Label Health, LLC v. United American Supply, LLC et al
OPINION AND ORDER re: 11 MOTION to Dismiss for Lack of Jurisdiction . filed by United American Supply, LLC, David Underwood, Al Taylor, Arletta Taylor. For the foregoing reasons, the Court denies in part and grants in part defe ndants' motion to dismiss. The Court denies the motion to dismiss for lack of personal jurisdiction and to dismiss Count Two, alleging fraudulent inducement against UAS, Al Taylor, and Underwood. The Court, however, on consent, dismisses Cou nt Three, alleging fraudulent inducement related to the Escrow Agreement against UAS and Arleta Taylor. The Clerk of Court is respectfully directed to terminate the motion pending at Dkt. 11. The Clerk of Court is further directed to amend the capt ion of this case to reflect the spelling of defendant Arleta Taylor's name reflected in the caption above. An order scheduling an initial pretrial conference in this case will issue soon. SO ORDERED. (Signed by Judge Paul A. Engelmayer on 2/17/2021) (jca)
Case 1:20-cv-05161-PAE Document 37 Filed 02/17/21 Page 1 of 18
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
LABEL HEALTH, LLC,
20 Civ. 5161 (PAE)
-vUNITED AMERICAN SUPPLY, LLC, DAVID
UNDERWOOD, ARLETA TAYLOR, and AL
PAUL A. ENGELMAYER, District Judge:
In this case, a broker of personal protective equipment (“PPE”), LABEL Health LLC
(“Label”), alleges that a distributor of such products, United American Supply, LLC (“UAS”),
and its members, David Underwood, Arleta Taylor,1 and Al Taylor (collectively, “defendants” or
“UAS”), fraudulently induced Label to contract to buy PPE and then breached that contract by
failing to supply the PPE or issue Label a refund. Label brings claims for breach of contract and
fraudulent inducement, claiming that, to induce Label to purchase PPE from them, defendants
falsely depicted their relationships with their PPE supplier and manufacturer, and made false
statements relating to the creation of an escrow account.
Defendants now move to dismiss Label’s complaint for lack of personal jurisdiction
under Federal Rule of Civil Procedure 12(b)(2), and in the alternative, to dismiss its fraudulent
inducement claims for failure to state a claim under Rule 12(b)(6). For the reasons below, the
Court denies that motion in part and grants it in part.
Label refers to Ms. Taylor as “Arletta” Taylor, but in a sworn declaration she submitted and in
defendants’ filings, her name is spelled “Arleta.” E.g., Dkt. 15. The Court uses the latter spelling,
and will instruct the Clerk of Court to amend the caption of this case accordingly.
Case 1:20-cv-05161-PAE Document 37 Filed 02/17/21 Page 2 of 18
Label, a New York LLC whose two members are each citizens of New York, is a broker
formed in early 2020 to “sell PPE to large, institutional customers, including various government
entities and private buyers,” in light of the COVID-19 pandemic. Am. Compl. ¶¶ 1–2, 16.
UAS is a Kentucky LLC and PPE distributor. Id. ¶¶ 3, 12. David Underwood
(“Underwood”), Arleta Taylor, and Al Taylor are United’s members. Id. ¶¶ 4–6. All are
Kentucky citizens. Id.
Label’s Dealings with UAS
The Parties’ Transactions
Between May and June 2020, Label contracted to sell its customers about $6.5 million
worth of PPE—specifically, disposable nitrile gloves. Id. ¶ 11.
On May 22, 2020, Label contacted defendants to discuss UAS providing Label with PPE
that Label would use to fulfill those orders. Id. ¶¶ 12, 18. During their discussions, Underwood
assured Label that UAS had a 25-year relationship with the purported PPE manufacturer, McKesson,
and that UAS knew that McKesson could handle the necessary volume of PPE. Id. ¶¶ 23–24, 29.
The Court draws its account of the underlying facts from the Amended Complaint, Dkt. 23
(“Am. Compl.”). On a motion to dismiss for failure to state a claim under Rule 12(b)(6), the
Court assumes all well-pled facts to be true and draws all reasonable inferences in favor of
plaintiffs. See Koch v. Christie’s Int’l PLC, 699 F.3d 141, 145 (2d Cir. 2012). The Court also
considers the Confidentiality Agreement, Am. Compl., Ex. A (“Conf. Agreement”), which was
attached to the Amended Complaint, and therefore may be considered in deciding a motion to
dismiss for failure to state a claim under Rule 12(b)(6). See DiFolco v. MSNBC Cable LLC,
622 F.3d 104, 111 (2d Cir. 2010). Further, insofar as defendants also move to dismiss for lack of
personal jurisdiction under Rule 12(b)(2), the Court, in considering that aspect of their motion,
may look beyond the four corners of the complaint and consider all pleadings and accompanying
affidavits and declarations, while still “resolving all doubts in [plaintiff’s] favor.” See DiStefano
v. Carozzi N. Am., Inc., 286 F.3d 81, 84 (2d Cir. 2001).
