CALLAS v. CALLAS et al
OPINION/ORDER denying 143 Motion for Leave to File Second Amended Answer and Counterclaim; that Defendants application to compel the production of documents related to the financial condition of the LLC which post-date the filing of the Compla int [Dkt. No. 178] is GRANTED in part and DENIED in part; that within fourteen (14) days from the date of this Order, Plaintiff shall provide Defendants with documents showing any and all rent paid to the LLC by the Coffee Business subsequent to the filing of the Complaint; that within fourteen (14) days from the date of this Order, Plaintiff shall provide to Defendants a certification regarding any distributions made by the LLC from its formation to the present; etc. Signed by Magistrate Judge James B. Clark on 8/11/17. (DD, )
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
WILLIAM DEAN CALLAS,
Civil Action No. 14-7486 (JMV)
OPINION AND ORDER
CLARK, Magistrate Judge
THIS MATTER comes before the Court on Defendants’ George Callas and Yvonne
Callas’: (1) motion for leave file a Third Amended Answer and Counterclaim to assert a cause of
action for fraudulent transfer pursuant to New Jersey’s Uniform Fraudulent Transfer Act
(“UFTA”) [Dkt. No. 143]; and (2) application to compel Plaintiff William Dean Callas to
produce certain financial documents which post-date the filing of the Complaint [Dkt. No. 178].
Plaintiff opposes Defendants’ motion to amend [Dkt. No. 168] and Defendants’ application to
compel [Dkt. No. 180]. For the reasons set forth below, Defendants’ motion to amend [Dkt. No.
143] is DENIED and Defendants’ application to compel [Dkt. No. 178] is GRANTED in part
and DENIED in part.
The parties in this case, Plaintiff William Dean Callas and Defendants Penny Callas,
Yvonne Callas, and George Callas, are the children of Constantine Callas. 1 Constantine Callas
As all parties to this action share the same last name, in this Opinion and Order, the Court may refer to the parties
by their first names. The Court will also refer to William as “Plaintiff” and to George and Yvonne collectively as
“Defendants” because Penny is not involved in the disputes which form the basis of the present motions.
passed away on February 23, 2013 and the parties’ various claims arise out of a dispute among
the siblings as to amounts owed to Constantine’s estate (the “Estate”). William brought this
action against the executors of the Estate to settle a dispute over the value of Constantine’s
ownership in a real estate holding company, Coffee Associates LLC (the “LLC”). William and
Constantine were the only members of the LLC, which was governed by an operating agreement
(the “Operating Agreement”). Prior to Constantine’s death, he held a 40% interest in the LLC,
which is now part of the Estate, and William held a 60% interest. Penny, George, and Yvonne,
William’s siblings and Constantine’s children, are the co-executors of the Estate.
The Operating Agreement includes a provision which states that “on the passing of a
member, the personal representative(s) of the deceased member may give notice requiring the
other member to purchase the deceased member’s interest in [the LLC].” The notice is called a
“Put Notice.” Upon Constantine’s death, Defendants exercised this “Put Notice” by giving
Plaintiff notice of their right to have Plaintiff purchase the Estate’s 40% interest in the LLC. The
Operating Agreement sets forth a means to calculate the price of the ownership interest. The
LLC’s primary asset is a property located in Edgewater, New Jersey (the “Property”).
A portion of the Property was, and continues to be, used to operate a Coffee Associates,
Inc., (the “Coffee Business”) which was started by Constantine. William began working for the
Coffee Business in 1989 and now, as a result buying out the other owners of the Coffee
Business, including Constantine, William owns 100% of the Coffee Business. According to
William, the LLC was created “for the limited purpose of acquiring and taking sole ownership of
the Property, in order to ensure [the Coffee Business’] ability to continue occupying and
operating . . . on the Property.” Compl. at ¶ 17. To this end, the Coffee Business operates on the
Property pursuant to various leases executed between the LLC and the Coffee Business. The
most recent lease, which is the subject of Defendants’ present motion to amend, was executed in
March of 2006 (the “Lease”). See Dkt. No. 76 at Ex. 4. The Lease is for a term of ten years,
commencing on January 1, 2006, and provides the Coffee Business with the option to renew the
Lease for six additional five-year terms. William signed the Lease on behalf of both the LLC and
the Coffee Business.
