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Acosta v. Holland Acquisitions, Inc.

United States District Court, W.D. Pennsylvania

May 16, 2018

HOLLAND ACQUISITIONS, INC., d/b/a HOLLAND SERVICES, a Corporation; and BRYAN GAUDIN, Individually, and as a Corporate Officer of HOLLAND ACQUISITIONS, INC., d/b/a HOLLAND SERVICES, Defendants.


          Mark R. Hornak United States District Judge.

         Pending before the Court is the Secretary of Labor's (the "Secretary's") Motion for Leave to File Third Amended Complaint. (ECF No. 141 ("Motion for Leave").) The Secretary seeks to join a new Defendant to the case: former Chief Executive Officer of Holland Acquisitions, Inc. ("Holland"), Robert Gaudin ("RG"). For the reasons that follow, the Motion for Leave is denied.

         I. Background[1]

         This lawsuit arises out of alleged violations of the Fair Labor Standards Act (FLSA). Put simply, the claims center around Holland's alleged improper classification of abstractors, title examiners, and landmen as independent contractors and Holland's resulting failure to properly compensate such individuals for overtime worked. Prior to the commencement of this lawsuit, the Department of Labor (DOL) conducted its extensive pre-suit investigation, which included a review of Holland's records. (Investigator's Coverage Memo, ECF No. 148-1, at 23-30 ("Memo").) The Memo was written by DOL Investigator Nicholas Barron and summarizes the nearly two-year FLSA investigation into Holland that took place from April 2012 through March 2014. (Id.) The Memo identities only one "Section 3(d) employer[2] for purposes of the investigation, " and that individual was RG. According to the Memo, RG, as President of Holland, "ha[d] an active role in the management [sic] the daily operations of the firm including hiring, firing, setting the rates of pay, and directing the work of the employees." (Memo, at 1.) This same language, "Section 3(d) employer for purposes of the investigation is Robert L. Gaudin, " appears in another nearly identical report signed by Wage & Hour Investigator Steven Bethurem and dated January 1, 2015. (ECF No. 149-2.) At oral argument en February 13, 2018, the Secretary characterized this language as essentially the investigators' recommendation to bring a federal lawsuit against RG.

         On August 20, 2015, the Secretary initiated this FLSA enforcement litigation, alleging violations of the FLSA against two Defendants: Holland and Chief Officer Bryan Gaudin.[3](Compl., ECF No. 1 ("Initial Complaint").) RG was not a named Defendant. The Initial Complaint (as have all of the subsequent pleadings by the Secretary) alleges individual liability against Bryan Gaudin pursuant to 29 U.S.C. § 203(d) on the basis that he acted as an employer in relation to specific employees, [4] and he too may be liable for the very same unpaid wages for which Holland may be liable. (Initial Compl., ¶ III.) The Secretary included in his Initial Complaint a list of 89 specific individuals, intended to represent, albeit not exclusively, a list of Holland's current and former employees to whom the Defendants allegedly owe unpaid wages on account of the pled FLSA violations. (Initial Compl., ¶ X ("As a result of the violations alleged in paragraphs VI and VIII above, amounts are owing for Defendants' current and former employees including the persons specifically listed in the attached Schedule A to the Secretary's Complaint.").) That list is referred to as Schedule A. (ECF No. 1-1.)

         Once this dispute entered federal court, it began to snowball. After the parties conducted their Rule 26(f) planning meeting, the Secretary amended the Initial Complaint to add additional allegations, filing his First Amended Complaint on November 13, 2015. (First Am. Compl., ECF No. 21.)

