Waldman et al v. Escobar

Filing 14

MEMORANDUM DECISION AND ORDER: For the reasons set forth above, Escobar's motion to dismiss, (Docket No. 10), is granted with respect to the Waldmans' second claim for relief alleging unjust enrichment, but denied in all other respects. Add itionally, in light of this deposition, the Court will hold a telephone conference on April 13, 2009, at 2 p.m. The Waldmans' counsel should initiate the conference by calling Chambers at [phone]. (Signed by Magistrate Judge Frank Maas on 3/27/2009) Copies Mailed By Chambers.(jpo)

UNITED STATES DISTRICT COURT S O U T H E R N DISTRICT OF NEW YORK - - -- - -- - -- - -- - -- - -- - -- - -- - -- - -- - -- - -- - -- - -- - -- - -- - -- - -- - -- x D A V ID WALDMAN and D IA N E WALDMAN, P l a i n t if f s , : - against : M A R IS O L ESCOBAR, : D e f e n d a n t. - - -- - -- - -- - -- - -- - -- - -- - -- - -- - -- - -- - -- - -- - -- - -- - -- - -- - -- - -- x F R A N K MAAS, United States Magistrate Judge. I. I n tr o d u c tio n T h is diversity action brought by plaintiffs David and Diane Waldman (the " W a ld m a n s" ) arises out of their purchase of two sculptures in 2002 from defendant M a riso l Escobar ("Escobar"). The Waldmans allege that Escobar induced them to re n o u n c e their interest in one of the sculptures by fraudulently representing that it was d a m a g e d beyond repair and therefore unavailable for sale. On September 18, 2008, the p a rties consented to my exercise of jurisdiction over this case for all purposes pursuant to 2 8 U.S.C. § 636(c). (Docket No. 5). Thereafter, Escobar moved to dismiss the complaint u n d e r Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure for lack of s u b je c t matter jurisdiction and failure to state a claim upon which relief can be granted. (Docket No. 10). USDC SDNY DOCUMENT ELECTRONICALLY FILED DOC #: _________________ DATE FILED: 03/27/2009 0 8 Civ. 6405 (FM) : : MEMORANDUM D E C I S I O N AND ORDER

F o r the reasons set forth below, Escobar's motion is granted in part and d e n ied in part. II. B a c k g ro u n d C o n stru in g the Waldmans' amended complaint (Docket No. 9 ("Complaint" o r "AC")) and the exhibits thereto in the light most favorable to them, the relevant facts m a y be summarized as follows: In October 2002, the Waldmans agreed to purchase from Escobar two scu lptures known as "Mimi" and "Magritte" after viewing them in a Marlborough Gallery c a ta lo g u e . (AC ¶¶ 6, 7). At her studio, Escobar gave the Waldmans two signed invoices, d a te d October 18, 2002, reflecting prices of $35,000 for Mimi and $25,000 for Magritte. (Id. ¶ 8, 10 & Ex. A). Escobar arrived at these valuations by halving the retail prices s o u g h t by the gallery, where her work previously had been on display. (Id. ¶¶ 6, 9). That sa m e day, the Waldmans issued Escobar a check in the amount of $60,000 for both s c u lp tu re s. (Id. ¶ 11 & Ex. A). Subsequently, in November 2002, they added the pieces to the coverage under their insurance policy. (Id. ¶ 12). Only one of the sculptures, Magritte, was delivered to the Waldmans. (Id. ¶ 13). Escobar initially told the Waldmans that Mimi would not be available for several m o n th s because she had a prior commitment to show it at the gallery. (Id. ¶ 14). Nevertheless, on January 13, 2003, Escobar deposited the Waldmans' check for both scu lptures. (Id. ¶ 15).

