Preview
INDEX NO. 650159/2010
FILED: NEW YORK COUNTY CLERK 08/27/2010
NYSCEF DOC. NO. 16 RECEIVED NYSCEF: 08/27/2010
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
HARVEY RUDMAN and HAROLD KUPLESKY, Index No. 650159/10
on Behalf of Each of Them Individually And
On Behalf Of Starrett City Preservation LLC,
Derivatively,
Plaintiffs,
- against -
CAROL GRAM DEANE, DISQUE D. DEANE,
SALT KETTLE LLC, ST. GERVAIS LLC and
STARRETT CITY PRESERVATION LLC,
Defendants.
ween en nen ene een nec eee ee ee
REPLY MEMORANDUM OF LAW IN FURTHER SUPPORT
OF PLAINTIFFS’ MOTION FOR LEAVE TO FILE
SECOND AMENDED COMPLAINT
TABLE OF CONTENTS
Page
Table of Authorities... i
ARGUMENT.........004
DEFENDANTS HAVE NOT ESTABLISHED ANY PREJUDICE
FROM THE PROPOSED PLEADING OR ANY BASIS FOR
DETERMINING AS A MATTER OF LAW THAT IT IS PATENTLY
INSUFFICIENT.
A Defendants Have Not Been Prejudiced By the Timing of
this Motion
The Second Amended Complaint Properly Includes Spring Creek
Plaza LLC and an Amendment to the Ad Damnum Clause
The Facts Submitted by Defendants, If True, Support Granting
the Motion
CONCLUSION... 14
5075301
TABLE OF AUTHORITIES
CASES
Page
Daniels v. Empire-Orr, Inc.,
151 A.D.2d 370, 542 N.Y.S.2d 614 (Ist Dep’t 1989)
East Asiatic Co. v. Corash,
34 A.D.2d 432, 312 N.Y.S.2d 311 (1st Dep’t 1970)
Eighth Ave. Garage Corp. v. H.K.L. Realty Corp.,
60 A.D.3d 404, 875 N.Y.S.2d 8 (Ist Dep’t 2009)
Fleming v. Barnwell Nursing Home & Health Facilities, Inc.,
309 A.D.2d 1132, 766 N.Y.S.2d 241 (3d Dep’t 2003)
Hawkins v. Genesee Place Corp.,
139 A.D.2d 433, 527 N.Y.S.2d 22 (Ist Dep’t 1988)
Joel v. Weber,
NYLJ, Aug. 13, 1991 at 22, col 1 [Sup. Ct., New York County, Lehner, J.].. 4, 5,6
Loomis v. Civetta Corinno Constr. Corp.,
54.N.Y.2d 18, 444 N.Y.S.2d 571 (1981)
Lucido v. Mancuso,
49 A.D.3d 220, 851 N.Y.S.2d 238 (2d Dep’t 2008)
Oppenheim v. Mojo Stumer Assocs. Architects, P.C.,
25 Misc.3d 1222(A), 2009 WL 3734304 (Sup. Ct., New York County 2009)
Otis Elevator Co. v. 1166 Avenue of the Americas Condo.,
166 A.D.2d 307, 564 N.Y.S.2d 119 (1st Dep’t 1990)
Owitz v. Beth Israel Medical Ctr.,
1 Misc.3d 912(A), 781 N.Y.S.2d 626 (Sup. Ct., New York County 2004)
(Kornreich, J.)
Seda v. New York City Hous. Auth.,
181 A.D.2d 469, 581 N.Y.S.2d 20 (Ist Dep’t 1992)
STATUTES AND TREATISES
N.Y. CPLR 3025(b)
David D. Siegel, New York Practice, §237 (4th ed. 2005)
5075321 ii
Plaintiffs Harvey Rudman and Harold Kuplesky, individually and derivatively on
behalf of Starrett City Preservation LLC, (“Plaintiffs”) by their attorneys, Golenbock Eiseman
Assor Bell & Peskoe LLP, respectfully submit this reply memorandum of law, together with the
Reply Affidavit of Harvey Rudman, sworn to on August 20, 2010 (“Rudman Aff.”), in further
support of their motion (the “Motion”) for leave to file a second amended complaint (the
“Second Amended Complaint”).
The bombastic tone and misleading accusations contained in Defendants’ papers
in opposition to the Motion are designed to obscure one simple fact: the Defendants have no
valid basis to challenge this motion for leave to amend. Defendants cannot avoid the Second
Amended Complaint simply by submitting evidence which they claim demonstrates facts
contrary to the allegations in the proposed pleading. A motion for leave to amend is not the
place to litigate factual assertions, particularly where, as here, the case is at its infancy, there has
been no discovery, and the Defendants are in possession of the pertinent information on the
issues at hand.
Defendants have failed with this evidence to demonstrate any prejudice or futility
of the amendment as a matter of law as is required to defeat this Motion. Defendants do not
attempt to claim prejudice, nor could they given that this case is at its inception. And the
evidence they submit is not legally conclusive of anything. The primary “evidence” offered in
opposition is an affidavit from Iris Sutz (“Sutz Aff.”), who is not a member, officer or employee
of any of the existing or proposed parties in this case except St. Gervais LLC (in which she owns
less than 1%), and Ms. Sutz has no first hand knowledge of many of the events contained in her
affidavit. This affidavit, even if were complete and accurate (which it is not), would be an
insufficient basis on which to rely to deny the Motion.
5074511
Further, Defendants’ documents are factually inconsistent with one another and
otherwise insufficient to establish any patent insufficiency in the pleading, as opposed to at best
identifying factual issues to be explored during discovery and evaluated by the Court later in this
case. Defendants attach what they call an “approved” chart, which, they admit, is materially
different from another chart that Defendants sent to the hundreds of limited partners of Starrett
City Associates (“SCA”) last year. (Compare Sutz Aff. Exh. E with Exh. H) Moreover, the
documents submitted are incomplete to support Defendants’ stated view of the facts. Where, for
example, is the assignment and transfer documentation showing how, when and to whom
Deane’s and Salt Kettle LLC’s (“SKI”) economic interests in the shopping center and vacant
land assets that were previously assigned to Starrett City Preservation LLC (“Preservation”), and
that Plaintiffs seek to recover in this case, have now apparently been assigned?
If anything, the evidence submitted by Defendants provides support for filing the
Motion, not grounds to defeat it. In their opposition papers, Defendants repeatedly admit that the
new entities that Plaintiffs seek to add as defendants in fact now hold, by assignment or other
transfer, the assets that previously had been assigned to Preservation. They even acknowledge
that those new entities assumed any obligations to the Plaintiffs held by the existing Defendants
prior to transfer. For this reason alone, these transferee entities are properly added to this case as
proposed.
Defendants’ repeated allegations of a lack of candor -- both by the Plaintiffs and
their counsel -- have no basis and no place on this Motion. Defendants try to make issues out of
the fact that the complaint has required amendment so early in this case by accusing Plaintiffs of
knowing facts contained in those pleadings earlier than Plaintiffs claim. But Defendants alone
are responsible for Plaintiffs’ lack of complete information: for more than a year, the Defendants
5074511
have wrongfully shut out the Plaintiffs -- who are members of Preservation and unquestionably
entitled to certain benefits from the refinancing of Starrett City -- from information about what
was to occur, and what did occur, in connection with the refinancing and more specifically, with
respect to the Plaintiffs’ interest in it. (Rudman Aff. at {{] 4-7) While the Defendants in their
opposition papers engage in a quick maneuver to try to cover up their missteps, they can only
blame themselves for the fact that Plaintiffs have continued to obtain new information about the
events at hand since the refinancing occurred in December 2009.
Similarly, while the Defendants reiterate no fewer than three times in their
opposition papers that the Plaintiffs received an exaggerated “more than $4 million” in May
2010, Defendants fail to mention that (i) the payment is a small fraction of what is owed to the
Plaintiffs, and (ii) it came five months late and only after this litigation was commenced. This
payment does not demonstrate good faith by the Defendants, but is merely additional evidence of
Plaintiffs’ entitlement to what is claimed in this case and the propriety of including the new
proposed defendants in it.