         Then, nearly five months after filing the First Amended Complaint, the Secretary sought to amend again. The Secretary sought leave to file a Second Amended Complaint to broaden the prayer for relief to include back wages through the date of judgment (instead of through the date the Complaint was filed), to add a claim for relief under § 17 of the FLSA, 29 U.S.C. § 217, to specify which regional offices of Holland were at issue in the suit, and to clarify various terminology used in the First Amended Complaint.[5] (Mot. for Leave to File Second Am. Compl., ECF No. 44.) The Secretary asserted that such amendment "would facilitate the 'just, speedy, and inexpensive' resolution of this case by narrowing the issues before the court and clarifying ambiguities in the pleadings about which employees are included in the lawsuit." (Suggestions in Supp. of Mot. for Leave to File Second Am. Compl., ECF No. 44-1, at 3.) The Defendants opposed this motion. (ECF No. 46.) After a full briefing and oral argument by the parties, the Court granted the Secretary's motion for leave to amend on July 15, 2016. (See ECF Nos. 44, 46, 51, 54, 55.)

         As discovery progressed, more names of possibly relevant "employees" came to light. Pending possible resolution by mediation before a United States Magistrate Judge, the case was stayed from January 27, 2017, to June 5, 2017, [6] during which time the parties were not required to engage in further discovery. (ECF Nos. 93, 103.) After the stay was lifted, the parties once again re-visited an evolving list of potentially impacted individuals. On July 7, 2017, the Secretary filed another motion for leave to amend, in which he sought to amend Schedule A to include an additional 800 named individuals to the original Schedule A, which contained 89 named individuals. (Pl.'s Mot. to Amend the Schedule A, ECF No. 105.) Defendants once again objected to the Secretary expanding the case (this time by expanding the names on Schedule A nearly tenfold). (ECF No. 114.) Following another round of briefs and oral argument, the Court granted the Motion to Amend/Correct Schedule A on October 18, 2017.[7] (Order, ECF No. 132.) But, as the Court noted in the Opinion accompanying that Order, the Court had "repeatedly observed that there was a sound basis to conclude that the Secretary has been periodically and repeatedly reinventing the wheel." (Op., ECF No. 131, at 8.) Despite this observation, the Court pointed to record evidence from which it was apparent to the Court and should have been to the named Defendants that Schedule A was likely destined to grow (even substantially), and any delay in bringing the Motion to Amend/Correct Schedule A was not sufficiently undue or prejudicial to warrant denial of further amendment under Federal Rule of Civil Procedure 15. (Id. at ll.)[8]

         By then this case had spilled over onto a whole new lawsuit. The Secretary filed a new civil action in this Court on March 22, 2017, this time only against RG, former Chief Executive Officer of Holland. (Compl., Acosta v. Gaudin, No. 2:17-cv-366 (W.D. Pa), at ECF No. 1.) RG, represented by his own distinct counsel, filed a motion to dismiss the Secretary's complaint in that case under the doctrine of claim-splitting and that complaint's failure to meet the applicable Twombly and Iqbal pleadings standards.[9] (Mot. to Dismiss, id. at ECF No. 7.) The Court concluded that the claim-splitting doctrine precluded the Secretary from maintaining both that action and this action simultaneously, and the Court also concluded that the complaint failed to reach the requisite level of particularity to state a plausible claim for relief. (Op., id. at ECF No. 17.) The Court noted that "it is [RG's] relationship with Holland, the lead party in the first case, that makes him a target of the Secretary's litigation arrows in the second case. The Secretary's piecemeal litigation strategy appears to put the Court in the exact predicament that the claim-splitting doctrine aims to avoid." (Op., id. at ECF No. 17, at 6-7.) The Court opined that the Secretary likely chose to bring its claims against RG in a separate action to avoid another fight about amendment in this case and the expansion of this lawsuit, but "[t]he law requires the Secretary to roll those dice at the table where he is already seated." (Op., id. at ECF No. 17, at 7-8.)

         On November 8, 2017, the Secretary did just that and filed his Motion for Leave at issue here. (ECF No. 141.) The Court granted RG's motion to intervene for the limited purpose of responding to the Secretary's Motion, and the parties engaged in another round of written briefs and oral argument. (ECF Nos. 142, 148-1, 149, 154, 156.)

