De Souza v. Pulte Home Corporation, et al.

Filing 74

ORDER signed by Senior Judge Lawrence K. Karlton on 2/5/09 ORDERING the plaintiff's motion 67 for leave to file a third amended complaint is GRANTED. Plaintiffs SHALL file and serve a third amended complaint not later than five (5) days from the date of this order. Motion terminated. (Becknal, R)

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1 2 3 4 5 6 7 8 9 10 11 12 Plaintiff, 13 v. 14 15 16 17 18 19 20 21 22 23 24 25 26 PULTE HOME CORPORATION, DEL WEBB HOMES; PULTE MORTGAGE; DEL WEBB HOME FINANCE; DEL WEBB MORTGAGE CORPORATION; and DOES 1-1,000, inclusive, Defendants. / Plaintiff is a homeowner who has sued defendants Pulte Home Corporation, Pulte Homes, Inc., Del Webb Homes, Del Webb California Corp., and Marquette Title Insurance Co., alleging various unlawful conduct surrounding the sale of the home. Plaintiff asserts his causes of action on behalf of himself and a putative class. Pending before the court is plaintiffs' motion to file a Third Amended Complaint, in order to substitute the class representatives. For 1 ORDER JOSEPH A. DE SOUZA, individually and on behalf of all others similarly situated, NO. CIV. S-08-337 LKK/GGH UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF CALIFORNIA 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 the reasons stated herein, the court grants the motion. I. BACKGROUND The allegations of the complaint were described in detail in the court's October 9, 2008 order. Briefly, plaintiff alleges that he and the putative class members purchased homes from Pulte Home Corporation, Pulte Homes, Inc., Del Webb Homes, Del Webb California Corp. ("Builder Defendants") and purchased title insurance through a third party not named as a defendant here. The title insurance was reinsured through Marquette Title Insurance Company ("Marquette"). The crux of plaintiff's complaint is that the Builder Defendants had an unlawful fee splitting arrangement with Marquette and that they did not disclose this arrangement to home buyers. In the First Amended Complaint, plaintiff alleged six causes of action: violation of RESPA, breach of contract, negligence, fraudulent concealment, unjust enrichment, and unfair business practices Code in violation et of California seeking Business and and Professions 17200 seq., injunctive declaratory relief and damages. On February 13, 2008, the case was removed to this court. Plaintiff filed a First Amended Complaint on May 15, 2008. Plaintiff DeSouza was the sole named plaintiff in that complaint. On June 17, 2008, defendants moved to dismiss and stay pending arbitration. The court resolved both motions by order dated October 9, 2008. In that order, the court concluded that the arbitration agreement included in the plaintiff's 2 purchase contract was 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 enforceable under the Federal Arbitration Act and that it applied to all of plaintiff's claims except his prayer for injunctive relief. Nevertheless, because the complaint was pled as a class action, dismissal in favor of arbitration was not yet appropriate. The court concluded that it was necessary to resolve class certification issues before ordering arbitration. Doing so would allow "the court to determine whose claims are subject to arbitration under the FAA and whether any differences in the class members' arbitration Order, agreements 9, 2008 warrant at 18 certification (internal of subclasses." Oct. citations omitted). Once the court resolved a class certification motion, "the court may then determine who must be compelled to participate in arbitration, including whether there may be a subclass whose disputes do not require arbitration." Id. Moreover, it was not clear to the court whether DeSouza could act as a class representative, due to apparent statute of limitations bars on some of the causes of action, which further convinced the court that resolution of class certification should proceed before ordering arbitration.1 On October 14, 2008, the court held a scheduling conference. At that time, the court instructed plaintiffs to bring a motion for class certification by March 1, 2009. This was reiterated in an On defendants' motion to dismiss under Rule 12(b)(6), the court held that the arbitrator would be responsible for resolving the issues raised in that motion, except for the claim for injunctive relief. On that claim, the court held the plaintiff had not pled with adequate detail and granted defendants' motion, with leave to amend. 3 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 order issued on October 20, 2009. On November 7, 2008, plaintiff filed a Second Amended Complaint. DeSouza was named as the sole named plaintiff on this complaint. On December 15, 2008, the parties filed a stipulation to extend defendants' time to answer pending resolution of the instant motion. The court granted this and extended the deadline for plaintiffs to file a class certification motion to June 1, 2009. II. STANDARD The Federal Rules provide that leave to amend pleadings shall be freely given when justice so requires.2 Fed. R. Civ. P. 15(a). Although the standard becomes progressively more stringent as the litigation proceeds, the Circuit has explained that the same four factors are pertinent to resolution of a motion to amend: (1) the degree of prejudice or surprise to the non-moving party if the order is modified; (2) the ability of the non-moving party to cure any prejudice; (3) the impact of the modification on the orderly and efficient conduct of the case; and (4) any degree of willfulness or bad faith on the part of the party seeking the modification. See Byrd, 137 F.3d at 1132 (citing United States v. First Nat'l Bank of Circle, 652 F.2d 882, 887 (9th Cir. 1981)). The burden is on the moving party to show that consideration of these factors warrants amendment, see id., but "all inferences [should Defendants' argument that plaintiffs' action should be dismissed under Rule 41 rather than amended under Rule 15 holds no force. It is proper to substitute named plaintiffs via a Rule 15 motion. See Griggs, 170 F.3d at 879; Hernandez v. Balakian, 251 F.R.D. 488 (E.D. Cal. 2008) (Wagner, J.). 