Ho Myung Moolsan Co. v. Manitou Mineral Water

• Decision Date: 29 September 2009
• Docket Number: No. 07 Civ. 7483 (RJH)(HBP).,07 Civ. 7483 (RJH)(HBP).
• Citation: 665 F.Supp.2d 239
• Parties: HO MYUNG MOOLSAN CO., LTD. and Hyun-Song Kang, Plaintiffs, v. MANITOU MINERAL WATER, INC., O-Yoon Kwon, Raphael Drug and Health Co., Inc., Hanmi Home Shopping Co., New Jersey Flea Market News and New York Flea Market News, Defendants.
• Court: U.S. District Court — Southern District of New York

665 F.Supp.2d 239

HO MYUNG MOOLSAN CO., LTD. and Hyun-Song Kang, Plaintiffs, v.MANITOU MINERAL WATER, INC., O-Yoon Kwon, Raphael Drug and Health Co., Inc., Hanmi Home Shopping Co., New Jersey Flea Market News and New York Flea Market News, Defendants.

No. 07 Civ. 7483 (RJH)(HBP).

United States District Court, S.D. New York.

September 29, 2009.

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Michael S. Kimm, Michael S. Kimm, Esq., Hackensack, NJ, Kim Sparano, Kimm Law Firm, Englewood, NJ, for Plaintiffs.

Andrew A. Kimler, Capell & Vishnick, LLP, Lake Success, NY, for Defendant.

OPINION AND ORDER

PITMAN, United States Magistrate Judge.

I.Introduction

By notice of motion dated December 12, 2008, (Docket Item 64), plaintiffs move for leave to file an amended complaint.The proposed amended complaint would add the following claims against all defendants: (1) fraud in the inducement, (2) tortious interference with both contract and business relationships, (3) conspiracy to commit conversion, (4) conspiracy to commit theft of corporate funds, (5) conspiracy to commit breach of fiduciary duty, (6) conspiracy to commit misrepresentation, (7) violations of the Racketeer Influenced Corrupt Organization Act, ("RICO"), 18 U.S.C. § 1962(a)-(d), and (8) conspiracy to commit RICO violations.By notice of motion dated February 9, 2009, (Docket Item 79), defendants move for sanctions pursuant to Rule 11 of the Federal Rules of Civil Procedure.

For the reasons set forth below, plaintiffs' motion is granted in part and denied in part, and defendants' motion is denied.

II.Facts

In principal part, this is an action for breach of contract and trademark infringement.Plaintiffs allege that defendants breached a contract to sell bottled mineral water to plaintiffs by selling the water to other distributors instead of plaintiffs under trademark allegedly owned by plaintiffs(Proposed Amended Complaint, ("Am. Compl."), ¶¶ 38-50).

In June 2004, plaintiffHyun-Song Kang, the sole shareholder of plaintiffHo Myung Moolsan Co.("Moolsan"), was introduced to defendantO Yoon Kwon, the President of Manitou Springs Mineral Water, Inc.("Manitou Springs") by Kang's "agent and confidant,"Young Gil Jee(Am. Compl. ¶ 12).Jee "represented" to Kang that he would enter into a contract with Manitou Springs for exclusive distribution of Manitou Springs Mineral Water and that this contract would be "for [the] benefit" of Moolsan (Am. Compl. ¶ 15).

In December 2004, Jee, as Director of the Journalists Federation of Korea,¹ and Kwon, as President of Manitou Springs executed a contact under which Jee was to pay $500,000 for exclusive distributorship of Manitou Springs Mineral Water and $1,000,000 in advance for purchase of the mineral water (Am. Compl. ¶ 21andEx. 3).Jee, however, produced a different contract to Kang.This contract was also signed by Jee and Kwon, but provided that Jee was to pay $1,000,000 for the exclusive distributorship and $1,000,000 for advance purchase of the mineral water (Am. Compl. ¶ 15andEx. 1).Moolsan paid the $2,000,000 due under this contract to Manitou Springs (Am. Compl. ¶¶ 19, 24).²Plaintiffs allege that the additional $500,000 charged under the contract was used to compensate Jee for "tunneling" business to Manitou Springs (Am. Compl. ¶ 21).

