Adelphia Communications Corporation et al v. FPL Group, Inc. et al

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
In re:
ADELPHIA COMMUNICATIONS CORP, et. al.,
a Delaware corporation,
Debtors.
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Chapter 11 Case
No. 02-41729 (REG)
(Jointly Administered)
ADELPHIA RECOVERY TRUST,
Plaintiff,
v.
FPL GROUP, INC., et. al.,
Defendants.
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Adversary Proceeding
No. 04-03295 (REG)
DECISION AND ORDER ON DEFENDANTS’ MOTION
FOR LEAVE TO FILE AMENDED ANSWER
APPEARANCES:
KASOWITZ, BENSON, TORRES & FRIEDMAN LLP
Counsel to the Adelphia Recovery Trust
1633 Broadway
New York, New York 10019
By: 	David M. Friedman, Esq. (argued)
Joseph A. Gershman, Esq.
Michael C. Harwood, Esq.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
Attorneys for Defendants FPL Group, Inc. and West Boca Security, Inc.
Four Times Square
New York, New York 10036
By: 	George A. Zimmerman, Esq. (argued)
Jessica Barcus, Esq.
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ROBERT E. GERBER
UNITED STATES BANKRUPTCY JUDGE:
In this adversary proceeding under the umbrella of the jointly administered cases of
Adelphia Communications Corporation and its subsidiaries (“Adelphia” or the “Debtors”),
Plaintiff Adelphia Recovery Trust (the “Trust”) seeks to recover from Defendants FPL Group,
Inc. (“FPL Parent”) and West Boca Security, Inc. (“West Boca Security,” and collectively,
“FPL Group”) an alleged constructive fraudulent transfer arising out of Adelphia’s January
1999 repurchase of its stock, in a private transaction, for approximately $149 million. FPL
Group moves for leave to amend its earlier answer, filed by FPL Group’s predecessor counsel, to
raise an additional defense to the Trust’s claims—that the transaction is subject to section 546(e)
of the Bankruptcy Code1 which provides a “safe harbor” defense (as the context requires, the
“Section 546 Safe Harbor,” or “Safe Harbor Defense”) to transactions where avoidance could
upset trading markets2 —or, in the view of a fair amount but considerably less than all of the
analysis on point, irrespective of the effect on trading markets, where the literal text of the
statutory language would exempt the transaction from the normal requirements of the
Bankruptcy Code and bankruptcy policy.
The issue here does not, however, turn on the merits of the asserted Safe Harbor Defense.
Rather, it turns on consideration of the Federal Rules of Civil Procedure—and requires a
1 	Section 546(e) provides, in relevant part, that a trustee may not avoid a transfer as a constructively
fraudulent transfer that is a “settlement payment . . . made by or to (or for the benefit of) a commodity
broker, forward contract merchant, stockbroker, financial institution, financial participant, or securities
clearing agency . . . in connection with a securities contract,” which is defined in pertinent part as “a
contract for the purchase [or] sale . . . of a security.”
2 	See Enron Creditors Recovery Corp. v. Alfa, S.A.B. de C.V., --- F.3d ---, 2011 U.S. App. LEXIS 13177, at
*13-14, 2011 WL 2536101, at *5 (2d Cir. Jun. 28, 2011) (“Enron”) (“Congress enacted § 546(e)’s safe
harbor in 1982 as a means of ‘minimiz[ing] the displacement caused in the commodities and securities
markets in the event of a major bankruptcy affecting those industries.’ . . . If a firm is required to repay
amounts received in settled securities transactions, it could have insufficient capital or liquidity to meet its
current securities trading obligations, placing other market participants and the securities markets
themselves at risk.” (quoting Kaiser Steel Corp. v. Charles Schwab & Co., Inc., 913 F.2d 846, 849 (10th
Cir. 1990)) (citations omitted)).
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discretionary determination under two Rules of Civil Procedure that tend to cut in different
directions where, as here, the time for amending pleadings has come and gone under an earlier
scheduling order. Fed. R. Civ. P. 15(a) provides that “the court should freely give leave when
justice so requires,” and Rule 15(a) caselaw focuses heavily on the prejudice to the nonmoving
party. But Fed. R. Civ. P. 16(b) provides that scheduling orders may be modified only for “good
cause,” and Rule 16(b) caselaw requires a showing of diligence.
Here there would be no more than modest prejudice to the Trust if the Court were to
grant the requested leave to amend—principally, the loss of the ability to sidestep judicial
consideration of the Safe Harbor Defense on procedural grounds. But the request for leave to
amend here is grossly untimely under the Court’s earlier scheduling orders—four years after the
deadline. And it appears here that the late request arises not by reason of ignorance of the
potential defense, but because FPL Group’s predecessor counsel thought it could lie back and
raise the Safe Harbor Defense whenever it chose to—a tactic that the Court finds to be debatable
in its legal reasoning, and offensive in its gamesmanship.
The Court finds that here FPL Group has not come close to showing good cause for the
delay. FPL Group’s delay here, with respect to an arguable defense of which it was always
aware, was very troublesome in its duration and even more so in its lack of justification. And the
Court does not believe that it should be rewarding failures to honor scheduling orders where
those failures arise from tactical choices.
Accordingly, the motion is denied. The bases for the Court’s exercise of its discretion
follow.
