In re Fleming Companies, Inc.

• Decision Date: 19 April 2005
• Docket Number: Adversary No. 04-52747.,Bankruptcy No. 03-10945 (MFW).
• Citation: 323 B.R. 144
• Parties: In re FLEMING COMPANIES, INC. et al., Debtor. Post Confirmation Trust of Fleming Companies, Inc., Plaintiff, v. Target Corporation, Defendant.
• Court: U.S. Bankruptcy Court — District of Delaware

323 B.R. 144

In re FLEMING COMPANIES, INC. et al., Debtor Post Confirmation Trust of Fleming Companies, Inc., Plaintiff, v. Target Corporation, Defendant.

Bankruptcy No. 03-10945 (MFW).

Adversary No. 04-52747.

United States Bankruptcy Court, D. Delaware.

April 19, 2005.

COPYRIGHT MATERIAL OMITTED

Scotta McFarland, Esquire, Pachulski, Stang, Ziehl, Young, Jones & Weintraub, P.C., Wilmington, DE, Eric Liebeler, Esquire, Kirkland & Ellis LLP, Los Angeles, CA, for Post Confirmation Trust.

William Bowden, Esquire, Ashby & Geddes, Wilmington, DE, Wendy J. Wildung, Esquire, Faegre & Bensen LLP, Minneapolis, MN, for Target Corporation.

MEMORANDUM OPINION¹

MARY F. WALRATH, Chief Judge.

Before the Court is the Motion of the Post Confirmation Trust of Fleming Companies, Inc. ("the Plaintiff") for leave to amend its Complaint and the opposition thereto of Target Corporation ("the Defendant"). For the reasons set forth below, we will grant the Motion.

I. FACTUAL BACKGROUND

On April 1, 2003, Fleming Companies, Inc. ("the Debtor") and several of its affiliates filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code. Prior to the petition date, the Debtor was engaged in the business of supplying consumer package goods to supermarkets and convenience stores. The Defendant purchased grocery items from the Debtor for resale to consumers through its Super Target stores.

On February 20, 2004, the Debtor filed a complaint against the Defendant for fraud, breach of contract, and turnover of property of the estate. A case management order was entered on March 25, 2004, setting a deadline, inter alia, to amend pleadings of July 30, 2004. Pursuant to the Debtor's Joint Plan of Reorganization which was confirmed on July 27, 2004, this adversary has been assigned to the Plaintiff.

On January 20, 2005, the Plaintiff filed a Motion for leave to amend the complaint to modify language in its turnover of property count and to add a new claim for breach of contract in violation of the automatic stay.

In its original turnover of property count, the Debtor asserted that the money owed it by the Defendant pertained to certain pre-petition invoices.² The Plaintiff seeks to modify the turnover count to contend that the invoices for which it seeks payment are post-petition. In drafting the original complaint, the Debtor relied upon information from the Defendant that the funds it was withholding were for pre-petition invoices. However, as the result of discovery and statements made by the Defendant in pleadings related to the parties' cross motions for summary judgment, the Plaintiff now believes that the Defendant is withholding funds due for post-petition invoices.

With respect to the Plaintiff's additional breach of contract claim, the amended complaint does not assert a different breach of contract from the one asserted in the original complaint. Instead, the Plaintiff now asserts that the breach of contract occurred post-petition and, therefore, was in violation of the automatic stay. The Plaintiff also asserts that the timing of the alleged breach only became apparent from statements made by the Defendant in the pleadings related to the motions for summary judgment.

On January 30, 2005, the Defendant filed an objection to the motion and on February 10, 2005, the Plaintiff filed its reply. Briefing is complete and this matter is ripe for decision.

II. JURISDICTION

This Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 1334 & 157(b)(2)(A), (E) & (O).

III. DISCUSSION

A. Leave to Amend under Rule 15(a)

Under Rule 15(a) of the Federal Rules of Civil Procedure³ a party may amend its pleading "once as a matter of course at any time before a responsive pleading is served.... Otherwise a party may amend the party's pleading only by leave of court or by written consent of the adverse party; and leave shall be freely given when justice so requires." Since the Defendant has answered the Complaint long ago, leave to amend is required.

"[T]he grant or denial of an opportunity to amend is within the discretion of the ... Court." Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962). The Supreme Court has instructed that leave should be "freely given" in the absence of any "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." Id. at 182, 83 S.Ct. 227.

In evaluating the Foman factors the Third Circuit has stated that "prejudice to the non-moving party is the touchstone for the denial of an amendment." Cornell & Co. v. OSHRC, 573 F.2d 820, 823 (3d Cir.1978). See also, Lorenz v. CSX Corp., 1 F.3d 1406 (3d Cir.1993).

