Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_06-cv-01794/USCOURTS-azd-2_06-cv-01794-0/pdf.json

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

---

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

First Ascent Ventures, Inc., 

Plaintiff/counter-defendant, 

vs.

DLC Dermacare, LLC, 

Defendant/counter-claimant. 

)

)

)

)

)

)

)

)

)

)

)

)

No. CV 06-1794-PHX-JAT

ORDER

Pending before the Court is Plaintiff/counter-defendant’s Motion for Leave to File

Second Amended Complaint (doc. #18) pursuant to Federal Rule of Civil Procedure 15(a).

The motion seeks to add an additional Plaintiff, First Ascent Lone Tree, Inc. and such

Plaintiff's claims.

/ / /

Case 2:06-cv-01794-JAT Document 45 Filed 09/27/06 Page 1 of 8
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 2 -

I. INTRODUCTION

First Ascent Ventures Inc. (“First Ascent”) is the Plaintiff/counter-defendant.

Plaintiff/counter-defendant is a former franchisee of Dermacare that owned and operated a

Dermacare retail skin care clinic in Cherry Creek, Colorado. Dermacare is the

Defendant/counter-claimant. Defendant/counter-claimant, is an Arizona limited liability

company headquartered in Scottsdale. In April 2005, Plaintiff/counter-defendant entered into

a Clinic Franchise Agreement (“CFA”) and a Master Regional Franchise Agreement

(“MRFA”) with Defendant/counter-claimant. Then in August, 2005, First Ascent Lone Tree,

Inc. (“Lone Tree”), another entity controlled by the principals of First Ascent, and

Defendant/counter-claimant entered into a CFA pursuant to which Lone Tree owned and

operated a Dermacare retail skin care clinic in Lone Tree, Colorado.

On July 10, 2006, Plaintiff/counter-defendant sent Defendant/counter-claimant a

notice of default letter that alleges that Defendant/counter-claimant had failed to provide any

advertising support and then completely cut off all communications. In response,

Defendant/counter-claimant declared the agreements terminated as of July 17, 2006.

Thereafter, on July 18, 2006, Plaintiff/counter-defendant filed complaint on behalf of First

Ascent seeking; equitable rescission of the franchise agreements entered into with

Defendant/counter-claimant, a judgment declaring those agreements to have been rescinded

and that Plaintiff/counter-defendant is excused and discharged from further performance

under the agreements as a result of Defendant/counter-claimant’s alleged material breaches

of the agreements. The complaint also seeks to enjoin Defendant/counter-claimant from

enforcing post-termination covenants. Plaintiff/counter-defendant did not name Lone Tree,

as a plaintiff in the initial complaint. On July 20, 2006, the Court issued an Order to Show

Cause sua sponte requiring Plaintiff/counter-defendant to file an amended complaint in order

to correct a jurisdictional pleading deficiency. Then on July 21, 2006, Plaintiff/counterdefendant filed Motion for Preliminary Injunction to enjoin Defendant/counter-claimant from

enforcing post-termination covenants.

Case 2:06-cv-01794-JAT Document 45 Filed 09/27/06 Page 2 of 8
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 3 -

Defendant/counter-claimant filed complaint in the District Court of Colorado, Douglas

County on July 21, 2006 against Lone Tree and its principals, Peter Hill, Elizabeth Hill,

Randal Dick and Laura Dick, to enjoin them from allegedly breaching the post-termination

restrictive covenant contained in the Lone Tree CFA. Thus, Defendant/counter-claimant

alleges that the Colorado Action is the first-filed lawsuit between Dermacare and Lone Tree.

On August 1, 2006, Defendant/counter-claimant filed a Counterclaim for Injunctive

Relief requesting an injunction to restrain Plaintiff/counter-defendant and its owners from

continuing to violate the covenants not to compete and other contractual post-termination

obligations. Defendant also filed Motion to Dismiss Plaintiff’s First Amended Complaint

on August 1, 2006. Trial on injunctive relief (incorporating therein the cross-motions for

preliminary injunction) is set for October 11, 2006.

Plaintiff/counter-defendant alleges that the omission of Lone Tree as a plaintiff in the

Arizona Complaint was purely an oversight and that the July 10 default letter had put

Defendant/counter-claimant on notice that Plaintiff/counter-defendant’s counsel was

asserting claims on behalf of both First Ascent and Lone Tree. Therefore, on August 11,

2006, Plaintiff/counter-defendant filed Motion for Leave to File Second Amended Complaint

to add Lone Tree as a plaintiff in order to fully adjudicate the rights of First Ascent, Lone

Tree and their common owners; Peter Hill, Elizabeth Hill, Randal Dick and Laura Dick, in

a single action.

Plaintiff/counter-defendant alleges that Lone Tree was originally inadvertently

omitted because, at the time of the filing of the initial complaint, its counsel, André H.

Merrett, was not aware of the existence of the CFA entered into by Lone Tree and

Defendant/counter-claimant. Plaintiff/counter-defendant alleges that the only agreements

that Mr. Merrett had available to him while preparing First Ascent’s initial complaint were

the MRFA and the CFA entered into by First Ascent and Dermacare on April 21, 2005. Mr.

