Opinion
03 Civ. 0015 (RWS).
July 21, 2005
JAMES H. DONOIAN, ESQ., GREGORY A. NYLEN, ESQ., VALERIE W. HO, ESQ., GREENBERG TRAURIG, LLP., New York, NY, Attorneys for Third-Party Plaintiffs E-21 Global, Inc., Craig Franco and Maxx International, Inc.
MEL B. GINSBURG, ESQ., New York, NY, Attorney for Plaintiff/Counterclaim Defendant BCC; Additional Counterclaim Defendant TSV; Third-Party Defendant John Loata.
ROBERT M. ROSENBLITH, ESQ., Chestnut Ridge, NY, Attorney for Third-Party Defendants Gerald P. Colapinto and Second Renaissance, LLC.
OPINION
Third-party plaintiffs E-21 Global, Inc. ("E-21"), Craig Franco ("Franco"), and Maxx International, Inc. ("Maxx") (collectively the "Third-Party Plaintiffs") have moved pursuant to Rule 15, Fed.R.Civ.P., for leave to file a second amended third-party complaint. As set forth below, the motion is granted. Furthermore, the motion of John Loata ("Loata") to dismiss the First Amended and Restated Third-Party Complaint (the "FATPC") is denied as moot with leave to renew the motion upon service of the Second Amended Third-Party Complaint ("SATPC").
Prior Proceedings
The convoluted history of this action has been recounted in previous opinions of the Court, familiarity with which is assumed. See, e.g., Bangkok Crafts Corp. v. Capitolo di San Pietro in Vaticano, No. 03 Civ. 0015, 2005 WL 1595285 (S.D.N.Y. July 6, 2005); Bangkok Crafts Corp. v. Capitolo di San Pietro in Vaticano, 2005 WL 1595281 (S.D.N.Y. July 6, 2005); Bangkok Crafts Corp. v. Capitolo di San Pietro in Vaticano, 331 F. Supp. 2d 247 (S.D.N.Y. Aug. 23, 2004).
With respect to the present motion, the following aspects of this procedural history are relevant.
Bangkok Craft Corporation ("BCC") commenced this action in the Supreme Court of the State of New York, County of New York, on August 7, 2002 against Capitolo di San Pietro In Vaticano ("Capitolo"). The action was removed to this Court on January 2, 2003. On March 31, 2003, Capitolo filed the Answer and Counterclaims, which asserted counterclaims against BCC and joined additional counterclaim defendants including Treasures of St. Peter's in the Vatican, Ltd. ("TSV"), New Renaissance Art, Inc. ("NewRen"), E-21, Franco, and Maxx.
On November 26, 2003, E-21, Franco, Maxx, and NewRen filed a document styled a "Reply To Counterclaims, Third Party Complaint and Cross-Claim (the "TPC"). Count One of the TPC asserted a fraud claim against BCC, TSV, Loata (president and chief executive officer of BCC), Second Renaissance, LLC ("SRLLC"), and SRLLC president Gerald P. Colapinto ("Colapinto"). Count Two asserted an unfair competition claim against BCC, TSV, Loata, SRLLC, and Colapinto. Count Three asserted a rescission claim against BCC and TSV. Count Four asserted an unjust enrichment claim against BCC, TSV, Loata, SRLLC, and Colapinto. Count Five sought a declaration that E-21, Franco, Maxx, and NewRen possessed sublicense agreements that were enforceable as against Capitolo. Count Six asserted a negligence claim against Capitolo. Finally, E-21 asserted certain unenumerated cross-claims sounding in fraud against TMI, LLC and Terry E. May of SRLLC.
On August 18, 2004, Counts One, Two, Four, and the unenumerated claim sounding in fraud were dismissed as to SRLLC and Colapinto.See Bangkok Crafts, 331 F. Supp. 2d at 257. On September 7, 2004, Global, Franco, Maxx, and NewRen moved for leave to amend the TPC. On September 29, 2004, the Court signed a stipulation and order withdrawing this motion.
On December 29, 2004, Counts One, Two, and Four were dismissed as to Loata, and leave was granted to replead within twenty days.See Bangkok Crafts Corp. v. Capitolo de San Pietro in Vaticano, 2004 WL 3019771 (S.D.N.Y. Dec. 29, 2004). On January 24, 2005, the Third-Party Plaintiffs filed the First Amended and Restated Third-Party Complaint ("FATPC"). The FATPC contains (1) claims against Loata for fraud, negligent misrepresentation, unjust enrichment, conversion, and money had and received; (2) a fraud claim by Maxx against BCC and TSV; and (3) a conversion claim by Franco against BCC and TSV. The FATPC contained no claims against SRLLC or Colapinto.
