PetEdge, Inc. v. The Principal Consulting, Inc. et al

Filing 62

MEMORANDUM OPINION AND ORDER re: 39 MOTION to Dismiss Second Amended Complaint filed by Vijay Garg: Under New York law, an individual is not personally liable for a corporation's tortious acts merely because he serves as th e CEO or other officer of that corporation. PetEdge attempts to circumvent that rule by dressing up its claims of TPC's tortious conduct with conclusory allegations of Garg's personal participation. Stripping those away leaves an empty su it. Accordingly, and for the reasons described above, Defendant Vijay Garg's motion to dismiss is GRANTED, and PetEdge's second amended complaint is dismissed in its entirety. PetEdge is granted leave to amend within 30 days after the date of this order. The Clerk of Court is directed to terminate the motion pending at ECF No. 39. (Signed by Judge Gregory H. Woods on 2/10/2017) (tn)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-------------------------------------------------------------X
PETEDGE, INC.,
:
:
Plaintiff, :
:
-against:
:
VIJAY GARG
:
:
Defendant. :
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USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: 02/10/2017

1:15-cv-9606-GHW
MEMORANDUM OPINION AND
ORDER

GREGORY H. WOODS, United States District Judge:
In 2012, Plaintiff PetEdge, Inc. (“PetEdge”), a pet supply company, hired The Principal
Consulting, Inc. (“TPC”) to implement a new software system that it had licensed from SAP
America, Inc. According to PetEdge, TPC’s work on this project was a “train wreck,” resulting in
millions of dollars of damages. TPC is not currently a party to this action. Instead, PetEdge and
TPC have agreed to resolve their dispute in binding arbitration. In this action, PetEdge seeks to hold
TPC’s CEO, Vijay Garg, liable for its injuries on theories of fraudulent inducement, negligent
misrepresentation, and breach of fiduciary duty. Mr. Garg has moved to dismiss PetEdge’s second
amended complaint. Because the second amended complaint strains to impose liability for acts in
which Mr. Garg played no personal role and to impose duties on Garg where none are to be found,
the motion to dismiss is GRANTED, and PetEdge’s second amended complaint is DISMISSED in
its entirety.
I.

BACKGROUND1
A. The Facts Alleged
PetEdge is a “small family owned pet supply company.” ECF No. 37, Second Am. Compl.

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Unless otherwise noted, the facts are taken from the amended complaint, and are accepted as true for the purposes of

(“SAC”) ¶ 1. In 2012, PetEdge embarked on a search for a new software system to replace its “aging
and outdated legacy computer system.” SAC ¶ 5. After reviewing a number of competing products,
PetEdge selected SAP America, Inc. (“SAP”) as its enterprise resource planning (“ERP”) software
vendor. Id. As a general matter, ERP software “consists of numerous ‘applications’ designed to
perform a variety of tasks, including financial accounting, human resources, distribution planning
functions, online store functions and billing functions.” SAC ¶ 5 n.1.
During its search for new software vendors, PetEdge also sought a consultant with
“extensive experience and expertise in installing and implementing SAP’s software for catalogue
businesses like PetEdge’s.” Id. Included among the functionality set in the ERP software that
PetEdge licensed from SAP were applications called Web Channel Experience Management
(“WCEM”) and Customer Relationship Management (“CRM”). SAC ¶ 5. According to the second
amended complaint, “[i]t was important to PetEdge that any consultant not only be knowledgeable
about the scope and the deliverables required in an implementation of the SAP software generally
but that the consultant had successfully implemented the SAP CRM and WCEM functionality
PetEdge was licensing from SAP.” Id. PetEdge eventually engaged TPC―of which Defendant Vijay
Garg is co-founder and CEO―to fill this consultant role. SAC ¶¶ 3, 13. This dispute arises out of
TPC’s efforts to secure this engagement, the negotiation of the contract and statement of work with
PetEdge, and TPC’s work for PetEdge.
1. TPC’s Sales Pitch
Upon learning that PetEdge was seeking a third-party consultant to install and implement the
SAP software, Garg “sent Brendon O’Malley and Mark Dooley to aggressively pitch TPC’s services
to PetEdge to induce PetEdge to purchase TPC’s software consulting services.” SAC ¶ 6. O’Malley
this motion. See, e.g., Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir. 2002). However, “the tenet that a court
must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions.” Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009).

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and Dooley “conducted numerous site visits to learn about PetEdge’s needs and concerns and were
aware of these needs and concerns.” Id. PetEdge alleges that it advised O’Malley and Dooley that it
sought a consulting company that “had successfully implemented SAP’s software generally and SAP
WCEM and CRM in particular” and that “understood PetEdge’s catalogue business model and the
impact that unique business model would have on a software implementation.” SAC ¶ 7. PetEdge
also informed them that it “had not been involved with an ERP implementation since 1997 and
therefore had very limited experience with software implementations, lacked the knowledge or
experience necessary to perform such a project by itself and would be relying on TPC’s expertise,
experience, advice, and guidance on even the most basic software implementation issues.” Id.
“Throughout the pre-contract sales-cycle, Messrs. Dooley and O’Malley responded by representing
that they understood each of PetEdge’s concerns and touted the suitability of TPC’s software
consulting services for PetEdge’s needs.” Id.
PetEdge alleges that it made its specific business needs and requirements for the project clear
during its pre-contract discussions with TPC and other potential vendors by providing a “Project
Requirements” spreadsheet listing them in detail. SAC ¶ 12 & Ex. B-3. Examples of the
requirements include: “Full integration of the CRM and WCEM functionality with the ERP system,”
“Implementing to match code functionality that would enable PetEdge to determine if a customer is
new or duplicate,” “Implementing ‘bounce-back’ email tracking functionality,” and “Implementing
credit card payment and ship-to functionality.” SAC ¶ 12.
According to the second amended complaint, Garg directed O’Malley and Dooley to “bill[]
TPC as being a go-to SAP partner for SAP CRM, having team members with 10+ years experience
in SAP CRM, and having successfully upgraded nearly every combination and permutation of SAP
CRM.” SAC ¶ 8. “With Garg’s knowledge and at his direction,” PetEdge alleges, they “positioned
TPC as a leading expert in CRM components, technology and integration, and as having extensive
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experience in implementing Web UI and integrating Web Services, e-Selling, and e-Service.” Id.
On August 30 and 31, 2012, O’Malley, Dooley, and other unspecified TPC employees met
via telephone with Trish Keller, PetEdge’s Vice President of IT, and Mark Dow, PetEdge’s CFO, to
discuss “the implementation of the SAP software, the scope of the SAP implementation project, the
deliverables that TPC would provide, PetEdge’s catalogue business model and the impact that
business model would have on the implementation.” SAC ¶ 9. PetEdge alleges that this telephonic
meeting was “part of Mr. Garg’s scheme to defraud PetEdge.” Id.
On October 3, 2012, O’Malley and Dooley traveled to PetEdge’s Massachusetts office to
meet with Keller and Dow in person. SAC ¶ 10. PetEdge alleges that, during this meeting, and “[a]t
Mr. Garg’s direction,” they made mispresentations with respect to TPC’s understanding of the SAP
WCEM software PetEdge had licensed, TPC’s understanding of the catalogue business model used
by PetEdge, and the impact that business model would have on the deliverables, including
modifications necessary to successfully implement the SAP software at PetEdge. Id.
On October 4, 2012 and October 12, 2012, O’Malley and Dooley met with Keller and Dow
again via telephone to “aggressively pitch TPC’s consulting services to PetEdge.” Id. PetEdge again
alleges that they did so “at Mr. Garg’s direction.” Id.
“Mr. Garg’s representatives” also provided PetEdge with a budget for their services.
According to the second amended complaint, however, PetEdge was unaware at the time that TPC’s
budget “was a wild guess that had no relation to the unique requirements of the implementation, the
scope of the implementation or the deliverables that would need to be provided to meet PetEdge’s
business needs and requirements.” SAC ¶ 11.
2. Negotiation of the Statement of Work and Signing of the Master
Service Agreement
Based upon the above representations―which PetEdge characterizes as
misrepresentations―PetEdge began negotiating a contract with TPC. Id. On October 17, 2012,
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during negotiations of the Statement of Work (“SOW”), Garg allegedly “modified § 8 of the SOW
naming himself as the “Consultant/Supplier Project Manager” for the project. SAC ¶ 12 & Ex. A
(showing replacement of “xxxxx” with “Vijay Garg” in a track-changes version of SOW). The
“Project Requirements” spreadsheet that had been shared with potential vendors during the search
process was also attached to the SOW. SAC ¶ 12 & Exs. B-2, B-3. The SOW, including the version
allegedly showing changes made by Garg, also contains the following representation:
“Consultant/Supplier acknowledges and agrees that it has read the PetEdge Requirements
Document attached hereto as an Appendix and agrees that the Deliverables shall comply in all
respects with the PetEdge Requirements and that these requirements are within scope.” SAC ¶ 12 &
Exs. A & B-2 (Art. 4).
On October 22, 2012, PetEdge signed TPC’s Master Service Agreement (the “Agreement”)
and the associated SOW, with PetEdge’s Requirements Document attached. SAC ¶ 13 & Ex. B.
3. The Project Begins, and Problems Arise
By December of 2012, it “became apparent to PetEdge that TPC was having difficulty
implementing the SAP software and the SAP CRM and WCEM functionality,” and PetEdge
“became concerned with TPC’s lack of competence.” SAC ¶¶ 15-16. In mid-December, PetEdge’s
Keller had a “pointed discussion” with TPC’s Project Leader, Sreedhar Sambatur, about issues that
PetEdge was experiencing with the implementation project and with TPC’s provision of consulting
services. SAC ¶ 15. As the implementation progressed, PetEdge also became concerned about “the
failure of . . . Sambutar[] to even attend project meetings.” SAC ¶ 16. On December 19, 2012,
PetEdge’s Project Manager, Don Bacon, emailed Sambutar to request that he attend the project
meetings, even if only by phone. Id. On the same day, Keller also emailed Sambutar to express her
concern and to request that TPC “look into its other implementations of WCEM and CRM to find
someone on [its] staff that understood PetEdge’s catalogue business model.” Id. According the
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second amended complaint, TPC “was unable to do so.” Id.
PetEdge alleges that TPC’s failures continued, despite Keller’s and Bacon’s attempts to
address the issues that had arisen. SAC ¶ 17. By February of 2013, Keller requested a call with
TPC’s Managing Director, Greg Kull, to discuss her concerns regarding “disconnects between the
TPC team that initially ‘scoped’ the implementation and the TPC team that was implementing the
SAP software.” Id. During the call, she “pointedly advised Mr. Kull that she was raising a ‘yellow
flag’ and that failure was not an option.” Id. Kull allayed Keller’s concerns, PetEdge alleges, by
“assuring her that the project would be successful and that PetEdge was the perfect customer.” Id.
The second amended complaint alleges that TPC’s “failure to implement the SAP software”
caused PetEdge to push back the implementation go-live date, and when it finally went live, it was a
“complete failure.” SAC ¶ 18. The software lost and duplicated orders. Id. It also replicated
surcharges and credit card authorizations. Id. Customers were unable to login to PetEdge’s online
store, unable to request new passwords, and unable to check out. Id. PetEdge alleges that this
resulted in a 67% decline in its web volume and an approximately 45% decline in its SEO volume.
Id.
The second amended complaint also alleges that “TPC’s failure to properly integrate WCEM,
CRM and ECC resulted in thousands of orders getting stuck in the system and PetEdge unable to
release them.” SAC ¶ 19. 2 Customers called “en masse” about missing orders, and in many cases,
PetEdge “sent out replacement orders free of charge via next day air only to have the original order
ultimately ship out.” Id.
PetEdge further alleges that TPC “failed to properly configure CRM in accordance with
PetEdge’s business needs and requirements resulting in application crashes and lock ups that

