Dots, LLC v. Pandora Media, Inc. (In re Dots, LLC.)

In Re: Dots, LLC., Debtor.

Dots, LLC, et al., Plaintiffs, v. Pandora Media, Inc., a/k/a Pandora Radio, Defendant.

Case No. 14-11016 (MBK)

Adv. Pro. No. 16-01040 (MBK)

UNITED STATES BANKRUPTCY COURT DISTRICT OF NEW JERSEY

June 16, 2017

NOT FOR PUBLICATION

Chapter 11

APPEARANCES:

Henry M. Karwowski, Esq.

Joao F. Magalhaes, Esq.

Trenk, DiPasquale, et. al.

347 Mt. Pleasant Avenue

Suite 300

West Orange, NJ 07052

Special Counsel for Dots, LLC, et al.

John M. August, Esq.

Gaye Nell Heck, Esq.

Saiber LLC

18 Columbia Turnpike

Suite 200

Florham Park, NJ 07932

Attorneys for Pandora Media, Inc., a/k/a Pandora Radio

MICHAEL B. KAPLAN, U.S.B.J.

MEMORANDUM DECISION

I. Introduction

This chapter 11 case is presently before the Court on a Motion to Amend (ECF No. 10) ("Motion") brought by Plaintiff Dots, LLC ("Dots" or "Debtor" or "Plaintiff"), seeking leave to amend its Complaint in an adversary proceeding filed against Defendant Pandora Media, Inc., also known as Pandora Radio ("Pandora"). Pandora opposes the Motion.

II. Factual Background and Procedural History

On or about August 16, 2013, Dots entered into a media buying agency agreement (the "Master Services Agreement", or "MSA") with Media Planning and Buying Services, Inc., d/b/a Capstone Media ("Capstone"). According to the Complaint and Plaintiff's motion, Capstone is a company located in Ohio that provides marketing research, media planning, media buying, promotional services, radio advertising, and social media services. Pursuant to the MSA, funds passed from Dots through Capstone for the purchase of media services. Pandora was the ultimate recipient of such funds.

On or about January 20, 2014 ("Petition Date"), Dots filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code. Upon review of the Dots' books and records, it was determined by Dots' accounting professionals that approximately $872,425 was forwarded to Capstone during the ninety (90) day period preceding the Petition Date. Additionally, it was determined that Pandora had received a portion of those funds. Accordingly, on or about January 19, 2016, Dots filed its Complaint against Pandora, seeking to recover a total of $325,084.02 which Dots asserted was made in five separate preferential transfer payments. (Compl., ECF No. 1.) Pandora filed its Answer on March 4, 2016. (Answer, ECF No. 4.)

The parties then engaged in discovery. Dots asserts that it served a subpoena to Capstone in Ohio on or about October 7, 2015; however, Capstone refused to comply. Dots states that itwas unable to procure local counsel in Ohio to pursue enforcement of the subpoena due to limited resources and the cost of litigation. Nevertheless, Dots contends that special counsel ultimately ascertained that at least a portion of the funds held by Capstone were maintained by U.S. Bank, N.A. ("U.S. Bank"). On or about August 1, 2016, and again on or about October 27, 2016, Dots served U.S. Bank with subpoenas. By December 2016, U.S. Bank had substantially complied with the subpoenas and, based on the information provided, Dots determined that $10,624.99 was transferred to Pandora pre-petition; and $240,405.46 was transferred to Pandora postpetition.

Dots contends that it engaged in good faith efforts to clarify the record with counsel for Pandora and—based on that clarified information—Dots now seeks to amend its Complaint to reflect the updated record. Specifically, Dots seeks to: "(A) note the Pre-Petition Transfers as the transfers forming the subject of the Debtor's cause of action under Bankruptcy Code sections 547 and 550; (B) add a claim under Bankruptcy Code section 549 in connection with the Post-Petition Transfers; and (C) add a claim under Bankruptcy Code section 542 in connection with the Post-Petition Transfers." (Motion at 5, ECF No. 10.) Pandora filed an opposition to Dots' motion (ECF No. 11), and Dots filed a Reply Brief (ECF No. 12).

A hearing was held, and oral argument was heard, on May 15, 2017. Additionally, the parties were invited to file supplemental briefs, which the Court received on May 30, 2017. (ECF Nos. 13 & 14.) The Court has considered the submissions of the parties and the arguments set forth on the record during the May 15, 2017 hearing. For the reasons set forth below, Dots' Motion will be granted in part and denied in part.

III. Jurisdiction

Jurisdiction over this action is found under 28 U.S.C. §§ 1334(a) and 157(a), as well as the Standing Order of the United States District Court dated July 10, 1984, as amended September 18, 2012, referring all bankruptcy cases to the bankruptcy court. This matter is a core proceeding within the meaning of 28 U.S.C. §§ 157(b)(2)(F) and (O), and "arises under" title 11. Venue is proper in this Court pursuant to 28 U.S.C. §§ 1408 and 1409. As outlined by the Third Circuit, bankruptcy jurisdiction extends to four types of title 11 matters: (1) cases "under" title 11; (2) proceedings "arising under" title 11; (3) proceedings "arising in" a case under title 11; and (4) proceedings "related to" a case under title 11. W.R. Grace & Co. v. Chakarian (In re W.R. Grace & Co.), 591 F.3d 164, 171 (3d Cir. 2009); In re Combustion Eng'g, Inc., 391 F.3d 190, 225 (3d Cir. 2005). "'[A]rising under' jurisdiction includes any proceeding which invokes a substantive right under the Bankruptcy Code." Revel AC, Inc. v. Polo North Country Club (In re Revel AC, Inc.), No. 14-22654, 2016 WL 6155903, at *5 (Bankr. D.N.J. Oct. 21, 2016) (citing In re Bell, 476 B.R. 168, 175 (Bankr. E.D. Pa. 2012)); Winstar Commc'ns, Inc. v. Lucent Tech. Inc. (In re Winstar Commc'ns, Inc.), 554 F.3d 382, 405 (3d Cir. 2009). A proceeding that "arises under" title 11 is also described as one involving a cause of action created by, or a substantive right determined by, a provision of title 11. Stoe v. Flaherty, 436 F.3d 209, 217 (3d Cir. 2006), as amended (Mar. 17, 2006).

