Opinion
Case No. 3:02 CV 7072
May 13, 2003
MEMORANDUM OPINION
This matter is before the Court on Plaintiff's motion for leave to amend the complaint instanter. Also before the Court are the respective responses and replies thereto. For the reasons that follow, Plaintiff's motion (Doc. No. 21) is granted.
Background
This case is an outgrowth of the Liberte v. Capwill litigation which has spawned related litigation both in the state and federal courts. As a result of that litigation, Plaintiff herein was appointed as the General Receiver and charged with the overall responsibility of marshaling assets for the benefit of the estate and for the benefit of the investors who are the ultimate victims in what can be characterized as a financial fiasco. In his role as the General Receiver, Victor M. Javitch initiated this action against Defendants Prudential Securities, Inc. and Wexford Clearing Services Corp. alleging, inter alia, claims sounding in negligence, breach of fiduciary duty, fraud, conspiracy to defraud, RICO, aiding and abetting and violations of securities laws, and conversion. Defendants initially filed a motion to compel arbitration but that motion was stayed pending an appeal of the same issue in another action by Javitch against other brokerage houses. On January 10, 2003, the Sixth Circuit vacated the judgment denying the brokerage houses' motion to compel arbitration and remanded for further proceedings consistent with the appellate opinion. Javitch v. First Union Securities, et al., 315 F.3d 619, 629 (6th Cir. 2003).
Liberte v. Capwill, Case No. 5:99 CV 818 (N.D.Ohio.) revolves around the viatical settlement industry. Plaintiff Liberte Capital LLC ("Liberte) and Intervening Plaintiffs Alpha Capital Group LLC and Integrity Management Partners, LLC (collectively "Alpha") were engaged in the business of purchasing life insurance policies from terminally ill policyholders willing to sell their rights to the policies. Liberte also solicited investors for policies on the lives of seniors without terminal illness. Investors were solicited by Liberte and Alpha to purchase viatical life insurance investment programs whereby investors were matched in many cases with the policy on the terminally ill person or "viator".
See Javitch v. First Union Securities, Inc., Case No. 3:01 CV 780; Javitch v. Charles Schwab Co., Inc., Case No. 1:01 CV 1015; Javitch v. Morgan Stanley Dean Witter Co., Case No. 1:01 CV 1077; and Javitch v. Fifth Third/Maxus Securities, Inc., Case No. 1:01 CV 1126.
Eleven days after the Sixth Circuit's determination, Plaintiff sought leave to amend the complaint by interlineation by adding one additional count in the nature of aiding and abetting breach of fiduciary duty and breach of trust. The issues having been fully briefed are now ripe for adjudication.
Motion For Leave to Amend Complaint
A. Rule 15(a)
Under Fed.R.Civ.P. 15(a), the trial court is vested with discretion in granting or denying an amendment. See Foman v. Davis, 371 U.S. 178, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962). A trial court may consider a number of factors in making this determination. Those factors may include undue delay, bad faith or dilatory motive on the part of the movant, undue prejudice, futility of the amendment, or the repeated failure to cure deficiencies by amendments previously allowed. Id. Additional factors may also include the need for additional discovery, strain on the court's docket, or the lack of prejudice as the issue is already known. See Budd Co. v Travelers Indem. Co., 820 F.2d 787, 792 (6th Cir. 1987). Delay alone is insufficient to deny the proposed amendment. Robinson v. Michigan Consol. Gas Co. Inc., 918 F.2d 579, 581 (6th Cir. 1990) (citations omitted). Where a party seeks leave to amend under Rule 15(a), "a party must act with due diligence if it intends to take advantage of the Rule's liberality." United States v. Midwest Suspension and Brake, 49 F.3d 1197, 1202 (6th Cir. 1995) (citing Troxel Mfg. Co. v. Schwinn Bicycle Co., 489 F.2d 968 (6th Cir. 1973), cert. denied, 416 U.S. 939, 94 S.Ct. 1942, 40 L.Ed.2d 290 (1974)).
