Opinion
01 Civ. 5554 (HB)
October 15, 2002
OPINION ORDER
Five motions are presently before me, sub judice, in this case. First, Remee Products Corp. ("plaintiff" or "Remee") moves for summary judgment pursuant to Fed.R.Civ.P. ("FRCP") 56(c) with respect to its claims against Sho-Me Electric Cooperative ("Sho-Me") and TM Sales, Inc. ("TMSI") (collectively, "defendants"), and second, Sho-Me cross-moves for summary judgment with respect to the same. Third, defendant Sho-Me moves for leave to amend its answer pursuant to FRCP 15(a), specifically, to add a counterclaim and two affirmative defenses. Fourth, defendant TMSI cross-moves for summary judgment pursuant to FRCP 56(a) dismissing all claims asserted against it by Remee. Fifth and last, defendant Sho-Me moves for sanctions pursuant to FRCP 37(c) dismissing Remee's claim against Sho-Me; precluding Remee from offering any defense to Sho-Me's counterclaim based on any assertion that the fiber optic cable product at issue in this case was not defective; and awarding Sho-Me its expenses and attorneys fees incurred in connection with Remee's motion. Because these five motions share a common set of facts and in several instances overlap, I rule with respect to all five in one opinion and order. For the reasons detailed more filly below, Remee's motion is denied and Sho-Me's cross-motion is also denied; Sho-Me's motion to amend its answer is granted; TMSI's cross-motion for summary judgment is granted in part and denied in part; and Sho-Me's motion for sanctions is denied in part and granted in part. Trial is scheduled to commence on October 29, 2002 with respect to all remaining claims.
A. Back round and Remee's Summary Judgment Motion and Sho-Me's Cross-Motion
for Summary Judgment
Although I provided a factual background in a prior opinion denying Sho-Me's motion to dismiss for lack of personal jurisdiction and improper venue, or, in the alternative, to transfer venue to the Western District of Missouri, see Remee Prods. Corp. v. Sho-Me Power Elec. Corp., 2002 WL 27783 (S.D.N.Y. Jan. 10, 2002), subsequent discovery has generated additional facts — including, not surprisingly, disputed issues of fact. For this reason, I provide a new factual background that incorporates some, though not all, of the facts outlined in that opinion. In addition, the following factual background is applicable to Remee's motion and Sho-Me's cross-motion for summary judgment, as well as to Sho-Me's motion to amend and TMSI's motion for summary judgment.Remee is a New York corporation that manufactures and sells fiber optic cable. Defendant Sho-Me, located in Marshfield, Missouri, is a generation and transmission electrical cooperative that provides wholesale electricity to municipalities and distribution cooperatives in rural Missouri. Defendant TMSI is a manufacturer's agent located in Kansas City, Missouri; Sho-Me has been a longstanding customer of TMSI. (Tuley Aff. ¶¶ 2-3). In or about April 2000, Sho-Me's primary fiber optic cable supplier, Alcoa Fujikura Ltd. ("Alcoa"), advised Sho-Me that it would be unable to supply fiber optic cable within the time frame required by Sho-Me in connection with its plan to install fiber optic cable along its power transmission lines located throughout southwestern Missouri. (Def. Rule 56.1 Statement ¶ 1). Alcoa informed Sho-Me that it would only be able to provide the cable beginning in 2001. Consequently, Sho-Me approached TMSI to discuss the former's need for a large quantity of fiber optic cable. (Tuley Aff. ¶ 5). At or about the same time, Remee contacted TMSI in an effort to solicit TMSI to be its manufacturing representative for fiber optic products in Missouri and Kansas. (Id. ¶ 4). Collins Tuley ("Tuley"), TMSI's principal, informed Sho-Me that Remee, for "whom TMSI acted as a manufacturer's agent, might be able to meet Sho-Me's substantial fiber optic cable needs. From that point on, TMSI acted as the middle man or conduit between Remee and Sho-Me.
According to Remee's National Sales Manager, Mary Galbraith ("Galbraith"), on or about April 17, 2000 Tuley left a voice mail requesting from her various items, including a reference list, an ADSS list, and a copy of Remee's limited product warranty ("warranty"), each of which Remee routinely provides to prospective customers. Galbraith testified that she faxed to Tuley all of the requested documents, including an unexecuted draft agreement that would make TMSI a manufacturer's representative for Remee in the states of Kansas and Missouri. (Id. ¶ 6; TMSI's Rule 56.1 Statement ¶ 9). On or about April 18, 2000, upon learning that Sho-Me was interested in purchasing this cable from Remee, Remee initially quoted to Sho-Me a price of $1.121 per foot for 36 fiber cable. On or about April 28, 2000, Remee revised its price quote to $1.170 per foot. Starting on or about May 1, 2000, Sho-Me began to send purchase orders to Remee, through TMSI, for large quantities of 36 fiber optic cable subject to Alcoa's specifications. Specifically, retail value of the first purchase order was $562,860; of the second, $414,000; of the third, $135,000. (Id. ¶¶ 7-8). Whereas Sho-Me claims that it never discussed or negotiated with Remee a limited warranty to limit or disclaim the implied warranties of merchantability and fitness for a particular purpose with respect to the goods at issue and that these same goods were not listed in Remee's catalogue (Def. Rule 56.1 Statement ¶ 15), Remee appears to argue instead that Sho-Me was fully aware of the limited warranty terms set forth in the catalogue as well as of fact that those terms applied to the goods, but was nevertheless indifferent to the limited warranty. (Pl. Rule 56.1 Statement ¶¶ 23, 35).
