The opinion of the court was delivered by: KATZ
THEODORE H. KATZ, UNITED STATES MAGISTRATE JUDGE.
TO: THE HON. KIMBA M. WOOD, UNITED STATES DISTRICT JUDGE:
This action was referred to me pursuant to your Order of Reference, for general pretrial supervision and the resolution of dispositive motions requiring a Report and Recommendation. Plaintiffs are five individuals and the five corporate franchises in which they hold stock and which were formed pursuant to agreements entered into with defendant Union Carbide Marble Care, Inc. ("UCMC"). Defendants are UCMC, Union Carbide Chemicals and Plastics Company Inc. ("UCC&P"), parent and owner of ninety-two percent of the stock of UCMC, Union Carbide Corporation ("UCC"), parent and owner of UCC&P, and a number of individuals who are current or former directors, officers or employees of the three corporate defendants.
Plaintiffs assert numerous claims against defendants in connection with their franchise agreements with UCMC, alleging, inter alia, breach of contract and warranty, a number of tort claims alleging negligent and fraudulent behavior, and violations of a number of state statutes. Currently before the Court is defendants' motion to dismiss in part the Amended Complaint, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. The Court heard oral argument on the motion on February 5, 1997. For the reasons that follow, I recommend that the motion be granted in part and denied in part.
Between May, 1990 and August, 1991, each of the individual plaintiffs entered into franchise agreements with UCMC. (Plaintiff's Amended Complaint, dated August 14, 1996 ("Am. Compl."), at PP 36, 44, 51, 57, 68.) In essence, in exchange for certain payments, the agreements granted each of the franchisees the right to operate one "Marblelife" business in a specifically defined territory.
The Amended Complaint sets forth in detail the background of the Marblelife enterprise, but a short synopsis will suffice for present purposes. In the late 1980s, UCC implemented the "Intrepeneurship" program, designed to foster new business ventures within Union Carbide. (Am. Compl. at P 19.) As part of this program, UCC&P undertook an effort to exploit the market for marble care chemicals by providing a marble care service offering uniform chemicals, techniques and results. (Am. Compl. at PP 19-21.) The project was spearheaded by defendant Richard Broockman ("Broockman"), who later became President of UCMC, and a team from UCC&P, who set about developing a business plan for the implementation of a nationwide franchise system of marble care specialists. (Id. at PP 20-25.) In an effort to gain knowledge and experience in the marble care industry, UCC&P acquired an existing marble care company, which then became its subsidiary, UCMC. (Id. at PP 23, 28.) The new venture was coined "Marblelife." (Id. at P 29.)
As a result of advertisements and other solicitations placed by UCMC, each of the individual plaintiffs inquired about, and eventually acquired, a Marblelife franchise. (See Id. at PP 31, 38, 46, 54, 63.) The individual plaintiffs allege that prior to entering into the franchise agreements, defendants Broockman and David M. Jones ("Jones"), Vice President of UCMC, made material misrepresentations about the Marblelife system, the chemicals used in the system and the right under the franchise agreement to use by the franchisees of the Union Carbide name and trademark, (Id. at PP 34, 40, 48, 55, 66), all of which they allege induced them into entering into the agreements. Plaintiffs further allege that they were induced to continue making purchases of chemicals and equipment under their franchise agreements because they were repeatedly, and falsely, assured by Broockman and defendant Reed Freeman ("Freeman") that UCC&P was not seeking a buyer for UCMC. ( Id. at PP 70-73.)
