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Sotheby's International Realty, Inc. v. Black

December 17, 2007


The opinion of the court was delivered by: Gerard E. Lynch, District Judge


Plaintiff Sotheby's International Realty, Inc. ("Sotheby's" or "SIR") filed this diversity action for breach of contract against defendant Conrad M. Black, seeking payment of a commission on the sale of Black's New York condominium. On August 14, 2006, this Court issued an Opinion and Order denying Black's motion for a stay and granting SIR's pre-discovery motion for summary judgment on all but one of Black's affirmative defenses. See Sotheby's Int'l Realty, Inc. v. Black, 472 F. Supp. 2d 481, 487 (S.D.N.Y. 2006). Black now moves for leave to amend his answer to add an affirmative defense of breach of fiduciary duty and duty of loyalty based on SIR's alleged failure to obtain his consent to act as a dual agent representing both Black and the purchasers of Black's condominium. The motion will be granted.


I. Motions to Amend Pleadings

Federal Rule of Civil Procedure 15(a) governs the amendment of pleadings and provides that courts "should freely give leave when justice so requires." Fed. R. Civ. P. 15(a). Although "[l]eave to amend should be freely granted, . . . the district court has the discretion to deny leave if there is a good reason for it, such as futility, bad faith, undue delay, or undue prejudice to the opposing party." Jin v. Metro. Life Ins. Co., 310 F.3d 84, 101 (2d Cir. 2002), citing Foman v. Davis, 371 U.S. 178, 182 (1962). Sotheby's contends that Black's motion to amend should be denied principally on two grounds: futility and prejudice. Neither ground has merit.

A. Futility

When a motion to amend is made early in the proceedings or in response to a motion to dismiss, the amendment will be deemed futile and the motion to amend denied where the amended pleading would be subject to "immediate dismissal" for failure to state a claim upon which relief can be granted, or on some other basis. Jones v. N.Y. State Div. of Military & Naval Affairs, 166 F.3d 45, 55 (2d Cir. 1999). Where, however, the parties have engaged in discovery and "rely heavily on . . . evidence [outside the pleadings] in making their arguments," the court must determine whether the proposed amendment would be futile under the summary judgment standard. DiPace v. Goord, 308 F. Supp. 2d 274, 279 (S.D.N.Y. 2004) (where parties submitted evidence outside the pleadings in connection with a motion to amend, the proposed pleading is assessed for whether it could survive a motion for summary judgment); see Stoner v. N.Y. City Ballet Co., No. 99 Civ. 0196, 2002 WL 523270, at *14 n.10 (S.D.N.Y. Apr. 8, 2002) (denying motion to amend where the claim might survive a motion to dismiss, but would "immediately be subject to dismissal on a motion for summary judgment"); see also Milanese v. Rust-Oleum Corp., 244 F.3d 104, 110 (2d Cir. 2001) (applying summary judgment standard where motion to amend was made in response to summary judgment motion).

In this case, the parties have completed discovery and Black has had "ample opportunity to explore and develop a factual foundation" for his proposed affirmative defense. Azurite Corp. Ltd. v. Amster & Co., 844 F. Supp. 929, 939 (S.D.N.Y. 1994). Black contends that the "depositions of the three Sotheby's brokers involved in the transaction, as well as [the deposition of] Sotheby's General Counsel," plainly establish that Sotheby's did not disclose its role as a dual agent. (D. Mem. 1.) Sotheby's, in turn, points to a document it provided to Black's real estate attorney as evidence that the dual agency was properly disclosed. (P. Mem. 4-5.) Given both parties' extensive reliance on materials outside of the pleadings, the Court will assess whether Black's proposed amendment would be futile under the standard of Rule 56 - i.e., whether the proposed affirmative defense could survive a motion for summary judgment brought by Sotheby's.

1. Summary Judgment Standard

Summary judgment is appropriate "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). The Court's responsibility is to determine if there is a genuine issue to be tried, and not to resolve disputed issues of fact. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). The Court must draw all reasonable inferences and resolve all ambiguities in the nonmoving party's favor, and construe the facts in the light most favorable to the nonmoving party. Id. at 254-55.

However, "[i]f the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Id. at 249-50 (citations omitted).

The party seeking summary judgment bears the burden of showing that no genuine factual dispute exists. See Cronin v. Aetna Life Ins. Co., 46 F.3d 196, 202 (2d Cir. 1995). Once the moving party has made a showing that there are no genuine issues of material fact, the burden shifts to the nonmoving party to raise triable issues of fact. Anderson, 477 U.S. at 250. A genuine issue for trial exists if, based on the record as a whole, a reasonable jury could find in favor of the nonmoving party. Id. at 248.

2. The Dual Agency Doctrine

Black's proposed defense alleges that Sotheby's breached its fiduciary duty and duty of loyalty to him by acting as a dual agent "without informing [him] of its [dual] representation" and without "seek[ing] or obtain[ing] [his] consent . . . to do so." (Powers Decl. Ex. 1 ¶ 64.) Under New York law, an agent "has the affirmative duty not to act for a party whose interests are adverse to those of the principal." Goldstein v. Dep't of State Div. of Licensing Servs., 533 N.Y.S.2d 1002, 1003 (2d Dep't 1988). In the context of a real estate transaction, a broker may not "act as agent for both seller and purchaser of property" unless the broker first obtains the consent of both principals "given after full knowledge of the facts."*fn1 Id.; see Queens Structure Corp. v. Jay Lawrence Assocs., Inc., 758 N.Y.S.2d 664, 666 (2d Dep't 2003). To establish the requisite consent for dual agency, an agent must demonstrate "'that both principals are fully informed of every fact material to their interests and that they consent freely in the presence of such knowledge.'" Schwartz v. O'Grady, No. 86 Civ. 4243, 1990 WL 156274, at *5 (S.D.N.Y. Oct. 12, 1990), quoting Hasbrouck v. Rymkevitch, 268 N.Y.S.2d 604, 607 (3d Dep't 1966). An agent's disclosure of its dual agency may not be "indefinite" or "equivocal"; ...

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