Motion-Secondary: Clean Air Options, Llc, Eurus Air Design, Ab v. Humanscale Corporation

On December 31, 2012 a Motion-Secondary was filed involving a dispute between Clean Air Options, Llc, Eurus Air Design, Ab, and Humanscale Corporation, for Commercial Division in the District Court of New York County.

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FILED: NEW YORK COUNTY CLERK 10/08/2014 03:20 PM INDEX NO. 654595/2012
NYSCEF DOC. NO. 149 RECEIVED NYSCEF: 10/08/2014

SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
Index No. 654595/2012
CLEAN AIR OPTIONS, LLC and EURUS AIR
DESIGN, AB,
Justice Oing
Plaintiffs,
Motion Seq. # 006
-against-

HUMANSCALE CORPORATION,

Defendant.

____________________________________________________________________________

MEMORANDUM OF LAW IN OPPOSITION TO PLAINTIFFS’ MOTION SEEKING
LEAVE TO FILE AN AMENDED COMPLAINT
____________________________________________________________________________

COLE, SCHOTZ, MEISEL,
FORMAN & LEONARD, P.A.
Arianna Frankl, Esq.
Lauren M. Manduke, Esq.
Raimundo J. Guerra, Esq.
900 Third Avenue, 16th Floor
New York, New York 10022-4728
(212) 752-8000
Attorneys for Defendant,
Humanscale Corporation

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TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES .......................................................................................................... ii
PRELIMINARY STATEMENT .................................................................................................... 1
STATEMENT OF PERTINENT FACTS ...................................................................................... 2
I. BRIEF BACKGROUND LEADING TO CASE................................................................ 2
II. THE FRAUD CLAIMS ORIGINALLY ASSERTED IN THE COMPLAINT WERE
DISMISSED BY THIS COURT ........................................................................................ 3
III. THE PROPOSED FRAUD CLAIM IS BASED ON THE SAME FACTS AS THE
PREVIOUSLY DISMISSED FRAUD CLAIMS, FACTS THAT WERE WELL
KNOWN TO PLAINTIFFS PRIOR TO THE FILING OF THIS ACTION...................... 7
LEGAL ARGUMENT.................................................................................................................. 10
I. LEAVE TO AMEND SHOULD BE DENIED AS UNTIMELY BECAUSE
PLAINTIFFS POSSESSED ALL ALLEGEDLY RELEVANT INFORMATION PRIOR
TO FILING THE ORIGINAL COMPLAINT, NEARLY TWO YEARS AGO.............. 10
II. PLAINTIFFS’ MOTION SHOULD ALSO BE DENIED BECAUSE IT IS BASED ON
THE SAME FACTS AS THE FRAUD CLAIMS ALREADY REJECTED BY THIS
COURT ............................................................................................................................. 12
III. PLAINTIFFS’ MOTION SEEKING LEAVE TO AMEND THE COMPLAINT
SHOULD ALSO BE DENIED AS FUTILE SINCE THE PROPOSED CLAIM FAILS
AS A MATTER OF LAW................................................................................................ 15
A. PLAINTIFFS’ PROPOSED CLAIM FOR FRAUD IS DUPLICATIVE OF
PLAINTIFFS’ BREACH OF CONTRACT CLAIM (COUNT ONE) ........................ 15
B. PLAINTIFFS’ FAILURE TO ADEQUATELY PLEAD ELEMENTS OF FRAUD
DOOMS PROPOSED COUNT TWO ......................................................................... 17
CONCLUSION............................................................................................................................. 21

i
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TABLE OF AUTHORITIES

Page(s)

CASES

Bencivenga & Co. v. Phyfe, 210 A.D.2d 22, 619 N.Y.S.2d 33 (1st Dep’t 1994) ..........................13

Bert G. Gross & Co., Inc. v. Damor Realty Corp., 60 A.D.2d 541, 400 N.Y.S.2d
56 (1st Dep’t 1997) ....................................................................................................................9

Callisto Pharm., Inc. v. Picker, 74 A.D.3d 545, 903 N.Y.S.2d 370 (1st Dep’t
2010) ........................................................................................................................................18

Carr v. Hayes, 92 A.D.3d 534, 938 N.Y.S.2d 435 (1st Dep’t 2012).............................................18

