Vista Food Exch. v. Lawson Foods, LLC

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VISTA FOOD EXCHANGE, INC., Plaintiff, v. LAWSON FOODS, LLC, Defendant.

No. 17-CV-07454 (ALC)(SN)

United States District Court, S.D. New York

March 14, 2022

HONORABLE ANDREW L. CARTER, JR. JUDGE

REPORT AND RECOMMENDATION

SARAH NETBURN, UNITED STATES MAGISTRATE JUDGE

This case concerns a 2016 agreement between Plaintiff Vista Food Exchange, Inc. (“Vista”) and Defendant Lawson Foods, LLC (“Lawson”). The agreement provided that Lawson would not export to China pork purchased from Vista that was produced by a third-party supplier and that was certified for domestic consumption only. Weeks after signing the agreement, Lawson created a corporation to continue exporting such pork to China in violation of its contractual obligations.

On November 30, 2020, the Honorable Andrew L. Carter, Jr. adopted my report and recommendation that default judgment be entered against Lawson, due to Lawson's repeated failure to comply with the Court's discovery orders. ECF. No 201. Judge Carter then remanded the matter to me to conduct an inquest on damages and to report and recommend concerning the damages due to Vista. ECF No. 209.

I recommend awarding Vista compensatory damages of $1,295,974 plus prejudgment interest under New York law, and punitive damages of $647,987. I also recommend awarding Vista attorneys' fees of $314,576.

BACKGROUND

The facts of this case were set out in detail in the Court's November 1, 2019 order holding Lawson in contempt. See ECF No. 172. I provide a brief summary of facts and procedural background relevant to the inquest on damages.

Vista is a wholesaler and distributor of various foods, including pork supplied by Smithfield Farmland Corp./Smithfield Foods (“Smithfield”). ECF No. 160 (“FAC”) ¶ 38. For decades, Smithfield had been one of Vista's most valuable suppliers. Id. ¶ 5. Vista regularly purchased significant quantities of pork from Smithfield for re-sale to Vista's customers, including Lawson. Id.

In May 2016, Smithfield learned that Lawson had purchased some of its pork from Vista, which was certified for domestic consumption only, and exported that pork to China. Id. The export of pork that was not certified for Chinese consumption potentially exposed Smithfield to penalties under Chinese law. See ECF No. 160-2. Smithfield promptly notified Vista that if any pork purchased and resold by Vista was again exported to China, it would stop selling its products to Vista. FAC ¶ 10. In response, Vista put all of Lawson's orders on hold and informed Lawson that Vista would not resume sales to Lawson unless Lawson promised not to export Vista-Smithfield pork to China. Id. ¶ 62.

On May 20, 2016, Simon Law, CEO of Lawson, sent a signed letter to Vista and Smithfield “promising not to ship Smithfield Farmland pork to PRC [the People's Republic of China] under any circumstance ....” ECF No. 160-15 (“May 20, 2016 Letter”) at 5. The parties then finalized an agreement between Smithfield, Vista, and Lawson to memorialize this promise. Id. at 1. Five days later, Law signed an agreement certifying that Lawson would not “export . . . non-certified Smithfield pork products directly or through any third party where there is any reason to believe such product is destined for export to the PRC.” ECF No. 160-2 (“May 25, 2016 Agreement”). Vista certified that it would not “knowingly sell Smithfield pork products to Lawson Foods that it believes Lawson intends to export to the PRC.” Id. For its part, Smithfield “acknowledge[d] that it values its relationship with Vista and does not believe that Vista knowingly sold product to a customer intended for export to the PRC.” Id.

On or about July 18, 2016, Law met with Vista representatives in two separate meetings. FAC ¶ 76. At each meeting, he reiterated Lawson's promise not to export Vista-Smithfield pork products to China. Id. ¶ 77. Law told Vista's representatives that he understood that Vista would continue to do business with Lawson only if it honored that promise. Id.

Within weeks of Lawson's signing the May 25, 2016 Agreement, however, a corporation called Fortress Foods had been registered with the New Jersey Secretary of State. ECF No. 1678. Fortress Foods continued to ship pork products to China. Based on an evidentiary hearing and other documentary evidence, the Court has concluded that “Lawson, through its managing member and president Simon Law, created Fortress Foods solely to evade its contractual obligations to Vista (and Smithfield).” ECF No. 172 at 8. Smithfield, upon discovering further unauthorized sales by Lawson to China, terminated its relationship with Vista. On October 11, 2018, Smithfield assigned its rights in the May 25, 2016 Agreement to Vista. ECF No. 160-14.

