Facts
- Tyrrell Brown, while incarcerated, alleges that defendants Matthew Dobos and Colleen Gallagher accessed his sensitive medical records without consent, constituting a privacy violation [lines=“34-36”].
- Brown sought medical attention for ear and stomach issues and filed several administrative requests for better medical care [lines=“38-39”].
- Brown submitted a letter to Gallagher expressing dissatisfaction with his medical treatment, which prompted Gallagher to detail the care Brown had received, including mental health treatment [lines=“44-56”].
- Dobos accessed Brown’s medical files in response to an Inmate Request about ongoing health issues, mentioning Brown’s mental health treatment in his response [lines=“68-74”].
- Brown filed cross-motions for summary judgment after his claim was limited to the Fourteenth Amendment privacy allegation against Dobos and Gallagher [lines=“96-97”].
Issues
- Whether Brown's privacy rights under the Fourteenth Amendment were violated when his medical records were accessed and discussed by the defendants [lines=“84-86”].
- Whether Brown exhausted his administrative remedies before filing this civil rights lawsuit [lines=“290-291”].
Holdings
- The court found that no violation of Brown's privacy rights occurred since his claims were not adequately notified through the required administrative processes [lines=“391-392”].
- The court held that Brown failed to exhaust his administrative remedies for the privacy claim, thereby granting the defendants' motion for summary judgment [lines=“401-403”].
OPINION
PROTEX INDUSTRIAL (H.K.) LTD. v. VINCE HOLDING CORP., VINCE LLC, REBECCA TAYLOR INC., and REBECCA TAYLOR RETAIL STORES LLC
Case 1:23-cv-01793-MKV
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
September 11, 2024
MARY KAY VYSKOCIL, United States District Judge
OPINION AND ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS CLAIMS AGAINST THE VINCE DEFENDANTS
MARY KAY VYSKOCIL, United States District Judge:
Plaintiff Protex Industrial (H.K.) Ltd. (“Plaintiff“) brings this diversity action against Vince Holding Corp., Vince LLC (together, the “Vince Defendants“), Rebecca Taylor Inc., and Rebecca Taylor Retail Stores LLC (together, “Rebecca Taylor“) (and collectively, “Defendants“), alleging various state law claims against them, including breach of contract, fraud by material omission, negligent misrepresentation, quantum meruit, and unjust enrichment. The Vince Defendants now move to dismiss all claims against them pursuant to
Underlying Factual Background
The New York-based Rebecca Taylor Defendants have been a customer of Plaintiff, a Hong King-based garment manufacturer, for the last nine years. TAC ¶¶ 1, 14, 15. Over the course of their nine-year business affiliation, Plaintiff and the Rebecca Taylor Defendants developed a “valued and trusted relationship.” TAC ¶ 17.
In November 2019, Vince Holding Corp. (“Vince Holding“), a global contemporary group led primarily by the Vince clothing brand, acquired Defendant Rebecca Taylor Inc. TAC ¶¶ 10, 16. The Complaint provides detailed allegations in an attempt to explain the ownership structure of the Vince Defendants and the Rebecca Taylor Defendants. TAC ¶¶ 7–13. To summarize, Defendant Vince LLC is a Delaware limited liability company whose sole member is Vince Intermediate Holding, LLC (another Delaware limited liability company), whose sole member, in turn, is Defendant Vince Holding (together, the “Vince Defendants“). TAC ¶ 8. Defendant Rebecca Taylor Inc. is a New York corporation and the sole member of Defendant Rebecca Taylor Retail Stores LLC (the “Rebecca Taylor Defendants“). TAC ¶¶ 9, 10.
Plaintiff alleges that after Vince Holding acquired Rebecca Taylor Inc., the Rebecca Taylor Defendants—by virtue of the sole membership of Rebecca Taylor Inc. in Rebecca Taylor Retail
Plaintiff alleges that after the Vince Defendants acquired exclusive control of the Rebecca Taylor Defendants, the Rebecca Taylor Defendants were treated not as separate entities, but as part of the Vince company brand and global contemporary group. TAC ¶ 10. For example, Plaintiff alleges that the Rebecca Taylor Defendants are controlled and managed by the Vince Defendants, and monies and assets of the Rebecca Taylor Defendants have been commingled and intermingled with the Vince Defendants’ funds and obligations. TAC ¶ 13. Plaintiff further alleges that the Vince Defendants have sold certain assets of the Rebecca Taylor Defendants, and then used those assets and funds to pay obligations of the Vince Defendants. The Vince Defendants also allegedly have caused the Rebecca Taylor Defendants to guarantee loans to the Vince Defendants. TAC ¶ 13.