Remee insists that Sho-Me was aware of — though chose to ignore — the limited product warranty terms, which read in part that "set forth that the buyer [Sho-Me] must provide seller with written notice of any defect within thirty days of discovery or else waive all claims arising from the defect," (Pl. memorandum of law at 3), and that Sho-Me failed to give notice within this specified period.
On or about June 13, 2000, Remee informed Sho-Me that it was increasing the price of 36 fiber cable to $1.3007 per foot, and that it would continue to supply 5,000 fiber kilometers on a quarterly basis. (Galbraith Aff. ¶ 37). On or about June 26, 2000, Remee offered Sho-Me a year-long arrangement whereby Remee would supply 5,000 fiber kilometers of 36 fiber cable per quarter at a firm price of $1.533 per foot. (Id. ¶ 40). Specifically, Remee sent a letter to Sho-Me indicating that it was raising the price for 36 fiber cable in anticipation of raw material increases. Remee offered to keep a firm price of $1,500 per foot from June 2000 until June 2001 if Sho-Me agreed to purchase 5,000 kilometers per quarter during that period of time. In addition, Remee advised Sho-Me that its firm price offer would expire on August 1, 2000 unless accepted by Sho-Me. (Id. Ex. K). On or about June 29, 2000, Sho-Me accepted the firm price offer by submitting the fourth purchase order, 29187, for 100,000 feet of 36 fiber cable at a price of $1.53 per foot. (Morrison Aff. Ex. WW).
On or about July 27, 2000, Galbraith met with representatives from Sho-Me at Sho-Me's offices in Marshfield, Missouri. During that meeting, Sho-Me's representatives informed Remee of its plans to build a fiber optic network and consequently its urgent need for fiber cable. (Arndt Aff. ¶ 37). At that same meeting, Sho-Me's representatives informed Remee that they were disappointed with Remee' s price increase to $1.53 per foot, especially in light of Alcoa's ability to keep a firm price of $1.30 for 36 fiber cable to be shipped during the first two quarters of 2001. (Id.). In addition, it was also during that meeting that Sho-Me's representatives informed Remee that it wanted to place a large order — over a million feet — and asked Remee to match Alcoa's price of $1.30 per foot for 36 fiber cable. (Id.). Shortly thereafter, Remee agreed to match Alcoa's price, and, accordingly, on August 7, 2000, Sho-Me submitted the fifth purchase order, 29253, for 1,060,000 feet of 36 fiber cable at a price of $1.3007 per foot. (Id. ¶ 38; Galbraith Aff. Ex. M). All but one of Sho-Me's purchase orders was sent directly to TMSI, who had the authority to accept purchase orders and negotiate prices on behalf of Remee. (Id. ¶ 70). A disputed issue of fact exists with respect to whether Remee ever accepted the terms of this purchase order, and consequently whether that order ever created an enforceable contract in the first place. Specifically, whereas Sho-Me contends that Remee accepted purchase order 29253 (Arndt Aff. ¶ 39), Remee maintains that "there was no manifestation of acceptance of all of the material terms of P0 29253 to create an enforceable contract." (Pl. memorandum at 15).
In early September 2000, Sho-Me was apprised that Remee was considering a small price increase for the 36 fiber contained in purchase order 29253. (Galbraith Aff. Ex. R). Sho-Me claims that, because it did not know the exact nature of the price increase for the 36 fiber cable and because of immense pressure imposed by the shortage of fiber optic cable and Sho-Me's need to install large amounts of cable so quickly, it had no choice but to keep purchase order 29253 in place. (Arndt Aff. ¶¶ 11-12). In addition, on or about October 11, 2000, TMSI sent an e-mail to Remee reiterating Sho-Me's urgent need for fiber cable and informing Remee that Sho-Me had contracted to install an additional thirty miles of cable in the White River portion of Missouri by year end. (Id. Ex. C). On or about November 2, 2000, TMSI again e-mailed Remee to inform Remee that Sho-Me "desperately" needed fiber since Sho-Me had, in the prior two weeks, entered into two new contracts to supply fifty miles of fiber optic cable. (Id. Ex. D).
In or about November 2000, Remee learned that Alcoa could not make its anticipated shipment of 36 fiber cable during the first two quarters of 2001. (Id. ¶ 45). Shortly thereafter, Remee sent Sho-Me a revised quotation increasing the price not only for any cable that Remee would in the future provide to Sho-Me, but also for any cable that Sho-Me had previously ordered, including purchase order 29253. (Id. ¶ 46). Between approximately November 15, 2000 and December 6, 2000, the parties exchanged correspondence in which Sho-Me continued to object to Remee's price increases to purchase order 29253, and Remee merely reiterated that it would not honor Sho-Me's August 7, 2000 purchase order at the agreed upon price of $1.30 per foot. (Id. ¶¶ 47-55). In light of pre-existing contractual commitments requiring hundreds of miles of new fiber cable and after seeking another cable supplier in vain, Sho-Me contends that it had no choice but to send Remee revised purchase order 29544, worth approximately $2.3 million, on January 4, 2001, which modified purchase order 29253 to reflect the increased price per foot and which required Remee to ship to Sho-Me more than one million feet of fiber optic cable in multiple shipments. (Tuley Aff. ¶ 8). Remee began to ship the cable pursuant to this new purchase order on January 30, 2001, and continued to ship in February, March, April, and May 2001. (DuSault Aff. Ex. L).
