New York State Court of Claims

New York State Court of Claims

BRYANT v. THE STATE OF NEW YORK, #2009-029-001, Claim No. 103376


Claimant awarded $105,000 damages as the result of State negligence in referring embezzler to his business. Much of claimant’s damages claim was rejected as speculative.

Case Information

Claimant short name:
Footnote (claimant name) :

Footnote (defendant name) :

Third-party claimant(s):

Third-party defendant(s):

Claim number(s):
Motion number(s):

Cross-motion number(s):

Claimant’s attorney:
BERGSTEIN & ULLRICH, LLPBy: Christopher D. Watkins, Esq.
Defendant’s attorney:
ANDREW M. CUOMO, ATTORNEY GENERALBy: Dewey Lee, Assistant Attorney General
Third-party defendant’s attorney:

Signature date:
May 13, 2009
White Plains

Official citation:

Appellate results:

See also (multicaptioned case)


Claimant was the owner of a business known as Mechanical Resources, Inc. (“MRI”), which was engaged in the manufacture and servicing of specialty commercial refrigeration units. The business was started in 1975 and by 1998 operated out of two locations in New Jersey. In September of that year, responding to a New York State Department of Labor (“DOL”) promotion aimed at inducing out-of-state businesses to relocate to New York, claimant began discussions with DOL representatives about moving MRI’s operations to New York. During those discussions, claimant was advised that, as part of its program, the DOL would recruit, screen and interview prospective employees for him. Undisclosed to claimant was the fact that some prospective employees recommended by the DOL were involved in an early release program from prison and had been referred to DOL by their probation officers. One such individual, Tina Raymond, was hired by claimant as a bookkeeper in March 1999. In January 2000, claimant discovered that Raymond had misappropriated a check and subsequent investigation revealed that she had stolen approximately $75,000 from the business.

The instant claim was filed November 13, 2000, after permission to late file pursuant to Court of Claims Act §10(6) was granted (Bryant v State of New York, Sise, J., UID No. 2000-028-101511, Sept. 27, 2000). The claim alleges that defendant was negligent in referring Raymond to claimant’s business without conducting a proper background check and screening, causing “significant out-of-pocket losses, lost business opportunities, lost profits and stigmatization for bouncing checks and being unable to fulfill obligations” (Claim, ¶ 14), all amounting to $2,500,000 in damages.

The claim was tried on June 4, 2003. Judge Sise found that claimant had failed to prove that defendant misrepresented the nature or scope of the services to be provided by the DOL in connection with screening, recruiting, referring or interviewing prospective job applicants, that defendant assumed no duty to qualify candidates beyond their stated job skills, and that claimant had thus failed to establish that the financial damage allegedly sustained by his business as the result of Raymond’s actions was the result of negligence on the part of defendant (Bryant v State of New York, Sise, J., UID No., 2004-028-0002, March 25, 2004).

Claimant appealed from the judgment of dismissal, and the Appellate Division, Second Department reversed, reinstated the claim and found that “defendant failed to exercise due care in performing its assumed duty to screen job candidates [and that] . . . defendant’s failure to do so constituted a proximate cause of the losses sustained by claimant” (Bryant v State of New York, 23 AD3d 592, 593 [2d Dept 2005]). The claim was remitted to the Court of Claims “for a trial on the issue of whether to apportion any fault to [claimant] and, if so, the percentage of fault attributable to [claimant], and on the issue of damages.”
A second trial was then held before Judge Sise in June and October 2007. At that trial, the parties stipulated that, to the extent evidence and testimony from the first trial was relevant to the allocation of fault, it was already before the court and need not be repeated at the second trial. [1] Subsequent to submission of post-trial briefs in February 2008, the claim was transferred to this court by order of Acting Presiding Judge Thomas J. McNamara, dated July 11, 2008. Counsel for the parties appeared and stipulated on the record that this court would render a decision based on the trial record. Accordingly, based on the prior decision of the Appellate Division, what is currently before the court are the issues of comparative fault and damages.


