In re Crazy Eddie Securities Litigation

• Decision Date: 08 August 1996
• Docket Number: No. 87 CV 0033.,No. 91 CV 4450.,No. 90 CV 3181.,No. 88 CV 3481.,87 CV 0033.,91 CV 4450.,90 CV 3181.,88 CV 3481.
• Citation: 948 F.Supp. 1154
• Parties: In re CRAZY EDDIE SECURITIES LITIGATION. Vivian BERNSTEIN, et al., Plaintiffs, v. Eddie ANTAR, et al., Defendants. OPPENHEIMER-PALMIERI FUND, L.P., Entertainment Marketing, Incorporated, and Elias Zinn, Plaintiffs, v. PEAT MARWICK MAIN & CO., et al., Defendants.
• Court: U.S. District Court — Eastern District of New York

948 F.Supp. 1154

In re CRAZY EDDIE SECURITIES LITIGATION.

Vivian BERNSTEIN, et al., Plaintiffs, v. Eddie ANTAR, et al., Defendants.

OPPENHEIMER-PALMIERI FUND, L.P., Entertainment Marketing, Incorporated, and Elias Zinn, Plaintiffs, v. PEAT MARWICK MAIN & CO., et al., Defendants.

No. 87 CV 0033.

No. 91 CV 4450.

No. 90 CV 3181.

No. 88 CV 3481.

United States District Court, E.D. New York.

August 8, 1996.

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Sirota & Sirota (Howard B. Sirota, Saul Roffe, of counsel), New York City, Abbey & Ellis (Stephen T. Rodd, of counsel), New York City, for class plaintiffs.

Folkenflik & McGerity (Max Folkenflik, Margaret McGerity, of counsel), New York City, for plaintiff Entertainment Marketing, Inc.

Corbin Silverman & Sanseverino (John J. Gallagher, of counsel), New York City, for Dennis S. Faulkner, Trustee of KLH Computers, Inc. f/k/a Entertainment Marketing, Inc.

Leventhal Slade & Krantz (Larry Krantz and Thomas B. Wilinsky, of counsel), New York City, for plaintiff Elias Zinn.

Milbank, Tweed, Hadley & McCloy (C. Stephen Howard, David A. Jones, of counsel), Los Angeles, CA, for plaintiff Oppenheimer-Palmieri Fund, L.P.

Barry & McMoran (John J. Barry, Adam N. Saravay, of counsel), Newark, NJ, for defendant Eddie Antar.

MEMORANDUM AND ORDER

NICKERSON, District Judge:

In a Report and Recommendation dated September 15, 1995, as amended by a Supplemental Report and Recommendation dated October 4, 1995, Magistrate Judge Marilyn Dolan Go recommended that judgment be entered against defendant Eddie Antar as follows: (a) judgment in favor of the class plaintiffs in the amount of $706,375,392.60, with interest at a rate of $43,515.132 per day from October 4, 1995; (b) judgment in favor of Entertainment Marketing, Inc. in the amount of $15,977,763.18, with interest at $1,793.50 per day from October 4, 1995; (c) judgment in favor of Elias Zinn in the amount of $4,559,038.20, with interest at $581.331 per day from October 4, 1995; and (d) judgment in favor of Oppenheimer-Palmieri Fund, L.P. in the amount of $15,686,097.82, with interest at $1,733.901 per day from October 4, 1995.

The court has reviewed the Report and Recommendation as amended, has considered the objections of the parties, and agrees with its result.

The Clerk of the Court is directed to enter judgment against Eddie Antar in the amounts stated above.

So ordered.

REPORT AND RECOMMENDATION REGARDING DEFAULT JUDGMENTS

GO, United States Magistrate Judge:

All remaining dispositive matters in this consolidated action have been referred to me for report and recommendation. The class plaintiffs and individual plaintiffs Entertainment Marketing, Inc. ("EMI"), Elias P. Zinn ("Zinn") and Oppenheimer-Palmieri Fund, L.P. ("Oppenheimer") have moved for a determination of the amount of damages and entry of default judgment against defendant Eddie Antar ("Antar").

Determination of these motions will bring to a close, at least in this court, the long and protracted litigations involving the fraudulent and negligent conduct of Antar and others in connection with the sale of securities in Crazy Eddie, Inc. ("Crazy Eddie" or the "Company"). The volumes of documents submitted to the court speak of the enormous efforts expended over nine years by armies of lawyers for both plaintiffs and defendants to bring this consolidated action to an end. Approximately 1,500 documents have been docketed in the nine actions consolidated in this court concerning Crazy Eddie, including numerous orders and decisions. Familiarity with the approximately twenty reported opinions is assumed. See In re Crazy Eddie Sec. Litig., 824 F.Supp. 320, 322 (E.D.N.Y.1993) and cases cited therein.

