Court Opinion

ID: 3005907
Source: CourtListenerOpinion
Date Created: 2015-09-30 15:00:33.114379+00
Date Added: 2024-06-11T15:02:48.833015
License: Public Domain

14-1712-cv
Koch v. Greenberg

                           UNITED STATES COURT OF APPEALS
                               FOR THE SECOND CIRCUIT

                                     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.

      At a stated term of the United States Court of Appeals for the Second Circuit, held at the
Thurgood Marshall Courthouse, 40 Foley Square, in the City of New York, on the 30th day of
September, two thousand fifteen.

Present:
           ROBERT A. KATZMANN,
                      Chief Judge,
           PETER W. HALL,
           RAYMOND J. LOHIER, JR.,
                      Circuit Judges.

________________________________________________

WILLIAM I. KOCH,

           Plaintiff-Counter-Defendant-Appellee,

                  v.                                           No. 14-1712-cv

ERIC GREENBERG,

           Defendant-Counter-Claimant-Appellant,

ZACHYS WINE & LIQUOR STORE, INC., a New York
corporation, ZACHYS WINE AUCTIONS INC., a New
York corporation,

           Defendants,
MR. JUSTIN CHRISTOPH, MR. JOHN KAPON,
         Intervenors.

________________________________________________

For Appellant:                            DAVID C. FREDERICK (Daniel G. Bird, W. Joss Nichols,
                                          on the brief), Kellogg, Huber, Hansen, Todd, Evans &
                                          Figel, P.L.L.C., Washington, D.C.

For Appellee:                             MOEZ M. KABA (John C. Hueston, Padraic W. Foran,
                                          C. Mitchell Hendy, on the brief), Hueston Hennigan
                                          LLP, Los Angeles, CA.

       Appeal from the United States District Court for the Southern District of New York
(Oetken, J.).

       ON CONSIDERATION WHEREOF, it is hereby ORDERED, ADJUDGED, and

DECREED that the judgment of the district court AFFIRMED.

       Defendant-Counter-Claimant-Appellant appeals from a final judgment entered on May

19, 2014, by the United States District Court for the Southern District of New York (Oetken, J.),

following a three-week jury trial. After the jury found the defendant liable for fraud and

violations of New York General Business Law (“NYGBL”) §§ 349–350, awarding

compensatory, statutory, and punitive damages in the amounts of $355,811, $24,000, and

$12,000,000 respectively, the defendant moved for judgment as a matter of law pursuant to Rule

50 of the Federal Rules of Civil Procedure or, in the alternative, for a new trial pursuant to Rule

59 of the Federal Rules of Civil Procedure. The district court granted in part and denied in part

the defendant’s motion, remitting the punitive damages award to two times the compensatory

damages award and affirming the jury verdict in all other respects. See Koch v. Greenberg, 14 F.

Supp. 3d 247, 253–54 (S.D.N.Y. 2014). On appeal, the defendant contends that: (1) the fraud

verdict should be reversed; (2) the NYGBL verdict should be reversed; and (3) punitive damages

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were inappropriate. We assume the parties’ familiarity with the underlying facts, procedural

history, and issues presented for review.

       A post-verdict renewed Rule 50(b) motion for judgment as a matter of law may be

granted “[o]nly if there is such a complete absence of evidence supporting the verdict that the

jury’s findings could only have been the result of sheer surmise and conjecture, or such an

overwhelming amount of evidence in favor of the movant that reasonable and fair minded men

could not arrive at a verdict against [the moving party]. . . . The same standard governs appellate

review of a decision . . . denying judgment as a matter of law.” LeBlanc-Sternberg v. Fletcher,

67 F.3d 412, 429 (2d Cir. 1995) (internal quotation marks and citation omitted) (alteration in the

original). “As to any issue on which proper [pre-verdict] Rule 50 motions were not made,

[renewed post-verdict] JMOL may not properly be granted by the district court, or upheld on

appeal, or ordered by the appellate court unless that action is required in order to prevent

manifest injustice.” Lore v. City of Syracuse, 670 F.3d 127, 153 (2d Cir. 2012).

