NewSpin Sports LLC v. Arrow Electronics, Inc.

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

NEWSPIN SPORTS LLC, )

)

Plaintiff, )

) Case No. 17-cv-345

v. )

) Judge Robert M. Dow, Jr.

ARROW ELECTRONICS, INC., )

)

Defendant. )

MEMORANDUM OPINION AND ORDER

Plaintiff NewSpin Sports, LLC (“Plaintiff” or “NewSpin”) brings suit against Defendant

Arrow Electronics, Inc. (“Defendant” or “Arrow”) for breach of contract, breach of implied

covenant of good faith and fair dealing, breach of warranty, fraud, unjust enrichment, and negligent

misrepresentation arising out of NewSpin’s purchase of goods and services from Arrow. On July

26, 2017, Judge Der-Yeghiayan granted Arrow’s motion to dismiss NewSpin’s original complaint

in its entirety as untimely. See [26], [27]. Judge Der-Yeghiayan subsequently denied NewSpin’s

motion for reconsideration and for leave to file an amended complaint. See [48]. While those

decisions were on appeal, Judge Der-Yeghiayan retired and the case was reassigned to this Court.

See [54]. On December 3, 2018, the Seventh Circuit affirmed in part and reversed in part the

dismissal of NewSpin’s complaint, reversed the denial of NewSpin’s motion for leave to amend,

and remanded for further proceedings. See [79].1 NewSpin filed an amended complaint [85] on

February 22, 2019. Currently before the Court is Arrow’s motion to dismiss the amended

complaint [88]. For the following reasons, Arrow’s motion to dismiss [88] is granted in part and

1 The Seventh Circuit’s opinion was docketed as entry [79]. It is reported as NewSpin Sports, LLC v. Arrow

Electronics, Inc., 910 F.3d 293 (7th Cir. 2018), but the Court will continue to cite to the docket rather than

to the reported decision.

denied in part. NewSpin’s claims for unjust enrichment is dismissed. NewSpin’s claim for fraud

is also dismissed, but NewSpin is granted leave to amend that claim by May 7, 2020. Arrow’s

motion to dismiss is denied as to the three contract-based claims. Arrow’s motion to dismiss

NewSpin’s negligent misrepresentation claims is denied without prejudice and subject to renewal

based on the supplemental briefing ordered below. This case is set for status hearing on May 13,

2020 at 9:00 a.m.

I. Background2

Plaintiff NewSpin was founded in 2009 by Angelo Papadourakis and is or was in the

business of providing technology products that help golfers, tennis players, and other sports

enthusiasts analyze and improve their swings. In 2010, NewSpin began searching for electronic

components manufacturers to produce and assemble its flagship product called “SwingSmart.”

SwingSmart is a sensor module that attaches to sports equipment for the purpose of providing

analysis and key metrics about swing technique, speed, and angle.

In 2010 and 2011, Defendant Arrow and its Advanced Manufacturing Support Services

Group (“AMSS”) learned that NewSpin was seeking to engage a new manufacturer and distributor.

According to the amended complaint, Arrow and AMSS aggressively pursued NewSpin to induce

it to contract with Arrow and its AMSS division for manufacturing and assembly management

services. Arrow represented to NewSpin that it could leverage its supplier relationships and

industry contacts on NewSpin’s behalf. Arrow also represented to NewSpin that it would engage,

on NewSpin’s behalf, a high quality fabrication house to successfully manufacture components

for NewSpin and a high quality subassembly house to assemble and install the components into a

2 For purposes of Arrow’s motion to dismiss, the Court assumes as true all well-pled allegations set forth

in Plaintiff’s amended complaint. See [85]; Calderon-Ramirez v. McCament, 877 F.3d 272, 275 (7th Cir.

2017).

working electronic device that would successfully implement NewSpin’s design specifications and

manufacturing requirements. Arrow’s AMSS division would manage, oversee, and have

responsibility for the manufacturing and assembly process. Arrow represented that one of the

advantages of utilizing Arrow and its AMSS division was that NewSpin would not have to locate,

hire, and manage a component manufacturer and subassembly house on its own.

Sales people from Arrow and its AMSS division spent months of persistent efforts to

aggressively promote and sell Arrow’s materials and manufacturing management services to

NewSpin. During the many meetings between the parties, NewSpin laid out the requirements for

SwingSmart as well as NewSpin’s manufacturing needs, and Arrow repeatedly and (according to

NewSpin) falsely misrepresented its own expertise in manufacturing similar devices and its

capability to efficiently and economically manufacture working SwingSmart electronic assemblies

through its subcontractors to meet NewSpin’s needs. These meetings and misrepresentations

(among others) occurred at the following times and places and involved the following people:

e An October 27, 2010, meeting at Arrow’s corporate office in Santa Clara,

California, between Arrow management and representatives, including Joe Story,

Madhuri Akkenepalli, and Elisia Vitales, and Tom McClaughry, Chief Technology

Officer of NewSpin;

e A November 3, 2010 meeting at Arrow’s Santa Clara office between Arrow’s

Story, Marty Townsend and McClaughry;

e A February 21, 2011 meeting at Arrow’s Orange County corporate office between

Arrow’s Story, Townsend, Rob Platter, Sylvia Leal, Jim Offineer, Mike Webb and

NewSpin’s representatives McClaughry, Papadourakis and Ed Verdino;

e A February 22, 2011 meeting at the Los Angeles Country Club between Townsend,

Verdino and Papadourakis and a meeting that same day in Foothill Ranch,

California between Arrow’s Story, Offineer, Moe Ghasen and NewSpin’s

McClaughry;

e On May 25 and May 26, 2011, Jeff Low, an Arrow Sales Manager for the West

Coast, met with Verdino and Papadourakis at an Arrow/Texas Instruments

sponsored corporate event in Frisco, Texas during which Arrow further represented

that it had the ability and experience to provide proper materials and manufacturing

management services for NewSpin, it had expertise in the manufacturing process,

and that it had the understanding and experience in dealing with issues and

problems common to manufacturing components. On May 26, 2011, Arrow’s field

sales representative Glenn Vargas also met with McClaughry in Santa Clara,

California for the same purpose;

e On June 3, 2011, Arrow’s Vargas, Platter, and a representative from the contract

manufacturer, Gary Walker, met with McClaughry at Walker’s office in San Jose,

California, to discuss the process for assembling, testing and repairing the

components and assemblies for which Arrow and its AMSS division would be

responsible for managing the manufacture and assembly in the Materials and

Manufacturing Management contract.