Dress Shirt Sales, Inc. v. Hotel Martinique Assocs., 12 N.Y.2d 339, 239 N.Y.S.2d
660 (1963)................................................................................................................................16

Eighth Ave. Garage Corp. v. H.K.L. Realty Corp., 875 N.Y.S.2d 8 (1st Dep’t
2009) ........................................................................................................................................15

Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553, 883 N.Y.S.2d
147 (2009)................................................................................................................................15

Freeburg v. Trans World Metals, Inc., 160 A.D.2d 624, 559 N.Y.S.2d 246 (1st
Dep’t 1990) ..............................................................................................................................13

Glenn Partition, Inc. v. Trustees of Columbia Univ. in City of N.Y., 169 A.D.2d
488, 564 N.Y.S.2d 361 (1st Dep’t 1991) ...........................................................................18, 19

Kamyr, Inc. v. Combustion Eng’g, Inc., 198 A.D.2d 44, 603 N.Y.S.2d 451(1st
Dep’t 1993) ..............................................................................................................................13

Katz 737 Corp. v. Cohen, 104 A.D.3d 144, 957 N.Y.S.2d 295 (1st Dep’t 2012)..........................18

Kregos v. Associated Press, 3 F.3d 656 (2d Cir. 1993) .................................................................16

Lama Holding Co. v. Smith Barney Inc., 88 N.Y.2d 413, 646 N.Y.S.2d 76 (1996)......................16

Metropolitan Transp. Auth. v. Triumph Adv. Prods., 116 A.D.2d 526, 497
N.Y.S.2d 673 (1st Dep’t 1986) ................................................................................................19

N.Y. Fruit Auction Corp. v. City of N.Y., 81 A.D.2d 159, 439 N.Y.S.2d 64 (1st
Dep’t 1981), aff’d, 56 N.Y.2d 1015.........................................................................................19

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Nicosia v. Bd. of Managers of the Weber House Cond., 77 A.D.3d 455, 909
N.Y.S.2d 412 (1st Dep’t 2010) ..........................................................................................14, 18

OP Solutions, Inc. v. Crowell & Moring, LLP, 72 A.D.3d 622, 900 N.Y.S.2d 48
(1st Dep’t 2010) .......................................................................................................................14

Papa’s-June Music, Inc. v. McLean, 921 F. Supp. 1154 (S.D.N.Y. 1996)....................................13

Poitier v. Am. Broadcast Cos., Inc., 61 A.D.2d 905, 402 N.Y.S.2d 824 (1st Dep’t
1978) ........................................................................................................................................10

Pollak v. Moore, 85 A.D.3d 578, 926 N.Y.S.2d 434 (1st Dep’t 2011) .........................................14

Prince v. O’Brien, 256 A.D.2d 208, 683 N.Y.S.2d 504 (1st Dep’t 1998).................................9, 10

Ross v. Louise Wise Servs., Inc., 8 N.Y.3d 478, 836 N.Y.S.2d 509 (2007)...................................15

Sharapata v. Town of Islip, 82 A.D.2d 350, 441 N.Y.S.2d 275 (2d Dep’t 1981),
aff’d, 56 N.Y.2d 332, 452 N.Y.S.2d 347 (1982)......................................................................13

Turk v. Angel, 293 A.D.2d 284, 740 N.Y.S.2d 50 (1st Dep’t 2002), lv. denied, 100
N.Y.2d 510, 766 N.Y.S.2d 164 (2003) ....................................................................................15

RULES

CPLR § 3016(b).......................................................................................................................15, 17

CPLR § 3025....................................................................................................................................9

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PRELIMINARY STATEMENT

Defendant Humanscale Corporation (“Humanscale”) submits this Memorandum of Law

in opposition to the motion seeking leave to amend the Complaint filed by Plaintiffs, Clean Air

Options, LLC (“Clean Air” or “CAO”) and Eurus Air Design, AB (“Eurus”) (together,

“Plaintiffs”).

As explained herein, Plaintiffs’ proposed amendment is simply a restatement of their

previously dismissed fraud claims, already considered and rejected by this Court. Plaintiffs’

proposed amendment contains no new information. All proposed allegations are based on

information in Plaintiffs’ possession well prior to bringing this case, and Plaintiffs do not have

any justification for waiting to seek amendment until the close of fact discovery, months after

Plaintiffs asserted this case was ready for trial by filing a Note of Issue. Plaintiffs’ proposed

amendment would be futile in any event, because the proposed new claim for fraud is duplicative

of Plaintiffs’ breach of contract claim and fails to adequately plead facts sufficient to support the

proposed claim. For all of these reasons, discussed further below, Plaintiffs’ motion for leave to

amend the Complaint should be denied.

