Mark Shapiro, Liquidating Trustee of the Alliance v. Wall Street Health Services

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IN THE UNITED STATES BANKRUPTCY COURT □□ Ay

FOR THE SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION ENTERED

01/21/2021

IN RE: §

UPLIFT RX, LLC, et al, Debtors. § CASE NO: 17-32186

§

§ CHAPTER 11

MARK SHAPIRO, LIQUIDATING §

TRUSTEE OF THE ALLIANCE HEALTH §

LIQUIDATING TRUST, §

Plaintiff, §

§

VS. § ADVERSARY NO. 19-3431

§

WALL STREET HEALTH SERVICES, §

Defendant. §

MEMORANDUM OPINION

The Liquidating Trustee of the Alliance Health Liquidating Trust, Mark Shapiro, seeks

leave to amend the complaint. Specifically, the Trustee wants to add new claims and new

defendants to this adversary proceeding. Wall Street Health Services LLC (“Wall Street”) opposes

the Trustee’s motion. The parties’ dispute centers on three issues: (1) whether “good cause” exists

to allow the Trustee to amend the complaint after the expiration of the pleading amendment

deadline; (2) whether the claims the Trustee seeks to add arise out of the same “conduct,

transaction, or occurrence” pleaded in the Original Complaint; and (3) whether the new defendants

received the “notice” required by Federal Rule of Civil Procedure 15(c).

There is “good cause” to allow the Trustee to amend the complaint, in part, after the

deadline set by the Court’s Scheduling Order. The new claims the Trustee hopes to add are not

part of the same “conduct, transaction, or occurrence” set out in the Original Complaint. Two of

the defendants the Trustee seeks to add—PetersonRX LLC and Dow Jones—received notice of

the Original Complaint. The remaining prospective defendants did not. The Trustee is Granted

1/27

leave to add PetersonRX and Dow Jones as defendants, but the Trustee is Denied leave to add the

additional claims and remaining additional defendants.

BACKGROUND

The Original Complaint sought to avoid and recover certain fraudulent and preferential

transfers made by the Debtor, Uplift RX, LLC, and certain of its debtor affiliates (collectively,

“the Debtors”).1 The Original Complaint alleged that Wall Street was the sole transferee of these

transfers (the “Original Transfers”). (See ECF No. 1). After exchanging discovery with Wall

Street, the Trustee discovered additional transfers, which the Trustee now seeks to avoid, as well

as additional transferees, which the Trustee now seeks to join as defendants. (ECF No. 23 at 3).

The Original Complaint

The Original Complaint was filed on April 5, 2019. (ECF No. 1).2 It alleged that Uplift

RX, LLC, Richardson Pharmacy LLC, New Jersey Rx, LLC, Kendall Pharmacy, Inc., Skyline

Health Services, and Alliance Medical Administration, Inc. made preferential and fraudulent

transfers to Wall Street. (ECF No. 1 at 6–24). These transfers were identified using the Debtors’

accounts payable records, which identified Wall Street as the transferee. (ECF Nos. 23 at 5; 23-2

at 1–3). The Original Complaint and Summons were on served Wall Street through its principal

and registered agent, Dow Jones, on April 11, 2019. (ECF No. 4 at 2).

Wall Street delayed almost seven months before answering the Original Complaint. (See

ECF No. 14). Because of its delay, Wall Street was required to seek leave to file a late answer.

1 The other Debtors implicated in this adversary proceeding include Richardson Pharmacy LLC (Case No.

17-32193), New Jersey Rx, LLC (Case No. 17-32206), Skyline Health Services, LLC (Case No. 17-32212), Kendall

Pharmacy, Inc (Case No. 17-32198), Alliance Medical Administration, Inc. (Case No. 17-32246), Benson Pharmacy,

Inc. (Case No. 17-32191). (ECF Nos. 1 at 2; 23-1 at 2, 38). The order for relief in Skyline’s case was entered on

April 8, 2017. The orders for relief in the remaining Debtors’ cases were entered on April 7, 2017.

2 The Original Complaint was filed by the Debtors. (ECF No. 1). However, Mark Shapiro, the liquidating

trustee, was substituted for the Debtors as Plaintiff. (ECF No. 9 at 1–2).

(See ECF No. 16). The Trustee did not oppose Wall Street’s request for leave to file its answer.

(ECF No. 16 at 2).

After Wall Street answered, the Court entered a comprehensive Scheduling Order. The

Scheduling Order set the deadline for pleading amendments for February 24, 2020 and the

discovery deadline for June 24, 2020. (ECF No. 20 at 1). On January 9, 2020, the Trustee served

its first set of discovery requests on Wall Street. (ECF No. 23 at 10). Wall Street produced its

responses on February 10, 2020 (ECF No. 27 at 2).

The Additional Transfers and Defendants

In its discovery responses, Wall Street asserted that it did not receive the benefit of certain

transfers identified in the Original Complaint. (ECF No. 27 at 2). Based on Wall Street’s

responses, the Trustee began investigating the accuracy of Wall Street’s assertion. (ECF No. 23

at 2). Along with this investigation, the Trustee sought to depose Dow Jones, Wall Street’s

principal and registered agent. (ECF No. 23 at 5). As of the filing of the Trustee’s Motion for

Leave to Amend, the Trustee had not yet deposed Mr. Jones. (ECF No. 23 at 9).

Through this investigation, the Trustee discovered that Wall Street “was not the initial

transferee of a number of the [Original] Transfers.” (ECF No. 23 at 5). The Trustee also

discovered 13 additional preferential or fraudulent transfers (the “Additional Transfers”). (ECF

No. 23 at 4–6). These discoveries led the Trustee to seek leave to amend the Original Complaint.

(ECF No. 23 at 6). Specifically, the Trustee wants to add the newly discovered transferees of the

Original Transfers as defendants (the “Additional Defendants”),3 as well as new avoidance claims

based on the Additional Transfers. (ECF No. 23 at 6).

3 The Additional Defendants are Dow Jones, individually; Kathryn Jones, individually; PetersonRX, LLC;

Twin Lakes, LLC; David Pharmacy, LLC; Alameda Pharmacy LLC; El Dorado Pharmacy LLC; and Baytree

Pharmacy LLC. (ECF No. 23 at 8).

The Trustee’s Motion for Leave to Amend

On June 10, 2020, the Trustee sought leave to amend the complaint. (See ECF No. 23).

Because the Trustee did not amend the Original Complaint before the pleading amendment

deadline in the Scheduling Order, the Trustee must be granted leave to amend. In support of the

request for leave, the Trustee argues that “good cause” exists to authorize this post-deadline

amendment. (ECF No. 23 at 13–15). The Trustee primarily argues that “good cause” exists

because the delay in moving to amend resulted from the need for an additional investigation based

on Wall Street’s discovery responses. (ECF No. 23 at 13–14).

As a basis for including the Additional Transfers, the Trustee argues that the Additional

Transfers arise from the same “conduct, occurrence, or transaction” alleged in the Original

Complaint. (ECF No. 23 at 11). The Trustee alleges that the same “conduct, transaction, or

occurrence” from which the Additional Transfers arose was a “convoluted payment scheme.”