The current action is one which involves alleged avoidable transfers under § 547 and § 549, thus, qualifies as a matter "arising under" title 11. See Stern v. Marshall, 564 U.S. 462, 497, 131 S. Ct. 2594, 2617, 180 L. Ed. 2d 475 (2011) ("A preferential transfer claim can be heard in bankruptcy when the allegedly favored creditor has filed a claim, because then the ensuingpreference action by the trustee become[s] integral to the restructuring of the debtor-creditor relationship.") (citation and internal quotations omitted).

IV. Discussion

A. Motion to Amend Standard of Review

Federal Rule of Civil Procedure 15, which applies to this adversary proceeding though Federal Rule of Bankruptcy Procedure 7015, provides that leave to amend "shall be freely given when justice so requires." FED. R. CIV. P. 15(a). The decision to grant leave to amend is left within the discretion of the court. Interface Group-Nevada, Inc. v. Trans World Airlines, Inc. (In re Trans World Airlines, Inc.), 145 F.3d 124, 141 (3d Cir. 1998). "The Third Circuit has shown a strong liberality in allowing amendments under Rule 15 in order to ensure that claims will be decided on the merits rather than on technicalities." Carrow v. Fedex Ground Package Sys., Inc., No. 16-3026, 2017 WL 1536411, at *1 (D.N.J. Apr. 26, 2017) (citing Dole v. Arco Chem. Co., 921 F.2d 484, 486-87 (3d. Cir. 1990)); see also Arista Records, Inc. v. Flea World, Inc., 356 F. Supp.2d 411, 419 (D.N.J. 2005) (citing Bechtel v. Robinson, 886 F.2d 644, 652 (3d. Cir. 1989) and Baird v. City of Atlantic City, 100 F. Supp.2d 262, 265 (D.N.J. 2000)); Stanziale v. Am. Friends of Yechave Daat (In re Dwek), 2009 WL 3048439 (Bankr. D.N.J. Sept. 17, 2009) (citing Moss v. U.S. Secret Service, 572 F.3d 962, 972 (9th Cir. 2009)) (noting that, generally, courts grant leave to amend with "extreme liberality" in order to ensure that a case is decided on its merits). Nevertheless, a court has discretion to deny a motion to amend if "(1) the moving party has demonstrated undue delay, bad faith or dilatory motives, (2) the amendment would be futile, or (3) the amendment would prejudice the other party." Luciani v. City of Philadelphia, 643 F. App'x 109, 111 (3d Cir. 2016) (quoting U.S. ex rel. Schumann v. Astrazeneca Pharm. L.P., 769 F.3d 837, 849 (3d Cir. 2014));see also Lake v. Arnold, 232 F.3d 360, 373 (3d Cir. 2000) (citing Foman v. Davis, 371 U.S. 178, 83 S. Ct. 227, 9 L. Ed. 2d 222 (1962)).

B. Analysis

In its Motion, Dots seeks permission to amend its Complaint to recover certain pre-and postpetition payments made to Pandora which Dots identified in the course of discovery. Pandora opposes the Motion and asserts that it should be denied as futile.

Indeed, "amendment of a complaint is 'futile' if 'that claim would not be able to overcome the statute of limitations.'" Anderson v. Bondex Int'l, Inc., 552 F. App'x 153, 156 (3d Cir. 2014) (quoting Cowell v. Palmer Twp., 263 F.3d 286, 296 (3d Cir. 2001)). Where a claim is barred by the statute of limitations, amendment is only permitted if the proposed amended complaint "relates back to the date of the original pleading." FED. R. CIV. P. 15(c)(1); see also Glover v. F.D.I.C., 698 F.3d 139, 145 (3d Cir. 2012); Arthur v. Maersk, Inc., 434 F.3d 196, 207 (3d Cir. 2006). In relevant part, Rule 15(c) provides that an amendment to a pleading will relate back to the original complaint where "the amendment asserts a claim or defense that arose out of the conduct, transaction, or occurrence set out—or attempted to be set out—in the original pleading." FED. R. CIV. P. 15(c)(1)(B). "Relation back is structured 'to balance the interests of the defendant protected by the statute of limitations with the preference expressed in the Federal Rules of Civil Procedure in general, and Rule 15 in particular, for resolving disputes on their merits.'" Glover, 698 F.3d at 145 (quoting Krupski v. Costa Crociere S. p. A., 560 U.S. 538, 550, 130 S. Ct. 2485, 2494, 177 L. Ed. 2d 48 (2010)).

In this case, it is clear that the statute of limitations has expired with respect to the proposed amended claims. The...