United States District Court, S.D. New York
September 29, 2004.
FASHIONWEAR (PVT) LTD., Plaintiff,
REGATTA (U.S.A.) LLC, Defendant.
The opinion of the court was delivered by: JOHN KEENAN, Senior District Judge
OPINION and ORDER
Before the Court is the Motion of defendant Regatta (U.S.A.)
LLC ("Regatta") to dismiss the Complaint for lack of jurisdiction
over the subject matter pursuant to Federal Rule of Civil
Procedure 12(b)(1), and to dismiss Counts II and III of the
Complaint plus the demand for attorney's fees contained therein
for failure to state a claim upon which relief can be granted
pursuant to Federal Rule of Civil Procedure 12(b)(6). For the
reasons given below, the Motion is granted in part and denied in
Plaintiff Fashionwear (PVT) Ltd. ("Fashionwear") is a Pakistani
business with its principal place of business in Pakistan.
Complaint ("Cplt.") ¶ 2. Regatta is a New York corporation.
Affidavit of Noella Gomes dated December 29, 2003 ("Gomes Aff.")
¶ 2. Fashionwear, a garment manufacturer, and Regatta, an
importer and wholesaler of women's clothing, agreed that
Fashionwear would manufacture and sell garments to Regatta for an
agreed-upon price. Cplt. ¶¶ 6-8; Gomes Aff. ¶ 3. Fashionwear
alleges, however, that Regatta failed to pay $77, 483.50 for
garments that Fashionwear manufactured for Regatta and thus
brings claims for breach of contract, quantum meruit, and
unjust enrichment and asks the Court for judgment in the amount
of $77,483.50 plus interest, costs, and attorney's fees. Regatta concedes that the contract price for goods delivered
for which Regatta has not paid is $36,127.50 (although Regatta
notes that it will claim to owe nothing because the garments
failed to meet the agreed-upon quality standards). Def. Mem. at
3. However, Regatta claims, and Fashionwear concedes, that the
remaining amount of $41,356 is attributable to garments that were
manufactured but never shipped to Regatta. Def. Mem. at 3-4;
Affidavit of Saqib Butt dated February 12, 2004 ("Butt Aff.") ¶¶
In its Motion to dismiss, Regatta argues that this Court lacks
subject matter jurisdiction because the amount in controversy
does not exceed the statutorily required amount of $75,000. This
is so, says Regatta, because § 2-709 of the Uniform Commercial
Code of New York ("U.C.C.") prohibits recovery for the contract
price of undelivered goods unless a seller first affirmatively
alleges and proves that the goods could not be readily resold.
Defendant's Memorandum of Law ("Def. Mem") at 3-4. Regatta argues
that the resale value of the unshipped garments is at least
$2,500 and that this reduction in available damages would bring
the actual amount in controversy below the statutory minimum.
Gomes Aff. ¶ 6; Def. Mem. at 4-5. Alternatively, Regatta contends
that, under U.C.C. § 2-708, damages are calculated based on the
difference between the contract price and the market price. This
too, Regatta argues, would result in a damages award below $75,000. Def. Mem. at 4-5.
Moreover, Regatta argues that the undelivered goods may not have
been produced at all, or, if the goods were produced, they would
have been shipped late and in breach of contract, or else were
produced in spite of Fashionwear's having had notice of Regatta's
claimed rejection of the goods. Defendant's Reply Memorandum of
Law ("Reply Mem.") at 2-3.
Fashionwear argues that the garments were never shipped because
Regatta refused to inspect the goods. Butt Aff. ¶ 11 Furthermore,
Fashionwear asserts that the goods have no resale value either in
Pakistan, because the garments are Western in style and not
suitable for the local market, or as exports, because the
garments were created exclusively for Regatta and contain Regatta
labels that render them useless to any other buyer. Butt Aff. ¶
12; Plaintiff's Memorandum of Law ("Pl. Mem.") at § I.
