Access Point Financial, Inc. v. Ext-Indy Suites, LLC et al
Filing
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ORDER denying 61 Motion for Leave to File Second Amended Counterclaim for Damages; denying 68 Motion for Leave to File a Surreply. Signed by Judge Richard W. Story on 03/09/16. (sk)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
ACCESS POINT FINANCIAL,
INC.,
Plaintiff and
Counter-Defendant,
v.
EXT-INDY SUITES, LLC;
RYSZARD J. ZADOW; CLAIRE
J. ZADOW; JERRY DEHNER;
and HYDE PARK CG, LLC,
Defendants and CounterClaimants; Cross-Claimants
and Cross-Defendants.
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CIVIL ACTION NO.
1:15-CV-0002-RWS
ORDER
This case comes before the Court on Defendants Ext-Indy Suites, LLC,
Ryszard J. Zadow and Claire J. Zadow’s Motion for Leave to File Second
Amended Counterclaim for Damages and Incorporated Memorandum of Law
in Support Thereof (“Defendants’ Motion for Leave to Amend”) [61] and
Access Point Financial, Inc.’s Motion for Leave to File Surreply [68]. After
reviewing the record, the Court enters the following Order.
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Background
This action arises out of a complex arrangement between Plaintiff
Access Point Financial, Inc. (“APF”) and Defendant Ext-Indy Suites, LLC
(“Ext-Indy”). This arrangement, which had as its end goal the conversion of an
Extend-A-Suites Hotel into a Clarion Hotel, is outlined more fully in the
Court’s Order of August 28, 2015 [65].
In the course of their dealings, the parties entered into a number of
agreements, including an Equipment Agreement, a Mortgage and Security
Agreement, and a Mortgage Note. Ext-Indy defaulted on the loans and APF
filed suit in the Superior Court of DeKalb County on October 15, 2014.
Defendants removed the action to this Court on January 2, 2015 and Ext-Indy
and the Zadows asserted counterclaims against APF. (Dkt. [3], [4].)
Defendants amended their counterclaims on February 12, 2015. (Dkt. [23],
[24].) Defendants now seek leave to amend their counterclaims a second time
to add a counterclaim for fraudulent inducement. (Dkt. [61].)
In their claim for fraudulent inducement in the proposed Second
Amended Counterclaim, Defendants allege that “APF made material
representations to the Ext-Indy Parties that the hotel renovation would allow
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the Ext-Indy Parties to secure loans for refinancing and renovation of the
Property and that the increased revenues generated from the improved hotel
Property would satisfy the Ext-Indy Parties’ debt obligations.” (Defs.’
Proposed 2d Am. Countercl., Dkt. [61-1] ¶ 89.) Defendants further allege that
Plaintiff knew or should have known that Ext-Indy could not meet the equity
contributions required by the Equipment Loan and would be forced to default
on the Loan. (Id. ¶¶ 90, 92.) Defendants allege that Ext-Indy reasonably relied
on APF’s conduct, promises, and statements to enter into the Mortgage Loan,
the Equipment Loan, and the Guaranty. (Id. ¶ 97.)
Discussion
As a preliminary matter, the Court DENIES Access Point Financial,
Inc.’s Motion for Leave to File Surreply [68]. “Neither the Federal Rules of
Civil Procedure nor this Court’s Local Rules authorize the filing of surreplies.”
Fedrick v. Mercedes-Benz USA, LLC, 366 F. Supp. 2d 1190, 1197 (N.D. Ga.
2005) (internal citations omitted). “To allow such surreplies as a regular
practice would put the court in the position of refereeing an endless volley of
briefs.” Garrison v. N.E. Ga. Med. Ctr., Inc., 66 F. Supp. 2d 1336, 1340 (N.D.
Ga. 1999) (declining to permit surreply). Rather, surreplies typically will be
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permitted by the Court only in unusual circumstances, such as where a movant
raises new arguments or facts in a reply brief, or where a party wishes to inform
the Court of a new decision or rule implicating the motion under review. See,
e.g., Fedrick, 366 F. Supp. 2d at 1197. In this case, no exceptional
circumstances warrant permitting surreply. Access Point Financial, Inc.’s
Motion for Leave to File Surreply [68] is therefore DENIED.
The Court now turns to Defendants’ Motion for Leave to Amend.
I.
Legal Standard
When a motion to amend is filed after a scheduling order deadline,
Federal Rule of Civil Procedure 16 is the proper guide for determining whether
a party’s delay may be excused. S. Grouts & Mortars, Inc. v. 3M Co., 575 F.3d
1235, 1241 (11th Cir. 2009) (citing Sosa v. Airprint Sys., 133 F.3d 1417, 1418
n.2 (11th Cir. 1998)). A scheduling order may be modified only for good cause
and with the Court’s consent. Fed. R. Civ. P. 16(b)(4). The key to good cause
is diligence. Sosa, 133 F.3d at 1419.
