Wilson v. Telagility Corp., Civil Action No. GLR-17-1236

GEORGE WILSON, Plaintiff, v. TELAGILITY CORP., et al., Defendants.

Civil Action No. GLR-17-1236

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND

June 7, 2019

MEMORANDUM OPINION

THIS MATTER is before the Court on Plaintiff George Wilson's Motion for Leave to File First Amended Complaint (ECF No. 32) and Defendant Adam Cole's Motion to Dismiss (ECF No. 24). The Motions are ripe for disposition, and no hearing is necessary. See Local Rule 105.6 (D.Md. 2018). For the reasons outlined below, the Court will grant Wilson's Motion and grant Cole's Motion.

I. BACKGROUND¹

In 2014 and 2015, Defendant TelAgility Corp. ("TelAgility") was seeking $500,000.00 in capital funds to start operations. (Compl. ¶¶ 5-6, ECF No. 1). In exchange for the capital funds, investors would receive common stock in the company. (Id.). Wilson learned of the opportunity to invest with TelAgility after speaking with Cole, who was on the company's Board of Directors and was also a 78% shareholder. (Id. ¶ 7; Compl. Ex. 5at 13, ECF No. 1-5).² After a conversation with Cole, Wilson "transmitted $200,000 to TelAgility," in four equal monthly installments from December 2015 to March 2016, in exchange for a 2% equity ownership interest in the company. (Compl. ¶ 7). In return for his investment, Cole promised Wilson investment paperwork, but Wilson only received an incomplete "Second Subscription Agreement and Second Private Placement Memorandum." (Id. ¶ 8).

On June 12, 2016, after failing to receive any documentation memorializing his investment, Wilson contacted board members Cole and Rob Dawson, as well as TelAgility's Operations Manager, Tiffaney Adams. (Id. ¶ 9). On July 19, 2016, Dawson responded to Wilson stating that he had instructed Cole to "prepare a document [outlining] the financial/business arrangement between TelAgility" and Wilson, and to have the documents reflect that Wilson "currently owns 2% of the company." (Id. ¶ 10; Compl. Ex. 7 at 1-2, ECF No. 1-7). On October 26, 2016, after Cole failed to provide Wilson with any recognition of his investment, Wilson sent a demand letter to Cole for the return of his $200,000.00. (Compl. ¶ 12; Compl. Ex. 8, ECF No. 1-8). TelAgility responded that the funds were to be "treated as a loan," but neither the documentation Wilson received, nor the conversations Wilson had with Cole, indicated that the transaction was a loan. (Compl. ¶ 13).

On May 5, 2017, Wilson sued TelAgility and Cole. (ECF No. 1). The four-count Complaint alleges: Breach of Oral Contract (Count I); Detrimental Reliance (Count II);Fraudulent Misrepresentation (Count III); and Unjust Enrichment (Count IV). (Id. ¶¶ 15-32). Wilson seeks the repayment of his full investment, plus interest, costs, and reasonable attorneys' fees. (Id. at 6).

On June 14, 2017, Defendants filed an Answer. (ECF No. 11). On June 15, 2017, the Court issued a Scheduling Order. (ECF No. 13-1). Under the Scheduling Order, Wilson had until July 31, 2017 to amend his pleadings or add new parties. (Scheduling Order at 2, ECF No. 13-1).

On November 28, 2017, the parties participated in a mediation. One day before the mediation, Cole filed his Motion to Dismiss.³ (ECF No. 24).⁴ On January 5, 2018, the Court issued an Order staying this case. (Jan. 5, 2018 Mem., ECF No. 26). On July 2, 2018, the parties filed a Joint Status Report requesting that the stay be lifted and that Wilson be given sixty days to respond to Cole's Motion. (July 2, 2018 Ltr., ECF No. 28). On July 3, 2018, the Court lifted the stay and granted Wilson's request. (July 3, 2018 Order, ECF No. 29). Wilson filed an Opposition on August 31, 2018. (ECF No. 31). To date, the Court has no record that Cole filed a Reply.

Also on August 31, 2018, Wilson filed a Motion for Leave to File First Amended Complaint. (ECF No. 32). Defendants filed an Opposition on September 14, 2018. (ECF No. 33). On September 21, 2018, Wilson filed a Reply. (ECF No. 34).⁵

II. DISCUSSION

A. Motion for Leave to File First Amended Complaint

Wilson requests leave of the Court to amend his Complaint to add two counts: (1) Securities Fraud in Violation of 15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5; and (2) Maryland Securities Fraud. (1st Am. Compl. ¶¶ 27-41, ECF No. 35-2). Wilson also adds factual allegations to support his new claims and adds Cole to his prayer for relief. (Id. ¶¶ 9-10, 19-26, at 13). Defendants make three arguments in favor of denying Wilson's Motion: (1) Wilson fails to demonstrate good cause under Federal Rule of Civil Procedure 16(b) for amending his Complaint; (2) Defendants would be prejudiced by the filing of the First Amended Complaint; and (3) the proposed amendments are futile as to Cole. The Court disagrees with Defendants.

