Defendants Not Required to Demonstrate Merit of Proposed Counterclaim on Motion for Leave to Amend Answer

In an Opinion, dated June 6, 2023, in Vertiv, Inc. v. Naithani, 2023 NY Slip Op 50548(U), Justice Robert R. Reed of the New York County Commercial Division granted defendants’ motion for leave to amend their answer to assert a counterclaim for breach of contract in the form annexed to the moving papers. The Court explained:

It is well settled that "[l]eave to amend the pleadings shall be freely given absent prejudice or surprise resulting directly from the delay" (Tri-Tec Design, Inc. v Zatek Corp., 123 AD3d 420, 420, 998 N.Y.S.2d 43 [1^st Dept 2014] [internal quotation marks and citation omitted]; see also CPLR 3025 [b] ["Leave shall be freely given upon such terms as may be just . . ."]). "On a motion for leave to amend, [the movant] need not establish the merit of its proposed new allegations, but must simply show that the proffered amendment is not palpably insufficient or clearly devoid of merit" (MBIA Ins. Corp. v Greystone & Co., Inc., 74 AD3d 499, 500, 901 N.Y.S.2d 522 [1st Dept 2010] [citations omitted]; see also Lavrenyuk v Life Care Servs., Inc., 198 AD3d 569, 570, 152 N.Y.S.3d 907 [1st Dept 2021], lv dismissed 38 NY3d 1021 [2022]). "Mere delay is insufficient to defeat a motion for leave to amend" (Kocourek v Booz Allen Hamilton Inc., 85 AD3d 502, 504, 925 N.Y.S.2d 51 [1st Dept 2011]). "Prejudice requires some indication that the defendant has been hindered in the preparation of [its] case or has been prevented from taking some measure in support of [its] position" (id.). Nevertheless, "[w]here there has been an extended delay in moving to amend, the party seeking leave to amend must establish a reasonable excuse for the delay" (Oil Heat Inst. of Long Is. Ins. Trust v RMTS Assoc., 4 AD3d 290, 293, 772 N.Y.S.2d 313 [1st Dept 2004] [internal quotation marks and citation omitted]).

Here, defendants have demonstrated that the proposed counterclaim for breach of contract is neither palpably insufficient nor clearly devoid of merit (see Agbo v Constantin Assoc., LLP, 204 AD3d 599, 599, 165 N.Y.S.3d 307 [1st Dept 2022] [breach of contract claim was not "palpably insufficient" or "clearly devoid of merit" where the plaintiff sufficiently alleged a breach of partnership agreement by failing to pay her interest after her withdrawal from partnership] [internal quotation marks and citation omitted]). Defendants allege that Medmeme entered into a contract with plaintiff to build and launch its product (NYSCEF Doc No. 47 ¶ 22). The contract required plaintiff to use only full-time "personnel of required skill, experience, and qualifications" and to complete the project "in a timely, workmanlike, and professional manner," "in accordance with the highest professional/generally recognized industry standards in [plaintiff's] field" (id., ¶ 26). Defendants assert that Medmeme fully performed its obligations under the contract, and that plaintiff breached its obligations by assigning inexperienced employees and non-qualified third-party contractors to Medmeme's project, and by shifting the costs of providing office space, utilities, equipment, and food for plaintiff's workers to Medmeme (id., ¶¶ 54-57). At this stage, defendants have sufficiently alleged that plaintiff's breaches have caused Medmeme to sustain over $500,000 in damages (id., ¶¶ 48, 49, 59). Contrary to plaintiff's contention, defendants are not required to demonstrate the merit of their proposed breach of contract claim (see MBIA Ins. Corp., 74 AD3d at 500). To the extent that plaintiff raises a vague estoppel argument, this does not defeat amendment at this time.

Moreover, plaintiff does not argue that it is somehow prejudiced by the proposed counterclaim for breach of contract. As pointed out by defendants, discovery has not yet commenced in this action.

Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning motions for leave to amend an answer or asserting counterclaims.