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In mid-February 2003, Escobar informed the Waldmans that Mimi had been irre p a ra b ly damaged and would be impossible to replace. (Id. ¶ 16). Relying on this re p re se n ta tio n , the Waldmans accepted from Escobar a refund check, dated February 23, 2 0 0 3 , in the amount of $35,000. (Id. ¶ 17). In March 2008, however, the Waldmans saw a picture of an apparently-undamaged Mimi in that month's issue of Art in America, w h ic h described it as one of the works that Escobar "had saved for herself." (Id. ¶¶ 19, 2 0 ). The Waldmans therefore sent Escobar two letters, dated April 7 and 20, 2008, d e m a n d in g that she complete the sale of Mimi for the 2002 contract price. (Id. ¶ 21). Escobar refused to give the Waldmans the sculpture, which had been offered for sale by th e gallery in 2002 for $70,000 and currently is worth at least $75,000. (Id. ¶¶ 22, 23) T h e Waldmans commenced this action on July 17, 2008. (Docket No. 1). After an October 28, 2008, telephone conference during which defense counsel raised ju ris d ic tio n a l issues, the Waldmans amended their complaint on November 18, 2008, a lle g in g claims of (a) breach of contract, (b) unjust enrichment, and (c) fraud. (AC ¶¶ 243 5 ). Escobar then filed her motion to dismiss on December 8, 2008. (Docket No. 10). III. D is c u ss io n A. S ta n d a rd of Review U n d e r Rule 12(b)(1), a complaint must be dismissed if there is no subject m a tter jurisdiction over the claim. Under Rule 12(b)(6), a complaint is subject to d is m is s a l if it fails to state a claim upon which relief can be granted. In deciding either

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typ e of motion, a court must accept the material factual allegations of the complaint as tru e and draw all reasonable inferences in the plaintiff's favor. See Leatherman v. T arran t County Narcotics Intelligence & Coordination Unit, 507 U.S. 163, 164 (1993); H is h o n v. King & Spalding, 467 U.S. 69, 73 (1984); Hernandez v. Coughlin, 18 F.3d 133, 1 3 6 (2d Cir. 1994). As the Supreme Court recently explained, the issue that must be decided u n d e r Rule 12(b)(6) is whether the plaintiff's claims are "plausible." Bell Atl. Corp. v. T w o m b ly, 127 S. Ct. 1955, 1965-66 (2007). This requires the Court to apply a "flexible" s ta n d a rd , pursuant to which a pleader must "amplify a claim with some factual allegations in those contexts where such amplification is needed to render the claim plausible." Iqbal v . Hasty, 490 F.3d 143, 157-58 (2d Cir. 2007) (emphasis omitted). In deciding the legal s u f f ic ie n c y of the claim, a court may consider any written instrument attached as an e x h ib it or incorporated by reference. Chambers v. Time Warner, Inc., 282 F.3d 147, 1525 3 (2d Cir. 2002). When faced with a motion to dismiss pursuant to both Rules, a court should " d e cid e the `jurisdictional question [under Rule 12(b)(1)] first because a disposition of a R u le 12(b)(6) motion is a decision on the merits, and therefore, an exercise of ju ris d ic tio n .'" Tirone v. N.Y. Stock Exch., Inc., No. 05 Civ. 8703 (WHP), 2007 WL 2 1 6 4 0 6 4 , at *3 (S.D.N.Y. July 27, 2007) (quoting Magee v. Nassau County Med. Ctr., 27 F . Supp. 2d 154, 158 (E.D.N.Y. 1998)). In resolving an issue of subject matter

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ju ris d ic tio n under Rule 12(b)(1), a court is not limited to the face of the complaint and m a y consider evidence outside the pleadings. Phifer v. City of New York, 289 F.3d 49, 5 5 (2d Cir. 2002). The plaintiff has the burden of proving by a preponderance of the e v id e n c e that subject matter jurisdiction exists to hear the plaintiff's claims. Id. (citing M ak aro v a v. United States, 201 F.3d 110, 113 (2d Cir. 2000)). B. M o t io n to Dismiss E s c o b a r has moved to dismiss the Complaint pursuant to Rules 12(b)(1) and 1 2 (b )(6 ) on the grounds that (i) the breach of contract claim is barred by the statute of lim ita tio n s , (ii) the unjust enrichment claim fails as a matter of law, and (iii) the re m a in in g fraud claim does not meet the $75,000 jurisdictional amount required by 28 U .S .C . §1332(a). (Docket No. 10). The Waldmans filed opposition papers on December 2 2 , 2008, (Docket No. 12 ("Pls.' Opp.")), to which Escobar replied on January 7, 2009, (D o c k e t No. 13 ("Reply")). The motion therefore is fully submitted. 1. R u le 12(b)(6)

A s noted, a court ordinarily should address a Rule 12(b)(1) motion first b e c a u s e the disposition of a Rule 12(b)(6) motion constitutes a decision on the merits. See Tirone, 2007 WL 2164064, at *3. In this case, however, Escobar's motion to dismiss is structured so that the jurisdictional question becomes relevant only if the breach of c o n tra c t and unjust enrichment claims both fail. For that reason, I will turn first to E sc o b a r's arguments under Rule 12(b)(6) that the Waldmans' breach of contract claim is

