Opinion
Case No. 3:16-cv-02079-AC
07-28-2017
BEVERLY HEFFINGTON, Plaintiff, v. GORDON, AYLWORTH AND TAMI, P.C., Defendant.
OPINION AND ORDER :
Introduction
Plaintiff Beverly Heffington ("Heffington") brings this lawsuit against Defendant Gordon, Aylworth and Tami, P.C. ("GAT"), alleging violation of the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692g. Heffington claims that GAT violated Section 1692g of the FDCPA while attempting to collect her debt. Currently before the court is Heffington's motion (ECF No. 16) for leave to file an amended complaint. Plaintiff moves to add a Section 1692e claim under the FDCPA. Heffington's motion to file an amended complaint is granted.
Formerly Daniel N. Gordon, P.C.
The parties have consented to jurisdiction by magistrate judge pursuant to 28 U.S.C. § 636(c)(1).
Factual Background
In June 2016, GAT sent Heffington a letter ("June 2016 Letter") in an attempt to collect a debt. (Compl. (ECF No. 1) ¶ 9.) Heffington's original complaint alleges that the June 2016 Letter violated Section 1692g of the FDCPA. Id. She claims this violation occurred when GAT allegedly failed to provide within the initial communication, or within five days of that communication, required information regarding the amount of the debt. Id. GAT argues that the June 2016 Letter was not the initial communication. (Answer (ECF. No. 8) ¶ 18.) GAT claims that the collections process initially began in 2006 and Section 1692g does not apply. Id.
Procedural Background
Heffington filed her original complaint on October 28, 2016. In a Rule 16 scheduling conference, the deadline for discovery was set for February 27, 2017. (ECF No. 13.) GAT filed a motion for summary judgment January 30, 2017. (ECF No. 9.) Discovery and all other pretrial deadlines were stayed pending resolution of the summary judgment motion. (ECF No. 13.) On February 23, 2017, Heffington requested additional time to respond to GAT's motion for summary judgment, and that same day she filed a motion (ECF No. 16) for leave to amend her complaint under Federal Rule of Civil Procedure ("Rule) 15(a). Heffington claims the June 2016 Letter also violated Section 1692e of the FDCPA.
Legal Standard
I. Federal Rule of Civil Procedure 15
Under Rule 15(a), leave to amend should be "freely given when justice so requires." The trial court has discretion when deciding whether to grant leave. United States v. Webb, 655 F.2d 977, 979 (9th Cir. 1981). Leave to amend should be given with "liberality" so that matters may be decided based on merit, rather than "bare pleadings." Id. The court may deny the leave to amend if the amendment demonstrates: 1) prejudice; 2) bad faith; 3) futility; or 4) undue delay. Foman v. Davis, 371 U.S. 178, 182 (1962); AmerisourceBergen Corp. v. Dialysist W., Inc., 465 F.3d 946, 951 (9th Cir. 2006). Of these factors, prejudice to the opposing party is given the "greatest weight." Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003).
Discussion
Heffington moves to add a claim under Section 1692e, alleging that GAT's June 2016 Letter violated the FDCPA by falsely representing the "amount, character, or legal status" of her debt. She claims that GAT did this by failing to represent the amount of her debt in an unambiguous way. Heffington alleges that the statement "interest may continue to accrue" did not adequately convey whether interest would accrue, or how it would accrue.
GAT opposes Heffington's motion based on prejudice, bad faith, futility, and undue delay. Heffington replies that she filed the motion to amend in order to assert a valid claim. Even though there was no amendment deadline set, because she filed for leave to amend her complaint filed within 120 days, Heffington claims it does not cause undue delay or prejudice. Heffington argues that because her claim is not futile, her timeliness in filing proves there is no bad faith.
I. Prejudice
When determining whether or not to grant leave to amend, prejudice against the non-moving party is the most important factor. Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003). A motion for a leave to amend should not be granted if it causes substantial prejudice to the opposing party. Morongo Band of Mission Indians v. Rose, 893 F.2d 1074, 1079 (9th Cir. 1990). A motion for a leave to amend causes substantial prejudice when it creates additional discovery or cost, whether by altering the nature of the litigation or causing an extreme delay late in the litigation. Id. The party opposing the motion to amend must make a showing that it would suffer substantial prejudice. Howey v. United States, 481 F.2d 1187, 1190-1191 (9th Cir. 1973).
