Stewart et al v. Atherio Inc et al
Filing
102
Memorandum Opinion and Order granting 67 Motion for Leave to File Amended Pleadings. The Clerk of Court is requested to enter Mr. Cory's Amended Pleading, Doc. 67-1, Ex. B, as a separate docket entry. (Ordered by Judge Jane J. Boyle on 5/2/2018) (epm)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
MICHAEL STEWART and TAMMY
O’CONNOR,
Plaintiffs,
v.
ATHERIO INC, et al.,
Defendants.
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CIVIL ACTION NO. 3:16-CV-1731-B
MEMORANDUM OPINION AND ORDER
Before the Court is Defendant Jason Cory’s Motion for Leave to Amend Pleadings. Doc. 67.
For the reasons stated below, Defendant’s Motion is GRANTED.
I.
BACKGROUND1
In June 2016, Plaintiffs filed suit alleging that Defendants fraudulently induced Plaintiffs into
selling their company to Atherio Inc.(Atherio) by making material misrepresentations about Atherio
and its board of directors, including former CEO, Defendant Cory. Doc. 1, Compl.,¶¶ 61–62, 65–66,
69, 77, 80, 83. Cory’s original answer included an affirmative defense of release from Plaintiffs’ claims
based on a provision of the Omnibus Compromise Release Agreement (Agreement) executed by
Cory and Atherio when Cory was removed as CEO. Doc. 9, Orig. Answer, ¶ 112; Doc. 81, Resp.,
4. Cory claimed Plaintiffs were bound by the Agreement even though they did not sign it. Doc. 67,
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The Court draws its factual history from the parties’ pleadings and briefing on the motion. Any
contested fact is identified as the contention of a particular party.
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Mot. to Amend, 2. But soon after, Cory filed an amended answer and withdrew his release defense
because Plaintiffs represented that they were unaware of the Agreement at the time it was executed.
Id. at 2–3. In January 2017, the Court issued a scheduling order, setting December 28, 2017 as the
deadline to amend pleadings. Doc. 26, Scheduling Order, at 1. In February 2018, Cory filed the
present motion seeking leave to file an amended answer re-asserting his release defense and adding
a breach-of-contract counterclaim. Doc. 67, Mot. to Amend, 5. Cory alleges he discovered
information after the December 28, 2017 deadline indicating Plaintiffs were aware of the Agreement
at the time it was signed and are therefore bound by it. Id. at 4. Cory’s motion is ripe for review.
II.
LEGAL STANDARD
Once a court has entered a scheduling order and the deadline for amending pleadings has
passed, the decision to permit post-deadline amendments is governed by Rule 16(b) of the Federal
Rules of Civil Procedure. S & W Enters., L.L.C. v. So. Tr. Bank of Ala., 315 F.3d 533, 536 (5th Cir.
2003). A scheduling order should not be modified unless there is a showing of good cause. Fed. R.
Civ. P. 16(b)(4).
Fifth Circuit courts consider four factors to determine whether a movant has established good
cause: “(1) the explanation for the failure to timely move for leave to amend; (2) the importance of
the amendment; (3) potential prejudice in allowing the amendment; and (4) the availability of a
continuance to cure such prejudice.” S & W Enters., L.L.C., 315 F.3d at 536 (quotations and
alterations omitted). “The ‘good cause’ standard focuses on the diligence of the party seeking a
modification of the scheduling order.” Forge v. City of Ball, No. 3:03-CV-0256, 2004 WL 1243151,
at *2 (N.D. Tex. June 4, 2004). A party’s mere inadvertence to meet a deadline and the absence of
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prejudice to the opposing side are insufficient to establish good cause. Id. Rather, one must show that
“despite his diligence, he could not have reasonably met the scheduling deadline.” Id. (quoting Am.
Tourmaline Fields v. Int’l Paper Co., No. 3:96-CV-3363, 1998 WL 874825, at *1 (N.D. Tex. Dec. 7,
1998)).
