United States District Court, D. South Dakota, Southern Division
LARSON MANUFACTURING COMPANY OF SOUTH DAKOTA, INC., SUPERIOR HOMES, LLC, Plaintiffs,
WESTERN SHOWCASE HOMES, INC., AMERICAN MODULAR HOUSING GROUP, LLC, AMERICAN MODULAR HOUSING GROUP, INC., PAUL THOMAS, Defendants.
MEMORANDUM OPINION AND ORDER DENYING DEFENDANTS'
MOTION TO AMEND SCHEDULING ORDER AND TO JOIN PARTIES, DOCKET
VERONICA L. DUFFY, UNITED STATES MAGISTRATE JUDGE
matter is before the court on the basis of diversity
jurisdiction, 28 U.S.C. § 1332, after defendants removed
the matter from South Dakota state court. The parties have
consented to this magistrate judge handling their case
pursuant to 28 U.S.C. § 636(c).
Larson Manufacturing Company of South Dakota, Inc. (Larson)
is the parent company of plaintiff Superior Homes, LLC
(Superior). Superior is in the business of manufacturing and
selling modular homes.
Western Showcase Homes, Inc. (Western) in the business of
purchasing, reselling, and financing modular homes. Defendant
Paul Thomas is the sole member of Defendant American Modular
Housing Group, LLC (AMHG, LLC), a company in the business of
buying and reselling modular homes. Defendant American
Modular Housing Group, Inc. (AMHG, Inc.), is a corporation
that also buys and resells modular homes. Thomas is the
principal agent and owner of both AMHG entities.
defendant entities purchased modular homes from Superior and
then re-sold those homes to customers, sometimes arranging
for delivery, set and completion of the home at the
customer's location. Larson and Superior extended credit
to the defendant entities for these purchases; AMHG would
then repay the loans when its customer paid the defendant
second amended complaint recites that defendant entities
placed orders for fourteen modular homes with plaintiffs.
Plaintiffs constructed the homes. Of the homes that were
delivered to defendants, full payment was never made even
though the complaint alleges the ultimate customers who
received these homes paid defendants. Other modular homes
ordered by defendants were custom-built and never delivered
because defendants never paid for the homes. As to the homes
plaintiffs retain possession of, plaintiffs allege the custom
nature of the homes makes resale of the homes at a reasonable
addition, Larson entered into a loan agreement with Western
which was guaranteed by AMHG, Inc. This loan agreement
ultimately encompassed $14 million in funds. Larson alleges
Western defaulted on the loan and AMHG, Inc. refused to pay
pursuant to its guarantee. For all these matters, plaintiffs
assert three counts of breach of contract, two counts of
fraud, two counts of conversion, one count each of debt and
guarantee, and one count of piercing the corporate
veil. Plaintiffs also allege defendant Thomas
converted money which was received from third parties and
intended for plaintiffs, but was instead used by Mr. Thomas
for his own personal use.
their answer to the second amended complaint, defendants
generally deny nearly all of plaintiffs' allegations.
Defendants Western Showcase, Inc., and American Modular
Housing Group, Inc., assert five counterclaims against Larson
and Superior. Those counterclaims include breach of contract
(failure to pay rebates, failure to repay personal loans from
Thomas and failure to provide future promised business);
unjust enrichment (rebates, warranty and service fees);
tortious interference with business expectancy (Aspen Links
Country Club and Aspen Village Properties); breach of
contract (manufacturing defects in modular homes); and fraud
and deceit (fraudulent inducement to sign a mortgage in
connection with Aspen Village and McKenzie Lane, assignment
of mortgage interest in Moose Ridge, fraudulent building
plaintiffs Western Showcase, Inc. and AMHG, Inc. seek
compensatory and punitive damages on their counterclaims,
pre-and post-judgment interest, attorney's fees, and
pending is the defendants' motion to amend the scheduling
order and to join necessary, or in the alternative,
permissive, parties (Docket No. 109). The plaintiffs oppose
the motion (Docket No. 115).
abbreviated version of the facts is recounted here,
consisting mostly of the procedural history pertinent to the
defendants' motion to join the Aspen entities as parties.
lawsuit began in state court. The defendants removed it to
federal court, after which they requested and received an
extension of time to file their answer. The defendants'
answer asserted several counterclaims against the plaintiffs.
three months after filing their answer to the plaintiffs'
complaint, the defendants filed a motion for leave to file a
third-party complaint (Docket 13). That motion sought to
assert third-party claims against William Retterath, Greg
Jahnke, Ryland Waugh, Aspen Village Properties, Mauri Gwynn
Developments, and Waugh Who Developments. Id. The
plaintiffs resisted the motion because it did not seek
contribution or indemnity. See Docket 15. This court
agreed, and on March 8, 2017, denied the defendants'
motion for leave to file a third-party complaint.