On October 27, 1995, plaintiffs commenced this action by filing two lawsuits in the Texas state courts, each of which was against some of the defendants named in the Amended Complaint. Those actions were removed by the defendants to the United States District Court for the Southern District of Texas (Houston Division) based on diversity jurisdiction. That court denied the plaintiffs' motion to remand the cases to state court and the motion of the defendants to dismiss based on the forum selection clause in the franchise agreements. (See Consolidation and Transfer Order, dated April 1, 1996.) The court then transferred the two actions to the Southern District of New York "pursuant to the franchise agreements' forum selection clause." (Id.) In June, 1996, defendants moved to dismiss the Complaints, but later agreed to withdraw that motion to afford plaintiffs the opportunity to file an amended complaint in order to cure the deficiencies in the original Complaints. After the actions were consolidated for all pretrial purposes (See Order, dated October 1, 1996), plaintiffs filed their Amended Complaint. Read liberally, the Amended Complaint appears to allege as to all defendants the following causes of action: violations of the California Franchise Investment Law, the Massachusetts Regulation of Business Practices for Consumer Protection Law, the Connecticut Unfair Trade Practices Law and the Texas Deceptive Trade Practices Act (collectively, "the state statutory claims")
; fraudulent misrepresentation; fraudulent omissions; breach of warranty; civil conspiracy; and negligence. As to UCMC, UCC and UCC&P only, the Amended Complaint also alleges breach of contract and, as to UCC, UCC&P and individual defendants Ralph Lutjen and R.D. Kennedy only, the Amended Complaint additionally alleges tortious interference with contract and tortious interference with prospective business relations. Liability of UCC and UCC&P for the breaches of contract appears to hinge on the theory that UCMC was the alter ego of its corporate parent and grandparent. (Am. Compl. at P 110.) Plaintiffs seek an undisclosed sum in damages, attorneys fees, costs and interest. Defendants move to dismiss all of the claims as to all defendants with the exceptions, as to UCMC only, of the breach of contract claim and, as limited under the terms of the franchise agreements, the breach of warranty claims.
I. Motion to Dismiss Under Rule 12(b)(6)
In deciding a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, the Court must construe the allegations of the complaint in the plaintiff's favor. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S. Ct. 1683, 1686, 40 L. Ed. 2d 90 (1974). See also PaineWebber Inc. v. Bybyk, 81 F.3d 1193, 1197 (2d Cir. 1996); Hernandez v. Coughlin, 18 F.3d 133, 136 (2d Cir.), cert. denied, 513 U.S. 836, 115 S. Ct. 117, 130 L. Ed. 2d 63 (1994); Dahlberg v. Becker, 748 F.2d 85, 88 (2d Cir. 1984), cert. denied, 470 U.S. 1084, 105 S. Ct. 1845, 85 L. Ed. 2d 144 (1985). The Court must draw all reasonable inferences in plaintiffs' favor and may dismiss only if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 102, 2 L. Ed. 2d 80 (1957); Walker v. City of New York, 974 F.2d 293, 298 (2d Cir. 1992), cert. denied, 507 U.S. 961, 113 S. Ct. 1387, 122 L. Ed. 2d 762 (1993); Fields v. Soloff, 920 F.2d 1114, 1118-19 (2d Cir. 1990). All pleadings should be construed so as to do substantial justice. Fed. R. Civ. P. 8(f). The Court should not weigh evidence that might be presented at trial but, instead, it should merely determine whether the complaint itself is legally sufficient. Culver v. Merrill Lynch & Co., 1995 U.S. Dist. LEXIS 10017, No. 94 Civ. 8124 (LBS), 1995 WL 422203, at *2 (S.D.N.Y. July 17, 1995); see also Festa v. Local 3 Int'l Brotherhood of Elec. Workers, 905 F.2d 35, 37 (2d Cir. 1990).
Among the items that may be considered on a motion to dismiss are documents incorporated into the complaint by reference, documents attached to the complaint as exhibits, information that can be judicially noticed, or "'documents either in plaintiffs' possession or of which plaintiffs had knowledge and relied on in bringing suit.'" Culver, 1995 WL 422203 at *2 (quoting Brass v. American Film Techs., Inc., 987 F.2d 142, 150 (2d Cir. 1993)); Curti v. Girocredit Bank, 1994 U.S. Dist. LEXIS 1473, No. 93 Civ. 1782 (PKL), 1994 WL 48835, at *1 (S.D.N.Y. Feb. 14, 1994). Therefore, on this motion to dismiss, the Court may properly consider the parties' franchise agreements and the purchase agreements, both of which are integral to the allegations contained in the Amended Complaint and both of which are referenced in the Amended Complaint and in plaintiffs' brief submitted in opposition to this motion.
