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Callas v. Callas

United States District Court, D. New Jersey

August 11, 2017

WILLIAM DEAN CALLAS, Plaintiff,
v.
PENNY CALLAS, et al., Defendants.

          OPINION AND ORDER

          JAMES B. CLARK, III, UNITED STATES MAGISTRATE JUDGE.

         THIS MATTER comes before the Court on Defendants' George Callas and Yvonne Callas': (1) motion for leave file a Third Amended Answer and Counterclaim to assert a cause of action for fraudulent transfer pursuant to New Jersey's Uniform Fraudulent Transfer Act (“UFTA”) [Dkt. No. 143]; and (2) application to compel Plaintiff William Dean Callas to produce certain financial documents which post-date the filing of the Complaint [Dkt. No. 178]. Plaintiff opposes Defendants' motion to amend [Dkt. No. 168] and Defendants' application to compel [Dkt. No. 180]. For the reasons set forth below, Defendants' motion to amend [Dkt. No. 143] is DENIED and Defendants' application to compel [Dkt. No. 178] is GRANTED in part and DENIED in part.

         I. BACKGROUND

         The parties in this case, Plaintiff William Dean Callas and Defendants Penny Callas, Yvonne Callas, and George Callas, are the children of Constantine Callas.[1] Constantine Callas passed away on February 23, 2013 and the parties' various claims arise out of a dispute among the siblings as to amounts owed to Constantine's estate (the “Estate”). William brought this action against the executors of the Estate to settle a dispute over the value of Constantine's ownership in a real estate holding company, Coffee Associates LLC (the “LLC”). William and Constantine were the only members of the LLC, which was governed by an operating agreement (the “Operating Agreement”). Prior to Constantine's death, he held a 40% interest in the LLC, which is now part of the Estate, and William held a 60% interest. Penny, George, and Yvonne, William's siblings and Constantine's children, are the co-executors of the Estate.

         The Operating Agreement includes a provision which states that “on the passing of a member, the personal representative(s) of the deceased member may give notice requiring the other member to purchase the deceased member's interest in [the LLC].” The notice is called a “Put Notice.” Upon Constantine's death, Defendants exercised this “Put Notice” by giving Plaintiff notice of their right to have Plaintiff purchase the Estate's 40% interest in the LLC. The Operating Agreement sets forth a means to calculate the price of the ownership interest. The LLC's primary asset is a property located in Edgewater, New Jersey (the “Property”).

         A portion of the Property was, and continues to be, used to operate a Coffee Associates, Inc., (the “Coffee Business”) which was started by Constantine. William began working for the Coffee Business in 1989 and now, as a result buying out the other owners of the Coffee Business, including Constantine, William owns 100% of the Coffee Business. According to William, the LLC was created “for the limited purpose of acquiring and taking sole ownership of the Property, in order to ensure [the Coffee Business'] ability to continue occupying and operating . . . on the Property.” Compl. at ¶ 17. To this end, the Coffee Business operates on the Property pursuant to various leases executed between the LLC and the Coffee Business. The most recent lease, which is the subject of Defendants' present motion to amend, was executed in March of 2006 (the “Lease”). See Dkt. No. 76 at Ex. 4. The Lease is for a term of ten years, commencing on January 1, 2006, and provides the Coffee Business with the option to renew the Lease for six additional five-year terms. William signed the Lease on behalf of both the LLC and the Coffee Business.

         Although it is not the only issue in this case, the overarching disagreement between the parties in this matter concerns the value of the Property. Defendants assert that the Property has a value of $8.6 million, while Plaintiff claims that it is only worth $2.7 million. As a result of the disagreement between the parties as to the value of the Property, and therefore, the value of the Estate's portion of the LLC, Defendants declined to convey the Estate's interest in the LLC to Plaintiff pursuant to the Operating Agreement. Plaintiff filed his Complaint on December 2, 2014, alleging three causes of action: (1) Anticipatory Breach and Repudiation of the Operating Agreement; (2) Breach of the Implied Covenant of Good Faith and Fair Dealing; and (3) Specific Performance. See Dkt. No. 1. George and Yvonne filed their Answer and Counterclaim on January 14, 2015 [Dkt. No. 12], and filed an Amended Answer and Counterclaim on January 27, 2015 [Dkt. No. 17]. Defendants' Amended Counterclaim asserts six causes of action for: (1) Breach of the Operating Agreement; (2) Breach of the Covenant of Good Faith and Fair Dealing; (3) Breach of Fiduciary Duty; (4) Specific Performance; (5) Accounting; and (6) Member Oppression pursuant to the Revised Uniform Limited Liability Company Act (the “Act”). See Dkt. No. 17.

         II. DISCUSSION

         A. Defendants' Motion for Leave to File a Second Amended Answer and Counterclaim [Dkt. No. 143].

         Defendants' Amended Counterclaim alleges that the Lease “was not and is not an arms-length transaction” and that its terms, which include “disproportionately low rent”, a requirement that the LLC pay the real estate taxes on the Property, and an option for Plaintiff to renew the Lease for an extended period of time, improperly favor Plaintiff to the detriment of the Estate. Dkt. No. 17 at ¶ 22. According to Defendants, the terms of the Lease result in Plaintiff “obtaining [a] greater indirect benefit as [the] owner of [the Coffee Business] from the leasing of the [P]roperty than he would obtain as a member of [the LLC].” Id. at ¶ 23. Although Defendants' claims regarding the improper execution of the Lease and its detrimental effect on the Estate have been asserted since the filing of Defendants' initial Answer and Counterclaim, on November 10, 2016, Defendants submitted a letter to the Court requesting permission to file a motion to dismiss Plaintiff's complaint for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1), or, in the alternative, for leave to file a Second Amended Answer and Counterclaim to assert an additional counterclaim voiding the Lease as a fraudulent transfer under the UFTA. See Dkt. No. 107. The Court granted Defendants leave to file a motion to amend [Dkt. No. 141], which Defendants filed on January 13, 2017 [Dkt. No. 143]. Plaintiff opposes Defendants' motion to amend [Dkt. No. 168].

