#6402 Post by Don Cornwell » March 31st, 2014, 7:21 pm

Koch v. Greenberg

"Here, the jury’s $12 million award of punitive damages was over 33 times that of the compensatory award of $355,811 (and 56 times the reduced compensatory award of $212,699 following the setoff discussed above)—well beyond four times the amount of compensatory damages, which may be “close to the [constitutional] line,” and even well beyond the presumptive constitutional limit of 10 times compensatory damages suggested in [the US Supreme Court's decision in] State Farm. 538 U.S. at 425. These ratios are not binding limits, but they do stake off the zone of the harshest possible punitive damages the Constitution will tolerate—a zone that should be reserved for the most egregious conduct. The fraud in this case did not result in death, serious physical injury, or even minor physical injury. The fraud did not risk any such injury. The fraud did not result in a restriction of liberty or an insult to Koch’s human dignity by way of discrimination. The fraud did not cause an economic loss that interrupted Koch’s life by interference with his housing, employment, or savings for retirement. And the fraud did not involve actually or potentially vulnerable victims. In the scheme of conduct that can be punished by damages in a civil case, this is not a fraud deserving of punishment that pushes the limits of the Due Process Clause.

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While Greenberg would have the Court believe that his fraud was minor and devoid of the reprehensibility meriting a punitive award, adopting that view would ultimately require the Court to reject the interpretation of the evidence adopted by the jury. The jury found that Greenburg had shamelessly defrauded customers with “garbage.” Yet his conduct did not cause a particularly egregious harm: he was dealing in luxury goods marketed to a sophisticated and wealthy subset of the population. The harm was strictly economic, and the victims were far from vulnerable consumers. These facts merit a relatively low award of punitive damages. However, given Greenberg’s wealth and the context of the high-end auctions at issue, a punitive damages award less than or equal to the compensatory amount in this case would be insufficient to punish Greenberg and deter other fraudsters considering following in his footsteps.



The Court ultimately concludes that punitive damages in an amount greater than two times compensatory damages would be so exorbitant as to be actuated by passion, and therefore excessive under New York law. Accordingly, the Court will remit the punitive damages award to $711,622 (twice the compensatory damages award of $355,811). If Koch does not accept the reduced punitive damages award of $711,622, a new trial on punitive damages will be held."

"First, the attorney’s fees incurred in this case—by extraordinarily talented trial lawyers on both sides—bore no relationship to the amount of actual damages at issue. The legal teams in this case have aggressively fought a battle royale for six years, incurring millions of dollars in fees on each side. Yet the compensatory damages ultimately sought and awarded were only $355,811. In terms of the attorney’s fees incurred, the case was litigated in a manner more typical of a nine-figure case than a six-figure case.



Second, this is not a case in which the compensatory damages fail to “capture the extent of the plaintiff’s success at trial,” such as where “the intangible value of the rights vindicated [is] far greater than the actual physical injuries sustained.” Wilson v. Car Land Diagnostics Ctr. , Inc., No. 99 Civ. 9570, 2001 WL 1491280, at *2 (S.D.N.Y. Nov. 26, 2001) (Lynch, J.). As Judge Lynch has noted, GBL §§ 349 and 350 protect consumer rights, which, in commercial cases, “are directly measured by the financial damages imposed.” Id.



Third, the purposes of the GBL statute do not ultimately support an award of fees under the circumstances of this case. This was fundamentally a fraud case: the fraud claim was the focus of the trial; and the availability of punitive damages on the fraud claim prevented the case from being rendered moot by Greenberg’s refund offers. (See Dkt. No. 37, at 5-12.) But it is only the GBL claims, not the fraud claim, that provide for potential fee-shifting. To be sure, this Court has held that Greenberg’s conduct was sufficiently “consumer-oriented” to come within the scope of the GBL provisions. (See Dkt. No. 335, at 14-15.) At the same time, however, this case is not within the heartland of the types of cases animating the fee-shifting provisions of the GBL, for two reasons: (1) it does not involve consumers who are “vulnerable” or “disadvantaged,” and (2) it does not involve conduct with a “broad impact on consumers at large. * * * *



Finally, it is relevant that Koch refused Greenberg’s offers of a full refund for the bottles of wine at issue. It was Koch’s choice to decline the refund offers and bring this case to trial, in the hopes of sending a message and exposing what he perceived as Greenberg’s wrongdoing. In the wake of trial, Koch has now succeeded in doing exactly that. The Court does not in any way question or denigrate the intentions of Mr. Koch, who clearly feels strongly about this subject and is willing to expend significant resources on it. But there is a real sense, reinforced by the amount of attorney’s fees and Koch’s rejection of the refund offers, in which this was a litigation of choice and of principle, rather than of necessity or monetary recompense."

There is important news on thecase. Judge Paul Oetken, of the United States District Court for the Southern District of New York, issued his ruling on the parties' respective post-trial motions today. In a 61-page opinion, he rejected Greenberg's motion for judgment notwithstanding the verdict and a motion for new trial. However, he did find that based on Koch's pre-trial settlement with former co-defendant Zachys, New York General Obligations Law § 15-108 requires a reduction of the compensatory damages awarded to Koch from $355,811 to $212,699. (The statutory damages of $24,000 awarded by the jury pursuant New York General Business Law § 349 are not affected.) The Judge also reduced the punitive damages awarded by the jury from $12 million to $711,622 -- twice the amount awarded by the jury for compensatory damages. If Mr. Koch does not accept the reduced punitive damages amount, a new trial will be held on the issue of punitive damages. (See the explanation below.) The Court also denied in its entirety Koch's motion for an award of $7.8 million in attorney's fees and denied Koch's motion for a permanent mandatory injunction against Greenberg. Koch's motion for aware of pre-trial and post-trial interest on the damages was granted.The bottom line here is that Koch's $12.4 million jury verdict has been reduced to a little more than $1 million including interest and Mr. Koch's attorneys fees in excess of $7.8 million the Court has determined are his own responsiblity.In explaining the reduction of the punitive damage award, the Court stated:Opinion at pages 44 and 46.With respect to Koch's motion to award him $7.8 million in attorney's fees, the Court denied the motion in its entirety. The Court pointed out that the decision as to whether or not to award attorney's fees in a case based on violation of New York General Business Law §§ 349-350 is entirely discretionary with the court. Judge Oetken explained that a fee award was inappropriate here for several reasons:Opinion at pages 48-50 (emphasis added).Either side could potentially appeal from the final judgment, including the Judge's reduction of punitive damages or denial of attorney's fees. While one might quibble about whether punitive damages of two times, three times or four times the amount of the compensatory damages were the appropriate measure, it is doubtful in my opinion that an appeal by either side would be successful.While the judgment is only for $1+ million, I'm sure Mr. Koch feels vindicated, and rightly so. Zachys is a far different company today in terms of its practices than it was in 2005 when the first of Greenberg's three mega-auctions were held. I know that one of Mr. Koch's avowed objectives was to make sure that Eric Greenberg could never sell wine at auction again. I think that mission has been accomplished. I can't imagine that any auction house would ever again sell Eric Greenberg's wines without disclosing his identity as the seller (because it would be fraudulent to fail to do so), and disclosing Greenberg's name as the seller would be the kiss of death for the auction.