Additionally, the documents attached to the affidavit of plaintiffs' counsel, Daniel Gildin, which were submitted with defendants' motion papers, may also be considered, since they were in plaintiffs' possession when the Amended Complaint was filed. See, e.g., Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 48 (2d Cir. 1991) ("Where plaintiff has actual notice of all the information in the movant's papers and has relied upon these documents in framing the complaint, the necessity of translating a Rule 12(b)(6) motion into one under Rule 56 is largely dissipated."), cert. denied, 503 U.S. 960, 112 S. Ct. 1561, 118 L. Ed. 2d 208 (1992); accord International Audiotext Network, Inc. v. American Tel. and Tel. Co., 62 F.3d 69, 72 (2d Cir. 1995).
As a threshold matter, this Court, sitting in diversity, must determine what state's substantive law is to be applied to plaintiffs' claims. Plaintiffs argue that Texas law applies to all of the claims. Defendants argue that New York law applies to all of the claims. It is my conclusion that New York law applies to the breach of contract claims and that the tort claims, as categorized below, are governed by Texas, Ohio and California law.
Generally, in diversity cases, a federal court applies the substantive law of the state in which the court sits, including that state's choice of law rules. See, e.g., Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S. Ct. 1020, 1021, 85 L. Ed. 1477 (1941); Valley Juice Ltd. v. Evian Waters of France, Inc., 87 F.3d 604, 607 (2d Cir. 1996). However, when a case is transferred from one federal jurisdiction to another, by either a plaintiff or a defendant, the law applicable subsequent to transfer depends on whether the transfer was made pursuant to 28 U.S.C. § 1406(a), because venue was improper and could not have been maintained in the transferor court, or pursuant to 28 U.S.C. § 1404(a), for the convenience of the parties. Caribbean Wholesales & Serv. Corp. v. US JVC Corp., 855 F. Supp. 627, 629 (S.D.N.Y. 1994); Jordache Enters., Inc. v. Brobeck, Phleger & Harrison, 1994 U.S. Dist. LEXIS 2551, No. 92 Civ. 9002 (KMW), 1994 WL 74860, at *2 (S.D.N.Y. Mar. 7, 1994). If the transfer was made pursuant to § 1406(a), the transferee state's law, including its choice of law rules, is applicable. Emjayco v. Morgan Stanley & Co., 1996 U.S. Dist. LEXIS 11438, No. 95 Civ. 8546 (DLC), 1996 WL 452266, at *4 (S.D.N.Y. Aug. 8, 1996); Coraggio v. Time Inc. Magazine Co., 1995 U.S. Dist. LEXIS 5399, No. 94 Civ. 5429 (MBM), 1995 WL 242047, at *3 (S.D.N.Y. Apr. 26, 1995); Caribbean Wholesalers, 855 F. Supp. at 629; Jordache, 1994 WL 74860, at *2. If, however, the transfer was pursuant to § 1404(a), the transferor jurisdiction's substantive law, including its choice of law rules, are to be applied by the transferee court. Ferens v. John Deere Co., 494 U.S. 516, 519, 110 S. Ct. 1274, 1277, 108 L. Ed. 2d 443 (1990); Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 32, 108 S. Ct. 2239, 2245, 101 L. Ed. 2d 22 (1988); Valley Juice, 87 F.3d at 607; Caribbean Wholesalers, 855 F. Supp. at 629; Jordache, 1994 WL 74860, at *2.
Here, the transfer order of the Texas District Court does not cite either § 1404(a) or § 1406(a) in support of the transfer. However, the order unambiguously states that the transfer was made "pursuant to the franchise agreements' forum selection clause."
