alleged that it delivered rayon/wool fabric to San Moire, that San Moire had a reasonable opportunity to inspect it and did not reject it, and that San Moire wrongly refused to pay for the fabric. Id. PP 121-23. Hyosung sought damages of $ 556,199.25, the amount of the unpaid fabric invoices. Id. PP 124-25. Hyosung and San Moire eventually settled this claim for $ 180,000. Id. PP 126-27. After $ 130,000 had been paid to Hyosung pursuant to the Stipulation of Settlement, San Moire advised Hyosung that it would liquidate its remaining assets; the "residual" claim of $ 50,000 was then settled for $ 25,000. Affidavit of J.R. Cho, Vice President of Hyosung, dated October 26, 1995, PP 5-6.
On November 9, 1994, Hyosung filed a complaint against Orkid in New York State Supreme Court. Def. 3(g) P 128. In its complaint, Hyosung alleged that Orkid authorized Sumagh to manufacture rayon/wool textile fabric with a fiber content of "less than 35% wool and greater than 65% rayon." Hyosung later sought a default judgment. Id. P 133. There is no indication in the record as to whether a default judgment was entered.
Hyosung commenced this action against Sumagh on January 31, 1994, seeking damages of "not less than" $ 600,000. Am. Cplt. P 68.
III. Standard for Summary Judgment
Summary judgment "is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed 'to secure the just, speedy and inexpensive determination of every action.'" Celotex Corp. v. Catrett, 477 U.S. 317, 327, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986) (quoting Fed. R. Civ. P. 1). The court's function on a summary judgment motion is "carefully limited to discerning whether there are any genuine issues of material fact to be tried, not to deciding them." Gallo v. Prudential Residential Services, Ltd. Partnership, 22 F.3d 1219, 1224 (2d Cir. 1994). Thus, "[a] court may not grant a motion for summary judgment unless it determines that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c); Celotex, 477 U.S. at 322-23 (1986). The party seeking summary judgment bears the initial burden of showing the absence of a genuine factual dispute. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 26 L. Ed. 2d 142, 90 S. Ct. 1598 (1970). In deciding a summary judgment motion, the court should resolve all ambiguities and draw all factual inferences in favor of the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986); Brady v. Town of Colchester, 863 F.2d 205, 210-11 (2d Cir. 1988). Finally, "if, as to the issue on which summary judgment is sought, there is any evidence in the record from any source from which a reasonable inference could be drawn in favor of the nonmoving party, summary judgment is improper." Chambers v. TRM Copy Centers Corp., 43 F.3d 29, 37 (2d Cir. 1994).
A. Arguments Advanced by Sumagh
Defendant argues that it is entitled to judgment as a matter of law on several grounds. First, Defendant notes the familiar principle that the knowledge of both agents and assignors are imputed, as a matter of law, to their principals and assignees, respectively. As Orkid was aware that the fiber content of the rayon/wool fabric ordered from Sumagh was not 65% rayon and 35% wool, Sumagh argues that it is therefore entitled to summary judgment because a principal/agent relationship existed between Hyosung and Orkid, and Orkid's knowledge of the actual fiber content of the fabric must be imputed to Hyosung. Second, Sumagh argues that it is entitled to summary judgment because as Orkid's assignor, Hyosung "stands in the shoes" of Orkid, and is charged with Orkid's knowledge.
Alternatively, Defendant argues that should this Court deny its request for summary judgment in toto, it is nevertheless entitled to judgment on several individual claims. First, Defendant argues that because Hyosung had access to (yet failed to make use of) critical information -- the details surrounding the purchase -- it is barred from asserting that it relied to its detriment on Sumagh's alleged misrepresentations when issuing the letter of credit. Second, Sumagh argues that Hyosung's ninth, alternative cause of action must be dismissed because it is "inconsistent" with the rest of its response to the summary judgment motion.
Finally, Defendant argues that in any event, Hyosung's claim under the Wool Products Labeling Act must be dismissed because the Act does not allow for a private right of action.
After reviewing the briefs, depositions and documentary evidence
submitted in support of and in opposition to the motion for summary judgment, I conclude that summary judgment dismissing the entire complaint is warranted. Those claims arising solely from Orkid's relationship with Sumagh, and later assigned to Hyosung, are dismissed due to the assignor/assignee relationship between Hyosung and Orkid.
