Drapkin v. Mjalli

• Decision Date: 20 February 2020
• Docket Number: 1:19-CV-175
• Citation: 441 F.Supp.3d 145
• Court: U.S. District Court — Middle District of North Carolina
• Parties: Matthew DRAPKIN and Nicole Drapkin Schaffer, as Executors of the Estate of Donald G. Drapkin, Plaintiff, v. Adnan M. M. MJALLI Defendant.

441 F.Supp.3d 145

Matthew DRAPKIN and Nicole Drapkin Schaffer, as Executors of the Estate of Donald G. Drapkin, Plaintiff,

v.Adnan M. M. MJALLI Defendant.

1:19-CV-175

United States District Court, M.D. North Carolina.

Signed February 20, 2020

Andrew W. J. Tarr, Robert Walker Fuller, III, Andrew J. Kilpinen, Robinson Bradshaw & Hinson, P.A., Charlotte, NC, for Plaintiff.

Jeffrey S. Southerland, Clinton H. Cogburn, Denis E. Jacobson, Tuggle Duggins P.A., Greensboro, NC, for Defendant.

MEMORANDUM OPINION AND ORDER

LORETTA C. BIGGS, District Judge Plaintiff, the executors of the estate of Donald G. Drapkin ("Drapkin"), brings this diversity action to enforce a one million dollar promissory note ("the Note"), on behalf of the estate. (ECF No. 1.)¹ Before the Court are Plaintiff's Motion for Judgment on the Pleadings or, in the alternative, Motion to Strike Affirmative Defenses, (ECF No. 11), and Defendant's Motion for Leave to Amend Answer and File Counterclaims, (ECF No. 22). For the reasons stated below, Plaintiff's motion will be denied as moot and Defendant's motion will be granted in part and denied in part.

I. BACKGROUND

Prior to his death in 2016, Drapkin was a successful financier. (ECF No. 1 ¶¶ 2–3.) During the summer of 2008, he wired one million dollars to Defendant, Adnan M. M. Mjalli ("Mjalli"), a friend and collaborator "in the pharmaceuticals space." (Id. at ¶ 10; 22-1 at 8.) On September 10, 2008, Defendant executed a promissory note reading in full:

For VALUE RECEIVED, the undersigned promises to pay Donald G. Drapkin the principal sum of ONE MILLION DOLLARS ($1,000000.00) with interest at the lowest applicable federal rate. The said principal and interest shall be payable in lawful money of the United States of America on September 10, 2018.

(ECF No. 1-4 at 2.) When the Note came due, Plaintiff demanded the million dollars from Defendant, but Defendant refused to pay. (ECF No. 1 ¶¶ 12–13.) Thus, on February 14, 2019, Plaintiff sued Defendant seeking one million dollars plus interest. (Id. ¶ 24.) Defendant answered on April 16, 2019, admitting that he had not paid Plaintiff but insisting that he was under no obligation to do so as the "loan" he received was not actually a loan. (See ECF No. 8 ¶¶ 11, 13.) Plaintiff now seeks a judgment on the pleadings or, in the alternative, to strike Defendant's affirmative defenses, (ECF No. 11), while Defendant seeks to amend his answer and to add counterclaims against the Plaintiff, (ECF No. 22). The Court will first address Defendant's motion to amend.

II. MOTION TO AMEND

A. Standard of Review

The decision whether to grant or deny a motion to amend a pleading lies within the sound discretion of the district court. Foman v. Davis , 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962) ; Deasy v. Hill , 833 F.2d 38, 40 (4th Cir. 1987). Courts should freely grant leave to amend a pleading "when justice so requires." Fed. R. Civ. P. 15(a)(2). Thus, a request for "leave to amend a pleading should be denied only when the amendment would be prejudicial to the opposing party, there has been bad faith on the part of the moving party, or the amendment would be futile." Johnson v. Oroweat Foods Co. , 785 F.2d 503, 509 (4th Cir. 1986) (citing Foman , 371 U.S. at 182, 83 S.Ct. 227 ). An "amendment to add an affirmative defense is futile when ‘the proposed affirmative defense is not a defense to liability,’ that is, when ‘the proposed affirmative defense lacks a sound basis in law.’ " Ross v. Am. Express Co. , 264 F.R.D. 100, 118 (S.D.N.Y. 2010) (quoting Greenes v. Vijax Fuel Corp. , 326 F. Supp. 2d 464, 466, 468 (S.D.N.Y. 2004) ).

