Seitz v. 6130 W., LLC (In re Joey's Steakhouse, LLC)

Decision Date14 June 2012
Docket NumberBankruptcy No. 09–17170.,Adversary No. 11–745.
PartiesIn re JOEY'S STEAKHOUSE, LLC, Debtor(s). Gary F. Seitz, Trustee, Plaintiff v. 6130 West, LLC, Henry P. Alfano, John DeVirgilis, Robert Laflar, and Anthony Alberto, Defendants.
CourtUnited States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania

OPINION TEXT STARTS HERE

Gary F. Seitz, Esquire, Rawle & Henderson LLP, Philadelphia, PA, pro se.

Kenneth E. Aaron, Esquire, Lauren N. Schwimmer, Esquire, Weir & Partners LLP, Philadelphia, PA, for Defendants.

OPINION

STEPHEN RASLAVICH, Chief Judge.

Introduction

Before the Court is the Trustee's Motion for Leave to Amend Complaint. The Motion is opposed by the Defendants. A hearing on the motion was held on May 3, 2012 after which the Court took the matter under advisement. For the reasons set forth below, the Motion will be granted in part and denied in part. The Trustee may file an amended complaint which is consistent with this ruling within 20 days of this date.1

Summary of Holding
Count I—Declaratory Judgment

• Basis for Contention: Defendants maintain that the proposed amendment to this count is either prejudicial or legally deficient.

• Holding: Plaintiff's request for leave to amend Count I will be denied because it fails to state a claim for a declaratory judgment.

Count II—Constructive Trust

• Basis for Contention: Defendants maintain that the proposed amendment to this count is either prejudicial or legally deficient.

• Holding: Plaintiff's request for leave to amend will be granted as the count sufficiently states a claim for a constructive trust.

Count III—Conversion

• Basis for Contention: Defendants maintain that the proposed amendment to this count is prejudicial or legally deficient.

• Holding: Plaintiff's request for leave to amend will be granted as the count sufficiently states a claim for conversion.

Count IV—Injunction

• Basis for Contention: Defendants maintain that the proposed amendment to this count is prejudicial or legally deficient.

• Holding: Plaintiff's request for leave to amend Count IV will be denied because it fails to state a claim for an injunction.

Count V—Unjust Enrichment

• Basis for Contention: Defendants maintain that the proposed amendment to this count is either time-barred, prejudicial or legally deficient.

• Holding: Plaintiff's request for leave to amend will be granted as the count sufficiently states a timely claim for unjust enrichment.

Count VI—Breach of Agreement (breach of contract)

• Basis for Contention: Defendants maintain that the proposed amendment to this count is either prejudicial or legally deficient.

• Holding: Plaintiff's request for leave to amend Count VI will be granted as the count sufficiently states a claim for breach of contract.

Count VII—Avoidance (preferential and/or fraudulent transfers)

• Basis for Contention: Defendants maintain that the proposed amendment to this count is either time-barred, prejudicial or legally deficient.

• Holding: Plaintiff's request for leave to amend Count VII will be granted as the count sufficiently states a timely claim for avoidance.

Count VIII—Turnover

• Basis for Contention: Defendants maintain that the proposed amendment to this count is either prejudicial or legally deficient.

• Holding: Plaintiff's request for leave to amend Count VIII will be denied because it fails to state a claim for turnover or for an accounting.

Count IX—Unconscionable and Void

• Basis for Contention: Defendants maintain that the proposed amendment to this count is either prejudicial or legally deficient.

• Holding: Plaintiff's request for leave to amend Count IX will be denied because it fails to state a claim that the agreement may be voided as unconscionable.

Count X—Breach of Joint Venture/Fiduciary Duty

• Basis for Contention: Defendants maintain that the proposed amendment to this count is either prejudicial or legally deficient.

• Holding: Plaintiff's request for leave to amend will be granted as the proposed amendment sufficiently states a claim for breach of fiduciary duty arising out of a joint venture.

Allegations

In June 2008, the Debtor was formed by its president and sole shareholder Joseph Polutro to operate as a restaurant. Amended Complaint, ¶ 4. The establishment which it would operate already existed along with a bar and gentlemen's club located at 6130 W. Passyunk Avenue in Philadelphia. Id. ¶¶ 4, 5 The existing restaurant, bar and club were owned by the Defendants. Id. As part of a joint venture agreement, the Debtor's principal, an executive chef, would renovate the existing restaurant. Id. ¶ 13 To that end, the Debtor invested $323,000 into the enterprise. Id. ¶ 17 The Trustee's complaint alleges that the Defendants conspired to deprive the Debtor of the profits from the operation of that restaurant. Id. ¶¶ 14, 19. The Complaint calculates the Debtor's losses at more than $850,000. Id. ¶ 21.

