G.P.P., Inc. v. Guardian Protection Products, Inc.

Filing 66

ORDER GRANTING 57 Plaintiff's Motion to Amend and to Modify the Scheduling Order. Order signed by Magistrate Judge Sheila K. Oberto on 7/27/2016. (Timken, A)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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G.P.P., INC. dba GUARDIAN
INNOVATIVE SOLUTIONS,

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Case No. 1:15-cv-00321-SKO

Plaintiff,

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ORDER GRANTING PLAINTIFF’S
MOTION TO AMEND AND TO MODIFY
THE SCHEDULING ORDER

v.

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(Doc. 57)
GUARDIAN PROTECTION
PRODUCTS, INC.,

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Defendant.
_____________________________________/

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I.

INTRODUCTION

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On June 20, 2016, Plaintiff G.P.P. Inc., dba Guardian Innovative Solutions’ (“GIS”) filed

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20 its Motion for Leave to Amend the Complaint (the “Motion”), seeking to file a Second Amended
21 Complaint (“SAC”). (Doc. 57.) Defendant Guardian Protection Products, Inc. (“Guardian) filed
22 an opposition brief (Doc. 58), and GIS filed a reply brief on July 13, 2016. (Doc. 61.) The Court
23 reviewed the parties’ papers and all supporting material and found the matter suitable for decision
24 without oral argument pursuant to U.S. District Court for the Eastern District of California’s Local
25 Rule 230(g). The hearing set for July 20, 2016, was therefore VACATED. (Doc. 63.)
For the reasons set forth below, GIS’s Motion is GRANTED.1

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The parties consented to the jurisdiction of a U.S. Magistrate Judge for all purposes. (Docs. 11, 12.)

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II.

BACKGROUND

2 A.

Factual Background2

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GIS is family-run business that has purchased products from Guardian for nearly 30 years.

4 Guardian is a Delaware company with its principal place of business in North Carolina. Guardian
5 sells furniture and upholstery protection products, furniture warranties, and other related items to
6 distributors such as GIS, who in turn sell to retail chains and establishments. (Doc. 31, ¶¶ 1-2.) In
7 2000, Guardian was acquired by RPM International, Inc. (“RPM International”), a multi-national,
8 multi-billion dollar Fortune 300 company. (Doc. 31, ¶ 2.)
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In May 1988, GIS and Guardian entered into a written agreement whereby GIS acquired

10 exclusive distribution rights to Guardian’s products in certain counties in Pennsylvania (the
11 “Pennsylvania Agreement”). The Pennsylvania Agreement required GIS to make a minimum
12 initial purchase of $40,000 of Guardian’s products. So long as GIS made purchases that were in a
13 sum sufficient to meet an annual purchase agreement, the Pennsylvania Agreement automatically
14 renewed on an annual basis. (Doc. 31, ¶ 5.)
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GIS and Guardian subsequently entered into other agreements whereby GIS acquired

16 exclusive distribution rights to Guardian’s products in Maryland, Washington, D.C., certain
17 remaining counties in Pennsylvania, specified counties in Western New York (collectively the
18 “Mid-Atlantic Agreement”), and Ohio (the “Ohio Agreement”). The Mid-Atlantic Agreement
19 required GIS to purchase $75,000 of Guardian’s products as consideration for the exclusive
20 distribution rights, and, so long as GIS met a minimum annual purchase requirement, the Mid21 Atlantic Agreement automatically renewed annually. The Ohio Agreement required GIS to make
22 an initial purchase of $20,000 of Guardian’s products and to pay an additional $20,000 fee.
23 Provided that GIS made purchases in a sum sufficient to meet an annual purchase requirement, the
24 Ohio Agreement automatically renewed on an annual basis. (Doc. 31, ¶¶ 6-7.)
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In 2007, pursuant to a written assignment of three other written agreements originally

26 entered into between Guardian and another company, GIS obtained exclusive distribution rights to
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The factual background summarizes GIS’s allegations as set forth in the First Amended Complaint (“FAC”), which
is currently the operative pleading. (Doc. 31.)

