Judge: Michael E. Whitaker, Case: 22SMCV00231, Date: 2023-08-09 Tentative Ruling

Case Number: 22SMCV00231    Hearing Date: August 9, 2023    Dept: 207

TENTATIVE RULING

MOTION

            Plaintiff filed the second amended complaint in this action on July 25, 2022, alleging twelve causes of action.  Plaintiff now seeks leave to file a third amended and supplemental complaint, removing four causes of action and adding eleven new causes of action, bringing the total causes of action to twenty (20), and deleting and updating many of the factual allegations  to account for events uncovered in discovery, which have occurred both before and after February 2022, when the original complaint was filed in this case.  

            Defendant Ghods and Defendant Plusarch, Inc. (“Defendants”) oppose the motion, and Plaintiff has filed a reply.    

LEGAL STANDARDS

Supplemental Pleadings

            “The plaintiff and defendant, respectively, may be allowed, on motion, to make a supplemental complaint or answer, alleging facts material to the case occurring after the former complaint or answer.”  (Code Civ. Proc., § 464, subd. (a).)  “Upon the filing of a supplemental complaint, the court clerk shall issue an amended or supplemental summons pursuant to Section 412.10.  Service of the supplemental s summons and complaint shall be made in the manner provided for the initial service of a summons by this code.”  (Code Civ. Proc., § 464, subd. (c).)  

Amendments to Pleadings: General Provisions

            Under Code of Civil Procedure section 473, subdivision (a)(1), “The court may, in furtherance of justice, and on any terms as may be proper, allow a party to amend any pleading or proceeding by adding or striking out the name of any party, or by correcting a mistake in the name of a party, or a mistake in any other respect; and may, upon like terms, enlarge the time for answer or demurrer. The court may likewise, in its discretion, 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.”

            To wit, without notice to the other party the Court has wide discretion to allow either party (i) to add or strike the name of a party or (ii) to correct a mistake in the name of a party or a mistake in any other respect “in furtherance of justice” and “on any terms as may be proper.” (See Code Civ. Proc., § 473, subd. (a)(1); see also Marriage of Liss (1992) 10 Cal.App.4th 1426, 1429.) Alternatively, after notice to the other party, the Court has wide discretion to allow either party to amend pleadings “upon any terms as may be just.” (See Code Civ. Proc., § 473, subd. (a)(1).) Similarly, Code of Civil Procedure section 576 states “Any judge, at any time before or after commencement of trial, in the furtherance of justice, and upon such terms as may be proper, may allow the amendment of any pleading or pretrial conference order.”

            Judicial policy favors resolution of all disputed matters between the parties and, therefore, leave to amend is liberally granted. (Berman vs. Bromberg (1986) 56 Cal.App.4th 936, 945; Hirsa v. Superior Court (1981) 118 Cal.App.3d 486, 488-489 [this has been an established policy in California since 1901] (citing Frost v. Whitter (1901) 132 Cal. 421, 424; Thomas v. Bruza (1957) 151 Cal.App.2d 150, 155).) The Court of Appeal in Morgan v. Superior Court held “If the motion to amend is timely made and the granting of the motion will not prejudice the opposing party, it is error to refuse permission to amend and where the refusal also results in a party being deprived of the right to assert a meritorious cause of action or a meritorious defense, it is not only error but an abuse of discretion.” (Morgan v. Superior Court (1959) 172 Cal.App.2d 527, 530, citations omitted.) Moreover, “it is an abuse of discretion for the court to deny leave to amend where the opposing party was not misled or prejudiced by the amendment.” (Kittredge Sports Co. v. Superior Court (1989) 213 Cal.App.3d 1045, 1048 [opposing party did not establish harm by the delay in moving to amend the complaint].)

            “The court may grant leave to amend the pleadings at any stage of the action.” (Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2023) ¶ 6:636 (hereafter Weil & Brown).) Denial of a motion to amend is rarely justified if the motion is timely made and granting the motion will not prejudice the opposing party. (Id. at ¶ 6:639, citations omitted.) However, if the party seeking the amendment has been dilatory, and the delay has prejudiced the opposing party, the judge has discretion to deny leave to amend. (Id. at ¶ 6:655, citations omitted. Absent prejudice, any claimed delay alone is not grounds for denial. “If the delay in seeking the amendment has not misled or prejudiced the other side, the liberal policy of allowing amendments prevails. Indeed, it is an abuse of discretion to deny leave in such a case even if sought as late as the time of trial. (Id. at ¶ 6:653 (citing Higgins v. Del Faro (1981) 123 Cal.App.3d 558, 564-565).) “Prejudice exists where the amendment would result in a delay of trial, along with loss of critical evidence, added costs of preparation, increased burden of discovery, etc. . . . But the fact that the amendment involves a change in legal theory which would make admissible evidence damaging to the opposing party is not the kind of prejudice the court will consider.” (Weil & Brown, supra, at ¶ 6:656, citations omitted.)

