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Taberna Capital Management, LLC v. Jaggi

April 12, 2010

TABERNA CAPITAL MANAGEMENT, LLC, AS COLLATERAL MANAGER, PLAINTIFF,
v.
GURPREET S. JAGGI, DEFENDANT.



The opinion of the court was delivered by: Denise Cote, District Judge

OPINION & ORDER

Plaintiff Taberna Capital Management, LLC ("Taberna" or "plaintiff") moves for leave to amend its complaint and to join as plaintiff the First Magnus Financial Corporation Litigation Trustee (the "Litigation Trustee"). In his opposition of February 19, 2010, defendant Gurpreet S. Jaggi ("Jaggi" or "defendant") cross-moves to transfer venue to the District of Arizona. For the following reasons, plaintiff's motion is granted and defendant's cross-motion is denied. Additionally, defendant's November 25, 2010 motion for summary judgment is terminated as moot.

BACKGROUND

The facts below are taken from the October 27, 2008 complaint and are assumed to be true for the purpose of deciding this motion. This dispute arises out of a sophisticated lending transaction involving First Magnus Capital, Inc. ("FMCI"), a corporation in which Jaggi was, at all relevant times, CEO, president, director, and substantial shareholder. FMCI's subsidiary, the First Magnus Financial Corporation ("FMFC"), was a nationwide subprime mortgage lender. In the course of deciding whether to make a $25 million loan to FMCI, Taberna furnished FMCI with a due diligence questionnaire ("the Questionnaire"), which Jaggi completed and then certified as "correct and complete" on or about July 14, 2006. The transaction closed on August 30, 2006. FMCI thereafter defaulted on the $25 million loan, and FMFC and FMCI entered Chapter 11 bankruptcy in August 2007 and February 2008, respectively.

Taberna filed this lawsuit against Jaggi, alleging claims of fraud and negligent misrepresentation, in New York Supreme Court in October 2008. Taberna purports to sue in its capacity as "Collateral Manager of the beneficial holder" of certain trust-preferred securities that were issued through the August 2006 transaction. Taberna's complaint alleges that Jaggi's responses in the Questionnaire were materially false and misleading insofar as they failed to disclose the existence of certain illegal practices in FMFC's mortgage lending business.

Jaggi removed the suit to this Court on December 30, 2008. On March 23, 2009, Jaggi moved to dismiss this case for lack of personal jurisdiction or, in the alternative, to transfer venue to the District of Arizona. This motion was denied on June 8, 2009. After a series of letter submissions to confirm diversity of citizenship among the parties, the case proceeded to discovery.

On November 25, 2009, defendant filed a motion for summary judgment challenging plaintiff's standing to bring this lawsuit as well as the substantive merits of plaintiff's fraud and misrepresentation claims. By letter of December 8, 2009, Taberna informed the Court that it had assigned "its claims, rights, title, and interest" in this suit to the Litigation Trustee.*fn1 Taberna subsequently filed this motion for leave to amend on January 20, 2010. Defendant's motion for summary judgment became fully submitted on February 3, 2010, and plaintiff's motion became fully submitted on February 25, 2010.

DISCUSSION

I. Leave to Amend

Federal Rule of Civil Procedure 15(a)(2) provides that "a party may amend its pleading only with the opposing party's written consent or the court's leave" and instructs that "[t]he court should freely give leave when justice so requires." "[I]t is within the sound discretion of the district court to grant or deny leave to amend." Green v. Mattingly, 585 F.3d 97, 104 (2d Cir. 2009) (citation omitted). A motion for leave to amend may be denied for "good reason, including futility, bad faith, undue delay, or undue prejudice to the opposing party." Holmes v. Grubman, 568 F.3d 329, 334 (2d Cir. 2009) (citation omitted).

Prejudice to the opposing party is "the most important factor" in determining whether leave to amend should be granted or denied. Ruotolo v. City of N.Y., 514 F.3d 184, 191 (2d Cir. 2008) (citation omitted). "In gauging prejudice, [the court] consider[s], among other factors, whether an amendment would require the opponent to expend significant additional resources to conduct discovery and prepare for trial or significantly delay the resolution of the dispute." Id. at 192 (citation omitted). A court should not deny the right to amend on grounds of "mere delay," however, unless bad faith or undue prejudice are also present. Id. at 191.

Defendant has not demonstrated that he would suffer "undue prejudice" if amendment were permitted. Although Jaggi contends that Taberna should have moved to amend sooner, he does not allege that the delay was motivated by bad faith.*fn2 Moreover, insofar as Jaggi complains that Taberna's proposed amended complaint adds new legal theories and is likely to expand the scope of discovery significantly, he has not demonstrated that this would prejudice his ability to carry out his defense. See Cruz v. Coach Stores, Inc., 202 F.3d 560, 569 (2d Cir. 2000) (noting, in the Rule 15(b) context, that "a party cannot normally show that it suffered prejudice simply because of a change in its opponent's legal theory" (citation omitted)).

Given that only limited discovery has been taken in this case thus far, and given that Jaggi will have a full and fair opportunity to seek discovery on any new theories asserted in the amended ...


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