Blue Dog at 399 Inc. v. Seyfarth Shaw, LLP (In re Blue Dog at 399)
| Decision Date | 30 October 2020 |
| Docket Number | Adv. Proc. No. 19-01029 (MEW),Case No. 15-10694 (MEW) |
| Parties | In re: BLUE DOG AT 399 INC., Debtor. BLUE DOG AT 399 INC., Plaintiff, v. SEYFARTH SHAW, LLP and RALPH BERMAN, Defendants. SEYFARTH SHAW, LLP and RALPH BERMAN, Third-Party Plaintiffs, v. ELIZABETH SLAVUTSKY, Third-Party Defendant. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
WHITEFORD, TAYLOR & PRESTON LLP
Attorneys for Blue Dog at 399 Inc.
By: Scott Michael Hare
Cara C. Murray
MORRISON & FOERSTER LLP
By: Joel C. Haims
Michael Birnbaum
Before me is a motion by Plaintiff Blue Dog at 399 Inc. ("Blue Dog") for leave to file a second amended complaint against the law firm of Seyfarth Shaw LLP ("Seyfarth") and Ralph Berman, an attorney formerly associated with Seyfarth. Blue Dog has alleged that the Defendants committed malpractice and were negligent in their representation of Blue Dog during an adversary proceeding between Blue Dog and a landlord known as BP 399 Park Avenue LLC (the "Landlord"). There are two main changes that Blue Dog wishes to make to its complaint. First, Blue Dog proposes to assert a claim under section 487 of the New York Judiciary law. Second, Blue Dog proposes to amend its negligence/malpractice claim by alleging additional facts and by adding a claim for punitive damages.
For the reasons set forth below, Blue Dog's motion to amend its pleadings to assert a claim under section 487 of the New York Judiciary Law is denied. Blue Dog's other proposed amendments will be permitted to the extent described below.
1. The Landlord Action. Blue Dog entered into a commercial real property lease agreement with the Landlord in early 2012 for the purpose of operating a cafe in midtown Manhattan. A dispute arose between Blue Dog and the Landlord before the cafe could open, and those disputes eventually became the subject of an adversary proceeding in this Court. See Adversary Proceeding No. 15-01097 the "Landlord Action").
On February 1, 2016, I entered a joint pretrial scheduling order that set a deadline of February 8, 2016 for initial disclosures and a deadline of May 26, 2016 for all discovery. [Landlord Action ECF No. 19]. It also fixed deadlines for the delivery of expert reports and the depositions of witnesses. Id. I approved a series of amendments to the schedule, and then after adiscovery conference on July 19, 2016 I extended the deadline for the completion of both fact and expert discovery to August 10, 2016. Hr'g Tr. 8:13-23, Jul. 19, 2016 [Landlord Action ECF No. 28]. However, I warned the parties that I would allow no further extensions. Id.
The Defendants did not make a timely identification of any expert witnesses on behalf of Blue Dog. Blue Dog alleges that the Defendants waited until the day following the August 10 deadline to retain an expert to prepare a report on the economic damages resulting from the cafe's failure to open. Am. Compl. ¶ 32. Blue Dog also retained at least one other expert to testify about other issues but did not disclose the expert by the August 10 deadline. Blue Dog first disclosed the two experts when it filed its opposition to the Landlord's motion for summary judgment. Am. Compl. ¶¶ 34-35; Landlord Action ECF Nos. 35 & 45. I granted the Landlord's motion to strike the untimely reports and I prohibited Blue Dog from using the proposed experts at trial. Am. Compl. ¶¶ 36-39, Order Striking Proposed Expert Witnesses. [Landlord Action ECF No. 51].
Blue Dog later identified four other previously-undisclosed witnesses in the parties' proposed joint pre-trial order. [Landlord Action ECF No. 54]. The Landlord objected, and I determined that the witnesses were either fact witnesses who had no relevant testimony to offer, or were otherwise expert witnesses whose untimely designation required that their testimony be excluded from the case. Am. Compl. ¶¶ 40-41; Hr'g Tr. 18:10-17, Jan. 25, 2017 [Landlord Action ECF No. 61].
I made other pretrial rulings that affected the evidence the parties could use and the contentions they could pursue at trial, and the parties elected to return to mediation rather than to proceed with the scheduled trial. Blue Dog and the Landlord later negotiated a settlement but that deal fell through. Seyfarth then withdrew as counsel and was replaced by another firm.