       The defendant contends that the evidence overwhelmingly established that the plaintiff

did not justifiably rely on the defendant’s representations, which is an element of fraud under

both a fraudulent misrepresentation theory and a fraudulent concealment theory under New York

law. See, e.g., Dallas Aerospace, Inc. v. CIS Air Corp., 352 F.3d 775, 784 (2d Cir. 2003)

(defining fraudulent misrepresentation); Banque Arabe et Internationale D’Investissement v.

Maryland Nat’l Bank, 57 F.3d 146, 153 (2d Cir. 1995) (defining fraudulent concealment).

Specifically, the defendant contends that the plaintiff’s reliance was unjustified because, inter

alia, the plaintiff relied on specifically disclaimed representations and had the ability to learn the

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truth for himself.1 Under New York law, “a party cannot justifiably rely on a representation that

is specifically disclaimed in an agreement.” Dallas, 352 F.3d at 785; see also Danann Realty

Corp. v. Harris, 157 N.E.2d 597, 599 (N.Y. 1959). Although the plaintiff contends that he relied

on the authenticity and provenance of the defendant’s wine, the catalog in which it was listed

contained a disclaimer titled “Conditions of Sale & Limited Warranty” stating that the wine was

sold “‘AS IS’ without any representations or warranties by Zachys . . . .” J.A. 1412. However, a

“specific disclaimer will not undermine another party’s allegation of reasonable reliance on the

misrepresentations” if “the allegedly misrepresented facts are peculiarly within the

misrepresenting party’s knowledge.” Warner Theatre Assocs. Ltd. P’ship v. Metro. Life Ins. Co.,

149 F.3d 134, 136 (2d Cir. 1998). New York courts have held that whether a defendant has

peculiar knowledge that defeats a specific disclaimer, thus establishing justifiable reliance, is a

matter of fact for the jury.2 See, e.g., Country World v. Imperial Frozen Foods Co., 186 A.D.2d
781, 782 (2d Dep’t 1992) (holding with respect to peculiar knowledge that “[t]here are triable

issues of fact as to whether the defendants knew that the apple juice concentrate was

adulterated”).

       1
         The defendant also contends that in “consider[ing] the entire context of the transaction,”
which this Court has stated is necessary to “assess[] the reasonableness of a plaintiff’s alleged
reliance,” the jury could not have found that the plaintiff justifiably relied on the defendant’s
representations. Emergent Capital Inv. Mgmt., LLC v. Stonepath Grp., Inc., 343 F.3d 189, 195
(2d Cir. 2003). The evidence, however, sufficiently demonstrates that the jury’s findings were
not the product of “sheer surmise and conjecture,” as would be necessary to overturn the jury’s
verdict. LeBlanc-Sternberg, 67 F.3d at 429.
       2
         Although the defendant contends that it is inconsistent to find that the plaintiff’s
reliance was justified as to the defendant but not as to Zachys, the jury could have determined
that authenticity was only peculiarly within the defendant’s, and not Zachys’s, knowledge.

                                                  4
        Here, the evidence supported a jury determination that although the wine’s authenticity

and provenance was specifically disclaimed, the defendant nevertheless had peculiar knowledge

of the facts that were the subject of the disclaimer. First, because there existed evidence showing

that inspecting all the bottles of wine would have taken more than 1,100 hours, J.A. 721, the jury

could have found that the plaintiff did not have “the means available to him of knowing, by the

exercise of ordinary intelligence, the truth, or the real quality of the subject of the

representation,” Danann, 157 N.E.2d at 600 (internal quotation marks omitted). Second, the jury

could have determined that the defendant possessed information that no amount of inspection

could reveal: for example, the provenance of the wines, which constitutes an important factor in

assessing their authenticity. Thus, there is not a “complete absence of evidence” supporting the

jury’s determination that the plaintiff justifiably relied on the defendant’s representations.

