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Coty Inc. v. L'Oreal S.A.

February 1, 2008

COTY INC., PLAINTIFF,
v.
L'OREAL S.A., DEFENDANT.



The opinion of the court was delivered by: Kimba M. Wood, U.S.D.J.

OPINION AND ORDER

Plaintiff Coty Inc. ("Plaintiff") asserts claims of unjust enrichment, conversion, and breach of contract against Defendant L'Oréal S.A. ("Defendant"). These claims arise from a transaction in which Defendant purchased two of Plaintiff's wholly-owned subsidiaries. On August 30, 2007, Defendant moved to dismiss Plaintiff's Complaint in its entirety for (1) lack of personal jurisdiction pursuant to Fed. R. Civ. P. 12(b)(2), and (2) failure to state a claim upon which relief can be granted pursuant to Fed. R. Civ. P. 12(b)(6). For the reasons stated below, Defendant's motion to dismiss is GRANTED.

I. Background

The following facts are drawn from Plaintiff's Complaint and the Exhibits attached thereto. All inferences have been drawn in favor of Plaintiff. See Allaire Corp. v. Okumus, 433 F.3d 248, 249-50 (2d Cir. 2006).

A. The Parties

Plaintiff is a privately-held Delaware corporation with its principal place of business in New York. Compl. ¶ 6. Defendant is a publicly-traded French corporation with its corporate headquarters in France. Id. ¶ 7. B. The Underlying Transaction

On January 23, 2004, Plaintiff and Defendant executed a Master Assignment and Transfer Agreement ("Master Agreement," attached as Compl. Ex. A), pursuant to which Plaintiff agreed to sell to Defendant, and Defendant agreed to purchase, two of Plaintiff's wholly-owned subsidiaries, Yue-Sai Kan Cosmetics (Shenzhen) Ltd. ("YSK Shenzhen") and Yue-Sai Kan-Coty Cosmetics (Shanghai) Ltd. ("YSK Shanghai") (collectively, the "YSK Companies"). Compl. ¶ 10. The Master Agreement provided for a purchase price of $250,000,000, subject to a post-closing purchase price adjustment. Id.

The post-closing purchase price adjustment evaluated the difference between (1) the consolidated net worth of the YSK Companies shown in a balance sheet prepared by Plaintiff dated June 30, 2003 ("June 30, 2003 Balance Sheet") and (2) the consolidated net worth of the YSK Companies shown in a balance sheet prepared by Plaintiff within sixty days of the closing ("Closing Balance Sheet"). Master Agreement §§ 1.01(b), 1.05.

C. The Disputed RMB*fn1 44,810,000

The current action arises from a dispute over RMB 44,810,000. In 1998, Plaintiff directed YSK Shenzhen to establish a tax reserve for a possible Chinese consumption tax that might be imposed on the subsidiary. Between 1998 and 2001, this tax reserve grew to RMB 44,810,000. Compl. ¶ 17.

In April 2003, Plaintiff eliminated the tax reserve because Plaintiff then believed it was unlikely that the consumption tax would be imposed. Plaintiff established an intercompany payable on YSK Shenzhen's books due to Plaintiff in the amount of RMB 44,810,000. Compl. ¶ 18. Therefore, the June 30, 2003 Balance Sheet listed the RMB 44,810,000 as an intercompany payable. Id. ¶¶ 13, 19.

In April 2004, prior to the closing, Plaintiff eliminated the intercompany payable and increased by RMB 44,810,000 the "Total Stockholders Equity" of YSK Shenzhen. Compl. ¶¶ 14-15. As a result, the Closing Balance Sheet reflected an increase of RMB 44,810,000 in the consolidated net worth of the YSK Companies.

Id. ¶ 15. According to Plaintiff, this action would allow it to realize the unresolved debt of RMB 44,810,000 through the contractual post-closing purchase price adjustment.*fn2 Id. ¶ 14.

On May 12, 2004, the closing took place; thereafter, Plaintiff delivered the Closing Balance Sheet to Defendant. Defendant objected to Plaintiff's treatment of the RMB 44,810,000. Compl. ¶ 16.

D. The First Arbitral Award

Because the parties were unable to resolve their dispute as to the treatment of the RMB 44,810,000, pursuant to Master Agreement § 1.05(b)(ii), they submitted the issue to KPMG LLP ("KPMG") for arbitration. KPMG decided the dispute in favor of Defendant. Compl. ¶ 20. Specifically, KPMG concluded that under Chinese tax law, the RMB 44,810,000 tax reserve should not have ...


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