Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_05-cv-01406/USCOURTS-caed-1_05-cv-01406-1/pdf.json

Parties Involved:
Bank of the Sierra
Counter Claimant
Sierra Bancorp
Defendant
Donald Sowers
Defendant
The Executive Nonqualified Excess Plan
Defendant
Dale Zeller
Counter Defendant

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

DALE ZELLER, )

)

Plaintiff, )

v. )

)

BANK OF THE SIERRA, a )

California Corporation, )

et al., )

)

Defendants. )

)

 )

1:05-CV-01406-OWW-SMS

ORDER GRANTING MOTION OF

DEFENDANT BANK OF THE SIERRA FOR

LEAVE TO AMEND ITS ANSWER TO

ASSERT COUNTERCLAIMS (DOC. 16)

AND DIRECTING THAT DEFENDANT FILE

AN AMENDED ANSWER ASSERTING

COUNTERCLAIMS NO LATER THAN

FIFTEEN DAYS AFTER THE DATE OF

SERVICE OF THIS ORDER

Plaintiffs are proceeding with a civil action in this Court.

The matter has been referred to the Magistrate Judge pursuant to

28 U.S.C. § 636(b) and Local Rules 72-302(c)(1) and 72-303.

I. Background

On April 25, 2006, Defendant Bank of the Sierra filed and

electronically served a notice of motion and motion for leave to

amend its answer to assert counterclaims, a memorandum and

declaration of Daniel J. Cravens in support thereof with

exhibits, including the proposed counterclaims. No opposition was

filed within the time permitted by the applicable rules of court.

On May 18, 2006, Defendants filed a reply noting that no

opposition had been received and requesting the granting of its

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motion.

By separate order, the Court vacated the hearing that had

been set on the motion and deemed the matter submitted to the

Court for decision.

The complaint was filed on November 3, 2005. It alleged

claims by Plaintiff Zeller, who was formerly the vice president

and director of the management information systems department of

Defendant Bank of Sierra (Bank), against Bank; Bank’s parent

company, Sierra Bancorp; Donald Sowers, a vice president and

director of human resources for Bank; and the Executive

Nonqualified Excess Plan (Plan), an alleged ERISA and employee

benefit plan administered by Bank. Plaintiff sued for denial of

plan benefits, breach of a stock option contract, violation of

California Lab. Code § 970 by misrepresenting eligibility for

bank shares under an option contract, intentional and negligent

interference with economic advantage by publishing information

about Zeller that resulted in the loss of specific job

opportunities, and invasion of privacy by the Bank’s accessing of

personal accounts of Zeller.

Defendants answered on December 29, 2005, admitting

jurisdiction but denying the operative facts and asserting that

Plaintiff Zeller had been terminated for cause.

The Declaration of Cravens establishes that Plaintiff

Zeller’s employment included responsibility for purchasing

computer equipment; Plaintiff engaged in a pattern of fraudulent

conduct whereby he affiliated with dummy corporations controlled

by family members and submitted invoices for computer equipment

that Plaintiff had actually purchased from third parties but

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 California case law contains references to the tort of embezzlement in the context of fiduciary

malfeasance. See, Hill v. Superior Cout in and for Alameda County, 16 Cal.2d 527, 530 (1940).

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funneled through the dummy corporations at falsely inflated

prices; Plaintiff altered packing slips and other documentation,

and he purchased used equipment and funneled it through the

corporations as new equipment, sold to Bank at inflated prices.

Defendant Bank seeks to amend the answer to allege

counterclaims for breach of fiduciary duty, intentional and

negligent misrepresentation, embezzlement,1 and unjust enrichment.

II. Analysis

Fed. R. Civ. P. 13 states in pertinent part:

(a) Compulsory Counterclaims. A pleading shall state

as a counterclaim any claim which at the time of serving

the pleading the pleader has against any opposing party,

if it arises out of the transaction or occurrence that

is the subject matter of the opposing party’s claim

and does not require for its adjudication the presence

of third parties of whom the court cannot acquire

jurisdiction. But the pleader need not state the claim

if (1) at the time the action was commenced the claim

was the subject of another pending action, or (2) the

opposing party brought suit upon the claim by 

attachment or other process by which the court did

not acquire jurisdiction to render a personal judgment

on that claim, and the pleader is not stating any

counterclaim under this Rule 13.

