 2, 2010, Mr. Blades asked the Clerk of the Court to enter 19 20 default against M.M.A. for its failure to plead or otherwise defend. (Docket No. 21 118.) See Fed. R. Civ. P. 55(a). The Clerk entered default as to M.M.A. in 22 relation to the amended cross-claim on February 25, 2010. (Docket No. 128.) 23 Finally, Mr. Blades moved for default judgment as to M.M.A. on March 1, 2010. 24 (Docket No. 133.) Specifically, Mr. Blades asks for $143,000 in damages plus 25 26 interest under the first cause of action, cost and attorneys fees, and judgment by 27 default on all six causes of action of the amended cross-claim. (Id.) The default 28 1 CIVIL 07-1380 (JA) 4 2 3 hearing was set for March 23, 2010 and then moved to and held on April 5, 2010. 4 5 (Docket Nos. 141 & 144.) On May 6 and May 7, 2010, Mr. Colón moved to 6 voluntarily dismiss his claims against Mr. Blades, Mr. Morgalo, and M.M.A. 7 (Docket Nos. 188 & 194.) 8 Mr. Colón s amended complaint was voluntarily dismissed on May 9, 2010. (Docket No. 196). 9 10 II. STANDARD OF REVIEW 11 A judgment by default pursuant to Federal Rule of Civil Procedure 55(b) is 12 a final disposition of the case and an appealable order that has the same effect 13 as a judgment rendered after a trial on the merits. U.S. v. $23,000 in U.S. 14 15 Currency, 356 F.3d 157, 163 (1st Cir. 2004) (quoting 10A Charles Alan Wright, 16 Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure Civil § 2684 (3d 17 ed. 1998)). Pursuant to Rule 55(b), a [party] must apply to the court for a 18 default judgment where the amount of damages claimed is not a sum certain. 19 20 Lang-Correa v. Díaz-Carlo, 672 F. Supp. 2d 265, 269 (D.P.R. 2009) (quoting Fed. 21 R. Civ. P. 55(b)(2)). The court may enter a judgment by default provided that 22 [i]f the party against whom a default judgment is sought has appeared personally 23 or by a representative, that party or its representative must be served with 24 written notice of the application at least 7 days before the hearing. Fed. R. Civ. 25 26 P. 55(b)(2); see U.S. v. $23,000 in U.S. Currency, 356 F.3d at 163-64. Also, Rule 27 55(b)(2) provides that [t]he court may conduct hearings . . . when . . . it needs 28 1 CIVIL 07-1380 (JA) 5 2 3 to: . . . determine the amount of damages. Fed. R. Civ. P. 55(b)(2)(B). Entry 4 5 of default by the Clerk constitutes an admission of all facts well-pleaded in the 6 complaint. Metropolitan Life Ins. Co. v. Colón-Rivera, 204 F. Supp. 2d 273, 274 7 (D.P.R. 2002) (citing Banco Bilbao Vizcaya Argentaria v. Family Restaurants, Inc 8 (In re The Home Restaurants, Inc.), 285 F.3d 111, 114 (1st Cir. 2002)); see 9 10 Franco v. Selective Ins. Co., 184 F.3d 4, 9 n.3 (1st Cir. 1999). Consequently, a 11 defaulting [party will be precluded] from contesting liability. Lang-Correa v. 12 Diaz-Carlo, 672 F. Supp. 2d at 269. However, the court may examine [the] 13 complaint to determine whether it alleges a cause of action. Id. (quoting 14 15 Quirindongo Pacheco v. Rolón Morales, 953 F.2d 15, 16 (1st Cir. 1992)). Once 16 the entry of a default establishes the fact of damage, the trial judge . . . has 17 considerable latitude in determining the amount of damages. 18 Jones v. Winnepesaukee Realty, 990 F.2d 1, 4 (1st Cir. 1993) (citing Sony Corp. v. Elm 19 20 21 State Elecs., Inc., 800 F.2d 317, 321 (2d Cir. 1986)). III. FINDINGS OF FACT 22 At all relevant times, Mr. Morgalo and M.M.A. were involved in the business 23 of promoting and representing performers of salsa and Latin music. (Docket No. 24 56, at 3, ¶ 7.) Mr. Morgalo also was the owner, business proprietor, manager 25 26 member, principal, agent, servant, representative and/or employee of M.M.A., and 27 was acting within the course and scope of such ownership, membership, agency 28 1 CIVIL 07-1380 (JA) 6 2 3 and employment. (Id. ¶ 8.) When the company was organized, Mr. Morgalo and 4 5 co-owner Mr. Martínez assigned membership interest as follows: fifty-one percent 6 (51%) to Mr. Morgalo and forty-nine percent (49%) to Mr. Martínez. Mr. Morgalo 7 was and served as president of the company and Mr. Martínez was named vice 8 president. (Id. at 4, ¶¶ 9 & 10.) 9 10 On 2002, M.M.A. began negotiations for the performance of a reunion 11 concert between Mr. Blades and Mr. Colón to commemorate the album Siembra 12 originally released in 1978 (hereinafter the Siembra concert or show ). (Id. ¶ 13 12.) On January 2003, M.M.A. executed an Engagement Contract with the Puerto 14 15 Rican promoters DISSAR Productions and ROMPEOLAS for the performance on 16 behalf of both Mr. Blades and Mr. Colón. (Id. ¶ 13.) In the fall of 2003, Mr. 17 Martínez transferred and/or assigned his membership interest in the company to 18 Mr. Morgalo, and Mr. Morgalo then became the sole owner and member of M.M.A. 19 20 (Id. ¶ 11.) The Engagement Contract provided that the fee payable to both 21 artists-Colón and Blades-was $350,000, all-inclusive, except for sound and lights. 