GAT argues that allowing Heffington's leave to amend would cause substantial prejudice. In response, Heffington argues that she should be granted leave to amend to assert her new claim because of Rule 15(c)'s relation-back doctrine, but the relation-back doctrine does not apply to the prejudice analysis under Rule 15(a). Additionally, Heffington does not need to argue the relation-back doctrine because her second claim is asserted before the expiration of the one-year statute of limitations. Thus, Heffington's proposed amendment is timely.
GAT argues that any degree of delay, increased discovery, alteration of the claim, or additional cost, should be considered prejudicial because they have already filed a motion for summary judgment, but this argument is unavailing. However, amendment is not substantially prejudicial when the summary judgment motion was filed within 120 days of filing the original complaint, and the deadline for discovery had not passed. In the same way that a motion to amend cannot be used to circumvent summary judgment, so too, filing a motion for summary judgment does not, by itself, defeat a motion for leave to amend. See Schlacter-Jones v. Gen. Tel. Co. of Cal., 936 F. 2d 435, 443 (9th Cir. 1990) (discussing summary judgment as a factor when granting leave to amend), overruled on other grounds, Cramer v. Consol. Freightways, Inc., 255 F.3d 683 (9th Cir. 2001); M/V Am. Queen v. San Diego Marine Constr. Corp., 708 F.2d 1483, 1492 (9th Cir. 1983) (same); Forty-Niner Sierra Res., Inc. v. Subaru of Am., Inc., 416 F. Supp. 2d 861, 875 (E.D. Cal. 2004) (same). GAT provides no evidence that it would suffer substantial prejudice if the court allowed Heffington's motion to amend.
Granting leave to amend causes substantial prejudice if it alters the litigation, creates additional discovery, or causes an extreme delay. In Morongo, there was a two-year delay between the initial filing and the leave to file an amended complaint. 893 F.2d 1074, 1079 (9th Cir. 1990). The proposed amendment offered "tenuous" new claims which would have altered the nature of the litigation. Id. The court reasoned that granting leave to amend would prolong the litigation and require significantly more discovery since the defendants would have had to raise new defenses. Id. Even though each factor alone was not enough to deny leave to amend, the combined effect of the delayed filing, frivolous claims, and additional discovery imposed substantial prejudice on the defendants.
Unlike Morongo, where there was a two-year delay in filing, here, Heffington filed her motion to amend within 120 days. Also unlike Morongo, where the nature of litigation would have been altered, Heffington's existing and new claims both stem from Section 1692 of the FDCPA and arise from the same set of facts. Additionally, it is unlikely that GAT will be burdened by increased discovery, not only because the claims stem from the same set of facts, but because the deadline for discovery had not passed when Heffington's leave to amend was filed. In fact, GAT stated within its response that Heffington has not made any discovery requests. (Def.'s Resp. to Pl.'s Mot. to Am. Compl. (EFC 21).)
The weight of prejudice against GAT does not outweigh the strong presumption allowing amendment under Rule 15(a). Therefore, this factor weighs in favor of Heffington's motion for leave to amend.
At oral argument, Defendant argued an additional prejudice claim. Specifically, if the leave to amend were allowed and the Defendant prevailed on its pending summary judgment motion for the existing 1692g claim, the Defendant would be precluded from seeking attorneys fees on the basis that it had not prevailed in the entire case. Because the Defendant did not raise this argument in its brief, and the Plaintiff and the court did not have the opportunity to evaluate the claim prior to the hearing, the court is not considering the argument at this time.
II. Bad Faith
Heffington's motion to amend was not filed in bad faith. A leave to amend is filed in bad faith when there is "evidence in the record which would indicate a wrongful motive." DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 197 (9th Cir. 1987). Here, there is nothing in the record to indicate a wrongful motive; to the contrary, Heffington's proposed amendment is based on evidence in the record. Because there is no evidence of bad faith found within the record, and because GAT has not provided evidence of bad faith, this factor weighs in favor of Heffington's motion for leave to amend.
