Judge: Walter P. Schwarm, Case: 30-2016-00892772, Date: 2022-09-27 Tentative Ruling

Plaintiff’s (Femtometrix, Inc.) Motion for Leave to Amend (Motion), filed on 9-6-22 under ROA No. 518, is DENIED.

Code of Civil Procedure section 473, subdivision (a)(1), states in part, “. . . 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. 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.”

“It is well established that ‘California courts “have a policy of great liberality in allowing amendments at any stage of the proceeding so as to dispose of cases upon their substantial merits where the authorization does not prejudice the substantial rights of others.” [Citation.] Indeed, “it is a rare case in which ‘a court will be justified in refusing a party leave to amend his [or her] pleading so that he [or she] may properly present his [or her] case.’ ” [Citation.]’ (Douglas v. Superior Court (1989) 215 Cal.App.3d 155, 158, 263 Cal.Rptr. 473.) Thus, absent a showing of prejudice to the adverse party, the rule of great liberality in allowing amendment of pleadings will prevail. [Citation.]”  (Board of Trustees v. Superior Court (2007) 149 Cal.App.4th 1154, 1163.)  “Courts must apply a policy of liberality in permitting amendments at any stage of the proceeding, including during trial, when no prejudice to the opposing party is shown. [Citation.] ‘However, “ ‘even if a good amendment is proposed in proper form, unwarranted delay in presenting it may—of itself—be a valid reason for denial.’ ” ’ [Citation.]” (P&D Consultants, Inc. v. City of Carlsbad (2010) 190 Cal.App.4th 1332, 1345.)  “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 ‘[w]here no prejudice is shown to the adverse party.’ [Citation.’ A different result is indicated ‘[w]here inexcusable delay and probable prejudice to the opposing party is shown.’ [Citation.]” (Magpali v. Farmers Group, Inc. (1996) 48 Cal.App.4th 471, 487.)

Singh v. Southland Stone U.S.A., Inc. (2010) 186 Cal.App.4th 338, 354-355 (Singh), states, “A trial court may allow the amendment of a pleading at any time up to and including trial. [Citations.] Leave to  amend to conform to proof at trial ordinarily is liberally granted unless the opposing party would be prejudiced by the amendment. [Citation.] Leave to amend a pleading at trial is properly denied, however, if the proposed amendment raises new issues that the opposing party has had no opportunity to defend. [Citation.] The decision whether to grant leave to amend a pleading at trial is committed to the sound discretion of the trial court. [Citations.]”

Garcia v. Roberts (2009) 173 Cal.App.4th 900, 910 (Garcia), explains, “ ‘The cases on amending pleadings during trial suggest trial courts should be guided by two general principles: (1) whether facts or legal theories are being changed and (2) whether the opposing party will be prejudiced by the proposed amendment. Frequently, each principle represents a different side of the same coin: If new facts are being alleged, prejudice may easily result because of the inability of the other party to investigate the validity of the factual allegations while engaged in trial or to call rebuttal witnesses. If the same set of facts supports merely a different theory—for example, an easement as opposed to a fee—no prejudice can result.’ [Citation.] ‘The basic rule applicable to amendments to conform to proof is that the amended pleading must be based upon the same general set of facts as those upon which the cause of action or defense as originally pleaded was grounded.’ [Citation.]”

Plaintiff filed the Complaint on 12-16-16 under ROA No. 2.  Plaintiff filed its First Amended Complaint (FAC) on 3-23-17 under ROA No. 18. Plaintiff filed the operative Second Amended Complaint (SAC) on 6-27-17 under ROA No. 51. A court trial on the first and second causes of action in the SAC commenced on 7-14-21. (7-14-21 Minute Order.) The court heard closing arguments and took the matter under submission on 1-18-22. (1-18-22 Minute Order.) The court issued a Memorandum of Tentative Decision (MOTD) on 2-23-22 under ROA No. 465. The court issued an Amended Memorandum of Tentative Decision (AMOTD) on 7-25-22 under ROA No. 500. Plaintiff filed the this Motion on 9-6-22 after receiving the court’s MOTD and AMOTD.

