Zeetogroup, LLC v. Fiorentino ( 2020 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 ZEETOGROUP, LLC; TIBRIO, LLC, Case No.: 19-CV-458 JLS (NLS) 12 Plaintiffs, ORDER GRANTING MOTION FOR 13 v. LEAVE TO FILE FIRST AMENDED COMPLAINT 14 NICHOLAS FIORENTINO, an individual; SABIHA TUDESCO, an 15 (ECF No. 56) individual; INTERNET THINGS, LLC; 16 SIMPLY SWEEPS, LLC; CREDIREADY, LLC; TWO MINUTE 17 MEDIA TOPICS, LLC; and DOES 1-100, 18 inclusive, 19 Defendants. 20 21 Presently before the Court is Plaintiffs’ Motion for Leave to File First Amended 22 Complaint (“Mot.,” ECF No. 56). Also before the Court is Defendants’ Opposition to 23 (“Opp’n,” ECF No. 63) and Plaintiffs’ Reply in Support of (“Reply,” ECF No. 67) the 24 Motion. The Court vacated the hearing and took the Motion under submission without oral 25 argument pursuant to Civil Local Rule 7.1(d)(1). See ECF No. 68. After considering the 26 Parties’ arguments and the law, the Court GRANTS Plaintiffs’ Motion. 27 /// 28 /// 1 BACKGROUND 2 Plaintiffs ZeetoGroup, LLC and Tibrio, LLC are San Diego-based internet lead 3 generation companies. See Mot. at 5. Defendant Internet Things, LLC is a competing 4 internet lead generation company. See id. Defendant Nicholas Fiorentino is the founder 5 and CEO of Internet Things. Id. at 6. Internet Things, owns and operates multiple 6 subsidiaries, including Defendants Simply Sweeps, LLC; CrediReady, LLC; and Two 7 Minute Media Topics (together, the “Entity Defendants”). See ECF No. 30 at 2. 8 Sometime in 2018, Mr. Fiorentino began recruiting Plaintiffs’ employees. Mot. at 9 6. Among those employees was Rocky Iorio. Mot. at 6–7. Plaintiffs employed Mr. Iorio 10 until November 1, 2018, when Mr. Iorio accepted a job with Defendant Internet Things. 11 Id. at 6. During Mr. Iorio’s final weeks working for Plaintiffs, Mr. Fiorentino reached out 12 to Mr. Iorio and asked him for a list of Plaintiffs’ “big buyers.” Id. Mr. Iorio complied 13 with this request and sent Mr. Fiorentino screen shots of Plaintiffs’ big buyers, as well as 14 “what campaign was working the best for each buyer, the revenue brought in by each 15 campaign, the price point at which the traffic was being sold, and the competitive 16 performance metrics.” Id. After becoming aware of Mr. Iorio’s actions, Plaintiffs 17 discovered that many of the campaigns used by the Entity Defendants were the same as the 18 campaigns Mr. Iorio provided to Mr. Fiorentino. Id. at 6. Defendants use of these 19 campaigns led to damage to Plaintiffs’ reputation, advertisers spending less money with 20 Plaintiffs, Plaintiffs’ revenue to decline substantially, and ultimately lay-offs of 23 of 21 Plaintiffs’ employees. Id. at 5–6. 22 On March 8, 2019, Plaintiffs filed their Complaint seeking damages caused by 23 Defendants’ misappropriation of trade secrets and confidential information. See ECF No. 1 24 at 6–8. In October 2019, Plaintiffs sent Defendants interrogatories and document requests. 25 Declaration of Jacob A. Gillick, Esq. (“Gillick Decl.”) ¶ 1; Mot. Ex. 2 at 11–239, ECF No. 26 56-2; Mot. at 9. Plaintiffs complained that Defendants’ responses were evasive and 27 included no documentation; consequently, the Parties met and conferred in December 2019 28 and Defendants’ agreed to supplement the responses. Gillick Decl. ¶¶ 3, 4; Mot. at 9; Mot. 1 Ex. 2. Instead of providing supplemental discovery responses, however, in late December 2 or early January, Defendants informed Plaintiffs that the Entity Defendants had all gone 3 out of business. Gillick Decl. ¶ 5; Mot. at 9. 4 On March 19, 2020, Plaintiffs provided a notice to compel discovery to Defendants. 5 See Gillick Decl. ¶ 12; Mot. Ex. 6, ECF No. 56-2 at 253–58. In response, counsel for the 6 Entity Defendants claimed the entities were “defunct” and had ceased operating. See 7 Gillick Decl. ¶ 13. Plaintiffs’ counsel then checked the California Secretary of State’s 8 website and discovered that, three weeks after Plaintiffs served the Complaint, the Entity 9 Defendants had been converted into new limited partnerships: Internet Things, LP; Simply 10 Sweeps, LP; Crediready, LP; and Two Minute Media Topics, LP (together, the “New 11 LPs”). See Mot. at 10; Gillick Decl. ¶ 13. 