Hadassah The Women's Zionist Org. of Am. v. Hadassah Acad. Coll.

OPINION AND ORDER

J. PAUL OETKEN, UNITED STATES DISTRICT JUDGE

Hadassah, the Women's Zionist Organization of America, Inc. (“Hadassah”), filed this action against the Hadassah Academic College for trademark infringement, unfair competition, breach of contract, unjust enrichment, and other declaratory relief. Defendant answered, raising an affirmative defense that Plaintiff had breached a covenant of good faith and fair dealing. After reviewing additional documents produced in discovery, Defendant moves to amend the answer to add a counterclaim that Plaintiff breached a covenant of good faith and fair dealing. Plaintiff opposes. For the reasons that follow, Defendant's motion to amend is granted.

I. Background

Hadassah, the Women's Zionist Organization of America, Inc., is a not-for-profit organization “dedicated to enhancing the health and lives of people in Israel, the United States and worldwide.” (Dkt. No. 1 ¶ 2.) To that end, Plaintiff “raises money in the United States from its well established donor base and supports a No. of charitable organizations in Israel, including giving millions of dollars over the years to” the Hadassah Academic College, which is “a not-for-profit college located and operating in Jerusalem, Israel.” (Dkt. No. 1 ¶ 3.)

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In June 2016, Hadassah and the Hadassah Academic College entered into an agreement to formalize their charitable dealings. (Dkt. No. 1 ¶ 29.) As relevant here, the agreement provided that, upon request, Hadassah “may, at its sole discretion, notify [Hadassah Academic College] of any amounts available to be considered for a Grant.” (Dkt. No. 1-2 at 1.) Hadassah further “reserve[d] the right, at any time, in its sole and absolute discretion, to withhold, terminate or demand repayment of Grant payments . . . if in its opinion [the] funds are not being used pursuant to the approved purposes of the Grant or there is any other failure of [the] Grantee to comply with the terms” of the agreement. (Dkt. No. 1-2 at 5.)

The agreement imposed obligations on Hadassah Academic College. As alleged, it restricted how Hadassah Academic College could communicate with Hadassah's donors. (Dkt. No. 1 ¶ 29.) It directed Hadassah Academic College not to “directly or indirectly disparage [Hadassah] or its reputation especially with respect to the receipt by [Hadassah] of Grants.” (Dkt. No. 1 ¶ 29.) And it provided that Hadassah Academic College could not use Hadassah's name or logo “without the prior written permission” of Hadassah. (Dkt. No. 1 ¶ 29.)

The complaint alleges that Hadassah Academic College has “contacted a No. of Hadassah donors without Hadassah's permission, and without providing copies of those communications to Hadassah as required under the [a]greement.” (Dkt. No. 1 ¶ 35.) The complaint also alleges that Hadassah Academic College has “solicit[ed] donations from such donors” (Dkt. No. 1 ¶ 36) and raised funds “under the name HADASSAH ACADEMIC COLLEGE or FRIENDS OF HADASSAH ACADEMIC COLLEGE” even though it lacks permission to use the name “HADASSAH.” (Dkt. No. 1 ¶ 39.) The complaint notes that Hadassah owns federal trademark registrations for the mark HADASSAH. (Dkt. No. 1 ¶ 24.)

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Plaintiff brought claims for breach of contract (Dkt. No. 1 ¶¶ 49-53), federal trademark infringement (Dkt. No. 1 ¶¶ 54-59), federal unfair competition (Dkt. No. 1 ¶¶ 60-65), unjust enrichment (Dkt. No. 1 ¶¶ 66-68), and declaratory judgment (Dkt. No. 1 ¶¶ 69-74).

Hadassah Academic College answered in a timely manner. (See Dkt. No. 39.) Among other affirmative defenses, Hadassah Academic College asserted that Plaintiff's claims failed because Plaintiff had “breached its duty of good faith and fair dealing.” (Dkt. No. 39 ¶ 92.) The answer alleged that the agreement “restrict[ed] aspects of [Hadassah Academic College]'s independent fundraising efforts on the understanding that [Hadassah] would forward to [Hadassah Academic College] all donations earmarked for [Hadassah Academic College, ]” but Hadassah “failed, and continues to fail, to forward such funds.” (Dkt. No. 39 ¶ 93.) In support, the answer alleged that Hadassah had “refused to transfer funds to [Hadassah Academic College] or provide any information on available funds to which [Hadassah Academic College] was the clear intended beneficiary”; “withheld endowment interests held by [Hadassah] at the bequest of individuals who left money in their wills to ‘Hadassah College Jerusalem'”; and “reclassif[ied] funds on its internal financial statements from funds allocated to ‘Hadassah College of Technology' to a more general classification for ‘Education' in Jerusalem.” (Dkt. No. 39 at 4.)

