FidoTV Channel, Inc. v. Inspiration Network, Inc.

          RECOMMENDATION OF UNITED STATES MAGISTRATE JUDEGE

          Nina Y. Wang, United States Magistrate Judge.

         This matter comes before this court for recommendation on Plaintiff FidoTV Channel, Inc.'s (“Plaintiff” or “FidoTV”) Motion for Leave to Amend Complaint and Join Parties (“Motion to Amend” or “Motion”), filed January 31, 2019. See [#58]. The undersigned considers the Motion pursuant to 28 U.S.C. § 636(b) and the Memorandum dated February 3, 2019 [#59]. This court concludes that oral argument will not materially assist in the resolution of this matter. Accordingly, having reviewed the Motion, associated briefing, and applicable case law, this court respectfully RECOMMENDS that the Motion to Amend be GRANTED IN PART and DENIED IN PART.

         BACKGROUND

         FidoTV is a Colorado corporation that “provides a 24x7, 365 days a year, cable television channel focused on dogs for dog lovers.” [#5 at ¶ 1]. On or about February 12, 2015, Plaintiff entered into a Network Operations Services Agreement (the “Agreement”) with Defendant The Inspirational Network, Inc. (“Defendant” or “Inspiration”)-a North transponder time to connect FidoTV's channel to cable, satellite TV[, ] and telecom video distributors throughout the United States, ” as well provides its own television shows for distribution. See [id. at ¶¶ 2, 6]. The Agreement had a commencement date of October 14, 2015, the date on which Defendant would launch FidoTV Network, and called for the award of 504, 000 shares of preferred stock to Inspiration. See [id. at ¶¶ 8-10].

         Pursuant to the Agreement, FidoTV was to pay Inspiration $21, 000 at the end of the 33rd month (July 14, 2018) and then $77, 000 at the end of the 34th month (August 14, 2018) through the 60th month. See [#5 at ¶¶ 16, 18]. The Agreement provided FidoTV a 30-day period to pay its invoices. See [id. at ¶ 18]. According to Plaintiff, on July 1, 2018, Defendant submitted two “false and misleading invoice[s] stating that an installment payment of [$77, 000] was due from FidoTV on July 31, 2018” despite the Agreement's provision that Plaintiff owed only $21, 000 by July 31, 2018 and $77, 000 by September 13, 2018. See [id. at ¶¶ 17-19]. On August 1, 2018, Inspiration issued to Plaintiff a Notice of Payment Default and Termination, wherein Inspiration gave Plaintiff “until August 31, 2018 to pay the entire past-due amount in full” or else Inspiration would terminate the Agreement without further notice. See [id. at ¶ 21].

         FidoTV's efforts to negotiate an extension to the August 31 deadline proved futile. See [#5 at ¶ 22]. On August 30, 2018, FidoTV initiated the instant action against Defendant in the District Court for the City and County of Denver, asserting claims for breach of contract (“Claim 1”) and breach of the implied covenant of good faith and fair dealing (“Claim 2”), see [#5], while also seeking a 14-day Temporary Restraining Order, see [#1-4; #6]. By Order dated August 30, 2018, Plaintiff received a 14-day Temporary Restraining Order, with a permanence hearing set for September 7, 2018. See [#1-5; #6]. Defendant, however, removed this action to this District pursuant to 28 U.S.C. § 1332 on September 6, 2018. See [#1].

         Following removal, the Parties stipulated to an extension of the Temporary Restraining Order to after the September 28, 2018 hearing before the presiding judge, the Honorable Christine M. Arguello. See [#19]. On September 28, 2018, Judge Arguello granted FidoTV “a preliminary injunction barring Defendant from terminating service under the [Agreement] through November 30, 2018, ” subject to Plaintiff posting a $335, 000 bond. See [#34 at 1-2]. The preliminary injunction dissolved at 11:59 p.m. on November 30, 2018. See [id. at 2].