(b) Permissive Counterclaims. A pleading may state as

a counterclaim any claim against an opposing party not

arising out of the transaction or occurrence that is

 the subject matter of the opposing party’s claim.

....

(f) Omitted Counterclaim. When a pleader fails to set

up a counterclaim through oversight, inadvertence, or

excusable neglect, or when justice requires, the pleader

may by leave of court set up the counterclaim by amendment.

Generally, pursuant to Rule 15(a), amendment of pleadings

should be liberally allowed, and in determining whether leave to

amend should be granted, courts consider factors such as the good

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faith and diligence of the claimant, the extent of the delay,

futility of amendment, and the danger of prejudice to the

opposing party. Foman v. Davis, 371 U.S. 178, 182 (1962). These

factors are likewise considered in determining if, pursuant to

Rule 13(f), leave should be granted to allow an amendment to

allege a counterclaim omitted through oversight, inadvertence, or

excusable neglect, or when justice requires. Pioneer Investment

Services Co. v. Brunswick Associates Limited Partnership, 507

U.S. 380, 392 n. 10 (1993). Although delay is significant,

prejudice to the opposing party is the most important

consideration in many decisions denying leave to amend. Jackson

v. Bank of Hawaii, 902 F.2d 1385, 1387 (9th Cir. 1990).

A counterclaim is compulsory, and thus must be alleged in

the action or be lost after its conclusion, if it arises out of

the same transaction or occurrence as the plaintiff’s claim. Fed.

R. Civ. P. 13(a); Hydranautics v. Filmtec Corp., 70 F.3d 533, 536

(9th Cir. 1995). A claim arises out of the same transaction or

occurrence if the issues of fact and law are largely the same for

both the claim and counterclaim, the same evidence will support

or refute both claims, res judicata would bar a subsequent suit

on the defendant’s claim, or there is a logical relationship

between the claim and counterclaim. FDIC v. Hulsey, 22 F.3d 1472,

1487 (10th Cir. 1994). The Court must determine if the essential

facts of the various claims are so logically connected that

considerations of judicial economy and fairness dictate that all

the issues be resolved in one lawsuit. Pochiro v. Prudential Ins.

Co. of America, 827 F.2d 1246, 1249 (9th Cir. 1987). A logical

relationship exists when the counterclaim arises from the same

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aggregate set of operative facts as the initial claim, in that

the same operative facts serve as the basis of both claims or the

aggregate core of facts upon which the claim rests activates

additional legal rights otherwise dormant in the defendant. In re

Pinkstaff, 974 F.2d 113, 115 (9th Cir.1992). “‘Transaction’ is a

word of flexible meaning. It may comprehend a series of many

occurrences, depending not so much upon the immediateness of

their connection as upon their logical relationship." Moore v.

New York Cotton Exch., 270 U.S. 593, 610 (1926); see Pochiro v.

Prudential Ins. Co. of Am.,, 827 F.2d 1246, 1252 (9th Cir.1987)

(noting that the term “transaction” should be broadly construed).

The stronger the relationship between the counterclaim and the

main claim, the better the movant’s case for permitting the

counterclaim.

Here, Cravens declares that the counterclaims are and may be

asserted in good faith. There is no opposition or suggestion of

futility. There do not appear to be any indicia of bad faith. The

original complaint was filed five and one-half months ago; any

delay is not lengthy. The discovery deadline is October 16, 2006,

and jury trial is set for March 2007; thus, it does not appear

that any prejudice would result to the opposing party because the

case is in its early stages, and a lengthy discovery period

remains. The counterclaims arise out of the employment

relationship and its termination; the facts pertinent to a

determination regarding the presence or absence of good cause for

termination of Plaintiff would appear to overlap significantly

with the facts pertinent to a determination of the merits of the

proposed counterclaims. In that sense the counterclaims and

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claims already before the Court are so logically connected that

considerations of judicial economy and fairness dictate that all

the issues be resolved in one lawsuit. 

Accordingly, it IS ORDERED that:

1) The motion of Defendant Bank of the Sierra for leave to

file an amended answer to assert counterclaims IS GRANTED; and

2) An amended answer containing counterclaims SHALL BE FILED

by Defendant Bank of Sierra no later than fifteen days after the

date of service of this order.

IT IS SO ORDERED.

Dated: May 23, 2006 /s/ Sandra M. Snyder 

icido3 UNITED STATES MAGISTRATE JUDGE

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