Judge: Peter Wilson, Case: 30-2021-01191735, Date: 2023-05-11 Tentative Ruling

Plaintiffs Preston Clark and Growthpoint Global Inc. (collectively, Plaintiffs) seek an order granting leave to file the Third Amended Complaint (TAC).

For the reasons set forth below, the Motion is GRANTED.

Leave to amend pleadings is normally liberally granted under CCP § 473(a)(1), which permits amendments “in furtherance of justice, and on any terms as may be proper…”. “[C]ourts 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,” unless prejudice is shown to the adverse party. (Atkinson v. Elk Corp. (2003) 109 Cal.App.4th 739, 761.) It is a “rare case” in which denial of leave to amend can be justified. (Douglas v. Superior Court (1989) 215 Cal. App. 3d 155, 158 (citation omitted); Kittredge Sports Co. v. Superior Court (1989) 213 Cal.App.3d 1045, 1048.)

This liberality only applies so long as there is no prejudice to the opposing party. (Higgins v. Del Faro (1981) 123 Cal. App. 3d 558, 564.) Denial of leave to amend is appropriate where inexcusable delay and probable prejudice to the opposing party is shown. This may happen where a proposed amendment opens up an entirely new field of inquiry without any satisfactory explanation as to why the major change in point of attack had not been made long before trial. (Estate of Murphy v. Gulf Ins. Co. (1978) 82 Cal. App. 3d 304, 311.) 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. (Hirsa v. Superior Court (1981) 118 Cal. App. 3d 486, 490.)

Ordinarily, the court will not consider the validity of the proposed amended pleading in deciding whether to grant leave to amend because, after leave to amend is granted, opposing parties will have the opportunity to attack the validity of the pleading by filing a demurrer or motion to strike. (Kittredge Sports Co. v. Superior Court, supra, 213 Cal.App.3d at 1048.) However, the court may exercise its 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 appropriate amendment. (California Casualty General Ins. Co. v. Superior Court (Gorgei) (1985) 173 Cal.App.3d 274, 280-281 [disapproved on other grounds in Kransco v. American Empire Surplus Lines Ins. Co. (2000) 23 C4 390, 407, fn. 11].)

Defendants GP Asset Resolution, LLC (GPAR), WindSail Credit Fund, L.P., WindSail GP, LLC, WindSail Capital Fund, L.P., Crate Modular, Inc., Michael Rand and Matthew T. O’Rourke (collectively, WindSail Defendants), and James Pickell (Pickell) filed oppositions to the Motion.

GPAR’s Opposition. GPAR argues Plaintiffs should be prohibited from amending their claims because they failed to file an amended pleading within 15 days as directed by the Court’s 2/9/2023 Minute Order, the amendment is untimely, and improperly adds two new claims against GPAR that are contrary to the Court’s ROA 1236, 2/9/2023 Minute Order. ROA 1306, GPAR’s Brief and ROA 1400, GPAR’s Opp.

The 2/9/2023 Minute Order provides:

Court discusses with counsel as to the amended complaint being filed. If plaintiff intends to add additional allegations in the amended complaint, then a combined amended complaint and motion for leave to amend, including a redlined version, are to be filed within 15 days. If a motion for leave to amend is filed, the time for defendants to respond will be due after the Court rules on the motion. (Emphasis added.)

Given the Court’s 2/9/2023 Minute Order, Plaintiffs were permitted to file a motion for leave to amend with  additional allegations beyond what the Court permitted Plaintiffs to amend in connection with GPAR’s demurrer.

The Motion was filed on February 24, 2023 and included a redlined version of the proposed TAC and highlighted the allegations as to GPAR in response to the Court’s 2/9/2023 Minute Order. ROA 1280, Motion and 1281, Unredacted Vu Decl., Ex. 2. Therefore, the Motion was filed in accordance with the 2/9/2023 Minute Order.

GPAR argues the motion is untimely, but does not challenge Plaintiffs’ representations that the documents they obtained in October 2022 disclosed new information that supports the expanded and new claims against GPAR. GPAR does not argue that any of the new allegations in the proposed TAC were known, or with reasonable diligence, could have been known by Plaintiffs earlier.

