Judge: David A. Rosen, Case: 20GDCV00419, Date: 2023-02-03 Tentative Ruling
Case Number: 20GDCV00419 Hearing Date: February 3, 2023 Dept: E
Hearing Date: 02/03/2023 – 8:30am
Case No. 20GDCV00419
Trial Date: 06/26/2023
Case Name: ALFRED JACKSON, et al. v. DELOITTE & TOUCHE LLP, et al.
TENTATIVE RULING – MOTION FOR JUDGMENT ON THE PLEADINGS
Moving Party: Defendant, Opus Fund Services (USA) LLC (Opus or Defendant)
Responding Party: Plaintiffs
Proof of Service Timely Filed (CRC Rule 3.1300(c)): Ok
16/21 Court Days Lapsed (CCP 1005(b)): Ok
Proper Address: Ok
Moving Papers: Notice of Motion; Memo; Request for Judicial Notice; Brucker Jr. Declaration
Opposition Papers: Opposition
Reply Papers: Reply
RELIEF REQUESTED
Defendant, Opus, moves for judgment on the pleadings and requests the Court dismiss Plaintiffs’ SAC in its entirety.
Opus’ Motion is made pursuant to California Code of Civil Procedure §§ 438(b)(1), 438(c)(1), and 389 because Plaintiffs failed to join indispensable party Kroll, LLC (F/K/A Duff & Phelps LLC) (“Duff & Phelps”). Kroll is responsible for providing independent, third-party valuations for Direct Lending Income Fund (“DLIF”), and these valuations are the crux of Plaintiffs’ claims against Opus. Further, because Kroll potentially cannot be sued in California, Kroll is a necessary and indispensable party to this action.
BACKGROUND
Plaintiffs filed a complaint on 04/28/2020. Plaintiffs filed a FAC on 08/18/2020. Plaintiffs filed a SAC on 10/27/2020. The SAC is the operative complaint according to Opus.
Defendant Opus filed a Cross-Complaint on 04/20/2021.
Plaintiffs in the SAC are investors in Direct Lending Income Fund, L.P. (DLIF), a private investment fund managed by Direct Lending Investments, LLC (DLI).
The general background behind Plaintiffs’ allegations is that Plaintiffs collectively invested over $43,750,00.00 in Direct Lending Income Fund, L.P. (DLIF), which was formed and controlled by Brendan Ross’s Direct Lending Investment, Inc. (DLI), to invest primarily in online lending marketplaces (the Fund). The SAC further alleges that Ross and others (including Cross-Defendant Quarterspot) engineered false payments on bad loans in order to prop up returns and overcharge investors on fees, manipulated loan-level information that it reported to investors, and falsified borrower payment information to make it appear as though payments had been made by borrowers, causing DLIF to value many of the nonperforming Quarterspot loans at par when the value should have been reduced to zero.
The SAC does not bring claims against Ross, the Fund, or alleged bad actors like Quarterspot, but instead Plaintiffs sued the Fund’s auditor, Deloitte & Touche LLP and Deloitte Tax, LLP (collectively Deloitte). Plaintiffs also sued Opus, the Fund’s administrator, who allegedly represented to Plaintiffs’ registered investment advisors that Opus would independently value the Fund’s assets.
Separate and apart from the SAC, Plaintiffs filed a lawsuit against Kroll on or about March 18, 2021 in the Supreme Court of the State of New York, County of New York, which asserts that Kroll aided and abetted fraud and breaches of fiduciary duties. (Def. Mot. p. 2.) According to Opus, the New York Complaint alleges that Kroll, which was hired by DLI to independently value the Fund’s investments, failed to perform accurate valuations. (Def. Mot. p.2.)
Defendant, Opus, also has a motion on calendar the same date as the instant motion for judgment on the pleadings wherein Defendant seeks leave to amend its cross-complaint to: (1) name Kroll, LLC (F/K/A Duff & Phelps LLC) (“Kroll”) as a Cross-Defendant;, (2) name EisnerAmper LLP (“EisnerAmper”) as a Cross-Defendant; and (3) include separate allegations against Kroll and EisnerAmper regarding Opus’s pending cross-claims against Deloitte and Quarterspot for negligent misrepresentation, equitable indemnification, and contribution.
In the instant motion, Defendant asks the Court to dismiss Plaintiff’s SAC in its entirety because Plaintiffs failed to join indispensable party Kroll/Duff & Phelps.
PROCEDURAL
Meet and Confer
Before filing a motion for judgment on the pleadings pursuant to this chapter, the moving party shall meet and confer in person or by telephone with the party who filed the pleading that is subject to the motion for judgment on the pleadings for the purpose of determining if an agreement can be reached that resolves the claims to be raised in the motion for judgment on the pleadings. (Code Civ. Proc. § 439(a).)
Here, moving Defendant filed the declaration of Brucker Jr. The declaration states, “Pursuant to California Code of Civil Procedure § 439, more than five days before proceeding with this Motion for Judgment on the Pleadings, I telephonically met and conferred with counsel for Plaintiffs concerning the legal grounds for Opus’ position. Plaintiffs’ counsel disagreed with the position necessitating the instant Motion.” (Decl. Brucker ¶2.)
LEGAL STANDARD – MOTION FOR JUDGMENT ON THE PLEADINGS
If moving party is a defendant, a motion for judgment on the pleadings may be made if either of the following conditions exist: (1) The court has no jurisdiction of the subject of the cause of action alleged in the complaint, or (2) The complaint does not state facts sufficient to constitute a cause of action against the defendant. (CCP §438(c)(1)(B).)
“The grounds for motion provided for in this section shall appear on the face of the challenged pleading or from any matter of which the court is required to take judicial notice. Where the motion is based on a matter of which the court may take judicial notice pursuant to Section 452 or 453 of the Evidence Code, the matter shall be specified in the notice of motion, or in the supporting points and authorities, except as the court may otherwise permit.” (CCP §438(d).)