The damages calculated below provide some measure of the magnitude of the losses sustained by numerous purchasers of Crazy Eddie stock. However, the bare numbers do not reveal the extraordinary nature of the fraudulent scheme perpetrated upon the public by Antar, his relatives and associates, particularly since most of the facts presented in the instant motions and earlier proceedings are merely short and plain statements required by Rule 8. Nonetheless, even these dispassionate statements of Antar's deeds disclose a scheme remarkable not only for the substantial amounts misappropriated through fraud but for the brazenness of its perpetrators, among whom Eddie Antar clearly was the mastermind and instigator. Against this background, the amounts of the judgments against Antar recommended herein — totaling over $740,000,000 — are neither excessive nor surprising. The extent to which the plaintiffs will be able to enforce these judgments is a remaining question to be resolved primarily in Securities and Exchange Commission v. Eddie Antar, et al., Dkt. No. 89 Civ. 3773 (NHP) (D.N.J.) (the "SEC Action") brought, inter alia, to seize and repatriate assets that Antar has secreted in Europe. See Declaration of David A. Jones dated September 29, 1994 ("Jones Decl.") at ¶¶ 22-24 and Exhs. J, O, P and Q.

PROCEDURAL BACKGROUND

The motions for default concern the claims raised in (1) a consolidated class action entitled Vivian Bernstein, et al. v. Eddie Antar, 87 CV 33 (the "Class Action"), brought on behalf of persons who purchased Crazy Eddie securities from September 13, 1984 through January 18, 1988 (the "Class Period"); and (2), a separate action entitled The Oppenheimer-Palmieri Fund, L.P., et al. v. Peat Marwick Main & Co., et al., 88 CV 3481 (the "Individual Action"), brought by three investors who purchased substantial amounts of Crazy Eddie securities in a "successful" takeover of the company. These two actions were consolidated for all purposes by the Court by order dated May 31, 1989.¹ Numerous cross claims were asserted among the various defendants in the first two actions.

On April 25, 1990, the Court entered a default against Antar in both actions for failure to comply with discovery obligations. The Court noted in its order that Antar had failed to appear for two scheduled depositions and "[h]is whereabouts are unknown," causing his counsel to move to withdraw. As subsequent events revealed, Antar had fled to Israel and, after involved extradition proceedings, was returned to the United States to face criminal charges in the District of New Jersey. See United States v. Eddie Antar, 53 F.3d 568, 570 (3d Cir.1995). On August 17, 1992, the Court also entered a default against Antar with respect to the cross claims asserted against him by Peat Marwick Main & Co. ("Peat Marwick") in both these actions. In entering both defaults, the Court deferred entry of judgment until the conclusion of this action.

In March 1993, all defendants except Antar entered into agreements to settle the Class Action, Individual Action, and two related class actions² not originally consolidated with this action. On June 11, 1993, this court approved a Stipulation of Settlement dated March 22, 1993 (the "Settlement") settling the claims in the Class Action, except those against Antar. See In re Crazy Eddie, 824 F.Supp. 320.

The plaintiffs in the Class Action (the "class plaintiffs") and the three plaintiffs in the Individual Action (Oppenheimer, EMI and Zinn, hereinafter collectively the "individual plaintiffs") have separately moved for default judgment against Antar. Defendant Peat Marwick has declined to move for entry of default judgment on its cross claim. After the moving plaintiffs filed voluminous affidavits and supporting documentation, Antar, who had not participated in this consolidated action after his default, appeared through new counsel to request an extension of time to respond, which was granted. At a hearing on February 22, 1995, I determined that the calculation of damages on the claims in the Individual Action could be based on the written submissions. Notwithstanding Antar's argument that an evidentiary hearing was necessary, his counsel conceded at oral argument that the issues he raised as to the damages claimed in the Individual Action involved purely questions of law and no factual disputes. Tr. 2/22/95 at 23.³

However, I found that the submissions of the class plaintiffs failed to provide a sufficient basis to calculate damages, particularly with respect to damages sustained by plaintiffs who bought and sold securities within the Class Period. I directed the class plaintiffs and Antar to supplement their written submissions and scheduled an evidentiary hearing. At the inquest held on March 29, 1995, the class plaintiffs presented one witness, Candace Preston, an expert witness with Princeton Venture Research. Ms. Preston testified about the calculation of damages and the influence of external factors on the prices of Crazy Eddie securities. Antar did not present any witnesses or other evidence.

DISCUSSION

I. GENERAL CONSIDERATIONS

A. Legal Standards Governing Default

A default constitutes an admission of all well-pleaded factual allegations in the complaint, except for those relating to damages. Greyhound Exhibitgroup Inc. v. E.L.U.L. Realty, 973 F.2d 155, 158 (2d Cir. 1992), cert. denied., 506 U.S. 1080, 113 S.Ct. 1049, 122 L.Ed.2d 357 (1993); Au Bon Pain Corp. v. Artect, Inc., 653 F.2d 61, 65 (2d Cir.1981). Only "in very narrow, exceptional circumstances" may a court find an allegation not "well pleaded." Trans World Airlines Inc. v. Hughes, 449 F.2d 51 (2d Cir.1971), rev'd on other grounds, 409 U.S. 363, 93 S.Ct. 647, 34 L.Ed.2d 577 (1973) (quoting with approval Trans World Airlines v. Hughes, 308 F.Supp. 679, 683 (S.D.N.Y.1969)).

Although a court has discretion to determine whether the facts alleged in a complaint state a valid cause of action, Au Bon Pain, 653 F.2d at 65, a defaulting party ordinarily cannot contest the merits of the plaintiff's claim absent "indisputable" contradictory evidence. Trans World Airlines, 449 F.2d at 63-64. Moreover, a default effectively constitutes an admission that damages were...