Based on Arrow’s representations during these meetings, NewSpin believed that Arrow

knew how the SwingSmart product had to function, understood NewSpin’s requirements for the

components of the SwingSmart product, and understood and had the experience and expertise to

capably manage the manufacturing and assembly process for such components. Arrow’s

management and sales representatives assured NewSpin that Arrow and its AMSS division: (1) had

extensive experience providing manufacturing and assembly management services; (11) had the

resources in place to provide those services to NewSpin; (111) had provided manufacturing and

assembly management services to other customers for similar components and products; and (iv)

understood common problems with manufacturing and assembling such components and products

and how to deal with them effectively when they arose. Based on these representations, NewSpin

entered into a Materials and Manufacturing Management Agreement (“Agreement”) with Arrow.

(The Agreement is attached as Exhibit 1 to the amended complaint, see [85-1].)

Section 1.1 of the Agreement obligated Arrow to: (1) procure components, (11) review and

accept NewSpin’s specifications for the manufacture, assembly and testing of components, (111)

engage a third-party subassembly house for the manufacture and assembly of products or boards,

(iv) manage the implementation of change orders, (v) inspect products and boards prior to

shipment to ensure conformance with NewSpin’s specifications, and (vi) test products and boards

pursuant to testing procedures provided by NewSpin.

In late 2011, NewSpin sent its first purchase order of 7,500 assemblies to Arrow under

which Arrow was to provide its management services and procure certain component parts. In

mid-2012, Arrow made an initial shipment of 100 assemblies to NewSpin in Illinois and

California, which appeared to fulfill NewSpin’s requirements. NewSpin then approved the

purchase of 7,400 additional assemblies—the balance of the first order—in the belief that they

would conform to the first 100 assemblies. However, the amended complaint alleges, Arrow used

a different fabricator for the remaining 7,400 assemblies and did not disclose this fact to NewSpin.

NewSpin later discovered that those assemblies had a high failure rate.

As NewSpin gradually learned of defective assemblies through the complaints of its

SwingSmart customers, NewSpin notified Arrow of the problems with the products it had

delivered. In response, Arrow assured NewSpin that it had solutions. These solutions included

surrounding the components on the board with epoxy and baking them, and changing the substrate

material of the boards from the original Isola to Polyimidide and then to Arlon. Arrow’s solutions

failed to eliminate the problems.

In reliance on Arrow’s assurances that their successive solutions would fix the problems

with Arrow’s products, NewSpin continued to issue purchase orders to Arrow for additional

components well into 2013. These included, among others, an order for 890 kits on January 30,

2013 for $53,400; an order for 110 kits on February 7, 2013 for $6,600; an order for 110 kits on

February 20, 2013 for $2,750; an order for 330 kits on March 7, 2013 for $9,322.50; an order for

890 kits on March 7, 2013 for $28,480; and an order for 3,000 electrical assemblies on April 3,

2013 for $88,500. To the extent Arrow shipped such orders, they were also largely defective

despite Arrow’s repeated assurances that it either had or would resolve problems with the

functionality of the assemblies it shipped. NewSpin also spent hundreds of thousands of dollars

in promotional videos and other marketing efforts in reliance on Arrow’s representations and

purported skill in manufacturing management, and NewSpin had no choice but to rely on Arrow’s

representations and services to rapidly fulfill the growing numbers of orders that NewSpin’s

marketing efforts generated.

Of the 7,500 units Arrow initially delivered, only 3,219 were able to be shipped to

customers, due to what NewSpin would later discover were defects in the manufacturing process

that was managed by Arrow. Of the 3,219 units shipped, 697 were wholly inoperable. Of the

7,500 SwingSmart units in the initial build, 4,281 units were inoperable or defective, a 57% failure

rate. NewSpin was forced to resupply SwingSmart units to some of its customers at its own cost

because of defects in the assemblies that Arrow supplied.

The failures continued with the units Arrow shipped to NewSpin in 2013, even after Arrow

stated that their solutions fixed the issue. The defects in the assemblies Arrow delivered, which

NewSpin alleges resulted from Arrow’s poor manufacturing management, included but were not

limited to flux-infiltrated switches, punctured batteries, unsecured batteries, electrostatic discharge

damaged computer processors, early and latent ball grid array failures, solder ball failures, and pad

cratering.

In May 2013—after numerous unsuccessful attempts by NewSpin to get Arrow to address

its failures, and continued deliveries of units which were defective—NewSpin hired and paid for

a manufacturing expert, DfR Solutions, to review the project. DfR Solutions identified pad

cratering as one of the primary reasons for the defective assemblies, an issue that (according to

NewSpin) Arrow would have been aware of and could easily have avoided if it had expertise in

providing manufacturing and assembly management services, as it represented to NewSpin.

NewSpin alleges that Arrow should have been aware of pad cratering as a common manufacturing

problem in projects of this type and should have been able to fix this and other issues. DfR

Solutions correctly identified the fix that solved the pad cratering problem. Their solution was to

use a $50 jig to hold the boards in place as they went through the assembly process. NewSpin

ordered 12 jigs at a cost of $600.

Apart from delivering defective assemblies, Arrow never delivered $136,217.41 worth of

components to NewSpin, despite billing NewSpin for them. These components, which included

but were not limited to cases, plastics, and batteries, were ordered by Arrow from third parties on

NewSpin’s behalf as “No Credit, No Return,” meaning that NewSpin would purportedly be

responsible for accepting the delivery of and paying for the NC/NR components (the “NC/NR

Components”). Despite billing NewSpin $136,217.41 for the unused and undelivered NC/NR

Components, Arrow has never delivered the NC/NR Components to NewSpin, and NewSpin has

never received them.

NewSpin alleges that as a result of Arrow’s fraud, deceit, and breaches, it has incurred at

least $598,488 in out of pocket damages related to non-conforming services and defective

assemblies. NewSpin was also forced to incur ongoing costs associated with customer support

efforts, module testing, repair and logging, as well as legal fees and costs associated with bringing

this lawsuit. In addition, NewSpin incurred more than $400,000 for marketing, advertising and

promotions, which NewSpin was forced to abandon due to Arrow’s alleged failures and

NewSpin’s resulting inability to sell reliable products. Moreover, the amended complaint alleges,

NewSpin’s financial resources were largely destroyed paying for the products Arrow delivered,

which could not be sold or used due to their extreme rate of defects. The amended complaint

alleges that Arrow’s misconduct has irrevocably damaged NewSpin‘s brand equity, reputation,

vendor relationships, and early entrance into the marketplace, causing NewSpin to essentially

cease operations, including efforts to produce and sell SwingSmart.

Based on these facts, the amended complaint asserts claims for breach of contract, breach

of implied covenant of good faith and fair dealing, breach of warranty, fraud, unjust enrichment,

and negligent misrepresentation.

