Opinion
No. 7-01-10779 SA, Adversary No. 03-1119 M
April 14, 2004
Paul D. Barber, Davis Pierce, P. C., Albuquerque, NM, for Plaintiff
L. Michael Messina, Albuquerque, NM, for Defendant
ORDER DENYING PLAINTIFFS MOTION FOR LEAVE TO FILE FIRST AMENDED COMPLAINT
THIS MATTER is before the Court on the Motion for Leave to File First Amended Complaint (Motion to Amend), filed by Plaintiff Yvette J. Gonzales, trustee, by and through her attorneys of record, Davis Pierce, P. C. (Paul D. Barber). Defendant is represented by L. Michael Messina. The Court heard oral argument on the Motion to Amend on April 8, 2004 , at which time the Court took the matter under advisement. Plaintiffs Complaint to Avoid Preferential Transfers seeks to recover certain payments made to Defendants Jan U. Friederich, individually and d/b/a Jan J. Friederich Consulting (together, Friederich) within ninety days of the date of the petition pursuant to 11 U.S.C. § 547. Plaintiff now seeks to amend its complaint to add a cause of action under 11 U.S.C. § 548 , alleging that certain transfers made to Friederich within a year prior to the filing of the Debtors bankruptcy petition should be avoided as fraudulent transfers based on lack of reasonably equivalent value. Motions to amend are governed by Rule 15, Fed.R.Civ.P., incorporated into the Federal Rules of Bankruptcy Procedure by Rule 7015, F.R.Bankr.P., which provides that leave [to amend] should be freely given when justice so requires. However, unless the amended pleading arises from the same conduct, transaction or occurrence described in the original pleading, it will not relate back to the date of filing of the original pleading. Rule 15(c), Fed.R.Civ.P. Relation back is important when, as here, the applicable statute of limitations for the cause of action Plaintiff seeks to add has already run. See 11 U.S.C. § 546 (providing, in relevant part, that the trustee must file avoidance actions under § 547 and § 548 no later than two years after the entry of the order for relief). Plaintiff asserts that the cause of action for recovery of an alleged fraudulent transfer under § 548 is sufficiently related to its initial cause of action to recover alleged preferential transfers under § 547 to allow amendment and relation back to the date of the original pleading. Specifically, Plaintiff points to the employment/severance/consulting agreement between the Debtor and Freiderich as the nexus between both causes of action, since all payments at issue arise from the agreement. Since all payments Plaintiff seeks to recover stem from the same agreement, Plaintiff argues that Defendant will not be prejudiced by adding a cause of action under § 548.
All future statutory references are to Title 11 of the United States Code, unless otherwise indicated.
Debtors chapter 11 proceeding converted to chapter 7 on December 19, 2001. Plaintiff filed this adversary proceeding on February 6, 2003 . Plaintiff filed the Motion to Amend on January 9, 2004 .
Defendant counters that a cause of action under § 548 is significantly different than a cause of action under § 547 because the look back period under the fraudulent transfer section is one year, as compared to the ninety-day preference period proscribed by § 547. Plaintiffs amended complaint would encompass a large payment made well outside the ninety-day preference period, but within the one-year recovery period for fraudulent conveyance actions. Defendant points out that the discovery period for this adversary proceeding has already expired, and that allowing Plaintiff to amend her complaint and extend discovery at this late stage in the proceedings would be prejudicial to Defendant, who has already spent time preparing his defense based on the ordinary course of business exception to preferential transfers outlined in § 547(c). This Court agrees. Causes of action under § 548 and § 547 are significantly different. A trustee can recover a transfer that took place a year prior to the filing of the petition under § 548, whereas under § 547, the preference period within which transfers can be recovered is limited to the ninety days prior to the filing of the petition. One of the payments Plaintiff now seeks to recover under her proposed amended complaint occurred well outside the ninety-day preference period. Even though all payments the Plaintiff seeks to recover relate to the employment/severance/consulting agreement between the parties, at least one of the payments at issue under a fraudulent transfer cause of action would be an entirely different payment than the payments at issue under the preference action. Therefore, at least some of the operative set of facts relevant to the payments at issue under a fraudulent transfer cause of action are entirely different than the facts relevant to the payments made within the ninety-day preference period.
