United States District Court, D. Maryland
DIRECT BENEFITS, LLC, et al. Plaintiffs,
TAC FINANCIAL, INC., et al, Defendants.
David Copperthite United States Magistrate Judge
matter was referred to me on June 11, 2019 for all
non-dispositive matters and scheduling (ECF 150). A telephone
conference call was held on June 18, 2019 to discuss the
status of the outstanding motions. The Court permitted
Plaintiff to file an Amended Motion to File a Fourth Amended
Complaint! and for Defendant to file a response (ECF 153).
Plaintiff has filed its motion and Defendant has filed its
response (ECF 154, 162). There is no need for a hearing in
this matter (L. Rule 105.6). For the reasons set forth below,
the Plaintiffs' motion (ECF 154) is DENIED.
Defendants' Motion (ECF 160) is GRANTED. Defendants'
Motion (ECF 161) is DISMISSED AS MOOT.
litigation has had its many fits and starts. The original
complaint was filed on April 22, 2013 (ECF 1). The litigation
was stayed pending attempts at settlement and a settlement
conference was conducted on August 23, 2013. Settlement
efforts were unsuccessful and on February 2, 2013, Judge
Russell granted a motion to dismiss as to the "Outside
Directors" subjects of the current motion to file a
fourth amended complaint (ECF 48-49). At that time Judge
Russell found "[P]laintiffs have failed to allege
officer and director liability for any of the remaining
individuals. It is well settled that allegations regarding
fraud against individual defendants requires 'facts
supporting a strong inference of scienter as to each
defendant." (ECF 48 p. 33, citations omitted).
Thereafter, Plaintiffs filed a Second Amended Complaint (ECF
50). Defendants answered and in addition filed a counterclaim
(ECF 51). On April 25, 2014 Plaintiffs filed a Supplemental
Motion to Amend the Second Amended Complaint (ECF 65). During
the interim, the case was re-referred for another settlement,
discovery was ongoing in accordance with the Scheduling Order
and Motions to Dismiss were again filed.
response to the pending Motions to Dismiss filed subsequent
to the Second Amended Complaint, Judge Motz (case was
re-assigned from Judge Russell to Judge Motz) again granted
the motion to dismiss as to the outside defendants.
"Plaintiff has not alleged facts that would establish
that the Outside Directors are liable under a "court
control liability" theory. Incidentally, I am not
persuaded by plaintiffs argument that Judge Russell did not
contemplate that the Outside Directors might file a motion to
dismiss. Indeed, the reference in his letter to deadlines
under the Federal Rules and Local Rules suggest that he
contemplated that a motion to dismiss would be filed"
same day, Judge Motz granted the motion to amend the
complaint but reaffirmed his dismissal of the outside
directors (ECF 76). A third amended complaint was filed (ECF
77). Defendants filed their answer to the third amended
complaint (ECF 78). Motion for Partial Summary Judgment was
filed on 10/31/14 (ECF 98). A second settlement conference
was held before Judge Coulson on November 18, 2014.
Intertwined with these events were various discovery
disputes, conferences with the Court and other ancillary
matters. On December 3, 2014, Plaintiffs filed another Motion
to Amend/Correct Complaint (Fourth Amended Complaint) (ECF
105). A response in opposition was filed on December 22, 2014
(ECF 116). On January 29, 2015 the Court administratively
closed the case due to a bankruptcy filing by Defendant TAC
October 18, 2018, Plaintiffs filed a motion to restore the
case to active status (ECF126). On March 12, 2019, the motion
to restore the case was granted (ECF 129). The fits and
starts were again revved up. Motions were immediately filed
and local counsel withdrew his appearance (ECF 136). New
local counsel entered his appearance (ECF 140). The record is
fraught with filing errors and necessary quality control
measures that had to be taken by the Clerk in response to
incorrect filing and non-adherence to the local rules. On
June 25, 2019 what amounts now to the Third attempt to file a
Fourth Amended Complaint was filed by Plaintiffs (ECF 154).
