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Coast to Coast Energy, Inc. v. Gasarch

Sup Ct, New York County

July 15, 2013

COAST TO COAST ENERGY, INC. and COAST TO COAST AMERICAN DRILLING I LP, Plaintiffs,
v.
MARK GASARCH, CONTINENTAL DRILLING CORP., and GASMARK CORP., Defendants. Index No. 602044/2009

Unpublished Opinion

Motion Date: 5/29/13

BRANSTEN, J.

Motion sequence numbers 037 and 038 are consolidated herein for disposition.

In Motion sequence number 36, the Court granted partial summary judgment in favor of Defendants, but permitted Plaintiffs to move for leave to amend the complaint. Plaintiffs did not move for leave to amend, but instead filed the Proposed Second Amended Complaint. In Motion sequence number 37, Defendant Mark Gasarch, Defendant Continental Drilling Corp. ("Continental"), and Defendant Gasmark Corp. ("Gasmarck, " collectively "Defendants") move to strike Plaintiff Coast to Coast Energy, Inc.'s ("Coast to Coast") and Plaintiff Coast to Coast American Drilling I LP's ("American Drilling, " collectively "Plaintiffs") Proposed Second Amended Complaint. In Motion sequence number 38, Plaintiffs oppose the motion to strike and cross-move for leave to amend the complaint.

Background[1]

In 2005, non-parties Lawrence Doherty and Mark Gonsalves became principals in Plaintiff Coast to Coast, a company that was formed by Defendant Gasarch to serve as the general partner for various oil drilling projects. See First Amended Complaint ("FAC") ¶ 19. One such project, American Drilling, was created in 2008 in order to "recomplete"[2] a Texas oil well. See FAC ¶ 2. In order to attract investors to American Drilling, Gasarch prepared a Private Placement Memorandum ("PPM") that laid out the project's material terms. See FAC ¶ 6.

The PPM stated that American Drilling would pay Continental, the drilling contractor of which Gasarch was an officer, $900, 000 to "recomplete" the Texas oil well. See FAC ¶ 29. Cost overruns were to be borne by Continental, See Proposed Second Amended Complaint, Ex. A at 10. Further, the PPM stated that all working interests in the Texas oil well would be assigned to Coast to Coast, and that Continental would perform the tasks necessary to "recomplete" the well and place it into production. See FAC ¶ 29.

Although the PPM stated that the parties would execute a "Turnkey Agreement"[3]that would serve as their contract, and despite numerous requests from Gonsalves and Doherty, no "Turnkey Agreement" was ever executed. See First Amended Complaint ¶ 28. Nevertheless, the parties acknowledge that there is an enforceable agreement and that the PPM contains language of some agreed upon terms. See Statement of Material Facts in Support of Defendants' Motion for Summary Judgment ¶ 5 ("In early 2008, American Drilling and Continental entered into an agreement.. .in which American Drilling agreed to pay Continental a total of $900, 000 and Continental agreed, on a "turnkey" basis, to recomplete the Well"); Plaintiffs' Counter Statement of Uncontested Material Facts (indicating Defendants' statement of material fact ¶ 5 is "Admitted"). In the Proposed Second Amended Complaint, Plaintiffs now allege that they never received any working interests in the well, that Defendants did not "recomplete" the well and place it into production, and that Defendants wrongly requested more than $900, 000 for the project.

Plaintiffs brought this action alleging fraud, misappropriation, breach of fiduciary duty, and unjust enrichment. By order dated February 20, 2013, this Court granted Defendants' motion for summary judgment, but also granted leave for Plaintiffs' to move within thirty days to amend the complaint to allege breach of contract. Plaintiffs filed the Proposed Second Amended Complaint on March 13, 2013 without moving for leave to file, contrary to the Court's direction. Defendants now move to strike the Proposed Second Amended Complaint and Plaintiffs cross-move for leave to amend.

Discussion

Pursuant to CPLR 3025(b), leave to amend should be freely given. However, leave to amend can be denied if there is either "prejudice or surprise resulting directly from the delay, " or if the proposed amendment "is palpably improper or insufficient as a matter of law." McGhee v. Odell, 96 A.D.3d 449, 450 (1st Dep't 2012) (internal citations omitted). The opposing party "must overcome a heavy presumption of validity in favor of [permitting amendment]." McGhee, 96 A.D.3d at 450 (quoting Otis Elevator Co. v. 1166 Ave. of Ams. Condo., 166 A.D.2d 307, 307 (1st Dep't 1990)).

A. Timeliness and Prejudice

Defendants argue that their motion to strike should be granted because allowing the proposed amendment would cause them prejudice due to the expense of future motion practice. However, "[prejudice does not occur simply because a defendant is exposed to greater liability." Jacobson v. McNeil Consumer & Specialty Pharm., 68 A.D.3d 652, 654 (1st Dep't 2009) (quoting Loomis v. Civetta Corinno Constr. Corp., 54 N.Y.2d 18, 23 (1981)). Nor does prejudice occur because a defendant has to expend additional time preparing its case. Jacobson, 68 A.D.3d at 654 (citing Rutz v. Kellum, 144 ...


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