In short, there is significant basis for this lawsuit, as the Court will learn as it
proceeds. For now, the only issue is whether Plaintiffs should be entitled to file the Second
Amended Complaint, and Defendants have failed to show any prejudice or any patent
insufficiency of the pleadings that would prevent its filing.
ARGUMENT
DEFENDANTS HAVE NOT ESTABLISHED ANY PREJUDICE FROM
THE PROPOSED PLEADING OR ANY BASIS FOR DETERMINING
AS A MATTER OF LAW THAT IT IS PATENTLY INSUFFICIENT
Defendants have utterly failed to satisfy the heavy burden on them in opposing
this motion for leave to amend the complaint. Otis Elevator Co. v. 1166 Avenue of the Americas
Condo., 166 A.D.2d 307, 307, 564 N.Y.S.2d 119, 120 (1st Dep’t 1990) (“[tJhe party opposing
5074511
the motion to amend must overcome a heavy presumption of validity in favor of the moving
party”).
First, they do not allege prejudice or unfair surprise, nor could they. This case has
just begun: Defendants have not yet responded to any complaint, there has been no discovery
and there has not even been a conference. Under these circumstances, leave to amend should be
freely granted. Joel v. Weber, NYLJ, Aug. 13, 1991, at 22, col 1 [Sup. Ct, New York County,
Lehner, J.] (motion for leave to add two defendants, to assert claims against them, and to add
causes of action against existing defendants granted; no prejudice where discovery was in
preliminary stages and case was at its infancy); ' Fleming v. Barnwell Nursing Home & Health
Facilities, Inc., 309 A.D.2d 1132, 1133, 766 N.Y.S.2d 241, 243 (3d Dep’t 2003) (affirming grant
of motion for leave to amend where little discovery had taken place).
Rather, Defendants have submitted an affidavit with certain exhibits through
which they attempt to challenge the facts alleged in the proposed Second Amended Complaint.
But a motion for leave to amend the complaint -- particularly one brought before there has been
any discovery -- is not the place to dispute factual issues or litigate the legal merits of the
proposed claims. As the First Department has explained:
' A copy of the Joel v. Weber decision is attached hereto as Exhibit 1.
5074511
While the validity of a proposed amended pleading should be
examined upon a motion to amend (East Asiatic Co. v. Corash, 34
A.D.2d 432),? its legal sufficiency and merit must be sustained
unless the alleged insufficiency or lack of merit is clear and free
from doubt .... This function of the reviewing court is predicated
upon concepts of judicial economy and efficiency. It is not meant
to supplant the motion to dismiss or for summary judgment... .
Hawkins v. Genesee Place Corp., 139 A.D.2d 433, 434, 527 N.Y.S.2d 22, 23 (1st Dep’t 1988)
(citations omitted) (reversing denial of motion for leave to amend answer; proposed defenses
should be allowed if “not frivolous or patently insufficient”); Daniels v. Empire-Orr, Inc., 151
A.D.2d 370, 372, 542 N.Y.S.2d 614, 615-16 (1st Dep’t 1989) (reversing denial of motion for
leave brought shortly after discovery began; “while the defendant chose to oppose plaintiffs’
motion by contradicting factual allegations with its own affidavits, nevertheless, the motion court
should have forborne ruling on an issue of fact that is better left to be decided on a motion for
summary judgment or, ultimately, at trial”). See also Joel, Exh. 1 (defendants cannot defeat
motion for leave to amend merely by denying the truth of the allegations).
> The East Asiatic case, relied upon by Defendants, is also distinguishable because the proposed
amendment contained factual allegations that, unlike the proposed pleading here, were “so purely
conclusory as to be meaningless.” 34 A.D.2d 432, 436, 312 N.Y.S.2d 311, 314 (1st Dep’t 1970).
Lucido v. Mancuso, 49 A.D.3d 220, 851 N.Y.S.2d 238 (2d Dep’t 2008), another case cited by
Defendants, not only supports Plaintiffs’ motion by allowing the amendment, but it criticizes the decision
in East Asiatic, in which the court denied plaintiff's motion to amend the complaint before any discovery
had been taken:
Somewhere along the line, the economical approach advanced in [East
Asiatic] morphed into a rule, applied in some cases, that . . . the party
seeking leave to amend must make “some evidentiary showing” of merit.
... Cases involving CPLR 3025(b) that place a burden on the pleader to
establish the merit of the proposed amendment erroneously state the
applicable standard and are no longer to be followed. No evidentiary
showing of merit is required under CPLR 3025(b). The court need only
determine whether the proposed amendment is ‘palpably insufficient’ to
state a cause of action or defense, or is patently devoid of merit... .
Lucido, 49 A.D.3d at 227-29, 851 N.Y.S.2d at 243-45 (granting plaintiff leave to amend complaint to add
a cause of action for wrongful death).
5074511
A Defendants Have Not Been Prejudiced By the Timing of this Motion
Defendants contend that Plaintiffs have misrepresented when they learned the
new information contained in the Second Amended Complaint, and that the Motion should
therefore be denied. (Opp. Mem. at 10)
First, Defendants have no factual basis for these groundless accusations, and they
are not true. As established in the Rudman Affidavit, Plaintiffs learned the new information less
than a month before filing this Motion. (Rudman Aff. 9)
Furthermore, when Plaintiffs learned the facts at issue is only relevant if any delay
by the Plaintiffs in asserting the claims caused prejudice to the Defendants. Seda v. New York
City Hous. Auth., 181 A.D.2d 469, 470, 581 N.Y.S.2d 20, 21 (1st Dep’t 1992) (lateness in
seeking amendment “must be coupled with significant prejudice”); Joel, Exh. | (mere lateness in
asserting claims does not constitute prejudice; no prejudice where defendants were not hindered
in preparing defenses or prevented from taking any measures to support their position); David D.
Siegel, New York Practice, §237 (4th ed. 2005) (the prejudice the non-moving party must show
in order to defeat the amendment is “some special right lost in the interim, some change of
position or some significant trouble or expense that could have been avoided had the original
pleading contained what the amended one now wants to add”).
Defendants have not claimed prejudice, and could not. Even their (erroneous)
own argument -- that the First Amended Complaint, filed one month earlier, implies that the
additional facts were known -- establishes a lack of delay and suggests no prejudice. Defendants
have not responded to any of the complaints, and this alleged one-month delay clearly caused no
prejudice.
5074511
B. The Second Amended Complaint Properly Includes Spring Creek
Plaza LLC and an Amendment to the Ad Damnum Clause
Having no real basis to object to adding proposed defendant Spring Creek Plaza
LLC (“Spring Creek”) and to the proposed language change in the ad damnum clause,
Defendants again resort to meritless accusations of lack of candor as a claimed ground for
denying the Motion. (Opp. Mem. at 11-12) Even if these allegations were true (which they are
not), the proposed amendments are nonetheless appropriate given the allegations contained in the
pleading, and the Defendants’ failure to establish any prejudice thereby.
Defendants first complain about the addition of proposed defendant Spring Creek,
contending that this entity is owned by “hundreds of limited partner interests” and its inclusion
will thereby bring “undue complexity and confusion” into this case. (Opp Mem. at 2, 11) To the
contrary, Defendants state that Spring Creek is comprised of three members -- DD Shopping
Center LLC (“DD/Shopping”), SK Shopping Center LLC (“SK/Shopping”), and SC LP
Shopping Center LLC. (Sutz Aff. § 4, Exh. H) The limited partner interests referred to by
Defendants are another step removed, as those persons are members of a member of Spring
Creek, SC LP Shopping Center LLC. Plaintiffs do not seek to add SC LP Shopping Center LLC
as a party, and have no dispute with the limited partners.