II. Legal Standard

A Rule 12(b)(6) motion challenges the legal sufficiency of the complaint. For purposes of

a motion to dismiss under Rule 12(b)(6), the Court “‘accept[s] as true all of the well-pleaded facts

in the complaint and draw all reasonable inferences in favor of the plaintiff.’” Calderon-Ramirez,

877 F.3d at 275 (quoting Kubiak v. City of Chicago, 810 F.3d 476, 480-81 (7th Cir. 2016)). To

survive a motion to dismiss under Rule 12(b)(6), a plaintiff’s complaint must allege facts which,

when taken as true, “‘plausibly suggest that the plaintiff has a right to relief, raising that possibility

above a speculative level.’” Cochran v. Illinois State Toll Highway Auth., 828 F.3d 597, 599 (7th

Cir. 2016) (quoting EEOC v. Concentra Health Servs., 496 F.3d 773, 776 (7th Cir. 2007)). The

Court reads the complaint and assesses its plausibility as a whole. See Atkins v. City of Chicago,

631 F.3d 823, 832 (7th Cir. 2011).

III. Analysis

A. Breach of Contract, Breach of Implied Covenant of Good Faith and Fair

Dealing, and Breach of Warranty

The first three counts of NewSpin’s amended complaint are contractual claims for breach

of contract, breach of implied covenant of good faith and fair dealing, and breach of warranty.

Under New York law, which governs in this case (see [79] at 8, 20), a plaintiff bringing a breach

of contract claim must allege “(1) a contract; (2) performance of the contract by one party; (3)

breach by the other party; and (4) damages.” Terwilliger v. Terwilliger, 206 F.3d 240, 246 (2d

Cir. 2000) (quoting First Investors Corp. v. Liberty Mut. Ins. Co., 152 F.3d 162, 168 (2d Cir.

1998)). “The implied covenant of good faith and fair dealing is breached when a party acts in a

manner that would deprive the other party of the right to receive the benefits of their agreement.”

1357 Tarrytown Road Auto, LLC v. Granite Props., LLC, 37 N.Y.S.3d 341, 343 (App. Div. 2016).

“A successful claim of a breach of express warranty requires proof that an express warranty

existed, was breached, and that plaintiff had relied on that warranty.” Reed v. Pfizer, Inc., 839 F.

Supp. 2d 571, 578 (E.D.N.Y. 2012) (applying New York law).

The Seventh Circuit held on appeal that the Agreement between the parties is

predominately a contract for the sale of goods and, therefore, is subject to the UCC’s four-year

statute of limitations. It further determined that because the contractual claims in NewSpin’s

original complaint alleged only a mid-2012 breach, the claims were untimely when NewSpin

brought suit in January 2017. However, the court of appeals added that the district court should

have allowed NewSpin an opportunity to amend these claims to allege further defective deliveries

in 2013, which “could be timely if they relate back to the original 2017 complaint.” [79] at 30,

n.6. The Seventh Circuit left it to the district court on remand “to assess, in the first instance,

whether the amended pleading sufficiently addresses this timeliness issue.” Id.

NewSpin’s amended complaint, like its original complaint, contains claims for breach of

contract, breach of implied covenant of good faith and fair dealing, and breach of warranty.

Specifically, in Count I of the amended complaint, NewSpin alleges that Arrow breached the

Agreement by failing to provide goods and services in accordance with the Agreement and

NewSpin’s specifications and by failing to deliver certain components to NewSpin. In Count II,

NewSpin alleges that Arrow breached the duty of good faith and fair dealing imposed by every

contract by failing to provide services and goods in accordance with the Agreement, including: (i)

failing to properly manage the manufacturing and subassembly process, (ii) failing to properly

manage the implementation of change orders, (iii) failing to inspect products and boards prior to

shipment to ensure conformance with NewSpin’s specifications, (iv) failing to test products and

boards pursuant to testing procedures provided by NewSpin, (v) failing to provide working goods;

(vi) choosing improper, unfit, or substandard subcontractors, (vii) failing to deliver certain

components for which NewSpin was charged, (viii) failing to remedy defective components, and

(ix) failing to advise NewSpin of problems it discovered in the manufacturing process. In Count

III, NewSpin alleges that Arrow breached its warranty under § 2 of the Agreement by providing

components that were not manufactured or assembled pursuant to NewSpin’s specifications,

providing components that were not free from defects in workmanship (including flux-infiltrated

switches, punctured batteries, unsecured batteries, electrostatic discharge damaged computer

processors, early and latent ball grid array failures, failed solder balls and pad cratered boards),

and failing to repair, replace or refund them upon notice and demand.

In its motion to dismiss, Arrow argues that all three of these claims must be dismissed

because they involve alleged breaches relating to new purchase orders that do not relate back to

the original complaint and are therefore untimely. According to Arrow, “[t]he 2013 purchase

orders and deliveries featured in the Amended Complaint were not alleged—or even implied—in

the original Complaint,” and NewSpin “did not suggest that any post-2012 transactions might be

at issue until August 2017, when it moved for reconsideration of the Complaint’s dismissal and

for leave to plead additional breaches.” [89] at 6. Arrow contends that “[t]hese new allegations

pertain to separate conduct and separate transactions and do not relate back to the breaches alleged

in the Complaint, so they are now time-barred.” Id. at 2.

After reviewing the parties’ arguments and the original and amended complaints, the Court

concludes that Arrow’s alleged defective deliveries in 2013 relate back to the original 2017

complaint and, therefore, are not time-barred. Pursuant to Rule 15(c)(1)(B), “[a]n amendment to

a pleading relates back to the date of the original pleading when: … the amendment asserts a claim

… that arose out of the conduct, transaction, or occurrence set out—or attempted to be set out—

in the original pleading.” Fed. R. Civ. P. 15(c)(1)(B). “The central inquiry under Rule 15(c) is

whether the original complaint ‘gave the defendant enough notice of the nature and scope of the

plaintiff’s claim that he shouldn’t have been surprised by the amplification of the allegations of

the original complaint in the amended one.’” Supreme Auto Transport, LLC v. Arcelor Mittal

USA, Inc., 902 F.3d 735, 741 (7th Cir. 2018) (quoting Santamarina v. Sears, Roebuck & Co., 466

F.3d 570, 573 (7th Cir. 2006)).

As the Seventh Circuit recognized, the original complaint expressly referred only to the

delivery of defective goods in mid-2012. Nonetheless, the original complaint alleged more

generally that Arrow breached the Agreement “by failing to provide components in accordance

with the Agreement and in accordance with NewSpin’s specifications” and “by failing to deliver

components to” NewSpin. [1] at 6, ¶ 28. According to the amended complaint, NewSpin notified

Arrow of the problems with the components it delivered and was repeatedly assured by Arrow into

2013 that it had solutions. Given the parties’ extensive dealings between the time NewSpin

discovered that Arrow’s components were defective and the time NewSpin filed suit, it is difficult

to imagine how Arrow could be surprised that the mid-2012 delivery was not the only one at issue

in this lawsuit. Further, the original complaint notified Arrow that $598,488 in orders were at

issue—a number that (according to NewSpin and not contested by Arrow) included all of

NewSpin’s orders, not just the one delivered in mid-2012. See id., ¶ 20. The original complaint

also notified Arrow that $136,217.41 in non-delivered goods were at issue. Id. at 5-6, ¶¶17, 21.