            “Even if some prejudice is shown, the judge may still permit the amendment but impose conditions, as the Court is authorized to grant leave ‘on such terms as may be proper.’” (Weil & Brown, supra, at ¶ 6:663, citation omitted.) For example, the court may cause the party seeking the amendment to pay the costs and fees incurred in preparing for trial. (Id. at ¶ 6:664 (citing Fuller v. Vista Del Arroyo Hotel, 42 Cal.App.2d 400, 404).)

California Rules of Court, rule 3.1324: Procedural Requirements

            Pursuant to 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 pleadings, 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.”

            In addition, under Rule 3.1324(b), a motion to amend a pleading before trial must be accompanied by a separate declaration that specifies the following:

“(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 reasons why the request for amendment was not made earlier.”

DISCUSSION

            Defendants argue that leave should be denied because (1) the Motion is untimely and prejudices Defendants; (2) the motion fails to comply with the California Rules of Court; (3) Plaintiff has failed to identify which of her new claims and allegations are amendments, and which are supplements; and (4) Plaintiff cannot add causes of action based on an unsigned shareholders agreement. 

Timeliness and Prejudice

            Defendants first argue that the motion is untimely because Plaintiff was aware the parties were at an impasse with regard to stipulating to the filing of a third amended and supplemental complaint as of August 23, 2022.  However, Plaintiff waited six months before filing an ex parte application in March 2023 to file a third amended complaint.  The Court granted Plaintiff permission to file the proposed third amended complaint, but Plaintiff instead filed a revised version of the third amended complaint, which the Court struck as procedurally improper in June 2023.  Plaintiff then waited an additional twenty (20) days to move for leave to amend,  That motion was defective in that it failed to include a notice of motion.  Plaintiff then filed the instant amended motion.

            Defendants also argue Plaintiff is acting in bad faith because, according to Defendants, the parties had reached an agreement to settle their dispute in March 2023.  Defendants signed the version of the settlement agreement Plaintiff sent them and were preparing to send the settlement payment, when Plaintiff inexplicably declined to move forward with the settlement.

            Defendants further contend that the delay has prejudiced them because they “conducted pretrial discovery, made their decisions regarding the financial resources to be devoted to this litigation [including whether or not it was necessary to retain expert witnesses], participated in a mediation, made settlement offers, noticed and prepared for the depositions of Iman and Iman’s designated expert witnesses and began preparation for the April 10, 2023 trial, all on the understanding that the case was proceeding to trial on April 10 based on the allegations of the SAC.”  (Opp at 7:16-22.) 

            Defendants also argue they will be prejudiced “because they will be required to expend considerable additional resources in connection with additional discovery and the trial of this action” in light of the fact that the new causes of action will expand “both the tenor and complexity of the action.”  (Opp. at 8:15-18.) 

            Plaintiff counters on reply that the delay in amending was due to Defendants’ delay in producing certain documents in discovery, as well as the parties’ settlement negotiations.  (Reply at 5:18-6:20.)

Defendants have not shown untimeliness, bad faith, or prejudice.  To the contrary, by Defendant’s own admission, the parties were engaged in settlement discussions until March 2023, when those discussions broke down and Plaintiff pursued the filing of a third amended complaint.  Moreover, the Court does not find twenty (20) days to be an unreasonable time period between the defective motion filed in June 2023 and the current motion before the Court. 

With respect to prejudice, Defendants only point to the fact that they have already expended substantial time, energy, and resources preparing their defenses based on the second amended complaint, and the proposed amendment will expand the scope of the case.  But trial is not currently scheduled until the end of November, which gives the parties adequate time to conduct additional discovery as needed to prepare for trial.  “[T]he fact that the amendment involves a change in legal theory which would make admissible evidence damaging to the opposing party is not the kind of prejudice the court will consider.” (Weil & Brown, supra, at ¶ 6:656, citations omitted.) 