12 Plaintiffs also discovered the conversions were initiated by Marc Barmazel through 13 Premier Realty Management, Inc. See Gillick Decl. ¶ 13; Opp’n at 2. Mr. Barmazel is an 14 investor in the Entity Defendants and owner of Premier Realty Holdings, LP; Premier 15 Realty Management, Inc.; and Sunrise Self-Storage Management, Inc. (together, the 16 “Premier Entities”). See id. After presenting Defendants with this newly discovered 17 information, on April 27, 2020, Plaintiffs received supplemental discovery from 18 Defendants. Gillick Decl. ¶¶ 13–14; Opp’n at 3. This new discovery included a litany of 19 emails showing Mr. Barmazel’s involvement in the Entity Defendants’ day-to-day business 20 affairs. See Reply at 4–7. Plaintiffs allege that Mr. Barmazel not only knew that 21 Mr. Fiorentino was misappropriating trade secrets, but that he was “deeply involved” in 22 the affair. Mot. at 13. Further, Plaintiffs allege that Mr. Barmazel was, in fact, “running 23 the show” when the misappropriation occurred and is therefore liable for the 24 misappropriation of trade secrets. See Reply at 2. 25 During discovery, Plaintiffs also discovered that Mr. Fiorentino’s ownership interest 26 in the Entity Defendants and the New LPs is through Fiorentino Holdings, LLC— 27 Mr. Fiorentino’s “suspected alter-ego.” Mot. at 10. 28 After making these discoveries, Plaintiffs filed their motion to amend. 1 LEGAL STANDARDS 2 I. Rule 16 3 Federal Rule of Civil Procedure 16(b)(4) provides that “[a] schedule may be 4 modified only for good cause and with the judge’s consent.” Civil Local Rule 16.1(b) 5 requires all counsel and parties to “proceed with diligence to take all steps necessary to 6 bring an action to readiness for trial.” In determining whether there is “good cause” under 7 Rule 16(b), the Court “primarily considers the diligence of the party seeking the 8 amendment” and the “moving party’s reasons for seeking modification.” Johnson v. 9 Mammoth Recreations, Inc., 975 F.2d 604, 609 (9th Cir. 1992). 10 II. Rule 15 11 Pursuant to Federal Rule of Civil Procedure 15(a), a plaintiff may amend his 12 complaint once as a matter of course within specified time limits. Fed. R. Civ. P. 15(a)(1). 13 “In all other cases, a party may amend its pleading only with the opposing party’s written 14 consent or the court’s leave. The court should freely give leave when justice so requires.” 15 Fed. R. Civ. P. 15 (a)(2). 16 While courts exercise broad discretion in deciding whether to allow amendment, 17 they have generally adopted a liberal policy. See U.S. for Benefit & Use of Ehmcke Sheet 18 Metal Works v. Wausau Ins. Cos., 755 F. Supp. 906, 908 (E.D. Cal. 1991) (citing Jordan 19 v. Cty. of L.A., 669 F.2d 1311, 1324 (9th Cir.), rev’d on other grounds, 459 U.S. 810 20 (1982)). Accordingly, leave is generally granted unless the court harbors concerns “such 21 as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to 22 cure deficiencies by amendments previously allowed, undue prejudice to the opposing 23 party by virtue of allowance of the amendment, futility of the amendment, etc.” Foman v. 24 Davis, 371 U.S. 178, 182 (1962). 25 ANALYSIS 26 Plaintiffs seek to amend their Complaint to add the New LPs; Fiorentino Holdings, 27 LLC; Mr. Barmazel; and the Premier Entities as Defendants in this case. Mot. at 5. 28 Plaintiffs allege that without their addition in this case, the responsible parties will avoid 1 liability and “set a precedent which would make litigation fruitless.” Id. at 17. Because 2 Plaintiffs seek to amend their Complaint after the scheduling order deadline to amend 3 pleadings, see id. at 15, Plaintiffs must meet both the Rule 16 standard to amend the 4 scheduling order, as well as the Rule 15 standard to amend pleadings. 