McCoy v. Goldberg, 89 Civ. 8151 (WCC).

• Decision Date: 11 March 1994
• Docket Number: No. 89 Civ. 8151 (WCC).,89 Civ. 8151 (WCC).
• Citation: 845 F. Supp. 155
• Parties: Rose McCOY, Plaintiff, v. Gary M. GOLDBERG and Gary Goldberg & Company, Inc., Defendants, Gary M. GOLDBERG and Gary Goldberg & Company, Inc., Third-Party Plaintiffs, v. Stephen RUFFINO, et al., Third-Party Defendants.
• Court: U.S. District Court — Southern District of New York

845 F. Supp. 155

Rose McCOY, Plaintiff, v. Gary M. GOLDBERG and Gary Goldberg & Company, Inc., Defendants, Gary M. GOLDBERG and Gary Goldberg & Company, Inc., Third-Party Plaintiffs, v. Stephen RUFFINO, et al., Third-Party Defendants.

No. 89 Civ. 8151 (WCC).

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

March 11, 1994.

Parker Chapin Flattau & Klimpl, New York City, for third-party plaintiffs (Stephen G. Rinehart, of counsel).

Dorsey & Whitney, New York City, for third-party defendants NTS-Properties IV, NTS-Properties Associates IV, NTS-Properties V and NTS-Properties Associates IV (James V. Parravani, of counsel).

OPINION AND ORDER

WILLIAM C. CONNER, District Judge:

Plaintiff Rose McCoy instituted this action against defendants Gary Goldberg & Company, Inc., a securities and financial planning concern, and Gary M. Goldberg, its President (together, "Goldberg") asserting claims based on violations of the Racketeer Influenced and Corrupt Organizations Act ("Rico"), 18 U.S.C. § 1961 et seq., the federal securities laws, common law fraud, and breach of fiduciary duty in connection with plaintiff's purchases of various limited partnership interests. Thereafter, Goldberg filed a Third-Party Complaint against eleven limited partnerships in which plaintiff had invested, seeking contribution and/or indemnification. This action is presently before the Court on Third-Party defendants' NTS-Properties IV, NTS-Properties Associates IV, NTS-Properties V, and NTS-Properties Associates V (collectively, "NTS") motion pursuant to Fed. R.Civ.P. 15(a) to amend their Answer to assert additional affirmative defenses and counterclaims against Goldberg. For the reasons set forth below, we grant NTS's motion and direct that they amend their Answer in accordance with this Opinion within 15 days.

BACKGROUND

The principal action in this case was commenced on December 8, 1989 and was then dismissed by this Court. Plaintiff thereafter filed an Amended Complaint on November 27, 1990, alleging that defendant/third-party plaintiff Goldberg solicited and urged her to invest the proceeds of her deceased husband's life insurance policy in twelve different limited partnerships that were manifestly unsuitable for her and contrary to the lowrisk, liquid investment program she informed Goldberg was necessary to secure her income.

On January 28, 1991, Goldberg filed the Third-Party Complaint against eleven limited partnerships in which plaintiff had invested, including NTS. The Third-Party Complaint alleges that in reliance on various representations made to Goldberg by NTS through sales literature, prospectuses, and other promotional material, Goldberg recommended that plaintiff invest in NTS. Plaintiff then did so. Thereafter, NTS allegedly did not live up to its "sales pitch," and plaintiff suffered substantial loss. The Third-Party Complaint alleges that Goldberg is entitled to contribution or indemnification from NTS because Goldberg specifically relied on NTS's representations in recommending that plaintiff invest in the limited partnerships.

On April 15, 1991, NTS filed its Answer to the Third-Party Complaint. Thereafter, in October of 1992 and prior to the jury trial of the principal action, this Court severed the third-party actions from the principal action against Goldberg pursuant to Fed.R.Civ.P. 42(b). The trial of the principal action occurred in October of 1992. The jury found for plaintiff solely on the breach of fiduciary duty claim and awarded compensatory damages in the amount of $872,714. We granted defendant's motion for a remittitur of the damages award and reduced the award to $579,677.85. A satisfaction of judgment in the principal action was entered on April 9, 1993.

Meanwhile, the third-party actions remained dormant from the time of severance until a recent status conference held on September 24, 1993. At the status conference, we set a discovery schedule with respect to the third-party claims.

