Indu Craft, Inc. v. Bank of Baroda

Citation87 F.3d 614
Decision Date09 July 1996
Docket Number1348,Nos. 1176,D,s. 1176
PartiesINDU CRAFT, INC., Plaintiff-Counterclaim-Defendant-Appellee-Cross-Appellant, v. BANK OF BARODA, Defendant-Counterclaim-Plaintiff-Appellant-Cross-Appellee, and Krishnakant C. Chokshi, Defendant-Appellant-Cross-Appellee. ockets 95-7865, 95-7965.
CourtUnited States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Constance M. Boland, Nixon, Hargrave, Devans & Doyle, L.L.P., New York City (Kermitt J. Brooks, New York City, of counsel), for Defendant-Counterclaim-Plaintiff-Appellant-Cross-Appellee.

Jonathan A. Chase, Briarcliff Manor, New York, for Plaintiff-Counterclaim-Defendant-Appellee-Cross-Appellant.

Before CARDAMONE, WALKER, and McLAUGHLIN, Circuit Judges.

WALKER, Circuit Judge:

Defendants Bank of Baroda ("Baroda"), a bank wholly-owned by the government of India, and its now retired officer, Krishnakant C. Chokshi, appeal from an order of the United States District Court for the Southern District of New York (Leonard Bernikow, Magistrate Judge ), denying Baroda interest and attorneys' fees. Plaintiff Indu Craft cross-appeals from the district court's award to Indu Craft of post-judgment interest from August 21, 1992 at the federal rate of 3.41%. We affirm.

BACKGROUND

Nearly nine years ago, Indu Craft commenced this action to recover damages arising from Baroda's breach of its covenant of good faith and fair dealing implied in a loan agreement between the parties. The facts of this case are recited fully in our opinion on direct appeal, Indu Craft, Inc. v. Bank of Baroda, 47 F.3d 490 (2d Cir.1995), and in the district court's opinion from which the parties now appeal, Indu Craft, Inc. v. Bank of Baroda, 87 Civ. 7379, 1995 WL 479516 (S.D.N.Y. Aug.10, 1995). We briefly summarize those facts relevant to our disposition of the present issues on appeal.

Indu Craft, a New York corporation, was an importer and wholesale seller of sportswear throughout the United States. Indu Craft's relationship with Baroda began in 1983 when Indu Craft obtained a line of credit from Baroda. The line of credit was increased periodically. On December 15, 1986, Baroda made available to Indu Craft up to $2.7 million pursuant to a letter agreement. As security for the line of credit, Indu Craft executed a promissory note in favor of Baroda in the amount of $2.7 million that included provisions for interest on the outstanding amount as well as attorneys' fees in the event the bank retained counsel to enforce or collect on the note.

In March 1987, when Indu Craft refused to make an investment for the benefit of Chokshi's son, Baroda reduced the maximum amount of credit it was willing to extend to Indu Craft from $2.7 million to $2.3 million and effectively drove Indu Craft out of business. On October 15, 1987, Indu Craft commenced this action in which it alleged that Baroda and Chokshi reduced the line of credit in bad faith. Baroda counterclaimed for the amount due on the promissory note, approximately $1.7 million.

On August 12, 1992, following a four and one-half week jury trial before Magistrate Judge Bernikow, the plaintiff won a jury verdict of $3.25 million, consisting of $2 million on a breach of contract claim and $1.25 million on a tort claim. Because the jury found that Baroda's actions were taken in bad faith and wrongfully prevented Indu Craft from repaying the note, the jury did not award Baroda any recovery on its counterclaim. Judgment was entered accordingly on August 21, 1992. On December 17, 1993, however, Magistrate Judge Bernikow granted the defendants' post-trial motion for judgment as a matter of law, pursuant to Fed.R.Civ.P. 50 and dismissed the complaint. In addition, the district court denied Baroda's motion for judgment as a matter of law on the promissory note counterclaim.

On February 3, 1995, we reversed the district court, directed that Indu Craft's verdict be reinstated, and ordered that the amount due on the promissory note be offset from the amount of the jury verdict. Indu Craft,

                47 F.3d 490.   On remand, the district court reduced the jury verdict by the principal amount due on the promissory note and denied Baroda's application for interest and attorneys' fees.  Indu Craft, 1995 WL 479516.   The district court awarded prejudgment interest to Indu Craft on the net balance of the jury award remaining after deduction of Baroda's setoff.   Judgment in the amount of $2,268,865.43 was entered on August 17, 1995.   Thereafter, Indu Craft moved this court to recall the mandate, and on October 4, 1995, we directed the district court "to award post-judgment interest at the applicable federal rate from August 21, 1992, the date of the original judgment in the trial court."   On October 19, 1995, an amended judgment in the amount of $2,519,822.29 was entered to include post-judgment interest from August 21, 1992 at the federal rate of 3.41%. 1  Both sides now appeal
                