Although it is not the only issue in this case, the overarching disagreement between the
parties in this matter concerns the value of the Property. Defendants assert that the Property has a
value of $8.6 million, while Plaintiff claims that it is only worth $2.7 million. As a result of the
disagreement between the parties as to the value of the Property, and therefore, the value of the
Estate’s portion of the LLC, Defendants declined to convey the Estate’s interest in the LLC to
Plaintiff pursuant to the Operating Agreement. Plaintiff filed his Complaint on December 2,
2014, alleging three causes of action: (1) Anticipatory Breach and Repudiation of the Operating
Agreement; (2) Breach of the Implied Covenant of Good Faith and Fair Dealing; and (3) Specific
Performance. See Dkt. No. 1. George and Yvonne filed their Answer and Counterclaim on
January 14, 2015 [Dkt. No. 12], and filed an Amended Answer and Counterclaim on January 27,
2015 [Dkt. No. 17]. Defendants’ Amended Counterclaim asserts six causes of action for: (1)
Breach of the Operating Agreement; (2) Breach of the Covenant of Good Faith and Fair Dealing;
(3) Breach of Fiduciary Duty; (4) Specific Performance; (5) Accounting; and (6) Member
Oppression pursuant to the Revised Uniform Limited Liability Company Act (the “Act”). See
Dkt. No. 17.
A. Defendants’ Motion for Leave to File a Second Amended Answer and
Counterclaim [Dkt. No. 143].
Defendants’ Amended Counterclaim alleges that the Lease “was not and is not an arms-
length transaction” and that its terms, which include “disproportionately low rent”, a requirement
that the LLC pay the real estate taxes on the Property, and an option for Plaintiff to renew the
Lease for an extended period of time, improperly favor Plaintiff to the detriment of the Estate.
Dkt. No. 17 at ¶ 22. According to Defendants, the terms of the Lease result in Plaintiff
“obtaining [a] greater indirect benefit as [the] owner of [the Coffee Business] from the leasing of
the [P]roperty than he would obtain as a member of [the LLC].” Id. at ¶ 23. Although
Defendants’ claims regarding the improper execution of the Lease and its detrimental effect on
the Estate have been asserted since the filing of Defendants’ initial Answer and Counterclaim, on
November 10, 2016, Defendants submitted a letter to the Court requesting permission to file a
motion to dismiss Plaintiff’s complaint for lack of subject matter jurisdiction pursuant to Federal
Rule of Civil Procedure 12(b)(1), or, in the alternative, for leave to file a Second Amended
Answer and Counterclaim to assert an additional counterclaim voiding the Lease as a fraudulent
transfer under the UFTA. See Dkt. No. 107. The Court granted Defendants leave to file a motion
to amend [Dkt. No. 141], which Defendants filed on January 13, 2017 [Dkt. No. 143]. Plaintiff
opposes Defendants’ motion to amend [Dkt. No. 168].
In their motion to amend, Defendants seek to add a claim under the UFTA voiding the
Lease as well as prior leases “as fraudulent transfers made for less than fair consideration and
with the intent to hinder, delay, and defraud the Estate” in violation of New Jersey law. Dkt. No.
107 at p. 1. Defendants contend that they only recently obtained a copy of the Lease and were
not aware until the October 11, 2016 settlement conference held in this matter that Plaintiff
“would claim that the Property could not be valued at its highest and best use because it was
burdened by the [Lease].” Dkt. No. 144 at p. 2. The position taken by Plaintiff regarding the
effect of the Lease on the value of the Property, Defendants claim, evidences Plaintiff’s intent to
“devalue the Estate’s interest in the Property” through the execution of the Lease. Dkt. No. 170
at p. 9. According to Defendants, Plaintiff executed the Lease to “put assets beyond the reach of
the Estate” which now makes it “impossible for the Property to be fairly valued.” Dkt. No. 144 at
p. 7. Accordingly, Defendants claim that the addition of a counterclaim to void the Lease as a
fraudulent transfer is necessary to protect the Estate’s interest in the Property and prevent
Plaintiff from being rewarded for his “dishonest conduct.” Dkt. No. 170 at p. 6.
In opposition to Defendants’ motion, Plaintiff claims that not only have Defendants long
been in possession of the Lease, as evidenced by the inclusion of the terms of the Lease in their
initial and amended Answer and Counterclaims, but that Defendants have repeatedly been made
aware Plaintiff’s position regarding the effect of the Lease on the value of the Property, which
was first asserted in Paragraph 45 of Plaintiff’s Complaint and has been part of Plaintiff’s
arguments throughout this matter.2 Plaintiff argues that Defendants’ proposed amendment is
untimely and represents “yet another attempt by [Defendants] to unreasonably and vexatiously
multiply these proceedings . . . .” Dkt. No. 168 at p. 3.