(ECF No. 23 at 6). Through this “convoluted payment scheme,” the Debtors would transfer funds

to multiple entities, those entities would then transfer funds to a single entity, and then that single

entity would use the funds to pay down credit card debt held by Mr. Jones, Kathryn Jones (Dow

Jones’s wife), and other entities associated with the Joneses. (ECF No. 23 at 5–6). The existence

of this “scheme” was not alleged in the Original Complaint.

As for the inclusion of the Additional Defendants, the Trustee argues that the Additional

Defendants received adequate notice of the Trustee’s action through their relationships with Mr.

Jones. (ECF No. 23 at 15–20). Specifically, the Trustee asserts that Mr. Jones, who received the

Original Complaint on behalf of Wall Street, acted as an agent for or on behalf of the Additional

Defendants, or that the Additional Defendants are so closely related to Wall Street that they

effectively received adequate notice. (ECF No. 23 at 15–20).4

Wall Street opposes the Trustee’s motion on two grounds. First, Wall Street argues that

Trustee’s motion to amend after the Scheduling Order deadline is not supported by “good cause.”

(ECF No. 32 at 6). “Good cause” is lacking, Wall Street contends, because the Trustee’s

explanation for the delay in seeking leave to amend is insufficient. (ECF No. 32 at 3–6). Wall

Street grounds its charge of insufficiency in the fact that the Trustee had access to the Debtors’

Statements of Financial Affairs (“SOFAs”), some of which disclose the identity of the Additional

Defendants, as well as the existence of some of the Additional Transfers. (ECF No. 32 at 4).

Second, Wall Street argues that there is a “substantial reason” to deny the Trustee leave to

amend. (ECF No. 27 at 4–5). The “substantial reason” Wall Street points to is the alleged futility

of the Trustee’s proposed amended complaint (the “Amended Complaint”). (ECF No. 27 at 7–

12). Wall Street argues that the proposed amendments are futile because 11 U.S.C. § 546(a) bars

their assertion in the Amended Complaint. (ECF No. 27 at 5–6). Further, Wall Street argues that

the doctrine of relation back, which is codified in Federal Rule of Civil Procedure 15(c), cannot

salvage the Amended Complaint. (ECF No. 27 at 7, 12). Rule 15(c) cannot salvage the claims

based on the Additional Transfers because they do not arise the same “conduct, transaction or

occurrence” set out in the Original Complaint. (ECF No. 27 at 7, 12). Nor can Rule 15(c) salvage

the claims against the Additional Defendants because the Additional Defendants did not receive

the notice required by Rule 15(c)(1)(C). (ECF No. 27 at 7–11). Wall Street also contends that the

4 Notably, Wall Street’s manager and registered agent, Dow Jones, serves as the manager and registered agent

of Jones Family Enterprises, LLC. (ECF Nos. 23-3; 23-5). Jones Family Enterprises serves as a manager for and

registered agent of PetersonRX LLC. (ECF No. 33-4). All three entities share the same address—2 Falconwood Ln.,

Sandy, UT. (ECF Nos. 23-3, 23-5, 33-4). Ms. Kathryn Jones serves as a member of Jones Family Enterprises. (ECF

No. 23-6). Additionally, Mr. Jones has communicated on behalf of Alameda, Baytree, David, El Dorado, and Twin

Lakes. (ECF No. 33-8 at 3–4). Mr. Jones also holds credit cards linked to accounts held by Alameda, Twin Lakes,

and PetersonRX (ECF Nos. 33-7 at 1; 33-9 at 1; 33-10 at 1).

Additional Defendants were not mistakenly omitted by the Trustee—as required by Rule

15(c)(1)(C)—but were instead omitted because the Trustee was unaware the Additional

Defendants’ existed. (ECF No. 27 at 8–10). Wall Street concludes that relation back under the

strictures of Rule 15(c) is unavailable to the Trustee; thus 11 U.S.C. § 546(a) bars the Trustee from

asserting the claims alleged in the Amended Complaint. (ECF Nos. 27 at 12; 32 at 6).

After a hearing, the Court took the matter under advisement. This Memorandum Opinion

disposes of the Trustee’s motion.

JURISDICTION

The District Court has jurisdiction over this proceeding pursuant to 28 U.S.C. § 1334. This

is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (B), (E), and (O). Pursuant to 28 U.S.C.

§ 157(a), this proceeding has been referred to the Bankruptcy Court under General Order 2012-6.

ANALYSIS

The Trustee seeks leave to amend the complaint after the mandated deadline for pleading

amendments. Wall Street opposes the Trustee’s request primarily because the Trustee’s proposed

amendments are barred by applicable statutes of limitations. Wall Street also challenges the

sufficiency of the Trustee’s explanation for why the Trustee failed to adhere to the Scheduling

Order.

Good cause exists to allow the Trustee to amend the complaint despite the expiration of

the pleading amendment deadline set out in this Court’s Scheduling Order. The Trustee is granted

leave to amend to add certain defendants to this adversary proceeding because the claims asserted

against these new defendants relate back to the Original Complaint. However, the remaining

claims proposed by the Trustee’s amendment would be futile because they are time-barred.

I. RULE 16 SCHEDULING ORDER MODIFICATION

The Trustee argues that “good cause” supports modification of the Scheduling Order

because, at the time the Scheduling Order was entered, the Trustee was unaware of the need to

amend the Original Complaint. In response, Wall Street asserts that the Trustee was aware of the

Additional Transfers and Additional Defendants before the expiration of the pleading amendment

deadline. (ECF No. 32 at 6). Aside from its assertion that the Trustee failed to exercise diligence

by timely seeking leave to amend, Wall Street offers little else supporting denial of modification

under Rule 16(b). There is good cause to authorize modification of the Scheduling Order.

Federal Rule of Civil Procedure 15 governs the amendment of pleadings. FED. R. CIV. P.

15. However, Rule 16 restricts amendments when a court has entered a scheduling order setting a

deadline for amendments. FED. R. CIV. P. 16(b); see also S&W Enters., L.L.C. v. SouthTrust Bank

of Ala., NA, 315 F.3d 533, 535 (5th Cir. 2003).5 If the amendment deadline has passed, the

scheduling order must be modified to allow amendments. S&W Enters., 315 F.3d at 535–36; see

also FED. R. CIV. P. 16(b)(4). The court may allow modification for “good cause.” S&W Enters.,

315 F.3d at 535–36. A finding of good cause rests on a consideration of four factors: “(1) the

explanation for the failure to timely move for leave to amend; (2) the importance of the

amendment; (3) potential prejudice in allowing the amendment; and (4) the availability of a

continuance to cure such prejudice.” Id. at 535 (quoting Reliance Ins. Co. v. La. Land &

Exploration Co., 110 F.3d 253, 257 (5th Cir.1997)). At bottom, the focus of the “good cause”

analysis is the movant’s diligence in attempting to comply with the scheduling order. Id.