2

The second amended complaint makes only this one reference to “ECC,” and nowhere is this abbreviation defined.

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prevented PetEdge from taking customers’ orders.” SAC ¶ 20. This required PetEdge to double its
call center staff and send thousands of calls to an outside call center. Id. Even then, average hold
times rose to 30 minutes with abandon rates in the 80% range. Id.
These problems also allegedly resulted in PetEdge’s system over-authorizing customers’
credit cards and tying up all of their available credit, which caused customers to report PetEdge to
the police. SAC ¶ 21.
According to PetEdge, Garg was “fully aware of TPC’s failures and the damage his
misrepresentations were causing and would cause PetEdge,” because he received weekly “project
status reports” from November 2012 until at least April 2013 that “detailed the train wreck his
misrepresentations had wrought on PetEdge’s business.” SAC ¶ 14. Despite having received these
reports, Garg “failed to advise PetEdge of the impending disaster it faced.” Id.
4. TPC Walks Away from the Project
PetEdge alleges that TPC initially attempted to assist with the “multiple problems that had
resulted from Mr. Garg’s scheme to defraud PetEdge,” but that “the complexity of the project was
too much for TPC.” SAC ¶ 22. As a result, TPC removed its consultants from the project, reduced
support, and “simply walked away from the project leaving PetEdge to fend for itself.” Id. PetEdge
was then “forced to look to third parties to assist it with the disaster that Mr. Garg’s
misrepresentations had caused.” Id.
B. Procedural History
PetEdge initiated this action on December 8, 2015 against TPC and Garg. ECF No. 1,
Compl. In its initial complaint, PetEdge brought claims for breach of contract, breach of warranty,
fraudulent inducement, negligent misrepresentation, and breach of fiduciary duty. Id. On February
16, 2016, the parties stipulated to the dismissal of the claims against TPC, and the Court granted
PetEdge leave to amend its complaint. ECF No. 22. PetEdge filed its first amended complaint on
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March 1, 2016, naming only Garg as a defendant and bringing only claims for fraudulent inducement,
negligent misrepresentation, and breach of fiduciary duty. ECF No. 24, First Am. Compl.3 Garg
moved to dismiss the first amended complaint on April 8, 2016. ECF No. 31. Rather than opposing
the motion, PetEdge elected to amend its complaint once again, filing its second amended complaint
on April 29, 2016. ECF No. 37, SAC.
In its second amended complaint, PetEdge asserts claims against Garg for fraudulent
inducement, negligent misrepresentation, and breach of fiduciary duty, seeking damages of at least
$11,000,000. SAC ¶¶ 23-51. Garg moved to dismiss the second amended complaint in its entirety
pursuant to Fed. R. Civ. P. 12(b)(6) on May 20, 2016. ECF No. 39, Mot. to Dismiss; ECF No. 40,
Mem. of Law in Supp. of Mot. to Dismiss (“Def.’s Mem.”); ECF No. 41, Decl. of Evan Mandel in
Supp. of Mot. to Dismiss (“Mandel Decl.”). PetEdge filed an opposition brief on June 17, 2016.
ECF No. 44, Mem. of Law in Opp’n to Mot. to Dismiss (“Pl.’s Mem.”), and Garg filed a reply brief
on June 24, 2016. ECF No. 45, Reply Mem. in Supp. of Mot. to Dismiss (“Def.’s Reply Mem.”);
ECF No. 46, Decl. of Evan Mandel in Supp. of Mot. to Dismiss (“Mandel Reply Decl.”).
II.

DISCUSSION
A. Choice of Law
A federal court sitting in diversity must apply the choice of law rules of the forum state,

which in this case is New York. See Licci ex rel. Licci v. Lebanese Canadian Bank, SAL, 672 F.3d 155,
157 (2d Cir. 2012).4 Under New York choice-of-law rules, “the first step in any case presenting a

PetEdge and TPC are litigating their dispute in an arbitration before the American Arbitration Association. Garg did
not move to compel arbitration as to the claims asserted against him, despite the broad language in the Agreement’s
arbitration clause, which provides that “[a]ny controversy or claim arising out of or relating to this Agreement or the breach
of this Agreement will be settled by binding arbitration.” SAC, Ex. B-1, at 7 (Art. 12.6) (emphasis added).
3

Although Article 12.8 of the Master Service Agreement provides that the Agreement “will be governed by and
construed in accordance with the laws of the State of New York,” SAC, Ex. B-1, at 8, that provision does not apply to
the claims asserted in this action. “[U]nder New York law, a contractual choice of law provision governs only a cause of
action sounding in contract, not one sounding in tort.” Lazard Freres & Co. v. Protective Life Ins. Co., 108 F.3d 1531, 1540
(2d Cir. 1997). Courts have recognized an exception to this rule, however, where the language of the provision is
“sufficiently broad as to encompass the entire relationship between the contracting parties.” H.S.W. Enters. v. Woo Lae

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potential choice of law issue is to determine whether there is an actual conflict between the laws of
the jurisdictions involved.” GlobalNet Financial.Com, Inc. v. Frank Crystal & Co., 449 F.3d 377, 382 (2d
Cir. 2006) (quoting In re Allstate Ins. Co. (Stolarz), 613 N.E.2d 936, 937 (N.Y. 1993)). “If no actual
conflict exists, and if New York is among the relevant jurisdictions, the court may simply apply New
York law.” Licci, 672 F.3d at 157. If, however, an actual conflict exists, then “[t]he law of the
jurisdiction having the greatest interest in the litigation will be applied and the only facts or contacts
which obtain significance in defining State interests are those which relate to the purpose of the
particular law in conflict.” Schultz v. Boy Scouts of Am., Inc., 480 N.E.2d 679, 684 (N.Y. 1985) (quoting
Miller v. Miller, 237 N.E.2d 877, 879 (N.Y. 1968)) (internal quotations and alterations omitted).
In tort-law disputes such as this one, “interest analysis distinguishes between two sets of
rules: conduct-regulating rules and loss-allocating rules.” Licci, 672 F.3d at 158. “If conflicting
conduct-regulating laws are at issue, the law of the jurisdiction where the tort occurred will generally
apply because that jurisdiction has the greatest interest in regulating behavior within its borders.”
Cooney v. Osgood Mach., Inc., 612 N.E.2d 277, 280 (N.Y. 1993). Thus, “New York courts apply the law
of the place where the tort occurred with regard to ‘conduct regulating’ rules, including the duty of
care.” Rochford v. Woodloch Pines, Inc., 824 F. Supp. 2d 343, 349 (E.D.N.Y. 2011).
“However, where the parties have agreed to the application of the forum law, their consent
concludes the choice of law inquiry.” Am. Fuel Corp. v. Utah Energy Dev. Co., 122 F.3d 130, 134 (2d
Cir. 1997). If “[t]he parties’ briefs assume that New York substantive law governs the issues . . . such

