Yossie Hollander appeals from a judgment of the United States District Court for the Southern District of New York (Berman, /.) awarding breach of contract damages to plaintiff Oscar Gruss & Son, Inc. (“OGSI”) in the amount of $482,021.60, plus attorneys’ fees and interest, arising from Hollander’s failure to deliver warrants pursuant to an Engagement Letter. Hollander challenges the district court’s computation of damages and argues that under New York law the district court should have valued the warrants from the date of the breach. Hollander further maintains that the district court improperly awarded attorneys’ fees to OGSI based on an erroneous interpretation of the third-party indemnification clause in the Engagement Letter.
Because the district court should have calculated OGSI’s damages from the date of the breach and because it improperly awarded attorneys’ fees to OGSI, we affirm in part, vacate in part, and remand with instructions to determine the date of breach and to recompute OGSI’s breach of contract damages accordingly.
BACKGROUND
In 1983 Yossie Hollander founded Fourth Dimension Software Ltd., a private Israeli software corporation. He later renamed it New Dimension Software Ltd. (“4D”). In late 1992, 4D went public in an initial public offering (the “IPO”). After the IPO, Hollander owned about 34% of 4D’s stock, while Roni Einav and Dalia Prashker-Katzman together controlled another 34%. The remaining 32% of the stock was publicly traded on the NASDAQ market.
Following the IPO, Hollander’s relationship with Einav and Prashker-Katzman soured. In late 1994, Hollander resigned from 4D’s Board of Directors and was terminated as Chief Executive Officer (“CEO”). He kept his 34% stock interest, however.
*190 Hollander wanted to reacquire control of 4D. He began negotiating the terms of an engagement letter with Oscar Grass & Son, Inc. (“OGSI”), a small New York investment banking firm. On February 3, 1995, OGSI and Hollander came to an agreement (the “Engagement Letter”).
A.The Engagement Letter
The Engagement Letter provided that Hollander was hiring OGSI on an exclusive basis to render financial advisory services in connection with Hollander’s attempt to acquire more shares of 4D. The letter included OGSI’s obligations: (1) to provide advisory services, general business and financial analysis, transaction feasibility analysis and pricing; (2) to assist in negotiations and related strategy; (3) to act as dealer/manager in any tender offer; (4) to assist in corporate capital planning; (5) to provide a fairness opinion; and (6) to use its best efforts to raise between $20 and $25 million to reacquire 4D stock,
OGSI had initially asked for a $100,000 retainer, but Hollander balked at so large an initial cash outlay. The Engagement Letter thus provided that Hollander would pay OGSI a retainer of only $50,000 in cash but would give OGSI warrants, which “shall vest immediately upon signing this Agreement,” to acquire 25,000 shares of 4D common stock held by Hollander. OGSI could not exercise the warrants before January 1, 1998, but could exercise them at a price of $4.30 per share any time thereafter.
Hollander would retain the right to buy back the warrants any time during the four-year period commencing February 5, 1995 whenever the market price of 4D stock exceeded twice the exercise price for the warrants (i.e., reached $8.60 per share). The cost to Hollander to buy back the warrants would be the current market price for 4D common stock minus the $4.30 exercise price. On January 2, 1997, 4D’s common stock closed above $8.60.
In 1995 and 1996 OGSI conveyed most of its interest (88.47%) in the warrants to six (6) present and former employees of OGSI. Significantly, OGSI retained an 11.53% interest in the warrants.
The Engagement Letter also provided that OGSI was entitled to reimbursement from Hollander for OGSI’s reasonable expenses in connection with its services — up to a maximum of $10,000. In 1995, OGSI billed Hollander $5,454.04 for expenses, but was never paid.
The district court found that OGSI performed its obligation under the Engagement Letter. Specifically, OGSI had introduced Hollander to potential investors and sources of financing, had created and distributed an “investor memorandum” to potential investors, and had met with Ei-nav and Prashker-Katzman.
B. Hollander’s Failure to Deliver Warrants
Hollander did pay OGSI the $50,000 retainer fee in cash, but he never delivered the warrants to OGSI. In February 1997, OGSI demanded delivery of the warrants. Hollander responded that “[w]hile you may believe that payment was not dependent upon the successful completion of the transaction for which I engaged the services of OGSI, it is undeniable that payment for such services was indeed dependent upon such services being rendered.” (emphasis added). In March 1997, OGSI threatened litigation.