The Court notes the difference in the parties’ characterizations of Plaintiff’s position regarding the effect of the
Lease on determining the proper valuation of the Property. Defendants assert in their motion that Plaintiff is using
the Lease to support an argument that the existence of the Lease prevents the Property from being “valued at its
highest and best use . . . .” Dkt. No. 144. Plaintiff, in opposition, states that it is not his position that the existence of
the Lease precludes a valuation of the Property at its “highest and best use”, but rather that Defendants’ are
overestimating the value of Property, in part because of their failure to account for the Lease in their proposed
valuation. At the core of this matter is a disagreement between the parties as to the proper valuation of the Property,
which includes the parties’ contrasting assertions as to the Property’s “highest and best use.” Although Defendants
and Plaintiff have presented differing characterizations of the motive behind the execution of the Lease and disagree
as to whether the existence of the Lease “makes it impossible for the Property to realize its full value”, the question
for the purposes of Defendants’ present motion is whether Defendants were previously aware of Plaintiff’s position
that the Lease should be taken into account when formulating the proper valuation of the Property.
“The threshold issue in resolving a motion to amend is the determination of whether the
motion is governed by Rule 15 or Rule 16 of the Federal Rules of Civil Procedure.” Karlo v.
Pittsburgh Glass Works, LLC, 2011 WL 5170445, at *2 (W.D.Pa. Oct. 31, 2011). Rule 15 states,
in pertinent part, “a party may amend its pleading only with the opposing party's written consent
or the court's leave. The court should freely give leave when justice so requires.” Fed. R. Civ. P.
15(a)(2). “Rule 16, on the other hand, requires a party to demonstrate ‘good cause’ prior to the
Court amending its scheduling order.” Karlo, 2011 WL 5170445, at *2 (citing Fed. R. Civ. P.
16(b)(4)). In situations such as the present, where a party seeks to amend “after the deadline for
doing so set by the Court, the movant must satisfy the [good cause standard] of Rule 16 before
the Court will turn to Rule 15.” Id. at *2; see also Dimensional Commc'n, Inc. v. OZ Optics, Ltd.,
148 F. App'x 82, 85 (3d Cir. 2005) (instructing that the Third Circuit has adopted a good cause
standard when determining the propriety of a motion to amend after the deadline has elapsed).
The deadline for motions for leave to amend the pleadings in this action expired on
August 14, 2015 [Dkt. No. 36] and Defendants filed the present motion on January 13, 2017
[Dkt. No. 143]. The parties do not dispute that Defendants’ motion was filed long after the
deadline had passed and that Defendants must demonstrate good cause under Rule 16.
Rule 16 of the Federal Rules of Civil Procedure authorizes courts to enter schedules of
proceedings. The pretrial scheduling order allows a court to take “judicial control over a case and
to schedule dates for completion by the parties of the principal pretrial steps.” Harrison
Beverage Co. v. Dribeck Imps., Inc., 133 F.R.D. 463, 469 (D.N.J. Oct. 19, 1990) (quoting Fed.
R. Civ. P. 16 advisory committee's note (1983 Amendment)); see also Newton v. A.C. & S., Inc.,
918 F.2d 1121, 1126 (3d Cir. 1990) (stating the purpose of Rule 16 is to provide for judicial
control over cases, streamline proceedings, maximize efficiency of the court system, and actively
manage the timetable of case preparation to expedite speedy and efficient disposition of cases).
A scheduling order must, among other things, “limit the time to join other parties, amend
the pleadings, complete discovery, and file motions.” Fed. R. Civ. P. 16(b)(3)(A). The
requirement of a deadline for amending pleadings in the pretrial scheduling order “assures that at
some point . . . the pleadings will be fixed.” Fed. R. Civ. P. 16(b) advisory committee's note
(1983 Amendment); see also Harrison, 133 F.R.D. at 469 (“The careful scheme of reasonable
framing and enforcement of scheduling orders for case management would thus be nullified if a
party could inject amended pleadings upon a showing of less than good cause after scheduling
deadlines have expired.”). The burden is on the moving party to show “good cause” for its failure
to comply with the applicable scheduling order, and accordingly, for the Court to allow its
proposed amended pleading. Prince v. Aiellos, No. 09–5429, 2012 WL 1883812, at *6 (D.N.J.
May 22, 2012) (quoting Graham, 271 F.R.D. at 118); see also Race Tires Am., Inc. v. Hoosier
Racing Tire Corp., 614 F.3d 57, 84 (3d Cir. 2010) (affirming the trial court's holding that “Rule
16(b)(4) focuses on the moving party's burden to show due diligence”).
