fair notice of the new plaintiff's claim; and (4) substituting the new plaintiff would not prejudice
defendant.

Because the Court concludes that the Magistrate Judge applied the wrong standard and
because defendant would be prejudiced by the requested substitution, the Court rejects the
Magistrate’s recommendation and denies plaintiffs motion to substitute SHL 95, Inc. for
Rawoof.

I. Standard of review

A motion to amend a complaint is not normally considered a dispositive motion for
purposes of Rule 72, which outlines the standards by which a district judge reviews orders issued
by a magistrate judge. When a magistrate judge considers a non-dispositive motion, the
magistrate issues an order to which the parties may file objections. If a party files objections, the
district judge considers the objections and modifies any portion of the order found to be “clearly
erroneous or contrary to law.” Fed. R. Civ. P. 72 (a).

Because the Magistrate’s order disposed of a party (replacing plaintiff Rawoof with SHL
95, Inc.), the Magistrate issued a Report and Recommendation, which is the procedure when a
magistrate is assigned to hear a dispositive matter without the consent of the parties. Ifa party
files objections to a magistrate’s Report and Recommendation, the district judge makes a de novo
determination. Fed. R. Civ. P. 72 (b).

In this case, because the Magistrate Judge issued a Report and Recommendation, this
Court reviews the matter de novo. Even had the Court reviewed the matter for clear error, it still

would have reached the same conclusion.



adamant that defendant would not be prejudiced by the substitution because it could have figured
out that SHL 95, Inc. was the real party in interest once Rawoof produced tax returns for SHL 95,
Inc, Rawoof’s argument is not well-taken: Rawoof is the party that could and should have
figured this out much sooner.

Furthermore, allowing Rawoof to substitute a new plaintiff now would unduly prejudice
defendant. Rawoof did not file his motion for substitution until July 27, 2004—nearly two years
after he filed the lawsuit and on the date discovery was scheduled to close. (As it turns out, the
Magistrate extended discovery another month because defendant had filed a motion to compel
plaintiff to respond to discovery requests.) The last days of discovery are too late to attempt to
substitute a plaintiff: such a substitution will almost always prejudice a defendant. Such
substitution would be particularly prejudicial in this case because Rawoof has passed away.
Thus, the person who plaintiff concedes was “the sole officer, director and stockholder of the
[SHL 95, Inc.] since its inception” is no longer available to provide a Rule 30(b)(6) deposition on
behalf of SHL 95, Inc.

Because plaintiffs failure to substitute earlier the real party in interest is not
understandable and because allowing the substitution would unduly prejudice defendant, the
Court rejects Judge Mason’s Report and Recommendation and denies plaintiff's motion to
substitute.

B. Plaintiffs motion to amend the complaint to add a third count

On October 22, 2004, plaintiff filed a motion for leave to amend the complaint to add a

proposed Count III. Plaintiff noticed the motion before Magistrate Judge Mason. When Judge

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As discovery proceeded in this case, however, it began to appear to
plaintiffs current counsel that the corporation, rather than Rawoof, was the real
party in interest. That growing doubt peaked on July 6, 2004 when defense
counsel sent a letter to plaintiff's counsel noting that, inter alia, although the
corporation’s tax returns had been produced, none had been produced for Rawoof,
individually, although he was the named plaintiff.

Because of defense counsel’s July 6, 2004 letter, plaintiffs counsel began
extensive discussions with Rawoof concerning exactly how the Station’s sale had
been structured. On July 22, 2004 Plaintiff's counsel also received from the
corporation’s transactional attorney, certain corporate resolutions and other
documents related to the Station’s sale that were not previously made available to
plaintiff’s counsel. Based on: i) plaintiffs counsel’s review of these corporate
documents; ii) his conversations with both Rawoof and the transactional attorney;
and iii) the well-settled rule that a plaintiff-stockholder may not seek relief on his
own behalf when the plaintiff has not been injured in any capacity other than in
common with his other stockholders because, in that situation, the cause of action
belongs to the corporation, (internal citations omitted), it now appears clear that
the corporation, SHL 95, Inc., is actually the real party in interest in this case,
rather than, Rawoof, individually.

(Plaintiff's Memorandum of Law in Support of Motion for Substitution of Named Plaintiff at pp.
1-4).