         Relevant here, the Parties then appeared before the undersigned for a Scheduling Conference, at which this court set January 15, 2019 as the deadline for Joinder of Parties and Amendment of Pleadings, among other pretrial deadlines. See [#47 at 7]. The Parties requested and this court granted an extension of the January 15 deadline to January 31. See [#51; #54]. On January 31, 2019, Defendant filed its Second Amended Answer and Counterclaims pursuant to D.C.COLO.LCivR 15.1(a) with Plaintiff's consent, see [#56; #57], while Plaintiff filed the instant Motion to Amend, see [#58]. Plaintiff now seeks leave to amend to (1) add new factual allegations to Claims 1 and 2 against Defendant as well as (2) add two new Defendants, David Cerullo and Mark Kramer, and (3) assert separate claims for breach of fiduciary duties against Messrs. Cerullo and Kramer (“Claims 3 and 4”) and two additional claims against Messrs. Cerullo and Kramer and Defendant for aiding and abetting breach of fiduciary duties (“Claim 5”) and tortious interference with prospective business advantage (“Claim 6”). See [#15 at 1-2]. Inspiration has since responded in opposition to the Motion to Amend, see [#62], and Plaintiff replied, see [#63]. Because the Motion to Amend is ripe for recommendation, I consider the Parties' arguments below.

         LEGAL STANDARD

         Rule 15(a) of the Federal Rules of Civil Procedure governs motions to amend when (as here) the moving party seeks leave to amend its pleadings on or before the deadline for joinder of parties and amendment of pleadings set by the Scheduling Order. See Fernandez v. Bridgestone/Firestone, Inc., 105 F.Supp.2d 1194, 1195 (D. Colo. 2000) (explaining that the movant need not demonstrate good cause under Rule 16(b) under such circumstances). Rule 15(a)(2) provides that leave to amend “shall be freely given when justice so requires.” Fed.R.Civ.P. 15(a)(2). “Indeed, Rule 15(a)'s purpose is to provide litigants the maximum opportunity for each claim to be decided on its merits rather than on procedural niceties.” Warnick v. Cooley, 895 F.3d 746, 754-55 (10th Cir. 2018) (internal quotation marks omitted). But the court may refuse leave to amend upon a showing of undue delay, undue prejudice to the opposing party, bad faith or dilatory motive, failure to cure deficiencies by amendments previously allowed, or futility of amendment. See Frank v. U.S. West, Inc., 3 F.3d 1357, 1365 (10th Cir. 1993). Whether to allow amendment is within the trial court's discretion. Burks v. Oklahoma Publ'g Co., 81 F.3d 975, 978-79 (10th Cir. 1996).

         ANALYSIS

         I. Claims 1 and 2

         As part of its Motion Plaintiff seeks to include “extensive new and updated factual allegations” regarding Claims 1 and 2 “based on . . . new documentary evidence.” See [#58 at 2]. Defendant does not address this request in its Response, and thus I presume it does not oppose this issue. Further, upon review of the proposed Amended Complaint, I find amendment in this regard appropriate. The new allegations concern the Parties' conduct since the inception of this lawsuit, ^[1] such as Defendant's alleged improper billing practices, Plaintiff's monthly payments to Defendant, and a subsequent Notice of Default and Termination of the Agreement issued by Defendant. See [#58-2 at ¶¶ 34-49]. Thus, I respectfully RECOMMEND that the Motion to Amend be GRANTED as to Claims 1 and 2.

         II. Claims 3-6

         A. Joinder of Messrs. Cerullo and Kramer

         “Amendments adding parties additionally require consideration of Fed.R.Civ.P. 20, governing permissive joinder.” Robinson v. Gillespie, 219 F.R.D. 179, 188 (D. Kan. 2003). Rule 20(a)(2) permits the joinder of defendants if “any right to relief is asserted against them jointly, severally, or in the alternative with respect to or arising out of the same transaction, occurrence, or series of transactions or occurrences, ” and “any question of law or fact common to all defendants will arise in the action.” Fed.R.Civ.P. 20(a)(2)(A), (B). It is within the trial court's discretion to permit joinder of defendants, and courts typically consider whether joinder would prejudice any party, would cause needless delay, or would offend notions of judicial economy and efficiency. See Patrick Collins, Inc. v. John Does 1-2, No. 12-cv-01641-WYD-MEH, 2013 WL 3759942, at *3 (D. Colo. July 15, 2013) (noting that the Supreme Court of the United States has encouraged the joinder of parties to promote judicial economy).