The Trustee explains that he failed to timely seek leave to amend because he was not aware

of the Additional Transfers and Additional Defendants until receiving discovery. Wall Street

5 Federal Rules of Bankruptcy Procedure 7015 and 7016 make Rules 15 and 16 applicable in adversary

proceedings. FED. R. BANKR. P. 7015, 7016.

disputes the efficacy of the Trustee’s explanation, pointing to the SOFAs filed by the Debtors in

their main bankruptcy cases. Specifically, Wall Street points out that Uplift’s SOFA discloses the

Original Complaint was incorrect in its assertion that Wall Street was the Transferee of one of the

Original Transfers. Instead, this specific transfer went to Twin Lakes.6 Wall Street also points to

AMA’s SOFA and asserts that the Trustee knew of two of the Additional Transfers prior to the

pleading amendment deadline.7 The SOFAs make clear that, prior to the amendment deadline, the

Trustee had information that would have allowed the Trustee to avoid the need for some of the

amendments now proposed.

Though the Trustee had such information, the allegations in the Original Complaint were

not without basis. The claims alleged in the Original Complaint were based on the Debtors’

accounts payable records. Every Original Transfer, on which the claims in the Original Complaint

were based, corresponds with a transaction reflected in these records. (Compare ECF No. 1-1 with

ECF No. 23-2). These records reflect that Wall Street was the transferee of the Original Transfers.

It was reasonable for the Trustee to rely on the Debtors’ payment records to identify preferential

or fraudulent transfers made by the Debtors, on the assumption that those records were accurate.

Cf. Anzures v. Prologis Tex. I LLC, 886 F. Supp. 2d 555, 568 (W.D. Tex. 2012) (finding that a

movant exercised reasonable diligence despite having access to information that would have

allowed it to identify another potentially liable party before the amendment deadline).

Aside from its assertion that the Trustee knew or should have known of the need to amend,

Wall Street does not argue that the Trustee failed to diligently adhere to the Scheduling Order.

6 Uplift’s SOFA discloses that a $445,064 transfer was made to Twin Lakes Pharmacy on January 1, 2017.

(ECF No. 31-6 at 2).

7 The Debtor’s SOFA discloses two transfers, a $48,656 transfer and a $403,729.94 transfer, made to Peterson

Pharmacy. (ECF No. 31-1 at 9, 14). The Trustee seeks to avoid these transfers through its Amended Complaint,

though they were not identified in the Original Complaint. (ECF No. 23-1 at 38).

Moreover, the Trustee attempted to comply with the discovery deadlines set out in the Scheduling

Order. The Trustee served his first discovery requests well before the discovery deadline. In

response to these requests, Wall Street denied being the transferee of the Original Transfers. This

response caused the Trustee to conduct an additional investigation into the Debtors’ pre-petition

transfers. Nevertheless, before the deadline for discovery and without having had an opportunity

to depose Mr. Jones,8 the Trustee moved to amend the Original Complaint. The record suggests

the Trustee diligently pursued additional information needed to amend the complaint before the

close of discovery. See, e.g., Mailing & Shipping Sys., Inc. v. Neopost USA, Inc., 292 F.R.D. 369,

374 (W.D. Tex. 2013) (allowing modification of a scheduling order to enable the plaintiff to amend

the complaint by adding a claim based on information discovered in a deposition taken after the

pleading amendment deadline). Despite this diligence, the Trustee could not reasonably have met

the amendment deadline, given that it was just two weeks after the Trustee received Wall Street’s

discovery response. See S&W Enters., 315 F.3d at 535 (quoting 6A CHARLES ALAN WRIGHT ET

AL., FEDERAL PRACTICE AND PROCEDURE § 1522.1 (2d ed. 1990)).

Wall Street does not dispute the importance of the Trustee’s amendment. Enabling the

Trustee to amend would allow the Trustee to potentially recover more for the estate than the

Trustee could under the Original Complaint. (See, e.g., ECF No. 23-1 at 38). Without an argument

to the contrary, the importance of enhancing the Trustee’s ability to recover funds for the estate

weighs in favor of modification. Cf. Anzures, 886 F. Supp. 2d at 568 (finding that a failure to

explain the importance of the amendment, when the nonmovant challenged its importance,

weighed against granting a Rule 16(b) modification).

8 The COVID-19 pandemic hindered the Trustee’s attempts to depose Mr. Jones. (ECF No. 23 at 5).

Similarly, Wall Street does not point to any prejudice it will suffer if the Scheduling Order

is modified to allow the Trustee’s amendment.9 Moreover, the parties’ have been particularly

accommodating in affording each other additional time at various stages of this litigation. (See

e.g., ECF Nos. 16, 42). In fact, the parties recognize that the outcome of the Trustee’s Motion for

Leave to Amend will require continuance of the trial date to allow additional time for discovery.

(ECF No. 42 at 2). While the Trustee’s motion may pose a slight danger of prejudice, it is prejudice

that can be cured through the parties’ continued cooperation over scheduling. See Mailing &

Shipping Sys., 292 F.R.D. at 376 (noting that prejudice can be cured through the postponement of

trial to allow for additional discovery and motions practice).

The Trustee offered an adequate explanation for his failure to amend the complaint by the

Scheduling Order deadline. The proposed amendment is important. Wall Street and the

Additional Defendants will not suffer incurable prejudice. Good cause exists under Rule 16(b) to

allow the Trustee to proceed on his motion for leave to amend the complaint. See S&W Enters.,

315 F.3d at 535–36.

II. RULE 15 LEAVE TO AMEND

Modification of the Scheduling Order is only the first hurdle the Trustee must clear before

leave to amend is warranted. The Trustee must also demonstrate that “justice so requires” a grant

of leave. FED. R. CIV. P. 15(a)(2). The Trustee argues there is such a requirement here. Wall

Street disagrees. Specifically, Wall Street argues that amendment of the Original Complaint would

be futile because the claims asserted in the Amended Complaint are time-barred. Wall Street is

9 Wall Street does argue that Kathryn Jones, one of the Additional Defendants, would suffer prejudice in

having to defend “time-barred” claims while in remission from cancer. (ECF No. 27 at 11). The prejudice Ms. Jones

may suffer is more appropriately considered under Rule 15(a)’s “undue prejudice” factor. See SGK Properties, L.L.C.

v. U.S. Bank Nat'l Ass'n for Lehman Bros. Small Balance Commercial Mortgage Pass-Through Certificates, Series

2007-3, 881 F.3d 933, 944–45 (5th Cir. 2018), cert. denied sub nom. SGK Properties, L.L.C. v. U.S. Bank Nat. Ass'n,

139 S. Ct. 274 (2018).

correct with respect to the Additional Transfer claims proposed by the Trustee. Likewise, Wall

Street is correct that the claims asserted against the Additional Defendants are time-barred, except

those asserted against PetersonRX and Mr. Jones. The Trustee is granted leave to amend the

Original Complaint to include PetersonRX and Mr. Jones as defendants.