5 I. Rule 16 6 To amend a pleading after a scheduling order deadline, the party seeking amendment 7 must first satisfy the Rule 16(b) “good cause” standard to amend the scheduling order. See 8 Johnson, 975 F.2d at 609. Rule 16’s good cause standard primarily considers the due 9 diligence of the party seeking to amend. Id. Pretrial scheduling orders can only be 10 amended where the orders could not “reasonably [have been] met despite the diligence of 11 the party seeking the extension.” Id. 12 The deadline to amend the pleadings as set forth in the scheduling order was 13 September 16, 2019. Mot. at 15. Plaintiffs contend that the timeline of events show they 14 could not have met this deadline. See id. Although the Entity Defendants were converted 15 out and re-established as limited partnerships on March 28, 2019—three weeks after this 16 lawsuit was originally filed—Plaintiffs did not become aware of the New LPs until March 17 2020. Mot. at 10. This is because, rather than providing Plaintiffs with this information, 18 Defendants led Plaintiffs to believe that the Entity Defendants had all gone out of business. 19 Gillick Decl. ¶¶ 4–5. Once this information was learned, however, Plaintiffs diligently 20 sought discovery from Defendants. See id. at 9–10. Through that discovery, Plaintiffs 21 discovered Fiorentino Holdings, LLC’s, Mr. Barmazel’s, and the Premier Entities’ 22 involvement in this case. See id. at 10, 16. Plaintiffs allege that the identities and 23 involvement of the proposed defendants could have been discovered only after the 24 production of documents in April 2020, despite Plaintiffs’ due diligence. See id. at 10–13. 25 Because the entire proposed amendment is based on information that was not readily 26 available to Plaintiffs prior to the scheduling order deadline—despite Plaintiffs’ due 27 diligence—the deadline could not reasonably have been met. Therefore, the Court finds 28 good cause present to amend the scheduling order. Because the Court finds good cause to 1 amend the scheduling order under Rule 16, the Court next looks to whether amendment of 2 the Complaint is proper under Rule 15. See Johnson, 975 F.2d at 608. 3 II. Rule 15 4 Under Rule 15, leave is generally granted unless the court harbors concerns “such 5 as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to 6 cure deficiencies by amendments previously allowed, undue prejudice to the opposing 7 party by virtue of allowance of the amendment, futility of the amendment, etc.” Foman, 8 371 U.S. at 182. The Court considers Plaintiffs’ requests to add the New LPs; Fiorentino 9 Holdings, LLC; Mr. Barmazel; and the Premier Entities as defendants in turn. 10 Plaintiffs first request to add the New LPs as defendants. Mot. at 15, 18. In their 11 Opposition, Defendants consent to the addition of the New LPs. See Opp’n at 3–4. 12 According to Rule 15(a)(2), a party may amend their complaint with the opposing party’s 13 written consent. Accordingly, the Court GRANTS Plaintiffs leave to amend their 14 complaint to add the New LPs as defendants. 15 Plaintiffs also request to add Fiorentino Holdings, LLC as a defendant. See Mot. at 16 5. Although Defendants do not consent to the addition of Fiorentino Holdings, they also 17 do not present any arguments against adding Fiorentino Holdings, LLC. See generally 18 Opp’n. Because the Court harbors no concerns regarding amendment as to this party, the 19 Court GRANTS Plaintiffs’ Motion as to Fiorentino Holdings, LLC. 20 Next, Plaintiffs seek to amend the complaint to add Mr. Barmazel as a defendant. 21 See Mot. at 5. Defendants dispute the addition of Mr. Barmazel, claiming there is no legal 22 basis to add him as an individual defendant. Opp’n at 4. Defendants challenge the addition 23 of Mr. Barmazel on the grounds of futility. Id. at 4–5. Defendants contend that under 24 California law, Mr. Barmazel cannot be liable as an individual investor for the actions of 25 the Entity Defendants, and he cannot be liable for the New LPs actions because he is not a 26 general partner. See id. at 5–6. In response, Plaintiffs contend that Mr. Barmazel is liable 27 as an individual because the entities are nothing more than Barmazel’s alter ego and, 28 therefore, the corporate veil has been pierced. Reply at 2–3. In support of this theory of 1 liability, Plaintiffs offer documents and emails that purportedly prove this theory of 2 liability. See generally Gilleck Decl. 