Gallagher's NYC Steakhouse Franchising, Inc. v. NY Steakhouse Of Tampa, Inc. et al, No. 1:2011cv01456 - Document 25 (S.D.N.Y. 2011)
Court Description: MEMORANDUM OPINION & ORDER granting re: 12 MOTION for Summary Judgment filed by Gallagher's NYC Steakhouse Franchising, Inc., denying 21 MOTION for Leave to File Amended Answer and Counterclaim Instanter filed by Mitchell J. Walker, N Y Steakhouse Of Tampa, Inc., James Tully. Plaintiffs are entitled to summary judgment on their claims for breach of contract and breach of the personal guarantee. Defendants are therefore jointly and severally liable for damages in the amount of 6;106,393.27, plus interest in the amount of $11,774.57. By no later than December 16, 2011, Plaintiff must submit additional documentation to enable the Court to determine the reasonableness of the requested attorneys fees. Any opposition by Defendants must be submitted by December 23, 2011. Judgment will not be entered until the attorneys fees are determined. (Signed by Magistrate Judge Theodore H. Katz on 12/5/2011) (cd)
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USVl .'\.. \~!'\ l- '1 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK - ------ - -- ---- - Dt. , , " . " 1 I I } I ------X . t-o'ttBD ~... t'Lr ~ /~~1I11 I GALLAGHER'S NYC STEAKHOUSE FRANCHISING, INC., I 11 Civ. 1456 (THK) Plaintiff, -against- MEMORANDUM OPINION AND ORDER NY STEAKHOUSE OF TAMPA, INC., JAMES TULLY, AND MITCHELL J. WALKER, Defendants. ----- - -- - -- ---------- ---- X THEODORE H. KATZ, UNITED STATES MAGISTRATE JUDGE. Plaintiff Gallagher's New York City Steakhouse Franchising, Inc. ("Gallagher's") brings this action for breach of contract and breach of personal guarantee against New York Steakhouse of Tampa, Inc. ("Tampa Gallagher's"), ("Tully") and Mitchell J. franchisee. pursuant to a former franchisee, Walker ("Walker"), and James Tully guarantors of the The parties consented to trial before this Court, 28 U.S.C. § 636 (c). Pretrial discovery has been completed and Plaintiff has filed a motion for summary judgment pursuant to Federal Rule of Civil Procedure 56. Defendants, collectively, oppose the motion for summary judgment and have filed a motion for leave to amend the Answer and counterclaim instanter. For the reasons that follow, Plaintiff's motion for summary judgment is granted and Defendants' motion for leave to file an amended Answer and counterclaim is denied. BACKGROUND Plaintiff, Gallagher's, a New York corporation with its principle place of business in New York City, is a franchisor of Gallagher branded steakhouse full-service Complaint (\\Compl.") at 2 ~ restaurants. (See On August 29, 2006, Plaintiff and 2.) Tampa Gallagher's entered into a Franchise Agreement ("Franchise Agreement" Gallagher's or "Agreement") Steakhouse in Tampa, Statement ("PI.' s for the at a (See Plaintiff's Local Rule 56.1 Florida. 56. I") operation of ~ 1 In conj unction with the 1.) Franchise Agreement, Tully and Walker signed a personal guarantee, in which they "j ointly , individually and severally . . . absolutely and unconditionally guarantee[d] the payment of all amounts and the performance of all of the covenants, terms, conditions, agreements and undertakings contained and set forth in [the] Franchise Agreement and in any other agreement(s) by and between Franchisee and Franchisor. Franchising, II Inc. (Guarantee Franchise of Gallagher's Agreement ("Personal attached as Exhibit ("Ex. ") A to CompI. at The Franchise Agreement NYC Steakhouse Guarantee"), 1.) required payment of a continuing royalty in the amount of 5% of the prior month's gross sales for Tampa Gallagher l s. Steakhouse (See Franchising l Pl. s 56.1 at 1 Inc. Gallagherls Agreement ("Franchise Agreement") 1 2 2 ~3 i Gallagher l s Restaurant NYC Franchise attached as Ex. A to Compl. at 5 ~ For 5.02.) past due payments owed to Gallagher's, the Agreement required payment of interest at a rate of 4% above the prime rate of interest on the first day of each month that an amount was past due, as published in the Wall Street Journal. (See pI.'s 56.1 at 2 ~ 4; Franchise Agreement at 7 ~ 5.08.) The Agreement also included a provision for attorneys' fees, entitling Gallagher's to recover from Defendants "reasonable attorneys' fees, experts' fees, court costs and all other expenses of litigation, if [Gallagher's] prevail[s] in any action instituted against [Defendants] to secure or protect [Gallagher's] rights under this agreement. at 64 ~ Pl.'s 56.1 at 4 11 ~ 15i Franchise Agreement 29.01.) It is undisputed that Tampa Gallagher's breached the Franchise Agreement Plaintiff. Statement by failing to make (See Pl.'s 56.1 at 3 ("Defs.' 56.1") at 2 continuing ~ ~ royalty payments to 9; Defendants' Local Rule 56.1 9.) Consequently, terminated the Franchise Agreement on November 17, Pl.'s 56.1 at 3 ~ 10i Compl. at 7 ~ 28.) Plaintiff 2010. Plaintiff entered into a limited term franchise agreement with Tampa Gallagher's and Tully to allow Tampa Gallagher's to remain open through January 2, 2011. (See Pl.'s 56.1 at 3 ~ 11.) This limited term franchise agreement required payment of royalties to Plaintiff at the same rate as in the original Franchise Agreement. 