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United States District Court, S.D. New York

June 6, 2005.

SAMUEL J. HEYMAN, Defendant.

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


Plaintiffs the Official Committee of Asbestos Claimants of G-I Holdings, Inc. (the "Committee") and the Legal Representative of Present and Future Holders of Asbestos-Related Demands (the "Legal Representative") have moved to amend their complaint to add as defendants the Heyman Holdings Associates Limited Partnership ("HHA"), Heybldg Associates LLC ("Heybldg") and the Annette Heyman Foundation (the "Foundation") to their claims for avoidance of a fraudulent transfer, for recovery of the proceeds of the transfer pursuant to 11 U.S.C. § 550(a), and for breach of fiduciary duty, restitution, and unjust enrichment. The defendant Samuel J. Heyman ("Heyman") has opposed the motion on the grounds that it violates the scheduling orders of the court, is without good cause, and would prejudice him. For the reasons set forth below, the motion is granted, and a pretrial conference will be held to determine the schedule for further proceedings.

Prior Proceedings

  The Committee filed this action in September 2001 as the authorized representative of the bankruptcy estate of G-I Holdings, Inc., formerly known as GAF Corporation ("G-I" or the "Debtor").

  On July 24, 2002, this Court entered a scheduling order, setting forth a schedule that had been negotiated and agreed to by the parties. On September 16, 2002, the last date established by that order for adding parties or amending pleadings, the Committee filed a motion for leave to amend its original complaint for the purpose, inter alia, of adding HHA, Heybldg, and Heyman Joint Ventures ("HJV") as defendants. Shortly after this motion to amend was filed, the Third Circuit issued a decision holding that a creditors committee was not authorized to pursue a fraudulent conveyance action on behalf of a debtor estate. See Official Comm. of Unsecured Creditors of Cybergenics Corp. v. Chinery, 304 F.3d 316 (3d Cir. 2002) ("Cybergenics I").

  In light of Cybergenics I, the Committee withdrew its motion to amend and entered into a tolling agreement on November 7, 2002 with Heyman, HJV, HHA, Heybldg and certain other Heyman affiliates.

  On November 19, 2002, two months after issuance of the Cybergenics I decision, the Third Circuit vacated the decision pending en banc review. See Official Comm. of Unsecured Creditors of Cybergenics Corp. v. Chinery, 310 F.3d 785 (3d Cir. 2002). The Third Circuit subsequently issued an en banc opinion on May 29, 2003, reversing Cybergenics I. See Official Comm. of Unsecured Creditors of Cybergenics Corp. v. Chinery, 330 F.3d 548 (3d Cir.), cert. denied sub nom., Chinery v. Official Comm. of Unsecured Creditors of Cybergenics Corp., 540 U.S. 1002 (2003). On April 18, 2003, counsel for the Committee advised Heyman that it had come to the Committee's attention that the Foundation had received shares of a GAF subsidiary, International Specialty Products ("ISP"), that had initially been distributed in the 1997 transactions. On May 14, 2003, the Committee and the Foundation entered into a tolling agreement. This tolling agreement was terminable at will by either party.

  On June 17, 2003, the Legal Representative moved to intervene in this action. This motion was granted on November 25, 2003.

  On September 19, 2003, Heyman filed a motion to transfer this action to the District of New Jersey. This motion was denied on March 23, 2004.

  On May 17, 2004, the Court entered an amended scheduling order that was negotiated and agreed to by the parties.

  The instant motion by the plaintiffs to amend the complaint was filed on November 15, 2004, and it was heard and marked fully submitted on February 16, 2005. The Proposed First Amended Complaint

  The Proposed First Amended Complaint ("PFAC") includes: four new fraudulent conveyance claims against HHA under section 544(b) of New York's Debtors and Creditors Law based on HHA's initial receipt of ISP shares in the 1997 transactions; claims under 11 U.S.C. § 550(a)(2) alleging that Heyman and the Heyman entities were subsequent transferees of ISP stock distributed in the 1997 transactions; and new causes of action based on theories of unjust enrichment and restitution against each of the Connecticut entities.

  Counts I-IV of the PFAC set forth the same intentional and constructive transfer theories as are pleaded in the original complaint. Counts VI and VII replead two claims for common law restitution based on unjust enrichment and breach of fiduciary duty without making any substantive changes to the nature or specific allegations of those claims. Plaintiffs seek to add HHA as a defendant to Counts I-IV and HHA, Heybldg and the Foundation to Counts VI and VII.

  The original pleading included, in the prayer for relief, a demand for recovery of the ISP shares pursuant to 11 U.S.C. § 550(a). The proposed amendment asserts this demand as a distinct count (Count V). Additional sources of derivative standing added in the PFAC, the IRS, the New Jersey Department of Environmental Protection, and the environmental authorities of other states, and the Port Authority of New York and New Jersey, were previously identified in the May 2002 initial disclosures by the Committee.