22 (Id. at 5, ¶ 14.) Mr. Blades and Mr. Colón would receive fifty percent (50%) of 23 the fee after payment of concert expenses, including production and personnel, 24 which were to also be split between Mr. Blades and Mr. Colón. (Id.) 25 26 On or about February 2002, Mr. Morgalo and M.M.A. received $62,500 for 27 a concert between Mr. Blades and Cheo Feliciano. (Id. ¶ 15.) However, the 28 1 CIVIL 07-1380 (JA) 7 2 3 concert was cancelled and Mr. Blades never received the money. (Id.) Instead, 4 5 M.M.A. applied the $62,500 as a credit toward the Siembra Concert, without the 6 knowledge, consent or approval of either Mr. Blades or Mr. Colón. (Id.) Thus, the 7 $62,500 are exclusively owed to Mr. Blades, over and above and independent 8 from the balance of the fee owed to Mr. Blades for the Siembra Concert. (Id.) 9 10 Despite owing money to Mr. Blades, M.M.A. charged and received a booking 11 commission equal to ten percent (10%) of the fee, or $35,000 for the Siembra 12 concert. (Id. at 6, ¶ 16.) 13 As booking agents Mr. Morgalo and M.M.A. served Mr. Blades and Mr. Colón 14 15 in a fiduciary capacity and owed such fiduciary duties to act and handle the 16 concert s affairs with the care, skill, and diligence a fiduciary rendering that kind 17 of service would reasonably be expected to use. (Id. ¶ 17.) Mr. Morgalo and 18 M.M.A. were also responsible for collecting and paying the fee to both artists, 19 20 21 payment of musician salaries, travel and accommodation arrangements, transportation, security, etc. (Id. ¶ 18.) 22 The Engagement Contract provided that all payments were to be made by 23 the promoters to M.M.A in the form of wire transfer, cash, certified check or 24 money order payable to M.M.A. (Id. ¶ 19.) Mr. Morgalo and M.M.A. were 25 26 required to make full payment to the artists prior to traveling to Puerto Rico. (Id.) 27 Mr. Colón received an up front advance of $62,500 from M.M.A. while Mr. Blades 28 1 CIVIL 07-1380 (JA) 8 2 3 received an up front advance of $68,000 from M.M.A. (Id. ¶¶ 20 & 21.) Mr. 4 5 Morgalo and M.M.A. failed to make the scheduled payments of the balance of the 6 fee to Mr. Blades and Mr. Colón under the terms of the Engagement Contract. 7 (Id. at 7, ¶ 22.) 8 As of April 30, 2003, Mr. Morgalo and his partner Mr. Martínez could not be 9 10 found to account for the money that was due to be paid to Mr. Colón and Mr. 11 Blades. (Id. ¶ 23.) M.M.A. wrongfully misappropriated and/or converted the 12 concert funds to its own use. (Id. ¶ 24.) Mr. Morgalo directly or indirectly, used 13 or caused the balance of the fee due to Mr. Blades to be used to settle other 14 15 M.M.A. debts, without the knowledge or consent of Mr. Blades. (Id. ¶ 25.) Mr. 16 Morgalo knew or should have known that concert funds were withdrawn from the 17 company account to pay other company debts. (Id. ¶ 26.) At all relevant times 18 Mr. Morgalo maintained telephone or electronic communication with his partner 19 20 Mr. Martínez to provide instructions and/or follow up with what debts and which 21 creditors were to be paid using the money due to Mr. Blades and Colón under the 22 Engagement Contract. (Id.) Mr. Morgalo and M.M.A. failed to inform Mr. Blades 23 as to the payments made by the promoters under the Engagement Contract or to 24 give information relevant to the affairs entrusted to the company as agents. (Id. 25 26 at 8, ¶ 27.) Also, Mr. Morgalo failed to pay Mr. Blades in accordance with the 27 Engagement Contract. (Id. ¶ 28.) 28 1 CIVIL 07-1380 (JA) 9 2 3 At the default hearing on April 5, 2010, Mr. Blades testified that he had 4 5 business with M.M.A. since 1999. (Docket No. 214, at 3:4-7.) As far as Mr. 6 Blades knew, Mr. Morgalo and Mr. Martínez were the sole owners of M.M.A. (Id. 7 at 3:8-10.) According to Mr. Blades, he has performed in approximately ten 8 shows with M.M.A. as his agent. (Id. at 5:20-23.) As an agency M.M.A. worked 9 10 as a receptor. (Id. at 5:24-25.) It would receive inquiries and consult with Mr. 11 Blades about the shows in which he would perform. (Id. at 6:1-4.) M.M.A. would 12 also received funds in his behalf. (Id. at 6:9-10.) However, Mr. Blades would 13 determined how much money was going to be charged, and when payment was 14 15 going to be received. (Id. at 6:11-16.) Mr. Blades liked to receive payment in 16 advance just in case a show did not go well. (Id. at 6:17-20.) Thus, Mr. Blades 17 would always try to figure out if the money was being paid on time. (Id. at 7:15- 18 17.) Mr. Blades explained that M.M.A. would communicate with his business 19 20 21 manager, Jerry Shustek, or with him, to say if the money had arrived. (Id. at 7: 18-21.) 