LIBERTY COMMUNITY ASSOCIATES v. CITY OF PLAINFIELD et al

Filing 77

OPINION AND ORDER granting Defendant BNYM's 68 Motion for leave to file an Amended Answer and Third Party Complaint; Plaintiff shall file its Amended Answer and Third Party Complaint within seven (7) days from the date of this Order. Signed by Magistrate Judge James B. Clark on 10/10/2017. (ek)

UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

LIBERTY COMMUNITY ASSOCIATES,
Civil Action No. 15-3247 (KM)

Plaintiff,

OPINION AND ORDER

v.
CITY OF PLAINFIELD, et al.,
Defendants.

CLARK, Magistrate Judge
THIS MATTER comes before the Court on a motion by Defendant Bank of New York
Mellon Corporation (“BNYM” or the “Trustee”) for leave to file an Amended Answer and Third
Party Complaint [Dkt. No. 68]. Plaintiff Liberty Community Associates (“Plaintiff”) opposes
the portion of BNYM’s motion which seeks to amend its Answer to assert an additional
affirmative defense [Dkt. No. 71]. The portion of BNYM’s motion seeking to file a Third Party
Complaint naming additional parties is unopposed. For the reasons set forth below, BNYM’s
motion [Dkt. No. 68] is GRANTED.
I.

BACKGROUND AND PROCEDURAL HISTORY
Plaintiff’s Complaint in this matter arises out an arrangement between the parties

regarding an apartment complex, referred to as Liberty Village Apartments, which is located in
Plainfield, New Jersey (the “Complex”). The Complex consists of ninety-six units reserved
exclusively as affordable housing available for rental to elderly, handicapped and/or low income
individuals who satisfy the eligibility requirements established by the United States Department
of Housing and Urban Developments (“HUD”) under Section 8 of the United States Housing Act
of 1937, 42 U.S.C. § 1437f.
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In order to comply with various requirements imposed upon Plaintiff by virtue of its
“public purpose” in developing the Complex, Plaintiff entered into a Lease and Management
Agreement (the “Management Agreement”) with the Housing Authority of Plainfield (the
“Housing Authority”), an instrumentality of Defendant City of Plainfield (“Plainfield” or the
“City”). Compl. ¶ 10. Pursuant to the Management Agreement, the Housing Authority was to
“enter into possession and control of the [Complex] . . . [and] use its best efforts in the
management of the [Complex].” Id. at ¶ 14. In exchange for its management of the Complex, the
Housing Authority was to be paid a “basic annual management fee” in the amount of 5% of the
contract rents collected, as well as an “incentive fee” based upon the Housing Authority’s
fulfillment of certain conditions tied to its management of the Complex. Id. at ¶ 15. In
connection with the execution of the Management Agreement, the Plainfield Housing Finance
Corporation (“PHFC”) was organized. Id. at ¶ 16.
Thereafter, Plaintiff and PHFC entered into various “lending arrangements” involving
mortgage loans and the issuance of bonds. Id. at ¶ 17. In conjunction with the financing
“arrangements” between Plaintiff and PHFC, PHFC entered into an Agreement of Trust (the
“Trust Agreement”) with BNYM’s predecessor, National Community Bank of New Jersey, on
December 1, 1982. Id. at ¶ 18. According to Plaintiff, proceeds from the issuance of bonds used
to fund Plaintiff’s project were payable to the Trustee to be held in trust, and the Trustee became
the assignee and/or obligee of mortgage loans and other debts incurred by Plaintiff. Id. at ¶ 19.
Plaintiff “expressly approved, consented to and agreed to be bound by the Trust Agreement.” Id.
at ¶ 20.
As part of Plaintiff’s development of the Complex, Plaintiff and the City entered into a
“Payment in Lieu of Taxes Agreement” (the “PILOT Agreement”) on February 20, 1980. Id. at ¶

