United States District Court, D. New Jersey
OPINION AND ORDER
B. CLARK, III, UNITED STATES MAGISTRATE JUDGE.
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
parties in this case, Plaintiff William Dean Callas and
Defendants Penny Callas, Yvonne Callas, and George Callas,
are the children of Constantine Callas. 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
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
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.
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.
Defendants' Motion for Leave to File a Second Amended
Answer and Counterclaim [Dkt. No. 143].
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.
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.
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. 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.
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).
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.
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
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)