Humanscale and Plaintiffs are parties to certain Distribution and License Agreements

giving Humanscale a license to Plaintiffs’ patented air purification technology in certain markets

(the “Agreements”). In October 2012, Humanscale exercised its right to terminate the

Agreements. In response, Plaintiffs brought this action alleging a kitchen sink of claims,

including breach of contract, fraud, and other torts and quasi-contract claims. Because all of

Plaintiffs’ claims were duplicative of their breach of contract claim, and the fraud claims

insufficient to sustain a claim, on Humanscale’s motion, the Court dismissed all Counts except

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Count One, for alleged breach of contract. Humanscale thereafter filed its Answer and

Counterclaim for breach of contract by Plaintiffs.

Plaintiffs now seek to amend the Complaint at this late juncture based on information that

has been in their possession since well before commencement of this case, without offering any

reason for the delay. Indeed, Plaintiffs’ proposed claim simply rehashes the same information

already presented to and rejected by this Court on Humanscale’s motion to dismiss. Plaintiffs’

motion for leave to amend is essentially an improper, untimely request for reargument. There is

no basis to convert this contract dispute into a fraud claim, and Plaintiffs’ motion to amend must

be denied.

STATEMENT OF PERTINENT FACTS

I. BRIEF BACKGROUND LEADING TO CASE

Humanscale develops and sells ergonomic office products. Complaint ¶ 7, Exhibit “B” to

the Affirmation of Craig Holland, Esq. (“Holland Aff.”) [Doc. No. 122]. Plaintiff Eurus is a

Swedish company that develops and sells air cleaning products and licenses patents relating to

the technology of such products. Id. ¶¶ 2, 8. Plaintiff Clean Air is a licensing intermediary,

given the right to sublicense Eurus’ patented technology in certain contexts. Id. at ¶ 9.

On or about July 1, 2006, Clean Air, as Eurus’ licensee, entered into a Distribution and

License Agreement with Humanscale (the “2006 Agreement”) which gave Humanscale license

rights with respect to certain markets and territories. Id. ¶¶ 10-12; see also Affirmation of

Lauren Manduke (“Manduke Aff.”), Ex. “A”. On October 15, 2007, Humanscale, Clean Air and

Eurus executed an additional Distribution and License Agreement (the “2007 Agreement” )

extending the license to other markets. Id. ¶¶ 15-17; see also Manduke Aff., Ex. B. Both the

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2006 Agreement and the 2007 Agreement provided Humanscale with an unrestricted right to

terminate the Agreements. See Ex. A, § 10; Ex. B, § 11. Two amendments were executed,

including one in January 2009 (the “2009 Amendment”) which, among other things, extended

Humanscale’s license to include the manufacture air filters. Complaint ¶¶ 24, 31.

After many years of effort and millions of dollars in losses, in October 2012 Humanscale

gave notice of termination of the Agreements. Answer and Verified Counterclaim [Doc. No.

39], ¶ 33 (Manduke Aff., Ex. C). The present suit followed.

II. THE FRAUD CLAIMS ORIGINALLY ASSERTED IN THE
COMPLAINT WERE DISMISSED BY THIS COURT

Plaintiffs filed the Complaint against Humanscale on or around December 31, 2012 (the

“Complaint”). See Complaint [Doc. 122]. In the Complaint, Plaintiffs alleged breach of the

Agreements, as well as five other causes of action sounding in tort and quasi-contract, including

two counts for alleged fraud. See id.

In support of their contract claim (Count One), Plaintiffs alleged that if Humanscale was

to “engage a third party” to make filters, a sublicense with specific terms was required.

Complaint ¶ 27. Plaintiffs also alleged that Humanscale was required to get Plaintiffs’ prior

approval. Id. ¶ 28. Plaintiffs alleged that Humanscale did not get prior approval. Id. ¶ 42.

Plaintiffs allege that Humanscale “proffered [to Plaintiffs] a proposed contract that was never

executed.” Id. Plaintiffs alleged that a different sublicense was entered into, “without the

plaintiffs’ prior knowledge or approval” which “failed to properly protect the plaintiffs’

technology.” Id.