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1 Guardian’s products in Illinois (the “Cook County Agreement”); Indiana (the “Indiana
2 Agreement”); and Iowa and certain counties in Eastern Missouri (the “Midwest Agreement”). So
3 long as GIS met minimum annual purchase requirements under each of these agreements, they
4 each automatically renewed on an annual basis. (Doc. 31, ¶ 8.)
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In March 2010, pursuant to three additional written assignments originally entered into

6 between Guardian and another company, GIS acquired exclusive distribution rights to Guardian’s
7 products in Alabama (the “Alabama Agreement); Florida (the “Florida Agreement”), and
8 Tennessee (the “Tennessee Agreement”) (collectively, these nine agreements will be referred to as
9 the “Distributor Agreements.”). To obtain the assignment of the Alabama, Florida, and Tennessee
10 Agreements, GIS paid $50,000 to the company who had originally entered into these Distributor
11 Agreements with Guardian. (Doc. 31, ¶ 9.)
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GIS alleges that each of these Distributor Agreements constitutes a franchise. (Doc. 31, ¶¶

13 28-31.) GIS maintains that at no time before offering a “franchise” in connection with each of
14 these Distributor Agreements did Guardian ever provide GIS with a Uniform Franchise Offering
15 Circular or Franchise Disclosure Document in accordance with the Federal Trade Commission
16 (“FTC”) Franchise Rule, 16 C.F.R., pt. 436. (Doc. 31, ¶ 32.) GIS also alleges that Guardian
17 failed to register its franchise offering in accordance with the franchise disclosure and registration
18 laws of California, Maryland, New York, Indiana, and Illinois. (Doc. 31, ¶¶ 33-34.)
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Beyond franchise disclosure violations, GIS alleges that Guardian began to engage in a

20 series of wrongful acts, including refusal to pay commission due GIS; improperly purporting to
21 terminate the Alabama, Florida, and Tennessee Agreements; and making actual and implicit
22 threats to terminate the existing Distributor Agreements unless GIS entered into a new agreement
23 (the “2015 Agreement”) that contains much less advantageous terms and conditions to GIS than
24 the existing Distributor Agreements. (Doc. 31, ¶¶ 12, 16-27.) Moreover, GIS claims the 2015
25 Agreement constitutes a franchise itself within the meaning of federal and state law, but Guardian
26 failed to provide the required disclosures and, where applicable, state registration of its franchise
27 offering. (Doc. 31, ¶¶ 35-37.)
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Additionally, GIS alleges it discovered in 2010 that Guardian was violating the Distributor

2 Agreements by directly selling products in GIS’s exclusive territory to retail locations associated
3 with Bob’s Discount Furniture. (Doc. 31, ¶¶ 13-15.) To resolve this, GIS and Guardian agreed
4 that Guardian would pay GIS a 5% commission on all sales of Guardian’s products made to Bob’s
5 Discount Furniture retail locations in GIS’s Exclusive Territory for the duration of such sales (the
6 “Bob’s Discount Furniture Agreement”). Guardian made payments under this agreement until
7 November 2014. In December 2014, however, Guardian stopped paying GIS the 5% commission.
8 B.

Procedural Background

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GIS filed its original complaint on February 27, 2015, alleging breach of contract, breach

10 of the implied covenants of good faith and fair dealing, declaratory judgment that termination of
11 certain of the Distributor Agreements violates certain state laws, negligence per se, and violation
12 of the North Carolina Unfair and Deceptive Trade Practices Act (UDTPA). (Doc. 1.) Guardian
13 moved to dismiss GIS’s complaint on April 23, 2015. (Doc. 16.) On June 30, 2015, the Court
14 granted in part, and denied in part, Guardian’s motion to dismiss on June 30, 2015. (Doc. 30.)
15 Specifically, the Court dismissed without prejudice, and with leave to amend, GIS’s claim for
16 declaratory judgment that termination of certain of the Distributor Agreements violated Iowa law,
17 and dismissed with prejudice GIS’s negligence per se and North Carolina UDPTA causes of
18 action. (See Doc. 30.)
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GIS’s First Amended Complaint (“FAC”), which is currently the operative pleading,

