Opinion
No. 01 Civ. 3320 (CBM)
January 4, 2002
MEMORANDUM OPINION AND ORDER
This case involves a dispute over payment for certain sportswear items that were ordered to specifications by New York clothing importers and manufactured by Hong Kong clothing manufacturers. Three of the four defendants have moved for summary judgment and one has moved to dismiss for improper service of process. For the reasons set forth below, the court hereby GRANTS summary judgment to all defendants with respect to all of plaintiffs' causes of action.
FACTUAL BACKGROUND
Defendants Eminent Sportswear Inc. ("Eminent") and Christina Sportswear Ltd. ("Christina") are New York corporations engaged in the business of importing clothing from Asia. Non-party Cotton Supreme Knitting Garment Factory Ltd. ("Cotton Supreme") is a Hong Kong clothing manufacturer.
In March 1993, Eminent and Christina each entered into an agreement with Cotton Supreme pursuant to which Cotton Supreme would manufacture and ship certain clothing items to Eminent and Christina in New York. Under the agreements, Eminent and Christina provided the specifications for the clothing to Cotton Supreme and Cotton Supreme was free to manufacture the items to those specification in any manner it chose — including by subcontracting the work to third parties.
Cotton Supreme soon began experiencing financial difficulties and in April 1993 it contacted plaintiff Sty-Lite Company ("Sty-Lite"), another Hong Kong clothing manufacturer. Cotton Supreme informed Sty-Lite that it had large orders from New York that it did not believe it could fill — both because of its financial problems and because it lacked the requisite import quota allocations — and Sty-Lite agreed to manufacture and ship the clothing in place of Cotton Supreme. According to their agreement, Sty-Lite would ship the goods directly to Eminent and Christina in New York and send copies of the original bills of lading to Cotton Supreme. Once Cotton Supreme received the copies of the bills of lading confirming that the goods had been shipped, Cotton Supreme would pay Sty-Lite and Sty-Lite would furnish Cotton Supreme with the original bills of lading. Neither Cotton Supreme nor Sty-Lite ever informed Eminent or Christina about this arrangement. Eminent and Christina dealt only with Cotton Supreme.
In June 1993, Sty-Lite completed the manufacturing process and shipped the goods to Eminent and Christina in New York via nonparty Sea-Land Service, Inc. ("Sea-Land"), a common carrier. Because the goods were being shipped without the original bills of lading, Sea-Land required Eminent and Christina to have their banks furnish it with "letters of indemnity." The purpose of these letters of indemnity was to ensure that Sea-Land would not be liable if Sty-Lite later claimed that the goods (which had been shipped without the original bills of lading) had not actually arrived. If Sty-Lite were to sue Sea-Land, Sea-Land in turn could implead Eminent's and Christina's banks under these letters of indemnity. As a service to Eminent and Christina, their banks — defendants Hong Kong and Shanghai Banking Corporation Limited ("HSBC") and the Bank of China, respectively issued the requested letters of indemnity.
Sty-Lite in turn arranged for co-plaintiff Eurotex Inc. — an affiliate of Sty-Lite incorporated in Saipan — to fill the Eminent and Christina orders. For purposes of simplicity, this opinion will refer to both plaintiffs collectively as "Sty-Lite."
Prior to the delivery of the goods in New York, Cotton Supreme contacted Eminent and Christina and instructed them not to pay Cotton Supreme directly. Cotton Supreme explained that it was having financial difficulties, that nonparty Century Rich Company Ltd. ("Century Rich") — a Hong Kong corporation owned by the brother of Cotton Supreme's owner — was assisting it in filling its orders and that payment for the goods should be made directly to Century Rich instead of Cotton Supreme. Eminent and Christina had no objection to this arrangement and upon receipt of the goods they sent the invoiced amounts directly to Century Rich.
Back in Hong Kong, Sty-Lite sent Cotton Supreme (pursuant to their agreement) copies of the bills of lading and an invoice for payment. By then, however, Cotton Supreme's financial problems had worsened and Cotton Supreme informed Sty-Lite that it was unable to pay its debt. Cotton Supreme told Sty-Lite to seek payment from Century Rich, but Century Rich also refused to pay Sty-Lite.
