Sofi Classic S.A. De C.V. v. Hurowitz
| Citation | 444 F.Supp.2d 231 |
| Decision Date | 07 August 2006 |
| Docket Number | No. 05 Civ. 9986.,05 Civ. 9986. |
| Parties | SOFI CLASSIC S.A. DE C.V. and Grupo Industrial Miro, S.A. de C.V., Plaintiffs, v. David HUROWITZ and James Long, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Bruce Roy Millar Ewing, Marc Schuyler Reiner, Dorsey & Whitney LLP, New York, NY, Juan C. Basombrio, Dorsey & Whitney LLP(CA), Irvine, CA, for Plaintiffs.
Isaac S. Greaney, Sidley Austin LLP(NY), New York, NY, Philip D. Chen, Sidley Austin LLP, Washington, DC, for Defendants.
DECISION AND ORDER
Plaintiffs Sofi Classics, S.A. de C.V. and Grupo Industrial Miro, S.A. de C.V. (collectively, "Plaintiffs") brought this action against David Hurowitz ("Hurowitz") and James Long ("Long") in a complaint (the "Complaint") alleging fraud, breach of contract, breach of fiduciary duty, and unjust enrichment, and requesting a declaratory judgment. Hurowitz moved to dismiss the Complaint pursuant to Fed.R.Civ.P. 12(b)(6).
By letter dated January 19, 2006, Long's counsel moved to withdraw on the ground that Long died on or around December 12, 2005. The Court granted Long's counsel's motion to withdraw. On March 15, 2006, Judy B. Long ("J.Long"), the Personal Representative of the Estate of James Long, moved to be substituted as the defendant in this action. The Court granted this motion. On April 24, 2006, J. Long moved to dismiss the complaint and adopted the Memorandum in Support of the Motion to Dismiss of David A. Hurowitz. By letter dated April 24, 2006, Plaintiffs' counsel informed the Court that Plaintiffs have no objection to the substitution of J. Long for Long, or to J. Long's joining the motion to dismiss previously filed by Hurowitz. Accordingly, the Court orders that the motion to dismiss filed by Hurowitz be deemed to have been made on behalf of J. Long as well. Below, Hurowitz and J. Long collectively will be referred to as "Defendants."
For the reasons set forth below, Defendants' motion to dismiss is granted in part and denied in part.
This proceeding arises from a dispute between Plaintiffs, Mexican corporations that manufacture garments, and two companies, MHPG, Inc. ("MHPG"), incorporated in Massachusetts, and Four Seasons Screenprinting, Inc. ("Four Seasons"), incorporated in South Carolina (MHPG and Four Seasons collectively will be referred to as the "Corporations"). Hurowitz and Long were the officers and principal shareholders in MHPG and Four Seasons, respectively.
The Complaint alleges that at all relevant times, MHPG and Four Seasons were operated jointly by Defendants with respect to their dealings with Plaintiffs. The Complaint also alleges that MHPG and Four Seasons were "merged" prior to their dealings with Plaintiffs. (Compl.¶ 8.)
In late 2000, Plaintiffs entered into an agreement with MHPG and Four Seasons to form a joint venture for the purpose of manufacturing garments and other goods in Mexico for sale in the United States (the "Joint Venture Agreement"). The Joint Venture Agreement was negotiated by Hurowitz and Long, acting on behalf of MHPG and Four Seasons, respectively, and Asian Cohen and others acting on behalf of Plaintiffs.
After negotiating the Joint Venture Agreement, the Plaintiffs and the Corporations began the process of forming a legal entity for purposes of carrying out the joint venture. The legal entity was to be called "M-cubed." However, the parties began implementing the terms of the Joint Venture Agreement without waiting for Mcubed to be legally established.
From early 2001 through late 2001, Plaintiffs manufactured garments and shipped them to the Corporations pursuant to the Joint Venture Agreement. Those garments were sold in the United States by the Corporations. The Corporations allegedly failed to make the required payments to Plaintiffs for the garments. Hurowitz and Long allegedly represented to Plaintiffs that the Corporations' failure to pay for the garments was a "temporary payment problem," and in reliance on these representations, Plaintiffs shipped additional garments to the Corporations. Plaintiffs' shipments to the Corporations allegedly totaled over $2 million worth of goods.
In 2001, MHPG filed an action against Plaintiffs in the United States District Court for the District of Massachusetts related to disputes arising from the Joint Venture Agreement. On July 31, 2001, Plaintiffs and the Corporations executed a settlement agreement (the "Settlement Agreement") resolving that action. Pursuant to the Settlement Agreement, the Corporations executed promissory notes and guarantees and agreed to pay Plaintiffs in excess of $2.7 million.