C. BMC Tender Offer
OGSI was unsuccessful in its efforts to assist Hollander in reacquiring control of 4D. Then, in 1999, BMC Software, Ltd. (“BMC”) made a tender offer for 4D’s shares. BMC was successful and acquired *191 all the outstanding shares of 4D common stock (including Hollander’s) at a price of $52.50 per share.
D. Procedural History
Because of Hollander’s refusal to deliver the warrants, OGSI sued for breach of contract in the United States District Court for the Southern District of New York (Berman, /.). Diversity jurisdiction was alleged. Hollander disputed diversity, alleging that a non-diverse necessary co-plaintiff had not been joined. Hollander also counterclaimed for breach of contract, breach of the implied covenant of good faith and fair dealing, fraudulent induce; ment, negligent misrepresentation, and breach of fiduciary duty.
The district court determined that it had subject matter jurisdiction under 28 U.S.C. § 1332(a) because the parties were diverse. Hollander had argued that diversity jurisdiction was destroyed because one of the six (6) former employees to whom OGSI assigned an interest in the 4D warrants was, like Hollander himself, a citizen of Israel throughout the course of the litigation. Rejecting Hollander’s contention, the district court found that all six (6) employees signed a Letter Agreement, dated July 23, 1998 (“Letter Agreement”), vesting OGSI with authority to commence litigation and to make all decisions relating to enforcement of the Engagement Letter. Diversity jurisdiction was therefore proper.
After discovery, plaintiff OGSI moved for summary judgment. Defendant Hollander opposed the motion and cross-moved for partial summary judgment. The district court granted OGSI’s motion, finding that the Engagement Letter required Hollander to deliver the warrants to OGSI “shortly after the execution of the Engagement Letter.” As a result of his failure to do so, the district court concluded that Hollander “unequivocally” breached the Engagement Letter.
The district court also dismissed Hollander’s counterclaims for breach of contract and breach of the implied covenant of good faith and fair dealing. It reserved for trial the issue of damages and three of Hollander’s counterclaims: fraudulent inducement, negligent misrepresentation, and breach of fiduciary duty.
A bench trial was then held to determine OGSI’s damages and to rule on Hollander’s surviving counterclaims. Based upon documentary evidence and witness testimony, the district court dismissed all of Hollander’s counterclaims.
E. Value of the Warrants
In valuing the warrants, the district court also made a determination as to how long OGSI would have held the warrants before exercising them. The court noted that since April 1996, Michael Shaoul, OGSI’s Chief Operating Officer, was primarily responsible for implementing OGSI’s warrants practices. Shaoul testified that he closely followed 4D stock from the day he was employed by OGSI until the BMC tender offer was consummated in April 1999. Shaoul also stated that OGSI would have held the 4D warrants for at least fourteen (14) months after the initial exercise date of January 1, 1998 — just about the time of the BMC tender offer. The district court credited Shaoul’s conclusion that the 4D warrants were “a particularly suitable security to hold for long term appreciation.”
Based largely on the testimony of Michael Shaoul, the district court concluded that OGSI would have held the warrants for the longest term possible. The district court determined that April 9, 1999 was “[t]he appropriate date to fix the value of OGSI’s 11.53% share of the warrants [be *192 cause this date] is the most likely date on which OGSI would have exercised the warrants.” On April 9, 1999, the date of the BMC tender offer, the warrants were valued at $52.50. Thus, the district court determined the value of OGSI’s 11.58% interest to be $151,357.50.
As to the remaining 88.47% interest in the warrants, the district court determined that there was “little or no evidence” as to when any of the individual assignees would have sought to exercise their warrants. The court set the date for determining the value of the remaining 88.47% of the warrants at the “reasonable ‘intermediate’ date” of January 1, 1998 — the first date on which the individuals would have been able to exercise the warrants. The market price on January 1, 1998 was $19.25, and the individual warrant value was $14.95. The value of 88.47% of 25,000 warrants was therefore $330,664.10.
The district court found that there was “little or no evidence” to support Hollander’s assertion that he would have exercised the buy-back provision of the Engagement Letter before it expired on February 5, 1999.