In support of their two alleged fraud claims in the Original Complaint (Counts Two and

Three), Plaintiffs relied on the same alleged fact occurrences as with the contract claim.

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Plaintiffs alleged Humanscale was required to enter into a sublicense with any filter

manufacturer. Id. ¶¶ 60, 68. Plaintiffs alleged that a draft contract was “proffered” to Plaintiffs

as the sublicense. Id. ¶ 60. Plaintiffs alleged that Humanscale “assured” Plaintiffs “that said

license and Manufacturing Agreement would be executed,” and that Humanscale “knew the

statements to be false” when made, and “made the representations to induce the plaintiffs to rely

upon said statements.” Id. ¶ 61. Plaintiffs further alleged that by presenting Plaintiffs with a

draft sublicense which Plaintiffs approved, but then entering into a different agreement,

Humanscale failed to properly protect Plaintiffs’ intellectual property, causing Plaintiffs damages

in the amount of $10,000,000. Id. at ¶¶ 62-65; 70-74.

Comparison of the allegations in the contract claim versus the fraud claims clearly

demonstrated the claims were duplicative:

Count One, Breach of Contract Counts Two and Three, Fraud

“defendants [sic] failed to get prior approval “plaintiffs were sent a draft contract between
from the plaintiffs of certain sub-licensing the defendant and [third-party] … the
done by Humanscale for the manufacture of defendant advised the plaintiff that said would
filters … a subsequent contract was entered be the license and manufacturing agreement
into for the sub-licensing of filters without the under which [third-party] would manufacture
plaintiffs’ prior knowledge or approval ... certain filters … Unbeknownst to the plaintiffs,
[Humanscale] failed to properly protect the said proffered License and Manufacturing
plaintiffs’ technology and failed to properly Agreement was never executed and plaintiffs
ensure that any sub-licensee would so protect were never advised of any other agreement …
the plaintiffs’ technology … [resulting] in the a separate and distinct agreement was entered
improper release and dissemination of certain into with [third-party which] failed to properly
proprietary technology.” Complaint ¶ 42. protect plaintiffs’ intellectual property.”
Complaint ¶¶ 60, 62. See also ¶¶ 70-73.

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Count One, Breach of Contract Counts Two and Three, Fraud

“the parties agreed to allow Humanscale to “plaintiffs ultimately acquiesced in allowing
manufacture said filters and to accomplish the defendants the right to manufacture …
same entered into an Amendment to certain filters … the parties entered into an
Distribution and License Agreement dated on ‘Amendment to Distribution and License
or about January 30, 2009.” Complaint ¶ 24. Agreement’ dated January 30, 2009.’”
Complaint ¶ 67.

“The January 30, 2009 Agreement also “the Agreement stated that ‘Prior to execution
provided that prior to execution of any of any sub-license agreement for the
sublicense agreement for the manufacture of manufacture of filters, Humanscale shall obtain
filters, Humanscale shall obtain approval by approval by [Plaintiffs].’” Complaint ¶ 68.
[Plaintiffs].” Complaint ¶ 28. See also ¶ 60.

“defendants failed to get prior approval from “In contrivance of said Agreement …
the plaintiffs [and a] contract was entered into Humanscale did not properly seek nor obtain
for the sub-licensing of filters without the approval by [Plaintiffs] … [and] entered into
plaintiffs’ prior knowledge or approval . . . .” an Agreement for the production of filters.”
Complaint ¶ 42. Complaint ¶¶ 69-70. See also ¶ 62.

“[Humanscale] failed to properly protect the “[Humanscale] fraudulently induced the
plaintiffs’ technology and failed to properly plaintiffs into believing that their intellectual
ensure that any sub-licensee would so protect property rights and other rights were being
the plaintiffs’ technology . . . and [has] resulted validly protected … The above referenced
in the improper release and dissemination of incidents amounted to a fraud which caused
certain proprietary technology.” Complaint ¶ financial damage to the plaintiffs in that their
42. intellectual property was wrongfully attained.”
Complaint ¶¶ 71-72. See also ¶ 64.

