Raifman et al v. Wachovia Securities, LLC et al

Filing 66

ORDER by Judge ARMSTRONG granting in part and denying in part 36 Motion to Amend/Correct ; ; terminating 53 Motion for Extension of Time to File Response/Reply ; denied as moot 12 Motion to Dismiss (lrc, COURT STAFF) (Filed on 5/8/2012)

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UNITED STATES DISTRICT COURT
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FOR THE NORTHERN DISTRICT OF CALIFORNIA
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OAKLAND DIVISION
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GREGORY R. RAIFMAN and SUSAN

Case No: C 11-02885 SBA

8 RAIFMAN, husband and wife, individually

and on behalf of their marital community and
9 as Trustees of the RAIFMAN FAMILY

REVOCABLE INTERVIVOS TRUST and as
10 beneficiaries of the PALLADIAN TRUST;

ORDER GRANTING IN PART AND
DENYING IN PART MOTION FOR
LEAVE TO AMEND; AND
DENYING MOTION TO DISMISS

GEKKO HOLDINGS, LLC, and HELICON
11 INVESTMENTS, LTD.,

Plaintiffs,

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Docket 12, 36, 53.

vs.

14 WACHOVIA SECURITIES, LLC, N/K/A

WELLS FARGO ADVISORS, LLC;
15 GEORGE GORDON, III, individually; and

ROBERT EDDY, individually,
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Defendants.
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On April 1, 2011, Plaintiffs Gregory and Susan Raifman, Gekko Holdings, LLC, and

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Helicon Investments, Ltd. (collectively, "Plaintiffs") filed the instant action in the Superior

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Court of California, County of Alameda, alleging seven causes of action predicated on state

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law. Compl., Dkt. 1. On June 6, 2011, the action was removed to this Court on the basis of

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diversity jurisdiction. Notice of Removal, Dkt. 1. The parties are presently before the

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Court on Defendants Wachovia Securities, LLC, n/k/a Wells Fargo Advisors, LLC, and

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George Gordon, III’s (collectively, "Defendants") motion to dismiss under Rule 12(b)(6) of

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the Federal Rules of Civil Procedure. Dkt. 12. Also before the Court is Plaintiffs' motion

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for leave to file an amended complaint under Rule 15 of the Federal Rules of Civil

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Procedure. Dkt. 36. Having read and considered the papers filed in connection with these

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matters and being fully informed, the Court hereby GRANTS IN PART AND DENIES IN

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PART the motion for leave to file an amended complaint, and DENIES the motion to

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dismiss as MOOT, for the reasons stated below. The Court, in its discretion, finds these

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matters suitable for resolution without oral argument. See Fed.R.Civ.P. 78(b); N.D. Cal.

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Civ. L.R. 7-1(b).

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I.

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DISCUSSION
Plaintiffs move for leave to amend their complaint under Rule 15(a) to provide "the

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parties and the Court an enhanced roadmap of Plaintiffs’ allegations and claims." Plaintiffs

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also seek leave to add a negligence claim against Wells Fargo Bank, Ltd. ("Wells Fargo"),

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the successor in interest to Wachovia Bank Corporation and Wheat First Union Bank.

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Thus, Plaintiffs' motion not only seeks leave to amend the allegations pled in the original

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complaint but also seeks leave to add a claim against a previously unnamed Defendant.

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While Plaintiffs' request for leave to amend the allegations pled in the original complaint is

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governed by Rule 15(a), Plaintiffs' request for leave to add a negligence claim against

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Wells Fargo, a California citizen1 whose presence in this action would destroy diversity and

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require remand, is governed by 28 U.S.C. § 1447(e).

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A.

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Leave to Amend Under Rule 15
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Legal Standard

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A party may amend its pleading once as a matter of course within: (1) 21 days after

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serving it, or (2) if the pleading is one to which a responsive pleading is required, 21 days

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after service of a responsive pleading or 21 days after service of a motion under Rule 12(b),

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(e), or (f), whichever is earlier. Fed.R.Civ.P. 15(a)(1).2 "In all other cases, a party may

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amend its pleading only with the opposing party’s written consent or the court’s leave."

