Catipovic v. Mark Turley, Ronald Fagen, & Fagen, Inc.

• Decision Date: 30 July 2013
• Docket Number: No. C 11–3074–MWB.,C 11–3074–MWB.
• Parties: Branimir CATIPOVIC, Plaintiff, v. Mark TURLEY, Ronald Fagen, and Fagen, Inc., Defendants.
• Court: U.S. District Court — Northern District of Iowa

957 F.Supp.2d 1003

Branimir CATIPOVIC, Plaintiff,
v.
Mark TURLEY, Ronald Fagen, and Fagen, Inc., Defendants.

No. C 11–3074–MWB.

United States District Court,
N.D. Iowa,
Central Division.

July 30, 2013.

[957 F.Supp.2d 1004]

Kevin J. Visser, Paul D. Gamez, Simmons, Perrine, Moyer & Bergman, PLC, Cedar Rapids, IA, for Plaintiff.

Elizabeth R. Meyer, William E Hanigan, Michael C. Richards, Davis, Brown, Koehn, Shors & Roberts, PC, Des Moines, IA, Constance M. Alt, Dana L. Oxley, Shuttleworth & Ingersoll, PLC, Cedar Rapids, IA, for Defendants.

MEMORANDUM OPINION AND ORDER REGARDING PLAINTIFF'S OBJECTIONS TO MAGISTRATE JUDGE'S ORDER DENYING MOTION FOR LEAVE TO AMEND
MARK W. BENNETT, District Judge.

TABLE OF CONTENTS

I.	INTRODUCTION	1005
II.	LEGAL ANALYSIS	1006

A.	Standard Of Review For Magistrate Judges' Orders On Non–; Dispositive Matters	1006
B.	Standards For Leave To Amend	1006

1.	Rule 15 standards	1006
2.	Rule 9(b) standards for pleading fraud	1007

C.
Analysis
1008

1.	Application of the correct legal standards	1008
2.	Misapplication of law or clearly erroneous consideration of pleadings	1009

a.	Consideration of all of Catipovic's factual allegations	1009
b.	Application of the standards to the pleadings	1009

D.
Catipovic's Request For Discovery
1011

III.
CONCLUSION
1011

[957 F.Supp.2d 1005]

I. INTRODUCTION

Plaintiff Branimir Catipovic, a former Iowa resident, seeks to recover damages from the failure of an alleged partnership to develop ethanol production facilities in Eastern Europe. In his original Complaint (docket no. 1), filed December 29, 2011, Catipovic asserted claims for breach of contract and unjust enrichment against an Irish citizen, defendant Mark Turley, the principal investor in the partnership, and damages for unjust enrichment from a Minnesota citizen and a Minnesota company, Ronald Fagen and Fagen, Inc., which had been engaged to build the ethanol plants. On April 12, 2012, Catipovic filed his Amended Complaint (docket no. 11), in response to motions to dismiss, clarifying that he is now domiciled in Massachusetts. On May 29, 2013, Catipovic filed a Motion For Leave To Amend Complaint (docket no. 60), seeking leave to file a Second Amended Complaint adding a fraud claim against Turley. That motion was denied on July 2, 2013, by Order (docket no. 63) of Chief United States Magistrate Judge Jon S. Scoles.

This matter is now before me on Catipovic's Objections To Order Denying Motion For Leave To Amend (Objections) (docket no. 64), filed July 16, 2013. Catipovic argues that Judge Scoles's Order was clearly erroneous and contrary to law, because Judge Scoles too narrowly applied the pleading standard governing fraud claims and failed to take into account facts—including the timeline of events—alleged by Catipovic that sufficiently plead a basis for plausibly inferring Turley's lack of intent to keep his promises at the time that Turley made them. Turley filed a Response To Plaintiff's Objections To Order Denying Motion For Leave To Amend (Response) (docket no. 66) on July 23, 2013. Turley argues, first, that Judge Scoles correctly concluded that Catipovic's fraud claim was “futile,” because it pleads only broken promises, but fails to plead facts suggesting an intent to break those promises when they were made. Turley argues that I can also affirm denial of Catipovic's Motion For Leave To Amend on grounds that Judge Scoles did not reach, specifically, that the fraud claim is time-barred and that the belated amendment would unduly prejudice Turley. I find Catipovic's Objections fully submitted on the written submissions.

[957 F.Supp.2d 1006]

II. LEGAL ANALYSIS

A. Standard Of Review For Magistrate Judges' Orders On Non–Dispositive Matters

The pertinent parts of the statute and rules authorizing the powers of a magistrate judge, 28 U.S.C. § 636(b)(1)(A), Rule 72(a) of the Federal Rules of Civil Procedure, and N.D. Ia. L.R. 72.1, all provide for review by a district judge of a magistrate judge's order on non-dispositive motions assigned to him or her to which objections have been filed. Where a litigant does not file a timely objection to a magistrate judge's order, triggering review by a district judge, the litigant “may not challenge the [magistrate judge's] order on appeal.” McDonald v. City of Saint Paul, 679 F.3d 698, 709 (8th Cir.2012).

