08/29/2011 – Defendant’s Reply Brief in Support of Its Motion to Dismiss Complaint filed in the Marty Shoes Holdings, Inc. Adversary Proceedings by Brown Shoe Company, Inc. before U.S. Bankruptcy Judge Kevin J. Carey in the District of Delaware filed by Morris, Nichols, Arsht & Tunnell LLP (Wilmington, DE) attorneys Donna Culver and Andrew R. Remming; Bryan Cave LLP (St. Louis, MO) attorney Cullen K. Kuhn.

Defendant’s reply hammers home two basic points: a Chapter 7 trustee is not excused from complying with the established standards in Delaware Bankruptcy Court governing preference complaints; and discovery to get the facts needed to amend Plaintiff’s complaint is not permitted. Defendant’s discussion of the second point and citations of authority in support follow. Registered users click here to see a copy of this brief.

B. Discovery In Aid Of Amendment Is Not Permitted, And Granting Leave To Amend The Complaint Would Be Futile.

The Trustee is not entitled to shift to Brown the burdens of his inability to plead a claim by filing a deficient complaint and then attempting to commence discovery in an effort to meet the standard. The Trustee himself seems to recognize this fact, noting that “‘Rule 8…does not unlock the doors of discovery for a plaintiff armed with nothing more than legal conclusions.’” Opposition at 8 (quoting Ashcroft v. Iqbal, 129 S.Ct. 1937, 1950 (2009)). Nevertheless, the

Trustee has attempted to impose further costs and burdens on Brown, serving Brown with extensive and procedurally improper discovery requests essentially simultaneously with the Complaint. Now he asks for leave to amend the Complaint and to pursue his unauthorized discovery.

The Trustee has it backwards—such discovery is not permitted or appropriate because filing a viable complaint is a prerequisite to imposing burdensome discovery on a potential defendant. See Iqbal, 129 S.Ct. at 1954 (“Because respondent’s complaint is deficient under Rule 8, he is not entitled to discovery, cabined or otherwise.”). See also Mann v. Brenner, 375 Fed. Appx. 232, 239 (3d Cir. 2010) (unpublished) (affirming denial of discovery); Wright v. Portfolio Recovery Affiliates, 2011 WL 1226115, *6 (D. Del. Mar. 30, 2011); Lasko  v. Emerald Coal Resources, 2010 WL 3829375, *6 (W.D. Pa. Sept. 24, 2010) (citing Iqbal). A plaintiff that files a deficient complaint is not entitled to engage in discovery to attempt to meet the pleading standard. See id. There is no basis to allow the Trustee to impose significant and costly discovery on Brown simply because he lacks the ability to file a sufficient complaint.³

Furthermore, leave to amend the Complaint would be futile under the circumstances, given the Trustee’s admission that he lacks any additional facts to support an amended complaint. See Complaint, ¶¶ 21-26; Opposition, at 6-7. Granting the Trustee’s request for leave to amend and to conduct discovery in the meantime would encourage similar plaintiffs to file bare-bones, “virtual” preference complaints with the strategy of imposing severe costs on potential defendants even prior to alleging a cognizable claim—exactly the type of conduct this Court indicated it would not tolerate in Homebanc. Homebanc Order at 2 n. 1. The Trustee knew he could not meet the standards for pleading a sufficient preference complaint against Brown, yet he filed the Complaint anyway (and 97 more that were virtually identical). And he took that course of action notwithstanding this Court’s specific admonition in Homebanc that such complaints would no longer be permitted:

THE COURT: [T]his is what has been referred to in some articles as the “virtual preference complaint”… And I will tell you, I will not permit that any longer…[T]his form of complaint, and that’s why I’ve asked Mr. Miller to join us by phone, is not acceptable and I will tell you now, I’m going to enter an order that says, among other things, that from this date forward, if Mr. Miller files a complaint that looks like this, I’m going to dismiss it, and unlike what I’m prepared to do here, I will not grant leave to amend.

Transcript of Hearing, Oct. 27, 2010 before the Honorable Kevin J. Carey, In re Homebanc  Mortgage Corp., Adv. Pro. No. 10-50621, D.I. 23, at 7 (attached hereto as Exhibit A).

The Complaint is not materially different from that which the Trustee filed in Homebanc, particularly with respect to the lack of allegations regarding any antecedent debt or any description of the specific relationship between the parties. Under the circumstances, dismissal of the Complaint with prejudice and without leave to amend is appropriate.