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Dominion Retail, Inc v. Tim Rogers

October 3, 2012

DOMINION RETAIL, INC.,
PLAINTIFF,
v.
TIM ROGERS, TIM TERRELL, GARY SHAPIRO, AND TIM BELL,
DEFENDANTS.



The opinion of the court was delivered by: Magistrate Judge Cynthia Reed Eddy

District Judge Cathy Bissoon

MEMORANDUM OPINION AND ORDER

This diversity-based contract dispute, the facts of which have been detailed in prior pleadings, has its genesis in an August 2008 Stock Purchase Agreement ("SPA") made between Defendants, four individual sellers, and Plaintiff, Dominion Retail, Inc. ("Dominion" or "the Buyer"). [ECF No. 1-2]. Defendants seek the Court's permission to file a Second Amended Answer and Counterclaim [ECF No. 48]. In support of that request, Defendants have submitted an Expert Report [ECF No. 48-1 at 5] which Plaintiff has moved to strike. [ECF No. 49]. The Motion to Amend will be denied, and the Motion to Strike will be denied as moot.

Background

Defendants' original Answer did not include counterclaims. [ECF No. 4]. In the Case Management Order filed July 28, 2011, the Court directed that motions to amend the pleadings be filed no later than September 30, 2011. [ECF No. 17]. On November 23, 2011, Defendants filed a Motion for Leave to File an Amended Answer and Original Counterclaims. [ECF No. 24]. In addition to asserting three counterclaims alleging breach of contract, Defendants sought to add several affirmative defenses. In an attempt to explain the untimeliness of their first Motion to Amend, Defendants argued that as of the deadline for amended pleadings, they were "suspicious of Plaintiff's actions . . . [but] were unable to assess the viability of their counterclaims . . . [without] meaningful discovery . . . ." [ECF No. 29 at 2]. They contended that only after the deadline had passed did they have sufficient detail to support a counterclaim for fraud, which they gleaned from:

(1) the production of documents in response to timely served requests for production and non-party subpoenas from August through November 2011, and (2) the deposition of Amy Anthony on October 5, 2011 in which this corporate representative revealed for the first time the udder [sic] disregard Plaintiff had for complying with its obligations under the . . . [SPA].

Id. at 2-3.

In a Memorandum Opinion dated February 21, 2012, [ECF No. 32], the Court, relying on Federal Rules of Civil Procedure 15 and 16, allowed Defendants to file the Amended Answer and Counterclaims. Defendants did so the same day. On March 12, 2012, Plaintiff filed a Motion to Dismiss Count III of Defendants' Counterclaims. [ECF No. 38]. On May 22, 2012, the Court filed a Report and Recommendation [ECF No. 43], recommending that Plaintiff's Motion be granted. The District Court adopted the Report and Recommendation. [ECF No. 47].

Because the pending Motion to Amend deals with issues substantially similar to those raised in Count III of Defendants' first Motion to Amend, the Court revisits the substance of its Report and Recommendation [ECF No. 43]. There, the Court considered "a single question: '[W]hether the Defendants have the legal [authority] to challenge [via a counterclaim] the working capital calculations of the Independent Accountants, given that the SPA provided that the [A]ccountant's determination 'be final and binding on the parties and . . . adjusted if and as required by such determination.'" Id. at 3 (citation omitted). The Court found that the working capital calculations of the Independent Accountants were, under the terms of the SPA, final.

In reaching this conclusion, the Court considered the four grounds upon which Defendants relied in opposing dismissal of Count III: 1) the SPA contained conditions precedent that were not met - specifically, Dominion's obligation to provide Defendants with paperwork substantiating its working capital calculation before any dispute was submitted to the Independent Accountants; 2) Plaintiff's ultimate submission to the Accountants was incomplete and failed to meet with GAAP standards; 3) the sellers were "prepared topresent evidence that Dominion and [the accounting firm] acted with bad faith and partiality" in calculating and communicating information regarding the working capital calculation; and 4) the Independent Accountants exceeded the scope of their authority by expressing opinions regarding tax assets. [ECF No. 41] (emphasis added).

Attempting to amend their Answer for a second time now, more than a year following the deadline for amendment of pleadings, Defendants argue that the present Motion differs in two respects from claims previously raised. First, the proposed pleading seeks to have the Court vacate the finding of the Independent Accountants under Section 2.3 of the SPA because "Dominion failed to satisfy contractually established conditions precedent before forcing the working capital dispute into the hands of the Independent Accountants; and second those findings were the product of fraud, undue means, partiality or corruption." [ECF No. 62 at 2].

The argument that these "new" claims are distinct from those already considered is strained. Defendants nonetheless assert that they should be permitted to reinstate challenges to the Accountants' Report, despite the fact that the District Court has rejected them. [ECF No. 47]. They also contend "new facts" articulated by their designated expert "support vacating the Independent Accountant's Report under controlling law, [due to] fraud, bad faith, partiality, and deception." Id. They write:

Defendants seek leave to file their Second Amended Answer and Counterclaim in order to assert affirmative claims for relief against Plaintiff for Plaintiff's breach of the Stock Purchase Agreement during the preparation and delivery of the Certified Working Capital Statement to Defendants and for Plaintiff's fraudulent misrepresentations made both, in the Certified Working Capital Statement, and to the Independent Accountants] during their review. Defendants also seek to challenge the "final and binding" nature of the [Independent Accountants'] Report under controlling law which acknowledges that grounds exist to vacate an otherwise binding arbitration award when the award was the product of fraud, bad faith, partiality, or deception. [ECF No. 48] (emphasis added).

The Court turns first to the pending Motion to Amend. Defendants' Motion to Amend -- Fed. R. Civ .P. 16 Because the Court's scheduling order set a September 30, 2011 deadline for amended pleadings [ECF. No. 9], analysis of the Defendants' pending Motion, begins with Fed. R. Civ. P. 16. See Williams v. Sullivan, Civil No. 08-1210, 2011 WL 2119095 at *4 (D.N.J. May 20, 2011). Heightened scrutiny of a motion to amend is warranted when the motion is made after a scheduling order has been entered. Harbor Laundry Sales, Inc. v. Mayflower Textile Serv. Co., Civil Action No. 09-6259, 2011 WL 6303258 at *3 (D.N.J. 2011). Pursuant to Rule 16, a scheduling order may be revised "[o]nly for good cause and with the Judge's consent." Fed. R. Civ. P. 16 (b)(4). In order to meet the good cause requirement of this Rule, "the party seeking the extension must show that the deadlines set in the scheduling order '[could not] reasonably be ...


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