Davenport v Martin
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Davenport v Martin 2003 NY Slip Op 30256(U) March 28, 2003 Supreme Court, Erie County Docket Number: 11527/94 Judge: David J. Mahoney Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various state and local government websites. These include the New York State Unified Court System's E-Courts Service, and the Bronx County Clerk's office. This opinion is uncorrected and not selected for official publication. [* 1] DI] MEMORANDUM DECISION DATED MARCH 28, 2003 [12-22] STATE OP NBN YORK SUPRBMB q:>URT COUNTY OF ER.Ii JOSICPJlDli K. DAVDPOD' uad K. CALBOUR, am.a Plaintiffs .· -vaamaL• a.. D2'1'DI, n .• Jtm.IARCll BUILDDIG II SQmPllDft' CO., DIC., Defendant• Dm'NllZW l)ICillQI Index Numbers 1152?/96 DVDICIK! A COOJt, LLP llarilp A. Boclafield, S•q. Jt.uulolpb c. Oppenb••-:r, ••.,. Attorneye for Plaintiffe BOI>GSCll, RUSS, AllDm8, WOODS 6 GOODIDR, LLP Daniel C. OltY9rio, bq. JCe'riD D. l•c:•epuwld., hcz. Attorneys for Defendant• DBCllft1 ·J •I Plaintiffs have moved for entry of Judgment in the abovecaptioned action based upon the Referee.' s determination herein dated October 31, 2002. Defendant• have filed a czcaa-motion seeking the Court's rejection of the Referee'• Deci•ion and have filed a supplemental cross-motion to modify the Court'• order of Reference to the Referee. [* 2] . f The underlying action was conmenced October 6, 1994. According to the complaint, Plaintiffs were allegedly induced by actione of Defendants C>ctober 24, 1988 into divesting themselves of stock they held in Defendant, Reliance!, upon the repres~ntation that the papers they were signing were for the purpose of consolidating c~ie• within the Martin Group. Of the•e cOftl)Allie•, Plaintiffs held stock in Reliance and Martin · Fireproofing Co., Inc. Both coxporatiom had been founded by their father, Cbarl•• A. Martin, Sr. not active in che busi:le••· They were. r>efendant Martin, at the time, was an·officer and atodcholder in all of the coq>anie•. The basis :for the claim wa• fraud and breach of fiduciary duty. The relief sought was a rescission of the tr&D8action and an accounting. In an amended complaint dated January 23, 1998, Plaintiffs withdrew their prayer for rescission and, baaed upon ~e same allegationa of fraud and breach of f iduciazy · duty, sought instead monetazy relief for the •full value• of their Reliance shares. Tiley continued to de1N1Dd an accounting from Defendants. During the pendeney of the action, the Court appointed . . . . . Richard McConlick, CPA, as medi•tor in an atteq>t to bring the partieil together. Mr. McCormick's effort•, extending over several months, came to naught. - 2. - [* 3] ; The Court conducted the trial of the action without a juey beginning January 8, 1999. Pinal arguments and sul:>mis•ions were not completed until the Bummer of 1999. . On ~ebruary 15, 2000, the Court isauecl-a Deci•ion finding that frauduient conduct wa• not proven, but tbat · Defendanta did breach their fiduciary duty toward Plaintiff a. Plaintiff• were granted judgment Narc:h 1, 2001, restoring their atock in Reliance, or, ~ other worm, n•cinding agreeawnt of the •tock in czue•tion. The the Co~ redemption al•o directed tbat the amcunt of dividenda due from 15188 forward calculated and determined in a •houl!S be separate proceeding · by a Referee appointed by the eourt. The Court delayed aaid proceeding pending re•olut_on .of i Plaintiff•' appeal to the Appellate Divi•ion. On February 15, 2000, the Appellate Divi•ion, Fourth Department, affirmd the eourt'a determination with reapect to a breach o( duty and agreed with ·it tbat a finding of fraud -~ppropriate. Court fi~~i~ Q• not The Appellat~ Divi•i~ found, however, that thi• bad abueed it• discretion under ~ ~017 Plaintiffs a remedy they no longer sought · ~ by granting the. form of re•ciseion of the stock ~tion agreement and retttoration of their shares in Reliance. - l - [* 4] The.Memorandum Decision (294 A.D.2d 891) noted at page 892, thaJ •the record establishes that plaintiffs no longer trust Martin•, referring to their brother, Charles J. Jr. Based on thi• predicate, the Appellate Divi•ion ordered that Plaintiff• llhall have Judgment in the amount of the fair market · .v alue of their sharea of •tock in Defendant Reliance Building fs Equipment offset•, and the matter Co. ,Inc., deducting therefrom any wa• remitted to this Court for further· proceeding• in accordance with the Memorandum Deci•ion. In line with the Appellate Divi•ion'• Deci•ion, we i••ued a formal Order Augu8t 30, 2002, appointing Richard P. Griffin, Bmq., •a• Referee to hear and determine the amunt of the fair market · value of the Davenport •bare• and Belen M. of •tock held by JOHphine · M. C.lhoun as of oetober 24, 1988, irrmediately prior to tbe aubject transfer, deducting therefrom offsets, if