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b a rre d by the statute of limitations and that their unjust enrichment claim fails as a matter o f law. (See Docket No. 11 ("Def.'s Mem.") at 1). a. B re a ch of Contract

U n d e r Article 2 of the New York Uniform Commercial Code, a four-year s ta tu te of limitations applies to a breach of contract action arising out of the sale of goods. N.Y. U.C.C. § 2-725(1). As Escobar correctly observes, (Def.'s Mem at 5; Reply at 2-3), a p p lica tio n of the statute is not discretionary. See N.Y. C.P.L.R. § 201 ("No court shall e x te n d the time limited by law for the commencement of an action."). However, New Y o rk law also provides that the doctrines of equitable estoppel and equitable tolling may o v e rc o m e a statute of limitations defense if the "plaintiff was induced by fraud, m is re p re se n ta tio n s or deception to refrain from filing a timely action." Sanders v. New Y o rk City Dep't of Corr., No. 07 Civ. 3390 (SHS), 2009 WL 222161, at *4 (S.D.N.Y. J a n . 30, 2009) (quoting Abbas v. Dixon, 480 F.3d 636, 642 (2d Cir. 2007)); see also N.Y. G e n . Oblig. Law § 17-103(4)(b) (recognizing the "power of the court to find that by r e a so n of conduct of the party . . . it is inequitable to permit him to interpose the defense o f the statute of limitation"). As a general matter, the equitable estoppel doctrine "applies where, a lth o u g h the plaintiff is aware of his cause of action, his delay is excused because either th e defendant misrepresented the length of the limitations period or `lulled the plaintiff in to believing it was not necessary to commence the litigation.'" Netzer v. Continuity

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G rap h ic Assocs., Inc., 963 F. Supp. 1308, 1316 (S.D.N.Y. 1997) (quoting Cerbone v. Int'l L a d ies ' Garment Workers' Union, 768 F.2d 45, 50 (2d Cir. 1985)). In contrast, equitable to llin g applies to a "plaintiff who is unaware of his cause of action . . . [because] the d e f e n d a n t's conduct concealed [it] from the plaintiff." Yu G. Ke v. Saigon Grill, Inc., N o . 07 Civ. 2329 (MHD), 2008 WL 5337230, at *12 (S.D.N.Y. Oct. 21, 2008) (internal q u o t a tio n marks omitted). In order to invoke either doctrine, a plaintiff must establish th a t his ignorance of the cause of action or of the need to commence the litigation "is not a ttrib u ta b le to a lack of diligence on his part." Netzer, 963 F. Supp. at 1316. A t this preliminary stage, the Waldmans' allegations with respect to the sale o f Mimi are sufficient for their breach of contract claim to survive under the doctrine of e q u ita b le tolling. The Waldmans allege that Escobar fraudulently stated that Mimi had b e e n "damaged beyond repair and that she could not make them a new one," thereby c o n c ea lin g her breach of contract and the resulting cause of action. (AC ¶ 16). They fu rth er argue that short of searching Escobar's private studio and residence, where E s c o b a r apparently maintained Mimi as part of her personal collection, they could not d e ter m in e the veracity of her statement. (Pls.' Opp. at 4). Although Escobar suggests th a t the Waldmans would have discovered the breach had they simply called the gallery, s h e concedes that this assertion goes beyond the four corners of the Complaint. (Reply at 4 n.). For this reason, she argues instead that the Court can infer from the Complaint's s ile n c e that the Waldmans failed to conduct any reasonable investigation to determine

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"w h ethe r there was a basis for [Escobar's] refusal to sell the sculpture." (Id.). However, th e reasonableness of the Waldmans' efforts, if any, to uncover the fraud is a fact issue th a t cannot be resolved at the pleadings stage. Accordingly, Escobar's motion to dismiss th e Waldmans' breach of contract claim as time-barred must be denied. b. U n ju s t Enrichment

