Deborah (Fiore) Labaty v. UWT, Inc. et al
ORDER DENYING 112 Motion for Leave to File; DENYING 115 Motion for Leave to File. Signed by Judge Xavier Rodriguez. (aej)
UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
DEBORAH (FIORE) LABATY,
UWT, INC., ET. AL,
Civil Action No. SA-13-CV-389-XR
On this day the Court considered Plaintiff’s motion for leave to file a third amended
complaint (docket no. 115) and Defendant Equity Trust Company’s motion for leave to file a
counterclaim (docket no. 112). For the following reasons the Court denies Plaintiff’s motion for
leave to file a third amended complaint and denies Equity Trust’s motion for leave to file a
Plaintiff Deborah Labaty brought this action on February 22, 2013, against several
defendants after she lost her life savings when she attempted to invest in earth metals and the
earth metals were never delivered. She claims violations of civil RICO 18 U.S.C. § 1962(c), (d)
based upon predicate acts of mail and wire fraud 18 U.S.C. § 1341 and § 1343, and money
laundering 18 U.S.C. § 1956 (a)(1)(B)(ii).
In 2007, Defendant Superior Gold Group (“Superior”), a Nevada LLC with a principal
place of business in California, began running radio advertisements around the country
encouraging individuals to reinvest their retirement accounts in gold and other precious metals.
In April 2009, Deborah Labaty, a Texas resident, heard one of these advertisements and
contacted Superior. During the initial conversation, the Superior representative informed Labaty
that in order to invest in gold, she needed to open a Self-Directed Individual Retirement Account
(“SDIRA”) with Sterling Trust Company (“Sterling”), a Texas Corporation.
By July 2009, Sterling had opened over 150 SDIRA accounts that distributed money to
Superior. Defendant Kelley was at that time the Chief Operating Officer of Sterling. Defendant
Maxwell was its Chief Executive Officer. Around this time, Defendants are alleged to have
begun a complex cover-up. Sterling initially sold its assets to Defendant Equity Trust Company
(“Equity Trust”), a South Dakota Corporation, for $61 million. The proceeds from the sale were
“funneled up” to Defendant United Western Bankcorp. Equity Trust Company began operating
as “Sterling Trust Company” in Texas.
On May 6, 2013, this action was removed to federal court. The Court denied a Rule
12(b)(6) motion to dismiss and granted Labaty’s first motion to amend on August 26, 2013.
Docket nos. 24 and 25. The Court granted Labaty leave to amend her complaint for a second
time on November 21, 2013. Equity Trust was added to the case as a defendant in the second
amended complaint. Docket no. 33.
Equity Trust answered the second amended complaint
without asserting counterclaims on January 14, 2014, after the Court granted it an extension.
Docket no. 47. All parties participated in discovery that was extended twice. One day before the
third discovery deadline, the case was stayed for 30 days because Labaty’s attorney was very
sick. See docket no. 89. The case was stayed for a total of 90 days because Labaty’s attorney
eventually succumbed to his illness and passed away. The Court permitted time for Labaty to
find new counsel, for that counsel to assess the case, and for the parties to work out a new
proposed scheduling order.
The parties could not agree on a new schedule for the case, so the Court held a hearing on
December 8, 2014, and gave the parties 90 days to conduct more discovery. As a result, the
parties have taken additional depositions and produced more documents. The Court held a status
conference on February 19, 2015, where the parties argued a motion to compel and set a deadline
for dispositive motions. Docket no. 114. Equity Trust filed its motion for leave to file a
counterclaim (docket no. 112) before the status conference, but neither party argued the motion.
Following the hearing, Labaty filed a motion for leave to file her third amended complaint.
Docket no. 115. Labaty has responded to Equity Trust’s motion for leave to file a counterclaim.
Docket no. 116. Equity Trust responded to Labaty’s leave to amend the complaint on March 2,
2015. Docket no. 117.
Both the motions pending before the Court are for leave to file amended pleadings.
