Kennedy v. Protection One Alarm Monitoring et al

Filing 35

MEMORANDUM DECISION AND ORDER granting 26 Motion for Extension of Time Period to Amend Initial Pleading; granting in part and denying in part 25 Motion to Amend/Correct Complaint. Signed by Judge David Nuffer on 5/4/17 (alt)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH, CENTRAL DIVISION
BRANDON KENNEDY, an individual,
Plaintiff,
v.

MEMORANDUM DECISION AND
ORDER
• GRANTING [25] MOTION FOR
LEAVE TO AMEND COMPLAINT
AND
• GRANTING IN PART AND
DENYING IN PART [26] MOTION
TO EXTEND TIME PERIOD TO
AMEND PLEADINGS

PROTECTION ONE ALARM
MONITORING, INC., a Delaware
corporation doing business in Utah, BRITE
ENERGY SOLAR, INC., a Delaware
corporation doing business in Utah, and JOHN
DOES, individual or entities 1 THROUGH
Case No. 2:16-cv-00889-DN
10, all whose names are unknown,
District Judge David Nuffer
Defendant.

Plaintiff Brandon Kennedy moves to amend his complaint. 1 Relatedly, Kennedy moves
to extend the time for amending the complaint. 2 Defendants Protection One Alarm Monitoring,
Inc. and Brite Energy Solar (collectively “defendants”) oppose both motions. 3 Kennedy replies
in support of both motions. 4
For the reasons stated below, the Motion to Extend Time is GRANTED and the Motion
to Amend is GRANTED IN PART and DENIED IN PART.

1

Motion (Second) for Leave to Amend Complaint (Motion to Amend), docket no. 25, filed January 9, 2017.

2

Motion to Extend Time Period to Amend Plaintiff’s Initial Pleadings (Motion to Extend Time), docket no. 26, filed
January 9, 2017.
3

Protection One’s Opposition to Plaintiff’s (1) Second Motion for Leave to Amend and (2) Motion to Extend Time
Period to Amend Pleadings (Opposition), docket no. 27, filed January 23, 2017.

4

Reply Memorandum to Protection One’s Opposition to Plaintiff’s (1) Second Motion for Leave to Amend
Complaint and (2) Motion to Extend Time Period to Amend Pleadings (Reply), docket no. 31, filed February 7,
2017.

Table of Contents
Background ..................................................................................................................................... 2
Discussion ....................................................................................................................................... 3
1.
Kennedy has demonstrated good cause to modify the schedule. ............................ 3
2.
Kennedy may make most of the amendments he proposes. ................................... 5
A.
There was no undue delay and the amendments do not cause undue
prejudice. ..................................................................................................... 6
B.
Some amendments are futile, but most are not. .......................................... 7
Order ........................................................................................................................................... 12

BACKGROUND
Defendants filed a motion to dismiss.5 After that motion was fully briefed, a Docket Text
Order was entered granting the motion and directing defendants’ counsel to submit a proposed
order to that effect. 6
On October 19, 2016, Kennedy filed a motion to reconsider the Docket Text Order and a
motion for leave to amend the complaint. 7 The deadline for Kennedy to amend the complaint
was October 21, 2016. 8 The Order Granting [7] Motion to Dismiss and Denying [20] Motion for
Reconsideration and Motion for Leave to Amend Complaint (Order), 9 stated:
Kennedy . . . argue[s] that there should be equitable relief from the clear terms of
the Earn-Out agreement . . . . This is sufficient challenge to preserve the portion
of the claim for unjust enrichment relating to the Earn-Out Agreement. [This
challenge] was not acknowledged in the earlier [ruling granting the motion to
dismiss in Docket Text Order] because of its placement in the complaint:
Kennedy was attacking the validity of the Earn-Out agreement in the very cause

5

Motion to Dismiss, docket no. 7, filed August 29, 2016.

6

Docket no. 18, entered October 12, 2016.

7

Motion for Reconsideration and Motion for Leave to Amend Complaint (Motion to Reconsider), docket no. 20,
filed October 19, 2016.
8

Scheduling Order, docket no. 19, entered October 13, 2016.

9

Docket no. 24, entered December 30, 2016.

