IEI Inc. v. ETG Capital LLC

Background

IEI Inc. filed a one-count complaint against ETG Capital LLC alleging breach of contract. IEI later moved for summary judgment. Judge Andrew Carter denied that motion without prejudice and allowed additional discovery concerning ETG’s defense that IEI had failed to satisfy a condition precedent to the parties’ 2018 Settlement Agreement.

After that discovery, IEI moved to amend its complaint to add a claim titled “Breach of Settlement Agreement.” ETG opposed the motion. The opinion states that Judge Carter had referred non-dispositive pretrial motions to Judge James L. Cott, who decided this motion.

Legal Standard

Under Federal Rule of Civil Procedure 15, courts should generally allow an amended pleading when justice requires. Leave to amend may be denied for undue delay, bad faith, unfair prejudice, or futility. An amendment is futile if the proposed claim could not survive a motion to dismiss.

Undue Delay and Prejudice

IEI sought to amend more than two years after filing its complaint. IEI explained that it proposed the new claim after ETG raised the condition-precedent argument during the summary-judgment proceedings. IEI also identified its efforts to obtain ETG’s consent, its counsel’s other matters, and a family medical issue involving counsel as reasons for the later delay.

ETG argued that IEI was responsible for the delay and that the amendment would add damages, including attorneys’ fees, that ETG had not previously expected. Judge Cott concluded that IEI likely could have acted sooner, but ETG had not shown undue prejudice or bad faith. The court also noted that discovery on the relevant issue had already occurred, reducing the need for substantial additional discovery and preparation.

Futility

The proposed claim concerned the alleged breach of a settlement agreement governed by New York law. Under that law, a breach-of-contract claim requires allegations of a contract, the plaintiff’s performance, the defendant’s failure to perform, and damages.

Judge Cott found that IEI had alleged all four elements. IEI alleged that the Settlement Agreement was a contract, that it performed or attempted to perform its obligations, that ETG breached by challenging the enforceability of the Assignment Agreement, refusing to accept an assignment of IEI’s claim in the Sears Insolvency, and failing to make a required payment, and that IEI suffered damages of CAD $457,447.06.

The court also found ambiguity in provisions addressing the parties’ obligations under the Settlement Agreement, the Master Claims Purchase Agreement, the Put Letter, and the Assignment of Claim. Because the parties disagreed about the meaning of those provisions, and because the agreement did not unambiguously bar IEI’s proposed claim, the court concluded that the claim was not futile. The opinion states that the parties’ disagreement about the contract’s meaning was an issue for adjudication on the merits, not for resolution on the motion to amend.

Disposition

Judge Cott granted IEI’s motion to amend its complaint. The court directed IEI to file the amended complaint within seven days, closed the motion docket entry, and directed the parties to submit a proposed schedule for renewed summary-judgment proceedings to Judge Carter. The order did not decide whether ETG actually breached the Settlement Agreement.