United States District Court, S.D. New York
March 10, 2004.
I.L.G.W.U. NATIONAL RETIREMENT FUND; EDGAR ROMNEY and ARNOLD HARRIS and their successors as trustees of the I.L.G.W.U. NATIONAL RETIREMENT FUND, Plaintiffs,
CUDDLECOAT, INC.; WARREN CORPORATION; WARREN LEASING CORPORATION and LORO PIANA & C., INC., Defendants; WARREN CORPORATION; WARREN LEASING CORPORATION and LORO PIANA & C., INC., Third-Party Plaintiffs, v. NEW YORK COAT, SUIT, DRESS, RAINWEAR & ALLIED WORKERS UNION, LOCAL 89-22-1, UNITE, AFL-CIO and LEWIS, GREENWALD, CLIFTON & NIKOLAIDIS, P.C., Third-Party Defendants
The opinion of the court was delivered by: BARBARA JONES, District Judge
Before the Court are Third-Party Defendants' motion to dismiss
Third-Party Plaintiff's Complaint pursuant to Federal Rules of Civil
Procedure 9(b) and 12(b)(6) and Plaintiffs' motion for reconsideration of
this Court's Order vacating the previously entered default judgment
against Defendant Cuddlecoat, Inc.
("Cuddlecoat"). For the reasons set forth below, Third-'Party
Defendants' motion to dismiss is GRANTED in part and DENIED-in part and
Plaintiffs' motion for reconsideration is DENIED.
Defendant Warren Corporation ("Warren") is a private company engaged
principally in the manufacture of fabrics and clothing. Defendant
Cuddlecoat, until 1996, was engaged in the business of finishing fabrics
and manufacturing clothing. Certain of Cuddlecoat's employees were
members of the International Ladies' Garment Workers' Union, and
Cuddlecoat was required to make payments to Plaintiff I.L.G.W.U. National
Retirement Fund ("the Fund") pursuant to the Employee Retirement and
Income Security Act ("ERISA").
Cuddlecoat was a customer of Warren and entered into a series of
security and other agreements with Warren. In 1995, Warren commenced suit
against Cuddlecoat, seeking to foreclose on its security. In January
1996, while the suit between Warren and Cuddlecoat was still pending, an
involuntary Chapter 11 bankruptcy petition was filed against Cuddlecoat.
The Fund and the New York Coat, Suit Dress, Rainwear & Allied Workers
Union, Local 89-221-1, UNITE, AFL-CIO ("the Union") each filed separate
claims in the bankruptcy proceeding.
After the bankruptcy petition was filed, Warren and Cuddlecoat settled
their individual litigation in an agreement
under which Warren became the sole shareholder of Cuddlecoat. The
timing and operation of that agreement remain in dispute between the
parties to this action. The committee of unsecured creditors brought an
adversary proceeding in the bankruptcy action seeking to hold Warren
responsible for various creditors' claims against Cuddlecoat. Warren
negotiated a settlement of the creditors committee's claims, and
exchanged mutual releases with the Union. Warren did not obtain a release
from the Fund, and the Union's release did not name the Fund as an entity
included in the release.
Warren alleges that it did not obtain a specific release from the Fund
because David Greenwald, an associate with Defendant Lewis, Greenwald,
Clifton & Nikolaidis, P.C. ("Lewis Greenwald"), stated that the
Union's release would bind the Fund. Lewis Greenwald represented the
Union in the settlement negotiations. Cuddlecoat was formally dissolved
on September 23, 1998 and the bankruptcy proceeding was dismissed eleven
In 2001, the Fund filed this action seeking to recover money owed to
the Fund pursuant to ERISA.*fn1 In response, Warren asserted a
counter-claim against the Fund and filed a third-party action against the
Union and Lewis Greenwald. Defendant
Cuddlecoat failed to answer Plaintiff's Complaint and failed to
appear or otherwise move with respect to the Complaint. Plaintiffs moved
for default judgment against Cuddlecoat on or about October 17, 2p01. The
Court granted the motion for default judgment on October 25, 2001.