Federal Rule of Civil Procedure 16(b) controls amendment of pleadings once a scheduling order
has been issued. Rule 16(b) provides that a scheduling order “shall not be modified except upon
a showing of good cause and by leave of the district judge.” The good cause standard requires
the “party seeking relief to show that the deadlines [could not] reasonably be met despite the
diligence of the party needing the extension.” S & W Enters., LLC v. Southtrust Bank of Ala.,
NA, 315 F.3d 533, 535 (5th Cir. 2003) (citing 6A Charles Alan Wright et al., Federal Practice
and Procedure § 1522.1 (2d ed. 1990)).
When the Court analyzes good cause under Rule 16, it should consider four factors: “(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.” Sw. Bell Tel. Co. v. City of El Paso, 346 F.3d 541, 546 (5th
Cir. 2003); Fahim v. Marriott Hotel Servs., Inc., 551 F.3d 344, 348 (5th Cir. 2008). Whether the
movant has good cause under Rule 16 is within the discretion of the trial court.
S & W
Enters., 315 F.3d at 535–36.
If the Court determines that good cause exists, the more liberal amendment standard of
Rule 15 then applies. Rule 15 provides that leave to amend pleadings “shall be freely given
when justice so requires,” FED. R. CIV. P. 15(a)(2), but the decision to grant or deny a motion to
amend is within the sound discretion of the trial court. Avatar Exploration, Inc. v. Chevron,
U.S.A., Inc., 933 F.2d 314, 320 (5th Cir. 1991). In exercising its discretion, the trial court
considers such factors as 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 by virtue of allowing the amendment, and futility of amendment. Gregory v.
Mitchell, 634 F.2d 199, 203 (5th Cir. 1981) (citing Foman v. Davis, 371 U.S. 178, 182 (1962)).
A scheduling order in this case was issued on September 27, 2013, requiring amended
pleadings by November 19, 2013. Docket no. 31. Labaty amended her complaint for a second
time prior to that deadline, resulting in Equity Trust’s inclusion in this case. Docket no. 33.
Equity Trust answered the second amended complaint that stated no counterclaims on January
14, 2014. Docket no. 47. The scheduling order was amended twice thereafter (docket nos. 58
and 66), but neither moved the deadline to amend pleadings from November 19, 2013.
1. Equity Trust’s motion for leave to file a counterclaim
Equity Trust does not show the good cause required in Rule 16 for leave to file a
counterclaim because it fails to demonstrate its own diligence with a reasonable explanation for
Equity Trust seeks to assert a counterclaim for attorney’s fees it has incurred
defending this case. Equity Trust and Labaty have a contract that provides Labaty agreed
to reimburse or advance to [Equity Trust], on demand, all legal
fees, expenses, costs, fines, penalties and obligations incurred or to
be incurred in connection with the defense, contest, prosecution or
satisfaction of any claim made, threatened or asserted pertaining to
any investment or action you or your investment advisor directed
through the custodian, including, without limitation, claims
asserted by you, any state or federal regulatory authority or selfregulatory organization.
Docket no. 112 at 2 (emphasis original). Equity Trust argues
[i]t is indisputable that Labaty’s claims against Equity Trust
pertain to an investment or action that she directed through the
custodian. Labaty is therefore required to indemnify Equity Trust
for all expenses, including attorneys’ fees and other legal costs,
which Equity Trust has incurred or will incur as a result of this
Id. (internal quotations omitted).
Equity Trust’s offers two explanations for not asserting the counterclaim earlier: 1) it was
not a defendant at the time of removal, so it did not need to comply with Federal Rule of Civil
Procedure 81, which requires answers and compulsory counterclaims be asserted within 21 days
of removal; and 2) Labaty has received leave to amend twice, so fairness dictates the Court grant
Equity Trust leave to amend its pleadings once.
See docket no. 112 at 3. The Court is
unconvinced by these explanations because they are not explanations for delay at all; but are, at
best, reasons granting leave to amend is permissible. That is not enough to satisfy Rule 16.
Equity Trust argues “Labaty has had all the relevant documentation pertaining to this
claim for the better part of a year,” to show Labaty would not be prejudiced. While Labaty may
have known about the contract, this argument also highlights Equity Trust’s lack of diligence and
the absence of an explanation for the delay.
