Summary
dismissing breach of contract claim because plaintiffs failed to identify contractual provisions that defendant breached
Summary of this case from Wolff v. Rare Medium, Inc.Opinion
99 Civ. 8556 (JGK)
September 4, 2000
For the plaintiffs, Russel H. Beatie, Esq., Beatie Osborn, New York, NY.
For the defendant, James E. Tyrrell, Jr., Esq., Latham Watkins, New York, NY.
OPINION AND ORDER
This is a purported class action brought by Lewis Tree Service, Inc. ("LTS"), Ned Davis Research, Inc. ("NDR"), and Ironman Magazine ("Ironman") against ATT Corporation ("ATT") and ATT's successor, Lucent Technologies Inc. ("Lucent"). The plaintiffs, asserting the Court's jurisdiction under 15 U.S.C. § 6614 (c)(1), allege that various products sold by the defendants are "Y2K defective" inasmuch as they are unable to process information containing dates after December 31, 1999. The defendants now move to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b).
I.
On a motion to dismiss, the allegations in the complaint are accepted as true. See Cohen v. Koenig, 25 F.3d 1168, 1172-73 (2d Cir. 1994). In deciding a motion to dismiss, all reasonable inferences must be drawn in the plaintiff's favor. See Gant v. Wallingford Bd. of Educ., 69 F.3d 669, 673 (2d Cir. 1995); Cosmas v. Hasset, 886 F.2d 8, 11 (2d Cir. 1989). The court's function on a motion to dismiss is "not to weigh the evidence that might be presented at trial but merely to determine whether the complaint itself is legally sufficient." Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985). Therefore, the defendant's motion should only be granted if it appears that the plaintiff can prove no set of facts in support of his claim that would entitle him to relief. See Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Valmonte v. Bane, 18 F.3d 992, 998 (2d Cir. 1994); see also Goldman, 754 F.2d at 1065.
II.
For the purposes of this motion, the following allegations are assumed to be true. LTS leased an ATT Merlin Legend telephone system with Integrated Solution III ("IS-III") on December 19, 1994. NDR purchased an ATT Merlin Legend telephone system with IS-III in April 1995. Ironman leased an ATT Merlin Legend telephone system with Conversant Intro v.3.1.1 on February 12, 1996. (Second Amended Complaint ("SAC") ¶¶ 8-10.)
In addition to other products manufactured and sold by the defendants, all versions of the Merlin Legend CMS, various versions of the IS-III Platform, and Conversant VIS Intro version 3.1.1 suffer from the Y2K defect. According to the Second Amended Complaint, which was filed on November 15, 1999, the defect will cause the products to shut down, fail, or produce corrupted data when they must process information containing dates after December 31, 1999. (SAC ¶¶ 1, 24-25, 77, 82-83.)
To avoid the problems associated with the Y2K defect, the plaintiffs must repair, replace or upgrade their telecommunications systems. (SAC ¶ 26.) In order to repair, replace or upgrade its telecommunications system with Y2K compliant products, plaintiff LTS paid defendant Lucent approximately $8,476 for additional software and hardware that Lucent claimed was Y2K compliant. (SAC ¶¶ 27-28.) Rather than accept a solution offered by Lucent, plaintiff NDR paid a deposit by check to another company for a contract to repair NDR's telecommunications system. (SAC ¶ 32.) Lucent offered plaintiff Ironman a "software patch" to make Ironman's system Y2K compliant until December 31, 2001 for $1,545 plus $1,000 for installation; as an alternative, Lucent also offered to install and service additional Lucent equipment at a cost of $44,129. (SAC ¶¶ 33-34.) The repairs, replacements and upgrades intended to obviate the Y2K defect are a source of profit for the defendants. (SAC ¶¶ 58-60.)
Defendant ATT knew about the Y2K defect at least since the mid-1980's. Lucent and ATT marketed and sold, leased, or transferred the defective products without telling their customers about the Y2K defect. Smaller customers were unaware of the problem, and the defendants failed to disclose it. The defendants had the knowledge and the technology to fix the Y2K problem after 1990, however the defendants took no effective steps to fix the problem or to make their telecommunications equipment Y2K compliant. (SAC ¶¶ 86-89, 94.)
The defendants knew or had reason to know the particular purpose for which the plaintiffs would use the defendants' telecommunications products. The defendants' sales and advertising materials touted the defendants' telecommunications products as being able to carry businesses "beyond the year 2000 with state-of-the-art memory technology" and made other similar claims about the future. (SAC ¶¶ 95, 97-99.) At the time that the defendants' telecommunications products were sold, the defendants knew that the products would be inoperable, ineffective, and obsolete whenever the products were required to process information containing dates after December 31, 1999. (SAC ¶ 100.) The plaintiffs signed form contracts which had standard disclaimers of implied and express warranties. (SAC ¶ 96.)