Claimant started MRI in 1975, operating out of his garage in New Jersey, doing refrigeration and air conditioning repair. The business purchased a building in Jersey City in 1978 and expanded over the years, eventually employing approximately 22 people in the early 1980's. In 1985, after receiving a large contract from the U.S. Navy to construct shipboard refrigeration units, the company began to focus more on manufacturing than service. In 1996 they rented a second building in New Jersey. By 1998 the volume of business began to outgrow the capacity of the two buildings and claimant decided to look for larger headquarters under one roof.

Sometime in 1998, claimant’s son saw a magazine advertisement stating that the Orange County Partnership was looking for manufacturing businesses to move to Orange County, New York and that the State was providing incentives for firms to do so. Subsequent inquiry resulted in consultations with representatives of various State agencies, including the DOL, represented by Calvin Weir. Claimant testified that Weir told him the DOL could find qualified employees for MRI’s manufacturing operations and that they would “recruit, screen and interview all of the employees” (T1, p 19).

In February 1999, claimant purchased a building in Middletown, New York. Prior to the closing, claimant attended a labor resource meeting with Weir and other State representatives and told them that he had 14 or 15 employees in New Jersey and that only one or two would make the move to New York. Claimant was assured that the DOL had a pool of qualified technical employees – welders, electricians, pipe fitters – which claimant stated was his primary concern. Claimant was also in need of a bookkeeper, and DOL provided three or four resumes for this position. He subsequently interviewed two of those people and ultimately hired Tina Raymond. Claimant testified that the focus of his interviews was to ascertain the applicants’ familiarity with the Peachtree Accounting System and that he did not contact any of the past employers listed on their resumes. His reason for failing to make such inquiries was that “we were told that part of the process with the Department of Labor [was] that they would be interviewing and screening these people prior” (id., p 60), although he acknowledged that when he had hired people in the past, he had checked their backgrounds and prior employers himself. Claimant stated that Raymond was very familiar with the accounting system used by MRI, lived locally and was very energetic. Raymond was hired in May 1999 and worked for claimant from June or July of that year until January 2000. MRI began its manufacturing operation in New York in September 1999.

Claimant first became suspicious of Raymond in December 1999 when he learned that she had obtained a cell phone for herself on the company’s bill. On January 4, 2000 he asked her for copies of bank statements, which she could not find. After she had left for the day, while looking for the bank statements, claimant found a copy of a check written to Raymond with claimant’s forged signature on it. Raymond did not have authority to sign the firm’s checks. The next day, claimant met with Raymond and she admitted forging the check. She was ultimately convicted of Grand Larceny 4th degree (Appendix, p 198). [2] Claimant estimated that Raymond had embezzled approximately $75,000, in various ways, before she was caught.


As noted, the Appellate Division found, on the record of the 2003 trial, that defendant’s employees failed to exercise due care in connection with its assumed duty to screen job candidates, that contact with an employer listed on Raymond’s resume could have revealed a history of embezzlement and that defendant’s conduct was therefore a proximate cause of the losses sustained by claimant. The case was remitted for a determination of comparative fault and for an assessment of damages.

The proof with respect to comparative fault was essentially the same at the 2003 and 2007 trials. Claimant testified that he interviewed Tina Raymond twice but he made no effort to check the references listed on her resume or otherwise obtain any information about her. This was because he “assumed the State would do what they said they were going to do and that was screen” (T1, p 85) and he further assumed that “screen” meant that the DOL would check the applicants’ references. Claimant further testified that he had interviewed approximately one hundred job applicants over the years of running his business and that, on such occasions, someone with the company would check the applicants’ references (id., p 84). This was not done in this case because of his assumption that DOL had already done so. However, claimant’s understanding of the screening process undertaken by the DOL was different from that which actually took place.

Jovanna Branham, a labor service representative with the DOL at the time of the subject events, testified that “screening” was limited to evaluation of an applicant’s skills, as provided on the resume. Calvin Weir also testified that “screening” referred only to ascertaining applicants’ skills and ability to do the job and that the department did not check references.

There is nothing in the record of either trial to indicate that claimant’s assumptions as to the DOL’s screening procedure were based on any conversation or statement between him and any DOL representative. Apparently, he was simply told that the DOL would screen applicants. He did not ask what the screening process involved and was not told that it was limited to asking the applicants about their skills and accepting their responses as accurate.