Rule 15(a)(2) empowers a court to “freely” grant a party leave to amend its pleading “when

justice so requires.” FED. R. CIV. P. 15(a)(2). Denial of leave must be predicated on a “substantial

reason.” Stripling v. Jordan Prod. Co., LLC, 234 F.3d 863, 872 (5th Cir. 2000). Courts consider

five factors in deciding whether a “substantial reason” exists: (1) whether there was undue delay

in moving to amend; (2) whether the amendment is the product of bad faith or a dilatory motive;

(3) whether the movant repeatedly failed to cure deficiencies with prior amendments; (4) whether

the opposing party will suffer undue prejudice; and (5) whether the amendment is futile. SGK

Properties, L.L.C., 881 F.3d 933, 944 (5th Cir. 2018) (quoting Smith v. EMC Corp., 393 F.3d 590,

595 (5th Cir. 2004)). Wall Street’s opposition to the Trustee’s motion focuses on the alleged

futility of the Trustee’s amendment.10

An amendment is futile if it alleges claims that are time-barred. See Whitt v. Stephens

County, 529 F.3d 278, 282–83 (5th Cir. 2008). Futility alone is a “substantial reason” to deny

leave to amend. See, e.g., id. at 282. (“We need not consider whether the court abused its

discretion in denying leave to amend based on undue delay and prejudice, because . . . the statute

of limitations rendered amendment of the complaint futile.”). However, if the amendment “relates

10 Wall Street arguably asserts that the Trustee unduly delayed in seeking leave to amend. (See ECF No. 32

at 4–6). However, Wall Street does not claim that it would be suffer prejudice based on the timing of the Trustee’s

motion. See Mayeaux v. Louisiana Health Serv. & Indem. Co., 376 F.3d 420, 427 (5th Cir. 2004) (“And, we know

that delay alone is an insufficient basis for denial of leave to amend: The delay must be undue, i.e., it must prejudice

the nonmoving party or impose unwarranted burdens on the court.”). Thus, the only viable argument Wall Street

asserts against the Trustee’s motion is that the proposed amendment would be futile.

back” to the original complaint, claims that would otherwise be time-barred may be asserted. Id.

(citing FED. R. CIV. P. 15(c)).

Wall Street contends that the claims asserted in the Amended Complaint are time-barred

under 11 U.S.C. § 546. Section 546(a) provides the statute of limitations for claims premised on

the Trustee’s avoidance powers. 11 U.S.C. § 546(a) (2018). Under § 546(a), the Trustee cannot

initiate an avoidance action after “2 years from the entry of the order for relief” or “1 year after the

appointment or election of the first trustee,” whichever occurs later. § 546(a)(1). The Trustee

instituted this adversary proceeding on April 5, 2019. The latest § 546(a) would allow the Trustee

to institute an avoidance action was April 8, 2019.11 The motion for leave to amend was filed on

June 10, 2020. Consequently, the claims asserted in the Amended Complaint are time-barred by

§ 546(a), unless they relate back under Rule 15(c).

Rule 15(c) identifies three categories of amendments that relate back to the date of the

original complaint. First, new claims will relate back if the applicable statute of limitations allows.

FED. R. CIV. P. 15(c)(1)(A). Second, if the new claims arise out of the same “conduct, transaction,

or occurrence” pleaded in the original complaint, they will relate back. FED. R. CIV. P. 15(c)(1)(B).

Finally, claims against a new defendant will relate back if the new defendant receives “notice” of

the action within the time for serving the summons and complaint under Rule 4(m), and the new

defendant “knew or should have known that the action would have been brought against it, but for

mistake . . . .” FED. R. CIV. P. 15(c)(1)(C)(i)–(ii). The Trustee wishes to add new claims under

Rule 15(c)(1)(B), as well as new parties under Rule 15(c)(1)(C).

11 This is true even for the new claims the Trustee asserts under the Texas and Utah fraudulent conveyance

statutes. Trustees may invoke state fraudulent conveyance statutes to avoid fraudulent transfers made by debtors

under 11 U.S.C. § 544(b). Yet § 546 restricts a trustee’s use of § 544(b) to the limitations period provided in § 546(a).

5 COLLIER ON BANKRUPTCY P 544.06 (16th 2020).

A. Adding New Claims Under Rule 15

The Trustee seeks leave to amend the original complaint to add claims based on 13

Additional Transfers. Unless the Additional Transfer claims satisfy the relation-back requirements

of Rule 15(c)(1)(B), the claims are time-barred by 11 U.S.C. § 546(a). Because these claims do

not arise from the same “conduct, transaction, or occurrence,” they do not satisfy the requirements

for relation back under Rule 15(c)(1)(B).

Claims that are the “natural offshoot” or part of the same “basic scheme” arise from the

same “conduct, transaction, or occurrence” pleaded in the original complaint. In re Chaus Sec.

Litig., 801 F. Supp. 1257, 1264 (S.D.N.Y. 1992) (citing Oliner v. McBride's Indus., Inc., 106

F.R.D. 9, 12 (S.D.N.Y. 1985)). New avoidance claims are generally treated as separate, distinct

transactions that do not relate back under Rule 15(c). See Securities Inv'r Prot. Corp. v. Bernard

L. Madoff Inv. Sec. LLC, 594 B.R. 167, 210 (Bankr. S.D.N.Y. 2018) (quoting In re M. Fabrikant

& Sons, Inc., 480 B.R. 480, 492 (S.D.N.Y. 2012), aff'd, 541 Fed. Appx. 55 (2d Cir. 2013)).

However, just as claims arising from the same “basic scheme” relate back, so too do newly pleaded

avoidance claims that arise from the same “course of conduct” pleaded in the original complaint.

In re Juliet Homes, LP, 07-36424, 2011 WL 6817928, at *6 (Bankr. S.D. Tex. Dec. 28, 2011)

(quoting Adelphia Recovery Trust v. Bank of America, N.A., 624 F.Supp.2d 292, 334 (S.D.N.Y.

2009)). Consequently, the Additional Transfer claims will relate back if: (1) the Amended

Complaint alleges that the Additional Transfers were part of a course of conduct alleged in the

Original Complaint; and (2) the Original Complaint notified the parties, against whom the

Additional Transfer claims are asserted, that the Trustee could pursue avoidance of the Additional

Transfers associated with the course of conduct alleged in the Original Complaint. Id. at *7 (citing

Adelphia, 624 F. Supp. 2d at 334).

Nothing in the Original Complaint suggests that a common course of conduct encompassed

both the Original and Additional Transfers. The Trustee’s bald characterization of the transactions

between the Debtors, Wall Street, and the Additional Defendants as a “convoluted payment

scheme” does not establish that the Additional Transfers were part of the same “course of conduct.”

Securities Inv'r Prot., 594 B.R. at 210 (quoting In re Metzeler, 66 B.R. 977, 983 (Bankr. S.D.N.Y.

