Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_15-cv-02025/USCOURTS-casd-3_15-cv-02025-2/pdf.json

Nature of Suit Code: 370
Nature of Suit: Other Fraud
Cause of Action: 28:1332fr Diversity-Fraud

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

DIRECT LIST LLC, a North Carolina

Limited Liability Company; and

ERAN SALU, an individual,

Plaintiffs,

CASE NO. 15cv2025-WQH-JLB

ORDER

v.

VISTAGE INTERNATIONAL, INC.,

a Delaware Corporation; PHIL

KESSLER; LAUREN KESSLER;

DIANA OWENS; EDETTE

HERRON; and DOES 1 through 10,

inclusive,

Defendants.

HAYES, Judge:

The matter before the Court is the Motion for Leave to Modify the Scheduling

Order and File a First Amended Complaint filed by Plaintiffs Direct List, LLC and Eran

Salu (“Plaintiffs”). (ECF No. 97).

I. Background

On September 11, 2015, Plaintiffs Direct List LLC (“Direct List”) and Eran Salu

(“Salu”) commenced this action by filing a complaint alleging four causes of action

against Defendants Vistage International, Inc. (“Vistage”), Phil Kessler, Lauren Kessler,

Diana Owens (“Owens”), and Edette Herron (“Herron”) as follows: (1) fraud, brought

by Salu against Vistage and Phil Kessler; (2) breach of fiduciary duty, brought by Salu

against Vistage and Phil Kessler; (3) misappropriation of trade secrets in violation of

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Cal. Civil Code § 3426 et seq., brought by Direct List against Phil Kessler, Lauren

Kessler, Owens, and Herron; and (4) unfair business practices in violation of Cal. Bus.

& Prof. Code § 17200 et seq., California’s unfair competition law (“UCL”), brought by

Salu and Direct List against Vistage, Phil Kessler, Lauren Kessler, Diana Owens, and

Edette Herron.

On February 8, 2016, the Court issued an order granting Vistage’s motion to

dismiss the claim for breach of fiduciary duty brought by Salu, and denying Vistage’s

motion to dismiss the claim for fraud brought by Salu. (ECF No. 20). On November

3, 2016, the Court issued an order granting Vistage’s motion to dismiss the fraud and

UCL claims brought by Salu, and granting Vistage’s motion for summary judgment on

the UCL claim brought by Direct List. (ECF No. 61).

On January 13, 2017, the Court held a pretrial conference in this matter. (ECF

No. 74). The Court issued a scheduling order setting a February 13, 2017 deadline for

Defendants to file additional motions and dates for a motion in limine hearing and jury

trial. (ECF No. 75). On January 26, 2017, Brandon Baum, former counsel for

Plaintiffs, filed a motion to withdraw as attorney. (ECF No. 76). On February 13,

2017, Defendants Phil Kessler, Lauren Kessler, and Diana Owens (“the Kessler

Defendants”) filed a motion to dismiss. (ECF No. 81). On February 23, 2017, the

Court issued an order granting the motion to withdraw as attorney, and ordering

Plaintiffs to file a notice of appearance of new counsel or a status report. (ECF No. 85). 

On April 7, 2017, attorneys William Patrick Keith and Anne K. Wilson filed notices of

appearance on behalf of Plaintiffs. (ECF Nos. 87 & 88).

On May 2, 2017, Plaintiffs filed the Motion for Leave to Modify the Scheduling

Order and File a First Amended Complaint (ECF No. 97). On May 22, 2017, Vistage

filed a response in opposition. (ECF No. 105). On May 22, 2017, the Kessler

Defendants filed a response in opposition. (ECF No. 106). On May 26, 2017, Plaintiffs

filed a reply. (ECF No. 107). On June 13, 2017, Vistage filed a surreply. (ECF No.

119).

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II. Contentions of the Parties

Plaintiffs contend that they have demonstrated good cause to modify the pretrial

scheduling order to allow the filing of a first amended complaint. Plaintiffs contend

that good cause exists to add Arrow Marketing Company, L.L.C. (“Arrow”) as a

defendant and to assert claims against Arrow because Arrow’s existence was not

discovered by Plaintiffs until February 2017, and because Arrow was not registered

with the State of California until after this action was filed. (ECF No. 97-1 at 10). 

Plaintiffs contend that good cause exists to add Direct List as a plaintiff to several

causes of action because Plaintiffs seek to address standing issues raised in the motions

to dismiss and the motion for summary judgment filed in this case. Plaintiffs contend

that good cause exists to add additional claims against the previously-named

Defendants because Plaintiffs seek to “state alternative claims against Vistage and the

Kessler Defendants in light of the adverse rulings (and possible future rulings) on the

three Rule 12 motions.” Id. at 20.