III. Futility
GAT argues that because Heffington does not assert any new facts her claim is futile, but that is not the test for futility. The test for futility is the standard used for a Rule 12(b)(6) motion to dismiss. Fulton v. Advantage Sales & Marketing, LLC , No. 3:11-cv-01050-MO., 2012 WL 5182805 at *2 (D. Or. Oct.18, 2012). To survive a Rule 12(b)(6) motion to dismiss, the plaintiff is required to show that they have a plausible claim for relief. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). GAT argues that because Heffington does not assert any new facts that she does not have a plausible claim for relief, but that is not the test for plausibility. A plausible claim has "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. Multiple plausible claims can stem from the same set of facts. Additionally, when a plaintiff brings multiple claims arising from the same occurrence, they are "expected to try them all in a single judicial hearing." Netbula, LLC v. Distinct Corp., 212 F.R.D. 534, 536 (N.D. Cal. 2014), quoting United Mine Workers v. Gibbs, 383 U.S. 715, 725.
Here, Heffington's proposed claim asserts that GAT sent a letter containing ambiguous language. When evaluating ambiguity under the FDCPA, the Ninth Circuit uses the "least-sophisticated debtor" standard. Gonzales v. Arrow Financial Services, LLC, 660 F.3d 1055, 1061(9th Cir. 2011). This standard is lower than a "reasonable debtor," and is intended to protect "consumers of below average sophistication or intelligence." Id. at 1062. The standard also has an expectation of "reasonableness" and "willingness to read with care." Id. While other circuits have discussed ambiguity on language similar to "interest may continue to accrue", the Ninth Circuit has not yet weighed on the ambiguity of this statement in debt correspondence under the FDCPA. See Walker v. Shermeta, Adams, von Allmen, PC, 623 Fed. Appx. 764, 767 (6th Cir. 2015) (finding that, though the plaintiff failed to adequately argue the issue, there may be occasions where the statement "interest and charges 'may' accrue" could be misleading); Taylor v. Cavalry Inv., L.L.C., 365 F.3d 572, 575-576 (7th Cir. 2004) (rejecting the least-sophisticated debtor standard and ruling that the statement "your account balance may be periodically increased due to the addition of accrued interest or other charges as provided in your agreement with your creditor" was not ambiguous). Using the least-sophisticated debtor standard, the phrase "interest may continue to accrue" could be ambiguous because the letter does not specify how interest will accrue, when interest will accrue, or whether interest will accrue at all in relation to the debt. Therefore, Heffington's claim of ambiguity is plausible, and this factor weighs in favor of allowing amendment.
IV. Undue Delay
While Heffington's motion to amend was not filed as an attempt to avoid summary judgment, her prior knowledge of another plausible claim and her decision to not assert it in the initial complaint, but to add it later, created undue delay. GAT argues that Heffington's motion for leave to amend constitutes undue delay by claiming that Heffington's purpose is to circumvent summary judgment. GAT also alleges that the plaintiff had prior knowledge of the facts at the time of filing the original complaint and, therefore, allowing amendment now would constitute an undue delay. Although prior knowledge may cause undue delay, on its own it is not enough to deny a leave for amendment.
A. Pending Summary Judgment
GAT claims that Heffington filed her motion for leave to amend to avoid its motion for summary judgment. A motion to amend should not be used as a way to defeat a motion for summary judgment. Schlacter-Jones, 936 F.2d at 443. An intention to avoid disposition by summary judgment is evident when the plaintiff fails to give "any evidence to oppose the [summary judgment] motion." Forty-Niner Sierra Res., Inc. 416 F. Supp. 2d at 871. In addition to filing leave to amend, Heffington filed a response to GAT's summary judgment motion. Her leave to amend was not filed to avoid summary judgment.
