Opinion
01 Civ. 9649 (JFK)(FM).
July 7, 2003.
MEMORANDUM DECISION
I. Introduction
This suit arises out the alleged diversion of $16 million from Banco Union S.A.E.C.A. ("Banco Union") and Banco Oriental S.A.I.F.E.C.A. ("Banco Oriental"), two Paraguayan banks now in liquidation. Plaintiff Banco Central del Paraguay ("Banco Central"), the highest banking authority in Paraguay, claims to be the assignee of both banks. Banco Central seeks to recover the diverted funds from defendants Paraguay Humanitarian Foundation, Inc., f/k/a CQZ Humanitarian Foundation Inc. ("Paraguay Foundation"), CQZ Holding Corp. ("CQZ"), Avijos, Inc., and Jose M. Avila ("Avila") (collectively, the "Principal Defendants"), and nominal defendant John W. Tulac ("Tulac").
Banco Central has now moved to amend its complaint, pursuant to Rules 15 and 21 of the Federal Rules of Civil Procedure, to add Ronald L. Wolfson ("Wolfson"), the president of Paraguay Foundation, and Jorge Ralph Gallo Quintero ("Quintero"), the president and director of CQZ, as defendants. For the reasons set forth below, Banco Central's motion to amend the complaint is granted.
II. Background
The complaint in this action was filed on November 1, 2001. (Docket No. 29). Thereafter, Tulac, acting on behalf of the defendants, apparently initiated settlement discussions which lasted nearly eight months. (See Banco Central Mem. of L. at 3). During this time, Banco Central granted the defendants several extensions of time to respond to the complaint. (Id.). Banco Central also took the depositions of Tulac and Avila, respectively, on March 26 and April 24, 2002. (See Declaration of Daniel H. Weiner, Esq., dated May 5, 2003 ("Weiner Decl."), Exs. 1, 2). When it became clear in August 2002 that a settlement was not in the offing, Banco Central advised the defendants that no further extensions of time would be granted. (Banco Central Mem. of L. at 3). The Principal Defendants then served and filed their answer, affirmative defenses, counterclaim, and third-party complaint on September 13, 2002. (Docket Nos. 42-43, 47-48). Tulac served and filed an answer and interpleader counterclaim the same day. (Docket No. 44).
In their answer, the Principal Defendants allege that the $16 million was not diverted. They contend that, in or around March 2000, Banco Union transferred $2 million to a CQZ project trust account at Citibank on the understanding that CQZ was to obtain a "significant amount of financing" for the country of Paraguay. (Counterclaim ¶ 1). Thereafter, according to the Principal Defendants, in or around April 2000, Banco Union and Banco Central deposited "an initial equity reserve sum of $14 [m]illion into a trust account [at] Citibank," pursuant to an agreement among the parties "to seek a form of 100% non-recourse project financing sponsored by the United States," "for a children's hospital, water and gas pipelines[,] and other infrastructure projects in Paraguay." (Id. ¶¶ 1-2). For some time, Banco Central has been seeking information about this government-sponsored financing.
On April 28, 2003, I held a settlement conference, during which the Principal Defendants agreed to discontinue their third-party claim against defendant Citibank. (Docket No. 70). At the conference, Banco Central also asked to file a motion to amend the complaint to add Wolfson and Quintero as defendants. (Docket No. 71).
III. Applicable Law
Pursuant to Rule 15(a) of the Federal Rules of Civil Procedure, a party may amend its complaint after a responsive pleading has been served "only by leave of the court . . . [, but] leave shall be freely given when justice so requires." Courts therefore ordinarily look favorably on requests to amend.See Ricciuti v. N.Y.C. Transit Auth., 941 F.2d 119, 123 (2d Cir. 1991) (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)) (amendment should be allowed "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief"); 6 Charles Alan Wright, Arthur R. Miller Mary Kay Kane, Federal Practice and Procedure § 1484 (2d ed. 1990). As the Supreme Court has observed:
In the absence of any apparent or declared reason — such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of amendment, etc. — the leave sought should, as the rules require be "freely given."Foman v. Davis, 371 U.S. 178, 182 (1962).