3 (See id. at 4 ~ 14.) While operating under the limited term franchise agreement, Defendants (See id. at 4 ~ 16; Defs.' continued to fail to pay royalties. 56.1 at 2 ~ 16.) Plaintiff subsequently filed this action against Tampa Gallagher's for breach of contract, and against Tully and Walker Plaintiff contends that for breach of the personal guarantee. Defendants owe $106,393.27 in past due royalty payments (see PI.'s ~ 56.1 at 5 payments 17)1 $11,774.57 in interest on the past due royalty ~ (see id. at 5 (see id. at 5 ~ royalty payments fees Defendants concede that they breached the 19). Franchise Agreement and $31,256.50 in attorneys' 18)1 and owe (see Defs.' interest (see id. at 2 ~ 18) i Plaintiff 56.1 at 2 $106 / 393.27 ~ 17) in past due and $11/774.57 in Tully and Walker admit that they are personally liable under the personal guarantee (see Defs.1 56.1 at 1 ~ Defendants assert, 8). prevailed attorneys in I this action however, and fees (see id. at 2 Furthermore Plaintiff. I Defendants (See id. at 2 ~ ~ that they do not owe Plaintiff 19). contest 20.) that Plaintiff has not yet the total amount owed to SpecificallYI Defendants maintain that the damages they owe Plaintiff must be offset by the damages Defendants incurred as a result of Plaintiff/s alleged breach of the Franchise Agreement. however I is not alleged (See id. in the 4 at Answer 2 ~ or 21.) any That breach counterclaim. l According to Defendants, by the middle of 2009, Tampa Gallagher's (See Declaration of James had lost about two million dollars. Tully in Support of Defendants' Memorandum in Opposition to Plaintiff's Motion for Summary Judgment (\\Tully Decl.") at 2 ~ 5.) In pursued an effort to \\save the restaurant," catering agreement with Tampa Bay Arena (See "Arena" ) . discussed id. this executives, at 2 ~ said the ("Tampa Bay Arena" 6.) Defendants allege with opportunity who Defendants Gallagher's opportunity encouraged Defendants to pursue sounded the opportunity. CEO that or they and other "excellent" (See id.) a and Based on Gallagher's alleged approval, Tampa Gallagher's entered into a sponsorship agreement with Tampa Bay Arena to cater Gallagher's food to the Arena in exchange for a certain percentage of the revenues from sales as well as promotional marketing. 2 ~ and 8.) (See id. at The sponsorship agreement was for a period of five years required an initial Gallagher's made. (See id. payment of ~ 9.) at 2 $100,000, which Tampa In connection with the sponsorship agreement, Tampa Gallagher's entered into a licensing and requirements agreement with Tampa Sportservice, Inc., which runs concessions at the Tampa Bay Arena, for Tampa Sportservice to be the purchaser and server of Tampa Gallagher's catered food. (See id. at 2 ~ 10.) Soon after Tampa Gallagher's entered into the sponsorship 5 agreement and the licensing and requirements agreement, on October 28, 2010, Plaintiff sent Tampa Gallagher's a cease and desist notice to immediately terminate its catering at Tampa Bay Arena. (See id. at 2 , 11.) stated that According to Defendants, Plaintiff's notice Defendants were operating a separate Gallagher's restaurant at the Tampa Bay Arena in violation of the Franchise Plaintiff sent a similar cease and desist Agreement. notice to Gallagher's Defendants Tampa Bay business allege Arena, at that the as a which in (See Arena. result turn of suspended id. this at 3 , Tampa 12.) suspension, Tampa Gallagher's lost its initial $100,000 payment to the Arena and future profits. (See id. at 3 , 13.) On October 12, 2011, Plaintiff filed the instant motion for summary judgment on its claims of breach of contract and breach of the personal guarantee. their response to On November 2, Plaintiff's motion 2011, for essentially conceding liability and damages. Defendants filed summary judgment, On the same day, Defendants filed a motion for leave to file an amended answer to add a counterclaim against Plaintiff for breach of contract and breach of the implied covenant of good faith and fair dealing. The proposed counterclaim is premised on Gallagher's cease and desist notice relating to the catering arrangement at the Tampa Bay Arena. Plaintiff opposes the motion. 