Norton v. LVNV Funding, LLC

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 SONYA NORTON, Case No. 18-cv-05051-DMR

8 Plaintiff, ORDER ON DEFENDANT'S MOTION 9 v. TO AMEND

10 LVNV FUNDING, LLC, et al., Re: Dkt. No. 82 11 Defendants.

12 Plaintiff Sonya Norton filed this putative class action against Defendants LVNV Funding, 13 LLC (“LVNV”) and Law Office of Harris & Zide (“H&Z”) alleging violations of the federal Fair 14 Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692 et seq., and California’s Fair Debt 15 Collection Practices Act (“Rosenthal Act”), California Civil Code § 1788 et seq. Norton also seeks 16 injunctive relief under California’s Unfair Competition Law (“UCL”), California Business and 17 Professions Code § 17200 et seq. LVNV now moves for leave to file an amended answer to add 18 “setoff” as an affirmative defense.1 [Docket Nos. 82 (“Mot.”); 85 (“Reply”).] Norton timely 19 opposed. [Docket No. 84 (“Opp.”).] The court finds the motion suitable for determination without 20 oral argument pursuant to Civil Local Rule 7-1(b). 21 For the reasons stated below, LVNV’s motion is granted. 22 I. BACKGROUND 23 The court partially granted Defendants’ motions to dismiss the first and second amended 24 complaints.2 [Docket Nos. 30, 47.] Norton filed a third amended complaint on September 10, 2019. [Docket No. 48 (“TAC”).] Norton alleges that Defendants engaged in unlawful debt collection 25 26 27 1 This motion is brought solely on behalf of LVNV. 1 practices by failing to file an acknowledgment that a judgment against Norton had been assigned to 2 LVNV by LVNV’s predecessor. California Code of Civil Procedure section 673 requires a 3 judgment assignee to file an acknowledgment of assignment of judgment in order to become the 4 assignee of record and enforce the judgment. See Cal. Code Civ. Proc. § 673. According to Norton, 5 LVNV unlawfully collected on the judgment by garnishing her wages without becoming the 6 assignee of record. One of the remedies Norton seeks is restitution for money obtained from the 7 class and subclass as a result of Defendants’ alleged unlawful collection activities. TAC at 16. 8 Defendants each answered the TAC on September 26, 2019. [Docket Nos. 51, 52.] Neither answer 9 includes setoff as an affirmative defense. 10 LVNV asserts that it has long contemplated a setoff defense and discussed it early in the 11 case with Plaintiff’s counsel, but inadvertently omitted it from its answer. In support, LVNV offers the declaration of defense counsel Tomio Narita, who spoke with Plaintiff’s counsel in January 12 2019. [Docket No. 82-2 (“Narita Decl.”) ¶ 2.] During that conversation, Narita informed Plaintiff’s 13 counsel that LVNV would be “entitled to setoff any amounts returned to Plaintiff or the putative 14 class.” Id. Defense counsel Travis Campbell testifies in his declaration that he discovered that 15 Defendants’ answer did not include that defense while preparing Defendants’ mediation statement 16 on January 30, 2020. [Docket No. 82-3, Declaration of Travis Campbell in Support of Motion to 17 Amend (“Campbell Decl.”) ¶ 2.] He avers that the omission was inadvertent and based on a good 18 faith error by LVNV’s counsel. Id. 19 The parties attended mediation on February 12, 2020, and the case did not settle. Narita 20 Decl. ¶ 3. On February 17, 2020, Narita asked Plaintiff’s counsel to stipulate to the filing of an 21 amended answer that included setoff as an affirmative defense. Id. ¶ 4. Plaintiff did not agree to 22 so stipulate. Id. Accordingly, LVNV filed this motion on March 4, 2020, seeking leave from the 23 court to file an amended answer. 