Opinion
No. 02-CV-6252 CJS.
August 13, 2004
Kimberly A. Steele, Esq., Ernstrom Dreste, LLP, Rochester, NY, for Plaintiff.
Nicole Bielawsky, Esq., U.S. Department of Justice, Tax Division, Washington, DC, for Defendant.
DECISION AND ORDER
INTRODUCTION
Plaintiff claims that the Internal Revenue Service wrongfully levied on its property to pay the federal tax bill for its insured. This matter is before the Court on defendant's motion (# 16) to reinstate the action and supplement its complaint. For the reasons stated below, the motion is granted.
I. BACKGROUND
In August 1999, plaintiff insured Haseley Construction Company, Inc., which contracted with the New York State Department of Transportation to construct a road known as the Military Road Project. Steele decl. ¶¶ 1-9. Plaintiff, pursuant to Haseley Construction's contract with New York, provided a $7,795,536.50 labor and material payment bond and a $7,795,536.50 faithful performance bond in favor of the State of New York, Department of Transportation. Steele decl. ¶ 10. Haseley Construction subsequently defaulted on the contract, and plaintiff negotiated a takeover of contract agreement with the State of New York, Department of Transportation, to complete the Military Road Project. Steele decl. ¶ 19-21. Plaintiff undertook the obligation, as a surety, to see that the project was completed.
Plaintiff commenced this action on May 6, 2002, by filing a complaint seeking injunctive relief prohibiting defendant from enforcing or pursuing levies that plaintiff contends defendant unlawfully filed on November 27, 2001. Steele decl. ¶ 28 29. The levies were filed to collect tax money owed by Haseley Construction to defendant. The matter was eventually settled on February 24, 2003 by stipulation of the parties. Steele decl. ¶ 37. The stipulation provided in part that, "either party may reinstate this action within nine months from the date of filing of this Stipulation and Order." Id. ¶ 37.
On June 24, 2002, defendant filed a levy on the Military Road Project money against the State of New York. As a result of what plaintiff contends was this wrongfully-filed levy, New York State turned over to the defendant funds from the Military Road Project in the amount of $579,779.68 on January 10, 2003. Steele decl. ¶ 42. Plaintiff's supplemental complaint seeks the return of these funds, which plaintiff contends defendant wrongfully seized under its levy. In response, defendant asserts that the time for seeking return of the funds has expired.
Plaintiff states that on August 14, 2001 it filed a UCC-1 Financing Statement with the New York State Department of Transportation listing the funds to which plaintiff contends it had a security interest. Steele Suppl. decl. ¶ 9. That financing statement specified plaintiff's rights "in connection with any contract, including but not limited to . . . (2) all receivables due or to become due on any contract of the principal [Haseley Construction]. . . ." Steele Suppl. decl. ¶ 9. Plaintiff contends that defendant did not file its first Notice of Federal Tax Lien with New York until August 20, 2001. Id. ¶ 10. Further, plaintiff contends that it was not until March 4, 2002 that defendant actually levied on the sum of $579,779.68, which it eventually received from New York pursuant to that levy. Id. ¶ 12. Plaintiff further maintains that the settlement agreement anticipated that plaintiff would "reinstate the matter should it be found that the funds received by Defendant from the State of New York were from a construction project bonded by [plaintiff], and the project was completed by [plaintiff] due to the default of Haseley Construction." Steele Suppl. decl. ¶ 14. It appears that confusion as to the source of the funds turned over to defendant by New York delayed further action by plaintiff.
On January 13, 2003, plaintiff states that an attorney with the defendant's Tax Division telephoned counsel for plaintiff and "advised that the [federal] tax liability of Haseley Construction had been paid in full." Id. ¶ 17. Defendant's attorney, however, was unable to identify the date of payment, the amount, or the source of the funds used to pay off Haseley Construction's tax liability. Steele Suppl. decl. ¶ 17. As a result of the telephone conversation, plaintiff's counsel immediately attempted to identify the source of the funds by contacting various project owners and their attorneys, and also contacted the president of Haseley Construction and its counsel. Id. ¶ 18. She further contacted the New York State Department of Transportation, but was informed that she would be required to request the information under New York's Freedom of Information Law ("FOIL"). Steele Suppl. decl. ¶ 20.
