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New World Trading Co. Ltd v. Avshalomov


September 24, 2012


The opinion of the court was delivered by: Shira A. Scheindlin, U.S.D.J.


Plaintiffs, New World Trading Co. Ltd. ("New World") and Fujian Uptop Trading Co., Ltd. ("Uptop"), bring this diversity action*fn1 against individual defendant Udi Avshalomov and corporate defendant 2 Feet Productions, Inc. ("2 Feet"). Plaintiffs bring causes of action for fraud and breach of contract against both defendants. Pursuant to Federal Rule of Civil Procedure 12(b)(6) ("Rule 12(b)(6)"), defendants moved to dismiss the Complaint in its entirety. For the following reasons, defendants' motion is granted in part and denied in part.


New World was incorporated in the People's Republic of China*fn3 and

"is in the business of having shoes manufactured by factories in China and selling these shoes to wholesalers abroad."*fn4 New World does not have an export license, which is needed in China to export goods out of the country.*fn5 Uptop is a trading company, also incorporated in China, which has such an export license.*fn6 New World exports its shoes through Uptop, which takes title to the shoes and exports them in its name.*fn7 K.J. Kim is the President of New World.*fn8 Avshalomov is the Chairman and Chief Executive Officer of 2 Feet.

From March 17 through March 20, 2010, Kim had a series of meetings with Avshalomov at his office in Jinjian City, Fujian, China.*fn9 The sales terms of various shoe designs were discussed and agreed upon in these meetings.*fn10

In each instance, "Avshalomov represented that the defendants would pay in full the amounts then agreed upon."*fn11 According to plaintiffs, "[a]t the time that Avshalomov made these representations, they were false, and Avsholomov knew they were false. Avshalomov never intended to pay, or to have 2 Feet pay, the amounts that had been agreed upon."*fn12

On April 1, 2010, 2 Feet began placing orders for shoes, having placed sixty-eight orders in that month alone.*fn13 Relying on defendants' representations, New World began ordering the production of the shoes ordered by 2 Feet.*fn14 The shoes manufactured at the behest of New World were shipped out by Uptop and accepted by the defendants.*fn15 Defendants proceeded to pay part of the amount owed through wire transfers.*fn16 Out of the total owed of $2,776,909.20, defendants paid $1,918,446.85, leaving a balance of $858,462.35.*fn17 Plaintiffs seek this amount in compensatory damages as well as $1,000,000.00 in punitive damages.*fn18


In deciding a motion to dismiss pursuant to Rule 12(b)(6), the court must "accept[] all factual allegations in the complaint as true, and draw[] all reasonable inferences in the plaintiff's favor."*fn19 The court evaluates the sufficiency of a complaint under the "two-pronged approach" advocated by the Supreme Court in Ashcroft v. Iqbal.*fn20 First, "[a] court 'can choose to begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth.'"*fn21 "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice" to withstand a motion to dismiss.*fn22 Second, "[w]hen there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement for relief."*fn23

To survive a Rule 12(b)(6) motion to dismiss, the allegations in the complaint must meet a standard of "plausibility."*fn24 A claim is facially plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged."*fn25

Plausibility "is not akin to a probability requirement;" rather, plausibility requires "more than a sheer possibility that a defendant has acted unlawfully."*fn26

"In considering a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6), a district court may consider the facts alleged in the complaint, documents attached to the complaint as exhibits, and documents incorporated by reference in the complaint."*fn27 The court may consider matters that are subject to judicial notice.*fn28 The court may also consider a document that is not incorporated by reference, "where the complaint 'relies heavily upon its terms and effect,' thereby rendering the document 'integral' to the complaint."*fn29


A. Fraud

1. Particularity

"A claim for fraud under New York law requires a showing of: '(1) a misrepresentation or material omission of fact which was false and known to be false by defendant, (2) made for the purpose of inducing the other party to rely upon it, (3) justifiable reliance of the other party on the misrepresentation or material omission, and (4) injury.'"*fn30 Federal Rule of Civil Procedure 9(b) provides that: "In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake." Thus, "allegations [of fraud] must be supported by the pleadings of specific facts tending to show that, at the time the defendant made the asserted representations and promises, it never intended to honor its stated intentions."*fn31

Here, plaintiffs allege that "Ashalomov [sic] again represented and agreed that the defendants would pay the amounts that were fixed based upon the price to be quoted."*fn32 Plaintiffs further allege that "[a]t the time that Avsholomov [sic] made these representations, they were false, and Avsholomov knew they were false. Avshalomov never intended to pay, or to have 2 Feet pay, the amounts that had been agreed upon."*fn33 These conclusory allegations satisfy neither the particularity requirements of Rule 9(b) nor the elements of fraud under New York law. Moreover, the allegations of defendants' contemporaneous intent to withhold payment is belied by plaintiffs' admission that defendants already paid a large portion of the amount allegedly due.*fn34 Thus, plaintiffs' fraud claim is dismissed for failure to plead with sufficient particularity.*fn35

