McNally et al v. Eye Dog Foundation for the Blind, Inc. et al, No. 1:2009cv01184 - Document 87 (E.D. Cal. 2010)

Court Description: ORDER DENYING 84 Defendants' motion to amend pleadings to join addiitonal parties and add new claims signed by Magistrate Judge Sheila K. Oberto on 11/15/2010. The hearing on this matter currently set for 11/19/2010 is VACATED, the parties do not need to appear.(Timken, A)
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McNally et al v. Eye Dog Foundation for the Blind, Inc. et al Doc. 87 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA – FRESNO DIVISION 10 11 MONTRY McNALLY; RUBY BELL; and KENNETH BALES, 12 CASE NO. 1:09-cv-01184-AWI-SKO ORDER DENYING DEFENDANTS' MOTION TO AMEND PLEADINGS TO JOIN ADDITIONAL PARTIES AND ADD NEW CLAIMS Plaintiffs, 13 v. 14 15 16 EYE DOG FOUNDATION FOR THE BLIND, INC.; EYE DOG FOUNDATION PROFIT SHARING PLAN; GWEN BROWN, an individual, and DOES 1 THROUGH 50, (Docket No. 84) 17 Defendants. 18 / 19 20 I. PROCEDURAL AND FACTUAL BACKGROUND 21 Filed on July 8, 2009, this is an action concerning whether Plaintiffs are entitled to benefits 22 pursuant to the Employment Retirement Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1131, et seq. 23 Plaintiffs Montry McNally, Ruby Bell, and Kenneth Bales ("Plaintiffs") are the beneficiaries of the 24 estate of Lequita McKay, who was employed by Defendant Eye Dog Foundation for the Blind, Inc. 25 Plaintiffs allege violations of ERISA and several state tort claims, naming Eye Dog Foundation for 26 the Blind, Inc. ("Foundation"), Eye Dog Foundation Profit Sharing Plan ("Profit Sharing Plan"), and 27 Gwen Brown (collectively "Defendants") as Defendants. (See Doc. 17.) 28 1 On August 17, 2009, Defendants filed an answer to the complaint in which they repeatedly 2 deny the legal validity "of the Defendant Foundation's purported profit sharing plan and contend that 3 such purported plan was never properly authorized or established by the Foundation but, rather[,] 4 that the purported plan was ostensibly established, directed, dominated, controlled and used for the 5 primary purpose and benefit of the Foundation's founder, Ms. McKay . . . " (Doc. 12 at ¶6.) 6 On October 23, 2009, the court issued a scheduling order allowing the parties until November 7 25, 2009, to amend the pleadings, "after which time no further joinder of parties or amendments to 8 pleadings is permitted, except with[] leave of court." (Doc. 16 at ¶3B.) On November 25, 2009, 9 Plaintiffs filed a First Amended Complaint ("FAC"). (Doc. 17.) On December 15, 2009, Defendants 10 filed an answer to the FAC. (Doc. 18.) In the answer to the FAC, Defendants repeatedly stated the 11 following: 12 13 14 15 Defendants, on information and belief, deny the legal validity of the Defendant Foundation's purported profit sharing plan and contend that such purported plan was never properly authorized or established by the Foundation but, rather[,] that the purported plan was ostensibly established, directed, dominated, controlled and used for the self-serving and primary purpose, personal benefit and interest of the Foundation's founder Ms. McKay and not in the best interests of the Foundation; Defendants further allege that any contributions to the purported profit sharing plan were not properly authorized by the Foundation. 16 (Doc. 18 at ¶¶ 2, 7, 9, 10, 11, 16, 17, 19, 20, 21-24, 26-33, 35-41, 43-47, 49-51, 53-54, 56-61, 63-66, 17 68-73, 76-83.) 18 On March 16, 2010, Defendants' counsel, the law firm of Rosoff, Schiffres & Barta, filed a 19 motion to withdraw as Defendants' attorneys of record. (Doc. 19.)1 On April 26, 2010, Defendants' 20 counsel's motion was granted. (Doc. 27.) The Court noted, however, that the Foundation and the 21 Profit Sharing Plan were entity defendants that required representation in federal court and could not 22 proceed pro se. Accordingly, these Defendants were given 60 days to retain counsel or file a status 23 report regarding their intention to obtain counsel. (Doc. 27.) 24 On May 4, 2010, Plaintiffs filed a motion for a temporary restraining order and preliminary 25 injunction with regard to the Profit Sharing Plan's assets. (Doc. 28.) Defendants did not file an 26 opposition to this motion. (Doc. 32.) On May 28, 2010, Chief Judge Ishii granted Plaintiffs' motion 27 28 1 An amended Motion to W ithdraw as Attorney was filed on March 17, 2010. (Doc. 22.) 2 1 for a preliminary injunction. (Doc. 34.) 