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Onions Etc., Inc., et al v. Z&S Fresh

June 13, 2011


The opinion of the court was delivered by: Michael J. Seng United States Magistrate Judge



This case originated as a Perishable Agricultural Commodities Act ("PACA") claim on May 22, 2009. (Compl., ECF No. 1.) The parties and issues in this case are many and its history extensive, but recitation and consideration of same is not necessary for resolution of this motion. For present purposes it is sufficient to note that Frank A. Logoluso Farms filed a First Amended Complaint in Intervention for violations of PACA on July 17, 2009, and named the Fresno-Madera Federal Land Bank Association, FLCA, (the "Bank") as a Defendant. (Am. Compl., ECF No. 23.) Ultimately, on February 17, 2010, the Bank filed a Second Amended Cross-Complaint against Cross-Defendants Aron Margosian and Carrie Margosian (collectively the "Margosians"). (Cross-Compl., ECF No. 432.) The Bank seeks to recover from the Margosians as guarantors on a series of loan transactions made by the Bank to the business entity ZMC Fresh, Inc. (Id.) The Bank and ZMC Fresh, Inc. had entered into a restructure agreement in which the Bank's line of credit and mortgage loans to ZMC Fresh, Inc. were restructured into a single loan from the Bank to ZM Fresh Special T's, Inc., ZMC Fresh, Inc.'s successor (the "Restructure Loan"). (Id.) The Margosians, Z&S Fresh, Inc., and Martin J. Zaninovich were guarantors on the Restructure Loan. (Id.) There was a default on the Restructure Loan, and the Bank demanded payment from the guarantors. (Id.) In its Cross-Complaint, the Bank asserts that it is entitled to judicial foreclosure, damages for breach of continuing guaranty, declaratory relief, and quiet title. (Id.)

The Margosians filed their Answer and affirmative defenses, including defenses of fraud in the inducement and fraud in factum, on March 23, 2010. (Answer, ECF No. 448.) They did not file a counter-claim against the Bank or even seek leave to file such a counter-claim at any time prior to the filing of this motion on May 2, 2011. Indeed, on April 23, 2010 and again on August 6, 2010, the Margosians joined with other parties in filing Joint Scheduling Reports advising the Court that no amendments were anticipated. (Joint Scheduling Reports, ECF. Nos. 464 and 524.) The parties proceeded with discovery and other procedural steps. Discovery closed on April 14, 2011. (Order, ECF No. 599.) Trial is scheduled to begin on September 13, 2011. (Id.)

Now, a year after the Margosians filed their original answer and after non-expert and expert discovery have ended, the Margosians seek leave to file a First Amended Answer and Counter-Claim to the Bank's Second Amended Cross-Complaint. (Mot. To Amend, ECF 642.) The Margosians initially requested leave to add additional affirmative defenses and additional claims based on fraud, breach of contract, and negligence. However, they have since amended their proposed counter-claim to delete proposed breach of contract, cancellation of written instrument, declaratory relief, and negligence causes of action. (Statement, ECF No. 668; Proposed Counter-Cl., ECF No. 671.) They now seek leave to proceed on causes of action for negligent and intentional misrepresentation, suppression of fact and breach of the implied covenant of good faith and fair dealing only. (Id.)

The Bank agreed in open court to the proposed amendment of the Margosians' Answer to assert the new affirmative defenses. The Bank opposes granting the Margosians leave to amend to assert the proposed counter-claim, arguing undue and prejudicial delay in moving to amend. (Opp'n., ECF No. 653.) The Bank notes that it would need to serve additional written discovery on the Margosians and depose each of them as well as some six other witnesses in order to meet the new counter-claim, and all discovery and motion deadlines have now expired. (Supplement to Opp'n, ECF no. 672.)


Under Rule 15(a)(2) of the Federal Rules of Civil Procedure, a party may amend its pleadings "only with the opposing party's written consent or the court's leave" and the "court should freely give leave when justice so requires." Fed. R. Civ. P. 15(a)(2). The policy of favoring amendments to pleadings is to be applied with "extreme liberality." DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 186 (9th Cir. 1987) (citing United States v. Webb, 655 F.2d 977, 979 (9th Cir. 1987)).

A court should consider the following four factors in determining whether to grant leave to amend: (1) undue delay, (2) bad faith, (3) futility of amendment, and (4) prejudice to the opposing party. United States v. Pend Oreille Public Utility Dist No. 1., 926 F.2d 1502, 1511 (9th Cir. 1991). Delay alone is not sufficient grounds for denying leave to amend. Id. It must be accompanied by one of the other three factors; prejudice to the opposing party is the most important consideration. Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003) ("Prejudice is the 'touchstone of the inquiry under [R]ule 15(a)'") (citing Lone Star Ladies Inv. Club v. Schlotzsky's Inc., 238 F.3d 363, 368 (5th Cir. 2001)). In the absence of prejudice or a strong showing of any of the remaining factors, there is a presumption under Fed R. Civ. P. 15(a) in favor of granting leave to amend. Id.

"'Where there is a lack of prejudice to the opposing party and the amended complaint is obviously not frivolous, or made as a dilatory maneuver in bad fath, it is an abuse of discretion' to deny leave to amend." Pend Oreille, 926 F.2d at 1511-1512 (citing Howey v. United States, 481 F.2d 1187, 1190-1191 (9th Cir. 1973)). In short, delay alone, without prejudice, bad faith or futility will not justify denial of a motion to amend. Bowles v. Reade, 198 F.3d 752, 758 (9th Cir. 1999).

The non-moving party bears the burden of showing why leave to amend should not be granted. Genetech, Inc. v. Abbott Labs., 127 F.R.D. 529, 530-31 (N.D. Cal. 1989).


1. Introduction

There is no persuasive evidence of bad faith on the part of the Margosians (although their failure to give any plausible explanation for the delay in filing this motion is troublesome). There have been no failed attempts to amend previously and futility is not an issue. Thus the questions before the Court are whether the delay in moving to amend was "undue" ...

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