Case 1:20-cv-05161-PAE Document 37 Filed 02/17/21 Page 3 of 18
Underwood and Arleta Taylor also assured Label that its 50% deposit would be held in escrow
pending delivery. Id. ¶ 20.
On May 22, 2020, Label submitted its first order for 24.15 million nitrile gloves, for
about $2.25 million, which Arleta Taylor confirmed. Id. ¶¶ 26–27. On May 23, 2020, Underwood
sent Label a text message including the item and manufacturer number for the order, and assured
Label that “all contracts with McKesson are signed and delivered.” Id. ¶ 29. He also assured
Label that the order “was already in the production [queue].” Id. The same day, Arleta Taylor
sent Label a draft Escrow Agreement. Id. ¶ 34.
On May 26, 2020, Label contacted Al Taylor with “last minute concerns and anxiety
about UAS, which was a new supplier for” Label. Id. ¶ 24. In response, Al Taylor “assured
[Label] that [UAS] would be able to handle [Label’s] orders and specifically referenced their
longstanding relationship with the manufacturer as a factor.” Id. Label alleges that it relied on
that representation in continuing to do business with UAS. Id. ¶ 25 (“Based largely on these
representations, [Label] decided to do business with [UAS].”).
Soon after (the Amended Complaint does not specify a date), Underwood disclosed to
Label that UAS did not actually have a relationship with McKesson, and that it instead was using
a broker, non-party Diem Nguyen (“Nguyen”), with whom he claimed UAS did have a 25-year
relationship. Id. ¶ 31. Based on that longstanding relationship, Underwood represented that he
could “vouch for Nguyen’s reputation as a broker and her ability to successfully procure gloves.” Id.
Also on May 26, 2020, Arleta Taylor sent Label confirmed sales orders, which stated the
price and quantity of Label’s PPE purchases to date. Id. ¶ 35. The same day, Label sent UAS a
Confidentiality Agreement. Id. ¶ 36; see Conf. Agreement. That Agreement contained the
following forum-selection clause:
Case 1:20-cv-05161-PAE Document 37 Filed 02/17/21 Page 4 of 18
In the event of a lawsuit between us that in any way relates to the Transaction, our
confidential information, or this agreement . . . you agree that the state or federal
courts in the County of New York, New York will have exclusive jurisdiction.
Conf. Agreement § 10. The Agreement, in turn, defines “Transaction” to mean the “sale,
manufacturing, and/or distribution of personal protective equipment.” Id. § 2. David Miller
signed the agreement on behalf of Label. Underwood signed for UAS. Id. at 4.
On May 27, 2020, Label sent defendants an email memorializing the terms of the
transaction—including the amount of nitrile gloves, price, and delivery date—and stating that
Label would pay 50% of the $2.25 million purchase price into escrow that day, with the
remaining amount to be paid into escrow upon delivery. Am. Compl. ¶ 38. Delivery was
guaranteed to be made on May 29, 2020. Id. Al Taylor replied, “[f]or now I agree to this.”
Id. ¶¶ 38–39. The same day, Label sent UAS a revised purchase order and escrow agreement,
the latter of which UAS signed on June 1, 2020. Id. ¶¶ 40, 42.
Between May 28 and June 12, 2020, Label ordered additional PPE worth roughly $4.29
million (for a total of about $6.54 million). Id. ¶¶ 41, 44, 47. Between May 26 and June 2, 2020,
Label wired $2.37 million to UAS, reflecting 50% of the purchase price up to that point. Id.
¶ 46. On June 12, 2020, Label submitted its last order, but UAS did not require it to wire any
additional funds. Id. ¶ 47.
As of June 12, 2020, Label had thus ordered $6.54 million worth of PPE, and had paid
UAS $2.37 million.
The Collapse of the Deal
UAS, however, never delivered any PPE. On June 19, 2020, after the PPE failed to
materialize, Label asked for a status update. Defendants, allegedly falsely, replied that the
shipment had been sent from South Africa to Mexico, where it was being held. Id. ¶¶ 48–52.
