New York Bay Capital, LLC v. Cobalt Holdings, Inc.

Background

New York Bay Capital, LLC sued Cobalt Holdings, Inc. for allegedly breaching a contract for investment banking services. The contract required disputes relating to the agreement to be litigated in the Southern District of New York. Cobalt later began an arbitration before the Financial Industry Regulatory Authority against Julio Marquez and Young America Capital LLC based on claims related to the contract. In an earlier ruling, the court stopped that arbitration, holding that the contract’s forum-selection clause covered it and that Cobalt could bring those claims in the federal court instead.

Cobalt then moved to amend its answer to add third-party claims against Marquez and Young America Capital, a fraud counterclaim against New York Bay Capital, and two affirmative defenses asserting that the contract was illegal and void as against public policy. The motion was filed after the deadlines in the court’s October 2019 Case Management Plan. That plan required motions to add parties or amend pleadings to be filed by November 24, 2019.

Third-Party Claims

A third-party claim, sometimes called impleader, allows a defending party to bring into the case a person who may be responsible for all or part of the plaintiff’s claims. Because Cobalt filed after the scheduling deadline, it had to show “good cause” under Federal Rule of Civil Procedure 16(b)(4), meaning a sufficient reason to modify the schedule.

The court found good cause. Its earlier order had prevented Cobalt from pursuing the claims against Marquez and Young America Capital in arbitration. The court concluded that it would be unfair to deny Cobalt the opportunity to pursue those claims in court. It also found no evidence that Cobalt deliberately delayed, and it determined that the third-party claims involved many of the same facts as the existing lawsuit and would not cause undue delay or prejudice.

The court did not decide whether the proposed third-party claims were legally sufficient. Instead, it permitted Cobalt to file the third-party complaint and stated that Marquez and Young America Capital could challenge the pleading through a later motion to dismiss.

Counterclaim and Affirmative Defenses

The court applied the same scheduling-order requirement to Cobalt’s proposed counterclaim and affirmative defenses. Cobalt had not shown good cause for filing them late. Unlike the third-party claims, these claims and defenses were not affected by the court’s earlier arbitration ruling. Cobalt also had not raised the request in its pre-motion letter or during the pre-motion conference.

The court therefore found that the counterclaim and defenses were unduly delayed, that the request was procedurally improper, and that allowing them would unfairly prejudice New York Bay Capital. The court denied permission to add them.

Disposition

Judge Gregory H. Woods concluded that Cobalt’s motion to amend was GRANTED in part and DENIED in part. Cobalt may file an amended answer containing its third-party complaint against Marquez and Young America Capital. Cobalt may not add its proposed fraud counterclaim against New York Bay Capital or its two proposed affirmative defenses. The Clerk of Court was directed to terminate the motion at Docket No. 68.