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The Proposed First Amended Complaint ("PFAC") alleges that Wells Fargo is
headquartered in San Francisco. PFAC ¶ 7, Dkt. 37-1. Because Plaintiffs Gregory and
25 Susan Raifman are California citizens, id. ¶ 1, the addition of Wells Fargo to this action
would destroy diversity, i.e., subject matter jurisdiction.
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Here, because Plaintiffs filed their motion for leave to amend more than 21 days
after Defendants filed their motion to dismiss under Rule (12)(b)(6), and because
Defendants do not consent to amendment of the complaint, Plaintiffs cannot file an
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Fed.R.Civ.P. 15(a)(2). The court should freely grant leave when justice so requires. Id.

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"This policy is to be applied with extreme liberality." Eminence Capital, LLC v. Aspeon,

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Inc., 316 F.3d 1048, 1051 (9th Cir. 2003) (quotation marks omitted).

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The United States Supreme Court has identified the following factors a district court
should consider in deciding whether to grant leave to amend:
In the absence of any apparent or declared reason - such as undue delay, bad
faith dilatory motive on the part of the movant, repeated failure to cure
deficiencies by amendments previously allowed, undue prejudice to the
opposing party by virtue of allowance of the amendment, futility of
amendment, etc. - the leave sought should, as the rules require, be 'freely
given.'
Foman v. Davis, 371 U.S. 178, 182 (1962).
Not all of the factors merit equal weight; it is the consideration of prejudice to the
opposing party that carries the greatest weight. Eminence Capital, 316 F.3d at 1052
("'Prejudice is the 'touchstone of the inquiry under rule 15(a).' "). Prejudice must be
substantial to justify denial of leave to amend. Morongo Band of Mission Indians v. Rose,
893 F.2d 1074, 1079 (9th Cir. 1990). "Absent prejudice, or a strong showing of any of the
remaining Foman factors, there exists a presumption under Rule 15(a) in favor of granting
leave to amend." Eminence Capital, 316 F.3d at 1052 (emphasis in original).
The party opposing the amendment carries the burden of showing why leave to
amend should not be granted. DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 187 (9th
Cir. 1987). The decision to grant or deny a request for leave to amend rests in the
discretion of the trial court. See California v. Neville Chem. Co., 358 F.3d 661, 673 (9th
Cir. 2004).
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Analysis

Here, Defendants do not contend that Plaintiffs’ motion to amend the allegations
pled in the original complaint would result in undue prejudice to Defendants or that
Plaintiffs have acted in bad faith by seeking leave to amend. Instead, Defendants contend
that leave to amend should not be granted because the proposed amendment complaint is
futile and untimely.
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a.

Futility

Defendants’ primary argument in opposition to the motion for leave to amend is

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futility. Specifically, Defendants argue that amendment is futile because: (1) the "Cathcart

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Letter" does not support Plaintiffs' amended claims; (2) the proposed amended complaint is

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an impermissible "shotgun pleading" that does not comply with the pleading standard under

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Rule 8 of the Federal Rules of Civil Procedure; and (3) Plaintiffs' claims are barred by the

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applicable statutes of limitations under Virginia law. "A motion for leave to amend may be

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denied if it appears to be futile or legally insufficient." Miller v. Rykoff–Sexton, Inc., 845

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F.2d 209, 214 (9th Cir. 1988). "[A] proposed amendment is futile only if no set of facts can

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be proved under the amendment to the pleadings that would constitute a valid and sufficient

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claim or defense." Id. A proposed amended complaint is futile if it would be immediately

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subject to dismissal. Nordyke v. King, 644 F.3d 776, 788 n. 12 (9th Cir. 2011). Thus, the

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proper test to be applied when determining the legal sufficiency of a proposed amendment

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is identical to the one used when considering the sufficiency of a pleading challenged under

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Rule 12(b)(6). Id.

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Here, because Defendants have not demonstrated that the proposed amendment is

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futile, the futility of amendment Foman factor does not weigh in favor of denying Plaintiffs'

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request for leave to amend. As for the futility arguments regarding the "Cathcart Letter"

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and Defendants' claim that the proposed amended complaint is an "impermissible shotgun

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pleading," Defendants' opposition lacks citation to authority and legal analysis

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demonstrating that the claims alleged in the proposed amended complaint are legally

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insufficient as a matter of law.

