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MERRILL LYNCH BUS. FIN. SERVS. v. PLESCO

August 1, 1994

MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., Plaintiff,
v.
PLESCO, INC. d/b/a PLESCO FOODS, VLEMA CORP. d/b/a 2 STREET CAFE, ASSOS, INC., JAMES PLESSAS, and DEMETRIOS C. MANTZARIDIS, Defendants. JAMES PLESSAS, Third-Party Plaintiff, v. ANTHONY WONG, SHELLEY WONG, and GEORGE NASSIS, Third-Party Defendants.



The opinion of the court was delivered by: WILLIAM H. YOHN, JR.

 Yohn, J.

 Currently before the court are motions by plaintiff Merrill Lynch Business Financial Services, Inc. ("MLBFS") to: (1) dismiss or strike the affirmative defenses and the setoffs and counterclaims asserted by defendants Vlema Corp., Assos, Inc., and James Plessas (collectively referred to as "the Plessas defendants"); and (2) dismiss or strike the affirmative defenses and the setoff and counterclaim asserted by defendant Demetrios C. Mantzaridis. *fn1" Also pending before the court is MLBFS's motion for leave to file an amended complaint. For the reasons discussed below, the court will grant MLBFS's motion to amend the complaint and both grant and deny in part its motions to dismiss or strike.

 BACKGROUND

 Beginning in April of 1990, MLBFS provided credit and lent money to defendant Plesco, Inc. so that Plesco could conduct its business -- the sale of perishable and non-perishable goods to wholesale and commercial food establishments. Specifically, on or about April 16, 1990, Plesco entered into a Working Capital Management Account Agreement and related Note and Security Agreement ("the WCMA Agreement") with MLBFS whereby MLBFS agreed to provide Plesco with a revolving line of credit not to exceed $ 500,000. (Compl. P 8 & Ex. A.) Thereafter, MLBFS extended further credit to Plesco under two Collateral Installment Notes ("the Notes"). (Id. PP 9, 10 & Exs. B, C.) To secure payment and performance of its obligations under the WCMA Agreement and the Notes, Plesco granted MLBFS a first security interest in all of Plesco's inventory and accounts as well as other additional collateral. (Id. P 12 & Ex. D.) As further security for Plesco's obligations under the WCMA Agreement and the Notes, each of the Plessas defendants and Mantzaridis entered into guaranties ("the Guaranties") of those obligations. *fn2" (Id. P 13 & Exs. E-H.) Finally, as additional security, James Plessas assigned to MLBFS a first lien and security interest in a securities account held in his name by Merrill Lynch, Pierce, Fenner & Smith, Inc. (Id. P 16 & Ex. I.)

 On July 12, 1993, MLBFS declared Plesco in default for failure to meet its obligations and demanded payment of a total outstanding balance of approximately $ 357,701.67 from Plesco and from each of the Guarantors. (Id. P 18 & Ex. J.) Since neither Plesco nor any of the Guarantors responded with payment, MLBFS liquidated Plesco's inventory, confessed judgment against Plesco's accounts receivable, and sold the securities held in James Plessas' account by Merrill Lynch, Pierce, Fenner & Smith, Inc. (Id. PP 19, 22.) MLBFS alleges that it netted $ 78,294.47 from the above actions, and that despite repeated demands all of the defendants have refused to pay the remaining balance of $ 289,855.70. (MLBFS Mot. to Dismiss at 5; Compl. PP 20-23.)

 On January 26, 1994, MLBFS instituted this action seeking damages for breach of contract based upon the defendants' refusal to pay the remaining balance on the WCMA Agreement and the Notes. *fn3" The Plessas defendants answered the complaint on February 25, 1994, setting forth six affirmative defenses. They also asserted cross-claims against Mantzaridis and Plesco for contribution and indemnification. Additionally, James Plessas individually asserted a cross-claim against Plesco seeking payment of the balance allegedly due him on a Promissory Note allegedly executed by Plesco ("the Plessas-Plesco Note").

 Moreover, the Plessas defendants asserted a setoff and counterclaim against MLBFS that essentially challenges MLBFS's handling of the liquidation of Plesco's inventory and collection of Plesco's accounts receivable. According to the Plessas defendants, had MLBFS properly liquidated the inventory and collected the accounts receivable, MLBFS would have collected an amount in excess of Plesco's indebtedness, thereby relieving the Plessas defendants of any liability. James Plessas also individually asserted a counterclaim against MLBFS seeking damages in the amount allegedly due him under the Plessas-Plesco Note. He contends that because the Plessas-Plesco Note was secured by liens on Plesco's assets, MLBFS's improper liquidation of Plesco's inventory and collection of Plesco's accounts receivable completely destroyed his security interest in Plesco's assets.

 Finally, James Plessas filed a third-party complaint against Anthony Wong, Plesco's President, Shelly Wong, Plesco's Secretary, and George Nassis, Plesco's Treasurer. Plessas alleges that the third-party defendants "took and removed substantial assets from the business premises of Plesco, Inc. and converted the same to their own personal use without accounting to [Plessas or MLBFS] for the same." (Third Party Compl. P 9.) He seeks an "accounting of all assets of the business premises of Plesco, Inc. . . . prior to any property and assets being removed by the third party defendants" and damages for the amount allegedly due him under the Plessas-Plesco Note as well as the amount claimed by MLBFS in the complaint. (Id. P 11.)

