Jeske v. Persolve, LLC et al

Filing 27

ORDER granting 17 Motion to Amend: Plaintiff has leave to file the proposed First Amended Complaint attached to the Motion to Amend as Exhibit A, and SHALL file and serve his FAC as a stand-alone document on or before 5/23/11. Defendants shall all respond to the FAC within 30 days thereafter. Signed by Judge Anthony J. Battaglia on 5/18/11. (lmt)(jrd)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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James Jeske, an individual, on behalf of
himself and all others similarly situated

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Plaintiff,
v.

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PERSOLVE, LLC, and DOES 1 through 25,
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Defendants.
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Case No.: 10cv1626 AJB (WMc)
Order Granting Motion to Amend
[Doc. No. 17]

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The Plaintiff filed a motion to amend, [Doc. No. 17], on February 22, 2011, seeking leave to file

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a First Amended Complaint (hereinafter “FAC”) to name a new Defendant in this action as an alter ego

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of the Defendant Persolve for the existing claims and also alleges that the “new Defendant”1 and

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Persolve are liable for a fraudulent transfer of assets from Persolve to the new Defendant. The

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Defendant Persolve has filed an opposition and the Plaintiff filed a reply. The hearing date set for May

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19, 2011 at 1:30 p.m. before Judge Battaglia is hereby vacated as the Court finds this motion is

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appropriate for submission on the papers and without oral argument pursuant to Local Rule 7.1(d)(1).

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For the reasons set forth below, Plaintiff’s motion to amend, [Doc. No. 17], is hereby GRANTED.

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Due to the parties motion to seal, [Doc. No. 18], which was granted by this Court on March 14,
2011, [Doc. No. 25], the Court will refer to the unnamed third party as the “new Defendant”.
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Background
I. Factual Background
The Plaintiff filed this putative class action against the Defendant for alleged violations of the

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Fair Debt Collection Practices Act (15 U.S.C. §§ 1692 et seq.) (hereinafter “FDCPA”) and the

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California Rosenthal Fair Debt Collection Practices Act (Cal. Civil Code §§ 1788-1788.32) (hereinafter

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“Rosenthal Act”). In issue in this action is an allegedly unpaid past due balance of revolving credit debt

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incurred by the Plaintiff with Bank of America which was subsequently assigned, transferred or

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purchased by the Defendant. The Defendant filed suit in California Superior Court seeking a 32.24

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percent fixed interest rate on the alleged debt owed by the Plaintiff, however, the Plaintiff contends that

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the contractual terms of the revolving line of credit originally issued to him and the FDCPA and

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Rosenthal Act cap the maximum fixed interest rate at 10 percent.

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The Plaintiff contends that the Defendant sought inflated and improper fixed interest rates that

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exceed the maximum legally allowable under the FDCPA and Rosenthal Acts and has brought the

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instant action on behalf of two anticipated classes of affected California debtors for: 1) violations under

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the FDCPA; and 2) violations of the Rosenthal Act.

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II. Procedural Background

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The Plaintiff filed the instant action on August 4, 2010. The deadline for filing a motion to

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amend the complaint was February 22, 2011. Discovery is not set to close in this case until November

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7, 2011. The Class Certification motion filing deadline set by the Court is August 8, 2011.

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Legal Standard

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1. Leave to Amend Under Rule 15 of the Federal Rules

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Under Federal Rule of Civil Procedure 15(a)(2), the court should freely give leave to amend

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when justice requires. See Foman v. Davis, 371 U.S. 178, 182, 83 S. Ct. 227, 9 L. Ed.2d 222 (1962).

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This policy should “ ‘be applied with extreme liberality.’ ” Owens v. Kaiser Foundation Health Plan,

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Inc., 244 F.3d 708, 712 (9th Cir.2001), quoting Morongo Band of Mission Indians v. Rose, 893 F.2d

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1074, 1079 (9th Cir.1990). “If the underlying facts or circumstances relied upon by a plaintiff may be a

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proper subject of relief, he ought to be afforded an opportunity to test his claims on the merits. In the

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absence of apparent or declared reason-such as undue delay, bad faith or dilatory motive on the part of
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the movant, repeated failure to cure deficiencies by amendment previously allowed, undue prejudice to

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the opposing party by virtue of allowance of the amendment, futility of amendment, etc.-the leave

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sought should, as the rules require, be ‘freely given.’ ” Foman, 371 U.S. at 182. A court must be guided

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by the purpose of Rule 15, which is facilitating decisions on their merits. United States v. Webb, 655

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F.2d 977, 979 (9th Cir.1981).

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“[A] district court may deny leave to amend where there is any apparent or declared reason for

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doing so, including undue delay, undue prejudice to the opposing party or futility of the amendment.”

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Lockman Foundation v. Evangelical Alliance Mission, 930 F.2d 764, 772 (9th Cir.1991), quoting

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Foman, 371 U.S. at 182 ( internal quotation marks omitted ). “Not all of the factors merit equal

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consideration,” however, “it is the consideration of prejudice to the opposing party that carries the

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greatest weight.” Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir.2003). Leave to

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amend is within the trial court's discretion. Swanson v. U.S. Forest Service, 87 F.3d 339, 343 (9th

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Cir.1996); United States v. County of San Diego, 53 F.3d 965, 969 n. 6 (9th Cir.); cert. denied, 516 U.S.

