Memorial Hermann Health Care System v. State Street Bank & Trust Co.

Filing 103

MEMORANDUM AND OPINION AND ORDER: For the foregoing reasons, plaintiffs motion for leave to amend 45 is granted. Plaintiffs are directed to file their amended pleading within fourteen days of this order. Within fourteen days of that filing, the par ties are directed to submit a joint letter stating their views as to what effect, if any, the amendments have upon the pending summary judgment motions. State Street's motion for leave to file a sur-reply is denied as moot. 59 (Signed by Judge Richard J. Holwell on 9/17/2010) Filed In Associated Cases: 1:08-md-01945-RJH, 1:08-cv-05440-RJH-JLC(jfe)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

MEMORIAL HERMANN HEALTHCARE SYSTEM, et al., 08 MDL 1945 Plaintiffs, -againstSTATE STREET BANK AND TRUST CO., AND ORDER Defendant. Plaintiffs' motion for leave to amend is granted. Plaintiffs' claims against State Street fall into two groups: (1) pre-contractual misrepresentation claims; and (2) contract and other tort claims. The pre-contractual claims are based on allegations that State Street misrepresented the characteristics of the Limited Duration Bond Fund ("LDBF") to induce plaintiffs to enter an "Agreement of Trust" permitting State Street to invest plaintiffs' funds in the LDBF. The contract and other tort claims, collectively referred to here as "post-contractual claims," are based on allegations that State Street mismanaged the LDBF after plaintiffs had invested in it. The proposed Third Amended Complaint would add one pre-contractual cause of action (a claim under the Texas Securities Act ("TSA")), while also deleting a pre-contractual cause of action (fraud) and two post-contractual causes of action (breach of contract and breach of trust). Although the Third Amended Complaint slightly amplifies some of the underlying misrepresentation allegations, the pleading's main innovation is to change the formal causes of action, not the underlying allegations. 08 Civ. 5440 (RJH) MEMORANDUM OPINION

State Street argues that leave to amend should be denied for undue delay because plaintiffs filed the motion on January 27, 2010, two months after the official close of fact discovery on November 10, 2010. Leave to amend must be granted "freely . . . when justice so requires." Fed. R. Civ. Proc. 15(a)(2). In some circumstances, courts deny leave where a party delays inexcusably in seeking to amend, but only if the delay also causes prejudice to the opposing party. Touchtunes Music Corp. v. Rowe Intern. Corp., 07 Civ. 11450 (RWS), 2010 WL 1904326, at *2 (S.D.N.Y. 2010); see MacDraw, Inc. v. CIT Group Equip. Financing, Inc., 157 F.3d 956, 962 (2d Cir. 1998). Here, State Street has not shown that the amendment will cause it prejudice. Plaintiffs demonstrated in their opening brief that the elements of the proposed TSA claim overlap in all relevant respects with the elements of the other pre-contractual claims (fraudulent inducement and negligent misrepresentation), such that the new claim will not require further discovery. State Street does not respond to this argument in any of its three briefs, nor does it explain any other plausible theory of prejudice.1 Accordingly, plaintiffs' delay is not grounds for denying leave to amend.

In its "Reply to Plaintiff's Brief in Opposition to State Street's Motion for Leave to File Sur-Reply" (i.e., its sur-sur-reply), State Street argues it will suffer prejudice from the late addition of the TSA claim because plaintiffs intend to use a 2004 report listing the LDBF's holdings (the "holdings report") to buttress their claim that State Street made material misrepresentations about the LDBF. State Street produced the holdings report to plaintiffs in discovery on December 3, 2008, but nonetheless protests that it "had no notice of Plaintiff's allegations about the holdings report" until January 2010, when plaintiffs mentioned the document in an expert report. This argument does not make sense. From the beginning of the case, plaintiffs have alleged that State Street induced them to invest by misrepresenting the LDBF. The holdings report is relevant to that allegation because it permits a comparison between the information State Street provided to plaintiffs about the LDBF, on the one hand, and the LDBF's actual characteristics, on the other hand. Perhaps State Street failed to appreciate the document's significance when they produced it to plaintiffs in 2008, but they certainly cannot blame plaintiffs' late addition of the TSA claim for that failure.

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State Street also argues the TSA claim is futile because the Third Amended Complaint does not allege any misrepresentations with the specificity required by Rule 9(b). "Whe