12-2909 (L) Barkley v. United Property Group, LLC, et al.



### UNITED STATES COURT OF APPEALS **FOR THE SECOND CIRCUIT**



## AMENDED SUMMARY ORDER

**R ULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT**  **. C** **ITATION TO A SUMMARY ORDER FILED**

**ON OR AFTER J** **ANUARY 1,**  **2007, IS PERMITTED AND IS GOVERNED BY**  **F EDERAL**  **R ULE OF**  **A PPELLATE**  **P ROCEDURE**  **32.1 AND THIS COURT** **’ S**  **L OCAL**  **R ULE**  **32.1.1. W**  **HEN CITING A SUMMARY ORDER IN A**

**DOCUMENT FILED WITH THIS COURT ,** **A PARTY MUST CITE EITHER THE F** **EDERAL A** **PPENDIX OR AN**

**ELECTRONIC DATABASE (** **WITH THE NOTATION “** **SUMMARY ORDER ”).**  **A PARTY CITING A SUMMARY ORDER MUST** 

**SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL .** 
**At a stated term of the United States Court of Appeals** 1 **for the Second Circuit, held at the Thurgood Marshall United** 2 **States Courthouse, 40 Foley Square, in the City of New York,** 3 **on the 30 th** **day of January, two thousand fourteen.** 4 5 **PRESENT: DENNIS JACOBS,** 6 **BARRINGTON D. PARKER,** 7 **DENNY CHIN,** 8 **Circuit Judges**

**.** 9 10
- - - - - - - - - - - - - - - - - - - -X 11 **SANDRA C. BARKLEY, AKA Sandra C.** 12 **Barklay,** 13 **Plaintiff-Counter-Defendant** 14 **Cross-Defendant, Appellee ,**  15 16 **-v.- 12-2909-cv, 12-2912-cv,** 17 **12-3619-cv, 12-3621-cv** 18 19 **OLYMPIA MORTGAGE COMPANY,** 20 **Defendant-Counter-Claimant** 21 **Cross-Defendant ,**  22 23 **THOMAS MESSINA, DLJ MORTGAGE CAPITAL** 24 **LLC,** 25 **Defendants-Cross-Defendants** 26 **Cross-Claimants ,**  27 28

1**ALLIANCE MORTGAGE CORPORATION, dba** 1 **Everyhome Mortgage Company, WILSHIRE** 2 **CREDIT CORPORATION, FEDERAL NATIONAL** 3 **MORTGAGE ASSOCIATION, XYZ CORPORATION** 4 **(Said name being fictitious, it being** 5 **the intention of Plaintiff to** 6 **designate any corporation having a** 7 **legal interest in Plaintiffs’** 8 **mortgages), JP MORGAN CHASE BANK, as** 9 **Trustee for the Home Equity Trust** 10 **Series 2003-3 submitted as deft for** 11 **Wilshire Credit Corporation and XYZ** 12 **Corporation, MICHAEL B. CHEATHAM,** 13 **CREDIT SUISSE FIRST BOSTON LLC,** 14 **CREDIT SUISSE FIRST BOSTON MORTGAGE** 15 **SECURITIES, INC., BENJAMIN TURNER,** 16 17 **Defendant-Cross-Defendants ,**  18 19 **MICHAEL MASCIALE, CERTILMAN BALIN** 20 **ADLER & HYMAN, LLP,** 21 22 **Defendants ,**  23 24 **UNITED PROPERTY GROUP, LLC, UNITED** 25 **HOMES, LLC, GALIT NETWORK, LLC, YARON** 26 **HERSHCO,** 27 28 **Defendants-Cross-Defendants** 29 **Cross-Claimants-Appellants**

**.** ***** 30
- - - - - - - - - - - - - - - - - - - -X 31 32 **FOR APPELLANTS:** JASON P. SULTZER (Bryon L. 33 Friedman, on the brief ), 34 Littleton Joyce Ughetta Park & 35 Kelly LLP, Purchase, New York. 36 37 DARREN OVED (Brian S. Tretter, 38 on the brief ), Oved & Oved LLP, 39 New York, New York. 40 41

*The Clerk of the Court is directed to amend the caption as set forth above.

