Opinion
03 Civ. 5597 (JFK).
March 17, 2006
APPEARANCES: For Plaintiff Fashionwear (PVT), Ltd. Shanker Law Group Marnie S. Cooper, Esq., Of Counsel Mineola, NY.
For Defendant Regatta (U.S.A.) LLC: Ira Daniel Tokayer, Esq. New York, NY.
Steven M. Gerber, Esq. New York, NY.
OPINION and ORDER
Defendant moves for summary judgment dismissing Plaintiff's claim for breach of contract, alleging the claim lacks merit and, in the alternative, the amount in controversy is insufficient for federal jurisdiction. Defendant also moves for summary judgment on its counterclaim for breach of contract. Plaintiff cross-moves for summary judgment, urging the Court to enter judgment on the law on its breach of contract claim and to dismiss Defendant's counterclaim. For the reasons discussed below, the cross-motions for summary judgment and Defendant's motion to dismiss for lack of jurisdiction are denied.
Factual Background
Plaintiff Fashionwear (PVT) Ltd. ("Fashionwear") is a garment manufacturer with its principal place of business in Pakistan. (Compl. ¶ 2.) Defendant Regatta (U.S.A.) LLC ("Regatta"), a New York corporation, is an importer and wholesaler of women's clothing. (Gomes Aff. ¶ 3.)
Regatta has a contractual relationship with Icon Sourcing Services (PVT) Ltd. ("Icon"), authorizing Icon to act as Regatta's purchasing agent for the procurement of goods. (Cooper Aff. Ex. L; Def.'s Opp'n 56.1 Statement ¶ 16.) The effective dates and scope of this relationship are not evident from the pleadings or the motion papers.
In August 2001, Regatta placed an order with Fashionwear for the manufacture of garments. (Compl. ¶¶ 6-8.) Whether Icon acted as Regatta's purchasing agent for this transaction is in dispute. (Pl.'s 56.1 Statement ¶ 2; Def's Opp'n 56.1 Statement ¶¶ 15-16.). A portion of the garments (the "Delivered Goods") were then delivered to Regatta in the United States. After delivery, Defendant reported problems with the quality of the goods and further shipments were terminated. (Def.'s Mem. at 2.) Regatta had already paid $91,995.50 for the Delivered Goods (Def's 56.1 Statement ¶ 5), leaving an unpaid balance of $36,127.50 (Pl.'s 56.1 Statement ¶ 4).
In addition, Fashionwear allegedly manufactured $41,356 worth of goods (the "Undelivered Goods") in accordance with the contract that remain in Fashionwear's warehouse, and on which no payment has been made. (Def.'s 56.1 Statement ¶ 5.)
Procedural History
Fashionwear's complaint asserts claims for breach of contract,quantum meruit, and unjust enrichment and asks the Court for judgment in the amount of $77,483.50 plus interest, costs, and attorney's fees.
Regatta moved to dismiss the complaint for lack of jurisdiction over the subject matter pursuant to Federal Rule of Civil Procedure ("FRCP") 12(b) (1), and to dismiss the quantum meruit, unjust enrichment, and attorneys' fees claims for failure to state a claim upon which relief can be granted pursuant to FRCP 12(b) (6).
The motion was granted in part and denied in part. Fashionwear (PVT) LTD. v. Regatta (U.S.A.) LLC., No. 03 Civ. 5597, 2004 WL 2210258 (Sept. 29, 2004). After upholding its subject matter jurisdiction, this Court dismissed Fashionwear's claims forquantum meruit, unjust enrichment, and attorneys' fees. Id. at *4.
Thereafter, Regatta filed a counterclaim for $196,340.63 of damages "suffered as a result of plaintiff's nonconforming delivery." (Def.'s Mem. Law at 2.)