Merrett avers that if he would have been aware of the existence of the Lone Tree CFA, then

Lone Tree would have been named as a plaintiff in the initial complaint. (Merrett Affidavit

¶ 6.) Additionally, Plaintiff/counter-defendant makes the argument that, under Rule 15(a),

Case 2:06-cv-01794-JAT Document 45 Filed 09/27/06 Page 3 of 8
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 4 -

the Second Amended Complaint could be considered authorized without leave of court or

written consent of Defendant/counter-claimant because Defendant/counter-claimant has not

yet served a responsive pleading and because the First Amended Complaint was prompted

by the Court’s order regarding the jurisdictional defect and therefore it was not filed as a

“matter of course.” Fed. R. Civ. P. 15(a). In contrast, Defendant/counter-claimant claims

that Plaintiff/counter-defendant did not make a mistake concerning the identity of Lone Tree.

On August 9, 2006, Plaintiff/counter-defendant filed a motion to stay in the Colorado

Action to enable all of the parties to resolve all claims and defenses in a single action.

Subsequently, on August 16, 2006, the Honorable Thomas J. Curry of the District Court of

Colorado, Douglas County issued a Minute Order in DLC Dermacare, LLC v. First Ascent

Lone Tree, Inc., et al., No. 2006-CV-1754. (Doc. #22). The Minute Order states that the

Colorado court will defer ruling on Plaintiff/counter-defendant’s motion to stay proceedings

pending ruling by this Court on Plaintiff/counter-defendant’s Motion for Leave to File

Second Amended Complaint. 

II. LEGAL STANDARDS

A. Rule 15(a)

Rule 15(a) provides in pertinent part:

A party may amend the party’s pleading once as a matter of

course at any time before a responsive pleading is served or, if

the pleading is one to which no responsive pleading is permitted

and the action has not been placed upon the trial calendar, the

party may so amend it at any time within 20 days after it is

served. Otherwise a party may amend the party’s pleading only

by leave of court or by written consent of the adverse party; and

leave shall be freely given when justice so requires. 

Fed. R. Civ. P. 15. Although the decision whether to grant or deny a motion to amend is

within the trial court’s discretion, “Rule 15(a) declares that leave to amend ‘shall be freely

given when justice so requires’; this mandate is to be heeded.” Foman v. Davis, 371 U.S.

178, 182 (1962). “In exercising its discretion with regard to the amendment of pleadings

‘a court must be guided by the underlying purpose of Rule 15—to facilitate decision on the

merits rather than on the pleadings or technicalities.’ . . . . Thus, ‘Rule 15’s policy of

Case 2:06-cv-01794-JAT Document 45 Filed 09/27/06 Page 4 of 8
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 5 -

favoring amendments to pleadings should be applied with extreme liberality.’” Eldridge v.

Block, 832 F.2d 1132, 1135 (9th Cir. 1987)(citations omitted). “Generally, this

determination should be performed with all inferences in favor of granting the motion.”

Griggs v. Pace Am. Group, Inc., 170 F.3d 877, 880 (9th Cir. 1999) (citing DCD Programs,

Ltd. v. Leighton, 833 F.2d 183, 186 (9th Cir. 1987)). 

The liberal policy in favor of amendments, however, is subject to limitations.

Whether to grant a motion to amend depends on the following factors: (1) undue delay, (2)

bad faith, (3) prejudice to the opposing part, (4) futility of amendment, and (5) whether

plaintiff has previously amended his complaint. Western Shoshone Nat. Council v. Molini,

951 F.2d 200, 204 (9th Cir. 1991). The most important of these factors is prejudice to the

opposing party. U.S. v. Pend Oreille Public Utility Dist., No. 1, 926 F.2d 1502, 1511 (9th

Cir. 1991). “The party opposing amendment bears the burden of showing prejudice[,]”

futility, or one of the other permissible reasons for denying a motion to amend. DCD

Programs, 833 F.2d at 187; see also Richardson v. United States, 841 F.2d 993, 999 (9th Cir.

1988) (stating that leave to amend should be freely given unless opposing party makes “an

affirmative showing of either prejudice or bad faith”). 

Prejudice can result where a defendant would be forced to participate in additional

discovery. Zivkovic v. S. Cal. Edison Co., 302 F.3d 1080, 1087 (9th Cir. 2002). Extending

discovery can also create undue delay. Solomon v. N. Am. Life & Cas. Ins. Co., 151 F.3d

1132, 1139 (9th Cir. 1998). Regarding futility, “[a] district court does not err in denying

leave to amend where the amendment would be futile . . . or would be subject to dismissal.”

Saul v. United States, 928 F.2d 829, 843 (9th Cir. 1991) (citations omitted); see also Miller

v. Rykoff-Sexton, Inc., 845 F.2d 209, 214 (9th Cir. 1988) (“A motion for leave to amend may

be denied if it appears to be futile or legally insufficient.” (citation omitted)). Similarly, a

motion for leave to amend is futile if it can be defeated on a motion for summary judgment.