An amendment to add parties to a civil suit is governed by Rule 21 of the Federal Rules of Civil Procedure, which permits their addition "at any stage of the action and on such terms as are just." Fed.R.Civ.P. 21; Momentum Luggage Leisure Bags v. Jansport, Inc., 2001 WL 58000, at *2 (S.D.N.Y. Jan. 23, 2001). The showing necessary to join parties under Rule 21 is as limited as that required under Rule 15(a) for other amendments.Rissman v. City of New York, 2001 WL 1398655, at *1 (S.D.N.Y. Nov. 9, 2001).
IV. Discussion
A. Delay
One of Banco Central's central contentions in this action is that there never was any proposed non-recourse funding for infrastructure projects in Paraguay. It notes that the Principal Defendants have recently lent sustenance to this claim by admitting that there never was an application or commitment for the alleged project financing. (Banco Central Mem. of L. at 4). Banco Central also recently has learned that Paraguay Foundation is "no longer in existence and good standing under the laws of the State of Delaware." (Weiner Decl. Ex. 6). In its view, these revelations, and information disclosed during the Tulac and Avila depositions, demonstrate that Wolfson and Quinte played a pivotal role in the alleged diversion and thereafter have attempted to escape liability. (Banco Central Mem. of L. at 4-6). More specifically, Banco Central contend that:
• In 2000, Wolfson, Quintero, Avila, Tulac and certain Paraguayans met to allegedly discuss an "investment" by Banco Union and Banco Oriental in connection with an alleged "infrastructure development project" in Paraguay. (Weiner [Decl.] Exs. 1 2 (Tulac Dep. at 55-64; Avila Dep. at 37-44, 57-62, 90-97));
• Quintero allegedly played the role of "matchmaker," bringing together Avila, Wolfson, Tulac and others from Paraguay for purposes of the alleged "investment" in the "infrastructure development project" in Paraguay. (Id. (Tulac Dep. at 58-59));
• Wolfson was held out as the person with the unique expertise to obtain alleged financing from the U.S. Government for the "infrastructure development project" in Paraguay. (Id. (Tulac Dep. at 58-59, 65));
• Wolfson was said to have obtained written "approval" for "project financing" from the U.S. Government for such project. (Id. (Tulac Dep. at 67, 71, 73));
• Quintero used CQZ Holding, for which he serves as president and director, as a vehicle for "investment" projects of the type allegedly made here. (Id. (Tulac Dep. at 42-43; Avila Dep. at 70);
• Paraguay Foundation was created for the sole purpose of facilitating the alleged "infrastructure development project" in Paraguay (Id. (Tulac Dep. at 74-75, 231-240; Avila Dep. at 61-62, 70, 100-104)); and
• Paraguay Foundation, for which Wolfson and Avila serve as president and secretary/treasurer, respectively, is no longer in existence, having been "administratively dissolved" by the Delaware Secretary of State two months ago, on March 1, 2003. (Weiner [Decl.] Ex. 6).
(Id. at 4-5).
For their part, the Principal Defendants contend that Banco Central has unduly delayed its motion to amend because the Tulac and Avila depositions were taken in March and April of 2002, more than one-half year before the December 2, 2002 deadline set by Judge Keenan for the joinder of additional parties. (See Docket No. 52; Defs.' Mem. of L. at 2). They further represent that Paraguay Foundation became inactive "through a mix-up," that no bad faith was involved, and that efforts are underway to reinstate the corporation as soon as possible. (Defs.' Mem. of L. at 2).