On October 26, 2001, the Court received a letter from Defendant Warren,
asking that the Court either deny Plaintiff's motion for default judgment
against Cuddlecoat or, in the alternative, grant Warren an extension of
time to answer on Cuddlecoat's behalf. Upon learning that the Court had
granted Plaintiffs' motion for default judgment, Warren moved, pursuant
to Local Rule 6.3, for reconsideration of the default judgment entered
against Cuddlecoat. In a telephone conference on January 25, 2002, the
Court granted Warren's motion and vacated the default judgment.
Plaintiffs now move for reconsideration of that decision.
In or about March 2002, Warren moved pursuant to Fed.R.Civ.P. 15 and
21 to file and serve an amended answer, counterclaim, and third-party
complaint. Plaintiffs opposed this motion. In a Memorandum and Order,
dated June 3, 2002, Magistrate Judge Eaton granted the motion.
Third-Party Plaintiffs now move to dismiss Warren's Third-Party
I. MOTION TO DISMISS
Warren's Third-Party Complaint ("Warren Complaint") brings claims
against the Union and Lewis Greenwald for fraud, negligent
misrepresentation, and civil conspiracy. Essentially, Warren claims that
the Third-Party Defendants the Union and their counsel Lewis
Greenwald purposely misrepresented that the Settlement Agreement
and releases resolved all claims by the Fund. The Warren Complaint also
claims that the Union breached the 1997 Settlement Agreement with Warren
by failing to provide a release for all "affiliates"
i.e. the Fund as required by the Settlement Agreement.
A. Negligent Misrepresentation
"A claim for negligent misrepresentation can only stand where there is
a special relationship of trust or confidence, which creates a duty for
one party to impart correct information to another, the information given
was false, and there was reasonable reliance upon the information given."
Hudson River Club v. Consolidated Edison Co., 275 A.D.2d 218,
220 (1st Dep't 2000). Warren relies on the New York Court of Appeal's
decision in Kimmell v. Schaefer, 89 N.Y.2d 257 (1996), to argue
that discovery must be conducted to determine whether a non-fiduciary
relationship existed between Warren and the Third-Party Defendants that
nonetheless gave rise to a duty to speak
truthfully in the course of the settlement negotiations'.*fn2
However, Dallas Aerospace, Inc. v. CIS Air Corp., 352 F.3d 775
(2d Cir. 2003), explains that Kimmell did not eliminate the
requirement of a "special relationship" for a negligent misrepresentation
[Plaintiff] urges that Kimmell
enunciated a new standard, exacting liability
whenever the relationship between the parties is
"such that in morals and good conscience the one
has the right to rely upon the other for
information." This is a misreading of the case.
The court did not depart from the traditional
understanding that "liability for negligent
misrepresentation has been imposed only on those
persons who possess unique or specialized
expertise, or who are in a special position of
confidence and trust with the injured party."
Indeed, the assertedly "new" standard stated in
Kimmell was a quotation from a New York
Court of Appeals decision that preceded it by
seven decades. See Int'l Prods. Co. v. Erie
R.R. Co., 244 N.Y. 331, 155 N.E. 662, 664
(1927). Thus, Kimmell can hardly be
understood to be novel or to have shifted New York
law. In sum, Kimmell, which has since
been limited by the New York Court of Appeals,
see, e.g., Murphy v. Kuhn, 90 N.Y.2d 266,
660 N.Y.S.2d 371, 682 N.E.2d 972, 974-76
(1997), does nothing to
undermine the basic requirement of a "special'
relationship" for a negligent misrepresentation
Dallas Aerospace, Inc. v. CIS Air Corp., 352 F.3d 775,
788-789 (2d Cir. 2003) (some internal citations omitted).
The "special relationship" required for a negligent misrepresentation
tort has been described as "either actual privity of contract between the
parties or a relationship so close as to approach that of privity."
