12-2909 (L)

Barkley v. United Property Group, LLC, et al.

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

AMENDED SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED

ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE

PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A

DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX 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.

1 At a stated term of the United States Court of Appeals

2 for the Second Circuit, held at the Thurgood Marshall United

3 States Courthouse, 40 Foley Square, in the City of New York,

on the 30th 4 day of January, two thousand fourteen.

5

6 PRESENT: DENNIS JACOBS,

7 BARRINGTON D. PARKER,

8 DENNY CHIN,

9 Circuit Judges.

10

11 - - - - - - - - - - - - - - - - - - - -X

12 SANDRA C. BARKLEY, AKA Sandra C.

13 Barklay, 

14 Plaintiff-Counter-Defendant15 Cross-Defendant, Appellee,

16

17 -v.- 12-2909-cv, 12-2912-cv, 

18 12-3619-cv, 12-3621-cv

19

20 OLYMPIA MORTGAGE COMPANY, 

21 Defendant-Counter-Claimant22 Cross-Defendant,

23

24 THOMAS MESSINA, DLJ MORTGAGE CAPITAL

25 LLC,

26 Defendants-Cross-Defendants27 Cross-Claimants,

28

1
1 ALLIANCE MORTGAGE CORPORATION, dba

2 Everyhome Mortgage Company, WILSHIRE

3 CREDIT CORPORATION, FEDERAL NATIONAL

4 MORTGAGE ASSOCIATION, XYZ CORPORATION

5 (Said name being fictitious, it being

6 the intention of Plaintiff to

7 designate any corporation having a

8 legal interest in Plaintiffs’

9 mortgages), JP MORGAN CHASE BANK, as

10 Trustee for the Home Equity Trust

11 Series 2003-3 submitted as deft for

12 Wilshire Credit Corporation and XYZ

13 Corporation, MICHAEL B. CHEATHAM,

14 CREDIT SUISSE FIRST BOSTON LLC,

15 CREDIT SUISSE FIRST BOSTON MORTGAGE

16 SECURITIES, INC., BENJAMIN TURNER,

17

18 Defendant-Cross-Defendants,

19

20 MICHAEL MASCIALE, CERTILMAN BALIN

21 ADLER & HYMAN, LLP,

22

23 Defendants,

24

25 UNITED PROPERTY GROUP, LLC, UNITED

26 HOMES, LLC, GALIT NETWORK, LLC, YARON

27 HERSHCO,

28

29 Defendants-Cross-DefendantsCross-Claimants-Appellants.* 30

31 - - - - - - - - - - - - - - - - - - - -X

32

33 FOR APPELLANTS: JASON P. SULTZER (Bryon L.

34 Friedman, on the brief),

35 Littleton Joyce Ughetta Park &

36 Kelly LLP, Purchase, New York.

37

38 DARREN OVED (Brian S. Tretter, 

39 on the brief), Oved & Oved LLP,

40 New York, New York.

41

* The Clerk of the Court is directed to amend the

caption as set forth above.

2
1 FOR APPELLEES: SARA MANAUGH (Pavita

2 Krishnaswamy, South Brooklyn

3 Legal Services, Brooklyn, New

4 York, Jean Constantine-Davis,

5 AARP Foundation Litigation,

6 Washington, D.C., J. Christopher

7 Jensen, Cowan, Liebowitz &

8 Latman, P.C., New York, New

9 York, on the brief), South

10 Brooklyn Legal Services,

11 Brooklyn, New York.

12

13 Appeal from a judgment of the United States District

14 Court for the Eastern District of New York (Matsumoto, J.).

15

16 UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED

17 AND DECREED that the judgment of the district court be

18 AFFIRMED. 

19

20 Defendants Yaron Hershco and his companies, United

21 Homes LLC, United Property Group LLC, and Galit Network LLC 

22 (collectively, “United Homes”) appeal from the final

23 judgment of the United States District Court for the Eastern

24 District of New York (Matsumoto, J.) awarding compensatory

25 and punitive damages to six home buyers--Sandra Barkley,

26 Mary Lodge, Dewitt Mathis, Lisa & Miles McDale, Charlene

27 Washington, and Sylvia Gibbons (collectively, the

28 “Buyers”)--who were sold defective and damaged homes

29 represented as “newly renovated” by the Defendants. The

30 Defendants argue that the district court erred in: (1)

31 consolidating the six cases for trial; (2) denying the

32 Defendants’ post-trial motion for judgment as a matter of

33 law (“JMOL”) under Fed. R. Civ. P. 50(b), which argued that

34 the properties were sold “as is,” the alleged

35 misrepresentations were merely a breach of contract, and

36 subjective property valuations cannot support fraud claims;

37 and (3) calculating damages and attorney’s fee awards. 

38 Separately, Hershco argues that (4) the evidence was

39 insufficient to pierce the corporate veil. We assume the

40 parties’ familiarity with the underlying facts, the

41 procedural history, and the issues presented for review. 