If a party establishes good cause under Rule 16, the Court then considers whether the
amendment should be allowed under Rule 15’s more liberal standard. S & W Enters., L.L.C., 315
F.3d at 536 n.4. Rule 15 provides the Court discretion to grant leave to amend freely “when justice
so requires.” Fed. R. Civ. P. 15(a)(2). “Unless there exists a substantial reason for denying leave to
amend, the district court should permit the filing of a proposed amendment.” Hinds v. Orix Capital
Mkts., L.L.C., No. Civ. A. 3:02-CV-0239-P, 2003 WL 21350210, at *3 (N.D. Tex. June 10, 2003).
“In determining whether to grant leave to amend, the court may consider several factors, including
undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure
deficiencies by amendments previously allowed, undue prejudice to the opposing party, and futility
of amendment.” Id.
III.
ANALYSIS
Because Cory filed his motion to amend after the Court entered a scheduling order and the
deadline to file amended pleadings passed, the Court first considers each Rule 16 factor to determine
whether Cory has established good cause, and then whether the amendment should be allowed under
Rule 15.
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A.
Rule 16 Factor One: Explanation for Failure to Timely Move
Cory explains that he did not timely move to amend his answer because he discovered that
Plaintiffs knew of, and are therefore bound by, the Agreement only after the deadline to amend had
passed. Doc. 67, Mot. to Amend, 4–5. Specifically, Cory points to emails from Plaintiff Tammy
O’Connor obtained on January 19, 2018 and information obtained during Defendant Greg Furst’s
deposition on February 6, 2018 that indicate Plaintiffs were aware of the Agreement prior to its
execution. Id.; see also id. at 4 n.3. Plaintiffs argue that Cory obtained this information after the
deadline only because he was not diligent in pursuing his claims. Doc. 83, Resp., 11–12.
Courts have found a movant’s explanation for failure to timely move sufficient when the
information necessary to assert the new claims was discovered after the deadline to amend. Clapper
v. Am. Realty Inv’rs Inc., No. 3:14-cv-2970-D, 2017 WL 978098, at *3 (N.D. Tex. Mar. 14, 2017);
Leaders Inst. LLC v. Jackson, No. 3:14-cv-3572-B, 2016 WL 4179371, at *3 (N.D. Tex. Aug. 8,
2016). And though Plaintiffs are correct that a movant must be diligent in pursuing his new claims,
Forge, 2004 WL 1243151 at*2, the Court finds Cory was sufficiently diligent in this case.
Plaintiffs began investigating their claims in 2015 by ordering pre-suit discovery in Texas state
court pursuant to Texas Rule of Civil Procedure 202. Doc. 81, Resp., 5. The O’Connor emails upon
which Cory relies as a basis to amend his pleadings were produced by Atherio during Rule 202
discovery. Id. After Plaintiffs filed suit in this Court in June 2016, Cory requested the Rule 202
discovery documents from Atherio, but Cory and Plaintiffs agree that Atherio never produced the
documents. Id. at 12; Doc. 67, Mot. to Amend, 3. Plaintiffs argue that Cory should have been more
persistent in obtaining the Rule 202 discovery and that neither the discovery stay in this case nor
Cory’s financial difficulties after the stay was lifted adequately explain his counsel’s lack of
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persistence. Doc. 81, Resp., 2. But Cory alleges that shortly after suit was filed he also requested the
Rule 202 discovery documents from Plaintiffs. Doc. 83, Reply, 3. Plaintiffs provided a number of
documents but Cory claims that none of the those documents were the ones produced during Rule
202 discovery. Id. Having never seen the Rule 202 discovery, Cory was unaware that Plaintiffs’
production was incomplete until a discussion with Plaintiffs on January 19, 2018. Id. at 3–4. At that
point, Cory again requested, and this time received, the Rule 202 discovery documents from Atherio
that included the O’Connor emails. Id.
The Court finds that Cory was sufficiently diligent in pursuing his claims. Because Cory
received documents from Plaintiffs in October 2016 that he believed included the Rule 202 discovery
documents, there was no reason for him to take further action regarding those documents before,
during, or after the discovery stay. Further, Cory’s proposed amended pleadings are also based on
information obtained during Defendant Furst’s deposition in February 2018. Doc. 67, Mot. to
Amend, 4. Plaintiffs do not contend that Cory was neglectful in scheduling Furst’s deposition. Thus,
because Corby obtained the information necessary to assert his defense and counterclaim only after
the deadline passed, this factor weighs in Cory’s favor.
