Opinion
Case No. 01-16034 (AJG) (Confirmed Case), Adv. Pro. No. 03-92677.
January 5, 2007
VENABLE LLP, Special Litigation Counsel for the Reorganized Debtors, Baltimore, MD, Richard L. Wasserman, Esq., Michael Schatzow, Esq., Robert L. Wilkins, Esq., Of Counsel.
TOGUT, SEGAL SEGAL LLP, Attorneys for the Reorganized Debtors, New York, NY, Frank A. Oswald, Esq., Howard A. Magaliff, Esq., Of Counsel.
DAVIDOFF MALITO HUTCHER LLP, Attorneys for Far East National Bank, New York, NY, Evan M. Eisland, Esq., Of Counsel.
OPINION DENYING PLAINTIFF'S MOTION FOR LEAVE TO AMEND ITS COMPLAINT TO ADD FAR EAST NATIONAL BANK AS A DEFENDANT
FACTUAL AND PROCEDURAL HISTORY
Commencing on December 2, 2001, and from time to time continuing thereafter, Enron Corp. ("Enron") and its affiliates (the "Debtors") filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code"). On July 15, 2004, the Court entered an order confirming the Debtors' Supplemental Modified Fifth Amended Joint Plan of Affiliated Debtors (the "Plan") in these cases. The Plan became effective on November 17, 2004.
On November 6, 2003, Enron initiated this adversary proceeding to recover more than one billion dollars that was allegedly prepaid or redeemed to certain financial institutions prior to the maturity of the A2/P2 commercial paper. Enron brought this adversary proceeding pursuant to and under Rule 7001 of the Federal Rules of Bankruptcy Procedure and seeks relief under sections 502(d), 544, 547, 548, and 550 of the Bankruptcy Code and applicable provisions of state law. On the same date, Enron filed a motion seeking the Court's assistance regarding the production of documents that identified transferees and beneficiaries of the prepayments. Far East National Bank ("FENB") is alleged by Enron to be a transferee or beneficiary of one of Enron's commercial paper prepayments.
Prior to Enron's filing of the original complaint, on October 13, 2003, Goldman, Sachs Co. ("Goldman") produced to Enron trading confirmation tickets pursuant to a subpoena. Two of the trade confirmations, bearing Bates numbers GS-ENRON CP 00064 and GS-ENRON CP 00101, identified "Far East National Bank" as a party to the transactions (hereinafter, the "Transactions").
On November 18, 2003, the Court issued an order (the "November 18 Order") that directed certain parties to initially disclose to Enron the names of the transferees and beneficiaries in connection with certain commercial paper transactions or transfers. Enron did not request information from FENB or request additional information from Goldman regarding the two Transactions.
On December 1, 2003, Enron amended its original complaint ("First Amended Complaint,") to add transferees and/or beneficiaries of the commercial paper transactions disclosed pursuant to the November 18 Order. FENB was not named in the First Amended Complaint. On or about December 2, 2003, pursuant to section 546(a) of the Bankruptcy Code, the statute of limitations for preference actions expired.
On May 13, 2004, at Enron's request, the Court issued an order directing certain defendants in this adversary proceeding to comply with the November 18 Order (the "May 13 Order"). On the same date, the Court granted Enron's Motion for Extension of Time for Service of the Complaint ("Motion for Extension of Time") that extended the time for service of the First Amended Complaint to and including September 30, 2004.
According to Enron, from documents it received from The Depository Trust Company from June 2004 through December 2004, Enron discovered that FENB was a potential transferee and/or beneficiary of part of a prepayment involving Goldman. On October 10, 2005, Enron provided FENB, via a letter, with notice of its intent to add FENB as a defendant in this proceeding.
Enron filed a Motion for Leave to Amend the Complaint ("Motion to Amend") on October 19, 2005 and a hearing was held on December 15, 2005. In the Motion to Amend and memorandum of law in support of that, Enron sought to (1) correct the names of defendants in Enron's First Amended Complaint, and (2) add defendants, including FENB, to a second amended complaint. FENB filed an objection to Enron's Motion to Amend.
DISCUSSION Parties' Contentions
Enron seeks to add a new defendant, FENB, relating back to its original complaint and its First Amended Complaint (the "Original Pleadings"), which were filed within the statute of limitations, pursuant to Federal Rule of Civil Procedure 15(c)(3) ("Rule 15(c)(3)"), made applicable to this adversary proceeding by Federal Rule of Bankruptcy Procedure 7015. As the Court has noted, the "party asserting the relation back bears the burden of proof." In re Enron, 298 B.R. 513, 522 (Bankr. S.D.N.Y. 2003).
