Opinion
Civil Action No. 18-cv-02295-CMA-NYW
04-29-2019
FIDOTV CHANNEL, INC., Plaintiff/Counter Defendant, v. INSPIRATIONAL NETWORK, INC., THE, Defendant/Counterclaimant.
RECOMMENDATION OF UNITED STATES MAGISTRATE JUDEG
This matter comes before this court for recommendation on Plaintiff FidoTV Channel, Inc.'s ("Plaintiff" or "FidoTV") Motion for Leave to Amend Complaint and Join Parties ("Motion to Amend" or "Motion"), filed January 31, 2019. See [#58]. The undersigned considers the Motion pursuant to 28 U.S.C. § 636(b) and the Memorandum dated February 3, 2019 [#59]. This court concludes that oral argument will not materially assist in the resolution of this matter. Accordingly, having reviewed the Motion, associated briefing, and applicable case law, this court respectfully RECOMMENDS that the Motion to Amend be GRANTED IN PART and DENIED IN PART.
BACKGROUND
FidoTV is a Colorado corporation that "provides a 24x7, 365 days a year, cable television channel focused on dogs for dog lovers." [#5 at ¶ 1]. On or about February 12, 2015, Plaintiff entered into a Network Operations Services Agreement (the "Agreement") with Defendant The Inspirational Network, Inc. ("Defendant" or "Inspiration")—a North Carolina corporation that "provides operational support, satellite uplink services[,] and transponder time to connect FidoTV's channel to cable, satellite TV[,] and telecom video distributors throughout the United States," as well provides its own television shows for distribution. See [id. at ¶¶ 2, 6]. The Agreement had a commencement date of October 14, 2015, the date on which Defendant would launch FidoTV Network, and called for the award of 504,000 shares of preferred stock to Inspiration. See [id. at ¶¶ 8-10].
Pursuant to the Agreement, FidoTV was to pay Inspiration $21,000 at the end of the 33rd month (July 14, 2018) and then $77,000 at the end of the 34th month (August 14, 2018) through the 60th month. See [#5 at ¶¶ 16, 18]. The Agreement provided FidoTV a 30-day period to pay its invoices. See [id. at ¶ 18]. According to Plaintiff, on July 1, 2018, Defendant submitted two "false and misleading invoice[s] stating that an installment payment of [$77,000] was due from FidoTV on July 31, 2018" despite the Agreement's provision that Plaintiff owed only $21,000 by July 31, 2018 and $77,000 by September 13, 2018. See [id. at ¶¶ 17-19]. On August 1, 2018, Inspiration issued to Plaintiff a Notice of Payment Default and Termination, wherein Inspiration gave Plaintiff "until August 31, 2018 to pay the entire past-due amount in full" or else Inspiration would terminate the Agreement without further notice. See [id. at ¶ 21].
FidoTV's efforts to negotiate an extension to the August 31 deadline proved futile. See [#5 at ¶ 22]. On August 30, 2018, FidoTV initiated the instant action against Defendant in the District Court for the City and County of Denver, asserting claims for breach of contract ("Claim 1") and breach of the implied covenant of good faith and fair dealing ("Claim 2"), see [#5], while also seeking a 14-day Temporary Restraining Order, see [#1-4; #6]. By Order dated August 30, 2018, Plaintiff received a 14-day Temporary Restraining Order, with a permanence hearing set for September 7, 2018. See [#1-5; #6]. Defendant, however, removed this action to this District pursuant to 28 U.S.C. § 1332 on September 6, 2018. See [#1].
Following removal, the Parties stipulated to an extension of the Temporary Restraining Order to after the September 28, 2018 hearing before the presiding judge, the Honorable Christine M. Arguello. See [#19]. On September 28, 2018, Judge Arguello granted FidoTV "a preliminary injunction barring Defendant from terminating service under the [Agreement] through November 30, 2018," subject to Plaintiff posting a $335,000 bond. See [#34 at 1-2]. The preliminary injunction dissolved at 11:59 p.m. on November 30, 2018. See [id. at 2].
Relevant here, the Parties then appeared before the undersigned for a Scheduling Conference, at which this court set January 15, 2019 as the deadline for Joinder of Parties and Amendment of Pleadings, among other pretrial deadlines. See [#47 at 7]. The Parties requested and this court granted an extension of the January 15 deadline to January 31. See [#51; #54]. On January 31, 2019, Defendant filed its Second Amended Answer and Counterclaims pursuant to D.C.COLO.LCivR 15.1(a) with Plaintiff's consent, see [#56; #57], while Plaintiff filed the instant Motion to Amend, see [#58]. Plaintiff now seeks leave to amend to (1) add new factual allegations to Claims 1 and 2 against Defendant as well as (2) add two new Defendants, David Cerullo and Mark Kramer, and (3) assert separate claims for breach of fiduciary duties against Messrs. Cerullo and Kramer ("Claims 3 and 4") and two additional claims against Messrs. Cerullo and Kramer and Defendant for aiding and abetting breach of fiduciary duties ("Claim 5") and tortious interference with prospective business advantage ("Claim 6"). See [#15 at 1-2]. Inspiration has since responded in opposition to the Motion to Amend, see [#62], and Plaintiff replied, see [#63]. Because the Motion to Amend is ripe for recommendation, I consider the Parties' arguments below.