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Facts
This adversary proceeding was filed on June 24, 2004, originally by Debtor Adelphia
Communications Corporation and its Official Committee of Unsecured Creditors,3 seeking to
avoid a constructive fraudulent conveyance pursuant to sections 544(b) and 550 of the
Bankruptcy Code. The Trust’s complaint alleged, among other things, that Adelphia
repurchased its stock from Mayberry Investments, Inc. (“Mayberry Investments”) (an FPL
Parent subsidiary that later was merged into defendant West Boca Security and dissolved), for
$149 million in cash. It was further alleged that the funds Adelphia paid to Mayberry
Investments were subsequently transferred to FPL Parent and/or West Boca Security.
FPL Group, then represented by a predecessor law firm (“Predecessor Counsel”), filed
its answer on October 19, 2004. That answer did not raise a Safe Harbor Defense. After the
parties met and conferred, the Court entered an initial scheduling order setting August 1, 2005 as
the parties’ deadline to amend pleadings, and September 30, 2005 as the deadline for completing
fact discovery.
The parties thereafter agreed to amend the scheduling order, including its pleading
amendment deadline, three times. Pursuant to a scheduling order entered on November 6, 2006
(the “November 2006 Scheduling Order”), January 2, 2007 was set as the final deadline for
amendment of pleadings, and it expired on that date.
After the November 2006 Scheduling Order, several other amended scheduling orders
were entered into which extended discovery and other deadlines, but these amendments made no
mention of the parties’ deadline to amend pleadings. At no time before the January 2, 2007
deadline did FPL Group seek to amend its Answer, either by agreement or by motion.
3 	The Trust was formed under the Debtors’ plan of reorganization, which was confirmed in January 2007.
From then on, the Trust took over the stewardship of the litigation. Hereafter, for simplicity, the plaintiff
side of this adversary proceeding is simply referred to as the Trust.
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From late 2004 throughout 2006, the parties served initial disclosures pursuant to Fed. R.
Civ. P. 26(a)(1), requests for documents, and requests for admissions and interrogatories. In
December 2005, FPL Group served responses to the Trust’s requests for admissions, and in early
2006, FPL Group produced documents. The Trust produced its documents in 2007.
Principally because the Trust’s counsel was so heavily occupied with other litigation
(including, most significantly, the Trust’s claims against commercial and investment banks, and
others, arising from their participation in the “co-borrowing” arrangements that triggered
Adelphia’s bankruptcy), this litigation proceeded slowly. In October 2010, the parties agreed to
another amended scheduling order in this adversary proceeding under which the parties currently
operate. That scheduling order set May 12, 2011 as the date for the close of fact discovery,
required parties to notify the Court of their intention to file dispositive motions by July 6, 2011,
and set a trial date of September 16, 2011.
Predecessor Counsel represented FPL Group in this adversary proceeding from at least
the date of the Answer, September 17, 2004, through entry of the most recent scheduling order in
October 2010. Thereafter, FPL Group’s present counsel, the law firm of Skadden, Arps, Slate,
Meagher, and Flom LLP (“New Counsel”), replaced Predecessor Counsel. New Counsel
contacted the Trust and requested an extension of a Fed. R. Civ. P. 30(b)(6) deposition that was
scheduled for the following week. The Trust agreed to this extension, and proposed the date of
January 10, 2011 for the Rule 30(b)(6) deposition in an email.
On December 10, 2010, also by email, New Counsel agreed to the January 10, 2011 date
for the deposition. New Counsel’s email further stated:
We are preparing an Amended Answer to add an
affirmative defense under Bankruptcy Code Section 546(e).
We plan to serve the Amended Answer well in advance of
the deposition, so that you will have the opportunity to
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examine the deponent on that issue if you choose to do so.
You will also have the opportunity to seek document
discovery on that issue. Please let me know whether
plaintiff will consent to the proposed amendment. 4
On December 29, 2010, having not received a response from the Trust’s counsel, New
Counsel sent a follow-up email. Later that day, the Trust’s counsel responded, stating “The
Trust does not consent to your request to amend your answer to assert a new affirmative
defense.”5
On January 7, 2011, New Counsel produced 33 pages of additional documents, some of
which related to FPL Group’s new Safe Harbor Defense. FPL Group contends that only five
pages, and only six lines of text, related to the Safe Harbor Defense.6 Getting one’s arms around
such a small quantity of documents would plainly not take very long. But FPL Group has not
contended that it came to learn of the facts supporting the Safe Harbor Defense only after the
January 2007 deadline, or, especially, in 2011, four years later.
On Monday, January 10, 2011, the Trust took the deposition of FPL Group’s designated
Rule 30(b)(6) witness. During that deposition, the witness was questioned about the documents
produced on January 7 that related to the Safe Harbor Defense. The Trust also questioned the
witness with respect to the involvement, if any, of a brokerage firm in the transaction.
On January 20, 2011, FPL Group filed its motion to amend the Answer, which included a
copy of the proposed amended Answer. Prior to this filing, the Trust had not received a copy or
draft of the proposed amended Answer.
In a declaration in support of the Motion to Amend, FPL Group’s New Counsel stated:
4 	Declaration of George Zimmerman, dated Jan. 20, 2011 (“Zimmerman Decl. I”), Exh. H.
5 	Zimmerman Decl. I, Exh. I.
6 	Declaration of George Zimmerman, dated Feb. 22, 2011 (“Zimmerman Decl. II”), ¶ 7.
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I had a discussion with Defendants’ Predecessor Counsel
regarding their reasons for not having moved for leave to
amend the Answer to assert the Section 546(e) defense.
