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United States District Court, S.D. New York

February 25, 2004.


The opinion of the court was delivered by: ROBERT SWEET, Senior District Judge Page 3


Plaintiff G-I Holdings ("Holdings") has moved pursuant to Rule 15(a) to amend its Fourth Amended Complaint to assert new allegations and an additional claim against defendants Baron & Budd, Frederick Baron and Russell Budd (collectively, the "Baron & Budd defendants"). For the reasons set forth below, the motion is denied.


  Holdings is a New Jersey corporation and is a holding company which includes certain former asbestos manufacturers, and is the successor by merger to GAF Corporation ("GAF"). Plaintiffs throughout the country have initiated many thousands of tort actions against GAF and Holdings arising out of the manufacture of a product known as Calsilite, an insulation product containing asbestos.

  Baron & Budd is a law firm which represents plaintiffs in personal injury asbestos litigation. Frederick Baron and Russell Budd are the principals of Baron & Budd.

 Prior Proceedings Page 3

  The facts discussed herein are discussed in greater detail in G-I Holdings v. Baron & Budd, 218 F.R.D. 409 (S.D.N.Y. 2003) ("Holdings V"); G-I Holdings v. Baron & Budd, 213 F.R.D. 146 (S.D.N.Y. 2003) ("Holdings IV"); G-I Holdings v. Baron & Budd, 02 Civ. 0216, 2002 WL 31251702 (S.D.N.Y. Oct. 8, 2002) ("Holdings III"); G-I Holdings v. Baron & Budd, 238 F. Supp.2d 521 (S.D.N.Y. 2002) ("Holdings II"); and G-I Holdings v. Baron & Budd, 179 F. Supp.2d 233 (S.D.N.Y. 2001) ("Holdings I"), familiarity with which is presumed.

  This action was initiated by the filing of an action by Holdings against the defendants on January 10, 2001, alleging violations of the federal Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. ("RICO"). The initial complaint made allegations regarding a deposition preparation memorandum entitled "Preparing for Your Deposition," (the "Baron & Budd Memorandum"). See Holdings I, 179 F. Supp.2d at 241-42. The First Amended Complaint was filed on April 30, 2001. Because that complaint failed to plead the predicate acts of mail and wire fraud, it was dismissed with leave to replead. Id. at 261-63. A Second Amended Complaint was filed on January 25, 2002.

  On March 18, 2002, after all defendants had moved to dismiss the Second Amended Complaint, Holdings filed a Third Amended Complaint in which it added, inter alia, allegations against the Baron & Budd defendants identifying five cases in which Page 4 it asserted on information and belief that "the Baron & Budd Memorandum was used to create false product identification and testimony in the deposition of each of the plaintiffs who were deposed in these actions." Holdings also sought the Court's permission to file the Third Amended Complaint after it had already filed it. Permission was granted on April 17, 2002. In Holdings II, the allegations concerning the Baron & Budd Memorandum in the Third Amended Complaint were dismissed because "the additional allegations do not overcome shortcomings outlined in [Holdings I]. " 238 F. Supp.2d at 539. Leave was granted to replead other claims, but not those related to the Baron & Budd Memorandum. A Fourth Amended Complaint was filed on August 21, 2002 which modified the claims for which leave to replead was granted.

  On September 22, 2003, Holdings moved for leave to file a Fifth Amended Complaint which would add factual allegations as well as a claim for relief against Baron & Budd for common law fraud based on allegations related to the Baron & Budd Memorandum. After submission of briefs, oral argument was heard on the motion on October 29, 2003, at which time the motion was deemed fully submitted.


  Holdings' proposed amendments include a section in which parts of the Baron & Budd Memorandum which include directions to Page 5 clients preparing for depositions are compared to two deposition transcripts from March 1996 in relation to the Baron & Budd clients Jimmy Wayne Embry ("Embry") and Carey Garrett ("Garrett"). See Proposed Fifth Amended Complaint ("PFAC"), ¶¶ 69-71. For example, the Baron & Budd Memorandum instructs deponents to "say that a girl from Baron & Budd showed you the pictures of MANY products, and you picked out the ones you remembered." PFAC ¶ 70. At Embry's deposition, in response to the question whether someone had told him that all the products pictured had asbestos in them, Embry answered "[n]o, I just picked out what I had worked with." Id.