Regatta now moves for summary judgment, arguing Fashionwear's surviving claim for breach of contract lacks legal merit because Regatta effectively rejected the Delivered Goods as nonconforming pursuant to New York Uniform Commercial Code ("UCC") § 2-601, and calling into question whether the Undelivered Goods were ever manufactured. Regatta also moves for summary judgment on its counterclaim and provides the Court with an affidavit from its Chief Financial Officer ("CFO"), attempting to substantiate $196,340.63 worth of damages. (Pleeter Aff.) Defendant argues, in the alternative, that the Court lacks subject matter jurisdiction over the case because the amount in controversy does not exceed $75,000. See 28 U.S.C. 1332(a) (2000).
Fashionwear cross-moves for summary judgment, arguing the Delivered Goods conformed to the contract and, in any event, were not effectively rejected under UCC § 2-601. As to the Undelivered Goods, Fashionwear argues they were manufactured specifically for Regatta and cannot be resold "as they are of no value to the local market or abroad." (Dutt Aff. ¶ 27.) Fashionwear moves to dismiss Regatta's counterclaim, arguing the affidavit submitted by Fashionwear's CFO is insufficient proof of any damages. As to subject matter jurisdiction, Fashionwear contends that the amount in controversy exceeds $75,000.
Discussion
I. Subject Matter Jurisdiction
Under 28 U.S.C. § 1332(a), a federal court has jurisdiction over the subject matter of a civil action "where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between . . . citizens of a State and citizens or subjects of a foreign state." "`[T]he sum claimed by the plaintiff controls if the claim is apparently made in good faith.'" Chase Manhattan Bank, N.A. v. Am. Nat'l Bank Trust Co., 93 F.3d 1064, 1070 (2d Cir. 1996) (quoting St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 288-89 (1938)). Moreover, "[i]t must appear to a legal certainty that the claim is really for less than the jurisdictional amount to justify dismissal." St. Paul, 303 U.S. at 289; Ocean Ships, Inc. v. Stiles, 315 F.3d 111, 115 (2d Cir. 2002); see Romano v. MTI/The Image Group, Inc., No. 01 Civ. 6201, 2003 WL 22203735, at *2 (S.D.N.Y. Sept. 22, 2003).
Regatta argues that the amount in controversy here is only $74,075.50, rather than the $77,483.50 Fashionwear alleges in its complaint. Regatta offers this lower figure because it disputes the manufacture of $3,408 worth of Undelivered Goods, for which Fashionwear has provided no invoice. (Def.'s Mem. Law at 3.) Fashionwear responds that the goods, although not invoiced or shipped, were prepared specifically for Regatta pursuant to Purchase Order LC # 00349672. (Pl.'s Mem. Law at 10.)
There is no evidence that Fashionwear makes its claim for $77,483.50 in anything other than good faith. The fact that $3,408 worth of goods were not invoiced does not mean as a certainty that they were never manufactured for Defendant. Fashionwear's explanation that these goods were manufactured pursuant to Purchase Order LC # 00349672 but not yet invoiced is plausible. As a result, dismissal for lack of jurisdiction is unwarranted.
II. Summary Judgment Cross-Motions
A. Legal Standards
1. Summary Judgment
A motion for summary judgment may be granted under FRCP 56 if the entire record demonstrates that "there is no genuine issue as to any material fact and . . . the moving party is entitled to judgment as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). "The judge's inquiry, therefore, unavoidably asks whether reasonable jurors could find by a preponderance of the evidence that the plaintiff is entitled to a verdict. . . ." Id. at 252.
When viewing the evidence, the Court must "assess the record in the light most favorable to the non-movant and . . . draw all reasonable inferences in its favor." Delaware Hudson Ry. Co. v. Consol. Rail Corp., 902 F.2d 174, 177 (2d Cir. 1990); see also Anderson, 477 U.S. at 255; McLee v. Chrysler Corp., 109 F.3d 130, 134 (2d Cir. 1997). "[A]t the summary judgment stage the judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson, 477 U.S. at 249. To survive the motion, the non-movant must present evidence of a genuine issue of fact that requires a trial. Id. at 257.
