SUPREME COURT OF THE STATE OF NEW YORK
NEW YORK COUNTY : IAS PART 10
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MASSAHA TEX, INC. and MATT TEXTILE,
INC.,
Index No. 119717/96-001
cal. #86 - 2/4/98
Plaintiffs,
-against-
THE SWATCH GROUP INC., VANO
HAROUTUNIAN and ARAM HAROUTUNIAN,
Defendants.
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BEATRICE SHAINSWIT, J.:
This dispute arises over a sale to plaintiff of fabric which allegedly did not conform to the defendants’ representations. The complaint alleges various causes of action grounded in fraud and breach of contract. Plaintiffs seek to amend the complaint to add various new causes of action, including ones relating to a failed settlement agreement, and to add parties purportedly connected to the existing defendants.
In September 1995, plaintiffs Massaha Tex, Inc. and Matt Textile, Inc. (together, "MTI") purchased from defendant The Swatch Group Inc. fabric that defendants allegedly represented was 100 percent linen and made in Czechoslovakia. MTI paid for the fabric by two Merchant’s Bank Letters of Credit, which were released upon receipt of defendant Vano Haroutunian’s certifica tion with respect to the fabric. After MTI resold some of the fabric to its customers, it learned that it was less than 100 percent linen and had not been made in Czechoslovakia. MTI commenced this action and, prior to any discovery, the parties entered into settlement negotiations. The parties’ attorneys eventually executed a settlement agreement, which was dated September 12, 1997. Pursuant to the agreement, the defendants presented to plaintiff, as an initial lump sum payment and a first installment, two checks for $15,000 and $2,000. The checks were returned from the bank marked "Funds Unavailable." Plaintiff now moves to amend the complaint to add claims based on the failed settlement agreement and the returned checks, and to add defendants purportedly connected to the subject transactions. Defendants cross-move to dismiss the complaint, or, in the alternative, for summary judgment. Defendants also move to compel arbitration of the issues raised in the complaint and in the proposed amended complaint.
The threshold issue is whether this dispute should be arbitrated. For a dispute to be subject to arbitration, there must be "no substantial question whether a valid agreement was made" between the parties. CPLR 7503(a). Plaintiffs deny that such an agreement was ever entered into, and defendants havefailed to offer evidence of such an agreement. Defendants submit a blank, undated sales order form that includes an arbitration agreement on the back. Vano Haroutunian 12/30/97 Aff., Ex. H. The form actually used in the subject transaction (Haroutunian Aff., Ex. G) is similar in appearance, but a different entity name is typed in at the top and there is no copy of the back of the form. Because the blank form is not evidence of an arbitra tion agreement between the parties, the motion to dismiss the complaint and compel arbitration is denied.
"A party may amend his pleading, or supplement it by setting forth additional or subsequent transactions or occurrences, at any time by leave of court. . . . Leave shall be freely given upon such terms as may be just. . . ." CPLR 3025(b). While the merits of the proposed pleading should be examined (Wieder v Skala, 168 AD2d 355 [1st Dept 1990]), the grant of such leave is within the discretion of the court, and should be liberally given absent prejudice or surprise to the adverse party. Poughkeepsie Iron Fabricators, Inc. v 515 Seventh Assocs., 158 AD2d 404 (1st Dept 1990).
Although certain causes of action in both the original and proposed amended complaints are redundant, the original complaint essentially alleges breach of contract and fraud claims, and theproposed amended complaint adds causes of action in connection with the returned checks, against additional defendants and pursuant to the federal RICO statute.
The breach of contract and fraud claims should not be dismissed. The action is at heart a contractual dispute in that MTI alleges that defendants failed to provide goods that they had agreed to provide and that were paid for. The fraud causes of action are premised on the defendants’ alleged misrepresentations that the fabric was 100 percent linen and was made in Czechoslo vakia. This is not a case where the plaintiff claims that the defendant fraudulently misrepresented its intent to perform the contract, but one in which the defendants allegedly misrepre sented existing facts about the nature of the promised goods. As such, it states a cause of action for fraud. Tomkins PLC v Bangor Punta Consolidated Co., 194 AD2d 493 (1st Dept 1993). Moreover, the defendants’ assertion that their supplier misrepre sented the fabric’s nature to the defendants is not sufficient to support summary judgment in their favor.