Oak, Inc., 171 F. Supp. 2d 135, 141 n.5 (S.D.N.Y. 2001); compare Turtur v. Rothschild Registry Int’l, Inc., 26 F.3d 304, 309-10
(2d Cir. 1994) (applying contractually selected law to fraudulent inducement claim because the choice-of-law provision
expressly applied to disputes “arising out of or relating to” the contract), with Refco Grp Ltd., LLC v. Cantor Fitzgerald, L.P,
No. 13-cv-1654 (RA), 2014 WL 2610608, at *40 (S.D.N.Y. June 10, 2014) (not applying contractually selected law to
fraudulent conveyance claim where provision stated only that it will be “construed and enforced in accordance with, and
the rights of the parties shall be governed by,” Delaware law). Here, because the choice-of-law provision does not
contain such broad language, and because all three of PetEdge’s claims sound in tort, the contractual provision does not
apply.

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implied consent is, of course, sufficient to establish the applicable choice of law.” Arch Ins. Co. v.
Precision Stone, Inc., 584 F.3d 33, 39 (2d Cir. 2009) (quoting Golden Pac. Bancorp v. FDIC, 273 F.3d 509,
514 n.4 (2d Cir. 2001)); see also Guardian Life Ins. Co. v. Gilmore, 45 F. Supp. 3d 310, 323 (S.D.N.Y.
2014) (collecting cases). “[I]n the absence of a strong countervailing public policy, the parties to
litigation may consent by their conduct to the law to be applied.” Walter E. Heller & Co. v. Video
Innovations, Inc., 730 F.2d 50, 52 (2d Cir. 1984).
In his opening brief, Garg “consents to New York law being applied to this motion.” Def.’s
Mem. at 7.5 Garg also cites to New York law throughout his opening and reply briefs. Although
PetEdge does not explicitly consent to the application of New York in its opposition brief, it does so
implicitly by citing exclusively to New York law. See Pl.’s Mem. Because the parties’ briefs rely on
and indicate their assent to the application of New York law, and the Court has not identified a
strong countervailing public policy, the Court will apply New York law to the tort claims at issue
here.
B. Legal Standard for Dismissal Pursuant to Rule 12(b)(6)
Under Federal Rule of Civil Procedure 8(a)(2), a complaint must contain “a short and plain
statement of the claim showing that the pleader is entitled to relief.” Rule 8 “does not require
detailed factual allegations, but it demands more than an unadorned, the-defendant-unlawfullyharmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). To survive a motion to dismiss
pursuant to Rule 12(b)(6), a complaint “must contain sufficient factual matter, accepted as true, to
‘state a claim to relief that is plausible on its face.’” Iqbal, 556 U.S. at 678 (2009) (quoting Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the plaintiff pleads
factual content that allows the court to draw the reasonable inference that the defendant is liable for
Garg purports to “reserve[] his right to seek the application of another state’s law” at a later time if “this motion is
denied and a factual investigation indicates that one or more issues in this case might come out differently under different
states’ laws.” Def.’s Mem. at 7. The Court takes no position on this purported reservation of rights.

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the misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556). “To survive dismissal, the plaintiff
must provide the grounds upon which his claim rests through factual allegations sufficient ‘to raise a
right to relief above the speculative level.’” ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98
(2d Cir. 2007) (quoting Twombly, 550 U.S. at 544).
Determining whether a complaint states a plausible claim is a “context-specific task that
requires the reviewing court to draw on its judicial experience and common sense.” Iqbal, 556 U.S. at
679. The court must accept all facts alleged in the complaint as true and draw all reasonable
inferences in the plaintiff’s favor. Burch v. Pioneer Credit Recovery, Inc., 551 F.3d 122, 124 (2d Cir. 2008)
(per curiam). However, a complaint that offers “labels and conclusions” or “naked assertion[s]”
without “further factual enhancement” will not survive a motion to dismiss. Iqbal, 556 U.S. at 678
(citing Twombly, 550 U.S. at 555, 557).
“In considering a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6), a
district court may consider the facts alleged in the complaint, documents attached to the complaint as
exhibits, and documents incorporated by reference in the complaint.” DiFolco v. MSNBC Cable
L.L.C., 622 F.3d 104, 111 (2d Cir. 2010) (citations omitted). “Where a document is not incorporated
by reference, the court may never[the]less consider it where the complaint ‘relies heavily upon its
terms and effect,’ thereby rendering the document ‘integral’ to the complaint.” Id. (quoting Mangiafico
v. Blumenthal, 471 F.3d 391, 398 (2d Cir. 2006)). Finally, the Court may also consider “matters of
which judicial notice may be taken.” Goel v. Bunge, Ltd., 820 F.3d 554, 559 (2d Cir. 2016) (citation
omitted).
C. The Merger and Warranty Clauses
Garg contends that PetEdge’s claims for fraudulent inducement and negligent
misrepresentation are barred by the combination of two clauses contained in the Agreement. The
first clause contains the following provision, which the Court will refer to as the “Merger Clause:”
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This Agreement together with any Statements of Work supersedes any and all
agreements, either oral or written, between the parties with respect to the
rendering of services by TPC for Customer and contains all of the representations,
covenants, and agreements between the parties with respect to the rendering of
those services. Each party to this Agreement acknowledges that no
representations, inducements, promises, or agreements, orally or otherwise, have
been made by any party, or anyone acting on behalf of any party, which are not
contained in this Agreement, and that no other agreement, statement, or promise
not contained in this Agreement will be valid or binding.
SAC, Ex. B-1, at 7 (Art. 12.4). The second clause provides express representations and warranties,
including that TPC “has the knowledge, experience and Skills to provide the services in a
professional and timely manner,” that TPC’s “services shall be performed in a timely and
professional manner consistent with the highest prevailing industry standards and in accordance with
Statement(s) of Work attached to this Agreement,” and that “[t]he Deliverables shall conform to the
specifications mutually agreed upon under the applicable Statement of Work and adhere to the
highest prevailing industry standards.” Id. at 6 (Art. 12.3). The Court will refer to this provision as
the “Warranty Clause.”
Garg contends that the Merger Clause, when read together with the Warranty Clause, bars
Plaintiff’s claims for fraudulent inducement and negligent misrepresentation, both of which are
premised on alleged oral misrepresentations. Def.’s Mem. at 10-11. In response, PetEdge argues
that the Merger Clause is too “general” to effectively bar those claims. Pl.’s Mem. at 5-8.
Ordinarily, “an omnibus statement that the written instrument embodies the whole
agreement, or that no representations have been made” is insufficient to bar a claim of fraudulent
inducement. Mfrs. Hanover Tr. Co. v. Yanakas, 7 F.3d 310, 315 (2d. Cir. 1993) (citing Danann Realty
Corp. v. Harris, 157 N.E.2d 597, 598-99 (N.Y. 1959)); see also Robinson v. Deutsche Bank Tr. Co. Ams.,
572 F. Supp. 2d 319, 323 (S.D.N.Y. 2008) (“Under New York law, . . . a general merger clause does
not, standing alone, preclude a claim of fraudulent inducement.”). “When, however, the contract
states that a contracting party disclaims the existence of or reliance upon specified representations, that
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party will not be allowed to claim that he was defrauded into entering the contract in reliance on
those representations.” Yanakas, 7 F.3d at 315 (citing Citibank, N.A. v. Plapinger, 485 N.E.2d 974, 976
(N.Y. 1985) and Danann, 157 N.E.2d at 599) (emphasis added); see also Century Pac., Inc. v. Hilton Hotels
Corp., 528 F. Supp. 2d 206, 229 (S.D.N.Y. 2007) (stating that a merger clause bars an action for fraud
under New York law where it “references a specific subject of prior representations”); Emergent
Capital Inv. Mgmt., LLC v. Stonepath Grp., Inc. (Emergent Capital II), 195 F. Supp. 2d 551, 562 (S.D.N.Y.
2002), vacated in part on other grounds, 343 F.3d 189 (2d Cir. 2003) (“[W]here a party specifically
disclaims reliance upon a particular representation in a contract, that party cannot, in a subsequent
action for common law fraud, claim it was fraudulently induced to enter the contract by the very
representation it has disclaimed reliance upon.”). In order to bar a fraud claim, a merger clause must
address “the very matter as to which [the party] now claims it was defrauded.” Icebox-Scoops v. Finanz
St. Honore, B.V., 676 F. Supp. 2d 100, 112 (E.D.N.Y. 2009) (quoting Danann, 157 N.E.2d at 599).
Courts have recognized, however, that the specificity requirement may be relaxed (or even
altogether disregarded) when the clause and its surrounding contract were the product of arm’slength negotiations between sophisticated parties. See, e.g., Transnational Mgmt. Sys. II, LLC v. Carcione,
No. 14-cv-2151 (KBF), 2016 WL 7077040, at *7 n.8 (S.D.N.Y. Dec. 5, 2016) (“The specificity
requirement is further relaxed when the contracting parties are ‘sophisticated business people,’ and
the disclaimer clause is the result of negotiations between them.” (citation omitted)); Primedia
Enthusiast Publ’n Inc. v. Ashton Int’l Media, Inc., No. 02-cv-9997 (HB), 2003 WL 22220375, at *6
(S.D.N.Y. Sept. 25, 2003) (“Notwithstanding the lack of an explicit disclaimer of representations that
form the basis of a fraud-in-the-inducement claim, courts may disregard a fraudulent inducement
claim and give effect to a contract when the parties have negotiated at arms lengths and they are
sufficiently sophisticated that they could have easily protected themselves either through obtaining
readily available information or alternatively including a protective clause in the agreement.”);
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Emergent Capital Inv. Mgmt., LLC v. Stonepath Grp., Inc. (Emergent Capital I), 165 F. Supp. 2d 615, 622
(S.D.N.Y. 2001) (“Even if an integration clause is general, a fraud claim will not stand where the
clause was included in a multi-million dollar transaction that was executed following negotiations
between sophisticated business people and a fraud defense is inconsistent with other specific recitals
in the contract.”).
In particular, some courts have held that a decision by sophisticated parties to include
specific representations and warranties in their agreements in addition to a merger clause disclaiming
all other representations was sufficient to bar a fraud claim, at least when the specific representations
are extensive in number. See, e.g., Harsco Corp. v. Segui, 91 F.3d 337, 346 (2d Cir. 1996) (holding, in
light of fourteen pages of representations and warranties: “We think Harsco should be treated as if it
meant what it said when it agreed in Section 2.05 that there were no representations other than those
contained in Sections 2.01 through 2.04 that were part of the transaction. Here, as in our analysis of
§ 29(a) of the Exchange Act, a less detailed Section 2.04 might lead to a different result. But the
exhaustive nature of the Section 2.04 representations adds to the specificity of Section 2.05’s
disclaimer of other representations.”); Consolidated Edison, Inc. v. Ne. Utilities, 249 F. Supp. 2d 387, 403
(S.D.N.Y. 2003) (“Like Harsco, the Confidentiality Agreement’s disclaimer, as well as the integration
clause in the Merger Agreement, are strengthened by the extensive and exclusive representations and
warranties made in the Merger Agreement which failed to include the representations on which Con
Edison now seeks to rely.”), rev’d in part on other grounds, 426 F.3d 524 (2d Cir. 2005); Emergent Capital
II, 195 F. Supp. 2d at 562 (“If this merger clause stood alone, there would be no question that it
would not by itself preclude reasonable reliance as a matter of law. In addition to the merger clause,
however, the Stock Purchase Agreement makes 29 separate representations and warranties and 16
separate covenants in favor of the [plaintiffs].”).

