Brooks v. Caswell et al
Filing
79
OPINION and ORDER - Brooks's motion 49 to amend is DENIED without prejudice with regard to the addition of Caswell Gardens as a defendant and is GRANTED in all other respects. Defendants identified as DOES 1-5 are dismissed from this actions. DATED this 30th day of June, 2015, by United States +Magistrate Judge John V. Acosta. (peg)
UNITED STATES DISTRICT COURT
DISTRICT OF OREGON
PORTLAND DIVISION
GRETCHEN BROOKS, an individual,
Case No.: 3:14-cv-1232-AC
Plaintiff,
OPINION AND
ORDER
v.
HARLON RIP CASWELL, an individual,
RIP CASWELL SCULPTURES, INC., an
Oregon corporation d/b/a CASWELL
GALLERY, an Oregon assumed business
name, CASWELL PROPERTIES, INC.,
a Washington limited liability company,
and DOES 1-5,
Defendants.
___________________________________
ACOSTA, Magistrate Judge:
Introduction
Plaintiff Gretchen Brooks (“Brooks”) loaned over five million dollars to Rip Caswell
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Sculptures, Inc., d/b/a Caswell Gallery (“Caswell Gallery”), and Caswell Properties (“Caswell
Properties”), entities controlled by Harlon Rip Caswell (“Caswell”), to facilitate development of
Caswell’s sculpture business. (Compl. ¶ 1.) Caswell Gallery, Caswell Properties, and Caswell
(collectively “Defendants”) failed to repay the loans. (Compl. ¶ 1.) Brooks filed an action in state
court against Defendants which the parties ultimately settled. (Compl. ¶ 1.) Pursuant to the
settlement agreement (the “Agreement”), Caswell Gallery executed a $650,000 promissory note
payable to Brooks (the “Note”). (Compl. ¶ 1.) When Caswell Gallery defaulted on the Note, Brooks
filed this action against Defendants seeking “to obtain the full settlement which defendants’
wrongful actions deprived her.” (Compl. ¶ 1.)
Brooks moves to amend the complaint to add Caswell Gardens, LLC (“Caswell Gardens”)
as an additional defendant, supplemental allegations supporting her breach of the good faith and fair
dealing, and a new theory relating to the remedy provision of the Note. Defendants object to the
addition of Caswell Gardens as a defendant but not to the other proposed amendments.
The court finds Brooks’s attempt to amend the complaint to assert claims against Caswell
Gardens is futile.
Brooks is unable to assert a claim against Caswell Gardens based on
representations made in 2011, more than three years before Caswell Gardens was organized; a claim
for conversion in the absence of allegations Caswell Gardens had control over the allegedly
converted property; or a claim for elder financial abuse based on the alleged misrepresentations or
conversion of Brooks’s property. Further, Brooks has not alleged the requisite involvement in, or
benefit from, tortious activity to support joint liability, or the improper conduct and inability to
collect necessary to support an alter ego claim. Accordingly, Brooks’s motion to amend the
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complaint to add Caswell Gardens as a defendant is denied without prejudice.1 As Defendants have
not objected to the remainder of Brooks’s proposed amendments, the motion to amend is granted in
all other respects.
Legal Standard
After the initial pleading stage, a plaintiff may amend his “pleading only with the opposing
party’s written consent or the court’s leave. The court should freely give leave when justice so
requires.” FED. R. CIV. P. 15(a) (2014).2 “Although the rule should be interpreted with ‘extreme
liberality,’ leave to amend should not be granted automatically.” Jackson v. Bank of Hawaii, 902
F.2d 1385, 1387 (9th Cir. 1990) (quoting United States v. Webb, 655 F.2d 977, 979 (9th Cir. 1981)).
A trial court may deny the motion if permitting amendment would prejudice the opposing party,
produce an undue delay in litigation, result in futility for lack of merit, is sought by plaintiffs in bad
faith or with a dilatory motive, or the plaintiffs have filed numerous amended complaints. Foman
v. Davis, 371 U.S. 178, 182 (1962); DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 186 (9th Cir.
1
The parties have consented to jurisdiction by magistrate judge in accordance with 28 U.S.C.
§ 636(c)(1). The Doe defendants named in Brooks’s complaint do not affect consent. See Alfano
v. Farley, 3:12-cv-02319-PK, 2014 WL 1660667, at *1-*2 (D. Or. April 25, 2014)(Simon J., holding
consent not required from unserved parties, full consent to magistrate judge jurisdiction existed
under 28 U.S.C. § 636 (c)). Furthermore, “[a]s a general rule, the use of ‘John Doe’ to identify a
defendant is not favored. However, situations arise, such as the present, where the identity of alleged
defendants will not be known prior to the filing of a complaint. In such circumstances, the plaintiff
should be given an opportunity through discovery to identify the unknown defendants, unless it is
clear that discovery would not uncover the identities, or that the complaint would be dismissed on
other grounds.” Gillespie v. Civiletti, 629 F.2d 637, 642 (9th Cir. 1980). Brooks has had nearly a
year to discover the names of the Doe defendants and, with the exception of Caswell Gardens which
is the subject of the current motion, has not amended the complaint to name them. Accordingly, the
court dismisses Doe 1-5 from this action.
