Opinion
3:18-cv-01651-AR
06-08-2022
RICHARD LEE SMITH, individually an on behalf of persons similarly situated, Plaintiff, v. MATT MARTORELLO, and EVENTIDE CREDIT ACQUISITIONS, LLC, Defendants.
FINDINGS AND RECOMMENDATION
JEFFREY ARMISTEAD UNITED STATES MAGISTRATE JUDGE
Introduction
Plaintiff Richard Lee Smith, Jr. (“Smith”) brings this putative class action against defendants Matt Martorello (“Martorello”) and Eventide Credit Acquisitions, LLC (“Eventide”) (collectively, “defendants”). Before the court are Smith's motion to file a Second Amended Class Action Complaint (ECF No. 199) and motion to file a First Amended Motion for Class Certification. Smith seeks amendment to correctly identify the bank associated with his lending activity. For the following reasons, the motions should be granted.
Background
The factual allegations of this lawsuit are thoroughly set out in this court's other rulings and are highlighted here only as necessary to resolve the pending motions. See, e.g., Smith v. Martorello, Case No. 3:18-cv-1651-AC, 2021 WL 981491, at *1 (D. Or. Mar. 16, 2021). Smith alleges that Martorello orchestrated a lending scheme that charged Smith and other Oregonians usurious rates for short-term loans obtained online. Smith obtained a $1,500 loan online from his home in Banks, Oregon at an annual interest rate of 527 percent. Smith repaid his loan in four months and it cost him $4,353.69 in principal and interest. In the First Amended Complaint (“FAC”), Smith alleged that the bank into which the loan was deposited and from which his repayments were made was an account in Oregon:
He applied for the loan from his residence in Banks, Washington County, Oregon. Big Picture representatives sent the purported and fraudulent contract to Mr. Smith in Oregon. Big Picture or Ascension Technologies wired the funds to Mr. Smith's account in Oregon. As a part of Defendants' lending enterprise and conspiracy, Big Picture Loans and/or Ascension Technologies withdrew payments on the illegal loans from Mr. Smith's bank account in Oregon by ACH withdrawal. In furtherance of the lending enterprise and conspiracy, Big Picture and Ascension Technologies had automatic access to Mr. Smith's bank account and continued to withdraw money from his account even after they had recouped the principal of the illegal loans and any lawful interest.FAC ¶ 26; see also FAC ¶ 151 (alleging the ACH transactions involve interstate commerce because the payments flowed “through Big Picture's bank account in Wisconsin, Mr. Smith's bank account in Oregon, and through different intermediaries across the United States”).
In the current motions, Smith seeks to correct the factual record related to Smith's banking activity when he took out and repaid the subject loan. Smith states that he believed the loan funds at issue were deposited into and repaid from his account with Bank of America in Hillsboro, Oregon (the “Oregon account”). Decl. Richard L. Smith Supp. Mot. Amend. Compl. ¶ 8, ECF No. 200, Smith attests that, on May 3, 2022, when gathering his banking records for the Oregon account, he discovered that it was not his primary account at the time of the loan. Id. Smith then contacted Utah Power Credit Union, where he formerly banked, and arranged to obtain the records for that now-closed account (the “Utah account”). Id. On May 6, 2022, Smith reviewed the Utah account banking records and confirmed that the Big Picture Loan was deposited into and repaid from the Utah account. Id.
On May 13, 2022, Smith filed these motions to correct the record to reflect that the loan was deposited into and repaid from his Utah account. Pl. Mot. Dismiss at 2, ECF No. 199; Pl. Mot. to Amend Class Cert, at 2, ECF No. 197. No other revisions, additions, or corrections to the FAC or Motion for Class Certification are requested.
Legal Standards
After a responsive pleading has been filed, leave to amend a complaint may occur only by leave of the court or consent of the parties. FED. R. CIV. P. 15(a)(2). Leave to amend is liberally given “when justice so requires.” Id. “When considering whether to grant leave to amend, a district court should consider several factors including undue delay, the movant's bad faith or dilatory motive, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party, and futility.” Brown v. Stored Value Cards, Inc., 953 F.3d 567, 574 (9th Cir. 2020) (citing Foman v. Davis, 371 U.S. 178, 182 (1962)). “Of the Foman factors, prejudice to the opposing party carries the most weight.” Id. (citing Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048,1052 (9th Cir. 2003)).
