Kilgore et al v. Keybank, National Association et al

Filing 128

ORDER by Judge Thelton E. Henderson granting 120 Motion to Amend/Correct; Plaintiffs is required to E-FILE the amended document by Monday, December 21, 2009; granting 120 Motion for Leave to File.(tehlc4, COURT STAFF) (Filed on 12/16/2009)

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IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA

MATTHEW C. KILGORE, et al., Plaintiffs, NO. C08-02958 TEH ORDER GRANTING MOTION FOR LEAVE TO FILE AMENDED COMPLAINT

KEYBANK, NATIONAL ASSOCIATION, et al., Defendants.

United States District Court

11
For the Northern District of California

This matter comes before the Court on Plaintiffs' motion for leave to file an amended

12 complaint. After carefully considering the parties' written arguments, the Court finds oral 13 argument to be unnecessary and VACATES the hearing currently scheduled for December 14 21, 2009. The Court now GRANTS Plaintiffs' motion for the reasons discussed below. 15 16 BACKGROUND 17 Plaintiffs and putative class representatives Matthew C. Kilgore and William Bruce 18 Fuller ("Plaintiffs") are California residents who enrolled in a helicopter flight academy 19 operated in Oakland, California by Silver State Helicopters, LLC ("Silver State"). Plaintiffs 20 allege that they ­ and the class of student loan borrowers they seek to represent ­ paid Silver 21 State nearly $60,000 in tuition to be trained as commercial helicopter pilots, but failed to 22 complete the educational program before Silver State filed for bankruptcy on February 4, 23 2008. Plaintiffs financed their tuition by obtaining student loans from KeyBank, National 24 Association and its educational lending division, Key Education Resources (collectively 25 "KeyBank"). They now seek to enjoin KeyBank and Great Lakes Educational Loan 26 Services, Inc. ("Great Lakes") ­ which services their loans ­ from collecting the loans or 27 reporting the loan balances to credit reporting agencies. 28

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Plaintiffs instituted this putative class action in Alameda County Superior Court on

2 May 12, 2008, against KeyBank and Great Lakes. Student Loan Xpress, Inc. ("SLX") and 3 American Education Services ("AES") ­ which allegedly made and serviced loans to Silver 4 State students ­ were added as defendants in a First Amended Complaint filed four days 5 later. All defendants stipulated to allow Plaintiffs to file a Second Amended Complaint 6 ("SAC"), which was filed on June 11, 2008. SLX removed the action to federal court on 7 June 13. 8 The parties then engaged in mediation and stipulated to enlarge the time for responses

9 to the complaint to be filed. Plaintiffs settled with SLX and dismissed SLX and AES from 10 this action on October 23, 2009. The settlement disposed of approximately 80 percent of the

United States District Court

11 class claims, as the majority of loans at issue were held by SLX and serviced by AES.
For the Northern District of California

12

Mediation with KeyBank and Great Lakes (collectively "Defendants") was

13 unsuccessful, and Defendants responded to the SAC on April 24, 2009 by moving to dismiss 14 and to compel arbitration. The Court denied the motion to compel arbitration on July 8, 2009 15 ­ a ruling Defendants have appealed to the Ninth Circuit ­ and ordered the parties to agree 16 upon a briefing schedule and hearing date for the motion to dismiss. On August 17, 2009, 17 this matter was stayed except for document discovery and the motion to dismiss. 18 Defendants filed a new motion to dismiss on October 5, 2009, and noticed it for

19 hearing on November 9, which the parties then stipulated to continue to December 21 to 20 allow Plaintiffs time to complete settlement negotiations with SLX. The Court continued the 21 hearing again to February 1, 2010, based on Plaintiffs' representation that they would move 22 for leave to file an amended complaint. Plaintiffs did so on November 16, 2009, filing with 23 the motion a copy of the proposed Third Amended Complaint ("TAC"). Plaintiffs filed a 24 supplemental declaration on November 24, attaching a revised TAC to which an additional 25 prayer for relief had been added. Defendants opposed the motion. 26 27 28 2

1 LEGAL STANDARD 2 Once a responsive pleading has been filed, the Federal Rules of Civil Procedure

3 permit a party to amend its complaint "with the opposing party's written consent or the 4 court's leave," which the court "should freely give . . . when justice so requires." Fed. R. 5 Civ. P. 15(a)(2). Leave to amend is ordinarily granted with "extreme liberality." United 6 States v. Webb, 655 F.2d 977, 979 (9th Cir. 1981). Four factors are considered in weighing 7 the permissibility of amendment: "bad faith, undue delay, prejudice to the opposing party, 8 and futility of amendment." Roth v. Garcia Marquez, 942 F.2d 617, 628 (9th Cir. 1991) 9 (citing Foman v. Davis, 371 U.S. 178 (1962)). Whether to grant leave to amend is a matter 10 of the district court's discretion. "In exercising this discretion, a court must be guided by the

United States District Court

11 underlying purpose of Rule 15 to facilitate decision on the merits, rather than on the
For the Northern District of California

12 pleadings or technicalities." Webb, 655 F.2d at 979. 13 14 DISCUSSION 15 Plaintiffs seek leave to file a TAC to address arguments raised by Defendants in their

