Pereira, Chapter 7 Trustee v. Capala et al
Filing
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ORDER granting 34 Motion to Amend/Correct/Supplement; terminating 34 Motion to Change Venue. See attached Memorandum and Order. Ordered by Magistrate Judge Steven M. Gold on 9/6/2018. (Gold, Steven)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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JOHN S. PEREIRA, Chapter 7 Trustee for the
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bankruptcy estate of Pawel Capala,
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Plaintiff,
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-against:
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PAWEL CAPALA, JENNIFER CAPALA, and
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FIRE HILL HOLDINGS, LLC,
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Defendants.
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GOLD, STEVEN M., U.S. Magistrate Judge:
MEMORANDUM &
ORDER
17-CV-3434 (ILG) (SMG)
INTRODUCTION
This case arises out of defendant Pawel Capala’s (“Pawel”) alleged fraudulent transfer of
assets and subsequent declaration of bankruptcy. On June 8, 2017, plaintiff John S. Pereira,
Chapter 7 Trustee for the bankruptcy estate of Pawel, brought this case to avoid various alleged
fraudulent transfers of property and recover the properties on behalf of the estate. Complaint
(“Compl.”), Docket Entry 1. Pursuant to an Order entered by the Bankruptcy Court, the
reference to that Court was withdrawn to permit the Trustee to pursue this fraudulent conveyance
litigation here. Compl. Ex. A, Docket Entry 1-3.
Defendants Pawel Capala, Jennifer Capala (“Jennifer”) and Fire Hill Holdings, LLC
(“Fire Hill”) jointly filed a single answer on September 6, 2017, and were at that time each
represented by attorney Gabriel Del Virginia. Answer, Docket Entry 10. On February 26, 2018,
Jennifer and Fire Hill (hereinafter collectively “defendants”) moved to substitute Michael D.
Assaf as their counsel in place of Mr. Del Virginia, in part because they claimed to “have
become aware that pleadings made on their behalf by outgoing counsel did not and do not
contain a full explication and pleading of all defenses available to them.” Motion to Substitute
Attorney ¶ 4, Docket Entry 28. The Court granted defendants’ motion to substitute on the same
day. Order Granting Motion to Substitute Attorney.
Defendants Jennifer Capala and Fire Hill now seek leave to amend their answer.
Defendants’ Motion to Amend (“Defs.’ Mot.”), Docket Entry 34. For the reasons that follow,
defendants’ motion for leave to amend is granted.
FACTS
In a previous action for violations of wage and labor laws, two judgments were entered
against Pawel Capala, Robert Capala, and Capala Brothers, Inc., in the amounts of $293,212.41
(entered on June 19, 2013), and $582,578.50 (entered on August 4, 2014). 1 Compl. ¶¶ 14-15.
Those judgments remain unsatisfied.
Plaintiff alleges that on June 3, 2013, approximately two weeks before the first judgment was
entered, Pawel and Jennifer transferred their 100% joint interest in the following two properties
for no consideration to Fire Hill Holdings, a newly-created New York limited liability company,
id. ¶ 20, of which Jennifer is the sole member, id. ¶ 21:
1. Property located at 246 Frost Street, Brooklyn (the “Frost Street Property”), valued at
approximately $2.5 to $3.0 million. Id. ¶¶ 20, 22; and
2. Property consisting of 13 undeveloped acres on Stagecoach Road, Hillsdale, New York
(the “Hillsdale Property”), valued at approximately $100,000. Id. ¶¶ 23-24.
Plaintiff further alleges that on the same date, June 3, 2013, Pawel and Jennifer “entered into
what appears to be a Separation and Property Settlement Agreement, whereby [Pawel] agreed to
transfer his interest in the real property located at 152 Fire Hill Road, Spencertown, New York
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See Gortat, et al., v. Capala Bros., et al., 07-cv-3629, Docket Entries 383 and 423.
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(the ‘Fire Hill Property’)” together with the Frost Street and the Hillsdale properties, “to
[Jennifer], free and clear of any right, title and interest of [Pawel].” Id. ¶ 25. Plaintiff estimates
the value of the Fire Hill Property to be approximately $350,000. Id. ¶ 26.