24 II. LEGAL STANDARDS 25 Federal Rule of Civil Procedure (“Rule”) 15(a) governs amendment of the pleadings prior 26 to the court’s filing of a pretrial scheduling order. Johnson v. Mammoth Recreations, Inc., 975 F.2d 27 604, 607 (9th Cir. 1992). After entry of the scheduling order, a party may seek leave to amend the 1 pleadings only if they first satisfy the “good cause standard” of Rule 16(b)(4).3 Neidermeyer v. 2 Caldwell, 718 F. App’x 485, 488 (9th Cir. 2017) (citing Wholesale Natural Gas, 715 F.3d at 737); 3 see also Fed. R. Civ. P. 16(b)(4) (“A schedule may be modified only for good cause and with the 4 judge’s consent.”). While Rule 15(a) favors liberal amendment, “which focuses on the bad faith of 5 the party seeking to interpose an amendment and the prejudice to the opposing party,” Rule 16(b)’s 6 good cause standard “primarily considers the diligence of the party seeking the amendment.” 7 Johnson, 975 F.2d at 609. If the moving party was not diligent, “the inquiry should end.” Id. 8 Conversely, a party can show good cause “if a scheduling order’s deadline cannot reasonably be 9 met despite the diligence of the party seeking the extension.” Lamberth v. Clark Cty. Sch. Dist., 10 698 F. App’x 387, 389 (9th Cir. 2017). The district court has “broad discretion in supervising the 11 pretrial phase of litigation, and its decisions regarding the preclusive effect of a pretrial order” are reviewed for abuse of discretion. U.S. v. Dang, 488 F.3d 1135, 1143 (9th Cir. 2007) (citations 12 omitted). 13 Once the party has demonstrated good cause under Rule 16(b), the court then applies the 14 Rule 15(a) standard. Johnson, 975 F.2d at 608. Under Rule 15(a), leave to amend the pleadings 15 before trial should be given “freely . . . when justice so requires.” Fed. R. Civ. P. 15(a)(2). “This 16 policy is to be applied with extreme liberality.” Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 17 1048, 1051 (9th Cir. 2003) (quotation omitted). In the absence of an “apparent” reason, such as 18 undue delay, bad faith or dilatory motive, prejudice to the opposing party, futility of the 19 amendments, or repeated failure to cure deficiencies in the complaint by prior amendment, it is an 20 abuse of discretion for a district court to refuse to grant leave to amend a complaint. Foman v. 21 Davis, 371 U.S. 178, 182 (1962); Lockheed Martin Corp. v. Network Sols., Inc., 194 F.3d 980, 986 22 (9th Cir. 1999). 23

25 3 Under the court’s scheduling order, the deadline to seek leave to amend the pleadings to add new 26 parties, claims, and defenses was December 16, 2019. [Docket No. 61.] To the extent that Norton argues that LVNV is prohibited from seeking leave to amend because of that deadline, the court 27 disagrees. The good cause standard of Rule 16(b)(4) plainly applies to amendments occurring after the scheduling order deadline has passed. In re W. States Wholesale Nat. Gas Antitrust Litig., 715 1 III. DISCUSSION 2 LVNV argues that the court should grant it leave to amend its answer because (1) it has good 3 cause to amend under Rule 16(b); (2) it has also met the requirements of Rule 15(a); and (3) it could, 4 in any case, raise the setoff defense for the first time on summary judgment. 4 5 A. Rule 16(b) 6 LVNV argues that it has met the good cause standard of Rule 16(b) because it has diligently 7 sought to remedy its inadvertent error in omitting setoff as an affirmative defense. LVNV points 8 out that it discovered the omission on January 30, 2020, after the deadline to amend the pleadings 9 had already passed, and argues that it was reasonable to wait until after the February 12, 2020 10 mediation to raise the issue with Norton. LVNV asserts that its counsel contacted Norton’s counsel 11 within two business days of the mediation to request a stipulation to amend. LVNV filed this motion just over two weeks after Norton declined to stipulate to its request, and a little more than a month 12 after it first discovered the error. Norton disputes LVNV’s characterization of its diligence. She 13 asserts that LVNV had notice of her claim for restitution since the beginning of the case, and that 14 LVNV did not seek leave to amend its answer until over three months after the deadline to amend 15 pleadings had passed. She further argues that LVNV’s admitted inadvertence was careless and 16 therefore not sufficient to meet the diligence requirement of Rule 16(b). 