JAMES O. BROWNING, District Judge.
In the current pleading, the Tan-O-On Parties assert claims for fraud, unjust enrichment, and theft of trade secrets against the Hi-Land Potato Parties and the RPE, Inc. Parties. See Amended Third-Party Complaint at 2-10. Tan-O-On Marketing engaged in interstate commerce regarding the sale of produce with Skyline Potato and the Intervening Plaintiffs.
In late 2009, Shannon Casey resigned from and closed Tan-O-On Marketing. See Amended Third-Party Complaint ¶¶ 18, 20, at 5. After closing Tan-O-On Marketing, the Caseys relocated to Monte Vista, Colorado, where Hi-Land Potato locates its business. See Amended Third-Party Complaint ¶ 20, at 5. Although the Caseys represented that they had abandoned their positions with Tan-O-On Marketing, they later established a new bank account for the company in Monte Vista. See Amended Third-Party Complaint ¶ 21, at 5-6. The Caseys deposited approximately $1.8 million of Tan-O-On Marketing's receivables into the new account and then paid those proceeds to Hi-Land Potato instead of paying Tan-O-On Marketing's Perishable Agricultural Commodities Act, 7 U.S.C. §§ 499a-499t ("PACA"), trust creditors, such as Skyline Potato and
Before January 2010, Hi-Land Potato did not broker sales of potatoes, because it relied on Tan-O-On Marketing to sell its product. See Amended Third-Party Complaint ¶ 22, at 6. At the time Shannon Casey shut down Tan-O-On Marketing, the company was the largest potato supplier in the country to The Kroger Co., a national grocery chain. See Amended Third-Party Complaint ¶ 18, at 5. Kroger Co. does not transact business with a potato broker unless the broker has a Kroger Co. vendor number. See Amended Third-Party Complaint ¶ 18, at 5. Hi-Land Potato transferred customer relationships, monthly orders from Kroger Co., and other proprietary information, without authority, permission, or compensation to RPE, Inc. See Amended Third-Party Complaint ¶ 25, at 7. After the transfer of Tan-O-On Marketing assets to RPE, Inc., RPE, Inc. announced the opening of a Monte Vista sales division and hired Shannon Casey as the operation's director. See Amended Third-Party Complaint ¶ 26, at 7. RPE, Inc. now handles the sales of potatoes from Hi-Land Potato, including the sales relationship with Kroger Co. See Amended Third-Party Complaint ¶ 27, at 7-8. When Shannon Casey shut down Tan-O-On Marketing, neither Hi-Land Potato nor RPE, Inc. had a vendor number with Kroger Co. See Amended Third-Party Complaint ¶ 18, at 5. The transfer of Tan-O-On Marketing assets from Tan-O-On Marketing to Hi-Land Potato to RPE, Inc. constitutes a breach of the PACA trust and a fraudulent transfer, because Skyline Potato and the Intervening Plaintiffs remain uncompensated for their transactions with Tan-O-On Marketing. See Amended Third-Party Complaint ¶¶ 28, 34, at 8-9. Fraudulent transfers "were made to or for the benefit of Hi-Land Potato Company Inc., Carl Worley and RPE, Inc. and Russell Wysocki insiders of TMI on antecedent debts, and were made without consideration." Amended Third-Party Complaint ¶ 40, at 10.
On July 23, 2010, Skyline Potato filed its Petition for Enforcement of USDA PACA Order and Award of Damages; Complaint for Violation of Federal Unfair Trade Practices Provision in PACA (7 U.S.C. § 499b), Breach of Contract, Breach of Covenant of Good Faith and Fair Dealing, Fraud, Money Owed on Open Account, and Prayer for Declaratory Relief and Piercing of the Corporate Veil against Defendants Tan-O-On Marketing, Inc., Hi-Land Potato, G. Anderson, J. Anderson, Mark Lounsbury, Bill Metz, and Carl Worley. See Doc. 2 ("Original Complaint"). On March 1, 2011, the parties filed their Joint Status Report and Provisional Discovery Plan. See Doc. 29 ("JSR"). The JSR states that "Third Party Claimants should be allowed until June 30, 2011 to move to amend the pleadings and until June 30, 2011 to join additional parties in compliance with the requirements of Fed. R.Civ.P. 15(a)." JSR at 3. On March 9, 2011, the Court issued its Order Adopting Joint Status Report and Provisional Discovery
On July 8, 2011, the Intervening Plaintiffs filed their Complaint in Intervention against Tan-O-On Marketing and Hi-Land Potato. See Doc. 60. Against Tan-O-On Marketing, the Intervening Plaintiffs assert the following claims: (i) Count I — Declaratory Relief Validating PACA Trust Claim (7 U.S.C. § 499e(c)(3) and (4)); (ii) Count II — Enforcement of Payment from PACA Trust Assets (7 U.S.C. § 499e(c)(5)); (iii) Count III — Violation of PACA: Failure to Maintain PACA Trust Assets and Creation of Common Fund (7 U.S.C. § 499e(c)); (iv) Count IV — Violation of the PACA: Failure to Pay Promptly (7 U.S.C. § 499b(4)); and (v) Count V — Breach of Contract. See Complaint in Intervention at 4-9. Against Hi-Land Potato, the Intervening Plaintiffs assert the following claims: (i) Count VI — Conversion and Unlawful Retention of PACA Trust Assets; (ii) Count VII — Fraudulent Transfer; (iii) Count VIII — Constructive Trust; and (iv) Count IX — Unjust Enrichment. See Complaint in Intervention at 10-13.
On October 14, 2011, the Tan-O-On Parties filed their Amended Third-Party Complaint. See Doc. 72. The Tan-O-On Parties assert the following claims: (i) Fraud; (ii) Unjust Enrichment; and (iii) Theft or Conversion of Trade Secrets and Corporate and Personal Assets. See Amended Third-Party Complaint at 3-10.
On October 21, 2011, Skyline Potato filed its First Amended Complaint. See Doc. 73. Skyline Potato asserts the following counts against the Defendants: (i) Count I — Enforcement of Order and Collection under the PACA Trust (7 U.S.C. § 499e); (ii) Count II — Violation of PACA Unfair Business Conduct Provision (7 U.S.C. § 499b); (iii) Count III — Breach of Written Contract; (iv) Count IV — Breach of Implied Covenants of Good Faith and Fair Dealing; (v) Count V — Quantum Meruit; (vi) Count VI — Conversion and Unlawful Retention of Plaintiff's Property and PACA Trust Assets; (vii) Count VII — Fraud; (viii) Count VIII — Money Owed on Open Account; (ix) Count IX — Violation of PACA: Failure to Maintain PACA Trust Assets and Creation of a Common Fund (7 U.S.C. § 499e(c)); (x) Count X — Fraudulent Transfer; (xi) Count XI — Constructive Trust; and (xii) Count XII — Prayer for the Remedy of "Piercing of the Corporate Veil." First Amended Complaint at 7-19.
On January 9, 2012, the RPE, Inc. Parties filed their Third-Party Defendants RPE, Inc. and Russell Wysocki's Motion to Dismiss Third-Party Plaintiff's Fraud-Related Claims. See Doc. 90 ("Jan. 9, 2012 MTD"). The RPE, Inc. Parties assert that the Tan-O-On Parties "articulate no discrete causes of action, and instead appear to generally contend that Movants are liable to them under theories of (a) theft of trade secrets, (b) unjust enrichment, and (c) fraud." Jan. 9, 2012 MTD at 2. The RPE, Inc. Parties alleged that the Tan-O-On Parties cannot plead fraud with sufficient specificity to satisfy rule 9(b)'s heightened pleading standards. See Jan. 9, 2012 MTD at 2-6. On January 23, 2012, the RPE, Inc. Parties filed their Third-Party Defendants RPE, Inc. and Russell Wysocki's Motion to Dismiss Claims Filed by Gerald and Julie Anderson. See Doc. 94 ("Jan. 23, 2012 MTD"). The RPE, Inc. Parties seek dismissal of the claims which the Andersons have asserted against them on the basis that the Andersons cannot bring claims for injuries Tan-O-On Marketing
On February 2, 2012, the Tan-O-On Parties filed their Motion to Amend. See Doc. 105. In this filing, the Andersons acknowledge that they have voluntarily dismissed their individual claims against the Hi-Land Potato Parties and the RPE, Inc. Parties, and that Tan-O-On Marketing is the only one of the Tan-O-On Parties still asserting claims. See Motion to Amend at 2. The Andersons concede that the RPE, Inc. Parties are correct in their Motion to Dismiss, "therefore all claims for damages in favor of the Andersons individually are hereby stipulated to be dismissed by the [C]ourt including non-movants, [the] Hi-Land Potato [Parties]." Motion to Amend at 2. Tan-O-On Marketing argues that its Second Amended Third Party Complaint for Fraud and Theft of Trade Secrets and Unjust Enrichment and Unfair Trade Practices, filed February 2, 2012 (Doc. 105-1) ("Second Amended Third-Party Complaint"), contains sufficient allegations to plead with particularity fraud against the Hi-Land Potato Parties and the RPE, Inc. Parties. Motion to Amend at 3. Against the Hi-Land Potato Parties, Tan-O-On Marketing represents that it asserts claims for "a fraudulent conveyance in favor of Hi Land Potato Company and Carl Worley, individually, unjust enrichment, fraudulent theft of trade secrets, proprietary information, and unfair trade practices." Motion to Amend at 3. Against the RPE, Inc. Parties, Tan-O-On Marketing represents that it alleges a claim of fraud based on "unjust enrichment and theft of trade secrets and proprietary information." Motion to Amend at 3. Tan-O-On Marketing asserts "that a party should be granted leave to amend if there has been no undue delay, bad faith or dilatory tactics, undue prejudice to opposing parties, or repeated failure to cure deficiencies by amendments previously allowed." Motion to Amend at 3 (citing Youell v. Russell, No. 04-1396, 2007 WL 709041, at *1-2 (D.N.M. Feb. 14, 2007) (Browning, J.)). Tan-O-On Marketing contends that "the purpose of Rule 15(a) is to provide maximum opportunity for each claim to be decided on its merits rather than procedural niceties." Motion to Amend at 3. Tan-O-On Marketing argues that it meets theses standards, because it became aware of new information regarding RPE, Inc.'s financial dealings which was not available until December 20, 2011, a date after it had filed its previous pleadings. See Motion to Amend at 4.
