Opinion
Civil Action No. 2:02-CV-3028 (DRD).
December 18, 2003
Patrick C. English, Esq., DINES AND ENGLISH, Clifton, New Jersey, Laurence B. Orloff, Esq., ORLOFF, LOWENBACH, STIFELMAN SIEGEL, P.A., Roseland, New Jersey, Attorneys for Plaintiff.
Judd Burstein Esq., JUDD BURSTEIN, P.C., New York, New York, David A. Picon, Esq., PROSKAUER ROSE LLP, Newark, New Jersey, Attorneys for Defendant Jeff Lacy.
OPINION
This matter comes before the court on the motion of defendant Jeff Lacy ("Lacy") for leave to amend his Answer to include counterclaims that did not appear in the Answer he originally filed. For the reasons set forth below, the court will grant Lacy's motion.
I. BACKGROUND
In November or December 2000, Lacy, a professional boxer and former member of the United States Olympic Team, entered into a Promotion Agreement ("Agreement") with boxing promoter Main Events Production, L.L.C. ("Main Events"). Pursuant to the Agreement, Main Events would serve as Lacy's exclusive promoter and would pay Lacy a minimum amount ("minimum purses") for participating in a certain number of fights during each year of the life of the Agreement. In June 2002, Lacy attempted to terminate the Agreement, and Main Events brought suit for breach of contract, seeking, inter alia, (provisional and permanent) injunctive relief and damages. On June 26, 2002, Lacy filed an Answer. Soon thereafter, the parties made cross-motions for summary judgment, each asserting that the language of the Agreement unambiguously supported their respective positions.
Main Events's parent company, New Jersey Sports Productions, Inc., is also a plaintiff. The court will refer to the two companies collectively as "Main Events."
Plaintiffs originally commenced this action in New Jersey Superior Court, Bergen County, Chancery Division, but Lacy removed the action to this court on June 25, 2002.
On August 22 and 23, 2002, following a brief period for discovery, the court held an evidentiary hearing at which it heard extensive testimony about negotiations that took place prior to Lacy's signing the Agreement between Main Events counsel Patrick English ("English") and counsel for Lacy Jim Wilkes ("Wilkes") at the Mandalay Hotel in Las Vegas. In an Order dated September 4, 2002, the court denied Main Events's application for a temporary restraining order and a preliminary injunction. The court found that the language of the Agreement was ambiguous, that Wilkes's and English's testimony — which was conflicting — did not elucidate its meaning, and hence that resolution of the matter should be left to a jury's determination. Accordingly, in the September 4 Order the court also denied both parties' summary judgment motions.
On February 3, 2003, Lacy sought Main Events's consent to allow him to amend his Answer in all the ways he seeks to amend it here; Main Events refused to consent. Very soon thereafter, the dispute was submitted to mediation, but the parties failed to reach an accord. Lacy has now moved to amend his Answer to include counter-claims against Main Events of fraud, equitable fraud, negligent misrepresentation ("the fraud counterclaims") and violation of the Muhammad Ali Boxing Reform Act, 15 U.S.C. § 6301 et seq. The claims arise from facts Lacy asserts here for the first time about the negotiations between English and Wilkes.
Lacy claims that in the course of negotiations between English and Wilkes, English offered a certain amount as the minimum purses that Main Events would pay Lacy; Wilkes thought the amount offered was too low. English sought to justify the amount, Lacy alleges, by claiming that Main Events would lose money on Lacy's fights during the early years of the Agreement. Wilkes reasonably relied on English's representation, Lacy claims, and "would not have signed the promotional agreement in the absence of that representation." Proposed Answer at 6. However, according to Lacy, English knew the representation was false at the time he made it because by that time Main Events had already entered into a "lucrative agreement in principle with Showtime Networks, Inc. for the televising of Lacy's early bouts, thereby ensuring that the promotion of Lacy in the first years of the promotional agreement would be profitable for plaintiffs." Id. Lacy alleges that Main Events continued to conceal the existence of information about compensation it had contracted to receive from Lacy's bouts even after Lacy had fought in some of those bouts. The court will exercise its discretion to permit Lacy's proposed amendments.