2**FOR APPELLEES:** SARA MANAUGH (Pavita 1 Krishnaswamy, South Brooklyn 2 Legal Services, Brooklyn, New 3 York, Jean Constantine-Davis, 4 AARP Foundation Litigation, 5 Washington, D.C., J. Christopher 6 Jensen, Cowan, Liebowitz & 7 Latman, P.C., New York, New 8 York, on the brief ), South 9 Brooklyn Legal Services, 10 Brooklyn, New York. 11 12 Appeal from a judgment of the United States District 13 Court for the Eastern District of New York (Matsumoto, J. ). 14 15 **UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED** 16 **AND DECREED**that the judgment of the district court be 17

**AFFIRMED**

. 18 19 Defendants Yaron Hershco and his companies, United 20 Homes LLC, United Property Group LLC, and Galit Network LLC 21 (collectively, “United Homes”) appeal from the final 22 judgment of the United States District Court for the Eastern 23 District of New York (Matsumoto, J. ) awarding compensatory 24 and punitive damages to six home buyers--Sandra Barkley, 25 Mary Lodge, Dewitt Mathis, Lisa & Miles McDale, Charlene 26 Washington, and Sylvia Gibbons (collectively, the 27 “Buyers”)--who were sold defective and damaged homes 28 represented as “newly renovated” by the Defendants. The 29 Defendants argue that the district court erred in: (1) 30 consolidating the six cases for trial; (2) denying the 31 Defendants’ post-trial motion for judgment as a matter of 32 law (“JMOL”) under Fed. R. Civ. P. 50(b), which argued that 33 the properties were sold “as is,” the alleged 34 misrepresentations were merely a breach of contract, and 35 subjective property valuations cannot support fraud claims; 36 and (3) calculating damages and attorney’s fee awards. 37 Separately, Hershco argues that (4) the evidence was 38 insufficient to pierce the corporate veil. We assume the 39 parties’ familiarity with the underlying facts, the 40 procedural history, and the issues presented for review. 41 42 **1.** “The trial court has broad discretion to determine 43 whether consolidation is appropriate.” Johnson v. Celotex 44

3Corp. , 899 F.2d 1281, 1284 (2d Cir. 1990) (citations 1 omitted). In making this determination, the court considers 2 “[w]hether the specific risks of prejudice and possible 3 confusion [are] overborne by the risk of inconsistent 4 adjudications of common factual and legal issues, the burden 5 on parties, witnesses, and available judicial resources 6 posed by multiple lawsuits, the length of time required to 7 conclude multiple suits as against a single one, and the 8 relative expense to all concerned of the single-trial, 9 multiple-trial alternatives.” Id. at 1285 (citation 10 omitted) (second alteration in original). 11 12 The district court applied Johnson , finding 13 “significant benefits” of consolidation--common questions of 14 law and fact, efficiency, and the avoidance of possibly 15 inconsistent verdicts--and only minimal potential prejudice. 16 There was no abuse of discretion. 17 18 **2.** The district court’s ruling on a post-verdict motion 19 for JMOL under Rule 50(b) is reviewed de novo . Runner v. 20 N.Y. Stock Exch., Inc. , 568 F.3d 383, 386 (2d Cir. 2009). A 21 Rule 50 motion may be granted only if, “after viewing the 22 evidence in the light most favorable to the non-moving party 23 and drawing all reasonable inferences in favor of the 24 non-moving party, [the district court] finds that there is 25 insufficient evidence to support the verdict.” Fabri v. 26 United Techs. Int'l, Inc. , 387 F.3d 109, 119 (2d Cir. 2004). 27 28 Section 12 of each sale contract contained a “specific 29 merger clause” that the property was sold “as is.” However, 30 there was no testimony at trial about the specific merger 31 clause, and United Homes did not raise any argument related 32 to the clause in its Fed. R. Civ. P. 50(a) motion prior to 33 the verdict. Any such argument was not properly preserved 34 and is therefore waived. See , e.g. , Samuels v. Air 35 Transport Local 504 , 992 F.2d 12, 14 (2d Cir. 1993) (“[The 36 Federal Rules of Civil Procedure] limit the grounds for 37 judgment n.o.v. to those specifically raised in the prior 38 motion for a directed verdict.”). 39 40 Alleged wrongdoing that merely constitutes a breach of 41 contract cannot constitute fraud. SeeVan Neil v. Berger