On February 7, 2012, the Hi-Land Potato Parties filed their Feb. 7, 2012 MTD. See Doc. 109. The Hi-Land Potato Parties seek dismissal of all the claims that the Tan-O-On Parties assert against them. See Feb. 7, 2012 MTD at 2. The Hi-Land Potato Parties note that the Tan-O-On Parties have "conceded that they have failed to plead a claim for fraudulent conveyance," but that "[i]t is unclear whether this concession is limited to the fraudulent conveyance claims against RPE and Wysocki, or whether it extends to all third party defendants." Feb. 7, 2012 MTD at 3. The Hi-Land Potato Parties assert that Tan-O-Marketing fails "to set forth any of the factual predicates that would allow it to properly state a claim for common law fraud." Feb. 7, 2012 MTD at 3. Regarding a claim for fraudulent conveyance, the Hi-Land Potato Parties contend that Tan-O-Marketing must, to satisfy rule 9(b), plead facts regarding: (i) the property subject to the transfer; (ii) the timing and, if applicable, frequency of the transfer; and (iii) the consideration paid. See Feb. 7, 2012 MTD at 6. The Hi-Land Potato Parties assert that Tan-O-On Marketing
On February 17, 2012, the RPE, Inc. Parties filed their Third Party Defendants RPE, Inc. and Russell Wysocki's Response in Opposition to Third Party Plaintiff Tan-O-On Marketing Inc.'s Motion to Amend Third Party Complaint. See Doc. 112 ("RPE, Inc. Parties' Response to Motion to Amend"). The RPE, Inc. Parties ask the Court to deny the Motion to Amend, because the amendments are "futile, untimely, and unfairly prejudicial to [the RPE, Inc. Parties]." RPE, Inc. Parties' Response to Motion to Amend at 2. The RPE, Inc. Parties argue that Tan-O-On Marketing's fraud allegations are futile, because they would be subject to dismissal and because Tan-O-On Marketing does not allege that it relied on the purportedly false statements that RPE, Inc. made. See RPE, Inc. Parties' Response to Motion to Amend at 3. The RPE, Inc. Parties assert that Tan-O-On Marketing's UPA claim is defective, because Tan-O-On Marketing "does not allege that it was a purchaser of goods or services" as required to obtain relief under the UPA. RPE, Inc. Parties' Response to Motion to Amend at 4. They argue that the proposed amendment is untimely, because the deadline to amend pleadings passed seven months before Tan-O-On Marketing filed the Motion to Amend and because Tan-O-On Marketing has no adequate explanation for the delay. See RPE, Inc. Parties' Response to Motion to Amend at 4. The RPE, Inc. Parties contend that the information upon which Tan-O-On Marketing relies to assert that the Motion to Amend is timely "rings hollow," because the information it received does not consist of facts relevant to the claims Tan-O-On Marketing asserts. RPE, Inc. Parties' Response to Motion to Amend at 5. They also argue that Tan-O-On Marketing waited an additional five weeks after receipt of this information to file the Motion to Amend. See RPE, Inc. Parties' Response to Motion to Amend at 5. They contest the proposed amendments based on unfair prejudice, because the "proposed amended pleading is plainly a `moving target,' in that it seeks to propose new theories of relief." RPE, Inc. Parties' Response to Motion to Amend at 5. Finally, the RPE, Inc. Parties argue that, if Tan-O-Marketing is permitted to amend its complaint, the Court would have to alter the schedule of proceedings and that they would require additional discovery. See RPE, Inc. Parties' Response to Motion to Amend at 6. They assert that granting the motion would result in unfair prejudice that is "both significant and self-evident." RPE, Inc. Parties' Response to Motion to Amend at 6.
On February 21, 2012, the Hi-Land Potato Parties filed their Response to Tan-O-On's Motion to Amend Third Party Complaint for Fraud and Theft of Trade Secrets and Unjust Enrichment. See Doc. 113 ("Hi-Land Potato Parties' Response to Motion to Amend"). The Hi-Land Potato Parties argue that the Court should deny the Motion to Amend, because the request for amendment is untimely and because the proposed amendments would be futile. See Hi-Land Potato Parties' Response to Motion to Amend at 1. The Hi-Land Potato
On February 21, 2012, Tan-O-On Marketing filed its Response to Hi-Land Potato Company, Inc. and Carl Worley's Motion to Dismiss Fraud Claims and Dismissal of Individual Claims by Andersons. See Doc. 114 ("Response to Feb. 7, 2012 MTD"). Tan-O-On Marketing asserts that the Hi-Land Potato Parties are "correct that allegations of fraud were not plead with specificity as required by Federal rule 9(b) and therefore Tan-O-On Marketing, Inc. hereby requests the Court allow" it "to file a Second Amended Complaint to properly plead allegations that specify the fraudulent acts against Hi-Land and Carl Worley." Response to Feb. 7, 2012 MTD at 3. Tan-O-On Marketing
Response to Feb. 7, 2012 MTD at 3. Tan-O-On Marketing then proceeds to set out some of the evidence that supports its claims. See Response to Feb. 7, 2012 MTD at 4-15. Tan-O-On Marketing contends that "Hi-Land Potato Company, Inc. effectively cut out the middle man [Tan-O-On Marketing] by Invoicing for potato sales made by its employee Shannon Casey while he was receiving a [Tan-O-On Marketing] paycheck." Response to Feb. 7, 2012 MTD at 16. Tan-O-On Marketing asserts that the property which was the subject of a fraudulent conveyance was the "loads of potatoes sold by Shannon Casey evidenced by Hi-Land Invoices 1414
Response to Feb. 7, 2012 MTD at 18. Regarding a claim for unjust enrichment and theft of trade secrets, Tan-O-On Marketing states "that its Kroger number 048970 was appropriated by Hi-Land Potato Company, Inc. for use by the Caseys and Mr. Worley from December 2, 2009 until July 1, 2010 to steal Tan-O-On Marketing, Inc.'s business opportunities for a total gross sales proceeds of $2.992 million dollars." Response to Feb. 7, 2012 MTD at 19.
On February 23, 2012, the Court filed its Stipulated Order Dismissing Fraud Claims Filed by Tan-O-On Marketing, Inc., Against RPE, Inc. and Russell Wysocki. See Doc. 116 ("Feb. 23, 2012 Order # 1"). The Feb. 23, 2012 Order # 1 relates that Tan-O-On Marketing and the RPE, Inc. Parties agree that the Court should grant the Jan. 9, 2012 MTD. See Feb. 23, 2012 Order # 1, at 1. The Feb. 23, 2012 Order # 1 states that "[t]his dismissal should not be deemed to constitute a decision by the Court on Tan-O-On Marketing, Inc.'s motion for leave to file a second amended third-party complaint against RPE, Inc., and Russell Wysocki (Doc. 105), which is contested and remains pending." Feb. 23, 2012 Order # 1, at 1-2. The Feb. 23, 2012 Order # 1 provides: "This dismissal should not be deemed to impact Tan-O-On Marketing, Inc.'s claim against RPE, Inc. and Russell Wysocki for unjust enrichment,
On February 23, 2012, the Court filed its Stipulated Order Dismissing Claims Filed by Third-Party Plaintiffs Gerald and Julie Anderson in Their Individual Capacities. See Doc. 117 ("Feb. 23, 2012 Stipulated Order # 2"). The Feb. 23, 2012 Stipulated Order # 2 states that the Tan-O-On Parties, the Hi-Land Potato Parties, and the RPE, Inc. Parties agree: (i) that the January 23, 2012 MTD the RPE, Inc. Parties have filed "should be granted"; and (ii) the Feb. 7, 2012 MTD "should be granted to the extent it seeks dismissal of claims filed by Gerald and Julie Anderson in their individual capacities, but should otherwise remain pending." The Feb. 23, 2012 Stipulated Order # 2, at 1.
On March 7, 2012, the Hi-Land Potato Parties filed their Hi-Land Potato Company, Inc.'s Reply in Support of Its Motion to Dismiss Fraud and Fraud-Related Claims in Third Party Complaint and to Dismiss Claims Filed by Gerald and Julie Anderson in Their Individual Capacities. See Doc. 125 ("Reply to Response to Feb. 7, 2012 MTD"). The Hi-Land Parties state that "Tan-O-On's response to the motion appears to concede that its `allegations of fraud were not plead (sic) with specificity as required by Federal Rule 9(b).'" Reply to Response to Feb. 7, 2012 MTD at 1 (alteration in original) (quoting Response to Feb. 7, 2012 MTD at 3). The Hi-Land Potato Parties assert that permitting amendment would be futile, and that both Tan-O-On Marketing's live pleading and proposed pleading are inadequate. See Reply to Response to Feb. 7, 2012 MTD at 2.
At the hearing on April 13, 2012, Tan-O-On Marketing asserted that new information has become available to it recently regarding improper payments from Hi-Land Potato to Shannon Casey as well as improper use of Tan-O-On Marketing's Kroger Co. vendor number. See Transcript of Hearing at 8:6-17:23 (taken April 13, 2012) (Robinson) ("Tr.").
The Hi-Land Potato Parties pointed out that, in the Tan-O-On Parties Amended Third-Party Complaint filed on October 14, 2011, the Tan-O-On Parties alleged causes of action for unjust enrichment, and theft of trade secrets, as well as allegations relating to fraud and fraudulent transfer. See Tr. at 22:7-13 (Bohnhoff). The Hi-Land Potato Parties argued that
The Hi-Land Potato Parties also asserted that amendment of the common-law fraud, fraudulent-conveyance, and UPA claims Tan-O-On Marketing has asserted is futile, because Tan-O-On Marketing makes no allegations that the Hi-Land Potato Parties made misrepresentations or that Tan-O-On Marketing relied on any misrepresentations. See Tr. at 27:18-25 (Bohnhoff). The Hi-Land Potato Parties emphasized that Tan-O-On Marketing did not plead the necessary elements to assert a fraudulent-conveyance claim given that Tan-O-On Marketing has not pled that it is a creditor. See Tr. at 28:3-19, 29:2 (Bohnhoff). The Hi-Land Potato Parties elaborated: (i) that Shannon Casey, at the time he was working for Tan-O-On Marketing, had full knowledge of what was occurring such that Tan-O-On Marketing likely had knowledge of what was occurring; and (ii) that this knowledge undercuts reliance. See Tr. at 52:7-25. The Hi-Land Potato Parties asserted that, if Tan-O-On Marketing seeks to assert claims for unjust enrichment and theft of trade secrets, they would not oppose those claims through a motion to dismiss, but would instead use summary judgment or disprove those claims at trial. See Tr. at 29:11-17 (Bohnhoff). The Hi-Land Potato Parties argued that Tan-O-On Marketing's allegations regarding a UPA violation are futile, because Tan-O-On Marketing has not pled, as required under the UPA, that the Hi-Land Potato Parties made a false or misleading statement. See Tr. at 30:19-24 (Bohnhoff). The Hi-Land Potato Parties asserted that the proposed Second Amended Third-Party Complaint contains the same defects. See Tr. at 29:25-30:3 (Bohnhoff). The Hi-Land Potato Parties requested that the Court deny the Motion to Amend as untimely, or, alternatively, limit the amendments to only the unjust enrichment and theft-of-trade-secrets claims. See Tr. 31:4-16 (Bohnhoff).
