Opinion ID: 2806273
Heading Depth: 1
Heading Rank: 3

Heading: Nelson’s First Amended Complaint

Text: The district court concluded that the allegations in Nelson’s first amended complaint failed to plead sufficient factual details to implicate CEC as a signatory to the PPAs, so the court dismissed it pursuant to Fed. R. Civ. P. 9(b). Career Educ. Corp., 2013 WL 6162673 at . Nelson contends that CEC’s dismissal was error. We review de novo a district court’s decision to dismiss a complaint or amended complaint for failing to satisfy the particularity requirement of Rule 9(b); we take the plaintiff’s 2 For the sake of completeness, we note that even the cases Nelson cites in support of his argument require him to possess independent knowledge in order to qualify as an original source. U.S. ex rel. Smith v. Yale Univ., 415 F. Supp.2d 58, 79 (D. Conn. 2006); United States ex rel. DeCarlo v. Kiewit/AFC Enters., 937 F.Supp. 1039, 1049 (S.D.N.Y. 1996). 12 No. 14‐2506 allegations as true and draw all reasonable inference in the plaintiff’s favor. Tricontinental Indus., Ltd. v. Pricewaterhouse‐ Coopers, LLP, 475 F.3d 824, 833 (7th Cir. 2007). When “alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.” Fed. R. Civ. P. 9(b). “The reference to ‘circumstances’ in the rule requires the plaintiff to state the identity of the person who made the misrepresentation, the time, place and content of the misrepresentation, and the method by which the misrepresentation was communicated to the plaintiff” in order to satisfy Rule 9(b)’s heightened pleading standard. Vicom, Inc. v. Harbridge Merchant Services, Inc., 20 F.3d 771, 777 (7th Cir. 1994) (internal quotations omitted). “The purpose [] of the heightened pleading requirement in fraud cases is to force the plaintiff to do more than the usual investi‐ gation before filing his compliant.” Ackersman v. Northwestern Mut. Life Ins. Co., 172 F.3d 467, 469 (7th Cir. 1999). To comply with Rule 9(b) in a multiple‐defendant case like this one, the plaintiff must “plead sufficient facts to notify each defendant of his alleged participation in the scheme.” Goren v. New Vision Int’l., Inc.,156 F.3d 721, 726 (7th Cir. 1998). We turn to Nelson’s first amended complaint. Nelson identified three defendants in the caption of his first amended complaint: CEC, Sanford‐Brown, Limited, and Ultrasound Technical Services, Inc. Nelson refers to CEC, Sanford‐Brown, Limited, and Ultrasound Technical Services, Inc., collectively, as “Defendants.” 1st Am. Compl. ¶ 1. Nelson alleges that “CEC operates a chain of for‐profit colleges, schools and universities nationwide” including “roughly 40 Sanford‐Brown schools.” No. 14‐2506 13 1st Am. Compl. ¶ 18. Further, he alleges that “Sanford‐Brown, Limited is a subsidiary of CEC” and that “[o]n information and belief, Sanford‐Brown, Limited co‐operates Sanford‐Brown College, Milwaukee.”1st Am. Compl. ¶ 19. With this outline of the defendants’ corporate hierarchy in mind, we return to the central allegation of the first amended complaint, which reads as follows: As a condition to allowing their students to receive federal funding under Title IV/HEA, Defendants were required to sign a Program Participation Agreement (“PPA”), whereby they agreed to comply with certain statutory, regula‐ tory and contractual requirements detailed in 20 U.S.C. § 1094 and supporting regulations, in‐ cluding 34 C.F.R. § 668.14. 1st Am. Compl. ¶ 24. We must decide whether the amended complaint’s collective reference to “Defendants” and its contention that they were required to sign a PPA pleads sufficient facts to notify CEC of its alleged participation in the scheme. Goren, 156 F.3d at 726; Vicom, 20 F.3d at 777. Each party argues that Jepson, Inc. v. Makita Corp., 34 F.3d 1321 (7th Cir. 1994), supports its position. In Jepson, we affirmed the dismissal of an amended complaint alleging civil RICO violations against three corporations (two of which were subsidiaries of the third corporation) where the allegations did not adequately detail the predicate acts of mail and wire fraud to survive under Rule 9(b). Id. at 1331. The defendants argue that Jepson requires Nelson’s allegations to be dismissed because they are lodged against “Defendants” generally and 14 No. 14‐2506 do not specify which conduct was undertaken by each particu‐ lar corporate defendant. Nelson counters that allegations need not be so specific when the corporate defendants “are related corporations that can most likely sort out their involvement without significant difficulty.” Id. at 1329. Nelson reads the phrase in question completely out of context. Jepson held the plaintiffs’ mail and wire fraud allegations were insufficiently pleaded, so it was unnecessary for us to provide any further extraneous detail in the opinion about which corporate defendant was targeted by the insuffi‐ cient allegations. Id. at 