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867, 116 S.Ct. 183, 133 L.Ed.2d 121 (1995).

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If the proposed amendment is insufficient in law and would be a futile act, it is proper to deny

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leave to amend. Baker v. Pacific Far East Lines, Inc., 451 F. Supp. 84, 89 (N.D. Cal.1978). “A motion

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for leave to amend may be denied if it appears to be futile or legally insufficient.” Miller v.

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Rykoff-Sexton, Inc., 845 F.2d 209, 214 (9th Cir.1988). Futility alone can justify denial of a motion for

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leave to amend. Nunes v. Ashcroft, 375 F.3d 810, 813 (9th Cir.2004), cert. denied, 543 U.S. 1188, 125

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S.Ct. 1395, 161 L.Ed.2d 192 (2005). See also Gabrielson v. Montgomery Ward & Co., 785 F.2d 762,

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766 (9th Cir.1986) (opining that a motion to amend should not be granted when the amendment could be

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defeated on summary judgment).

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Discussion

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The Plaintiff seeks to amend his complaint to add a new Defendant in this action as an alter ego

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of Defendant Persolve for the existing claims and to allege additional claims for fraudulent or negligent

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transfer of assets from Defendant Persolve to the new Defendant, these latter claims were discovered

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post filing. The financial documents referred to by the Plaintiff were produced by the Defendant during

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settlement discussions with Magistrate Judge McCurine, because damages in this action are pinned2

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upon the Defendant’s net worth. These documents are in contrast to others produced by the Defendant

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in this case. See Pla. Mot., p. 2, lines 16-26. Based upon these financial documents, the Plaintiff

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contends that there were two separate fraudulent transfers by Defendant Persolve to the new Defendant

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so that Persolve’s balance sheet would be zero or less for the purposes of avoiding liability in this case.

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The Defendant opposes the instant motion on the following grounds: 1) that the Plaintiff’s

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allegations are false; 2) Plaintiff relied solely upon information disclosed during settlement negotiations

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for the proposed amendment; and 3) the proposed amendment is futile. The Defendant argues in the

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first ground that the Plaintiff’s allegations are false and that the Plaintiff has failed to cite to any

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admissible evidence to support his claims. However, as the Plaintiff has aptly pointed out, the mere fact

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that the Defendant denies the new allegations is not sufficient basis to deny the Plaintiff leave to amend.

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"Ordinarily, courts will defer consideration of challenges to the merits of a proposed amended pleading

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until after leave to amend is granted and the amended pleading is filed." Netbula, LLC v. Distinct Corp.,

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212 F.R.D. 534, 539 (N.D. Cal.2003) (citation omitted).

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Leave to amend may be denied where the defendant demonstrates undue delay, bad faith or

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dilatory motive, prejudice to the defendant, the futility of amendment, or repeated failure to cure

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deficiencies by previous amendments. Moore v. Kayport Package Express, Inc., 885 F.2d 531, 538 (9th

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Cir.1989). In the opposition, the only Foman factor argued by the Defendant is futility. Foman v. Davis,

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371 U.S. 178, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962) "While some courts liken the futility inquiry with that

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of a motion to dismiss, most recognize that ‘[d]enial of leave to amend on [futility] ground [s] is rare.' "

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Defazio v. Hollister, Inc., No. Civ. 04-1358, 2008 WL 2825045, at *2 (E.D. Cal., July 21, 2008)

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(quotation omitted).

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The only remaining ground raised by the Defendant to Plaintiff’s proposed amendment is that

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the Court should not permit the Plaintiff to use information disclosed during settlement negotiations to

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support its proposed amendment. However, while Federal Rule of Evidence § 408 prohibits the use of

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settlement negotiations, the underlying facts disclosed during such exchanges which would otherwise be

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Fair and efficient adjudication of the controversy as required by Fed. R. Civ. P. 23(b) and
FDCPA class certification both require Defendant to have a positive net worth.
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discoverable are not protected.3 The Plaintiff’s use of the underlying fact that certain transfers were

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made between Persolve and the new Defendant as support for the proposed amendment is not in

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violation of § 408 and is it not sanctionable. "Absent prejudice, or a strong showing of any of the

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remaining Foman factors, there exists a presumption under Rule 15(a) in favor of granting leave to

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amend." Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir.2003). Based upon the

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foregoing, Plaintiff’s motion to amend is hereby GRANTED.

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Conclusion

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For the reasons set forth above, the Court finds that all factors weigh in favor of allowing

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Plaintiffs to file the proposed amended complaint and as such the Plaintiff’s motion to amend, [Doc. No.

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17], is hereby GRANTED. Plaintiff has leave to file the proposed First Amended Complaint (“FAC”)

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attached to the Motion to Amend as Exhibit A, and SHALL file and serve his FAC as a stand-alone

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document on or before May 23, 2011. Defendants shall all respond to the FAC within thirty (30) days

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thereafter.

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IT IS SO ORDERED.

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DATED: May 18, 2011

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Hon. Anthony J. Battaglia
U.S. District Judge

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Since financial worth is a factor regarding class certification, the information would be
discoverable under the Federal Rules.
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