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Beaver v. Tarsadia Hotels

United States District Court, S.D. California

June 27, 2016

DEAN BEAVER, et al., Plaintiffs,
TARSADIA HOTELS, et als., Defendants,


          HON. GONZALO P. CURIEL, United States District Judge

         Before the Court is Third Party Defendant Greenberg Traurig LLP’s (“GP”) motion to participate in the defense of the main action pursuant to Federal Rule of Civil Procedure (“Rule”) 14(a). Plaintiffs filed an opposition and GP filed a reply. (Dkt. Nos. 216, 217.) The Court finds the matter suitable for resolution without oral argument pursuant to Local Civil Rule 7.1(d)(1). For the reasons set forth below, the Court GRANTS GP’s motion pursuant to Rule 14(a).


         On August 17, 2011, this proposed class action was removed from state court to this Court. (Dkt. No. 1.) Plaintiffs Dean Beaver, Laurie Beaver, Steven Adelman, Abram Aghachi, Dinesh Gauba, Kevin Kenna and Veronica Kenna (collectively “Plaintiffs”) brought a class action on behalf of themselves and all others similarly situated against developers and agents of the Hard Rock Hotel & Condominium Project (“Tarsadia Defendants”). (Dkt. No. 69, TAC.) Plaintiffs asserted five causes of action: 1) violation of the Interstate Land Sales Full Disclosure Act, 15 U.S.C. § 1701 et seq. (“ILSA”); 2) California’s Subdivided Lands Act, California Business and Professions Code sections 11000 et seq.; 3) fraud; 4) negligence; and 5) violation of California Business and Professions Code sections 17200 et seq. Plaintiffs brought this action on behalf of persons who purchased units at the Hard Rock Hotel & Condominium Project between May 2006 and December 2007 for Defendants’ failure to disclose and intentionally concealing Plaintiffs’ right to rescind their purchase contracts within two years of the date of signing the contracts.

         On June 14, 2013, Tarsadia Defendants filed an Answer and a Third Party Complaint against their attorney, Greenberg, Traurig, LLP, alleging professional negligence, breach of contract and breach of fiduciary duty based on, inter alia, GP’s drafting of the purchase contracts and other related documents. (Dkt. No. 106-2.) On September 10, 2013, GT filed a motion to dismiss, or in the alternative, stay the Third Party Complaint. (Dkt. No. 124.) During the briefing of GT’s motion to dismiss, on October 16, 2013, the Court denied Plaintiffs’ motion for summary judgment on the “unlawful” prong of the UCL, and granted Tarsadia Defendants’ and Playground’s motions for summary judgment on all claims except the negligence cause of action.[1](Dkt. No. 128.) On November 5, 2013, Plaintiffs filed a motion for reconsideration of the Court’s order on summary judgment. (Dkt. No. 133.) On December 17, 2013, the Court denied GT’s motion to dismiss and request for a stay. (Dkt. No. 139.) On December 31, 2013, GT filed its answer to the Third Party Complaint. (Dkt. No. 140.)

         On June 27, 2014, GT and Tarsadia Defendants, as Third Party Plaintiffs filed a joint motion to stay the Third Party Complaint, which the Court granted on June 30, 2014. (Dkt. No. 152.) After the stay was granted, on July 2, 2014, the Court granted Plaintiffs’ motion for reconsideration on the “unlawful” prong of the UCL claim.[2](Dkt. No. 153.) On July 30, 2014, Tarsadia Defendants filed a motion for reconsideration of the Court’s reconsideration order, and on August 1, 2014, a motion for certificate of appealability of the Court’s order. (Dkt. Nos. 155, 158.) Then in September 2014, an amendment to the ILSA was passed where the sale of condominium units would be exempt from certain registration and disclosure requirements under ILSA. (Dkt. No. 170.)

         Therefore, on October 29, 2014, the Court determined that the 2014 amendment to the ILSA was not retroactive and sua sponte certified the Court’s orders of October 16, 2013 and July 2, 2014 for interlocutory appeal. (Dkt. No. 177.) On March 10, 2016, the Ninth Circuit issued its opinion affirming the Court’s orders. Beaver v. Tarsadia Hotels, 816 F.3d 1170 (9th Cir. 2016). The stay on the Third Party Complaint is still in effect. (Dkt. No. 152.)


         GT seeks an order allowing it to participate in the defense of the main action on an ongoing basis and to reopen expert discovery for the limited purpose to designate it own expert(s), and participate in expert depositions. It also seeks to reserve the right to request permission to apply to the Magistrate Judge for leave to take fact discovery if it determines that fact discovery is necessary.

         In response, Plaintiffs argue that GT should not be allowed to reopen discovery after liability has been established because it should have conducted discovery years ago. Instead GT made a strategic decision to stay out of the main action when GT and Tarsadia filed a joint motion to stay prosecution of the third party complaint in June 2014. If the Court were to allow GT to participate in the main action, Plaintiffs maintain that GT should be limited to participating in future briefing and the remedies trial in the action but should be allowed expert discovery. According to Plaintiffs, GT should not be allowed to begin litigation anew after liability has already been determined.

         Rule 14(a)(2) provides that a Third Party Defendant “may assert against the plaintiff any defense that the third-party plaintiff has to the plaintiff’s claim. . . .” Rule 14(a)(2)(C). The Advisory Committee Notes states:

[R]ule 14(a) has been expanded to clarify the right of the third-party defendant to assert any defenses which the third-party plaintiff may have to the plaintiff's claim. This protects the impleaded third-party defendant where the third-party plaintiff fails or neglects to assert a proper defense to the plaintiff’s action.

Fed. R. Civ. P. 14(a) Advisory Comm. Notes to 1946 Amendment. One rationale for this Rule is that because GT cannot relitigate the question of Tarsadia Defendants’ liability to Plaintiffs, “Rule 14(a) prevents the prejudice or unfairness that could result from [Tarsadia Defendants’] failure . . . to assert the appropriate defenses.” Lindner v. Meadow Gold Dairies, Inc., 515 F.Supp.2d 1141, 1149 (D. Haw. 2007). While the plaintiff and the third-party defendant are not opposing parties, Rule 14 “recognizes the derivative nature of the third-party defendant’s potential liability and permits it essentially to stand in the defendant’s shoes and assert its defenses . . . .” Id. at 1149 (quoting Moore’s Federal Practice 14.25 (Matthew Bender 3d)).

         “A fair reading of Rule 14(a) indicates clearly that since the third party defendant may be liable to the original defendant, the third party defendant must be permitted to take part in the trial and conduct examinations and cross examination as the rules of evidence permit.” Wiggins v. City of Philadelphia, 331 F.2d 521, 529 (3d Cir. 1964) (third party defendant filed an answer to the third party complaint). “For the purpose of defense against plaintiff's complaint, a third party defendant is in the law suit as an adverse party to the same extent as the defendant and must act accordingly. This assures a third party defendant complete defense ...

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