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Golden Triangle Company v. Fonar Corporation

August 15, 2011


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


Plaintiff Golden Triangle Company brings this diversity action against defendants Fonar Corporation ("Fonar") and three executive officers of Fonar -- Raymond Damadian, Sol Ginzburg, and David Terry (the "individual defendants"). Defendants move to dismiss all claims in the Amended Complaint except for the breach of contract claim against Fonar pursuant to Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure ("FRCP"). Plaintiff opposes the motion. For the reasons below, the motion is granted.


For purposes of this motion, the complaint can be summarized as follows. On or about December 14, 2005, plaintiff, a foreign corporation with its principal place of business in Kuwait, contracted with Fonar to purchase an Indomitable Stand-Up MRI machine ("MRI machine") for $1,615,000 for shipment to Kuwait. Plaintiff made a 10% down payment and later made additional payments to Fonar totaling $1,525,500. According to plaintiff, Fonar intentionally failed to ship the MRI machine, in breach of the contract. Plaintiff asserts six claims in the Amended Complaint: (1) breach of contract; (2) fraud; (3) conspiracy to defraud; (4) conversion; (5) violation of New York General Business Law ("GBL") § 349; and (6) misuse of corporate form. Defendants move to dismiss claim 1 as against the individual defendants and claims 2 through 6 as against all defendants.


A. Motion to Dismiss Standard

In Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), the Supreme Court held that to avoid dismissal a plaintiff is required to plead enough facts "to state a claim for relief that is plausible on its face." Id. at 570; see also Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949-50 (2009). While heightened factual pleading is not the new order of the day, Twombly holds that a "formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555. On a motion to dismiss, the court must, as always, assume that all allegations in the complaint are true and draw all inferences in favor of the non-moving party. Plair v. City of New York, 2011 WL 2150658, *2 (S.D.N.Y. 2011). However, the court must ensure that the complaint sets forth "enough facts to state a claim to relief that is plausible on its face." Twombly, 550 U.S. at 570; see Ruston v. Town Bd. for Town of Skaneateles, 610 F.3d 55, 57 (2d Cir. 2010). A pleading that does nothing more than recite facts and bare legal conclusions is insufficient to "unlock the doors of discovery ... and only a complaint that states a plausible claim for relief survives a motion to dismiss." Iqbal, 129 S. Ct. at 1950. Although a Rule 12 motion is directed only to the sufficiency of the pleading, the court may consider written documents attached to the complaint as well as documents incorporated therein by reference and those of which plaintiff had knowledge and relied upon in commencing the action. See Brass v. Amer. Film Techn., Inc., 987 F.2d 142, 150 (2d Cir. 1993).

B. Analysis of Claims

1. Breach of Contract Claim

As for the breach of contract claim, defendants argue that plaintiff does not allege that the individual defendants undertook any personal commitment or obligation to plaintiff, and that corporate officers are not personally liable for contracts of their corporate employer. See Mills v. Polar Molecular Corp., 12 F.3d 1170, 1177 (2d Cir. 1993). Plaintiff argues that the individual defendants may be directly liable to plaintiff to the extent that they participated in or benefitted from an alleged conspiratorial scheme.

Notwithstanding plaintiff's argument, the allegations are not sufficient to state a claim against the individual defendants -- non-parties to the contract -- for breach of contract. The Amended Complaint does not allege any grounds upon which to hold the individual defendants, as officers of Fonar, liable on a contract between plaintiff and Fonar. Accordingly, the breach of contract claim is dismissed as against the individual defendants.

2. Fraud Claim

As for the fraud claim, plaintiff alleges that defendants made representations that the MRI machine would be shipped upon receipt of confirmation that the site in Kuwait was ready in order to deceive plaintiff into foregoing litigation and collection activity regarding the money it had paid. Defendants argue that plaintiff fails to plead the necessary elements for fraud, see, e.g., Crigger v. Fahnstock & Co., 443 F.3d 230, 234 (2d Cir. 2006) (elements of fraud claim include (a) material misrepresentation or omission of fact; (b) made by defendant with knowledge of 4 falsity; (c) with intent to defraud plaintiff; (d) on which misrepresentation plaintiff reasonably relied; and (e) resulting in plaintiff suffering damage), and that it fails to plead the fraud with particularity, see FRCP 9(b); see also Intelligent Digital Sys., LLC v. Visual Mgmt. Sys., Inc., 683 F. Supp. 2d 278, 286 (E.D.N.Y. 2010) ("Complaints alleging fraud are required to: (1) state the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent."). Defendants also argue that plaintiff has essentially recharacterized the breach of contract claim as a fraud claim, which it may not do under New York law. See Bridgestone/Firestone, Inc. v. Recovery Credit Servs., 98 F.3d 13, 19-20 (2d Cir. 1996).

The Court agrees with defendants that plaintiff's purported fraud claim is essentially a recharacterization of the breach of contract claim -- a claim that Fonar failed to deliver the MRI machine as provided under the contract, and, as such, fails to state a claim for fraud. See id. Absent allegations of fraud as to representations collateral or extraneous to the contractual promises to deliver the MRI machine, the fraud claim fails. See D.S. Am. (East), Inc. ...

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