1986)) (“[T]he ‘mere allegation’ that the previously identified transfers and the newly added

transfers are ‘all . . . fraudulent transfers does not make them part of the same conduct.’”). A

“course of conduct,” upon which the relation back of avoidance claims may be predicated,

generally refers to a scheme with a fraudulent purpose. See, e.g., id. at *6–8 (“From the time of

the original complaint, the Trustees have alleged an overarching Ponzi scheme. . . . The fraudulent

transfers alleged in the original complaint, along with the new transfers alleged in the [amended

complaint], are . . . part of this overall Ponzi scheme.”); In re Bernard L. Madoff Inv. Sec. LLC,

468 B.R. 620, 633 (Bankr. S.D.N.Y. 2012) (“the Trustee sets forth the [new avoidance claims]

under the same legal theories as the ones set forth in the Original Complaint . . . including that [the

debtor] was engaged in a Ponzi scheme and made the Transfers with the actual intent to defraud

its creditors.”); Adelphia, 624 F. Supp. 2d at 297, 334 (finding new fraudulent transfer claims

related back because they were part of the same financial fraud scheme alleged in the original

complaint). The Original Complaint does not allege that the Debtors and Wall Street (or the

Additional Defendants) were engaged in any fraudulent scheme or common “course of conduct.”12

12 Moreover, the “payment scheme” alleged in the Amended Complaint bears little resemblance to the

nefarious schemes previously recognized as “course[s] of conduct.” See, e.g., Juliet Homes, 2011 WL 6817928, at

*6–8; Madoff Inv. Sec., 468 B.R. at 633 (finding a common course of conduct where fraudulent transfers were made

from a pool of corporate funds operated as a “piggy bank” for the personal use of insiders); Adelphia, 624 F. Supp. 2d

at 297, 334 (finding a common course of conduct where corporate assets were used as collateral for a credit facility

used to pay for the personal expenses of company directors and their families).

Nor do the allegations in the Original Complaint attempt to link the Original Transfers to any

common “course of conduct.”

Because the Original Complaint does not identify a “course of conduct” from which the

Additional Transfer claims arose, Wall Street and the Additional Defendants could not have

received notice of these claims. Cf. Juliet Homes, 2011 WL 6817928, at *7 (“From the time of the

Original Complaint, the Trustees have alleged an overarching Ponzi scheme.” (emphasis added)).

Further, nothing in the Original Complaint suggested the existence of an ongoing investigation

focused on uncovering additional transfers linked to a common course of conduct. Cf. Madoff Inv.

Sec., 468 B.R. at 633 (“[A]llegations in the Original Complaint . . . gave reasonable notice that the

Trustee was still uncovering additional transfers . . . .”). Without allegations of a common course

of conduct, the Original Complaint could not have put the defendants on notice that the Additional

Transfer claims were forthcoming. See In re M. Fabrikant & Sons, Inc., 447 B.R. 170, 181 (Bankr.

S.D.N.Y. 2011), aff'd, 480 B.R. 480 (S.D.N.Y. 2012), aff'd, 541 Fed. Appx. 55 (2d Cir. 2013)

(quoting Chaus Sec. Litig., 801 F.Supp. at 1264) (“The principal inquiry is whether adequate notice

of the matters raised in the amended pleading has been given to the opposing party by the general

fact situation alleged in the original pleading.” (internal quotation marks omitted)).13

Absent allegations linking the Additional Transfers to a common course of conduct alleged

in the Original Complaint, the Additional Transfer claims do not arise from the same “conduct,

transaction, or occurrence.” FED. R. CIV. P. 15(c)(1)(B). Instead, each Additional Transfer claim

is considered to have arisen from a distinct “transaction, or occurrence.” See Securities Inv'r Prot.

Corp., 594 B.R. at 210. The distinctive character of the Additional Transfer claims precludes their

13 This conclusion is undisturbed by the reservation of rights in the Original Complaint, as the reservation

of rights does not attempt to link the alleged undiscovered transfers to a common course of conduct from which the

Original Transfers arose. (See ECF No. 1 at 24).

relation back under Rule 15(c)(1)(B). Hence, these additional claims are time-barred by § 546(a).

An amendment to include the Additional Transfer claims would be futile. Leave to amend to add

the Additional Transfer claims is Denied.

B. Adding New Parties Under Rule 15

The Trustee seeks leave to amend to assert the Original Transfer claims against the

Additional Defendants. Section 546(a) applies to the assertion of the Original Transfer claims

against the Additional Defendants. To avoid the limitation imposed by § 546(a), the Trustee’s

claims against the Additional Defendants must relate back under Rule 15(c). Wall Street’s relation

to PetersonRX and Mr. Jones afforded these two parties the notice required for relation back under

Rule 15(c)(1)(C). However, the remaining Additional Defendants did not receive adequate notice

of the Trustee’s action.

Rule 15(c)(1)(C) provides for the relation back of previously alleged claims asserted

against new or different parties. FED. R. CIV. P. 15(c)(1)(C).14 The relation back of a claim against

new or different defendant requires: (1) the claim to arise from the same “conduct, transaction, or

occurrence” alleged in the original complaint; (2) the new party’s receipt of adequate notice of the

action within the Rule 4(m) period (90 days from the filing of the complaint); and (3) that, based

on this notice, the new party “knew or should have known that the action would have been brought

against it, but for a mistake . . . .” FED. R. CIV. P. 15(c)(1)(C)(i)–(ii). Rule 15(c)(1)(C) prevents

prospective defendants from receiving a “windfall” simply because a plaintiff “misunderstood a

14 Rule 15(c)(1)(C) is construed liberally to allow the substitution, as well as the addition, of new defendants

to relate back to the time of filing. See, e.g., Bush v. Sumitomo Bank & Tr. Co., Ltd., 513 F. Supp. 1051, 1052–54

(E.D. Tex. 1981) (acknowledging that the addition of a new party, as opposed to a substitution, related back under

Rule 15(c)); see also Goodman v. Praxair, Inc., 494 F.3d 458, 468 (4th Cir. 2007) (quoting Lundy v. Adamar of N.J.,

Inc., 34 F.3d 1173, 1192–93, 1192 n.13 (3d Cir.1994)) (“[Movant] ‘changed’ the party he was suing, as required by

Rule 15(c)(3), because ‘an addition to something is generally regarded as a change to that thing.’” (emphasis in

original)); Gabriel v. Kent Gen. Hosp. Inc., 95 F.R.D. 391, 394 (D. Del. 1982) (“[R]ule 15(c) authorizes relation back

in situations in which a new party is substituted or added, as well as those in which a party originally intended to be

named has been misnamed or misdescribed.”).

crucial fact about [the defendant’s] identity.” Krupski v. Costa Crociere S. p. A., 560 U.S. 538,

550 (2010).

1. Claims Arising from the Same “Conduct, Transaction, or Occurrence”

Wall Street does not dispute that the Original Transfer claims, which the Trustee now seeks

to assert against the Additional Defendants, arise out of the same “conduct, transaction, or

occurrence” alleged in the Original Complaint. Thus, the first requirement of Rule 15(c)(1)(C) is

satisfied. See, e.g., Tapp v. Shaw Envtl., Inc., 401 Fed. Appx. 930, 934 (5th Cir. 2010) (recognizing

that asserting a claim arising from the same facts originally pleaded against a new defendant

satisfies the first requirement of Rule 15(c)(1)(C)).

