Kendle v. WHIG Enterprises, LLC et al

Filing 112

OPINION and ORDER denying 99 MOTION for Court Order Related to Documents Seized by the Federal Bureau of Investigation, granting in part and denying in part 81 MOTION for Leave to File Amended Complaint. Plaintiff is DIRECTED to file a Seco nd Amended Complaint consistent with this Order within seven (7) days. Discovery due by 8/14/2017. Dispositive motions due by 9/15/2017. No further extensions of these deadlines will be permitted. Signed by Magistrate Judge Kimberly A. Jolson on 6/7/2017. (ew)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
JOHN F. KENDLE,
Plaintiff,
v.

Civil Action 2:15-cv-1295
Judge George C. Smith
Magistrate Judge Jolson

WHIG ENTERPRISES,
LLC, et al.,
Defendants.
OPINION AND ORDER
This matter is before the Court on Plaintiff’s Motion for Leave to Amend Complaint
(Doc. 81) and Plaintiff’s Motion for Court Order Related to Documents Seized by the Federal
Bureau of Investigation (“FBI”). (Doc. 99). For the reasons that follow, Plaintiff’s Motion for
Leave to Amend Complaint (Doc. 81) is GRANTED IN PART and DENIED IN PART, and
Plaintiff’s Motion for Court Order (Doc. 99) is DENIED.
I.

BACKGROUND
Plaintiff filed his original Complaint on April 15, 2015, alleging breach of contract,

unjust enrichment, and tortious interference with contractual and business relationships against
WHIG Enterprises, LLC (“WHIG”), and its affiliates and members. (Doc. 1). In addition to
WHIG, Plaintiff named as Defendants WHIG’s owners and members Chad Barrett and David
Jason Rutland, and WHIG affiliate Rx Pro Mississippi, Inc. (“Rx Pro”). (Id. at ¶¶ 1–7).
The same month that Plaintiff filed his Complaint, Mr. Barrett and Mr. Rutland divided
their business interests. (See Doc. 39 at 4; Doc. 39-2 at 2). Mr. Barrett retained interest in, inter
alia, WHIG and Rx Pro, and Mr. Rutland retained interest in World Health Industries, Inc.

(“World Health”) and “a number of other entities.” (Doc. 39 at 4). Plaintiff claims that he was
unaware of the split until November 2015 (Doc. 35 at 9; Doc. 35-1, PAGEID #: 282), after he
had filed an Amended Complaint on June 10, 2015. (Doc. 10).
The Court held a preliminary pretrial conference on July 15, 2015, making the
amendment deadline October 31, 2015, the discovery deadline June 1, 2016, and the dispositive
motion deadline July 1, 2016. (Doc. 18 at 2–3). In January 2016, WHIG, Rx Pro, and Mr.
Barrett informed Plaintiff and this Court that, if any information relevant to dealings with
Plaintiff existed, Mr. Rutland retained possession, custody, and control. (Doc. 39 at 4, 6; see
also Doc. 39-2 at 2).
On April 21, 2016, the Court granted a joint motion to extend the scheduling order,
making the discovery deadline September 1, 2016, and the dispositive motion deadline October
1, 2016. (Doc. 53). By this point, the deadline for amending the pleadings had long past, and no
party asked the Court for additional time for leave to amend.
On July 22, 2016, Mr. Rutland responded to Plaintiff’s request for discovery as follows:
Defendant Rutland does not have custody or control over any records of any such
conversations or correspondence. All of Defendant’s computer, servers, hard files,
cell phones and other items were seized by the Federal Bureau of Investigations
earlier this year and the same remain in the FBI’s possession.
(Doc. 65-1, PAGEID #: 588). It appears that the FBI seized the documents, computers, and
servers in or around January 2016. (See Doc. 81-2). Although it is unclear when Plaintiff
learned of the seizure, the first mention of it on the docket is July 22, 2016.
Due to the FBI’s seizure of documents, Plaintiff sought yet another extension of the case
schedule (Doc. 65), which the Court granted on August 19, 2016. (Doc. 66). Again, no party
asked for additional time for leave to amend. The Court granted the motion and extended the
discovery deadline until December 30, 2016, and the dispositive motion deadline until January
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31, 2017. (Id.). In the same Order, the Court stated that “[n]o further extensions [would] be
granted.” (Id.).
Two days before the discovery deadline, on December 28, 2016, Plaintiff filed a Motion
for leave to amend the Complaint a second time to (1) add World Health as a defendant; (2)
bring a newly-discovered claim for spoliation; and (3) add piercing the corporate veil as an
additional basis for liability against Mr. Barrett and Mr. Rutland. (Doc. 81 at 1). WHIG, Mr.
Barrett, and Rx Pro opposed the Motion (Doc. 88), and Plaintiff replied. (Doc. 95). In a January
3, 2017 status conference, the Court vacated the discovery and dispositive motions deadlines as a
result of the Motion and based upon representations that the information sought remained in the
FBI’s possession. (Doc. 85).
After working to retrieve the documents from the FBI, Plaintiff filed a Motion for Court
Order Related to Documents Seized by the FBI on February 27, 2017. (Doc. 99). Since that
time, the Undersigned has undertaken repeated efforts over the last ten months to facilitate
production of the documents, including considering motions for extensions and conducting
numerous status conferences. (See, e.g., Doc. 66, 69–73, 75–76, 82–85, 99, 109–11). In the
most recent update on June 2, 2017, the parties informed the Court that an Assistant United
States Attorney confirmed that the computer server at issue had been delivered to Mr. Rutland’s
counsel, who represented he would be delivering the server to his client as soon as possible.
II.

