fact, it was not--it is clear that Lewis must be held liable for his actions.
In many respects this is similar to a classic insider trading case. See Securities and Exchange Comm. v. Texas Gulf Sulphur Co., 401 F.2d 833 (2d Cir. 1968) (en banc); cert. denied 394 U.S. 976, 22 L. Ed. 2d 756, 89 S. Ct. 1454 (1969); In re Cady, Roberts & Co., 1961 SEC LEXIS 385, 40 S.E.C. 907 (1961). Ray provided Lewis with information that he had a client who would be paying the stated value to extinguish a mortgage note. Armed with this information, Lewis bought the note at a deep discount with the understanding he would share some of the proceeds with Ray. Lewis and Ray then orchestrated a closing of the two transactions so that Lewis would be able to obtain his profits on a risk free basis. After Lewis purchased the note on the basis of secret inside information, he took steps to cover up his role in the fraudulent transaction.
What makes Lewis's part even worse is that he was untruthful in his testimony before this Court. There was no way in which the testimony of Defendant Lewis could be reconciled with that of Kroeger. Although Kroeger is a convicted felon, this Court credits his testimony. Lewis wanted a sweetheart deal without risk and without putting up any cash. The easy way Lewis found this could be accomplished was for Kroeger to front the money from his title company's escrow account. This is precisely what Kroeger did. Lewis was not only an aider and abetter, but a principal in the fraud perpetrated against the Plaintiffs. Thus, this Court holds that both Defendants Lewis and Ray are liable for the injuries caused by the breach of fiduciary duty and fraud.
Plaintiffs seek $ 1,484,602 in out-of-pocket expenses caused by Defendants' fraud, plus attorneys' fees and expenses in this and related litigation.
It is clear that Plaintiffs, at a minimum, are entitled to the difference between the price Defendant Lewis paid for the Dominion Bank Note and what Plaintiffs paid, with interest. More than that, this Court believes that the fairest way of apportioning damages would be to require both Defendants Ray and Lewis to disgorge all monies they received in the insider transaction. See Weiss v. Lehman, 713 F. Supp. 489, 505 (D.D.C. 1989). This means that Lewis will be ordered to disgorge $ 715,000, the difference between the price he paid for the Dominion Bank Note and the price paid to extinguish it. He will be given no credit for the monies spent in carrying out his scheme. Ray will be required to disgorge the monies he received from Lewis, his $ 60,000 real estate commission, and any management fees he might have received from the Grace Street property for violation of his fiduciary duty.
Plaintiffs are also entitled to recoup the legal fees incurred in vindicating their rights in this case. This case involved outright fraud. There were no mitigating circumstances. The acts of Defendants were intentional and contrary to law. Because of the knowingly malicious nature of Defendants' actions, this Court believes that legal fees should be paid to Plaintiffs' counsel as one of the measures of damages that the Plaintiffs suffered. See Washington Medical Center v. Holle, 573 A.2d 1269, 1284 (D.C. Cir. 1990). Plaintiffs could not have vindicated their rights without the able assistance of lawyers.
The Court is not prepared to include in the measure of damages Plaintiffs' legal expenses in proceedings other than the present one before this Court. While courts have some discretion in determining where to cut off the recoupment of legal expenses, this Court believes the line to be drawn in this case should be limited to the expenses incurred in the present litigation. This is partly because the Court presided over the trial and was able to observe the appropriateness of the litigation expenses incurred.
The judgment against Defendant Ray will be in the sum of $ 63,875 plus the Plaintiffs' attorneys' fees and costs to be submitted to the Court in this case. And the judgment against Defendant Lewis will be in the sum of $ 715,000 plus the Plaintiffs' attorneys' fees and costs to be submitted to the Court in this case. While the liability on the disgorgement will be on an individual basis, responsibility for paying Plaintiffs' legal fees and costs will be both jointly and severally. An appropriate Order follows.
Within 15 days of the Order attached, Plaintiffs will submit their attorneys' fees and costs related to this case; Defendants will have 5 days to reply. This Court shall retain jurisdiction to oversee the final disposition of this matter.
October 17, 1997
United States District Judge
Upon the Findings of Fact and Conclusions of Law above, this Court grants judgment in favor of the Plaintiffs on all claims. It is hereby
ORDERED that Defendant Ray disgorge his profits from the Grace Street transaction in the sum of $ 63, 875; and it is
FURTHER ORDERED that Defendant Lewis disgorge his profits from the Grace Street transaction in the sum of $ 715,000; and it is
FURTHER ORDERED that Plaintiffs' attorneys' fees and costs incurred in pursuing this litigation be assessed against both Defendants jointly and severally; and it is
FURTHER ORDERED that Plaintiffs submit their attorneys' fees and costs incurred pursuing this litigation to this Court within 15 days of this Order; and it is
FURTHER ORDERED that Defendants' reply within 5 days of Plaintiffs' submission of their attorneys' fees and costs; and it is
FURTHER ORDERED that this Court retain jurisdiction of this matter for any necessary or further relief as may be appropriate; and it is
FURTHER ORDERED that Defendant Ray's defamation counterclaim is DISMISSED without prejudice.
October 17, 1997
United States District Judge