Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_11-cv-01842/USCOURTS-casd-3_11-cv-01842-10/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 28:1446pr Petition for Removal

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

DEAN BEAVER, et al.,

Plaintiffs,

CASE NO. 11CV1842-GPC(KSC)

ORDER DENYING DEFENDANTS’

MOTION FOR LEAVE TO AMEND

ANSWER TO THE THIRD

AMENDED COMPLAINT

[Dkt. No. 213.]

vs.

TARSADIA HOTELS, et als.,

Defendants,

Before the Court is Defendants’ motion for leave to amend their answer to the

third amended complaint. (Dkt. No. 213.) An opposition was filed by Plaintiffs and

Defendants filed a reply. (Dkt. Nos. 222, 225.) After a review of the briefs,

1

supporting documentation, and the applicable law, the Court DENIES Defendants’

motion for leave to file an amended answer to the third amended complaint. 

Background

On August 17, 2011, this proposed class action was removed from state court to

this Court. (Dkt. No. 1.) On April 18, 2013, Plaintiffs Dean Beaver, Laurie Beaver,

Steven Adelman, Abram Aghachi, Dinesh Gauba, Kevin Kenna and Veronica Kenna

The remaining Defendants are Tarsadia Hotels, Tushar Patel, BU Patel, Gregory

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Casserly, 5th Rock LLC, MKP One LLC, and Gaslamp Holdings. 

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(collectively “Plaintiffs”) filed a third amended putative class action complaint against

the developers, sellers and agents of the Hard Rock Hotel & Condominium Project. 

(Dkt. No. 69, TAC.) Defendants filed their answer to the third amended complaint on

June 14, 2013. (Dkt. No. 106.) 

After multiple motions by both parties, including summary judgment, the Court

granted summary judgment as to Defendants on nearly all causes of action except the

Court granted Plaintiffs’ motion for summary judgment on the unlawful prong of the

UCL alleging that Defendants failed to disclose and intentionally concealed

purchasers’ right to rescind their purchase contracts within two years of the date of

signing the contracts in violation of ILSA. On October 29, 2014, the Court, inter alia,

sua sponte certified certain issues in its orders of October 16, 2013, July 2, 2014, and

October 29, 2014 for interlocutory appeal. (Dkt. No. 177.) On March 10, 2016, the

Ninth Circuit issued its opinion affirming the Court’s orders. Beaver v. Tarsadia

Hotels, 816 F.3d 1170 (9th Cir. 2016). The stay was lifted on April 4, 2016. (Dkt. No.

192.) 

On June 10, 2016, Defendants filed a motion seeking leave to amend their

answer to the third amended complaint to assert one affirmative defense of res

judicata/collateral estoppel. (Dtk. No. 213.) Defendants seek to assert the affirmative

defense of preclusion based on three prior litigation concerning the purchase and sale

of the Hard Rock units that were dismissed in favor of Defendants. See Salameh v.

Tarsadia Hotels, No. 09cv2739 DMS(CAB), 2011 WL 1044129 (S.D. Cal. Mar. 22,

2011), aff’d, 726 F.3d 1124 (9thCir. 2013); Bell v. Tarsadia Hotels, Case No. 37-2010-

00096618-CU-BT-CTL (S.D. Super. Ct. 2010); 5th & K Parcel 2 Owners’ Assoc., Inc.

v. Salameh, D066096, 2015 WL 5601555 (Cal. Ct. App. September 23, 2015), review

denied on December 16, 2015. Plaintiffs oppose asserting that liability has already

been established by the Court which was affirmed by the Ninth Circuit. They also

argue that Defendants waived the affirmative defense, there was undue delay and any

amendment would be futile. 

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Discussion

Federal Rule of Civil Procedure (“Rule”) 15(a) provides that leave to amend

shall be freely given when justice so requires and the standard is applied liberally. Fed.

R. Civ. P. 15(a). Once a district court has established a deadline for amended

pleadings, and that deadline has passed, Rule 16 applies. Coleman v. Quaker Oats Co.,

232 F.3d 1271, 1294 (9th Cir. 2000); Johnson v. Mammoth Recreations, Inc., 975 F.2d

604, 607-608 (9th Cir.1992). Subsequent amendments are not allowed without a

request to first modify the scheduling order. At that point, any modification must be

based on a showing of good cause. Coleman v. Quaker Oats Co., 232 F.3d 1271, 1294

(9th Cir. 2000). Rule 16's good cause standard is more stringent that the liberal

amendment standard under Rule 15. AmerisourceBergen Corp. v. Dialysis West, Inc.,

