Yang et al v. Sun Trust Mortgage, Inc., No. 1:2010cv01541 - Document 35 (E.D. Cal. 2011)
Court Description: ORDER GRANTING 27 Plaintiff's Motion to Amend. Plaintiffs shall file their proposed amended complaint within two (2) days from the date of this order; and Defendant shall have 21 days from the date Plaintiffs file their Second Amended Complaint to file a responsive pleading. Order signed by Magistrate Judge Sheila K. Oberto on 6/14/2011. (Timken, A)
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Yang et al v. Sun Trust Mortgage, Inc. Doc. 35 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 11 CHANG BEE YANG and LAU YANG, CASE NO. 1:10-cv-01541-AWI-SKO 12 ORDER GRANTING PLAINTIFFS' MOTION TO AMEND Plaintiffs, 13 v. 14 15 SUN TRUST MORTGAGE, INC., A Virginia corporation; Does 1 through 25, (Docket No. 27) 16 Defendants. 17 / 18 19 I. INTRODUCTION 20 Plaintiffs Change Bee Yang and Lau Yang ("Plaintiffs") filed a complaint against Defendant 21 SunTrust Mortgage, Inc. ("Defendant" or "SunTrust") on August 25, 2010, alleging twenty-three 22 separate causes of action which relate to a Residential Construction Loan Agreement ("RCLA") 23 entered into between Plaintiffs and Defendant. (Doc. 1). 24 Plaintiffs and Defendant entered into the RCLA on December 16, 2006. (Doc. 1, ¶ 8.) Under 25 the RCLA, Defendant agreed to loan Plaintiffs $742,450 to purchase real property located at 10966 26 E. Promontory Way, Clovis, California, 93619. (Doc. 1, ¶¶ 8-9.) Plaintiffs used $200,000 of the 27 loan money to purchase the lot and the remaining $542,450 for construction. (Doc. 1, ¶ 11.) 28 Plaintiffs hired Sierra Custom Homes, Inc. (the "Contractor") to construct the residential home on Dockets.Justia.com 1 the property. (Doc. 1, ¶ 10.) 2 Pursuant to the terms of the RCLA, the loan proceeds were to be deposited into an account 3 held by Defendant and advanced to the Contractor when the Contractor reached various states of 4 completed work. (Doc. 1, ¶ 12.) According to the RCLA, Plaintiffs were to supervise the Contractor 5 and inform Defendant about the Contractor's need for monies. (Doc. 1, ¶ 12.) 6 Paragraph 7 of the RCLA granted Defendant "Power-of Attorney" and allowed Defendant 7 to make payments directly to the Contractor. (Doc. 1, ¶ 13.) Defendant hired an appraiser to 8 evaluate and inspect the Contractor's work on the project and each of the Contractor's draw requests. 9 (Doc. 1, ¶ 16.) The Contractor made fifteen total draw requests. (Doc. 1, ¶ 17.) Each draw request 10 was paid by Defendant without Plaintiffs' authorization or approval. (Doc. 1, ¶ 17.) The Contractor 11 failed to complete work for which it was paid by Defendant. (Doc. 1, ¶ 18.) 12 On October 29, 2010, Defendant filed a motion to dismiss the complaint which was granted 13 on March 15, 2011. (Doc. 21.) Plaintiffs were permitted leave to file an amended complaint within 14 30 days as to causes of action 14-16 (breach of contract), 20 (negligence), 21 (fraud), and 23 15 (negligent misrepresentation). 16 On April 14, 2011, Plaintiffs filed a First Amended Complaint ("FAC") which added a new 17 party, Michael J. Carter; restated claims for fraud, negligent misrepresentation, and declaratory relief; 18 and added new claims for violation of California Business and Professions Code section 17200, civil 19 conspiracy, conversion, accounting, intentional infliction of emotional distress, and breach of a 20 written contract. 21 Defendant objected to the adding of new claims and a new party in Plaintiffs' FAC as 22 impermissible in light of the Court's order on Defendant's motion to dismiss (See Doc. 28, 4:3-15; 23 Doc. 32, 1:8 n.1).1 The parties agreed by stipulation that Plaintiff would dismiss newly added 24 defendant Michael J. Carter and the causes of action for violations of section 17200, civil conspiracy, 25 conversion, declaratory relief, accounting, intentional infliction of emotional distress, and breach of 26 a written contract – ostensibly so that Plaintiffs could seek permission from the Court for leave to 27 28 1 In granting leave to amend, the Court's March 15, 2011, order did not expressly prohibit Plaintiffs from adding any new causes of action or any new parties. 2 1 file such an amended pleading in light of the fact that Defendant refused to stipulate to such an 2 amendment. On May 12, 2011, the Court granted the parties' stipulation for dismissal of the new 3 claims asserted and the new defendant named in the FAC. (Doc. 30.) 