Plaintiff alleges that after the Vince Defendants’ acquisition of the Rebecca Taylor Defendants in 2019, the Vince Defendants continued utilizing Plaintiff from 2019 through 2022 for the manufacture of garments for the Rebecca Taylor Defendants. TAC ¶ 16. Plaintiff alleges that “[b]ased upon the valued and trusted relationship between [Plaintiff] and [the Rebecca Taylor Defendants],” Plaintiff extended the “same courtesies and trust” to the Vince Defendants. TAC ¶ 18. In July 2020, purportedly at the request of the Vince Defendants, Plaintiff signed a set of “Terms and Conditions” for the continued manufacture of products for both the Vince Defendants and the Rebecca Taylor Defendants. TAC, Exhibit 1 (“Terms and Conditions“). The Terms and Conditions, in relevant part, state the following:
VINCE PURCHASE ORDER TERMS AND CONDITIONS. The following terms and conditions govern purchase orders issued by Vince. Hard copy versions and translations are available upon written request . . . This Purchase Order constitutes an offer by VINCE, (hereinafter referred to as BUYER) for acceptance by SELLER upon the terms and conditions, and subject to instructions and specifications shown or referred to, which are the complete agreement between BUYER and SELLER.
Terms and Conditions at 5 (emphasis added).
Plaintiff alleges that around the same time that it signed the Terms and Conditions, it also completed a Supplier (Payee) Vendor Set-up / Change Form proffered by, and “at the request of” the Vince Defendants. TAC ¶ 21; see also TAC, Exhibit 2 (“Vendor Form“). The Vendor Form contains the letterheads of both “Vince” and “Rebecca Taylor.” See Vendor Form. In relevant part, the Vendor Form states:
Vince standard payment terms for vendors is net 30 days. CFO approval is required for any terms less than 30 days . . . By submitting this vendor setup form, you certify that the supporting contract has been submitted and approved by the Vince legal department.
Vendor Form at 3. Plaintiff alleges that, at some point, the Vince Defendants and the Rebecca Taylor Defendants merged their invoice system into a single account, requiring the submission of both Rebecca Taylor Invoices and Vince Invoices to a single email address with a “Vince” domain. TAC ¶ 21.2
Plaintiff alleges that, thereafter, during the period of May 2022 through September 2022, the Vince Defendants and Rebecca Taylor Defendants entered into multiple separate purchase order agreements with Plaintiff for the manufacture and sale of garments, totaling $1,706,042.90. TAC ¶ 57. Plaintiff attaches to its TAC copies of each of the fifty-two purchase orders at issue, totaling $1,706,042.90. See TAC ¶ 31; TAC, Exhibit 3 (the “Purchase Orders“). Plaintiff states
Notwithstanding the apparent continued business relationship, Plaintiff alleges “upon information and belief” that the Vince Defendants were considering discontinuing operation of the Rebecca Taylor Defendants during the same period when Plaintiff was fulfilling these Purchase Orders. TAC ¶ 35. As alleged by Plaintiff, all Defendants were aware that the Rebecca Taylor Defendants were facing financial difficulties representing an approximately 28% sales decrease and would be “wound down.” TAC ¶ 40. And indeed, on September 12, 2022, the Vince Defendants notified shareholders of their intention to discontinue operation of the Rebecca Taylor Defendants. TAC ¶ 36. Plaintiff alleges that despite the decision to discontinue operation of the Rebecca Taylor Defendants well before September 12, 2022, representatives from the Vince Defendants continued having discussions with Plaintiff‘s representatives regarding new designs and new manufacturing requirements for Defendants’ 2022 Holiday Season line and Spring 2023 line and continued placing orders for garments. TAC ¶ 37. To that end, Plaintiff asserts that Defendants falsely represented and held itself out to Plaintiff as conducting “business as usual” despite the non-public firm decision to close Rebecca Taylor. TAC ¶ 37.
