MEMORANDUM OPINION AND ORDER The parties are two of several entities involved in an elaborate transaction designed to reduce payments of federal income tax. Plaintiff, through intermediate entities, owned and controlled Defendant TRT LeaseCo, LLC, which generates income from a rail facility. Nonparty Kingsway Financial Services, Inc. (and its affiliates) held over $800 million in net operating losses, which could be used to offset otherwise taxable profits. Plaintiff, seeking to take advantage of Kingsway’s unused and expiring tax benefits, entered into an agreement to transfer a majority interest in TRT LeaseCo, LLC to a Kingsway subsidiary, so that Kingsway’s losses could be applied to TRT LeaseCo, LLC’s profits for tax purposes, even though the entities were otherwise unrelated. According to Plaintiff’s version of their agreement, once the net operating losses were applied and other expenses paid, TRT LeaseCo, LLC was obligated to remit a portion of the remaining profits back to Plaintiff in the form of quarterly fee payments. Because TRT LeaseCo, LLC has not made those payments, Plaintiff commenced this action for breach of contract. Plaintiff now moves for leave to amend the Complaint to add a fraudulent inducement claim, alleging that Kingsway’s representative, during the negotiation of the tax arrangement, effectively promised that DGI would receive the quarterly payments despite having already made plans to divert those payments. Contrary to Defendant’s contention, the amendment to add a fraud claim, although perhaps a long shot, is not futile, and DGI’s motion for leave to amend is GRANTED subject to the requirements set forth below. BACKGROUND1 Plaintiff DGI-BNSF CORP. (DGI) has an affiliate, CRIC TRT Acquisition, LLC (CRIC), which acquired the entirety of CMC Industries, Inc. (CMC). PAC 16. CMC, in turn, has a wholly-owned subsidiary, TRT LeaseCo, LLC (“TRT”), which owns railroad facilities that it leases to BNSF Railway Company. PAC 17. The BNSF lease generates monthly rental payments of over $800,000. PAC 18. The lease payments are disbursed to TRT by an escrow agent, who first ensures that certain monthly obligations are satisfied. PAC
23-24. The lease payments generate significant income and tax liability for CMC. PAC 24-25. Kingsway Financial Services, Inc. (KFS) is a publicly traded company involved in insurance and merchant banking services. PAC 2. By the end of 2015, KFS and its affiliates (collectively “Kingsway”) had accumulated over $800 million of net operating losses (NOLs), which can be used to offset profits before the assessment of federal income tax. PAC 28. Kingsway, which had carried the NOLs on its balance sheet as an asset, was not, however, generating enough income to make full use of the NOLs before they expired. PAC
