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March 9, 2004.

N.B. GARMENTS (PVT.) LTD., Plaintiff -against- KIDS INTERNATIONAL CORP., Defendant

The opinion of the court was delivered by: HAROLD BAER, JR., District Judge[fn1] [fn1] Etienne Dor, a Spring 2004 intern in my Chambers and a second-year law student at New York Law School, provided substantial assistance in the research and drafting of this Opinion.


Defendant Kids International Corp. ("Kids") moves pursuant to Federal Rules of Civil Procedure ("Fed.R. Civ. P.") 9(b) and 12(b)(6) to dismiss Count II of plaintiff's amended complaint ("Am. Compl."). Defendant contends that plaintiff N.B. Garments (PVT.) Ltd. ("NB Garments") failed to plead with sufficient particularity the elements necessary to states cause of action for common law fraud. Kids further asserts that NB Garments failed to make out a claim for common law fraud. For the foregoing reasons, Kids' motion is granted.


 A. Factual Background

  This case arises out of a dispute between NB Garments, an apparel manufacturer with its operations in Nepal, and Kids, an apparel importer and wholesaler, based in New York. NB Garments alleges that on or about January 30, 2002, it shipped orders of apparel worth approximately $338,000.00 from Calcutta, India to Kids' in Long Beach, California. At NB Garments' request, to facilitate such transaction, Kids opened a letter of credit to the Nepal Bangladesh Bank through the Bank of New York ("BNY") naming BNY as consignee*fn2 on the Page 2 bill of lading.*fn3 Am. Compl. ¶ 2.

  NB Garments alleges that in March 2002, it issued five invoices to Kids — encompassing the entire $338,000.00 order.*fn4 According to NB Garments, Kids never contested these invoices. Am. Compl. ¶ 18. NB Garments asserts that on or about March 30, 2002, Kids instructed its agent, Orient Consolidation Service (H.K.) Ltd. ("OCS"), a customs broker, to draft the bill of lading and freight receipt, to reflect the consignee's name as "Kids International, Corp." instead of BNY, for the express purpose of inducing BNY to deliver the goods to Kids. Am. Compl. ¶¶ 12-14. Furthermore, the amended complaint alleges that BNY relied on this alteration and delivered the goods to Kids' agent, OCS. Am. Compl. ¶¶ 15-18, 24. NB Garments claims that Kids has refused to pay for the goods despite repeated demands. Am. Compl. ¶¶ 18-19. Count II of the amended complaint alleges that by instructing its agent to falsify the bill of lading and freight cargo receipt, Kids "perpetrated a fraud." Am. Compl. ¶ 24.

 B. Procedural History

  NB Garments filed its complaint in this action on October 10, 2003 seeking, inter alia compensatory and punitive damages and reasonable attorneys' fees stemming from Kids' alleged fraud. On December 31, 2003, Kids' current motion to dismiss was fully-briefed.


  A. Sufficiency of Pleading

  A Fed.R.Civ.P. 12(b)(6) motion should not be granted "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." Ad-Hoc Comm. of Baruch Black & Hispanic Alumni Ass'n. v. Bernard M. Baruch College, 835 F.2d 980, 982 (2d Cir. 1987), citing Conley v. Gibson, 355 U.S. 41,45-46 (1957). Pursuant to Rule 9(b), "[in] all averments of fraud and mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally." Therefore, "a complaint must adequately specify the statements it claims were false or misleading, give particulars as to how the statements were fraudulent, state when and where the statements were made, and identify Page 3 those responsible for the statements." Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir. 1989); see also DiVittorio v. Equidyne Extractive Indus., Inc., 822 F.2d 1242, 1247 (2d Cir. 1987); Hudson v. Larouche, 579 F. Supp. 623, 628 (S.D.N.Y 1983).

  The requirement that the pleadings for fraud be stated with sufficient particularity is relaxed under certain circumstances, including situations when (a) "[t]he pleader is asserting that third persons have been defrauded, and (b) "when facts are peculiarly within the opposing party's knowledge." Segal v. Gordon, 467 F.2d 602, 607 (2d. Cir. 1972). See also Dominicus American Bohio v. Gulf & Western Indus., Inc., 473 F. Supp. 680, 693 (S.D.N.Y. 1979) (When plaintiff is claiming damages resulting from defendant's misrepresentation to a third-party and the circumstances surrounding such transaction are peculiarly within defendant's knowledge, the particularity requirement will be relaxed). When the standard is relaxed, the allegations may be pled based on information and belief, but "must be accompanied by a statement of the facts upon which the belief is founded." Id. "However, even the so-called relaxed standard does not eliminate the particularity requirement, although we recognize that the degree of particularity required should be determined in light of such circumstances as whether the plaintiff has had an opportunity to take discovery of those who may possess knowledge of the pertinent facts., A complaint . . . which fails to adduce any specific facts supporting an inference of knowledgeable participation in the alleged fraud, will not satisfy even a relaxed standard." Devaney v. Chester, 813 F.2d 566, 569 (2d Cir. 1987).

  In order to sustain a cause of action for common law fraud, the plaintiff must establish with sufficient particularity that the defendant "(1) made a material false statement; (2) knowing that the statement was false; (3) acting with intent to defraud; that plaintiff (4) reasonably relied on the false representation and (5) suffered damage proximately caused by the defendant's actions." Morris v. Castle Rock Entm't, Inc., 246 F. Supp.2d 290, 296 (S.D.N.Y, 2003). In this case, while the relaxed pleading standard is applicable because NB Garments is asserting that a third-party has been defrauded (Segal, 467 F.2d at 607), NB Garments' amended complaint fails even this less rigorous test.

  The amended complaint asserts only that (1) on or about March 30, 2002, at the instruction of Kids, OCS altered the bill of lading and freight cargo receipt to reflect Kids, Page 4 instead of BNY, as consignee (Am. Compl. ¶ 12), (2) the bill of lading conflicts with the letter of /credit, which properly names BNY as the true consignee (Am. Compl. ¶ 10), (3) Kids "caused the alternation to be done without the knowledge, authorization or consent of NB Garments" (Am. Compl. ¶ 13), (4) the alteration "was done for the purpose of inducing the Bank of New York to deliver the goods to Kids International" (Am. Compl. ¶ 14), (5) BNY delivered the goods to OCS, as Kids' agent (Am. Compl. ¶ 15), (6) Kids eventually received the goods and the invoices issued by NB Garments (Am. Compl. ¶ 17), and (7) Kids never "protest[ed] those invoices or raise[ed] any defense with respect to the quality of the goods" but has refused to pay for the goods "despite due demand" (Am. Compl. ¶¶ 18-19). Notably, with respect to the fraud claim, the complaint fails, among other things, to (1) identify the specific individual within Kids who instructed "OCS", an entity, to alter the bill of lading and cargo receipt, (2) identify the specific individual within OCS who received this instruction and actually performed the alteration, (3) provide the circumstances by which "Kids" convinced "OCS" to alter the document, or (4) explain where or how the alteration ...

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