2 On June 9, 2010, Defendants' former counsel, Howard Rosoff,2 filed a certificate of service 3 of the Court's April 26, 2010, order on Defendants that granted his firm's withdrawal as attorneys 4 of record. (Doc. 36.) On July 15, 2010, Plaintiffs filed a Request for Entry of Default as to the 5 Foundation, which the Clerk of Court entered on July 15, 2010. (Docs. 38, 39.) As grounds for the 6 entry of default, Plaintiffs stated that the Court's April 26, 2010, order required the Foundation to 7 obtain counsel, which it had not done, and, thus, Plaintiffs were entitled to default against it. (See 8 Doc. 38.) 9 On August 12, 2010, a notice of appearance by attorney John Vukmanovic was filed on 10 behalf of Gwen Brown and the Foundation, but not on behalf of the Profit Sharing Plan. (Doc. 40.) 11 On August 13, 2010, Plaintiffs filed a Motion for Summary Judgment and scheduled a 12 hearing on the motion for September 27, 2010. (Doc. 41.) On September 3, 2010, Mr. Vukmanovic 13 filed a "Motion to Withdraw as Attorney of Record for Defendants." (Doc. 48.) This motion was 14 deficient in procedural aspects and was denied by the Court. (Doc. 50.) On September 8, 2010, Mr. 15 Vukmanovic and Plaintiffs' counsel stipulated to a continuance of the summary judgment motion 16 hearing date until October 12, 2010. (Doc. 51.) Mr. Vukmanovic refiled his motion to withdraw 17 as counsel, but Defendants filed a request that the Court substitute in Mr. Ralph Harrison as new 18 counsel of record for Defendants, replacing Mr. Vukmanovic. This request for substitution was 19 granted. (Doc. 59.) Mr. Vukmanovic then withdrew his motion for withdrawal as it was moot in 20 light of the ordered substitution. (Doc. 60.) 21 On September 24, 2010, Defendants filed a "Motion to Continue [the] Trial and 22 Corresponding Cut-Off and Hearing Dates" and requested that the Court entertain the motion on 23 shortened time. (Docs. 61, 63.) The Court granted Defendants' request for an order shortening time 24 and heard the motion on October 6, 2010. (Doc. 66.) At the hearing, the Court ordered 25 supplemental briefing from the parties, held the matter over until October 13, 2010, and required the 26 parties to again appear at that time. (Doc. 71.) 27 2 28 The docket indicates that the motion was filed under attorney Howard Rosoff's CM/ECF electronic account. However, the filing itself is signed by H. Steven Schiffres. (See Doc. 36.) 3 1 In Defendants' papers and in oral argument presented to the Court, they asserted that their 2 prior counsel's failure to: (1) propound any discovery, (2) undertake any factual investigation, and 3 (3) notify them of various dates in the case had prevented them from adequately and timely 4 participating in the litigation. (See Docs. 67, 70, 72.) Defendants specifically asserted that they did 5 not receive notice from their former attorney until June 9, 2010, that the Court had granted his 6 withdrawal as attorney of record on April 26, 2010. (Doc. 72 at ¶ 39.) Further, Defendants stressed 7 that they had been in search of replacement counsel following notice of his withdrawal, but had not 8 been able to secure a referral due, in part, to the complex nature of the ERISA litigation pending 9 against them. (Doc. 72 at ¶¶ 43-54.) The Court found sufficient diligence on the part of Defendants 10 in seeking replacement counsel, such that some modification of the schedule was warranted. 11 However, the Court also specifically noted one of the strong factors weighing in favor of such a 12 modification was the public policy of adjudicating cases on their merits. Without an amendment to 13 the schedule, discovery was closed, and the motion for summary judgment hearing was pending, 14 leaving Defendants no time to properly prepare their case. The Court modified the schedule by 15 allowing a three-month extension of almost all the applicable dates. The Court issued its order from 16 the bench and requested that the parties file a conforming proposed order. (Doc. 74.) The parties 17 submitted a proposed order on October 15, 2010, which was signed by the Court on October 18, 18 2010. 19 While Defendants' request for a modification of the scheduling order did include a proposed 20 date for amendment of the pleadings, the Court indicated at the hearing that it was not inclined to 21 grant any amendment to the pleadings that would join parties or add claims given that discovery, 22 purely by virtue of the modification of the schedule,3 was only open for another three (3) months. 23 Defendants' counsel requested that the Court again consider the request, and the Court granted 24 Defendants until October 18, 2010, to file a motion seeking leave to amend the pleadings for the 25 Court's consideration. 26 27 28 3 Discovery under the original schedule had already closed by the time Defendants' motion to modify the scheduling conference was filed. 