22 M.M.A. would keep Mr. Blades informed as to available dates, and asked for 23 his consent before committing to a date for a concert. (Id. at 8:1-8.) Mr. Blades 24 expected M.M.A. to be truthful, and comply with its fiduciary duty with him. (Id. 25 26 at 8:9-12.) For its services M.M.A. usually received ten percent (10%) of the total 27 amount of the show. The percentage would vary if the show was big or small, or 28 1 CIVIL 07-1380 (JA) 10 2 3 if it was a benefit performance. (Id. at 8:13-23.) M.M.A. also had the authority 4 5 to sign contracts on behalf of Mr. Blades. (Id. at 9:1-3.) As to how M.M.A. made 6 its payments to Mr. Blades, Mr. Blades explained that M.M.A. would send the 7 funds to either Mr. Shustek or to himself. (Id. at 9:4-8.) 8 In 2002, Mr. Blades authorized M.M.A. to negotiate shows for him in the 9 10 Dominican Republic. (Id. at 9:17-20 & at 10:1-16.) Mr. Blades also authorized 11 M.M.A. to negotiate the Siembra Concert with Mr. Colón. (Id. at 10:17-20.) The 12 promoters of the concert were à ngel Rivas and César Sainz. (Id. at 11:21-22.) 13 The fee for the concert was $350,000, of which M.M.A. would receive ten percent 14 15 (10%) for its services. (Id. at 12:1-7.) According to Mr. Blades he did not 16 negotiate on behalf of Mr. Colón. (Id. at 12:10-13.) Mr. Blades testified that he 17 and Mr. Colón agreed to do the show, and that M.M.A. would take care of 18 expenses. (Id. at 12:21-25 & at 13:1.) Also, M.M.A. would take care of sound 19 20 and lights and Mr. Colón and Mr. Blades would have to take care of everything 21 else, such as hotels, airfares, per diems, musician s fees, rehearsal. (Id. at 13: 22 3-7.) 23 24 Mr. Blades received an advance of $68,000. (Id. at 18:7-8.) However, Mr. Blades was not informed of the payments made by the Puerto Rico promoters to 25 26 M.M.A. (Id. at 18:21-23.) Mr. Blades, nevertheless, called M.M.A. to see whether 27 the funds had been sent, but was informed by Mr. Martínez that they had not 28 1 CIVIL 07-1380 (JA) 11 2 3 received them. (Id. at 18:24-25 & at 19:1-8.) Mr. Blades stated during his 4 5 testimony that he relied on the statements made by Mr. Martínez, because 6 promoters do not always follow the schedule of payments. (Id. at 19:11-15.) Mr. 7 Blades did not receive the full balance of the fee before the concert. (Id. at 20:5- 8 7.) At that time, Mr. Morgalo was in Iraq. (Id. at 19:13-15.) At one point, Mr. 9 10 Blades called M.M.A. and told them that if he was not paid he would not perform 11 at the concert. (Id. at 19:23-25 & at 21:1-18.) Mr. Blades talked to one of the 12 promoters of the concert and was sent copies of the payments to M.M.A. by fax. 13 (Id. at 23:1-8.) According to Mr. Blades, the promoters showed him a contract 14 15 16 17 18 where it said that the $62,500 deposit was being applied as an advance for the Siembra Concert. (Id. at 23:20-25 & at 24:1-3.) Mr. Blades testified that he never received $62,500 from M.M.A. (Id. at 24:4-11.) Also, Mr. Blades stated that he did not authorize or consent to the 19 20 application of the $62,500 as a deposit to the Siembra Concert. (Id. at 26:9-12.) 21 Mr. Blades claimed that Mr. Rivas told him that Mr. Morgalo had authorized that 22 arrangement. (Id. at 27:9-19.) Mr. Blades also testified that he never received 23 the balance of his fee before performing the Siembra Concert. (Id. at 27:22-24.) 24 25 26 A couple of weeks after the show Mr. Blades met with Mr. Martínez at Juan 27 Toro s office weeks after the concert. (Id. at 28:3-23.) With Mr. Toro present, 28 1 CIVIL 07-1380 (JA) 12 2 3 Mr. Martínez said to Mr. Blades that the company was going through a tough time 4 5 because of some investments and that they started diverting funds to resolve 6 their economic problems. (Id. at 29:10-17.) With regard to the $62,500 that 7 were missing, Mr. Martínez told Mr. Blades that they had received the money and 8 that it was used to pay other debts. (Id. at 30:10-19.) Also, Mr. Martínez told 9 10 Mr. Blades that the decision to divert funds was made by him and Mr. Morgalo. 11 (Id. at 30:24-25 & at 31:1-4.) 12 $72,663.69. (Id. at 33:1-25.) 13 The expenses for the Siembra Concert were After the concert, Mr. Blades went to the Treasury Department in Puerto 14 15 Rico. (Id. at 34:7-9.) He explained to them that he could not pay the taxes 16 because he had not received the money that was owed to him from the concert. 17 (Id. at 35:1-19.) Mr. Blades testified that M.M.A. was not entitled to the $35,000 18 commission given its betrayal of its fiduciary duty. (Id. at 36:16-22.) Mr. Blades 19 20 never recovered the commission. (Id. at 36:23-25.) 