Vista's Fifth Amended Complaint was filed on June 7, 2019. ECF No. 160. Following an evidentiary hearing, the Court held Lawson in contempt of Court for repeatedly failing to comply with discovery orders. ECF No. 172. The Court imposed a fine of $100 per day, jointly and severally upon Lawson, Fortress Foods, and Simon Law, and allowed Lawson a 14-day period to cure its noncompliance and have the fine set aside. The Court warned Lawson that failure to comply with the Court's order could result in entry of default.

In October 2020, I recommended that default judgment be awarded against Lawson, that Vista be awarded attorneys' fees incurred because of Lawson's misconduct, and that any judgment and attorneys' fee award be held against Lawson, Fortress Foods, and Simon Law jointly and severally. ECF No. 197. That recommendation was adopted by Judge Carter on November 30, 2020. ECF No. 201. The only issue that remains before the Court is Vista's entitlement to damages and any other monetary relief from Lawson.

Vista seeks relief against Lawson for breach of the parties' implied terms of sale/export conditions, breach of the express terms of the May 25, 2016 Agreement, breach of the July 2016 oral agreement, and tortious interference with Vista's business relationship with Smithfield. In the alternative to its breach of contract claims, Vista seeks relief on a theory of promissory estoppel and fraud. As set forth in its proposed findings of fact and conclusions of law, Vista seeks “compensatory and consequential damages, restitution, pre-judgment and post-judgment interest, attorneys' fees, costs, and exemplary damages.” ECF No. 239 at 22.^[1]

DISCUSSION

I. Legal Standard

The Court of Appeals set forth the procedural rules applicable to the entry of a default judgment in City of New York v. Mickalis Pawn Shop, LLC:

“Federal Rule of Civil Procedure 55 is the basic procedure to be followed when there is a default in the course of litigation.” Vt. Teddy Bear Co. v. 1-800 Beargram Co., 373 F.3d 241, 246 (2d Cir. 2004). Rule 55 provides a “two-step process” for the entry of judgment against a party who fails to defend: first, the entry of a default, and second, the entry of a default judgment. New York v. Green, 420 F.3d 99, 104 (2d Cir. 2005). The first step, entry of a default, formalizes a judicial recognition that a defendant has, through its failure to defend the action, admitted liability to the plaintiff.... The second step, entry of a default judgment, converts the defendant's admission of liability into a final judgment that terminates the litigation and awards the plaintiff any relief to which the court decides it is entitled, to the extent permitted by Rule 54(c).

645 F.3d 114, 128 (2d Cir. 2011).

Where default has been entered against a defendant, courts are to accept as true all of the well-pleaded facts alleged in the complaint, except those concerning the amount of damages. See Transatlantic Marine Claims Agency, Inc. v. Ace Shipping Corp., Div. of Ace Young Inc., 109 F.3d 105, 108 (2d Cir. 1997) (citing Greyhound Exhibit group, Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155, 158 (2d Cir. 1992)). “Even after the default . . . it remains for the court to consider whether the unchallenged facts constitute a legitimate cause of action, since a party in default does not admit mere conclusions of law.” In re Industrial Diamonds Antitrust Litig., 119 F.Supp.2d 418, 420 (S.D.N.Y. 2000) (cleaned up). Where a plaintiff's well-pleaded facts are sufficient to state a claim on which relief can be granted, the only remaining issue in an inquest is if the plaintiff has provided adequate support for the requested relief. See Gucci Am., Inc. v. Tyrrell-Miller, 678 F.Supp.2d 117, 119 (S.D.N.Y. 2008) (citing Credit Lyonnais Sec. (USA), Inc. v. Alcantara, 183 F.3d 151, 155 (2d Cir. 1999)).

“[A] plaintiff seeking to recover damages against a defaulting defendant must prove its claim th[r]ough the submission of evidence . . . .” Malletier v. Carducci Leather Fashions, Inc., 648 F.Supp.2d. 501, 503 (S.D.N.Y. 2009). A court may determine the amount a plaintiff is entitled to recover without holding a hearing so long as (1) the court determines the proper rule for calculating damages, and (2) the evidence submitted by the plaintiff establishes “with reasonable certainty” the basis for the damages. Id. (first citing Credit Lyonnais Sec. (USA), Inc., 183 F.3d at 155, then citing Transatlantic Marine Claims Agency, Inc., 109 F.3d at 111).

A damages hearing, while authorized by Rule 55(b)(2), is not mandatory. See Action S.A. v. Marc Rich & Co., 951 F.2d 504, 508 (2d Cir. 1991) (Rule 55(b)(2) “allows but does not require . . . a hearing”). “Together, ‘Rule 55(b)(2) and relevant case law give district judges much discretion in determining when it is “necessary and proper” to hold an inquest on damages.'” Cement & Concrete Workers Dist Council Welfare Fund, Pension Fund, Annuity Fund, Educ. & Training Fund & Other Funds v. Metro Found. Contractors Inc., 699 F.3d 230, 234 (2d Cir. 2012) (qu...