2

of action seeking to enforce it. This can easily be remedied in a future amended
complaint. 10
Because Kennedy failed to attach the proposed amended complaint as an exhibit to his
motion and failed to “give adequate notice to the district court and to the opposing party of the
basis of the proposed amendment,” the Order stated: “Kennedy’s motion for leave to amend the
complaint is denied without prejudice.” 11
DISCUSSION
1. Kennedy has demonstrated good cause to modify the schedule.
Kennedy argues that he should be granted leave to extend the deadline for amending the
complaint because it is “[i]n the interests of justice and to simply correct a procedural error made
by counsel.” 12
Defendants respond that an attorney’s failure to follow the rules does not amount to good
cause. 13
“[P]arties seeking to amend their complaints after a scheduling order deadline must
establish good cause for doing so.” 14 That is, parties seeking to amend their complaint after a
scheduling order deadline expires must first satisfy Federal Rule of Civil Procedure 16(b)(4),
which states that a “schedule may be modified only for good cause and with the judge’s
consent.” “Rule 16’s good cause requirement may be satisfied, for example, if a plaintiff learns
new information through discovery or if the underlying law has changed.” 15 The Advisory

10

Id. at 5 (emphasis added).

11

Id. at 7 (emphasis added).

12

Motion for Time Extension at 3.

13

Opposition at 1–2.

14

Gorsuch Ltd BC v. Wells Fargo Nat. Bank Assn., 771 F.3d 1230, 1241 (10th Cir. 2014).

15

Id. at 1240.

3

Committee Notes for the 1983 Amendments to Federal Rule of Civil Procedure 16 indicate that
changes to the scheduling order are considered under the lower “good cause” standard to
encourage parties to expeditiously resolve litigation:
[T]he court may modify the schedule on a showing of good cause if it cannot
reasonably be met despite the diligence of the party seeking the extension. Since
the scheduling order is entered early in the litigation, this standard seems more
appropriate than a “manifest injustice” or “substantial hardship” test. Otherwise, a
fear that extensions will not be granted may encourage counsel to request the
longest possible periods for completing pleading, joinder, and discovery.
In that spirit, courts have considered various factors for determining whether to grant a
motion to extend deadlines. Though the primary “consideration is whether the moving party can
demonstrate diligence,” other factors include “whether allowing the amendment of the pleading
at this stage of the litigation will prejudice defendants,” 16 and whether the non-moving party has
had sufficient notice of the asserted claim before the deadline expired. 17
Kennedy should have attached the proposed amended complaint as an exhibit to his
Motion to Reconsider. Nevertheless, failure to do so does not justify denying his Motion to
Extend Time. The defendants had notice of Kennedy’s intention to bring the claim for
promissory estoppel before the deadline for amending the pleadings expired. In the Motion to
Reconsider, Kennedy stated, “If permitted to amend his Complaint, Plaintiff could add an
additional claim for promissory estoppel.” And the defendants will experience little if any
prejudice from granting this extension. The litigation is still relatively young. 18

16

Kassner v. 2nd Avenue Delicatessen Inc., 496 F.3d 229, 244 (2d Cir. 2007).

17

High Point Design LLC v. Buyers Direct, Inc., 730 F.3d 1301, 1319 (Fed. Cir. 2013).

18

Complaint, docket no. 2-1, filed in state court on July 21, 2016.

4

Defendants cite numerous cases they claim show the deadline should not be extended. 19
The facts in each case are distinguishable. 20 The plaintiffs in those cases either waited an
excessive amount of time to file their motion to amend or failed to timely amend due to
strategically relying on the defendant’s counterclaim that the defendant eventually dismissed.
Here, Kennedy filed the original motion to amend two days before the deadline. 21 After the
Order was entered denying the motion to amend, 22 Kennedy filed this motion within ten days. 23
This is not the delay or strategy experienced in the cited cases. This is a prompt effort to correct a
blunder. Defendants had sufficient notice of Kennedy’s intention to amend the complaint. And,
defendants were on sufficient notice of Kennedy’s intention to amend the complaint to include a
cause of action for promissory estoppel before the deadline to amend actually expired.
2. Kennedy may make most of the amendments he proposes.
The defendants argue that most of the proposed amendments should be denied because
they were unduly delayed, 24 they unduly prejudice defendants, 25 or they are futile. 26

19

Opposition at 1–2.