DISCUSSION

The award of interest is generally within the discretion of the district court and will not be overturned on appeal absent an abuse of that discretion. Commercial Union Assurance Co. v. Milken, 17 F.3d 608, 613 (2d Cir.), cert. denied, --- U.S. ----, 115 S.Ct. 198, 130 L.Ed.2d 130 (1994). With regard to prejudgment interest determinations, however, "New York law does not permit the trial court to exercise any discretion" where a party is entitled to such interest as a matter of right. United Bank Ltd. v. Cosmic Int'l, Inc., 542 F.2d 868, 878 (2d Cir.1976) (citations omitted).

I. Bank of Baroda's Appeal

The primary issue on appeal is whether interest should have been added to the amount due to Baroda under the promissory note on its counterclaim before offsetting that amount against the award in favor of Indu Craft. Upon reinstating the $3.25 million jury verdict, the district court offset only the principal amount due on the promissory note. In doing so, the district court relied on the "interest on the balance" rule, which states that prejudgment interest should be awarded on the net balance of the jury verdict remaining after deduction of Baroda's setoff. See Indu Craft, 1995 WL 479516, at * 1; see also Manshul Constr. Corp. v. Dormitory Auth., 79 A.D.2d 383, 436 N.Y.S.2d 724, 727 (1st Dep't 1981).

The parties hotly contest the proper characterization of the award on appeal by this court to Baroda, which was realized as a setoff against Indu Craft's jury verdict. Baroda contends that because it prevailed on appeal for the amount due on the promissory note, it is entitled to interest as a matter of right under New York law. In opposition, Indu Craft claims that because the setoff was an equitable adjustment to Indu Craft's jury award, rather than a recovery on its breach of contract counterclaim, Baroda is not a "prevailing party" and thus was properly denied prejudgment interest.

Baroda's contention that it is entitled to an award of prejudgment interest as a party that has prevailed on a breach of contract claim is based on New York C.P.L.R. § 5001(a), which states:

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.

Section 5001(a) entitles a "prevailing party" to prejudgment interest as a matter of right. State v. Williams, 140 A.D.2d 836, 528 N.Y.S.2d 353, 353 (3d Dep't 1988); Delulio v. 320-57 Corp., 99 A.D.2d 253, 472 N.Y.S.2d 379, 381 (1st Dep't 1984). An award of prejudgment interest on an equitable claim is discretionary. Scheller v. Bowery Sav. Bank, 630 N.Y.S.2d 62, 64 (1st Dep't 1995); Margo Properties, Inc. v. Nelson, 99 A.D.2d 1029, 473 N.Y.S.2d 822, 823 (1st Dep't 1984).

Unable to explain why its $1.7 million award should be considered a recovery on its contract claim in light of the jury's verdict, rather than an equitable adjustment, Baroda is reduced to quoting our earlier holding that directed the magistrate judge to "grant[ ] the Bank's motion for judgment under its contract claim." Indu Craft, 47 F.3d at 498. Baroda mischaracterizes this court's holding, however, for in discussing the damage award, we stated:

We now consider the remaining issue, which is the denial of the Bank's motion for judgment as a matter of law on its $1.7 million contract claim after the jury returned a no cause for action against it. Under its line of credit Indu Craft owed the Bank approximately $1.7 million for which the Bank asserted a counterclaim. Plaintiff admits this amount was outstanding, but maintains the Bank's actions in driving it out of business prevented it from performing under the note and thereby excuse performance.

....

While the parties have exerted much energy disputing the applicability of the prevention defense to the note, we are persuaded by a more compelling rationale urged by the Bank that judgment should have been granted. It is the purpose of damages under a breach of contract action to place the aggrieved party in the same economic position than it would have occupied absent the breach. Awarding Indu Craft the value of its business and at the same time relieving it from its obligation under the note actually place[d] Indu Craft in a better economic position than it would otherwise have occupied, a result the law disfavors. To avoid such a windfall and place Indu Craft in the position it would have been in but for the Bank's breach of contract, the debt under the note must be set off from the damages owed Indu Craft.

Id. at 497-98 (internal quotation and citations omitted).

It is plain that we did not disturb the jury's finding that Baroda's bad faith in reducing the credit line caused Indu Craft's inability to honor the promissory note. Rather, we allowed the setoff simply to avoid a...

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