To be sure, Banco Central has been slow in seeking to amend its complaint: it has been approximately twenty months since this action was commenced, a little over one year since the depositions of Tulac and Avila were taken, and approximately seven months since the deadline to add additional parties passed. However, "[d]elay alone, without a showing of bad faith or undue prejudice, is not a sufficient basis for denying the right to amend the complaint." SEB S.A. v. Montgomery Ward Co., 2002 WL 31175244, at *4 (S.D.N.Y. Oct. 1, 2002) (citingState Teachers Retirement Bd. v. Fluor Corp., 654 F.2d 843, 856 (2d Cir. 1981)). In this case, the Principal Defendants have not made either required showing.
B. Bad Faith
The Principal Defendants allege that Banco Central's proposed amendment is part of a strategem intended to delay this case and "play politics in Paraguay by using this Court." (Defs.' Mem. of L. at 3). These conclusory assertions, however, are obviously insufficient to establish bad faith on the part of Banco Central. Moreover, to the extent that the amendment was postponed while settlement discussions were underway, the delay appears to have benefitted both sides since even Tulac conceded (during the course of the settlement conference before me) that the parties were engaged in serious settlement negotiations during 2002. The Principal Defendants also have not shown that it was improper for Banco Central to delay adding Wolfson and Quintero as defendants until they had secured the additional evidence noted above.
In sum, the Principal Defendants have not shown that Banco Central is proceeding in bad faith.
C. Prejudice
"In determining what constitutes `prejudice,' [courts] consider whether the assertion of the new claim would: (i) require the opponent to expend significant additional resources to conduct discovery and prepare for trial; (ii) significantly delay the resolution of the dispute; or (iii) prevent the plaintiff from bringing a timely action in another jurisdiction." Block v. First Blood Associates, 988 F.2d 344, 350 (2d Cir. 1993). The Principal Defendants allege that if Wolfson and Quintero are added as defendants, each will seek to retain his own counsel, those attorneys will need more time "to be brought up to speed," and additional counterclaims and third-party actions are likely to be spawned. (Defs.' Mem. of L. at 3). For these reasons, they believe that "the case will be delayed at least an additional six months." (Id.).
Although Wolfson and Quintero will, of course, have to be afforded a reasonable opportunity for discovery, no new claims are being added to the complaint. Thus, the claims against Wolfson and Quintero will be the same as those against the Principal Defendants — namely conversion, constructive trust, and conspiracy. The Principal Defendants therefore will not have to undertake additional discovery as a result of the amendment, and the new defendants will likely find that much of the discovery they might seek has already been satisfactorily completed. See A.V. by Versace, Inc. v. Gianni Versace S.p.A., 87 F. Supp.2d 281, 299 (S.D.N.Y. 2000) (finding no prejudice where proposed amendment would add additional parties but would not "raise factual claims unrelated to the events [in] its original . . . complaint"). In any event, even if either the Principal Defendants or the new defendants require additional discovery, "the adverse party's burden of undertaking discovery, standing alone, does not suffice to warrant denial of a motion to amend a pleading." United States v. Cont'l Illinois Nat. Bank and Trust Co. of Chicago, 889 F.2d 1248, 1255 (2d Cir. 1989).
D. Futility
Leave to amend a complaint should be denied "[w]here it appears that [it] is unlikely to be productive." Ruffolo v. Oppenheimer Co., 987 F.2d 129, 131 (2d Cir. 1993). However, if the plaintiff has colorable grounds for seeking relief, the motion to amend should be granted. Ryder Energy Distrib. Corp. v. Merrill Lynch Commodities Inc., 748 F.2d 774, 783 (2d Cir. 1984). Here, Banco Central has presented more than enough evidence to demonstrate that its causes of action against Wolfson and Quintero are viable. Therefore, the proposed amendment is not futile.
V. Conclusion
For the foregoing reasons, Banco Central's motion to amend the complaint is granted. Banco Central is directed to serve and filed its amended complaint on or before July 21, 2003. Additionally, Banco Central should take steps to ensure that defendants Wolfson and Quintero are served at the earliest possible date. To ensure that delay is kept to a minimum, Banco Central is further directed to notify me by letter within five days after Wolfson and Quintero have been served.
SO ORDERED.