6 DISCUSSION I. Summary Judgment on Plaintiff's Claims A. Legal standard A motion for summary judgment may not be granted unless the Court determines that there is no genuine issue of material fact to be tried, and that the facts as to which there is no such issue warrant judgment for the moving party as a matter of law. See Celotex Corp. v. Catrett, 477 U.S. 317, 322 23, 106 S. ct. 2548, 2552 53 (1986)i (2d Cir. 2004) Patterson v. County of Oneida, 375 F.3d 206, 219 Shannon v. N.Y. City Transit Auth., 332 F.3d 95, 98 i (2d Cir. 2003). The burden of demonstrating the absence of any genuine dispute as to a material fact rests upon the party seeking summary judgment, see Adickes v. S. H. Kress & Co., 398 U.S. 144, 157, 90 S. Ct. 1598, 1608 (1970), but once a properly supported motion for summary judgment has been made, the burden shifts to the nonmoving party to make a essential elements of sufficient showing to establish the that party's case on which it bears the burden of proof at trial. See Hayut v. State Univ. of N.Y., F.3d 733,743 (2d Cir. 2003) S. Ct. at 2552). 352 (citing Celotex, 477 U.S. at 322, 106 To meet its burden, the non-movant must put forth "specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P. 56(e). \\ [a] ffidavits Facts may be set forth in affidavits, but submitted in support of or in opposition to the 7 summary judgment motion must 'be made on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify to the matters therein.' P. 56(c». If Patterson, 375 F. 3d at 219 (quoting Fed. R. Civ. Thus, hearsay and conclusory assertions which would not be admissible at trial cannot serve to create a genuine issue for In assessing the record to determine whether there is a trial. genuine issue to be tried as to any material fact, required factual to resolve inferences judgment is sought. all ambiguities in favor of and draw all the Court is permissible the party against whom summary See Anderson v. Liberty Lobby. Inc., 477 U.S. 242, 255, 106 S. Ct. 2505, 2513 (1986); Patterson, 375 F.3d at 219; Amnesty Am. v. Town of W. Hartford, 361 F.3d 113, 122 (2d Cir. 2004) . B. Application 1. Breach of Contract and Breach of Personal Guarantee Under New York law,l a party claiming breach of contract must show (1) plaintiff, the existence of a contract, (2) performance (3) breach by the defendant, and (4) damages. I The Franchise Agreement includes a forum that mandates that New York law will govern any out of the Agreement. (See Franchise Agreement There is no dispute that the substantive law of controls. 8 by the See 24/7 selection clause disputes arising at 65 ~ 29.03.) New York Records, Inc. v. Sony Music Entm't, Cir. 2005) (applying New York law) Inc., 429 F.3d 39, 41-42 (2d (citing Eternity Global Master Fund Ltd. v. Morgan Guar. Trust Co. of N.Y., 375 F.3d 168, 177 (2d Cir.2004)). a. Liability Here, there is no real dispute as to Plaintiff satisfying the elements of its breach of contract and breach of personal guarantee claims. Defendants admit that Tampa Gallagher's entered into a Franchise Agreement and that this Agreement was properly executed. (See Defs.' 56.1 at 1 ~~ Similarly, Defendants admit that 1-4.) Tully and Walker entered into an agreement to personally guarantee Tampa Gallagher's obligations under the Franchise Agreement. id. at 1 ~~ 4-8.) (See Defendants further admit that Tampa Gallagher's entered into a limited term franchise agreement that allowed Tampa Gallagher's to continue operating as a Gallagher's franchise from November 17, 2010 to January 2, 2011. (See id. at 2 Finally, Gallagher's Defendants Franchise Agreement admit that (see id. Tampa at 2 ~~ 9-10) ,~ breached (see id. at 2 , that Plaintiff continuing royalties stated by Plaintiff (see id. at 2 ~, to 16 18). the and that Tully and Walker breached the personal guarantee they owe 11-15.) 