4 1 2 On October 18, 2010, Defendants filed a "First Amended Scheduling Report" seeking leave 3 of Court to file an amended pleading, but also filed a counterclaim.4 (See Docs. 78, 79, 80.) The 4 Court struck the filed counterclaim and ordered Defendants to refile their motion to amend the 5 scheduling order and the pleadings and caption the filing as a "motion." (Doc. 82.) Defendants 6 refiled their motion on October 20, 2010, as ordered and attached a copy of the proposed 7 counterclaim as an exhibit. (Doc. 84.) 8 Defendants' proposed counterclaim seeks to join new parties to the action and states five 9 causes of action. The counterclaim names all Plaintiffs as counter-defendants and purports to add 10 Morgan Stanley Smith Barney and its agent/employee David Young as counter-defendants. Five 11 causes of action are set forth against all of these counter-defendants, including: (1) breach of 12 fiduciary duty, (2) negligence, (3) unjust enrichment, (4) negligent misrepresentation, and 13 (5) declaratory relief. (Doc. 84-1.) 14 In general, the basic allegations of the counterclaim assert that Ms. McKay, while alive and 15 acting as the Executive Director of the Foundation "hatched and instituted a plan to benefit well 16 beyond her salary . . . [and] [a]s part of this plan, she hired and employed members of her family and 17 associates to conduct business on behalf of [the] FOUNDATION and thereafter compensated them 18 well beyond that which was reasonable and fair at the expense of [the] FOUNDATION." (Doc. 84-1 19 at ¶ 17.) The counterclaim asserts that Ms. McKay initiated the profit sharing and retirement plan 20 without proper authority "through which she and members of her family would be disproportionately 21 compensated." (Doc. 84-1 at ¶ 18.) Thereafter, Ms. McKay and Plaintiffs McNally, Bell, and Bales 22 (Ms. McKay's siblings) purportedly began signing checks and depositing funds into the retirement 23 or profit sharing plans. (Doc. 84-1 at ¶ 19.) The counterclaim also asserts that Ms. McKay and her 24 siblings designated themselves as beneficiaries under the plan and used Morgan Stanley and its 25 agent/employee David Young, who handled Ms. McKay's personal accounts, to "funnel money into 26 27 28 4 Defendants entitled their pleading a "crossclaim." However, it is properly characterized as a counterclaim; therefore, the Court will refer to it as such. Fed. R. Civ. P. 13 (counterclaim is a claim for affirmative relief asserted by a party against an opposing party). 5 1 the plans." (Doc. 84-1 at ¶ 20.) 2 On October 28, 2010, Plaintiffs filed an opposition to Defendants' motion to modify the 3 scheduling order and amend their pleadings to include a counterclaim against Plaintiffs and two new 4 parties. Plaintiffs assert that Defendants' proposed amendment is prejudicial, offered in bad faith, 5 futile, and that Defendants' unduly delayed in seeking the amendment. (Doc. 86.)5 It is this matter 6 that is currently before the Court. 7 8 9 II. A. DISCUSSION Legal Standards 1. Standard for Amending the Pleadings Under Federal Rule of Civil Procedure 16(b) 10 Federal Rule of Civil Procedure 16(b) provides that the district court must issue a scheduling 11 order that limits the time to join other parties, amend the pleadings, complete discovery, and file 12 motions. Fed. R. Civ. P. 16(b)(1)-(3). Once in place, "[a] schedule may be modified only for good 13 cause and with the judge's consent." Fed. R. Civ. P. 16(b)(4). The "good cause" requirement of Rule 14 16 primarily considers the diligence of the party seeking the amendment. Johnson v. Mammoth 15 Recreations, Inc., 975 F.2d 604, 609 (9th Cir. 1992). "The district court may modify the pretrial 16 schedule if it cannot reasonably be met despite the diligence of the party seeking the extension." Id. 17 (internal citation and quotation marks omitted). 18 Good cause may be found to exist where the moving party shows, for example, that it: 19 (1) diligently assisted the court in recommending and creating a workable scheduling order, see In 20 re San Juan Dupont Plaza Hotel Fire Litig., 111 F.3d 220, 228 (1st Cir. 1997), (2) is unable to 21 comply with the deadlines contained in the scheduling order due to issues not reasonably foreseeable 22 at the time of the scheduling order, see Johnson, 975 F.3d at 609, and (3) was diligent in seeking an 23 amendment once the party reasonably knew that it could not comply with the scheduling order, see 24 Eckert Cold Storage, Inc. v. Behl, 943 F. Supp. 1230, 1233 (E.D. Cal. 1996). See Jackson v. 25 Laureate, Inc., 186 F.R.D. 605, 608 (E.D. Cal. 1999). "If [the] party was not diligent, the inquiry 26 should end." Johnson, 975 F.2d at 609. If the Court finds that there is good cause to modify the 27 28 5 Defendants were granted until November 2, 2010, to file a reply brief but elected not to do so. 6 1 schedule, the court then turns to Rule 15(a) to determine whether the amendment sought should be 2 granted. Jackson, 186 F.R.D. at 607 ("As the Ninth Circuit explained in [Johnson], once the district 3 court has filed a pretrial scheduling order pursuant to Rule 16 which establishes a timetable for 4 amending pleadings, a motion seeking to amend pleadings is governed first by Rule 16(b), and only 5 secondarily by Rule 15(a)."). 