Although the Appellate Division found defendant negligent in representing that it would screen potential applicants and then failing to do anything beyond accepting as true the statements in their resumes, the court also noted that “any failure on the part of the claimant to investigate the candidate himself, although it may constitute contributory negligence on his part, does not completely bar recovery but instead diminishes the amount of damages otherwise recoverable” (Bryant v State of New York, 23 AD3d 592, 594). This court finds that claimant’s failure to check with the former employers listed on Raymond’s resume, and the failure to inquire of DOL as to the nature and extent of their screening process, constituted negligence on claimant’s part. As the Appellate Division found, given that contact with one of the employers listed on Raymond’s resume would likely have revealed at least one prior instance of embezzlement, claimant’s negligence combined with that of the defendant was the joint proximate cause of the resulting damage to his business (see Appendix, p 190, Resume of Tina Raymond and pp 204-223, Deposition of Peter Durkin, President of Orange Heating Co.). This analysis of causation requires the actions of both parties, since a reference check by either would have negated the negligence of the other.

In weighing the comparative fault of the two parties, the court also accords substantial weight to the failure by DOL to disclose to claimant that Raymond had been referred to the DOL from her probation officer in connection with a conviction for a different incidence of embezzlement, involving an employer not listed on her resume. More so than the absent reference check, this fact tips the scales in defendant’s favor since such disclosure would have, at the very least, alerted claimant to the limitations of the defendant’s screening procedure and the need to proceed cautiously. Thus, defendant’s negligence must be balanced against claimant’s last clear chance to avoid embezzlement by taking basic actions appropriate for an employer.

Based on the foregoing, this court finds that an allocation of 60% of the fault to defendant and 40% to claimant is appropriate.


Claimant’s position is that Raymond’s actions led to the complete destruction of his business. Based on the testimony of Ernest J. Agresto, a Certified Public Accountant, claimant contends that his losses amounted to $7,628,137, computed as follows:
Net embezzlement Loss $72,524
Cost of Recovery and Calculations $43,657
Lost Gross profits $2,605,726
Lost Wages $393,730
Loss in Company Value $4,512,500

Defendant’s position, also supported by expert testimony, is that damages should be limited to the actual amount embezzled by Raymond, minus what was recovered, plus the costs of recovery.

Although claimant’s economic presentation consisted essentially of Agresto’s report and testimony, the basis for his calculations was claimant’s testimony that Raymond’s embezzlement led to the demise of his business. Agresto accepted that conclusion as the starting point of his analysis.

Claimant testified that he returned to the office on the morning of January 6, 2000, after confronting Raymond and filing a complaint with the State Police, and immediately attempted to discover how much money Raymond had taken, which took him some time because bank records were missing and computer files had been deleted. Over a period of months, with much time-consuming effort on claimant’s part, it was ascertained that she had taken a total of $71,562.

When claimant made his report to the State Police, they told him that they recognized Raymond as a career criminal. He returned to his office and immediately closed all his bank accounts, cancelled credit cards, stopped payment on all outstanding checks and transferred all his funds to new accounts. He notified his vendors, employees and tax authorities that outstanding checks would bounce because the accounts had been closed. He also had to reconstitute the firm’s financial records because many of them were missing. Claimant testified that he spent most of his time – 80 hours per week – working to rectify the effects of the embezzlement for weeks after it was discovered. Phone calls from potential customers went unanswered and claimant was unable to attend two trade shows for which he had registered and paid. Additionally, he asserted that some suppliers of raw materials such as steel, who had worked with him on a credit basis prior to the embezzlement, were no longer willing to extend credit. However, claimant did not provide evidence to support linkage of credit denial to substitute payment as a result of the embezzlement.

Claimant maintained that although the market for refrigeration units was good in 2000, his firm’s sales were down because he was unable to answer the phone and obtain new customers. In October 2001, the company ceased manufacturing operations allegedly because it was no longer profitable and it was unable to obtain credit. Their only business after that was supplying parts for customers who had previously purchased their products. During 2002, after manufacturing his last unit, he closed the New York business. He then moved to Florida and continued selling parts but no longer manufactured any units.

