United States District Court, S.D. New York
February 2, 2005.
LAURA ZUBULAKE, Plaintiff,
UBS WARBURG LLC, UBS WARBURG, and UBS AG, Defendants.
The opinion of the court was delivered by: SHIRA SCHEINDLIN, District Judge
MEMORANDUM OPINION AND ORDER
This case was filed close to three years ago, discovery closed on
October 2, 2004, defendants' motion for partial summary judgment was
decided on January 7, 2005, and a trial is scheduled to begin on March
21, 2005. Nonetheless, defendants now move to amend their Answer to
include an additional affirmative defense. Specifically, defendants seek
to add an after-acquired evidence defense on the ground that plaintiff,
in her employment application with UBS Warburg LLC ("UBS"),
misrepresented the reasons why she was terminated by Credit Suisse First
Boston ("CSFB") and Salomon Brothers ("Salomon").*fn1
Defendants contend that had UBS learned of plaintiff's
misrepresentations, it would have immediately terminated her employment.
For the following reasons, defendants' motion is denied.
A. The Alleged Misrepresentations
Defendants claim that plaintiff made the following misrepresentations
on her employment application (dated July 14, 1999), which is signed and
recites that she understands that the information provided is true and
complete and that any false or misleading statements or omissions will be
sufficient cause to justify refusal or termination of employment:
(1) her employment at CSFB ended in May 1999 (as
opposed to August 1999)
(2) the reason for her departure from CSFB was "diff
w/mgmt philosophy nature of job changed"
(3) her termination from CSFB was "voluntary"
(4) the reason for her departure from Salomon was to
pursue a "better opportunity"
(5) her termination from Salomon was "voluntary"
See UBS Group, Employment Application, Employment History, attached as
Ex. B to the Plevan Decl.
Plaintiff's personnel file produced by CSFB in March 2003 records
Zubulake's last day of work as May 10, 1999, and a date of separation of
August 16, 1999. The file also contains a document that describes a
performance deficiencies, namely, a May 5th 1999 Memorandum from Jay
Plourde entitled "Performance Deficiencies." See Memorandum, Ex. C to the
Plevan Decl. The Memorandum states that plaintiff was insubordinate
toward her supervisors and that her job performance was substandard. The
Memorandum explicitly warns plaintiff that "[f]ailure to comply with the
terms of this memo immediately or other failure to perform satisfactorily
will result in further disciplinary action up to and including your
immediate termination from this firm." Id.
Plaintiff's personnel file from Salomon could not be produced as it was
destroyed during the attacks of September 11, 2001. Although hard copy
records pertaining to plaintiff were not available, a computer print-out
(produced in March 2003) indicates that she was terminated for
"unsatisfactory perf." 2/20/03 Computer Print-Out, Ex. D to the Plevan
B. Plaintiff's Termination Documents
In opposing the motion, plaintiff has submitted her Form U-5, Uniform
Termination Notice For Securities Industry Registration, from CSFB and
Salomon. See Affirmation of James A. Batson ("Batson Aff."), plaintiff's
attorney, Exs. C & D. Both forms contain the following boxes under the
Reason For Termination section: voluntary, deceased, permitted to
other. See id. Plaintiff's U-5 for CSFB has the "voluntary" box
checkmarked as the reason for termination but does not provide an
explanation. See id., Ex. C. Plaintiff's U-5 for Salomon has the "other"
box checkmarked as the reason for termination and provides "resign
mutual" as the explanation. See id., Ex. D.
Defendants have submitted a Central Registration Depository
Registration Summary obtained from the National Association of Securities
Dealers which they obtained on January 4, 2005. This document contains
plaintiff's registration information pertaining to her prior employers. As
with the U-5, plaintiff's Registration Summary states "Voluntary" as the
reason for termination from CSFB. See Plevan Decl., Ex. E at 3.