DISCUSSION
A.

Motion For Leave to Amend (Doc. 81)

Rule 15(a)(2) of the Federal Rules of Civil Procedure provides that when a party seeks
leave of court to file an amended pleading, “[t]he court should freely give leave when justice so
requires.” However, “[o]nce a scheduling order’s deadline passes, a plaintiff first must show

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good cause under Rule 16(b) for failure earlier to seek leave to amend before a court will
consider whether amendment is proper under Rule 15(a).” Leary v. Daeschner, 349 F.3d 888,
909 (6th Cir. 2003). “Rule 16, in other words, prescribes the time by which any motion for leave
to amend must be filed; Rule 15 provides guidance to the courts on deciding the merits of timely
motions.” Cooke v. AT&T Corp., No. 2:05-CV-374, 2007 WL 188568, at *1 (S.D. Ohio Jan. 22,
2007).
Here, the preliminary pretrial order set an October 31, 2015 deadline for seeking leave to
amend the pleadings. (Doc. 18 at 2). Because that date has long passed, Plaintiff must show
good cause under Rule 16(b) for failing to seek leave sooner, and this Court evaluates any
potential prejudice if amendment is allowed.

Leary, 349 F.3d at 909 (stating that a

“determination of the potential prejudice to the nonmovant” is required).
1.

World Health and Piercing the Corporate Veil

Plaintiff seeks to add a new defendant and a new basis for liability almost two years after
filing this case and just two days before the discovery deadline—a date which this Court
indicated it would not extend. For the reasons that follow, Plaintiff fails to show good cause for
the delay and denies the portion of the Motion seeking to add World Health and veil-piercing
claims.
From this case’s inception, Plaintiff has been aware that World Health may have been a
party at interest. In fact, Plaintiff noted that Mr. Rutland was an “owner, officer and/or member
of World Health” in his Amended Complaint filed in June 2015. (Doc. 10 at 3). Moreover, in
January 2016, WHIG, Rx Pro, and Mr. Barrett indicated the following in response to Plaintiff’s
Motion to Compel:
Regarding e-mail communications, while Defendants do not believe any such
communications exist, they do not have access to the servers that might have
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contained any communications related to Plaintiff’s business relationship . . . All
of the servers (which would have contained e-mails) were controlled by WHI
[World Health].”
(Doc. 39 at 3–4). At base, Plaintiff fails to show that he was “unaware of critical facts that
prohibited him from amending his Complaint within the time frame set out in the Court’s
original scheduling order.” See Cooke, 2007 WL 188568, at *2; see also Duggins v. Steak ’N
Shake, Inc., 195 F.3d 828, 834 (6th Cir. 1999) (affirming the district court’s denial of leave to
amend in part because “the plaintiff was obviously aware of the basis of the claim for many
months, especially since some underlying facts were made a part of the complaint.”).
Similarly, Plaintiff’s veil-piercing claims do not arise from newly discovered evidence or
conduct. Plaintiff speculates Mr. Barrett and Mr. Rutland “likely transferred their assets and
liability to other compounded medication sales entities they owned and operated to avoid paying
the substantial damages” in this case. (Doc. 81 at 8). Speculation aside, Plaintiff knew that Mr.
Barrett and Mr. Rutland divided their business interests in April 2015, yet offers no explanation
for his failure to add this claim until December 2016. Ceres Protein, LLC v. Thompson Mech. &
Design, No. 3:14-CV-00491, 2017 WL 1025244, at *3 (W.D. Ky. Mar. 15, 2017) (denying leave
to amend complaint because nothing prevented Plaintiff from alleging a piercing the corporate
veil claim, inter alia, sooner).
Finally, WHIG, Mr. Barrett, and Rx Pro argue that amending the Complaint at this stage
to add a new claim and a new defendant essentially would require the case to start anew. (Doc.
88). The Court agrees and finds that Defendants would be prejudiced if forced to backtrack on
discovery. When Plaintiff filed his Motion, this case had been pending for twenty months, and
the parties already had incurred significant defense costs.
amendment were permitted at this late juncture.

