In re G. Survivor Corp.

• Decision Date: 05 February 1998
• Docket Number: Bankruptcy No. 94-B-40885 JHG to 94-B-40902 JHG and 94-B-43112 JHG,Adversary No. 96-8224A.
• Citation: 217 BR 433
• Parties: In re G. SURVIVOR CORP., f/k/a the Gitano Group, Inc., et al., Debtors. G.G. SURVIVOR CREDITOR CORP., as Trustee of the G. Survivor Creditor Trust, Plaintiff, v. Eli HARARI, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of New York

217 B.R. 433 (1998)

In re G. SURVIVOR CORP., f/k/a the Gitano Group, Inc., et al., Debtors G.G. SURVIVOR CREDITOR CORP., as Trustee of the G. Survivor Creditor Trust, Plaintiff, v. Eli HARARI, Defendant.

Bankruptcy Nos. 94-B-40885 JHG to 94-B-40902 JHG and 94-B-43112 JHG, Adversary No. 96-8224A.

United States Bankruptcy Court, S.D. New York.

February 5, 1998.

COPYRIGHT MATERIAL OMITTED

Robinson Brog Leinwand Green Genovese & Gluck P.C. by Richard Cohen, Alesia J. Kantor, New York City, for Eli Harari.

Christy & Viener by William E. Gray, Jr., Emanuel C. Grillo, New York City, for G.G. Survivor Creditor Corp., as Trustee of G. Survivor Corp. Creditor Trust.

JEFFRY H. GALLET, Bankruptcy Judge.

I have four motions before me, a Motion to Add a Cause of Action, a Motion to Strike Extraneous Material and Cross-Motions for Summary Judgment.¹ I will address each separately.

FACTS

Defendant Eli Harari ("Harari"), served as President of Orit Menswear Company, Inc. ("Orit"), a subsidiary of the Gitano Group, Inc. ("Gitano"), and one of the Debtors, from approximately September 1989 to June 1993. In 1991, Gitano entered into an agreement ("the Salary Agreement") with Harari agreeing to employ him as President of Orit through December 31, 1993. The Salary Agreement provided for Harari's compensation and severance pay.

On March 30, 1993, Harari founded, and became an officer of, Americo Group, Ltd. ("Americo"). In May 1993, Americo contracted with Gitano and Orit to purchase certain assets from Orit ("the Acquisition Agreement"). The Acquisition Agreement closed over two days, during which, on June 3, 1993, Harari contracted with Gitano and Orit to resign as Orit's President and generally release Gitano in exchange for $930,000, less withholding taxes ("the Termination Agreement"). On June 7, 1993, Harari deposited Gitano's certified check for $697,498.80 in his personal checking account.

PROCEDURAL HISTORY

On March 1, 1994, the Debtors² filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code ("the Code"). The cases were procedurally consolidated. On August 30, 1994, the Debtors confirmed their joint plan of liquidation, which provided, inter alia, for the substantive consolidation of the cases and estates of the Debtors (except G. Survivor Corp.) into the G. Survivor Corp. case and estate, the merger of the Debtors' assets and liabilities, and the elimination of all inter-company claims. The Confirmation Order granted to the Trustee of the G. Survivor Corp. Creditor Trust all the rights, powers and duties necessary to carry out its responsibilities under the Class 3 Trust Agreement and the Plan, including the right to prosecute the "Avoiding Power Actions," of which this is one.

The Trustee of the G. Survivor Corp. Creditor Trust ("the Trustee") commenced this adversary proceeding on February 28, 1996, against Harari to avoid and recover the transfer made to him by the Debtors, pursuant to §§ 547 and 550 of the Code.

Harari moved to dismiss this proceeding, with prejudice, pursuant to Fed.R.Civ.P. 12(c) and 12(h) as made applicable here by Fed. R. Bankr.P. 7012. I denied that motion.

1. Motion to Add a Cause of Action

The Trustee moves pursuant to Fed. R. Bankr.P. 7015 and Fed.R.Civ.P. 15 for leave to amend its complaint to add a cause of action to avoid and recover the payment made by the Debtors to Harari as a fraudulent conveyance under §§ 548 and 550 of the Code.

THE LAW

Fed.R.Civ.P. 15(a), made applicable here by Fed. R. Bankr.P. 7015, states that, after a responsive pleading is served, "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." Fed.R.Civ.P. 15(a). This rule allows litigants to amend pleadings for a wide spectrum of purposes. See Foman v. Davis, 371 U.S. 178, 181-82, 83 S.Ct. 227, 229-30, 9 L.Ed.2d 222 (1962) (quoting Conley v. Gibson, 355 U.S. 41, 48, 78 S.Ct. 99, 103, 2 L.Ed.2d 80 (1957) (stating that "the Federal Rules reject the approach that pleading is a game of skill in which one misstep . . . may be decisive to the outcome and accept the principle that the purpose of the pleading is to facilitate a proper decision on the merits")); Ramos v. O'Connell, HSD, 169 F.R.D. 260, 262 (W.D.N.Y.1996) (stating that "the federal courts have demonstrated considerable leniency in allowing plaintiffs to amend their complaints whenever justice so requires"); In re Private Capital Partners, Inc., 139 B.R. 120, 125 (Bankr.S.D.N.Y.1992). The decision to grant or deny a motion to amend a complaint is within the discretion of the court. See Champlain Enters., Inc. v. United States, 945 F.Supp. 468, 474-75 (N.D.N.Y.1996) (citing Scottish Air Int'l, Inc. v. British Caledonian Group, PLC., 152 F.R.D. 18, 29 (S.D.N.Y.1993)). However, "that discretion must be exercised in terms of a justifying reason or reasons consonant with the liberalizing `spirit of the Federal Rules.'" United States v. Continental Illinois Nat'l Bank & Trust Co., 889 F.2d 1248, 1254 (2d Cir.1989) (quoting Fed.R.Civ.P. 1).