Ultimately, Plaintiff states that despite making multiple demands to Defendants, and despite a November 2022 formal written demand for payment, Defendants have failed to make payment for the $1,706,042.90 owed for the garments delivered by Plaintiff. TAC ¶ 48.
Procedural Background
Plaintiff commenced this action in March 2023 against Defendants, shortly thereafter filing a First Amended Complaint (“FAC“). [ECF Nos. 1, 35]. Defendants filed a joint motion to dismiss the FAC. [ECF No. 36]. In August 2023, the Court sua sponte entered an Order to Show Cause directing Plaintiff to demonstrate why the action should not be dismissed for lack of subject matter jurisdiction, due to deficient pleading of diversity jurisdiction. [ECF Nos. 55, 56]. In response, and with leave of the Court, Plaintiff filed a Second Amended Complaint (“SAC“) which properly plead diversity jurisdiction. [ECF No. 60]. Defendants again moved to dismiss the SAC. [ECF No. 63].
On November 1, 2023, the Court held a conference on the motion to withdraw as counsel for the Rebecca Taylor Defendants. [ECF No. 73]. At the conference, the Court noted that in light of the Rebecca Taylor Defendants’ discharge of Kibler Fowler, the Court likely had no choice but to grant the motion. See e.g., D.R. § 2-110(B)(4) (Under the Code of Professional Responsibility, withdrawal is mandatory (with the permission of the Court) when a “lawyer is discharged by his or her client.“); see also 22 N.Y.C.R.R. 1200.15(B)(4); see also Casper v. Lew Lieberbaum & Co., No. 97-cv-3016, 1999 WL 335334, at *4 (S.D.N.Y. 1999) (“[B]ecause Movants were discharged by plaintiffs, they were required to withdraw as counsel.“). However, the Court also raised concern with respect to the motion to withdraw based on the Rebecca Taylor Defendants’ lack of assets or funds. [ECF No. 73]. Specifically, the Court questioned whether counsel was being compensated by the Vince Defendants with respect to representation of all Defendants prior to Rebecca Taylor Defendants’ assignment. [ECF No. 73]. The Court stated that not only was it unclear from the
After Kibler Fowler submitted additional affidavits in support of its motion to withdraw as counsel for the Rebecca Taylor Defendants, the Court granted the motion. [ECF No. 77]. In its Order granting the motion, the Court noted that the declarations submitted by the Chief Operating Officer and Independent Director of the Rebecca Taylor Defendants made clear that the Rebecca Taylor Defendants had “discharged” Kibler Fowler as counsel, had instructed Kibler Fowler “not to file a motion to dismiss or any other responsive pleadings on behalf of [the Rebecca Taylor Defendants],” and “[would] not continue to defend themselves in this litigation.” [ECF Nos. 62-1, 74-2]. Moreover, the declarations made clear that the Rebecca Taylor Defendants understood that, as Corporate Defendants, they could not appear pro se in the action [ECF No. 74-2 at 5], and unless and until they “retain[ed] new counsel, [they] [would] be in default and Plaintiff [could] seek and may obtain default judgment against them,” [ECF No. 74-2 at ¶ 8]. As a result, the Court held that “[w]here the Corporate Defendants no longer wish to participate in a suit, ‘the Court cannot compel Defendant[s] to continue participating in [the] suit. And, Defendants’ lawyers cannot take further action in this case where their client refuses to participate in the action, has discharged them as his attorneys, and has instructed them to take no further action in this proceeding.‘” [ECF No. 77] (citing Honeydew Investing LLC v. Abadi, 2022 WL 16857354, at
Subsequently, Plaintiff requested leave to file a TAC to include “additional critical facts” it had discovered since the filing of Defendants’ Motion to Dismiss the SAC, specifically in connection with Defendants’ admission that the Vince Defendants were the entities that billed and paid for the Rebecca Taylor Defendants’ legal fees in this litigation. [ECF No. 78]. Plaintiff also requested leave to include additional causes of action. [ECF No. 78]. Defendant opposed Plaintiff‘s request in its entirety. [ECF No. 79]. The Court expressly ordered that Plaintiff could file a TAC only “to include additional facts discovered since the filing of” Defendants’ Motion to Dismiss the SAC. [ECF No. 80] (emphasis added). The Court denied Plaintiff‘s request for leave to amend its complaint to include additional Causes of Action, noting that “[t]o the extent that Plaintiff believe[d] it has additional causes of action, Plaintiff may be able to file a separate action.” [ECF No. 80].
