Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_14-cv-04150/USCOURTS-cand-3_14-cv-04150-7/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Breach of Fiduciary Duty

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United States District Court

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

KEVIN MCFALL,

Plaintiff,

v.

STACY AND WITBECK, INC., et al.,

Defendants.

Case No. 14-cv-04150-JSC 

ORDER RE: PLAINTIFF’S MOTION 

TO AMEND COMPLAINT AND 

MOTION TO EXTEND DISCOVERY 

DEADLINE

Re: Dkt. Nos. 61 & 70

Plaintiff Kevin McFall alleges that Defendants Stacy and Witbeck, Inc., and John Bollier, 

the CEO of Stacy and Witbeck, (collectively “Defendants”) breached their respective duties to him 

regarding the valuation of the company’s stock. Plaintiff now seeks to amend his complaint to add 

Houlihan Lokey, Inc.—Stacy and Witbeck’s independent valuation firm—as a defendant. (Dkt. 

No. 70.) Plaintiff contends that documents recently produced by Houlihan Lokey demonstrate that 

it aided and abetted Defendants’ improper stock evaluation. Plaintiff has also filed a related 

motion to extend the discovery deadline pending disposition of the motion to amend. (Dkt. No. 

61.) After carefully considering the arguments and briefing submitted, the Court concludes that 

oral argument is unnecessary, see Civ. L.R. 7-1(b), and GRANTS the motions. Under the liberal 

standard of Rule 15, amendment of the complaint is appropriate; there is thus necessarily good 

cause to modify the discovery deadline.

BACKGROUND

A. Allegations of the First Amended Complaint

Plaintiff was a long-time senior level employee and member of the board of directors of 

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Stacy and Witback. (Dkt. No. 31 ¶¶ 7-8.) In March of 2012, Plaintiff announced his plan to retire 

in June 2013. (Id. at ¶ 19.) Plaintiff alleges that from 2010 through 2013 John Bollier, Stacy and 

Witbeck’s CEO, improperly manipulated Stacy and Witbeck’s stock price. (Id. at ¶¶ 15-24.) As a 

result, when Plaintiff sold his shares in March 2013, they were significantly undervalued despite 

2012 being a record year for profits at Stacy and Witbeck. (Id. at ¶¶ 20-34.) While the fiscal year 

2012 (the year at issue) stock price was valued at only 1.48% of the prior year, the fiscal year 2013 

(the year Bollier liquidated his holdings) stock price was set at rate that was 22% higher than the 

prior year. (Id. at ¶¶ 22-23.) Plaintiff alleges that he suffered $3 million in damages as a result of 

the manipulation of the stock price.

B. Procedural History

In September 2014, Plaintiff filed this action alleging two claims for relief for breach of 

contract, breach of good faith and fair dealing, and breach of fiduciary duty against Defendant 

Stacy & Witbeck and John Bollier.1 (Dkt. No. 31.) Defendants moved to dismiss which the Court 

granted in part and denied in part. (Dkt. No. 23.) Plaintiff thereafter filed the now operative First 

Amended Complaint which Defendants answered. (Dkt. Nos. 31 & 32.) The parties delayed

much of their discovery to pursue mediation in September 2015; however, mediation was 

ultimately unsuccessful. (Dkt. No. 41 at 2:14-16.2) 

In October 2015, the parties filed a joint discovery dispute regarding written discovery 

responses and the Court ordered Defendants to produce documents (1) regarding the stock 

valuation and (2) that Defendants provided to its independent valuation firm, Houlihan Lokey. 

(Dkt. No. 48.) The parties were ordered to meet and confer and file a proposed case schedule by 

November 5, 2015. The parties failed to do so and on December 14, 2015, the Court issued an 

order noting that the deadlines under the current case management schedule, including the 

dispositive motion deadline, had run and ordered the parties to file a joint statement regarding the 

 

1

The first claim for relief has three “counts”: one for breach of contract, and two for breach of the 

duty of good faith and fair dealing as each defendant separately.

2 Record citations are to material in the Electronic Case File (“ECF”); pinpoint citations are to the 

ECF-generated page numbers at the top of the documents.

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case schedule. (Dkt. No. 49.) The parties did so and on January 6, 2016, the Court issued the 

governing amended case schedule which set the discovery cut-off as April 15, 2016, the 

dispositive motion deadline for August 15, 2016, and the trial for October 31, 2016. (Dkt. No. 

51.) In March, Plaintiff filed a motion seeking to compel Houlihan Lokey to respond to a 

document subpoena issued a year earlier (Defendants had been attempting to facilitate this 

document production). (Dkt. No. 54.) At the hearing on the unopposed motion, the parties 

advised the Court that the at-issue documents had been produced.