6 2. Standard for Amendment Under Federal Rule of Civil Procedure 15(a) 7 Federal Rule of Civil Procedure 15 provides that a party may amend its pleading only by 8 leave of court or by written consent of the adverse party and that leave shall be freely given when 9 justice so requires. Fed. R. Civ. P. 15(a)(1)-(2). The Ninth Circuit has instructed that the policy 10 favoring amendments "is to be applied with extreme liberality." Morongo Band of Mission Indians 11 v. Rose, 893 F.2d 1074, 1079 (9th Cir. 1990). 12 The factors commonly considered to determine the propriety of a motion for leave to amend 13 are: (1) bad faith, (2) undue delay, (3) prejudice to the opposing party, and (4) futility of amendment. 14 Foman v. Davis, 371 U.S. 178, 182 (1962). The Ninth Circuit has held that it is the consideration 15 of prejudice to the opposing party that carries the greatest weight. Eminence Capital, LLC v. Aspeon, 16 Inc., 316 F.3d 1048, 1052 (9th Cir. 2003). Absent prejudice, or a strong showing of any of the 17 remaining Foman factors, a presumption in favor of granting leave to amend exists under Rule 15(a). 18 Id. Further, undue delay alone is insufficient to justify denial of a motion to amend. Bowles v. 19 Reade, 198 F.3d 752, 758 (9th Cir. 1999). Finally, "liberality in granting leave to amend is not 20 dependent on whether the amendment will add causes of action or parties." DCD Programs, Ltd. 21 v. Leighton, 833 F.2d 183, 186 (9th Cir. 1987). Contra Union Pac. R.R. Co. v. Nev. Power Co., 950 22 F.2d 1429, 1432 (9th Cir. 1991) ("Amendments seeking to add claims are to be granted more freely 23 than amendments adding parties."). 24 B. Analysis 25 1. 26 Plaintiffs request that the Court take judicial notice of the fact that: (1) Plaintiffs filed their 27 initial complaint on July 8, 2009; (2) Defendants filed an answer to that complaint on August 17, 28 2009; and (3) Montry McNally submitted a declaration on October 11, 2010. Defendants filed no Plaintiffs' Request for Judicial Notice 7 1 objection to this request for judicial notice. The Court finds this request moot. The Court's decision 2 must be based on the entirety of the record before it. The Court is already aware of the pleadings 3 filed in this matter – taking judicial notice of events in this docket is superfluous. 4 2. 5 As described above, whether good cause exists to modify a scheduling order rests on whether 6 the party seeking the modification has been diligent. See Johnson, 975 F.2d at 609. This is the 7 second time the Court is revisiting a request by Defendants for a modification of the scheduling order 8 in this matter. The original scheduling order in this case was entered on October 23, 2009, and 9 allowed the parties until November 25, 2009, to seek amendment of the pleadings. (See Doc. 16.) 10 On September 24, 2010, after the non-expert discovery deadline expired, Defendants filed 11 a motion seeking a modified schedule asserting that, due to changes in counsel during the course of 12 the litigation and prior counsel's negligence in handling the case, their ability to meet the deadlines 13 in the original scheduling order and defend the suit was negatively impacted. As a result, Defendants 14 requested that the Court modify the entire schedule so they could adequately defend the case on the 15 merits, including extending the deadline for the time to file an amended pleading. However, that 16 motion did not identify what amendment to the pleadings was desired, if any, or that Defendants 17 wished to join new parties in the litigation. No Good Cause to Amend the Scheduling Order 18 Ultimately, the Court found good cause to modify the scheduling order to permit the parties 19 additional time for discovery (non-expert discovery was extended until December 13, 2010), provide 20 an extension of the dates to file dispositive and non-dispositive motions, and set a new pre-trial 21 conference date and a trial date. See generally INVST Fin. Group, Inc. v. Chem-Nuclear Sys., Inc., 22 815 F.2d 391, 400 (6th Cir. 1987) (while party takes the risk of attorney's