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Mat-Van, Inc. v. Sheldon Good & Co. Auctions

January 5, 2009


The opinion of the court was delivered by: Irma E. Gonzalez, Chief Judge United States District Court


Plaintiff's Mat-Van, Inc., Luman N. Nevels, Jr., and 1DB Corporate Retreat, Ltd. have moved the Court for leave to file a Third Amended Complaint. The Court grants the motion, subject to the limitations set out herein.


1. Factual Background

Defendant Sheldon Good & Company Auctions, LLC ("SGC") is an auction company incorporated in Delaware with its principal places of business in Illinois. Mat-Van, Inc. ("Mat-Van"), Luman N. Nevels Jr. ("Nevels"), and 1DB Corporate Retreat, Ltd. ("1DB") (collectively "plaintiffs") each own island properties, which they wished to sell. This action arises out of contracts between SGC and each plaintiff in which SGC agreed to auction plaintiffs' three resort islands. [Second Amended Complaint ("SAC"), ¶¶ 6, 8, 11.]

According to the SAC, SGC's Senior Vice Presidents, David Latvaaho and Douglas Johnson, approached plaintiffs with a plan to set up a worldwide auction where plaintiffs could sell their three islands along with other sellers. (Id. ¶ 9.) Plaintiffs allege SGC made the following representations to plaintiffs: (1) each island owner would contribute $100,000 per island to form a marketing fund of at least $500,000; (2) public interest existed in buying at this kind of auction; (3) a large number of island owners were interested in selling at the auction; (4) SGC would limit the number of islands sold at the auction to under ten, but at least five; (5) SGC had rejected some islands as unsuitable for the auction; and (6) each island would be given equal marketing and advertising exposure in exchange for the owner's $100,000 contribution. (Id. ¶ 9.)*fn1

After signing written contracts, plaintiffs each gave SGC $100,000 for marketing and auction purposes. (Id. ¶¶ 11-13.) The auction did not turn out to be the success plaintiffs hoped for, as none of the island properties were purchased. (Id. ¶ 15.) Plaintiffs discovered that, contrary to SGC's alleged representations, another seller, George Story, did not contribute $100,000 per island to the marketing funds, but only contributed $100,000 to list his two islands.*fn2 (Id. ¶ 9.) Based on discovery plaintiffs conducted in October, 2008, plaintiffs seek to add additional factual details about SGC's conduct to a Third Amended Complaint. ("TAC") (Motion, Ex. A.) These additional details are further discussed infra.

2. Procedural Background

On April 5, 2007, plaintiffs filed a complaint in the Superior Court of California for the County of San Diego, alleging fraud and breach of contract. (Doc. No. 1, Notice of Removal, Exhibit A, 3-4.) On May 21, 2007, defendant removed the case to this Court. On July 27, 2007, the Court granted defendant's motion to dismiss plaintiffs' fraud cause of action and motion to strike plaintiffs' claim for punitive damages. (Doc. No. 15.) The Court granted plaintiffs' leave to amend, and plaintiffs filed a first amended complaint on August 10, 2007. (Doc. No. 16.) The Court granted defendant's motion to dismiss the first amended complaint in its entirety on October 16, 2007, again granting plaintiffs leave to amend. (Doc. No. 24.)

On October 30, 2007, plaintiffs filed a second amended complaint (hereinafter "SAC"). (Doc. No. 25.) On November 9, 2007, defendant moved to dismiss the SAC and to strike the request for punitive damages. (Doc. No. 26.) On February 6, 2008, the Court partially granted the motion, dismissing portions of plaintiffs' fraud and breach of contract claims with prejudice and without leave to amend. ("Dismissal Order") (Doc. No. 33.)*fn3 The Court also dismissed plaintiffs' breach of fiduciary duty claim without prejudice, dismissed defendant Sheldon Good & Company Auctions from the case, and denied defendant's motion to strike plaintiffs' request for punitive damages. On April 22, 2008, the magistrate judge issued a scheduling order ("Scheduling Order") setting the deadline to amend the pleadings for June 13, 2008. (Doc. No. 41.) Plaintiffs moved to file a TAC on November 5, 2008. (Doc. No. 50.) Defendant filed an opposition on November 17, 2008, (Doc. No. 51,) and plaintiffs filed a Reply brief on December 5, 2008. (Doc. No. 52.) The Court heard oral argument on plaintiffs' motion on Monday, December 15, 2008.


1. Legal Standard

Under Fed. R. Civ. P. 15 (2008), "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." Leave to amend is granted with "extreme liberality." Morongo Band of Mission Indians v. Rose, 893 F.2d 1074, 1079 (9th Cir. 1990). "There are several accepted reasons why leave to amend should not be granted, including the presence of bad faith on the part of the [party seeking to amend], undue delay, prejudice to the [party opposing amendment], futility of amendment, and that the party has previously amended the relevant pleading." Advanced Cardiovascular Sys., Inc. v. SciMed Life Sys., Inc., 989 F. Supp. 1237, 1241 (N.D. Cal. 1997) (citing DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 186 (9th Cir. 1987)).

When a party seeks to amend a pleading beyond the deadline the court sets in its pretrial scheduling order, Federal Rule of Civil Procedure 16 applies to the proposed amendment. Johnson v. Mammoth Recreations, 975 F.2d 604, 608 (9th Cir. Cal. 1992). Fed. R. Civ. P. 16 provides "[a pretrial] scheduling order must limit the time to join other parties, amend the pleadings, complete discovery, and file motions," and "may be modified only for good cause and with the judge's consent." Fed. R. Civ. P. 16(b) (2008). Under Rule 16's "good cause" standard, the district court may modify the pretrial schedule 'if it cannot reasonably be met despite the diligence of the party seeking the extension.'" Johnson, 975 F.2d at 609 (citation omitted). If the ...

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