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Aloi v. Moroso Investment Partners, LLC

United States District Court, Fourth Circuit

December 31, 2013



DEBORAH K. CHASANOW, District Judge.

Presently pending and ready for review in this breach of contract, negligent misrepresentation, and fraud case is the motion for leave to file a second amended complaint filed by Plaintiff Robert Aloi ("Plaintiff" or "Aloi") (ECF No. 41). On October 16, 2013, the parties filed a joint motion to stay the scheduling order in the case pending a settlement conference before Magistrate Judge William G. Connelly. (ECF No. 47). A settlement conference was held on November 25, 2013, but no settlement was reached. The court now rules, no hearing being deemed necessary. Local Rule 105.6. For the following reasons, the motion to amend will be granted in part and denied in part.

I. Background

On September 12, 2011, Plaintiff commenced this action against Defendant Moroso Investment Partners, LLC ("Moroso" or "MIP")[1] alleging fraud, negligent misrepresentation, and breach of contract. (ECF No. 1).[2] Plaintiff, who "developed an extensive skill set involving motor sports business and related entertainment ventures, including management and/or business development, " contacted Joseph Lubeck ("Mr. Lubeck") of MIP in about July 2009 regarding a joint venture project for the acquisition of motor sports entities. (ECF No. 1 ¶¶ 7-9). On May 11, 2010, Plaintiff entered into a Consulting Agreement with MIP, under which Aloi was "to provide services to MOROSO/IHRA for the purposes of coordinating, analyzing, reviewing and purchasing and/or negotiating funding for various motor sports and entertainment properties included in the race track acquisition project." (ECF No. 1 ¶ 20). The Consulting Agreement, which Mr. Lubeck signed on behalf of Moroso Investment Partners, contained a three pronged compensation framework for Plaintiff's consulting work. First, Section 3(A) provided Mr. Aloi a "Consulting Fee." Plaintiff was to receive a $10, 000 payment at the signing of the new company's letter of intent and a monthly payment of $10, 000 for the remainder of the contract. (ECF No. 1-1, at 4-5). Second, Section 3(B) provided Mr. Aloi a commission fee "[i]n the event that [Defendant] ultimately receive[d] funding or acquire[d] a business or businesses, which acquisition [was] sourced directly by [Plaintiff] or for which funding [was] sourced by [Plaintiff], [Plaintiff was to] receive as additional compensation at closing one and [a] half percent (1.5) % of the gross purchase price of the business." ( Id. at 5). Finally, Section 3(C) provided Plaintiff a salaried position as Chief Operating and Expansion Officer with the new company. This position was to carry a base yearly salary of $120, 000. ( Id. at 5-6). In the initial complaint, Plaintiff asserted that "MOROSO/IHRA breached this contract by failing to pay ALOI, failing [to] assign ALOI to the agreed upon corporate position, and failing to provide ALOI with the agreed upon benefits, all pursuant to the terms of the contract." (ECF No. 1 ¶ 64).

In response to a demand letter sent by Plaintiff's counsel to Defendant's counsel (ECF No. 1-2), the parties entered into settlement negotiations on March 8, 2011. (ECF No. 1, at 6). Defendant, through Mr. Lubeck and Defendant's attorney, told Plaintiff that "a financial closing was anticipated to occur on or before April 30, 2011 [and] that no funds were presently available to fund the Settlement Agreement therefore making it necessary for [Plaintiff] to wait for a financial closing to occur to be paid his settlement proceeds." ( Id. ). The Settlement Agreement stipulated that once the private equity deal between MIP and a private investor closed, Defendant would pay Plaintiff a one-time payment of $100, 000, as well as annual payments of $60, 000 for five years. (ECF No. 1-3). Pursuant to the Settlement Agreement, Defendant was to give Plaintiff regular updates regarding the financial closing. ( Id. ¶ 1.1). In exchange, Plaintiff discharged and released Defendant from any claims arising under the Consulting Agreement. ( Id. ). The Settlement Agreement further provided that "in the event the Financial Closing does not occur by July 31, 2011, ... this Agreement shall immediately become null and void with all parties reserving all of their rights with regard to the Consulting Agreement and any other agreement among the parties." ( Id. ¶ 1.3). Plaintiff's fraud and negligent misrepresentation claims in the initial complaint were premised on allegedly false misrepresentations made by MIP and Mr. Lubeck in connection with the Settlement Agreement.