The present dispute between the parties arose when Sho-Me rejected the penultimate shipment of cable delivered pursuant to purchase order 29544 on May 15, 2001. As a preliminary matter, it must be mentioned that the parties — and, in particular, Sho-Me — have failed to articulate precisely why that shipment of purchase order 29544 was rejected. Significantly, Sho-Me openly admits that it did not know that the cable was defective at the time that it rejected that shipment on May 15, 2001. (Arndt. Aff. ¶ 72). In any event, on or about May 14, 2001, Sho-Me informed Tuley at TMSI that Sho-Me was canceling the balance of purchase order 29544. (Id. Aff. ¶ 70). However, despite Sho-Me's cancellation, Remee shipped one last shipment of cable from that order on or about June 4, 2001 — which shipment Sho-Me refused to accept — because TMSI evidently failed to inform Remee of Sho-Me's cancellation in a timely manner. (Id. ¶ 73). Consequently, Remee filed this lawsuit against Sho-Me on June 15, 2001 for breach of purchase order 29544, and is seeking approximately $400,000 in payment for its last shipment of cable to Sho-Me, which was rejected. (Morrison Aff. Ex. A). It should also be noted Sho-Me has now commenced a lawsuit in the Western District of Missouri to recover amounts it paid on the three Remee shipments made pursuant to purchase order 29544 which it had accepted prior to April 18, 2001.
Sho-Me has named both TMSI and Remee as defendants in the Missouri action.
Sho-Me has counter-claimed that it was not required to perform on the parties' contract for the following reasons: (1) Remee breached its purchase order contracts — specifically, purchase orders 29253 and 29544 — by knowingly delivering defective cable; (2) Remee breached the implied warranties of merchantability and fitness for intended use by delivering unmerchantable cable; (3) Remee breached its express warranties to Sho-Me by affirmatively representing that it could manufacture 36 fiber cable pursuant to Alcoa's specifications (sent by Sho-Me, through TMSI, to Remee) and delivering instead non-conforming fiber optic cable; and (4) Remee made material misrepresentations that have proximately caused Sho-Me to spend over two million dollars on defective cable when it represented to Sho-Me that it would be able to manufacture 36 fiber cable at the specifications sent by Sho-Me, through TMSI, to Remee. (Morrison Aff. Ex. B). Sho-Me is seeking to recover an approximate total of $22,000,000 in damages on its counterclaims against Remee. (Id.). With respect to the allegedly defective cable, Remee, in connection with filling Sho-Me's purchase orders for fiber optic cable, used almost exclusively glass fiber from Sterlite Optical Technologies, Ltd. ("Sterlite"). Sho-Me claims that in early 2001, Remee began to receive complaints from its other fiber cable customers with respect to quality problems with the Sterlite glass fibers located inside Remee's cable — including complaints with respect to the excessively brittle nature of the glass — and cites to correspondence exchanged between Remee and Sterlite with respect to the allegedly defective fiber in Remee's fiber cable. For instance, Sho-Me adverts to a March 16, 2001 letter from Remee to Sterlite in which the former sought the latter's agreement "to stand behind Remee . . . should one of Remee customers having received cables with defective Sterlite fiber elect to search for compensation, indemnity or repairs for caused damages." (Morrison Aff. Ex. X). See also id. at Exs. W, Y-Z. In addition, as early as March 9, 2001, Remee realized that the defects in the Sterlite fiber contained in Remee's cable were hidden and therefore could not be detected by OTDR (i.e., attenuation) testing. (Id. Ex. W). However, Sho-Me openly admits that, because it did not start to install the cable shipped pursuant to purchase order 29544 until Spring 2001, it did not discover these defects and therefore did not inform Remee of Sho-Me's trouble with potentially defective cable until June 6, 2001, and did not send its notice of revocation until June 28, 2001. (Def. memorandum at 14). In other words, Sho-Me was not aware that Remee's cable was allegedly defective until approximately two months after Sho-Me rejected the fourth shipment of purchase order 29544 on April 18, 2001. Although Sho-Me claims that this exchange of correspondence between Remee and Sterlite demonstrates that the former knew that some of its cable might have been defective as of early March 2001, I do not agree that the exchange definitely establishes that Remee knew that all of its shipments — prior to March 2001 — were defective. As discussed supra, Remee sent out its first shipment made pursuant to purchase order 29544 as early as January 31, 2001, ostensibly before Remee knew that the cable had any defects. It should be noted that Sterlite has brought its own action against Remee (the "Sterlite action") before Judge Koeltl of this court to recover payment from Remee for finished fiber optic cable, and Remee has counterclaimed in that action on the ground that the finished cable that Remee manufactured was defective because it contained defective Sterlite glass. Sterlite filed its complaint on August 8, 2001.
In addition to the several material factual disputes to which I have already adverted, yet another disputed issue of fact exists with respect to when Sho-Me informed Remee that it was encountering problems with the latter's cable shipments, and whether Sho-Me informed Remee of the defective cable in a timely manner. Specifically, Remee maintains that Sho-Me failed to give notice to Remee with respect to alleged defects — thereby allowing Remee an opportunity to cure those alleged defects — in a timely manner under either applicable U.C.C. law or the limited warranty to which the buyer is bound. Sho-Me argues instead that its notice was not only timely and within the scope of the warranty, but that the warranty itself does not apply to the fiber optic cable at issue in this case since the cable did not appear in the catalogue but was rather custom-manufactured. In addition, Sho-Me contends that it did not even need to allow Remee an opportunity to cure since the latter allegedly knew that it was sending non-conforming tender. However, as I just discussed, I find that it is still quite unclear whether Remee knew that all of its shipments prior to March 2001 were defective.