B.
Rule 16 Factor Two: Importance of the Amendment
Cory argues the release defense and breach-of-contract counterclaim are important because
they “could be dispositive of the litigation against him” and because, without his counterclaim, he
would have no remedy for Plaintiffs’ alleged breach of the Agreement. Id. at 9. Plaintiffs respond that
Cory’s proposed amendments cannot be important because they are futile. Doc. 81, Resp.,
10–11.The Court agrees with Cory.
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Cory alleges that Plaintiffs agreed to release Cory from the claims underlying this suit. Doc.
67, Mot. to Amend, 2. If true, Cory’s release defense bars Plaintiffs’ claims against him and would
thus be dispositive. And if Cory is not allowed to assert his breach-of-contract counterclaim, he will
have no remedy in this suit for Plaintiffs’ alleged breach of the Agreement. Nor are his claims
necessarily futile. Plaintiffs argue Cory’s defense and counterclaim are futile because the Agreement
requires Cory to indemnify Plaintiffs against damages resulting from the type of actions underlying
Plaintiffs’ claims. Doc. 81, Resp., 10–11. But Cory contends that the indemnification provision
applies only to claims brought by third parties. Doc. 83, Reply, 4–5. If Cory is correct, the
indemnification provision would be irrelevant to this suit, so Cory’s release defense and breach-ofcontract counterclaims would not be futile.
C.
Rule 16 Factors Three and Four: Potential Prejudice and the Availability of a Continuance
Cory argues his proposed amendments will not prejudice Plaintiffs because of the ample time
left under the scheduling order to prepare for trial and because Plaintiffs are already aware of his new
claims; indeed, Plaintiffs addressed Cory’s release defense in their motion for summary judgment.
Doc. 67, Mot. to Amend, 9–10. Plaintiffs argue that they will be prejudiced because the new claims
will render future scheduling deadlines unworkable and frustrate progress in this case, particularly
by undermining their “right to prevail on a motion for summary judgment.” Doc. 81, Resp., 15.
Plaintiffs also argue that a continuance would not cure potential prejudice because it would require
resetting past deadlines and increase litigation costs. Id. at 16.
Plaintiffs’ argument about imminent scheduling deadlines is largely moot because the Court
recently partially granted Defendants’ joint motion to modify the scheduling order. Doc. 100, Order.
The Court refused to extend past deadlines but agreed to extend other pretrial deadlines, including
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the deadlines to complete mediation and discovery, as well as the trial setting. Id. at 6–7. The
mediation deadline is now July 27, 2018; the discovery deadline is August 28, 2018; and trial is set
for January 7, 2019. Id. at 7. Given these extensions, the Court finds that allowing Cory to amend
his pleadings will not create unworkable deadlines, frustrate the progress of the case, or required
resetting past deadlines. Nor will it necessarily impact Plaintiffs’ motion for summary judgment
because the parties addressed the release defense in their summary-judgment briefing. Finally, though
allowing Cory to amend his pleadings may increase litigation costs for both parties, the Court does
not consider this prospect unduly prejudicial. Thus, the Court finds Rule 16 factors three and four
weigh in Cory’s favor.
D.
Rule 15
Because the Court finds that good cause exists under Rule 16 to allow Cory to amend his
pleadings, the Court must now determine whether the amendments should be allowed under Rule
15’s more liberal standard. S & W Enters., L.L.C., 315 F.3d at 536 n.4. The Court finds that Cory
has met the Rule 15 standard because there is no indiction of “undue delay, bad faith or dilatory
motive on the part of the movant, [or] repeated failure to cure deficiencies by amendments
previously allowed.” Hinds, 2003 WL 21350210, at *3. And as explained above, the proposed
amendments are not futile and would not cause undue prejudice.
IV.
CONCLUSION
For the foregoing reasons, Jason Cory’s Motion for Leave to Amend Pleadings is GRANTED
Doc. 67. The Clerk of Court is requested to enter Mr. Cory’s Amended Pleading, Doc. 67-1, Ex. B,
as a separate docket entry.
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SO ORDERED.
SIGNED: May 2, 2018
_________________________________
JANE J. BOYLE
UNITED STATES DISTRICT JUDGE
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