Retailer liable for son’s debt of $2 million
Appeals court addresses clash in federal rules
August 5, 2008 6:54 PM
The owner of a Chevy Chase home furnishings store is on the hook for a $2 million debt incurred by his son’s company, a federal appeals court affirmed.
Abdi Parvizian, owner of Parvizian Masterpieces, did not deny that he guaranteed the debt to manufacturer Nourison Rug Corp. Instead, he argued that Nourison released him from his obligation by giving his son, a rug wholesaler, more time to pay.
The 4th U.S. Circuit Court of Appeals disagreed.
“Forbearance should be encouraged as a matter of policy as it is a creditor’s compromise between accepting no payment and entering into costly litigation,” the court stated.
First, though, it said Parvizian waited too long to raise the defense. He should have included it in his original answer to Nourison’s lawsuit, the appeals court held.
The 3-0 decision affirmed a ruling by U.S. District Judge Deborah K. Chasanow, who declined to let Parvizian amend his answer.
Rules clash
In the process, the 4th Circuit addressed for the first time what it characterized as a clash between competing provisions of the Federal Rules of Civil Procedure.
While one rule gives defendants leeway to amend their answers except when the amendment is in bad faith or would be futile, another gives judges broad discretion to reject amended pleadings in order to keep the court on schedule.
Parvizian argued that the liberal standards of Rule 15(a) should apply. Chasanow, though, applied Rule 16(b), which requires the defendant to show “good cause” why the amendment should be allowed.
The 4th Circuit came down on the side of judicial discretion.
“Given their heavy case loads, district courts require the effective case management tools provided by Rule 16,” the 4th Circuit held last week. “Therefore, after the deadlines provided by a scheduling order have passed, the good cause standard must be satisfied to justify leave to amend the pleadings.”
Parvizian lacked good cause for amending his initial answer, the 4th Circuit held.
The circumstances surrounding the underlying agreement and Parvizian’s promise to serve as guarantor did not change between the time he first answered the complaint and when he subsequently sought to raise the defense of release.
Parvizian argued that the circumstances had in fact changed, but the appellate court rejected that argument.
Parvizian’s attorney, Thomas A. DiBiase, declined to comment on the case. DiBiase is a partner at Shapiro, Lifschitz & Schram PC in Washington, D.C.
No good cause
The original debt-payment agreement was signed in August 2005, when Allen Parvizian’s company, Parinco of Virginia Inc., owed Nourison more than $2.3 million. Parinco was to make biweekly payments of about $50,000 for two years.
Two months later, Abdi Parvizian executed a guaranty letter promising full payment if Parinco defaulted.
But unknown to him, the guarantor said, Nourison and Parinco changed the terms in February 2006. Under the new schedule, reached in an e-mail exchange, Parinco was to pay a past-due balance of $18,219 and make one subsequent payment of $56,000, followed by biweekly payments of $25,000.
Parvizian argued that this changed the nature of the debt, increasing his exposure and thus releasing him from his obligation as guarantor.
But the 4th Circuit agreed with Nourison, which said the agreement was merely a “temporary forbearance” to decelerate the debt-payment schedule and did not relieve Parvizian of his obligation to cover any default in full.
“Therefore, there was no error in finding that the facts did not support satisfaction of the ‘good cause’ standard” for permitting Parvizian to amend his answer, the 4th Circuit added.
Abdi Parvizian, owner of Parvizian Masterpieces, did not deny that he guaranteed the debt to manufacturer Nourison Rug Corp. Instead, he argued that Nourison released him from his obligation by giving his son, a rug wholesaler, more time to pay.
The 4th U.S. Circuit Court of Appeals disagreed.
“Forbearance should be encouraged as a matter of policy as it is a creditor’s compromise between accepting no payment and entering into costly litigation,” the court stated.
First, though, it said Parvizian waited too long to raise the defense. He should have included it in his original answer to Nourison’s lawsuit, the appeals court held.
The 3-0 decision affirmed a ruling by U.S. District Judge Deborah K. Chasanow, who declined to let Parvizian amend his answer.
Rules clash
In the process, the 4th Circuit addressed for the first time what it characterized as a clash between competing provisions of the Federal Rules of Civil Procedure.
While one rule gives defendants leeway to amend their answers except when the amendment is in bad faith or would be futile, another gives judges broad discretion to reject amended pleadings in order to keep the court on schedule.
Parvizian argued that the liberal standards of Rule 15(a) should apply. Chasanow, though, applied Rule 16(b), which requires the defendant to show “good cause” why the amendment should be allowed.
The 4th Circuit came down on the side of judicial discretion.
“Given their heavy case loads, district courts require the effective case management tools provided by Rule 16,” the 4th Circuit held last week. “Therefore, after the deadlines provided by a scheduling order have passed, the good cause standard must be satisfied to justify leave to amend the pleadings.”
Parvizian lacked good cause for amending his initial answer, the 4th Circuit held.
The circumstances surrounding the underlying agreement and Parvizian’s promise to serve as guarantor did not change between the time he first answered the complaint and when he subsequently sought to raise the defense of release.
Parvizian argued that the circumstances had in fact changed, but the appellate court rejected that argument.
Parvizian’s attorney, Thomas A. DiBiase, declined to comment on the case. DiBiase is a partner at Shapiro, Lifschitz & Schram PC in Washington, D.C.
No good cause
The original debt-payment agreement was signed in August 2005, when Allen Parvizian’s company, Parinco of Virginia Inc., owed Nourison more than $2.3 million. Parinco was to make biweekly payments of about $50,000 for two years.
Two months later, Abdi Parvizian executed a guaranty letter promising full payment if Parinco defaulted.
But unknown to him, the guarantor said, Nourison and Parinco changed the terms in February 2006. Under the new schedule, reached in an e-mail exchange, Parinco was to pay a past-due balance of $18,219 and make one subsequent payment of $56,000, followed by biweekly payments of $25,000.
Parvizian argued that this changed the nature of the debt, increasing his exposure and thus releasing him from his obligation as guarantor.
But the 4th Circuit agreed with Nourison, which said the agreement was merely a “temporary forbearance” to decelerate the debt-payment schedule and did not relieve Parvizian of his obligation to cover any default in full.
“Therefore, there was no error in finding that the facts did not support satisfaction of the ‘good cause’ standard” for permitting Parvizian to amend his answer, the 4th Circuit added.
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