In re Smith
| Decision Date | 24 January 1997 |
| Docket Number | Bankruptcy No. 193-10509-260,Adv. No. 194-1400-260. |
| Citation | 204 BR 358 |
| Parties | In re Robert B. SMITH, Debtor. David DOYAGA, as Trustee of the Estate of Robert B. Smith, Plaintiff, v. The STEAMFITTERS' INDUSTRY PENSION FUND, The Steamfitters' Industry Welfare Fund, The Steamfitters' Industry Security Benefit Fund, The Steamfitters' Industry Vacation Plan and The Steamfitters' Industry Educational Fund, Defendants. |
| Court | U.S. Bankruptcy Court — Eastern District of New York |
Fischoff Gelberg & Director, Garden City, New York, for Plaintiff/Trustee.
Richard S. Brook, Mineola, New York, for Defendants.
This matter comes before the Court as an adversary proceeding brought by the Chapter 7 Trustee (hereinafter referred to as "Plaintiff" or "Trustee") of the estate of Robert B. Smith ("Debtor") to recover a preferential transfer or set aside a fraudulent conveyance within the meaning of sections 547 and 548 of the Bankruptcy Code ("Code") respectively. The Plaintiff seeks leave of the Court nunc pro tunc for an order, pursuant to Federal Rule of Bankruptcy Procedure ("Bankruptcy Rule") 7015 as it incorporates Rule 15(a) of the Federal Rules of Civil Procedure, permitting him to file and serve a second amended complaint on the Defendants. After consideration of the facts and issues surrounding this case, and for the following reasons, the Plaintiff's motion is granted.
The Debtor filed a Chapter 7 voluntary petition for relief on January 21, 1993, as a result of which David Doyaga was appointed trustee of the Debtor's estate. The Trustee commenced this adversary proceeding on October 31, 1994 by filing a complaint to recover a $111,286 payment made by the Debtor to the Defendants. The Trustee alleged in this first complaint that the payment in question constituted a preferential transfer within the meaning of section 547 of the Bankruptcy Code.
Shortly thereafter on November 10, 1994 the Plaintiff filed and served an amended complaint. This amended complaint, while making minor corrections to the original complaint, also sought to recover funds according to section 547 of the Code.1 The Defendants filed their answer to the first complaint, as amended, on November 23, 1994. Then, on May 31, 1995 the Plaintiff filed a second amended complaint. The second amended complaint sought to recover funds under a fraudulent transfer theory pursuant to section 548 of the Code. In their answer, dated June 5, 1995, to the second amended complaint the Defendants raised the affirmative defense that the Plaintiffs failed to comply with Federal Rule of Civil Procedure 15(a) by not seeking leave of the court to file and serve the second amended complaint. The Defendants requested that the second amended complaint be dismissed with prejudice.
The Plaintiff moved on April 26, 1996 for leave of this Court, nunc pro tunc, to file and serve the second amended complaint. The Plaintiff explained the delay in adding the fraudulent conveyance action by stating that he was not aware at the time the original complaint was filed that a fraudulent conveyance under section 548 of the Code had taken place. In addition, the Plaintiff contends that the Defendants had notice of this new claim because it is based on the same transaction as that in the original complaint. The Defendants, in opposition to the motion for leave, claim that the Plaintiff has not provided a sufficient justification for any delay and that they will suffer undue prejudice if they are forced to defend against a fraudulent conveyance action at this time due to the burden of additional discovery and the unavailability or destruction of evidence.
Federal Rule of Civil Procedure 15(a) is applicable to the instant proceeding through Federal Rule of Bankruptcy Procedure 7015. Rule 15(a) states that:
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.
FED.R.CIV.P. 15(a). As the Defendants had already filed an answer to the Plaintiff's amended complaint, Rule 15 required that the Plaintiff seek leave from the court in order to file and serve the second amended complaint. The question presented here is whether leave should now be granted to allow the Plaintiff to file and serve the second amended complaint when a noticeable amount of time has passed between the filing of the original complaint and the filing of the motion presently before this Court.
In interpreting the requirements of Rule 15(a), the Supreme Court in Foman v. Davis, 371 U.S. 178, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962), declared:
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 the allowance of the amendment, futility of amendment, etc. — the leave sought should, as the rules require, be `freely given.\'
371 U.S. at 182, 83 S.Ct. at 230. This has become the standard by which courts determine whether to allow the amendment of a pleading.