20

Gorsuch, Ltd., 771 F.3d at 1240 (waiting nearly two years after the deadline in the scheduling order to move to
amend the complaint); Zisumbo v. Ogden Regional Medical Center, 801 F.3d 1185, 1195 (10th Cir. 2015) (waiting
more than four months after the scheduling order’s deadline for amending pleadings before filing the motion);
Morden v. XL Specialty Insurance Co., 315 F.R.D. 676, 680 (D. Utah 2016) (strategically waiting until after
defendants voluntarily dismissed declaratory judgment counterclaim before seeking to amend).
21

Motion to Reconsider, docket no. 20, filed October 19, 2016.

22

Order, docket no. 24, entered December 30, 2016.

23

Motion to Extend Time, docket no. 26, filed January 9, 2017.

24

Opposition at 3–4.

25

Id. at 4.

26

Id. at 5–8.

5

Kennedy responds that there is necessarily no undue delay if the motion to extend the
deadline to amend the complaint is granted; 27 that defendants will not be prejudiced because he
is not rotating through theories to avoid dismissal; 28 and that the amendments are not futile. 29
Federal Rule of Civil Procedure 15(a)(2) states that “a party may amend its pleading only
with the opposing party’s written consent or the court’s leave. The court should freely give leave
when justice so requires.” A motion for leave to amend should be denied if there is “a showing
of undue delay, undue prejudice to the opposing party, bad faith or dilatory motive, failure to
cure deficiencies by amendments previously allowed, or futility of amendment.” 30
A. There was no undue delay and the amendments do not cause undue prejudice.
Though Kennedy may have been aware of the facts underlying the claim for promissory
estoppel from the beginning, “[t]he court should freely give leave when justice so requires.” 31
Kennedy could have avoided most of the work involved in this case thus far if the original
complaint were better crafted. But “litigation is messy.” 32 Stuff happens. Or sometimes it does
not.
The defendants will not be prejudiced by allowing these amendments. Most of the
amendments were made simply to conform with the prior Order. And though promissory
estoppel is an entirely new cause of action, as discussed more below, the defendants had notice
that that the complaint would be amended to include it. Contrary to defendants’ assertion, 33 it

27

Reply at 6–7.

28

Id. 7–8.

29

Id. 8–10.

30

Duncan v. Manager, Dept. of Safety, City and County of Denver, 397 F.3d 1300,

31

Fed. R. Civ. P. 15(a)(2).

32

Fox v. Vice, 563, U.S. 826, 834 (2011).

33

Opposition at 4.

6

does not yet appear that Kennedy is “sequentially rotat[ing] through alternate claims in order to
find viable ones.” 34 This is essentially the first motion to amend the complaint, and Kennedy is
only adding one cause of action.
B. Some amendments are futile, but most are not.
“A proposed amendment is futile if the complaint, as amended, would be subject to
dismissal.” 35
Three new paragraphs in the claim for unjust enrichment are futile.
Kennedy adds several new paragraphs to the first cause of action for unjust enrichment. 36
Defendants oppose adding the following three new paragraphs:
45. Protection One was to pay Plaintiff the remainder of the purchase price for his
business over a period of three (3) years, and a final payment of $103,000 was
due December 31, 2015.
46. Plaintiff performed all of the services asked of him (i.e., obtained 1,000 or
more accounts within, indeed well before the end of, the requisite time period) to
be entitled to the final payment of $103,000 of the purchase price for his business.
47. The provision in the Earn-Out Agreement requiring Plaintiff to be an
“employee” of Protection One on December 31, 2015 in order to be paid the 2015
earn-out payment is illusory and not enforceable as Protection One was able to,
and in fact did, unilaterally terminate the contract without any cause whatsoever
other than to simply avoid paying such final earn-out payment. 37
Though defendants do “not currently dispute that Plaintiff has stated a claim for unjust
enrichment related to the Earn-Out Agreement,” 38 defendants argue that including these three

34

Id.

35

Full Life Hospice, LLC v. Sebelius, 709 F.3d 1012, 1018 (10th Cir. 2013).

