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Factory Associates & Exporters, Inc. v. Lehigh Safety Shoe Co. LLC

June 26, 2007

FACTORY ASSOCIATES & EXPORTERS, INC. PLAINTIFF,
v.
LEHIGH SAFETY SHOE CO. LLC, DEFENDANT.



The opinion of the court was delivered by: Thomas J. McAVOY, Senior United States District Judge

DECISION & ORDER

I. INTRODUCTION

Plaintiff Factory Associates & Exporters, Inc. ("Plaintiff" or "Factory Associates") commenced this action asserting claims sounding in breach of contract (First and Fourth Causes of Action), fraudulent misrepresentation (Second and Fifth Causes of Action), and unjust enrichment (Third and Sixth Causes of Action). See Compl., dkt. # 1. Defendant Lehigh Safety Shoe Co. LLC ("Defendant" or "Lehigh") answered and asserted counterclaims sounding in failure to pay on an account stated (First Counterclaim), breach of contract (Second Counterclaim), and unjust enrichment (Third Counterclaim). See Ans. & Counterclaim, dkt. # 18. Presently before the Court are Defendant's motion for summary judgment, dkt. # 29, and Plaintiff's motion to amend the complaint to add claims for breach of warranty and detrimental reliance, dkt. # 31. Each party has opposed the other party's motion.

II. BACKGROUND

Plaintiff has been a safety shoe distributor for Defendant since 1998. The parties entered a "joint venture stocking agreement" whereby Defendant agreed to supply safety shoes to Plaintiff who would then sell them to companies involved in the oil industry in Nigeria. Primarily, the parties believed that the majority of the shoes would be sold to Shell Petroleum Development Company ("Shell"). The case concerns Plaintiff's 2002 order for safety shoes from Defendant for resale through Plaintiff's Nigerian agent and distributor, Jkpeez Impex Limited Co. ("Jkpeez"). See D'Abramo Dep. pp. 16-17, 20, 31, 40-41, 64, 66, 71, 88, 92-93, 168-169, 195; Compl. ¶ 16; Plt. Resp. to Def.'s Int. # 2 & # 9. p. 64.*fn1

Prior to the 2002 shoe order, Defendant sent its annual catalog to Plaintiff. The catalog, which was approximately 85 pages, contained Lehigh's Promise PlusTM 6 Month Warranty ("Lehigh's Warranty"). Factory Associates received and reviewed the catalog and saw Lehigh's Warranty. Lehigh contends that it extended the six-month warranty to Factory Associates to a one year-period from the time the shoes were shipped and delivered.

Factory Associates had previously purchased Lehigh Style 1628 and Lehigh Style 1636 safety shoes and sought to order these shoes in 2002. However, these shoes were no longer available in large quantities. Defendant represented that Lehigh Style 5628 replaced Lehigh Style 1628, and that Lehigh Style 5636 replaced Lehigh Style 1636. Lehigh represented that the replacement shoe models were new and improved versions of the older shoes. The purported improvement was that the soles of the new models were made of polyester polyurethane compound, a different material than the older model shoes, and was of a new outsole design. Lehigh represented that the new shoes had greater comfort and wear characteristics, and that the new outsole design provided greater slip resistance and more durability than the previous design.

Sometime between January 17, 2002 and March 28, 2002, Plaintiff placed an order with Defendant for at least 8,214 pairs of Lehigh Style 5628 and Lehigh Style 5636 safety shoes.*fn2 The price for the shoes was originally stated as $47.31 per pair (see Purchases Order, Ex. G to D'Abramo Decl.), but the parties later agreed to reduce the price to $45.00 per pair. Defendant knew prior to purchase that Plaintiff would store at least some of the shoes in Jkpeez's warehouse in Nigeria, but Defendant contends it did not know or believe that the shoes would be stored for more than one year.

On April 25, 2002, Plaintiff received 8,214 pairs of these safety shoes that Defendant shipped from Hong Kong to Jkpeez in Nigeria. In July 2002, Jkpeez sold 1,026 pairs of the shoes to Shell to fill a back order. Other than these 1,026 pairs, however, Shell declined to purchase additional shoes. Believing that Shell might purchase additional shoes in the future, Plaintiff elected to hold the shoes in storage in Jkpeez's warehouse in Nigeria. Plaintiff and Defendant also engaged in further negotiations concerning the price of the shoes. Plaintiff contends that Defendant agreed to lower the price to $39.75 per pair of shoes. Defendant contends that it agreed to lower the price to $39.75 per pair but that the agreement was contingent on Plaintiff receiving future shoe orders from Shell.