The Court therefore agrees with NewSpin that Arrow “cannot be surprised that any order relating

to defective goods supplied pursuant to … Agreement is at issue.” [92] at 4.

In addition, NewSpin’s motion for reconsideration, filed on August 23, 2017, expressly

sought leave to file an amended complaint alleging that NewSpin “continued to issue purchase

orders to Arrow for additional components well into 2013.” [92] at 5; see also [31] at 8. Thus,

there can be no doubt that Arrow was on notice of the full scope of the conduct “attempted to be

set out” in the original complaint, Fed. R. Civ. P. 15(c)(1)(B), within months of the filing of the

original complaint. None of the case law cited by Arrow involved even remotely similar facts.

Skinner v. Shirley of Hollywood, 723 F. Supp. 50, 54 (N.D. Ill. 1989), involved application of the

statute of limitations to a defendant’s successive failures to pay the plaintiff commission, not Rule

15(c). Hamilton v. O’Connor Chevrolet, Inc., 2003 WL 22953337, at *1, 3 (N.D. Ill. Dec. 12,

2013), involved two separate retail installment contracts, while the claims alleged in this case relate

to a single contract. In Central Mortg. v. Morgan Stanley Mortg. Cap. Holdings LLC, 2012 WL

3201139, at *17-18 (Del. Ch. Aug. 7, 2012), a plaintiff mortgage service company purchased rights

to service more than 20,000 individual loans to home buyers. The complaint asserted that the

defendant seller had allegedly misrepresented facts relating to 47 of those loans. After the

dismissal of claims concerning the 47 loans, the plaintiff tried unsuccessfully to file an amended

complaint adding claims for 12,000 more individual loans and 218 agency loans. By contrast, this

case involves a single defendant, a single contract, and breaches arising out of repeated deliveries

of the same type of allegedly defective and non-conforming goods. For these reasons, the Court

denies Arrows’ motion to dismiss the contractual claims (Counts I, II, and III) as untimely.

B. Fraud

Count IV of the amended complaint alleges a claim for fraud. To state a claim for fraud

under New York law, a plaintiff must allege that “(1) the defendant made a material false

representation, (2) the defendant intended to defraud the plaintiff thereby, (3) the plaintiff

reasonably relied upon the representation, and (4) the plaintiff suffered damage as a result of such

reliance.” Eternity Glob. Master Fund Ltd. v. Morgan Guar. Tr. Co. of N.Y., 375 F.3d 168, 186–

87 (2d Cir. 2004).

On appeal, the Seventh Circuit held that although Judge Der-Yeghiayan properly

determined that the unjust enrichment and negligent misrepresentation claims were duplicative of

the breach of contract claims and therefore also time-barred, NewSpin had “sufficiently alleged a

separately-actionable fraud in Counts IV and V.” [79] at 20. The court explained that, “[t]aking

NewSpin’s allegations as true, as we must at this stage, NewSpin has alleged Arrow materially

misrepresented the currently-existing state of its own experience and materials, Arrow knew these

misrepresentations were untrue, Arrow made these statements to induce Arrow to enter into the

Agreement, and NewSpin relied upon these misrepresentations in doing so.” Id. at 27. The court

concluded that “[t]hese allegations are sufficient to maintain NewSpin’s fraud claims independent

of its contract-based claims.” Id. However, it directed this Court on remand to “address whether

the fraud claims as pled in the ultimately operative complaint meet this heightened pleading

standard” set forth in Rule 9(b). Id., n.5; see also Fed. R. Civ. P. 9(b).

In the fraud claim contained in its amended complaint, NewSpin alleges that Arrow made

numerous misrepresentations of material fact and failed to disclose material facts to NewSpin for

the purpose of inducing NewSpin to enter into the Agreement. In particular, NewSpin alleges,

Arrow’s representatives misrepresented that Arrow and its AMSS division: (i) had extensive

experience providing manufacturing and assembly management services, (ii) had the resources in

place to successfully provide those services to NewSpin, (iii) had provided manufacturing and

assembly management services to other customers for similar components and products, and (iv)

understood common problems with manufacturing and assembling such components and products

and how to deal with them effectively when they arose. NewSpin alleges that each of those

misrepresentations was a false statement of fact. NewSpin further alleges that in meetings held

October 27, 2010, November 3, 2010, February 21, 2011, February 22, 2011, May 25-26, 2011,

and June 3, 2011, Arrow representatives Madhuri Akkenepalli, Sylvia Leal, Jeff Low, Christopher

Miller, Jim Offineer, Rob Platter, Joe Story, Marty Townsend, Glenn Vargas, Elisia Vitales, and

Mike Webb told NewSpin representatives Tom McClaughry, Angelo Papadourakis, and Ed

Verdino that Arrow not only had the ability and resources to successfully provide materials and

manufacturing management services for NewSpin, but was already set up to provide those services

and had extensive knowledge of the manufacturing process and understanding and experience in

dealing with issues and problems common to manufacturing components. In particular, Arrow

represented that it had provided materials and manufacturing management services for similar

PCB assemblies and was familiar with and understood typical manufacturing issues with all PCB

manufacturing and management including those with flux-infiltrated switches, batteries, computer

processors, ball grid arrays, and solder balls. In those same meetings and on those same dates,

Arrow misrepresented that it had the skillset to provide, and had successfully provided, similar

manufacturing and assembly management services for other customers. NewSpin alleges that

Arrow knew that its misrepresentations of material fact were untrue when made, knew that its

components did not meet NewSpin’s written specifications, and made such misrepresentations and

omissions to induce NewSpin to enter into the Agreement. NewSpin alleges that it justifiably

relied upon Arrow’s misrepresentations and omissions in entering into the Agreement. If Arrow

had truthfully disclosed the relevant facts to NewSpin, NewSpin alleges, it would never have

purchased the services or signed the Agreement. Finally, NewSpin alleges that it could not have

known of the falsity of Arrow’s representations, and was not damaged by them until after Arrow

had repeatedly delivered defective goods to NewSpin and demonstrated an inability to understand

or fix its manufacturing management problems.