         In their motion to amend, Defendants seek to add a claim under the UFTA voiding the Lease as well as prior leases “as fraudulent transfers made for less than fair consideration and with the intent to hinder, delay, and defraud the Estate” in violation of New Jersey law. Dkt. No. 107 at p. 1. Defendants contend that they only recently obtained a copy of the Lease and were not aware until the October 11, 2016 settlement conference held in this matter that Plaintiff “would claim that the Property could not be valued at its highest and best use because it was burdened by the [Lease].” Dkt. No. 144 at p. 2. The position taken by Plaintiff regarding the effect of the Lease on the value of the Property, Defendants claim, evidences Plaintiff's intent to “devalue the Estate's interest in the Property” through the execution of the Lease. Dkt. No. 170 at p. 9. According to Defendants, Plaintiff executed the Lease to “put assets beyond the reach of the Estate” which now makes it “impossible for the Property to be fairly valued.” Dkt. No. 144 at p. 7. Accordingly, Defendants claim that the addition of a counterclaim to void the Lease as a fraudulent transfer is necessary to protect the Estate's interest in the Property and prevent Plaintiff from being rewarded for his “dishonest conduct.” Dkt. No. 170 at p. 6.

         In opposition to Defendants' motion, Plaintiff claims that not only have Defendants long been in possession of the Lease, as evidenced by the inclusion of the terms of the Lease in their initial and amended Answer and Counterclaims, but that Defendants have repeatedly been made aware Plaintiff's position regarding the effect of the Lease on the value of the Property, which was first asserted in Paragraph 45 of Plaintiff's Complaint and has been part of Plaintiff's arguments throughout this matter.[2] Plaintiff argues that Defendants' proposed amendment is untimely and represents “yet another attempt by [Defendants] to unreasonably and vexatiously multiply these proceedings . . . .” Dkt. No. 168 at p. 3.

         “The threshold issue in resolving a motion to amend is the determination of whether the motion is governed by Rule 15 or Rule 16 of the Federal Rules of Civil Procedure.” Karlo v. Pittsburgh Glass Works, LLC, 2011 WL 5170445, at *2 (W.D.Pa. Oct. 31, 2011). Rule 15 states, in pertinent part, “a party may amend its pleading only with the opposing party's written consent or the court's leave. The court should freely give leave when justice so requires.” Fed.R.Civ.P. 15(a)(2). “Rule 16, on the other hand, requires a party to demonstrate ‘good cause' prior to the Court amending its scheduling order.” Karlo, 2011 WL 5170445, at *2 (citing Fed.R.Civ.P. 16(b)(4)). In situations such as the present, where a party seeks to amend “after the deadline for doing so set by the Court, the movant must satisfy the [good cause standard] of Rule 16 before the Court will turn to Rule 15.” Id. at *2; see also Dimensional Commc'n, Inc. v. OZ Optics, Ltd., 148 F.App'x 82, 85 (3d Cir. 2005) (instructing that the Third Circuit has adopted a good cause standard when determining the propriety of a motion to amend after the deadline has elapsed).

         The deadline for motions for leave to amend the pleadings in this action expired on August 14, 2015 [Dkt. No. 36] and Defendants filed the present motion on January 13, 2017 [Dkt. No. 143]. The parties do not dispute that Defendants' motion was filed long after the deadline had passed and that Defendants must demonstrate good cause under Rule 16.

         Rule 16 of the Federal Rules of Civil Procedure authorizes courts to enter schedules of proceedings. The pretrial scheduling order allows a court to take “judicial control over a case and to schedule dates for completion by the parties of the principal pretrial steps.” Harrison Beverage Co. v. Dribeck Imps., Inc., 133 F.R.D. 463, 469 (D.N.J. Oct. 19, 1990) (quoting Fed.R.Civ.P. 16 advisory committee's note (1983 Amendment)); see also Newton v. A.C. & S., Inc., 918 F.2d 1121, 1126 (3d Cir. 1990) (stating the purpose of Rule 16 is to provide for judicial control over cases, streamline proceedings, maximize efficiency of the court system, and actively manage the timetable of case preparation to expedite speedy and efficient disposition of cases).

         A scheduling order must, among other things, “limit the time to join other parties, amend the pleadings, complete discovery, and file motions.” Fed.R.Civ.P. 16(b)(3)(A). The requirement of a deadline for amending pleadings in the pretrial scheduling order “assures that at some point . . . the pleadings will be fixed.” Fed.R.Civ.P. 16(b) advisory committee's note (1983 Amendment); see also Harrison, 133 F.R.D. at 469 (“The careful scheme of reasonable framing and enforcement of scheduling orders for case management would thus be nullified if a party could inject amended pleadings upon a showing of less than good cause after scheduling deadlines have expired.”). The burden is on the moving party to show “good cause” for its failure to comply with the applicable scheduling order, and accordingly, for the Court to allow its proposed amended pleading. Prince v. Aiellos, No. 09-5429, 2012 WL 1883812, at *6 (D.N.J. May 22, 2012) ...


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