3 The statement made in the Veit Affirmation with which Defendants quibble as to Spring Creek (but not
as to the other four proposed defendants) -- that the new entities “are all controlled by, and owned entirely
or substantially by” the existing Defendants -- are supported by the allegations of the Second Amended
Complaint and are not misleading. It is undisputed that the ultimate ownership interests of SCA and
Spring Creek are identical. (Sutz Aff. 4) Deane and SKI (through DD/Shopping and SK/Shopping) are
alleged to be the managing general partner and general partner respectively of Spring Creek, and they
have an ownership interest in 19.9% of it. (Second Amended Complaint (annexed to the Veit Affirmation
at Exh. B) {{ 22-24) In addition, Deane and his family members are alleged to own more than 32% of the
limited partner interests of the third member entity, a fact with which the Defendants do not substantially
disagree. (Id. § 16; Sutz Aff. | 2) Thus, Deane and the other Defendants control Spring Creek, and own
nearly 50%, if not more, of the member interests of the entity.
5074511
The Second Amended Complaint alleges that assets of SCA were transferred to
Spring Creek as part of the refinancing that previously had been assigned to Preservation. Asa
result it is alleged that Spring Creek holds assets that belong to Plaintiffs. (Second Amended
Complaint f 22, 79, 83, 87, 89, 99, 100, 104, 105) Spring Creek and the claims against it are
therefore properly included in the proposed amended pleading.
Defendants also seek to prohibit Plaintiffs’ proposed amendment to the ad
damnum clause to specify adverse tax consequences as an aspect of damages sought to be
recovered. Defendants again make allegations of surreptitious behavior in connection with this
change, but fail to tell the Court that upon filing the Motion, Plaintiffs’ counsel provided defense
counsel with a red-lined copy of the Second Amended Complaint, which showed all of the
changes between the existing complaint and the proposed pleading.‘ In short, there was never an
effort to hide any of the proposed changes.
The proposed change does not materially alter the damages claims previously
alleged, and there is no basis not to allow the amendment in all events. The broad damages
language used in the First Amended Complaint was sufficient to cover adverse tax consequences,
and the change was proposed solely for clarity. Even if new, Defendants do not and cannot show
any prejudice from the change, and ad damnum clauses are readily amended -- even at the time
of trial -- absent a showing of prejudice. Loomis v. Civetta Corinno Constr. Corp., 54.N.Y.2d
18, 20, 444 N.Y.S.2d 571, 571 (1981); Oppenheim v. Mojo Stumer Assocs. Architects, P.C., 25
Misc.3d 1222(A), 2009 WL 3734304, at *1 (Sup. Ct., New York County 2009).
4 In fact, Plaintiffs’ counsel called Defendants’ counsel when the new information was learned in June
2010 to try to steer off the need for a second amendment if it was unnecessary, but received only evasive
responses. Plaintiffs therefore proceeded with the Motion.
5074511
Cc The Facts Submitted by Defendants, If True, Support
Granting the Motion
Defendants argue that Plaintiffs’ new claims “cannot survive a motion to dismiss”
but fail to explain why that is the case or to offer any legal authority for their contention.>
Significantly, the Defendants admit that the assets previously assigned by the SCA general
partners to Preservation were somehow subsequently transferred to at least four of the proposed
new entities: DD Spring Creek LLC (“DD/SCA”), SK Spring Creek LLC (“SK/SCA”),
DD/Shopping and SK/Shopping. Defendants’ argument seems to be that because, as they
contend, the transfers to these new entities were documented, or were required by the refinancing
lender, or were authorized by Preservation, there is no basis to add the new entities and claims
against them. These arguments, even if they were true, miss the point: entities that currently
possess or control the assets in which Preservation has rights are properly included as
defendants. If the transfers were made -- as Defendants admit they were -- then leave to amend
should be granted.
Notably, there has been no discovery in this case, and plaintiffs have no
knowledge of many of the facts asserted by Defendants. Plaintiffs have not been privy to the
refinancing closing documentation; were not advised about the assignments or asked to consent
to them; and do not have firm information about what, exactly, was transferred to whom, and
5 The only cases cited by Defendants elsewhere in their memorandum of law do not involve disputed
issues of fact, and are readily distinguishable from this case and the arguments advanced by Defendants.
In Owitz v. Beth Israel Med. Ctr., | Misc.3d 912(A), 781 N.Y.S.2d 626, at *5 (Sup. Ct., New York
County 2004) (Kornreich, J.), plaintiff's cross-motion to amend was denied because the proposed
amendment was “on its face an attempt to circumvent the requirements and prohibitions of [the Labor
Law].” There is no contention here that the allegations are a clear violation of law.
The case Eighth Ave. Garage Corp. v. H.K.L. Realty Corp., 60 A.D.3d 404, 875 N.Y.S.2d 8 (1st Dep’t
2009), is also inapposite. There, the court determined that the limited facts could not, under any set of
circumstances, support the proposed new causes of action. Jd. at 405, 875 N.Y.S.2d at 9. Here, Plaintiffs
have filed a detailed complaint that unquestionably alleges claims; that Defendants challenge those
factual allegations does not alter this result.
5074511
where the assets previously assigned to Preservation currently rest. (Rudman Aff. i 4-10)
Defendants have not provided conclusive, admissible evidence of these facts either: they fail to
attach pertinent assignment or transfer documentation, but instead only offer a Pictorial summary
of what those documents allegedly say. This chart is confusing on its face and inconsistent with
other pictorial charts that Defendants circulated to limited partners. Defendants also fail to offer
the facts through testimony of a person with authority to bind them and with first hand
knowledge of all the testimony. Determination of these factual issues on a motion for leave to
amend at the outset of this case would be improper.
The evidence provided by Defendants, however, supports the Motion, rather than
defeats it. It is undisputed that as part of the Plaintiffs’ management incentive agreement, the
general partners of SCA -- defendants Disque Deane and SKI -- assigned their economic interest
in SCA to Preservation. (Sutz Aff. 3) It is further undisputed that plaintiff Harvey Rudman
owns a 15.01% share of Preservation, and that plaintiff Harold Kuplesky owns a share of
Preservation, although the parties disagree as to the amount of his share. (Compare Second
Amended Complaint {§ 95-96 with Sutz Aff. Exhs. D, E)
In their opposition papers, Defendants admit, as alleged in the proposed Second
Amended Complaint, that Deane and SKI transferred all of their interests and obligations as
general partners of SCA to two new general partner entities, proposed defendants DD/SCA and
SK/SCA. (Sutz Aff. {4 4, 9, 11) Defendants further state that Preservation has “100% of the
‘economic interest’ of Mr. Deane and SK[I] held by the two SPE’s formed to take title to SCA as
a result of the refinancing transaction, i.e., DD Spring Creek LLC [DD/SCA], and SK Spring
Creek LLC [SK/SCA].” (Id. § 9; emphasis added)
SO7451.1 10
Similarly, Defendants admit, as alleged in the proposed Second Amended
Complaint, that two of the other proposed new entities -- DD/Shopping and SK/Shopping --
received by transfer the general partners’ interest in SCA when the shopping center and vacant
land that belonged to SCA were transferred to the newly created Spring Creek:
As part of the refinancing transaction, a shopping center and
certain vacant land, which had been part of SCA, were transferred
to another entity, Spring Creek Plaza LLC. The members of
Spring Creek Plaza included entities called DD Shopping Center
LLC (the sole member of which is Mr. Deane) and SK Shopping
Center LLC (the sole member of which is SK{I]); the limited
partner interests were held by another entity. Thus, Spring Creek
Plaza (owner of the shopping center) and SCA have the same
ownership and membership structure, albeit through different
entities.
(Sutz Aff. { 4) Defendants state that Preservation holds “100% of the ‘economic interest’ of Mr.
Deane and Salt Kettle [SKI] .. . held by DD Shopping Center LLC [DD/Shopping] and SK
Shopping Center LLC [SK/Shopping].” (Id. | 9; emphasis added)
Defendants also admit that these four new entities are obligated to the Plaintiffs
for the debts of the existing Defendants. Defendants state that “[b]y accepting the assignment of
the MGP’s ‘obligations,’ the SPE’s also assumed any obligation that may have existed to assign
the MGP’s ‘economic interests’ to Preservation... .” (Opp. Mem. at 14) Factually, this
statement is inaccurate: the MGP (Deane) did not merely have an obligation fo assign the
economic interest to Preservation, but he, like SKI, had already assigned the economic interest to
Preservation years earlier pursuant to the written assignments annexed to the complaints. But in
all events, Plaintiffs allege that they have not received the full amounts due to them, and they are
entitled to include as defendants all of the entities which have now assumed the obligation to
Preservation previously held by the general partners.