         II. Legal Standard

         A. Fed.R.Civ.P. 16(b)(4)

         A party seeking leave to amend pleadings after a deadline set in the Court's case management order must satisfy Rule 16(b)(4). See Race Tires Am., Inc. v. Hoosier Racing Tire Corp., 614 F.3d 57, 84 (3d Cir. 2010). Under Rule 16(b)(4), a case management order "may be modified only for good cause and with the judge's consent." Fed.R.Civ.P. 16(b)(4). "Only after the moving party demonstrates good cause under Rule 16(b)(4) may the Court consider its Motion to Amend under Rule 15's standard." Greygor v. Wexford Health Sources, Inc., No. 14-cv-1254, 2016 WL 772740, at *2 (W.D. Pa. Feb. 27, 2016) (citing Walker v. Centocor Ortho Biotech, Inc., 558 Fed.Appx. 216, 221-22 (3d Cir. 2014)). "Thus, in such instances, the lenient Fed.R.Civ.P. 15(a)(2) standard ... yields to the good cause requirement." Lee v. Park, No. 17-1421, __F. App'x __, 2017 WL 6508840, at *4 (3d Cir. Dec. 20, 2017). "The purpose of limiting the period for amending the pleadings is to assure that at some point both the parties and the pleadings will be fixed." O'Connell v. Hyatt Hotels of P.R., 357 F.3d 152, 154 (1st Cir. 2004). Because good cause under Rule 16(b)(4) looks to the diligence of the party seeking the modification of the scheduling order, the party seeking modification bears the burden to demonstrate "good cause" before the Court will amend a case management order. Id.; Graham v. Progressive Direct Ins. Co., 271 F.R.D. 112, 119 (W.D. Pa. Sept. 15, 2010). Denials of motions for leave to amend pleadings under Rule 16(b)(4) are reviewed for abuse of discretion. Lee v. Park, 2017 WL 6508840, at *2.

         B. Fed.R.Civ.P. 15(a)

         Leave to amend shall be "freely given when justice so requires, " Fed.R.Civ.P. 15(a)(2), in order to promote the general policy of the Federal Rules of Civil Procedure that cases are better resolved on their merits. Mullin v. Balicki, 875 F.3d 140, 149 (3d Cir. 2017). The standard for granting leave to amend was recently outlined by our Court of Appeals in Mullin:

In determining whether leave to amend might reasonably be denied, courts are guided by the Foman factors, named for the Supreme Court's decision in Foman v. Davis, 371 U.S. 178 (1962). Denial of leave to amend can be based on undue delay, bad faith or dilatory motive on the part of the movant; repeated failure to cure deficiencies by amendments previously allowed; prejudice to the opposing party; and futility. The Foman factors are not exhaustive, allowing a court to ground its decision, within reason, on consideration of additional equities, such as judicial economy/burden on the court and the prejudice denying leave to amend would cause to the plaintiff. All factors are not created equal, however, as "prejudice to the non-moving party is the touchstone for the denial of an amendment." Arthur v. Maersk, Inc., 434 F.3d 196, 204 (3d Cir. 2006).

Mullin, 875 F.3d at 149-50. A court should only deny leave "when these factors suggest that amendment would be 'unjust.'" Arthur, 434 F.3d at 203.

         III. Discussion

         "[W]hen a party seeks leave to amend the pleadings after the deadline set by a court's scheduling order, that party must first satisfy Rule l6(b)(4)'s requirements for modifying a scheduling order." Abed-Rabuh v. Hoobrajh, No. 17-cv-15, 2018 WL 300453, at *2 (W.D. Pa. Jan. 4, 2018) (quoting Hadeed v. Advanced Vascular Res. of Johnstown, LLC, No. 15-cv-22, 2017 WL 4286343, at *2 (W.D. Pa. Sept. 26, 2017)).[10] Thus, the Court will first analyze the Secretary's Motion under Rule 16(b)(4) to determine whether the Secretary has demonstrated good cause to modify the operative scheduling order, and then, to the extent necessary, the Court will analyze the Secretary's Motion under Rule 15(a)(2) to determine whether amendment to add RG to this case would be unjust.