Approximately one year after the contract was executed, Kwon told Moolsan's president, Jeong Hee Kim, that Manitou Springs had only received $1,500,000 under the contract (Am. Compl. ¶ 23).Kwon also told Kim that his signature on the contract for $2,000,000 had been forged (Am. Compl. ¶ 17).At this point, Manitou Springs entered into a contract for the sale of water directly with Moolsan (Am. Compl. ¶ 23).³

In April 2007, Manitou Springs stopped shipping water to Moolsan (Am. Compl. ¶ 27).In addition, plaintiffs allege that Manitou Springs began selling spring water to third parties and "facilitated" the use of Moolsan's logo and advertisements by those third parties(Am. Compl. ¶¶ 32-35).

Plaintiffs' original complaint asserted claims for (1) a declaratory judgment, (2) breach of contract, (3) unfair competition under the Lanham Act, (4) palming off of property rights, (5) tortious interference with contract, (6) fraud, and (7) conspiracy.The original complaint named Manitou Springs and Kwon as defendants, as well as the manager of Manitou Springs' factory, another business operated by Kwon and three entities that allegedly sold Manitou Springs Mineral Water after plaintiffs had obtained exclusive rights to do so.

On December 20, 2007, the Honorable Richard J. Holwell, United States District Judge, dismissed plaintiffs' claims for declaratory judgment and breach of contract as to all defendants other than Manitou Springs, and dismissed plaintiffs' claims for tortious interference, fraud, and conspiracy as to all defendants(Order dated Dec. 20, 2007(Docket Item 37)).

Plaintiffs now seek to amend their complaint to replead claims for fraud, tortious interference, and conspiracy and to include new claims for substantive violations of RICO and conspiracy to violate RICO.Plaintiffs seek to bring these claims against all defendants named in the original complaint other than the factory manager of Manitou Springs.In addition, plaintiffs apparently seek to replead their breach of contract claim against all defendants.Defendants oppose amendment on the grounds that the proposed amendments are futile and will result in undue delay and prejudice.Defendants also move for sanctions pursuant to Fed. R.Civ.P. 11 arguing that the motion to amend is so deficient that it is sanctionable.

III.Analysis

A.Motion to Amend

1.Standards Applicable to a Motion to Amend

The standards applicable to a motion to amend a pleading are well settled and require only brief review.Leave to amend a pleading should be freely granted when justice so requires.Fed.R.Civ.P. 15(a);Foman v. Davis,371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222(1962);McCarthy v. Dun & Bradstreet Corp.,482 F.3d 184, 200(2d Cir.2007);Aetna Cas. & Sur. Co. v. Aniero Concrete Co.,404 F.3d 566, 603-04(2d Cir.2005);Dluhos v. Floating & Abandoned Vessel, known as "New York",162 F.3d 63, 69(2d Cir.1998);Gumer v. Shearson, Hammill & Co.,516 F.2d 283, 287(2d Cir.1974);Aniero Concrete Co. v. New York City Constr. Auth., 94 Civ. 9111(CSH), 1998 WL 148324 at *7(S.D.N.Y.Mar. 30, 1998)(Haight, J.), aff'd sub nom., Aetna Cas. & Sur. Co. v. Aniero Concrete Co.,404 F.3d 566(2d Cir.2005)."Nonetheless, the Court may deny leave if the amendment (1) has been delayed unduly, (2) is sought for dilatory purposes or is made in bad faith, (3) the opposing party would be prejudiced, or (4) would be futile."Lee v. Regal Cruises, Ltd.,916 F.Supp. 300, 303(S.D.N.Y.1996)(Kaplan, J.), aff'd,116 F.3d 465(2d Cir.1997);seeMcCarthy v. Dun & Bradstreet Corp., supra,482 F.3d at 200;Ellis v. Chao,336 F.3d 114, 126-27(2d Cir.2003);Montefiore Med. Ctr. v. Am. Prot. Ins. Co., 00 Civ. 3235(LTS), 2003 WL 21108261 at *1(S.D.N.Y.May 14, 2003)(Swain, J.);Am. Home Assurance Co. v. Jacky Maeder (Hong Kong) Ltd.,969 F.Supp. 184, 187-88(S.D.N.Y.1997)(Kaplan, J.).