, 42 632 N.Y.S.2d 48, 48 (4th Dep’t 1995) (“A cause of action for 43 fraud is not stated where the only fraud alleged relates to 44

4a breach of contract”). However, where a party makes 1 misrepresentations to induce the other party to enter a 2 contract, the fraud claim is sustained. SeeDeerfield 3 Comm’ns Corp. v. Chesebrough-Ponds , 68 N.Y.2d 954, 956 4 (1986). At trial, the Buyers presented evidence that, to 5 convince the Buyers to purchase, United Homes promised 6 “fully renovated” homes and repeatedly assured that all 7 necessary repairs would be completed before closing. Yet, 8 at the same time, United Homes concealed rotten flooring, 9 leaking roofs, debris, electrical and plumbing problems, and 10 water damage. A jury could reasonably find that this 11 constituted fraud. 12 13 In New York, a valuation of property provided by the 14 seller generally will not support a fraud action because 15 “the purchaser must rely on his own judgment as to value.” 16 Seis v. Plaisantin , 65 N.Y.S. 70 (App. Div. 1900). However, 17 an inflated appraisal may support a fraud claim if the buyer 18 is tricked by the seller and the buyer is not versed in home 19 values. Merry Realty Co. v. Martin , 169 N.Y.S. 696, 698 20 (Sup. Ct. Kings Cty. 1918), aff’d sub nom. Merry Realty Co. 21 v. Shamokin & Hollis Real Estate Co. , 174 N.Y.S. 627 (2d 22 Dep’t 1919), rev’d on other grounds , 230 N.Y. 316 (1921) 23 (holding that a “representation as to value becomes an 24 allegation of fact and not merely an expression of opinion” 25 where the buyer “is induced by the seller to forbear making 26 inquiry, and damage results”). Here, a jury could find that 27 concealment of the true property conditions and the steering 28 of inexperienced Buyers to United Homes’ appraisers 29 prevented the Buyers from discovering or seeking to 30 determine the actual value of the properties. 31 32 **3.** “Punitive damages are warranted where the conduct of 33 the party being held liable evidences a high degree of moral 34 culpability, or where the conduct is so flagrant as to 35 transcend mere carelessness, or where the conduct 36 constitutes willful or wanton negligence or recklessness.” 37 Buckholz v Maple Garden Apts., LLC , 832 N.Y.S.2d 255 (2d 38 Dep’t 2007). Reviewing the record de novo , we see nothing 39 to upset the jury’s finding that the conduct of United 40 Homes--perpetuation of a scheme that lured inexperienced, 41 low-income individuals into purchasing damaged homes that 42

5they could not afford--was “so flagrant as to transcend mere 1 carelessness.” 1 2 3 We review a district court’s award of attorney’s fees 4 for abuse of discretion. McDaniel v. Cnty. of Schenectady

, 5 595 F.3d 411, 416 (2d Cir. 2010). An abuse of discretion 6 could consist of an erroneous view of the law or a decision 7 that, while not necessarily the product of a legal error or 8 a clearly erroneous factual finding, cannot be located 9 within the range of permissible decisions. SeeZervos v. 10 Verizon New York, Inc. , 252 F.3d 163, 169 (2d Cir. 2001). 11 United Homes argues that the fee award of over $2 million 12 (more than twice the amount of the recovery) is outside the 13 range of permissible decisions, and that the award was 14 excessive because the Buyers (who did not prevail on their 15 discrimination claims) enjoyed only limited success at 16 trial. 17 18 An attorney’s fee award should take into account a 19 plaintiff’s partial success. Hensley v. Eckerhart , 461 U.S. 20 424, 436 (1983) (“If . . . a plaintiff has achieved only 21 partial or limited success, the product of hours reasonably 22 expended on the litigation as a whole times a reasonable 23 hourly rate may be an excessive amount.”). The district 24 court applied Hensley , and excluded from the fee award 25 calculation all hours billed exclusively to the unsuccessful 26 discrimination claims. The district court also noted that 27 the $1.1 million judgment provided “substantial relief” to 28 the plaintiffs, and represented a “substantial degree of 29 success at trial.” There was no abuse of discretion. 30 31 Nor was the size of the fee award unreasonable when 32 compared to the recovery. While “New York courts have 33