any, to be awarded ... damages to .t he Plaintiff• with interest to be determined by the eourt•. Qrder was prepared by Mr. The· initial· Griffin and mgclified by the attorneys for the partie•. The final draft was approved by both eowu1el and the Court and aigned it after a conference June 19, 2002. under its te%1ml, no te•timon)r evidence was to be received. or additional The Order was agreed upon at the time by all counael. - . - [* 5] Thereafter, the Referee conducted the proct!eding in line with the order. This involved extensive presentations, including proposed findings of fact and conclusions of law, together with extensive documentation relating to· the financial condition of Reliance over the years in question, together with expert analysis and ·'Other evidence derived pursuant to the Order from the trial record. In hi• Amended Determination dated October 31, 2002, the · Referee dete%111ined the fair market value of the 3,471 & 7/8 •hare•: of Cl••• A common •tock of Reliance owned by Jo.ephine M. Davenport, wa• Plaintiff~ $200,174.38 and the fair market value for the • . - number of •hare• in the •ama cl••• bf •tock in Reliance owned by Belen M. C&lboun wu al80 $200,·174.38. These amounts, according to the finding• of Referee Griffin, repres~ted. the fair market value of all of the Plaintiffs' ·· •tock ·holdings in Defendant, Reliance, as of October 24, 1988. The Order of this Court appointing the· Referee WA• clear ·and unambiguoua. Aa noted above, its· terms were approved aa to content by the attorneys repre•enting .the ·partie•. It provided apecifieally that the Referee vu to · •hear·· and determine the amount of the fair market value of the. shares in question• in ·the · form of detailed fi.ndingli of fact . and conclusions of law based upon the evidence received. at · the trial. - 5 - [* 6] We antic:ipatecl that when he accepted the reference, Mr. Griffin would do a thorough and efficient job as Referee, and, without 4'iestion, he did so as reflected in ·his detailed Detei:mination. Tbt!t Court'• power• are clear under CPLR •111, •317 (b) and 4321 in connection with Orders of Reference. powers are govemed by CPLR 4301, which A Referee's include• the following: •The referee to determine the i•aue, or to perform an act, shall .have all the powera of the court in performing a like function•. Baaed upon bi• determination and the law, we • - no ba•i• to reject the Referee'• deci•ion of October 30, 2002, nor do we . . . any ba•i• for.modify~ the Order of Reference herein. dated August 30, 2002, to retroactiwly modify it• verbiage ao that •to hear and deteraine• is transformed into •to bear and report• . To hear and dettmaine waa our intent at tbe t i - and we find no ba•i• in law or fac:t to al•er the order.at thi• juncture. With reference to the Plaintiffs' Judgment, we wmst.c:onaider three issues~ motion to enter The first question to be ·answered is whet~er liability was ·impo•ed on ·the . Defendants jointly and seve~ally. Because the relief originally granted was rescission, the iasue may not have been c:lear in the Court's Decision of February 15, 2000. - 6 - In [* 7] directing rescission at that time, we recognized that the Defendant's were jointly and severally responsible and we sought to Plaintiffs. in th~ · 'luld be promptly accorded insure that relil. . Defendant Martin was less involved at that time business. We see no reason to ·change the Defendants' statu• because there is now a money judgment. Also,· we believe joint and several liability to be corwi•tent with the Appellate Divi•ion'• memorandum deciaion. Tbe other two i••ue• concern prejudgment interests When doe• ic begin in thi• caH and what the rate •hould be: ~ 5004(d) provide• that intere•t. ahall· be calculated from •the earliest ascertainable dace · 'the cauae of action exiated•. That date is clear: October 24, 1988 ~ · On . that day Charles Martin, Jr., •olicited and obtained cbe Plaintiff's signat_ re u on the papers redeemiag Respondent•' •tock ·in · Defendant, Reliance. · The second more difficult question concerns the rate at which interest should run. It has been determined. ·the · aggregate fair market value · of the· Plaintiffs,. 