Paul Calogerakis was employed by Fleet Bank in 1998 and became acquainted with claimant when Fleet Bank gave him an $800,000 loan package including a commercial mortgage, a line of credit and equipment financing. In July 1999, Calogerakis moved to Key Bank and took claimant’s business with him. In September 2001, claimant applied for an increase in his line of credit from Key Bank, which was denied (Exhibit 12). Calogerakis explained that the reason was that the company no longer met the bank’s requirements due to deterioration of the financial statements. The bank’s letter stated that they were denying claimant any further credit because of “[i]nadequate cashflow to service debt, [i]nsufficient equity capital or down payment and [i]nsufficient collateral” (id.).

Agresto, who had a prior relationship with claimant, was asked in 2006 to calculate the damages resulting from the Raymond embezzlement. His calculations were reflected in a 15-page report dated September 27, 2006 (Exhibit 1). Agresto calculated five separate categories of losses arising from the embezzlement. “Actual Embezzlement Loss” is the amount of money taken, less the portion recovered, plus interest at 9%. “Cost of Recovering and Calculation Loss” includes the costs claimant, his employees and his accountant incurred in attempting to recover the embezzled funds. Agresto defined “Loss in Gross Profit” as “the loss of opportunity as a result of the embezzlement” (T2, p 28), essentially Agresto’s estimate of profits he projected would have been earned by the company had the embezzlement not occurred. “Loss in Wages” represents compensation that allegedly would have been earned by claimant if not for the embezzlement. “Loss in Company Value” is based on the assumption that the company ceased to be a viable corporation as a result of the embezzlement and represents Agresto’s projection of “what would the value of the business have been in 2006 if the embezzlement had not occurred” (id., p 29).

With respect to the first category, Agresto testified that the direct embezzlement loss was calculated at $71,562 and that $27,069 of the embezzled funds was recovered, leaving a net loss of $44,493. He added 9% simple annual interest to that figure to arrive at the sum of $72,524 as of December 31, 2006.

In the second category, Agresto started with the sum of $27,985 in costs incurred in attempting to recover the embezzled funds – a figure that he stated “came directly from the job cast system, which is the actual labor that I was talking about, plus the actual outside expenditures that were made” (id., pp 30-31) – and added 9% simple annual interest to that figure to arrive at a total of $43,657.

In his third category, Agresto attempted to estimate the lost gross profits for the company in the years 1999 through 2006. For each year, he compared the revenues expected by the company with and without the embezzlement. For 1999, he compared the firm’s actual gross sales of $1,798,601 (Exhibit 5) with the firm’s actual gross 1998 sales of $2,423,595 (Exhibit 3), and called the $624,994 difference “lost revenue” for 1999. [3] For 2000, he increased the expected sales without the embezzlement by 3.3% to account for inflation and compared that figure with the actual revenues earned in 2000, to arrive at a difference of $644,882 for 2000.

For the years 2001 through 2006, Agresto looked at the projected employment figures contained in claimant’s Project Payment Authorization Form (Exhibit 10, the final grant packet in connection with claimant’s grant from the State of New York). Part of that packet contained claimant’s “employment goals”; i.e., 21 full-time employees in 2001 and 2002, 34 full-time employees in 2003 and 2004 and 51 full-time employees in 2005 (Exhibit 10, p 14). He then applied those percentage growth rates to the figures he had computed for “revenues expected without embezzlement” and “revenues expected with embezzlement” and arrived at projections for lost gross profits for each year. He then multiplied each figure by 21.6%, which he arrived at by comparing the actual revenues with profits for the years 1996 through 2000. Adding those annual projections and applying a 9% annual interest rate yielded an estimate of the total gross profits lost as of December 31, 2006 of $2,605,726. (see Exhibit 1, pp 7-10).

Agresto’s fourth category was an estimation of wages that claimant personally lost for the period. He started with the figure of $56,200 which he stated was what the company paid claimant in wages in 1998. He compared that figure with what claimant was actually paid for the years 1999, 2000 and 2001, and compared it with 0 for 2002 through 2006, all of which totaled $321,369 without interest and $393,730 utilizing a 9% annual interest rate (id., pp 11-12).

