In re TelexFree Sec. Litig.
| Docket Number | Civil Action 4:14-md-02566-TSH |
| Decision Date | 06 December 2021 |
| Parties | IN RE TELEXFREE SECURITIES LITIGATION |
| Court | U.S. District Court — District of Massachusetts |
ORDER AND MEMORANDUM ON PLAINTIFFS' MOTION TO AMEND (Docket No. 983)
The plaintiffs in the TelexFree multidistrict litigation move to amend their complaint. (Docket No. 983). They seek to add approximately two dozen new defendants, revive claims against five dismissed defendants, add a new claim with respect to six current defendants, and add a new named plaintiff. For the following reasons, the Court grants in part and denies in part the motion.
TelexFree was a pyramid scheme that operated from February 2012 to April 2014 and involved approximately two million participants worldwide, nearly a million of whom suffered a net financial loss. Plaintiffs filed actions in federal district courts across the United States seeking to recover their losses against dozens of defendants, ranging from the operators of the scheme to their advisors, payment processors, and banks. In October 2014, the Judicial Panel on Multidistrict Litigation joined the actions into a multidistrict litigation and ordered transfer of all actions to the District of Massachusetts for coordinated pretrial proceedings.
In March 2015, the plaintiffs filed their first consolidated complaint. That same month, the Court stayed discovery in favor of criminal proceedings.[1] In April 2015, the plaintiffs filed, as of right, an amended complaint. See Fed R. Civ. P. 15(a)(1). In June 2015, many of the defendants moved to dismiss. In September 2015, the plaintiffs moved to amend to file a third consolidated complaint, an effort to add as defendants a putative class of individuals involved in the scheme who gained, as opposed to lost, money; the Court denied the motion. In April 2017, the plaintiffs moved to amend to file a fourth consolidated complaint to add nineteen new defendants; the Court granted the motion. In January 2019, the Court lifted the stay on discovery and addressed the defendants' motions to dismiss, granting some and denying others.
In September 2019, the Court entered a scheduling order, setting a November 2019 deadline for amended pleadings. On the day amended pleadings were due, the plaintiffs filed a fifth consolidated complaint, adding another nineteen new defendants. Simultaneously, the plaintiffs moved for reconsideration of the dismissal orders of defendants Bank of America, N.A. (“Bank of America”), TD Bank, N.A. (“TD Bank”), Wells Fargo Bank, N.A. (“Wells Fargo Bank”), and PricewaterhouseCoopers, LLP (“PwC”), each of which had been dismissed for failure to state a claim, and defendant Global Payroll Gateway, Inc. (“GPG”), which had been dismissed for lack of personal jurisdiction. The plaintiffs filed a corrected fifth consolidated complaint on December 4, 2019. In March 2020, the Court denied the motion for reconsideration as to defendants Bank of America, TD Bank Wells Fargo Bank, and PwC. As to defendant GPG, the Court reserved ruling on the motion and granted the plaintiffs an opportunity to conduct jurisdictional discovery.
The Court also struck the fifth consolidated complaint, noting plaintiffs' counsel's failure to follow procedural rules. See Local Rule 15.1 (). On April 3 2020, the plaintiffs moved for clarification of the order, requesting leave to file an additional motion to amend. The following week, the Court granted the motion, stating that the plaintiffs could move for leave to amend to file a fifth consolidated complaint by April 30, 2020. The Court later extended the deadline to May 14, 2020. The plaintiffs filed their motion, which is now before the Court, on May 19, 2020. As mentioned, the proposed amended complaint seeks, among other things, to add two dozen new defendants, revive claims against dismissed defendants Bank of America, TD Bank, Wells Fargo Bank, PwC, and GPG, and add a new claim with respect to six defendants.
Under the Federal Rules of Civil Procedure, a plaintiff may amend her complaint once as of right. See Fed. R. Civ. P. 15(a)(1). Otherwise, proposed amendments require the defendant's consent or the court's leave. See Fed. R. Civ. P. 15(a)(2). Courts must freely grant leave to amend unless the amendment “would be futile, or reward, inter alia, undue or intended delay.” See Resolution Trust Corp. v. Gold, 30 F.3d 251, 253 (1st Cir. 1994); Northeast Federal Credit Union v. Neves, 837 F.2d 531, 534 (1st Cir. 1988). An amendment is futile if (at this stage of litigation) it fails to state a claim upon which relief can be granted. See Parker v. Landry, 935 F.3d 9, 13 (1st Cir. 2019); Glassman v. Computervision Corp., 90 F.3d 617, 623 (1st Cir. 1996). “Regardless of the context, the longer a plaintiff delays, the more likely the motion to amend will be denied, as protracted delay, with its attendant burdens on the opponent and the court, is itself a sufficient reason for the court to withhold permission to amend.” Steir v. Girl Scouts of the USA, 383 F.3d 7, 12 (1st Cir. 2004).
