Cherry Creek Mortgage Co., Inc. v. Jarboe

          ORDER

          Kristen L. Mix United States Magistrate Judge.

         This matter is before the Court on Defendant Thomas R. Jarboe's (“Jarboe”) Motion for Leave to Amend Answer to Complaint [#64]^[1] (the “Motion”). Plaintiff filed a Response [#66] in opposition to the Motion, and Plaintiff filed a Reply [#69]. The Motion is thus fully briefed and ripe for resolution. For the reasons set forth below, the Motion [#64] is GRANTED.

         I. Background

         Plaintiff Cherry Creek Mortgage Co., Inc. alleges that on April 18, 2016, the parties entered into a Non-Producing Branch Manager Agreement. whereby Plaintiff agreed to employ Defendant Jarboe (“Jarboe”) and Defendant Alvaro C. Barajas (“Barajas”) to manage certain loan origination branch offices in California, which eventually accumulated “net losses.” See generally Compl. [#3]. To recover the losses, Plaintiff filed this lawsuit on January 19, 2018, asserting three claims against Defendants: (1) breach of contract, (2) breach of fiduciary duty, and (3) unjust enrichment. Id. ¶¶ 15-33.

         On March 1, 2019, this action was consolidated with Civil Action No. 19-cv-00291-RBJ, an action which itself had been transferred in February 2019 to the District of Colorado from the Central District of California. Minute Order [#62]. In that action, Defendant Jarboe was the plaintiff, and he had sued Plaintiff Cherry Creek Mortgage Co., Inc. for the following five claims: (1) failure to pay wages pursuant to Cal. Labor Code §§ 204 & 218.5; (2) failure to pay business expenses pursuant to Cal. Labor Code § 2802; (3) declaratory judgment pursuant to 28 U.S.C. § 2201; (4) conversion; and (5) unfair competition. See [#64-3] at 2.

         On March 1, 2019, the same day the actions were consolidated, the Court extended the deadline for Defendant Jarboe to file an amended answer and counterclaims to March 8, 2019. Minute Order [#62]. Defendant Jarboe timely filed the present Motion [#64], in which he seeks leave to amend his answer and add counterclaims. Plaintiff does not oppose amendment to the extent Defendant Jarboe seeks leave to formally add the five claims from the California action as counterclaims here. Response [#66] at 1-2. However, Plaintiff opposes Defendant Jarboe's other proposed amendments: (1) an affirmative defense that Plaintiff's claims are barred by applicable Federal Housing Administration (“FHA”) and United States Department of Housing and Urban Development (“HUD”) regulations, (2) a counterclaim for breach of contract, and (3) a counterclaim for breach of the implied duty of good faith and fair dealing. Id. at 2; Motion [#64] at 1. Plaintiff opposes these amendments on the grounds of undue delay and undue prejudice. Response [#66] at 7-11. Because Defendant Jarboe's Motion [#64] is timely with respect to the deadline for joinder of parties and amendment of pleadings, see Minute Order [#62], the Court proceeds directly to consideration of the arguments pursuant Fed.R.Civ.P. 15(a)(2). See Birch v. Polaris Indus., Inc., 812 F.3d 1238, 1247 (10th Cir. 2015).

         II. Legal Standard

         The Court has discretion to grant a party leave to amend its pleadings. Foman v. Davis, 371 U.S. 178, 182 (1962); see Fed. R. Civ. P. 15(a)(2) (“The court should freely give leave when justice so requires.”). The purpose of the rule is to provide litigants “the maximum opportunity for each claim to be decided on its merits rather than on procedural niceties.” Minter v. Prime Equip. Co., 451 F.3d 1196, 1204 (10th Cir. 2006). “Refusing leave to amend is generally only justified 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.” Frank v. U.S. West, Inc., 3 F.3d 1357, 1365 (10th Cir. 1993) (citation omitted).

