Kitchen Winners NY Inc. v. Rock Fintek LLC

668 F.Supp.3d 263

KITCHEN WINNERS NY INC., Plaintiff, v. ROCK FINTEK LLC, Defendant.

Rock Fintek LLC, Third-Party Plaintiff and Counterclaimant, v. Kitchen Winners NY Inc., Counterclaim Defendant, JNS Capital Holdings LLC, Joel Stern, Hershey Weiner, Joseph Mendlowitz, Adorama, Inc., Third-Party Defendants.

22 Civ. 5276 (PAE)

United States District Court, S.D. New York

Signed March 31, 2023

Alexander Jared Sperber, Ira S. Lipsius, Lipsius-Benhaim Law, LLP, Kew Gardens, NY, for Hershey Weiner, Joseph Mendlowitz, Adorama, Inc., Kitchen Winners NY Inc.

Phillip Rakhunov, Pollack Solomon Duffy LLP, New York, NY, for Third-Party Plaintiff and Counterclaimant.

Lauren A. Riddle, Phillip Rakhunov, Pollack Solomon Duffy LLP, New York, NY, for Defendant.

Avram Eliezer Frisch, Avram E. Frisch LLC, Teaneck, NJ, for Third-Party Defendants JNS Capital Holdings LLC, Joel Stern.

OPINION & ORDER

PAUL A. ENGELMAYER, District Judge:

Plaintiff and counterclaim defendant Kitchen Winners NY Inc. ("Kitchen Winners") brought claims in state court against defendant and counterclaimant Rock Fintek LLC ("Rock Fintek"), arising out of the parties' Sales and Purchase Agreement ("SPA") for the purchase of gloves during the COVID-19 pandemic. Dkt. 1-1 ("Compl."). After removing the case to this Court, Rock Fintek asserted counterclaims against Kitchen Winners and filed a third-party complaint against third-party defendants JNS Capital Holdings LLC ("JNS") and Joel Stern (together, the "JNS parties"), and Adorama, Inc. ("Adorama"), Hershey Weiner, and Joseph Mendlowitz (together with Kitchen Winners, the "Adorama parties"). Dkt. 43 ("First Amended Third-Party Complaint" or "FATC"). The FATC alleges that Kitchen Winners and the third-party defendants engaged in an "elaborate fraudulent scheme" to induce Rock Fintek into buying gloves that were below the quality standards required by its hospital client, notwithstanding their knowledge that Rock Fintek could not, under COVID-19 protocols, inspect the gloves before they were delivered to the client. Id. ¶¶ 1-2. This scheme, the FATC alleges, caused Rock Fintek to incur tens of millions of dollars in damages. Id. ¶ 4.

Now before the Court are two motions: the Adorama parties' motion to dismiss the claims against them in the FATC and the JNS parties' motion to dismiss in part the claims against them in the FATC. For the following reasons, the Court grants in part and denies in part both motions.

I. Background

A. Factual Background¹

1. The Parties

Rock Fintek is a limited liability company organized under Delaware law, with its principal place of business in Florida. Id. ¶ 1; Compl. ¶ 2. Rock Fintek is a "trading company" that, inter alia, buys and sells to medical providers hospital and medical supplies, including personal protective equipment ("PPE"). FATC ¶ 15. One of Rock Fintek's clients is Ascension, a "major hospital group in the United States."² Id. ¶ 165.

Adorama is a corporation organized under New York law, with its principal place of business in New York. Id. ¶ 6. Adorama historically was in the business of selling cameras and electronic equipment online and at its New York City store. Id. ¶ 16. The FATC states, without further support, that Adorama "has routinely faced litigation and regulatory action for selling unauthorized knock off products, including electronics." Id. ¶ 17.

Kitchen Winners is a corporation organized under New York law, with its principal place of business in New York. Id. ¶ 7; Compl. ¶ 1. The FATC alleges that Kitchen Winners is an "affiliate" and "alter-ego" of Adorama. FATC ¶¶ 19-20. By Rock Fintek's account, Kitchen Winners is a "mere shell" created by Adorama in order to "shield Adorama and its principals from liability for fraudulent PPE transactions." Id. ¶ 24. Adorama and its principals, the FATC states, "dominate and control Kitchen Winners for the purposes of engaging in fraudulent PPE transactions" while "seeking to shield[] from creditors funds received in the transactions." Id. ¶ 20. Further, the FATC alleges, Adorama and Kitchen Winners "commingle funds, fail to observe corporate formalities, [and] share officers, directors and office space." Id.

Weiner and Mendlowitz, both New York residents, are representatives of Adorama and Kitchen Winners. Id. ¶¶ 8-9, 25.