“A motion for judgment on the pleadings may be made at any time either prior to the trial or at the trial itself. [Citation.]” (Ion Equipment Corp. v. Nelson (1980) 110 Cal.App.3d 868, 877.) “A motion for judgment on the pleadings performs the same function as a general demurrer, and hence attacks only defects disclosed on the face of the pleadings or by matters that can be judicially noticed. Presentation of extrinsic evidence is therefore not proper on a motion for judgment on the pleadings.” (Cloud v. Northrop Grumman Corp. (1998) 67 Cal.App.4th 995, 999 (Citations Omitted).) The standard for ruling on a motion for judgment on the pleadings is essentially the same as that applicable to a general demurrer, that is, under the state of the pleadings, together with matters that may be judicially noticed, it appears that a party is entitled to judgment as a matter of law. (Bezirdjian v. O'Reilly (2010) 183 Cal.App.4th 316, 321-322 (citing Schabarum v. California Legislature (1998) 60 Cal.App.4th 1205, 1216).)
ANALYSIS
Defendant’s moving papers are difficult to decipher, especially in light of Defendant’s motion for leave to amend the First Amended Cross-Complaint that is scheduled to be heard on the same date as the instant motion. Opus admits in its Reply brief, page 1, lines 26-27, that a grant of its pending Motion to file an amended cross-complaint would moot this Motion.
As a preliminary matter, CCP §438(c)(1)(B) states that if moving party is a defendant, a motion for judgment on the pleadings may be made if either of the following conditions exist: (i) The court has no jurisdiction of the subject of the cause of action alleged in the complaint, or (ii) The complaint does not state facts sufficient to constitute a cause of action against the defendant. (CCP §438(c)(1)(B).)
Here, moving Defendant is moving for judgment on the pleadings as to Plaintiff’s SAC. Defendant does not appear to be moving on the grounds that the SAC fails to state facts sufficient to constitute a cause of action – 438(c)(1)(B)(ii) – because Defendant makes no arguments surrounding failure to state facts sufficient to constitute a cause of action.
As to moving for judgment on the pleadings under the theory of 438(c)(1)(B)(i) – that the court has no jurisdiction of the subject of the cause of action alleged in the complaint – the Court is entirely unclear how Defendant’s papers pertain to this issue. Defendant’s papers entirely pertain to parties, CCP §389(a), and 389(b). CCP 438(c)(1)(B) appears to be applicable when there is no jurisdiction of the subject of the cause of action alleged in the complaint. Defendant argues that Kroll/Duff & Phelps is a necessary and indispensable party in the SAC according to 389(a)-(b), and since Kroll/Duff & Phelps was not named as a Defendant in the SAC, the Court should dismiss the SAC in its entirety.
In relevant part, “ (a) A person who is subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject matter of the action shall be joined as a party in the action if (1) in his absence complete relief cannot be accorded among those already parties or (2) he claims an interest relating to the subject of the action and is so situated that the disposition of the action in his absence may (i) as a practical matter impair or impede his ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest. If he has not been so joined, the court shall order that he be made a party.” (CCP §389(a).)
“If a person as described in paragraph (1) or (2) of subdivision (a) cannot be made a party, the court shall determine whether in equity and good conscience the action should proceed among the parties before it, or should be dismissed without prejudice, the absent person being thus regarded as indispensable. The factors to be considered by the court include: (1) to what extent a judgment rendered in the person’s absence might be prejudicial to him or those already parties; (2) the extent to which, by protective provisions in the judgment, by the shaping of relief, or other measures, the prejudice can be lessened or avoided; (3) whether a judgment rendered in the person’s absence will be adequate; (4) whether the plaintiff or cross-complainant will have an adequate remedy if the action is dismissed for nonjoinder.” (CCP §389(b).)
While CCP §389(b) mentions potential dismissal, moving party, nor Opposition, makes it clear to the Court how CCP §389(a) or 389(b) is relevant to 438(c)(1)(B), a motion for judgment on the pleadings.
Further, Defendant states, “Yet, even though Opus is currently seeking to amend its cross-complaint to assert claims against Duff & Phelps, which Plaintiffs oppose, there is a very real chance that Duff & Phelps will evade responsibility by challenging personal jurisdiction. Indeed, Duff & Phelps has already done so in a related matter. Simply put, Duff & Phelps’s absence precludes the Court from rendering complete justice among those parties already joined because its conduct is crucial to determining the issues of liability, indemnity, and contribution. Consequently, the Court should dismiss this action, in its entirety, because Plaintiffs failed to join a necessary and indispensable party.” (Def. Mot. p. 1.)
Thus, what is Defendant is trying to say? If Defendant is arguing that the Court will not likely have personal jurisdiction over Duff & Phelps, this contradicts their motion that Duff & Phelps should be added via the FACC and, in any event, is an issue not before the Court now.
Request for Judicial Notice
Moving party requests judicial notice of Exhibits 1 and 2. Exhibit 1 is the complaint filed in Alfred Jackson, et al. v. Duff & Phelps, LLC, Case No. 651831/2021 (NY Super. Ct.) Exhibit 2 is the ruling on the motion to dismiss in Andrew Baer, et al. v. Duff & Phelphs, LLC, Case No. CV 21-1239 DSF (MRWx) (C.D. Cal.)
“Judicial notice may be taken of the following matters to the extent that they are not embraced within Section 451: (d) Records of (1) any court of this state or (2) any court of record of the United States or of any state of the United States.” (Evid. Code §452(d).)
Here, the Court GRANTS judicial notice as to both exhibits requested by Defendant
TENTATIVE RULING: Defendant’s motion for judgment on the pleadings is DENIED. Moving party’s arguments are not on point for an MJOP. Neither party explains how or if 389 is related to the MJOP standard in 438(c)(1)(B). Further, it appears that moving party is misreading the statute. Per 389(a), that first portion as to “a person who is subject to service of process…” refers to personal jurisdiction. To phrase it differently, a party over whom the Court does not have personal jurisdiction; again, an issue not before the Court now, cannot be a necessary or indispensable party as a predicate for dismissal of the action for non-joinder.
Hearing Date: 02/03/2023 – 8:30am
Case No. 20GDCV00419
Trial Date: 06/26/2023
Case Name: ALFRED JACKSON, et al. v. DELOITTE & TOUCHE LLP, et al.
