Ipcon Collections LLC v. Costco Wholesale Corp.
2012 U.S. App. LEXIS 20944
| 2d Cir. | 2012Background
- Ipcon Appeals from district court's dismissal of action against Costco on arbitration grounds.
- Leadsinger and Costco entered a series of consignment contracts; each contract required arbitration of disputes.
- Ipcon is successor-in-interest to Leadsinger and asserts Costco never intended to honor the contracts.
- Ipcon's complaint alleged six counts including fraud and fraud in the inducement.
- District court held Ipcon's fraud-in-the-inducement claim not a valid defense to arbitration and dismissed in favor of arbitration.
- Ipcon challenged the arbitration clause on grounds of invalid contracts; Costco sought Rule 11 sanctions and Rule 38 sanctions on appeal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether arbitration applies to Ipcon's claims about formation. | Ipcon: contracts void for lack of meeting of minds. | Costco: contracts valid; fraud-in-the-inducement claims must go to arbitrator. | Arbitration applies; claims belong to arbitrator. |
| Whether Ipcon's claims are fraud in the inducement or fraud in the factum. | Ipcon: fraud in inducement; Costco knew of non-performance. | Costco: fraudulent inducement standard applies; not fraud in the factum. | Claims are fraud in the inducement, not fraud in the factum; arbitrator decides. |
| Whether the district court abused its discretion by denying Rule 11 sanctions and sanctions under Rule 38. | Ipcon: sanctions unwarranted; arguments not frivolous. | Costco: district court abused discretion; sanctions warranted. | Rule 11 sanctions denied; Rule 38 sanctions denied. |
Key Cases Cited
- Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (U.S. 2006) (arbitrability challenges limited to arbitration clause and contract formation)
- Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (U.S. 1967) (fraud in the inducement generally for arbitration)
- Telenor Mobile Commc’ns AS v. Storm LLC, 584 F.3d 396 (2d Cir. 2009) (limited exception when disputing whether a contract was ever made)
- Express Indus. & Terminal Corp. v. N.Y. State Dep’t of Transp., 93 N.Y.2d 584 (N.Y. 1999) (objective meeting of the minds formed contracts look to offer/acceptance)
- Hetchkop v. Woodlawn at Grassmere, Inc., 116 F.3d 28 (2d Cir. 1997) (fraud types in contract formation)
- Revak v. SEC Realty Corp., 18 F.3d 81 (2d Cir. 1994) (fraud in the factum distinguished from inducement)
- Gurary v. Winehouse, 235 F.3d 792 (2d Cir. 2000) (sanctions under Rule 11 not mandatory)
- Eastway Constr. Corp. v. City of New York, 762 F.2d 243 (2d Cir. 1985) (precedent on Rule 11 sanctions)
- Norris v. Grosvenor Mktg. Ltd., 803 F.2d 1281 (2d Cir. 1986) (precedent on Rule 11 sanctions)
- Johnson v. Nextel Commc’ns, Inc., 660 F.3d 131 (2d Cir. 2011) (fraud elements and standard in inducement cases)
- Ross v. Louise Wise Servs., Inc., 8 N.Y.3d 478 (N.Y. 2007) (elements of fraud in the inducement)
- Storey v. Cello Holdings, L.L.C., 347 F.3d 370 (2d Cir. 2003) (sanctions standards under Rule 11)