14

Here, the Merger Clause disclaims any extra-contractual representations “with respect to the
rendering of services by TPC.” SAC, Ex. B-1, at 7. Standing alone, the clause is arguably
insufficiently specific to bar PetEdge’s claims. First, it does not disclaim any specific representations.
Second, since “the rendering of services by TPC” describes the entire subject matter of the Master
Services Agreement, this language is quite similar to the “subject matter of the agreement” language
that courts regularly deem too general and vague. See, e.g., CCM Rochester, Inc. v. Federated Inv’rs, Inc.,
No. 14-cv-3600 (VEC), 2014 WL 6674480, at *4 (S.D.N.Y. Nov. 25, 2014) (clause providing that
contract “supersede[s] all prior agreements and understandings, both written and oral, between the
Parties with respect to the Transactions” was too general); Chase v. Columbia Nat’l Corp., 832 F. Supp.
654, 662 (S.D.N.Y. 1993) (clause providing that contract “supersedes all prior agreements and
understandings between the parties relating to the subject matter of this Agreement” was too
general).6
At the same time, in light of the precedent described above, the Court recognizes that its
analysis of the Merger Clause could be influenced by facts that are not properly before it in this
motion. For example, neither the second amended complaint nor any of the documents attached to
it contain facts concerning whether PetEdge is a sophisticated party or whether the Merger and
Warranty Clauses are the result of negotiations between the parties. See Emergent Capital II, 195 F.
Supp. 2d at 562; Transnational Mgmt. Sys., 2016 WL 7077040, at *7 n.8. Additionally, the materials that
the Court may properly consider do not address whether PetEdge was represented by counsel in the

A useful example of a sufficiently specific disclaimer can be found in the New York Court of Appeals’ decision in
Danann. There, the plaintiff sued for damages for fraud, alleging that it had been induced to enter into a sales contract by
the sellers’ false representations “as to the operating expenses of the building and as to the profits to be derived from the
investment.” Danann, 157 N.E.2d at 598. The contract between the parties stated that “[t]he Seller has not made . . . any
representations as to the . . . expenses [or] operation . . . [of] the aforesaid premises . . . and the Purchaser hereby expressly
acknowledges that no such representations have been made . . . .” Id. (emphasis added). The court held that the plaintiff’s fraud
claim was barred by the express disclaimer of reliance on that specific representation. Id. at 599 (“[P]laintiff has in the
plainest language announced and stipulated that it is not relying on any representations as to the very matter as to which
it now claims it was defrauded.”).
6

15

negotiation of the Agreement. See 3Com Corp. v. Capital 4, Inc., 626 F. Supp. 2d 428, 430-31 (S.D.N.Y.
2009).7, 8 As a result, given that it is not necessary to rule on the effect of the Merger and Warranty
Clauses to resolve this motion, the Court declines to do so at this time.
D. Fraudulent Inducement Claim
To state a claim for fraudulent inducement under New York law, a plaintiff must allege: “a
representation of fact, which is untrue and either known by defendant to be untrue or recklessly
made, which is offered to deceive and to induce the other party to act upon it, and which causes
injury.” Suez Equity Inv’rs, L.P. v. Toronto-Dominion Bank, 250 F.3d 87, 104 (2d Cir. 2001) (citing Jo
Ann Homes at Bellmore, Inc. v. Dworetz, 250 N.E.2d 214, 216 (N.Y. 1969)). A claim for fraudulent
inducement must satisfy the heightened pleading requirement of Federal Rule Civil Procedure 9(b),
which requires that a party “state with particularity the circumstances constituting fraud.” Fed. R.
Civ. P. 9(b); see Ningbo Prods. Import & Export Co. v. Eliau, No. 11-cv-650 (PKC), 2011 WL 5142756,
at *4 (S.D.N.Y. Oct. 31, 2011); Eaves v. Designs for Fin., Inc., 785 F. Supp. 2d 229, 254-55 (S.D.N.Y.
2011). “This means the who, what, when, where, and how: the first paragraph of any newspaper
story.” Am. Federated Title Corp. v. GFI Mgmt. Servs., Inc., 39 F. Supp. 3d 516, 520 (S.D.N.Y. 2014)
(quoting DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir. 1990)).
Although “[m]alice, intent, knowledge, and other conditions of a person’s mind may be
alleged generally,” Fed. R. Civ. P. 9(b), a fraud claim must be supported by allegations “that give rise
Garg states in his reply brief: “During the negotiation of the Agreement, PetEdge was represented by the same firm
that represents it in the instant action, and that firm specializes in software implementation agreements.” Def.’s Reply
Mem. at 4. Garg supports that assertion by attaching an email dated October 26, 2012 purporting to show PetEdge’s
counsel’s involvement in the negotiations. ECF No. 46, Reply Decl. of Evan Mandel (“Mandel Reply Decl.”), Ex. A.
Garg also characterizes PetEdge as a “sophisticated business” in its reply brief. Defs.’ Reply Mem. at 4. However,
neither the factual assertions contained in Garg’s brief nor the email exhibit may properly be considered on this 12(b)(6)
motion.
7

The Court observes, however, that while the Warranty Clause at issue here does not contain warranties and
representations as extensive as those in Harsco, Consolidated Edison, and Emergent Capital II, it does contain the following
warranty and representation, which tracks quite closely the misrepresentations alleged by PetEdge: “TPC warrants and
represents that it has the knowledge, experience, and Skills to provide the services in a professional and timely manner.”
SAC, Ex. B-1, at 6 (Art. 12.3(i)).
8