The final category – the value of the company – proceeded from the presumption that the business was lost solely as the proximate result of the Raymond embezzlement. Agresto utilized two formulas – a gross profit analysis comparing gross profits to company value of similar companies, and a sales analysis, comparing revenues to company value of similar companies – averaged the two figures and estimated that the value of the business would have been $4,512,500 as of December 31, 2006 had the embezzlement not occurred.

Duff W. Driscoll, a Certified Public Accountant, was retained by defendant to review claimant’s financial documentation and Agresto’s report and provide his own analysis of the losses suffered by claimant’s business as the result of the Raymond embezzlement. His major criticism of Agresto’s analysis was that Agresto “assumed that the entire reason for Mr. Bryant’s business going out of business was because of the embezzlement by Ms. Raymond” (T2, p 169). He contended that there were other factors that likely contributed to the demise of the business, including the loss of experienced employees occasioned by the move to New York, the efforts that were necessary in training a new work force and the much higher overhead resulting from the move to New York, including the purchase of the building with the accompanying $60,000 annual mortgage payments.

Driscoll noted that Agresto’s financial analysis was “virtually completely premised on employment projections that Mr. Bryant submitted to the Economic Development Corporation” (id., p 172), noting that Agresto simply applied the projected employment growth percentages from year to year to revenues, to arrive at projected revenues for each year. He contended that there was no reason to believe that those projections had any basis in reality, and he used as an example a projected financial statement prepared by claimant in connection with a mortgage application (Exhibit 4) that showed projected net income of $240,000 for 1998 (id., p 3), when the firm’s actual net income for 1998 turned out to be $15,352 (Exhibit 3).

In addition to the effects of the move to New York, Driscoll opined that market conditions were the more likely cause of the failure of the business than the effects of the embezzlement. He testified that he had seen a financial statement that showed the company earning a profit of $45,000 to $50,000 for the first six months of 2001 and then sometime in the second half of the year manufacturing just ceased and the company shut down. Under questioning by claimant’s counsel, he also contended that any decline in revenues from 1998 to 1999 would not have been due to the embezzlement, which was discovered in January 2000, and noted that the company in fact experienced an increase in sales from 1999 to 2000 (T2, p 227).

Driscoll also took issue with Agresto’s calculation of the value of the business, contending that Agresto utilized the wrong estimated gross profit figure for 2006 ($1,727,000 instead of $445,000), resulting in his calculating the value of the business at $3,523,000 rather than $980,000 (see Exhibit 1, pp 8, 14). He also questioned the figures used by Agresto in his valuation based on projected sales, contending that the correct figures would have indicated the value of the business as $1,163,000 rather than $4,512,500.

Again addressing the baseline premise of claimant’s entire presentation – that the subject embezzlement resulted in the destruction of the company – Driscoll contended that claimant had the personal financial ability to replace the embezzled funds thereby minimizing the effect of the embezzlement on the company and that a reasonably prudent owner of a business projected to perform as well as was projected by Agresto’s analysis would not have allowed the theft of $70,000 to result in the total loss of the business.

Driscoll referred to the combined financial statements prepared by claimant’s accountants for 1999 and 2000 (Exhibit 6) that showed net income of $15,505 for 1999 (without regard to the embezzlement) and a loss of $84,418 for 2000. The statement noted that the company sustained a theft loss of approximately $71,562 in 1999 and stated that the actual cost “could have had affected the viability of the company” (id., p 5). However, claimant’s conclusory assertion as to sole proximate causation was undermined when claimant’s accountant then wrote: “As of December 2000 the company viability has been restored and the company is operating normally” (id.). The court is then left to question the causative link between the embezzlement and the termination of operations.

Driscoll did not take issue with claimant’s calculation of the net amount taken by Raymond and not recovered, or his inclusion of 9% interest, to arrive at the figure of $72,524 in net direct damages as of December 31, 2006. His only addition to that analysis was that claimant should have received a $19,000 loss on his taxes as the result of the theft of the funds, but there was no indication of the basis for, or the calculations underlying, that contention. He also did not take issue with $27,985 in costs associated with recovering the funds and reconstructing the firm’s financial records (see Exhibit 1, p 6, note 2). However, his essential contention was that damage to the company was limited to these two items – actual losses and the direct costs of addressing the embezzlement – and that any effect on the company’s cash flow, profitability or credit worthiness should have been temporary bumps in the road as opposed to the catastrophic and insurmountable burdens contended by claimant (T2, p 229).