36

Exhibit A (Proposed Amended Complaint) ¶¶ 44–55 , docket no. 25-1, filed January 9, 2017.

37

Id.

38

Opposition at 6.

7

paragraphs “inappropriately attempts to engage the Court in reformation of the Parties’ express,
written agreement.” 39 Kennedy’s reply does not address this argument. 40
Defendants are correct. Kennedy’s amended complaint cannot include these three
paragraphs. Either the Earn-Out Agreement is illusory, and therefore is unenforceable, allowing
him to state a claim for unjust enrichment, or it is valid, which means he recovers nothing.
Kennedy cannot have it both ways.
“An illusory promise . . . is but a ‘façade’ that imposes no performance obligations on the
promisor and affords no consideration to the promisee; the putative promise neither binds the
person making it, nor functions as consideration for a return promise.” 41 The plaintiff has the
burden to prove that a promise is illusory. 42 If the plaintiff successfully proves that the promise is
illusory, it is as if the promise never existed. 43 The plaintiff may then pursue a theory of quantum
meruit such as unjust enrichment. For unjust enrichment, the plaintiff must prove “that the
defendant (1) received a benefit, (2) appreciated or had knowledge of this benefit, and (3)
retained the benefit under circumstances that would make it unjust for the defendant to do so.” 44
If the fact finder determines that these elements are met, then the question of damages is
addressed. “[W]hen assessing damages for unjust enrichment, the court begins by looking to the
value of the benefit conferred . . . . Generally, the measure of recovery for an unjust enrichment

39

Id.

40

Reply at 8–10.

41

Flood v. ClearOne Communications, Inc., 618 F.3d 1110, 1119 (10th Cir. 2010) (internal quotation marks
omitted).
42

Gobal Fitness Holdings, LLC v. Federal Recovery Acceptance, Inc., 127 F. Supp. 3d 1228, 1239 (D. Utah 2015)
(“[T]he plaintiff must establish that the parties do not have a formal contract controlling their rights and
obligations.”).

43

Flood, 618 F.3d at 1119.

44

Express Recovery Servs. Inc. v. Reuling, 364 P.3d 766, 770 (Utah Ct. App. 2015) (internal quotation marks
omitted).

8

or contract-implied-in-law claim is the value of the benefit conferred on the defendant (the
defendant’s gain) and not the detriment incurred by the plaintiff.” 45
Therefore, if Kennedy is successful at proving that the Earn-Out Agreement is illusory,
he may then proceed under a theory of unjust enrichment. If he successfully proves the elements
of unjust enrichment, one factor for determining the benefit conferred on defendants may be the
terms of the contract. In other words, the terms of the contract may—but not necessarily—help
in determining the valuation of the “benefit conferred on the defendant.” 46
The terms of the Earn-Out Agreement, however, cannot be used to determine if the
defendants “(1) received a benefit, (2) appreciated or had knowledge of this benefit, [or] (3)
retained the benefit under circumstances that would make it unjust for the defendant[s] to do
so.” 47 Otherwise, the court would be reforming the contract in terms more amenable to the
Kennedy. 48 Including the three paragraphs quoted above in the portion of the complaint for
unjust enrichment would wrap the terms of the contract into the unjust enrichment analysis. This
would be error.
Therefore, Kennedy cannot amend his complaint to include the three paragraphs quoted
above.

45

Id. (internal quotation marks and citation omitted).

46

Id.

47

Id.

48

Flood, 618 F.3d at 1119 (finding that the district court erroneously found a contract was illusory yet still enforced
everything but the offending terms).

9

The claim for promissory estoppel is not futile, but subject to significant caveats.
Kennedy proposes promissory estoppel as a new cause of action. 49 The gist of this new
cause of action is that defendants made promises about purchasing his business 50 and about
general performance compensation 51 and that he justifiably relied on those promises to his
detriment. Defendants argue that this new cause of action is futile for three reasons. 52
First, defendants argue that a claim for promissory estoppel “necessarily fails (and is
therefore futile) if the Earn-Out Agreement is a valid, enforceable contract.” This is
uncontroversial. Indeed, Kennedy makes no effort to resist the argument. If the Earn-Out
Agreement is valid, Kennedy is, by a prior order, without further recourse. 53 “Promissory
estoppel is only a viable claim where no formal contract exists and the party seeking promissory
estoppel is attempting to prove the existence of an enforceable promise or agreement.” 54 He
would not be able to recover the final purchase-price payment.
Defendants’ second and third arguments are related. Defendants argue that even if the
Earn-Out Agreement is illusory, a promissory estoppel claim is futile. Defendants quote Malasky
v. Dirt Motor Sports, Inc. 55 for the proposition that “illusory promises are not more actionable
simply because they are fitted within the context of a promissory estoppel claim.” 56 Put
differently, Kennedy cannot speak out of both sides of his mouth. If Kennedy’s only source for