Based upon the guidelines in Foman, Federal Rule of Civil Procedure 15 has been construed broadly regarding the allowance of an amendment of pleadings. The decision of whether to allow an amendment lies solely within the discretion of the trial court, and such discretion should be employed in conjunction with the "liberalizing spirit of the Federal Rules." United States v. Continental Ill. Nat'l Bank and Trust Co., 889 F.2d 1248, 1254 (2d Cir.1989) (citing FED.R.CIV.P. 1). The result of such liberal allowance of amendment is that a plaintiff should be allowed to test its claim on the merits if the facts upon which it relies provide a proper basis for relief. Foman, 371 U.S. at 182, 83 S.Ct. at 230.
In accordance with the Supreme Court's statement in Foman v. Davis, the rule in the Second Circuit is also quite liberal in allowing the amendment of pleadings. In addition to the factors cited in Foman, the courts of the Second Circuit have held that in order to deny leave to amend a pleading, a showing other than mere delay on the part of the movant is required. See Rachman Bag Co. v. Liberty Mutual Ins. Co., 46 F.3d 230, 234-35 (2d Cir.1995); State Teachers Retirement Bd. v. Fluor Corp., 654 F.2d 843, 856 (2d Cir.1981).2 This additional showing beyond mere delay can include bad faith on the part of the movant or undue prejudice to the party opposing the motion for leave to amend. See Richardson Greenshields Securities, Inc. v. Lau, 825 F.2d 647, 653 n. 6 (2d Cir.1987); State Teachers Retirement Bd., 654 F.2d at 856 (citations omitted). The opponent of the motion for leave to amend has the burden of establishing one of these additional factors. See Saxholm AS v. Dynal, Inc., 938 F.Supp. 120, 123 (E.D.N.Y. 1996); Fariello v. Campbell, 860 F.Supp. 54, 70 (E.D.N.Y.1994) (citing Panzella v. Skou, 471 F.Supp. 303, 305 (S.D.N.Y.1979)). As there has been no claim by the Defendants of bad faith on the part of the Plaintiff, this Court need only address questions of delay and prejudice.
In many circumstances allowing an amendment of pleadings can cause undue prejudice to an opponent. Undue prejudice arises where the amendment seeks to add new claims based upon a different time period, where a different set of facts is alleged and where the original complaint did not provide fair notice of the new claims. See Ansam Assocs., Inc. v. Cola Petroleum, Ltd., 760 F.2d 442, 446 (2d Cir.1985). Undue prejudice has also been found where the new claims would substantially alter the original complaint's claims for relief and where the trial of the case would be delayed. See Barrows v. Forest Lab., Inc., 742 F.2d 54, 58 (2d Cir.1984).
In Barrows the Second Circuit Court of Appeals affirmed the district court's denial of leave to amend a complaint to add entirely new claims two and one-half years after the filing of the original complaint. The court found that allowing such an amendment would create a "radical shift" in recovery which could result in a windfall to the plaintiffs. Id. at 58-59. According to the Second Circuit Court of Appeals, allowing the amendment in Barrows would have been unfair as discovery would have to be greatly expanded for the new claims. Barrows, 742 F.2d at 59. Similarly, in Ansam Assocs., Inc. v. Cola Petroleum, Ltd. the lower court's denial of leave to amend was upheld where the proposed amendment would have been "especially prejudicial" because the new claims were based on a completely different time period, the parties had already completed discovery and a summary judgment motion had been filed by the defendant. Ansam, 760 F.2d at 446.
Ansam and Barrows have set the standards for determining whether to allow a Rule 15(a) amendment, and the Court will be guided by them in the instant case. Here the Plaintiff's proposed amendment would allege a fraudulent conveyance claim based upon the same facts as those in the original complaint, which alleged a preferential transfer. Allowing the Plaintiff's amendment would not create a "radical shift" in recovery as described in Barrows because in this case the Defendants had notice of potential liability under the original complaint which is similar to the potential liability under the amended complaint. See Barrows, 742 F.2d at 58; Mendelsohn v. Mack Fin. Corp. (In re Frank Santora Equip. Corp.), 202 B.R. 543, 545-46 (Bankr.E.D.N.Y.19...
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