United States District Court, Southern District of New York
September 27, 1999
IKEA NORTH AMERICAN SERVICES, INC. AND DEUTSCH, INC., PLAINTIFFS,
NORTHEAST GRAPHICS, INC., PRECISION TECHNOLOGY, INC. AND SPECTRUM DIRECT, INC., DEFENDANTS.
The opinion of the court was delivered by: Rakoff, District Judge.
This matter is again before the Court on the motion of
plaintiffs IKEA North American Services, Inc. and Deutsch, Inc.
for reconsideration of the portion of the Court's Memorandum
Order of July 1, 1999 that dismissed their claims for fraud,
negligence, and violations of the New Hampshire consumer
protection statute against co-defendants Precision Technology,
Inc. and Spectrum Direct, Inc. See IKEA North American Services,
Inc. v. Northeast Graphics, Inc., 56 F. Supp.2d 340 (S.D.N Y
1999). In its July 1st Order, the Court dismissed these claims on
the ground, inter alia, that the claims were not meaningfully
distinct from plaintiff's claims of breach of contract and
therefore were barred by New York's longstanding policy "that
tort law, including fraud law, cannot be used as a means to alter
the legal rules regarding . . . contracts." Richard H. Wagner,
"When Contract Claims and Fraud Claims Intersect," New York Law
Journal, Sept. 17, 1999, at p. 1 (summarizing cases). See
IKEA, 56 F. Supp.2d at 342 n. 2.
It is true that plaintiffs' Complaint alleged breach of
contract claims only against the prime contractor, Northeast
Graphics, Inc.; but the Complaint further alleged in effect that
plaintiffs were third-party beneficiaries of the subcontracts
between Northeast Graphics, on the one hand, and Precision
Technology and Spectrum Direct, on the other. Indeed, according
to the Complaint, it was the derelictions of the latter that
precipitated the failure of Northeast Graphics to timely fulfill
its contractual obligations to plaintiffs. See Complaint ¶¶
2-4, 22-23, 33-36. Moreover, plaintiffs, in their original motion
papers, expressly sought leave, which the Court granted, to amend
their Complaint to add third-party-beneficiary claims against
Precision Technology and Spectrum Direct. See IKEA, 56
F. Supp.2d at 343.*fn1
In now moving for reconsideration, however, plaintiffs contend
that simply because they sought the option of adding
third-party-beneficiary claims against Precision Technology and
Spectrum Direct does not mean that they were compelled to do so,
and that in the absence of a direct contractual relationship
between plaintiffs and these subcontractors, plaintiffs retain
the alternative right to sue them for fraud and related torts.
While colorable, the argument is ultimately unpersuasive. As
noted in the July 1st Order, the policy underlying the New York
law here at issue is New York's determination to foster
predictability in commercial affairs by limiting the remedies for
contractual non-performance to suits for contractual breach. See
IKEA, 56 F. Supp.2d at 342 n. 2. See also International Cabletel
Incorporated v. Le Groupe Videotron Ltee., 978 F. Supp. 483, 489
(S.D.N.Y. 1997) (applying New York law); Megaris Furs v. Gimbel
Brothers Inc., 172 A.D.2d 209, 210, 568 N.Y.S.2d 581 (1st Dep't
1991). Plaintiffs' approach would materially undercut that policy
by allowing a party that had not received contractual performance
to bring suit for fraud or other torts against all subcontractors
who might bear any responsibility for the non-performance, even
though such a claim against the prime contractor would be barred.
In an age when performance of most contracts is dependent on
performance by subcontractors, the result would be precisely the
infusion of tort claims into contract disputes that the New York
policy is designed to prevent.
Although neither side here is able to point to a New York case
directly on point, New York courts regularly reject attempts to
plead other legal theories to avoid the New York policy limiting
claims for what is in effect contractual non-performance to suits
sounding in contract. See, e.g., Trustco Bank New York v. S/N
Precision Enterprises, Inc., 234 A.D.2d 665, 669, 650 N.Y.S.2d 846
(3rd Dep't 1996) (fraud and negligent misrepresentation); HH
Holdings Inc. v. PaineWebber Inc., 180 A.D.2d 419, 419,
580 N.Y.S.2d 860 (N.Y.A.D. 1992) (breach of fiduciary duty,
negligence, and fraud); Megaris, 172 A.D.2d at 211,
568 N.Y.S.2d 581 (negligence); PKO Television Ltd. v. Time Life
Films Inc., 169 A.D.2d 582, 583, 564 N.Y.S.2d 434 (1st Dep't
1991) (conversion); Ivan Mogull Music Corp. v. Madison-59th St.
Corp., 162 A.D.2d 336, 337, 556 N.Y.S.2d 906 (1st Dep't 1990)
(prima facie tort).*fn2 Conversely, it is well established that
a contracting party that suffers contractual non-performance
ultimately traceable to the derelictions of subcontractors may
pursue such subcontractors for contractual remedies on a
third-party-beneficiary theory. See, e.g., Burns Jackson Miller
Summit & Spitzer v. Lindner, 59 N.Y.2d 314, 336, 464 N.Y.S.2d 712,
451 N.E.2d 459 (1983); Finch, Pruyn & Co., Inc. v. M.
Wilson Control Services, Inc., 239 A.D.2d 814, 816, 658 N.Y.S.2d 496
(3rd Dep't 1997).
Thus, it is readily inferable that, under New York law, a
plaintiff's remedies for non-performance of a contractual
obligation are limited to claims sounding in contract, even as
against sub-contractors. Accordingly, plaintiffs' motion for
reconsideration is hereby denied.