Basham v. Jenks
| Decision Date | 10 May 2018 |
| Docket Number | Civil Action No. 7:17-cv-00202 |
| Court | U.S. District Court — Western District of Virginia |
| Parties | TIMOTHY BASHAM, Plaintiff, v. TIMOTHY L. JENKS, Defendant. |
MEMORANDUM OPINION
Plaintiff Timothy Basham ("Basham") brings this breach of contract action against defendant Timothy L. Jenks ("Jenks") arising out of the insolvency of their residential development company, Waterstone Development Company, LLC ("Waterstone"). Pending before the court are Basham's motion for leave to amend the complaint, ECF No. 13, and Jenks' motion for judgment on the pleadings, ECF No. 16. Pursuant to 28 U.S.C. § 636(b)(1)(B), the court referred both motions to United States Magistrate Judge Robert S. Ballou for a report and recommendation. ECF No. 18.
The magistrate judge heard oral arguments on the motions on December 6, 2017. ECF No. 23. In a report and recommendation issued on January 3, 2018, the magistrate judge recommended granting Jenks' motion for judgment on the pleadings because neither Waterstone's Articles of Organization nor its Operating Agreement created a legally enforceable obligation for the parties to pay the debts of Waterstone. ECF No. 25, at 7-8. The magistrate judge further recommended denying Basham's motion for leave to amend the complaint as futile, reasoning that the proposed contribution claim was not ripe because Basham had not alleged that he had fully satisfied the debt or partially satisfied the debt and secured a complete release for Jenks. Id. at 2-5. Jenks timely filed a limited objection to the magistrate judge's reasoning regarding Basham's motion for leave to amend. ECF No. 26. On March 13, 2018, the court heard oral argument on Jenks' limited objection. ECF No. 28.
For the reasons stated below, the court will ADOPT in part and REJECT in part the magistrate judge's report and recommendation to the extent consistent with the reasoning in this Memorandum Opinion, DENY Basham's motion for leave to amend the complaint, GRANT Jenks' motion for judgment on the pleadings, and DISMISS this case with prejudice.
Basham, a South Carolina resident, and Jenks, a Virginia resident, formed Waterstone to develop residential homes in Roanoke County, Virginia in 2007. As alleged by Basham, each owned 50% of Waterstone and both parties were required to make contributions to ensure the liquidity and viability of the company. Waterstone entered into multiple promissory note arrangements during its existence, at least one of which was with Franklin Community Bank ("Bank"). Waterstone became insolvent in December 2013, with outstanding obligations to the Bank and other creditors in excess of $280,000. Basham alleges to have paid $274,000 to creditors while Jenks paid only $6,000.
Basham filed a breach of contract claim against Jenks in the Circuit Court for the County of Franklin on November 10, 2016, and Jenks removed the case to this court on May 4, 2017. ECF No. 1. Basham asked the court for leave to amend the complaint to add a common law contribution claim on October 12, 2017. ECF No. 13. The proposed amendedcomplaint added factual allegations about the debt that Waterstone owed to the Bank. ECF No. 13-1. In relevant part, Basham newly alleges that Waterstone obtained multiple loans from the Bank from 2007 to at least 2010, most of which were subject to a personal guarantee for repayment by the parties. In June 2012, the Bank notified Waterstone that it was in default on one of the loans with a deficiency of $517,008.05. The Bank thereafter seized personal collateral of both parties in partial satisfaction of the outstanding loan balance. Basham alleges in the proposed complaint that Jenks' share of the amount owed by Waterstone to its creditors totals $140,000, and that Basham paid that amount plus approximately $134,000 owed by Jenks when Jenks "failed to honor his obligation as required under Waterstone's operating agreement." ECF No. 13-1, at 6. Basham seeks damages in the amount of $134,000.
Rule 72(b) of the Federal Rules of Civil Procedure permits a party to "serve and file specific, written objections" to a magistrate judge's proposed findings and recommendations within fourteen days of being served with a copy of the report. See also 28 U.S.C. § 636(b)(1). The Fourth Circuit has held that an objecting party must do so "with sufficient specificity so as reasonably to alert the district court of the true ground for the objection." United States v. Midgette, 478 F.3d 616, 622 (4th Cir. 2007), cert denied, 127 S. Ct. 3032 (2007).
