Scott et al v. Vantage Corporation et al

Filing 110

MEMORANDUM ORDER re 70 MOTION to Substitute Party: Bailey M. Carter and Mary Wilson Carter, acting through her next friend Wilson Carter to replace Bailey Middleton Carter 2009 Trust and the Mary Wilson Carter 2009 Trust filed by Wilson Carter, Ta ra Scott, 61 MOTION to Dismiss for Lack of Jurisdiction Over the Subject Matter Motion to Dismiss Claims Brought By Plaintiff Wilson Carter as Trustee for The Bailey Middleton Carter 2009 Trust and The Mary Wilson Carter 2009 Trust under Federa l Rule of Civil P filed by VF(X) LP, Brian Askew, Tradelogix, LLC, Gerald Finegold, Vantage Advisory Management, LLC,, Vantage Corporation, 69 MOTION to Amend/Correct Plaintiffs' Motion for Leave to File Second Amended Complaint and Memorandum in Support Thereof and in Opposition to Defendants' Motion to Dismiss for Lack of Standing filed by Wilson Carter, Tara Scott. Signed by Judge Mary Pat Thynge on 9/18/18. (cak)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

Tara Scott, Individually, and Wilson
Carter, Individually and as Trustee of
.
The Bailey Middleton Carter 2009 Trust, :
The Mary Wilson Carter 2009 Trust, and :
The Wilson M. Carter 1998 Trust,
·
Plaintiffs ,
C. A. No. 17-448-MPT

V.

Vantage Corporation , Vantage Advisory :
Management, LLC , VF(x) LP ,
·
Tradelogix, LLC , Brian Askew, and
Gerald Finegold ,
Defendants.
MEMORANDUM ORDER

I.

INTRODUCTION

On April 20 , 2017 , Tara Scott ("Scott"), in her individual capacity, and Wilson
Carter ("Carter"), in his individual capacity and as trustee of the Bailey Middleton Carter
2009 Trust (the "Bailey Trust"), the Mary Wilson Carter 2009 Trust (the "Mary Trust"),
and the Wilson M. Carter 1998 Trust (the "Wilson Trust") (collectively, "plaintiffs") filed
this action , pursuant to federal securities laws, state securities laws, and various
common law causes of action , against Vantage Corporation , Vantage Advisory
Management, LLC , VF(x) LP , Tradelogix, LLC , Brian Askew, and Gerald Finegold
(collectively, "defendants"), seeking rescission of defendants' sale of Vantage
Corporation stock to plaintiffs, as well as interest, costs, fees , and compensatory
damages.1 Defendants moved to dismiss,2 which the court granted in part and denied

1

D.I. 1; see also D.I. 13 at 2-6 (detailing the factual background of the
allegations) .
2
D.I. 7.

in part on August 15, 2017 .3 In the briefing on the motion to dismiss, plaintiffs
requested leave to amend, 4 which the court granted. 5 On September 12, 2017,
Plaintiffs filed an Amended Complaint. 6 Thereafter, on September 26, 2017, defendants
moved to dismiss the Amended Complaint7-the court denied this second motion to
dismiss. 8
On December 8, 2017, defendants answered the Amended Complaint9 and filed
counterclaims alleging various causes of action against plaintiffs. 10 In January, 2018,
Plaintiffs moved to dismiss these counterclaims. 11 Although this motion to dismiss
remains at issue, the court does not resolve the motion in this Memorandum Order.12
On February 27, 2018 , plaintiffs submitted a proposed Scheduling Order, which
the court issued the following day. 13 According to the Scheduling Order, the deadline
for joinder of parties and amendment of pleadings was set retroactively to January 31,
2018 .14
In March 2018, defendants moved to dismiss Carter's claims in his capacity as
trustee of the Bailey Trust and the Mary Trust for lack of subject matter jurisdiction. 15
According to defendants, neither of these trusts purchased stock in Vantage
Corporation. 16

3

D.1.13.
D. I. 11 at 15.
5 D. I. 13 at 14.
6
D.I. 16.
7
D.1.17.
8
D.I. 21.
9
D.I. 25.
10
D.I. 26.
11
D.I. 33.
12 The court will resolve this motion separately.
13 D.I. 44; D. I. 45.
14
D.I. 45 at 2.
15
D.I. 61.
16
D.I. 62 at 1.
4