LEGAL STANDARD
Rule 15(a) of the Federal Rules of Civil Procedure governs motions to amend when (as here) the moving party seeks leave to amend its pleadings on or before the deadline for joinder of parties and amendment of pleadings set by the Scheduling Order. See Fernandez v. Bridgestone/Firestone, Inc., 105 F. Supp. 2d 1194, 1195 (D. Colo. 2000) (explaining that the movant need not demonstrate good cause under Rule 16(b) under such circumstances). Rule 15(a)(2) provides that leave to amend "shall be freely given when justice so requires." Fed. R. Civ. P. 15(a)(2). "Indeed, Rule 15(a)'s purpose is to provide litigants the maximum opportunity for each claim to be decided on its merits rather than on procedural niceties." Warnick v. Cooley, 895 F.3d 746, 754-55 (10th Cir. 2018) (internal quotation marks omitted). But the court may refuse leave to amend upon a showing of undue delay, undue prejudice to the opposing party, bad faith or dilatory motive, failure to cure deficiencies by amendments previously allowed, or futility of amendment. See Frank v. U.S. West, Inc., 3 F.3d 1357, 1365 (10th Cir. 1993). Whether to allow amendment is within the trial court's discretion. Burks v. Oklahoma Publ'g Co., 81 F.3d 975, 978-79 (10th Cir. 1996).
ANALYSIS
I. Claims 1 and 2
As part of its Motion Plaintiff seeks to include "extensive new and updated factual allegations" regarding Claims 1 and 2 "based on . . . new documentary evidence." See [#58 at 2]. Defendant does not address this request in its Response, and thus I presume it does not oppose this issue. Further, upon review of the proposed Amended Complaint, I find amendment in this regard appropriate. The new allegations concern the Parties' conduct since the inception of this lawsuit, such as Defendant's alleged improper billing practices, Plaintiff's monthly payments to Defendant, and a subsequent Notice of Default and Termination of the Agreement issued by Defendant. See [#58-2 at ¶¶ 34-49]. Thus, I respectfully RECOMMEND that the Motion to Amend be GRANTED as to Claims 1 and 2.
Accordingly, Plaintiff's Motion seeks to supplement the Complaint under Rule 15(d) of the Federal Rules of Civil Procedure. Fed. R. Civ. P. 15(d). Regardless, the court has broad discretion to allow a supplemental pleading, and applies the same standard as under Rule 15(a). See Sw. Nurseries, LLC v. Florists Mut. Ins., Inc., 266 F. Supp. 2d 1253, 1256 (D. Colo. 2003).
II. Claims 3-6
A. Joinder of Messrs. Cerullo and Kramer
"Amendments adding parties additionally require consideration of Fed.R.Civ.P. 20, governing permissive joinder." Robinson v. Gillespie, 219 F.R.D. 179, 188 (D. Kan. 2003). Rule 20(a)(2) permits the joinder of defendants if "any right to relief is asserted against them jointly, severally, or in the alternative with respect to or arising out of the same transaction, occurrence, or series of transactions or occurrences," and "any question of law or fact common to all defendants will arise in the action." Fed. R. Civ. P. 20(a)(2)(A), (B). It is within the trial court's discretion to permit joinder of defendants, and courts typically consider whether joinder would prejudice any party, would cause needless delay, or would offend notions of judicial economy and efficiency. See Patrick Collins, Inc. v. John Does 1-2, No. 12-cv-01641-WYD-MEH, 2013 WL 3759942, at *3 (D. Colo. July 15, 2013) (noting that the Supreme Court of the United States has encouraged the joinder of parties to promote judicial economy).
FidoTV argues for the joinder of Messrs. Cerullo and Kramer because Plaintiff seeks relief from these individual defendants jointly and severally and the claims asserted against them arise from the same transaction or occurrence as Claims 1 and 2 asserted against Inspiration. See [#58 at ¶¶ 5-6]. Further, FidoTV argues, "It would be costly and inefficient for the parties and for the Court if the claims against Mr. Kramer and [Mr.] Cerullo were required to be pursued in a separate action." [Id. at ¶ 7]. Inspiration does not explicitly address this issue in its Response, arguing instead that the proposed claims are futile and thus this court should deny leave to amend. See [#62 at 2, 4-13]. For the following reasons, I conclude that joinder of Messrs. Cerullo and Kramer is appropriate.
To begin, Plaintiff mentions Messrs. Cerullo and Kramer in its Complaint, though it does not assert claims against these individuals. For instance, FidoTV alleges that Messrs. Cerullo and Kramer, both employees of Inspiration, became members of FidoTV's Board of Directors, which increased Inspiration's "voting power and influence" over the Board of Directors, and that during their tenure on the Board of Directors a member disclosed confidential Board information to one of Plaintiff's vendors and "urged that vendor(s) not to settle a programming and production dispute with FidoTV." See [#5 at ¶¶ 11-12, 15]. And In her Order denying Defendant's Motion to Strike these allegations from the Complaint, Judge Arguello held that such allegations "may bear on Plaintiff's claims; on both parties' affirmative defenses of estoppel, waiver, and unclean hands; and on damages[,]" and may affect the "equitable relations between the parties." [#48 at 5-6].