Whether “good cause” exists under Rule 16 hinges to a large extent on the diligence, or
lack thereof, of the moving party. GlobespanVirata, Inc. v. Texas Instruments, Inc., 2005 WL
1638136, at *3 (D.N.J. July 12, 2005) (quoting Rent–A–Ctr. v. Mamaroneck Ave. Corp., 215
F.R.D. 100, 104 (S.D.N.Y. Apr. 9, 2003)). Put succinctly, “[a]bsent diligence, there is no ‘good
cause.’ ” Chancellor v. Pottsgrove Sch. Dist., 501 F.Supp.2d 695, 702 (E.D.Pa. Aug.8, 2007);
see also Fed. R. Civ. P. 16(b), advisory committee's note (1983 Amendment) (“[T]he court may
modify the schedule on a showing of good cause if it cannot reasonably be met despite the
diligence of the party seeking the extension.”).
When examining a party's diligence and whether “good cause” exists for granting an
otherwise untimely motion to amend pleadings, courts typically ascertain whether the movant
possessed, or through the exercise of reasonable diligence should have possessed, the knowledge
necessary to file the motion to amend before the deadline expired. See Stallings ex rel. Estate of
Stallings v. IBM Corp., Civ. No. 08–3121, 2009 WL 2905471, at *16 (D.N.J. Sept. 8, 2009)
(denying plaintiffs' motion to amend because they “had sufficient information to state the
proposed claims well in advance of the Scheduling Order deadline”); Kennedy v. City of
Newark,, 2011 WL 2669601, at *2 (D.N.J. July 7, 2011) (“The most common basis for finding a
lack of good cause is the party's knowledge of the potential claim before the deadline to amend
has passed.”). If a movant had the knowledge necessary to file a motion to amend prior to the
expiration of the Court's deadline set forth in the scheduling order, and if the movant can provide
no satisfactory explanation for the delay, the Court may, in its discretion, deny the motion. See
Dimensional Commc'n., 148 F. App'x at 85 (upholding trial court's finding that the movant could
not show “good cause” because it was in possession of the facts underlying its proposed
counterclaim well before the deadline for amendment).
Defendants have set forth conflicting explanations regarding their failure to file the
present motion within the deadline for amending pleadings. In their letter to the Court requesting
permission to file the present motion, Defendants claimed that they did not previously possess
“the knowledge necessary to file a fraudulent transfer claim” because they “were not provided
with copies of the Lease until discovery commenced, and after the deadline to amend pleadings
had expired.” Dkt. No. 107 at p. 4-5. However, in support of the present motion, Defendants
claim that although they “had a copy of the [Lease] at time they filed their Amended Answer and
Counterclaim . . . they never understood – until [the] October 11, 2016 . . . settlement conference
– that [Plaintiff] would claim the Property could not be valued at its highest and best use because
it was burdened by the [Lease].”3 Dkt. No. 144 at p. 2.
Defendants’ first asserted basis for their failure to move to amend within the deadline,
that they were not provided with a copy of the Lease until after the deadline had expired, is thus
directly contradicted by Defendants’ own filings in this action. Defendants’ initial and amended
Answer and Counterclaim refer to the specifics of the Lease and set forth Defendants’ position
regarding the purportedly improper manner by which the Lease was entered to by Plaintiff,
making it difficult to accept Defendants’ assertion that they were not in possession of the details
of the lease at the time they filed their previous pleadings. Furthermore, Defendants’ moving
Brief in support of their motion states that Defendants “had a copy of the [Lease] at the time they
filed their Amended Answer and Counterclaim” [Dkt. No. 144 at p. 2], and the Certification of
Yvonne Callas in support of the present motion includes Yvonne’s statement that “the [Lease]
was in [her] possession before the litigation began . . . .” Dkt. No. 146 at ¶ 10. Based upon
Defendants’ own statements, it is clear to the Court that Defendants were in possession of the
Lease prior to the expiration of the deadline for moving to amend and Defendants’ assertion that
a lack of knowledge regarding the terms or content of the Lease caused their delay in moving to
amend is unavailing.