II. DISCUSSION
Under FED. R. CIV. P. 15, a pleading may under most circumstances be amended "only by leave of court or by written consent of the adverse party." Rule 15 states that leave to amend a complaint "shall be freely given when justice so requires," and "[t]he Rule is construed liberally in order to further a basic purpose behind the Federal Rules — `that pleadings are not an end in themselves but are only a means to assist in the presentation of a case to enable it to be decided on the merits.'" Borse v. Piece Goods Shop, Inc., 963 F.2d 611, 626 n. 21 (3d Cir. 1992) (internal quotations omitted).
Nevertheless, denial of leave to amend may be justified on several grounds including "undue delay, bad faith, dilatory motive, prejudice, and futility." In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1434 (3d Cir. 1997). The decision whether to grant or to deny a motion for leave to amend rests within the sound discretion of the district court. Rolo v. City Investing Co. Liquidating Trust, 155 F.3d 644, 654 (3d Cir. 1998) (quoting Howze v. Jones Laughlin Steel Corp., 750 F.2d 1208, 1212 (3d Cir. 1984)) (abrogated on other grounds).
A. Fraud Counterclaims
Main Events urges the court to deny Lacy leave to amend his Answer to include the counterclaims for fraud, equitable fraud and negligent misrepresentation because, it claims, the addition of these counterclaims would be futile, and Lacy delayed too long before moving to amend.
1. Futility
"`Futility' means that the [pleading], as amended, would fail to state a claim upon which relief could be granted. In assessing `futility,' the district court applies the same standard of legal sufficiency as applies under Rule 12(b)(6)." Burlington Coat Factory, 114 F.3d at 1434. Because Lacy's fraud, equitable fraud, and negligent misrepresentation claims would survive a Rule 12(b)(6) motion, the court will grant the boxer leave to amend his Answer to include them.
Under New Jersey law, legal fraud has occurred when a person (1) makes a material representation of a presently existing or past fact, (2) with knowledge of its falsity (scienter) and (3) with the intention that the other party rely thereon, and (4) that other party does so rely to his detriment." Jewish Center v. Whale, 432 A.2d 521, 524 (N.J. 1981). Negligent misrepresentation and equitable fraud consist of the same conduct, but without the scienter requirement. See H. Rosenblum, Inc. v. Adler, 461 A.2d 138, 142-43 (N.J. 1983) ("An incorrect statement, negligently made and justifiably relied upon, may be the basis for recovery of damages for economic loss or injury sustained as a consequence of that reliance") (emphasis added); Liebling v. Garden State Indem., 767 A.2d 515, 518 (N.J. App. Div. 2001) ("equitable fraud is like legal fraud except there need not be proof that the statement was made with knowledge that it was false . . . Even an innocent misrepresentation can constitute equitable fraud justifying rescission").
Main Events argues that Lacy has not plead a case for fraud as a matter of law because English's comment that Main Events would lose money on Lacy's early fights was not a representation of presently existing or past fact, but was rather a mere prediction of how much money Main Events would earn in the future that turned out to be incorrect. Such "fraud by hindsight," Main Events claims, is not actionable.
In support of this argument, Main Events cites several cases in which courts held that a prediction about the future that turned out to be wrong was insufficient to sustain an allegation of fraud. See, e.g., Joseph J. Murphy Realty, Inc. v. Shervan, 388 A.2d 990, 993 (N.J. App. Div. 1978) (real estate broker's prediction that it "should have no problem" selling plaintiff's old house on which plaintiff relied in deciding to purchase a new house not fraudulent because it was a "vague and ill-defined opinion as to [a future] prospect" rather than a statement that was "susceptible to exact knowledge when the statement was made"); Alexander v. Cigna Corporation, 991 F. Supp. 427, 436 (D.N.J. 1998), aff'd 172 F.3d 859 (3d Cir. 1998) (Cigna's statements to independent insurance agencies that relationship between the two which Cigna ultimately terminated because it became unprofitable would be "long-lasting" not fraudulent because "puffery," "vague and ill-defined opinions" and "[s]tatements as to . . . contingent events, expectations or probabilities . . . do not constitute misrepresentations"); In re Donald Trump Casino Securities Litigation, 793 F. Supp. 543, 557 (D.N.J. 1992) (statements in a prospectus anticipating profits from a hotel and casino not fraudulent because "`economic prognostication, though faulty, does not, without more, amount to fraud'") (quoting Polin v. Conductron Corp., 552 F.2d 797, 805 (8th Cir. 1977)).