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For instance, while Defendants contend that the "Cathcart Letter" does not support

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Plaintiffs' amended claims and that Plaintiffs have mischaracterized the contents of the

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letter, Defendants have failed to provide argument demonstrating that any claim alleged in

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the proposed amended complaint would immediately be subject to dismissal. Similarly,

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while Defendants contend that the proposed amended complaint does not satisfy the

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pleading standard under Rule 8 because it is "a jumbled mess, a shotgun pleading that
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suffers from the same deficiencies previously noted (as well as some new ones),"

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Defendants have failed to demonstrate that any of the claims alleged in the proposed

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amended complaint would immediately be subject to dismissal. Indeed, Defendants' less

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than one-page conclusory argument is woefully inadequate to demonstrate that leave to

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amend should be denied for failure to comply with Rule 8. In short, Defendants have failed

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to present adequate argument regarding the "Cathcart Letter" and their claim that the

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proposed amended complaint is an "impermissible shotgun pleading" to enable the Court to

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render an informed decision on these issues. It is not the role of the Court to make

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Defendants' arguments for them. See Indep. Towers of Wash. v. Wash., 350 F.3d 925, 929

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(9th Cir. 2003) (“Our adversarial system relies on the advocates to inform the discussion

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and raise the issues to the court.”).

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As for Defendants' statute of limitations argument, the Court finds that Defendants

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have failed to demonstrate that any of the claims alleged in the proposed amended

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complaint is barred by the applicable statute of limitations. While Defendants contend that

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Plaintiffs' claims are barred by "the applicable statutes of limitation under Virginia law,"

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Defendants' brief is devoid of legal analysis demonstrating that the claims alleged in the

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proposed amended complaint are governed by Virginia law, let alone that the claims are

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time-barred under Virginia law. Instead, Defendants direct the Court to arguments made in

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their moving and reply papers filed in connection with their previously filed motion to

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dismiss the complaint.

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It wholly improper for a party to incorporate by reference legal arguments made in

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briefs filed in connection with a motion that is not before the Court. Allowing litigants to

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engage in such conduct would provide an effective means of circumventing page limits on

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briefs set forth in the Civil Local Rules and this Court's Civil Standing Orders. The Court

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therefore declines to consider the arguments that Defendants improperly seek to incorporate

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by reference. This Court only considers arguments that are specifically and distinctively

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raised by the parties in their briefs. See Indep. Towers of Wash., 350 F.3d at 929 (noting

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that courts need not consider arguments that were not actually made in a party's brief).
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b.

Undue Delay

Defendants contend that leave to amend should be denied because Plaintiffs have

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been dilatory in seeking to add facts that were known to Plaintiffs at the time they filed this

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action. Notably, however, Defendants do not identify any prejudice occasioned by this

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delay. Plaintiffs, for their part, have not given a reason for the approximately 7-month

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delay in seeking leave to amend. However, even assuming that Plaintiffs have unduly

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delayed in seeking to amend the complaint, delay, by itself, is insufficient to justify denial

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of leave to amend. See DCD, 833 F.2d at 186.

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c.

Conclusion

In view of the extreme liberality with which the Court must view a motion for leave

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to amend, the Court concludes that Defendants have failed to sustain their burden to show

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that leave to amend should be denied under the Foman factors. Defendants do not argue

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that prejudice, which is the "touchstone" of the inquiry under Rule 15(a), would result if

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leave to amend is granted. Nor did Defendants argue that Plaintiffs have acted in bad faith

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by requesting leave to amend. Further, Defendants did not make a strong showing with

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respect to the other Foman factors (i.e., futility of amendment, undue delay) to overcome

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the presumption under Rule 15(a) in favor of granting leave to amend. Accordingly,

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Plaintiffs’ motion for leave to amend is GRANTED. Plaintiffs are granted leave to file the

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proposed amended complaint, subject to the limitation set forth below.

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B.

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When a plaintiff seeks to add a non-diverse defendant to an action removed on the

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basis of diversity jurisdiction, joinder is governed by 28 U.S.C. § 1447(e). See Clinco v.