         FidoTV argues for the joinder of Messrs. Cerullo and Kramer because Plaintiff seeks relief from these individual defendants jointly and severally and the claims asserted against them arise from the same transaction or occurrence as Claims 1 and 2 asserted against Inspiration. See [#58 at ¶¶ 5-6]. Further, FidoTV argues, “It would be costly and inefficient for the parties and for the Court if the claims against Mr. Kramer and [Mr.] Cerullo were required to be pursued in a separate action.” [Id. at ¶ 7]. Inspiration does not explicitly address this issue in its Response, arguing instead that the proposed claims are futile and thus this court should deny leave to amend. See [#62 at 2, 4-13]. For the following reasons, I conclude that joinder of Messrs. Cerullo and Kramer is appropriate.

         To begin, Plaintiff mentions Messrs. Cerullo and Kramer in its Complaint, though it does not assert claims against these individuals. For instance, FidoTV alleges that Messrs. Cerullo and Kramer, both employees of Inspiration, became members of FidoTV's Board of Directors, which increased Inspiration's “voting power and influence” over the Board of Directors, and that during their tenure on the Board of Directors a member disclosed confidential Board information to one of Plaintiff's vendors and “urged that vendor(s) not to settle a programming and production dispute with FidoTV.” See [#5 at ¶¶ 11-12, 15]. And In her Order denying Defendant's Motion to Strike these allegations from the Complaint, Judge Arguello held that such allegations “may bear on Plaintiff's claims; on both parties' affirmative defenses of estoppel, waiver, and unclean hands; and on damages[, ]” and may affect the “equitable relations between the parties.” [#48 at 5-6].

         In addition, because Plaintiff alleges that Messrs. Cerullo and Kramer are agents and/or representatives of Defendant whose conduct bears relevance to the soured relationship between the Parties, I find joinder of Messrs. Cerullo and Kramer to be appropriate at this early juncture. Indeed, Plaintiff seeks to include two additional claims against Messrs. Cerullo and Kramer and Inspiration based on their collective conduct. Cf. Wayman v. Accor N. Am., Inc., 486 F.Supp.2d 1280, 1285 (D. Kan. 2007) (permitting the joinder of employee as additional defendant in negligence suit against employer for injuries sustained by the plaintiff when employee was acting within employment-capacity and struck the plaintiff with a vehicle); accord Council on American-Islamic Relations Action Network, Inc. v. Gaubatz, 891 F.Supp.2d 13, 31 (D.D.C. 2012) (“In sum, Plaintiffs claim that SANE and Yerushalmi are liable on essentially the same legal theories and the same set of facts. As a result, granting Plaintiffs leave to name SANE and Yerushalmi as defendants in this action will promote judicial economy, expedite the resolution of Plaintiffs' claims, and eliminate unnecessary litigation.”). In so recommending, this court does not pass on the merits of the allegations against Messrs. Cerullo or Kramer.

         B. The Proposed New Claims

         While not directly challenging the joinder of Messrs. Cerullo and Kramer under Rule 20(a)(2), Defendant opposes the four new claims asserted in the proposed Amended Complaint, arguing that the court should deny the Motion to Amend on three grounds: (1) futility, (2) undue delay, and (3) undue prejudice. I consider each in turn.

         1. Futility

         Courts, in their discretion, may deny leave to amend upon a determination that such amendment would be futile. See Castleglen, Inc. v. Resolution Trust Corp., 984 F.2d 1571, 1585 (10th Cir. 1993). “A proposed amendment is futile if the complaint, as amended, would be subject to dismissal.” Full Life Hospice, LLC v. Sebelius, 709 F.3d 1012, 1018 (10th Cir. 2013) (internal quotation marks omitted). While courts sometimes decline to consider futility in favor of a subsequent motion to dismiss, Gen. Steel Domestic Sales, LLC v. Steelwise, LLC, No. 07-CV-01145-DME-KMT, 2008 WL 2520423, at *4 (D. Colo. Jun. 20, 2008) (suggesting that a “futility argument seems to place the cart before the horse, ” and is better suited for a Rule 12(b)(6) motion), this court finds that it is more efficient in this case to consider the Parties' arguments in the context of this instant motion instead of awaiting another round of motions practice. “If a party opposes a motion to amend [...] on the grounds of futility, the court applies the same standard to its determination of the motion that governs a motion to dismiss under Fed.R.Civ.P. 12(b)(6).” JDK LLC v. Hodge, No. 15-CV-00494-NYW, 2015 WL 5766466, at *2 (D. Colo. Oct. 2, 2015) (citation and internal quotation marks omitted) (ellipsis added).

         Breach of Fiduciary ...