incompetence, record may 23 exhibit circumstances where client should not "suffer the ultimate sanction of losing his case without 24 any consideration of the merits because of his attorney's neglect and inattention") (internal citation 25 and quotation marks omitted). As a result of the modification to the scheduling order, essentially 26 all deadlines and scheduling dates were extended approximately three (3) months from the original 27 deadlines, which was the time Defendants' counsel represented was necessary to adequately defend 28 the case. 8 1 At the October 13, 2010, hearing on this matter, Defendants requested leave to file a motion 2 to amend their pleadings to include a counterclaim joining additional parties to the litigation and 3 adding causes of action. Although the Court indicated at the hearing that it was not inclined to grant 4 a motion to amend the pleadings to add parties or claims, the Court granted Defendants leave to file 5 the motion and required Defendants to provide the Court with a copy of the proposed amendment 6 for its consideration. 7 Defendants assert in their current motion that, as a result of the Court's October 13, 2010, 8 order to extend the schedule an additional three (3) months, "the Court has already made a 9 determination of good cause to continue the hearing and other dates set forth in the Court's 10 Scheduling Order." (Doc. 84 at 2:6-8.) Further, Defendants assert that, with regard to the propriety 11 of amendment under Rule 15(a), their request to file a counterclaim should be granted because they 12 "do not have a dilatory motive" and the request is not made in bad faith. (Doc. 84 at 5:21-25.) 13 Permitting Defendants additional time for discovery and modifying the schedule to provide 14 Defendants with time to present a defense is not tantamount to a finding that there is good cause to 15 allow Defendants, at this late date, to file a counterclaim joining additional parties and adding new 16 claims. After reviewing the proposed amendment, the Court finds that many of the allegations in 17 the counterclaim relate to facts that were known to Defendants at the time they filed their initial 18 answer and amended answer on August 17, 2009, and December 15, 2009, respectively. For 19 example, the factual gravamen of the counterclaim is that Ms. McKay created the asserted ERISA 20 plan in question without proper authority, funded it with the Foundation's money, and used her 21 personal account at Morgan Stanley to "funnel" money to herself. She accomplished this, according 22 to the counterclaim, with the assistance of her siblings, who happen to be her beneficiaries under the 23 plan, and Morgan Stanley and its employee/agent David Young. In their answer, Defendants denied 24 the legal validity of the plan, asserting the following: 25 26 27 [the] purported plan was never properly authorized or established by the Foundation but, rather[,] that the purported plan was ostensibly established, directed, dominated, controlled and used for the self-serving and primary purpose, personal benefit and interest of the Foundation's founder Ms. McKay and not in the best interests of the Foundation; Defendants further allege that any contributions to the purported profit sharing plan were not properly authorized by the Foundation. 28 9 1 (Doc. 18 at ¶ 2.) 2 The answers were filed while Defendants were represented by counsel, and that same 3 attorney continued to represent Defendants for many months after the answers were filed. Any 4 counterclaim based on that known factual predicate should have been filed nearly a year ago. 5 Moreover, Defendants pointed to their lack of counsel from approximately April 2010 to 6 September 2010 in seeking their initial schedule modification. However, in terms of a schedule 7 modification for the purpose of amending the pleadings to add parties, there was ample time for the 8 counterclaim to have been filed from the beginning of the suit in July 2009 until Defendants' counsel 9 withdrew in March 2010. Further, during the five months of discovery before their counsel 10 withdrew, Defendants had sufficient opportunity to uncover any additional facts regarding Plaintiffs, 11 Morgan Stanley, and David Young's alleged conduct. 