Additionally, Hyosung's claim under the Wool Products Labeling Act is dismissed as the Act does not permit a private right of action.
Hyosung's Lanham Act claim is also dismissed for failing to allege any possibility of consumer confusion. Finally, the claim of fraud in causing Hyosung to obtain a letter of credit is also dismissed. Finally, I rule that Hyosung does not have a viable claim under the Lanham Act, 15 U.S.C. § 1125.
B. The Principal/Agent Relationship
An agency relationship is typically established by "written or spoken words or other conduct of the principal which, reasonably interpreted, causes the agent to believe that the principal desires him so to act on the principal's account." Itel Containers Int'l Corp. v. Atlanttrafik Express Service Ltd., 909 F.2d 698, 702 (2d Cir. 1990) (quoting Restatement (Second) of Agency § 26 (1958)). The elements of an agency relationship are: (1) "a manifestation by the principal that the agent shall act for him," (2) "acceptance of the undertaking" by the agent, and (3) "an understanding between the parties that the principal is to be in control of the undertaking." In re Rubin Bros. Footwear, Inc., 119 Bankr. 416, 422 (S.D.N.Y. 1990). Of these, the critical element is control of the agent by the principal. In re Shulman Transp. Enterprises, Inc., 744 F.2d 293, 295 (2d Cir. 1984).
The import of finding that an agency relationship exists between two parties is that the knowledge of an agent must be imputed to its principal. See Marine Midland Bank v. John E. Russo Produce Co., Inc., 50 N.Y.2d 31, 43, 427 N.Y.S.2d 961, 405 N.E.2d 205 (1980) (noting "general" rule of "imputation of knowledge from agent to principal"); City of New York v. Lead Industries Assoc., Inc., 190 A.D.2d 173, 178 (1st Dep't 1993) (principal is "chargeable with the knowledge and conduct of its agent"). That rule applies even if the agent has withheld information from its principal. Smalls v. Reliable Auto Service, Inc., 205 A.D.2d 523, 524, 612 N.Y.S.2d 674 (2d Dep't 1994) ("A principal is bound by notice to or knowledge of his or her agent in all matters within the scope of the agency, notwithstanding the fact that such information is never actually communicated to the principal.").
The evidence presented on this motion reveals the close relationship that existed between Hyosung and Orkid. From 1989 to late 1994, I.B. Lee, manager of Hyosung's Textile Department in New York, had frequent contact with Orkid, including daily telephone calls "like three or four times or more than five times, sometimes." Def. 3(g) PP 16-17. Additionally, Lee engaged in frequent written communications and bi-weekly face-to-face meetings with Orkid representatives. Id. PP 18-19.
When Orkid obtained a new purchase order from a customer, Hyosung gathered information concerning the customer's reputation, ability to pay, and potential for repeat orders. Id. P 22. Hyosung also wanted to know as much as it could about the supply arrangement for a new Purchase order, such as current and future costs of supplies, and "other details like the quality of the goods." Id. PP 23-25. In particular, Hyosung was interested in knowing whether the supplier was "likely to provide goods that would be satisfactory to the customer." Id. P 26.
Despite this proof, a factual issue exists as to whether Orkid was Hyosung's agent. Under the Agreement, Hyosung had no control over the way in which Orkid sought, solicited or obtained a purchase order from a customer. Indeed, Hyosung may be nothing more than the financer of Orkid's business, albeit one with the appearance of a heightened interest in the financial strength of Orkid's customers. See, e.g., Itel Containers Int'l Corp. v. Atlanttrafik Express Service Ltd., 909 F.2d 698, 702-3 (2d Cir. 1990) (holding that two corporations were not principal and agent where the corporations operated independently, were not parent and subsidiary and did not have any common shareholders, officers or directors, despite the fact that one provided financing for the other). Thus, I decline to grant summary judgment on this ground.
C. Orkid's Assignment of its Claims to Hyosung
Hyosung's amended complaint alleges that "prior to the commencement of this action, [Hyosung's] Assignor, Orkid Tex, Inc. assigned all of its rights, title and interests for and to the various contracts at issue herein with Sumagh . . . to Hyosung." Am. Cplt. P 1.