They explained their view that Section 546(e) deprives
Plaintiffs of the standing conferred upon them by Section
544(b) of the Bankruptcy Code to assert the fraudulent
conveyance claim, which, in turn, deprived the Court of
jurisdiction to hear the case. Thus, it was Predecessor
Counsel’s view that Section 546(e) was not an affirmative
defense that was required to be plead[sic], but rather, was a
non-waivable standing and jurisdiction argument that can
be made by motion at any time. As explained to me, their
view was informed by In re Cybergenics Corp. v.
Chinery, 226 F.d [sic] 237, 241 (3d Cir. 2009) and In re
Mendez, No. 05-62634-A-7, 2008 WL 597280, at *4-6
(Bankr. E.D. Cal. Feb. 29, 2008). 7
Discussion
1. The Starting Point: Rule 15(a)
Fed. R. Civ. P. 15 is applicable in bankruptcy adversary proceedings like this one under
Fed. R. Bankr. Pro. 7015. Rule 15(a)(1) provides that a party may amend its pleadings once as a
matter of course within 21 days after serving it or, if the pleading is one to which a responsive
pleading is required, within 21 days after service of a responsive pleading or certain Rule 12
motions, whichever is earlier. Rule 15(a)(2) then provides that thereafter, “a party may amend
its pleading only with the opposing party’s written consent or the court’s leave. The court should
freely give leave when justice so requires.” Of course, FPL Group here sought to amend its
answer well after any of the 21 day periods provided in Rule 15(a)(1). Therefore, Rule 15(a)(2)
applies.8
7 	Zimmerman Decl. II, ¶ 5. Though Mr. Zimmerman’s account of what he was told is of course hearsay, the
Trust’s counsel did not object to its consideration. The Court doubts that New Counsel thought that
describing Predecessor Counsel’s thought processes would bolster its client’s position on its motion. The
Court reads this statement instead as simply arguing the matter with candor.
8 	Some of the cases cited in this decision cite earlier versions of Fed. R. Civ. P. 15 and 16. The 2007
Amendments to Rules 15 and 16 were merely stylistic. See Notes to the 2007 Amendments. In the 2009
Amendments, “Rule 15(a)(1) [was] amended to make three changes in the time allowed to make one
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“[W]hether a motion to amend should be granted or denied must depend upon the sound
judicial discretion of the trial court.”9 In the context of cases that did not involve failures to
comply with the requirements of scheduling orders—and thus did not present Rule 16(b) issues
in addition to Rule 15(a) issues—the Second Circuit has held that a Rule 15(a) motion “should
be denied only for such reasons as undue delay, bad faith, futility of the amendment, and perhaps
most important, the resulting prejudice to the opposing party.”10 The burden of showing
prejudice or bad faith is on the non-movant, but “the longer the period of an unexplained delay,
the less will be required of the nonmoving party in terms of a showing of prejudice.”11
Conversely, the Circuit has further stated—though again in a case not involving the competing
demands of Rule 16(b) doctrine, discussed below—that “[m]ere delay, however, absent a
showing of bad faith or undue prejudice, does not provide a basis for a district court to deny the
right to amend.” 12
Accordingly, at least until doctrine under Rule 16(b), discussed below, is also considered,
determining the extent of prejudice is of great importance. “In determining what constitutes
‘prejudice,’ we consider whether the assertion of the new claim would: (i) require the opponent
to expend significant additional resources to conduct discovery and prepare for trial; (ii)
significantly delay the resolution of the dispute; or (iii) prevent the plaintiff from bringing a
amendment as a matter of course.” See Notes to the 2009 Amendments. No change was made to Rule
15(a)(2) or to Rule 16 in the 2009 Amendments. Both parties agree that Rule 15(a)(1), either in its pre or
post-2009 Amendments form, is not applicable here, and that only Rule 15(a)(2) is relevant. Therefore, the
Court does not consider it material that some of the decisions relied on here cited earlier versions of these
Rules.
9 	Evans v. Syracuse City School District, 704 F.2d 44, 47 (2d Cir. 1983) (“Evans”).
10 	See Richardson Greenshields Sec., Inc. v. Lau, 825 F.2d 647, 653 n. 6 (2d Cir. 1987); State Teachers
Retirement Board v. Fluor Corp., 654 F.2d 843, 856 (2d Cir. 1981) (“Fluor”).
11 	Block v. First Blood Associates, 988 F.2d 344, 350 (2d Cir. 1993) (“Block”) (citing Evans, 704 F.2d at 47).
12 	Block, 988 F.2d at 350 (quoting Fluor, 654 F.2d at 856).
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timely action in another jurisdiction.”13 “[T]he fact that one party has spent time and money
preparing for trial will usually not be deemed [sufficient] prejudice . . . Rather, we will be most
hesitant to allow amendment where doing so unfairly surprises the non-movant . . . .”14
Here, the Court determines that permitting Defendant FPL Group to amend its answer to
add this defense will prejudice the Plaintiff Trust somewhat, but only modestly.
The Trust asserts that the addition of this defense would result in undue prejudice because
it would force the Trust to engage in another wave of discovery—including additional document
requests, a re-deposition of Defendant’s Rule 30(b)(6) witness, and retention of experts.15 The
Court agrees that extra discovery would be required, but believes that the extra discovery would
be relatively modest. The Safe Harbor Defense would in substance be a legal one, which could
be established or disproven principally by delivery of a relatively modest number of documents.
If the Trust wished to show that any financial institutions through which the repurchased stock
and payment passed were merely conduits, and that avoidance would not cause any displacement
in the securities markets in any way, that might mean a little extra in the way of discovery, but
the Court does not believe that it would be significant. The Court is not convinced that
significant additional discovery would in fact be necessary, or that, if undertaken, it would have a
material effect on the timing of the determination of this controversy.