On January 21, 2003, plaintiff's counsel filed a FOIL request, and New York responded by providing "a large volume of documents from two construction projects consisting of project printouts, copies of liens filed on the projects, and the projects' payment history." Id. ¶ 21. After reviewing the documents, plaintiff determined that the source of funds for satisfaction of defendant's lien was the Military Road Project. Plaintiff concedes that, by that time, the March 5, 2003 statute of limitations had already passed. Steele Suppl. delc. ¶ 20. Plaintiff contends, nevertheless, that since defendant was on notice well before the statute of limitation expired, the supplemental claim ought to be allowed by the Court.
II. STANDARDS OF LAW
The Federal Rules of Civil Procedure state:
Upon motion of a party the court may, upon reasonable notice and upon such terms as are just, permit the party to serve a supplemental pleading setting forth transactions or occurrences or events which have happened since the date of the pleading sought to be supplemented. Permission may be granted even though the original pleading is defective in its statement of a claim for relief or defense. . . .
FED. R. CIV. P. 15(d). As the Second Circuit explained,
Fed.R.Civ.P. 15(d) permits a party to move to serve a supplemental pleading and the district court may grant such a motion, in the exercise of its discretion, upon reasonable notice and upon such terms as may be just. Absent undue delay, bad faith, dilatory tactics, undue prejudice to the party to be served with the proposed pleading, or futility, the motion should be freely granted. See Foman v. Davis, 371 U.S. 178, 182 (1962).Quaratino v. Tiffany Co., 71 F.3d 58, 66 (2d Cir. 1995).
A "supplemental complaint" enables a plaintiff to "plead facts which have accrued since commencement of action and which should be litigated with matters contained in original complaint and to bring into record new facts which will enlarge the kind of relief to which plaintiff is entitled." Conmar Products Corporation v. Lamar Slide Fastner Corporation, 50 F. Supp. 1019 (S.D.N.Y. 1942). A party may supplement a complaint even if the original pleading does not state a claim for relief. Music Deli Groceries, Inc. v. IRS, Dist. of Manhattan, 781 F. Supp. 992, 996-97 (S.D.N.Y. 1991) (original complaint dismissed, but plaintiff allowed to amend and supplement).
"As an initial matter, supplemental pleadings generally are deemed to relate back to the date of the original pleading if the original complaint put defendants on notice of the continuing nature of the violation alleged." Computer Associates International, Inc. v. Electronic Data Systems Corp., 816 F. Supp. 845, 850 (E.D.N.Y. 1993).
III. ANALYSIS
In opposing plaintiff's motion to reinstate and supplement, defendant contends that plaintiff is merely trying to make an end run around the statute of limitations, which has already expired, to add a claim of wrongful levy pursuant to 26 U.S.C. § 7426(a)(1) that is now precluded. The supplemental claim is based on plaintiff's allegation that defendant wrongfully received money belonging to plaintiff. Despite defense counsel's suggestion to the contrary, before moving to reinstate and supplement the original complaint, it was obviously necessary for plaintiff's counsel to identify the source of the funds paid to defendant in satisfaction of the lien, rather than filing a motion that might subsequently have been proven to be frivolous.In deciding whether to grant a motion to supplement pursuant to Rule 15(d), the Court may rely on the doctrine of relation back. If the supplemental claim is sufficiently related to the prior claims, but based on transactions that occurred subsequent to the commencement of the action, S.E.C. v. First Jersey Securities, Inc., 101 F.3d 1450 (2d Cir. 1996), then the supplemental pleadings relate back to the date the original pleadings were filed. The Seventh Circuit extensively addressed this point:
The distinction between an amended pleading and a supplemental pleading is often disregarded for purposes of relation back under Rule 15(c). 6A Charles A. Wright et al., Federal Practice and Procedure § 1508 (1990). Specifically,
[I]f the original pleading gave defendant notice that the conduct, transaction, or occurrence is of a continuing nature, he should be prepared to defend against all claims arising out of it, whether they arose before or after the original complaint was filed. There is little basis to distinguish an amended and a supplemental pleading for purposes of relation back if defendant had notice of the subject matter of the dispute and was not prejudiced in preparing his defense.
Id. § 1508, at 204-05 (footnote omitted). An amendment relates back to the date of the original pleading if the claim set forth in the amended pleading "arose out of the conduct, transaction, or occurrence" stated in the original pleading. Fed.R.Civ.P. 15(c).F.D.I.C. v. Knostman, 966 F.2d 1133, 1138-39 (7th Cir. 1992).