4 2 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 be drawn] in favor of granting the motion." Griggs v. Pace American Group, Inc., 170 F.3d 877, 881 (9th Cir. 1999). Prejudice to the opposing party is the most important factor to consider in determining whether a party should be granted leave to amend. See Jackson v. Bank of Hawaii, 902 F.2d 1385, 1387 (9th Cir. 1990)(citing Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 320, 330-31 (1971)). While delay alone is insufficient to deny amendment, undue delay is a factor to be considered. See Morongo Band of Mission Indians v. Rose, 893 F.2d 1074, 1079 (9th Cir. 1990)(affirming district court's denial of motion for leave to amend to add new claims made two years into litigation). Amendment may also be denied when it is futile. See Kiser v. General Electric Corp., 831 F.2d 423, 428 (3d Cir. 1987), cert. denied, 485 U.S. 906 (1988). The test for futility is identical to the one used when considering the sufficiency of a pleading challenged under Rule 12(b)(6). Miller v. Rykoff-Sexton, Inc., 845 F.2d 209, 214 (9th Cir. 1988)(citing Baker v. Pacific Far East Lines, Inc., 451 F. Supp. 84, 89 (N.D. Cal. 1978)). Accordingly, a proposed amendment is futile only if no set of facts can be proved under the amendment to the pleading that would constitute a valid and sufficient claim or defense. III. ANALYSIS Plaintiffs seek leave to amend the complaint in order to substitute four new named class representatives for DeSouza. Defendants oppose on the grounds that it is prejudicial and an undue delay. The court grants the motion. 5 Id. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 As stated above, amendments should be liberally granted. Fed. R. Civ. P. 15; Griggs, 170 F.3d at 881. The court is guided by four factors: whether the amendment is in bad faith, whether the amendment would cause undue delay to the resolution of the case, prejudice to the opposing party, and whether the amendment would be futile. Id. Here, there is no evidence of bad faith by the plaintiff in bringing this motion. Evidence has been tendered that DeSouza is no longer able to act as class representative for personal reasons and that this motion was filed promptly upon plaintiff counsel's discovery of that fact. Declaration of Paul Stevens In Support of Plaintiffs' Motion For Leave to File A Third Amended Complaint ("Stevens Decl.") 2. Defendants' contention that DeSouza should tender a declaration "explaining what the supposed changed circumstances are, including when he became aware of the circumstances that prevented him from continuing to serve as class representative in this action," is grounded in no authority and appears contrary to the liberal amendment principle set forth in Rule 15 and applied by the courts. See, e.g., First Nat'l Bank of Circle, 652 F.2d at 887; Griggs, 170 F.3d at 881. Defendants also offer no evidentiary support to their contention that plaintiffs knew of the need to amend in February 2008. See Opp'n. at 7. Next, the amendment would appear not to cause undue delay to the resolution of the case. The case is in its early stages and discovery has only recently begun. See Griggs, 170 F.3d at 881 (amendment two years after filing of case was not undue delay); 6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Lockheed Martin Corp. v. Network Solutions, Inc., 194 F.3d 980 (9th Cir. 1999) (whether the amendment would require reopening discovery is relevant to the Rule 15 analysis). Plaintiff has indicated that he would serve responses to outstanding discovery directed at DeSouza on behalf of the new named plaintiffs within fifteen days of the date of this order, in order to facilitate timely discovery. Mot. at 5. Given that the deadline to file a class certification motion has been extended to June 2009, amendment of the pleadings at this stage is timely and would not serve to unduly delay the case. Next, the amendment would not unfairly prejudice the defendants. Defendants inaccurately argue that amendment of the pleading is an unfair circumvention of the court's order that the RESPA claim "was barred" and that it would "add a new RESPA claim." See Opp'n. at 1, 5. In fact, the court did not dismiss DeSouza's RESPA claim in its October 9, 2008 order, but questioned whether DeSouza could be an appropriate class representative given that his RESPA claim seemed barred by the statute of limitations. The lack of clarity on this issue was one of the reasons the court ordered plaintiffs to bring a class certification motion. The instant amendment, therefore, would create no additional burden on defendants because the timeliness of the RESPA claims of any of the named plaintiffs, DeSouza or others, has yet to have been resolved by the court. Moreover, defendants erroneously contend that the amendment attempts to circumvent the court's order to arbitrate. As described 7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 above, the court has not ordered the case to arbitration but rather ordered that the class certification issues be resolved prior to arbitration. See Order, Oct. 9, 2008. Amendment of the pleadings to substitute named plaintiffs is an appropriate step for plaintiffs to take before moving for class certification, if plaintiffs believe DeSouza would be an improper class representative. Additionally, the court observed that prior to ordering arbitration, the court would need to determine whether there were claims by subclasses that would not be arbitrable. This necessarily would involve some of the same inquiry that defendants now decry in substituting the named plaintiffs. Finally, there is no evidence to indicate that amendment would be futile. Defendants have not persuaded the court that the proposed named plaintiffs do not have valid RESPA claims. The fact that DeSouza's RESPA claim may be time-barred does not preclude an amendment of the pleadings. On the contrary, if the new named plaintiffs have RESPA claims that are not time barred, this militates in favor of granting the amendment so as to permit resolution of the claims on their merits. See, e.g., Griggs, 170 F.3d at 879 (allowing amendment to substitute the named plaintiffs because the named plaintiff's causes of action were barred); Hernandez, 251 F.R.D. at 489-90 (ordering plaintiff's counsel to substitute new named plaintiffs, when original named plaintiff could no longer serve as class representative). IV. CONCLUSION For the reasons stated herein, the plaintiff's motion for 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 leave to file a third amended complaint is GRANTED. Plaintiffs SHALL file and serve a third amended complaint not later than five (5) days from the date of this order. IT IS SO ORDERED. DATED: February 5, 2009. 9

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