4 After stipulating to dismiss the portions of the FAC to which Defendant objected, Plaintiffs 5 filed a motion to amend the FAC on May 6, 2011, requesting permission to add Michael J. Carter 6 as a defendant and to plead causes of action for (1) fraud, (2) negligent misrepresentation, (3) 7 violation of section 17200 of the California Business and Professions Code, (4) civil conspiracy, (5) 8 conversion, (6) accounting, (7) intentional infliction of emotional distress, and (8) breach of contract. 9 On May 9, 2011, Defendant filed a motion to dismiss the FAC, asserting that Plaintiffs failed 10 to plead their fraud and negligent misrepresentation claims with the requisite specificity or allege 11 justifiable reliance. (Doc. 28.) 12 13 II. A. DISCUSSION Legal Standard 14 Federal Rule of Civil Procedure 15 provides that a party may amend its pleading only by 15 leave of court or by written consent of the adverse party and that leave shall be freely given when 16 justice so requires. Fed. R. Civ. P. 15(a)(1)-(2). The Ninth Circuit has instructed that the policy 17 favoring amendments "is to be applied with extreme liberality." Morongo Band of Mission Indians 18 v. Rose, 893 F.2d 1074, 1079 (9th Cir. 1990). 19 The factors commonly considered to determine the propriety of a motion for leave to amend 20 are: (1) bad faith, (2) undue delay, (3) prejudice to the opposing party, and (4) futility of amendment. 21 Foman v. Davis, 371 U.S. 178, 182 (1962). The Ninth Circuit has held that it is the consideration 22 of prejudice to the opposing party that carries the greatest weight. Eminence Capital, LLC v. Aspeon, 23 Inc., 316 F.3d 1048, 1052 (9th Cir. 2003). Absent prejudice, or a strong showing of any of the 24 remaining Foman factors, a presumption in favor of granting leave to amend exists under Rule 15(a). 25 Id. Further, undue delay alone is insufficient to justify denial of a motion to amend. Bowles v. 26 Reade, 198 F.3d 752, 758 (9th Cir. 1999). Finally, "liberality in granting leave to amend is not 27 dependent on whether the amendment will add causes of action or parties." DCD Programs, Ltd. 28 v. Leighton, 833 F.2d 183, 186 (9th Cir. 1987). Contra Union Pac. R.R. Co. v. Nev. Power Co., 3 1 950 F.2d 1429, 1432 (9th Cir. 1991) ("Amendments seeking to add claims are to be granted more 2 freely than amendments adding parties.").2 3 B. Analysis 4 Plaintiffs assert that attorney Elizabeth Mello, employed by law firm Webb & Walton, LLP, 5 filed the initial complaint on their behalf. After Ms. Mello left Webb & Walton, LLP, the case was 6 transferred to attorney Amy R. Lovegren-Tipton with Webb & Walton, LLP. Plaintiffs' current 7 counsel asserts that, after the Court's order dismissing the complaint, she had numerous office 8 meetings, telephone conversations, and written exchanges with Plaintiffs at which time it was 9 discovered that additional claims that were not previously pled against Sun Trust and Michael J. 10 Carter "needed to be added." (Doc. 27-1, 3:22-4:2.) 11 Defendant argues that Plaintiffs were aware of all the pertinent facts at the time they filed 12 their original complaint and simply failed to allege the facts or failed to recognize the purported 13 significance of those facts. (Doc. 32, 1:10-16.) Defendant contends that this Court should deny the 14 motion as this is tactical gamesmanship on the part of Plaintiffs, and Defendant will be forced to 15 incur additional fees and costs if Plaintiffs are allowed to amend their complaint. 16 1. 17 As consideration of prejudice to the opposing party carries the greatest weight, the Court 18 considers this factor first. Eminence Capital, LLC, 316 F.3d at 1052. Prejudice has been found 19 where "[t]he parties have engaged in voluminous and protracted discovery" and where "[e]xpense, 20 delay, and wear and tear on individuals and companies" is shown. See Texaco, Inc. v. Ponsoldt, 21 939 F.2d 794, 799 (9th Cir. 1991). Defendant asserts that it will be forced to incur additional fees 22 and costs if Plaintiffs are allowed to amend. (Doc. 32, 1:21-23.) Prejudice to Defendant 23 Plaintiffs respond that most of the additional expense that Defendant may incur is the result 24 of Defendant's failure to stipulate to the Second Amended Complaint ("SAC"). Plaintiffs also assert 25 that any financial prejudice to Defendant as a result of the motions filed is outweighed by Plaintiffs' 26 2 27 28 No scheduling order has been issued in this case; thus, Federal Rule of Civil Procedure 16(b) is not applicable to Plaintiffs' motion to amend the pleadings. See Jackson v. Laureate, Inc., 186 F.R.D. 605, 607 (E.D. Cal. 1999) ("As the Ninth Circuit explained in [Johnson], once the district court has filed a pretrial scheduling order pursuant to Rule 16 which establishes a timetable for amending pleadings, a motion seeking to amend pleadings is governed first by Rule 16(b), and only secondarily by Rule 15(a)."). 