Transfers made pursuant to forum selection clauses have consistently been construed as falling under the rubric of § 1404(a). See, e.g., Stewart, 487 U.S. at 31-32, 108 S. Ct. at 2245 (transfer made pursuant to a forum selection clause is controlled by § 1404(a)); Huntingdon Eng'g & Envtl., Inc. v. Platinum Software Corp., 882 F. Supp. 54, 56 (W.D.N.Y. 1995) (where venue is otherwise proper, forum selection clause is not grounds for dismissal for improper venue under § 1406(a); rather, court will apply § 1404(a) to determine propriety of transfer); Caribbean Wholesalers, 855 F. Supp. at 630 (motion to transfer premised on forum selection clause is decided under § 1404(a) and not under § 1406(a)) (citing Stewart, 487 U.S. at 28, 108 S. Ct. at 2243); see also TUC Elecs., Inc. v. Eagle Telephonics, Inc., 698 F. Supp. 35, 38 (D. Conn. 1988) (where federal venue statute lays venue in a particular district, forum selection clause providing to the contrary does not make that district improper within the meaning of § 1406(a)); Heyco, Inc. v. Heyman, 636 F. Supp. 1545, 1547 (S.D.N.Y. 1986) (same). Therefore, since this action was transferred on the basis of a forum selection clause, not on the basis of improper venue, it is to be viewed as a transfer under § 1404(a), for the convenience of the parties,
and the choice of law rules of Texas, as the transferor state and the state in which the action was filed, determine the substantive law to be applied to the claims.
The Franchise Agreement contains a New York choice of law provision and plaintiffs allege claims sounding in both contract and in tort. Therefore, the first step in resolving what substantive law is to be applied is to determine both the validity and the scope of the choice of law provision under Texas choice of law principles. That is, in order to discern the proper law to apply, the Court must first determine whether Texas would honor the parties' choice of New York law as set forth in the Franchise Agreement, and if Texas would interpret that provision in the Agreement as governing the tort as well as the contract claims. I find that Texas would enforce the choice of law clause and that, therefore, New York law governs all of plaintiffs' contract claims. However, particularly in light of the narrow language contained in the choice of New York law clause, I find that Texas would construe that clause as governing only plaintiffs' contract claims and not the tort claims. Therefore, with respect to plaintiffs' tort claims, Texas choice of law analysis governing tort claims will be applied.
As a means of protecting the justified expectations of the parties, Texas choice of law principles generally give effect to choice of law clauses in contracts. Salazar v. Coastal Corp., 928 S.W.2d 162, 166 (Tex. App. 1996); Chase Manhattan Bank v. Greenbriar North Section II, 835 S.W.2d 720, 723 (Tex. App. 1992); State Nat'l Bank v. Academia, Inc., 802 S.W.2d 282, 289 (Tex. App. 1990); Caton v. Leach Corp., 896 F.2d 939, 942 (5th Cir. 1990) (construing Texas choice of law). Texas has adopted Section 187 of the Restatement (Second) of Conflict of Laws concerning contractual choice of law provisions. Under that approach, a court will apply the law of the state chosen by the parties if the particular issue being litigated "is one which the parties could have resolved by an explicit provision in their agreement directed to that issue." Salazar, 928 S.W.2d at 166 (quoting Restatement (Second) of Conflict of Laws § 187(1)). Moreover, even if the issue is one which the parties could not have determined by means of an explicit contract provision, courts in Texas will only refuse to honor the express wishes of the parties as to what law will control their contract disputes if the chosen law (1) bears no reasonable relationship to either the parties or the subject matter of the agreement, or (2) the chosen law would offend a fundamental public policy of a state whose laws otherwise would apply. Salazar, 928 S.W.2d at 166; Chase Manhattan, 835 S.W.2d at 723; Academia, 802 S.W.2d at 289; Caton, 896 F.2d at 942.