21 Mr. Ariel Rivas testified that he has worked as a promoter and a booking 22 manager for 15 years. (Id. at 43:20-24.) He is licensed in different countries, 23 such as Panamá, Costa Rica and the Dominican Republic. (Id. at 44:4-10.) Mr. 24 Rivas also owns Ariel Rivas Entertainment and is a partner in DISSAR Productions 25 26 with Danny Rivera. (Id. at 44:16-24.) Mr. Rivas is Danny Rivera s agent. (Id. 27 at 44:25 & at 45:1.) 28 1 CIVIL 07-1380 (JA) 13 2 3 Mr. Rivas testified that he met with Mr. Martínez and Mr. Morgalo in 2002. 4 5 (Id. at 45:2-10.) Mr. Rivas wanted to contract Mr. Blades to do a show in the 6 Dominican Republic with Mr. Rivera. (Id.) The show did not take place. (Id. at 7 45:21-25.) 8 In that same year Mr. Rivas and M.M.A. started a business relationship. (Id. at 46:8-13.) Mr. Rivas proposed to Mr. Morgalo to do a show 9 10 with Mr. Blades and Mr. Feliciano in Puerto Rico. (Id. at 46:14-15.) Mr. Morgalo 11 said yes, and they came to an agreement. (Id. at 46:16-18.) The fee for Mr. 12 Blades was $125,000 of which a fifty percent (50%) deposit was sent. (Id. at 13 47:6-10.) The amount paid as a deposit ($62,500) had to be paid in four 14 15 transfers by May 2002. (Id. at 48:4-7.) The transfers were made to the M.M.A. s 16 account. (Id. at 48:8-10.) Although the show did not take place, Mr. Rivas 17 testified that Mr. Morgalo told him that there could be an anniversary celebration 18 of the Siembra album. (Id. at 48:18-25 & at 52:4-8.) Mr. Rivas told Mr. Morgalo 19 20 that he was interested in doing the show. (Id. at 52:13-18.) Mr. Rivas and Mr. 21 Morgalo agreed on a $350,000 all inclusive fee for the participation of Mr. Blades 22 and Mr. Colón s participation in the Siembra Concert. (Id. at 53:5-7.) According 23 to Mr. Rivas, Mr. Morgalo proposed that the money that had been deposited to 24 that point would be credited to the Siembra Concert. (Id.) 25 26 The all inclusive term meant that all expenses were incurred by the artist 27 up to when the artist reaches the stage presence, that is rehearsals, airfare, hotel, 28 1 CIVIL 07-1380 (JA) 14 2 3 per diem, security, transportation. (Id. at 53:21-25 & at 54:1-3.) Mr. Rivas only 4 5 had to pay for the stage, sound, lights, and rentals. (Id. at 54:4-5.) The concert 6 was set in Puerto Rico, and M.M.A. went on to represent Mr. Colón and Mr. Blades. 7 (Id. at 54:19-20.) The deal was closed on May 3,2003. (Id. at 55:16-18.) When 8 Mr. Rivas talked to Mr. Morgalo in relation to the Siembra Concert, Mr. Morgalo 9 10 said he had been called to go to Iraq. (Id. at 55:19-25.) At his going away party 11 in New York, Mr. Morgalo told Mr. Rivas that Mr. Martínez was going to be in 12 charge of the company. (Id. at 56:12-22.) Mr. Rivas claims that Mr. Morgalo 13 never told him that the company was under financial distress. (Id. at 56:23-25 14 15 & at 57:1.) 16 On January 22, 2003, Mr. Rivas received a fax from M.M.A. confirming the 17 March 3, 2003 date for the concert at Hiram Bithorn Stadium. (Id. at 58:9-16.) 18 Mr. Rivas also received a letter signed by Mr. Martínez confirming the date of the 19 20 concert. (Id. at 58:1-12.) Thirteen (13) wire transfers were made in total for 21 $351,000. (Id. at 61:16-21.) The first four were for the $62,500 that were 22 deposited for the show with Mr. Feliciano. (Id. at 61:22-25 & at 62:1.) The 23 amounts and dates of the deposits were $12,500 on May 21, 2002, $20,000 on 24 June 27, $20,000 on October 3, and $10,000 on October 29, 2002. (Id. at 62: 25 26 2-5.) All wire transfers were deposited in M.M.A. s account in New York City. (Id. 27 at 62:6-16.) The fifth wire transfer to M.M.A. was on February 27, 2003, after 28 1 CIVIL 07-1380 (JA) 15 2 3 getting the signed offer. (Id. at 62:24-25 & at 63:1-4.) The amount of the 4 5 transfer was for $72,500. (Id. at 63:5-6.) The remaining dates and amounts of 6 the remaining transfers are as follow: (a) the sixth payment was for $15,000 7 made on March 7, 2003; (b) the seventh payment was for $60,000 made on 8 March 25, 2003; (c) the eight payment was for $20,000 made on March 28, 2003; 9 10 (d) the ninth payment was for $10,500 made on April 8, 2003; (e) the tenth 11 payment was for $25,000 made on April 22, 2003; (f) the eleventh payment was 12 for $10,000 made on April 24, 2003; (g) the twelfth payment was for $26,000 13 made on April 29, 2003; (h) the thirteenth payment was for $52,500 made on 14 15 16 17 18 April 30, 2003. (Id. at 63:16-25 & at 64:1-2.) Evidence of these payments was sent to Mr. Blades five or six days prior to the concert. (Id. at 64:5-13.) During his testimony Mr. Rivas was shown a copy of an engagement contract. (Id. at 65:18-23.) Mr. Rivas examined the document and stated that 19 20 contract was different than the one that had been given to him. (Id. 65:24-25 & 21 at 66:1.) According to Mr. Rivas, the contract that was shown to him required a 22 deposit of $62,500 to be paid immediately while in the contract that was given to 23 him the $62,500 appeared credited. (Id. at 66:15-18 & at 69:13-22.) Also, Mr. 24 Rivas testified that after he realized that the $62,500 were missing, he explained 25 26 to Mr. Blades that the money had been sent to his representative, M.M.A., in April 27 2002 and credited to the Siembra Concert. (Id. at 71:5-10.) When asked if Mr. 28 1 CIVIL 07-1380 (JA) 16 2 3 Blades had consented to the application of the credit, Mr. Rivas answered that he 4 5 only negotiated with Mr. Blades and Mr. Colón s representatives. (Id. at 71:16- 6 19.) 