Case 2:16-cv-01790-SDW-LDW Document 147 Filed 05/04/21 Page 1 of 9 PageID: 2048
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`NOT FOR PUBLICATION
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`UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF NEW JERSEY
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`COFUND II LLC,
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`Plaintiff,
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`v.
`HITACHI CAPITAL AMERICA CORP.,
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`Defendant.
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`Case No. 16-cv-1790 (SDW) (LDW)
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`SUPPLEMENTAL TRIAL OPINION
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`May 4, 2021
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`WIGENTON, District Judge.
`This Court held a bench trial in this matter regarding Plaintiff CoFund II LLC’s (“Plaintiff”
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`or “CoFund”) breach of contract claim against Defendant Hitachi Capital America Corp.
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`(“Defendant”). Based on the testimony and evidence presented at trial, this Court entered its Trial
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`Opinion on February 22, 2021, finding Defendant liable to Plaintiff for breach of contract. (D.E.
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`143 (“Trial Op.”).)1 In its Trial Opinion, this Court asked the parties to submit supplemental briefs
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`on the issue of damages only, which the parties timely filed. (Id. at 12; D.E. 145, 146.) Pursuant
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`to Federal Rule of Civil Procedure 52,2 this Opinion constitutes the Court’s supplemental findings
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`of fact and conclusions of law on the issue of damages. For the reasons stated below, this Court
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`finds Defendant liable to Plaintiff in the amount of $1,553,613 plus interest and costs.
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`I.
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`BACKGROUND
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`In its Trial Opinion, this Court summarized the procedural history of this matter, made
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`Findings of Fact and Conclusions of Law on the issue of liability, and addressed the admissibility
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`1 CoFund II LLC v. Hitachi Cap. Am. Corp., Civ. No. 16-1790, 2021 WL 689119 (D.N.J. Feb. 22, 2021).
`2 This Court has jurisdiction pursuant to 28 U.S.C § 1332 and venue is proper pursuant to 28 U.S.C. § 1391.
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`of certain witness testimony. (See Trial Op. at 1–11.) This Court, writing primarily for the parties,
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`briefly summarizes the previous Findings of Fact and Conclusions of Law only to the extent
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`necessary to address the issue of damages.
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`Plaintiff entered into a Master Participation Agreement (“MPA,” Exs. P-1 and D-3)3 with
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`non-party Forest Capital, LLC (“Forest”) on January 12, 2012. Under the agreement, Plaintiff
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`purchased participations in factoring transactions that Forest made with its clients. (See MPA
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`§ 2.)4 In return for purchasing participations in the factoring transactions, Forest granted Plaintiff
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`a first-priority security interest in the collateral relating to each factoring transaction to the extent
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`of Plaintiff’s pro rata interest in those transactions. (MPA § 5.) However, Plaintiff’s interest in
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`any factoring transaction was limited to 50% of the total funds employed in the client account,
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`regardless of Plaintiff’s initial investment. (MPA § 3(a); see Dahm, T2, 261:6 – 262:11.)5 Forest
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`was required to hold any funds in excess of Plaintiff’s 50% interest in reserve (“Reserve Funds”)
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`for Plaintiff to use in future participations. (MPA §§ 3(b) and 3(d); see Dahm, T2, 262:12–15.)
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`On December 5, 2014, Defendant entered into its own agreement with Forest to lend money
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`to Forest. (Ex. D-1 (Loan and Security Agreement or “LSA”).) Under the LSA, Forest granted
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`Defendant a security interest in a broad swath of collateral, as defined by that agreement, but also
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`gave notice that the collateral may be subject to “Permitted Encumbrances,” which the agreement
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`3 References to trial exhibits are to P-1, et seq., for Plaintiff’s exhibits and to D-1, et seq., for Defendant’s exhibits.
`References to trial transcripts identify the witness, volume (“TI”, “T2”, or “T3”), and page: line.
`4 The amounts of Plaintiff’s participations for particular factoring transactions (i.e., its “pro rata” interests in those
`transactions) are set forth in 24 separate Participation Offer and Acceptance Forms that were signed by Plaintiff and
`Forest between January 2012 and September 2015. (Exs. P-3 to P-26; see Ex. P-27 at CoFund-2653 – CoFund-2667
`(tracking Plaintiff’s monthly outstanding participation amounts, advances, and repayments for each Forest client from
`January 2012 to December 2015).)
