He et al v. Rom et al

Filing 149

Opinion & Order signed by Judge James S. Gwin on 7/7/16 denying plaintiffs' motion for leave to amend the complaint for the reasons set forth in this order. All deadlines currently set by the Case Management Plan and Trial Order remain in force. (Related Doc. 132 ) (D,MA)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
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RUI HE, et al.,
Plaintiffs,
vs.
DAVOR ROM, et al.,
Defendants.

CASE NO. 15-cv-1869

OPINION & ORDER
[Resolving Doc. 132]

-----------------------------------------------------JAMES S. GWIN, UNITED STATES DISTRICT JUDGE:
Plaintiffs Rui He, Xiaoguang Zheng, and Zhenfen Huang represent a putative class of
investors based in China who invested in, and claimed to have been scammed by, American real
estate investor Davor Rom and his companies Investor Income Properties, LLC, IIP Ohio, IIP
Management, IIP Cleveland Regeneration, LLC, IIP Cleveland Regeneration 2, LLC, Assets
Unlimited, LLC, and IIP Akron, LLC (collectively, “Defendants”).
Before the Court is Plaintiffs’ motion for leave to amend the complaint.1 Defendant Rom
opposed.2 For the following reasons, this Court DENIES Plaintiffs’ motion for leave to amend.
I. Background
This case was originally filed on September 12, 2015.3 Plaintiffs filed a first amended
complaint on October 7, 2015.4 On January 6, 2016, this Court held a case management
conference with parties in chambers.5 This Court set the deadline to add parties or amend
pleadings for February 22, 2016.6 On February 1, 2016, Plaintiff requested an extension to

1

Doc. 132.
Doc. 137.
3
Doc. 1.
4
Doc. 5.
5
Doc. 47.
6
Doc. 48.
2

Case No. 15-cv-1869
Gwin, J.
February 29, 2016, which the Court granted.7 On February 24, 2016, Plaintiff requested an
additional extension to March 25, 2016 to amend the complaint.8 On February 29, 2016,
Plaintiffs filed a second amended complaint.9 The second amended complaint kept the same
defendants, and largely the same factual background, but added claims for securities fraud,
breach of fiduciary duty, and conversion.10 On March 7, 2015, the Court denied without
prejudice the motion for an extension of time to amend the complaint.11
Aside from changes to the pleadings, the case is continuing forward. The class
certification deadline was June 20, 2016.12 The dispositive motion deadline was July 6, 2016.13
Trial remains scheduled for two-week standby beginning October 31, 2016.14 Although
discovery is scheduled to remain open until October 10, 2016, the case is quickly moving
forward.15
On June 7, 2016, Plaintiffs filed the instant motion for leave to amend the complaint.
Plaintiffs do not attach a proposed third amended complaint, but state that they intend to add at
least eleven other parties and claims under the federal and state anti-racketeering laws.16
Plaintiffs allege that they have uncovered a “fraudulent scheme” and a “racketeering [RICO]
enterprise” engaged in by the existing defendants and proposed defendants TitleCo Title
Agency LLC, WC Management LLC, Property Hotline LLC, SM Moreland, LLC, Close to

7

Doc. 60; Doc. 61.
Doc. 78.
9
Doc. 86.
10
Doc. 86. The second amended complaint also dropped claims for breach of contract, unjust enrichment,
and fraudulent nondisclosure.
11
Doc. 94.
12
Non-Document Entry, May 13, 2016.
13
Non-Document Entry, June 24, 2016.
14
Doc. 48.
15
Id.
16
Doc. 132.
8