In addition, because Plaintiff alleges that Messrs. Cerullo and Kramer are agents and/or representatives of Defendant whose conduct bears relevance to the soured relationship between the Parties, I find joinder of Messrs. Cerullo and Kramer to be appropriate at this early juncture. Indeed, Plaintiff seeks to include two additional claims against Messrs. Cerullo and Kramer and Inspiration based on their collective conduct. Cf. Wayman v. Accor N. Am., Inc., 486 F. Supp. 2d 1280, 1285 (D. Kan. 2007) (permitting the joinder of employee as additional defendant in negligence suit against employer for injuries sustained by the plaintiff when employee was acting within employment-capacity and struck the plaintiff with a vehicle); accord Council on American-Islamic Relations Action Network, Inc. v. Gaubatz, 891 F. Supp. 2d 13, 31 (D.D.C. 2012) ("In sum, Plaintiffs claim that SANE and Yerushalmi are liable on essentially the same legal theories and the same set of facts. As a result, granting Plaintiffs leave to name SANE and Yerushalmi as defendants in this action will promote judicial economy, expedite the resolution of Plaintiffs' claims, and eliminate unnecessary litigation."). In so recommending, this court does not pass on the merits of the allegations against Messrs. Cerullo or Kramer.
B. The Proposed New Claims
While not directly challenging the joinder of Messrs. Cerullo and Kramer under Rule 20(a)(2), Defendant opposes the four new claims asserted in the proposed Amended Complaint, arguing that the court should deny the Motion to Amend on three grounds: (1) futility, (2) undue delay, and (3) undue prejudice. I consider each in turn.
1. Futility
Courts, in their discretion, may deny leave to amend upon a determination that such amendment would be futile. See Castleglen, Inc. v. Resolution Trust Corp., 984 F.2d 1571, 1585 (10th Cir. 1993). "A proposed amendment is futile if the complaint, as amended, would be subject to dismissal." Full Life Hospice, LLC v. Sebelius, 709 F.3d 1012, 1018 (10th Cir. 2013) (internal quotation marks omitted). While courts sometimes decline to consider futility in favor of a subsequent motion to dismiss, Gen. Steel Domestic Sales, LLC v. Steelwise, LLC, No. 07-CV-01145-DME-KMT, 2008 WL 2520423, at *4 (D. Colo. Jun. 20, 2008) (suggesting that a "futility argument seems to place the cart before the horse," and is better suited for a Rule 12(b)(6) motion), this court finds that it is more efficient in this case to consider the Parties' arguments in the context of this instant motion instead of awaiting another round of motions practice. "If a party opposes a motion to amend [...] on the grounds of futility, the court applies the same standard to its determination of the motion that governs a motion to dismiss under Fed. R. Civ. P. 12(b)(6)." JDK LLC v. Hodge, No. 15-CV-00494-NYW, 2015 WL 5766466, at *2 (D. Colo. Oct. 2, 2015) (citation and internal quotation marks omitted) (ellipsis added).
Breach of Fiduciary Duty —Claims 3 and 4 . Plaintiff seeks leave to amend its Complaint to assert two breach of fiduciary duty claims against Messrs. Cerrullo and Kramer individually, which Inspiration opposes. Plaintiff does not argue that Inspiration lacks standing to challenge Claims 3 and 4 asserted individually against Messrs. Cerullo and Kramer. Cf. Flores v. Nickelson, No. 16-3022-JAR, 2018 WL 2463385, at *2 (D. Kan. June 1, 2018); People v. Curtis, 959 P.2d 434, 437-38 (Colo. 1998) (holding that the defendant lacked standing to challenge the legality of a search of a co-defendant's dwelling). Nevertheless, these claims are intertwined with the proposed claim of aiding and abetting breach of fiduciary duty asserted against Inspiration, and Inspiration argues that the proposed amendment transforms the action from one that is moot to an entirely different theory of recovery that prejudices Inspiration. [#62 at 13-15]. See Garcia v. Bd. of Cty. Comm'rs of Cty. of Bernalillo, No. 09-CV-322 BB/WDS, 2011 WL 13285451, at *3 (D.N.M. June 14, 2011) (finding that the existing defendants had sufficiently alleged that the granting of Plaintiff's motion to amend would cause them injury to confer standing to challenge a proposed amendment); see also Alexander v. Anstine, 152 P.3d 497, 503 (Colo. 2007) ("Because we conclude that Anstine failed to allege that BHW's president breached a fiduciary duty owed to BHW's creditors, on the facts of this case the attorneys cannot be liable on Anstine's aiding and abetting claim."). Thus, I consider Inspiration's arguments below.
Colorado law dictates that directors shall discharge their duties "(a) In good faith; (b) With the care an ordinary prudent person in a like position would exercise under similar circumstances; and (c) In a manner [he or she] . . . reasonably believes to be in the best interests of the corporation." Colo. Rev. Stat. § 7-108-401(1)(a)-(c). And "[c]orporate directors and officers also act as a fiduciary of the corporation itself." In re Stat-Tech Int'l Corp., 47 F.3d 1054, 1059 (10th Cir. 1995) (citing Collie v. Becknell, 762 P.2d 727 (Colo. App. 1988)). To plead a breach of fiduciary duty claim, Plaintiff must allege that:
1. Messrs. Cerullo and Kramer individually acted as a fiduciary of Plaintiff;See Sewell v. Great Northern Ins. Co., 535 F.3d 1166, 1172 (10th Cir. 2008) (citing Graphic Directions, Inc. v. Bush, 862 P.2d 1020, 1022 (Colo. App. 1993)).
