Opinion
603710-2004.
Decided March 8, 2010.
Bracewell Giuliani LLP, New York City and Houston (Michael D. Hess and Glenn A. Ballard, Jr. of counsel), for IDT Corporation, plaintiff.
Patterson Belknap Webb Tyler, New York City (Stephen P. Younger of counsel), for IDT Corporation, plaintiff.
Davis Polk Wardwell LLP, New York City (Guy Miller Struve of counsel), for Morgan Stanley Dean Witter Co. and Morgan Stanley Co., Inc., defendants.
In August 1999, plaintiff IDT Corporation (IDT) and Telefonica Internacional, S.A. (Telefonica) entered into a Memorandum of Understanding (MOU) regarding a large scale telecommunications project. The project did not go forward as planned; IDT was effectively replaced by a competing entity in June 2000. Defendants Morgan Stanley Dean Witter Co. and Morgan Stanley Co, Inc., (collectively, Morgan Stanley) had acted as investment banker to Telefonica for the project and had acted as financial advisor to IDT, before and afterwards, in other communications projects. IDT claimed breach of contract against Telefonica in an arbitration proceeding in 2001, and was awarded $16.8 million with interest.
In November 2004, IDT commenced this action against Morgan Stanley for misuse of information and position which, allegedly, caused Telefonica to breach the MOU and to replace IDT in the project with another customer of Morgan Stanley. On March 26, 2009, the Court of Appeals dismissed the five causes of action pleaded in the original complaint for (1) breach of fiduciary duty, (2) intentional interference with existing contract, (3) intentional interference with prospective business relations, (4) misappropriation of confidential and propriety business information, and (5) unjust enrichment. The Court held that all five causes were either time-barred or failed to state a cause of action.
The background of this action is discussed in IDT Corp. v Morgan Stanley Dean Witter Co. , 12 NY3d 132 (2009), and is incorporated herein.
While the decision on a motion to dismiss the original complaint was pending appeal in the Appellate Division, on July 10, 2007, IDT was granted leave to amend the complaint. The amendment added a sixth and seventh cause of action, alleging fraudulent misrepresentation and fraudulent concealment in that Morgan Stanley had improperly withheld information which they were required to produce at the arbitration proceeding against Telefonica. The Supreme Court dismissed the added claims, but on June 25, 2009, the Appellate Division reinstated IDT's sixth and seventh causes of action ( IDT Corp. v Morgan Stanley Dean Witter Co. , 63 AD3d 583 , lv denied M-3455 [Oct. 27, 2009]). Accordingly, on November 17, 2009, this Court granted in part and denied in part Morgan Stanley's motion to enforce remittitur (motion sequence 011), dismissing IDT's first, second, third, fourth, and fifth causes of action, in accordance with the decision of the Court of Appeals, and reinstating IDT's sixth and seventh causes of action, in accordance with the decision of the Appellate Division.
IDT now moves for leave to amend its complaint a second time pursuant to CPLR 3025 (b) and (c). Five years after the action was commenced, and following one appeal to the Court of Appeals, and a second appeal to the Appellate Division, which denied leave to appeal, IDT seeks to add two additional causes of action: (1) common law fraud, and (2) fraudulent concealment by a fiduciary. Unlike the surviving sixth and seventh causes which relate solely to the alleged suppression of evidence at the IDT-Telefonica arbitration in 2001, the proposed new causes would relate back to the original breach of the MOU in 1999-2000, but, theoretically, would not be time-barred as was the bulk of the original complaint, since the proposed causes carry a six-year statute of limitations.
For the following reasons, IDT's motion is granted.
Discussion
Leave to amend a pleading should be "freely given" (CPLR 3025 [b]) "as a matter of discretion in the absence of prejudice or surprise" ( Stroock Stroock Lavan v Beltramini, 157 AD2d 590, 591 [1st Dept 1990]). "Where there has been an extended delay in moving to amend, the party seeking leave to amend must establish a reasonable excuse for the delay" ( Heller v Louis Provenzano, Inc., 303 AD2d 20, 24 [1st Dept 2003] [internal quotation marks omitted]). However, "[m]ere lateness is not a barrier to the amendment. It must be lateness coupled with significant prejudice to the other side, the very elements of the laches doctrine." ( Edenwald Contracting Co. v New York, 60 NY2d 957, 959.)