20 alleges the following causes of action: (1) breach of the Alabama, Florida, and Tennessee
21 Agreements; (2) breach of the implied covenants of good faith and fair dealing in the Alabama,
22 Florida, and Tennessee Agreements; (3) breach of the Bob’s Discount Furniture Agreement; (4)
23 breach of the implied covenant of good faith and fair dealing in the Bob’s Discount Furniture
24 Agreement; (5) declaratory judgment that termination of the Cook County Agreement would
25 violate the Illinois Franchise Disclosure Act; (6) violation of California Business and Professions
26 Code § 17200, et seq.; (7) violation of the California Franchise Investment Law, Cal. Bus. & Prof.
27 Code § 31000, et seq.; and (8) breach of the implied covenant of good faith and fair dealing in the
28 Pennsylvania, Mid-Atlantic, Cook County, Indiana, and Midwest Agreements. (Doc. 31.) On
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1 July 31, 2015, Guardian filed its answer summarily denying the allegations of the FAC, as well as
2 a counterclaim against GIS for declaratory relief, breach of certain of the Distributor Agreements,
3 breach of the implied covenants of good faith and fair dealing in certain of the Distributor
4 Agreements, and breach of California Commercial Code § 2306. (Docs. 35, 36.)
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III.

DISCUSSION

The parties participated in a scheduling conference with the Court on August 25, 2015.

7 (Doc. 41.) The Court issued a scheduling order on August 26, 2015, which provides that “[a]ny
8 motions or stipulations requesting leave to amend the pleadings must be filed by no later than June
9 20, 2016.” (Doc. 42, 2:15-16.) The parties were advised that “[a]ll proposed amendments must
10 (A) be supported by good cause pursuant to Fed. R. Civ. P. 16(b) if the amendment requires any
11 modification to the existing schedule . . . and (B) establish, under Fed. R. Civ. P. 15(a), that such
12 an amendment is not (1) prejudicial to the opposing party, (2) the product of undue delay, (3)
13 proposed in bad faith, or (4) futile.” (Doc. 19, 2:18-23) (citations omitted).)
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On June 3, 2016, the Court entered a “Joint Stipulation re: Extending Fact Witness

15 Discovery Deadline for the Taking of Agreed Upon Fact Witness Depositions and Extending
16 Expert Disclosure Deadlines” (the “Stipulation”), which extended the non-expert discovery
17 deadline from May 18, 2016, to June 30, 2016, for the limited purpose of taking the following
18 party depositions:
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(1) Charles Gibson, Sr.;

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(2) Debbie Gibson;

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(3) Frank Gibson;

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(4) Christopher Nolan;

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(5) Christopher Taylor;

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(6) Darrin Lease; and

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(7) the second FRCP 30(b)(6) deposition of Guardian, based on the deposition notice
served on April 26, 2016.

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(Doc. 52.) The Stipulation states that the reason the parties were unable to complete these
depositions was “due to scheduling conflicts and the travel required for all of these depositions as

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1 well as the additional time needed to complete document production and review . . . .” (See Doc.
2 52.) The Stipulation further provides:
Nothing in this stipulation is intended as a waiver of either party’s right to seek
further modification of the Court’s August 25, 2015 Scheduling Order or to seek
any other relief from the Court, including with respect to any discovery disputes
between the parties.

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(Doc. 52.)

7 A.

There is Good Cause to Modify the Schedule Pursuant to Fed. R. Civ. P. 16.

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Federal Rule of Civil Procedure 16(b) provides that the district court must issue a

Legal Standard

10 scheduling order that limits the time to join other parties, amend the pleadings, complete
11 discovery, and file motions. Fed. R. Civ. P. 16(b)(1)-(3). Once in place, “[a] schedule may be
12 modified only for good cause and with the judge’s consent.” Fed. R. Civ. P. 16(b)(4). The “good
13 cause” requirement of Rule 16 primarily considers the diligence of the party seeking the
14 amendment. Johnson v. Mammoth Recreations, Inc., 975 F.2d 604, 609 (9th Cir.1992). “The
15 district court may modify the pretrial schedule if it cannot reasonably be met despite the diligence
16 of the party seeking the extension.” Id. (internal citation and quotation marks omitted).
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Good cause may be found to exist where the moving party shows, for example, that it (1)

