In re Allserve Systems Corp., Bankruptcy No. 05-60401(MBK).

• Citation: 379 B.R. 69
• Decision Date: 09 November 2007
• Docket Number: Bankruptcy No. 05-60401(MBK).,Adversary No. 06-01589(MBK).
• Parties: In re ALLSERVE SYSTEMS CORP., Debtor. Charles A. Stanziale, Jr., Plaintiff, v. Radha Dalmia, Casseys Services Corp., IDT Communications, Ltd., vCollect Global, Inc., et al., Defendants. and Emigrant Mortgage Company, Inc., Nominal Defendant.
• Court: U.S. Bankruptcy Court — District of New Jersey

379 B.R. 69

In re ALLSERVE SYSTEMS CORP., Debtor Charles A. Stanziale, Jr., Plaintiff, v. Radha Dalmia, Casseys Services Corp., IDT Communications, Ltd., vCollect Global, Inc., et al., Defendants. and Emigrant Mortgage Company, Inc., Nominal Defendant.

Bankruptcy No. 05-60401(MBK).

Adversary No. 06-01589(MBK).

United States Bankruptcy Court, D. New Jersey.

November 9, 2007.

Bruce D. Buechler, Lowenstein Sandler PC, Roseland, NJ, for Defendants Casseys Services Corp., IDT Communications Ltd., vCollect Global, Inc. and Proposed Defendants Lawrence Weil, Mary Weil, Alliance East, LLC and TJA & Associates, LLC.

Robert P. Donovan, McElroy, Deutsch, Mulvaney & Carpenter, Newark, NJ, for Chapter 7 Trustee, Charles A. Stanziale, Jr.

Vincent F. Papalia, Saiber Schlesinger Satz & Goldstein, Newark, NJ, for Cordell Consultants, Inc. Money Purchase Plan.

MEMORANDUM DECISION

MICHAEL B. KAPLAN, Bankruptcy Judge.

This matter comes before the Court upon the motion filed by Charles A. Stanziale, Jr., Chapter 7 Trustee ("Trustee") for Allserve Systems Corp. ("Debtor"), seeking leave to file a Third Amended Complaint ("Amended Complaint") in the above-captioned proceeding. The original motion sought, inter alia, to add additional claims against existing defendants for turnover, avoidance of preferential and fraudulent transfers, as well as a determination as to the validity and priority of certain mortgages. In addition, the Trustee sought to add additional counts against new defendants, Accounts Portfolio Management, LLC, Crescent Recovery, LLC, TJA & Associates, LLC, Alliance East, LLC and Lawrence Weil and Mary Weil, for claims predicated on alter ego liability, veil piercing, fraudulent transfers, fraudulent concealment and/or breach of fiduciary duty. Substantial objections were raised by counsel for Cordell Consultants, Inc. Money Purchase Plan ("Cordell"), along with counsel for vCollect Global, Inc. ("vCollect") and proposed additional defendants, Accounts Portfolio Management, LLC, Alliance East, LLC, TJA & Associates, LLC, and Mr. and Mrs. Weil (collectively, "vCollect Defendants"). The thrust of the objections raised contend that the additional causes of action either fail to state claims upon which relief can be granted and/or that the pleadings contain insufficient facts and specificity in compliance with Fed.R.Civ.P. 9(b), made applicable by Fed. R. Bankr.P. 7009.

A hearing on the Trustee's motion was first held on July 30, 2007, at which time the Court reviewed the proposed additional counts and gave specific guidance to the parties as to the types of causes of action, together with the necessary factual predicates, which the Court regarded as sustainable under existing laws. Trustee's counsel was directed to circulate a modified proposed Third Amended Complaint ("Modified Amended Complaint"), in which changes were made to be consistent with the Court's rulings. Counsel complied by circulating a draft of the Modified Amended Complaint, dated September 20, 2007 to which additional objections were raised and argued at a continued hearing on October 19, 2007. Specifically, Cordell objected to Counts 11, 12, 13, 15 and 16 of the Modified Amended Complaint. Likewise, the vCollect Defendants objected to Counts 3-5, 8-10, 18-21, 30, 31 and 32. With regard to Cordell's objections, the Court agreed that the Trustee had not established a factual predicate sufficient to treat Cordell as an "insider" for preference purposes, and thus denied permission to include Count 11 in any amended complaint. In contrast, the Court ruled that the Trustee had plead sufficient facts to support Counts 12, 13, 15 and 16. With respect to the vCollect Defendants' objections, the Court reserved and requested supplemental submissions by the parties regarding the application of Delaware corporate law to the Trustee's claim against the directors of vCollect, a Delaware corporation, for alleged breaches of fiduciary duty owing creditors of vCollect.

The Court received and considered the requested additional briefs and for the reasons set forth below, grants the Trustee's motion as to the balance of the claims in the Modified Amended Complaint.

