Plaintiff Could Amend Its Complaint Against The IT Trust To Assert A Breach Of Contract Claim Arising From Trust's Alleged Violation Of Settlement Agreement And Release
Integrated Water Res., Inc. v. Shaw Envntl., Inc. (In re IT Group, Inc.), 361 B.R. 417(Bankr. D. Del. 2007) (Judge Mary F. Walrath)
The Plaintiff in this adversary proceeding sought to amend its complaint to add a claim for breach of contract against the IT Trust. The Plaintiff asserted that the Trust had violated the terms of a settlement agreement and releases contained therein by assigning its claims against the Plaintiff to a third party. The Court granted the motion to amend, finding that there was no undue delay by the Plaintiff, there was no undue prejudice to the Trust, and that the proposed amendment was not futile.
Prior to the petition date, Integrated Water Resources, Inc. (IWR) retained IT Corporation as a subcontractor for various environmental remediation projects. IWR alleged that IT Corp. breached the contract. Shortly after IT Corp. filed bankruptcy in 2002, it executed an agreement with Shaw Group, Inc. pursuant to which Shaw agreed to purchase substantially all of the Debtor’s assets. The Court approved the asset sale.After the Debtor’s chapter 11 plan was confirmed in 2004, the Debtor’s remaining assets were vested in the IT Trust. In early 2005, the Court approved a stipulation between the Trust and IWR that resolved all controversies between them. The Trust represented in the stipulation that neither it nor the Debtor had assigned any claim against IWR. IWR likewise represented that it had not assigned claims against the Debtor or the Trust. Additionally, the stipulation contained releases in favor of IWR as to all present and/or future claims the Trust or the Debtor might have.
In October 2005, Shaw sued IWR in California for damages relating to the environmental remediation contract. In 2006, IWR sued Shaw and the Trust in Bankruptcy Court seeking (1) indemnification of expenses and fees to defend the Shaw action; (2) indemnification for any liability to Shaw; (3) determination of IWR’s rights under the contract, sale order and stipulation; and (4) injunctive relief against Shaw.
In January 2007, IWR sought leave to amend the complaint to add a claim for breach of contract arising from the Trust’s alleged breach of the stipulation and releases. The Trust opposed the motion for leave, arguing that there had been undue delay in filing the motion, that it would suffer undue prejudice and that amendment would be futile. The Court disagreed with the Trust.
The Court noted that IWR’s 6 month delay in filing the motion to amend was not “undue”. No discovery had taken place, no scheduling order had been entered, and no trial was scheduled.
The Court also found that the Trust would not suffer undue prejudice. Any inconvenience to the Trust in having to defend the new claim, or the concommittant strengthening of IWR’s legal position, did not constitute sufficient prejudice. Again, the court noted that the new claim would not require additional discovery since no discovery at all had yet taken place. Further, the Court held that the Trust would have adequate time to prepare its defense to the claim.
Finally, the Court noted that the proposed amendment was not futile. The proposed amendment would properly assert a claim for breach of contract. Further, the Court held that if it determined that the remediation contract was assigned to Shaw, it could also conclude that the Trust had breached the settlement and releases.
The Court therefore granted leave to IWR to amend its complaint to assert a breach of contract claim against the Trust.
