United States District Court, S.D. New York
February 25, 2004.
G-I HOLDINGS, INC., Plaintiff, -against- BARON & BUDD; FREDERICK BARON; RUSSELL BUDD; NESS, MOTLEY, LOADHOLT, RICHARDSON & POOLE; RONALD MOTLEY; JOSEPH RICE; WEITZ & LUXENBERG; PERRY WEITZ and ROBERT GORDON, Defendants
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.
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
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
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
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
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
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
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:
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
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
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
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.
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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