Summary

In a 23 page decision signed July 15, 2011, Judge Walsh of the Delaware Bankruptcy Court denied a motion to allow a plaintiff to file an amended complaint, holding that the amended complaint was too deficient to survive a motion to dismiss and therefore would not be allowed. Judge Walsh’s opinion is available here (the “Opinion”).

Background

Following Fruehauf Trailer Corporation’s (the “Debtor”) bankruptcy and subsequent confirmation of its plan in September 1998, Chriss Street (“Street”) was appointed as the trustee of the Debtor’s liquidating trust. He served in this capacity until August 2005, when he resigned and was succeeded by Daniel Harrow (“Harrow”). While there was extensive litigation between Street and Harrow, this post will only discuss those portions of the litigation that led directly to the issuance of the Opinion.

In July 2007, Street filed a complaint (the “Original Complaint”) against Harrow in California State Court. The case was removed to federal court, where Harrow filed an answer denying all material allegations. The case was then transferred to the District Court of Delaware, then referred to the Bankruptcy Court as a core proceeding. The case lay dormant until July 12, 2010, when Street filed an amended complaint. Eight days later, Street filed a second amended complaint. The Court struck both amended complaints, because Street filed them without Harrow’s consent or Court approval, in violation of Rule 15 of the Federal Rules of Civil Procedure (“FRCP”). On September 8, 14, and 24, 2010, Street filed three identical motions to amend the Original Complaint, pursuant to Rule 15. Street appended a proposed amended complaint (the “Amended Complaint”) to these motions. Opinion at *2-3.

To summarize, the Original Complaint, filed 2 years after Street resigned, was eleven pages long and listed 26 defendants, 25 of which were “John Does” while the Amended Complaint, filed 5 years after Street’s resignation, was 126 pages and listed 16 defendants. Opinion at *7-8. The Opinion was written in response to Street’s motion to allow (the “Motion”) him to amend his complaint.

Judge Walsh’s Opinion

Judge Walsh begins his discussion of the Motion by quoting FRCP 15, which provides that “a party may amend its pleading only with the opposing party’s written consent or the court’s leave” and that “[t]he court should freely give leave when justice so requires.” Opinion at *8. Judge Walsh then quotes several opinions that define the extend to which an amendment should be allowed. These include: Foman v. Davis, 371 U.S. 178 (1962); Dole v. Arco Chem. Co., 921 F.2d 484 (3d Cir. 1990); Johnson v. Geico Cas. Co., 673 F.Supp.2d 244 (D. Del. 2009); and Koken v. GPC Int’l, Inc., 443 F.Supp.2d 631 (D. Del. 2006). Opinion at *8-9. In summation of the flaws in the Amended Complaint, Judge Walsh opines that “the Proposed Amended Complaint fails to state a claim upon which relief may be granted” and it “fails to meet the pleading requirements of Rule 9(b) … and alleges causes of action that are time barred.” Opinion at *9.

Judge Walsh then proceeds to identify general flaws within several counts of the Amended Complaint, including: (1) Failing to Plead Fraud with Particularity, at *9-12; and (2) Time-Barred by the Statute of Limitations, at *12-15. Judge Walsh then discusses each of the 22 counts of the Amended Complaint before ultimately concluding that “all twenty-two counts contained in Street’s Proposed Amended Complaint fail to state a claim upon which relief may be granted,” at which point he denies the Motion. Opinion at *23.

While FRCP 15 and Third Circuit precedent provide that leave to amend should be liberally granted, it is by no means a certainty. For this reason, it is vital to determine the appropriate defendants and fully research any relevant laws, particularly statutes of limitation, prior to filing a complaint.