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By June 21, 2020, it became clear that defendants had not created an escrow account, id.
¶ 43, and that Nguyen, the broker with whom UAS had represented it had a 25-year relationship,
had been scammed by “the South African manufacturer,”3 who had absconded with the money, id.
¶ 53. As late as June 24, 2020, Underwood insisted he had a longstanding relationship with
Nguyen, but at some point later admitted that he “barely knew” her. Id. ¶¶ 32, 59.
On June 22, 2020, a day after Label demanded a refund, UAS returned $994,406, leaving
a remaining balance of $1.38 million. Id. ¶ 57. Label was also able to recover $200,000 directly
from Nguyen. Id. ¶ 62. Later, UAS returned another $100,000 to Label. Id. ¶ 63. Since then,
UAS has repeatedly assured Label that it will repay the balance when “some big business deal”
comes through or Nguyen refunds them the money. Id. ¶¶ 60, 64–65. But, Label alleges, as of
the time it filed the Amended Complaint, UAS still owed it $1,075,094.50. Id. ¶ 63.
Label’s Amended Complaint
Label’s Amended Complaint brings three counts. Count One, for breach of contract,
alleges that UAS breached the following contracts with Label: (1) the purchase orders; (2) the
May 27, 2020 email; and (3) the Escrow Agreement. Id. ¶¶ 38, 72–80. Count Two alleges that
UAS, Underwood, and Al Taylor committed fraud in the inducement by knowingly making false
statements regarding their relationship with the manufacturer and Nguyen, upon which Label
justifiably relied to its detriment. Id. ¶¶ 81–89. Count Three alleges that UAS and Arleta Taylor
committed fraud in the inducement by knowingly making false statements about the creation of
an escrow account. Id. ¶¶ 90–97. In its opposition, however, Label admits that its claim relating
to the escrow agreement is “not viable.”4 Dkt. 32 (“Pl. Mem.”) at 11 n.29.
The Amended Complaint does not identify this manufacturer.
Label states that it seeks leave to file a second amended complaint, to add a conversion claim.
Pl. Mem. at 11 n.29. The Court does not grant leave to so file at this time. See Rule 15(a)(2).
Case 1:20-cv-05161-PAE Document 37 Filed 02/17/21 Page 6 of 18
On July 6, 2020, Label filed a Complaint. Dkt. 1. On October 5, 2020, after two
extensions, UAS filed a motion to dismiss for lack of jurisdiction and failure to state a claim,
Dkt. 11; a memorandum in support, Dkt. 12 (“Def. Mem.”); the affirmation of David B. Morgen,
Esq., Dkt. 13 (“Morgen Decl.”), and attached exhibits; and the declarations of defendants Al
Taylor, Arleta Taylor, and Underwood, Dkts. 14 (“Al Taylor Decl.”), 15 (“Arleta Taylor Decl.”),
16 (“Underwood Decl.”). On November 9, 2020, Label filed the Amended Complaint. Am.
Compl. On November 30, 2020, defendants filed a letter stating that “the allegations of the
amended complaint remain insufficient” to maintain Label’s lawsuit, and that defendants “rely
upon their previously filed motion to dismiss . . . in response to the amended complaint.”
Dkt. 24 (“Def. Ltr.”). On December 18, 2020, Label filed a memorandum of law in opposition
to defendants’ motion to dismiss. Pl. Mem. On January 6, 2021, UAS replied. Dkt. 36 (“Def.
UAS has moved to dismiss Label’s claims under both Rule 12(b)(2), for lack of personal
jurisdiction, and Rule 12(b)(6), for failure to state a claim for fraudulent inducement. The Court
considers the jurisdictional challenge first, and then turns to the merits of Label’s claims.
Rule 12(b)(2): Lack of Personal Jurisdiction
“[T]he plaintiff bears the burden of establishing that the court has jurisdiction over the
defendant.” DiStefano, 286 F.3d at 84 (citation omitted); see In re Terrorist Attacks on Sept. 11,
2001, 714 F.3d 659, 673 (2d Cir. 2013). “[T]he showing a plaintiff must make to defeat a
defendant’s claim that the court lacks personal jurisdiction over it ‘varies depending on the
procedural posture of the litigation.’” Dorchester Fin. Sec., Inc. v. Banco BRJ, S.A.,
722 F.3d 81, 84 (2d Cir. 2013) (per curiam) (quoting Ball v. Metallurgie Hoboken-Overpelt,
Case 1:20-cv-05161-PAE Document 37 Filed 02/17/21 Page 7 of 18
S.A., 902 F.2d 194, 197 (2d Cir. 1990)). “Prior to discovery, a plaintiff challenged by a
jurisdiction testing motion may defeat the motion by pleading in good faith, legally sufficient
allegations of jurisdiction. At that preliminary stage, the plaintiff’s prima facie showing may
be established solely by allegations.” Id. at 84–85.
