Neuman v. Garcia

Background

Phil Neuman sued Jose Garcia and other defendants over agreements involving ownership interests in two Luxembourg companies. He asserted claims for breach of contract, fraud, breach of fiduciary duty, replevin, conversion, and fraudulent conveyance. Neuman alleged federal subject-matter jurisdiction based on diversity of citizenship, but his original complaint did not properly allege the citizenship of certain limited liability companies and corporations.

The court authorized Neuman to obtain information about the entities’ citizenship and required him to correct the jurisdictional allegations or face dismissal for lack of subject-matter jurisdiction. Neuman filed a First Amended Complaint. After a defendant submitted a letter describing proposed grounds for dismissal, Neuman said he proposed to file another amended complaint, and the court permitted him to file a Second Amended Complaint.

Request for a Third Amendment

After the Second Amended Complaint, defendants submitted another pre-motion letter identifying proposed grounds for dismissal, including lack of personal jurisdiction, forum non conveniens, the statute of limitations, failure to plead fraud with particularity, and failure to state a claim for replevin. Under the court’s Individual Practices, Neuman was required to state whether he wanted to amend again. He did not do so in his written response. At a May 2021 conference, the court specifically asked whether he wished to amend, and his counsel said no. The court recorded that Neuman had elected to stand on the pleadings.

Defendants later filed their motion to dismiss. After receiving multiple extensions to respond, Neuman sought permission to file a Third Amended Complaint on the day before his response was due. The court stayed further briefing on the motion to dismiss and allowed him to file a motion to amend without expressing a view on the proposed amendment’s merits.

The proposed Third Amended Complaint added three color diagrams and 27 paragraphs, making it 10 pages longer. Neuman’s counsel said the changes were based on Neuman’s refreshed recollection of communications with Garcia and Tim Mol about ten years earlier. The court also required an affidavit explaining any changes to factual allegations about timing. Neuman initially filed a document that was not signed under penalty of perjury and cited an incorrect statute; he later filed a proper affidavit.

Legal Standard

Because Neuman had already amended twice, he could not file another amended complaint as a matter of course. Federal Rule of Civil Procedure 15 allows one amendment as of right at certain early stages, but the court held that those provisions did not apply because Neuman had already amended twice and more than 21 days had passed after defendants filed their motion to dismiss.

A party may instead ask the court for permission to amend. Although such permission is generally freely given, a court may deny it for a good reason, including undue delay, undue prejudice to the opposing party, or bad faith.

Court’s Analysis

The court found undue delay. It measured the delay from the period when Neuman was required to say whether he wanted to amend, through the conference at which he declined to do so, and through the 12 weeks after defendants filed their motion to dismiss. Neuman first sought another amendment on the day before his response was due. The court characterized the total delay as approximately nine months.

The court also found undue prejudice. Defendants had already spent time and money preparing the motion to dismiss. Because the proposed changes were extensive and altered Neuman’s account of events, much of that work would have been wasted if the amendment were allowed. The court also noted that the defendants had been accused of fraud in commercial and financial transactions and that delaying resolution left those accusations pending.

The court found bad faith based on three circumstances. First, Neuman waited until the eve of his response deadline to disclose a fully drafted pleading that added substantial new material. Second, he initially submitted an invalid document in response to the court’s instruction to provide an affidavit. Third, the court found that Neuman’s papers falsely claimed that the court had ordered him to amend his fraud allegations with greater specificity. The court said its earlier order merely permitted him to file a Second Amended Complaint and did not require that amendment.

Disposition

The court concluded that undue delay alone justified denial and that the delay was also accompanied by undue prejudice and bad faith. The motion to amend, Document 81, was DENIED. The court did not decide the pending motion to dismiss in this opinion. It allowed Neuman seven additional days from the date of the order to file his response, followed by seven days for defendants to file their reply.