Because Plaintiffs’ alleged fraud claims were duplicative of Plaintiffs’ breach of contract

claim and failed to sufficiently state claims of fraud, Humanscale moved to dismiss Counts Two

and Three (for fraud), and the remaining Counts as duplicative of Count One, on February 13,

2013. See Doc. Nos. 6-9 (attached as Exhibit “D” to the Manduke Aff.). The parties appeared

before the Honorable Jeffrey K. Oing on July 18, 2013 for a hearing. See Transcript of July 19,

2013 Hearing (“Tr.”), attached as Exhibit “C” to the Holland Aff. [Doc. No. 33.]

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The Court granted Humanscale’s motion to dismiss, leaving only Count One for breach

of contract in the case. The dismissal was without prejudice as to the fraud claims, should

additional facts be revealed during discovery that would be sufficient to remedy the defective

claims. See Order dated July 18, 2013 and entered July 22, 2013 [Doc. No. 31] (attached to the

Manduke Aff. as Exhibit “H”). Specifically, Judge Oing held:

That branch of the motion then, based on the arguments, that
branch of the motion to dismiss the second and third cause of
action for fraud against the defendant is granted without prejudice
to the plaintiff, and defendants here to conduct discovery. And, if
during the course of discovery, certain facts and information are
discovered and revealed such that a fraud claim can be made out,
the plaintiff will have the ability to see an application to the Court
or make an application to the Court by amended complaint to re-
assert their fraud claims. But, at this juncture, based on the
allegations that touch on, at least, a duplicative nature of the
breach of contract, but more importantly, the lack of
specificity as to the exact misrepresentation, alleged
misrepresentations and the timing, and, you know, who said
what, who the players were, particularly given the fact that
Mr. Barnes himself is the person who was the main man in
terms of dealing with this transaction, there isn’t enough
information there.

So, accordingly, the two fraud claims are dismissed. The second
and third cause of action are dismissed. And, again, it’s without
prejudice to re-assertion after discovery if, in fact, details come
out during the discovery phase.”

[Tr. 16:18-17:15 (emphasis added) [Doc. No. 33].]

Thereafter, discovery commenced on or about December 2, 2013 and is nearly

concluded. Manduke Aff., ¶ 2.

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III. THE PROPOSED FRAUD CLAIM IS BASED ON THE
SAME FACTS AS THE PREVIOUSLY DISMISSED FRAUD
CLAIMS, FACTS THAT WERE WELL KNOWN TO
PLAINTIFFS PRIOR TO THE FILING OF THIS ACTION

Plaintiffs, who have sought to expedite both discovery and trial in this matter, filed a

Note of Issue on June 3, 2014 [Doc. No. 72] and moved for an expedited trial on June 3, 2014

[Doc. Nos.62-72], thereby indicating their belief that discovery in this matter should be

concluded and post-discovery proceedings commence. See Manduke Aff., Ex. E. Nevertheless,

Plaintiffs filed the present motion seeking leave to amend the Complaint on September 9, 2014,

over three months after filing their Note of Issue, and nearly two years after filing this case. See

Doc. Nos. 118- 144.

Paragraphs 1 through 53 of the proposed Amended Complaint are identical to the

Original Complaint. Compare Complaint ¶¶ 1-53 [Doc. No. 1] and proposed Amended

Complaint ¶¶ 1-53 [Doc. No. 121]. Plaintiffs then attempt to reallege their previously-dismissed

fraud claims in the balance of the proposed Amended Complaint as Count Two (paragraphs 54

through 91).

The proposed fraud claim is based on the same alleged facts as the previously dismissed

fraud claims, all of which were known to Plaintiffs well before initiating this action. Indeed,

despite the assertion that “highly relevant facts” were “unknown to CAO & Eurus prior to

Discovery” (Affidavit of Frank Barnes sworn to on September 9, 2014 (“Barnes Aff.”) [Doc. No.

143], p. 7), all of the allegations in the proposed claim were known to Plaintiffs prior to the time

they filed the Complaint. This is demonstrated by the Complaint, Plaintiffs’ opposition to

Humanscale’s motion to dismiss, and the documents produced by and submitted in purported

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support of Plaintiffs motion to amend, all of which were in Plaintiffs’ possession prior to filing

this case.

Specifically, paragraphs 54-59 of the proposed Amended Complaint allege that there

were agreements between the parties to license air purification technology owned by Plaintiff

Eurus, that there was a 2009 amendment which permitted Humanscale to manufacture filters

directly or through a third party (Malata), and that certain terms were required to be in any such

third party agreement. The same allegations were made in the Original Complaint at paragraphs

11, 15, 17, 24, 27-28, 42, 60, 67-68 and 73.

