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Realtrust Ira Alternatives, LLC F/K/A Entrust Northwest, LLC v. the Entrust Group

March 22, 2011

REALTRUST IRA ALTERNATIVES, LLC F/K/A ENTRUST NORTHWEST, LLC
v.
THE ENTRUST GROUP, INTERNATIONAL BANK & TRUST, AND MECHANICS BANK



The opinion of the court was delivered by: Landya B. McCafferty United States Magistrate Judge

ORDER

Before the court is plaintiff‟s Motion for Leave to File its First Amended Verified Complaint ("amended complaint"). All three defendants object, and RealTrust has replied to all three objections. For the reasons given, plaintiff‟s motion is granted, but the claims asserted in the amended complaint are all dismissed.

Background

RealTrust IRA Alternatives, LLC ("RealTrust") filed this six-count action on August 31, 2010. Each of the three defendants moved to dismiss on December 3, 2010. On December 14, RealTrust filed an Emergency Petition for Injunction. On December 20, RealTrust objected, on the merits, to each of the three motions to dismiss. Then, on January 21, 2011, RealTrust filed the motion to amend currently before the court. Among other things, the proposed amended complaint adds claims against The Entrust Group ("TEG") and Mechanics Bank ("Mechanics") for intentional interference with contractual relations, fraud, fraudulent misrepresentation, and indemnification. In Orders dated March 20, 2011, the court ruled on the three motions to dismiss. As a result of those Orders, all that remains of this case is the breach of contract claim against IBT asserted in Count II of the original complaint. In the motion now before the court, RealTrust seeks to replace its original complaint with the amended complaint.

Discussion

The Federal Rules of Civil Procedure ("Federal Rules") provide, under the circumstances of this case, that RealTrust "may amend [its complaint] only with the opposing party‟s written consent or the court‟s leave." Fed. R. Civ. P. 15(a)(2). Each of the three defendants has opposed the motion to amend, so RealTrust may amend its complaint only with leave of the court.

The Federal Rules also provide that "[t]he court should freely give leave when justice so requires." Fed. R. Civ. P. 15(a)(2). "Rule 15(a) reflects a liberal amendment policy . . . ." United States ex rel. Gagne v. City of Worcester, 565 F.3d 40, 48 (1st Cir. 2009). "The Rule allows for liberal amendment in the interests of resolving cases on the merits."

James Wm. Moore, Moore‟s Federal Practice § 15.02[1], at 15-7 (3d ed. 2010). Moreover, "the district court enjoys significant latitude in deciding whether to grant leave to amend." Gagne, 565 F.3d at 48 (quoting ACA Fin. Guar. Corp. v. Advest, Inc., 512 F.3d 46, 55 (1st Cir. 2008)). "Reasons for denying leave [to amend] include undue delay in filing the motion, bad faith or dilatory motive, repeated failure to cure deficiencies, undue prejudice to the opposing party, and futility of amendment." Gagne, 565 F.3d at 48 (citing Foman v. Davis, 371 U.S. 178, 182 (1962); United States ex rel. Rost v. Pfizer, Inc., 507 F.3d 720 733-34 (1st Cir. 2007)).

In the spirit of the liberal amendment policy reflected by Rule 15, in the interest of giving RealTrust a full opportunity to state its claims, and to the end of reaching the merits, the court grants RealTrust‟s motion to amend its complaint. But, in this case, honoring the liberal amendment policy reflected in the Federal Rules is not all that justice requires. Due in no small measure to RealTrust‟s prolific and seemingly self-contradictory motion practice, defendants have been put to far more trouble and expense they would have been if RealTrust had prosecuted its claims in a more orderly and coherent way. RealTrust has been the quintessential moving target, objecting to defendants‟ motions to dismiss on the merits, then requesting additional discovery, and then, moving to amend the complaint after the motions to dismiss were fully briefed, without proffering any evidence to cure the jurisdictional problems with the original complaint, problems that were pointed out by defense counsel months before the motions to dismiss were ever filed. Beyond that, the amended complaint contains various factual allegations that are diametrically opposed to those in the original complaint, on matters on which RealTrust was fully informed before it filed the original complaint. For an action in which the sole New Hampshire connection is a New Hampshire bank with which RealTrust has no current relationship, contractual or otherwise,*fn1 this case has generated a rather lengthy docket which includes, among other things, a twice-filed emergency petition for injunctive relief which, tellingly, sought no relief from the sole New Hampshire defendant. And, while the court has not had to resolve this issue, all three defendants argue, plausibly, that this entire dispute is subject to arbitration and that, in fact, several parts of it are currently being arbitrated in California in a proceeding that got underway before RealTrust filed suit in New Hampshire. In short, under the circumstances of this case, justice also requires expeditious -- but fair -- disposition of the matters before the court.