To conclude otherwise would defeat the purpose of requiring objections. We would be permitting a party to appeal any issue that was before the magistrate judge, regardless of the nature and scope of objections made to the magistrate judge's report. Either the district court would then have to review every issue in the magistrate judge's proposed findings andrecommendations or courts of appeals would be required to review issues that the district court never considered. In either case, judicial resources would be wasted and the district court's effectiveness based on help from magistrate judges would be undermined.
Id. The district court must determine de novo any portion of the magistrate judge's report and recommendation to which a proper objection has been made. "The district court may accept, reject, or modify the recommended disposition; receive further evidence; or return the matter to the magistrate judge with instructions." Fed. R. Civ. P. 72(b)(3); accord 28 U.S.C. § 636(b)(1). "General objections that merely reiterate arguments presented to the magistrate judge lack the specificity required under Rule 72, and have the same effect as a failure to object, or as a waiver of such objection." Moon v. BWX Techs., Inc., 742 F. Supp. 2d 827, 829 (W.D. Va. 2010) (citing Veney v. Astrue, 539 F. Supp. 2d 841, 845 (W.D. Va. 2008)), aff'd, 498 F. App'x 268 (4th Cir. 2012); see also Thomas v. Arn, 474 U.S. 140, 154 (1985) ().
Further, objections that only repeat arguments raised before the magistrate judge are considered general objections to the entirety of the report and recommendation. See Veney, 539 F. Supp. 2d at 845. As the court noted in Veney:
Allowing a litigant to obtain denovo review of her entire case by merely reformatting an earlier brief as an objection Howard [v. Sec'y of Health & Human Servs.], 932 F.2d [505], 509 [(6th Cir. 1991)].
539 F. Supp. 2d at 846. A plaintiff who reiterates his previously raised arguments will not be given "the second bite at the apple [ ]he seeks." Id. Instead, his re-filed brief will be treated as a general objection, which has the same effect as a failure to object. Id.
In his limited objection, Jenks supports the magistrate judge's recommendation for dismissal but disagrees with his reasoning regarding the motion for leave to amend.1 See Def.'s Limited Obj. to R&R, ECF No. 26, at 3. The magistrate judge determined that a contribution claim under Virginia law requires a guarantor to fully satisfy the joint debt, or partially satisfy the debt and secure a complete release. ECF No. 25, at 2-5. By contrast, Jenks argues that the paying party only needs to pay more than his proportion of the joint debt or, if the party pays less, secure release of both its own debt and the debt of the non-paying party. ECF No. 26, at 4. Jenks contends that this distinction matters because the statute of limitations for Basham's contribution claim has passed, and thus the motion should be denied as time-barred to foreclose future litigation.2 Id. at 10-11. The court reviews the magistrate judge's recommendation de novo.
Federal Rule of Civil Procedure 15(a) provides that Rule15 allows courts to freely grant leave to amend a complaint "when justice so requires." Id.; see also Johnson v. Oroweat Foods Co., 785 F.2d 503, 511 (4th Cir. 1986). "If the underlying facts or circumstances relied upon by a plaintiff may be a proper subject of relief, he ought to be afforded an opportunity to test his claim on the merits." Foman v. Davis, 371 U.S. 178, 182 (1962). The grant or denial of leave lies in the sound discretion of the district court. See Gambelli v. United States, 904 F. Supp. 494, 497 (E.D.Va.1995), aff'd, 87 F.3d 1308 (4th Cir. 1996). Denial of leave to amend constitutes abuse of discretion without sufficient reason, such as futility of amendment, undue delay, bad faith, dilatory motive, undue prejudice, or repeated failure to cure deficiencies by previous amendments. See Foman, 371 U.S. at 182.
"Unless a proposed amendment may clearly be seen to be futile because of substantive or procedural considerations, conjecture about the merits of the litigation should not enter into the decision whether to allow amendment." Davis v. Piper Aircraft Corp., 615 F.2d 606, 613 (4th Cir. 1980) (internal citations and quotations omitted). A proposed amendment is futile when it would not survive a motion to dismiss. See United States ex. Rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 376 (4th Cir. 2008). A district court "determines futility under the standard of Fed. R. Civ. P. 12(b)." Chattery Int'l, Inc. v. JoLida, Inc., No.: WDQ-10-2236, 2011 WL 4527337, at *3 (D. Md. Sep. 27, 2011). "To survive a [Rule 12(b)(6)] motion to...
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