Looking to another factor, the Court is doubtful that assertion of a Safe Harbor Defense
would result in unfair surprise to the Trust. The Trust here has experienced counsel, and it is fair
to assume that the Trust’s counsel’s experience comports with that of the Court. This Court has
13 	Block, 988 F.2d at 350.
14 	Monahan v. New York City Dept. of Corrections, 214 F.3d 275, 284 (2d Cir. 2000) (noting that in Block,
“we permitted defendants to assert an affirmative defense in their motion for summary judgment four years
after the complaint was filed because plaintiffs had knowledge of the facts giving rise to the defense”).
15 	See Plaintiff’s Opp. Br., at 15-19.
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seen, over the years, that in all or substantially all of the cases in which a defendant in an
avoidance action can claim that there was a transaction involving securities, the defendant
contends that the challenged transaction was a “settlement transaction,” absolving the defendant
of the liability it would otherwise have—irrespective of “the displacement caused in the …
securities markets,”16 the purpose for which the safe harbor provisions were enacted. Defendants
in avoidance actions regularly raise the defense. The Court does not think that anyone would be
surprised when still another defendant does likewise.
The most significant harm that the Trust would suffer would be its inability to enjoy a
victory as to the Safe Harbor Defense before judicial consideration of the defense’s merits. That,
of course, is not cognizable prejudice under Rule 15(a).17 For these reasons, the Court finds the
Trust will be only modestly prejudiced if FPL Group’s motion is granted.
Considering only Rule 15(a) doctrine, other factors, on balance, do not cause the Court to
be inclined to deny leave to amend. Though the Court looks carefully at efforts to invoke the
Safe Harbor Defense in instances in which trading markets, or brokers that clear transactions, are
unaffected, the Court is not in a position to say that the proposed amendment would be futile.
The extent to which the Section 546(e) Safe Harbor should apply in avoidance actions that do not
involve risks to the trading markets or to the securities clearing process is a matter of ongoing
debate amongst the courts and bankruptcy community.
Finally, the Court considers the “bad faith” factor. It is at least arguable that FPL
Group’s earlier strategy in laying low with its Safe Harbor Defense constitutes grounds for a
16 	See Enron, n.2 above.
17 	See In re Perry H. Koplik & Sons, Inc., 2007 WL 3076921, at *5 (Bankr. S.D.N.Y. Oct. 18, 2007) (Gerber
J.) (granting leave to amend adversary proceeding complaint, though not in a case where time to amend
pleadings, under scheduling order, had passed; “while any defendant would no doubt welcome the
opportunity to be spared the need to defend additional claims by reason of his opponent’s misstep, the loss
of the windfall of securing victory before consideration of the merits, at least in this factual context, cannot
be regarded as legally cognizable prejudice”).
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finding of bad faith, though the Court does not believe that FPL Group’s request to raise the
defense explicitly now, or the conduct of New Counsel, can be regarded as such. But the Court
does not need to decide that issue definitively, because FPL’s Group strategy is, at the least,
relevant to the “good cause” inquiry under Rule 16(b), which applies here because FPL’s motion
to amend was untimely under the governing scheduling order.
2. The Need to Consider Rule 16(b)
“Although Rule 15(a) governs the amendment of pleadings,” where a scheduling order
has been entered, “Rule 16(b) also may limit the ability of a party to amend a pleading if the
deadline specified in the scheduling order for amendment of the pleadings has passed.”18 Rule
16(b) provides that a party may obtain a modification of a scheduling order “only for good cause
and with the judge’s consent.”19
The November 2006 Scheduling Order in this action set January 2, 2007 as the deadline
for amendment of pleadings, and FPL Group did not move to amend its Answer until January 20,
2011, four years later. Plainly, then, FPL Group’s motion is grossly untimely under the
Scheduling Order.
Whether good cause exists turns on the “diligence of the moving party.”20 The court may
modify a scheduling order if it determines that “the deadline cannot reasonably be met despite
the diligence of the party seeking the extension.”21 “Examples of a party’s failure to act with
18 	Kassner v. 2nd Ave. Delicatessen Inc., 496 F.3d 229, 243 (2d Cir. 2007) (“Kassner”). See also Parker v.
Columbia Pictures Indus., 204 F.3d 326, 340 (2d Cir. 2000) (“Parker”) (holding that “district court does
not abuse its discretion in denying leave to amend the pleadings after the deadline set in the scheduling
order where the moving party has failed to establish good cause”).
19 	Fed. R. Civ. P. 16(b)(4).
20 	Holmes v. Grubman, 568 F.3d 329, 334-35 (2d Cir. 2009) (“Holmes”).
21 	Parker, 204 F.3d at 340.
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sufficient diligence include basing a proposed amendment on information that the party knew, or
should have known, in advance of the deadline.”22
Here FPL Group has failed to show that despite reasonable diligence, it was unable to
meet that January 2007 deadline. There is no contention that FPL Group lacked any information
relevant to the Safe Harbor Defense before the January 2007 deadline, or that any new facts were
discovered after that time. In fact, the Court does not see how any such contention could be
made, since the mechanics by which FPL Group received its stock redemption payment
necessarily would have been known to it.