         A. Fed.R.Civ.P. 16(b)(4)

         The operative scheduling order is the Second Amended Case Management Order dated June 5, 2017. (ECF No. 103 ("SACMO").) The SACMO states that "[additional parties were required to be joined on or before February 4, 2016. All Motions to Amend a pleading, add parties and the like will be considered on their own merits." (Id. ¶ 3(b).)[11] After reviewing this Motion for Leave on its own merits under the Rule 16(b)(4) analysis, the Court concludes that the Secretary has not carried his burden to show good cause for modification of the deadline to add this party to this case. The Secretary had actual knowledge from his own Departmental investigators well before this case ever arrived in federal court that RG was not just one possible Section 3(d) employer but "[t]he Section 3(d) employer." (Memo, at 1 (emphasis added).) The Secretary has failed to show due diligence with respect to adding RG as a named Defendant given his staggering delay in heeding the advice of his own investigators.

         This case bears some resemblance to Race Tires, in which the district court denied the plaintiffs' motion to amend its complaint for the fourth time. 614 F.3d at 84. In that case, the deadline to amend pleadings in the Court's scheduling order was set for May 30, 2008, but the motion to amend the complaint was filed about six months later on November 19, 2008. Id. at 72, 84. The district court also noted that the motion to amend arrived fifteen (15) months after the lawsuit was initiated. 660 F.Supp.2d 590, 594-95 (W.D. Pa. 2009). The district court denied the motion to amend under a Rule 16(b)(4) analysis due to the delay and the fact that the proposed new claim was "based on an additional legal theory, which would require additional written discovery and depositions." Id. at 595. The plaintiffs appealed on the grounds that they could not have discovered the key facts that supported the new claim until they had time to review late-produced documents, which were not provided until after the deadline has passed. 614 F.3d at 84. The Court of Appeals rejected that argument, pointing to several of the district court's conclusions that the plaintiffs were on notice of several key facts supporting their proposed claim. Id. at 85.

         Like Race Tires, the Secretary is also seeking leave to amend a fourth time.[12] But the facts in this case are actually worse (in terms of the propriety of amendment) than those in Race Tires. First, all prior amendments sought in Race Tires were timely under the scheduling order except the last one. 660 F.Supp.2d at 594 (plaintiffs moved for leave to file their [prior] amended complaint on the day of the actual deadline for seeking leave to amend the pleadings). That is not the case here. The Motion for Leave to File the Second Amended Complaint missed the amendment deadline by four months. (Mot. for Leave to File Second Am. Compl., ECF No. 44 (filed Apr. 29, 2016); Am. Case Management Order, ECF No. 40 (setting Dec. 15, 2015, amendment deadline).) This is to say nothing of the Secretary's filing of an entire other (improper) lawsuit.[13]

         Second, the Secretary brought this Motion for Leave more than twenty-one (21) months after the deadline to add parties[14] (compared to six (6) months in Race Tires) and more than twenty-six (26) months into the lawsuit (compared to fifteen (15) months in Race Tires). While the Court may have grown "judicially tired"[15] of the Secretary attempting to expand his case before, it is now judicially justified in "want[ing] this complicated case to move forward to its ultimate resolution." Race Tires, 614 F.3d at 85.

         However, good cause can still be established despite the passage of time if the moving party can show due diligence. In order to demonstrate good cause under Rule 16, the Secretary has the burden to show that he acted diligently in presenting his claims against RG to the Court.[16]Lee v. Park, 2017 WL 6508840, at *4 (district court did not err in denying motion to amend because it was "self-evident" that plaintiff was not diligent in seeking amendment because he simply wanted to add a new cause of action based on the same facts found within the initial complaint filed sixteen months prior); Graham, 271 F.R.D. at 119 (plaintiff failed to demonstrate good cause to add parties and ...

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