This case differs from all those Main Events cites, however, because here the element that led the other courts to hold that predictive statements about the future cannot form the basis of a fraud claim — uncertainty — is absent. In cases such as Shervan and Alexander, the alleged perpetrators of fraud had no guarantee that their predictions would come to pass; those predictions were mere guesses based in nothing more solid than optimism, hope, or instinct. Here, by contrast, Lacy claims that by the time of the negotiations Main Events already had entered into an agreement regarding Lacy's bouts with Showtime for a precise and sizable amount of money. English's statement that the promoter would lose money in the early years of the Agreement was thus not speculation about the future based in optimism, hope, or instinct, but rather a prediction that was certain not to come true specifically because of an objective past fact — the creation of the agreement between Main Events and Showtime. English's statement that Main Events would lose money when the promoter had previously entered into a lucrative agreement that made that statement untrue was as much a misrepresentation of existing fact as it would have been had English flat out denied that the agreement with Showtime existed. As such, it is certainly sufficient to ground a claim for legal fraud.
Of course, whether Main Events had entered into such an agreement, whether the agreement was for a fixed amount of money that would have prevented Main Events from "los[ing] money on Lacy's fights," and whether or not Main Events did in fact lose money during the first years of Lacy's Agreement are questions of fact not susceptible to resolution in the context of a Rule 15 motion.
Needless to say, as Lacy has plead a case for legal fraud, he has achieved the less demanding task of pleading cases for equitable fraud and negligent misrepresentation.
2. Undue Delay
Main Events next argues that the court should not permit Lacy to amend his Answer to include the fraud counterclaims because he did not make the allegations of fraud earlier. "The mere passage of time does not require that a motion to amend a complaint be denied on grounds of delay. In fact, delay alone is an insufficient ground to deny leave to amend." Cureton v. National Collegiate Athletic Ass'n, 252 F.3d 267, 273 (3d Cir. 2001) (citations omitted). Courts will usually not deny a motion to amend unless the non-moving party will suffer prejudice as a result of the delay, and/or the moving party has delayed for a very long period of time in filing its motion to amend.
See, e.g., Eddy v. Virgin Islands Water and Power Auth., 256 F.3d 204, 209-10 (3d Cir. 2001) (in deciding whether defendant waived his right to raise an affirmative defense by waiting to raise it until the summary judgment phase, the Court must inquire. . . . most important[ly] whether the delay prejudiced the plaintiff's case . . . Unless the opposing party will be prejudiced, leave to amend should generally be allowed);Lorenz v. CSX Corp., 1 F.3d 1406, 1414 (3d Cir. 1993) ("prejudice to the non-moving party is the touchstone for the denial of an amendment"); Cornell Co. v. Occupational Safety Health Comm'n, 573 F.2d 820, 823 (3d Cir. 1978 ("Delay alone . . . is an insufficient ground to deny an amendment, unless the delay unduly prejudices the non-moving party."); Deakyne v. Commissioners of Lewes, 416 F.2d 290, 300 n. 19 (3d Cir. 1969) ("We do not believe delay alone is a sufficient measure of prejudice[;] the element of delay is pertinent only to the extent that it combines with some extrinsic occurrence which brings about actual and significant prejudice to the opponent") (internal quotation omitted).
