Integra, Inc. v. Willis of Pennsylvania, Inc.

1The other seven are American Manufacturers Mutual Insurance Company, American
International Group, Prudential Insurance Company of America, Kemper Insurance Company,
National Union Fire Insurance Company of Pittsburgh, Greenwich Insurance Company, and
American International Specialty Lines.
2As this action seeks to avoid a preferential transfer, it is within this Court’s core jurisdiction.
28 U.S.C. § 157(b)(2)(F).
I N THE UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
I N RE 	: CHAPTER 11
:
I NTEGRA , I NC . 	: CASE NO. 02-30594
DEBTOR 	:
: SUBSTANTIVELY CONSOLIDATED
I NTEGRA, I NC. 	:
PLAINTIFF 	:
V. 	:
W ILLIS OF PENNSYLVANIA, I NC., 	:
DEFENDANT 	: ADVERSARY PROCEEDING NO . 04-765
:
O PINION
By: 	STEPHEN RASLAVICH , UNITED STATES BANKRUPTCY JUDGE .
Introduction
The Debtor has filed a motion to approve a settlement and amend complaint
pursuant to Rule 15(c). The settlement has been approved but the request for
amendment was taken under advisement. Amendment is sought to add Federal
Insurance Company (Federal) as well as seven other insurers as defendants.1 Federal
opposes this request. Hearing on the matter was held on May 3, 2005. For the reasons
set forth below, the motion will be denied. 2
Procedural Background
The Debtor filed this preference case against Willis of Pennsylvania, Inc.
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(Willis) before the expiration of the statute of limitations. After that deadline expired,
Debtor discovered that the preference payment received by Willis was accepted by
Willis on behalf of Federal and seven other insurance companies. Motion, ¶ 19. Debtor
has settled with Willis and seeks to pursue the same claim against Federal and the
other insurers by adding each as a party to the complaint. Federal maintains that the
amendment should not be allowed because the applicable statute of limitations has
expired. The Debtor maintains that its amendment would relate back in time to when
the original complaint was filed; the parties thus agree that as to Federal and the other
insurers, the preference action would be otherwise time-barred. Federal disputes that
the record supports “relating back” as defined by the applicable rule of procedure.
Response, 6-9.
Applicable Law
Bankruptcy Rule 7015 incorporates F.R.C.P 15 and provides, in pertinent part:
(a) Amendments. A party may amend the party's pleading
once as a matter of course at any time before a responsive
pleading is served or, if the pleading is one to which no
responsive pleading is permitted and the action has not been
placed upon the trial calendar, the party may so amend it at
any time within 20 days after it is served. Otherwise a party
may amend the party's pleading only by leave of court or by
written consent of the adverse party; and leave shall be
freely given when justice so requires.
F.R.C.P. 15(a) (emphasis added). The Third Circuit has consistently held that leave to
amend should be granted freely. Dole v. Arco Chemical Co., 921 F.2d 484, 486 (3d Cir.
1990); see also Bechtel v. Robinson, 886 F.2d 644, 652 (3d Cir.1989) (noting that
courts should use "strong liberality" in considering whether to grant leave to amend).
This approach ensures that a particular claim will be decided on the merits rather than
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3This provision, added in 1991, allows amendments to relate back when the amendment
would be permitted under the applicable state statute of limitations. See 3 Moore’s Federal Practice
§ 15.19[1] (Matthew Bender 3d ed.). In those instances when state law permits relation back but
the Rules would not allow it, the more forgiving state rule controls. Id. The rationale behind the
determination that the more forgiving rule governs is the liberal amendment policy of the Rules and
the goal of avoiding harsh results when applied to diversity cases in federal court. Id. This result
(continued...)
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on technicalities. See Wright, Miller and Kane, Federal Practice and Procedure: Civil 2d
§ 1471 (2d ed. 1990). The policy favoring liberal amendment of pleadings is not,
however, unbounded. The Supreme Court delineated factors which may weigh against
amendment. These include "undue delay, bad faith or dilatory motive on the part of the
movant, repeated failure to cure deficiencies by amendments previously allowed, undue
prejudice to the opposing party by virtue of allowance of the amendment, futility of
amendment, etc." Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230, 9 L.Ed.2d 222
(1962).
