Kaplan Group Investments, LLC v. A.S.A.P. Logistics LTD

Background

Kaplan Group Investments LLC, Exos Funds MRP1 LLC, Cardinal Specialty Credit Fund LLC, and M42 Tactical Inc. alleged that A.S.A.P. Logistics Ltd. and related defendants coordinated to sell them faulty or counterfeit products. The alleged transactions involved counterfeit 3M N95 masks, mislabeled or defective nitrile gloves, and ammunition represented as manufactured by MKE.

The plaintiffs asserted claims for breach of contract, breach of the implied promise of good faith and fair dealing, fraud, breach of express warranty, unjust enrichment, and unfair and deceptive trade practices. Two groups of defendants moved to dismiss. Snooz Mattress LLC, Octavio Fermin, and Jeimy Pena Fermin argued that the court lacked personal jurisdiction, that venue was improper, and that the complaint failed to state a claim. A.S.A.P. Logistics Ltd., Deborah Cross, and Sharon Sacramone argued that the plaintiffs failed to state claims and failed to plead fraud with sufficient detail.

Rulings on the Snooz Defendants

The court granted the Snooz Defendants’ motion to dismiss for lack of personal jurisdiction. The plaintiffs did not allege that those defendants were domiciled in New York, so general jurisdiction was unavailable. The plaintiffs also did not adequately allege that the Snooz Defendants conducted relevant business in New York for purposes of specific jurisdiction. Communications with New York-based defendants, without more, were insufficient, and the plaintiffs’ opposition did not provide enough detail about alleged shipments to New York.

Because the court found no personal jurisdiction, it did not reach the Snooz Defendants’ arguments about improper venue or failure to state a claim. The court directed the Clerk to terminate Snooz Mattress LLC, Octavio Fermin, and Jeimy Pena Fermin as parties. The opinion does not state that the dismissal was with or without prejudice.

Rulings on Cross and Sacramone

The court granted the motion to dismiss claims against Cross and Sacramone that depended on disregarding A.S.A.P. Logistics’ separate corporate status. The plaintiffs’ allegations that Cross and Sacramone dominated A.S.A.P. Logistics and failed to follow corporate formalities were too conclusory to support piercing the corporate veil, a legal theory that can make individuals responsible for a company’s obligations in unusual circumstances.

The court also dismissed the contract and quasi-contract claims against Cross and Sacramone, including claims for breach of contract, breach of the implied covenant of good faith and fair dealing, breach of express warranty, and unjust enrichment. The court concluded that the plaintiffs could potentially hold corporate officers personally responsible for torts in which they actively participated, without piercing the corporate veil.

The court denied the motion to dismiss the fraudulent-misrepresentation claim against Cross and Sacramone insofar as it concerned the nitrile gloves. The plaintiffs identified alleged statements that the gloves were genuine medical nitrile gloves, alleged when the statements were made, and alleged more than $1.9 million in out-of-pocket losses to retrieve and replace the defective gloves. The court found those allegations sufficient at the pleading stage, including allegations supporting an inference of knowledge and intent to defraud.

Rulings on A.S.A.P. Logistics

The court denied the motion to dismiss the breach-of-contract claim concerning the nitrile gloves. The plaintiffs plausibly alleged that they contracted with A.S.A.P. Logistics for genuine medical-grade nitrile gloves, paid the invoices, received defective or counterfeit gloves, and suffered resulting losses.

The court granted the motion to dismiss the first implied-covenant claim because it duplicated the breach-of-contract claim based on the same alleged sale of counterfeit gloves. The court also granted the motion to dismiss the implied-covenant claim concerning the ammunition because the plaintiffs did not adequately allege that they and Cross had formed a contract for the ammunition.

The court granted the motion to dismiss the fraudulent-misrepresentation claim against A.S.A.P. Logistics concerning the masks because the plaintiffs did not identify a sufficiently specific fraudulent statement by A.S.A.P. Logistics, Cross, or Sacramone. It also granted the motion concerning the ammunition because the alleged damages—lost gross revenue, lost profit, and lost market capitalization—were not out-of-pocket losses under the rule applied by the court.

The court granted the motion to dismiss the glove-related fraud claim against A.S.A.P. Logistics because the alleged misrepresentation about receiving the contracted-for goods duplicated the surviving breach-of-contract claim. The court denied the motion as to Cross and Sacramone on that claim because the fraud claim could stand separately from the contract claim against A.S.A.P. Logistics.

The court denied the motion to dismiss the express-warranty claim against A.S.A.P. Logistics. The plaintiffs plausibly alleged that A.S.A.P. Logistics made statements or promises that the gloves were genuine medical-grade nitrile gloves, that the plaintiffs relied on those statements, that the warranty was breached, and that they suffered damages. The court also held that the warranty claim could proceed alongside the contract claim at this stage.

The court did not grant the motion to dismiss the unjust-enrichment claim against A.S.A.P. Logistics. The plaintiffs alleged that they paid A.S.A.P. Logistics for the gloves and received no refund after the gloves were revealed not to be medical-grade nitrile gloves. The court stated that unjust enrichment and contract claims may be pleaded in the alternative even though the plaintiffs may not ultimately recover under both theories.

Finally, the court granted the motion to dismiss the claim under New York General Business Law § 349, which addresses unfair and deceptive trade practices. The plaintiffs did not allege enough facts showing that the relevant transactions occurred in New York; the defendants’ New York residence or domicile was not enough.

Disposition

The court granted the Snooz Defendants’ motion to dismiss for lack of personal jurisdiction. It granted in part and denied in part the motion by A.S.A.P. Logistics, Cross, and Sacramone. The surviving claims identified in the order were the claims against A.S.A.P. Logistics for breach of contract, breach of express warranty, and unjust enrichment, and the glove-related fraudulent-misrepresentation claim against Cross and Sacramone. The remaining defendants were ordered to answer the surviving claims within 21 days after the opinion and order.