Advanced Comfort Technologies v. London Luxury

Filing 26

MEMORANDUM DECISION AND ORDER Granting in Part and Denying in Part 14 Defendant's Motion to Dismiss. Specifically, the Court holds (1) the fraud/fraud in the inducement claim remains, (2) the breach of contract claim remains, ( 3) the breach of the implied covenant of good faith and fair dealing claim remains, and (4) the breach of fiduciary duty claim is dismissed with prejudice. At its option, Plaintiff has fourteen days from the date of this Order to allege out-of-pocket expenses in connection with its fraud/fraud in the inducement claim. Signed by Judge Jill N. Parrish on 12/5/17. (dla)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH
ADVANCED COMFORT TECHNOLOGIES,
INC., d/b/a INTELLIBED, a Utah corporation,
MEMORANDUM DECISION AND
ORDER GRANTING IN PART AND
DENYING IN PART DEFENDANT’S
MOTION TO DISMISS

Plaintiff,
v.
LONDON LUXURY, LLC, a New York
limited liability company,
Defendant.

Case No. 2:17-cv-00497-JNP
District Judge Jill N. Parrish

Before the Court is Defendant’s Motion to Dismiss Plaintiff’s Complaint (ECF No. 14).
For the reasons set forth below, the motion is GRANTED IN PART and DENIED IN PART.
I.

INTRODUCTION

This is a contract case. Plaintiff Advanced Comfort Technologies, Inc. d/b/a/ intelliBED
(“Intellibed”) entered into a Non-Circumvention Agreement (the “Agreement”) with Defendant
London Luxury, LLC. Under the Agreement, London Luxury agreed to use “best efforts” to
market Intellibed mattresses to Mattress Firm, Inc., a third-party retailer. In exchange, Intellibed
agreed to pay London Luxury a finder’s fee. About two months after signing, the deal soured.
Intellibed claims that London Luxury misrepresented its relationship with Mattress Firm, among
other things. Intellibed also claims that London Luxury did not use “best efforts” to market
Intellibed mattresses to Mattress Firm. Intellibed now wants out of the Agreement. So it brought
the following causes of action against London Luxury: (1) fraud/fraud in the inducement, (2)

breach of contract, (3) breach of the implied covenant of good faith and fair dealing, and (4)
breach of fiduciary duty. London Luxury has moved to dismiss Intellibed’s complaint.
II.

FACTUAL ALLEGATIONS

Intellibed is the inventor and manufacturer of a gel mattress called Gel Matrix. Compl.
¶ 6. London Luxury is a manufacturer and distributor of home products with a sourcing arm that
markets third-party products, including mattresses, to retailers. Compl. ¶ 7.
Prior to February 2017, Intellibed was searching for a marketing partner that could
introduce the Gel Matrix mattress to Mattress Firm, a third-party retailer. Compl. ¶ 10. Intellibed
was introduced to London Luxury. Compl. ¶ 10. During initial discussions, Intellibed told
London Luxury about its desire to market the Gel Matrix mattress to Mattress Firm. Compl. ¶ 11.
London Luxury’s president, Steve Schwartz, expressed a desire to work with Intellibed in an
exclusive relationship. Compl. ¶ 11. Mr. Schwartz told Intellibed that London Luxury had a
longstanding relationship with Mattress Firm. Compl. ¶ 11. And he told Intellibed that he
thought that London Luxury could get the Gel Matrix mattress into Mattress Firm showrooms.
Compl. ¶ 11.
Based on these discussions, the parties met on February 13, 2017. Compl. ¶ 12. Intellibed
representatives traveled to London Luxury headquarters and spoke with representatives from
London Luxury. Compl. ¶ 13. Intellibed stated that it needed a partner that (a) would have
significant influence with Mattress Firm, particularly with its buyers and those who would
control product distribution, (b) had a significant and longstanding business relationship with
Mattress Firm such that it would have both the connections and the know-how to get Intellibed’s
products placed, and (c) would give Intellibed the best possible chance to successfully place its
mattresses with Mattress Firm. Compl. ¶ 13.

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To vet London Luxury’s qualifications, Intellibed asked detailed questions. Compl. ¶ 14.
Intellibed asked about (a) the magnitude of London Luxury’s annual revenues, (b) the magnitude
of London Luxury’s business with Mattress Firm, and (c) London Luxury’s relationship with
Mattress Firm and its influence and connection with Mattress Firm. Compl. ¶ 14.
In response, London Luxury’s CEO Marc Jason and its president Mr. Schwartz
represented that:
a) London Luxury’s annual revenues were in the high nine figures, not quite a
billion;
b) Approximately one quarter of London Luxury’s annual revenues stemmed from
work with Mattress Firm;
c) London Luxury was the largest single accessory provider to Mattress Firm,
shipping products to thousands of Mattress Firm locations every week; and
d) London Luxury was a major influencer with Mattress Firm, and it had the best
relationships of any potential partner with the highest and most senior people and
key decision-makers at Mattress Firm.
Compl. ¶ 15.
Mr. Jason and Mr. Schwartz also told Intellibed that London Luxury had a longstanding
relationship with Columbia Sportswear Company and that London Luxury had success in selling
Columbia-branded pillows to Mattress Firm. Compl. ¶ 16. London Luxury suggested that it
could use the Gel Matrix mattress to offer a Columbia-branded mattress. Compl. ¶ 16. London
Luxury claimed that it could “immediately incorporate” the Gel Matrix mattress into a line of
Columbia-branded products that would be marketed to Mattress Firm. Compl. ¶ 16.

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At the February 13 meeting, Mr. Jason told Intellibed that it needed to quickly sign a
contract because London Luxury was meeting with Mattress Firm’s CEO on February 20.
Compl. ¶ 17. He told Intellibed that it needed to sign a contract before the meeting if London
Luxury was going to present the Gel Matrix mattress to Mattress Firm. Compl. ¶ 17. According
to Intellibed, there was never any meeting scheduled. Compl. ¶ 19. London Luxury allegedly lied
about the meeting to get Intellibed to sign a contract. Compl. ¶ 19.
On February 21, the day after the purported meeting, London Luxury and Intellibed
executed a Non-Circumvention Agreement (the “Agreement”). 1 Compl. ¶ 20. The parties had
allegedly agreed to the terms of the Agreement before the “meeting.” Compl. ¶ 20. Under the
Agreement, London Luxury agreed to use its “best efforts” to market Intellibed gel mattresses to
Mattress Firm. ECF No. 14-2 at 2. London Luxury also agreed not to “market any other ‘gel
matrix’ mattress product to [Mattress Firm].” ECF No. 14-2 at 2. The Agreement does not
prohibit London Luxury from marketing any other class of goods. See ECF No. 14-2 at 2.
Under the Agreement, Intellibed agreed “not to directly or indirectly contact or initiate
contact with [Mattress Firm] or any officers, directors, shareholders, consultants, attorneys,
employees, agents or other affiliates of [Mattress Firm] at any time or for any purpose, unless
such approval is specifically granted in writing by [London Luxury].” ECF No. 14-2 at 1.
Intellibed also agreed that it would notify London Luxury “within 24 hours” in the event that it
was contacted by Mattress Firm. ECF No. 14-2 at 1. If Intellibed entered into a business
relationship with Mattress Firm within a set amount of time, Intellibed agreed to pay London
1

