NHB Assignments LLC v. Kelly

Filing 57

MEMORANDUM ORDER denying as moot 17 MOTION to Dismiss for Lack of Jurisdiction Over the Subject Matter, granting 53 MOTION for Leave to File Plaintiff's Motion For Leave To File Sur-Reply, granting 47 MOTION to Amend/Correc t 43 Amended Complaint, 45 Response to Order, Order (Plaintiff's Motion For Leave To File An Amended Complaint. IT IS FURTHER ORDERED that, if either defendant contests this court's personal and/or subject matter jurisdiction, said defendant shall file a motion to dismiss raising such issues on or before October 2, 2013. ORDER, Setting Deadlines: ( Notice of Compliance deadline set for 10/2/2013.). Signed by Judge Sue L. Robinson on 8/29/2013. (nmfn)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

NHB ASSIGNMENTS LLC,
)
LIQUIDATING TRUSTEE, ON BEHALF)
OF THE LIQUIDATING TRUST,
)
)
Plaintiff,
)
)

v.
GENERAL ATLANTIC LLC and
BRADEN KELLY,

) Civ. No. 12-1 020-SLR
)
)
)
)

Defendants.

)
MEMORANDUM ORDER

At Wilmington this J.'trday of August, 2013, having reviewed the motion to
dismiss for lack of subject matter jurisdiction filed by defendant Braden Kelly ("Kelly"),
the motion for leave to file an amended complaint filed by plaintiff NHB Assignments
LLC ("plaintiff'), and the supplemental papers filed therewith;
IT IS ORDERED that Kelly's motion to dismiss for lack of subject matter
jurisdiction (D. I. 17) is denied as moot and plaintiff's motion for leave to file an amended
complaint (D.I. 47) is granted, for the reasons that follow:
1. Background. On December 21, 2010, plaintiff, a liquidating trustee on behalf
of a liquidating trust, filed the instant suit against defendants General Atlantic LLC ("GA
LLC") and Kelly as an adversary proceeding 1 in the United States Bankruptcy Court for
the District of Delaware ("the bankruptcy court"). Plaintiff's original complaint alleged
that GA LLC and Kelly (hereinafter, collectively "defendants") breached their fiduciary

1

Adv. Proc. No. 10-56167.

duties to ProxyMed, Inc., formerly the subject of a chapter 11 bankruptcy case in the
bankruptcy court. (Adv. Dkt. 1) Plaintiff further asserted a claim of fraud against GA
LLC. (/d.)
2. The case then developed a complex procedural history, as detailed in this
court's April 15, 2013 memorandum opinion. (D.I. 41) By way of summary, the
bankruptcy court issued a decision on July 1, 2011, dismissing the claims for breach of
fiduciary duty and for fraud against GA LLC but allowing the claim for breach of
fiduciary duty against Kelly to proceed. See In re PMTS Liquidating Corp., 452 B.R.
498 (Bank. Del. 2011 ). 2 On March 27, 2012, the bankruptcy court granted a motion for
clarification and/or reconsideration of that decision (collectively, with the July 1, 2011
decision, "the bankruptcy court's motion to dismiss decision"). (Adv. Dkt. 46)
Thereafter, on May 10, 2012, Kelly filed another motion to dismiss ("Kelly's jurisdictional
motion to dismiss"), which marked the first time that any party to the action challenged
the bankruptcy court's subject matter jurisdiction. (D. I. 17)3 Plaintiff responded by
attempting to amend its complaint several times, which culminated in an amended
motion for leave to file a proposed second amended complaint ("plaintiff's motion to
amend"). (Adv. Dkt. 53; D.l. 24; D. I. 27; see also Adv. Dkt. 88, ex. A) On January 9,
2013, this court granted plaintiff's motion to withdraw the reference and ordered that the
proceeding would be adjudicated by and tried in this court. (D.I. 14) At the time, both
Kelly's jurisdictional motion to dismiss and plaintiff's motion to amend had been fully

2

(See a/so Adv. Dkt. 36) The court will use "Adv. Dkt." to refer to docket items for
the adversary proceeding in the bankruptcy court.
3

0riginally filed in the adversary proceeding as Adv. Dkt. 51.