The Court then sought to clarify the timeliness issue and the prejudice that the Hi-Land Potato Parties would face from amendment. See Tr. at 33:19-34:17 (Court, Bohnhoff). The Hi-Land Potato Parties argued that the timeliness issue was pressing, because: (i) the discovery deadline is June 4, 2012; (ii) four Hi-Land Potato witnesses and a Kroger employee must still be deposed; and (iii) G. Anderson and Shannon Casey are scheduled to be deposed again. See Tr. at 34:13-35:11 (Bohnhoff). With regards to the issue of prejudice, the Court pointed out that, in each of the Tan-O-On Parties' pleadings, including the proposed Second Amended Third-Party Complaint, there has been some fraud claim. See Tr. at
The Court then heard argument in opposition to the Motion to Amend from the RPE, Inc. Parties. See Tr. at 37:15-16 (Court). The RPE, Inc. Parties argued that the Court should deny the Motion to Amend, because permitting amendment would be futile. See Tr. at 40:8-10 (Feuchter). The RPE, Inc. Parties emphasized that Tan-O-On Marketing's fraud claims are futile, because the proposed Second Amended Third-Party Complaint does not plead the elements necessary to establish a cause of action based on fraud. See Tr. at 40:8-15 (Feuchter). They elaborated that Tan-O-On Marketing does not allege in its proposed pleading that it relied on misrepresentations that RPE, Inc. made. See Tr. at 40:21-41:9 (Feuchter). The RPE, Inc. Parties also argued that the UPA claim was futile, because the theory of relief sought does not fit the facts of the case, given that the UPA applies to the sale of goods and services for buyers seeking to sue sellers. See Tr. at 41:17-19 (Feuchter). The RPE, Inc. Parties contended that they would suffer unfair prejudice if the Court permitted Tan-O-On Marketing to add in a fraud claim, because the original fraud claims had been dismissed, for a period of approximately three months, and because they did not conduct discovery regarding allegations of fraud. See Tr. at 42:3-43:5 (Feuchter, Court). The RPE, Inc. Parties requested that the Court deny the Motion to Amend, and leave only claims for unjust enrichment and theft of trade secrets in Tan-O-On Marketing's pleadings. See Tr. at 43:22-44:3 (Feuchter, Court). The Court inquired whether the RPE, Inc. Parties would oppose the Court permitting amendment on the unjust enrichment and theft-of-trade-secrets claims, but deny amendment regarding the common-law fraud, fraudulent-conveyance, and UPA claims for untimeliness. See Tr. at 44:9-17 (Court, Feuchter). The RPE, Inc. Parties agreed with the Court's proposal on the basis that the proposed amendments regarding the unjust enrichment and theft-of-trade-secrets claims were primarily factual in nature. See Tr. at 44:9-19 (Court, Feuchter).
Skyline Potato and the Intervening Plaintiffs stated that they had no response to the Motion to Amend. See Tr. at 44:23-45:2 (Court, Esquivel, Jaramillo). Tan-O-On Marketing agreed that proceeding against the RPE, Inc. Parties on only the unjust enrichment and theft-of-secrets claims was appropriate, because it did not detrimentally rely on statements RPE, Inc. made, and could not establish either a fraud claim or a UPA claim. See Tr. at 46:15-24 (Robinson, Court). Tan-O-Marketing argued that the Court should permit it to pursue fraud claims against the Hi-Land Potato Parties based on the information it received in December, 2011, and because it had asserted those claims in all of its pleadings. See Tr. at 47:4-16 (Robinson, Court). The Court then indicated that, because there is no opposition to granting the Motion to Amend on unjust
Rule 15(a)(2) provides: "In all other cases, 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." Fed.R.Civ.P. 15(a)(2). Under rule 15(a), the court should freely grant leave to amend a pleading where justice so requires. See In re Thornburg Mortg., Inc. Sec. Litig., 265 F.R.D. 571, 579-80 (D.N.M. 2010) (Browning, J.); Youell v. Russell, No. 04-1396, 2007 WL 709041, at * 1-2 (D.N.M. Feb. 14, 2007) (Browning, J.); Burleson v. ENMR-Plateau Tele. Coop., No. 05-0073, 2005 WL 3664299, at *1-2 (D.N.M. Sept. 23, 2005) (Browning, J.). The Supreme Court of the United States has stated that, in the absence of an apparent reason such as "undue delay, bad faith or dilatory motive ... repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of amendment, etc.," leave to amend should be freely given. Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962). Furthermore, the United States Court of Appeals for the Tenth Circuit has held that district courts should grant a plaintiff leave to amend when doing so would yield a meritorious claim. See Curley v. Perry, 246 F.3d 1278, 1284 (10th Cir.2001). See also In re Thornburg Mortg., Inc. Sec. Litig., 265 F.R.D. at 579-80.
A court should deny leave to amend under rule 15(a), however, where the proposed "amendment would be futile." Jefferson Cnty. Sch. Dist. v. Moody's Investor's Serv., 175 F.3d 848, 859 (10th Cir.1999). See In re Thornburg Mortg., Inc. Sec. Litig., 265 F.R.D. at 579-80. An amendment is "futile" if the pleading "as amended, would be subject to dismissal." In re Thornburg Mortg., Inc. Sec. Litig., 265 F.R.D. at 579-80 (citing TV Commc'ns Network, Inc. v. Turner Network Television, Inc., 964 F.2d 1022, 1028 (10th Cir.1992)). A court may also deny leave to amend "upon a showing of undue delay, undue prejudice to the opposing party, bad faith or dilatory motive, [or] failure to cure deficiencies by amendments previously allowed." In re Thornburg
Frank v. U.S. W., Inc., 3 F.3d at 1365-66. "The ... Tenth Circuit has emphasized that `[t]he purpose of [rule 15(a) ] is to provide litigants the maximum opportunity for each claim to be decided on its merits rather than on procedural niceties.'" B.T. ex rel. G.T. v. Santa Fe Pub. Schs., No. 05-1165, 2007 WL 1306814, at *2 (D.N.M. Mar. 12, 2007) (Browning, J.) (quoting Minter v. Prime Equip. Co., 451 F.3d 1196, 1204 (10th Cir.2006)).
The Tenth Circuit has recognized that there is an open issue as to rule 16 of the Federal Rules of Civil Procedure's application to amendments to pleadings once the time for seeking leave for pleading amendments has passed under a scheduling order. See Bylin v. Billings, 568 F.3d 1224, 1232 n. 10 (10th Cir.2009) ("Because we decline to consider the Bylins' Rule 16 argument, we leave for another day the question of whether this circuit should apply Rule 16 when a party seeks to amend a pleading after a court-imposed deadline."). "Rule 16 only allows such amendments for `good cause,' an arguably more stringent standard than the standards for amending a pleading under Rule 15." Bylin v. Billings, 568 F.3d at 1230 (quoting Fed. R.Civ.P. 16(b)(4)). Rule 16(b)(4) states: "A schedule may be modified only for good cause and with the judge's consent." Fed. R.Civ.P. 16(b)(4). The rule "focuses on the diligence of the party seeking leave to modify the scheduling order to permit the proposed amendment." Advanced Optics Elecs., Inc. v. Robins, 769 F.Supp.2d 1285, 1313 (D.N.M.2010) (Browning, J.). "Properly construed, `good cause' means that scheduling deadlines cannot be met despite a party's diligent efforts." Advanced Optics Elecs., Inc. v. Robins, 769 F.Supp.2d at 1313. See Gerald v. Locksley, 849 F.Supp.2d 1190, 1209-11 (D.N.M.2011) (Browning, J.) (same). The Tenth Circuit has noted that there is a "`rough similarity' between the `undue delay' standard of Rule 15 and the `good cause' standard of Rule 16." Bylin v. Billings, 568 F.3d at 1231. Thus, the Tenth Circuit has indicated that the application of the rule 16 standard will often lead to the same outcome as applying the rule 15 standard. See Bylin v. Billings, 568 F.3d at 1231-32.
This Court has previously stated that its rule 16(b) good-cause inquiry focuses on the diligence of the party seeking to amend the scheduling order. See Walker v. THI of N.M. at Hobbs Ctr., 262 F.R.D. 599, 602-03 (D.N.M.2009) (Browning, J.); Guidance Endodontics, LLC v. Dentsply Int'l, Inc., No. 08-1101, 2009 WL 3672505, at *2-3 (D.N.M. Sept. 29, 2009) (Browning, J.); Trujillo v. Bd. of Educ. of the Albuquerque Pub. Schs., Nos. 02-1146 and 03-1185,
Dilmar Oil Co., Inc. v. Federated Mut. Ins. Co., 986 F.Supp. 959, 980 (D.S.C.1997) (citations omitted), aff'd on other grounds, 129 F.3d 116 (4th Cir.1997). See Denmon v. Runyon, 151 F.R.D. 404, 407 (D.Kan. 1993) (affirming an order denying the plaintiff's motion to amend after the deadline which the scheduling order established had passed and stating that, "[t]o establish `good cause,' the party seeking to extend the deadline must establish that the scheduling order's deadline could not have been met with diligence"). Cf. SIL-FLO, Inc. v. SFHC, Inc., 917 F.2d 1507, 1518-19 (10th Cir.1990) (affirming, under rule 16(b), denial of a motion to amend an answer to include a compulsory counterclaim filed three months after the scheduling order deadline).