Federal implicitly opposes the amendment on futility grounds: even if Debtor is
allowed to amend, it argues, the claim is barred by the applicable statute of limitations.
See Cowell v. Palmer Township, 263 F.3d 286, 296 (3d Cir.1995) (stating that
amendment is futile if it would not withstand limitations challenge). The Debtor
disagrees and argues that the applicable rule of procedure relates the amendment back
to the date of the filing of the original complaint for limitations purposes. The rule
provides for relation back of amendments as follows:
(c) Relation Back of Amendments. An amendment of a
pleading relates back to the date of the original pleading
when
(1) relation back is permitted by the law that provides the
statute of limitations applicable to the action3 , or
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3 (...continued)
is also consistent with the demands of the Erie doctrine that federal courts follow state substantive
law, since a more forgiving state rule is a modification of the state's own substantive statute of
limitations policy, which a federal procedural rule should not supplant. Id. Bankruptcy Code §
546(a) – the statute of limitations for preferences – does not provide a "more forgiving principle of
relation back" than does Rule 15(c). Therefore, Rule 15(c)(1) would not apply here.
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(2) the claim or defense asserted in the amended pleading
arose out of the conduct, transaction, or occurrence set forth
or attempted to be set forth in the original pleading, or
(3) the amendment changes the party or the naming of the
party against whom a claim is asserted if the foregoing
provision (2) is satisfied and, within the period provided by
Rule 4(m) for service of the summons and complaint, the
party to be brought in by amendment (A) has received such
notice of the institution of the action that the party will not be
prejudiced in maintaining a defense on the merits, and (B)
knew or should have known that, but for a mistake
concerning the identity of the proper party, the action would
have been brought against the party.
F.R.C.P. 15(c). Because the amendment seeks to add a party, subdivision (c)(3) is
applicable. In order for the amendment to relate back to the date of the original
complaint under that subdivision, three conditions must be met. First, the claims must
arise "out of the conduct, transaction, or occurrence set forth or attempted to be set
forth in the original pleading." F.R.C.P. 15(c)(2). Second, within 120 days of the filing of
the original complaint, Federal must have "received such notice of the action that it will
not be prejudiced in maintaining a defense on the merits." F.R.C.P. 15(c)(3). The Third
Circuit has interpreted the second requirement as containing two prongs, notice and the
absence of prejudice, each of which must be satisfied. Urrutia v. Harrisburg County
Police Dept., 91 F.3d 451, 458 (3d Cir. 1996). Third, it must be that within 120 days of
the filing of the original complaint, Federal and the other intended defendants knew or
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should have known that, but for a mistake concerning the identity of the proper party,
the action would have been brought against them in the first place. Garvin v. City of
Philadelphia, 354 F.3d 215, 222 (3d Cir.2003); Singletary v. Pennsylvania Department
of Corrections, 266 F.3d 186, 194 (3d Cir.2001); Fields v. Blake, 349 F.Supp.2d 910,
917 (E.D.Pa.2004). Importantly, Rule 15(c)(3) is written in the conjunctive meaning that
all three conditions must be met for a successful relation back of an amended complaint
which seeks to add a new party. Singletary, 266 F.3d at 194. The party seeking leave
to amend bears the burden of proof in explaining the reasons for the delay.
Emguschowa v. New York Steak & Seafood, et al, 1997 WL 260249 *2 (E.D.Pa.)
Claims arose out of the same conduct
The parties do not dispute that the plaintiff meets the first requirement for relation
back: that its claims against Federal arise from the same conduct as that alleged in his
original complaint. Both claims are based on the payment of what is alleged to be a
preferential transfer. Therefore, the first requirement is satisfied.
