NJ District Court Finds Defendants Lacked Good Cause to Amend Answer Pursuant to Fed. R. Civ. P. 16

Callas v. Callas, 2017 U.S. Dist. LEXIS 127547 (D.N.J. Aug. 11, 2017).

Plaintiff William Dean Callas (“William”) brought an action against his siblings, the executors of his mother’s estate, to settle a dispute over the value of their mother’s ownership in a real estate holding company in which he held a 60% interest. The Operating Agreement included a provision which stated that “on the passing of a member, the personal representative(s) of the deceased member may give notice requiring the other member to purchase the deceased member’s interest in [the LLC].” Id. at *2. 

William and his siblings were unable to agree on the value of the business. The siblings asserted that the subject property had a value of $8.6 million, while William claimed it was only worth $2.7 million.  The siblings declined to convey the estate’s interest in the LLC to William.

William filed an amended complaint in which he sought, among other things, breach of the operating agreement, specific performance, and an accounting. Thereafter, the siblings moved for leave to file a second amended answer and counterclaim for fraudulent transfer as well as to compel William’s production of financial documents.

The court noted that the deadline for motions for leave to amend the pleadings in this action had expired on August 14, 2015, and the siblings filed their motion on January 13, 2017. Thus, the siblings were required to demonstrate good cause pursuant to Rule 16 of the Federal Rules of Civil Procedure.  The court further explained:

[w]hen examining a party’s diligence and whether ‘good cause’ exists for granting an otherwise untimely motion to amend pleadings, courts typically ascertain whether the movant possessed, or through the exercise of reasonable diligence should have possessed, the knowledge necessary to file the motion to amend before the deadline expired.

Id. at *8.

The court found the siblings lacked good cause as they had set forth conflicting explanations regarding their failure to file the motion within the deadline for amending pleadings. The siblings maintained that they could not reasonably assume that their brother would argue the lease should be considered to value the property, until they engaged in settlement discussions with him that took place on October 11, 2016.  The court found this contention dubious as the siblings had maintained possession of the lease from the filing of the complaint, at which time they had they knowledge of William’s position regarding the property valuation.  Thus, the court denied the siblings’ request for leave to file a second amended answer and counterclaim.

As to the siblings’ request to compel William to produce “all documents that post-date the filing of the Complaint relating to the operations and financial condition of [the LLC],” the court granted their request in part and denied it in part. The court compelled William to provide the siblings with documents showing any and all rent paid to the LLC subsequent to the filing of Complaint, but did not require William to produce the LLC’s financial information for the period following their mother’s death as such information was not proportional to the needs of the case.