Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_07-cv-02583/USCOURTS-azd-2_07-cv-02583-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Account Receivable

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

First Franklin Financial Corporation, 

Plaintiff, 

vs.

Key Mortgage Corporation, an Arizona

Corporation, 

Defendant. 

 

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CIV-07-2583-PHX-MHB

ORDER

Pending before the Court is Defendant's Motion for Leave to File an Amended

Answer (Doc. #19). Plaintiff filed a response in opposition on April 7, 2008 (Doc. #23), and

Defendant filed a Reply (Doc. #24). After considering the arguments raised by the parties

in their briefing, the Court now issues the following ruling.

BACKGROUND

This lawsuit arises from a Mortgage Broker Agreement entered into by Plaintiff First

Franklin Financial Corporation, and Defendant Key Mortgage Corporation. Pursuant to this

agreement, Defendant submitted to Plaintiff, for funding, two mortgage loan applications in

the amounts of $60,000.00 and $240,000.00 on behalf of borrower Ashor Daniel

(“Borrower”). In connection with the loan application packages, Borrower executed a

Uniform Residential Loan Application which listed his monthly income as $6,000.00. After

Plaintiff funded the loans, Borrower defaulted by failing to make monthly payments.

Plaintiff asserts Borrower's monthly income as represented was false and Borrower's actual

Case 2:07-cv-02583-MHB Document 28 Filed 06/25/08 Page 1 of 5
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income was half that amount. Because of the default, Plaintiff was required to repurchase the

Loans at a loss from a secondary market investor. 

Plaintiff filed a Complaint on December 19, 2007, alleging Breach of Contract,

Breach of Warranty, Indemnification, Intentional Misrepresentation, Negligent

Misrepresentation, and Innocent Misrepresentation, claiming Defendant did not comply with

the stipulations in the agreement and investigate and verify the "truthfulness and

completeness of all information relating to Borrower's creditworthiness and collateral

submitted in connection with an application for a Loan," as well as verify if Borrower's

monthly income was "true, accurate, and complete." (Doc.#1.)

Defendant filed an Answer on January 28, 2008, responding that the Loans to

Borrower were No Income Verification ("NIV") loans, and that to the best of its knowledge,

information, and belief, all information submitted in connection with the NIV loans were

true, and that it followed all requirements that Plaintiff established for submitting NIV loans.

Defendant also listed 15 affirmative defenses, and placed Plaintiff on notice that it may later

assert other affirmative defenses based upon facts learned during discovery. (Doc. #11, ¶¶

45-60.) On March 20, 2008, less than two months after having filed its Answer, Defendant

filed its Motion For Leave To File An Amended Answer. 

DISCUSSION

In its Motion, Defendant seeks leave to amend its Answer to add one additional

affirmative defense, that the Broker Agreement is a contract of adhesion and unconscionable

as written and applied. (Proposed Amended Answer, ¶60.) Defendant asserts that ongoing

investigation of the case, based on existing facts, has revealed information that justifies

adding this defense. Defendant argues the amendment will not prejudice Plaintiff, is not

futile, is not unduly delayed, or made in bad faith. In response, Plaintiff contends, "the

[defendant] has offered no basis for the amendment, there are no new facts that would justify

the need for amendment, and the additional defense is legally insufficient based on the facts

in existence."

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Federal Rules of Civil Procedure 15(a) sets forth the standard on amending pleadings,

and dictates that “[t]he court should freely give leave [to amend] when justice so requires.”

The Ninth Circuit has noted that “Rule 15’s policy of favoring amendments should be

applied with extreme liberality.” Eldridge v. Block, 832 F.2d 1132, 1135 (9th Cir. 1987)

(citation omitted). A court may deny a motion to amend, however, if there is a showing of

undue delay or bad faith on the part of the moving party, undue prejudice to the opposing

party, or futility of the proposed amendments. See Foman v. Davis, 371 U.S. 178, 182

(1962). The party opposing amendment bears the burden of showing prejudice, futility, or

one of the other recognized reasons for denying a motion to amend. See DCD Programs,

LTD. v. Leighton, 833 F.2d 183, 187 (9th Cir. 1987). Prejudice to the opposing party is

accorded the most weight, and absent prejudice, “there exists a presumption under Rule 15(a)

in favor of granting leave to amend” unless a strong showing is made on one of the other

factors. Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003)

(emphasis in original).

