Charney et al v. Zimbalist et al

Filing 298

MEMORANDUM AND OPINION re: 245 MOTION to Amend/Correct 42 Answer to Complaint. filed by Jennifer S. Wilkov. Accordingly, defendant's motion to amend (Docket # 245) is granted in part and denied in part. Plaintiffs shall file their proposed Second Amended Complaint by March 19, 2014. Defendant should file her answer within 20 days thereafter. Defendant's answer shall be consistent with this Order. SO ORDERED. (Signed by Magistrate Judge Gabriel W. Gorenstein on 3/12/2014) (ama)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

---------------------------------------------------------------)(
SCOTT CHARNEY, et aI.,
MEMORANDUM 0 INION
07 Civ. 6272 (AKH) ( WG)

Plaintiffs,
-v.­
CARLA ZIMBALIST, et aI.,

Defendants.

---------------------------------------------------------------)(

GABRIEL W. GORENSTEIN, UNITED STATES MAGISTRATE JUDGE

Plaintiffs have filed a motion to serve and file a second amended complain~. I Defendant
Jennifer S. Wilkov has filed a motion to amend her answer.2 For the reasons state4 below,
plaintiffs' motion is granted in its entirety, and defendant's motion is granted in part and denied
in part.
Federal Rule of Civil Procedure 15(a)(2) instructs courts to "freely give leave [to amend]
when justice so requires." Nonetheless, leave to amend may be denied where there is "undue
delay, bad faith or dilatory motive on the part of the movant, ... undue prejudice to the opposing
party ... [or] futility of amendment." Foman v. Davis, 371 U.S. 178, 182 (1962); iJ.ccord Jin v.
Metro. Life Ins. Co., 310 F.3d 84, 101 (2d Cir. 2002). The Second Circuit has chatacterized
Rule 15 as encompassing a "liberal" amendment policy. See,~, Ruotolo v. City of New York,
514 F.3d 184, 191 (2d Cir. 2008). A motion to amend under Rule 15(a)(2) may be made at any

See Notice of Motion, filed Nov. 8,2013 (Docket # 242); Plaintiffs' Memorandum of
Law, filed Nov. 8,2013 (Docket #244); Defendant Wilkov's Opposition to Plaintiffs' Proposed
Motion to Amend and Serve a Second Amended Complaint, filed Dec. 13,2013 (pocket # 274)
("Def. Opp."); Plaintiffs' Reply Memorandum of Law, filed Dec. 26, 2013 (Docke~ # 275) ("PL
!
Reply").
I

2 See Notice of Motion to Amend Defendant Wilkov's Answer, filed Nov. 17,2013
(Docket # 245); Memorandum of Law in Support of Motion to Amend Defendant Wilkov's
Answer, filed Nov. 7, 2013 (Docket # 246); Plaintiffs' Memorandum of Law in Opposition to
Defendant Wilkov's Motion to Amend Answer, filed Dec. 12,2013 (Docket # 266) ("PI. Opp.");
Defendant Wilkov's Reply to Plaintiffs' Opposition to Defendant Wilkov's Motio~ to Amend
Her Answer, dated Jan. 31,2014 (Docket # 286) ("Def. Reply"). Ameriprise Finaqcial Services,
Inc., a former defendant and proposed third-party defendant, also submitted a lette~ opposing
defendant's motion to amend. See Letter, filed Dec. 3,2013 (Docket # 261).
;
1

stage of the litigation, see,~, Laurent v. PricewaterhouseCoopers LLP, 2012 WL 3614043, at
*3 (S.D.N.Y. Aug. 15,2012), and "[t]he rule in this Circuit has been to allow a party to amend
its pleadings in the absence of a showing by the nonmovant of prejudice or bad faith." AEP
Energy Servs. Gas Holding Co. v. Bank of Am., N.A., 626 F.3d 699, 725 (2d Cir. 2010) (quoting
Block v. First Blood Assocs., 988 F.2d 344, 350 (2d Cir. 1993)). Thus, case law holds that the
"non-movant bears the burden of showing prejudice, bad faith and futility of the amendment"
Grant v. Citibank (S.D.) N.A., 2010 WL 5187754, at *6 (S.D.N.Y. Dec. 6,2010) (citations
omitted).
I. PLAINTIFFS' MOTION TO AMEND