Plaintiff‘s fourth complaint in this action, the TAC, asserts five causes of action against all Defendants: (1) breach of contract, (2) fraud by material omission, (3) negligent misrepresentation, (4) quantum meruit, and (5) unjust enrichment. TAC ¶¶ 50–107. The Vince Defendants now move, for the third time, to dismiss all claims against them under
LEGAL STANDARD
Failure to State a Claim Under Rule 12(b)(6)
To survive a
Heightened Pleading Standard Under Rule 9(b)
Beyond the requirements of
“The court may strike from a pleading...any redundant, immaterial, impertinent, or scandalous matter.”
DISCUSSION
I. Documents Properly Considered on a Motion to Dismiss.
As a threshold matter, there is dispute among the parties as to which documents properly may be considered at this stage. In considering a motion to dismiss pursuant to
The Vince Defendants, however, have submitted with their motion to dismiss, a Declaration of Counsel Daniel J. Stujenske (“Stujenske Decl.“), attaching what they refer to as “a true and correct copy of” the Terms and Conditions. See Stujenske Decl., Exhibit C (“the Rider“). The Vince Defendants argue that Plaintiff attached to the TAC only an “incomplete version” of the Terms and Conditions, which “omits a rider in which [Plaintiff] expressly acknowledged that the ‘Terms and Conditions’ are ‘applicable’ only to the ‘Rebecca Taylor’ subsidiary.” Def. Mem. at 6. Citing International Audiotext Network, Inc. v. AT&T, 62 F.3d 69, 72 (2d Cir. 1995), the Vince Defendants argue that the Court may properly consider their Exhibit, including the Rider, on this motion to dismiss because Plaintiff may not “cherry-pick[] portions of a document and have the Court disregard the rest.” Def. Mem. at 4 n.1.
But cases in which the Second Circuit has upheld the consideration of written instruments not attached to the complaint have overwhelmingly done so only in instances where the instrument to be considered is undisputed. Dixon v. von Blanckensee, 994 F.3d 95, 102 (2d Cir. 2021) (holding a plaintiff cannot allege a fact about a publicly available “court proceeding” and escape scrutiny of “the record of that proceeding” simply by neglecting to attach the undisputed court record); id. (noting that a party “to a written contract” may not “make assertions about the terms
Here, of course, there is dispute between the parties as to whether the “Rider” submitted by the Vince Defendants is part of the Terms and Conditions. Nor is the Rider a publicly available and uncontroverted court record of which the Court could take judicial notice. See, e.g., Dixon, 994 F.3d at 102. For example, Plaintiff argues that the Rider proffered by the Vince Defendants is “not referenced nor relied upon in the Complaint“; “it is not apparent from the Rider itself that it is part of the Terms and Conditions attached to the Complaint“; the “Rider is not referenced in the Terms and Conditions“; the “Rider contains no page number consecutive to the Terms and Conditions“; “nor does the Rider contain a date equal to the date of the Terms and Conditions.” Pl. Opp. at 3. Accordingly, accepting as true all of the allegations contained in the TAC and construing those allegations in the light most favorable to Plaintiff—as the Court must at this stage—the Court does not consider the “Rider” proffered by the Vince Defendants on this motion.
II. Breach of Contract (Claim One)
The parties agree that New York‘s Uniform Commercial Code governs Plaintiff‘s breach of contract claim, which seeks damages in connection with the sale of goods—namely, manufactured garments. See
A. The Documents Comprising the Contract at Issue.
As an initial matter, Plaintiff alleges that the contract at issue between the parties is comprised of three sets of documents: the Terms and Conditions, the Vendor Form, and the Purchase Orders. See TAC at ¶¶ 19, 20, 21, 22; Pl. Opp. at 6. Despite the Vince Defendants’ argument that neither the Terms and Conditions nor the Vendor Form are enforceable contracts for the sale of goods under the N.Y. U.C.C., Plaintiff insists that “[b]ased upon [its] allegations that the contract between the parties is comprised of multiple documents, the Court must accept as true that the contract in dispute is comprised of the foregoing documents and that a contract has been alleged between Plaintiff and Defendants.” Pl. Opp. at 7. The Vince Defendants counter that such a contention is a “legal” conclusion, which the Court may disregard at the motion to dismiss stage. Def. Mem. at 3.