2

On March 28 , 2018 , plaintiffs opposed defendants' motion, moved for leave to file
a proposed Second Amended Complaint,17 and moved to substitute the individual
beneficiaries of the Bailey and Mary Trusts as parties to the litigation .18 The proposed
Second Amended Complaint includes the following new materials : (1) the addition of
Bailey M. Carter and Mary W . Carter as individual plaintiffs , including relevant factual
allegations;19 (2) new factual allegations related to non-parties John Carr ("Carr") ,
Matthew Dwyer Ill ("Dwyer"), and Michael Hollingsworth ;20 (3) specific factual
allegations related to Dwyer's ability to be a "registered representative" for the sale of
securities ;2 1 (4) the inclusion of allegations related to acts by non-parties "Carr and
Dwyer" in the claims ;22 (5) a new claim by Mary W . Carter,23 through her next friend
Wilson M. Carter, for sale of securities to a minor; 24 (6) two additional claims for punitive
damages and attorneys' fees under Georgia law;25 and (7) a new securities claim by
Scott under Colorado law.26
Defendants' motion to dismiss and plaintiffs' motions to substitute and for leave
to amend were fully briefed on April 18, 2018 and are presently before the court.27

17

0 .1. 69 .
0 .1. 70.
19 E.g., D.I. 69-2 at ,I,I 2, 5.
20 E.g., id. at ,I,I 15-17.
21 E.g. , id. at ,I,I 20-35 ; see also 0 .1. 69 at 2-3 ("Plaintiffs wish to include
additional facts learned thus far in discovery, such as the fact that . . . Dwyer .. . was
subject to a permanent ban from the securities industry[.]") .
22 E.g., 0 .1. 69-2 at ,I 71-77 (demonstrating the addition of "Carr and Dwyer" to
each line of Count I) .
23
The proposed Second Amended Complaint refers to Mary W . Carter as "Mary
Wilson. " 0 .1. 69-2 at 28 .
24
D.I. 69-2 at ,I,I 133-136
25 Id. at ,I,I 137-141.
26 Id. at ,I,I 142-143.
27 0.1. 81 , 0 .1. 82 .
18

3

II.

STANDARD OF REVIEW
A.

Subject Matter Jurisdiction

When jurisdiction is challenged , the party asserting subject matter jurisdiction has
the burden of proving its existence. 28 Under Federal Rule of Civil Procedure 12(b)(1 ),
the court's jurisdiction may be challenged either facially, that is , based on the legal
sufficiency of the claim , or factually, based on the sufficiency of jurisdictional facts .29
Where there is a facial attack on jurisdiction, the court must accept as true the
allegations contained in the complaint. Dismissal for a facial challenge to jurisdiction is
"proper only when the claim 'clearly appears to be immaterial and made solely for the
purpose of obtain ing j urisdiction or . .. is wholly insubstantial and frivolous ."'30
Where there is a factual attack, the court is not "confine[d] to the allegations in
the ... complaint, but [may] consider affidavits, depositions, and testimony to resolve
factual issues bearing on jurisdiction. "31 Under that circumstance, "no presumptive
truthfulness attaches to plaintiff's allegations, and the existence of disputed material
facts will not preclude the trial court from evaluating for itself the merits of the
jurisdictional claims ." 32
Usually, subject matter jurisdiction is decided at the outset of a case , however,
"the truth of jurisdictional allegations need not always be determined with finality at the
threshold of litigation ."33 A party may first establish jurisdiction '" by means of a
nonfrivolous assertion of jurisdictional elements and any litigation of a contested
subject-matter jurisdictional fact occurs in comparatively summary procedure before a

See Carpet Group Int'/. v. Oriental Rug Importers Ass'n. , Inc., 227 F.3d 62 , 69
(3d Cir. 2000) .
29 2 MOORE'S FEDERAL PRACTICE§ 12.30[4] (3d ed. 1997).
3
° Kehr Packages, Inc. v. Fide/car, Inc., 926 F.2d 1406, 1408-09 (3d Cir. 1991)
(quoting Be// v. Hood, 327 U.S. 678 , 682 (1946)).
31 Goth a v. United States, 115 F. 3d 176, 179 (3d Cir. 1997); see also Mortenson
v. First Fed. Sav. & Loan Ass'n. , 549 F.2d 884 , 891-92 (3d Cir. 1977).
32 Carpet Group, 227 F.3d at 69 (quoting Mortenson , 549 F.3d at 891 ).
33 MOORE at § 12.30[1].
.
28

4

judge alone (as distinct from litigation of the same fact issue as an element of the cause
of action , if the claim survives the jurisdictional objection) ."' 34

B.