After listening to Driscoll’s testimony that the loss of the company must have been due to factors other than the embezzlement, claimant testified in rebuttal. He addressed Driscoll’s contention that the demise of his business was the result of factors other than the Raymond embezzlement, and stated that the years 1999, 2000 and 2001 were very good years for specialty refrigeration manufacturing businesses. He also testified that he had “received statistical information from the U.S. Government” supporting this assertion (T2, p 270). No such statistical information was produced in support of claimant’s contention. He did not respond to Driscoll’s other posited reasons for his company’s difficulties after the move to New York and specifically did not refute Driscoll’s contention that he had the financial means to replace the embezzled funds so as to minimize the effects of the embezzlement on the firm’s viability. He notedly did not address his accountant’s statement that as of December 2000, the company was operating normally and its financial viability had been restored (Exhibit 6, p 5). Agresto testified in rebuttal that he did not believe that the factors accompanying the move to New York, as identified by Driscoll, were significant negative factors in the company’s financial posture.


There was no significant dispute as to the amount of direct damages sustained by claimant (the net theft loss) or as to the costs incurred in response to the loss. However, with respect to Agresto’s other three categories of damages – wages that would have allegedly been earned by claimant and profits that would have allegedly been earned by the company if not for the loss, and the alleged value that the company would have had in 2006 had it not been destroyed by Raymond’s actions – the court credits the testimony of Driscoll that these claims were arrived at by starting with a flawed premise, projecting from that premise using hypothetical and unsupportable assumptions and arriving at figures that amount, on this record, to nothing more than wishful thinking and speculation.
“In actions in tort, there are certain well-settled and universally recognized rules relating to damages recoverable . . . . The person responsible for the injury must respond for all damages resulting directly from and as a natural consequence of the wrongful act according to common experience and in the usual course of events, whether the damages could or could not have been foreseen by him. The damages cannot be remote, contingent or speculative. They need not be immediate, but need to be so near to the cause only that they may be reasonably traced to the event and be independent of other causes. The fact that they cannot be measured with absolute mathematical certainty does not bar substantial recovery if they may be approximately fixed. The damages must be compensatory only. Reasonable certainty as to the amount is all that is required . . . . The mere fact that they are based upon loss of profits per se does not bar recovery . . ., provided they are reasonably certain in amount and can be traced directly and with reasonable certainty to the accident, to the exclusion of other causes.”
Steitz v Gifford
, 280 NY 15, 20 (1939).

Cases addressing the quantum of proof required to sustain a claim for damages based on profits allegedly lost by a business typically arise in the context of claims for breach of contract rather than tort; e.g. Ashland Mgt. Inc. v Janien (82 NY2d 395 [1993]), where the Court of Appeals stated:
“Damages resulting from the loss of future profits are often an approximation. The law does not require that they be determined with mathematical precision. It requires only that damages be capable of measurement based upon known reliable factors without undue speculation . . .”
(id., at 403, citations omitted, emphasis supplied; see also Kenford Co. v County of Erie, 67 NY2d 257, 261 [1986]): “In other words, the damages may not be merely speculative, possible or imaginary, but must be reasonably certain and directly traceable to the breach, not remote or the result of other intervening causes.”

Tort damages differ from those for breach of contract in that there is no requirement that they were within the contemplation of the parties, but the principle that damages must be reasonably certain and not based on speculation is the same (see Guard-Life Corp. v Parker Hardware Mfg. Corp., 50 NY2d 183, 197 [fn. 6, citing Restatement, Torts 2d, § 774A]; Martin v Dierck Equip. Co., 43 NY2d 583, 589 [1978], noting that the purpose of damages in negligence cases is to place the injured party “in the position he occupied prior to the injury . . . to make [the] injured party ‘whole’ ”).

