Opinion
3:23-cv-00184-YY
06-13-2024
BRANDSAFWAY SERVICES, LLC, Plaintiff, v. STONHARD, DIVISION OF STONCOR GROUP, INC., Defendant.
FINDINGS AND RECOMMENDATIONS
Youlee Yim You United States Magistrate Judge
FINDINGS
Plaintiff filed this suit after defendant did not pay approximately $450,000 in outstanding invoices for services and materials plaintiff provided for a construction project in Hillsboro, Oregon. See Compl. ¶¶ 9-16, ECF 1. Currently pending is defendant's Motion for Leave to Amend Answer and Assert a Counterclaim. ECF 27. For the reasons that follow, defendant's motion should be granted.
Ordinarily, a decision to grant a motion for leave to amend is a non-dispositive matter. See U.S.Dominator, Inc. v. Factory Ship Robert E. Resoff, 768 F.2d 1099, 1102 n.1 (9th Cir. 1985) (observing that the plaintiff's motion for leave to amend its Complaint was “properly treated as a nondispositive motion”), superseded by statute on other grounds as recognized in Simpson v.Lear Astronics Corp., 77 F.3d 1170 (9th Cir. 1996). However, because the analysis here touches on the merits of defendant's affirmative defense regarding the statute of limitations, Findings and Recommendations are required.
Defendant seeks to amend the Answer to assert a counterclaim against plaintiff for fraud, based on plaintiff's alleged failure to submit backup documentation to support certain invoices it sent to defendant, and defendant's apparent discovery that plaintiff billed defendant for, e.g., equipment and materials for a different project. Mot. Amend 1-2, ECF 27. Federal Rule of Civil Procedure 15(a)(1) provides that “[a] party may amend its pleading once as a matter of course within: “(A) 21 days after serving it, or (B) if the pleading is one to which a responsive pleading is required, 21 days after service of a responsive pleading or 21 days after service of a motion under Rule 12(b), (e), or (f), whichever is earlier.” Otherwise, “a party may amend its pleading only with the opposing party's written consent or the court's leave.” FED. R. CIV. P. 15(a)(2). “The court should freely give leave [to amend] when justice requires.” Id. The discretion whether to allow leave to amend is guided by the underlying purpose of Rule 15(a), which is “to facilitate decision on the merits, rather than on the pleadings or technicalities.” Novak v. United States, 795 F.3d 1012, 1020 (9th Cir. 2015) (citation omitted). Thus, leave to amend is to be granted with “extreme liberality.” Desertrain v. City of Los Angeles, 754 F.3d 1147, 1154 (9th Cir. 2014); see also Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1051 (9th Cir. 2003).
Leave to amend is not, however, automatically granted. Jackson v. Bank of Hawaii, 902 F.2d 1385, 1387 (9th Cir. 1990). Leave may be denied “due to undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party, and futility of amendment.” Carvalho v. EquifaxInfo. Servs., LLC, 629 F.3d 876, 892-93 (9th Cir. 2010) (simplified). Prejudice is the most important factor. Eminence Capital, 316 F.3d at 1052. Futility may support denial of a motion to amend if it is clear that the pleading, as amended, is subject to dismissal and cannot be cured by amendment. United States v. Corinthian Colleges, 655 F.3d 984, 995 (9th Cir. 2011) (citations omitted).
Plaintiff first objects to the proposed amendment on the basis that defendant's proposed counterclaim was not brought within the applicable statute of limitations period, and thus amendment is futile. Resp. 3-6, ECF 33. However, at minimum, defendant's fraud counterclaim relates back to the date defendant filed its initial Answer because the counterclaim is based on the same conduct, transaction, or occurrence set out in the Answer. ASARCO, LLC v. Union Pac.R. Co., 765 F.3d 999, 1004 (9th Cir. 2014) (“An otherwise time-barred claim in an amended pleading is deemed timely if it relates back to the date of a timely original pleading.”). Under Rule 15(c)(1)(B), an amended pleading relates back when it “asserts a claim or defense that arose out of the conduct, transaction, or occurrence set out or attempted to be set out in the original pleading.” “An amended claim arises out of the same conduct, transaction, or occurrence if it will likely be proved by the same kind of evidence' offered in support of the original pleading.” ASARCO, 765 F.3d at 1004 (simplified). “To relate back, the original and amended pleadings [must] share a common core of operative facts so that the adverse party has fair notice of the transaction, occurrence, or conduct called into question.” Id. (simplified). “The relation back doctrine of Rule 15(c) is liberally applied.” Id. (simplified).
Plaintiff filed two responses to the motion. See ECF 31 and ECF 33. The court did not do a line-by-line comparison of the responses, but the second response appears similar to the first one, except that it contains an additional exhibit. These Findings and Recommendations cite to the second response because it was the last one filed and contains the additional exhibit.