Substituting Parties

Rule 17 provides that "[a]n action must be prosecuted in the name of the real
party in interest. "35 "The court may not dismiss an action for failure to prosecute in the
name of the real party in interest until , after an objection, a reasonable time has been
allowed for the real party in interest to ratify, join , or be substituted into the action ."36
The "protection against dismissal is designed 'to avoid forfeiture and injustice when an
understandable mistake has been made in selecting the party in whose name the action
should be brought. "' 37 "Thus , [substitution] 'should be applied only to cases in which
substitution of the real party in interest is necessary to avoid injustice. "'38

C.

Amending the Complaint
1.

Rule15

Under Rule 15, "[a] party may amend its pleading once as a matter of course
within " specified timeframes-otherwise , "a party may amend its pleading only with the
opposing party's written consent or the court's leave. "39 "The court should freely give
leave when justice so requires ."40 The Supreme Court has explained that "[i]f the
underlying facts or circumstances relied upon by a plaintiff may be a proper subject of
relief, he ought to be afforded an opportunity to test his claim on the merits ."41 "In the

Genetics Institute, LLC v. Novartis Vaccines and Diagnostics, Inc. , 597 F.
Supp. 2d 462 , 466 (D. Del. 2009) (quoting Jerome B. Grubart, Inc. v. Great Lakes
Dredge & Dock Co., 513 U.S. 527, 537- 38 (1995)) .
35
Fed. R. Civ. P. 17(a)(1).
36 Id. 17(a)(3).
37
Gardner v. State Farm Fire and Gas. Co., 544 F.3d 553, 562 (3d Cir. 2008)
(citation omitted) .
38 Id. (citation omitted).
39
Fed. R. Civ. P. 15(a)(2).
4o Id.
4 1 Foman v. Davis, 371 U.S. 178, 182 (1962) (citations omitted) .
34

5

absence of any apparent or declared reason-such as undue delay, bad faith or 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 ."'42 "The passage of time , without more , does not require that a motion
to amend a complaint be denied ; however, at some point, the delay will become
'undue ,' placing an unwarranted burden on the court, or will become 'prejudicial, '
placing an unfair burden on the opposing party." 43

2.

Rule 16

"If a party moves for leave to amend the pleadings after a deadline imposed by a
Scheduling Order, Rule 16 ... is also implicated ."44 Under Rule 16, "[a] schedule may
be modified only for good cause and with the judge's consent. "45 "After a pleading
deadline has passed , the Third Circuit requires a showing of good cause in order to
amend ."46 "Good cause" exists if the Schedule "cannot reasonably be met despite the
diligence of the party seeking the extension ." 47 "'In contrast to Rule 15(a), the good
cause standard under Rule 16(b) hinges on diligence of the movant, and not on
prejudice to the non-moving party.' "48

Id.
Adams v. Gould Inc. , 739 F.2d 858 , 868 (3d Cir. 1984); see also Arthur v.
Maersk, Inc., 434 F.3d 196, 204 (3d Cir. 2006) ; Cornell & Co. v. Occupational Safety &
Health Review Comm 'n, 573 F.2d 820 , 823 (3d Cir. 1978).
44
ICU Med., Inc. v. RyMed Techs., Inc., 674 F. Supp. 2d 574 , 577 (D. Del. 2009)
45
Fed . R. Civ. P. 16(b)(4).
46
ICU Med., 674 F. Supp . 2d at 577 (citing E. Minerals & Chems. Co. v. Mahan,
225 F.3d 330 , 340 (3d Cir. 2000)).
47
Fed . R. Civ. P. 16(b)(4), Advisory Committee Notes to the 1983 Amendments.
48
ICU Med. , 674 F. Supp . 2d at 577-78 (quoting Roquette Freres v. SP/
Pharma. Inc., C.A. No. 06-540-GMS , 2009 WL 1444835, at *4 (D. Del. May 21 , 2009)).
42
43

6

Ill.

DISCUSSION
A.

