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Textiles Network Ltd. v. DMC Enterprises

August 31, 2007


The opinion of the court was delivered by: Denise Cote, District Judge


Plaintiff Textiles Network Limited ("TNL"), a Hong Kong-based company involved in the garment industry, brings this diversity action against DMC Enterprises, LLC ("DMC"), a New York-based company involved in the sale of children's clothing, and Fran and David Coleman (together "the Colemans"), who are husband and wife as well as the CEO and CFO of DMC. The amended complaint brings claims for breach of contract, unjust enrichment, and promissory estoppel against both DMC and the Colemans, and a claim for fraud against the Colemans alone. TNL seeks to recover damages related to DMC's alleged failure to pay for merchandise purchased on its behalf from suppliers in Asia.

On June 29, the Colemans moved to dismiss all claims against them pursuant to Rule 12(b)(6), Fed. R. Civ. P. DMC has also moved pursuant to Rule 12(b)(6) to dismiss the unjust enrichment and promissory estoppel claims against it. The motion was fully briefed on August 3. For the following reasons, the motion to dismiss the fraud and breach of contract claims against the Colemans is denied. The motion to dismiss the unjust enrichment and promissory estoppel claims against DMC and the Colemans is granted.


The following facts are drawn from the amended complaint and the documents that are attached to the amended complaint and integral to it.*fn1 On April 4, 2006, TNL entered into an agreement to serve as a buying agent for DMC in Asia ("Agreement"). The Agreement authorized and instructed TNL to locate suppliers, order merchandise for DMC upon its instruction, control the quality of merchandise purchased, and monitor shipment. According to the Agreement, "[u]nless otherwise specifically arranged between the parties, payment for all purchase of merchandise by [DMC] shall be by letter of credit in favor of the factory or [TNL]." The Agreement also called for DMC to pay TNL a commission of 7% of the "Free on Board" ("FOB") cost of the merchandise and delivery expenses.

DMC secured a letter of credit for $305,460.04 for the first delivery of merchandise, but did not pay TNL its commission. Soon afterwards, on June 26, 2006, "the Colemans claimed their financial partner had suddenly abandoned them and they would not be able to open additional letters of credit, and asked that TNL open the letters of credit on their behalf for which DMC would repay TNL in full." The Colemans agreed to pay for the goods using "documents against payment" ("D/P"). In reliance on this promise and in order to safeguard its relationships with the factories in China and India that it had already solicited on behalf of DMC, TNL opened its own letters of credit to secure the merchandise.

On June 30, David Coleman called TNL to indicate that DMC was not able to pay for the second shipment through D/P. He misrepresented that DMC would instead pay by instructing its factor, Rosenthal & Rosenthal, Inc. ("Rosenthal"), to remit fifty percent of DMC's available credit to TNL. The plaintiff claims, however, that DMC had no ability or intent to pay TNL through Rosenthal at this time.

The Colemans also sent TNL a copy of a fraudulent letter dated June 30 ("June 30 Letter"), addressed to Rosenthal and directing it to wire TNL money. The letter, however, was never actually sent to Rosenthal. Instead, on July 11, DMC sent Rosenthal a note seeking Rosenthal's approval of an enclosed draft letter resembling the June 30 Letter, but never actually issued directions to Rosenthal to send money to TNL.

On July 21, the Colemans sent TNL another letter ("July 21 Letter"), which falsely represented that the Colemans had contacted Rosenthal and confirmed that Rosenthal would pay TNL. The July 21 Letter also misrepresented that DMC would "be responsible to pay the balance" if Rosenthal's payment did not cover the entire promised payment.

On the basis of the June 26 phone call and the June 30 and July 21 Letters, TNL secured and delivered to DMC additional shipments of merchandise costing $333,152.68. DMC accepted these goods and subsequently sold all or part of the shipments to its customers. TNL also procured additional merchandise for DMC at the cost of $187,730.54, which was not delivered due to DMC's nonpayment. Neither DMC nor Rosenthal has paid TNL for these shipments. To date, DMC has paid TNL only $100,000 of the over $500,000 that it owes for unpaid goods and commission.

The amended complaint further alleges that . . . DMC is an undercapitalized shell[,] which serves as the alter ego of the Colemans, and the Colemans exercised complete domination of DMC with respect to the transactions described . . . , as well as prior transactions with third parties, and the Colemans used DMC as the instrumentality for perpetrating fraud in which they both participated in [sic] and had knowledge of.


Under the pleading standard set forth in Rule 8(a) of the Federal Rules of Civil Procedure, complaints must include "a short and plain statement of the claim showing that the pleader is entitled to relief." Rule 8(a)(2), Fed. R. Civ. P. "[A] plaintiff is required only to give a defendant fair notice of what the claim is and the grounds upon which it rests." Leibowitz v. Cornell Univ., 445 F.3d 586, 591 (2d Cir. 2006). Rule 8 is fashioned in the interest of fair and reasonable notice, not technicality, and therefore is "not meant to impose a great burden upon a plaintiff." Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 347 (2005). When considering a motion to dismiss under Rule 12(b)(6), a trial court must "accept as true all factual statements alleged in the complaint and draw all reasonable inferences in favor of the non-moving party." McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir. 2007) (citation omitted). At the same time, "conclusory allegations or legal conclusions masquerading as factual conclusions will not suffice to defeat a motion to dismiss." Achtman v. Kirby, McInerney & Squire, LLP, 464 F.3d 328, 337 (2d Cir. 2006) (citation omitted). A court must apply a "flexible 'plausibility standard,' which obliges a pleader to amplify a claim with some factual allegations in those contexts where such amplification is needed to render the claim plausible." Iqbal v. Hasty, 490 F.3d 143, 157-58 (2d Cir. 2007) (emphasis in original).

Although the focus should be on the pleadings in considering a motion to dismiss under Rule 12(b)(6), the court will deem the complaint to include "any written instrument attached to it as an exhibit or any statements or documents incorporated in it by reference." Mangiafico v. Blumenthal, 471 F.3d 391, 398 (2d Cir. 2006) (citation omitted). The Agreement, the June 30 and July 11 Letters, and the ...

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