12 Defendants continued complaints about their former attorneys' conduct between July 2009 13 and March 2010 as affecting their ability to file a counterclaim earlier in the litigation are not 14 convincing. As previously noted, circumstances may exist where client should not "suffer the 15 ultimate sanction of losing his case without any consideration of the merits because of his attorney's 16 neglect and inattention." INVST Fin. Group, Inc., 815 F.2d at 400. That is an exception, however, 17 to the general rule that clients are responsible for the conduct of the attorney that they chose. If their 18 litigation efforts were hampered by their former counsel, Defendants must bear that burden. See Link 19 v. Wabash R.R. Co., 370 U.S. 626, 633-34 (1962) (where attorney is selected voluntarily by the 20 client, the client cannot "avoid the consequences of the act or omissions of this freely selected 21 agent"). 22 With only six weeks left remaining under the new discovery deadline, the Court cannot 23 conclude that there is any good cause to modify the litigation schedule yet again to allow Defendants 24 to join new parties and add new claims. See Solomon v. N. Am. Life & Cas. Ins. Co., 151 F.3d 1132, 25 1139 (9th Cir. 1998) (affirming district court's denial of motion to amend pleadings filed on the eve 26 of the discovery deadline). This is especially so considering that, in their previous request for a 27 modification to the schedule, Defendants represented to the Court only a three-month extension of 28 the deadlines was needed. It is clear that a significantly longer period would be required if additional 10 1 parties are added to the action. 2 3. 3 The Court concludes that there is no good cause to allow a modification of the schedule to 4 amend the pleadings in the manner proposed by Defendants. However, the Court nonetheless 5 analyzes whether, even if good cause to modify the schedule did exist, the proposed amendment 6 could be granted under Rule 15(a). 7 Propriety of Amendment Under Rule 15 a. Prejudice to the Opposing Party 8 As consideration of prejudice to the opposing party carries the greatest weight, the Court 9 considers this factor first. Eminence Capital, LLC, 316 F.3d at 1052. Defendants' request to file a 10 counterclaim comes after the November 25, 2009, amendment deadline and the initial September 11 3, 2010, non-expert discovery deadline expired. (See Doc. 16.) Pursuant to the modification to the 12 schedule that was granted at the hearing on October 13, 2010, and set forth by order issued on 13 October 18, 2010, non-expert discovery in this matter will now close on December 13, 2010. 14 Defendants' proposed amendment to join parties is highly prejudicial to the nonmoving parties. The 15 parties to be joined will have virtually no time to conduct discovery, file any pretrial motions, or 16 otherwise adequately defend their case. Those parties will be expected to go to trial, under the now 17 modified schedule, on March 15, 2011. The Court finds this shortened time to be substantially 18 prejudicial to those parties. 19 Moreover, Plaintiffs would likely suffer substantial prejudice to the degree they would be 20 required to engage in substantial new discovery – which they have little time to perform before 21 December 13, 2010. See Texaco, Inc. v. Ponsoldt, 939 F.2d 794, 798-99 (9th Cir. 1991) (affirming 22 denial of leave to amend where defendant would have been unreasonably prejudiced by addition of 23 new claims only four months before trial). Further, Plaintiffs have a Motion for Summary Judgment 24 pending that would almost certainly have to be withdrawn and refiled if the counterclaim against 25 them was filed. Finally, Plaintiffs would be substantially prejudiced by any further delays in the trial 26 date; allowing the counterclaim to be filed would almost surely induce another motion to modify the 27 schedule from any parties newly added. This factor weighs very heavily against allowing the 28 proposed amendment. 11 b. 1 Bad Faith in Seeking Amendment 2 Plaintiffs argue that Defendants are acting in bad faith to secure an amendment merely to 3 delay the litigation. In support of this, Plaintiffs refer to the declaration of Montry McNally, who 4 states that "[i]t is my honest belief that Defendants, particularly Gwen Brown, seek to profit from 5 the advanced age and failing health of myself and my siblings, by extending the litigation until they 6 literally outlast us and are relieved of any obligation to pay us the assets we are owed." (Doc. 73-2 7 at ¶ 14.) 8 The Court finds no objective evidence in the record, other than Plaintiffs' belief, that 9 Defendants are seeking to file a counterclaim in bad faith as an attempt to unnecessarily protract the 10 litigation. This factor does not weigh against amendment. See DCD Programs, Ltd., 833 F.2d at 11 187 ("Since there is no evidence in the record which would indicate a wrongful motive, there is no 12 cause to uphold the denial of leave to amend on the basis of bad faith."). 