Fed. R. Bankr.P. 7015 provides that Fed.R.Civ.P. 15(a) applies in adversary proceedings. This Rule states, in pertinent part:

(a) AMENDMENTS. A party may amend the party's pleading once as a matter of course at any time before a responsive pleading is served or, if the pleading is one to which no responsive pleading is permitted and the action has not been placed upon the trial calendar, the party may so amend it at any time within 20 days after it is served. Otherwise a party may amend the party's pleading only by leave of court or written consent of the adverse party; and leave shall be freely given when justice so requires. (Emphasis added)

The grant or denial of leave to amend is discretionary. Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962). Absent "undue delay," "bad faith or dilatory motive ... repeated failure to cure deficiencies by amendments previously allowed, undue prejudice," and "futility," leave to amend shall be freely given. Id. There is a general presumption in favor of granting the moving party leave to amend. Boileau v. Bethlehem Steel Corp., 730 F.2d 929, 938 (3d Cir. 1984). The Court should examine whether the amendment: (1) prejudices the opposing party; (2) is sought in bad faith; (3) produces an undue delay in litigation or (4) is futile. Id.; see also Dais v. Lane Bryant, Inc., 1999 U.S. Dist. LEXIS 4387 (S.D.N.Y.1999). As there are no allegations made by the parties herein that the Trustee has brought the within motion in "bad faith" or for improper motives, the Court will examine the merits of the proposed amendments by application of the remaining criteria.

1. Prejudice

"In the context of a [Rule] 15(a) amendment, prejudice means that the nonmoving party must show that it was unfairly disadvantaged or deprived of the opportunity to present facts or evidence which it would have offered if the amendment was timely." Cuffy v. Getty Ref & Mktg. Co., 648 F.Supp. 802, 806 (D.Del. 1986); see also, Ross v. Houston Indep. Sch. Dist., 699 F.2d 218, 228-29 (5th Cir. 1983) (denying amendment when the amendment "would add new and complex issues to a case already protracted and complicated," would require new discovery, addition of twenty-six new parties, and pre-trial preparations and actual trial might require several years); A. Cherney Disposal' Co. v. Chi. & Suburban Refuse Disposal Corp., 68 F.R.D. 383, 385-86 (N.D.Ill.1975) (finding prejudice and denying amendment where the proposed amendment was requested five years after the case was filed, required further discovery, and substantially changed the complaint). "In determining what constitutes prejudice, the Court considers whether the assertion of the new claim would (1) require the opponent to expend significant additional resources to conduct discovery and prepare for trial; (2) significantly delay the resolution of the dispute; or (3) prevent the Plaintiff from bringing a timely action in another jurisdiction." Dais, supra (citing Block v. First Blood Associates, 988 F.2d 344, 350 (2nd Cir.1993); and Duncan v. College of New Rochelle, 174 F.R.D. 48, 49 (S.D.N.Y.1997)). "[I]nconvenience to a party or the strengthening of the movant's legal position does not provide sufficient prejudice." In re Fleming Cos., Inc., 323 B.R. 144, 148 (Bankr.D.Del. 2005),

This adversary proceeding involves a complicated series of complex financial transactions, by and among several related entities, requiring extensive document discovery and analysis. The parties are only in the infancy of the discovery process and the case is no where near being scheduled for trial. The Court finds that there will be no prejudice to the parties having to engage in the additional discovery emanating from the amended counts; nor will there be unwarranted additional costs or delays with respect to bringing this matter to trial.

2. Delay

"Mere delay, absent a showing of bad faith or undue prejudice by the nonmovant, is not sufficient to deny the right to amend a pleading." Dais, supra. (citing State Teachers Retirement Board v. Fluor Corp., 654 F.2d 843, 856 (2nd Cir. 1981)). See, e.g., Adams v. Gould, Inc., 739 F.2d 858, 868 (3d Cir.1984) ("The passage of time, without more, does not require that a motion to amend a complaint be denied; however, at some point, the delay will become `undue,' placing an unwarranted burden on the court, or will become `prejudicial,' placing an unfair burden on the opposing party."); but see, Lorenz v. CSX Corp., 1 F.3d 1406, 1414 (3d Cir.1993) (concluding that undue delay existed where a party sought amendment three years after the original complaint and two years after the first amended complaint when the moving party knew of the facts on which the proposed amendment was based at the time of the prior pleadings); Rose Hall, Ltd. v. Chase Manhattan Overseas Banking Corp., 93 F.R.D. 858, 864 (D.Del.1982) (denying a motion to amend that was filed after a formal discovery period of sixty-five days in which depositions of twenty-one individuals were taken in six different cities and thousands of documents were produced). Once again, the within litigation is not approaching a trial date, nor even the expiration of the discovery period. Rather, discovery has been stayed, in large measure, pending resolution of the Trustee's efforts to amend the complaint.

The Court is cognizant that the initial complaint in this matter was filed over eighteen month ago, on April 10, 2006, and thus has been pending for some length of time. Yet, the Court notes that the Trustee was first appointed on January 20, 2006, a mere two and a half months preceding the filing of the complaint. The Trustee could have opted to undertake substantial investigative efforts through Rule 2004 subpoenas prior to filing the complaint,...