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United States District Court, S.D. New York

September 1, 2004.

MICHAEL WERDIGER, INC., et al., Defendants. MICHAEL WERDIGER, INC., et al., Counterclaim Plaintiffs, v. VALJEAN MANUFACTURING, INC., et al., Counterclaim Defendants.

The opinion of the court was delivered by: HAROLD BAER, JR., District Judge[fn1] [fn1] Graham O'Donoghue, a summer 2004 intern in my Chambers and a second-year law student at Columbia Law School, provided substantial assistance in the research and drafting of this Opinion.


Defendant Michael Werdiger, Inc. ("MWI") moves pursuant to Federal Rule of Civil Procedure ("Fed.R. Civ. P.") 12(b)(6) to dismiss Counts II, III, and IV of plaintiff Valjean Manufacturing, Inc.'s ("Valjean") first amended complaint and requests return of all goods held by plaintiff pursuant to Count IV (Valjean's artisan's lien claim). Defendant contends that all of plaintiff's claims are either expressly prohibited by the language of the contract between the parties, or are duplicative of a breach of contract claim, and thus all fail to state viable causes of action. Specifically, MWI argues that Valjean's alleged artisan's lien (Count IV) would be inconsistent with the terms of the contractual agreement between the parties, that Valjean is not entitled to an artisan's lien under New York common law, and, that its claim for such a lien should be dismissed. Further, MWI contends that Valjean has not shown that a fiduciary relationship ever existed between the parties, and therefore Valjean's claim for breach of fiduciary duty (Count II) should be dismissed. Finally, MWI argues that Valjean's claim of fraudulent misrepresentation (Count III) is merely duplicative of its claim for breach of contract and should also be dismissed. MWI's motion is granted with respect to the dismissal of Counts II, III, and IV, but is denied with respect to its request for affirmative relief in the manner of an order directing Valjean to return all goods held under the purported artisan's lien.


  A. Factual Background

  This case arises out of dispute over the contractual manufacturing and security agreement ("MSA") between two entities who for years operated amicably to manufacture and sell jewelry. Valjean is a California corporation "engaged in the business of designing, manufacturing, and selling jewelry." (First Amend. Compl. ¶ 9.) MWI is a New York corporation "engaged in the business of, among other things, marketing and selling high-end finished jewelry products manufactured by Valjean or contractors developed by Valjean." (Id. ¶ 8.) On October 3, 1994, the parties entered into the MSA, where, among other things, Valjean agreed to manufacture jewelry using diamonds and precious metals provided by MWI, and MWI agreed to act as the exclusive marketer and seller of any finished products manufactured by Valjean. Throughout the late 1990's, the parties periodically met to settle disagreements arising out of the MSA. (Id. ¶¶ 14-20.) Valjean repeatedly made requests to MWI for the accountings due to it under the MSA, but, despite repeated assurances from MWI, the accountings were never produced. (Id. ¶ 22.) In early 2003, MWI first claimed that it did not owe money to Valjean, but rather that Valjean owed money to MWI. After discussions between the parties broke down, MWI gave written notice of termination of the MSA on June 30, 2003. (Id.) The current dispute between the parties centers around the proper distribution of proceeds. Each party believes that he has received a shortfall and relies on a proper accounting to uncover the accurate allocation.

  B. Procedural History

  Valjean, after attaining new counsel, moved on March 17, 2004, to amend its complaint. With the Court's endorsement, Valjean filed a four count amended complaint (hereinafter "complaint") on April 21, 2004, alleging that MWI breached the MSA, breached its fiduciary duty to Valjean, and made fraudulent representations to Valjean. The complaint also asserts that Valjean is entitled to an artisan's lien. Valjean seeks, inter alia, compensatory damages and equitable relief stemming from these allegations. On May 17, 2004, MWI moved to dismiss all of the claims but for Valjean's breach of contract claim and submitted its motion fully-briefed on June 18, 2004. II. DISCUSSION

  A. Standard of Review

  When ruling on a motion to dismiss pursuant to Fed.R. Civ. P. 12(b)(6), the Court must construe all factual allegations in the complaint in favor of the non-moving party. Allen v. Westpoint-Pepperell, Inc., 945 F.2d 40, 44 (2d Cir. 1991). The Court's consideration is limited to facts stated on the face of the complaint and in documents appended to the complaint or incorporated in the complaint by reference, as well as to matters of which judicial notice may be taken. Id. Dismissal of a claim is proper only where "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 (1957).

