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First Fidelity Capital Markets Inc. v. Reliant Bank

United States District Court, M.D. Tennessee, Nashville Division

October 23, 2019

RELIANT BANK, et al., Defendants.

          William L. Campbell, Jr., Judge.


          ALISTAIR E. NEWBERN, United States Magistrate Judge.

         Plaintiff First Fidelity Capital Markets Inc. has moved for leave to amend its complaint (Doc. No. 93). Defendants Reliant Bank, Commerce Union Bancshares, Inc., and Reliant Mortgage Ventures, LLC d/b/a Reliant Bank Mortgage Services (collectively “Reliant”) have responded in opposition (Doc. No. 96). First Fidelity has filed a reply. (Doc. No. 97.) Having considered the parties' arguments, and for the reasons that follow, First Fidelity's motion for leave to amend will be granted.

         I. Relevant Background

         First Fidelity is a boutique mortgage industry advisory firm based in New Jersey that provides consulting services to banks and other mortgage lenders. (Doc. No. 1.) The Reliant defendants are based in Tennessee. (Id.) First Fidelity filed this action on July 24, 2017, invoking the Court's diversity jurisdiction and asserting claims for breach of contract, breach of the covenant of good faith and fair dealing, and quantum meruit and unjust enrichment. (Id.) According to First Fidelity, Reliant Bank Mortgage Services President Roger Williams began negotiating with First Fidelity in the fall of 2014, seeking First Fidelity's assistance identifying and recruiting new loan officers, among other things. (Id.) As part of these negotiations, First Fidelity sent Williams a draft consulting agreement that set First Fidelity's compensation at forty basis points on the total amount of loans generated by candidates that First Fidelity recruited and Reliant hired. (Id.) Reliant did not sign the consulting agreement. (Doc. No. 73.)

         In January 2015, First Fidelity and Reliant signed a Reciprocal Confidential and NonDisclosure Agreement (NDA) related to their discussions about two First Fidelity clients whom Reliant was interested in hiring, mortgage bankers Kyle Zotter and Mark Considine. (Doc. No. 1.) The NDA includes a non-circumvention clause that provides:

The Parties agree that no effort shall be made to circumvent this Agreement including, in violation of this agreement, any current or proposed relationships with any First Fidelity Clients or third parties which are formally provided to Reliant Bank Mortgage Services as potential employment candidates by First Fidelity, as part of this agreement.

(Id. at PageID# 3, ¶ 13.) First Fidelity formally presented Zotter and Considine to Reliant as employment candidates. (Doc. No. 1.) In March 2015, Williams recruited and hired Zotter and Considine directly and did not compensate First Fidelity. (Id.) First Fidelity's complaint alleges that this was in violation of the NDA and seeks compensatory and punitive damages. (Id.)

         Reliant answered First Fidelity's complaint and argued, among other things, that First Fidelity breached the NDA first. (Doc. No. 14.) After Reliant filed a third-party complaint against Zotter and Considine with the Court's leave, the Court entered a revised amended case management order setting February 14, 2019, as the deadline for filing any motions to amend the pleadings; June 22, 2019 as the deadline to depose all fact witnesses; and July 17, 2019 as the deadline for filing dispositive motions. (Doc. No. 84.)

         On March 13, 2019, First Fidelity deposed Stephen Bennett who previously worked for Williams at Reliant. (Doc. No. 95-1.) Bennett testified that he was on a phone call with Williams and First Fidelity during which Williams offered to pay First Fidelity a fee lower than 40 basis points for recruiting Zotter and Considine and First Fidelity refused. (Id.) Williams ended the call and later told Bennett that he was not going to pay First Fidelity and planned to hire Zotter and Considine directly. (Id.) Bennett told Williams that it was a bad idea to hire them directly because of the signed NDA and the non-circumvention clause, but Williams said that he did not care and was going to hire them anyway. (Id.) Williams told Bennett to start the hiring process for Zotter and Considine and not to talk to anyone about the NDA. (Id.) Bennett's testimony appears to conflict with Williams's sworn statements that (1) Reliant ended its relationship with First Fidelity because it believed that First Fidelity had breached the NDA first and (2) that Reliant “made no effort to contact Considine and Zotter after our relationship with First Fidelity ended. Instead it was Considine and Zotter who approached us independent of First Fidelity and requested a meeting.” (Doc. No. 75-1, PageID# 411, ¶ 20.)

