United States District Court, N.D. California, San Jose Division
June 23, 2005.
Raymond Abels, et al., Plaintiff(s),
JBC Legal Group, P.C., et al., Defendant(s).
The opinion of the court was delivered by: JAMES WARE, District Judge
ORDER GRANTING PLAINTIFF'S MOTION FOR LEAVE TO FILE AMENDED
Lead Plaintiff, Raymond Abels ("Plaintiff" or "Abels"), brings
this case as a class action against Defendant JBC Legal Group,
RC. ("JBC"), a corporation, and Jack Boyajian, an individual
(collectively "Defendants") for violations of the Federal Fair
Debt Collection Practices Act, 15 U.S.C. §§ 1692 et seq.
("FDCPA"), California Civil Code § 1788 et. seq. ("CA FDCPA" or
"Rosenthal Act"), and the California Business and Professional
Code §§ 17200 et. seq ("17200").
Plaintiff now moves for leave to file an amended complaint.
Plaintiff seeks to add Outsource Recovery Management, Inc.
("Outsource") as a party defendant because Plaintiff has
discovered Outsource is the client and agent of JBC, and the true
owner of the debt giving rise to the complaint. In the same
motion, Plaintiff is voluntarily withdrawing its 17200 claim.
A hearing was held on June 13, 2005. For the reasons set forth below,
Plaintiff's Motion for Leave to File Amended Complaint is GRANTED. II. BACKGROUND
Plaintiff brings this case as a class action alleging
violations of: Federal Fair Debt Collection Practices Act,
15 U.S.C. § 1692, California Civil Code § 1788, and California
Business and Professional Code § 17200 et. seq. The FDCPA
regulates the behavior of collection agencies attempting to
collect a debt on behalf of another. The CA FDCPA regulates
collection agencies and original creditors attempting to collect
debts on behalf of another or on their own behalf. Section 17200
prohibits debt collectors from using false or misleading
communications in an attempt to collect a debt. Plaintiff and the
purported class seek actual damages, statutory damages,
attorney's fees, costs, and equitable relief pursuant to FDCPA,
CA FDCPA, and § 17200. (Complaint ¶¶ 1-2.)
The alleged violations stem from Defendants' written
communications attempting to collect an alleged debt from
Plaintiff, and all others similarly situated in California. Abels
allegedly owed a consumer debt for a check that was returned in
1993, some 11 years ago. On April 24, 2004, Defendants sent two
collection letters to Plaintiff. (Complaint ¶ 3.) Plaintiff
contends these letters were false, deceptive and misleading,
threatened to take action that cannot be or was not intended to
be taken, and attempted to collect amounts not authorized by
contract or law. (Motion ¶¶ 2-3.)
Plaintiff's suit was filed on June 15, 2004, identifying JBC
and Jack Boyajian as Defendants. (Complaint ¶ 1.) This Court set
forth an initial Scheduling Order on November 11, 2004, setting
deadlines for disclosure of expert witnesses, discovery, and
pre-trial report. (Opp'n at 2.) In March of 2005, counsel for
Plaintiff and Defendants discussed an interrogatory involving the
procedure Defendants use when sending letters attempting to
collect on alleged debts. (Coleman Decl. ¶ 2.) Counsel for
Defendants, informally, identified Outsource as Abels' creditor,
"even though it was not the subject of a discovery request."
(Id.) Unable to reach a stipulation to amend the complaint,
Plaintiff filed this Motion for Leave to File Amended Complaint
on April 22, 2005. (Motion at 2.)
Federal Rule of Civil Procedure 15(a) provides that "a party
may amend the party's pleading only by leave of court or by written consent
of the adverse party; and leave shall be freely given when justice so requires." The Ninth Circuit has instructed that the
policy favoring amendments "is to be applied with extreme
liberality." Morongo Band of Mission Indians v. Rose,
893 F.2d 1074, 1079 (9th Cir. 1990); DCD Programs, Ltd. v. Leighton,
833 F.2d 183, 186 (9th Cir. 1987) (citations omitted). But amendments
"seeking to add claims are to be granted more freely than
amendments adding parties." Union Pac. R.R. Co. v. Nevada Power
Co., 950 F.2d 1429, 1432. The four factors commonly used to
determine the propriety of a motion for leave to amend are bad
faith, undue delay, prejudice to the opposing party, and futility
of amendment. Foman v. Davis, 371 U.S. 178, 182 (1962); DCD
Programs, 833 F.2d at 186. An amendment may relate back to the
time of the filing of the original complaint under the standards
set out in Federal Rule of Civil Procedure 15(c).