Defendants’ second asserted basis for their failure to move to amend within the deadline,
that they were unaware until the October 11, 2016 settlement conference of Plaintiff’s position
that the existence of the Lease should be taken in account when determining the proper valuation
of the Property, is likewise at odds with the previous filings in this matter. Plaintiff’s position
The Court notes that Defendants’ letter to the Court requesting permission to file the present motion does not make
any reference to the October 11, 2016 settlement conference or the position allegedly taken by Plaintiff during that
conference which Defendants now rely on in support of their motion. See Dkt. No. 107. Defendants’ November 11,
2017 letter to the Court relies solely on the assertion that Plaintiff “concealed the terms of the Lease.” Id. at p. 5.
regarding the necessity of considering the Lease in determining the value of the Property can be
traced as far back as Plaintiff’s Complaint. Included in Count Two of the Complaint is an
allegation that the Estate failed to perform its obligations under the Operating Agreement with
regard to the Put Notice in part by “asserting in bad faith a grossly inflated valuation of the
Property based on false assumptions and analysis and material omissions, including . . . disregard
of the present use of the Property and of [the Coffee Business’] long term, renewable leasehold
interest in the Property . . . .” Compl. at ¶ 45. This statement in the Complaint clearly evidences
Plaintiff’s position that the value of the Property asserted by Defendants fails to take into account
the effect of the Lease and is therefore “grossly inflated.” Id.
Plaintiff’s statement in the Complaint is the first of several statements of his position
regarding the effect of the Lease on the proper valuation of the Property throughout the pendency
of this action. Plaintiff has repeatedly reiterated his position in various filings with the Court and
in discovery provided to Defendants. Specifically, Plaintiff’s expert report, which was served on
Defendants in May of 2016 and which Defendants did not rebut, provided five valuations of the
Property, three of which included the Lease in the proper determination of the Property’s value.
See Dkt. No. 164, Ex. B. Although Defendants acknowledge that Plaintiff’s expert report did in
fact assert that the valuation of the Property should include the Lease, they now argue that even
after the service of the expert report they still could not “have reasonably assumed” that Plaintiff
would argue that the Lease should be considered in the Property’s proper valuation. Dkt. No. 170
at p. 6.
Defendants’ dubious assertion that they could not have reasonably assumed that Plaintiff
would argue that the Lease should be considered in a proper valuation of the Property until the
October 11, 2016 settlement conference is squarely at odds not only with the information
presented by Plaintiff in this matter, but also with Defendants’ own statements. Defendants’
motion for summary judgment, which was filed on July 11, 2016 and subsequently terminated as
it was filed without the Court’s permission in violation of the Pretrial Scheduling Order, includes
a statement by Yvonne Callas that the valuation of the Property asserted by Plaintiff “is absurd
and is premised upon [Plaintiff’s] self-dealing and dishonesty in executing leases on the Property
for his own benefit.” See Decl. of Yvonne Callas, Dkt. No. 91 at ¶ 27. In addition, the Fed. R.
Civ. P. 56.1 Statement submitted as part of Defendants’ terminated motion for summary
judgment states that the leases executed by Plaintiff represent “example[s] of Plaintiff’s attempt
to transfer wealth from the LLC to the Coffee Business.” Dkt. No. 89 at ¶ 15, n. 1. These
statements represent not only an awareness on behalf of Defendants of Plaintiff’s purported
position that the Lease should factor into the Property’s valuation, but also evidence of an
assertion by Defendants that Plaintiff had executed the Lease, along with previous leases, in an
attempt to improperly “transfer wealth from the LLC to the Coffee Business”, which is precisely
the claim Defendants’ now seek to add based upon information they say they were unaware of
prior to the October 11, 2016 settlement conference.
Based on the foregoing, the Court cannot accept Defendants’ assertion that they were not
aware of Plaintiff’s position regarding the effect of the Lease on the value of the Property until
the October 11, 2016 settlement conference. A review of the parties’ arguments and the record of
this case demonstrates that Plaintiff has held this position since the commencement of this action
and has repeatedly reiterated his arguments to that end. Accordingly, because Defendants
possessed the knowledge necessary to move for the present amendment long before the
expiration of the August 14, 2015 deadline and have failed to set forth a satisfactory reason for
delaying to move to amend until November 10, 2016, the Court finds that Defendants have failed
to demonstrate good cause for their untimely motion under Rule 16 and their motion to amend is
B. Defendants’ Request to Compel Plaintiff to Produce “All documents that postdate the filing of the Complaint relating to the operations and financial condition of
Defendants’ presently disputed discovery request seeks from Plaintiff “[a]ll documents
that post-date the filing of the Complaint relating to the operations and financial condition of [the
LLC].” Dkt. No. 178, Ex. A. Defendants initially served their discovery request on Plaintiff for
information relating to the LLC’s finances on April 2, 2015. See Dkt. No. 138 at p. 4-5. In their
initial request, Defendants limited the information sought to the six-year period prior to
Although the Court denies Defendants’ motion based upon Defendants’ failure to demonstrate good cause
under Rule 16, the Court notes that even if Defendants had demonstrated good cause, Defendants’ motion would be
denied under Rule 15.