The Motion states, “Plaintiff’s Third Amended Complaint seeks to clarify existing allegations and amend the Complaint according to proof demonstrated at trial, which showed direct, if negligent, actions taken by Ascentium to Plaintiff’s detriment. Ascentium’s attachment of Schedule A to the contract after its execution without Plaintiff’s knowledge, Ascentium’s involvement from the inception of the loan, and the determination of the loan’s rate based Ascentium’s participiation (i.e. payments Ascentium would collect) , among other facts, all show that Ascentium committed fraud and negligent misrepresentation against Plaintiff.” (Motion; 3:7-14.)  The Motion attaches a copy of the proposed Third Amended Complaint (TAC) as Exhibit A.

Plaintiff’s Reply in Support of Plaintiff’s Motion for Leave to Amend (Reply), filed on 9-21-22 under ROA No. 532, states, “In their Oppositions, Defendants argue that Plaintiff delayed in filing this Motion. First, as previously mentioned, the Motion was filed in response to the overruling of Plaintiff’s objection to the Amended Memorandum of Tentative Decision. It was not until the Court overruled its objections to the Amended Memorandum of Tentative Decision that this motion became necessary. At that point, Plaintiff worked diligently to prepare and file the Motion, which it did. Moreover, this purported delay is only relevant where there is prejudice. As discussed below, Defendants are not and cannot be prejudiced by issues that they were apprised of as those allegations appear on the face of the Second Amended Complaint in paragraphs 17 – 21.” (Reply; 4:12-20.)

The court finds that Plaintiff has not shown its delay in pursuing the amendment was reasonable. Plaintiff’s contention that the Motion became necessary when the court overruled Plaintiff’s objection to the AMOTD is not persuasive. Plaintiff could have reviewed its SAC at any time between 6-27-17 and the close of evidence on 7-22-21 (7-22-21 Minute Order) and determined that the third and fourth causes of action against Defendant—Ascentium Capital, LLC (Ascentium) did not include a theory of direct liability based on Schedule A and the surreptitious negotiations. 

The court notes that Plaintiff could have brought this Motion after the close of evidence on 7-22-21 (7-22-21 Minute Order) and before the parties prepared their closing argument briefs and briefs regarding the MOTD and AMOTD. The court finds that requesting leave to amend after receiving the court’s tentative decisions constitutes inexcusable or unwarranted delay because Defendants (Ascentium and Culver Capital Group, Inc. (Culver)) prepared for trial and made their arguments based on the allegations contained in the SAC.  Plaintiff’s delay in requesting leave to amend until after Plaintiff received the court’s MOTD and AMOTD is also inexcusable because the purpose of a memorandum of tentative decision is not to provide a party with grounds to request leave to amend based on the party’s view of the memorandum of tentative decision.  Rather, the purpose of a memorandum of tentative decision is to explain the factual and legal basis for the court’s decision based on the evidence at trial and the issues presented the closing arguments and closing argument briefing.  Here, the court issued its MOTD and AMOTD.  Requesting leave to amend after receiving the court’s MOTD and AMOTD is inexcusable because it appears that the proposed Third Amended Complaint (TAC) seeks to address the court’s findings when Plaintiff had ample time to amend before the start of the trial.  Plaintiff has not provided authority that disagreement with a court’s findings after receiving a MOTD and AMOTD is a sufficient excuse to justify a request for leave to amend.

As to prejudice, the court finds that Defendants will be unfairly prejudiced if Plaintiff is permitted to amend the complaint at this stage. Plaintiff seeks to introduce new issues distinct from other issues at trial as against Ascentium. The proposed TAC raises new and substantially different issues as against Ascentium. Allowing Plaintiff to raise these new allegations against Ascentium at this stage would substantially prejudice Defendants.

For example, Plaintiff’s third cause of action for fraud and deceit and fourth cause of action for negligent misrepresentation in the SAC are alleged against Ascentium “as assignee of Culver,” and Plaintiff alleges its damages under these causes of action were proximately caused by “Culver’s fraud and deceit.” (For example, see SAC, ¶¶ 26, 34, 35, 40, 41, 42, and 45.) 

