In re Austin Driveway Services, Inc.

• Decision Date: 10 March 1995
• Docket Number: Bankruptcy No. 90-52173. Adv. No. 93-5087. Docket Id. No. 48.
• Citation: 179 BR 390
• Court: U.S. Bankruptcy Court — District of Connecticut
• Parties: In re AUSTIN DRIVEWAY SERVICES, INC., Debtor. Richard M. COAN, Trustee, Plaintiff, v. O & G INDUSTRIES, INC., Defendant.

179 B.R. 390 (1995)

In re AUSTIN DRIVEWAY SERVICES, INC., Debtor Richard M. COAN, Trustee, Plaintiff, v. O & G INDUSTRIES, INC., Defendant.

Bankruptcy No. 90-52173. Adv. No. 93-5087. Docket Id. No. 48.

United States Bankruptcy Court, D. Connecticut.

March 10, 1995.

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Christopher M. Royston, Coan, Lewendon and Royston, New Haven, CT, for plaintiff.

Scott M. Schwartz, Blume, Elbaum & Collins, West Hartford, CT, for defendant.

MEMORANDUM AND ORDER ON MOTION FOR LEAVE TO AMEND COMPLAINT

ALAN H.W. SHIFF, Bankruptcy Judge.

The plaintiff seeks leave to file an amended complaint to avoid an alleged preferential transfer which was not challenged in the original complaint. Because the proposed amendment challenges a distinct transaction, I conclude that it does not relate back to the filing of the original complaint and is therefore time barred by § 546(a)(1).

BACKGROUND

This chapter 7 case was commenced by an involuntary petition filed by the defendant O & G Industries, Inc. on November 2, 1990. An order for relief entered on February 5, 1991. The plaintiff was appointed interim trustee on March 18, 1991 and became permanent trustee on April 18, 1991. See § 702(d). On April 13, 1993, the plaintiff commenced this action against the defendant (the "Original Complaint"). Paragraph 4 of the Original Complaint alleged that the "debtor, within 90 days of the filing for bankruptcy, paid to the defendant $79,237.03 on account of an antecedent debt." On May 11, 1993, the defendant filed a motion for a more definite statement, seeking an order requiring, inter alia, that the plaintiff amend the complaint to allege the specific amount, date, and method of payment of each alleged transfer, so as to specify "sufficient detail concerning the alleged preferences as to allow the Defendant to appropriately respond to each such transfer." That motion was granted and on July 7, 1993, the plaintiff filed an amended complaint (the "First Amended Complaint") which specified, in six counts, six separate transactions allegedly occurring between August 3, 1990 and September 25, 1990, with the aggregate amount of the transfers equalling $79,237.03. On August 9, 1993, the defendant filed an answer with affirmative defenses. Count Six of the First Amended Complaint states:

The debtor, on or about August 22, 1990, paid to the defendant $28,609.87, by directing B.J. Dolan Company to draw a check directly to the defendant in the amount of $28,609.87 from funds owing to the debtor by B.J. Dolan Company.

On August 11, 1993, the plaintiff filed a motion for leave to file a second amended complaint (the "Second Amended Complaint") to include certain allegations contained in the Original Complaint but inadvertently omitted from the First Amended Complaint. That motion was granted without objection on September 28, 1993. The Second Amended Complaint described the same six alleged transfers as were described in the First Amended Complaint.

The plaintiff alleges that the defendant's responses to production requests and interrogatories disclosed (i) the $28,609.87 payment described in Count Six of the Second Amended Complaint was made by The Hawley Construction Co., Inc., rather than by the B.J. Dolan Company; (ii) the defendant had received another transfer from Carl Lecher, Inc., in the amount of $14,264.90 on account of money owed to the defendant by the debtor; and (iii) the defendant had complete defenses to four of the six transfers alleged in the Second Amended Complaint. Accordingly, on December 27, 1993, the plaintiff filed the instant motion seeking leave to file a Third Amended Complaint in three counts. Count One would describe a transfer which was described in the Second Amended Complaint. The material allegations of Counts Two and Three are as follows:

Count Two: On or about August 21, 1990, the defendant received $28,609.87 from The Hawley Construction Co., Inc., from monies owing from The Hawley Construction Co., Inc. to Austin Driveway Services, Inc. on account of an antecedent debt from the debtor to the defendant.

Count Three: On or about September 25, 1990, the defendant received payment from Carl Lecher, Inc. in the amount of $14,264.90, from funds owing to Austin Driveway Services, Inc. by Carl Lecher, Inc. on account of an antecedent debt of the debtor to the defendant.