The plaintiffs assert six causes of action. The plaintiffs assert that the defendants: (i) violated the New Jersey Consumer Fraud Act; (ii) breached implied warranties of merchantability and fitness for a particular purpose; (iii) breached contracts; (iv) breached express warranties; (v) committed common law fraud; and, (vi) breached the duty of good faith and fair dealing. The defendants move to dismiss the Second Amended Complaint pursuant to Fed.R.Civ. p. 12(b)(3) and 12(b)(6)
III.
The parties agree that this action is governed by the Y2K Act, 15 U.S.C. § 6601 et. seq. The defendants argue that the complaint must be dismissed because the plaintiffs have failed to satisfy the pleading requirements of the Y2K Act. The Act requires that "[i]n all Y2K actions in which damages are requested, there shall be filed with the complaint a statement of specific information as to the nature and amount of each element of damages and the factual basis for the damages calculation." 15 U.S.C. § 6607 (b). The Act further requires that "[i]n any Y2K action in which the plaintiff alleges that there is a material defect in a product or service, there shall be filed with the complaint a statement of specific information regarding the manifestations of the material defects and the facts supporting a conclusion that the defects are material." 15 U.S.C. § 6607 (c).
The Y2K Act "supersedes State law to the extent that it establishes a rule of law applicable to a Y2K action that is inconsistent with State law," 15 U.S.C. § 6603 (e), but otherwise provides for the continued applicability of relevant state law. See 15 U.S.C. § 6603.
The plaintiffs have failed to satisfy these pleading requirements. of the three named plaintiffs, only LTS, which alleges that it paid approximately $8,476 in order to make its telecommunications system Y2K compliant, has provided a statement that even arguably specifies "the nature and amount of each element of damages and the factual basis for the damages calculation." While the Second Amended Complaint alleges that NDR paid a deposit by check to someone other than the defendants for a contract to repair NDR's telecommunications system, the complaint does not specify the amount of the deposit, does not state whether the contract was actually performed, and does not even allege that the deposit was actually retained by the third party. With respect to plaintiff Ironman, the Second Amended Complaint alleges that defendant Lucent offered Ironman certain fixes for specified sums, but the complaint does not allege that Ironman accepted any of the fixes and does not allege that Ironman paid any money for those fixes. Thus, at least with respect to NDR and Ironman, the Second Amended Complaint fails to satisfy the pleading requirement established by 15 U.S.C. § 6607 (b)
Moreover, the Second Amended Complaint, which was filed on November 15, 1999, neither specifies any manifestations of the alleged material defects nor provides any facts supporting a conclusion that the alleged defects are material. The complaint alleges only that the purported Y2K defect "will" cause the plaintiffs' telecommunications products "to shut down, fail, or produce corrupted data when they must process information containing dates after December 31, 1999." SAC ¶ 25. The Second Amended Complaint does not allege that the purported Y2K defect has in fact caused the plaintiffs' products to shut down, fail or produce corrupted data when processing information containing dates after December 31, 1999. Thus, the Second Amended Complaint fails to satisfy the pleading requirement established by 15 U.S.C. § 6607 (c). Because it fails to satisfy the pleading requirements of the Y2K Act, the Second Amended Complaint must be dismissed.
IV.
Even if it complied with the pleading requirements of the Y2K Act, which it does not, the Second Amended Complaint would still have to be dismissed in its entirety with respect to NDR, and the First, Third, Fifth and Six Causes of Action would have to be dismissed with respect to LTS and Ironman.
A.
The defendants argue with respect to plaintiff NDR that venue is not proper in the Southern District of New York and therefore move to dismiss NDR's claims pursuant to Fed.R.Civ.P. 12(b)(3). The defendants assert that the contract on which NDR relies specifies "the circuit courts of Hillsborough County," Florida as the "exclusive venue" "in the event of any litigation" to enforce or construe its terms. Equipment Agreement, dated April 24 and 26, 1995, § 16, attached as Ex. C to Affidavit of J. Jeffrey Wiessler ("Wiessler Aff."), sworn to February 25, 2000. Inasmuch as the Second Amended Complaint alleges that the defendants breached their contract with NDR, the Second Amended Complaint incorporates by reference the allegedly breached contract and the Court may consider the terms of that contract on a motion to dismiss. See Allworld Communications Network, L.L.C. v. MCI Worldcom, Inc., No. 99 Civ. 4256, 2000 WL 1013956, at *2 n. 1 (S.D.N.Y. July 24, 2000); Cary Oil Co. v. MG Refining and Marketing, Inc., 90 F. Supp.2d 401, 407 n .19 (S.D.N.Y. 2000).