Plaintiffs do not argue that a fundamental public policy of another state would be violated by enforcement of the choice of law provision. Rather, they contend that Texas would not honor the choice of law clause in the Franchise Agreement because New York lacks a reasonable relationship to either the parties or the Franchise Agreements. I disagree. As defendants point out, UCMC, one of the parties to all of the Franchise Agreements, operates a training facility in Tarrytown, New York for franchisees, and additionally, it has a number of franchises in New York. (Def. Reply Mem. at 5.) Moreover, two of those franchisees were employed by UCMC as management consultants. (Id.) Finally, plaintiff Jerry Maltz ("Maltz") claims that he twice met with UCMC employees in New York and that the misrepresentations at issue in this action were made to him during one of those meetings (Am. Compl. at P 35), and plaintiff Nick Began ("Began") claims he met with UCMC employees in New York prior to signing his agreement. (Am. Compl. at P 57.) At that meeting, representatives of UCMC purported to arrange a demonstration of the Marblelife system. In fact, according to the Amended Complaint, Began was misled by UCMC at that meeting, since the system employed during the demonstration was not the Marblelife system.
Plaintiffs do not dispute these contacts between New York and the parties to the Franchise Agreements, some of which touch on the very subject matter of the Amended Complaint. Rather, they argue that Texas courts will only find a reasonable relationship where the state whose law was chosen by the parties is the principle place of business of at least one of the parties. (Pl. Br. at 6-8.) However, a fair reading of the cases cited by plaintiffs does not support this proposition. While Texas courts will find a reasonable relationship where one of the parties has its principle place of business in the chosen state, none of the cases suggest that this is a prerequisite for honoring a choice of law clause.
See Salazar, 928 S.W.2d at 166-67; Chase Manhattan Bank, 835 S.W.2d at 723-25; First Commerce Realty Investors v. K-F Land Co., 617 S.W.2d 806, 808-09 (Tex. App. 1981).
Under Texas law, however, the choice of law clause in the agreements governs only the contract claims and not plaintiffs' tort claims. Texas courts look to the language of a choice of law clause to determine its scope, and unless that language indicates that the parties intend its scope to be broader than claims sounding in contract, it will be deemed to govern only contract claims. See Busse v. Pacific Cattle Feeding Fund # 1, Ltd., 896 S.W.2d 807, 812-13 (Tex. App. 1995) (where language in choice of law clause states that "agreement and the rights and obligations of the parties arising hereto shall be construed in accordance with" the laws of a certain state, claims of misrepresentation and fraud in the inducement, which preceded execution of contract and did not deal with terms of contract, are not covered by clause); Thompson and Wallace of Memphis, Inc. v. Falconwood Corp., 100 F.3d 429, 432-33 (5th Cir. 1996) (where choice of law provisions apply to "agreement . . . and enforcement" of contract, tort causes of action are not governed by provisions) (citing Busse); Caton, 896 F.2d at 943 (narrow language such as "this Agreement shall be construed under the laws [of a certain state]" does not govern tort claims, while broad language such as "govern, construe and enforce the rights and duties of the parties arising from or relating in any way to the subject matter of this contract" would cover all claims, including tort claims, related to the contract).
The choice of law clause in the Franchise Agreement states, in pertinent part, that the "Agreement is to be construed in accordance with the law of the State of New York without recourse to New York choice of law or conflicts of law principles." (Franchise Agreement at P 29.01) (emphasis added). Applying the principles in the cases cited above, it is clear that this language does not encompass the tort claims in the Amended Complaint. Therefore, Texas choice of law principles must be applied to determine the substantive law governing those claims.
Where, as here, the parties have not agreed to the application of a particular state's law with respect to their tort causes of action, Texas will scrutinize the contacts between the parties and the occurrences that are material to the parties' dispute to determine which state has "the most significant relationship to the particular substantive issue," and will apply the law of that state to resolve that issue. Duncan v. Cessna Aircraft Co., 665 S.W.2d 414, 421 (Tex. 1984); accord Caton, 896 F.2d at 943; Thompson, 100 F.3d at 433; Gutierrez v. Collins, 583 S.W.2d 312, 319 (Tex. 1979). In implementing that test, Texas courts consider the four factors enumerated in section 145 of the Restatement (Second) of Conflict of Laws: (1) the place where the injury occurred; (2) the place where the conduct causing the injury occurred; (3) the domicile, residence, nationality, place of incorporation and place of business of the parties; and (4) the place where the relationship, if any, between the parties is centered. Duncan, 665 S.W.2d at 421; Gutierrez, 583 S.W.2d at 319; Parra v. Larchmont Farms, Inc., 932 S.W.2d 68, 73-74 (Tex. App. 1995), rev'd on other grounds, 941 S.W.2d 93, 1997 WL 71280 (Tex. 1997); Academia, 802 S.W.2d at 290. The outcome of the test does not turn merely on the number of contacts that any given state has to the case, but rather on the qualitative nature of those contacts, which itself is determined on a case-by-case basis by balancing each contact against the other contacts. See, e.g., Academia, 802 S.W.2d at 290-91 (citing Duncan, 665 S.W.2d at 421); Gutierrez, 583 S.W.2d at 319.