TENTATIVE
RULING ON MOTION FOR LEAVE TO AMEND CROSS-COMPLAINT
Moving Party: Defendant and Cross-Complainant,
Opus Fund Services (USA) LLC. (Opus or Defendant)
Responding Party: Plaintiffs
Proof of Service Timely Filed (CRC
Rule 3.1300(c)): Ok
16/21 Court Days Lapsed (CCP 1005(b)): Ok
Proper Address: Ok
Moving Papers: Notice of Motion; Memo;
Proposed Order; Declaration of Gary K.
Brucker Jr.
Opposition Papers: Opposition Memo; Declaration
of Nina Hirsch
Reply Papers: Reply; Declaration of
Gary K. Brucker Jr.
RELIEF REQUESTED
Defendant, Opus, moves the Court for an order for leave to amend the Cross-Complaint.
The Court notes that Defendant does
not state in its notice of motion the specific statute that Defendant is moving
under to amend the Cross-Complaint. In the “Discussion” section of Opus’s memo,
Opus cites CCP §§ 473(a)(1), 426.50, 428.10 and 576. Opus does not explicitly
state which statute applies for granting leave to amend, but instead cites the
aforementioned statutes in sequence without noting whether it contends that one,
some, or all of those statutes apply to the instant motion.
Plaintiffs
filed a complaint on 04/28/2020. Plaintiffs filed a FAC on 08/18/2020.
Plaintiffs filed a SAC on 10/27/2020. The SAC is the operative complaint
according to Opus.
Defendant
Opus filed a Cross-Complaint on 04/20/2021.
Plaintiffs
in the SAC are investors in Direct Lending Income Fund, L.P. (DLIF), a private
investment fund managed by Direct Lending Investments, LLC (DLI). (Opp. p. 5.)
The
general background behind Plaintiffs’ allegations is that Plaintiffs
collectively invested over $43,750,000.00 in Direct Lending Income Fund, L.P.
(DLIF), which was formed and controlled by Brendan Ross’s Direct Lending
Investment, Inc. (DLI), to invest primarily in online lending marketplaces (the
Fund). (Def. Mot. p. 1.) The SAC further alleges that Ross and others
(including Cross-Defendant Quarterspot) engineered false payments on bad loans
in order to prop up returns and overcharge investors on fees, manipulated
loan-level information that it reported to investors, and falsified borrower
payment information to make it appear as though payments had been made by
borrowers, causing DLIF to value many of the nonperforming Quarterspot loans at
par when the value should have been reduced to zero. (Def. Mot. p.1)
The
SAC does not bring claims against Ross, the Fund, or alleged bad actors like
Quarterspot, but instead Plaintiffs sued the Fund’s auditor, Deloitte &
Touche LLP and Deloitte Tax, LLP (collectively Deloitte). Plaintiffs also sued
Opus, the Fund’s administrator, who allegedly represented to Plaintiffs’
registered investment advisors that Opus would independently value the Fund’s
assets.
Defendant,
Opus, now seeks leave to amend its cross-complaint to:
(1) name Kroll, LLC (F/K/A Duff & Phelps LLC) (“Kroll”) as a Cross-Defendant;,
(2) name EisnerAmper LLP (“EisnerAmper”) as a Cross-Defendant; and (3) include
separate allegations against Kroll and EisnerAmper regarding Opus’s pending
cross-claims against Deloitte and Quarterspot for negligent misrepresentation,
equitable indemnification, and contribution. [The Court notes that although Opus states in its Memo
that it wants to add separate allegations against Kroll and EisnerAmper for
cross-claims of negligent misrepresentation, equitable indemnification, and
contribution, the proposed First Amended
Cross-Complaint (FACC) only alleges Negligent Misrepresentation against EisnerAmper
and Deloitte. The FACC does not allege Negligent Misrepresentation against
Kroll. However, in the FACC, Equitable Indemnification and Contribution is
alleged against all Cross-Defendants.]
Separate
and apart from the SAC, Plaintiffs filed a lawsuit against Kroll on or about March
18, 2021 in the Supreme Court of the State of New York, County of New York,
which asserts that Kroll aided and abetted fraud and breaches of fiduciary
duties. (Def. Mot. p. 2.) According to Opus, the New York Complaint alleges
that Kroll, which was hired by DLI to independently value the Fund’s
investments, failed to perform accurate valuations. (Def. Mot. p.2.)
Opus
further states that the Baer plaintiffs filed their second amended
complaint, which is the operative complaint in Los Angeles Superior Court.
(Def. Mot. p.2.) The Baer complaint
alleges that EisnerAmper acted as the auditor for the Fund from 2013 to 2015,
during which time it, among other things, confirmed the Funds’ non-marketable
assets were accurately and fairly valued although it allegedly had no basis on
which to state clean audit opinions. (Def. Mot. p.2.) [The Court notes that moving Defendant does not
make it clear what the “Baer SAC” is. Presumably, this is a different
complaint within Los Angeles Superior Court. Defendant states the Baer complaint
is in Exhibit 2 of the Brucker Declaration; however, the Court notes that
Exhibit 2 in the Brucker declaration appears to be EisnerAmper’s answer to the Baer
SAC.]
Defendant’s
general premise behind bringing this motion appears to be indicated on page 2
of Defendant’s motion:
“On
April 20, 2021, Opus responded to the SAC by denying any liability to
Plaintiffs and by asserting various affirmative defenses. On April 20, 2021,
Opus also filed a cross complaint against Deloitte and QuarterSpot, both of
whom were discussed in Plaintiffs’ complaint. In or around May 2022, Opus
learned about the New York complaint against Kroll for the first time. (Brucker
Dec. ¶ 3.) Through discovery, Opus learned that certain of the Plaintiffs in
this matter invested in DLIF prior to DLIF’s retention of Deloitte, at a time
when EisnerAmper was DLIF’s auditor. (Id.) Opus determined that it had grounds
to bring cross-complaints against Kroll and EisnerAmper in this action, and
promptly sought approval of its insurance carrier to bring such cross-claims. (Brucker
Dec. ¶ 5.) Opus obtained insurance carrier approval to file the amended cross
complaint in October 2022. (Brucker Dec. ¶ 5.)”
(Def.
Mot. p.2.)