The Court applies a policy of "extreme liberality" in favor of
Rule 15 amendments and determines the propriety of Plaintiff's
motion under the four commonly used conditions to grant leave to
amend. In addition, the Court follows Rule 15(c) "relation back"
requirement with respect to amendments that are filed after the
running of the statute of limitations.
A. Plaintiff's Amendment Is Not In Bad Faith.
Leave to amend may be denied if the amendment is introduced
solely for delay or improper purpose. Foman, 371 U.S. at 182.
Here, Plaintiff's amendment is introduced to add the true owner
of the underlying debt, Outsource. Plaintiff claims that
Defendant JBC was acting as both the agent and client of
Outsource. (Motion at 3.) Outsource is clearly a relevant party
to the litigation, since any litigation outcome would affect its
ownership interests over the alleged underlying debt. Plaintiff
did not appear to know of Outsource until March of 2005 (Opp'n at
9), leaving unreasonable the assumption that Plaintiff acted with
a dilatory motive. See DCD Programs, 833 F.2d at 187 (finding
no bad faith when satisfactory explanation for delay). Defendants
do not dispute Plaintiff's motive. Thus, the Court finds no
reason to believe that Plaintiff's amendment is brought in bad
B. Plaintiff Did Not Unduly Delay In Filing This Amendment.
In the Ninth Circuit, delay alone is insufficient to provide
grounds for leave to amend, though it is a relevant factor.
Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th
Cir. 2003) (footnotes omitted). Plaintiff's motion for amendment
to add Outsource as a defendant comes over ten months after the original complaint was filed. (Opp'n at 10.)
However, the Court notes that the discovery deadline, August 8,
2005, has not yet passed. See Solomon v. N. Am. Life & Cas.
Ins. Co., 151 F.3d 1132, 1139 (9th Cir. 1998) (leave to amend
sought on eve of discovery deadline properly denied). Moreover,
it appears that Plaintiff did not know of Outsource until
Defendants' counsel identified the company in March of 2005.
(Opp'n at 9.) On April 22, 2005, approximately a month after
identifying Outsource, Plaintiff filed this motion to amend.
(Motion at 1.) Once Outsource was identified, Plaintiff clearly
did not delay in moving to amend.
Defendants argue that Plaintiff could have learned of
Outsource's identity much sooner if Plaintiff had propounded a
proper interrogatory. (Opp'n at 9.) Defendants are correct that
Plaintiff could have learned of Outsource sooner, but Rule 15
does not mandate a time limit for amendment. FED. R. CIV. P. 15.
The Ninth Circuit has found that even a two year delay is "not
alone enough to support denial." Morongo, 893 F.3d at 1079.
Thus, since Plaintiff acted quickly once identifying Outsource
and discovery is not complete, the Court finds no undue delay in
C. Defendants Are Not Substantially Prejudiced By
An amendment's potential prejudice to the opposing party
"carries the greatest weight" among the four factors in deciding
to grant leave to amend. Eminence Capital, 316 F.3d at 1052. To
deny leave to amend, the prejudice must be substantial.
Morongo, 893 F.2d at 1079. Other courts have found prejudice
when the amendment came on the eve or close of discovery
(Solomon, 151 F.3d at 1139); when there were many previous
efforts to amend (Mir v. Fosburg, 646 F.2d 342, 347 (9th Cir.
1980)); and when the amendment was brought to destroy diversity
and the jurisdiction of the court. DCD Programs,
833 F.2d at 187 (footnotes omitted).
Here, Defendants claim that Plaintiff's delay is prejudicial to
both Defendants and the Court because "pre-trial deadlines will
need to be abandoned." (Opp'n at 10.) Defendants fail to
recognize that the Court's November 2004 Scheduling Order can be
modified under Rule 16(b) of the Federal Rule of Civil Procedure.
("A schedule shall not be modified except upon a showing of good
cause . . . Fed.R.Civ.P. 16(b)(6).) Adding a relevant
defendant is good cause, even when an amendment comes later in
the litigation. More importantly, because this matter involves
federal question jurisdiction, adding Outsource does not
implicate this Court's jurisdiction. Thus, the Court is not
persuaded that Defendants are prejudiced just because "pre-trial deadlines" may
The stronger argument, though not advanced in Defendants'
opposition, is that Outsource will be prejudiced by the
amendment. The Court is aware that granting the amendment, filed
more than ten months after the original complaint, may be
prejudicial to Outsource, the entering party. DCD Programs,
833 F.2d at 187 ("Amending a complaint to add a party poses an
especially acute threat of prejudice to the entering party.").