In In re Kirkland, 86 F.3d 172 (10th Cir.1996), the Tenth Circuit dealt with the definition of "good cause" in the context of rule 4(j).
86 F.3d at 175 (emphasis omitted) (internal quotation marks omitted) (quoting Putnam v. Morris, 833 F.2d 903, 905 (10th Cir.1987)). The Tenth Circuit explained that Putnam v. Morris "thus recognized that the two standards, although interrelated, are not identical and that `good cause' requires a greater showing than `excusable neglect.'" In re Kirkland, 86 F.3d at 175.
Other courts within the Tenth Circuit have held that "the `good cause' standard primarily considers the diligence of the
Under rule 12(b)(6), a court may dismiss a complaint for "failure to state a claim upon which relief can be granted." Fed. R.Civ.P. 12(b)(6). "The nature of a Rule 12(b)(6) motion tests the sufficiency of the allegations within the four corners of the complaint after taking those allegations as true." Mobley v. McCormick, 40 F.3d 337, 340 (10th Cir.1994). The sufficiency of a complaint is a question of law, and when considering and addressing a rule 12(b)(6) motion, a court must accept as true all well-pleaded factual allegations in the complaint, view those allegations in the light most favorable to the non-moving party, and draw all reasonable inferences in the plaintiff's favor. See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007); Moore v. Guthrie, 438 F.3d 1036, 1039 (10th Cir.2006); Hous. Auth. of Kaw Tribe v. City of Ponca, 952 F.2d 1183, 1187 (10th Cir.1991).
A complaint challenged by a rule 12(b)(6) motion to dismiss does not require detailed factual allegations, but a plaintiff's burden to set forth the grounds of his or her entitlement to relief "requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 546, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). See Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (stating that a plaintiff's complaint must set forth more than a threadbare recital "of the elements of a cause of action, supported by mere conclusory statements"). "Factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Bell Atl. Corp. v. Twombly, 550 U.S. at 545, 127 S.Ct. 1955 (citation omitted). To survive a motion to dismiss, a plaintiff's complaint must contain sufficient facts that, if assumed to be true, state a claim to relief that is plausible on its face. See Bell Atl. Corp. v. Twombly, 550 U.S. at 570, 127 S.Ct. 1955; Mink v. Knox, 613 F.3d 995 (10th Cir.2010). "A claim has facial plausibility when the pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. "Thus, the mere metaphysical possibility that some plaintiff could prove some set of facts in support of the pleaded claims is insufficient; the complaint must
Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir.2008) (citations omitted).
A plaintiff must plead "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). Fraud claims, however, must meet more stringent standards. See Fed. R.Civ.P. 9(b). "In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Fed.R.Civ.P. 9(b). "The requirements of Rule 9(b) must be read in conjunction with the principles of Rule 8, which calls for pleadings to be `simple, concise, and direct, ... and to be construed as to do substantial justice.'" Schwartz v. Celestial Seasonings, Inc., 124 F.3d 1246, 1252 (10th Cir.1997).
"With respect to rule 9(b)'s scope, a court should require parties to plead a cause of action with particularity when that cause of action contains allegations grounded in fraud." Two Old Hippies, LLC v. Catch the Bus, LLC, 784 F.Supp.2d 1200, 1207 (D.N.M.2011) (Browning, J.) (citing 2 J. Moore, J. Parness & J. Smith, Moore's Federal Practice § 9.03(1)(d), at 9-20 (3d ed. 2008)). On the other hand, a plaintiff may plead claims based on negligent or innocent misrepresentations, to the extent those claims do not require proof of fraud, in accordance with the more relaxed standards of rule 8(a). See Tricontinental Indus., Ltd. v. PricewaterhouseCoopers, LLP, 475 F.3d 824, 833 (7th Cir.2007) (recognizing that rule 9(b)'s heightened pleading standard does not apply to negligent-misrepresentation claim); Gen. Elec. Capital Corp. v. Posey, 415 F.3d 391, 395-96 (5th Cir.2005) (concluding that negligent-misrepresentation claim needs only to satisfy rule 8(a)'s notice pleading standard); Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1104-05 (9th Cir.2003) ("Allegations of non-fraudulent conduct need satisfy only the ordinary notice pleading standards of Rule 8(a)."); Carl Kelley Const. LLC v. Danco Techs, 656 F.Supp.2d 1323, 1346 (D.N.M.2009) (Browning, J.) (citing City of Raton v. Ark. River Power Auth., 600 F.Supp.2d 1130, 1142-44, 1153 (D.N.M. 2008) ("[U]nlike with fraudulent misrepresentation, rule 8's notice pleading standard governs [negligent misrepresentations].")).
"The primary motives that animate rule 9(b) help illuminate the reason for limiting the rule's reach to claims grounded in fraud." S2 Automation LLC v. Micron Tech., 281 F.R.D. 487, 494 (D.N.M.2012) (Browning, J.). First, the requirement of pleading with particularity protects defendants' reputations from the harm attendant to accusations of fraud or dishonest conduct. See United States ex
The Tenth Circuit has fleshed out the components necessary to a successful rule 9(b) pleading. In Sheldon v. Vermonty, 246 F.3d 682, 2000 WL 1774038 (10th Cir. 2000) (unpublished table decision), the Tenth Circuit held that the plaintiff had alleged with sufficient particularity a violation of the Securities Exchange Act of 1934. See 2000 WL 1774038, at *4. The Tenth Circuit concluded that the complaint
2000 WL 1774038, at *5 (citations omitted) (internal quotation marks omitted). "At a minimum, Rule 9(b) requires that a plaintiff set forth the who, what, when, where and how of the alleged fraud." United States ex rel. Schwartz v. Coastal Healthcare Grp., Inc., 232 F.3d 902, 2000 WL 1595976, at *3 (10th Cir.2000) (unpublished table decision). "To survive a motion to dismiss, an allegation of fraud must `set forth the time, place, and contents of the false representation, the identity of the party making the false statements and the consequences thereof.'" Midgley v. Rayrock Mines, Inc., 374 F.Supp.2d 1039, 1047 (D.N.M.2005) (Browning, J.) (quoting Schwartz v. Celestial Seasonings, Inc., 124 F.3d at 1252). "On the other hand, rule 9(b) does not require specific knowledge regarding the defendant's state of mind." Midgley v. Rayrock Mines, Inc., 374 F.Supp.2d at 1047.
The elements of fraudulent misrepresentation are: "(i) a misrepresentation of fact, (ii) either knowledge of the falsity of the representation or recklessness on the part of the party making the misrepresentation, (iii) intent to deceive and to induce
Pedroza v. Lomas Auto Mall, Inc., 600 F.Supp.2d 1162, 1167 (D.N.M.2009) (citing Restatement (Second) of Torts § 533 (2009)).
N.M.S.A. § 56-10-18 provides:
N.M.S.A. 1978, § 56-10-18. New Mexico courts have referred to these items listed in subsection (B) as "badges of fraud." Ellen Equip. Corp. v. C.V. Consultants & Assocs., Inc., 144 N.M. 55, 57, 183 P.3d 940, 942 (Ct.App.2008) (citing First Nat'l Bank in Albuquerque v. Abraham, 97 N.M. 288, 292, 639 P.2d 575, 579 (1982)). "A creditor may establish a prima facie case through proof of badges of fraud." First Nat'l Bank in Albuquerque v. Abraham, 97 N.M. at 292, 639 P.2d at 579.
N.M.S.A. 1978, § 56-10-15(D) defines a creditor as "a person who has a claim." N.M.S.A. 1978, § 56-10-15(D). N.M.S.A. 1978, § 56-10-15(F) defines a debtor as "a person who is liable on a claim." N.M.S.A. 1978, § 56-10-15(F). N.M.S.A. 1978, § 56-10-15(C) defines a claim as "a right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, disputed, undisputed, legal, equitable, secured or unsecured." N.M.S.A. 1978, § 56-10-15(C). The National Conference of Commissioners on Uniform States Laws' Uniform Fraudulent Transfer Act § 1(3) provides the same definition for claim as that which appears in N.M.S.A. 1978, § 56-10-15(C). See Unif. Fraudulent Transfer Act § 1(3) (1984). Comment (3) to the Uniform Fraudulent Transfer Act states: "The definition of `claim' is derived from § 101(4) of the Bankruptcy Code." Unif. Fraudulent Transfer Act § 1 cmt. (3).
Penn. Dep't of Pub. Welfare v. Davenport, 495 U.S. 552, 558, 110 S.Ct. 2126, 109
"The UPA provides individual and class action remedies for unfair, deceptive, or unconscionable trade practices." Valdez v. Metro. Prop. & Cas. Ins. Co., No. 11-0507, 2012 WL 1132414, at *19 (D.N.M. Mar. 31, 2012) (Browning, J.) (citing Quynh Truong v. Allstate Ins. Co., 147 N.M. 583, 590, 227 P.3d 73, 80 (2010)). "Generally speaking, the UPA is designed to provide a remedy against misleading identification and false or deceptive advertising." Lohman v. Daimler-Chrysler Corp., 142 N.M. 437, 442, 166 P.3d 1091, 1096 (Ct.App.2007). To state a claim under the UPA, a complaint must allege:
Lohman v. Daimler-Chrysler Corp., 142 N.M. at 439, 166 P.3d at 1093 (citing N.M. S.A.1978, § 57-12-2(D); Stevenson v. Louis Dreyfus Corp., 112 N.M. 97, 100, 811 P.2d 1308, 1311 (1991)). "The gravamen of an unfair trade practice is a misleading, false, or deceptive statement made knowingly in connection with the sale of goods or services." Diversey Corp. v. Chem-Source Corp., 125 N.M. 748, 754, 965 P.2d 332, 338 (Ct.App.1998).