2
The court did not set a deadline for the parties to amend their pleadings in this case so FED.
R. CIV. P. 15(a), not FED. R. CIV. P. 16(b)(4), provides the relevant standard. See In Re W. States
Wholesale Natural Gas Antitrust Litig., 715 F.3d 716, 737 (9th Cir. 2013).
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1987). Prejudice to the opposing party carries the “greatest weight” in determining whether to deny
leave to amend. Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003).
Whether to grant leave to amend lies within the sound discretion of the trial court. Webb, 655 F.2d
at 979. In exercising this discretion, however, the court “must be guided by the underlying purpose
of Rule 15 to facilitate decision on the merits, rather than on the pleadings or technicalities.” Id.
Discussion
In the proposed amended complaint (“Proposed Complaint”), Brooks alleges Caswell
Gardens is a limited liability company organized by Caswell in late 2014 and that Defendants “have
transferred substantial property and money to Caswell Gardens in an attempt to shield those assets
from litigation.” (Fite Decl. Ex. 1 at 3, 7.) Brooks characterizes Caswell Gardens as a “mere shell
and alter ego” of Defendants. (Fite Decl. Ex. 1 at 7.) Brooks further alleges Caswell Gardens “acted
in concert” with Defendants with regards to all actions described in the Proposed Complaint. (Fite
Decl. Ex. 1 at 7.) Brooks alleges claims for fraud and negligent misrepresentation based on
representations made during settlement negotiations; a claim for conversion based on the failure to
maintain the molds serving as collateral for the Note, and a claim for elder financial abuse based on
the alleged misrepresentations and conversion.3
I. Prejudice
Defendants argue the addition of an entirely new defendant places the current deadlines in
jeopardy and is extremely prejudicial to Defendants. The current discovery deadline was April 30,
2015, and the current dispositive motion deadline is May 30, 2015. Days before filing her motion
3
Brown also alleges claims for breach of contract and breach of the duty of good faith and
fair dealing against Caswell Gallery which are not relevant here.
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to amend the complaint, Brooks filed a motion to extend these deadlines by two and a half months.
Brooks seek the production of additional documents necessary to allow her to prepare for her own
deposition, as well Caswell’s deposition, and additional time to complete these depositions. Some
of the additional discovery relates to amended counterclaims filed by Defendants on March 12, 2015.
Additionally, Brooks claims the scope of her deposition will be affected by the ruling on Defendants’
pending motion to compel.
In their response, Defendants acknowledge the need to extend the fact discovery to allow for
the completion of three scheduled depositions, the last of which is scheduled for June 18, 2015, and
the resolution of issues relating to Defendants’ financial and sales documents. Defendants propose
extending the dispositive motion deadline to June 30, 2015, but represent they still hope to file their
summary judgment motion on May 29, 2015.
Caswell, who has yet to be deposed, likely will provide the majority of information relating
to Caswell Gardens and its assets. This may be supplemented by the discovery Brooks seeks, and
has yet to receive, with regard to Defendants’ financial and sales documents. Accordingly, the
addition of Caswell Gardens as a defendant is unlikely to result in additional, or duplicative,
discovery requests from Brooks. Defendants do not identify any additional discovery they will
require if Caswell Gardens is added as a defendant and the court is hard-pressed to identify any itself.
To the extent Caswell Gardens is responsible for Defendants’ actions as an alter ego or conspirator,
Caswell Gardens’s interests have been adequately represented by Defendants in the discovery
process to date.
Defendants acknowledge the need to extend the current deadlines to allow for the depositions
of at least three parties and to resolve the pending and expected motions to compel. The proposed
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addition of Caswell Gardens as a party did not create the need for additional time to complete
discovery. Accordingly, Defendants’ assertion the addition of a new defendant places the existing
deadlines in jeopardy is not supported by the record. Furthermore, it appears Caswell Gardens’s
interests are similar to Defendants and have been adequately represented in the discovery process.
Defendants have not offered any evidence to the contrary. The court finds Defendants will not be
prejudiced if Caswell Gardens is added as a defendant.
II. Undue Delay
Caswell Gardens was organized in October 2014,4 yet Brooks did not seek to add Caswell
Gardens as a defendant until April 2015. Defendants contend this constitutes undue delay.
