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CISG CASE PRESENTATION
United States 22 May 1990 Federal District Court [New York] (Interag Ltd v. Stafford Phase)
[Cite as: http://cisgw3.law.pace.edu/cases/900522u1.html]
Primary source(s) for case presentation: Case text
Case Table of Contents
DATE OF DECISION: 19900522 (22 May 1990)
JURISDICTION: United States [federal court]
TRIBUNAL: U.S. District Court, Southern District of New York [federal court of 1st instance]
CASE NUMBER/DOCKET NUMBER: 89 Civ. 4950 (CSH)
CASE NAME: Interag Co., Ltd v. Stafford Phase Corp.
CASE HISTORY: 2d instance 983 F.2d 1047 (2nd Cir. 1992) [affirmed]
SELLER'S COUNTRY: Hungary (plaintiff)
BUYER'S COUNTRY: U.S.A. (defendant)
GOODS INVOLVED: Sweaters
Classification of issues present
APPLICATION OF CISG: Yes
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue: Articles
Classification of issues using UNCITRAL classification code
1B1 [Basic rules of applicability: parties in different Contracting States];
50B1 [Buyer's right to reduce price for non-conforming goods: formula
for price reduction]
Descriptors: Reduction of price, remedy of
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EDITOR: Albert H. Kritzer
CISG issues ruled upon:
Applicability. The contract between a seller from Hungary and a buyer from
the United States was concluded
in April 1988, at a time when the CISG was in effect in both countries.
This would render the CISG applicable
to the sales issues considered pursuant to Article 1(1)(a).
Reduction of price. The court stated:
"[Seller] sold and delivered sweaters to [buyer]. [Buyer] mailed
two checks representing payment for
70% of the purchase price, but stopped payment on those checks, denies any
obligation to pay [seller] anything,
and asserts a million-dollar counterclaim for damage resulting from
[buyer's] resale of the sweaters to third
parties. It appears to be common ground that a resale of at least a
portion of the sweaters occurred. . . .
"[Seller's] motion to compel [buyer] to produce documents relating to
the resale of the sweaters in the United
States is granted . . .
"[Buyer] says the resale information is irrelevant because [buyer] bases its
asserted remedies upon the
difference 'between the value of the good accepted and the value they
have had if they had been as
warranted,' Section 2-714(212) of the Uniform Commercial Code (Sales);
also Article 50 of the 1980
United Nations Convention on Contracts for the International Sale of
(to which both the United States
and Hungary are signatories) . . . [Buyer] apparently proposes to prove
this difference in value by expert
testimony. However, it is well settled that the price obtained for
defective goods on resale is probative of the
value of the goods as actually received [citing U.S. domestic case
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Citations to case abstracts, texts, and commentaries
CITATIONS TO ABSTRACTS OF DECISION
(a) UNCITRAL abstract: Unavailable
(b) Other abstracts
English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=111&step=Abstract>
Italian: Diritto del Commercio Internazionale (1996) 620-621 No. 89
CITATIONS TO OTHER TEXTS OF THIS DECISION
Original language (English): Text of case presented below; see also 1990 Westlaw 71478; 1990 U.S. Dist. Lexis 6134; RICO Bus.Disp.Guide 7477 (S.D.N.Y. 1990); then 1990 Westlaw 160905; 1990 U.S. Dist. Lexis 13546; Unilex database [excerpt] <http://www.unilex.info/case.cfm?pid=1&do=case&id=111&step=FullText>
CITATIONS TO COMMENTS ON DECISION
English: Richman, International Law and Organizations Newsletter, New Jersey Bar Association (March 1995) 15-16; Spanogle/Winship, International Sales Law: A Problem Oriented Coursebook (West 2000) [price reduction 265-271 (this case at 269-270)];  Schlechtriem & Schwenzer ed., Commentary on UN Convention on International Sale of Goods, 2d (English) ed., Oxford University Press, Art. 50 para. 1
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Text(s) of case abstracts
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United States District Court for the Southern District of New York
No. 89 Civ. 4950 (CSH)
Interag Company Limited, Plaintiff v. Stafford Phase Corporation, Defendant
Opinion By Charles S. Haight, Jr., United States District Judge
Memorandum Opinion and Order
Plaintiff moves under Rule 37, F.R.Civ.P., to compel additional
from defendant and for related relief; and under Rule 15 for leave
to file and serve an amended complaint in the form attached to the motion
will deal with these subjects in inverse order.
