Summary
dismissing intentional fraudulent transfer claim that failed to identify the property that was transferred, when the transfers occurred and to whom the transfers were made
Summary of this case from In re M. Fabrikant Sons, Inc.Opinion
01 Civ. 8871 (JCF)
May 29, 2002
MEMORANDUM OPINION AND ORDER
This is an action raising breach of contract and related claims in which the plaintiff, Wujin Nanxiashu Secant Factory ("Wujin"), alleges that the defendants, Ti-Well International Corporation ("Ti-Well") and its principal, Juntai Li ("Mr. Li"), have failed to make payment for goods sold and delivered and have defaulted on a related note. The parties agreed to refer this case to me for final disposition pursuant to 28 U.S.C. § 636(c). The defendants now move to dismiss the complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim and to dismiss the fraud claims for failure to plead them with the specificity required by Rule 9(b). The plaintiff cross-moves pursuant to Rule 12(f) to strike all of the defenses contained in the answer. For the following reasons, the defendants' motion is granted in part and denied in part, and the plaintiff's motion is denied.
Background
According to the complaint ("Compl.") and the documents attached to it, Qingdao First Cotton Spinning Factory ("Qingdao") entered into a contract on March 27, 1998, in which it agreed to supply 1,500,000 meters of corduroy fabric to defendant Ti-Well for $1,650,000 (the "Contract of Sale"). (Compl. ¶ 15-16 Exh. A). Qingdao, in turn, entered into a contract by which it obtained the corduroy from plaintiff Wujin, which had manufactured it. (Compl. ¶ 21 Exh. B). Wujin delivered the goods directly to Ti-Well, but Ti-Well failed to pay Qingdao $588,000 of the amount owed. (Compl. ¶¶ 24, 28).
On November 11, 1999, Qingdao, Ti-Well, and Mr. Li entered into a further agreement with Wujin and with two other manufacturers who had supplied corduroy to Wujin for sale to Ti-Well (the "Payment Agreement"). (Compl. ¶ 32 Exh. D). Pursuant to that agreement, Qingdao assigned to Wujin its right to receive payment of $588,000 from Ti-Well, and Wujin released Qingdao of any payment obligation. (Compl. ¶¶ 33-36 Exh. D).
Although paragraph 32 of the complaint refers to the Payment Agreement as Exhibit C, Exhibits C and D were apparently transposed.
Finally, on October 29, 1999, Mr. Li issued a promissory note to Wujin, obligating him to pay $588,000 (the "Note"), and this note was guaranteed by Xiangting Li, Mr. Li's father. (Compl. ¶¶ 38-39 Exh. E). In December 1999, the defendants paid $50,000.00 to Wujin, leaving an outstanding balance of $538,000. (Compl. ¶¶ 41-43).
Discussion A. Motion to Dismiss 1. Legal Standard
In considering a motion to dismiss, the court must accept as true all factual allegations in the complaint and must draw all inferences in favor of the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974); York v. Association of the Barbf the City of New York, 286 F.3d 122, 125 (2d Cir. 2002); Connolly v. McCall, 254 F.3d 36, 40 (2d Cir. 2001). The complaint should be read generously, and dismissal is not warranted 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." Tarshis v. Riese Organization, 211 F.3d 30, 35 (2d Cir. 2000) (quoting Conley v. Gibson, 355 U.S. 41, 45— 46 (1957)).
2. Chinese Law
The defendants first argue that the plaintiff has failed to state a cause of action for breach of contract (First Cause of Action), account stated (Second Cause of Action), goods sold and delivered (Third Cause of Action), quantum meruit (Fourth Cause of Action), breach of note (Fifth Cause of Action), conversion (Seventh Cause of Action), and unjust enrichment (Ninth Cause of Action) because Ti-Well owes no debt under the law of the People's Republic of China. According to the defendants, the Economic Contract Law of China applies to this action and requires that a contract set forth "the liability for breach of contract." (Defendants' Memorandum of Law in Support of Motion to Dismiss at 2). Since the Contract of Sale contained no such clause, the defendants maintain that the plaintiff has no remedy.
