Jiaxing Leadown Fashion Co. Ltd. v. Lynn Brands LLC

Background

Jiaxing Leadown Fashion Co. Ltd. (“Leadown”) alleged claims for breach of contract, fraud, and conversion against Lynn Brands LLC, Shawn Wang, and Cathy Wang. The contract claim was against Lynn Brands; the fraud and conversion claims were against all defendants. The opinion states that Shawn Wang and Cathy Wang were alleged to be Lynn Brands officers.

Leadown alleged that Lynn Brands ordered custom women’s clothing in August 2019, accepted seven shipments, and later claimed that more than half the goods were defective. Leadown alleged that the defendants refused to pay the remaining $475,475.80 balance, and that the asserted defects had been intentionally caused. Leadown also alleged that defendants refused to return or pay for goods that had been returned by customers.

Defendants asked the court to dismiss the First Amended Complaint for insufficient service of process under Federal Rule of Civil Procedure 12(b)(5). They also sought dismissal under Rule 12(b)(6), which tests whether a complaint adequately states a legally recognized claim, arguing that the fraud and conversion claims were insufficiently pleaded. The court treated defendants’ letter motions as motions to dismiss.

Service of Process

Leadown served Shawn Wang and Cathy Wang at Lynn Brands’ New York office. The court held that service on both was adequate. For Shawn Wang, emails displayed the office address as his business address, and other materials supported the allegation that he was a Lynn Brands officer. For Cathy Wang, Leadown supported its allegation that she was a Lynn Brands officer who came to the office a few days each month. The defendants did not provide supporting evidence to refute Leadown’s showing.

The court therefore denied the motion to dismiss under Rule 12(b)(5).

Fraud Claim

Leadown based its fraud claim on alleged statements by Shawn Wang about Lynn Brands’ acquisition of another company’s assets and customers, alleged omissions about that company’s debts and the nature of the acquisition, and a statement by Cathy Wang about the quantity of goods returned by customers.

Federal Rule of Civil Procedure 9(b) requires fraud to be pleaded with particularity, including the statements alleged to be fraudulent, who made them, where and when they were made, and why they were fraudulent. The court found that Leadown identified the statements, speakers, and alleged reasons for falsity, but did not allege where and when the statements were made.

The court separately concluded that the alleged omissions could not support fraud because Leadown did not allege a fiduciary relationship or another circumstance creating an affirmative duty to disclose. The transactions were alleged to be ordinary commercial dealings between two businesses. The court granted the motion as to Count Two and dismissed the fraud, corporate-veil, and director-liability allegations in that count without prejudice. The court allowed Leadown 10 days to file an amended complaint addressing the fraud pleading deficiency. Because the fraud claim was inadequately pleaded, the court did not decide whether the corporate veil could be pierced.

Conversion Claim

The court denied the motion to dismiss Count Three. It held that the conversion claim was not duplicative of the breach-of-contract claim because the two claims concerned different alleged obligations and injuries. The contract claim concerned Lynn Brands’ alleged failure to pay for delivered goods. The conversion claim concerned defendants’ alleged handling of goods returned after rejection, including their refusal to return the goods or provide Leadown access to them.

Applying Article 2 of New York’s Uniform Commercial Code, the court concluded that rejection of goods can create obligations separate from the original payment obligations. Leadown plausibly alleged that it retained a possessory interest in the returned goods and that defendants exercised control over them in a way that interfered with Leadown’s rights.

Punitive Damages

The court also denied the motion to dismiss Leadown’s request for punitive damages on the grounds asserted by defendants. Because the conversion claim was not duplicative of the contract claim, the court held at this stage that Leadown did not need to establish a public wrong merely to request punitive damages.

Disposition

The court denied the Rule 12(b)(5) motion concerning service of process. It denied in part and granted in part the Rule 12(b)(6) motion: it denied the motion as to Count Three and granted it as to Count Two. The fraud-related allegations in Count Two were dismissed without prejudice, and Leadown was given 10 days to amend.