LeBlanc-Sternberg, 67 F.3d at 429.

        The defendant also contends that there was a “complete absence of evidence,” id., for a

jury to conclude that the defendant made misrepresentations, because Zachys’s intermediary role

precluded the defendant’s liability, and because the plaintiff failed to identify any actionable

misrepresentations. However, under New York law, “a fraudulent misrepresentation made with

‘notice in the circumstances of its making’ that the person to whom it was made would

communicate it to third parties subjects the person making the misrepresentation to liability to

the third party.” Ostano Commerzanstalt v. Telewide Sys., Inc., 794 F.2d 763, 766 (2d Cir. 1986)

(quoting Restatement (Second) of Torts § 533 (1976)); Ultramares Corp. v. Touche, 174 N.E.
441, 444 (N.Y. 1931). Although information “filtered through” a third party’s “own process of

evaluation” can at times establish that the third party possessed “too much discretion” for a

                                                   5
plaintiff to rely on a defendant’s misrepresentations, Securities Investor Protection Corporation

v. BDO Seidman, LLP, 746 N.E.2d 1042, 1047–48 (N.Y. 2001), here there was evidence that the

defendant exerted influence in selecting bottles for auction, collaborated with Zachys in drafting

and preparing the Catalog, and knew that his misrepresentations would be communicated to third

parties. Accordingly, the jury did not act with a complete absence of evidence in rejecting the

contention that Zachys exercised independent discretion and finding that Zachys was more of a

“middleman.” Ostano Commerzanstalt, 794 F.2d at 765. As for the contention that the plaintiff

has not identified any actionable misrepresentations, the evidence was sufficient for the jury to

find that the defendant misrepresented facts to Zachys, such as the chateaus and vintages of the

wines that the defendant consigned. For example, the defendant misrepresented that a magnum

he was consigning was a Chateau Lafite Rothschild with knowledge that the auction catalog

would list the lot as “Chateau Lafite Rothschild 1945.” J.A. 1223. This constitutes a fraudulent

misrepresentation subjecting the defendant to liability to the plaintiff under Ostano

Commerzanstalt, irrespective of the fact that Zachys authored the Catalog.3

       The defendant additionally contends that the plaintiff failed to provide sufficient

evidence for a jury to conclude that the defendant fraudulently concealed information about the

wine sold because defendant did not owe the plaintiff a duty to disclose. Under New York law, a

duty to disclose exists where, inter alia, one party “possesses superior knowledge, not readily

available to the other, and knows that the other is acting on the basis of mistaken knowledge,” or

“where [one party] has made a partial or ambiguous statement.” Brass v. Am. Film Techs., Inc.,

       3
         The defendant contends that the Catalog’s “AS IS” disclaimer disclaims authenticity.
But, the disclaimer effects whether the plaintiff acted with justifiable reliance, and not whether a
fraudulent misrepresentation has been made at all.

                                                 6
987 F.2d 142, 150 (2d Cir. 1993) (internal quotation marks omitted). With respect to superior

knowledge, the defendant contends that such knowledge cannot exist where the plaintiff had

access to the necessary facts for determining the wine’s authenticity, and that the defendant

could not have known that the plaintiff was acting on the basis of mistaken knowledge because

the defendant and plaintiff had no direct business dealings. However, based on the evidence at

trial, the jury could have reasonably determined that the defendant possessed information that no

amount of inspection could have revealed, given the defendant’s knowledge of the wines’

provenance. Further, there is no per se rule that fraudulent concealment requires the defendant

and plaintiff to have direct business dealings. See, e.g., Minpeco, S.A. v. ContiCommodity Servs.,

Inc., 552 F. Supp. 332, 336–38 (S.D.N.Y. 1982). Because we affirm on superior knowledge

grounds, we need not address the defendant’s partial or ambiguous statement argument.