Equity Trust has known it could assert this
counterclaim for over a year and failed to do so. It has given the Court no real explanation for
why it did not assert the claim earlier. Because Equity Trust gives no explanation for the delay,
the Court concludes leave to add the counterclaim should be denied. See City of El Paso, 346
F.3d at 547 (“[Movant] was aware of the contract that forms the basis of its proposed
[counterclaim] months ago and does not offer a satisfactory explanation for its delay in seeking
leave to amend;” denying leave to amend the pleading); Steptoe v. JPMorgan Chase Bank NA,
No. 4:11-CV-3427, 2013 WL 150305, at *1 (S.D. Tex. Jan. 12, 2013) (holding an unconvincing
or conclusory explanation for delaying a motion for leave to amend a complaint more than eight
months after the scheduling order deadline sufficient on its own to deny leave to amend
pleadings for lack of good cause under Rule 16); U.S. ex rel. Martin Marietta Materials, Inc. v.
Nelson, Inc., 286 F.R.D. 327, 331 (W.D. Tenn. 2012) (“Because it appears [the defendant]
became aware of the basis of the proposed counterclaims in advance of the [scheduling order’s]
deadline and because [the defendant] has not provided an adequate explanation for its delay in
seeking to assert these claims, [the defendant’s] failure to meet the deadline shows a lack of
diligence, rendering the request to amend inexcusably untimely.”).
Next, Labaty is prejudiced by Equity Trust’s 15-month delay to assert this counterclaim.
The threat of having to pay the inevitably large legal fees of a corporate bank is something an
individual plaintiff should be made aware of as soon as practicable by a defendant. While
Labaty might have been on notice of the possibility of the claim, Labaty has been operating for
some time under the belief that Equity Trust would not press its counterclaim for attorney’s fees
against an individual plaintiff who was apparently swindled out of her retirement savings.
Further, the counterclaim is exactly the type of information Labaty’s new counsel would have
looked at when taking on the case and determining how to proceed while the case was stayed.
The significant delay in pressing its counterclaim prejudiced Labaty, and prejudiced her in a way
a continuance will not remedy because it may have subjected her to significant additional
liability already. If the Court were to grant leave to file the counterclaim, the Court would again
have to delay the dispositive motion deadline and trial in this case in order to let Labaty properly
defend and respond to the counterclaim. Given the balancing of the factors for Rule 16 weigh
against Equity Trust, due largely to Equity Trust’s failure to proffer any explanation for the
delay, the Court denies Equity Trust’s motion for leave to file a counterclaim because it has not
shown good cause for its delay. See S & W Enters., 315 F.3d at 536–37; MGM Well Servs., Inc.
v. Mega Lift Sys., LLC, No. CIV.A. H-05-1634, 2006 WL 1852322, at *2 (S.D. Tex. June 30,
2006) aff'd, 264 F. App'x 900 (Fed. Cir. 2008) (holding a defendant’s decision to “offer no
explanation” for why its motion for leave to file a counterclaim was not made in a timely
fashion, along with prejudice to the plaintiff, was enough to deny leave to amend to add a
2. Plaintiffs’ motion for leave to amend the complaint
Labaty’s third amended complaint does not meet the requirements of Rule 16 either.
Labaty’s counsel is new to the case1 and seeks to amend to “clarify” the claims against certain
defendants, see docket no. 115-1 at ¶¶ 166-69, and ¶¶ 188-202, add two substantive claims, see
id. at ¶ 64 and ¶¶ 154-55, drop her statutory fraud claim.
Labaty cites her new counsel, illuminations from discovery, and simply wanting to clarify
allegations as reasons for the third amended complaint. Equity Trust, however, points to another
potential reason for the amended complaint: basis for additional discovery already denied by the
Court. The new allegations in ¶¶166-69 and ¶¶ 188-202 relate to other Equity Trust account
Following the untimely death of his predecessor.
holders who tried to invest in earth metals with Superior. Labaty includes names2, dollar
amounts, or other seemingly relevant facts for account holders who tried to invest in precious
metals with Superior. See id. at ¶¶ 166, 190, 193, and 200. These are new allegations rather than
At the hearing on February 19, 2015, the Court denied Labaty’s motion to compel
discovery of Equity Trust documents for “all account holders with Sterling Trust Company or
Equity [Trust] who attempted to invest in precious metals with Superior.” See docket no. 114
(denying docket no. 106 in part).
