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Fraud Claims Against Laundering Machine Distributor Come Out In The Wash

A recent case from the Southern District of New York, B & M Linen, Corp., v. Kannegiesser, USA, Corp., __ F.Supp.2d __, 2010 WL 183410 (S.D.N.Y.), addressed the pleading standards for claims of breach of fiduciary duty, fraud, negligent misrepresentation, and other torts. The plaintiff, a launderer, sued the manufacturer of its laundry equipment, as well as the manufacturer’s parent company and certain executive officers, based upon plaintiff’s dissatisfaction with the equipment. According to plaintiff, defendants promised to design and manufacture customized products for plaintiff and assured plaintiff that the products were of “superior quality and durability”. Plaintiff claimed that it relied upon those promises when deciding to place its order with the defendants.

Upon receiving the equipment, various problems, including design defects and manufacturing errors, were uncovered. Plaintiff alleged that defendants performed only “minimal repairs or replacements” and that most of the repairs were done at Plaintiff's cost and expense. Plaintiff's complaint included various tort claims, as well as a claim for breach of contract. Defendants moved to dismiss.

Citing Bell Atlantic Corp. v. Twombly, the court described the legal standard governing defendants’ motion to dismiss, stating plaintiff’s claims “must be enough to raise a right of relief above the speculative level”. The court then addressed the elements of plaintiff’s breach of fiduciary claim and determined that plaintiff’s legal conclusions and hazy factual claims lacked sufficient allegations to make it plausible that the plaintiff had a fiduciary relationship with the defendants. Because plaintiff failed to explain why the parties' relationship was different than a typical arm's length commercial transaction between a buyer and a seller, the court held that plaintiff’s complaint was inadequate and dismissed the breach of fiduciary duty claim.

Regarding plaintiff’s fraud claims, the court noted that such claims will not survive if they merely restate a claim for breach of contract. The court also addressed Fed. R. Civ. P. 9(b), which requires fraud to be pled with particularity. The court held that plaintiff’s allegations failed to meet the heightened pleading standard and described plaintiff’s claims as “nothing more than accusations that defendants did not live up to the terms of the deal they struck with [plaintiff].” According to the court, defendants’ alleged promise to provide “top of the line” equipment with “topnotch output” was nothing more than a “statement of opinion” or “commercial puffery”, which is not actionable in New York. Therefore, the fraud claims were dismissed.

The court then turned to plaintiff’s negligent misrepresentation claim and again held that the facts pled in the complaint revealed nothing more than a typical arm's-length transaction between the parties. Because plaintiff could not establish a special relationship between the parties, and because plaintiff failed to plead any facts that would make its reliance on defendants’ promises reasonable, that claim was dismissed.

Addressing plaintiff’s interference claim, the court stated that although the complaint did not specify whether that claim was for tortious interference with contract or for tortious interference with prospective economic advantage, it was of no consequence, as plaintiff failed to plead facts sufficient to maintain either cause of action. Specifically, both claims require a showing of intent on the part of the defendants to interfere with plaintiff’s business relationships. Because plaintiff had not alleged that the defendants intended to disrupt its business relationships, the claim was dismissed.

This case is a good example of the recent trend in the federal courts since the Supreme Court handed down its decisions in Twombly and Iqbal. Although Fed. R. Civ. P. 8 merely requires a “short and plain statement of the claim”, plaintiffs can no longer simply recite the legal elements and expect to overcome a motion to dismiss. Instead, the complaint must state a claim to relief “that is plausible on its face”. According to the Supreme Court, a claim has facial plausibility when the pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Clearly, it is essential to develop the facts before drafting the complaint, rather than waiting for discovery in hopes of doing so.

Sean C. McPhee, Esq.

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This page contains a single entry from the blog posted on February 21, 2010 6:54 PM.

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