Defendant’s alternate
general premise behind bringing this motion appears to also be indicated on
page 4 of Defendant’s motion:
Opus
seeks to add two cross-defendants who are already defending cases surrounding
the same sets of factual allegations. The New York action against Kroll was
filed by the plaintiffs in this action. Similarly, another action by investors
against DLIF against EisnerAmper and Opus is also pending in Los Angeles
Superior Court. Adding these parties to this action is appropriate because it
will prevent the filing of yet another action (or actions) involving the same
factual allegations.
(Def.
Mot. p.4.)
LEGAL STANDARD – LEAVE TO
AMEND
The
court may, in furtherance of justice and on any proper terms, allow a party to
amend any pleading. (Code Civ. Proc., § 473, subd. (a)(1); Branick v.
Downey Savings & Loan Association (2006) 39 Cal.4th 235,
242.) The court may also, in its discretion and after notice to the
adverse party, allow, upon any terms as may be just, an amendment to any
pleading or proceeding in other particulars; and may upon like terms allow an answer
to be made after the time limited by this code. (Code Civ. Proc., §
473, subd. (a); Branick, supra, 39 Cal.4th at
242.) Judicial policy favors resolution of all disputed matters between
the parties and, therefore, the courts have held that “there is a strong policy
in favor of liberal allowance of amendments.” (Mesler v. Bragg
Management Co. (1985) 39 Cal.3d 290, 296-97; see also Ventura v.
ABM Industries, Inc. (2013) 212 Cal.App.4th 258, 268) [“Trial courts
are bound to apply a policy of great liberality in permitting amendments to the
complaint at any stage of the proceedings, up to and including trial where the
adverse party will not be prejudiced.”].) Leave to amend
is thus liberally granted, provided there is no statute of
limitations concern. (Kolani v. Gluska (1998)
64 Cal.App.4th 402, 411.) The court may deny the plaintiff’s leave
to amend if there is prejudice to the opposing party, such as delay in trial,
loss of critical evidence, or added costs of
preparation. (Id.)
Under California Rules of Court, rule 3.1324, a motion
to amend a pleading before trial must (1) include a copy of the proposed
amendment or amended pleading, which must be serially numbered to differentiate
it from previous pleadings or amendments; (2) state what allegations in the
previous pleading are proposed to be deleted, if any, and where, by page,
paragraph and line number, the deleted allegations are located; and (3) state
what allegations are proposed to be added to the previous pleading, if any, and
where, by page, paragraph, and line number, the additional allegations are
located. (Cal. Rules of Court, rule 3.1324(a).)
Further, a separate supporting declaration must
accompany the motion and must specify (1) the effect of the amendment; (2) why
the amendment is necessary and proper; (3) when the facts giving rise to the
amended allegations were discovered; and (4) the reason why the request for
amendment was not made earlier must accompany the motion. (Id., rule
3.1324(b).)
“Leave to amend is in general required to be liberally
granted [citation omitted], provided there is no statute of limitations
concern. Leave to amend may be denied if there is prejudice to the opposing
party, such as delay in trial, loss of critical evidence, or added costs of
preparation. [citation omitted].” (Kolani v. Gluska (1998) 64
Cal.App.4th 402, 411.)
ANALYSIS
CRC 3.1324(a)
Under California Rules of Court, rule 3.1324(a), a
motion to amend a pleading before trial must:
(1) include
a copy of the proposed amendment or amended pleading, which must be serially
numbered to differentiate it from previous pleadings or amendments;
(Cal. Rules of Court, rule 3.1324(a)(1).)
Here, Defendant included a copy of Opus’s First
Amended Cross-Complaint in Exhibit 3 of the Brucker Declaration. (Brucker Decl.
¶9, Ex. 3.)
(2) state
what allegations in the previous pleading are proposed to be deleted, if any,
and where, by page, paragraph and line number, the deleted allegations are
located; and (Cal. Rules of Court, rule 3.1324(a)(2).)
Here, the moving papers
did not address this issue. It appears as if some allegations were deleted in
the FACC based on the redline of the initial Cross-Complaint in Exhibit 4 of
the Brucker Declaration.
(3) state
what allegations are proposed to be added to the previous pleading, if any, and
where, by page, paragraph, and line number, the additional allegations are
located. (Cal. Rules of Court, rule
3.1324(a)(3).)
Here, the moving papers did not address this rule in the
specific manner stated in CRC 3.1324(a)(3). Defendant does state that the
amendment is to: (1) name Kroll, LLC (F/K/A Duff & Phelps LLC) (“Kroll”) as
a Cross-Defendant; (2) name EisnerAmper LLP (“EisnerAmper”) as a
Cross-Defendant; and (3) include separate allegations against Kroll and
EisnerAmper regarding Opus’s pending cross-claims against Deloitte and
Quarterspot for negligent misrepresentation, equitable indemnification, and
contribution.
Defendant does not state what was added as far as the
difference between the FACC and the original Cross-Complaint, but there appears
to be some additions based on the fact there is a difference between the
redline and the FACC.
Further, as previously noted, although Opus states in
its Memo that it wants to add separate allegations against Kroll and
EisnerAmper for cross-claims of negligent misrepresentation, equitable
indemnification, and contribution, the proposed FACC only alleges Negligent
Misrepresentation against EisnerAmper and Deloitte. The FACC does not allege
Negligent Misrepresentation against Kroll. However, in the FACC, Equitable
Indemnification and Contribution is alleged against all Cross-Defendants.
CRC 3.1324(b)
Further, under CRC 3.1324(b), a separate declaration
must accompany the motion and must specify:
(1) the
effect of the amendment;
In the Brucker Declaration, Paragraph 9 appears to
state the effect of the amendment. Paragraph 9 states:
Opus seeks leave
to amend its Cross-Complaint to name cross-defendants Kroll and EisnerAmper LLP
(“EisnerAmper”) as Roe cross-defendants 1 and 2 and include separate
allegations against them regarding Opus’ causes of action already alleged in
its cross-complaint against Deloitte & Touche LLP and Deloitte Tax, LLP
(collectively “Deloitte”) and Quarterspot, Inc. (“Quarterspot”) for negligent
misrepresentation, equitable indemnification, and contribution. Attached hereto
as Exhibit 3 is the proposed Amended Cross-Complaint. Attached hereto as
Exhibit 4 is a redline comparing the Cross-Complaint to the proposed Amended
Cross-Complaint.