2. Messrs. Cerullo and Kramer breached a fiduciary duty owed to Plaintiff;
3. Plaintiff incurred damages; and
4. Messrs. Cerullo and Kramer's breach caused Plaintiff's damages.
The proposed Amended Complaint alleges that Messrs. Cerullo and Kramer were members of FidoTV's Board of Directors. See [#58-2 at ¶¶ 3-4]. And while serving on FidoTV's Board of Directors, Mr. Kramer secretly "discussed confidential information on FidoTV" with Scott Hirsch ("Mr. Hirsch"), a former FidoTV employee. See [id. at ¶ 19]. These discussions included:
• American Kennel Club's (FidoTV's largest preferred stockholder) displeasure with Plaintiff's CEO Tad Walden ("Mr. Walden");See [id. at ¶ 19 and accompanying bullet points]. Mr. Cerullo allegedly knew of Mr. Kramer's correspondence with Mr. Hirsch, given that Mr. Kramer sent Mr. Cerullo an email detailing his discussions with Mr. Hirsch. See [id. at ¶¶ 19-20; #58-13].
• American Kennel Club's reluctance to further fund FidoTV and its vote not to guarantee its loan to FidoTV;
• American Kennel Club's desire to resign from FidoTV's Board of Directors;
• American Kennel Club's purported interest in working with Inspiration on a new venture;
• Mr. Walden's attempts to secure additional funding for FidoTV;
• Mr. Walden's plans to appoint a new Chief Operating Officer;
• Mr. Walden's reactions to a negotiation dispute with a vendor given the vendor's knowledge of the intimate issues with American Kennel Club; and
• Mr. Hirsch's use of a potential FidoTV investor as leverage for reinstatement with FidoTV.
The proposed Amended Complaint further alleges that during Messrs. Cerullo and Kramer's tenure as members of FidoTV's Board of Directors a Board member disclosed confidential information to two of Plaintiff's vendors. See [#58-2 at ¶ 22]. The proposed Amended Complaint continues that Messrs. "Cerullo and Kramer fostered an ongoing environment of hostility among the employees of [Inspiration] toward [Mr. Walden]," see [id. at ¶ 23 and accompanying bullet points], to undermine Mr. Walden, see [id. at ¶ 24], including Mr. Cerullo's objection to Mr. Walden's proposed crowdfunding campaign, see [id. at ¶ 25]. Lastly, the proposed Amended Complaint asserts that Mr. Kramer harmed Plaintiff by remaining on the Board of Directors until March 2018 despite his December 2016 statements that he would not continue to work with Mr. Walden, see [id. at ¶ 24], and that Defendants sought to increase Inspiration's and Media-Comm's revenues by providing services directly to American Kennel Club and/or "redirect[ing] FidoTV's business model and its plans with [American Kennel Club] and others in a way that increased [Inspiration's] and Media-Comm's revenues." [Id. at ¶ 26].
Defendant concedes that Messrs. Cerullo and Kramer, as members of FidoTV's Board of Directors, acted as fiduciaries of Plaintiff and owed Plaintiff the fiduciary duties of good faith, care, and loyalty under Colo. Rev. Stat. § 7-108-401. See [#62 at 5]. But, according to Inspiration, the above allegations do not plausibly allege that FidoTV incurred any harm or that Messrs. Cerullo and Kramer caused any harm, but rather offer only vague or conclusory assertions of harm. See [#62 at 5-6, 10]. Indeed, Inspiration argues, Plaintiff cannot demonstrate harm because "FidoTV is still in existence and still receiving satellite uplink and networking services[.]" [Id. at 6]. Further, Defendants contend that the proposed Amended Complaint fails to overcome the business judgment rule that shields Messrs. Cerullo and Kramer from liability. See [id. at 6-8].
Inspiration also challenges the merits of the proposed Amended Complaint's allegations, arguing that Messrs. Cerullo and Kramer "were in fact discharging their fiduciary duties," and that "FidoTV's success would equal Inspiration's success" and thus does not establish a breach of the duty of loyalty. See [#62 at 8-9]. But this court's inquiry is not to assess the merits of Plaintiff's claims, but rather to determine whether the allegations state a plausible claim to relief. See Mobley v. McCormick, 40 F.3d 337, 340 (10th Cir. 1994) ("The nature of a Rule 12(b)(6) motion tests the sufficiency of the allegations within the four corners of the complaint after taking those allegations as true."). Thus, I do not consider these arguments here.
To start, I respectfully disagree that the proposed Amended Complaint fails to allege any harm caused by Messrs. Cerullo and Kramer. The proposed Amended Complaint contains several factual allegations that Mr. Kramer misused and/or disclosed FidoTV's confidential information to third-parties, including possibly to two of Plaintiff's vendors, and that Mr. Cerullo had knowledge of this. E.g., [#58-2 at ¶¶ 19-22]. I find this sufficient to allege causation and damage. See SGS Acquisition Co. Ltd. v. Linsley, No. 16-CV-02486-MSK-KLM, 2018 WL 1456272, at *5 (D. Colo. Mar. 23, 2018) (finding a plausible breach of fiduciary duty claim where the plaintiff pleaded that the defendants misused and/or disclosed the plaintiff's confidential information to third parties because this "could cause substantial harm to [the plaintiff]."). In addition, the proposed Amended Complaint contains factual allegations that Mr. Kramer coached Mr. Hirsch about "parlay[ing]" a purported FidoTV investor to Mr. Hirsch's personal advantage, see [#58-2 at ¶ 19 and accompanying bullet points; #58-20], and that Messrs. Cerullo and Kramer sought to increase the revenues for Inspiration and Media-Comm to Plaintiff's detriment by working directly with American Kennel Club, see, e.g., [#58-2 at ¶¶ 19, 23, 26]. Again, I find this sufficient to demonstrate causation and damages. See Scott Sys., Inc. v. Scott, 996 P.2d 775, 779 (Colo. App. 2000) (explaining that a director's fiduciary duties obligate that director to assign assets, such as patents, to the corporation if developed while employed with the corporation and is related to the corporation's business); Rifkin v. Steele Platt, 824 P. 2d 32, 35 (Colo. App. 1991) ("[I]t is not a legitimate corporate activity to give away corporate resources or divert funds from the corporation to officers and directors without lawful reason.").
