Scs Communications, Inc. v. Herrick Co., Inc.
| Decision Date | 03 March 2004 |
| Docket Number | Docket No. 02-7362(L).,Docket No. 02-7364(XAP). |
| Citation | 360 F.3d 329 |
| Parties | SCS COMMUNICATIONS, INC. and Stephen C. Swid, Appellants-Cross-Appellees, v. THE HERRICK COMPANY, INC. and Norton Herrick, Appellees-Cross-Appellants. |
| Court | U.S. Court of Appeals — Second Circuit |
Gregory P. Joseph, Gregory P. Joseph Law Offices LLC, New York, New York, for Appellant-Cross-Appellee Stephen C. Swid.
David Spears, Richards Spears Kibbe & Orbe, New York, New York, for Appellant-Cross-Appellee SCS Communications, Inc.
Gerald Walpin, Katten Muchin Zavis Rosenman, New York, New York, (Joseph Zuckerman, of counsel), for Appellees-Cross-Appellants The Herrick Company, Inc. and Norton Herrick.
Before: JACOBS, POOLER, Circuit Judges, and HALL, Judge.*
This appeal arises from an arrangement gone awry between two groups for their joint acquisition of a company that was on the block. SCS Communications, Inc. and its principal Stephen C. Swid1 appeal from the March 28, 2002 amended judgment entered (following a jury verdict) in the United States District Court for the Southern District of New York (Patterson, J.), awarding compensatory damages to The Herrick Company, Inc. and its principal Norton Herrick (collectively "Herrick") for breach of contract and breach of fiduciary duty under New York law. SCS attacks the judgment on the grounds that: (1) the district court's dismissal of a nondiverse party failed to cure the jurisdictional defect that occasioned the vacatur and remand; (2) the district court erred in deciding on summary judgment that a binding contract existed among Herrick, SCS, and others; (3) the evidence does not support the jury's findings that Swid is personally liable as a knowing participant in a breach of fiduciary duty and as SCS's alter ego; (4) the jury instructions on damages were erroneous; and (5) the admission into evidence of an unauthenticated handwritten note was reversible error.
Herrick cross-appeals from the judgment insofar as the district court granted a setoff against the jury award for sums paid in settlement by other defendants. An earlier judgment was vacated in an earlier appeal contesting the existence of diversity jurisdiction. Herrick Co. v. SCS Communications, Inc., 251 F.3d 315, 319 (2d Cir. 2001) ("Herrick I").
We conclude that the district court cured the jurisdictional defect by dismissing the nondiverse party after considering the relevant factors. We affirm on the appeal because SCS's substantive arguments are either without merit or waived. On the cross-appeal, we reverse the grant of SCS's post-verdict motion to amend its answer to assert setoff.
The following facts are either undisputed or, where touching on issues decided by the jury, viewed in the light most favorable to Herrick. See Nadel v. Isaksson, 321 F.3d 266, 272 (2d Cir.2003). In 1993, a number of efforts were mounted to acquire the Orleander Group ("Orleander"), a manufacturer of bicycle accessories. First, Richard Sheinberg and Henry Chan (his associate) attempted an acquisition by a company they formed for that purpose, TOG Acquisition Co. ("TOG"); but failed for lack of financing. Later that year, on August 2, the owners of Orleander granted to Herrick an exclusive right to negotiate for the sale of the business. Shortly thereafter, Herrick approached Sheinberg and Stephen Weinroth (a director of SCS) to discuss a joint acquisition effort.
On August 16, 1993, a letter was executed by Herrick, SCS (by Weinroth), and TOG (by Sheinberg), in which they undertook "to work together to acquire the business of the Orleander Group," and set certain terms for the conduct of the venture (the "Letter Agreement"). The Letter Agreement concluded: "The parties agree that neither they nor any of their affiliates [n]or any other entity in which they own an interest ... will acquire The Orleander Group without complying with the terms of this letter." Shortly after signing the Letter Agreement, the signatories enlisted the services of Skadden, Arps, Slate, Meager & Flom ("Skadden") and Skadden partner, Mark Smith.
Herrick contends (and the district court agreed on summary judgment) that the Letter Agreement is a legally binding contract establishing a joint venture to pursue the purchase of Orleander.
On November 19, 1993, after failed efforts to agree on the structure of the acquisition vehicle and the allocation of rights in the company post-purchase, Sheinberg and Weinroth told Herrick that he was out of the venture. On November 29, Orleander was acquired by SCS, Swid (the majority stockholder of SCS), and TOG — without Herrick. After Herrick's ejection, the Skadden firm continued to advise SCS and TOG in respect of the acquisition.
