Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_14-cv-03953/USCOURTS-cand-5_14-cv-03953-23/pdf.json

Nature of Suit Code: 470
Nature of Suit: Civil (Rico)
Cause of Action: 28:1441 Petition for Removal- Racketeering (RICO) Act

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United States District Court

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

MONTEREY BAY MILITARY HOUSING, 

LLC, et al.,

Plaintiffs,

v.

PINNACLE MONTEREY LLC, et al.,

Defendants.

Case No. 14-cv-03953-BLF 

ORDER DENYING MOTION FOR 

LEAVE TO AMEND TO CONFORM 

THE PLEADINGS TO THE EVIDENCE

[Re: ECF 251]

Defendants in this action seek—weeks before trial—to “amend their operative pleadings in 

this case to conform to claims already known to Plaintiffs.” Defs.’ Mot., ECF 251. For the 

reasons stated herein, the motion is DENIED.

I. BACKGROUND

The lengthy factual and procedural history of this case is well known to the parties. This 

action began in state court in 2011 and was removed to federal court on September 2, 2014. Fact 

discovery is closed, and the Court heard oral argument on all of the parties’ motions for summary 

judgment on May 14, 2015. Trial is presently set to begin on August 3, 2015, and all parties agree 

that the trial should go forward on that date. 

Defendants on June 2, 2015 filed the instant motion—noticing the motion to be heard at 

the July 9 pretrial conference—seeking to amend the Second Amended Complaint by defendants 

Pinnacle Monterey, LLC and Pinnacle Irwin, LLC, which was originally filed on October 24, 

2013 in state court. Pinnacle SAC, ECF 1-18. Specifically, Defendants seek to “amend” the 

Third and Fourth Claims, by Pinnacle Monterey and Pinnacle Irwin respectively, against Clark 

Realty Capital, LLC (“Clark Realty”) for breach of fiduciary duty. The source of these alleged 

fiduciary duties is the Clark Pinnacle Monterey Bay LLC (“CPMB”) and Clark Pinnacle 

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California Military Communities LLC (“CPCMC”) operating agreements, under which Clark 

Realty is the designated manager for the majority Clark members in both companies and Pinnacle 

Monterey and Pinnacle Irwin are the designated managers for the minority Pinnacle members at 

CPMB and CPCMC respectively.

To this brouhaha, Defendants seek to add a breach of fiduciary duty claim by defendant 

American Management Services LLC (“AMS”) against Clark Realty. While couched as a minor 

amendment to add an existing party to an existing claim to “conform to claims already known to 

Plaintiffs,” Defs.’ Mot. 2, Defendants acknowledge that the proposed amendment would entail 

adding allegations “to confirm that the parties created Clark Pinnacle Family Communities LLC to 

carry out the business of their joint venture” and to assert a breach of duties owed in connection 

with that company. Id. at 4-5. In other words, the fiduciary duty that Clark Realty allegedly owes 

to AMS does not arise out of the CPMB and CPCMC operating agreements, but rather finds its 

genesis in an entirely different limited liability company formed at a different time and governed 

by a different operating agreement. Nevertheless, Defendants maintain that Plaintiffs have been 

aware of this nascent claim all along because “the existing Second Amended Complaint already 

pleads that Clark Realty was AMS’s joint venture partner” and that the proposed amendment 

“simply conforms the counts to the existing allegations of the Second Amended Complaint and to 

the evidence in discovery.” Id. at 2.

II. LEGAL STANDARD

Although confusingly styled as a “Motion for Leave to Amend to Conform the Pleadings 

to the Evidence,” which suggests invocation of Federal Rule of Civil Procedure 15(b), 

Defendants’ motion is actually governed by the Rule 15(a) standard, as this case has not yet gone 

to trial. In the Ninth Circuit, Rule 15 is applied with “extreme liberality” with “all inferences in 

favor of granting the motion.” Owens v. Kaiser Found. Health Plan, Inc., 244 F.3d 708, 712 (9th 

Cir. 2001) (citation omitted); Griggs v. Pace Am. Grp., Inc., 170 F.3d 877, 880 (9th Cir. 1999). In 

spite of this liberal standard, “undue delay, bad faith in seeking amendment, or undue prejudice to

the party opposing amendment are grounds for denying leave to amend.” Acri v. Int’l Ass’n of 

Machinists & Aerospace Workers, 781 F.2d 1393, 1398 (9th Cir. 1986) (citing Foman v. Davis, 

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371 U.S. 178, 182 (1962)). Undue delay alone generally does not justify denial of a motion for 

leave to amend but undue delay that causes prejudice to the opposing party favors denial. Bowles 

v. Reade, 198 F.3d 752, 758-59 (9th Cir. 1999). Indeed, the Ninth Circuit has often noted that 

“late amendments to assert new theories are not reviewed favorably when the facts and the theory 

have been known to the party seeking amendment since the inception of the cause of action.” Acri, 

781 F.2d at 1398 (citing M/V American Queen v. San Diego Marine Construction Corp., 708 F.2d 

1483, 1492 (9th Cir. 1983) and Stein v. United Artists Corp., 691 F.2d 885, 898 (9th Cir. 1982)).

III. DISCUSSION

Despite the liberality with which courts generally grant leave to amend the pleadings, 

significant undue delay by Defendants in seeking amendment and resulting prejudice to Plaintiffs 

weigh against leave to amend in this instance. 