18 diligently assisted the court in recommending and creating a workable scheduling order, see In re
19 San Juan Dupont Plaza Hotel Fire Litig., 111 F.3d 220, 228 (1st Cir. 1997), (2) is unable to
20 comply with the deadlines contained in the scheduling order due to issues not reasonably
21 foreseeable at the time of the scheduling order, see Johnson, 975 F.3d at 609, and (3) was diligent
22 in seeking an amendment once the party reasonably knew that it could not comply with the
23 scheduling order, see Eckert Cold Storage, Inc. v. Behl, 943 F. Supp. 1230, 1233 (E.D. Cal. 1996).
24 See Jackson v. Laureate, Inc., 186 F.R.D. 605, 608 (E.D. Cal. 1999). “If [the] party was not
25 diligent, the inquiry should end.” Johnson, 975 F.2d at 609. If the Court finds that there is good
26 cause to modify the schedule, the court then turns to Rule 15(a) to determine whether the
27 amendment sought should be granted.

Jackson, 186 F.R.D. at 607 (“As the Ninth Circuit

28 explained in [Johnson ], once the district court has filed a pretrial scheduling order pursuant to
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1 Rule 16 which establishes a timetable for amending pleadings, a motion seeking to amend
2 pleadings is governed first by Rule 16(b), and only secondarily by Rule 15(a).”).
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2.

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Pursuant to the scheduling order in this action (Doc. 42), the “schedule may be modified

Analysis

5 only for good cause and with the judge’s consent.” Fed. R. Civ. P. 16(b)(4). Whether good cause
6 exists to modify a scheduling order rests on whether the party seeking the modification has been
7 diligent. See Johnson, 975 F.2d at 609. Here, GIS’s Motion was filed within the time constraints
8 set forth by the Court in the scheduling order. (See Doc. 42.) GIS seeks to amend its complaint to
9 add (1) a claim for breach of the Mid-Atlantic Agreement based on Guardian’s alleged sale of its
10 furniture protection plans to third-party reseller RenComGroup, LLC d/b/a Renaissance
11 (“Renaissance”); (2) Guardian’s corporate parent, RPM Wood Finishes Group, Inc. (“RPM”) as a
12 party to all of GIS’s claims against Guardian, based on an alter ego theory; and (3) a claim against
13 RPM for alleged tortious interference with the Distributor Agreements.

(Doc. 57-1.)

GIS

14 contends that new facts learned during discovery in May 2016 warrant these amendments to the
15 FAC, and that, as a result, the scheduling order should be modified to permit Guardian and RPM
16 to file responsive pleadings and the parties to engage in additional discovery.
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With respect to Guardian’s relationship with Renaissance, GIS asserts that “[i]n or around

18 May 2016,” it learned for the first time that Renaissance has been reselling Guardian’s furniture
19 protection plans to its customers by offering customers to ability to sell Guardian plans through
20 ecommerce websites developed by Renaissance. (Declaration of Dylan J. Liddiard (“Liddiard
21 Decl.”), Doc. 57-2, ¶ 5.) GIS argues that Guardian’s breach of the Mid-Atlantic Agreement was
22 confirmed on May 25, 2016, when Guardian’s Vice President of Operations Christopher Taylor
23 testified during his deposition that Guardian sells its warranties to Renaissance in Pennsylvania,
24 and that Renaissance then resells Guardian’s warranties to its own customers. (Doc. 57-1, 3:2625 4:9; Liddiard Decl., Doc. 57-2, ¶ 6.) Regarding RPM’s role in the dispute, GIS contends that it
26 did not learn of facts sufficient to claim that Guardian and RPM are alter egos, or that RPM
27 directed Guardian to terminate several of the Distributor Agreements, until May 12, 2016, when
28 GIS deposed Guardian’s and RPM’s president Ronnie Holman. (Doc. 57-1, 4:12-5:13; Liddiard
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1 Decl., 57-2, ¶ 7.)
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Guardian does not dispute GIS’s characterization of Mr. Holman’s May 12, 2016,

3 testimony. Nor does Guardian dispute the May 25, 2016, testimony of Mr. Taylor. Instead,
4 Guardian points out, correctly, that GIS’s Motion does not specify the date on which it learned of
5 Guardian’s relationship with Renaissance. From this, Guardian asserts that GIS exhibited a lack
6 of diligence under Rule 16(b) because an exhibit from Mr. Taylor’s deposition demonstrates that
7 GIS knew of Guardian’s business relationship no later than May 23, 2016 (and knew of RPM’s
8 alleged involvement two weeks prior, on May 12), and yet GIS waited until June 20, 2016, to file
9 its Motion. (Doc. 58, 6:10-12, 7:5-6; )3
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In general, the focus of the diligence inquiry under Rule 16 is the time between the moving