The defendants have provided, however, no more than a conclusory statement of Chinese law. They have provided no text of the statutes on which they rely, no treatises, no caselaw, and no expert affidavit supporting their interpretation. Although their memorandum of law may suffice as notice of the defendants' intent to rely on foreign law under Rule 44.1 of the Federal Rules of Civil Procedure, it falls well short of demonstrating that the complaint fails to state a cause of action under Chinese law. Indeed, if the defendants fail to establish the substance of the Chinese law they refer to, this case will ultimately be decided on the basis of New York law:
[W]here either no information, or else insufficient information, has been obtained about the foreign law, the forum will usually decide the case in accordance with its own local law. . . . The forum will usually apply its own local law for the reason that in this way it can best do justice to the parties. . . . When both parties have failed to prove the foreign law, the forum may say that the parties have acquiesced in the application of the local law of the forum.
Restatement (Second) of Conflicts § 136, cmt. h (1971); see Clarkson Co. v. Shaheen, 660 F.2d 506, 512 n. 4 (2d Cir. 1981) (applying New York law where parties failed to claim applicability of Canadian law);Vishipco Line v. Chase Manhattan Bank, N.A., 660 F.2d 854, 860 (2d Cir. 1981) (applying New York law where parties did not claim applicability of foreign law, even though New York choice of law rules would dictate use of Vietnamese law); In re Bennett Funding Group, Inc. Securities Litigation, 270 B.R. 126, 129 n. 4 (S.D.N.Y. 2001) (applying New York law despite suggestion that Bermuda law would apply where "none of the parties have proven foreign law through the submission of affidavits, statutory authority, case authority, sworn testimony or other similar evidence"). At this point, in any event, the defendants have not demonstrated that Chinese law mandates dismissal of the complaint.
3. Duress
Next, the defendants argue that the Payment Agreement was the product of duress. According to Mr. Li, he visited China in October 1999 to discuss resolution of the debt, but was detained by Chinese authorities who would not allow him to leave the country until he had signed the agreement. (Affidavit of Juntai Li dated Feb. 20, 2002, ¶¶ 7-8).
In certain limited circumstances, a motion to dismiss may be based on an irrebuttable affirmative defense. See Day v. Moscow, 955 F.2d 807,811 (2d Cir. 1992) (res judicata); In re DoubleClick Inc. Privacy Litigation, 154 F. Supp.2d 497, 508 (S.D.N.Y. 2001); Messner Vetere Berger McNamee Scmetterer EURO RSCG Inc. v. Aegis Group PLC, 974 F. Supp. 270, 273 (S.D.N.Y. 1997) (statute of frauds). This is not such a case. The defendants' duress defense is not established on the face of the pleadings, and Mr. Li's affidavit is not appropriately considered on a motion to dismiss. See Omniglow Corp. v. Indeglow, Inc., No. 01 Civ. 2379, 2001 WL 1568812, at *1 (S.D.N.Y. Dec. 7, 2001) (parties entitled to discovery on fact-sensitive defense). Thus, this argument also fails.
4. Lack of Consideration
The defendants next attack the Note as a basis for the plaintiff's claims, arguing that since it was signed before Qingdao had assigned its rights to Wujin, it was made without consideration. But an antecedent debt is valid consideration for a promissory note. See Citicorp International Trading Co. v. Western Oil Refining Co., 790 F. Supp. 428, 435 (S.D.N.Y. 1992). And, here, the fact that the antecedent debt was owed to Qingdao rather than Wujin at the time the note was signed may be immaterial if the parties were anticipating the imminent assignment of rights to Wujin. That is a matter appropriately explored in discovery and is not susceptible to a motion to dismiss.
