Lester et al v. Wow Car Company Ltd. et al
Filing
78
OPINION AND ORDER granting in part and denying in part 68 Motion for Leave to File Second Amended Complaint. The Lesters shall file a second amended complaint in conformance with this order w/in fourteen (14) days. Signed by Magistrate Judge Terence P Kemp on 8/12/2013. (kk2)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
Zachary Lester, et al.,
Plaintiffs,
v.
:
:
:
Wow Car Company Ltd., et al., :
Defendants.
Case No. 2:11-cv-850
JUDGE EDMUND A. SARGUS, JR.
Magistrate Judge Kemp
:
OPINION AND ORDER
I.
As more fully set forth in this Court’s Opinion and Order
filed on May 16, 2012, the plaintiffs in this case, Zachary and
Brandi Lester, bought a used car which did not live up to their
expectations.
In fact, they returned it to the seller twice
within the first week they owned it, and the engine blew six days
after the purchase.
Understandably upset, they sought relief
both from the seller (and there is some dispute about who that
was), a finance company, and a company from which they had
purchased a warranty.
That latter party, Coast to Coast Dealer
Services, was dismissed in the May 16, 2012 order, and the
finance company, Columbus Finance, was subsequently dismissed by
stipulation.
Currently, the only remaining defendants are Wow
Car Company, Ltd. and Amy Hartzler dba Wow Car Company, whom the
Court will refer to as the “Wow defendants.”
The Lesters have now moved for leave to file a second
amended complaint.
They propose to add four new defendants - Max
R. Erwin, Sr. dba Wow Car Company, Mid-Ohio Motor Funding Group,
the Hartzler-Erwin Group LLC, and Marmax Enterprises LLC - all of
whom, the Lesters assert, are associated in some way with either
Amy Hartzler or Wow Car Company, and to assert six different
causes of action against those defendants.
The Wow Defendants
oppose the motion, arguing that the proposed TILA claim against
the new defendants (and against defendant Hartzler, although that
is not a new claim) would be futile because it is time-barred,
that any claim against the new defendants under the Ohio Consumer
Sales Practices Act would also be untimely.
They do not appear
to oppose the filing of the balance of the second amended
complaint.
For the following reasons, the Court will grant the
motion in part and deny it in part.
II.
The following procedural facts are both relevant and
undisputed.
The original state court complaint, filed in Knox
County on August 18, 2011, named Wow Car Company Ltd. as the
seller of the automobile.
It also named the two other defendants
referred to above, but neither was alleged to be the party who
sold the car to the Lesters.
The First Amended Complaint was filed in this Court on July
31, 2012.
It added Amy Hartzler dba Wow Car Company as a
defendant and alleged that she and Wow jointly operated the
dealership which sold the car to the Lesters.
The complaint
alleged claims under the Ohio Odometer Rollback and Disclosure
Act, O.R.C. §4549.46; the federal Motor Vehicle Information and
Cost Savings Act; for breach of express warranty; for breach of
the implied warranty of merchantability; for breach of the
implied warranty of fitness for a particular purpose; for fraud;
for deceptive trade practices; for violation of the Truth in
Lending Act and Regulation Z; and for violation of the Ohio
Consumer Sales Practices Act.
Columbus Finance, then still a
defendant, moved to dismiss the complaint for failure to join an
indispensable party (Coast to Coast) and also requested dismissal
of certain claims on other grounds.
The Wow defendants joined
that motion, and their motion to dismiss is still pending.
During the pendency of that motion to dismiss, the Lesters
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moved to amend again.
The proposed second amended complaint
reduces the number of causes of action from eight to six.
They
are, in order (and based on the Court’s interpretation of each
count), breach of express warranty against Wow Car Company; (2)
breach of the implied warranty of merchantability against Wow Car
Company; (3) breach of the implied warranty of fitness for a
particular purpose against Wow Car Company; (4) a state law
deceptive trade practices against Ms. Hartzler, Mr. Erwin, and
Wow Car Company; (5) a TILA claim against “Defendants”; and (6)
an Ohio Consumer Sales Practices Act claim against “Defendants.”
Doc. 68, Attachment 1.
As noted, the Wow defendants’ opposition
to this proposed amended complaint focuses on the latter two
claims, and, in particular, whether it would be futile to allow
them to be asserted against the new defendants given that the
statute of limitations on each of them has run.