Suffice it to say that genuine issues of material fact abound, and that Remee's motion for summary judgment and Sho-Me's cross-motion for the same relief are denied. Such issues of fact include the following: 1) whether Remee knew that it was shipping defective cable to Sho-Me; 2) whether Remee engaged in economic coercion; 3) whether Remee made willful misrepresentations to induce Sho-Me to enter into the contracts of sale; and 4) whether or not Sho-Me notified Remee of the allegedly defective cable, assuming this was required, in a timely manner.
B. Defendant TMSI's Cross-Motion for Summary Judgment
Defendant TMSI cross-moves for summary judgment on five grounds: (1) this Court lacks personal jurisdiction over TMSI, a Missouri corporation; (2) Remee's fourth cause of action — a negligence claim — may and should be dismissed as a matter of law; (3) TMSI is entitled to summary judgment on all causes of action because Remee intentionally destroyed evidence with respect to quality control documentation; (4) Remee's fifth cause of action — a breach of fiduciary duty claim — must be dismissed because TMSI is not a fiduciary; and (5) Remee's second and third causes of action — breach of contract and indemnification claims — must be dismissed because Remee lacks any factual basis whatsoever for asserting these claims against TMSI.
1. Lack of Personal Jurisdiction over TMSI
A district court has broad discretion in determining whether to grant a motion to dismiss based on lack of personal jurisdiction, and may conduct an evidentiary hearing in order to do so. Cutco Indus., Inc. v. Naughton, 806 F.2d 361, 364 (2d Cir. 1986); First Wall St. Capital Corp. v. Int'l Prop. Corp., Ltd., No. 97 Civ. 0702 (JGK), 1998 WL 338105, at *3 (S.D.N.Y. June 24, 1998). Absent such a hearing, the plaintiff need only make a prima facie showing of personal jurisdiction over the defendants,First Wall St. Capital Corp., 1998 338105, at *3, and the court must resolve any doubts raised by the papers in the light most favorable to the plaintiff. Interface Biomed. Labs. Corp. v. Axiom Med., Inc., 600 F. Supp. 731, 735 (E.D.N.Y. 1985). A court sitting in diversity applies the law of the forum state in determining whether personal jurisdiction over the defendant exists. Cutco Indus., Inc., 806 F.2d at 365. Although plaintiff fails to say so in its vague, conclusory, and inarticulate papers, it appears to contend that personal jurisdiction is conferred on defendant TMSI pursuant to the New York long arm statute, N.Y. C.P.L.R. § 302(a)(1), which provides, in relevant part, that "[a]s to a cause of action arising from any of the acts enumerated in this section, a court may exercise personal jurisdiction over any non-domiciliary, . . . who in person or through an agent . . . transacts any business within the state."
In order to establish personal jurisdiction over a non-domiciliary defendant, the plaintiff must demonstrate that the defendant transacted business in New York and that the plaintiffs cause of action arises out of the defendant's contacts with New York. Hoffritz For Cutlery, Inc. v. Amajac Ltd., 763 F.2d 55, 58 (2d Cir. 1985). Some "articulable nexus between the business transacted and the cause of action sued upon" must be evident. Should the plaintiff succeed in establishing an "articulable nexus," he must then offer proof that "the transaction of business by the foreign defendant in New York . . . 'bear[s] a substantial relationship to the transaction out of which the instant cause of action arose.'"Pellegrino v. Stratton Corp., 679 F. Supp. 1164, 1172 (N.D.N.Y. 1988) (quoting McGowan v. Smith, 52 N.Y.2d 268, 272, 419 N.E.2d 321, 323, 437 N.Y.S.2d 643, 645 (1981)). "A nondomiciliary transacts business under CPLR § 302(a)(1) when he purposefully avails himself of the privilege of conducting activities in New York, thus invoking the benefits and protections of its laws." Cutco Indus., Inc., 806 F.2d at 365 (internal quotations and citations omitted). Factors that the court may consider in making this determination include:
(i) whether the defendant has an on-going contractual relationship with a New York corporation, (ii) whether the contract was negotiated or executed in New York, and, whether, after executing a contract with a New York business, the defendant has visited New York for the purpose of meeting with parties to the contract regarding the relationship, (iii) what the choice-of-law clause is in any such contract; and (iv) whether the contract requires [the defendant] to send notices and payments into the forum state and subjects [the defendant] to supervision by the corporation in the forum state. Although all are relevant, no one factor is dispositive.Agency Rent A Car Sys., Inc. v. Grand Rent A Car Corp., 98 F.3d 25, 29 (2d Cir. 1996) (citations omitted). Although the plaintiff must show that the defendant engaged in some purposeful activity in New York in connection with the matter at issue, the defendant's actual physical presence in New York is not a prerequisite to establishing personal jurisdiction, Parke-Bernet Galleries, Inc. v. Franklyn, 26 N.Y.2d 13, 17, 256 N.E.2d 506, 508, 308 N.Y.S.2d 337, 340 (1970), and a single transaction in New York may be sufficient. PDK Labs, Inc. v. Friedlander, 103 F.3d 1105, 1109 (2d Cir. 1997); First Wall St. Capital Corp, 1998 WL 338105, at *4. Indeed, "transacts any business" pursuant to § 302(a)(1) "has been interpreted to require a certain quality, rather than a specific quantity, of contacts with New York." Broad Horizons, Inc. v. Central Crude, Ltd., No. 94 Civ. 1593, 1994 WL 623075, at *2 (S.D.N.Y. Nov. 9, 1994) (citation omitted).
