Louis Hornick & Co., Inc. v. Darbyco, Inc. et al

Filing 57

MEMORANDUM ORDER granting in part and denying in part 24 Motion to Dismiss. For the foregoing reasons, Defendants' motion for judgment on the pleadings is denied insofar as it asserts lack of subject matter jurisdiction, granted insofar as Pl aintiff's fraud claim is dismissed, and denied in all other respects. This Memorandum Order resolves docket entry number 24. The stay on this case is hereby lifted. If Plaintiff wishes to move for judgment by default, it must request authorizati on to do so, by letter, in accordance with the undersigneds Individual Practices Rules. Any such letter request must be delivered to Chambers (with copies provided to Defendants) by August 12, 2013. The final pretrial conference is this case is hereby scheduled for November 1, 2013, at 2:00 p.m. as a control date. (Signed by Judge Laura Taylor Swain on 7/23/2013) (ft)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-------------------------------------------------------x
LOUIS HORNICK & CO., INC.,
Plaintiff,
-v-

No. 12 Civ. 5892 (LTS)

DARBYCO, INC. et al.,
Defendants.
-------------------------------------------------------x
MEMORANDUM ORDER
Plaintiff Louis Hornick & Company (“Plaintiff” or “Hornick”) sues Defendants
Darbyco, Inc., Darbyco, LLC (together, “Darbyco”) and Home Fabric Finishing, Inc.
(collectively, “Defendants”) for breach of contract, breach of warranty of fitness, fraud, and
conversion. Defendants move for judgment on the pleadings pursuant to Federal Rule of Civil
Procedure 12(c). Defendants contend that the Court lacks subject matter jurisdiction because the
amount in controversy is insufficient to support diversity jurisdiction; alternatively, that the
Court should abstain from hearing the case in favor of an action brought in North Carolina state
court; and finally, that the Court should dismiss the Plaintiff’s fraud claim as insufficiently
pleaded. For the following reasons, the Court finds that it has subject matter jurisdiction
pursuant to 28 U.S.C. § 1332, that abstention would be inappropriate, and that the fraud claim
should be dismissed for lack of particularity. Defendants’ motion is, therefore, granted in part
and denied in part.
BACKGROUND

The Complaint in this action contains the following factual allegations. Hornick
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is a New York company that manufactures curtains and window treatments. Darbyco is a North
Carolina company that specializes in coating material in protective compounds. At issue in this
case are a series of four purchase orders made between the two companies over a period of five
months from late 2011 through mid-2012. (Compl. ¶ 9.) In October 2011, the parties agreed
that Hornick would send uncoated fabric to Darbyco, which would then apply the coating at a
cost of $1.95 per yard and ship the coated fabric back to New York, where Hornick would use it
to make window treatments for sale. (Id. ¶¶ 10, 13.)
After a test run in November, Hornick notified Darbyco that the test batch of
coated fabric did not meet its quality standards. (Id. ¶ 20.) Darbyco assured the Plaintiff that all
quality issues would be resolved, and the Plaintiff signed the first purchase order for a certain
yardage of fabric to be coated. (Id. ¶ 21.) Darbyco coated and returned the first batch of fabric,
but, according to Hornick, the quality of this batch was even worse than that of the test run. (Id.
¶ 22.) Nevertheless, after further assurances from Darbyco, Hornick placed a second purchase
order in January 2012. (Id. ¶ 24.) This second batch was also defective. (Id. ¶ 25.) Despite the
quality control issues, Hornick used the coated fabric from both the first and second batches to
make its window treatments and continued to sell these products to its customers. (Id. ¶ 28.)
Defendants allege that Hornick never paid for either batch of coated fabric. (Def. Mem. in Supp.
of Mot. to Dismiss at 3-4.)
In May 2012, Hornick issued third and fourth purchase orders, for the coating of
4,900 more yards of fabric. (Compl. ¶¶ 33, 34.) Darbyco received the fabric, but did not attempt
to coat it. (Id. ¶ 80.) Instead, it held the fabric in its warehouse and demanded payment for the
first two coating jobs, prompting this litigation. (Id. ¶¶ 36, 37, 38.)