Next, I respectfully disagree that the business judgment rule shields Messrs. Cerullo and Kramer from liability at this stage. In re Xtreme Power Inc., 563 B.R. 614, 642 (Bankr. W.D. Tex. 2016) (explaining that a plaintiff rebuts the business judgment rule on a motion to dismiss when "the alleged facts . . . raise a reasonable inference that the board of directors breached either its duty of loyalty or duty of care," but that this does not preclude its applicability at later stages). Plaintiff argues that the court cannot address the applicability of the business judgment rule because it requires the court to determine factual issues that it cannot resolve on a Rule 12(b)(6) motion to dismiss. See [#63 at 9]. While there appears to be some support for this notion, courts in this District and others have considered the affirmative defense on a Rule 12(b)(6) motion to dismiss. See, e.g., Weinman v. McCloskey, No. 14-CV-00296-CMA-CBS, 2015 WL 1528896, at *7 (D. Colo. Mar. 31, 2015); Ausikaitis on behalf of Masimo Corp. v. Kiani, 962 F. Supp. 2d 661, 679 (D. Del. 2013) ("where [a] plaintiff alleges particularized facts sufficient to prove demand futility under the second prong of Aronson, that plaintiff a fortiori rebuts the business judgment rule for the purpose of surviving a motion to dismiss pursuant to Rule 12(b)(6)." (internal quotation marks omitted)). Thus, it appears prudent to consider Defendant's arguments in this regard under the admonition of Rule 1 of the Federal Rules of Civil Procedure that the courts should construe and apply the Rules "to secure a just, speedy, and inexpensive determination of every action and proceeding." Fed. R. Civ. P. 1.
The business judgment rule "bars judicial inquiry into actions of corporate directors taken in good faith and in the exercise of honest judgment in the lawful and legitimate furtherance of corporate purposes." Curtis v. Nevens, 31 P.3d 146, 151 (Colo. 2001) (internal quotation marks omitted). "The good faith acts of directors of profit or non-profit corporations which are within the powers of the corporation and within the exercise of an honest business judgment are valid." Rywalt v. Writer Corp., 526 P.2d 316, 317 (Colo. App. 1974). "Whether a party acted in good faith is a question of fact which must be determined on a case by case basis." Polk v. Hergert Land & Cattle Co., 5 P.3d 402, 405 (Colo. App. 2000).
Defendant argues that the proposed Amended Complaint fails to allege that Messrs. Cerullo and Kramer "lack independence, acted in bad faith, or otherwise should be deprived of the business judgment rule's protections." [#62 at 7]. Defendant continues that the conduct Plaintiff charges Messrs. Cerullo and Kramer with does not constitute breaches of fiduciary duties, and thus the court should afford Messrs. Cerullo and Kramer "wide discretion" in their decision-making. See [id. at 7-8]. I respectfully disagree.
Based on this court's review of the proposed Amended Complaint and drawing all reasonable inferences in Plaintiff's favor, I find that FidoTV adequately alleges that Messrs. Cerullo and Kramer did not act in good faith, see RCHFU, LLC v. Marriott Vacations Worldwide Corp., No. 16-CV-01301-PAB-GPG, 2018 WL 1535509, at *9 (D. Colo. Mar. 29, 2018) (concluding that the plaintiff's allegations that the defendant acted arbitrarily was sufficient to overcome presumption of business judgment rule on Rule 12(b)(6) motion to dismiss), and also violated their duties of loyalty to Plaintiff, see In re Xtreme Power Inc., 563 B.R. at 632 ("The duty of loyalty requires directors to place the best interests of a corporation above any self-interest held by a director and not shared by all stockholders generally."). "Indeed, a complaint that alleges bad faith and, therefore, a breach of the duty of loyalty is sufficient to rebut the business judgment rule and survive a motion to dismiss." Swanson v. Weil, No. 11-CV-02142-WYD-KLM, 2012 WL 4442795, at *5 (D. Colo. Sept. 26, 2012) (considering a motion to dismiss a Rule 23.1 shareholder action). Again, I make this determination without passing on the substantive merits of the proposed claims. Accordingly, I respectfully RECOMMEND that the Motion to Amend be GRANTED as to Claims 3 and 4.