17 The underlying purpose of Rule 16(b) was explored in a published California district court 18 opinion and affirmed by the Ninth Circuit on appeal. See C.F. v. Capistrano Unified Sch. Dist., 656 19 F. Supp. 2d 1190 (C.D. Cal. 2009) (“Capistrano”), aff’d sub nom. C.F. ex rel. Farnan v. Capistrano 20 Unified Sch. Dist., 654 F.3d 975 (9th Cir. 2011). The district court in Capistrano pointed out that 21 Johnson, a leading Ninth Circuit authority on this issue, cited Harrison Beverage Co. v. Dribeck 22 Importers, Inc., 133 F.R.D. 463 (D.N.J. 1990) in developing the “diligence” standard. 656 F. Supp. 23 2d at 1196. Harrison, in turn, reviewed the Advisory Committee notes on Rule 16, and observed 24 that “[t]he 1983 amendments to the Federal Rules of Civil Procedure were enacted specifically to 25 require ‘judicial control over a case and to schedule dates for completion by the parties of the 26 27 1 principal pretrial steps.’” Harrison, 133, F.R.D. at 469 (quoting Fed. R. Civ. P. 16, Advisory 2 Committee’s Note on 1983 Amendment). Capistrano thus concluded that the heart of the Rule 3 16(b) analysis goes to the court’s efficient adjudication of a case. See Capistrano, 656 F. Supp. 2d 4 at 1197. For example, in Capistrano, a student sued a school district and a teacher for violation of 5 his First Amendment rights under 42 U.S.C. § 1983. The deadline for amending pleadings under 6 the court’s scheduling order was August 17, 2008. Id. at 1193 n. 3. On May 1, 2009, the court ruled 7 on the parties’ cross-motions for summary judgment. Id. at 1193. On July 24, 2009, the defendants 8 moved to amend their answer to add a qualified immunity defense. They represented that the 9 availability of the defense only became apparent after the court’s ruling on the cross-motions for 10 summary judgment. Id. In finding that allowing amendment comported with the underlying 11 purpose of Rule 16(b), the court noted that “asserting the qualified immunity defense at this point in the litigation has created no meaningful cases management issues nor has it infringed on the 12 efficient adjudication of the action.” Id. at 1197. The Ninth Circuit affirmed this reasoning. 654 13 F.3d at 984. In sum, the purpose of Rule 16(b) is to facilitate efficient case management. 14 In this case, Norton has not pointed to any compelling case management issues. Discovery 15 does not close until October 13, 2020, and the last day for hearing dispositive motions is December 16 10, 2020. [Docket No. 62.] There is ample time for Norton to conduct discovery on the setoff 17 defense and raise any discovery disputes with the court. Neither party raises setoff as an issue in 18 the currently pending class certification motion. Further, Capistrano permitted amendment almost 19 a year after the deadline to amend pleadings, and almost three months after the availability of the 20 defense became “apparent” to the defendants. In contrast, LVNV filed this motion about two and a 21 half months after the deadline to amend pleadings, and just over a month after discovering the 22 necessity of amendment. Therefore, Rule 16(b)’s purpose in promoting efficient case management 23 does not appear to be undermined by allowing the proposed amendment at this stage. 24 Norton cites to Johnson’s admonishment that “carelessness is not compatible with a finding 25 of diligence and offers no reason for a grant of relief.” Johnson, 975 F.2d at 609. However, Johnson 26 is readily distinguishable. There, the plaintiff sought to add additional parties after the deadline for 27 joinder had passed. Prior to the joinder deadline, the plaintiff had repeatedly received information 1 pointing to the existence of additional defendants as follows. In its answer, the named defendant 2 denied ownership and control of the liable entity. 975 F.2d at 606. Its discovery responses similarly 3 asserted that different parties were liable, and explicitly named those parties. Id. at 606-07. Defense 4 counsel sent a letter to the plaintiff informing him that he had named the wrong entity. Id. at 607. 