III.
The question of whether a claim asserted against a newlyjoined party “relates back” to the filing of the original
complaint - an inquiry that is often determinative of the statute
of limitations question - is governed by Fed.R.Civ.P. 15(c).
particular, Rule 15(c)(1) provides:
(c) Relation Back of Amendments.
(1) When an Amendment Relates Back. An amendment to a
pleading relates back to the date of the original
pleading when:
(A) the law that provides the applicable statute of
limitations allows relation back;
(B) the amendment asserts a claim or defense that arose
out of the conduct, transaction, or occurrence set
out--or attempted to be set out--in the original
pleading; or
(C) the amendment changes the party or the naming of
the party against whom a claim is asserted, if Rule
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In
15(c)(1)(B) is satisfied and if, within the period
provided by Rule 4(m) for serving the summons and
complaint, the party to be brought in by amendment:
(I) received such notice of the action that it
will not be prejudiced in defending on the merits;
and
(ii) knew or should have known that the action
would have been brought against it, but for a
mistake concerning the proper party's identity.
Defendants appear to make two distinct arguments as to why
Rule 15(c) does not permit relation back here.
First, citing to
In re Kent Holland Die Casting & Plating, Inc., 928 F.2d 1448
(6th Cir. 1991), they contend that an amendment which adds a new
party (rather than simply substituting one party for another) can
never relate back because, according to that decision, “the
precedent of this circuit clearly holds that ‘an amendment which
adds a new party creates a new cause of action and there is no
relation back to the original filing for purposes of
limitations.’” Id. at 1449, quoting Marlowe v. Fisher Body, 489
F.2d 1057, 1064 (6th Cir. 1973).
Second, they argue that Rule
15(c) applies only to mistakes made in the choice of which party
to sue, and not to situations where the plaintiff was wholly
unaware of the existence of the proposed new party at the time
the original complaint was filed.
In support of this contention,
they cite to Baskin v. City of Des Plaines, 138 F.3d 701 (7th
Cir. 1998), which held that the knowledge of the proposed new
party about the suit is irrelevant in the absence of a mistake
made by the plaintiff as to the identity of that party.
That
court further held that a plaintiff who is simply unaware of the
identity of a potential defendant cannot have made the type of
mistake which would justify the application of Rule 15(c).
The Lesters argue that the issue of relation back is
controlled by the recent Supreme Court decision in Krupski v.
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Costa Crociere S.p.A., 130 S.Ct. 2485 (2010), a case not cited or
discussed by defendants.
In Krupski, a cruise ship passenger who
was injured when she tripped over a cable onboard ship, sued
Costa Cruise Lines - the company listed on the front of her
ticket - for damages.
After the limitations period on
plaintiff’s claim expired, her counsel was notified that the
actual operator of the ship was an Italian company knows as Costa
Crociere S.p.A.
Costa Cruise, the original defendant,
successfully moved for summary judgment on grounds that it was
not a proper defendant.
In response to an order from the
District Court, plaintiff amended her complaint to join Costa
Crociere.
Finding that this joinder did not relate back to the
original filing date of the complaint, the District Court then
dismissed plaintiff’s claims on limitations grounds.
It
concluded that the first two prerequisites for relation back
found in Rule 15(c)(1)(C)(I) - that the claim against the new
defendant arose out of the same transaction as the previous
claim, and that the new defendant had constructive knowledge of
the existence of the suit - were satisfied, but that plaintiff
could not show, as required by Rule 15(c)(1)(C)(ii), that “the
action would have been brought against [the new defendnant], but
for a mistake concerning the proper party’s identity.”
The Supreme Court reversed.
It noted that the focus of the
lower courts’ decisions was on whether and when the plaintiff,
Ms. Krupski, was aware that she might have sued the wrong party
or that Costa Crociere was the correct party.
That focus,
according to the Court, was “the wrong starting point.”
The
Court held that Rule 15's inquiry is not what the plaintiff did
or did not know, but “whether [the new defendant] knew or should
have known that it would have been named as a defendant but for
an error.”
Krupski, 130 S.Ct. at 2493.
As the Court explained,
“[i]nformation in the plaintiff's possession is relevant only if
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it bears on the defendant's understanding of whether the
plaintiff made a mistake regarding the proper party's identity.”