         III. Analysis

         At the outset, it is worth noting that Defendant Jarboe's proposed amendment regarding the affirmative defense, i.e., that Plaintiff's claims are barred by applicable FHA and HUD regulations, is more of a clarification than a new affirmative defense. The original defense broadly states: “Plaintiff's claims are barred in whole or in part by statute and regulation, including, but not limited to applicable California labor laws, federal labor laws, and other state and federal statutes and regulations.” Answer [#15] at 6. The amended version of this defense more specifically states: “Plaintiff's claims are barred in whole or in part by statute and regulation, including, but not limited to applicable California labor laws, federal labor laws, United States Department of Housing and Urban Development regulations, Federal Housing Administration regulations, and other state and federal statutes and regulations.” Proposed Am. Answer [#64-1] at 8. Thus, even were the Court to deny amendment, the original Answer [#15] would still appear to encompass the changes here requested by Defendant Jarboe with respect to the affirmative defense.

         A. Undue Delay

         The Court may deny a motion to amend based solely on undue delay. Minter, 451 F.3d at 1205. Delay is “undue” only if it will place an unwarranted burden on the Court or become prejudicial to the opposing party. Id. The Tenth Circuit “focuses primarily on the reason for the delay.” Id. A motion to amend is untimely, if, among other reasons, the moving party has made the complaint a “moving target, ” is trying to “salvage a lost cause by untimely suggesting new theories of recovery, ” is trying to present more theories to avoid dismissal, or is knowingly waiting until the eve of trial to assert new claims. Id. at 1206 (citations omitted). Other common reasons for finding undue delay include lack of adequate explanation for the delay or when a moving party knows or should have known of the facts in the proposed amendment but did not include them in the original complaint or any prior attempts to amend. Id. (citations omitted). It is well-settled that untimeliness alone is a sufficient reason to deny leave to amend when the party filing the motion has no adequate explanation for the delay. Woolsey v. Marion Labs., Inc., 934 F.2d 1452, 1462 (10th Cir. 1991).

         Defendant Jarboe premises the delay in seeking amendment with respect to the affirmative defense and the two new counterclaims primarily on a separate federal case still pending in California. See generally Motion [#64]. On April 19, 2018, Defendant Jarboe filed a qui tam False Claims Act (“FCA”) case against Plaintiff in the Central District of California (the “FCA Action”). Id. at 3. In part therein, Defendant Jarboe has alleged that Plaintiff “falsely certified that it complies with all HUD and FHA requirements.” Id. Plaintiff asserts that “[t]he FCA action is relevant to the present motion because one requirement for bringing a qui tam false claims act case is that the case must be filed under seal, be kept confidential, and cannot be served on the Defendant (here, Cherry Creek) until the court so orders.” Id. (citing 31 U.S.C. § 3730). Thus, at the time Defendant Jarboe filed his initial Answer [#15] here on March 23, 2018, he worded the relevant affirmative defense vaguely so as not to violate 31 U.S.C. § 3730 in connection with the then-forthcoming FCA Action filed on April 19, 2018. Id. Ultimately, the United States Attorney decided against intervening in the FCA Action. Motion [#64] at 3. The court in the FCA Action then ordered the claims unsealed on October 17, 2018. Decl. of Avanzado [#70] ¶ 12. However, due to an apparent procedural misstep at the court, the case was not actually unsealed until December 20, 2018. Id. ¶¶ 15-18. Plaintiff here (the defendant there) was served with the FCA Action on December 21, 2018. Motion [#64] at 3.

         Meanwhile, in the present action prior to consolidation, on November 21, 2018, Defendant Jarboe served a first set of written discovery on Plaintiff, in which, in part, Defendant Jarboe “sought details relevant to [his] already-pled affirmative defense that Cherry Creek violated federal regulations and sought specific discovery on Cherry Creek's HUD/FHA violations.” Decl. of Avanzado [#70] ¶ 14. On November 29, 2018, the Court denied Defendant Jarboe's motion to transfer the case to the Central District of California. Order [#59]. On February 1, 2019, Defendant Jarboe's other non-FCA California case ...