1. Characteristics of Assignor/Assignee Relationships
An assignment does not generally modify the terms of an underlying contract. "It is a separate agreement between the assignor and assignee which merely transfers the assignor's contract rights, leaving them in full force and effect as to the party charged." Citibank, N.A. v. Tele/Resources, Inc., 724 F.2d 266, 269 (2d Cir. 1983).
It is elementary ancient law that an assignee never stands in any better position than his assignor. He is subject to all the equities and burdens which attach to the property assigned because he receives no more and can do no more than his assignor.
Int'l Ribbon Mills, Ltd. v. Arjan Ribbons, Inc., 36 N.Y.2d 121, 125, 365 N.Y.S.2d 808, 325 N.E.2d 137 (1975); see also Septembertide Publishing, B.V. v. Stein & Day, Inc., 884 F.2d 675, 682 (2d Cir. 1989) ("It has always been the law in New York that an assignee stands in the shoes of its assignor and takes subject to those liabilities of its assignor that were in existence prior to the assignment."); Equity Properties Corp. v. Bonhomme, 124 Misc. 2d 784, 785, 480 N.Y.S.2d 73 (1st Dep't App. Term 1984) (recognizing "common-law rule" that "an assignee stands in the shoes of his assignor").
As in a principal/agent relationship, the knowledge of an assignor must be attributed to its assignee. See Friedman v. Nagin, 270 A.D. 503, 505, 60 N.Y.S.2d 620 (1st Dep't 1946) ("Plaintiff as assignee stands in the shoes of his assignors and their knowledge is his."); Timpone v. Concord Enterprises of Staten Island, Inc., 93 Misc. 2d 691, 694, 403 N.Y.S.2d 457 (Sup. Ct. Richmond Co. 1978) (applying Friedman rule and noting that "having become the assignee of the debentures, [plaintiff] is credited with the knowledge of the assignor"); United States v. Seacoast Repair Co., 147 F. Supp. 686, 691 (E.D.N.Y. 1957) ("Knowledge as to the source of funds from which payments were received on the part of the assignor-agent is material, even though the assignee had no knowledge").
2. Orkid's Knowledge Regarding Fabric Provided by Sumagh
It is undisputed that Orkid assigned its rights in supply contracts with Sumagh to Hyosung. The relevant issue, then, is whether Orkid knew that Sumagh's shipment did not conform with San Moire's requirements. If the proffered evidence reveals that Orkid had such knowledge (and Hyosung cannot rebut that evidence), then such knowledge must be imputed to Hyosung and would bar a number of its claims.
A series of memoranda exchanged between Orkid and Sumagh reveal that Orkid was aware that the fabric produced by Sumagh did not contain 65% rayon and 35% wool as required by San Moire. On February 8, 1993, Orkid faxed the details of San Moire's order to Sumagh, stating "we have order from customer 50,000 yds to start. But he absolutely needs 65 rayon 35 wool." Declaration of Harlan M. Lazarus, Attorney for Hyosung ("Lazarus Dec."), Ex. 3, Exhibits Marked at the Deposition of Robert Hsiao Jung Jo on June 20, 1995 at Pl. Ex. 5. Yet on February 11, Sumagh replied that for the best price, the fiber content of the fabric would be 75% rayon, 25% wool. Id. at Pl. Ex. 9.
On February 22, 1993, Orkid questioned: "But why do you insist for doing rayon/wool 75/25% and not 65/35%[?] Is there any particular reason? Because customer wants 65/35% we have 50,000 Yds to start." Id. at Pl. Ex. 12. The following day, February 23, Sumagh replied: "The content is rayon/wool 75/25." Id. at Pl. Ex. 13. Additionally, over the next few weeks, in a series of memoranda faxed to Orkid, Sumagh identified several varieties of fabric which it could produce for Orkid, all consisting of either 70% or 75% rayon and the remainder wool. See, e.g., id. at Pl. Exs. 20, 22, 26.