(Brucker Decl.
¶9.)
Here, the Court further notes as follows:
One, Opus states it wants to add causes of
action for negligent misrepresentation, equitable indemnification, and
contribution against Kroll and EisnerAmper. However, the proposed FACC only alleges Negligent Misrepresentation
against EisnerAmper and Deloitte. The FACC does not allege Negligent
Misrepresentation against Kroll. Equitable Indemnification and Contribution is
alleged against all Cross-Defendants. Moving party needs to clarify as to this issue at the
hearing.
Two,
based on the Court’s brief reading of the proposed FACC and the redlined initial
Cross-Complaint, it appears as if moving party also deleted and added several
general background allegations pertaining to the parties involved. This appears
to be the case based on the redline of the initial Cross-Complaint in Exhibit
4. However, the declaration does not state anything about the deletion or
addition of what was changed between the original Cross-Complaint and the FACC.
How these additions or deletions effect the amendment is unclear based on the
declaration and memo.
(2) why
the amendment is necessary and proper;
Here, Defendant does not explicitly state in the
Brucker declaration why the amendments are necessary and proper. Presumably,
Defendant believes the amendments are necessary and proper because Defendant
seeks to hold two additional parties liable.
(3) when
the facts giving rise to the amended allegations were discovered;
As to adding Kroll as a Cross-Defendant, Brucker
states, “We did not learn about plaintiffs’ case against Kroll, LLC (F/K/A Duff
& Phelps LLC) (“Kroll”) pending in New York until May of 2022 while
preparing for the depositions of Doug Hamilton and Doug Deming.” (Decl. Brucker
¶3.)
As to adding EisnerAmper as a Cross-Defendant, Brucker’s
declaration does not state when the facts giving rise to the amended
allegations were discovered. Paragraph 8 of the Brucker declaration mentions discovery
produced by Plaintiffs, but Brucker does not say when the facts were
discovered.
Additionally, as to adding EisnerAmper, Opus states
its memo, but not in the Brucker declaration:
Opus only learned
that it had claims against EisnerAmper similar to its claims against Deloitte
through discovery. Specifically, on or around June of 2021 Opus sent out its
initial requests for production of documents to plaintiffs. (Brucker Dec. ¶ 2.)
The parties met and conferred regarding the responses, and in or around
November of 2021, the plaintiffs served their second supplemental responses to
Opus’ first set of requests for production of documents. (Id.) In or around
December of 2021, plaintiffs made their first production of documents and the production
continued well into 2022. (Id.) Through its review of these records, Opus
learned that it had claims against EisnerAmper for the same reasons that it has
claims against Deloitte, because plaintiffs would have similarly relied upon
EisnerAmper’s annual audits like they allegedly relied on Deloitte’s audits.
For example, document with bates label PLAINTIFFS-00013740 shows that Alfred
Jackson—an investment advisor for most of the plaintiffs—relied on representations
regarding EisnerAmper’s audits prior to investing in the fund. (Brucker Dec. ¶
8.) Specifically, Mr. Jackson asked about former auditor, BDO, in an effort to
complete Siridean’s due diligence questionnaire, and DLI responded stating,
among other things, that EisnerAmper had been selected to take over for BDO.
(Id.) DLI boasted that EisnerAmper was more experienced and would conduct a
more rigorous audit. (Id.)
PLAINTIFFS-00052065
similarly shows that Doug Deming also relied on EisnerAmper issuing a clean
opinion with regard to his inquiries into the 2015 audit for DLIF. (Brucker
Dec. ¶ 8. ) Bonar Chhay, the representative for the Felicitas plaintiffs, also
received assurances in document baring bates label PLAINTIFFS-00035884 that
EisnerAmper was performing the 2014 audit at an elevated standard compared to
BDO. (Brucker Dec. ¶ 8.) Although it is unclear why Plaintiffs did not sue
EisnerAmper, it is clear that Opus needed to review Plaintiffs’ production
before determining if it had counterclaims against EisnerAmper.
(Def. Mot. p.
5-6.)
Opus’s statement in its memo is also less
than clear as to when it discovered the facts giving rise to the amended
allegations. Opus does not state when it reviewed any of the aforementioned
records, i.e., when it discovered the facts giving rise to the amended
allegations.
(4) the
reason why the request for amendment was not made earlier must accompany the
motion. (Id., rule 3.1324(b).)
Brucker states, “We acted diligently to get client and
carrier approval to file an amended cross complaint but did not receive
approval from the carrier until around October of 2022.” (Decl. Brucker ¶5.) Further,
Brucker states, “Prior to receiving approval to bring an amended cross
complaint, on August 22, 2022, we sent a letter in an attempt to get the
parties to stipulate to the amended cross-complaint to avoid motion practice.
Plaintiffs refused to stipulate.” (Decl. Brucker ¶6.)
Here, it appears as if Brucker is stating he got
approval from the insurance carrier to add Cross-Defendants Kroll and
EisnerAmper in October 2022; however, Brucker does not address why he waited
until 12/15/2022 to file the instant motion.
ADDITIONAL ANALYSIS AND ISSUES
Prejudice
Opus
argues that Plaintiffs will not be prejudiced by these amendments. Opus cites
the following from Higgins, “ “The rule is well established that great
liberality will be used in allowing amendments and where an amendment provides
”' merely the addition of matters essential to make the original cause of
action complete“' the amendment should certainly be allowed by the court.
[Citation.] Such an amendment effects no change in the nature of the case, and
can therefore cause no surprise or prejudice to the adverse party. [Citations.]”
(Higgins v. Del Faro (1981) 123 Cal.App.3d 558, 565 citing Estate of
Hunter (1961) 194 Cal.App.2d 859, 865.)
Opus also cites Solit, which states in relevant
part, “Generally leave to amend must be liberally granted, provided there is no
statute of limitations concern, nor any prejudice to the opposing party, such
as delay in trial, loss of critical evidence, or added costs of preparation.” (Solit
v. Tokai Bank, Ltd. New York Branch (1999) 68 Cal.App.4th 1435, 1448.)