Applying these factors to the tort claims at issue, it is clear that the law of a single state cannot be applied to all the claims, as suggested by the parties. Moreover, factors one and three tip the scales decidedly in favor of applying Texas law to the claims of Maltz and his franchise Marblecare of Houston, applying Ohio law to the claims of Began and his franchise Stoneworks, Ltd., Inc., and applying California law to the claims of the remaining individual plaintiffs and their franchises, Doug Selik ("Selik") and Marblelife of San Diego, Lynch and Marblelife of South Orange Co. and Joseph Hackett ("Hackett") and Marblelife of Palm Springs.
With respect to the first factor, the injuries purportedly suffered by the plaintiffs were sustained at the location of their respective franchises, which in all cases is the same state as that in which they reside. Thus, Maltz, who is domiciled in Texas, also suffered his injuries in the state of Texas, where his franchise is located. Likewise, Began, who is a resident of Ohio, suffered his injuries in the state of Ohio, where his franchise is located. Selik, Lynch and Hackett, all of whom are residents of California, the same state as the situs of their franchises, suffered their injuries in California. Moreover, due to its contractual relationships with the plaintiffs and its duties under the Franchise Agreements, UCMC was apparently doing business in all of these states. Finally, other relevant contacts point to plaintiffs' home states as having the most significant relationship to the parties' tort disputes. For example, all of the individual plaintiffs claim that they met with UCMC officials at least once in their respective home states about the prospect of entering into the Franchise Agreements, and Maltz, Began and Selik specifically allege that the very misrepresentations at issue in this litigation were made to them, respectively, in Texas, Ohio and California. (Am. Compl. at PP 34, 56.) Although there are a number of other states having contact with the tort causes of action, no other state has a more significant relationship, in qualitative terms, to the parties or the occurrences than do Texas, Ohio and California. For example, the defendants reside in and are incorporated in a number of different states, including Delaware, New York, Colorado and Connecticut. Although the Amended Complaint does allege that some conduct related to the torts occurred in some of those states,
no plaintiff is alleged to have been injured in those states and the contact relevant to the causes of action occurring in those states was both sporadic and in certain states, was limited to only some of the plaintiffs. That conduct was not as significant as that which occurred in Texas, Ohio and California with respect to each of the plaintiffs whose franchises were located in those states.
Thus, Texas choice of law principles dictate that New York law will be applied to the contractual claims in accordance with the choice of law provision in the Franchise Agreements. Texas law will be applied to the tort claims of Maltz, Ohio law will be applied to the tort claims of Began, and California law will be applied to the tort claims of Selik, Lynch and Hackett, as these states have the most significant relationships to those parties and their tort claims.
III. Liability for Breach of Contract and Breach of Warranty
Plaintiffs allege that their Franchise Agreements were breached when UCMC failed to deliver the products and services it had agreed to deliver under the Agreements, and when the UCMC Marblelife system was eventually sold to a financially unsound buyer, who was unable to perform the terms of their contracts with UCMC. (Hearing Tr. at 4-5; see also Am. Compl. at PP 101-02.)
Plaintiffs also allege breach of both implied and express warranties, contending that defendants falsely represented that the chemicals used in the Marblelife system were safe and appropriate for use in cleaning marble surfaces. (Am. Compl. at PP 103-104.) Defendants seek to dismiss the breach of contract and breach of warranty claims as to UCC and UCC&P only, and additionally seek to limit any remedy that plaintiffs may recover against UCMC for breach of warranty to that provided for under the contract.