  B. Valjean's Artisan's Lien Claim

  MWI moves to dismiss Valjean's artisan's lien claim, on the basis that, inter alia, the payment structure established by the MSA does not allow for Valjean's purported artisan's lien as a matter of law. I find that MWI is correct and therefore dismiss Valjean's artisan's lien claim.*fn2 An artisan's lien is, by its nature, inconsistent with a contract that sets the time for payment after the time at which goods are to be delivered by the artisan, and no right to an artisan's lien exists under an agreement of this type. Wiles Laundry Co. v. Hahlo, 105 N.Y. 234, 242 (1887) ("If, by the terms of the contract, possession of the property is to be surrendered before payment, no right of lien exists."). Section 5.1 of the MSA provides that MWI will make monthly payments to Valjean based on sales proceeds received by MWI during the preceding month. (Werdiger Decl. Ex. 5 § 5.1.) Thus, the MSA establishes a system of payment whereby Valjean first delivers all finished jewelry to MWI and then, only after the sale is complete, does Valjean receive payment for its manufacture. Indeed, Valjean is not entitled to any payment at all for goods produced and delivered to MWI if MWI keeps the Valjean-manufactured goods in inventory for more than 360 days and proceeds to scrap the jewelry and sell the component parts. (Id. Ex. 5 § 5.2.) Given the payment structure established by and agreed to by the parties in the MSA, Valjean possesses no right to an artisan's lien. Therefore, Valjean's claim for an artisan's lien is dismissed. Valjean mistakenly analogizes the agreement in the present case to the contractual arrangements at issue in United States v. Toys of the World Club Inc., 288 F.2d 89, 95 (2d Cir. 1961) (citing the principle discussed above, but finding that because the party asserting the lien had a "right to refuse to deliver and cease work if these amounts were not paid," the principle was inapplicable) and In re Tele King Corp., 137 F. Supp. 633, 634 (S.D.N.Y. 1955) (also citing the principle discussed above but finding such a structure to be lacking because there was no agreement to deliver goods before payment). In those cases, the agreements between the parties were not inconsistent with the artisan's right to withhold goods and demand payment. The MSA, on the other hand, is inconsistent with any such right because it conditions MWI's payment to Valjean on the final sale of the manufactured goods, and sale of the goods necessarily requires that Valjean surrender them. Valjean has not suggested that any payment system existed apart from that established by the MSA, and thus has not pled facts sufficient, as a matter of law, to succeed on its artisan's lien claim.

  C. MWI's Request for Return of Goods Held by Valjean

  In addition to moving for dismissal of Valjean's artisan's lien claim, MWI also requests that this Court order Valjean to return all goods held under the purported lien. MWI's request for affirmative injunctive relief, which is what such an order would represent, must demonstrate that irreparable harm would result in the absence of relief granted by this Court. "[A] party must make a showing of (a) irreparable harm and (b) either (1) likelihood of success on the merits or (2) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly toward the party requesting the preliminary relief." Bell & Howell: Mamiya Co. v. Masel Supply Co., 719 F.2d 42, 45 (2d Cir. 1983) (internal citations omitted). MWI has failed to establish irreparable harm. Despite MWI's alarm over being "compelled" to disassemble the goods if returned after the MSA's 360 day cut-off date, the MSA in no way compels MWI to do so — it merely provides MWI with the option to scrap the goods. (Werdiger Decl. Ex. 5 § 5.2.) MWI also has the option to sell the goods, as assembled, once they are returned by Valjean. In fact, Valjean is the only party who would potentially be hurt by a delay in the return of the goods. If MWI chooses to scrap the jewelry, Valjean is entitled to no payment whatsoever. In any scenario, the value of the jewelry in Valjean's possession will not be lost if the jewelry is not returned to MWI before the MSA cut-off date. Therefore, since MWI gains further rights to disassemble the goods if the goods are not returned, to Valjean's detriment, the only party who stands to suffer considerable harm if the goods are not timely returned is Valjean. Accordingly, because MWI has failed to establish irreparable harm warranting preliminary relief, MWI's request for prompt return of the goods held under the purported lien is denied.