16

to a strong inference of fraudulent intent.” S.Q.K.F.C., Inc. v. Bell Atl. Tricon Leasing Corp., 84 F.3d
629, 634 (2d Cir. 1996). A plaintiff can satisfy this requirement by “(1) alleging facts to show that
defendant[ ] had both motive and opportunity to commit fraud, or by (2) alleging facts that
constitute strong circumstantial evidence of conscious misbehavior or recklessness.” Id.; see also, e.g.,
In Touch Concepts, Inc. v. Cellco P’ship, 949 F. Supp. 2d 447, 481 (S.D.N.Y. 2013).
1. The Project Requirements Document Cannot Support a Fraud Claim
As noted, PetEdge alleges that Garg modified the SOW to add himself as the
“Consultant/Supplier Project Manager.” SAC ¶ 12. Attached to the SOW was a “Project
Requirements” spreadsheet listing in detail the tasks that PetEdge would require of TPC. Id.; SAC,
Ex. B-3. PetEdge further alleges that Garg should be held to account for the allegedly untrue
representation made in the SOW that “Consultant/Supplier acknowledges and agrees that it has read
the PetEdge Requirements Document attached hereto as an Appendix and agrees that the
Deliverables shall comply in all respects with the PetEdge Requirements and that these requirements
are within scope.” SAC ¶ 12 & Exs. A & B-2 (Art. 4). PetEdge relies on this document and the
related representation to allege that “Garg misrepresented the capability of TPC to meet PetEdge’s
business needs and requirements.” SAC ¶ 12. These allegations cannot support a claim of
fraudulent inducement against Garg.
First, the representation on which PetEdge relies here―that “the Deliverables shall comply in
all respects” with the “requirements” listed in the Project Requirements document―is made by the
“Consultant/Supplier,” which is defined in the Agreement itself as “The Principal Consulting, Inc.,”
not as Garg. SAC, Ex. B-2, at 1. And Garg is not a signatory to the SOW or to the Agreement;
these documents are signed by Ms. Keller, PetEdge’s Vice President of IT. Id. at 7; SAC, Ex. B-1,
at 8.
Second, even if this representation were deemed to have been made by Garg, it still would
17

not support a claim for fraudulent inducement. Under New York law, false statements indicating an
intent to perform under a contract are insufficient to support a claim of fraud. Bridgestone/Firestone,
Inc. v. Recovery Credit Servs., Inc., 98 F.3d 13, 19-20 (2d Cir. 1996). This rule applies even where the
plaintiff does not assert a claim for breach of contract. See, e.g., Minnie-Rose LLC v. Yu, 169 F. Supp.
3d 504, 519-20 (S.D.N.Y. 2016); see also Wall v. CSX Transp., Inc., 471 F.3d 410, 416 (2d Cir. 2006)
(“[A]s a general matter, a fraud claim may not be used as a means of restating what is, in substance, a
claim for breach of contract. Thus, general allegations that defendant entered into a contract while
lacking the intent to perform it are insufficient to support [a fraud] claim.” (quoting New York Univ. v.
Cont’l Ins. Co., 662 N.E.2d 763, 769 (N.Y. 1995)) (internal quotation marks omitted)); Netto v. Rastegar,
No. 12-cv-4580 (CM), 2012 WL 4336167, at *5 (S.D.N.Y. Sept. 20, 2012) (“Fraudulent inducement is
not intended to function as a blanket insurance policy for anything that can go wrong in a contractual
relationship . . . .”); W.B. David & Co v. DWA Commc’ns, Inc., No. 02-cv-8479 (BSJ), 2004 WL 369147,
at *3 (S.D.N.Y. Feb. 26, 2004) (“New York law does not recognize claims that are essentially
contract claims masquerading as claims of fraud”).
In Bridgestone/Firestone, the Second Circuit held that, to maintain a claim of fraud relating to a
contract, “a plaintiff must either: (i) demonstrate a legal duty separate from the duty to perform
under the contract; or (ii) demonstrate a fraudulent misrepresentation collateral or extraneous to the
contract; or (iii) seek special damages that are caused by the misrepresentation and unrecoverable as
contract damages.” 98 F.3d at 20 (internal citations omitted). It is well-established that
misrepresentations of a future intent to perform under a contract are neither collateral nor
extraneous to the contract. E.g., Minnie-Rose LLC, 169 F. Supp. 3d at 519-20 (citing W.B. David &
Co., 2004 WL 369147, at *5); see also Ningbo, 2011 WL 5142756, at *7 (stating that, in pleading a fraud
claim, “plaintiff may not rely on defendants’ purported misrepresentations of future intent to perform;
plaintiff must identify misrepresentations of presently existing facts made to induce plaintiff to enter
18

the [contract]”); Frontier-Kemper Constructors, Inc. v. Am. Rock Salt Co., 224 F. Supp. 2d 520, 528
(W.D.N.Y. 2002) (“With regard to future promises, after Bridgestone/Firestone it is clear that in order to
be considered ‘collateral,’ the promise must be a promise to do something other than what is
expressly required by the contract.” (citation omitted)).
The Project Requirements document and the representation contained in Article 4 stating
that “the Deliverables shall comply in all respects with the PetEdge Requirements and that these
requirements are within scope” constitute nothing more than a promise to perform a list of tasks
under the contract. Therefore, they cannot be used in support of PetEdge’s fraudulent inducement
claim.
2. PetEdge Does Not Adequately Allege a Basis for Liability as to Garg
a. PetEdge Does Not Adequately Allege That Garg Participated in
the Fraud
Regardless of whether the second amended complaint alleges that TPC and certain of its
employees fraudulently induced PetEdge―a determination the Court need not make here, since this
case is proceeding solely against Garg―it does not adequately allege any fraudulent conduct by Garg.
With respect to pre-contractual conduct, which is the only conduct that is relevant to the
fraudulent inducement claim, PetEdge alleges Garg’s involvement in purely conclusory terms. The
following are several prime examples:
At Mr. Garg’s direction, Messrs. Dooley and O’Malley billed TPC as a go-to SAP
partner for SAP CRM, having team members with 10+ years of experience in SAP
CRM, and having successfully upgraded nearly every combination and
permutation of SAP CRM. With Mr. Garg’s knowledge and at his direction, they
positioned TPC as a leading expert in CRM components, technology and
integration, and as having extensive experience in implementing Web UI and
integration Web Services, e-Selling, and e-Service.
SAC ¶ 8 (emphasis added).
On August 30, 2012 and August 31, 2012, as part of Mr. Garg’s scheme to defraud
PetEdge, TPC employees, including but not limited to Brendan O’Malley and Mark
Dooley, met with PetEdge’s Vice President of IT, Trish Keller, and PetEdge’s
19

CFO, Mark Dow, via telephone to discuss the implementation of the SAP
software, the scope of the SAP implementation project, the deliverables that TPC
would provide, PetEdge’s catalogue business model and the impact that business
model would have on the implementation.
SAC ¶ 9 (emphasis added).
On October 3, 2012, Messrs. O’Malley and Dooley traveled to PetEdge’s Beverly,
Massachusetts office to meet with Ms. Keller and Mr. Dow. At Mr. Garg’s direction,
they misrepresented TPC’s understanding of the SAP WCEM software PetEdge
had licensed. They misrepresented TPC’s understanding of the catalogue business
model used in PetEdge’s business, and they misrepresented the impact PetEdge’s
business model would have on the deliverables and modifications necessary to
successfully implement the SAP software.
SAC ¶ 10 (emphasis added).
On October 4, 2012 and October 12, 2012, Messrs. Dooley and O’Malley again
met with Ms. Keller and Mr. Dow, at Mr. Garg’s direction, via telephone to
aggressively pitch TPC’s consulting services to PetEdge.
Id. (emphasis added).
During these meetings and phone calls TPC made misrepresentations of material
fact and failed to disclose material facts in accordance with Mr. Garg’s scheme to defraud
PetEdge. These misrepresentations of material fact and failure to disclose material
facts were done at Mr. Garg’s direction and with his knowledge and approval.
SAC ¶ 24 (emphasis added). As these examples illustrate, PetEdge alleges conduct by TPC, Dooley,
and O’Malley, and merely tacks on conclusory assertions that they were done “at Mr. Garg’s
direction,” “as part of Mr. Garg’s scheme to defraud PetEdge,” and “with his knowledge and
approval.” See Wilson v. McKenna, No. 3:12-cv-1581 (VLB), 2015 WL 1471908, at *10, 12 (D. Conn.
Mar. 31, 2015) (describing allegations that two defendants were “acting at the direction of” other
defendants and that one defendant “worked with” another defendant as “conclusory at best”); In re
NQ Mobile, Inc. Sec. Litig., No. 13-cv-7608 (WHP), 2015 WL 1501461, at *2 (S.D.N.Y. Mar. 27, 2015)
(describing allegations that one defendant performed audit services “on the authority of, at the
direction of, under the control of, and for the sole benefit of” another defendant as “conclusory
allegations” with “no facts to substantiate” them); McCloud v. Prack, 55 F. Supp. 3d 478, 481–82
20