Indeed, it appears that Orkid specifically instructed Sumagh to mislabel its goods and purchase orders to reflect the fiber content ordered by San Moire, when the fabric produced by Sumagh actually had a wool content of 30% or less. On October 9, 1993, after San Moire and Mervyn's had rejected the fabric as nonconforming, Sumagh confirmed its previous arrangement with Orkid:
Re: R/W problem Pls see attached test report. The content is R/W 75/25. Maybe we have to change a little on construction? Also [because] wool fiber is so easy to be lost, as per our agreement, the content should be 70/30 and you asked us to do documents with R/W 65/35, so it showed [about] 5% wool fiber is lost. [Because] this [is] a new fabric for us, so our technique is still not proficient.
Id. at Pl. Ex. 128 (emphasis added).
I conclude that Orkid knew that Sumagh was delivering nonconforming fabric. Thus, all the claims arising from Orkid's relationship with Sumagh, and assigned by Orkid to Hyosung, are dismissed.
D. The Letter of Credit Fraud Claim
The letter of credit claim is predicated on a theory of fraud and fraudulent misrepresentation. At Sumagh's request, Hyosung opened a letter of credit (naming Sumagh as beneficiary) on February 12, 1993 in connection with the sale and purchase of the fabric. Am. Cplt. PP 50-51. As is typical in a letter of credit arrangement, four parties were involved in this transaction: the applicant, Hyosung; the issuing bank, The Commercial Bank of Korea, Ltd. ("Bank of Korea"); the destination bank, First Commercial Bank of Taiwan ("First Commercial"); and the beneficiary, Sumagh.
Under the letter of credit, the fiber content of the fabric was described as 65% rayon and 35% wool. Id. P 51. Although Sumagh knew that the letter of credit required 65/35 fabric, it nevertheless "fraudulently shipped and delivered textile fabric having a fibre (sic) content other than 65% rayon, 35% wool." Id. P 53. Additionally, Hyosung alleges that Sumagh created false documents fraudulently describing the fabric as 65% rayon and 35% wool "for the purpose of falsely and fraudulently drawing against" the letter of credit. Id. P 56. Moreover, Hyosung maintains that it "was ignorant of the falsity of [Sumagh's] documents, and did not ascertain the falsity thereof until after [Hyosung] accepted delivery of the textile fabric." Id. P 58.
Under New York law, the elements of common law fraud are (1) false representation(s) of (2) material fact with (3) intent to defraud thereby and (4) reasonable reliance on the representation (5) causing damage to plaintiff. Turtur v. Rothschild Registry Int'l, Inc., 26 F.3d 304, 310 (2d Cir. 1994). Sumagh argues that it is entitled to judgment as a matter of law on this claim because Hyosung could not have reasonably relied on any misrepresentations made by Sumagh. Sumagh contends that Hyosung should have known that the fabric shipped was nonconforming.
It is well settled that one who "has the means of knowing, by the exercise of ordinary intelligence, the truth, or the real quality of the subject" must make use of those means "or he will not be heard to complain that he was induced" by fraud. Keywell Corp. v. Weinstein, 33 F.3d 159, 164 (2d Cir. 1994) (quoting Mallis v. Bankers Trust Co., 615 F.2d 68, 80-81 (2d Cir. 1980), cert. denied, 449 U.S. 1123, 67 L. Ed. 2d 109, 101 S. Ct. 938 (1981)); see also Grumman Allied Indus., Inc. v. Rohr Indus., Inc., 748 F.2d 729, 737 (2d Cir. 1984) ("Where sophisticated businessmen engaged in major transactions enjoy access to critical information but fail to take advantage of that access, New York courts are particularly disinclined to entertain claims of justifiable reliance."); Aaron Ferer & Sons Ltd. v. Chase Manhattan Bank, 731 F.2d 112 (2d Cir. 1984). In Aaron Ferer, the court held that plaintiff's allegation that defendant misrepresented and concealed material facts with regard to a credit arrangement failed as a matter of law "because all of the information that plaintiffs now claim was concealed from them was either a matter of public record, was not pursued by plaintiffs, or was disclosed, at least in part," by defendant. 731 F.2d at 123. Specifically, the court stressed that although plaintiffs had all the resources of a recent bankruptcy litigation process available to them, they never attempted to use the available documentation to discover how defendant's credit arrangement operated. Id. at 124.
