U.S. Home Corporation v. Settlers Crossing, L.L.C. et al
Filing
445
MEMORANDUM OPINION. Signed by Chief Judge Deborah K. Chasanow on 8/14/12. (sat, Chambers)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
:
U.S. HOME CORPORATION
:
v.
:
Civil Action No. DKC 08-1863
:
SETTLERS CROSSING, LLC, et al.
:
MEMORANDUM OPINION
Several motions to amend pleadings are pending, along with
subsidiary and related motions.
(ECF Nos. 294, 296, 301, 316,
346, 373, 400, 401, 404, 420).
The issues have been briefed,
and the court now rules, no hearing being deemed necessary.
Local Rule 105.6.
leave
to
file
For the following reasons, the motion for
a
first
amended
counterclaim
filed
by
Defendant/Counter Claimant iStar Financial, Inc. (“iStar”), will
be granted, and all other motions will be denied or denied as
moot.
I.
Background
A.
Factual Background
As necessary to resolve these motions, the background facts
are as follows.
commercial
real
At the heart of this matter is a complex
estate
transaction
pursuant
to
which
Plaintiff/Counter Defendant U.S. Home Corporation (“U.S. Home”)
was
to
acquire
all
of
the
ownership
interests
of
Defendant/Counter Claimant Washington Park Estates, LLC (“WPE”),
from
Defendant/Counter
(“Settlers
Crossing”).
membership
interests
Claimant
Settlers
in
WPE,
Settlers
Crossing
and
Crossing,
100%
owns
WPE
owns
or
LLC
of
the
controls
approximately 1,250 acres of undeveloped land in Prince George’s
County, Maryland (“the Property”).
Thus, via this transaction,
U.S. Home would in effect purchase the Property.
On or about November 15, 2005, U.S. Home entered into an
agreement of purchase and sale of membership interests (“the
Purchase
Agreement”)
with
Settlers
Crossing
and
(collectively, “Sellers”) to accomplish the transaction.
WPE
At the
same time, U.S. Home entered into a contract for services (“the
Contract for Services”) with Defendant/Counter Claimant Bevard
Development
obligated
Company
to
(“Bevard”)
obtain
pursuant
certain
approvals
to
which
and
Bevard
was
entitlements
connection with the development of the Property.
in
On or about
December 2, 2005, Defendant Steven B. Sandler, a principal and
member of Settlers Crossing, entered into two guaranties, which
established
him
as
the
guarantor
for
any
refund
of
the
$16
million and $4 million deposits paid by U.S. Home under the
Purchase Agreement and the Contract for Services, respectively.
In a March 29, 2007, letter, Settlers Crossing stated that
all
conditions
precedent
in
the
Purchase
Agreement
were
satisfied.
U.S. Home disagreed, and the next day, it sent a
“Notice
Termination
of
to
Seller”
2
to
terminate
the
Purchase
Agreement
based
on
Sellers’
precedent
related
followed.
On or about May 16, 2007, the parties entered into a
to
failure
government
to
satisfy
approvals.1
conditions
Negotiations
“Second Amendment” to the Purchase Agreement,2 which, among other
items, reaffirmed the existing representations and warranties of
Sellers, reflected Sellers’ new obligations regarding government
approvals, evidenced the resolution of certain zoning appeals,
and showed a lower purchase price.
The Second Amendment also
reset the initial settlement date to December 5, 2007, and the
outside settlement date to March 15, 2009.
In June 2007, iStar made a $100 million loan to Sellers and
Bevard.
As security, Sellers and Bevard assigned certain rights
under the Purchase Agreement and the Contract for Services to
iStar.
On or about June 19, 2007, in response to a request by
Defendants, U.S. Home executed a consent and estoppel agreement
(“the Consent”) acknowledging and accepting this assignment of
rights.
Shortly before the initial settlement date, U.S. Home sent
a letter to Sellers stating that Sellers had again failed to
satisfy certain conditions precedent, including but not limited
1
The
Contract
for
Services
would
also
terminate
automatically upon termination of the Purchase Agreement.
2
The parties had executed a First Amendment to the Purchase
Agreement on December 31, 2005.
3
to certain off-site easements.
In response to a request by
Sellers to identify the particular off-site easements at issue,
U.S. Home sent another letter on November 27, 2007.
In that
letter, U.S. Home listed the off-site easements in question, and
it also demanded that Sellers provide written confirmation and
evidence
of
their
satisfaction
of
all
conditions
precedent.
Sellers did not respond to the November 27, 2007, letter, and
settlement did not occur as initially scheduled on December 5,
2007.3
Around January 3, 2008, U.S. Home expressed concerns about
the
environmental
condition
of
the
Property
and
therefore
requested an opportunity to inspect it as provided for under the
Purchase Agreement.
2008.
U.S. Home renewed its request on March 7,
On March 14, 2008, Sellers rejected U.S. Home’s request
to inspect the Property.
In an April 28, 2008, letter, Sellers
asserted that all conditions precedent were satisfied and called
for settlement to occur at the end of May.
3
On May 16, 2008,
U.S. Home alleges that there were “other failed conditions
precedent not known by U.S. Home at the time of its November
2007 correspondence” with Sellers.
(ECF No. 52 ¶ 61).
For
example, Sellers never disclosed to U.S. Home that “the Property
was used for many years as a sewage sludge disposal site.”
(Id.).
In addition, Sellers failed to satisfy certain
obligations they had with respect to settlement agreements
related to lawsuits challenging zoning approvals for the
Property.
(See id. ¶¶ 68-76).
Finally, Sellers failed to
disclose certain pending lawsuits against them that were of
potential relevance to the disposition of the Property.
(See
id. ¶¶ 77-78).
4
U.S. Home informed Sellers that Sellers were in default because
Sellers
continued
to
refuse
access
to
the
Property
for
inspection as U.S. Home had previously requested on multiple
occasions.
U.S. Home followed up a week later with a letter
asserting that it was not obligated to proceed with settlement.
Because settlement did not occur at the end of May as Sellers
requested, Sellers sent a notice of default to U.S. Home.
On
July
to
3,
2008,
Defendants
U.S.
based
Home
upon
sent
their
a
notice
failure
to
of
termination
permit
U.S.
Home
to
access the Property for inspection.
According to U.S. Home, Sellers still failed to satisfy all
conditions precedent to the Purchase Agreement as of March 15,
2009, the outside closing date.
Subsequent to that date, U.S.
Home sent a second notice of termination on April 8, 2009, to
make
clear
effective
that,
or
automatically,
in
the
the
event
Purchase
Sellers’
its
earlier
Agreement
failure
to
notice
did
satisfy
the
not
was
not
expire
conditions
precedent constituted yet another basis for termination.
B.
Procedural Background
On July 17, 2008, U.S. Home filed a complaint in this court
against Settlers Crossing, WPE, Bevard, Mr. Sandler, and iStar,
alleging various claims for breach of contract and declaratory
judgment.
The parties cross-moved for summary judgment (ECF
Nos. 14, 32), and the court denied both motions (ECF Nos. 41,
5
42).
After obtaining leave, U.S. Home subsequently filed an
amended complaint on May 18, 2009.
complaint contains seven counts:
(ECF No. 52).
The amended
(1) breach of contract against
Sellers; (2) breach of contract against Bevard; (3) breach of
guaranty against Mr. Sandler; (4) fraudulent inducement against
Sellers; (5) fraudulent concealment against Sellers; (6) “breach
of
environmental
representations
and
warranties”
against
Sellers; and (7) declaratory judgment against all Defendants.
On June 30, 2009, all Defendants answered the amended complaint.
(ECF Nos. 64, 65).
That same day, certain of the Defendants
filed a joint three-count counterclaim against U.S. Home and
Counter Defendant Lennar Corporation (“Lennar”) (collectively,
“Plaintiffs/Counter Defendants”),4 seeking a declaratory judgment
and specific performance.
(ECF No. 66).5
Plaintiffs/Counter
Defendants answered the counterclaim on March 26, 2010.
(ECF
No. 99).
A scheduling order was entered on July 15, 2009.
69).
(ECF No.
