JPMorgan Chase Bank, N.A. v. KB Home

• Decision Date: 27 September 2010
• Docket Number: No. 2:08-CV-01711-PMP-RJJ,2:08-CV-01711-PMP-RJJ
• Citation: 740 F.Supp.2d 1192
• Parties: JPMORGAN CHASE BANK, N.A., Plaintiff, v. KB HOME et al., Defendants. And All Related Actions.
• Court: U.S. District Court — District of Nevada

740 F.Supp.2d 1192

JPMORGAN CHASE BANK, N.A., Plaintiff,

v.KB HOME et al., Defendants.And All Related Actions.

No. 2:08-CV-01711-PMP-RJJ.

United States District Court,

D. Nevada.

Sept. 27, 2010.

Damion Stodola, James E. Hough, Jamie A. Levitt, Morrison & Foerster LLP, New York, NY, Allyson R. Noto, Jeffrey R. Sylvester, Sylvester & Polednak, Ltd., Las Vegas, NV, Bruce E. Van Dalsem, Quinn Emanuel Urquhart Oliver & Hedges, LLP, Los Angeles, CA, for Plaintiff.

Bruce E. Van Dalsem, Erica P. Taggart, Johanna Y. Ong, Michael T. Lifrak, Quinn Emanuel Urquhart Oliver & Hedges, LLP, Bryan A. Merryman, Roberto J. Kampfner, White & Case LLP, Benjamin D. Lichtman, Mark T. Drooks, Thomas V. Reichert, Bird, Marella, Boxer, Wolpert, Nessim, Drooks, et al., Los Angeles, CA, Donald A. Lattin, Maupin, Cox & Legoy, Patricia K. Lundvall, McDonald Carano Wilson LLP, Reno, NV, Andrew J. Detherage, Karoline E. Jackson, Monica R. Brownewell Smith, Barnes & Thornburg LLP, Indianapolis, IN, Megan K. Dorsey, Koeller Nebeker Carlson & Haluck, LLP, Christopher H. Byrd, Craig S. Newman, Fennemore Craig, Anthony P. Sgro, Laurie L. Morris, The Law Office of Patti, Sgro & Lewis, Las Vegas, NV, Douglas C. Northup, Fennemore Craig PC, Phoenix, AZ, Fredric C. Nelson, John R. Foote, Matthew A. Richards, Nixon Peabody LLP, San Francisco, CA, for Defendants.

ORDER

PHILIP M. PRO, District Judge.

Presently before the Court is Defendants' Motion for Leave to File a Counterclaim and a Third Party Complaint (Doc. # 230), filed on February 12, 2010. Defendant John A. Ritter filed an Opposition (Doc. # 239) on March 17, 2010. Plaintiff JPMorgan Chase Bank, N.A. ("JPMorgan") filed an Opposition (Doc. # 240) on March 17, 2010. Defendants filed Replies (Doc. # 245, # 246) on March 26, 2010. The parties also filed supplemental briefing (Doc. # 270, # 307, # 314, # 319). The Court held a hearing on this motion onAugust 6, 2010. (Mins. of Proceedings (Doc. # 324).)

The parties are familiar with the factual predicate for this case, and the Court will not repeat the facts here except where necessary. Defendant home builders ("Builders") contend they have discovered, through discovery in the arbitration proceeding, that JPMorgan and Focus South Group, LLC ("Focus"), which is one of the members of South Edge, LLC ("South Edge"), entered into a Cooperation Agreement under which JPMorgan would fund Focus's pursuit of arbitration against the other members of South Edge, award Focus a success fee, and release Focus and Focus's principal, John Ritter ("Ritter") from certain claims. Builders contend this agreement induced Focus to breach South Edge's Operating Agreement and gives rise to a variety of claims against JPMorgan and the other lenders, for which JPMorgan acts as Administrative Agent, as well as against Focus and Ritter.

Builders therefore seek to amend to add counterclaims against JPMorgan, Focus, Focus's principal Ritter, and other lenders Wachovia Bank, Royal Bank of Scotland, Eaton Vance Management Co., and Hyland Capital Management, L.P. Builders seek to add counterclaims for (1) tortious interference with contract, (2) breach of the implied covenant of good faith and fair dealing, (3) champerty, and (4) declaratory relief. JPMorgan and the other lenders, and Focus and Ritter separately oppose the motion to amend. JPMorgan and Focus admit they entered into the Cooperation Agreement, but deny there is anything actionable about their conduct. JPMorgan and the other lenders, and Focus and Ritter oppose the motion to amend as futile for various reasons.