7 8 Mr. Roberto Morgalo was called as an adverse witness. (Id. at 78:11-12.) He testified that he was the president of M.M.A. until January 16, 2003 when he 9 10 was called to active duty. (Id. at 79:6-9.) Mr. Morgalo reported to his unit on 11 January 16, 2003; a warning order had said to report on January 21,2003. (Id. 12 at 80:3-13.) Mr. Morgalo left the continental United States on March 23, 2003. 13 (Id.) According to Mr. Morgalo, M.M.A. was formed in 1999 and was 14 15 administratively dissolved in 2005. (Id. at 81:2-5 & at 82:6-7.) Mr. Morgalo 16 testified that as president he had a fifty one percent (51%) interest in M.M.A., had 17 the authority to sign contracts, and sought grants, sponsorships, and loans. (Id. 18 at 82:8-25 & at 83:1-10.) Also as an agent Mr. Morgalo was responsible for 19 20 finding the best deals for his clients. (Id. at 85:11-22.) Mr. Morgalo 21 acknowledged that as an agent he owed a duty of diligence and loyalty to his 22 clients. (Id. at 85:23-25 & at 86:1-2.) Furthermore, Mr. Morgalo admitted that 23 he had a duty to let a client know when payments were received. (Id. at 86:3-6.) 24 Mr. Morgalo testified that he received an offer for a show in the Dominican 25 26 Republic with Mr. Blades. (Id. at 88:4-6.) However, according to Mr. Morgalo a 27 deal was not signed. (Id. at 88:7-8.) Mr. Morgalo also negotiated with Mr. Rivas 28 1 CIVIL 07-1380 (JA) 17 2 3 to do another show with Mr. Feliciano but it was canceled by Mr. Rivas. (Id. at 4 5 88:9-16.) Mr. Morgalo admitted that even though the show with Mr. Feliciano had 6 been canceled, Mr. Rivas made a deposit for $62,500. 7 According to Mr. Morgalo, he notified Mr. Blades about the payments that were 8 (Id. at 88:17-21.) made to M.M.A. (Id. at 88:22-24.) When asked if Mr. Blades had agreed to apply 9 10 11 12 13 the $62,500 as a deposit towards the February 16, 2003 show, Mr. Morgalo answered that Mr. Blades had not agreed. (Id. at 91:9-11.) Also during his testimony, Mr. Morgalo admitted that M.M.A. was in financial distress and that he applied for an economic injury disaster loan to the Small 14 15 Business Association ( SBA ). (Id. at 97:4-16.) The loan was approved in 16 February of 2002. (Id.) The loan was used by Mr. Morgalo to pay other loans. 17 (Id. at 97:20-25 & at 98:1-6.) Besides the SBA loan, Mr. Morgalo testified that 18 he received in that same year $100,000 from a sponsor as well as private and 19 20 government grants. (Id. at 98:7-18.) Mr. Morgalo denied talking to Mr. Martínez 21 after he left to Iraq. (Id. at 99:9-11.) Also, Mr. Morgalo denied instructing Mr. 22 Martínez to pay M.M.A. s debts. (Id. at 99:12-17.) Mr. Morgalo admitted that 23 prior to his deployment he had received a total of $350,000, not counting 24 commissions, in 2002. (Id. at 101:3-7.) While Mr. Morgalo was in Iraq he found 25 26 out that something had happened with Mr. Martínez. 27 106:1.) Mr. Morgalo immediately called Mr. Blades but was not able to get a hold 28 (Id. at 105:1-25 & at 1 CIVIL 07-1380 (JA) 18 2 3 of him so he contacted Mr. Toro s office. (Id. at 106:2-20.) Mr. Morgalo testified 4 5 that Mr. Toro told him that Mr. Martínez had tried to commit suicide and that he 6 disappeared with the money, and that there was a show in Puerto Rico. (Id. at 7 110:16-22.) After learning of what had happened Mr. Morgalo wrote a letter to 8 Mr. Martínez asking for his cooperation to solve the problems with Mr. Blades and 9 10 M.M.A. (Id. at 112-116.) Mr. Morgalo also submitted an application to the SBA 11 for a loan enlargement. (Id. at 117:12-15.) The loan according to Mr. Morgalo 12 was to pay the money that was owed to Mr. Blades. (Id. at 118:1-7.) 13 With regard to payments made by Mr. Rivas, Mr. Morgalo admitted that 14 15 M.M.A. received $62,500 in wire transfers. (Id. at 154:8-12.) According to Mr. 16 Morgalo, the wire transfers were not for the Siembra Concert. (Id. at 154:13-15.) 17 Mr. Morgalo testified that the money sent was for the concert between Mr. Blades 18 and Mr. Feliciano. (Id.) Mr. Morgalo testified that the $62,500 were never 19 20 assigned to the Siembra Concert. (Id. at 160:11-15.) 