Hadassah Academic College now moves to amend its answer to add a counterclaim. (See Dtk. No. 58.) The proposed counterclaim asserts that Hadassah “breach[ed] . . . the covenant of good faith and fair dealing arising from” the agreement. (Dkt. No. 60-1 ¶ 109.) The proposed amended answer alleges that the premise of the agreement between the parties was “that there are funds made ‘available' by [Hadassah] for [Hadassah Academic College] where donors intended their donations to be provided to [Hadassah Academic College].” (Dkt. No. 60-1 ¶ 114.) It alleges that Hadassah “carried out a plan to deprive [Hadassah Academic

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College] of donors' funds which should rightfully have been forwarded to [Hadassah Academic College], and instead to allocate those funds for [Hadassah]'s own uses.” (Dkt. No. 60-1 ¶ 111.)

The amended answer explains that Hadassah “took the position that any endowment where the donor did not specifically name [Hadassah Academic College] . . . did not need to be forwarded.” (Dkt. No. 60-1 ¶ 116.) It also explains that Hadassah “took the position that any donation that had a ‘discretion' clause - even where donations were earmarked for [Hadassah Academic College] or intended to be provided to [Hadassah Academic College] - did not need to be forwarded to [Hadassah Academic College].” (Dkt. No. 60-1 ¶ 116.) As a consequence, Defendant alleges, Hadassah withheld “the annual funding provided by at least 36 endowments earmarked by donors for [Hadassah Academic College].” (Dkt. No. 60-1 ¶ 120.) Hadassah also withheld “the entire annual income from the Francis Morris Trust.” (Dkt. No. 60-1 ¶ 121.)

Further, the proposed amended answer alleges that Hadassah's plan was “a clandestine, premeditated effort.” (Dkt. No. 60-1 ¶ 117.) The proposed answer alleges that Hadassah “undertook a project to review all outstanding donations (including endowments, trusts and bequests under wills) to figure out how they could divert the funds away from [Hadassah Academic College].” (Dkt. No. 60-1 ¶ 118.) It identifies an internal memorandum reflecting that project. (Dkt. No. 60-1 ¶ 119.) It also identifies other internal emails between Hadassah and donors indicating attempts to convince donors to reassign funds. (Dkt. No. 60-1 ¶¶ 127-28, 134.) Accordingly, the proposed amended answer seeks damages proximately caused by the breach; an injunction directing Plaintiff to send donations earmarked for the Hadassah Academic College; prejudgment interest; costs; and attorneys' fees. (Dkt. No. 60-1 at 55-56.)

Plaintiff opposes leave to amend on the ground that Hadassah Academic College has failed to satisfy Federal Rule of Civil Procedure 16(b). In the alternative, Plaintiff contends that

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the motion to amend should be denied under Federal Rule of Civil Procedure 15 because the proposed amended answer is unduly delayed, futile, and unduly prejudicial.

II. Discussion

Under the Court's scheduling order, the pleadings closed on September 15, 2020. (See Dkt. No. 44 ¶ 4.) Defendant filed its motion to amend on February 26, 2021. (See Dkt. No. 58.) Where a scheduling order governs amendments to the complaint, and a party wishes to amend after the scheduling deadline has passed, the party “must satisfy both Federal Rules of Civil Procedure 15 and 16 to be permitted to amend.” Pasternack v. Shrader, 863 F.3d 162, 174 n.10 (2d Cir. 2017) (cleaned up). Defendant has satisfied Rule 16 because it has shown good cause to amend. Defendant has satisfied Rule 15 because the proposed counterclaim is not unduly delayed, unduly prejudicial, or futile.

A. Rule 16

Rule 16 of the Federal Rules of Civil Procedure provides that “[a] schedule may be modified only for good cause and with the judge's consent.” Fed.R.Civ.P. 16(b)(4). The “primary consideration” in determining whether good cause exists “is whether the moving party can demonstrate diligence.” Kassner v. 2nd Ave. Delicatessen Inc., 496 F.3d 229, 244 (2d Cir. 2007). “The ‘good cause' standard is met where the proposed amendment rests on information that the party did not know (or there is no reason to believe the party should have known) before the deadline.” Perez v. 117 Ave. of the Ams. Food Corp., No. 15 Civ. 8151, 2016 WL 5415090, at *2 (S.D.N.Y. Sept. 27, 2016). The standard is typically not met “when the proposed amendment rests on information that the party knew, or should have known, in advance of the deadline.” Goldman v. Reddington, No. 18 Civ. 3662, 2021 WL 4099462, at *2 (E.D.N.Y. Sept. 9, 2021).

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Defendant's proposed counterclaim rests primarily on information obtained during discovery conducted after the pleading deadline had elapsed. Defendant asserts that Hadassah breached a covenant of good faith and fair dealing principally because Hadassah withheld the annual funding for 36 endowments earmarked by donors for Hadassah Academic College as well as the entire annual income from the Francis Morris Trust. (Dkt. No. 60-1 ¶¶ 120-21.) Defendant further alleges that those withholdings reflected “a clandestine, premeditated effort” to “review all...