Aiding and Abetting Breach of Fiduciary Duty —Claim 5 . In addition to Claims 3 and 4, Plaintiff seeks to assert a claim for aiding and abetting breach of fiduciary duty against Messrs. Cerullo and Kramer and Inspiration (collectively, "Defendants"). To plead an aiding and abetting a breach of fiduciary duty claim, Plaintiff must allege:
1. Defendants breached a fiduciary duty owed to Plaintiff;Mandelbaum v. Fiserv, Inc., 787 F. Supp. 2d 1226, 1242 (D. Colo. 2011) (citing Nelson v. Elway, 971 P.2d 245, 250 (Colo. App. 1998)). As to Defendants' knowing participation, Plaintiff need not establish wrongful intent but rather that Defendants were "generally aware" of the tortious conduct and "knowingly and substantially assist[ed] the principal violation." Sender v. Mann, 423 F. Supp. 2d 1155, 1176 (D. Colo. 2006) ("[A]iding and abetting requires actual knowledge and is not satisfied by reckless or negligent conduct.") (citing Holmes v. Young, 885 P.2d 305, 308-09 (Colo. App. 1994)).
2. Defendants knowingly participated in the breach; and
3. Defendants caused Plaintiff's damages.
Inspiration does not directly address this claim but presumably argues that it is futile because there is no underlying breach of fiduciary duty by Messrs. Cerullo and Kramer. See [#62 at 10 ("Thus, considering Plaintiff's First Amended Complaint fails to sufficiently allege conduct arising to a breach of fiduciary duty and damages resulting from such breach, the Motion should be denied as to the Third, Fourth, and Fifth Claims for Relief.")]. But based on this court's conclusion above and its review of the proposed Amended Complaint, I respectfully RECOMMEND that the Motion to Amend be GRANTED as to Claim 5.
Tortious Interference with Prospective Business Advantage —Claim 6 . Lastly, Plaintiff seeks leave to amend to assert a claim against Defendants for tortious interference with prospective business advantage ("tortious interference"). Colorado courts recognize an action for tortious interference, see Dolton v. Capitol Fed. Sav. & Loan Ass'n, 642 P.2d 21, 23 (Colo. App. 1981), and follow the Restatement (Second) of Torts §§ 766B, 767, 768 in determining liability under such claims, see Nobody in Particular Presents, Inc. v. Clear Channel Commc'ns, Inc., 311 F. Supp. 2d 1048, 1117 (D. Colo. 2004) (citing Amoco Oil Co. v. Ervin, 908 P.2d 493, 500-01 (Colo. 1995)). To plead a tortious interference claim, Plaintiff must allege that:
1. Defendants induced a third-party not to enter a contractual relationship with Plaintiff, or prevented Plaintiff from acquiring or continuing a prospective relation;
2. Defendants acted intentionally; and
3. Defendants employed improper means to do so.L-3 Commc'ns Corp. v. Jaxon Eng'g & Maint., Inc., 863 F. Supp. 2d 1066, 1085-86 (D. Colo. 2012) (citing MDM Grp. Assocs., Inc. v. CX Reinsurance Co., 165 P.3d 882, 886 (Colo. App. 2007)). FidoTV need not establish the existence of an underlying contract, but rather that Defendants' intentional and improper interference prevented the formation of a contract. See Hertz v. Luzenac Grp., 576 F.3d 1103, 1119 (10th Cir. 2009) (applying Colorado law). But mere hope or speculation is insufficient, as FidoTV must establish "a reasonable likelihood or probability that a contract would have resulted[.]" Klein v. Grynberg, 44 F.3d 1497, 1506 (10th Cir. 1995) (applying Colorado law).
Inspiration argues that FidoTV provides only conclusory allegations supporting its proposed tortious interference claim, and that "the allegations do not establish the way in which Inspiration prevented any prospective business relation." [#62 at 11-12]. Further, Inspiration contends that the proposed Amended Complaint "fails to identify any prospective contract with [American Kennel Club] and the potential investors," and instead asserts only conclusory allegations that Defendants intentionally interfered with such business advantages. See [id. at 12-13]. Plaintiff does not address Defendant's arguments concerning its tortious interference claim.
This court respectfully agrees with Inspiration that the proposed Amended Complaint fails to state a tortious interference claim relating to Plaintiff's investors and vendors. While the proposed Amended Complaint alleges that a Board member leaked confidential information to two of FidoTV's vendors and that this "constitute[s] . . . tortious interference with contract and prospective business advantage[,]" there are no factual allegations as to how this interfered with Plaintiff's prospective or continued business relationship with these vendors. Further, the proposed Amended Complaint contains only conclusory allegations that Defendants "intentionally interfered with FidoTV's prospective distribution arrangements with Dish and prevented FidoTV from continuing its distribution arrangements with Dish[,]" [#58-2 at ¶ 66], and that Defendants, upon information and belief, "intentionally induced other potential investors not to invest in FidoTV," [id. at ¶ 67]. These are insufficient to plead a plausible tortious interference claim based on these theories.
But this court respectfully disagrees with Inspiration that the proposed Amended Complaint fails to plead a plausible tortious interference claim relating to FidoTV's relationship with American Kennel Club. The proposed Amended Complaint alleges that Inspiration, through Mr. Kramer and another Inspiration employee, proposed a new venture with American Kennel Club "out of the rubble of Fido[TV]," see [#58-2 at ¶¶ 19, 23 and accompanying bullet points; #58-11; #58-13; #58-25], which would remove FidoTV and increase revenues for Inspiration and Media-Comm, see [#58-2 at ¶ 26]. The proposed Amended Complaint further alleges that American Kennel Club voted not to guarantee its loan to FidoTV and did not invest in FidoTV, and that American Kennel Club's representatives withdrew from the FidoTV Board of Directors. E.g., [#58-2 at ¶¶ 17, 19 and accompanying bullet points]. I find these allegations sufficient to state a plausible tortious interference claim against Defendants relating to FidoTV's relationship with American Kennel Club, cf. Tara Woods Ltd. P'ship v. Fannie Mae, 731 F. Supp. 2d 1103, 1120 (D. Colo. 2010) (finding as sufficient to state a plausible tortious interference claim the plaintiff's allegations that it received purchase offers for its property and that the defendant improperly declared the mortgage in default and threatened that the plaintiff would not make any profit from the sale), and respectfully RECOMMEND that the Motion to Amend be GRANTED IN PART as to Claim 6 as limited to American Kennel Club.