The proposed claims in connection with the returned checks will be allowed because they set forth "additional or subsequent transactions or occurrences" (CPLR 3025[b]) that are related to the original transactions. The defendants contend that theinclusion of these claims would be prejudicial to them and that evidence of settlement negotiations are not admissible. See Central Petroleum Corp. v Kyriakoudes, 121 AD2d 165 (1st Dept 1986). However, it is not the negotiation of settlement that is being put into issue, but the executed agreement itself, which provided that the defendants would remit the subject checks and that the defendants would pay plaintiff’s legal fees if the checks were uncollectible for any reason.
MTI also seeks to add a cause of action under the Racketeer Influenced and Corrupt Organizations Act, 18 USCA § 1961 et seq. However, it has failed to plead a civil action under RICO in that, for one example, it fails to adequately allege at least two acts of racketeering activity as defined in 18 USC § 1961(1). Finding a pattern of racketeering activity requires indictable criminal conduct as defined in the federal statutes. Scheiner v Wallace, 832 F Supp 687 (SDNY 1993). Plaintiff’s conclusory allegations that defendants have committed financial institution fraud, money laundering and trafficking in goods bearing counter feit marks are not supported by any of plaintiff’s submissions in connection with this motion. Because Massaha has failed to credibly allege two or more instances of such conduct, leave to amend the complaint to add this cause of action is denied.
Finally, plaintiff seeks to add four new defendants includ ing Arva Trading, Inc., Ishkhan Haroutunian, Hart Enterprises Int. ("Hart Enterprises") and Hart Enterprises International, Inc. ("Hart Inc.") as defendants. Pursuant to CPLR 1003, upon motion, the court has discretionary power to add or drop parties "upon . . . terms as may be just." State of New York v Park, 203 AD2d 531 (2d Dept 1994).
The basis for adding Arva Trading to causes of action relating to the returned checks is that its name was printed upon the checks as the holder of the account from which the checks were drawn. This is sufficient ground to add Arva Trading as a defendant.
The basis for adding the Hart entities is that printed on the subject fabric’s label was "Hart Enterprises Int’l." Plain tiff states that it is unable to determine, at this time, whether that name represents Hart Inc. or the partnership Hart Enter prises. Ishkhan Haroutunian is purportedly a partner in Hart Enterprises along with existing defendant Vano Haroutunian. The defendants contend that Hart Enterprises ceased doing business when Hart Inc. was formed, well before the transaction at issue. But they do not state outright that the label was that of Hart Inc., and they do not explain why the label was on the fabric atall, having also contended that Swatch received the fabric from an entirely different supplier. Consequently, the motion for leave to add these defendants is granted. There would be no injustice in adding these defendants at this time since, due to the failed settlement negotiations, discovery has not even begun. Finally, Massaha is granted leave to add causes of action for fraud and unjust enrichment against the Hart entities and Ishkhan and Vano Haroutunian as pleaded.
Accordingly, it is
ORDERED that plaintiffs’ motion for leave to add as defen dants Arva Trading, Inc., Ishkhan Haroutunian, Hart Enterprises Int. and Hart Enterprises International, Inc., is granted; and it is further
ORDERED that plaintiffs’ motion for leave to amend the complaint is granted except with respect to the thirteenth cause of action. The amended complaint in the proposed form annexed to the moving papers, absent the thirteenth cause of action, shall be served along with service of a copy of this order with notice of entry thereof; and it is further
ORDERED that the defendants have 20 days from the date of said service to serve an answer to the amended complaint; and it is further
ORDERED that the defendants’ motion to dismiss, or, in the alternative, for summary judgment is denied; and it is further
ORDERED that the defendants’ motion to compel arbitration is denied.
Dated: May , 1998
ENTER:
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J.S.C.