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Case No. 15-cv-1869
Gwin, J.
Home, Anthony Halsall, Zdravko Rom, Iryna Ivashchuk, Violetta Varenkova, Gary Zeid, Amy
Tarle, and Nelli Johnson.
For instance, Plaintiffs claims that proposed defendant WC Management LLC sold
properties as part of the scheme. Plaintiffs claim that proposed defendant TitleCo Title Agency
LLC “served as the closing and escrow agents and, among other acts, knowingly failed to
disclose numerous material facts to Plaintiffs.”17 Plaintiffs claim that proposed defendant
Violetta Varenkova “supplied distressed properties to Rom and ‘IIP’ companies . . . and
knowingly participat[ed] in the fraudulent scheme.”18 Finally, Plaintiffs claim that proposed
defendant Amy Tarle was a property manager for IIP management and “supplied distressed
properties to Rom and the ‘IIP’ companies while receiving sales proceeds from the scheme.”19
Defendants oppose Plaintiffs’ motion to amend.20

II. Legal Standard
Ordinarily leave to amend should be freely given.21 But “the right to amend is not
absolute or automatic.”22 Even Federal Rule of Civil Procedure 15 recognizes that amendment
need only be permitted “when justice so requires.”
Leave to amend should not be granted if there is “undue delay, bad faith or dilatory
motive on the part of the movant [or] . . . undue prejudice to the opposing party by virtue of
allowance of the amendment.”23 Delay by itself is not sufficient reason to deny a motion to

17

Id. at 2.
Id. at 3.
19
Id.
20
Doc. 137.
21
See Fed. R. Civ. P. 15(a)(2).
22
Tucker v. Middleburg-Legacy Place, 539 F.3d 545, 551 (6th Cir. 2008) (citations omitted).
23
Fisher v. Roberts, 125 F.3d 974, 977 (6th Cir. 1997) (quoting Foman v. Davis, 371 U.S. 178 (1962)).
18

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Case No. 15-cv-1869
Gwin, J.
amend. Instead, courts look to whether there is also a showing of “significant” prejudice.24 For
instance, delaying amendment until after the close of discovery and filing of summary judgment
prejudices a defendant.25 Alternately, forcing a defendant at a late stage in the case to respond to
entirely new claims with entirely new defenses is prejudicial.26 “When amendment is sought at a
late stage in the litigation, there is an increased burden to show justification for failing to move
earlier.”27
“Normally, a party seeking an amendment should attach a copy of the amended
complaint.”28
III. Discussion
Granting leave to amend will substantially prejudice Defendants in this case.
At the time Plaintiffs filed for leave to amend, mere days were left before class
certification and dispositive motions were due. These deadlines have now passed. The requested
third amended complaint adds entirely new types of claims and at least eleven defendants.
Indeed, the type of RICO claims proposed by Plaintiffs are particularly complex and will
require substantial discovery and additional defense strategies.29 As Defendant Rom properly