F. Interest and Expenses
The district court determined that OGSI was owed interest on the sum of $151,357.50 from April 9, 1999. As to the individual warrant holders, the district court found they were entitled to interest on the sum of $330,664.10 from January 1, 1998.
The district court also awarded OGSI expenses in the sum of $5,454.04 and attorneys’ fees in the amount of $277,562.78. In support of its finding that OGSI had the right to attorneys’ fees, the district court cited the indemnification provision contained in the Engagement Letter. Despite this, the district court directed the parties to appear before Magistrate Judge Douglas F. Eaton for “final computation and/or confirmation of expenses, legal fees and interest.”
After further briefing by the parties, Magistrate Judge Eaton issued a Report and Recommendation (“Report”) suggesting that the district court: (1) deny prejudgment interest and compute interest on attorneys’ fees and expenses from July 23, 2001 (the date the district court decision was filed); and (2) provide post-judgment interest. The district court adopted the Report, except as to the date for the accrual of interest on attorneys’ fees. The district court found that Hollander’s obligation to pay attorneys’ fees arose from his failure to deliver the warrants to OGSI. The court stated that under New York CPLR § 5001(a), pre-judgment interest was due on attorneys’ fees actually paid by OGSI. Accordingly, the court measured pre-judgment interest from the date OGSI first paid its attorneys (June 9,1998).
G. Judgment
Thereafter, the district court entered judgment against Hollander for $482,021.60, plus interest of $154,939.38. OGSI was also awarded $5,454.04 for reimbursable expenses under the Engagement Letter, plus interest of $2,200.00. The district court awarded OGSI $400,000.00 in attorneys’ fees and expenses, plus interest of $44,366.93. The award to OGSI, including costs, totaled $1,089,001.95, with the accrual of interest commencing seven (7) days from the date of judgment. Hollander stipulated to the accuracy of all figures, reserving his right to appeal only (a) the valuation date of the warrants, and (b) OGSI’s right to attorneys’ fees and prejudgment interest.
Hollander filed a timely appeal. OGSI filed a cross-appeal contending that the warrants held by individual employees of *193 OGSI should have been valued as of the tender offer, rather than on January 2, 1998.
DISCUSSION
On appeal from a bench trial, we review the district court’s findings of fact for clear error and its conclusions of law
de novo. See Mobil Shipping & Transp. Co. v. Wonsild Liquid Carriers, Ltd.,
Under the clear error standard, we “may not reverse [a finding] even though convinced that had [we] been sitting as the trier of fact [we] would have weighed the evidence differently.”
Anderson v. Bessemer City,
I. Subject Matter Jurisdiction — Diversi ty
Hollander, an Israeli citizen, renews his claim on appeal that the district court lacked subject matter jurisdiction. He asserts that all six (6) OGSI employees to whom 88.47% of the warrants were assigned were real parties in interest and had to be joined in this litigation. He notes, however, that because one of the employees, Eddy Shalev, is a citizen of Israel and held 33.3% of the warrants, his joinder would destroy diversity of citizenship. We disagree.
Failure of subject matter jurisdiction, of course, is not waivable and may be raised at any time by a party or by the court
sua sponte. Lyndonville Sav. Bank & Trust Co. v. Lussier,
Federal courts have diversity jurisdiction over controversies between “citizens of different States.” 28 U.S.C. § 1332(a)(1); U.S. Const. art. III, § 2. It is firmly established that “citizens” for purposes of a federal court’s diversity jurisdiction “must be real and substantial parties to the controversy.”
Navarro Sav. Assn. v. Lee,
Rule 17(a) of the Federal Rules of Civil Procedure requires that “[e]very action shall be prosecuted in the name of the real party in interest.” Fed.R.Civ.P. 17(a). This means that an “action must be brought by the person who, according to the governing substantive law, is entitled to enforce the right.” 6A Charles Alan Wright, et al., Federal Practice & Procedure § 1543, at 334 (2d ed.1990). Rule 17 does not, however, affect jurisdiction and relates only to the determination of proper *194 parties and the capacity to sue. 4 James William Moore, et al., Moore’s Federal Practice § 17.13[1] (3d ed.1999).