California Rules of Court, rule 3.1324(b)

            Defendants next argue that the motion fails to comply with California Rules of Court, rule 3.1324(a) and (b).  Specifically, Defendants argue that the Motion fails to comply with Rule 3.1324(a)(2) and (3) because Plaintiff has failed to state which allegation are proposed for addition or deletion, and where, by page, paragraph, and line number, the deleted allegations are located.  The Court disagrees.  Plaintiff has attached to the Fourth Roshanian Declaration a redline showing the changes from the second amended complaint to the proposed third amended and supplemental complaint.

Defendants also argue the Motion fails to comply with Rule 3.1324(b) because the Roshanian declaration fails to specify the effect of the amendment, why the amendment is necessary and proper, when the facts giving rise to the amended allegations were discovered, and the reasons why the request for amendment was not made earlier.

The Third Roshanian Declaration explains that the amendment is necessary to include additional facts and causes of action based on information uncovered during a May 2023 phone call with the attorney who drafted the company’s bylaws and other information uncovered in reviewing discovery produced in this case, as well as to make “previously negotiated amendments.”  (Third Roshanian Decl., ¶¶ 13-20, 23.)  The Third Roshanian Declaration also explains that on June 6, 2023, the Court noted an amended complaint would be necessary and proper.  (Id. ¶ 10.) 

Therefore, the Court determines that the motion for leave to amend complies with the procedural requirements of Rule 3.1324. 

Amendments versus Supplements

            Defendants next argue that the motion should be denied because Plaintiff fails to identify which of her new claims and allegations are amendments or supplements.

            Supplemental facts are those “occurring after the former complaint or answer.”  (Code Civ. Proc.,  § 464, subd. (a).) 

            The Court disagrees that Plaintiff fails to identify which of her new claims and allegations are amendments, and which are supplements.  The Fourth Roshanian declaration explains that all references to deposits to Defendant Ghods’s bank account and payments Mr. Ghods made after June 1, 2022 are supplemental facts, whereas bank account and expense information that occurred prior to June 1, 2022 are amendments.  (Fourth Roshanian Decl. ¶¶ 17-19.)  The Court notes that all facts occurring after the original complaint was filed on February 17, 2022, would be supplemental facts.  (Foster v. Sexton (2021) 61 Cal.App.5th 998, 1032.) 

While some courts have held that a supplement to a complaint cannot introduce new causes of action, (Flood v. Simpson (1975) 45 Cal.App.3d 644, 647; Brown v. Valley View Min. Co. (1900) 127 Cal. 630, 631.), other courts have held that there is no issue where the additional allegations simply “describe[] the continuation of the events asserted in the initial pleading[.]”  (Honig v. Financial Corp. of America (1992) 6 Cal.App.4th 960, 966.) 

Here, Plaintiff primarily updates the complaint to include additional continuing conduct.  For example, paragraphs 321 and 323 of the proposed third amended and supplemental complaint include financial information occurring after February 17, 2022 to support Plaintiff’s new fourteenth cause of action for breach of the shareholders agreement.  Similarly, paragraphs 392 and 393 of the proposed third amended and supplemental complaint include supplemental facts to support the new nineteenth cause of action for injunction, and paragraph 397 includes supplemental facts to support the new twentieth cause of action for declaratory relief.  The Court finds that these allegations and new causes of action are all proper under Honig v. Financial Corp. of America. 

            Therefore, the proposed third amended and supplemental complaint properly alleges amended and supplemental facts to support new causes of action.

Unsigned Shareholders Agreement

            Regarding Defendant’s arguments concerning the propriety of the proposed amendment, the Court will generally not consider the merits of the proposed amendment in determining whether to grant leave to amend. (See Kittredge Sports Co. v. Superior Court, supra, 213 Cal.App.3d at p. 1048; see also Weil & Brown, supra, at ¶ 6:656, citations omitted  [“But the fact that the amendment involves a change in legal theory which would make admissible evidence damaging to the opposing party is not the kind of prejudice the court will consider”].)   

CONCLUSION AND ORDER

            The Court grants Plaintiff’s Motion for Leave to Amend.  Plaintiff shall file and serve the version of the third amended and supplemental complaint submitted with this motion on or before August 30, 2023.    

Defendants shall provide notice of the Court’s ruling and file a proof of service regarding the same.

DATED:  August 9, 2023                                                       ___________________________

                                                                                          Michael E. Whitaker

                                                                                          Judge of the Superior Court