JNS is a limited liability company organized under New York law, with its principal place of business in New York. Id. ¶ 10. Stern, a New York resident, is the sole member and principal of JNS. Id. ¶¶ 11, 26. Neither JNS nor Stern is a corporate affiliate of Adorama or Kitchen Winners. Id. ¶ 26. The FATC alleges that they have, however, "acted as agents" of Adorama and Kitchen Winners in representing themselves as the reseller of gloves provided by Adorama. Id. The FATC states that "[a]t all pertinent times when Stern, Adorama and Kitchen Winners were delivering non-conforming fraudulent product to Rock Fintek either under the SPA or under the one-off transactions," Adorama, Kitchen Winners, and their "constituents" were in "routine contact" with Stern and "coordinated their intentional efforts to provide fraudulent products." Id. ¶ 56. The FATC also alleges that Stern "held himself out as having superior access to 'my people' at Adorama and at times even told Rock Fintek that he knew 'what you're paying Adorama.'" Id. ¶ 26.

2. Medical Grade Gloves

"The designation of a glove as a medical grade Examination glove is an industry term of art that carries specific chemical and use specifications, which render such gloves fit for medical examination purposes." Id. ¶ 28. Examination grade gloves differ from Protection grade gloves, which have a "different composition," sell at a lower cost, and are "typically used for household and other non-medical purposes." Id.

Section 510(k) of the Federal Food, Drug and Cosmetic Act requires that manufacturers give the Food and Drug Administration ("FDA") at least 90 days' notice of their intent to market a medical device, including Examination grade gloves. Id. ¶¶ 1, 39. "A section 510(k) pre-market submission is typically made to the FDA to demonstrate that a particular device would be marketed as safe and effective." Id. ¶ 39.

Medical grade gloves may also be described in terms of their compliance with certain American Society for Testing and Materials ("ASTM") standards. Id. ¶ 1.

3. The Parties' Interactions Prior to the Glove Transactions

In early 2021, Rock Fintek "was introduced" to Stern, Weiner, Mendlowitz, and other representatives of Adorama and Kitchen Winners, including Mendel Banon, an employee and agent of Adorama and Kitchen Winners. Id. ¶¶ 25-26. Weiner, Mendlowitz, Banon, and Stern told Rock Fintek that Adorama and Kitchen Winners had a "connection" to a new, China-based nitrile-glove manufacturer that produced MedCare brand Examination grade gloves. Id. ¶ 27.

From the beginning of its dealings with Weiner, Mendlowitz, Banon, and Stern, Rock Fintek explained orally and in writing that it would "immediately" resell the purchased gloves to its U.S.-based hospital client for use by medical professionals. Id. ¶ 29. Rock Fintek told them this client required that the gloves be medical Examination grade and comply with ASTM D6319 standards. Id.

Weiner, Banon, and Stern represented —orally, in writing, and through written materials—that the gloves to be sold would be nitrile/NBR medical Examination grade gloves with an FDA 510(k) certification. Id. In February 2021, Stern provided, "through a broker," various materials to Rock Fintek: first, on February 2, 2021, written materials, including testing reports describing the gloves that the JNS parties planned to sell to Rock Fintek, and second, on February 9, 2021, an FDA 510(k) approval letter for Zhonghong Pulin Medical Products Co., Ltd. ("Zhonghong"), "another potential MedCare glove manufacturer," which stated that the gloves produced by that manufacturer satisfied ASTM D6319 specifications. Id. ¶¶ 30-31. Adorama and Kitchen Winners provided to Rock Fintek the same FDA 510(k) approval letter. Id. ¶ 37. In March 2021, Banon also sent Rock Fintek written materials: an 84-page MedCare product presentation that described the gloves that Adorama and Kitchen Winners planned to sell to Rock Fintek and identified China-based Dongguan Grinvald Technology Co., Ltd. ("Dongguan") as the manufacturer of the gloves, and testing reports "to substantiate the purported quality of the gloves that Rock Fintek believed were being sold." Id. ¶¶ 32-34. The written materials shared by the Adorama parties and the JNS parties stated that the "MedCare Nitra Force Nitrile Examination Gloves" satisfied ASTM standards, carried FDA 501(k) certifications, and were suitable for performing medical examinations, conducting diagnostic and therapeutic interventions, working with infectious materials, and guarding against contamination of the user or patient. Id. ¶¶ 34-35. The materials included photographs of boxes of the gloves that "clearly" displayed the phrase "Nitra Force | NBR Nitrile Examination Gloves." Id. ¶ 36. None of these written materials were attached to the FATC.

In Rock Fintek's view, the Adorama parties and the JNS parties "knew" that: (1) Rock Fintek planned to immediately resell any purchased gloves to Ascension, a hospital group; (2) Rock Fintek's contract with Ascension required the delivery of MedCare brand, medical grade nitrile/NBR Examination grade gloves bearing an FDA 510(k) certification and complying with ASTM D6319 standards; and (3) the gloves would be used by medical professionals during the COVID-19 pandemic. Id. ¶¶ 39, 67, 108-11. Adorama and Kitchen Winners represented that they would sell MedCare gloves that complied with ASTM D6319 specifications and were manufactured by Dongguan, Zhonghong, or another approved MedCare manufacturer with an FDA 510(k) certification. Id. ¶ 40. They also represented that they had been authorized by MedCare glove manufacturers and Global Tooling Service ("GTS")...