42

43 1. “The trial court has broad discretion to determine

44 whether consolidation is appropriate.” Johnson v. Celotex

3
1 Corp., 899 F.2d 1281, 1284 (2d Cir. 1990) (citations

2 omitted). In making this determination, the court considers

3 “[w]hether the specific risks of prejudice and possible

4 confusion [are] overborne by the risk of inconsistent

5 adjudications of common factual and legal issues, the burden

6 on parties, witnesses, and available judicial resources

7 posed by multiple lawsuits, the length of time required to

8 conclude multiple suits as against a single one, and the

9 relative expense to all concerned of the single-trial,

10 multiple-trial alternatives.” Id. at 1285 (citation

11 omitted) (second alteration in original). 

12

13 The district court applied Johnson, finding

14 “significant benefits” of consolidation--common questions of

15 law and fact, efficiency, and the avoidance of possibly

16 inconsistent verdicts--and only minimal potential prejudice.

17 There was no abuse of discretion. 

18

19 2. The district court’s ruling on a post-verdict motion

20 for JMOL under Rule 50(b) is reviewed de novo. Runner v.

21 N.Y. Stock Exch., Inc., 568 F.3d 383, 386 (2d Cir. 2009). A

22 Rule 50 motion may be granted only if, “after viewing the

23 evidence in the light most favorable to the non-moving party

24 and drawing all reasonable inferences in favor of the

25 non-moving party, [the district court] finds that there is

26 insufficient evidence to support the verdict.” Fabri v.

27 United Techs. Int'l, Inc., 387 F.3d 109, 119 (2d Cir. 2004).

28

29 Section 12 of each sale contract contained a “specific

30 merger clause” that the property was sold “as is.” However,

31 there was no testimony at trial about the specific merger

32 clause, and United Homes did not raise any argument related

33 to the clause in its Fed. R. Civ. P. 50(a) motion prior to

34 the verdict. Any such argument was not properly preserved

35 and is therefore waived. See, e.g., Samuels v. Air

36 Transport Local 504, 992 F.2d 12, 14 (2d Cir. 1993) (“[The

37 Federal Rules of Civil Procedure] limit the grounds for

38 judgment n.o.v. to those specifically raised in the prior

39 motion for a directed verdict.”). 

40 

41 Alleged wrongdoing that merely constitutes a breach of

42 contract cannot constitute fraud. See Van Neil v. Berger,

43 632 N.Y.S.2d 48, 48 (4th Dep’t 1995) (“A cause of action for

44 fraud is not stated where the only fraud alleged relates to

4
1 a breach of contract”). However, where a party makes

2 misrepresentations to induce the other party to enter a

3 contract, the fraud claim is sustained. See Deerfield

4 Comm’ns Corp. v. Chesebrough-Ponds, 68 N.Y.2d 954, 956

5 (1986). At trial, the Buyers presented evidence that, to

6 convince the Buyers to purchase, United Homes promised

7 “fully renovated” homes and repeatedly assured that all

8 necessary repairs would be completed before closing. Yet,

9 at the same time, United Homes concealed rotten flooring,

10 leaking roofs, debris, electrical and plumbing problems, and

11 water damage. A jury could reasonably find that this

12 constituted fraud. 

13

14 In New York, a valuation of property provided by the

15 seller generally will not support a fraud action because

16 “the purchaser must rely on his own judgment as to value.” 

17 Seis v. Plaisantin, 65 N.Y.S. 70 (App. Div. 1900). However,

18 an inflated appraisal may support a fraud claim if the buyer

19 is tricked by the seller and the buyer is not versed in home

20 values. Merry Realty Co. v. Martin, 169 N.Y.S. 696, 698

21 (Sup. Ct. Kings Cty. 1918), aff’d sub nom. Merry Realty Co.

22 v. Shamokin & Hollis Real Estate Co., 174 N.Y.S. 627 (2d

23 Dep’t 1919), rev’d on other grounds, 230 N.Y. 316 (1921)

24 (holding that a “representation as to value becomes an

25 allegation of fact and not merely an expression of opinion”

26 where the buyer “is induced by the seller to forbear making

27 inquiry, and damage results”). Here, a jury could find that

28 concealment of the true property conditions and the steering

29 of inexperienced Buyers to United Homes’ appraisers

30 prevented the Buyers from discovering or seeking to

31 determine the actual value of the properties.

32

33 3. “Punitive damages are warranted where the conduct of

34 the party being held liable evidences a high degree of moral

35 culpability, or where the conduct is so flagrant as to

36 transcend mere carelessness, or where the conduct

37 constitutes willful or wanton negligence or recklessness.” 

38 Buckholz v Maple Garden Apts., LLC, 832 N.Y.S.2d 255 (2d

39 Dep’t 2007). Reviewing the record de novo, we see nothing

40 to upset the jury’s finding that the conduct of United

41 Homes--perpetuation of a scheme that lured inexperienced,

42 low-income individuals into purchasing damaged homes that

5
1 they could not afford--was “so flagrant as to transcend mere

carelessness.”1 2

3

4 We review a district court’s award of attorney’s fees

5 for abuse of discretion. McDaniel v. Cnty. of Schenectady,

6 595 F.3d 411, 416 (2d Cir. 2010). An abuse of discretion

7 could consist of an erroneous view of the law or a decision

8 that, while not necessarily the product of a legal error or

9 a clearly erroneous factual finding, cannot be located

10 within the range of permissible decisions. See Zervos v.

