United States District Court, D. Utah, Central Division
D. RAY STRONG, as Liquidating Trustee of the Consolidated Legacy Debtors Liquidating Trust, the Castle Arch Opportunity Partners I, LLC Liquidating Trust and the Castle Arch Opportunity Partners II, LLC Liquidating Trust, Plaintiff,
KIRBY D. COCHRAN, et al., Defendants.
ORDER AND MEMORANDUM DECISION
CAMPBELL U.S. District Court Judge.
three sets of Defendants filed motions to dismiss the
original complaint, Plaintiff D. Ray Strong (Trustee) filed a
Motion for Leave to Amend Complaint (ECF No. 118). For the
reasons set forth below, the Trustee's Motion is GRANTED,
but the amendment does not completely moot the pending
motions to dismiss.
case, although two-and-a-half years old, is in its procedural
infancy. It arises out of the Chapter 11 bankruptcy of Castle
Arch Real Estate Investment Company, LLC (CAREIC) and related
October 2011, a state-appointed receiver filed voluntary
Chapter 11 bankruptcy petitions for CAREIC and related
entities in the District of Utah. The bankruptcy court
appointed Mr. Strong as the Chapter 11 Trustee for CAREIC.
the bankruptcy court issued its 2013 Confirmation Order and
confirmed the Trustee's Plan of Liquidation, the Trustee
pursued this litigation in his capacity as the
post-confirmation estate representative and liquidating
trustee of trusts formed during the bankruptcy proceedings.
He entered a series of tolling agreements with the
Defendants. Then, on October 30, 2014, he filed a complaint
(the one he now proposes to amend) asserting claims against
former managers and members of the CAREIC Board of Directors
as well as entities associated with those
October 2014, the parties have been grappling with issues
arising out of an arbitration clause in the 2007 Amended
Operating Agreement governing management of CAREIC. As the
Trustee notes, “[a]fter a long unproductive detour to
arbitration, the cases [i.e., this case and the one
consolidated into it returned to this
Court.” The Trustee was referring to the
court's January 30, 2017 order (ECF No. 92) lifting the
stay that had been in place since the court's August 20,
2015 order (ECF No. 55).
the stay lifted, the case is now moving forward on the
merits. During the last three months the parties held an
attorneys' planning meeting, filed a planning meeting
report, and either answered the complaint or filed motions to
dismiss. In addition, on April 24, 2017, the court entered a
scheduling order (ECF No. 136) following the parties'
April 12, 2017 initial pretrial conference.
some of the Defendants filed motions to dismiss challenging
the adequacy of the Trustee's pleading under Federal
Rules of Civil Procedure 8 and 9(b) and raising statute of
limitations issues,  the Trustee filed his motion to amend. His
proposed amended complaint would substantially narrow the
case. The original complaint asserts nineteen causes of
action consisting of a breach of fiduciary duty claim, seven
fraud-based claims based on state and federal law (including
civil conspiracy and a state RICO claim), eight claims
seeking avoidance of fraudulent transfers, one claim for
disallowance of bankruptcy claims, and two claims in equity
(constructive trust and unjust enrichment). The proposed
amended complaint asserts nine causes of action, including
the original claims for breach of fiduciary duty, violation
of state (but not federal) securities laws, violation of
state RICO laws, civil conspiracy, disallowance of claims,
and equitable relief, and a new claim against Jeff Austin
based on his alleged sale of securities without a license.
Trustee's proposed amended complaint winnows down the 440
paragraphs in the original complaint to 332 paragraphs. And
the Trustee merges into the proposed amended complaint the
parallel allegations from the complaint consolidated into
this case from Strong v. Geringer, Case No.
Trustee also says that he has bolstered the original
allegations with more details so that he satisfies the
pleading standards of Rules 8 and 9(b) of the Federal Rules
of Civil Procedure. Three sets of Defendants oppose the
motion on the ground that amending the complaint would be
futile because it does not correct the pleading and statute
of limitations problems raised in the motions to dismiss.
Defendants Robert Clawson and Hybrid Advisory Group (the
“Clawson Defendants”) also oppose the motion on
the bases that the Trustee unduly delayed filing the motion,
the Trustee acted in bad faith, and the Trustee's
proposed amendment would unfairly prejudice them.
15(a)(2) of the Federal Rules of Civil Procedure provides
that leave to amend shall be “freely give[n] . . . when
justice so requires.” This is a liberal standard, as
“[t]he purpose of [Rule 15] is to provide litigants the
maximum opportunity for each claim to be decided on its
merits rather than on procedural niceties.” Minter
v. Prime Equip. Co., 451 F.3d 1196, 1204 (10th Cir.
2006) (internal quotation marks omitted).
In the absence of any apparent or declared reason-such as
undue delay, bad faith or dilatory motive on the part of the
movant, repeated failure to cure deficiencies by amendments
previously allowed, undue prejudice to the opposing party . .
., futility of an amendment, etc.-the leave ...