16 motion to dismiss. They assert that Defendants would not be prejudiced because no 17 meaningful litigation has occurred until this point, and stress that they have never before 18 sought to amend the complaint in response to a challenge by a defendant. Defendants 19 counter that Plaintiffs have unduly delayed filing their TAC and insist that allowing 20 amendment would result in prejudice. 21 Plaintiffs' SAC ­ the currently operative complaint ­ asserts that Defendants violated

22 California's Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code § 17200 et seq., 23 aided and abetted the fraud perpetuated by Silver State, and violated the federal Racketeering 24 Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962 et seq. The claims 25 are premised on KeyBank's alleged violation of the Federal Trade Commission's "Holder 26 Rule," which requires sellers to include in consumer contracts a notice that any holder of the 27 contract is subject to whatever claims or defenses the debtor could assert against the seller. 28 16 C.F.R.§§ 433.2(a) & (b). The Holder Rule provides that "it is an unfair or deceptive act 3

1 or practice" for a seller to (a) "[t]ake or receive a consumer credit contract," or (b) "[a]ccept . 2 . . the proceeds of any purchase money loan" if the contract does not contain the required 3 notice. Id. Plaintiffs allege that KeyBank, by intentionally omitting the Holder Notice from 4 its student loan promissory notes and ensuring that Silver State left the notice off its 5 contracts, is guilty of unlawful, unfair and fraudulent business practices. They seek only 6 injunctive relief. 7 Plaintiffs now propose to amend their complaint to address some of the arguments

8 raised by Defendants' motion to dismiss. Plaintiffs augment their fraud allegations to satisfy 9 Federal Rule of Civil Procedure 9(b)'s requirement that the circumstances constituting fraud 10 be pled with particularity. The TAC would add another prayer for relief, "to permanently

United States District Court

11 enjoin KeyBank's unfair and deceptive acts and practices committed against the residents of
For the Northern District of California

12 the State of Calfornia." Supp. Decl. of Kevin F. Rooney, ¶ 3. Plaintiffs would eliminate the 13 RICO claim, because ­ as Defendants pointed out ­ injunctive relief is unavailable in civil 14 RICO actions brought by private parties. Finally, Plaintiffs propose to restructure the 15 remaining two claims, for violating the UCL and aiding and abetting fraud, into six claims by 16 breaking each specific violation into a distinct count.1 17 Defendants contend that Plaintiffs have flouted the July 17, 2009 deadline to amend

18 the pleadings, and that Plaintiffs' motion may therefore be granted only "for good cause" 19 because it would require modification of a scheduling order. Fed. R. Civ. P. 16(b)(4). 20 However, the Court never adopted the July 17 deadline ­ which the parties proposed in joint 21 case management statements filed on April 20 and August 10 ­ in a scheduling order. 22 Therefore, Plaintiffs' motion is properly assessed under the liberal standards of Rule 15, 23 rather than the stricter "good cause" requirement of Rule 16. 24 The UCL provides remedies for "unfair competition," which is defined as "any 25 unlawful, unfair or fraudulent business act or practice." Cal. Bus. & Prof. Code § 17200. The TAC would break down the UCL claim into four separate counts: two based on the 26 "unlawful" prong (for violating 16 C.F.R. §§ 433.2(a) & 433.2(b)), one based on the "unfair" prong, and another based on the "fraud" prong. The claim for "aiding and abetting fraud" in 27 the SAC would be converted to two counts under the UCL for aiding and abetting Silver State's unlawful violations of 16 C.F.R. §§ 433.2(a) and 433.2(b). The Court observes that 28 the first four causes of action in Plaintiffs' proposed TAC misidentify the Holder Rule as appearing at 16 C.F.R. § 433.1, rather than at 16 C.F.R. § 433.2. 4
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Defendants argue that the motion should be denied based on undue delay and

2 prejudice. Defendants characterize the TAC as "inexcusably late." Defs.' Opp'n at 8. They 3 argue that many of Plaintiffs' revisions are based on arguments Defendants first raised in 4 their April 24, 2009 motion to dismiss, and that the TAC's new factual allegations were 5 drawn from materials Plaintiffs received in April and July. Defendants also anticipate that 6 the TAC will necessitate that they file another motion to dismiss, adding to the cost of the 7 litigation. 8 Defendants' arguments are insufficient to surmount Rule 15's policy in favor of

9 liberal amendment. Although it may be true that Plaintiffs could have moved for leave to 10 amend earlier than they did, a delay of a few months is hardly undue. Furthermore, filing the

United States District Court

11 TAC may in fact expedite the litigation by addressing issues preemptively, before the Court
For the Northern District of California

12 rules on Defendants' motion to dismiss. The only prejudice Defendants identify relates to 13 the cost of filing another motion to dismiss; allowing amendment does not otherwise hamper 14 their ability to defend this action. There is no evidence of bad faith, and no basis for 15 concluding that amendment is futile. The Foman factors all weigh in favor of allowing leave 16 to amend, which the Court therefore GRANTS. 17 18 CONCLUSION 19 For the reasons set forth above, Plaintiffs' motion for leave to amend is GRANTED.

20 Plaintiffs shall file the Third Amended Complaint by Monday, December 21, 2009. The 21 hearing on Defendants' motion to dismiss Plaintiffs' SAC, calendared for February 1, 2010, 22 is VACATED as moot. 23 24 IT IS SO ORDERED. 25 26 Dated: 12/16/2009 27 28 5 THELTON E. HENDERSON, JUDGE UNITED STATES DISTRICT COURT