Int'l Transp. Mgmt. Corp. v. Brooks Fitch Apparel Grp.

INTERNATIONAL TRANSPORTMANAGEMENT CORPORATION, et al., Plaintiffs, v. BROOKS FITCH APPAREL GROUP, LLC, et al., Defendants.

Civil Action No. 11-1921 (ES) (JAD)

UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY

September 14, 2020

Not for Publication

OPINION

SALAS, DISTRICT JUDGE

Before the Court is plaintiff Ocean Navigator Express Line's ("ONEL") motion to amend the judgments against defendants Brooks Fitch Apparel Group, LLC ("Brooks Fitch") and Joseph E. Safdieh ("Safdieh") (collectively, "Defendants") to add pre- and post-judgment interest. (D.E. No. 221). Having considered the parties' submissions, which includes ONEL's moving brief (D.E. No. 221-1 ("Pl.'s Mov. Br.")), Defendants' opposition (D.E. No. 225 ("Defs.' Opp. Br.")), and ONEL's reply (D.E. No. 226), the Court decides this matter without oral argument. See Fed. R. Civ. P. 78(b). As set forth below, the Court GRANTS ONEL's motion to amend.

I. Background and Procedural History¹

Before its insolvency, Brooks Fitch was in the business of designing and merchandizing children's clothing and other textiles and bringing those items from Asia to the United States for consumers. After purchasing millions of dollars' worth of items from various Chinesemanufacturers, Brooks Fitch contracted with International Transport Management Corporation ("ITMC") to ship those items from China to the United States. ITMC, in turn, entered into an agreement with ONEL to transport those items to the United States. In order to receive the items from ONEL in the United States, Brooks Fitch was required to pay the Chinese manufacturers for the shipments while they were en route. Brooks Fitch did not pay the manufacturers, but it still received the shipments from ONEL by entering into various indemnity agreements with ONEL and ITMC and by providing ONEL and ITMC various checks as collateral in the event that it did not pay the Chinese manufacturers. When it became clear that Brooks Fitch would not honor its obligations to the Chinese manufacturers, ITMC sought to cash the collateral checks, all of which bounced. The Chinese manufacturers eventually pursued legal action against ONEL for releasing the shipments to Brooks Fitch, as well as against ONEL's corporate affiliates—Cargo Services Far East Limited (ONEL's parent corporation), and Cargo Services (China) Ltd. (ONEL's sister corporation). Those lawsuits led to various settlements and judgments, all of which were satisfied, not by ONEL, but by its corporate affiliates.

The present case concerns ONEL's legal action against Brooks Fitch and Safdieh, the principal of Brooks Fitch, for indemnification for the settlements and judgements paid to the Chinese manufacturers. On April 26, 2018, following a one-day bench trial held on October 23, 2017, Chief Judge Linares made two findings critical to the instant motion: first, under Federal Rule of Civil Procedure 17, ONEL was a real party in interest that could "properly bring this claim for damages against Brooks Fitch," despite the fact that ONEL did not itself satisfy the settlements and judgments to the Chinese manufacturers (April 26 Opinion at 16); and second, Brooks Fitch was liable to ONEL for $4,155,006.50 in compensatory damages for breach of contract (D.E. No. 191). On October 12, 2018, Chief Judge Linares granted ONEL's motion to amend the judgmentunder Federal Rule of Civil Procedure 59(e) to add an additional $40,000 in compensatory damages, increasing the total judgment against Brooks Fitch to $4,195,006.50. (D.E. No. 205 at 4-5 & 11). Chief Judge Linares also denied Brooks Fitch's motion for reconsideration, which, in relevant part, sought to relitigate Chief Judge Linares's ruling that ONEL was a real party. (Id. at 5-6). On August 14, 2019, after this case was reassigned to the undersigned, the Court held that ONEL could recover the judgment against Brooks Fitch from Safdieh by piercing the corporate veil. (D.E. No. 219 at 12 ("August 14 Opinion")). The Court also ordered ONEL to "submit its calculations for pre- and post-judgment interest so that the Court may calculate the total judgment." (D.E. No. 220). ONEL has filed that motion.

II. Discussion²

A. Prejudgment Interest

Neither party disputes that New Jersey prejudgment interest law governs this Court's resolution of ONEL's motion, even though New York law governed the parties' contract dispute(April 26 Opinion at 7, 17) and whether ONEL could properly pierce the corporate veil (August 14 Opinion at 6). That is because, as a federal court sitting in diversity jurisdiction, this Court must apply the forum state's choice-of-law rules, see Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496-97 (1941), and New Jersey choice-of-law rules dictate that New Jersey prejudgment interest law applies even if another state's law ultimately governed the substantive issues at trial, see, e.g., N. Bergen Rex Transp., Inc. v. Trailer Leasing Co., a Div. of Keller Sys., 730 A.2d 843, 848 (N.J. 1999); Busik v. Levine, 307 A.2d 571, 581 (N.J. 1973); see also Munich Reinsurance Am., Inc. v. Am. Nat. Ins. Co., 999 F. Supp. 2d 690, 758 (D.N.J. 2014); Buck Consultants, Inc. v. Glenpointe Assocs., No. 03-0454, 2010 WL 2104982, *2 (D.N.J. May 25, 2010) (citing McAdam v. Dean Witter Reynolds, Inc., 896 F.2d 750, 773 (3d Cir. 1990)).