2. Undue Delay
Undue delay may be an appropriate reason for denying leave to amend when the movant offers no adequate explanation for the delay. See Cohen v. Longshore, 621 F.3d 1311, 1313 (10th Cir. 2010) (providing that courts have found undue delay in instances where the movant sought to amend 17 months after filing the initial complaint with no explanation or where the movant offered only a "dubious" explanation for a 14-month delay); see also Panis v. Mission Hills Bank, N.A., 60 F.3d 1486, 1495 (10th Cir. 1995) ("untimeliness in itself can be a sufficient reason to deny leave to amend, particularly when the movant provides no adequate explanation for the delay"). Thus, the court's inquiry focuses on the reasons for the delay. See Smith v. Aztec Well Servicing Co., 462 F.3d 1274, 1285 (10th Cir. 2006).
Defendant contends that amendment is unduly delayed, because Plaintiff's original claims for breach of contract are now moot given the dissolution of the preliminary injunction and Plaintiff's termination of the Agreement, and thus Plaintiff is "salvaging a lost case by demanding unalleged and unspecified damages for tortious conduct against new defendants, a completely new theory of recovery." [#62 at 14]. Defendant further argues that Plaintiff knew or should have known the facts upon which it bases its breach of fiduciary duty claims and tortious interference claim, because FidoTV's Complaint contained certain allegations touching on these claims (though Plaintiff did not assert them in the Complaint). See [id. at 14-15]. I respectfully disagree.
To start, while undue delay may justify the denial of a motion to amend, FidoTV filed its Motion to Amend on the deadline set by this court for joinder of parties and amendment of pleadings. See Smith v. Sprint/United Mgmt. Co., No. 15-CV-00550-WJM-KMT, 2015 WL 5444298, at *1 (D. Colo. Sept. 16, 2015) (holding as timely a motion to amend filed within the deadline set by the court). Moreover, this court respectfully disagrees that Plaintiff's purported termination of the Agreement necessarily moots Plaintiff's breach of contract claim or its breach of the implied covenant of good faith and fair dealing claim. Indeed, Judge Arguello has already held that the terms of the Agreement were ambiguous and thus it is for the jury to decide what the Parties' intentions were. See [#33; #48 at 3]. Further, to this court's knowledge, Plaintiff predicates Claims 1 and 2 on Inspiration's pre-termination conduct and thus the termination of the Agreement does not necessarily negate those claims. Accordingly, I do not agree that Plaintiff seeks leave to amend to salvage an otherwise untenable case against Defendant. See Hayes v. Whitman, 264 F.3d 1017, 1027 (10th Cir. 2001) ("we do not favor permitting a party to attempt to salvage a lost case by untimely suggestion of new theories of recovery.").
Nor is this court convinced that FidoTV knew or should have known of the facts upon which the proposed amendments are based such that its Motion to Amend, though filed on the deadline set by this court, is nonetheless untimely. See Las Vegas Ice & Cold Storage Co. v. Far West Bank, 893 F.2d 1182, 1185 (10th Cir. 1990) ("Where the party seeking amendment knows or should have known of the facts upon which the proposed amendment is based but fails to include them in the original complaint, the motion to amend is subject to denial."). It is true that FidoTV included several allegations in its Complaint hinting at purported breaches of fiduciary duty and tortious interference, e.g., [#5 at ¶¶ 12, 15, 28], but Plaintiff argues that it sought leave to amend once it received Inspiration's first set of produced documents which then corroborated Plaintiff's initial allegations. I find this sufficient to explain why Plaintiff waited to file its Motion to Amend until the deadline set by the Scheduling Order. See Woolsey v. Marion Labs., Inc., 934 F.3d 1452, 1462 (10th Cir. 1991) (affirming the denial of leave to amend where the plaintiff waited 17 months to amend and offered no reason for the delay).
3. Undue Prejudice
Prejudice to the opposing party is another (and perhaps the most critical) factor that may justify denying leave to amend. See United States ex rel. Ritchie v. Lockheed Martin Corp., 558 F.3d 1161, 1166 (10th Cir. 2009). Generally, "a plaintiff should not be prevented from pursuing a valid claim just because she did not set forth in the complaint a theory on which she could recover, provided always that a late shift in the thrust of the case will not prejudice the other party in maintaining his defense upon the merits." Evans v. McDonald's Corp., 936 F.2d 1087, 1090-91 (10th Cir. 1991) (internal quotation marks omitted). Typically, courts find an amendment causes undue prejudice if it unnecessarily affects the defendant's preparation for the case, which can occur when the amended claim(s) arise from a different subject matter than that raised in the complaint and present significant new factual issues. See Minter v. Prime Equip. Co., 451 F.3d 1196, 1208 (10th Cir. 2006). But "the expenditure of time, money, and effort alone is not grounds for a finding of prejudice." Bylin v. Billings, 568 F.3d 1224, 1230 (10th Cir. 2009).
