The Huntington National Bank v. Aldridge

UNITED STATES BANKRUPTCY COURT
FOR THE SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION AT DAYTON
In re:
AMANDA ALDRIDGE,
Debtor
Case No. 	06-30753
Adv. No. 	06-3306
The Huntington National Bank,
Plaintiff,
v.
Amanda Aldridge,
Defendant.
Judge L. S. Walter
Chapter 7
DECISION AND ORDER GRANTING
MOTION FOR LEAVE TO FILE
AMENDED COMPLAINT
This matter is before the court on the Motion for Leave to File Amended Complaint [doc.
9] filed by Plaintiff The Huntington National Bank (“Plaintiff”) on December 8, 2006, Defendant
Amanda Aldridge’s Response [doc. 15] filed by Defendant/Debtor Amanda Aldridge (“Debtor”)
on December 27, 2006, and the Reply [doc. 16] filed by Plaintiff on January 8, 2007. The court
This document has been electronically entered in the records of the United
States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
Dated: January 11, 2007
____________________________________________________________
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has reviewed the pleadings, memoranda, and other filings of the parties and is prepared to render
its decision.
Factual Background
This adversary proceeding was commenced on September 18, 2006 with the filing of a
complaint requesting that a certain debt be determined to be nondischargeable pursuant to §
523(a)(4) and that Debtor’s discharge be denied pursuant to § 727(a)(5). Well after the deadline
for filing such complaints set by Fed. R. Bankr. P. 4007(c) and as further extended by court
order, Plaintiff filed its Motion for Leave to File Amended Complaint primarily seeking to
substitute a cause of action under § 523(a)(6) in place of the § 523(a)(4) claim set forth in the
original complaint. The initial pretrial conference in the case has not yet been held and the court
has not yet established a discovery cutoff date or a trial date.
The allegations of the complaint and proposed amended complaint relevant to the Motion
for Leave to File Amended Complaint are quite simple. Plaintiff was a secured lender to The
Gardening Group at Cherry Hill, Inc. (“Cherry Hill”). Debtor was the sole shareholder and
president of Cherry Hill and she guaranteed repayment of the funds loaned by Plaintiff. While
Cherry Hill was insolvent, Debtor caused Plaintiff’s collateral to be sold and used the proceeds to
pay certain of her personal liabilities.
Analysis
Fed. R. Civ. P. 15(a), made applicable by Fed. R. Bankr. P. 7015, provides that leave to
amend should be freely granted when justice so requires. Both the rule and Sixth Circuit
precedent require a liberal approach to permitting amendments. Ellison v. Ford Motor Co., 847
F.2d 297, 300 (6th Cir. 1988); Justice v. State of Ohio (In re Justice), 224 B.R. 631, 636 (Bankr.
S.D. Ohio 1998). Generally, a party may propose an amendment containing a new legal theory
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of recovery unless the defendant can demonstrate undue prejudice. Teft v. Seward, 689 F.2d 637,
639 (6th Cir. 1982); Staats v. United States (In re Frederick Petroleum Corp.), 144 B.R. 758, 764
(Bankr. S.D. Ohio 1992). However, amendments to pleadings are limited when, as here, the
statute of limitations has run on the newly alleged claims.
When the statute of limitations has run, it is essential that the amended claim relate back
to the original complaint. To establish such relation back, the moving party must show that “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.” Fed. R. Civ. P.
15(c)(2). In other words, for a new claim to relate back, it must arise from the same general facts
as the claims set forth in the original complaint. DeLong v. International Union, 1992 WL
1259391, *3 (S.D. Ohio May 4, 1992), citing Hageman v. Signal L.P. Gas, Inc., 486 F.2d 479
(6th Cir. 1973).
In this case, it is quite clear that the facts underlying the original claim under § 523(a)(4)
are essentially the same facts underlying the new amended claim under § 523(a)(6). Except for
some minor elaborations, the “Statement of the Facts” portion of the amended complaint remains
unchanged. The original Count One alleged that Debtor breached her fiduciary duty to creditors
of Cherry Hill when she paid corporate funds to herself instead of to the corporation’s creditors.
Amended Count One alleges that Debtor willfully and maliciously injured Plaintiff when she
paid the proceeds of Plaintiff’s collateral to her personal creditors instead of to Plaintiff, a
creditor of the corporation. Under very similar procedural circumstances, another court in this
district recently allowed an amendment to state a claim under § 523(a)(6) rather than § 523(a)(4)
where the factual predicate remained the same. In re Ruhe, 2005 WL 4041312, *1 (Bankr. S.D.
Ohio June 6, 2006). While the amended count in the instant case is a bit more specific than the
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original, it still arises from the same operative facts: Debtor converted corporate assets to her
own use rather than paying creditors of the corporation. Consequently, Debtor should have been
able to “fairly perceive some identification or relationship between what was pleaded in the
original and amended complaints.” In re Dean, 11 B.R. 542, 545 (9th Cir. B.A.P. 1981), aff’d,
687 F.2d 307 (9th Cir. 1982).
In making its determination as to whether to grant leave to amend, the court must also
consider a variety of extrinsic factors. According to the Sixth Circuit, the court must consider
“the delay in filing, the lack of notice to the opposing party, bad faith by the moving party,
repeated failure to cure deficiencies by previous amendments, undue prejudice to the opposing
party, and futility of amendment.” Perkins v. American Electric Power Fuel Supply, Inc., 246
F.3d 593, 605 (6th Cir. 2001), cert. denied, 534 U.S. 994 (2001).
In this case, Debtor complains that Plaintiff has been exceptionally dilatory and has
thereby greatly prejudiced her. It is true that Plaintiff was slow to file its initial complaint and
then filed its Motion to Amend immediately after Debtor filed her Motion for Summary
Judgment. 	But, delay in filing suit is preferable to a hasty misinformed filing, and amendment
to recast a legal theory is sometimes necessary when discovery uncovers new facts. Because no
deadlines have been set in this case and the trial has yet to be scheduled, Debtor has sufficient
time to prepare her defense. See In re Wahl, 28 B.R. 688, 689 (Bankr. W.D. Ky. 1983) (court
denied motion to amend complaint filed shortly before discovery deadline). There appears to be
no undue prejudice to Debtor nor any bad faith or chronic deficiencies on the part of the Plaintiff.
Debtor has correctly pointed out that it may be difficult for Plaintiff to prove its case
under § 523(a)(6) given the legal standards that must be met under Supreme Court and Sixth
Circuit precedent. However, such potential difficulty does not equate to futility and cannot be
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the basis for disallowing an amendment to the complaint. At some point, Plaintiff and its counsel
must make a good faith assessment of the viability of their claims. The continued prosecution of
baseless claims may be grounds for sanctions, but Plaintiff must be given a reasonable period of
time to complete its discovery and analysis.
For the foregoing reasons, Plaintiff’s Motion for Leave to File Amended Complaint is
hereby GRANTED.
SO ORDERED.
Copies to:
Geoffrey J. Peters, Attorney for Plaintiff, 175 South Third Street, Suite 900, Columbus, OH 43215
Lester R. Thompson, Attorney for Defendant, 1340 Woodman Drive, Dayton, OH 45432
Office of the U. S. Trustee, 170 North High Street, Suite 200, Columbus, OH 43215
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