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United States v. Kimball

United States District Court, D. Maine

September 28, 2016

UNITED STATES OF AMERICA, Plaintiff
v.
JOHN H. KIMBALL JR., et al., Defendants

          MEMORANDUM DECISION AND ORDER ON MOTION TO AMEND

          John H. Rich III United States Magistrate Judge.

         One month after this court entered an order granting in part and denying in part a motion by the United States of America (“United States”) for summary judgment on both counts of its amended complaint, the United States moved to file a second amended complaint alleging additional facts and asserting new theories of liability. See United States' Motion for Leave To File a Second Amended Complaint (“Motion”) (ECF No. 48) at 2-4, ¶¶ 1-5; Decision and Order on Plaintiff's Motion for Summary Judgment (“S/J Decision”) (ECF No. 46) at 1.

         I conclude that the United States fails to make the requisite showing of good cause for its tardy bid to amend its complaint pursuant to Federal Rule of Civil Procedure 16(b). Accordingly, I deny the Motion. I also deny the requests of defendants John H. Kimball Jr.[1] and the Kimball Family Realty Trust (“Trust”) that the court award them costs and attorney fees associated with responding to the Motion and/or impose sanctions on the United States pursuant to Federal Rule of Civil Procedure 11. See Defendant John H. Kimball Jr.'s Objection to Plaintiff's Motion for Leave To File a Second Amended Complaint (“Kimball Objection”) (ECF No. 52) at 9-10; Defendant Kimball Family Realty Trust's Objection to Plaintiff's Motion for Leave To File a Second Amended Complaint (“Trust Objection”) (ECF No. 53) at 9-10.

         I. Applicable Legal Standards

         The First Circuit's caselaw “clearly establishes that Rule 16(b)'s ‘good cause' standard, rather than [Federal] Rule [of Civil Procedure] 15(a)'s ‘freely give[n]' standard, governs motions to amend filed after scheduling order deadlines.” Trans-Spec Truck Serv., Inc. v. Caterpillar Inc., 524 F.3d 315, 327 (1st Cir. 2008) (citation omitted). The First Circuit has explained that “[f]or Rule 16(b) to operate effectively, litigants cannot be permitted to treat a scheduling order as a frivolous piece of paper idly entered, which can be cavalierly disregarded without peril.” O'Connell v. Hyatt Hotels of P.R., 357 F.3d 152, 155 (1st Cir. 2004) (citation and internal quotation marks omitted).

         The First Circuit has elaborated:

A motion to amend a complaint will be treated differently depending on its timing and the context in which it is filed. . . . As a case progresses, and the issues are joined, the burden on a plaintiff seeking to amend a complaint becomes more exacting. Scheduling orders, for example, typically establish a cut-off date for amendments (as was apparently the case here). Once a scheduling order is in place, the liberal default rule [of Fed.R.Civ.P. 15(a)] is replaced by the more demanding “good cause” standard of Fed.R.Civ.P. 16(b). This standard focuses on the diligence (or lack thereof) of the moving party more than it does on any prejudice to the party-opponent. Where the motion to amend is filed after the opposing party has timely moved for summary judgment, a plaintiff is required to show “substantial and convincing evidence” to justify a belated attempt to amend a complaint.

Steir v. Girl Scouts of the USA, 383 F.3d 7, 11-12 (1st Cir. 2004) (citations, internal quotation marks, and footnotes omitted).

         Assuming that the court finds that good cause exists to set aside the scheduling order's deadline, Rule 15(a)(2) instructs the court to “freely give leave [to amend a pleading] when justice so requires.” Fed.R.Civ.P. 15(a)(2). Pursuant to Rule 15(a)(2), leave to amend should be granted in the absence of reasons “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 amendment, etc ..... ” Foman v. Davis, 371 U.S. 178, 182 (1962).

         The United States filed the instant motion on July 22, 2016, see Motion at 1, one month after the court issued its summary judgment decision on June 24, 2016, see S/J Decision at 1, and 10 days after the court issued an order placing this case on its September 6, 2016, trial list and scheduling a final pretrial conference for August 9, 2016, see ECF No. 47. The parties' discovery deadline expired on January 15, 2016, following two extensions. See ECF Nos. 17, 25, 31. The deadline to amend pleadings expired on July 16, 2015, more than a year before the motion here at issue was filed. See ECF No. 17. At no time has either party moved to extend that deadline. In the circumstances, the United States must provide “substantial and convincing evidence” to justify its belated attempt to amend its complaint. Steir, 383 F.3d at 12 (citation and internal quotation marks omitted).

         II. Factual Background

         As Judge Hornby noted in ruling on the plaintiff's motion for summary judgment, this is a federal tax lawsuit in which the United States seeks two forms of relief: (i) to reduce to judgment the unpaid taxes, penalties, and interest that defendant Kimball owes the Internal Revenue Service (“IRS”) (Count One), and (ii) to enforce federal tax liens for those amounts against property owned by the co-defendant Trust - specifically, a ski condominium (“Ski Condo”) at Mt. Abram, Maine (Count Two). See S/J Decision at 1, 3-4; see generally United States' Amended Complaint (“Operative Complaint”) (ECF No. 18).

         Judge Hornby granted summary judgment in the United States' favor on Count One, determining that it was entitled to judgment as a matter of law for unpaid taxes and penalties in the amount of $1, 090, 700.05, interest, and other statutory additions accruing from and after March 11, 2016. See Id. at 2-3. He denied summary judgment on Count Two, in which the United States sought to enforce its liens against the Ski Condo on the theory that the Trust holds the Ski Condo as Kimball's nominee. See id. at 3-18. He noted that, although the United States might be able to persuade a factfinder at trial that the Trust was and is a fiction and that Kimball treated the Ski Condo as his own, the United States had not demonstrated its entitlement to summary judgment as a matter of law. See id. at 17-18.

         The United States now seeks to update sums included in Count One to conform to those set forth on summary judgment and to expand Count Two from six to 45 paragraphs, alleging not only that the Trust holds the Ski Condo as Kimball's nominee but also that (i) Kimball fraudulently conveyed the Ski Condo to the Trust in violation of 14 M.R.S.A. §§ 3571-82 in 1989, when he purchased it in the name of the Trust or, in the alternative, in 1993, when he resigned as trustee of the Trust, and (ii) the United States obtained a resulting/constructive trust against the Ski Condo when Kimball conveyed it to the Trust in 1989 or, in the alternative, resigned as trustee in 1993, with the aim of defrauding the United States. See [Proposed] Second Amended Complaint (“Proposed Complaint”), Exh. 2 (ECF No. 48-2) to Motion.

         Among the allegations that the United States seeks to add in support of Count Two are the following:

13. Kimball is an attorney . . . who has consistently made efforts to hide his assets to avoid the [IRS's] legitimate collection efforts.
14. Kimball had an unpaid tax liability prior to August 2, 1989, for at least the tax ...

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