11 Verizon New York, Inc., 252 F.3d 163, 169 (2d Cir. 2001). 

12 United Homes argues that the fee award of over $2 million

13 (more than twice the amount of the recovery) is outside the

14 range of permissible decisions, and that the award was

15 excessive because the Buyers (who did not prevail on their

16 discrimination claims) enjoyed only limited success at

17 trial. 

18

19 An attorney’s fee award should take into account a

20 plaintiff’s partial success. Hensley v. Eckerhart, 461 U.S.

21 424, 436 (1983) (“If . . . a plaintiff has achieved only

22 partial or limited success, the product of hours reasonably

23 expended on the litigation as a whole times a reasonable

24 hourly rate may be an excessive amount.”). The district

25 court applied Hensley, and excluded from the fee award

26 calculation all hours billed exclusively to the unsuccessful

27 discrimination claims. The district court also noted that

28 the $1.1 million judgment provided “substantial relief” to

29 the plaintiffs, and represented a “substantial degree of

30 success at trial.” There was no abuse of discretion.

31

32 Nor was the size of the fee award unreasonable when

33 compared to the recovery. While “New York courts have

1 United 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.

6
1 stated that, as a general rule, they will rarely find

2 reasonable an award to a plaintiff that exceeds the amount

3 involved in the litigation,” F.H. Krear & Co. v. Nineteen

4 Named Trustees, 810 F.2d 1250, 1264 (2d Cir. 1987),

5 attorney’s fees awarded under GBL § 349 need not be

6 proportional. See Diaz v. Paragon Motors of Woodside, Inc.,

7 No. 03-6466, 2007 WL 2903920, at *8 (E.D.N.Y. Oct. 1, 2007). 

8 This litigation spanned seven years, involved dozens of

9 attorneys and numerous paralegals, and achieved a

10 substantial recovery for the plaintiffs. The award was

11 within the range of permissible decisions.

12

13 4. New York law allows for “piercing the corporate veil”

14 when the corporation is so dominated by an individual that

15 it primarily conducts the individual’s business rather than

16 its own, and through this domination, a wrong is committed

17 against a third party. See, e.g., Wm. Passalacqua Builders,

18 Inc. v. Resnick Developers S., Inc., 933 F.2d 131, 138 (2d

19 Cir. 1991) (“Liability therefore may be predicated . . .

20 upon complete control by the dominating corporation that

21 leads to a wrong against third parties.”). Herscho moved

22 for JMOL post-verdict, challenging the sufficiency of the

23 evidence of both domination and the commission of a wrong

24 through that domination. We review the district court’s

25 denial of this motion de novo. Runner v. N.Y. Stock Exch.,

26 Inc., 568 F.3d 383, 386 (2d Cir. 2009).

27

28 Herscho’s argument that he did not “dominate” the

29 United Homes entities was not properly preserved and is

30 therefore waived. A post-verdict motion for JMOL under Fed.

31 R. Civ. P. 50(b) must be premised on grounds specified in a

32 Rule 50(a) motion made prior to the submission of the case

33 to the jury. See Lore v. City of Syracuse, 670 F.3d 127,

34 153 (2d Cir. 2012). Hershco failed to challenge the

35 “domination” prong in his Rule 50(a) motion; moreover, he

36 conceded the sufficiency of the evidence for purposes of

37 that motion: “[The] two factors necessary for piercing the

38 corporate veil include complete domination, dominion and

39 control, which assuming for this argument they’ve met

40 through the testimony of [Plaintiffs’ expert] Alan Blass.”

41

42 Regarding the second prong, Hershco argues that there

43 was no evidence of a connection between Hershco’s domination

44 of United Homes and the fraud perpetrated on the Buyers. 

7
1 However, the record indicates that Hershco manipulated the

2 United Homes entities, undercapitalizing them and moving

3 money freely among them to pay salaries, marketing,

4 construction, and closing costs. That intermingling

5 afforded Hershco the opportunity to quickly purchase and

6 resell more properties, furthering the scheme. And Hershco

7 himself signed the deeds of sale for each Buyer’s home. The

8 evidence was sufficient for a reasonable juror to conclude

9 that Hershco’s domination was the proximate cause of the

10 Buyers’ injuries. See Freeman v. Complex Computing Co., 119

11 F.3d 1044, 1053 (2d Cir. 1997).

12

13 For the foregoing reasons, and finding no merit in

14 United Homes’ and Hershco’s other arguments, we hereby

15 AFFIRM the judgment of the district court.

16

17 FOR THE COURT:

18 CATHERINE O’HAGAN WOLFE, CLERK

19

8