U n d e r New York law, it is improper to seek damages for unjust enrichment " in an action sounding in quasi contract where the suing party has fully performed on a v a lid written agreement, the existence of which is undisputed, and the scope of which c le a rly covers the dispute between the parties." Clark-Fitzpatrick, Inc. v. Long Island R .R . Co., 70 N.Y.2d 382, 389 (1987); accord Beth Israel Med. Ctr. v. Horizon Blue Cross & Blue Shield of N.J., Inc., 448 F.3d 573, 587 (2d Cir. 2006) ("[Plaintiffs] may not re c o v e r under a theory of unjust enrichment, inasmuch as the valid and enforceable w ritte n [agreements] governed the particular subject matter of this case."). Ordinarily, a plaintiff is not required to elect her remedies at the pleadings s ta g e when it "ha[s] not been determined with finality that there was a valid contract b e tw e e n the parties, or where one of the parties dispute[s] the validity of the contract." S p irit Partners, L.P. v. audiohighway.com, No. 99 Civ. 9020 (RJW), 2000 WL 685022, a t *8 (S.D.N.Y. May 25, 2000). In this case, however, the Waldmans clearly contend that th e sale of Mimi was governed by a valid written contract. As for Escobar, although she

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a rg u e s that the breach of contract claim is time-barred, she does not appear to dispute the e x is te n c e of the original contract or its scope. In sum, because "the parties' relationship was defined in [a] written c o n tr a c t[ ] , the validity and enforceability of which [is] not in question," the Waldmans' u n ju s t enrichment claim must be dismissed. GMA Accessories, Inc. v. ePartners Inc., No. 0 7 Civ. 8414 (LAK), 2008 WL 781188, at *1 (S.D.N.Y. Mar. 19, 2008) (citing C lark-F itzp atrick , 70 N.Y.2d at 388-89). 2. R u le 12(b)(1)

In order to invoke the Court's diversity jurisdiction, a plaintiff must show th a t the parties are of diverse citizenship ­ a fact which appears to be uncontested here ­ a n d that the amount in controversy exceeds $75,000, excluding interest or costs. 28 U .S .C . § 1332(a). The amount in controversy is determined at the time the complaint is f ile d and is presumed to be a good faith representation, rebuttable only if the defendant c a n show "to a legal certainty that the plaintiff could not recover the amount alleged or th a t the damages alleged were feigned to satisfy jurisdictional minimums." Remsen F u n d in g Corp. v. Ocean West Holding Corp., No. 06 Civ. 15265 (DLC), 2007 WL 3 2 5 4 4 0 3 , at *2 (S.D.N.Y. Nov. 1, 2007) (quoting Colavito v. New York Organ Donor N e tw o rk , Inc., 438 F.3d 214, 221 (2d Cir. 2006)). In their fraud claim, the Waldmans allege that, as a matter of equity, the C o u rt should "reinstate the contract . . . and enjoin [Escobar] to transfer [Mimi]" to them.

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(A C ¶ 35). "The Supreme Court has held that, in actions for declaratory or injunctive re lie f , which . . . are equitable in nature, the amount in controversy is measured by the v a lu e of the object of the litigation." DiTolla v. Doral Dental IPA of N.Y., 469 F.3d 271, 2 7 6 (2d Cir. 2006) (citing Hunt v. Wash. State Apple Adver. Comm'n, 432 U.S. 333, 347 (1 9 7 7 )). In that regard, New York law provides that fraud damages "are to be calculated to compensate plaintiffs for what they lost because of the fraud, not to compensate them f o r what they might have gained." Lama Holding Co. v. Smith Barney Inc., 88 N.Y.2d 4 1 3 , 421 (1996); Reno v. Bull, 226 N.Y. 546, 553 (1919) ("All elements of profit are e x c l u d e d . The true measure of damage is indemnity for the actual pecuniary loss s u s ta in e d as the direct result of the wrong."). Thus, the Waldmans cannot recover any lo s t profits as part of their fraud claim. A s the Complaint makes clear, the Waldmans agreed to purchase Mimi for $ 3 5 ,0 0 0 , but this sum was fully refunded to them. (AC ¶¶ 8, 17). Accordingly, on one v ie w of the facts, they may not have any fraud damages. At best, the Waldmans may be e n title d to a maximum of $35,000 (exclusive of interest and costs) on their fraud claim. (See Def.'s Mem. at 13). This claim therefore falls short of the required $75,000 ju ris d ic tio n a l amount. Nevertheless, by failing to attack the Waldmans' contract claim under Rule 1 2 (b )(1 ), Escobar impliedly concedes that this court has subject matter jurisdiction to hear it. The survival of the contract claim consequently shields the fraud claim from Rule

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C o p ie s to: V iv ia n Shevitz, Esq. F a x : [phone] J o h n B. Koegel, Esq. T h e Koegel Group LLP F a x : [phone]

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