       The defendant’s contention that the plaintiff failed to provide sufficient evidence for a

reasonable jury to conclude that the defendant’s conduct was consumer-oriented and materially

misleading, as required by NYGBL §§ 349–350, also fails. The defendant contends that his

conduct was not consumer-oriented for the following reasons: the wine was a high-end

collectible because it sold at immodest prices, precluding the involvement of the general public,

and Zachys served as an expert intermediary. But consumer-oriented conduct within the meaning

of the NYGBL is broadly interpreted and requires merely that the conduct at issue “have a

broader impact on consumers at large.” Oswego Laborers’ Local 214 Pension Fund v. Marine

Midland Bank, N.A., 647 N.E.2d 741, 744 (N.Y. 1995) (citations omitted). So long as the

conduct at issue can “potentially affect similarly situated consumers,” the requirement of

consumer-oriented conduct is met. Id. at 745. This “statute seeks to secure an honest market

                                                7
place where trust, and not deception, prevails.” Goshen v. Mut. Life Ins. Co., 774 N.E.2d 1190,

1195 (N.Y. 2002) (internal quotation marks omitted). Here, given that the defendant provided

wine to be sold at auction to other consumers similarly situated to Koch, the consumer-oriented

conduct requirement has been met.

       The defendant also contends that he made no materially misleading statements because

the wine was sold with disclaimers as to authenticity, merchantability, and provenance, and

because the plaintiff had the right to investigate the wine so as to obtain relevant information as

to its authenticity. But New York courts have determined that disclaimers do not defeat liability

under the NYGBL. See Koch v. Acker, Merrall & Condit Co., 967 N.E.2d 675, 676 (N.Y. 2012)

(“[D]isclaimers set forth in defendant’s catalogs do not bar claims for deceptive trade

practices.”) (alterations omitted). And conduct or advertising is materially misleading where it is

“likely to mislead a reasonable consumer acting reasonably under the circumstances.” Stutman v.

Chem. Bank, 731 N.E.2d 608, 611–12 (N.Y. 2000) (internal quotation marks omitted).

Accordingly, the evidence was sufficient for the jury to determine that although an auction-goer

had the right to inspect the wines sold, a reasonable auction-goer would nevertheless have been

misled about the defendant’s wines.

       Finally, the defendant contends that his actions were not aimed at the public generally

and did not reach the requisite level of moral culpability necessary for punitive damages to

attach. See Walker v. Sheldon, 179 N.E.2d 497, 498–99 (N.Y. 1961) (holding that punitive

damages are available “where the fraud, aimed at the public generally, is gross and involves high

moral culpability”). However, a party that moves for judgment as a matter of law pursuant to a

post-verdict Rule 50(b) motion must, in a prior pre-verdict Rule 50(a)(2) motion “at least

                                                 8
identify the specific element that the defendant contends is insufficiently supported,” such that

“the responding party may seek to correct any overlooked deficiencies in the proof.” Galdieri-

Ambrosini v. Nat’l Reality & Dev. Corp., 136 F.3d 276, 286 (2d Cir. 1998). If the party fails to

do so, “JMOL may [not] be granted . . . on appeal unless that result is required to prevent

manifest injustice.” Id. (internal quotation marks omitted). Here, the defendant merely stated

without specificity prior to the close of the punitive damages phase of trial that “based on the

evidence, no reasonable jury would have a legally sufficient basis to find for Mr. Koch on

punitive damages,” J.A. 961, to which the plaintiff preserved his objection. Given the evidence

that the defendant intended to sell counterfeit wine, at auctions aimed at the public, no manifest

injustice exists in the imposition of a punitive damages award.

       We have considered all of the Defendant-Appellant’s remaining arguments and find them

to be without merit. Accordingly, for the foregoing reasons, the judgment of the district court is

AFFIRMED.

                                          FOR THE COURT:
                                          CATHERINE O’HAGAN WOLFE, CLERK

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