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Sekisui America Corp. v. Hart

October 17, 2012

SEKISUI AMERICA CORPORATION AND SEKISUI MEDICAL CO., LTD., PLAINTIFFS,
v.
RICHARD HART AND MARIE LOUISE TRUDEL-HART, DEFENDANTS.



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

OPINION AND ORDER

I. INTRODUCTION

Richard Hart and Marie Louise Trudel-Hart bring this motion to dismiss claims for breach of contract and fraud by Sekisui America Corporation ("SAC") and Sekisui Medical Co., Ltd. ("SMD," together "Sekisui") under Rule 12(b)(6) of the Federal Rules of Civil Procedure. For the following reasons, the Harts' motion to dismiss is granted in part and denied in part.

II. BACKGROUND

SAC is a Delaware corporation with its principal place of business in New Jersey.*fn1 SMD is a sister company of SAC with its principal place of business in Japan.*fn2 Hart and Trudel-Hart are Connecticut residents.*fn3 Hart founded American Diagnostics, Inc., ("ADI") a company engaged in the discovery, manufacture and marketing of novel medical diagnostic products,*fn4 in 1982.*fn5 The Harts owned 95.94% of ADI.*fn6 Hart served as the President of ADI and oversaw theoperation of the company.*fn7

In 2007, the Harts sought a buyer for ADI.*fn8 In September 2008, ADI's advisory company, Crosstree Capital Partners, contacted SMD to determine SMD's interest in acquiring ADI.*fn9 In October 2008, ADI sent SMD a Confidential Memorandum containing information about ADI's financial situation and products.*fn10 Specifically, the memorandum contained information regarding the development of a new breast cancer diagnostic known as FEMTELLE.*fn11

On December 10, 2008, SMD sent the Harts a Letter of Intent expressing its interest in acquiring ADI, including FEMTELLE, for $25,500,000.*fn12

SMD and the Harts executed the Letter of Intent on December 10, 2008.*fn13 SMD then retained KPMG to conduct due diligence of ADI.*fn14 The due diligence revealed that Hart had fired ADI's Chief Financial Officer as well as two junior accountants in the week before ADI sent SMD the Confidential Memorandum.*fn15

SAC later learned that Hart had ordered ADI's primary contact with the FDA to "stay away" from KPMG during this period.*fn16

On March 5, 2009, SAC executed a Stock Purchase Agreement ("SPA") with the Harts and the other shareholders of ADI to purchase the shares of ADI for $25,500,000.*fn17 Hart remained the CEO of ADI following the transaction.*fn18 On March 15, 2009, ADI submitted a 510(k) premarket notification for FEMTELLE to the FDA.*fn19 The FDA requested additional information regarding studies and device history on May 27, 2009.*fn20 SAC then learned that ADI had submitted a FEMTELLE 510(k) in 2007 based on the same studies and tests that SAC relied on in its 2009 submission.*fn21 The FDA deemed the submission withdrawn on May 19, 2008, because ADI had provided insufficient information.*fn22 Sekisui now alleges that the Harts fraudulently induced them into executing the SPA by failing to notify them of the previous submission and that the Harts breached the warranties and representations in the SPA.*fn23
Jurisdiction is premised on diversity of citizenship.*fn24 Venue in this district is proper because the SPA that defendants allegedly breached provides that all actions arising out of that agreement must be litigated only in a state or federal court located in New York County*fn25 and because the dispute arises out of the transaction of business in this district.*fn26 As this matter is here on diversity of citizenship, the substantive law of New York applies.*fn27

III. LEGAL STANDARD

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."*fn28 The court evaluates the sufficiency of a complaint under the "two-pronged approach" advocated by the Supreme Court in Ashcroft v. Iqbal.*fn29 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.'"*fn30 "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice" to withstand a motion to dismiss.*fn31 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."*fn32

To survive a Rule 12(b)(6) motion to dismiss, the allegations in the complaint must meet a standard of "plausibility."*fn33 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."*fn34

Plausibility "is not akin to a probability requirement;" rather, plausibility requires "more than a sheer possibility that a defendant has acted unlawfully."*fn35

IV. APPLICABLE LAW

A. Breach of Contract

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; ...


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