Motion to Dismiss

Under Rule 12(b)(1 ), a party may bring a motion to dismiss for lack of subject
matter jurisdiction.49 Standing is a jurisdictional matter; therefore , Rule 12(b)(1) is also
appropriate for motions to dismiss for want of standing .50
In the case at bar, defendants factually attack subject matter jurisdiction and
attach documentary evidence in support of the motion to dismiss. 51 Based upon this
undisputed documentary evidence , defendants argue that the Bailey and Mary Trusts
lack standing in the case at bar, because neither of these trusts purchased stock in
Vantage Corporation .52 Plaintiffs do not contest these facts and instead explain that
"[a]t the time of the filing of the Complaint, and First Amended Complaint, Plaintiffs
believed $1 million of Class A shares in Vantage Corporation had been purchased by
Wilson Carter in his capacity as Trustee for the Bailey .. . and [] Mary ... Trust[s .]" 53
Although plaintiffs' combined motion and memorandum of law in support of their motion
for leave to amend is also nominally in "opposition" to defendants' motion to dismiss, 54

49

Fed . R. Civ. P. 12(b)(1 ).

so Ballentine v. United States, 486 F.3d 806 , 810 (3d Cir. 2007) (citing St.

Thomas-St. John Hotel & Tourism Ass'n v. Gov't of the U.S. Virgin Islands , 218 F.3d
232 , 240 (3d Cir.2000); Kauffman v. Dreyfus Fund, Inc., 434 F.2d 727 , 733 (3d
Cir. 1970)) ("A motion to dismiss for want of standing is[] properly brought pursuant
to Rule 12(b)(1 ), because standing is a jurisdictional matter. ").
51 D.I. 62 at 2- 3; D.I. 63-1 , exs. A-F; see supra notes 31-32 .
52 D.I. 62 at 2-3 . Rather, defendants allege that the beneficiaries of these trusts
purchased the stock individually. Id.; see also D.I. 63-1 , ex. Cat 4 (documenting sale to
Bailey M. Carter individually); id., ex. D at 4 (documenting sale to Mary Wilson M. Carter
individually) ; id. , ex. E (stock certificate issued to Bailey M. Carter) ; id., ex. F (stock
certificate issued to Mary Wilson M. Carter) .
53 D.I. 69 at 2.
54
See id. ("Plaintiffs' Motion For Leave To File Second Amended Complaint And
Memorandum In Support Thereof And In Opposition To Defendants' Motion To Dismiss
For Lack Of Standing ").

7

the court is unable to discern any actual opposition to the motion (i.e., a dispute over the
factual attack to standing) in the brief. 55
Therefore, the court concludes that the Bailey and Mary Trusts did not purchase
stock in Vantage Corporation and thus lack standing in the case at bar. As such, the
court lacks subject matter jurisdiction over the matter involving these two trusts, and
dismissal is appropriate under Rule 12(b)(1). For these reasons, the court GRANTS
defendants' motion to dismiss .

8.

Motion to Substitute

According to the undisputed documentary evidence, Bailey M. Carter and Mary
W . Carter each purchased $500,000 in Vantage Corporation stock. 56 Two months after
the deadline to join new parties, 57 plaintiffs moved to substitute Bailey M. Carter and
Mary W. Carter, the respective beneficiaries of the Bailey and Mary Trusts, for the trusts
themselves as plaintiffs in this action . In addition, the proposed Second Amended
Complaint includes , among other new material, new claims related to Mary W. Carter. 58
Plaintiffs argue that the Advisory Committee notes to the 1966 amendment of
Rule 17(a)(3) state that this provision "was designed to prevent penalization when ...
'determination of the proper party to sue is difficult or when an understandable mistake
has been made ."' 59 However, plaintiffs do not rely on this principle in explaining their
reasons to substitute and instead contend that "[c]ourts routinely allow for the
substitution when doing so would not cause prejudice."60 In essence, plaintiffs contend
55