2

briefed but remained pending.
3. On April 15, 2013, the court granted plaintiff's motion to amend and reserved
judgment on Kelly's jurisdictional motion to dismiss. (0.1. 41; 0.1. 42) The court
permitted jurisdictional discovery regarding the citizenship of the parties and afforded
Kelly the opportunity to supplement his jurisdictional motion to dismiss. (0.1. 42)
Plaintiff then filed its second amended complaint (0.1. 43), and the parties filed a
stipulation ("the stipulation") regarding the citizenship of the parties and the sufficiency
of diversity jurisdiction. (0.1. 45)
4. Kelly has since supplemented his jurisdictional motion to dismiss, and plaintiff
and Kelly have exchanged responses in that regard. (0.1. 49; 0.1. 51; 0.1. 52; 0.1. 53;

0.1. 55)4 In addition, plaintiff has filed another motion for leave to file an amended
complaint ("the third amended complaint") in order to: (1) conform the diversity
allegations to the stipulation; (2) clarify certain factual allegations; (3) drop the fraud
claim against GA LLC; and (4) add an aiding and abetting claim against GA LLC. (See

0.1. 48 at 1) Plaintiff avers that the proposed amended complaint would streamline the
issues for defendants' intended motion to dismiss on the merits. (See id. at 1-2)
5. Kelly's jurisdictional motion to dismiss. Kelly does not explicitly challenge
this court's diversity jurisdiction over the instant case. (0.1. 45

at~

7) However, Kelly

has indicated that he and (possibly) GA LLC plan to file new motions to dismiss under
Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. (0.1. 49 at 5-6 &
n.1) In order to clarify the weight of the bankruptcy court's motion to dismiss decision,
4

Piaintiff's motion for leave to file a sur-reply regarding Kelly's supplemental
submission is granted. (0.1. 53)

3

Kelly requests that the court resolve his jurisdictional motion to dismiss to find that the
bankruptcy court had no jurisdiction over this case and, thus, the bankruptcy court's
motion to dismiss decision is null and void and has no force or effect. 5 (D.I. 49 at 1)
Plaintiff asserts that Kelly's jurisdictional motion to dismiss is now moot given the
undisputed diversity jurisdiction of this court and the following "consent": 6 "Plaintiff
consents to de novo consideration of Defendants' intended new motions to dismiss and
that the Bankruptcy Court's rulings on their prior motion to dismiss (i.e.[,] as to both
[GA] LLC and ... Kelly) should not be considered precedential." (D. I. 51 at 2)
6. The court finds that, in light of plaintiff's "consent," Kelly's jurisdictional motion
to dismiss is moot. The only reason given by Kelly for pursuing his motion is to
determine the effect that any lack of jurisdiction would have on the bankruptcy court's
motion to dismiss decision. (See D.l. 49 at 1; D.l. 55 at 1) Given plaintiff's agreement
with Kelly on the effect of the bankruptcy court's motion to dismiss decision, there is no

5

Piaintiff argues that Kelly "simply reargues ... and resubmits all of the prior
briefing" related to the motion to dismiss for lack of subject matter jurisdiction. (D.I. 51
at 1) The court's order dated April 15, 2013 (D.I. 42) did not specifically limit Kelly's
supplemental submission, and the court finds that the supplemental submission
appropriately clarified the significance of Kelly's jurisdictional motion to dismiss
following the parties' stipulation regarding diversity jurisdiction and in relation to
defendants' planned new motions to dismiss.
6

Piaintiff's consent to "de novo consideration" is not directly on point because de
novo consideration is a standard of review on appeal, and the procedural posture of the
instant case does not involve such an appeal. See, e.g., In re New Century TRS
Holdings, Inc., Civ. No. 12-288,2013 WL 1196605, at *1, *5 (D. Del. Mar. 25, 2013)
(reviewing a bankruptcy court's underlying legal determinations de novo). The effect of
plaintiff's consent, however, is that it is in agreement with Kelly that the bankruptcy
court's motion to dismiss decision should not be given any effect- persuasive or
precedential- moving forward.

4

need for the court to delve into issues of the bankruptcy court's jurisdiction. 7 Kelly's
jurisdictional motion to dismiss (D. I. 17) is denied as moot.
7. Plaintiff's motion for leave to file a third amended complaint. Federal
Rule of Civil Procedure 15 provides that a court should freely give leave to amend when
justice so requires. The Third Circuit has adopted a liberal approach to the amendment
of pleadings to ensure that "a particular claim will be decided on the merits rather than
on technicalities." Dole v. Arco Chern. Co., 921 F.2d 484, 486-87 (3d Cir. 1990).
Amendment, however, is not automatic. See Dover Steel Co., Inc. v. Hartford Accident
& lndem. Co., 151 F.R.D. 570, 574 (E.D. Pa. 1993). Leave to amend should be

granted absent a showing of "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." Foman v. Davis, 371 U.S. 178, 182 (1962); see also Oran v.
Stafford, 226 F.3d 275, 291 (3d Cir. 2000).
8. Defendants do not object to plaintiff's proposed amendments to the extent
they conform the diversity allegations to the stipulation, clarify certain factual
allegations, and drop the fraud claim against GA LLC. (See D. I. 54) Defendants'
objection is to the addition of the claim against GA LLC for aiding and abetting a breach
7

Piaintiff has expressed concern that Kelly is suggesting the bankruptcy court's
motion to dismiss decision should be binding with respect to GA LLC but not with
respect to Kelly. (See D.l. 53, ex. A at 2) However, Kelly has clarified that it is not
making such a suggestion, only that GA LLC (which shares the same counsel) "intends
to resist any effort to be brought back into these proceedings." (See D.l. 55 at 2-3)
How exactly GA LLC intends to resist being brought back into the proceeding is unclear
except that it (1) does not plan to challenge diversity jurisdiction, and (2) plans to file a
new motion to dismiss for failure to state a claim.