1United Homes also argues that punitive damages are not available for violation of Section 349 of New York General Business Law (“GBL § 349"), and that the district court insufficiently reduced the damage award to account for settling defendants under N.Y. General Obligations Law § 15- 108(a). However, punitive damages may be awarded for a violation of GBL § 349, Wilner v Allstate Ins. Co. , 71 A.D.3d 155, 167 (N.Y. 2010), and the setoff calculation was correct for the reasons set out in the district court’s January 27, 2012 Memorandum & Order.

6stated that, as a general rule, they will rarely find 1 reasonable an award to a plaintiff that exceeds the amount 2 involved in the litigation,” F.H. Krear & Co. v. Nineteen 3 Named Trustees , 810 F.2d 1250, 1264 (2d Cir. 1987), 4 attorney’s fees awarded under GBL § 349 need not be 5 proportional. SeeDiaz v. Paragon Motors of Woodside, Inc.

, 6 No. 03-6466, 2007 WL 2903920, at *8 (E.D.N.Y. Oct. 1, 2007). 7 This litigation spanned seven years, involved dozens of 8 attorneys and numerous paralegals, and achieved a 9 substantial recovery for the plaintiffs. The award was 10 within the range of permissible decisions. 11 12 **4.** New York law allows for “piercing the corporate veil” 13 when the corporation is so dominated by an individual that 14 it primarily conducts the individual’s business rather than 15 its own, and through this domination, a wrong is committed 16 against a third party. See, e.g. , Wm. Passalacqua Builders, 17 Inc. v. Resnick Developers S., Inc. , 933 F.2d 131, 138 (2d 18 Cir. 1991) (“Liability therefore may be predicated . . . 19 upon complete control by the dominating corporation that 20 leads to a wrong against third parties.”). Herscho moved 21 for JMOL post-verdict, challenging the sufficiency of the 22 evidence of both domination and the commission of a wrong 23 through that domination. We review the district court’s 24 denial of this motion de novo . Runner v. N.Y. Stock Exch., 25 Inc. , 568 F.3d 383, 386 (2d Cir. 2009). 26 27 Herscho’s argument that he did not “dominate” the 28 United Homes entities was not properly preserved and is 29 therefore waived. A post-verdict motion for JMOL under Fed. 30 R. Civ. P. 50(b) must be premised on grounds specified in a 31 Rule 50(a) motion made prior to the submission of the case 32 to the jury. SeeLore v. City of Syracuse , 670 F.3d 127, 33 153 (2d Cir. 2012). Hershco failed to challenge the 34 “domination” prong in his Rule 50(a) motion; moreover, he 35 conceded the sufficiency of the evidence for purposes of 36 that motion: “[The] two factors necessary for piercing the 37 corporate veil include complete domination, dominion and 38 control, which assuming for this argument they’ve met 39 through the testimony of [Plaintiffs’ expert] Alan Blass.” 40 41 Regarding the second prong, Hershco argues that there 42 was no evidence of a connection between Hershco’s domination 43 of United Homes and the fraud perpetrated on the Buyers. 44

7However, the record indicates that Hershco manipulated the 1 United Homes entities, undercapitalizing them and moving 2 money freely among them to pay salaries, marketing, 3 construction, and closing costs. That intermingling 4 afforded Hershco the opportunity to quickly purchase and 5 resell more properties, furthering the scheme. And Hershco 6 himself signed the deeds of sale for each Buyer’s home. The 7 evidence was sufficient for a reasonable juror to conclude 8 that Hershco’s domination was the proximate cause of the 9 Buyers’ injuries. SeeFreeman v. Complex Computing Co. , 119 10 F.3d 1044, 1053 (2d Cir. 1997). 11 12 For the foregoing reasons, and finding no merit in 13 United Homes’ and Hershco’s other arguments, we hereby 14
**AFFIRM** the judgment of the district court. 15 16 FOR THE COURT: 17 CATHERINE O’HAGAN WOLFE, CLERK 18 19

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