OSJ Pep Tennessee LLC v. California Department of Public Health et al

Filing 73

Order Granting Defendant CDPHs Motion for Leave to Amend 44 by Judge Dean D. Pregerson: The Court GRANTS Defendant CDHPs Motion for Leave of the Court to File its Counterclaims and Third Party Complaint. (lc) Modified on 3/25/2015. (lc).

1
2

O

3
4
5
6
7
8

UNITED STATES DISTRICT COURT

9

CENTRAL DISTRICT OF CALIFORNIA

10
11

OSJ PEP TENNESSE LLC,

12

Plaintiff,

13
14
15
16
17

v.
KAMALA D. HARRIS, CALIFORNIA
DEPARTMENT OF PUBLIC HEALTH;
RONALD CHAPMAN; CALIFORNIA
HIGHWAY PATROL; JOSEPH A.
FARROW; OFFICE OF THE
ATTORNEY GENERAL, CALIFORNIA
DEPARTMENT OF JUSTICE,

18
19

Defendants.
___________________________

)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)

Case No. CV 14-03741 DDP (MANx)
Order Granting Defendant CDPH’s
Motion for Leave to Amend

20
21

This matter comes before the Court on the Defendant CDPH’s

22

Motion for Leave to file counterclaims against Plaintiff OSJ PEP

23

Tennessee, LLC, (“OSJ”) and third party defendant, Leslee Sports,

24

Inc. (“Leslee Sports”).

25

the parties and hearing oral arguments, the Court GRANTS the

26

motion.

27

///

28

///

After reviewing the materials submitted by

1

I.

2

Background
In 2010, Defendant California Department of Public Health

3

(“CDPH”), purchased 13.7 million respirator masks, worth $9.8

4

million, from a company named Global Protection USA, Inc. (“GPI”).

5

(Def.’s Counterclaim and Third Party Complaint ¶ 11. (“CC-TPC”))

6

CDPH alleges that after the purchase, it requested that GPI store

7

the masks.

8

masks at a warehouse, per a written contract with Amerinova, GPI’s

9

sister company,1 establishing CDPH’s right to lease approximately

(Id. at ¶ 13.)

CDPH alleges it stored the respirator

10

85,000 square feet of storage space at the warehouse.

11

written agreement required payment of a periodic flat fee to be

12

paid by CDPH to Amerinova.

13

in full for such fees.

14

(Id.)

(Id.)

The

CDPH asserts it paid Amerinova

(Id.)

In February of 2012, CDPH notified Amerinova that it intended

15

to remove the respirator masks from the warehouse since the lease

16

was due to expire in June.

17

claimed it was entitled to additional storage fees.

18

asserts GPI’s storage claim are false and have no legal basis as it

19

did not enter into a separate contract with GPI to store the

20

respirator masks.

(Id. at ¶ 14.)

At this time, GPI
(Id.) CDPH

(Id. at ¶ 15.)

21

In June of 2012, CDPH demanded a return of the respirator

22

masks upon the expiration of CDPH’s lease agreement with Amerinova.

23

(Id. at ¶ 16.)

24

masks and prevented CDPH from taking possession of the masks

25

because of the alleged money owed for the storage fees.

26

16.)

CDPH alleges GPI refused to return the respirator

(Id. at ¶

27
1

28

Global Protection and Amerinova are both owned and controlled
by Stephen Guarino.
2

1

GPI, for apparently unrelated reasons, filed for Chapter 11

2

bankruptcy in March 2012.

(Id. at ¶ 19.)

3

claimed a warehouseman’s lien against the respirator masks.

4

At ¶ 16.)

5

false and has no legal basis.

6

of the bankruptcy proceeding, GPI’s bankruptcy petition claimed the

7

“receivable owed by California Department of Public Health for

8

storage of 3M masks at CA facility.”

9

bankruptcy proceedings, GPI sold all the rights and claims that

At this time, GPI
(Id.

CDPH asserts GPI’s warehouseman’s lien is also patently
(Id. At ¶17.)

In addition, as part

(Id. at ¶ 19.)

During the

10

Global Protection may have had against CDPH for the respirator

11

masks to Global Safety, LLC (“Global Safety”), another company

12

owned and operated by Guarino.

(Id. at ¶ 20.)

13

At around the same time, GPI was pursuing administrative

14

relief against CDPH through the California Victim Compensation and

15

Government Claims Board (“VCGCB”); that relief was summarily denied

16

on December 7, 2012, finding that all money owed by CDPH to

17

Amerinova had been paid in full, and, as part of the bankruptcy

18

proceedings, GPI had sold the right to pursue this claim to another

19

entity, Global Safety.

