Enron Corp. v. J.P. Morgan Securities Inc. (In Re Enron Corp.)Enron Corp. v. J.P. Morgan Securities Inc. (In Re Enron Corp.)
OPINION REGARDING PLAINTIFF’S MOTION FOR LEAVE TO AMEND ITS COMPLAINT AGAINST MERRILL LYNCH INVESTMENT MANAGERS CO., LTD.
FACTUAL AND PROCEDURAL HISTORY
The Debtors
Commencing on December 2, 2001, and from time to time continuing thereafter,
Motion for Leave to Amend the Complaint
On November 6, 2003, Enron initiated this adversary proceeding to recover more than one billion dollars that was allegedly prepaid or redeemed to certain financial institutions, including Merrill Lynch Investment Managers L.P. (“MLIM”), prior to the maturity of A2/P2 commercial paper. In the original complaint, Enron filed suit against all defendants pursuant to Sections 502(d), 544(b), 547(b), 548(a), and 550 of the Bankruptcy Code. Specifically, regarding section 550 of the Bankruptcy Code, Enron alleged that the defendants, including MLIM, were (1) initial transferees of the early redemptions of Enron commercial paper, (2) entities for whose benefit such prepayment was made, or (3) immediate or mediatе transferees of such prepayment. Merrill Lynch Investment Managers Co., Ltd. (“MLIM Japan”) is a separate entity from MLIM that is licensed in Japan as a Japanese investment trust manager and a Japanese investment advisory service firm. MLIM Japan was not named as a defendant in the original complaint. On November 6, 2003, Enron filed a motion seeking the Court’s assistance in the production of documents that identified transferees and beneficiaries of such prepayments.
On November 18, 2003, the Court issued an order (the “November 18 Order”), which directed certain parties, including MLIM, to disclose initially to Enron the names, and if available, the addresses and telephone numbers of the transferees and/or beneficiaries in connection with the commercial paper transactions. By the November 18 Order, MLIM was directed to make limited Fed.R.Civ.P. 26(a)(1)(A) initial disclosures on an expedited basis of the information regarding the entity with CUSIP Number 29356AYS9 for the amount of $24,958,333.33 (“Transaction 1”) and 29356AZE9 for the amount of $49,851,166.67 (“Transaction 2”, collectively with Transaction 1, the “Transactions”). According to Enron, MLIM disclоsed the names of certain parties pursuant to the November 18 Order. MLIM Japan was not one of the parties disclosed by MLIM. According to MLIM, MLIM Japan was not disclosed because it was not a transferee and/or beneficiary of the Transactions.
On December 1, 2003, Enron amended its original complaint to add transferees and/or beneficiaries of the commercial paper transactions disclosed pursuant to the November 18 Order (the “First Amended Complaint”). MLIM was named as a defendant in the First Amended Complaint. MLIM Japan was not named as a defendant in the First Amended Complaint.
On or about December 2, 2003, pursuant to section 546(a) of the Bankruptcy Code, the statute of limitations for preference actions expired.
On February 19, 2004, MLIM joined certain defendants in a motion to dismiss the First Amended Complaint pursuant to section 546(e) and 548(d)(2)(B) of the Bankruptcy Code. On March 25, 2004, MLIM filed a motion for summary judgment (the “Motion for Summary Judgment”) regarding the repurchase transactions for which Enron alleged MLIM to be a transferee and/or beneficiary as set forth in the First Amеnded Complaint. MLIM argued that it could not be liable for the Transactions because MLIM was neither a
Further, in the Motion for Summary Judgment, MLIM asserted, among other things, that MLIM Japan’s involvement was that of an advisor for its client with regard to the Transactions and was not a transferee and/or beneficiary. Specifically, MLIM asserted that MLIM Japan had no ability to use the proceeds of the Transactions for the benefit of MLIM Japan or MLIM and MLIM Japan did not possess any legal or beneficial interest in those proceeds. However, MLIM conceded that MLIM Japan could direct the use of those proceeds in accordance with its investment management obligations to its clients under a trust agrеement. On August 29, 2005, the Court issued an opinion (the “August 29 Opinion”) finding that summary judgment determination would be premature prior to affording Enron an opportunity to conduct discovery for various facts that are within the control of MLIM.