20), and in the amount Defendants have not produced any evidence to show a disputed issue of material fact regarding Plaintiff's claims. As there is no disputed issue of 9 material fact, Plaintiff is entitled to summary judgment on its claims for breach of contract and breach of the personal guarantee. b. Damages Defendants concede that they owe Plaintiff $106,393.27 in past due royalty payments (see id. at 2 ~ 17) and $11,774.57 in interest (see id. at 2 ~ 18). Nevertheless, Defendants contend that there is a genuine issue of fact as to the amount of damages Defendants owe Plaintiff and that this issue bars summary judgment. response to Plaintiff's motion for summary judgment, In their Defendants contend that Plaintiff breached the Franchise Agreement 2 and the implied covenant of good faith and fair dealing by sending the cease and desist notice and interfering with Tampa Gallagher's catering agreement with the Tampa Bay Arena, causing Defendants 2It is not clear from Defendants' proposed counterclaim whether the breach of contract claim arises from the Franchise Agreement or an alleged oral agreement whereby Gallagher's provided oral support of Defendants' plan to provide catering services to the Tampa Bay Arena. (See Proposed Amended Answer and Counterclaims ("Proposed Am. Answer"), attached as Appendix B to Defendants' Motion for Leave to Amend the Answer and Counterclaim Instanter at 5-6 ~~ 6-16.) In the Limited Term Franchise Agreement, Defendants agreed that the "Franchise Agreement was properly terminated effective November 17, 2010." (Agreement Regarding Grant of Limited Term Successor Franchise Agreement ("Limited Term Agreement"), attached as Exhibit C to Plaintiff's Motion for Summary Judgment.) It is difficult to understand how Defendants can claim damages, including lost profits for a period of five years between 2010 and 2105, from Plaintiff's alleged breach of the Franchise Agreement, when Defendants concede that the Franchise Agreement was properly terminated. 10 damages. (See Defendants' Memorandum in opposition to Plaintiff's Motion for Summary Judgment ("Defs.' Mem.") at 4.) Defendants argue that the damages Defendants owe Plaintiff must be offset by the damages Plaintiff caused Defendants by this breach. (See id. at 4.) Defendants submit a single declaration, prepared by Tully, that sets forth Plaintiff's alleged breach and the damages suffered by Defendants. This declaration is not sufficient to defeat Plaintiff's motion for summary judgment on either liability or damages. Leaving aside the question of whether Defendants will be able to assert a counterclaim against Plaintiff, as there is none in their Answer, and assuming that Defendants have a valid claim against Plaintiff that would enti tle Defendants to damages, \I, there is no right to set off a possible, unliquidated liability against a liquidated claim that is due and payable.'" Willett v. Lincolnshire Mgmt.,756 N.Y.S.2d 9,9,302 A.D.2d 271,271 Dep't 2003) 199, 199, (quoting Spodek v. Park Prop. Dev. Assoc., 693 N.Y.S.2d 263 A.D.2d 476, 478-79 Correspondent Servs. Corp. v. 412, 424 its (S.D.N.Y. 2007) pending plaintiff's] law] .") i (1st disputed present (\I and (2d Dep't J.V.W. 1999)) Inv. Ltd., i see also 524 F. Supp. 2d [Defendant] has no right to 'set-off' unliquidated entitlement to claim damages against owed [under [the the Ferguson v. Lion Holdings, Inc., 312 F. Supp. 2d 484, 503 11 (S.D.N.Y. setoff to 2004) ("Because debts must be due to the claimant for apply, there is no right to set off a possible, unliquidated liability against a liquidated claim that is due an payable. ,,) Moreover, (internal quotation marks and citations omitted)). \1\ [o]ffset claims do not bar summary judgment on . payment obligations, unless such obligations and the offset claims involve contractually \ dependent' promises.'" Computech Int' 1, Inc. v. Compaq Computer Corp., No. 02 Civ. 2628 (RWS) , 2004 WL 1126320 (S.D.N.Y May 21, 2004) (quoting Pereira v. Cogan, 267 B.R. 500, 507 \lIf two promises . (Bankr. S.D.N.Y. 2001)). are independent, breach of one does not excuse performance of the other." Coleman Co. Inc. v. Hlebanja, No. 96 Civ. 1288 (MBM) , 1997 WL 13189, at *7 (S.D.N.Y. Jan. 15, 1997) (applying New York law). Promises within the same instrument are not necessarily related or dependent. id. (\I See [E]ven if several contracts that constitute part of the same transaction are considered one contract, the different obligations within each contract may be independent and divisible."). Whether provisions within a contract are dependent is largely a question of intent and circumstances. Rudman v. Cowles Commc'ns, 330 N.Y.S.2d 33, 42, 30 N.Y.2d I, 13 (1972) are separable or entire, the (\lIn determining whether contracts primary standard is manifested, viewed in the surrounding circumstances. 