Schlacter-Jones v. Gen. Tel. Co. of Cal., is distinguishable. 936 F.2d at 443. There, the court denied a motion for leave to amend because it found the plaintiff's proposed amendment to be an attempt to circumvent summary judgment. Id. The plaintiff filed her motion to amend more than one year after the case had been filed. Id. The plaintiff's motion was filed after the defendant had filed a motion for summary judgment, and the plaintiff did not provide evidence to excuse the delay. Id. Additionally, "at least three of the four proposed causes of action [were] futile", and all were brought after discovery had been completed. Schlacter-Jones, 936 F.2d at 443. The court reasoned that when the motion to amend was filed more than one year after the complaint was filed, the leave to amend was requested to avoid disposition of the case by summary judgment, and the majority of the claims were futile, leave should not be granted . Id. It held that when those factors are present, granting a leave to amend would cause undue delay. Id.
GAT argues that "the plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). However, when GAT filed its motion for summary judgment, the deadline for discovery had not yet passed. Unlike Schlacter-Jones, where the plaintiff delayed filing their motion to amend for more than one year, here, Heffington filed her motion to amend within 120 days of her original complaint. As stated above, Heffington's claim does not substantially alter the litigation or create additionally burdensome discovery. A party's filing of a motion for summary judgment before the deadline to amend has passed does not bar the opposing party from filing a motion for leave to amend.
B. Prior Knowledge
Additionally, GAT claims that Heffington's leave to amend is made with undue delay because it claims she is asserting no new facts. It also claims that she knew of the potential claim when filing her original complaint. To support its undue delay argument, GAT cites the Rule 1 requirements of a "just, speedy, and inexpensive determination." FED. R. CIV. P. 1 (2016). GAT argues that Heffington was aware of Section 1692e at the time of filing her original complaint, and those claims should have been included in the original complaint. Though Heffington's possible knowledge of a potential claim when filing the original complaint does not weigh in her favor, it is not enough to deny her request for leave to amend. Willner v. Manpower, Inc., No. 11-cv-02846-JST, 2013 WL 3339443, at *3 (N.D. Cal. July 1, 2013).
The plaintiff in Willner brought a suit against her employer alleging violation of California Labor Code Section 201 and sought leave to amend her complaint to include Section 203 of the same code. Id. at *1. The defendant claimed that the proposed amendment was untimely and futile." Id. The court reasoned that there was not prejudice because; 1) no deadlines had been set; 2) the new claim did not arise out of a new legal theory; and 3) the new claim would not create new burdensome discovery. Id. at *2. Additionally, the court found no indication of bad faith in the record, and the defendant failed to produce any evidence indicating that the plaintiff was acting in bad faith. Id. In regard to the claim of futility of the amendment, the court reasoned that the defendant had failed to show how the new claim was frivolous. Id. at *3.
The Willner court concluded that because the plaintiff had prior knowledge of an existing claim when filing her original complaint, the motion to amend created undue delay. In spite of her objections that her new claim was "substantiated" based on information provided by the defendant, the court still found that the factor of undue delay weighed against her leave to amend. Willner, 2013 WL 3339443, at *3. However, when prejudice, bad faith, and futility are lacking, "the Ninth Circuit disfavors denials of leave to amend on the basis of undue delay." Id. The court held that even though the plaintiff filed her motion to amend with undue delay, her leave to amend should be granted.
Here, Heffington likely had prior knowledge of an additional claim existing under Section 1692e. Like Willner, Heffington's amendment will not require a rescheduling of deadlines or add extensive discovery. While the amendment may assert a new legal theory, this theory is based on related claims which have been brought in a timely manner. Also like Willner, there is nothing within the record to indicate that in filing her leave to amend Heffington is acting in bad faith. Additionally, aside from arguing that there are not any new facts, GAT has failed to give any indication of how Heffington's claim is futile.
By bringing all claims arising from the same set of facts and filing her leave to amend within 120 days, Heffington complied with the requirement for a matter to be "just" and "speedy". See FED. R. CIV. P. 1 (2016). Even though Heffington may have been aware of a potential claim under Section 1692e, the claims and occurrences are related. There is no evidence that she was attempting to add an invalid claim or circumvent summary judgment. Therefore, despite this factor weighing against her, her prior knowledge is not enough to deny her leave to amend.
Conclusion
For the reasons stated above, Heffington's motion for leave to file an amended complaint (ECF No. 16) is GRANTED.
IT IS SO ORDERED.
DATED this 28th day of July, 2017.
/s/ John V. Acosta
JOHN V. ACOSTA
United States Magistrate Judge