While GPAR correctly argues the proposed TAC adds new theories of liability against it, the negligence and receipt of stolen goods claims are based on many of the same facts as the breach of fiduciary duty and aiding and abetting breach of fiduciary claims previously alleged. See ROA 1281, Ex. 2, Redlined Proposed TAC, ¶¶145 [breach of duty of care for negligence action based on “same conduct” as alleged in breach of fiduciary duty and aiding and abetting breach of fiduciary claims], 194-202 [GPAR received GrowthPoint’s assets through fraud by Pickell and WindSail Defendants and sold the assets to Crate Modular]; ROA 366, First Amended Complaint, ¶¶186, 199, 236, 257, 258 [GPAR is Commenda’s subsidiary, failed to independently evaluate GrowthPoint’s assets and just rubber stamped the “straw-buyer deal”, and was intended to facilitate the wrongful transfer of GrowthPoint assets to WindSail Defendants and its co-conspirators]; ROA 766, SAC, ¶36 [GPAR is subsidiary or affiliate of Commenda and aided and abetted WindSail Defendants and Pickell’s breach of fiduciary duties]. As such, many of the same facts, evidence and witnesses relevant for the breach of fiduciary and aiding and abetting breach of fiduciary claims will be relevant for the new claims for negligence and receipt of stolen goods.

Given that the parties are still in the midst of discovery and trial is just over a year away, there is ample time for GPAR to conduct discovery and prepare for trial.

GPAR’s ROA 1398, RJN is granted.

WindSail Defendants’ Opposition. WindSail Defendants argue Plaintiffs have unreasonably delayed in bringing this Motion and that they have been unreasonably prejudiced. WindSail Defendants contend the “new” evidence Plaintiffs claim they obtained in October 2022 is information that they were already aware of and point to the fact Plaintiffs are reintroducing parties and claims they previously dismissed.

WindSail Defendants do have a point. WindSail Capital Group, LLC (WSCG) was clearly known to Plaintiffs since it was an original defendant. WSCG Defendants argue realleging claims against WSCG is nothing more than a “strategic pivot from one counsel to the next”.

However, WSCG was dismissed without prejudice, and the parties agreed to toll the limitations period in the event that Plaintiffs decided to bring WSCG back in as a defendant. See ROA 1269, Borges Decl., Ex. B [“The dismissal without prejudice is with full reservation of rights to add WS Group back into the case as a defendant;”]. This possibility, which was expressly contemplated by the parties, has now occurred.

WindSail Defendants further argue that Plaintiffs should not be permitted to reallege breach of the covenant of good faith and fair dealing since they voluntarily decided to omit that claim in the SAC. Nor should Plaintiffs be able to assert tortious interference with contract because they were aware of the facts underlying the claim in September 21, 2018. Similarly, WindSail Defendants argues the receipt of stolen property claims are not based on the new evidence.

Since the new allegations are based on the same general facts as previously alleged, for the same reasons as previously explained, the amendment will not result in undue prejudice.

WindSail Defendants also argue that Plaintiffs may not rely on the documents received from JMBM. It is undisputed that JMBM represented GrowthPoint and that there was an attorney-client relationship between them. WindSail Defendants do not cite any case law to support their contention that the privilege was transferred to Crate Modular because Crate Modular acquired GrowthPoint’s assets and that Crate Modular holds the privilege to the exclusion of GrowthPoint.

WindSail Defendants’ ROA 1421, RJN is denied as not relevant to the ruling.

Pickell’s Opposition. Pickell argues that the new claim for breach of covenant of good faith and fair dealing and Clark’s claim for aiding and abetting breach of fiduciary duty are futile. Pickell also argues that Plaintiffs were aware of the underlying facts for the new claims years ago and failed to bring these claims earlier without any explanation, and that delay is unduly prejudicial.

Pickell spends most of his opposition attempting to show that the new claims have no merit. But these arguments, and the evidence Pickell cites in support of these arguments, are better left for consideration in a separate motion challenging the allegations in the TAC.

Pickell argues he will be unduly prejudiced by the amendment and Plaintiffs have not adequately explained when they discovered new facts giving rise to the amendment or why those claims could not be asserted earlier. However, for the reasons previously stated, because the claims arise from the same general set of facts, Pickell is not unduly prejudiced by the amendment.

Further, Plaintiffs explain that they obtained documentation in October 2022, which were not available at the time the Second Amended Complaint (SAC) was filed and that support the new claims alleged. Plaintiffs contend that the documents obtained in October 2022 evidence Defendants’ fraudulent intent because they show that the WindSail Defendants engaged an investment bank to conduct due diligence in preparation for a UCC Article 9 foreclosure in December 2017, when making contrary representations to Clark. Additionally, Plaintiffs contend the documents show communications and involvement by Commenda that was previously unknown. Plaintiffs also contend that the Court’s rulings on the latest round of demurrers clarified certain facts that support a negligence action against GPAR and Commenda and breach of the covenant of good faith and fair dealing against WindSail Credit.

Pickell’s objections to the Vu Declaration and Clark Declaration are overruled.

Plaintiffs are ordered to file and serve their Third Amended Complaint within 10 court days.

Plaintiffs are ordered to give notice.