 Mantzaridis answered MLBFS's complaint on March 15, 1994. He asserted seven affirmative defenses as well as cross-claims against the Plessas defendants and Plesco for contribution and indemnification. Additionally, he asserted a setoff and counterclaim against MLBFS that mirrors the one asserted by the Plessas defendants -- namely, that had MLBFS properly liquidated Plesco's inventory and collected Plesco's accounts receivable, MLBFS would have collected an amount in excess of Plesco's indebtedness, thereby relieving Mantzaridis of any liability. Anthony and Shelly Wong answered the third-party complaint on April 13, 1994 and asserted cross-claims against Nassis and Mantzaridis for contribution and indemnification. *fn4"

 On May 10, 1994, MLBFS filed a motion seeking leave to file an amended complaint in order to assert additional claims against Mantzaridis and to assert claims against third-party defendants Anthony and Shelly Wong and George Nassis. The proposed amended complaint asserts claims for conversion, breach of fiduciary duty, and negligence against Mantzaridis, Nassis, and the Wongs. MLBFS's motion for leave to file an amended complaint as well as its motions seeking to dismiss or strike the affirmative defenses and the setoffs and counterclaims asserted by the Guarantors have now been fully briefed and are ready for disposition.

 DISCUSSION

 A. Motion for Leave to File an Amended Complaint

 The Federal Rules of Civil Procedure provide that leave to amend a pleading "shall be freely given when justice so requires." Fed. R. Civ. P. 15(a). Although the decision to grant or deny leave to amend a complaint is committed to the sound discretion of the district court, leave should, consistent with the command of Rule 15(a), be liberally granted. Gay v. Petsock, 917 F.2d 768, 772 (3d Cir. 1990); Coventry v. U.S. Steel Corp., 856 F.2d 514, 518-19 (3d Cir. 1988). The United States Supreme Court has articulated the following standard to be applied in evaluating whether to grant or deny leave to amend:

 
If the underlying facts or circumstances relied upon by a plaintiff may be a proper subject of relief, he ought to be afforded an opportunity to test his claim on the merits. In the absence of any apparent or declared reason -- such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of amendment, etc. -- the leave sought should, as the rules require, be "freely given."

 Foman v. Davis, 371 U.S. 178, 182, 9 L. Ed. 2d 222, 83 S. Ct. 227 (1962).

 The keys to granting leave to amend a complaint are the absence of prejudice to opposing parties and the ability of the amended pleading to support a claim for relief. See Cornell & Co., Inc. v. Occupational Safety & Health Review Commission, 573 F.2d 820, 823 (3d Cir. 1978) ("It is well-settled that prejudice to the non-moving party is the touchstone for the denial of an amendment") (citations omitted); Massarsky v. General Motors Corp., 706 F.2d 111, 125 (3d Cir.) ("The trial court may properly deny leave to amend where the amendment would not withstand a motion to dismiss"), cert. denied, 464 U.S. 937, 78 L. Ed. 2d 314, 104 S. Ct. 348 (1983). Mantzaridis and Anthony and Shelly Wong have opposed MLBFS's motion for leave to file an amended complaint, *fn5" contending that the new claims asserted in the amended complaint would not survive a motion to dismiss and that they would be prejudiced if leave were to be granted. For the reasons discussed below, the court will grant MLBFS leave to file the amended complaint.

 The new claims asserted in the amended complaint stem from the following factual allegations: MLBFS contends that on or about Friday, July 9, 1993, Anthony Wong informed MLBFS that Plesco was terminating its business operations. (Am. Compl. P 32.) On Monday, July 12, 1993, MLBFS declared Plesco in default of its obligations and MLBFS representatives arrived at the Plesco facility to secure the inventory and accounts receivable documentation that served as the collateral for Plesco's obligations to MLBFS. (Id. PP 33-34.) MLBFS alleges that "Anthony Wong and other unidentified individuals entered the Plesco facility over the weekend of July 10 and 11, before MLBFS had access to the Plesco facility, and removed . . . a substantial portion of Plesco's inventory . . . . [that] served as part of the collateral which secured MLBFS's loans to Plesco." (Id. P 34-35.)

 MLBFS has asserted a cause of action for conversion against the Wongs, Nassis, and Mantzaridis based upon the alleged wrongful removal of collateral from Plesco's facility. MLBFS has also asserted claims for breach of fiduciary duty and negligence. According to MLBFS, when Plesco decided to terminate its operations, the Wongs, Nassis, and Mantzaridis, as officers and directors of Plesco, "became trustees of Plesco's assets for the benefit of Plesco's creditor MLBFS and thereby assumed a fiduciary duty to MLBFS." (Id. P 40.) This fiduciary duty allegedly imposed upon the Wongs, Nassis, and Mantzaridis an obligation "to conduct the affairs of Plesco so as not to harm or deplete or put at risk any of Plesco's assets, including the collateral which secured MLBFS's loans to Plesco." (Id. P 41.) MLBFS alleges that the Wongs, ...


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