5074511 11
In short, the fact that these four entities (and the fifth, Spring Creek, as alleged by
Plaintiffs) now possess, by assignment or other transfer, the assets that belong to Preservation
and the obligation of Deane and SKI to Preservation is justification in and of itself for including
them as defendants and granting the Motion.
Defendants’ specific arguments merely raise factual issues, but do not provide a
basis to deny the Motion. First, Defendants point to Section 5.10 of the Preservation Agreement,
which provides that “[t]he MGP shall from time to time propose transactions or plans for SCA
(including . . . refinancing . . .) and in the event that the MGP approves any such transaction or
plan for SCA the Members [of Preservation] shall consent to, vote in favor of (if applicable) and
raise no objections against such a transaction or plan.” (Exh. A to complaints at § 5.10).
Defendants contend that Preservation was thus required to consent to the assignment of the
general partners’ economic interests in SCA to the other entities, such that there is no basis for
Plaintiffs’ tortious interference or declaratory judgment claims concerning the assignments.
They distort the allegations in the proposed Second Amended Complaint and argue that if the
assignments are invalidated, the refinancing transaction would have to be unwound. (Opp. Mem
at 12)
This argument is merely a distraction. Nothing in Section 5.10 or the other
identified provisions permitted the general partners to assign their economic interests in SCA --
which had already been assigned to Preservation -- to third parties, or precludes Plaintiffs from
pursuing those third parties to recover that interest if, in fact, it was transferred. Moreover, as a
factual matter, Plaintiffs were never asked to consent to any such transfer, were never advised
© Defendants also identify two other provisions which make reference to the general partners > «6, ‘Successors
and transferees.”
5074511 12
that Preservation consented to any transfer, and were not told what was consented to. It is still
unknown what exactly was transferred and which entities now hold what assets. All of these
matters can be sorted out in discovery, but none provides a basis for denying leave to amend.
This is particularly true given that the assignments themselves are apparently undisputed.
Nor do Plaintiffs seek to unwind the refinancing, or even to interfere with any
proper assignments that may have occurred. Indeed, Plaintiffs did not object in the First Amended
Complaint to the assignment by Deane of his legal general partner interest in SCA, as opposed to
his economic interest that had already been assigned to Preservation. But Plaintiffs certainly are
entitled to assert claims against entities that now are alleged to -- and apparently do -- hold the
assets to which the Plaintiffs are entitled.
Defendants’ only other arguments -- that one of the charts and SCA’s financial
statements acknowledge Preservation’s rights -- do not provide a basis to deny the Motion.
(Opp. Mem. at 15) Again, the documentation from Defendants is inconsistent and incomplete,
but in all events confirms that assignments of the general partners’ economic interests in SCA
were, in fact, made to the proposed new defendants. Such documents therefore at best support
the need to add the new defendants to the action, to enable Plaintiffs pursue them for the millions
of dollars still due.
5074511 13
CONCLUSION
For all of the foregoing reasons, Plaintiffs should be granted leave to file the
Second Amended Complaint.
Dated: New York, New York GOLENBQCK EISEMAN, ASSOR
August 27, 2010 BELL SKOE LLP
ak /
By
id J. Eiseman
Jacqueline G. Veit
437 Madison Avenue
New York, New York 10022
Tel: 212-907-7300
Fax: 212-754-0330
Counsel for Plaintiffs
5074511 14
EXHIBIT
Westlaw.
Page 1
8/13/91 N.Y.L.J. 22, (col. 1)
New York Law Journal
Volume 206, Number 31
Copyright 1991 by The New York Law Publishing Company
Tuesday, August 13, 1991
Court Decisions
First Judicial Department
New York County
Supreme Court: IA Part 12
JOEL v. WEBER
Justice Lehner
The Proposed Amendment - Plaintiffs' motion for leave to serve an amended complaint and supplemental sum-
mons joining Anthony T. Conforti and The River Company as party defendants, and to set forth new causes of
action against them, and to set forth additional allegations of fraud, breach of fiduciary duty, conversion and un-
just enrichment against defendants Francis X. Weber, Lucille Weber and Frank Management, Inc. ("the
Webers") is granted, without prejudice to an application for severance of the causes of action alleged against
Anthony T. Conforti.
Despite invoking the rule that on a motion to amend the court should examine the merit of the proposed plead-
ing. Frank Weber and Mr. Conforti do not challenge the legal sufficiency of the proposed amendment, but
merely deny the truth of its allegations (see, affidavit of Anthony T. Conforti sworn to May 31, 1991 p. 4, para.
8, 10). Reliance upon such denial misperceives the rule applicable to this type of motion, for "[O]nce a prima
facie basis for the amendment has been established, that should end the inquiry, even in the face of a rebuttal
that might provide the ground for a subsequent motion for summary judgment..." Hospital for Joint Diseases Or-
thopaedic Institute v. James Katsikis Environmental Contractors, Inc., ——! A.D.2d o> 569 N.Y.S.2d 91, 92 (ist
Dept. 1991); see also, Frank Management, Inc. v. Weber, N.Y.L.J. Oct. 3, 1989, p. 22, c. 1 (Sup. Ct. N.Y. Co.).
Nor has any prejudice that would ensue as a result of the proposed amendment been demonstrated. The new al-
legations concern, for the most part, transactions occurring after the commencement of the within action, which
were only recently discovered by plaintiffs, and thus there was no delay in raising such claims.
In any event, mere lateness does not constitute prejudice. Here, there was no showing that the Webers have been
hindered in the preparation of their defenses or have been prevented from taking any measures to support their
position. (See, e.g., Detrinca v. De Fillippo, 165 AD2d 505, 510-511 [1st Dept. 1991].) Moreover, while discov-
ery has commenced, it has not progressed beyond the preliminary stage, for, as Mr. Conforti concedes, "...this
case is in its infancy." (Conforti affidavit p. 3, para. 6) (See, Hair Programming, Inc. v. Space Productions,
S.S.A., Inc. AD2d » 567 N.Y.S.2d 470 [1st Dept. 1991]; Kopel v. Chiulli, AD2d___[2d Dept.],
N.Y.L.J. July 11, 1991, p. 25, c. 5; Napoli v. Canada Dry Bottling Co. of New York, Inc., 166 AD2d 696 [2d
Dept. 1990]).
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 2
Mr. Conforti's assertions that to allow the proposed amendment would engender more work for counsel, harm
his reputation by the publicity naturally attending his becoming a defendant in this action, complicate the litiga-
tion and, perhaps, lay the groundwork for a disqualification motion, do not amount to the type of prejudice that
would bar a pleading amendment.
Equally unavailing is the argument that the proposed amendment is barred by the automatic stay in the Francis
X. Weber bankruptcy. It is unquestioned that pursuant to their stipulation with the trustee for the bankrupt's es-
tate, which was "so ordered" by the Bankruptcy Court, plaintiffs were granted relief from the automatic stay to
permit them to continue litigation of the claims asserted against Weber (ex. A to Friedman reply affidavit).
The revision of the proposed fourth amendment complaint (ex. E to Friedman reply affidavit) meets the objec-
tion of the accountant defendants, Berman, Shaffet & Schain and its partners ("BSS"), i.e. that by repeating and
realleging the new allegations against Weber in the paragraphs setting forth allegations against BSS, the pro-
posed amendment purports to seek recovery from the accountants for acts allegedly occurring after their profes-
sional relationship with plaintiffs had ended. Said Defendants’ remaining argument, that despite the revision the
proposed amendment should not be permitted because, together with the other allegations in the lengthy com-
plaint, the proposed pleading would prove confusing for the trier of fact, is not a ground to deny the amendment.
Thus, in opposing the proposed amendment, Weber and Conforti hae failed to overcome the "heavy presumption
in favor of the moving party...." (Otis Elevator Company v. 1166 Avenue of the Americas Condominium 166
AD2d 307 [1990].)
Disclosure
Plaintiffs’ motion to compel compliance with their notice of discovery and production of documents dated Oct.