  The Standard For Amendment

  Motions to file amended pleadings are governed by Fed.R. Civ. P. 15(a), which provides in pertinent part that "a party may amend the party's pleading . . . by leave of court . . . and leave shall be freely given when justice so requires." Fed.R.Civ.P. 15(a). The Supreme Court has articulated the following criteria concerning Rule 15(a) motions:

If the underlying facts or circumstances relied upon by a plaintiff may be a proper subject of relief, he ought to be afforded an opportunity to test his 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."
Foman v. Davis, 371 U.S. 178, 182 (1962). The Second Circuit, citing Foman, has stated that "it is rare that such leave should be denied, . . . especially when there has been no prior amendment." Ricciuti v. N.Y.C. Transit Auth., 941 F.2d 119, 123 (2d Cir. 1991) (internal citation omitted). The Proposed Amendment Does Not Violate The Scheduling Order

  Rule 16(b), Fed.R.Civ.P., provides in pertinent part that "the district judge . . . shall . . . enter a scheduling order that limits the time . . . to join other parties and to amend the pleadings. . . . A schedule shall not be modified except upon a showing of good cause and by leave of the district judge. . . ." Fed.R.Civ.P. 16(b).

  Heyman has argued that pursuant to Rule 16(b), all amendments were required to be filed by the September 16, 2002 deadline established by the July 24, 2002 scheduling order and allegedly reaffirmed in the May 17, 2004 amended scheduling order.

  However, Paragraph 2(a) of November 7, 2002 tolling agreement permitted the Committee to withdraw its first motion to amend without prejudice to the filing of a later motion to amend or to the filing of another motion to add additional Heyman entities as defendants. The May 22, 2003 tolling agreement entered into by the Foundation and the Committee did not limit or otherwise address Plaintiffs' ability to file motions to amend the complaint. Rather, it merely tolled the statute of limitations. Both tolling agreements were terminable at will and remain in effect. The May 17, 2004 amended scheduling order did not modify Paragraph 2(a) of the November 7, 2002 tolling agreement or contain any provision with respect to amendment. Under the November 7, 2002 tolling agreement, the instant motion to amend is not precluded by the scheduling order of July 24, 2002. The instant motion is, in effect, the renewed motion contemplated by those agreements.

  Finally, it should be noted that the PFAC states that the transfer of the ISP shares to the Foundation did not take place until December 5, 2002 — nearly three months after the September 16, 2002 deadline had allegedly expired. (See PFAC ¶ 41.)

  The Delay Does Not Bar The Amendment

  Heyman has argued that the pendency of this action has had a deleterious effect on the value of ISP. The Plaintiffs concede the delay but seek to charge it in part to the tactics of Heyman with respect to discovery.

  In this Circuit "delay alone would be insufficient to defeat a motion to amend" to add defendants. See U.S. For And On Behalf of Maritime Admin. v. Continental Illinois Nat. Bank and Trust Co. of Chicago, 889 F.2d 1248, 1254 (2d Cir. 1989) (stating that "delay, standing alone, is an insufficient basis to deny leave to amend [pursuant to Rule 15(a)]"); see also Middle Atlantic Utilities Co. v. S.M.W. Dev'p. Corp., 392 F.2d 380, 384 (2d Cir. 1968). Heyman has cited Republic Nat'l Bank v. Hales, 75 F. Supp. 2d 300, 308 (S.D.N.Y. 1999), where this Court noted that "`[t]he longer the period of an unexplained delay, the less will be required of the nonmoving party in terms of a showing of prejudice.'" Id. (quoting Block v. First Blood Assocs., 988 F.2d 344, 350 (2d Cir. 1993)). However, the motion to amend was granted in part in Republic, noting that delay alone was not a sufficient reason to deny the defendant's motion to amend his answer. Id. at 318.

  In fact, under the present scheduling order, dispositive motions are to be completed by the fall of 2005 and under the circumstances of this action, that schedule should not be affected by this amendment. The delay does not warrant denial of the Plaintiffs' motion.

  The Prejudice To Heyman Does Not Defeat The Amendment

  To demonstrate prejudice under Rule 15(a), Heyman must establish that the amendment 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 Associates, 988 F.2d 344, 350 (2d Cir. 1993). Even accepting Heyman's contention that the Committee has brought this action for a strategic purpose (i.e., to create leverage in negotiations relating to the G-I bankruptcy), the Legal Representative, which is separately represented, is a co-plaintiff and co-representative of G-I's estate. Moreover, as bankruptcy fiduciaries, both the Committee and the Legal Representative have a duty to pursue claims brought on behalf of the estate. Furthermore, although Heyman claims that the PFAC will fundamentally change and expand this litigation, a review of the PFAC establishes that the action remains fundamentally unchanged.

  Based on the foregoing, although this action and the amendment continue to cloud this issue of ownership of ISP, it is determined that Heyman has failed to demonstrate prejudice that would bar the amendment. The defense of the PFAC will not require substantial additional resources, nor will it delay the resolution of the action. Conclusion

  Plaintiffs' motion for leave to file an amended complaint is granted. The First Amended Complaint shall be served within twenty (20) days of entry of this opinion.

  It is so ordered.


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