Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_03-cv-01003/USCOURTS-cand-3_03-cv-01003-9/pdf.json

Nature of Suit Code: 290
Nature of Suit: Other Real Property Actions
Cause of Action: 28:1441 Petition for Removal- Property Damage

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United States District Court

For the Northern District of California

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UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SCANLAN KEMPER BARD COMPANIES, an

Oregon corporation, ROYAL INSURANCE

COMPANY OF AMERICA, an Illinois

corporation,

Third-Party Plaintiffs,

 v.

EMG, INC., a Maryland corporation,

Third-Party Defendant. 

AND RELATED CROSS-ACTION

___________________________________ 

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No. C-03-1003 SC

ORDER DENYING

PLAINTIFFS' MOTION

FOR LEAVE TO FILE

THIRD AMENDED

COMPLAINT 

I. INTRODUCTION

Third-Party Plaintiffs Scanlan Kemper Bard ("SKB") and its

insurer Royal Insurance Company of America ("Royal" collectively,

"Plaintiffs") initiated this action to recover from Third-Party

Defendant Environmental Management Group, Inc. ("EMG" or

"Defendant") monies that SKB and Royal paid to settle an action

brought by property owners against SKB. On May 18, 2005, this

Court issued an Order denying EMG's motion for summary judgment

and granting EMG's motion for summary adjudication, clearing the

way for this matter to go to trial beginning April 10, 2006. SKB

and Royal have now moved for leave to file a Third Amended

Complaint so as to include a cause of action for Fraud -

Concealment. EMG does not oppose the motion provided that the

Case 3:03-cv-01003-SC Document 243 Filed 02/07/06 Page 1 of 6
United States District Court

For the Northern District of California

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April 10 trial date is vacated and rescheduled for sometime after

July 31, 2006, and the parties are given the opportunity to

conduct additional discovery and schedule a motion for summary

judgment. For the reasons set forth herein, Plaintiffs' motion is

DENIED and the parties are hereby ORDERED to comply with the

pretrial schedule set forth in this Court's prior orders.

II. BACKGROUND

A full accounting of the facts and circumstances that gave

rise to this litigation have been set forth in prior Orders of

this Court, familiarity with which is presumed. For purposes of

the instant motion, the following recapitulation will suffice. 

Plaintiff SKB is a real estate merchant bank located in

Portland, Oregon. SKB identifies potential commercial real estate

investment properties and lines up investors to acquire the

properties. Defendant EMG is a firm that conducts property

condition assessments and evaluations for prospective purchasers

of commercial real estate.

In 2000, SKB identified the Orinda Theater Square as a

potential investment. The Orinda Theater Square is a large

commercial complex located in Orinda, California. It includes the

Orinda Theater as well as several other buildings housing business

and retail tenants. 

SKB entered into a purchase agreement with the sellers of the

Orinda property on June 8, 2000. As part of the due diligence

prior to purchase, SKB hired EMG to conduct a property inspection

of the Orinda Theater Square property. SKB and EMG entered into a

written contract (the "Property Inspection Contract"), and SKB

Case 3:03-cv-01003-SC Document 243 Filed 02/07/06 Page 2 of 6
United States District Court

For the Northern District of California

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agreed to pay EMG $6,000.00 for its property inspection services. 

On April 5 and 6, 2000, an EMG representative conducted the

inspection of the Orinda property and subsequently prepared a

"Property Condition Evaluation" dated July 20, 2000. The

evaluation stated that the building was in "good overall

condition" and estimated that the property required $17,855.00 in

immediate repair costs, $17,500.00 in short term expenditures and

$173,000.00 in long term reserves. 

In the Fall of 2001, extensive water damage was discovered

throughout the Orinda property. This damage was repaired at a

cost of at least $3 million. In 2003, investors Steven Thomas and

Main Street Holdings sued SKB for failing to conduct adequate due

diligence. SKB, through its insurer Royal, settled with the

investors for $3 million. As part of this settlement, Main Street

Holdings, Steven Thomas and Orinda Investments assigned to Royal

any and all claims they might have against the property inspector,

EMG.