"[T]o conserve judicial resources, an examination of the underlying merits of the proposed causes of action is warranted" ( Megaris Furs, Inc. v Gimbel Bros., Inc., 172 AD2d 209, 209 [1st Dept 1991]). "[A] motion for leave to amend a pleading must be supported by an affidavit of merits and evidentiary proof that could be considered upon a motion for summary judgment" ( Zaid Theatre Corp. v Sona Realty Co. , 18 AD3d 352 , 355 [1st Dept 2005] [internal quotation marks omitted]). "[L]eave may not be granted where the amended pleading plainly fails to state a cause of action and, thus, lacks merit" ( Stroock, 157 AD2d at 591). Thus, the issues before this Court are (1) whether IDT's delay in seeking to leave to amend is an "extended delay," and if so, whether IDT provided a "reasonable excuse" for that delay, (2) if there is a delay, whether IDT's motion for leave to amend the complaint would significantly prejudice Morgan Stanley, and (3) whether IDT's proposed claims have any merit.
IDT alleges that delay is not extensive in light of the pre-discovery litigation ( see transcript at 9 [Feb. 19, 2010] ["And the cases [Morgan Stanley] cite[s] are all distinguishable because they're all further along."]), and that the delay is due to the facts it uncovered during discovery, which enhanced its ability to support the merits of its proposed amendments. IDT claims it "did not know when it filed its Original Complaint that Morgan Stanley assigned individual bankers to work both sides of the SAm-1 transaction. Nor did IDT know that those bankers received confidential information related to both clients. IDT certainly did not know (and could not fathom) that those bankers, armed with information on both clients, participated directly in the advice to Telefonica to breach its contract with IDT." (IDT's supplemental brief at 18 [Dec. 14, 2009].) IDT also argues that prejudice cannot be shown when Morgan Stanley was aware of the factual basis of the proposed amendment throughout the litigation and discovery.
On the other hand, Morgan Stanley alleges that IDT failed to proffer a reasonable excuse for its delay. Morgan Stanley claims it is prejudiced, pointing out (1) the mounting costs of litigation, including the appeals process and "redo[ing]" depositions (transcript at 48-49, 53 [Feb. 19, 2010]), (2) the potential harm to the system where a party is entitled only to "one chance" to prove their case ( id. at 53), and (3) lost evidence, including unavailable witnesses ( id. at 56-58). Morgan Stanley also claims IDT improperly seeks amendment without supporting evidence. As well, Morgan Stanley argues that IDT's additional causes of action fail to state a claim.
Morgan Stanley invokes Heller v Louis Provenzano, Inc., 303 AD2d 20, 23 (1st Dept 2003), claiming that here, as there, IDT's two additional causes of action would add new theories of liability, which "would involve different elements and standards of proof and potentially subject defendants to a far greater and different dimension of liability than would otherwise have been the case" ( Heller, 303 AD2d at 23). Because the claims "bring[] in these new elements like deception, materiality and reasonable reliance" (transcript at 50 [Feb. 19, 2010]), "that . . . would be sufficient to warrant denial of the motion, given the six-year delay" ( Heller, 303 AD2d at 23, citing Spence v Bear Sterns Co., 264 AD2d 601 [1st Dept 1999]). Morgan Stanley also cites B.B.C.F.D., S.A. v Bank Julius Baer Co. , 62 AD3d 425 , 425 (1st Dept 2009), where the First Department affirmed the trial court's decision to deny the defendant's motion for leave to amend its answer to include cross claims where "the facts underlying [the defendant's] proposed cross claims have been known to him no later than 2004, if not as long ago as late 2001. His delay until August 2007 in requesting leave to amend his answer is inexcusable." ( B.B.C.F.D., 62 AD3d at 425 [internal cites omitted]; see also Oil Heat Inst. of Long Island Ins. Trust v RMTS Assoc., LLC , 4 AD3d 290 , 294 [1st Dept 2004] ["Since plaintiffs have failed to offer a reasonable excuse for their delay, the court should not have granted them leave to serve an amended complaint."].)
