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PHOENIX TECHS. v. TRW

October 19, 1993

PHOENIX TECHNOLOGIES, INC. Plaintiff,
v.
TRW, INC., Defendant.



The opinion of the court was delivered by: BY THE COURT; J. CURTIS JOYNER

 Joyner, J.

 October 19, 1993

 Presently before the Court is the motion of defendant, TRW, Inc., to amend its counterclaim against plaintiff, Phoenix Technologies, Inc., pursuant to Rule 15(a) of the Federal Rules of Civil Procedure. Plaintiff opposes this motion for three reasons: first, that the defendant delayed in filing this motion and there would be prejudice against plaintiff if defendant's motion was granted; second, that the proposed counterclaim for fraud would be futile because an Agreement of Purchase and Sale between the parties entitles defendant only to retain prepayment and option payments made by plaintiff as damages in the event of a breach; and third, even if defendant is entitled to bring a claim for fraud despite the agreement, that the proposed counterclaim fails to state a claim for fraud. However, for the reasons set forth more fully below, we hold that defendant is allowed to amend its counterclaim in this case.

 Standard

 Rule 15(a) of the Federal Rules of Civil Procedure provides that a party may amend its pleading by leave of court and that "leave shall be freely given when justice so requires." Fed.R.Civ.P. 15(a) (1993). Courts in this Circuit generally grant such requests liberally, and deny them only where there has been undue delay, bad faith or where it would be prejudicial to the nonmoving party. Transport Workers, Local 234 v. Septa, 137 F.R.D. 220, 223 (E.D. Pa. 1991). Further, where the proposed counterclaim fails to state a cause of action or to raise meritorious claims, leave to amend should also be denied. Perfect Plastics Indus. v. Cars & Concepts 758 F. Supp. 1080, 1082 (W.D. Pa. 1991); Transport Workers, 137 F.R.D. at 223.

 Plaintiff first argues that defendant's motion should be denied because defendant delayed in making its request. Plaintiff also argues that it would be prejudicial if leave to amend were granted because it has already conducted a vast number of depositions regarding the original counterclaim, and would therefore not have the opportunity to conduct discovery on the alleged fraud claim. In this regard, plaintiff notes that the discovery deadline was August 20, 1993. Finally, plaintiff alleges prejudice because it would have to file a responsive pleading and conduct additional discovery, thereby extending the trial date. *fn1" However, based on the facts as contained in the record, we find that there was no undue delay by defendant in filing its motion, and further, that there would be no prejudice to plaintiff if leave to amend were granted.

 Defendant filed its original counterclaim on December 3, 1992. The counterclaim concerned an Agreement of Purchase and Sale ("Agreement") between the parties whereby defendant was to sell its customer service division ("CSD") to plaintiff for forty million dollars. The essence of the original counterclaim was that prior to executing this Agreement, plaintiff had represented to defendant in a letter dated September 21, 1990 that financing of the proposed acquisition was being finalized, and that plaintiff would have written confirmation of financing within two to three days. Defendant's original counterclaim, para. 3. Subsequent to entering into the agreement, the parties extended the closing date several times in order for plaintiff to secure financing. Defendant's motion to amend, page 2. Eventually, however, plaintiff failed to secure financing, and because closing did not occur by June 14, 1991, defendant alleged that plaintiff had terminated the agreement. Defendant's original counterclaim, para. 5. Defendant further alleged that plaintiff promised, represented and warranted that it would purchase the CSD and that it would have the requisite financing, that plaintiff intended for defendant to rely on these promises and that defendant did rely on those promises. Id. at paras. 26-29. Finally, defendant alleged:

 
if it is found that any provision of the Agreement has been breached fraudulently induced, or is for any reason unenforceable, or does not govern the dispute between Phoenix and TRW, TRW asserts this counterclaim for damages suffered as a proximate result of Phoenix's failure to comply with its promises, representations and/or warranties to TRW.

 Id. at para. 6.

 Defendant now asks for leave to amend its counterclaim in order to assert a claim of fraud against plaintiff with regard to plaintiff's alleged misrepresentations about obtaining financing. Defendant contends that it learned on August 18, 1993 through the deposition of Mr. Joseph A. Augustini, a representative of Metropolitan Life Insurance Company, *fn2" that, among other things, plaintiff was not nearly as close to securing financing as it alleged in its letter of Sept. 21, 1990, and that based on various statements in Mr. Augustini's deposition, plaintiff fraudulently induced defendant into entering into the Agreement with plaintiff. After learning this information, defendant filed the present motion on September 1, 1993, less than two weeks Mr. Augustini's deposition was taken. In light of the fact that defendant's counsel filed its motion as promptly as possible after discovering this new information, we find there has been no undue delay in seeking leave to amend. *fn3"

 Plaintiff next opposes defendant's motion by asserting that defendant's proposed amended counterclaim is futile because the Agreement between the parties limits the type of recovery which can be obtained in the event of a breach. Specifically, plaintiff argues that under paragraph 6.7 of the Agreement, if plaintiff should fail to consummate the Agreement, defendant "shall retain the Prepayment as liquidated damages...and that...[Defendant] shall have no other claim against Phoenix hereunder." Agreement, para. 6.7. Moreover, the amendment to the Agreement also states that defendant ...


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