(W.D.N.Y. 2014) (holding that plaintiffs’ allegations that one defendant deliberately conducted an
inadequate investigation in order to cover up misconduct, and that he did so “at the direction of”
another defendant, were “insufficient to make out a . . . claim against either of them”); SIPC v.
Bernard L. Madoff Inv. Sec. LLC, 546 B.R. 284, 301-02 (Bankr. S.D.N.Y. 2016) (finding allegations that
a party “caused,” “directed,” and “participated in” fraudulent conduct to be “entirely conclusory”); cf.
B&M Linen, Corp. v. Kannegiesser, USA, Corp., 679 F. Supp. 2d 474, 481 (S.D.N.Y. 2010) (“Sweeping
references to the collective fraudulent actions of multiple defendants will not satisfy the particularity
requirements of Rule 9(b).” (citation omitted)).
The second amended complaint contains no particularized factual allegations to support
these conclusory assertions. PetEdge’s claims seem to rest on a belief that Garg is liable because he
was a senior officer of TPC and, thus, must bear some personal liability for the acts of the company
through his subordinates. However, under New York law, “an officer or director is not, merely by
virtue of his office, liable for the tortious acts of the corporation. He must direct, authorize, or in
some meaningful sense participate actively in the assertedly wrongful conduct.” Shostack v. Diller, No.
15-cv-2255 (GBD) (JLC), 2015 WL 5535808, at *5 (S.D.N.Y. Sept. 16, 2015) (quoting Teledyne Indus.,
Inc. v. Eon Corp., 373 F. Supp. 191, 196 (S.D.N.Y. 1974)). PetEdge’s conclusory allegations regarding
Garg’s direct involvement in the alleged scheme fail to meet the “plausibility” standard of Rule 8(a),
much less the particularity requirement of Rule 9(b).9
To the extent that PetEdge seeks to hold Garg liable for fraudulent concealment, its claim
fails on that ground, as well. “Fraudulent concealment claims have the additional element that the
defendant had a duty to disclose the material information.” UniCredito Italiano SPA v. JPMorgan Chase
Bank, 288 F. Supp. 2d 485, 497 (S.D.N.Y. 2003) (citing Banque Arabe et Internationale D’Investissement v.
With respect to the Rule 9(b) standard, PetEdge may adequately have pleaded the “who.” Charitably, it may also have
pleaded the “what,” but the rest of the “first paragraph of the newspaper story” is completely missing. There is no
“how,” “where,” or “when.” See Am. Federated Title Corp., 39 F. Supp. at 520.
9

21

Maryland Nat’l Bank, 57 F.3d 146, 153 (2d Cir. 1995)). PetEdge fails adequately to allege that Garg
owed it a duty to disclose.
In business negotiations, an affirmative duty to disclose material information may
arise from the need to complete or clarify one party’s partial or ambiguous
statement, or from a fiduciary or confidential relationship between the parties.
Such a duty may also arise . . . where: (1) one party has superior knowledge of
certain information; (2) that information is not readily available to the other party;
and (3) the first party knows that the second party is acting on the basis of
mistaken knowledge.
Banque Arabe, 57 F.3d at 155 (internal citations omitted). Simply put, PetEdge fails to allege that
Garg owed it any duty to disclose anything. Garg was not a “party” to the negotiations between
PetEdge and TPC, and as explained above, PetEdge has not adequately alleged that he participated in
any statements during the pre-contractual period. As a result, even assuming that PetEdge has
pleaded that TPC, Dooley, and O’Malley owed it a duty to disclose for any of the reasons articulated
in Banque Arabe, the second amended complaint provides no basis beyond conclusory allegations for
the Court to infer that Garg himself had made partial or ambiguous statements that needed
supplementation, or that a fiduciary or confidential relationship existed between Garg and PetEdge,
or that Garg knew that PetEdge was acting on the basis of mistaken knowledge.
b. PetEdge Does Not Plead Facts That Give Rise to a Strong
Inference of Fraudulent Intent
In addition, PetEdge fails adequately to plead a strong inference of fraudulent intent. As
noted earlier, a plaintiff can satisfy this requirement by “(1) alleging facts to show that defendant[ ]
had both motive and opportunity to commit fraud, or by (2) alleging facts that constitute strong
circumstantial evidence of conscious misbehavior or recklessness.” S.Q.K.F.C., Inc., 84 F.3d at 634.
Plaintiff has not adequately alleged motive and opportunity.
In the corporate context, “[s]ufficient motive allegations entail concrete benefits
that could be realized by one or more of the false statements and wrongful
nondisclosures alleged. Motives that are generally possessed by most corporate
directors and officers do not suffice; instead, plaintiffs must assert a concrete and
personal benefit to the individual defendants resulting from the fraud.”
22

Bigsby v. Barclays Capital Real Estate, Inc., 170 F. Supp. 3d 568, 578 (S.D.N.Y. 2016) (quoting Kalnit v.
Eichler, 264 F.3d 131, 139 (2d Cir. 2001); see also In re Morgan Stanley & Van Kampen Mut. Fund Sec.
Litig., No. 03-cv-8208 (RO), 2006 WL 1008138, at *10 (S.D.N.Y. Apr. 18, 2006) (“[A]llegations that
defendants ‘stand[ ] to gain economically from fraud do not satisfy the heightened pleading
requirements of Rule 9(b).’” (quoting ABF Capital Mgmt. v. Askin Capital Mgmt., L.P., 957 F. Supp.
1308, 1327 (S.D.N.Y. 1997); Harrell v. Primedia, Inc., No. 02-cv-2893 (JSM), 2003 WL 21804840, at *3
(S.D.N.Y. Aug. 6, 2003) (“The mere fact that Defendants had a desire to see the company succeed
does not provide a motive to engage in serious fraud.”).
The only motive that PetEdge alleges is that Garg concocted a fraudulent scheme “for the
purpose of obtaining a million-dollar contract to upgrade and replace PetEdge’s computer systems.”
SAC ¶ 1. But such a desire is not unique to Garg; rather, the desire to garner business is common to
all corporate directors and officers. Moreover, even if such a motive were sufficient as a general
matter, the relevant question is whether PetEdge has alleged a personal benefit to Garg himself. See
Bigsby, 170 F. Supp. 3d at 578. It has not.
PetEdge has also failed to create a strong inference of fraudulent intent under the “conscious
misbehavior” prong of the test. “Where motive is not apparent, it is still possible to plead scienter by
identifying circumstances indicating conscious behavior by the defendant, though the strength of the
circumstantial allegations must be correspondingly greater.” Kalnit, 264 F.3d at 142 (citation
omitted). PetEdge argues that it has satisfied this prong in the following manner:
The SAC states that Garg not only knew of the misrepresentations his
representatives were making in an attempt to obtain PetEdge’s business, but also
actively directed TPC’s scheme to fraudulently induce PetEdge to contract for
purposes of obtaining hundreds of thousands of dollars in business. Garg even
went so far as to name himself project manager during the negotiations so that he
could continue to perpetuate his fraudulent scheme against PetEdge. As project
manager during negotiations, Garg would have been aware of key milestones,
deliverables and acceptance criteria important to PetEdge and was better able to
direct his employees to deceive PetEdge during the sales cycle.
23

Pl.’s Mem. at 12. As already discussed, PetEdge’s unsupported allegations that Garg “directed” the
alleged scheme or that it was done “with his knowledge and approval” are too conclusory and
speculative to support its claim. See Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1128 (2d Cir. 1994)
(“[T]he relaxation of Rule 9(b)’s specificity requirement for scienter must not be mistaken for license
to base claims of fraud on speculation and conclusory allegations.” (internal quotation marks and
citation omitted)). And the allegation that Garg named himself as Project Manager is not sufficiently
strong circumstantial evidence of his conscious misbehavior. Inclusion of one’s name in a contract is
hardly a nefarious act on its own. PetEdge’s conclusory allegations regarding Garg’s intent are not
enough. See id. at 1129 (holding that factual assertions coupled with conclusory allegations that
defendants “knew or should have known” or “knew but concealed” are “so broad and conclusory as
to be meaningless” (citation omitted)).
Finally, PetEdge appears to argue that fraudulent intent can be imputed to Garg from the
acts of Dooley, O’Malley, and other employees based upon his having modified the SOW to name
himself as Project Manager and his receipt of weekly status reports. Pl.’s Mem. at 12. For this
argument, PetEdge relies on the proposition that “allegations that individual defendants assisted in the
preparation of a collective statement are sufficient to satisfy the attribution requirement of Rule 9(b)
without the need to indicate which particular statements are attributable to which particular
defendant.” Id. (quoting In re Refco Inc. Sec. Litig., 826 F. Supp. 2d 478, 529-30 (S.D.N.Y. 2011))
(emphasis in original). PetEdge’s argument does not follow from its own premise. For one thing,
the court in In re Refco made the quoted comment in the context of its analysis of whether the
plaintiffs had pleaded with sufficient particularity which defendant had made which alleged
misstatement; the court was not discussing the element of intent. See In re Refco, 826 F. Supp. 2d at
529-30. Even overlooking that disconnect, however, the second amended complaint does not allege
that Garg participated in the preparation of any relevant collective statement. That he modified the
24