`5 Specifically, MPA § 3(a) states that “[CoFund’s] Investment in a Transaction as of any Settlement Date shall not
`exceed fifty percent (50%) of the aggregate principal amount of Advances to the Client then outstanding (Participant’s
`‘Maximum Permitted Investment’).” The MPA further defines “Settlement Date” as “the last business day of each
`month.” MPA § 1.
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`2
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`identified as Plaintiff’s UCC financing statement filed on January 23, 2012. (LSA §§ 1.26 and
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`7.7; LSA Ex. A.)
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`Plaintiff and Defendant executed an Intercreditor Agreement (Ex. D-4) on December 19,
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`2014, to determine the priorities of their security interests in the collateral covered by their
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`respective agreements with Forest. Under the agreement, the parties agreed, inter alia, that:
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`The lien or security interest of any kind that [Plaintiff] may now have or hold in the
`future with respect to the CoFund Priority Collateral shall be superior to any lien
`or security interest that [Defendant] may now have or hereafter acquire in the
`CoFund Priority Collateral . . . .
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`(Intercreditor Agreement § 2.B.) The agreement defined “CoFund Priority Collateral” as “only
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`those amounts received by [Forest] which represent CoFund’s Pro Rata interest in a Transaction
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`as well as CoFund’s Pro Rata interest in the tangible and intangible assets and property securing
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`the obligations relating to each Transaction.” (Intercreditor Agreement § 1.A.)
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`The Intercreditor Agreement also provided, in relevant part:
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`If . . . any party receives Collateral (including Proceeds) with respect to which it is
`an Inferior Creditor and there is unpaid [Forest] indebtedness due to the Superior
`Creditor with respect to such Collateral, the Inferior Creditor receiving such
`Collateral shall be deemed to have received such Collateral (including Proceeds)
`for the use and benefit of the Superior Creditor and shall hold it in trust and shall
`immediately turn it over to the Superior Creditor to be applied upon the
`indebtedness of [Forest]. . . .
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`[Defendant] shall hold all funds representing CoFund Priority Collateral in trust for
`[Plaintiff].
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`(Id. § 4.D.)
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`Subsequently, on December 29, 2014, Forest, Defendant, and non-party Manufacturers and
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`Traders Trust Company (“M&T”) entered into a Blocked Account Agreement (“BAA”). (Ex. P-
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`30.) Under the terms of the LSA and BAA, Forest and/or Forest’s clients deposited all moneys
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`3
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`that Forest’s clients paid/owed to Forest into a blocked M&T account. (LSA § 8.11(a).)6 Also
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`under the terms of the BAA, Defendant had “sole dominion and control” of the blocked account
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`and Forest was unable to withdraw any moneys from the blocked account to pay Plaintiff. (BAA
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`§ 4(b).) Rather, M&T “transfer[red]. . . all available funds on deposit in the Blocked Account to
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`the account of [Defendant].” (BAA § 4(a).)
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`By this process, Defendant received CoFund Priority Collateral that Plaintiff is entitled to
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`under the MPA. Defendant has not turned over these funds to Plaintiff, in breach of the
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`Intercreditor Agreement, which requires Defendant to “hold all funds representing CoFund
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`Priority Collateral in trust for [Plaintiff].” (Intercreditor Agreement § 4.D; see Trial Op. at 6–8.)
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`The Intercreditor Agreement is a valid and enforceable contract under applicable Michigan law,
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`and Defendant’s breach was not excused. (See Trial Op. at 6–10.)
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`II.
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`ADDITIONAL FINDINGS OF FACT
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`At trial, Daniel Cohen, a managing member of Plaintiff and certified public accountant,
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`testified that Defendant “collected a little bit over $9.1 million” in the first three months of 2016
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`from the blocked account at M&T. (Cohen, T2, 193:1–16.) Of this collected amount, he testified,
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`$1,553,613 represented monies on viable accounts on which Plaintiff was owed $2,119,959 in
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`unpaid participation interest at the end of 2015. (See Cohen, T1, 137:16 – 141:12; Cohen, T2,
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`192:23 – 194:20; Ex. P-67.) Plaintiff argues that it is entitled to this $1,553,613 in damages plus
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`interest. (See D.E. 138 ¶¶ 89–98.)
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`6 LSA § 8.11(a) specifies that Defendant’s “dominion of funds,” comprising “all payments due [to Forest]” from “all
`Customers,” is a requirement of the loan provided in the LSA. (LSA § 8.11(a) (“The loan shall be on dominion of
`funds. . . . . [Forest] shall have no right to withdraw any funds from [the blocked account], all of [Forest’s] funds
`therein belong to [Defendant].”).) The BAA implements this provision by requiring that “the Blocked Account shall
`be under the sole dominion and control of [Defendant].” (BAA § 4(b).)