On May 13, 2004, at Enron’s request, the Court issued an order directing certain defendants in this adversary proceeding to comply with the November 18 Order (the “May 13 Order”). However, MLIM was not one of the defendants within Enron’s request and therefore not included in the May 13 Order. On the same date, the Court granted Enron’s Motion for Extension of Time for Service of the Amended Complaint (the “Motion for Extension of Time”), which extended the time for service of the First Amended Complaint to and including September 30, 2004.
MLIM Japan received actual notice of this adversary proceeding on September 29, 2004. On October 19, 2005, Enron filed a motion for leave to amend its complaint (the “Motion for Leave to Amend”), requesting, among other things, to add additional parties whom Enron alleged were transferees and/or beneficiaries of the prepayment of Enron commercial paper, including MLIM Japan, as new defendants in this adversary proceeding pursuant to Federal Rule of Civil Procedure 15(c)(3) (“Rule 15(c)(3)”).
On December 1, 2005, MLIM and MLIM Japan jointly filed an objection to the Motion for Leave to Amend. A hearing was held on December 15, 2005 (the “December 15 Hearing”).
DISCUSSION
Parties’ Contentions
Enron seeks. to add a new defendant, MLIM Japan, relating back to its original complaint and the First Amended Complaint pursuant to Rule 15(c)(3).
1
Citing
Randall’s Island Family Golf Ctr. v. Acushnet Co. (In re Randall’s Island),
In response, MLIM and MLIM Japan argue that Enron does not satisfy the requirements of Rule 15(c)(3) for its failure to include MLIM Jaрan in the First Amended Complaint. Citing
Barrow v. Wethersfield Police Dep’t,
Additionally, MLIM and MLIM Japan argue that the Byrd case is not applicable because (1) MLIM never concealed the identity of MLIM Japan and, in fact, disclosed the related information to Enron, (2) Enron never sought any discovery from MLIM within the limitations period, and (3) Enron failed to use Rule 2004 to discover MLIM Japan’s identity, even if MLIM Japan were a transferee or beneficiary of the Transactions. Further, they argue that Randall’s Island is distinguishable from the facts in the instant matter. Randall’s Island discussed a situation where a plaintiff made a mistake by naming “mere conduits” as defendants originally and, later sought a relation-back of a transferee. By contrast, here, they assert that MLIM Japan aсting as an investment adviser was not a transferee and/or beneficiary of the Transactions and there is no allegation that MLIM acted as an agent for MLIM Japan in the Transactions.
Lastly, MLIM and MLIM Japan argue that the period of time between the point at which Enron had knowledge of MLIM Japan’s existence and Enron’s filing of its Motion for Leave to Amended against MLIM Japan was unreasonably lengthy. As a result, MLIM Japan argues that Enron’s motion should be denied because of undue delay.
In response to their argument that MLIM did not conceal the identity of MLIM Japan, Enron asserts that MLIM was served with the November 18 Order, but it did not disclose MLIM Japan’s identity and involvement pursuant to the November 18 Order. Instead, MLIM identified other non-affiliated transferees and beneficiaries of certain commercial paper transactions.
At the December 15 Hearing, MLIM and MLIM Japan countered that it is justifiable for MLIM not to reveal MLIM Japan because MLIM Japan, merely as an investment adviser, does not fit in the categories of “transferees” or “beneficiaries” pursuant tо the November 18 Order.
Rule 15(c) provides, in pertinent part, that
An amendment of a pleading relates back to the date of the original pleading when
(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.
Fed.R.Civ.P. 15(c)(2)-(3).
Generally, the intent of Rule 15(c) is “to protect a plaintiff who mistakenly names a party and then discovers, after the relevant statute of limitations has run, the identity of the proper party. Rule 15(c) was never intended to assist a plaintiff who ignores or fails to respond in a reasonable fashion to notice of a potential party.”
Kilkenny v. Arco Marine, Inc.,
The Court has held previously that the party who asserts relation-back bears the burden of proof.
In re Enron Corp.,
In the instant matter, none of the parties dispute the satisfaction of the first requirement under Rule 15(c). The contested issues presented are (1) whether a mistake under Rule 15(c) has occurred so that a plaintiffs claim against a new defendant can relate back, and, if so, (2) whether adding a new defendant after the statute of limitations expired would have a prejudicial effect on the new defendant in maintaining its defense.