The Agreement was not attached to Intellibed’s complaint, but it is attached as Exhibit A to
London Luxury’s Motion to Dismiss Plaintiff’s Complaint. ECF No. 14-2. The Court considers
the actual terms of the Agreement for the purposes of this motion because the Agreement was
“incorporated into the complaint by reference.” In re Gold Res. Corp. Sec. Litig., 776 F.3d 1103,
1108 (10th Cir. 2015) (quoting Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322
(2007)).
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Luxury a finder’s fee. ECF No. 14-2 at 2. The Agreement contains a merger clause: “This
Agreement constitutes the entire agreement between the parties hereto regarding the transactions
contemplated herein.” ECF No. 14-2 at 2.
On March 13, less than a month after the parties signed the Agreement, Intellibed and
London Luxury representatives met with Mattress Firm in Houston, Texas (the “Houston
meeting”). Compl. ¶ 25. At the Houston meeting, London Luxury presented mattresses and
accessories to Mattress Firm. Compl. ¶ 26. London Luxury presented the Gel Matrix mattress,
but it also showed a competing foam mattress in one of the main presentation rooms. Compl.
¶ 26. The Gel Matrix mattress was not featured in the main presentation room. Compl. ¶ 26.
London Luxury also used the competing foam mattress as its proposed Columbia-mattress
product. Compl. ¶ 26.
Mattress Firm representatives asked London Luxury representatives whether London
Luxury had licensing rights from Columbia to market a Columbia-branded mattress. Compl.
¶ 27. London Luxury admitted that it did not have those rights. Compl. ¶ 27. London Luxury had
not told Intellibed that it did not have the rights to license a Columbia-branded mattress, and
London Luxury did not tell Intellibed that it discussed this issue with Mattress Firm. Compl.
¶ 28.
Intellibed alleges that at the Houston meeting a London Luxury representative told a
Mattress Firm executive that if Mattress Firm did not like the Gel Matrix mattress, Mattress Firm
would “never have to talk to Intellibed again.” Compl. ¶ 29. Intellibed also alleges that London
Luxury invited Mattress Firm to visit the manufacturing facilities of the company that produced
the competing foam mattress days after the Houston meeting. Compl. ¶ 30. London Luxury
never invited Mattress Firm to tour the Intellibed facilities, according to Intellibed. Compl. ¶ 31.

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Intellibed alleges that London Luxury made a number of false representations about its
business. Specifically, Intellibed has learned or on information and belief maintains:
a) London Luxury’s annual revenues are significantly lower than the high hundreds
of millions;
b) London Luxury is not only not the largest single accessory provider to London
Luxury, it is not even one of the top three accessory providers;
c) London Luxury does not have a strong relationship with the key decision-makers
and buyers at Mattress Firm and was not uniquely or specifically situated to affect
Mattress Firm’s purchasing decisions;
d) London Luxury does not have licensing rights to market Columbia-branded
mattresses; and
e) London Luxury did not have a meeting set with Mattress Firm’s CEO for
February 20.
Compl. ¶ 32. Intellibed alleges that its affiliation with London Luxury was detrimental to its
ability to market the Gel Matrix mattress to Mattress Firm. Compl. ¶ 33.
In March 2017, sometime after the Houston meeting, a Mattress Firm representative
advised Intellibed not to attend a second meeting that was scheduled between London Luxury
and Mattress Firm. Compl. ¶ 34. When Intellibed asked why, the Mattress Firm representative
told Intellibed that London Luxury had a negative impact on Intellibed’s ability to negotiate with
Mattress Firm. Compl. ¶ 34.
Intellibed alleges that London Luxury has done little if anything to market the Gel Matrix
mattress since the Houston meeting. Compl. ¶ 35. Intellibed also learned that Mattress Firm
entered into a pilot agreement with Purple, a direct competitor of Intellibed, to sell Purple’s

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competing gel mattress. Compl. ¶ 36. The deal “could be worth millions of dollars.” Compl.
¶ 36. Intellibed believes that it lost the ability to secure a comparable deal because of London
Luxury’s poor relationship with Mattress Firm. Compl. ¶ 36.
Intellibed alleges that London Luxury knowingly made certain false representations
during its initial meeting with Intellibed. Compl. ¶ 37. London Luxury allegedly made these
representations to get Intellibed to sign the Agreement. Compl. ¶ 37. If London Luxury had not
made those representations, Intellibed would not have signed the Agreement and it would be in a
better position to market the Gel Matrix mattress. Compl. ¶ 38. Intellibed also alleges that it
“performed its obligations under the Agreement.” Compl. ¶ 51.
On June 1, 2017, Intellibed filed a complaint against London Luxury. The complaint
states four causes of action: (1) fraud/fraud in the inducement, (2) breach of contract (in the
alternative), (3) breach of the covenant of good faith and fair dealing (in the alternative), and (4)
breach of fiduciary duty. Compl. ¶¶ 40-62. Intellibed asks the Court to rescind the Agreement
based on the alleged misrepresentations or, in the alternative, to award damages in excess of
$75,000. Compl. at 15-16. London Luxury has moved to dismiss the complaint.
III.

DISCUSSION

A. WHETHER SUBJECT MATTER JURISDICTION EXISTS
London Luxury contends that the Court lacks subject matter jurisdiction over this case
because the $75,000 amount-in-controversy requirement is not satisfied. See 28 U.S.C.
§ 1332(a). Specifically, London Luxury argues that Intellibed’s damages are too speculative to
satisfy the amount-in-controversy requirement and that Intellibed’s rescission claim is essentially
worthless in determining whether the amount-in-controversy requirement has been satisfied.
London Luxury misunderstands the amount-in-controversy requirement.

