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COMMERCE FUNDING CORP. v. COMPREHENSIVE HABILITATION SERV.

December 15, 2005.

COMMERCE FUNDING CORPORATION, Plaintiff,
v.
COMPREHENSIVE HABILITATION SERVICES, INC., BETTER MEDICAL SERVICES, P.C., SISTERS OF CHARITY MEDICAL CENTER, BARNERT HOSPITAL, SAINT VINCENT'S HOSPITAL AND MEDICAL CENTER, STATEN ISLAND UNIVERSITY HOSPITAL, INC., SAINT FRANCIS HOSPITAL, and SISTERS OF CHARITY HOSPITAL, Defendants.



The opinion of the court was delivered by: PETER LEISURE, District Judge

OPINION AND ORDER

Defendant Comprehensive Habilitation Services, Inc. ("CHS") brings this motion pursuant to Federal Rule of Civil Procedure 59(e) and Rule 6.3 of the Local Rules of the United States District Courts for the Southern and Eastern Districts of New York, seeking reconsideration of the Court's July 25, 2005 Order denying defendant's motion for leave to amend its first amended answer. CHS seeks to amend the first amended answer in order to plead five counterclaims against plaintiff Commerce Funding Corporation ("CFC") which arise out of a failed settlement agreement between CFC and CHS stemming from this underlying action. For the reasons set forth below, defendant's motion is denied.

  BACKGROUND

  This litigation stems from a factoring agreement that CFC entered into with CHS on or about December 12, 1997 (Def.'s Proposed Second Am. Ans. & Countercls. & Cross-cls. ("Proposed Ans.") ¶ 25) and other related agreements entered into thereafter (Proposed Ans. ¶ 26). Under the factoring agreement, CFC paid CHS a fixed fee for CHS's accounts receivable with various third parties. (July 25, 2005 Order.) After certain obligors of the accounts receivable subject to CFC and CHS's agreement defaulted on their debts, CFC brought the present action in this Court. (Proposed Ans. ¶ 29.)

  I. The Barnert Settlement

  Defendant alleges that, in 2001, CHS entered into a settlement agreement with defendant Barnert Hospital ("Barnert") extinguishing a suit brought previously by CHS against Barnert in the District of New Jersey in 1999 for monies owed on services performed by CHS for Barnert. Prior to settlement, CFC contacted Barnert, asserting it was the legal assignee of the accounts receivable owed to CHS and subject to CHS and Barnert's proposed settlement agreement. (Proposed Ans. ¶¶ 31-32.) CHS contested CFC's claim and, as a result, CHS, CFC, Barnert, and CHS's president, Peter Magaro, Ph.D, entered into a settlement agreement that settled CHS's claims against Barnert (the "Barnert Settlement"). (Proposed Ans. ¶¶ 33-34.) The Barnert Settlement stated that, pending the outcome of this underlying action, the proceeds of the settlement of CHS's claims against Barnert would be placed in an escrow account until CHS and CFC told Barnert who — CFC or CSH — the recipient of the funds would be. (Proposed Ans. ¶ 35.) In August 2002, the Internal Revenue Service ("IRS") served a Notice of Levy on Barnert with respect to the monies Barnert owed to CHS. (Proposed Ans. ¶ 36) In September 2002, CFC advised the IRS that CFC held a lien on the proceeds in escrow which it believed were superior to the tax lien claimed by the IRS. (Proposed Ans. ¶ 37.) On or about October 21, 2002, CFC, CHS, and the IRS entered into a stipulation before this court which transferred the proceeds in escrow to a new escrow account overseen by CFC's counsel under the same terms and conditions set forth in the Barnert Settlement, with the additional term that any disbursement of proceeds from the escrow account required seven business days' prior notice to the IRS. (Proposed Ans. ¶ 38.) CHS alleges that, in reliance on CFC's representations, it released the Barnert Settlement funds to CFC on or about October 28, 2002 (Proposed Ans. ¶ 52); CFC gave the IRS proper notice to the IRS the same day (Proposed Ans. ¶ 53); and, in response to a Notice of Levy issued by the IRS to CFC's counsel with respect to monies owed by CHS to CFC, CFC requested that the levy be canceled because it had a superior lien to the federal tax lien (Proposed Ans. ¶¶ 54-55).