Moreover, FPL Group has acknowledged that Predecessor Counsel made an affirmative
decision not to include the Safe Harbor Defense in its Answer—because Predecessor Counsel
believed that section 546(e) was “not an affirmative defense that was required to be plead [sic],
but rather, was a non-waivable standing and jurisdiction argument that can be made by motion at
any time.”23 Assuming, as FPL Group has disclosed (as candor required it to do), that
Predecessor Counsel was aware of the Safe Harbor Defense and decided to omit it from the
Answer for tactical reasons (as contrasted, for example, to simply missing the issue),24 and that
22 	Fuller v. Interview, Inc., No. 07 Civ. 5728, 2011 U.S. Dist. LEXIS 21083, at *7, 2011 WL 724533, at *3
(S.D.N.Y. Feb. 25, 2011) (Freeman, M.J.) (citing Parker, 204 F.3d at 340). Cf. Emzymotec Ltd. v. NBTY,
Inc., 754 F.Supp.2d 527, 537 (E.D.N.Y. 2010) (Spatt, J.) (finding that good cause for leave to amend
complaint to add breach of contract claim after deadline to amend pleadings could be shown if party
moving for leave to amend learned of alleged breaches of contract only during discovery).
23 	Zimmerman Decl. II, ¶ 5.
24 	If Predecessor Counsel had simply missed the issue, the Court would not be as offended as it is here, but
the conclusion would be the same. Attorney inadvertence does not constitute good cause under Rule 16(b).
See Carnite v. Granada Hosp. Group, Inc., 175 F.R.D. 439, 448 (W.D.N.Y. 1997). See also Davidowitz v.
Patridge, No. 08 Civ. 6962, 2010 U.S. Dist. LEXIS 42322, at *10, 2010 WL 1779279, at *4 (S.D.N.Y.
April 23, 2010) (oversight by prior counsel is not an excuse for delay because “litigants are generally
‘bound by the professional conduct of the attorneys they choose to represent them’”); Glover v. Jones, No.
05-CV-6124, 2006 U.S. Dist. LEXIS 80667, at *14, 2006 WL 3207506, at *4 (W.D.N.Y. Nov. 3, 2006)
(rejecting argument that change in counsel constituted Rule 16 good cause because “[t]o hold otherwise
would be to allow a party to manufacture ‘good cause’ at any time simply by switching counsel”).
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FPL Group’s New Counsel (understandably)25 does not wish to continue with that strategy, it
still is clear that the failure to timely seek leave to amend to raise the defense is not supported by
“good cause,” and cannot be regarded as consistent with reasonable diligence. 	FPL Group could
clearly have raised the Section 546(e) Safe Harbor in its original answer, filed in October 2004,
or sought leave to do so in the next several years, up to January 2007.
Apart from the inaction itself and the lack of any showing of good reason for it, the Court
additionally thinks it should affirmatively find an absence of “good cause” when considering the
underlying tactical decision. In substance, FPL Group, by its agent, Predecessor Counsel,
intentionally thought it could “lay low” and hold back on a defense upon which it presumably
later would rely. That was unfair to FPL Group’s adversary, and is offensive to the Court. Was
FPL Group planning to go through the whole litigation, or even any material part of it, and then
claim that all of the prior proceedings were a nullity, by reason of a previously unstated subject
matter jurisdiction objection? Did FPL Group regard deadlines for pleadings under scheduling
orders to be of no significance, and want a secret hedge against dealing with the issues on their
merits? 26 The Court is not of a mind to reward tactics of that character, or, more specifically, to
determine that FPL Group’s decision now to discontinue those tactics constitutes “good cause.”
25 	The Court has some difficulty subscribing to the premise upon which that tactical decision rested, since
standing goes much more to the ownership of the cause of action (and whether the plaintiff was injured by
the conduct complained of) than it does to circumstances under which otherwise actionable conduct would
be absolved from civil liability. See, e.g., Buchwald v. The Renco Group., Inc. (In re Magnesium
Corporation of America), 399 B.R. 722, 757-760 (Bankr. S.D.N.Y. 2009) (analyzing factors that determine
whether standing would exist, and ultimately concluding that trustee had standing to assert claims for
breach of fiduciary duty, but not for defrauding purchasers of the debtor’s securities). But the important
thing here is not the strength or weakness of the analysis under which the tactical choice was made. It is
simply the fact that a tactical decision not to raise the defense had been made.
26 	Prepetition redemptions of stock by chapter 11 debtors tend to be matters of concern to this Court. But
there here are issues as to the merits of this adversary proceeding apart from the Safe Harbor Defense—
most significantly with respect to solvency in January 1999 (three years prior to the Debtors’ chapter 11
filing), and with respect to the possible significance if the payment on the stock repurchase was made, on
behalf of an insolvent Debtor, by Adelphia Cablevision LLC, referred to earlier in the chapter 11 case as
the “Bank of Adelphia,” the instrumentality through which many payments on behalf of Adelphia entities
were made. Each side would have to address Adelphia Recovery Trust v. Bank of America, N.A., 2011 U.S.
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For these reasons, the Court finds that FPL Group failed to act with any reasonable
diligence, and cannot be regarded as having shown “good cause” for its failure to raise the
defense sooner, or for leave to amend now.
3. Harmonizing Application of Rules 15(a) and 16(b)
FPL Group points out that under Rule 15(a)(2) doctrine, prejudice has traditionally been a
critical factor. And it goes on to argue that prejudice to the Trust has not been shown.27 Thus, it
argues, even if this Court were to find a lack of diligence on the part of FPL Group, leave to
amend should still be granted.
The Trust disagrees. It argues that when a motion to amend is made after the deadline
imposed under a scheduling order, a court can grant leave to amend only upon a finding of good
cause; that reasonable diligence is the primary, if not sole, factor for establishing good cause; and
that the Court can consider prejudice to the nonmoving party only after the Rule 16(b) diligence
threshold has been met.