A party seeking to file amended pleadings after a court-ordered deadline has passed must show good cause for modifying the court's scheduling order under Rule 16(b)(4). FED. R. CIV. P. 16(b)(4) (requiring good cause and judge's consent to amend scheduling order); Amerisource Bergen Corp. v. Dialysist W. Inc., 465 F.3d 946, 952 (9th Cir. 2006). The “good cause” inquiry mainly is concerned with the diligence of the party seeking modification. Portland Eng'g, Inc. v. ATG Pharma Inc., Case No. 3:19-cv-02010-AC, 2020 WL 5437731, at *3 (D. Or. Sept. 10, 2020). If an imposed deadline “cannot reasonably be met despite the diligence of the party seeking extension,” modification of the scheduling order is justified. Johnson v. Mammoth Recreations, Inc., 975 F.2d 604, 609 (9th Cir. 1992); Story v. Midland- Funding LLC, Case No. 3:15-cv-00194-AC, 2016 WL 5868077, at *1 (D. Or. Oct. 7, 2016). A party may establish good cause to conform pleadings to critical litigation developments. Cervantes v. Zimmerman, Case No. 17-cv-1062-BAS-NLS, 2019 WL 1129154, at *5 (S.D. Cal. Mar. 12, 2019).
Discussion
I. Motion to Amend the Complaint
A. Good Cause Standard under Rule 16
The parties disagree whether Smith must establish good cause under Rule 16(b)(4) or may satisfy the more liberal Rule 15(a) standard. The court did not set a deadline for amending the pleadings. However, granting the amendment will require modification of defendants' response to the motion for class certification, currently due June 16, 2022. Order, ECF No. 196. Thus, the Rule 16 standard applies. See Thompson v. KC Care, LLC, Case No. 3:18-cv-00363-YY, 2019 WL 3210088, *1 (D. Or. June 17, 2019), adopted 2019 WL 3206841 (July 15, 2019) (applying Rule 16 to motion to amend complaint because doing so would require the court to adjust other deadlines).
Defendants argue that Smith and his counsel should have known about the Utah account in September 2018 when the initial complaint was filed, and that failure to uncover that fact sooner shows a lack of diligence. Defendants also contend that Smith's counsel failed to confer in good faith before filing this motion and it should therefore be denied.
Smith provides that he mistakenly believed that he routed his loan through his Oregon account. Upon recently learning that the loan funds were deposited into and repaid from his Utah account, Smith contends that he promptly sought to correct the error. Smith's counsel provides that he had no basis to question Smith's recollection about the banking activity because the loan documents reflect Smith's Oregon address. Decl. John B. Scofield Supp. Mot. Amend Compl. ¶¶ 3-4, EOF No. 204-1.
Newly discovered facts can constitute good cause to modify a scheduling order. Mentor Graphics Corp. v. EVE-USA, Inc., 13 F.Supp.3d 1116, 1121 (D. Or. 2014). “Allowing parties to amend based on information learned through discovery is common and well established” under Rule 16. Fru-Con Const. Corp. v. Sacramento Mun. Util Dist., No. Civ. S-05-583 LKK/GGH, 2006 WL 3733815, at *5 (E.D. Cal. Dec. 15, 2006).
Smith's counsel acknowledges that obtaining Smith's banking records at the outset of this litigation would have been preferable, however, there is simply no evidence from which the court can conclude that counsel failed to act diligently upon learning of the factual error. Although this case began in September 2018, many threshold issues have delayed discovery. It was not until the parties undertook discovery on class certification and Smith collected his banking records that he realized that the subject loan was deposited into and repaid from the Utah account. Pl. Reply Mot. Am. Compl. at 4-6.
Moving to amend within weeks of learning new information generally shows diligence under Rule 16. Portland Eng'g, 2020 WL 5437731, at *4-5 (finding party acted diligently upon learning new information and that moving to amend complaint within several weeks showed good cause). The record here shows that within days of realizing the bank account Smith used for the subject loan was in Utah, his counsel reached out to defendants. The parties failed to reach consensus, and Smith prepared the motions for the court's consideration in less than 14 days. Based on these facts, the court finds that Smith has acted diligently upon learning the new information, and therefore has shown good cause under Rule 16(b) to amend the complaint and to adjust the scheduling order governing defendants' response to the pending motion for class certification. Id.
The court is not persuaded by defendants' suggestion that Smith's counsel's revisions to the amended complaint and amended motion for class certification on May 10 and 11, 2022, prior to conferring with opposing counsel on May 12, 2022 proves bad faith. Defendants' remaining arguments about Smith's counsel's conduct related to these motions have been considered and are rejected.
B. Rule 15 Supports Amendment
Having determined that Smith has exercised diligence and that good cause exists for amendment, the court considers whether Smith satisfies Rule 15(a). Cervantes, 2019 WL 1129154, at *3 (“If Rule 16(b) is satisfied, then the court considers the propriety of amendment pursuant to Rule 15(a).”). Rule 15(a) provides the court “should freely give leave when justice so requires.” FED. R. CIV. P. 15(a)(2). Defendants argue the court should deny amendment because they will be unfairly prejudiced, amendment is futile, it will cause undue delay, and is brought in bad faith.