The Corporations allegedly defaulted on their payment obligations under the Settlement Agreement. In early 2003, Plaintiffs filed an action against the Corporations in the Supreme Court of the State of New York, County of New York, alleging breach of the Settlement Agreement. Plaintiffs thereafter obtained judgments against the Corporations for breach of the Settlement Agreement and subsequently attempted to enforce the judgments. Plaintiffs allege that they have been unsuccessful to date in their efforts to enforce the judgments because the companies "appear to have been looted of all their assets." (Compl. at ¶ 26.)
Plaintiffs allege that although Hurowitz and Long were not parties to the Joint Venture and Settlement Agreements, piercing the corporate veil of the Corporations is warranted to hold Hurowitz and Long personally liable for the breach asserted. As discussed in greater detail below, Plaintiffs assert that Hurowitz and Long "completely dominated and controlled" the Corporations and perpetuated fraud through that domination.
Plaintiffs further claim that Defendants made misrepresentations and intentionally concealed material facts from Plaintiffs and that Plaintiffs relied on those misrepresentations and omissions and were thereby fraudulently induced to enter into the Joint Venture Agreement, to ship goods to the Corporations in connection with the Joint Venture Agreement, and to execute the Settlement Agreement. Specifically, Plaintiffs allege that, at the time that the Joint Venture Agreement and Settlement Agreement were entered into, Hurowitz and Long "actively conceal[ed]" from Plaintiffs: that the Corporations were financially incapable of making the required payments to Plaintiffs; that the Corporations owed a debt of over $6 million to certain unidentified lending institutions; that the Corporations had instituted a "lockbox arrangement" with those unidentified lending institutions prior to entering into the Joint Venture Agreement that entailed routing payments from customers of the Corporations directly to a "lockbox" used by the lending institutions to pay down the line of credit; and that pursuant to the "lockbox" arrangement, the lending institutions provided the Corporations "sufficient funds only to make some payments, continue operations and collect inventory, which was then sold to pay down the line of credit." (Compl.¶ 17.) Plaintiffs charge that Hurowitz and Long concealed that they had personally guaranteed, and thus were personally liable for, the Corporations' $6 million in debt.
Plaintiffs also bring causes of action for breach of fiduciary duty and unjust enrichment, and seek a declaratory judgment against Defendants.
A motion to dismiss pursuant to Fed. R.Civ.P. Rule 12(b)(6) ("Rule 12(b)(6)") should be denied "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)). For purposes of a Rule 12(b)(6) motion, the Court must accept all well-pleaded allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiff. See Mills v. Polar Molecular Corp., 12 F.3d 1170, 1174 (2d Cir.1993).
Defendants move to dismiss the Complaint pursuant to Rule 12(b)(6) on the following grounds: (1) Plaintiffs' breach of contract claims, except those related to breach of the Settlement Agreement, are precluded by a provision of the Settlement Agreement which releases Defendants from all prior claims; (2) Plaintiffs' breach of contract claims fail because Hurowitz and Long were not parties to any agreements entered into between Plaintiffs and the Corporations, and the allegations set forth in the Complaint are insufficient to permit piercing of the corporate veil to find Defendants personally liable; (3) Plaintiffs fail to state a claim for fraud because (a) Plaintiffs fail to plead fraud with the requisite particularity pursuant to Fed.R.Civ.P. 9(b) ("Rule 9(b)"), (b) Plaintiffs' fraud claims are duplicative of their breach of contract claims and barred by the economic loss rule, and (c) Plaintiffs have not adequately pled the elements of fraud; (4) Plaintiffs' breach of fiduciary duty claim is precluded because Hurowitz and Long did not owe a fiduciary duty to Plaintiffs; (5) Plaintiffs' unjust enrichment claim fails because it is brought in conjunction with breach of contract claims; and (6) Plaintiffs' declaratory judgment claim is duplicative of the other claims and is therefore legally deficient. Each of these arguments is addressed below.
Defendants argue that Plaintiffs' breach of contract claims related to the Joint Venture Agreement must be dismissed on the grounds that a provision in the Settlement Agreement releases Hurowitz and Long from all prior claims. The provision reads as follows:
Upon receipt of the Promissory Notes and Guarantee, Defendants agree to and do release and forever discharge Plaintiff,2 MHSI and Four Seasons and their respective officers, directors, employees,...
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