MEMORANDUM OPINION AND ORDER ON DEFENDANT MOTION FOR ) RECONSIDERATION OF MAGISTRATE JUDGE'S DECISION DENYING LEAVE TO AMEND COUNTERCLAIMS Doc. # 194
This is an action for breach of contract by plaintiff BNSF Railway Company ("BNSF") against defendants San Joaquin Valley Railroad Company ("SJVR") and Tulare Valley Railroad Company ("TVR") (collectively, "Defendant's"). The currently-operative First Amended Complaint ("FAC") was filed by BNSF on November 6, 2009. On November 30, 2009, SJVR filed an answer to the FAC that incorporated counterclaims against BNSF for breach of contract. Thereafter, SJVR has sought to amend its counterclaims to include additional tort claims for fraud and negligent misrepresentation; first by way of direct amendment on January 11, 2010, and then by motion for leave to amend pursuant to F.R.C.P. 15(b) filed on September 30, 2010. In the instant motion, SJVR seeks reconsideration of the Magistrate Judge's denial of its motion for leave to amend.
For the reasons that follow the court will grant the motion for reconsideration, vacate the Magistrate Judge's order and remand for further proceedings consistent with this order.
FACTUAL BACKGROUND AND PROCEDURAL HISTORY
This action commenced on July 25, 2007. Originally, the action included claims and counterclaims seeking damages and declaratory judgment and alleging breach of a 1992 contract that set rates payable by BNSF to Defendants for transportation of BNSF's rail freight over portions of track that were sold by BNSF to TVR and were operated by SJVR. Discovery revealed the existence of a letter executed in 1994 (the "1994 Letter") that purportedly changed the payment and/or calculation of rates. The parties stipulated to grant BNSF leave to amend its original complaint to include its claims relating to the 1994 Letter and BNSF filed its FAC on November 6, 2009. SJVR answered BNSF's FAC and asserted supplemental counterclaims on November 30, 2009 (hereinafter SJVR's "SCC"). The counterclaims alleged by SJVR against BNSF in the SCC were substantially the same as the counterclaims asserted in SJVR's answer to the original complaint. BNSF answered SJVR's counterclaim on December 14, 2009.
The Magistrate Judge's Order of December 12, 2010, Denying Defendant's Motion for Leave to File amended counterclaims (the "December 12 Order") noted that on November 20, 2009, Plaintiff deposed Mike Haeg ("Haeg"), a vice-president for sales for Rail America, a holding company that has owned SJVR since 2002. During the deposition, Haeg recounted a conversation that had transpired between himself and Mike Galassi, a former short-line marketing representative. The conversation is alleged to have occurred sometime "in the late '90's, '98 or'99." Doc. # 193 at 4:4-7. The gist of the conversation was that Haeg asked (or intended to ask) Galassi for a rate increase but was told by Galassi that rail rates had gone down over the time period in question and that no increase in rates would be forthcoming. SJVR alleges that Galassi's statement misrepresented the actual movement in rail freight rates during the time period and that Galassi knew at the time the statement was made that it was false. Discovery ended on November 30, 2009.
Based on Haeg's deposition statements, SJVR filed a document titled "First Amended Supplemental Counterclaim against BNSF (hereinafter "FASCC") on January 11, 2010. The FASCC reiterated the counterclaims set forth in SJVR's SCC and added two tort counterclaims, one for fraud and the other for negligent misrepresentation. On January 21, 2010, BNSF moved to strike the FASCC arguing that the pleading was filed without leave of the court to amend a complaint in violation of Rule 15(b) of the Federal Rules of Civil Procedure. During the pendency of BNSF's motion to strike, all three parties filed motions for summary judgment. The motions for summary judgment were filed on March 8, 2010.
On September 16, 2010, the court issued an order granting BNSF's motion to strike. In the order, the court construed SJVR's SCC as an amended pleading filed as a matter of course pursuant to Rule 15(a)(1) of the Federal Rules of Civil Procedure. Therefore, the court construed SJVR's FASCC as a further amendment of the SCC therefore deemed it improperly filed. The court noted that, pursuant to Rule 15(a)(2), SJVR would need to procure either permission of BNSF or leave of the court under before any further amended counterclaim could be filed. SJVR moved for leave to amend its SCC on September 30, 2010. Doc. # 179. SJVR's motion to amend was opposed by BNSF. SJVR's motion to amend was denied by an order filed by the Magistrate Judge on December 14, 2010 (the "December 14 Order"). SJVR's motion for reconsideration of the December 14 Order was filed on December 30, 2010. BNSF's opposition was filed on January 4, 2011, and SJVR's reply was filed on January 5, 2011.