13 c. Undue Delay in Seeking Amendment 14 Plaintiffs assert that Defendants "knew the facts upon which their proposed Counterclaim 15 is based as early as 2008 and previously included these facts in their Answer to the Complaint filed 16 on August 17, 2009." (Doc. 86 at 5:9-11.) As discussed above, the Court finds that Defendants' 17 failure to seek leave to file the proposed counterclaim as soon as they knew or had reason to know 18 the facts underlying the counterclaim is the product of undue delay. See Kaplan v. Rose, 49 F. 3d 19 1363, 1370 (9th Cir. 1994) (giving greater weight to undue-delay factor where facts and theories 20 sought to be added were known to moving party early in the litigation). That Defendants blame their 21 former counsel for the delays does not change the situation. See Link, 370 U.S. at 634 ("[E]ach party 22 is deemed bound by the acts of his lawyer-agent and is considered to have notice of all facts, notice 23 of which can be charged upon the attorney.") (internal quotation marks omitted). This factor weighs 24 strongly against allowing the proposed amendment. 25 d. Futility of Amendment 26 Although the validity of the proposed amendment is not typically considered by courts in 27 deciding whether to grant leave to amend, such leave may be denied if the proposed amendment is 28 futile or subject to dismissal. Saul v. United States, 928 F.2d 829, 843 (9th Cir. 1991). Plaintiffs 12 1 assert that Defendants' counterclaim is futile because the claims stated in it are barred by the statute 2 of limitations with respect to Plaintiffs and because the counterclaim does not establish a basis for 3 personal jurisdiction over any additional parties. 4 Plaintiffs first argue that any conduct related to Ms. McKay is barred by the Statute of Repose 5 which provides that claims against a deceased person must be brought within one year of that 6 persons death pursuant to Cal. Civ. Proc. Code § 366.2. (Doc. 86 at 7:14-19.) There is no claim 7 stated in the proposed counterclaim against Ms. McKay. Whether a claim against Ms. McKay is 8 barred by the statute of limitations is inapposite given the amended pleading proposed. 9 Plaintiffs next assert that any claim for breach of fiduciary duty against them is barred under 10 ERISA's three-year statute of limitation. ERISA Section 413(1) bars claims for breach of fiduciary 11 duty if a party does not file an action within six (6) years of the date of the alleged violation, 12 regardless of when the participant actually learns of the breach. 29 U.S.C. § 1113(1). If a party has 13 actual knowledge of a breach, it has three (3) years to bring its claim, unless it can toll the period by 14 showing fraud or concealment. Id. § 1113(2). There is no evidence at this point establishing that 15 Defendants had actual knowledge of the alleged breach at the time it occurred; the earliest 16 Defendants claim to have been aware of Plaintiffs' conduct was after the lawsuit was filed in 2009. 17 Further, equitable tolling may apply. Based on the four corners of the proposed counterclaim, at this 18 stage of the litigation the Court cannot conclude that the claim for breach of fiduciary duties against 19 Plaintiffs would certainly be time-barred under ERISA. 20 Plaintiffs also argue that any alleged negligence on their part would necessarily have occurred 21 prior to Ms. McKay's death in 2007 when Defendants assert the wrongful conduct took place. The 22 statute of limitations for negligence is two years under Cal. Civ. Proc. Code § 335.1, and a claim for 23 negligence in 2010 is untimely under the statute. Defendants, however, explicitly plead that "the 24 ramifications and fallout from MCKAY and PLAINTIFFS' plan did not come to [the Defendants'] 25 attention or knowledge until such time [as] this litigation was filed and [Defendants] began [their] 26 inquiries into the facts and circumstances surrounding [Plaintiffs'] claims." (Doc. 84-1 at ¶ 37.) 27 Under California law, a cause of action does not accrue until the plaintiff either discovers the injury 28 and its negligent cause or could have discovered the injury and cause through the exercise of 13 1 reasonable diligence. See, e.g., S.F. Unified Sch. Dist. v. W.R. Grace & Co., 37 Cal. App. 4th 1318, 2 1326 (1995). Based on the language of the counterclaim, the Court cannot conclude definitively that 3 it is time-barred. 4 As to Defendants' proposed claims for unjust enrichment and negligent misrepresentation 5 against Plaintiffs, Plaintiffs argue that the allegations are vague, making it unclear whether the statute 6 of limitations has run. Here, Defendants allege that they did not know of Plaintiffs' conduct related 7 to the Profit Sharing Plan until the instigation of the litigation. For this reason, the Court cannot 8 conclude that the claims for unjust enrichment and negligence misrepresentation are definitively 9 time-barred. 