In support of their respective positions, the Trust and FPL Group each note Parker and
Kassner,28 two Second Circuit decisions. In Parker, the Second Circuit first addressed the
showing required of a party moving to amend its pleading pursuant to Rule 15(a)(2) after the
deadline for amendment of pleadings in a scheduling order has passed. The Circuit observed that
Dist. LEXIS 39139, at * 22, 2011 WL 1419617 at *2 (S.D.N.Y. Apr. 7, 2011) (McKenna, J.) and In re
Adelphia Communications Corp. Securities and Derivative Litigation, 2011 WL 2581779 at *2 (S.D.N.Y.
Jun. 27, 2011) (McKenna, J.) (granting summary judgment to the defendants in each case on constructive
fraudulent conveyance claims where payments to the transferees were made by Adelphia Cablevision,
LLC), decisions as to which the Court now expresses no views.
Those issues can and should be determined on their merits. But at the risk of stating the obvious, FPL
Group could not, consistent with this Court’s scheduling orders, address those and the other relevant issues
on the merits and then, if the outcome as to them wasn’t to its liking, additionally argue that, because of
unwaivable standing and subject matter jurisdiction deficiencies, FPL Group should win anyway.
27 	Ultimately, the Court has here found that there would be some prejudice, but that the prejudice would be
modest. In light of the analysis that follows, the Court does not need to decide whether that distinction
would make a difference.
28 	Parker, 204 F.3d at 326; Kassner, 496 F.3d at 229.
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“[s]everal circuits have ruled that the Rule 16(b) ‘good cause’ standard, rather than the more
liberal standard of Rule 15(a), governs a motion to amend filed after the deadline a district court
has set for amending the pleadings.”29 One of the examples cited was a decision from the
Eleventh Circuit, in which the Eleventh Circuit stated “if we considered only Rule 15(a) without
regard to Rule 16(b), we would render scheduling orders meaningless and effectively would read
Rule 16(b) and its good cause requirement out of the Federal Rules of Civil Procedure.”30
The Parker court also cited approvingly a Ninth Circuit’s decision,31 speaking to the
importance of scheduling orders:
Disregard of the [scheduling] order would undermine the
court’s ability to control its docket, disrupt the agreed-upon
course of the litigation, and reward the indolent and the
cavalier. Rule 16 was drafted to prevent this situation[,]
and its standards may not be short-circuited by an appeal to
those of Rule 15.32
Thus in Parker, the Second Circuit concluded:
We now join these courts in holding that despite the lenient
standard of Rule 15(a), a district court does not abuse its
discretion in denying leave to amend the pleadings after the
deadline set in the scheduling order where the moving party
has failed to establish good cause.33
Six years later, in Kassner, the Second Circuit addressed whether Rule 16(b) also applied
when the party moving to amend would be entitled to amend as a matter of course under Rule
15(a)(1). The Kassner court held that “amendment of a pleading as a matter of course pursuant
to Rule 15(a) is subject to the district court’s discretion to limit the time for amendment of the
29 	Parker, 204 F.3d at 340.
30 	Id. (citing Sosa v. Airprint Sys., Inc., 133 F.3d 1417, 1419 (11th Cir. 1998) (per curiam)).
31 	Johnson v. Mammoth Recreations, Inc., 975 F.2d 604, 610 (9th Cir. 1992) (“Mammoth Recreations”).
32 	Parker, 204 F.2d at 340 (quoting Mammoth Recreations).
33 	Id.
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pleading in a scheduling order issued under Rule 16(b).”34 The Circuit remanded to the district
court on other grounds, but instructed that “[o]n remand, the district court must exercise its
discretion under Rule 16(b) to determine whether the scheduling order should be modified so as
to allow an amended complaint.”35 Citing Parker, the Kassner court clarified that while “the
primary consideration is whether the moving party can demonstrate diligence,” “[i]t is not,
however, the only consideration”—and that in the exercise of its discretion under Rule 16(b), the
district court “also may consider other relevant factors including, in particular, whether allowing
the amendment of the pleading at this stage of the litigation will prejudice defendants.”36
Then, in its 2009 decision in Holmes, three years after Kassner, the Second Circuit once
more considered the competing interests reflected in Rules 15(a) and 16(b). There the district
court had denied leave to amend after determining that the plaintiffs had not been diligent, and
had not shown good cause for their failure to include the proposed new claims in earlier versions
of the complaint.37 The Second Circuit reviewed for abuse of discretion and explained that “the
lenient standard under Rule 15(a), which provides leave to amend ‘shall be freely given,’ must
be balanced against the requirement under Rule 16(b) that the Court’s scheduling order ‘shall not
be modified except upon a showing of good cause.’”38 It concluded:
We agree with the District Court’s assessment of plaintiffs’
actions. The record is devoid of evidence supporting
plaintiffs’ contention that good cause existed for the
District Court to modify its scheduling order. Accordingly,
34 	Kassner, 496 F.3d at 244.
35 	Id.
36 	Id.
37 	Holmes, 568 F.3d at 334.
38 	Id. at 334-35 (citing Grochowski v. Phoenix Constr., 318 F.3d 80, 86 (2d Cir. 2003) (quoting older versions
of Federal Rules of Civil Procedure 15(a) and 16(b), and finding that district court did not abuse discretion
in denying motion to amend complaint where “plaintiffs delayed more than one year before seeking to
amend” and “when the motion was filed, discovery had been completed and a summary judgment motion
was pending”)).