20

GPI, Global Safety, and Guarino written notice that Global

21

Protection’s storage claims were rejected.

22

(Id. at ¶¶ 21-22.)

CDPH alleges VCGCB gave

(Id. at ¶ 24.)

CDPH alleges that, despite VCGCCB’s notice, Guarino entered

23

into discussion with Leslee Sports to sell GPI’s warehouse storage

24

claim.

25

Leslee Sports that any claims or ownership of the respirator masks

26

would be dependent on the adjudication of his claim sometime

27

between December 7 and December 14, 2012.

(Id. at ¶ 23.)

CDPH further alleges that Guarino informed

28
3

(Id.)

1

On or about December 14, 2012, Global Safety transferred its

2

interest in the claim to Rhino Pets Series 1, LLC, which

3

subsequently sold the interests of the masks to Leslee Sports.

4

(Id. at ¶ 29.)

5

Rhino Pets an additional sum of approximately $455,000 for GPI’s

6

storage claim against CDPH.

7

thereafter sold “all of its rights and title to the masks” to OSJ.

8

(Id. at ¶ 29.)

9

CDPH alleges Leslee Sports paid Guarino through

(Id. at ¶ 33.)

Leslee Sports

At some point in this process, the masks had been transferred

10

to the care of a “third party warehouse in Los Angeles” belonging

11

to American Export Lines (“American Export”).

12

or about January 2013, CDPH learned that the respirator masks were

13

being sold to an unknown third party.

14

2013, CDPH asked the California Highway Patrol to investigate the

15

possible theft of the respirator masks and to recover those masks.

16

(Id. at ¶ 38.)

17

Export’s warehouse on or about February 20-24, 2013 – a recovery

18

which triggered this lawsuit, as Plaintiff maintained that it had a

19

legal right to the masks, and also that CHP’s taking of the masks

20

violated the due process requirements of the Fourteenth Amendment.

21

(See generally FAC.)

22

number of Plaintiff’s claims, holding that CDPH owned the masks and

23

a warehouseman’s lien could not be exercised over state property,

24

but allowing Plaintiff to proceed on its civil rights claims.

25

(Dkt. No. 36.)

26

(Id. at ¶ 36.)

(Id. at ¶ 37.)

In

In February

The respirator masks were recovered from American

On October 7, 2014, the Court dismissed a

CDPH alleges that Leslee Sports and OSJ wrongfully exercised

27

dominion over the respirator masks.

28

alleges OSJ and Leslee Sports knew or had reason to know of VCGCB’s
4

(CC-TPC at ¶ 42.)

CDPH

1

denial of GPI’s claims and therefore had constructive knowledge

2

that GPI’s storage claims against CDPH were legally baseless.

3

at ¶ 25.)

4

(Id.

CDHP therefore seeks to file a counterclaim against Plaintiff

5

OSJ and a third party complaint against Leslee Sports, for (1)

6

Conversion; (2) Trespass to Chattels; and (3) Violation of

7

California Penal Code section 496.

8

II.

Legal Standard

9

In order to grant CDPH’s Motion for Leave to Amend, CDPH must

10

meet the Rule 15 standard for amendment of pleadings, and the Rule

11

20 standard for joinder.

12

A.

13

Rule 15 Standard for Amendment of Pleadings
Rule 15 of the Federal Rules of Civil Procedure, which governs

14

requests for leave to amend, provides that “a party may amend its

15

pleading only with the opposing party's written consent or the

16

court's leave.

17

requires.”

18

the sound discretion of the trial court.

19

Machinists & Aerospace Workers v. Republic Airlines, 761 F.2d 1386,

20

1390 (9th Cir. 1985).

21

federal policy favoring the disposition of cases on the merits and

22

permitting amendments with "extreme liberality."

23

v. Leighton, 833 F.2d 183, 186 (9th Cir. 1987).

24

The court should freely give leave when justice so

Fed. R. Civ. P. 15.

Granting leave to amend rests in
Internat'l Ass'n of

This discretion must be guided by the strong

DCD Programs Ltd.

Accordingly, the burden of persuading the Court that leave

25

should not be granted rests with the non-moving party.

26

Services, Ltd. v. Now Casting, Inc., 550 F. Supp. 2d 1123, 1132

27

(C.D. Cal. 2007); See DCD Programs, Ltd. v. Leighton, 833 F.2d 183,

28

186-87 (9th Cir. 1987).
5

Breakdown

1

B.