See, e.g., Oran v. Stafford, 226 F.3d 275, 291 (3d Cir. 2000) (upholding denial of motion to amend that came a year and a half after case was filed and after complaint was already amended once); Lorenz v. CSX Corp., 1 F.3d 1406, 1414 (3d Cir. 1993) (upholding denial of motion to amend that came three years after case was filed and nearly two years after the complaint was amended for the second time).
The only prejudice Main Events has claimed it will suffer is the need to conduct more discovery and re-depose people it already deposed in preparation for the evidentiary hearing in August 2002. The need to conduct additional discovery, however, does not usually constitute prejudice sufficient to justify denial of leave to amend. See, e.g., Dole v. Arco Chemical Co., 921 F.2d 484, 488 (3d Cir. 1990); Miller v. Beneficial Management Corp., 844 F.Supp. 990, 1000 (D.N.J. 1993).
Under the original Scheduling Order in this case, discovery was to remain open through December 1, 2003. Oral argument on this motion did not take place until December 17, 2003. During oral argument, Mr. Burstein indicated that the parties were going to meet with Magistrate Judge Wigenton in the afternoon to discuss the possibility of an extension of the discovery period. The court does not doubt that Judge Wigenton will grant such an extension. Main Events thus will have plenty of time to gather information required to oppose Lacy's counterclaims.
The court is not aware of when Lacy found out about Main Events's contract with Showtime. The court has no reason to believe that this information came to light only recently, but if it did, Lacy's failure to raise it before now certainly cannot be penalized under a laches theory. Even if Lacy had known about the contract with Showtime for some time, however, Lacy has not delayed for long enough to justify a denial of leave to amend.
Lacy waited approximately five months after the court denied Main Events's motion for a preliminary injunction before seeking Main Events's consent to amend its Answer. The proceedings were stayed shortly after Lacy sought this consent because the dispute was submitted to mediation. When the parties failed to arrive at a resolution through mediation, Lacy quickly filed his Rule 15 motion within the timeframe established in Judge Wigenton's Scheduling Order (which stated that "[a]ny motion to amend pleadings shall be filed not later than October 1, 2003").
If Lacy had had knowledge of the contract with Showtime, ideally he should have attempted to amend his Answer earlier. His delay, however, is not sufficient to overcome the liberal amendment policy of Rule 15. "Given the breadth of Fed.R.Civ.P. 15(a), an amendment should only be denied under a theory of laches in the most exigent circumstances." Le v. Five Fathoms, Inc., No. CIV. 91-3168 (SSB),1992 WL 471246 at *3 (D.N.J. Aug. 14, 1992). The circumstances here are hardly exigent. The court will thus exercise its discretion to permit Lacy's proposed amendments.
B. Muhammad Ali Act Counterclaim
Lacy also seeks to amend his Answer to assert the counterclaim that, in violation of the Muhammad Ali Act ("Act"), 15 U.S.C. § 6301 et seq., Main Events concealed the fact of its agreement with Showtime after Lacy had signed the Agreement and fought in several matches. Section 6307e of the Act provides that
A promoter shall not be entitled to receive any compensation directly or indirectly in connection with a boxing match until it provides to the boxer it promotes —
(1) the amounts of any compensation or consideration that a promoter has contracted to receive from such match;
(2) all fees, charges, and expenses that will be assessed by or through the promoter on the boxer pertaining to the event, including any portion of the boxer's purse that the promoter will receive, and training expenses; and
(3) any reduction in a boxer's purse contrary to a previous agreement between the promoter and the boxer or a purse bid held for the event.15 U.S.C. § 6309 gives boxers who suffer economic injuries as a result of a violation of § 6307e's disclosure requirements standing to bring an action to recover the damages suffered, court costs, and reasonable attorneys fees and expenses.
Main Events argues that amendment of Lacy's Answer to include a counterclaim under § 6307e would be futile. The promoter maintains that Lacy did not suffer economic damages as a result of Main Events's failure to make the disclosures required by § 6307e because the amount of the purses Main Events was to pay Lacy had been set in the Agreement. First, the court notes that § 6307e does not contain an exception to its disclosure requirement for situations in which a contract already exists that sets the amount of the purses the promoter is to pay the boxer. For Main Events's argument to prevail, then, the court would have to read an implicit exception into the statute.