465 F.3d 946, 952 (9th Cir. 2006). 

A pretrial scheduling order can only be modified “upon a showing of good

cause.” Fed. R. Civ. P. 16(b). “Good cause” focuses on the diligence of the party

seeking an amendment. Johnson, 975 F.2d at 609. The pretrial schedule may be

modified “if it cannot reasonably be met despite the diligence of the party seeking the

extension.” Id. In general, the focus of the diligence inquiry is on the time between

the moving party’s discovery of new facts and its asking leave of the court to file an

amended pleading. See Zivkovic v. S. Cal. Edison Corp., 302 F.3d 1080, 1087-88 (9th

Cir. 2002). Prejudice to the non-moving party, though not required under FRCP 16(b),

can supply additional reasons to deny a motion. Coleman, 232 F.3d at 1295. The Ninth

Circuit noted that “[c]arelessness is not compatible with a finding of diligence and

offers no reason for a grant of relief.” Id.; see Sugita v. Parker, 13cv118-AWIMJS(PC), 2015 WL 5522078, at *2 (E.D. Cal. Sept. 16, 2015) (counsel’s carelessness

or inadvertence fails to establish “good cause”). 

Here, Defendants seek leave to amend their answer to assert the affirmative

defenses of res judicata and collateral estoppel. (Dkt. No. 213.) Defendants explain

that after the case was remanded back to this Court following the interlocutory appeal,

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they re-evaluated the case and discovered that their answer inadvertently did not plead

the affirmative defense of res judicata/collateral estoppel as to the Salameh and Bell

actions. (Dkt. No. 213-1, Galuppo Decl.¶¶ 2, 3.) They argue that given the disposition

of the case at this time, they believe that amending the answer is necessary and

appropriate and that the delay was in part due to the appeal. (Id. ¶ 3.) They further

argue that Plaintiff will not be prejudiced because they were aware of the potential

defense in April 2013 when the parties filed a joint motion for approval of stipulation

regarding members of putative class and reserved their right to various defenses as

outlined in the table attached as Exhibit A to the Joint Motion. (Dkt. Nos. 72, 73.) The

table provides a list of purchasers with numerous columns concerning their purchase

of the Hard Rock unit and includes a column entitled “subject to Bell or Salameh

Defense.” Therefore, Defendants assert Plaintiff had notice of these defenses and

cannot claim prejudice. As to the 5th & K action, Defendants argue they could not

assert the affirmative defense until now since it did not ripen until review was denied

on December 16, 2015. 

A scheduling order was first filed on September 5, 2012 which set the deadline

to amend the pleadings by September 27, 2012. (Dkt. No. 42.) A first amended

scheduling order which did not extend the deadlines for amended pleadings was then

filed on October 10, 2012. (Dkt. No. 50.) Because the pleading amendment deadline

has long passed, Defendants bear the burden of showing "good cause” to amend the

answer under Rule 16(b). See Zivkovic v. Southern California Edison Co., 302 F.3d

1080, 1087 (9th Cir. 2002). In their motion, Defendants do not address or satisfy the

“good cause” standard. Instead, they assert that leave to amend should be freely

granted under Rule 15(a). Therefore, the Court DENIES Defendants’ motion to modify

the scheduling order to seek leave to file an amended answer for failing to demonstrate

“good cause.” 

If the Court declines to exercise its discretion to modify its Rule 16 Scheduling

Order, an analysis under Rule 15(a) is not necessary. See Sosa v. Airprint Sys., Inc.,

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133 F.3d 1417, 1419 (11th Cir. 1998) (holding that the Court need not evaluate Rule

15(a) unlessthe movant first meets the “good cause” requirement of Rule 16); MMMT

Holdings Corp. v NSGI Holdings, Inc., No. C12-1570 RSL, 2014 WL 2573290, at *4

(W.D. Wash June 9, 2014) (because plaintiff cannot satisfy Rule 16(b), it is not

necessary to evaluate the plaintiff’s motion to amend under Rule 15). 

B. Rule 15(a) 

However, even if Defendants satisfied the “good cause” standard, the Court finds

that leave to amend should not be granted under Rule 15.

Under Rule 15(a), leave to amend a complaint after a responsive pleading has

been filed may be allowed by leave of the court and “shall freely be given when justice

so requires.” Foman v. Davis, 371 U.S. 178, 182 (1962); Fed. R. Civ. P. 15(a). 

Granting leave to amend restsin the sound discretion of the trial court. Internat’l Ass’n

of Machinists & Aerospace Workers v. Republic Airlines, 761 F.2d 1386, 1390 (9th

Cir. 1985). This discretion must be guided by the strong federal policy favoring the

disposition of cases on the merits and permitting amendments with “extreme liberality.” 