The Supreme Court has stated that a "forum clause should control absent a strong showing that it should be set aside." M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15 (1972). To avoid enforcement of a forum-selection clause, the party resisting its enforcement must clearly demonstrate that enforcement of the clause "would be unreasonable and unjust, or that the clause was invalid for such reasons as fraud or overreaching." Id at 15. See also Evolution Online Systems, Inc. v. Koninklijke PTT Nederland N.V., 145 F.3d 505, 509-10 (2d Cir. 1998). Making the necessary showing is "difficult." Poddar v. State Bank of India, 79 F. Supp.2d 391, 393 (S.D.N.Y. 2000) Here, the plaintiffs do not dispute the fact that the contract which NDR signed designates the Hillsborough County, Florida circuit courts as the exclusive venue in the event of litigation, and the plaintiffs do not claim that the forum-selection clause is the result of fraud or overreaching. While the plaintiffs do argue in fairly conclusory terms that New York provides a less expensive and more convenient forum for NDR's claims, they have not made a clear showing that enforcement of the forum-selection clause would be unreasonable or unjust. Therefore, separate and apart from the plaintiffs' failure to satisfy the pleading requirements of the Y2K Act, all of NDR's claims must be dismissed on grounds of improper venue.
B. 1.
The plaintiffs' First Cause of Action alleges violation of the New Jersey Consumer Fraud Act, N.J. Stat. Ann. §§ 56:8-1 et seq. As an initial matter, the contract on which NDR relies specifies that the "Agreement shall be construed and performed in accordance with the laws of the state in which the Equipment is installed." Equipment Agreement, § 22. The plaintiffs do not dispute the fact that the telecommunications equipment to which the contract refers was installed in Florida. Thus, under the terms of the contract, the law of Florida governs the contract and NDR cannot maintain a cause of action under the New Jersey Consumer Fraud Act. Therefore, the First Cause of Action must in any event be dismissed with respect to NDR.
The contract that LTS signed provides that "[t]he construction, interpretation and performance of this Agreement shall be governed by the local laws of the State of New Jersey." Purchase Agreement, dated December 19, 1994, § 17, attached as Exs. A and B to Wiessler Aff. The lease agreement signed by Ironman does not appear to contain a choice-of-law provision, see Wiessler Aff., Ex. D, but the plaintiffs generally allege that lessees, presumably including Ironman, signed leases specifying New Jersey law as the law by which they are to be governed. See SAC ¶ 96. The defendants have submitted what purports to be a purchase agreement signed by Ironman on December 29, 1995. See Supplemental Affidavit of J. Jeffrey Wiessler, sworn to March 3, 2000 ("Wiessler Supp. Aff."), Ex. A. The defendants assert that the purchase agreement contains a New Jersey choice-of-law provision at paragraph 18 of the agreement. See Wiessler Supp. Aff. ¶ 3. At oral argument on this motion, counsel for Ironman disputed that it signed the purchase agreement, although Ironman did not dispute the contract in its papers. See Pl. Mem. at 22. In any event, neither party explains the relationship between the purchase agreement and the lease agreement.
In view of the dispute as to the authentic agreement applicable to Ironman, the Court cannot decide on this motion whether Ironman is bound to pursue its claims in arbitration pursuant to the alleged purchase agreement.
2.
Fed.R.Civ.P. 9(b) provides that "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." Like fraud claims generally, a claim under the New Jersey Consumer Fraud Act "must meet Rule 9(b) "s particularity requirement." Zaro Licensing, Inc. v. Cinmar, Inc., 779 F. Supp. 276, 286 (S.D.N.Y. 1991). See also Naporano Iron Metal Co. v. American Crane Corp., 79 F. Supp.2d 494, 512 (D.N.J. 1999). "In order to satisfy Rule 9 (b), `the complaint must (1) specify 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.'" Impact Shipping, Inc. v. City of New York, No. 95 Civ. 2428, 1997 WL 297039, at *10 (S.D.N.Y. June 3, 1997) (quoting Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir. 1993)). Because the Second Amended Complaint does not meet these requirements, either with respect to the First Cause of Action, brought under the New Jersey Consumer Fraud Act, or with respect to the Fifth Cause of Action, which alleges common law fraud, the plaintiffs' First and Fifth Causes of Action must be dismissed.