Rather, the entirety of plaintiffs' argument is that, if the court grants plaintiffs'
requests to substitute parties and amend the First Amended Complaint, that will "render
moot [d]efendants' [m]otion to [d]ismiss for [l]ack of [s]tanding[.]" D.I. 69 at 5.
56 D.I. 63-1 , exs. C-F .
57
And potentially after the relevant statutes of limitation have run. D.I. 78 at 1.
58 D.I. 69-2 at,i,i 133-136.
59
D.I. 70 at 3 (citing Fed. R. Civ . P. 17, Advisory Committee Notes to 1966
Amendments) .
60 Id. (citing Boarhead Farm Agreement v. Advanced Envt'/. Tech. Corp., 381 F.
Supp. 2d 427 , 433 (E.D. Pa . 2005)) . Plaintiffs do not explain why the principles of
Boarhead Farm Agreement apply to the case at bar.
8

that: (1) the substitution of the parties "is a technical matter [that] does not alter the
underlying nature or the relief sought[;]" (2) "[p]laintiffs ' mistake as to the real party in
interest was reasonable[ ;]" (3) "the Complaint put Defendants on notice as to the
potential claims against them[;]" and (4) "[f]ailure to substitute the real parties in interest
would leave potential plaintiffs without a remedy. "61
Defendants respond that the Advisory Committee notes make it clear that Rule
17(a)(3) "should not be misunderstood or distorted ."62 According to defendants, this is
not a simple substitution of a real party in interest, because the "separate and distinct"
nature of a trust and its beneficiaries require the addition of new factual allegations to
capture communications between defendants and Bailey M. Carter and Mary W.
Carter.63 Defendants argue that this is beyond the scope of Rule 17 case law, which
they contend is limited to situations "where 'the change is merely formal and in no way
alters the original complaint's factual allegation as to the events or the participants."' 64
Defendants also argue that, given the documentary evidence , it was not "difficult" for
plaintiffs to ascertain who had purchased stock in Vantage Corporation . Moreover,
defendants note , plaintiffs did not explain any "understandable mistake. "65
Plaintiffs argue in their reply brief that the proposed "substitution amounts only to
an alteration to the names of two of the parties seeking relief. "66 With regards to the
alleged mistake , plaintiffs contend that "[i]n the present case , any mistake as to the
proper party is partly the result of the conduct of Vantage Corporation[]" because
Vantage "issued federal tax Schedule K-1 forms to the Bailey Middleton Carter 2009

61

Id. at 3-4 (citations omitted) .
D.I. 78 at 3.
63 Id.
64
Id. at 3-4 (citing Advanced Magnetics, Inc. v. Bayfront Partners, Inc., 106 F. 3d
11 , 20 (2d Cir. 1997).
65 Id. at 4-5 .
66 D.I. 82 at 2.
62

9

Trust and the Mary Wilson Carter 2009 Trust for the tax year 2016, representing that the
trusts were shareholders of Vantage Corporation[.]"6 7
Despite plaintiffs' assertions to the contrary, it is wholly apparent from the record
that plaintiffs' motion is much more than a simple change to the caption of the case at
bar. The extensive proposed amendments demonstrate that Plaintiffs cannot simply
substitute Bailey M. Carter for the Bailey Trust and Mary W . Carter for the Mary Trust
without adding additional factual allegations relating to acts by and communications with
these individuals. 68 In addition , plaintiffs' proposed Second Amended Complaint
includes add itional factual allegations about Mary W. Carter's status as a minor69 as
well as an additional claim for the sale of securities to a minor that plaintiffs identify as

° For these reasons alone, substitution under Rule 17(a)(3) is

"Mary Wilson ."7

inappropriate. 7 1
Also , the court is unconvinced that, at any point in time, it was "difficult" for
plaintiffs to ascertain which of the parties had purchased stock in Vantage
Corporation-Carter had direct knowledge of who purchased the stock and in what
capacity; Bailey M. Carter and Mary W . Carter each purchased the stock individually
and signed the relevant stock purchase agreements; and presumably, plaintiffs had
access to the relevant documents and information at all times.72 Moreover, plaintiffs
67

Id. at 3 (citing D.I. 82-1, exs . A-B) .
See, e.g., D.I. 69-2 at
39-40 (enumerating purchases by Bailey Carter and
Mary Carter individually).
69 Id. at ,i 40 (proposing new language "At the time of said purchase, Mary Carter
was thirteen years old and thus was not competent to enter into a contract for the
purchase of securities , nor was she an "accredited investor" under Regulation D.")/
70 Id. at ,i,i 133-136. See infra note 73.
71 See Advanced Magnetics, 106 F.3d at 20 ("A Rule 17(a) substitution of
plaintiffs should be liberally allowed when the change is merely formal and in no way
alters the original complaint's factual allegations as to the events or the participants.").
72 The relevant Rule 17(a)(3) case law is replete with fact patterns involving
insurance subrogation , statutes of limitations, and questions over the real parties in
interest with standing to file suit-cases where a party has initiated suit but after the
statute of limitations has run , it becomes apparent that the real party in interest is truly in
doubt. See, e.g., Levinson v. Deupree, 345 U.S. 648 , 651 (1953) (personal
68