It is indeed true that, as Plaintiff argues, under New York contract law, multiple documents must be read together as a single contract when the “plain language of the agreements unambiguously requires them to be read together.” Madeleine, L.L.C. v. Casden, 950 F. Supp. 2d 685, 696 (S.D.N.Y. 2013). Still, multiple agreements may be interpreted as one contract if they “form part of a single transaction and are designed to effectuate the same purpose.” Genger v. Genger, No. 14 Civ. 05683, 2015 WL 64743 at *5 (S.D.N.Y. Jan. 5, 2015) (citing This Is Me, Inc. v. Taylor, 157 F.3d 139, 143 (2d Cir. 1998)); see also Atlas Partners, LLC v. STMicroelectronics, Int‘l N.V., No. 14-CV-7134 (VM), 2015 WL 4940126, at *4 (S.D.N.Y. Aug. 10, 2015). Because a determination of “[w]hether multiple writings should be construed as one agreement depends upon the intent of the parties, . . . [the] issue . . . is typically a question of fact for the jury” and not appropriately determined at the motion to dismiss stage. TVT Records v. Island Def Jam Music
Plaintiff‘s position that the three aforementioned documents constitute one contract is directly contradicted by the clear, unambiguous language of the documents it has attached to the TAC. Here, Plaintiff seeks damages for the $1,706,042.90 owed for the garments it delivered by fulfilling fifty-two ”separate purchase order agreements.” TAC ¶ 48 (emphasis added); see also TAC ¶¶ 32, 57; Purchase Orders. Moreover, the Terms and Conditions expressly state that once purchase orders are issued, those purchase orders will “constitute[] the entire agreement between SELLER and BUYER with respect to the subject matter and is the exclusive statement of the terms of such agreement, which supersedes any other oral or written arrangements, representations or communications between SELLER and BUYER.” Terms and Conditions at 5 (emphasis added). Notably, in arguing a separate issue with respect to its breach of contract claim (whether the writing requirement in the U.C.C. is satisfied here) Plaintiff quotes language conceding that purchase orders “constitutes an offer by VINCE . . . for acceptance by SELLER . . . which are the complete agreement between BUYER and SELLER.” See Pl. Opp. at 8 (citing Terms and Conditions at 6). As Plaintiff‘s inadvertent concession makes clear, such language reflects “no ambiguity” that the Terms and Conditions should not be read together with the separate Purchase Orders as a single contract “as a matter of law.” TVT Records, 412 F.3d at 89.
Similarly based upon this language in the Terms and Conditions—which unequivocally expresses that Purchase Orders issued by Vince: “constitute[] the entire agreement” between buyer and seller; “are the complete agreement between buyer and seller;” represent “the exclusive statement of the terms of such agreement;” and “supersede[] any other oral or written arrangements, representations or communications between” buyer and seller—the Court concludes
As such, the Court finds—as a matter of law—that the three separate documents should not be read as a single contract. TVT Records, 412 F.3d at 89. Because Plaintiff expressly seeks damages from an alleged breach of “multiple separate purchase order agreements,” the Court turns to the Purchase Orders.
B. Plaintiff Sufficiently Alleges the Purchase Orders Are Enforceable Contracts.
The Vince Defendants concede that the Purchase Orders on their own may create a binding contract. Def. Mem. at 9; Gallo Wine Distributors, L.L.C. v. Niebaum-Coppola Est. Winery, L.P., 56 F. App‘x 8, 10 (2d Cir. 2003) (holding that accepted purchase orders—and not the underlying distributorship agreement—are the contracts for sale); Kay-Bee Toys Corp. v. Winston Sports Corp., 214 A.D.2d 457, 625 N.Y.S.2d 208 (1995) (“[I]t is recognized in New York that purchase orders may create a binding contract.” (citations omitted)); see also CareandWear II, Inc. v. Nexcha L.L.C., 581 F. Supp. 3d 553, 557 (S.D.N.Y. 2022); Anhui Konka Green Lighting Co., Ltd. v. Green Logic LED Elec. Supply, Inc., 625 F. Supp. 3d 269, 280 (S.D.N.Y. 2022). In order for a
Relevant here, the N.Y. U.C.C. Statute of Frauds provides that “a contract for the sale of goods for the price of $500 or more is not enforceable . . . unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker.”