Section 636(b)(1)(A) and Rule 72(a) both specify that such review allows the district judge to modify or set aside any parts of the magistrate judge's order that are “clearly erroneous or contrary to law.” See also Ferguson v. United States, 484 F.3d 1068, 1076 (8th Cir.2007) (“A district court may reconsider a magistrate judge's ruling on nondispositive pretrial matters where it has been shown that the ruling is clearly erroneous or contrary to law.”) (citing § 636(b)(1)(A)). Although the Eighth Circuit Court of Appeals does not appear to have clarified the meaning of “clearly erroneous” in the context of a district court's review of a magistrate judge's ruling, the appellate court's formulation of the “clearly erroneous” standard for its own review of a lower court's ruling is as follows:

A district court clearly errs if its findings are “not supported by substantial evidence in the record, if the finding[s are] based on an erroneous view of the law, or if we are left with the definite and firm conviction that an error has been made.” Ostenfeld ex rel. Estate of Davis v. Delo, 115 F.3d 1388, 1393 (8th Cir.1997).

Story v. Norwood, 659 F.3d 680, 685 (8th Cir.2011). Like other courts, I have read “contrary to law” within the meaning of Rule 72(a) (and, hence, § 636(b)(1)(A)) to mean failure to apply or misapplication of relevant statutes, case law, or rules of procedure. See United States v. Melton, 948 F.Supp.2d 998, 1002–03, 2013 WL 2456015, *3 (N.D.Iowa June 6, 2013) (quoting Catskill Dev., L.L.C. v. Park Place Entm't Corp., 206 F.R.D. 78, 86 (S.D.N.Y.2002)).

B. Standards For Leave To Amend 1. Rule 15 standards

The relevant legal standards for Judge Scoles's disposition of Catipovic's Motion For Leave To Amend are, in the first instance, the standards under Rule 15 of the Federal Rules of Civil Procedure. I have noted that “a pre-dismissal request for leave to amend, that is, one not meeting the timing requirements of Rule 15(a)(1) [for amendment ‘as a matter of course’], is subject to a liberal, ‘freely given’ standard pursuant to Rule 15(a)(2).” Plymouth Cnty., Iowa, ex rel. Raymond v. MERSCORP, Inc., 287 F.R.D. 449, 455 (N.D.Iowa 2012) (emphasis in the original). Although the “freely given” standard is generous, it does not give plaintiffs “ ‘an absolute or automatic right to amend.’ ” United States ex rel. Roop v. Hypoguard USA, Inc., 559 F.3d 818, 822 (8th Cir.2009) (quoting United States ex rel. Lee v. Fairview Health Sys., 413 F.3d 748, 749 (8th Cir.2005)). For example,

[a] district court's denial of leave to amend a complaint may be justified if the amendment would be futile. Crest Const. II, Inc. v. Doe, 660 F.3d 346, 358 (8th Cir.2011). And while Rule 15 is broadly construed to allow amendments, district courts need not “indulge in futile

[957 F.Supp.2d 1007]

gestures.” Holloway v. Dobbs, 715 F.2d 390, 392–93 (8th Cir.1983) (per curiam).

Geier v. Missouri Ethics Comm'n, 715 F.3d 674, 678 (8th Cir.2013). ¹ More specifically, leave to amend may be denied as futile if a proffered complaint fails to plead fraud with the particularity required by Rule 9(b) of the Federal Rules of Civil Procedure. See Roop, 559 F.3d at 823;United States ex rel. Joshi v. St. Luke's Hosp., Inc., 441 F.3d 552, 557–58 (8th Cir.2006) (agreeing with the district court that a proposed amendment did not satisfy the heightened pleading requirements of Rule 9(b), so that the proposed amendment was properly denied as futile); see also United States ex rel. Raynor v. National Rural Utils. Co-op. Fin. Corp., 690 F.3d 951, 958 (8th Cir.2012) (holding that the district court properly denied leave to amend as futile, where the plaintiff did not explain how he would amend the complaint to add the particularity required by Rule 9(b)).

2. Rule 9(b) standards for pleading fraud

Turning, therefore, to the standards for pleading fraud, the Eighth Circuit Court of Appeals has explained that, pursuant to Rule 9(b),

“In alleging fraud ... a party must state with particularity the circumstances constituting [the] fraud....” Fed.R.Civ.P. 9(b). The plaintiff must plead “such matters as the time, place and contents of false representations, as well as the identity of the person making the misrepresentation and what was obtained or given up thereby.” Abels v. Farmers Commodities Corp., 259 F.3d 910, 920 (8th Cir.2001) (quotation and citation omitted). “In other words, Rule 9(b) requires plaintiffs to plead the who, what, when, where, and how: the first paragraph of any newspaper story.” Summerhill v. Terminix, Inc., 637 F.3d 877, 880 (8th Cir.2011) (quotation and citation omitted).

Freitas v. Wells Fargo Home Mortg., Inc., 703 F.3d 436, 439 (8th Cir.2013). In addition, “ ‘[c]onclusory allegations that a defendant's conduct was fraudulent and deceptive are not sufficient to satisfy the rule.’ ” Drobnak v. Andersen Corp., 561 F.3d 778, 783 (8th Cir.2009) (quoting Schaller Tel. Co. v. Golden Sky Sys., Inc., 298 F.3d 736, 746 (8th Cir.2002)). Instead, “the complaint must provide a factual basis for allegations of scienter.” In re K-tel Int'l, Inc., Sec. Litig., 300 F.3d 881, 894 (8th Cir.2002).

As to the scienter requirement for fraud under Iowa law, the Iowa Supreme Court has explained the inadequacy of “broken promises,” as follows:

The thrust of Smidt's claim is that Porter broke his promises only later when he learned she was pregnant.

When a promise is made in good faith, with the expectation of carrying it out, the fact that it subsequently is broken gives rise to no cause of action, either for deceit, or for equitable relief. Otherwise any breach of contract would call for such a remedy. The mere breach of a promise is never enough...