2. Overlapping Claims

"It is black letter law in New York that a claim for common law fraud will not lie if the claim is duplicative of a claim for breach of contract."*fn36 Here, plaintiffs' conclusory allegations of fraud are premised upon an alleged breach of contract, i.e., defendants' refusal to pay the entire amount due. "[A] duplicative fraud claim may not be brought alongside a breach of contract claim unless the plaintiff distinguishes the two by (1) demonstrating a legal duty separate from the duty to perform under the contract, (2) demonstrating a fraudulent misrepresentation collateral or extraneous to the contract, or (3) seeking special damages caused by the misrepresentation and unrecoverable as contract damages."*fn37 Because defendants' alleged promise to pay the full amount due was not "collateral" or "extraneous" to the contract in dispute, plaintiffs' fraud claim is duplicative of the breach of contract claim. Moreover, allegations that a defendant knowingly made a false statement indicating a present intention to perform under a contract are insufficient to state a claim of fraud under New York law.*fn38 Courts have repeatedly rejected attempts by plaintiffs to convert breach of contract claims into fraud claims by merely alleging that defendants never intended to fulfill their contractual duties.*fn39

Thus, defendants' motion to dismiss plaintiffs' cause of action sounding in fraud is granted. That claim is dismissed with prejudice.

B. Breach of Contract

"To form a valid contract under New York law, there must be an offer, acceptance, consideration, mutual assent and intent to be bound."*fn40 Under New York's Uniform Commercial Code, "[a] contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract."*fn41 According to the Second Circuit:

"To create a binding contract, there must be a manifestation of mutual assent sufficiently definite to assure that the parties are truly in agreement with respect to all material terms." Express Indus. & Terminal Corp. v. N.Y. State Dep't of Transp., 93 N.Y.2d 584, 589 (1999) (citation omitted). There must be "an objective meeting of the minds sufficient to give rise to a binding and enforceable contract." Id. "[A] mere agreement to agree, in which a material term is left for future negotiations, is unenforceable." Joseph Martin, Jr., Delicatessen, Inc. v. Schumacher, 52 N.Y.2d 105, 109 (1981) (citation omitted). However, "not all terms of a contract need be fixed with absolute certainty." Express Indus., 93 N.Y.2d at 589. "[A] contract is not necessarily lacking in all effect merely because it expresses the idea that something is left to future agreement." May Metro. Corp. v. May Oil Burner Corp., 290 N.Y. 260 (1943). "[A]t some point virtually every agreement can be said to have a degree of indefiniteness," but "parties . . . should be held to their promises." Cobble Hill Nursing Home v. Henry & Warren Corp., 74 N.Y.2d 475, 483 (1989).*fn42

Thus, under New York law, a party asserting a breach of contract must allege: "(1) a contract; (2) performance by the party seeking recovery; (3) breach of the contract by the other party; and (4) damages attributable to the breach."*fn43

In arguing that plaintiffs failed to allege any of the contractual terms necessary to form a contract, defendants cite Key Items, Inc. v. Ultima Diamonds, Inc.*fn44 However, in Key Items, the court found the existence of an oral contract, stating as follows:

Drawing all inferences in Key Items' favor, however, the complaint alleges that Ultima Diamonds ordered goods from Key Items which Key Items delivered, that the parties agreed on the quantity, pricing method, product specifications and delivery dates for the jewelry and that this agreement was confirmed via e-mail by Key Items. Key Items has, thus, alleged all the essential elements of a breach of contract claim -- offer, acceptance, consideration, and mutual assent. See McFadden v. Clarkeson, CV 09--0112, 2010 WL 2076001 at *4 (E.D.N.Y. May 18, 2010) (mutual assent exists where "there has been a meeting of the minds between the parties on all essential terms of the agreement."); Lomaglio Assocs. Inc. v. LBK Mktg. Corp., 94 Civ. 3208(KTD), 1999 WL 705208 at *6 (S.D.N.Y. Sept. 10, 1999) (Duffy, D.J.), citing Fakhoury Enters., Inc. v. J.T. Distribs., 94 Civ. 2729(PKL), 1997 WL 291961 at *3 (S.D.N.Y. June 2, 1997) (Leisure, D.J.) ("In a contract for a sale of goods, the essential terms are quantity, price, and time and manner of delivery. The fact that one or more of these terms is left open is not fatal"). Key Items has also properly alleged an intent to be bound to the oral agreement. The factors relevant to such a determination are: "(1) any explicit statement that only a writing shall be binding; (2) partial performance; (3) complete negotiation of all terms; and (4) whether the subject matter of the contract is one that normally requires a written agreement." Pearce v. Manhattan Ensemble Theater, Inc., 528 F.Supp.2d 175, 179 (S.D.N.Y. 2007) (Wood, D.J.), citing R.G. Grp., Inc. v. Horn & Hardart Co., 751 F.2d 69, 75--76 (2d Cir.1984). In this case, there was no statement that the parties would not be bound absent a written agreement, Key Items alleges that it delivered goods pursuant to the alleged contract, and, as noted above, nearly all essential terms were negotiated. Key Items has, therefore, properly alleged the existence of a contract. See Bazak Int'l Corp. v. Tarrant Apparel Grp., 378 F.Supp.2d 377, 389--90 (S.D.N.Y. 2005) (Marrero, D.J.) (e-mail confirming oral agreement created issues of fact concerning whether parties intended to be bound).*fn45

