The opinion of the court was delivered by: Pitman, United States Magistrate Judge
By notice of motion dated December 12, 2008, (Docket Item 64), plaintiffs move for leave to file an amended complaint. The proposed amended complaint would add the following claims against all defendants: (1) fraud in the inducement, (2)tortious interference with both contract and business relationships, (3) conspiracy to commit conversion, (4) conspiracy to commit theft of corporate funds, (5) conspiracy to commit breach of fiduciary duty, (6) conspiracy to commit misrepresentation, (7) violations of the Racketeer Influenced Corrupt Organization Act, ("RICO"), 18 U.S.C. § 1962(a)-(d), and (8) conspiracy to commit RICO violations. By notice of motion dated February 9, 2009, (Docket Item 79), defendants move for sanctions pursuant to Rule 11 of the Federal Rules of Civil Procedure.
For the reasons set forth below, plaintiffs' motion is granted in part and denied in part, and defendants' motion is denied.
In principal part, this is an action for breach of contract and trademark infringement. Plaintiffs allege that defendants breached a contract to sell bottled mineral water to plaintiffs by selling the water to other distributors instead of plaintiffs under trademark allegedly owned by plaintiffs (Proposed Amended Complaint, ("Am. Compl."), ¶¶ 38-50).
In June 2004, plaintiff Hyun-Song Kang, the sole shareholder of plaintiff Ho Myung Moolsan Co. ("Moolsan"), was introduced to defendant O Yoon Kwon, the President of Manitou Springs Mineral Water, Inc. ("Manitou Springs") by Kang's "agent and confidant," Young Gil Jee (Am. Compl. ¶12). Jee "represented" to Kang that he would enter into a contract with Manitou Springs for exclusive distribution of Manitou Springs Mineral Water and that this contract would be "for [the] benefit" of Moolsan (Am. Compl. ¶15).
In December 2004, Jee, as Director of the Journalists Federation of Korea,*fn1 and Kwon, as President of Manitou Springs executed a contact under which Jee was to pay $500,000 for exclusive distributorship of Manitou Springs Mineral Water and $1,000,000 in advance for purchase of the mineral water (Am. Compl. ¶ 21 and Ex. 3). Jee, however, produced a different contract to Kang. This contract was also signed by Jee and Kwon, but provided that Jee was to pay $1,000,000 for the exclusive distributorship and $1,000,000 for advance purchase of the mineral water (Am. Compl. ¶ 15 and Ex. 1). Moolsan paid the $2,000,000 due under this contract to Manitou Springs (Am. Compl. ¶¶ 19, 24).*fn2 Plaintiffs allege that the additional $500,000 charged under the contract was used to compensate Jee for "funneling" business to Manitou Springs (Am. Compl. ¶ 21).
Approximately one year after the contract was executed, Kwon told Moolsan's president, Jeong Hee Kim, that Manitou Springs had only received $1,500,000 under the contract (Am. Compl. ¶ 23). Kwon also told Kim that his signature on the contract for $2,000,000 had been forged (Am. Compl. ¶ 17). At this point, Manitou Springs entered into a contract for the sale of water directly with Moolsan (Am. Compl. ¶ 23).*fn3
In April 2007, Manitou Springs stopped shipping water to Moolsan (Am. Compl. ¶ 27). In addition, plaintiffs allege that Manitou Springs began selling spring water to third parties and "facilitated" the use of Moolsan's logo and advertisements by those third parties (Am. Compl. ¶¶ 32-35).
Plaintiffs' original complaint asserted claims for (1) a declaratory judgment, (2) breach of contract, (3) unfair competition under the Lanham Act, (4) palming off of property rights, (5) tortious interference with contract, (6) fraud, and (7) conspiracy. The original complaint named Manitou Springs and Kwon as defendants, as well as the manager of Manitou Springs' factory, another business operated by Kwon and three entities that allegedly sold Manitou Springs Mineral Water after plaintiffs had obtained exclusive rights to do so.
On December 20, 2007, the Honorable Richard J. Holwell, United States District Judge, dismissed plaintiffs' claims for declaratory judgment and breach of contract as to all defendants other than Manitou Springs, and dismissed plaintiffs' claims for tortious interference, fraud, and conspiracy as to all defendants (Order dated Dec. 20, 2007 (Docket Item 37)).