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When federal subject matter jurisdiction is challenged based on the amount in
controversy, the plaintiff must show “that is does not appear to a legal certainty” that he or she
cannot recover the jurisdictional amount. Woodmen of World Life Ins. Soc’y v. Manganaro, 342
F.3d 1213, 1216 (10th Cir. 2003) (quoting Watson v. Blankinship, 20 F.3d 383, 386 (10th Cir.
1994)). Put simply, unless it is legally certain that less than $75,000 is at issue, the jurisdictional
challenge fails. See id.
“The legal certainty standard is very strict.” Id. As such, “it is difficult for a dismissal to
be premised on the basis that the requisite jurisdictional amount is not satisfied.” Id. “There is a
strong presumption favoring the amount alleged by the plaintiff.” Id. “Generally, dismissal under
the legal certainty standard will be warranted only when a contract limits the possible recovery,
when the law limits the amount recoverable, or when there is an obvious abuse of federal court
jurisdiction.” Id. at 1217.
In actions seeking declaratory or injunctive relief, “the amount in controversy is
measured by the value of the object of the litigation.” Hunt v. Wash. St. Apple Adver. Comm’n,
432 U.S. 333, 347 (1977). Accordingly, “in cases where a plaintiff seeks to rescind a contract,
the contract’s entire value, without offset, is the amount in controversy.” Rosen v. Chrysler
Corp., 205 F.3d 918, 921 (6th Cir. 2000) (emphasis added); see also Pyskaty v. Wide World of
Cars, LLC, 856 F.3d 216, 224 (2d Cir. 2017) (holding that plaintiff’s “rescission claim supplies a
sufficient basis for subject-matter jurisdiction,” despite the fact that her claimed damages “fell
well below” the amount-in-controversy requirement).
Here, the amount-in-controversy requirement is satisfied. The Court need only look to the
fraud claim to reach this conclusion. Intellibed seeks to rescind the Agreement, so the Court
looks to the value of Agreement to determine the amount in controversy. The exact value of the

8

Agreement is uncertain because the finder’s fee turns on prospective sales. The parties could
make millions, or nothing. Regardless, the Court cannot conclude that it is a “legal certainty” that
the value of the Agreement is less than $75,000. Thus, the amount-in-controversy requirement is
satisfied and the Court has subject matter jurisdiction.
B. MOTION STANDARD
Under Federal Rule of Civil Procedure 12(b)(6), a defendant may move to dismiss a
claim upon which relief cannot be granted. The court’s function on a Rule 12(b)(6) motion is not
to weigh potential evidence that the parties may present at trial but to “assess whether the
plaintiff’s complaint alone is legally sufficient to state a claim for which relief may be granted.”
Dubbs v. Head Start, Inc., 336 F.3d 1194, 1201 (10th Cir. 2003) (quoting Sutton v. Utah State
Sch. for the Deaf & Blind, 173 F.3d 1226, 1236 (10th Cir. 1999)).
“A court reviewing the sufficiency of a complaint presumes all of plaintiff’s factual
allegations are true and construes them in the light most favorable to the plaintiff.” Hall v.
Bellmon, 935 F.2d 1106, 1109 (10th Cir. 1991). “To survive a motion to dismiss, a complaint
must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible
on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly,
550 U.S. 544, 570 (2007)). Plausibility, in the context of a motion to dismiss, means that the
plaintiff has alleged facts that allow “the court to draw [a] reasonable inference that the
defendant is liable for the misconduct alleged.” Id.
C. CHOICE OF LAW ANALYSIS
The Court first turns to the question of which state’s law applies to the claims at issue. In
making choice of law determinations, a federal court sitting in diversity must apply the choiceof-law provisions of the forum state in which the court sits. Klaxon v. Stentor Elec. Mfg. Co., 313
U.S. 487, 496 (1941). Consequently, Utah’s choice-of-law provisions apply.
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Under Utah law, “questions involving the extent of contractual obligations are
determined by the law chosen by the parties if they have made an effective choice.” Am. Nat’l
Fire Ins. Co. v. Farmers Ins. Exch., 927 P.2d 186, 188 (Utah 1996) (quoting Restatement
(Second) of Conflict of Laws § 205 cmt. b).
Here, the claims for breach of contract and breach of the implied covenant of good faith
and fair dealing are governed by New York law. The Agreement provides that it “shall be
governed by and construed in accordance with the internal laws of the State of New York.” ECF
No. 14-2 at 2. Thus, assuming that the Agreement is valid, the parties selected New York law to
govern their contractual relationship. Accordingly, the claims for breach of contract and breach
of the implied covenant are governed by New York law.
The breach of fiduciary duty claim is also governed by New York law because it is based
almost entirely on the relationship created by the Agreement. Intellibed argues that the existence
of a fiduciary relationship “is demonstrated by (though not limited to) the terms of the
Agreement itself.” Thus, assuming that the parties created a fiduciary relationship pursuant to the
Agreement, New York law should govern that relationship. Consequently, the Court holds that
New York law governs the breach of fiduciary duty claim.
When a party’s claim sounds in tort, Utah courts apply “the ‘most significant
relationship’ approach as described in the Restatement (Second) of Conflict of Laws in
determining which state’s laws should apply to the given circumstances.” Waddoups v.
Amalgamated Sugar Co., 54 P.3d 1054, 1059 (Utah 2002). For fraud claims, the following
factors, among others, are considered: (1) the place where the plaintiff received the
representations; (2) the place where the defendant made the representations; and (3) the domicile,

10

residence, nationality, place of incorporation, and place of business of the parties. Restatement
(Second) of Conflict of Laws § 148(2).
Here, the fraud claim is also governed by New York law. Intellibed is Utah corporation,
and London Luxury is a New York limited liability company. The negotiations leading up to the
Agreement took place at London Luxury’s headquarters, presumably in New York. London
Luxury made the alleged misrepresentations during these negotiations. Because it appears that
New York has the most significant relationship to the fraud claim, the Court concludes that New
York law governs that claim as well.
In summary, the Court concludes that New York law governs the claims at issue.
Moreover, the parties appear to agree that New York law should govern. Both parties rely almost
exclusively on New York law in their briefing, and neither argues that another state’s law should
apply. Accordingly, the Court applies New York law. See Cornaby’s LLC v. Carnet, LLC, No.
2:14-cv-00462-JNP, 2017 WL 3503669, at *13 n.7 (D. Utah Aug. 15, 2017) (applying Utah law
because movant cited only Utah law in its motion and non-movant did not challenge the
application of Utah law).
D. WHETHER INTELLIBED HAS ALLEGED FRAUD IN THE INDUCEMENT
Under New York law, the elements of a cause of action for fraud are (1) a material
misrepresentation of fact by the defendant, (2) knowledge of its falsity, (3) an intent to induce
reliance, (4) justifiable reliance by the plaintiff, and (5) injury. Eurycleia Partners, LP v. Seward
& Kissel, LLP, 910 N.E.2d 976, 979 (N.Y. 2009).
1. Whether London Luxury Made Material Misrepresentations of Fact
Intellibed points to the following alleged misrepresentations to support its fraud in the
inducement claim:

