Veterans of Foreign Wars of Ohio Charities et al v. Miller et al
Filing
17
OPINION AND ORDER granting in part and denying in part 12 Motion for Leave to File Second Amended Complaint. Plaintiffs shall file a second amended complaint consistent with this order w/in seven (7) days. Signed by Magistrate Judge Terence P Kemp on 11/30/2011. (kk2)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
Veterans of Foreign Wars of
Ohio Charities, et al.,
:
:
Plaintiffs,
:
v.
Case No. 2:11-cv-544
:
Charles L. Miller, et al.,
:
JUDGE GEORGE C. SMITH
Magistrate Judge Kemp
Defendants.
OPINION AND ORDER
This matter is before the Court on the motion for leave to
file a second amended complaint filed by plaintiffs Veterans of
Foreign Wars of Ohio Charities and Department of Ohio, Veterans
of Foreign Wars of the United States.
Certain defendants
including Albert Roese, the Rick Brown Memorial Post #7941
Veterans of Foreign Wars of the United States, Inc. and the Rick
Brown Memorial VFW #7941 Charity Fund, Inc. do not oppose the
motion.
The remaining defendants, however, including Charles
Miller, Patricia Miller, H.V. Christopher Post #1176 - Veterans
of Foreign Wars of the United States, Thomas L. Potts and Lonnie
K. LeMaster have filed a response in opposition to the motion.
The motion has been fully briefed.
For the following reasons,
the motion for leave to file a second amended complaint will be
granted in part and denied in part.
I.
Background
Plaintiffs are non-profit corporations performing charity
and public service on behalf of Ohio veterans of foreign wars.
They filed this action asserting civil conspiracy claims under
federal and state law RICO statutes arising from the defendants’
alleged installation, maintenance and operation of illegal gaming
machines.
They also assert a state law breach of contract claim
in connection with this conduct.
The same defendants opposing
the current motion for leave to amend filed a motion to dismiss
directed to the original complaint.
Following the filing of that
motion to dismiss, plaintiffs filed a first amended complaint.
According to the first amended complaint, the defendants
have refused to distribute the appropriate net profits from
lawful charitable activities and have entered into unauthorized
financial obligations which have resulted in a breach of
contractual duties as well as fiduciary duties owed to the
plaintiffs and to the members of the defendant Posts #1176 and
#7941.
II.
The Motion for Leave to Amend
Through their proposed second amended complaint, plaintiffs
seek to clarify their allegations and to add the State of Ohio as
a defendant, based upon information they have obtained through
investigation.
Plaintiffs characterize the State of Ohio as a
“necessary, indispensable party” based on its “legitimate
interest in regulating gambling and in permitting certain
gambling activities for charitable purposes.”
The additional
factual allegations are set forth primarily at paragraphs 26
through 34 of the proposed amended complaint and relate to events
on or after September 28, 2010, involving plaintiffs’ review of
the financial records for Post #1176 and the decision to place it
in receivership.
In support of their motion, plaintiffs rely on
the liberal amendment standard under Fed.R.Civ.P. 15(a) and
assert that the objecting defendants will not be prejudiced by
the proposed amendments.
In response, the objecting defendants argue first that the
proposed factual allegations are not significantly different from
the allegations of the first amended complaint making any
amendment unnecessary.
In passing, they state that these
allegations are speculative and contain conclusions of law and do
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not support any claim for relief.
Their argument addressed to
the proposed addition of the State of Ohio as a defendant is only
slightly more substantial.
These defendants dispute the
plaintiffs’ characterization of the State of Ohio as an
indispensable party and assert that the proposed amended
complaint fails to state a claim against the State of Ohio.
They
contend also that under the plaintiffs’ definition of
indispensable party, other individuals or entities that have not
been named as defendants should be considered indispensable
parties.
Based on this contention, these defendants speculate
that plaintiffs will seek additional amendments and assert that
the plaintiffs’ repeated efforts to cure pleading deficiencies
has resulted in undue prejudice.
In reply, plaintiffs contend that the focus of their amended
complaint is the addition of the State of Ohio as an additional
party.