Plaintiffs now seek to amend their complaint to re-plead claims for fraud, tortious interference, and conspiracy and to include new claims for substantive violations of RICO and conspiracy to violate RICO. Plaintiffs seek to bring these claims against all defendants named in the original complaint other than the factory manager of Manitou Springs. In addition, plaintiffs apparently seek to replead their breach of contract claim against all defendants. Defendants oppose amendment on the grounds that the proposed amendments are futile and will result in undue delay and prejudice. Defendants also move for sanctions pursuant to Fed.R.Civ.P. 11 arguing that the motion to amend is so deficient that it is sanctionable.
1. Standards Applicable to a Motion to Amend
The standards applicable to a motion to amend a pleading are well settled and require only brief review. Leave to amend a pleading should be freely granted when justice so requires. Fed.R.Civ.P. 15(a); Foman v. Davis, 371 U.S. 178, 182 (1962); McCarthy v. Dunn & Bradstreet Corp., 482 F.3d 184, 200 (2d Cir. 2007); Aetna Cas. & Sur. Co. v. Aniero Concrete Co., 404 F.3d 566, 603-04 (2d Cir. 2005); Dluhos v. Floating & Abandoned Vessel, Known as "New York", 162 F.3d 63, 69 (2d Cir. 1998); Gumer v. Shearson, Hamill & Co., 516 F.2d 283, 287 (2d Cir. 1974); Aniero Concrete Co. v. New York City Constr. Auth., 94 Civ. 9111 (CSH), 1998 WL 148324 at *7 (S.D.N.Y. Mar. 30, 1998) (Haight, J.), aff'd sub nom., Aetna Cas. & Sur. Co. v. Aniero Concrete Co., 404 F.3d 566 (2d Cir. 2005). "Nonetheless, the Court may deny leave if the amendment (1) has been delayed unduly, (2) is sought for dilatory purposes or is made in bad faith, (3) the opposing party would be prejudiced, or (4) would be futile." Lee v. Regal Cruises, Ltd., 916 F. Supp. 300, 303 (S.D.N.Y. 1996) (Kaplan, J.), aff'd, 116 F.3d 465 (2d Cir. 1997); see McCarthy v. Dunn & Bradstreet Corp., supra, 482 F.3d at 200; Ellis v. Chao, 336 F.3d 114, 126-27 (2d Cir. 2003); Montefiore Med. Ctr. v. Am. Prot. Ins. Co., 00 Civ. 3235 (LTS), 2003 WL 21108261 at *1 (S.D.N.Y. May 14, 2003) (Swain, J.); Am. Home Assurance Co. v. Jacky Maeder (Hong Kong) Ltd., 969 F. Supp. 184, 187-88 (S.D.N.Y. 1997) (Kaplan, J.).
A proposed amended complaint is futile when it fails to state a claim. Health-Chem Corp. v. Baker, 915 F.2d 805, 810 (2d Cir. 1990); Mina Inv. Holdings Ltd. v. Lefkowitz, 184 F.R.D. 245, 257 (S.D.N.Y. 1999) (Sweet, J.); Parker v. Sony Pictures Entm't, Inc., 19 F. Supp. 2d 141, 156 (S.D.N.Y. 1998) (Kaplan, J.), aff'd in pertinent part, vacated in part on other grounds sub nom., Parker v. Columbia Pictures Indus., 204 F.3d 326 (2d Cir. 2000); Yaba v. Cadwalader, Wickersham & Taft, 931 F. Supp. 271, 274 (S.D.N.Y. 1996) (Koeltl, J.); Prudential Ins. Co. v. BMC Indus., Inc., 655 F. Supp. 710, 711 (S.D.N.Y. 1987) (Sweet, J.); see generally Dluhos v. Floating & Abandoned Vessel known as "New York", supra, 162 F.3d at 69-70. The party opposing the amendment has the burden of demonstrating that leave to amend would be futile. Staskowski v. County of Nassau, 05 Civ. 5984 (SJF)(WDW), 2007 WL 4198341 at *4 (E.D.N.Y. Nov. 21, 2007)("It is axiomatic that the party opposing an amendment has the burden of establishing that leave to amend would be futile."); Lugosch v. Congel, 00-CV-784, 2002 WL 1001003 at *1 (N.D.N.Y. May 14, 2002); citing Blaskiewicz v. County of Suffolk, 29 F. Supp. 2d 134, 137-38 (E.D.N.Y. 1998).