On October 24, 2011, Defendant moved to dismiss or for summary judgment. (ECF No. 8). On September 20, 2012, the court issued a memorandum opinion and order, denying Defendant's motion to dismiss as to the breach of contract claim, but granting the motion as to Plaintiff's claims for fraud and negligent misrepresentation. The order gave Plaintiff fourteen (14) days within which to file an amended complaint with respect to these two claims. On October 4, 2012, Plaintiff filed a first amended complaint against MIP and elaborated on the allegations as follows. Aloi asserted that "[d]espite the fact that LUBECK and MOROSO failed to pay ALOI, LUBECK and MOROSO repeatedly represented to the racing industry that ALOI had been assigned a position as Special Projects and Track Development' with MOROSO." (ECF No. 20-1 ¶ 28). Plaintiff also alleged that Lubeck and MIP repeatedly stated that ALOI was "part of the team." ( Id. ¶ 29). Plaintiff also asserted that despite Lubeck's assurances, Aloi was not paid the 1.5% commission under the Consulting Agreement. Plaintiff further alleged that "MOROSO orchestrated the Settlement in bad faith and agreed to its terms to delay ALOI's filing of a lawsuit against MOROSO so that an audit would not show open litigation between ALOI (an equity holder in MOROSO) and MOROSO." ( Id. ¶ 44). In support of the fraud and negligent misrepresentation claims, Plaintiff alleged that "LUBECK and MOROSO/IHRA made a number of representations to ALOI and/or his counsel that a financial closing was anticipated to occur on or before April 30, 2011" to entice Plaintiff to enter into the Settlement Agreement. ( Id. ¶ 49). Furthermore, "[a]s early as April 4, 2011, ALOI was made aware of certain track improvements at the Memphis International Raceway previously purchased by MOROSO/IHRA, the same track ALOI helped MOROSO acquire... Plaintiff is informed and believes that MOROSO/IHRA paid for these track improvements either through funds received from a financial closing or from funds already in existence." ( Id. ¶¶ 53-54). Aloi asserted in the first amended complaint that "MOROSO/IHRA, LUBECK... were purposefully misinforming him regarding MOROSO's financial condition and the nature of the anticipated financial closing." ( Id. ¶ 58).

Defendant answered the complaint on October 22, 2012. (ECF No. 21). On October 31, 2012, a scheduling order was issued, setting December 17, 2012 as the deadline for moving for joinder of additional parties and amendment of pleading. (ECF No. 23). On November 14, 2012, the parties jointly requested modification of the scheduling order "to allow the parties time to explore early settlement/ADR conference before either party expends time and money toward discovery or experts." (ECF No. 26). The parties did not seek an extension of the December 17, 2012 deadline to join additional parties and amend the pleadings. The court granted the joint motion (ECF No. 27) and the case was referred to Magistrate Judge Connelly for ADR on November 15, 2012 (ECF No. 28). On April 15, 2013, the parties filed a joint status report, which discussed several telephone conferences with Judge Connelly and provided, inter alia, that "[t]he parties have exchanged written discovery and produced documents but have agreed to postpone taking any depositions in order to focus their efforts and resources on settlement discussions. If the Parties are unable to reach settlement at the end of 30 days the parties will seek to [a]mend the Scheduling Order accordingly." (ECF No. 34, at 1-2).[3]

On May 21, 2013, Plaintiff moved to modify the scheduling order. In this motion, Plaintiff indicated that the date for joining additional parties and amending the pleadings was the only date on which the parties disagreed. Plaintiff proposed July 15, 2013 as the date for joining additional parties and amending the pleadings; he stated that "this date should be part of any amended schedule, as Plaintiff intends to amend his Complaint to conform to and reflect evidence discovered through the discovery process - all of which was discovered well after the original deadline for amendment of pleadings has passed." (ECF No. 38-1, at 1). On June 6, 2013, Defendant filed a partial opposition to this motion, objecting to Plaintiff's proposed extension of the deadline to move for joinder of additional parties and amendment of pleadings (ECF No. 39). On June 10, 2013, this court issued a paperless order, extending all deadlines in accordance with the parties' agreement, but noting that leave to amend will be addressed if Plaintiff seeks belated leave. (ECF No. 40).

On July 8, 2013, Plaintiff moved for leave to file a second amended complaint, seeking to add the following six new defendants: Joseph Lubeck; Moroso Investment Partners II, LLC ("MIP II"); Moroso Investment Partners IV, LLC ("MIP IV"); Moroso Entertainment, LLC ("ME"); Moroso Entertainment SPE III, LLC ("ME III"); and IHRA Entertainment, LLC. Plaintiff also sought to add an unjust enrichment claim against MIP and all of the proposed defendants. In the proposed second amended complaint, Plaintiff asserts counts for fraud and negligent misrepresentation against Lubeck, MIP, and IHRA Entertainment, LLC and a breach of contract claim against MIP, MIP IV, ME, ME III, and IHRA Entertainment, LLC. Defendant opposed the motion on July 25, 2013 (ECF No. 43), and Plaintiff replied on August 12, 2013 (ECF No. 45). On October 16, 2013, the parties filed a joint motion to stay the scheduling order pending a settlement conference before Magistrate Judge Connelly on November 25, 2013. (ECF No. 47). The court issued a paperless order on the same day granting the parties' joint motion and staying the action until the November 25, 2013 settlement conference. The order directed that in the event the parties did not reach settlement at the settlement conference, they are to file a proposed new scheduling order the later of five days of the settlement conference or after the court rules on Plaintiff's motion for leave to file a second amended complaint. (ECF No. 48). Judge Connelly held a settlement conference on November 25, 2013, but the parties were unable to settle.