2. Notice of the Action

Two of the Additional Defendants—PetersonRX and Mr. Jones—received adequate notice

of the Trustee’s action. However, the record forecloses a finding that the remaining Additional

Defendants received notice as required by Rule 15.

Adequate notice under Rule 15(c)(1) does not require actual notice. Sanders-Burns v. City

of Plano, 594 F.3d 366, 378 (5th Cir. 2010). Service on the new party’s agent will adequately

notify the new party of the existence of the action. Ramirez v. Burr, 607 F. Supp. 170, 173 (S.D.

Tex. 1984) (quoting Kirk v. Cronvich, 629 F.2d 404, 407 (5th Cir. 1980)). Similarly, a new party

sharing an “identity of interest” with the party originally served will be deemed to have received

notice of the action under Rule 15(c)(1)(C). Jacobsen v. Osborne, 133 F.3d 315, 320 (5th Cir.

1998). A shared identity of interest exists when the parties’ business operations or other activities

are “so closely related . . . that the institution of an action against one serves as notice of the

litigation to the other.” Id. (quoting Kirk, 629 F.2d at 407).

Wall Street shares an identity of interest with PetersonRX and Mr. Jones. A shared identity

of interest is usually predicated on the intermingling of the parties’ places of business, employees,

and officers. See, e.g., Gifford v. Wichita Falls & S. Ry. Co., 224 F.2d 374, 376 (5th Cir. 1955)

(“Both corporations were, from the beginning, aware of the pendency of this action. They officed

together and had common employees.”);15 but see, e.g., In re Allbrand Appliance & Television

Co., Inc., 875 F.2d 1021, 1025–26 (2d Cir. 1989) (“[T]he parent-subsidiary relationship standing

alone is simply not enough . . . . The two businesses must have organized or conducted their

activities in a manner that strongly suggests a close linkage.”). For instance, in Gifford v. Witchita

Falls & S. Ry. Co., notice was found where one company was mistakenly sued and served in lieu

of another company because the two companies shared offices and employees from one company

performed services for the other company. 224 F.2d at 375–76. There, the Fifth Circuit held that

to deny leave to amend, despite the closeness of the companies, would be “a denial of justice.” Id.

at 376–77. Wall Street shares these indicia of a close relationship with PetersonRX and Mr. Jones.

Mr. Jones is Wall Street’s manager and registered agent. Mr. Jones also serves as the

manager and registered agent of Jones Family Enterprises, LLC. Jones Family Enterprises serves

as the manager and registered agent of PetersonRX LLC. The managers and registered agents of

Wall Street, Jones Family Enterprises, and PetersonRX all share the same address—2 Falconwood

Ln., Sandy, UT. (ECF Nos. 23-3, 23-5, 33-4). Wall Street does not dispute the existence of these

relationships. Instead, Wall Street contends that the Trustee’s failure to include the names of the

15 See also Travelers Indem. Co. v. U.S., for Use of Constr. Specialties Co., 382 F.2d 103, 106 (10th Cir.

1967) (holding that service on a parent company—which owned 100% of a subsidiary, shared offices with the

subsidiary, had the same managers and directors as the subsidiary—adequately notified the company’s subsidiary of

the action); Bernstein v. Uris Bldg. Corp., 50 F.R.D. 121, 122 (S.D.N.Y. 1970) (finding that “notice to one [company]

was notice to the other [company]” because the companies, while not “one and the same,” were “substantially similar,

sharing officers and directors in common,” as well as the same office).

Additional Defendants in the Original Complaint precludes a finding that the Additional

Defendants received adequate notice.

Wall Street’s argument is unpersuasive and without authoritative support. If the Trustee

had included the Additional Defendants, there would be no need for the Trustee to amend the

Original Complaint. But the Trustee did not know and now must utilize Rule 15 to sue the proper

defendants. The substantial relationship between Wall Street and PetersonRX afforded

PetersonRX notice of the Trustee’s action. That is, because Wall Street and Jones Family

Enterprises, which manages PetersonRX, share Mr. Jones as a manager and registered agent,

PetersonRX received the same notice it would have received had it been sued originally. See

Infotronics Corp. v. Varian Associates Corp., 45 F.R.D. 91, 93 (S.D. Tex. 1968) (“[The intended

party] received the same notice of the claim that it would have received had it been properly

named.”). This notice allowed PetersonRX to avoid prejudice, which may have been caused by

its mistaken omission from the Original Complaint. Gifford, 224 F.2d at 376 (imputing notice of

an action against one company on another company, which shared directors and offices with the

company served).

Similarly, Mr. Jones received adequate notice of the Trustee’s avoidance action. Service

on an entity can serve as proper notice to an individual associated with the entity, so long as the

entity and individual share an identity of interest. See, e.g., Kirk, 629 F.2d at 408 n.4 (“Certainly

the sheriff and the sheriff's office share a close enough relationship so that we can conclude that

notice to one is notice to the other under the identity of interest theory.”); Advanced Power Sys.,

Inc. v. Hi-Tech Sys., Inc., 801 F. Supp. 1450, 1456 (E.D. Pa. 1992) (citing Itel Corp v. Cups Coal

Co., 707 F.2d 1253 (11th Cir.1983)) (“When a corporate entity is named in a complaint, those who

own it or run its day-to-day business are typically deemed to have received constructive notice of

the action.”). It is undisputed that Mr. Jones served as Wall Street’s manager and agent of service.

In fact, Mr. Jones admits he personally received service of the Original Complaint. (ECF No. 27-

1 at 1). Mr. Jones cannot claim he did not receive notice of this action within the Rule 4(m) period.

In contrast, Ms. Jones did not receive adequate notice of the Trustee’s action. The only

evidence linking Ms. Jones to the Trustee’s action is Ms. Jones’s position as a member of Jones

Family Enterprises, which shares a manager and a business address with Wall Street. (ECF No.

23-6 at 1). The Trustee offers no authority establishing that Ms. Jones could be charged with

notice of an action asserted against one entity, with which Ms. Jones has no formal relation, based

on that entity’s relationship with another entity, of which Ms. Jones is a member.16 Additionally,

there is no evidence establishing that Ms. Jones received actual notice of the Trustee’s suit. To

borrow from the Seventh Circuit, “it is clear that sufficient identity of interest to warrant imputation

of notice is lacking” with respect to Ms. Jones. Allbrand Appliance & Television, 875 F.2d at

1025.

