Source: http://cisgw3.law.pace.edu/cases/900522u1.html
Timestamp: 2019-04-21 04:18:09+00:00

Document:
CASE NAME: Interag Co., Ltd v. Stafford Phase Corp.
Applicability. The contract between a seller from Hungary and a buyer from the United States was concluded in April 1988, at a time when the CISG was in effect in both countries. This would render the CISG applicable to the sales issues considered pursuant to Article 1(1)(a).
"[Seller] sold and delivered sweaters to [buyer]. [Buyer] mailed [seller] two checks representing payment for 70% of the purchase price, but stopped payment on those checks, denies any obligation to pay [seller] anything, and asserts a million-dollar counterclaim for damage resulting from [buyer's] resale of the sweaters to third parties. It appears to be common ground that a resale of at least a portion of the sweaters occurred. . . .
"[Seller's] motion to compel [buyer] to produce documents relating to the resale of the sweaters in the United States is granted . . .
"[Buyer] says the resale information is irrelevant because [buyer] bases its asserted remedies upon the difference 'between the value of the good accepted and the value they would have had if they had been as warranted,' Section 2-714(212) of the Uniform Commercial Code (Sales); see also Article 50 of the 1980 United Nations Convention on Contracts for the International Sale of Goods (to which both the United States and Hungary are signatories) . . . [Buyer] apparently proposes to prove this difference in value by expert testimony. However, it is well settled that the price obtained for defective goods on resale is probative of the value of the goods as actually received [citing U.S. domestic case law]."
Plaintiff moves under Rule 37, F.R.Civ.P., to compel additional discovery from defendant and for related relief; and under Rule 15 for leave to file and serve an amended complaint in the form attached to the motion papers. I will deal with these subjects in inverse order.
Plaintiff Interag Company Limited (Interag) moves to amend its complaint to add Arnold Eisner, the president of defendant Stafford Phase Corporation (Stafford) and to assert causes of action sounding in fraud, including a civil RICO claim, against both defendants.
Stafford opposes that motion, although its brief cites no authority. Rather, Stafford denies Interag's allegations of fraud and contends that if any party committed fraud it was Interag. A defendant's denial of charges of fraud cannot preclude the plaintiff from amending its complaint to assert that basis of liability. The et tu quoque defense is similarly unavailing to bar an amended pleading under Rule 15(a). However, it is appropriate for the Court to examine sua sponte the legal sufficiency of the proposed amended pleading. This amended complaint does not pass muster.
"whether the averments are upon "information and belief" or upon actual knowledge, the plaintiffs must specify: 1) precisely what statements were made in what document or oral representations or what omissions were made, and 2) the time and place of each such statement and the person responsible for making (or, in the case of omissions, not making) the same, 3) the content of such statements and the manner in which they misled the plaintiff, and 4) what the defendants 'obtained as a consequence of the fraud.' "
"When defendants tendered the checks to plaintiff's representative in September, 1988, defendants falsely represented to said representative that the checks would be honored if plaintiff shipped the sweaters to Stafford."
Plaintiff does not allege the date, time, or place of the fraudulent representations, how many representations were made, by whom, to whom, or whether the representation or representations were oral or in writing. These defects are symptomatic of the amended complaint.
As for the RICO claim, it appears from the face of the pleading that a RICO claim does not lie. Presumably plaintiff is relying upon 18 U.S.C. § 1962(c), although the amended complaint does not say so specifically. That section makes it unlawful for persons employed by or associated with enterprises engaged in interstate or foreign commerce to conduct the affairs of such an enterprise "through a pattern of racketeering activity . . ." In H.J., Inc. v. Northwestern Bell Telephone Co., 109 S.Ct. 2893 (1989), the Supreme Court undertook to identify and define the ingredients and boundaries of a "pattern of racketeering activity." Justice Brennan's opinion commanded only a 5-4 majority, but it represents the Court's most recent articulation of the governing principles.
H.J. holds that a "pattern of racketeering activity" requires the combination of predicate acts related to each other and continuity of conduct. 109 S.Ct. at 2900.
As for relatedness, the H.J. majority derived from Title X of the Organized Crime Control Act of 1970, of which RICO formed Title IX, the rule that to be related, predicate acts must have "the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events." Id. at 2901.
"Congress was concerned in RICO with long-term criminal conduct. Often RICO action will be brought before continuity can be established in this way. In such cases, liability depends on whether the threat of continuity is demonstrated. See S. Rep. No. 91-617, at 158." Id. at 2902.