I. Mistake
The Second Circuit has found that the “mistake” requirement “presupposes that in fact the reason for [a new defendant] not being named was a mistake in identity.”
Cornwell v. Robinson,
To establish a “mistake” under Rule 15(c)(3), a plaintiff must show either a factual mistake (for example, he оr she misnamed a party or misidentified the party [it] wished to sue) or a legal mistake (for example, he or she misunderstood the legal requirements of his or her cause of action).
Enron,
A. The Byrd, Barrow, Randall’s Island Cases
In this section, the Court will discuss the parties’ contentions under precedent in the Second Circuit and certain cases that have interpreted that precedent.
The Byrd Analysis
The Court agrees with MLIM and MLIM Japan that the
Byrd
case does not support to grant relation-back relief sought by Enron. The
Byrd
court emphasized and examined defense counsel’s conduct constituting active concealment.
See Byrd,
The Barrow Case
MLIM and MLIM Japan argue that Enron fails the mistake test under
Barrow
because Enron is attempting to correct a lack of knowledge of the identity of MLIM Japan through relation-back, not to correct a mistake. In
Barrow,
the court concluded that the “mistake” requirement was not satisfied if adding the new defendant was not to correct a mistake, but to correct a lack of knowledge.
Barrow,
The Court disagrees with MLIM’s and MLIM Japan’s interpretation and application of the
Barrow
case. First, the instant case is distinguishable factually from
Barrow.
The
Barrow
court was not confronted with a situation where a plaintiff did not know that the existing defendant might not be properly identified for each aspect of the transaction at issue. Nor was it presented with a situation where a plaintiff did not know the existence of a possible new defendant prior to the expiration of the statute of limitations. In
Barrow,
the plaintiff knew that suing only the police department would not suffice because “[рlaintiff] was informed by the court — • within the limitations period ... that he needed to name the individual officers as defendants.”
Barrow,
Second, in addition to factual differences from
Barrow,
the Court finds that
The Randall’s Island case
The Court also disagrees with MLIM’s and MLIM Japan’s argument that the Randall’s Island case is distinguishable from the instant matter.
In the instant matter, MLIM and MLIM Japan argue that Randall’s Island is not applicable entirely because MLIM Japan acted as an investment adviser, not a transferee and/or beneficiary of the Transactions and there is no allegation that MLIM acted as an agent for MLIM Japan in the Transactions. Insofar as MLIM and MLIM Japan are making such assertion, the issues as to whether MLIM Japan was a transferee or beneficiary of the commercial paper transactions and whether MLIM was a “conduit” are before the Court.
In fact, in the Motion for Summary Judgment, MLIM argued that it was not a transferee because it did not exеrcise “dominion or control” over the proceeds of the alleged commercial paper transactions. In addition, MLIM in the Motion for Summary Judgment asserted that had MLIM Japan been named as a defendant in the First Amended Complaint, MLIM Japan would have raised the defense that it was not a transferee. In making that argument, MLIM did not raise a specific “conduit” defense for a 550 recovery action. However, it cited the leading “conduit” defense cases to support its proposition that it was not a transferee.
In re Finley, Kumble, Wagner, Heine, Underberg, Manley, Myerson & Casey,
Similarly, in the instant matter, pending further discovery, it is uncertain whether MLIM acted as an agent for MLIM Japan in the Transactions. As discussed previously, there is no dispute concerning Enron’s lack of knowledge regarding MLIM Japan at the time of filing the First Amended Complaint or within the statute of limitations. In addition, Enron has not had an opportunity to conduct discovery for various facts that wеre within the control of MLIM. It is understandable for Enron not to be aware of any agency relationship, among other things, between MLIM and MLIM Japan. However, Enron’s motions for the November 18 Order and the May 13 Order requested that the Court required certain defendants to disclose information regarding any potential beneficiary and transferee of the Transactions. Those motions demonstrate that Enron intended to name any transferee and/or beneficiary of the Transactions as “the initial or subsequent transferees” in a section 550 recovery action in the First Amended Complaint, including MLIM Japan, even if it was not aware of their identity, involvement and possible relationships with their affiliates.