The Court will grant in part and deny in part the Feb. 7, 2012 MTD. There are not sufficient allegations in the Amended Third-Party Complaint to satisfy rule 9(b)'s heightened pleading standards with regards to a common-law fraud claim. There are sufficient allegations in the Amended Third-Party Complaint for a fraudulent-conveyance claim to satisfy rule 12(b)(6)'s standards and rule 9(b)'s heightened pleading standards. There are sufficient allegations in the Amended Third-Party Complaint regarding the UFTA claim Tan-O-On Marketing asserts against the Hi-Land Potato Parties to survive dismissal under rule 12(b)(6) and rule 9(b). The Court will grant in part and deny in part the Motion to Amend. Consistent with the agreement between Tan-O-On Marketing and the RPE, Inc. Parties at the hearing on April 13, 2012, the Court will grant Tan-O-On Marketing leave to amend its claims for unjust enrichment and theft of trade secrets asserted against the RPE, Inc. Parties, but will deny leave to amend the remaining claims it seeks to assert against the RPE, Inc. Parties. The Court will deny leave to amend regarding the common-law fraud and UPA claims that Tan-O-On Marketing seeks to assert against the Hi-Land Potato Parties, because permitting leave to amend would be futile and unfairly prejudicial to the Hi-Land Potato Parties. The Court will grant leave to amend regarding the fraudulent-conveyance claims which Tan-O-On Marketing seeks to assert against Hi-Land Potato, given that the additional allegations primarily flesh out allegations which were already in Tan-O-On
The Court will grant in part and deny in part the Feb. 7, 2012 MTD. There are not sufficient allegations in the Amended Third-Party Complaint to satisfy rule 9(b)'s heightened pleading standards with regards to a common-law fraud claim. There are, however, sufficient allegations in the Amended Third-Party Complaint for a fraudulent-conveyance claim to satisfy rule 12(b)(6)'s standards and rule 9(b)'s heightened pleading standards. Additionally, there are sufficient allegations in the Amended Third-Party Complaint regarding the UFTA claim Tan-O-On Marketing asserts against the Hi-Land Potato Parties to survive dismissal under rule 12(b)(6) and rule 9(b).
The relevant allegations in the Amended Third-Party Complaint as they relate to the Feb. 7, 2012 MTD are as follows. In February 2006, the Caseys purchased Tan-O-On Marketing from the Andersons through a stock purchase agreement. See Amended Third-Party Complaint at ¶¶ 15-16, at 4. Before the Caseys' purchase of Tan-O-On Marketing, the company "had a long standing reputation in the industry for prompt payments to all growers of potatoes immediately upon receipt of payments for potatoes delivered by Tan-O-On Marketing." Amended Third-Party Complaint ¶ 17, at 4.
In late 2009, Shannon Casey resigned from and closed Tan-O-On Marketing. See Amended Third-Party Complaint ¶¶ 18, 20, at 5. After closing Tan-O-On Marketing, the Caseys relocated to Monte Vista — where Hi-Land Potato locates its business. See Amended Third-Party Complaint ¶ 20, at 5. Although the Caseys represented that they had abandoned their positions with Tan-O-On Marketing, they later established a new bank account for the company in Monte Vista. See Amended Third-Party Complaint ¶ 21, at 5-6. The Caseys deposited approximately $1.8 million of Tan-O-On Marketing's receivables into the new account and then paid those proceeds to Hi-Land Potato instead of Tan-O-On Marketing's PACA trust creditors, such as Skyline Potato and the Intervening Plaintiffs. See Amended Third-Party Complaint ¶ 21, at 6. "This [conduct] was [all] part of a scheme to defraud [Tan-O-On Marketing] and Gerald R. Anderson and Julie Anderson and was intentional and known...." Amended Third-Party Complaint ¶ 24, at 7.
Before January 2010, Hi-Land Potato did not broker sales of potatoes, because it relied on Tan-O-On Marketing to sell its product. See Amended Third-Party Complaint ¶ 22, at 6. At the time Shannon Casey shut down Tan-O-On Marketing, the company was the largest supplier of potatoes to Kroger Co. See Amended Third-Party Complaint ¶ 18, at 5. Kroger Co. does not transact business with a potato broker unless the broker has a Kroger Co. vendor number. See Amended Third-Party Complaint ¶ 18, at 5. Hi-Land Potato transferred Tan-O-On Marketing's customer relationships, monthly orders from
The transfer of Tan-O-On Marketing assets from Tan-O-On Marketing to Hi-Land Potato to RPE, Inc. constitutes a breach of the PACA trust and a fraudulent transfer, because Skyline Potato and the Intervening Plaintiffs remain uncompensated for their transactions with Tan-O-On Marketing. See Amended Third-Party Complaint ¶¶ 28, 34, at 8-9. Fraudulent transfers "were made to or for the benefit of Hi-Land Potato Company Inc., Carl Worley and RPE, Inc. and Russell Wysocki insiders of TMI on antecedent debts, and were made without consideration." Amended Third-Party Complaint ¶ 40, at 10.
The elements of fraudulent misrepresentation under New Mexico law
Tan-O-On Marketing has not pled any fraudulent statement allegedly attributable to either Worley or Hi-Land Potato. One of the key elements of a common-law fraud claim is the existence of a misrepresentation. To satisfy rule 9(b)'s requirements, the plaintiff must plead the contents of the allegedly false representation. See Midgley v. Rayrock Mines, Inc., 374 F.Supp.2d at 1047. Tan-O-On Marketing has not met that requirement in its Amended Third-Party Complaint. Furthermore, without allegations regarding a statement, Tan-O-On Marketing cannot show that it relied on a misrepresentation. Tan-O-On Marketing briefly alleges that: "While the Casey's claim to have abandoned their positions with and any interest in TMI, they nevertheless established a new bank account for TMI in Monte Vista, Colorado at the Sunflower Bank." Amended Third-Party Complaint ¶ 21, at 6-7. Drawing all reasonable inferences in Tan-O-On Marketing's favor, the Caseys were at some point acting as agents for Hi-Land Potato. This allegation is ambiguous, as it does not appear to refer to a specific statement that the Caseys made to anyone. Furthermore, to the extent the allegation relates that the Caseys made a
Regarding a claim for fraudulent conveyance, the Hi-Land Potato Parties contend that Tan-O-Marketing must, to plead a common-law claim for fraudulent conveyance, allege the following elements: (i) the property subject to the transfer; (ii) the timing and, if applicable, frequency of the transfer; and (iii) the consideration paid. See Feb. 7, 2012 MTD at 6 (citing Trustees of Eighth Dist. Elec. Pension Fund v. Wasatch Front Elec. & Const., LLC, No. 2:09-cv-00632, 2010 WL 3792196, at *1 n. 10 (D.Utah Sept. 22, 2010)). Tan-O-On Marketing appears to agree that these same elements are necessary to assert a claim for fraudulent conveyance, as it also cites Trustees of Eighth District Electrical Pension Fund v. Wasatch Front Electric & Construction, LLC in its Response to Feb. 7, 2012 MTD. See Response to Feb. 7, 2012 MTD at 17.
The parties do not address whether a common-law fraudulent-conveyance claim exists under New Mexico law. Trustees of Eighth District Electrical Pension Fund v. Wasatch Front Electric & Construction, LLC refers to a common-law claim for "intentional fraudulent transfer." 2010 WL 3792196, at *1 n. 10. The Court has located a Supreme Court of New Mexico case that states the following:
First Nat'l Bank of Santa Fe v. Ruebush, 62 N.M. 42, 46, 304 P.2d 569, 571 (1956). The Supreme Court of New Mexico has also stated: "[T]he burden of proof is at all times on the creditor who attacks a conveyance on the ground that it is fraudulent and in furtherance of a design to hinder and delay and defraud creditors." Nat'l Mut. Savings & Loan Ass'n v. Lake, 47 N.M. 223, 141 P.2d at 191. "The presence or absence of insolvency of a grantor while perhaps not necessarily a sole determinative
The relevant allegations against the Hi-Land Potato Parties as they relate to the fraudulent-conveyance claim are as follows. In late 2009, Shannon Casey resigned from and closed Tan-O-On Marketing. See Amended Third-Party Complaint ¶¶ 18, 20, at 5. After closing Tan-O-On Marketing, the Caseys relocated to Monte Vista — where Hi-Land Potato locates its business. See Amended Third-Party Complaint ¶ 20, at 5. Although the Caseys represented that they had abandoned their positions with Tan-O-On Marketing, they later established a new bank account for the company in Monte Vista. See Amended Third-Party Complaint ¶ 21, at 5-6. The Caseys deposited approximately $1.8 million of Tan-O-On Marketing's receivables into the new account
The Hi-Land Potato Parties and Tan-O-On Marketing, without addressing New Mexico law, agree that the following elements are necessary to plead a common-law fraudulent-conveyance claim for rule 12(b)(6) purposes: (i) the property subject to the transfer; (ii) the timing and, if applicable, frequency of the transfer; and (iii) the consideration paid. Tan-O-On Marketing alleges that the Hi-Land Potato Parties, along with the Caseys, acted intentionally to fraudulently transfer Tan-O-On Marketing's assets to the Hi-Land Potato Company. See Amended Third-Party Complaint ¶¶ 24, 40, at 7, 10. Tan-O-On Marketing alleges that the Caseys transferred $1.8 million to the Hi-Land Potato Parties. See Amended Third-Party Complaint ¶ 21, at 6. Tan-O-On Marketing alleges that the Caseys began to transfer these assets to the Hi-Land Potato Parties in approximately late 2009 after Tan-O-On Marketing's closing. See Amended Third-Party Complaint ¶¶ 18, 20-21, at 5-6. Tan-O-On Marketing alleges that no consideration was paid for these transfers. See Amended Third-Party Complaint ¶ 40, at 10. Tan-O-On Marketing also provides various allegations that provide some factual context for the allegedly fraudulent transfers — such as the Caseys' involvement in this conduct and that the transfers have some relation to PACA. It is worth noting that, although the Caseys are the ones whom Tan-O-On Marketing has alleged have done the act of fraudulently transferring funds, the transferees to those funds — here the Hi-Land Potato Parties — are proper defendants in a lawsuit seeking to set aside a fraudulent conveyance. See 37 Am. Jur. 2d Fraudulent Conveyances and Transfers § 187, at 664-65. As American Jurisprudence 2d has explained:
37 Am. Jur. 2d Fraudulent Conveyances and Transfers § 187, at 664-65 (footnotes omitted).
Furthermore, the allegations satisfy rule 9(b)'s heightened pleadings standards. Fraudulent-conveyance claims normally require compliance with rule 9(b)'s heightened pleading standards. See 5A C. Wright & A. Miller, Federal Practice and Procedure § 1297, at 10 (3d ed. Supp. 2012) ("Claims of fraudulent transfer or fraudulent conveyance in connection with a person or corporation going bankrupt are also subject to the heightened standard of Rule 9(b)."); 37 Am. Jur. 2d Fraudulent Conveyances and Transfers § 196, at 670 (citing Fromer v. Yogel, 50 F.Supp.2d 227 (S.D.N.Y.1999)) ("Generally, fraudulent conveyance claims must be alleged with particularity."). Rule 9(b)'s standards have greater importance when the plaintiff did not have a claim against the defendant until after the allegedly fraudulent conveyance occurred, because actual intent to defraud is necessary to establish a fraudulent-conveyance claim in those circumstances:
37 Am. Jur. 2d Fraudulent Conveyances and Transfers § 124, at 623 (footnotes omitted).
The relatively few rule 9(b) cases that address fraudulent-conveyance or fraudulent-transfer claims indicate that Tan-O-On Marketing's allegations are sufficient to satisfy rule 9(b)'s standards. Addressing New York's fraudulent-transfer statute in the context of rule 9(b), the United States Court of Appeals for the Second Circuit has stated:
In re Sharp Int'l Corp., 403 F.3d at 56. The Second Circuit has also stated that the following circumstances are among "the circumstances from which courts have inferred intent to defraud":
In re Kaiser, 722 F.2d at 1582 (alterations in original). Tan-O-On Marketing has alleged a close relationship between the Caseys and the Hi-Land Potato Parties, given that it has alleged that the Caseys planned to sell Tan-O-On Marketing and begin working for Hi-Land Potato. Tan-O-On Marketing has alleged that there was no consideration for the transfer of funds. Tan-O-On Marketing has alleged that the Caseys were transferring funds from Tan-O-On Marketing's bank accounts to Hi-Land Potato's bank accounts. Those allegations are sufficient to give rise to an inference of intent regarding the transfers, because the "circumstances [are] so commonly associated with fraudulent transfers that their presence gives rise to an inference of intent." In re Sharp Int'l Corp., 403 F.3d at 56. Admittedly, Tan-O-On Marketing has not organized its Amended Third-Party Complaint in a straightforward manner. Tan-O-On Marketing has, however, adequately pled a common-law fraudulent-conveyance claim.
N.M.S.A. § 56-10-18 provides:
N.M.S.A. 1978, § 56-10-18. New Mexico courts have referred to these items listed in subsection (B) as "badges of fraud." Ellen Equip. Corp. v. C.V. Consultants & Assocs., Inc., 144 N.M. at 57, 183 P.3d at 942.
The Hi-Land Potato Parties argue that Tan-O-On Marketing does not meet the definition of a creditor under the UFTA and that the Court should, accordingly, dismiss its UFTA claim. N.M.S.A. 1978, § 56-10-15(D) defines a creditor as "a person who has a claim." N.M.S.A. 1978, § 56-10-15(D). N.M.S.A. 1978, § 56-10-15(F) defines a debtor as "a person who is liable on a claim." N.M.S.A. 1978, § 56-10-15(F). N.M.S.A. 1978, § 56-10-15(C) defines a claim as "a right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, disputed, undisputed, legal, equitable, secured or unsecured." N.M.S.A. 1978, § 56-10-15(C). The draft of the Uniform Fraudulent Transfer Act provides the same definition for claim as that which appears in N.M.S.A. 1978, § 56-10-15(C). See Unif. Fraudulent Transfer Act § 1(3). Comment (3) to the Uniform Fraudulent Transfer Act states: "The definition of `claim' is derived from § 101(4) of the Bankruptcy Code." Unif. Fraudulent Transfer Act § 1 cmt. (3). Interpreting 11 U.S.C. § 101(4), the Supreme Court has stated:
Penn. Dep't of Pub. Welfare v. Davenport, 495 U.S. at 558, 110 S.Ct. 2126.
Based on the statutory definitions for the term creditor, and more importantly the term claim, along with the manner in which courts have applied those terms, the potential scope of persons who can qualify as proper plaintiffs under the UFTA is "the broadest available" one a legislature could have adopted. Johnson v. Home State Bank, 501 U.S. at 83, 111 S.Ct. 2150 ("We have previously explained that Congress intended by this language to adopt the broadest available definition of `claim.'"). N.M.S.A. 1978, § 56-10-15(C) defines a claim broadly as "a right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, disputed, undisputed, legal, equitable, secured or unsecured." N.M.S.A. 1978, § 56-10-15(C). Notably, the claim need not be one that has matured, can be disputed, can be equitable in nature, and need not be secured. The Caseys were some of Tan-O-On Marketing's corporate executives, and corporations, including Tan-O-On Marketing, can maintain actions against their corporate executives for breaches of their duties to the corporation. See Pueblo Bancorporation v. Lindoe, Inc., 37 P.3d at 499. Similarly, Tan-O-On Marketing would likely have a claim for conversion against Shannon Casey. See Sec. Pac. Fin. Servs. v. Signfilled Corp., 125 N.M. at 44, 956 P.2d at 843. While those claims may not have arisen until the Caseys transferred or misappropriated those funds, New Mexico's UFTA permits a cause of action for fraudulent transfer, under N.M.S.A. 1978, § 56-10-18(A), "whether the creditor's claim arose before or after the transfer was made or the obligation was incurred." N.M.S.A. 1978, § 56-10-18(A) (emphasis added). The allegations in the Amended Third-Party Complaint are sufficient, when drawing all reasonable inferences in Tan-O-On Marketing's favor and viewing the facts in the light most favorably to it, that it is a creditor for UFTA purposes.
One of the requirements to maintain a cause of action under N.M.S.A. 1978, § 56-10-18(A), however, is that the transfer must have been made with "actual intent to hinder, delay or defraud any creditor of the debtor." N.M.S.A. 1978, § 56-10-18(A)(1). That requirement triggers rule 9(b)'s heightened pleading standards. See In re Sharp Int'l Corp., 403 F.3d at 56 ("As `actual intent to hinder, delay, or defraud' constitutes fraud, it must be pled with specificity, as required by Fed. R.Civ.P. 9(b)."); 5A C. Wright & A. Miller, supra, § 1297, at 10 ("Claims of fraudulent transfer or fraudulent conveyance in connection with a person or corporation going bankrupt are also subject to the heightened standard of Rule 9(b)."). 37 Am. Jur. 2d Fraudulent Conveyances and Transfers § 196, at 670 ("Generally, fraudulent conveyance claims must be alleged with particularity."). This statutory requirement recognizes the common-law requirement that, when the plaintiff does not have a claim against the defendant until after the allegedly fraudulent conveyance occurred, actual intent to defraud is necessary to establish a fraudulent-conveyance claim:
37 Am. Jur. 2d Fraudulent Conveyances and Transfers § 124, at 623 (footnotes omitted).
A plaintiff can rely upon the badges of fraud listed in N.M.S.A. 1978, § 56-10-18(B), among other factors, to prove the existence of intent. See N.M.S.A. 1978, § 56-10-18(B). Interpreting similar statutory language, other courts, such as the Second Circuit, have outlined similar badges of fraud:
In re Sharp Int'l Corp., 403 F.3d at 56. Like the badge of fraud listed in N.M.S.A. 1978, § 56-10-18(B)(7), Tan-O-On Marketing has alleged that the Caseys "removed or concealed assets" as part of a scheme that benefitted the Hi-Land Potato Parties. N.M.S.A. 1978, § 56-10-18(B)(7). Like the badge of fraud listed in N.M.S.A. 1978, § 56-10-18(B)(9), Tan-O-On Marketing has alleged that the Caseys filed for bankruptcy such that they were "insolvent or became insolvent shortly after the transfer was made or the obligation was incurred." N.M.S.A. 1978, § 56-10-18(B)(9). Like the badge of fraud discussed in In re Sharp International Corp., Tan-O-On Marketing has alleged that there is "a close relationship between the parties to the alleged fraudulent transaction" given the allegations regarding the Caseys' involvement with Hi-Land Potato's business. In re Sharp Int'l Corp., 403 F.3d at 56. Like some of the other badges of fraud that the Second Circuit discussed in In re Sharp International Corp., Tan-O-On Marketing has alleged that the transfers to the Hi-Land Potato Parties occurred without any consideration and that they were "questionable transfer[s] not in the usual course of business." In re Sharp Int'l Corp., 403 F.3d at 56.
"Due to the difficulty of proving actual intent to hinder, delay, or defraud creditors, the pleader is allowed to rely on `badges of fraud' to support his case, i.e., circumstances so commonly associated with fraudulent transfers that their presence gives rise to an inference of intent." In re Sharp Int'l Corp., 403 F.3d at 56.
Consistent with the agreement between Tan-O-On Marketing and the RPE, Inc. Parties at the hearing on April 13, 2012, the Court will grant Tan-O-On Marketing leave to amend its claims for unjust enrichment and theft of trade secrets asserted against the RPE, Inc. Parties, but will deny leave to amend the remaining claims it seeks to assert against the RPE, Inc. Parties. The Court will deny leave to amend the common-law fraud and UPA claims Tan-O-On Marketing seeks to assert against the Hi-Land Potato Parties, because permitting leave to amend would be futile and unfairly prejudicial to the Hi-Land Potato Parties. The Court will grant leave to amend the fraudulent-conveyance claims which Tan-O-On Marketing seeks to assert against Hi-Land Potato given that the additional allegations primarily flesh out allegations that were already in Tan-O-On Marketing's prior pleadings. The Court will grant leave to amend the claims for unjust enrichment and theft of trade secrets asserted against the Hi-Land Potato Parties in light of the agreement at the hearing on April 13, 2012.
The Court will state the relevant allegations Tan-O-On Marketing has added in the Second Amended Third-Party Complaint in the light most favorable to Tan-O-On Marketing. Regarding facts that Tan-O-On Marketing alleges in both its Amended Third-Party Complaint and Second Amended Third-Party Complaint, the Court will not repeat those facts here. Because Tan-O-On Marketing and the RPE, Inc. Parties have agreed that the Court should deny amendment regarding
Tan-O-On Marketing asserts five counts in the proposed Second Amended Third-Party Complaint: (i) Count I — Fraudulent Conveyance and Unjust Enrichment; (ii) Count II — Theft of Trade Secrets and Proprietary Information; (iii) Count III — Fraud Claims; (iv) Count IV — Unjust Enrichment and Unfair Trade Practice; and (v) Count V — Unjust Enrichment and Unfair Trade Practice. See Second Amended Third-Party Complaint at 8-25. Tan-O-On Marketing asserts Counts I and II against Hi-Land Potato, Counts III and IV against the RPE, Inc. Parties, and Count V against the Hi-Land Potato Parties. See Second Amended Third-Party Complaint at 8-25.