Arrow moves to dismiss the fraud claim on two grounds, which the Court will address in

reverse order. To begin, Arrow contends that NewSpin cannot show reasonable reliance on

Arrow’s alleged misrepresentations. According to Arrow, “[a]s a matter of law, sophisticated

parties cannot show reasonable reliance unless they investigated the alleged misrepresentation, and

NewSpin does not allege it conducted any inquiry.” [89] at 10 (citing James River Multistrategy

Fund, L.P. v. Motherrock, L.P., 2014 WL 3361181, at *2 (N.Y. July 7, 2014)). This is not an

accurate statement of James River (which was decided on summary judgment, not a motion to

dismiss) or the duty to investigate. James River explained that “a sophisticated party cannot

establish that it entered into an arm’s length transaction in justifiable reliance on an alleged

misrepresentation if that party failed to make use of the means of verification that were available

to it, such as reviewing files of the adversary.” Id. at *3 (emphasis added). At this stage of the

case, there is no way for the Court to determine whether NewSpin had any way to verify Arrow’s

alleged misrepresentations concerning its experience, knowledge, and skillsets. The amended

complaint alleges that NewSpin could not have known of the falsity of Arrow’s representations

until after Arrow had repeatedly delivered defective goods to NewSpin and demonstrated an

inability to understand or fix its manufacturing management problems. The Court must accept this

allegation as true for purposes of assessing the motion to dismiss.

In further support of its argument concerning reliance, Arrow argues that NewSpin could

not have reasonably relied on Arrow’s alleged misrepresentations because the Agreement contains

disclaimer and merger clauses. Arrow asserts that Sections 2.2, 8.3, and 8.6 of the Agreement,

taken together, “bar reliance on any extra-contractual representations ‘relating to the subject matter

of th[e] Agreement.’” [93] at 9 (quoting Agreement § 8.6).

Accepting Arrow’s argument would require the Court to ignore the Seventh Circuit’s

determination that NewSpin’s fraud claim alleges that Arrow “owed it a duty distinct from the

duty to perform under the Agreement.” [79] at 24. According to the Seventh Circuit, NewSpin

sufficiently alleged that Arrow breached a legal duty separate from the duty to perform under the

contract, because it misrepresented present facts collateral to the Agreement, concerning its own

experience in the field and past dealings with other customers besides NewSpin. Id. at 26. In

particular, NewSpin explains, “the misrepresentations were about other facts which were never

disclaimed including that Arrow ‘(i) had extensive experience providing manufacturing and

assembly management services, (ii) had the resources in place to successfully provide those

services to NewSpin, (iii) had provided manufacturing and assembly management services to other

customers for similar components and products, and (iv) understood common problems with

manufacturing and assembling such components and products and how to deal with them

effectively when those arose.’” [92] at 8-9 (quoting First Amended Complaint, ¶48). Arrow offers

no explanation as to why these representations should not be considered to “relat[e] to the subject

matter of th[e] Agreement.” [93] at 9.

Arrow’s other argument in support of dismissing the fraud claim is more persuasive.

Arrow asserts that NewSpin’s “allegations fail Rule 9(b)’s particularity requirement because they

fail to state what, specifically, Arrow said or why Arrow’s general representations about its

experience and skills were false.” [89] at 2. According to Arrow, while “NewSpin alleges that

Arrow made misrepresentations about its skills, experience, and resources during six meetings

among more than a dozen people at various locations in California,” it “does not allege the details:

what specifically Arrow said; which of its representatives said it; when and where in California it

was said; and how it was communicated—orally in person, over the phone, in writing, or by some

other means.” [89] at 9.

Based on its review of the amended complaint, the Court concludes that NewSpin’s fraud

claim comes close, but nonetheless fails, to satisfy the Rule 9(b) requirement that, “[i]n alleging

fraud or mistake, a party must state with particularity the circumstances constituting fraud or

mistake.” Fed. R. Civ. P. 9(b). “To satisfy the heightened pleading standard of Rule 9(b), the

circumstances [of the alleged misrepresentation] must be pleaded in detail. The who, what, when,

where, and how: the first paragraph of any newspaper story.” Blankenship v. Pushpin Holdings,

LLC, 2015 WL 5895416, at *7 (N.D. Ill. Oct. 6, 2015) (internal quotation marks omitted; citing

DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir. 1990)). Rule 9(b) specifically requires

alleging with particularity: “the identity of the person making the misrepresentation, the time,

place, and content of the misrepresentation, and the method by which the misrepresentation was

communicated to the plaintiff.” Id. (quoting U.S. ex rel. Grenadyor v. Ukranian Vill. Pharmacy,

Inc., 772 F.3d 1102, 1106 (7th Cir. 2014)).

As the above summary of NewSpin’s claim indicates, NewSpin alleges that specific

representatives of Arrow—Madhuri Akkenepalli, Sylvia Leal, Jeff Low, Christopher Miller, Jim

Offineer, Rob Platter, Joe Story, Marty Townsend, Glenn Vargas, Elisia Vitales, and Mike

Webb—told specific representatives of NewSpin—Tom McClaughry, Angelo Papadourakis, and

Ed Verdino—at multiple meetings at particular locations, [85] at 3-5, on particular dates— October

27, 2010, November 3, 2010, February 21, 2011, February 22, 2011, May 25-26, 2011, and June

3, 2011—that Arrow “had provided materials and manufacturing management services for similar

PCB assemblies and was familiar with and understood typical manufacturing issues with all PCB

manufacturing and management” and that Arrow “had the skillset to provide, and had successfully

provided, similar manufacturing and assembly management services for other customers,” when

in fact these statements were not true. Id. at 14. The Court would not characterize these as

“blanket” allegations of fraud, as Defendant does. [93] at 7.

Nonetheless, the amended complaint does not tie specific misrepresentations to specific

representatives of Arrow. The Seventh Circuit recently cautioned that “[a] complaint that

attributes misrepresentations to all defendants, lumped together for pleading purposes, generally

is insufficient.” Cornielsen v. Infinium Capital Management, LLC, 916 F.3d 589, 599 (7th Cir.

2019); see also Rocha v. Rudd, 826 F.3d 905, 911 (7th Cir. 2016) (“because fair notice is the ‘most

basic consideration underlying Rule 9(b),’ in a case involving multiple defendants, ‘the complaint

should inform each defendant of the nature of his alleged participation in the fraud’” (quoting

Vicom, Inc. v. Harbridge Merch. Servs., 20 F.3d 771, 777–78 (7th Cir. 1994)). Although this case

involves a single corporate defendant, the concept of fair notice is the same. Plaintiff has attributed

multiple false statements to nearly a dozen of Defendant’s representatives, without identifying who

made a particular statement or why that statement was false, making it difficult for Defendant to

investigate and defend against Plaintiff’s allegations. See Gensler v. Strabala, 764 F.3d 735, 737

(7th Cir. 2014) (in cases alleging fraud, the court expects the “complaint to allege with particularity

the nature of the grievance—what [the defendant] said and why it is false”). Therefore, the Court

grants Defendant’s motion to dismiss the fraud claim. However, since Plaintiff does provide most

of the details required by Rule 9(b), the Court grants Plaintiff leave to file a second amended

complaint which provides the additional detail required to support its fraud claim, to the extent it

is able to do so consistent with this opinion.