Defendant argues that Plaintiff's filed the Motion to Amend "to further delay and avoid its contractual obligations under the [Agreement]. . . . FidoTV has apparently determined that its best strategy to avoid its payment obligations is to bring new claims to attempt to gain leverage over Defendants." [#62 at 15]. Inspiration continues that the newly proposed claims have no bearing on Plaintiff's defense that it was no longer required to pay Inspiration because of Inspiration's breach, and that Plaintiff instead intends to "turn this lawsuit into a moving target that unfairly prejudices Inspiration and exploits the judicial process." [Id.]. Based on the record before it, this court does not find sufficient prejudice against Inspiration to recommend the denial of the instant Motion to Amend.
First, I agree with Plaintiff that the proposed new claims arise out of subject matter related to the underlying claims in the Complaint and which Defendant has had notice of since the lawsuit's inception, i.e., in the Complaint [#5 at ¶¶ 12, 15, 28] and Scheduling Order [#47 at 2-3]. See Anthony v. City & Cty. of Denver, No. 16-CV-01223-RM-NYW, 2018 WL 4203911, at *7 (D. Colo. Sept. 4, 2018) (finding no prejudice, on this basis alone, because the "proposed claims concern the same nucleus of facts as those asserted in the original Complaint and [Second Amended Complaint], and Mr. Anthony has asserted most of these claims in some iteration or another."). Plaintiff even suggests that Inspiration tailored its discovery requests and Rule 30(b)(6) deposition topics around the facts underlying the proposed new claims. See [#63 at 7, 8 & n.2]. And this court recently granted the Parties' an extension of several pre-trial discovery deadlines given their anticipation of the court's ruling on the Motion to Amend. See [#66; #68]. Thus, I find that the proposed amendments do not prejudice Defendant's preparation for this case. See Hom v. Squire, 81 F.3d 969, 973 (10th Cir. 1996) (finding prejudicial the plaintiff's addition of an entirely new and different claim against the defendant two months before trial).
Second, for the same reasons above, I do not find that Plaintiff filed the Motion to Amend in bad faith. See Genberg v. Porter, No. 11-CV-02434-WYD-MEH, 2012 WL 1279936, at *2 (D. Colo. Apr. 13, 2012) ("bad faith may be inferred if the proposed amendments directly contradict the allegations made in the original pleading such that the original and amended factual accounts cannot be reconciled, and are made solely to circumvent a defense raised in a Rule 12(b) motion."). Again, this court disagrees that Plaintiff's purported termination of the Agreement necessarily moots its claims in the Complaint. Nor is it apparent from the face of the Motion that Plaintiff seeks leave to amend for some nefarious purpose such as avoiding its obligations under the Agreement. See Steinert v. The Winn Group, Inc., 190 F.R.D. 680, 685 (D. Kan. 2000) (explaining that courts will deny leave to amend where it is apparent from the face of the Motion to Amend and record before the court). Indeed, as Plaintiff explains, it seeks leave to amend upon receiving Inspiration's discovery responses. See Estate of Roemer v. Shoaga, No. 14-CV-01655-PAB-NYW, 2016 WL 11184883, at *11 (D. Colo. Oct. 26, 2016) (finding no bad faith because "Plaintiff bases its allegations against these Defendants on facts learned during discovery" that could cure deficiencies identified in its initial pleading). Thus, I find no bad faith under the circumstances.
CONCLUSION
Based on the foregoing, I respectfully RECOMMEND that:
(1) Plaintiff's Motion to Amend [#58] be GRANTED IN PART and DENIED IN PART.DATED: April 29, 2019
Within fourteen days after service of a copy of the Recommendation, any party may serve and file written objections to the Magistrate Judge's proposed findings and recommendations with the Clerk of the United States District Court for the District of Colorado. 28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 72(b); In re Griego, 64 F.3d 580, 583 (10th Cir. 1995). A general objection that does not put the District Court on notice of the basis for the objection will not preserve the objection for de novo review. "[A] party's objections to the magistrate judge's report and recommendation must be both timely and specific to preserve an issue for de novo review by the district court or for appellate review." United States v. One Parcel of Real Property Known As 2121 East 30th Street, Tulsa, Oklahoma, 73 F.3d 1057, 1060 (10th Cir. 1996). Failure to make timely objections may bar de novo review by the District Judge of the Magistrate Judge's proposed findings and recommendations and will result in a waiver of the right to appeal from a judgment of the district court based on the proposed findings and recommendations of the magistrate judge. See Vega v. Suthers, 195 F.3d 573, 579-80 (10th Cir. 1999) (District Court's decision to review a Magistrate Judge's recommendation de novo despite the lack of an objection does not preclude application of the "firm waiver rule"); International Surplus Lines Insurance Co. v. Wyoming Coal Refining Systems, Inc., 52 F.3d 901, 904 (10th Cir. 1995) (by failing to object to certain portions of the Magistrate Judge's order, cross-claimant had waived its right to appeal those portions of the ruling); Ayala v. United States, 980 F.2d 1342, 1352 (10th Cir. 1992) (by their failure to file objections, plaintiffs waived their right to appeal the Magistrate Judge's ruling). But see Morales-Fernandez v. INS, 418 F.3d 1116, 1122 (10th Cir. 2005) (firm waiver rule does not apply when the interests of justice require review).
BY THE COURT:
/s/_________
Nina Y. Wang
United States Magistrate Judge