1. prejudice
“Unfair prejudice to the opposing party is the ‘crucial factor' in a district court's decision whether to grant leave to amend.” Adidas Am. v. TRB Acquisitions LLC, Case No. 3:15-cv-02113-SI, 2016 WL 11673273, at *3 (D. Or. July 26, 2016) (quoting U.S. v. Pend Oreille Pub. Util. Dist. No. 1, 926 F.2d 1502, 1511 (9th Cir. 1991)); Dallas Buyers, LLC v. Integrity Comput. Servs., Case No. 3:15-cv-00907-AC, 2016 WL 3085907, at *3 (D. Or. Apr. 29, 2016), adopted 2016 WL 3085899 (May 31, 2016). “For Rule 15 purposes, unfair prejudice means undue difficulty in prosecuting a lawsuit as a result of a change in tactics or theories on the part of the other party.” Portland Eng'g, 2020 WL 5437731, at *5 (quotation and citation omitted). Moving to amend is not “prejudicial when discovery has not closed, there is no pending trial date, and the case as a whole remains in its early stages.” Dallas Buyers, 2016 WL 3085907, at *3 (citing DCD Programs, LTD v. Leighton, 833 F.2d 183, 187-88 (9th Cir. 1987)).
Defendants argue that Martorello will be unfairly prejudiced by permitting Smith to amend the complaint to reflect that Smith used a Utah bank account. In defendants' view, the “foundation” of Smith's allegations and efforts to be a class representative are “linked to his Oregon bank account.” Defs.' Opp'n Mot. Am. Compl. at 6, ECF No. 202. Defendants also argue that Martorello will be prejudiced by the amendment because the court's previous determination that it has personal jurisdiction over Martorello relied extensively Smith's assertion that he conducted his banking in Oregon. Defendants suggest that they will incur more expenses relitigating personal jurisdiction issues based on Smith's proposed amendment.
The court disagrees that the location of Smith's bank account, standing alone, undermines the court's prior rulings concluding that Smith established a prima facie showing of personal, jurisdiction over Martorello. F&R at 22, ECF No. 146 (finding that Smith made a prima facie showing that Martorello expressly aimed his conduct at Oregon); Order at 5, ECF No. 156. As U.S. Magistrate Judge John V. Acosta explained in his extensive findings, “Smith has pleaded that Martorello personally participated in structuring the scheme to retain control over where and how the lending operation did business,” and that defendants made about “411 loans to Oregon borrowers totaling $338,131.25.” F&R at 23-24, ECF No. 146. Adopting these findings, U.S. District Judge Michael H. Simon concluded that the allegations “establish that Martorello personally controls Big Picture's lending activity, including causing Big Picture's loans to be offered specifically in Oregon,” and that the allegations sufficiently stated a prima facie showing of personal jurisdiction. Order at 5, ECF No. 156.
Yet the fact that defendants insist the location of Smith's bank account is critical to whether personal jurisdiction exists over Martorello underscores the importance of permitting Smith to amend. Correcting the record is imperative to the parties and the court, and necessarily serves the “interests of justice” and weighs heavily in favor of amendment. Gonzales v. Schutt, No. 1:14-cv-01347-CL, 2015 WL 365696, at *2 (D. Or. Jan. 27, 2015) (granting motion to amend complaint to correct erroneous factual allegation early in proceeding). In light of the court's recommendation that this motion be granted, the court finds it appropriate to provide defendants additional time to respond to the pending motion for class certification, and to reopen class discovery on a limited basis as detailed below.
Despite the age of this case, procedurally, the case is in its early stages; discovery has not yet closed, and there is no pending trial date. Smith seeks only to correct facts about his bank account; any new class discovery required will be narrow in scope and should be completed quickly. For all these reasons, the court finds defendants will not be unduly prejudiced by the amendment.
2. undue delay
Smith informed defendants of his intent to amend within a week of learning that Smith used his Utah account to receive the loan fund and make repayments. Smith quickly moved to amend. On this record, the court finds that there was no undue delay. See Adidas Am., 2016 WL 11673273, at *4 (finding one-month delay between learning all relevant facts and seeking amendment did not constitute undue delay).
3. bad faith or dilatory motive
Bad faith exists under Rule 15 when a party intends “to deceive, harass, mislead, delay, or disrupt.” Wizards of the Coast LLC v. Cryptozoic Entm't LLC, 309 F.R.D. 645, 651 (W.D. Wash. 2015). Smith consistently has sought to move this litigation forward and expresses regret about the factual error. Nothing in the record suggests that Smith has engaged in dilatory tactics or is seeking amendment to harass defendants or force them to incur unnecessary expenses. Thus, the court finds that Smith has not sought amendment in bad faith or for dilatory motives.
