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United States of America, For the Use and v. Stronghold Engineering

August 31, 2012

UNITED STATES OF AMERICA, FOR THE USE AND BENEFIT OF ALL DAY ELECTRIC COMPANY, INC., A CALIFORNIA CORPORATION, PLAINTIFFS,
v.
STRONGHOLD ENGINEERING, INC., A CALFORNIA CORPORATION; SAFECO INSURANCE COMPANY OF AMERICA, A WASHINGTON CORPORATION; AND DOES 1 THROUGH 50, INCLUSIVE, DEFENDANTS.



The opinion of the court was delivered by: Honorable Janis L. Sammartino United States District Judge

ORDER GRANTING MOTION FOR LEAVE TO FILE A FIRST AMENDED COUNTERCLAIM (ECF No. 23) AND RELATED COUNTERCLAIMS.

Presently before the Court is Defendant and Counter-Claimant Stronghold Engineering, Inc.'s ("Stronghold" or "Defendant") Motion for Leave to File a First Amended Counterclaim. (Mot. File FACC, ECF No. 23) Also before the Court is Plaintiff and Counter-Defendant All Day Electric Company, Inc.'s ("ADE") response in opposition, (Resp. in Opp'n, ECF No. 25), and Stronghold's reply in support, (Reply in Supp., ECF No. 26). The hearing set for the motion on July 5, 2012, was vacated, and the matter taken under submission on the papers. Having considered the parties' arguments and the law, the Court GRANTS Stronghold's motion.

BACKGROUND

ADE filed a Miller Act, 40 U.S.C. § 3133, action against Stronghold and Safeco Insurance Company of America on July 1, 2011, also asserting claims for breach of contract, breach of implied warranty, and quantum meruit. (Compl., ECF No. 1) Defendants answered on August 29, 2011, bringing counterclaims against ADE for breach of contract (two counts) and reasonable value. (Countercl., ECF No. 7) Now, approximately eight months after filing its counterclaims, Stronghold filed the present motion to file amended counterclaims.*fn1

Stronghold's amended complaint seeks to add one new cause of action against ADE and also to add a new counter-defendant, ARB, Inc. ("ARB"). (Mot. File FACC 1--3, ECF No. 23) The new cause of action is a tort claim for intentional misrepresentation, and the new counter-defendant is a California corporation that allegedly owns approximately 49% of ADE. (Mot. File FACC Ex. 1, ECF No. 23-4 (proposed FACC))

LEGAL STANDARD

Leave to amend should be freely given "when justice so requires." Fed. R. Civ. P. 15(a)(2). But while the rule should be interpreted extremely liberally, leave should not be granted automatically. Jackson v. Bank of Haw., 902 F.2d 1385, 1387 (9th Cir. 1990). "The party opposing amendment bears the burden of showing prejudice." DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 187 (9th Cir. 1987). A trial court may deny a motion for leave to amend based on various factors, including bad faith, undue delay, prejudice to the opposing party, futility of amendment, and whether the party has previously amended. Foman v. Davis, 371 U.S. 178, 182 (1962).

ANALYSIS

ADE argues leave to amend should be denied due to futility of amendment, undue delay, and prejudice to ADE (and presumably ARB). (See Resp. in Opp'n 5--10, ECF No. 25) The Court considers each in turn.

1. Futility

"A proposed amendment is futile only if no set of facts can be proven under the amendment to the pleadings that would constitute a valid and sufficient claim." Miller v. Rykoff-Sexton, Inc., 845 F.2d 209, 214 (9th Cir. 1988). ADE asserts that Stronghold's proposed amendment is futile because it is premised on the flawed argument that ADE purported to be a small enterprise under 49 C.F.R. 26.5 when in fact it was not. In addition, ADE argues that the proposed allegations fail to state a claim for intentional misrepresentation because they fail to satisfy the pleading requirements of Federal Rules of Civil Procedure 8 and 9(b). (Resp. in Opp'n 6--7, ECF No. 25)

With regard to the parties' dispute whether ADE qualifies as a "small business enterprise" under the relevant federal regulations, the Court cannot find at this juncture that "no set of facts can be proven under the amendment to the pleadings that could constitute a valid and sufficient claim." Miller, 845 F.2d at 214. Both parties point to 49 C.F.R. 26.5, which defines a "disadvantaged business enterprise" as a for-profit small business concern --(1) That is at least 51 percent owned by one or more individuals who are both socially and economically disadvantaged or, in the case of a corporation, in which 51 percent of the stock is owned by one or more such individuals; and (2) Whose management and daily business operations are controlled by one or more of the socially and economically disadvantaged individuals who own it.

49 C.F.R. 26.5. According to ADE, even if 49 percent of ADE is owned by ARB, ADE still qualifies as a "small business enterprise" under this section because it is not "at least 51 percent owned" by ARB. (Resp. in Opp'n 6, ECF No. 25) Stronghold asserts, however, that even if ADE satisfies the first prong of 49 C.F.R. 26.5, it does not satisfy the second. (Reply in Supp. 6, ECF No. 26)

Upon the Court's own review of the proposed allegations and based on the sparse argument provided by both parties on this issue, the Court cannot conclude that amendment would be futile. But future ...


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