Judge: Helen Zukin, Case: 21SMCV01850, Date: 2023-01-04 Tentative Ruling

Case Number: 21SMCV01850    Hearing Date: January 4, 2023    Dept: 207

Background

Plaintiff Innerspin Marketing, LLC (“Plaintiff”) brings this action against Defendant Consequent Capital Management, LLC (“Defendant”) arising from a contract between the parties under which Plaintiff was to provide certain marketing services to Defendant, including website development, brand development, and general creative services. Plaintiff alleges Defendant has failed to provide payment as required under the contract and has asserted causes of action against Defendant for breach of contract, indebtedness, account stated, open book account, and goods/services sold and delivered.

Defendant brings two motions before the Court: (1) a motion for leave to amend its Answer to assert additional affirmative defenses to Plaintiff’s claims, and (2) a motion for leave to file a Cross-Complaint. These motions are both unopposed, and because they involve similar factual backgrounds and arguments, the Court will address them together.

Legal Standard

Leave to amend is permitted under Code of Civil Procedure section 473, subdivision (a) and section 576. The policy favoring amendment and resolving all matters in the same dispute is “so strong that it is a rare case in which denial of leave to amend can be justified. . ..” “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 [citations], this policy should be applied only ‘where no prejudice is shown to the adverse party . . .. [citation].  A different result is indicated ‘where inexcusable delay and probable prejudice to the opposing party’ is shown. [Citation].” (Magpali v. Farmers Group (1996) 48 Cal.App.4th 471, 487.) 

A motion for leave to amend a pleading must also comply with the procedural requirements of California Rules of Court, Rule 3.1324, which requires a supporting declaration to set forth explicitly what allegations are to be added and where, and explicitly stating what new evidence was discovered warranting the amendment and why the amendment was not made earlier. The motion must also include (1) a copy of the proposed and numbered amendment, (2) specifications by reference to pages and lines where allegations would be deleted and added, and (3) a declaration specifying the effect, necessity and propriety of the amendments, date of discovery and reasons for delay. (See Cal. Rules of Court, rule 3.1324, subds. (a), (b).)

With regard to Defendant’s motion for leave to file a Cross-Complaint, Code Civ. Proc. § 428.50 provides:

(a)        A party shall file a cross-complaint against any of the parties who filed the complaint or cross-complaint against him or her before or at the same time as the answer to the complaint or cross-complaint.

(b)        Any other cross-complaint may be filed at any time before the court has set a date for trial.

(c)        A party shall obtain leave of court to file any cross-complaint except one filed¿within¿the time¿specified in subdivision (a)¿or¿(b).¿ Leave may be granted in the interest of justice at any time during the course of the action.

“A party who fails to plead a cause of action subject to the requirements of this article, whether through oversight, inadvertence, mistake, neglect, or other cause, may apply to the court for leave to amend his pleading, or to file a cross-complaint, to assert such cause at any time during the course of the action. The court, after notice to the adverse party, shall grant, upon such terms as may be just to the parties, leave to amend the pleading, or to file the cross-complaint, to assert such cause if the party who failed to plead the cause acted in good faith. This subdivision shall be liberally construed to avoid forfeiture of causes of action.” (C.C.P. § 426.50.) (Emphasis added.)

The Court of Appeals has explained: “The legislative mandate is clear. A policy of liberal construction of section 426.50 to avoid forfeiture of causes of action is imposed on the trial¿court. A motion to file a cross-complaint at any time during the course of the action must be granted unless bad faith of the moving party is demonstrated where forfeiture would otherwise result. Factors such as oversight, inadvertence, neglect, mistake or other cause, are insufficient grounds to deny the motion unless accompanied by bad faith.” (Silver Organizations Ltd. v. Frank¿(1990) 217 Cal.App.3d 94, 98–99.) “‘‘Bad faith,’ is defined as ‘[t]he opposite of ‘good faith,’ generally implying or involving actual or constructive fraud, or a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake . . ., but by some interested or sinister motive[,] . . . not simply bad judgment or negligence, but rather . . . the conscious doing of a wrong because of dishonest purpose or moral obliquity; . . . it contemplates a state of mind affirmatively operating with furtive design or ill will. [Citation.]’ [Citations.]’ [Citation.]” (Id. at 100.)

Analysis

Defendant’s motion for leave to amend seeks to add five affirmative defenses to its original Answer filed January 24, 2022. Specifically, Defendant seeks to assert the affirmative defenses of breach of contract, unjust enrichment, invalid contract, lack of consideration, and laches. Defendant represents these affirmative defenses stem from the same information and theories which support Defendant’s proposed Cross-Complaint, which were only discovered and finalized through discovery in this litigation. Defendant has attached a copy of the proposed Amended Answer it wishes to file. Defendant also represents the proposed amendment would not prejudice Plaintiff in any way. The Court notes Plaintiff has not filed an opposition to Defendant’s motion disputing these representations or otherwise asserting any basis for the Court to deny Defendant’s request. As set forth above, California law expresses a policy of great liberality in favor of granting requests to amend pleadings so disputes can be fully resolved on their merits. On the facts before it, the Court finds Defendant has met its burden of showing good cause to permit the amendment of its Answer and its motion for leave to amend is GRANTED.

The same result follows with regard to Defendant’s motion for leave to file a Cross-Complaint. Defendant seeks to file a Cross-Complaint against Plaintiff and its former president and owner, Elcid Choi (“Choi”). Defendant’s proposed Cross-Complaint asserts a cause of action for declaratory relief against Plaintiff and Choi, and a cause of action for fraud in the inducement against Plaintiff only. Defendant asserts its claims against Plaintiff are compulsory crossclaims which must be asserted in this action as they arise from the same contract and transaction which give rise to Plaintiff’s claims against it. Defendant acknowledges its claims against Choi are permissive as Choi is not currently a party to this action, however Defendant argues good cause exists to assert such claims against Choi in this action as they arise from the same facts as the claims between Plaintiff and Defendant, and thus would be more efficiently litigated in this action.

As set forth above, under California’s liberal pleading rules, a motion for leave to assert a cross-complaint must be granted unless bad faith of the moving party is demonstrated where forfeiture would otherwise result. The Court finds good cause supports granting Defendant’s motion for leave to file a Cross-Complaint. The issues raised by Defendant’s proposed Cross-Complaint significantly overlap with the issues already raised by Plaintiff’s claims, the denial of Defendant’s motion would result in forfeiture of their claims against Plaintiff, and the inclusion of claims against Choi stemming from the same operative facts and contractual relationship in this action would be the most efficient way for the parties and the Court to adjudicate those issues and would prevent the duplication of work and the possibility of inconsistent findings. For these reasons, the Court GRANTS Defendant’s motion for leave to file a Cross-Complaint.

Conclusion

Defendant’s motions for leave to amend its Answer and for leave to file a Cross-Complaint are GRANTED.