On the factor of undue delay, Defendants have for many years asserted the existence of a 

fiduciary relationship between Clark Realty and AMS in connection with Clark Pinnacle Family 

Communities LLC (“CPFC”). By their own admission, the fiduciary relationship was alleged in 

Pinnacle Monterey and Pinnacle Irwin’s October 24, 2013 Second Amended Complaint. Further, 

Defendants acknowledge that they have been making arguments based upon that alleged fiduciary 

relationship since October 2012, when Defendants sought and obtained an injunction against 

Plaintiffs’ removal of American Management Services California, Inc. (“AMSC”) from the 

Monterey and Irwin residential projects. Defs.’ Mot. 2-5. Yet Defendants never asserted a claim

based upon that supposed fiduciary relationship between AMS and Clark Realty. While 

Defendants may contend that Plaintiffs have been aware of the factual basis for this new claim of 

fiduciary duty “for years,” Plaintiffs are not obliged to speculate on what claims the opposing 

party might bring based upon the facts alleged. See Defs.’ Mot. 6; Defs’ Reply 3, ECF 259. It 

was Defendants’ obligation to timely assert the claim. Knowing of the basis for a claim and 

failing to bring that claim for over two years without explanation is the definition of undue delay. 

Acri, 781 F.2d at 1398.

Furthermore, the Court agrees with Plaintiffs that the prejudice to them from permitting 

this proposed amendment is significant. Pls.’ Opp. 4-8, ECF 256. As the parties have 

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demonstrated through their copious summary judgment briefing, the existence and scope of a 

fiduciary duty under limited liability company operating agreements requires detailed contract 

interpretation augmented by the law of the state in which the company was formed. As Plaintiffs 

note, in order to prove or disprove the existence of a fiduciary duty owed by Clark Realty to AMS 

in connection with CPFC, there must have been meaningful discovery into its alleged formation in 

2001, the existence of an operating agreement for CPFC, and the terms of such agreement. Id. at 

5-6. Discovery is now closed and Plaintiffs assert that there has never been discovery into the 

CPFC allegations because they have always maintained that there are no claims pertaining to 

CPFC in this lawsuit. Id. at 5. It is not clear whether Defendants ever directly challenged that 

assertion. Instead, Defendants argue that Plaintiffs have been litigating these allegations for years 

and that the proposed new breach of fiduciary duty claim is so closely related to the existing 

claims by Pinnacle Monterey and Pinnacle Irwin that Plaintiffs are unlikely to face prejudice if 

amendment is permitted. Defs.’ Reply 3. It should be easy to see, however, that AMS’s proposed 

claim in connection with CPFC, a limited liability company whose existence is as yet unproven, is 

different in kind from Pinnacle Monterey’s and Pinnacle Irwin’s claims under the CPMB and 

CPCMC operating agreements because the claims arise out of different contracts. 

Nor is the Court persuaded by Defendants’ arguments that the proposed new claim can be 

easily incorporated into this lawsuit. Defendants filed the instant motion after the Court had 

already heard oral argument on the parties’ summary judgment motions, wherein Plaintiffs sought 

judgment that Pinnacle Monterey’s and Pinnacle Irwin’s fiduciary duty claims are precluded by 

the terms of the CPMB and CPCMC operating agreements. See Pls.’ Mot. 21-23, ECF 151. To 

contend that “[t]he relationship between the parties has been well documented and is well 

understood by the Court, and the Court can therefore take into account Defendants’ proposed 

amendment in its consideration of the Summary Judgment motions” is therefore nonsensical 

because, as has already been explained, the claims are founded in different contracts. See Defs.’ 

Mot. 6. Likewise, Defendants’ contentions that the addition of the proposed new claim will not 

delay proceedings and can be addressed in pretrial motions are premised on the same faulty 

assertion that the proposed claim by AMS is “functionally identical” to the existing claims by 

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Pinnacle Monterey and Pinnacle Irwin. Defs.’ Reply 3. While the facts underlying a breach may 

be similar, Defendants fail to account for the completely different evidence required to prove that 

a duty exists in the first place. As this Court observed in its April 7, 2015 order denying Plaintiffs’ 

request to dissolve the preliminary injunction against AMSC’s removal, there does not appear to 

be documentary evidence of the formation of CPFC or of its operating agreement. Prelim. Inj. 

Order at 1 n.1, 16-18, ECF 169. Thus, as Plaintiffs rightly note, to even establish that CPFC 

existed, Defendants would have to put on additional evidence not required for Pinnacle Monterey 

and Pinnacle Irwin’s claims, to say nothing of evidence of the terms of the CPFC operating 

agreement and the fiduciary duties owed thereunder. Pls.’ Opp. 5-6. It should thus be self-evident 

that an amendment proposed after the close of fact discovery and summary judgment briefing to 

introduce a new claim that would require different evidence not previously discovered is highly 

prejudicial to Plaintiffs and would serve only to further expand this already unwieldy lawsuit. 

In actuality, Defendants’ proposed amendment seeks to introduce a new claim for breach 

of fiduciary duty by AMS that would require different evidence of a different fiduciary 

relationship than was previously claimed. Defendants have known of the factual basis for this

proposed claim since as early as October 2012, have alleged the existence of a fiduciary 

relationship since October 2013, but waited until June 2, 2015—after the close of fact discovery 

and argument on the parties’ summary judgment motions—to actually bring a claim based on 

those allegations. The Court finds that this delay is unexplained and undue, and that Plaintiffs 

would be unfairly prejudiced by the introduction of such a new claim at the eleventh hour. 

For the foregoing reasons, IT IS HEREBY ORDERED that Defendants’ Motion for Leave 

to Amend to Conform the Pleadings to the Evidence is DENIED.

IT IS SO ORDERED.

Dated: July 10, 2015

______________________________________

BETH LABSON FREEMAN

United States District Judge

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