Enron claims that it diligently sought to learn the identities of the transferees and beneficiaries of its commercial paper prepayments before the limitations period expired. Enron claims that this information was exclusively within the knowledge of numerous defendants. Enron argues that the circumstances of the non-disclosure of FENB's identity are analogous to Byrd v. Abate, 964 F. Supp. 140 (S.D.N.Y. 1997), and In re Randall's Island Family Golf Centers, No. 02-2278, 2002 WL 31496229 (Bankr. S.D.N.Y. Nov. 8, 2002), and justify relation back under Rule 15.
As to FENB receiving notice after the Court's extended deadline of September 30, 2004, Enron contends that the 120-day deadline in Fed.R.Civ.P. 4(m), referenced in Rule 15, does not apply to service in a foreign country, and because there are foreign and domestic defendants in this case, the 120-day limitation does not apply. Enron maintains that it filed the Motion for Extension of Time as a "precautionary measure." Enron alternatively contends that FENB received actual or constructive notice before the September 30, 2004 deadline because "[u]pon information and belief, this entity received notice from Goldman, its dealer in connection with the specific commercial paper prepayment." Enron contends that Goldman conferred with its customers about the production of trading confirmations and the filing of this lawsuit. Enron states that, if the Court finds that Rule 4(m) does apply, it should be permitted to take discovery on the issue of when FENB received notice.
Rule 15(c)(3) states that an amended pleading relates back to the date of the original pleading if
within the period provided by Rule 4(m) for service of the summons and complaint, the party to be brought in by amendment (A) has received such notice of the institution of the action that the party will not be prejudiced in maintaining a defense on the merits, and (B) knew or should have known that, but for a mistake concerning the identity of the proper party, the action would have been brought against the party.
Enron does not assert that FENB is a foreign defendant, and FENB claims that it a domestic entity.
FENB argues that Enron did not make a "mistake" under Rule 15(c) because Enron alleges a lack of knowledge as to identity that makes relation back impermissible under Barrow v. Wethersfield Police Dep't, 66 F.3d 466, 468-69 (2d Cir. 1995), modified on other grounds, 74 F.3d 1366 (2d Cir. 1996). FENB also argues that, because Enron had knowledge of FENB within the statute of limitations period, Randall's Island is inapplicable and relation back should not be permitted. As to notice, FENB denies that it conferred with Goldman prior to September 30, 2004, and states that it did not have adequate notice within the time specified in Rule 15(c) that it might be added as a defendant in this action. FENB further argues that it would be prejudiced by Enron's delay in adding it as no one with first-hand knowledge of the "alleged transaction" is still employed by FENB.
Enron dismisses FENB's claims of prejudice by arguing that FENB fails to suggest it would be difficult to locate former employees, and that FENB can easily be incorporated into the ongoing discovery schedule.
ANALYSIS
The issue is whether Enron had enough information in its possession to be on notice regarding FENB's role in the commercial paper prepayments before the limitations period expired. The facts of this case, and the necessary conclusion, are similar to those addressed in a related opinion in this Adversary Proceeding involving Enron's attempts to add Bertholon Rowland as a defendant. See Opinion Denying Plaintiff's Motion for Leave to Supplement Its Pending Motion for Leave to Amend Its Complaint to Add Bertholon Rowland as a Defendant (Adv. No. 03-92677, Docket No. 1415, December 21, 2006) ("Bertholon Opinion"). In that case, Enron had received trading confirmation tickets within the limitations period that put it on notice of Bertholon Rowland's existence as a potential defendant yet never sought more information regarding Bertholon Rowland's role or its identity. In the instant matter, Enron similarly had, in the form of the trading confirmations bearing FENB's name, information sufficient to alert it to FENB's role in the commercial paper prepayments. Based on the analysis in the Bertholon Opinion, the Court concludes that Enron had enough information in its possession during the limitations period and at the time of filing the Original Pleading so as to preclude a finding of a "mistake" under Rule 15(c) that would justify relation back.
Because the Court finds that Enron did not make a Rule 15(c) "mistake" in failing to name FENB in the Original Pleadings, the Court does not reach the issues of notice and prejudice.
CONCLUSION
For the foregoing reasons, the Court concludes that Enron fails to meet its burden to satisfy the "mistake" test under Rule 15(c) for relation back to the Original Pleadings. Therefore, the Court sustains FENB's objection to Enron's Motion to Amend the complaint.
Counsel for FENB is directed to settle an order consistent with this opinion.