,m

10

have not adequately explained the alleged "understandable mistake" through which
plaintiffs failed to adequately research their claim . In light of the sums of money
involved , plaintiffs' alleged "partial" reliance on tax forms provided to the Bailey and
Mary Trusts by Vantage Corporation does not begin to explain the source of plaintiffs'
confusion in filing suit. 73 In addition, denial of this motion will not lead to dismissal of the
action-the case will proceed with Scott and Carter pursuing individual claims as well as
Carter as the trustee of the Wilson M. Carter 1988 Trust. 74 For the aforementioned
reasons, the court DENIES plaintiffs' motion to substitute .

C.

Motion to Amend

The case at bar has been pending for nearly a year and a half, and in this time,
limited discovery has been taken .75 Under the current Scheduling Order, fact discovery
is scheduled to close in two months, on November 12, 2018. 76 So far, plaintiffs have
amended their Complaint once 77 and now seek to amend the Complaint yet again, this
time proposing numerous factual allegations related to acts by non parties and adding
additional causes of action .78
Plaintiffs argue that: (1) defendants are not prejudiced, because the proposed
Second Amended Complaint "merely substitutes parties and will be 'based on facts

representative and statute of limitations); Gardner v. State Farm Fire & Gas. Co., 544
F.3d 553, 563 (3d Cir. 2008) (statute of limitations and real party in interest); Link
Aviation, Inc. v. Downs, 325 F.2d 613, 615 (D.C. Cir. 1963) (real party in interest and
statute of limitations); Green v. Daimler Benz, AG , 157 F.R.D. 340, 342 (E.D. Pa. 1994)
(involving insurance subrogation under Pennsylvania law) . Plaintiffs have not identified
a single case that supports the premise that, under a similar factual circumstance, it
would be "difficult" for plaintiffs to ascertain the proper parties to file suit.
73 The court agrees with defendants that attorney error is no basis for an
"understandable mistake" in this regard . Hildebrand v. Dentsply Int'/, Inc., 264 F.R.D.
192, 199 n.12 (E.D. Pa. 2010) (cited by defendants in 0.1. 78 at 5 n.3) .
74 Fed . R. Civ. P. 17.
75 0.1. 100.
76 0.1. 107.
77 0 .1. 16.
78 0 .1. 69-2.
11

substantially similar' to the original pleadings[;]" 79 (2) there is no '"bad faith or dilatory
motive, truly undue or unexplained delay, repeated failure to cure deficiency by
amendments previously allowed or futility of amendment[,]"' because "[a]II the parties
proceeded under the mistaken belief' as alleged in the Amended Complaint that "$1
million of . . . stock had been purchased by the [Bailey and Mary] Trusts[;]"80 (3)
amendment is not futile "because it is supported by numerous factual bases and
essentially substitutes the correct parties for causes of action that have already been
deemed meritorious by surviving motions to dismiss[;]" 81 and (4) under Rule 16(b)(4),
plaintiffs identify seven reasons supporting "good cause" for modifying the Scheduling
Order and allowing amendment of the Amended Complaint. 82
Defendants oppose the motion and argue broadly that the proposed Second
Amended Complaint is the source of undue delay and prejudice to defendants, many of
the proposed amendments are futile , and plaintiffs have failed to demonstrate good
cause for violating the Scheduling Order.83 In support of their brief in opposition,
defendants have attached a copy of a complaint filed by plaintiffs against Carr and
Dwyer in state court in Georgia (the "Georgia Litigation") documenting that, as of
October 2017 , plaintiffs were in possession of much of the information related to non
parties, Carr and Dwyer, including Dwyer's permanent bar from "acting as a registered
representative."84
1.

Material related to Bailey M. Carter and Mary W. Carter

Given the extensive content in the proposed Second Amended Complaint related
to Bailey M. Carter and Mary W . Carter, the court's denial of plaintiffs' motion to

79

80
81
82

83
84

0 .1. 69 at 3 (citations omitted) .
Id. at 4 (citation omitted).
Id. (citation omitted).
Id. at 4-5 .
0.1. 77.
0 .1. 77-1 , ex. Aat,J 13.