2. New York Uniform Commercial Code: Rejection of Nonconforming Goods
The New York Uniform Commercial Code ("UCC") recognizes the "perfect tender" rule: "the policy of requiring exact performance by the seller of his obligations as a condition to his right to require acceptance." UCC § 2-106 cmt. 2. As such, when goods do not "conform" — in other words, "when they are [not] in accordance with the obligations under the contract," UCC § 2-106(2) — the buyer is entitled to reject the goods in whole, UCC § 2-601.
A rightful rejection, "must be within a reasonable time after delivery or tender." UCC § 2-602(1). Rejection is ineffective "unless the buyer seasonably notifies the seller." Id. The Official Comment to this section explains that "tender or delivery of goods made pursuant to a contract of sale, even though wholly non-conforming, requires affirmative action by the buyer to avoid acceptance." UCC § 2-602 cmt. 1.
Due notification of rejection is defined as "taking such steps as may be reasonably required to inform the other in ordinary course whether or not such other actually comes to know of it." UCC § 1-201(26); see UCC § 2-602 cmt. 1 (referring to UCC § 1-201 for definition of "notification of rejection").
The rules governing rejections in agreements deemed "installment contracts" are different. See UCC § 2-612(2) ("[B]uyer may reject . . . if the non-conformity substantially impairs the value of that installment and cannot be cured.") Though neither party raises the issue, it is possible the agreement here could be considered an "installment contract" under the UCC. See UCC § 2-612(1) cmt. 1 ("The definition of an installment is phrased more broadly . . . so as to cover installment deliveries tacitly authorized by the circumstances. . . ."). The Court will not go into a detailed discussion of the law of installment contracts because considering the present agreement an installment contract would not affect the outcome of the summary judgment motions.
B. Analysis
The Court discusses in turn the merits of the cross-motions for summary judgment on (1) Fashionwear's breach of contract claim for the Delivered Goods, (2) Fashionwear's breach of contract claim for the Undelivered goods, and (3) Defendant's counterclaim.
1. Delivered Goods
The parties put two issues in play with regard to the Delivered Goods: whether the goods conformed to the terms of contract and whether the goods were properly rejected. Each side moves for summary judgment in its favor on these issues.
a. Conformity of the Delivered Goods
Frankly, the Court is confused about the motivation behind cross-motions for summary judgment on this issue in view of express admissions in both parties' moving papers that conformity is a disputed material issue of fact. According to Fashionwear's Memorandum of Law, "[t]he complaint must not be dismissed as there are issues of fact that exist precluding Summary Judgment in favor of defendant Regatta; to wit the condition of the goods shipped." (Pl.'s Mem. at 2.) Similarly, in opposition to Fashionwear's 56.1 Statement, under the heading "Additional Material Facts as to Which There Exists a Genuine Issue To Be Tried," Regatta lists "[w]hether [the] garments . . . fail to conform to agreed-upon commercially-acceptable quality standards." (Def.'s 56.1 Opp'n ¶ 18.)
Because the Court can only grant summary judgment if it determines no material issues of fact exist, it behooves a party moving for summary judgment to argue that material facts are absent, rather than to expressly admit, as these parties do, that material facts are present. Nonetheless, the Court will give both parties the benefit of the doubt that such statements represent a lack of understanding of the summary judgment standard rather than a conscious misuse of the process. As a result, the Court will disregard these statements and proceed as usual by examining the record.
If the Court suspected an improper purpose behind these motions, it could, sua sponte, initiate the proceedings for Rule 11 sanctions. Fed.R.Civ.P. 11.