21 Mr. Arturo Martínez was a booking agent, treasurer, and a vice president at 22 M.M.A. (Id. at 168:3-9.) According to Mr. Martínez he joined M.M.A. in February 23 of 2000 after the company was incorporated in December 1999. (Id. at 169:3-6.) 24 Mr. Martínez testified that Mr. Morgalo was the one who negotiated the Siembra 25 26 Concert with Mr. Rivas. (Id. at 169:25 & at 170:1-4.) When asked if Mr. Blades 27 was sent the $62,500 deposit, Mr. Martínez answered that the money was never 28 1 CIVIL 07-1380 (JA) 19 2 3 sent. (Id. at 171:24-25 & at 172:1-5.) Mr. Martínez testified that the money was 4 5 used to pay M.M.A. s debts. (Id. at 172:18-25 & at 173:1-5.) Also, Mr. Martínez 6 testified that Mr. Morgalo knew that he had received money from Mr. Rivas. (Id. 7 at 174:22-24.) 8 Mr. Martínez admitted that he was the one responsible for withdrawing the money to pay the company debts. (Id. at 174:25 & at 175:1-4.) 9 10 He also stated that the $62,500 was applied as a credit for the Siembra Concert. 11 (Id. at 176:17-25.) According to Mr. Martínez, Mr. Rivas and Mr. Morgalo were 12 the ones who agreed to apply the money as a credit. (Id. at 177:1-3.) However, 13 neither Mr. Blades nor Mr. Colón authorized that the deposit be applied for the 14 15 Siembra Concert. (Id. at 177:4-11.) Mr. Martínez acknowledged that he had the 16 duty of informing Mr. Blades about the money. (Id. at 178:10-13.) Mr. Martínez 17 testified that he and Mr. Morgalo kept in touch after Mr. Morgalo was deployed to 18 Iraq, and that Mr. Morgalo was aware of the situation with M.M.A. (Id. at 180:5- 19 20 24.) By May 2003 M.M.A. did not have enough money in its account to pay the 21 fees owed to Mr. Blades and Mr. Colón. (Id. at 184:15-18.) Mr. Martínez stated 22 that neither Mr. Blades nor Mr. Colón were aware that the money that was owed 23 to them was being used to pay other debts. (Id. at 185:1-18.) Mr. Martínez 24 transferred all his shares in M.M.A. to Mr. Morgalo. (Id. at 188:6-16.) 25 26 Mr. Martínez also admitted that as an officer of M.M.A. he did not act in an 27 open, fair and honest manner with Mr. Colón and Mr. Blades. (Id. at 192:13-20.) 28 1 CIVIL 07-1380 (JA) 20 2 3 Mr. Martínez testified that M.M.A. was not entitled to the commission that was 4 5 charged for the Siembra Concert. (Id. at 193:18-25 & at 194:1.) Mr. Martínez 6 admitted that he was aware of the loans and grants that Mr. Morgalo was applying 7 for and that he participated in the process. (Id. at 194:5-7.) 8 IV. CONCLUSIONS OF LAW 9 10 11 12 13 A. Jurisdiction Cross-plaintiff Rubén Blades is a citizen of Panamá. Cross-defendant Martínez, Morgalo & Associates, LLC ( Martínez & Morgalo or the Company ) is and at all times herein mentioned was a limited liability company or corporation 14 15 16 17 18 organized and existing under the laws of the State of Delaware doing business in the State of New York. This cross-complaint is an action for damages that exceed $75,000, exclusive of interests, costs and attorney s fees. 19 20 B. Breach of Contract 21 When jurisdiction is based on diversity of citizenship, federal courts must 22 apply state substantive law. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 92 (1938); 23 Valenzuela Fuentes v. Dictaphone Corp., 334 F. Supp. 2d 94, 97 (D.P.R. 2004). 24 Thus, Puerto Rico substantive law applies. 25 26 Under the freedom of contract principle the contracting parties may 27 establish the agreements, clauses, and conditions they may deem convenient, 28 1 CIVIL 07-1380 (JA) 21 2 3 provided that they are not contrary to law, morals, or public order. Soc. de 4 5 Gananciales v. Vélez & Asoc., 145 D.P.R. 508, 516-17 (1998) (citing Puerto Rico 6 Civil Code § 1207 (P.R. Laws Ann. tit. 31, § 3372 (1990)). A contract under 7 Puerto Rico law has three elements: consent, a definitive (and legal) object, and 8 consideration. Citibank Global Mkts., Inc. v. Rodríguez-Santana, 573 F.3d 17, 9 10 24 (1st Cir. 2009). [O]nce a contract is perfected, the parties are bound to 11 comply with what has been expressly stipulated and to bear the consequences 12 derived from the same in accordance with good faith, use, and law. Soc. De 13 Gananciales v. Vélez & Asoc., 145 D.P.R. at 517 (citing Puerto Rico Civil Code § 14 15 1210 (P.R. Laws Ann. tit. 31, § 3375 (1990)). [W]hen the breach of a 16 contractual obligation causes harm to any of the contracting parties, an action for 17 damages for breach of contract lies. Id. at 508. The Puerto Rico Supreme Court 18 has held that in order to succeed in a breach of contract claim: 19 20 21 22 23 24 25 26 there must have been a meeting of minds that gave rise to an obligation, situation, or state of law resulting from an agreement, and that created certain expectations on the basis of which the parties acted. Ordinarily, each party trusts that the other party will comply with what has been freely agreed upon, in keeping with the binding nature of contracts and with good faith. A voluntary act or omission that results in the breach of a previously constituted obligation gives rise to an action for contractual damages. Soc. De Gananciales v. Vélez & Asoc., 145 D.P.R. at 517. However, [t]he Puerto 27 28 Rico Civil Code distinguishes between damage resulting from breach of contract 1 CIVIL 07-1380 (JA) 22 2 3 . . . and damage resulting from breach of obligations and duties imposed by 4 5 nature and by law that are necessary for social coexistence .... 