DCD Programs Ltd. v. Leighton, 833 F.2d 183, 186 (9th Cir. 1987). “This liberality

in granting leave to amend is not dependent on whether the amendment will add causes

of action or parties.” Id.; but see Union Pacific R.R. Co. v. Nevada Power Co., 950

F.2d 1429, 1432 (9th Cir. 1991) (In practice, however, courts more freely grant

plaintiffs leave to amend pleadings in order to add claims than new parties). 

BecauseRule15(a) favors a liberal policy, the nonmoving party bearsthe burden

of demonstrating why leave to amend should not be granted. Genentech, Inc. v. Abbott

Labs., 127 F.R.D. 529, 530-31 (N.D. Cal. 1989). In assessing the propriety of an

amendment, courts consider several factors: (1) undue delay, (2) bad faith or dilatory

motive; (3) repeated failure to cure deficiencies by amendments previously permitted;

(4) prejudice to the opposing party; and (5) futility of amendment. Foman, 371 U.S. at

182; United States v. Corinthian Colleges, 655 F.3d 984, 995 (9th Cir. 2011). These

factors are not equally weighted; the possibility of delay alone, for instance, cannot

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justify denial of leave to amend, DCD Programs, 833 F.2d at 186, but when combined

with a showing of prejudice, bad faith, or futility of amendment, leave to amend will

likely be denied. Bowles v. Reade, 198 F.2d 752, 758 (9th Cir. 1999). “Futility of

amendment can, by itself, justify the denial of a motion for leave to amend.” Bonin v.

Calderon, 59 F.3d 815, 845 (9th Cir. 1995).

Defendants argue that leave to amend should be freely granted especially where

the Ninth Circuit has liberalized the requirement that affirmative defenses must be

raised in the initial pleading. Plaintiffs argue that Defendants waived the affirmative

defense of res judicata and collateral estoppel, that there has been undue delay and the

amendment is futile.

A. Waiver 

Plaintiffs argue that Defendants have waived the affirmative defenses by failing

to object to the parallel prosecution of claims in the other three actions which were

filed in 2009 and 2010 before the initial complaint was filed in this case in 2011. They

argue Defendants failed to object to the concurrent prosecution of the three actions and

only raised the defense after a favorable ruling in the other cases and liability against

them was affirmed by the Ninth Circuit in this case. Defendants reply that they did not

waive their right to assert res judicata/collateral estoppel affirmative defenses because

plaintiff must also suffer some prejudice in order to apply waiver. 

Rule 8 lists res judicata as an affirmative defense that is waived if not pled in the

answer. Fed. R. Civ. P. 8(c). The purpose of Rule 8(c) is to give the opposing party

notice and a chance to dispute its application. Blonder-Tongue Labs., Inc. v. Univ. of

Illinois Fdn., 402 U.S. 313, 350 (1971). In Clements, the Ninth Circuit noted that the

defenses of claim preclusion and issue preclusion are waived if they are not raised in

the pleadings and the defendant failed “to object to the prosecution of dual proceedings

while both proceedings are pending . . . .” Clements v. Airport Auth. of Washoe Cty.,

69 F.3d 321, 328 (9th Cir. 1995). 

The Ninth Circuit has liberalized the requirement that defendants must assert

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affirmative defenses in the initial pleadings. Magana v. Commonwealth of the N.

Mariana Islands, 107 F.3d 1436, 1446 (9th Cir. 1997). As long as the plaintiff is not

prejudiced, res judicata may be raised for the first time on summary judgment. Id.; see

also Camarillo v. McCarthy, 998 F.2d 638, 639 (9th Cir.1993); Ahmad v. Furlong, 435

F.3d 1196, 1201-02 (10th Cir. 2006) (collecting cases). This liberal rule has been

applied to claim and issue preclusion. See Owens v. Kaiser Fdn. Health Plan, Inc., 244

F.3d 708, 713 (9th Cir. 2001) (res judicata raised for the first time on a motion for

judgment on the pleadings); Curry v. City of Syracuse, 316 F.3d 324, 330-31 (2d

Cir.2003) (raising collateral estoppel for the first time on summary judgment);

McGinest v. GTE Serv. Corp., 247 F. App’x 72, 75 (9th Cir. 2007) (stating that

Clements supports the proposition that “the plaintiff must also have suffered some

prejudice in order to apply waiver.”). 

In this case, Plaintiffs do not allege any prejudice from Defendants’ raising of

the affirmative defense at thisstage of the proceedings. Accordingly, Defendants have

not waived the affirmative defenses of collateral estoppel and res judicata. 