Notice
The first prong of the second requirement for relation back requires that the
intended defendants received, within 120 days of the filing of the original complaint
(November 23, 2004), notice of the original action. The Third Circuit has expounded
upon what constitutes “notice” for purposes of the rule:
This court has seldom spoken on the meaning of "notice" in
the context of Rule 15(c)(3). Still, we can glean some
general instruction from the few cases that address the
issue. First, Rule 15(c)(3) notice does not require actual
service of process on the party sought to be added; notice
may be deemed to have occurred when a party who has
some reason to expect his potential involvement as a
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defendant hears of the commencement of litigation through
some informal means. See Varlack v. SWC Caribbean, Inc.,
550 F.2d 171, 175 (3d Cir.1977) (holding that a person who
the plaintiff sought to add as a defendant had adequate
notice under 15(c)(3) when, within the relevant period, the
person by happenstance saw a copy of the complaint
naming both the place where he worked and an "unknown
employee" as a defendant, which he knew referred to him);
see also Berndt v. Tennessee, 796 F.2d 879, 884 (6th
Cir.1986) (notice need not be formal); Eakins v. Reed, 710
F.2d 184, 187- 88 (4th Cir.1983) (same); Kirk v. Cronvich,
629 F.2d 404, 407-08 (5th Cir.1980) (same). At the same
time, the notice received must be more than notice of the
event that gave rise to the cause of action; it must be notice
that the plaintiff has instituted the action. See Bechtel v.
Robinson, 886 F.2d 644, 652 n. 12 (3d Cir.1989).
Singletary, 266 F.3d at 195.
The Debtor does not argue that Federal received formal or even actual notice
within the 120 period; instead, it is alleged that Federal “as beneficiary of the Transfers,
had reason to know that, but for the Debtor mistakenly thinking the agent was the initial
transferee, [Federal] would have been sued.” Motion, ¶ 22 (emphasis added). In other
words, Plaintiff is arguing, Federal had constructive notice that the suit had been
commenced when it had. See, e.g. Consumers Produce Co, Inc. v. Volante Wholesale
Produce, Inc., 16 F.3d 1374, 1380 (3d Cir.1994) (quoting Restatement of Trusts which
provides that “a person has notice of a breach of trust if ‘he knows or should have
known of the breach.’”); Colin v. Central Penn Nat. Bank, 404 F.Supp. 638, 641
(E.D.Pa.1975) (equating “reason to know” with constructive notice).
The Third Circuit has recognized two circumstances under which notice may be
imputed under Rule 15(c)(3): where the two defendants have “shared” an attorney or
where they have some “identity of interest.” Singletary, 266 F.3d at 196-197; Garvin,
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4The record is unclear as to the nature of the relationship between Federal and Willis. What
is alleged in the motion is that Willis is is Debtor’s insurance agent. 	Motion, ¶ 17. 	Federal
maintains in its response that Willis is an insurance broker. Response ¶ 11. 	An insurance broker
may be an agent for both the insured and the insurer. Benevento v. Life USA Holding, Inc., 61
F.Supp.2d 407, 415 (E.D.Pa.1999). But for a broker to be found to be an agent of the insurer, there
must be some evidence of an authorization, or some fact from which a fair inference of an
authorization by the company to the broker might be deduced. Id. at 416. This record contains no
evidence of that so that Court cannot presume notice from Willis to Federal on a principal-agent
theory.
5At the hearing, Debtor argued that it did not know that Federal and the other insurers
received the preferences until it was too late. Trans. 4-5. However, what the Debtor knew or may
have known is irrelevant to the analysis here; it is what Federal knew that matters.
(continued...)
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354 F.3d at 222-223. As the name implies, the “shared attorney” method requires the
same counsel to have represented both the original named defendant as well as the
defendant sought to be added by amendment. Under the “identity of interest” method,
notice will be imputed where “the parties are so closely related in their business
operations or other activities that the institution of an action against one serves to
provide notice of the litigation to the other." Wright, Miller & Kane, Federal Practice And
Procedure, Civil 2d § 1499. This identity of interest has been found (1) when the
original and added parties are a subsidiary corporation and a parent; (2) when the
related corporation have substantially identical officers directors or shareholders and
have similar names or share office space; and (3) where the two parties are co-
executors of an estate. See 3 Moore’s Federal Practice, ¶ 15.19[3][c].