Gabrielson v. Montgomery Ward & Co., 785 F.2d 762, 766 (9th Cir. 1986). “However, a

proposed amendment is futile only if no set of facts can be proved under the amendment to

Case 2:06-cv-01794-JAT Document 45 Filed 09/27/06 Page 5 of 8
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 6 -

the pleadings that would constitute a valid and sufficient claim or defense.” Miller, 845 F.2d

at 214.

In this case, the Court will permit Plaintiff to amend its complaint. First, there has not

been undue delay. Less than one month passed between the filing of Plaintiff/counterdefendant’s original complaint and Plaintiff/counter-defendant’s Motion for Leave to File

Second Amended Complaint. Second, there is no evidence of bad faith on the part of

Plaintiff. Third, Defendant has not shown that it would be unfairly prejudiced. The proposed

Second Amended Complaint arises out of the same transaction and events as alleged in the

original Complaint. As to the fourth element, the Court withholds a finding on the issue of

futility at this time because futility is inextricably intertwined with the pending motion to

dismiss and the pending cross-motions for preliminary injunctions. Fifth, Plaintiff/counterdefendant previously amended its complaint. However, the Court issued the Order to Show

Cause sua sponte requiring Plaintiff/counter-defendant to file an amended complaint in order

to correct a jurisdictional pleading deficiency. Additionally, granting the Motion for Leave

to File Second Amended Complaint would allow all of the issues between all of the parties

to be adjudicated in one place. Accordingly, leave to amend is proper under Rule 15(a)

B. Rule 15(c)(3)

Rule 15(c)(3) provides:

An amendment of a pleading relates back to the date of the

original pleading when . . . the amendment changes the party or

the naming of the party against whom a claim is asserted if [the

claim or defense asserted in the amended pleading arose out of

the conduct, transaction, or occurrence set forth or attempted to

be set forth in the original pleading] and, within the period

provided by Rule 4(m) for service of the summons and

complaint, the party to be brought in by amendment (A) has

received notice of the institution of the action that the party will

not be prejudiced in maintaining a defense on the merits, and

(B) knew or should have known that, but for a mistake

concerning the identity of the proper party, the action would

have been brought against the party.

Fed. R. Civ. P. 15. “The Advisory Committee Note to the 1966 Amendment to Rule 15(c)

observes that ‘[t]he relation back of amendments changing plaintiffs is not expressly treated

in revised Rule 15(c) since the problem is generally easier’ and goes on to comment that ‘the

Case 2:06-cv-01794-JAT Document 45 Filed 09/27/06 Page 6 of 8
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 7 -

attitude taken in revised Rule 15(c) toward change of defendants extends by analogy to

amendments changing Plaintiffs.’” Immigrant Assist. Proj. of Los Angeles County Fed’n of

Labor v. INS, 306 F.3d 842, 857 (9th Cir. 2002).

Here, the proposed amended adds a plaintiff. Nevertheless, the omission of Lone Tree

by Plaintiff/counter-defendant was a mistake. Additionally, Plaintiff/counter-defendant

moved to amend and put Defendant/counter-claimant on notice of the to-be-added Plaintiff

within the time provided by Rule 4(m). Further, based on the July 10, 2006 letter,

Defendant/counter-claimant knew Lone Tree was also asserting claims; thus

Defendant/counter-claimant is not prejudiced by having Lone Tree added as a plaintiff. Also,

based on said letter, Defendant/counter-claimant should have known that, but for

Plaintiff/counter-defendant’s Counsel’s mistake, Lone Tree would have been named as a

plaintiff. Thus, because the Second Amended Complaint meets the test for relation back

under Rule 15(c)(3), this case is deemed to be the first filed action.

II. CONCLUSION

Based on the foregoing,

IT IS ORDERED that Plaintiff/counter-defendant’s Motion for Leave to File Second

Amended Complaint (doc. #18) is GRANTED without prejudice to Defendant/counterclaimant filing a second motion to dismiss and/or cross motion for preliminary injunction as

to the newly added Plaintiff, specifically addressing the arguments raised with respect to

futility.

IT IS FURTHER ORDERED that nothing in this order shall be deemed as a finding

that the amendment was not futile.

IT IS FURTHER ORDERED that Plaintiffs shall file the Second Amended

Complaint by September 28, 2006.

IT IS FURTHER ORDERED that Plaintiffs shall file any motion for preliminary

injunction that relates to Lone Tree by September 28, 2006.

Case 2:06-cv-01794-JAT Document 45 Filed 09/27/06 Page 7 of 8
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 8 -

IT IS FURTHER ORDERED that Defendant/counter-claimant shall file any motion

to dismiss or any cross motion for preliminary injunction by October 3, 2006; responses are

due by noon, Friday October 6, 2006; replies are due by 9:00 a.m., October 10, 2006.

IT IS FURTHER ORDERED that due to the October 11, 2006 trial date, no

extensions of these deadlines may be requested nor would they be granted.

DATED this 27th day of September, 2006.

Case 2:06-cv-01794-JAT Document 45 Filed 09/27/06 Page 8 of 8