United States District Court, S.D. New York
WILLIAM AUSTIN LEWIS, IV, LEWIS ASSET MANAGEMENT, LEWIS OPPORTUNITY FUND, LP, and WILLIAM A. LEWIS DEFINED PENSION PLAN AND TRUST, Plaintiffs,
CALMARE THERAPEUTICS, INC., CONRAD F. MIR, PETER BRENNAN, RUSTIN HOWARD, and CARL O'CONNELL, Defendants.
the plaintiffs Daniel A. Schnapp Ernest Edward Badway
Catherine A. Savio Fox Rothschild LLP
the defendants Amory W. McAndrew Fredric S. Newman Hoguet
Newman Regal & Kenney, LLP
MEMORANDUM OPINION & ORDER
COTE, DISTRICT JUDGE
February 13, 2018, defendants Calmare Therapeutics, Inc.
(“Calmare”), Conrad F. Mir, Peter Brennan, Rustin
Howard, and Carl O'Connell moved for leave to amend their
answer to assert a new affirmative defense and four
counterclaims against plaintiffs, and for leave to file a
third-party complaint impleading Stan Yarbro and asserting
claims for indemnification, contribution, and breach of
fiduciary duty against him. For the following reason, the
defendants' motion is denied as to the counterclaims and
third-party complaint, and granted as to the affirmative
defense of failure to mitigate damages.
William Austin Lewis, IV and three investment entities
controlled by him filed this action on June 7, 2017, bringing
claims against Calmare and four of its directors. The
complaint principally alleges that plaintiffs invested large
sums in Calmare and that their investments were damaged by
the defendants' mismanagement of the company. The
complaint alleges breach of fiduciary duty, securities fraud,
conversion, breach of contract, breach of the duty of good
faith and fair dealing, and corporate director misconduct.
Defendants filed their answers on August 10, 2017.
pretrial conference was held on September 15, 2017, at which
time the parties agreed to a schedule for discovery and
dispositive motions. The schedule was extended on October 27
after counsel for the defendants withdrew. Pursuant to an
October 27 Order, fact discovery will close March 23, 2018,
and the parties will either file motions for summary judgment
or a joint pretrial order by April 13, 2018. On February 5,
the parties requested an extension of the schedule, which was
moved to amend their answer and to file a third-party
complaint on February 13, 2018. They seek to add an
affirmative defense of failure to mitigate, to assert
counterclaims of defamation, aiding and abetting a breach of
fiduciary duty, and violations of the Securities Exchange Act
of 1934. They also seek to implead Yarbro, a former director
of Calmare, and assert claims of contribution,
indemnification, and breach of fiduciary duty against him.
Plaintiffs filed their opposition to this motion on February
22, and the motion became fully submitted on February 27.
to amend may be denied due to “futility, bad faith,
undue delay, or undue prejudice to the opposing party.”
Kim v. Kimm, No. 16-2944, 2018 WL 1054751, at *5 (2d
Cir. Feb. 27, 2018). A proposed amendment is “futile
when it could not withstand a motion to dismiss.”
F5 Capital v. Pappas, 856 F.3d 61, 89 (2d Cir. 2017)
do not address defendants' proposed affirmative defense
that plaintiffs failed to mitigate damages. As a result of
the lack of opposition, defendants' motion to amend their
answer to include this affirmative defense is granted.
motion is denied, however, as to the proposed counterclaims
and third-party complaint, on the independent grounds of
undue delay and futility. The proposed amendments are unduly
delayed because they seek, shortly before the close of fact
discovery, to assert claims the underlying facts of which
were known to defendants before they filed their original
answers. The proposed counterclaims are based on Lewis's
actions “in the business community, ” his
relationship with non-party Yarbro, and the plaintiffs'
acquisition of Calmare shares. The proposed third-party
complaint is based on Yarbro's conduct before his
termination as a director of Calmare. The relevant events
took place well before the defendants filed their initial
answers, and the defendants provide no adequate explanation
for why they did not file their amended pleadings earlier.
Defendants have accordingly failed to carry their burdens of
showing why amendment is warranted at this late stage.
second, independent ground for denying defendants' motion
to amend their answer is that the proposed counterclaims
would not survive a motion to dismiss, and thus amendment
would be futile. To state a claim of defamation under New
York law, a pleading must specify the allegedly defamatory
statements as well as to whom the statements were made.
See Tannerite Sports, LLC v. NBCUniversity News
Grp., a division of NBCUniversal Media, LLC,
864 F.3d 236, 245 (2d Cir. 2017). The proposed amended answer
alleges simply that Lewis “willfully and intentionally
made false statements attacking the integrity of
Calmare.” This falls short of pleading particular
state a claim of aiding and abetting a breach of fiduciary
duty, a pleading must allege “that the defendant
knowingly induced or participated in [another's]
breach” of fiduciary duty. Krys v. Pigott, 749
F.3d 117, 128 (2d Cir. 2014) (citation omitted). The pleading
must include “the events which [the party] claim[s]
give rise to an inference of knowledge.” Id.
at 129 (citation omitted). Regarding Lewis's knowledge,
the proposed amended answer relies solely on “the
drafting of the Complaint” because “nearly two
pages are devoted to Yarbro's termination.” On this
basis, defendants assert that “[t]he alliance between
Yarbro and Lewis is evident.” The inclusion of the
termination of Yarbro's directorship in the complaint is