which LAI was not an intended beneficiary. Hence, LBK argues that LAI lacks standing to raise this breach of contract issue.
In support of Defendant's contention that the payment by Avon was a condition precedent, it could be that at the time of the formation of the contract, Plaintiff viewed an arrangement between LBK and Avon as a potentially lucrative investment opportunity, and therefore gambled by tying its compensation directly to the amount of figurines actually sold by LBK and paid for by Avon. This interpretation is supported by the incorporation of commissions rather than a flat fee for LAI's services, which commissions would be "included in the cost quoted to the customer," payable "upon payment for merchandise" by Avon, and which would allow for deductions in Plaintiff's commission due to returns of some or all of the merchandise or credits therefore. (Mem. Opp. Mot. Dismiss Amd. Compl. at Ex. A); (Mem. Supp. Mot. Dismiss at 4). As a result, payment by Avon could be considered a condition precedent to LBK's duty to pay any commission to LAI.
However, LAI might be an intended third party beneficiary to the Avon-LAI contract, even if that contract does not explicitly state the obligation owed to LAI.
See Cauff, Lippman & Co v. Apogee Finance Group, Inc., 807 F. Supp. 1007, 1019-20 (S.D.N.Y. 1992). Should the Avon-LBK contract detail an obligation owed to LAI, LAI's standing as a third party beneficiary would be even stronger, especially given LAI's role in arranging the meeting which led to the contract and its role in the production scheduling. See Amd. Compl. Ex. A; Apogee, 807 F. Supp. at 1020.
Even interpreting payment by Avon as a condition precedent, it has been established for over a century that "a party may not insist upon performance of a condition precedent when its nonperformance has been caused by the party himself." Ellenberg Morgan Corp. v. Hard Rock Cafe, 116 A.D.2d 266, 500 N.Y.S.2d 696, 699 (1st Dep't 1986) (citations omitted). See also Simon v. Electrospace Corporation, 28 N.Y.2d 136, 142, 320 N.Y.S.2d 225, 269 N.E.2d 21 (1971). Under such circumstances, the prevention doctrine will operate to excuse the condition precedent which was wrongfully prevented from occurring, thereby rendering the contract enforceable. Apogee, 807 F. Supp. at 1022 ("prevention doctrine is substantially related to the implied covenant of good faith and fair dealing implicit in every contract"). This principal has been applied in numerous brokerage commission cases. In re Southold Development Corp., 173 Bankr. 63, 74-75 (E.D.N.Y. 1994) (also stating "where a principal frustrates the fulfillment of the condition governing the broker's right to compensation, that principal is obliged to pay the commission"). Plaintiff contends that LBK would therefore be liable by virtue of having unilaterally prevented the condition precedent from occurring, the relevant conduct being LBK's failure to produce and deliver the figurines to Avon.
Alternatively, it could be that the payment by Avon was not a condition precedent, as Defendant argues, and so its non-occurrence would not bar a breach of contract claim. For instance, the disputed paragraph in the Sales Representation Agreement could have imposed upon LBK a duty to pay the commission to LAI when the meeting with Avon was arranged, with the amount of the payment to be determined by the amount of figurines agreed upon at that meeting, and with the time for payment established by the second sentence of the paragraph.
If valid, this interpretation of the Sales Representation Agreement would support Plaintiff's contention that it fully performed its obligations by arranging the meeting between representatives of LBK and Avon to discuss the possible formation of a contract for the sale of "Mrs. Albee" figurines. In turn, when Avon and LBK agreed to the sale of 82,400 figurines, LBK would have simultaneously incurred the duty to pay $ 128,132 in commissions thereon to LAI. The second sentence of the paragraph
thus would set forth the time for payment, but would not have any affect on LBK's obligation to pay the $ 128,132 in commissions to LAI.
Regardless of whether payment by Avon was a condition precedent, interpreting all allegations to Plaintiff's benefit, the complaint adequately pleads a claim for breach of contract. As a result, Defendant's motion to dismiss the first cause of action must be denied.
The same analysis applies to the second cause of action, which Plaintiff characterizes as "simply a claim for additional damages arising out of defendant's breach of contract." (Mem. Opp. Mot. Dismiss at 4). I have already found that in conjunction with the first cause of action, the complaint sets forth a claim for breach of contract. As the same alleged breach of contract forms the basis of the second cause of action, Defendant's motion to dismiss the second cause of action must likewise be denied.
B. The Fraud Claim
Defendant also moves to dismiss the third cause of action for failure to plead fraud with particularity pursuant to Fed. R. Civ. P. 9(b), and for failure to state a claim upon which relief may be granted pursuant to Fed. R. Civ. P. 12(b)(6).