C. Unjust Enrichment

Count V of the amended complaint alleges a claim for unjust enrichment. As the Seventh

Circuit explained on appeal,

[U]njust enrichment … is available only in unusual situations when, though the

defendant has not breached a contract or committed a recognized tort,

circumstances create an equitable obligation running from the defendant to the

plaintiff.” Corsello v. Verizon N.Y., Inc., 967 N.E.2d 1177, 1185 (N.Y. 2012).

Generally, in New York, “[a]n unjust enrichment claim is not available where it

simply duplicates, or replaces, a conventional contract or tort claim.” Id. “[A]

claim for unjust enrichment is not duplicative of a breach of contract claim where

the plaintiff alleges that the contracts were induced by fraud.” Pramer S.C.A. v.

Abaplus Int’l Corp., 907 N.Y.S.2d 154, 161 (App. Div. 2010). But when the unjust

enrichment claim only seeks to replicate a contract or tort claim, it must be

dismissed. See Walter H. Poppe Gen. Contracting, Inc. v. Town of Ramapo, 721

N.Y.S.2d 248, 249 (App. Div. 2001) (unjust enrichment claim properly dismissed

where “the damages sought are merely for breach of contract”).

[79] at 21.

The Seventh Circuit affirmed the dismissal of NewSpin’s original unjust enrichment claim

and rejected NewSpin’s argument that the claim was not duplicative of the breach of contract claim

because NewSpin alleged that the contract was induced by fraud. The court explained that the

complaint alleged that Arrow received $598,488 from NewSpin that it should not be allowed to

retain “despite delivering defective components to NewSpin”—which was “the same amount

NewSpin alleged it had paid Arrow for the allegedly defective components.” [79] at 21-22. The

Seventh Circuit’s decision forecloses the unjust enrichment claim plead in NewSpin’s amended

complaint, as well, because that complaint, like the original complaint, alleges that it would be

unjust for Arrow to retain the amounts NewSpin paid Arrow under the Agreement. Therefore,

Arrow’s motion to dismiss the unjust enrichment claim is granted.

D. Negligent Misrepresentation

Count VI of the amended complaint alleges a claim for negligent misrepresentation. In

New York, “[a] claim for negligent misrepresentation requires the plaintiff to demonstrate (1) the

existence of a special privity-like relationship imposing a duty on the defendant to impart correct

information to the plaintiff; (2) that the information was incorrect; and (3) reasonable reliance on

the information.” Mandarin Trading Ltd. v. Wildenstein, 944 N.E.2d 1104, 1109 (N.Y. 2011).

The Seventh Circuit affirmed the dismissal of Plaintiff’s original negligent

misrepresentation claim based on the economic loss rule—the “jurisprudential principle that a

plaintiff cannot recover in tort for purely economic losses caused by the defendant’s negligence.”

Travelers Cas. & Sur. Co. v. Dormitory Auth.-State of N.Y., 734 F. Supp. 2d 368, 378 (S.D.N.Y.

2010). The court of appeals explained that “[i]n its negligent misrepresentation claim, NewSpin

only alleges Arrow made misrepresentations regarding Arrow’s component parts and their

conformity to NewSpin’s specifications.” [79] at 23. The court concluded that because “[t]he

only damages attributable to these misrepresentations are the same damages NewSpin would

recover for its breach-of-contract claim”—“the amount it lost because of Arrow’s defective

delivery”—“NewSpin cannot recover for these purely economic losses.” Id. at 23-24.

In its amended complaint, NewSpin has modified the negligent misrepresentation claim to

focus on Arrow’s alleged extracontractual misrepresentations concerning its experience, skillsets,

and resources, as it does in its fraud claim. See [85] at 17-18. This addresses the pleading defect

identified by the Seventh Circuit. Nonetheless, Arrow argues that this does not save the claim,

because NewSpin still does not plead that it suffered any non-economic loss and because NewSpin

fails to sufficiently allege a special privity-like relationship between it and Arrow.

As an initial matter, the Court notes that the state and federal courts in New York have not

always applied the economic loss rule in a consistent manner, creating some confusion concerning

whether a party can ever bring a negligent misrepresentation claim when the damages suffered are

economic, as opposed to damages to the person or to property. In Wells Fargo Bank, N.A. v.

HoldCo Asset Management, L.P., 2017 WL 2963501 (S.D.N.Y. July 11, 2017), the court

explained: “There appear to be, among New York courts and federal courts applying New York

law, two versions of the rule in play. The broad version of the doctrine restrict[s] plaintiffs who

have suffered ‘economic loss,’ but not personal or property injury, to an action for the benefits of

their bargains. In such cases, plaintiffs alleging pecuniary loss may either recover for breach of

contract (if they have a viable contractual claim) or not at all. The narrower version of the doctrine

precludes recovery in tort only where the damages suffered are of the type remediable in contract.

In this formulation, a contracting party may not recover expectation damages in a tort action, but

would not be barred from recovering tort-based damages—even if such damages stemmed from

purely pecuniary loss.” Id. at *21 (internal quotation marks and citations omitted); see also

Travelers Cas. and Sur. Co., 734 F. Supp. 2d at 378 n.15 (“New York courts appear to disagree

whether the term ‘economic loss rule’ should apply outside the context in which it first emerged,

namely, product-liability suits against manufacturers); N.Y. Methodist Hosp. v. Carrier Corp., 68

A.D.3d 830, 892 N.Y.S.2d 110, 111–12 (App. Div. 2d Dep’t 2009) (setting forth and discussing

the “economic loss doctrine” in the products-liability realm). Some courts characterize the

economic loss rule as “extend[ing] beyond” the products-liability context and ‘limit[ing] the

liability of providers of services as well as providers of products,” including specifically in

construction litigation. Bristol–Myers Squibb, Indus. Div. v. Delta Star, Inc., 206 A.D.2d 177, 620

N.Y.S.2d 196, 199 (App. Div. 4th Dep’t 1994). The New York Court of Appeals has admonished,

however, that the “economic loss rule” should not be used outside of the product-liability context,

and that a “duty”-based analysis should be applied instead. 532 Madison Ave. Gourmet Foods v

Finlandia Ctr., No. 84, 85, 95, 96 N.Y.2d 280, 288 & n.1, 727 N.Y.S.2d 49, 750 N.E.2d 1097

(N.Y. June 7, 2001) (“Finlandia II”). As demonstrated by the court’s holding in that case,

however, the decision as to which terminology to use appears to be of little practical importance,

and courts routinely overlook the formal distinction. See, e.g., Hydro Investors, Inc. v. Trafalgar

Power Inc., 227 F.3d 8, 16 (2d Cir. 2000) (“Hydro Investors”) (describing Finlandia II as “hav[ing]

applied the economic loss rule” to bar plaintiff's recovery)”).