The present motion was filed on December 2, 1993. In sum, NTS argues that because the jury found that Goldberg breached his fiduciary duty to McCoy, he is in breach of certain agreements he entered into with NTS which obligated him to comply with all legal requirements when offering interests in NTS to prospective purchasers. NTS seeks leave to amend its Answer to assert additional affirmative defenses and counterclaims against Goldberg based upon such breaches and upon the res judicata and/or collateral estoppel effect of the jury's findings.¹

DISCUSSION

Rule 15(a), Fed.R.Civ.P., allows a party to amend its pleading more than twenty days after it has been filed or after the pleading in response thereto has been served only with the court's permission. However, the rule notes that "leave shall be freely given when justice so requires." Accordingly, the Supreme Court has ruled that "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 ... be freely given." Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230, 9 L.Ed.2d 222 (1962).

The Second Circuit and this Court have interpreted the Foman standard to allow amendments, even if there was substantial delay in seeking the same, unless the movant has acted in bad faith, the amendment will prejudice the non-movant, or the amendment is futile. See Richardson Greenshields Securities, Inc. v. Lau, 825 F.2d 647, 653 n. 6 (2d Cir.1987) (motion to amend should be denied only for undue delay, bad faith, futility, or prejudice to opposing party; mere delay, absent a showing of bad faith or prejudice, is not alone grounds for denial of leave to amend) (citations omitted); Posadas de Mexico, S.A. de C.V. v. Dukes, 757 F.Supp. 297, 300 (S.D.N.Y.1991) (J. Conner) (party should be given leave to amend unless party's motion is product of bad faith or dilatory motive, or amendment will prejudice adversary or be futile).

Defendant/third-party plaintiff Goldberg argues that NTS's motion for leave to amend the Answer should be denied because NTS inexcusably delayed and acted in bad faith in seeking leave to amend and because Counts I, II, III, and IV of the proposed counterclaims are barred by the statute of limitations. We address each argument in turn.

A. Bad faith

Goldberg first argues that NTS acted in bad faith in waiting two and one-half years to attempt to amend its Answer. He contends that NTS' lack of excuse for delay shows NTS acted in bad faith. He also asserts that Count IV of the proposed counterclaims is a claim for malicious prosecution, brought in bad faith. We find no merit in either of Goldberg's arguments.

First, Goldberg does not point to any evidence that NTS acted in bad faith in waiting two and one-half years to seek leave to amend. On the contrary, the facts tend to negate that the delay was due to bad faith. While it is true that NTS filed its original Answer in April of 1991, the third-party actions were severed from the principal action in October of 1992 and thereafter remained dormant until September of 1993 when we held a conference for the purpose of activating those actions and setting discovery schedules. NTS shortly thereafter brought to our attention its desire to amend its Answer. Because the case was dormant due in part to the Court's action, it is difficult to conclude that the delay alone evidences bad faith.

Second, Count IV of the proposed counterclaims alleges that Goldberg breached his duty of good faith and fair dealing implied in the Dealer/Manager Agreements and Soliciting Dealer Agreements entered into by both parties by, inter alia, bringing and continuing to pursue a frivolous claim for indemnification against NTS. Contrary to Goldberg's assertion, Count IV is in no way a counterclaim in the nature of malicious prosecution as a defensive strategy; it is merely a claim for the breach of an implied duty.

B. Undue delay

Goldberg next argues that NTS unduly delayed in seeking leave to amend its Answer. Specifically, he claims that because NTS has neither shown good cause nor offered a reasonable explanation for its delay in asserting the proposed affirmative defenses and counterclaims, and because NTS was aware of the facts on which the proposed amendments are based at the time it filed its original Answer, we should deny leave to amend. Goldberg, in his moving papers, does not contend that he has been or will be prejudiced by an amendment to the proceedings at this stage of the litigation; rather his argument is based solely on NTS' alleged undue delay.

We disagree with Goldberg's contention that delay alone is sufficient grounds for denying leave to amend. As discussed supra, such delay must be accompanied by either bad faith, prejudice, or futility to warrant our denying NTS the "opportunity to test its claim on the merits." Foman, 371 U.S. at 182, 83 S.Ct. at 230. The cases relied upon by Goldberg are not to the contrary.² Because Goldberg has not alleged and the facts do not show³ that he will be prejudiced by an amendment at this stage in the proceedings, the two and one-half year delay alone is not grounds for this Court to deny NTS' motion.

C. Futility — Statute of Limitations

Defendant/third-party plaintiff Goldberg argues that NTS should not be granted leave to amend its Answer to add proposed Counterclaims I, II, III, and IV because doing so would be a futile exercise in that those claims are barred by the statute of limitations. See Diematic Mfg. Corp. v. Packaging Industries, Inc. 412 F.Supp. 1367, 1373 (S.D.N.Y. 1976) (court may consider the statute of limitations on a motion to amend); Long v. United States Dep't of Defense, 616 F.Supp. 1280, 1284 (E.D.N.Y.1985) (leave to amend is properly denied as being futile when the claim asserted in...