5

of fiduciary duty. In this regard, defendants do not contend that plaintiff's addition of the
aiding and abetting claim would be futile. Rather, they argue that plaintiff's delay in
seeking the amendments is undue and lacks any proper justification: "At no point since
this case was originally filed in December 2010 ... has plaintiff sought to do what it
seeks to do now: namely, add an entirely new legal claim and theory of liability to this
case." (/d. at 2) Defendants further allege that the amended complaint is "merely a
misguided attempt to re-position plaintiff for defendants' inevitable new motion[s] to
dismiss the action." (/d. at 5)
9. Given the unique procedural history of this case, this litigation has been
pending for well over two years but is still in the early stages. No answer has been
filed, no scheduling order has been entered, and no discovery has taken place, except
that related to diversity jurisdiction. "The mere passage of time does not require that a
motion to amend a complaint be denied on grounds of delay." Cureton v. Nat'!
Collegiate Athletic Ass'n, 252 F.3d 267, 273 (3d Cir. 2001 ). Moreover, a defendant

"must do more than merely claim prejudice; 'it must show that it was unfairly
disadvantaged or deprived of the opportunity to present facts or evidence which it would
have offered had the ... amendments been timely."' Bechtel v. Robinson, 886 F.2d
644, 652 (3d Cir. 1989) (quoting Hey! & Patterson tnt'!, Inc. v. F.D. Rich Hous., 663 F.2d
419, 425 (3d Cir. 1981 )). Defendants at bar cite Bjorgung v. Whitetail Resort, LP, 550
F.3d 263 (3d Cir. 2008), in which the Third Circuit affirmed a district court's denial of
leave to amend because of undue delay. 8 !d. at 268. The plaintiff in Bjorgung had
8

Defendants also cite several cases from the District Court for the Southern
District of New York that are not binding on this court. (See D.l. 54 at 1, 6-7)

6

been on notice for three and a half years that he was suing the wrong entities before he
sought leave to amend his complaint. /d. at 266-67. The Court found that such
circumstances presented the plaintiff with previous opportunities to amend and that the
motion to amend placed a burden on the court for being filed long after the close of
discovery. /d. at 267.
10. Here, plaintiff had opportunities to amend the complaint to add the aiding
and abetting claim. However, the prior proposed amendments were all focused on
redressing the jurisdictional issues that had been raised by Kelly. Moreover, unlike the
case in Bjorgung, no discovery beyond the issue of diversity jurisdiction has taken place
in this litigation, and defendants will have a full opportunity to challenge the sufficiency
of the proposed claim and/or answer the complaint. Although plaintiff's proposed
amended complaint adds a new claim against GA LLC for aiding and abetting a breach
of fiduciary duty, it also drops a claim against GA LLC for fraud. Given that no
deference will be given to the bankruptcy court's motion to dismiss decision, GA LLC
would, in any case, need to brief one claim or the other if it files a new motion to
dismiss for failure to state a claim. The court does not find that briefing the aiding and
abetting claim instead of the fraud claim that GA LLC previously briefed in the
bankruptcy court would warrant departure from the Third Circuit's liberal approach to
the amendment of pleadings. See Dole, 921 F.2d at 486-87. Therefore, the court does
not find that plaintiff's proposed third amended complaint would cause undue delay or
prejudice.
11. To the extent defendants allege there is any bad faith or dilatory motive on
plaintiff's part, they provide no reason, beyond a bald assertion that plaintiff is making

7

the amendment for tactical reasons. Even if plaintiff is attempting to re-position itself for
defendants' new motions to dismiss, such a goal, by itself, does not demonstrate bad
faith or dilatory motive simply because defendants would prefer not to oppose the
amended complaint. Therefore, the court does not find any basis for finding that the
proposed amended complaint is motivated by bad faith or dilatory motive.
12. Conclusion. For the foregoing reasons, Kelly's jurisdictional motion to
dismiss is denied as moot, and plaintiff's motion for leave to file the third amended
complaint is granted.
IT IS FURTHER ORDERED that, if either defendant contests this court's
personal and/or subject matter jurisdiction, said defendant shall file a motion to dismiss
raising such issues on or before October 2, 2013.

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