Therefore, the common facts between
Randall’s Island
and the instant matter include (1) there was no evidence to support that plaintiff(s) knew of added defendant’s involvement in the alleged transactions, and (2) plaintiff(s) intended to recover from transferees of the alleged transfer(s). The
Randall’s Island
court found that there was no evidence to support that the plaintiffs knew that such transferee was involved in the alleged transactiоns, but nonetheless decided to sue a “conduit” at the time of original complaint.
In re Randall’s Island,
B. The Alberts Analysis
The
Alberts
court found that a plaintiff seeking a section 550 recovery action relies on the bankruptcy court’s factual and legal determination as to whether an existing defendant was in fact, a transferee of the alleged transactions.
See Alberts,
(a) Rule 15(c) and the Role of the Existing Defendant
The
Alberts
case involved a bankruptcy proceeding in which plaintiff, debtor, sought to avoid and recover various payments he had already made to certain parties under sections 544, 547, 548, 549, and 550 of the Bankruptcy Code.
Id.
at OS-OS. Initially, Alberts believed that defendant, Arthur J. Gallagher Co. (“AJG”) was the sole initial transferee of each transaction under a section 550 recovery action.
Id.
After the statute of limitations expired, Alberts amended the original complaint to add under Rule 15(c) three other insurance companies to the original complaint after it was revealed through AJG’s answer to Al-berts’s initial complaint that the other three insurance companies were involved in at least some of the debtor’s payments.
Id.
In its answer, AJG raised a conduit defense with regard to at least some of the debtor’s payments arguing that AJG was not the initial transferee but rather AJG served a mere conduit purpose, and alleged that the three new defendants were the initial transferees under section 550.
Id.
Accordingly, without dropping the existing defendant, Alberts sought to add the newly identified insurance companies as defendants in the case; in response, the insurance companies sought dismissal (through individual motions to dismiss) based on the expiration of the applicable statute of limitations.
Id.
The
Alberts
court found that a plaintiff seeking a section 550 recovery action relies on the bankruptcy court’s factual and legal determina
In the instant matter, MLIM Japan filed an opposition to Enron’s motion for leave to amend its petition to add thе newly identified parties, including MLIM Japan. Though procedurally distinguishable, a comparison of the Alberts case to the instant matter is nevertheless appropriate because of the similarity in factual and legal questions involved. The Alberts case discussed a “conduit” defense raised by an existing defendant. Here, further discovery is required to determine whether there was an agent relationship, such as a “conduit-transferee” relationship, between MLIM and MLIM Japan. Further, in AlbeHs, there was no dispute that the existing defendant was involved in the transaction at issue, but, as a “conduit,” if such were found in a separate proceeding, the existing defendant would not be liable for the transfer. Similar to the Alberts analysis, the instant matter involves a non-adjudicated issue as to whether an existing defendant, MLIM, was a transferee. MLIM would not be liable for the Transactions to the extent that MLIM were found not to be involved in the Transactions.
As discussed previously, it is essentially a legal issue whether MLIM had a “dominion or control” or legal authority over those proceeds and, therefore, qualified as a transferee or beneficiary of the Transactions. Therefore, there has not been a determination as to what extent MLIM may be a transferee and/or beneficiary under section 550. Thus, both in Alberts and the instant matter, the respective bankruptcy court will have to determine the extent to which the existing defendant was properly named as transferee and/or beneficiary. Such determination will form the basis of the resolution of the issue as to whether a Rule 15(c) mistake can be established.