Alleged Failure to Correct Deficiencies Learned During Discovery
Defendant's first argument in opposition to plaintiffs' motion to amend is that the
proposed second amended complaint "reiterates theories [in the first amended complaint]
without making several corrections identified during discovery" and that some allegations are
"not accurate." Def. Opp. at 5, 7. Putting aside plaintiffs' contention that they have made the
appropriate corrections, PI. Reply at 2, the defendant's argument is rejected. The Court is not
aware of a legal principle that allows denial of a motion to amend based on the assertion that the
proposed new allegations are factually inaccurate.
Futility
Defendant argues that "Plaintiffs' claims are not plausible" and thus "the court should
deny Plaintiffs' motion for leave to amend their First Amended Complaint on the basis it
includes several futile claims." Def. Opp. at 5. However, case law holds that "[t]he party
opposing the amendment has the burden of establishing its futility." Summit Health, Inc. v. APS
Healthcare Bethesda, Inc., 2014 WL 288050, at *18 (S.D.N.Y. Jan. 24, 2014) (citing
Blaskiewicz v. Cnty. of Suffolk, 29 F. Supp. 2d 134, 137-38 (E.D.N.Y. 1998)). Because
defendant's argument is entirely conclusory and fails to identify any particular claim that is
"futile," it is rejected.
Preiudice
Case law holds that "[a]mendment may be prejudicial when, among other things, it
would require the opponent to expend significant additional resources to conduct discovery and
prepare for trial or significantly delay the resolution of the dispute." AEP Energy, 626 F.3d at
725-26 (quoting State Teachers Ret. Bd. v. Fluor Corp., 654 F.2d 843,856 (2d Cir. 1981)
(internal quotation marks omitted»). Defendant takes issue with the addition of Paragraph 89 to
the proposed second amended complaint, which alleges that "Wilkov breached the fiduciary
obligations she owed to CWZ Holdings, Inc." See Def. Opp. at 8; Proposed Second Amended
Complaint (annexed as Ex. B to Notice of Motion) ("Proposed Am. Compl.") '1189. Defendant
argues that "[n]ow that discovery is closed, [she] is therefore prejudiced by the introduction of
any new arguments, pleadings or other theories regarding CWZ Holdings, Inc., as [she] did not
pursue any of this during discovery." Def. Opp. at 9. In a similar vein, defendant contends that
2