Main Events's argument that such an implicit exception should be found would be persuasive only if the sole purpose of § 6307e's disclosure requirements was to set the amount of the purse the promoter would pay the boxer. It is not at all the clear, however, that this is the sole purpose of § 6307e.
In interpreting § 6307e, the court does not have the benefit of much caselaw, but the "Purpose" section and legislative history of the statute make clear that the Act was intended to benefit and protect boxers from the exploitation they had suffered historically at the hands of promoters and sanctioning organizations. The Senate Report "emphasize[d] the vulnerability and lack of leverage most professional boxers have with respect to various arbitrary business practices of these entities in the sport." S. REP. NO. 106-83 at 1 (1999). With this in mind, it is easy to imagine that § 6307e's disclosure requirements had many purposes other than to set the amount of the purse the promoter would pay the boxer. For example, the requirements could have been intended in part to provide boxers with a sense of their value within the industry, so that they could enter into negotiations for their next contract from a position of full information. If this is a purpose of § 6307e, disclosure would be required even under circumstances where the boxer in question had set the amount of the purses his promoter was to pay him in a contract before entering into any matches.
The Act has been interpreted by only one court to date.See Echols v. Pelullo, No. CIV. A. 03-1758, 2003 21340274 (E.D. Pa. June 4, 2003) (holding that the Act applies to "step-aside" agreements, but not to matches that occur outside the United States); Echols v. Pelullo, No. CIV. A. 03-1758, 2003 WL 1797950 (E.D. Pa. April 3, 2003) (denying plaintiff's motion for a TRO because he failed to show the requisite irreparable harm).
15 U.S.C. § 6302 indicates that one of the purposes of the Act is to "improve and expand the system of safety precautions that protects the welfare of professional boxers." The House Report elaborates on the kinds of evils from which professional boxers required protection. Its authors indicate that the purpose of the Act "is to protect the rights and welfare of professional boxers on an interstate basis by preventing certain exploitative, oppressive, and unethical business practices." H. REP. NO 106-449(I) at 9 (2000).
Finally, and most importantly, even if the sole purpose of § 6307e's disclosure requirements was to set the amount of purses due the boxer, this would not exempt Main Events from the requirements because the Agreement between it and Lacy did not set the amount of the purses, but rather fixed only a minimum amount. As Lacy points out, the minimum amount set in the Agreement "could be negotiated upwards" if, for example, the promoter entered into a lucrative contract with a television network after it signed the contract with the boxer. Thus, the fact that Lacy and Main Events had entered into the Agreement appears to have no bearing whatsoever on Main Events obligation to disclose to Lacy the amount of its contract with Showtime, and does not make Lacy's claim under the Act futile.
Main Events points out that it did make the disclosures required by § 6307e — albeit to Lacy's manager (who it argues is Lacy's agent) as opposed to Lacy himself — and argues that this fulfilled its obligation under the statute. Main Events asks the court to take judicial notice of its disclosure to Lacy's manager, claiming apparently that this fact was established at the August 2002 evidentiary hearing. In determining whether a proposed amendment to a pleading would be futile, courts in this Circuit do not ordinarily look outside the pleadings. See, e.g., Miller v. Beneficial Management Corp., 844 F.Supp. 990, 1004 (D.N.J. 1993). Moreover, whether or not Main Events's disclosure to Lacy's manager fulfilled § 6307e's requirement that promoters make disclosures "to the boxer" under the particular circumstances of this case is not a question susceptible to the court's resolution in this procedural posture.
Lacy's counterclaim under the Muhammad Ali Act would not be futile. The court thus grants him leave to add it to his Answer.
III. CONCLUSION
For the foregoing reasons, the court will grant Lacy's motion for leave to amend his Answer. An appropriate Order will be entered.