The court finds claimant’s position that he is entitled to awards based on the alleged value of his company, allegedly destroyed solely as the result of the Raymond embezzlement is not supported by the record. The proof was insufficient to legally establish a non-speculative causal link between claimant’s decision to cease manufacturing operations in October 2001 and Raymond’s embezzlement of $71,562 in 1999. Claimant’s position was that the company’s declining profitability, leading to his decision to stop manufacturing was based on three factors – that suppliers of raw materials were no longer willing to extend him credit and that he lost business due to being unable to answer the phone and unable to attend two trade shows. There was no proof that he was unable to complete any manufacturing contract or that he had to refuse the opportunity for any such contract, because he was unable to obtain raw materials. There was also no logical explanation of why the temporary disruption caused by the closure of a bank account, presumably followed by prompt payment of the amount due, would cause that kind of irreparable disruption in a previously solid business relationship.

More fundamentally, the contention that claimant would allow the failure of his business – allegedly worth $4.5 million – because he was too busy to answer the phone, or designate another employee to do so, for a period of months while the firm’s financial records were reconstructed, strains credulity. To the extent that the absence of the funds stolen by Raymond from the firm’s coffers is alleged to have any role, claimant did not even attempt to rebut defendant’s contention that he had ample means to replace those funds and insure the continued operation of his business.

To the contrary, the only objective demonstrable evidence in the record addressing the reason why claimant’s company ceased manufacturing operations in October 2001 was the letter from Key Bank, dated September 19, 2001, stating that the bank would not extend claimant additional credit because of “inadequate cashflow to service debt, insufficient equity capital or down payment or insufficient collateral” (Exhibit 12). There is no proof in the record linking these factors to the embezzlement of $71,562. Neither the testimony of claimant nor that of the bank officer addressed any connection whatsoever between that theft and the criteria identified in the bank’s letter. Additionally, phantom government statistics notwithstanding, claimant presented no proof in support of his assertion that business was good in 2000 and 2001 for specialty refrigeration manufacturing firms, and the court gave no weight to that testimony of general industry conditions. The court finds that claimant failed to establish any proximate causal relationship between the Raymond embezzlement and his decision to cease manufacturing operations in October 2001, and that the claim for $4.5 million in damages for the alleged value of the business, predicated on this alleged but unproven causal relationship, must fail.

The evidence in support of claimant’s request for damages based on several years of lost profits – or more properly, the arguments in support of that claim, since there was no evidence – was also insufficient and unconvincing. Agresto’s analysis in support of this claim was based on the firm’s financial statements for the years 1996 through 2000. Those records show the following, in relevant part:
  1. $1,382,327 $264,406 $ (15,676)
  2. 1,994,493 458,991 20,469
  3. 2,423,595 529,353 15,352
  4. 1,798,601 406,798 15,505
  5. 1,858,691 329,086 (84,418)
(Exhibits 2, 3 ,5, 6).

The claim for damages for lost profits was based on Agresto’s projection of what the firm’s gross profits could have been without the embezzlement, starting in 1999, which he attempted to calculate by estimating revenues (sales) for each year and multiplying that number by 21.6%, which he stated was the historical ratio of revenues to profits for the company (Exhibit 1, p 8). He estimated revenues by starting with the 1998 figure, increasing it by the rate of inflation and arriving at a projection for 1999 which he defined as “revenue expected without the embezzlement” (id., p 9). As noted previously (fn. 3), there was no basis for assuming that the firm’s 1999 gross revenues were at all affected by the embezzlement since claimant’s theory was that he lost sales because he was required to devote all his time to reconstructing his financial records. However, the embezzlement was not discovered until January 2000. That was Agresto’s first erroneous assumption.

His second error was in calculating damages based on projected gross profits without regard to the myriad of expenses that needed to be taken into account in any rational analysis. As the above table shows, the company’s significant variable expenses each year yielded substantial differences between gross and net profits.

His third analytical error was his reliance on the projected employment figures that claimant had supplied to DOL in support of his application for a grant and simply applying the rate of growth of those estimates to the 1998 gross profit figure to arrive at projections for gross profits for each year from 1999 through 2006. There was no testimony or evidence that this methodology – utilizing a theoretical number of employees a company might have five years into the future, with absolutely no indication of how the figures were determined , and then applying the rate of growth in those annual projections to revenues – is in any way an accepted method of estimating future revenues. Additionally, there was no basis whatsoever for concluding that these employment projections were any more reflective of reality than were claimant’s estimated net profits, as reflected in the November 1998 projected financial statement prepared in connection with claimant’s application for a mortgage (Exhibit 4). [4] Each and every one of these numbers were nothing more than declarations of potential results made in documents which are, by their nature, optimistic.

