Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_11-cv-01465/USCOURTS-casd-3_11-cv-01465-0/pdf.json

Nature of Suit Code: 130
Nature of Suit: Miller Act
Cause of Action: 40:270 Miller Act

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

UNITED STATES OF AMERICA, for the

use and benefit of ALL DAY ELECTRIC

COMPANY, INC., a California Corporation,

Plaintiffs,

CASE NO. 11CV1465 JLS (JMA)

ORDER GRANTING MOTION

FOR LEAVE TO FILE A FIRST

AMENDED COUNTERCLAIM

(ECF No. 23)

vs.

STRONGHOLD ENGINEERING, INC., a

Calfornia Corporation; SAFECO

INSURANCE COMPANY OF AMERICA, a

Washington Corporation; and DOES 1

through 50, inclusive,

Defendants.

AND RELATED COUNTERCLAIMS.

Presently before the Court is Defendant and Counter-Claimant Stronghold Engineering,

Inc.’s (“Stronghold” or “Defendant”) Motion for Leave to File a First Amended Counterclaim. 

(Mot. File FACC, ECF No. 23) Also before the Court is Plaintiff and Counter-Defendant All Day

Electric Company, Inc.’s (“ADE”) response in opposition, (Resp. in Opp’n, ECF No. 25), and

Stronghold’s reply in support, (Reply in Supp., ECF No. 26). The hearing set for the motion on

July 5, 2012, was vacated, and the matter taken under submission on the papers. Having

considered the parties’ arguments and the law, the Court GRANTS Stronghold’s motion.

//

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BACKGROUND

ADE filed a Miller Act, 40 U.S.C. § 3133, action against Stronghold and Safeco Insurance

Company of America on July 1, 2011, also asserting claims for breach of contract, breach of

implied warranty, and quantum meruit. (Compl., ECF No. 1) Defendants answered on August 29,

2011, bringing counterclaims against ADE for breach of contract (two counts) and reasonable

value. (Countercl., ECF No. 7) Now, approximately eight months after filing its counterclaims,

Stronghold filed the present motion to file amended counterclaims.1

Stronghold’s amended complaint seeks to add one new cause of action against ADE and

also to add a new counter-defendant, ARB, Inc. (“ARB”). (Mot. File FACC 1–3, ECF No. 23) 

The new cause of action is a tort claim for intentional misrepresentation, and the new counterdefendant is a California corporation that allegedly owns approximately 49% of ADE. (Mot. File

FACC Ex. 1, ECF No. 23-4 (proposed FACC)) 

LEGAL STANDARD

Leave to amend should be freely given “when justice so requires.” Fed. R. Civ. P.

15(a)(2). But while the rule should be interpreted extremely liberally, leave should not be granted

automatically. Jackson v. Bank of Haw., 902 F.2d 1385, 1387 (9th Cir. 1990). “The party

opposing amendment bears the burden of showing prejudice.” DCD Programs, Ltd. v. Leighton,

833 F.2d 183, 187 (9th Cir. 1987). A trial court may deny a motion for leave to amend based on

various factors, including bad faith, undue delay, prejudice to the opposing party, futility of

amendment, and whether the party has previously amended. Foman v. Davis, 371 U.S. 178, 182

(1962). 

ANALYSIS

ADE argues leave to amend should be denied due to futility of amendment, undue delay,

and prejudice to ADE (and presumably ARB). (See Resp. in Opp’n 5–10, ECF No. 25) The Court

considers each in turn.

//

1

 Stronghold’s motion was filed on April 30, 2012, the cut-off date for filing motions to amend

or join parties. (Scheduling Order, ECF No. 18)

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1. Futility

“A proposed amendment is futile only if no set of facts can be proven under the

amendment to the pleadings that would constitute a valid and sufficient claim.” Miller v. RykoffSexton, Inc., 845 F.2d 209, 214 (9th Cir. 1988). ADE asserts that Stronghold’s proposed

amendment is futile because it is premised on the flawed argument that ADE purported to be a

small enterprise under 49 C.F.R. 26.5 when in fact it was not. In addition, ADE argues that the

proposed allegations fail to state a claim for intentional misrepresentation because they fail to

satisfy the pleading requirements of Federal Rules of Civil Procedure 8 and 9(b). (Resp. in Opp’n

6–7, ECF No. 25)

With regard to the parties’ dispute whether ADE qualifies as a “small business enterprise”

under the relevant federal regulations, the Court cannot find at this juncture that “no set of facts

can be proven under the amendment to the pleadings that could constitute a valid and sufficient

claim.” Miller, 845 F.2d at 214. Both parties point to 49 C.F.R. 26.5, which defines a

“disadvantaged business enterprise” as a 

for-profit small business concern --

(1) That is at least 51 percent owned by one or more individuals who are both

socially and economically disadvantaged or, in the case of a corporation, in which

51 percent of the stock is owned by one or more such individuals; and

(2) Whose management and daily business operations are controlled by one or

more of the socially and economically disadvantaged individuals who own it.

