Heritage Handoff Holdings, LLC v. Fontanella

Filing 131

MEMORANDUM ORDER: The Motion for Leave to Amend and Supplement Answer and Counterclaims (D.I. 73 ) is DENIED as to proposed Counts Four, Five, Seven, Eight and Nine, and is otherwise GRANTED. Signed by Judge Richard G. Andrews on 7/25/2018. (nms)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELA WARE
HERITAGE HANDOFF HOLDINGS, LLC,
Plaintiff,
Civil Action No. 16-691-RGA

V.

RONALD FONTANELLA,
Defendant.

MEMORANDUM ORDER

Presently before the Court is Defendant Ronald Fontanella's Motion for Leave to Amend
and Supplement His Answer and Counterclaims. (D.I. 73). The matter is fully briefed. (D.I. 74,
81, 88). For the reasons stated herein, it is HEREBY ORDERED that Defendant's motion is
DENIED as to proposed Counts Four, Five, Seven, Eight, and Nine, and is otherwise
GRANTED.
By way of background, Plaintiff Heritage HandoffHoldings filed this suit against
Defendant on August 10, 2016. (D.I. I). On September 30, 2016, Defendant answered
Plaintiffs complaint and asserted two counterclaims. (D.I. 8). Plaintiff subsequently moved for
summary judgment on those counterclaims. (D.I. 68). On July 25, 2018, I granted Plaintiffs
motion as to Defendant's claim for breach of the covenant of good faith and fair dealing, and
denied it as to his claim for breach of contract. (D.I. 130). Defendant seeks to assert seven new
counterclaims and to amend his previously asserted counterclaims. (See D.I. 74, Exh. B). 1

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Defendant also seeks to amend his affirmative defenses. I do not understand Plaintiff to be objecting to
those amendments. In any event, in light ofmy finding below that Defendant has met the good cause standard under
Federal Rule of Civil Procedure 16, I see no reason to deny Defendant's motion as to those amendments.

Defendant filed his motion to amend on November 21, 2017. (D .I. 73 ). The deadline was March
15,2017. (D.I. 13).
A court-ordered schedule "may be modified only for good cause and with the judge's
consent." Fed. R. Civ. P. l 6(b)(4). "[T]he good cause standard under [Federal Rule of Civil
Procedure] 16(b) hinges on diligence of the movant, and not on prejudice to the non-moving
party." Roquette Freres v. SP! Pharma, Inc., 2009 WL 1444835, at *4 (D. Del. May 21, 2009).
"Only after having found the requisite showing of good cause will the court consider whether the
proposed amended pleading meets the standard under [Federal Rule of Civil Procedure] 15."
Intellectual Ventures I LLC v. Toshiba Corp., 2016 WL 4690384, at* 1 (D. Del. Sept. 7, 2016)
(citing E. Minerals & Chems. Co. v. Mahan, 225 F.3d 330, 340 (3d Cir. 2000)).
As an initial matter, I think the good cause standard under Rule l 6(b) has been met.
While it appears that Defendant possessed at least some of the relevant facts and documents prior
to the expiration of the deadline to amend, it seems to me that Defendant acted diligently once he
became aware of the issues underlying his proposed amendments.
Having concluded Defendant has met the Rule 16(b) good cause standard, I now tum to
Rule 15. Under Rule 15, "[t]he court should freely give leave [to amend] when justice so
requires." Fed. R. Civ. P. 15(a)(2). A court may deny leave to amend, however, for reasons of
undue delay, bad faith on part of the moving party, undue prejudice to the non-moving party, or
futility of amendment. Foman v. Davis, 371 U.S. 178, 182 (1962).
Plaintiffs opposition to Defendant's motion to amend implicates two of the factors under
Rule 15 that weigh against permitting amendments. They are undue prejudice and futility of

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amendment. 2
Undue prejudice occurs "when allowing the amended pleading would (1) require the nonmoving party to expend significant additional resources to conduct discovery and prepare for
trial, (2) significantly delay the resolution of the dispute, or (3) prevent [a party] from bringing a
timely action in another jurisdiction." Intellectual Ventures, 2016 WL 4690384, at *1 (quoting
Long v. Wilson, 393 F.3d 390,400 (3d Cir. 2004)). To show undue prejudice, Plaintiff must
demonstrate that it will be "unfairly disadvantaged or deprived of the opportunity to present facts
or evidence" unless leave to amend is denied. Bechtel v. Robinson, 886 F.2d 644, 652 (3d Cir.
1989). A proposed amendment would be futile if "the complaint as amended is frivolous,
advances a claim that is legally insufficient on its face, or fails to state a claim upon which relief
can be granted." Intellectual Ventures, 2016 WL 4690384, at *1 (citation omitted). "The
decision to grant a motion for leave to amend is within the sound discretion of the District
Court." Winer Family Trust v. Queen, 503 F.3d 319,331 (3d Cir. 2007).
Defendant's proposed Counts One and Two relate to the issue of pre-closing tax refunds,
which was the subject of Plaintiffs motion for partial summary judgment. Those counts seek
reformation of Section 4.l(d) of the parties' stock purchase agreement based on mutual mistake
and unilateral mistake, respectively. (D.I. 74, Exh. A at 23-24 ,r,r 56-68). As to those counts,
Plaintiff argues undue prejudice under Rule 15. (D.I. 81 at 8-9). 3 I am not persuaded. The
payment of pre-closing tax refunds pursuant to Section 4.l(d) has been an issue in this case since
Defendant filed his answer in September 2016. While Plaintiff has not taken any deposition