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a) London Luxury’s annual revenues were in the high nine figures, not quite a
billion;
b) Approximately one quarter of London Luxury’s annual revenues stemmed from
work with Mattress Firm;
c) London Luxury was the largest single accessory provider to Mattress Firm;
d) London Luxury had a meeting set with Mattress Firm’s CEO on February 20;
e) London Luxury was a major influencer with Mattress Firm, and it had the best
relationships of any potential partner with the highest and most senior people and
key decision-makers at Mattress Firm; and
f) London Luxury purported that it had a license to market Columbia-branded
mattresses.
London Luxury contends that these representations are not actionable because they were mere
“puff.” London Luxury also argues in a conclusory fashion the representations were immaterial.
Under New York law, false representations of fact are distinguished from puffery and
opinion. See Stern v. Satra Corp., 539 F.2d 1305, 1308 (2d Cir. 1976). “Statements that things
are ‘good,’ ‘valuable,’ ‘large,’ or ‘strong,’ necessarily involve an exercise of individual
judgment, and even though made absolutely[,] the hearer must know this . . . .” Id. (quoting
Restatement (First) of Contracts § 474 cmt. c). As such, statements of opinion “do not provide a
basis for rescission unless made in bad faith.” Id.
While generalized statements usually constitute un-actionable puffery, statements that are
tied “to some commonly accepted measure” do not. Id. Puffery has been defined as “an
exaggeration or overstatement expressed in broad, vague, and commendatory language.” Verizon
Directories Corp. v. Yellow Book USA, Inc., 309 F. Supp. 2d 401, 405 (E.D.N.Y. 2004) (quoting

12

Castrol Inc. v. Pennzoil Co., 987 F.2d 939, 945 (3d Cir. 1993)). Put simply, “[p]uffery . . .
‘cannot be proven either true of false.’” Id. (citation omitted).
A false statement of fact must be material to support a fraud claim. Moore v.
PainWebber, Inc., 189 F.3d 165, 170 (2d Cir. 1999). “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 a transaction.” Id. “Materiality is usually a question of fact
for the jury,” but “where the evidence concerning materiality is clear and substantially
uncontradicted, the matter is one of law for the court to determine.” Berger v. Manhattan Life
Ins. Co., 805 F. Supp. 1097, 1102 (S.D.N.Y. 1992) (citation omitted).
While some of the alleged misrepresentations in the case at hand may constitute puffery, 2
others do not. For instance, the following can be proven false: (1) London Luxury’s annual
revenues were in the high nine figures, (2) one quarter of its annual revenue came from work
with Mattress Firm, and (3) it was the largest single accessory provider to Mattress Firm. These
are not statements of opinion nor are they mere puff. See, e.g., Castrol Inc., 987 F.2d at 946
(Penzoil’s claim that its products “outperform” competitors’ products was not puffery because it
was “specific and measurable”).
These statements also appear to be material. Intellibed told London Luxury that it was
looking for a partner to market the Gel Matrix mattress to Mattress Firm. And Intellibed asked
London Luxury detailed questions about its relationship with Mattress Firm. Thus, statements of
2

For instance, London Luxury’s claim that it was a “major influencer” of Mattress Firm reflects
London Luxury’s estimate of its ability to influence Mattress Firm. There is no way to
objectively measure London Luxury’s influence over Mattress Firm. These types of statements
are routinely held to be un-actionable unless there is evidence of bad faith. See, e.g., Stern, 539
F.2d at 1308 (“[Plaintiff’s] estimates of his influence with IBM, his ability to make the deal for
[Defendant], and the necessity of his retention to acquire IBM as a customer in our view fall into
the category of an individual judgment or opinion which would not provide a basis for rescission
unless made in bad faith . . . .”).
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fact regarding London Luxury’s business dealing with Mattress Firm were statements that
London Luxury knew (or should have known) were likely to influence Intellibed’s decisionmaking process. Accordingly, the Court holds that the allegations plausibly establish that London
Luxury made false statements of material fact.
2. Whether Intellibed Alleged Falsity With the Required Particularity
London Luxury also argues that Intellibed has failed to allege the falsity of the
representations with the requisite particularity. Specifically, London Luxury contends that
allegations based “on information and belief” are insufficient to support Intellibed’s fraud claim.
London Luxury also attacks Intellibed’s decision to not identify the “Mattress Firm
representative” who informed Intellibed that many of London Luxury’s representations were
false. The Court is not persuaded by London Luxury’s arguments.
Claims of fraud must satisfy the pleading requirements of Rule 9(b), which requires that
allegations of fraud “state with particularity the circumstances constituting fraud.” A complaint
alleging fraud must set forth the “time, place and contents of the false representation, the identity
of the party making the false statements and the consequences thereof.” Koch v. Koch Indus.,
Inc., 203 F.3d 1202, 1236 (10th Cir. 2000) (citation omitted). This rule gives defendants “fair
notice of the plaintiff’s claim and the factual ground upon which it is based” and “safeguards [a]
defendant’s reputation and goodwill from improvident charges of wrongdoing.” Farlow v. Peat,
Marwick, Mitchell & Co., 956 F.2d 982, 987 (10th Cir. 1992) (quoting Ross v. Bolton, 904 F.2d
819, 823 (2d Cir. 1990)).
Here, Intellibed has satisfied the requirements of Rule 9(b). Intellibed identifies London
Luxury’s CEO Marc Jason and its president Mr. Schwartz as the persons who made the false
statements. And Intellibed alleges that the false statements were made at the initial meeting
between the parties on February 13 at London Luxury’s headquarters. There is no requirement
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that Intellibed identify the Mattress Firm representative who later told Intellibed that the
statements were false. 3 Moreover, the veracity of the information Intellibed received—along
with information about the size of London Luxury’s annual revenues and its business with
Mattress Firm—is information that, in large part, is uniquely in the possession of London
Luxury. See George v. Urban Settlement Servs., 833 F.3d 1242, 1255 (10th Cir. 2016) (“[I]n
determining whether a plaintiff has satisfied Rule 9(b), courts may consider whether any
pleading deficiencies resulted from the plaintiff’s inability to obtain information in the
defendant’s exclusive control.”); Koch, 203 F.3d at 1237 (“[A]llegations of fraud may be based
on information and belief when the facts in question are peculiarly within the opposing party’s
knowledge and the complaint sets forth the factual basis for the plaintiff’s belief.”). Thus, the
Court concludes that Intellibed has alleged falsity with the requisite particularity.
3. Whether Intellibed Has Alleged Injury With the Required Particularity
London Luxury next argues that Intellibed has failed to allege the consequences of the
misrepresentations. But Intellibed alleges that it “relied on each of [London Luxury’s]
representations” when it “decided to enter into the Agreement.” This describes the consequences
of the alleged misrepresentations—Intellibed signed the Agreement. Because Intellibed seeks
rescission, it need only plead detrimental reliance, not monetary damages. See Phone Card Am.,
Inc. v. Quality Disc. Equip. Sellers, LLC, No. 21832/09, 2010 WL 1576833, at *3 (N.Y. Sup. Ct.

