Health Care Integrity, LLC v. Rehoboth Mckinley Christian Health Care Servs.

• Decision Date: 09 September 2021
• Docket Number: Civ. 20-750 KG/LF
• Parties: HEALTHCARE INTEGRITY, LLC, and DAVID CONEJO, Plaintiffs, v. REHOBOTH MCKINLEY CHRISTIAN HEALTH CARE SERVICES, INC. et al., Defendants.
• Court: U.S. District Court — District of New Mexico

HEALTHCARE INTEGRITY, LLC, and DAVID CONEJO, Plaintiffs, v. REHOBOTH MCKINLEY CHRISTIAN HEALTH CARE SERVICES, INC. et al., Defendants.

Civ. No. 20-750 KG/LF

United States District Court, D. New Mexico

September 9, 2021

MEMORANDUM OPINION AND ORDER

THIS MATTER is before the Court on (1) Defendants' Motion to Dismiss and Supporting Memorandum, (Doc. 26); (2) Defendants' Motion to Strike Exhibits Attached to Plaintiffs' Amended Response to Defendants' Motion to Dismiss and Any References to the Exhibits in Plaintiffs' Amended Response, (Doc. 39); and (3) Plaintiffs' Motion for Leave to File Second Amended Complaint, (Doc. 45). Having reviewed the submissions of the parties and the relevant law the Court will GRANT Plaintiffs' Motion for Leave to File Second Amended Complaint, (Doc. 45). Because Defendants' Motion to Dismiss and Motion to Strike relate to a pleading that will be superseded by the filing of the Second Amended Complaint, they will be DENIED AS MOOT.

BACKGROUND

This case involves claims arising from Plaintiff David Conejo's June 2020 termination as Chief Executive Officer of Rehoboth McKinley Christian Health Care Services, Inc. (“RMCHCS”) and the simultaneous termination of the Management Agreement between Plaintiff Conejo's company, Plaintiff Health Care Integrity, LLC (“HCI”), and RMCHCS. Plaintiffs allege that a group of medical providers at RMCHCS-led by Defendant Valory Wangler, RMCHCS' Chief Medical Officer (“CMO Wangler”)-intentionally sought and secured Plaintiffs' ouster through a campaign of false and misleading information regarding Plaintiffs' purported mismanagement of staffing and finances during the early days and weeks of the COVID-19 crisis. According to Plaintiffs CMO Wangler was motivated by a desire to replace Plaintiff Conejo as CEO and secure a lucrative management agreement for her own company. Plaintiffs bring claims under federal and state law against CMO Wangler, other medical providers whom Plaintiffs allege engaged in a conspiracy with CMO Wangler and the RMCHCS Board of Trustees, which Plaintiffs allege was complicit in CMO Wangler's efforts to oust them. See (Doc. 45-1).

Plaintiffs originally filed suit on July 23, 2020, and filed an Amended Complaint as a matter of right on August 9, 2020. See (Docs. 1, 4). On November 12, 2020, Defendants moved to dismiss the Amended Complaint in its entirety. See (Doc. 26). On May 25, 2021, Plaintiffs sought leave to file a second amended complaint, a request that Defendants oppose. See (Docs. 45, 46, 48).

STANDARD

Under Federal Rule of Civil Procedure 15(a)(2), “a party may amend its pleadings only with the opposing party's written consent or the court's leave.” Rule 15(a)(2) makes explicit that “[t]he court should freely give leave when justice so requires.” Fed.R.Civ.P 15(a)(2). The purpose of Rule 15(a)(2) is to provide litigants “the maximum opportunity for each claim to be decided on its merits rather than on procedural niceties.” Hardin v. Manitowoc-Forsythe Corp., 691 F.2d 449, 456 (10th Cir. 1982). “Refusing leave to amend is generally only justified upon a showing of undue delay, undue prejudice to the opposing party, bad faith or dilatory motive, failure to cure deficiencies by amendments previously allowed, or futility of amendment.” Frank v. U.S. West, Inc., 3 F.3d 1357, 1365-66 (10th Cir. 1993) (citations omitted).

DISCUSSION

Defendants argue that the Court should deny Plaintiffs' request for leave to file their proposed Second Amended Complaint (“proposed SAC”) because (1) Defendants will be unduly prejudiced by allowing amendment, (2) Plaintiffs unduly delayed seeking leave to amend, (3) amendment would be futile, and/or (4) Plaintiffs are acting in bad faith or with a dilatory motive. (Doc. 46). The Court considers each argument in turn.