1331. We said on three separate occa‐ sions within Jepson that we were referring to the multiple corporate defendants collectively throughout the opinion for the sake of readability.3 The phrase Nelson quotes has nothing whatsoever to do with pleading requirements. Jepson stressed that under Rule 9(b), defendants “are entitled to be apprised of the roles they each played in the alleged scheme, and that absent a compelling reason, the plaintiff is normally not entitled to treat multiple corporate defendants as one entity.” Id. at 1329 (citing cases). Here, the problem with Nelson’s first amended complaint is this: Nelson references “Defendants” dozens of times in his amended 3 Jepson, 34 F.3d at 1324 (“We shall refer to the Makita defendants collec‐ tively as ‘Makita.’”); id. at 1328 (“For the sake of convenience in our discussion, we have lumped all three defendants under the single name ‘Makita.’”); id. at 1329 (“We will assume for the purposes of our discussion that ... given that the three corporate defendants in this case are related corporations that can most likely sort out their involvement without significant difficulty.”). No. 14‐2506 15 complaint, yet not once does he distinguish CEC’s conduct from the conduct of either of the other two co‐defendants. By failing to allege specific facts beyond the single allegation that CEC entered into a PPA, the first amended complaint fails to plead sufficient facts to notify CEC of the circumstances of its alleged participation in the scheme. Goren, 156 F.3d at 726; Vicom, 20 F.3d at 777. Accordingly, we reject Nelson’s sweep‐ ing contention that his allegations against all “Defendants” should be treated as specific allegations against one defendant, CEC. B. The district court’s denial of Nelson’s motion for leave to file a second amended complaint After the district court dismissed CEC and following additional discovery directed at the issue of CEC’s connection to the PPAs, Nelson moved for leave to file a second amended complaint to cure the Rule 9(b) defects based on “recent discovery.” Defendants objected, and the district court denied Nelson’s motion. On appeal, Nelson raises two related chal‐ lenges to the district court’s denial of leave to file a second amended complaint. First, he argues that the district court should have granted him leave to file a second amended complaint because he filed his motion on the last day the parties agreed upon for any amendments. Second, he argues that justice requires that he be afforded at least one opportu‐ nity to cure the Rule 9(b) defects. We review the district court’s decision under the highly deferential abuse of discretion standard. Soltys v. Costello, 520 F.3d 737, 743 (7th Cir. 2005). While the parties’ stipulated scheduling order agreed that amendments must be made by January 3, 2014, such an 16 No. 14‐2506 agreement does not impact the district court’s discretion to grant or deny the motion. The well‐settled rule is that a party may amend its complaint once as a matter of right, twice or more only at the district court’s discretion. See Hukic v. Aurora Loan Services, 588 F.3d 420, 432 (7th Cir. 2009) (denying leave to file a second amended complaint); Fed. R. Civ. P. 15(a). Further, while leave to amend should be freely given “when justice so requires,”Alioto v. Town of Lisbon, 651 F.3d 715, 719 (7th Cir. 2011); Fed. R. Civ. P. 15(a)(2), a district court has “broad discretion to deny leave to amend where there is undue delay, bad faith, dilatory motive, repeated failure to cure deficiencies, undue prejudice to the defendants, or where the amendment would be futile.” Arreola v. Godinez, 546 F.3d 788, 796 (7th Cir. 2008). Here, the district court’s order dismissing CEC was entered on November 22, 2013. Instead of moving for reconsideration, Nelson waited forty‐two days before moving for leave to bring CEC back into the case. Like the district court, we find no good reason for this delay in the record. Had the district court granted a second motion for leave to amend, it would have returned a dismissed party, CEC, back into litigation when discovery had proceeded for weeks and SBC had proceeded under the assumption that CEC was no longer involved. CEC’s return to the litigation was obviously substantially prejudicial to CEC, and was also prejudicial to SBC because it had pro‐ ceeded through discovery under the reasonable assumption that CEC would remain dismissed. In these respects, this situation is strikingly similar to Hukic, where we affirmed the denial of a motion for leave to file a second amended com‐ plaint when it was filed near the close of discovery because No. 14‐2506 17 discovery had already taken place with the initial claims and defendants in mind. 588 F.3d at 432. As in Hukic, the district court did not abuse its discretion by failing to grant Nelson leave to file a second amended complaint.