11, 1990 is granted to the extent only of directing production of the documents set forth in paragraph 47 (ii)
(a)-(e) in the moving affidavit of Alan R. Friedman swom to May 14, 1991 and compliance with paragraph 46
thereof by affirmation of counsel, all within 30 days of service of a copy of this order with notice of entry. The
application for sanctions and costs is denied.
This decision constitutes the order of the court.
8/13/91 NYLJ 22, (col. 1)
END OF DOCUMENT
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
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INDEX NO. 650159/2010 FILED: NEW YORK COUNTY CLERK 08/27/2010 NYSCEF DOC. NO. 16 RECEIVED NYSCEF: 08/27/2010 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK HARVEY RUDMAN and HAROLD KUPLESKY, Index No. 650159/10 on Behalf of Each of Them Individually And On Behalf Of Starrett City Preservation LLC, Derivatively, Plaintiffs, - against - CAROL GRAM DEANE, DISQUE D. DEANE, SALT KETTLE LLC, ST. GERVAIS LLC and STARRETT CITY PRESERVATION LLC, Defendants. ween en nen ene een nec eee ee ee REPLY MEMORANDUM OF LAW IN FURTHER SUPPORT OF PLAINTIFFS’ MOTION FOR LEAVE TO FILE SECOND AMENDED COMPLAINT TABLE OF CONTENTS Page Table of Authorities... i ARGUMENT.........004 DEFENDANTS HAVE NOT ESTABLISHED ANY PREJUDICE FROM THE PROPOSED PLEADING OR ANY BASIS FOR DETERMINING AS A MATTER OF LAW THAT IT IS PATENTLY INSUFFICIENT. A Defendants Have Not Been Prejudiced By the Timing of this Motion The Second Amended Complaint Properly Includes Spring Creek Plaza LLC and an Amendment to the Ad Damnum Clause The Facts Submitted by Defendants, If True, Support Granting the Motion CONCLUSION... 14 5075301 TABLE OF AUTHORITIES CASES Page Daniels v. Empire-Orr, Inc., 151 A.D.2d 370, 542 N.Y.S.2d 614 (Ist Dep’t 1989) East Asiatic Co. v. Corash, 34 A.D.2d 432, 312 N.Y.S.2d 311 (1st Dep’t 1970) Eighth Ave. Garage Corp. v. H.K.L. Realty Corp., 60 A.D.3d 404, 875 N.Y.S.2d 8 (Ist Dep’t 2009) Fleming v. Barnwell Nursing Home & Health Facilities, Inc., 309 A.D.2d 1132, 766 N.Y.S.2d 241 (3d Dep’t 2003) Hawkins v. Genesee Place Corp., 139 A.D.2d 433, 527 N.Y.S.2d 22 (Ist Dep’t 1988) Joel v. Weber, NYLJ, Aug. 13, 1991 at 22, col 1 [Sup. Ct., New York County, Lehner, J.].. 4, 5,6 Loomis v. Civetta Corinno Constr. Corp., 54.N.Y.2d 18, 444 N.Y.S.2d 571 (1981) Lucido v. Mancuso, 49 A.D.3d 220, 851 N.Y.S.2d 238 (2d Dep’t 2008) Oppenheim v. Mojo Stumer Assocs. Architects, P.C., 25 Misc.3d 1222(A), 2009 WL 3734304 (Sup. Ct., New York County 2009) Otis Elevator Co. v. 1166 Avenue of the Americas Condo., 166 A.D.2d 307, 564 N.Y.S.2d 119 (1st Dep’t 1990) Owitz v. Beth Israel Medical Ctr., 1 Misc.3d 912(A), 781 N.Y.S.2d 626 (Sup. Ct., New York County 2004) (Kornreich, J.) Seda v. New York City Hous. Auth., 181 A.D.2d 469, 581 N.Y.S.2d 20 (Ist Dep’t 1992) STATUTES AND TREATISES N.Y. CPLR 3025(b) David D. Siegel, New York Practice, §237 (4th ed. 2005) 5075321 ii Plaintiffs Harvey Rudman and Harold Kuplesky, individually and derivatively on behalf of Starrett City Preservation LLC, (“Plaintiffs”) by their attorneys, Golenbock Eiseman Assor Bell & Peskoe LLP, respectfully submit this reply memorandum of law, together with the Reply Affidavit of Harvey Rudman, sworn to on August 20, 2010 (“Rudman Aff.”), in further support of their motion (the “Motion”) for leave to file a second amended complaint (the “Second Amended Complaint”). The bombastic tone and misleading accusations contained in Defendants’ papers in opposition to the Motion are designed to obscure one simple fact: the Defendants have no valid basis to challenge this motion for leave to amend. Defendants cannot avoid the Second Amended Complaint simply by submitting evidence which they claim demonstrates facts contrary to the allegations in the proposed pleading. A motion for leave to amend is not the place to litigate factual assertions, particularly where, as here, the case is at its infancy, there has been no discovery, and the Defendants are in possession of the pertinent information on the issues at hand. Defendants have failed with this evidence to demonstrate any prejudice or futility of the amendment as a matter of law as is required to defeat this Motion. Defendants do not attempt to claim prejudice, nor could they given that this case is at its inception. And the evidence they submit is not legally conclusive of anything. The primary “evidence” offered in opposition is an affidavit from Iris Sutz (“Sutz Aff.”), who is not a member, officer or employee of any of the existing or proposed parties in this case except St. Gervais LLC (in which she owns less than 1%), and Ms. Sutz has no first hand knowledge of many of the events contained in her affidavit. This affidavit, even if were complete and accurate (which it is not), would be an insufficient basis on which to rely to deny the Motion. 5074511 Further, Defendants’ documents are factually inconsistent with one another and otherwise insufficient to establish any patent insufficiency in the pleading, as opposed to at best identifying factual issues to be explored during discovery and evaluated by the Court later in this case. Defendants attach what they call an “approved” chart, which, they admit, is materially different from another chart that Defendants sent to the hundreds of limited partners of Starrett City Associates (“SCA”) last year. (Compare Sutz Aff. Exh. E with Exh. H) Moreover, the documents submitted are incomplete to support Defendants’ stated view of the facts. Where, for example, is the assignment and transfer documentation showing how, when and to whom Deane’s and Salt Kettle LLC’s (“SKI”) economic interests in the shopping center and vacant land assets that were previously assigned to Starrett City Preservation LLC (“Preservation”), and that Plaintiffs seek to recover in this case, have now apparently been assigned? If anything, the evidence submitted by Defendants provides support for filing the Motion, not grounds to defeat it. In their opposition papers, Defendants repeatedly admit that the new entities that Plaintiffs seek to add as defendants in fact now hold, by assignment or other transfer, the assets that previously had been assigned to Preservation. They even acknowledge that those new entities assumed any obligations to the Plaintiffs held by the existing Defendants prior to transfer. For this reason alone, these transferee entities are properly added to this case as proposed. Defendants’ repeated allegations of a lack of candor -- both by the Plaintiffs and their counsel -- have no basis and no place on this Motion. Defendants try to make issues out of the fact that the complaint has required amendment so early in this case by accusing Plaintiffs of knowing facts contained in those pleadings earlier than Plaintiffs claim. But Defendants alone are responsible for Plaintiffs’ lack of complete information: for more than a year, the Defendants 5074511 have wrongfully shut out the Plaintiffs -- who are members of Preservation and unquestionably entitled to certain benefits from the refinancing of Starrett City -- from information about what was to occur, and what did occur, in connection with the refinancing and more specifically, with respect to the Plaintiffs’ interest in it. (Rudman Aff. at {{] 4-7) While the Defendants in their opposition papers engage in a quick maneuver to try to cover up their missteps, they can only blame themselves for the fact that Plaintiffs have continued to obtain new information about the events at hand since the refinancing occurred in December 2009. Similarly, while the Defendants reiterate no fewer than three times in their opposition papers that the Plaintiffs received an exaggerated “more than $4 million” in May 2010, Defendants fail to mention that (i) the payment is a small fraction of what is owed to the Plaintiffs, and (ii) it came five months late and only after this litigation was commenced. This payment does not demonstrate good faith by the Defendants, but is merely additional evidence of Plaintiffs’ entitlement to what is claimed in this case and the propriety of including the new proposed defendants in it. In short, there is significant basis for this lawsuit, as the Court will learn as it proceeds. For now, the only issue is whether Plaintiffs should be entitled to file the Second Amended Complaint, and Defendants have failed to show any prejudice or any patent insufficiency of the pleadings that would prevent its filing. ARGUMENT DEFENDANTS HAVE NOT ESTABLISHED ANY PREJUDICE FROM THE PROPOSED PLEADING OR ANY BASIS FOR DETERMINING AS A MATTER OF LAW THAT IT IS PATENTLY INSUFFICIENT Defendants have utterly failed to satisfy the heavy burden on them in