1/). of the parties should be "determined from the 12 the intent The intent language of the contract and the circumstances under which the contract was made. Refinement Int'l Co. v. (S.D.N.Y. 1993) Here, Eastbourne N.V., (applying New York Defendants' proposed 815 F. law) Supp. (citations counterclaims 738, /I 742 omitted). for breach of contract and breach of the implied covenant of good faith and fair Moreover, dealing are unliquidated and disputed. appear to arise from the same instrument, although they the proposed counterclaims are wholly independent of Plaintiff's claims. the provisions proposed involved counterclaims in are Plaintiff's not claim contractually and First, Defendants' dependent. No evidence has been presented that suggests that the breach of one provision would excuse breach of the other provision. See Rudman, 330 N.Y.S.2d at 42, 30 N.Y.2d at 13 (explaining that provisions are mutually dependent when the breach of one undoes the obligation under the other). Section 5.10 of the Franchise Agreement indicates the independent nature of the two provisionsi it reads, "[Franchisee] may not withhold payment of any Continuing Royalty. on the grounds of the alleged non-performance or breach of any of our agreement obligations under this Agreement or any related /I (Franchise Agreement at 7 ~ 5.l0.) The words of the Agreement make clear that the parties intended the royalty payments to be independent of all other promises and obligations 13 within the Franchise Defendants Agreement. have effectively conceded that this was the intended meaning of the Agreement, as they have never asserted that Tampa Gallagher's obligation to pay the continuing royalty fees ended when Plaintiff allegedly breached the Franchise Agreement. A somewhat analogous situation arose in Lazard Freres & Co. v. Crown Sterling Mgmt., 901 F. Supp. 133 {S.D.N.Y. 1995}. There, the parties entered into a contract for financial services in which the defendant agreed to pay the plaintiff fees for certain debt transactions, regardless of whether the plaintiff arranged the transactions. 901 F. Supp. at 134-35. After several of these transactions occurred, the defendant failed to pay the plaintiff, who brought suit. See id. The defendant asserted counterclaims for breach of the same contract, alleging that the plaintiff had failed to adequately perform. See id. The district court held that the defendant's counterclaim did not preclude awarding summary judgment to the plaintiff even though the counterclaim involved the same instrument. See id. at 136-37. The court reasoned: DThe Agreement specifically provided that [plaintiff]' s payment would be apportioned according [plaintiff] 's to performance various of tasks, these and tasks. was payable Under upon these circumstances, the portion of the Agreement pertaining to the debt restructuring was severable from the other parts of the Agreement. 14 II at 136. The court entered judgment for the plaintiff, awarding damages in the amount of the past due payments plus interest. See Similarly, the Franchise Agreement at issue in this id. at 139. case contains a provision that clearly dictates the amount of continuing royalties due Plaintiff, and this amount is independent (See Compl. Ex. A at of Plaintiff's performance of the Agreement. 5 ~ 5.02; 7, ~ 5.10.) Accordingly, Plaintiff's entitlement to summary judgment on both liability and damages is not undermined by Defendants' proposed counterclaims. In addition, Defendants' proposed counterclaims do not present any facts that affect Plaintiff's right to damages. v. Prescription (S.D.N.Y. 1992) Plan Servs. ( finding Corp., no bar 783 to See Greenblatt Supp. F. summary 814, judgment 823-24 when a "counterclaim raises no issue of fact material to a determination of plaintiffs' entitlement [under its initial claim]"). Plaintiff's alleged breach of the Agreement-sending the cease and desist letter and improperly interfering with Defendants' catering arrangement-does not bear on Defendants' liability for the continuing royalty payments for the operation of the restaurant. Defendants concede this point by admitting their liability under § 5.02 of the Franchise Agreement and conceding the amount of damages that resulted from the breach of § 5.02. 9 10, 3 ~~ 16 28 & 20.) (See Defs.' 56.1 at 2 ~~ As the elements of Plaintiff's claims and 15 proposed Defendants' counterclaim do not overlap and are independent, Plaintiff is entitled to summary judgment on the issue of damages. See Greenblatt, 783 F. Supp. at 823 ("Under Rule 56 of the Federal Rules of Civil Procedure, where a counterclaim presents an independent, unliquidated claim and presents no issue of fact as to the plaintiff's claim, the entry of summary judgment on plaintiff's claim is not only proper but is required. ") . C. Attorneys' Fees "Under New York law, a contract that provides for an award of reasonable attorneys' fees to the prevailing party in an action to enforce the contract is enforceable if the contractual language is sufficiently clear." 