3

London Luxury cites Koch for the proposition that “‘information and belief’ allegations can
support a fraud claim only under very limited circumstances, ordinarily only when alleging
intent.” But London Luxury ignores the context of the Koch court’s discussion of “information
and belief allegations,” which was made in connection with the requirement that the allegations
set forth the “time, place and contents of the false representations, the identity of the party
making the false statement and the consequences thereof.” Koch, 203 F.3d at 1236 (emphasis
added). The Koch court did not address the specificity with which a plaintiff must identify the
source from which it learns that representations were false. See id. at 1236-37. The names of
potential witnesses and sources of information are, in the Court’s view, matters for discovery.
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Apr. 20, 2010) (“Where there has been fraud in the inducement of a contract, rescission can be a
proper remedy.”). Accordingly, the Court holds that Intellibed has adequately alleged injury. 4
4. Intellibed Has Stated a Claim for Fraud/Fraud in the Inducement
For the reasons set forth above, the Court concludes that Intellibed has adequately alleged
a claim for fraud/fraud in the inducement. Accordingly, the Court denies London Luxury’s
request that the Court dismiss Intellibed’s fraud/fraud in the inducement claim.
E. WHETHER INTELLIBED HAS STATED A BREACH OF CONTRACT CLAIM
To state a claim for breach of contract under New York law, a plaintiff must adequately
allege the following: “(1) the existence of an agreement, (2) adequate performance of the
contract by the plaintiff, (3) breach of the contract by the defendant, and (4) damages.” Harsco
Corp. v. Segui, 91 F.3d 337, 348 (2d Cir. 1996). London Luxury claims that Intellibed has failed
to allege performance, breach, and damages.
1. Whether Intellibed Alleged That It Adequately Performed
London Luxury argues that Intellibed failed to allege that it adequately performed. In
fact, London Luxury contends that Intellibed’s allegations demonstrate that Intellibed breached
the Agreement by speaking with Mattress Firm representatives. Specifically, London Luxury

4

Intellibed has, however, failed to plead out-of-pocket damages with the requisite particularity.
For a fraud claim, “[t]he true measure of damages is indemnity for the actual pecuniary loss
sustained as a direct result of the wrong or what is known as the out-of-pocket rule.”
Connaughton v. Chipotle Mexican Grill, Inc., 75 N.E.3d 1159, 1163 (N.Y. 2017) (internal
quotation marks omitted) (quoting Lama Holding Co. v. Smith Barney Inc., 668 N.E.2d 1370,
1373 (N.Y. 1996)). Under that rule, “[t]he recovery for consequential damages naturally flowing
from a fraud is limited to that which is necessary to restore a party to the position occupied
before commission of the fraud.” Lama Holding, 668 N.E.2d at 1374 (citation omitted). Here,
while not fatal to the fraud claim, Intellibed does not allege any compensable damages resulting
from the alleged fraud. Intellibed merely claims that it “has been damaged in an amount to be
determined at trial.” To the extent that Intellibed wishes to recover out-of-pocket expenses, it has
fourteen days from the date of this Order to amend its complaint to allege them. Otherwise, it
will be barred from pursuing them.
16

points to allegations concerning a conversation between Intellibed and Mattress Firm
representatives that occurred sometime in March 2017. Intellibed responds that it has alleged
adequate performance, at least up until the point when London Luxury allegedly breached the
“best efforts” clause. In support of this, Intellibed points to paragraph 51 of its complaint that
provides, “Intellibed has performed its obligations under the Agreement.”
Under New York law, a plaintiff’s “failure to plead the performance of its own
contractual obligations is fatal to a breach of contract claim even if the other requisite elements
are properly pleaded.” Comfort Inn Oceanside v. Hertz Corp., No. 11-cv-1534, 2011 WL
5238658, at *3 (E.D.N.Y. Nov. 1, 2011); see also Landmark Ventures, Inc. v. Wave Sys. Corp.,
513 Fed. App’x 109, 111-12 (2d Cir. 2013).
Here, Intellibed has alleged adequate performance because the allegations plausibly
establish that Intellibed did not contact Mattress Firm before the alleged breach. Intellibed claims
that London Luxury breached the “best efforts” clause when, among other things, London
Luxury told Mattress Firm that it would never have to talk to Intellibed again if it did not like the
Gel Matrix mattress. This allegedly occurred at the Houston meeting. The only relevant duty
imposed on Intellibed up to that point was “not to directly or indirectly contact or initiate
contact” with anyone from Mattress Firm. And the allegations plausibly establish that Intellibed
did not “contact” Mattress Firm before or during the Houston meeting. 5 Intellibed’s other duty—

5

London Luxury insists that the allegation that “Intellibed has performed its obligations under
the Agreement” is insufficient to allege adequate performance. In support of this argument,
London Luxury cites Landmark Ventures, in which the Second Circuit held that the plaintiff
failed to allege adequate performance because it “fail[ed] to identify any service it performed for
which it was not paid.” 513 Fed. App’x at 111. Instead of identifying the services for which it
had not been paid, the plaintiff merely alleged that it had “duly performed [its] obligations . . .
under the Agreement.” Id. But Landmark Ventures is fundamentally different from the case at
hand because the breach of contract claim in Landmark Ventures depended on the specific
services performed by the plaintiff. Here, unlike in Landmark Ventures, London Luxury’s
17

to pay a finder’s fee—would only arise if it entered into a deal with Mattress Firm. Thus, the
Court concludes that Intellibed has alleged that it adequately performed. 6
2. Whether Intellibed Alleged That London Luxury Breached the “Best Efforts”
Clause
London Luxury argues that Intellibed has failed to adequately allege breach of the “best
efforts” clause. Specifically, London Luxury contends that the allegations show that it used “best
efforts” to market the Gel Matrix mattress by securing meetings with Mattress Firm weeks after
the parties signed the Agreement. Intellibed disputes this, pointing to the allegations that London
Luxury gave up on marketing the Gel Matrix mattress and that London Luxury told Mattress
Firm that it would not have to talk to Intellibed if it did not like the Gel Matrix mattress. The
Court agrees with Intellibed.
Under New York law, a best efforts clause imposes “‘an obligation to act with good faith
in light of one’s own capabilities,’ and [to] apply ‘such efforts as are reasonable in light of that
party’s ability and the means at its disposal and of the other party’s justifiable expectations.’” Bd.
of Managers of Choco. Factory Condo. ex rel. Choco. Factory Condo. v. Choco. Partners, LLC,
No. 26667/2011, 2014 WL 1910237, at *7 (N.Y. Sup. Ct. May 13, 2014) (quoting Ashokan
Water Servs., Inc. v. New Start, LLC, 807 N.Y.S.2d 550, 555 (N.Y. Civ. Ct. 2006)). “Best efforts

performance was not conditioned on any initial performance by Intellibed: London Luxury was
required to use “best efforts” to market the Gel Matrix mattress to Mattress Firm while Intellibed
refrained from contacting Mattress Firm. As such, Landmark Ventures provides little guidance in
the case at hand.
6