2. The First Malpractice Proceeding. On June 18, 2018, Blue Dog filed an adversary proceeding against the Defendants that asserted claims for declaratory judgment, negligence/legal malpractice, and violation of section 487 of the New York Judiciary Law. See Adversary Proc. No. 18-01571 (the "First Malpractice Proceeding"). The proceeding was filed while the Landlord Action was still in progress. The Defendants moved to dismiss, and after a hearing I granted that motion. See Order Dismissing Adv. Proc. (the "Dismissal Order") [Adv. Proc. No. 18-01571, ECF No. 24]. I ruled that the claim alleging violations of section 487 of the New York Judiciary Law had failed to state a claim upon which relief could be granted, and I dismissed the section 487 claim "with prejudice" as to all defendants. I also ruled that the malpractice and negligence claims were premature, and dismissed those claims without prejudice. Blue Dog did not file an appeal from the order dismissing the section 487 claim.
3. The Current Proceeding and the Motion to Amend. Blue Dog, represented by different counsel, later reached a settlement with the Landlord. After that settlement became effective, Blue Dog filed the present adversary proceeding against the Defendants. The initial complaint in the current proceeding was filed on February 26, 2019. I dismissed it but with leave to re-plead [ECF No. 9], and an Amended Complaint was filed on June 9, 2019 [ECF No. 10]. I then denied a motion to dismiss the Amended Complaint. [ECF No. 18].
Blue Dog alleges in the Amended Complaint that the Defendants' failures to make timely expert witness designations rendered Blue Dog unable to prove liability and damages at trial and severely weakened its position in settlement discussions. Am. Compl. ¶¶ 48-50. Blue Dog seeks damages equal to the difference between (a) what it believes it would have obtained after trial if it had been allowed to use the excluded testimony, and (b) the amount it actually received in the mediated settlement. Am. Compl. ¶¶ 63-70.
The additional amendments that Blue Dog now wishes to make are based on discovery materials that Blue Dog has obtained. Blue Dog alleges that in July 2016 other partners at Seyfarth Shaw expressed disappointment and concern and reprimanded Mr. Berman for having led them to believe that Mr. Berman had scheduled depositions when in fact Mr. Berman had not done so. Blue Dog also alleges that at some time prior to December 2016 Seyfarth and its partners concluded that Mr. Berman's handling of various matters was disappointing, that Mr. Berman was "dangerous" and that he was hurting the firm and its clients. Seyfarth allegedly decided to remove Mr. Berman from all client files with the exception of Blue Dog's action against the Landlord. See Proposed Am. Compl. ¶¶ 57-76.
Blue Dog contends that it was not advised of these matters and it wishes to assert a claim that Seyfarth Shaw violated section 487 of the New York Judiciary Law. Blue Dog also wishes to add a request for punitive damages to the relief that it seeks.
Fed. R. Civ. P. 15(a) is applicable to adversary proceedings. See Fed. R. Bankr. P. 7015. Since there has already been a prior amendment to Blue Dog's complaint, Rule 15 permits a further amendment only "with the opposing party's written consent or the court's leave." Fed. R. Civ. P. 15(a)(2). Leave to amend should be "freely given" if the "underlying facts or circumstances relied upon by a plaintiff may be a proper subject of relief," except in the presence 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." Foman v. Davis, 371 U.S. 178, 182, 83 S. Ct. 227, 230 (1962).
"Futility is a determination, as a matter of law, that proposed amendments would fail to cure prior deficiencies or to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure." Panther Partners Inc. v. Ikanos Commc'n, Inc., 681 F.3d 114, 119 (2d Cir. 2012). "An amendment is considered futile if the amended pleading fails to state a claim or would be subject to a motion to dismiss on some other basis." McNally v. Yarnall, 764 F. Supp. 853, 855 (S.D.N.Y. 1991), citing S.S. Silberblatt, Inc. v. E. Harlem Pilot Block, 608 F.2d 28, 42 (2d Cir. 1979) and Freeman v. Marine Midland Bank-New York, 494 F.2d 1334, 1338 (2d Cir. 1974).
The decision to permit an amendment lies within the discretion of the court, but a court may not refuse to allow and amendment without a justifying reason. Foman, 371 U.S. at 178. A court "plainly has discretion to deny leave to amend where the motion is made after an inordinate delay, no satisfactory explanation is made for the delay, and the amendment would prejudice the defendant." Franconero v. UMG Recordings, Inc., 542 F. App'x 14, 18 (2d Cir. 2013).
Defendants have argued that the proposed claim under section 487 of the Judiciary Law and the proposed request for punitive damages are "futile" because they are legally deficient and would be subject to dismissal under Fed. R. Bankr. P. 7012, which incorporates the standards set forth in Fed. R. Civ. P. 12(b)(6). In deciding whether a pleading could survive a motion to dismiss a court must accept the factual allegations of the complaint as true and draw all reasonable...
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