Sanitoy, Inc. v. Shapiro

• Citation: 705 F. Supp. 152
• Decision Date: 30 January 1989
• Docket Number: No. 85 Civ. 6473 (MGC).,85 Civ. 6473 (MGC).
• Parties: SANITOY, INC. and Pilgrim Infants Products, Inc., Plaintiffs, v. Richard SHAPIRO, Defendant.
• Court: U.S. District Court — Southern District of New York

705 F. Supp. 152

SANITOY, INC. and Pilgrim Infants Products, Inc., Plaintiffs, v. Richard SHAPIRO, Defendant.

No. 85 Civ. 6473 (MGC).

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

January 30, 1989.

Jacobs Persinger & Parker by William Lasher, New York City, for plaintiffs.

Hofheimer Gartlir & Gross by Sylvia D. Garland, New York City, for defendant.

OPINION AND ORDER

CEDARBAUM, District Judge.

Plaintiffs, Sanitoy, Inc. and Pilgrim Infants Products, Inc., have brought this action seeking damages against defendant Richard Shapiro for his allegedly fraudulent and negligent misrepresentations concerning the quality and manufacture of certain infant plush toys, and for his alleged violation of Consumer Product and Safety Commission ("CPSC") standards regulating those toys. Defendant has moved for summary judgment. After reviewing the undisputed facts and other facts offered by plaintiffs, and drawing all inferences in plaintiffs' favor, the motion for summary judgment is granted in part and denied in part.

THE UNDISPUTED FACTS

Sanitoy, Inc. and its wholly-owned subsidiary Pilgrim Infants Products, Inc. are Delaware corporations with principal places of business in Fitchburg, Massachusetts. Plaintiffs manufacture, import, and distribute infant products, including toys. Richard Shapiro, who resides in New York, is a salesman of toy products and the managing director of Richard Toy Company Ltd., a Hong Kong corporation. Shapiro and his wife are the sole shareholders of Richard Toy Company.

In late 1982, Shapiro contacted Sanitoy concerning the sale of infant plush toys, which Sanitoy would then resell to retailers. Shapiro had never before had business dealings with Sanitoy or Pilgrim or with any of their officers or employees. For their part, Sanitoy and Pilgrim had had only limited experience with plush toys prior to meeting Shapiro.

Shapiro subsequently attended three meetings at Sanitoy's offices with several of Sanitoy's officers and employees, including Arthur Zadek, Sanitoy's president, and J. Daniel Simon, Sanitoy's executive vice-president. Shapiro brought to these meetings samples of the toys, which he said were manufactured in Korea, and left them with Sanitoy for its inspection. For purposes of this motion, Shapiro concedes that he made the following representations at these meetings:

(1) that he would direct and supervise production of high quality infant plush products in the Far East;

(2) that such products would be in full conformity with applicable trade standards and CPSC rules and regulations for resale in the United States; and

(3) that Sanitoy and Pilgrim could rely on his personal expertise and abilities for the delivery of high-quality infant plush products.

In December of 1982, Sanitoy and Pilgrim placed three purchase orders with Shapiro. The purchase orders and corresponding letters of credit were made out to Richard Toy Company, Ltd., which plaintiffs understood to be Shapiro's company. Richard Toy Company in turn contracted with the Song Won Trading Company in Korea to manufacture the toys. The merchandise, shipped F.O.B. Korea, arrived in the United States in May of 1983. Plaintiffs do not claim that they have incurred any damages in connection with the first three purchase orders.

On April 7, 1983, Sanitoy placed its fourth purchase order, P.O. # 77287, for 6,000 dozen style 101-A plush, two-headed, toy dumbells. Sanitoy intended to resell this merchandise to K-Mart, one of its major customers. Like the first three orders, the fourth purchase order did not specify the CPSC standards that the toys would have to meet to be acceptable for introduction into interstate commerce in the United States. However, all of the purchase order forms contained pre-printed "terms and conditions" which included language to the effect that the seller would guarantee compliance with all relevant laws and regulations. In May of 1983, Zadek visited the factories in Korea where the dumbells were being manufactured, but did not undertake a thorough inspection of the facilities or of the merchandise in its various stages of production. The first shipment of merchandise ordered under P.O. # 77287 arrived at Sanitoy's warehouse at the end of June, 1983.

When Sanitoy conducted tests on the dumbells to check for compliance with CPSC standards, it discovered that the eyes on most of the dumbells were not sufficiently securely attached to comply. On July 1, 1983, Sanitoy contacted Shapiro with this information. The parties subsequently decided to return the merchandise to Korea for repair. Richard Toy Company assumed the costs of repair, although Sanitoy paid some of the shipping and surveyor charges. The repaired merchandise arrived at Sanitoy's warehouse in the spring of 1984.