Sty-Lite then contacted Eminent and Christina in New York and asked for their assistance in obtaining payment from Cotton Supreme. Sty-Lite explained that Cotton Supreme never paid it for the goods Eminent and Christina had received and that Cotton Supreme owed Sty-Lite yet another $25,000 from a previous transaction that did not involve Eminent and Christina. This communication was the first time that Eminent and Christina had ever heard of Sty-Lite. When Eminent and Christina explained that they had already paid Century Rich (per Cotton Supreme's instructions) and that they could not help Sty-Lite obtain payment from Cotton Supreme, Sty-Lite cancelled its invoices to Cotton Supreme and issued new invoices to Eminent and Christina demanding payment directly from them. Eminent and Christina refused to pay these invoices, explaining that they contracted with Cotton Supreme, not Sty-Lite, and that they had already paid Century Rich pursuant to Cotton Supreme's instructions.
PROCEDURAL POSTURE
In April 1997, Sty-Lite filed suit in this district against Eminent, Christina, HSBC, and the Bank of China. With respect to Eminent and Christina, Sty-Lite asserted claims for breach of contract. Although it had no direct contractual relationship with Eminent and Christina, Sty-Lite's complaint alleged that Cotton Supreme was acting as their agent and that Sty-Lite therefore had effectively contracted with Eminent and Christina when it contracted with Cotton Supreme. With respect to the banks, Sty-Lite asserted claims for "wrongful authorization of delivery of merchandise," alleging that the banks had acted negligently in informing Sea-Land that it was appropriate to deliver the goods to Eminent and Christina. The case was assigned to Judge Carter.
The parties conducted extensive discovery. In late 1999 all four defendants moved for summary judgment. Rather than ruling on these summary judgment motions, however, Judge Carter dismissed the case on his own motion in September 2000, concluding that the court lacked subject matter jurisdiction over the lawsuit. As Judge Carter observed, complete diversity (the alleged basis of federal jurisdiction) was lacking because there was an alien corporation on each side of the dispute. See Sty-Lite Co. v. Eminent Sportswear Inc., 115 F. Supp.2d 394 (S.D.N Y 2000).
In early 2001, Sty-Lite filed a virtually identical complaint against the same defendants in New York state court. Rather than answering, however, the Bank of China removed the case back to this court. Although diversity jurisdiction is still lacking, the Bank of China noted correctly in its removal petition that a federal district court has jurisdiction over this case under 28 U.S.C. § 1330(a) because the Bank of China is wholly owned by the People's Republic of China and is therefore a "foreign state" for purposes of federal subject matter jurisdiction. The case, which was then effectively back to square one, was assigned to Judge Wood. Recognizing that the prior action and this action are essentially one and the same, Judge Wood ordered that the parties were free to use in this action any discovery materials that were obtained in the prior action.
The case was reassigned to this court in June 2001, and the defendants have filed dispositive motions. HSBC has moved to dismiss the complaint, arguing that it has not been properly served with process. Eminent, Christina, and the Bank of China answered the complaint and have moved for summary judgment. Their summary judgment motions are identical to the motions that were pending before Judge Carter in 1999 — motions upon which Judge Carter never ruled because of his decision to dismiss the case on jurisdictional grounds.
DISCUSSION
I. Eminent's and Christina's Summary Judgment Motions
Eminent and Christina have moved for summary judgment with respect to Sty-Lite's breach of contract claims. Although Sty-Lite admittedly had no direct contractual relationship with Eminent and Christina, Sty-Lite alleges that Cotton Supreme was acting as their agent and therefore that Sty-Lite effectively contracted with Eminent and Christina when it contracted with Cotton Supreme. Eminent and Christina deny that Cotton Supreme was acting as their agent, asserting that Cotton Supreme was merely an independent contractor and that Cotton Supreme solicited Sty-Lite's assistance of its own volition, not at the behest of Eminent or Christina. In order to avoid summary judgment, Sty-Lite must proffer evidence sufficient to create a genuine issue of fact regarding whether Cotton Supreme was acting as Eminent's and Christina's agent. See FED. R. CIV. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986);Fagan v. New York State Elec. Gas Corp., 186 F.3d 127, 132 (2d Cir. 1999).