4. futility
“Futility of amendment can, by itself, justify the denial of a motion for leave to amend.” Bonin v. Calderon, 59 F.3d 815, 845 (9th Cir. 1995). “If no amendment would allow the complaint to withstand dismissal as a matter of law, courts consider amendment futile.” Kroessler v. CVS Health Corp., 977 F.3d 803, 815 (9th Cir. 2020) (reversing district court's denial of motion to amend on futility grounds). When assessing whether a proposed amendment is futile, the court applies a Rule 12(b)(6) standard “‘viewed through the lens of the requirement that courts freely give leave to amend when justice so requires.'” Pettibone v. Biden, Case No. 3:20-cv-1464-YY, 2021 WL 6112595, at *16 (D. Or. Dec. 27 2021) (quoting Barber v. Select Rehab., LLC, Case No. 3:18-cv-1235-SB, 2019 WL 2028519, at *1 (D. Or. May 8, 2019)) (simplified).
Defendants argue that Smith's proposed amendment is futile because he lacks standing to assert a claim. Defendants state that Smith filed for Chapter 13 Bankruptcy protection on September 14, 2018. Decl. William N. Grosswendt Supp. Opp'n Mot. Am. Compl. (“Grosswendt Decl.”) Ex. 7, ECF No. 202-8. According to defendants, Smith identified a potential claim against Big Picture Loans in the amount of $4,354. Id. at 16. Defendants contend that, because Smith failed to specifically list this action in his initial bankruptcy filing or any subsequent bankruptcy filings, his claim against defendants is the property of the bankruptcy estate. Id. at 19. Defendants maintain that Smith's failure means the bankruptcy trustee has exclusive standing to prosecute Smith's claim.
Smith responds that under Chapter 13, he had a right to keep his assets and develop a repayment plan, and that as part of his bankruptcy filing, he specifically identified the class action lawsuit as exempt from the bankruptcy estate under 11 U.S.C. § 522(d)(5). Id. Ex. 7, ECF No. 202-8 at 16. Smith confirms that in his Notice of Postconfirmation Amendment of Plan, he declared the continued assertion of his claim against defendants and that he retained all rights to “funds received from the class action lawsuit.” Id. Ex. 8, ECF No. 202-9 at 10, 19.
Defendants cite no controlling case law from which the court can conclude that Smith lacks standing to pursue his claim in this court due to his alleged failure to correctly identify this litigation in his Chapter 13 bankruptcy filings. Because the proposed second amended complaint plausibly states a claim for relief, amendment is not futile.
In summary, Smith has satisfied good cause for filing the amended complaint and to adjust the scheduling order under Rule 16. Amending the complaint will not unduly prejudice defendants; Smith did not unduly delay in pursuing amendment and does not seek amendment in bad faith or for dilatory motives under Rule 15; and amending the complaint is not futile. Accordingly, Smith's motion to amend the complaint should be granted.
II. Motion for Leave to File an Amended Motion for Class Certification
Smith also moves to file an Amended Motion for Class Certification to correct the same factual error about his banking activity. In light of the court's recommendation that Smith's motion to amend the complaint be granted, and for the same reasons stated above concerning amending the complaint, the court finds that good cause and justice require Smith to correct the error in the pending motion for class certification. Therefore, Smith's motion for leave to file an amended motion for class certification should be granted.
The parties agree that if the motion to amend the complaint is granted, good cause exists to amend the briefing schedule and reopen limited discovery on class certification. Accordingly, defendants' June 16, 2022 deadline to file a response to Smith's motion for class certification, and Smith's August 1, 2022 reply are stayed pending Judge Simon's review of these findings.
If Judge Simon adopts these findings, the court intends to enter the following deadlines: (1) Smith's proposed Second Amended Complaint and Amended Motion for Class Certification to be filed within seven days of the district court's ruling; (2) the class discovery deadline will be extended to August 1, 2022 for the limited purposes of permitting defendants to re-depose Smith solely on the issue of his banking at Utah Credit Union and to request additional written discovery related to Smith's amended banking allegations; (3) defendants' response to motion for class certification will be extended to September 2, 2022; and (4) Smith's reply to the motion for class certification will be due October 4, 2022. Should Martorello file a motion renewing his personal jurisdiction challenges, this court will set an appropriate briefing schedule at that time.
Conclusion
As explained above, Smith's motion for leave to file an amended complaint (ECF No. 199) should be GRANTED, and Smith's motion to correct the motion for class certification (ECF No. 197) should be GRANTED. Defendants' June 16, 2022 deadline to respond to motion for class certification and Smith's August 1, 2022 deadline to file a reply are STAYED pending Judge Simon's review of these findings.
Scheduling Order
The Findings and Recommendation will be referred to Judge Simon. Objections, if any, are due within fourteen days. If no objections are filed, the Findings and Recommendation will go under advisement on that date. If objections are filed, a response is due within fourteen days. When the response is due or filed, whichever date is earlier, the Findings and Recommendation will go under advisement.