Prudential Ins. Co. v. Dewey Ballantine, Bushby, Palmer &
Wood, 80 N.Y.2d 377, 382 (1992). Warren has not alleged the
existence of such a relationship, therefore the claim of negligent
misrepresentation is DISMISSED.
B. Fraud Claim
In order to state a claim for fraud, a plaintiff must allege: (1) a
material misrepresentation of fact, (2) made with knowledge of its
falsity, (3) with intent to deceive, (4) justifiable reliance, and (5)
damages. Mergler v. Crystal Properties Assoc., Ltd., 179 A.D.2d 177,
181 (1st Dep't 1992). Here, Warren cannot show, as a matter of law,
that it justifiably relied on any statements by opposing counsel, Lewis
Greenwald, regarding the binding effect of the Settlement Agreement and
the releases on the Fund. Therefore the motion to dismiss is GRANTED.
"[I]t is a well-settled principle that neither a party nor
his attorney may justifiably rely on the legal opinion or
conclusions of his or her adversary's counsel." Aglira v. Julien
& Schlesinger, P.C., 214 A.D.2d 178, 185 (1st Dep't 1995);
see also Karsanow v. Kuehlewein, 232 A.D.2d 458, 458-459 (2d
Dep't 1996) ("plaintiffs' allegation that they consented to the
inclusion of a non-recourse clause in the extension agreements because
[defendant's attorney] assured them that such a provision was `customary'
is insufficient to establish a claim for fraud. The plaintiffs could not
reasonably rely on the legal opinions or conclusions of their adversary's
In response, Warren argues that Kimmell v. Schaefer
recognized that "a duty to speak truthfully may arise in a commercial
context and in relationships that are not `traditional' fiduciary
relationships." (Warren Mem. at 6-7). Warren argues that, in light of
Kimmel, discovery will be required to determine whether a duty
to speak truthfully existed between Warren and the Third-Party
Defendants. Warren appears to argue that, if such a duty existed, Warren
was justified in relying upon Lewis Greenwald's statements. (Warren Mem.
at 7). However, as explained above, the Second Circuit has examined and
rejected Warren's interpretation of Kimmel. See Dallas Aerospace,
Inc. v. CIS Air Corp., 352 F.3d 775, 788-789 (2d Cir. 2003).
Therefore, Kimmel does not alter the established New York law
that neither a party nor his attorney may justifiably rely on
the legal opinion or conclusions of his or her adversary's counsel.
The motion to dismiss Warren's fraud claim is GRANTED.
C. Civil Conspiracy
It is well settled under New York law that there is no substantive tort
of conspiracy. See Goldstein v. Siegel, 19 A.D.2d 489, 493 (1st
Dep't 1963). "In order to state a claim for conspiracy, therefore, there
must be allegations of an independent actionable tort." Antonios A.
Alevizopoulos & Assocs. v. Comcast Int'l Holdings, Inc.,
100 F. Supp.2d 178, 187-188 (S.D.N.Y. 2000). Here, the Court has dismissed all
of Warren's claims that sound in tort, therefore, the claim of civil
conspiracy must also be DISMISSED. See Demalco, Ltd, v.
Feltner, 588 F. Supp. 1277, 1278 (S.D.N.Y. 1984) ("the gravamen of a
claim of conspiracy is the underlying independent tort, and if the
independent tort has not been adequately pleaded, the conspiracy claim
will also fail").
D. Breach of Contract
Warren alleges that the Union breached the Settlement Agreement by
failing to deliver a release that complied with paragraph 6 of the
agreement. Paragraph 6 states that:
Simultaneously with the execution of this
Agreement, each of the Secured Creditor and the
Union will execute and deliver mutual
releases (the form and substance of each of
which has been mutually agreed to by the parties)
of any and all claims or causes of
action that any party to this Settlement ever had,
now has or hereafter can, shall or may
have, against any other such party
(including claims by or against each such parties'
affiliates, subsidiaries, officer, directors,
employees, agents representatives, controlling
entities, legal and other retained professionals)
for, upon, or by reason of any matter, cause or
thing whatsoever from the beginning of the World
to the date of this Agreement.