The cases that Morgan Stanley cite are distinguishable from the present case. In Heller, "discovery has been completed and a note of issue filed more than four years ago . . . As the record shows, this application to amend was made without explanation as to the delay, over 10 years after the accident, over six years after commencement of the action, long after the completion of discovery and filing of the note of issue, over four years after the first trial of this action and over 1 1/2 years after the decision of the prior appeal." ( Heller, 303 AD2d at 24-25.) In B.B.C.F.D., the proposed amendment would add "a new cross-claim plaintiff, effectively resurrecting two cases that, after many years of litigation are close to being resolved. In any event, the new cross claims are untimely." ( B.B.C.F.D., 62 AD3d at 425.) Likewise, in Oil Heat, the plaintiffs' amendment sought to "assert direct claims against third-party defendants . . . It is clear that plaintiffs made a deliberate tactical decision at the commencement of this litigation not to sue the [third-party] defendants. Thus, plaintiffs, having charted their own course, cannot now be heard to complain." ( Oil Heat, 4 AD3d at 290, 294.)
Here, IDT's motion for leave to amend was filed on September 25, 2009, more than three months before the note of issue date, set for January 13, 2010. Although discovery and depositions have taken place, IDT's amendments do not seek claims against additional parties, and simply "add new detail and clarification based on the extensive discovery record" ( see IDT's reply memorandum at 11 [Oct. 23, 2009]). In any case, IDT provided a reasonable explanation for delay, as "the parties have learned much about the case that was not known when the complaint was initially amended. IDT therefore requests leave to amend its complaint to comport with the discovery record compiled over the past two years and to add two additional fraud-based causes of action based upon that record." (Affirmation of Glenn A. Ballard, Jr., ¶ 5 [Sept. 25, 2009].)
Courts generally define amendments brought after an "extended delay" as those filed significantly after the note of issue and certificate of readiness for trial ( see e.g. McFarland v Michel , 2 AD3d 1297 , 1300 [4th Dept 2003] [reversing trial court's decision and granting leave to amend because "motion was made within one week of the filing of the note of issue and certificate of readiness and was made within 1 1/2 years of the filing of the complaint. Thus, there was no extended delay."]; Volpe v Good Samaritan Hosp., 213 AD2d 398, 398-399 [2d Dept 1995] [affirming trial court's decision denying leave where no explanation was given and motion was filed following commencement of trial and ten years after commencement of action]; Beuschel v Malm, 114 AD2d 569, 569 [3d Dept 1985] [affirming trial court's decision denying leave where motion was filed seven months following note of issue]; Smelts v Meloni , 5 Misc 3d 773, 777 [Sup Ct, Monroe County 2004] [requiring movant to establish reasonable cause for delay only "applied in situations where there has been an extended delay in making a motion to amend the pleadings, especially following the filing of a note of issue and certificate of readiness for trial"]).
As well, prejudice cannot be shown when the non-movant has been aware of the factual basis of the proposed amendment ( compare transcript at 23-34 [demonstrating Morgan Stanley was aware of factual basis for proposed claims], with Greenburgh Eleven Union Free School Dist. v Natl Union Fire Ins. Co. of Pittsburgh, PA, 298 AD2d 180, 181 [1st Dept 2002] [affirming trial court's decision granting leave to amend because defendants "were well aware, at least since the action's inception, of the factual basis for the claims set forth in the proposed amendment . . . While plaintiff was or should have been aware of the facts and theories asserted in the amended complaint long before amendment was actually sought, delay alone is not a sufficient ground for denying leave to amend."], and Morris v Crawford, 281 AD2d 805, 806 [3d Dept 2001] ["Although plaintiffs' theory of the case changed somewhat . . . defendant was aware of the pertinent factual allegations at the outset, [and] we fail to see how the delay in seeking the proposed amendment substantially prejudiced defendant by hindering him in the preparation of his case."]).