537 F.3d 168, 175 NetJets Aviation. Inc. v. LHC Commc'ns (2d Cir. 2008) (citations omitted). f LLC, Section 29.01 of the Franchise Agreement provides that \\ [Gallagher's] shall be entitled to recover from [Defendants] fees, costs experts' litigation, if fees, and [Gallagher's] prevail[s] against [Defendants] II court reasonable attorneys' all other expenses of in any action instituted . to enforce the terms of this Agreement (Franchise Agreement at 64 ~ 29.01.) The language of the provision is clear and enforceable. Plaintiff now seeks $31,256.50 in attorneys' fees. Mot. at 6 than to ~ 15.) argue (See Pl.'s Defendants do not contest the fee request other that awarding attorneys' 16 fees is premature, as Plaintiff has not yet -prevailed." But the Court has now granted summary judgment to Plaintiff l and l thus in this action. See Buckhannon Bd. 1 1839 (2001) (-[A] Care & Virginia Dep/t of Health and Human Res' Ct. 1835 Plaintiff has prevailed I l is entitled to Franchise Agreement. I Inc. v. W. 532 U.S. 598 1 603 1 121 S. 'prevailing partyl is one who has been ¢ 1/) ¢ awarded some relief by the court Plaintiff Home reasonable However I attorneys Plaintiff has Having prevailed l I fees under the failed to provide sufficient documentation to establish the reasonableness of the requested fees. It is a well-established rule in this circuit -that absent unusual circumstances attorneys are required to submit contemporaneous records with their fee applications." Scott v. City of New York l 626 F.3d 130 1 133 (2d Cir. 2010) (citing New York State Ass/n for Retarded Children v. Carey, Inc' 1983)). l 711 F.2d 1136 (2d Cir. AccordinglYI Plaintiff must submit contemporaneous records documenting the hours and labor spent on the case, the hourly rates, and the costs incurred. II. Defendants' Motion for Leave to Amend the Answer A. Legal Standard \\[T]he purpose of pleading is to facilitate a proper decision on the merits. If Ct. 13, 18 (1960) United States v. Hougham, 364 U. S. 310, 317, 81 S. (citation omitted). NormallYI -a party may amend its pleading only with the opposing party's written consent or the 17 court's leave. requires." The court should freely give leave when justice so Fed. R. Civ. P. 15(a) (2). However, when a court has issued a scheduling order and established deadlines for amending the pleadings, the deadlines "may be modified only for good cause and with the judge's consent." Fed. R. Civ. P. 16(a) Grochowski v. Phoenix Constr., 318 F.3d 80, a scheduling order has been entered, (4)i (2d Cir. 2003) see also ("Where the lenient standard under Rule 15 (a) must be balanced against the requirement under Rule 16 (b) ." ) . Accordingly, "[o]nce the deadline for amendment in a scheduling order has passed, 'where the moving party has failed Presbyterian Church of Sudan v. 244, 267 (2d Cir. 2009) leave to amend may be denied to establish good cause.'" Talisman Energy, (quoting Parker v. Inc., 582 F.3d Columbia Pictures Indus., 204 F.3d 326, 340 (2d Cir. 2000)). In determining whether good cause exists, a consider the diligence of the party seeking to amend. 204 F. 3d at 340 (" [A] finding of diligence of the moving party."). good cause court must See Parker, depends on the The Court may also consider "other relevant factors, including, in particular, whether allowing the amendment . . . will prejudice [the nonmoving party] ." Kassner v. 2nd Avenue Delicatessen, Inc., 496 F.3d 229, 244 (2d Cir. 2007). "In determining what constitutes 'prejudice, the assertion of the new claim would: 18 I we consider whether (i) require the opponent to -----------------~.- ..- . expend significant additional resources to conduct discovery and prepare for triali (ii) significantly delay the resolution of the disputei prevent the plaintiff from bringing a or (iii) action in another jurisdiction. F.2d 344, 350 (1993) H timely Block v. First Blood Assocs., 988 Finally, (internal citations omitted). a court may deny leave to amend when the proposed claim would be See Dluhos v. Floating & Abandoned Vessel, Known as New futile. York, 162 F.3d 63, 69 (2d Cir. 1998) (quoting Foman v. Davis, 371 U. S. 178, 182, 83 S. Ct. 227, 230 (1962)). B. Application Here, the deadline for amending the pleadings has passed. This Court issued a required any Scheduling Order on August 19, motions September 19, 2011. to amend the pleadings to be (See Order, dated Aug. 19, 2011.) 