Opinion ID: 779792
Heading Depth: 2
Heading Rank: 3

Heading: The Amendment of Lucente's Complaint

Text: 65 IBM contends that the district court erred in granting Lucente leave to amend his Complaint to change his theory of recovery. IBM also claims that the district court abused its discretion in failing to permit it to file an Answer to Lucente's Amended Complaint or to take additional discovery on the new allegations in Lucente's Amended Complaint. IBM is correct on both counts.
66 We review a district court's decision to grant a party leave to amend his complaint for abuse of discretion. Monahan v. New York City Dep't of Corrections, 214 F.3d 275, 283 (2d Cir.2000). Rule 15(a) of the Federal Rules of Civil Procedure provides that leave to amend a pleading shall be freely given when justice so requires. Fed.R.Civ.P. 15(a). Where it appears that granting leave to amend is unlikely to be productive, however, it is not an abuse of discretion to deny leave to amend. Ruffolo v. Oppenheimer & Co., 987 F.2d 129, 131 (2d Cir.1993) (per curiam). One appropriate basis for denying leave to amend is that the proposed amendment is futile. Nettis v. Levitt, 241 F.3d 186, 193 (2d Cir.2001); see also Health-Chem Corp. v. Baker, 915 F.2d 805, 810 (2d Cir.1990) ([W]here, as here, there is no merit in the proposed amendments, leave to amend should be denied.). An amendment to a pleading is futile if the proposed claim could not withstand a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6). Dougherty v. North Hempstead Bd. of Zoning Appeals, 282 F.3d 83, 88 (2d Cir.2002).
67 The district court concluded that Lucente treated IBM's cancellation letter as a breach of contract — but only with regard to his restricted stock — while treating the same letter as a mere anticipatory repudiation which he elected to ignore with regard to his stock options. Apart from allowing Lucente to have his cake and eat it too, such a result is antithetical to the common law precepts of anticipatory repudiation and the election of remedies doctrine. 68 Anticipatory repudiation occurs when, before the time for performance has arisen, a party to a contract declares his intention not to fulfill a contractual duty. See, e.g., Franconia Assocs. v. United States, ___ U.S. ___, ___, 122 S.Ct. 1993, 2002, 153 L.Ed.2d 132 (2002); Norcon Power Partners v. Niagara Mohawk Power Corp., 92 N.Y.2d 458, 682 N.Y.S.2d 664, 667, 705 N.E.2d 656 (1998); John D. Calamari and Joseph M. Perillo, The Law of Contracts § 12-3 (3d ed.1987). When confronted with an anticipatory repudiation, the non-repudiating party has two mutually exclusive options. He may (a) elect to treat the repudiation as an anticipatory breach and seek damages for breach of contract, thereby terminating the contractual relation between the parties, or (b) he may continue to treat the contract as valid and await the designated time for performance before bringing suit. Inter-Power of New York, Inc. v. Niagara Mohawk Power Corp., 259 A.D.2d 932, 686 N.Y.S.2d 911, 913 (3d Dep't 1999); Rachmani Corp. v. 9 East 96th Street Apartment Corp., 211 A.D.2d 262, 629 N.Y.S.2d 382, 384 (1st Dep't 1995); see also Apex Pool Equipment Corp. v. Lee, 419 F.2d 556, 562 (2d Cir.1969). 69 The non-repudiating party must, however, make an affirmative election. He cannot at the same time treat the contract as broken and subsisting, for [o]ne course of action excludes the other. Inter-Power, 686 N.Y.S.2d at 913 (internal quotations omitted). Indeed, [t]he law simply does not ... permit a party to exercise two alternative or inconsistent ... remedies. Apex, 419 F.2d at 562 (quoting 5 Walter H.E. Jaeger, Williston on Contracts § 688 (3d ed.1961)). Once a party has elected a remedy for a particular breach, his choice is binding with respect to that breach and cannot be changed. See id. at 562; ESPN, Inc. v. Office of the Commissioner of Baseball, 76 F.Supp.2d 383, 389-90 (S.D.N.Y.1999) (Nor may the party choose one avenue and then change its mind.). 70 In determining which election the non-repudiating party has made, the operative factor ... is whether the non-breaching party has taken an action (or failed to take an action) that indicated to the breaching party that he had made an election. Bigda v. Fischbach Corp., 898 F.Supp. 1004, 1013 (S.D.N.Y.1995). There is no specific time limit within which to make this election and generally, an election need not be made until the time comes when the party making the election must render some performance under the terms of the contract. See id. At this point, either performing or failing to perform will indicate an election. Id. (quoting 5 Williston on Contracts § 688 at 274). 71 Here, where Lucente was under no obligation to exercise his stock options, it is impossible to identify a precise date on which Lucente was forced to make his election. 5 Nevertheless, there is overwhelming evidence that Lucente elected to treat IBM's cancellation letter as a breach, not as a repudiation which he ignored. 