Pursuant to Federal Rule of Civil Procedure 15(a), “a party may amend its pleading only with the opposing
party’s written consent or the court’s leave” and “[t]he court should freely give leave when justice so requires.” The
decision to grant leave to amend rests within the sound discretion of the trial court. Zenith Radio Corp. v. Hazeltine
Research Inc., 401 U.S. 321, 330 (1970). In determining a motion for leave to amend, Courts consider the following
factors: (1) undue delay on the part of the party seeking to amend; (2) bad faith or dilatory motive behind the
amendment; (3) repeated failure to cure deficiencies through multiple prior amendments; (4) undue prejudice on the
opposing party; and/or (5) futility of the amendment. See Great Western Mining & Mineral Co. v. Fox Rothschild
LLP, 615 F.3d 159, 174 (3d Cir. 2010) (quoting Foman v. Davis, 371 U.S. 178, 182 (1962)). In addition, “[t]he Third
Circuit has consistently emphasized the liberal approach to pleading embodied by Rule 15.” Endo Pharma v. Mylan
Techs Inc., 2013 U.S. Dist. LEXIS 32931, at *4 (D. Del. Mar. 11, 2013). The Court should only deny leave when
these factors “suggest that amendment would be ‘unjust’. . . .” Arthur v. Maersk, Inc., 434 F.3d 196, 203 (3d Cir.
Defendants’ motion fails under Rule 15 because Defendants unduly delayed in moving for the present
amendment. The Court acknowledges that delay alone is not sufficient to justify denial of leave to amend. Adams v.
Gould Inc., 739 F.2d 858, 868 (3d Cir. 1984). However, delay becomes “undue”, and thereby creates grounds for
denying leave to amend, when it places an unwarranted burden on the court or when the movant has had previous
opportunities to amend. Cureton v. NCAA, 252 F.3d 267, 273 (3d Cir. 2001) (citing Adams, 739 F.2d at 868). Thus,
a determination of whether the delay has become undue focuses on the movant’s reasons for not amending sooner
and balances those reasons against the burden of the delay on the District Court. Coventry v. U.S. Steel Corp., 856
F.2d 514, 520 (3d Cir. 1988).
Here, Defendants’ explanations for not moving to amend until nearly two years after the initiation of this
action are unavailing and this delay places an unwarranted burden on the Court and on the litigative process.
Defendants have had ample time and opportunity to move to amend to state the claim they now seeks to include.
The period of discovery in this matter has been extensive and fraught with issues and disputes and to allow the
addition of a new claim at this juncture, which Defendants possessed the necessary knowledge to assert long ago,
would unreasonably delay the resolution of this matter and impose a significant burden on the Court and the process.
Accordingly, were the Court to assess Defendants’ motion under Rule 15, the Court would find that the Defendants’
delay is undue and therefore results in a denial of leave to amend.
Constantine’s death on February 23, 2013. The requested information was produced by Plaintiff.
Thereafter, on December 16, 2016, counsel for Defendants contacted counsel for Plaintiff
asserting that the initial request served on Plaintiff for information relating to the LLC’s finances
“imposed a continuing obligation to produce documents” and requesting that Plaintiff produce all
documents responsive to the initial demand, specifically including “all documents relating to the
LLC’s finances through the date of production.” Dkt. No. 137 at Ex. A. Plaintiff did not provide
any additional documents in response to Defendants’ request.
Defendants submitted a letter to the Court, dated January 9, 2017, stating that Plaintiff
had failed to respond to their request for additional documents. [Dkt. No. 137]. Plaintiff filed a
response to Defendants’ letter on January 12, 2017, claiming that Defendants’ request was
specifically limited to the six-year period prior to Constantine’s death and that all relevant
documents for that period had already been provided to Defendants [Dkt. No. 138]. The Court
addressed Defendants’ request during a telephone conference held on the record on January 13,
2017. See Dkt. No. 180, Ex. A. During the conference, Defendants argued that any information
related the finances of LLC from the date the Complaint was filed to the present is relevant to
Defendants’ claim for an accounting. Defendants also contended that although their original
request for documents related to the LLC’s finances was limited to the six-year period prior to
Constantine’s death on February 23, 2013, that request was a “continuing demand up until the
time of trial” for information relating to the LLC’s finances. Dkt. No. 180, Ex. A at 22:11-12. In
opposition to Defendants’ request, Plaintiff argued that Defendants’ document request was
expressly limited to the six-year period prior to Constantine’s death and that any information
relating to the LLC’s finances after February 23, 2013 is irrelevant. The Court did not rule on
Defendants’ request but instead instructed that Defendants may “serve one discrete document
request” for the disputed documents and that any issues relating to Defendants’ renewed request
should be brought to the Court’s attention. Id. at 25:17-18.