Agency is "the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act."In re Schulman Transp. Enters., Inc., 744 F.2d 293, 295 (2d Cir. 1984) (quoting RESTATEMENT (SECOND) OF AGENCY, § 1(1) (1958)). Although there is no set rule for determining whether an entity is an agent of a principal or merely an independent contractor, an essential characteristic of an agency relationship is that the agent acts subject to the principal's "direction and control." Id.; see also Enterprise Press, Inc. v. Fresh Fields Markets, 13 F. Supp.2d 413, 415 (S.D.N.Y. 1998).
The parties express no opinion regarding what law — New York, Chinese, or other — applies to Sty-Lite's agency claim. In the absence of direction from the parties, the court will apply general domestic common law agency principles.
In this case the undisputed factual record demonstrates that Cotton Supreme was not at all subject to the "direction and control" of Eminent or Christina. To the contrary, the evidence confirms that Eminent and Christina furnished Cotton Supreme only with general specification sheets for the finished products; that Cotton Supreme was free to do the manufacturing work itself or subcontract the work to third parties; and that Eminent and Christina retained no control whatsoever over the manufacturing process. Indeed, during his deposition Sty-Lite's own Tommy Lee explained that Cotton Supreme farmed the Eminent and Christina orders out to Sty-Lite because of Cotton Supreme's financial and quota problems, not because Cotton Supreme was acting as a buying agent for Eminent and Christina.
Despite this uncontroverted evidence, Sty-Lite's brief nonetheless insists that "all parties were well aware . . . that Cotton Supreme was merely acting for the benefit of [Eminent and Christina]." See Sty-Lite Br. at 6. Tellingly, however, Sty-Lite does not cite any evidence whatsoever in support of this naked assertion. To be sure, Sty-Lite points to excerpts of the deposition of a Christina official confirming that the official knew that Cotton Supreme would not be filling the order itself See Sty-Lite Rule 56.1 Statement, Exh. I, at 15-16, 18. However, nothing in these excerpts remotely suggests that Cotton Supreme was "acting for the benefit" of Eminent and Christina.
Sty-Lite also relies heavily on an entirely inapposite case decided by the Court of International Trade — Pier I Imports, Inc. v. United States, 708 F. Supp. 351 (C.I.T. 1989) ("Pier I"). Pier I hinged on the court's application of 19 U.S.C. § 1401a(b), which sets forth the process for determining the value of imported goods for purposes of assessing customs duties. The United States Customs Service had assessed a duty based on an appraised value that included commissions the plaintiff had paid to third parties who assisted it in the importing process. The question for the court was whether these commissions constituted "bonafide buying commissions" that, under federal law, are "not a proper element of dutiable value." Pier I at 354. Nothing in the court's analysis purported to shed any light on whether there may have been a common law agency relationship between the plaintiff and those who assisted it in the importation process. Pier I therefore has no relevance here.
In a last-ditched effort to avoid dismissal, Sty-Lite asserts that summary judgment is premature at this juncture because no discovery has taken place and that it is entitled under F.R.C.P. 56(f) to take discovery before the court considers granting summary judgment against it. Under Rule 56(f) a party seeking additional discovery must submit an affidavit explaining, among other things, what facts are sought, what efforts the affiant has made to obtain those facts, and why those efforts were unsuccessful. Nat'l Union Fire Ins. Co. of Pittsburg, Pa. v. Stroh Cos., Inc., 265 F.3d 97, 117 (2d Cir. 2001).
Here, however, although it is technically true that no discovery has taken place in the present incarnation of this case, Sty-Lite had ample opportunity to conduct full discovery in the identical prior action before Judge Carter. Indeed, discovery in the prior action had been completed when Eminent and Christina submitted summary judgment motions to Judge Carter — motions identical to the ones now pending before this court — and Sty-Lite never once suggested to Judge Carter that it needed to conduct additional discovery before it could fairly defend against Eminent's and Christina's motions. Because Sty-Lite's Rule 56(f) affidavit nowhere states what efforts it has made to obtain the facts it seeks — much less why it never sought to obtain those facts in the prior litigation before Judge Carter — the court rejects Sty-Lite's request for additional discovery.
Accordingly, the court hereby GRANTS Eminent's and Christina's motions for summary judgment.