They claim that the State of Ohio is an indispensable
party because of the “numerous violations of state laws, relating
to the prohibitions of gambling, illegal use of bingo permits,
illegal use of liquor permits, and deceptive practices in
consumer transactions....”
Further, they argue that the State of
Ohio is an “appropriate party” because of its “constitutional
police powers and statutory authority for the enforcement of
anti-gambling statutes.”
Finally, they contend that they
reported the alleged operation of illegal gaming machines to the
Ohio Attorney General’s Office.
For all of these reasons, the
plaintiffs assert that the State of Ohio’s presence is required
in this case in order for the Court to fashion appropriate relief
in the event of a finding that the defendants violated state
laws.
Additionally, with respect to the defendants’ assertion that
other individuals or entities must also be named as indispensable
parties at this stage, the plaintiffs contend that currently
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there is not sufficient information to support the naming of
additional parties.
Finally, the plaintiffs contend that because
discovery has not begun and the preliminary pretrial conference
has not yet been held, any claim of prejudice is without merit.
III.
Legal Standard
Fed.R.Civ.P. 15(a)(2) states that when a party is required
to seek leave of court in order to file an amended pleading,
"[t]he court should freely give leave when justice so requires."
The United States Court of Appeals for the Sixth Circuit has
spoken extensively on this standard, relying upon the decisions
of the United States Supreme Court in Foman v. Davis, 371 U.S.
178 (1962) and Zenith Radio Corp. v. Hazeltine Research, Inc.,
401 U.S. 321 (1971), decisions which give substantial meaning to
the phrase "when justice so requires."
In Foman, the Court
indicated that the rule is to be interpreted liberally, and that
in the absence of undue delay, bad faith, or dilatory motive on
the part of the party proposing an amendment, leave should be
granted.
In Zenith Radio Corp., the Court indicated that mere
delay, of itself, is not a reason to deny leave to amend, but
delay coupled with demonstrable prejudice either to the interests
of the opposing party or of the Court can justify such denial.
Expanding upon these decisions, the Court of Appeals has
noted that:
[i]n determining what constitutes prejudice, the
court considers whether the assertion of the new
claim or defense would: require the opponent to
expend significant additional resources to conduct
discovery and prepare for trial; significantly
delay the resolution of the dispute; or prevent
the plaintiff from bringing a timely action in
another jurisdiction.
Phelps v. McClellan, 30 F.3d 658, 662-63 (6th Cir. 1994) (citing
Tokio Marine & Fire Insurance Co. v. Employers Insurance of
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Wausau, 786 F.2d 101, 103 (2d Cir. 1986)).
See also Moore v.
City of Paducah, 790 F.2d 557 (6th Cir. 1986); Tefft v. Seward,
689 F.2d 637 (6th Cir. 1982).
Stated differently, deciding if
any prejudice to the opposing party is "undue" requires the Court
to focus on, among other things, whether an amendment at any
stage of the litigation would make the case unduly complex and
confusing, see Duchon v. Cajon Co., 791 F.2d 43 (6th Cir. 1986)
(per curiam), and to ask if the defending party would have
conducted the defense in a substantially different manner had the
amendment been tendered previously.
General Electric Co. v.
Sargent and Lundy, 916 F.2d 1119, 1130 (6th Cir. 1990); see also
Davis v. Therm-O-Disc, Inc., 791 F. Supp. 693 (N.D. Ohio 1992).
The Court of Appeals has also identified a number of
additional factors which the District Court must take into
account in determining whether to grant a motion for leave to
file an amended pleading.
They include whether there has been a
repeated failure to cure deficiencies in the pleading, and
whether the amendment itself would be an exercise in futility.
Robinson v. Michigan Consolidated Gas Co., 918 F.2d 579 (6th Cir.
1990); Head v. Jellico Housing Authority, 870 F.2d 1117 (6th Cir.
1989).
The Court may also consider whether the matters contained
in the amended complaint could have been advanced previously so
that the disposition of the case would not have been disrupted by
a later, untimely amendment.
Id.
It is with these standards in
mind that the instant motion to amend will be decided.
IV.
Analysis
Although not clearly articulated, the primary argument
raised by the objecting defendants, at least with respect to the
proposed amendment to add the State of Ohio as a defendant, is
one of futility.