49

Proposed Amended Complaint ¶¶ 56–67.

50

Id. ¶¶ 57–62.

51

Id. ¶¶ 63–67.

52

Opposition 7–8.

53
The claim for unjust enrichment would be unavailable. See supra. And the portion of the breach of contract claim
based on the Earn-Out Agreement has been dismissed. Order at 3–4.
54

Global Fitness Holdings, 127 F. Supp. 3d at 1239.

55

No. 07-cv-00046-J, 2008 WL 2095528 (D. Colo. May 16, 2008).

56

Id. at *7.

10

the promise was what was contained in the contract, the plaintiff cannot argue that the promise is
illusory—thus negating the contract—but then say that the same promise should be enforced
against the defendants. Consistent with the discussion above for unjust enrichment, Kennedy
would essentially be reforming the contract, i.e. eliminating the offensive term and enforcing the
rest.
Kennedy replies:
The certain provision in the Earn-Out Agreement (that Plaintiff had to be working
for Protection One in December 2015 in order to earn his final earn-out payment)
was alleged by Plaintiff to be illusory and gratuitous, and therefore the provision
and/or the contract itself may be invalid and unenforceable.
....
Plaintiff was induced by Protection One’s promises of a final earn-out payment if
he obtained 1,000 new accounts for Protection One in the third and final year, and
he justifiably and in good faith relied on the promise of final payment when he
did, in fact, obtain those 1,000 new accounts. Without the illusory provision in the
Earn-Out Agreement, or without a valid or enforceable contract at all, promissory
estoppel by definition fills that void by permitting the Court, in equity, to enforce
the promises made and that were justifiably relied and acted upon (and
particularly, for example, when there is a problem with an underlying contract). 57
Whatever Kennedy is arguing here, two things are clear. First, he cannot attack a single
provision of a contract under the doctrine of illusory contract. 58 And second, if the “promise of
final payment” upon which he allegedly relied was only made in the Earn-Out Agreement,
promissory estoppel will not survive a later dispositive motion.
Therefore, Kennedy may amend his complaint to include a cause of action for promissory
estoppel. But unless Kennedy successfully proves that the Earn-Out Agreement is illusory and

57

Reply at 8–9.

58

See In re Cox Enterprises, Inc. Set-top Cable Television Box Antitrust Litigation, 835 F.3d 1195, 1209 (10th Cir.
2016) (“Although Plaintiffs frame their ‘illusory’ argument as directed at the arbitration provision of the Internetservice agreement, general contract law does not permit such an argument on a provision-by-provision basis.”); see
also Klosek v. American Express Co., No. 08-426 (JNE/JJG), 2008 WL 4057534, at *12 (D. Minn. Aug. 26, 2008).

11

that he relied on a promise of payment other than the one proved illusory, this cause of action
will necessarily fail.
ORDER
IT IS HEREBY ORDERED that Kennedy’s Motion to Extend Time Period to Amend
Plaintiff’s Initial Pleadings 59 is GRANTED.
IT IS FURTHER HEREBY ORDERED that Kennedy’s Motion (Second) for Leave to
Amend Complaint 60 is GRANTED IN PART AND DENIED IN PART. Kennedy can amend the
complaint to include all the changes represented in the Proposed Amended Complaint 61 except
those found in paragraphs 45–47, which refer to the specific terms in the Earn-Out Agreement.
Signed May 4, 2017.
BY THE COURT

________________________________________
District Judge David Nuffer

59

Docket no. 26, filed January 9, 2017.

60

Docket no. 25, filed January 9, 2017.

61

Docket no. 25-1, filed January 9, 2017.

12