810 F.2d 1250 (2nd Cir. 1987), 1439, F.H. Krear & Co. v. Nineteen Named Trustees

Docket Nº:1439, Docket 86-7284.
Citation:810 F.2d 1250
Party Name:F.H. KREAR & CO., Plaintiff-Appellee, v. NINETEEN NAMED TRUSTEES, as Trustees of Local 69 Pension Fund, Local 69 Vacation Fund & Local 69 Health Benefit Fund: John H. Leaver, Frank Esposito, Anthony Nicoletti, Al Ehrlich, Carol Murray, Royland H. Hill, James Santos, Edward Seaman, Steve Wilson, Victor Mayers, Gerson Kaiserman, Joseph Yachnowitz, Ri
Case Date:January 20, 1987
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
FREE EXCERPT

Page 1250

810 F.2d 1250 (2nd Cir. 1987)

F.H. KREAR & CO., Plaintiff-Appellee,

v.

NINETEEN NAMED TRUSTEES, as Trustees of Local 69 Pension

Fund, Local 69 Vacation Fund & Local 69 Health Benefit Fund:

John H. Leaver, Frank Esposito, Anthony Nicoletti, Al

Ehrlich, Carol Murray, Royland H. Hill, James Santos, Edward

Seaman, Steve Wilson, Victor Mayers, Gerson Kaiserman,

Joseph Yachnowitz, Richard Sylvan, Norman Shapiro, Fred H.

McKenna, Angelo Dadolato, Robert E. Dowd, Edward J. Egan,

and Bert Levethal, Defendants, Third Party Plaintiffs,

Fourth Party Plaintiffs-Appellants,

Hotel & Restaurant Employees & Bartenders International

Union Pension Fund and Hotel & Restaurant Employees &

Bartenders International Union Welfare Fund by Their

Trustees, Edward T. Hanbley, Joseph Belardi, John C.

Kennally, Herman Leavitt, Paul McCastland, Roland

Richardson, William Schuman, John Cullerton, Lewis R. Cohen,

Donald S. DePorter, Dominic Luongo, A.W. Mitchell, Ben

Schmontey, Herbert Triplett, A.M. Charles Patrick Kane,

Fredric N. Richman, Vito Pitta, Defendants, Counterclaim

Plaintiffs-Appellants,

v.

Anthony GRAUSO, Individually and d/b/a Software & Systems

Development Co., a Partnership, Third Party

Defendants Appellees,

Robert Mozer, Third Party Defendant, Fourth Party Defendant-Appellee.

No. 1439, Docket 86-7284.

United States Court of Appeals, Second Circuit

January 20, 1987

Submitted July 15, 1986.

Page 1251

[Copyrighted Material Omitted]

Page 1252

[Copyrighted Material Omitted]

Page 1253

Douglas J. Kramer, New York City (Marilyn Go, Baden, Kramer, Huffman & Brodsky, P.C., New York City, Harvey M. Katz, Washington, D.C., on the briefs), for plaintiff-appellee.

Page 1254

Lewis M. Steel, New York City (Richard F. Bellman, Steel & Bellman, P.C., New York City, Leon Friedman, Hempstead, N.Y., Ira Drogin, Leaf, Sternklar & Drogin, New York City, on the briefs), for defendants, third party plaintiffs, fourth party plaintiffs-appellants.

Michael G. Berger, New York City (Miriam J. Haines, New York City, on the brief), for third party defendants-appellees.

Robert Swetnick, New York City (Swetnick, Mozer & Weiner, New York City, of counsel), for third party defendant, fourth party defendant-appellee.

Before OAKES, NEWMAN and KEARSE, Circuit Judges.

KEARSE, Circuit Judge:

Defendants Nineteen Named Trustees ("Trustees") appeal from a final judgment entered in the United States District Court for the Southern District of New York, Shirley Wohl Kram, Judge, following a jury trial on certain issues and a bench trial on other issues. The judgment (1) awarded plaintiff F.H. Krear & Co. ("Krear") $363,183, including prejudgment interest, for the Trustees' breach of contract, (2) awarded third-party-defendant Anthony Grauso $53,104, including prejudgment interest, for the Trustees' breach of contract, and (3) awarded Krear a total of $452,820 in attorneys' fees and expenses, pursuant to a contract provision. A prior attempt by the Trustees to appeal the first two awards was dismissed for lack of appellate jurisdiction since a decision had not yet been rendered on the contract claim for attorneys' fees. See F.H. Krear & Co. v. Nineteen Named Trustees, 776 F.2d 1563 (2d Cir.1985). On this appeal, the Trustees challenge all of the above awards, contending principally that the court made a variety of errors in its trial rulings and erred in both the awarding and the calculation of attorneys' fees to Krear. For the reasons below, we affirm so much of the judgment as awarded damages, plus interest, of $363,183 to Krear and $53,104 to Grauso; we vacate the award of attorneys' fees and remand for entry of a modified judgment awarding Krear $261,518 in attorneys' fees and expenses, upon the condition set forth in Part II.C.5. below.

