Cherry Creek Mortgage Co., Inc. v. Jarboe et al

Filing 71

ORDER by Magistrate Judge Kristen L. Mix on 5/29/19 GRANTING 64 Defendant Jarboe's Motion for Leave to Amend Answer To Complaint. IT IS FURTHER ORDERED that the Clerk of the Court shall accept Defendant and Counterclaim-Plaintiff Thomas R. Jarboes Amended Answer and Counterclaims [#64-1] for filing as of the date of this Order.(nmarb, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No. 18-cv-00462-KLM
Consolidated with Civil Action No. 19-cv-00291-KLM
CHERRY CREEK MORTGAGE CO., INC.,
Plaintiff,
v.
THOMAS R. JARBOE, and
ALVARO C. BARAJAS,
Defendants.
_____________________________________________________________________
ORDER
_____________________________________________________________________
ENTERED BY MAGISTRATE JUDGE KRISTEN L. MIX
This matter is before the Court on Defendant Thomas R. Jarboe’s (“Jarboe”) Motion
for Leave to Amend Answer to Complaint [#64]1 (the “Motion”).

Plaintiff filed a

Response [#66] in opposition to the Motion, and Plaintiff filed a Reply [#69]. The Motion
is thus fully briefed and ripe for resolution. For the reasons set forth below, the Motion
[#64] is GRANTED.
I. Background
Plaintiff Cherry Creek Mortgage Co., Inc. alleges that on April 18, 2016, the parties
entered into a Non-Producing Branch Manager Agreement. whereby Plaintiff agreed to
employ Defendant Jarboe (“Jarboe”) and Defendant Alvaro C. Barajas (“Barajas”) to

1

“[#64] is an example of the convention the Court uses to identify the docket number
assigned to a specific paper by the Court’s case management and electronic case filing system
(CM/ECF). This convention is used throughout this Order.

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manage certain loan origination branch offices in California, which eventually accumulated
“net losses.” See generally Compl. [#3]. To recover the losses, Plaintiff filed this lawsuit
on January 19, 2018, asserting three claims against Defendants: (1) breach of contract, (2)
breach of fiduciary duty, and (3) unjust enrichment. Id. ¶¶ 15-33.
On March 1, 2019, this action was consolidated with Civil Action No. 19-cv-00291RBJ, an action which itself had been transferred in February 2019 to the District of
Colorado from the Central District of California. Minute Order [#62]. In that action,
Defendant Jarboe was the plaintiff, and he had sued Plaintiff Cherry Creek Mortgage Co.,
Inc. for the following five claims: (1) failure to pay wages pursuant to Cal. Labor Code §§
204 & 218.5; (2) failure to pay business expenses pursuant to Cal. Labor Code § 2802; (3)
declaratory judgment pursuant to 28 U.S.C. § 2201; (4) conversion; and (5) unfair
competition. See [#64-3] at 2.
On March 1, 2019, the same day the actions were consolidated, the Court extended
the deadline for Defendant Jarboe to file an amended answer and counterclaims to March
8, 2019. Minute Order [#62]. Defendant Jarboe timely filed the present Motion [#64], in
which he seeks leave to amend his answer and add counterclaims. Plaintiff does not
oppose amendment to the extent Defendant Jarboe seeks leave to formally add the five
claims from the California action as counterclaims here. Response [#66] at 1-2. However,
Plaintiff opposes Defendant Jarboe’s other proposed amendments: (1) an affirmative
defense that Plaintiff’s claims are barred by applicable Federal Housing Administration
(“FHA”) and United States Department of Housing and Urban Development (“HUD”)
regulations, (2) a counterclaim for breach of contract, and (3) a counterclaim for breach of
the implied duty of good faith and fair dealing. Id. at 2; Motion [#64] at 1. Plaintiff opposes
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these amendments on the grounds of undue delay and undue prejudice. Response [#66]
at 7-11. Because Defendant Jarboe’s Motion [#64] is timely with respect to the deadline
for joinder of parties and amendment of pleadings, see Minute Order [#62], the Court
proceeds directly to consideration of the arguments pursuant Fed. R. Civ. P. 15(a)(2). See
Birch v. Polaris Indus., Inc., 812 F.3d 1238, 1247 (10th Cir. 2015).
II. Legal Standard
The Court has discretion to grant a party leave to amend its pleadings. Foman v.
Davis, 371 U.S. 178, 182 (1962); see Fed. R. Civ. P. 15(a)(2) (“The court should freely give
leave when justice so requires.”). The purpose of the rule is to provide litigants “the
maximum opportunity for each claim to be decided on its merits rather than on procedural
niceties.” Minter v. Prime Equip. Co., 451 F.3d 1196, 1204 (10th Cir. 2006). “Refusing
leave to amend is generally only justified upon a showing of undue delay, undue prejudice
to the opposing party, bad faith or dilatory motive, failure to cure deficiencies by
amendments previously allowed, or futility of amendment.” Frank v. U.S. West, Inc., 3 F.3d
1357, 1365 (10th Cir. 1993) (citation omitted).
III. Analysis
At the outset, it is worth noting that Defendant Jarboe’s proposed amendment
regarding the affirmative defense, i.e., that Plaintiff’s claims are barred by applicable FHA
and HUD regulations, is more of a clarification than a new affirmative defense. The original
defense broadly states: “Plaintiff’s claims are barred in whole or in part by statute and
regulation, including, but not limited to applicable California labor laws, federal labor laws,
and other state and federal statutes and regulations.” Answer [#15] at 6. The amended
version of this defense more specifically states: “Plaintiff’s claims are barred in whole or in
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part by statute and regulation, including, but not limited to applicable California labor laws,
federal labor laws, United States Department of Housing and Urban Development
regulations, Federal Housing Administration regulations, and other state and federal
statutes and regulations.” Proposed Am. Answer [#64-1] at 8. Thus, even were the Court
to deny amendment, the original Answer [#15] would still appear to encompass the
changes here requested by Defendant Jarboe with respect to the affirmative defense.
A.

