Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_14-cv-02571/USCOURTS-caed-2_14-cv-02571-11/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 15:77 Securities Fraud

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

SPECIAL SITUATIONS FUND III QP, 

L.P., et al.,

Plaintiffs,

v.

MARRONE BIO INNOVATIONS, INC., 

et al.,

Defendants.

No. 2:14-cv-02571-MCE-KJN

CONSOLIDATED CLASS ACTION

MEMORANDUM AND ORDER

Plaintiffs in this consolidated class action charge Defendant Marrone Bio 

Innovations, Inc., (“Marrone Bio”), certain of its officers and directors, and its public 

auditor, Ernst & Young, with violating federal securities laws (i.e., Section 11 of the 

Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934). 

According to Plaintiffs, they were defrauded of millions of investment dollars based on 

the financial reporting fraud of Marrone Bio and its Chief Operating Officer and head of 

sales, Defendant Hector Absi. Presently before the Court is Plaintiffs’ Motion to Amend 

the Amended Complaint (ECF No. 57). For the reasons set forth below, that Motion is 

GRANTED.

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 1 Because oral argument would not be of material assistance, the Court ordered this matter 

submitted on the briefs. E.D. Cal. Local Rule 230(g).

Case 2:14-cv-02571-MCE-KJN Document 74 Filed 05/27/16 Page 1 of 4
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ANALYSIS

Plaintiffs filed their operative Second Consolidated Amended Complaint (“SAC”) 

on January 11, 2016. ECF No. 44. The following day, Marrone Bio entered an 

agreement with the SEC to resolve an as-yet-filed suit the SEC was preparing against it. 

A few weeks later, the SEC filed two civil actions, one against Marrone Bio that had 

already been resolved by way of an agreed-upon $1.75 million civil fine, Case No. 2:16-

cv-00321-MCE-KJN, and one against Defendant Absi, Case No. 2:16-cv-00320-MCEKJN. That same day, the United States Attorney unsealed a sixteen-count criminal 

indictment in Case No. 2:16-cr-00027-MCE against Defendant Absi as well. Just a few 

weeks later, Plaintiffs sought leave to amend their SAC to add allegations gleaned from 

these newly filed public documents. More specifically, Plaintiffs contend that these new 

SEC and criminal filings show that Absi’s fraudulent scheme originated much earlier than 

initially thought, and, according to Plaintiffs, made clear that the scope of Plaintiffs’ strict 

liability claim against Ernst and Young needs to be clarified. 

Courts should “freely give leave when justice so requires,” Fed. R. Civ. P. 

15(a)(2), and the Ninth Circuit has noted that the policy is one “to be applied with 

extreme liberality,” Morongo Band of Mission Indians v. Rose, 893 F.2d 1074, 1079 (9th 

Cir. 1990). In exercising its discretion to permit or deny a party to amend its pleading, 

this Court considers five factors: (1) whether the amendment was filed with undue delay; 

(2) whether the movant has requested the amendment in bad faith or as a dilatory tactic; 

(3) whether the movant was allowed to make previous amendments which failed to 

correct deficiencies of the complaint; (4) whether the amendment will unduly prejudice 

the opposing party; and (5) whether the amendment would be futile. Foman v. Davis, 

371 U.S. 178, 182 (1962). Whether amendment will unduly prejudice the opposing party 

is the most important factor in a court’s analysis under Rule 15(a). Eminence Capital, 

LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003). Consideration of each of 

these factors favors permitting amendment here. 

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Ernst and Young is the only Defendant who opposes Plaintiffs’ Motion, and it has 

pointed to no prejudice it will suffer, nor can the Court conceive of any, if leave to amend 

is granted. To the contrary, no Defendant has yet responded to the SAC and no 

discovery has commenced. Simply having to defend against newly fashioned 

allegations is not enough to warrant denying Plaintiffs’ request. Nor have Plaintiffs 

unduly delayed or engaged in bad faith conduct in filing the instant Motion. This case is 

unique in that it presents a situation where Defendants’ actions resulted not only in an 

investor suit, but also in SEC civil complaints and federal criminal charges. It is entirely 

understandable, and indeed imminently foreseeable, that these latter filings would result 

in a need to amend Plaintiffs’ current pleadings. Then, in very short order after the SEC 

complaints were filed and the criminal indictment unsealed, Plaintiffs drafted a proposed 

Third Amended Complaint, sought to proceed by stipulation, and moved for leave to file 

that complaint when agreement proved impossible. Plaintiffs did not delay, and nothing 

in the record indicates their proposed amendments are the result of any bad faith. 

Finally, regardless whether Ernst and Young believes it will inevitably succeed in

defending against Plaintiffs’ new allegations, nothing before the Court indicates that the 

amended claims are futile. Accordingly, leave to amend must be freely given here.2 

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 2 For the same reasons the Court has rejected Ernst and Young’s arguments in opposition to 

amendment, namely on grounds that it finds no bad faith or futility of amendment, the Court also rejects 

Ernst and Young’s additional invitation to require Plaintiffs to post a bond under 15 U.S.C. § 77k(e). See

Weil v. Investment/Indicators, Research and Management, Inc., 647 F.2d 18, 22 (9th Cir. 1981) 

(explaining that “[t]he appropriate standard for determining whether an undertaking should be required is 

whether the defendants have shown that the plaintiff has commenced her suit in bad faith or that her claim 

borders on the frivolous”) (internal citations and quotations omitted). 

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CONCLUSION

For the reasons stated above, Plaintiff’s Motion to Amend the Amended 

Complaint (ECF No. 57) is GRANTED. Not later than five (5) days following the date this 

Memorandum and Order is electronically filed, Plaintiffs are directed to file their Third

Amended Complaint.

IT IS SO ORDERED. 

Dated: May 26, 2016

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