B. The Mandate Rule
In opposition to the Receiver's motion, Defendants argue that the mandate rule prohibits consideration of issues outside the specific confines of the appellate court's directive. This Court disagrees.
The mandate rule has been described by the Sixth Circuit as follows:
When the reviewing court, in its mandate, prescribes that a court shall proceed in accordance with the opinion of the reviewing court or that a court shall proceed for the reasons given in the opinion, that pronouncement operates to incorporate the opinion into the mandate. . . . In determining the scope of an appellate mandate, the majority, concurring, and dissenting opinions may be consulted. . . .
This "mandate rule" is the specific application of the law of the case doctrine. . . . As with all applications of the law of the case doctrine, the trial court may consider those issues not decided expressly or impliedly by the appellate court or a previous trial court. Quern v. Jordan, 440 U.S. 332, 347 n. 18, 99 S.Ct. 1139, 1148 n. 18, 59 L.Ed.2d 358 (1979).Jones v. Lewis, 957 F.2d 260, 262 (6th Cir.), cert. denied, 506 U.S. 841 (1992) (other citations omitted).
With regard to the present appellate mandate on the issue of enforceability of the arbitration agreements, the Sixth Circuit identified several issues for further consideration by the Court:
If the court determines on remand that Javitch's allegations challenge the validity of the arbitration agreements signed by Capwill on behalf of VES and CFL, that issue must be resolved before deciding motions to compel arbitration. If valid agreements to arbitrate are found to exist, the court must also determine whether the various disputes fall within the scope of the arbitration agreement.
The complaint filed against Schwab did not allege that an account was opened on behalf of either VES or CFL. In fact Schwab relies on a customer agreement signed by Capwill in his individual capacity. Since Javitch stands in the shoes of VES and CFL, not Capwill, there remains the question of whether VES and CFL could be bound by Capwill in his individual capacity.Javitch v. First Union, 315 F.3d at 628. Finally, on the issue of equitable estoppel, the Circuit remanded for further consideration the issue of whether the claims brought on behalf of VES and CFL were "to benefit either directly or indirectly from the customer agreements that contained the arbitration clauses" since this was "central to the question of whether to apply estoppel to bind Javitch, a nonsignatory, to the arbitration agreements." Id. at 629.
The Defendants argue that because of the specific direction given by the Circuit on remand following the instant appeal, the district court is prevented from addressing any matters outside that narrow scope. See Allard Enterprises v. Advanced Programming, 249 F.3d 564 (6th Cir. 2001). In Allard, however, the defendants there sought to amend their answer and submit a counterclaim challenging the validity of plaintiff's federal trademark registration during closing argument of the second trial, which the district court granted. However, in the case sub judice, the Court just recently conducted a status conference for the purpose of discussing discovery deadlines.
In United States v. Township of Brighton, 282 F.3d 915, 919 (6th Cir. 2002) the Sixth Circuit noted that upon issuance of a mandate, the district court "`must implement both the letter and the spirit of the mandate, taking into account the appellate court's opinion and the circumstances it embraces,'" quoting Brunet v. City of Columbus, 58 F.3d 251, 254 (6th Cir. 1995).
Unlike the trial court in Brighton, there is no suggestion by either side that the district court will avoid or disregard the Circuit's clear mandate in this instance.
Alternatively, the Defendants suggest allowing amendments following resolution of the arbitration issues along with dispositive motions is the better course since it would not violate the Circuit's remand order. However, from an efficiency standpoint, it makes more sense to allow amendments at this early stage of the litigation. As noted by the Plaintiff, there has not been a responsive pleading filed and from that perspective there is nothing to prejudice Defendants in allowing Plaintiff to amend under Rule 15(a). Also, allowing an amendment does nothing to delay this Court from proceeding with consideration of the issues so defined by the Sixth Circuit. Rather, assuming the arbitration issue is decided in Plaintiff's favor, Defendants would have notice of all claims against them and could better respond via their answer or dispositive motion. Therefore, considering the Sixth Circuit's mandate and the instructive words in Brighton, the Court finds that allowing one additional count does not violate the spirit of the mandate and comports with the interests of justice under Rule 15(a).
