Kitchen Winners NY Inc. v. Rock Fintek LLC

Background

Kitchen Winners sued Rock Fintek in New York state court over transactions involving the purchase and sale of gloves during the COVID-19 pandemic. After Rock Fintek removed the case to federal court, it asserted claims against Kitchen Winners and brought claims against JNS Capital Holdings LLC, Joel Stern, Adorama, Inc., Hershey Weiner, and Joseph Mendlowitz.

Rock Fintek alleged that the defendants represented that the gloves were medical Examination grade, made of nitrile, compliant with ASTM D6319 standards, and supported by FDA 510(k) certification. It alleged that many gloves were instead lower-grade Protection gloves, polyvinyl chloride gloves, or gloves associated with unauthorized manufacturers. It also alleged quantity overcharges, unpaid rebates, improper additional expenses, and delivery of LevMed gloves accompanied by allegedly altered product documents.

The First Amended Third-Party Complaint asserted 10 claims: breach of contract under the main sales agreement and one-off transactions; breach of the implied duty of good faith and fair dealing; fraud in the inducement; negligent misrepresentation; unjust enrichment; tortious interference with existing and prospective business relationships; conspiracy; and breach of express warranties under New York law.

Motions and legal standards

The Adorama parties moved to dismiss the claims against them. The JNS parties moved to dismiss the claims for breach of the implied covenant, negligent misrepresentation, tortious interference, conspiracy, and breach of warranty. The court applied the standard for a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), accepting well-pleaded factual allegations as true and deciding whether they plausibly stated claims for relief. New York law governed the claims.

Court’s analysis

The court held that Rock Fintek plausibly alleged contract liability against Adorama. Although the sales agreement identified Kitchen Winners as the seller, Adorama signed the agreement under the seller heading, received payments, participated in negotiations and communications, and was allegedly treated as the seller. Those allegations plausibly showed that Adorama intended to be bound or assumed obligations under the agreement. The court also allowed the contract claims concerning the one-off transactions against Adorama to continue.

The court allowed the implied-covenant claim against Adorama and Kitchen Winners to proceed to the extent it was based on allegedly conditioning a refund, rebate, or continued delivery on additional purchases or payments not required by the agreement. The court dismissed the claim against those defendants to the extent it merely repeated allegations about the quality and quantity of the gloves. The court dismissed the covenant claim against the JNS parties because it was based on the same alleged deceptive conduct underlying the contract claim and sought the same damages.

The court dismissed the fraud claim against the Adorama parties. Many alleged statements lacked sufficient detail about when, where, how, and by whom they were made. The more specific allegations concerning testing reports did not plausibly show that the speaker knew the reports were inaccurate, and the allegations concerning LevMed documents did not plausibly show that Rock Fintek relied on them or suffered damages because of them. The court also found that fraud claims based on the contracted-for gloves duplicated the contract claims.

The court dismissed the negligent-misrepresentation claims against both the Adorama parties and the JNS parties. The court found that many allegations did not satisfy the required level of detail, that the alleged representations did not plausibly establish the required knowledge or reliance, and that the claims largely sought the benefit of the parties’ contractual bargain. The economic-loss rule, which generally prevents recovery in tort for losses governed by a contract unless an independent legal duty is involved, also supported dismissal.

The court allowed Rock Fintek’s unjust-enrichment claim against Adorama and Kitchen Winners to continue as an alternative theory. Adorama disputed that it was bound by the sales agreement, and Rock Fintek alleged that the unjust-enrichment claim concerned deliveries above the agreement’s quantities. Those allegations were sufficient at the pleading stage.

The court dismissed the tortious-interference claims against all moving defendants. Rock Fintek did not plausibly allege that Ascension or another client breached a contract, that the defendants intentionally caused such a breach, or that the defendants directed wrongful conduct at Ascension or acted with the required purpose or improper means to harm Rock Fintek’s business relationships.

The court dismissed the conspiracy claim. Under New York law, conspiracy is not an independent claim and requires an underlying tort plus allegations of an agreement and intentional participation in a common plan. The court found that the complaint did not provide nonconclusory facts showing that the Adorama parties and JNS parties agreed to commit a wrong.

The court allowed the express-warranty claim against Adorama, Kitchen Winners, Mendlowitz, and the JNS parties to continue. The alleged written materials, testing reports, certification letters, product descriptions, and other representations plausibly amounted to express warranties, and Rock Fintek plausibly alleged reliance, breach, and injury. The court dismissed the warranty claim against Weiner because the complaint did not sufficiently identify express warranties made by him.

Disposition

The court granted the Adorama parties’ motion to dismiss as to the fraud, negligent-misrepresentation, tortious-interference, and conspiracy claims. It denied that motion as to the breach-of-contract, implied-covenant, unjust-enrichment, and breach-of-warranty claims, except that it dismissed the warranty claim against Weiner.

The court granted the JNS parties’ motion to dismiss as to the implied-covenant, negligent-misrepresentation, tortious-interference, and conspiracy claims. It denied that motion as to the breach-of-warranty claim. The litigation proceeds on the surviving counts, and the court directed the parties to submit a joint case-management plan.