“This showing may be made through the plaintiff’s ‘own affidavits and supporting
materials, containing an averment of facts that, if credited, would suffice to establish jurisdiction
over the defendant.’” S. New Eng. Tel. Co. v. Global NAPs Inc., 624 F.3d 123, 138 (2d Cir. 2010)
(quoting Whitaker v. Am. Telecasting, Inc., 261 F.3d 196, 208 (2d Cir. 2001)). The Court
“construe[s] the pleadings and affidavits in the light most favorable to plaintiffs, resolving all
doubts in their favor.” Id. (citation omitted); see A.I. Trade Fin., Inc. v. Petra Bank, 989 F.2d 76,
79–80 (2d Cir. 1993) (“[W]here the issue is addressed on affidavits, all allegations are construed
in the light most favorable to the plaintiff and doubts are resolved in the plaintiff’s favor,
notwithstanding a controverting presentation by the moving party.”). Nevertheless, the Court
“will not draw argumentative inferences in the plaintiff’s favor” and need not “accept as true a
legal conclusion couched as a factual allegation.” In re Terrorist Attacks, 714 F.3d at 673
In determining whether there is personal jurisdiction, the Court must first decide whether
the personal jurisdiction over a plaintiff’s claims is supplied by a forum selection clause. If so,
the analysis ends there, and there is no need to consider whether the Court would have
jurisdiction under CPLR § 302 and the Due Process Clause. See D.H. Blair & Co. v. Gottdiener,
462 F.3d 95, 103 (2d Cir. 2006) (“Parties can consent to personal jurisdiction through forumselection clauses in contractual agreements.”); Exp.-Imp. Bank of the U.S. v. Hi-Films S.A. de
C.V., No. 09 Civ. 3573 (PGG), 2010 WL 3743826, at *4 (S.D.N.Y. Sept. 24, 2010) (“Where an
Case 1:20-cv-05161-PAE Document 37 Filed 02/17/21 Page 8 of 18
agreement contains a valid and enforceable forum selection clause, however, it is not necessary
to analyze jurisdiction under New York’s long-arm statute or federal constitutional requirements
of due process.”); Farrell Lines Inc. v. Columbus Cello-Poly Corp., 32 F. Supp. 2d 118, 127
(S.D.N.Y. 1997) (“It is well-settled that jurisdiction by consent satisfies constitutional principles
of due process.” (citation omitted)), aff’d sub. nom. Farrell Lines Inc. v. Ceres Terminals Inc.,
161 F.3d 115 (2d Cir. 1998).
To the extent that the forum-selection clause does not supply personal jurisdiction over
a particular claim or claims, the Court inquires whether there is personal jurisdiction over the
defendant under principles of New York law, based either on general jurisdiction, see N.Y. Civil
Practice Law and Rules (“CPLR”) § 301, or specific jurisdiction, see CPLR § 302. If jurisdiction
is found on either ground, the Court then inquires whether “an exercise of jurisdiction under these
laws is consistent with federal due process requirements.” Grand River Enters. Six Nations, Ltd.
v. Pryor, 425 F.3d 158, 165 (2d Cir. 2005). See generally Burger King Corp. v. Rudzewicz,
471 U.S. 462, 464 (1985).
Here, UAS argues that the Court should dismiss the Amended Complaint for lack of
personal jurisdiction under New York’s long-arm statute, CPLR § 302, and under the Due
Process Clause. In support, it notes that the PPE at issue was supposed to be delivered to buyers
in states other than New York, that UAS does not have contacts with New York beyond its
communications with Label, and that it cannot be considered to have done business in New York
sufficient to subject it to personal jurisdiction in New York. Def. Mem. at 4–12. Label responds
that the Court has personal jurisdiction over defendants both as a result of UAS’s dealings with
Label, a New York LLC, and pursuant to the forum-selection clause in the Confidentiality
Agreement. Pl. Mem. at 6–9.
Case 1:20-cv-05161-PAE Document 37 Filed 02/17/21 Page 9 of 18
Although there is a substantial question whether personal jurisdiction would exist based
solely on defendants’ contacts with New York State, the Court does not have occasion to reach
that issue, because the forum-selection clause in the Confidentiality Agreement authorizes the
exercise of jurisdiction over defendants.