  D. Valjean's Claim for Breach of Fiduciary Duty

  MWI also moves to dismiss Valjean's claim for breach of fiduciary duty on the basis that (1) a fiduciary relationship does not develop when parties contract at arms length without a resulting special relationship, and (2) the MSA expressly disclaims the existence of a fiduciary relationship. A fiduciary duty arises between parties only when there exists a special relationship that constitutes something more than an arms length contractual arrangement. Under New York law, "a fiduciary relationship exists from the assumption of control and responsibility . . . and is founded upon trust reposed by one party in the integrity and fidelity of another." Beneficial Commercial Corp. v. Murray Glick Datsun, Inc., 601 F. Supp. 770, 772 (S.D.N.Y. 1985) (internal citations omitted). While the existence of a fiduciary duty depends on the facts of a particular relationship and thus is not usually dismissed in a 12(b)(6) motion, Boley v. Pineloch Assocs., 700 F. Supp. 673, 680-81 (S.D.N.Y. 1988), "New York courts have rejected the proposition that a fiduciary relationship can arise between parties to a business transaction." Compania Sud-American de Vapores v. IBJ Schroder Bank & Trust Co., 785 F. Supp. 411, 426 (S.D.N.Y. 1992) (citing Nat'l Westminster Bank, USA v. Ross, 130 B.R. 656, 679 (S.D.N.Y. 1991)). In a business arrangement where the parties deal with each other at arms length, such as this one, "no relation of confidence or trust sufficient to find the existence of a fiduciary relationship will arise absent extraordinary circumstances." Westminster, 130 B.R. at 679. Not only has Valjean failed to indicate any extraordinary circumstances that would give rise to a fiduciary relationship in the context of a business transaction negotiated at arms length, but Section 13.3 of the MSA expressly disclaims any fiduciary or quasi-fiduciary relationship between MWI and Valjean and instead declares that "both parties contemplate a contractual or debtor-creditor relationship between them." (Werdiger Decl. Ex. 5 § 13.3.)

  Valjean contends that the contractual disclaimer is not dispositive, and that this Court should look beyond the language of the contract to examine whether the parties' course of dealing warrants classification as a fiduciary relationship. (Opp'n to Def.'s Mot. to Dismiss at 12.) Valjean also argues that the parties modified the MSA when, in 1998, MWI "took control of all the recordkeeping, accounting, and collection of monies due Valjean under the MSA." (Id. at 11.) Valjean alleges that it was "forced to rely upon MWI to adequately maintain and keep financial records," and as a result, MWI "occupied a unique position of trust and confidence with respect to [Valjean]." (Id.)

  Even assuming Valjean's contentions to be correct, neither response is sufficient to preserve Valjean's claim for breach of fiduciary duty because the course of dealing between the parties was not extraneous to the MSA. Valjean relies exclusively upon Frydman & Co. v. Credit Suisse First Boston Corp., 708 N.Y.S.2d 77, 79 (1st Dep't 2000) as support for the proposition that the MSA disclaimer is not dispositive on the question of fiduciary duty. However, Frydman & Co., unlike this case, concerned conduct that was extraneous to the parties' initial contractual arrangement. The underlying issue in Frydman was whether a disclaimer of fiduciary duties contained in the parties' contract barred any fiduciary relationship from arising out of conduct that was not contemplated by the contract. The situation is quite different in the present case where the relationship between the parties never exceeded the framework of the MSA. In Frydman, the contract between the parties disclaimed any duties arising "by virtue of this agreement." Id. Similarly, the MSA states that "[n]either this agreement nor the course of conduct contemplated hereunder is intended to create a . . . fiduciary or quasi-fiduciary relationship between Valjean and MWI." (Werdiger Decl. Exh. 5 § 13.3.) But the chief difference between Frydman and the instant case is not in their respective disclaimers, but rather in the relation that the respective contracts bear to the actions that, if Valjean were correct, would give rise to a fiduciary duty in each case. Unlike the investment banking services at issue in Frydman, which bore no relation to the financing agreement between the parties, 708 N.Y.S.2d at 79, MWI's accounting and disbursement responsibilities, which we take as alleged, are part and parcel of the MSA. (See Werdiger Decl. Exh. 5 § 4.) Indeed, Valjean itself refers to the 1997 and 1998 adjustments in its relationship with MWI as "oral modifications" of the MSA. (First Amend. Compl. ¶ 12.) Because these new arrangements modified the MSA,*fn3 they must naturally form part of the "agreement" and the "course of conduct" that are covered by the disclaimer, and thus the MSA disclaimer of fiduciary relationships applies to the conduct growing out of the 1998 agreements. Because the arms length transaction embodied in the MSA and the parties' subsequent agreements did not give rise to a special relationship of trust and confidence between Valjean and MWI, and Valjean failed to plead any extraordinary circumstances giving rise to a fiduciary relationship, Valjean's claim for breach of fiduciary duty is dismissed.