But that argument fails because Outsource is not substantially
prejudiced in this instant. Similar to the facts in DCD
Programs, there has been no undue delay by Abels, the case is
still at the discovery stage, and there is no evidence that
Outsource is prejudiced by the timing of Abels' proposed
amendment. Id. at 188.
Outsource, as the true owner of the debt at issue, has a real
interest in the outcome of this litigation. The Court recognizes
that Outsource has a due process right to respond to the amended
pleading. Nelson v. Adams, 529 U.S. 460, 467 (2000) (amended
pleading anticipates service on new defendant, with the added
party given ten days under Rule 15(a) to plead in response).
Thus, Outsource will have an opportunity to be heard in relation
to the amended complaint and the merits of the case.
In sum, neither current Defendants nor Outsource will be
substantially prejudiced by granting Plaintiff's amendment. The
Court has the discretion to modify its Scheduling Order, require
service upon Outsource, and give Outsource the same amount of
time afforded to the original Defendants to respond.
D. Plaintiff's Amendment Is Not Clearly Futile.
Challenges to the pleading are usually deferred until after the
pleading has been granted, but leave to amend has sometimes been
denied if the proposed amendment is futile. DCD Programs,
833 F.2d at 188; Saul v. United States, 928 F.2d 829, 843 (9th Cir.
1991). A proposed amendment is futile only if "no set of facts
can be proved under the amendment that would constitute a valid
claim or defense. Miller v. Rykoff-Sexton, Inc., 845 F.2d 209,
214 (9th Cir. 1988); see also WILLIAM W. SCHWARZER, A. WALLACE
TASHIMA & JAMES M. WAGSTAFFE, 2 CALIFORNIA PRACTICE GUIDE:
FEDERAL CIVIL PROCEDURE BEFORE TRIAL 8:423 (Rutter Group rev. ed.
2005) (denials based solely on futility "are rare"). Plaintiff's motion for leave to amend is within the one year
statute of limitations for its FDCPA and CA FDCPA claims. The
time line is critical. Plaintiff's claims are based on letters
dated April 24, 2004. The FDCPA statute of limitations thus
expired on April 24, 2005. 15 U.S.C. § 1692k(d). Plaintiff's
motion for leave to amend was filed on April 22, 2005, which is
within the statute of limitations. Although it is the motion
for leave that is filed within the statute of limitations and not
the amended complaint itself, the Court finds that the filing
of the motion serves as sufficient notice to the new Defendant
Outsource considering the fact that Defendant Jack Boyajian is
the President of both JBC and Outsource. Additionally, since the
Federal Rules of Civil Procedure and the Court's own Local Rules
require a party to seek leave of court to amend the complaint
once responsive pleadings have been filed, it is difficult to
punish the Plaintiff in light of the short time frame between the
time the Defendants disclosed Outsource as the true owner of the
debt, and Plaintiff's filing of the motion seeking leave to
E. Even if Plaintiff's Motion for Leave to Amend Does Not
Qualify Within the One-Year Statute of Limitation, Plaintiff's
Amendment Relates Back Under Rule 15(c).
Plaintiff's amendment to add Outsource would only need to
relate back if the statute of limitations had run. G.F. Co. v.
Pan Ocean Shipping Co, 23 F.3d 1498, 1501 (9th Cir. 1994)