After the parties briefed the issue, Magistrate Judge Mason entered a Report and
Recommendation, in which he recommended that plaintiffs motion for substitution be granted.
Judge Mason determined that Rule 17(a) was not applicable because Texor had not asserted a
“real party in interest” defense. Instead, Judge Mason considered the circumstances in which
Rule 15 allows a party to amend a complaint such that the amendments relate back to the original
complaint. Judge Mason concluded that the amendment should relate back to the original
complaint because (1) the claim of the new party arose from the same conduct, transaction or

occurrence; (2) the new plaintiff shared an identity of interest with the old; (3) the defendant had



III. Discussion

A. Plaintiff’s motion to substitute SHL 95, Inc.

Under certain circumstances, Rules 15 and 17 of the Federal Rules of Civil Procedure
allow for a party to be substituted. Rule 15 provides that after an answer is filed, a party may
amend a complaint “only by leave of court or by written consent of the adverse party; and leave
shall be freely given when justice so requires.” Rule 17(a) of the Federal Rules of Civil
Procedure provides, in relevant part:

Every action shall be prosecuted in the name of the real party in interest. ... No

action shall be dismissed on the ground that it is not prosecuted in the name of the

real party in interest until a reasonable time has been allowed after objection for

ratification of commencement of the action by, or joinder or substitution of, the

real party in interest; and such ratification, joinder or substitution shall have the

same effect as if the action had been commenced in the name of the real party in

interest.

Fed. R. Civ. P. 17(a).

Plaintiff argues that the language in Rule 17 is mandatory and that any plaintiff can
substitute another at any time without thought of notice or prejudice. Plaintiff is mistaken.

Both Rules 15 and 17(a) have limits. Courts generally do not allow amendments under
Rule 15 where the amendments will prejudice other parties. Rule 17 is similarly limited. Rule
17(a) is “intended to prevent forfeiture when the determination of the proper party to sue is
difficult or when an understandable mistake has been made. ... It is intended to insure against

forfeiture and injustice.” (Rule 17 advisory notes). Relying on this language, the Seventh Circuit

has allowed the substitution of a plaintiff where the wrong plaintiff was named due to an



Mason issued his Report and Recommendation with respect to plaintiffs motion to substitute,
Judge Mason stated:

Plaintiff is advised to renotice his motion for leave to file Count IIT [37-1] before

Judge Marovich, and attach the proposed amended complaint and not just Count

TI.
Plaintiff has not re-noticed the motion before this Court or filed a proposed amended complaint.
The Court deems the motion abandoned and, therefore, denies the motion to amend without

prejudice to plaintiff's right to re-file the motion in the future.

IV. Conclusion

For the reasons set forth above, the Court rejects the Magistrate’s Report and
Recommendation and denies plaintiffs motion to substitute SHL 95, Inc. for Rawoof. The Court
denies as abandoned plaintiffs motion for leave to amend the complaint to add Count IH, but the
denial is without prejudice to plaintiff's right to re-file the motion in the future.

NTER: \

2 Prev. ch)

Gegrge M. Marovich
‘ited States District Judge

ooo, [2/06 Jo



‘
Minute Order Farm (06/97)

United States District Court, Northern District of Hlinois

Name of Assigned Judge i Sitting Judge if Other
or Magistrate Judge George M. Marovich than Assigned Judge
CASE NUMBER 02 C 5892 DATE 12/28/2004
CASE Rawoff vs. Texor Petroleum Company
TITLE
[in the following box (a) indicate the party filing the motion, e.g, plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented.)
DOCKET ENTRY:
(1) oO Filed motion of [ use listing in “Motion” box above.]
(2) oO Brief in support of motion due
(3) o Answer brief to motion due. . Reply to answer brief due.
(4) o Ruling/Hearing on set for at
(5) oO Status hearing[held/continued to] [set for/re-set for] on set for at
(6) Bo Pretrial conference[held/continued to] [set for/re-set for] on set for at :
) o Trial[set for/re-set for] on at
(8) a {Bench/Jury trial] [Hearing] held/continued to at
(9) QO This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
CUFRCP4(m) (ClLocal Rule 41.1 OFRCP4i(a)(1)  FRCP41(a)(2).
ao) oi [Other docket entry) ENTER MEMORANDUM OPINION AND ORDER. The Court rejects the
Magistrate’s Report and Recommendation and denies plaintiff's motion to substitute SHL 95, Inc. for
Rawoof. The Court denies as abandoned plaintiffs motion for leave to amend the complaint to add Count
III, but the denial is without prejudice to plaintiff's right to re-file the motion in the future. Status hearing
set for 05/11/05 at 11:00am.
(il) @f [For further detail see order attached to the original minute order.]
No notices required, advised in open court. Document
Number
No notices required. number of notices :
Notices mailed by judge’s staff,
Notified counsel by telephone. DEC 29 200
UY | Docketing to mail notices.
Mail AO 450 form, ft inials
vo | Copy to judge/magistrate judge. frees
date mailed notice
courtroom 7
iD deputy’s ae Wy
initials =
Date/time received in.”
central Clerk's Office!" mailing deputy initials



understandable mistake and where the defendant was not prejudiced. In re Meyer, 120 F.3d 66,
69 (7th Cir. 1997).