B. Futility

Plaintiffs also argue that an amendment is futile because the Salameh, Bell and

5th & K actions have no preclusive effect. First, Plaintiffs argue the motion is moot

because they have excluded from the class members in this case the named plaintiffs

in the Salameh action as well as the plaintiffs in the Bell action who dismissed their

claims with prejudice and/or signed releases. Moreover, the Salameh case was never

certified as a class action so there is no possibility of preclusive effect. According to

Plaintiffs in this case, they assert they were also plaintiffs in the Bell case where they

dismissed their claims without prejudice and did not sign a release, so any preclusive

effect of their claims is moot. In addition, Plaintiffs contend that the 5th & K action

has no preclusive effect because it relates to different primary rights and the class

notice did not apprise class members of the potential preclusion of the present claims. 

The renewed motion for class certification seeks to certify a class of 

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All individuals and businesses who agreed to purchase

condominium-hotel units at the Hard Rock Hotel & Condominiums in

San Diego, California at any time between May 2006 and December

2007 and ultimately closed escrow on units in the project, with the

exception of (a) Defendants and their officers, affiliates, directors,

employees and the immediate family members of its officers, directors

and employees, (b) those named plaintiffs in the action entitled Bell, et

al. v. Tarsadia Hotels, et al. (San Diego Superior Court Case No.

37-2010-00096618-CU-BT-26 CTL) who signed valid releases, and (c)

the named plaintiffs in the action entitled Salameh, et. al. v. Tarsaidia

(sic) Hotels, et. al., Case No. 09-CV-2739-DMS (CAB) (the “Class”).

(Dkt. No. 219, Ps’ M. for Class Cert. at 8 .) 2

The Court agrees with Plaintiffs that the motion for leave to amend the answer

to add the affirmative defenses of resjudicata and collateral estoppel are moot asto the

Salameh and Bell actions since the class Plaintiffs seek to certify exclude those

plaintiffs. Defendants’ reply does not directly challenge that the purported amendment

is mooted as to the Bell and Salameh actions but further argue that the res

judicata/collateral estoppel is not limited to class certification but will be a viable

defense against individual claims if class certification is denied. However, since the

Court has already determined liability in favor of the named Plaintiffs, the affirmative

defenses are no longer viable as to them. 

3

As for 5th & K, Defendants argue that those plaintiffs have not been excluded

as class plaintiffs in the class definition and issue of preclusion did not ripen until the

California Supreme Court denied review on December 16, 2015. Therefore,

Defendants should be allowed to amend their answer to add collateral estoppel/res

judicata as an affirmative defense. Plaintiffs argue that the 5th & K action has no

preclusive effect because the class notice in that case did not inform overlapping class

members that their rights in this action could be affected by their decision to remain in

Page numbers are based on the CM/ECF pagination.

2

Plaintiffs did not move for summary judgment against BU Patel and Gaslamp

3

Holdings, LLC. (Dkt. No. 81 at 11 n.1.) In their joint status conference statement,

filed on May 6, 2016, Plaintiffs stated they are willing to dismiss B.U. Patel and

Gaslamp Holdings, LLC without prejudice. (Dkt. No. 204 at 8.) 

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the 5th & K action. Defendants reply that the class notice in 5th & K was approved

4

by the court and provided “significant indication of the rights at issue overlapping with

the claims at issue in this action” by stating “. . . Defendants breached their fiduciary

duties owed to Plaintiffs, misrepresented or concealed material information from

Plaintiffs, used unfair competition practices.” (Dkt. No. 222-3 at 6.) 

“[T]he Due Process Clause . . . requires that the named plaintiff at all times

adequately represent the interests ofthe absent class members.” Phillips PetroleumCo.

v. Shutts, 472 U.S. 797, 812 (1985); Hanlon v. Chrysler Corp., 150 F.3d 1011, 1020

(9th Cir.1998) (“To satisfy constitutional due process concerns, absent class members

must be afforded adequate representation before entry of a judgment which binds

them.”). A judgment in a class action binds the absent member of the class unless due

process was violated. Gonzales v. Cassidy, 474 F.2d 67, 74 (5th Cir. 1973). Due

process requires notice and an opportunity to be heard and the notice must be

“reasonably calculated, under all the circumstances, to apprise interested parties of the

pendency of the action and afford them an opportunity to present their objections.” 

Shutts, 472 U.S. at 812. “Without adequate representation, a court order approving a

claim-preclusive class action settlement agreement cannot satisfy due process as to all

members of the class.” Hesse v. Sprint Corp., 598 F.3d 581, 588 (9th Cir. 2010). 