Opposition argues that Plaintiffs will suffer
prejudice if the amendment is permitted because adding these two
Cross-Defendants will re-open extensive written discovery during the time when
numerous depositions must be completed. Opposition states that Plaintiffs will
further be propounded with discovery from two sophisticated parties within
months of the scheduled trial date. Opposition states that Courts have denied
leave to amend in similar cases involving untimely and tenuous claims that
would cause prejudice to the opposing party. Opposition cites Magpali v.
Farmers Group, Inc. (1996) 48 Cal.App.4th 471, 487. “Although courts are
bound to apply a policy of great liberality in permitting amendments to the
complaint at any stage of the proceedings, up to and including trial, this
policy should be applied only “[w]here no prejudice is shown to the adverse
party ....” A different result is indicated “[w]here inexcusable delay and
probable prejudice to the opposing party” is shown.” (Magpali v. Farmers
Group, Inc. (1996) 48 Cal.App.4th 471, 487.)
Further, Opposition states, “Opus’s proposed
cross-claims would require litigation with two new cross-defendants for conduct
taking place over the course of five years. It would require substantial
additional discovery, a second substantial continuance of trial which is
currently scheduled for June 26, 2023 (less than five months from the hearing
date for this Motion) and increase the complexity and cost of preparation for
trial. Opus seeks to allege cross-claims implicating brand-new cross-defendants
that Opus could have (and should have) asserted in April 2021, when it filed
its Cross-Complaint against Deloitte and QuarterSpot. The prejudice to
Plaintiffs alone warrants denial of Opus’s Motion.” (Oppo. p. 16.)
The Reply argues that there will be no prejudice
because discovery is still ongoing. Opus noted, “Opus asked for deposition
dates in late 2021, but Plaintiffs waited until mid-2022 to provide dates.
(Brucker Dec. ¶ 3.) Moreover, Opus has still not received dates for deceased
plaintiff Valerie Sabet’s personal representative or Millicent Calicchio,
despite over a year passing since their depositions were noticed. (Id.) In
contrast, Plaintiffs only recently served deposition notices on Opus and, in so
doing, selected dates unilaterally that were not workable for Opus. (Id. at ¶
4.) As a result, Depositions of Opus have not yet been rescheduled… Moreover,
third party discovery is just starting. For example, on December 28, 2022, Opus
sought leave to depose DLI’s principal and the main architect of the fraud
scheme, Brendan Ross, who’s deposition had been enjoined by a Federal Court
preliminary injunction order in the SEC action against DLI. (Brucker Dec. ¶ 5.)
Though this motion was unopposed, it has not yet been granted. (Id.) Should it
not be granted or, if granted and Ross asserts his Fifth Amended rights to
avoid testifying, this action will undoubtedly be delayed until such time as
Opus is permitted to depose Ross (and his co-conspirators) and develop facts to
use in Opus’ defense. In other words, it is unfair and untrue for Plaintiffs to
posit that this case will be anywhere near ready for trial by the currently
scheduled trial date, regardless of whether this motion is granted. Moreover,
the issues in the proposed amended cross-complaint overlap substantially with
those in previous cross-complaint such that Plaintiffs will not face a
substantial increase in discovery. In fact, Plaintiffs are already litigating
against Duff & Phelps. Duff & Phelps and EisnerAmper are already
defending against similar claims in related actions filed in Los Angeles
Superior Court and in New York. As such, cross-defendants have ample time to
prepare to defend against the claims and are already on notice of them.” (Reply
p. 4-5.)
Here, the Court finds Opus’s arguments more persuasive,
and Plaintiffs have not demonstrated they will suffer probable prejudice if
this Motion is granted. In Magpali, the Court of Appeal held that the
trial court properly denied plaintiff leave to amend on the day of trial. (Magpali
v. Farmers Group, Inc. (1996) 48 Cal.App.4th 471, 472.) Here, discovery is
still open, and the day of trial has not arrived.
CCP 1005
Opus
argues, “Opus’ proposed amendment is timely pursuant to Cal. Civ. Proc. Code §
1005. Opus’ proposed amendments are based upon the same general set of facts as
those presented in the original cross complaint and arise out of the same
transaction and occurrence identified in the original complaint (namely, the
loss of assets resulting from the Fund’s fraud). The interests of justice
require that leave be granted to allow Opus to amend its cross complaint to
ensure the excessive use of judicial resources is avoided.” (Def. Mot. p. 7.)
Here, the Court is unclear as to what argument Opus is
trying to make and why Opus is citing CCP §1005.
CCP §426.50
Opposition
argues as follows:
In its Motion,
Opus relies on Cal. Civ. Proc. Code § 426.50 and cases applying that code
provision. See Mot. at 3 (quoting Cal. Civ. Proc. Code § 426.50); id. at 4-5
(quoting Foot’s Transfer & Storage Co. v. Superior Ct., 114 Cal. App. 3d
897, 903-04 (1980); Silver Organizations Ltd. v. Frank, 217 Cal. App. 3d 94
(1990); Orient Handel v. United States Fid. & Guar. Co., 192 Cal. App. 3d
68 (1987)). However, Cal. Civ. Proc. Code § 426.50 governs compulsory
cross-complaints. There are no compulsory cross-complaints against non-parties.
See Ins. Co. of N. Am. v. Liberty Mut. Ins. Co., 128 Cal. App. 3d 297, 303
(1982); Banerian v. O’Malley, 42 Cal. App. 3d 604, 612 (1974) (“Except as
between plaintiffs and defendants, there is no compulsory cross-complaint in
California procedure.”); Rutter, Cal. Prac. Guide Civ. Pro. Before Trial Ch.
6-D. Opus is not seeking to file claims against plaintiffs. It seeks to assert
cross-claims against two third parties not yet named in the action. It is
fundamental that cross-complaints against third parties are permissive, not
mandatory. See Banerian, 42 Cal. App. 3d at 612 (“[A] cross-complaint is
permissive as between co-parties and between parties and nonparties.”); Ins.
Co. of N. Am., 128 Cal. App. 3d at 303 (single lawsuit for all claims not
required). As such, Cal. Code Civ. Proc. § 428.50, which governs the timing of
a permissive cross-complaint, is controlling. See Cal. Code Civ. Proc. 428.10.