The amount of prejudice needed to justify the denial of leave to amend is significant; it must be "substantial or undue." Cureton v. NCAA, 252 F.3d 267, 273 (3d Cir.2001) (citing Lorenz, 1 F.3d 1406). For example, inconvenience to a party or the strengthening of the movant's legal position does not provide sufficient prejudice. Cuffy v. Getty Ref. & Mktg. Co., 648 F.Supp. 802, 806. "The issue of prejudice requires that we focus on the hardship to the defendants if the amendment were permitted." Cureton, 252 F.3d at 273 (citing Adams v. Gould Inc., 739 F.2d 858, 868 (3d Cir.1984)). We should consider "whether allowing an amendment would result in additional discovery, cost, and preparation to defend against new facts or new theories." Id. Also, these factors must materially impact the nonmoving party's case. The Third Circuit has held that the nonmoving party must "demonstrate that its ability to present its case would be seriously impaired were amendment allowed." Dole v. Arco, 921 F.2d 484, 489 (3d Cir.1990)(emphasis added).

1. Prejudice

The Defendant urges us to deny the Motion under Rule 15(a) because it will result in prejudice and has been brought with undue delay. The Defendant's main argument⁴ is that the amendment will not only require additional discovery, but will require that much of the discovery already conducted be redone. The Defendant supplies a list of ten topics that it asserts would have resulted in different and additional questions of at least eight witnesses already deposed.

The Plaintiff disagrees with the Defendant's view of prejudice and the need for additional discovery. With respect to the amendment of the turnover count, the Plaintiff argues that any additional discovery could be conducted easily and provides the names of relevant witnesses who are readily available if needed. Since the Defendant would not be precluded from developing any needed evidence, the Plaintiff concludes that there is an insufficient amount of prejudice to deny the leave.

With respect to the additional count, the Plaintiff argues that no additional discovery is warranted. The Plaintiff argues that significant discovery has already been conducted on all of the topics on the Defendant's list, which relate to the breach of contract. The only additional issue raised by the amendment relates to damages. If the breach occurred post-petition, the Plaintiff asserts it was a violation of the automatic stay. Consequently, attorneys fees, costs and punitive damages may be available under section 362(h). See, e.g., Cuffee v. Atlantic Bus. & Cmty. Dev. Corp. (In re Atlantic Bus. & Cmty. Dev. Corp.), 901 F.2d 325, 329 (3d Cir.1990); Budget Serv. Co. v. Better Homes of Va., 804 F.2d 289, 292 (4th Cir.1986). But see, Sosne v. Reinert & Duree, P.C. (In re Just Brakes Corp. Sys.), 108 F.3d 881, 884 (8th Cir.1997); Johnston Envtl. Corp. v. Knight (In re Goodman), 991 F.2d 613, 619 (9th Cir.1993); Maritime Asbestosis Legal Clinic v. LTV Steel Co., (In re Chateaugay Corp.), 920 F.2d 183, 185-86 (2d Cir.1990). The Plaintiff contends that it would not be difficult to conduct discovery on the limited issue of additional damages on an expedited basis.

Although we recognize that the Defendant may be required to conduct further discovery in order to adequately present its case, that by itself does not establish substantial prejudice. See, e.g., Dole, 921 F.2d at 489. In this case, the facts and circumstances relating to the proposed amendments are closely intertwined with the allegations set forth in the original complaint. The Plaintiff is not asserting a new count with unrelated facts that would require the parties to start discovery anew. Further, the Defendant cannot be surprised that the Plaintiff is now amending its complaint to conform to the "new" facts recently asserted by the Defendant regarding the pre or post-petition nature of the funds it is withholding. We are not persuaded that any additional or new discovery would be overly burdensome to the Defendant. Therefore, we conclude that the prejudice in this case is not substantial or undue.

2. Undue Delay

In cases where substantial or undue prejudice is lacking, leave to amend may be denied, but it "must be based on bad faith, dilatory motives, truly undue or unexplained delay, repeated failures to cure the deficiency by amendments previously allowed, or futility of amendment." Lorenz, 1 F.3d at 1414.

The Defendant asserts that leave should be denied in this case because the Plaintiff delayed in filing its motion. The Defendant notes that the Plaintiff's motion for leave to amend was filed eleven months after the original complaint was filed and provided no adequate explanation for the delay. Further, the Defendant asserts that the proposed amended complaint contains no newly discovered facts.

The Plaintiff responds that the delay is a result of actions taken by the Defendant. The Plaintiff asserts that the need to amend arose because the Defendant attempted to rewrite history in the Defendant's Motion for summary judgment. The Plaintiff further asserts that the count for violation of the automatic stay could not have...