therefore be dismissed for failure to state a claim upon which
relief can be granted.
"Under New York law, a cause of action for fraud must allege
misrepresentation of an existing material fact, known to be
untrue by the offending party, and made with intent to deceive
and for the purpose of inducing the other party to act upon
it." Hutton v. Klabal, 726 F. Supp. 67 70 (S.D. N.Y. 1989)
(Broderick, J.) (citing Roney v. Janis, 77 A.D.2d 555, 430
N YS.2d 333, 335 (1st Dep't 1980), aff'd, 53 N.Y.2d 1025,
442 N.Y.S.2d 484, 425 N.E.2d 872 (1981).
Designers Break's counterclaim for common law fraud fails to
allege plaintiffs' fraudulent intent with the particularity
required by Rule 9(b). Although Rule 9(b) allows intent to be
averred generally, Designers Break must nonetheless set forth
some factual basis for its conclusory allegations of
plaintiffs' fraudulent intent. Ouaknine v. MacFarlane,
897 F.2d 75, 81 (2d Cir. 1990), Beck v. Manufacturers Hanover
Trust Co., 820 F.2d 46, 50 (2d Cir. 1987), cert. denied,
484 U.S. 1005, 108 S.Ct. 698, 98 L.Ed.2d 650 (1988). These factual
allegations must give rise to a "strong inference" of scienter,
such as by showing a motive for committing fraud or by
"identifying circumstances indicating conscious behavior by the
[accused party]." Beck, supra, 820 F.2d at 50. See, e.g.,
Cosmas, supra, 886 F.2d at 13, Beck, supra, 820 F.2d at 50;
Hotel Constructors, Inc. v. Seagrave Corp., 574 F. Supp. 384,
388 (S.D. N.Y. 1983) (Carter, J.)
Reading Designers Break's pleading generously and drawing all
inferences in its favor, as the court must on a motion to
dismiss, Cosmas, supra, 886 F.2d at 11, the court can find no
factual allegations from which a "strong inference" of
fraudulent intent can be drawn. Designers Break's allegations
that plaintiffs met with each other in fall, 1987, and that
they offered to sell their merchandise to Designers Break's
competitors at lower prices simply do not demonstrate that
plaintiffs never intended to honor Designers Break's alleged
orders. At best, Designers Break's allegations may amount to a
breach of contract claim, and "[a] purely conclusory allegation
that defendants never intended to perform, standing alone,
[can] not convert a claim for breach of contract into one for
fraudulent inducement to contract." Hotel Constructors,
supra, 574 F. Supp. at 388. See Creed Taylor, Inc. v. CBS,
718 F. Supp. 1171, 1179 (S.D.N.Y. 1989) (Carter, J.); Soper v.
Simmons International, Ltd., 632 F. Supp. 244, 250 (S.D.N Y
1986) (Sand, J.). Accordingly, Designers Break's fourth
counterclaim is dismissed for failure to comply with Rule 9(b).
Designers Break's fifth counterclaim charges plaintiffs with
conspiracy to commit fraud, referring to the same alleged
scheme as that referred to in its third and fourth
counterclaims. However, Designers Break appears to base its
conspiracy cause of action on the mail and wire fraud
statutes.*fn3 Because neither of these statutes provides a
private right of action. this counterclaim is dismissed for
failure to state a claim upon which relief can be granted.
Under Rule 11, "sanctions shall be imposed against an attorney
and/or his client when it appears that a pleading has been
interposed for any improper purpose, or where, after
reasonable inquiry, a competent attorney could not form a
belief that the pleading is well grounded in fact and is
warranted by existing law or a good faith argument for the
extension, modification or reversal of existing law." Eastway
Constr. Corp. v. City of New York, 762 F.2d 243, 254 (2d Cir.
1985), cert. denied, 484 U.S. 918, 108 S.Ct. 269, 98 L.Ed.2d
226 (1987) (emphasis in original).
First, there is nothing to indicate that Designers Break has
interposed its third, fourth and fifth counterclaims for an
improper purpose. Second, although the court finds that these
counterclaims have been inadequately pleaded, each of these
counterclaims is at least potentially viable. Given leave to
replead, Designers Break may be able to cure the deficiencies
in its pleading. Rule 11 sanctions are therefore inappropriate
at this time. See Official Publications, Inc. v. Kable News
Co., 884 F.2d 664, 670 (2d Cir. 1989).
In conclusion, defendant's third and fifth counterclaims are
dismissed for failure to state a claim upon which relief can be
granted, and its fourth counterclaim is dismissed for failure
to plead fraud with sufficient particularity. Designers Break
is granted leave to replead these counterclaims by October 12,
1990. Plaintiffs' motion for Rule 11 sanctions is denied.
IT IS SO ORDERED.