The scheduling order originally set the deadline for the
amendment of pleadings as August 31, 2009, and the deadline for
the close of discovery as January 15, 2010.
4
The deadline for
U.S. Home is a wholly-owned subsidiary of Lennar.
5
Mr. Sandler did not join the other Defendants in asserting
the counterclaim.
6
the close of discovery has been extended numerous times.
currently set for October 1, 2012.
The
following
It is
(ECF No. 432).
motions
have
now
been
filed:
Plaintiffs/Counter Defendants filed a motion for leave to amend
their
pleadings
(ECF
No.
346);
a
motion
for
leave
to
file
supplemental memorandum in support of their motion for leave to
amend their pleadings (ECF No. 401); and two motions to seal
(ECF Nos. 373, 400).
iStar filed a motion for sanctions (ECF
No. 404), as well as a motion for leave to file first amended
counterclaim (ECF No. 294).
Plaintiffs/Counter Defendants filed
a motion to strike iStar’s proposed first amended counterclaim
insofar
as
document,
it
to
incorporates
seal
the
part
information
of
a
brief
from
filed
a
privileged
by
iStar
that
includes such information, to stay resolution of iStar’s motion
for
leave
to
amend,
and
to
award
(“omnibus motion”) (ECF No. 301).
two
additional
briefing.
motion
motions
to
seal
extension
of
time
related
and
costs
to
the
counterclaim
Finally, U.S. Home filed a
to
file
Magistrate Judge’s June 18, 2012, order.
II.
fees
The respective parties filed
(ECF Nos. 296, 316).
for
attorneys’
objections
to
the
(ECF No. 420).
Motions for Leave to Amend Pleadings
Pursuant to Federal Rule of Civil Procedure 15(a)(2), the
court
should
justice
so
“freely
requires.”
give
leave”
to
Fed.R.Civ.P.
7
amend
15(a)(2).
pleadings
There
“when
is
an
important complication here, however:
the scheduling order set
a deadline of August 31, 2009, for the amendment of pleadings,
and that deadline has long since passed.
While the scheduling
order has been modified numerous times, the deadline for the
amendment of pleadings has not been altered.
In consequence,
the parties must do more than satisfy the liberal standard of
Rule 15(a), they must first meet the mandates of Rule 16(b)(4),
which calls for “good cause” to change a scheduling order.
See
Nourison Rug Corp. v. Parvizian, 535 F.3d 295, 298–99 (4th Cir.
2008); see also Wilson v. Appalachian Power Co., No. 3:10–0445,
2011 WL 221656, at *1 (S.D.W.Va. Jan. 24, 2011) (applying twostep test employing Rules 16(b) and 15(a) in analyzing untimely
motion
for
leave
to
amend);
Rassoull
v.
Maximus,
Inc.,
209
F.R.D. 372, 373 (D.Md. 2002) (same).
Rule
amendment
16(b)
and
focuses
the
on
reasons
Rassoull, 209 F.R.D. at 374.
the
timeliness
behind
its
of
the
tardy
proposed
submission.
In particular, Rule 16(b) requires
the movant to show that it acted diligently.
Id.
The court
also considers whether the non-moving party could be prejudiced
by the delay, the length of the delay, and whether the movant
acted in good faith.
Tawwaab v. Va. Linen Serv., Inc., 729
F.Supp.2d 757, 768–69 (D.Md. 2010).
All in all, the dictates of
Rule 16(b) are not to be taken lightly.
See Potomac Electric
Power Co. v. Electric Motor Supply, Inc., 190 F.R.D. 372, 375
8
(D.Md. 1999) (“[A] scheduling order is not a frivolous piece of
paper,
idly
entered,
which
can
be
cavalierly
disregarded
counsel without peril.” (internal quotations omitted)).
by
If Rule
16(b) is not satisfied, there is no need to consider Rule 15(a).
See Nourison Rug Corp., 535 F.3d at 299.
A.
Plaintiffs’/Counter Defendants’ Motion6
U.S. Home seeks to include iStar as a defendant in Count
Six of the amended complaint, to add five new counts to the
original
seven
allegations
counts,
and
accordingly.
to
revise
The
the
proposed
supporting
new
factual
counts
are:
declaratory judgment against all defendants; breach of covenant
against Sellers and iStar; breach of warranty against Sellers
6
Plaintiffs/Counter Defendants seek leave to file a
supplemental memorandum in support of their motion for leave to
amend their pleadings, but offer no compelling reason to grant
this motion.
(ECF No. 401). At best, they explain that the
supplemental memorandum “discusses materials that are relevant”
to new claims in the proposed second amended complaint and that
consideration of the supplemental memorandum would not prejudice
Defendants.
(Id. at 1).
In opposition, iStar points out that
Plaintiffs/Counter Defendants merely seek to present “old
information to try and better justify [their] request for leave
to amend [their] pleadings.” (ECF No. 412, at 1).
Indeed, half of the supplemental memorandum reiterates
arguments already presented in their motion papers.
(See ECF
No. 403, at 6-8). The other half relies on previously-available
evidence to buttress arguments that could have — and should have
— been presented in Plaintiffs’/Counter Defendants’ reply brief.
(See ECF No. 403, at 2-6). The lateness of these arguments will
not be excused.
In sum, because the supplemental memorandum
will not aid in this court’s decision, the motion for leave to
file it will be denied.
9
and iStar; breach of the duty of good faith and fair dealing
against Sellers and iStar; and malicious use of process against
Sellers and iStar.
Plaintiffs/Counter Defendants also seek to
add certain defenses to their answer to the joint counterclaim,
which mirror the new claims.
Here, as iStar and Sellers argue (ECF No. 365, at 24-25;
ECF No. 366, at 24-27), Plaintiffs/Counter Defendants fail to
show good cause to modify the scheduling order.
It cannot be
said that any of their proposed new claims or defenses is the
product of the requisite diligence that Rule 16(b) demands.7
1.
The Proposed Addition of iStar as a Defendant in Count
Six, and the Proposed Addition of Count Ten
Count Six currently alleges that Sellers were aware that
hazardous materials had been disposed of on the Property at the
time of the Purchase Agreement but failed to tell U.S. Home,
which contravened the Purchase Agreement.
Through the proposed
second amended complaint, U.S. Home seeks to add iStar as a
7
The proposed Count Eleven is more easily disposed of based
on Rule 15(a).
Assuming that good cause could be found to
permit its addition, Count Eleven would fail Rule 15(a) because
the “amendment would be futile.” See Matrix Capital Mgmt. Fund,
LP v. BearingPoint, Inc., 576 F.3d 172, 193 (4th Cir. 2009).
Indeed, there is no independent cause of action for “breach of
duty of good faith and fair dealing” recognized in Maryland.
See Mount Vernon Props., LLC v. Branch Banking & Trust Co., 170
Md.App. 457, 472 (2006). Such a breach “is better viewed as an
element of another cause of action at law.” Id. None of U.S.
Home’s cited cases hold otherwise. (See ECF No. 374, at 22-23).
Accordingly, Count Eleven need not be considered, and the court
will address only the other counts.
10
defendant
pleadings,
in
the
count.
however,
In
U.S.
the
Home
motion
offers
for
no
leave
reason
to
amend
why
this
particular amendment should be permitted, let alone whether good
cause exists to allow it.
Absent any explanation for why iStar
could not have been added to Count Six earlier, there can be no
finding of good cause here.
Cruises,
Inc.,
262
Odyssey Travel Ctr., Inc. v. RO
F.Supp.2d
618,
632
(D.Md.
2003)
(“[Plaintiff’s] lack of explanation for the tardiness of its
submission would leave the court with no choice but to deny its
motion to amend.”); Rassoull, 209 F.R.D. at 374 (finding no good
cause in part because the plaintiff “never addresses the issue
of tardiness in the motion itself”).
This conclusion is especially true because the basis for
asserting Count Six against Sellers could just as easily have
been
the
basis
for
asserting
Count
Six
against
iStar.
The
factual predicate to alleging Count Six in the amended complaint
originated
Department
from
of
the
information
obtained
Environment,
which
from
detailed
the
the
usage as a sewage disposal site for many years.8
Maryland
Property’s
U.S. Home
points to nothing unique about this information that applied
only to Sellers.