Generally, a plaintiff may amend his or her complaint once "as a matter of course" within twenty-one days after serving it, or twenty-one days after service of a responsive pleading or motion. Fed.R.Civ.P. 15(a)(1). In all other cases, a party may amend its pleading only by leave of court or by written consent of the adverse party. Fed.R.Civ.P. 15(a)(2). "The Court should freely give leave when justice so requires." Id.; see also Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962) ( "Rule 15(a) declares that leave to amend 'shall be freely given when justice so requires'; this mandate is to be heeded."). The Court considers five factors in deciding whether to grant leave to amend: "(1) bad faith, (2) undue delay, (3) prejudice to the opposing party, (4) futility of amendment, and (5) whether plaintiff has previously amended his complaint." Allen v. City of Beverly Hills, 911 F.2d 367, 373 (9th Cir.1990) (citing Ascon Props., Inc. v. Mobil Oil Co., 866 F.2d 1149, 1160 (9th Cir.1989)). The futility analysis determines whether the proposed amendment would survive a challenge of legal insufficiency under Federal Rule of Civil Procedure 12(b)(6). Miller v. Rykoff-Sexton, Inc., 845 F.2d 209, 214 (9th Cir.1988).

A. Tortious Interference With Contract

Under Nevada law, to state a claim for intentional interference with contractual relations, a plaintiff must allege:

(1) a valid and existing contract; (2) the defendant's knowledge of the contract; (3) intentional acts intended or designed to disrupt the contractual relationship; (4) actual disruption of the contract; and (5) resulting damage.

J.J. Indus., LLC v. Bennett, 119 Nev. 269, 71 P.3d 1264, 1267 (2003). The defendant's "mere knowledge of the contract is insufficient to establish that the defendant intended or designed to disrupt the plaintiff's contractual relationship; instead, theplaintiff must demonstrate that the defendant intended to induce the other party to breach the contract with the plaintiff." Id. at 1268.

The proposed counterclaim alleges that JPMorgan knew about South Edge's Operating Agreement and intended to disrupt it by inducing and encouraging Focus to take improper corporate action by unilaterally acting as South Edge, noticing the default of the Builders, and authorizing itself to bring an arbitration on South Edge's behalf. The proposed counterclaim further alleges JPMorgan induced Focus to misappropriate Focus's major infrastructure deposit, contrary to the Operating Agreement's terms. The proposed counterclaim alleges Focus in fact took these actions, resulting in damages. Additionally, Builders allege JPMorgan induced Focus to make its affiliate, Holdings Manager, breach the Operating Agreement. In supplemental briefing, Builders argue the Arbitration Award fully supports this claim, as the Panel found Focus could not act as a quorum of one and initiate the arbitration proceeding on South Edge's behalf.

JPMorgan responds that amendment to add this counterclaim is futile because (1) there can be no liability for inducing Focus to pursue a colorable legal claim; (2) Builders do not and cannot allege JPMorgan acted with malicious intent; and (3) Builders cannot allege damages. Focus and Ritter add the argument that a party cannot tortiously interfere with its own contract.

1. Colorable Legal Claim

Nevada has not addressed whether a party may tortiously interfere with a contract by inducing the contracting party to pursue legal action on the contract. "Where the state's highest court has not decided an issue, the task of the federal courts is to predict how the state high court would resolve it." Giles v. Gen. Motors Acceptance Corp., 494 F.3d 865, 872 (9th Cir.2007) (quotation omitted). "In answering that question, this court looks for 'guidance' to decisions by intermediate appellate courts of the state and by courts in other jurisdictions." Id. (quotation omitted).

Nevada looks to "the law of other jurisdictions, particularly California, for guidance." Crockett & Myers, Ltd. v. Napier, Fitzgerald & Kirby, LLP, 583 F.3d 1232, 1237 (9th Cir.2009). California has compared a claim that a person tortiously interferes with a contract by inducing litigation to a malicious prosecution claim. See Pac. Gas & Elec. Co. v. Bear Stearns & Co., 50 Cal.3d 1118, 270 Cal.Rptr. 1, 791 P.2d 587, 593-94 (1990). For a malicious prosecution claim to be actionable, the plaintiff must have been forced "to expend financial and emotional resources to defend against a baseless claim.... The bringing of a colorable claim is not actionable." Id. (emphasis omitted). California applied this same rule to a tortious interference claim because permitting "a cause of action for interference with contract or prospective economic advantage to be based on inducing potentially meritorious litigation on the contract would threaten free access to the courts by providing an end run around the limitations on the tort of malicious prosecution." Id., 270 Cal.Rptr. 1, 791 P.2d at 598.

California therefore has held that "a plaintiff seeking to state a claim for intentional interference with contract or prospective economic advantage because defendant induced another to undertake litigation, must allege that the litigation was brought without probable cause and that the litigation concluded in plaintiff's favor." Id.;see also Mantia v. Hanson, 190 Or.App. 412, 79 P.3d 404, 414 (2003) (holding "the prosecution of unfounded litigationconstitutes actionable 'improper means' for purposes of tortious interference where (1) the plaintiff in the antecedent proceedings lacked probable cause to prosecute those proceedings; (2) the primary purpose of those proceedings was something other than to secure an adjudication of the claims asserted there; and (3) the antecedent proceedings were terminated in favor of the party now asserting the tortious interference claim"). The Restatement (Second) of Torts § 767 comment c recognizes that the prosecution of a civil suit may be deemed tortious "if the actor has no belief in the merit of the litigation or if, though having some belief in its merit, he nevertheless institutes or threatens to institute the litigation in bad faith, intending only to harass the third parties and not to bring his claim to definitive adjudication." Nevada likely would follow this precedent, as Nevada often looks to California and the Restatement for guidance.

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