The plaintiffs characterize the State of Ohio
as an “indispensable party” without citation to any Federal Rule
of Civil Procedure.
The phrase “indispensable party” generally
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arises in the context of Fed.R.Civ.P. 19(b) which sets forth the
factors a Court must consider in determining whether to allow an
action to proceed or to be dismissed when a required or necessary
party, as defined in Fed.R.Civ.P. 19(a), cannot be joined.
See
generally In re Classicstar, LLC, 2011 WL 652744, *6 (6th Cir.
BAP February 24, 2011).
This issue typically arises in the
context of a Fed.R.Civ.P. 12(b)(7) motion to dismiss.
In that
context, the Sixth Circuit utilizes a three-step analysis in
determining whether a case should proceed in the absence of a
particular party.
Id.
The first step involves a determination
of whether a party meets the definition for a “necessary” or,
more precisely, “required” party set forth in Rule 19(a).
Id.
If a party is not deemed “necessary,” or in terms of the Rule,
“required,” there is no need to consider the remaining steps of
the analysis.
Id. at *9.
That is, the issue of indispensability
does not arise until, at a minimum, a party has been found to be
required or necessary.
Here, the plaintiffs have raised the issue of
indispensability within the context of a motion for leave to
amend.
However, the Court construes their argument as one
asserting that the State of Ohio is a required, or necessary,
party as set forth in Fed.R.Civ.P. 19.
See generally Vagras v.
Cimperman, 2008 WL 207692, *1 n.2 (N.D. Ohio January 24, 2008).
As discussed above, this issue is governed by Fed.R.Civ.P. 19(a).
Rule 19(a) provides, in relevant part:
(1) Required Party. A person who is subject to service
of process and whose joinder will not deprive the court
of subject-matter jurisdiction must be joined as a
party if:
(A)) in that person's absence, the court cannot
accord complete relief among existing parties; or
(B) that person claims an interest relating to the
subject of the action and is so situated that disposing
of the action in the person's absence may:
(i) as a practical matter impair or impede the
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person's ability to protect that interest; or
(ii) leave an existing party subject to a
substantial risk of incurring double, multiple, or
otherwise inconsistent obligations by reasons of the
claimed interest.
Fed.R.Civ.P. 19(a)(1).
In short, Rule 19(a) provides that a party is necessary if,
in that person's absence, the court cannot accord complete relief
among the parties or the person claims an interest in the action
and, in that person's absence, they might be unable to protect
their interest or might suffer inconsistent obligations.
Wright
v. Linebarger Googan Blair & Sampson, LLP, 782 F.Supp.2d 593, 606
(W.D. Tenn. 2011).
“In essence, required parties are those
‘persons having an interest in the controversy, and who ought to
be made parties, in order that the court may act on that rule
which requires it to decide on, and finally determine the entire
controversy, and do complete justice, by adjusting all the rights
involved in it.’” School Dist. of City of Pontiac v. Secretary of
U.S. Dept. Of Educ., 584 F.3d 253, 301 (6th Cir. 2009)(en
banc)(McKeague, J., concurring) quoting 7 Charles Alan Wright,
Arthur R. Miller & Mary Kay Kane, Federal Practice & Procedure §
1604 (3d ed. 2009) (internal citation omitted).
In this action, the State of Ohio has not claimed an
interest in the subject of this action.
As a result, the only
issue under Rule 19(a) is whether the State is necessary for the
Court to accord complete relief.
“‘Rule 19(a)(1)(A) focuses on
relief between the parties and not on the speculative possibility
of further litigation between a party and an absent person.’”
Laukus v. Rio Brands, Inc., 2011 WL 4737579 (N.D. Ohio 2011)
quoting Sales v. Marshall, 873 F.2d 115, 121 (6th Cir. 1989); see
also School Dist. of City of Pontiac, 584 F.3d at 265 (Rule
19(a)(1) is concerned only with those who are already parties);
(Keweenaw Bay Indian Cmty v. Michigan, 11 F.3d 1341, 1345 (6th
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Cir. 1993 (a party is necessary if “(1) in the person’s absence
complete relief cannot be accorded among those already parties
[...].”); Bedel v. Thompson, 103 F.R.D. 78, 80 (S.D. Ohio 1984)
(“The ‘complete relief’ provision of Rule 19 relates to those
persons already parties....”).