Id. at 2493-94.
Recognizing that a defendant who has no
knowledge of a potential claim during the applicable limitations
period has a strong interest in “repose,” the Court nonetheless
concluded that “repose would be a windfall for a prospective
defendant who understood, or who should have understood, that he
escaped suit during the limitations period only because the
plaintiff misunderstood a crucial fact about his identity.”
Id.
at 2493.
Drawing on this reasoning, the Lesters argue that
defendants’ focus on whether the Lesters knew of the possible
involvement of Erwin, Mid-Ohio, HEG or Marmax in the auto sale or whether the Lesters knew that it was Hartzler, not WOW Car
Company, Ltd., who actually sold them the car - is misplaced.
They contend that under Krupski, any inquiry into what the
Lesters did or did not know at the time of suit is simply
irrelevant.
Because there is at least the possibility that, if
Hartzler, Erwin, Mid-Ohio, HEG or Marmax were involved in the
transaction as the proposed second amended complaint alleges,
those persons or entities were both aware of the lawsuit and
should have known that but for the Lesters’ misunderstanding of
the entire picture, they would have named all of these parties as
defendants, the Lesters assert that the claims all relate back
under Rule 15(c).
It was certainly the law in this Circuit, prior to Krupski,
that any time a new party, rather than a substituted party, is
added to a case, Rule 15(c)’s relation back rule cannot be
applied.
That was the holding in Kent, and the Court of Appeals
has consistently followed that rule.
See, e.g., Asher v. Unarco
Material Handling, Inc., 596 F.3d 313 (6th Cir. 2010).
Although
Asher was decided shortly before Krupski, this Court has held
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that it is still good law and unaffected by Krupski.
See DeBois
v. Pickoff, 2011 WL 1233665 (S.D. Ohio March 28, 2011)(Rice,
J.)(explaining that because Krupski involved a “one-for-one”
substitution of parties and not the joinder of new parties, its
holding is not in conflict with Asher).
See also Smith v. Gallia
County Sheriff, 2011 WL 2970931 (S.D. Ohio July 20, 2011)(Kemp,
M.J.)(following DeBois).
These district court decisions are not, of course, binding
precedent.
And there is some suggestion from the Court of
Appeals itself that the Marlowe-Kent-Asher line of cases might
not apply to the situation described in the Lesters’ second
amended complaint.
See Beverly v. MEVA Formwork Systems, Inc.,
500 Fed. Appx. 391, (6th Cir. Sept. 12, 2012).
There, because it
was plain that the proposed new party did not have actual or
constructive notice of the suit, the Court of Appeals said that
it “need not examine the line of cases in this circuit [i.e.
Kent, Smart v. Ellis Trucking Co., 580 F.2d 215 (6th Cir. 1978),
Marlowe and Asher] that preclude relation back under Rule 15(c)
where the plaintiff seeks to add a new defendant.”
Id. at **4.
It did note, however, that “[w]hile these cases arguably preclude
relation back in this particular situation, they differ from the
instant case because the new party in those cases was unrelated
to the original party”).
Id.
On the other hand, in at least two other unpublished
opinions, the Court of Appeals has held that Krupski did not
alter this rule, and it refused to apply Rule 15(c) even when the
new parties were related to the original party defendant.
See
Brown v. Cuyahoga County, Ohio, 2013 WL 1003511 (6th Cir. March
15, 2013)(refusing to apply Rule 15(c) to the proposed addition
of county jail employees to a suit against the county); Smith v.
City of Akron, 476 Fed. Appx. 67, 69 (6th Cir. Apr. 6, 2013)(same
for addition of city police officers to a suit against the city).
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In fact, in Smith, the Court of Appeals reasoned:
The problem with Smith's amended complaint is that
adding new, previously unknown defendants in place of
“John Doe” defendants “is considered a change in
parties, not a mere substitution of parties,” and “such
amendments do not satisfy the ‘mistaken identity’
requirement of Rule 15(c)[ ].” Cox v. Treadway, 75 F.3d
230, 240 (6th Cir.1996). Smith did not make a mistake
about the identity of the parties he intended to sue;
he did not know who they were and apparently did not
find out within the two-year limitations period. The
relation-back protections of Rule 15(c) were not
designed to correct that kind of problem.