The Eleventh Circuit has found three factors a court must consider when
evaluating diligence: “(1) [whether] the [party seeking amendment] failed to
ascertain facts prior to filing the [pleading] and to acquire information during
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the discovery period; (2) [whether] the information supporting the proposed
amendment was available to the [party seeking amendment]; and (3) even after
acquiring information, [whether] the [party seeking amendment was] delayed in
asking for amendment.” Auto-Owners Ins. Co. v. Ace Elec. Serv., Inc., 648 F.
Supp. 2d 1371, 1375 (M.D. Fla. 2009) (citations omitted).
Defendants must satisfy not only Rule 16(b)(4), but also Federal Rule of
Civil Procedure 15. Rule 15 directs the Court to “freely give leave [to amend]
when justice so requires.” FED. R. CIV. P. 15(a)(2). Despite this instruction,
leave to amend is “by no means automatic.” Layfield v. Bill Heard Chevrolet
Co., 607 F.2d 1097, 1099 (5th Cir. 1979). The trial court has “extensive
discretion” in deciding whether to grant leave to amend. Campbell v. Emory
Clinic, 166 F.3d 1157, 1162 (11th Cir. 1999). A trial court may choose not to
allow a party to amend “when the amendment would prejudice the [other
party], follows undue delays or is futile.” Id.
II.
Analysis
First, Plaintiff opposes Defendants’ Motion on grounds that it is
untimely. (Pl.’s Resp., Dkt. [64] at 11.) Plaintiff points to the parties’
agreement, in their Joint Preliminary Report and Discovery Plan, that:
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“Amendments to the pleadings submitted LATER THAN THIRTY DAYS after
the Joint Preliminary Report and Discovery Plan is filed, or should have been
filed, will not be accepted for filing, unless otherwise permitted by law.” (Joint
Preliminary Report and Discovery Plan, Dkt. [16] at 18.) But the Discovery
Plan also provides that “[t]he parties reserve their right to amend the pleadings
in accordance with the Federal Rules of Civil Procedure” and that
“[a]mendments and supplemental pleadings must be filed in accordance with
the time limitations and other provisions of Fed. R. Civ. P. 15.” (Id. at 17.)
Accordingly, the Court will consider whether the proposed Amendment is
permitted under the Federal Rules, beginning first with Federal Rule of Civil
Procedure 16(b)(4).
Defendants have been diligent under the Eleventh Circuit’s three-factor
test. The Court first asks whether a party failed “to acquire information during
the discovery period.” Auto-Owners, 648 F. Supp. 2d at 1375. The Court finds
that Defendants did not fail to acquire information during the discovery period.
In fact, Defendants base the proposed counterclaim on information that was
obtained, corroborated, or clarified during discovery. (Defs.’ Mot. for Leave to
Am., Dkt. [61] at 5.) This acquisition of information during discovery suggests
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that Defendants were reasonably diligent in seeking out and securing that
information.
The second factor of the Eleventh Circuit’s diligence analysis also
supports a finding of Defendants’ diligence. The Court asks “[whether] the
information supporting the proposed amendment was available.” Auto-Owners,
648 F. Supp. 2d at 1375. Here, Defendants propose to amend their
Counterclaim based on information learned as a result of the “first round of
requests for discovery.” (Defs.’ Mot. to Am., Dkt. [61] at 5.)
The third factor also points to Defendants’ diligence. The Court asks
“[whether] the [party seeking amendment was] delayed in asking for
amendment.” Auto-Owners, 648 F. Supp. 2d at 1375. The Court finds that
Defendants did not unduly delay in asking for amendment. In many cases
where courts have denied leave to amend, plaintiffs or defendants had waited
for months or even years before requesting such leave. See, e.g., Quinn v.
Deutsche Bank Nat’l Trust Co., 2015 WL 5155070, at *3 (11th Cir. Sept. 3,
2015) (affirming district court’s refusal to grant leave to amend when plaintiff
had waited seven months after deadline for amended pleading); Haynes v.
McCalla Raymer, LLC, 793 F.3d 1246, 1250 (11th Cir. 2015) (upholding
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district court’s refusal to grant leave to amend when plaintiff had waited two
years after original complaint); Anderson v. Brown Indus., 2015 WL 3540378,
at *1 (11th Cir. June 8, 2015) (holding that district court had not abused
discretion when it denied motion for leave to amend filed eight months after
scheduling order’s deadline). In contrast to the moving parties in those cases,
Defendants in this case filed their Amendment before the end of the extended
discovery period. On June 15, 2015, the Court issued an Order [60] granting
the parties’ joint Motion for Extension of Time to Complete Discovery [59].
That Order extended the discovery period to September 30, 2015. Defendants
filed this Motion for Leave to File Second Amended Counterclaim on July 30,
2015. Accordingly, the Court finds that the third factor also weighs in favor of
Defendants’ diligence.
