Opinion
654459/2018
05-07-2021
SITE SAFETY, LLC, Major Building Consulting LLC, and City Safety Compliance Corp., Plaintiffs, v. Sandeep GUNNALA, Mansukh Savalia, Nelson Flores, Phillip Cooley, Keerthi Chintakindi, Gudavalli Yaswanth, Highrise Group NYC, Inc., KS Consulting Group LLC, John and Jane Does 1-10, and John and Jane Does Corporations 1-10, Defendants.
Wagner, Berkow & Brandt, LLP, New York, NY (Ian J. Brandt of counsel), for plaintiffs. Mario Biaggi, Jr., Esq., New York, NY, for defendants.
Wagner, Berkow & Brandt, LLP, New York, NY (Ian J. Brandt of counsel), for plaintiffs.
Mario Biaggi, Jr., Esq., New York, NY, for defendants.
Gerald Lebovits, J.
The following e-filed documents, listed by NYSCEF document number (Motion 004) 85, 86, 87, 88, 89, 90, 91, 92, 96, 97, 98, 99, 100, 101, 102, 103, 104, 105, 106, 107, 124, 125, 126, 127, 128 were read on this motion for LEAVE TO AMEND.
Plaintiffs provide safety-related services to construction contractors. Plaintiffs have sued defendants for allegedly misappropriating plaintiffs' confidential information and clients. Defendant Sandeep Gunnala, formerly an employee of plaintiffs, has counterclaimed for a share of plaintiffs' profits in 2016 through 2018. Gunnala has alleged that during his employment with plaintiffs he was contractually entitled to—but did not receive—that share of profits as a bonus.
During the course of this action, the parties have had numerous (and extensive) disagreements over the scope of their respective discovery obligations. In motion sequence 004, plaintiffs move to compel certain discovery. Defendants cross-move for leave to amend to expand the scope of their first counterclaim, and to compel certain discovery of their own. This interim order is concerned only with the aspect of defendants' cross-motion on motion sequence 004 seeking leave to amend. The motion is granted in part and denied in part.
BACKGROUND
As asserted in defendants' answer to plaintiffs' amended complaint, the first counterclaim alleges that under Gunnala's contract with plaintiffs, they agreed to pay him "each year a percentage of [plaintiffs'] annual profits" (NYSCEF No. 31 at ¶ 119); and that after paying him the agreed-upon percentage from 2011 through the end of 2015, plaintiffs "without reason or justification ceased paying Gunnala the agreed upon contract distribution in 2016, 2017 and for the first quarter of 2018" (id. at ¶¶ 120-121).
To support this counterclaim, defendants sought to compel production of plaintiffs' payroll records and credit card statements for 2012 to date. (See NYSCEF No. 52 at ¶¶ 38, 43). Defendants argued that the payroll records are "relevant to defendant Gunnala's counterclaim for lost profits and any inflated salaries designed to reduce the plaintiffs' profits and thus minimize defendant's counterclaim" (NYSCEF No. 49 at ¶ 12); and that the credit card statements are relevant to Gunnala's counterclaim because "to the extent the card reflects personal non business related expenses, those charges would have to be added back to plaintiffs' bottom line as income and thus increase" Gunnala's counterclaim damages (id. at ¶ 17).
This court denied this aspect of defendants' motion to compel in an order issued in August 2020. This court held that the documents sought were not relevant because the first counterclaim, as pleaded "does not allege that plaintiffs incorrectly calculated or wrongfully deflated Gunnala's promised share of plaintiffs' profits, but rather that plaintiffs refused to pay him his share altogether for 2016, 2017, and the first quarter of 2018." (NYSCEF No. 74 at 2.)
Three months later, in November 2020, defendants cross-moved on motion sequence 004 for leave to amend this counterclaim under CPLR 3025 (b). The proposed amended counterclaim would add a new allegation that plaintiffs also "wrongfully deflated defendant Gunnala's promised share of the profits from the time Gunnala started working for the plaintiffs in 2012 until his departure in 2018" by "wrongfully charging the plaintiffs' business credit cards with excessive charges for personal use and by improperly overpaying select employees of the plaintiffs." (NYSCEF No. 105 at ¶ 123.)
The motion and cross-motion on sequence 004, along with other pending discovery motions, was held in abeyance for several months at the parties' request to permit them to engage in settlement negotiations. Those negotiations having proved unsuccessful, the parties have asked this court to address first defendants' request for leave to amend, given that request's potential implications for the scope of discovery going forward.
DISCUSSION
CPLR 3025 (b) provides that leave of court to amend "shall be freely given upon such terms as may be just including the granting of costs and continuances." Absent prejudice or surprise, leave should be denied only if "the proposed amendment is palpably improper or insufficient as a matter of law." ( CIFG Assur. N. Am., Inc. v. J.P. Morgan Sec. LLC , 146 AD3d 60, 65 [1st Dept 2016].) And "a party opposing leave to amend must overcome a heavy presumption of validity in favor of permitting amendment." (Id. [alterations omitted].)
Plaintiffs do not contend that the proposed amendment should be denied as unfairly prejudicial.