These cases suggest that Krupski’s focus was on a specific type
of mistake, namely the belief that the named defendant was a real
party in interest when, in fact, it was not.
Here, by contrast,
the “mistake,” if any, was not that the named defendants are not
real parties in interest (they are, or at least the Lesters
allege that they are); it was the Lester’s lack of knowledge that
there were additional real parties in interest.
The Lesters’
lack of knowledge of the identity of these parties, and the fact
that they are being named as new rather than substitute parties,
precludes them, under Sixth Circuit precedent, from being joined
under a “relation back” theory even after Krupski.
Given the
fact that the line of cases beginning with Marlowe and extending
through Asher is not completely inconsistent with Krupski; that
none of these decisions was mentioned in that section of Krupski
which identified a circuit conflict; and that the Court of
Appeals has declined to repudiate this line of cases on at least
two separate occasions, this Court has little choice but to
follow circuit precedent.
That means that the TILA and OCSPA
claims against the new defendants would be time-barred if
asserted, and it would be futile to allow an amendment to assert
them.
The Lesters’ alternative argument is that they have
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adequately alleged that the four new defendants are simply alter
egos of whichever individual or entity sold them the car, so that
they are really not “new” defendants at all but have always been
parties to the case.
If that is so, the Lesters timely pleaded
their claims against the actual seller of the car, whoever it may
have been, and identifying the alter ego or alter egos of the
seller is not a change in parties at all.
The alter ego doctrine developed in response to improper
uses of the corporate form to commit crimes or fraud.
Belvedere
Condominium Unit Owners' Assn. v. R.E. Roark Cos., Inc., 67 Ohio
St.3d 274, 287 (1993) sets out a three-part test for piercing the
corporate veil, which is one way in which obligations of a
corporation can be deemed obligations of individual shareholder
or directors.
This mechanism for piercing the corporate veil
cannot be used in reverse (at least in Ohio), see In re Zhang
463 B.R. 66, 80 (Bkrtcy. S.D. Ohio 2012).
However, the first
prong of the Belvedere test “is a restatement of the alter ego
doctrine, which requires that plaintiff ‘show that the individual
and the corporation are fundamentally indistinguishable.’”
Taylor Steel, Inc. v. Keeton, 417 F.3d 598, 605 (6th Cir. 2005),
quoting id.
As Taylor Steel explains, there are a number of
factors which go into the alter ego inquiry, but they relate to
factors dealing with the reality of the corporation’s existence
as a separate entity, including the level of its capitalization,
observance of corporate formalities, the keeping of corporate
records, and whether the corporation was used as a facade for the
business operations of the individual shareholders or directors.
Id.
Further, this theory may permit the Court to treat an
individual and a corporation as essentially the same entity, and
to allow someone with a claim against the individual to reach
corporate assets to satisfy that claim.
See, e.g., In re Fisher,
296 Fed. Appx. 494, 506 (6th Cir. Oct. 10, 2008)(“This court has
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explained ... that veil piercing and alter ego concepts are
distinct. The former asks a court to hold A vicariously liable
for B's debts, while the latter asserts that A and B are the same
entity and therefore liability is direct”), citing International
Union, United Auto., Aerospace and Agr. Implement Workers of
America v. Aguirre, (6th Cir. 2005).
Consequently, at least in
theory, the Lesters might be able to prove that all of the
entities and individuals they propose to name in the second
amended complaint should be treated as the same entity, and that
the obligations of any one of them are also, in law, the
obligations of all of the others.
The question then becomes: does the existence of such a
theory eliminate any need to analyze the second amended complaint
in terms of whether the claims against the new defendants relate
back to the original filing date?
According to the Lesters, that
is exactly the effect of alleging an alter ego theory of
liability.
In support of that assertion, they rely primarily on
Wm. Passalacqua Builders, Inc. v. Resnick Developers South, Inc.,
933 F.2d 131 (2d Cir. 1991), a case which involved a slightly
different scenario - the commencement of an action against
alleged alter egos of a judgment debtor to enforce the judgement
against the alter egos.
There, the court held that the action
was governed by New York’s twenty-year statute of limitations on
actions to enforce a judgment, and not by the six-year statute of
limitations which applied to the causes of action on which the
judgment was rendered.