The conclusion that Agresto’s analysis consisted of applying faulty methodology to wholly hypothetical figures is inescapable. The result is that this “proof” is really nothing more than conjecture and speculation, falling far short of that required to sustain a claim for damages.

Moreover, Driscoll’s testimony that any loss in business experienced by the company after the move to New York could be partially explained by factors other than the embezzlement (i.e., the loss of experienced employees and additional expense of real property ownership) finds support in the financial statements submitted by claimant. The change from $15,505 in net profits in 1999 to an $84,418 loss in 2000 can just as logically be explained by $56,096 in interest expenses in 2000 (as opposed to $9,954 in 1999, the increase obviously related to the mortgage on the new building) and $18,645 in real estate taxes in 2000 (0 in 1999), as well as smaller increases in advertising, insurance and other expenses. The objective, actualized financial records of MRI are much more supportive of Driscoll’s analysis than that of Agresto.

Nevertheless, the court does accept claimant’s testimony that the efforts he was forced to devote to addressing the effects of the embezzlement, and the effects of his having to forego attending the two trade shows he had planned on attending, did have some financial impact on his business. The court finds that he is entitled to damages for some loss of profits and salary for the year 2000 during the period from discovery of embezzlement until the company viability and operation were restored to normal (Exhibit 6, p 5). The court has taken into account all of the figures shown on the financial statement for the years 1999 and 2000 (Exhibit 6), including a reduction in gross profits (before expenses) of approximately $75,000, notes that increased sales would have also increased some, but not all of the expenses, and concludes that $50,000 is an appropriate estimate of the net income lost to the company in 2000 due to the time claimant had to devote to the effects of the Raymond embezzlement. Further, based upon the historical relationship of claimant’s salary draw to gross profit of roughly 10% (Exhibit 1, p 12, Exhibits 2, 3, and 6) the court awards claimant an additional sum in the amount of $7,500 as the difference between his $35,621 salary taken in 2000 and what would have available for additional draw had the firm earned an additional $75,000 in gross profits as found above.

The court finds that claimant established damages as follows:

40% reduction for comparative fault
Net Embezzlement Loss $72,524 $43,514
Cost of Recovery 43,657 26,194
Lost Business Profits 50,000 30,000
Salary Loss 7,500 4,500

Interest on the first two amounts (totaling $69,708.00) has already been included through December 31, 2006. Thus, the Chief Clerk shall include in the judgment interest on the sum of $43,487 ($26,696 [60% of $44,493] plus $16,791 [60% of $27,985]) [5] at the statutory rate commencing January 1, 2007. With respect to the latter two amounts (totaling $34,500.00), the judgment shall include interest at the statutory rate commencing January 1, 2001. Claimant may also recover any filing fee actually paid.

The Chief Clerk is directed to enter judgment in accordance with this decision.

May 13, 2009
White Plains, New York

Judge of the Court of Claims

[1].References to the transcript of the 2003 trial will be referred to herein as “T1" and those from the 2007 trial as “T2."
[2].Such references are to the exhibits from the 2003 trial as contained in the Appendix filed with the Appellate Division, Second Department in connection with the appeal.
[3].Agresto did not explain why he attributed the difference in gross profits between 1998 and 1999 to the subject embezzlement. Claimant did not discover the embezzlement until January 2000, and claimant’s theory as to how the embezzlement impacted the business related to the time and effort he had to devote to addressing its effects. There was no evidence whatsoever that the $71,562 that was taken from the business during 1999 affected its gross profits that year nor that the decrease, when compared to the previous year, did not result from factors unrelated to the embezzlement.
  1. [4]1998: Projection, $240,000; Actual, $15,352.
1999: Projection, $474,000; Actual, $15,505.
2000: Projection, $1,170,000; Actual ($84,418).
[5].These figures represent the principal amounts of the losses without any added interest.