On January 13, 2017, Defendants served Plaintiff with a request for:
All documents that post-date the filing of the Complaint relating to the
operations and financial condition of [the LLC] including but not limited
to: rent paid by [the Coffee Business] to [the LLC]; the receipt and
disbursement of funds by [the LLC]; local, state and federal tax returns
filed by [the LLC]; the general ledger of [the LLC]; all quarterly, annual,
or other financial reports, statements, income statements, cash flow
statements, and balance sheets of [the LLC], whether consolidated or
unconsolidated, audited or unaudited; minutes or memoranda of meetings
of [the LLC] or any of its members, officers, managers, or directors
concerning the financial condition of [the LLC]; all amounts due to the
Estate as the owner of 40% of the LLC; all other true and full information
regarding the status of [the LLC’s] financial condition, to the extent not
Dkt. No. 178, Ex. A. Defendants’ filed a letter, dated March 13, 2017, informing the Court that
Plaintiff had indeed objected to Defendants’ renewed request for post-February 23, 2013
documents relating to the LLC’s finances. See Dkt. No. 178. In their letter, Defendants contend
that Plaintiff’s objections to Defendants’ requests are meritless largely because the Court
“specifically authorized” Defendants’ request during the January 13, 2017 conference. Id. at 1, 2.
Plaintiff filed a responsive letter on March 21, 2017, setting forth his position that any
documents relating to the LLC’s finances after February 23, 2013 are irrelevant and not
proportional to the needs of this case. See Dkt. No. 180. The Court conducted a telephone
conference on the record with the parties on March 27, 2017 to address the present dispute. See
Dkt. No. 184. The Court did not issue a ruling as to the presently disputed documents during the
March 27, 2017 conference.
Pursuant to Federal Rule of Civil Procedure 26(b)(1):
Parties may obtain discovery regarding any nonprivileged matter that is
relevant to any party's claim or defense and proportional to the needs of
the case, considering the importance of the issues at stake in the action, the
amount in controversy, the parties' relative access to relevant information,
the parties' resources, the importance of the discovery in resolving the
issues, and whether the burden or expense of the proposed discovery
outweighs its likely benefit. Information within this scope of discovery
need not be admissible in evidence to be discoverable.
Rule 26 is to be construed liberally in favor of disclosure, as relevance is a broader inquiry at the
discovery stage than at the trial stage. Tele–Radio Sys. Ltd. v. De Forest Elecs., Inc., 92 F.R.D.
371, 375 (D.N.J. 1981). While relevant information need not be admissible at trial in order to
grant disclosure, the burden remains on the party seeking discovery to “show that the
information sought is relevant to the subject matter of the action and may lead to admissible
evidence.” Caver v. City of Trenton, 192 F.R.D. 154, 159 (D.N.J. 2000). Upon a finding of good
cause, a court may order discovery of any matter relevant to a party’s claims, defenses or the
subject matter involved in the action “Although the scope of discovery under the Federal Rules
is unquestionably broad, this right is not unlimited and may be circumscribed.” Bayer AG v.
Betachem, Inc., 173 F.3d 188, 191 (3d Cir. 1999).
As an initial matter, the Court notes that contrary to Defendants’ contention, at no time
during the January 13, 2017 telephone conference with the parties did the Court issue any ruling
as to the merits of Defendants’ presently disputed request or in any way indicate to the parties
that Plaintiff would be ordered to produce responsive documents. The Court’s instruction
allowing Defendants to serve “one discrete document request, if [they] feel necessary” was
meant to allow Defendants to attempt to specify the universe of documents sought and to provide
the parties with the opportunity to either work to resolve any remaining disputes or to present
their respective arguments regarding the production of the requested documents to the Court.
Furthermore, because Defendants had not actually served Plaintiff with a formal document
request, the dispute was not yet ripe for decision. The parties were unable to resolve this issue
and now the Court must issue a ruling on Defendants’ contested discovery request.
While Plaintiff asserts that any information regarding the finances of the LLC after
February 23, 2013 is irrelevant to the claims in this action because the central dispute in this
matter centers on the value of the Estate on the date of Constantine’s death, Defendants claim
that the requested information is relevant to their claim for breach of fiduciary duty, their claim
for an accounting, and their member oppression claim. The Court will discuss the relevance of
the requested information to these claims in turn.