Brooks does not offer evidence of the point in time she became aware of Caswell Gardens’s
existence. Even assuming Brooks learned of Caswell Gardens on the date it was organized, the only
transfer of property from Defendants to Caswell Gardens identified by Brooks was not recorded until
November 19, 2014. It is unlikely Brooks was aware of the transfer before this date and Defendants
do not offer any evidence to the contrary. Brooks forwarded a copy of the Proposed Complaint to
Defendants on late March 2015, just four months after the property transfer was recorded.
This case is still in the discovery phase. The parties agree the current discovery and
dispositive motion deadlines should be extended, even though they disagree over the length of an
extension, and no trial dates have been set. The court finds this four-month period delay is not
“undue” in these circumstances.
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4
Caswell Garden’s Articles of Organization were filed with the Oregon Secretary of State on
October 7, 2014. (Fite Decl. Ex. 2.)
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III. Futility
The Proposed Complaint alleges Caswell Gardens has “acted in concert with regard to all
actions described herein.” (Fite Decl. Ex. 1 at 7.) The first two claims alleged in the Proposed
Complaint are based on representations made to induce Brooks to sign the Agreement in September
2011.5 The Proposed Complaint specifically alleges Defendants misrepresented Caswell Gallery’s
intent to pay on the Note, Caswell Gallery’s intent to comply with the Agreement’s requirements
regarding the molds, and the value of the molds. (Fite Decl. 1 at 8.) Caswell Gardens was organized
in October 2014. Therefore, Caswell Gardens could not have participated in or been responsible for
any representations made before September 2014. Caswell Gardens can not be held accountable for
the representations alleged to have induced Brooks to agree to, and execute, the Agreement.
Accordingly, any attempt to add Caswell Gardens as a viable defendant on these claims is futile.
The conversion claim is based on Defendants’ failure to maintain the molds, the sole
collateral for the Note, as required under the Agreement. To succeed on a conversion claim under
Oregon law, a plaintiff must prove “an intentional exercise of dominion or control over a chattel
which so seriously interferes with the right of another to control it that the actor may justly be
required to pay the full value of the chattel.” Mustola v. Toddy, 253 Or. 658, 663 (1969)(adopting
the definition of conversion found in Restatement (Second) of Torts §222A(1) (1965)). “A secured
creditor with the right to possession of the collateral after default may maintain an action for
conversion against one who has exercised unauthorized acts of dominion over the property to the
exclusion of the creditor’s rights.” Oregon Bank v. Fox, 73 Or. App. 612, 615 (1985).
Brooks alleges Defendants transferred assets to Caswell Gardens to shield them from
5
The Agreement was signed in September 2011. (Fite Decl. Ex. 1 at 4.)
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litigation. Brooks does not allege Defendants transferred the molds to Caswell Gardens or that
Caswell Gardens exercised, or is exercising, any dominion or control over the molds. In the absence
of such allegations, Brooks’s claim for conversion against Caswell Gardens is futile.
In support of her claim for elder financial abuse, Brooks alleges Defendants “wrongfully took
[her] property and money via misrepresentation and conversion.” (Fite Decl. Ex. 1 at 11.) As
discussed above, Caswell Gardens, which was not in existence in 2011 when the Agreement and
Note were signed, can not be held liable for representations made with regard to those documents
and Brooks fails to allege Caswell Gardens possesses or controls the molds. Brooks has failed to
state a claim for elder financial abuse against Caswell Gardens.
In her reply brief, Brooks argues Caswell Gardens had a role “in defendants’ ongoing
breaches of contract and the duty of good faith and fair dealings.” (Pl.’s Reply in Supp. of Mot. for
Leave to Amend at 3.) However, Brooks’s claims for breach of contract and the duty of good faith
and fair dealing are against Caswell Sculptures only, not against Caswell Gardens, making Caswell
Gardens’s role in the breaches irrelevant.
Additionally, Brooks argues that by holding assets previously owned by Defendants, Caswell
Gardens aided and assisted in the commission of a tort and is jointly liable for Defendants’ tortious
conduct. Oregon recognizes one may be jointly liable for the torts of another if he acts tortiously in
concert with another pursuant to a common design; knows the other’s conduct constitutes a breach
of duty and gives substantial assistance; or gives substantial assistance in accomplishing a tortious
result when his own conduct separately constitutes a breach of duty to the person harmed.
Granewich v. Harding, 329 Or. 47, 53-55 (1999) (joint liability under theories in Restatement
(Second) of Torts §876 (1979)). Additionally, one who benefits from the commission of tort by
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another may become jointly liable merely by approving of the tortious act after it is done. Id. at 54
(citing Perkins v. McCullough, 36 Or. 146 149 (1899)).