The civil complaint in H.J. alleged that at different times over the course of at least a six-year period telephone company officers and employees gave members of a state regulatory commission bribes in order to obtain approval of unfair and unreasonable utility rates. The Court noted plaintiff's "claim that the racketeering predicates occurred with some frequency at least over a six-year period, which may be sufficient to satisfy the continuity requirement." Id. at 4956. The case was remanded to the district court for further proceedings consistent with the Court's opinion.
In Beauford v. Helmsley, 865 F.2d 1386 (2d Cir.) (en banc), vacated and remanded, 109 S.Ct. 3326, original decision adhered to, 893 F.2d 1433 (2d Cir. 1989), plaintiffs alleged that defendants made a number of material misrepresentations in an offering plan for the conversion of an apartment complex into condominiums. The plan was mailed to more than 800 addressees. The complaint alleged additional facts sufficient to justify an inference that defendants would in the future be making further, equally fraudulent amendments to the offering plan. The Second Circuit held these allegations sufficient to describe a pattern of racketeering activity. The en banc majority and the three dissenting judges in Beauford agreed that the concepts of "relatedness" and "continuity" were crucial; and, in a departure from prior Second Circuit authority, observed that "our analysis of relatedness and continuity has shifted from the enterprise element to the pattern element." 865 F.2d at 1391. That shift presaged the Supreme Court's analysis in H.J., which had not yet been decided.
In Beauford the Second Circuit defined Congress's goal in defining "pattern of racketeering activity" as to exclude from the reach of RICO criminal acts that were merely "isolated" or "sporadic." Consequently, Judge Kearse wrote for the en banc majority, "we must determine whether two or more acts of racketeering activity have sufficient interrelationship and whether there is sufficient continuity or threat of continuity to constitute such a pattern." Id. at 1391. Where the enterprise itself is associated with organized crime, that fact alone is sufficient to "tend to belie any notion that the racketeering acts were sporadic or isolated". United States v. Indelicato, 865 F.2d 13 70, 1384 (2d Cir. 1989) (en banc, decided with Beauford).
"When, however, there is no indication that the enterprise whose affairs are said to be conducted through racketeering acts is associated with organized crime, the nature of the enterprise does not of itself suggest that racketeering acts will continue, and proof of continuity of racketeering activity must thus be found in some factor other than the enterprise itself." Beauford at 1391.
"In sum, read with ordinary charity, the amended complaint alleged that on each of several occasions defendant had mailed fraudulent documents to thousands of persons and that there was reason to believe that similarly fraudulent mailings would be made over an additional period of years. These allegations sufficed to set forth acts that cannot be deemed, as a matter of law, isolated or sporadic." Id. at 1392.
The Supreme Court granted certiorari in Beauford, vacated the Second Circuit's judgment, and remanded the case to that court for further consideration in light of H.J. 109 S.Ct. 3236 (1989). The Second Circuit gave that mandated further consideration and adhered to its en banc decision. 893 F.2d 1433 (2d Cir. 1989).
See Jacobson v. Cooper, 882 F.2d 717, 720 (2d Cir. 1989) (continuity is sufficiently alleged where related predicates extended over "a matter of years."); Official Publications, Inc. v. Kable News Co., 884 F.2d 664, 666-68 (2d Cir. 1989) (allegedly fraudulent acts occurred "pursuant to a longstanding contract, over a considerable period of time"; contracts in suit were dated 1974 and 1980); Procter & Gamble v. Big Apple Industrial Buildings, Inc., 879 F.2d 10, 18 (2d Cir. 1989) ("the complaint must provide allegations sufficient to infer that an enterprise exists, and that the acts of racketeering were neither isolated nor sporadic"; allegations sufficient which claimed "that defendants engaged in at least five separate fraudulent schemes").
In the case at bar, plaintiff's RICO claim arises out of the single contract in suit. The parties entered into that contract, for the sale and purchase of sweaters, in April 1988. The sweaters were shipped from Hungary to New York in October 1988. Defendant Stafford drew two checks in October and November 1988 respectively. Stafford stopped payment in December 1988. Fraudulent communications relating to the transaction are alleged to have been sent in December 1988 and July 1989. All this conduct relates to a single, isolated commercial transaction. I accept that the alleged fraudulent acts are sufficiently related to each other. But the requisite element of continuity is not present. The case involves months, not years, and plaintiff suggests no proof of future comparable transgressions. Neither of the two prongs of continuity the H.J. court articulated is satisfied.