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Plaintiff’s verified complaint asserts claims for $250,000 in damages on each of
five causes of action – for alleged breach of contract, breach of warranty of fitness, fraud and
conversion. (Id., ¶¶ 54, 66, 73, 84, 84, 94.) In the Plaintiff’s papers in opposition to the motion
to dismiss, Plaintiff proffers that its out-of-pocket losses alone exceed $87,000. (Hornick Decl.
¶¶ 7, 12.)
DISCUSSION
Defendants challenge the Court’s subject matter jurisdiction, arguing that the
Plaintiff cannot meet the amount in controversy requirement for the exercise of diversity
jurisdiction pursuant to 28 U.S.C. § 1332. Defendants also assert the Court should abstain from
hearing the case in favor of litigation commenced by the Plaintiff in North Carolina and that
Plaintiff fails to state, and properly plead, its fraud claim. The Court addresses each of these
arguments in turn.

Subject Matter Jurisdiction
“A Rule 12(c) motion for judgment on the pleadings based upon lack of subject
matter jurisdiction is treated as a Rule 12(b)(1) motion to dismiss the complaint.” United States
ex rel. Phipps v. Comprehensive Community Development Corporation, 152 F. Supp. 2d 443,
448-449 (S.D.N.Y. 2001) (“[a] party invoking federal jurisdiction must allege in [its] pleading
the facts essential to show jurisdiction, and must support [those facts] by competent proof”)
(citations omitted). “In considering a motion to dismiss for lack of subject matter jurisdiction, a
court must accept as true all material factual allegations in the complaint and refrain from
drawing inferences in favor of the party contesting jurisdiction.” Id. (citing Atlantic Mut. Ins.
Co. v. Balfour Maclaine Intern. Ltd., 968 F.2d 196, 198 (2d Cir. 1992)). The court need not,

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however, confine itself to the complaint and may consider evidence outside the pleadings, such
as affidavits and other documents. See Kamen v. Am. Tel. & Tel. Co., 791 F.2d 1006, 1011 (2d
Cir. 1986) (“when, as here, subject matter jurisdiction is challenged under Rule 12(b)(1),
evidentiary matter may be presented by affidavit or otherwise”). “The plaintiff has the ultimate
burden of proving that the court has subject matter jurisdiction by a preponderance of the
evidence.” Goodwin v. Solil Management LLC, No. 10 Civ. 5546(KBF), 2012 WL 1883473, at
*5 (S.D.N.Y. May 22, 2012) (internal quotation marks and citation omitted).
Defendant Darbyco argues that, as a matter of law, the Court does not have
subject matter jurisdiction to hear this case because the amount in controversy is insufficient to
establish diversity jurisdiction under 28 U.S.C. § 1332. The diversity statute confers original
jurisdiction on federal district courts in “all civil actions where the matter in controversy exceeds
the sum or value of $75,000, exclusive of interest and costs, and is between . . . citizens of
different States.” 28 U.S.C.A. § 1332(a) (West 2006). The Plaintiff must show that it “appears
to a reasonable probability that the claim is in excess of the statutory jurisdictional amount.”
Tongkook America, Inc. v. Shipton Sportswear Co., 14 F.3d 781, 784 (2d Cir. 1994) (internal
quotation marks and citation omitted). Because the Second Circuit “recognizes a rebuttable
presumption that the face of the complaint is a good faith representation of the actual amount in
controversy,” “[t]o defeat this presumption, it must appear to a legal certainty that the claim is
really for less than the jurisdictional amount.” Kimm v. KCC Trading Inc., 449 F. App’x 85 (2d.
Cir 2012) (internal quotation marks and citations omitted). “If the right of recovery is uncertain,
the doubt should be resolved . . . in favor of the subjective good faith of the plaintiff.” Tongkook
America, Inc., 14 F.3d at 785-86 (internal quotation marks and citation omitted). The amount in
controversy is not to be confused with the eventual amount that may be awarded by the court;