This case is not directly on point
because the Lesters do not have a judgment against either of the
current defendants, and an action to enforce a judgment against
any of the proposed new defendants would clearly be premature.
Further, the case law suggests that any type of action which, in
essence, seeks to enforce a judgment against an alleged alter ego
to a judgment debtor is a claim separate from the underlying
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causes of action which led to the judgment; it may be
appropriately filed if and when judgment is entered, but it does
not justify tolling the running of the statute of limitations on
the original claims as against the alleged alter egos.
See,
e.g., Matlock v. McCormick, 948 S.W.2d 308, 311 (Tex. App.
1997)(“whether [the proposed new defendants] are alter egos ...
is a relevant issue only after [plaintiff] proves her causes of
action against [the existing defendant]”).
There is some authority for the general proposition that
both an original defendant and its alter ego are to be treated
the same for limitations purposes, so that service on one is the
equivalent of service on the other.
See, e.g., N.L.R.B. v.
O’Neill, 965 F.2d 1522, 1529 (9th Cir. 1992)(“Where two parties
are alter egos, service on one is sufficient to initiate
proceedings against both within the statute of limitations).
While that may be true, taking that principle to the extreme - as
the Lesters attempt to do here - creates a curious type of
argument: No “relation back” analysis need be done if plaintiff
is simply joining new parties who are alter egos of existing
parties, and the factual predicate which eliminates the need to
do that analysis - the existence of an alter ego relationship can be established simply by the unproven allegations of the
proposed amended complaint.
If that argument were accepted, a
plaintiff could do an end run around cases like Kent and Asher
simply by adding alter ego allegations to a proposed amended
complaint which otherwise would fail the “relation back” analysis
mandated by Rule 15(c).
Synthesizing these various principles leads the Court to
this conclusion.
If, in fact, the four proposed new parties are
alter egos of either Ms. Hartzler or Wow Car Company, Ltd., they
would stand liable for any judgment rendered against those two
existing defendants, and their liability can be established and
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enforced in a subsequent case which is timely filed under the
statute of limitations relating to enforcement of judgments - a
statute which would not begin to run until the judgment becomes
final and enforceable.
in Ohio.
Such separate suits are routinely filed
See, e.g., Stypula v. Chandler, 2003 WL 22844296
(Geauga Co. App.
Nov. 26, 2003).
In fact, that was the scenario
in Wm. Passalacqua Builders, Inc., the case cited by the Lesters.
Thus, whether the statute of limitations has or has not run on
the underlying claims is irrelevant to the alleged alter egos’
liability for any judgment entered against Ms. Hartzler or Wow.
The only meaningful question, then, is not whether the Lesters
can file suit to determine these parties’ liability - clearly,
they can - but whether they should be permitted to do so in the
context of this case.
To answer that question, the Court would
have to determine if the alter ego claim has accrued in the
absence of a judgment against the existing defendants, and
whether, even if it has, it is proper to join that claim with the
underlying claims - or to do it at this stage of the case.
The
parties have not briefed these issues, and it would not be
appropriate to address them in this order.
Before finally resolving this issue, the Court notes that
the Wow defendants have reasserted their statute of limitations
argument concerning the TILA claim asserted against Ms. Hartzler.
That is not a new claim, however, but one found in the current
complaint and one which is the subject of the motion to dismiss
that complaint.
This is an issue better resolved by the District
Judge (assuming it is raised again by way of a motion to dismiss
the second amended complaint).
IV.
Based on the foregoing analysis, the Court concludes the
following.
First, any TILA or OSCPA claims which the Lesters
wish to assert directly against the four proposed new defendants
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do not relate back to the original filing date and would be
barred by the statute of limitations.
Second, the Lesters should
be permitted to assert an alter ego claim against the four
proposed new defendants, but without prejudice to those
defendants’ ability to move to dismiss that claim.
Third, the
Lesters should be permitted to re-plead their TILA claim against
Ms. Hartzler, again without prejudice to her ability to re-file
her motion to dismiss that claim.
The Lesters shall file a
second amended complaint in conformance with this order within
fourteen days.
The motion to amend (Doc. 68) is granted in part
and denied in part as set forth in this Opinion and Order.
V.
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. 72.3.
/s/ Terence P. Kemp
United States Magistrate Judge
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