Intellibed alleges that it was contacted by a Mattress Firm representative at some point after the
Houston meeting. But it is not clear from the face of the complaint that this constitutes a breach.
And in any event, the conversation occurred after London Luxury is alleged to have breached the
“best efforts” clause. While Intellibed would have breached the Agreement if it did not notify
London Luxury within twenty-four hours of the contact, the complaint is silent on whether
Intellibed gave such notice. For purposes of this motion, the Court must limit its analysis to the
allegations in the complaint. And nothing in the complaint conclusively establishes that
Intellibed breached the Agreement.
18

requires greater care and diligence than the ordinary care and diligence to which the promisor
would otherwise be bound to exercise.” Ashokan, 807 N.Y.S.2d at 555 (internal quotation marks
omitted). As such, “a promisor may be found to have breached a duty to use ‘best efforts,’ even
if it had not breached the implied duty of ‘fair dealing.’” Id.
A contract need not define “best efforts” for the provision to be enforceable. U.S.
Airways Grp., Inc. v. British Airways PLC, 989 F. Supp. 482, 491 (S.D.N.Y. 1997) (citing Bloor
v. Falstaff Brewing Corp., 454 F. Supp. 258, 266-67 (S.D.N.Y. 1978)). But to the extent that the
term “best efforts” is ambiguous, “extrinsic circumstances concerning the parties’ understanding
of that term may be considered by the finder of fact.” Id. at 491. 7
Here, Intellibed’s allegations plausibly establish that London Luxury breached the “best
efforts” clause. London Luxury was required to use “best efforts” to market the Gel Matrix
mattress to Mattress Firm. At the least, London Luxury was required to act in good faith and to
use efforts that were reasonable in light of Intellibed’s expectations. Intellibed allegedly believed
that London Luxury had a strong relationship with key decision-makers at Mattress Firm.
Intellibed claims that a London Luxury representative told a Mattress Firm representative that “if
Mattress Firm did not like the Gel Matrix mattress, Mattress Firm would never have to talk to
Intellibed again.” London Luxury allegedly made this statement when it first showed Mattress

7

Both parties offer dramatically different interpretations of the “best efforts” clause. The term is
ambiguous as it is used in the Agreement, and thus the parties can offer extrinsic evidence
concerning what they understood “best efforts” to mean. U.S. Airways, 989 F. Supp. at 491. As
such, statements by London Luxury (e.g., that it was “major influencer with Mattress Firm”)
could be used to show how Intellibed understood “best efforts.” Of course, Intellibed would have
understood “best efforts” differently if London Luxury said that it had no pre-existing
relationship with Mattress Firm. And representations London Luxury made regarding a potential
Columbia-branded line of Intellibed products could shed light on how Intellibed understood
“best efforts.” But the “best efforts” clause cannot be used to impose an obligation (e.g., to
market a Columbia-branded Intellibed mattress) on London Luxury when such a requirement is
absent from the Agreement.
19

Firm the Gel Matrix mattress, less than a month after the parties signed the Agreement. Such a
statement, depending on the context, suggests that London Luxury failed to use “best efforts” to
market the Gel Matrix mattress, thereby breaching the Agreement.
To further support the breach of contract claim, Intellibed points to the allegation that
since the Houston meeting “London Luxury has done little if anything to market” the Gel Matrix
mattress. Somewhat confusingly, Intellibed also alleges that it was told by a Mattress Firm
representative “not to attend a second meeting that was scheduled between London Luxury and
Mattress Firm.” This may suggest that Intellibed stopped cooperating with London Luxury. But
Intellibed has artfully avoided alleging that it breached the Agreement, see supra note 6, so the
allegation that London Luxury stopped promoting the Gel Matrix mattress also suggests that
London Luxury breached the “best efforts” clause.
Intellibed also argues that London Luxury failed to use “best efforts” because it showed a
competing foam mattress in the main presentation room (while the Gel Matrix mattress was
relegated to a less prominent room). The Court is skeptical that this constitutes a breach of the
“best efforts” clause. Under the Agreement, London Luxury was prohibited from marketing any
other “gel matrix” mattress to Mattress Firm. But the Agreement does not speak to foam
mattresses. Admittedly, London Luxury may have run afoul of the “best efforts” clause if it
promoted other mattresses in a way that was extremely detrimental to Intellibed. But the simple
fact that London Luxury did not put the Gel Matrix mattress front and center (at the first meeting
Intellibed attended) does not constitute a breach of the “best efforts” clause. Indeed, Intellibed
seems to suggest that London Luxury was required to feature the Gel Matrix mattress in the main
showroom at every meeting with Mattress Firm, but this is not what the Agreement required.

20

The Court is also skeptical of Intellibed’s argument that London Luxury breached the
“best efforts” clause by not marketing the Gel Matrix mattress as part of a proposed Columbiabranded product line. The Agreement makes no mention of marketing the Gel Matrix mattress as
part of a Columbia-branded line. If Intellibed wanted such a term, it could have negotiated for it.
Intellibed’s argument is also weakened by the fact that the Houston meeting occurred weeks after
the parties signed the Agreement, giving London Luxury a short amount of time to incorporate
the Gel Matrix mattress into a Columbia-branded line. Nevertheless, London Luxury’s decision
to promote another mattress as part of a Columbia-branded line of products may constitute some
evidence that London Luxury did not use “best efforts” to market the Gel Matrix mattress.
Likewise, the Court is not convinced by Intellibed’s argument that London Luxury
breached the best efforts clause by “misrepresenting its capabilities and influence with Mattress
Firm in inducing Intellibed into the Agreement.” This argument is illogical. The Court is not
aware of any case, and Intellibed cites none, in which a party’s actions prior to contract
formation constitute a breach of contract. London Luxury was required to use “best efforts” only
after it executed the Agreement. Anything it did prior to that point could not constitute a breach
of the “best efforts” clause.
In summary, the Court holds that Intellibed has adequately alleged that London Luxury
breached the “best efforts” clause. Specifically, allegations that London Luxury told Mattress
Firm that it would never have to talk to Intellibed again if Mattress Firm didn’t like the Gel
Matrix strongly suggest that London Luxury failed to use “best efforts.”
3. Whether Intellibed Has Sufficiently Alleged Damages
London Luxury argues that Intellibed has failed to adequately allege damages because its
alleged lost profits are too speculative. Intellibed argues that it has sufficiently pleaded lost