For the reasons that follow, I find that plaintiffs have sufficiently pleaded an alter ego theory of liability so as to hold UCC&P liable for UCMC's breaches of contract, but that the Amended Complaint fails to state a claim under this theory against UCC. I further find that any recovery against UCMC or UCC&P for breach of warranty for defects in the chemicals or other goods supplied pursuant to the Purchase and Franchise Agreements is limited to the exclusive remedy agreed to by the parties, as embodied in those documents.
A. Liability of UCC & UCC&P for UCMC's Breaches
As an initial matter, I note that the allegations in the Amended Complaint are painted in extremely broad-brush strokes. Throughout, the word "defendants" is used indiscriminately, with no attempt made to identify the particular defendant to which a specific allegation refers, or, in some cases, to link particular defendants with the acts alleged. With respect to the individual defendants, potential liability for any given cause of action may be evident, because they are alleged to have performed at least some specific acts. However, with respect to corporate defendants UCC and UCC&P, although the Amended Complaint broadly asserts "alter ego" as the basis of liability against them, it is not at all clear for which specific claims plaintiffs seek to assert such liability. For instance, although plaintiffs use the word "defendants" in the breach of warranty section of the Amended Complaint, indicating that they seek to hold all defendants liable for that claim, inexplicably, they appear to limit the breach of contract claim to UCMC and UCC&P, while at the same time alleging alter ego liability against UCC. Under the circumstances, I construe the Amended Complaint to assert alter ego liability against UCC and UCC&P for UCMC's breaches of contract, including breaches of the warranty provisions of the Franchise Agreements. Neither UCC nor UCC&P is a party to the Franchise Agreements and they therefore could not be held liable for breaches in the absence of alter ego liability.
Generally, parent and subsidiary corporations are treated as separate legal entities, and a contract by one does not legally bind the other. See Carte Blanche (Singapore), PTE, Ltd. v. Diners Club Int'l, 2 F.3d 24, 26 (2d Cir. 1993); Gmerek v. Scrivner, Inc., 221 A.D.2d 991, 992, 634 N.Y.S.2d 299, 299 (4th Dep't 1995) ("As a general rule, a parent corporation is not liable for the acts of a subsidiary.") (citations omitted)). Courts in New York are reluctant to disregard the distinction between corporate entities. Carte Blanche, 2 F.3d at 26 (citation omitted). In New York, the party seeking to hold a parent liable for a subsidiary's breach of contract bears the burden of establishing both that the parent corporation "exercised complete domination of [the subsidiary] corporation in respect to the transaction attacked; and . . . that such domination was used to commit a fraud or wrong against the plaintiff which resulted in the plaintiff's injury." Morris v. New York State Dep't of Taxation and Fin., 82 N.Y.2d 135, 141, 603 N.Y.S.2d 807, 810-11, 623 N.E.2d 1157 (1993); accord, e.g., Mass v. McClenahan, 893 F. Supp. 225, 233 (S.D.N.Y. 1995); Weinreich v. Sandhaus, 850 F. Supp. 1169, 1178 (S.D.N.Y. 1994); Letizia v. Executive Coach Auto Repair, Ltd., 213 A.D.2d 382, 382, 623 N.Y.S.2d 327, 328 (2d Dep't 1995); Hyland Meat Co. v. Tsagarakis, 202 A.D.2d 552, 552, 609 N.Y.S.2d 625, 626 (2d Dep't 1994); see also Warnaco Inc. v. VF Corp., 844 F. Supp. 940, 946 (S.D.N.Y. 1994) ("a parent company may be liable on a contract signed by its subsidiary if the subsidiary is shown to be a mere shell dominated and controlled by the parent for the parent's own purposes") (citing In re Sbarro Holding, Inc., 91 A.D.2d 613, 456 N.Y.S.2d 416 (2d Dep't 1982)). A party need not show that a parent's domination of its subsidiary was "complete as to every detail," but rather, it need only adequately ...