With regard to the Delivered Goods, Regatta claims that the garments are nonconforming; specifically that they had "open seams, broken stitches, skipped stitches, loose threads, crooked plackets, inconsistencies in collar measurements and raw neck seams, among other things." (Gomes Aff. ¶ 5.) Fashionwear claims "there was absolutely nothing wrong with the garments." (Dutt Aff. ¶ 20.) Each side offers affidavits and exhibits to support its position. On summary judgment, the Court cannot decide which set of evidence is more persuasive. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). Therefore, the condition of the Delivered Goods is a disputed question of fact. See Hubbard v. UTZ Quality Foods, Inc., 903 F.Supp. 444, 451 (W.D.N.Y. 1995).
The parties dispute the admissibility of one of Fashionwear's exhibits, containing inspection certificates allegedly prepared by Icon. (Cooper Aff. Ex. B.) Defendant avers that the certificates provide no evidence of the condition of the goods and, in any event, are inadmissable hearsay. (Def.'s Reply Mem. at 8.) Fashionwear counters that the certificates fit the business records exception to the hearsay rule and should, therefore, be admitted and considered by the Court in deciding this motion. (Pl.'s Reply Mem. at. 1-2.) The Court reserves decision on the admissibility of these certificates because they do not affect the disposition of this motion.
b. Rejection of Delivered Goods
Fashionwear contends that, regardless of the condition of the goods, Regatta's rejection was ineffective as a matter of law because Regatta did not clearly express rejection and never returned the goods to Fashionwear. Regatta argues to the contrary that Fashionwear's claims should be dismissed as a matter of law because Regatta correctly rejected the Delivered Goods and, therefore, owes nothing for them.
As with the previous issue of conformity, the Court is perplexed by cross-motions for summary judgment on the effectiveness of Defendant's rejection, given the parties' admissions in their moving papers that a genuine issue of material fact exists on this issue. Fashionwear's Memorandum of Law states that "an issue exists as to whether the defendant Regatta properly rejected Fashionwear's goods." (Pl.'s Mem. at 2.) Similarly, under the heading "Additional Material Facts as to Which There Exists a Genuine Issue To Be Tried," Regatta lists "[w]hether plaintiff's [sic] complaints about the quality of the goods constituted a `rejection'" and "[w]hether Regatta's `retention' of the goods constitutes an "acceptance." (Def.'s 56.1 Opp'n ¶¶ 19-20.)
Again, the Court will give the parties the benefit of the doubt, disregard these statements, and examine the record as it normally does on summary judgment motions. To that end, the Court addresses below arguments regarding the effectiveness of Regatta's rejection.
i. Regatta's Expressions of Dissatisfaction
Fashionwear argues that Regatta's mere expressions of dissatisfaction after receiving the goods were not sufficient notice of rejection. Fashionwear relies on Maggio Importato, Inc. v. Cimitron, Inc., 592 N.Y.S.2d 325 (App.Div. 1993). TheMaggio court decided as a matter of law that a particular buyer's "mere complaints" about the goods were not sufficient notice of rejection. The court's reasoning is not explained in its one paragraph Memorandum Decision. However, to reach such a decision on summary judgment, the court must have concluded that the "mere complaints" in question were so tenuous that no reasonable juror could have found they constituted a rejection.See Anderson, 477 U.S. at 252. The Court does not know whether, under Maggio, Regatta's complaints about the goods would be considered similarly tenuous because no facts are listed in that decision.
However, Texpor Traders, Inc. v. Trust Co. Bank, 720 F. Supp. 1100 (S.D.N.Y. 1989), provides a somewhat comparable factual scheme that this Court can look to for guidance. In Texpor, the Court concluded after a bench trial that the buyer effectively rejected garments with "defects ranging from improper stitching and holes in the fabric to soiled or dirty garments and lack of uniformity in fabric weight and color." Id. at 1105. The seller was asked to come to the buyer's warehouse for a meeting to discuss problems with the condition of the garments. Id. at 1106-07. The buyer gave no formal notice of rejection. Id. at 1107, 1112. Nonetheless, the Court found that the buyer had effectively rejected the goods. Id. at 1111.