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valid defenses or actual recovery of less than the minimum amount in controversy will not
deprive the court of jurisdiction. Wolde-Meskel v. Vocational Instruction Project Cmty. Servs.,
Inc., 166 F.3d 59, 63 (2d Cir. 1999) (events occurring after the institution of the suit that lowered
the amount recoverable to below the statutory requirement were not enough to divest the court of
jurisdiction).
Defendants argue that the Plaintiff is at best entitled to recover the contract price
of coating the four batches of fabric plus the value of the third and fourth uncoated batches that
Defendants kept as collateral and limited consequential damages. Defendants quantify their
maximum exposure as between $39,564.00 and $41, 256.20. (See Def.’s Mem. in Sup. of Mot.
to Dismiss at 9-11; Labbate Decl. Ex. 8.) In its principal’s declaration submitted in opposition to
the dismissal motion, however, Plaintiff alleges that it suffered out-of-pocket losses of at least
$87,000 as a direct result of Defendants’ conduct. (Hornick Decl. ¶¶ 7, 12.) The declaration
provides a breakdown of the components of this claim and is accompanied by invoices and other
documentation. This evidentiary proffer is sufficiently specific to meet the Plaintiff’s burden of
demonstrating a reasonable probability that the value of its claim exceeds the jurisdictional
threshold. See Chase Manhattan Bank, N.A. v. Am. Nat. Bank and Trust Co. of Chicago, 93
F.3d 1064, 1070-71 (2d Cir. 1996) (based on plaintiff’s allegations and other evidentiary
proffers, the court “cannot say that the legal impossibility of recovery on [plaintiff’s] complaint
at the time it was filed was so certain as to virtually negat[e] the plaintiff’s good faith in
asserting the claim”) (internal quotation marks and citations omitted). In light of the sufficiency
of this proffer, the Court need not address the Defendants’ arguments regarding the availability
of consequential damages. Accordingly, the Court finds that the Plaintiff has alleged an amount
in controversy sufficient to sustain diversity jurisdiction under 28 U.S.C. § 1332.

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Abstention
Defendants urge the Court to abstain from hearing this case out of deference to an
action brought by Darbyco in the North Carolina General Court of Justice. The pendency of a
parallel state case is a necessary predicate to any abstention. See Colorado River Water
Conserv. Dist. v. United States, 424 U.S. 800, 813 (1976) (recognizing an “extraordinary and
narrow” exception to federal court jurisdiction where there is parallel state court litigation). On
March 30, 2013, Darbyco voluntarily dismissed its state court action against Hornick. (See
Hornick Aff., Ex. K.) Since there is no parallel state court litigation, there can be no proper basis
for abstention in favor of such litigation.

The Fraud Claim
Defendants also move to dismiss Plaintiff’s fraud claim for, among other reasons,
lack of the pleading particularity required by Rule 9(b) of the Federal Rules of Civil Procedure.
When making a fraud allegation, a plaintiff must state “the circumstances constituting fraud or
mistake . . . with particularity.” Fed. R. Civ. P. 9(b). Particularity requires that the plaintiff “(1)
specify the statements that plaintiff contends were fraudulent, (2) identify the speaker, (3) state
where and when the statements were made, and (4) explain why the statements were fraudulent.”
Stevelman v. Alias Research, Inc., 174 F.3d 79, 84 (2d Cir. 1999) (internal quotations omitted);
Anatian v. Coutts Bank (Switzerland) Ltd., 193 F.3d 85, 88 (2d Cir. 1999).
Hornick generally alleges that Darbyco fraudulently induced the third and fourth
purchase orders by “represent[ing] and warrant[ing] to [Hornick] that all quality control issues
had been resolved.” (Compl. ¶ 78.) Hornick also alleges that Defendants knowingly misled the

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Plaintiff in order to secure collateral for the first two payments. (Id. ¶ 80.) The Court finds that
these allegations are not sufficient to satisfy the heightened requirement of particularity. The
Plaintiff has not identified any specific statements made by any of the Defendants or their
agents, or when, where, and by whom those statements were made. Accordingly, the Plaintiff’s
fraud claim is dismissed.
CONCLUSION
For the foregoing reasons, Defendants’ motion for judgment on the pleadings is
denied insofar as it asserts lack of subject matter jurisdiction, granted insofar as Plaintiff’s fraud
claim is dismissed, and denied in all other respects. This Memorandum Order resolves docket
entry number 24. The stay on this case is hereby lifted. If Plaintiff wishes to move for judgment
by default, it must request authorization to do so, by letter, in accordance with the undersigned’s
Individual Practices Rules. Any such letter request must be delivered to Chambers (with copies
provided to Defendants) by August 12, 2013. The final pretrial conference is this case is hereby
scheduled for November 1, 2013, at 2:00 p.m. as a control date.
SO ORDERED.

Dated: New York, New York
July 23, 2013
/S
LAURA TAYLOR SWAIN
United States District Judge

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