(Warren Compl. Ex. B) (emphases added).
As Judge Eaton explained in his June 3, 2002 Memorandum and Order, this
claim turns upon the meaning of the word "affiliates," as used in
paragraph 6, and upon the process by which the word "affiliates" was
omitted from the releases. As there appear to be factual issues regarding
this claim, the motion to dismiss is DENIED.
II. Motion for Reconsideration
Plaintiffs move for reconsideration of this Court's Order, dated
January 25, 2002 ("January 25 Order"), vacating the default judgment
previously entered against Defendant Cuddlecoat. Plaintiffs contend that
the Court overlooked controlling legal authority, which allows the entry
of default judgment against a dissolved corporation, when issuing the
January 25 Order. However, the Court did not base its decision to vacate
the default judgment on the mere fact that Cuddlecoat was a dissolved
corporation. While the Court did consider the dissolved status of
Cuddlecoat, the Court explicitly stated that its decision was "based on
considerations in all of the letters that I have seen."
(1/25/02 Tr. at 4).
Rule 55(c) of the Federal Rules of Civil Procedure provides that "for
good cause shown the court may set aside an entry of default and, if a
judgment by default has been entered, may likewise set it aside in
accordance with Rule 60(b)." Relief from default is to be granted at the
discretion of the court upon consideration of the individual
circumstances of the case and the credibility and good faith of the
parties. See Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 95 (2d
Cir. 1993). In deciding a motion to vacate a default judgment, the Court
focuses on three considerations with regard to the meaning of "good
cause": (1) the willfulness of the default; (2) the potential prejudice
to the adversary; and (3) the presentation of a meritorious defense.
See In re Chalasani, 92 F.3d 1300, 1307 (2d Cir. 1996). Other
factors that may be considered include whether the failure to follow a
rule of procedure was a mistake made in good faith and whether the entry
of default would bring about an unfair result. See Enron Oil,
10 F.3d at 96.
Here, the Court does not believe that Cuddlecoat's default was willful,
but rather it was directly attributable to its dissolved status. The
vacatur of the default judgment does not prejudice Plaintiffs,*fn3 and
permitting Warren to answer or retain
counsel on Cuddlecoat's behalf would allow for the presentation of
Cuddlecoat's possible defenses and thus a decision on the merits. To the
extent that Plaintiffs may wish to argue that Warren Cuddlecoat's
dissolving shareholder may not answer or retain counsel on
Cuddlecoat's behalf, the Court directs Plaintiffs to submit supplemental
briefing, limited to this issue, no later than 30 days from the date of
this Opinion. Warren's response, if any, shall be filed no later than two
weeks after any brief submitted by Plaintiffs. Lastly, the Court has
reviewed the submissions by the parties and is convinced that one or more
of Warren's defenses may be meritorious.
The Court finds that there was "good cause" to vacate the previously
entered default judgment. Moreover, the Second Circuit strongly prefers
dispute determination on the merits and directs district courts to
resolve any doubts regarding vacatur of a default in favor of a trial on
the merits. See Shah v. New York State Dept. of Civil Service,
168 F.3d 610, 615 (2d Cir. 1999). Therefore, Plaintiffs' motion for
reconsideration is DENIED.
Third Party Defendants' motion to dismiss is GRANTED with respect to
Warren's fraud, negligent misrepresentation and civil conspiracy claims
and DENIED with respect to Warren's breach of contract claim. Plaintiffs'
motion for reconsideration of the Order vacating default judgment against
Cuddlecoat is DENIED. Plaintiffs' brief on the issue of whether Warren
may answer or retain counsel on Cuddlecoat's behalf must be submitted
within 30 days from the date of this Opinion. Warren's response, if any,
is due two weeks thereafter.
The parties are further directed to inform the Court in writing of the
status of this action no later than 30 days from the date of this