N.Y.S.2d 610, 613, 249 N.E.2d 459 (1969). This privilege is at the heart of defendants' motion to dismiss.
Inn Chu contends that Sara Lee's behavior exceeded the bounds of its privilege because a parent corporation motivated by malice or that uses wrongful means to procure its subsidiary's breach is not immune from liability. Record Club, supra, 611 F. Supp. at 217. Nonetheless, the only motive which plaintiff ascribes to Sara Lee is economic gain, which alone does not constitute malice. See, e.g., PPX Enterprises, Inc. v. Audiofidelity Enterprises, Inc., 818 F.2d 266, 269 (2d Cir. 1987).
However, plaintiff also challenges Sara Lee's invocation of the self-interest privilege on the ground that Sara Lee acted wrongfully by inducing Brown to provide the confidential sales information which Champion later asserted as a basis for discontinuing the license. plaintiff's Memorandum in Opposition at 26. Sara Lee denies any role in procuring information from Brown, and refers to plaintiff's own complaint which merely alleges that Champion's president Lewis Frankfort, on behalf of both defendants, met with Brown to offer him employment. Complaint P 26. Defendants note that the subsequent actions concerning Brown are attributed to Champion, not Sara Lee.
On the contrary, the clear thrust of plaintiff's claim is that Sara Lee initiated the effort to terminate Phoenix's license, that Sara Lee induced Champion to find a means to do so, and that Sara Lee at least collaborated in the implementation of these means.
Sara Lee also maintains that it would not have been improper to assist Champion in obtaining the sales records from Brown because that information was not confidential. In support of their position, defendants cite a provision of the License Agreement permitting Champion to review all of Phoenix's records in connection with the licensed products. This provision, however, does not provide blanket authorization for defendants to pry into plaintiff's business at will and to use whatever information is gleaned to plaintiff's detriment.
Accordingly, the confidential nature of these records is a question of fact which cannot be resolved without further inquiry.
The complaint clearly alleges each element of tortious interfence with contract: that a valid contract existed between Phoenix and Champion, that Sara Lee knew of that contract, and that Sara Lee wrongfully interfered with its performance. Moreover, Sara Lee's procurement of confidential records would not fall within the scope of the self-interest privilege. Therefore, the motion to dismiss must be denied as to count two.
II. The Fraud Claims.
Defendants contend that count three, which charges that Champion fraudulently induced Inn Chu to provide Phoenix with additional financing, is fatally defective in that the alleged fraud is not pleaded with the particularity required by Rule 9(b), F.R.Civ.P.. Under New York law, a cause of action for fraud must allege (1) misrepresentation of an existing material fact, (2) known to be untrue by the offending party, and (3) made with the intent to deceive and for the purpose of inducing the other party to act upon it. See, e.g., Roney v. Janis, 77 A.D.2d 555, 430 N.Y.S.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); Perez v. East Hampton, 166 A.D.2d 640, 561 N.Y.S.2d 69 (2d Dep't 1990). To satisfy the pleading requirements of Rule 9(b), the complaint must identify the actionable false or misleading statement; must allege the time, place and circumstances of the statements; and must allege scienter on the part of the defendants, or conditions which give rise to a strong inference of knowledge or awareness. Feigenbaum v. Marble of America, Inc., 735 F. Supp. 79 (S.D.N.Y. 1990) (Leisure, J.); Raffaele v. Designers Break, Inc., 750 F. Supp. 611 (S.D.N.Y. 1990) (Carter, J.).
Defendants argue that many key particulars of the fraud claims are pleaded "upon information and belief."
Allegations of fraud cannot be based "upon information and belief," except as to matters peculiarly within the adverse parties' knowledge, and these allegations must be accompanied by a statement of the facts upon which the belief is founded. Segal v. Gordon, 467 F.2d 602, 608 (2d Cir. 1972); Wexner v. First Manhattan Co., 902 F.2d 169, 172 (2d Cir. 1990).
Inn Chu contends that it has asserted a factual basis for its information and belief, citing its claim that defendants deceptively procured sales information prior to the July 19, 1991 meeting, and used it in planning to terminate the license. Plaintiff's Memorandum in Opposition at 34. At most, however, these allegations may explain how defendants learned of the sales to Japan, but they do not provide a viable basis for the claim that Champion intended to induce Inn Chu to extend additional financing to Phoenix.
Mere suspicions that a fraud may have occurred are not sufficient. Brickman v. Tyco Toys, Inc., 722 F. Supp. 1054, 1060 (S.D.N.Y. 1989) (Carter, J.). Thus, count three is dismissed without prejudice. It also follows that count four, which alleges that Sara Lee aided and abetted Champion's fraud, must be dismissed as well since there can be no aider and abettor without a principal.
III. Defendants' Motion for a Stay
Defendants also seek a stay of the present action pending the outcome of a related lawsuit in New York Supreme Court, Westchester County. A district court should limit its discretion to stay proceedings to "exceptional circumstances." Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 19, 74 L. Ed. 2d 765, 103 S. Ct. 927 (1983); see also Colorado River Water Conservation District v. United States, 424 U.S. 800, 817, 47 L. Ed. 2d 483, 96 S. Ct. 1236 (1976).
While the Supreme Court has provided no definitive checklist for determining whether the exceptional-circumstances test is met, it now requires examination of six factors in that inquiry: (1) the assumption by either court of jurisdiction over any res or property, (2) the inconvenience of the federal forum, (3) the avoidance of piecemeal litigation, (4) the order in which jurisdiction was obtained, (5) whether federal or state law supplies the rule of decision, and (6) whether the state court proceeding will adequately protect the rights of the party seeking to invoke federal jurisdiction. See, e.g., Bethlehem Contracting Co. v. Lehrer/McGovern, Inc., 800 F.2d 325, 327 (2d Cir. 1986); De Cisneros v. Younger, 871 F.2d 305, 307 (2d Cir. 1989).
The overriding concerns expressed in Colorado River, Cone Memorial Hospital, and subsequent Second Circuit cases
are the avoidance of piecemeal or purely duplicative litigation and the concomitant waste of judicial resources. The linchpin of Inn Chu's contract claims against both defendants is the allegation that Champion breached the License Agreement by discontinuing the license without adequate justification and without providing notice or an opportunity to cure Phoenix's alleged contract violation. The same issue is at the core of the state action. Consequently, there is a strong likelihood of needless duplication of the state proceeding.
Other factors in the exceptional-circumstances test also support defendants' motion: only state law questions are presented, the state action commenced seven months prior to the present action and is actively progressing,
and plaintiff would not be prejudiced by a stay.
Therefore, this would be an appropriate case for a stay.
However, a stay in favor of state proceedings is generally disfavored where the state action would not dispose of the entire federal case. 12 Wright, Miller & Cooper, supra, § 4247. Since the state action has no bearing on plaintiff's fraud allegations, a stay would no longer be warranted if plaintiff exercises its right to replead the fraud claims and in so doing satisfies Rule 9.
In accordance with the reasoning set forth above, defendants' motion to dismiss the contract claims (counts one and two) pursuant to Rule 12(b)(6), F.R.Civ.P., is denied. Defendants' motion to dismiss the fraud claims (counts three and four) pursuant to Rule 9(b), F.R.Civ.P, is granted without prejudice and plaintiff is given leave until November 27, 1992 to amend its complaint in this respect. Defendants' motion for a stay is granted subject to reconsideration if plaintiff properly repleads.
IT IS SO ORDERED.
Dated: New York, New York
October 28, 1992
Robert L. Carter