(See ECF No. 52 ¶¶ 61-67, 140, 146).
8
iStar
As iStar points out (ECF No. 366, at 24), in response to
interrogatories propounded by Settlers Crossing, U.S. Home
admitted that it obtained this information in July 2008 (see ECF
No. 366-6, at 11).
11
easily could have been included as a defendant in Count Six when
that claim was first raised.
Where, as here, a plaintiff could
have reasonably made a claim before the deadline for amending a
complaint had passed, good cause cannot be found to modify a
scheduling order to allow such amendment.
In light of the information from the Maryland Department of
the
Environment
that
was
available
to
U.S.
Home
before
the
amendment deadline, U.S. Home’s remaining argument that iStar
may
have
learned
of
the
Property
other sources is unavailing.9
iStar
the
results
of
an
contamination
from
various
The fact that Sellers shared with
environmental
report
prepared
by
Sellers’ consulting expert, Apex Companies, LLC, which allegedly
detailed contamination on the Property (“the Apex Report”) (see
ECF No. 374, at 27),10 or the fact that Sellers allegedly knew of
the Property contamination through their agents (see id. at 2930), does not explain why Count Six could not have been asserted
against iStar at the same time as against Sellers.
9
These arguments are raised for the first time in the reply
papers.
“The ordinary rule in federal courts is that an
argument raised for the first time in a reply brief or
memorandum will not be considered.”
Clawson v. FedEx Ground
Package Sys., Inc., 451 F.Supp.2d 731, 734 (D.Md. 2006).
Even
if these arguments are entertained, as explained above, they do
not establish good cause.
10
It is also unclear how U.S. Home purports to know the
contents of the Apex Report given that the report has been
deemed work product and has not, as far as the court is aware,
been disclosed to U.S. Home.
12
Separately, U.S. Home seeks to add a claim for breach of
warranty against Sellers and iStar in Count Ten.
The substance
and basis for the proposed Count Ten, however, is virtually
identical to that of Count Six.
Like Count Six, Count Ten
alleges that, based on the Apex Report and the knowledge of
Sellers’ agents, certain representations that Sellers and iStar
made
to
U.S.
Home
regarding
the
non-existence
of
hazardous
materials on the Property were necessarily incomplete, false, or
misleading.
The only difference between Count Six and Count Ten
appears to be the section of the Purchase Agreement pursuant to
which the claim is asserted.
The striking similarity between
Count Ten and Count Six strongly suggests that there is no good
cause to permit the addition of Count Ten at this late stage.
Indeed,
just
as
iStar
argued
with
respect
to
Count
Six
and
argues now with respect to Count Ten, Count Ten could have been
brought earlier based on the information U.S. Home acquired from
the Maryland Department of the Environment.
2.
The Proposed Addition of Count Eight
In Count Eight, U.S. Home would seek a declaratory judgment
against all Defendants establishing that they engaged in certain
criminal and inequitable conduct that excuses U.S. Home from
performing under the Purchase Agreement.
U.S. Home explains
that two events, taken together, prompted it to assert this
claim
now.
First,
there
is
the
13
declaration
of
Christopher
Lannin, which was executed in November 2011.
1, at 9-10, 14-15).
agreements
in
the
(See ECF No. 346-
Second, there was the unsealing of the plea
criminal
cases
of
Daniel
Colton,
who
was
Sellers’ agent at various relevant times, and Patrick Ricker,
who worked with Mr. Colton.
(See id. at 8-9, 14-15).
Although
the Lannin Declaration was executed only three months before
U.S. Home sought leave to file a second amended complaint,11 the
delay between when U.S. Home sought leave and when it reasonably
should have been aware of all of the facts forming the basis of
Count Eight is actually greater.12
To
begin,
the
information
contained
in
the
Lannin
Declaration is based on Mr. Lannin’s recollection of events that
took place “shortly” after November 2005.
Lannin Decl., ¶¶ 2, 5, 8).
(See ECF No. 346-7,
U.S. Home provides no explanation
for why it took roughly six years for Mr. Lannin to execute his
declaration.
This delay is particularly noteworthy because Mr.
Lannin is associated with Lennar.
(ECF No. 346-1, at 9).
He
was the director of operations for Lennar’s Maryland Division
since 2005.
(ECF No. 346-7 ¶ 2).
Furthermore, although Mr.
11
Plaintiffs/Counter Defendants filed the motion to amend
their pleadings on February 24, 2012.
12
Even if the Lannin Declaration were truly not available
to U.S. Home until November 2011, as will be discussed, it is
not clear that a three-month delay before seeking leave to amend
pleadings exhibits sufficient diligence under Rule 16(b)’s good
cause standard.
14
Lannin no longer appears to be employed by Lennar and is a third
party
to
nonetheless
this
lawsuit
represented
(see
by
ECF
No.
Plaintiffs’
366,
at
counsel
since February 12, 2010 (ECF No. 366-7).13
26),
and
he
has
is
been
Thus, it was well
within the power of U.S. Home to glean the information contained
in the Lannin Declaration at least twenty-one months, if not
more, before it sought leave to add Count Eight.
As noted, U.S. Home contends that it was not Mr. Lannin’s
experience alone that led to Count Eight.
Only when pieced
together with the information revealed by the unsealing of the
Colton and Ricker plea agreements does Mr. Lannin’s experience
take on any significance to this case.
But U.S. Home concedes
that the Colton plea agreement was unsealed in June 2011.
ECF No. 374, at 15).14
all
the
information
(See
In other words, U.S. Home reasonably had
it
needed
to
assert
Count
Eight
approximately eight months before it sought leave to amend its
pleadings.
In the absence of any justification for waiting this
long, good cause to modify the scheduling order to permit the
addition of Count Eight cannot be found.
13
U.S. Home does not dispute this fact.
14
While neither party specifies when the Ricker plea
agreement was unsealed, the court docket shows that it was
unsealed on May 18, 2011. United States v. Ricker, No. 09-0606
(D.Md. filed Nov. 24, 2009) (ECF No. 15).
15
This eight-month delay before seeking leave to add Count
Eight distinguishes the instant proceedings from the cases U.S.
Home relies on to demonstrate that it has met the good cause
standard.
(See ECF No. 346-1, at 15).
In Wood v. Walton, Nos.
WDQ–09–3398, WDQ–10–3422, 2011 WL 3439308 (D.Md. Aug. 4, 2011),
the plaintiff sought leave to add a negligent supervision claim
only
two-and-a-half
weeks
facts for that claim.
after
learning
See id. at *6.
about
the
predicate
Even more diligent was
the plaintiff in Tawwaab, who waited only six days after a key
deposition
to
seek
leave
to
add
information newly discovered.
770.15
a
new
claim
based
on
the
See Tawwaab, 729 F.Supp.2d at
Particularly in light of the quickness with which the
plaintiffs in those cases moved to preserve their rights, U.S.
Home cannot contend that it, too, should be excused from the
dictates of Rule 16, at least as to the addition of Count Eight.
3.
The Proposed Addition of Count Nine
U.S. Home seeks to add a “breach of covenant claim” via
Count Nine.
It readily concedes, however, that this count “is
not premised on newly-obtained evidence.”
14).
(ECF No. 346-1, at
For all the reasons already discussed, the admitted lack
15
The rest of U.S. Home’s cited cases are distinguishable
because Rule 16’s good cause standard was not at issue in
either. See Eigles v. Kim, No. WDQ-07-2223, 2009 WL 5108581, at
*1 n.4 (D.Md. Dec. 16, 2009).
See generally Island Creek Coal
Co. v. Lake Shore, Inc., 832 F.2d 274 (4th Cir. 1987).
16
of
diligence
in
seeking
this
claim
is
fatal
to
the
motion
regarding this count.16
4.
In
The Proposed Addition of Count Twelve
Count
“malicious
use
Twelve,
of
U.S.
Home
process.”
seeks
The
to
proposed
add
a
count
claim
is
for
based
predominantly on an earlier lawsuit that Sellers filed against
U.S. Home in November 2007 (“the First Lawsuit”).