On September 29, 2009, the Debtor commenced the instant bankruptcy case and the Trustee was appointed on the same day. On September 2, 2011, the Trustee filed a ten count complaint against the Defendants alleging causes of action related to breaches of the Joint Venture Agreement. On December 2, 2011, the Defendants filed an answer to the complaint. The Court entered a pretrial scheduling order and discovery commenced. On April 2, the Trustee filed the instant motion to amend; on April 23, the Defendants moved for summary judgment. This ruling deals solely with the Trustee's request.

Applicable Legal Standard

Rule 15 2 of the Federal Rules of Civil Procedure governs amendments of pleadings:

(a) Amendments Before Trial.

(1) Amending as a Matter of Course. A party may amend its pleading once as a matter of course within:

(A) 21 days after serving it, or

(B) if the pleading is one to which a responsive pleading is required, 21 days after service of a responsive pleading or 21 days after service of a motion under Rule 12(b), (e) or (f) whichever is earlier.

(2) Other Amendments. In all other cases, a party may amend its pleading

only with the opposing party's written consent or the court's leave. The court should freely give leave when justice so requires.

Fed.R.Civ.P. 15(a) (emphasis added). Where a party must obtain consent to amend, the Supreme Court has made it clear that the presumption in favor of leave is “a mandate to be heeded.” Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230, 9 L.Ed.2d 222 (1962). It furthers the policy of trying cases on their merits. Id. The precise delineation of when leave should be granted or denied is impossible; therefore, the determination is left to the sound discretion of the trial judge. Rolo v. City Investing Co. Liquidated Trust, 155 F.3d 644, 645 (3d Cir.1998). This requires the Court to consider the positions of both parties and the effect that the request will have on them. 6 Charles Alan Wright, et al., Federal Practice and Procedure § 1487 (3d ed.) For that reason, the Court may deny a request to amend when the moving party has demonstrated undue delay, bad faith or dilatory motive, or where the amendment would prejudice the opposing party. See Foman, supra, id.;Grayson v. Mayview State Hosp., 293 F.3d 103, 108 (3d Cir.2002) Equally, an amendment will be denied where it is futile. Id. As the moving party, the Trustee bears the burden of proof in explaining the reasons for delay in seeking leave to amend. See Payne v. City of Phila., 2005 WL 1863188, *2 (E.D.Pa.Aug. 3, 2005).

Proposed Amendment

The motion seeks to add one defendant, to substitute another, and to correct a typographical error. The defendant to be added is New Club, LLC. The defendant to be substituted is the estate of one of the defendants since deceased. The typographical error sought to be corrected is an incorrect dollar amount in the demand.

Defendants' Objection

The Defendants do not object to all three proposed amendments. They point out that substitution of a decedent's estate does not require an amendment. See Defendants' Objection ¶ 10. Although Defendants make no mention of the Trustee's request to correct what is characterized as a typing error, the Court is empowered to conform the pleadings to the proofs. SeeF.R.C.P. 15(b)(2). It is only the amendment to add a defendant to which they object.

And on that score, the Defendants make two principal objections: one on limited and specific grounds and the other for general reasons. The limited challenge is as to Counts V and VII. Defendants contend that these counts are avoidance claims which are now time-barred. The general objection is made as to the remaining 8 counts and is two-fold: first, the proposed amendments fail to state a claim against New Club; and second, even if a claim is stated as to New Club, then the delay in bringing them now is unduly prejudicial.

Timeliness of Avoidance Claims

Beginning with the two avoidance counts, the Court observes that a proposed amendment which is untimely will be found to be futile. See Riad v. U.S., 2012 WL 986753, at *4 (E.D.Pa. March 22, 2012). The Defendants say that it is too late to add New Club to either Count V or VII because of the Bankruptcy Code's limitations for avoidance claims. Section 546(c) of the Code provides that:

An action or proceeding under section 544, 545, 547, 548, or 553 of this title may not be commenced after the earlier of—

(1) the later of—

(A) 2 years after the entry of the order for relief; or (B) 1 year after the appointment or election of the first trustee under section 702, 1104, 1163, 1202, or 1302 of this title if such appointment or such election occurs before the expiration of the period specified in subparagraph (A); or

(2) the time the case is closed or dismissed.

11 U.S.C. § 546(a). Defendants explain that more than two years have passed since the case was commenced and so these two counts are stale. 3 Neither, Defendants add, is that deadline subject to equitable tolling. Finally, they say, if the Court does hold that this provision may be equitably tolled, then the Trustee has not...

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