Where a forum-selection clause (1) was “reasonably communicated to the resisting
party”; (2) “is mandatory”; and (3) “encompasses the claims and parties at issue,” there is a
presumption that such a clause is valid and enforceable. Martinez v. Bloomberg LP,
740 F.3d 211, 227 (2d Cir. 2014). That presumption can then only be overcome by a showing
that enforcement of the clause would be “unreasonable or unjust.” Id. (quoting Phillips v. Audio
Active Ltd., 494 F.3d 378, 383 (2d Cir. 2007)).
The forum-selection clause in the Confidentiality Agreement is mandatory, as it provides
for “exclusive jurisdiction” in New York. See Conf. Agreement § 10; see Phillips, 494 F.3d
at 386 (“A forum selection clause is viewed as mandatory when it confers exclusive jurisdiction
on the designated forum . . . .”). And UAS does not argue that its terms were not “reasonably
communicated” to UAS or the other defendants.5 Rather, UAS argues that the forum-selection
clause in the Confidentiality Agreement does not cover the “claims and parties at issue,” because
this lawsuit arises out of the purchase orders, not the Confidentiality Agreement, and because the
agreements do not state that the forum-selection clause in the Confidentiality Agreement covers
disputes arising from asserted breaches of the purchase orders. Def. Reply at 2–5; Def. Ltr.
Generally, even non-signatories to a forum-selection clause, such as the Taylors here, may be
bound by that clause where they are “closely related” to the signatory. Magi XXI, Inc. v. Stato
Della Citta del Vaticano, 714 F.3d 714, 723–24 (2d Cir. 2013). Here, Underwood signed the
Confidentiality Agreement on behalf of UAS, of which the Taylors are members. See Am.
Compl. ¶¶ 5–6 (Arleta Taylor is Vice President of Administration for UAS and Al Taylor is its
Managing Partner). Accordingly, all defendants are bound by the Confidentiality Agreement.
Case 1:20-cv-05161-PAE Document 37 Filed 02/17/21 Page 10 of 18
UAS, however, is incorrect that the forum-selection clause applies only to disputes
concerning the Confidentiality Agreement. By its terms, the Agreement provides for exclusive
jurisdiction in New York for any “lawsuit between us that in any way relates to the Transaction,
our confidential information or this agreement,” Conf. Agreement § 10 (emphasis added). The
disjunctive use of the word “or” makes clear that the clause applies to disputes beyond those
arising from “this agreement” and the parties’ “confidential information,” so as also to include
those that “in any way relate” to the separate “Transaction.” And it defines “Transaction” to
mean the “sale, manufacturing, and/or distribution of personal protective equipment.” Id. § 2.
All of Label’s claims here “relate . . . to” the “sale, manufacturing, and/or distribution of
personal protective equipment,” i.e., UAS’s statements inducing Label to buy such equipment
from it, and UAS’s failure to provide the bargained-for equipment. Accordingly, the clause
squarely applies to those claims.
Given the breadth of the clause at issue, and its specific application to the parties’
contemplated “Transaction,” it is of no moment whether, as UAS argues, the parties’ disparate
contracts are considered “one agreement” or incorporate one another by name. See Def. Reply
at 2, 4–5. Defendants do not identify any authority holding that forum-selection clauses like the
one here are only enforceable in such circumstances. In fact, Ainsley Skin Care of N.Y., Inc. v.
Elizabeth Grady Face First, Inc., No. 97 Civ. 6716 (LAP) (AJP), 1997 WL 742526 (S.D.N.Y.
Dec. 2, 1997), on which UAS relies, expressly left open whether the broad language in an
agreement’s forum-selection clause—which applied “to any dispute arising hereunder or in
connection with the transactions contemplated hereby”—could apply to a separate agreement
that lacked such a clause, id. at *3 n.2. Here, for the reasons above, the forum-selection clause is
textually broad enough to cover disputes over the purchase orders at issue. Indeed it appears
Case 1:20-cv-05161-PAE Document 37 Filed 02/17/21 Page 11 of 18
expressly aimed at so applying. And UAS has not argued that enforcement of that clause would
be “unreasonable or unjust.” See Martinez, 740 F.3d at 227 (identifying relevant factors. The
exercise of personal jurisdiction is therefore appropriate.