3 Under the alter ego doctrine, “a corporation’s acts and obligations can be legally 4 recognized as those of a particular person, and vice versa.” See Temple v. Bodega Bay 5 Fisheries, Inc., 180 Cal. App. 2d 279, 283 (1960). Plaintiffs have provided arguments and 6 evidence enough to show that Mr. Barmazel could potentially be liable under an alter-ego 7 theory. Thus, adding him as a defendant is not futile. See Miller v. Rykoff-Sexton, Inc., 8 845 F.2d 209, 214 (9th Cir. 1988) (an amendment is futile when “no set of facts can be 9 proved under the amendment to the pleadings that would constitute a valid and sufficient 10 claim”), implied overruling on other grounds by Ashcroft v. Iqbal, 556 U.S. 662 (2009). 11 The Court therefore GRANTS Plaintiffs’ Motion to add Mr. Barmazel. 12 Finally, Plaintiffs seek to amend their Complaint to add the Premier Entities. Mot. 13 at 5. Defendants dispute the addition of the Premier Entities, arguing (1) that granting 14 leave “would irreparably prejudice” the Premier Entities, Opp’n at 5; (2) that Plaintiffs’ 15 Motion is brought in bad faith, id. at 6; and (3) that adding the Premier Entities as 16 Defendants would be futile. Id. at 5–6. 17 First, Defendants challenge the addition of the Premier Entities on the grounds that 18 the addition “would irreparably prejudice” the Premier Entities. See id. at 5. Defendants 19 only claim of prejudice is that the Premier Entities are “totally unrelated to the facts alleged 20 [in the complaint] and their business is purely real estate ventures.” Id. Defendants, 21 however, fail to show why that would cause any actual prejudice. The case is in its early 22 stages and discovery is ongoing. See DCD Programs, Ltd. V. Leighton, 833 F.2d 183, 188 23 (9th Cir. 1987) (finding no prejudice where the case was still at the discovery stage of 24 proceedings). Moreover, Plaintiffs have alleged connections among the Premier Entities 25 and the Entity Defendants, see Reply at 8, as well as Mr. Barmazel, who Plaintiffs allege 26 “regularly failed to recognize any corporate formalities between himself and [the Premier 27 Entities].” Id. at 2. The Court therefore finds the Premier Entities would not be prejudiced. 28 /// 1 Second, Defendants argue that Plaintiffs’ Motion was brought in bad faith, 2 || “designed primarily to harass and drain the financial resources of the opposing party” and 3 delay proceedings. See Opp’n at 6. The Court finds no persuasive evidence that Plaintiffs’ 4 ||request was brought in bad faith. Allowing Plaintiffs to amend their complaint will not 5 || cause undue delay to Defendants. And any delay can be attributed to the Defendants failure 6 provide information about the Entity Defendants’ reorganizations. Thus, the Court finds 7 ||no bad faith. See DCD Programs, 833 F.2d at 187 (finding no bad faith where there is a 8 || satisfactory explanation for the delay and no other evidence to indicate a wrongful motive). 9 Third, Defendants challenge the addition of the Premier Entities on the grounds of 10 || futility, asserting that the Premier Entities have no interest in or connection to the Entity 11 ||Defendants. Opp’n at 5—6. In response, Plaintiffs assert that the Premier Entities belong 12 ||in the case because they are “inextricably intertwined” with Mr. Barmazel such that they 13 his alter egos, and they have a relevant interest in the Entity Defendants. Reply at 14 6. Defendants’ arguments do not clearly foreclose Plaintiffs’ claims and, therefore, 15 |/at this point it is not clear that the addition of the Premier Entities would be futile. See 16 || Miller, 845 F.2d at 214. 17 Because the Court does not harbor concerns over undue delay, bad faith, undue 18 || prejudice, or futility, the Court GRANTS Plaintiffs’ Motion to add the Premier Entities. 19 CONCLUSION 20 For the reasons stated above, the Court GRANTS Plaintiffs’ Motion to Amend the 21 |}Complaint. Plaintiffs SHALL FILE their amended complaint within seven days of the 22 electronic docketing of this Order. 23 IT IS SO ORDERED. 24 Dated: July 22, 2020 . tt f te 25 on. Janis L. Sammartino 6 United States District Judge 27 28