RTC Industries v. Goodtimes Home Video Corp.

Court: United States District Court, S.D. New York.Plaintiff: RTC IndustriesDefendant: Goodtimes Home Video Corp.Case: No. 96 Civ. 1194 PKL RLE.Date: Jan. 30, 1997Judge: EllisMEMORANDUM OPINION AND ORDERBefore the court is the request of the plaintiff to amend its complaint to add a fourth count for "Bad Faith Breach of Contract." For the reasons which follow, the request is DENIED.I. DISCUSSIONLeave to amend under Rule 15(a), Federal Rules of Civil Procedure, "should be freely given when justice so requires" and "should normally be permitted." Rachman Bag Co. v. Liberty Mut. Ins. Co., 46 F.3d 230, 234 (2d Cir. 1995). Permission to amend should not be granted, however, when the amendment would be futile. Foman v. Davis, 371 U.S. 178, 182 (1962). If the pleading is insufficient or would not survive a motion to dismiss, the court should deny the proposed amendment. Heath-Chem Corp. v. Baker, 915 F.2d 805, 810 (2d Cir. 1990).This contract action is governed by New York law. In New York, punitive damages are not recoverable for a simple breach of contract. See Rocanova v. Equitable Life Assurance Society, 83 N.Y.2d 603, 613, 612 N.Y.S.2d 339, 342, 634 N.E.2d 940 (1994). The plaintiff seeks to avoid this result by arguing that it falls within a narrow exception articulated by the New York Court of Appeals in Walker v. Sheldon, 10 N.Y.2d 401, 404-05, 223 N.Y.S.2d 488, 179 N.E. 2d 497 (1961). The plaintiff's contention is meritless.In New York University v. Continental Ins. Co., 87 N.Y.2d 308, 639 N.Y.S.2d 283, 287, 662 N.E.2d 763 ("New York University"), the Court of Appeals recently clarified the extent of the exception allowing punitive damages The court identified four elements which a party had to plead in order to state a viable claim for punitive damages where the claim arose out of a breach of contract: 1. defendant's conduct must be actionable as an independent tort; 2. the tortious conduct must be of the egregious nature set forth in Walker v. Sheldon; 3. the egregious conduct must be directed at the plaintiff; and 4. it must be part of a pattern directed at the public generally. 639 N.Y.S.2d at 287.In its proposed fourth count, the plaintiff alleges that the defendant has over a period of years engaged in an illegal pattern and practice, when dealing with manufacturers and other suppliers and vendors from which (or whom) it purchased goods or services, of wrongfully refusing to pay for goods or services properly rendered or wrongfully delaying payment of invoices for unreasonably extended periods of time in order to avoid the debt entirely or wrongfully coercing creditors to agree to unwarranted discounts. The plaintiff does not explicitly indicate which of the elements this practice, if true, satisfies. It appears, however, that the plaintiff believes this addresses the fourth prong of the New York University test, that is, "a pattern directed at the public generally." Seizing on the "public generally" language in the opinion, plaintiff attempts to support its amendment by alleging that the defendant's standard procedure is to avoid its contractual obligations. Even if true, this pattern of behavior will not support a cause of action for fraud. In New York University, for example, the plaintiff "referred to numerous instances of [defendant's] bad-faith practices with respect to policyholders nationwide" and alleged that the defendant intended from the beginning to refuse plaintiff's insurance claims for indemnification and to then terminate the policy. 639 N.Y.S.2d at 286, 288. The court held that plaintiff did not state a cause of action for fraud. Id. at 288-89. The court noted that the plaintiff had failed to allege a "misrepresentation or material omission by defendant." Id. at 289. The court specifically held that allegations that there was no intent to perform were insufficient to support a fraud claim. Id.In addition to failing to state a claim for fraud, plaintiff identifies no independent tort committed by plaintiff and provides no support for the proposition that the conduct alleged is "egregious" as used in the cases interpreting New York law. There is thus serious question whether plaintiff satisfies the first and second prongs of the New York University test.II. CONCLUSIONPlaintiff's proposed amendment would be futile as plaintiff has failed to allege facts to support a claim for fraud or to justify punitive damages. The request is DENIED.SO ORDERED.

RTC Industries v. Goodtimes Home Video Corp.

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