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February 5, 1991

U.S. CONCORD, INC., Plaintiff,

The opinion of the court was delivered by: WEIGEL


 The Second Amended Complaint in this action alleges eleven causes of action against defendant. Defendant's motion to dismiss eight of these claims has been submitted for decision. Because of the complexity of the questions involved, an understanding of the history of this litigation is essential.


 Alleging myriad theories of liability, plaintiff U.S. Concord, Inc. ("Concord") sues defendant Harris Graphics, Inc. ("Harris") for economic losses sustained from defendant's sale of an allegedly defective printing press. In 1987 Haljak Leasing Co. ("Haljak") purchased a complex printing press from defendant. Haljak then leased the press to S&G Press, Inc. *fn1" At Harris's request, plaintiff agreed to finance the purchase of the press. S&G ultimately defaulted on the loan.

 Plaintiff and defendant entered into two separate agreements to facilitate the financing arrangements. The first agreement ("indemnity agreement") provided that defendant would indemnify plaintiff in the event that the press was not accepted by S&G. The second agreement ("recourse agreement") provided that in the event of a default by S&G, defendant would pay plaintiff 20% of a stipulated loss value as well as interest on the total stipulated loss value. In addition, the recourse agreement set forth the parties' respective obligations with respect to re-marketing the press.

 This litigation has a protracted and tortured history. In July 1988 S&G filed suit in this Court against Harris and Concord ("S&G action"), alleging that the press was defectively designed and manufactured. S&G later filed for bankruptcy, staying Concord's efforts to collect from S&G on its counterclaim. *fn2" Concord filed two separate actions against Harris, one alleging fraud, and the other, breach of the indemnity agreement. Harris, in turn, filed suit in New York, seeking a declaration of the parties' rights and liabilities under the recourse agreement.

 In an Order dated October 11, 1990, this Court granted plaintiff leave to file an amended complaint, effectively consolidating the three pending actions between the parties. This amended complaint added claims for violations of the Racketeering Influenced and Corrupt Organizations Act ("RICO") and for implied indemnity. Shortly thereafter, plaintiff amended its complaint once more to add contract and warranty claims.

 As noted at the outset, the Second Amended Complaint includes eleven claims for relief. Defendant moves to dismiss the following eight: (1) fraud; (2) negligent misrepresentation; (3) RICO; (4) implied indemnity; (5) breach of express warranty; (6) breach of the implied warranty of merchantability; (7) breach of the implied warranty of fitness; and (8) breach of a third-party beneficiary contract.


 The issues raised by the motion to dismiss call for detailed analysis. However, a brief summary at this point is appropriate.

 In its first claim, plaintiff charges defendant with fraud. This claim embraces two distinct theories of liability: (1) affirmative misrepresentations and (2) fraudulent concealment. With the exception of plaintiff's allegation regarding the falsity of defendant's 1985 annual report, the misrepresentation allegations fail to satisfy Federal Rule of Civil Procedure 9(b)'s requirement that fraud be averred with particularity. Plaintiff's third claim for negligent misrepresentation rests on these same defective allegations. Therefore, the Court dismisses plaintiff's fraud and negligent misrepresentation claims, with leave to amend, as to all affirmative misrepresentation allegations save for that regarding the annual report.

 Plaintiff's fraudulent concealment claim withstands the motion to dismiss. New York law imposes a duty to disclose material information upon a party who possesses superior knowledge and is aware that another party may be acting on the basis of mistaken information. Here plaintiff charges defendant with concealing numerous consumer complaints regarding the press's performance -- information to which Harris had superior access and of which Concord was allegedly unaware.

 In its second cause of action, plaintiff avers that defendant violated RICO, 18 U.S.C. §§ 1962(a), (b) & (d), by committing several predicate acts of mail and wire fraud. Plaintiff has no standing to allege a RICO violation under Section 1962(a) because it has failed to allege injury from defendant's use or investment of racketeering proceeds. Similarly, plaintiff lacks standing to allege a RICO violation under Section 1962(b) because it has failed to allege injury from defendant's acquisition or maintenance of an interest in a RICO enterprise. The Court dismisses these claims with leave to amend. Nor may plaintiff allege a RICO conspiracy under Section 1962(d). Plaintiff claims that Harris conspired with its employees and representatives to violate RICO. A corporation cannot conspire with its own employees and officers. This claim is dismissed with prejudice.

 In its fourth claim, plaintiff seeks implied indemnity from Harris for any liability it incurs in the S&G action. This claim is precluded because a party may seek indemnity only when it is innocent of wrongdoing. S&G alleged intentional fraud and conspiracy to defraud against Concord. If S&G prevails against Concord, then Concord necessarily will be guilty of intentional wrongdoing. The Court dismisses this claim with prejudice.

 In counts seven, eight, and nine, plaintiff alleges breach of express and implied warranties against Harris. Dismissal is not warranted on these claims. New York's privity requirement is satisfied because the relationship between Harris and Concord is the "functional equivalent" of privity.

 Finally, in its tenth claim, plaintiff sues for breach of a third-party beneficiary contract between Harris and S&G. It may maintain this cause of action because the complaint alleges that Harris and S&G entered into the sales contract for the benefit of Concord.


 I. Fraud (Count One)

 Plaintiff's fraud claim embraces two distinct theories of liability: (1) defendant's affirmative misrepresentations to plaintiff and S&G, and (2) defendant's fraudulent concealment of adverse information regarding the quality of the ...

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