Remcoda, LLC v. Ridge Hill Trading LTD

Background

Remcoda alleged that, during the COVID-19 pandemic, it agreed to purchase 1.3 million nitrile gloves from Ridge Hill for $9,261,748. Remcoda paid a 50% deposit of $4,630,874, but the gloves were never delivered. Remcoda alleged that it was owed $2,430,836.65 of the deposit and suffered additional losses.

Remcoda’s second amended complaint asserted five claims: fraudulent inducement and aiding and abetting fraud against Russell Gross, and breach of contract, money had and received, and unjust enrichment against Ridge Hill and Ataraxia Capital Partners. Ataraxia moved to dismiss all claims for failure to adequately plead that it was Ridge Hill’s alter ego. Gross moved to dismiss for lack of subject-matter jurisdiction and for failure to state a claim.

Jurisdiction

The case relied on diversity jurisdiction. Because Remcoda is a limited liability company, its citizenship depends on the citizenship of its sole member, Marc Garson. Gross argued that Garson was a New York citizen when the case began and that Gross was also a New York resident, which would defeat diversity jurisdiction.

The court considered Garson’s move from New York to Florida, his stated intent to remain in Florida, his residence and work there, his tax and bank records, and other facts. It concluded that Remcoda established that Garson was a Florida citizen on February 3, 2021, when this case was filed. The court therefore held that it had subject-matter jurisdiction and denied Gross’s jurisdictional motion.

Gross’s Fraudulent-Inducement Claim

Under New York law, fraudulent inducement generally requires a material misrepresentation, falsity, an intent to deceive, justifiable reliance, and financial loss. Fraud allegations must also be stated with particularity. The court held that Remcoda adequately alleged that Gross represented that Ridge Hill could promptly provide the gloves, vouched for Ridge Hill and Ataraxia, helped advance the transaction, and knew or should be inferred to have known that the representations were false. The alleged 5% fee that Gross stood to receive also supported an inference of motive and opportunity to defraud.

The court rejected Gross’s arguments that the procurement agreement limited his role to that of a broker, that Remcoda relied only on its own investigation, and that the available documents showed Gross merely passed along information from Ridge Hill. The court also declined to dismiss the claim under the economic-loss rule or as duplicative of Remcoda’s contract claims. Gross was not a party to the purchase agreement, and the alleged misrepresentations concerned facts that allegedly induced Remcoda to enter that agreement. The fraudulent-inducement claim therefore survived.

Aiding and Abetting Fraud

The court dismissed Remcoda’s aiding-and-abetting-fraud claim against Gross. It explained that this claim requires an underlying fraud by someone else, the defendant’s knowledge of that fraud, and substantial assistance in carrying it out. Because no fraud claim remained against Ridge Hill or Ataraxia, and a person cannot aid and abet his own tort, the claim against Gross was dismissed.

Ataraxia’s Alter-Ego Liability

An alter ego is a company so dominated by another company that the law may disregard their separate corporate identities. To plead this theory, Remcoda had to allege both that Ataraxia completely dominated Ridge Hill in the relevant transaction and that Ataraxia used that domination to commit a wrongful act that injured Remcoda.

The court found the allegations sufficient at the motion-to-dismiss stage. Remcoda alleged that Ridge Hill and Ataraxia shared an office, overlapping ownership, directors, and personnel; used Ataraxia email addresses for Ridge Hill business; commingled funds; and did not operate as independent profit centers. Remcoda also alleged that the companies were presented to it as “Ridge Hill/Ataraxia,” that Ataraxia would help fulfill the order, and that the companies’ relationship and resources helped persuade Remcoda to enter the purchase agreement.

The court held that these allegations plausibly showed both domination and use of that domination to commit a dishonest or unjust act that injured Remcoda. It therefore denied Ataraxia’s motion to dismiss in full and allowed the claims against Ataraxia to proceed.

Disposition

The court granted in part and denied in part Gross’s motion to dismiss. Specifically, it dismissed the aiding-and-abetting-fraud claim and allowed the fraudulent-inducement claim to go forward. The court denied Ataraxia’s motion in full. The parties were directed to appear for a telephonic case-management conference.