In effect,
U.S. Home argues, Sellers filed the First Lawsuit in bad faith
so as “to prevent and frustrate U.S. Home’s exercise of its
contractual rights” under the Purchase Agreement.
(See ECF No.
346-1, at 19).
As with the other proposed counts, U.S. Home simply has not
proven that it acted diligently in bringing Count Twelve.
U.S.
Home admits in its briefing that the First Action was filed in
2007 and ended in 2010 upon the Fourth Circuit’s affirmance of
that case’s dismissal for lack of subject-matter jurisdiction.
(See id. at 6).
Therefore, for well over a year, U.S. Home sat
idly by as the instant case progressed even though it could have
16
Furthermore, U.S. Home’s cited cases in support of its
argument that this claim should nevertheless be added are of no
moment. (See id. at 14 n.10 (citing CSX Transp., Inc. v. Lone
Star Indus., Inc. (In re Lone Star Indus., Inc. Concrete R.R.
Cross Ties Litig.), 19 F.3d 1429 (4th Cir. 1994) (unpublished
table decision); Robinson v. GEO Licensing Co., 173 F.Supp.2d
419 (D.Md. 2001)).
Of those two cases, only In re Lone Star
implicated Rule 16, and, unlike here, the plaintiff in that case
based its new claims at least in part on newly obtained
evidence. See In re Lone Star, 19 F.3d 1429, at *11.
17
asserted this claim.
U.S. Home does not provide a satisfactory
explanation for its dilatory conduct.
At best, it points to the
deposition of Steven Magee, a senior vice president at iStar, as
providing recent evidence of an element of the claim.
(See ECF
No. 346-1, at 11-12; ECF No. 374, at 26-27).
U.S. Home’s reliance on the Magee Deposition to show good
cause is problematic for several reasons.
First, despite U.S.
Home’s contention that it was taken in November 2011 (ECF No.
374, at 26), the attached excerpt from the deposition transcript
indicates that it was actually taken on October 20, 2011 (ECF
No. 346-13, Magee Dep., at 1), which was more than four months
before
U.S.
pleadings.
Home
filed
its
motion
for
leave
to
amend
the
U.S. Home’s motion papers are silent as to why it
waited so long before seeking leave to amend — an inexcusable
delay under Rule 16(b).
Second, it is not certain that the information provided by
the Magee Deposition was even necessary to bring Count Twelve.
See Tawwaab, 729 F.Supp.2d at 768 (“[A] finding of ‘good cause’
is
justified
under
Rule
16(b)
where
at
least
some
of
the
evidence needed for a plaintiff to prove his or her claim did
not come to light until after the amendment deadline.” (emphasis
18
added)).17
U.S. Home argues that the testimony of Mr. Magee
established that iStar acted with malice (see ECF No. 374, at
26), which is an element of malicious use of process, see One
Thousand Fleet Ltd. P’ship v. Guerriero, 346 Md. 29, 37 (1997)
(listing the five elements of the tort); accord Campbell v. Lake
Hallowell Homeowners Ass’n, 157 Md.App. 504, 532 (2004) (same).
Critically, however, “malice may be inferred from a lack of
probable cause.”18
One Thousand Fleet Ltd. P’ship, 346 Md. at
37; see also Fed.R.Civ.P. 9(b) (“Malice, intent, knowledge, and
other conditions of a person’s mind may be alleged generally.”).
Hence, the “new” evidence that U.S. Home obtained from the Magee
Deposition
was
hardly
necessary,
and
it
could
have
asserted
Count Twelve at an earlier time.19
Accordingly, good cause to modify the scheduling order to
allow the addition of Count Twelve is absent.
17
U.S. Home’s reliance on Tawwaab neglects the requirement
that the newly-discovered evidence supporting good cause to
amend pleadings be “needed” and not merely relevant.
(See ECF
No. 374, at 26).
18
U.S. Home makes this very point in its reply brief.
No. 374, at 24).
19
(ECF
U.S. Home also identifies a September 8, 2008, letter
that allegedly proves Sellers acted with malice. (ECF No. 374,
at 26 n.17).
U.S. Home fails, however, to establish when this
information was obtained.
In any event, as discussed above,
definitive proof of malice is not needed before a party may
plead a cause of action for which it is an element.
19
5.
The Proposed Amendments to the Answer
Plaintiffs/Counter Defendants seek to amend their answer to
the joint counterclaim.
answer
states
new
They explain that the “proposed amended
defenses
that
mirror
the
new
claims
allegations in the proposed second amended complaint.”
and
(ECF No.
346-1, at 12).
Rule
force
to
16(b)’s
the
good
cause
proposed
requirement
amendment
applies
of
with
equal
Plaintiffs’/Counter
Defendants’ answer to the joint counterclaim as it does with the
proposed amendment of U.S. Home’s complaint.
Cf. Nourison Rug
Corp., 535 F.3d at 298 (applying Rule 16(b) to the defendant’s
motion for leave to amend his answer, which was filed after the
deadline
for
the
amendment
of
pleadings
had
passed).
The
scheduling order set August 31, 2009, as the deadline for the
amendment
of
all
counterclaim,
pleadings,
Fed.R.Civ.P.
which
7(a)(3).
includes
Because
an
answer
good
to
cause
a
to
permit the addition of the proposed claims and allegations in
the second amended complaint cannot be found here, good cause to
add defenses mimicking those claims is likewise missing and will
not be allowed.
B.
iStar’s Motion
“Motions for leave to amend counterclaims are subject to
the same standards as all motions for leave to amend pleadings.”
Ground Zero Museum Workshop v. Wilson, 813 F.Supp.2d 678, 706
20
(D.Md.
2011).
As
discussed
above,
iStar
must
satisfy the liberal standard of Rule 15(a).
do
more
than
It must first meet
the mandates of Rule 16(b)(4), which calls for “good cause” to
change a scheduling order.
1.
Good Cause
In its reply, iStar explains that good cause may be found
because its proposed amendments are based on discovery obtained
from Lennar in late 2011.
that
iStar
received
Although somewhat unclear, it appears
the
documents
underlying
its
proposed
amendments as part of a 236,000-page production — which Lennar
completed only upon court order — sometime between September 26,
2011, and November 23, 2011.
with ECF No. 333, at 3).
(Compare ECF No. 294-2, at 16,
iStar’s proposed amendments are also
based in part on depositions of Lennar personnel that took place
between August 12, 2011, and December 1, 2011.
4).
(ECF No. 333, at
The temporal connection between the time iStar obtained the
evidence
supporting
its
proposed
amendments
and
the
time
it
filed its motion for leave to amend20 is brief enough to suggest
timeliness and diligence on the part of iStar.
See Ground Zero
Museum Workshop, 813 F.Supp.2d at 707 (suggesting that seeking
to
amend
20
a
counterclaim
within
a
month
of
first
iStar filed its motion on December 22, 2011.
21
obtaining
supporting
evidence
in
discovery
is
an
adequate
temporal
connection to find good cause).21
Plaintiffs/Counter
Defendants
separately
question
whether
the recently obtained information provides support that could
not have been uncovered earlier.
iStar’s
uncontested
(ECF No. 315, at 14).
description
of
Given
Plaintiffs’/Counter
Defendants’ intransigence during discovery and the court orders
needed to ensure Plaintiffs’/Counter Defendants’ compliance with
its discovery requests, however, it is reasonable to infer that
iStar could not have learned of new facts that would prompt it
to seek leave to amend its counterclaim any earlier.
Moreover,
iStar seeks to add three claims sounding in fraud, which differ
markedly
in
nature
and
substance
from
the
original
three
declaratory and specific performance (i.e., breach of contract)
claims.
There is thus no reason to believe that iStar could
have, let alone should have, asserted these new claims earlier.
Cf. CompuSpa, Inc. v. Int’l Bus. Machines Corp., No. Civ.A. DKC
2002–0507, 2004 WL 1459272, at *2 (D.Md. June 29, 2004) (holding
21
Contrary to Plaintiffs’/Counter Defendants’ argument (ECF
No. 315, at 14 n.6), iStar has identified specific portions of
this recently obtained discovery that support its proposed
amendments (see, e.g., ECF No. 294-2, at 9-14).