The required elements and defenses to each type of action also differ. See In re Gantos, Inc., 283 B. R 649, 651 (Bankr. D. Conn. 2002) (Noting that the statutory basis and available defenses to/for § 547 and § 548 are different) The statutory elements for a preferential transfer include proof that the transfer was made 1) for the benefit of a creditor; 2) on account of antecedent debt; 3) while the debtor was insolvent; 4) during the ninety-day preference period; and 5) that enabled the creditor to receive more than the creditor would have otherwise received under the provisions of the bankruptcy code had the transfer not been made. 11 U.S.C. § 547(b). However, transfers made in the ordinary course of business made according to ordinary business terms are not subject to recovery by the trustee. 11 U.S.C. § 547(c)(2). Defendant bears the burden of proving an ordinary course of business defense to a preferential transfer action brought under § 547. 11 U.S.C. § 547(g); In re Meredith Hoffman Partners, 12 F.3d 1549, 1553 (10 th Cir. 1993). In contrast, under § 548, Plaintiff must present facts to show that the debtor failed to receive reasonably equivalent value in exchange for the transfer. See In re Newman, 183 B.R. 239, 246 (Bankr. D. Kan. 1995), aff'd, 203 B.R. 468 (D. Kan. 1996) (noting that the trustee must show that the debtor received less than a reasonably equivalent value in exchange for the transfer). Thus the focus of the defenses to a cause of action brought under § 548(a)(1)(B) is on the value the Debtor received in exchange for the transfer rather than on whether the transfer, assuming it otherwise meets the elements of a preference, was made in accordance with ordinary business terms.
The Court also notes that Plaintiffs proposed amended complaint fails to plead any specific facts in support of its additional cause of action. Instead, Plaintiffs cause of action under § 548 simply tracks the language of the statute. Plaintiff has requested an extension of the discovery deadlines in order to obtain additional information in support of her additional cause of action, noting that Plaintiff did not receive a signed copy of the employment/severance/consulting agreement until after the close of the discovery period, and that the amended cause of action relates to that agreement. However, Plaintiff has had time during the initial discovery period within which to investigate potential claims. Allowing the Plaintiff to amend her complaint when she still needs additional time for discovery in order to flesh out her additional cause of action would not be appropriate given the current posture of the adversary proceeding, the significant differences in the two types of actions, and the length of time that has passed since the filing of the complaint.
Based on the foregoing, the Court, concludes that the cause of action under § 548 is not sufficiently related to Plaintiffs initial cause of action under § 547 to allow amendment and relation back. As noted by the bankruptcy court in Gantos, Even if the result is the same, i. e., the avoidance of a transfer, an amendment cannot relate back if different facts are essential to reach that conclusion. Amendments to complaints should be allowed when they amplify or build on what has been alleged, but not when they establish a new predicate for the relief sought. Id. (citation omitted).
See In re Gantos, Inc., 283 B.R. 649, 650 (Bankr. D. Conn. 2002) (holding that the initial complaint to avoid a preferential transfer under 11 U.S.C. § 547 did not give the defendant adequate notice of a claim to avoid a fraudulent transfer under 11 U.S.C. § 548, and, therefore, did not relate back); but see Mendelsohn v. Mack Fin. Corp. (In re Frank Santora Equip. Corp.), 202 B.R. 543 (Bankr. E. D. N.Y. 1996) (allowing chapter 7 trustee to delete his preference cause of action brought under 11 U.S.C. § 547 and substitute a fraudulent conveyance claim under 11 U.S.C. § 548, finding that the causes of action arose from the same underlying transaction).
WHEREFORE, IT IS HEREBY ORDERED that the Motion to Amend is DENIED.