(Oppo p. 10-11.)
Here, the Court is unclear as to what
argument the Opposition is trying to assert because moving party appears to
simply be trying to add additional Cross-Defendants via the FACC to the already
filed Cross-Complaint.
CCP §428.50(b)
Opposition argues as follows:
California Code of
Civil Procedure § 428.50(b) provides that a party may file a cross-complaint
against a third party “at any time before the court has set a date for trial.”
If, however, a party fails to file a cross-complaint against a third party
before the court sets a date for trial, as is the case here, the party “shall
obtain leave of court to file any cross-complaint” and “[l]eave may be granted
in the interest of justice at any time during the course of the action.” Id., §
(c). Courts often deny leave to amend to where, as here, the desired amendment
is untimely or prejudicial. See Crocker Nat. Bank v. Emerald, 221 Cal. App. 3d
852, 864 (1990) (finding no abuse of discretion in denying defendant’s request
to file permissive cross-complaint because defendant waited years into
litigation to assert cross-claims despite previously knowing underlying facts,
and because defendant brought his “motion for leave to file a cross-complaint
[] only five months before the trial date.”); M&F Fishing, Inc., 202 Cal.
App. 4th at 1536 (upholding trial court’s denial of motion to amend to add new
parties where trial date was approaching); Record, 73 Cal. App. 4th at 486-87
(no abuse of discretion in denying leave to amend to allege new claim where
plaintiff was aware of facts supporting new claim almost three years before
seeking leave to amend).
(Oppo. p. 11.)
Opposition’s argument under sec.
428.50(b) is not persuasive.
Untimely as to Cross-Claims Against
EisnerAmper
Opposition argues that Opus’s delay
in seeking leave to amend to assert cross-claims against EisnerAmper is
inexcusable and dilatory. Opposition argues:
Opus had actual knowledge in early
2021 about the facts underlying its proposed cross-claims against EisnerAmper.
Indeed, the allegations Opus asserted against EisnerAmper in the Baer
Cross-Complaint in August 2021 were virtually identical. Opus chose not to
assert these cross-claims then and now seeks to expand discovery and
essentially re-open discovery as two completely new parties. There is no
reasoned explanation for the delay.
Opus’s excuse for its delay is that
it only recently learned “through discovery . . . that certain of the
Plaintiffs in this matter invested prior to DLIF’s retention of Deloitte, at a
time when EisnerAmper was DLIF’s auditor.” Mem. at 2.5 In truth, Opus was
well-aware that certain Plaintiffs invested during the time period that
EisnerAmper served as DLIF’s auditor from 2015 - 2016. Indeed, as early as
2015—over six years ago—Opus documents show that Plaintiffs invested when
EisnerAmper was the Fund’s auditor: (i) August 26, 2015 email chain between
Opus, Plaintiff Douglas Deming, and DLI confirming Opus’s receipt of Mr.
Deming’s initial DLIF subscription documents; (ii) July 31, 2015 & August
4, 2015 emails between DLI and Opus transmitting Plaintiff A-One Commercial
Insurance Risk Retention Group, Inc.’s initial DLIF subscription documents to
Opus and confirming Opus’s creation of a “new investor profile” for A-One;
(iii) March 31, 2016 email chain between Opus, Siridean, and DLI confirming
Opus’s receipt of Plaintiffs Charitable Lead Annuity Trust “A” U/W of Steven
Calicchio and Charitable Lead Annuity Trust “B” U/W of Steven Calicchio initial
DLIF subscription documents; and (iv) December 2015 capital account statement
that Opus prepared for and transmitted to Plaintiff OGIE, LLC. See Hirsch Decl.
at ¶ 15(a)-(e).6
Similarly baseless is Opus’s claim
that it learned it had claims against EisnerAmper through review of Plaintiffs’
document production because those documents show that Plaintiffs received and
“would have similarly relied” on EisnerAmper’s audit reports. See Mot. at 6-7.
7 Opus has known as early as June 28, 2016 that certain Plaintiffs, including
the Felicitas Plaintiffs, Alfred Jackson, and Douglas Deming (identified in
Opus’s Motion) received these audits because that is that date that Opus itself
sent EisnerAmper’s 2015 audit report directly to those Plaintiffs. See Hirsch
Decl. at ¶ 15(f)-(i).
In any event, whether Plaintiffs
received or relied on EisnerAmper’s audit reports is irrelevant to Opus’s
cross-claims. According to Opus, its proposed cross-claim for negligent
misrepresentation is based on Opus’s—not Plaintiffs—reliance on EisnerAmper’s
audit reports and valuation policies or procedures, and the duty of care that
EisnerAmper owed “directly to Opus” that it allegedly breached. See Brucker
Decl., Ex. 3 at ¶ 25 (“Opus relied on EisnerAmper’s [] Audit reports and other
services they provided to the Funds that are at issue in the SAC, and Opus
relied upon the valuation policies and procedures created by EisnerAmper [] to
provide administration services to DLIF that are at issue in the SAC”); id. at
¶¶ 36-40 (alleging that EisnerAmper “owed a duty to exercise reasonable care”
“directly to Opus.”). The same is true for Opus’s proposed indemnity and
contribution claims—whether Plaintiff received or relied on EisnerAmper’s audit
reports is irrelevant. See E. L. White, Inc. v. City of Huntington Beach, 21
Cal. 3d 497, 506 (1978) (indemnification claim may be tried separately and does
not come into existence until actual loss through payment).
Simply put, Plaintiffs’ document
production did not reveal claims that Opus was unaware of previously, Opus’s
attempts to mischaracterize the nature of its proposed cross-claims are
groundless, and none of the cases cited in Opus’s motion support the proposed
amendment of untimely cross-claims against a non-party.8 As such, there is no
excuse for Opus’s delay in bringing its Motion.
(Oppo. p. 12-14.)