Even if iStar
had not cited specific documents or deposition transcript lines,
its reference to this recent production generally and the close
proximity in time to its motion is likely sufficient to support
its counterclaim.
See Ground Zero Museum Workshop, 813
F.Supp.2d at 707.
22
that where the “substance of . . . proposed additional claims
essentially mirrors the allegations . . . contained in [the]
original complaint,” good cause to amend the complaint to add
the proposed claims is lacking).
From this record, iStar’s motion is not untimely, and it
has acted with appropriate diligence in seeking leave to amend.
The good cause requirements of Rule 16(b) are satisfied.
2.
Futility of Amendment
Turning to Rule 15(a)(2), “leave to amend should be denied
only when the amendment would be prejudicial to the opposing
party, there has been bad faith on the part of the moving party,
or amendment would be futile.”
576 F.3d at 193.
Matrix Capital Mgmt. Fund, LP,
Plaintiffs/Counter Defendants only contest
iStar’s motion on the basis that its amendments would be futile.
(See ECF No. 315, at 14-23).
An amendment is futile if it would
fail to withstand a motion to dismiss.
States, 55 F.3d 910, 917 (4th Cir. 1995).
See Perkins v. United
Counterclaims, like
complaints, may be dismissed for inadequate pleading per Rule
12(b)(6).
Consequently, leave to amend should be denied if the wellpleaded facts in the proposed new counterclaim do not amount to
a “showing” that the plaintiff is entitled to relief.
See Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 555 n.3 (2007); see also
Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009) (explaining that a
23
“showing” is more than the “mere possibility of misconduct”).
In conducting this analysis, the court must consider all wellpleaded allegations as true, see Albright v. Oliver, 510 U.S.
266, 268 (1994), and must construe all factual allegations in
the light most favorable to the Counter Claimants, see Harrison
v. Westinghouse Savannah River Co., 176 F.3d 776, 783 (4th Cir.
1999) (citing Mylan Labs., Inc. v. Matkari, 7 F.3d 1130, 1134
(4th Cir. 1993)).
iStar seeks to amend its counterclaim to include three new
counts:
fraudulent inducement; negligent misrepresentation; and
fraudulent concealment.
(ECF No. 294-1 ¶¶ 88-122).
The tort of
fraudulent inducement “means that one has been led by another’s
guile, surreptitiousness or other form of deceit to enter into
an agreement to his detriment.”
665, 674 (2005).
fraud.”
Sass
Therefore,
as
Rozen v. Greenberg, 165 Md.App.
“[F]raud in the inducement is a subspecies of
v.
in
Andrew,
fraud,
152
to
Md.App.
state
a
406,
claim
431
for
fraudulent
inducement, a party must allege:
(1) that a representation made by a party
was false . . . (2) that either its falsity
was
known
to
that
party
or
the
misrepresentation
was
made
with
such
reckless indifference to truth to impute
knowledge to him . . . (3) that the
misrepresentation was made for the purpose
of defrauding some other person . . . (4)
that that person not only relied upon the
misrepresentation but had the right to rely
upon it with full belief of its truth, and
24
(2003).
that he would not have done the thing from
which damage resulted if it had not been
made; and . . . (5) that that person
suffered damage directly resulting from the
misrepresentation.
Lavine v. Am. Airlines, Inc., --- A.3d ---, 2011 WL 6003609, at
*4 (Md.Ct.Spec.Ann. Dec. 1, 2011) (citing B.N. v. K.K., 312 Md.
135,
149
(1988)).
Similarly,
the
elements
of
negligent
misrepresentation are:
(1) the defendant, owing a duty of care to
the plaintiff, negligently asserts a false
statement; (2) the defendant intends that
his statement will be acted upon by the
plaintiff; (3) the defendant has knowledge
that the plaintiff will probably rely on the
statement, which, if erroneous, will cause
loss
or
injury;
(4)
the
plaintiff,
justifiably, takes action in reliance on the
statement; and (5) the plaintiff suffers
damage proximately caused by the defendant’s
negligence.
Id. (citing Griesi v. Atl. Gen. Hosp. Corp., 360 Md. 1, 11
(2000)).
Finally, the elements of fraudulent concealment are:
(1) the defendant owed a duty to the
plaintiff to disclose a material fact; (2)
the defendant failed to disclose that fact;
(3) the defendant intended to defraud or
deceive the plaintiff; (4) the plaintiff
took action in justifiable reliance on the
concealment; and (5) the plaintiff suffered
damages as a result of the defendant’s
concealment.
Blondell v. Littlepage, 413 Md. 96, 119 (2010).22
22
Fraudulent concealment, like fraudulent inducement, is
encompassed by fraud generally. See Sass, 152 Md.App. at 432.
25
Plaintiffs/Counter Defendants attack the new counts from
the perspective of the representations that they believe are at
issue.
They identify three categories of representations:
(i) U.S. Home’s representations in the
Consent . . . , (ii) the provisions in the
Second Amendment that Sellers could seek
specific performance if U.S. Home defaulted
and that Lennar would provide all the cash
needed by U.S. Home for Settlement . . . ,
and (iii) U.S. Home’s alleged plan to assign
its rights under the Purchase Agreement to a
land bank.
(See ECF No. 315, at 16).23
Plaintiffs/Counter Defendants then
argue that the representations in the first category were not
false and that, even if they were, iStar was not justified in
relying on them (id. at 16-19); that the representations in the
second category were not false (id. at 19-20); and that the
representations in the third category were not material (id. at
20-23).
Therefore, they contend, regardless of which new count
the representations support, the count would be dismissed.
Because
falsity
of
Plaintiffs/Counter
the
Defendants
representations,
iStar’s
contest
reliance
only
on
the
those
representations, or the materiality of those representations,
23
iStar
does
not
concede
that
Plaintiffs’/Counter
Defendants’
categorization
of
the
allegedly
fraudulent
representations
accurately
reflects
its
proposed
amended
counterclaim;
instead,
it
replies
to
Plaintiffs’/Counter
Defendants’ arguments by describing how the allegations as they
appear in the proposed amended counterclaim align with the
requisite elements of each cause of action.
(See ECF No. 333,
at 8-18).
26
they are correct that it does not matter which cause of action
is analyzed vis-à-vis each category of representations.
fraudulent
inducement,
negligent
Indeed,
misrepresentation,
and
fraudulent concealment all require proof that U.S. Home made a
false statement or failed to disclose a fact that it had a duty
to disclose.
show
that
Moreover, each cause of action requires iStar to
iStar
nondisclosure.
justifiably
See,
e.g.,
relied
Lavine,
on
the
2011
WL
statement
6003609,
or
at
*5
(analyzing the element of justifiable reliance identically under
negligent
misrepresentation
and
fraud);
see
also
Cent.
Truck
Ctr., Inc. v. Cent. GMC, Inc., 194 Md.App. 375, 394-95 (2010)
(“To prove any of its asserted tort claims — fraud, concealment,
or
negligent
[plaintiff]
misrepresentation
to
prove
that
—
it
the
burden
justifiably
misrepresentation by [defendant].”).
rested
relied
with
on
a
As to materiality, that
concept is merely an aspect of justifiable reliance and not a
distinct element of any of the three causes of action.
See
Rozen, 165 Md.App. at 675; Ward Dev. Co. v. Ingrao, 63 Md.App.
645,
654-55
argument
iStar
is
(1985).
regarding
better
the
Thus,
Plaintiffs’/Counter
materiality
analyzed
in
terms
of
of
its
Defendants’
representations
justifiable
to
reliance,
which, as already noted, is a common requirement of all three
causes of action.
27
Despite
Plaintiffs’/Counter
Defendants’
efforts
to
streamline their arguments, however, their position ultimately
lacks merit.
a.
“U.S. Home’s representations in the Consent”
According
to
Plaintiffs/Counter
Defendants,
Home’s statements in the Consent are true.
amended
counterclaim,
however,
iStar
all
of
U.S.
In iStar’s proposed
clearly
alleges
that
certain representations in the Consent are substantively false.
