United States District Court, W.D. Washington, Seattle
ORDER DENYINIG PLAINTIFF'S MOTION TO FILE THIRD AMENDED COMPLAINT AND MOTION TO MODIFY SCHEDULING ORDER
ROBERT S. LASNIK, District Judge.
This matter comes before the Court on "Plaintiff's Motion to File Third Amended Complaint" (Dkt. #112) ("Motion to Amend") and "Plaintiff's Motion to Modify Scheduling Order" (Dkt. #116) ("Motion to Modify"). Defendant opposes both motions on the grounds that plaintiff has failed to demonstrate good cause under Fed.R.Civ.P. 16 and that justice does not require amendment under Fed.R.Civ.P. 15. Having reviewed the memoranda and exhibits submitted by the parties,  the Court finds as follows:
This lawsuit arises from plaintiff's sale of two flour mills to defendant for a fixed purchase price plus an additional amount referred to as the "Gross-up Amount" pursuant to the terms of a Partnership Interest and Membership Interest Purchase Agreement ("PIMIPA"). Dkt. #26, Ex. A. The major point of contention between the parties is whether defendant fulfilled its obligations to obtain and deliver an appraisal as required by the PIMIPA to determine the Gross-Up Amount.
Plaintiff amended its original complaint as a matter of course pursuant to Fed.R.Civ.P. 15(a)(1). Defendant filed a motion to dismiss the amended complaint, which the Court granted in part and denied in part. Dkt. #48. The Court upheld plaintiff's breach of implied covenant claim and dismissed plaintiff's breach of contract claims because plaintiff failed to plead the claims with sufficient clarity and specificity. The Court invited plaintiff to move for leave to file an amended complaint if plaintiff felt it could cure the deficiencies. Id . at 6-7.
Plaintiff then sought leave to amend its complaint under Rule 15(a)(2) with six additional counts. Dkt. #51. The Court granted plaintiff's motion to file a second amended complaint including all six of the proposed claims. Dkt. #82. In so doing, the Court analyzed the five factors courts consider when deciding whether to permit amendment under Rule 15 and concluded that plaintiff's claims were not futile and that this early amendment at the Court's invitation did not constitute bad faith, undue delay, or prejudice to defendant (particularly where discovery had been stayed for a period of time).
Eight months later, plaintiff again seeks to amend its complaint and add additional parties. The deadline for amending pleadings expired over nine months before plaintiff filed this motion and the deadline to join parties passed fifteen months prior to plaintiff's motion. At this time, discovery has closed. Plaintiff seeks to add four additional parties and five new claims to this lawsuit. The proposed additional parties include two new plaintiffs who were selling shareholders and two new defendants who are defendant NSGI's Japanese parent companies. The proposed amended complaint states five new claims consisting of federal securities fraud, common-law fraud, beach of contract, breach of the implied covenant of good faith and fair dealing, and punitive damages. Many of the claims are based on facts revealed in discovery. Plaintiff alleges that the "new" facts show that the proposed defendants obtained an earlier valuation from the entity appointed as Qualified Appraiser and defendants subsequently pressured that entity to reduce the valuation before submitting the appraisal to plaintiff.
A. Legal Standard
Federal Rules of Civil Procedure 15 and 16 govern amendments to pleadings. Although Rule 15(a) is based upon "a strong policy in favor of allowing amendment, " Kaplan v. Rose , 49 F.3d 1363, 1370 (9th Cir. 1994), Rule 15(a) does not control after a court has entered a pretrial scheduling order and the deadline for amendments of pleadings has passed. Precor Inc. v. Fitness Quest, Inc., No. C05-0993L, 2007 WL 136749 at *1 (Jan. 12, 2007). When a party seeks to amend a pleading after the date set forth in the scheduling order, that party "must first show good cause for amendment under Rule 16, then, if good cause be shown, the party must demonstrate that amendment was proper under Rule 15." Paz v. City of Aberdeen, 2013 WL 6163016 at *2 (W.D. Wash. Nov. 25, 2013) (citing Johnson v. Mammoth Recreation, Inc. , 975 F.2d 604, 608 (9th Cir. 1992)).
Rule 16 requires "good cause" and "the judge's consent" in order to modify a scheduling order and allow amended pleadings after the deadline. The "good cause" standard focuses on the diligence of the party requesting the amendment. Johnson , 975 F.2d at 609. If a party has acted diligently yet still cannot reasonably meet the scheduling deadlines, the court may allow modification of the pretrial schedule. Id . However, "if that party was not diligent, the inquiry should end" and the motion to modify should not be granted. Id .; see Millenkamp v. Davisco Foods Intern., Inc., 448 Fed.Appx. 720, 721 (9th Cir. 2011); Zivkovic v. Southern California Edison Co. , 302 F.3d 1080, 1087 (9th Cir. 2002). Local Civil Rule 16(b) further provides that the dates in the scheduling order are binding and "[m]ere failure to complete discovery within the time allowed does not constitute good cause for an extension or continuance." Rule 15(m) states that "this rule will be strictly enforced" in order to "accomplish effective pretrial procedures and avoid wasting the time of the parties, counsel, and the court." While prejudice to the party opposing the modification may provide additional reasons for denying the motion, it is not required to deny a motion to amend under Rule 16(b). Coleman v. Quaker Oats Co. , 232 F.3d 1271, 1295 (9th Cir. 2000).
B. Third Motion to Amend
Plaintiff asserts that the information giving rise to the additional claims and parties is "based on the recent discovery of proposed defendants' previously concealed fraudulent conduct" and therefore the complaint could not have been amended prior to the July 2013 deadline. Motion to Amend (Dkt. #112) at 2. Plaintiff asserts that good cause exists because plaintiff took reasonable steps to conduct discovery and filed these motions soon after the facts supporting the amended complaint came to light in the discovery process. Reply to Motion to Modify (Dkt. #126) at 1-2. Plaintiff also seeks to justify these belated motions by pointing to "logistical difficulties" in the discovery process, including translation of documents from Japanese to English and the burdensome Letter Rogatory process. Id . at 3.
The Court is not convinced that plaintiff exercised diligence throughout the many months in which plaintiff had the opportunity to pursue additional parties and claims. Plaintiff has known of the existence of the proposed additional parties and that they were parties to the transaction. In fact, plaintiff acknowledges that the current named plaintiff MMMT and named defendant NSGI "were created after the PIMIPA was negotiated to facilitate the structure of the transaction called for in the PIMIPA." Motion to Amend (Dkt. #112) at 10 (emphasis added). Despite this knowledge, plaintiff failed to name the original parties who set up the transaction in both its first and second amended complaints, and ...