The parties do not address whether the narrow or broad version of the rule should apply,

but the viability of Count VI may well turn on that determination. If the broad version applies, the

claim should be dismissed because all of the damages alleged by NewSpin involve economic

losses, not personal or property injury. If the narrow version applies, the amended complaint is

likely sufficient to proceed.

The Seventh Circuit discussed the economic loss rule as follows:

In Count VII, NewSpin brings a claim for negligent misrepresentation.

NewSpin alleges Arrow “made misrepresentations of material fact and failed to

disclose material facts without reasonable care with knowledge that such

misrepresentations ... would be relied upon by [NewSpin] in its business transaction

with Arrow.” The district court dismissed this claim based on both the four-year

limitations period and the economic loss rule.

In New York, “[a] claim for negligent misrepresentation requires the

plaintiff to demonstrate (1) the existence of a special privity-like relationship

imposing a duty on the defendant to impart correct information to the plaintiff; (2)

that the information was incorrect; and (3) reasonable reliance on the information.”

Mandarin Trading Ltd. v. Wildenstein, 16 N.Y.3d 173, 919 N.Y.S.2d 465, 944

N.E.2d 1104, 1109 (2011) (alteration in original) (quoting *308 J.A.O. Acquisition

Corp. v. Stavitsky, 8 N.Y.3d 144, 831 N.Y.S.2d 364, 863 N.E.2d 585, 587 (2007)).

We need not decide if this claim duplicates NewSpin’s contract claims

because we agree the economic loss rule bars recovery. Under New York law,

“inasmuch as the damages established by [a plaintiff] are properly characterized as

‘economic loss’ they are not recoverable in an action for tort based upon negligent

misrepresentation.” Gen. Elec. Co. v. A.C. Towne Corp., 144 A.D.2d 1003, 534

N.Y.S.2d 283, 285 (1988); see also Travelers Cas. & Sur. Co. v. Dormitory Auth.-

State of N.Y., 734 F.Supp.2d 368, 378 (S.D.N.Y. 2010) (“New York’s economic

loss doctrine is a jurisprudential principle that a plaintiff cannot recover in tort for

purely economic losses caused by the defendant’s negligence.”).

In its negligent misrepresentation claim, NewSpin only alleges Arrow made

misrepresentations regarding Arrow’s component parts and their conformity to

NewSpin’s specifications. These misrepresentations solely relate to the subject

matter of the Agreement, pursuant to which Arrow was to provide NewSpin with

specific components. The only damages attributable to these misrepresentations are

the same damages NewSpin would recover for its breach-of-contract claim: the

amount it lost because of Arrow’s defective delivery. NewSpin cannot recover for

these purely economic losses. See Manhattan Motorcars, Inc. v. Automobili

Lamborghini, S.p.A., 244 F.R.D. 204, 220 (S.D.N.Y. 2007) (“While [plaintiff] has

properly pled all of the elements required to state a cause of action for negligent

misrepresentation, it has pled purely economic damages as a result of its reliance,

thereby inviting application of New York’s ‘economic loss rule.’ ”); cf. Ocean Gate

Homeowners Assoc., Inc. v. T.W. Finnerty Prop. Mgmt., Inc., 83 N.Y.S.3d 494,

497, 163 A.D.3d 971 (2018) (“[W]here [a] plaintiff is essentially seeking

enforcement of the bargain, the action should proceed under a contract theory.”

(alterations in original) (quoting Sommer v. Fed. Signal Corp., 79 N.Y.2d 540, 583

N.Y.S.2d 957, 593 N.E.2d 1365, 1369 (1992))).

The district court thus properly dismissed NewSpin’s negligent

misrepresentation claim in Count VII.

[79] at 22-24.

This discussion does not resolve the matter of which version of the rule applies, for the

court of appeals cited cases applying both versions. In Travelers Casualty & Surety Co., 734 F.

Supp. 2d at 378, the court explained that “New York’s economic loss doctrine is a jurisprudential

principle that a plaintiff cannot recover in tort for purely economic losses caused by the defendant’s

negligence.” “Under this principle, the defendant is not liable to a plaintiff for the latter’s

economic loss unless there exists ‘a special relationship that requires the defendant to protect

against the risk of harm to plaintiff.’” Id. (quoting Finlandia II, 750 N.E.2d 1097) (emphasis

added). “A limited exception to New York’s barrier against recovery of economic loss exists …

for claims of negligent misrepresentation.” Id. at 379. Nevertheless, “before a party may recover

in tort for pecuniary loss sustained as a result of another’s negligent misrepresentations there must

be a showing that there was either actual privity of contract between the parties or a relationship

so close as to approach that of privity.” Id. at 379-80. This requires three showings: (1) an

awareness by the maker of the statement that it is to be used for a particular purpose; (2) reliance

by a known party of the statement in furtherance of that purpose; and (3) some conduct by the

maker of the statement linking it to the relying party and evincing its understanding of that reliance.

Id. at 380. Travelers thus appears to support application of the narrow version of the economic

loss rule.

By contrast, in Manhattan Motorcars, Inc. v. Automobili Lamborghini, S.p.A., 244 F.R.D.

204 (S.D.N.Y. 2007), the plaintiff argued that its negligent misrepresentation claim was not barred

by the economic loss rule because its claim was based on “duties independent of any contract,

including the fiduciary duties ... not to conceal material information from and act against the

interests of the person to whom it owes the duty.” Id. at 220. The court rejected the argument,

explaining that “[t]he fact that the duty breached here is independent of any contract between the

parties merely prevents this claim from being dismissed as duplicative of Manhattan’s breach of

contract claims.” Id. “It does not allow evasion of the economic loss rule, which presents a second,

distinct barrier.” Id. In order to “keep contract law from drown[ing] in a sea of tort,” “New York

courts restrict plaintiffs who have suffered ‘economic loss,’ but not personal or property injury, to

an action for the benefits of their bargains.” Id. (citing Carmania Corp., N.V. v. Hambrecht Terrell

Int’l, 705 F. Supp. 936, 938 (S.D.N.Y. 1989)); see also Weisblum v. Prophase Labs, Inc., 88

F.Supp.3d 283, 297 (S.D.N.Y. 2015) (same). Thus, “[i]f the damages suffered are of the type

remediable in contract, a plaintiff may not recover in tort.” Manhattan Motorcars, 244 F.R.D. at

220; see also Negrete v. Citibank, N.A., 187 F. Supp. 3d 454, 472 (S.D.N.Y. 2016) (“When

Plaintiffs, as is the case here, allege economic loss as an injury in a tort claim the usual means of

redress is an action for breach of contract; a tort action for economic loss will not lie.” (internal

quotation marks and citation omitted)); BNP Paribas Mortg. Corp. v. Bank of America, N.A., 949

F. Supp. 2d 486, 505 (S.D.N.Y. 2013) (same). Applying this rule, the court held that even though

the plaintiff “properly pled all of the elements required to state a cause of action for negligent

misrepresentation, it … pled purely economic damages as a result of its reliance” and therefore its

claim for negligent misrepresentation must be dismissed. Manhattan Motorcars, 244 F.R.D. at

220. For present purposes, it seems evident that Manhattan Motorcars applied the broad version

of the rule.