opposing this motion for leave to amend the complaint. Otis Elevator Co. v. 1166 Avenue of the Americas Condo., 166 A.D.2d 307, 307, 564 N.Y.S.2d 119, 120 (1st Dep’t 1990) (“[tJhe party opposing 5074511 the motion to amend must overcome a heavy presumption of validity in favor of the moving party”). First, they do not allege prejudice or unfair surprise, nor could they. This case has just begun: Defendants have not yet responded to any complaint, there has been no discovery and there has not even been a conference. Under these circumstances, leave to amend should be freely granted. Joel v. Weber, NYLJ, Aug. 13, 1991, at 22, col 1 [Sup. Ct, New York County, Lehner, J.] (motion for leave to add two defendants, to assert claims against them, and to add causes of action against existing defendants granted; no prejudice where discovery was in preliminary stages and case was at its infancy); ' Fleming v. Barnwell Nursing Home & Health Facilities, Inc., 309 A.D.2d 1132, 1133, 766 N.Y.S.2d 241, 243 (3d Dep’t 2003) (affirming grant of motion for leave to amend where little discovery had taken place). Rather, Defendants have submitted an affidavit with certain exhibits through which they attempt to challenge the facts alleged in the proposed Second Amended Complaint. But a motion for leave to amend the complaint -- particularly one brought before there has been any discovery -- is not the place to dispute factual issues or litigate the legal merits of the proposed claims. As the First Department has explained: ' A copy of the Joel v. Weber decision is attached hereto as Exhibit 1. 5074511 While the validity of a proposed amended pleading should be examined upon a motion to amend (East Asiatic Co. v. Corash, 34 A.D.2d 432),? its legal sufficiency and merit must be sustained unless the alleged insufficiency or lack of merit is clear and free from doubt .... This function of the reviewing court is predicated upon concepts of judicial economy and efficiency. It is not meant to supplant the motion to dismiss or for summary judgment... . Hawkins v. Genesee Place Corp., 139 A.D.2d 433, 434, 527 N.Y.S.2d 22, 23 (1st Dep’t 1988) (citations omitted) (reversing denial of motion for leave to amend answer; proposed defenses should be allowed if “not frivolous or patently insufficient”); Daniels v. Empire-Orr, Inc., 151 A.D.2d 370, 372, 542 N.Y.S.2d 614, 615-16 (1st Dep’t 1989) (reversing denial of motion for leave brought shortly after discovery began; “while the defendant chose to oppose plaintiffs’ motion by contradicting factual allegations with its own affidavits, nevertheless, the motion court should have forborne ruling on an issue of fact that is better left to be decided on a motion for summary judgment or, ultimately, at trial”). See also Joel, Exh. 1 (defendants cannot defeat motion for leave to amend merely by denying the truth of the allegations). > The East Asiatic case, relied upon by Defendants, is also distinguishable because the proposed amendment contained factual allegations that, unlike the proposed pleading here, were “so purely conclusory as to be meaningless.” 34 A.D.2d 432, 436, 312 N.Y.S.2d 311, 314 (1st Dep’t 1970). Lucido v. Mancuso, 49 A.D.3d 220, 851 N.Y.S.2d 238 (2d Dep’t 2008), another case cited by Defendants, not only supports Plaintiffs’ motion by allowing the amendment, but it criticizes the decision in East Asiatic, in which the court denied plaintiff's motion to amend the complaint before any discovery had been taken: Somewhere along the line, the economical approach advanced in [East Asiatic] morphed into a rule, applied in some cases, that . . . the party seeking leave to amend must make “some evidentiary showing” of merit. ... Cases involving CPLR 3025(b) that place a burden on the pleader to establish the merit of the proposed amendment erroneously state the applicable standard and are no longer to be followed. No evidentiary showing of merit is required under CPLR 3025(b). The court need only determine whether the proposed amendment is ‘palpably insufficient’ to state a cause of action or defense, or is patently devoid of merit... . Lucido, 49 A.D.3d at 227-29, 851 N.Y.S.2d at 243-45 (granting plaintiff leave to amend complaint to add a cause of action for wrongful death). 5074511 A Defendants Have Not Been Prejudiced By the Timing of this Motion Defendants contend that Plaintiffs have misrepresented when they learned the new information contained in the Second Amended Complaint, and that the Motion should therefore be denied. (Opp. Mem. at 10) First, Defendants have no factual basis for these groundless accusations, and they are not true. As established in the Rudman Affidavit, Plaintiffs learned the new information less than a month before filing this Motion. (Rudman Aff. 9) Furthermore, when Plaintiffs learned the facts at issue is only relevant if any delay by the Plaintiffs in asserting the claims caused prejudice to the Defendants. Seda v. New York City Hous. Auth., 181 A.D.2d 469, 470, 581 N.Y.S.2d 20, 21 (1st Dep’t 1992) (lateness in seeking amendment “must be coupled with significant prejudice”); Joel, Exh. | (mere lateness in asserting claims does not constitute prejudice; no prejudice where defendants were not hindered in preparing defenses or prevented from taking any measures to support their position); David D. Siegel, New York Practice, §237 (4th ed. 2005) (the prejudice the non-moving party must show in order to defeat the amendment is “some special right lost in the interim, some change of position or some significant trouble or expense that could have been avoided had the original pleading contained what the amended one now wants to add”). Defendants have not claimed prejudice, and could not. Even their (erroneous) own argument -- that the First Amended Complaint, filed one month earlier, implies that the additional facts were known -- establishes a lack of delay and suggests no prejudice. Defendants have not responded to any of the complaints, and this alleged one-month delay clearly caused no prejudice. 5074511 B. The Second Amended Complaint Properly Includes Spring Creek Plaza LLC and an Amendment to the Ad Damnum Clause Having no real basis to object to adding proposed defendant Spring Creek Plaza LLC (“Spring Creek”) and to the proposed language change in the ad damnum clause, Defendants again resort to meritless accusations of lack of candor as a claimed ground for denying the Motion. (Opp. Mem. at 11-12) Even if these allegations were true (which they are not), the proposed amendments are nonetheless appropriate given the allegations contained in the pleading, and the Defendants’ failure to establish any prejudice thereby. Defendants first complain about the addition of proposed defendant Spring Creek, contending that this entity is owned by “hundreds of limited partner interests” and its inclusion will thereby bring “undue complexity and confusion” into this case. (Opp Mem. at 2, 11) To the contrary, Defendants state that Spring Creek is comprised of three members -- DD Shopping Center LLC (“DD/Shopping”), SK Shopping Center LLC (“SK/Shopping”), and SC LP Shopping Center LLC. (Sutz Aff. § 4, Exh. H) The limited partner interests referred to by Defendants are another step removed, as those persons are members of a member of Spring Creek, SC LP Shopping Center LLC. Plaintiffs do not seek to add SC LP Shopping Center LLC as a party, and have no dispute with the limited partners. 3 The statement made in the Veit Affirmation with which Defendants quibble as to Spring Creek (but not as to the other four proposed defendants) -- that the new entities “are all controlled by, and owned entirely or substantially by” the existing Defendants -- are supported by the allegations of the Second Amended Complaint and are not misleading. It is undisputed that the ultimate ownership interests of SCA and Spring Creek are identical. (Sutz Aff. 4) Deane and SKI (through DD/Shopping and SK/Shopping) are alleged to be the managing general partner and general partner respectively of Spring Creek, and they have an ownership interest in 19.9% of it. (Second Amended Complaint (annexed to the Veit Affirmation at Exh. B) {{ 22-24) In addition, Deane and his family members are alleged to own more than 32% of the limited partner interests of the third member entity, a fact with which the Defendants do not substantially disagree. (Id. § 16; Sutz Aff. | 2) Thus, Deane and the other Defendants control Spring Creek, and own nearly 50%, if not more, of the member interests of the entity. 