11 party’s discovery of new facts and its asking leave of the court to file an amended pleading. See
12 Zivkovic v. S. Cal. Edison Corp., 302 F.3d 1080, 1087-88 (9th Cir. 2002). Assuming GIS first
13 learned of Guardian’s relationship with Renaissance as early as May 23, 2016, which is
14 undisputed, the Court finds that GIS was diligent in seeking to amend its complaint less than four
15 weeks of discovering all of the facts that form the basis for its amendments.

See, e.g., N.

16 California River Watch v. Ecodyne Corp., No. C 10-5105 MEJ, 2013 WL 146324, at *4 (N.D.
17 Cal. Jan. 14, 2013) (“Because River Watch sought to amend its pleading within a month after
18 receiving such information, there is no evidence of undue delay. This factor thus weighs in favor
19 of allowing leave to amend.”); Fru-Con Const. Corp. v. Sacramento Mun. Util. Dist., No. CIV.S20 05-583LKKGGH, 2006 WL 3733815, at *4 (E.D. Cal. Dec. 15, 2006) (finding that the defendant
21 “acted with reasonable diligence” in moving for leave to amend its counterclaim based on alter
22 ego liability “roughly two months” after learning new facts at the deposition, and collecting cases
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Guardian also takes issue with the fact that, during the intervening time between GIS’s learning the factual basis for
the amending the complaint and filing its Motion, GIS agreed to a partial extension of the non-fact discovery deadline
without notifying Guardian of its intention to seek to amend, and instead filed its Motion “only five and half hours
before the Scheduling Order’s deadline for filing a motion for leave to amend expired.” (Doc. 58, 2:10-11;
Declaration of Calvin Davis (“Davis Decl.”), Doc. 58-1, ¶ 3.) While the Court observes that this dispute might have
been avoided had GIS sought and obtained Guardian’s consent to the amendments, which would have been a more
efficient use of the parties’ time and resources, GIS was certainly under no legal obligation to do so. And, as set forth
above, GIS’s Motion was timely, as it was electronically filed prior to 11:59 p.m. PDT on June 20, 2016. See Fed. R.
Civ. P. 6(a)(4) (“Unless a different time is set by a statute, local rule, or court order, the ‘last day’ [of a court deadline]
ends: (A) for electronic filing, at midnight in the court’s time zone [.]”)

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1 where court granted leave to amend based on “new information revealed through discovery.”).
2 See generally Macias v. City of Clovis, No. 1:13-CV-01819-BAM, 2016 WL 1162637, at *4 (E.D.
3 Cal. Mar. 24, 2016) (“[D]iscovery of new evidence is often sufficient to satisfy the good cause
4 standard” under Rule 16(b).).
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Further, GIS has been diligent in seeking discovery generally. The scheduling order was

6 issued on August 26, 2015, and GIS began serving discovery on November 18, 2015. (See Doc.
7 49, p. 2.) Guardian responded to GIS’s November 2015 discovery requests in December 2015,
8 and the parties thereafter agreed to a protective order, which the Court entered on January 13,
9 2016.

(See Doc. 49, p. 2; Doc. 45.)

GIS took the deposition of Guardian’s corporate

10 representative in January 2016, and took additional depositions of Guardian’s witnesses in March
11 2016. (See Doc. 49.)

The parties jointly agreed that GIS would be permitted to take the

12 depositions of certain of Guardian’s current employees after the expiration of the non-expert
13 discovery deadline. (Doc. 52.) The need for the extension of the discovery deadline was not due
14 to any delay by GIS—indeed, Guardian stipulated that both it and GIS were “diligently working to
15 complete fact witness discovery within the May 18, 2016 deadline set by the Court in its August
16 25, 2015 Scheduling Order.” (Doc. 52, 1:22-27) (emphasis added.) Finally, in June 2016, GIS
17 invoked the Court’s informal discovery dispute procedure to resolve several discovery disputes
18 with Guardian, which has resulted in two telephonic conferences with the Court and eight (8)
19 written submissions by the parties, four of which made by GIS. (See Docs. 53-56.)
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In sum, due to newly discovered information that GIS timely assert warrants a

21 modification to the initial scheduling order, the Court finds good cause to modify the scheduling
22 order.
23 B.

