Southern Bank & Trust Company v. Laburnum Hotel Partners, LLC et al

Filing 55

MEMORANDUM ORDER denying 50 Motion to Amend/Correct; denying 51 Motion for Joinder. In short, Swarup is attempting to convert the Bank's straight forward collection action into a dispute about the hotel's failure and the management company's responsibility for the default. This is precisely the dispute the Bank avoided by requiring his personal guarantee.2 Because his proposed cross-claims and third party claims do not arise o ut of the same transaction or occurrence as the underlying complaint, Swarup's Motions to Amend (ECF No. 50) and for Joinder (ECF No. 51) are DENIED. Signed by Magistrate Judge Douglas E. Miller and filed on 6/6/14. Copies distributed to all parties 6/6/14. (ldab, )

UNITED

STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

Norfolk Division

SOUTHERN BANK &

TRUST COMPANY,

Plaintiff,
v.

CIVIL ACTION NO.

LABURNUM HOTEL PARTNERS,

LLC,

2:13cv216

et al.,

Defendants.

MEMORANDUM ORDER

In this suit to enforce a Promissory Note, Plaintiff Southern

Bank & Trust Company ("Southern Bank" or "Bank") and six individual
Guarantors settled matters among themselves and jointly moved the
Court

for

a

voluntary

dismissal.

Defendant

Jitendra

Swarup

("Swarup") opposed dismissal, arguing the settling Guarantors were

principally responsible

for

the underlying default on

the Note

"from their negligent, reckless, and willful misbehavior related to
the negotiation, drafting, and signing of the Note and the various
guaranties from which Plaintiff's claims directly arise."

51-8 at 4).
claims

(ECF No.

Swarup now seeks to amend his answer to assert cross-

against

entity,

LTD

Because

Swarup

the

settling Guarantors

Fund One,
himself

LLC

("LTD")

has

no

as

and
a

direct

to join a

managing

cross-claim Defendant.

ownership

in

the

hotel

company, he also seeks to add Keystone Ventures, LLC ("Keystone"),

of

which

Swarup

is

sole

owner

and

member,

as

a

cross-claim

Plaintiff.

For the

reasons

that

follow,

Swarup's

requests are

DENIED.

Under Rule 15 of the Federal Rules of Civil Procedure,

"should freely give leave [to amend]
Fed. R. Civ. P. 15(a)(2).

liberally,

"a district

a court

when justice so requires."

Though such motions should be granted

court

may

deny

complaint would be futile - that is,

leave

if

amending

the

xif the proposed amended

complaint fails to satisfy the requirements of the federal rules.'"
United States ex rel.

Wilson v.

Kellogg Brown & Root,

Inc.,

525

F.3d 370, 376 (4th Cir. 2008) (quoting United States ex rel. Fowler
v. Caremark RX, LLC,

Harvey,
however,

496 F.3d 730, 740 (7th Cir.

438 F.3d 404, 426, 429
Swarup is not

2007); Laber v.

(4th Cir. 2006)).

only seeking to amend,

In this case,
but also to add

parties and claims which are unrelated to the pending action.
Because the new parties are unnecessary to the Bank's suit on its
Promissory Note, and Swarup's cross-claims fail to properly state a
claim under Rule 12(b)(6), allowing further amendment in this case
would be futile.

Swarup's proposed cross-claims specifically assert claims for
indemnity, breach of contract,

willful misconduct,

and breach of

fiduciary duty against LTD and the settling Guarantors.

Of the six

total proposed cross-claims, counts I-IV all relate to the alleged
contractual

indemnity

protection

provided

by

LTD's

Operating

Agreement, and improperly list Swarup as a party. By its own terms,
the Operating Agreement provides indemnity protection to "Members"

of LTD.

(ECF No.

51-4 at 21,

§ 3.5.4). While non-party Keystone

clearly is a Member, Swarup, just as clearly, is not.
51-4 at 57,

signature page) .

Accordingly,

(see ECF No.

as Swarup is not a

proper party to any suit for contractual indemnity, any attempt to
assert such individual claims would be futile.

Even were Swarup a party to the contract,
allege any proper cross-claim.

he has failed to

Under Rule 13(g),

a pleading may

state a cross-claim by one party against a co-party "if the claim
arises out of the transaction or occurrence that is the subject
matter

of

the

determining

original

whether

a

action."

Fed.

cross-claim

transaction or occurrence,

the

R.

arises

Civ.

P.

out

of

13(g).

the

In

same

Fourth Circuit has provided the

following framework to aid the courts in reaching a decision:
(1) Are the issues of fact and law raised in the complaint
and crossclaim largely the same? (2) Will substantially the
same evidence support or refute the complaint as well as
the crossclaim?
(3) is there any logical relationship
between the complaint and the crossclaim?
Barber v. Am.

Family Home Ins. Co.,

No.

1319474, at *3 (D.S.C. Apr.

17, 2012)

863 F.2d 329,

3:11CV2328JFA, 2012 WL

1988)).

331 (4th Cir.

(citing Painter v. Harvey,

Here, Swarup's proposed cross-claims do not stem from the same
transaction or occurrence as Southern Bank's underlying action to

enforce its Promissory Note.