There is no allegation – or proof in the record for that matter – that the same
counsel advised both Federal and Willis. Neither is there any assertion that the two
shared an identity, or community, of interest.4 Instead, Debtor’s claim of constructive
notice is based on Federal’s ultimate receipt of the preference.5 The problem with this
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5 (...continued)
Equally unpersuasive is the argument that because this Court is a court of equity, allowing
the amendment under these circumstances would be in the creditors’ best interests. Trans. 5. A
bankruptcy court’s section 105 equitable powers do not allow the bankruptcy court to override
explicit mandates of other section of the Bankruptcy Code or mandates of other state and federal
statutes. 2 Collier on Bankruptcy ¶ 105.01[2]; see also United States v. Sutton, 786 F.2d 1305,
1308 (5 th Cir. 1986) (“[Section 105] does not authorize the bankruptcy courts to create substantive
rights that are otherwise unavailable under applicable law, or constitute a roving commission to do
equity.”)
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argument is that it does not prove notice – constructive or actual – of the lawsuit. In
fact, it cannot because the preference was received prior to the filing of that lawsuit.
Indeed, it was received prior to the bankruptcy filing. Nothing in the record indicates
that Federal was apprised of the suit against Willis within the 120 day summons period.
Having failed to demonstrate that Federal had prior notice of the preference
claim, Debtor’s request for leave to amend must be denied as that proposed defendant.
An appropriate order follows.
By the Court:
____________________________________
Stephen Raslavich
United States Bankruptcy Judge
Dated: 	May 13, 2005
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I N THE UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
I N RE 	: CHAPTER 11
:
I NTEGRA , I NC . 	: CASE NO. 02-30594
DEBTOR 	:
: SUBSTANTIVELY CONSOLIDATED
I NTEGRA, I NC. 	:
PLAINTIFF 	:
V. 	:
:
W ILLIS OF PENNSYLVANIA, I NC., 	:
DEFENDANT 	: ADVERSARY PROCEEDING NO . 04-765
:
O RDER
AND NOW, upon consideration of Debtor’s Motion to Amend Complaint Pursuant to
Rule 15(c), the Limited Objection of Federal Insurance Company, after a hearing held on
May 3, 2005 and for the reasons stated in the preceding opinion, it is
O RDERED that the Motion is Denied as to Federal; the Debtor may amend its
complaint to add as defendants the remaining entities named in the proposed amended
complaint attached to Debtor’s motion.
By the Court:
___________________________________
Stephen Raslavich
United States Bankruptcy Judge
Dated: 	May 13, 2005
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MAILING LIST:
George Conway, Esquire
Office Of The U.S. Trustee
950W Curtis Center
7th & Sansom Streets
Philadelphia PA 19106
Harry J. Giacometti, Esquire
SMITH GIACOMETTI & CHIKOWSKI LLC
The Land Title Bldg, Suite 1200
100 South Broad Street
Philadelphia, PA 19110
Gary F.Seitz, Esquire
THE BAYARD FIRM
222 Delaware Avenue, Suite 900
P.O. Box 25130
Wilmington, DE 19899
Wendy B. Green, Esquire
MCCUSKER ANSELMI ROSEN
CARVELLI & WALSH P.C.
127 Main Street
Chatham, NJ 07040
Brian S. Lepsis, Esquire
SAUL EWING LLP
1500 Market Street
38th Floor
Philadelphia, PA 19102
American Manufacturers Mutual
Insurance Company
1717 Arch Street
31st Floor
Philadelphia, PA 19103
American International Group, Inc.
70 Pine Street
New York, NY 10270
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Prudential Insurance Company
Three Bala Plaza E, Suite 101
Bala Cynwyd, PA 19004
Kemper Insurance Company
Connell Corporate Park
Three Connell Drive
P.O. Box 608,
Berkeley Heights, NJ 07922
National Union Fire Insurance
Company of Pittsburgh
70 Pine Street
New York, NY 10270
Greenwich Insurance Company
One Greenwich Plaza
P.O. Box 2568
Greenwich, CT 06836
American International Specialty Lines
80 Pine Street, Sixth Floor
New York, NY 10005
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