Motion to Amend Complaint
Plaintiff Interag Company Limited (Interag) moves to amend its
complaint to add
Arnold Eisner, the president of defendant Stafford Phase Corporation
(Stafford) and to assert causes of action sounding in fraud, including a
civil RICO claim,
against both defendants.
Stafford opposes that motion, although its brief cites no authority.
Rather, Stafford denies
Interag's allegations of fraud and contends that if any party committed
fraud it was Interag. A defendant's denial of charges of fraud cannot
plaintiff from amending its complaint to assert that basis of liability.
The et tu
quoque defense is similarly unavailing to bar an amended pleading under
is appropriate for the Court to examine sua sponte the legal
sufficiency of the proposed amended pleading. This amended complaint does
Fraud must be alleged with the specificity required by Rule 9(b),
whether plaintiff charges common law fraud or mail or wire fraud as
predicate acts to a
The details necessary to comply with Rule 9(b) are well settled. See,
Todd v. Oppenheimer & Co., 78 F.R.D. 415, 420-21 (S.D.N.Y.
"whether the averments are upon "information and
belief" or upon actual knowledge, the plaintiffs must specify: 1)
statements were made in what document or oral representations or what
omissions were made,
and 2) the time and place of each such statement and the person responsible for making
(or, in the
case of omissions, not making) the same, 3) the content of such statements
and the manner in which they misled the plaintiff, and 4) what the defendants
'obtained as a consequence of the
The fraud claims in the proposed amended complaint at bar do not
to these criteria. For example, para. 17 of the pleading simply
"When defendants tendered the checks to plaintiff's representative in
September, 1988, defendants falsely represented to said representative that
checks would be honored if plaintiff shipped the sweaters to Stafford."
Plaintiff does not allege the date, time, or place of the fraudulent
representations, how many representations were made, by whom, to whom, or
or representations were oral or in writing. These defects are symptomatic
of the amended complaint.
As for the RICO claim, it appears from the face of the pleading that
a RICO claim does not lie. Presumably plaintiff is relying upon 18 U.S.C.
1962(c), although the amended complaint does not say so specifically. That
section makes it
for persons employed by or associated with enterprises engaged in interstate
or foreign commerce to conduct the affairs of such an enterprise
pattern of racketeering activity . . ." In H.J., Inc. v.
Co., 109 S.Ct. 2893 (1989), the Supreme Court undertook to
identify and define the ingredients and boundaries of a "pattern of
Justice Brennan's opinion commanded only a 5-4 majority, but it represents
most recent articulation of the governing principles.
H.J. holds that a "pattern of racketeering activity"
the combination of predicate acts related to each other and continuity of
S.Ct. at 2900.
As for relatedness, the H.J. majority derived from Title X of
the Organized Crime Control Act of 1970, of which RICO formed Title IX, the
to be related, predicate acts must have "the same or similar purposes,
participants, victims, or methods of commission, or otherwise are
characteristics and are not isolated events." Id. at 2901.
However, the Court continued, the relatedness of racketeering
activities is not
sufficient to satisfy
§ 1962's "pattern" element. "To establish a RICO
pattern it must
also be shown that the predicates themselves amount to, or that they
otherwise constitute a threat of, continuing racketeering activity."
Ibid. As to continuity, the H.J. majority wrote:
" 'Continuity' is both a closed- and open-ended concept,
referring either to a closed period of repeated conduct, or to past conduct
that by its nature
into the future with a threat of repetition. See Barticheck v.
Union Bank/First National State, 832 F.2d 36, 39 (CA3 1987).
It is, in
either case, centrally a temporal concept -- and particularly so in the
where what must be continuous,
RICO's predicate acts or offenses, and the relationship these predicates
must bear one
to another, are distinct requirements. A party alleging a RICO violation
may demonstrate continuity over a closed period by proving a series of
predicates extending over a substantial period of time. Predicate acts
extending over a few
weeks or months and threatening no future criminal conduct do not satisfy
"Congress was concerned in RICO with long-term criminal conduct. Often
will be brought before continuity can be established in this way. In such
cases, liability depends on whether the threat of continuity is
No. 91-617, at 158."