5 The Ninth Circuit determined that “[f]ailing to heed clear and repeated signals that not all the 6 necessary parties had been named in the complaint does not constitute diligence.” Id. at 609. There 7 are no similar indicia in this case that LVNV failed to respond to evidence of its omission. Instead, 8 LVNV filed this motion just over a month after it discovered the error, and well within the discovery 9 and dispositive motion deadlines. 10 The other cases Norton cites are not compelling. See Opp. at 5 (citing Kaneka Corp. v. SKC 11 Kolon PI, Inc., 2014 WL 12778553 (C.D. Cal. Oct. 24, 2014); Sugita v. Parker, 2015 WL 5522078 (E.D. Cal. Sept. 16, 2015); Star Envirotech v. Redline Detection, LLC, 2015 WL 12777087 (C.D. 12 Cal. Apr. 21, 2015)). The analysis in Kaneka is brief and does not explore the purpose of Rule 13 16(b). Further, the plaintiff in Kaneka sought to amend its complaint after the defendant had filed 14 its motion for summary judgment. 2014 WL 12778553, at *1. It is therefore unclear whether the 15 amendment would have caused case management issues by delaying consideration of the summary 16 judgment motion. In Sugita, the defendant sought additional time to file a dispositive motion and 17 to continue the pretrial conference, both of which would clearly affect efficient resolution of the 18 case. 2015 WL 5522078, at *1. Here, LVNV has not sought to change the deadlines for discovery, 19 dispositive motions, or the pretrial conference, nor do extensions of those deadlines appear 20 necessary. The conclusory analysis in Star Envirotech does not detail either the underlying facts of 21 the case or how amendment would have affected case management deadlines. Additionally, Star 22 Environtech noted that the party seeking amendment had not provided the date that it discovered its 23 error. 2015 WL 12777087, at *2. In contrast, LVNV has explained that it filed this motion just 24 over a month after discovering its error and that the case management deadlines will not be affected. 25 In sum, the underlying purpose of Rule 16(b) is to facilitate the court’s “early control over 26 the litigation.” Fed. R. Civ. P. Rule 16, Advisory Committee’s Note on 1983 Amendment. That 27 purpose is not undermined by allowing the proposed amendment of the answer at this stage of the 1 litigation. Accordingly, LVNV has met its burden to show good cause for the amendment. 2 B. Rule 15(a) 3 Once a party has shown good cause to amend its pleading after the deadlines set by the 4 || court’s scheduling order, it must also demonstrate that amendment is proper under Rule 15(a). 5 || Johnson, 975 F.2d at 608. Amendment under Rule 15(a) should be “freely given . . . [i]n the absence 6 || of any apparent or declared reason—such as undue delay, bad faith or dilatory motive on the part of 7 the movant, repeated failure to cure deficiencies by amendment previously allowed, undue prejudice g || to the opposing party by virtue of allowance of the amendment, etc.” Foman, 371 U.S. at 182. The 9 factors cited by Foman are absent here. Although Norton speculates that LVNV may delay in 19 || Providing discovery responses regarding its setoff defense, this assertion appears to be pure conjecture. In any case, there is ample time to resolve discovery disputes prior to the discovery 2 cutoff date. Norton does not point to any bad faith or dilatory motive by LVNV, nor is any apparent. E 13 Finally, although Norton points out that she has already fully briefed the class certification motion, 14. || the setoff defense is not at issue in that motion. 5 15 The court finds that permitting amendment of the answer is appropriate under Rule 15(a). 16 IV. CONCLUSION 5 For the reasons stated above, the court grants LVNV’s motion to amend its answer. LVNV 5 18 must file an amended answer by no later than June 2, 2020. 19 IT IS SO ORDERED. 0 Dated: May 19, 2020 71 Lp M. Ryu 22 United States Magistrate Judge 23 24 25 26 27 28