ONEL seeks an award of prejudgment interest on the $4,195,006.50 judgment that it obtained against Defendants. (See generally Pl.'s Mov. Br.). The prejudgment interest, ONEL argues, should be compounded annually (id. at 10-11), accruing from the date of each payment that its corporate affiliates made to the Chinese manufacturers until the Court entered judgment in favor of ONEL against Safdieh, which, according to ONEL, was on August 14, 2019, the date the Court held that ONEL could pierce the corporate veil and recover from Safdieh (id. at 7-10, 12-22). The applicable interest rates, ONEL maintains by citing New Jersey Court Rule 4:42-11(a)(iii), should be (i) the average rate of return for the preceding fiscal year of the State of New Jersey Cash Management Fund plus (ii) 2%. (Id. at 5-7).

Defendants do not dispute ONEL's calculations as to the principal amounts upon which interest should be applied, the rate of interest to be applied, or the period when prejudgment interest should accrue. (See Defs.' Opp. Br. at 7). Because the parties agree, the Court does not deviatefrom those submissions.³ Defendants' opposition is limited to two objections, regarding (i) ONEL's claim of entitlement to prejudgment interest, and (ii) compounding any interest owed. (Id. at 4-7). The Court addresses each objection in turn.

i. ONEL is Entitled to Prejudgment Interest

Under New Jersey law, "the award of prejudgment interest on contract and equitable claims is based on equitable principles." Cty. of Essex v. First Union Nat. Bank, 891 A.2d 600, 608 (N.J. 2006). To determine whether to award prejudgment interest,

[t]he basic consideration is that the defendant has had the use, and the plaintiff has not, of the amount in question; and the interest factor simply covers the value of the sum awarded for the prejudgment period during which the defendant had the benefit of monies to which the plaintiff is found to have been earlier entitled.

Id. (quoting Rova Farms Resort, Inc. v. Investors Ins. Co., 323 A.2d 495, 512 (N.J. 1974)). Awarding prejudgment interest is intended, not to be "punitive," but rather to be "compensatory, to indemnify the claimant for the loss of what the moneys due him would presumably have earned if payment had not been delayed." Tobin v. Jersey Shore Bank, 460 A.2d 195, 198 (N.J. Super. Ct. App. Div. 1983) (quoting Busik, 307 A.2d at 575); see also Thabault v. Chait, 541 F.3d 512,533 (3d Cir. 2008) ("Under New Jersey state law, the purpose of prejudgment interest is to 'compensate the plaintiff for the loss of income that would have been earned on the judgment had it been paid earlier.'" (quoting Ruff v. Weintraub, 519 A.2d 1384, 1390 (N.J. 1987))); Sylvia B. Pressler, Rules Governing the Courts of the State of New Jersey, R. 4:42-11, cmt. 8 ("Prejudgment interest is not a penalty but rather its allowance simply recognizes that until the judgment is entered and paid, the defendant has had the use of money rightfully the plaintiff's.").

The Court finds that ONEL is entitled to prejudgment interest. If Brooks Fitch had not withheld payment to the Chinese manufactures or provide ITMC with bad checks, then it would not have had the benefit of money to which it was not entitled. Brooks Fitch thus benefited by holding onto that money; it would be unjust to allow it to retain that benefit. In addition, if Brooks Fitch made good on its obligations, ONEL's parent and sister corporations would not have had to pay the Chinese manufacturers. As a factual matter, making those payments deprived ONEL's corporate affiliates of money that they could have invested in the market or elsewhere to make more; those investments would have benefited, not only themselves, but also their overall corporate structure, which includes ONEL. Awarding prejudgment interest to ONEL is therefore proper.

Defendants argue that ONEL "is not entitled to interest at all, because its money was not involved," and because "ONEL could not have lost the use of what it never had in the first place." (Defs.' Opp. Br. at 11). Although Defendants concede that Chief Judge Linares previously held ONEL to be a real party in interest under Rule 17, it argues that "the damages in the Chinese settlements and lawsuits were paid out by" its parent and sister corporations; ONEL "is, and remains," according to Defendants, "a talismanic plaintiff with no loss, no harm and no real stake in the outcome." (Id. at 4).

For two reasons, the Court rejects that argument. First, it elevates form over substance. Chief Judge Linares's post-trial findings bely any suggestion that harm did not flow to ONEL as a result of Defendants' wrongdoing. Chief Judge Linares explicitly held...