Leave to amend may be denied as futile "where the claim or defense proposed to be added has 'no colorable merit'". Oliver v. Demarinis & Co., 90 Civ. 7950 (SS), 1993 WL 33421 at *2 (S.D.N.Y. Jan. 29, 1993) (Sotomayor, D.J.) (citation omitted); see also Ryder Energy Distrib. Corp. v. Merrill Lynch Commodities, Inc., 748 F.2d 774, 783 (2d Cir. 1984) (if the movant has "colorable grounds for relief," justice requires that leave to amend be granted). The "colorable grounds requirement mandates that a district court may not deny a motion for leave to amend a pleading when said pleading is sufficient to withstand a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6)." Children First Found. Inc. v. Martinez, 04 Civ. 0927 (NPM), 2007 WL 4618524 at *5 (N.D.N.Y. Dec. 27, 2007), citing Kassner v. 2nd Avenue Delicatessen, Inc., 496 F.3d 229, 244 (2d Cir. 2007); Estate of Ratcliffe v. Pradera Realty Co., 05 Civ. 10272 (JFK), 2007 WL 3084977 at *4 (S.D.N.Y. Oct. 19, 2007) (Keenan, J.); Journal Publ'g Co. v. Am. Home Assur. Co., 771 F. Supp. 632, 635 (S.D.N.Y. 1991) (Leisure, J.); Prudential Ins. Co. v. BMC Indus., Inc., supra, 655 F. Supp. at 711 (Although leave to amend should be freely given, "it is inappropriate to grant leave when the amendment would not survive a motion to dismiss.").
Therefore, an amendment to a complaint may be denied as futile if a defendant can show that there are no "set of facts consistent with the allegations in the complaint" which would entitle plaintiff to relief. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 563 (2007). To survive a motion to dismiss, plain-tiff's "factual allegations must be enough to raise a right to relief above the speculative level on the assumption that all of the complaint's allegations are true." Bell Atlantic Corp. v. Twombly, supra, 550 U.S. at 555 (overruling the language of Conley v. Gibson, 355 U.S. 41, 45-46 (1957) that a motion to dismiss should not be granted "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief"); see also Oliver Schools, Inc. v. Foley, 930 F.2d 248, 252 (2d Cir. 1991) (discussing the standard for denying an amendment as futile prior to Bell Atlantic); Blaskiewicz v. County of Suffolk, supra, 29 F. Supp. 2d at 138 (same).
The Court of Appeals has also repeatedly noted that the trial court has "broad" discretion in ruling on a motion to amend. Local 802, Associated Musicians v. Parker Meridien Hotel, 145 F.3d 85, 89 (2d Cir. 1998); Krumme v. Westpoint Stevens Inc., 143 F.3d 71, 88 (2d Cir. 1998); see generally Grace v. Rosenstock, 228 F.3d 40, 53-54 (2d Cir. 2000).
i. Claims against Defendants Raphael Drug and Health Co., Hanmi Home Shopping Co., New Jersey Flea Market News and New York Flea Market News*fn4
Although plaintiffs include Raphael Drug and Health Co., Hanmi Home Shopping Co., New Jersey Flea Market News and New York Flea Market News ("the Distributor Defendants") as defendants in their proposed Amended Complaint, they do not clearly identify the claims asserted against them. Rather, all of plaintiffs' proposed claims are broadly alleged against "defendants" or "defendants, or some of them." Presumably then, plaintiffs seek to assert all claims in their Amended Complaint against all defendants. However, the only specific allegations with regard to the Distributor Defendants are that (1) Raphael Drug and Health Co. had the same telephone and fax number as Manitou Springs, (2) Manitou Springs shipped water to Raphael Drug and Health Co. (Am. Compl. ¶¶ 5, 35) and that (3) Hanmi Home Shopping Co., New Jersey Flea Market News, and New York Flea Market News sold Manitou Springs Mineral Water using advertising "virtually identical to plaintiffs' advertising and promotional materials." (Am. Compl. ¶¶ 6-8). There are no facts in the proposed amended complaint connecting the Distributor Defendants with the plaintiffs' re-alleged or newly stated claims for fraud in the inducement, breach of contract, tortious interference, RICO violations or conspiracy to commit conversion, theft of corporate funds, breach of fiduciary duty or misrepresentation.
