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Stewart v. Atherio Inc.

United States District Court, N.D. Texas, Dallas Division

May 2, 2018

MICHAEL STEWART and TAMMY O'CONNOR, Plaintiffs,
v.
ATHERIO INC, et al., Defendants.

          MEMORANDUM OPINION AND ORDER

          JANE J. BOYLE UNITED STATES DISTRICT JUDGE

         Before the Court is Defendant Jason Cory's Motion for Leave to Amend Pleadings. Doc. 67. For the reasons stated below, Defendant's Motion is GRANTED.

         I. BACKGROUND[1]

         In June 2016, Plaintiffs filed suit alleging that Defendants fraudulently induced Plaintiffs into selling their company to Atherio Inc. (Atherio) by making material misrepresentations about Atherio and its board of directors, including former CEO, Defendant Cory. Doc. 1, Compl., ¶¶ 61-62, 65-66, 69, 77, 80, 83. Cory's original answer included an affirmative defense of release from Plaintiffs' claims based on a provision of the Omnibus Compromise Release Agreement (Agreement) executed by Cory and Atherio when Cory was removed as CEO. Doc. 9, Orig. Answer, ¶ 112; Doc. 81, Resp., 4. Cory claimed Plaintiffs were bound by the Agreement even though they did not sign it. Doc. 67, Mot. to Amend, 2. But soon after, Cory filed an amended answer and withdrew his release defense because Plaintiffs represented that they were unaware of the Agreement at the time it was executed. Id. at 2-3. In January 2017, the Court issued a scheduling order, setting December 28, 2017 as the deadline to amend pleadings. Doc. 26, Scheduling Order, at 1. In February 2018, Cory filed the present motion seeking leave to file an amended answer re-asserting his release defense and adding a breach-of-contract counterclaim. Doc. 67, Mot. to Amend, 5. Cory alleges he discovered information after the December 28, 2017 deadline indicating Plaintiffs were aware of the Agreement at the time it was signed and are therefore bound by it. Id. at 4. Cory's motion is ripe for review.

         II. LEGAL STANDARD

         Once a court has entered a scheduling order and the deadline for amending pleadings has passed, the decision to permit post-deadline amendments is governed by Rule 16(b) of the Federal Rules of Civil Procedure. S & W Enters., L.L.C. v. So. Tr. Bank of Ala., 315 F.3d 533, 536 (5th Cir. 2003). A scheduling order should not be modified unless there is a showing of good cause. Fed.R.Civ.P. 16(b)(4).

         Fifth Circuit courts consider four factors to determine whether a movant has established good cause: “(1) the explanation for the failure to timely move for leave to amend; (2) the importance of the amendment; (3) potential prejudice in allowing the amendment; and (4) the availability of a continuance to cure such prejudice.” S & W Enters., L.L.C., 315 F.3d at 536 (quotations and alterations omitted). “The ‘good cause' standard focuses on the diligence of the party seeking a modification of the scheduling order.” Forge v. City of Ball, No. 3:03-CV-0256, 2004 WL 1243151, at *2 (N.D. Tex. June 4, 2004). A party's mere inadvertence to meet a deadline and the absence of prejudice to the opposing side are insufficient to establish good cause. Id. Rather, one must show that “despite his diligence, he could not have reasonably met the scheduling deadline.” Id. (quoting Am. Tourmaline Fields v. Int'l Paper Co., No. 3:96-CV-3363, 1998 WL 874825, at *1 (N.D. Tex. Dec. 7, 1998)).

         If a party establishes good cause under Rule 16, the Court then considers whether the amendment should be allowed under Rule 15's more liberal standard. S & W Enters., L.L.C., 315 F.3d at 536 n.4. Rule 15 provides the Court discretion to grant leave to amend freely “when justice so requires.” Fed.R.Civ.P. 15(a)(2). “Unless there exists a substantial reason for denying leave to amend, the district court should permit the filing of a proposed amendment.” Hinds v. Orix Capital Mkts., L.L.C., No. Civ. A. 3:02-CV-0239-P, 2003 WL 21350210, at *3 (N.D. Tex. June 10, 2003). “In determining whether to grant leave to amend, the court may consider several factors, including undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party, and futility of amendment.” Id.

         III. ANALYSIS

         Because Cory filed his motion to amend after the Court entered a scheduling order and the deadline to file amended pleadings passed, the Court first considers each Rule 16 factor to determine whether Cory has established good cause, and then whether the amendment should be allowed under Rule 15.

         A. Rule 16 Factor One: Explanation for Failure to Timely Move

         Cory explains that he did not timely move to amend his answer because he discovered that Plaintiffs knew of, and are therefore bound by, the Agreement only after the deadline to amend had passed. Doc. 67, Mot. to Amend, 4-5. Specifically, Cory points to emails from Plaintiff Tammy O'Connor obtained on January 19, 2018 and information obtained during Defendant Greg Furst's deposition on February 6, 2018 that indicate Plaintiffs were aware of the Agreement prior to its execution. Id.; see also Id. at 4 n.3. Plaintiffs argue that Cory obtained this information after the deadline only because he was not diligent in pursuing his claims. Doc. 83, Resp., 11-12.

         Courts have found a movant's explanation for failure to timely move sufficient when the information necessary to assert the new claims was discovered after the deadline to amend. Clapper v. Am. Realty Inv'rs Inc., No. 3:14-cv-2970-D, 2017 WL 978098, at *3 (N.D. Tex. Mar. 14, 2017); Leaders Inst. LLC v. Jackson, No. 3:14-cv-3572-B, 2016 WL 4179371, at *3 (N.D. Tex. Aug. 8, 2016). And though Plaintiffs are correct that a movant must be diligent in pursuing his new claims, Forge, 2004 WL 1243151 at*2, the Court finds Cory was sufficiently diligent in this case.

         Plaintiffs began investigating their claims in 2015 by ordering pre-suit discovery in Texas state court pursuant to Texas Rule of Civil Procedure 202. Doc. 81, Resp., 5. The O'Connor emails upon which Cory relies as a basis to amend his pleadings were produced by Atherio during Rule 202 discovery. Id. After Plaintiffs filed suit in this Court in June 2016, Cory requested the Rule 202 discovery documents from Atherio, but Cory and Plaintiffs agree that Atherio never produced the documents. Id. at 12; Doc. 67, Mot. to Amend, 3. Plaintiffs argue that Cory should have been more persistent in obtaining the Rule 202 discovery and that neither the discovery stay in this case nor Cory's financial difficulties after the stay was lifted adequately explain his counsel's lack of persistence. Doc. 81, Resp., 2. But Cory alleges that shortly after suit was filed he also requested the Rule 202 discovery documents from Plaintiffs. Doc. 83, Reply, 3. Plaintiffs provided a number of documents but Cory claims that none of the those documents were the ones produced during Rule 202 discovery. Id. Having never seen the Rule ...


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