         On March 26, 2019, First Fidelity filed a motion for leave to amend its complaint to include a new claim for fraud against Reliant and to increase its claims for punitive damages based on that alleged fraud. (Doc. No. 93.) In compliance with this Court's Local Rules, First Fidelity attached a proposed amended complaint to its motion. (Doc. No. 93-1.) First Fidelity argues that good cause exists to modify the February 14, 2019 deadline for amended pleadings because key facts underlying its fraud claim did not come to light until Bennett's deposition on March 13, 2019, and it therefore could not have moved for leave to add this claim before the deadline passed. (Doc. No. 94.) First Fidelity further argues that Reliant will not be prejudiced by the amendment. (Id.) Reliant opposes the motion, arguing that the motion is untimely and that First Fidelity's fraud claim is “contrived[.]” (Doc. No. 96, PageID# 746.) However, Reliant concedes that Bennett's testimony “contradicted deposition testimony given by . . . Williams on certain points.” (Id. at PageID# 748.) First Fidelity replies that it promptly filed the motion to amend following Bennett's deposition and points out that Reliant “ha[s] not argued” and cannot show “that the fraud claim is frivolous or that adding the claim would be futile.” (Doc. No. 97, PageID# 753.)

         II.Legal Standard

         Federal Rule of Civil Procedure 15(a) typically governs motions to amend the pleadings before trial. Fed.R.Civ.P. 15(a). However, where, as here, a motion to amend is filed after the deadline set forth in the Court's scheduling order, the standards of Rule 15(a) and Rule 16(b) apply. See Leary v. Daeschner, 349 F.3d 888, 909 (6th Cir. 2003). Rule 16(b) provides that the deadline for amendment of pleadings set forth in the Court's scheduling order can be extended “only for good cause and with the judge's consent.” Fed.R.Civ.P. 16(b)(4). This rule was “designed to ensure that ‘at some point both the parties and the pleadings will be fixed.'” Leary, 349 F.3d at 906 (quoting Fed.R.Civ.P. 16 advisory committee's note to 1983 amendment). Thus, “[o]nce the scheduling order's deadline passes, a plaintiff first must show good cause under Rule 16(b) for failure earlier to seek leave to amend before a court will consider whether amendment is proper under Rule 15(a).” Id. at 909. The “good cause” requirement in Rule 16 is only satisfied where the movant shows “that the original deadline could not reasonably have been met despite due diligence and that the opposing party will not suffer prejudice by virtue of the amendment.” Ross v. Am. Red Cross, 567 Fed.Appx. 296, 306 (6th Cir. 2014).

         If the Court finds that good cause exists, it then considers whether amendment is appropriate under Rule 15. Rule 15(a)(2) provides that district courts should “freely” grant a motion for leave to amend a pleading “when justice so requires.” Fed.R.Civ.P. 15(a)(2). This “mandate” flows from the principle that a plaintiff “ought to be afforded an opportunity to test [their] claim on the merits” where “the underlying facts or circumstances relied upon . . . may be a proper subject of relief . . . .” Foman v. Davis, 371 U.S. 178, 182 (1962). Thus, absent “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 by virtue of allowance of the amendment, futility of the amendment, etc.- the leave sought should, as the rules require, be ‘freely given.'” Leary, 349 F.3d at 905 (quoting Foman, 371 U.S. at 182). A proposed amendment is futile when it would not survive a motion to dismiss under Rule 12(b)(6). Miller v. Calhoun Cty., 408 F.3d 803, 817 (6th Cir. 2005); Rose v. Hartford Underwriters Ins. Co., 203 F.3d 417, 420 (6th Cir. 2000). ...

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