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Rockwood Select Asset Fund XI, LLC v. Devine, Millimet & Branch, P.A.

United States District Court, D. New Hampshire

February 8, 2016

Rockwood Select Asset Fund XI, (6)-1, LLC
Devine, Millimet & Branch, PA, and Karen S. McGinley, Esq. Opinion No. 2016 DNH 024


Joseph N. Laplante United States District Judge

As the court has discussed previously, [1] this action pits a disgruntled lender against the law firm that represented the defaulting borrower in the deal gone sour. Plaintiff Rockwood Select Asset Fund XI, (6)-1, LLC (“Rockwood”), now seeking to expand the scope of this litigation, asks the court’s leave to amend its complaint to add a civil conspiracy claim under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1965(d), against defendants Devine, Millimet & Branch, PA, and Karen McGinley. The court denies Rockwood’s request to significantly expand the scope of this litigation at so late a date.

The parties also brought several discovery disputes before the court pursuant to its informal discovery dispute resolution procedure[2] on January 22, 2015. To the extent that those issues were not resolved at the chambers conference that followed, they are disposed of as outlined below.

I. Background

Rockwood filed this action in this court on July 8, 2014, alleging, in a one-count complaint, that the defendants failed to disclose material facts to Rockwood before Rockwood issued its $1.6 million loan to defendants’ client, Martha McAdam. Specifically, in that complaint, Rockwood alleged that defendants failed to disclose the existence of litigation pending against McAdam in an opinion letter drafted and supplied to Rockwood shortly before the loan closed. Instead, Rockwood claimed -- and defendants admit -- that defendants issued an opinion letter stating that there was no litigation pending against McAdam as of July 21, 2011. Rockwood also contended that defendants similarly misrepresented to it that a tenant in McAdam’s building, whose rent would be used to pay back the loan, was “a legitimate operating company which was independent of [McAdam] and entities owned and controlled by her” when, in fact, Rockwood alleges, it was not. To round out its original claim, Rockwood asserted that it relied on these representations when it agreed to make the loan.

The court held a preliminary pretrial conference on October 30, 2014, and subsequently issued an order, see document no. 19, by which it set a January 5, 2015 deadline for any amendments to pleadings and ordered discovery to close on September 17, 2015. The latter deadline was later extended, upon the parties’ joint motion, until December 2, 2015. See document no. 33. Precisely two weeks before that deadline -- and some ten and a half months after the deadline to amend pleadings -- Rockwood moved for leave to amend its complaint.

Rockwood now seeks to add a claim for a civil RICO violation, alleging that Devine and Attorney McGinley, along with McAdam and several businesses under her control, conspired to conduct a pattern of racketeering activity. See 28 U.S.C. § 1962(d). Specifically, Rockwood contends that McAdam and her various associated corporate entities engaged in a pattern of racketeering activity intended to defraud her various creditors between 2000 and 2012. Proposed Amended Complaint (document no. 39-1) ¶¶ 6-8. In support of these allegations, Rockwood details several acts of fraud allegedly perpetrated by McAdam prior to the loan currently at issue in this case and accuses McAdam of making fraudulent representations about the use of the funds from the loan and trying to avoid repaying the loan through a series of fraudulent activity targeting Rockwood and various courts in Vermont and New Hampshire. Rockwood then alleges that defendants Devine and Attorney McGinley furthered this conspiracy by engaging in various acts of wire fraud, see 18 U.S.C. § 1343, and mail fraud, see 18 U.S.C. § 1341, in connection with their representation of McAdam during that time period. See Proposed Amended Complaint (document no. 39-1) ¶¶ 9, 266-286.

II. Applicable legal standard

The court’s scheduling order, which set a deadline for amending the pleadings, removed the standard for resolving this motion from the “freely given” rubric of Rule 15 to the “good cause” requirement of Rule 16. Rule 15 provides that, outside of the opportunities afforded a party to amend its pleading as a matter of course, “a party may amend its pleading only with the opposing party’s written consent or the court’s leave. The court should freely give leave when justice so requires.”[3] Fed.R.Civ.P. 15(a)(2).

However, as the parties here acknowledge, Rule 16 requires a party seeking to amend its pleadings after the relevant deadline has passed to also seek a modification of the court’s scheduling order. United States ex rel D’Agostino v. EV3, Inc., 802 F.3d 188, 192 (1st. Cir. 2015). The court’s imposed schedule “may be modified only for good cause and with the judge’s consent.” Fed. R. Civ. P. 16(b)(4). The “good cause” standard “focuses on the diligence (or lack thereof) of the moving party more than it does on any prejudice to the party-opponent, ” Steir v. Girl Scouts of the USA, 383 F.3d 7, 12 (1st Cir. 2004), though “prejudice to the opposing party remains relevant, ” O'Connell v. Hyatt Hotels of P.R., 357 F.3d 152, 155 (1st Cir. 2004). The length of Rockwood’s delay in seeking to amend its complaint counsels against granting Rockwood’s motion, especially in light of the prejudice that injecting a RICO claim into the suit at the tail end of the discovery would impose on the defendants.

III. Analysis

A. Delay

Rockwood’s motion to amend comes over ten months after the deadline to file amended pleadings, and a little over sixteen months after it filed its initial complaint. This significant passage of time, during which Rockwood never even raised the spectre of a potential amendment to its complaint, weighs against allowing Rockwood to insert a new cause of action into the case at this juncture. See Steir v. Girl Scouts of the USA, 383 F.3d 7, 12 (1st Cir. 2004) (“[T]he longer a plaintiff delays, the more likely the motion to amend will be denied, as protracted delay, with its attendant burdens on the opponent and the court, is itself a sufficient reason for the court to withhold permission to amend.”); Cruz v. Bristol-Myers Squibb Co., PR, 699 F.3d 563, 570 (1st Cir. 2012) (affirming denial of motion to amend brought nine months after scheduling order deadline).

There is, really, no dispute that Rockwood was or should have been aware of the vast majority of the predicate acts of fraud that underpin its proposed RICO claim. Many of these predicate acts are frauds that Rockwood alleges McAdam committed against Rockwood itself, or upon courts in the context of actions to which Rockwood was a party, in 2011 and 2012. See Proposed Amended Complaint (document no. 39-1) ¶¶ 140-265. During those actions, Rockwood repeatedly accused McAdam of falsifying documents relating to her use of the loan funds and documents submitted to Vermont and New Hampshire courts. See Chabot Aff’t Ex. A (document no. 50-7) ¶ 25; Proposed Amended Complaint (document no. 39) ¶¶ 168-169. On August 22, 2012, Rockwood informed defendants that it possessed “hard evidence of numerous instances in which Ms. ...

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