(b) Adding a New Defendant
The Alberts court reasoned, among other considerations, that (1) no precedent in its circuit requires a plaintiff to replace the existing defendant with a new one, and (2) a plaintiff seeking a section 550 recovery action will typically rely on the bankruptcy court to resolve the legal question as to the identity of the “initial transferee” within the section. As a result, the Alberts court concluded that whether Alberts made a mistake under Rule 15(c) for a relation-back depends on the court’s resolution of the legal question as to the identity of the “initial transferee.” Id. at 99. If after discovery, the court later determines that AJG was a mere conduit, not a transferee of the entire alleged preferential payment, Alberts made a mistake in naming AJG as the sole initial transferee. Id. at 99-100. If the court later determines that AJG was a conduit of a divisible portion of alleged preferential payment, then Alberts made a mistake to the extent that AJG was not an “initial transferee.” Id. at 100. Under both situations, Alberts would substitute the three new defendants in place of AJG to the extent that AJG was a conduit. Id. However, the Alberts court held that to the extent that AJG was the initial transferee of the entire payment, “Rule 15(c)(3) may not be employed by Alberts to pursue the [three new defendants] under 11 U.S.C. § 550(a)(2) as subsequent (‘immediate or mediate’) transferees from AJG of same dollars for which AJG was the initial transferee. As to such transfers, Alberts did not make a mistake in suing AJG as liable.” Id. at 99.
In the instant matter, as discussed previously, Enron intended to name every transferee and/or beneficiary of the Transactions as “the initial or subsequent trans
MLIM and MLIM Japan argue that Enron cannot claim that it mistook MLIM for MLIM Japan because Enron is not requesting to replace MLIM with MLIM Japan. With respect to Enron’s request in its amendment that MLIM and MLIM Japan remain as co-defendants, the Court has not found any Second Circuit precedent stating the proposition that relation-back applies on the prerequisite that a plaintiff
must
replace or drop an existing defendant with adding a new one in the complaint. On the contrary, the Second Circuit allows relation-back of an additional defendant to the extent that a mistake in identity of an existing defendant’s role in the same transaction occurred.
See VKK Corp. v. National Football League,
As mentioned in
Alberts,
the Third Circuit, the Fourth Circuit and the Sixth Circuit require a plaintiff to replace an existing defendant when seeking a relation-back under Rule 15(c)(3).
Id.
(citing
Leitch v. Lievense Ins. Agency, Inc. (In re Kent Holland Die Casting & Plating, Inc.),
For purposes of the Rule 15(c) motion before the Court, under two scenarios set forth below, Enron meets the criteria for a mistake under Rule 15(c) if it had legally and/or factually misidentified MLIM to the extent that MLIM were not an initial
First, if MLIM Japan were determined to be a sole or partial initial transferee or beneficiary of the Transactions, naming MLIM Japan as a defendant would correct a mistake to the extent that MLIM was not an initial transferee and/or beneficiary, thereby replacing MLIM with MLIM Japan as a defendant to the extеnt that MLIM Japan was involved in the Transactions as a sole or partial initial transferee or beneficiary.
Second, a determination could be made that MLIM was not an initial transferee but a beneficiary or
vice verse.
It may be determined that an existing defendant, MLIM, was a beneficiary not a transferee under section 550. An entity may not be found to be a section 550 transferee and a section 550 beneficiary simultaneously because it is settled that the section 550 terms “transferee” and “beneficiary” have been held to be mutually exclusive.
See Bonded,
However, in three other scenarios, Enron does not meet the criteria for a mistake under Rule 15(c) due to not correcting a mistake in identity of MLIM in the First Amended Complaint. First, after a second proceeding, both MLIM and MLIM Japan could be ultimately determined not to be a transferee and/or beneficiary of the Transactions. Second, another possible outcome would be if the Court found that MLIM was a sole transferee and beneficiary of the Transactions, or, if MLIM Japan was merely a “conduit.” Third, in any scenario, if MLIM Japan were determined to be a subsequent transfereе, as set forth in
Alberts,
Enron cannot use Rule 15(c) relation-back to pursue MLIM Japan as a subsequent transferee or subsequent beneficiary from MLIM’s transfers within the context of a section
Because each scenario is possible, denying Enron’s request to amend its complaint by adding MLIM Japan, at this juncture, would leave Enron “vulnerable” to any “non-transferee” defense asserted by MLIM when a mistake arising from its lack of knowledge regarding MLIM Japan in a section 550 recovery action could be determined pending a second discovery. See Id. 8 (stating that “the mere conduit defense thus leaves plaintiffs unusually vulnerable to mistakes arising from their lack of knowledge that anyone other than the initial recipient of a transfer is a potential target of the § 550 recovery action”).
(c) Lack of Knowledge
The
Alberts
court is additionally instructive in its explanation of the distinction between a plaintiff who knows the involvement of the new defendant prior to the running of the statute of limitations and one that does not know of the “possible existence during that limitations period.”
