KLS Diversified Master Fund, L.P. v. McDevitt
| Decision Date | 02 April 2021 |
| Docket Number | 19-cv-3774 (LJL) |
| Citation | 532 F.Supp.3d 126 |
| Parties | KLS DIVERSIFIED MASTER FUND, L.P., Plaintiff, v. Sean MCDEVITT, Defendant. |
| Court | U.S. District Court — Southern District of New York |
David J. Margules, Ballard Spahr, LLP, Wilmington, DE, Heath Khan, Marjorie Joan Peerce, Eugene R. Licker, Ballard Spahr LLP, New York, NY, for Plaintiff.
Christopher John Seusing, Michelle Marie Arbitrio, Wood Smith Henning & Berman LLP, New York, NY, for Defendant.
Plaintiff KLS Diversified Master Fund, L.P. ("Plaintiff" or "KLS") moves, pursuant to Fed. R. Civ. P. 56, for summary judgment on the amount of damages, including attorney's fees and costs. Dkt. No. 83. For the following reasons, the motion is granted in part and denied in part. Plaintiff is directed to submit a proposed judgment in accordance with this Opinion after which final judgment will be entered.
The facts of this case have been summarized in the Court's prior opinion granting summary judgment to Plaintiff on the issue of liability. Dkt. No. 73; KLS Diversified Master Fund, L.P. v. McDevitt , 507 F.Supp.3d 508 (S.D.N.Y. Dec. 15, 2020). The Court assumes familiarity with that opinion and adopts the terms defined therein unless otherwise stated.
The following facts relevant to damages and the amount of judgment are taken from the parties’ respective Rule 56.1 statements and are undisputed.
On January 9, 2017, Defendant Sean McDevitt ("Defendant" or "McDevitt") signed a Conditional Guaranty (the "Guaranty"), guaranteeing the obligations of non-party Sensei, Inc. ("Sensei") on a promissory note (the "Note") executed the same day. Pursuant to Section 1 of the Guaranty, McDevitt agreed that he would "be fully and personally liable for the payment and performance of any then remaining obligations of [Sensei] set forth in the Note" but only upon the occurrence of any one of six "Recourse Events" set forth in the Note. Dkt. No. 45-3 § 1. The Note obligated Sensei to repay the principal sum of $3.33 million it had borrowed from KLS at a 4% annual interest rate compounded quarterly at the earliest of: (1) the two-year anniversary of the issue date of the Note (i.e., January 9, 2019), (2) upon a company sale, or (3) upon the automatic acceleration of the Note as a result of an "Insolvency Event." Dkt. No. 45-1 § 2. Sensei did not repay the Note on January 9, 2019, and no payments of interest have been made on it.
KLS brought this action to recover on the Guaranty. By Opinion and Order dated December 15, 2020, the Court granted Plaintiff's motion for summary judgment and denied Defendant's motion for summary judgment. The Court concluded, based on the undisputed facts, that several Recourse Events had occurred and McDevitt was liable to KLS under the Guaranty. KLS did not seek summary judgment as to damages and the Court therefore left open the amount KLS was owed under the Guaranty.
Under the Note, Sensei granted KLS a security interest in certain of its personal property, including all intellectual property of Sensei (the "Collateral"). Id. § 4. Section 4 of the Note reflected that: Id. Upon an Event of Default, KLS was granted the authority "without notice or demand, [to] exercise all rights and remedies of a secured party under the UCC," including to "do any acts it considers necessary or reasonable to protect the Collateral and/or its security interest in the Collateral." Id. § 8.
Upon Sensei's failure to repay the principal amount to KLS under the Note, KLS foreclosed on all of Sensei's assets, including its intellectual property. Dkt. No. 48-1, Ex. 11 to Ex. A. The Notice of Foreclosure, pursuant to Section 9-610 of the Delaware Uniform Commercial Code ("UCC"), reflected that, on February 14, 2019, KLS would sell at public auction all of Sensei's personal property, including intellectual property, in satisfaction of Sensei's indebtedness to KLS, and it reserved all of KLS's rights against Sensei "for any and all deficiencies on the indebtedness remaining due to [KLS] after the sale." Id.
It is not disputed that the Collateral has not been sold by KLS. McDevitt has offered evidence, however, that, at least at one point in time, KLS attempted to market the assets to a buyer known as the Kaviva Acquisition Group for a price of $2.2 million. Dkt. No. 94 ¶ 15; Dkt. No. 48-1, Ex. 12 to Ex. A at 299:17-301:24. To date, however, KLS has received nothing of value for the Collateral. See Dkt. No. 94 ¶ 15.