If a plaintiff moves to amend his complaint after the scheduling order deadline for amendments has passed, "a tension exists" between Federal Rules of Civil Procedure 15(a) and 16(b). Fid. & Guar. Life Ins. Co. v. United Advisory Grp., Inc., No. WDQ-13-0040, 2016 WL 158512, at *2 (D.Md. Jan. 12, 2016). Rule 15(a) provides that leave to amend "shall be freely given when justice so requires" absent bad faith, futility, or prejudice, seeEdell & Assocs., P.C. v. Law Offices of Peter G. Angelos, 264 F.3d 424, 446 (4th Cir. 2001) (citing Edwards v. City of Goldsboro, 178 F.3d 231, 242 (4th Cir. 1999)), while Rule 16(b) dictates that the Court will not modify a scheduling order without "a showing of good cause," Fed.R.Civ.P. 16(b). The United States Court of Appeals for the Fourth Circuit resolved this tension, holding that if the scheduling order deadline for amending pleadings has passed, the good cause standard governs. Nourison Rug Corp. v. Parvizian, 535 F.3d 295, 298 (4th Cir. 2008) (collecting cases). As a result, a party moving for leave to amend his pleading must first establish good cause under Rule 16(b) before the Court will consider the Rule 15(a)(2) factors. Fid. & Guar. Life Ins. Co., 2016 WL 158512, at *2; Prowess, Inc. v. RaySearch Labs., AB, 953 F.Supp.2d 638, 648 (D.Md. 2013) (citing Nourison, 535 F.3d at 298).

1. Good Cause

The good cause analysis under Rule 16(b)(4) is "less concerned with the substance of the proposed amendment" and focuses instead on "the timeliness of the amendment and the reasons for its tardy submission." Rassoull v. Maximus, Inc., 209 F.R.D. 372, 373-74 (D.Md. 2002). Indeed, "[t]he primary consideration of the Rule 16(b) 'good cause' standard is the diligence of the movant." Id. at 374. "Lack of diligence and carelessness are 'hallmarks of failure to meet the good cause standard.'" Id. (quoting W.Va. Hous. Dev. Fund v. Ocwen Tech. Xchange, Inc., 200 F.R.D. 564, 567 (S.D.W.Va. 2001)). If a party was not diligent in seeking to modify the scheduling order, "the inquiry should end." Id. (quoting Marcum v. Zimmer, 163 F.R.D. 250, 254 (S.D.W.Va. 1995)).

Good cause exists for amending a complaint after the scheduling order deadline when "at least some of the evidence needed for a plaintiff to prove his or her claim did not come to light until after the amendment deadline." Tawwaab v. Va. Linen Serv., Inc., 729 F.Supp.2d 757, 768 (D.Md. 2010); see also Prowess, 953 F.Supp.2d at 648 ("Rule 16(b) good cause exists when, inter alia, a party 'uncover[s] previously unknown facts during discovery that would support an additional cause of action.'" (alteration in original) (quoting Forstmann v. Culp, 114 F.R.D. 83, 86 n.1 (M.D.N.C. 1987)). The Court may consider the following factors when determining whether a party has established good cause: "danger of prejudice to the non-moving party, the length of delay and its potential impact on judicial proceedings, the reason for the delay, and whether the movant acted in good faith." Tawwaab, 729 F.Supp.2d at 768-69 (quoting Rothenberg v. Marriott Int'l, Inc., No. CCB-08-173, 2008 WL 687033, at *1 (D.Md. Feb. 29, 2008)).

Defendants argue that the Court should deny Wilson's Motion because he did not move to amend his Complaint until several months after the July 31, 2017 deadline for doing so and he has failed to make the threshold showing of good cause. Although Wilson moved to amend his Complaint more than a year after the Scheduling Order deadline for doing so had passed, Wilson establishes good cause for his delay for at least three reasons.

First, Wilson asserts that Defendants "withheld all financial records, including but not limited to profit and loss statements, income statements, balance statements, [and] audited and unaudited financial statements." (Reply Supp. Pl.'s Mot. Leave to File 1st Am. Compl. ["Pl.'s Reply"] ¶ 3, ECF No. 34). Indeed, the United States Magistrate Judge stayed this case "for the purpose of providing Defendants time to produce financial documentationto [Wilson]" as discussed at the mediation. (July 2, 2018 Ltr. at 1). TelAgility purportedly received draft financial statements from its accountant on March 1, 2018, but the statements "contained numerous errors and otherwise were not in a form that could be shared with [Wilson]." (Id.). As of July 2, 2018, Wilson still had "not received [the financial] documentation." (Id.). Thus, as of the July 31, 2017 deadline to amend pleadings, Wilson did not have the information that provides the basis for his new claims.

Second, on October 11, 2017, Wilson sent Defendants a discovery request for "corporate books and records." (1st Am. Compl. ¶ 20). Defendants did not respond to this request until August 29, 2018, when they produced "what appear to be internally created balance sheets and profit and loss statements for 2016, 2017, and a partial profit and loss statement for 2018." (Id.). Wilson filed his Motion on August 31, 2018—two days later. Further, Defendants still have not provided Wilson with financial statements from TelAgility's accountant as discussed at the mediation. (Id. ¶ 26). The Court, therefore, cannot say that Wilson delayed in amending his Complaint when he promptly moved to do so after he received information that provides...