Opinion
No. 2:14-cv-02571-MCE-KJN
05-26-2016
SPECIAL SITUATIONS FUND III QP, L.P., et al., Plaintiffs, v. MARRONE BIO INNOVATIONS, INC., et al., Defendants.
CONSOLIDATED CLASS ACTION
MEMORANDUM AND ORDER
Plaintiffs in this consolidated class action charge Defendant Marrone Bio Innovations, Inc., ("Marrone Bio"), certain of its officers and directors, and its public auditor, Ernst & Young, with violating federal securities laws (i.e., Section 11 of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934). According to Plaintiffs, they were defrauded of millions of investment dollars based on the financial reporting fraud of Marrone Bio and its Chief Operating Officer and head of sales, Defendant Hector Absi. Presently before the Court is Plaintiffs' Motion to Amend the Amended Complaint (ECF No. 57). For the reasons set forth below, that Motion is GRANTED.
Because oral argument would not be of material assistance, the Court ordered this matter submitted on the briefs. E.D. Cal. Local Rule 230(g).
ANALYSIS
Plaintiffs filed their operative Second Consolidated Amended Complaint ("SAC") on January 11, 2016. ECF No. 44. The following day, Marrone Bio entered an agreement with the SEC to resolve an as-yet-filed suit the SEC was preparing against it. A few weeks later, the SEC filed two civil actions, one against Marrone Bio that had already been resolved by way of an agreed-upon $1.75 million civil fine, Case No. 2:16-cv-00321-MCE-KJN, and one against Defendant Absi, Case No. 2:16-cv-00320-MCE-KJN. That same day, the United States Attorney unsealed a sixteen-count criminal indictment in Case No. 2:16-cr-00027-MCE against Defendant Absi as well. Just a few weeks later, Plaintiffs sought leave to amend their SAC to add allegations gleaned from these newly filed public documents. More specifically, Plaintiffs contend that these new SEC and criminal filings show that Absi's fraudulent scheme originated much earlier than initially thought, and, according to Plaintiffs, made clear that the scope of Plaintiffs' strict liability claim against Ernst and Young needs to be clarified.
Courts should "freely give leave when justice so requires," Fed. R. Civ. P. 15(a)(2), and the Ninth Circuit has noted that the policy is one "to be applied with extreme liberality," Morongo Band of Mission Indians v. Rose, 893 F.2d 1074, 1079 (9th Cir. 1990). In exercising its discretion to permit or deny a party to amend its pleading, this Court considers five factors: (1) whether the amendment was filed with undue delay; (2) whether the movant has requested the amendment in bad faith or as a dilatory tactic; (3) whether the movant was allowed to make previous amendments which failed to correct deficiencies of the complaint; (4) whether the amendment will unduly prejudice the opposing party; and (5) whether the amendment would be futile. Foman v. Davis, 371 U.S. 178, 182 (1962). Whether amendment will unduly prejudice the opposing party is the most important factor in a court's analysis under Rule 15(a). Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003). Consideration of each of these factors favors permitting amendment here.
Ernst and Young is the only Defendant who opposes Plaintiffs' Motion, and it has pointed to no prejudice it will suffer, nor can the Court conceive of any, if leave to amend is granted. To the contrary, no Defendant has yet responded to the SAC and no discovery has commenced. Simply having to defend against newly fashioned allegations is not enough to warrant denying Plaintiffs' request. Nor have Plaintiffs unduly delayed or engaged in bad faith conduct in filing the instant Motion. This case is unique in that it presents a situation where Defendants' actions resulted not only in an investor suit, but also in SEC civil complaints and federal criminal charges. It is entirely understandable, and indeed imminently foreseeable, that these latter filings would result in a need to amend Plaintiffs' current pleadings. Then, in very short order after the SEC complaints were filed and the criminal indictment unsealed, Plaintiffs drafted a proposed Third Amended Complaint, sought to proceed by stipulation, and moved for leave to file that complaint when agreement proved impossible. Plaintiffs did not delay, and nothing in the record indicates their proposed amendments are the result of any bad faith. Finally, regardless whether Ernst and Young believes it will inevitably succeed in defending against Plaintiffs' new allegations, nothing before the Court indicates that the amended claims are futile. Accordingly, leave to amend must be freely given here. /// /// /// /// /// /// ///
For the same reasons the Court has rejected Ernst and Young's arguments in opposition to amendment, namely on grounds that it finds no bad faith or futility of amendment, the Court also rejects Ernst and Young's additional invitation to require Plaintiffs to post a bond under 15 U.S.C. § 77k(e). See Weil v. Investment/Indicators, Research and Management, Inc., 647 F.2d 18, 22 (9th Cir. 1981) (explaining that "[t]he appropriate standard for determining whether an undertaking should be required is whether the defendants have shown that the plaintiff has commenced her suit in bad faith or that her claim borders on the frivolous") (internal citations and quotations omitted). --------
CONCLUSION
For the reasons stated above, Plaintiff's Motion to Amend the Amended Complaint (ECF No. 57) is GRANTED. Not later than five (5) days following the date this Memorandum and Order is electronically filed, Plaintiffs are directed to file their Third Amended Complaint.
IT IS SO ORDERED. Dated: May 26, 2016
/s/_________
MORRISON C. ENGLAND, JR.
UNITED STATES DISTRICT JUDGE