21

profits, pointing to allegations concerning an agreement that Mattress Firm entered into with
Purple, another mattress company.
To recover lost profits, a plaintiff must show that the alleged loss is capable of proof with
reasonable certainty and that the damages were fairly within contemplation of the parties.
Kenford Co., Inc. v. Erie Cty., 493 N.E.2d 234, 235 (N.Y. 1986). Courts applying New York law
will dismiss lost profit claims at the pleading stage if “the pleadings suggest that an award of lost
profits would require an unreasonable level of speculation.” Robin Bay Assocs. v. Merrill Lynch
& Co., No. 07 Civ. 376(JMB), 2008 WL 2275902, at *7 (S.D.N.Y. June 3, 2008) (citing Calip
Dairies, Inc. v. Penn Station News Corp., 695 N.Y.S.2d 70, 71 (N.Y. App. Div. 1999)).
Here, Intellibed has sufficiently alleged that its lost profits are capable of proof with
reasonable certainty. The chain of events leading to the lost profits is not nearly as speculative as
London Luxury claims: London Luxury was required to use “best efforts” to market the Gel
Matrix mattress to Mattress Firm; London Luxury allegedly failed to do so by, among other
things, telling Mattress Firm that it would never have to talk to Intellibed again if it did not like
the Gel Matrix mattress; as a result, Intellibed lost the opportunity to do a deal with Mattress
Firm; Mattress Firm did a deal with Purple, one of Intellibed’s direct competitors.
The amount of lost profits, if any, can be properly estimated under these circumstances.
Intellibed already sells mattresses in the marketplace; it is not a “new business.” Shortly after the
Houston meeting, Mattress Firm allegedly entered into a pilot agreement with Purple. The parties
will presumably be able to discover whether Mattress Firm wanted to enter into a similar
agreement with Intellibed. 8 This information, in conjunction with Intellibed’s own operational
information and other market data, could then be used by an expert to calculate Intellibed’s lost
8

Indeed, Intellibed’s allegations suggest that Mattress Firm would have entered into an
agreement with Intellibed but for Intellibed’s relationship with London Luxury.
22

profits. Accordingly, the Court holds that Intellibed has adequately alleged a claim for lost
profits at the pleading stage. See Coniber v. Ctr. Point Transfer Station, Inc., 27 N.Y.S.3d 763,
767 (N.Y. App. Div. 2016) (holding that there was an adequate basis for calculating profits
because plaintiff’s business was not new and it had sales and cost data that could be used to
“estimate lost profit”); Wakeman v. Wheeler & Wilson Mfg. Co., 4 N.E. 264, 266 (N.Y. 1886)
(“A person violating his contract should not be permitted entirely to escape liability because the
amount of the damage which he has caused is uncertain.”).
4. Intellibed Has Stated a Breach of Contract Claim
For the reasons set forth above, the Court concludes that Intellibed has adequately alleged
a claim for breach of contract. Accordingly, the Court denies London Luxury’s request that the
Court dismiss the breach of contract claim.
F. WHETHER INTELLIBED HAS ALLEGED THAT LONDON LUXURY BREACHED THE
IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING
London Luxury argues that Intellibed’s claim for breach of the implied covenant of good
faith and fair dealing is insufficient as a matter of law. Intellibed contends that it has alleged
sufficient facts, pointing to allegations that London Luxury pursued its own interests to the
detriment of Intellibed, marketed competing products to Mattress Firm, and fostered
relationships between Mattress Firm and competing mattress manufacturers to the detriment of
Intellibed.
Specifically, Intellibed points to the following allegations to support its breach of the
implied covenant of good faith and fair dealing claim:
a) On March 13, 2017, at a meeting Houston, Texas, London Luxury showed a
competing mattress in its main showroom (while relegating the Gel Matrix

23

mattress to a different room), and gave the competing mattress the spot in the
Columbia product line it promised to Intellibed;
b) At the same meeting, London Luxury stated to Mattress Firm that, if it did not
like the Gel Matrix mattress, Mattress Firm would never have to talk to Intellibed
again; and
c) In the week after the meeting, London Luxury invited Mattress Firm to visit the
manufacturing facilities for the competing foam mattress in which London
Luxury had a pecuniary interest and never sought to do the same for Intellibed’s
mattress.
New York law imposes a duty of good faith and fair dealing in all contracts. See Van
Valkenberg, Nooger & Neville, Inc. v. Hayden Publ’g Co., 281 N.E.2d 142, 145 (N.Y. 1972). It
requires the parties to not do anything that “will have the effect of destroying or injuring the
rights of the other party to receive the fruits of the contract.” 511 W. 232nd Owners Corp. v.
Jennifer Realty Co., 773 N.E.2d 496, 500 (N.Y. 2002) (citation omitted). But the duty of good
faith and fair dealing cannot be used to imply obligations that are “inconsistent with other terms
of the contractual relationship.” Murphy v. Am. Home Prods. Corp., 448 N.E.2d 86, 91 (N.Y.
1983).
Here, Intellibed has adequately alleged that London Luxury breached the implied
covenant of good faith and fair dealing. As discussed above, Intellibed alleges that London
Luxury told Mattress Firm that it would never have to talk to Intellibed again if it did not like the
Gel Matrix mattress. Such a statement, depending on the context, may be evidence that London
Luxury acted in bad faith, harming Intellibed’s chances of entering into a business relationship
with Mattress Firm. This allegation is sufficient to state a claim for breach of the implied

24

covenant. Accordingly, the Court holds that Intellibed has adequately alleged that London
Luxury breached the implied covenant of good faith and fair dealing.
The Court is less convinced that promoting a foam mattress, which the Agreement did
not expressly forbid, is evidence that London Luxury acted in bad faith. As the Court of Appeals
explained in Valkenberg:
It has already been observed that in this contract there was an undertaking by the
publisher to use its “best efforts” to promote the author’s works. Such a contract
does not close off the right of a publisher to issue books on the same subject, to
negotiate with and pay authors to write such books and to promote them fully
according to the publisher’s economic interests, even though those later
publications adversely affect the contracting author’s sales.
281 N.E.2d at 144 (emphasis added). While the world of mattress sales may differ from
publishing, similar principles apply. Simply promoting a foam mattress (which the Agreement
allowed) does little to suggest that London Luxury acted in bad faith, even if these actions may
have adversely impacted Intellibed. If Intellibed truly sought to prevent London Luxury from
marketing foam mattresses to Mattress Firm, it should have included that restriction in the
Agreement. Indeed, Intellibed negotiated for a term that prevented London Luxury from
marketing other “gel matrix” mattresses, suggesting that Intellibed should have known that
London Luxury would market non-gel-matrix mattresses to Mattress Firm.
G. WHETHER INTELLIBED HAS ALLEGED A CLAIM FOR BREACH OF FIDUCIARY DUTY
The elements for a breach of fiduciary duty cause of action are (1) proof of a fiduciary
relationship and duty, (2) breach of that duty, and (3) damages directly caused by the defendant’s
breach. Deblinger v. Sani-Pine Prods. Co., Inc., 967 N.Y.S.2d 394, 396 (N.Y. App. Div. 2013).
London Luxury contends that there was no fiduciary relationship.