I. BACKGROUND

  1. The Parties and the Events

    Krear was a firm that offered administrative services to employee benefit plans. The Trustees were trustees of three benefits funds (the "Funds") maintained by Local 69 of the Hotel and Restaurant Employees and Bartenders Union ("Local 69") for the benefit of its members.

    In early 1979, the Trustees, anticipating the growth of contributions to the Funds, decided that the Funds needed computerization and professional administration. They formed a committee to select a company to provide these services, and asked third- and fourth-party-defendant Robert Mozer, the Funds' attorney, to assist. They also hired Grauso, a computer consultant with whom the Funds later entered into a five-year consulting contract, to evaluate any proposals the Funds had received or would receive.

    During this period a controversy developed between Local 69 and the Hotel and Restaurant Employees and Bartenders International Union ("International") concerning which of them would control the Funds. When Mozer contacted several potential computer and administrative service companies, most of them declined to submit service proposals, stating that they did not want to get involved in a struggle between Local 69 and the International. Consequently only two written proposals were received by the Funds: one from a company called Administrative Consultants, Inc., and the other from Krear. Both Mozer and Grauso recommended that the Trustees negotiate agreements with Krear.

    On July 1, 1979, each of the three Funds entered into a three-year contract (collectively the "Contracts") for Krear to furnish, inter alia, "[a]ll administrative functions related to the collection of monies due the Fund ... [and] [d]evelopment of all

    Page 1255

    computer software as defined by the Fund as reasonably necessary...." Each contract provided that Krear would receive a minimum monthly payment or a specified percentage of the collections it made on behalf of the Fund, whichever was greater. Although the Contracts did not specify how much time it should take to develop the computer system, Krear's proposal and Grauso's recommendation estimated an eight-to-twelve month start-up period. Each contract provided that New York law would govern, and each contained the following provision: "In the event of any litigation between the parties, the prevailing party shall have the right to reimbursement of reasonable attorney's fees in regards to such litigation from the other."

    On October 1, 1979, the International prevailed in the struggle with Local 69 over control of the Funds. Local 69 was merged into another local union ("Local 6") headed by one Vito Pitta, who had the support of the International, and Local 6 began administering the Funds. In that month, the Funds ceased to pay Krear and, according to Krear, barred it from entering the Funds' offices to collect data in preparation for computerization.

    Krear promptly commenced the present action against the Trustees seeking, inter alia, $1,382,500 in damages for breach of contract, contending that they had ceased payments to Krear and interrupted its performance without any valid reason but solely because of the International's political victory over Local 69. The Trustees counterclaimed, contending that Krear had failed to perform the Contracts and that the Contracts had been fraudulently procured by means of a conspiracy among Krear, Grauso, and Mozer, resulting in excessively high fees to Krear. On the counterclaims, the Trustees demanded $158,476 in compensatory damages and a total of $475,428 as punitive damages. The Trustees also sued Grauso, asserting that he had failed to perform his contractual duties, and Mozer, asserting that he had breached his fiduciary duties to the Funds. Grauso counterclaimed against the Trustees for terminating his five-year consulting contract.

  2. The Jury Trial

    In 1985, a jury trial was held with respect to all issues except those relating to the Contracts' provision for the prevailing party to recover attorneys' fees. At that trial, Krear presented evidence of the above events and introduced the testimony of Mozer indicating that the International, through Local 6, had sought to avoid Local 69's prior contracts:

    The policy was to try and get the local trustees to obtain releases I might say on all service providers before they merged into the international funds.

    If that could not be done, the policy was to resist payment in the main. Sometimes they were paid, but in the main it was to resist.

    Krear sought to prove its damages through documents and the testimony of its two corporate officers, John David Krear ("John Krear") and Saul D. Weiner. The Contracts were introduced, showing that Krear was to have been paid a minimum total of $39,784 per month or a greater amount based upon a percentage, which varied from Fund to Fund, of the contributions collected for that Fund if the contributions exceeded certain levels. John Krear described Krear's anticipated expenses, including the employment contracts he and Weiner had with Krear, and testified that if contributions to the Funds increased in accordance with projections made by Krear and the Funds, Krear's profits over the life of the Contracts would have come to $839,511. On cross-examination, he testified that if the projected increases in contributions were not forthcoming, and Krear were entitled only to the minimum payments specified in the Contracts, Krear's losses as a result of the breach would total $269,400.

    In support of their conspiracy, excessive fee, and breach of fiduciary duty contentions, the Trustees elicited testimony from their own and Krear's witnesses concerning the rates of compensation received by

    Page 1256

    other administrators of pension or welfare funds. This evidence included testimony by Mozer and the administrator of the International's own pension funds...

To continue reading

FREE SIGN UP