Rule 12(b)(6): Failure to State a Claim
To survive a motion to dismiss under Rule 12(b)(6), a complaint must plead “enough
facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly,
550 U.S. 544, 570 (2007). A claim will only have “facial plausibility when the plaintiff pleads
factual content that allows the court to draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A complaint is
properly dismissed where, as a matter of law, “the allegations in a complaint, however true,
could not raise a claim of entitlement to relief.” Twombly, 550 U.S. at 558. For the purpose of
resolving a motion to dismiss, the Court must assume all well-pled facts to be true, drawing all
reasonable inferences in favor of the plaintiff. See Koch, 699 F.3d at 145. That tenet, however,
“is inapplicable to legal conclusions.” Iqbal, 556 U.S. at 678. A pleading that offers only
“labels and conclusions” or “a formulaic recitation of the elements of a cause of action will not
do.” Twombly, 550 U.S. at 555.
To state a claim for fraudulent inducement under New York law, a plaintiff must allege:
“(1) a material misrepresentation or omission of fact, (2) made with knowledge of its falsity,
(3) with an intent to defraud, and (4) reasonable reliance on the part of the plaintiff, (5) that
causes damage to the plaintiff.” Haggerty v. Ciarelli & Dempsey, 374 F. App’x 92, 94
(2d Cir. 2010) (citation omitted); see Eurycleia Partners, LP v. Seward & Kissel, LLP,
12 N.Y.3d 553, 559 (2009).6
The parties’ briefs treat New York law as governing this case, as does the Court. See Arch Ins.
Co. v. Precision Stone, Inc., 584 F.3d 33, 39 (2d Cir. 2009).
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UAS argues that Count Two, claiming fraud in the inducement, should be dismissed
for failure to state a claim. It contends that (1) any purported misstatements were merely nonactionable “puffery”; (2) the Amended Complaint does not plausibly allege that any defendant’s
statements as to their relationship with the PPE manufacturer and broker were material; and
(3) the Amended Complaint does not plausibly plead that Label justifiably relied on those
statements, given the “enhanced duties” of due diligence expected of sophisticated parties. Def.
Reply at 7–9 (citing Integrated Constr. Enters., Inc. v. GN Erectors, Inc., No. 16 Civ. 5561 (PAE),
2020 WL 614991 (S.D.N.Y. Feb. 10, 2020); Negrete v. Citibank, N.A., 187 F. Supp. 3d 454, 455
Defendants’ allegedly false statements about their relationship with Nguyen and the
manufacturer cannot be dismissed as puffery as a matter of law. The Second Circuit has defined
non-actionable puffery as “[s]ubjective claims about products, which cannot be proven either
true or false.” Lipton v. Nature Co., 71 F.3d 464, 474 (2d Cir. 1995) (citation omitted). “Courts
have found statements to be puffery as a matter of law when the statements do not provide any
concrete representations.” Basquiat ex rel. Estate of Basquiat v. Sakura Int’l, No. 04 Civ. 1369
(GEL), 2005 WL 1639413, at *5 (S.D.N.Y. July 5, 2005). Here, however, Label’s central claim
turns on objective representations that the defendants allegedly made to Label, to the effect that
they had a 25-year relationship with the manufacturer and Nguyen. Am. Compl. ¶¶ 23–24, 31.
These claims are concrete, and their truth or falsity is capable of being determined. Indeed, the
Defendants also move to dismiss Count Three, a fraudulent inducement claim against UAS and
Arleta Taylor, arguing that such claim is duplicative of Label’s breach-of-contract claim. Def.
Mem. at 15–16. Label concedes that this claim is not viable. Pl. Mem. at 11 n.29. Accordingly,
the Court dismisses it.
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Amended Complaint alleges that defendants later admitted that these representations were false.
Id. ¶¶ 31–32. These allegedly false statements are actionable. They are not puffery.
The Amended Complaint also adequately pleads that defendants’ false statements were
material to Label’s decisions to buy PPE from UAS. “A misrepresentation is material to a fraud
claim only if it is the type of misrepresentation likely to be deemed significant to a reasonable
person considering whether to enter into the transaction.” Moore v. PaineWebber, Inc., 189 F.3d
165, 170 (2d Cir. 1999). On a motion to dismiss, “[a] fact may not be dismissed as immaterial
unless it is ‘so obviously unimportant . . . that reasonable minds could not differ on the question
of [its] importance.’” Allen v. WestPoint-Pepperell, Inc., 945 F.2d 40, 45 (2d Cir. 1991)
(quoting Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985)). “Materiality is typically a
fact question.” Taylor Precision Prods., Inc. v. Larimer Grp., Inc., No. 15 Civ. 4428 (ALC),
2018 WL 4278286, at *23 (S.D.N.Y. Mar. 26, 2018) (denying motion for summary judgment on
basis of immateriality).
