Federal Deposit Insurance Company v. Ching et al

Filing 146

ORDER signed by District Judge Kimberly J. Mueller on 05/03/16 ORDERING that 135 the Motion for Leave to file an Amended Answer is DENIED. (Benson, A)

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UNITED STATES DISTRICT COURT

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FOR THE EASTERN DISTRICT OF CALIFORNIA

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FEDERAL DEPOSIT INSURANCE
CORPORATION AS RECEIVER FOR
BUTTE COMMUNITY BANK,

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Plaintiff,

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No. 2:13-cv-01710-KJM-EFB

ORDER

v.
ROBERT CHING, et al.,

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Defendant.

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The defendants, several former officers and directors of Butte Community Bank

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(the Bank), move to amend their answer to the complaint. The plaintiff, the Federal Deposit

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Insurance Corporation (FDIC), acting as receiver for the Bank, opposes the motion. After

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reviewing the parties’ briefing, the court found the matter appropriate to resolve without a

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hearing. The motion is denied.

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I.

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BACKGROUND
The FDIC claims the defendant directors transferred several million dollars from

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the Bank to its corporate parent, and then to themselves. See generally Compl., ECF No. 1.

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These payments allegedly triggered the Bank’s failure. See id. ¶¶ 2, 69. The FDIC’s complaint

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was filed in this court in August 2013. It alleged four claims: negligence, gross negligence under
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12 U.S.C. § 1821(k), gross negligence under California Corporations Code section 309, and

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breach of fiduciary duties. See generally id. The directors answered and asserted several

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affirmative defenses: failure to state a claim, estoppel, waiver, laches, unclean hands, the statute

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of limitations, accord and satisfaction, release, failure to mitigate damages, the FDIC’s lack of

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legal capacity, contributory or comparative negligence, offset, preemption, supervening

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causation, unjust enrichment, the business judgment rule, and compliance with all requirements

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the law imposes. Answer 9–11, ECF No. 7.

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The court held a status (pretrial scheduling) conference in January 2014. Minutes,
ECF No. 12. In February 2014, the court issued a scheduling order, which provided that all

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discovery was to be completed by January 12, 2015, ECF No. 13; this date was later extended to

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September 11, 2015 by the parties’ stipulation, see Minute Order, ECF Nos. 42, 74, and in

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October of last year, the court granted the FDIC’s ex parte application for a limited extension of

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the discovery deadline, Order Oct. 2, 2015, ECF No. 105. The scheduling order provided that no

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amendments to the pleadings were anticipated and that amendments would not be permitted

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except with the court’s permission after a showing of good cause. See Sched. Order at 2 (citing

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Fed. R. Civ. P. 16(b) and Johnson v. Mammoth Recreations, Inc., 975 F.2d 604 (9th Cir. 1992)).

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Soon after the scheduling order was issued, the directors moved for summary

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judgment, arguing in broad strokes that the FDIC’s claims were preempted by statute. ECF

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No. 19. The court granted summary judgment on two of the FDIC’s claims—common law

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negligence and breach of fiduciary duties—finding these claims were preempted by California

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Corporations Code section 309, which had essentially codified the FDIC’s preexisting common

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law claims. ECF No. 40. The directors again moved for summary judgment in February 2015,

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arguing as in their previous motion that the FDIC could not pursue its claims in light of a more

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specific statutory regime. ECF No. 45. This motion was denied, ECF No. 86, as was the

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directors’ motion for reconsideration, ECF No. 117.

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In February of this year, the FDIC moved for summary judgment on all of the

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directors’ affirmative defenses but one, under the business judgment rule. ECF No. 124. That

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motion was briefed, argued, and submitted by late February 2016. Minutes, ECF No. 135. It
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remains pending with an order to issue soon. A final pretrial conference is set for May 18, 2016,

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and a jury trial currently scheduled for June 20, 2016.

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The directors’ current motion for leave to amend their answer was filed on March

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25, 2016. ECF No. 135. They request leave to add one additional affirmative defense: “The

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FDIC-R’s claims are barred on the grounds, and to the extent, that the Articles of Incorporation of

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Butte Community Bank eliminate or limit the liability of the Defendants for monetary damages.”

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See Mot. Am. Answer Ex. 1, at 11, ECF No. 135. The FDIC opposed the motion, ECF No. 137,

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and the directors replied, ECF No. 138.

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II.