12

substitute renders moot plaintiffs' motion with respect to these amendments. 85 The
court discusses the remaining amendments herein .
2.

The remaining proposed amendments

As discussed above, plaintiffs propose a Second Amended Complaint that, after
denial of the motion to substitute, includes the following amendments: (1) factual
allegations related to non-party individuals, Carr and Dwyer, including the bar on Dwyer
acting as a registered representative in the sale of securities; 86 and (2) causes of action
for attorneys' fees, 87 punitive damages, 88 and violations of the Colorado Securities
Act.89
3.

Rule 16(b)(4)

Plaintiffs seek to amend the First Amended Complaint after the deadline imposed
by the Scheduling Order. In so doing, plaintiffs must first demonstrate good cause to be
excused from the Schedule. The "good cause" standard under Rule 16(b)(4) hinges on,
in the case at bar, the diligence of plaintiffs. 90 Specifically, plaintiffs must demonstrate
that the Schedule "cannot reasonably be met despite the diligence of [plaintiffs.]"9 1
Plaintiffs identify "seven reasons" 92 why there is good cause to amend the First
Amended Complaint.
Here, good cause exists for amendment of the complaint,
because 1) the Scheduling Order was not signed by the
Court until February 28, 2018, 2) discovery has only recently
commenced, and the parties have not yet responded to their
85 In addition, these proposed amendments would be futile. To be sure, these
proposed amendments include allegations relating to Bailey M. Carter and Mary W.
Carter as individuals, including "Count Eleven" for "Sale of Securities to a Minor in Her
Individual Capacity (Asserted by Mary Wilson) . D.I. 69-2 at
133-136 at 28 .
86 D.I. 69-2 at,1,120-27.
87 Id. at ,1,1 137-138.
88 Id. at ,1,1 139-141 .
89 Id. at ,1,1142-143.
90 ICU Med., 674 F. Supp . 2d at 577-78 (quoting Roquette Freres v. SP!
Pharma. Inc., C.A. No. 06-540-GMS, 2009 WL 1444835, at *4 (D . Del. May 21, 2009)).
91 See supra note 47 .
92 D.I. 81 at 8.

,m

13

respective first discovery requests, 3) both sides initially
believed the Bailey Middleton Carter 2009 Trust and the
Mary Wilson Carter 2009 Trust were the purchasers of
certain of the securities in question, and Defendants filed a
counterclaim against the Trusts (D.I. 26), 4) Vantage
Corporation issued Schedule K-1 s to the Trusts on March
28, 201 7 , representing that each Trust had a stock
ownership interest in Vantage Corporation, and received
reportable income from Vantage Corporation, 5) Defendants
waited nearly one year before notifying the Trusts that they
were not, in fact, shareholders in Vantage Corporation , 6)
Defendants did not raise this issue in their first two motions
to dismiss , and 7) Plaintiffs acted immediately to seek the
requested relief when they became aware of the true facts
concerning the identity of the purchasers, one of whom is a
minor.93
Defendants argue that plaintiffs "knew or should have known, about facts underlying
their new allegations and claims at the time they filed their original complaint and their
First Amended Complaint." 94
The court agrees with defendants that plaintiffs have failed to demonstrate good
cause why, despite plaintiffs' diligence, the Schedule cannot be met. First, reasons "3"-

"7" of plaintiffs' "seven reasons" relate to the portion of the motion that is moot, namely
the discovery of the proper purchasers of Vantage Corporation stock-none of these
five "reasons" discusses any of the other new matter (e.g ., "Carr and Dwyer," the
Colorado cause of action , or the additional remedies under Georgia law) .95
93

0 .1. 69 at 5.
D.I. 77 at 16.
95 In addition, reason "3" is a characterization that "both sides believed" when, so
far in this action , which has included two motions to dismiss filed by defendants ,
defendants have had to take plaintiffs' allegations as true. Therefore, the court does not
draw the inference that "both sides" held a similar belief based upon defendants'
motions to dismiss or even defendants' Counterclaims . Reasons "4" through "6" are
aspects of defendants' subject matter jurisdiction argument, which defendants may
raise "at any time" and were under no legal obligation to raise earlier in this litigation.
Thus , the court does not interpret these reasons to support good cause or to
demonstrate diligence on plaintiffs' part. Finally, reason "7" is that plaintiffs "acted
immediately" when so required by the Rules to respond to defendants' motion to
dismiss for lack of subject matter jurisdiction . Fed. R. Civ. P. 12. Plaintiffs' brief in
opposition was essentially that "the requested relief[] will render moot [d]efendants'
94