"Plaintiffs have already ... filed their Second Motion for Summary Judgment ... so it is unfair
to add a new theory about this nominal party at this point in the case." Id. This argument is
rejected because plaintiffs are not making any new claim for relief against defendant based on
this allegation. See PI. Reply at 4. Moreover, CWZ has been a party since 2009 (Docket # 104),
and defendant has identified no new topic area of discovery that is engendered by the addition of
this factual allegation regarding CWZ. The amendment merely gives context to allegations
already asserted in the first amended complaint. Cf. Zoll v. Ruder Finn, Inc., 2003 WL
22283830, at *2 (S.D.N.Y. Oct. 2,2003) (granting leave to amend where additions "provide[d]
clarification of existing claims" and did not "add new claims or causes of action"). While the
pendency of a summary judgment motion may counsel against granting leave to amend in some
circumstances, see,~, Ansam Assocs., Inc. v. Cola Petroleum, Ltd., 760 F.2d 442, 446 (2d Cir.
1985), defendant has not explained how the current briefing would be affected by the addition of
this paragraph.
Defendant similarly objects to the addition of Paragraph 433 to the proposed second
amended complaint. Def. Opp. at 2; see also id. at 10. Paragraph 433 alleges that "Wilkov
engaged in this fraudulent course of conduct for the purpose of earning finder's fees and other
fees." Proposed Am. CompI. ~ 433. The allegation that defendant was earning fees off ofthe
alleged fraudulent conduct, however, was already made in the first amended complaint. See
Amended Complaint, filed Sept. 25, 2009 (Docket # 104)'1 401 (defendant "breached her
fiduciary duty to each of the plaintiffs ... after failing to disclose that she was receiving 'finder's
fees' from the promoters of the investment vehicle for each investor she referred"). Thus, the
addition of this paragraph does not call for additional discovery.
Undue Delay
Defendant's opposition brief states that the filing of the proposed second amended
complaint "would cause undue delay" and that granting leave to amend "would potentially
require the need to be ... answered again by Defendant." Def. Opp. at 7. But the obligation to
answer an amended complaint itself does not provide a basis on which to deny leave to amend
either. See,~, Laurent, 2012 WL 3614043, at *5 ("[T]he defendants' concern that they will
have to file a new answer is neither prejudicial, nor a reason to deny a motion to amend."). In
any event, because there are relatively few changes to the original complaint, there will be very
little work in preparing a new answer. There is no reason to believe that the filing of the
amended complaint will delay the case in any way.
In sum, plaintiffs' motion to amend (Docket # 242) is granted.
II. DEFENDANT'S MOTION TO AMEND
Defendant's motion may be characterized as seeking four different types of amendments
to her answer. We discuss each separately.

3

Third-Party Claims Against Ameriprise and Cross-Claims against Chanla and Zimbalist
Defendant seeks to assert several cross-claims against Carla Zimbalist and Pam Chanla,
who were named as defendants in plaintiffs' action and are currently in default. See Defendant
Wilkov's Proposed Second Amended Answer and Counterclaims, Crossclaims and Third-Party
Claims (annexed as Ex. A to Notice of Motion) ("Proposed Answer"), at 21-29. Defendant also
seeks to assert several third-party claims against Ameriprise Financial Services, Inc. as
successor-in-interest to defendant's former employer, American Express Financial Advisors, Inc.
Id. at 29-38. Ameriprise was dismissed as a party in 2009.
As noted above, the Second Circuit has held that amendment is prejudicial to a
non-moving party when, among other things, "the assertion of the new claim or defense would
(i) require the opponent to expend significant additional resources to conduct discovery and
prepare for trial [or] (ii) significantly delay the resolution of the dispute." Monahan v. N.Y.C.
Dep't of Corrections, 214 F.3d 275,284 (2d Cir. 2000). Case law further holds that "[o]ne of the
most important considerations in determining whether amendment would be prejudicial is the
degree to which it would delay the final disposition of the action." MHANY Mgmt. Inc. v. Cnty.
of Nassau, 843 F. Supp. 2d 287,341 (E.D.N.Y. 2012) (quoting H.L. Hayden Co. v. Siemens
Med. Sys., 112 F.R.D. 417,419 (S.D.N.Y. 1986) (collecting cases)). A court "plainly has
discretion ... to deny leave to amend where the motion is made after an inordinate delay, no
satisfactory explanation is offered for the delay, and the amendment would prejudice" the non­
movant. Creswell v. Sullivan & Cromwell, 922 F.2d 60, 72 (2d Cir. 1990). Most importantly
for this case, courts routinely deny motions to amend where discovery has closed and the
amendments would necessitate the need to re-open discovery. See,~, Guity v. Uniondale Free
Sch. Dist., 2014 WL 795576, at *8 (E.D.N.Y. Feb. 27,2014) ("Where a [non-movant's] motion
for summary judgment is pending and/or discovery has closed, Courts regularly find prejudice to
the non-movant and deny leave to amend.") (citing cases); Lyondell-Citgo Refining, LP v.
Petroleos De Venezuela S.A., 2004 WL 2650884, at *1 (S.D.N.Y. Nov. 22,2004) ("Prejudice
may be found, for example, when the amendment is sought after discovery has been closed.")
(citations omitted).
Defendant's motion papers contain no explanation of why she waited until now to assert
claims against Ameriprise, Chanla, or Zimbalist, let alone an explanation that would justify the
late effort to amend. While defendant from time to time - mostly at the end of or after the
discovery period
has stated her intention to file a motion to amend, she never took any steps
to do so until the current motion, and the Court at no time prevented her from making such a
motion. The parties she now seeks to include were plainly known to her, as they were named in
the original complaint filed in 2007. Nearly seven years have passed. Ifnamed now in an
amended complaint, these parties would need to be served and would have to be given the
opportunity to conduct discovery. This case is in its final stages. Discovery closed long ago,
and cross-motions for summary judgment have been filed. Accordingly, the prejudice to
plaintiffs in delaying the resolution of this case further through the addition of claims against
new parties is overwhelming. Defendant's motion to amend to add claims against these parties
is therefore denied.