With the exception of certain statements allegedly contained in a promotional brochure, see SAC ¶¶ 97-99, the Second Amended Complaint fails to identify any alleged misrepresentations made by the defendants. As to the purported misrepresentations that are allegedly contained in the promotional brochure, the Second Amended Complaint neither states when and where the brochure was published nor explains why the statements are fraudulent. In their response to the defendants' motion to dismiss the fraud claims, the plaintiffs do not rely on any alleged affirmative misrepresentations by the defendants. Instead, the plaintiffs argue that the defendants failed to disclose the purported Y2K defect. "Proof of fraud requires affirmative misrepresentations or omissions of material information that the defendant has a duty to disclose." Johnson Elec. North America Inc. v. Mabuchi Motor America Corp., 98 F. Supp.2d 480, 489 (S.D.N.Y. 2000). However, because the plaintiffs do not allege that the defendants were under any duty to disclose the purported defect, that there were any partial mistatements, or that there was any relationship other than arms' length buyer-seller relationships, the defendants' alleged failure to disclose it cannot form the basis for a fraud claim.
C.
The Second Cause of Action alleges that the defendants breached implied warranties of merchantability and fitness for a particular purpose. The Fourth Cause of Action alleges that the defendants breached various express warranties. The defendants argue that both the Second and Fourth Causes of Action must be dismissed because the plaintiffs signed contracts that expressly disclaimed all warranties, whether implied or express. The plaintiffs do not dispute the fact that they signed contracts disclaiming implied and express warranties. See SAC ¶ 96. The plaintiffs argue, however, that the disclaimers are ineffective both because they are unconscionable and because they are contained within contracts of adhesion.
This dispute cannot be resolved on this motion. First, with respect to plaintiff Ironman, it is unclear which contract or contracts govern Ironman's relationship with the defendants. Compare Wiessler Aff., Ex. D, with Wiessler Supp. Aff., Ex. A. Second, regardless of which contract governs Ironman's relationship with the defendants, it cannot be said that Ironman and LTS could prove no set of facts that would entitle them to relief.
[I]n determining whether to enforce the terms of a contract of adhesion, courts have looked not only to the take-it-or-leave-it nature or the standardized form of the document but also to the subject matter of the contract, the parties' relative bargaining positions, the degree of economic compulsion motivating the `adhering' party, and the public interests affected by the contract.Rudbart v. North Jersey Dist. Water Supply Com'n, 605 A.2d 681, 687 (N.J. 1992). At this stage in the proceedings, neither the relative bargaining positions of the contracting parties nor the degree of economic compulsion motivating the allegedly "adhering" parties can be determined.
D.
The Third Cause of Action alleges that the defendants breached their contractual obligations to the plaintiffs. The Sixth Cause of Action alleges that the defendants breached the duty of good faith and fair dealing. These allegations, however, are presented in purely conclusory terms. See SAC ¶¶ 124-27, 146. The plaintiffs fail to identify any particular contractual provision that the defendants have allegedly breached, and fail to specify any particular conduct that allegedly breached the duty of good faith and fair dealing. Therefore, because "[t]he Court is not required to accept conclusory allegations even on a motion to dismiss," R.C.M. Executive Gallery Corp. v. Rols Capital Co., No. 93 Civ. 8571, 1997 WL 27059, at *8 (S.D.N Y Jan. 23, 1997), the Third and Sixth Causes of Action must be dismissed. See also Papasan v. Allain, 478 U.S. 265, 286 (1986) ("Although for the purposes of this motion to dismiss we must take all the factual allegations in the complaint as true, we are not bound to accept as true a legal conclusion couched as a factual allegation."). Furthermore, the plaintiffs have not responded to the defendants' arguments concerning the Third and Sixth Causes of Action, thereby waiving any arguments the plaintiffs may have had. While at oral argument, the plaintiffs disclaimed any desire to waive any arguments, they cannot simply ignore the defendants' arguments. This alone is sufficient grounds for dismissing those causes of action.
CONCLUSION
For all of the foregoing reasons, the Second Amended Complaint is dismissed. The plaintiff NDR may, if it so chooses, commence an action in Florida. The plaintiffs LTS arid Ironman may, if they so choose, file a Third Amended Complaint in this Court. If LTS and Ironman elect to proceed with this action, they shall file a Third Amended Complaint within fourteen (14) days of the date on which this Opinion and Order is signed.
The Court has carefully considered all of the arguments presented by the parties. Any argument not expressly discussed above is either moot or without merit.
SO ORDERED.