The Trustee also contends that Twin Lakes, David, Alameda, El Dorado, and Baytree

received the notice required by Rule 15(c)(1)(C)(i) because Mr. Jones, whom the Trustee contends

is an agent of these entities, received service of the Original Complaint.17 It is true that service on

16 The Trustee’s argument that Ms. Jones was an agent of Mr. Jones because Ms. Jones had knowledge of

fraudulent acts perpetrated by Mr. Jones is without merit. In re Allison addressed whether a debtor’s spouse’s

fraudulent acts could be imputed onto the debtor to prevent discharge. 960 F.2d 481, 485–86 (5th Cir. 1992). The

court held that, absent evidence establishing that the debtor knew that the spouse was carrying out fraudulent acts

within the scope of the debtor’s authority, fraud would not be imputed onto the debtor. Id. Nothing in the record

suggests that Ms. Jones knew of any allegedly fraudulent acts carried out by Mr. Jones. Moreover, the Trustee has

not alleged Mr. Jones perpetrated any actually fraudulent acts. Nor did the Trustee need to allege fraud against Mr.

and Ms. Jones. Section 548(a)(1) authorizes the Trustee to recover fraudulent transfers made by the debtor, not

transfers fraudulently accepted by a transferee. 11 U.S.C. § 548(a)(1)(A). Finally, given that Rule 9 requires fraud to

be pleaded with particularity, and the Trustee did not even plead it generally, a finding of fraud against Mr. Jones and

imputation of that fraud on Ms. Jones is completely unsupported by the pleadings and the record. See FED. R. CIV. P.

9(b).

17 The Trustee contends Mr. Jones is an agent for these entities because he has communicated on their behalf

and holds credit cards in some of these entities’ names.

an entity’s agent can provide notice to that entity. Ramirez, 607 F. Supp. at 173 (quoting Kirk, 629

F.2d at 407). That is, service on an agent can provide the requisite notice when the service provides

the newly added party with the same notice it would receive had it been sued originally. See

Infotronics Corp., 45 F.R.D. at 93.

Yet the evidence produced by the Trustee does not establish that the remaining Additional

Defendants received adequate notice through service on Mr. Jones. In Ramirez, the director of the

agency sued by the plaintiff was served with the complaint. 607 F. Supp. at 173. The plaintiff

there also intended to sue members of the agency’s board of directors but did not know the names

of those board members. Id. The plaintiff’s service on the director was deemed adequate under

Rule 15 because the director, as the agency’s director, was the agent of the board members. Id.

Service on a former agent was also found to be adequate under Rule 15 in Infotronics, 45 F.R.D.

at 93–94. There, the plaintiff intended to sue a subsidiary of a parent company, but the plaintiff

was unaware that the subsidiary had been consumed by the parent prior to the institution of the

action. Id. at 92. Believing that the subsidiary was still independent from the parent entity, the

plaintiff served the agent of service for the subsidiary. Id. However, the agent for the former

subsidiary was not the agent for the parent. Id. Nevertheless, it was undisputed that the former

subsidiary’s agent promptly notified the parent of the action. Id. This prompt notice allowed the

parent to receive the same notice it would have received had the plaintiff sued the correct party.

Id. at 93–94.

Unlike the agent in Ramirez, the Trustee did not adduce evidence establishing that Mr.

Jones was the agent for service of any of these other entities.18 That is, the Trustee offers nothing

18 Moreover, it appears that Mr. Jones did not own these remaining Additional Defendants, unlike Wall Street,

Jones Family Enterprises, and PetersonRX. (See ECF No. 33-8 at 2–3). Mr. Jones also had to inform the other owners

when payments were received from the Debtors, making it unlikely that these other Additional Defendants received

notice simply through service on Mr. Jones. (See ECF No. 33-8 at 2–3).

to establish that Mr. Jones’s relationship to these other entities would satisfy the notice

requirements in Rule 4(h). See FED. R. CIV. P. 4(h).19 And, unlike Infotronics, nothing in the

record establishes that Mr. Jones notified these Additional Defendants of the claims in the Original

Complaint. The fact that Mr. Jones held credit cards in these entities’ names and acted on their

behalf with respect to payments from the Debtors does not establish that these Additional

Defendants received adequate notice. Absent from the record is any evidence that these Additional

Defendants received the same notice they would have received had they been named in the

Original Complaint. See id.; see also Bisby v. Garza, CIV.A. C-07-404, 2008 WL 4179237, at *2

(S.D. Tex. Sept. 8, 2008) (quoting 35A C.J.S. Federal Civil Procedure § 247) (“The principal

purpose of [Rule 4(h)] with respect to service on an agent of the corporation or association is to

render it reasonably certain that the corporation will receive prompt and proper notice in an action

against it.”). Based on the record, it is unclear whether Twin Lakes, David, Alameda, El Dorado,

and Baytree received adequate notice of the Trustee’s action. It was the Trustee’s burden to

establish receipt of such notice and that burden has not been satisfied.

Service on Wall Street only provided adequate notice to Jones Family Enterprises,

PeteresonRX, and Mr. Jones.20

3. Knowledge of Mistaken Identity

The Original Complaint imbued PetersonRX and Mr. Jones with actual or constructive

knowledge that they were mistakenly omitted from the Original Complaint. PetersonRX and Mr.

Jones received notice of this action. The Original Complaint’s allegations made clear that the

19 Rule 4(h) applies in this adversary proceeding under Bankruptcy Rule 7004(a). FED. R. BANKR. P.

7004(a).

20 Wall Street, through Mr. Jones, received the complaint on April 11, 2019, well within the Rule 4(m) period.

(ECF Nos. 27-1 at 1; 4 at 2). Thus, Jones Family Enterprises, PetersonRX, and Mr. Jones received notice within the

Rule 4(m) period.

intent of this action was to avoid and recover the Original Transfers. Based on these allegations,

PetersonRX and Mr. Jones knew or should have known that they were the intended targets of the

Original Complaint.

Satisfaction of Rule 15(c)(1)(C)(ii) depends not on what the plaintiff knew or should have

known, but on what the “prospective defendant knew or should have known.” Krupski, 560 U.S.

at 548. The plaintiff’s knowledge is relevant only to the extent it “bears on the [prospective]

defendant’s understanding of whether the plaintiff made a mistake.” Id. To that end, a plaintiff’s

deliberate choice to sue one defendant instead of another, when informed by a complete

understanding of the facts giving rise to the claim, will foreclose relation back under Rule

15(c)(1)(C). Id. at 549, 552. However, mere knowledge of the existence of the proper defendant

will not preclude the plaintiff’s amendment from satisfying the requirements of Rule

15(c)(1)(C)(ii). Id. at 549. In fact, a plaintiff’s misunderstanding about the status or identity of

parties is the type mistake Rule 15(c) was intended to remedy. See id. at 549–51 (“It is conceivable

that . . . litigants knew or reasonably should have known the identity of the proper defendant. . . .

Nonetheless, the Advisory Committee clearly meant their filings to qualify as mistakes under the

Rule.”). At bottom, Rule 15(c)(1)(C)(ii)’s primary focus is on the prospective defendant’s

knowledge and whether the defendant knew or should have known of the plaintiff’s mistake. Id.

at 548–49, 554–57.

Opposing the Trustee’s motion, Wall Street relies on Triago v. TDCJ-CID Officials,21

arguing that the Trustee’s lack of knowledge as to the proper defendants precludes relation back.

This reliance is misplaced. Wall Street offers no explanation as to how the Trustee’s lack of

knowledge affected what PetersonRX and Mr. Jones knew or should have known. While the court

21 CIV.A. H-05-2012, 2010 WL 3359481 (S.D. Tex. Aug. 24, 2010).

in Triago did consider the plaintiff’s lack of knowledge, it did so because that lack of knowledge

affected whether the prospective defendants knew or should have known of the plaintiff’s mistake.