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Roberts, 41 F.Supp.2d 1080, 1086-1087 (C.D. Cal. 1999); see also Larry O. Crother, Inc. v.

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Lexington Ins. Co., 2011 WL 2259113, at *2 (E.D. Cal. 2011); Chan v. Bucephalus

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Alternative Energy Group, LLC, 2009 WL 1108744, at * 3 (N.D. Cal. 2009). That section

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provides: "If after removal the plaintiff seeks to join additional defendants whose joinder

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would destroy subject matter jurisdiction, the court may deny joinder, or permit joinder and

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remand the action to the state court." 28 U.S.C. § 1447(e). The decision of whether to

Joinder Under 28 U.S.C. § 1447(e).

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permit joinder is a matter left to the discretion of the district court. See Newcombe v.

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Adolf Coors Co., 157 F.3d 686, 691 (9th Cir. 1998).

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The Court's discretion under section 1447(e) is guided by consideration of the
following factors:

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(1) whether the party sought to be joined is needed for just adjudication and
would be joined under Federal Rule of Civil Procedure 19(a); (2) whether the
statute of limitations would preclude an original action against the new
defendants in state court; (3) whether there has been unexplained delay in
requesting joinder; (4) whether joinder is intended solely to defeat federal
jurisdiction; (5) whether the claims against the new defendant appear valid;
and (6) whether denial of joinder will prejudice the plaintiff.

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IBC Aviation Servs. v. Compania Mexicana De Aviacion, S.A. de C.V., 125 F.Supp.2d

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1008, 1011 (N.D. Cal. 2000). Not all factors must be considered. See Righetti v. Shell Oil

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Co., 711 F.Supp. 531, 534-535 (N.D. Cal. 1989) (allowing joinder under section 1447(e)

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where motion was timely, plaintiff had stated a "facially legitimate claim" against the non-

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diverse defendant and no prejudice would result to defendant from the joinder). If the

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Court permits joinder of a non-diverse defendant under this provision, the Court must

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remand the action to state court. 28 U.S.C. § 1447(e).

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Here, Plaintiffs incorrectly argue that the liberal policy of Rule 15(a) governs the

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joinder of Wells Fargo, a non-diverse defendant. See Greer v. Lockheed Martin, 2010 WL

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3168408, at *4 (N.D. Cal. 2010) ("[T]he permissive amendment under Rule 15(a) does not

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apply when a plaintiff amends her complaint after removal to add a diversity destroying

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defendant.") (citing cases); see also Hardin v. Wal-Mart Stores, Inc., 813 F.Supp.2d 1167,

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1173 (E.D. Cal. 2011) (a plaintiff may not circumvent § 1447(e) by relying on Rule 15(a)

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to join a non-diverse party); Clinco, 41 F.Supp.2d at 1086-1087 (same). Thus, because

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Plaintiffs have failed to analyze the factors that district courts consider in evaluating a

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request to join a non-diverse defendant after removal, they failed to demonstrate that

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joinder of Wells Fargo is appropriate under § 1447(e). Accordingly, Plaintiffs’ request for

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leave to join Wells Fargo as a Defendant is DENIED without prejudice.

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C.

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In light of the ruling on the motion for leave to amend the complaint, Defendants'

Motion to Dismiss Under Rule 12(b)(6)

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motion to dismiss under Rule 12(b)(6) is DENIED as MOOT.

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II.

CONCLUSION

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For the reasons stated above, IT IS HEREBY ORDERED THAT:

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1.

Plaintiffs' motion for leave to amend the complaint is GRANTED IN PART

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AND DENIED IN PART. Plaintiffs' request to add Wells Fargo as a Defendant is denied

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without prejudice. Plaintiffs are granted leave to file the proposed amended complaint so

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long as they remove the allegations pertaining to Wells Fargo. Plaintiffs may file an

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amended complaint consistent with this Order no later than fourteen (14) days from the date

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this Order is filed.

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2.

Defendants' motion to dismiss is DENIED as MOOT.

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3.

This Order terminates Docket 12, 36, 53.

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IT IS SO ORDERED.

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Dated: 5/7/12

______________________________
SAUNDRA BROWN ARMSTRONG
United States District Judge

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