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Russell Publishing Group, Ltd. v. Brown Printing Co.

United States District Court, S.D. New York

December 2, 2014

RUSSELL PUBLISHING GROUP, LTD., Plaintiff,
v.
BROWN PRINTING COMPANY, Defendant.

Richard Pu, Esq., Richard Pu, P.C., New York, New York, for RPG.

Sammi Malek, Esq., Stephen L. Ball, Esq., Baker & Hostetler LLP, New York City, New York, for Brown.

OPINION AND ORDER

SHIRA A. SCHEINDLIN, District Judge.

I. INTRODUCTION

In an Opinion and Order dated April 3, 2014 ("April 3 Order"), I dismissed the following six claims brought by Russell Publishing Group, Ltd. ("RPG") and its owner, Jane Russell, against Brown Printing Company ("Brown"): (1) breach of the covenant of good faith; (2) common law fraud; (3) breach of fiduciary duty pecuniary loss; (4) breach of fiduciary duty - emotional distress; (5) conversion; and (6) an accounting.[1] Following the dismissal of these claims, only one claim remained: breach of contract.[2] On April 10, 2014, RPG moved for reconsideration of the April 3 Order.[3] I denied that motion in a Memorandum Opinion and Order dated April 21, 2014 ("April 21 Order").[4]

On August 13, 2014, I granted RPG leave to amend its complaint for the purpose of repleading its fraud claim.[5] Brown now moves pursuant to Federal Rule of Civil Procedure ("Rule") 12(b)(6) to dismiss RPG's amended fraud claim, [6] as well as pursuant to Rule 12(f) to strike RPG's "demand for punitive damages and damages for lost advertising revenue, lost advertising accounts, and loss of profits or business."[7] For the reasons that follow, Brown's motion to dismiss is GRANTED, and Brown's motion to strike is GRANTED.

II. BACKGROUND

A. RPG's Initial Complaint and First Amended Complaint

The dispute in this case arises out of the alleged overbilling by Brown for printing services it rendered to RPG pursuant to a five-year contract between the two parties (the "Printing Agreement").[8] RPG filed its Complaint against Brown in July 2013.[9] However, faced with a motion to dismiss, [10] RPG amended its complaint as of right (the "First Amended Complaint" or "FAC").[11]

The First Amended Complaint alleged seven causes of action: (1) breach of contract; (2) breach of the covenant of good faith; (3) common law fraud; (4) breach of fiduciary duty - pecuniary loss; (5) breach of fiduciary duty-emotional distress; (6) conversion; and (7) an accounting.[12] RPG alleged that Brown had fraudulently, and in violation of the Printing Agreement, overbilled RPG for printing services from 2007 to 2012.[13] RPG also alleged that Brown had acted as an advisor to RPG by offering advice, recommending vendors, and acting as an intermediary in negotiations between RPG and a third party.[14] RPG alleged further that Brown's online advertisements, [15] as well as statements made by Brown to RPG, [16] reinforced RPG's view of Brown as an advisor.[17] Brown later breached this advisory role, RPG alleged, when Brown took "advantage of [Jane Russell, ] a recently widowed woman suffering from a serious illness[, ] to engage in a systematic pattern of overbilling."[18]

B. RPG's First Amended Complaint Is Dismissed

On October 30, 2013, Brown renewed its motion to dismiss, [19] which I granted in the April 3 Order.[20] In granting Brown's motion to dismiss, I held, among other things, that (1) the facts, as alleged in the First Amended Complaint, "cannot give rise to a strong inference of Brown's intent to defraud [RPG;]" (2) "RPG was in a position to review Brown's invoices and discover the overbilling at any time[;]" (3) "RPG had no legal duty separate from the duty to perform under the contract[;]" and (4) "[t]he facts contained in the [First Amended] Complaint do not allege that Brown intended to undertake any fiduciary duty or that its relationship with RPG amounted to more than an arm's length business transaction."[21] I also found that Section 5.3 of the Printing Agreement permitted Brown to retain three issues of RPG's magazines until RPG paid all outstanding invoices.[22]

C. RPG's Motion for Reconsideration Is Denied

RPG moved for reconsideration of the April 3 Order, arguing that the Court had overlooked certain facts and case law in dismissing its claims.[23] I denied RPG's motion for reconsideration, finding, with respect to RPG's fraud claim, that "Brown is a sophisticated professional printing company and RPG is a sophisticated professional publisher, who has contracted with printers in the past. Brown had no reason to believe it owed RPG a duty of candor."[24] With respect to RPG's breach of fiduciary duty claim, I found that (1) "[m]erely describing the parties' relationship as close or trusting is not sufficient to make it anything other than an ordinary, arms' length business relationship[;]" and (2) "advertising from Brown's website and an email from Brown's president offering to credit plaintiffs' account... do not show any unique degree of confidence or trust between the parties."[25]

D. RPG's Second Amended Complaint

Nearly four months later, on August 13, 2014, I granted RPG leave to amend its complaint (the "Second Amended Complaint" or "SAC") and replead its fraud claim.[26] In repleading its fraud claim, RPG alleges the following facts (most of which RPG previously pleaded in the First Amended Complaint).[27]

1. Brown Overbills RPG for Paper

RPG alleges that the Printing Agreement restricts the price Brown can charge RPG for paper.[28] RPG argues that this restriction amounts to, at most, a three percent markup on Brown's direct costs for paper.[29] However, RPG alleges that Brown "systematically" and fraudulently billed RPG for paper by more than three percent.[30] RPG contends that Brown exceeded the three percent markup in fifty-eight out of seventy-two invoices, and that, on some occasions, the markup went as high as thirty-five percent.[31]

RPG alleges further that it "didn't have the information about what Brown was paying for paper" and that "[w]hen [RPG] asked to see [Brown's] paper bills, [Brown] refused."[32] Moreover, RPG notes that it could not ascertain Brown's direct costs for paper by viewing Brown's vendors' bills because Brown kept those bills "confidential.[33]

2. Brown Reconfigures RPG's Magazines

While "bereaved by the death of her husband, "[34] Jane Russell tasked Gary McGowen, an RPG employee, with reviewing the invoices from Brown[35] McGowen had no familiarity with the Printing Agreement, and RPG alleges that McGowen acted primarily as a conduit of information between RPG and Brown.[36] Nevertheless, RPG alleges that Brown seized upon McGowen's ignorance by "sen[ding] [RPG] a new quote which changed the configuration of [RPG's magazines] in a way that increased the [charge to RPG] by about $800 per magazine."[37]

At some later time, however, Jane Russell "asked [Brown] who had been responsible for the [reconfiguration]."[38] Brown admitted to the reconfiguration, but stated that the reconfiguration had been "an oversight... and [took] full responsibility."[39]

3. Brown's Increased Use of Pallets

Brown bills RPG for each pallet used to transport RPG's magazines.[40] Prior to March 2010, Brown had shipped RPG's magazines to RPG's warehouse.[41] This allowed RPG to determine the number of pallets used in transporting its magazines.[42] But in March 2010, Brown began shipping RPG's magazines to a professional distributor.[43] At that point, RPG could no longer determine how many pallets Brown used.[44] RPG alleges that thereafter Brown "misrepresented the number of pallets used to ...


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