One Second Circuit case, which involved malpractice rather than a straight negligent

misrepresentation claim, suggests that the narrower version of the rule may be more appropriate.

In Hydro Investors, Inc. v. Trafalgar Power Inc., 227 F.3d 8, 17–18 (2d Cir. 2000), the appellate

court explained:

The record in the present case does not call for us to apply

the economic loss rule to bar TPI's damages. The circumstances here indicate that

TPI’s professional malpractice claim is one sounding in tort and not a contractual

dispute disguised as a tort. Although the parties may have entered into contracts

governing some aspects of their relationship, the damages awarded below were for

a harm distinct from those contracts, a harm arising out of the failure of Dunlevy

and Stetson–Harza to provide proper estimates of energy output, adequately gauge

the impact of government regulations, and more generally provide appropriate

services. See 17 Vista Fee Assocs. v. Teachers Ins. & Annuity Assoc. of Am., 259

A.D.2d 75, 83, 693 N.Y.S.2d 554 (N.Y.App.Div.1999) (“[I]n claims against

professionals, ‘[a] legal duty independent of contractual obligations may be

imposed by law as an incident to the parties' relationship. Professionals ... may be

subject to tort liability for failure to exercise reasonable care, irrespective of their

contractual duties.’ ”) (quoting Sommer, 79 N.Y.2d at 551, 583 N.Y.S.2d 957, 593

N.E.2d 1365) (first alteration added; *18 second alteration in original); Robinson

Redevelopment Co. v. Anderson, 155 A.D.2d 755, 757, 547 N.Y.S.2d 458

(N.Y.App.Div.1989) (“We conclude that the contractual and professional

relationship of plaintiff and defendants gave rise to two distinct wrongs, one

contractual and the other grounded in professional malpractice, recoverable at

law.”); Commerce & Industry Ins. Co. v. Vulcraft, Inc., No. 97 Civ. 2578, 1998 WL

823055, at *12 (S.D.N.Y. Nov.20, 1998) (rejecting the application of

the economic loss rule and stating that “[t]he premise for the third-party claim ... is

in substance one for professional malpractice, and that obligation is distinct from

any contract into which the parties may have entered”).

While we recognize that some cases have applied the economic loss rule to

bar recovery where the only loss claimed is economic in nature, see County of

Suffolk v. Long Island Lighting Co., 728 F.2d 52, 62 (2d Cir.1984), and still others

have applied that rule to professional malpractice cases, see Joseph v. David M.

Schwarz/Architectural Servs., P.C., 957 F. Supp. 1334, 1339–40 (S.D.N.Y.1997),

the better course is to recognize that the rule allows such recovery in the limited

class of cases involving liability for the violation of a professional duty. To hold

otherwise would in effect bar recovery in many types of malpractice actions. See 17

Vista Fee Assocs., 259 A.D.2d at 83, 693 N.Y.S.2d 554 (“[T]he fact that 17 Vista

suffered pecuniary losses only is of no significance in this malpractice claim against

a professional. Many types of malpractice actions, such as those against an

accountant or attorney, will frequently result in economic loss only.”) (internal

citations omitted); Robinson Redevelopment Co., 155 A.D.2d at 757, 547 N.Y.S.2d

458 (stating that because “[m]ost malpractice claims against professionals

‘regularly arise out of a contractual relationship and involve injury to property or

pecuniary interests only,’ ” strict application of the economic loss rule to such

claims “would eliminate the availability of malpractice claims against professionals

such as architects where the damages are essentially pecuniary in nature”)

(quoting Video Corp. of Am. v. Frederick Flatto Assoc., Inc., 85 A.D.2d 448, 451–

52, 448 N.Y.S.2d 498 (1982)).

It is also worth noting the potential difficulty of dismissing a claim based on the absence

of a special relationship. Arrow relies on Kimmell v Schaefer, 675 N.E.2d 450, 454 (N.Y. 1996),

but that case can be read to support NewSpin’s position, especially at the motion to dismiss stage.

As the court recognized,

Since a vast majority of commercial transactions are comprised of … “casual”

statements and contacts, we have recognized that not all representations made by a

seller of goods or provider of services will give rise to a duty to speak with care ….

Rather, liability for negligent misrepresentation has been imposed only on those

persons who possess unique or specialized expertise, or who are in a special

position of confidence and trust with the injured party such that reliance on the

negligent misrepresentation is justified.

Id. In addition, the court noted that “[w]hether the nature and caliber of the relationship between

the parties is such that the injured party’s reliance on a negligent misrepresentation is justified

generally raises an issue of fact,” which turns on “whether the person making the representation

held or appeared to hold unique or special expertise; whether a special relationship of trust or

confidence existed between the parties; and whether the speaker was aware of the use to which the

information would be put and supplied it for that purpose.” Id.

Based on the foregoing discussion, the Court concludes that it needs the parties to give

further consideration to—and perhaps to provide supplemental briefing on—the scope of the

economic loss doctrine under New York law before it can make a sound determination on whether

Count VI can proceed. For the moment, Arrow’s motion to dismiss that count is denied without

prejudice. If, after careful consideration of the applicable New York case law, Arrow wishes to

pursue a renewed motion to dismiss Count VI, it may file a motion to that effect, along with a

supporting brief, by May 7, 2020. The Court will set a briefing schedule on the motion, should it

be filed, at the May 13 status hearing.

IV. Conclusion

For these reasons, Arrow’s motion to dismiss the amended complaint [88] is granted in

part and denied in part. NewSpin’s claims for unjust enrichment are dismissed. NewSpin’s claim

for fraud is also dismissed, but NewSpin is granted leave to amend that claim by May 7, 2020.

Arrow’s motion to dismiss is denied as to the three contract-based claims. Arrow’s motion to

dismiss as NewSpin’s negligent misrepresentation claims is denied without prejudice and subject

to renewal based on the supplemental briefing ordered above. This case is set for status hearing

on May 13, 2020 at 9:00 a.m.

Dated: March 23, 2020

Robert M. Dow, Jr.

United States Distri dge

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