Busrel Inc. v. Dotton
1:20-cv-01767-CCR
| W.D.N.Y. | Jul 15, 2021Background
- Busrel Inc., a Canadian PPE buyer, entered a Bill of Sale (April 14, 2020) to buy N95 and 3‑ply masks for $8,200,000 from KRP Holdings LLC; Julie Dotton signed as "Seller."
- An escrow agreement resulted in the escrow agent releasing the $8.2M to an SBM Holdings, LLC Citibank account on Dotton's instruction; no PPE was ever delivered.
- After delivery failed, Dotton/KRP agreed to refund; thereafter Dotton and SBM (through Jonathan Cannon) made repeated assurances about refund mechanisms (LOCs, bonds, payment plans) while producing little return—only $250,000 paid.
- Plaintiff alleges Dotton and KRP made false pre‑contract and post‑contract statements to induce the sale and later to delay litigation; it alleges SBM knew of and assisted the scheme.
- Plaintiff sued for breach of contract (Bill of Sale and repayment plan), fraudulent inducement, unjust enrichment, breach of implied covenant, and aiding & abetting fraud; defendants moved to dismiss.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Individual liability of Dotton for breach of Bill of Sale (Count I) | Dotton signed as Seller; therefore individually liable | Dotton should not be personally liable absent veil piercing | Denied dismissal: signing as Seller sustains Count I against Dotton |
| Individual liability of Dotton for breach of repayment plan (Count II) | Dotton participated in repayment negotiations | Dotton not a party to the repayment plan; veil‑piercing allegations are conclusory | Granted dismissal as to Dotton: veil‑piercing allegations insufficient |
| Enforceability of repayment plan against KRP (Count II) | Repayment plan is a contract | Repayment plan lacked new consideration and merely restated preexisting obligation | Granted dismissal as to KRP: repayment plan unenforceable for lack of consideration |
| Fraudulent inducement (Count III) — pre‑contract vs post‑contract statements | Misrepresentations induced the purchase and later induced delay in suing | Representations duplicative of contract terms or promises to perform—cannot sustain fraud | Granted in part/Denied in part: pre‑contract statements tied to contract terms dismissed; post‑contract material misstatements (to delay refund/litigation) survive |
| Aiding & abetting fraud against SBM (Count VII) | SBM (via Cannon) concealed receipt of funds and made false refund assurances, substantially assisting the fraud | SBM lacked actual knowledge and substantial assistance; actions were too attenuated | Denied dismissal: complaint sufficiently pleads SBM's knowledge and substantial assistance and causation (except lost‑profits aspects) |
| Unjust enrichment against defendants | Defendants were enriched at Busrel's expense by retaining $8.2M | Unjust enrichment barred by express contract and/or too attenuated a relationship for SBM | Granted in part/Denied in part: unjust enrichment dismissed only insofar as it duplicates the Bill of Sale; otherwise plausible against defendants including SBM |
| Lost profits / consequential damages | Busrel seeks lost profits from non‑delivery | Damages not within parties' contemplation; fraud remedies limited to out‑of‑pocket; unjust enrichment not a source for lost profits | Granted dismissal: consequential damages and lost profits not recoverable here |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standard: legal conclusions vs. factual allegations and plausibility)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard governing Rule 12(b)(6))
- Bridgestone/Firestone, Inc. v. Recovery Credit Servs., Inc., 98 F.3d 13 (2d Cir. 1996) (fraud claims that merely restate contractual promises are generally not actionable)
- Wall v. CSX Transp., Inc., 471 F.3d 410 (2d Cir. 2006) (a collateral future promise made with preconceived intent not to perform can support fraud)
- Krys v. Pigott, 749 F.3d 117 (2d Cir. 2014) (elements for aiding and abetting fraud: fraud, defendant's knowledge, substantial assistance)
- Lerner v. Fleet Bank, N.A., 459 F.3d 273 (2d Cir. 2006) (substantial assistance and particularity under Rule 9(b))
- Georgia Malone & Co. v. Rieder, 973 N.E.2d 743 (N.Y. 2012) (elements and nature of unjust enrichment/quasi‑contract)
- Tractebel Energy Mktg., Inc. v. AEP Power Mktg., Inc., 487 F.3d 89 (2d Cir. 2007) (scope of implied covenant of good faith and fair dealing)
- Dalton v. Educ. Testing Serv., 663 N.E.2d 289 (N.Y. 1995) (limits on implying obligations inconsistent with contract terms)
- Harris v. Provident Life & Acc. Ins. Co., 310 F.3d 73 (2d Cir. 2002) (implied covenant claim is duplicative where based on same facts as breach of contract)