a. Futility

A proposed amended complaint is futile when it fails to state a claim.Health-Chem Corp. v. Baker,915 F.2d 805, 810(2d Cir.1990);Mina Inv. Holdings Ltd. v. Lefkowitz,184 F.R.D. 245, 257(S.D.N.Y.1999)(Sweet, J.);Parker v. Sony Pictures Entm't, Inc.,19 F.Supp.2d 141, 156(S.D.N.Y.1998)(Kaplan, J.), aff'd in pertinent part, vacated in part on other grounds sub nom., Parker v. Columbia Pictures Indus.,204 F.3d 326(2d Cir.2000);Yaba v. Cadwalader, Wickersham & Taft,931 F.Supp. 271, 274(S.D.N.Y.1996)(Koeltl, J.);Prudential Ins. Co. v. BMC Indus., Inc.,655 F.Supp. 710, 711(S.D.N.Y.1987)(Sweet, J.);see generallyDluhos v. Floating & Abandoned Vessel, known as "New York", supra,162 F.3d at 69-70.The party opposing the amendment has the burden of demonstrating that leave to amend would be futile.Staskowski v. County of Nassau, 05 Civ. 5984(SJF)(WDW), 2007 WL 4198341 at *4(E.D.N.Y.Nov. 21, 2007)("It is axiomatic that the party opposing an amendment has the burden of establishing that leave to amend would be futile.");Lugosch v. Congel,00-CV-784, 2002 WL 1001003 at *1(N.D.N.Y.May 14, 2002);citingBlaskiewicz v. County of Suffolk,29 F.Supp.2d 134, 137-38(E.D.N.Y.1998).

Leave to amend may be denied as futile "where the claim or defense proposed to be added has `no colorable merit'".Oliver v. DeMarinis & Co., 90 Civ. 7950(SS), 1993 WL 33421 at *2(S.D.N.Y.Jan. 29, 1993)(Sotomayor, D.J.)(citation omitted);see alsoRyder Energy Distrib. Corp. v. Merrill Lynch Commodities, Inc., 748 F.2d 774, 783(2d Cir.1984)(if the movant has "colorable grounds for relief," justice requires that leave to amend be granted).The "colorable grounds requirement mandates that a district court may not deny a motion for leave to amend a pleading when said pleading is sufficient to withstand a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6)."Children First Found. Inc. v. Martinez, 04 Civ. 0927(NPM), 2007 WL 4618524 at *5(N.D.N.Y.Dec. 27, 2007), citingKassner v. 2nd Avenue Delicatessen, Inc.,496 F.3d 229, 244(2d Cir.2007);Estate of Ratcliffe v. Pradera Realty Co., 05 Civ. 10272(JFK), 2007 WL 3084977 at *4(S.D.N.Y.Oct. 19, 2007)(Keenan, J.);Journal Publ'g Co. v. Am. Home Assur. Co.,771 F.Supp. 632, 635(S.D.N.Y.1991)(Leisure, J.);Prudential Ins. Co. v. BMC Indus., Inc., supra,655 F.Supp. at 711(Although leave to amend should be freely given, "it is inappropriate to grant leave when the amendment would not survive a motion to dismiss.").

Therefore, an amendment to a complaint may be denied as futile if a defendant can show that there are no "set of facts...