  E. Valjean's Fraud Claim

  MWI moves to dismiss Valjean's fraud claim on the basis that the fraud claim is merely duplicative of Valjean's breach of contract claim, and is therefore inappropriate as a matter of law. "[U]nder New York law, `where a fraud claim arises out of the same facts as plaintiff's breach of contract claim, with the addition only of an allegation that defendant never intended to perform the precise promises spelled out in the contract between the parties, the fraud claim is redundant and plaintiff's sole remedy is for breach of contract.'" Telecomm. Int'l Am. v. AT&T Corp., 280 F.3d 175, 196 (2d Cir. 2001) (quoting Sudul v. Computer Outsourcing Servs., 868 F. Supp. 59, 62 (S.D.N.Y. 1994)); see also Best Western Int'l, Inc. v. CSI Int'l Corp., 94 Civ. 0360, 1994 WL 465906, at *4-5 (S.D.N.Y. Apr. 23, 1994) ("[S]imply dressing up a breach of contract claim by further alleging that the promisor had no intention, at the time of the contract's making, to perform its obligations thereunder, is insufficient to state an independent tort claim.").

  Indeed, a claim for fraud must concern representations "collateral or extraneous to the terms of the parties' agreement." McKernin v. Fanny Farmer Candy Shops, Inc., 574 N.Y.S.2d 58, 59 (2d Dep't 1991); accord Mastropieri v. Solmar Constr. Co., 553 N.Y.S.2d 187, 189 (2d Dep't 1990) (dismissing plaintiff's fraud claim as duplicative of the claim for breach of contract); Spellman v. Columbia Manicure Mfg. Co., 489 N.Y.S.2d 304, 307 (2d Dep't 1985) (same). Courts in this Circuit have followed this line of reasoning in dismissing fraud claims that are duplicative of breach of contract claims. See, e.g., Shred-It USA, Inc. v. Mobile Data Shred, Inc., 228 F. Supp. 2d 455, 463-64 (S.D.N.Y. 2002) (citing "collateral or extraneous" standard from McKernin as grounds for dismissing fraud claim).

  Valjean has not pled a sufficiently free-standing fraud claim under New York law. Instead, Valjean has merely recycled its breach of contract claim by casting MWI's assurances to Valjean that it would meet its contractual obligations as "collateral or extraneous" representations. Valjean alleges that MWI assured Valjean that it would perform a full accounting or "roll forward" to account for MWI's prior lapses in the accounting required by the MSA. (Opp'n to Def.'s Mot. to Dismiss at 14.) It cannot be seriously contended that a "collateral or extraneous" representation was made when MWI promised to perform in aggregate that which it had already promised to perform piecemeal under the MSA. The subsequent promise by MWI was merely a reaffirmation of its contractual duties and cannot form the basis of a fraud claim. Therefore, Valjean's fraud claim is not sufficiently independent of its breach of contract claim, and must be dismissed.*fn4


  For the foregoing reasons, MWI's motion is granted with respect to Counts II, III, and IV, and these claims are hereby dismissed. MWI's request for an order directing Valjean to return all goods held pursuant to Count IV is denied.


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