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In re National Consumer Mortgage, LLC

United States District Court, D. Nevada

May 8, 2014

In Re NATIONAL CONSUMER MORTGAGE, LLC, Debtor.
v.
RIO PROPERTIES, INC., Defendant. JOHN P. BRINCKO, Plaintiff,

ORDER

PHILIP M. PRO, District Judge.

Presently before the Court is Defendant Rio Properties, Inc.'s Motion in Support of Proposed Judgment (Doc. #382), filed on February 11, 2014. Plaintiff John P. Brincko filed an Opposition (Doc. #386) on March 3, 2014. Defendant Rio Properties, Inc. filed a Reply (Doc. #387) on March 10, 2014.

Also before the Court is Plaintiff John P. Brincko's Motion for (I) Entry of Judgment; (II) Prejudgment Interest; and (III) Post-Judgment Interest (Doc. #383), filed on February 13, 2014. Defendant Rio Properties, Inc. filed an Opposition (Doc. #385) on March 3, 2014. Plaintiff John P. Brincko filed a Reply (Doc. #388) on March 10, 2014.

I. BACKGROUND

The parties are familiar with the facts of this case and the Court will not repeat them here except where necessary. On February 3, 2014, the jury returned a verdict in this fraudulent transfer action resulting in a net award of $1.48 million in favor of Plaintiff John P. Brincko ("Trustee") and against Defendant Rio Properties, Inc. ("Rio"). (Jury Verdict (Doc. #373).) On February 4, 2014, the Court ordered the Trustee and Rio to meet and confer and to file a joint proposed judgment reflecting the jury's verdict. (Min. Order (Doc. #370).) Rather than filing a joint proposed judgment, the parties separately filed motions for judgment and competing proposed judgments.

In its Motion, Rio contends the jury's $1.48 million net award to the Trustee should be reduced by $750, 000, the amount for which the Trustee settled his claims against Bank of America related to the same fraudulent transfers at issue in this case. According to Rio, this offset would avoid allowing the Trustee a double recovery. Rio also asserts the net award should be reduced by the $7, 429.45 in discovery-related sanctions the Court awarded to Rio against the Trustee during the course of this litigation. Finally, Rio asserts it is the prevailing party. Rio provides a proposed judgment consistent with its arguments.

In his Opposition, the Trustee does not object to the offset of the sanctions, subject to the Trustee preserving his right to appeal any issues related to the issuance of the sanctions. The Trustee contends the Bank of America settlement amount should not be offset from the award against Rio because the Trustee will not make a double recovery given that the estate is owed over $10 million dollars in fraudulent transfers, but the combined settlement and jury verdict amount to less than $3 million. The Trustee also contends that he, rather than Rio, is the prevailing party in this action.

The Trustee also separately moves for entry of judgment, and for an award of pre- and post-judgment interest. The Trustee contends he is the prevailing party in this action, and he is entitled to pre-judgment interest under both California and federal law from the date of the fraudulent transfers which the jury found Rio must return to the estate. The Trustee provides a proposed judgment consistent with his arguments.

Rio concedes the Trustee will be entitled to post-judgment interest. However, Rio repeats its arguments from its own motion that any award to the Trustee should be reduced by the sanctions and by the Bank of America settlement, and that Rio is the prevailing party. Rio also argues the Trustee is not entitled to pre-judgment interest under California law because the Trustee did not recover "damages" to which the California prejudgment interest statute would apply. Rio also argues the Trustee is not entitled to prejudgment interest under California law because the amount Rio owed was uncertain until the jury's verdict. As to pre-judgment interest under federal law, Rio argues the Court should exercise its discretion and deny a pre-judgment interest award because the case involved close and complex issues, Rio litigated in good faith, and the Trustee unnecessarily delayed the litigation. Rio further contends that if the Court intends to award pre-judgment interest, the interest should not run from the date of the transfers, but from other proposed dates given the Trustee's conduct of the litigation.

II. UNDISPUTED ISSUES

The parties agree the Trustee's net $1.48 million verdict should be reduced by the Court's prior sanctions awards against the Trustee (Orders (Doc. #236, #264)) in the total amount of $7, 429.45. The parties also agree that any pre-judgment interest the Court awards should be simple interest. Finally, the parties agree that the Trustee is entitled to post-judgment interest under 28 U.S.C. ยง 1961(a).

III. PREVAILING PARTY

The Trustee and Rio each contend they are the prevailing party in this action for purposes of determining which party ought to be awarded costs. Rio argues it is the prevailing party because the jury found Rio acted in good faith with respect to approximately ninety percent of the fraudulent transfers, and Rio's good faith defense was the main issue in this case. Alternatively, Rio argues the Court should apportion costs for a mixed verdict. The Trustee argues he is the prevailing party because he obtained a verdict in his favor by which he can compel Rio to pay $1.48 million Rio otherwise would not pay.