Id. at 2902.
The civil complaint in H.J. alleged that at different times
over the course of at least a six-year period telephone company officers and
gave members of a state regulatory commission bribes in order to obtain
unfair and unreasonable utility rates. The Court noted
plaintiff's "claim that the racketeering predicates occurred with some
at least over a six-year period, which may be sufficient to satisfy the
continuity requirement." Id. at
4956. The case was remanded to the district court for further proceedings
with the Court's opinion.
In Beauford v. Helmsley, 865 F.2d 1386 (2d Cir.)
(en banc), vacated and remanded, 109 S.Ct. 3326, original decision
to, 893 F.2d 1433 (2d Cir. 1989), plaintiffs alleged that defendants
number of material misrepresentations in an offering plan for the conversion
into condominiums. The plan was mailed to more than 800 addressees. The
complaint alleged additional facts sufficient to justify an inference that
would in the
future be making further, equally fraudulent amendments to the offering
plan. The Second Circuit held these allegations sufficient to describe a
racketeering activity. The en banc majority and the three dissenting judges
Beauford agreed that the concepts of "relatedness" and
were crucial; and, in a departure from prior Second Circuit authority,
"our analysis of relatedness and continuity has shifted from the
element to the pattern element." 865 F.2d at 1391. That shift
Supreme Court's analysis in H.J., which had not yet been decided.
In Beauford the Second Circuit defined Congress's goal in
defining "pattern of racketeering activity" as to exclude from the
reach of RICO
acts that were merely "isolated" or "sporadic."
Consequently, Judge Kearse wrote for the en banc majority, "we must
determine whether two
or more acts of racketeering activity have sufficient interrelationship and
there is sufficient continuity or threat of continuity to constitute such a
pattern." Id. at 1391. Where the enterprise itself is
that fact alone is sufficient to "tend to belie any notion that the
acts were sporadic or isolated". United States v. Indelicato,
865 F.2d 13
70, 1384 (2d Cir. 1989) (en banc, decided with Beauford).
"When, however, there is no indication that the enterprise whose affairs
are said to
be conducted through racketeering acts is associated with organized crime,
of the enterprise does not of itself suggest that racketeering acts will
continue, and proof of continuity of racketeering activity must thus be
found in some
than the enterprise itself."
Beauford at 1391.
The complaint in Beauford was legally sufficient for these
"In sum, read with ordinary charity, the amended complaint alleged that on
each of several occasions defendant had mailed fraudulent documents to
that there was reason to believe that similarly fraudulent mailings would
be made over an additional period of years. These allegations sufficed to
acts that cannot be deemed, as a matter of law, isolated or sporadic."
Id. at 1392.
The Supreme Court granted certiorari in Beauford, vacated the
Second Circuit's judgment, and remanded the case to that court for further
in light of
H.J. 109 S.Ct. 3236 (1989). The Second Circuit gave that
mandated further consideration and adhered to its en banc decision. 893 F.2d
See Jacobson v. Cooper, 882 F.2d 717, 720 (2d Cir. 1989)
is sufficiently alleged where related predicates extended over "a
matter of years."); Official Publications, Inc. v. Kable News
666-68 (2d Cir. 1989) (allegedly fraudulent acts occurred
"pursuant to a longstanding contract, over a considerable period of
time"; contracts in
dated 1974 and 1980); Procter & Gamble v. Big Apple Industrial
Buildings, Inc., 879 F.2d 10, 18 (2d Cir. 1989) ("the complaint
allegations sufficient to infer that an enterprise exists, and that the acts
racketeering were neither isolated nor sporadic"; allegations
sufficient which claimed
"that defendants engaged in at least five separate fraudulent
In the case at bar, plaintiff's RICO claim arises out of the single
suit. The parties entered into that contract, for the sale and purchase of
in April 1988. The sweaters were shipped from Hungary to New York in
Defendant Stafford drew two checks in October and November 1988
respectively. Stafford stopped payment in December 1988. Fraudulent
communications relating to
the transaction are alleged to have been sent in December 1988 and July
1989. All this
conduct relates to a single, isolated commercial transaction. I accept that
alleged fraudulent acts are sufficiently related to each other. But the
of continuity is not present. The case involves months, not years, and
suggests no proof of future comparable transgressions. Neither of the two
H.J. court articulated is satisfied.