In Stevens v. Mad River Holdings, this Court held that personal jurisdiction was conferred on an out-of-state defendant who negotiated the terms of an agreement with the plaintiff, who was continuously in New York, and who made telephone calls to and exchanged correspondence with that plaintiff with respect to the agreement. 2002 WL 826959 (S.D.N.Y. May 1, 2002) (Baer, J.). Specifically, this Court found that personal jurisdiction over the defendants existed in New York because "the parties negotiated the terms of the agreement constituting the very basis of plaintiffs action in New York by means of an interstate exchange of telephone calls and correspondence," and because 'the parties' interstate communications did 'significantly advance' the agreement which formed the very basis of plaintiffs claim." Id. at *3 (internal citation omitted). Further, in finding for Remee on Sho-Me's previous motion to dismiss Remee's complaint for lack of personal jurisdiction made on similar grounds, this Court stated that "[b]ecause the purpose of Sho-Me's communications in New York [by means of the phone, fax, and e-mail] was to negotiate contracts whereby Remee, a New York corporation, manufactured fiber optic cable in New York pursuant to Sho-Me's specifications, it is fair to conclude that these correspondences "projected the defendants into local commerce. Remee Prods. Corp. v. Sho-Me Power Elec. Corp., 2002 WL 27783, at *4 (S.D.N.Y. Jan. 10, 2002) (internal citations omitted) (Baer, J.). In addition, the Court found that that while any given contract's choice-of-law provisions cannot alone create jurisdiction, "New York choice of law provisions are significant considerations under a 'transacting business' analysis." Id. at *5 (citing CutCo Indus., 806 F.2d at 366-67; Sacody Techs. v. Avant, Inc., 862 F. Supp. 1152, 1156 (S.D.N.Y. 1994)). Here, the parties' sales representative contract contained a New York choice-of-law clause. (See TMSI's Rule 56.1 Statement ¶ 24, Ex. 6). While this last factor is not alone dispositive, it is, contrary to TSMI's suggestion otherwise, a relevant factor in determining whether personal jurisdiction over a non-domiciliary exists.
Here, defendant TMSI contends that its exchange of correspondence, facsimiles, and phone calls with Remee do not represent sufficient contacts so as to establish personal jurisdiction over TMSI in New York. I disagree. As with the communications at issue in Mad River Holdings as well as those between Remee and Sho-Me in the instant action, the communications that took place here between TMSI and Remee "significantly advanced" the numerous purchase orders submitted by Sho-Me as well as the particular purchase order at issue here. Accordingly, TMSI's motion for summary judgment based on a lack of personal jurisdiction is denied.
2. Negligence Claim (Fourth Cause of Action Against TMSI)
TMSI maintains that Remee's negligence claim must be dismissed as a matter of law on the ground that TMSI "owes no legal duty to Remee that does not arise out of the sales representative contract" and that "[a] negligence claim cannot be maintained unless the alleged tort arises out of a duty independent of the contract between the parties." (TMSI memorandum of law at 8). Remee counters that TMSI owed it a duty of care that was independent of the sales representative contract, and that TMSI breached this duty when it allegedly failed to relay Sho-Me's specific cable requirements to Remee, allegedly failed to relay the terms of Remee's limited warranty to Sho-Me, and allegedly failed to inform Remee that Sho-Me intended to cancel the contract and refuse any further shipments.
I agree with TMSI that Remee's negligence claim against it must be dismissed. TMSI owed no duty to Remee that was independent of the sales representative contract. Under New York law, "it is well settled that a claim arising out of an alleged breach of contract may not be converted into a tort action 'absent the violation of a legal duty independent of that created by the contract.'" Proto Constr. Dev. Corp. v. Superior Precast, Inc., 2002 WL 1159593, at * 10 (E.D.N.Y. May 28, 2002) (quoting Roklina v. Skidmore Coll., 268 A.D.2d 765, 766-67, 702 N.Y.S.2d 161 (3d Dep't 2000) (other quotation omitted). I do not find that Remee has adequately alleged a duty that TMSI owed to it that was distinguishable from that which arose from the parties' sales representative contract. Indeed, as the court in Proto Construction Development Corp. made clear, "'merely charging a breach of a 'duty of care,' employment language familiar to tort law, does not, without more, transform a simple breach of contract into a tort claim.'" 2002 WL 1159593, at *10 (citation omitted).
3. Spoliation of Evidence
TMSI argues that it is entitled to summary judgment on all causes of action because its spoliation claim against Remee infects all of Remee's claims. Specifically, TMSI adverts to the deposition testimony of Jeff Grove ("Grove"), Remee's Quality Control Manager, who testified that Remee's document retention policy provided that all quality control documents — documents that included dimensional examinations and water penetration tests on the fiber optic cable — would be destroyed after one year from the date that they were created. (Fogel Aff. Ex. G, at 42). Grove stated that documents created in January 2000 would be destroyed in January 2001, and so forth, and that he was not aware that a lawsuit was pending as of July 2001 when he destroyed certain quality control documents in July 2000. (See id. Ex. G, at 43-44). TMSI maintains that "applicable law compels the Court to grant summary judgment against the spoliation party." (TMSI memorandum of law at 11).