Duggins v. Steak ‘n Shake, Inc., 195 F.3d 828, 834 (6th Cir. 1999) (citing Moore v. City of Paducah, 790
F.2d 557, 562 (6th Cir. 1986)).
25
See, e.g., id. at 834.
26
Troxel Mfg. Co. v. Schwinn Bicycle Co., 489 F.2d 968, 971 (6th Cir. 1973).
27
Wade v. Knoxville Utilities Bd., 259 F.3d 452, 459 (6th Cir. 2001).
28
Kuyat v. BioMimetic Therapeutics, Inc., 747 F.3d 435, 444 (6th Cir. 2014) (citing Shillman v. United
States, 221 F.3d 1336, 2000 WL 923761, at *6 (6th Cir. 2000) (unpublished table decision)). The court in Kuyat
then held, “Both because the plaintiffs did not present an adequate motion and because they did not attach a copy of
their amended complaint, the district court did not abuse its discretion in refusing to allow the plaintiffs to amend
their complaint based on the final sentence of the plaintiffs’ memorandum in opposition.” Id.
29
“RICO provides a private cause of action for ‘[a]ny person injured in his business or property by reason
of a violation of section 1962 of this chapter.’” Hemi Grp., LLC v. City of New York, N.Y., 559 U.S. 1, 6 (2010)
(citing 18 U.S.C. §1964(c)). “Section 1962, in turn, contains RICO’s criminal provisions.” Id. Section 1962 lists
the activities for which a private citizen can sue under RICO. These activities include: using or investing income
received from a racketeering activity or unlawful debt collecting, 15 U.S.C. § 1962(a); obtaining an interest in or
control of an enterprise engaged in or affecting interstate or foreign commerce through a pattern of racketeering
activity or unlawful debt collecting, 15 U.S.C. § 1962(b); conducting or participating in an enterprise’s affairs
through a pattern of racketeering activity or unlawful debt collecting, 15 U.S.C. § 1962(c); or conspiring to commit
any of the three above offenses, 15 U.S.C. § 1962(d).
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Gwin, J.
points out, many courts require parties to file RICO Case Statements to address the complexity of
RICO claims.30 Combined, these factors work a substantial prejudice on Defendants if the
amendments are allowed. Although discovery has not yet closed, the current case is far into
litigation, and Plaintiffs have not made the additional showing justifying such extreme changes in
the operative complaint at this time.31
Moreover, Plaintiffs request to amend is particularly ill-taken because Plaintiffs had
clearly identified many of these new defendants earlier in the litigation. In Plaintiffs’ second
amended complaint, for instance, Plaintiffs alleged that Rom used partner companies “as part of
his scheme” including WC Management and Close to Home, LLC — entities that Plaintiffs now
seek to add as new defendants.32 At that time, Plaintiffs had already identified Amy Tarle as an
owner of IIP Management.33 Plaintiffs had also linked TitleCo Title Agency to Defendants’
sales.34
Indeed, in Plaintiffs’ November 2015 motion for a preliminary injunction, Plaintiffs had
already identified now-proposed defendant Violetta Varenkova as Defendants’ employee who
had set up many of the LLCs at issue.35

See Kramer v. Bachan Aerospace Corp., 912 F.2d 151, 153 (6th Cir. 1990) (“[T]he district court directed
plaintiff . . . to file a RICO ‘Case Statement’ within twenty days” because “both the complaint and the amended
complaint contained vague and ambiguous allegations.”); Frank v. D’Ambrosi, 4 F.3d 1378, 1381 (6th Cir. 1993)
(stating that the purpose of a RICO Case Statement is to explain a party’s “RICO claims and the factual basis for
them”); Thomas v. Daneshgari, 997 F. Supp. 2d 754, 758 (E.D. Mich. 2014) (requiring Plaintiffs to file a “RICO
case statement,” within which Plaintiffs had to “describe in detail” the basis for their RICO claim, and subsequently
denying leave to amend complaint); Wyndham Vacations Resorts, Inc. v. The Consulting Grp., Inc., No. 2:12-CV00096, 2013 WL 3834047, at *9 (M.D. Tenn. July 23, 2013) (requiring a Supplemental RICO Case Statement to
further clarify Wyndham’s amended RICO claims because of the substantial changes to the Complaint).
31
Plaintiffs also did not attach their proposed complaint. The Court is relying on Plaintiffs’ description of
the amended complaint provided in the motion.
32
Doc. 86 at ¶ 27.
33
Id. at ¶ 28.
34
Id. at ¶ 29.
35
Doc. 13 at 12. In this motion, Plaintiffs also identified WC Management, and Close to Home Realty,
LLC. Id.
30

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Case No. 15-cv-1869
Gwin, J.
Given Plaintiffs’ knowledge of the proposed defendants, delaying the proposed
amendment to this stage of litigation is evidence of bad faith and dilatory motives. Moreover, the
delayed amendment would substantially prejudice the existing Defendants in the case. Under
these circumstances, justice does not require granting leave to file yet another amended
complaint.

IV. Conclusion
Accordingly, this Court DENIES Plaintiffs’ motion for leave to amend. All deadlines
currently set by the Case Management Plan and Trial Order remain in force.
IT IS SO ORDERED.

Dated: July 7, 2016.

s/
James S. Gwin
JAMES S. GWIN
UNITED STATES DISTRICT JUDGE

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