  II. The First CHS Settlement

  On January 7, 2002, CFC, CHS, defendant Better Medical Services, P.C. ("BMS"), and defendant Saint Vincent's Hospital and Medical Center ("St. Vincent's") stipulated and agreed that all causes of action pending between them*fn1 would be submitted to arbitration. (July 25, 2005 Order.) CHS alleges that, on October 22, 2002, a written settlement agreement was prepared by CFC, setting forth the settlement terms of those claims open among and between CHS, CFC, and St. Vincent's (the "CHS Settlement"). (Proposed Ans. ¶¶ 39-40.) The CHS Settlement was executed by CFC on November 5, 2002, and by CHS on November 6, 2002. (Proposed Ans. ¶ 41.) Prior to its execution of the CHS Settlement, on November 7, 2002, St. Vincent's informed the other settling parties that the IRS had previously served St. Vincent's with a Notice of Levy on August 6, 2002, which claimed a lien on federal taxes owed by CHS. (Proposed Ans. ¶ 42.) CHS alleges that it then sought to work out the alleged tax liability with the IRS and eventually did, informing CHS and St. Vincent's by telephone messages on December 19, 2002 (Proposed Ans. ¶¶ 44, 46) and by letters confirming the telephone messages on December 27, 2002 (Proposed Ans. ¶ 46).*fn2

  III. The Second CHS Settlement

  CHS alleges that CFC in the meantime had, without notice to CHS, discussed and eventually entered into a settlement agreement on or about December 20, 2002, with St. Vincent's and BMS, but without CHS, under which St. Vincent's paid CFC $1,445,500 (the "Second Settlement"). (Proposed Ans. ¶¶ 48-49, 51.) CHS claims that, notwithstanding this Second Settlement, the CHS Settlement was never terminated, revoked, or withdrawn by CFC. (Proposed Ans. ¶ 50.) On January 20, 2003, CHS demanded that CFC return the $500,000 previously remitted to CFC's counsel as escrow agent in connection with the Barnert Settlement. (Proposed Ans. ¶ 59.) It alleges further that, on January 22, 2003, CFC told CHS that it had retained a total of $520,990 of CHS's funds, in addition to the money received under the Second Settlement. (Proposed Ans. ¶ 60.) With respect to the Second Settlement, CHS alleges that CFC obtained it by fraudulently conspiring with St. Vincent's to sell to St. Vincent's its purported interest in the accounts payable owed by St. Vincent's to CHS. (Proposed Ans. ¶ 61.) It claims that CFC knew that the accounts payable were merely security for amounts CFC had loaned to CHS that were returnable when CFC received all monies owed to it under the factoring agreement, and that the arbitration panel, subsequent to the Second Settlement, had found that the loans were clearly settled and compromised and, as such, CFC had received all monies to which it was entitled. (Proposed Ans. ¶¶ 62-64.)

  IV. CHS's Request to the Arbitrators

  CFC contacted the Court on January 1, 2003, stating that it was "withdrawing [its] claim against Comprehensive Habilitation Services, Inc., St. Francis Medical Center and Staten Island University Hospital." (Letter from Ronald B. Goodman, Esq., to the Court, dated January 3, 2003.) CHS's counsel, John W. Clarke, Esq., responded to CFC's letter on January 16, 2003, requesting a hearing to address CFC's request to withdraw. On January 24, 2003, the Court told CHS to refer its concerns to the arbitrators and, if the arbitrators could not resolve them, then schedule a date with the Court for a hearing. Mr. Clarke, in a letter dated January 27, 2003, requested that the arbitrators arrange a call in order to schedule submission and hearing of the new issues. (July 25, 2005 Order.) CHS alleges that the arbitrators declined to accept these new issues, but it has not informed the Court as to when the arbitrators declined to hear them. (Clarke Reply Aff. Def.'s Mot. Amend Am. Ans. & Cross-cls. Assert Countercls. ¶ 8.) On March 16, 2005, CHS filed its motion for leave to amend the first amended answer. V. The Court's July 25, 2005 Order

  The Court denied CHS's motion in its July 25, 2005 Order, finding as a preliminary matter that while the parties agreed that CFC had entered into a settlement agreement with BMS and St. Vincent's on or around December 20, 2002, CFC's action had never been properly dismissed pursuant to Federal Rule of Civil Procedure 41(a), either through a stipulation of dismissal signed by all parties, see Fed.R.Civ.P. 41(a)(1), or by court order, see Fed.R.Civ.P. 41(a)(2). Establishing that CFC remained as the plaintiff in the action, the Court held that the counterclaims were not subject to disposition by the concurrent arbitration. (July 25, 2005 Order.) The Court still denied CHS's motion on the grounds that, pursuant to Federal Rule of Civil Procedure 16(b), CHS had failed to demonstrate good cause warranting a modification of its original scheduling order. (July 25, 2005 Order.) The Court held that CHS failed to explain adequately its almost twenty-five-month delay in bringing its motion. Further, if the motion were granted, CFC ...


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