Instead, Swarup seeks to bring in new

parties to the suit and to enforce new agreements not at issue in

Southern Bank's case. As the Fourth Circuit's suggested analysis
reveals,

these

proposed

changes

bear

little

relation

to

the

underlying action.

First, the original complaint interests itself solely with the
collection

of

an

outstanding

debt

on

the

Promissory

Note.

Factually, it is concerned with whether and to what extent payments
were

made,

as

well

guaranties at issue.

as

the

enforceability

of

the

individual

Legally, the issues are limited to the terms

of the Note and individual agreements themselves,
relevant legal defenses.

In contrast,

as well as any

Swarup's proposed cross-

claims do not raise the same issues of law and fact.

Factually,

they all relate to the internal workings of LTD, a non-party, and
to alleged agreements regarding indemnification.

Similarly,

the

cross-claims' underlying legal issues would require an analysis of
LTD's

indemnification

agreement

and

the

duties

it

purportedly

creates.

Second, given this disconnect between the factual and legal
issues

raised

in

the

proposed cross-claims,

complaint
the

and

those

evidentiary

would not be substantially the same.

raised

support

by

Swarup's

needed

for each

Indeed, Swarup's proposed new

claims consist predominantly of new causes of action by a non-party
(Keystone) against a non-party (LTD).

They involve issues not at

all in dispute in the current action.
solely one of debt-collection.

Southern Bank's case is

The evidence would be limited to

the terms of the Note at issue and the surrounding circumstances

related

to

its

non-payment.

Swarup's

proposed

cross-claims,

however, relate to a completely different issue - indemnification

and alleged bad faith

pledged

to

different

secure
analysis

the

in the operation of

debt.

of

They

documents

will

and

the hotel which was

require

a

completely

relationships

presently

unnecessary to this litigation.
In light of the above, and to complete the Fourth Circuit's
suggested analysis,

the

complaint

and

there is little logical relationship between

Swarup's

proposed

cross-claims.

Swarup's

disagreement with his liability under the Note does not mean he can
pursue the claims he has outlined against the settling Guarantors
and

LTD

concurrent

with

Southern

Bank's

unrelated

enforcement

action. Significantly, LTD is not a party to that action, nor is it

a

"necessary" party under Rule 19 of the Federal Rules of Civil

Procedure.1 LTD was not a party to the loan documents at issue.

It

was not sued by the Bank, nor have any of the 26 other individual

guarantors attempted to assert claims against it in this action.
Moreover,

the document Swarup relies upon,

LTD's Operating

Agreement, has a choice of venue clause selecting the District of
Columbia as the "sole forum for any action arising out of matters
related to this Agreement .

.

.

."

(ECF No. 51-4 at 43,

§ 10.12).

Swarup has not provided any reason why the District of Columbia

1 According to Rule 19, a necessary party is one that:
(A) in that person's absence, the court cannot accord complete relief
among the existing parties; or (B) that person claims an interest
relating to the subject of the action and is so situated that disposing
of the action in the person's absence may (i) as a practical matter
impair or impede the person's ability to protect the interest; or (ii)
leave an existing party subject to a substantial risk of incurring
double, multiple, or otherwise inconsistent obligations because of the
interest.

Fed.

R.

Civ.

P.

19(a) (1) (B) (i)- (ii) .

would be an improper venue
raise.

for

See Pee Dee Health Care,

(4th Cir. 2007)

("[a]

the

claims he has

P.A. v. Sanford,

attempted to

509 F.3d 204,

213

forum-selection clause is "prima facie valid

and should be enforced unless enforcement is shown by the resisting

party to be 'unreasonable' under the circumstances'"
Bremen v.

Zapata Off-Shore Co.,

407 U.S.

1,

10

(quoting M/S

(1972)).

In short, Swarup is attempting to convert the Bank's straight
forward collection action into a dispute about the hotel's failure
and the management company's responsibility for the default.

This

is precisely the dispute the Bank avoided by requiring his personal

guarantee.2

Because his proposed cross-claims

claims do not arise out

of

the underlying complaint,
and for Joinder

(ECF No.

the

same

and third

party

transaction or occurrence as

Swarup's Motions to Amend (ECF No.
51)

50)

are DENIED.

2 Swarup contends in his proposed cross-claims that he signed the guaranty at
issue win his capacity as principal of Keystone Ventures," thereby limiting his
personal liability.
(ECF No. 51-1 at 52) . The documents themselves clearly show
that the guaranty was signed by Swarup, in his own name, and with no reference to
Keystone whatsoever.
(ECF No. 1-4 at 41-51). Nonetheless, to the extent Swarup
can prove that he guaranteed the debt on behalf of Keystone, that defense is
preserved by the denial of liability and affirmative defenses in his original
Answer.

The Clerk is DIRECTED to provide a copy of this Order to all
counsel of

record.

ifepv

Douglas E. Miller
United States Magistrate Judge
DOUGLAS
UNITED

Norfolk, Virginia
June 6,

2014

E.

MILLER

STATES

MAGISTRATE

JUDGE