II. The Bank of China's Summary Judgment Motion
Sty-Lite's remaining causes of action are against Eminent's and Christina's banks. As explained above, the banks provided letters of indemnity to Sea-Land (the courier) promising to indemnify it from liability if Sty-Lite (the shipper) ever claimed that the goods, which were delivered without the original bills of lading, had not arrived. Sty-Lite's complaint alleges that by issuing these letters of indemnity to Sea-Land the banks committed "wrongful authorization of delivery of merchandise." Tacitly recognizing that no such cause of action exists, Sty-Lite's brief explains that this claim really sounds in negligence — that the banks breached their duty to take reasonable care by authorizing the courier to deliver the goods to Eminent and Christina. See Opp. Br. at 4. One of the banks — the Bank of China — has moved for summary judgment.
Sty-Lite's complaint also asserted claim against the banks for fraudulent misrepresentation, but Sty-Lite has since abandoned those claims.
The glaring flaw in Sty-Lite's negligence theory is that the bank manifestly never "authorized" Sea-Land courier to deliver the goods in question at all. To the contrary, the letter of indemnity issued to Sea-Land by the Bank of China simply states that if the courier agreed to deliver the goods to Christina without the original bills of lading, and if Sty-Lite then tried to sue the courier for non-delivery, then the bank would indemnify the courier and accept any liability on the courier's behalf. By its express terms, the bank's letter of indemnity may have given rise to a duty it owed to Sea-Land, but nothing in the letter of indemnity gave rise to a duty the bank owed to Sty-Lite.
Moreover, Sty-Lite's claim that the Bank of China somehow owed it a duty not to "authorize" Sea-Land to deliver the goods to Christina is belied by the undisputed fact that Sty-Lite itself shipped the goods to Christina. Obviously, Sty-Lite wanted Sea-Land to deliver the goods to Christina; otherwise, Sty-Lite would not have shipped the goods to Christina in the first place. It is certainly understandable that Sty-Lite is upset that it never received payment from Cotton Supreme, but the Bank of China did nothing more than facilitate the result that Sty-Lite plainly wanted at the time: delivery of the goods to Christina without the original bills of lading.
Sty-Lite also asserts once again that summary judgment is premature at this juncture because no discovery has taken place and that it is entitled under F.R.C.P. 56(f) to take discovery before the court considers granting summary judgment against it. As explained above, however, Sty-Lite's Rule 56(f) affidavit nowhere states what efforts it has made to obtain the discovery it now seeks, much less why it never sought to obtain such discovery in the prior litigation before Judge Carter. Accordingly, the court finds that Sty-Lite is not entitled to take additional discovery before the court rules on the Bank of China's pending summary judgment motion.
Because Sty-Lite's negligence theory flies in the face of common sense, and because Sty-Lite has not cited a single case suggesting that the Bank of China could be liable to Sty-Lite on the facts presented here, the court hereby GRANTS the bank's motion for summary judgment.
III. HSBC's Motion to Dismiss
Rather than joining the Bank of China's meritorious summary judgment motion, HSBC chose to move to dismiss, asserting that it was never properly served with process. The court, however, is empowered to grant summary judgment to HSBC sua sponte so long as "the losing party has been given an opportunity to demonstrate that there are genuine material issues for trial." Ramsey v. Coughlin, 94 F.3d 71, 73-74 (2d Cir. 1996). Where it appears clearly upon the record that all of the evidentiary materials a party might submit in opposition to a motion for summary judgment are before the court, a sua sponte grant of summary judgment against that party is proper if the undisputed record demonstrates that the non-moving party is entitled to judgment as a matter of law. See id. at 74 (citing Coach Leatherware Co., Inc. v. Ann Taylor, Inc., 933 F.2d 162, 167 (2d Cir. 1991)).
Sty-Lite's claim against HSBC is identical to its claim against the Bank of China: that HSBC breached its duty to take reasonable care by issuing a letter of indemnity to Sea-Land regarding delivery of the goods in question to Eminent. HSBC's letter of indemnity, which Sty-Lite has made part of the record before the court, is substantially identical to the letter of indemnity issued by the Bank of China regarding delivery of the goods in question to Christina. Like the Bank of China letter, the HSBC letter may have given rise to a duty HSBC owed to Sea-Land, but nothing in the letter gave rise to a duty the bank owed to Sty-Lite. Accordingly, because all of the evidentiary materials Sty-Lite might have submitted in opposition to a motion for summary judgment by HSBC are before the court, and because the undisputed record demonstrates that Sty-Lite has not asserted a viable cause of action against HSBC as a matter of law, the court hereby GRANTS summary judgment in favor of HSBCsua sponte.
SO ORDERED.