On February 4, 2005, the Third-Party Plaintiffs moved to file the SATPC. The Proposed Second Amended Third-Party Complaint ("PSATPC") asserts claims against BCC, TSV, SRLLC and Colapinto. More specifically, the PSATPC, which incorporates by reference the allegations contained in the FATPC, asserts (1) fraud and negligent misrepresentation claims against BCC, TSV, SRLLC, and Colapinto; and (2) unjust enrichment, conversion, money had and received, unfair competition, and rescission claims against BCC and TSV.
It should be noted that while the PSATPC does not assert claims against Loata, the text contains a substantial number of allegations concerning the conduct of Loata.
On February 28, 2005, Colapinto, SRLLC, and BCC filed opposition to this motion. On February 22, 2005, John Meringolo ("Meringolo") (NewRen's counsel and former counsel to E-21, Franco, and Maxx) and David Newren (founder, president, and sole shareholder of NewRen) filed declarations in support of Colapinto's and SRLLC's opposition to this motion. On June 6, 2005, this Court entered an order (1) determining that Meringolo's February 22, 2005 declaration had improperly disclosed communications between and among the Third-Party Plaintiffs and their counsel, and (2) requiring, inter alia, that Meringolo and all parties to the action and their counsel return to counsel for the Third-Party Plaintiffs all copies of the communications at issue.
On March 11, 2005, Loata moved to dismiss the FATPC pursuant to Rule 9(b) and 12(b), Fed.R.Civ.P.
The present motion was marked as fully submitted without oral argument on March 7, 2005. The Standard For Amendment
Motions to file amended pleadings are governed by Fed.R.Civ.P. 15(a), which provides in pertinent part that "a party may amend the party's pleading . . . by leave of court . . . and leave shall be freely given when justice so requires." Fed.R.Civ.P. 15(a). The Supreme Court has articulated the following criteria concerning Rule 15(a) motions:
If the underlying facts or circumstances relied upon by a plaintiff may be a proper subject of relief, he ought to be afforded an opportunity to test his claim on the merits. In the absence of any apparent or declared reason — such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of amendment, etc. — the leave sought should, as the rules require, be "freely given."Foman v. Davis, 371 U.S. 178, 182 (1962). The Second Circuit, citing Foman, has stated that "it is rare that such leave should be denied. . . ." Ricciuti v. N.Y.C. Transit Auth., 941 F.2d 119, 123 (2d Cir. 1991) (internal citation omitted). Discussion A. SRLLC and Colapinto 1. Bad Faith
SRLLC and Colapinto have asserted that leave to file the SATPC should be denied because the amendment is sought in bad faith. In order to demonstrate that this motion to amend has been made in bad faith, SRLLC and Colapinto have devoted a substantial portion of their opposition brief to a description of the troubled relationship between the Third-Party Plaintiffs and Meringolo. The Court has already had occasion to examine the events preceding and following Meringolo's withdrawal as counsel to the Third-Party Plaintiffs. See Bangkok Crafts, 2005 WL 1595281, at *1-3 (stating that although no basis exists at this time to disqualify Meringolo from his representation of NewRen, the record demonstrates that he may have violated his duty of loyalty to his former clients by disclosing their confidential communications and by filing a declaration in opposition to the present motion). SRLLC and Colapinto do little more than rehash information and arguments previously considered by the Court. Such materials fail to establish that Third-Party Plaintiffs' motion to amend has been motivated by bad faith. 2. Futility
SRLLC and Colapinto have argued that the fraud and negligent misrepresentation claims asserted in the PSATPC by E-21 and Franco are futile. SRLLC and Colapinto argue that the fraud claims have not been stated with requisite particularity pursuant to Rule 9(b). They argue that the negligent misrepresentation claims fail because they are "predicated in part on an undifferentiated basis during the post-sublicense execution period."
Under New York law, the elements of a fraud claim are: (1) that the defendant made a material false representation, (2) that the defendant intended to defraud the plaintiff thereby, (3) that the plaintiff reasonably relied upon the representation, and (4) that the plaintiff suffered damage as a result of such reliance.Manning v. Utils. Mut. Ins. Co., 254 F.3d 387, 400 (2d Cir. 2001) (quoting Bridgestone/Firestone, Inc. v. Recovery Credit Servs., 98 F.3d 13, 19 (2d Cir. 1996)); see also Lama Holding Co. v. Smith Barney, Inc., 88 N.Y.2d 413, 421, 646 N.Y.S.2d 76, 80, 668 N.E.2d 1370, 1373 (1996).