Pursuant to Federal Rule of Civil Procedure 54(d)(1), the Court should award costs to the "prevailing party" unless a federal statute, the Federal Rules, or a court order provides otherwise. Under Rule 54, there is a presumption in favor of awarding costs to the prevailing party unless the court exercises its discretion to refuse to award costs for specified reasons. Ass'n of Mexican-Am. Educators v. California , 231 F.3d 572, 591 (9th Cir. 2000) (en banc). It is within the court's discretion to require each party to bear its own costs in the event of a mixed judgment. Amarel v. Connell , 102 F.3d 1494, 1523 (9th Cir. 1996). There are many reasons a district court may decide to deny costs, including (1) the losing party has limited financial resources, (2) the prevailing party engaged in misconduct, (3) imposing costs would have a chilling effect on future civil rights litigants, (4) "the issues in the case were close and difficult, " (5) "the prevailing party's recovery was nominal or partial, " (6) "the losing party litigated in good faith, " and (7) "the case presented a landmark issue of national importance." Champion Produce, Inc. v. Ruby Robinson Co. , 342 F.3d 1016, 1022 (9th Cir. 2003).

A "party in whose favor judgment is rendered is generally the prevailing party for purposes of awarding costs under Rule 54(d)." San Diego Police Officers' Ass'n v. San Diego City Emps.' Ret. Sys. , 568 F.3d 725, 741 (9th Cir. 2009) (quotation omitted). A party need not prevail on all of its claims to be found the prevailing party, and prevailing party status "does not turn on the magnitude of the relief obtained." Farrar v. Hobby , 506 U.S. 103, 114 (1992); San Diego Police Officers' Ass'n , 568 F.3d at 741. Generally, a plaintiff who wins even nominal damages is considered the prevailing party. See, e.g., Farrar , 506 U.S. at 113 ("A judgment for damages in any amount, whether compensatory or nominal, modifies the defendant's behavior for the plaintiff's benefit by forcing the defendant to pay an amount of money he otherwise would not pay."). However, a "technical victory may be so insignificant... as to be insufficient to support prevailing party status." Tex. State Teachers Ass'n v. Garland Indep. Sch. Dist. , 489 U.S. 782, 792 (1989).

Here, the Trustee is the prevailing party. The Trustee prevailed on several issues at summary judgment, including that Salvatore Favata ("Favata") acted with the intent to defraud, that the Trustee was entitled to the Ponzi scheme presumption of insolvency, that Favata acted with actual authority in controlling the Debtor National Consumer Mortgage, LLC's ("NCM") affairs, and that Favata acted within the course and scope of his authority at NCM when he transferred funds from NCM to himself. (Order (Doc. #247) at 20-24.) Additionally, the Trustee obtained a jury verdict declaring that the Trustee had proven by a preponderance of the evidence that Favata was the sole relevant actor at NCM, that Rio was a subsequent transferee of NCM's funds, and that Rio received a total of $10, 342, 008.21[1] of NCM's fraudulently transferred funds. The jury also found that Rio met its burden of showing by a preponderance of the evidence that Rio received $8, 862, 008.21 of those funds in good faith. The net result is a verdict in favor of the Trustee in the amount of $1.48 million.

Although the Trustee did not recover the approximately $10 million he sought, a plaintiff need not prevail on all of his claims to be deemed the prevailing party. Nor is the magnitude of the difference between the amount requested and the amount obtained the relevant inquiry. Rather, the Trustee has obtained a verdict directing Rio to pay the Trustee $1.48 million Rio otherwise would not pay. A $1.48 million verdict is not a technical victory.

Rio characterizes its good faith affirmative defense as the main issue in this case, thus supporting the conclusion that Rio is the prevailing party because it succeeded on the defense for most of the transfers. However, Rio vigorously litigated the issues of whether NCM was insolvent, whether NCM acted with the requisite fraudulent intent, whether Rio ever became a subsequent transferee of NCM's funds, and, if so, what amount of NCM's funds Rio received. (See, e.g., Tr. (Doc. #154) at 8-9; Mot. Summ. J. (Doc. #183); Omnibus (1) Reply in Support of Rio Properties, Inc.'s Mots. Summ. J. & (2) Opp'n to Trustee's Countermot. Summ. J. (Doc. #226); Jt. Pretrial Order at 3-4, 6-7 (Doc. #252); Def. Rio Properties, Inc.'s Opp'n to Pl.'s Mot. in Limine for an Order Precluding Testimony as to Whether Debtor's Funds Were Transferred to Rio (Doc. #288); Trial Br. (Doc. #312) at 10-14; Proposed Jury Instr. (Doc. #316); Proposed Jury Instr. (Doc. #340).) The Trustee ultimately prevailed on ...


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