Judge: Mark C. Kim, Case: 21LBCV00277, Date: 2022-10-20 Tentative Ruling
Case Number: 21LBCV00277 Hearing Date: October 20, 2022 Dept: S27
1. Background
Facts
Plaintiffs, For Love & Thread
Apparel Corp. and Rong Lu filed this action against Defendants, Zanpei Xu, Lie
Wan, and Wisetex Apparel, LLC for breach of fiduciary duty, conversion, breach
of duty of loyalty, fraudulent concealment, negligence, and declaratory relief
arising out of the parties’ joint formation of the entity plaintiff.
Defendants answered the complaint
and also filed a cross-complaint for breach of fiduciary duty, fraudulent inducement,
intentional misrepresentation, breach of contract, and negligent misrepresentation. The cross-complaint arises out of the same
business relationship that forms the basis of the complaint.
2. Motion
for Leave to File First Amended Complaint
a.
Parties’ Positions
Plaintiffs seek leave to file a
First Amended Complaint, in which they propose to add a cause of action for
violation of Penal Code §496. They
contend they first realized such cause of action needed to be asserted prior to
mediation, but agreed to hold off on seeking leave to add the claim unless and
until mediation was not successful. Because
mediation was not successful, they now wish to add the claim.
Defendants oppose the motion,
arguing it does not comply with CRC 3.1324, Plaintiffs improperly delayed in
bringing the motion, and granting the motion will prejudice them.
Plaintiffs, in reply, contend the
motion fully complies with the Rules of Court, they did not improperly delay,
any delay is not prejudicial, and the Court cannot deny the motion absent a
finding of bad faith, which is lacking.
b. Law
Governing Leave to Amend
The court may, in furtherance of
justice, and on such terms as may be proper, allow a party to amend any
pleading. (CCP §§473 and 576.) Judicial policy favors resolution of all
disputed matters between the parties and, therefore, leave to amend is generally
liberally granted. Ordinarily, the court
will not consider the validity of the proposed amended pleading in ruling on a
motion for leave since grounds for a demurrer or motion to strike are
premature. However, the court does have
discretion to deny leave to amend where a proposed amendment fails to state a
valid cause of action as a matter of law and the defect cannot be cured by
further amendment. (California Casualty
General Ins. Co. v. Superior Court (1985) 173 Cal.App.3d 274, 281.)
The application for leave to amend
should be made as soon as the need to amend is discovered. The closer the trial date, the stronger the
showing required for leave to amend. If
the party seeking the amendment has been dilatory, and the delay has prejudiced
the opposing party, the Court has the discretion to deny leave to amend. (Hirsa v. Superior Court (1981) 118
Cal.App.3d 486, 490.) Prejudice exists
where the amendment would require delaying the trial, resulting in loss of
critical evidence, or added costs of preparation such as an increased burden of
discovery. (Magpali v. Farmers Group,
Inc. (1996) 48 Cal.App.4th 471, 486-488.)
c. Rules
of Court
Defendants argue Plaintiffs failed
to comply with CRC 3.1324, which governs leave to amend. Defendants first argue Plaintiffs failed to
file a declaration in compliance with 3.1324(b), which requires a declaration stating
the effect of the amendment, why it is necessary and proper, when facts giving
rise to the need to amend were discovered, and the reasons why the motion was
not made earlier. Defendants are
correct; the declaration does not state when facts giving rise to the need to
amend were discovered. The declaration states
only that Plaintiffs told Defendants, prior to mediation, that they would amend
the complaint if mediation was not successful.
Defendants also argue Plaintiffs
did not comply with Rule 3.1324(a), which requires the motion to include a
serially numbered copy of the proposed amendment, to state what allegations
will be added, and to state what allegations will be deleted. While this is technically true, it is clear
that the proposed amended complaint does one thing and one thing only: it adds
a cause of action for Violation of Penal Code §496.
The Court is inclined to rule on
the motion on its merits despite the minor procedural deficiencies in the moving
papers.
d. Delay
and Prejudice
Defendants next argue Plaintiffs
delayed in making the motion, and the delay will prejudice them in defending
the action. As an initial note,
Plaintiffs, in their reply, erroneously contend the motion cannot be denied
absent a showing of bad faith. Plaintiffs
are relying on authorities that relate to motions for leave to file a
cross-complaint, which has a different standard from a motion for leave to amend. The standard for leave to amend is set forth above,
and is delay coupled with prejudice.
In this case, it is clear there has
been a delay. The cause of action for
Violation of Penal Code §496 is premised on the same facts that give rise to
all the other causes of action, and therefore it could have been asserted with
the original complaint, which was filed on 5/19/21, a year and a half ago. The bigger issue is prejudice.
Defendants contend they will be
prejudiced because additional discovery will be necessary, and discovery has
already been cut off. However, because the
cause of action is premised on exactly the same facts as the other causes of
action already asserted, the Court is not clear on what additional discovery would
be needed.
Defendants also contend the cause
of action is merely intended to leverage settlement discussions, as the cause
of action carries with it a treble damages penalty. However, the fact that amendment involves a
change in legal theory that is adverse to the opposing party is not the type of
prejudice the Court can consider on a motion for leave to amend. See Hirsa, supra, at 490.
Finally, Defendants contend they
will be prejudiced because the trial date will need to be continued if the
motion is granted. Trial is scheduled
for 11/14/22, less than a month after the hearing on this motion. Delay in the trial date is a factor the Court
can consider in determining whether or not leave to amend should be
granted. Notably, Plaintiffs also have a
motion to continue trial on calendar concurrently with the hearing on this
motion for leave to amend. As will be
discussed below, the motion to continue trial will be granted. Thus, the Court finds there is no prejudice
to Defendants as a result of the amended complaint, and the motion for leave to
amend is granted.
3. Motion
to Continue Trial
a. Parties’
Positions
Plaintiffs move to continue the 11/14/22 trial date, contending
Defendants have not responded to outstanding discovery, and the discovery
dispute has been referred to a referee, who cannot meet with the parties until
at least 10/12/22. Plaintiffs also
contend the cross-complaint is not yet at issue. They contend the trial date must be continued
because there is a pending motion for leave to amend the complaint. Finally, they contend they recently added a
doe defendant, and the doe defendant has not yet responded to discovery.
Defendants oppose the motion,
contending they have participated fully in discovery, the cross-complaint is at
issue, and the motion for leave to amend should be denied.
b. Analysis
The Court wishes to hear from the parties,
at the hearing, concerning the status of their discovery dispute. The Court is hopeful the parties will have
met with the referee prior to the hearing, and the discovery issues will be well
on track to being resolved.
On 9/20/22, the Court sustained a
demurrer to Defendants’ FACC with leave to amend and ordered Defendants to file
their SACC within twenty days, which fell on or about 10/10/22. The Court cannot locate an SACC in the file. Plaintiffs indicate they will likely file a
pleading challenge the SACC. The Court wishes
to hear from the parties concerning the status of the filing of the SACC at the
hearing.
As noted above, the Court is granting
the motion for leave to amend. As also
noted above, it does not appear the amended complaint will expand the issues between
the parties or necessitate a further trial continuance.
The Court will grant the motion to
continue trial, but wishes to hear from the parties concerning the above issues
in order to determine the duration of the necessary continuance.
The Court asks Counsel to
make arrangements to appear remotely at the hearing on the motions.