Here, as in Key Items, plaintiffs have alleged all of the terms needed to form an enforceable contract. With regard to quantity, plaintiffs alleged that 2 Feet placed a total of seventy-two orders. With regard to price, plaintiffs alleged that defendants owe them a total of $2,776,909.20 for the orders placed. With regard to the terms of delivery, plaintiffs alleged that the shoes would be shipped out by Uptop. Moreover, as for mutual assent, plaintiffs allege that "[t]he terms of the sales of the various designs of shoes were discussed and agreed upon in each of the meetings" that took place between Kim and Avshalomov in March 2010.*fn46 Finally, plaintiffs allege that they performed their part of the contract by supplying the requested shoes but that defendants only partially performed their end by making only partial payment. Thus, in keeping with the spirit of Federal Rule of Civil Procedure 8, plaintiffs have sufficiently alleged the existence of a contract and defendants' breach thereof. Defendants' motion to dismiss plaintiffs' breach of contract claim is therefore denied.

C. Personal Liability

Plaintiffs seek to impose personal liability on Avshalomov for the debt owed by 2 Feet. In imposing individual liability, plaintiffs do not attempt to pierce the corporate veil. Instead, plaintiffs claim that Avshalomov represented that both he and 2 Feet would pay in full the amounts owed.*fn47 By doing so, Avshalomov arguably agreed that he personally, as well as 2 Feet, would be responsible for payments under the contract. For the following reasons, plaintiffs' allegations are insufficient to individually bind Avshalomov to the debts of 2 Feet.

Because corporations are not natural persons, they must necessarily act through their officers and other duly authorized agents.*fn48 Accordingly, under New York law, an agent who signs an agreement on behalf of a disclosed principal will not be individually bound to the terms of the agreement "unless there is clear and explicit evidence of the agent's intention to substitute or superadd [sic] his personal liability for, or to, that of his principal." Mencher v. Weiss, 306 N.Y. 1, 4 (1953). The rationale behind this rule is that, "[i]n modern times most commercial business is done between corporations," not individual stockholders or officers of the corporation, who, in many instances, own little or no stock in the corporation. Salzman Sign Co. v. Beck, 10 N.Y.2d 63, 67 (1961). An individual who is only an indirect beneficiary of the agreement thus should not be directly bound to the terms of the agreement absent clear evidence of an intent to create individual liability.*fn49

Rarely have New York courts imposed individual liability for the acts of an agent working for a disclosed principal.*fn50 The factors a court will consider in determining whether a corporate officer should be personally bound include: "the length of the contract, the location of the liability provision(s) in relation to the signature line, the presence of the signatory's name in the agreement itself, the nature of the negotiations leading to the contract, and the signatory's role in the corporation."*fn51

Here, plaintiffs have merely alleged that Avshalomov verbally represented that "the defendants" would pay the amounts due and owing. Other than this conclusory allegation, plaintiffs have not alleged that Avshalomov signed a contract in his individual capacity, that his name appears anywhere in any writing, or that he verbally represented his intention to assume personal liability. Nor is there any indication of a personal guarantee clause anywhere. Use of the word "defendants" in the plural does not, by itself, impose individual liability on an officer-agent such as Avshalomov.*fn52 Accordingly, plaintiffs' breach of contract claim against Ashalomov individually is dismissed. However, plaintiffs are given leave to amend their Complaint and plead additional facts establishing Avshalomov's personal liability, if any such facts exist.


For the foregoing reasons, plaintiffs' fraud claim is dismissed with prejudice. Furthermore, plaintiffs' breach of contract claim against Avshalomov is dismissed, with leave to amend. If plaintiffs choose to amend, their Amended Complaint must be submitted to this Court and served on their adversary by October 19, 2012. An initial conference has been scheduled for October 29, 2012, at 3:30 p.m., in Courtroomm 15C. The parties must bring a completed Scheduling Order, which can be found on the Court's website ( to this conference. The Clerk of the Court is directed to close the motion to dismiss (Docket Entry #5).


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