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`4
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`Plaintiff’s proposed damages amount is based on Ex. P-67, which was created from
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`Defendant’s data. Notably, each of the twelve amounts in the “Collected Funds not returned to”
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`column on Ex. P-67 at CoFund-002488 were transferred from the same Forest document that
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`Plaintiff sent to Defendant on December 30, 2015, and that Forest itself sent to Defendant on
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`December 31, 2015. (See Ex. P-41 at CoFund-000161; Ex. P-43 at HITACHI010187.)7 This
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`column represents the sum of moneys that Defendant collected in the first three months of 2016
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`from the twelve Forest accounts in which Plaintiff had funded participations, all of which were
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`CoFund Priority Collateral.
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`On January 5, 2016, Toby Dahm, a Senior Vice President at Defendant and Defendant’s
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`sole witness, sent a letter to Forest and Plaintiff recognizing the validity of the $2,119,959 amount:
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`As reported on [Forest’s] financial statements, the total of all funded participations
`is $5,530,000. Of this amount, approximately $3,410,041 includes the PP&G,
`ARM and Continuity X accounts. This leaves approximately $2,119,959 as the
`remaining net participation funds funded by [Plaintiff] to [Forest].
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`(Ex. P-50 at CoFund-01472; Ex. D-21 at CoFund-01472.) These three amounts—$5,530,000,
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`$3,410,041, and $2,119,959—also appear on the last page of Ex. P-27, which tracked Plaintiff’s
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`monthly outstanding participation amounts, advances, and repayments for each Forest client from
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`January 2012 to December 2015. (Ex. P-27 at CoFund-002667; see Goldmeier, T1, 25:25 – 27:22.)
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`Notably, Defendant’s January 5, 2016, acknowledgment of the $2,119,959 amount as the “net
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`participation funds funded by [Plaintiff] to [Forest]” occurred after Plaintiff and Forest agreed to
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`their last Participation Offer and Acceptance Form on September 17, 2015. (See Ex. P-26.) It also
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`occurred after Defendant had received Exs. P-41 and P-43.
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`7 All the amounts from Exs. P-41 and P-43 were transferred to Ex. P-67, except for $30,000 allocable to Stratus
`Interoperable. (See Cohen, T2, 194:6–20; D.E. 146 at 2.) That $30,000 is not included in Plaintiff’s damage claim
`and was not transferred to Ex. P-67 because (1) Plaintiff claims to have received the funds and (2) Defendant itself
`received no repayment from the blocked M&T account in connection with Forest’s Stratus Interoperable account.
`(See Ex. P-69; D.E. 138 at 34 n.8; D.E. 146 at 2 n.1.)
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`5
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`III. ADDITIONAL CONCLUSIONS OF LAW
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`Under Michigan law, the measure of damages on a breach of contract claim is “the
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`pecuniary value of the benefits the aggrieved party would have received if the contract had not
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`been breached.” Doe v. Henry Ford Health Sys., 865 N.W.2d 915, 921–22 (Mich. Ct. App. 2014)
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`(quotation omitted). Michigan courts will award damages if there is a reasonable basis to ascertain
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`them, but not when damages are “conjectural or speculative in their nature, or dependent upon the
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`chances of business or other contingencies.” Id. at 922 (quotation and citation omitted).
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`This Court is satisfied that Plaintiff has met its burden to prove its damages as set forth in
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`Ex. P-67 and corroborated by Exs. P-27, P-41, P-43, P-50, P-69, Mr. Cohen’s testimony, and the
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`other credible evidence in the record. Defendant contends, based on Mr. Dahm’s testimony, that
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`any recovery must be limited by (1) the 50% limitation in the MPA; (2) the limitation to Plaintiff’s
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`“pro rata” contribution under the MPA as stated in the Participation Offer and Acceptance Forms;
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`(3) excluding funding for non-factoring transactions such as “security deposits” or “mobilization”
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`loans; (4) excluding accounts that were “improperly collateralized” in September 2015; and (5)
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`excluding proceeds Plaintiff received for identical accounts that were in the Forest bankruptcy.
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`(See D.E. 139 at 11–14 ¶¶ 48–60.) Applying these limitations and exclusions, Defendant contends
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`that Plaintiff is entitled at most to $606,209 in principal damages. (See id. at 11 ¶ 48.)