4 1 right to have all of their claims heard by the Court. (Doc. 33, 3:12-27.) 2 Defendant's claim of prejudice is of a general nature; it points to increased expenses, 3 including court filings – particularly that it will be required to file another motion to dismiss if 4 amendment is allowed. This general claim of prejudice fails to establish that Plaintiffs' proposed 5 amendment would cause such a delay in the proceedings or such additional expense as to prejudice 6 Defendant. Genentech, Inc. v. Abbott Labs., 127 F.R.D. 529, 530-31 (N.D. Cal. 1989) (nonmoving 7 party bears burden of demonstrating why leave to amend should not be granted). This is especially 8 so because no scheduling order has issued, and discovery has not yet opened; it is particularly early 9 in the proceedings. DCD Programs, 833 F.2d 183, 187-88 (finding amendment not prejudicial 10 where discovery commenced but was not yet closed, and no trial date was pending). 11 2. 12 Defendant asserts that Plaintiffs' motion to amend is made in bad faith because: "Plaintiffs 13 and their counsel have tried to 'game the system' by pleading their case in piecemeal fashion. When 14 their original claims against Defendant were dismissed by the Court, they tried another set of claims 15 against Defendant and the new defendant [Michael J. Carter]." (Doc. 32, 1:17-19.) Plaintiffs' 16 counsel asserts that she recently took over the case and had numerous meetings with her clients 17 during which she discovered claims that had not previously been stated. (Doc. 27-1, 3:22-27.) 18 Plaintiffs do not assert that the proposed new claims are based on newly discovered facts or that 19 Michael J. Carter's role in the dispute was previously unknown to Plaintiffs; rather, claims that could 20 have been pled initially were left out of the original complaint – ultimately as an oversight of 21 Plaintiffs' original counsel. Bad Faith in Seeking Amendment 22 Even assuming the basis for Plaintiffs' amendment was known at the time of the initial 23 complaint, that is not, by itself, objective evidence of bad faith or tactical gamesmanship. In Acri 24 v. Int'l Ass'n of Machinists & Aerospace Workers, 781 F.2d 1393, 1398 (9th Cir. 1986), amendment 25 was disallowed where the plaintiffs' counsel admitted that the delay in attempting to state the claim 26 at issue was a tactical choice, the district court found that the plaintiffs' motion to amend was brought 27 specifically to avoid the possibility of an adverse summary judgment ruling, and amendment required 28 that discovery would have to be reopened. 5 1 In contrast, here, Plaintiffs have offered a plausible – albeit less than compelling – 2 explanation why these claims and Michael J. Carter were not included in the original complaint. 3 Moreover, there is no pattern of conduct in the record to support a finding that the attempt at 4 amendment is merely a pretext to avoid prejudicial dismissal.3 At this juncture, the Court finds no 5 evidence that Plaintiffs are seeking to amend their complaint in bad faith. Thus, this factor does not 6 weigh against amendment. See DCD Programs, Ltd., 833 F.2d at 187 ("Since there is no evidence 7 in the record which would indicate a wrongful motive, there is no cause to uphold the denial of leave 8 to amend on the basis of bad faith."). 