I disagree. As Remee correctly points out, applicable law certainly does not compel the Court to grant summary judgment against it. InRutgerswerke AG Frendo, S.p.A. v. Abex Corp., the court outlined what is known as the "spoliation of evidence theory." Specifically, "[t]his doctrine refers to a party's intentional or negligent destruction of evidence that impairs another party's ability to prove or defend a civil action." 2002 WL 1203836, at *12 (S.D.N.Y. June 4, 2002). Contrary to TMSI's belief that spoliation necessarily results in summary judgment against the spoliator, a district court in fact "has considerable discretion to impose a wide range of sanctions for purposes of leveling the evidentiary playing field and punishing the improper conduct," id., including "dismissal of the culpable party's suit, granting summary judgment in favor of the prejudiced party, precluding the culpable party from giving testimony regarding the destroyed evidence, or giving an adverse inference instruction to the jury against the culpable party."Id. In considering whether to impose any of these sanctions, a court must first determine whether "the party against whom sanctions are sought had an obligation to preserve evidence," for example, if the party is on notice that litigation "is likely to be commenced." Id. at * 13 (quotation omitted). After determining this threshold question, the court must proceed to consider (1) the degree of fault of the party who destroyed the evidence; (2) the degree of prejudice suffered by the opposing party; and (3) the appropriate sanction. See id. at *14 (citation omitted). The Rutgerswerke court ultimately found that the plaintiffs in that case had deliberately purged evidence — specifically, affidavits obtained in response to their lawyers' advice — out of a fear that the contents of those affidavits might subject them to criminal liability. See id. Consequently, the court sanctioned plaintiffs by precluding the two affiants from giving testimony at trial. See id.
Aside from the fact that TMSI is plainly wrong with respect to its belief that a spoliation claim, without more, compels a court to grant summary judgment against the spoliator, I do not find that TMSI has satisfied Rutergerswerke's four-pronged test. Even if I found for TMSI on the threshold question — as it would not at all be far-fetched for Remee to assume that litigation could be commenced in July 2001 if it was aware of problems with the fiber optic cable as early as March 2001, as Sho-Me maintains (see supra) — I still cannot, at this stage of the litigation, find Remee culpable for destroying certain quality control documents. Indeed, Grove testified that Remee had an ongoing policy of destroying certain quality control documents, and that he himself was unaware of impending litigation when he destroyed documents in July 2001. This being the case, sanctions are at this juncture problematical and in no event can the allegations support summary judgment against plaintiff under the spoliation doctrine. The trial may elicit facts that permit of a different outcome.
4. Breach of Fiduciary Duty Claim (Fifth Cause of Action Against TMSI)
TMSI contends that Remee's fifth cause of action — its breach of fiduciary duty claim — is without merit on the ground that "[t]here are no facts to support this specious allegation." (TMSI memorandum of law at 14). In addition, TMSI argues that the breach of fiduciary duty claim, like the negligence claim, can be dismissed as a matter of law because such a claim "inappropriately tries to convert a contract action into a fraud action." (Id. at 16). As far as I can surmise from its imprecise arguments with respect to this issue, Remee simply assumes, in a conclusory way, that the relationship between Remee and TMSI was tantamount to a principal/agent relationship in which fiduciary duties — such as the duty of care — exist. However, because I agree with TMSI that the fiduciary duty claim, "like plaintiffs unsuccessful negligence claim, . . . inappropriately tries to convert a contract action into a fraud action," (TMSI memorandum at 16), that claim should be dismissed as a matter of law as well. See, e.g., O'Hearn v. Bodyonics, Ltd., 22 F. Supp.2d 7, 13 (E.D.N.Y. 1998) ("'Since the defendants are not alleging tort liability or a breach of a duty distinct from, or in addition to the breach of contract claim, these causes of action should be dismissed'" (quoting Layden v. Bochio, 253 A.D.2d 540, 541, 686 N.Y.S.2d 763, 764 (2d Dep't 1998)).
5. Breach of Contract Indemnity Claims (Second and Third Causes of
Action Against TMSI
Because I find that a material issue of fact exists with respect to whether TMSI breached its sales representative contract with Remee — by allegedly failing, for instance, to inform Remee when Sho-Me cancelled purchase order 29544 — its motion for summary judgment with respect to Remee's second cause of action must be denied. Similarly, I also find that a material issue of fact exists with respect to whether TMSI notified Remee of Sho-Me's specifications and that the answer to this question bears directly on whether Remee may be permitted to recover from TMSI under an indemnification theory should Sho-Me prevail on its misrepresentation counterclaim. Accordingly, TMSI's cross-motion for summary judgment with respect to Remee's second and third causes of action is denied.C. Defendant Sho-Me's Motion for Leave to Amend Answer
It is well-settled that leave to amend a complaint under FRCP 15(a) shall be freely given when justice so requires. Dougherty v. Town of North Hempstead Bd. of Zoning Appeals, 282 F.3d 83, 87 (2d Cir. -2002); FRCP 15(a). "[U]ndue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party . . . [or] futility of amendment" will prevent the granting of a FRCP 15(a) motion prior to trial. Foman v. Davis, 371 U.S. 178, 182 (1962). Courts have determined that an amendment is futile if it could not withstand a motion to dismiss under FRCP 12(b)(6), that is, if it fails to state a claim upon which relief may be granted. See Nettis v. Levitt, 241 F.3d 186 n. 4 (2d Cir. 2002) ("Determinations of futility are made under the same standards that govern Rule 12(b)(6) motions to dismiss"); Ricciuti v. N.Y.C. Transit Auth., 941 F.2d 119, 123 (2d Cir. 1991) (stating that "[w]hen the plaintiff has submitted a proposed amended complaint, the district judge may review that pleading for adequacy and need not allow its filing if it does not state a claim upon which relief can be granted"). Accordingly, just as "the court should not dismiss the complaint for failure to state a claim 'unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief,' . . . [so, too, should it refrain from] deny[ing] leave to file a proposed amended complaint unless that same rigorous standard is met." Id. at 123 (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)); see also Lerman v. Chuckleberry Pub., Inc., 521 F. Supp. 228, 231 (S.D.N.Y. 1981) ("[U]nless a proposed claim is clearly frivolous or legally insufficient on its face, the court should not consider the merits of a claim or defense on a motion to amend"). In addition, courts in this circuit have assessed prejudice in terms of whether "the new claim would (i) require the opponent to expend significant additional resources to conduct discovery and prepare for trial; (ii) significantly delay the resolution of the dispute; or (iii) prevent the plaintiff from bringing a timely action in another jurisdiction." Encarnacion v. Barnhart, 180 F. Supp.2d 492, 498-99 (S.D.N.Y. 2002) (internal quotations and citations omitted).
