Continental Industries Group, Inc. v. Altunkilic

Background

Defendant Mehmet Altunkilic defaulted. Judge Analisa Torres referred the case to Magistrate Judge James L. Cott to conduct an inquest, meaning a court review of the evidence needed to determine damages, and to recommend the amount of any award. Following a mandate from the Second Circuit, Judge Torres had reinstated Continental Industries Group, Inc.’s claims for misappropriation of trade secrets and proprietary information, tortious interference with contract and prospective economic advantage, and aiding and abetting breach of fiduciary duty.

Continental sought $19,898,524 in lost-profit damages. Its proposed calculation relied on spreadsheets showing decreases in revenue, a statement that suppliers and customers shifted business to Plasmar, an asserted three-percent profit margin, a trend analysis, amounts allegedly recovered from suppliers and customers, and a 60% reduction for market factors and the possibility that not all diverted customers remained with Plasmar.

Court’s analysis

The court explained that a defendant’s default does not automatically establish the amount of damages. Although well-pleaded factual allegations are treated as true after a default, the plaintiff must prove the extent of its damages with evidence. If damages cannot be shown with reasonable certainty, the court should not award them even when liability has been established through default.

The court found that Continental had not yet shown its damages with reasonable certainty. In particular, it could not determine how Continental derived its figures. The court questioned whether the statement based on “information and belief,” rather than personal knowledge, was adequate evidence; how the expected lost profits were calculated; and why Continental used a 60% rate to account for market and other factors. The court also found that Continental had not explained why it was entitled to costs or supplied documentation supporting them.

Order

The court directed Continental to make a further submission by March 9, 2020. That submission had to explain the evidentiary basis for the claimed shift in business, the calculation of expected lost profits, and the choice of the 60% rate, with references to existing or newly provided supporting materials. Continental also had to provide documentary evidence for any costs and explain the legal basis for requesting them. If Continental sought attorney fees, it had to provide a legal basis and contemporaneous time records, although the court noted that Continental appeared to have abandoned that request in its inquest submissions.

Continental had to serve Altunkilic with the supplemental filing and this order and file proof of service. Any response from Altunkilic was due March 23, 2020. Judge James L. Cott ordered further submissions but did not award damages or costs in this order.