5. Personal Liability
Mr. Li contends that he is not liable under the Payment Agreement or the Note because he signed both documents as president of Ti-Well and not in his individual capacity. This argument fails because the complaint alleges that Mr. Li is the alter ego of Ti-Well, an allegation that must be taken as true on a motion to dismiss.
6. Conversion
The defendants challenge the plaintiff's conversion claim on the ground that Qingdao continued to ship the goods despite a stop order issued by Ti-Well. As is again clear from the defendants' reliance on facts outside the complaint, this is not a valid basis for a motion to dismiss.
7. Fraudulent Misrepresentation
The complaint alleges that the defendants committed fraud by falsely representing that they would fulfill their contractual obligations to make payment when, in fact, they had no intention of doing so. (Sixth Cause of Action). This claim does not meet the requirement of Rule 9(b) that it be pled with particularity.
In general, "`[t]he mere non-performance of promises is insufficient to create an inference of fraudulent intent.'" Powers v. British Vita, P.L.C., 57 F.3d 176, 185 (2d Cir. 1995) (quoting Enzo Biochem, Inc. v. Johnson Johnson, No. 87 Civ. 6125, 1992 WL 309613, at *11-12 (S.D.N.Y. Oct. 15, 1992)). Rather, "[a] fraud claim "must be supported by the pleadings of specific facts tending to show that, at the time the defendant made the asserted representations and promises, it never intended to honor its stated intention.'" Volga-Inconsult-Invest v. United Management Corp., No. CV 93 4229, 1997 WL 139005, at *5 (E.D.N.Y. March 4, 1997) (quoting Carlucci v. Owens-Corning Fiberglass Corp., 646 F. Supp. 1486, 1491 (E.D.N.Y. 1986)). For example, "intent may be found when a defendant violates an agreement so maliciously and so soon after it is made that his desire to do so before he entered into the agreement is evident." Powers, 57 F.3d at 185.
In this case, no such facts are pled. To the contrary, the acknowledgment in the complaint that the defendants made a partial payment of the debt would seem to undermine any inference of fraudulent intent. Accordingly, the fraud claim shall be dismissed with leave to replead with sufficient particularity.
8. Fraudulent Conveyance
The complaint further alleges that the defendants fraudulently conveyed money and property, including the goods at issue, to other persons without adequate consideration and in order to avoid their debt to Wujin, in violation of sections 273-276 of the New York Debtor and Creditor Law (Eighth Cause of Action). The pleading of a fraudulent conveyance claim is likewise goveifneci by Rule 9(b) See Atlantic Shipping Corp. v. Chemical Bank, 818 F.2d 240, 251 (2d Cir. 1987); United Feature Syndicate, Inc. v. Miller Features Syndicate, Inc., No. 01 Civ. 2491, 2002 WL 389155, at *19 (S.D.N Y March 11, 2002). And, as with the fraud claim, it is not pled with sufficient particularity. The plaintiff has not identified what property was allegedly transferred, when, and to whom. This claim, too, is therefore dismissed with leave to replead.
B. Motion to Strike
The plaintiff moves to strike the defendants' affirmative defenses primarily on the ground that they are factually insupportable. But a motion to strike under Rule 12(f) will not be granted "if there is a substantial question of fact or a mixed question of law and fact that cannot be resolved, even if it is possible to determine the issue by drawing inferences from acts and statements that are not disputed." 5A Charles Alan Wright Arthur R. Miller, Federal Practice and Procedure § 1381, at 676 (1990); see Estee Lauder, Inc. v. Fragrance Counter, Inc., 189 F.R.D. 269, 271-72 (S.D.N.Y. 1999). Here, the same disputed issues of fact that prevent the granting of the defendants' motion to dismiss for failure to state a claim also preclude the striking of their affirmative defenses.
Conclusion
For the reasons set forth above, the defendants' motion is granted to the extent that the claims of fraudulent misrepresentation and fraudulent conveyance are dismissed with leave to replead and denied in all other respects. The plaintiff's motion to strike the defendants' affirmative defenses is denied.