Accordingly, the Court finds that Plaintiff has sufficiently alleged that the Purchase Orders attached to the TAC—on the buyer‘s letterhead and which clearly state the parties’ names, addresses, quantity, goods description, price, and payment terms—have satisfied the Statute of Frauds and are valid contracts between Plaintiff and the Rebecca Taylor Defendants.
The Vince Defendants argue that even if the Purchase Orders are enforceable contracts between Plaintiff and the Rebecca Taylor Defendants, Plaintiff fails to sufficiently allege that the Purchase Orders are enforceable against the Vince Defendants because the Purchase Orders are not signed by them, and the Vince Defendants are not identified as the purchaser anywhere on the documents.4 Def. Mem. at 8–10. Plaintiff counters that it has, nonetheless, adequately alleged that the Vince Defendants are parties to the Purchase Orders because the Vince Defendants are the “alter egos” of the Rebecca Taylor Defendants. Pl. Opp. at 10.
While the general rule is that a breach of contract claim can only be asserted against a party to the contract, the New York Court of Appeals has created an “alter ego” exception whereby the owner of a corporation or a corporate affiliate, under certain limited circumstances, may be held liable for the corporation‘s obligations. See, e.g., TNS Holdings Inc. v. MKI Sec. Corp., 92 N.Y.2d 335, 339, 680 N.Y.S.2d 891, 893, 703 N.E.2d 749, 751 (N.Y. 1998); Morris v. N.Y.S. Dep‘t of Taxation & Fin., 82 N.Y.2d 135, 140–41, 623 N.E.2d 1157, 1160, 603 N.Y.S.2d 807, 810 (N.Y. 1993); accord Wm. Passalacqua Builders, Inc. v. Resnick Developers S., Inc., 933 F.2d 131, 138 (2d Cir. 1991). The New York Court of Appeals has made clear that the analysis governing the exception is “[a]kin to piercing the corporate veil to ‘prevent fraud or to achieve equity.‘” TNS Holdings, 92 N.Y.2d at 339. In order to pierce the corporate veil, a party must establish that “(1) the owners exercised complete domination of the corporation in respect to the transaction attacked; and (2) that such domination was used to commit a fraud or wrong against the plaintiff
Here, at this stage, Plaintiff alleges that the Vince Defendants are the “alter egos” of the Rebecca Taylor Defendants sufficiently to withstand a motion to dismiss. Plaintiff alleges that after Vince Holdings Corp. acquired Rebecca Taylor Inc., both of the Rebecca Taylor Defendants—by virtue of Rebecca Taylor Inc.‘s sole membership in Rebecca Taylor Retail Stores LLC—became wholly owned subsidiaries of Defendant Vince Holding. TAC ¶ 11. Additionally, Plaintiff asserts that according to Vince Holding‘s 10-K filings, Rebecca Taylor Inc. is exclusively controlled by both Vince Defendants. TAC ¶ 9. Plaintiff alleges that, as such, based upon the Vince Defendants’ sole control of Rebecca Taylor Inc., Rebecca Taylor Retail Stores LLC is similarly exclusively controlled by the Vince Defendants. TAC ¶ 10. Plaintiff further alleges that, at some point, the Vince Defendants and the Rebecca Taylor Defendants merged their invoice system into a single account, requiring the submission of both Rebecca Taylor Invoices and Vince Invoices to a single email address with a “Vince” domain. TAC ¶ 21.