The TAC seeks to add the following paragraphs: (1) “The invoices from Brooks and Aerotech attached hereto as Exhibit C were stamped as Schedule A and attached to the Lease Agreement by Ascentium after the document was signed by Culver and Femtometrix. Both invoices found in Exhibit C are dated May 27, 2015, 15 days after the Lease Agreement was signed. The Brooks invoice (Exhibit C, p.2) largely conformed to amount of the quote in Exhibit A and Plaintiff received the system from Brooks as requested. The Aerotech Invoice (Exhibit C, p.2), however, is materially different and does accurately reflect the equipment that Femtometrix desired to purchase.” (TAC, ¶ 18.); (2) “Despite the inaccuracies in the so-called, ‘Schedule A,’ and being notified of the many problems with the transaction described above, Ascentium withdrew every monthly payment from the bank account of Femtometrix until the Lease Agreement was paid in full.” (TAC, ¶ 25.); (3) “In addition to misrepresenting the interest rate of the transaction to Femtometrix, Culver engaged in surreptitious negotiations with Aerotech as described above. Ascentium

stamped two invoices and attached them to the Lease Agreement as, ‘Schedule A.’ After learning about the misrepresentations concerning the interest rate, the surreptitious negotiations undertaken by Culver, and that the Aerotech invoice was incorrect, Ascentium proceeded to collect each and every payment due under the Lease Agreement.” (TAC, ¶ 42.); (4) “Culver and Ascentium made the representations and took the actions described hereinabove for the purpose of inducing Plaintiff to rely upon them and to act or refrain from acting in reliance upon them. Plaintiff reasonably relied on the representations and actions taken to its detriment.” (TAC, ¶ 43.); (5) “As a proximate result of the fraud and deceit on the part of Culver and Ascentium and the facts as herein alleged, Plaintiff was damaged in a sum to be proven at trial.” TAC, ¶ 44.)

Paragraphs 46 and 47 of the TAC repeat paragraph 42 and 43 of the TAC.  The TAC also removed the allegations third and fourth causes of action are against Ascentium as “assignee of Culver” and  to state that its damages were proximately caused by “Culver and Ascentium.”

Plaintiff also seeks to remove its allegation that the third and fourth causes of action are against Ascentium “as assignee of Culver,” and to state that its damages were proximately caused by “Culver and Ascentium.” (For example, see TAC at ¶¶ 41, 44, 45, and 49.)

Although the SAC included factual allegations involving “Schedule A” and surreptitious negotiations at paragraphs 17-21, the scope of the third and fourth causes of action against Ascentium was expressly narrow.  Specifically, the SAC limited the scope of Ascentium’s liability to Ascentium’s role as an assignee. The allegations in the SAC were not sufficient to place Ascentium on notice that Plaintiff would seek to pursue a theory of direct liability against Ascentium in the third and fourth causes of action based on “Schedule A” and surreptitious negotiations.

The declaration of Ascentium’s counsel states in part, “The amendments proposed by Femtometrix, Inc. (“Femtometrix”) in its proposed Third Amended Complaint prejudice Ascentium in several ways. First, had Ascentium known about the new theories of liability against it before the discovery cut-off, Ascentium would have used ore [sic]or more discovery methods to determine the basis of the theories and further develop Ascentium’s defenses thereto. Ascentium would have challenged the proposed amendments by a demurrer and/or or a motion for summary judgment/adjudication. Moreover, in support of its defense, Ascentium would have also called an expert witness at trial to explain the custom and practice in the equipment leasing/finance industry as related to the attaching of vendors’ invoices as exhibits to Schedules. I also would have cross-examined Femtometrix’s witnesses at trial (including one or more of the third-party witnesses it subpoenaed and whom no longer may even be available or subject to this Court’s jurisdiction) on the issues raised by the amendments which I did not do because it was not part of any theory. This list is not exhaustive because it cannot be determined at this time every manner in which Ascentium would have defended itself differently pre-trial and at trial if Femtometrix brought the motion for leave to amend in a timely manner.” (Goldflam Decl., ¶ 3.)

Here, the court finds that the TAC raises new issues that Ascentium did not have an opportunity to defend against at trial.  The TAC seeks to hold Ascentium directly liable for fraud and deceit as opposed to liability in its role as an assignee.  The declaration from Ascentium’s counsel describes some of the pretrial actions in terms of discovery and pretrial motions Ascentium may have taken has Plaintiff sought to timely leave to amend.  Plaintiff’s delay in seeking leave to amend has prevented Ascentium from conducting discovery to address the issues raised by the TAC and bringing pretrial motions to address the issues raised by the TAC.

Based on the above, the court exercises its discretion and DENIES Plaintiff’s (Femtometrix, Inc.) Motion for Leave to Amend filed on 9-6-22 under ROA No. 518.   The court finds that Plaintiffs delay in seeking leave to amend was inexcusable and unwarranted, and that Ascentium has sufficiently demonstrated substantial prejudice if leave to amend is granted.

Defendant—Ascentium is to give notice.