See 2010 WL 3359481, at *14 (finding that the original complaint would not have put the

prospective defendants on notice of the plaintiff’s mistake); accord Krupski, 560 U.S. at 548.

Nevertheless, Wall Street urges a hardline rule that a plaintiff’s lack of knowledge of a prospective

defendant, in any case, is not the type of “mistake” contemplated by Rule 15(c). See Triago, 2010

WL 3359481, at *18 (quoting Jacobsen, 133 F.3d at 320) (“In the Fifth Circuit, lack of knowledge

of a proposed new defendant is not a ‘mistake concerning the party's identity’ within the meaning

of Rule 15(c).”). Such a rule is contrary to the Supreme Court’s holding in Krupski and requires

a reading of Triago that is too broad.

Triago does not undermine the Supreme Court’s directive to consider the prospective

defendant’s knowledge alone. In Triago, leave to amend to assert previously pleaded claims

against additional defendants was denied because the amendment would have been futile due to

the expiration of the applicable statute of limitations. Id. at *14, 18. Relation back could not be

used to overcome this limitation because the plaintiff did not make a mistake concerning the

identity of the proper defendant. Id. The court found that it was not a “mistake” for the plaintiff

to name “John Does” in the original complaint. Id. at *18. Rather, the plaintiff simply did not

know the identity of other potential defendants at the time of filing and made the conscious

decision to name “John Does” instead of conducting a more thorough investigation. See id. (“In

the present case, there has been no such mistake. The plaintiffs did not mistakenly sue party A

instead of party B. . . . [T]hrough discovery, . . . [the plaintiff] has learned about additional [parties]

. . . . This is not the type of “mistaken identity” that Rule 15 is intended to address.”). The

intentional naming of “John Does” was not a “mistake” and would not have alerted the prospective

defendants of the plaintiff’s intent to name them instead. Id. at *17–18 (“But the plaintiff must

make a mistake about the unnamed party, and, but for that mistake, the unnamed party would have

been named as a defendant and was on notice that, but for the mistake, would have been named.”

(emphasis in original)). Triago’s focus on how the plaintiff’s knowledge affected the defendant’s

knowledge is consistent with Krupski. See Krupski, 560 U.S. at 548 (“Information in the plaintiff's

possession is relevant only if it bears on the defendant's understanding of whether the plaintiff

made a mistake regarding the proper party's identity.”).22

The Trustee here did not knowingly lack knowledge of the proper defendants and blindly

proceed anyway. Instead, the Original Complaint “mistakenly [named] party A instead of party

B.” Triago, 2010 WL 3359481, at *18; accord Krupski, 560 U.S. at 549 (quoting FED. R. CIV. P.

15(c)(1)(C)(ii)) (“A plaintiff may know that a prospective defendant—call him party A—exists,

while erroneously believing him to have the status of party B. . . . If the plaintiff sues party B

instead of party A under these circumstances, she has made a ‘mistake concerning the proper

party's identity’ . . . .”). That is, the avoidance claims alleged in the Original Complaint were

asserted against Wall Street because Wall Street was listed as the payee in the Debtors’ accounts

payable records. Come to find out, based on Wall Street’s discovery responses, these allegations

were incorrect. Instead of Wall Street receiving the transfers as reflected by the Debtors’ accounts

payable, other parties, as Wall Street’s discovery responses indicated and the Trustee now alleges,

specifically PetersonRX and Mr. Jones, received the ultimate benefit of these transfers. This is the

very case of mistaken identity Rule 15(c) was intended to remedy. See Krupski, 560 U.S. at 550–

51 (explaining that Rule 15(c) was intended to serve as a remedy for plaintiffs who mistakenly

22 This consistency is reinforced by Triago’s finding that the prospective defendants never received notice of

the plaintiff’s original complaint because they did not share an identity of interest with any party to the original

complaint. 2010 WL 3359481, at *14. Here, Mr. Jones and PetersonRX both share an identity of interest with Wall

Street.

sued the incorrect party and did not discover the mistake until after the statute of limitations

expired).

Not only does the Trustee’s “mistake” fall under the auspices of Rule 15(c), the Original

Complaint placed, or should have placed, Wall Street, PetersonRX, and Mr. Jones on notice of the

mistake. Each Original Transfer was specifically identified in the Original Complaint. In

identifying each Original Transfer, the Original Complaint noted the date each transfer was made,

as well as the amount transferred. Given that Mr. Jones was involved in the distribution of

payments received from the Debtors, (See ECF No. 33-8 at 3), all the Original Transfers likely

crossed Mr. Jones’s desk. In addition to this awareness, Mr. Jones’s management roles at Wall

Street and PetersonRX make it near impossible to conclude that PetersonRX and Mr. Jones lacked

actual or constructive knowledge of the mistake in the Original Complaint. Cf. Krupski, 560 U.S.

at 554–56 (explaining that a complaint describing the basis for a plaintiff’s claim should put a

prospective defendant, to the extent it is engaged in the activities described in the complaint, on

notice that the plaintiff may have mistakenly named the wrong defendant). Finally, the close

relationship between Wall Street, PetersonRX, and Mr. Jones solidifies the conclusion that

PetersonRX and Mr. Jones knew or should have known of the Trustee’s mistake. See id. at 556

(“This interrelationship and similarity heighten the expectation that [the prospective defendant]

should suspect a mistake has been made when [the defendant] is named in a complaint that actually

describes [the prospective defendant’s] activities.").

The Original Transfer claims the Trustee seeks leave to assert against PetersonRX and Mr.

Jones relate back to the filing of the complaint. Allowing PetersonRX and Mr. Jones to escape

liability because of a mistake in the Original Complaint, despite their actual or constructive

awareness of that mistake, would provide PetersonRX and Mr. Jones with a windfall. Krupski,

560 U.S. at 550. Such a windfall is exactly the result Rule 15(c) was intended to ameliorate.

Because the Trustee’s claims against PetersonRX and Mr. Jones relate back, they are not barred

by the statute of limitations in 11 U.S.C. § 546(a).

There is no substantial reason to deny the Trustee leave to amend the complaint to assert

the Original Transfer claims against PetersonRX and Mr. Jones. See Stripling, 234 F.3d at 872.

However, adding the remaining Additional Defendants and the 13 Additional Transfer claims to

this action would be futile, as these claims are time-barred. See Whitt, 529 F.3d at 282-83.

Consequently, there is a substantial reason to deny the Trustee’s request for leave to amend to the

extent the proposed amendment is futile. See id. at 282.

CONCLUSION

The Trustee’s Motion for Leave to Amend the Complaint is Granted to the extent the

Trustee seeks to add PetersonRX and Mr. Jones as defendants. The Trustee’s motion is Denied

with respect to all other proposed amendments. A separate Order will be issued.

SIGNED 01/21/2021

—_—~

fff

Marvin Isgur

United States Bankruptcy Judge

27/27