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Costs would increase greatly if

Because Plaintiff fails to offer “good cause” for the delay and Defendants would suffer
prejudice if amendment were allowed at this late stage, Plaintiff’s Motion is DENIED to the
extent that it seeks to add World Health and piercing the corporate veil. See Duggins, 195 F.3d
at 834 (noting the “significant prejudice” the defendants would face if forced to reopen
discovery).
2.

Spoliation

The proposed spoliation claim warrants separate consideration. On October 25, 2016,
Mr. Rutland testified that the FBI returned some computers and hard drives three to six months
after the January 2016 raid of World Health. (Doc. 81-3, PAGEID #: 748). Plaintiff alleges Mr.
Rutland admitted during his deposition that these computers and hard drives were “wiped” clean.
(Doc. 81 at 6). The relevant testimony is as follows:
Q: All right. So when the computers were returned in say, April of 2016, what
happened to them?
A: We—I think we gave most of them away because our business has been
affected, you know, to where we—we didn’t need them. I mean, we didn’t have
anything, so we gave them to churches and schools and whatever.
Q: Did you—were they wiped clean before you did that?
A: Yeah.
(Doc. 81-3, PAGEID #: 744). Mr. Rutland’s counsel maintains that this was no admission
because it was the FBI, not him, who wiped the hard drives clean. (Doc. 81-5, PAGEID #: 790).
As for the returned computers, Mr. Rutland’s counsel explains that the business—which was
“essentially ruined post-raid”—had no use for them, so they were wiped clean of any remaining
data to avoid HIPAA violations. (Doc. 81-5, PAGEID #: 790). Thereafter, Mr. Rutland sold
some computers and gave others away. (Id.).

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Despite arguing against the merits of the spoliation claim in email correspondence with
Plaintiff, Mr. Rutland filed no opposition to the proposed amendment. WHIG, Mr. Barrett, and
Rx Pro oppose amendment to add this claim solely on the ground that Plaintiff discovered the
alleged spoliation “more than two months” prior to filing the Motion. (Doc. 88 at 2). Although
seeking amendment two months after discovering the alleged spoliation is less than optimal, it is
not dilatory under the circumstances. Cooke, 2007 WL 188568, at *2 (“An amendment coming
late in discovery should not be denied as a penalty to the moving party when the factual basis for
the amendment was not disclosed until late in discovery.”). Here, it was Mr. Rutland who waited
months to disclose the return of computers and hard drives, so at least some of the delay may be
attributed to him. Given this posture, Defendants are hard pressed to argue prejudice arising
from the delay. See E.E.O.C. v. Taco Bell Corp., 575 F. Supp. 2d 884, 890 (W.D. Tenn. 2008)
(finding good cause for amendment where prejudice arose from “primarily from [defendant’s]
own delay and actions”). Consequently, to the extent Plaintiff seeks to add a claim of spoliation,
his Motion is GRANTED.
B.

Motion For Court Order (Doc. 99)

On February 27, 2017, Plaintiff filed a Motion for Court Order Related to Documents
Seized by the FBI. (Doc. 99). Specifically, Plaintiff seeks an order permitting him to subpoena
relevant documents from the FBI if they are not subject to any investigative privilege. (Id. at 1).
As the parties are aware, the FBI has returned a server containing the relevant “images” to Mr.
Rutland’s counsel. Although there has been some difficulty accessing the images in the past, at
this juncture the best course is for the parties continue to work with the United States Attorney’s
Office to do so. The Court, in its discretion, finds the requested order unnecessary at this time.
Thus, Plaintiff’s Motion for Court Order is DENIED.

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III.

CONCLUSION
For the reasons stated above, Plaintiff’s Motion for Leave to Amend Complaint (Doc. 81)

is GRANTED IN PART and DENIED IN PART. Plaintiff is DIRECTED to file a Second
Amended Complaint consistent with this Order within seven (7) days.

Further, Plaintiff’s

Motion for Court Order (Doc. 99) is DENIED. The case schedule moving forward is as follows:
•

All discovery shall be completed by August 14, 2017; and

•

The dispositive motion deadline is September 15, 2017.

No further extensions of these deadlines will be permitted. To the extent that any discovery
dispute arises between the parties, they are directed to contact the Court to schedule a status
conference prior to filing any motion on the docket.
IT IS SO ORDERED.

Date: June 7, 2017

/s/ Kimberly A. Jolson
KIMBERLY A. JOLSON
UNITED STATES MAGISTRATE JUDGE

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