5074511 The Second Amended Complaint alleges that assets of SCA were transferred to Spring Creek as part of the refinancing that previously had been assigned to Preservation. Asa result it is alleged that Spring Creek holds assets that belong to Plaintiffs. (Second Amended Complaint f 22, 79, 83, 87, 89, 99, 100, 104, 105) Spring Creek and the claims against it are therefore properly included in the proposed amended pleading. Defendants also seek to prohibit Plaintiffs’ proposed amendment to the ad damnum clause to specify adverse tax consequences as an aspect of damages sought to be recovered. Defendants again make allegations of surreptitious behavior in connection with this change, but fail to tell the Court that upon filing the Motion, Plaintiffs’ counsel provided defense counsel with a red-lined copy of the Second Amended Complaint, which showed all of the changes between the existing complaint and the proposed pleading.‘ In short, there was never an effort to hide any of the proposed changes. The proposed change does not materially alter the damages claims previously alleged, and there is no basis not to allow the amendment in all events. The broad damages language used in the First Amended Complaint was sufficient to cover adverse tax consequences, and the change was proposed solely for clarity. Even if new, Defendants do not and cannot show any prejudice from the change, and ad damnum clauses are readily amended -- even at the time of trial -- absent a showing of prejudice. Loomis v. Civetta Corinno Constr. Corp., 54.N.Y.2d 18, 20, 444 N.Y.S.2d 571, 571 (1981); Oppenheim v. Mojo Stumer Assocs. Architects, P.C., 25 Misc.3d 1222(A), 2009 WL 3734304, at *1 (Sup. Ct., New York County 2009). 4 In fact, Plaintiffs’ counsel called Defendants’ counsel when the new information was learned in June 2010 to try to steer off the need for a second amendment if it was unnecessary, but received only evasive responses. Plaintiffs therefore proceeded with the Motion. 5074511 Cc The Facts Submitted by Defendants, If True, Support Granting the Motion Defendants argue that Plaintiffs’ new claims “cannot survive a motion to dismiss” but fail to explain why that is the case or to offer any legal authority for their contention.> Significantly, the Defendants admit that the assets previously assigned by the SCA general partners to Preservation were somehow subsequently transferred to at least four of the proposed new entities: DD Spring Creek LLC (“DD/SCA”), SK Spring Creek LLC (“SK/SCA”), DD/Shopping and SK/Shopping. Defendants’ argument seems to be that because, as they contend, the transfers to these new entities were documented, or were required by the refinancing lender, or were authorized by Preservation, there is no basis to add the new entities and claims against them. These arguments, even if they were true, miss the point: entities that currently possess or control the assets in which Preservation has rights are properly included as defendants. If the transfers were made -- as Defendants admit they were -- then leave to amend should be granted. Notably, there has been no discovery in this case, and plaintiffs have no knowledge of many of the facts asserted by Defendants. Plaintiffs have not been privy to the refinancing closing documentation; were not advised about the assignments or asked to consent to them; and do not have firm information about what, exactly, was transferred to whom, and 5 The only cases cited by Defendants elsewhere in their memorandum of law do not involve disputed issues of fact, and are readily distinguishable from this case and the arguments advanced by Defendants. In Owitz v. Beth Israel Med. Ctr., | Misc.3d 912(A), 781 N.Y.S.2d 626, at *5 (Sup. Ct., New York County 2004) (Kornreich, J.), plaintiff's cross-motion to amend was denied because the proposed amendment was “on its face an attempt to circumvent the requirements and prohibitions of [the Labor Law].” There is no contention here that the allegations are a clear violation of law. The case Eighth Ave. Garage Corp. v. H.K.L. Realty Corp., 60 A.D.3d 404, 875 N.Y.S.2d 8 (1st Dep’t 2009), is also inapposite. There, the court determined that the limited facts could not, under any set of circumstances, support the proposed new causes of action. Jd. at 405, 875 N.Y.S.2d at 9. Here, Plaintiffs have filed a detailed complaint that unquestionably alleges claims; that Defendants challenge those factual allegations does not alter this result. 5074511 where the assets previously assigned to Preservation currently rest. (Rudman Aff. i 4-10) Defendants have not provided conclusive, admissible evidence of these facts either: they fail to attach pertinent assignment or transfer documentation, but instead only offer a Pictorial summary of what those documents allegedly say. This chart is confusing on its face and inconsistent with other pictorial charts that Defendants circulated to limited partners. Defendants also fail to offer the facts through testimony of a person with authority to bind them and with first hand knowledge of all the testimony. Determination of these factual issues on a motion for leave to amend at the outset of this case would be improper. The evidence provided by Defendants, however, supports the Motion, rather than defeats it. It is undisputed that as part of the Plaintiffs’ management incentive agreement, the general partners of SCA -- defendants Disque Deane and SKI -- assigned their economic interest in SCA to Preservation. (Sutz Aff. 3) It is further undisputed that plaintiff Harvey Rudman owns a 15.01% share of Preservation, and that plaintiff Harold Kuplesky owns a share of Preservation, although the parties disagree as to the amount of his share. (Compare Second Amended Complaint {§ 95-96 with Sutz Aff. Exhs. D, E) In their opposition papers, Defendants admit, as alleged in the proposed Second Amended Complaint, that Deane and SKI transferred all of their interests and obligations as general partners of SCA to two new general partner entities, proposed defendants DD/SCA and SK/SCA. (Sutz Aff. {4 4, 9, 11) Defendants further state that Preservation has “100% of the ‘economic interest’ of Mr. Deane and SK[I] held by the two SPE’s formed to take title to SCA as a result of the refinancing transaction, i.e., DD Spring Creek LLC [DD/SCA], and SK Spring Creek LLC [SK/SCA].” (Id. § 9; emphasis added) SO7451.1 10 Similarly, Defendants admit, as alleged in the proposed Second Amended Complaint, that two of the other proposed new entities -- DD/Shopping and SK/Shopping -- received by transfer the general partners’ interest in SCA when the shopping center and vacant land that belonged to SCA were transferred to the newly created Spring Creek: As part of the refinancing transaction, a shopping center and certain vacant land, which had been part of SCA, were transferred to another entity, Spring Creek Plaza LLC. The members of Spring Creek Plaza included entities called DD Shopping Center LLC (the sole member of which is Mr. Deane) and SK Shopping Center LLC (the sole member of which is SK{I]); the limited partner interests were held by another entity. Thus, Spring Creek Plaza (owner of the shopping center) and SCA have the same ownership and membership structure, albeit through different entities. (Sutz Aff. { 4) Defendants state that Preservation holds “100% of the ‘economic interest’ of Mr. Deane and Salt Kettle [SKI] .. . held by DD Shopping Center LLC [DD/Shopping] and SK Shopping Center LLC [SK/Shopping].” (Id. | 9; emphasis added) Defendants also admit that these four new entities are obligated to the Plaintiffs for the debts of the existing Defendants. Defendants state that “[b]y accepting the assignment of the MGP’s ‘obligations,’ the SPE’s also assumed any obligation that may have existed to assign the MGP’s ‘economic interests’ to Preservation... .” (Opp. Mem. at 14) Factually, this statement is inaccurate: the MGP (Deane) did not merely have an obligation fo assign the economic interest to Preservation, but he, like SKI, had already assigned the economic interest to Preservation years earlier pursuant to the written assignments annexed to the complaints. But in all events, Plaintiffs allege that they have not received the full amounts due to them, and they are entitled to include as defendants all of the entities which have now assumed the obligation to Preservation previously held by the general partners. 