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21. The PILOT Agreement provided that rather than Plaintiff remitting traditional property taxes
to the City, Plaintiff would make a payment to the City in the amount of 6.28% of the annual
“gross shelter rents” received Plaintiff during the relevant time period. Id. at ¶ 24. In order to
determine the amount of the PILOT payments, the Housing Authority was required to retain the
services of a certified public accountant to prepare annual financial statements for submission to
the City. Id. at ¶ 39. Upon receipt of the financial statements, the City would calculate the PILOT
amount due and notify the Housing Authority of that amount. Id. at ¶ 40. The Housing Authority
would then notify the Trustee of the PILOT amount to be remitted to the City. Id. at ¶ 40.
Upon completion of the Complex, the Housing Authority began renting the apartment
units. Pursuant to the Management Agreement, the Housing Authority was to remit all revenue
from the Complex, including all rental proceeds, directly to the Trustee. Id. at ¶ 37. Upon receipt
of the funds from the Complex, the Trustee was required to place the transferred proceeds into
various “funds,” including a “Tax Payment Fund” established, in part, to satisfy Plaintiff’s
payments to the City under the PILOT Agreement. Id. at ¶ 38.
By virtue of the method by which the PILOT payments were calculated by the Housing
Authority and the City and then remitted by the Trustee to the City at the direction of the
Housing Authority, Plaintiff claims it had “absolutely no involvement in the PILOT payment
process . . . [and] was essentially powerless to review and/or challenge the PILOT payment
process. Id. at ¶ 41-42. In light of Plaintiff’s lack of oversight and control over the PILOT
payments, the Trust Agreement provided for “a macro-level, expenditure review mechanism” in
the form of an annual budget that the Trustee was required to prepare and present to Plaintiff for
approval on an annual basis (the “Budget Obligation”). Id. at ¶ 44. Unless and until the Budget

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Obligation was satisfied, the Trustee was “expressly prohibited from remitting any payment of
any kind on behalf of Plaintiff.” Id. at ¶ 45.
According to Plaintiff, despite its repeated requests, the Trustee failed to satisfy its
Budget Obligation in most, if not all, years from the inception of the Complex through 2014. Id.
at ¶ 46. Plaintiff claims that despite the Trustee’s repeated failure to meets its Budget Obligation,
the Trustee remitted numerous payments to various vendors on Plaintiff’s behalf, including the
annual PILOT payments. Id. at ¶ 48. Plaintiff further asserts that in addition to being improperly
remitted by the Trustee, the PILOT payments were improperly calculated and collected by the
City resulting in overpayment by Plaintiff of approximately $850,000.00 in PILOT payments to
the City. Id. at ¶ 50-53.
In 2013, Plaintiff transferred its ownership of the Complex to a third party “better-suited”
to own and operate the Complex. Id. at ¶ 55. Given the various regulations governing the
Complex, numerous approvals were required before the transfer could be completed. Id. at ¶ 56.
One of the approvals required was that of that City, and according to Plaintiff, the City
conditioned its approval of the transfer upon Plaintiff’s acquiescence to various modifications of
the PILOT Agreement which would benefit the City. Id. at ¶ 60. The conditions imposed by the
City in exchange for approval of the transfer included an increase in the PILOT Payment from
the previous amount of 6.28%, to 10%, which resulted in a corresponding reduction in the
purchase price previously negotiated by Plaintiff for the transfer of the Complex. Id. at ¶ 61-63.
Based upon Defendants’ purported violations of the PILOT Agreement and the Trust
Agreement, Plaintiff filed its Complaint in this matter on May 8, 2015, stating causes of action
for: (1) Breach of Contract; (2) violations of 28 U.S.C. § 1983; (3) violations of the Racketeer
Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961, et seq.; (4) Unjust