9 3. Undue Delay in Seeking Amendment 10 It is essentially undisputed that Plaintiffs are not seeking to amend based on newly discovered 11 evidence. Rather, Plaintiffs desire to assert new claims and add a new defendant based on the same 12 underlying facts as in the original complaint. Plaintiffs' counsel states she became aware of the 13 availability of these new causes of action once she was assigned to the case and she was in a position 14 to speak with Plaintiffs and review related documents. Defendant asserts that Plaintiffs should not 15 be permitted to amend because there are no newly discovered facts; instead, the entire factual 16 predicate for the new claims proposed has been known to Plaintiffs since the inception of the 17 litigation – the proposed claims arising out of those facts were just belatedly realized by Plaintiffs' 18 counsel. See Kaplan v. Rose, 49 F.3d 1363, 1370 (9th Cir. 1994) (giving greater weight to undue- 19 delay factor where facts and theories sought to be added were known to moving party early in the 20 litigation). 21 While undue delay is a factor for denying leave to amend, "[u]ndue delay by itself is 22 insufficient to justify denying a motion to amend." Bowles, 198 F.3d at 757-58 (9th Cir. 1999). 23 Defendant is correct that it appears all of the operative facts were known to Plaintiffs at the time they 24 filed their original complaint – they could have included these new causes of action and named 25 Michael Carter as a defendant, but failed to do so. Ultimately, Plaintiffs' reasons for failing to assert 26 these claims and name Defendant Michael J. Carter in the original complaint are less than 27 3 28 The Court notes that any repeated attempt to amend on these grounds – even at this early stage – would be viewed with disfavor and may support a bad-faith finding. 6 1 compelling. 2 Although leave to amend may be denied where the factual predicate underlying the 3 amendment was known or should have been known at the time the original complaint was filed, this 4 factor is generally coupled with other Foman factors that, in combination, overcome the strong 5 presumption in favor of allowing amendment. See McNally v. Eye Dog Foundation for the Blind, 6 Inc., No. 1:09-cv-01184-AWI-SKO, 2010 WL 4723073 (E.D. Cal. Nov. 15, 2010); See also Stein 7 v. United Artists Corp., 691 F.2d 885,889 (9th Cir. 1982) (district court's refusal to allow amendment 8 affirmed where motion to amend was late, not based on new facts, and futile). In McNally, the 9 requested amendment was not based on newly discovered facts, the request for amendment came 10 after a schedule had long been in place, the deadline for amendment had passed, the litigation had 11 progressed such that discovery was nearly closed, a summary judgment motion had already been 12 filed, and the trial date was approximately three months away. In Stein, the proposed amended 13 complaint was submitted with a motion for reconsideration after the trial court had already granted 14 dismissal motions, it was based on new theories, not new facts, and, even considering the amended 15 pleading, the plaintiff lacked standing and the amendment was futile. Stein, 691 F.2d at 898. Any 16 delay in this case is not coupled with other Foman factors such that amendment should be disallowed 17 – particularly in light of the presumption in favor of amendment. 18 4. 19 Leave to amend may be denied if the proposed amendment is futile or subject to dismissal. 20 Saul v. United States, 928 F.2d 829, 843 (9th Cir. 1991). Defendant does not state how Plaintiffs' 21 proposed amended complaint is futile; therefore, this factor does not weigh against permitting 22 amendment. 23 Futility of Amendment III. CONCLUSION 24 Defendant has not established how, at this stage of the proceedings, it will be prejudiced if 25 Plaintiffs are allowed to amend. Further, there is no objective evidence in the record that Plaintiffs 26 amendment is sought in bad faith, and Defendant has not established how the proposed amendment 27 is futile. Although the facts underlying the amendment were known or should have been known at 28 the time of the initial complaint was filed, this factor alone is insufficient grounds to deny 7 1 amendment. 2 Accordingly, the Court HEREBY ORDERS THAT: 3 1. Plaintiffs' motion to amend their complaint is GRANTED; 4 2. Plaintiffs shall file their proposed amended complaint within two (2) days from the 5 date of this order; and 6 3. 7 Defendant shall have 21 days from the date Plaintiffs file their Second Amended Complaint to file a responsive pleading. 8 9 10 IT IS SO ORDERED. Dated: ie14hj June 14, 2011 /s/ Sheila K. Oberto UNITED STATES MAGISTRATE JUDGE 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8
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