("[Rule] 15(c) `is the only vehicle through which a plaintiff may
amend his complaint, after a statute of limitation period has
run,'" to name a correct defendant.). Although the Court deems
Plaintiff's motion for leave to amend within the statute of
limitations, the Court notes that even if Plaintiff's motion
would need to relate back under Rule 15(c), the requirements for
"relating back" as to the newly added defendant are met in this
case. Rule 15(c)(3) requires: 1) the claim arise out of the "same
conduct, transaction or occurrence"; 2) the new defendant receive
"sufficient notice" of the original action within the time
provided for by Rule 4(m) (120 days) so as not to be prejudiced
in defending on the merits; and 3) the new defendant must have or
should have known, "but for a mistake concerning the identity of
the proper party," the action would have included the new
defendant. Fed.R.Civ.P. 15(c)(3); see also Pan Ocean,
23 F.3d at 1501.
Plaintiff clearly satisfies the first requirement of Rule
15(c)(3). Abels' claims against current Defendants and Outsource
arise out of the two letters dated April 24, 2004 asking for
payment of the alleged debt. (Motion at 2.) The second requirement of the
relation back doctrine, notice, is also satisfied. Informal
notice is sufficient if it allows the defendant the opportunity
to prepare a defense. Craig v. United States, 479 F.2d 35, 36
(9th Cir. 1973). Notice can be imputed if there is sufficient
agency or "community of interest" between the defendant served
and new defendant. Pan Ocean, 23 F.3d 1498 at 1503. In this
case, Defendant Boyajian is the President of both JBC and
Outsource, and is the agent for service of process for both
corporations. (Reply at 4.) Thus, Outsource, through its
president and agent for service of process Jack Boyajian, had
sufficient notice of the institution of the action when the
original complaint was timely served on Defendants JBC and
Boyajian. See Brink v. First Credit Resources,
57 F. Supp. 2d 848 (D. Ariz. 1999). Outsource will not be prejudiced since
notice has been imputed to the time when Boyajian and JBC first
had notice, giving ample time to prepare an answer. Id. at 854.
More importantly, the third requirement of Rule 15(c)(3),
knowledge of mistake, is satisfied. The Ninth Circuit seems to
construe the mistake requirement more liberally to allow
amendment in some cases where the previously unknown defendants
were identified only after the statute of limitations had run.
See Kilkenny v. Arco Marine Inc., 800 F.2d 853 (9th Cir.
1986) (recognizing Rule 15(c) as the only mechanism for a
plaintiff to add additional parties after the statute of
limitations has run). Since Defendant Jack Boyajian is the
President of both JBC and Outsource, there is no question that
Outsource did know or should have known that it, as the true
owner of the debt, would have been a proper party in the action.
Though not binding, the Court is persuaded by the well-reasoned
analysis of Brink. The Brink case, as here, involved a motion
to amend to add new defendants in a FDCPA claim. This case fits
in one of the three patterns of "mistake" where a plaintiff seeks
to add a defendant after the statute of limitations has run as
averred to in the Brink case. 57 F. Supp. 2d at 856 (D. Ariz.
1999). This is a situation in which a plaintiff seeks to add a
defendant after the statute of limitations has run*fn1 when
the information about the additional defendant's identity is
within the defendants' control but the defendants are not forthcoming. Id. Abels did not become aware
of the true owner of the debt, Outsource, until late March of
2005 when Defendants' counsel informally identified the company
in an interrogatory. Abels immediately sought leave of court to
amend his complaint.
The Brink court held that "the cases indicate the `mistake
concerning . . . identity' requirement may be satisfied when the
plaintiff was unaware of the new defendant's identify at the time
the complaint was filed and learns the identity of the new
defendant only after the statute of limitations has expired
because the named defendant failed to provide the information
sooner." Id. at 857. Outsource should have known that it would
have also been a party to the action because it was the true
owner of the debt but it failed to provide this information to
the Plaintiff. Moreover, the Brink court held that since the
plaintiff did not make a tactical choice to exclude defendants,
and because defendants "failed to provide the information
sooner", the plaintiff was entitled to amend the complaint to add
new defendants. Id. Likewise, Abels did not choose to exclude
Outsource from the original complaint. The information as to the
true owner of the debt was within the Defendants' control at the
filing of the complaint but the Defendants were not forthcoming.
Accordingly, the Court finds that Plaintiff's amendment to add
Outsource relates back to the original filing of the complaint.
Moreover, even assuming that a one-year limitation period applies
to the action against Outsource, Defendants' opposition to the
motion to amend the complaint is not the proper vehicle for
raising the issue. It can be asserted by answer as an affirmative
defense. See Fed.R.Civ.P. 8(c).
For the foregoing reasons, the Court GRANTS Plaintiff's Motion
for Leave to File Amended Complaint. The Court also accepts
Plaintiff's voluntary withdrawal of its 17200 claim.
In light of this order, all currently set dates in the
Scheduling Order issued on November 11, 2004 are vacated.
Plaintiff shall file his amended complaint adding Outsource as a
party defendant within ten (10) days of this Order. Plaintiff
shall serve the amended complaint on Outsource pursuant to the
Federal Rules of Civil Procedure and the Local Rules of Court.
A case management conference is scheduled for August 29, 2005
at 10 a.m. to set a new scheduling order. Pursuant to the Local
Rules of Court, all parties shall meet and confer and file a Joint Case Management Statement no later than August 19, 2005.
Plaintiff shall notify Outsource of the case management
None of the dates set in this Order may be changed without an
order of the Court made after a motion is duly filed and made
pursuant to the Local Rules of this Court.