1. Prejudice

The most important factor in deciding a motion to amend the pleadings is “whether the amendment would prejudice the nonmoving party.” Minter v. Prime Equip. Co., 451 F.3d 1196, 1207 (10th Cir. 2006); see Bylin v. Billings, 568 F.3d 1224, 1229 (10th Cir. 2009) (“Rule 15 was designed to facilitate the amendment of pleadings except where prejudice to the opposing party would result.” (alteration, quotation marks, and citation omitted)). “Courts typically find prejudice only when the amendment unfairly affects the defendants in terms of preparing their defense to the amendment.” Minter, 451 F.3d at 1208 (quotation marks and citation omitted); see Hirt v. Unified Sch. Dist. No. 287, 308 F.Supp.3d 1157, 1168 (D. Kan. 2018) (“Under Rule 15, undue prejudice means undue difficulty in prosecuting or defending a lawsuit as a result of a change of tactics or theories on the part of the movant.” (quotation marks and citation omitted)). “Most often, this occurs when the amended claims arise out of a subject matter different from what was set forth in the complaint and raise significant new factual issues.” Minter, 451 F.3d at 1208. “While any amendment invariably causes some practical prejudice, undue prejudice means that the amendment would work an injustice to the defendants.” Hirt, 308 F.Supp.3d at 1168 (quotation marks and citation omitted).

Plaintiffs seek to make several changes to their complaint, including adding two claims under 42 U.S.C. § 1983 for alleged deprivations of Plaintiffs' Fourteenth Amendment right to procedural due process. Defendants do not argue that the new claims arise out of a subject matter different from what was set forth in the Amended Complaint. Quite clearly, the Section 1983 claims-which are premised on allegations that the RMCHCS Board deprived Plaintiffs of their liberty interest in their good names and their property interest in continued employment without due process of law in terminating the Management Agreement-arise out of the same subject matter set forth, and involve the same actors named, in the Amended Complaint.

Rather, Defendants contend that the prejudice to them is “apparent” based on the facts that the proposed Second Amended Complaint adds two new claims, revises one of the original claims asserted, and adds nearly 100 new factual allegations. (Doc. 46) at 5. Pointing to the Motion to Dismiss they filed in response to the Amended Complaint, Defendants argue that they “have made significant efforts in forming their defense to the claims in the Amended Complaint over the past year” and, further, that Plaintiffs should not be allowed to raise new claims “at this late time after Defendants have fully addressed the legal infirmities of the Amended Complaint.” Id. at 6. The Court is not persuaded.

This case is still in the early stages of the proceedings; there is no scheduling order in place; discovery has not yet commenced; and Defendants have pointed to nothing that even arguably suggests that they will be unfairly affected in terms of being able to prepare their defense to the claims asserted in the proposed amendment. The fact that Defendants elected to seek early dismissal of this case, formed a defense to a particular claim, and may now have to formulate different or additional arguments does not work an injustice to Defendants. See Bylin, 568 F.3d at 1230 (noting that “the expenditure of time, money, and effort alone is not grounds for a finding of prejudice”). The Court sees no basis for finding that allowing Plaintiffs leave to amend will unduly prejudice Defendants.

2. Undue Delay

Defendants next argue that the Court should deny leave to amend because “the allegations in the Second Amended Complaint were known by Plaintiffs at the time of filing the original Complaint” and because Plaintiffs have failed to provide any explanation regarding why they did not include known allegations and claims in their original complaint. (Doc. 46) at 6-9. While true that “[u]ntimeliness alone may be a sufficient basis for denial of leave to amend[, ]” Las Vegas Ice & Cold Storage Co. v. Far West Bank, 893 F.2d 1182, 1185 (10th Cir. 1990) (emphasis added), the Court disagrees that the record supports finding that Plaintiffs' “delay” in seeking leave to amend is a sufficient basis for denying their request.

“In deciding whether a delay is ‘undue,' [the court] ‘focus[es] primarily on the reasons for the delay.'” Cohen v. Lonshore, 621 F.3d 1311, 1313 (10th Cir. 2010) (quoting Minter, 451 F.3d at 1206). The Tenth Circuit has held that “denial of leave to amend is appropriate when the party filing the motion has no adequate explanation for the delay.” Id. (quotation marks and citation omitted).

Plaintiffs point out that the proposed SAC adds nearly 100 new factual allegations, adds 29 new supporting exhibits, and not only adds two new federal claims but also revises Plaintiffs' Lanham Act claim. See (Doc. 45) at 6-7. Plaintiffs state that “[o]wing to the number of new factual allegations and supporting exhibits that Plaintiffs added to the Second Amended Complaint and the specificity of those allegations, it took Plaintiffs' counsel some time to properly vet these allegations and locate and assemble the supporting exhibits.” Id. at 7. Plaintiffs additionally dispute Defendants' contention that they knew of “‘any relationship between RMCHCS and McKinley County which now forms the basis for their proposed Section 1983 claims'” at the time they filed their original complaint or the Amended Complaint. (Doc. 48) at 10 (quoting Doc. 46 at 6). According to Plaintiffs, they first received documents that would support allegations of state action necessary to support Section 1983 claims in mid-December 2020, after which they took “time to obtain and review all supporting documents and vet all the new allegations in the proposed amend[ment.]” Id. at 11-12.

The Court is satisfied with Plaintiffs' explanation. First, a comparison of the Amended Complaint...