GIS May Amend the Complaint Under Federal Rule of Civil Procedure 15(a)

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1.

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Federal Rule of Civil Procedure 15 provides that a party may amend its pleading only by

Legal Standard

26 leave of court or by written consent of the adverse party and that leave shall be freely given when
27 justice so requires. Fed. R. Civ. P. 15(a)(1)-(2). The Ninth Circuit has instructed that the policy
28 favoring amendments “is to be applied with extreme liberality.” Morongo Band of Mission
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1 Indians v. Rose, 893 F.2d 1074, 1079 (9th Cir.1990). The factors commonly considered to
2 determine the propriety of a motion for leave to amend are (1) bad faith, (2) undue delay, (3)
3 prejudice to the opposing party, and (4) futility of amendment. Foman v. Davis, 371 U.S. 178,
4 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962). The Ninth Circuit has held that it is the consideration of
5 prejudice to the opposing party that carries the greatest weight. Eminence Capital, LLC v. Aspeon,
6 Inc., 316 F.3d 1048, 1052 (9th Cir. 2003). Absent prejudice, or a strong showing of any of the
7 remaining Foman factors, a presumption in favor of granting leave to amend exists under Rule
8 15(a). Id. See also DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 187 (9th Cir. 1987) (In the
9 absence of prejudice or other negative factors, the party opposing the motion to amend has the
10 burden of showing why amendment should not be granted.). Further, undue delay alone is
11 insufficient to justify denial of a motion to amend. Bowles v. Reade, 198 F.3d 752, 758 (9th Cir.
12 1999). Finally, “liberality in granting leave to amend is not dependent on whether the amendment
13 will add causes of action or parties.” DCD Programs, 833 F.2d at 186. Contra Union Pac. R.R.
14 Co. v. Nev. Power Co., 950 F.2d 1429, 1432 (9th Cir. 1991) (“Amendments seeking to add claims
15 are to be granted more freely than amendments adding parties.”).
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2.

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As consideration of prejudice to the opposing party carries the greatest weight, the Court

The Proposed Amendments Are Not Prejudicial to Guardian

18 considers this factor first. Eminence Capital, LLC, 316 F.3d at 1052. Guardian asserts that it will
19 be prejudiced if GIS is allowed to amend because such amendment would necessitate the
20 reopening of discovery and delay the proceedings as a result, and “significantly increase
21 Guardian’s litigation expenses.”

(Doc. 58, 7:22-10:4; Declaration of Calvin Davis (“Davis

22 Decl.”), Doc. 58-1, ¶ 5.)
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GIS argues that Guardian “will not have to radically change its litigation strategy” in order

24 to defend the new claim against it, as it “arises out of the same Mid-Atlantic Agreement that has
25 been the subject of this litigation since it commenced.” (Doc. 57-1, 10:1-3.) GIS contends that
26 the addition of RPM will not prejudice Guardian, as “the addition of RPM as an alter ego of
27 Guardian will not change any of the issues in the litigation.” (Doc. 57-1, 10:10-12.)
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Ninth Circuit case law provides that prejudice may effectively be established by

2 demonstrating that a motion to amend was made after the cutoff date for such motions, or when
3 discovery had closed or was about to close. See, e.g., Zivkovic v. Southern Cal. Edison Co., 302
4 F.3d 1080, 1087 (9th Cir. 2002) (affirming denial of plaintiff’s motion for leave to amend where
5 proposed amendment would have added additional causes of action which would have required
6 further discovery and discovery was set to close five days after motion to amend was filed);
7 Lockheed Martin Corp. v. Network Solutions, Inc., 194 F.3d 980, 986 (9th Cir. 1999) (stating that
8 “[a] need to reopen discovery and therefore delay the proceedings supports a district court’s
9 finding of prejudice from a delayed motion to amend the complaint”); Solomon v. North Am. Life
10 & Cas. Ins. Co., 151 F.3d 1132, 1139 (9th Cir. 1998) (affirming the denial of leave to amend
11 where the motion was made “on the eve of the discovery deadline” and “[a]llowing the motion
12 would have required re-opening discovery, thus delaying the proceedings”).
13