II. Analysis

Pursuant to Fed.R.Civ.P. 15(a)(2), the court should "freely give leave" to amend pleadings "when justice so requires." Fed.R.Civ.P. 15(a)(2). There is an important complication here, however: the scheduling order set a deadline of December 17, 2012 for the amendment of pleadings and joinder of parties, that deadline was never altered despite numerous modifications to the scheduling order, and that deadline has long since passed. ( See ECF Nos. 23 & 27). Thus, the parties must do more than satisfy the liberal standard of Rule 15(a); they must first meet the mandates of Rule 16(b)(4), which calls for "good cause" to change a scheduling order. See Nourison Rug Corp. v. Parvizian, 535 F.3d 295, 298-99 (4th Cir. 2008); see also Wilson v. Appalachian Power Co., No. 3:10-0445, 2011 WL 221656, at *1 (S.D.W.Va. Jan. 24, 2011) (applying Rules 16(b) and 15(a) in analyzing untimely motion for leave to amend); Rassoull v. Maximus, Inc., 209 F.R.D. 372, 373 (D.Md. 2002) (same).

A. Good Cause under Rule 16(b)(4)

Rule 16(b)(4) states that "[a] schedule may be modified only for good cause and with the judge's consent." "Good cause" under Rule 16(b)(4) is established when the moving party shows that it cannot meet the deadlines in the scheduling order despite diligent efforts. Potomac Elec. Power Co. v. Elec. Motor Supply, Inc., 190 F.R.D. 372, 375 (D.Md. 1999) ( quoting Dilmar Oil Co., Inc. v. Federated Mut. Ins. Co., 986 F.Supp. 959, 980 (D.S.C. 1997), aff'd by unpublished opinion, 129 F.3d 116 (Table), 1997 WL 702267 (4th Cir. 1997)). Indeed, although other factors may be considered ( e.g., the length of the delay and whether the non-moving party could be prejudiced by the delay), Tawwaan v. Va. Linen Serv., Inc., 729 F.Supp.2d 757, 768-69 (D.Md. 2010), "the primary consideration... in [determin]ing whether good cause' has been shown under Rule 16(b) relates to the movant's diligence, " Reyazuddin v. Montgomery Cnty., Md., No. DKC 11-0951, 2012 WL 642838, at *3 (D.Md. Feb. 27, 2012). Lack of diligence and carelessness are the "hallmarks of failure to meet the good cause standard." W.Va. Hous. Dev. Fund v. Ocwen Tech. Xchange, Inc., 200 F.R.D. 564, 567 (S.D.W.Va. 2001). "If the moving [party] was not diligent, the inquiry should end." Marcum v. Zimmer, 163 F.R.D. 250, 254 (S.D.W.Va. 1995).

Plaintiff asserts that Defendant's delayed production of documents in discovery prevented him from seeking leave to amend the complaint earlier to add new defendants and the unjust enrichment claim. Plaintiff contends that his "good cause is highlighted by Plaintiff's diligence in pursuing and reviewing discovery, and his expeditiousness in seeking to amend the complaint to encompass evidence revealed by discovery." (ECF No. 41-1, at 7). Specifically, Aloi argues that he propounded discovery requests on Defendant within eight days of the initial scheduling order, and repeatedly corresponded with Defendant regarding the production of discovery, but Defendant regularly requested extensions (to which Plaintiff consented). Plaintiff explains that Defendant stalled producing discovery, that the initial production only encompassed 78 pages of documents, and that it was "not until Magistrate Judge Connelly became involved and informally offered guidance was Plaintiff able to secure an extensive document production." ( Id. at 8). Subsequently, Defendant provided approximately 4, 800 pages of documents on March 28 and 29, 2013. ( Id. at 4). Moreover, Plaintiff contends that

[a]fter comprehensively reviewing these documents immediately after receiving them, Plaintiff became aware of the need to amend the pleadings to add additional, appropriate defendants whose role, and in many cases whose mere existence, was unknown to Plaintiff before Defendant produced documents. Plaintiff soon thereafter sought to modify the scheduling order to allow for pleadings. After this Court issued its order modifying the Scheduling Order, See ECF 40, Plaintiff quickly ...

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