On any theory a RICO claim cannot lie against the corporate
defendant, Stafford. Stafford is alleged to be the RICO enterprise.
Amended complaint at
para. 32. If
a RICO claim were viable at all, it would lie only against Eisner. No
claim may be pleaded against Stafford because a corporation cannot be both
an enterprise and a person. Official Publications Inc. v. Kable News
supra at 668.
I accept in principle that a corporate officer may be the
"person" who conducts the affairs of the corporate enterprise
through a pattern of
racketeering activity; however, as noted, the elements of a RICO claim are
Accordingly I will not grant leave to plaintiff to include a RICO claim in
the form included
in the proposed amended complaint.
I will allow plaintiff to file and serve an amended complaint
law fraud claims against Stafford and Eisner if plaintiff is able,
consistent with Rule 11, to allege specific details sufficient to satisfy
Motion for Discovery
Interag's motion to compel Stafford to produce documents relating to
of the sweaters in the United States and to re-examine Eisner on that issue
It is disingenuous for defendant to suggest such documents and
testimony do not
constitute appropriate discovery, given the issues framed by the
Interag sold and delivered sweaters to Stafford. Stafford mailed Interag
two checks representing payment for 70% of the purchase price, but
payment on those checks, denies any obligation to pay Interag anything, and
million-dollar counterclaim for damages resulting from Stafford's resale of
to third parties. It appears to be common ground that a resale of at least
of the sweaters occurred. Obviously Interag is entitled to discovery on the
Defendant says the resale information is irrelevant because defendant
asserted remedies upon the difference "between the value of the goods
accepted and the value they would have had if they had been as warranted,"
of the Uniform Commercial Code (Sales); see also Article 50 of the
Nations Convention on Contracts for the International Sale of Goods (to
which both the
United States and Hungary are signatories), 15 U.S.C., Cumulative Annual
at 48 et.
seq. (1990). Stafford apparently proposes to prove this difference in value
testimony. However, it is well settled that the price obtained for
defective goods on resale is probative of the value of the goods as actually
See, e.g., Lackawanna Leather Co. v. Martin & Stewart,
F.2d 1197, 1203 (8th Cir. 1984).
Stafford resists giving discovery on resale on the theory that "the
are notorious for stealing client accounts." Eisner affidavit at para. 4.
This conclusory slur upon an entire nation is insufficient to foreclose
evidence of manifest relevance, particularly where the affidavits submitted
on the motion indicate that Stafford in its prior dealings with Interag had
known the names and addresses of its third-party purchasers so that
transactions might be
In these circumstances, I make the following order:
1. Interag's motion to file and serve an amended complaint in the form
to its motion papers is denied, without prejudice to Interag renewing its
motion to file and serve an amended complaint consistent with this Opinion.
motion, if so advised, must be filed and served within thirty (30) days of
the date of this
2. Within sixty (60) days of the date of this Order,
defendant Stafford shall produce to Interag all documents described
plaintiff's first request for production of documents, to the extent
those documents have not already been produced.
3. Within ninety (90) days of the date of this Order, Arnold
again present himself for deposition by counsel for plaintiff and
to questions on the subject of resale.
Non-compliance with paragraphs (2) and (3) above will result
of the counterclaim and entry of judgment for plaintiff in the
in the complaint.
Plaintiff is entitled to costs and attorney's fees under Rule
37(a)(4) insofar as its motion related to compelling discovery from
Defendant's resistance to discovery concerning retail is untenable, and
cannot be regarded as "substantially justified" under the
circumstances of the
case. As the Notes of the Advisory Committee to the 1970 amendments to the
amendment is intended to require the awarding of expenses in the absence of
substantial justification or other circumstances making an award of expenses
In addition, counsel for defendant signed the response to the request for
of documents, so that Rule 11 is implicated as well. I award to plaintiff
fees in the
amount of $500 to be paid by counsel for the defendant.
All discovery is to be completed within 120 days of the date of this
order. Counsel for the parties are directed to attend a final pretrial
Room 307 on October 5, 1990 at 2:00 p.m.
It is SO ORDERED.
Dated: New York, New York
May 22, 1990
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Commercial Law - Last updated August 16, 2005
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