49 C.F.R. 26.5. According to ADE, even if 49 percent of ADE is owned by ARB, ADE still

qualifies as a “small business enterprise” under this section because it is not “at least 51 percent

owned” by ARB. (Resp. in Opp’n 6, ECF No. 25) Stronghold asserts, however, that even if ADE

satisfies the first prong of 49 C.F.R. 26.5, it does not satisfy the second. (Reply in Supp. 6, ECF

No. 26) 

Upon the Court’s own review of the proposed allegations and based on the sparse argument

provided by both parties on this issue, the Court cannot conclude that amendment would be futile.

But future motions to dismiss on this matter would be entertained.

With regard to whether the proposed allegations satisfy Rule 8 and 9(b), Stronghold

counters that its proposed claims are sufficiently detailed, or that the Court should allow a chance

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to further amend if additional details are required. (Reply in Supp. 7, ECF No. 26) At this early

stage, the Court, in its discretion, declines to deny leave to amend for futility without prejudice to

ADE or ARB bringing a future motion to dismiss on this basis. These issues will be better

addressed in a motion to dismiss when the parties can more fully set forth their arguments. 

Stronghold is advised, however, that ADE is correct that Rule 9(b)’s heightened pleading standard

governs the pleading of a claim for intentional misrepresentation because it is a form of fraud. See

Cadlo v. Owens-Illinois, Inc., 23 Cal. Rptr. 3d 1, 5 (Cal. Ct. App. 2004); Vess v. Ciba-Geigy

Corp., USA, 317 F.3d 1097, 1102–03 (9th Cir. 2003). 

2. Undue Delay

In most situations, undue delay by itself “is insufficient to justify denying a motion to

amend.” Bowles v. Reade, 198 F.3d 752, 758 (9th Cir. 1999). But in some egregious cases, delays

may be sufficient on their own to deny amendment. See AmerisourceBergen Corp v. Dialysist

West, Inc., 465 F.3d 946, 953 (9th Cir. 2006). Under the undue delay analysis, a relevant inquiry

is also whether the plaintiff “knew or should have known the facts and theories raised by the

amendment in the original pleading.” Jackson, 902 F.2d at 1388. 

Here, though not dispositive, the Court notes that Stronghold made its motion within the

time prescribed in Magistrate Judge Adler’s Scheduling Order. And, although eight months have

elapsed since Stronghold filed its original counterclaims, discovery is still open, and the parties

have not yet engaged in any other motion practice. Cf. Acri v. International Ass’n of Machinists

&Aerospace Workers, 781 F.2d 1393, 1398–99 (9th Cir. 1986).

While the Court has an aversion towards allowing amendments that could have been made

earlier, the Court is not convinced that Stronghold’s decision not to amend at an earlier date was a

tactical one. Even if the facts Stronghold seeks to allege now were known by it at an earlier date,

Stronghold was entitled—indeed, required—to make a reasonable inquiry as to the validity of

those allegations before seeking leave to amend. See Fed. R. Civ. P. 11(b).

Thus, the Court finds that Stronghold’s decision to add a new claim and a new party at this

point in litigation is not undue delay warranting denial of leave to amend. 

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4. Prejudice

Defendant urges the Court to deny leave to amend because it (and “presumably ARB”) will

be unduly prejudiced by the assertion of the new tort claim alongside the existing dueling contract

claims. (Resp. in Opp’n 9, ECF No. 25) According to ADE, allowing the assertion of new claims

at this stage in the litigation would create the need to extend the discovery cut-off date and to

modify the Court’s current Scheduling Order. (Id. at 9–10) But the Court notes that Magistrate

Judge Adler already set an extended discovery period in this matter, and the Court is not

convinced that the assertion of this additional claim will so significantly expand the scope of

discovery so that it cannot be completed within the current deadline of December 21, 2012. 

Moreover, by setting a date by which any motions to amend or join parties must be filed,

Magistrate Judge Adler set the remaining deadlines in this matter with an eye toward the

possibility that the pleadings might be amended. Indeed, the deadline for all other motions is not

until January 22, 2013, and the pre-trial conference is not until May 16, 2013. The Court finds,

therefore, that Defendant will not suffer prejudice warranting the denial of leave to amend. 

CONCLUSION

For the reasons stated above, Stronghold’s motion for leave to file a first amended

counterclaim is GRANTED. Stronghold SHALL FILE its amended counterclaims within

fourteen days of the date this Order is electronically docketed. 

IT IS SO ORDERED.

DATED: August 31, 2012

Honorable Janis L. Sammartino

United States District Judge

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