SKB and Royal in turn filed a complaint against EMG. In the

Second Amended Complaint, SKB and Royal alleged breach of the

Property Inspection Contract, negligence, negligent

misrepresentation and fraud in the inducement of the Property

Inspection Contract. In an Order dated May 18, 2005, this Court

denied EMG's motion for summary judgment and granted EMG's motion

for summary adjudication. The Court ruled that, with the

exception of SKB's claim for fraudulent inducement, Plaintiffs'

claims are subject to a limitation of liability clause in the

Property Inspection Contract that caps EMG's liability at

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United States District Court

For the Northern District of California

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$50,000.00. Plaintiffs now assert that after "examin[ing] [the

Court's] ruling and its implications, and consider[ing] the facts

that have been developed through discovery," they should be

granted leave to file a third amended complaint that alleges a

claim of "Fraud - Concealment," which, SKB contends, will not be

subject to the liability limitation. See Plaintiffs' Memorandum

in Support of Motion to Amend Complaint at 6 ("Pls.' Mem."). 

III. LEGAL STANDARD

Federal Rule of Civil Procedure 15(a) provides, in relevant

part, that "a party may amend the party's pleading only by leave

of court or by written consent of the adverse party; and leave

shall be freely given where justice so requires." Factors that

the Court must consider in its determination of whether to grant

leave to amend include (1) undue delay; (2) bad faith; (3)

futility of the amendment; and (4) prejudice to the opposing

party. Hurn v. Retirement Fund Trust, 648 F.2d 1252, 1254 (9th

Cir. 1981). Such decisions are subject to review only for abuse

of discretion. Id. 

IV. DISCUSSION

Although it is not often that courts deny leave to amend a

complaint where the adverse party has not opposed the motion, the

Court finds that several factors weigh in favor of denying SKB's

motion. First, and perhaps most importantly, Plaintiffs readily

admit that their proposed Third Amended Complaint will not present

an additional cause of action based on recently discovered facts. 

See Pls.' Mem. at 5-6. Rather, Plaintiffs seek to recast facts

already plead into the mold of a cause of action Plaintiffs assert

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United States District Court

For the Northern District of California

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will not be subject to the limitation on liability. However, the

facts that allegedly support this new cause of action for

fraudulent concealment are virtually identical to the facts SKB

has relied on to support its claim of fraudulent inducement. That

claim is already before the Court and, as recognized by the

Court's May 18, 2005 Order, is not subject to the $50,000.00

liability cap. See Docket #213. 

The Court finds that to allow Plaintiffs leave to file a

Third Amended Complaint would be futile, as the success or failure

of Plaintiffs' claim for fraud will ultimately turn on the same

facts as Plaintiffs now contend support their claim for fraudulent

concealment. In short, Plaintiffs, perhaps surprised at the fact

that the Court ruled that the liability limitation clause was

enforceable with respect to their claim for negligent

misrepresentation, now seek to circumvent that ruling by recasting

the same facts as supportive of an alternative cause of action. 

Whatever Plaintiffs' reasons were for refraining from bringing a

claim for fraudulent concealment, Plaintiffs cannot argue that

those reasons have been impacted by the course of discovery, as

Plaintiffs readily admit that the proposed amendment was not the

result of new facts uncovered in discovery, but rather the result

of over seven months of considering the implications of this

Court's May 18, 2005 Order. 

In addition, the Court notes that only now, with the close of

discovery imminent and the trial scheduled to begin in

approximately two months, do Plaintiffs seek to file a Third

Amended Complaint. The Court finds that this delay is undue, as

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United States District Court

For the Northern District of California

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Plaintiffs have had ample time to determine which causes of action

it should assert. Indeed, Plaintiffs acknowledged the potential

for a claim for fraudulent concealment in their Opposition to

EMG's motion for summary judgment, but did not act on that

potential until long after the Court determined that the

$50,000.00 liability limitation was enforceable. Any additional

delay in connection with resolution of this case is unwarranted,

especially where the facts that allegedly support the new claim

have long been known to Plaintiffs.

V. CONCLUSION

Given the fact that Plaintiffs' proposed claim of fraudulent

concealment will not provide an avenue of relief separate and

apart from the already pending claim for fraudulent inducement,

and that the Court deems any further delay of this matter undue,

Plaintiffs' motion for leave to amend its complaint is hereby

DENIED. The parties are ORDERED to comply with the Court's pretrial schedule as has been set forth in previous Orders.

IT IS SO ORDERED.

Dated: February 7, 2006 

UNITED STATES DISTRICT JUDGE 

Case 3:03-cv-01003-SC Document 243 Filed 02/07/06 Page 6 of 6