Having found that the Amended Counterclaim complies with Federal
Rule of Civil Procedure 16, the Court now turns to the requirements of Federal
Rule 15. As a backdrop to this analysis, the Court reiterates that the Federal
Rules of Civil Procedure provide that leave to amend a pleading should be
given “freely” “when justice so requires.” FED. R. CIV. P. 15(a)(2). The Court
finds that the majority of the Foman factors weigh in favor of permitting
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Defendants’ amendment. Foman v. Davis, 371 U.S. 178, 182 (1962). The
Court does not find undue delay, bad faith, or dilatory motive on the part of the
movant. Nor has there been repeated failure to cure deficiencies by previous
amendments. Additionally, because the case is in its early stages, Plaintiff will
suffer no undue prejudice if the Court allows the amendment. As such, the
Court’s analysis under Rule 15 focuses on the futility of the proposed
amendment.
Plaintiff argues that Defendants’ proposed amendment is futile because
(1) in the Forbearance Agreement, Defendants released all claims against APF;1
(2) Defendants’ allegations are insufficient to state a claim for fraudulent
inducement under Georgia law; and (3) Defendants’ proposed counterclaim is
not plead with sufficient particularity. Construing the allegations in the
proposed counterclaim as favorably to Defendants as possible, the Court finds
the proposed amendment futile because it does not state a valid claim for
fraudulent inducement.
Under Georgia law, the party seeking to void a contract based upon fraud
1
The Court is not convinced that the Forbearance Agreement would not bar
Defendants’ fraudulent inducement counterclaim, but in light of the Court’s holding
below, the Court does not reach this issue.
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in the inducement must prove five elements: “(1) a false representation or
concealment of a material fact; (2) that the defendant knew the representations
or concealment were false; (3) an intent to induce the allegedly defrauded party
to act or refrain from acting; (4) justifiable reliance by the plaintiff; and (5)
damages as a result of the false representations or concealment.” Earthcam,
Inc. v. Oxblue Corp., No. 1:11-CV-2278-WSD, 2014 WL 793522, at *2 (N.D.
Ga. Feb. 26, 2014) (citing Pacheco v. Charles Crews Custom Homes, 289 Ga.
App. 773, 658 S.E.2d 396, 398 (2008). What is more, Georgia law provides
that “the only fraud which would relieve a party from an obligation which he
has signed, where that party can read and write and is not otherwise under any
disability, is that fraud which prevents him from reading what he signed.”
McLemore v. Sw. Georgia Farm Credit, ACA, 230 Ga. App. 85, 87-88, 495
S.E.2d 335, 337-38 (1998) (quoting Marchman Oil, etc., Co. v. Southern
Petroleum Trading Co., 167 Ga. App. 691(1), 307 S.E.2d 509 (1983)). Put
another way, absent a showing of a fraud that prevented Defendants from
reading the Equipment Loan agreement, which agreement clearly set out the
terms, Defendants cannot prevail on a theory that Plaintiff’s oral
representations fraudulently induced Defendants’ written agreement. Corso
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Properties, LLC v. Branch Banking & Trust Co., No. 1:12-CV-3128-JEC, 2013
WL 5423437, at *5 (N.D. Ga. Sept. 26, 2013). The proposed Second Amended
Counterclaim contains no such allegation with regard to the Equipment Loan or
any other agreement.
Even construing the proposed Second Amended Counterclaim in
Defendants’ favor, this Court has had a hard time understanding what
Defendants are alleging as the basis of their counterclaim. While Defendants
argue that Plaintiff “erroneously describes” the basis of the counterclaim as
“alleged representations by APF relating to Counterclaimants’ financial
capabilities,” Defendants themselves do not adequately explain to the Court
what in fact does form the basis of the counterclaim. (See Defs.’ Reply in
Supp. of Defs.’ Mot. to File 2d Am. Countercl., Dkt. [66] at 6-7.) Defendants
state that “the claim is premised on APF’s promise to perform its obligations
under the Loans (the promise of a future event).” (Id. at 7.) But the proposed
Second Amended Counterclaim does not state which, if any, future event failed
to occur or which obligations APF failed to perform.
Here, Defendants have not alleged sufficient facts to form a basis for a
fraudulent inducement claim under Georgia law. Because the claim would
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necessarily fail, allowing Defendants to amend the counterclaim would be
futile. As such, the Court DENIES Defendants’ Motion for Leave to File
Second Amended Counterclaim.
Conclusion
In accordance with the foregoing, Defendants Ext-Indy Suites, LLC,
Ryszard J. Zadow and Claire J. Zadow’s Motion for Leave to File Second
Amended Counterclaim for Damages and Incorporated Memorandum of Law
in Support Thereof [61] is DENIED. Access Point Financial, Inc.’s Motion
for Leave to File Surreply [68] is also DENIED.
SO ORDERED, this 9th day of March, 2016.
________________________________
RICHARD W. STORY
United States District Judge
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