In Reply, Opus argues:
Plaintiffs first argue that Opus
should have sued EisnerAmper back in April of 2021 when Opus filed its
cross-claims against Deloitte because it filed cross-claims against EisnerAmper
in the Baer Action. However, Opus did not file cross-claims against EisnerAmper
in the Baer Action until August of 2021. (Brucker Dec. ¶ 2.) Moreover, while
Opus relied on the allegations asserted in the complaint in the Baer Action to
justify naming EisnerAmper as a cross-defendant in the Baer action, those
allegations were lacking in Plaintiffs’ operative complaint. Though they
certainly could have done so, for whatever reason, Plaintiffs did not sue
EisnerAmper or make any allegations of wrongdoing related to EisnerAmper.
Therefore, Opus had to develop these facts and allegations on its own, which
took time and access to Plaintiffs’ production.
Plaintiffs next argue that Opus’
document production shows that Plaintiffs received EisnerAmper’s audit reports
in 2016, so Opus must have known about EisnerAmper misconduct for years. But
just because Opus may have forwarded audit reports in 2016 to investors in DLIF
does not mean it was aware of possible claims against EisnerAmper pertaining to
the specific Plaintiffs in this action, who invested over varying periods of
time. In essence, Plaintiffs’ argument is that a corporate client’s knowledge
dating back years should be automatically imputed to counsel. That is not how
things work. Here, Opus produced over 200,000 pages of documents in this
matter. (Hirsch Dec. ¶ 7b.) It took time for Opus to review the records in this
case, some dating back nearly a decade, and develop the facts to support its
claims against Duff & Phelps and EisnerAmper. None of this should be
controversial.
(Oppo. p. 2-3.)
Here, while the Court finds that Opus has been less than
prompt in now first asserting claims as to EisnerAmper in this matter, any
delay has not resulted in legally cognizable untimeliness nor prejudice.
Claims
against Duff and Phelps are futile
Opposition argues leave to amend
should be denied because there is no personal jurisdiction over Duff &
Phelps in California.
Opposition
argues:
Courts routinely deny leave to amend where the proposed
claim would be futile. See Foxborough, 26 Cal. App. 4th at 230 (“[I]f the
proposed amendment fails to state a cause of action, it is proper to deny leave
to amend.”); Oakland Raiders, 131 Cal. App. 4th at 652 (leave to amend properly
denied where claims were without merit and amendment would “have been an idle
act”).
As Opus is aware, another group of DLI investors asserted
claims against Duff & Phelps in Federal Court for the Central District of
California in the action captioned Atkins, et al. v. Duff & Phelps, LLC,
CV21-1145 DSF (MRW) (C.D. 2021). See Hirsch Decl. at ¶ 17. Those claims were
dismissed for lack of personal jurisdiction in December 2021. Id. at ¶ 18, Ex.
4. In finding that it could not exercise specific personal jurisdiction over
Duff & Phelps, the Federal Court explained that the contract between Duff
& Phelps and DLI contained a New York choice of law provision, no Duff
& Phelps employees located in California did any work for DLI, no Duff
& Phelps employees traveled to California related to DLIF, and there was no
suggestion that Duff & Phelps carried out an intentional act expressly
aimed at California. Id. at Ex. 4, pp. 5-12. The Federal Court further
explained that allegations that Duff & Phelps communicated with DLI in
California through phone calls, emails, invoices, or other communications, were
insufficient. See id.9
Opus’s proposed cross-claims would fare no better. The only
relevant jurisdictional allegations asserted against Duff & Phelps in
Opus’s proposed Amended Cross-Complaint are:
• Opus is informed
and believes, and on that basis alleges, that at all material times,
cross-defendant Kroll, LLC (F/K/A Duff & Phelps LLC) (“Kroll”) was a
Delaware limited liability company authorized to do business or was doing
business in the State of California or this judicial district, or both.
• The Court has
jurisdiction over defendants because DLI and the Fund were headquartered within
this state, and the Defendants are either registered to do business in
California and/or transacted substantial business within this state and County
in connection with the Funds and DLI.
Brucker Decl., Ex. 3, at ¶¶ 8, 11. These allegations are
insufficient to survive a dispositive motion. Opus has not alleged (nor could
it allege) that Duff & Phelps (i) purposefully availed itself of the
privilege of conducting business in California; (ii) the proposed cross-claims
arise out of or relate to Duff & Phelps’s contacts with California; and
(iii) the exercise of jurisdiction would be fair and reasonable. See
HealthMarkets, Inc. v. Superior Ct., 171 Cal. App. 4th 1160, 1167 (2009)
(quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475-78 (1985)). As such,
Opus’s proposed amendment to add Duff & Phelps should be denied.
(Oppo. p. 14-15.)
Reply
argues that the personal jurisdiction issue about Duff & Phelps is an
argument for Duff & Phelps to make, should it choose to make it.
Here,
the Court does not find Opposition’s argument persuasive as to personal
jurisdiction. “…we believe that the better course of action would have been to
allow Atkinson to amend the complaint and then let the parties test its legal
sufficiency in other appropriate proceedings.” (Atkinson v. Elk Corp. (2003)
109 Cal.App.4th 739, 761 citing Kittredge Sports Co. v. Superior Court (1989)
213 Cal.App.3d 1045, 1048.)
TENTATIVE
RULING
Defendant’s motion for leave to
amend the cross-complaint is GRANTED. Opus’ First Amended Cross-complaint is deemed
filed, but Opus must separately so e-file it forthwith so that it is clearly in
the Court file. Parties’ responses to
this pleading are due according to the CCP, however, any party may stand on its
previously filed and served response to Opus’ Cross-complaint by e-filing and
e-serving a Notice of same within 20 days hereof.
The Court
exercises its discretion in view of liberality as to amending pleadings. While it
does appear that Opus could have been filed this motion sooner since it
arguably should have sought authority from its principal more quickly and
received authority to file this motion sooner than October 2022, this motion
was filed on 12/15/2022. The Opposition’s prejudice argument is not persuasive,
nor are the noted procedural deficiencies with respect to the California Rules
of Court jurisdictional.
Opus states
it wants to add causes of action for negligent misrepresentation, equitable
indemnification, and contribution against Kroll and EisnerAmper. However, the
proposed FACC only alleges Negligent Misrepresentation against EisnerAmper and
Deloitte. The FACC does not allege Negligent Misrepresentation against Kroll.
Equitable Indemnification and Contribution is alleged against all
Cross-Defendants. Moving party needs to clarify as to this issue at the
hearing.