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U.S. Bank National Association, Etc v. Turquoise Properties Gulf

April 5, 2011


The opinion of the court was delivered by: William H. Steele Chief United States District Judge


This matter is before the Court on the plaintiff's motion for leave to file a third-party complaint. (Doc. 386). Certain affected parties have filed briefs in opposition, (Docs. 394, 396), and the motion is ripe for resolution.

The plaintiff, escrow agent in connection with the development of a large condominium project, filed this statutory interpleader action in April 2010, naming the developer ("Turquoise") and myriad purchasers as defendants. In June 2010, Turquoise filed a nine-count counterclaim against the plaintiff. (Doc. 18). Counts Eight and Nine of the counterclaim allege that the plaintiff breached its fiduciary duty to Turquoise, and engaged in willful misconduct or gross negligence, in connection with its dealings with letters of credit posted by purchasers Cleveland Properties, LLC ("Cleveland"); Reservation, LLC ("Reservation"); and Michael C. Molleston, resulting in Turquoise's inability to recover the proceeds of the letters of credit as liquidated damages for the purchasers' default in failing to close. (Id. at 39-40, 50, 51).*fn1

On December 15, 2010, Turquoise timely moved for leave to file an amended counterclaim. (Doc. 342). After the plaintiff declined to object, the Court granted the motion. (Doc. 364). The only change wrought by the amended counterclaim was to add to Counts Eight and Nine the allegation that the plaintiff similarly mishandled a letter of credit posted by purchaser Kramer Family Investments, LLC ("Kramer"). (Doc. 366 at 41, 51, 53).*fn2

The instant motion seeks leave to file a third-party complaint against Cleveland, Reservation, Molleston and Kramer. According to the proposed third-party complaint, Turquoise asserts that these purchasers are in default and that Turquoise is thus contractually entitled to all or most of the proceeds of each letter of credit that the plaintiff allegedly mishandled, while the purchasers assert that Turquoise breached various duties and thus is entitled to nothing. Without actually articulating a cause of action, the proposed third-party complaint asserts that, if Turquoise has been damaged by the purchasers' failure to close, its losses are the responsibility of the purchasers and not the plaintiff. (Doc. 386, Exhibit D).

The plaintiff argues that its motion is superfluous because Rule 14(a)(1) requires leave of court only "if [the plaintiff] files the third-party complaint more than 14 days after serving its original answer." The plaintiff construes this language to refer to its original answer to the amended counterclaim. (Doc. 386 at 3-4). The plaintiff's answer to the amended counterclaim was filed and served on January 26, 2011, (Doc. 378), less than 14 days before the instant motion was filed.

As noted, however, the amended counterclaim added nothing concerning Cleveland, Reservation or Molleston. As to these purchasers, for purposes of Rule 14(a)(1) it is clearly the plaintiff's answer to the original counterclaim that matters, and that answer was filed in June 2010. (Doc. 55). Rule 14 plainly requires the Court's leave in order to file a third-party complaint against these purchasers.

Rule 16(b) mandates that the scheduling order "must limit the time to join other parties [and] amend the pleadings." A third-party complaint is a pleading, Fed. R. Civ. P. 7(a)(5), and it seeks to join other parties. Efforts to file third-party complaints thus must comply with the time limits prescribed by the Rule 16(b) scheduling order. At the parties' request, (Doc. 303 at 8), the Rule 16(b) scheduling order established a December 15 deadline to move for leave to amend the pleadings or join other parties. (Doc. 340 at 3). The plaintiff's motion for leave to file a third-party complaint, however, was not filed until February 4, 2011.

"A schedule [entered under Rule 16(b)] may be modified only for good cause and with the judge's consent." Fed. R. Civ. P. 16(b)(4). "This good cause standard precludes modification unless the schedule could not be met despite the diligence of the party seeking the extension." Sosa v. Airprint Systems, Inc., 133 F.3d 1417, 1418 (11th Cir. 1998) (internal quotes omitted). The plaintiff does not acknowledge or attempt to meet this standard, and it clearly has not been met. Cf. Lepone-Dempsey v. Carroll County Commissioners, 476 F.3d 1277, 1281 (11th Cir. 2007) ("Good cause [under Rule 4(m)] exists only when some outside factor ... rather than inadvertence or negligence prevented service.").

With respect to Kramer, the situation is somewhat different. The plaintiff could not have filed a third-party complaint against Kramer before Kramer was made the subject of Turquoise's amended counterclaim. The plaintiff concedes there is an inconclusive "split" as to whether Rule 14(a)(1) requires leave of Court under such circumstances, (Doc. 386 at 3), but the Court need not attempt to resolve it. Whether or not Rule 14 requires leave of Court to file a third-party complaint against Kramer, Rule 16 (b) and the scheduling order entered thereunder plainly do so.

As noted, such approval depends on a showing of good cause as described above. Turquoise received permission to file its amended counterclaim on January 3, 2011 and filed it two days later. Because the plaintiff could not file a third-party complaint against Kramer before Turquoise's amended counterclaim was allowed and filed, the plaintiff has good cause for its failure to file the instant motion before January 5. The plaintiff, however, did not file the instant motion until February 4, some 30 days after the amended counterclaim was filed and a full 51 days after the plaintiff was made aware of the proposed counterclaim by its filing as an attachment to Turquoise's motion for leave to file. The plaintiff has not sought to show good cause for this delay.

Even had the plaintiff timely moved for leave to file a third-party complaint, its proposed filing is not in reality a third-party complaint. A party may file a third-party complaint against a non-party "who is or may be liable to it for all or part of the claim against it." Fed. R. Civ. P. 14(a)(1). The third-party defendant must be allegedly liable to the third-party plaintiff, but the proposed third-party complaint does not allege that the purchasers are liable to the plaintiff for anything. It does not allege that the purchasers owe or have breached any duty to the plaintiff, it does not articulate any claim against the purchasers, and it does not request relief from them contingent on the plaintiff's liability to Turquoise. It simply seeks a judgment that any claims by Turquoise regarding the purchasers and their letters of credit "are the responsibility of [the purchasers] and not" the plaintiff. (Doc. 386, Exhibit D at 4).

The plaintiff acknowledges that "[t]he court's discretion [to allow a third-party complaint] may only be exercised when the claim is within the scope of impleader established by Rule 14(a)." (Doc. 386 at 5 (internal quotes omitted)). It also acknowledges that a third-party complaint is improper if the plaintiff "cannot show a basis for the third-party defendant's liability to" the plaintiff. (Id. (internal quotes omitted)). To whatever extent it might have discretion to allow the third-party complaint despite its facial impropriety, the Court declines to exercise it in favor of allowing the filing.

On December 15, 2010, the plaintiff filed a motion to join parties, including Cleveland, Reservation, Molleston and Kramer. (Doc. 344). The Court denied the motion because the plaintiff identified no rule, principle, analysis or authority in support of its motion. (Doc. 368). The plaintiff asks the Court to reconsider that ruling. (Doc. 386 at 9). In support, the plaintiff explains that its motion to join parties was grounded on Rule 19 and that, in the absence of these purchasers, the Court cannot accord complete relief among the existing parties and the plaintiff is subject to inconsistent obligations due to the purchasers' interests. (Id. at 9-10). Because the ...

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