Here, as in Texpor, though the buyer did not provide formal notice, the seller was made aware of the buyer's quality problems with the shipped garments. (Cooper Aff. Ex. J at 88-93.) In addition, Abdul Majid Dutt, Fashionwear's Director of Technical during the relevant time period, went to Regatta's warehouse after learning that Regatta was "dissatisfied" with the goods (Dutt Aff. ¶ 20), and held meetings with Regatta employees to discuss the quality problems (Cooper Aff. Ex. J at 88-93). Though there are factual differences between the two cases, after examining Texpor, the Court concludes that a reasonable fact finder could deem Regatta's rejection effective.
The Court is also influenced by § 1-201(26), which requires "such steps as may be reasonably required to inform the other in ordinary course" in order to effectuate rejection. UCC § 1-201(26) (emphasis added); see UCC § 2-602 cmt. 1. Whether something is done "reasonably" is usually a question of fact.See Sherkate Sahami Khass Rapol (Rapol Const. Co.) v. Henry R. Jahn Son, 701 F.2d 1049, 1051 (2d Cir. 1983); In re JWP Inc. Securities Litigation, 928 F. Supp. 1239, 1248 (S.D.N.Y. 1993). Given the considerations discussed above, summary judgment on the effectiveness of Regatta's rejection is inappropriate.
ii. Regatta's Retention of the Goods
Fashionwear also argues that Regatta's rejection, if any, was destroyed by Regatta's failure to return the Delivered Goods to Fashionwear. Regatta's retention of the goods, however, does not necessarily vitiate rejection: "[I]f the seller gives no instructions within a reasonable time after notification of rejection the buyer may store the rejected goods for the seller's account or reship them to him or resell them for the seller's account. . . . Such action is not acceptance or conversion." UCC § 2-604; see 2-601 cmt. 2 ("[B]uyer's attempts in good faith to dispose of defective goods where the seller has failed to give instructions within a reasonable time are not to be regarded as an acceptance."). Therefore, the Court cannot say as a matter of law that Regatta's retention of the goods negated its purported rejection.
2. Undelivered Goods
The parties cross move for summary judgment on whether Regatta owes money for the Undelivered Goods. Regatta contends there is no evidence these goods were ever manufactured. It cites Fashionwear's failure to produce production reports for the garments. (Def.'s 56.1 Opp'n ¶ 21.) Mr. Dutt testified in his deposition that production reports were customarily created for all manufactured goods. (Cooper Aff. Ex. J at 27.) In addition, Fashionwear has admitted that Icon never inspected these goods. (Pl.'s Reply Mem. at 6.) This tends to show that the goods were not produced in view of Fashionwear's claim in its Memorandum of Law that "[d]uring production, Icon had a quality control team who carried out . . . in-line inspections of garments being produced." (Pl.'s Mem. at 5.) On the other hand, Fashionwear has provided invoices for all but $3,408 worth of goods. (Cooper Aff. Ex. F.) Given this contradictory evidence, the Court cannot decide as a matter of law whether the goods were manufactured, as that would involve credibility determinations and the weighing of evidence. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986).
Fashionwear claims Regatta never made a formal demand for production reports. (Cooper Aff. ¶ 11.) However, Fashionwear had the opportunity to produce these reports as exhibits to its reply brief.
3. Counterclaim
Both parties move for summary judgment on Regatta's counterclaim for damages stemming from Fashionwear's delivery of allegedly nonconforming goods. It would be premature for the Court to rule on the counterclaim because whether Fashionwear even breached the contract by delivering nonconforming goods is a question of fact.
Conclusion
The Court has subject matter jurisdiction over this case. The cross-motions for summary judgment are both denied in their entirety. The parties are directed to appear before this Court for a scheduling conference on May 1, 2006 at 10:15 AM.
SO ORDERED.