In re RDM Sports Group, Inc.

• Decision Date: 21 September 2000
• Docket Number: Bankruptcy No. 9712788-WHD to 97-12796-WHD. Adversary No. 98-1090.
• Citation: 253 BR 298
• Parties: In the Matter of RDM SPORTS GROUP, INC.; RDM Holdings, Inc.; Sports Group, Inc,; Diversified Products Corporation; Willow Hosiery Company, Inc.; Hutch Sports USA, Inc.; Diversified Trucking Corp.; International Sports and Fitness, Inc. and T.Q., Inc., Debtors. William G. Hays, as Chapter 11 Trustee for Sports Group, Inc. and Diversified Trucking Corp., Plaintiff, v. Alabama Gas Corporation, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Georgia

253 B.R. 298 (2000)

In the Matter of RDM SPORTS GROUP, INC.; RDM Holdings, Inc.; Sports Group, Inc,; Diversified Products Corporation; Willow Hosiery Company, Inc.; Hutch Sports USA, Inc.; Diversified Trucking Corp.; International Sports and Fitness, Inc. and T.Q., Inc., Debtors William G. Hays, as Chapter 11 Trustee for Sports Group, Inc. and Diversified Trucking Corp., Plaintiff, v. Alabama Gas Corporation, Defendant.

Bankruptcy Nos. 9712788-WHD to 97-12796-WHD. Adversary No. 98-1090.

United States Bankruptcy Court, N.D. Georgia, Newnan Division.

September 21, 2000.

COPYRIGHT MATERIAL OMITTED

Stuart F. Clayton, Jr., Lamberth, Bonapfel, Cifelli & Stokes, P.A., Atlanta, GA, for Plaintiff.

Patrick Darby, Bradley Arant Rose & White, LLP, Birmingham, AL, for Defendant.

ORDER

W. HOMER DRAKE, Jr., Bankruptcy Judge.

Before the Court in the above-referenced case is the motion for summary judgment filed by Defendant Alabama Gas Company (hereinafter "Alagasco") against Plaintiff William G. Hays, Jr. (hereinafter the "Trustee"). Also before the Court is the Trustee's motion for leave to amend complaint. Both motions arise in an adversary proceeding initiated by the Trustee under 11 U.S.C. §§ 547 and 549 to recover certain pre and post-petition transfers made by Sports Group, Inc. (hereinafter Sports Group) and Diversified Trucking Corp. to Alagasco.¹ These related matters form a core proceeding within the Court's subject matter jurisdiction, see 28 U.S.C. § 157(b)(2)(F), and they shall be disposed of in accordance with the reasoning which follows.

BACKGROUND

Nine related companies filed petitions under Chapter 11 of the Bankruptcy Code on August 29, 1997. Prior to filing, Alagasco maintained an account for Diversified Products Corporation, one of the Debtors in the main bankruptcy proceeding (hereinafter "DPC"). Alagasco provided utility service to DPC's manufacturing facility in Opelika, Alabama.

On June 20, 1997, Alagasco received a check from "DP Fitness" in the amount of $72,848.50. Alagasco received a second check in the amount of $7,508.48 from "DP Fitness" on July 30, 1997.² Alagasco applied the check to DPC's utility account. On September 30, 1998, the Trustee, in his capacity as Chapter 11 trustee for Sports Group and Diversified Trucking Corp., filed a complaint against Alagasco to recover a portion of the two transfers ($60,139.14) as preferential payments.³ Alagasco contends that it is entitled to a judgment as a matter of law because the Trustee did not file the lawsuit in his capacity as Chapter 11 trustee for DPC. In response to Alagasco's summary judgment motion, and approximately eighteen months after the litigation was commenced, the Trustee filed a motion to amend his complaint. If allowed, the amended complaint will reflect that the Trustee is suing Alagasco as the representative of DPC's estate. The Court will dispose of both motions in this order.

CONCLUSIONS OF LAW

I. The Trustee's Motion to Amend

The Trustee seeks leave to amend his complaint to reflect that he is prosecuting this action in his capacity as Chapter 11 trustee of DPC's estate. On its face, such a request seems rather benign, especially since both the original complaint and the proposed amended complaint correctly identify the Trustee as the plaintiff in this matter. Alagasco takes the position that the proposed amendment does much more than simply change the identity of the particular entity with whom it transacted business. Instead, Alagasco argues that the proposed amendment contemplates a new preference claim asserted by a new party. Furthermore, Alagasco points out that the statute of limitations on a new preference action has expired. See 11 U.S.C. § 546. For these reasons, Alagasco submits that the Trustee's motion to amend should be denied.