In Hesse, the Ninth Circuit held that the class representation in the prior class

action settlement addressing improper surchargesto recoup federalregulatory fees,was 

inadequate for the claims asserted by the plaintiffs, in its case, based on Washington

State B&O tax surcharges. Hesse, 598 F.3d at 589. The prior class action did not share

the same claim or even “pretend to prosecute those claims on their behalf.” Id. 

Therefore, despite the expansive release in the prior judgment, the plaintiffs were not

barred from pursuing their case. Id. at 592. 

Because the Court finds that the class notice in the 5th & K action does not

4

provide sufficient notice to class members of their legal rights which bars a preclusion

defense, the Court need not address whether the injuries and primary rights in the two

cases are the same. 

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In Negrete, the defendant moved for partialsummary judgment on RICO claims

based on claims that the defendant induced class members to purchase deferred

annuities. Negrete v. Allianz Life Ins. Co. of N. America, 2010 WL 4116852, at *1-2

(C.D. Cal. Aug. 18, 2010). The defendant argued that the RICO claims were barred

based on a final judgment entered in its favor in a parallel case called Mooney alleging

state consumer fraud causes of action concerning the sale of certain types of annuities. 

Id. In Mooney, a class was certified and a jury trial was held on a single claim under

the state consumer fraud act and the jury returned a verdict for the defendant. Id. at 2. 

The Negrete court noted that the Mooney court made findings regarding the

adequacy of the class notice as to the state consumer claims before it but did not make

specific findings of adequacy as to the federal RICO claims in the Negrete action. Id.

at 12. In Negrete, the court concluded that the “class notice did not sufficiently apprise

overlapping class members that if they failed to opt out, then their claims in Negrete

would be barred.” Id. The notice only advised the legal claims sought in the Mooney

case, and not the Negrete case. The Court held that the Mooney notice was inadequate

to bind the absent class membersin the Negrete action. Id. Therefore, the court denied

summary judgment based on claim preclusion. 

Here, the plaintiffs in the 5th & K action alleged causes of action of fraud,

breach of fiduciary duty, and unfair competition because they were overcharged for

room management fees and association assessments which were based on a hotel

management agreement, a rental management agreement and an association

management agreement. (Dkt. No. 222-2 at 4-5.) As to the class members’ legal

claims, the class notice in 5th & K provided,

Plaintiffs allege that Defendants conspired to and engaged in a

common scheme to divert the monies of each Hard Rock Hotel San

Diego unit owner. It is alleged that in so doing, Defendants breached

their fiduciary duties owed to Plaintiffs, misrepresented or concealed

material information fromPlaintiffs, used unfair competition practices,

and failed to provide documents in violation of Business and

Professions Code section 11018.6.

The class seeks to recover a refund of rental management fees and

assessments that were purportedly improperly utilized or diverted by

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Defendants. Plaintiffs allege the Associations were controlled by other

principals, that the Associations collected fees to which they were not

entitled at the behest of the principals, that these monies were then

transferred to the principals and used for hotel operations, and that the

Associations were involved in the alleged scheme via the control of

these principals who were using the Associations for their own benefit.

Any award to the Class for damages or restitution will flow from these

principals, not the Associations.

(Dkt. No. 222-3 at 6.) 

First, the class members in 5th & K prosecuted claims of overcharges for fees

and assessments based on management agreements and did not vigorously prosecute

the claims raised in this case, ILSA violations. Moreover, the 5th & K class notice

does not “sufficiently apprise” class members that their opting in might bar them from

being a class member in this case. Referencing certain similar language used in both

cases such as “misrepresented,” “concealed material information,” and “unfair

competition” does not provide notice of the legal claims in this case and notice to

overlapping class members that they may be barred from being a class member in this

case. Therefore, the 5th & K action and the class notice in the 5th & K action cannot

bind the absent class members in this case. 

Accordingly, the Court concludes that any amendment would be futile and the

Court DENIES Defendants’ motion for leave to amend their answer to the third

amended complaint. See Bonin, 59 F.3d at 845 (“Futility of amendment can, by itself,

justify the denial of a motion for leave to amend.”). 

5

/ / / /

/ / / /

/ / / /

/ / / /

/ / / /

/ / / /

Since the Court denies Defendants’ motion for leave to amend their answer

5

based on futility, the Court need not address the undue delay factor. 

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Conclusion

Based on the reasoning above, the Court DENIES Defendants’ motion for leave

to file an amended answer. 

IT IS SO ORDERED. 

DATED: August 4, 2016

HON. GONZALO P. CURIEL

United States District Judge

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