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`As an initial matter, to the extent that Defendant relies primarily on Ex. D-50 to support its
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`proposed damages ceiling of $606,209, (see D.E. 145 at 4–9), this Court notes serious questions
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`as to that document’s reliability. Defendant’s sole witness, Mr. Dahm, described D-50 as “an
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`overview of the Forest [] portfolio during the time period [] from when [Defendant] entered until
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`[Defendant] exited the relationship” with Forest. (Dahm, T2, 317:17–20.) Notably, Mr. Dahm
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`prepared Ex. D-50 in connection with pretrial settlement discussions and not in preparation for
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`6
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`trial. (See Dahm, T2, 318:4–9.) The document is based on three Forest borrowing certificates,
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`numbered 1, 161, and 197. (See Dahm, T3, 388:25 – 397:6.) However, as Mr. Dahm admitted on
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`cross-examination, the information in Ex. D-50 is inconsistent with the information contained in
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`the underlying borrowing certificates. (See id.)8
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`Furthermore, this Court finds no factual or legal basis to support Defendant’s proposed
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`reductions. Defendant’s briefs focus heavily on the “50%” and “pro rata” limitations contained in
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`the MPA, but the evidence presented at trial did not credibly establish that either limitation is a
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`basis for Defendant to withhold money that Plaintiff did, in fact, advance to Forest. The MPA is
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`intended only to benefit the parties to the agreement (Plaintiff and Forest) and it expressly provides
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`that “[n]othing in the Agreement (whether express or implied) is intended to confer upon any
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`person other than the parties hereto and their permitted assigns any rights or remedies under or by
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`reason of this Agreement.” (MPA § 11(e); see Goldmeier, T1, 20:2–15.)9
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`Defendant’s arguments for excluding “security deposits” and “mobilization” loans are
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`similarly unavailing. In its supplemental brief, Defendant makes passing reference to a $550,000
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`security deposit. (See D.E. 145 at 8.) To the extent that any such money is included in Plaintiff’s
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`proposed damages, there is no reason why Defendant is entitled to keep any “security deposits”
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`that were advanced by Plaintiff to Forest and repaid into the blocked account. Neither the MPA
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`8 For example, (1) borrowing certificate 1 lists Plaintiff’s participation as $1,513,614.54, but Ex. D-50 represents the
`interest as $1,066,808.00; (2) borrowing certificate 161 lists Plaintiff’s participation as $1,143,625.38, but Ex. D-50
`represents the interest as $1,034,532.00; and (3) borrowing certificate 197 lists Plaintiff’s participation as $976,063.03,
`but Ex. D-50 represents the interest as $606,209.00. (See Dahm, T3, 388:25 – 397:6; see also D.E. 146 at 10.)
`9 Furthermore, the MPA recognizes that “fluctuations in the volume of Factored Accounts . . . may cause [Plaintiff]’s
`Investment in the Transaction to exceed its Maximum Permitted Investment from time to time.” (MPA § 3(b).)
`Although MPA § 3(a) states that “[Plaintiff]’s Investment in a Transaction as of any Settlement Date shall not exceed
`fifty percent (50%) of the aggregate principal amount of Advances to the Client then outstanding,” Defendant offered
`no evidence as to Plaintiff’s investment as of any Settlement Date (the last business day of each month, as defined by
`MPA § 1), and how it would be reduced by the 50% limitation.
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`7
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`nor the Intercreditor Agreement limited the purposes for which Plaintiff was entitled to advance
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`funds to Forest and receive participation interests.
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`Defendant also points to “five accounts that were improperly collateralized in September
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`2015, long after [Plaintiff] did any funding of those accounts,” and argues that these accounts
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`should be excluded from any damages. (D.E. 145 at 8–9.) However, this Court is satisfied with
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`Lee Goldmeier’s testimony that these participations were offered and accepted in accordance with
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`the MPA and in fact funded with Plaintiff’s Reserve Funds under the agreement. (See Goldmeier,
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`T1, 45:25 – 50:19; Exs. P-22 to P-26, P-35; MPA § 3(d).)
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`Finally, Defendant argues for unspecified reductions based on the bankruptcy sale of eight
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`of Forest’s accounts in which Plaintiff funded participations. (See D.E. 145 at 6.)10 Of the
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`$624,180.75 that Plaintiff received as a result of the March 15, 2019, consent order approving the
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`settlement of the adversary proceeding in the United States Bankruptcy Court for the District of
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`Maryland, approximately $580,000 represented moneys that came into the bankruptcy estate from
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`People’s Power & Gas (“PP&G”). (See Ex. D-11 at 12; Goldmeier, T1, 103:23 – 104:4; Leppert,
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`T2, 226:12 – 229:1.)11 Defendant’s own witness testified that money from Forest’s PP&G account
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`did not end up in the M&T blocked account. (See Dahm, T3, 371:25 – 372:12.) The source of the
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`remaining $44,180.75 could not be established and Plaintiff deducted it accordingly from its
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`proposed damages. (See D.E. 138 ¶ 97(f).) There is therefore no overlap between Plaintiff’s
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`recovery in the bankruptcy proceedings and Plaintiff’s proposed damages in the instant case.