2011, that filed by Defendants filed their motion to amend the Answer on November 2, 2011, nearly two months after the deadline, and after Plaintiff's motion for summary judgment was filed. Defendants delay. have failed to establish good cause for their First, Defendants have not been diligent in asserting their counterclaims. Defendants were aware of the factual basis for the counterclaims at the time they filed their Answer, but they failed to plead the counterclaims. {See Defendants' Motion for Leave to File Amended Answer and Counterclaim Instanter ("Defs.' Mot.") at 19 2; Answer at 4 ~ 49.) Defendants explain that they sought to save the expense and effort of filing their counterclaims by waiting until settlement proved futile. (Defs.' Mot. at 3.) This argument makes little sense, as amending the Answer to assert counterclaims would not have taken substantial time or effort, particularly since the factual basis of the counterclaims was known to Defendants when the action was commenced. Healthcare, misplaced. Inc., 679 F. Defendant's reliance on Naylor v. Rotech Supp. 2d 50S, 509 (D. vt. is In that case, a party was granted leave to amend after the case failed to settle and new "facts came to light" added) . 2009) Again, here the facts underlying the (emphasis proposed counterclaims were known when the initial Answer was filed. In addition, Plaintiff. granting Defendants' motion would prejudice Plaintiff argues that it was unaware of Defendants' proposed counterclaims until November 2, 2011, the date on which Defendants filed their motion for leave to amend the Answer. Plaintiff's Opposition to Defendants' (See Motion for Leave to File First Amended Answer and Counterclaim Instanter ("PI.'s Opp'n") at 3 & 7-8.) Defendants contend otherwise. In any event, Plaintiff did not have the opportunity to obtain discovery on the passed. (See Defs.' Mot. at 2.) counterclaims, and the discovery deadline has now (See Pl.' s Opp' n at 4.) Granting Defendants' motion would require reopening discovery on a different set of facts than those 20 See Ansam Assocs. v. in the present pleadings. Ltd., 760 F. 2d 442, 446 (2d Cir. Cola Petroleum, 1985) (affirming the denial of leave to amend a pleading where "[t] he proposed . . . claims allege an entirely new set of operative facts of which it cannot be said that the quotation original marks complaint provided This omitted). resolution of this dispute. fair would notice ll (internal ) significantly delay Given the delay that would result, the fact that discovery has already been completed, and the fact that Plaintiff has filed a motion for summary judgment which has been granted, granting Defendants leave to amend the Answer at this late date would clearly prejudice Plaintiff. See Krumme v. Westpoint Stevens, Inc., 143 F.3d 71, 88 (2d Cir. 1998) a motion for amendment leave to amend and noting (affirming denial of that [is] especially prejudicial had already been completed and motion for summary judgment.' II) [non-movant] \\ \ [a] proposed [when] discovery had already filed a {alteration in original} (citing Ansam Assocs., 760 F.2d at 446). Finally, although Plaintiff did not address the merits or futility of the proposed counterclaims, on their face they appear to have very limited or no likelihood of success on the merits. See Benoit v. Commercial Capital Corp., No. 03 civ. 2008 WL 3911007, at *9 (S.D.N.Y. Aug. 25, 2008) 5328 (PKL) , (explaining that a court may deny leave to amend where the proposed claim is futile) . 21 ---------------------- First, Defendants agreed that - on November properly terminated the Franchise Agreement. Agreement. ) 17, 2010 Plaintiff (See Limi ted Term If, as Defendants concede, the Franchise Agreement was properly terminated within a month of Plaintiff issuing the cease and desist notice regarding catering services at the Tampa Bay Arena, it is dubious that Defendants can claim lost profits damages through 2015, under the Agreement. Second, when Defendants agreed to the Limited Term Franchise Agreement, which was limited solely to continuing the operation of the Tampa Gallagher's restaurant for a six-week period of general release. Shelley Decl.) time, Defendants agreed to and signed a (See General Release, attached as Ex. C to the In the general release, Defendants released and discharged Plaintiff from any claims Defendants may have had prior to the signing of the release. Defendants' id.) As the facts underlying proposed counterclaims arose prior to the time the release was signed, it would appear that Defendants waived the right to assert these claims. In conclusion, given Defendants' failure to demonstrate good cause for the delay in amending the Answer, lack of diligence, the prejudice to Plaintiff if leave to amend was granted, and the likely futility of the proposed counterclaims, Defendants' motion