Similarly, the Registration Summary indicates "Other" as the reason for
plaintiff's termination from Salomon and contains "resign mutual" as the
termination comment. See id. at 5.
II. LEGAL STANDARD
Leave of court to amend a pleading "shall be freely given when justice
so requires." Fed.R.Civ.P. 15(a). However, whether to grant a motion to
amend lies within the sound discretion of the trial court. See Foman v.
Davis, 371 U.S. 178, 182 (1962). In Foman, the Supreme Court expressly
reaffirmed the liberal mandate of Rule 15(a).
If the underlying facts or circumstances relied upon
by a plaintiff may be a proper subject of relief,
[s]he ought to be afforded an opportunity to test
[her] claim on the merits. In the absence of any
apparent or declared reason such as 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, etc. the leave sought
should, as the rules require, be `freely given.' Of
course, the grant or denial of an opportunity to amend
is within the discretion of the District Court. . . .
Id. at 182.
The Second Circuit has stated that "`considerations of undue delay, bad
faith, and prejudice to the opposing party [are] touchstones of a
district court's discretionary authority to deny leave to amend.'" Krumme
v. Westpoint Stevens Inc., 143 F.3d 71, 88 (2d Cir. 1998) (quoting
Barrows v. Forest Labs., 742 F.2d 54, 58 (2d Cir. 1984) (footnote
omitted)). Factors relevant to a showing of prejudice include "whether
the assertion of new claims would: (i) require the opponent to expend
significant additional resources to conduct discovery and prepare for
trial; (ii) significantly delay the resolution of the dispute; or (iii)
prevent the plaintiff from bringing a timely action in another
jurisdiction." Block v. First Blood Assocs., 988 F.2d 344, 350 (2d Cir.
1993). In fact, "`[o]ne of the most important considerations in
determining whether amendment would be
prejudicial is the degree to which it would delay the final disposition of
the action.'" Krumme, 143 F.3d at 88 (quoting H.L. Hayden Co. of New
York, Inc. v. Siemens Med. Sys., Inc., 112 F.R.D. 417, 419 (S.D.N.Y.
1986) (collecting cases)). A proposed amendment is especially prejudicial
when discovery has been completed and a summary judgment motion has been
filed. See Ansam Assocs., Inc. v. Cola Petroleum, Ltd., 760 F.2d 442, 446
(2d Cir. 1985).
As explained by the District of Columbia Circuit Court of Appeals:
A party must make strategic decisions about how to
proceed, and can plot its course adequately only if
it can anticipate which issues will dispose of the
case. Failure to raise an affirmative defense in
pleadings deprives the opposing party of precisely
the notice that would enable it to dispute the
crucial issues of the case on equal terms.
Harris v. Secretary, U.S. Dep't of Veterans Affairs, 126 F.3d 339, 343
(D.C. Cir. 1997). With regard to the interplay of delay and prejudice,
the Second Circuit has noted the following:
As a practical matter, however, any delay in asserting
an affirmative defense for a significant period of
time will almost invariably result in some "prejudice"
to the nonmoving party. . . . [T]he proper standard is
one that balances the length of the delay against the
resulting prejudice. . . . [T]he longer the period of
delay, the less will be required of the nonmoving
party in terms of a showing of prejudice.
Evans v. Syracuse City Sch. Dist., 704 F.2d 44, 47 (2d Cir. 1983)
(internal quotation marks and citation omitted, emphasis added). While a
court may not deny a proposed amendment solely on the basis of delay,
where a significant period of time has passed between the filing of the
pleading and the motion to amend, "the burden is upon the party who wished
to amend to provide a satisfactory explanation for the delay." Cresswell
v. Sullivan & Cromwell, 922 F.2d 60, 72 (2d Cir. 1990) ("The court
plainly has discretion, however, to deny leave to amend where the motion
is made after an inordinate delay, no satisfactory explanation is offered
for the delay, and the amendment would prejudice the defendant."). See
also H.L. Hayden, 112 F.R.D. at 421 ("[A]lthough an unjustified delay in
bringing the motion may not be reason in itself for denying it, is should
be noted that plaintiffs' delay here was unjustified and serves as an
additional factor militating against the motion.").