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I note that Plaintiff makes arguments in regard to Defendant's delay in seeking to amend his
counterclaims. Each of those arguments is made pursuant to Rule 16, however. Thus, I do not understand Plaintiff
to be arguing undue delay under Rule 15.

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Plaintiff also argues untimeliness under Rule 16. (D.I. 81 at 8). As stated above, however, I think
Defendant has met the good cause standard under that Rule.

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testimony specifically on the issue of the scrivener's error that forms the basis of Defendant's
counterclaims, I do not think allowing Defendant to pursue those claims would require Plaintiff
to expend significant additional resources or delay the resolution of the dispute. Indeed, Plaintiff
does not make any argument to that effect. Nor do I think Plaintiff would be disadvantaged or
otherwise deprived of the opportunity to present facts or evidence at trial. Thus, Defendant's
motion is GRANTED as to proposed Counts One and Two.
Defendant's proposed Count Three similarly relates to the issue of pre-closing tax
refunds. (D.I. 74, Exh. A at 25-26 ,r,r 69-72 (asserting claim for breach of Section 4.l(d) of the
parties' agreement)). In his answer to Plaintiffs complaint, Defendant asserted a nearly identical
breach of contract counterclaim and now seeks to amend that claim. (See id., Exh. B at 27 ,r,r
69-72). Plaintiff argues Defendant has failed to show good cause under Rule 16. (D.I. 81 at 910). As stated above, I think Defendant has satisfied the Rule 16 good cause standard. I note,
however, that paragraph 70 of Defendant's proposed amendment, which states that "Section ·
4.l(d) of the Agreement states that Heritag_e 'shall' pay any tax refunds or credits 'received by
the Company' to Fontanella within 15 days of receipt," conflicts with the express terms of
Section 4.l(d) as it is currently written. (See D.I. 74, Exh. A at 19). I therefore understand
Defendant's proposed Count Three to come into play only if Defendant prevails on his claim for
reformation of Section 4.l(d). Defendant's motion is GRANTED as to Count Three.
Unlike Counts One through Three, Defendant's proposed Counts Four, Five, and Nine
all relate to issues that have not previously been a part of this case. Count Four alleges that
Plaintiff breached Section l .2(b) ·of the agreement by failing to make quarterly note payments to
Defendant. (D.I. 74, Exh. A at 26 ,r,r 73-77). Count Five alleges that Plaintiff failed to fulfill its
obligation to perform "compliance activities," which, as I understand it, relate to environmental

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remediation. (Id. at 27 ,r,r 78-84). In Count Nine, Defendant seeks to recover money Plaintiff
allegedly owes to Sperry Mitchell, who assigned his claim to Defendant. (Id. at 30-31

,r,r 104-

110). As to these counts, Plaintiff makes various arguments related to untimeliness, futility of
amendment, and undue prejudice. (See D.I. 81 at 10-16, 20-21). I am persuaded that allowing
Defendant to pursue these counts would be unduly prejudicial to Plaintiff. That is because
Plaintiff would be required to expend significant resources to conduct discovery on various
issues wholly unrelated to any of the issues that have thus far been a part ofthis case.
Accordingly, Defendant's motion is DENIED as to proposed Counts Four, Five, and Nine.
Defendant's proposed Count Six alleges that in breach of the parties agreement, Plaintiff
failed to provide Defendant company tax returns and information related to environmental
compliance activities. (D.I. 74, Exh. A at 28

,r,r 85-89).

Plaintiff argues this proposed count is

untimely under Rule 16. (D .I. 81 at 16). As stated above, I think Defendant has met the Rule 16
good cause standard. Accordingly, Defendant's motion is GRANTED as to proposed Count
Six.
Defendant's proposed Count Seven alleges that Plaintiff breached the covenant of good
faith and fair dealing by failing to provide Defendant information related to the company's tax
returns and environmental compliance activities. (D.I. 74, Exh. A at 28-29 ,r,r 90-96). I
previously granted Plaintiffs motion for summary judgment on the implied covenant
counterclaim that Defendant asserted in his answer to Plaintiffs complaint. (See D.I. 130 at 45). That counterclaim related only to Plaintiffs refusal to provide Defendant company tax
returns, whereas Defendant's amended counterclaim includes allegations related to the
company's compliance activities. (Compare D.I. 8 at 14 ,r,r 15-18, with D.I. 74, Exh. A at 28-29

,r,r 90-96).