Undue Delay
The Court may deny a motion to amend based solely on undue delay. Minter, 451

F.3d at 1205. Delay is “undue” only if it will place an unwarranted burden on the Court or
become prejudicial to the opposing party. Id. The Tenth Circuit “focuses primarily on the
reason for the delay.” Id. A motion to amend is untimely, if, among other reasons, the
moving party has made the complaint a “moving target,” is trying to “salvage a lost cause
by untimely suggesting new theories of recovery,” is trying to present more theories to
avoid dismissal, or is knowingly waiting until the eve of trial to assert new claims. Id. at
1206 (citations omitted). Other common reasons for finding undue delay include lack of
adequate explanation for the delay or when a moving party knows or should have known
of the facts in the proposed amendment but did not include them in the original complaint
or any prior attempts to amend. Id. (citations omitted). It is well-settled that untimeliness
alone is a sufficient reason to deny leave to amend when the party filing the motion has no
adequate explanation for the delay. Woolsey v. Marion Labs., Inc., 934 F.2d 1452, 1462
(10th Cir. 1991).
Defendant Jarboe premises the delay in seeking amendment with respect to the
affirmative defense and the two new counterclaims primarily on a separate federal case still
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pending in California. See generally Motion [#64]. On April 19, 2018, Defendant Jarboe
filed a qui tam False Claims Act (“FCA”) case against Plaintiff in the Central District of
California (the “FCA Action”). Id. at 3. In part therein, Defendant Jarboe has alleged that
Plaintiff “falsely certified that it complies with all HUD and FHA requirements.” Id. Plaintiff
asserts that “[t]he FCA action is relevant to the present motion because one requirement
for bringing a qui tam false claims act case is that the case must be filed under seal, be
kept confidential, and cannot be served on the Defendant (here, Cherry Creek) until the
court so orders.” Id. (citing 31 U.S.C. § 3730). Thus, at the time Defendant Jarboe filed
his initial Answer [#15] here on March 23, 2018, he worded the relevant affirmative defense
vaguely so as not to violate 31 U.S.C. § 3730 in connection with the then-forthcoming FCA
Action filed on April 19, 2018. Id. Ultimately, the United States Attorney decided against
intervening in the FCA Action. Motion [#64] at 3. The court in the FCA Action then ordered
the claims unsealed on October 17, 2018. Decl. of Avanzado [#70] ¶ 12. However, due
to an apparent procedural misstep at the court, the case was not actually unsealed until
December 20, 2018. Id. ¶¶ 15-18. Plaintiff here (the defendant there) was served with the
FCA Action on December 21, 2018. Motion [#64] at 3.
Meanwhile, in the present action prior to consolidation, on November 21, 2018,
Defendant Jarboe served a first set of written discovery on Plaintiff, in which, in part,
Defendant Jarboe “sought details relevant to [his] already-pled affirmative defense that
Cherry Creek violated federal regulations and sought specific discovery on Cherry Creek’s
HUD/FHA violations.” Decl. of Avanzado [#70] ¶ 14. On November 29, 2018, the Court
denied Defendant Jarboe’s motion to transfer the case to the Central District of California.
Order [#59]. On February 1, 2019, Defendant Jarboe’s other non-FCA California case was
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transferred here and given Civil Action No. 19-cv-00291-RBJ, which was then consolidated
with the present action on March 1, 2019. Decl. of Avanzado [#70] ¶ 8.
Taken on the whole, the Court finds that, while Defendant Jarboe delayed some in
seeking amendment of the one affirmative defense and to add the two counterclaims, he
did not unduly delay. All three of these related cases (the FCA Action, No. 18-cv-00462KLM, and No. 19-cv-00291-KLM) were in considerable procedural flux between October
2018 and March 2019, for the variety of reasons discussed above. In short, on November
29, 2018, the Court denied Defendant Jarboe’s motion to transfer the case to the Central
District of California. On December 20, 2018, the FCA Action was unsealed. On February
1, 2019, Defendant Jarboe’s other California action was transferred here. On February 27,
2019, the motion to consolidate cases and amend the Scheduling Order was filed by the
parties. On March 1, 2019, that motion was granted, the cases were consolidated, and the
deadline for amendment of pleadings and joinder of parties was extended to March 8,
2019. Under this timeline, the Court cannot find that Defendant Jarboe has provided an
inadequate explanation for the delay.
Plaintiff asks the Court to find Defendant Jarboe’s explanation insincere based on
Defendant Jarboe’s November 21, 2018 first set of written discovery served on Plaintiff, in
which, in part, Defendant Jarboe “sought details relevant to [his] already-pled affirmative
defense that Cherry Creek violated federal regulations and sought specific discovery on
Cherry Creek’s HUD/FHA violations.” Response [#66] at 9. Plaintiff argues, in essence,
that Defendant Jarboe disclosed the contents of the FCA Action a month before the court
there actually unsealed the case on December 20, 2018. Id. Defendant Jarboe responds
that “discovery between the parties in litigation is not a ‘public disclosure’ and only sought
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specific information about Cherry Creek’s violations of regulations already alleged in [his]
original answer,” which had stated: “Plaintiff’s claims are barred in whole or in part by
statute and regulation, including, but not limited to applicable California labor laws, federal
labor laws, and other state and federal statutes and regulations.” Reply [#69] at 11;
Answer [#15] at 6. Regardless of the merit of Defendant Jarboe’s statement about what
constitutes a “public disclosure” for purposes of 31 U.S.C. § 3730, the Court finds that
Defendant Jarboe has provided an adequate explanation for why he felt he had to wait to
formally seek amendment until after the FCA Action was actually unsealed, as opposed to
when this discovery was propounded on Plaintiff.
Accordingly, the Court finds that Defendant Jarboe has provided an adequate
explanation for any delay in seeking amendment, and therefore the Court finds that the
Motion [#69] should not be denied on the basis of undue delay.
B.

