Korpak, Ltd. v. Williams Lea Inc.

Background

Korpak brought a diversity action against Williams Lea for breach of contract and account stated, alleging that Williams Lea failed to pay $787,690.11 for printing goods and services. Williams Lea counterclaimed for breach of contract and declaratory judgment. Its breach-of-contract counterclaim alleged that Korpak violated the parties’ March 25, 2017 agreement by failing to obtain commercial crime insurance with a minimum limit of $5 million per event and by failing to maintain specified information-security measures.

Williams Lea alleged that it paid the invoices, but that a cybercriminal intercepted an email chain and redirected the payment to a fraudulent account. Williams Lea claimed that Korpak’s alleged contractual breaches caused its losses. The agreement also required Korpak to indemnify Williams Lea for claims arising from Korpak’s breach, including reasonable attorneys’ fees, and specifically identified a breach of the information-security provision as an event triggering that duty.

Motion and Legal Standard

Korpak moved under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a pleading does not state a legally sufficient claim. Korpak argued that Williams Lea had not plausibly alleged damages or adequate performance of the agreement. The court applied New York law because the parties did not dispute that it governed the counterclaim.

To state a breach-of-contract claim under New York law, Williams Lea had to allege an agreement, its own adequate performance, Korpak’s breach, and damages. On this motion, the court had to accept Williams Lea’s well-pleaded factual allegations as true and draw reasonable inferences in its favor. The court could not resolve disputed factual issues or rely on outside materials that were not properly considered as part of the pleadings.

Damages

The court held that Williams Lea plausibly alleged damages. Although Williams Lea stated that it suffered monetary damages in an amount to be proven at trial, its declaratory-judgment counterclaim also referred to attorneys’ fees incurred in defending the lawsuit. The court concluded that this allegation provided a concrete basis for damages at the pleading stage.

The court declined to consider email communications and other materials Korpak submitted to argue that Williams Lea’s own conduct caused the payment diversion. Those materials were not included in the pleadings, and Williams Lea disputed aspects of Korpak’s factual account. The court stated that whether the evidence ultimately supported Korpak’s allegations was a factual question for a later stage of the case.

The court also rejected Korpak’s arguments that Korpak alone was harmed because it did not receive the payment and that Korpak’s alleged breaches were not material or the proximate cause of Williams Lea’s damages. The court explained that materiality generally concerns the remedy available and that the materiality of the alleged breaches was not appropriate for resolution on this motion because it was ordinarily a factual question. The court further found that Williams Lea plausibly alleged that Korpak’s breaches caused Williams Lea to incur the expense of defending the lawsuit.

Performance

The court also rejected Korpak’s argument that Williams Lea failed to allege adequate performance because the payment never reached Korpak. Williams Lea expressly alleged that it fully performed its obligations under the agreement, including paying for all goods supplied by Korpak. The court found that Williams Lea had plausibly alleged performance and that Korpak had identified no basis for disregarding that allegation at the motion-to-dismiss stage.

Disposition

The court denied in full Korpak’s motion to dismiss Williams Lea’s breach-of-contract counterclaim under Rule 12(b)(6). The court directed the parties to submit a joint letter and proposed case-management plan and scheduling order by February 28, 2022, and directed the Clerk to terminate the pending motion.