(See
ECF
No.
allegations
whether
must
its
294-1
be
¶¶
89-91,
accepted
proposed
on
93-94).
their
amendments
face
would
Because
in
iStar’s
determining
be
futile,
Plaintiffs’/Counter Defendants’ contention that iStar’s proposed
new claims would fail for lack of falsity as to this first
category of representations will be rejected.24
24
Plaintiffs/Counter Defendants cite Adkins v. Labor Ready,
Inc., 205 F.R.D. 460 (S.D.W.Va. 2001), for the proposition that
an amendment will be futile if it would be unable to survive a
motion for summary judgment. (ECF No. 315, at 18). They note
that “iStar has offered no evidence to support these assertions,
and there is none.”
(Id.).
The Adkins court, however, relied
in part on cases from the Second and Seventh Circuits for that
holding, Adkins, 205 F.R.D. at 462-63, and those cases had
already progressed to the summary judgment stage. In contrast,
the Fourth Circuit has made clear that futility of amendment is
defined as being unable to survive a motion to dismiss, when the
issue arises earlier. Perkins, 55 F.3d at 917; see also United
States ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d
370, 376 (4th Cir. 2008) (holding that amending a complaint would
be futile “if the proposed amended complaint fails to satisfy
the requirements of the federal rules” (internal quotation marks
omitted)).
28
Plaintiffs’/Counter
Defendants’
argument
that
iStar’s
proposed new claims would fail because iStar could not have
justifiably relied on the representations in this first category
will
likewise
be
rejected.
Justifiable
reliance
“turns
on
whether [the representations] were more than a ‘statement of
opinion, judgment or expectation.’”
Goldstein v. Miles, 159
Md.App. 403, 436 (2004) (quoting Buschman v. Codd, 52 Md. 202,
207
(1879)).
In
other
words,
where
representations
are
“statements of expectation, prediction, or future intention,” it
is
generally
representations
not
are
reasonable
to
“statements
rely
of
upon
present
generally reasonable to rely upon them.
them,
and
intention,”
where
it
is
See Weisman v. Connors,
312 Md. 428, 454-55 (1988); see also Griesi, 360 Md. at 20-21
(noting that statements regarding past or present facts may be
justifiably relied upon while predictive statements may not).
Here,
as
Plaintiffs/Counter
Defendants
themselves
note,
“the
Consent is simply . . . a statement of facts in existence, not a
representation as to the future.”
(ECF No. 315, at 17).
For
example, iStar takes issue with the following representations in
the Consent:
•
that
[Lennar]
had
“no
existing
defenses, offsets, claims or credits
with respect to performance of [its]
obligations
under
the
Purchase
[Agreement] or Contract for Services”
29
•
that “there exists no condition or
circumstance known to [Lennar] as of
the date hereof which, with the giving
of notice or the passage of time, or
both, would result in a termination
right by [Lennar] under the Purchase
[Agreement] or Contract for Services,
respectively”
(See, e.g., ECF No. 294-1 ¶ 89).
Accordingly, iStar could have
justifiably relied on these sorts of representations, and it
cannot be said that permitting amendment of the counterclaim
would be futile on this basis.
b.
“[T]he provisions in the Second Amendment that Sellers
could seek specific performance if U.S. Home defaulted
and that Lennar would provide all the cash needed by
U.S. Home for Settlement”
According
category
Second
of
to
representations
Amendment
performance
Plaintiffs/Counter
that
(i)
if
U.S.
remedy
Defendants,
comprises
“the
Sellers
would
Home
defaulted
the
provisions
have
and
a
second
in
the
specific
(ii)
Lennar
guaranteed to furnish all the cash that U.S. Home needed to
close on the Purchase Agreement.”
point
to
paragraphs
27
and
28
(ECF No. 315, at 19).
of
the
Second
They
Amendment
as
containing the allegedly misleading statements and argue that
they are not false.
Although
iStar
(Id. at 19-20).
does
not
respond
to
Plaintiffs’/Counter
Defendants’ argument quite as directly with respect to these
30
statements, it does point to the following relevant allegation
in its proposed amended counterclaim:
Lennar . . . continuously and intentionally
failed
to
disclose
and
intentionally
suppressed and concealed material facts
regarding the truth of these representations
and warranties — namely, . . . that it
believed it could terminate the [Purchase
Agreement]
even
with
the
specific
performance
guaranty
in
the
Second
Amendment, [and] that it needed to find a
joint-venture partner or land bank who would
be the party to actually close on the
[Purchase
Agreement]
and
prevent
the
Property at issue from ever appearing on
Lennar’s balance sheet . . . .
(ECF No. 294-1 ¶ 119).
In light of this allegation, which must
be taken as true, the potential falsity of the second category
of alleged misrepresentations identified by Plaintiffs/Counter
Defendants
is
apparent.
Thus,
the
argument
that
iStar’s
proposed new claims would be futile must be rejected.
c.
“U.S. Home’s alleged plan to assign its rights under
the Purchase Agreement to a land bank”
Finally, Plaintiffs/Counter Defendants identify as a third
category
of
representations
any
“allegations
that
U.S.
Home
planned to assign its rights under the Purchase Agreement to a
land
bank
before
closing.”
(ECF
No.
315,
at
20).
Plaintiffs/Counter Defendants imply that iStar was not justified
in its reliance on these types of representations because they
could not have been material.
675;
Ward
Dev.
Co.,
63
(Id.); see Rozen, 165 Md.App. at
Md.App.
31
at
654-55.
Specifically,
Plaintiffs/Counter Defendants contend that because the use of a
land bank in real estate transactions “is common [but] is not a
requirement” and that because the Purchase Agreement generally
contemplated the possibility of using a land bank, the fact that
they may have represented an intention to use a land bank to
consummate the transaction could not have been material.
(See
ECF No. 315, at 21-22).
Plaintiffs/Counter
grievance, however.
Lennar
“failed
to
Defendants
miss
the
crux
of
iStar’s
Regarding a land bank, iStar alleges that
disclose
and
intentionally
suppressed
and
concealed . . . that it needed to find a joint-venture partner
or land bank who would be the party to actually close on the
[Purchase Agreement] and prevent the Property at issue from ever
appearing on Lennar’s balance sheet, and that its attempts to
find a joint-venture partner or land bank failed.”
(ECF No.
294-1 ¶ 119) (emphases added).
In other words, iStar does not
allege
of
that
problematic.
the
potential
use
a
land
bank
generally
was
Rather, it alleges that the use of a land bank
was, in effect, an unfulfilled contingency to Lennar’s closing
of the deal, the nondisclosure of which was material.
As an
omission of “present intention,” iStar could have justifiably
32
relied on it.25
added
claims
See Weisman, 312 Md. at 454-55.
may
be
able
to
proceed
on
iStar’s newly
this
basis
and,
accordingly, are not futile.
In sum, Plaintiffs/Counter Defendants offer no compelling
reason
to
find
that
iStar’s
counterclaim would be futile.
proposed
amendments
to
its
iStar’s motion will be granted in
full, and its attached “First Amended Counterclaim” (ECF No.
294-1) will be deemed the operative pleading setting forth its
counterclaim.
III. Plaintiffs’/Counter Defendants’ Omnibus Motion
Plaintiffs’/Counter Defendants’ omnibus motion seeks four
different types of relief.
First, it requests that the court
strike a portion of iStar’s proposed amended counterclaim that
is based on Exhibit 29 of iStar’s motion for leave (“Exhibit
29”)26 because that exhibit is privileged.
8).
(ECF No. 301-1, at
Second, it requests that a portion of iStar’s motion for
leave that discusses Exhibit 29 be sealed for the same reason.
(Id. at 9).
Third, it requests that iStar’s motion for leave be
25
Plaintiffs/Counter Defendants argue that to the extent
iStar alleges that finding a land bank was necessary to close,
the evidence to date does not bear that out. (See ECF No. 315,
at 22-23). Again, Counter Defendants misread iStar’s burden at
this stage. In determining whether iStar’s proposed amendments
to its counterclaim would be futile, new allegations must be
accepted as true as they would be on a motion to dismiss. See
Perkins, 55 F.3d at 917.