2

Rule 20 Standard for Joinder of Parties
Rule 20(a) imposes two specific requirements for the

3

permissive joinder of parties: (1) a right to relief must be

4

asserted by, or against, each plaintiff or defendant relating to or

5

arising out of the same transaction or occurrence or series of

6

transactions or occurrences; and (2) some question of law or fact

7

common to all parties must arise in the action.

8

v. Ins. Co. Of N. Am., 623 F.2d 1371, 1375 (9th Cir. 1980).

9

party seeking joinder carries the burden of proof to show joinder

Desert Empire Bank

10

is permissible.

11

1067, 1078 (C.D. Cal. 2002).

12

joinder of parties lies within the discretion of the district

13

court.” (Id.)

14

III. Discussion

15

A.

A

16

See Wynn v. Nat'l Broad. Co., 234 F. Supp. 2d
“A determination on the question of

Leave to Amend Under Rule 15
CDPH seeks leave to file its Counterclaim and Third Party

17

Complaint against Plaintiff OSJ and Third Party Defendant Leslee

18

Sports.

19

litigation; and (2) CDPH’s proposed counterclaims are futile as

20

they are based on the notion that OSJ wrongfully possessed the

21

masks.

22

1.

23

as it would dramatically alter the nature of the

Prejudice, Delay, and Bad Faith
Plaintiff argues that the Court should deny CDPH’s motion

24

because CDPH waited over a year to seek leave and adding the

25

counterclaims now would severely prejudice Plaintiff’s prosecution

26

of its case.

27

counterclaims because this is its first request for leave to amend,

28

Plaintiff has had numerous opportunities to amend, and Plaintiff

CDPH argues that it should be allowed to add its

6

1

would not be prejudiced by the addition of the counterclaims

2

because trial is still a year away.

3

Four factors are commonly taken into account to assess the

4

propriety of a motion for leave to amend: bad faith, undue delay,

5

undue prejudice to the opposing party, and futility of amendment.

6

Johnson v. Buckley, 356 F.3d 1067, 1077 (9th Cir. 2004); See Forman

7

v. Davis, 371 U.S. 178, 182 (1962).

8

not of equal weight; prejudice is the crucial factor.

9

Webb, 655 F.2d 977, 980 (9th Cir. 1981).

These factors, however, are
U.S. v.

Absent prejudice, or a

10

strong showing of any of the remaining reasons for denying leave to

11

amend, there exists a presumption under Rule 15(a) in favor of

12

granting a leave to amend.

13

Inc., 550 F. Supp. 2d 1123, 1132 (C.D. Cal. 2007).

14

Breakdown Servs., Ltd. v. Now Casting,

Plaintiff points out, and the Court notes, that CDPH has

15

waited over a year to add counterclaims that could just as easily

16

have been brought from the outset.

17

insufficient to justify denial of leave to amend.

18

Ltd. V. Leighton, 833 F.2d at 186.

19

or the movant acts in bad faith” should leave to amend be denied.

20

U.S. v. Webb, 655 F.2d at 980.

21

But delay, by itself, is
DCD Programs,

“Only where prejudice is shown

On the other hand, “occasionally, delay in itself may be

22

evidence of bad faith.”

Larios v. Nike Retail Servs., Inc., No.

23

11CV1600-GPC-NLS, 2013 WL 4046680, at *3 (S.D. Cal. Aug. 9, 2013).

24

The counterclaims are being added only after the Court ruled that

25

it would not dismiss Plaintiff’s civil rights claims from the case.

26

One explanation for that might be that CDPH has brought these

27

counterclaims in retaliation for Plaintiff’s continuing to

28

prosecute those claims after the other claims were dismissed.
7

1

Along those lines, Plaintiff alleges CDPH seeks leave to amend its

2

counterclaim to “put pressure on OSJ” and “dramatically increase

3

the costs of litigating this case.”

4

of things, the delay in bringing the claims could be seen as

5

evidence of bad faith.

6

846 (9th Cir. 1995) (habeas petitioner’s motion to amend petition,

7

brought months after the petition was taken under submission and

8

only after court denied his other pending petition, was in bad

9

faith).

10

(Opp’n at 17.)

In that view

See, e.g., Bonin v. Calderon, 59 F.3d 815,

But another, equally plausible explanation is that CDPH waited

11

to bring this petition until after it had secured a legal

12

determination that the masks did in fact belong to it.