When a complaint names defendants in the caption but makes no substantive allegations against them in the body of the pleading, the complaint does not state a claim against these defendants. Sharp v. State of New York, 06 Civ. 5194 (JFB)(ETB), 2007 WL 2480428 at *5 (E.D.N.Y. Aug. 28, 2007); Vaval v. Zenk, 04 Civ. 4548 (CBA), 2007 WL 778429 at *5 (E.D.N.Y. Mar. 13, 2007); United States ex rel. Eisenstein v. City of New York, 03 Civ. 413 (DAB), 2006 WL 846376 at *2 (S.D.N.Y. Mar. 31, 2006) (Batts, J.), appeal dismissed, 540 F.3d 94 (2d Cir. 2008), aff'd, 129 S.Ct. 2230 (2009); Goss v. Fairfield Hous. Auth., 3:03 Civ. 0935 (WIG), 2006 WL 314548 at *1 (D. Conn. Feb. 9, 2006); Burnell v. Whidden, 3:05 Civ. 825 (MRK), 2005 WL 2739085 at *4 (D. Conn. Oct. 19, 2005); Iwachiw v. New York State Dep't of Motor Vehicles, 299 F. Supp. 2d 117, 121 (E.D.N.Y. 2004), aff'd, 396 F.3d 525 (2d Cir. 2005). Therefore, the proposed amended complaint does not state claims against the Distributor Defendants for fraud in the inducement, breach of contract, tortious interference, RICO violations or conspiracy to commit conversion, theft of corporate funds, breach of fiduciary duty or misrepresentation and the proposed amended complaint is futile to the extent it seeks to assert these claims against the Distributor Defendants.
ii. Breach of Contract Claim Against Kwon
Judge Holwell dismissed plaintiffs' claims for a declaratory judgment and breach of contract against all defendants except Manitou Springs because Manitou Springs is the only defendant alleged to have been a party to the breached contract. The proposed amended complaint does not allege that Kwon was a party to any contract with plaintiffs. Therefore, the proposed amended complaint does not state a claim against Kwon for breach of contract and the proposed amended complaint is futile to the extent it seeks to assert this claim against him.
Plaintiffs' fraud claim is based two separate statements contained in the contract that Jee originally presented to Moolsan. Plaintiffs allege that by representing that the cost of an exclusive distributorship of Manitou Springs Mineral Water was $1,000,000 when it was in fact $500,000, defendants caused plaintiffs to suffer economic injury (Am. Compl. ¶ 39). In addition, plaintiffs allege that by virtue of a provision in the contract requiring plaintiffs to purchase one million bottles of water per year, defendants falsely represented that they were capable of producing more than one million bottles of water per year (Am. Compl. ¶ 42). For the reasons stated below, I find that neither of plaintiffs' fraud theories states a claim under New York law.
Under New York law, a claim for fraud in the inducement requires proof that: "(1) the defendant made a material false representation, (2) the defendant intended to defraud the plaintiff thereby, (3) the plaintiff reasonably relied upon the representation, and (4) the plaintiff suffered damage as a result of such reliance." Wall v. CSX Transp., Inc., 471 F.3d 410, 415-16 (2d Cir. 2006), citing Bridgestone/Firestone, Inc. v. Recovery Credit Servs., Inc., 98 F.3d 13, 19 (2d Cir.1996)
Furthermore, Rule 9(b) of the Federal Rules of Civil Procedure requires that "a party must state with particularity the circumstances constituting fraud or mistake." Fed.R.Civ.P. 9(b). Thus, "[t]he complaint must identify the statements plaintiff asserts were fraudulent and why, in plaintiff's view, they were fraudulent, specifying who made them, and where and when they were made." In re Scholastic Corp. Sec. Litig., 252 F.3d 63, 69-70 (2d Cir. 2001), citing Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir. 1993); see also Suez Equity Investors, L.P. v. Toronto-Dominion Bank, 250 F.3d 87, 95 (2d Cir. 2001); Novak v. Kasaks, 216 F.3d 300, 306 (2d Cir. 2000). When a complaint asserts a fraud claim against multiple defendants, the role of each defendant must be alleged with particularity. Aetna Cas. and Sur. Co. v. Aniero Concrete Co., Inc., supra, 404 F.3d 566 at 579-80.