Here, Morgan Stanley claims it "would have to re-depose all 16 IDT witnesses who have already been deposed" (supplemental affirmation of Guy Miller Struve ¶ 9 [Jan. 11, 2009]) and "would also have to take discovery of Telefónica Internacional, SA (Telefónica') and other third-party witnesses" that primarily "reside abroad" ( id. ¶ 10). However, Morgan Stanley does not adequately explain why the reopening of these depositions will be necessary. Morgan Stanley also does not claim that it will need to add additional defenses or witnesses as a result of IDT's amendment, nor does it contend that its trial preparation will be hampered.
Further, the need for additional discovery does not preclude allowing the amendment. "Merely because the amendment may require defendants to conduct additional discovery does not, alone, constitute sufficient grounds to justify denial of the motion" ( Garrison v Wm. H. Clark Mun. Equip., 239 AD2d 742, 743 [3d Dept 1977] [reversing trial court's decision and granting leave to amend where "[o]nly a different legal theory is asserted . . . which, we note, requires proof which is necessarily uniquely intertwined with the existing . . . causes of action"] [internal citations omitted]; see Sample v Levada , 8 AD3d 465 , 468 [2d Dept 2004] ["[L]eave should be freely granted where, as here, a plaintiff seeks to amend a complaint merely to add a new theory of recovery, without alleging new or different transactions."]; Fogal v Steinfeld, 163 Misc 2d 497, 504-506 [Sup Ct, NY County 1994] [allowing amendment even though thirteen depositions were completed, a note of issues was filed, and motion was made "on the eve of trial," when reopening of all thirteen depositions was not necessary and nonmovant was permitted to conduct further, limited discovery related to amendment]).
It is not unprecedented to allow a plaintiff to amend after a dismissal on prior appeal and raise a new theory of liability ( see Liberty Mut. Ins. Co. v County of Onondaga, 181 AD2d 1024 [4th Dept 1992]). Liberty Mutual involved a declaratory judgment action brought by an insurance company regarding its duty to defend and indemnify an underlying personal injury action. In Liberty Mutual, the plaintiffs were permitted to amend their complaint to add allegations of negligence after a prior appeal and summary judgment determination dismissing their claims against another defendant. ( Id. at 1024-1025.)
In this case, the gravamen of IDT's complaint has been continuous and unchanged from the commencement of the action in 2004. From the outset IDT has contended that Morgan Stanley wrongfully and for personal gain caused Telefonica to contract with a competitor by misusing its position of trust. Although the amendment changes the nomenclature of the causes of action, it does not, in any prejudicial way, change the essential theory of the complaint. Morgan Stanley concedes as much when they contend that the original complaint "pled in excruciating detail all of the elements of fraud" (transcript at 22-23 [Feb. 19, 2010]).
Finally, upon review of the amendment, at first blush, it appears that IDT has cognizable claims for common law fraud and fraudulent concealment by a fiduciary ( see Thomas Crimmins Contracting Co. v City of New York, 74 NY2d 166, 170 ["Where a proposed [amendment] plainly lacks merit, however, amendment of a pleading would serve no purpose but needlessly to complicate discovery and trial, and the motion to amend is therefore properly denied."]). However, the Court reserves final determination regarding the sufficiency of the allegations in the proposed second amended complaint for a later date.
Conclusion
Based on the foregoing, it is:
ORDERED, that the IDT's motion for leave to amend the amended complaint herein is granted, and the second amended complaint in the proposed form annexed to the moving papers shall be deemed served upon service of a copy of this order with notice of entry thereof; and it is further
ORDERED, that Morgan Stanley shall serve an answer or move to dismiss the second amended complaint within 20 days from the date of said service; and it is further
ORDERED, that the parties are to appear before the Court on March 9, 2010, at 11:30 A.M., for a status conference; and it is further
ORDERED, that the Clerk is directed to enter judgment accordingly.