4­

Cross-Claims Against "Referring Plaintiffs"
Defendant also seeks leave to bring a counterclaim for contribution against those
plaintiffs who referred other plaintiffs to defendant for purposes of investing in the real estate
projects at the center of this litigation. See Proposed Answer at 13-21. The gist of the proposed
counterclaim is that these "referring plaintiffs" were "negligent" because they breached a
"common law duty of reasonable care" to the plaintiffs to whom they made these
recommendations. Id. at 21. Defendant alleges breach of this duty because these referrals were
made "without sufficient support" or "by misleading the referred Plaintiff regarding the level of
knowledge and understanding they had before making such recommendation, or by overstating
their own history with similar investments." Id. As a result, defendant seeks contribution from
the referring plaintiffs in the amount of "their fair share" of any "referred" plaintiffs' losses. Id.
In opposition, plaintiffs maintain that defendant "does not identify any reasonable basis upon
which one could believe that any of the referrers would have understood that [ ] referring a client
to Ms. Wilkov .... would expose them to liability to their friends for Ms. Wilkov's
misconduct." PI. Opp. at 14.
This aspect of defendant's motion fails because the proposed claims against the referring
plaintiffs "could not withstand a motion to dismiss pursuant to Rule 12(b)(6)" and therefore
would be "futile." Oneida Indian Nation v. City of Sherrill, 337 F.3d l39, 168 (2d Cir. 2003),
rev'd on other grounds, 544 U.S. 197 (2005). The New York Court of Appeals has stated that
"[a] claim for contribution rises and falls based on the existence of separate tortfeasors." AG
Capital Funding Partners. L.P. v. State Street Bank and Trust Co., 5 N.y'3d 582, 594 (2005); see
also N.Y. C.P.L.R. § 1401 (contribution claim may be brought only against a person who is
"subject to liability for damages for the same personal injury" as the person seeking
contribution). While defendant alleges the referring plaintiffs were "negligent," case law holds
that "a finding of negligence must be based on the breach ofa duty, [so] a threshold question in
tort cases is whether the alleged tortfeasor owed a duty of care to the injured party." Espinale v.
Melville Snow Contractors. Inc., 98 N.Y.2d 136, 138 (2002). The existence and scope of such a
duty is a question oflaw. Id. To establish the existence of a duty under New York law, "[t]he
injured party must show that a defendant owed not merely a general duty to society but a specific
duty to the particular claimant." In re Sept. 11 Litig., 280 F. Supp. 2d 279,290 (S.D.N.Y. 2003).
Here, defendant has failed to allege the existence of a duty owed by the referring
plaintiffs to the referred plaintiffs. Defendant states without explanation that the referring
plaintiffs owed a "common law duty of reasonable care" to the referred plaintiffs but cites no
case that would support the existence of such a duty and does not even address plaintiffs'
argument that the law does not recognize such a duty in the circumstances alleged in the
proposed counterclaims. Thus, this aspect of the defendant's motion to amend is denied
inasmuch as any claim for contribution against the referring plaintiffs could not withstand a
motion to dismiss under Rule 12(b)(6).