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Enrichment; (5) Fraud; (6) Breach of Fiduciary Duty; (7) Negligence; and (8) Breach of the
Implied Covenant of Good Faith & Fair Dealing. See Dkt. No. 1. On July 1, 2015, BNYM filed
an Answer to Plaintiff’s Complaint and a Third Party Complaint against PHFC. See Dkt. No. 11.
On March 22, 2017, BNYM voluntarily dismissed its claims against PHFC. See Dkt. No. 70.
BNYM now seeks to file an Amended Answer and Third Party Complaint. First, BNYM
seeks to amend its Answer to assert an additional affirmative defense. The proposed Twelfth
Affirmative Defense seeks to plead the entry of a prior settlement agreement (the “Settlement
Agreement” as a bar to Plaintiff’s claims in this matter against BNYM. The Settlement
Agreement is confidential and resulted from an action filed by Plaintiff in 2011 against the
Housing Authority and PHFC in the Superior Court of New Jersey, Union County, regarding a
dispute over the termination of the Management Agreement (the “State Action”). The Settlement
Agreement contains certain releases between the parties in the State Action which BNYM claims
bar Plaintiff’s claims against it in this action.
Secondly, BNYM seeks to file a Third Party Complaint against Simontacchi, Miller &
DeAngelis, P.A., Simontacchi and Company, P.A., Joseph Simontacchi, William B. O’Neill,
Cohn Reznick, LLP, and BDO USA, LLP. The parties which BNYM seeks to include in its
Third Party Complaint were accountants retained to audit Plaintiff’s finances and were the
individuals BNYM claims were responsible for providing the calculations and information
utilized in determining the amount of Plaintiff’s PILOT payments. According to BNYM, these
proposed Third Party Defendants are responsible for any error made in calculating Plaintiff’s
PILOT payments.

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II.

DISCUSSION
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. 2006).
Initially, the Court notes that the portion of BNYM’s motion seeking leave to file a Third
Party Complaint naming additional parties is unopposed and is therefore GRANTED. The Court
will now address the portion of BNYM’s motion which seeks leave to amend its Answer to add
an affirmative defense based upon the Settlement Agreement from the State Action.
According to the parties, the existence of the Settlement Agreement and its possible
effect on Plaintiff’s claims against PHFC and BNYM in this matter was first raised by PHFC in a
letter submitted to the Court on January 26, 2016.1 The Court addressed the disclosure of the

1

The January 26, 2016 letter referenced by the parties was not filed on the electronic docket for this case and was
not submitted by either party in connection with the present motion.
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Settlement Agreement during a telephone conference held on the record with the parties on
February 5, 2016, and entered an Order, also dated February 5, 2016, directing the release of the
Settlement Agreement pursuant to a Confidentiality Agreement to be executed by the parties by
no later than February 15, 2016. See Dkt. No. 33. It is unclear when or if the Settlement
Agreement was ever formally released, and according to Plaintiff, despite PHFC’s stated
intention to produce the Settlement Agreement in support of its assertion that the terms of the
Settlement Agreement barred Plaintiff’s claims against PHFC and BNYM in this action, PHFC
never produced the Settlement Agreement nor did BNYM ever make a formal request for the
Settlement Agreement to be produced. Dkt. No. 71 at p. 7.
Pursuant to an indemnification agreement, PHFC assumed the defense of BNYM in this
matter, and on December 13, 2016, new counsel substituted for BNYM. See Dkt. No. 54. Upon
the appearance of BNYM’s new counsel, BNYM filed a letter requesting leave to file a motion
for summary judgment based upon the assertion that the language of the releases contained in the
Settlement Agreement barred Plaintiff’s claims against BNYM in this action. See Dkt. No. 55.
Plaintiff objected to BNYM’s request to file a dispositive motion, arguing that the terms of the
Settlement Agreement and any releases contained therein applied solely to the parties in the State
Action, in which BNYM had no involvement, and that to the extent that any factual questions did
exist as to the intent of the parties in the drafting of the Settlement Agreement, “further discovery
certainly would be necessary to explore such issues.” Dkt. No. 59 at p. 2. The Court denied
BNYM’s request to file a motion for summary judgment during a telephone conference with the
parties on January 12, 2017. BNYM filed the present motion on March 13, 2017. See Dkt. No.
68.