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`10 As this Court previously summarized, certain junior creditors commenced bankruptcy proceedings against Forest
`on March 24, 2016. (Trial Op. at 6.) Forest commenced an adversary case on July 7, 2016, to determine the existence,
`validity, and priority of various creditors’ rights to the assets of the bankruptcy estate. (Id.) The adversary case settled
`on March 15, 2019, with Plaintiff and Defendant both receiving proceeds. (Id.)
`11 This amount is further confirmed by the Amended Motion to Approve the Settlement that Forest’s bankruptcy
`counsel filed in the adversary proceeding on December 27, 2018. See Forest Capital, LLC v. Hitachi Cap. Am. Corp.,
`Adv. No. 16-326 (D. Md. Bankr.), D.E. 151 ¶ 21; see also FED. R. EVID. 201(d) (stating that a court may take judicial
`notice of adjudicative facts at any stage of the proceeding).
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`8
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`In summary, this Court finds that Plaintiff’s proposed damages are based on the credible
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`evidence presented at trial, and Defendant’s proposed reductions are not. This Court also finds
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`that good cause exists to award prejudgment interest at the rate set forth in New Jersey Court Rule
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`4:42-11(a)(iii),12, 13 and will therefore adopt Plaintiff’s proposed minimum damages.
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`IV. CONCLUSION
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`For the reasons set forth above, this Court finds that Defendant is liable to Plaintiff for
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`$1,553,613 in principal damages, plus prejudgment interest and costs. Plaintiff may file a Bill of
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`Costs and Disbursements with the Clerk of Court within 30 days, according to Local Civil Rule
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`54.1. An appropriate order follows.
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`s/ Susan D. Wigenton_______
`SUSAN D. WIGENTON
`UNITED STATES DISTRICT JUDGE
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`Orig:
`cc:
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`Clerk
`Hon. Leda D. Wettre, U.S.M.J.
`Parties
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`12 Although this Court applied Michigan law to decide Plaintiff’s claim, in accordance with the Intercreditor
`Agreement, (see Trial Op. at 6), New Jersey law applies to the award of prejudgment interest. See Gleason v. Norwest
`Mortg., Inc., 253 F. App’x 198, 203–04 (3d Cir. 2007) (citations omitted) (noting that federal courts sitting in diversity
`must apply the law of the forum state to questions of process). Under New Jersey law, “prejudgment interest in
`contract cases[] is governed by equitable principles.” Id. at 204 (citing Cty. of Essex v. First Union Nat. Bank, 891
`A.2d 600, 609 (N.J. 2006)). New Jersey Court Rule 4:42–11(a) governs postjudgment interest and “may serve as an
`appropriate benchmark [for prejudgment interest] in contract cases.” Id. (citing DialAmerica Mktg., Inc. v. KeySpan
`Energy Corp., 865 A.2d 728, 732 (N.J. Super. Ct. App. Div. 2005)). In awarding prejudgment interest in a contract
`case, “the basic consideration is that the defendant has had the use, and the plaintiff has not, of the amount in question;
`and the interest factor simply covers the value of the sum awarded for the prejudgment period during which the
`defendant had the benefit of monies to which the plaintiff is found to have been earlier entitled.” Cty. of Essex, 891
`A.2d at 608 (quotation and brackets omitted). That is precisely the case here, and the awarded amount will not
`“constitute a windfall” for Plaintiff, as Defendant contends. (D.E. 145 at 10.)
`13 For $1,368,027 of Plaintiff’s principal damages, interest should run from December 29, 2014, when Defendant
`began to exercise exclusive dominion and control over the funds pursuant to the BAA. (See D.E. 138 ¶¶ 96, 97(a).)
`For the remaining $185,586, allocable to the Atlantic Coast Energy, DiGeronimo, Global Dwelling, and Sysgen
`accounts, interest should run beginning on September 17, 2015, in accordance with the Participation Offer and
`Acceptance Forms for those accounts. (See D.E. 138 ¶ 97(b) n.11; Exs. P-22 to P-24, P-26.)
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`9
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