Under New York law, the elements of a claim for negligent misrepresentation are that:
(1) the defendant had a duty, as a result of a special relationship, to give correct information; (2) the defendant made a false representation that he or she should have known was incorrect; (3) the information supplied in the representation was known by the defendant to be desired by the plaintiff for a serious purpose; (4) the plaintiff intended to rely and act upon it; and (5) the plaintiff reasonably relied on it to his or her detriment.Greenberq v. Chrust, 198 F. Supp. 2d 578, 584 (S.D.N.Y. 2002) (citing Hydro Investors, Inc. v. Trafalgar Power Inc., 227 F.3d 8, 20 (2d Cir. 2000)).
The Second Circuit "has read Rule 9(b) to require that a complaint '(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent.'" Rombach v. Chang, 355 F.3d 164, 170 (2d Cir. 2004) (quoting Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir. 1993)). In a common law fraud action, scienter is not subject to Rule 9(b) and can be pleaded by alleging motive and clear opportunity or by alleging facts constituting strong circumstantial evidence of conscious behavior or recklessness on the part of defendants. See, e.g., Powers v. British Vita, P.L.C., 57 F.3d 176, 184 (2d Cir. 1995).
"A proposed amendment to a pleading would be futile if it could not withstand a motion to dismiss pursuant to Rule 12(b)(6)." Oneida Indian Nation of New York v. City of Sherrill, 337 F.3d 139, 168 (2d Cir. 2003) (footnote added). Furthermore, courts have determined that amendment would be futile where the proposed pleading suffered from the same Rule 9(b) defects as the previously dismissed pleading. See, e.g., U.S. ex rel. Willard v. Humana Health Plan of Texas Inc., 336 F.3d 375, 388 (5th Cir. 2003).
In reviewing a Rule 12(b)(6) motion, courts must "accept as true the factual allegations of the complaint, and draw all inferences in favor of the pleader." Mills v. Polar Molecular Corp., 12 F.3d 1170, 1174 (2d Cir. 1993) (citing IUE AFL-CIO Pension Fund v. Herrmann, 9 F.3d 1049, 1052 (2d Cir. 1993)). However, "legal conclusions, deductions or opinions couched as factual allegations are not given a presumption of truthfulness."L'Europeenne de Banque v. La Republica de Venezuela, 700 F. Supp. 114, 122 (S.D.N.Y. 1988). The complaint may only be dismissed when "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1956);see also Bernheim v. Litt, 79 F.3d 318, 321 (2d Cir. 1996). "A court's task in ruling on a Rule 12(b)(6) motion is 'merely to assess the legal feasibility of the complaint, not to assay the weight of the evidence. . . .'" Levitt v. Bear Stearns Co., Inc., 340 F.3d 94, 101 (2d Cir. 2003) (quoting Cooper v. Parsky, 140 F.3d 433, 440 (2d Cir. 1998)).
The party opposing a motion to amend bears the burden of establishing that an amendment would be futile. See Blaskiewicz v. County of Suffolk, 29 F. Supp. 2d 134, 137-38 (E.D.N.Y. 1998) (citing Harrison v. NBD Inc., 990 F. Supp. 179, 185 (E.D.N.Y. 1998)); see also Hedges v. U.S., 404 F.3d 744, 750 (3d Cir. 2005) (stating that in the context of a Rule 12(b)(6) motion, "[t]he defendant bears the burden of showing that no claim has been presented.") (citing Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406, 1409 (3d Cir. 1991)).
Here, Colapinto and SRLLC have failed to carry their burden. In opposition to Third-Party Plaintiffs' motion, they have done no more than assert in conclusory fashion that the fraud and negligent misrepresentation claims of E-21 and Franco are futile. Since SRLLC and Colapinto have failed to engage in any meaningful critique of the allegations underlying those claims, there is no basis to deny the motion to amend on the grounds of futility with respect to SRLLC and Colapinto.
3. Undue Delay and Prejudice
SRLLC and Colapinto argue that permitting Third-Party Plaintiffs to file the SATPC would result in undue delay of an already protracted action, and it would result in prejudice to the extent that they would be forced to incur additional discovery costs.