When the Andersons entered into a stock purchase agreement to sell Tan-O-On Marketing shares to the Caseys in 2006, "[t]he contract include[d] an agreement by Shannon Casey to protect trade secrets, proprietary information, customer lists and customer relations of [Tan-O-On Marketing]." Second Amended Third-Party Complaint ¶ 41, at 8-9. By November, 2009, after Shannon Casey purchased Tan-O-On Marketing from the Andersons, deposits in Tan-O-On Marketing's bank account declined by 446% compared to the previous year. See Second Amended Third-Party Complaint ¶ 45, at 9. "Gerald Anderson attempted to freeze" this Tan-O-On Marketing bank account "on November 15, 2009 when he became aware from Terry Wright that PACA Trust Producers... were not being paid." Second Amended Third-Party Complaint ¶ 46, at 9-10. "[B]eginning in November 2009 Shannon Casey began to deposit [Tan-O-On Marketing]'s receivables in a separate Sunflower Bank account in Monte Vista, Colorado...." Second Amended Third-Party Complaint ¶ 50, at 10. Beginning in December, 2009, "all orders for potatoes shipped under the Tan-O-On Marketing Kroger Co. vender number were made under the name of Hi-Land Potato, Inc." Second Amended Third-Party Complaint ¶ 58, at 11. Shortly after leaving Tan-O-On Marketing, Shannon Casey began to receive payments from Kroger Co. that were supposed to be payable to Tan-O-On Marketing. See Second Amended Third-Party Complaint ¶ 51 at 10. Shannon Casey continued to deposit Tan-O-On Marketing's receivables, including payments from Kroger Co. in the Monte Vista account after he resigned from Tan-O-On Marketing. See Second Amended Third-Party Complaint ¶¶ 52-53, at 10. "Shannon Casey sent a letter to Terry Wright on December 28, 2009 indicating [to] Mr. Wright [that he] was no longer employed" at Tan-O-On Marketing and "that Tan-O-On Marketing, Inc. was merging with Hi-Land Potato Company, Inc." Second Amended Third-Party Complaint ¶ 55, at 11. "All the TMI receivable deposited in the Sunflower Bank account were paid by hand written checks signed by Shannon Casey to Hi-Land Potato Company, Inc. which totaled $1,661,603.04." Second Amended Third-Party Complaint ¶ 57, at 11. "The majority of these funds were paid to Hi-Land after Shannon Casey had
The Court will deny the Motion to Amend with regards to the common-law fraud, fraudulent-conveyance, and UPA claims asserted against the RPE, Inc. Parties. At the hearing on April 13, 2012, the RPE, Inc. Parties requested that the Court deny the Motion to Amend and leave only claims for unjust enrichment and theft of trade secrets in Tan-O-On Marketing's pleadings. See Tr. at 43:22-44:3 (Feuchter, Court). The Court inquired whether the RPE, Inc. Parties would oppose the Court permitting amendment on the unjust enrichment and theft-of-trade-secrets claims but deny amendment regarding the common-law fraud, fraudulent-conveyance, and UPA claims for untimeliness. See Tr. at 44:9-17 (Court, Feuchter). The RPE, Inc. Parties agreed with the Court's proposal on the basis that the proposed amendments regarding the unjust enrichment and theft-of-trade-secrets claims were primarily factual in nature as opposed to an attempt to make actionable new courses of conduct. See Tr. at 44:9-19 (Court, Feuchter). Tan-O-On Marketing agreed that proceeding against the RPE, Inc. Parties on only the unjust enrichment and theft-of-secrets claims was appropriate, because it did not detrimentally rely on statements RPE, Inc. made, and could not establish either a fraud claim or a UPA claim. See Tr. at 46:15-24 (Robinson, Court).
Thus, the parties have agreed that the Court can permit amendment regarding the unjust enrichment and theft-of-trade-secrets claims against the RPE, Inc. Parties. Tan-O-On Marketing has conceded that the Court may deny leave to amend regarding its common-law fraud, fraudulent-conveyance, and UPA claims. Courts are entitled to rely upon counsel's concessions. See United States v. Ventura-Perez, 666 F.3d 670, 676 (10th Cir.2012) ("Courts could not function properly if concessions by counsel cannot be relied upon."); Texaco, Inc. v. Hale, 81 F.3d 934, 938 (10th Cir.1996) ("Even had the scope of the remand allowed the district court to consider this issue, it was entitled to rely upon Appellants' concession, and they are
Tan-O-On Marketing asserts five counts in the proposed Second Amended Third-Party Complaint: (i) Count I — Fraudulent Conveyance and Unjust Enrichment; (ii) Count II — Theft of Trade Secrets and Proprietary Information; (iii) Count III — Fraud Claims; (iv) Count IV — Unjust Enrichment and Unfair Trade Practice; and (v) Count V — Unjust Enrichment and Unfair Trade Practice. See Second Amended Third-Party Complaint at 8-25. Tan-O-On Marketing asserts Counts I and II against Hi-Land Potato, Counts III and IV against the RPE, Inc. Parties, and Count V against the Hi-Land Potato Parties. See Second Amended Third-Party Complaint at 8-25.
It does not appear that Tan-O-On Marketing attempts to assert a common-law fraud claim against either of the Hi-Land Potato Parties in its Second Amended Third-Party Complaint. The titles for each of the counts that it asserts against Hi-Land Potato — Counts I, II, and V — and against Worley — Count V — do not refer to fraud. They refer to fraudulent conveyances, but those are separate causes of action from fraud. Thus, it does not appear that Tan-O-On Marketing is asserting a common-law fraud claim in its Second Amended Third-Party Complaint.
To the extent that Tan-O-On Marketing is seeking to assert a common-law fraud claim, it runs into the same problems it did in its previous pleadings. It has failed to identify a misrepresentation that the Hi-Land Potato Parties made upon which it relied. None of the additional allegations that appear in the Second Amended Third-Party Complaint cure that defect. The elements of fraudulent misrepresentation under New Mexico law are: "(i) a misrepresentation of fact, (ii) either knowledge of the falsity of the representation or recklessness on the part of the party making the misrepresentation, (iii) intent to deceive and to induce reliance on the misrepresentation, and (iv) detrimental reliance on the misrepresentation." Cain v. Champion Window Co. of Albuquerque, 142 N.M. at 216, 164 P.3d at 97 (internal quotation marks omitted). "At a minimum, Rule 9(b) requires that a plaintiff set forth the who, what, when, where and how of the alleged fraud." United States ex rel. Schwartz v. Coastal Healthcare Grp., Inc., 2000 WL 1595976, at *3. "To survive a motion to dismiss, an allegation of fraud must `set forth the time, place, and contents of the false representation, the identity of the party making the false statements and the consequences thereof.'" Midgley v. Rayrock Mines, Inc., 374 F.Supp.2d at 1047 (quoting Schwartz v. Celestial Seasonings, Inc., 124 F.3d at 1252). One of the key elements of a fraud claim, an allegation that either of the Hi-Land Potato Parties made a misrepresentation upon which Tan-O-On Marketing
Furthermore, given the lack of specificity regarding any common-law fraud claim Tan-O-On Marketing seeks to assert, it would be unfairly prejudicial to require the Hi-Land Potato Parties to defend against a claim with no discernible contours. It is also does not appear that Tan-O-On Marketing has asserted a common-law fraud claim, and to the extent it has tried to do so, it would be unfairly prejudicial to require the Hi-Land Potato Parties to defend against an unclear claim buried in a parties' pleading. The late stage of the case further counsels against permitting an ambiguous claim to come into the case. It is worth noting that Tan-O-On Marketing asserted in one of its response briefs that it had evidence regarding misrepresentations Worley made:
Response to Feb. 7, 2012 MTD at 18. Those allegations appear nowhere in the Second Amended Third-Party Complaint. Furthermore, Tan-O-On Marketing would still need to "set forth the time, place, and contents of the false representation, the identity of the party making the false statements and the consequences thereof." Midgley v. Rayrock Mines, Inc., 374 F.Supp.2d at 1047 (quoting Schwartz v. Celestial Seasonings, Inc., 124 F.3d at 1252). It has not done so.
While the Caseys and the Hi-Land Potato Parties may have engaged in some deceptive conduct that harmed Tan-O-On Marketing, a common-law fraud claim requires that the defendant made a misrepresentation to the plaintiff upon which the plaintiff relied. There are no allegations regarding any misrepresentation upon which Tan-O-On Marketing relied. Tan-O-On Marketing puts forward an allegation that "Shannon Casey sent a letter to Terry Wright on December 28, 2009 indicating [to] Mr. Wright [that he] was no longer employed" at Tan-O-On Marketing and "that Tan-O-On Marketing, Inc. was merging with Hi-Land Potato Company, Inc." Second Amended Third-Party Complaint ¶ 55, at 11. Viewing the facts in the light most favorably to Tan-O-On Marketing, there is a reasonable inference that Shannon Casey was acting as an agent for the Hi-Land Potato Parties at this point in time. Tan-O-On Marketing alleges that Wright was one of its employees. See Second Amended Third-Party Complaint ¶ 56, at 11. While that statement Shannon Casey made to Wright may be a misrepresentation, Tan-O-On Marketing makes no allegation that it relied on that statement in a way that permitted Shannon Casey or the Hi-Land Potato Parties to divert funds from Tan-O-On Marketing to Hi-Land Potato. To the contrary, it alleges that Wright, after receiving this letter, "contacted Carl Worley President of Hi-Land Potato Company Inc. and told him that Hi-Land Potato Company, Inc. was stealing his customers
Tan-O-On Marketing attaches two invoices to its Response to Feb. 7, 2012 MTD, one for an amount of $7175.00 and one for the amount of $7000.70. See Invoice at 31 (dated October 28, 2009), filed February 21, 2012 (Doc. 114-1) ("Oct. 28, 2009 Invoice"); Invoice at 32 (dated December 16, 2009), filed February 21, 2012 (Doc. 114-1) ("Dec. 16, 2009 Invoice"). Tan-O-On Marketing alleges that Shannon Casey "began to receive payments from Kroger, Inc. payable to Tan-O-On Marketing, Inc. which listed the corporate address of Hi-Land Potato Company, Inc. at 2468 E. County Road 6N, Monte Vista, Colorado." Second Amended Third-Party Complaint ¶ 51, at 10. Tan-O-On Marketing relates that "[i]nvoices produced by Hi-Land Potato Company Inc. in February of 2012 in the above entitled cause of action proved Hi-Land was invoicing TMI sales made by Shannon Casey while he was a TMI employee in October of 2009." Response to Feb. 7, 2012 MTD at 12.