In paragraphs 60-64 of the proposed Amended Complaint, Plaintiffs allege that they

requested a draft agreement for the filter manufacturer, that a draft was provided to and

ultimately approved by Plaintiffs, and that there was exposure of Plaintiffs’ alleged confidential

and/or proprietary information. The same allegations were made in the Original Complaint at

paragraphs 42-43, 60, 73 and/or contained within documents Plaintiffs produced in this case,

with dates back to 2009 and 2010, well prior to the filing of this case. See P150 [Doc. No. 125],

P154 [Doc. No. 137], P3306 [Doc. No. 127], P3307 [Doc. No. 128] (each attached as Exhibits to

the Barnes Aff.)

Paragraphs 64-67 of the proposed Amended Complaint allege that sometime after

February 2010, the “plaintiffs were advised by the defendants that [the “approved” agreement]

was being forwarded to Malata for execution” and “[t]hat at the time this representation of fact

was made, it was false.” Proposed Amended Complaint, ¶¶ 64-65. Proposed Amended

Complaint paragraph 67 contains even less specific allegations about the purported fraudulent

representation that, “plaintiffs were advised that the sub-license was executed,” and that

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plaintiffs “justifiably relied” on “defendant’s assurances that the sub-license agreement had been

executed and that hence the plaintiff’s technology and methods were being protected.” Notably,

Plaintiffs do not plead whether there were multiple alleged misrepresentations or just one, do not

identify specific dates or who made what alleged statement(s), do not explain whether the

alleged statement(s) are paraphrased or if Plaintiffs are purporting to present an exact quote, and

do not identify any context to the alleged statement(s). These are the same, broad based

allegations as Plaintiffs made previously, and which were based on information in Plaintiffs’

possession prior to filing the Complaint. See Complaint ¶¶ 42, 60-63; Exs. J-L, P-Q to Barnes

Aff.; Ex. G to Holland Affirmation in Opposition to Motion to Dismiss [Doc. No. 19] (attached

as Exhibit “F” to the Manduke Aff.); and Barnes Affidavit in Opposition to Motion to Dismiss

and in Support of Cross-Motion for T.R.O., p.4. [Doc. No. 13] (attached as Exhibit “G” to the

Manduke Aff.)

Finally, in proposed Amended Complaint paragraph 68 through the end of the proposed

claim, Plaintiffs allege that Humanscale allegedly committed fraud by “omission” by failing to

advise Plaintiffs that the draft agreement Plaintiffs had approved was not executed. See, e.g.,

proposed Amended Complaint ¶¶ 68-69, 73, 76-80, 84-90. Plaintiffs assert that because of this

alleged omission, Plaintiffs did not do a deal with Homedics. See, e.g., proposed Amended

Complaint ¶ 74. These are the same allegations Plaintiffs made previously, and again, all based

on information in Plaintiffs possession prior to filing the Complaint. See Complaint ¶¶ 42, 60,

63-65, 73; Exs. R-U of Barnes Affidavit in Support of Motion to Amend [Doc. Nos. 138-141];

and Barnes Affidavit in Opposition to Motion to Dismiss and in Support of Cross-Motion for

T.R.O., pp. 5, 6 [Doc. No. 13] (Manduke Aff., Ex. G.)

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Because all of the allegations of the proposed claim were already rejected as insufficient

to sustain a fraud claim, were known by Plaintiffs well prior to the filing of this case, and for the

other reasons stated herein, Plaintiffs’ motion seeking leave to amend should be denied.

LEGAL ARGUMENT

I. LEAVE TO AMEND SHOULD BE DENIED AS UNTIMELY
BECAUSE PLAINTIFFS POSSESSED ALL ALLEGEDLY
RELEVANT INFORMATION PRIOR TO FILING THE
ORIGINAL COMPLAINT, NEARLY TWO YEARS AGO

Although Section 3025 of the CPLR provides that leave to amend pleadings shall be

freely given, where a moving party delays without excuse, denial of leave to amend is

appropriate. See Bert G. Gross & Co., Inc. v. Damor Realty Corp., 60 A.D.2d 541, 400

N.Y.S.2d 56, 57 (1st Dep’t 1997) (reversing grant of leave to amend, the First Department found

amendment improper where plaintiff possessed knowledge of the proposed claim when the

original pleading was filed); Prince v. O’Brien, 256 A.D.2d 208, 683 N.Y.S.2d 504 (1st Dep’t

1998) (finding error in granting motion to amend where there was no reasonable excuse for the

delay given that the facts on which the new complaint was based were known from the outset).