25

1. Intellibed’s Breach of Fiduciary Duty Claim is Duplicative of Its Breach of Contract
Claim
In New York, “[a] cause of action for breach of fiduciary duty which is merely
duplicative of a breach of contract claim cannot stand.” William Kaufman Org., Ltd. v. Graham
& James LLP, 703 N.Y.S.2d 439, 442 (N.Y. App. Div. 2000). Here, the breach of fiduciary duty
claim is duplicative of the breach of contract claim. The breach of fiduciary duty claim is based
on allegations that London Luxury promoted competitors’ products, made statements to Mattress
Firm that harmed Intellibed, and stopped promoting the Gel Matrix mattress. These are the same
allegations that support the breach of contract claim. See id. (dismissal of breach of fiduciary
duty claim was proper because “the cause of action for breach of contract refers, at paragraph 60
of the complaint, to the unethical conduct described in paragraph 53 and 54, which constitute the
allegations of breach of fiduciary duty”). The breach of fiduciary duty claim is duplicative of the
breach of contract claim, and therefore the Court dismisses the breach of fiduciary duty claim
with prejudice. 9
2. Intellibed Failed to Allege the Existence of a Fiduciary Relationship
Setting aside the above analysis, Intellibed’s claim for breach of fiduciary duty fails for
an independent reason: Intellibed has not alleged the existence of a fiduciary relationship. Under
New York law, “[a] fiduciary relationship ‘exists between two persons when one of them is
under a duty to act for or to give advice for the benefit of another upon matters within the scope
of the relation.’” EBC I, Inc. v. Goldman, Sachs & Co., 832 N.E.2d 26, 31 (N.Y. 2005) (quoting
Restatement (Second) of Torts § 874 cmt. a). A fiduciary relationship is “grounded in a higher
level of trust than normally present in the marketplace between those involved in arm’s length
9

This conclusion is bolstered by statements made by counsel for Intellibed at oral argument:
“Now I’ve only pled [the breach of fiduciary duty claim] as an alternative claim because I really
don’t need it if the [breach of contract claim is] successful.” Hearing Tr. at 51.
26

business transactions.” Id. As such, “an arms-length commercial transaction generally does not
give rise to a fiduciary relationship.” PetEdge, Inc. v. Garg, No. 1:15-cv-9606-GHW, 2017 WL
564088, at *16 (S.D.N.Y. Feb. 10, 2017) (citation omitted).
When parties have entered into a contract, courts should first “look to that agreement ‘to
discover . . . the nexus of [the parties’] relationship and the particular contractual expression
establishing the parties’ interdependency.’” EBC I, 832 N.E.2d at 31 (quoting Northeast Gen.
Corp. v. Wellington Adv., 624 N.E.2d 129, 130 (N.Y. 1993)). To determine whether a contract
creates a fiduciary relationship, courts look to “the services agreed to under the contract.”
Northeast Gen., 624 N.E.2d at 132. “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.” EBC I, 832 N.E.2d at 31 (citation omitted).
But a fiduciary relationship “is not dependent solely upon an agreement or a contractual
relationship between the fiduciary and the beneficiary but results from the relation.” Id. (quoting
Restatement (Second) of Torts § 874 cmt. b). As such, “a cause of action for breach of fiduciary
duty may survive, for pleading purposes, where the complaining party sets forth allegations that,
apart from the terms of the contract,” show “a relationship of higher trust.” Id. (emphasis added).
“[A]bsent [a] special agreement or special circumstances, the forces and mores of the
marketplace govern . . . .” Northeast Gen., 624 N.E.2d at 130.
A finder’s fee agreement does not typically create a fiduciary relationship, especially
when the finder does not have the authority to act on the other party’s behalf. See id. at 132. In
Northeast General, the parties entered into a finder’s fee agreement. Id. at 130. After looking at
the agreement, the Court of Appeals concluded that there was no fiduciary relationship because,
among other reasons, the finder had no “explicit or implied power” to bind the other party; the

27

finder only had the power to “find and introduce prospects.” Id. at 132. Accordingly, the
“common mores of the marketplace” governed the relationship established by the agreement,
which contemplated nothing more than “performance of a simple service,” finding prospective
buyers. Id. at 133.
Here, the Agreement did not create a fiduciary relationship. London Luxury agreed to
use “best efforts” to market the Gel Matrix mattress to Mattress Firm. In exchange, Intellibed
agreed not to contact Mattress Firm and to pay London Luxury a finder’s fee. London Luxury
did not have authority to negotiate or enter into contracts on Intellibed’s behalf. While the
Agreement does prohibit Intellibed from contacting Mattress Firm, Intellibed is free to market
the Gel Matrix mattress to anyone but Mattress Firm. There is nothing in the Agreement
suggesting that the parties contemplated a fiduciary relationship—“if [Intellibed] wanted
fiduciary-like relationships or responsibilities, it could have bargained for and specified them in
the contract.” Northeast Gen., 624 N.E.2d at 132. 10
Intellibed contends that it has alleged a relationship of higher trust, citing EBC I, Inc. v.
Goldman, Sachs & Co. But that case is distinguishable. There, Goldman Sachs entered into an
underwriting agreement with a toy company. 832 N.E.2d at 29. The Court of Appeals implicitly
determined that the underwriting agreement by itself was insufficient to create a fiduciary
relationship. See id. at 31. But the toy company alleged “an advisory relationship that was
independent of the . . . agreement.” Id. (emphasis added). Specifically, the toy company alleged
that it placed trust and confidence in Goldman Sachs to effectuate an initial public offering for

10

During oral argument, counsel for Intellibed argued that a fiduciary relationship exists because
the parties did not expressly agree otherwise. But New York law provides to the contrary. Indeed,
courts applying New York law “should not attempt to elevate all the mores of society to the
standard of the ‘punctilio of an honor most sensitive.’” Northeast Gen., 624 N.E.2d at 133
(quoting Meinhard v. Salmon, 164 N.E. 545, 546 (N.Y. 1928)).
28

the toy company, which included Goldman Sachs advising the toy company on a fair price for
the toy company’s shares. Id.
Here, Intellibed fails to allege a separate advisory relationship or agreement. London
Luxury is not alleged to have acted as a “trusted advisor”; its main duty was to simply market the
Gel Matrix mattress to Mattress Firm. The fact that Intellibed signed the Agreement about a
week after its initial meeting with London Luxury also undermines the idea that there was some
separate advisory relationship not contemplated in the Agreement. The Agreement even
provides: “This Agreement constitutes the entire agreement between the parties hereto regarding
the transactions contemplated herein.”
Accordingly, the Court holds that Intellibed has failed to allege any facts giving rise to a
fiduciary relationship between it and London Luxury. Thus, the breach of fiduciary duty claim
should be dismissed with prejudice even if it were not duplicative of the breach of contract
claim.
IV.

CONCLUSION AND ORDER

For the reasons set forth above, Defendant’s Motion to Dismiss Plaintiff’s Complaint
(ECF No. 14) is GRANTED IN PART and DENIED IN PART. Specifically, the Court holds (1)
the fraud/fraud in the inducement claim remains, (2) the breach of contract claim remains, (3) the
breach of the implied covenant of good faith and fair dealing claim remains, and (4) the breach
of fiduciary duty claim is dismissed with prejudice. At its option, Plaintiff has fourteen days
from the date of this Order to allege out-of-pocket expenses in connection with its fraud/fraud in
the inducement claim.
//
//
//
29

Signed December 5, 2017
BY THE COURT

______________________________
Jill N. Parrish
United States District Court Judge

30