Leave to amend a complaint will be denied if it were sought in bad faith, it would cause undue delay or prejudice to the adversary, when it would be futile, or if there has been a repeated failure to cure amendments by amendments previously allowed. See Champlain Enters., 945 F.Supp. at 475 (citing Foman, 371 U.S. at 182, 83 S.Ct. at 230). However, "`mere delay, . . . absent a showing of bad faith or undue prejudice, does not provide a basis . . . to deny the right to amend.'" Ramos, 169 F.R.D. at 262 (quoting Richardson Greenshields Sec., Inc. v. Lau, 825 F.2d 647, 653 n. 6 (2d Cir.1987)). The Second Circuit has noted that the "`longer the period of an unexplained delay, the less that will be required of the nonmoving party in terms of a showing of prejudice.'" Evans v. Syracuse City Sch. Dist., 704 F.2d 44, 46 (2d Cir.1983) (quoting Advocat v. Nexus Indus., Inc., 497 F.Supp. 328, 331 (D.Del.1980)). See Phaneuf v. Tenneco, Inc., 938 F.Supp. 112, 115 (N.D.N.Y.1996). Where there has been a "considerable delay" between the filing of the original complaint and the motion to amend, courts have shifted the burden to the movant to show "`valid reason for his or her neglect and delay.'" Sanders v. Thrall Car Mfg. Co., 582 F.Supp. 945, 952 (S.D.N.Y.1983), aff'd, 730 F.2d 910 (2d Cir.1984) (citing Hayes v. New England Millwork Distribs., Inc., 602 F.2d 15, 19-20 (1st Cir.1979) (quoting Freeman v. Continental Gin Co., 381 F.2d 459, 469 (5th Cir.1967), reh'g denied, 384 F.2d 365 (5th Cir.1967))). See Phaneuf, 938 F.Supp. at 115.

DECISION

Harari argues that I should deny the Trustee's motion as a bad faith tactic solely to forestall dismissal of this proceeding on his summary judgment motion. He argues that the Trustee has long had all of the books and records that it needed to formulate a fraudulent conveyance claim and that he will be severely prejudiced if the motion is granted because he would be forced, at this late date, to search records and engage in discovery to defend a cause of action under §§ 548 and 550 of the Code.

There is nothing before me to suggest that the Trustee's motion to amend the complaint was unduly delayed. While "it is true that the Second Circuit looks disfavorably upon Rule 15 motions made after all discovery has been completed and a summary judgment motion has been made," Walton v. Waldron, 886 F.Supp. 981, 984 (N.D.N.Y.1995), and the Trustee made its motion to amend its complaint after Harari moved for summary judgment, unless the movant demonstrates prejudice, the filing of a summary judgment motion does not compel me to deny the Trustee's motion to amend the complaint. See, e.g., Adams v. Gould, Inc., 739 F.2d 858, 868-69 (3d Cir.1984), cert. denied, 469 U.S. 1122, 105 S.Ct. 806, 83 L.Ed.2d 799 (1985) (granting a motion to vacate summary judgment to permit a motion to amend the underlying complaint where the opposing party failed to show undue delay, prejudice or bad faith).³ Although this summary judgment motion was before me before the Trustee made his motion to amend, the Trustee asserts that the motion to amend the Complaint was a result of Harari's admission during his deposition that "he was owed nothing by Plaintiff pursuant to the Salary Agreement." The deposition was taken on September 9, 1997, and the motion to amend was filed within one week. I find neither that the Trustee unduly delayed bringing its motion nor that making it while a summary judgment motion was before me was improper.

Furthermore, I do not find that the Trustee has acted in bad faith in bringing this motion where Harari has not provided any direct evidence to support that allegation. See Ramos v. O'Connell, 169 F.R.D. 260, 262 (W.D.N.Y.1996).

Likewise, I find that Harari has failed to show that he will be unduly prejudiced if I grant leave to amend. In deciding whether an amendment will result in undue prejudice, I must decide "whether the assertion of the new claim would: (i) require the opponent to expend significant additional resources to conduct discovery and prepare for trial; (ii) significantly delay the resolution of the dispute; or (iii) prevent the plaintiff from bringing a timely action in another jurisdiction." Block v. First Blood Assocs., 988 F.2d 344, 350 (2d Cir.1993) (citing Tokio Marine & Fire Ins. Co. v. Employers Ins. of Wausau, 786 F.2d 101, 103 (2d Cir.1986)); State Teachers Retirement Bd. v. Fluor Corp., 654 F.2d 843, 856 (2d Cir.1981); Strauss v. Douglas Aircraft Co., 404 F.2d 1152, 1157-58 (2d Cir.1968); Calloway v. Marvel Enter. Group, 110 F.R.D. 45, 48 (S.D.N.Y.1986). Harari has not shown that he will expend significant additional resources to conduct discovery and prepare for trial or that the resolution of the dispute will be significantly delayed. Merely stating that an amendment to the complaint is prejudicial because of time, effort and money...