Alberts,
Here, Alberts did not simply fail to identify a theory of liability upon which a party known to him could also be named as a defendant. Rather, only upon revelations made by AJG in its answer to the complaint did Alberts become aware that a conduit relationship might exist between AJG and the Added Defendants that would make those Added Defendants the actual “initial transferees” of the dollars transferred within the meaning of § 550(a)(1).
Id.
at 104 (emphasis added). In its reconsideration opinion, the
Alberts
court clarified that Alberts’ lack of knowledge referred to the existence of the added defendants within statute of limitations and to the
possible
conduit relationship between an original defendant and the added defendants.
Alberts,
The
Alberts
court’s analysis is consistent with
Randall’s Island,
in that both permitted the plaintiffs to relate back an added defendant whose involvement in the alleged transactions was entirely unknown to the plaintiffs within the statute of limitations.
See In re Randall’s Island,
Further, the
Barrow
analysis does not preclude the Court from granting Enron’s Motion for Leave to Amend against MLIM Japan to the extent that MLIM Japan was not an initial transferee or beneficiary of the Transactions. As discussed previously, the
Barrow
analysis focused on whether a plaintiff made a mistake in identity when the plaintiff was aware that the new defendants actually existed but he did not know their identities. The
Alberts
court did not follow
Barrow’s
ruling on the basis of a factual distinction, not a different legal interpretation of Rule 15(c)(3).
Alberts,
Such finding is consistent with the Court’s finding in another matter related to Lehman Japan.
See In re Enron Corp.,
In conclusion, failure to name MLIM Japan within the limitations period is found to be a mistake under Rule 15(c) to the extent that it were determined to be an initial transferee and/or beneficiary as a result of Enron’s complete lack of knowledge with regard to MLIM Japan’s connection to the Transactions.
II. Prejudicial Effect
MLIM Japan argues that the prejudice it suffered as a result of Enron’s undue delay in filing its motion to amend is yet another reason why Enron should be denied the motion to amend. The delay to which MLIM Japan refers is the time between March 25, 2004 (the date of MLIM’s Motion for Summary Judgment in which the identity of MLIM Japan was revealed), and October 19, 2005 (the date of Enron’s motion to amend).
The cases cited by MLIM Japan are distinguishable from circumstances as presented in the instant matter. Specifically, MLIM Japan cites
Kilkenny v. Arco Marine Inc.,
MLIM Japan also cites
Lundy v. Adamar of New Jersey, Inc.,
MLIM Japan also argues that the more than six-month delay between March 25, 2004 (the date at which Enron found out of the existence of MLIM Japan), and September 29, 2004 (when Enron sent MLIM Japan actual notice of its intention to file the claim) should be taken into consideration with the undue delay argument. However, this contention lacks merit because “[w]hen the [a]dded [defendants [are] served ... within the period allotted under Rule 4(m) as extended by the court, the [a]dded [defendants [are] put on express notice that they [are] now named as defendants in [the] action.”
Alberts,
If not already apparent that the late-filed amendment was the product of Al-berts’ prior mistake in identifying the initial transferee, upon reasonable inquiry the Added Defendants could easily have ascertained that they were added as defendants only after AJG asserted its mere conduit defense, which then put Alberts on notice that he had made a mistake, and caused him to amend his complaint.
Id.
Therefore, because actual notice to MLIM Japan came within the time allotted under Rule 4(m) as extended by the Court and there has been no evidence presented by MLIM Japan of any prejudice that it suffered as a result of any delay between the actual notice under Rule 4(m) and motion to amend, the Court finds that MLIM Japan was not prejudiced as a result of the delay. Such finding is consistent with the policy behind Rule 15(c). The
Kilkenny
court stаted that “[r]ule 15(c) was never intended to assist a plaintiff who ignores or fails to respond in a reasonable fashion to notice of a potential party.”
Kilkenny,
CONCLUSION
The Court concludes that Enron has met its burden to satisfy the requirement under Rule 15(c)(3)(A) by providing actual notice within the Rule 4(m) period extended by the Court so that MLIM Japan will not be prejudiced in maintaining a defense on the merits.