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we affirm the District Court's denial of Holmes’s motion to
amend. 39
As in Parker, the Second Circuit in Holmes decided that applying Rule 16(b), and
requiring a showing of good cause, was not an abuse of discretion by the district court. Holmes
teaches that the interests embodied in Rules 15(a)(2) and 16(b) must be balanced,40 but is not
otherwise dispositive here.
Under the teaching of those cases, particularly Parker and Holmes, trial courts can deny
leave to amend if the Rule 16(b) concerns are serious enough, even with the “lenient standard of
Rule 15(a),” 41 and even if Rule 15(a)(2) analysis, considered in isolation, would suggest granting
leave to amend. 42 For reasons discussed above and below, once this Court undertakes a
balancing of the needs and concerns of Rules 15(a) and 16(b), its decision to deny leave to
amend, under the facts presented here, becomes a relatively easy one.
Many decisions of trial courts—which are mindful, as this Court is, of the importance of
scheduling orders—speak to the importance of finding that the moving party has been diligent in
order to grant leave to amend. 43 In Sokol, for instance, Chief Judge Wood of the district court
39 	Holmes, 568 F.3d at 335. After Holmes, it would appear plain that decisions on untimely motions for leave
to amend will be fact driven, and that trial courts will not be compelled to conclude, as a matter of law,
either that Rule 15(a) concerns, on the one hand, or Rule 16(b) concerns, on the other, necessarily must
prevail.
40 	See 568 F.3d at 334 (using that exact word).
41 	Parker, 204 F.3d at 340.
42 	The Court assumes, without deciding, that the converse likewise is true. It has been observed, properly in
this Court’s view, that “‘the Court [of Appeals] left open the possibility that amendments could be
permitted even where a plaintiff had not been diligent in seeking an amendment,’ inasmuch as ‘both Rules
should be considered simultaneously’ and the factors balanced.” Nycomed U.S. Inc. v. Glenmark Generics
Ltd., 2010 U.S. Dist. LEXIS 29267, at *33, 2010 WL 1257803, at *10 (E.D.N.Y. Mar. 26, 2010) (Mann,
M.J.) (citing Castro v. City of New York, 2010 U.S. Dist. LEXIS 19935, at *6, 2010 WL 889865, at *2
(E.D.N.Y. Mar. 6, 2010) (Reyes, M. J.) (acknowledging that “there may be may be situations in which
amendments should be permitted even in the absence of diligence” but declining to grant leave to amend
where movant did not offer any cause)).
43 	See, e.g., Sokol Holdings, Inc. v. BMB Munai, Inc., No. 05 cv 3749, 2009 U.S. Dist. LEXIS 100478, at *13,
2009 WL 3467756, at *5 (S.D.N.Y. Oct. 28, 2009) (“Sokol Holdings”) (Wood, C.J.); Compania
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overruled objections to Magistrate Judge Freeman’s memorandum and opinion denying leave to
amend the complaint. Judge Wood rejected the plaintiff’s argument that leave to amend should
be permitted because the defendants would not be prejudiced if the amendment were allowed—
stating “The standards of Rule 16(b) must be met first and cannot be short-circuited by an appeal
to those Rule 15.” 44 She continued:
The Magistrate Judge found that the Plaintiff’s failure to
comply with the Court’s scheduling order and to show
good cause for modification of that order precludes the
amendments in proposed Counts VI through X pursuant to
Rule 16(b). The Court finds that the Magistrate Judge’s
analysis and conclusion are correct. Consideration of
prospective prejudice to Defendants, or any other Rule
15(a) factor …, is therefore not warranted.45
Similarly, in Compania Embotelladora, Judge Rakoff of the district court denied leave to
amend because the moving party failed to show diligence in attempting to meet the deadline set
by the Court. 46 In comments with particular relevance here, he noted that “courts [had] found
good cause to be lacking where, as here, the moving party ‘had knowledge of the facts and
circumstances in the case for a period of several years and could have made their motion within
Embotelladora del Pacifico v. Pepsi Cola Co., 607 F.Supp.2d 600, 602 (S.D.N.Y. 2009) (“Compania
Embotelladora”).
44 	Sokol Holdings, 2009 U.S. Dist. LEXIS 100478, at *16, 2009 WL 3467756, at *5 (quoting Nairobi Holding
Ltd. v. Brown Brothers Harriman & Co, 2006 U.S. Dist. LEXIS 54171, at *9, 2006 WL 2242596, at *3
(S.D.N.Y. Aug. 3, 2006) (McKenna, J.) (overruling objections to determination of Magistrate Judge Katz
denying leave to file an amended complaint)) (emphasis added by Judge Wood).
Those cases, along with other authority at the district court level decided after Parker but before Holmes,
can be read as holding that the Rule 16(b) “good cause” requirement must first be met before Rule 15(a)
concerns can be considered. See also NAS Electronics., Inc. v. Transtech Electronics. PTE Ltd., 262
F.Supp.2d. 134, 150 (S.D.N.Y. 2003) (Koeltl, J.) (“NAS Electronics”) (denying leave to amend complaint,
stating that “[b]efore leave is granted [pursuant to Rule 15(a)], a motion to amend the pleading must satisfy
the terms of [the] Court’s scheduling order entered pursuant to Fed.R.Civ.P. 16(b),” and citing Parker).
Even if that no longer is true after Holmes expressed the need to engage in a balancing test, these decisions
inform the judgment of trial courts deciding similar issues, emphasizing the importance of compliance with
scheduling orders.