6 Gananciales v. Vélez & Asoc., 145 D.P.R. at 521 (citing P.R. Laws Ann. tit. 31, §§ 7 3018 & 5141 (1990)). Actions ex contractu are based on the breach of a duty 8 Soc. De that arises from an express or implied contract, and seek fulfillment of promises 9 10 agreed to by the contracting parties. Id. (citing Ramos-Lozada v. Orientalist 11 Rattan Furniture Inc., 130 D.P.R. 712, 727 (1992)). On the other hand, an ex 12 delicto action does not stem from the will of the parties, but from the breach of 13 some obligation and duties imposed by law[,] which ordinarily arises out of a 14 15 negligent or wrongful act unconnected with any contract between the parties, but 16 may rise either independently of any contract or by virtue of certain contractual 17 relations . . . . Santiago-Nieves v. A.C.A.A., 119 D.P.R., 711, 716-17, 19 P.R. 18 Offic. Trans. 755, 760-61 (1987). To that effect, an action for damages for 19 20 breach of contract . . . only lies when the damage suffered exclusively arises as 21 a consequence of the breach of an obligation specifically agreed upon, which 22 damage would not occur without the existence of a contract. Ramos-Lozada v. 23 Orientalist Rattan Furniture Inc., 130 D.P.R. at 727. Nevertheless, a claim for 24 noncontractual damages resulting from the breach of a contract lies if the act that 25 26 caused the damage constitutes a breach of the general duty not to injure anyone 27 and, at the same time, a breach of contract. Id. If a claim for noncontractual 28 1 CIVIL 07-1380 (JA) 23 2 3 damages exists, a plaintiff may only be able to choose either a tort claim or a 4 5 contract claim but not both. See Ramos-Santiago v. Wellcraft Marine Corp., 93 6 F. Supp. 2d 112, 116 (D.P.R. 2000). 7 8 Conduct that breaches a fiduciary duty is an example of a noncontractual damages claim. In re Evangelist, 760 F.2d 27, 31 (1st Cir. 1985) (holding that 9 10 conduct that breaches a fiduciary duty . . . might constitute a tort (such as fraud) 11 or breach of contract. ); see also Quinlan v. Koch Oil Co., 25 F.3d 936, 943 (10th 12 Cir. 1994) (holding that when a breach of fiduciary duty does arise from contract, 13 the injured party must choose whether to sue for breach of contract or for tort. ) 14 15 An agent is a fiduciary [who] is required to exercise fidelity and the utmost good 16 faith, loyalty and honesty toward his principal at all times. An-Port, Inc. v. MBR 17 Indus., Inc., 772 F. Supp. 1301, 1314 (D.P.R. 1991). The primary obligation 18 imposed on an agent by the fiduciary duty of loyalty is to avoid self-dealing with 19 20 regard to the business of the principal. Richard A. Lord, 19 Williston on Contracts 21 § 54:28 (4th ed.) [A]n agent, may not take part in any transaction adverse to 22 the interests of the principal without obtaining the principal s permission, after full 23 disclosure of all facts that might affect the principal s decision. Id. 24 C. Damages 25 26 Under Puerto Rico law, when a party breaches a contract, he is liable to the 27 aggrieved party for damages which were foreseen or may have been foreseen. 28 1 CIVIL 07-1380 (JA) 24 2 3 Oriental Fin. Group, Inc. v. Fed. Ins. Co., 483 F. Supp. 2d 161, 165 (D.P.R. 2007). 4 5 But when a party acts with bad faith ( dolo ) in breaching a contract, the 6 aggrieved party may recover all damages that originate from the nonfulfillment 7 of the obligation. Id. (citing P.R. Laws Ann. tit. 31, § 3024 (2004)). If a claim 8 is noncontractual in nature, a party may seek damages pursuant to Article 1802 9 10 of the Puerto Rico Civil Code which provides, in its pertinent part, that [a] person 11 who by an act or omission causes damage to another through fault or negligence 12 shall be obliged to repair the damage so done. P.R. Laws Ann. tit. 31 § 5141. 