On any theory a RICO claim cannot lie against the corporate defendant, Stafford. Stafford is alleged to be the RICO enterprise. Amended complaint at para. 32. If a RICO claim were viable at all, it would lie only against Eisner. No Section 1962(c) claim may be pleaded against Stafford because a corporation cannot be both an enterprise and a person. Official Publications Inc. v. Kable News Co., supra at 668. I accept in principle that a corporate officer may be the "person" who conducts the affairs of the corporate enterprise through a pattern of racketeering activity; however, as noted, the elements of a RICO claim are not pleaded. Accordingly I will not grant leave to plaintiff to include a RICO claim in the form included in the proposed amended complaint.
I will allow plaintiff to file and serve an amended complaint including common law fraud claims against Stafford and Eisner if plaintiff is able, consistent with Rule 11, to allege specific details sufficient to satisfy Rule 9(b).
Interag's motion to compel Stafford to produce documents relating to the resale of the sweaters in the United States and to re-examine Eisner on that issue is granted.
It is disingenuous for defendant to suggest such documents and testimony do not constitute appropriate discovery, given the issues framed by the pleadings.
Interag sold and delivered sweaters to Stafford. Stafford mailed Interag two checks representing payment for 70% of the purchase price, but stopped payment on those checks, denies any obligation to pay Interag anything, and asserts a million-dollar counterclaim for damages resulting from Stafford's resale of the sweaters to third parties. It appears to be common ground that a resale of at least a portion of the sweaters occurred. Obviously Interag is entitled to discovery on the resale.
Defendant says the resale information is irrelevant because defendant bases its asserted remedies upon the difference "between the value of the goods accepted and the value they would have had if they had been as warranted," § 2-714(212) of the Uniform Commercial Code (Sales); see also Article 50 of the 1980 United Nations Convention on Contracts for the International Sale of Goods (to which both the United States and Hungary are signatories), 15 U.S.C., Cumulative Annual Pocket Part at 48 et. seq. (1990). Stafford apparently proposes to prove this difference in value by expert testimony. However, it is well settled that the price obtained for defective goods on resale is probative of the value of the goods as actually received. See, e.g., Lackawanna Leather Co. v. Martin & Stewart, Ltd., 730 F.2d 1197, 1203 (8th Cir. 1984).
Stafford resists giving discovery on resale on the theory that "the Hungarians are notorious for stealing client accounts." Eisner affidavit at para. 4. This conclusory slur upon an entire nation is insufficient to foreclose plaintiff from discovering evidence of manifest relevance, particularly where the affidavits submitted on the motion indicate that Stafford in its prior dealings with Interag had made known the names and addresses of its third-party purchasers so that transactions might be completed.
1. Interag's motion to file and serve an amended complaint in the form attached to its motion papers is denied, without prejudice to Interag renewing its motion to file and serve an amended complaint consistent with this Opinion. Such motion, if so advised, must be filed and served within thirty (30) days of the date of this order.
2. Within sixty (60) days of the date of this Order, defendant Stafford shall produce to Interag all documents described in plaintiff's first request for production of documents, to the extent those documents have not already been produced.
3. Within ninety (90) days of the date of this Order, Arnold Eisner will again present himself for deposition by counsel for plaintiff and respond fully to questions on the subject of resale.
Non-compliance with paragraphs (2) and (3) above will result in striking of the counterclaim and entry of judgment for plaintiff in the amount demanded in the complaint.
Plaintiff is entitled to costs and attorney's fees under Rule 37(a)(4) insofar as its motion related to compelling discovery from defendant. Defendant's resistance to discovery concerning retail is untenable, and cannot be regarded as "substantially justified" under the circumstances of the case. As the Notes of the Advisory Committee to the 1970 amendments to the rule makes clear, the amendment is intended to require the awarding of expenses in the absence of substantial justification or other circumstances making an award of expenses unjust. In addition, counsel for defendant signed the response to the request for production of documents, so that Rule 11 is implicated as well. I award to plaintiff costs and fees in the amount of $500 to be paid by counsel for the defendant.
All discovery is to be completed within 120 days of the date of this order. Counsel for the parties are directed to attend a final pretrial conference in Room 307 on October 5, 1990 at 2:00 p.m.

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