Here, the Amended Complaint alleges that, before placing orders with UAS, Label
“expressed last minute concerns and anxiety about UAS, which was a new supplier for Plaintiff,
being able to successfully satisfy such a large order of PPE. Mr. Taylor assured Plaintiff that
Defendants would be able to handle Plaintiff’s orders and specifically referenced their
longstanding relationship with the manufacturer as a factor.” Am. Compl. ¶ 24 (emphasis
added). Label further alleges that “[h]ad [Label] known that Defendants’ relationship with
Nguyen . . . was so short, in contradiction of what had been represented to it, [Label] would
have, at a minimum, sought additional information and guarantees from Defendants and would
not have put in any further orders.” Id. ¶ 33.
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In a transaction aimed at timely securing a large amount of medical equipment for the
purchaser’s customers, the seller’s assurances as to its experience with the manufacturer, and that
manufacturer’s ability to fulfill the order, as pled, were clearly material. These representations
centrally bore on the seller’s capacity to carry out its contractual duties. These representations
were not “so obviously unimportant . . . that reasonable minds could not differ” on their
importance to Label’s business decisions. Allen, 945 F.2d at 45. Defendants state that these
statements “would not lead a reasonable person to change his conduct,” Def. Reply at 7, but that
is an ipse dixit. Quite to the contrary, given the scale and time-sensitivity of the transaction, it is
entirely plausible that defendants’ purported long business history with the PPE suppliers would
have been consequential to a reasonable entity in Label’s position. The Amended Complaint
plausibly pleads the materiality of these allegedly false statements.
UAS, finally, claims that Label fails to plead justifiable reliance, but that challenge to the
pleadings also fails. At this early stage, Label’s claim to have reasonably relied on UAS’s false
representations cannot be held implausible.
“[O]n a motion to dismiss, defendants can prevail only [in dismissing a claim for fraud] if
it was categorically unreasonable for [Label] to rely on this representation.” Shively v. Mitchell,
No. 13 Civ. 2164 (PAE), 2013 WL 5761498, at *8 (S.D.N.Y. Oct. 24, 2013). “To determine, on
a motion to dismiss, whether a plaintiff has alleged reasonable reliance, a court may ‘consider
the entire context of the transaction, including . . . the sophistication of the parties, and the
content of any agreements between them.’” Terra Sec. Asa Konkursbo v. Citigroup, Inc.,
740 F. Supp. 2d 441, 448 (S.D.N.Y. 2010) (quoting Emergent Cap. Inv. Mgmt., LLC v. Stonepath
Grp., Inc., 343 F.3d 189, 195 (2d Cir. 2003)). Courts will also consider whether an allegedly
defrauded plaintiff received “clear and direct signs of falsity,” and whether they “had access to
Case 1:20-cv-05161-PAE Document 37 Filed 02/17/21 Page 15 of 18
relevant information.” De Sole v. Knoedler Gallery, LLC, 139 F. Supp. 3d 618, 642–43 (S.D.N.Y.
2015) (quoting Coraud LLC v. Kidville Franchise Co., 121 F. Supp. 387, 397 (S.D.N.Y. 2015)).
This inquiry “is intensely fact-specific and generally considered inappropriate for determination
on a motion to dismiss.” Maloul v. Berkowitz, No. 07 Civ. 8525 (LBS), 2008 WL 2876532,
at *2 (S.D.N.Y. July 23, 2008). Even at the summary judgment stage, courts often hesitate to
resolve issues of reasonable reliance, preferring to reserve the question for the finder of fact.
See, e.g., De Sole, 139 F. Supp. 3d at 643. On the pleadings, courts will dismiss a complaint’s
allegations on this point as inadequate only in circumstances that make such failures readily
apparent, usually “where sophisticated plaintiffs easily could have discovered the fraud had they
reviewed specific documents that were the subject of misrepresentations.” Allied Irish Banks,
P.L.C. v. Bank of Am., N.A., No. 03 Civ. 3478 (DAB), 2006 WL 278138, at *8 (S.D.N.Y.
Feb. 2, 2006).