Rule 15 of the Federal Rules of Civil Procedure, made applicable to bankruptcy by Rule 7015 of the Federal Rules of Bankruptcy Procedure, governs amended pleadings. In pertinent part, the rule provides:

(a) 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 by written consent of the adverse party; and leave shall be freely given when justice so requires.

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(c) An amendment of a pleading relates back to the date of the original pleading when

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(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....

FED. R. CIV. P. 15(a) and (c). Inasmuch as the motion to amend was filed long after Alagasco answered, the Trustee cannot amend his complaint as a matter of course. Thus, the Court must grant leave before the Trustee can amend his complaint.

A trial court has considerable discretion when determining whether to grant leave to amend a complaint. Jameson v. The Arrow Co., 75 F.3d 1528, 1534-35 (11th Cir.1996). Moreover, it has been said that the purpose of Rule 15(a) is to "assist the disposition of litigation on the merits of the case rather than have pleadings become ends in themselves." Summit Office Park, Inc. v. United States Steel Corp., 639 F.2d 1278, 1284 (5th Cir.1981) (citations omitted); see also Foman v. Davis, 371 U.S. 178, 181-82, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962) (noting that the spirit of the procedural rules is merit-based decisions). According to the Supreme Court,

the Federal Rules reject the approach that pleading is a game of skill in which one misstep by counsel may be decisive to the outcome and accept the principle that the purpose of pleading is to facilitate a proper decision on the merits. The Rules themselves provide that they are to be construed "to secure the just, speedy, and inexpensive determination of every action." Rule 15(a) declares that leave to amend "shall be freely given when justice so requires"; this mandate is to be heeded. If the underlying facts or circumstances relied upon by a plaintiff may be a proper subject of relief, he ought to be afforded an opportunity to test his claim on the merits. In the absence of any apparent or declared reason—such as 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.—the leave sought should, as the rules require, be "freely given."

Foman v. Davis, 371 U.S. at 181-82, 83 S.Ct. 227 (internal citations omitted). There is nothing in the record which suggests that the Trustee has acted in bad faith, has been dilatory, or has unnecessarily delayed this proceeding. That the proffered amendment comes approximately eighteen months after commencement of this litigation can be explained. The Trustee has advised the Court that Alagasco's debt was designated in the Debtors' records as an obligation of Sports Group.⁴ (Hays Aff. at ¶ 8). Presumably, when the Trustee alleged in his original complaint that Sports Group made a preferential transfer to Alagasco, he made that allegation based on information available to him at that time. For whatever reason, Alagasco made no mention in its answer that its creditor relationship was with DPC, and not with Sports Group. It appears that the Trustee did not become aware of Alagasco's contentions until late February 2000 when it asserted for the first time in discovery responses that it was owed money by DPC. Evidently, Alagasco acted for more than fifteen months on the information contained in the original complaint. The Trustee filed his motion for leave to amend approximately six weeks after receipt of the discovery responses. Under the circumstances, the Court will not prohibit the Trustee's amended complaint simply because many months have passed since the filing of the original complaint. See Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir.1999) (amended complaint allowed since information to be added obtained during discovery and only added specificity to allegations already made); Ward Elecs. Serv., Inc. v. First Commercial Bank, 819 F.2d 496, 497 (4th Cir.1987) (plaintiff permitted to amend complaint to add new theory of recovery in part because proposed amendment based on information obtained during discovery; since information was in defendant's possession, it could not have been "prejudicially surprised").

It is the Court's view that Rule 15(c) is at the center of this controversy. Rule 15(c) sets forth the circumstances under which an amended complaint "relates back" to the original complaint. In essence, an amended complaint relates back if the claim asserted therein arose out of the same set of operative facts described in the original complaint. See Moore v. Baker, 989 F.2d 1129, 1131 (11th Cir.1993). Conversely, there can be no relation back if the new claim did not arise out of the same conduct, transaction, or occurrence as originally pled. Id. Whether the Trustee's amended complaint, if allowed, relates back carries great significance. Absent a finding that the proposed amendment relates back to the original complaint, the cause of action set forth in the amended complaint would be barred by the statute of limitations.

As stated by the Eleventh Circuit, "the critical issue in Rule 15(c) determinations is whether the original complaint gave notice to the defendant of the claim now being asserted." Id. (citation omitted); Williams v. United States, 405 F.2d 234, 236-37 (5th Cir.1968); Longbottom v. Swaby, 397 F.2d 45, 48 (5th Cir. 1968) ("The purpose of the rule is accomplished if the initial complaint gives the defendant fair notice that litigation is arising out of...