8bares of stock, as of OCtoher 24~ 1988, was $401,348.76. · Interest thereon at the •statutory rate• of 9t levied frour October 24, 1988 to October Jl,2002, . the date of. the motion herein· was made, would t. ·$506,392.18 .. See, CPLR 5004. - 7 - [* 8] The Legislative history of CPLR 5004 is worthy of note. The inter.est rate applicable to money judgments prior to 1964 was 6t pursuant to General ·Business Law Section 370. In 1964, section 370 was repealed and the judgment rate was fixed periodically by action of the Banking Board, pursuant to General Obligations cumbersome. Section ·S-504. Law In 1972, became -Thi• the CPLR waa ·.amended and the · rate returned to ' ' · Professor Siegel baa coamented (McKinney's Annotation to CPLR 5004, page 4\3), that a• interest rates soared in tbe the ' ' r•t• emerged 1.9 70a, debton. u a good deal for judgment Thia was unintended and delayed the prompt diecharge of judgments. In 1981 the Legislature took remedial •tepa by increaeing the rate to tt, where it •tand.9 today. rates ·have now plwmeted. Ron-payment has excellent return for judgment creditora. CPLR 5001 (a) provides: a 8l,llll Intere•t re8Ulted in an . •Interest shall be recovered upon awarded becauae of a breach of a performance of a conti-act, . or because of .. an act or omission depJ;"iving or otherwise interfering enjayment of, with property, title except to, that or possession or in an action of an · equitclble nature, interest and the rate ~ date from which it aJ:iall be Coaplted·shal.1 be in the Court'• dis~tion•. To determine if an a~ion lies in equity or in. law, ~ Court generally looks to the relief demanded.· · It has been - 8 - [* 9] said, however, that the basis for jurisdiction . in law or equity stands or falls on the factual allegations in the complaint!, not merely the prayer for relief. New York Jurisprudence, Vol. 55 · (Bqui ty) , section 11, page ·597. Prom the claim itself, we gain an understanding of its nature. The Plaintiffs• first cou;>laint.· filed October 19, 1994 alleges, inter alia, that Defendant, Martin, the brother of Plaintiff•, in whom they •reposed great trust and confidence• and 11 on whom they relied for honesty, good faith and faithful performance of hi• poeitione of trust•, violated the trust repoaed in him October 24, 1988 when he secured Plaintiffs' eignature• on certain papers by mia:repreeenting · them as effecting a con.olidation of variOU8 corporations for the best···.· interests of consti~uted all the atockboldera when they actually a redemption of their stock. ,'.rhere are four causes of action in all based on these or similar al legations. The second cause . of action sought recision of the transaction as did the third. cause ·of action speaks to fraud. The fourth It was alleged that the· transaction was void as pe~ated by fraud. · The fourth cauae of action contains allegations intended to support an award of· punitive damages. •damages The ad daamum clause··demnds reciaion and in the amount of the full and .fair value• of Plaintiffs' stockholcling as of October 24, 1988 •together w·'.th. - 9 - [* 10] interest .from said date•. The clause-also demanded punitive damages fn the sum of One Million Dollars. In addition, an accounting was sought plus attorney and accountant's fees. The amended conplaint, filed March 26, 1998, in the body thereof, contains two causes of action based upon the same or similar factual allegations above-mentioned. The second cause of action is set forth as a basis for an award of· punitive .. ,.. damages due to Defendant Martin's •flagrant abUse· of ... his· fiduciary relationship with his sisters•. The ad danmwn in the amended complaint damages with interest from October 24, attorneys and accountant I 8 seeks money 1988 together with· fees• The demand for an ACCOUDting was withdrawn. In our opinion, this case began in an equitable posture and it remained to the end in an equitable posture. The··.·.· amendment gave definition to the .relief sought, but did not transform the underlying nature of the action. ·Money damages had been sought under the first complaint, couched as punitive damages. Rescission as a remedy was removed and replaced by a simple demand for compensatory .damages reflecting. the value of the stock. The demand for punitive damages remained. It· is Hombook law that money damages may be awarded alone in ·an - 10 - [* 11] . • action that sounds in equity if such a remedy is necessary to afford appropriate relief to the aggrieved party. ffcNulty J. S~e. Mt. Morris Electric Co., 172 N.Y. 410. we conclude, therefore, that the .action herein is •an action of an equitable nature 0 , and that the Court, pursuant to CPLR SOOl(a), has discretion in the matter of fixing the "interest and the rate" applicable to .the judgment ... The question is what rate would best serve to make Plaintiffs whole and be, at the same time, fair and ·equitable under. the circumstances. The rate similar to post-judgment interest under 28 USC Section 1961 (a) (based on the yearly sale of treasury bills) would, we believe, be~t serve this purpose. We would therefore ask counsel to determine the average annual rate over the period in question rounded .out to .-.the nearest tenth of a percent and advise the Court. pocket part suffice. to 28 A table found in the USC Section 1961 (a) ·should .·partially It will be this rate that will be inserted into the Judgment. SUbmit Judgment. Court DATED: March 28, 2003 - 11 -
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