Schwartz v. Hitrons Solutions, Inc.

• Decision Date: 20 August 2019
• Docket Number: 18 Civ. 4062 (VM)
• Citation: 397 F.Supp.3d 357
• Parties: Elimelech SCHWARTZ, Individually and on behalf of all others similarly situated, Plaintiff, v. HITRONS SOLUTIONS, INC., Defendant.
• Court: U.S. District Court — Southern District of New York

397 F.Supp.3d 357

Elimelech SCHWARTZ, Individually and on behalf of all others similarly situated, Plaintiff,

v.HITRONS SOLUTIONS, INC., Defendant.

18 Civ. 4062 (VM)

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

Signed August 20, 2019

Mark Schlachet, Law Office of Mark Schlachet, Beachwood, OH, for Plaintiff.

Stephen D. Straus, Gerard Benvenuto, Traub Lieberman Straus & Shrewsbury LLP, Hawthorne, NY, Michael J. Burke, Traub Lieberman Straus & Shrewsberry, White Plains, NY, for Defendant.

DECISION AND ORDER

VICTOR MARRERO, United States District Judge.

Plaintiff Elimelech Schwartz ("Schwartz") brings this putative class action against defendant Hitrons Solutions, Inc. ("Hitrons") for false and misleading labeling and advertising in violation of New York General Business Law Sections 349 and 350 (" Sections 349 and 350"), and in breach of certain express and implied warranties related to certain products manufactured and marketed by Hitrons. (See "Amended Complaint," Dkt. No. 7.)

After Hitrons failed to respond to multiple Orders of the Court, the Court directed Schwartz to move for default judgment. (See "December 14 Order," Dkt. No. 16.) On the same day Schwartz moved for default judgment (see "Default Judgment Motion," Dkt. No. 17), Hitrons submitted a pre-motion letter seeking a conference to discuss a motion to dismiss for lack of subject matter jurisdiction pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure (" Rule 12(b) (1)").

The Court now construes Hitrons's letter as a motion to dismiss pursuant to Rule 12(b)(1) (the "Motion to Dismiss"). For the reasons set forth below, the Default Judgment Motion and the Motion to Dismiss are both DENIED.

I. BACKGROUND ¹

A. FACTUAL BACKGROUND

Hitrons is a corporation that is "a project of the Korean Government Administration for Small and Medium Business" which "introduces products to major U.S. markets" through retailers "such as Sam's Clubs, Office Depot, [and] Amazon.com." (Amended Complaint ¶ 18.) Hitrons sells plastic food storage bags (the "Bags") called, among other names, the "New Eco Roll Bag." (Id. ¶ 1.) Hitrons labels and advertises the Bags as being "biodegradable." (Id. ¶ 2.) Following his purchase of one box of the Bags, Schwartz allegedly determined that the primary structural component of the Bags is high-density polyethylene, a petroleum-based plastic that is "not [d]egradable." (Id. ¶ 15.) Schwartz asserts that Hitrons's claim that the Bags are biodegradable constitutes an "Unqualified Degradable Claim,"² and contends that, but for this Unqualified Degradable Claim, he would not have purchased the Bags. (Id. ¶ 27.) Schwartz alleges that Hitrons's advertising of the Bags with an Unqualified Degradable Claim, as well as an outdated Food and Drug Administration ("FDA") logo, violates Sections 349 and 350 because the "qualities, characteristics and/or ingredients" of the Bags are "misstated." (Id. ¶ 52.) He further contends that such representations constitute an express warranty that the Bags are biodegradable, and that Hitrons breached this express warranty by providing Bags that are not biodegradable.

In support of his claims, Schwartz points to the labeling on the Bags' packaging, as well as descriptions and advertisements for the Bags featured on the websites from which they are sold. Schwartz alleges that Hitrons misrepresents the Bags as "bio-based and [d]egradable," that its online advertising representations include misleading "green claims," and that it employs an out of date FDA logo on its packaging to "trick consumers into perceiving attainment of ... FDA accreditation." (Id. ¶ 30.) In actuality, he claims, (1) the Bags are not degradable, (2) the Bags are not "eco-friendly," (3) the Bags are not made of wheat, biomass, or natural substance, and (4) the Bags are not accredited by the FDA, nor is "FDA approved raw materials" a real accreditation. (Id. ) In addition to these affirmative representations, Schwartz claims that Hitrons had a duty to disclose the Bags' effect on the environment, and without this disclosure, Hitrons has left consumers "misinformed and misled as to the true character" of the Bags. (Id. ¶¶ 53-54.)

Schwartz notes that the practices mentioned above explicitly violate a number of the FTC's "rules and formal guidance relating to claims about the environmental attributes of a product," as well as those pertaining to online advertising. (Id. ¶ 31 (internal quotation marks omitted).) He asserts that New York courts have "historically followed the FTC pronouncements as to deceptive consumer sales and marketing practices" and that Sections 349 and 350 are intended to follow the FTC's interpretation of deceptive acts and practices. (Id. ¶ 32.)