14

Second , of the remaining two reasons , neither demonstrates that the Schedule
could not be met, despite diligence by plaintiffs. Reason "1" is that "the Scheduling
Order was not signed by the [c]ourt until February 28 , 2018," which appears to suggest
delay on the part of the court, but plaintiffs fail to note that plaintiffs filed the proposed
document with the court the day before , on February 27, 2018, and had agreed to the
retroactive January 31 , 2018 deadline for the joinder of parties and amendment of the
pleadings at that time.96 In essence , plaintiffs filed papers in February 2018 stating that
the January 31 , 2018 deadline could be (and ostensibly was) met. A month later,
plaintiffs changed their tune when it became apparent that two of the plaintiffs lacked
standing to sue. Reason "2" is that "discovery has only recently commenced" 97 and that
no discovery had been taken as of March 28 , 2018. However, in the same brief,
plaintiffs stated that they "wish to include additional facts learned thus far in
discovery[]" 98 to broadly include numerous new factual allegations that mirror plaintiffs'
October 2017 filing in the Georgia Litigation .99 In this regard , plaintiffs statements
simply are not credible. Moreover, plaintiffs do not demonstrate to the court how, in the
case at bar, the Schedule could not be met, despite plaintiffs diligence in discovering
the facts that they now seek to include in the Second Amended Complaint.
Third , many of the facts alleged in the proposed Second Amended Complaint
were known by plaintiffs months, if not well over a year, before they filed their motion for

° For these reasons , plaintiffs have not met their burden under Rule 16 to show

leave. 10

[m]otion to [d]ismiss[.]" D.I. 69 at 5. Had defendants not filed the motion , there is no
evidence in the record that plaintiffs had imminent plans to request leave to amend or
that plaintiffs were otherwise diligent in continuing to research the factual allegations
plaintiffs now seek leave to add to the proposed Second Amended Complaint. D.I. 771, ex. A.
96 D. I. 44 .
97 D.I. 69 at 5.
98 D.I. 69 at 2.
99 D.I. 69-2 .
10 For example, as to the new factual allegations related to "Carr and Dwyer,"
including Carr's securities ban , which plaintiffs contend were "additional facts learned

°

15

good cause to be excused from the Schedule; therefore, leave to amend is not
appropriate .

4.

Rule 15

The court has denied plaintiffs' motion to substitute and has denied plaintiffs'
motion for failure to show good cause under Rule 16. As a result, the court declines to
reach the question of whether leave to amend is appropriate under Rule 15.

CONCLUSION
For the reasons discussed herein , defendants' motion to dismiss for lack of
subject matter jurisdiction (D .I. 61) is granted , namely, Wilson Carter as trustee of the
Bailey Middleton Carter 2009 Trust and Wilson Carter as trustee of the Mary Wilson
Carter 2009 Trust are hereby dismissed with prejudice as plaintiffs in this action . Also
for the reasons discussed , plaintiffs' motion to substitute (D.I. 70) is denied, and
plaintiffs' motion for leave to amend (D .I. 69) is denied.
An appropriate order shall follow.

Dated :

September I/ , 2018

thus far in discovery," D.I. 69 at 2, defendants have shown that plaintiffs were in
possession of this specific information in October 2017 , some five months before their
motion for leave to amend. D.I. 77 at 6-7 ; D.I. 77-1, ex A. In light of plaintiffs' first-hand
knowledge of their interactions with defendants, plaintiffs' contention that new facts
were "just beginning to come to light as a result of the limited discovery that has been
produced thus far[,]" D.I. 81 at 7, is not persuasive. In addition, there is no explanation
for how plaintiffs were diligent in seeking discovery into the remedies under Georgia
law, D.I. 69-2 at ,-r,-r 137-141 , or why the facts known to plaintiffs were insufficient to
have raised these claims earlier. Moreover, the First Amended Complaint already
1,
alleged that Scott was a Colorado resident and had been solicited there . D.I. 16 at
15, 22 . In light of the sparse (if not futile) allegations under Colorado law in the
142-143, it is unclear what new
proposed Second Amended Complaint, D.I. 69-2 at
information plaintiffs' alleged diligence uncovered that enabled them to make the
allegation at this time .

,m

,m

16