To determine whether there would be undue prejudice from a proposed amendment, a court must consider whether the new aspects of the proposed pleading would "'(i) require the opponent to expend significant additional resources to conduct discovery and prepare for trial; (ii) significantly delay the resolution of the dispute; or (iii) prevent the plaintiff from bringing a timely action in another jurisdiction.'" Monahan v. New York City Dep't of Corrs., 214 F.3d 275, 284 (2d Cir. 2000) (quoting Block v. First Blood Assocs., 988 F.2d 344, 350 (2d Cir. 1993)). Delay alone, in the absence of a showing of undue prejudice or bad faith, typically provides an insufficient basis for denying a motion to amend. See Parker v. Columbia Pictures Indus., 204 F.3d 326, 339 (2d Cir. 2000); Rachman Bag Co. v. Liberty Mut. Ins. Co., 46 F.3d 230, 234-35 (2d Cir. 1995) (citing State Teachers Ret. Bd. v. Fluor Corp., 654 F.2d 843, 856 (2d Cir. 1981)). "The party opposing the motion for leave to amend has the burden of establishing that an amendment would be prejudicial."Fariello v. Campbell, 860 F. Supp. 54, 70 (E.D.N.Y. 1994) (citing Panzella v. Skou, 471 F. Supp. 303, 305 (S.D.N.Y. 1979)); see also European Cmty. v. RJR Nabisco, Inc., 150 F. Supp. 2d 456, 502-03 (E.D.N.Y. 2001) (citing Saxholm AS v. Dynal, Inc., 938 F. Supp. 120, 123 (E.D.N.Y. 1996)).
Furthermore, "the adverse party's burden of undertaking discovery, standing alone, does not suffice to warrant denial of a motion to amend a pleading." United States v. Continental Ill. Nat'l Bank Trust Co., 889 F.2d 1248, 1255 (2d Cir. 1989). Nor is this burden of establishing "undue prejudice" satisfied by allegations that an amendment will require the expenditure of additional time, effort, or money. Block, 988 F.2d at 351.
Based on the foregoing, it is determined that SRLLC and Colapinto have failed to establish that the proposed amendment would cause undue delay or undue prejudice.
B. BCC, TSV, and Loata 1. Futility
BCC, TSV and Loata argue that E-21's fraud claim against them is futile in that it fails to correct the defects contained in the TPC and that the fraud claims asserted against them are not pled with requisite particularity. Although BCC and TSV have critiqued selected paragraphs of the PSATPC, they have failed to engage in the type of methodical, comprehensive explication of the PSATPC's allegations necessary to demonstrate that no fraud claim has been stated and that denial of leave to amend is warranted.
2. Undue Prejudice and Delay
Like SRLLC and Colapinto, BCC and TSV oppose the Third-Party Plaintiffs' motion on the grounds that it will lead to delay and additional discovery costs. For the reasons set forth above, this argument is unavailing.
3. Loata' Pending Motion to Dismiss the FATPC Is Denied As Moot
As stated above, the PSATPC contains extensive allegations concerning the conduct of Loata. In light of this fact and based on the foregoing, Loata's pending motion to dismiss the FATPC pursuant to Rules 12(b) and 9(b) is denied as moot. Leave is granted to renew the motion after the SATPC is served.
C. Rule 8 Considerations
None of the parties have adequately addressed the problematic structure of the FATPC and the PSATPC. Rather than drafting a single document that sets forth a claim for relief, the Third-Party Plaintiffs propose to assert their claims in separate seventy-odd page documents, the latter of which incorporates the former by reference. This structure is not only clumsy, it appears to violate Fed.R.Civ.P. 8(a).
Rule 8(a) provides, in pertinent part, as follows:
A pleading which sets forth a claim for relief, whether an original claim, counterclaim, cross-claim, or third-party claim, shall contain (1) a short and plain statement of the grounds upon which the court's jurisdiction depends, unless the court already has jurisdiction and the claim needs no new grounds of jurisdiction to support it, (2) a short and plain statement of the claim showing that the pleader is entitled to relief, and (3) a demand for judgment for the relief the pleader seeks. Relief in the alternative or of several different types may be demanded.
Fed.R.Civ.P. 8(a).
To remedy this problem, the Third-Party Plaintiffs are ordered to integrate the FATPC and PSATPC into a single, integrated pleading. Paragraphs may be reordered to enhance clarity, and redundant text shall be deleted. No other textual alterations or additions will be permitted.
Conclusion
Based on the foregoing, the Third-Party Plaintiffs' motion is granted, and the Second Amended Third Party Complaint, which will integrate both the FATPC and the PSAPC, shall be served within twenty (20) days of entry of this opinion.
Nothing contained in this opinion should be interpreted as limiting the rights of BCC, TSV, Loata, SRLLC or Colapinto with respect to the filing of motions to dismiss the SATPC pursuant to Rule 12(b)(6).
It is so ordered.