Illuminex Diamonds Corp. v. Chou

Background

Illuminex Diamonds Corp. alleged that it purchased a 6.29-carat diamond and later returned it to Veronica Chou under a November 1, 2016 settlement agreement. The agreement required Chou to pay Illuminex $55,000 and Illuminex to deliver the diamond. It also contained a broad release covering claims related to the diamond and Chou’s earlier lawsuit against Illuminex.

According to the complaint, Chou had reported that the diamond was stolen and had sworn that it was stolen by an employee working in her home. Illuminex alleged that these statements were false because Chou’s husband, Evgeny Klyucharev, had given the diamond to their chauffeur, Irfan Zayee, to sell. Illuminex claimed that it relied on Chou’s statements when entering the settlement and suffered economic damages, including the diamond’s purchase price and lost anticipated profits. Klyucharev had not appeared in the action.

Motion to Dismiss

Chou moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. She argued that the settlement agreement prevented Illuminex from bringing the lawsuit and challenged the allegations supporting fraud. The court also considered Federal Rule of Civil Procedure 9(b), which requires fraud to be pleaded with particular detail, including the allegedly false statements, who made them, when and where they were made, and why they were fraudulent.

Court’s Analysis

The court held that the settlement agreement did not preclude the lawsuit at the pleading stage. Under the New York law discussed in the opinion, a release can be challenged for fraud in its making or inducement, even when the release is clear on its face. Thus, the release would not bar Illuminex’s claims if the complaint adequately alleged fraud or fraudulent inducement.

For fraud, the court found that Illuminex adequately alleged a material false statement, Chou’s knowledge that it was false, an intent to defraud, Illuminex’s reasonable reliance, and resulting injury. The alleged statement that the diamond was stolen was material because, according to the complaint, it was the basis for Chou’s claim to the diamond and for Illuminex’s decision to settle.

For fraudulent inducement, the court found that Illuminex adequately alleged that Chou made a material representation that she knew was false to induce Illuminex to enter the settlement, that Illuminex relied on the representation without knowing it was false, and that Illuminex was injured. The court also concluded that the complaint satisfied Rule 9(b) because it identified Chou’s alleged statements, identified her as the speaker, described when and where the statements were made, and explained why Illuminex alleged they were fraudulent.

The court rejected the argument that Illuminex’s reliance was unreasonable because it was a sophisticated business represented by counsel. The court stated that whether reliance was reasonable is generally a fact-specific question not suitable for resolution on a motion to dismiss, and Chou had not identified critical information that Illuminex had access to but failed to investigate.

Disposition

The court concluded that the complaint adequately pleaded fraud and fraudulent inducement and that the settlement agreement did not preclude the action. Judge Gardephe denied Chou’s motion to dismiss and directed the clerk to terminate the motion. The court also scheduled an initial pretrial conference.