Similarly, Hyosung failed to make use of information available to it. Hyosung was entitled, under its Agreement with Orkid, to receive "all details of the purchase." Def. 3(g) P 6. Hyosung's approval was subject to its "satisfaction, in its discretion, with the terms of the transaction." Id. P 5. Moreover, according to its officer, I.B. Lee, Hyosung was critically interested in details concerning Orkid's supply arrangements. Id. PP 23-26. Hyosung was in frequent communication with Orkid. Id. PP 17-19, 28. Hyosung also had frequent disputes with Orkid. Id. PP 31-36. Whenever Hyosung wanted to "protect" itself, it insisted on assurances in writing. Id. P 27. Thus, if Hyosung had wanted to protect itself here, it could have insisted on reviewing pertinent correspondence between Orkid and Sumagh, or insisted that Orkid provide laboratory test results confirming that the fiber content of the fabric it received was correct.
Hyosung would have discovered that the fabric was nonconforming had it examined the relevant documentation or taken other steps available to it. Moreover, Hyosung received specific notice that
lately Orkid Tex, Inc. is facing a lot of claims and cancellations from our customers, because of U.S. customs, who is refusing the release of merchandise, which are wrongly marked on documents. Such as: full description of the goods, wrong visa, wrong conversion to sq/m, cartons and tags wrongly marked, and not matching documents etc. . .
Lazarus Dec. Ex. 3, Exhibits Marked at the Deposition of Robert Hsiao Jung Jo on June 20, 1995 at Pl. Ex. 32 (ellipsis in original). This notice was sent to Hyosung from Orkid on May 14, 1993, before the first shipment of fabric was made.
Between the date on which the letter of credit was opened (February 12, 1993) and the first delivery of fabric (June 1993), the letter of credit was amended at least six times, mostly to extend the date of delivery. See Am. Cplt. Ex. A. Two of these amendments were made after Hysoung received the above notice from Orkid. At any time during this period Hyosung could have reviewed the relevant documentation (or insisted on having the fabric tested) and refused to amend the letter of credit further. Yet Hyosung apparently did nothing to protect itself even after receiving the notification of claims and cancellations from Orkid. Hence, Hyosung cannot claim to have reasonably relied on false representations when it elected to amend the letter of credit.
Although First Commercial cannot be faulted for accepting the fraudulent documentation when accepting the goods for shipment and paying on the letter of credit, it would not have been placed in such a position had Hyosung taken the time to review the relevant documentation available to it. Had Hyosung simply exercised its rights under the Agreement and reviewed "all details of the purchase," it would have discovered the true fiber content of the fabric and would have cancelled the letter of credit prior to shipment (instead of continuously amending it). Hyosung's failure to make use of information available to it effectively caused First Commercial to accept the relevant documentation and make payment on the letter of credit. Accordingly, the bank's payment (albeit a payment made in ignorance of the fraud that was being perpetrated) is insufficient to support the reasonable reliance element of Hyosung's fraud claim.
Because Hyosung could not have reasonably relied on any misrepresentations Sumagh made, Sumagh is entitled to summary judgment on this claim.
E. The Lanham Act Claim
Hyosung alleges that Sumagh violated 15 U.S.C. § 1125(a), also known as § 43(a) of the Lanham Act. Specifically, Hyosung alleges that "in connection with the marketing of . . . fabric, [Sumagh] is employing false descriptions, and is making and has made false representations concerning the wool content of the textile fabric by using words . . . in the labeling . . . tending to falsely describe" the fabric. Am. Cplt. P 36. Hyosung asserts that it has standing to sue because it was "materially deceived" by Sumagh, "causing [Hyosung] to lose sales and payments." Id. P 38. In reference to this claim, Hyosung demands "a preliminary and permanent injunction enjoining [Sumagh from] causing the aforesaid textile fabric to be offered for sale or sold with the . . . false descriptions and representations." Id. P 39. Unlike the Wool Act, this section of the Lanham Act provides for a private cause of action. See Johnson & Johnson v. Carter-Wallace, Inc., 631 F.2d 186, 189 (2d Cir. 1980).
Under § 43(a) of the Lanham Act, as amended effective November 16, 1989,
Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which -