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In opposition to BNYM’s motion, Plaintiff asserts that BNYM’s delay in moving for the
presently requested relief was undue and would “result in a waste of time and resources for the
parties and the Court.” Dkt. No. 71 at p. 10. Plaintiff further claims that BNYM’s proposed
amendment adding a defense under the Settlement Agreement would cause prejudice and would
be futile because “the terms of the Settlement Agreement were strictly limited to those issues that
were disputed in the [State Action] and the parties involved in [the State Action].” Id.
First, the Court addresses Plaintiff’s argument of undue delay. A court may deny a
motion to amend if the movant's delay in seeking the amendment is undue. Foman, 371 U.S. at
182. “The mere passage of time does not require that a motion to amend . . . be denied on
grounds of delay. In fact, delay alone is an insufficient ground to deny leave to amend.” Cureton
v. Nat'l Collegiate Athletic Ass'n, 252 F.3d 267, 273 (3d Cir. 2001) (internal citation omitted).
However, if the delay places an unwarranted burden on the court or on the opposing party, then
denial based on delay is appropriate. Adams v. Gould Inc., 739 F.2d 858, 868 (3d Cir. 1984).
In support of its assertion that BNYM unduly delayed in seeking the present amendment,
Plaintiff claims that BNYM has been “aware of this purported ‘defense’ under the Settlement
Agreement since at least January 26, 2016” when PHFC raised the issue of the releases contained
in the Settlement Agreement to the Court, and accordingly, that BNYM waited “a full year”
before seeking leave to amend. Dkt. No. 71 at p. 9-10. While the Court agrees that the presence
of the Settlement Agreement and its possible effect on Plaintiff’s claims in this matter was raised
in January of 2016, by Plaintiff’s own representation it is unclear when, if ever, the complete
Settlement Agreement was produced to BNYM. See Dkt. No. 71 at p. 7. Furthermore, even if
BNYM was provided with the Settlement Agreement sometime in early 2016, a significant part
of 2016 was spent resolving the issue of PHFC’s indemnification of BNYM, and once the issue

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of BNYM’s defense was resolved, it appears to the Court that BNYM promptly raised the issue
of the Settlement Agreement to the Court.2
Additionally, although Plaintiff claims that the proposed amendment would burden the
parties and the Court with extensive discovery related to the Settlement Agreement, the
discovery conducted by the parties thus far has already touched upon the Settlement Agreement,
and regardless of BNYM’s inclusion of the Settlement Agreement in its Answer, discovery will
have to be extended and expanded by virtue of the addition of new parties to this action by
BNYM’s Third Party Complaint, to which Plaintiff does not object. Accordingly, the Court finds
that BNYM has not unduly delayed in seeking the present amendment and that permitting the
amendment will not place any unwarranted burden on Plaintiff or the Court.
Next, the Court turns to Plaintiff’s claim of prejudice. Plaintiff states, without
explanation or support, that it will be prejudiced by BNYM’s proposed amendment. “Prejudice,”
for purposes of determining whether to allow the proposed amendments, involves serious
impairment of the non-movant's ability to present its case. Harter v. GAF Corp., 150 F.R.D. 502,
509 (D.N.J. 1993). Incidental prejudice to the non-moving party is not a sufficient basis for
denial of an amendment; prejudice becomes “undue” only when the non-moving party shows
that it would be unfairly disadvantaged or deprived of the opportunity to present facts or
evidence that it would have offered. Heyl & Patterson Int'l, Inc. v. F. D. Rich Hous. of Virgin
Islands, Inc., 663 F.2d 419, 426 (3d Cir. 1981); see also DiLoreto v. Borough of Oaklyn, 744
F.Supp. 610, 615 (D.N.J. 1990). Prejudice can also be caused in a number of different
circumstances, such as when the amended pleading will “(1) require the non-moving party to
expend significant additional resources to conduct discovery and prepare for trial, (2)