Here, the Court is not persuaded that Guardian has demonstrated that it will suffer

14 substantial prejudice if GIS’s Motion were granted. See James ex rel. James Ambrose Johnson,
15 Jr., 1999 Trust v. UMG Recordings, Inc., No. C 11-1613 SI, 2012 U.S. Dist. LEXIS 146759, 2012
16 WL 4859069, at *2 (N.D. Cal. Oct. 11, 2012) (“If a court is to deny leave to amend on grounds of
17 undue prejudice, the prejudice must be substantial.”). Per the scheduling order, most of the fact
18 discovery in this matter closed on May 18, 2016 (Doc. 42), and the deadline was enlarged by
19 stipulated order to June 30, 2016, to permit GIS to take certain Guardian employees’ depositions
20 (Doc. 52.). GIS’s Motion was filed one month after the fact discovery cut off, before the
21 stipulated extended deadline of June 30, 2016, and before the expert discovery cut off of August
22 15, 2016.

(Docs. 42, 52.)

Although such a schedule might suggest that GIS’s proposed

23 amendments may be prejudicial to Guardian, any prejudice could be cured. GIS’s proposed
24 amendments do not significantly change the course of the litigation, nor do they expand the
25 breadth of GIS’s existing claims. Cf. Morongo, 883 F.2d at 1079 (affirming denial of amendment
26 to add RICO claims because “of the radical shift in direction posed by these claims, their tenuous
27 nature, and the inordinate delay”). To the contrary, the amendments reflect issues already at the
28 core of the case.
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1

The amendments, if allowed, would therefore not require Guardian to engage in substantial

2 additional discovery—such additional discovery would be very limited. Guardian does not offer
3 any specificity in terms of how much additional expense it would expect to incur in defending
4 GIS’s new claims, and, as such, has failed to establish that an (unspecified) increase in litigation
5 costs would be substantially prejudicial. See, e.g., Sako v. Wells Fargo Bank, Nat. Ass’n, No.
6 14CV1034-GPC JMA, 2015 WL 5022326, at *4 (S.D. Cal. Aug. 24, 2015) (refusing to find undue
7 prejudice on “summary arguments” where “neither party provide[d] any details as to what
8 discovery on breach of contract and breach of the covenant of good faith and fair dealing was
9 conducted or what additional discovery would be needed to address these proposed new claims.”).
10 Even if Guardian had provided such specificity, “[t]he fact that the amended counterclaim may
11 cause more work does not constitute prejudice. This is especially true in light of Rule 16(b)’s
12 ‘good cause’ standard which primarily considers the diligence of the party seeking the
13 amendment.” Fru-Con Const. Corp., 2006 WL 3733815, at *5. Given that GIS has met the
14 diligence standard discussed above, any considerations regarding the extra time and resources
15 required of Guardian are outweighed. See id.
To the extent that limited additional discovery may be required, however, “the need for

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17 additional discovery is insufficient by itself to deny a proposed amended pleading based on
18 prejudice.”4 Greenfield v. Am. W. Airlines, Inc., No. C03-05183 MHP, 2004 WL 2600135, at *4
19 (N.D. Cal. Nov. 16, 2004) (citing In re Circuit Breaker Litig., 175 F.R.D. 547, 551 (C.D. Cal.
20 1997). See also Newton v. Am. Debt Servs., Inc., No. C-11-3228 EMC, 2013 U.S. Dist. LEXIS
21 147152, 2013 WL 5592620, at *15 (N.D. Cal. Oct. 10, 2013) (additional discovery alone is not
22 sufficient prejudice). A brief extension of the discovery deadline could cure any prejudice were
23 the amendments allowed. See Macias v. City of Clovis, No. 1:13-CV-01819-BAM, 2016 WL
24 1162637, at *5 (E.D. Cal. Mar. 24, 2016) (“[P]rejudice to Defendants, if any, is eliminated by a
25 continuance of the discovery deadlines.”) (citing Lopez v. Comcast Cable Communs. Mgmt. LLC,
26 2016 U.S. Dist. LEXIS 5517 (N.D. Cal. Jan. 15, 2016) (court granted leave to amend where a
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This concept is embodied in the Court’s scheduling order, which set the deadline to file a motion requesting leave to
amend the pleadings (June 20, 2016) one month after the close of fact discovery (May 18, 2016). (See Doc. 42.)