In October of 2003, Jkpeez began selling the remaining shoes to customers other than Shell.*fn3 Some of these customers complained to Jkpeez that the shoes' soles were deteriorating. Jkpeez informed Plaintiff about the complaints in November of 2003. Plaintiff complained to Defendant of a manufacturing defect with the shoes at the end of 2003 or the beginning of 2004.

In May 2004, Shell complained to Jkpeez regarding 41 pairs of Lehigh safety shoes that Shell had stored in its Nigerian warehouse for more than a year. An employee of Jkpeez, Goddy Igboko, visited Shell's warehouse. Igboko drafted a report stating that "Lehigh provides a warranty of twelve months from the date of sale to the customer for its stock of shoes." Igboko further stated in his report that "[t]he shoes in reference have visibly overstayed in the warehouse - upwards of three years and are therefore no longer covered by the Manufacturers [sic] warranty." In the fall of 2006, after this action was started, Plaintiff investigated the Lehigh safety shoes remaining in Jkpeez's warehouse and concluded that all remaining shoes were similarly defective because their soles were also deteriorating.

Plaintiff asserts that the polyester polyurethane soles deteriorated from hydrolytic attack (otherwise know as hydrolysis or moisture attack), which is purportedly a known condition within the footwear industry whereby polyurethane material degrades when exposed to heat and humidity. Plaintiff further contends that Defendant knew or should have known that: (1) hydrolytic attack begins at time of manufacture and can cause a polyester polyurethane sole to decompose within weeks or months depending on actual temperature and relative humidity, (2) the shoes sold to Plaintiff were intended to be stored for more than a year in warehouses in Nigeria, and (3) the climate in Nigeria is hot and humid.

The First, Second and Third Causes of Action in Plaintiff's Complaint concern the 5,652 pairs of shoes that Plaintiff did not sell and that are still in Jkpeez's possession. The Fourth, Fifth and Sixth Causes of Action relate to the 2,562 pairs of shoes that Jkpeez did sell. Plaintiff admits that it seeks damages only for the 5,652 pairs of shoes that Jkpeez did not sell.

Defendant seeks $43,123.36 from Plaintiff in its counterclaim. In this regard, Defendant contends that Plaintiff paid only $39.75 per pair of shoes ($326,506.50) but that the contingency that would have lowered the price of the shoes from $45 to $39.75 per pair (i.e. Shell's additional order of shoes) never resulted. Thus, Defendant contends that Plaintiff owes $43,123.36 for the shoes based upon the agreed-upon price of $45 per pair.

III. STANDARDS OF REVIEW

a. Amendment of Complaint Under Rule 15(a)

Rule 15(a) of the Federal Rules of Civil Procedure provides that leave to amend "shall be freely given when justice so requires." "In the absence of any apparent or declared reason - such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of amendment, etc. - the leave sought should, as the rules require, be 'freely given.'" Foman v. Davis, 371 U.S. 178, 182 (1962). Thus, even if there was substantial delay in seeking to amend, leave will be granted unless the movant has acted in bad faith, the amendment will prejudice the nonmovant, or the amendment is futile. SeeRichardson Greenshields Sec., Inc. v. Lau, 825 F.2d 647, 653 n. 6 (2d Cir. 1987)(noting that a motion to amend should be denied only for undue delay, bad faith, futility or prejudice to opposing party; mere delay alone, absent a showing of bad faith or prejudice, is not grounds for denial of leave to amend) (citations omitted).

"An amendment is considered futile if the amended pleading fails to state a claim or would be subject to a successful motion to dismiss on some other basis." Lamb v. Henderson, 1999 WL 516271, at *2 (S.D.N.Y. Aug. 9, 1999)(citing S.S. Silberblatt, Inc. v. East Harlem Pilot Block, 608 F.2d 28, 42 (2d Cir. 1979)). A court, therefore, is justified in denying an amendment that could not withstand a motion to dismiss. Id. (internal citations omitted); see also Ruffolo v. Openheimer & Co., 987 F.2d 129, 131 (2d Cir. 1993)(where granting leave to amend is unlikely to be productive it is not an abuse of discretion to deny leave to amend).

b. Summary Judgment

It is well settled that on a motion for summary judgment, the Court must construe the evidence in the light most favorable to the non-moving party, see Tenenbaum v. Williams, 193 F.3d 581, 592 (2d Cir. 1999), and may grant summary judgment only where "there is no genuine issue as to any material fact and ... the moving party is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c). An issue is genuine if the relevant evidence is such that a reasonable jury could return a verdict for the non-moving party. Anderson v. Liberty Lobby, 477 U.S. 242, 248 (1986). A party seeking summary judgment bears the burden of informing the Court of the basis for the motion and of identifying those portions of ...


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