But where the plaintiff should have known earlier that the real party in interest had not
been named and where amending the complaint would prejudice the defendant, courts have not
allowed plaintiffs to substitute a real party in interest. See Intown Properties Mgt. Inc. v.
Wheaton Van Lines, Inc., 271 F.3d 164, 171 (4th Cir. 2001) (“Courts have not permitted Rule 17
to be used late in the course of litigation if the opposing party would suffer undue prejudice. . . .
As with Rule 15, Rule 17's liberality evaporates if amendment would unduly prejudice either
party.”); Feist v. Consolidated Freightways Corp., 100 F. Supp.2d 273, 275 (E.D. Penn. 1999}
(denying leave to amend “when determination of the correct party to bring the action was not
difficult and when no excusable mistake was made”), aff'd 216 F.3d 1075 (3rd Cir. 2000);
Automated Info. Processing, Inc. v. The Genesys Solutions Group, Inc., 164 F.R.D. 1, 3 (E.D.
N.Y. 1995) (denying leave to amend where information as to the proper plaintiff was within
plaintiffs “responsibility and ability to ascertain”).

Here, the Magistrate mistakenly considered only Rule 15 and not Rule 17, Rule 17
makes clear that Rawoof should not be allowed to substitute another plaintiff for himself. First,
all of the information necessary to ascertain the real party in interest was in the plaintiff's hands
before he filed suit. As is clear from plaintiff's motion, plaintiff certainly knew all along about
the existence of SHL 95, Inc. (of which he was the sole director and sole shareholder) and should
have known in August 2001 that SHL 95, Inc. suffered the injury. It is not defendant’s fault that
plaintiff's counsel did not figure out the problem and did not have a conversation with Rawoof

about the matter until after defendant’s counsel asked about Rawoof’s tax returns. Rawoof is

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UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION
MOHAMMED RAWOOF )
)
Plaintiff, )
) 025892
v.
) Judge George M. Marovich
TEXOR PETROLEUM COMPANY, )
)
Defendant. )

MEMORANDUM OPINION AND ORDER

Plaintiff Mohammed Rawoof (“Rawoof”) filed a two-count complaint against defendant
Texor Petroleum Company (“Texor”). Nearly two years after filing the suit and on the last day of
discovery, Rawoof filed a motion pursuant to Rules 15 and 17 of Federal Rules of Civil
Procedure to substitute SHL, Inc. for Rawoof as plaintiff. Magistrate Judge Mason issued a
Report and Recommendation recommending that the motion be granted. Defendant filed timely
objections, which the parties have briefed. For the reasons set forth below, the Court rejects the
Report and Recommendation and denies plaintiff's motion for substitution. Also pending is
plaintiffs motion to amend the complaint to add a third count. The Court denies as abandoned
the motion to add a third count, but the denial is without prejudice to plaintiff's right to re-file the
motion in the future.
1 Background

On August 19, 2002, plaintiff Rawoof filed a two-count complaint, in which he asserted
claims under the Petroleum Marketing Practices Act, 15 U.S.C. § 2801, et. seq. The first several

months of the case were spent briefing defendant’s Rule 12(b)(6) motion to dismiss, which the



Court ultimately denied. The Court referred discovery matters to Magistrate Judge Mason, who
set a written discovery cut-off of April 12, 2004, an oral discovery cut-off of May 12, 2004 and
an all-discovery cut-off of June 11, 2004. Ata June 10, 2004 status hearing, Magistrate Judge
Mason extended the discovery cut-off to July 27, 2004.

On July 27, 2004, the date of the discovery cut-off, plaintiff Rawoof filed a motion to
substitute SHL 95, Inc. for himself as plaintiff. Because defendant had filed a Rule 37(a) motion
to compel plaintiff to respond to discovery, Magistrate Judge Mason entered an order on July 27,
2004 extending discovery to August 26, 2004.

Plaintiff conceded the following in his July 27, 2004 motion to substitute:

[SHL 95, Inc. (“the corporation’’)] was created to take title to real property
on which the gasoline service station and mini-mart at issue in this litigation (“the
Station”) was located. Throughout the duration of the parties’ relationship, the
corporation owned both the real and personal property for the Station. The
corporation also operated the Station.

In August 2001, defendant Texor Petroleum Company (“Texor”)
wrongfully debranded the Station. Although there was an indirect effect on
Rawoof from the debranding because he is, and has been the sole officer, director
and stockholder of the S-corporation since its inception, it was nevertheless, the
corporation itself that directly suffered reduced cash flow resulting from a
diminished sales volume after August 2001.

* * *

Nevertheless, it now appears that Rawoof’s original counsel, Steven
Kaiser (“Kaiser”), mistakenly named Rawoof, individually, as the plaintiff in this
action (rather than the corporation itself) because SHL 95 is an S-Corporation,
wholly owned by Rawoof, and because of the corporation’s belated assignment to
Rawoof of the sales proceeds from the Station.

Rawoof’s current counsel (who has been in the case only since late-

December 2003) initially accepted Rawoof’s designation as plaintiff because he
had no reason to believe that Kaiser had erred.

* * *

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