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1 continuance of the discovery deadlines would eliminate possible prejudice to Defendant)). See
2 also B2B CFO Partners, LLC v. Kaufman, No. CV 09-2158-PHX-JAT, 2011 WL 2713887, at *7
3 (D. Ariz. July 13, 2011) (“Allowing the claim and reopening discovery could cause some
4 additional delay, but this delay and any prejudice can be managed by limiting the extension of
5 discovery, in terms of both scope and time.”) (citing Washington v. Brown, No. CIV S–06–1994
6 WBS DAD P., 2009 WL 160311, at *21 (E.D. Cal. Jan. 21, 2009)). As a modification of the
7 scheduling order is warranted, Guardian will have additional time to conduct any necessary
8 investigations or discovery required to adequately defend the suit.
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3.

The Proposed Claims Against Guardian and RPM are Not Futile

Although the validity of the proposed amendments is not typically considered by courts in

11 deciding whether to grant leave to amend, such leave may be denied if the proposed amendment is
12 futile or subject to dismissal. Saul v. United States, 928 F.2d 829, 843 (9th Cir. 1991). Guardian
13 has not argued that GIS’s proposed Second Amended Complaint (“SAC”) is futile, and this factor
14 does not weigh against permitting amendment.
15

4.

16

There is No Evidence GIS Seeks to Amend the Complaint in Bad Faith or
Unduly Delayed in Seeking Amendment

17

The Court finds no evidence that GIS is seeking to amend its complaint in a bad faith

18 attempt to unnecessarily protract the litigation, and Guardian does not argue the existence of bad
19 faith. This factor does not weigh against amendment. See DCD Programs, Ltd., 833 F.2d at 187
20 (“Since there is no evidence in the record which would indicate a wrongful motive, there is no
21 cause to uphold the denial of leave to amend on the basis of bad faith.”). In addition, as discussed
22 above, the Court finds that GIS’s request to amend the complaint is not the product of undue
23 delay. Cf. Kaplan v. Rose, 49 F. 3d 1363, 1370 (9th Cir. 1994) (giving greater weight to undue
24 delay factor where facts and theories sought to be added were known to moving party early in the
25 litigation).
26

On balance, the Court concludes that the factors weigh in favor of allowing GIS to file the

27 proposed amended complaint.
28
13

1

IV.

2

CONCLUSION AND ORDER

For the reasons set forth above, GIS’s Motion for Leave to Amend the Complaint is

3 GRANTED. Accordingly, it is HEREBY ORDERED that:
4

1.

GIS shall file an a Second Amended Complaint as proposed and attached to its

5

Motion for Leave to Amend the Complaint (Doc. 57-2) within 2 days from the date

6

of this order;

7

2.

8

Guardian shall file a response to the Second Amended Complaint within the time
permitted by the Federal Rules of Civil Procedure;

9

3.

Within 14 days from the date of this order, the parties shall file a supplemental

10

Joint Scheduling Report setting forth amended dates agreed to by all counsel as

11

follows:

12

a.

13

a firm cut-off date for non-expert discovery limited to GIS’s newly-added
claims and party;

14

b.

a firm cut-off date for disclosure of expert witnesses as required by Fed. R.

15

Civ. P. 26(a)(2), limited to only those experts relating to GIS’s newly-

16

added claims and party;

17

c.

18

a firm cut-off date for expert witness discovery limited to GIS’s newlyadded claims and party; and

19

d.

20

No other existing scheduling deadlines are subject to amendment, including

21

the pretrial conference and trial dates.

22

4.

23

filing non-dispositive and dispositive pre-trial motions;

A Scheduling Conference will be set upon receiving the parties’ Joint Scheduling
Report.

24
25

IT IS SO ORDERED.

26 Dated:
27

July 27, 2016

/s/

Sheila K. Oberto

UNITED STATES MAGISTRATE JUDGE

28
14

.