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PDP PARFUMS DE PARIS, S.A. v. INTERNATIONAL DESIGN

October 23, 1995

PdP PARFUMS DE PARIS, S.A., Plaintiff, against INTERNATIONAL DESIGNER FRAGRANCES, INC., KAY MERCHANDISING INTERNATIONAL, LTD. BARRY KAY and RAMA KRISHNA CHERUKURI, Defendants.


The opinion of the court was delivered by: SPATT

 SPATT, District Judge.

 This action was commenced by the plaintiff, PdP Parfums de Paris, S.A. ("PdP") on or about April 6, 1995, claiming damages for breach of contract and fraud against the defendants (1) Kay Merchandising International, Ltd. ("KMI"); (2) KMI's president, Barry Kay; (3) International Designer Fragrances, Inc. ("IDF"); and (4) Rama Krishna Cherukuri ("Cherukuri"), an officer of IDF. Jurisdiction is based on diversity of citizenship. The plaintiff is a Swiss corporation in the business of manufacturing, distributing and selling perfumes. The defendant Kay is a citizen of New York and his company, the defendant KMI, is a Delaware Corporation. The defendant Cherukuri is a citizen of New York and IDF is a New York corporation. The defendants are in the business of distributing perfumes.

 The defendant Kay moves the Court for an order pursuant to Fed. R. Civ. P. 9 and 12(b)(6) dismissing the sixth, seventh and eighth causes of action, which claim damages for fraud, for failure to state a cause of action and for failure to comply with the pleading requirements of Rule 9. The defendant Cherukuri moves the Court for the same relief with regard to the seventh and eight causes of action.

 BACKGROUND

 The complaint alleges that PdP entered into a written distributorship agreement with KMI on November 29, 1993, which provided that KMI would be the exclusive U.S. distributor of Alain Delon perfumes. Goods were shipped to KMI for sale and distribution in December of 1993 and KMI acknowledged receipt of the goods. On February 8, 1994, PdP sent invoice # 2051 to KMI for $ 128,900.00 to KMI for the goods that were delivered to KMI. Upon notification by KMI that some of the goods were defective, PdP issued a credit note to KMI in the sum of $ 60,423.36. PdP alleges that it performed all of its duties under the distributorship agreement, but never received the balance $ 68,476.64 due for the balance owing on invoice # 2051 after the credit was deducted.

 The claims of fraud against Kay and Cherukuri arise from negotiations regarding the distributorship agreement and a subsequent amendment to the distributorship agreement. The complaint first alleges that Kay made certain misstatements about his marketing capability that induced PdP to enter into the distribution agreement. The complaint also alleges that after the agreement was signed, Kay notified the plaintiff in January of 1994 that he had "become partners" with Cherukuri and that Kay's company, KMI had changed its name to International Designer Fragrances, Inc. PdP alleges that Kay sought to amend the distributorship contract to reflect the name change. A written "contract amendment" document is annexed to the complaint and reads as follows: "The trading name of Kay Merchandising International Ltd. has changed in the contract and will forthwith be known as: International Designer Fragrances Inc." This document was signed by Barry Kay over the name International Designer Fragrances Inc. on March 12, 1994 and executed by the plaintiff on April 28, 1994. The complaint alleges that the name change was a misrepresentation and that KMI and IDF at all times remained separate and distinct entities. The complaint further alleges that Kay and Cherukuri sought to substitute IDF as a party to the distributorship so that Cherukuri could obtain a $ 70,000.00 loan that was contingent on it having the distributorship and using the goods that PdP shipped to KMI as security for the loan.

 The complaint alleges that in July, 1994, Cherukuri falsely stated to PdP that he had no involvement with the goods that had been shipped to KMI. The complaint further alleges that at the time Cherukuri was disclaiming involvement with the goods, he and Kay were actually selling the goods on the "Israeli grey market" for $ 50,000, when the fair market value of which goods was allegedly $ 79,000.00. PdP alleges that sale of the goods at below market value on the Israeli grey market injured PdP's reputation as a "legitimate vendor of high-quality designer perfumes" and diverted profits on legitimate PdP goods.

 DISCUSSION

 A. Standard guiding a motion to dismiss

 On a motion to dismiss for failure to state a claim, "the court should not dismiss the complaint pursuant to Rule 12(b)(6) unless it appears 'beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief'". Goldman v. Belden, 754 F.2d 1059, 1065 (2d Cir. 1985) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957)); see also IUE AFL-CIO Pension Fund v. Herrmann, 9 F.3d 1049, 1052-53 (2d Cir. 1993). The Second Circuit stated that in deciding a Rule 12(b)(6) motion a Court may consider "only the facts alleged in the pleadings, documents attached as exhibits or incorporated by reference in the pleadings and matters of which judicial notice may be taken". Samuels v. Air Transport Local 504, 992 F.2d 12, 15 (2d Cir. 1993); see also Rent Stabilization Ass'n of the City of New York v. Dinkins, 5 F.3d 591, 593-94 (2d Cir. 1993) (citing Samuels, 992 F.2d at 15).

 It is not the Court's function to weigh the evidence that might be presented at a trial, the Court must merely determine whether the complaint itself is legally sufficient, see Goldman, 754 F.2d at 1067, and in doing so, it is well settled that the court must accept the allegations of the complaint as true, see LaBounty v. Adler, 933 F.2d 121, 123 (2d Cir. 1991); Procter & Gamble Co. v. Big Apple Indus. Bldgs, Inc., 879 F.2d 10, 14 (2d Cir. 1989), cert. denied, 493 U.S. 1022, 107 L. Ed. 2d 743, 110 S. Ct. 723 (1990), and construe all reasonable inferences in favor of the plaintiff. See Scheuer v. Rhodes, 416 U.S. 232, 236, 40 L. Ed. 2d 90, 94 S. Ct. 1683 (1974); Bankers Trust Co. v. Rhoades, 859 F.2d 1096, 1099 (2d Cir. 1988), cert. denied, 490 U.S. 1007, 104 L. Ed. 2d 158, 109 S. Ct. 1642 (1989).

 The Court is mindful that under the modern rules of pleading, a plaintiff need only provide "a short and plain statement of the claim showing that the pleader is entitled to relief", Fed. R. Civ. P. 8(a)(2), and that "all pleadings shall be so construed as to do substantial justice". Fed. R. Civ. P. 8(f).

 B. Standard for pleading fraud

 Fed. R. Civ. P. 9(b) states that fraud allegations must be stated with particularity, except that malice intent knowledge or other state of mind may be averred generally. The purpose of this Rule is to provide the defendant with fair notice of the claim, to protect the defendant's reputation against improvident charges of wrongdoing and to protect a defendant against strike suits. See O'Brien v. National Property Analysts Partners, 936 F.2d 674 (2d Cir. 1990). Plaintiffs are permitted to demonstrate the scienter element by inference, but they must plead a factual basis which gives rise to a strong inference of fraudulent. Id. Speculation and conclusory allegations do not fulfill the pleading requirements of Rule 9. Id.

 Rule 9(g) requires that special damages must be specifically stated. Special damages are those that are not the necessary result of the complained of act and the plaintiff should allege facts upon which to predicate recovery of such damages. See Steinberg Press v. ...


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