Regatta also contends that Fashionwear cannot assert claims for
quantum meruit and unjust enrichment because a valid and
enforceable written agreement exists precluding recovery in
quantum meruit and unjust enrichment. Fashionwear counters this
argument by stating that "it is merely asserting alternative
causes of action as the Federal Rules [of Civil Procedure] allow
and only intends to rely on one cause of action in the event that
a judgment is in fact rendered." Pl. Mem. at § II. Finally, Regatta argues that Fashionwear's demand for
attorney's fees should be dismissed because such fees may not be
collected unless an award is authorized by agreement, statute, or
court rule. Fashionwear does not address this prong of Regatta's
I. Legal Standards
Federal Rule of Civil Procedure 12(b)(1) provides for the
dismissal of a complaint when the federal court lacks
jurisdiction over the subject matter. Because a lack of subject
matter jurisdiction renders other defenses moot, a court usually
gives first consideration to a motion to dismiss under Rule
12(b)(1). Friedman v. United States, No. 01 Civ. 7518 (LTS)
(RLE), 2003 WL 1460525 at *5 (S.D.N.Y. Mar. 18, 2003); Prestop
v. Hamlett, No. 99 Civ. 2747 (GBD), 2001 WL 363676 at *6
(S.D.N.Y. Apr. 12, 2001). Where the defendant challenges the
legal, and not the factual, sufficiency of the plaintiff's
jurisdictional allegations, the district court takes all facts
alleged in the complaint as true, and draws all reasonable
inferences in favor of the plaintiff. Robinson v. Gov't of
Malaysia, 269 F.3d 133, 140 (2d Cir. 2001) (citations omitted).
On review of a motion to dismiss for failure to state a claim
upon which relief can be granted, pursuant to Federal Rule of
Civil Procedure 12(b)(6), a court must accept the plaintiff's
allegations of fact as true, and must draw all reasonable inferences in the plaintiff's favor. Smith v. Potter,
208 F. Supp. 2d 415, 417 (S.D.N.Y. 2002).
II. Subject Matter Jurisdiction
Under 28 U.S.C. § 1332(a), a federal court has jurisdiction
over the subject matter of a civil action "where the matter in
controversy exceeds the sum or value of $75,000, exclusive of
interest and costs, and is between . . . citizens of a State and
citizens or subjects of a foreign state." A party invoking the
jurisdiction of the federal courts has the burden of proving
jurisdiction, Brauner v. Provident Life and Cas. Ins. Co., No.
97 Civ. 3556 (JG), 1998 WL 812612 (E.D.N.Y. Mar. 24, 1998) at *1,
including a "reasonable probability" that the claim is in excess
of the $75,000 statutory minimum. See Tongkook America, Inc.
v. Shipton Sportswear Co., 14 F.3d 781, 784 (2d Cir. 1994).
"[T]he sum claimed by the plaintiff controls if the claim is
apparently made in good faith." Chase Manhattan Bank, N.A. v.
American Nat'l Bank and Trust Co., 93 F.3d 1064, 1070 (2d Cir.
1996) (quoting St. Paul Mercury Indem. Co. v. Red Cab Co.,
303 U.S. 283, 288-89 (1938)).
Moreover, "[i]t must appear to a legal certainty that the claim
is really for less than the jurisdictional amount to justify
dismissal." St. Paul, 303 U.S. at 289; Ocean Ships, Inc. v.
Stiles, 315 F.3d 111, 115 (2d Cir. 2002); see Romano v.
MTI/The Image Group, Inc., No. 01 Civ. 6201 (GBD), 2003 WL 22203735 (S.D.N.Y. Sept. 22, 2003) at *2. Thus, the "legal
impossibility of recovery must be so certain as virtually to
negative the plaintiff's good faith in asserting the claim. If
the right of recovery is uncertain, the doubt should be resolved
. . . in favor of the subjective good faith of the plaintiff."
Tongkook, 14 F.3d at 785-86 (quotation and citation omitted).