Shortly thereafter, Plaintiff filed the now pending motion to extend the discovery deadline, 

and a week later, a motion to amend the complaint. (Dkt. Nos. 61 & 70.)

DISCUSSION

Plaintiff seeks to amend the complaint to add Houlihan Lokey as a defendant and add a 

third claim for relief for aiding and abetting a breach of a fiduciary obligation as to Houlihan 

Lokey and breach of fiduciary obligations as to Defendant Bollier. Plaintiff also moves to extend 

the discovery deadline (which has since past). Defendants oppose both motions as untimely, 

without factual basis, and as prejudicial. 

A. Plaintiff’s Motion to Amend

Federal Rule of Civil Procedure 15 provides that leave to amend the pleadings before trial 

should be given freely “when justice so requires.” Fed. R. Civ. P. 15(a)(2). Leave to amend is to 

be granted with “extreme liberality.” Sonoma County Ass’n of Retired Employees v. Sonoma 

County, 708 F.3d 1109, 1117 (9th Cir. 2013). In determining whether justice requires leave to 

amend, courts consider the five factors initially identified in Foman v. Davis, 371 U.S. 178, 182 

(1962): “bad faith, undue delay, prejudice to the opposing party, futility of amendment, and 

whether the plaintiff has previously amended the complaint.” Johnson v. Buckley, 356 F.3d 1067, 

1077 (9th Cir. 2004). “[I]t is the consideration of prejudice to the opposing party that carries the 

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

(citation omitted). The decision to grant or deny a request for leave to amend rests in the 

discretion of the trial court. California v. Neville Chem. Co., 358 F.3d 661, 673 (9th Cir. 2004).

Defendants’ opposition to Plaintiff’s motion is best construed as alleging undue delay, 

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prejudice, and futility.3 Defendants’ sole argument regarding prejudice is that because the amount 

in dispute in this action is relatively small, adding a defendant “could be used to tip the balance of 

cost/benefit to leverage a settlement.” (Dtk. No. 73 at 7:21-22.) However, Defendants offer no 

support for this argument. The party sought to be added—Houlihan Lokey—has participated in 

the discovery process; indeed, the bulk of the parties’ discovery efforts to date have involved 

obtaining documents Defendants either provided to Houlihan Lokey or exchanged with Houlihan 

Lokey. No depositions have taken place. It is thus unclear how costs will escalate with the 

addition of Houlihan Lokey given that the outstanding discovery costs would be incurred 

regardless of whether Houlihan Lokey was added as a party. Further, given the nature of the 

allegations here, while the addition of Houlihan Lokey as a defendant may have come as a surprise 

to Defendants, Houlihan Lokey’s involvement in the actions alleged here cannot have. Cf. 

AmerisourceBergen Corp. v. Dialysist W., Inc., 465 F.3d 946, 953 (9th Cir. 2006) (affirming 

denial of leave to amend where the proposed amendments “drastically changed [plaintiff's] 

litigation theory”). Finally, there is a sizable dispute as to the valuation of this case given that 

Plaintiff alleges damages of more than $3 million.

Defendants’ arguments regarding undue burden—styled as untimeliness—fare no better. 

Defendants contend that Plaintiff has always known about Houlihan Lokey’s involvement and that 

nothing in the recent email production made a material difference. The Court disagrees. The 

emails attached to the Declaration of Serena Morones reflect considerable discussion within

Houlihan Lokey regarding the stock valuation for fiscal year 2012 and concerns Houlihan Lokey 

had regarding the valuation. That Plaintiff knew prior to these emails that Houlihan Lokey had 

increased its recommended price per share after consultation with Defendants and Stacy and 

Witbeck’s board of directors is not the same as knowing how Houlihan Lokey accomplished the 

ultimate stock valuation from that year and the process it went through to get there. That the 

proposed amendment came at the close of discovery is not enough to establish undue delay. See 

United States v. Webb, 655 F.2d 977, 980 (9th Cir.1981) (“[t]he mere fact that an amendment is 

 

3 Defendants cite to the California Rules of Civil Procedure and California case law; however, the 

Federal Rules of Civil Procedure govern the Court’s analysis.

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offered late in the case ... is not enough to bar it.”). The undue delay inquiry focuses on whether 

the plaintiff knew of the facts or legal bases for the amendments at the time the operative pleading 

was filed and nevertheless failed to act promptly to add them to the pleadings. See 

AmerisourceBergen Corp, 465 F.3d at 953 (finding untimely and prejudicial a motion to amend 

filed fifteen months after discovery of new facts). In other words, undue delay is “dilatory 

motive.” In re: Facebook Privacy Litig., No.C–10–02389–RMW, 2015 WL 632329, at *2 (N.D. 