5

Affirmative Defenses
Defendant also seeks to raise numerous affirmative defenses not previously asserted in
this case. See Proposed Answer at 11-13. Ordinarily, the failure to raise an affirmative defense
in an answer results in waiver of the defense. See Mooney v. City of N.Y., 219 F.3d 123, 127 n.
2 (2d Cir. 2002). However, as already noted,"[t]he rule in this Circuit has been to allow a party
to amend its pleadings in the absence of a showing by the nonmovant of prejudice or bad faith."
Block, 988 F.2d at 350. Indeed, even in the absence ofa motion to amend, defendant would
have been allowed to raise new affirmative defenses in response to plaintiffs' summary judgment
motion as long as there was no prejudice to plaintiffs from the belated assertion of the defenses.
See,~, Carnley v. Aid to Hospitals, Inc., 975 F. Supp. 252, 255 (W.D.N.Y. 1997) ("[C]ourts
have allowed affirmative defenses to be raised in summary judgment motions where the party
opposing the motion was not prejudiced in its ability to respond.") (citing cases); Firemen's Ins.
Co. of D.C. v. Onwualia, 1994 WL 706994, at *5 (S.D.N.Y. Dec. 19, 1994) (finding affirmative
defenses "not waived" in absence of prejudice to plaintiffs, and permitting them to be raised in
summary judgment motion even though not raised in defendant's answer); Steinberg v.
Columbia Pictures Indus., Inc., 663 F. Supp. 706, 715 (S.D.N.Y. 1987) ("[A]bsent prejudice to
the plaintiff, a defendant may raise an affirmative defense in a motion for summary judgment for
the first time.") (quoting Rivera v. Anaya, 726 F.2d 564, 566 (9th Cir. 1984)).
Inasmuch as there is no assertion by either party that discovery would need to be re­
opened in order to support or address the proposed affirmative defenses, the Court deems these
defenses preserved despite their not having been raised in defendant's first amended answer. To
the extent plaintiffs contend the defenses are meritless, see PI. Opp. at 7-11, nothing forecloses
plaintiffs from raising such arguments in the future. Accordingly, defendant's motion to amend
her answer to include these affirmative defenses is granted.
The Court notes that to the extent defendant believes that any defenses she has asserted
would operate to defeat plaintiffs' motion for summary judgment, she must raise them as part of
her opposition to plaintiffs' motion, or the opportunity to raise those defenses will be lost in the
event plaintiffs were successful on their motion. Defendant has already filed her opposition
papers, however. Accordingly, to the extent defendant did not already raise such defenses in her
opposition papers, the Court gives leave to file a supplemental memorandum of law opposing
plaintiffs' motion that raise such defenses, along with accompanying affidavits or declarations.
The memorandum of law must include a fact section that cites to the affidavits or declarations,
and may not exceed 25 pages. The papers must be filed by March 28, 2014. Plaintiffs may
supplement their reply with a briefnot exceeding 25 pages by April 15, 2014.
Amendments to Admissions and Denials in Answer
Finally, defendant's proposed amended answer includes changes to the admissions and
denials of the allegations in the complaint. See Proposed Answer at 1-11. Although plaintiffs
argue that these changes are frivolous and that defendant wishes to "deny" matters that are in
fact true, see PI. Opp. at 6-7, this is not a basis to oppose a motion to amend. Any
inconsistencies or incorrect responses may be raised if relevant at a later stage of the case.
6

Accordingly, defendant's motion to amend (Docket # 245) is granted in part and denied
in part. Plaintiffs shall file their proposed Second Amended Complaint by March 19,2014.
Defendant should file her answer within 20 days thereafter. Defendant's answer shall be
consistent with this Order.
SO ORDERED.
Dated: March 12,2014
New York, New York

ited States Magistrate Judge

7