Plaintiff contends that Pawel and Jennifer transferred Pawel’s interest in the properties
with intent to defraud creditors, as demonstrated by the fact that the transfers were made on June
3, 2013, a mere two weeks before the first judgment in Gortat was entered, id. ¶ 29, and at a time
when Pawel had known creditors, id. ¶ 31. Plaintiff’s complaint demands judgment against
Pawel, Jennifer, and Fire Hill, jointly and severally, voiding the transfers of the properties and
ordering these defendants to turn the properties over to plaintiff or pay plaintiff an amount equal
to their fair market value. Id. at 18.
Defendants Jennifer and Fire Hill seek leave to amend their answer to assert defenses that
are unique to them and do not apply to Pawel. These defendants suggest that predecessor
counsel did not represent them effectively, in part because of the conflict inherent in representing
Pawel and Jennifer simultaneously. These defendants contend that, as a result of that conflict,
the initial answer “do[es] not contain a full explication and pleading of all substantive and
material defenses available to them.” Defs.’ Mot. ¶¶ 12-13. More specifically, Jennifer and Fire
Hill seek to assert, among other defenses, that Jennifer received certain assets from Pawel, from
whom she is estranged, pursuant to a separation and settlement agreement between them, and
that Jennifer has substantial separate property interests in those assets. Proposed Amended
Answer ¶¶ 9, 33, Docket Entry 34-3.
DISCUSSION
Federal Rule of Civil Procedure 15(a)(2) provides that leave to amend should be given
“freely . . . when justice so requires.” However, despite the liberality of the Rule, “motions to
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amend should generally be denied in instances of futility, undue delay, bad faith or dilatory
motive, repeated failure to cure deficiencies by amendments previously allowed, or undue
prejudice to the non-moving party.” Burch v. Pioneer Credit Recovery, Inc., 551 F.3d 122, 126
(2d Cir. 2008) (per curiam) (citing Foman v. Davis, 371 U.S. 178, 182 (1962)). A party
opposing leave to amend on grounds of prejudice “has the burden of establishing that an
amendment would be prejudicial.” Arnold v. Research Found. for the State Univ. of N.Y., 216 F.
Supp. 3d 275, 283 (E.D.N.Y. 2016) (quoting Fariello v. Campbell, 860 F. Supp. 54, 70
(E.D.N.Y. 1994)).
Leave to amend is liberally granted because
[i]t is . . . entirely contrary to the spirit of the Federal Rules of Civil Procedure for
decisions on the merits to be avoided on the basis of . . . mere technicalities. ‘The
Federal Rules reject the approach that pleading is a game of skill in which one
misstep by counsel may be decisive to the outcome and accept the principle that the
purpose of pleading is to facilitate a proper decision on the merits.’”
Foman, 371 U.S. at 181-82 (quoting Conley v. Gibson, 355 U.S. 41, 48 (1957), abrogated on
other grounds by Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007)). Plaintiff argues, though, that
granting leave to amend in this case would result in undue delay and prejudice. Plaintiff’s
Memorandum in Opposition to Motion to Amend (“Pl.’s Mem.”) at 6-10, Docket Entry 37.
Specifically, plaintiff claims that defendants seek to raise new and separate claims that would
“require expensive and time-consuming new discovery.” Id. at 8.
As will be shown below, plaintiff has not met his burden to show undue prejudice or
delay sufficient to warrant denial of the motion to amend. Moreover, denying leave to amend
might preclude a resolution on the merits, because the amendments raise defenses that
defendants’ original counsel failed to assert, and which plaintiff does not contend should be
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rejected as futile. Because the Court should “facilitate a proper decision on the merits,” Conley,
355 U.S. at 48, defendants’ motion is granted.
I.
Nature of the Amendments
While “[p]rejudice is generally found where . . . the amendment brings entirely new and
separate claims,” State Farm Mut. Auto Ins. Co. v. CPT Med. Servs., P.C., 246 F.R.D. 143, 14849 (E.D.N.Y. 2007) (internal quotation marks and citation omitted), amendments are permissible
when they “aris[e] from the same set of operative facts as the original complaint,” Hanlin v.
Mitchelson, 794 F.2d 834, 841 (2d Cir. 1986). Here, the affirmative defenses raised in the
amended answer all directly relate to plaintiff’s allegations that the properties were fraudulently
transferred. Defendants’ Reply in Further Support of Their Motion to Amend (“Defs.’ Reply”)
¶ 4, 6, Docket Entry 41. The amendments do not propose to bring “entirely new and separate
claims,” but instead arise out of the facts alleged and claims asserted by plaintiff in his original
complaint.