The Supreme Court has noted that although there exists a “ ‘rough symmetry’ between the ‘real party in interest’ standard of Rule 17(a) and the rule that diversity jurisdiction depends upon the citizenship of real parties to the controversy ... the two rules serve different purposes and need not produce identical outcomes in all cases.” Navarro,
To establish whether a plaintiff is a “real and substantial party to the controversy,” a crucial distinction must be made between a plaintiff who sues solely in his capacity as an agent, on the one hand, and, on the other, a plaintiff who sues not only as an agent, but also as an individual who has his own stake in the litigation. Hollander correctly notes that where a plaintiff brings a suit solely in his representative capacity, the citizenship of the represented party, and not that of the representative, controls. Moore’s Federal Practice, supra § 17.13[2][b].
This distinction animates
Airlines Reporting Corp. (ARC) v. S & N Travel, Inc.,
Here, OGSI retained an 11.53% interest in the warrants. It suffered a pecuniary loss and is entitled to a portion of the damages award.. As such, unlike ARC, OGSI is not “a mere conduit” but possesses a valid stake in the litigation sufficient to be considered a “real and substantial” party for diversity purposes.
Hollander’s reliance on
E.R. Squibb & Sons, Inc. v. Accident and Casualty Insurance Co.,
Following
Squibb I,
the parties stipulated that the original defendant (who was now dead) had been an underwriter and a British subject, and had appeared in the action both “in his individual capacity, and for administrative convenience, as a representative of all ... [underwriters.”
E.R. Squibb & Sons, Inc. v. Accident and Casualty Insurance Co.,
*195 In a renewed appeal (Squibb II), we held that because the defendant lead underwriter had been sued solely in his individual capacity, only his citizenship, and not that of the individual underwriters in the syndicate, needed to be considered for diversity purposes. Id. at 162. We found that each of the underwriters would be bound by the judgment against the individual defendant and that, given the unique structure of the syndicate, this was sufficient to protect the interests of all parties. Id.
“[W]here multiple parties all have a financial interest in a lawsuit, a strategic choice of parties in order to maintain diversity is
not
considered to be collusive so long as the party chosen to bring the suit is in fact the
master of the litigation.” Transcontinental Oil Corp. v. Trenton Prods. Co.,
One of the defendants entered into an agreement with the plaintiff under which the syndicate was to receive 650,000 shares of stock. Upon defendant’s failure to deliver the stock, the plaintiff, a citizen of Connecticut, brought a breach of contract action against the defendant, a New York citizen. Plaintiff sued individually “and as nominee” of the syndicate. The defendant challenged the court’s diversity jurisdiction. We affirmed the district court’s conclusion that diversity existed because the plaintiff, rather than the eleven (11) non-diverse syndicate members, was “master of the litigation.” Id. at 103 (citations omitted). Specifically, the district court cited, among other things, that the plaintiff: (1) had negotiated and signed the agreement that was the subject of the action; (2) was most familiar with the matters in the suit; and (3) had a real and substantial financial interest in the outcome of the litigation. Accordingly, the district court found that the plaintiff was “no mere formal party.” Id.
Here, the agreement entered into between OGSI and its former employees gave OGSI the express power to act on their behalf with regard to their rights in the warrants. The Letter Agreement vested OGSI with authority to “take such action as it may deem to be necessary or appropriate, in the exercise of its discretion, including commencing litigation, in order to attempt to enforce its rights under the Engagement Letter,” and provided that “OGSI will make all decisions relating to the manner in which its rights under the Engagement Letter will be enforced and maintained and the attorneys who will act for it in connection therewith.” Under the terms of the Letter Agreement, OGSI was clearly intended to be the “master of the litigation.” Therefore, Shalev’s citizenship is of no consequence to subject matter jurisdiction.
OGSI is incorporated and has its principal place of business in New York. In its decision, the district court made an explicit finding of fact that “at all relevant times ... Hollander was a resident and domiciliary of Israel.” Therefore, as between OGSI and Hollander, the district court properly found the necessary diversity of citizenship.
II. Valuation of Damages for the Warrants
The principal grist for this appeal is the scope and measure of damages awarded to *196 OGSI for Hollander’s breach of the Engagement Letter.