After Sanitoy had placed the fourth purchase order, plaintiffs placed fifteen additional orders with Richard Toy Company. Nine of the fifteen were placed after Sanitoy had received the defective shipment.

Several of the fifteen orders included style 101-A dumbells. The only shipment that plaintiffs refused to accept in its entirety was the shipment of style 101-A dumbells received under the fourth purchase order. However, plaintiffs claim that two of the later orders, P.O. # 77289 and P.O. # 1589, dated April 26, 1984, also contained many defective toys that plaintiffs were unable to sell to retailers.

Plaintiffs filed the complaint in August of 1985. Count One of the complaint alleges common law fraud based on plaintiffs' reliance on Shapiro's representations in deciding to purchase the plush toys. Count Two asserts that Shapiro should be held liable for negligent misrepresentation because of his claimed expertise in plush toys and plaintiffs' relative inexperience. Plaintiffs allege in Count Three that Shapiro is liable to them for violation of CPSC regulations. The original complaint also contained two counts alleging injury to Sanitoy's relationship with K-Mart, but these counts have been withdrawn. After the completion of discovery, Shapiro moved for summary judgment on the three remaining counts. All parties agree that New York law is the substantive law governing the common law claims, Counts One and Two of the complaint.¹

SUMMARY JUDGMENT

A court will grant summary judgment if it determines "that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Knight v. United States Fire Insurance Co., 804 F.2d 9, 11 (2d Cir.1986), cert. denied, 480 U.S. 932, 107 S.Ct. 1570, 94 L.Ed.2d 762 (1987). The test for granting a summary judgment motion is similar to that for directing a verdict, in that if the trier of fact could return a verdict for the nonmoving party, the motion should not be granted. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). On the other hand, a court is not precluded from granting the motion simply because the nonmoving party has established that there is an issue of material fact. The nonmoving party must show that the issue of fact is "genuine," involving more than mere "metaphysical doubt." Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986); Murray v. Xerox Corp., 811 F.2d 118, 121 (2d Cir.1987).

In determining whether a case should proceed to trial, a court must review the record in the light most favorable to the nonmoving party, resolving ambiguities and drawing reasonable inferences in that party's favor. Patrick v. LeFevre, 745 F.2d 153, 158 (2d Cir.1984). But if, after adequate time for discovery has passed, the nonmoving party fails to establish the existence of an essential element of its case, on which it will bear the burden of proof at trial, the court should enter summary judgment against it. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548 at 2552, 91 L.Ed.2d 265 (1986). In that situation, "there can be no `genuine issue of material fact,' since a complete failure of proof ... necessarily renders all other facts immaterial." Id. at 323, 106 S.Ct. at 2553.

DISCUSSION

Negligent Misrepresentation

New York law generally does not recognize liability for words "negligently spoken" during commercial dealings. The exception is "when the parties' relationship suggests a closer degree of trust and reliance than that of the ordinary buyer and seller." American Protein Corp. v. AB Volvo, 844 F.2d 56, 63 (2d Cir.), cert. denied, ___ U.S. ___, 109 S.Ct. 136, 102 L.Ed.2d 109 (1988) (quoting Coolite Corp. v. American Cyanamid Co., 52 A.D.2d 486, 384 N.Y.S.2d 808, 811 (1st Dep't 1976)). Defendant argues that plaintiffs cannot establish the "special relationship" necessary for actionable negligent misrepresentation because plaintiffs' relationship with him was never more than that of ordinary buyer and seller. Plaintiffs argue that defendant's expertise and assurances concerning infant plush toys, and their own relative inexperience in this area, created a special relationship.

In support of their claim of negligent misrepresentation, plaintiffs rely primarily on White v. Guarente, 43 N.Y.2d 356, 401 N.Y.S.2d 474, 372 N.E.2d 315 (1977), Coolite Corp. v. American Cyanamid Co., 52 A.D.2d 486, 384 N.Y.S.2d 808 (1st Dep't 1976), and Mathis v. Yondata, 125 Misc.2d 383, 480 N.Y.S.2d 173 (N.Y.Sup.Ct.1984). In each of these cases, the court found a special relationship which would support a claim of negligent misrepresentation. An analysis of these cases shows that plaintiffs' reliance is misplaced.

The facts of White are not analogous. In White, the New York Court of Appeals found a sufficiently close relationship between the defendant, an accounting firm, and the plaintiff, a limited partner of the partnership which was a client of the accounting firm, to recognize "some relation of duty" beyond the exact terms of the agreement to audit the partnership. Specifically, the accountants...