Cal. Feb. 13, 2015) (citation omitted). Because Plaintiff moved expeditiously to amend upon 

receipt of the emails and he did so prior the expiration of any case deadlines (other than the 

discovery deadline which he sought to extend prior to its expiration), there was no undue delay.

Finally, Defendants’ argument that Plaintiff’s claim against Houlihan Lokey is factually 

unsupported, does not persuade the Court that amendment would be futile. Defendants contend 

that Plaintiff has failed to make an adequate evidentiary showing with respect to his proposed 

claim for aiding and abetting a breach of fiduciary obligation, but this misapprehends the 

requirements of Rule 15. “[A] proposed amendment is futile only if no set of facts can be proved 

under the amendment to the pleadings that would constitute a valid and sufficient claim or 

defense.” Miller v. Rykoff–Sexton, Inc., 845 F.2d 209, 214 (9th Cir.1988). Thus, “[t]he merits or 

facts of a controversy are not properly decided in a motion for leave to amend and should instead 

be attacked by a motion to dismiss for failure to state a claim or for summary judgment.’ ” Allen v. 

Bayshore Mall, No. 12–cv–02368–JST, 2013 WL 6441504, at *5 (N.D. Cal. Dec. 9, 2013)

(internal citation and quotation marks omitted). Under Rule 15(a), “[i]f the underlying facts or 

circumstances relied upon by a plaintiff may be a proper subject of relief, he ought to be afforded 

an opportunity to test his claim on the merits.” Foman, 371 U.S. at 182. Accordingly, denial of a 

motion for leave to amend on the basis of futility “is rare and courts generally defer consideration 

of challenges to the merits of a proposed amended pleading until after leave to amend is granted 

and the amended pleading is filed.” Clarke v. Upton, 703 F.Supp.2d 1037, 1043 (E.D. Cal. 2010)

(citing Netbula, LLC v. Distinct Corp., 212 F.R.D. 534, 539 (N.D. Cal. 2003)). The Court thus 

declines to deny the motion on this basis.

In sum, although Plaintiff’s request to amend comes at the close of discovery, there is no 

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evidence of prejudice, bad faith, or futility.4 As delay alone does not provide sufficient grounds 

for denying leave to amend, see Hurn v. Retirement Fund Trust, 648 F.2d 1252, 1254 (9th Cir.

1981), the motion to amend must be granted. See Howey v. United States, 481 F.2d 1187,1190-91

(9th Cir. 1973) (“Where there is lack of prejudice to the opposing party and the amended 

complaint is obviously not frivolous, or made as a dilatory maneuver in bad faith, it is an abuse of 

discretion to deny such a motion.”).

B. Plaintiff’s Motion to Extend the Discovery Deadline

Rule 16 governs modification of a case schedule, and states that “[a] schedule should not 

be modified except upon a showing of good cause.” Fed. R. Civ. P. 16(b). Unlike Rule 15’s liberal 

amendment policy, Rule 16 predominantly focuses on the moving party’s reasons for seeking 

modification, its diligence, and the prejudice to the party opposing modification. The district court 

may modify the schedule “if it cannot reasonably be met despite the diligence of the party seeking 

the extension.” Johnson v. Mammoth Recreations, Inc., 975 F.2d 604, 609 (9th Cir.1992).

Under the current case management schedule, discovery closed on April 16, 2016—the day 

after Plaintiff filed his motion to extend the discovery deadline. (Dkt. No. 51.) Under Rule 16, 

“[a] schedule should not be modified except upon a showing of good cause.” Fed. R. Civ. P. 16(b). 

Given that the Court has granted Plaintiff’s motion to amend the complaint to add a new party and 

claim for relief, there is necessarily good cause to amend the scheduling order with respect to the 

case management deadlines. 

CONCLUSION

For the reasons stated above, Plaintiff’s motions to amend the complaint and extend the 

discovery deadline are GRANTED. (Dkt. Nos. 61 & 70.) Plaintiff shall file and serve the Second

Amended Complaint forthwith. Plaintiff shall also provide the newly added Defendant with a 

copy of the Magistrate Judge Consent/Declination Form.

The current discovery deadline is VACATED. The parties shall appear for a Joint Case 

Management Conference on June 30, 2016 at 1:30 p.m. in Courtroom F, 450 Golden Gate Ave., 

 

4 Defendants have not alleged bad faith.

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San Francisco, California. A Joint Case Management Conference Statement with a new proposed 

case schedule shall be filed by June 23, 2016.

IT IS SO ORDERED.

Dated: May 16, 2016

JACQUELINE SCOTT CORLEY

United States Magistrate Judge

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