Brooks has not alleged Caswell Gardens participated in, or gave substantial assistance, to
Defendants in 2011 when they engaged in the torts of fraudulent representation or misrepresentation.
Brooks also has not alleged Caswell Gardens has benefitted from, or approved of, these tortious acts.
Brooks alleges Defendants transferred assets to Caswell Gardens, which is arguably a “benefit” to
Caswell Gardens, but has not alleged the transferred assets resulted from Defendants’ tortious
conduct in 2011. Brooks’s conversion claim alleges defendants, including Caswell Gardens, failed
to maintain the molds and deprived Brooks of the ability to possess the molds. To the extent this
claim alleges current conduct, Caswell Gardens could be a participant in the tortious activity.
However, Brooks does not allege Caswell Gardens is in possession of the molds or has engaged in
any conduct with regard to the molds. Therefore, based on the allegations of the Proposed
Complaint, Caswell Gardens did not engage in, or give substantial assistance to others engaging in,
tortious conduct. Brooks fails to allege facts supporting her claim Caswell Gardens conspired with
Defendants and is joint liable for the damages resulting from Defendants’ tortious conduct.
Finally, Brooks refers to Caswell Gardens as the alter ego of Defendants and alleges
Defendants are transferring assets to Caswell Gardens to shield the assets from litigation.
Apparently, Brooks seeks to add Caswell Gardens as a defendant to increase the asset pool from
which she may collect any judgment entered in her favor in this case. Oregon law requires a plaintiff
to plead an alter ego theory of recovery as a separate claim in their complaint. Amfac Foods, Inc.
v. Int’l Systems & Controls Corp., 294 Or. 94, 104 n.12 (1981). Furthermore, “the plaintiff must
allege and prove not only that the debtor corporation was under the actual control of the shareholder
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but also that the plaintiff’s inability to collect from the corporation resulted from some form of
improper conduct on the part of the shareholder.” Id. at 108. In this action, Brooks seeks access to
assets transferred by Defendants to Caswell Gardens in the event Defendants are unable to pay the
judgment. In the typical alter ego claim, a plaintiff seeks access to the assets of a sole shareholder
to recover a judgment against the corporation, making the applicability of the alter ego theory in this
context questionable. However, even assuming the alter ego theory would apply here, Brooks has
failed to allege Defendants are unable to pay any judgment that may be issued in favor of Brooks in
this action, or that the transfers of assets from Defendants to Caswell Gardens resulted from
improper conduct.
Brooks is unable to state a claim against Caswell Gardens for representations made in 2011
to induce Brooks to agree to the terms of the Agreement as Caswell Gardens was not organized until
2014. Brooks fails to allege Caswell Gardens has possessed or controlled the molds and, therefore,
fails to state a claim for conversion against Caswell Gardens. Brooks’s attempt to assert a claim for
elder financial abuse against Caswell Gardens fails for these same reasons. Based on the allegations
of the Proposed Complaint, it does not appear Caswell Gardens participated in, substantially assisted,
or benefitted from Defendants’ alleged tortious conduct and, therefore, may not be held jointly liable
for the damage resulting from such conduct. Finally, Brooks has failed to allege the required
elements for an alter ego claim. The court finds Brooks’s motion to amend the complaint to add
Caswell Gardens is futile. However, it does appear Brooks could allege at least one viable claim
against Caswell Gardens. Consequently, Brooks will be allowed the opportunity to amend her
complaint to add Caswell Gardens as a defendant.
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IV. Bad Faith
Defendants assert Brooks’s attempt to add Caswell Gardens as a defendant is “an attempt to
harass Mr. Caswell, and continue to escalate the expenses in this lawsuit.” (Defs.’ Mem. in Opp’n
to Pl.’s Mot. for Leave to Amend Compl. at 4.) Brooks explained the reasons for her delay in
naming Caswell Gardens as a defendant. Caswell Gardens was not in existence at the time this
action was initially filed. Further, the facts supporting Brooks’s allegation that Defendants are
transferring assets to Caswell Gardens to shield those assets from litigation, as evidenced by the
transfer of real property from Caswell to Caswell Gardens, occurred after this action was filed.
Defendants have not offered evidence in support of their claim Brooks’s actions are based on a
improper motive. The court finds Brooks’s motion to add Caswell Gardens as a defendant is not
sought in bad faith.
Conclusion
Brooks’s motion (#49) to amend is DENIED without prejudice with regard to the addition
of Caswell Gardens as a defendant, and is GRANTED in all other respects. Defendants identified
as Does 1-5 are dismissed from this action.
DATED this 30th day of June, 2015.
/s/ John V. Acosta
JOHN V. ACOSTA
United States Magistrate Judge
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