Plaintiffs' fraud claim is based on statements contained in the contract that Jee presented to Moolsan. Presumably, the alleged liability of Kwon and Manitou Springs is premised on Kwon's signature to the contract.*fn5 Although plaintiffs allege only that the contract was made in 2004 and do not specify where it was executed, plaintiffs do specify who executed the contract, which statements were fraudulent and why they were fraudulent. Moreover, they attach the contract to their complaint.
These details give defendants "fair and reasonable notice of the claim" and are therefore sufficient to satisfy Rule 9(b) in this case. Simon-Whelan v. Andy Warhol Found. for the Visual Arts, Inc., 07 Civ. 6423 (LTS), 2009 WL 1457177 at *9 (S.D.N.Y. May 26, 2009) (Swain, J.), citing Int'l Motor Sports Group v. Gordon, 98 Civ. 5611 (MBM), 1999 WL 619633, at *3 (S.D.N.Y. Aug. 16, 1999) (Mukasey, J.) ("Rule 9(b) does not require 'a plaintiff [to] plead dates, times and places with absolute precision, so long as the complaint gives fair and reasonable notice to defendants of the claim and the grounds upon which it is based'"); BRS Assocs., L.P. v. Dansker, 246 B.R. 755, 768 (S.D.N.Y. 2000) (Batts, J.) ("Rule 9(b) serves several purposes -- to put the defendant on notice of the details of the claims against him, to protect a defendant's reputation and goodwill from unfounded allegations and to prevent strike suits."); see also Tribune Co. v. Purcigliotti, 869 F. Supp. 1076, 1087 (S.D.N.Y. 1994) (Preska, J.) ("The rule is designed to provide a defendant with fair notice of a plaintiff's claim, enable preparation of a defense, protect a defendant from harm to his reputation, and reduce the number of strike suits."), aff'd, 66 F.3d 12 (2d Cir. 1995).
Nevertheless, even drawing all inferences in plaintiffs' favor, their first fraud theory does not state a claim. Plaintiffs' first specification of fraud alleges, in substance, that Jee (and Kwon by virtue of his signature) overstated the price of the water in the contract to enable Jee to pocket the difference between the contract price and the true price. Plaintiffs cannot allege, however, that they relied on this alleged misrepresentation. Assuming rational conduct, a higher price for a commodity decreases the likelihood that a buyer will purchase it, while a lower price increases the likelihood. The flaw in plaintiffs' theory is that it alleges an overstatement of the price -- conduct by Jee that would necessarily make the contract less attractive to plaintiffs. Because plaintiffs cannot allege that they would not have entered into the contract had they known that the true price of the water was less than what they were willing to pay, plaintiffs cannot allege they reasonably relied on the misrepresentation.
Plaintiffs also claim that Kwon's statements in 2005 and 2006 denying that he signed the contract containing a $1,000,000 price for the water rights were "materially false" (Am. Compl. ¶ 17). However, even if these statements were false, there is no allegation that plaintiffs took any action in reliance on these statements or were injured by them in any way.
Plaintiffs' second fraud theory alleges that Manitou Springs and Kwon committed fraud by virtue of a provision in the contract requiring plaintiffs to purchase one million bottles of water per year (Am. Compl. ¶ 42). Plaintiffs contend that this statement misrepresented defendants' production capacity because "at the time of inducement . . . defendants had a grossly inadequate factory operational system which was barely capable of supplying materially less than even the contract-minimum" (Am. Compl. ¶ 43). Plaintiffs allege that they relied on this ...