The defendant does not dispute that the Second Amended Complaint may be amended to delete the four transactions as to which the defendant has complete defenses, and to include Count Two substituting The Hawley Construction Co., Inc., for the B.J. Dolan Company. The defendant objects to the inclusion of proposed Count Three of the Third Amended Complaint, on the ground that it asserts a new claim not arising out of the "conduct, transaction, or occurrence set forth or attempted to be set forth" in the Original Complaint, and that that count is therefore barred by the statute of limitations contained in § 546(a). See Rule 15(c)(2) Fed.R.Civ.P., infra. It is undisputed that the statute of limitations expired no later than April 19, 1993, or six days after the Original Complaint was filed. See Stipulation of Facts for Trustee's Motion for Leave to Amend Complaint, filed April 4, 1994, at ¶ 3.¹

DISCUSSION

The issue raised here is whether the proposed claim dates back to the Original Complaint. Rule 15(c) Fed.R.Civ.P., made applicable by Rule 7015 Fed.R.Bankr.P., provides in relevant part:

An amendment of a pleading relates back to the date of the original pleading when . . .

(2) the claim or defense asserted in the amended pleading arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading. . . .

The plaintiff argues that the concept of relation back should be liberally applied in preference actions to foster the bankruptcy goal of maximizing the recovery for unsecured creditors. That policy can be achieved by defining "conduct, transaction, or occurrence" broadly to include "the relationship between the debtor and creditor during a prescribed period of time," i.e., the applicable preference period, so that all transfers occurring during that period are linked. See Memorandum of Law in Support of Trustee's Motion for Leave to Amend Complaint, filed March 21, 1994, at p. 4. The defendant, on the other hand, argues that the limitation period for trustee actions under § 546(a), like other time bars, is designed to afford potential defendants with some certainty that they will not be called upon to defend stale claims. This decision addresses the tension between those competing concepts.

My primary task, then, is to define, as a matter of law, the parameters of the "conduct, transaction, or occurrence" referred to by Rule 15(c)(2) in the preference context. It must then be determined whether, as a matter of fact, the new claim which the plaintiff would assert conforms to those parameters.²

1. Relation Back Under The Federal Rules

Rule 15(c) is "to be liberally construed, particularly where an amendment does not `allege a new cause of action but merely . . . makes defective allegations more definite and precise.'" Siegel v. Converters Transp., Inc., 714 F.2d 213, 216 (2d Cir.1983) (per curiam) (quoting Glint Factors, Inc. v. Schnapp, 126 F.2d 207, 209 (2d Cir.1942)). "The rationale of Rule 15(c) is that a party who has been notified of litigation concerning a particular occurrence has been given all the notice that statutes of limitations were intended to provide." Baldwin County Welcome Ctr. v. Brown, 466 U.S. 147, 150 n. 3, 104 S.Ct. 1723, 1725, n. 3, 80 L.Ed.2d 196 (1984) (per curiam). Thus, the relation back analysis focuses on the notice given by the general fact situation stated in the original pleading. Rosenberg v. Martin, 478 F.2d 520, 526 (2d Cir.), cert. denied, 414 U.S. 872, 94 S.Ct. 102, 38 L.Ed.2d 90 (1973); see Brandt v. Gerardo (In re Gerardo Leasing, Inc.), 173 B.R. 379, 388 (Bankr.N.D.Ill. 1994) ("The most important factor in determining whether to allow an amended complaint to relate back to the date of the original filing is whether the original complaint provided the defendant with sufficient notice of what must be defended against in the amended pleading."). Put another way, a new cause of action otherwise barred by the statute of limitations may be asserted by an amendment that relies upon the same facts because the defendant is on notice that specific conduct, transactions, or occurrences allegedly support a claim against it so that relevant evidence should be preserved.

Generally, an amended complaint will relate back if it "merely adds a new legal ground for relief, changes the date and location of the transaction alleged, . . . spells out the details of the transaction originally alleged, . . . or merely increases the ad damnum clause. . . ." Pereira v. Hong Kong & Shanghai Banking Corp. (In re Kam Kuo Seafood Corp.), 67 B.R. 304, 306 (Bankr. S.D.N.Y.1986) (citations omitted). None of those amendments affects the quality of the notice given by the general fact situation alleged in the original pleading. For example, in Travelers Ins. Co. v. 633 Third Assocs., 14 F.3d 114 (2d Cir.1994), the court held that where the original complaint alleged that the defendant partnership's cash distribution should be avoided as a fraudulent transfer, a new claim challenging that same distribution on a different legal theory would relate back to the original complaint. Accord Fiber-Lite Corp. v. Molded Acoustical Prods., Inc. (In re Molded Acoustical Prods., Inc.), 150 B.R. 608, 613 (E.D.Pa.1993) (where original complaint asserted that a particular transfer was void as a preference, amended complaint challenging the same transfer under § 549 would relate back to filing of original complaint), aff'd, 18 F.3d 217 (3d Cir.1994); O'Neil v. Kelley Drye & Warren (In re Colonial Cheshire I Ltd. Partnership), 167 B.R. 748, 752 (Bankr.D.Conn. 19...