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Anthony v. Harmon

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF CALIFORNIA


November 16, 2010

CARMELO ANTHONY; MELO ENTERPRISES, INC.; AND CHOSEN ONE PROPERTIES, LLC, PLAINTIFFS,
v.
LARRY HARMON AKA LARRY W. HARMON AKA LAWRENCE HARMON, ET AL., DEFENDANTS.

The opinion of the court was delivered by: Morrison C. England, Jr. United States District Judge

MEMORANDUM AND ORDER

Plaintiffs Carmelo Anthony, Melo Enterprises, Inc., and Chosen One Properties, LLC ("COP"), filed this action against Defendants Larry Harmon aka Larry W. Harmon aka Lawrence Harmon ("Harmon"), Larry Harmon & Associates, P.A., Harmon-Castillo, LLP, Frank Castillo, Kelly Runkle, Sora Barnes, Kenny Cruz aka Kenneth Cruz, KC Development, LLC, Vitalis Partners, LLC ("Vitalis"), Professional Partners, LCC, and MCG Partners alleging various claims arising out of Defendants' transfers of Plaintiffs' monies. Plaintiffs now move for leave to file a Second Amended Complaint ("SAC").

BACKGROUND

Plaintiffs filed the initial Complaint on August 17, 2009. (ECF No. 1.) On November 19, 2009, the Court dismissed the Complaint in order to afford Plaintiffs an opportunity to amend their Complaint in accordance with pleading standards recently announced in Ashcroft v. Iqbal, 556 U.S. ----, 129 S.Ct. 1937 (2009). (ECF No. 26.) Plaintiffs subsequently filed the First Amended Complaint ("FAC" (ECF No. 43)) on January 8, 2010. The FAC omitted fraud and concealment claims, which had been pled in the initial Complaint. The parties have previously exchanged Rule 26(a)(1) initial disclosures, and proceeded in further discovery, which is to be completed by January 10, 2011.

Plaintiffs now seek leave to file a SAC, based on, inter alia, Harmon's testimony at the July 22 and 23, 2010 deposition that Anthony agreed to the transfers through several communications and that COP acquired a passive membership interest in Vitalis and Harmon's testimony that may indicate Harmon failed to disclose facts about Vitalis' finances and financial relationship with Harmon at the time of the transfers. The proposed SAC alleges additional factual allegations about the circumstances surrounding the transfers and adds six new claims for false statements or omissions in violation of federal and state securities law, federal and state non-registration of securities, and common law concealment.

DISCUSSION

Generally, a motion to amend is subject to Rule 15(a) of the Federal Rules of Civil Procedure, which provides that "[t]he court should freely give leave [to amend] when justice so requires." Fed. R. Civ. P. 15(a)(2)*fn1. However, once a pretrial scheduling order is filed pursuant to Rule 16, "that rule's standards control[]." Johnson v. Mammoth Recreations, Inc., 975 F.2d 604, 607-08 (9th Cir. 1992).

Under Rule 16(b), a party seeking leave to amend must demonstrate "good cause," which primarily considers the "diligence of the party seeking amendment." Id. at 609. "If that party was not diligent, the inquiry should end." Id. Although "the focus of the inquiry is upon the moving party's reasons for seeking modification[,]" a court may make its determination by noting the prejudice to other parties. See id. (finding that "the existence or degree of prejudice to the party opposing the modification might supply additional reasons to deny a motion" to amend).

If good cause is found, the court must then evaluate the request to amend the complaint in light of Rule 15(a)'s liberal standard. Id. A court considers whether the amendment (1) would prejudice the opposing party; (2) is sought in bad faith; (3) produces an undue delay in litigation; or (4) is futile.*fn2

Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003) (citing Foman v. Davis, 371 U.S. 178, 182 (1962)). The greatest weight is afforded to prejudice, with the burden resting on the non-movant. Eminence Capital, LLC, 316 F.3d at 1052. "Absent prejudice, or a strong showing of any of the remaining Foman factors, there exists a presumption under Rule 15(a) in favor of granting leave to amend." Id. (emphasis in original).

Plaintiffs were sufficiently diligent in seeking leave to amend. The FAC did not allege that Plaintiffs acquired a security interest in Vitalis. Instead, Plaintiffs alleged that Plaintiffs did not agree to the transfers, regardless of the nature of the interest acquired. The documents obtained through discovery before the FAC and subsequent to it were conflicting as to the nature of the interest in Vitalis.*fn3 (Hirsh Decl. ¶¶ 45-46, Exs. B-C (ECF No. 112).)

At Harmon's deposition in July, Harmon testified that Anthony agreed to the transfers through several communications (Hirsh Decl. Ex. D at 161-67) and that COP acquired a passive membership interest in Vitalis. (Id. at 23-25.)

Assuming Anthony agreed to the transfers, Harmon's testimony may also indicate that Harmon did not disclose facts about Vitalis' finances and financial relationship with Harmon at the time of the transfers.*fn4 Id. at 175-86. Accordingly, Plaintiffs have shown good cause under Rule 16(b).

Defendants have failed to make a strong showing of prejudice meriting denial of Plaintiffs' motion under Rule 15(a). Plaintiffs' counsel sent Defendants' counsel a copy of the proposed SAC before the deposition of the only Plaintiff, Anthony, to be deposed thus far in the discovery process. (Hirsh Decl. ¶ 59.) While discovery is to be completed on January 10, 2011, the additional allegations and six additional claims arise from the same transfers that gave rise to the claims in the FAC. Defendants have not only failed to show how any additional discovery or any delay would cause prejudice, they have also failed to show how the additional allegations and claims would even require additional discovery or cause delay.

Defendants only make brief, general arguments about Plaintiffs' legal theories and the factual allegations under the pleading standards in Iqbal, and the heightened pleading standards in Rule 9(b) and the Private Securities Litigation Reform Act, 15 U.S.C. § 78u-4(b)(1).

Defendants fall short of a strong showing of futility to overcome the presumption in favor of granting leave to amend. Further, "denial on [futility] is rare and courts generally defer consideration of challenges to the merits of a proposed amended pleading until after leave to amend is granted and the amended pleading is filed." Duhn Oil Tool, Inc. v. Cooper Cameron Corp., No. CV-F-05-1411 OWW GSA, 2010 WL 596312, at *14 (E.D. Cal. Feb. 16, 2010) (internal citations omitted).

CONCLUSION

In light of the above, and given that the previous trial dates have been vacated and the case is now before this Court, Plaintiffs' motion for leave to file a Second Amended Complaint is GRANTED.*fn5 Plaintiffs have twenty (20) days from the date this Order is electronically filed to file their Second Amended Complaint.

IT IS SO ORDERED.


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