Charles W. Ries v. Scarlett & Gucciardo, PA, et al.

No. 13-6003 (8th Cir. August 1, 2013).
Applying the plain language of Fed. R. Civ. P. 15(c)(1), the Eighth Circuit affirmed the principle that whether the party seeking to amend a pleading knew when the original pleading was filed of the identity of the party left out is irrelevant to the question of whether the amended pleading may relate back to the date of the original pleading. Rather, the ability to relate back an amendment to the date of the original pleading depends on whether the party to be added knew or should have known that, but for the mistake, it would have been named in the original pleading. Additionally, this case serves as an important reminder of the value in structuring settlement agreements to safeguard against the possibility that a bankruptcy filing thereafter could leave the nondebtor party to disgorge settlement payments as preferential transfers without the ability to resurrect the claims originally settled in consideration therefore.
Procedural context:
Appeal of the bankruptcy court’s order granting chapter 7 trustee’s motion to amend his original complaint to join an additional defendant and have it relate back to the date of the original complaint. In addition, the appeal challenged the bankruptcy court’s rulings that the preferential transfer was neither a contemporaneous exchange within the meaning of 11 U.S.C. § 547(c)(1) nor made in the ordinary course of business under 11 U.S.C. § 547(c)(2).
Prior to the bankruptcy filing, Michael Calandrillo entered into a settlement agreement with an affiliate of the debtor resolving his claims for breach of contract relating to the purchase of a defective boat in exchange for the payment of $65,000 to Calandrillo (a portion of which was retained by his law firm, Scarlett & Gucciardo, for its fees). After the debtor’s case, originally filed under chapter 11, was converted to chapter 7, the chapter 7 trustee (Ries) brought an action mistakenly against the law firm to avoid the payment as a preferential transfer under 11 U.S.C. § 547(b). After learning that the law firm was a mere “conduit” for the payment, Ries sought leave to amend his complaint—after the one-year deadline for filing preference actions under 11 U.S.C. § 546(a)(1)(B) but within the 120-day time limit established by F. R. Civ. P. 4(m)—to add Calandrillo as a defendant and to relate back the filing of the amended complaint to the date of the original complaint. Affirming the lower court ruling, the Eighth Circuit rejected Calandrillo’s arguments and concluded that the relation back was proper, as Calandrillo “knew or should have known the preferential transfer action would have been brought against him, but for that mistake.” On the two preference defenses, the Eighth Circuit affirmed the lower court ruling as well, noting that the settlement agreement, which provided for the settlement payment to be made at least 15 days after the execution of certain lien release documents, belied the suggestion of a contemporaneous exchange. Moreover, the Eighth Circuit affirmed there was nothing in the nature of either party’s business to suggest that a payment made in the course of a settlement reached through arbitration arose in the ordinary course of either party’s business.
Federman, Saladino, and Nail.

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