Neither "grave doubt about the likelihood of a recovery of the
requisite amount," Zacharia v. Harbor Island Spa, Inc.,
684 F.2d 199, 202 (2d Cir. 1982), nor a valid defense to the claim
may deprive the Court of jurisdiction. See Tongkook,
14 F.3d at 784.
Under the good faith standards enumerated above, this Court
must take Fashionwear's representations, including the total lack
of resale value of the goods, at face value, resolving doubt in
favor of Fashionwear. While Regatta's contentions that the goods
have some market value, and that such value must exceed $2,500,
are persuasive, and even raise grave doubt as to the likelihood
of Fashionwear's recovery, the contentions do not amount to the
"legal certainty" required for dismissal. Instead, Regatta has
raised a series of defenses that, although quite possibly
meritorious, do not unequivocally prohibit Fashionwear's recovery
of an amount in excess of $75,000. For these reasons, dismissal
of Fashionwear's breach of contract claim for failure to satisfy
the required amount in controversy is not warranted. III. Quantum Meruit and Unjust Enrichment*fn1
Under the doctrine of quantum meruit, when one party agrees
to accept the services of another, an implied contract to pay the
reasonable value of such services is formed. GSGSB, Inc. v. New
York Yankees, 862 F. Supp. 1160, 1170 (S.D.N.Y. 1994). But,
where there is already an express contract to render such
services to a party, an implied contract is not formed. See
Clark-Fitzpatrick, Inc. v. Long Island R.R. Co.,
521 N.Y.S.2d 653, 656 (1987) ("A `quasi contract' only applies in the absence
of an express agreement, and is not really a contract at all, but
rather a legal obligation imposed in order to prevent a party's
unjust enrichment."). Thus, under New York law, the existence of
an express contract will ordinarily preclude quantum meruit
relief. The exception to this rule being circumstances in which
the express contract does not address the specific issue in
dispute. Hotel Aquarius, B.V. v. PRT Corp., No. 92 Civ. 4498
(MBM), 1992 WL 391264 (S.D.N.Y. Dec. 22, 1992) at *5 ("[T]he
existence of an express contract does not preclude recovery on
the basis of [quantum meruit] for services and benefits
conferred outside the contract."); see also Joseph Sternberg,
Inc. v. Walber 36th St. Assocs., 594 N.Y.S.2d 144, 145-46
(1st Dep't 1993) (allowing plaintiff to proceed with a quantum meruit claim
while also proceeding on an express contract claim because the
express contract did not cover the dispute).
Fashionwear concedes that an express agreement between itself
and Regatta existed. Furthermore, no contention has been made
that there is an issue in dispute that the agreement does not
cover, or that Fashionwear has conferred a service or benefit on
Regatta outside the agreement. Fashionwear's claims for quantum
meruit and unjust enrichment are therefore precluded.
IV. Attorney's Fees
In general, New York adheres to the American Rule that
attorney's fees are not recoverable absent a contractual or
statutory provision providing for the award of attorney's fees to
the prevailing party. United States Fid. and Guar. Co. v.
Braspetro Oil Servs. Co., 369 F.3d 34, 74 (2d Cir. 2004); see
In re Arbitration Before the New York Stock Exchange, Inc., No.
04 Civ. 488 (RWS), 2004 WL 2072460 (S.D.N.Y. Sept. 8, 2004) at
*14 ("[A]bsent statutory authorization or contractual agreement
between the parties, the prevailing American rule is that each
party in federal litigation pays his own attorneys'
fees. . . ."); Folksamerica Reins. Co. v. Republic Ins. Co.,
No. 03 Civ. 0402 (HB) (AJP), 2004 WL 1824320 (S.D.N.Y. Aug. 16,
2004) at *1; Hooper Assocs. v. AGS Computers, Inc.,
74 N.Y.2d 487, 491 (1989) ("Under the general rule, attorney's fees are
incidents of litigation and a prevailing party may not collect them from the
loser unless an award is authorized by agreement between the
parties, statute or court rule.").
Fashionwear has not alleged any contractual or statutory basis
for an award of attorney's fees in this case. Indeed, Fashionwear
does not dispute this portion of Regatta's Motion. Therefore,
Fashionwear is not entitled to attorney's fees.
For the reasons set forth above, defendant's Motion to dismiss
the Complaint for lack of subject matter jurisdiction is denied,
and defendant's Motion to dismiss Counts II and III of the
Complaint plus the accompanying demand for attorney's fees is
granted. The parties are to appear before the Court for a
scheduling conference on November 1, 2004, at 10:15 a.m.