Article

Note: Fran and David Coleman (Wholesalers) appointed Textiles Network Limited (Buyer) to purchase children's clothing in Asia for resale in the US. The contract provided that "[u]nless otherwise specifically arranged between the parties, payment for all purchase of merchandise by [Wholesalers] shall be by LC in favor of the factory or [Buyer]." Wholesalers secured an LC for US$305,460.04 for the first delivery of merchandise but failed to pay Buyer its 7% commission. After the first delivery, Wholesalers notified Buyer that they would be unable to open additional LCs since "[Wholesalers'] financial partner had suddenly abandoned them" and asked that Buyer open an LC on their behalf for which Wholesalers would repay in full by collection using documents against payment (D/P). Buyer obtained LCs payable to Asian factories. Subsequently, Wholesalers notified Buyer that they would be unable to pay using a documentary collection but indicated that they would pay by instructing its factor, Rosenthal & Rosenthal, Inc., to remit fifty percent of Wholesaler's available credit. Buyer delivered documents for goods worth US$333,152.68, which Wholesalers accepted and sold. Only US$100,000 of the amount due was paid.

Buyer sued Wholesalers for breach of contract, unjust enrichment, promissory estoppel, and fraud. Wholesalers moved to dismiss all claims. The United States District Court for the Southern District of New York, Cote, J., denied the motion to dismiss the claims for breach of contract and fraud but dismissed claims for unjust enrichment and promissory estoppel.

Wholesalers argued that the Buyer failed to state a claim for fraud because the allegations supporting a claim for fraud were duplicative of those supporting the breach of contract claim. The court stated that "where a fraud claim is brought alongside a breach of contract claim, the fraud claim will be dismissed where it is not sufficiently distinct from the breach of contract claim." The court found that the alleged misrepresentations "concerned methods for payment that were 'otherwise specially arranged' by the [Wholesalers] and [Buyer], and are therefore extraneous to the Agreement" and concluded that the fraud claim was sufficiently distinct.

[JEB/zrb]

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