11, 2017, the Western entities initiated a separate lawsuit
against Larson, William Retterath, Greg Jahnke, Rylan Waugh,
Aspen Village Properties, Mauri Gwyn Development, and Waugh
Who Developments. See Civ. No. 17-4091, United
States District Court, District of South Dakota, Southern
Div., Docket No. 1. In that separate lawsuit, the Western
entities asserted Greg Jahnke was the principal of both Aspen
and Mauri Gwyn. Western further alleged it had a contractual
relationship with Aspen/Mauri Gwyn over a period of years for
the sale and development of modular homes, and that
Aspen/Mauri Gwyn breached its contract with Western.
Id. Docket 1. Specifically, Western alleged
Aspen/Mauri Gwyn failed to properly remit payments to
Western. Western alleged Aspen/Mauri Gwyn (1) failed to remit
a share of profits to Western as agreed by contract; (2)
failed to remit rebates; (3) failed to remit administration
fees; (4) failed to remit other agreed upon payments to
Western; and (5) failed to pay development costs such as
taxes, insurance, bonds, and commissions; (6) authorized
changes and modifications not contemplated by the contract;
and (7) failed to adequately fulfill its duties of contractor
of record for the work in question.
defendants in that separate lawsuit moved to dismiss, arguing
some claims in the separate lawsuit were duplicative of the
counterclaims in this pending lawsuit and that the
non-duplicative claims were not adequately pled. See
defendants' motion to dismiss, Civ. No. 17-4091, Docket
August 10, 2017, the district court sua sponte
ordered the parties to brief whether the court had
jurisdiction to determine the claims within the separate
lawsuit that were made against the Canadian defendants.
Id., Docket No. 13. On September 25, 2017, the
Western entities, by then represented by their current
counsel, voluntarily dismissed the separate lawsuit without
prejudice. See Civ. No. 17-4091, Docket No. 16 &
move to amend the scheduling order and to join a necessary or
alternatively a permissive party. The defendants wish to add
the Aspen entities-one of the Canadian defendants the
plaintiffs were previously unsuccessful in bringing into this
lawsuit as a third-party defendant and which was a named
defendant in the separate lawsuit the defendants previously
voluntarily dismissed without prejudice.
defendants assert joinder of the Aspen entities is necessary
to a full and fair adjudication of this lawsuit under
Fed.R.Civ.P. 19 because (1) complete relief cannot be
afforded among the existing parties in their absence; (2) the
Aspen entities claim interests in this action that will be
impaired or impeded if they are not joined; (3) the parties
may incur multiple or otherwise inconsistent obligations if
the Aspen entities are not joined.
the defendants ask the court to join the Aspen Entities as a
permissive party under Fed.R.Civ.P. 20. In support of this
argument, the defendants assert the Aspen entities may be
jointly or severally liable for the claims the plaintiffs
have asserted against Western, and because there are numerous
questions of law and fact common to all parties.
Rule 16(b) and the Modification of the Scheduling
to Fed.R.Civ.P. 16, the court's scheduling order must
limit the time to join other parties, amend the pleadings,
complete discovery, and file motions. See Fed.R.Civ.P.
16(a)(3)(A). Motions to amend a scheduling order are governed
by Fed.R.Civ.P. 16(b)(4). That rule provides in relevant
Modifying a Schedule.
A schedule may be modified only for good cause and with the
federal court may modify a scheduling order where the moving
party has been diligent and the non-moving party will not be
prejudiced. Sherman v. Winco Fireworks, 532 F.3d
709, 717 (8th Cir. 2008). When the original date set by the
court has already passed, the party requesting the
modification must show good cause. IBEW Local 98 Pension
Fund v. Best Buy Co., Inc., 2018 WL 337715 at * 7 (D.
Minn. July 11, 2018). And the primary measure of good cause
under Rule 16(b) is the moving party's diligence in
attempting to meet the order's requirements. Id.
prejudice to the non-moving party remains relevant to the
inquiry, generally the court will need not even consider
prejudice if the moving party has not been diligent.
Id. (citing Bradford v. DANA Corp., 249
F.3d 807, 809 (8th Cir. 2001)) (reasoning that under Rule
16(b), when the moving party has not shown diligence, the
analysis need not proceed to, or consider the
non-movant's prejudice). And finally, “[A] party
does not meet the good cause standard under Rule 16(b) if the
relevant information on which it based the amended claim was
available to it earlier in the litigation.”