Accordingly, the court will take the unusual but not unprecedented step of granting RealTrust‟s motion to amend while, at the same time, treating defendants‟ objections to the motion to amend as motions to dismiss the amended complaint. See Glynn v. EDO Corp., 536 F. Supp. 2d 595, 617 (D. Md. 2008) ("I will treat part of defendants‟ opposition to plaintiff‟s motion for leave to file a second amended complaint as a motion to dismiss Count IV of plaintiff‟s third amended complaint").

While unusual, this procedure is logically sound because defendants‟ arguments against amendment are the same ones they would raise in the motions to dismiss that would surely follow the filing of an amended complaint. See Abraham v. Woods Hole Oceanographic Inst., 553 F.3d 114, 117 (1st Cir. 2009) (explaining that amendment is futile if amended complaint fails to state a claim). Moreover, the court has granted RealTrust leave to file replies to each of the three objections to its motion to amend, and those replies advance the same arguments RealTrust would make in opposition to a motion to dismiss.

This court notes that the Court of Appeals for this circuit has consistently held that sua sponte dismissal is "erroneous unless the parties have been afforded notice and an opportunity to amend the complaint or otherwise respond." Cepero-Rivera v. Fagundo, 414 F.3d 124, 130 (1st Cir. 2005) (quoting Chute v. Walker, 281 F.3d 314, 319 (1st Cir. 2002)). But the court‟s disposition of this case, as described below, is far from a typical sua sponte dismissal. The relevant issues have been fully briefed by all parties, albeit as "objections" and "replies" rather than "motions" and "objections." Thus, it cannot be said that the court‟s procedure will deprive RealTrust of an opportunity to be heard in opposition to dismissal. Its arguments against futility are the very same arguments it would make in opposition to a motion to dismiss, and the stakes are the same in either procedural posture: loss of the opportunity to further litigate the claims at issue.

All RealTrust will lose as a result of the court‟s adjustment of this case‟s procedural posture is the opportunity to force defendants to engage in yet another round of briefing to make the very same arguments they have already made in their objections to RealTrust‟s motion for leave to amend its complaint. Justice hardly requires, and actually counsels against, the result that would flow from a slavish adherence to the captions of the documents filed in this case. Accordingly, the court will treat defendants‟ objections to amendment as motions to dismiss the amended complaint, and will treat RealTrust‟s replies to those objections as objections to defendants‟ motions to dismiss.

With the procedural posture of this case resolved, several bits of housekeeping remain. First, the amended complaint includes many of the same claims asserted in the original complaint. The claims against TEG and Mechanics that have been dismissed for lack of personal jurisdiction cannot be revived by the amended complaint; new factual allegations in support of those claims -- if any are made in the amended complaint -- are not a sufficient cure for RealTrust‟s failure to produce evidence of contacts with New Hampshire in response to TEG‟s and Mechanics‟ previous motions to dismiss. See Lechoslaw v. Bank of Am., N.A., 618 F.3d 49, 54 (1st Cir. 2010) (point out plaintiff‟s obligation to proffer evidence when personal jurisdiction is challenged) (citation omitted). Thus, Counts I (as against TEG and Mechanics), V, VI, VII, VIII, IX, and X are dismissed, for the reasons given in the court‟s Orders on TEG‟s and Mechanics‟ motions to dismiss.

The situation regarding IBT is different. IBT‟s previous motion to dismiss was decided under Rule 12(b)(6), and the propriety of using an amended complaint to cure pleading deficiencies is well established. See DM Research, Inc. v. Coll. of Am. Pathologists, 170 F.3d 53, 56 (1st Cir. 1999).

Accordingly, the single claim asserted against IBT in the amended complaint is not dismissed out of hand for having been dismissed previously.

To restate, the claims of the amended complaint subject to further consideration below are: Count I (against IBT only), Count II (against TEG and Mechanics), Count III (against TEG), Count IV (against TEG and Mechanics), and Count XI (against TEG). Rather than proceeding claim by claim, the court will proceed defendant by defendant.

A. IBT

Count I of the amended complaint is RealTrust‟s request for a declaratory judgment. IBT argues that Count I fails to state a claim upon which relief can be ...


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