10 Plaintiffs also argue that the counterclaim is subject to dismissal because it is too speculative. 11 While this may be a reason to dismiss a complaint pursuant to Bell Atlantic Corp. v. Twombly, 12 550 U.S. 544, 555 (2007), that does not make the proposed counterclaim subject to dismissal with 13 prejudice rendering it futile. See generally Skaff v. Meridien N. Am. Beverly Hills, LLC, 506 F.3d 14 832, 842 (9th Cir. 2007) (per curiam) ("[c]oncerns about specificity in a complaint are normally 15 handled by the array of discovery devices available to the defendant"). 16 Plaintiffs also argue that the claim against them for breach of fiduciary duties is barred 17 because they are not fiduciaries of the alleged ERISA plan. ERISA fiduciaries include not only those 18 specifically named in the employee benefit plan, 29 U.S.C. § 1102(a), but also any individual who 19 "exercises any discretionary authority or discretionary control respecting management of such plan 20 or exercises any authority or control respecting management or disposition of its assets," id. 21 § 1002(21)(A)(i). Further, the Ninth Circuit has recognized that, where members of an employer's 22 board of directors have responsibility for the appointment and removal of ERISA trustees, those 23 directors are themselves subject to ERISA fiduciary duties, albeit only with respect to trustee 24 selection and retention. See Batchelor v. Oak Hill Med. Group, 870 F.2d 1446, 1448-49 (9th Cir. 25 1989). 26 The proposed counterclaim contains allegations that Plaintiffs were employees of the 27 Foundation and various Plaintiffs signed checks contributing funds to the Profit Sharing Plan. 28 Defendants also allege that various Plaintiffs were members of the Foundation's board. While 14 1 Plaintiffs' employment with the Foundation and participation on the board of directors are disputed 2 by Plaintiffs, the allegations of the counterclaim must be taken as true. Cf. Hydranautics v. FilmTec 3 Corp., 70 F.3d 533, 535 (9th Cir. 1995) (material allegations of complaint are taken as true). 4 Whether it could be established that Plaintiffs had any fiduciary duties, the counterclaim alleges 5 enough facts to infer that they might have such duties by virtue of either being employed by the 6 Foundation or participating on its board. Thus, it is not entirely clear that Plaintiffs would not be 7 considered fiduciaries under ERISA. 8 Finally, Plaintiffs argue that it is not clear that the Court has any personal jurisdiction over 9 Morgan Stanley and David Young, the additional parties that the counterclaim seeks to join. There 10 is nothing that definitively establishes that this Court has no personal jurisdiction over Morgan 11 Stanley and David Young. Further, personal jurisdiction may be waived, unlike subject matter 12 jurisdiction. Fed. R. Civ. P. 12(h). This is, therefore, not a basis to conclude that counterclaims 13 against these new parties are futile. 14 15 16 In light of the foregoing, the Court does not find that the counterclaim is futile. This factor does not weigh against granting Defendants' proposed amendment. III. CONCLUSION 17 Defendants' request to modify the schedule to file an amended pleading is not supported by 18 good cause. The facts underlying the courterclaim were, at least in part, known as of August 2009 19 and perhaps earlier. There was adequate time, while Defendants were represented by counsel, to 20 investigate or serve discovery to determine any other factual information relative to the counterclaim. 21 The Defendants were not diligent in seeking to amend their pleadings; therefore, the Court finds that 22 no good cause is established to modify the schedule again under Rule 16(b). Further, even if there 23 were good cause to modify the schedule to allow amendment, the amendment proposed is highly 24 prejudicial to the opposing parties given that discovery is nearly closed and adding new parties at 25 this date will protract the litigation further. Additionally, any new parties added will have little time 26 to adequately present their case as the trial is less than four (4) months away. In light of this, the 27 proposed amendment would not be allowed under Rule 15(a) regardless of any good cause to allow 28 an amendment of the pleadings after the deadline to do so expired. Defendants' motion to modify 15 1 the schedule to allow amendment of the pleadings is DENIED. 2 3 IT IS SO ORDERED. 4 Dated: ie14hj November 15, 2010 /s/ Sheila K. Oberto UNITED STATES MAGISTRATE JUDGE 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 16