Here, defendants filed their Answer on March 13, 2002, and learned of
the after-acquired evidence in March 2003. Rather than move to amend at
that time, they waited twenty-two months, until the eve of trial, to
assert the defense which would, if successful, drastically reduce
plaintiff's damages. Although
defendants have offered no excuse or justification for the delay, the
only possible reason for the timing of the instant motion is that
defendants' newly substituted counsel made a strategic decision to assert
the defense even though defendants' former counsel knew of the defense
and presumably waived it. This, however, is not a sufficient basis for
leave to amend where plaintiff is prejudiced by the amendment. See Ansam
Assocs., 760 F.2d at 446 (upholding denial of leave to amend complaint
where substitute counsel discovered new information forming the basis for
the proposed amendment). Furthermore, "leave to amend may be denied where
the moving party knows or should have known of the facts upon which the
proposed amendment is based, but failed to include them in the original
pleading." Priestley v. American Airlines, Inc., No. 89 Civ. 8265, 1991 WL
64459, at *1 (S.D.N.Y. Apr. 12, 1991). See also E.E.O.C. v. Boeing Co.,
843 F.2d 1213, 1222 (9th Cir. 1990) ("Where the party seeking amendment
knows or should know of the facts upon which the proposed amendment is
based but fails to include them in the original complaint, the motion to
amend may be denied.") (internal quotation marks and citation omitted).
B. Undue Prejudice
In addition to the unexplained delay, plaintiff will be unduly
prejudiced by the proposed amendment. Defendants' attempt to trivialize
amount of additional discovery that will be required if the proposed
affirmative defense is allowed is disingenuous. To rebut this defense,
plaintiff would be entitled to take non-party discovery from both Salomon
and CSFB. Plaintiff would then be permitted to offer evidence as to her
termination negotiations with these firms. Witnesses to these events may
not be available. Even if the knowledgeable witnesses are available,
their recollection of events will undoubtedly be diminished compared to
two years earlier.
Substantial party discovery would also be required to rebut the
defense. Of particular relevance would be information concerning the
treatment of other UBS employees who made questionable representations in
their employment applications. Questions that would have to be explored
include: the nature of the misrepresentations; whether they were blatant
lies; were the identified employees terminated as a result; and were all
employees treated in a similar fashion. To answer these questions,
plaintiff would need, at the very least, the employment applications,
background checks, and other hiring records of all UBS employees whose
employment applications were investigated by UBS.
Plaintiff would also have to test the veracity of defendants' assertion
that UBS would have terminated Zubulake immediately if it had known then
what it learned in March 2003. This inquiry would necessitate another
depositions of supervisors and Human Resources personnel including, at a
minimum, Matthew Chapin, Jeremy Hardisty, Johnn Holland, Brad Orgill,
Joshua Varsano and Barbara Amone.
Given the tortured history of the discovery in this action, there is no
reason to expect this new wave of discovery to go smoothly. It could well
be months or years before this case is finally trial ready if the
after-acquired evidence defense is permitted. Plaintiff has waited long
enough for her day in court. Defendants' eleventh hour substitution of
counsel, with its accompanying shift in defense strategy, cannot be
permitted to further delay a case which cries out for final disposition.
Defendants' motion to assert an affirmative defense based on
after-acquired evidence is hereby denied because of the unexplained
twenty-two month delay in asserting the defense, the undue prejudice it
would cause plaintiff in having to re-open discovery which may prove to
be stale, and the resulting postponement of the trial date. The Clerk of
the Court is directed to close this motion. A conference is scheduled for
February 8, 2005, at 4:30 p.m. to discuss the discovery concerns raised
by plaintiff in her opposition to the instant motion.