As to the second requirement under Rule 15(c)(3)(B), failure to name MLIM Japan within the limitations period is found to be a mistake under Rule 15(c) to the extent that it were determined to be an initial transferee and/or beneficiary as a result of Enron’s lack of knowledge with regard to MLIM Japan’s connection to the Transactions. In addition,
Barrow’s
holding would not preclude the Court from permitting relation-back if a correction of a mistake in identity of MLIM Japan, not a correction of lack of knowledge, were
Pending a further determination as to whether the amended complaint relates back to the First Amended Complaint, precluding MLIM Japan at this juncture from being a defendant who may be ultimately found to be an initial transferee is premature when it is not disputed that Enron had no knowledge concerning MLIM Japan’s role in the transaction within the statute of limitations. The Court is also mindful of the consequences of not allowing MLIM Japan to be conditionally named as a defendant. One of the consequences would be that MLIM Japan could not actively participate as a party in discovery and motion practice as to matters that could ultimately affect its liability. Also, Enron would not have the same rights to obtain information from an entity that is only a third party, and not a defendant. Hence, for the purposes of facilitating Enron’s discovery efforts and сompleting the further determination that will decide the roles of MLIM and MLIM Japan in the Transactions, the Court grants Enron to file an amended complaint concerning MLIM Japan to the extent that MLIM Japan were determined to be an initial transferee and/or beneficiary. This ruling is not a final determination as to whether the Second Amended Complaint related to MLIM Japan relates back to the First Amended Complaint.
The Debtor is to settle an order consistent with this opinion.
Notes
. In its Motion for Leave to Amend, Enron seeks to add new defendants, including MLIM Japan, relating back to the First Amended Complaint. However, at the hearing, Enron referenced relation-back to the original complaint. The different references are of no consequence because MLIM was named as a defendant based upon causes of action under sections 502, 544, 547, 548, and 550 of the Bankruptcy Code both in the original complaint and the First Amended Complaint. Further, each complaint was filed prior to the expiration of the statute of limitations.
. To support its argument, MLIM Jаpan also cited other cases, such as
Tapia-Ortiz v. Doe,
. In
Byrd,
plaintiffs counsel first requested disclosure of the name of the defendant. After the first request was rejected by the Corporation Counsel, plaintiff's counsel requested log books.
Byrd,
. The reconsideration opinion was issued on December 13, 2006 and has not been assigned a formal citation at the time when this opinion is issued.
. Section 550 of the Bankruptcy Code provides, in pertinent part, that
(a) the trustee may recover for the befit of the estate, the property transferred, or, if the court so orders, the value of such property, from—
(1) the initial transferee of such transfer or the entity for whose benefit such transfer was made;
11 U.S.C. § 550(a) (emphasis added). The Court accepts Enron’s term “beneficiary” to represent "the entity for whose benefit such transfer was made.” Other courts have accepted that terminology. See
Bonded Financial Services, Inc., v. European American Bank,
. In MLIM and MLIM Japan’s brief in opposition to the Motion for Leave to Amend, counsel did not dispute that Enron did not know of the identity of MLIM Japan at the time of filing the First Amended Complaint. See Merrill Lynch Investment Managers L.P.’s and Merrill Lynch Investment Managers Co., Ltd.’s Memorandum of Law in opposition to Enron Corp.’s Motion for Leave to Amend its Complaint Pursuant to Rule 15 of the Federal Rules of Civil Procedure, at 6, Enron v. J.P. Morgan Securities Inc., et al., Adv. Pro. No. 03-92677 (Docket No. 1049) (stating that "[h]ere, there is no dispute that the reason Enron did not name MLIM Japan is that Enron did not know its identity”).
. Under section 550(f), an action to recover avoided transfers of property must be brought no later than the earlier of one year after the transfer was avoided or the date the case is closed or dismissed. 11 U.S.C. § 550.
. The Alberts court further explains that
Mere conduit defenses such as that raised by AJG typically alter liability based on the happenstance of the legal obligation governing the initial recipient's subsequent transfer of the subject funds to third parties, of which the bankruptcy trustee commonly has no direct knowledge. It is on that basis alone that § 550 liability, in instances such as this, then becomes splintered among several parties notwithstanding that the subject transfer was made to only one individual.
Alberts,