13

Defendants have maintained all along that the masks belonged to

14

CDPH and no lien could exist on them, it is possible that CDPH only

15

felt sure that the counterclaims were viable after the Court

16

determined the ownership and lien issues.

17

from the papers that a parallel criminal investigation may now be

18

under way, the owner of GPI and Amerinova having been formally

19

charged with theft.

20

criminal case, too, could have made CDPH more confident in pressing

21

the counterclaims at this time.

22

counterclaims are being asserted now in bad faith.

23

(CC-TPC, ¶ 39.)

Although

Additionally, it appears

The advancement of that

Thus, the Court cannot say the

Absent a strong showing that the counterclaims are asserted in

24

bad faith, the Court will only deny leave to file them if the

25

filing would be prejudicial to Plaintiff – that is, if it would

26

“greatly alter[] the nature of the litigation.”

27

Mission Indians v. Rose, 893 F.2d 1074, 1079 (9th Cir. 1990).

28

oral argument, Plaintiff’s counsel correctly noted that the Court’s
8

Morongo Band of
At

1

previous order narrowed the scope of the litigation considerably.

2

Thus the addition of counterclaims now does somewhat alter the

3

litigation, forcing Plaintiff to act as a defendant to tort claims

4

that are distinct from the civil rights claims that survived the

5

prior order.

6

factual predicate of Plaintiff’s remaining claims – not to mention

7

the claims previously brought by Plaintiff in this case.

8

was prepared to litigate similar claims in the opposite direction

9

and will presumably be able to quickly grasp the nature of these

But in this case, the counterclaims largely share the

Plaintiff

10

claims and defend against them.

11

claims for conversion and trespass to chattels).)

12

is still a year away and the fact discovery cutoff is still almost

13

seven months away, (Dkt. No. 54, Scheduling Order), Plaintiff is

14

not prejudiced by the introduction of these counterclaims at this

15

time.

16

2.

17

(See Doc. 1-5, FAC (asserting
Given that trial

Futility of Amendment
Plaintiff suggests that amendment would be futile because CDPH

18

can not prevail, as a matter of law, on the claims it intends to

19

assert as the counterclaim.

20

“[A] proposed amendment is futile only if no set of facts can

21

be proved under the amendment to the pleadings that would

22

constitute a valid and sufficient claim or defense.”

23

Rykoff–Sexton, Inc., 845 F.2d 209, 214 (9th Cir. 1988).

24

an amendment is “futile” only if it would clearly be subject to

25

dismissal.

26

Miller v.
Therefore,

DCD Programs, Ltd., 833 F.2d at 188.

CDPH’s purported counterclaims allege that Plaintiff is liable

27

for conversion, trespass to chattels, and violation of California

28

Penal Code 496(c).

Conversion is the wrongful exercise of dominion
9

1

over the property of another.

2

are: (1) the plaintiff's ownership or right to possession of the

3

property; (2) the defendant's conversion by a wrongful act or

4

disposition of property rights; and (3) damages.”

5

Lopez, 180 Cal. App. 4th 932, 939 (2009).

6

liability tort; even inadvertent dominion over another’s property

7

is redressible in tort.

8

4th 539, 544 (1996).

9

title or right to sell is ordinarily liable for conversion.”

10
11

“The elements of a conversion claim

Hernandez v.

Conversion is a strict

Oakdale Vill. Grp. v. Fong, 43 Cal. App.

Even “[a]n innocent buyer from one without
5

Witkin, Summary of California Law § 716 (10th ed. 2005).
Given the law of conversion in California, it would appear

12

CDPH can state a claim for conversion.

13

possession of the property, and the counterclaims allege both

14

Plaintiff’s conversion by a wrongful act and damages.

15

those pleadings will turn out to be factually justified is, of

16

course, a question for another day.

CDPH had a right to

Whether

17

Plaintiff nonetheless argues that it cannot be held liable for

18

conversion because, when it exercised control and dominion over the

19

masks, the Court had not yet determined who had the right to

20

possession and ownership of the masks.

21

is a deeply puzzling argument.

22

is one of the elements that must be proven in a conversion claim;

23

to say that no conversion can exist until that element has been

24

adjudicated would render the tort largely moot.

25

it would mean that plaintiffs seeking to be made whole in

26

conversion cases would have to seek declaratory judgment as to a

27

right to possession before a claim for conversion could lie.

(Opp’n at 15-16.)