“Although the amount of recoverable damages is a question of fact, ‘the measure of damages upon which the factual computation is based is a question of law.’ ”
Wolff & Munier, Inc. v. Whiting-Turner Contracting Co.,
A. OGSI Warrants
The district court calculated OGSI’s damages from the date of the BMC tender offer, rather than the date of Hollander’s breach. The district court reasoned that “the most reasonable date to fix for the value of OGSI’s percentage of the warrants is April 9, 1999, the date of consummation of the BMC tender offer at a price of $52.50 in cash.”
Hollander contends that the district court erred in determining that OGSI would have held the warrants for the longest term possible and improperly computed OGSI’s breach of contract damages from the date of the BMC tender offer, rather than from the date of his breach. We agree that damages are properly measured from the date of the breach.
The contract provided that it would be governed by New York law. This is not disputed by either party. Under New York law, damages for breach of contract should put the plaintiff in the same economic position he would have occupied had the breaching party performed the contract.
See Indu Craft, Inc. v. Bank of Baroda,
Admittedly, we have allowed damages to be measured at a later date in cases of conversion. In such cases, damages may be measured by “ ‘the highest intermediate value of the stock between the time of the conversion and a reasonable time after the owner has received notice of it to enable him to replace the stock.’ ”
Schultz v. Commodity Futures Trading Comm’n,
Ours, of course, is not a conversion case. In
Lucente v. International Business Ma
*197
chines Corp.,
Paragraph 5(a) of the Engagement Letter provided that, upon signing the Engagement Letter, Hollander was to pay OGSI a retainer of $50,000 in cash and deliver warrants that “shall vest immediately upon signing of this Agreement.” This provision entitled OGSI to acquire 25,000 shares of 4D common stock. Similar to a stock option, a warrant is defined as “any ... certificate evidencing a right to subscribe to or otherwise acquire another security, issued or unissued.” 17 C.F.R. § 240.12a-4(a)(1). It is undisputed that Hollander refused to deliver the warrants. This refusal was in breach of the Engagement Letter.
Based on clear New York law, the proper valuation for the warrants was the date of the breach — the date Hollander failed to deliver the warrants.
See Simon,
Not surprisingly, OGSI contends that it should get the benefit of the higher valuation of the warrants at the date of the tender offer because it would have held the warrants longer. In support of this valuation, the district court and OGSI rely on
Commonwealth
Assocs.
v. Palomar Med. Techs., Inc.,
In Commonwealth, the breach occurred when the defendant failed to honor the plaintiffs request for registration and issuance of the shares. The plaintiff did not learn of the defendant’s repudiation of the contract until that time. See id. Because the defendant continued to pay the plaintiff for financial consultation, the plaintiff was justified in assuming that the defendant would honor its obligation with regard to the warrants. See id.
In the present case, however, the relevant breach occurred when Hollander *198 failed to deliver the warrants. Unlike the plaintiff in Commonwealth, OGSI knew immediately that Hollander had breached. Commonwealth is simply inapposite.
. In sum, the district court erred in valuing the warrants as of the date of the consummation of the BMC tender offer. The appropriate date for measuring OGSI’s damages is the date of the breach.
It is noteworthy that the Engagement Letter did not expressly require immediate physical delivery of the warrants upon signing. Rather it stated that the warrants “shall vest immediately upon signing this Agreement.” There is some indication that the parties believed that the warrants were to be delivered immediately. The district court found that the Engagement Letter was breached, “shortly after the execution of the Engagement Letter.” Hollander testified that the contract language stating that the warrants would vest immediately “meant that [OGSI] would receive the 25,000 warrants immediately upon signing the agreements.” Craig Newman, OGSI’s general counsel, testified that the warrants were due in February 1995 and that he “considered it a breach of the engagement letter when [Hollander] didn’t deliver the warrants .... ” However, the exact date of the breach — the date from which damages should be calculated — was not determined by the district court, nor was it thoroughly briefed by the parties on this appeal.
For this reason, we vacate in part and remand to the district court with instructions to determine the date of breach and to recompute OGSI’s breach of contract damages accordingly.
B. Individual Employee Warrants
The district court valued the warrants held by the six (6) former employees of OGSI as of January 1, 1998, the first date the warrants were exercisable. For the reasons previously discussed, the warrants in the hands of the assignees should be valued in the same way as those retained by OGSI. Thus, the date of the breach by Hollander, as determined by the district court on remand, is the appropriate date for valuation of all the warrants.
