McCoy v. Goldberg, No. 89 Civ. 8151 (WCC).
| Decision Date | 04 January 1993 |
| Docket Number | No. 89 Civ. 8151 (WCC). |
| Citation | 810 F. Supp. 539 |
| Parties | Rose McCOY, Plaintiff, v. Gary M. GOLDBERG and Gary Goldberg & Company, Inc., Defendants. Gary M. GOLDBERG and Gary Goldberg & Company, Inc., Third-Party Plaintiffs, v. Stephen RUFFINO, et al., Third-Party Defendants. |
| Court | U.S. District Court — Southern District of New York |
Deutsch and Frey, New York City (Herbert I. Deutsch, of counsel), for plaintiff.
Parker Chapin Flattau & Klimpl, New York City (Charles P. Greenman, Stephen G. Rinehart, of counsel), for defendants.
Plaintiff Rose McCoy, a part-time nurse, instituted this action against defendants Gary Goldberg & Company, Inc., a securities brokerage and financial planning concern, and Gary M. Goldberg, its President (collectively "Goldberg"), asserting claims based on violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., the federal securities laws, common law fraud, and breach of fiduciary duty in connection with plaintiff's purchases of various limited partnership interests. After a trial in which the jury found for plaintiff on the breach of fiduciary duty claim and awarded compensatory damages in the amount of $872,714, defendant moved this Court for a new trial or a remittitur of the damages award. For the following reasons, defendants' motion for remittitur is granted.
McCoy initially contacted Goldberg in 1983, when, recently widowed, she received proceeds from an insurance policy on her late husband's life. Tr. 11-12, 136, 141-143. She contacted defendants seeking financial advice, planning, and services in relation to investing the insurance proceeds, with a view towards preserving the principal and generating approximately $50,000 per year in income. Tr. 142-153, 311. McCoy testified that Goldberg understood plaintiff sought a safe investment program that would preserve her principal as well as meet her income needs. Tr. 144, 147, 149, 151.
The jury found that, based on Goldberg's representations, plaintiff invested a total of $596,000 in twelve limited partnership interests between 1983 and 1986. Pl. Orig.Mem. Ex. A; Pl.Suppl.Mem. Ex. A; Def.Orig.Mem. at 2. Plaintiff made her investments in three different periods: $268,500 in four interests in August, 1983; $315,000 in seven interests in August, 1984; $12,500 in one interest in October, 1986. The investments were as follows:
Investment Amount ($) Period Held
NTS IV 83,000 8/30/83 — present
Phoenix VI 85,000 8/30/83 — present
Public Storage 40,500 8/30/83 — present
NC/KC 60,000 8/30/83 — present
NTS V 75,000 8/30/84 — 1/21/92
IEA 10,000 8/30/84 — present
Angeles 50,000 8/30/84 — 7/31/89
AIM 25,000 8/30/84 — 6/23/89
Damson 75,000 8/30/84 — 8/23/89
Carlyle 30,000 8/30/84 — 10/11/89
PLM 50,000 8/30/84 — 6/16/89
Wildwood 12,500 10/31/86 — present
Pl. Ex. 131; Pl.Suppl.Mem. Ex. A.
Following an eight-day trial, the Court charged the jury and submitted a five-page Special Verdict Form covering plaintiff's federal securities law, RICO, common law fraud, and breach of fiduciary duty claims against defendants. After deliberating for approximately one hour and twenty-five minutes, the jury returned with a verdict for defendant on the securities law, RICO, and common law fraud claims and for plaintiff on the breach of fiduciary duty claim, as well as with a damage award for plaintiff in the amount of $872,714. The Special Verdict Form revealed that the jury's award was comprised of the following components: $596,000, constituting the principal amount invested by plaintiff as a result of defendants' breach of fiduciary duty, and $817,391, representing the interest plaintiff would have earned on this principal sum by investment in risk-free securities during the time the principal was tied up in the investment vehicles recommended by defendants. From the sum of these two amounts, the jury subtracted a credit of $540,677, reflecting the total of distributions to Mrs. McCoy on her investments, proceeds from the sale of investments plaintiff liquidated, and the present value of plaintiff's remaining investments. This calculation — $596,000 plus $817,391, less $540,677 — yielded the total award to plaintiff of $872,714.
The bulk of plaintiff's award was comprised of "the amount of interest which would have been earned on a risk-free investment of such principal during the time the principal was tied up in such investments." Verdict Form, Question 6(2). Defendants now move for remittitur on grounds that this portion of the damage award was unreasonably excessive in view of the Court's instruction and the evidence at trial concerning rates of interest available on "risk-free" investments.