26
Exhibit 29 is Bates No. 3998-4009.
33
stayed pending resolution of a particular motion that Plaintiffs
filed
on
(Id.).
September
2,
2011
(“the
reconsideration
motion”).
And fourth, it requests attorneys’ fee and costs related
to the omnibus motion.
(Id.).
The first three requests are easily disposed of.
This case
was referred to Magistrate Judge Connelly for resolution of all
discovery
disputes
matters.
Judge Connelly issued an order on August 19, 2011
(“the
Original
and
for
Order”),
determination
holding
that
of
non-dispositive
Plaintiffs/Counter
Defendants waived the attorney-client privilege and work product
protection
here,
as
to
Exhibit
certain
29.
documents,
Then,
including,
on
of
September
relevance
2,
2011,
Plaintiffs/Counter Defendants filed the reconsideration motion.
On
January
18,
2012,
Judge
Connelly
issued
an
order
(“the
Reconsideration Order”) vacating a portion of the Original Order
and holding that Exhibit 29 was in fact privileged or protected.
iStar
subsequently
objected
pursuant to Rule 72.
to
the
Reconsideration
Order
On July 23, 2012, this court sustained
iStar’s objection and set aside the Reconsideration Order.
The
practical effect of the court’s decision was a reinstatement of
most of the Original Order, which deemed all privileges waived
as to Exhibit 29.
basis
to
strike
counterclaim
and
Accordingly, Plaintiffs’/Counter Defendants’
the
to
portions
seal
part
34
of
of
iStar’s
iStar’s
proposed
motion
is
amended
without
merit, and the first two requests for relief will be denied.
Because the reconsideration motion has already been adjudicated,
the third request for relief will be denied as moot.
The
fourth
request
for
relief
requires
more
analysis.
Although the court’s recent holdings in this case have rendered
the
omnibus
Defendants
iStar’s
motion
suggest
motion
substantively
that
for
there
leave
moot,
remains
was
a
Plaintiffs/Counter
question
procedurally
of
whether
improper,
thus
potentially warranting an award of attorneys’ fees and costs to
them.
(ECF No. 301-1, at 9 (“iStar should be ordered to pay . .
. attorneys’ fees and costs regardless of whether the final
resolution of the [reconsideration motion] is adverse to U.S.
Home.”)).
that
Specifically,
“[u]nder
Exhibit
29
Rule
.
[reconsideration
.
.
Plaintiffs/Counter
26(b)(5)(B),
until
motion].”
iStar
final
(ECF
should
resolution
No.
Defendants
328,
not
have
used
of
U.S.
Home’s
at
6).
Rule
26(b)(5)(B) reads as follows:
If information produced in discovery is
subject to a claim of privilege or of
protection as trial-preparation material,
the party making the claim may notify any
party that received the information of the
claim and the basis for it. After being
notified, a party must promptly return,
sequester,
or
destroy
the
specified
information and any copies it has; must not
use or disclose the information until the
claim is resolved; must take reasonable
steps to retrieve the information if the
party disclosed it before being notified;
35
argue
and
the
the
the
may promptly present
court under seal for
claim. The producing
information until the
the information to
a determination of
party must preserve
claim is resolved.
Fed.R.Civ.P. 26(b)(5)(B) (emphasis added).
Here, iStar filed
its
based
motion
for
leave
to
amend,
which
was
in
part
on
Exhibit 29, on December 22, 2011 — after Plaintiffs filed the
reconsideration
motion
Reconsideration
Order.
but
before
Thus,
Judge
Connelly
Plaintiffs’/Counter
issued
the
Defendants’
position is that the claim of privilege with respect to Exhibit
29 was not “resolved” when iStar moved for leave.
Plaintiffs/Counter Defendants fail to surmount an obvious
hurdle, however:
the claim of privilege with respect to Exhibit
29 was resolved
by the Original Order.
Concomitantly, they
point to no authority — nor is the court aware of any — that
holds
that
the
act
of
filing
a
motion
for
reconsideration
somehow suspends a court order’s resolution of a claim, whether
under Rule 26(b)(5)(B) or any other rule.27
(ECF
No.
314,
at
5),
at
least
27
one
court
As iStar points out
has
suggested
the
To the extent Plaintiffs/Counter Defendants mean to
suggest that a claim is not resolved for purposes of Rule
26(b)(5)(B) until the time for reconsideration has passed, such
a conclusion is wholly illogical given that an interlocutory
order such as the Original Order “may be revised at any time
before the entry of a judgment adjudicating all the claims and
all the parties’ rights and liabilities.”
Fed.R.Civ.P. 54(b).
Under this reasoning, a claim of privilege would not be resolved
until a case has been fully adjudicated, which defeats the
practicality of Rule 26.
36
opposite.
See New Pac. Overseas Grp. (USA) Inc. v. Excal Int’l
Dev. Corp., Nos. 99 Civ. 2436 DLC, 99 Civ. 3581, 2000 WL 377513,
at *7 (S.D.N.Y. Apr. 12, 2000) (“[The] position that a party
itself
may
stay
an
order
merely
by
reconsideration is plainly frivolous.
filing
a
motion
for
A court’s order remains
in force until it is vacated or stayed . . . .” (citing Tekkno
Labs., Inc. v. Perales, 933 F.2d 1093, 1099 (2d Cir. 1991))),
appeal dismissed, 252 F.3d 667 (2d Cir. 2001).
Therefore, it was
not contrary to Rule 26(b)(5)(B) for iStar to rely on Exhibit 29
when it did.
On the current record, there is no indication that
Plaintiffs/Counter Defendants are entitled to attorneys’ fees
and costs related to the omnibus motion at this time, and this
portion of their motion will be denied.
IV.
Motions to Seal
A motion to seal must comply with Local Rule 105.11, which
provides:
Any motion seeking the sealing of pleadings,
motions, exhibits or other papers to be
filed in the Court record shall include (a)
proposed
reasons
supported
by
specific
factual
representations
to
justify
the
sealing
and
(b)
an
explanation
why
alternatives to sealing would not provide
sufficient protections. The Court will not
rule upon the motion until at least 14 days
after it is entered on the public docket to
permit
the
filing
of
objections
by
interested parties. Materials that are the
subject
of
the
motion
shall
remain
temporarily sealed pending a ruling by the
Court. If the motion is denied, the party
37
making
the
filing
will
be
given
opportunity to withdraw the materials.
an
This rule endeavors to protect the common law right to inspect
and
copy
judicial
records
and
documents,
Nixon
v.
Warner
Commc’ns, Inc., 435 U.S. 589, 597 (1978), while recognizing that
competing
interests
sometimes
outweigh
the
public’s
right
of
access, In re The Knight Publ’g Co., 743 F.2d 231, 235 (4th Cir.
1984).
Before sealing any documents, the court must provide the
non-moving
party
with
notice
opportunity to object.
satisfied
by
either
of
Id.
the
request
to
seal
and
an
This notice requirement may be
notifying
the
persons
present
in
the
courtroom or by docketing the motion “reasonably in advance of
deciding the issue.”
Id. at 234.
Finally, the court should
consider less drastic alternatives to sealing, such as filing
redacted versions of the documents.
sealing
is
appropriate,
it
If the court decides that
should
also
provide
reasons,
supported by specific factual findings, for its decision to seal
and for rejecting alternatives.
Id. at 235.
Plaintiffs/Counter Defendants seek to seal (1) their reply
brief
and
(2)
Exhibit
A
to
their
motion
for
leave
to
file
supplemental memorandum, which is the actual memorandum of law
in support of the motion.
In both motions to seal, however,
Plaintiffs/Counter Defendants state only that they seek to seal
38
the
specified
materials
because
[them] as confidential.”
1).
“Defendants
have
designated
(ECF No. 373, at 1; ECF No. 400, at
Furthermore, they cursorily argue that “[n]o alternative to
sealing
the
[materials]
would
adequately
confidential information discussed therein.”
is
insufficient
representations”
Sensormatic
F.Supp.2d
satisfy
that
Sec.
399,
Defendants’
to
Local
Corp.
438
motion
v.
(D.Md.
to
the
Rule
seal
“specific
Sensormatic
the
factual
requires.