Consistent with these cases, Plaintiffs’ motion to amend, brought after Plaintiffs’ filed a Note of

Issue, and based on alleged facts which were known to Plaintiffs well prior to the filing of this

action, should be denied.

As explained above, all of the facts which are alleged as supporting the proposed

Amended Complaint were known to Plaintiffs well prior to the filing of this action. See supra at

pp. 7-10. In a nutshell, Plaintiffs allege that Humanscale committed fraud by purportedly

misrepresenting that a specific agreement had been executed between Humanscale and its filter

manufacturer Malata, and then committed further alleged fraud by omission, by not telling

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Plaintiffs that the specific agreement was not executed. Supra at pp. 8-9. These are the same

allegations previously made and based on facts all known to Plaintiffs prior to the filing of the

Complaint. Supra at pp. 7-10.

Putting aside that the allegations are insufficient to make out a claim for fraud, which will

be discussed below, the law is clear that delay without cause should not be tolerated, and motions

to amend based on long known facts should be denied. See Poitier v. Am. Broadcast Cos., Inc.,

61 A.D.2d 905, 402 N.Y.S.2d 824 (1st Dep’t 1978). In Poitier, the plaintiff sued for breach of

an alleged oral contract calling for him to play the role in a movie to be produced by the

defendant. Id. at 825. Plaintiff moved for leave to amend the complaint to assert promissory

estoppel and quantum meruit claims long after the case was originally filed. Id. Finding that the

plaintiff had previous knowledge of the facts on which he based the proposed claims yet delayed

in seeking leave to amend, the First Department held it was error to grant leave to amend. Id.

As in Poitier, Plaintiffs have no excuse for their delay in seeking leave to amend because

all of the facts alleged to support the proposed amendment were known to Plaintiffs prior to

filing the Complaint. Accordingly, their motion should be denied.

II. PLAINTIFFS’ MOTION SHOULD ALSO BE DENIED
BECAUSE IT IS BASED ON THE SAME FACTS AS THE
FRAUD CLAIMS ALREADY REJECTED BY THIS COURT

Plaintiffs’ motion seeking leave to amend the Complaint should be rejected because the

“new” fraud claim alleged in Count Two of the proposed Amended Complaint has already been

rejected by this Court, based on the same information and evidence previously presented and

deemed insufficient to support a fraud claim. See July 18, 2013 Order [Doc. No. 31] (Manduke

Aff., Ex. H.).

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In his affidavit, Frank Barnes, the principal of CAO (see Barnes Aff., p. 1 [Doc. No.

143]), asserts that Plaintiffs are moving to amend based on the discovery of four alleged facts,

“unknown to CAO & Eurus prior to Discovery.” Id. at p. 7. These four “new” facts are as

follows: (1) Humanscale failed to execute the approved sub-license agreement with Malata; (2)

Humanscale did not have an agreement with Malata that protected the “DEP proprietary

technology and/or technique protections”; (3) Malata is the manufacturer of the Homedics

“knock-off” of the “Humascale/DEP Air Purifiers”; and (4) Humanscale failed to advise

Plaintiffs that the approved sub-licensee agreement between Humanscale and Malata had not

been executed. Id. at pp. 8-9. Plaintiffs’ counsel likewise alleges in his accompanying

affirmation that Plaintiffs only learned through discovery that Humanscale failed to disclose that

the approved sub-licensee agreement was never executed and that the “knock-off” air purifier

distributed by Homedics was made by Malata. See Holland Aff., p. 2.