Furthermore, defendants have explicitly disclosed that the purpose of amending the
complaint is to assert defenses identified by their new attorney but omitted by prior counsel.
Defs.’ Mot. ¶ 16. This Court has permitted amendments when “defendants’ retention of new
counsel . . . precipitate[d] new defense strategies.” Pfeffer v. Mark, 2000 WL 516891, at *2
(E.D.N.Y. Mar. 16, 2000).
II.
Burden of Additional Discovery and Timing of the Motion
As noted above, plaintiff’s primary argument in opposition to defendants’ motion is that
the proposed amendments will require expensive and time-consuming new discovery. However,
courts in this Circuit have consistently held that “[t]he burden of conducting additional discovery
does not automatically constitute undue prejudice.” State Farm, 246 F.R.D. at 149 (citing
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United States ex rel. Mar. Admin. v. Cont’l Ill. Nat. Bank & Trust Co. of Chi., 889 F.2d 1248,
1255 (2d Cir. 1989)); see also A.V. by Versace, Inc. v. Gianni Versace, S.p.A., 87 F. Supp. 2d
281, 299 (S.D.N.Y. 2000) (“Allegations that an amendment will require the expenditure of
additional time, effort, or money do not constitute ‘undue prejudice.’” (citing Block v. First
Blood Assocs., 988 F.2d 344, 351 (2d Cir. 1993))).
Thus, while additional discovery may be necessary if defendants are granted leave to
amend, that alone is not reason to deny their motion. See, e.g., Versace, 87 F. Supp. 2d at 299
(“[P]rejudice alone is insufficient to justify a denial of leave to amend; rather, the necessary
showing is ‘undue prejudice to the opposing party.’” (quoting Foman, 371 U.S. at 182)). In fact,
the stage of these proceedings supports allowing leave to amend; discovery is ongoing, no trial
date has been set, and plaintiff identifies no duplication of effort that would be required if
amendment is permitted. See, e.g., State Farm, 246 F.R.D. at 149 (“[Non-movants] will not
suffer undue prejudice from the late timing of the amendments because the case is nowhere near
resolution.”); Versace, 87 F. Supp. 2d at 299 (finding no undue prejudice in part because “[n]o
trial date has yet been set, nor has discovery been completed”); Gem Glob. Yield Fund, Ltd.v.
Surgilight, Inc., No. 04-cv-4451, 2006 WL 2389345, at *11 (S.D.N.Y. Aug. 17, 2008)
(“Permitting defendants to amend . . . would not result in prejudicial delay to plaintiff. This is
not a situation where a party filed its motion on the eve of trial.” (distinguishing Pereira v.
Cogan, No. 00-cv-619, 2002 WL 31496224 (S.D.N.Y. Nov. 8, 2002))).
The cases cited by plaintiff in which motions to amend were denied due to undue delay
are distinguishable because, in those cases, discovery had been completed before leave to amend
was sought. See Psihoyos v. John Wiley & Sons, Inc., 748 F.3d 120, 126 (2d Cir. 2014)
(affirming denial of motion to amend filed after the close of discovery and after defendant had
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moved for summary judgment); Krumme v. WestPoint Stevens Inc., 143 F.3d 71, 88 (2d Cir.
1998) (affirming denial of motion to amend as the “case was near resolution and discovery had
been completed”); MacDraw, Inc. v. CIT Grp. Equip. Fin., Inc., 157 F.3d 956, 962 (2d Cir.
1998) (affirming denial of motion to amend filed more than two years after the close of
discovery). Here, in contrast and as noted above, no trial date has been set and discovery is
ongoing. Indeed, at a conference held last June, the parties were explicitly instructed to proceed
with discovery “on the assumption that [this motion] will be granted.” Minute Entry dated June
5, 2018, Docket Entry 45.
CONCLUSION
For the reasons stated above, defendants’ motion for leave to amend is hereby
GRANTED. Defendants may file their amended answer by September 13, 2018.
SO ORDERED.
/s/
STEVEN M. GOLD
United States Magistrate Judge
Brooklyn, New York
September 6, 2018
U:\Intern Work\2018\John Marcin\Pereira v. Capala, 17-cv-3434\Pereira v. Capala, Motion to Amend_FINAL.docx
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