While mere ownership is not sufficient to create alter ego liability, “[a]llegations that corporate funds were purposefully diverted to make it judgment proof or that a corporation was dissolved without making appropriate reserves for contingent liabilities are sufficient to satisfy the pleading requirement of wrongdoing which is necessary to pierce the corporate veil on an alter-ego theory.” Baby Phat Holding, 123 A.D.3d 405, 407–08 (citing Grammas v. Lockwood Assoc.,
Accordingly, because Plaintiff sufficiently alleges that the Purchase Orders constitute an enforceable contract between Plaintiff and the Rebecca Taylor Defendants, and Plaintiff also
III. Fraud By Material Omission (Claim Two)
Plaintiff‘s second cause of action is a claim for “fraud by material omission.”6 Plaintiff alleges in support that the Vince Defendants did not disclose to Plaintiff that the Rebecca Taylor Defendants were in “financial straits,” but rather conducted “business as usual.” TAC ¶¶ 73–82. The Vince Defendants argue that Plaintiff‘s fraud claim should be dismissed because it fails to satisfy the particularity required by
A. Rule 9(b) Specificity Requirement
B. Duty to Disclose
Next, the Vince Defendants argue that even if Plaintiff‘s allegations with respect to its fraud claim satisfy Rule 9(b), it nevertheless fails to state a claim for fraud against the Vince
A claim of fraud by omission requires that the defendant “had a duty to disclose the concealed fact.” Merrill Lynch & Co. Inc. v. Allegheny Energy, Inc., 500 F.3d 171, 181 (2d Cir. 2007); Mandarin Trading Ltd. v. Wildenstein, 16 N.Y.3d 173, 179, 944 N.E.2d 1104, 919 N.Y.S.2d 465 (N.Y. 2011) (“A cause of action for fraudulent concealment requires an allegation that the defendant had a duty to disclose material information and that it failed to do so.“). New York recognizes a duty to disclose in three situations: “first, where the party has made a partial or ambiguous statement, on the theory that once a party has undertaken to mention a relevant fact to the other party it cannot give only half of the truth; second, when the parties stand in a fiduciary or confidential relationship with each other; and third, where one party possesses superior knowledge, not readily available to the other, and knows that the other is acting on the basis of mistaken knowledge.” Harbinger Cap. Partners LLC v. Deere & Co., 632 F. App‘x 653, 656 (2d Cir. 2015); see also Lerner, 459 F.3d at 292.
Plaintiff has not alleged that any Defendant made a “partial or ambiguous statement that requires additional disclosure to avoid misleading the other party.” Instead, their fraud claim is based exclusively on fraudulent omission—i.e., that the Vince Defendants entirely omitted to inform it of Rebecca Taylor‘s financial condition. TAC ¶¶ 73–82. Nor does Plaintiff allege a “fiduciary or confidential relationship” with any Defendant. Despite Plaintiff‘s emphasis that it maintained a “long-standing trusted relationship” with the Rebecca Taylor Defendants, “absent an allegation of a special relationship, mere assertions of ‘trust and confidence’ are insufficient to support a claim of a fiduciary relationship.” Galvstar Holdings, LLC v. Harvard Steel Sales, LLC,
Finally, “where one party possesses superior knowledge, not readily available to the other, and knows that the other is acting on the basis of mistaken knowledge,” a party has a duty to disclose. Harbinger, 632 F. App‘x at 656. “As several district courts have suggested, such a duty usually arises . . . in the context of business negotiations where parties are entering a contract.” Lerner, 459 F.3d at 292 (collecting cases) (citations and quotations omitted). However, statements or omissions about a party‘s intent to perform (or not perform) under a contract are insufficient to support a fraud claim under New York law. Specifically, “the intention to breach does not give rise to a duty to disclose. Instead, the duty to disclose must exist separately from the duty to perform under the contract.” TVT Recs. v. Island Def Jam Music Grp., 412 F.3d 82, 91 (2d Cir. 2005); see also Telecom Int‘l Am., Ltd. v. AT & T Corp., 280 F.3d 175, 196 (2d Cir. 2001) (“[U]nder New York law, where a fraud claim arises out of the same facts as plaintiff‘s breach of contract claim, with the addition only of an allegation that defendant never intended to perform
In other words, “simply dressing up a breach of contract claim by further alleging that the promisor had no intention, at the time of the contract‘s making, to perform its obligations thereunder, is insufficient to state an independent tort claim.” Telecom Int‘l Am., 280 F.3d at 196; see also Wall v. CSX Transp., Inc., 471 F.3d 410, 416 (2d Cir. 2006); Exch. Listing, LLC v. Inspira Techs., Ltd., 661 F. Supp. 3d 134, 156 (S.D.N.Y. 2023). Moreover, under New York law, there is no obligation to disclose insolvency of the contracting entity itself, let alone the financial distress of a subsidiary. Archawski v. Hanioti, 239 F.2d 806, 812 (2d Cir. 1956) (“Under the law of New York, one who enters into a contract without disclosing a known condition of insolvency does not thereby become chargeable with fraud . . . merely from the fact of his insolvency, and his omission upon a purchase of property upon credit to disclose such condition to his vendor.“); Coface v. Optique Du Monde, Ltd., 521 F. Supp. 500, 504 (S.D.N.Y. 1980) (“[A] contractual relationship does not trigger any disclosure obligation, at least as to the fact of insolvency.“).