On November 14, 2018, McDevitt signed an IRS Form 433-B ("Offer in Compromise" or "OIC") to be filed with the IRS. Dkt. No. 45-51. The OIC listed $16,351.88 in a bank account as Sensei's only asset; it did not list Sensei's intellectual property. Id. ; Dkt. No. 88 ¶ 20; Dkt. No. 48, Ex. C at 50:9-51:11, 118:15-119:20. The OIC was filed with the IRS on November 28, 2018. Dkt. No. 88 ¶ 16.
Summary judgment is appropriate when the record shows that there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a) ; see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). "An issue of fact is ‘material’ for these purposes if it ‘might affect the outcome of the suit under the governing law,’ " while "[a]n issue of fact is ‘genuine’ if ‘the evidence is such that a reasonable jury could return a verdict for the nonmoving party.’ " Konikoff v. Prudential Ins. Co. of Am. , 234 F.3d 92, 97 (2d Cir. 2000) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ). In determining whether there are any genuine issues of material fact, the Court must view all facts "in the light most favorable to the non-moving party," Holcomb v. Iona Coll. , 521 F.3d 130, 132 (2d Cir. 2008), and the movant bears the burden of demonstrating that "there is no genuine dispute as to any material fact," Fed. R. Civ. P. 56(a).
If the movant meets its burden, "the nonmoving party must come forward with admissible evidence sufficient to raise a genuine issue of fact for trial in order to avoid summary judgment."
Jaramillo v. Weyerhaeuser Co. , 536 F.3d 140, 145 (2d Cir. 2008). It may not rely on "mere speculation or conjecture as to the true nature of the facts," Hicks v. Baines , 593 F.3d 159, 166 (2d Cir. 2010) (citation omitted), or "on the allegations in [its] pleading, or on conclusory statements, or on mere assertions that affidavits supporting the motion are not credible," Gottlieb v. Cnty. of Orange , 84 F.3d 511, 518 (2d Cir. 1996) (internal citation omitted). Rather, to survive a summary judgment motion, the opposing party must establish a genuine issue of fact by "citing to particular parts of materials in the record," Fed. R. Civ. P. 56(c)(1)(A), and demonstrating more than "some metaphysical doubt as to the material facts," Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp. , 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) ; see also Wright v. Goord , 554 F.3d 255, 266 (2d Cir. 2009). If "the party opposing summary judgment propounds a reasonable conflicting interpretation of a material disputed fact," summary judgment shall be denied. Schering Corp. v. Home Ins. Co. , 712 F.2d 4, 9-10 (2d Cir. 1983).
Plaintiff seeks summary judgment on the amount it is owed under the Guaranty. It contends that, based on the undisputed facts, McDevitt is liable for the full principal amount on the Note of $3,330,000, plus interest due and owing of $583,752.042 as of January 9, 2021, for a total of $3,913,752.04 as of January 9, 2021. It calculates daily interest after January 9, 2021 as $434.43 per day. It also seeks attorney's fees and costs of $1,174,125.60, or adding "fees on fees," total attorney's fees and costs of $1,677,322.29.
McDevitt argues that the amount of the judgment against him should be reduced by the value of the Collateral in KLS's possession. He also claims that interest is due under the Note only up until the date of maturity, and that no interest is due thereafter. Finally, he challenges attorney's fees and costs. The Court discusses each issue in turn.
Plaintiff argues that under the plain language of the Guaranty, it is entitled to a judgment of the amount due from Sensei of principal and of unpaid accrued interest at the contractual rate until the date of judgment. It relies on Section 1 of the Guaranty, pursuant to which, as noted, McDevitt agreed that he would "be fully and personally liable for the payment and performance of any then remaining obligations of the Company set forth in the Note." Dkt. No. 45-3 § 1.
McDevitt first argues that the amount of the judgment should be reduced by the value of Collateral posted by Sensei and foreclosed upon by KLS to secure Sensei's obligations under the Note. He asserts that the Collateral is worth $2.6 million based on a business valuation done of Sensei's liquidation value by a third-party two years ago. See Dkt. No. 87 at 5-6; Dkt. No. 84, Ex. A. In essence, McDevitt asks the Court to hold a trial on the value of the Collateral and to reduce the judgment based on whatever the Court determines to be that value, whether or not it is realized by KLS. Second, McDevitt does not dispute the amounts due and owing under the Note at least through the date of default or the requirements of the UCC, but he argues, however, that his obligation should be reduced by the value of the...
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