45 	Sokol Holdings, 2009 U.S. Dist. LEXIS 100478, at *17, 2009 WL 3467756, at *6.
46 	Compania Embotelladora, 607 F.Supp.2d at 602.
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the specified time period.’”47 Although he went on to find that the motion to amend also failed
under Rule 15(a) on grounds of futility and undue delay by the movants, Judge Rakoff made it
clear that the lack of good cause alone was sufficient to deny leave to amend. 48
And in NAS Electronics, Judge Koeltl denied the plaintiffs’ motion to amend their
complaint, stating that “[t]he plaintiffs had knowledge of the facts and circumstances in the case
for a period of several years and could have made their motion within the specified time period.
This lack of diligence and absence of good cause for such a delay requires that the plaintiffs’
motion to amend be denied as untimely.”49
And still more decisions, from magistrate judges in this district, who have considerable
experience in dealing with issues of this character, hold likewise. In two recent decisions,
Magistrate Judge Maas treated the good cause requirement as mandatory,50 and noted that
“[a]lthough a court also may consider whether the amendment will prejudice the non-moving
party, the mere absence of prejudice is not sufficient to satisfy the good cause requirement of
Rule 16(b).” 51 And Magistrate Judge Fox stated in recent decisions that “[a]fter the moving
party demonstrates diligence under Rule 16, the Rule 15 standard applies to determine whether
47 	Id. (quoting NAS Electronics).
48 	See id. at 604 (“For all of the foregoing reasons (any one of which is alone sufficient),” the movant’s
motion for leave to file an amended complaint was denied (emphasis added)).
49 	NAS Electronics, 262 F.Supp.2d at 150-51.
50 	See Oppenheimer & Co. Inc. v. Metal Management, Inc., No. 08 Civ. 3697, 2009 U.S. Dist. LEXIS 71608,
2009 WL 2432729 (S.D.N.Y. July 31, 2009) (“Oppenheimer & Co”); International Media Films, Inc. v.
Lucas Entertainment, Inc., 2008 WL 781823 (S.D.N.Y. Mar. 20, 2008).
51 	Oppenheimer & Co, 2009 U.S. Dist. LEXIS 71608, at * 5, 2009 WL 2432729, at *2 (citing Estate of
Ratcliffe v. Pradera Realty Co., No. 05 Civ. 10272, 2007 U.S. Dist. LEXIS 78070, at *1, 2007 WL
3084977, at *1 (S.D.N.Y. Oct.19, 2007) (Keenan, J.) (“Ratcliffe”)) (emphasis added). See also Augustine
v. AXA Financial, Inc., No. 07 Civ. 8362, 2008 U.S. Dist. LEXIS 95505, at *5, 2008 WL 5025017, at *2
(S.D.N.Y. Nov. 24, 2008) (Sweet, J.) (quoting same sentence in Ratcliffe).
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the amendment is proper” 52 —underscoring, once more, the importance of the diligence
requirement.
FPL Group argues that all of these cases have no bearing here because in all them, at the
time the movant sought leave to amend, discovery had already been completed and, in some,
motions to dismiss or motions for summary judgment had already been filed.53 Therefore, FPL
Group asserts, attempting to contrast those cases to this one, “the facts of those cases establish
the obvious prejudice that would occur if the motion were granted.”54
But even if FPL Group is right about the timing of the motions to amend in those cases,
its observation is not dispositive. In each of those many decisions, the court reasoned that leave
to amend should be denied either primarily or solely based upon a finding that the moving party
had failed to act with reasonable diligence. Those courts did not rest their decisions on whether
or not the non-moving party would suffer prejudice. The reason that the judges in those cases, as
FPL Group argues, “went out of their way to make the point that discovery was completed” 55
was that the timing of the motions to amend was relevant to whether the movant was diligent.
While the timing of the motion may also have been relevant to whether the non-moving party
would be prejudiced, such an inquiry was not a material element in the courts’ reasoning in those
decisions.
Ultimately, the Court does not need to, and does not, rule that Rule 16(b) doctrine always
trumps the doctrine under Rule 15(a)(2). The Court determines, rather, consistent with Holmes,
52 	De Malmanche v. Glenrock Asset Management Associates, L.P., No. 07 Civ. 10940, 2011 U.S. Dist.
LEXIS 28632, at *15, 2011 WL 990165, at *5 (S.D.N.Y. Mar. 16, 2011); Grant v. Citibank, No. 10 Civ.
2955, 2010 U.S. Dist. LEXIS 128824, at *21, 2010 WL 5187754, at *7 (S.D.N.Y. Dec. 6, 2010) (emphasis
added).
53 	See 2/23/11 Hr’g Tr. at 46-47; Defendants’ Reply Br. at 5-6.
54 	Defendants’ Reply Br. at 5.
55 	2/23/11 Hr’g Tr. at 46.
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that a balancing of the needs and concerns of the two Rules should be undertaken. And under
the facts presented here, that balancing tips decidedly in favor of denying leave to amend. Here
failure to comply with the scheduling orders did not result from ignorance or excusable neglect.
The sole reason for noncompliance with this Court’s scheduling orders was a tactical choice—
and an offensive one, at that. Here, even with only modest prejudice to the nonmoving party, the
Court will not reward the knowing noncompliance with this Court’s scheduling orders by now
granting leave to amend.
The motion is denied.
SO ORDERED.
Dated: New York, New York 	s/Robert E. Gerber
July 13, 2011 	United States Bankruptcy Judge
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