LEGAL STANDARD

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As an initial matter, the directors’ motion can only be considered if the scheduling

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order is first modified. See Status (Pretrial Scheduling) Order 2, ECF No. 13 (“No further joinder

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of parties or amendments to the pleadings is permitted without leave of court, good cause having

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been shown.” (citing Johnson, 975 F.2d at 609)). The court disagrees with the directors that the

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word “pleadings” excludes their answer. See, e.g., Fed. R. Civ. P. 7(a)(2) (“Only these pleadings

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are allowed: . . . an answer to a complaint . . . .”); Black’s Law Dictionary 1270 (9th ed. 2009)

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(“In federal civil procedure, the main pleadings are the plaintiff’s complaint and the defendant’s

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answer.”). The court therefore interprets their motion as an implicit request to both modify the

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court’s scheduling order and for leave to amend their answer. See, e.g., Johnson, 975 F.2d at

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608–09; Lara v. Sutter Davis Hosp., No. 12–2407, 2014 WL 28817, at *1 n.1 (E.D. Cal. Jan. 2,

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2014).

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Under Federal Rule of Civil Procedure 16, a pretrial scheduling order may be

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modified if a party, despite its diligence, cannot reasonably be expected to meet the order’s

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deadlines. Johnson, 975 F.2d at 609. When a party requests changes to the scheduling order, the

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court’s inquiry focuses on that party’s honest attempt to comply; she must demonstrate her

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“diligence.” See, e.g., id.; Jackson v. Laureate, Inc., 186 F.R.D. 605, 607–08 (E.D. Cal. 1999).

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Motions are more often granted when the opposing party’s actions caused delay or when the need

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to amend arises from some unexpected or outside source. See, e.g., Hood v. Hartford Life and

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Acc. Ins. Co., 567 F. Supp. 2d 1221, 1225–26 (E.D. Cal. 2008). Prejudice to another party may
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reinforce a decision to deny a motion, but whether a scheduling order will be amended “primarily

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considers the diligence of the party seeking the amendment.” Johnson, 975 F.3d at 609. The

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court’s decision is one of discretion. Id. at 607.

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III.

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DISCUSSION
Here, the directors waited more than two years to assert an affirmative defense

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based on the Bank’s articles of incorporation. Their original answer was filed in November 2013.

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The discovery cut-off date and the deadline for the hearing of dispositive motions have passed,

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and a trial is set to begin in a few months.

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The directors explain their delay by first noting their understanding that an

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affirmative defense based on the Bank’s articles of incorporation could apply only to a simple

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negligence claim. Mot. Am. Answer at 8. They point out that after the court granted their

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original motion for summary judgment in part, only two claims remained: the second and the

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fourth, both for “gross negligence.” See Order July 8, 2014, at 10 (granting summary judgment

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on claims one and four, negligence and breach of fiduciary duties). The directors also cite

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confusion and negotiation between the FDIC and themselves concerning the effect of the court’s

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previous orders and whether a simple negligence claim had survived summary judgment. See

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Mot. Am. Answer at 4–5; Hughes Decl. ¶¶ 8–19, ECF No. 135-1.

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The FDIC’s original complaint included a claim for simple negligence, and the

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directors’ original answer responded to that complaint, not the FDIC’s post-summary-judgment

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complaint. The directors claim they were unaware at the time that the Bank’s articles of

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incorporation included provisions limiting their liability. See Reply at 4–5. They explain that the

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articles of incorporation were filed more than twenty years before this lawsuit began, and given

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their lack of legal training, their ignorance should be excusable. See id. They also note that when

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the FDIC closed the Bank in 2010, it seized all the Bank’s files. Id.

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If anyone, a corporation’s officers and directors may be expected to have

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familiarity with the articles of incorporation, even articles adopted some time ago. Here, the

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articles are only two pages long, and the passage in question is printed clearly on the first page in

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ordinary-sized text. See Hughes Decl. Ex. A, at 2–3, ECF No. 135-1. It is written in relatively
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simple language. See id. at 1 (“The liability of the directors of the corporation for monetary

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damages shall be eliminated to the fullest extent permissible under California law.”).

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Moreover, the directors have been represented by counsel including at the time

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they filed their answer. Counsel may reasonably be expected to have sought out and obtained

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copies of the articles of incorporation much earlier in this case. Because the Bank is a California

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corporation, see Compl. ¶ 21; Answer ¶ 12, its articles of incorporation are public records

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maintained by the California Secretary of State. The public-record content of a corporation’s

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articles of incorporation is so indisputable as to be subject to judicial notice. See, e.g., Rhodes v.

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Sutter Health, No. 12-0013, 2012 WL 662462, at *3 (E.D. Cal. Feb. 28, 2012).

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Because the directors have not shown they were unable to comply with the court’s

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scheduling order despite their diligence, their motion is denied. The court’s decision is bolstered

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by the late stage of this litigation.

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IV.

CONCLUSION

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The motion is DENIED. This order resolves ECF No. 135.

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IT IS SO ORDERED.

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DATED: May 3, 2016.

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UNITED STATES DISTRICT JUDGE

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