First, Defendants’ claim for breach of fiduciary duty asserts that William, as the
managing and majority member of the LLC, breached his fiduciary duty to the Estate primarily
through a purported failure by the Coffee Business to pay the rent due to the LLC and by seeking
to purchase the Estate’s interest in the LLC “at a depressed value.” Dkt. No. 17 at ¶ 61-67. The
value of the Estate’s interest in the LLC is undisputedly determined by its value as of the date of
Constantine’s death, and accordingly, the LLC’s financial information after February 23, 2013 is
irrelevant to Defendants’ claim in that respect. However, as to Defendants’ allegations in its
claim for breach of fiduciary duty which assert a failure by the Coffee Business to pay rent to the
LLC even after Constantine’s death, the Court finds that information regarding the rent paid by
the Coffee Business to the LLC post-February 23, 2013 is relevant and should be provided to
Defendants. Accordingly, Plaintiff shall provide Defendants with documents showing any and all
rent paid to the LLC by the Coffee Business subsequent to the filing of the Complaint.
Next, the Court addresses the relevancy of the requested information to Defendants’
claim for an accounting. Defendants’ accounting claim seeks “a full accounting with respect to
Constantine Callas’ membership interest in [the LLC].” Dkt. No. 17 at ¶ 77. Plaintiff argues that
the requested information is irrelevant to Defendants’ accounting claim because as a result of
Defendants’ exercise of the Put Notice, the only relevant inquiry in determining the value of
Constantine’s interest in the LLC involves information up until the date of Constantine’s death.
Defendants have characterized their accounting claim as seeking “[a]n accounting of William’s
treatment of Constantine Callas during his life-time as a 40% owner of the LLC.” Dkt. No. 76 at
p. 3. Although Defendants now assert that the LLC’s financial information post-February 23,
2013 bears substantial relevance to their accounting claim and should therefore be produced, it
appears to the Court that Defendants’ accounting claim is primarily aimed at the LLC’s dealings
during Constantine’s lifetime. Accordingly, although the Court acknowledges that the LLC’s
post-February 23, 2013 financial information may bear some minimal relevance to Defendants’
accounting claim, the Court finds that any relevance in negligible and not proportional to the
needs of this case.
Finally, the Court addresses the relevance of the requested information to Defendants’
member oppression claim. Defendants claim that the information sought is relevant to their
member oppression claim because it goes to Defendants’ allegation that they did not receive
distributions to which they are entitled. See Dkt. No. 184 at 22:15-21. In opposition, Plaintiff
contends that under the Operating Agreement, no member of the LLC is entitled to distributions.
During the March 27, 2017 telephone conference which addressed this issue, Plaintiff, while
maintaining his position that Defendants are not entitled to distributions under the Operating
Agreement, agreed to submit a certification stating that “at no time during the history of [the]
LLC from 1996 forward to the present, did [the LLC] ever, in fact, make any distributions.” Dkt.
No. 184 at 29:14-19. The Court finds that a certification by Plaintiff to this effect will resolve
this issue and provide Defendants with the information to which they are entitled. Accordingly,
Plaintiff shall provide Defendants with a certification regarding any distributions made by the
Based on the foregoing, Defendants’ motion to compel the production of documents
relating to the LLC’s finances which post-date the filing of the Complaint [Dkt. No. 178] is
GRANTED in part and DENIED in part. Defendants’ motion is GRANTED to the extent that
Plaintiff shall provide Defendants with: (1) documents showing any and all rent paid to the LLC
by the Coffee Business subsequent to the filing of the Complaint; and (2) a certification stating
that no distributions were made by the LLC. Defendants’ motion is DENIED as to the remainder
of the information sought.
CONCLUSION AND ORDER
The Court having considered the papers submitted pursuant to Fed. R. Civ. P. 78, and for
the reasons set forth above;
IT IS on this 11th day of August, 2017,
ORDERED that Defendants’ motion for leave to file a Second Amended Answer and
Counterclaim [Dkt. No. 143] is DENIED; and it is further
ORDERED that Defendants’ application to compel the production of documents related
to the financial condition of the LLC which post-date the filing of the Complaint [Dkt. No. 178]
is GRANTED in part and DENIED in part; and it is further
ORDERED that within fourteen (14) days from the date of this Order, Plaintiff shall
provide Defendants with documents showing any and all rent paid to the LLC by the Coffee
Business subsequent to the filing of the Complaint; and it is further
ORDERED that within fourteen (14) days from the date of this Order, Plaintiff shall
provide to Defendants a certification regarding any distributions made by the LLC from its
formation to the present.
s/ James B. Clark, III
JAMES B. CLARK, III
United States Magistrate Judge
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