However, that is precisely what Plaintiff alleges here. In support of its fraudulent omission claim, Plaintiff alleges that it “would not have accepted the[] purchase orders, thus creating a contract for those orders, had it known that [Defendants] suffered a 28% loss in the second quarter of 2022 . . . and that Defendants intended to refuse to pay [Plaintiff] for the garments received pursuant to purchase orders issued by Defendants.” TAC ¶ 78. As such, this is a quintessential example of a misrepresentation of an intent to perform under a contract, and Plaintiff offers nothing in the way of distinguishing the claim from its breach of contract claim. Accordingly, Plaintiff‘s fraud by omission claim against the Vince Defendants is dismissed as duplicative of its contract claim. Because Plaintiff‘s fraud claim is dismissed, the Court grants the Vince Defendants’ motion to strike the request for punitive damages that Plaintiff asserts in connection with its claim for
IV. Negligent Misrepresentation (Claim Three)
Plaintiff‘s claim for negligent misrepresentation fails for the same reasons as its claim for fraud by omission. As a general rule, a claim for negligent misrepresentation is precluded in a breach of contract action “unless a legal duty independent of the contract itself has been violated.” Clark-Fitzpatrick, Inc. v. Long Island R. Co., 70 N.Y.2d 382, 389, 516 N.E.2d 190 (1987) (“It is a well-established principle that a simple breach of contract is not to be considered a tort unless a legal duty independent of the contract itself has been violated.“); see also Fleet Bank v. Pine Knoll Corp., 290 A.D.2d 792, 795, 736 N.Y.S.2d 737 (2002); Telecom Int‘l Am., 280 F.3d at 196; CSX Transp., 471 F.3d at 416. Plaintiff‘s negligent misrepresentation cause of action is based on the exact same allegations as its fraud by material omission claim, which—as previously noted—is based on the same allegations as Plaintiff‘s breach of contract claim. Compare TAC ¶¶ 83–98 with TAC ¶¶ 50–65; 66–82. As with its fraud by omission claim, with respect to its negligent misrepresentation claim, Plaintiff similarly fails to allege a “legal duty [] spring[ing] from circumstances extraneous to, and not constituting elements of, the [Purchase Orders]” upon which its breach of contract claim is based. Clark-Fitzpatrick, 70 N.Y.2d at 389. Accordingly, Plaintiff‘s
V. Quasi-Contract Claims (Claims Four and Five)
Plaintiff also brings two quasi-contract claims: one for unjust enrichment (Claim Four) and one for quantum meruit (Claim Five). TAC ¶¶ 99–107. The Vince Defendants argue that Plaintiff may not plead quasi-contract claims in the alternative alongside a claim that the defendant breached an enforceable contract.
The Vince Defendants counter that “[i]t is Plaintiff‘s position on enforceability that matters, not Defendants’ [position],” and because Plaintiff does not challenge the validity of any contract, it may not plead quasi-contract claims alongside a breach of contract claim. Def. Mem.
Here, the Vince Defendants have already disputed the validity of an existing contract not just as a legal matter (which the Court has resolved against them) but also as a factual matter (which they are free to continue to pursue). The Vince Defendants may well raise other challenges to the Purchase Orders’ enforceability in general—or as against them as alter egos—as the case progresses. The Court therefore finds that Plaintiff should be allowed to proceed with these alternative claims, at least at this stage of the case. To hold otherwise would violate the liberal policy of
VI. Further Leave to Amend
For the foregoing reasons, Defendants’ motion to dismiss is GRANTED in part and DENIED in part. The parties’ requests for oral argument are also DENIED.8 The Clerk of the Court is respectfully requested to terminate docket entries 82, 87, and 90.
SO ORDERED.
Date: September 11, 2024
New York, NY
MARY KAY VYSKOCIL
United States District Judge