Elecs.
Thus,
the
This explanation
105.11
2006).
protect
See
Corp.,
455
Plaintiffs’/Counter
specified
materials
also
to
will
be
denied.
Plaintiffs/Counter
Defendants
seek
seal
their
opposition to iStar’s motion for leave to file first amended
counterclaim as well as two exhibits, Exhibits 7 and 8, to that
opposition.
iStar seeks to seal three exhibits to its motion
for leave, Exhibits 29, 31, and 32.
In their respective motions
to seal, however, the parties state only that they seek to seal
the specified materials pursuant to the May 4, 2010, “stipulated
order
regarding
confidentiality
of
discovery
inadvertent disclosure of privileged material.”
material
and
(ECF No. 296,
at 2; ECF No. 316, at 2).
This explanation is also insufficient
to
factual
satisfy
the
“specific
Rule 105.11 requires.
representations”
that
Local
Sensormatic Sec. Corp., 455 F.Supp.2d at
438.
39
Accordingly, the parties’ requests to seal the specified
materials will be denied.
They will be given fourteen days to
renew the motions to seal with sufficient justification. If they
choose not to do so, the materials will be unsealed after that
time.
V.
iStar’s Motion for Sanctions
On May 25, 2012, iStar filed a motion for sanctions against
Plaintiffs/Counter
Defendants
related
amendments to their pleadings.
to
their
(ECF No. 404).
seeking
Pursuant to
Local Rule 105.8.b, no response to such a motion is required
unless ordered by the court.
a
response,
Although the court did not request
Plaintiffs/Counter
Defendants
granted “extra” time to respond.
asked
for
(ECF Nos. 413, 414).
and
were
The time
for this response has now passed without any additional action
from Plaintiffs/Counter Defendants.
iStar
urges
the
imposition
of
sanctions
on
Plaintiffs/Counter Defendants pursuant to Federal Rule of Civil
Procedure 11.
including:
It offers a variety of grounds for sanctions,
that Counts Six, Nine, and Ten rely impermissibly on
the Apex Report; that Count Eleven describes a claim that does
not exist at law in Maryland; that Counts Eleven and Twelve
depend entirely on the First Action, which iStar was not a part
of; and that Count Eight similarly advances a claim for which
iStar cannot be liable.
40
Rule
Among
11
other
permits
things,
a
district
the
rule
court
to
impose
contemplates
sanctions.
sanctions
if
an
attorney submits a paper to the court for an improper purpose,
Robeson Def. Comm. v. Britt (In re Kunstler), 914 F.2d 505, 518
(4th Cir. 1990); advances a wholly frivolous clam, defense, or
legal contention, Hunter v. Earthgrains Co. Bakery, 281 F.3d
144, 153 (4th Cir. 2002); or makes a factual contention entirely
unsupported by any information obtained before filing, Brubaker
v. City of Richmond, 943 F.2d 1363, 1373 (4th Cir. 1991).
generally
attorney
Fed.R.Civ.P.
violates
11(b).
Rule
In
11,
court
the
standard of reasonableness.
determining
applies
whether
an
See
an
objective
McGahren v. First Citizens Bank &
Trust Co. (In re Weiss), 111 F.3d 1159, 1170 (4th Cir. 1997).
In this case, given the complexity of the underlying real
estate transaction from which this dispute arose, the numerous
legal issues, and the protracted nature of the proceedings, none
of
iStar’s
reasons
for
imposing
Rule
11
sanctions
on
Plaintiffs/Counter Defendants is compelling.
First, although it
is
Plaintiffs/Counter
not
entirely
clear
to
what
extent
Defendants are aware of the contents of the Apex Report, Counts
Six, Nine, and Ten do not rely exclusively on that report as a
factual
predicate.
Second,
the
precise
relationship
between
iStar and Sellers is not so obvious and has not been otherwise
sufficiently
adjudicated
to
41
render
unreasonable
Plaintiffs’/Counter
Defendants’
assertion
Eleven, and Twelve against iStar.
of
Counts
Eight,
And third, while it is true
that a breach of the implied duty of good faith and fair dealing
is not a recognized independent cause of action in this state,
Plaintiffs’/Counter Defendants’ misreading of case law and their
stated reasons for bringing that claim are not so egregious to
invite
sanctions.
Consequently,
iStar’s
motion
for
Rule
11
sanctions against Plaintiffs/Counter Defendants will be denied.
VI.
U.S. Home’s Motion for Extension of Time
On March 5, 2012, U.S. Home served a subpoena on third
party The Columbia Bank (“the Subpoena”), the scope of which has
been a source of much contention between U.S. Home and Bevard.28
Bevard sought to quash the Subpoena on March 9, 2012.
(ECF No.
356).
After full briefing, Judge Connelly granted in part and
denied
in
documents
part
the
motion
irrelevant.
(ECF
to
quash,
No.
deeming
387).
U.S.
certain
Home
target
moved
for
partial reconsideration of Judge Connelly’s decision as to these
target documents (ECF No. 394), which Judge Connelly denied on
June 18, 2012 (ECF No. 415).
time
to
file
objections
to
U.S. Home seeks an extension of
this
June
18,
2012,
order.
It
proposes a deadline that is fourteen days after the court rules
on
Plaintiffs’/Counter
28
Various
Subpoena.
Defendants’
non-parties
joined
42
motion
Bevard
for
in
leave
to
amend
contesting
the
their pleadings because, it argues, the outcome of that motion
may affect what objections it chooses to assert.
Bevard opposes
U.S. Home’s request.29
Although U.S. Home filed its motion before the original
time for filing objections expired, it must nonetheless show
“good
cause”
for
extending
the
deadline.
See
Fed.R.Civ.P.
6(b)(1)(A); see also 14-72 George K. Walker & Joseph C. Spero,
Moore’s Federal Practice – Civil ¶ 72.10[2] (2012) (“The 14-day
limit for filing an objection to a magistrate judge’s pretrial
order or recommendation is governed by Rule 6.”).
is not onerous.
This standard
See 4B Charles Alan Wright et al., Federal
Practice and Procedure § 1165 (3d ed. 2012) (“[A]n application
for the enlargement of time under Rule 6(b)(1) normally will be
granted in the absence of bad faith on the part of the party
seeking relief or prejudice to the adverse party.”).
Here, however, U.S. Home’s sole justification for extending
the
objections
deadline
—
that
the
court’s
ruling
on
Plaintiffs’/Counter Defendants’ motion for leave to amend their
pleadings may impact its decision whether to file any objections
29
U.S. Home states that Bevard “consented to an extension
of twenty-one (21) days (or until July 26, 2012).”
(ECF No.
420, at 1 n.1). In its opposition, Bevard does not acknowledge
this concession.
43
to the June 18, 2012, order at all (ECF No. 420, at 5)30 — fails
to satisfy the relatively minimal requirements imposed by Rule
6.
Plaintiffs/Counter Defendants moved for leave to amend their
pleadings on February 24, 2012 — before U.S. Home served the
Subpoena.
But U.S. Home never argued that Plaintiffs’/Counter
Defendants’ motion for leave to amend their pleadings may impact
the
discoverability
of
the
target
documents
either
in
its
opposition to the motion to quash or in its motion for partial
reconsideration.
(See ECF Nos. 371, 394).
It is rather suspect
that after multiple failed attempts to convince Judge Connelly
of the pertinence of the target documents, U.S. Home seeks to
inject this previously-available theory into the discussion at
this juncture.
now
would
resources.
waiting
to
To allow such relitigation of a settled issue
unfairly
prejudice
Consequently,
file
objections
U.S.
to
Bevard
Home’s
the
July
and
waste
proffered
18,
judicial
reason
2012,
for
order
is
untenable, and its motion for extension of time will be denied.
30
Because some of these possible objections are unrelated
to Plaintiffs’ motion for leave to amend the pleadings (see id.
at 4-5), the denial of that motion does not moot U.S. Home’s
request for an extension.
44
VII. Conclusion
A
separate
order
will
follow
embodying
the
foregoing
decisions.
/s/
DEBORAH K. CHASANOW
United States District Judge
45
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