Tan-O-On Marketing's UPA claim asserted in Count V encounters similar problems under rule 12(b)(6). "Generally speaking, the UPA is designed to provide a remedy against misleading identification and false or deceptive advertising." Lohman v. Daimler-Chrysler Corp., 142 N.M. at 442, 166 P.3d at 1096. To state a claim under the UPA, a complaint must allege:
Lohman v. Daimler-Chrysler Corp., 142 N.M. at 439, 166 P.3d at 1093. "The gravamen of an unfair trade practice is a misleading, false, or deceptive statement made knowingly in connection with the sale of goods or services." Diversey Corp. v. Chem-Source Corp., 125 N.M. at 754, 965 P.2d at 338.
Genesee Cnty. Emps.' Ret. Sys. v. Thornburg Mortg. Sec. Trust 2006-3, 825 F.Supp.2d 1082, 1238 (D.N.M.2011) (Browning, J.). The Honorable Robert C. Brack, United States District Judge for the District of New Mexico, has similarly concluded that UPA claims do not need to comply with rule 9(b). See Woodard v. Fidelity Nat'l Title Ins. Co., No. 06-1170, 2007 WL 5173415, at *6 (D.N.M. Dec. 4, 2007) (Brack, J.). A defendant, for instance, may knowingly make a statement, but not have an intent to defraud the plaintiff; fraud requires more than that which the UPA requires. See Pedroza v. Lomas Auto Mall, Inc., 600 F.Supp.2d at 1206.
The Court concludes that denying leave to amend regarding the UPA claim
Estate of Gonzales v. AAA Life Ins. Co., 2012 WL 1132332, at *18 (citations omitted). It would be unfairly prejudicial to permit this claim to go forward against the Hi-Land Potato Parties given that they do not have fair notice of the claim against which they must defend. The Court will thus deny leave to amend regarding the UPA claim that Tan-O-On Marketing seeks to assert against the Hi-Land Potato Parties. The Court will also deny leave to amend regarding any common-law fraud claim that Tan-O-On Marketing seeks to assert against the Hi-Land Potato Parties.
Tan-O-On Marketing asserts five counts in the proposed Second Amended Third-Party Complaint: (i) Count I — Fraudulent Conveyance and Unjust Enrichment; (ii) Count II — Theft of Trade Secrets and Proprietary Information; (iii) Count III — Fraud Claims; (iv) Count IV — Unjust Enrichment and Unfair Trade Practice; and (v) Count V — Unjust Enrichment and Unfair Trade Practice. See Second Amended Third-Party Complaint at 8-25. Tan-O-On Marketing asserts Counts I and II against the Hi-Land Potato, Counts III and IV against the RPE, Inc. Parties, and Count V against the Hi-Land Potato Parties. See Second Amended Third-Party Complaint at 8-25.
The only fraudulent-conveyance claim Tan-O-On Marketing asserts is against Hi-Land Potato in Count I. It has not asserted such a claim against Worley. As the Court has already stated in its disposition of the Feb. 7, 2012 MTD, Tan-O-On Marketing adequately pled, for rule 9(b) and 12(b)(6) purposes, a common-law fraudulent-conveyance claim and a UFTA claim in its Amended Third-Party Complaint. The same allegations remain in Tan-O-On Marketing's Second Amended Third-Party Complaint. Tan-O-On Marketing has mainly just added additional factual allegations to flesh out those claims. The Hi-Land Potato Parties have asserted that Tan-O-On Marketing has pled its claims in a conclusory manner by failing to include sufficient factual allegations. The Court concludes that granting Tan-O-On Marketing leave to amend on its fraudulent-conveyance claims is appropriate given that Tan-O-On Marketing is effectively giving the Hi-Land Potato Parties for what they have asked — more specific factual allegations. The newly added allegations, as they relate to the fraudulent-conveyance claims, do not try to make actionable entirely new conduct in which the Hi-Land Potato Parties have engaged. The allegations all relate to the same underlying factual circumstances set out in Tan-O-On Marketing's Amended Third-Party Complaint. Thus, the Hi-Land Potato Parties will not suffer unfair prejudice or surprise from the amendment. While these amendments are occurring late in the case, the Hi-Land Potato Parties are the ones who asked for more detailed factual allegations. The Court does not believe it is unfair to give the Hi-Land Potato Parties for what they have asked — more factual allegations. The Court will thus grant leave to amend as it relates to the pleadings for fraudulent conveyance in
At the hearing on April 13, 2012, the Hi-Land Potato Parties asserted that, if Tan-O-On Marketing seeks to assert claims for unjust enrichment and theft of trade secrets, they would not oppose those claims through a motion to dismiss, but would instead use summary judgment or disprove those claims at trial. See Tr. at 29:11-17 (Bohnhoff). The Hi-Land Potato Parties also stated that they would be receptive to denying the motion to amend with regards to the common-law fraud, fraudulent-conveyance, and UPA claims while granting with regards to claims for unjust enrichment and theft of trade secrets, because those causes of action appear in the Tan-O-On Parties' earlier pleadings. See Tr. at 36:25-37:9 (Court, Bohnhoff). Based on these concessions, the Court will permit amendment regarding the claims for unjust enrichment and theft of trade secrets that Tan-O-On Marketing asserts against the Hi-Land Potato Parties. Courts are entitled to rely upon counsel's concessions. See United States v. Ventura-Perez, 666 F.3d at 676 ("Courts could not function properly if concessions by counsel cannot be relied upon."); Texaco, Inc. v. Hale, 81 F.3d at 938 ("Even had the scope of the remand allowed the district court to consider this issue, it was entitled to rely upon Appellants' concession, and they are now without a basis for objection.").
Act of Feb. 26, 1983, Pub. L. No. 97-462, 96 Stat. 2527.
As New Mexico is the forum state for the United States District Court for the District of New Mexico, the Court looks to New Mexico choice-of-law rules to determine which state's substantive law applies. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496-97, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); Gen. Protecht Grp., Inc. v. Leviton Mfg. Co., No. 10-1020, 2010 WL 5559750, at *6 (D.N.M. Nov. 30, 2010) (Browning, J.). In New Mexico, the choice-of-law analysis is a two-step process. See Terrazas v. Garland & Loman, Inc., 140 N.M. 293, 296, 142 P.3d 374, 377 (Ct.App. 2006). First, the Court must characterize the "area of substantive law — e.g., torts, contracts, domestic relations — to which the law of the forum assigns a particular claim or issue." Terrazas v. Garland & Loman, Inc., 140 N.M. at 296, 142 P.3d at 377. The next step is to apply New Mexico's choice-of-law rule. See Terrazas v. Garland & Loman, Inc., 140 N.M. at 296, 142 P.3d at 377.
In tort actions, New Mexico courts follow the doctrine of lex loci delicti commissi and apply the law of the place where the wrong took place. See Torres v. State, 119 N.M. 609, 613, 894 P.2d 386, 390 (1995). See also Mosley v. Titus, 762 F.Supp.2d 1298, 1314 (D.N.M.2010) (Browning, J.). The place of the wrong is the location of the last act necessary to complete the injury. See Torres v. State, 119 N.M. at 613, 894 P.2d at 390. Where the elements of the underlying claim include harm, the place of the wrong is the place where the harm occurred. See First Nat'l Bank in Albuquerque v. Benson, 89 N.M. 481, 482, 553 P.2d 1288, 1289 (Ct.App. 1976). The Supreme Court of New Mexico has said that it will not use the place-of-wrong-rule, however, if application of the rule would violate New Mexico public policy. See Torres v. State, 119 N.M. at 613, 894 P.2d at 390. The Court of Appeals of New Mexico has interpreted this principle to mean that, although there is a strong presumption in favor of application of the place-of-the-wrong rule, in some situations, a court may depart from the general rule if another state has a more significant interest in having its law apply. See Estate of Gilmore, 124 N.M. 119, 946 P.2d 1130 (Ct.App.1997).
Tan-O-On Marketing alleges that it "had its principal place of business in New Mexico at the times relevant to this cause of action." Amended Third-Party Complaint ¶ 1, at 2. Common-law fraud is a tort claim, which means that the place-of-wrong rule applies under New Mexico choice-of-law rules. Many of the events giving rise to the dispute between Tan-O-On Marketing and the Hi-Land Potato Parties occurred in New Mexico, with the Caseys ultimately moving to Colorado. Tan-O-On Marketing alleges that it opened a bank account in Albuquerque and that the Caseys misappropriated funds from those accounts to divert them to an account in Colorado. Tan-O-On Marketing does not allege that it engages in any significant business in Colorado. Given that the alleged financial harm occurred in New Mexico, where Tan-O-On Marketing maintained its bank account, the place of the alleged wrong is New Mexico, where the alleged harm to Tan-O-On Marketing occurred. See First Nat'l Bank in Albuquerque v. Benson, 89 N.M. at 482, 553 P.2d at 1289. Nothing about this case indicates that another state has a more significant interest than New Mexico in having its law apply. Consequently, without further guidance from the parties, the Court concludes that New Mexico law applies to this dispute.
Pedroza v. Lomas Auto Mall, Inc., 600 F.Supp.2d at 1167 (citing Restatement (Second) of Torts § 533 (2009)). There are no allegations suggesting that, and Tan-O-On Marketing has not argued that, this theory of fraud is applicable to the allegations in the Second Amended Third-Party Complaint.
483 F.3d at 665-66 (citations omitted) (internal quotation marks omitted).
Van-American Ins. Co. v. Schiappa, 191 F.R.D. 537, 542 (S.D.Ohio 2000) (citation omitted).
Pedroza v. Lomas Auto Mall, Inc., 600 F.Supp.2d at 1167 (citing Restatement (Second) of Torts § 533 (2009)). There are no allegations suggesting that, and Tan-O-On Marketing has not argued that, this theory of fraud is applicable to the allegations in the Second Amended Third-Party Complaint.