FRCP 15(a) provides, in pertinent part, that, if a responsive pleading has already been filed, "a party may amend the party's pleading only by leave of court or by written consent of the adverse party; and leave shall be freely given when justice so requires."
With respect to a claim for economic coercion, the amendment sought here, a contract is voidable if it was procured as the result of economic duress, that is, if it was obtained (1) by means of a wrongful threat precluding the exercise of free will; (2) under the pressure of financial circumstances; and (3) where circumstances permitted no other alternative. Mason Tenders Dist. Council Welfare Fund v. Murco Contracting Inc., 2002 WL 42879, at *3 (S.D.N.Y. Jan. 11, 2002). Mere threats — of, for example, non-delivery of much needed goods — are insufficient. Rather, a party alleging economic duress must show that it "could not obtain the goods from another source of supply and that the ordinary remedy of an action for breach of contract would not be adequate." Austin Instrument, Inc. v. Loral Corp., 29 N.Y.2d 124, 130-31, 272 N.E.2d 533, 535, 324 N.Y.S.2d 22, 25-26 (1971); see also id. at 130, 272 N.E.2d at 535, 324 N.Y.S.2d at 25 (stating that "[t]he existence of economic duress or business compulsion is demonstrated by proof that 'immediate possession of needful goods is threatened'" (internal citation omitted)). In addition, a party asserting this defense must demonstrate that it had a prior contractual relationship with the other party and that it acted promptly to repudiate the contract. See, e.g., Bethlehem Steel Corp. v. Solow, 63 A.D.2d 611, 612, 405 N.Y.S.2d 80, 82 (2nd Dep't 1978) (finding an insufficient showing to constitute economic duress on the ground that plaintiff, who raised the price of a bid after an initial bid was submitted to defendants at a lower price, had any kind of contractual relationship with defendants and therefore had an obligation to perform at the lower price).
In the instant case, Sho-Me is moving pursuant to FRCP 15(a) for leave to serve an amended answer that includes a new economic duress counterclaim and two additional affirmative defenses. Specifically, Sho-Me contends that the Court should grant it leave to add to its answer an economic duress counterclaim on the ground that Remee coerced Sho-Me to submit purchase order 29544 with an increased footage price upon learning that Sho-Me was in 'desperate' need of the cable and that one of its major suppliers, Alcoa, was unable to provide the product as anticipated. (Sho-Me's reply memorandum of law at 4). Furthermore, Sho-Me seeks leave to add two affirmative defenses with respect to Remee's failure to pay a third-party supplier for the glass used in the fiber optic cable shipped to Sho-Me pursuant to the January 4, 2001 purchase order and Remee's admission in the Sterlite action that the glass fiber of its supplier, Sterlite, was defective. Sho-Me maintains that it has not only satisfactorily pled an economic duress claim that could withstand a motion to dismiss, but also offered undisputed facts that compel a judgment in its favor. In addition, with respect to the affirmative defenses, Sho-Me maintains that "Remee's failure to pay Sterlite flies in the face of Remee's representations to Sho-Me that it was raising prices of Remee's fiber optic cable ordered by Sho-Me because of an increase in the price of glass fiber." (Sho-Me's memorandum of law at 9). Remee, by contrast, argues that Sho-Me has failed adequately to demonstrate not only that a prior contractual relationship even existed between the parties, but also that Remee's increase in price constituted a "wrongful threat" or that Sho-Me had no other alternative but to concede to the price increase. Furthermore, with respect to the two affirmative defenses, Remee contends that such an amendment would be futile — and thus prohibited — under the theory that a seller's (i.e., Remee's) "rights to monies owed to it from its buyers are separate and distinct from said seller's obligations to others," and cites to Ultramar Energy Ltd. v. Chase Manhattan Bank, 191 A.D.2d 86, 599 N.Y.S.2d 816 (1st Dep't 1993), in support of this proposition.
Sho-Me has adequately pled a counterclaim for economic duress and two affirmative defenses with respect to Remee's failure to pay for the glass fiber used in the fiber optic cable shipped to Sho-Me pursuant to purchase order 29544 and to Remee's use of allegedly defective fiber. (See Morrison Aff. Ex. A, ¶¶ 27 28). Accordingly, Sho-Me's motion to amend its complaint under FRCP 15(a) is granted. Although Remee cites Bethlehem Steel Corporation for the proposition that one party cannot assert an economic duress defense absent a contractual relationship with the other party, I find that case inapposite here for the simple reason that Sho-Me has adequately demonstrated that a contractual relationship between the parties did indeed exist as of August 7, 2001, when Remee accepted Sho-Me's purchase order 29253. (See id. ¶¶ 69-70). In addition, I do not find that Sho-Me's proposed amended answer — i.e., the assertion of one counterclaim and two new affirmative defenses — will unduly burden or surprise Remee, as it appears that the subject of the economic coercion claim as well as the claims that arise out of the separate Sterlite action have put Remee on notice of the possibility of this counterclaim and affirmative defenses.