But this

The right to possess the property

28
10

At the very least,

1

Plaintiff cites no case suggesting that is the law in California or

2

at common law.2

3

Plaintiff also argues that, because the ownership question was

4

not yet adjudicated, Defendants cannot state a claim for violation

5

of California Penal Code § 496, which creates a private right of

6

action against someone who knowingly receives stolen goods, or for

7

any “person whose principal business is dealing in or collecting

8

merchandise” who receives stolen goods “under circumstances that

9

should cause the person to make reasonable inquiry” as to the

10

seller’s right to the property.

11

stolen and that OSJ and Leslee Sports wrongfully acquired

12

possession of them, either knowing they were stolen or under

13

circumstances in which they should have made a reasonable inquiry

14

as to title.

15

CDPH alleges that the masks were

The Court concludes that the fact that the claim was not yet

16

adjudicated does not mean CDPH will not be able to show the

17

necessary state of mind to pursue a claim under § 496.

18

the fact that the claim to the masks was disputed is relevant to

19

state of mind, it is not dispositive.

20

dispute was bogus and in bad faith3 and that Plaintiff and Leslee

21

Sports had knowledge of that fact.

Although

It is possible that the

What Plaintiff or Leslee Sports

22
23
24
25
26
27
28

2

For the same reasons, CDPH can state a claim for trespass to
chattels, which under California law requires a similar showing of
a right to possession, but deals with “interferences with
possession of personal property not sufficiently important to be
classed as conversion.” Intel Corp. v. Hamidi, 30 Cal. 4th 1342,
1350 (2003).
3

For example, CDPH plausibly alleges that Stephen Guarino was
the owner of both GPI and Amerinova, that CDPH entered into a valid
storage contract with Amerinova, and that after that contract
expired GPI sent back-dated invoices in an attempt to claim that
it, too, should receive a storage fee. (CC-TPC, ¶¶ 12-14.)
11

1

understood about the claim they were buying is therefore a factual

2

matter best dealt with at a later stage in the litigation.

3

For all the above reasons, the Court concludes that it is not

4

futile for CDPH to add the proposed counterclaims.

5

B.

6

Joinder of Parties
CDHP is attempting to join Leslee Sports as a defendant in its

7

counterclaim against OSJ.

Plaintiff does not argue that CDPH

8

cannot meet the requirements of permissive joinder of parties.

9

Briefly, to add a party under the permissive joinder rule, the

10

claim involving the new party must “relat[e] to or aris[e] out of

11

the same transaction or occurrence or series of transactions or

12

occurrences,” and some “question of law or fact common to all
defendants” must arise.

Fed. Rules of Civ. Proc. 20(a)(2).

13
CDPH alleges that both OSJ and Leslee Sports wrongfully
14
acquired possession and ownership of the respirator masks in 2012
15
through a series of transactions between Guarino and companies
16
controlled by him.

(CC-TPC generally.)

Specifically, it is

17
alleged that Leslee Sports entered into negotiations with Guarino
18
to purchase Global Protection’s interest in the respirator masks.
19
(Id. at ¶ 26.)

Thereafter, Leslee Sports purportedly purchased

20
Global Protection’s storage claims from Rhino Pets and
21
subsequently, sold the storage claims to OSJ.

(Id. at ¶¶ 28-29.)

22
CDPH further alleges OSJ and Leslee Sports conspired to conceal
23
their transactions from CDPH.

(Id. at ¶ 30.)

Thus, the claims

24
against Leslee Sports arise out of the same set of transactions or
25
occurrences as the claims against OSJ.
26
Because OSJ acquired its putative interest in the masks from
27
Leslee Sports, the claims against Leslee Sports share several
28
12

1

common questions of fact with the claims against OSJ, including

2

whether Leslee Sports knew or had reason to know that the masks

3

belonged to CDPH; whether GPI, Global Safety, or Stephen Guarino

4

misled Leslee Sports; and whether Leslee Sports and OSJ conspired

5

to conceal their transactions from CDPH.

6

concludes that the second requirement for joinder under Rule 20(a)

7

is also met.

8
9
10
11
12

Therefore, the Court

CDPH has properly satisfied the requirements of permissive
joinder of defendants under Rule 20(a).
IV.

Conclusion
The Court GRANTS Defendant CDHP’s Motion for Leave of the

Court to File its Counterclaims and Third Party Complaint.

13
14

IT IS SO ORDERED.

15
16
17

Dated: March 25, 2015

18

DEAN D. PREGERSON

19

United States District Judge

20
21
22
23
24
25
26
27
28
13