Defendant relies on a case which it characterizes as containing "remarkably similar facts. . . ." Def. Mem. of Law at 5. In that case, United States ex. rel. Wulf v. CMA, Inc., 890 F.2d 1070, 1073 (9th Cir. 1989), the Ninth Circuit denied a motion to supplement a complaint, finding that the "case involves what is essentially a new party pursuing a new claim based on different facts." Id. Unlike Wulf, however, plaintiff here is bringing a new claim against an "old" party based on the same facts, with an additional act alleged that occurred subsequent to the commencement of the suit. Plaintiff's situation is one for which Rule 15(d) was made.
Where, as here, the original pleading placed the defendant on notice that the disputed conduct was of a continuing nature, the defendant is generally expected to defend against all claims arising out of that course of conduct — whether accruing before or after the original pleading was filed.Chesapeake and O.R. Co. v. United States Steel Corp., 878 F.2d 686, 690 (3d Cir. 1989) (internal citations omitted); see also Computer Associates International, Inc. v. Electronic Data Systems Corp., 816 F. Supp. 845, 850 (E.D.N.Y. 1993) (relying on Chesapeake decision in part to grant motion to supplement). In addressing the issue of whether relation back applies to supplemental pleadings under Rule 15(d), a respected treatise provides,
[t]o date, no court has suggested that the statute of limitations would bar a supplemental complaint that merely seeks additional damages because of the aggravation of injuries originally recited or otherwise brings the earlier pleading up to date. This is consistent with the long-standing notion that a statute of limitations is tolled by the institution of an action on a claim and is not affected by subsequent events.
Wright, Miller Kane, 6A Fed. Prac. Proc. Civ.2d § 1508 (1990). In the present case, plaintiff initially objected to the filing of the lien, on the theory that the money sought by the lien was already encumbered by plaintiff, who had a superior right to it. Plaintiff sought merely injunctive relief, or in the alternative, a judgment "for the amount of the contract balances as remained at the time the subject levies were filed. . . ." Complaint at 7. The subsequent event, payment by New York, added to plaintiff's damages, and relates directly back to the initial pleading against the same party.
Defendant also relies on Lee v. United States, 980 F.2d 1337, 1339 (10th Cir. 1992), in which the Tenth Circuit upheld a district court decision to dismiss a claim under the Federal Tort Claims Act where the plaintiff had failed to file a timely administrative claim, a prerequisite under the Act. 28 U.S.C. § 2401(b) (1992). The district court's decision in that case involved the plaintiff's attempt to amend an administrative claim to add new claimants in a case involving medical treatment for the new claimants' daughter. The government argued there that although 28 C.F.R. § 14.2(c) (1992) allowed "[a] claim presented in compliance with ¶ (a) of this section may be amended by the claimant at any time prior to the final agency action . . .," an amendment could not be made adding new parties alleging an entirely new set of injuries and damages. Lee, 980 F.2d at 1340. The court agreed with the government's argument and upheld the dismissal. That case, however, is distinguishable. In Lee, the government was not put on notice of the parents' claims based on the daughter's. Here, however, defendant was on notice about plaintiff's claims arising from the lien, and the additional fact that the lien was paid arises out of the original claim filed in May 2002. In a similar manner, defendant's reliance on Manko v. United States, 830 F.2d 831, 840 (8th Cir. 1987), is also distinguishable. There, a husband filed a Federal Tort Claims Act administrative claim and, outside the limitations period, his wife attempted to amend that claim to add not only herself as a party, but also sought "to increase the amount of the government's liability over the amount stated in her husband's claim." Manko, 830 F.2d at 841. In the case at bar, there is neither an attempt to add an additional party, nor to increase the amount of the recovery. All of plaintiff's claims arise from the allegedly wrongfully-filed Notices of Levy pertaining to Haseley Construction's outstanding federal tax obligations.
Thus, the Court, exercising the discretion granted to it under Rule 15(d), will allow reinstatement of the action, and filing of the supplemental complaint.
IV. CONCLUSION
Defendants' motion (# 16) to reinstate the action and supplement the complaint is granted. The Court's previous referral order (# 8) entered on September 5, 2002, referring this case to the Honorable Jonathan W. Feldman for all non-dispositive pretrial matters, continues in effect. Magistrate Judge Feldman will schedule a Rule 16 conference for this case and enter a scheduling order.
IT IS SO ORDERED.