Id. (citing Parker v. Columbia Pictures
Industries, 204 F.3d 326, 340-41 (2d. Cir. 2000)).
court entered a scheduling order in this matter (Docket 12)
setting January 31, 2017, as the deadline for joining
additional parties. The first relevant inquiry is whether the
defendants should be allowed to modify the scheduling order
to add a new party-several months after that deadline has
expired, and after the court has already once denied the
defendants' motion to add this same party.
defendants assert good cause exists to modify the scheduling
order to add the Aspen entities, and that they have been
diligent. In support of this argument, the defendants cite
“the benefit of additional discovery and production of
documents, some of which have been produced within the last
few months, and which affirmatively demonstrate the Aspen
entities' wrongdoing.” Docket 110, p. 6.
support of their position, the defendants cite documents
(Docket Nos. 107-35, 43, 44, 45, 46, 48, 50, 80, 85, 111,
112, 113) which appear to show how the Aspen entities have
appraised certain of the Aspen properties, how money has been
withdrawn and paid to the credit line from Larson, and how
monies collected from the sale of the Aspen condos was
disbursed by Aspen's law firm (McKercher). The defendants
assert these documents, recently produced in the discovery
portion of this lawsuit, show that Aspen has acted wrongfully
in all of these areas, to the defendants' detriment.
other documents produced in this lawsuit indicate all this
information is not new to the defendants. In a July 27, 2015,
email from Mr. Thomas to Mr. Retterath,  Mr. Thomas
explained the appraisals and accounting information were in
his (Thomas's) possession and that he (Thomas) had shared
that information with Mr. Jahnke. The email string indicates
Mr. Thomas or his associate, Sal Torresco, had all of this
information and had forwarded it to the Aspen entity's
principal, Mr. Jahnke. Mr. Thomas further explained:
[A]all deals funded to date and any or all purchase contracts
were signed by Jahnke and Aspen Village with partial release
of Mortgage documents sent to Larson. All deals funded to
date including land and any homes/condos were signed by
Jahnke and handled by the McKercher Law Firm. They would have
all those records as they were the entity that produced those
closing documents and distributed all the funds. They call
those documents SOA (Statement of Adjustments). Any questions
give me a call. Regards, Paul.
See email dated July 27, 2015, from Paul Thomas to
Bill Retterath, Docket No. 107-47. This communication between
Mr. Thomas and Mr. Retterath indicates Mr. Thomas knew of the
information contained in the appraisals and the manner in
which the McKercher Law Firm distributed the funds generated
by the sale of the Aspen Village condos long before discovery
was exchanged in this lawsuit.
court is not persuaded that any of discovery produced in this
lawsuit tips the scale in the defendants' favor on the
issue of diligence. Nevertheless, the defendants did first
try to add the Aspen entities as parties to this dispute
before the expiration of the deadline for adding parties.
That the court denied their motion at that time does not
detract from the diligence of the defendants' efforts.
The court therefore turns to whether adding the Aspen
entities at this time would cause prejudice to the
Prejudice to Plaintiffs.
prejudice to the non-moving party in the context of a Rule 16
motion to amend includes both timing and logistical
considerations. Specifically, the court must consider whether
the modification of the scheduling order would significantly
delay the proceedings or expand the scope of the issues in
the lawsuit. Vails v. United Community Health Center,
Inc., 283 F.R.D. 512, 514 (N.D. Iowa 2012) (court found
prejudice would result if motion to amend scheduling order
was granted because discovery, and ultimately trial dates
would need to be extended).
case, the defendants indicate their amendment will cause
neither problem, while the plaintiffs assert the proposed
amendment will cause both problems. The defendants assert
plaintiffs will not be prejudiced if the Aspen entities are
added as parties to this lawsuit because discovery is in its
infancy, and the parties have yet to complete expert
discovery. They further assert that depositions have not been
taken,  three months remain to complete fact
discovery, and trial is nine months away. Further, the
defendants argue, the discovery necessitated by adding the
Aspen entities will be required even if the Aspen entities
are not made parties to the lawsuit. The defendants assert
adding the Aspen entities will benefit rather than prejudice
plaintiffs, however, disagree. They assert that adding the
Aspen entities to this lawsuit will cause them prejudice. The
plaintiffs do not want the Aspen entities added to what the
plaintiffs characterize as a simple contractual claim between
the plaintiffs and the defendants. The plaintiffs allege that
adding the Aspen entities would expand the scope of the
issues, facts, and parties to the suit. They also assert it
would delay the course of this already extended litigation,
because, the plaintiffs predict, the Aspen entities will most
certainly make a motion to dismiss. In ...