Undue Prejudice
The Court may deny a motion to amend based on undue prejudice to the nonmoving

party. See Minter, 451 F.3d at 1205. Prejudice to the opposing party is the single most
important factor in deciding whether to allow leave to amend. Id. at 1207. Here, Plaintiff
does not demonstrate any undue prejudice it will experience if Defendant is permitted to
amend. Plaintiff has identified three potential sources of prejudice: (1) “inclusion of . . .
issues [revolving around the alleged violations of HUD/FHA violations] will transform the
case into a tedious analysis of HUD/FHA regulations that bear no real relationship to the
enforceability of the underlying Agreement and whether that contract has been breached
by Mr. Jarboe;” (2) “inclusion will unquestionably necessitate the retention of additional
experts, deposition of those experts, and any discovery attendant with said experts;” and
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(3) “inclusion of these issues will undoubtedly significantly lengthen the trial itself based
upon the additional evidence and testimony, likely beyond the dates already permitted by
this Court.” Response [#66] at 10. Plaintiff’s arguments may, indeed, demonstrate
prejudice. However, Plaintiff has failed to show how this prejudice is undue. See Minter,
451 F.3d at 1205. For example, discovery limitations and hearing/trial settings may be
altered for good cause shown. See Fed. R. Civ. P. 16(b). Further, Plaintiff concedes:
“Certainly, Mr. Jarboe would ordinarily be entitled to make his case as complicated and
lengthy as the Rules and the Court would allow . . . .” Response [#66] at 10. However,
Plaintiff then circles this concession back around to its delay argument, stating: “but to allow
such an expansion after already delaying the case via his assertion in California of claims
that were compulsory here, and the unjustified five month delay in asserting these new
claims and defenses would be unjust. Had Mr. Jarboe wished to do what his motion
proposes, it should have been incumbent upon him to do so as soon as possible—namely,
shortly after the Court lifted the seal in October 2018 or, at the very latest, December 2018.
To wait until March 2019 is unreasonable.” Id. at 10-11. The Court has already determined
that the delay was not undue, and consideration of the potential prejudice asserted by
Plaintiff does not fundamentally alter that analysis. Under these circumstances, the Court
cannot find that undue prejudice has been shown. See e.g., Stanton v. Encompass Indem.
Co., No. 12-cv-00801-PAB-KLM, 2012 WL 4466555, at *4 (D. Colo. Sept. 27, 2012) (finding
undue prejudice where amendment would result in opposing counsel being placed in the
position of being a fact witness).
Accordingly, the Court finds that Plaintiff has not shown it would be subject to undue
prejudice should amendment be granted, and therefore the Court finds that the Motion
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[#69] should not be denied on the basis of undue prejudice.
IV. Conclusion
For the foregoing reasons, the Court finds that justice would be served by allowing
Defendant Jarboe’s proposed amendments pursuant to Fed. R. Civ. P. 15(a)(2).
Accordingly,
IT IS HEREBY ORDERED that the Motion [#64] is GRANTED.
IT IS FURTHER ORDERED that the Clerk of the Court shall accept Defendant and
Counterclaim-Plaintiff Thomas R. Jarboe’s Amended Answer and Counterclaims [#64-1]
for filing as of the date of this Order.

Dated: May 29, 2019

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