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).

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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

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