Remittitur, "is the process by which a court compels a plaintiff to choose between reduction of an excessive verdict and a new trial." Earl v. Bouchard Transp. Co., Inc., 917 F.2d 1320 (2d Cir.1990) (quoting Shu-Tao Lin v. McDonnell Douglas Corp., 742 F.2d 45, 49 (2d Cir.1984). "A remittitur, in effect, is a statement by the court that it is shocked by the jury's award of damages." King v. Macri, 800 F.Supp. 1157, 1160-61 (S.D.N.Y.1992) (quoting Ismail v. Cohen, 899 F.2d 183, 186 (2d Cir.1990)). A court may properly grant remittitur where the jury's award is "so high as to shock the judicial conscience and constitute a denial of justice." See Macri, 800 F.Supp. 1157, 1161 (citing Zarcone v. Perry, 572 F.2d 52, 56 (2d Cir.1978); Ismail, 899 F.2d at 186; Wade v. Orange County Sheriff's Office, 844 F.2d 951, 955 (2d Cir.1988); O'Neill v. Krzeminski, 839 F.2d 9, 13-14 (2d Cir.1988)); In re Joint Eastern & Southern Dist. Asbestos Lit., 798 F.Supp. 925, 936-37 (E.D.N.Y.1992). When a jury's award is so "grossly excessive," a court may order the plaintiff to remit excessive damages or undergo a new trial on the issue of damages. Petramale v. Local No. 17 of Laborers' Intern., 847 F.2d 1009, 1012-13 (2d Cir.1988) ().
In calculating a remittitur, a district court is bound to employ a standard that is "least intrusive" upon the jury's award. Bouchard Transp. Co., 917 F.2d at 1328-30. Under such a standard, the court can remit the jury's award only to the "maximum amount that would be upheld by the district court as not excessive." Id. at 1330; see also Shu-Tao Lin, 742 F.2d at 49-50 ().
Under the standard articulated above, the Court finds that the jury's award of $872,714 in compensatory damages on plaintiff's breach of fiduciary duty claim is sufficiently excessive to warrant remittitur. The Court's verdict form instructed the jury to include, as an element of damages, "the amount of interest that would have been earned on a risk-free investment of plaintiff's principal during the time the principal was tied up in the investments recommended by defendants." The jury's response to this instruction was to find that a risk-free investment of the principal amount of $596,000, invested over time periods ranging from approximately five to nine years (reflecting the time plaintiff's principal was tied up in the various limited partnership interests), would generate interest income in the amount of $817,391. Based on evidence presented to the jury concerning the risk-free investment instruments available to plaintiff, we find the jury's interest calculation to be grossly excessive, even under the high interest rates that prevailed during the early 1980's.
According to the figures provided by plaintiff in Exhibit A of plaintiff's supplemental memorandum in opposition to defendants' motion1 — figures reflecting the dollar amount of each investment made by plaintiff and the respective term, in years, that each investment was held — we calculate that to earn the interest income of $817,391 awarded by the jury, plaintiff would have to receive interest income from alternate, risk-free instruments held for the same respective time periods, at a rate of 18.89% per annum on a simple interest basis.2 Such a rate, unsupported by any evidence in the record, is far in excess of the yields then available to plaintiff on alternate, risk-free investments.
Plaintiff's own expert, Louis Ehrenkrantz, utilized interest rates of 11.8% and 12.7% as the rates available on risk-free investment alternatives available to plaintiff during the time periods in question — namely 1983 and 1984, respectively — in the analysis he undertook of an optimal portfolio mix for plaintiff. Tr. at 726-39. These rates purportedly reflect the yields then available on United States Treasury securities: 11.8% on thirty-year treasury bonds in 1983; 12.7% on twenty-year treasury bonds in 1984.3 Tr. at 726. During his testimony, Mr. Ehrenkrantz stated, more than once, that United States Treasury securities were the only risk-free, or more precisely, the safest investment vehicles available to plaintiff.4 Tr. 732, 736, 738. Based on plaintiff's own analysis, an alternate, risk-free investment of the principal sums available to plaintiff in 1983 and 1984, invested at the applicable 11.8% and 12.7% treasury bond rates over the time periods that plaintiff's funds were tied up in defendants' proposed investments, would have earned plaintiff income in the amount of $524,354.85.5 Pl.Suppl.Mem. at Ex. A. Indeed, in the event the Court grants defendants' motion for remittitur, it is this sum of $524,354.85 that plaintiff herself proposes that the Court adopt as the income damages to which plaintiff is entitled.6See Append...
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