The Court has continuously warned Labaty’s counsel
throughout the case to focus discovery on the facts and claims alleged by the only plaintiff before
the Court: Deborah Labaty. Labaty’s attorneys have attempted on multiple occasions to expand
discovery to potential plaintiffs and issues outside the scope of the live pleadings, and the Court
rebuffed those attempts each time. Now, in another attempt to provide a basis for its expensive
and irrelevant discovery requests, Labaty adds new allegations more than two years after the start
of this case to potentially expand the number of plaintiffs and scope of the issues presented. That
is apparently the true reason for the third amended complaint, and the Court finds this reason
unconvincing and prejudicial under Rule 16.
Further, granting leave to amend to add allegations about other Equity Trust account
holders would prejudice the Defendants, especially Equity Trust, and cause significant delay to a
case that has been on the Court’s docket for two years and is nearing the discovery deadline for a
fourth time. Equity Trust, if this amendment was granted, might have to produce what the Court
determined to be disproportionately costly discovery at a previous hearing. As Equity Trust
argues, this expansive new discovery would also inevitably delay the impending end of
discovery and dispositive motion deadlines in the scheduling order, as Labaty would no doubt
Or “Jane or John Doe” for “persons known at this time only to Equity Trust Company.
ask the Court for time to depose the account holders and develop new theories. Defendants
would then be forced to defend against those theories, creating ever more discovery and delay.
Such an outcome is impermissible at this stage of the litigation. The Court denies Labaty leave
to amend to add ¶¶ 166-69 and ¶¶ 188-202 in the third amended complaint under Rule 16.
The Court also denies leave to amend to insert two new substantive claims in the third
amended complaint. See id. at 64 and ¶¶ 154-55. Labaty’s new complaint adds language about
“reckless, consciously, and deliberately indifferent,” or “deliberate ignorance” in multiple places
throughout after the word “knowingly” for multiple defendants, including Equity Trust, Jeff
Thompson, and others. See e.g., ¶¶ 64, 79, 199. This is an apparent attempt to include new
claims with lower standards of care.
The second new substantive claim is unclear. Labaty states in ¶ 154 that Jeff Thompson,
a Sterling representative, presented Labaty with a contract that provided Labaty understood
“Sterling has not made and will not make any recommendation or investigation.” Labaty alleges
this statement/contract was false. In ¶ 155, alleges that this statement/contract “lulled” Labaty to
insure that she take no immediate action against Bruce Sands,
Superior and Sterling. Based upon this false and deceptive
language she would (and did) believe that Sterling had no
knowledge or information about Bruce Sands and Superior, would
never have any knowledge or information about Bruce Sands and
Superior, and that she should not and would not ask any questions
of Sterling about its knowledge and possession of information
regarding Superior and Bruce Sands' fraudulent scheme.
Defendants would need time and new discovery, including re-doing depositions, to
respond to both of the new claims. Permitting the new claims would also lead to the cost and
time of a new round of motions to dismiss, as Equity Trust argues the law does not support
liability against it for such a low standard of care, and that the allegation in ¶¶ 154-55 is
confusing and unsupported by law. Taking time for those motions to dismiss and additional
discovery will further delay this case.
The reason for Labaty’s delay on the leave to amend is unconvincing, and the
“clarifications” and new substantive claims in the third amended complaint will prejudice the
Defendants. The inevitable and open-ended interruption just before the close of discovery to a
case that has been delayed several times already also weighs against leave to amend to add
claims or allegations.
Labaty does not show good cause to amend her pleading after the
scheduling order deadline under Rule 16, so the Court will not grant her leave to amend her
complaint for a third time, except to drop her statutory fraud claim.3 The Court will not force
Labaty to litigate a claim she does not wish to pursue.
For all of the above reasons, the Court DENIES Defendant Equity Trust’s motion for
leave to add a counterclaim (docket no. 112) and DENIES Plaintiff’s motion for leave to amend
the complaint (docket no. 115).
Plaintiff will submit an amended complaint deleting the
statutory fraud claim by March 18, 2015.
It is so ORDERED.
SIGNED this 5th day of March, 2015.
UNITED STATES DISTRICT JUDGE
And any other claims she no longer wishes to pursue.
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