Herrick brought suit against SCS, Swid, Weinroth, Sheinberg, Chan, and Vetta Sports, Inc. (as successor to TOG) (collectively, the "business defendants"), alleging breach of contract, breach of fiduciary duty, fraudulent inducement, and knowing participation in a breach of fiduciary duties. Skadden and Smith were also named as defendants for allegedly breaching their fiduciary duties. Herrick sought compensatory and punitive damages from all defendants.
The business defendants moved for summary judgment on the ground that the Letter Agreement was unenforceable, and Herrick cross-moved on the ground that the business defendants breached an enforceable joint-venture contract. The court ruled as a matter of law that the Letter Agreement was a valid and enforceable contract establishing a joint venture among its signatories, but identified genuine issues of material fact as to breach and damages.
Trial opened on January 13, 1999 with two days of opening statements. On January 15, Norton Herrick began his direct testimony. The next day, a settlement was reached with defendants Sheinberg, Weinroth, Chan, Skadden, and Smith.
Herrick pressed its case to verdict against SCS and Swid. The judge instructed the jury that the absence of certain defendants and claims "has no significance whatsoever for your consideration of the plaintiff[s'] case against SCS Communications and Stephen Swid."
A special verdict form posed six yes-or-no questions on liability, followed by a final question on damages: "If you answered YES to any of the above questions, what damages do you find plaintiff suffered?" The form did not ask whether any of the settling defendants caused or contributed to Herrick's loss. The jury found SCS liable to Herrick for breach of contract and breach of fiduciary duty, and found Swid personally liable as SCS's alter ego and for his own knowing participation in a breach of fiduciary duty. Herrick was awarded over $10.5 million. Post-verdict motions ensued.
SCS argued post-verdict that Skadden's presence defeated diversity jurisdiction and that Skadden remained a defendant notwithstanding the settlement because no dismissal had yet been entered and because the district court retained jurisdiction over the settlement. The district court rejected the jurisdictional challenge on the grounds that, even assuming complete diversity was lacking at the outset, Skadden was no longer a "party" after the settlement within the meaning of the diversity jurisdiction statute, 28 U.S.C. § 1332(a), and that upholding SCS's challenge would waste judicial resources. That ruling was the chief focus of the first appeal.
SCS and Swid also moved post-verdict for judgment as a matter of law or for a new trial. The denial of those motions is challenged on the present appeal.
The district court granted, however, SCS's post-verdict motion to amend the answer to assert a setoff for sums paid by the settling defendants. The court determined that the setoff was proper under New York General Obligations Law § 15-108(a), implicitly rejecting Herrick's contention that it was prejudiced by SCS's failure to assert the defense earlier.
On August 12, 1999, the district court entered an (amended) judgment in favor of Herrick in the amount of over $8.7 million, a sum derived by the court subtracting from the original award of over $10.5 million (plus prejudgment interest) a setoff of $7.25 million (a figure which represented the present value of Herrick's settlement with the settling defendants).
Both Herrick and SCS appealed from that judgment.
Herrick I focused on jurisdiction. We ruled that "if Skadden has among its partners any U.S. citizens who are domiciled abroad, then Skadden and Herrick (which is a citizen of Florida) are non-diverse," Herrick I, 251 F.3d at 322; that the burden of establishing jurisdiction was on Herrick, id. at 322-24; and that Herrick's only evidence in support of Skadden's diverse citizenship — Skadden's pretrial admission that diversity jurisdiction existed — was insufficient, id. at 324.2
We acknowledged that a defect in jurisdiction may be curable by nunc pro tunc dismissal of dispensable jurisdictional spoilers, pursuant to Fed.R.Civ.P. 21, and we concluded, under Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 109 S.Ct. 2218, 104 L.Ed.2d 893 (1989), that appellate courts have power (to be used "conservatively") to cure a jurisdictional defect in that way. Herrick I, 251 F.3d at 330-31. At the same time, we recognized that Newman-Green mandates consideration of prejudice, and cautions that remand "might be appropriate" to decide factual disputes bearing on that issue. Id. at 331 (quoting Newman-Green, 490 U.S. at 838, 109 S.Ct. 2218).
Accordingly, we vacated the judgment, remanded, and directed the district court to decide whether Skadden's presence defeats diversity, and if so, "whether SCS/Swid was unduly prejudiced by Skadden's participation in the lawsuit and consequently whether jurisdiction over the main case may be salvaged, under Newman-Green, by...
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