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Plaintiff argues this proposed count is untimely and would otherwise be futile. (D.I. 81 at
16-17). I agree with Plaintiff that it would be futile. Defendant fails to identify any relevant gap
in the parties' agreement that the implied covenant might fill. See Allied Capital Corp. v. GCSun-Holdings, L.P., 910 A.2d 1020, 1032 (Del. Ch. 2006) (stating that "implied covenant
analysis will only be applied when the contract is truly silent with respect to the matter at hand").
Indeed, Defendant's amended counterclaim seems to be based on the same facts that underlie
proposed Count Six, which alleges breach of contract. As Plaintiff points out, a party generally
cannot assert a claim for breach of the implied covenant based on the same conduct which is said
to be in breach of express provisions in a contract. Metro Commc 'n Corp. BVI v. Advanced
Mobilecomm Techs. Inc., 854 A.2d 121, 141, n.32 (Del. Ch. 2004) (citation omitted). 4 Thus, the
implied covenant cannot be invoked to challenge Plaintiffs alleged failure to provide Defendant
information related to the company's environmental compliance activities. 5 Defendant's motion
is DENIED as to Count Seven.
Finally, Defendant's proposed Count VIII alleges that Plaintiff has violated the
Connecticut Unfair Trade Practices Act ("CUTPA"). (D.I. 74, Exh. A at 29-30 ,r,r 97-103).
Plaintiff argues this claim is untimely and would otherwise be futile. (D.I. 81 at 18-20). I agree
with Plaintiff that it would be futile.
Under Connecticut law, "No person shall engage in unfair methods of competition and
unfair or deceptive acts or practices in the conduct of any trade or commerce." Conn. Gen. Stat.
§ 42-11 0b(a). Whether a practice is "unfair" turns on, among other things, whether it "offends

4

In his opposition, Defendant makes an argument related to "discretionary standards" in the stock purchase
agreement. (D.I. 88 at 11-12). I understand this argument to be essentially the same as an argument Defendant
made in opposing Plaintiffs motion for partial summary judgment. In ruling on that motion, I rejected that
argument, and for the same reasons stated in that memorandum order, I do so again. (See D.I. 130 at 5 n. l).
5

I previously held that in light ofan express provision in the parties' agreement, neither could the covenant
be invoked to challenge Plaintiffs alleged failure to provide Defendant company tax returns. (See D.I. 130 at 4-5).

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public policy," is "immoral, unethical, oppressive, or unscrupulous," or "causes substantial
injury to consumers." Emlee Equip. Leasing Corp. v. Waterbury Transmission, Inc., 595 A.2d
951, 953 (Conn. Super. Ct. 1991) (citation omitted). Although there appears to be some
disagreement among Connecticut courts, see Caste lino v. Fairview Condo. Ass 'n, Inc., 2014 WL
7495065, at *3 (Conn. Super. Ct. Nov., 21, 2014), they generally seem to agree that "a breach of
contract claim is not a CUTP A violation unless the circumstances surrounding the breach include
deception or allegations of unfairness that rise to the level of immoral, oppressive, or unethical
conduct in business relations," id (citations omitted); see, e.g., Waterbury, 595 A.2d at 954.
Accordingly, in asserting a violation of CUTP A, "a [claimant] must show substantial aggravating
circumstances attending the breach to recover under the Act." Waterbury, 595 A.2d at 954.
In this case, Defendant has failed to allege substantial aggravating circumstances required
to establish a claim under CUTP A. Although Defendant's counterclaim does more than allege
breach of contract, it states only in conclusory fashion that Plaintiff's various contract breaches
were "a product of unfair and deceptive conduct involving malice, bad faith, and/or violations of
public policy or accepted conceptions of fairness." (D.I. 74, Exh. A at 30 ,r 98). Under the
Twombly/Iqbal pleading standard, however, factual allegations must provide more than labels,
conclusions, or a "formulaic recitation" of claim elements. Bell At!. Corp. v. Twombly, 550 U.S.
544, 555 (2007). Defendant's factual allegations related to aggravating circumstances, which are
wholly conclusory, do not do so here. Defendant has failed to allege facts that would allow the
Court to draw the reasonable inference that Plaintiff has violated CUTPA. See Ashcroft v. Iqbal,
556 U.S. 622,678 (2009). Thus, I conclude Defendant's proposed CUTPA counterclaim would
be futile. Accordingly, Defendant's motion is DENIED as to Count Eight.

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