Vistage contends that Plaintiffs have failed to demonstrate good cause because

Plaintiffs were aware of the facts asserted in the proposed first amended complaint as

to Vistage prior to filing this action. Vistage contends that Plaintiffs did not seek leave

to amend following this Court’s orders on Vistage’s motion to dismiss and motion for

summary judgment. Vistage contends that it “pursued discovery based on a strategic

plan formulated from the pleadings brought against it[,]” and that it was “properly

dismissed and exited this dispute seven months ago.” (ECF No. 105 at 8).

The Kessler Defendants contend that Plaintiffs have failed to demonstrate good

cause because their proposed amendments are the result of Plaintiffs’ “strategic

decisions” in this case, including not pleading contract or interference claims against

the Kessler Defendants and not pleading computer-access claims against the Kessler

Defendants. (ECF No. 106 at 2).

III. Analysis

Federal Rule of Civil Procedure 16(b) states that a scheduling order “may be

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modified only for good cause and with the judge’s consent.” Fed. R. Civ. P. 16(b)(4). 

Unlike the liberal amendment policy set forth in Federal Rule of Civil Procedure 15(a)

“which focuses on the bad faith of the party seeking to interpose an amendment and the

prejudice to the opposing party, Rule 16(b)’s ‘good cause’ standard primarily considers

the diligence of the party seeking the amendment.” Johnson v. Mammoth Recreations,

Inc., 975 F.2d 604, 609 (9th Cir. 1992). See also Jackson v. Laureate, Inc.,

186 F.R.D. 605, 607 (E.D. Ca. 1999) (“once the district court has filed a pretrial

scheduling order pursuant to Rule 16 which establishes a timetable for amending

pleadings, a motion seeking to amend pleadings is governed first by Rule 16(b), and

only secondarily by Rule 15(a).”). “While a court may take into account any prejudice

to the party opposing modification of the scheduling order, ‘the focus of the [Rule

16(b)] inquiry is upon the moving party’s reasons for seeking modification . . . [i]f that

party was not diligent, the inquiry should end.’” In re Western States Wholesale

Natural Gas Antitrust Litig., 715 F.3d 716, 737 (9th Cir. 2013) (quoting Johnson, 975

F.2d at 609).

In determining whether a movant seeking to amend pleadings pursuant to Rule

16(b) has demonstrated diligence, courts may consider whether the party was diligent

in assisting the Court with creating the Rule 16 order, whether the movant’s

noncompliance with the scheduling order will occur because of developments the

movant could not have reasonably foreseen or anticipated at the time the scheduling

order was issued, and whether the movant was diligent in seeking amendment under

Rule 16(b) once it became apparent that the movant could not comply with the

scheduling order. Jackson, 186 F.R.D. at 608.

On December 2, 2015, the Magistrate Judge entered a scheduling order in this

matter. (ECF No. 18). The order set a January 16, 2016 deadline for filing any motion

to amend the pleadings, and the order set a July 22, 2016 deadline for filing all other

pretrial motions. Id. at 1, 3. On April 7, 2017, current counsel for Plaintiffs entered

their notices of appearance. (ECF Nos. 87 & 88). On May 2, 2017, Plaintiffs filed the

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Motion for Leave to Modify the Scheduling Order and File a First Amended Complaint. 

(ECF No. 97).

Having reviewed the Motion for Leave to Modify the Scheduling Order and File

a First Amended Complaint, the responses in opposition, the reply, and the surreply

filed by the parties, the Court finds the following:

A. Proposed Claims Against Arrow Marketing Company L.L.C.

The Court concludes that Plaintiffs have demonstrated good cause to file an

amended complaint to add Arrow as a defendant in this matter, as Plaintiffs contend that

they learned of the existence of Arrow after the deadline to amend the complaint had

passed. See Copart, Inc. v. Sparta Consulting, Inc., No. 2:14-cv-00046-KJM-CKD,

2016 WL 3126108, at *4 (E.D. Ca. June 2, 2016) (“Allowing parties to amend based

on information obtained through discovery is common and well established.”).

The Court will permit Plaintiffs to file an amended complaint naming Arrow as

a defendant and containing each of the claims against Arrow that Plaintiffs have

included in the proposed first amended complaint. (ECF No. 97-4 at 3-62). The Motion

is granted as to the proposed addition of Arrow as a defendant in this matter and as to

the proposed claims against Arrow.