At the outset, UAS’s supposition that Label is a “sophisticated” party, with consequently
heightened investigatory obligations, does not follow from the Amended Complaint. The cases
cited by UAS that impose such a heightened duty of due diligence involved large banks and
hedge funds that had entered into complex, highly negotiated transactions. See, e.g., Lazard
Freres & Co. v. Protective Life Ins. Co., 108 F.3d 1531, 1541 (2d Cir. 1997) (“[W]here
sophisticated businessmen engaged in major transactions enjoy access to critical information but
fail to take advantage of that access, New York courts are particularly disinclined to entertain
claims of justifiable reliance.” (citation omitted)); Negrete, 187 F. Supp. 3d at 466 (noting that
“[p]laintiffs were a sophisticated counterparty with access to vast amounts of information about
the FX markets” and engaged in “billion dollar FX trading,” all of which “contradict[ed] their
claim of reliance”).
Case 1:20-cv-05161-PAE Document 37 Filed 02/17/21 Page 16 of 18
Here, by contrast, the Amended Complaint and materials cognizable on the motion to
dismiss do not suggest that the subject of the parties’ negotiations was a complex or unusually
technical product. They do not suggest that the PPE transaction was heavily lawyered on either
side, or that, by nature, it required pre-signing regulatory review or preclearance. Nor do they
indicate that unusual sophistication was otherwise expected of the parties. To the contrary, the
agreement—based on the pleadings—appears to have been an informal, quickly arranged, and
(save for the fact that Label’s purchase arose from a once-in-a-century pandemic) relatively
quotidian pact between an equipment purchaser and supplier. As pled, these circumstances
would not give rise to a heightened due-diligence obligation.
To be sure, there are hints in the Amended Complaint that Label may have had cause to
appreciate—before the extent of UAS’s breach became fully apparent—that UAS had dissembled
to it. “[S]hortly after” May 23, 2020, after Label had ordered about $2.2 million of PPE but
possibly before it had sent the 50% deposit to UAS between May 26 and June 2, 2020,
Underwood disclosed that UAS’s longstanding relationship was not with the manufacturer, as he
had previously stated, but with the broker, Nguyen. Am. Compl. ¶ 31. The pleadings do not
indicate that Label followed up by probing UAS about its relationship with Nguyen, or that it
otherwise undertook investigatory actions to assure itself of Nguyen’s reliability. Instead, Label
appears to have added to its orders and transmitted money to UAS without further inquiry. That
could suggest that its reliance was unreasonable, or even undercut its claim that UAS’s business
relationships were, in fact, material to Label’s decision-making. To the extent that UAS intends
to defend against the claim of fraudulent inducement on the ground that it was unreasonable for
Label to rely on UAS’s word, this area may be a fruitful one for discovery.
Case 1:20-cv-05161-PAE Document 37 Filed 02/17/21 Page 17 of 18
However, on the limited materials cognizable at the pleading stage, the Court cannot
determine that Label had a “duty to inquire” further than it did in May 2020, such that its failure
to do so made its reliance unreasonable. See JP Morgan Chase Bank v. Winnick, 350 F. Supp.
2d 393, 406 (S.D.N.Y. 2004). The assembled case law makes clear that the existence of a duty,
including based on the parties’ sophistication, is “fact-intensive.” See, e.g., id. at 406–07
(quoting Schlaifer Nance & Co. v. Estate of Andy Warhol, 119 F.3d 91, 98 (2d Cir. 1997)).
Discovery is necessary to ascertain whether Label qualifies as a sophisticated party subject to
heightened diligence duties, and whether, all facts considered, Label justifiably relied on UAS’s
representations at the relevant times.
Accordingly, the Court denies UAS’s motion to dismiss the claim for fraudulent
inducement against UAS, Al Taylor, and Underwood, without prejudice to UAS’s right, after
discovery, to move for summary judgment against this claim.
For the foregoing reasons, the Court denies in part and grants in part defendants’ motion
to dismiss. The Court denies the motion to dismiss for lack of personal jurisdiction and to
dismiss Count Two, alleging fraudulent inducement against UAS, Al Taylor, and Underwood.
The Court, however, on consent, dismisses Count Three, alleging fraudulent inducement related
to the Escrow Agreement against UAS and Arleta Taylor.
The Clerk of Court is respectfully directed to terminate the motion pending at Dkt. 11.
The Clerk of Court is further directed to amend the caption of this case to reflect the spelling of
defendant Arleta Taylor’s name reflected in the caption above.
An order scheduling an initial pretrial conference in this case will issue soon.
Case 1:20-cv-05161-PAE Document 37 Filed 02/17/21 Page 18 of 18
PAUL A. ENGELMAYER
United States District Judge
Dated: February 17, 2021
New York, New York
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