The opinion of the court was delivered by: ROBERT SWEET, Senior District Judge
The plaintiff Douglas Kinsey ("Kinsey") has moved pursuant to
Rule 15(a), Fed.R.Civ.P., for leave to file a Second Amended
Complaint ("SAC") against the defendants Cendant Corporation
("Cendant"), Fairfield Resorts Inc. ("Fairfield") and FFD
Development Company, L.L.C. ("FFD") (collectively the
"Defendants"). The Defendants have moved to sanction Kinsey
pursuant to Rule 11, Fed.R.Civ.P. For the reasons set forth
below, both motions are denied.
Kinsey commenced this action on January 26, 2004 by filing a
complaint (the "Complaint") against Fairfield, FFD, Cendant and
the Cendant Corporation Employee Stock Purchase Plan
(collectively the "Initial Defendants"), alleging a violation of
ERISA, securities fraud in violation of Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder, and various common law claims, as well as a state law
claim against the Initial Defendants for their purported failure
to pay Kinsey for accrued, unused vacation benefits.
The Initial Defendants moved to dismiss the Complaint on March
26, 2004. Kinsey filed an Amended Complaint on April 23, 2004 in
which he abandoned, inter alia, the ERISA claims and dropped the Cendant Corporation Employee Stock Purchase Plan as a
defendant, and the Defendants moved to dismiss the claim for
securities fraud (Count 1), breach of fiduciary duty (Count 3),
breach of the implied duty of good faith and fair dealing (Count
4), fraud and deceit (Count 5), unjust enrichment (Count 8) and
the negligence claim (Count 7) to the extent that claim was based
on gross negligence.
In an opinion and order issued on November 16, 2004 (the
"November 16 Opinion"), familiarity with which is assumed, the
Court granted Defendants' motion in full, dismissing Counts 1, 3,
4, 5 and 8 of the Amended Complaint and Count 7 in part. See
Kinsey v. Cendant Corp., No. 04 Civ. 0582, 2004 WL 2591946, at
*19 (S.D.N.Y. Nov. 16, 2004). Kinsey also was granted leave to
move to file a second amended complaint. See id.
On December 16, 2004 Kinsey moved for leave to file the SAC
which abandoned the claim for securities fraud and common law
claims for breach of the implied duty of good faith and fair
dealing and unjust enrichment and restated the claims for breach
of fiduciary duty (Count 2), fraud and deceit (Count 3), and
gross negligence (Count 5). (See SAC ¶¶ 107-133, 146-52). The
remaining claims in the SAC were included in the Amended
Complaint and were not the subject of Defendants' motion to
dismiss. They include claims for breach of contract (Count 1),
negligent misrepresentation (Count 4), failure to pay wages
(Count 6) and declaratory judgment (Count 7).
The Defendants moved for sanctions, and both motions were heard
and marked fully submitted on March 23, 2005.
The facts set forth in the November 16 Opinion derived from the
Complaint remain essentially unchanged as alleged in the SAC. The
additional allegations in the SAC will be discussed below.
The Applicable Standard For Amendment
Rule 15(a) of the Federal Rules of Civil Procedure provides
that leave to amend a complaint "shall be freely given when
justice so requires." The federal courts, however, have
interpreted Rule 15 to permit such amendments only when (1) the
party seeking the amendment has not unduly delayed, (2) when that
party is not acting in bad faith or with a dilatory motive, (3)
when the opposing party will not be unduly prejudiced by the
amendment, and (4) when the amendment is not futile. See Foman
v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962);
see Mackensworth v. S.S. Am. Merchant, 28 F.3d 246, 251 (2d
Cir. 1994); Prudential Ins. Co. v. BMC Indus., Inc.,
655 F. Supp. 710, 711 (S.D.N.Y. 1987). "[I]t is well established that leave to amend a complaint need
not be granted when amendment would be futile." Ellis v. Chao,
336 F.3d 114, 126 (2d Cir. 2003) (citing Foman,
371 U.S. at 182). See Nowakowski v. Kohlberg, No. 89 Civ. 5621, 1991 U.S.
Dist. LEXIS 107, at *5 (S.D.N.Y. Jan. 8, 1991). An amendment is
considered futile if the amended pleading fails to state a claim
or would be subject to a successful motion to dismiss on some
other basis. See, e.g., S.S. Silberblatt, Inc. v. East
Harlem Pilot Block, 608 F.2d 28, 42 (2d Cir. 1979); Freeman v.
Marine Midland Bank-New York, 494 F.2d 1334, 1338 (2d Cir.
More specifically, a proposed amendment to a pleading is deemed
to be futile if "it could not withstand a motion to dismiss
pursuant to Rule 12(b)(6)." Oneida Indian Nation of New York v.
City of Sherrill, 337 F.3d 139, 168 (2d Cir. 2003) (citing
Ricciuti v. N.Y.C. Transit Auth., 941 F.2d 119, 123 (2d Cir.
1991)). See Aniero Concrete Co. v. New York City Construction
Auth., Nos. 84 Civ. 9111, 95 Civ. 3506, 1998 WL 148324, at *7
(S.D.N.Y. Mar. 30, 1998); Finlay v. Simonovich, No. 97 Civ.
1455 (AJP) (DAB), 1997 WL 746460, at *4 (S.D.N.Y. Dec. 2, 1997).
For the purposes of evaluating futility, the 12(b)(6) standard is
applied: All well pleaded allegations are accepted as true, and
all inferences are drawn in favor of the pleader. See Mills v.
Polar Molecular Corp., 12 F.3d 1170, 1174 (2d Cir. 1993).
Kinsey has acknowledged that amendment is futile if the proposed amended complaint would not survive a motion to dismiss.
See Pl. Mem. at 2; Nowakowski, 1991 U.S. Dist. LEXIS 107, at
*5. According to the Defendants, the claims for fraud, breach of
fiduciary duty and gross negligence in the SAC are legally
defective under ...