SOW to name himself as Project Manager does not mean that he participated in making any extracontractual misrepresentations. Moreover, his receipt of weekly status reports after the contract was
signed cannot logically give rise to any inference about his pre-contract intent.
In sum, PetEdge fails adequately to allege that Garg participated in any fraudulent conduct,
and it also fails to plead facts giving rise to a strong inference of fraudulent intent. Therefore,
PetEdge fails to state a claim for fraudulent inducement against Garg, and that claim is dismissed.
E. Negligent Misrepresentation Claim
PetEdge’s claim for negligent misrepresentation must be dismissed for largely the same
reasons. A claim for negligent misrepresentation “must be pled in accordance with the specificity
criteria of Rule 9(b).” Schwartzco Enters. LLC v. TMH Mgmt., LLC, 60 F. Supp. 3d 331, 350
(E.D.N.Y. 2014); see also Eaves, 785 F. Supp. 2d at 254-55 (“[I]n cases where . . . the negligent
misrepresentation claim is based on the same set of fact as those upon which a fraud claim is
grounded, Rule 9(b) applies to the negligent misrepresentation claim as well.”); Schwartzco, 60
F. Supp. 3d at 350 (stating that conclusion that Rule 9(b) applied to negligent misrepresentation claim
was “not surprising given that negligent misrepresentation is often characterized as a ‘species of
fraud’, with the caveat that instead of having to prove scienter, a plaintiff must prove that there was a
‘special relationship’ between the parties which imposed upon the defendant a duty to ‘speak with
care.’” (internal quotation marks and citations omitted)).
“Under New York law, the elements for a negligent misrepresentation claim are that (1) the
defendant had a duty, as a result of a special relationship, to give correct information; (2) the
defendant made a false representation that he or she should have known was incorrect; (3) the
information supplied in the representation was known by the defendant to be desired by the plaintiff
for a serious purpose; (4) the plaintiff intended to rely and act upon it; and (5) the plaintiff reasonably
relied on it to his or her detriment.” Hydro Inv’rs, Inc. v. Trafalgar Power Inc., 227 F.3d 8, 20 (2d Cir.
25

2000) (citations omitted). The parties devote a significant portion of their briefs to the question of
whether the requisite “special relationship” existed between them. It is unnecessary for the Court to
reach that question, however, because PetEdge has failed adequately to allege that Garg had any role
in the alleged misrepresentations.
PetEdge’s negligent misrepresentation claim is based on the same set of facts as its fraudulent
inducement claim. As in PetEdge’s fraudulent inducement claim, the allegations concerning Garg are
purely conclusory, with incantations of Garg’s “direction,” “knowledge,” “approval, and “scheme to
defraud” unsupported by anything more concrete. See SAC ¶¶ 33-42. As with the fraudulent
inducement claim, such conclusory and speculative allegations fail to meet the “plausibility” standard
of Rule 8(a), much less the particularized pleading demanded by Rule 9(b). Accordingly, PetEdge’s
claim for negligent misrepresentation is dismissed.
F. Fiduciary Duty Claim
PetEdge also alleges that Garg “breached his fiduciary duty by failing to act in PetEdge’s best
interest and by failing to act with utmost loyalty on behalf of, and for the benefit of PetEdge.” SAC
¶ 50. Unlike the claims already discussed, PetEdge’s fiduciary duty claim targets alleged post-contract
conduct. Specifically, PetEdge alleges that, “[b]eginning in November of 2012 through at least April
of 2013,” Garg “received weekly Status Reports, which detailed the train wreck his
misrepresentations had wrought on PetEdge’s business,” but “failed to advise PetEdge of the
impending disaster it faced.” SAC ¶ 47.
To state a claim for damages for breach of fiduciary duty under New York law, a plaintiff
must allege: “(1) the existence of a fiduciary relationship, (2) misconduct by the defendant, and (3)
damages directly caused by the defendant’s misconduct.” Blum v. Spaha Capital Mgmt., LLC, 44
F. Supp. 3d 482, 497 (S.D.N.Y. 2014) (quoting Armentano v. Paraco Gas Corp., 935 N.Y.S.2d 304 (App.
Div. 2011)). PetEdge’s fiduciary duty claim fails because it has not adequately alleged the existence
26

of a fiduciary relationship with Garg.
“Whether one party is a fiduciary of another depends on the relationship between the
parties.” Reuben H Donnelley Corp. v. Mark I Mktg. Corp., 893 F. Supp. 285, 289 (S.D.N.Y. 1995). “[A]
fiduciary relationship arises when one has reposed trust or confidence in the integrity or fidelity of
another who thereby gains a resulting superiority of influence over the first, or when one assumes
control and responsibility over another.” Id. As the New York Court of Appeals has explained,
courts should look first to any applicable contract and then to the parties’ relationship more generally
to determine whether a fiduciary relationship exists:
Generally, where parties have entered into a contract, courts look to that
agreement to discover . . . the nexus of [the parties’] relationship and the particular
contractual expression establishing the parties’ interdependency. If the parties . . .
do not create their own relationship of higher trust, courts should not ordinarily
transport them to the higher realm of relationship and fashion the stricter duty for
them. However, it is fundamental that fiduciary liability is not dependent solely
upon an agreement or contractual relation between the fiduciary and the
beneficiary but results from the relation.
EBC I, Inc. v. Goldman, Sachs & Co., 832 N.E.2d 26, 31 (N.Y. 2005) (internal quotation marks and
citations omitted). Here, Garg is not a party to the Agreement between PetEdge and TPC.
Therefore, the Court must consider the nature of his relationship with PetEdge, as alleged in the
second amended complaint.
Garg does not owe a fiduciary duty to PetEdge simply by virtue of his status as TPC’s CEO.
See Am. Fin. Int’l Grp.-Asia, L.L.C v. Bennett, No. 05-cv-8988 (GEL), 2007 WL 1732427, at *4-5
(S.D.N.Y. June 14, 2007) (Lynch, J.) (“Under New York law there is no fiduciary duty owed . . . to
the customers of a corporation by a controlling shareholder, officer, or director of a corporation.”
(citation omitted)); A.I.A. Holdings, S.A. v. Lehman Bros., Inc., No. 97-cv-4978 (LMM), 1999 WL
47223, at *6 (S.D.N.Y. Feb. 3, 1999) (same). Nor does Garg owe PetEdge a fiduciary duty merely
because he has superior expertise. Suthers v. Amgen Inc., 441 F. Supp. 2d 478, 487 (S.D.N.Y. 2006)
(“Fiduciary duties do not arise solely because one party has expertise that is superior to another.”
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(citation omitted)). If that were the case, every service provider would owe a fiduciary duty to every
customer by virtue of its greater expertise in the service provided. Instead, the question of whether a
fiduciary relationship exists requires consideration of the “ongoing conduct between [the] parties.”
E.g., United Feature Syndicate, Inc. v. Miller Features Syndicate, Inc., 216 F. Supp. 2d 198, 218 (S.D.N.Y.
2002) (collecting cases).
“[A]n arms-length commercial transaction generally does not give rise to a fiduciary
relationship.” Silva Run Worldwide Ltd. v. Gaming Lottery Corp., No. 96-cv-3231 (RPP), 2001 WL
396521, at *9 (S.D.N.Y. Apr. 19, 2001) (quoting O’Hearn v. Bodyonics, Ltd., 22 F. Supp. 2d 7, 12
(E.D.N.Y. 1998)); see also EBC I, 832 N.E.2d at 31 (stating that a fiduciary relationship “is grounded
in a higher level of trust than normally present in the marketplace between those involved in arm’s
length business transactions” (citation omitted)); Brinsights, LLC v. Charming Shoppes of Del., Inc., No.
06-cv-1745 (CM), 2008 WL 216969, at *8 (S.D.N.Y. Jan. 16, 2008) (“Purely commercial transactions
do not give rise to a fiduciary relationship.” (quoting In re Koreage Controle et Revision S.A., 961 F.2d
341, 353 (2d Cir. 1992))); Reuben H Donnelley, 893 F. Supp. at 289 (“[A] conventional business
relationship does not create a fiduciary relationship in the absence of additional factors.” (citation
omitted)).
PetEdge’s fiduciary duty claim must be dismissed because the second amended complaint
fails to allege a relationship between PetEdge and Garg that goes beyond an ordinary business
relationship. As noted above, a fiduciary relationship arises “when one has reposed trust or
confidence in the integrity or fidelity of another who thereby gains a resulting superiority of influence
over the first, or when one assumes control and responsibility over another.” Reuben H. Donnelley,
893 F. Supp. at 289. To be sure, PetEdge provides some conclusory allegations designed to satisfy
that test. For example, it alleges: “The nature of the relationship between PetEdge and Mr. Garg
was one of trust and confidence as Mr. Garg was in a superior position, possessed special knowledge,
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was in a position to exercise influence over PetEdge via TPC and assumed a duty to act in PetEdge’s
best interest.” SAC ¶ 48. These allegations are nothing more than bare recitations of the legal
elements of a fiduciary duty. As a result, the Court does not assume their truth for purposes of
deciding Garg’s motion. See Iqbal, 556 U.S. at 678 (“[T]he tenet that a court must accept as true all of
the allegations contained in a complaint is inapplicable to legal conclusions.”); see also Boley v. Pineloch
Assocs, Ltd., 700 F. Supp. 673, 681 (S.D.N.Y. 1988) (holding that allegation that “defendants entered
into a fiduciary relationship of trust and confidence with plaintiffs” was “a conclusory allegation”
that “does not satisfy Rule 8.”).
Similarly, PetEdge alleges: “This relationship went beyond that of a mere buyer and seller in
that Mr. Garg was aware that PetEdge was relying on his company to analyze PetEdge’s needs, to
advise PetEdge, and to recommend an appropriate implementation approach from the outset and
throughout their dealings.” SAC ¶ 44. Even if these allegations of reliance would suggest a fiduciary
duty owed by TPC―a question which is likely answered no, given that “[a]llegations of reliance on
another party with superior experience, standing by themselves, will not suffice,” Boley, 700 F. Supp.
at 681―the only nexus that PetEdge provides between Garg and PetEdge’s alleged reliance on TPC
is that Garg “was aware” of it. PetEdge provides no authority for the proposition that an officer’s
mere knowledge of his company’s fiduciary duty imposes a fiduciary duty on him personally. Indeed,
such a conclusion would amount to little more than holding an officer liable for the acts of the
corporation merely by virtue of his status as an officer. As already explained, that is not the law. In
addition, the Court has already explained that such general allegations of knowledge or awareness are
“so broad and conclusory as to be meaningless,” and therefore do not support a claim. Shields, 25
F.3d at 1129.
With respect to the well-pleaded factual allegations, the Court finds that they do not give rise
to a plausible inference that the relationship between PetEdge and Garg was anything more than an
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ordinary business relationship. Notably, PetEdge does not allege that it had even a single
communication or other contact directly with Garg. Instead, all of the communications and other
contact with PetEdge alleged in the second amended complaint involved other TPC employees,
including O’Malley, Dooley, and Keller. The only conduct that PetEdge attributes to Garg―other
than the previously discussed conclusory assertions of direction, knowledge, and approval―is that he
“modified § 8 of the SOW naming himself as the ‘Consultant/Supplier Project Manager’” SAC ¶ 12,
that he “was directly involved in the parties’ negotiation of the SOW,” SAC ¶ 46, and that he
“received weekly Project Status Reports.” SAC ¶ 14. Although these allegations show a modest
involvement in the business relationship between PetEdge and TPC, none of them suggest that Garg
gained a “superiority of influence” over PetEdge or that he “assume[d] control and responsibility
over” PetEdge. See Reuben H Donnelley, 893 F. Supp. at 289.10
In sum, PetEdge has not plausibly alleged the existence of a special relationship of
confidence and trust with Garg that gives rise to a fiduciary duty. At most, PetEdge alleges that Garg
played a role in providing advice and services to PetEdge. “But providing advice does not make one
a fiduciary.” Mueller v. Michael Janssen Gallery Pte. Ltd., No. 15-cv-4827 (NRB), 2016 WL 7188151, at
*3 (S.D.N.Y. Dec. 1, 2016) (citing EBC I, Inc. v. Goldman Sachs & Co., 936 N.Y.S.2d 92, 96 (App. Div.
2011)). And reliance on advice is similarly insufficient, because “a fiduciary duty cannot be imposed
unilaterally.” Id. (citing EBC I, 936 N.Y.S.2d at 96); see also Russell Publ’g Grp., Ltd. v. Brown Printing
Co., No. 13-cv-5193 (SAS), 2014 WL 1329144, at *3 (S.D.N.Y. Apr. 3, 2014) (“Reposing trust or