The core of the proposed counterclaim is that plaintiff allegedly engaged in fraudulent billing practices regarding invoices that were sent between July and October of 2021, which is based on the same allegations in the Answer, filed in March of 2023, that plaintiff “failed to submit backup in support of its invoices for equipment and materials” and the “limited backup documentation [plaintiff] did provide included invoices for other, unrelated projects[.]” Although the parties dispute whether a two-year or six-year statute of limitations applies, see Resp. 5, ECF 33; Reply 4-6, ECF 34, the proposed counterclaim arises from the same “common core of operative facts” alleged in the Answer such that defendant had “fair notice of the transaction, occurrence, or conduct called into question” before either the two- or six-year statute of limitations expired. ASARCO, 765 F.3d at 1004.
Similar reasoning applies to plaintiff's objection that defendant's proposed counterclaim for fraud is not pleaded with sufficiently particularity as required by Rule 9(b). See Resp. 5, ECF 33. Defendant alleges that the backup documentation that plaintiff provided for its invoices on the project reflects that plaintiff charged defendant for services rendered for “other, unrelated projects,” for “hand tools and other owned equipment at rental rates, which [were] not reimbursable costs” under the relevant contracts, and charged an “impermissible 10% ‘stocking fee' ” for “equipment and consumables.” Proposed. Ans. ¶¶ 68-73, ECF 28-1. These allegations are sufficiently specific in describing the “time, place, and nature” of the alleged fraud for plaintiff to prepare a response against defendant's counterclaim; it is no mystery that the information necessary to defend against this claim primarily includes plaintiff's own invoices and backup documentation for its work done on the project. See Rolex Emps. Ret. Tr. v. MentorGraphics Corp., 749 F.Supp. 1042, 1047 (D. Or. 1990) (“A pleading is sufficient under Rule 9(b) if it identifies the circumstances constituting fraud such that the defendant can prepare an adequate answer based on the plaintiff's allegations. This requirement is usually satisfied by statements indicating the time, place, and nature of the alleged fraudulent activities.”) (internal citations omitted).
Alternatively, plaintiff asserts that defendant unduly delayed in attempting to amend the Answer because it had sufficient information to assert the counterclaim earlier in the case. Resp. 6-7, ECF 33. There is no undue delay here. It is common-place for a party to seek leave to amend based on specific facts learned through discovery. See Munoz v. Elevator Serv. Co. ofCent. California, Inc., No. 5:13-cv-02374-RMW, 2014 WL 5511475, at *2 (N.D. Cal. Oct. 31, 2014) (finding no undue delay where plaintiffs' “amendment was made promptly after the depositions of [defendants] and after plaintiffs had clearer evidence to support a claim against” a new party). Nor would the addition of a fraud claim cause a “radical shift in [the] direction of the case,” Wroth v. City of Rohnert Park, No. 4:17-cv-05339-JST, 2018 WL 6439120, at *3 (N.D. Cal. Dec. 7, 2018), that might warrant denying leave to amend. As plaintiff recognizes, defendant's original Answer suggested that a fraud counterclaim might materialize, and the court is wary to find fault in defense counsel's decision to wait to plead a fraud counterclaim until the facts were sufficiently developed in order to satisfy the requirements of Rule 11. See Reply 11, ECF 34 (“While [defendant] initially pleaded fraud as an affirmative defense, it did not know the full extent of [plaintiff's] fraud until it refused to provide back-up documentation and disclosed that it included bulk material invoices and non-project related invoices through discovery in this matter.”).
Although prejudice to the party opposing the amendment is the most important factor, Eminence Capital, 316 F.3d at 1052, plaintiff does not specifically address it. The only prejudice plaintiff seems to identify is the “cost and expense of bringing a 12(b)(6) motion or motion for summary judgment” against defendant's proposed counterclaims. Resp. 2, ECF 33. Fact discovery does not close in this case for another two months, the dispositive motions deadline is another three months after that, and no trial date is set. These circumstances do not suggest prejudice sufficient to overcome Rule 15's liberal standard for allowing amendment. See Idylwilde, Inc. v. Umpqua Feather Merchants, LLC, No. 3:13-cv-02009-HZ, 2014 WL 12775086, at *3 (D. Or. June 30, 2014) (allowing amendment where the discovery deadline was several months in the future and trial was set to begin in a year).
RECOMMENDATIONS
Defendant's Motion for Leave to Amend Answer and Assert a Counterclaim [27] should be granted.
SCHEDULING ORDER
These Findings and Recommendations will be referred to a district judge. Objections, if any, are due Friday, June 28, 2024. If no objections are filed, then the Findings and Recommendations will go under advisement on that date.
If objections are filed, then a response is due within 14 days after being served with a copy of the objections. When the response is due or filed, whichever date is earlier, the Findings and Recommendations will go under advisement.
NOTICE
These Findings and Recommendations are not an order that is immediately appealable to the Ninth Circuit Court of Appeals. Any Notice of Appeal pursuant to Rule 4(a)(1), Federal Rules of Appellate Procedure, should not be filed until entry of a judgment.