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Kam International v. Franco Manufacturing Co.

December 22, 2010


The opinion of the court was delivered by: William J. Martini, U.S.D.J.:


This matter comes before the Court on Defendant Franco Manufacturing Co. Inc.'s Motion to Dismiss Counts Four, Five, and Six of Plaintiff Kam International's Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). Oral argument was not held. Fed. R. Civ. P. 78. For the reasons stated below, Defendant's motion is DENIED.


Plaintiff Kam International ("Kam") is a textile manufacturer located in Pakistan. (Plaintiff's Complaint, hereinafter "Cmplt.," ¶ 1). Defendant Franco Manufacturing Co. Inc. ("Franco") is a manufacturer and distributor of home textiles. (Id. at ¶ 2). Kam and Franco entered into a business relationship beginning in 2007. (Id. at ¶ 5). In April 2009, Franco ordered over $40,000.00 worth of textiles from Kam. (Id. at ¶ 8). Although Franco inspected the goods pre- delivery and then received and accepted them, the company nevertheless declined to pay for the merchandise. (Id. at ¶¶ 19, 29). Rather, Franco claimed that the textiles were defective and sought chargebacks from Kam on multiple invoices. (Id. at ¶ 10). Initially, Kam agreed to several chargebacks, rather than lose Franco as a customer. (Id. at ¶ 11). But Kam grew increasingly suspicious when Franco claimed that numerous additional shipments were also defective, and Kam refused to issue further chargebacks. (Id. at ¶¶ 29, 30). In response, Franco stopped payment on its letter of credit, although it retained possession of the goods and did not return them to Kam. (Id. at ¶¶ 31, 34).

In order to determine whether the shipped textiles were in fact defective, Kam coordinated with Franco and arranged for Kam representatives to travel from Pakistan to the Franco facility in the U.S. to inspect the goods. (Id. at ¶¶ 36-38). However, when Kam representatives arrived at the Franco facility on the agreed upon date, March 16, 2010, Kam learned that Franco had already sold 5,488 of the total 6,047 allegedly defective items, rendering them unavailable for inspection. (Id. at ¶¶ 38-40). Kam subsequently filed a complaint with the district court in May 2010, alleging various counts including (1) three breach of contract claims (Counts One -- Three); (2) violation of N.J.U.C.C. § 2-515 (Count Four); (3) fraud (Count Five); and (4) conversion (Count Six). Presently before the Court is Defendant's Motion to Dismiss Counts Four, Five, and Six for failure to state a claim for which relief can be granted.


A. Standard of Review

In evaluating a motion to dismiss under Fed. R. Civ. P. 12(b), all allegations in the complaint must be taken as true and viewed in the light most favorable to the plaintiff. See Warth v. Seldin, 422 U.S. 490, 501 (1975); Trump Hotels & Casino Resorts, Inc., v. Mirage Resorts Inc., 140 F.3d 478, 483 (3d Cir. 1998). When deciding a Rule 12(b)(6) motion to dismiss for failure to state a claim, a court may consider only the complaint, exhibits attached to the complaint, matters of public record, and undisputedly authentic documents if the plaintiff's claims are based upon those documents. See Pension Benefit Guar. Corp. v. White Consol. Indus., 998 F.2d 1192, 1196 (3d Cir. 1993). If, after viewing the allegations in the complaint in the light most favorable to the plaintiff, it appears that no relief could be granted under any set of facts that could be proved consistent with the allegations, a court may dismiss a complaint for failure to state a claim. Hishon v. King & Spalding, 467 U.S. 69, 73 (1984).

Although a complaint does not need to contain detailed factual allegations, the grounds of the plaintiff's entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955, 1965 (2007). Thus, the factual allegations must be sufficient to raise a plaintiff's right to relief above a speculative level. See id. at 1964-65. Furthermore, although a court must view the allegations as true in a motion to dismiss, it is not compelled to accept unwarranted inferences, unsupported conclusions or legal conclusions disguised as factual allegations. Baraka v. McGreevey, 481 F.3d 187, 211 (3d Cir. 2007).

B. Count Four-Violation of N.J.U.C.C. § 2-515

Defendant argues that Count Four of Plaintiff's Complaint, alleging violation of N.J.U.C.C. § 2-515, should be dismissed for failure to state a claim for which relief can be granted. (Defendant's Brief, hereinafter "Def. Br.," at 6). § 2-515 provides in pertinent part that either party to a disputed transaction "for the purposes of ascertaining the facts and preserving evidence has the right to inspect, test, and sample" the goods that are the subject of the dispute. N.J.U.C.C. § 2-515(a). The section also provides that the parties can agree to a third party inspection to "determine the conformity or condition" of the same goods. N.J.U.C.C. § 2-515(b).

Defendant argues that the only relief to which a party is entitled under N.J.U.C.C. § 2-515 is the right to inspect and that the code does not contain any provision entitling a party to damages as a result of the failure to permit inspection of goods. (Def. Br. at 6). Defendant further argues that because Kam representatives went to the Franco facility and conducted an inspection, Kam has already received the only relief to which it is entitled and Defendant has discharged all of its duties required by the statute. (Id.). Defendant does not concede having sold off much of the allegedly defective inventory, but acknowledges Kam's claim that this is the case. However, Defendant contends that this claim is immaterial because "UCC § 2-515 gives Kam the right to inspect the goods that Franco has in its possession, and nothing further." (Defendant's Reply Brief, hereinafter "Def. Rep.," at 3). Defendant does not provide any support for this contention.

Plaintiff acknowledges that the language of § 2-515 is silent as to the availability of remedies for violation of the provision. (Plaintiff's Opposition Brief, hereinafter Pl. Opp.," at 9). Nevertheless, Plaintiff identifies various other portions of the code that indicate the remedies provided by the statute are to be liberally administered, such that any right or obligation established therein is enforceable by court action. See N.J.S.A. 12A:1-106 (providing that "the remedies provided by [the N.J.U.C.C.] shall be liberally administered to the end that the aggrieved party may be put in as good a position as if the other party had fully performed" and that "any right or obligation declared by [the N.J.U.C.C.] is enforceable by action unless the provision declaring it specifies a different and limited effect"); N.J.S.A. 12A:2-703; N.J.S.A. 12A:2-709. Furthermore, the Court finds that giving § 2-515 the meaning ascribed to it by Defendant, namely that the provision grants a party the right to inspect only those good currently available, would render the provision virtually meaningless, as any party seeking to avoid inspection could simply destroy the disputed items with impunity. Moreover, the language in the provision referring to the "preservation of evidence" certainly seems to suggest that the right to inspect means the right to inspect all pertinent items, not merely the items a defendant has not yet destroyed. See N.J.U.C.C. § 2-515(a). The Court recognizes that Plaintiff has not conclusively established a right to damages based upon Defendant's alleged violation of the statute. But because Defendant has provided absolutely no authority in support of its position that there are no available remedies and that it ...

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