Plaintiffs contend, in effect, that the proposed amendment here plainly lacks merit because it is intended merely to enable defendants to get around this court's prior discovery ruling and obtain discovery of plaintiffs' payroll records and credit-card statements. As such, plaintiffs assert, the proposed amendment is barred by the law of the case doctrine. (See NYSCEF No. 124 at 9-11.) This court disagrees. This court's prior discovery ruling on the topic was based on the lack of a connection between the counterclaim as pleaded and the discovery requested. It did not address the potential merits of a counterclaim that would be connected to this request. Nor did the order consider whether the request itself was proper or excessively burdensome and intrusive. There is no law-of-the-case bar to the proposed amendment.
Additionally, although plaintiffs contend that the amendment is merely a discovery tactic, they do not make any showing that defendants in fact lack a good-faith basis to allege that plaintiffs engaged in conduct that wrongfully deflated their profits and harmed Gunnala as a result. Absent such a showing, any discovery-related benefits that defendants will gain from the this amendment are not enough, standing alone, for the court to find the amendment palpably improper or insufficient.
Plaintiffs also contend that the motion for leave to amend should be denied because defendants have not supplied an affidavit from a person with knowledge supporting the proposed new allegations. (See id. at 8-9.) But a party seeking to amend need not support the motion "with an affidavit of merit," as plaintiffs suggest. ( Hickey v Kaufman , 156 AD3d 436, 436 [1st Dept 2017].) The proposed amendment here is adequately pleaded and supported by counsel's affirmation attesting to the good-faith basis for the new allegations (see NYSCEF No. 96 at ¶¶ 20-21). No more is required. (See Miller v Cohen , 93 AD3d 424, 425 [1st Dept 2012].)
That said, although this court concludes that defendants should be permitted to amend their answer to expand their first counterclaim, leave to amend is granted only in part. For purposes of CPLR 3025, a "claim is palpably insufficient or patently devoid of merit where it would be barred by the applicable statute of limitations." ( Belair Care Ctr., Inc. v Cool Insuring Agency, Inc. , 161 AD3d 1263, 1266 [3d Dept 2018].) And a portion of defendants' proposed amendment in this case is untimely and does not relate back to defendants' answer.
The counterclaim is subject to a six-year statute of limitations as an action on a contract. (See CPLR 213.) Defendants' cross-motion for leave to amend was filed on November 16, 2020. (See NYSCEF No. 95.) The proposed amendment seeks damages for an alleged wrongful deflation of profits that occurred between 2012 and 2014. But any claim for damages that accrued before November 16, 2014, is untimely, standing alone.
Nor does the proposed amendment relate back to the counterclaim as first asserted in defendants' answer, filed on October 9, 2018. A proposed amendment is "deemed to have been interposed at the time the claims in the original pleading were interposed, unless the original pleading does not give notice of the transactions [or] occurrences ... to be proved pursuant to the amended pleading." ( CPLR 203 [f].) Defendants do not meet this standard here.
The wrongful conduct alleged in the original pleading related to the failure to pay Gunnala profit distributions between 2016 and 2018. The proposed amendment alleges that although plaintiffs paid Gunnala the required profit distributions between 2012 and 2016, plaintiffs had engaged in pre-payment conduct causally prior conduct by plaintiffs that had the effect of deflating plaintiffs' profits, and thus the amounts that they would later pay to Gunnala in profit distributions. In other words, defendants are now seeking to allege wrongful conduct by plaintiffs that differed both factually and legally from that alleged in the original counterclaim, and which occurred outside the period of that counterclaim, as well. In these circumstances, defendants' answer, as pleaded, would not have placed plaintiffs on notice of the occurrences for which defendants now seek damages. The proposed amendment therefore does not relate back. (See Weinrauch v New York Life Ins. Co. , 190 AD3d 511, 511 [1st Dept 2021] [claim for failure to pay total disability coverage does not relate back to claim for denial of residual disability coverage during same period]; Lang-Salgado v Mount Sinai Med. Ctr., Inc. , 157 AD3d 532, 534 [1st Dept 2018] [no relation-back where the proposed new claims "rise from different facts and implicate different duties based on conduct preceding, and separate and different from" the original claim]; cf. Koch v Acker, Merrall & Condit Co. , 114 AD3d 596, 596-597 [1st Dept 2014] [finding relation-back where initial claim expressly noted possibility of further, related claims, and all transactions underlying new claims occurred during period of transactions supporting initial claim].)
Accordingly, it is hereby
ORDERED that the branch of defendants' cross-motion seeking leave to amend their first counterclaim (mot seq 004) is granted only to the extent that defendants may assert a claim for wrongful deflation of Gunnala's promised share of plaintiffs' profits for the period November 14, 2014, to the date of Gunnala's departure from plaintiffs' employment in 2018, and is otherwise denied; and it is further
ORDERED that defendants' proposed amended answer, modified as set forth in the first decretal paragraph, is deemed timely served and filed; and it is further
ORDERED that plaintiffs may answer or otherwise respond to the proposed amended answer within 30 days of service of a copy of this order with notice of its entry; and it is further
ORDERED that the branch of defendants' cross-motion seeking to compel plaintiffs to produce documents relating to the allegations in the proposed amended answer (mot seq 004) is denied without prejudice to renewal following plaintiffs' service of a responsive pleading or motion; and it is further
ORDERED that defendants are to serve notice of entry.