5074511 11 In short, the fact that these four entities (and the fifth, Spring Creek, as alleged by Plaintiffs) now possess, by assignment or other transfer, the assets that belong to Preservation and the obligation of Deane and SKI to Preservation is justification in and of itself for including them as defendants and granting the Motion. Defendants’ specific arguments merely raise factual issues, but do not provide a basis to deny the Motion. First, Defendants point to Section 5.10 of the Preservation Agreement, which provides that “[t]he MGP shall from time to time propose transactions or plans for SCA (including . . . refinancing . . .) and in the event that the MGP approves any such transaction or plan for SCA the Members [of Preservation] shall consent to, vote in favor of (if applicable) and raise no objections against such a transaction or plan.” (Exh. A to complaints at § 5.10). Defendants contend that Preservation was thus required to consent to the assignment of the general partners’ economic interests in SCA to the other entities, such that there is no basis for Plaintiffs’ tortious interference or declaratory judgment claims concerning the assignments. They distort the allegations in the proposed Second Amended Complaint and argue that if the assignments are invalidated, the refinancing transaction would have to be unwound. (Opp. Mem at 12) This argument is merely a distraction. Nothing in Section 5.10 or the other identified provisions permitted the general partners to assign their economic interests in SCA -- which had already been assigned to Preservation -- to third parties, or precludes Plaintiffs from pursuing those third parties to recover that interest if, in fact, it was transferred. Moreover, as a factual matter, Plaintiffs were never asked to consent to any such transfer, were never advised © Defendants also identify two other provisions which make reference to the general partners > «6, ‘Successors and transferees.” 5074511 12 that Preservation consented to any transfer, and were not told what was consented to. It is still unknown what exactly was transferred and which entities now hold what assets. All of these matters can be sorted out in discovery, but none provides a basis for denying leave to amend. This is particularly true given that the assignments themselves are apparently undisputed. Nor do Plaintiffs seek to unwind the refinancing, or even to interfere with any proper assignments that may have occurred. Indeed, Plaintiffs did not object in the First Amended Complaint to the assignment by Deane of his legal general partner interest in SCA, as opposed to his economic interest that had already been assigned to Preservation. But Plaintiffs certainly are entitled to assert claims against entities that now are alleged to -- and apparently do -- hold the assets to which the Plaintiffs are entitled. Defendants’ only other arguments -- that one of the charts and SCA’s financial statements acknowledge Preservation’s rights -- do not provide a basis to deny the Motion. (Opp. Mem. at 15) Again, the documentation from Defendants is inconsistent and incomplete, but in all events confirms that assignments of the general partners’ economic interests in SCA were, in fact, made to the proposed new defendants. Such documents therefore at best support the need to add the new defendants to the action, to enable Plaintiffs pursue them for the millions of dollars still due. 5074511 13 CONCLUSION For all of the foregoing reasons, Plaintiffs should be granted leave to file the Second Amended Complaint. Dated: New York, New York GOLENBQCK EISEMAN, ASSOR August 27, 2010 BELL SKOE LLP ak / By id J. Eiseman Jacqueline G. Veit 437 Madison Avenue New York, New York 10022 Tel: 212-907-7300 Fax: 212-754-0330 Counsel for Plaintiffs 5074511 14 EXHIBIT Westlaw. Page 1 8/13/91 N.Y.L.J. 22, (col. 1) New York Law Journal Volume 206, Number 31 Copyright 1991 by The New York Law Publishing Company Tuesday, August 13, 1991 Court Decisions First Judicial Department New York County Supreme Court: IA Part 12 JOEL v. WEBER Justice Lehner The Proposed Amendment - Plaintiffs' motion for leave to serve an amended complaint and supplemental sum- mons joining Anthony T. Conforti and The River Company as party defendants, and to set forth new causes of action against them, and to set forth additional allegations of fraud, breach of fiduciary duty, conversion and un- just enrichment against defendants Francis X. Weber, Lucille Weber and Frank Management, Inc. ("the Webers") is granted, without prejudice to an application for severance of the causes of action alleged against Anthony T. Conforti. Despite invoking the rule that on a motion to amend the court should examine the merit of the proposed plead- ing. Frank Weber and Mr. Conforti do not challenge the legal sufficiency of the proposed amendment, but merely deny the truth of its allegations (see, affidavit of Anthony T. Conforti sworn to May 31, 1991 p. 4, para. 8, 10). Reliance upon such denial misperceives the rule applicable to this type of motion, for "[O]nce a prima facie basis for the amendment has been established, that should end the inquiry, even in the face of a rebuttal that might provide the ground for a subsequent motion for summary judgment..." Hospital for Joint Diseases Or- thopaedic Institute v. James Katsikis Environmental Contractors, Inc., ——! A.D.2d o> 569 N.Y.S.2d 91, 92 (ist Dept. 1991); see also, Frank Management, Inc. v. Weber, N.Y.L.J. Oct. 3, 1989, p. 22, c. 1 (Sup. Ct. N.Y. Co.). Nor has any prejudice that would ensue as a result of the proposed amendment been demonstrated. The new al- legations concern, for the most part, transactions occurring after the commencement of the within action, which were only recently discovered by plaintiffs, and thus there was no delay in raising such claims. In any event, mere lateness does not constitute prejudice. Here, there was no showing that the Webers have been hindered in the preparation of their defenses or have been prevented from taking any measures to support their position. (See, e.g., Detrinca v. De Fillippo, 165 AD2d 505, 510-511 [1st Dept. 1991].) Moreover, while discov- ery has commenced, it has not progressed beyond the preliminary stage, for, as Mr. Conforti concedes, "...this case is in its infancy." (Conforti affidavit p. 3, para. 6) (See, Hair Programming, Inc. v. Space Productions, S.S.A., Inc. AD2d » 567 N.Y.S.2d 470 [1st Dept. 1991]; Kopel v. Chiulli, AD2d___[2d Dept.], N.Y.L.J. July 11, 1991, p. 25, c. 5; Napoli v. Canada Dry Bottling Co. of New York, Inc., 166 AD2d 696 [2d Dept. 1990]). © 2010 Thomson Reuters. No Claim to Orig. US Gov. Works. Page 2 Mr. Conforti's assertions that to allow the proposed amendment would engender more work for counsel, harm his reputation by the publicity naturally attending his becoming a defendant in this action, complicate the litiga- tion and, perhaps, lay the groundwork for a disqualification motion, do not amount to the type of prejudice that would bar a pleading amendment. Equally unavailing is the argument that the proposed amendment is barred by the automatic stay in the Francis X. Weber bankruptcy. It is unquestioned that pursuant to their stipulation with the trustee for the bankrupt's es- tate, which was "so ordered" by the Bankruptcy Court, plaintiffs were granted relief from the automatic stay to permit them to continue litigation of the claims asserted against Weber (ex. A to Friedman reply affidavit). The revision of the proposed fourth amendment complaint (ex. E to Friedman reply affidavit) meets the objec- tion of the accountant defendants, Berman, Shaffet & Schain and its partners ("BSS"), i.e. that by repeating and realleging the new allegations against Weber in the paragraphs setting forth allegations against BSS, the pro- posed amendment purports to seek recovery from the accountants for acts allegedly occurring after their profes- sional relationship with plaintiffs had ended. Said Defendants’ remaining argument, that despite the revision the proposed amendment should not be permitted because, together with the other allegations in the lengthy com- plaint, the proposed pleading would prove confusing for the trier of fact, is not a ground to deny the amendment. Thus, in opposing the proposed amendment, Weber and Conforti hae failed to overcome the "heavy presumption in favor of the moving party...." (Otis Elevator Company v. 1166 Avenue of the Americas Condominium 166 AD2d 307 [1990].) Disclosure Plaintiffs’ motion to compel compliance with their notice of discovery and production of documents dated Oct. 11, 1990 is granted to the extent only of directing production of the documents set forth in paragraph 47 (ii) (a)-(e) in the moving affidavit of Alan R. Friedman swom to May 14, 1991 and compliance with paragraph 46 thereof by affirmation of counsel, all within 30 days of service of a copy of this order with notice of entry. The application for sanctions and costs is denied. This decision constitutes the order of the court. 8/13/91 NYLJ 22, (col. 1) END OF DOCUMENT © 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.