to amend the Answer to assert counterclaims is denied. C. Rule 8 (c) (2) 22 -------~ --- ----- Federal Rule of Civil Procedure 8(c) (2) provides, "If a party mistakenly designates a defense as a counterclaim, or a counterclaim as a defense, the court must, if justice requires, treat the pleading as though it were correctly designated, and may impose terms for doing so." to "correct . The purpose of Rule 8{c) (2) is . technical pleading error[s]/I and to "ignore improper designations in order to interpret a pleading in accordance with its true character./I Bozsi Ltd. P'ship v. Lynott, 676 F. Supp. 505, 516 (S.D.N.Y. 1987). Defendants request that the Court rely upon Rule 8{c) (2) to convert their single affirmative defense into properly pleaded counterclaims. so. (See Defs.' Mem. at 8.) The Court declines to do The affirmative defense in the operative Answer reads: "Gallagher's breached the franchise agreement by failing to provide the support services it was obligated to provide. Because of Gallagher's breach, Defendants' continuing duty of performance was excused. In the alternative, Defendants are entitled to set off their damages against any damages Gallagher's may have./I (Answer at 4 ~ 49.) The affirmative defense in the Answer is not simply a misidentified counterclaim and is clearly distinct from the counterclaims Defendants now seek to assert. Rocheux Int'l of New Jersey, Inc. v. U.S. Merhs. Fin. Group, Inc., 741 F. Supp. 2d 651, 660 (D.N.J. 2010) 23 ("The question before the Court, then, is whether Defendants' proposed modification redresses a simple mistaken designation, for which Rule 8{c) (2) provides the appropriate standard for relief, or whether Defendants' modification presents a new claim. ."). First, the alleged failure of Plaintiff to provide services under the Franchise Agreement, thus excusing Defendants' performance was clearly abandoned as an affirmative defense. Defendants do not claim that their obligations under the Franchise Agreement were excused; indeed, they concede that their failure to pay continuing royalties was a breach of the Agreement. Second, the affirmative defense fails to set forth any facts that resemble in any way the proposed counterclaims. The affirmative defense does not reference Defendants' right to cater under the Franchise Agreement, the alleged conversations between Defendants and Plaintiff's employees regarding Tampa Gallagher's providing catering services at the Tampa Bay Arena, or the cease and desist notices sent by Plaintiff, all of which form the factual basis of Defendants' proposed counterclaims. The affirmative defense, accordingly, fails to provide Plaintiff with any notice of the proposed counterclaims, making Rule 8{c) (2) inapplicable. See Mr. & Mrs. A. ex rel. D.A. v. New York City Dep't of Educ., 769 F. Supp. 2d 403,41516 (S.D.N.Y. 2011) (invoking Rule 8(c) (2) where the plaintiffs were "on notice" of defendant's proposed 24 counterclaims). Because the proposed counterclaims assert new claims, which the affirmative defense did not assert, Defendants are precluded from asserting their proposed counterclaims in this action. CONCLUSION For the reasons set forth above, Plaintiffs are entitled to summary judgment on their claims for breach of contract and breach of the personal guarantee. Defendants are therefore jointly and severally liable for damages in the amount of $106,393.27 interest in the amount of $11 774.57. 1 the 2011 Plaintiff must submit additional documentation to enable 1 Court attorneys I December attorneys plus By no later than December 1 16 1 to fees. 23 I determine 1 the reasonableness of the requested Any opposition by Defendants must be submitted by 2011. Judgment will not be entered until the fees are determined. 3 3De fendant asserts that the Court should withhold entry of final judgment under Federal Rule of Civil Procedure 54(b). (See Defs.1 Mem. at 7.) Rule 54(b) provides "When an action presents more than one claim for relief. . the court may direct entry of a final judgment as to one or more, but fewer than alII claims . . only if the court expressly determines that there is no just reason for delay." As the Court has denied Defendants motion for leave to amend see infra and has granted summary judgment to Plaintiff on all of Plaintiff's claims there is no bar to entry of a final judgment once the attorneys' fees issue is resolved. I l I l l 25 So Ordered. ~ / -~~ /~~ / / . /~'. /7~ . ¢. ¢.;;:: ¢ ¢. " 7' THEODORE H. KATZ UNITED STATES MAGISTRATE JUDGE Dated: December 5, 2011 New York, New York 26
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