Schwartz seeks monetary damages and injunctive relief individually and on behalf of two putative classes. He defines the first class as consisting of "all persons or entities in New York who purchased [the] Bags during the three-year period preceding commencement [of the action]." (Id. ¶ 33.) He defines the second class as consisting of "those who, not for resale, purchased Bags within the United State and within the applicable statutory period."³ (Id. ¶ 34.) Schwartz concedes that the exact number of members in either class is unknown and "can only be ascertained through discovery," but that, upon information and belief, each class includes thousands of members. (Id. ¶ 37.)

By way of monetary relief, Schwartz seeks actual and statutory damages for the three years preceding commencement of this action (the "Class Period"). He asserts that the classes have suffered in the amount of the difference in cost between the Bags and standard plastic bags, because the market value of the Bags are "substantially less" than the "premium prices" customers paid for them. (Id. ¶ 58.) Accordingly, Schwartz argues that the classes are entitled to recover actual damages in the form of the cost of true degradable bags, i.e., $21-$28 per roll purchased, to compensate them for the "insufficiency of consideration" the classes have suffered.⁴ He also requests attorney's fees and costs.

In addition to monetary relief, Schwartz seeks injunctive relief, including "corrections to Hitrons'[s] labeling, advertising and marketing[,]" and to preclude the use of the deceptive language described above and the FDA logo. (Id. ¶¶ 64-66.) He further requests that Hitrons prominently display disclaimers on its packaging and website that the Bags are made from petroleum-based plastic and are not biodegradable.

B. PROCEDURAL BACKGROUND

After Hitrons answered the Amended Complaint, the Court scheduled an initial conference for July 27, 2018. By letter dated July 13, 2018, Schwartz apprised the Court that: (1) Hitrons was not responding to requests to collaborate on a joint letter to the Court as required by the Court's Individual Practices; and (2) Hitrons's defenses raised a subject matter jurisdiction issue. (See Dkt. No. 13.)

At the July 27, 2018 initial conference, the Court ordered the parties to conduct limited jurisdictional discovery and provide a status report in sixty days (the "July 27 Discovery Order"). (See Dkt. Minute Entry for 7/27/2018.) No joint status report was ever filed. By letter dated September 20, 2018, Schwartz described the interactions between the parties during the sixty days. (See "September 20 Letter," Dkt. No. 14.) According to Schwartz, he served document requests and deposition notices on Hitrons, but Hitrons never complied or responded. Similarly, Hitrons allegedly ignored all of Schwartz's efforts to coordinate on the status letter ordered by the Court. Given this behavior, Schwartz requested the Court (1) award Schwartz injunctive relief; (2) draw an adverse inference against Hitrons; and (3) sanction Hitrons for its conduct.

The Court ordered Hitrons to respond to the September 20 Letter by September 25, 2018. (See id. at 5.) Hitrons never responded. On November 9, 2018, the Court again ordered Hitrons to respond to the September 20 Letter by November 16, 2018. (See Dkt. No. 15.) Because Hitrons failed to meet that deadline as well, the Court ordered Schwartz to move for default judgment by January 4, 2019. (See December 14 Order.)

In response to the Court's direction, Schwartz filed for default judgment on January 2, 2019. (See Default Judgment Motion.) On the same day, after months of silence,⁵ Hitrons filed a letter requesting a pre-motion conference and seeking leave to file a motion to dismiss the Amended Complaint for lack of subject matter jurisdiction under Rule 12(b)(1). (See "January 2 Letter," Dkt. No. 19.) Relying solely on a sworn affidavit, Hitrons claims that this action fails to satisfy the jurisdictional requirements for both (1) a class action pursuant to 28 U.S.C. Section 1332(d) and (2) an individual diversity action pursuant to 28 U.S.C. Section 1332(a). (See id. at 1.)

Specifically, Hitrons argues that Schwartz's individual damages, as well as the putative class damages, fall short of the required amount in controversy. (See id. at 5.) Hitrons contends that it sold only 443 units of the Bags in the United States during the Class Period. (See id. at 5-6 (citing "Kim Affidavit," Dkt. No. 21-4, ¶ 9).) Hitrons emphasizes that even if customers recover $28 per box of Bags, and "assum[ing] that a box contained up to ten units," the total amount in controversy for Schwartz's individual claim would be less than $300, and the total amount in controversy for the class claims would be less than $18,000. Hitrons argues that, given these figures, the Court must dismiss the Amended Complaint. In addition, Hitrons requests that the Default Judgment Motion be held in abeyance pending a conference pertaining to the default and jurisdictional issues. (See id. ) Hitrons made similar arguments in its opposition to the Default Judgment Motion. (See Dkt. No. 20)

Schwartz responded to Hitrons's January 2 Letter on January 12, 2019. (See "January 12 Letter," Dkt. No. 22.) Schwartz does not...