72 First and foremost, Lucente expressly stated in his Original Complaint that IBM's cancellation letter was a breach of contract that entitled him to damages. 73 Second, as the district court itself noted, Lucente did not have any ripe claims under the theory of anticipatory repudiation when he filed this lawsuit. Under an anticipatory repudiation theory, a plaintiff who elects to treat a repudiated contract as valid does not have an action against the repudiating party until an actual breach occurs. See, e.g., Franconia Assocs., ___ U.S. at ___, 122 S.Ct. at 2002. Since it is undisputed that Lucente failed to take action to exercise any of his stock options before filing this suit, Lucente had no claim for breach against IBM under the theory of anticipatory repudiation. Therefore, the only claim that Lucente could possibly have asserted in 1999 was that IBM breached its contractual obligations by cancelling his restricted stock and stock options in April 1993. 74 Third, Lucente's own conduct after receiving IBM's cancellation letter demonstrates that he did not believe that his restricted stock and stock options were still valid. For example, Lucente wrote several letters to IBM seeking reconsideration of its decision to cancel his restricted stock and stock options. In one of these letters, Lucente complained that it was unfair for IBM to have cancelled his restricted stock while he acknowledged that it was certainly IBM's right to do so under the provisions of the restricted stock award. (R. at 394). Another letter acknowledged IBM's decision to revoke his restricted stock and stock options and requested support in having them reinstated. (R. at 438). 75 Most telling, however, is that after IBM's alleged repudiation Lucente did nothing for almost six years that would reflect his intention to treat IBM's cancellation letter as a mere repudiation that he chose to ignore while awaiting IBM's performance under the Plans. Lucente's inaction is affirmative evidence of his election; by failing to carry out his obligations under the option contract (until the district court recommended he do so almost eight years after IBM's cancellation and two years after filing his Original Complaint), Lucente indicated that he was treating IBM's cancellation letter as a breach of contract. 76 While Lucente contends that he declined to exercise his stock options because he thought doing so was futile, this argument backfires on him; if he really thought that exercising his options was futile, then by hypothesis he was not awaiting IBM's performance and could not proceed under an anticipatory repudiation theory. In short, it is simply impossible to reconcile Lucente's failure to exercise tens of thousands of valuable stock options with the suggestion that he treated IBM's cancellation letter as a nullity. 77 Finally, before his Complaint was amended Lucente had consistently litigated this action on the premise that he regarded IBM's 1993 cancellation of his incentive awards as a breach. For example, Lucente's own damages expert, John Vaught, calculated Lucente's damages using April 15, 1993 as the date of the breach. Moreover, Lucente has always maintained that he is entitled to recover damages for stock options that expired unexercised prior to the filing of his Complaint. This claim is untenable if Lucente had in fact rejected IBM's 1993 cancellation. See Lucente II, 146 F.Supp.2d at 311-15 (discussing the well settled law that an optionee must exercise his option in order to have rights under the underlying contract). Therefore, we conclude as a matter of law that Lucente elected to treat IBM's cancellation letter as a breach of contract for both his restricted stock and stock options. 78 In sum, Lucente's eleventh-hour attempt to change his theory of recovery (at the urging of the district court) is barred by substantive contract law; thus, his attempt to amend his complaint was futile. Accordingly, the district court abused its discretion by permitting Lucente to amend his complaint. Lucente's Original Complaint will govern the resolution of this action. 79 Our determination that the district court abused its discretion in granting Lucente leave to amend his Complaint obviates the need for us to address the court's refusal to allow IBM to file an Answer or seek additional discovery based on the allegations in Lucente's Amended Complaint. We feel compelled to point out, however, that the court's decision contravened a cardinal rule of civil procedure: an amended complaint ordinarily renders the original complaint of no legal effect. It is as though the original complaint was never served. See, e.g., In re Crysen/Montenay Energy Co., 226 F.3d 160, 162 (2d Cir.2000). Consequently, a court may not deprive an affected party of the right to file a response to an amended pleading if the party so desires. 3 James Wm. Moore et al., Moore's Federal Practice § 15.17[5] (3d ed.2002).