2

The Court notes that BNYM filed its letter requesting leave to file a motion for summary judgment based upon the
Settlement Agreement the same day that new counsel substituted for BNYM.
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significantly delay the resolution of the dispute, or (3) prevent a party from bringing a timely
action in another jurisdiction.” Textron Fin.-New Jersey, Inc. v. Herring Land Grp., LLC, No.
06–2585, 2009 U.S. Dist. LEXIS 19539, at *12–13, 2009 WL 690933 (D.N.J. Mar. 11, 2009)
(citing Long v. Wilson, 393 F.3d 390, 400 (3d Cir. 2004)). Similarly, prejudice may result when
the amendment would force a party to change their litigation tactics or case theory. Stallings v.
IBM Corp., No. 08–3121, 2009 U.S. Dist. LEXIS 81963, at *49, 2009 WL 2905471 (D.N.J.
Sept. 8, 2009) (citing Kiser v. Gen. Elec. Corp., 831 F.2d 423, 428 (3d Cir. 1987)).
Plaintiff does not include any discussion of the prejudice it will purportedly suffer if
BNYM is allowed to amend its Answer and it does not appear to the Court that any of the above
considerations are implicated by BNYM’s proposed amendment. To the contrary, it appears to
the Court that the addition of the proposed affirmative defense will allow the parties to obtain
discovery necessary for the presentation and resolution of full and complete arguments regarding
the applicability of the Settlement Agreement to Plaintiff’s claims in this matter. Accordingly,
the Court finds that allowing the presently sought amendment will not cause any party in this
matter to suffer undue prejudice.
Finally, the Court turns to Plaintiff’s assertion that BNYM’s proposed amendment is
futile. An amendment will be considered futile if it “is frivolous or advances a claim or defense
that is legally insufficient on its face.” Harrison Beverage Co. v. Dribeck Imps., Inc., 133 F.R.D.
463, 468 (D.N.J. 1990) (citations omitted). In determining whether an amendment is insufficient
on its face, the Court employs the same standard as in a Rule 12(b)(6) motion to dismiss. In re
Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1434 (3d Cir. 1997) (citation omitted).
Under a Rule 12(b)(6) analysis, the question is not whether the movant will ultimately prevail,
and detailed factual allegations are not necessary to survive such a motion. Antoine v. KPMG

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Corp., 2010 WL 147928, at *6 (D.N.J. Jan. 6, 2010). If a proposed amendment is not clearly
futile, then denial of leave to amend is improper. Meadows v. Hudson County Bd. of Elections,
2006 WL 2482956, at *3 (D.N.J. Aug. 24, 2006).
Plaintiff claims that the proposed amendment would be futile because the terms of the
Settlement Agreement and any releases contained therein were strictly limited to the issues and
parties in the State Action. While Plaintiff may ultimately prevail on its argument that the
Settlement Agreement has no bearing on its claims against BNYM in this matter, the Court
agrees with Plaintiff’s previous statement, made in its letter in opposition to BNYM’s request to
file a motion for summary judgment based upon the Settlement Agreement, that “to the extent
that any factual questions exist with respect to the intent of the parties in drafting and/or
executing [the Settlement Agreement], further discovery certainly would be necessary to explore
such issues.” Dkt. No. 59 at p. 2. The Court cannot at this juncture, before the parties have had
the opportunity to fully explore the drafting and terms of the Settlement Agreement, conclude
that BNYM’s defense under the terms of the Settlement Agreement is legally insufficient on its
face. Based upon the foregoing, BNYM’s motion for leave to file an Amended Answer to
include a Twelfth Affirmative Defense which pleads the entry of the Settlement Agreement as a
bar to Plaintiff’s claims against BNYM in this matter is GRANTED.
III.

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 10th day of October, 2017,
ORDERED that Defendant BNYM’s motion for leave to file an Amended Answer and
Third Party Complaint [Dkt. No. 68] is GRANTED; and it is further

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ORDERED that Plaintiff shall file its Amended Answer and Third Party Complaint
within seven (7) days from the date of this Order.

s/ James B. Clark, III
JAMES B. CLARK, III
United States Magistrate Judge

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