Once again Plaintiffs attempt for the fourth time to raise
fraud allegations against the outside directors individually.
As Defendants point out in their Response, Plaintiffs rely
upon documents, including email traffic that were obviously
within their control since 2014 (ECF 13 p. 10-11).
accordance with Fed.R.Civ.P. 15(a)(2), the Court should
freely give leave to amend when justice so requires. A motion
for leave to amend pleadings filed beyond the deadline set
forth in the scheduling order will only be granted if it
satisfies both the "good cause" standard of Rule
16(b)(4) and the standard of Rule 15(a)(2) for allowing
amendment of pleadings. Fed.R.Civ.P. 16(b)(4); 15(a)(2); see
also Nourison Rug Corp. v. Parvizian, 535 F.3d 295,
298-99 (4th Cir. 2008) (noting tension between Rule 15 and
Rule 16; not reaching district court's Rule 15(a) finding
of futility because it affirmed district court's Rule
16(b) application of "good cause" standard);
Odyssey Travel Or., Inc. v. RO Cruises, Inc., 262
F.Supp.2d 618, 631 (D. Md. 2003) ("[O]nce the scheduling
order's deadline for amendment of the pleadings has
passed, a moving party must first satisfy the good cause
standard of Rule 16(b); if the moving party satisfies Rule
16(b), the movant then must pass the tests for amendment
under [Rule] 15(a)."). The analysis under Rule 16(b) is
less focused on the substance of the proposed amendment and
more concerned with the timeliness of the motion to amend
"and the reasons for its tardy submission."
Rassoull v. Maximus, Inc., 209 F.R.D. 372, 373-74
(D. Md. 2002). A court's scheduling order "is not a
frivolous piece of paper, idly entered, which can be
cavalierly disregarded by counsel without peril."
Potomac Elec. Power Co. v. Elec. Motor Supply, Inc.,
190 F.R.D. 372, 375-76 (D. Md. 1999) (internal quotations
omitted)). "Properly construed, 'good cause'
means that scheduling deadlines cannot be met despite a
party's diligent efforts. Carelessness is not compatible
with a finding of diligence and offers no reason for a grant
of relief." Id. at 375 (internal quotations
stated above, the Court has twice ruled that the Plaintiffs
have not alleged sufficient facts to support fraud
allegations against the outside directors. "It is well
settled that allegations regarding fraud against individual
defendants requires facts support a strong inference of
scienter as to each defendant." Matrix Capital
Management Fund, LP v. BearingPoint, Inc., 576 F.3d 172,
182 (4th Cir. 2009). At best Plaintiffs allege that the
emails suggest that the director(s) named in the emails may
have had some questions about what was being represented by
Eder to the Plaintiffs. Similarly, in a private securities
fraud action, the Court stated "to qualify as
"Strong", an inference of scienter must be more
than merely plausible or reasonable, it must be cogent and at
least as compelling as any opposing inference of
nonfiaudulent intent." Tellabs Inc., v. Makor Issues
& Rights, Ltd 551 U.S. 308. 323 (2007). Scienter is
also described as "a mental state embracing intent to
deceive, manipulate or defraud" Ernst & Ernst v.
Hochfelder, 425 U.S. 185, 193-94 (1976). In the current
case, other than loosely suggesting knowledge and perhaps a
fiduciary duty, the Plaintiffs for the more than third time,
have failed to allege facts that support a "mental state
embracing an intent to deceive, manipulate or defraud".
instant case, Plaintiffs have failed to provide good cause to
this Court to allow an amendment of the pleadings. Plaintiffs
argue that amending the pleadings and allowing the (more
than) twice dismissed claims against the outside directors
does not prejudice the outside directors because they are
covered by insurance. The Court finds that argument
incredulous. Litigation takes its toll on parties in many
ways other than simply a bad monetary result. After being
dismissed twice by Order of this Court, Plaintiffs attempt to
resurrect claims based upon information that was ...