C. Standing
Next, the Defendants implicitly challenge the Receiver's ability to pursue the proposed aiding and abetting claim, contending that this claim belongs not to the entities but to the investors. Based upon the Sixth Circuit's opinion, the Defendants contend that the confines of the Plaintiff's authority were addressed in that opinion and do not allow the addition of this claim. The Circuit stated as follows:
We are convinced, based on our assessment of both the claims being asserted by Javitch and the authority granted to him by the order appointing him as receiver, that the district court properly found that Javitch has asserted claims belonging to the receivership entities. . . . Thus, we find that Javitch, who is bringing claims on behalf of VES and CFL, is bound to the arbitration agreements to the same extent that the receivership entities would have been absent the appointment of a receiver.
315 F.2d at 627.
Although the Circuit did not have the proposed aiding and abetting claim a breach of fiduciary duty before it, it did have an aiding and abetting claim in the nature of fraud and violations of securities laws as contained in Count 7. The same sort of conduct by Capwill (as the primary perpetrator) is alleged by Plaintiff in Count 7 similar to the conduct alleged in the proposed amendment. More recently, this Court noted the evolution of the Receivership to its present status today, as follows:
ORDERED that the General Receiver and the Alpha Receiver, in keeping with the ultimate goal of maximizing the Estates for the benefit of the investors, are empowered to represent and pursue the interests of investors directly. The Receivers shall further continue to carry out their duties and obligations as set forth by previous and existing Orders of the Court. Finally, the Receivers shall continue to coordinate their efforts with class counsel to recover, protect and preserve receivership assets.(Liberte v. Capwill, Doc. No. 1982.) (Emphasis added.) This recognition of the status as to Receivership estate undercuts the Defendants' position in this instance.
Viewing the opinion in its entirety and taking into consideration the current status of the Receivership estate, this Court does not read the Circuit's language as limiting the proposed amendment.
D. Aiding and Abetting Breach of Fiduciary Duty
Finally, the Defendants urge the Court to deny the amendment on the basis that Ohio does not recognize such a cause of action.
Ohio's common law recognizes causes of action against third parties who participate in the breach of a fiduciary duty as noted by this Court:
It also follows that the same principles of law governing third party participation in breaches of trust must also apply to one who participates in or induces the breach of any fiduciary duty. The law is settled in Ohio and elsewhere participation in breaches of trust must also apply to one who participates in or induces the breach of any fiduciary duty. The law is settled in Ohio and elsewhere that a third party who induces a breach of a trustee's duty of loyalty, or participates in such a breach, or knowingly accepts any benefit from such a breach, becomes directly liable to the aggrieved party.Hammonds v. Aetna Casualty Surety Co., 243 F. Supp. 793, 803 (N.D.Ohio. 1965), citing Shuster v. North American Mortgage Loan Co., 139 Ohio St. 315 (1942). See also Investors Reit One v. Jacobs, 1988 WL 37538 (Franklin Cty 1988) (affirming discovery rules as similar for third party breach of trust and participation in breaches of fiduciary duties). More recently, this Court recognized an aiding and abetting claim albeit in the context of fraud noting Ohio courts have applied Section 876 of the Restatement (Second) of Torts in considering aiding and abetting claims generally. Aetna Casualty and Surety Co. v. Leahey Construction Co., Inc., 22 F. Supp.2d 695, 703 (N.D.Ohio. 1998) (Gwin, J.)
Viewing the proposed amendment, the Court finds it to allege facts sufficient to support its cause of action as it is not without a basis in law.
Conclusion
Having considered the parties' memoranda and arguments contained therein, the Court grants Plaintiff's motion for leave to amend the complaint by interlineation instanter (Doc. No. 21).
IT IS SO ORDERED.