Plaintiffs have not demonstrated that the State of Ohio is
necessary for the Court to accord complete relief to them as set
forth in Rule 19(a)(1)(A).
argued as much.
Significantly, they have not even
Rather, their basis for joining the State of
Ohio as a defendant seems to stem solely from their perception
that the State would have an interest in the defendants’ alleged
illegal gambling activities.
This is not the test set forth in
Rule 19(a).
Moreover, even had plaintiffs attempted to argue that
complete relief is not possible absent the State of Ohio’s
participation in this action, they would not have been able to
succeed in persuading the Court to grant the motion for leave to
amend as it relates to joining the State.
Plaintiffs assert
claims for civil conspiracy under state and federal law and a
state law claim for breach of contract.
By way of relief,
plaintiffs seek a declaratory judgment that the defendants
engaged in racketeering activity under federal and state law,
damages on the breach of contract claim, and other appropriate
relief for violations of 18 U.S.C. §§1961-1968 and O.R.C.
§2923.32.
Plaintiffs also seek an order directing the
divestiture of defendants’ interest in any enterprise or real
property and reasonable restrictions upon the defendants’s future
activities or investments.
The Court could order this relief without affecting any
interests of the State of Ohio.
That is, as a practical matter
the State of Ohio’s ability to pursue any action relating to
alleged illegal gambling activities will not be impeded by any
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decision here.
Consequently, plaintiffs’ argument that the State
of Ohio is a necessary party is without merit.
As a result, the
motion for leave to amend to the extent that it seeks to add the
State of Ohio as a defendant will be denied on grounds of
futility.
The remaining proposed amendments relate primarily to
factual allegations set forth in paragraphs 26 through 34 of the
second amended complaint regarding events on or about September
28, 2010.
The objecting defendants do not directly raise a
futility argument with respect to these allegations but simply
state that plaintiffs are not entitled to relief.
To the extent
that this could be construed as a futility argument, the
plaintiffs have made the colorable argument that these proposed
factual allegations are sufficient to withstand a motion to
dismiss.
Under these circumstances, the Court believes that it
is a better exercise of discretion to permit the amendment as it
relates to these allegations.
Consequently, the motion for leave
to amend will be granted to the extent that the proposed second
amended complaint sets forth allegations other than those
relating to the State of Ohio.
Certainly, the objecting
defendants may pursue a motion to dismiss or other dispositive
motion addressed to the second amended complaint.
In reaching this conclusion, the Court notes that the
objecting defendants make very brief reference to undue prejudice
they will suffer if the proposed amendment is permitted.
This
bare assertion, standing alone, is insufficient to demonstrate
undue prejudice.
Further, this case is in its early stages and
the permitted amendments do not set forth additional claims.
Under this circumstance, the Court cannot conclude that these
defendants would be required to expend significant additional
resources, or suffer any other kind of prejudice, as a result of
defending these new allegations.
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V.
Conclusion and Order
For the reasons set forth above, the motion for leave to
file a second amended complaint (#12) is granted in part and
denied in part as set forth above.
Plaintiffs shall file a
second amended complaint consistent with this order within seven
days.
VI.
Procedure for Reconsideration
Any party may, within fourteen days after this Order is
filed, file and serve on the opposing party a motion for
reconsideration by a District Judge.
28 U.S.C. §636(b)(1)(A),
Rule 72(a), Fed. R. Civ. P.; Eastern Division Order No. 91-3, pt.
I., F., 5.
The motion must specifically designate the order or
part in question and the basis for any objection.
Responses to
objections are due fourteen days after objections are filed and
replies by the objecting party are due seven days thereafter.
The District Judge, upon consideration of the motion, shall set
aside any part of this Order found to be clearly erroneous or
contrary to law.
This order is in full force and effect, notwithstanding the
filing of any objections, unless stayed by the Magistrate Judge
or District Judge.
S.D. Ohio L.R. 72.4.
/s/ Terence P. Kemp
United States Magistrate Judge
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