First, Plaintiff argues Defendant's Motion is dilatory because it was filed after the

following events have taken place: the meet and confer conference, the filing of the joint case

management report, the scheduling conference, and the filing of the scheduling order.

Plaintiff relies on the Ninth Circuit decision in Amerisourcebergen Corp. v. Dialysist West,

Inc., which determined that although eight months of discovery remained, the amendment

should be denied because the parties would incur additional litigation costs, and because if

the plaintiff's amendment was granted the entire legal theory of the case would be altered.

465 F.3d 946, 953 (9th Cir. 2006). Here, Defendant’s stated purpose in seeking amendment

is to add one additional affirmative defenses to the 15 affirmative defenses set forth in

Defendant’s Answer. The proposed amendment was filed less than two months after the

original Answer was filed and before any formal discovery has commenced. These facts are

readily distinguishable from the facts in Amerisourcebergen; in that case the request to

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amend was made nearly a year after the original filing of the pleading, after discovery was

initiated, and after despositive motions had been filed. Id. at 950, 954.

Plaintiff next argues that Defendant is dilatory in seeking amendment, because the

"facts on which the amendment is based were known at the time of filing of the original

answer." Plaintiff again relies on the Ninth Circuit decision in Amerisourcebergen, that leave

to amend should be denied when a party attempting to amend its pleading to include an

additional affirmative defense, but provided no grounds for the proposed amendments. Id.

at 953 (9th Cir. 2006). In Amerisourcebergen, the plaintiff did not provide any reason for

amendment. Id. Defendant maintains the facts for which its amendment is based were not

known at the time it filed its original Answer, but after further information was gathered.

Defendant claims that “(t)hrough its continuing investigation of the case, [Defendant] has

discovered information not in its possession at the time it filled [sic] its Answer” that would

support the affirmative defense, and that “[a]fter discussion with counsel for similar cases

against Plaintiff” Defendant discovered similar “boilerplate” agreements that might also

support the affirmative defense. (Reply, at 2-3.) Defendant has stated a reason for

amendment: there appearing no reason to doubt Defendant’s avowal, Defendant acted

without undue delay in filing its Motion for Leave to Amend. 

Additionally, Plaintiff claims that adding additional affirmative defenses will

completely modify the legal theory of the case. It is unclear how the addition of this legal

theory has that drastic effect. Plaintiff has asserted numerous affirmative defenses, some of

which also challenge the Mortgage Broker Agreement as written and applied. In addition,

Federal Rules of Civil Procedure 15(a) provides that “[t]he court should freely give leave [to

amend] when justice so requires." In this case, the Court finds that Defendant timely filed

its Motion and the amendment sought does not so significantly alter the theory of the case

so as to prejudice Plaintiff. 

Finally, Plaintiff argues Defendant's proposed amendment is futile because it advances

a defense that is "legally insufficient on its face." Plaintiff contends the claim is legally

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insufficient on its face because Defendant has offered no basis for its claim of

unconscionability and the facts in existence do not support the proposed defense. The Court

finds this argument premature. The Court cannot examine the merits of the case to determine

if Defendant's amendment is futile. The Court will not decide whether Defendant's proposed

amendment is "legally insufficient on its face" when ruling on a motion for leave to amend.

The Ninth Circuit holds "if there is no set of facts which could be proved under the

amendment to the pleadings which would constitute a valid and sufficient claim or defense,

leave should be denied." Baker v. Pacific Far East Lines, Inc., 451 F.Supp 84, 89 (9th Cir.

1978) (citing 3 Moore's Federal Practice P.15.08(4) (2d ed. 1974)). At this time, Plaintiff has

not established that there are no set of facts that support the affirmative defense of

unconscionability. 

CONCLUSION

The Court finds that Defendant’s Motion is not dilatory and would not modify the

legal theory of the case. The motion to amend was filed less than two months after the

original Answer was filed, formal discovery has not commenced, and Defendant did not

acquired the information to support the affirmative defense until after it filed its original

Answer. Defendant's Motion should be granted because the amendment, at this juncture, has

not been demonstrated to be either futile or legally insufficient. . 

IT IS ORDERED that Defendant's Motion for Leave to File an Amended Answer is

GRANTED.

IT IS FURTHER ORDERED that the Clerk of the Court file Defendant's Lodged

Proposed First Amended Answer (Doc #20). 

DATED this 24th day of June, 2008.

 

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