  Based on these comparisons between the Baron & Budd Memorandum and the deposition transcripts, as well as on unspecified information which Holdings alleges was both "recently obtained" and is "sufficient to support these new allegations," Kavaler Opening Aff. ¶ 3, Holdings alleges that the testimony of the two witnesses "that they recalled the products was false and was suborned by [Baron & Budd paralegal Lynell] Terrell's use of the [Baron & Budd] Memorandum." Id., ¶ 71. Holdings adds these factual allegations to Count VI of the PFAC, which alleges that individual defendants Baron and Budd violated the RICO statute, 18 U.S.C. § 1962 (c). Holdings also adds a new Count XIV, alleging common law fraud against the law firm Baron & Budd based on the same amended factual allegations.

 Standard of Review Page 6

  Rule 15(a) of the Federal Rules of Civil Procedure provides that the district court should freely grant leave to amend. Fed.R.Civ.P. 15(a). However, a district court may properly deny leave to amend due to, among other reasons, "undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of amendment." Local 802, Associated Musicians of Greater New York v. Parker Meridien Hotel, 145 F.3d 85, 89 (2d Cir. 1998) (quoting Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962)). The Baron & Budd defendants argue that Holdings' motion suffers from each of these defects. Because it is found that it would be futile to amend the complaint as currently formulated, the other reasons to deny leave to amend will not be addressed.

  "A proposed amendment to a pleading would be futile if it could not withstand a motion to dismiss pursuant to Rule 12(b)(6)." Oneida Nation of New York v. City of Sherrill, New York, 337 F.3d 139, 168 (2d Cir. 2003) (citing Ricciuti v. N.Y.C. Transit Auth., 941 F.2d 119, 123 (2d Cir. 1991)). A district court may also deny leave to amend where it is "unlikely to be productive." Ruffolo v. Oppenheimer & Co., 987 F.2d 129, 131 (2d Cir. 1993).

 Holdings' Proposed Amendments are Futile Because They Are Improperly Based on Information and Belief Page 7

  In Holdings II, the infirmities of Holdings' previous allegations relating to the Baron & Budd Memorandum were listed:

Holdings fails to allege which claimants were in which case, which claimants were actually deposed, and whether depositions were taken in the cases. In addition, Holdings still does not provide the date of a single deposition, the participating individuals, or the false identification made during the deposition. Importantly, it does not state that the deponents even viewed the Baron & Budd Memorandum.
238 F. Supp.2d at 539. In paragraphs 69-73 of the PFAC, each of these pieces of information are provided. Deponents are named, their testimony is cited, and it is shown that both deponents testified that they had been exposed to a product manufactured by Ruberoid/GAF, thus triggering the obligation of GAF to pay both a share of the defense costs in connection with their cases and a share of the settlement.

  The detailed factual information provided in the new amendments has been in the possession of Holdings for several years. The Baron & Budd Memorandum was made public in July 1997, see Holdings' Reply Brief at 10 n.20, while the information from the 1996 depositions have always been in Holdings' possession, as its counsel or its agent's counsel were noticed or in attendance at those depositions, and it received copies of the transcripts. Were Holdings to base its claim for leave to amend only on the bare comparison of the Memorandum to the transcripts, it would be subject to the argument by the Baron & Budd defendants that it had Page 8 unduly delayed moving to amend the complaint. See Priestley v. American Airlines, Inc., 89 Civ. 8265, 1991 WL 64459, at *2 (S.D.N.Y. 1991) ("Insofar as the proposed claim is not predicated on facts learned after the pleading stage of the litigation, the resulting delay is not excusable."); Reisner v. General Motors Corp., 511 F. Supp. 1167, 1172 (S.D.N.Y. 1981), aff'd 671 F.2d 91 (2d Cir. 1982) (denying leave to amend because, inter alia, it includes "facts that should have been within the plaintiffs' knowledge at the time the earlier complaints were drafted.")

  The most important aspect of Holdings' new allegations, however, is not contained in the text of either the Baron & Budd Memorandum or the transcripts. The crucial additional allegation, as Holdings points out, is the "evidence which links use of the Memorandum to the preparation of specific witnesses for specific depositions in an effort to obtain false deposition testimony in specific cases against plaintiff." Holdings' Reply Brief at 6. According to Holdings, this information was only recently obtained, and Holdings moved to amend "as soon as practicable" after obtaining this evidence. Id.