13 In order to prevail in an Article 1802 claim, a plaintiff must prove, by 14 15 preponderance of the evidence, the following elements: (1) an act or omission 16 constituting fault or negligence; (2) injuries; and (3) a casual connection between 17 the act or omission and the injuries. In re Caribbean Petroleum, LP, 561 F. Supp. 18 2d 194, 199 (D.P.R. 2008) (citing Admor, F.S.E. v. Almacén Ramón Rosa, 151 19 20 D.P.R. 711, 725 (2000)). The principle underlying the calculation of damages is 21 clear: damages in Puerto Rico are compensatory. In re Caribbean Petroleum, LP, 22 561 F. Supp. 2d at 199 (citing Torres v. Castillo Alicea, 111 D.P.R. 792, 804 & n. 23 7 (1981); Pérez v. Sampedro, 86 D.P.R. 526, 530 (1962)). When determining 24 the amount of damages that a party is entitled to recover, however, the courts 25 26 must not lose sight of the fact that [Article 1802], being a remedial statute, 27 should be liberally construed to accomplish its purpose. 28 In re Caribbean 1 CIVIL 07-1380 (JA) 25 2 3 Petroleum, LP, 561 F. Supp. 2d at 199 (quoting Rivera Colón v. Díaz Arrocho, 165 4 5 D.P.R. 408, 427 (2005) (citing Dorante v. Wrangler, 145 D.P.R. 408 (1998); and 6 Muñoz-Hernández v. Policía de P.R., 134 D.P.R. 486 (1993)). 7 8 Article 1061 of the Puerto Rico Civil Code, provides that [s]hould the obligation consist in the payment of a sum of money, and the debtor should be in 9 10 default, the indemnity for losses and damages, should there not be a stipulation 11 to the contrary, shall consist in the payment of the interest agreed upon, and 12 should there be no agreement, in that of the legal interest. P.R. Laws Ann. tit. 13 31, § 3025. Under the law of Puerto Rico, interest has to be awarded from the 14 15 moment the complaint is filed until judgment is entered even when no stipulation 16 has been made. See Noble v. Corporación Insular de Seguros, 738 F.2d 51, 55 17 (1st Cir. 1984); Salgado v. Villamil, 14 D.P.R. 449 (1908); and P.R. Laws Ann. tit. 18 32, Ap. III, R. 44.1(d). 19 20 In this case, there is contractual liability and tort liability. By converting the 21 payments made by the promoters for its own use, and by failing to make 22 payments to Mr. Blades, M.M.A. breached the engagement contract and its 23 fiduciary duties. The person aggrieved as a result of the double violation is Mr. 24 Blades. The double violation was committed by M.M.A. See Ramos-Lozada v. 25 26 27 28 Orientalist Rattan Furniture Inc., 130 P.R. Dec. at 725. As such, Mr. Blades had 1 CIVIL 07-1380 (JA) 26 2 3 a right to choose to sue for breach of contract or for tort. Based on the damages 4 5 sought it in can be inferred that the contract claim instead of the tort claim was 6 elected. Consequently, upon reviewing the Engagement Contract (Docket No. 14- 7 5) the court finds that M.M.A. failed to comply with the terms of said agreement. 8 According to the contract, the fee for the Siembra Concert was $350,000. 9 10 Mr. Blades and Mr. Colón were supposed to receive fifty percent (50%) each of 11 whatever was left after all the concert expenses were paid. However, that did not 12 happened. Although Mr. Blades complied with all conditions, covenants, and 13 promises in accordance with the Engagement Contract, he only received an 14 15 16 17 18 advance of $68,000 for his services after the payments were sent by Mr. Rivas to M.M.A. s account. The contract specified that Mr. Blades had to be paid 14 days prior to his departure for Puerto Rico. (Docket No. 14-5, at 1.) M.M.A., however, failed to 19 20 make the scheduled payments of the balance of the fee to Mr. Blades under the 21 terms of the Engagement Contract. Instead, the monies owed were used to settle 22 other M.M.A. debts without the knowledge or consent of Mr. Blades. Specifically, 23 M.M.A. applied $62,500 that had been deposited by Mr. Rivas for a concert 24 between Mr. Blades and Mr. Feliciano as a credit for the Siembra Concert without 25 26 27 28 Mr. Blades authorization. 1 CIVIL 07-1380 (JA) 27 2 3 Based on the foregoing it is clear that M.M.A. breached the terms of the 4 5 Engagement Contract and is therefore liable to Mr. Blades for the losses suffered. 6 Accordingly the court finds that after deducting the advances ($130,500) and 7 expenses for the Siembra Concert ($72,663.69), Mr. Blades is entitled to damages 8 in the amount of $70,668.16. Also, since the deposit made by Mr. Rivas for the 9 10 11 12 13 concert between Mr. Blades and Mr. Feliciano was misappropriated, M.M.A. must pay Mr. Blades $62,500 in additional damages. Furthermore, although payment of interest was not expressly stipulated in the Engagement Contract, Mr. Blades is entitled to prejudgment interest from the 14 15 date the amended cross-claim was filed until judgment is entered. 16 In view of the above, and having determined that there is no just reason for 17 delay, I am directing the Clerk to enter a partial final judgment in favor of Rubén 18 Blades against Martínez, Morgalo & Associates, LLC, in the amount of 19 20 21 22 23 24 25 26 27 28 $133,168.16, plus interest at the legal rate, beginning on June 5, 2008. At San Juan, Puerto Rico, this 15th day of June, 2010. S/ JUSTO ARENAS Chief United States Magistrate Judge

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