The Magistrate Judge's December 14 Order extensively set forth the legal standards that pertain to consideration of a motion for leave to amend. For the most part, those standards need not be repeated here. Of significance to the issues presented here, the December 14 Order noted that a policy of granting leave to amend when justice requires should "be applied with extreme liberality." Doc. # 193 at 5 (citing Foman v. Davis, 371 U.S. 178, 182 (1962); Owens v. Kaiser Foundation Health Plain, Inc., 244 F.3d 708, 712 (9th Cir. 2001); Morongo Band of Mission Indians v. Rose, 893 F.2d 1074, 1079 (9th Cir. 1990). As the Magistrate Judge noted, "'a district court may deny leave to amend where there is any apparent or declared reason for doing so, including undue delay, undue prejudice to the opposing party or futility of the amendment.'" Doc. # 193 at 6:5-7 (quoting Lockman Foundation v. Evangelical Alliance Mission, 930 F.2d 764, 772 (9th Cir. 1991). The December 14 Order also noted that SJVR's motion to amend was filed during the pendency of motions for summary judgment that had been filed by all parties. The December 14 Order noted that although a motion to amend may be granted after a summary judgment motion has been filed, the motion to amend should be denied unless the moving party makes a "substantial showing" to support its proposed amendment. See Doc. # 193 at 7:21-24 (citing Oncology Therapeutics Network Connection v. Virginia Hematology Oncology PLLC, 2006 WL 334532 at *13).
The December 14 Order noted that futility of amendment is, by itself, sufficient reason to deny a motion to amend under Rule 15. See Doc. # 193 at 8"18-19 (citing Baker v. Pacific Far East Lines, Inc., 451 F.Supp. 84, 89 (N.D. Cal. 1978)). The December 14 Order then proceeded to discuss the sufficiency of SJVR's amended pleading with regard to the tort claims for fraud and negligent misrepresentation in light of the requirement that such claims be pled with particularity pursuant to Rule 9(b). After laying out the pleading standards for claims that sound in fraud under Rule 9(b) in some detail, the court examined the allegations set forth in SJVR's FASCC.*fn1 After quoting and examining the factual allegations set forth in the FASCC, the December 14 Order concluded that the SJVR's proposed amended pleading alleged "'on information and belief' that Galassi falsely represented that rates had increased*fn2 ." Doc. # 193 at 12:17-18. The December 14 Order noted that "A claim based on information and belief is 'fundamentally defective.'" Id. (citing Comwest Inc. v. American Operator Services, Inc.], 765 F.Supp. 1467, 1471 (C.D. Cal. 1991)). The December 14 Order concluded that SJVR failed "to plead its fraud claim with the specificity required by Rules 8 and 9," and accordingly found that leave to amend the counterclaim would be inappropriate. Doc. # 193 at 13: 12-14.
With regard to SJVR's proposed amended claim for negligent misrepresentation, the December 14 Order opined:
Although the elements of a cause of action for fraud and a cause of action for negligent misrepresentation are similar, the state of mind requirements differ. Negligent misrepresentation "sounds in fraud" and is also subject to F.R.Civ.P.'s heightened pleading standard. [Errico v. Pacific Capital Bank, N.A., ___ F.Supp.2d ___, 2010 WL 4699394 at *13 (N.D. Cal. 2010).] Negligent misrepresentation differs from fraud in that it does not require "intent to deceive or defraud," but only an "assertion, as a fact, of that which is not true, by one who has no reasonable ground for believing it to be true" (Cal. Civ. Code § 1572(2)). Oakland Raiders v. Oakland-Alameda County Coliseum, Inc., 144 Cal.App.4th 1175, 1184 (2006). If a party alleges sufficient facts to establish a fraud claim, it also alleges sufficient facts to establish a negligent misrepresentation claim. Errico, 2010 WL 4699394 at *13. Having failed to specifically allege facts supporting its fraud claim, SJVR also fails to specifically allege facts supporting its claim for negligent misrepresentation. Accordingly, granting leave to amend the counter-claims to include a claim for negligent misrepresentation is also inappropriate. Doc. # 193 at 13:15-14:5.
Motions to reconsider are committed to the discretion of the trial court. Rodgers v. Watt, 722 F.2d 456, 460 (9th Cir. 1983) (en banc); Combs v. Nick Garin Trucking, 825 F.2d 437, 441 (D.C.Cir. 1987). To succeed, a party must set forth facts or law of a strongly convincing nature to induce the court to reverse its prior decision. See, e.g., Kern-Tulare Water Dist. v. City of Bakersfield, 634 F.Supp. 656, 665 (E.D.Cal. 1986), aff'd in part and rev'd in part on other grounds, 828 F.2d 514 (9th Cir. 1987). When filing a motion for reconsideration, Local Rule 78-230(k) requires a party to show the "new or different facts or circumstances claimed to exist which did not exist or were not shown upon such prior motion, or what other grounds exist for the motion." The court reviews a motion to reconsider a Magistrate Judge's ruling under the "clearly erroneous or contrary to law" standard ...