The permissive “freely given” standard gives way to a heightened “good cause” standard when a court enters a scheduling order setting a deadline for motions to amend, and the plaintiff misses that deadline. See Miceli v. JetBlue Airways Corp., 914 F.3d 73, 86 (1st Cir. 2019); Fed.R.Civ.P. 16(b)(4). This heightened standard “preserves the integrity and effectiveness of Rule 16(b) scheduling orders.” O'Connell v. Hyatt Hotels of P.R., 357 F.3d 152, 155 (1st Cir. 2004). “The ‘good cause' standard focuses on both the conduct of the moving party and the prejudice, if any, to the nonmovant.” Miceli, 914 F.3d at 86. The moving party's diligence, or lack thereof, is the primary consideration. Id. A motion to amend may be denied for a lengthy and unexplained delay, especially where the information supporting the amendment was known, or should have been known, to the moving party earlier. See id.; Cruz v. Bristol-Myers Squibb Co., P.R., Inc., 699 F.3d 563, 570 (1st Cir. 2012); Trans-Spec Trick Serv., Inc. v. Caterpillar Inc., 524 F.3d 315, 327 (1st Cir. 2008); O'Connell, 357 F.3d at 155-56. A mistake by counsel does not itself establish good cause. See O'Connell, 357 F.3d at 155. Ultimately, the decision whether to allow a motion to amend is within the court's discretion. D'Agostino v. EV3, Inc., 802 F.3d 188, 191-92 (1st Cir. 2015) ().
Here, the “freely given” standard applies. While the Court's initial scheduling order set the deadline to file motions to amend by November 29, 2019, the Court later permitted the plaintiffs to file an additional motion to amend by April 30, 2020, which the Court further extended to May 14, 2020. On May 14, 2020, the plaintiffs filed a motion for leave to exceed the page limit on their memorandum in support of their motion to amend, attaching the motion to amend and the proposed complaint. On May 19, 2020, the plaintiffs formally filed their motion to amend. The Court construes the plaintiffs' filings with respect to the instant motion as meeting the applicable deadlines set by the Court.
i. Estate of Babener
Defendant Jeffrey Babener died in March 2020. Accordingly, the proposed complaint seeks to replace him with his estate, the Estate of Jeffrey A. Babener. The Estate argues that the amendment would be futile because the plaintiffs' claims against Babener do not survive his death under Massachusetts law. (Docket No. 1003 at 1). The proposed complaint asserts eight claims against the Estate: (1) violations of M. G. L. c. 93, §§ 12 and 69, (2) violations of M. G. L. c. 93A, §§ 2 and 11, (3) civil conspiracy, (4) negligent misrepresentation, (5) violations of M. G. L. c. 110A, § 410(b), (6) fraud, (7) tortious adding and abetting, and (8) unjust enrichment.
The plaintiffs argue that Oregon law, rather than Massachusetts law, applies. (Docket No. 1065 at 1). As an initial matter, see Levin v. Delva Brothers, Inc., 459 F.3d 68, 73 (1st Cir. 2006), there is an actual conflict between the substantive law of Oregon and Massachusetts. In Oregon, all causes of action survive against the personal representative of a deceased defendant. See ORS 115.305. In Massachusetts, only certain causes of action survive, whether by statute or common law. See M. G. L. c. 228, § 1; Kraft Power Corp. v. Merrill, 981 N.E.2d 671, 679 (Mass. 2013).
The proposed complaint, seeking to add Estate of Babener as a party, was filed directly in the multidistrict litigation.[2] See Axline v. 3M Co., 2018 WL 4300535, at *2 (D. Minn. Sept. 10, 2018). Although the multidistrict litigation prevented the plaintiffs from filing elsewhere, there is no indication in the complaint that the plaintiffs desired to do so. Cf. In re Fresenius Granuflo/NaturaLyte Dialysate Prods. Liab. Litig., 76 F.Supp.3d 294, 304 (D. Mass. 2015). Indeed, the complaint alleges that jurisdiction and venue in Massachusetts is proper. See Wahl v. General Elec. Co., 786 F.3d 491, 497 (6th Cir. 2015). Accordingly, the Court will apply Massachusetts choice-of-law principles. See In re Volkswagen Audi Warranty Extension Litig., 692 F.3d 4, 17 (1st Cir. 2012).
Massachusetts courts apply a “functional approach to choice of law ” Levin, 459 F.3d at 74 (quoting Bushkin Assocs., Inc. v. Raytheon Co., 473 N.E.2d 662, 668 (Mass. 1985)), guided by the Restatement (Second) of Conflict of Laws (1971), see McKee v. Cosby, 874 F.3d 54, 60 (1st Cir. 2017). Massachusetts courts look to ...
To continue reading
Request your trial