To state a claim for fraud under New York common law, the complaint must allege that the defendant (1) made an omission, misrepresentation, or false statement of material fact; (2) with knowledge of its falsity; (3) with the intent to defraud; (4) upon which the plaintiff reasonably relied; (5) and which caused damage to the plaintiff due to the plaintiff's reliance thereon. Diduck v. Kaszycki & Sons Contractors, Inc., 974 F.2d 270, 276 (2d Cir. 1992). See also Flickinger v. Harold C. Brown & Co., Inc., 947 F.2d 595, 599 (2d Cir. 1991) (citations omitted); Cramer v. Devon Group, Inc., 774 F. Supp. 176, 181 (S.D.N.Y. 1991). The Federal Rules of Civil Procedure further require that fraud be pleaded with particularity. Fed. R. Civ. P. 9(b). However, plaintiffs need not set forth their evidence in the complaint. Lazzaro v. Manber, 701 F. Supp. 353, 372-73 (E.D.N.Y. 1988) (finding general circumstances, content, and perpetrator of each fraudulent representation sufficient pleading). To satisfy the requirements of Rule 9(b), the complaint need only give particulars regarding the fraudulent content of the speech, the time and place at which the statements were made, and the identity of individuals making the fraudulent statements. See Goldman v. Belden, 754 F.2d 1059, 1069-70 (2d Cir. 1985). Rule 9(b) expressly states that scienter may be pleaded in general terms. Id. at 1070. Nonetheless, plaintiffs must still provide "at least a minimum factual basis for their conclusory allegations of scienter." Connecticut Nat'l Bank v. Fluor Corp., 808 F.2d 957, 962 (2d Cir. 1987).
Even if the pleading requirements of Rule 9(b) are satisfied, the allegations of fraud contained in the complaint must be examined for their sufficiency under the applicable state law. As a general rule, New York courts preclude fraud actions where the "only fraud charged relates to a breach of contract." Miller v. Volk & Huxley Inc., et al., 44 A.D.2d 810, 355 N.Y.S.2d 605 (1st Dep't 1974). See Metropolitan Transportation Authority v. Triumph Advertising Productions, Inc., 116 A.D.2d 526, 527, 497 N.Y.S.2d 673 (1st Dep't 1986). A party's failure to fulfill a promise to perform future acts cannot form the basis of a fraud claim, unless that party intended not to fulfill that promise at the time when it was made. Cohen v. Koenig, 25 F.3d 1168, 1172 (2d Cir. 1994); Murray v. Xerox Corp., 811 F.2d 118 (2d Cir. 1987); Value Time, Inc., v. Windsor Toys, Inc., 700 F. Supp. 6, 6-7 (S.D.N.Y. 1988).
I dismissed the first complaint pursuant to Rule 9(b) because Plaintiff failed to adequately plead the time and speaker of the allegedly fraudulent statements. See Lomaglio Associates Inc. v. LBK Marketing Corp., No. 94 Civ. 3208 at 7-8 (S.D.N.Y. Jan. 26, 1995). Plaintiff has cured these defects in the amended complaint by identifying various allegedly false statements or misrepresentations made by two officers of LBK, David Gleason and David Bailys, either in person on or in writing on particular dates in 1993. (See Amd. Compl. PP 15-20). Thus, the complaint as amended satisfies Rule 9(b).
Nevertheless, the complaint fails to establish a cognizable claim for fraud. All of the alleged misrepresentations or false statements involve purported assertions by Defendant's representatives of its ability to produce the "Mrs. Albee" figurines, the quantities it anticipated being able to produce monthly, and a proposed production and shipment schedule. None of these statements provide any indication that LBK possessed the intent to deceive or to fraudulently induce the reliance of either Avon or LAI. Nor do Plaintiff's allegations set forth any evidence whatsoever that LBK never intended to perform its obligations under either its contract with Avon or its Sales Representation Agreement with LAI at the time of the allegedly fraudulent statements. Plaintiff's general claim that LBK never intended to perform its duties under the contract with Avon does not elevate this basic claim for breach of contract to the level of deliberate fraud. See Fluor Corp., 808 F.2d at 962.
Because there is no indication that the third cause of action is anything more than a repetition of the breach of contract claims contained elsewhere in the complaint, joined with a superficial allegation of fraud, it must be dismissed.
Defendant's motion to dismiss the first and second causes of action in the amended complaint for failure to state a claim upon which relief may be granted pursuant to Fed. R. Civ. P. 12(b)(6) is denied. Likewise, Defendant's motion to dismiss the third cause of action in the amended complaint for failure to plead fraud with the particularity required by Fed. R. Civ. P. 9(b) is denied.
However, Defendant's motion to dismiss the third cause of action in the amended complaint for failure to state a claim upon which relief may be granted, pursuant to Rule 12(b)(6), is hereby granted.
DATED: New York, New York
July 5, 1995
KEVIN THOMAS DUFFY, U.S.D.J.