D. Defendant Sho-Me's Motion for Sanctions
Sho-Me moves for sanctions pursuant to FRCP 37(c) dismissing Remee's claim against Sho-Me; precluding Remee from offering any defense to Sho-Me's counterclaim based on any assertion that the fiber optic cable product at issue in this case was not defective; and awarding Sho-Me its expenses and attorneys fees incurred in connection with Remee's motion. Specifically, Sho-Me maintains that sanctions are appropriate under Rule 37(c) for the following reasons: (1) Remee offered false deposition testimony in order to conceal the Sterlite action; (2) Remee failed to produce hundreds of relevant documents demonstrating that the fiber optic cable at issue in this case was defective; and (3) Remee deliberately destroyed documents relevant to the present litigation. Remee counters that sanctions under FRCP 37(c) are inappropriate here because Sho-Me has failed to demonstrate, as it must under that rule, that Remee failed to comply with the mandatory disclosure requirements set forth under Rules 26(a), 26(e)(1), or 26(e)(2).
FRCP 37(c) provides, in pertinent part, that
[a] party that without substantial justification fails to disclose information required by Rule 26(a) or 26(e)(1), or to amend a prior response to discovery as required by Rule 26(e)(2), is not, unless such failure is harmless, permitted to use as evidence at a trial . . . any witness or information not so disclosed. In addition to requiring payment of reasonable expenses, including attorney's fees, caused by the failure, these sanctions may include any of the sanctions authorized under Rule 37(b)(2)(A), (B), and (C) and may include informing the jury of the failure to make the disclosure.
Rule 37(b)(2)(A) provides that the court may issue "[a]n order that the matters regarding which the order was made . . . shall be taken to be established for the purposes of the action in accordance with the claim of the party obtaining the order." Rule 37(b)(2)(B) provides that the court may issue "[a]n order refusing to allow the disobedient party to support or oppose designated claim or defenses, or prohibiting that party from introducing designated matters in evidence." Rule 27(b)(2)(C) provides, in pertinent part, that a court may issue "[a]n order striking out pleadings or parts thereof, . . . or dismissing the action or proceeding or any part thereof, or rendering a judgment by default against the disobedient party."
Sho-Me moves for sanctions on the ground that Remee failed not only to disclose its litigation with Sterlite, but also to produce highly relevant documents with respect to the allegedly defective cable — documents that were in fact produced in the Sterlite action and that were therefore readily available. Indeed, although Sho-Me's first request for the production of documents, served on February 7, 2002, included "[a]ll documents concerning any lawsuits to which Remee is a party involving Remee products for any time period," (Morrison Aff. Ex. E), Sho-Me was not apprised of the Sterlite action until June 25, 2002, when Grove disclosed the existence of the Sterlite action during his deposition. (Mornson Aff. Ex. K, at 5-8). Sho-Me argues that, because the preclusion of evidence (relating to the Sterlite action) would be meaningless in this context since Remee "failed to disclose information that it never intended to make use of," the Court should impose one of the sanctions listed under Rule 37(b)(2)(A-C) — including a dismissal of Remee's claims. To support its contention that the Court should dismiss Remee's action, Sho-Me cites to Communispond v. Kelley T.C.E Assocs., LLC, 1998 WL 473951 (S.D.N.Y. Aug. 11, 1998), in which the court granted a default judgment under Rule 37(b)(2)(C) against the defendants, who willfully disregarded several discovery orders issued by the Court and deliberately withheld documents over nearly a two-year period. In that case, the court reasoned that a default judgment against the defendants was appropriate on the following grounds: (1) the defendants disobeyedseveral discovery orders; (2) the defendants acted in bad faith; (3) the defendants continually failed to comply with discovery obligations in flagrant disregard of the court's orders to comply; and (4) the plaintiff was prejudiced by the defendants' discovery violations. See id. at *5.
While I agree with Sho-Me that Remee, the plaintiff in this action, wrongfully concealed the existence of the Sterlite action as well as failed to produce documents that were produced in that action and that bore directly on Sho-Me's counterclaims in this action, I do not find that Remee's conduct rises to the level of that at issue inCommunispond. In that case, two of the court's four justifications for granting default judgment against the defendants derived from their repeated and ongoing — indeed, two-year — failure to obey numerous court orders with respect to the plaintiffs discovery demands. By contrast, in this case, Sho-Me only informed the Court that Remee had concealed a separate though related litigation before Judge Koeltl, the Sterlite action, during a telephonic conference held on July 31, 2002 — more than a month after the Grove deposition, a month during which Sho-Me did nothing to bring the matter to my attention. During that conference, it was agreed that "Remee will produce all documents in connection with the action captioned Sterlite Optical Technologies Ltd. v. Remee Products Corp, 01 Civ. 7328 (JGK) by August 1, 2002." (July 31, 2002 Order at ¶ 1). In light of the fact that it appears, at least to my knowledge, that Remee has complied, albeit certainly late, with this Court's July 31, 2002 order and has produced all relevant documents from the Sterlite action, I will not grant the notably harsh sanction of a default judgment against the plaintiff. However, sanctions of another sort are appropriate, namely, Remee will be required to pay the reasonable expenses and attorneys fees amassed in connection with this motion for sanctions and any other expenses Sho-Me can justify that were caused by Remee's failure to produce the discovery in a timely fashion, nor do I promise that this will conclude the sanction aspect of this case — but it does for now.
CONCLUSION
For the foregoing reasons, Remee's motion against defendant Sho-Me is denied and Sho-Me's cross-motion is also denied; Sho-Me's motion to amend its answer is granted; TMSI's motion for summary judgment is granted as to Remee's fourth and fifth claims against it and denied as to the balance; and Sho-Me's motion for sanctions is denied in part and granted in part. Trial is scheduled to commence on October 29, 2002.