C. Hollander’s Buy-Back Option
Hollander contends that the district court also erred in determining that he would not have exercised his right under the Engagement Letter to buy back the warrants. Because we find that OGSI’s breach of contract damages should be measured from the date of the breach, there is no need to reach this issue.
III. Attorneys’Fees
The district court awarded attorneys’ fees to OGSI based on the indemnification clause in the Engagement Letter. Hollander contends that this provision applies to third-party claims only. The district court interpreted it to include the award of fees for suits between the parties to the Engagement Letter, rather than just suits by third parties. We agree with Hollander.
The traditional standard of review of an award of attorneys’ fees is highly deferential to the district court. Where, however, an appellant’s contention on appeal regarding an award of attorneys’ fees is that the district court made an error of law, “the district court’s rulings of law are reviewed
de novo.” Baker v. Health Mgmt. Sys., Inc.,
We review the district court’s interpretation of contracts
de novo. See Lee v. Bsb Greenwich Mortgage Ltd. P’ship,
At issue on appeal is whether the indemnification provision contained in the Engagement Letter applies only to claims brought by third parties or also applies to claims brought between the parties to the agreement. The indemnification provision is found in paragraph 7(b) of the Engagement Letter and requires Hollander to:
reimburse the Advisor promptly for any legal or other expenses reasonably incurred by it in connection with investigating, preparing to defend or defending, or providing evidence in or preparing to serve or serving as a witness with respect to, any lawsuits, investigations, claims or other proceedings arising in any manner out of or in connection with the rendering of services by the Advisor hereunder (including, without limitation, in connection with the enforcement of this Agreement and the indemnification obligations set forth herein).
(emphasis added).
Under the general rule in New York, attorneys’ fees are the ordinary incidents of litigation and may not be awarded to the prevailing party unless authorized by agreement between the parties, statute, or court rule.
See Bourne Co. v. MPL Communications, Inc.,
Promises by one party to indemnify the other for attorneys’ fees run against the grain of the accepted policy that parties are responsible for their own attorneys’ fees.
See id.
at 492,
OGSI bottoms its argument on the parenthetical clause it has italicized in para *200 graph 7(b): all actions “including, without limitation, in connection with the enforcement of this Agreement.”
Paragraph 7(a) of the Engagement Letter requires Hollander to indemnify OGSI for any claims, liabilities, or damages resulting from OGSI’s services, unless caused by OGSI’s gross negligence or willful misconduct. We read this section as referring only to third-party claims against OGSI. The next section, Paragraph 7(b), (1) refers to reimbursement of expenses in connection with such claims; (2) provides OGSI with a right to separate counsel in connection with any matters in which indemnification is sought; (3) gives Hollander the right to notice of any indemnification claim and an opportunity to assume OGSI’s defense; and (4) requires Hollander to obtain the prior written consent of OGSI before settling any lawsuits. Paragraph 7(b) indisputably applies solely to third-party claims. We read paragraph 7(a) in the same light.
See Bourne,
The New York Court of Appeals decision in
Hooper Assoc., Ltd. v. AGS Computers, Inc.,
The court further reasoned that “[t]o extend the indemnification clause to require defendant to reimburse plaintiff for attorney[s’] fees in the breach of contract action against defendant would render these provisions meaningless because the requirement of notice and assumption of the defense has no logical application to a suit between the parties.”
Id.
at 492-93,
Accordingly, we vacate the district court’s award of attorneys’ fees to OGSI.
IV. Pre-Judgment Interest
Because the district court improperly awarded attorneys’ fees under the indemnification clause contained in the Engagement Letter there is no need to address the issue of prejudgment interest on such fees.
*201 CONCLUSION
For the reasons stated herein, we AFFIRM the district court’s decision that it had subject matter jurisdiction, but VACATE the district court’s:
1. determination that the proper date to value the damages for Hollander’s failure to deliver 4D warrants was the date of the consummation of the BMC tender offer (April 9, 1999), rather than the date of breach;
2. determination that the third-party indemnification clause in the Engagement Letter permitted an award of attorneys’ fees for suits between the parties; and
Remand the case with instructions to determine the date of breach and to recompute OGSI’s contract damages from that date.