While an amendment adding a meritless affirmative defense is clearly futile, it is less clear if an amendment adding an otherwise meritorious defense is made futile by the defendant's failure to support its defense with facts sufficient to make the defense "plausible" by the pleading standard articulated in Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), and Ashcroft v. Iqbal , 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). "Before the Supreme Court decided [ Twombly and Iqbal ], it was relatively clear that [affirmative] defenses did not require detailed factual support." Staton v. N. State Acceptance, LLC , No. 1:13-CV-277, 2013 WL 3910153, at *2 (M.D.N.C. July 29, 2013). However, "[s]ince those two cases changed the requirements for complaints, a number of courts have imposed similar requirements of particularity on affirmative defenses while others have declined to do so." Id. Presently, "[n]either the Supreme Court nor the Fourth Circuit has ruled on whether Twombly and Iqbal apply to affirmative defenses," Alston v. AT&T Servs., Inc. , No. GJH-18-2529, 2019 WL 6684131, at *2 (D. Md. Dec. 5, 2019), and the question remains open in almost every circuit, see United States v. All Assets Held at Bank Julius , 229 F. Supp. 3d 62, 70 (D.D.C. 2017). This Court, however, has previously declined to apply Twombly and Iqbal's heightened plausibility standard to affirmative defenses, holding instead that an affirmative defense is sufficiently plead "as long as the [defense] gives the plaintiff fair notice of the nature of the defense." Keith Bunch Assocs., LLC v. La-Z-Boy Inc. , No. 1:14-cv-850, 2015 WL 4158760, at *2 (M.D.N.C. July 9, 2015) (citing Clem v. Corbeau , 98 F. App'x 197, 203 (4th Cir. 2004) (per curiam)). The Court will follow its earlier ruling here and decline to apply the heightened plausibility standard to the pleading of affirmative defenses. Thus, Defendant's proposed amendment to add various affirmative defenses will be denied as futile if such defense either (1) fails as a matter of law or (2) fails to provide Plaintiff with fair notice of the nature of the defense.

B. Discussion

Defendant admits that he received one million dollars from Drapkin, signed a promissory note promising to repay the loan with interest, and then refused to pay after the Note matured. (ECF Nos. 1-4 at 2; 22-1 at 3.) Thus, absent an affirmative defense, Defendant may be liable for breach of contract. See Guessford v. Pa. Nat'l Mut. Cas. Ins. Co. , 918 F. Supp. 2d 453, 460 (M.D.N.C. 2013) (explaining that in North Carolina, a breach of contract claim requires a valid contract and breach thereof). In his proposed amended answer, Defendant offers five affirmative defenses, some modified from his original answer, some new. (Compare ECF No. 8 at 4, with ECF No. 22-1 at 5–6.) His proposed affirmative defenses are: (1) that the Note was a gift, not a loan; (2) that if the Note was a loan, it has been "satisfied, released, and/or paid such that no amounts are presently due"; (3) that "Plaintiff's claims are barred by ... equitable doctrines"; (4) that "Plaintiff's claims are barred by the doctrine of illegality and/or invalidity"; and (5) that Defendant is "entitled to an offset for all value conferred on Plaintiff following execution of the Note."² (ECF No. 22-1 at 5–6.)

Plaintiff opposes Defendant's motion to amend, arguing that any amendment would be futile because Defendant's affirmative defenses "are not based on any admissible facts and are legally insufficient."

(ECF No. 27 at 1–2.) Thus, the Court must assess the legal and factual sufficiency of Mjalli's five proposed defenses.

1. Defendant's gift defense is not futile

First, Defendant seeks to amend his original answer to argue that the one-million-dollar transfer was "actually [a] gift," and not a loan. (ECF No. 22-1 at 5.) In support of this defense, Defendant alleges that the two men were friends who invested together and that Drapkin gave Mjalli numerous lavish gifts in appreciation of their friendship. (Id. at 8.) Mjalli further alleges that on September 10, 2008, he had a conversation with Drapkin in which Drapkin requested that the parties "paper" the million dollar gift by issuing the Note. (Id. at 12–13.) Drapkin then allegedly explained that drawing up a note would help him with potential accounting and tax problems triggered by the transfer of funds, that the gift remained a gift, and that "on [his] children's lives ... th[e] note w[ould] never see the light of day." (See id. ) Mjalli says he then signed the Note, assured that he had no obligation to ever repay Drapkin. (Id. at 13.) These allegations, if true, would be a complete defense to a claim for breach of promissory note as a "gift does not create a legal obligation." See Garrison v. Garrison , 71 N.C.App. 618, 322 S.E.2d 824, 826 (1984) (reversing grant of summary judgment against defendant who claimed a loan she executed a note for was actually a gift).

Plaintiff argues that the Court should not consider this gift defense because it relies "on incompetent parol evidence and discussions between Defendant and [Drapkin] that are barred by [North Carolina's] Dead Man's Rule." (See ECF No. 27 at 5.) However, as discussed below, neither North Carolina's parol evidence rule nor its dead man's rule bar Defendant's gift defense.

i. North Carolina's parol evidence rule does not apply

"The parol evidence rule prohibits the admission of parol evidence to vary, add to, or contradict a written instrument intended to be the final integration of the transaction." Lassiter v. Bank of N.C. , 146 N.C.App. 264, 551 S.E.2d 920, 923 (2001). The rule "presupposes the existence of a legally effective written instrument," and so "does not in any way preclude a showing of facts which would render the writing inoperative or unenforceable." See Lawyers Title Ins. Co. v. Golf Links Dev. Corp. , 87 F. Supp. 2d 505, 511–12 (W.D.N.C. 1999); see also 11 Williston on Contracts § 33:2 (4th ed.) (explaining that the parol evidence rule "applies only when there is a binding, written contract"); 6 Corbin on Contracts § 25.21 (explaining that the rule "does not bar the admission of parol evidence to prove that the writing, which purports to be a contract, is not a contract at all"). In Garrison v. Garrison , the North Carolina Court of...