B. Proposed Claims Against AVS Leads

The Court concludes that Plaintiffs have not demonstrated good cause to file an

amended complaint to add AVS Leads as a defendant in this matter. Plaintiffs have not

demonstrated diligence throughout this matter that would justify permitting amendment

of the complaint to include any of the proposed claims against AVS Leads. See

Johnson, 975 F.3d at 609 (“If th[e] party [seeking amendment] was not diligent, the

inquiry should end”). The Motion is denied as to the proposed addition of AVS Leads

as a defendant in this matter and its inclusion as a defendant in any cause of action in

the amended complaint to be filed by Plaintiffs.

C. New Claims Against Vistage

The Court concludes that Plaintiffs have not demonstrated good cause to file an

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amended complaint as to any of the proposed claims to be added against Vistage. 

Plaintiffs have not demonstrated diligence throughout this matter that would justify

allowing amendment of the complaint to include the proposed claims against Vistage. 

See Johnson, 975 F.3d at 609. Plaintiffs have not demonstrated that they have

discovered additional information after the deadline to amend the pleadings had passed

that would justify asserting new claims against Vistage at this stage of the litigation. 

The Motion is denied as to the proposed claims against Vistage.

D. New Claims Against Kessler Defendants and Herron

The Court concludes that Plaintiffs have demonstrated good cause to file an

amended complaint as to the proposed fifth cause of action for violation of

Cal. Penal Code § 502, the sixth cause of action for intentional interference with

prospective economic advantage, and the seventh cause of action for negligent

interference with prospective economic advantage, as Plaintiffs contend they learned

new information concerning these claims during discovery.

The Motion is granted as to the proposed addition of these claims against the

Kessler Defendants and Herron. The Court concludes that Plaintiffs have not

demonstrated good cause to file an amended complaint as to any of the additional

proposed claims to be added against the Kessler Defendants and Herron.

E. New Claims Asserted by Direct List Previously Asserted Only By Salu

The Court concludes that Plaintiffs have demonstrated good cause to file an

amended complaint naming Direct List as a plaintiff on the two claims included in the

original complaint that were brought only by Salu: the first cause of action for fraud,

and the second cause of action for breach of fiduciary duty. The Court concludes that

permitting the proposed addition of Direct List as a plaintiff as to these two claims

would serve the interests of justice and judicial efficiency. Moss v. U.S. Secret Serv.,

572 F.3d 962, 975 (9th Cir. 2009); Planned Parenthood of Southern Arizona v. Neely,

130 F.3d 400, 403 (9th Cir. 1997). See also Neely, 130 F.3d at 403 (“‘the general

purpose of the Rules [regarding amended and supplemental complaints is] to minimize

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technical obstacles to a determination of the controversy on its merits’”) (quoting

U.S. ex rel. Atkins v. Reiten, 313 F.2d 673, 675 (9th Cir. 1963)).

The Motion is granted as to the proposed addition of Direct List as a plaintiff on

the first cause of action for fraud and the second cause of action for breach of fiduciary

duty.

IV. Conclusion

IT IS HEREBY ORDERED that the Motion for Leave to Modify the Scheduling

Order and File a First Amended Complaint filed by Plaintiffs (ECF No. 97) is

GRANTED IN PART and DENIED IN PART. Within ten (10) days from the date of

this order, Plaintiffs shall file an amended complaint that complies with this order. The

amended complaint shall include only the following claims, plead as follows:

First Cause of Action: Fraud – brought by Direct List and Salu against Phil

Kessler

Second Cause of Action: Breach of Fiduciary Duty – brought by Direct

List and Salu against Phil Kessler

Third Cause of Action: Misappropriation of Trade Secrets – brought by

Direct List against Phil Kessler, Lauren Kessler, Owens, Herron, and

Arrow

Fourth Cause of Action: UCL – brought by Direct List against Phil

Kessler, Lauren Kessler, Owens, Herron, and Arrow

Fifth Cause of Action: California Comprehensive Computer Data Access

and Fraud Action – brought by Direct List against Phil Kessler, Lauren

Kessler, Owens, Herron, and Arrow

Sixth Cause of Action: Intentional Interference with Prospective

Economic Advantage – brought by Direct List against Phil Kessler,

Lauren Kessler, Owens, Herron, and Arrow

Seventh Cause of Action: Negligent Interference with Prospective

Economic Advantage – brought by Direct List against Phil Kessler,

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Lauren Kessler, Owens, Herron, and Arrow

The parties shall contact the Magistrate Judge as to the scheduling order in this matter.

IT IS FURTHER ORDERED that the pretrial conference scheduled for July 7,

2017 at 9:30 AM is VACATED.

DATED: June 14, 2017

WILLIAM Q. HAYES

United States District Judge

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