Plaintiffs’ position is incorrect. Plaintiffs previously asserted these exact same “facts” in

the original Complaint. Specifically, in paragraph 42 of the Complaint, Plaintiffs allege that

“defendant proffered a proposed contract that was never executed,” and that a “subsequent

contract was entered into for the sub-licensing of filters without the plaintiffs’ prior knowledge

or approval and said sublicense failed to properly protect the plaintiffs’ technology and failed to

properly ensure that any sub-license would so protect the plaintiffs’ technology.” Complaint,

¶ 42. Plaintiffs further allege in the Complaint that the “proffered License and Manufacturing

Agreement was never executed and plaintiffs were never advised of any other agreement or

contract entered into for the sub-licensing.” Id. at ¶ 62. In that same paragraph, Plaintiffs allege

that “a separate and distinct agreement was entered into with Zhangzhou [a/k/a Malata] which

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not only failed to properly protect plaintiffs’ intellectual property, and patent and technology

rights of the plaintiffs, but in fact failed to even identify the plaintiffs as being the owner of

same.” Id.

Mr. Barnes also previously alleged these “facts” in his affidavit presented to the Court in

opposition to Humanscale’s motion to dismiss. See Doc. No. 13 (Manduke Aff., Ex. G.)

Beginning on page 5 of that affidavit, he alleges that he received a call from an individual with

Homedics and that, during the call, he learned that Homedics “did business” with Malata in

China. Id. at p. 5. Mr. Barnes next asserts that Homedics has manufactured and marketed a

competing product which was designed by “using information improperly gleaned from the

Malata facility in China.” Id. at p. 6.

The foregoing makes clear that Plaintiffs have simply taken their previously-dismissed

fraud claims and recast them as Count Two of the proposed Amended Complaint without any

new information actually being discovered. The Court has already considered – and rejected –

Plaintiffs’ proposed fraud claims based on the same allegations, and held that Plaintiffs could

seek leave to reassert the claims only “if, in fact, details come out during the discovery phase.”

See July 18, 2013 Order [Doc. No. 31] (Manduke Aff., Ex. H); see also Tr. 17:14-17:15 (Ex. C

to Holland Aff.)

Accordingly, in the absence of any new information, Plaintiffs are precluded from the

relief they seek and their motion to amend should be denied.

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III. PLAINTIFFS’ MOTION SEEKING LEAVE TO AMEND
THE COMPLAINT SHOULD ALSO BE DENIED AS
FUTILE SINCE THE PROPOSED CLAIM FAILS AS A
MATTER OF LAW

On motions to amend, the court should examine the sufficiency of a proposed claim and

the merits of the proposed amendment. See Sharapata v. Town of Islip, 82 A.D.2d 350, 362, 441

N.Y.S.2d 275 (2d Dep’t 1981), aff’d, 56 N.Y.2d 332, 452 N.Y.S.2d 347 (1982). Where, as here,

the proposed amendment is legally insufficient, leave to amend should be denied. Freeburg v.

Trans World Metals, Inc., 160 A.D.2d 624, 625, 559 N.Y.S.2d 246, 247 (1st Dep’t 1990)

(denying plaintiff’s motion to amend the complaint where amended pleading could not support

the proposed claim); Bencivenga & Co. v. Phyfe, 210 A.D.2d 22, 619 N.Y.S.2d 33, 33 (1st Dep’t

1994) (“Plaintiff’s proposed causes of action based on fraud were palpably insufficient, and thus

leave to amend was properly denied.”).

Count Two of the proposed Amended Complaint asserts that Humanscale committed

fraud by failing to have an approved agreement executed with a third-party manufacturer, and

failing to advise Plaintiffs of the same. See proposed Amended Compl

Case Info

Judge

Andrea Masley Track Judge’s New Case

Case No.

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Document Filed Date

October 08, 2014

Case Filing Date

December 31, 2012

County

Parties

Agoglia Holland and Agoglia PC Non Party
CARBONE, ELIZABETH ANN Attorney for the Defendants
Clean Air Options, LLC Plaintiff
Eurus Air Design, AB Plaintiff
FRANKL, ARIANNA Attorney for the Defendants
HIGGINS, TODD A Attorney for the Plaintiff
Humanscale Corporation Defendant
MANDUKE, LAUREN MICHELLE Attorney for the Defendants
CRAIG HOLLAND Attorney
JASON MELZER Attorneys for Defendants
STEVEN KLEIN Attorney
LAUREN MACK Attorneys for Defendants
ANNA VOLFTSUN Attorney
RAIMUNDO GUERRA Attorneys for Defendants
MICHAEL YE Attorney

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Motion-Secondary: Clean Air Options, Llc, Eurus Air Design, Ab v. Humanscale Corporation

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