10 To the extent that PetEdge contends that Garg’s role as Project Manager gave rise to a fiduciary duty, that contention
is unsupported by any legal authority. In addition, the Court notes that the weekly status report that PetEdge annexed to
its second amended complaint―which the Court may consider in reviewing Garg’s motion to dismiss―does not list Garg
as “project manager.” Instead, it lists Sreedhar Sambatur as TPC’s project manager, and Garg is listed as one of five
recipients on the “distribution” list. See SAC, Ex. C, at 1. PetEdge also identifies Sambatur as “TPC’s Project Leader” in
the second amended complaint. SAC ¶ 16. Accordingly, the second amended complaint leaves unclear whether, separate
and apart from being named as Project Manager in the Agreement, Garg actually served in that role as the project
progressed.

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confidence in a party that has superior access to confidential information is not sufficient to establish
a fiduciary relationship―under New York law, there is no fiduciary duty unless the trust or
confidence has been accepted as well.” (citation omitted) (emphasis in original)). What remains, then,
is that Garg was involved in providing the software consulting services that PetEdge engaged TPC to
undertake, and that he was aware of its progress. But these facts can be understood as arising from
the ordinary business relationship entered into under the Agreement. Because PetEdge has failed to
allege a special relationship with Garg that transcends an ordinary business relationship, its fiduciary
duty claim is dismissed.11
G. Leave to Amend
In this circuit, “[i]t is the usual practice upon granting a motion to dismiss to allow leave to
replead.” Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 48 (2d Cir. 1991); see also Fed. R. Civ. P.
15(a)(2) (“The court should freely give leave [to amend] when justice so requires.”). Dismissals made
pursuant to Fed. R. Civ. P. 9(b) are “almost always” accompanied by a grant of leave to amend,
unless the plaintiff has had a prior opportunity to amend its complaint or the allegations were made
after full discovery in a related case. Luce v. Edelstein, 802 F.2d 49, 56 (2d Cir. 1986). Although
PetEdge has already amended its complaint in its response to Garg’s first motion to dismiss, it has
not yet had an opportunity to do so in response to an opinion of the Court. Accordingly, the Court

11 As PetEdge correctly states, “[t]he existence of a fiduciary duty normally depends on the facts of a particular
relationship, therefore a claim alleging the existence of a fiduciary duty usually is not subject to dismissal under Rule
12(b)(6).” Pl.’s Mem. at 16 (citing Abercrombie v. Andrew Coll., 438 F. Supp. 2d 243, 274 (S.D.N.Y. 2006)). Courts do not
hesitate to dismiss a claim, however, where the complaint alleges nothing more than an ordinary business relationship, or
no relationship at all. See, e.g., In re Refco, 826 F. Supp. 2d at 512 (dismissing fiduciary duty claims against officer because
“[t]here [was] no indication . . . that anything in the terms of the Service Agreement, or in [the officer’s] described
activity, would lead [plaintiff] to have a relationship of trust and confidence with [the officer] specifically”); Brinsights,
2008 WL 216969, at *8 (dismissing negligent misrepresentation claim because “this is an ordinary business relationship,
and the parties had a contract disclaiming any trust relationship”); Bennett, 2007 WL 173427, at *4-5 (dismissing fiduciary
duty claims against individual officers because, even if company breached a fiduciary duty, “nothing in the complaint
suggests that any relationship existed between plaintiffs and [the company’s] individual officers” and therefore allegations
pertaining to fiduciary duty were “beyond bare”); Boley, 700 F. Supp. at 681 (S.D.N.Y. 1988) (dismissing fiduciary duty
claim where “plaintiffs have failed to allege anything more than one-time relationships” with defendant).

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cannot conclude that allowing PetEdge to amend once again would be futile, and the Court grants
PetEdge leave do so. See Loreley Financing (Jersey) No. 3 Ltd. v. Wells Fargo Sec., LLC, 797 F.3d 160, 191
(2d Cir. 2015). However, PetEdge should not expect any additional opportunities to amend its
complaint. See In re Initial Pub. Offering Sec. Litig., 241 F. Supp. 2d 281, 397 (S.D.N.Y. 2003) (“[W]here
pleading deficiencies have been identified a number of times and not cured, there comes a point
where enough is enough.” (citations omitted)).
Any amended complaint must be filed no later than 30 day after the date of this order. If
PetEdge fails to file an amended complaint within 30 days, the action will be dismissed and judgment
will enter.
III.

CONCLUSION
Under New York law, an individual is not personally liable for a corporation’s tortious acts

merely because he serves as the CEO or other officer of that corporation. PetEdge attempts to
circumvent that rule by dressing up its claims of TPC’s tortious conduct with conclusory allegations
of Garg’s personal participation. Stripping those away leaves an empty suit.
Accordingly, and for the reasons described above, Defendant Vijay Garg’s motion to dismiss
is GRANTED, and PetEdge’s second amended complaint is dismissed in its entirety. PetEdge is
granted leave to amend within 30 days after the date of this order.
The Clerk of Court is directed to terminate the motion pending at ECF No. 39.
SO ORDERED.
Dated: February 10, 2017
New York, New York

_____________________
_ ____ ___________
___
___
__________________________________
GREGORY H. WOODS
G R
GREGORY H
nited
United States District Judge

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