  Each element of these new allegations is, however, pleaded on information and belief. The heart of the factual claims is that Terrell prepared both deponents using the Baron & Budd Memorandum. PFAC ¶ 69. The complaint then states: Page 9


Upon information and belief, the purpose and intent of these witness preparation sessions was to fraudulently influence and shape these witnesses' deposition testimony and to ensure that these witnesses would testify to having been exposed to certain products irrespective of the truth of such intended testimony.
Id. Such an allegation is clearly intended to fulfill the Second Circuit's pleading requirement in the RICO context that the complaint must "specify the statements it claims were false and misleading, give particulars as to the respect in which plaintiffs contend the statements were fraudulent, state when and where the statements were made, and identify those responsible for the statements." Holdings II, 238 F. Supp.2d at 538 (quoting Moore v. PaineWebber, Inc., 189 F.3d 165, 173 (2d Cir. 1999)).

  In addition to the factual requirements necessary to properly plead either RICO fraud or common law fraud, Holdings II also held that:

fraud pleadings generally cannot be based on information and belief. Stern v. Leucadia Nat'l Corp., 844 F.2d 997, 1003 (2d Cir. 1988). However, fraud allegations may be so pleaded as to facts peculiarly within the opposing party's knowledge. Id. (citations omitted). Even then, allegations must be accompanied by a statement of facts upon which the belief is founded, Id., and this rule "must not be mistaken for license to base claims of fraud on speculation and conclusory allegations. Wexner v. First Manhattan Co., 902 F.2d 169, 172 (2d Cir. 1990).
238 F. Supp.2d at 551. Holdings argues that "the very nature of Defendant's fraud was to conceal," Holdings Reply Brief at 14, and Page 10 thus that the crucial information was within the knowledge of the Baron & Budd defendants. However, Holdings has provided no specific facts on which it bases its allegations that the two deponents were prepared using the Baron & Budd Memorandum. While the side-by-side comparison of the Memorandum and the transcripts is suggestive of fraud, such a comparison cannot form the basis for a motion to amend years after both documents were available to Holdings.

  Holdings argues that any failure to allege adequately the foundation for its new allegations constitutes a technical defect which may be cured prior the filing of its amended pleading. The absence of any factual underpinning for the new claims made by Holdings is not a trivial matter, however. The allegations pleaded on information and belief are necessary to fulfill an important element of the Second Circuit's RICO pleading requirement. The inclusion of facts supporting the allegations of fraudulent conduct would therefore mark the difference between an adequately pled complaint and one based on "speculation and conclusory allegations." Holdings II, 238 F. Supp.2d at 551.

  Holdings makes reference on several occasions to the new information which provides the critical connection between the Baron & Budd Memorandum and the transcripts, but in each case the references are devoid of content and are instead described as "facts demonstrating that the Memorandum was used to prepare Page 11 specific witnesses in specific cases in which GAF was a defendant," Holdings' Motion Brief at 2, "recently obtained information sufficient to support these new allegations," Kavaler Opening Aff. ¶ 3, or as "the seminal information required by the Court concerning deposition preparation." Holdings' Reply Brief at 6 n.13. If any basis for this information exists, it was incumbent on Holdings to disclose it in its proposed amended complaint or in its motion papers.

  The cases cited by Holdings in support of the proposition that it should be allowed to cure its failure to plead the basis for its belief concern such minor details as an improperly named defendant or the failure to allege the citizenship of the parties. See Cianfruno v. Cables, 88-CV-1238, 1989 WL 111022, at *2 (S.D.N.Y. Aug. 25, 1989) (pro se plaintiff allowed to amend to name Director of the National Park Service rather than the Regional Director); UICI v. Gray, No. CIV.A. 3:01CV0921L., 2002 WL 356753, at *1 (N.D. Tex. Mar. 1, 2002) (amendment allowed to add citizenship of three parties). Holdings, conversely, has been on notice for over a year of precisely what information it must allege — and that it must plead the basis for that information — in order to amend its complaint successfully. It will not be permitted to hold back crucial information and then reveal it only when told that it is necessary to do so in order to survive dismissal. Page 12


  Because Holdings has based its proposed fraud allegations on information and belief without providing facts upon which its belief is founded, leave to amend the complaint is denied.

  It is so ordered.


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