Opinion
00 Civ. 5901 (HB)
April 26, 2001
OPINION ORDER
Defendant Crompton Corp. ("Witco"), joined by Ciba Speciality Chemical Holding Inc. ("Ciba Holding") (collectively, the "defendants"), moved to dismiss the fifth claim of the Amended Complaint — the fraud claim — under Rule 12(b)(6) on the ground that the fraud claim merely restates the contract claims. Plaintiff Atla-Medine ("plaintiff') opposed the motion and took the position that it is entitled to plead fraud in the alternative to contract, even where the same pleaded representations give rise to both kinds of claims.
The facts of this case are fully set forth in this Court's opinion dated February 22, 2001 ("first opinion"); what follows is a mere thumbnail sketch of the allegations. Plaintiff, a chemical distributor, asserted claims against its former distributors, first Ciba Holding and later Witco, in connection with the termination of plaintiffs contract to distribute certain vinyl grade tin stabilizing chemical products ("VGTS") manufactured by defendants. The Court dismissed plaintiffs antitrust claims and several of the common law claims, including the fraud claim, but gave leave for plaintiff to replead, which it then did on March 6, 2001.
In the first opinion, the Court noted the well-settled rule "that a plaintiff cannot convert a contract action into one for fraud merely by alleging that the contracting party did not intend to meet its contractual obligations" (first opinion, at 5) and found that plaintiff had not pleaded facts sufficient to trigger one of the three exceptions to the general rule set forth in Bridgestone/Firestone Inc. v. Recovery Credit Services, Inc., 98 F.3d 13, 20 (2nd Cir. 1996), since the alleged statements that Witco would continue plaintiffs distributorship were not "collateral or extraneous" to the alleged distribution contract.
In its repleaded fraud claim, plaintiff makes three changes. First, plaintiff emphasizes that defendants knew at the time of their representations that Witco would not continue to use plaintiffs distribution services. Since plaintiffs first complaint clearly alleged defendants "present intent," this change is insignificant. Second, plaintiff reminds the Court that it is only pleading fraud in the alternative. Again, this is nothing new. Third, plaintiff scales back its damages demand and seeks only "significant `out of pocket' damages" (Complaint ¶ 111) instead of the full contract value.
At this stage of the litigation, I am inclined to allow the fraud claim to go forward. Defendants are clearly right that the alternative pleadings rule does not permit a plaintiff to treat fraud and contract as interchangeable claims, and whether a plaintiff asserts contract claims is immaterial since the fraud claim must stand on its own. Fraud is not an alternative to quasi-contract, whether or not "strategic reasons" preclude pleading that claim. Additionally, the "extraneous to a contract" exception of Bridgestone/Firestone is not satisfied simply because a jury could find that there was no contract. See Leonard v. PepsiCo, Inc. 88 F. Supp.2d 116 (S.D.N.Y. 1999). It is illogical to speak of a statement being "extraneous" to that which does not exist; surely the exception distinguishes between statements that create, or are directly pursuant, to the alleged agreement and statements that relate to an existing or future agreement but are distinct from promises to perform.See Grappo v. Alitalia, 56 F.3d 427, 434 (2nd Cir. 1995) ("a fraud action is permitted . . . where the plaintiff alleged that the defendant engaged in other fraudulent conduct besides entering the contract with no intention to perform"). Construing the Amended Complaint broadly, which at this stage of the litigation I am constrained to do, I cannot find that plaintiff has only pleaded that Witco willfully misrepresented its intention to perform on the distribution contract. Cf. Mobile Data Shred, Inc. v. United Bank of Switzerland, 2000 U.S. Dist. LEXIS 4252 (S.D.N.Y. 2000). Taken at face value, none of the defendants' alleged statements necessarily constitutes either an explicit promise to perform an existing contract or an explicit agreement to contract, since each statement could be construed to anticipate a future contract. So construed, defendants' statements were "extraneous" to the distribution contract.
Moreover, the repleaded fraud claim is limited to those costs plaintiff incurred in expectation that Witco would continue to distribute VGTS products through plaintiff, and thus is distinct from the contract claims in which plaintiff asserts the existence of a distribution contract and demands its total value by way of relief In Champion Motor Group, Inc. v. Visone Corvette of Massachusetts, 992 F. Supp. 203 (E.D.N.Y. 1998) Judge Gershon wrote:
Plaintiff's fraud claim does not simply reiterate the breach of contract claim because it does-not allege the existence of the contract. Rather, it is defendants' inducement of the plaintiff to incur significant expenses, in anticipation of a contract that defendants had no intention of entering into, that constitutes the fraud claim. As it involves a promise that is extraneous or collateral to the terms of the alleged contract, plaintiffs fraud claim states a valid alternative claim to the breach of contract claim.Id. at 208 (defendants continuously misrepresented their intent to appoint plaintiff as its exclusive sales agent in order to take advantage of plaintiffs marketing expertise). Judge Gershon's analysis is very much on point in the present case. Here, plaintiff alleges that defendants' representations caused it to purchase VGTS products, warehouse those products, and entertain VGTS customers. (Amended Complaint ¶ 111.) This repleading significantly departs from the first Complaint in which plaintiffs sought damages that "approximate[d] the value of plaintiffs company at the time that it was destroyed" — i.e., thinly veiled expectancy damages offered as out-of-pocket damages. (Pl. Brief, dated 12/11/00, at 28.) Finally, the fact that plaintiff could recover the expenses listed in ¶ 111 of the Amended Complaint were the jury to find a breach of contract does not foreclose seeking recovery of the same out-of-pocket expenses in the fraud claim, though of course plaintiff can only be made whole once.
For the foregoing reasons, defendants' motion to dismiss the fraud claim is denied.