Free Response to Motion - District Court of Colorado - Colorado

Case 1:01-cv-01644-REB-CBS

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. 01-cv-1644-REB-CBS CARTEL ASSET MANAGEMENT, a Colorado corporation, Plaintiff, v. OCWEN FINANCIAL CORPORATION, a Florida corporation; and OCWEN FEDERAL BANK FSB, a subsidiary of OCWEN FINANCIAL CORPORATION Defendants. DEFENDANT OCWEN FEDERAL BANK FSB'S RESPONSE TO MOTION TO JOIN OCWEN FINANCIAL CORP. AS A PARTY DEFENDANT Defendant Ocwen Federal Bank FSB (the "Bank") respectfully submits the following response to plaintiff Cartel Asset Management's ("Cartel") Motion to Join Ocwen Financial Corp. as a Party Defendant Under Fed. R. Civ. P. 18(b) and 20(a) (docket no. 453) (the "Motion"). PROCEDURAL HISTORY After more than six years of litigation and the Tenth Circuit's express directive that the sole remaining issue in this litigation concerns "[t]he amount of actual damages (if any) and the amount of punitive damages (if actuals are proven)" on Cartel's trade secrets claim, see Tenth Circuit's Order dated Nov. 21, 2007, at 1, Cartel unnecessarily seeks to expand the scope of the case by adding a new claim against the Bank's guarantor, Ocwen Financial Corporation ("OFC"). Not only is there no justification for complicating this matter, at a time when the parties should be focused on dispositive

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motions and trial preparation, but the legal authorities cited in the Motion do not support the relief Cartel seeks. Cartel may pursue a claim against OFC in the unlikely event that Cartel obtains a judgment against the Bank (or the Bank's successor-in-interest), Cartel is unable to enforce such judgment, and OFC declines to pay on its guarantee. There is simply no good reason for adding OFC at this stage of the litigation, particularly given the prejudice that such joinder would cause the Bank. Therefore, the Bank respectfully requests that the Motion be denied. ARGUMENT I. THIS COURT SHOULD DENY THE MOTION BECAUSE JOINDER OF OFC WOULD RESULT IN PREJUDICE TO THE BANK BY DELAYING RESOLUTION OF THIS CASE. This Court should deny Cartel's efforts to add a new claim and a new party at this late date, because joinder of OFC would prejudice the Bank by delaying the case. Both Rule 18(b) and Rule 20(a) grant a District Court discretion to deny a party's request to inject new legal theories and new defendants into a case. See Fed. R. Civ. P. 18(b) ("the court may grant relief"); Fed. R. Civ. P. 20(a)(2) ("[p]ersons . . . may be joined in one action as defendants") (emphases added). "Rule 18 permits joinder of causes, but does not compel it." McConnell v. Travelers Indem. Co., 346 F.2d 219, 222 (5th Cir. 1965). "Rule 20(a) gives wide leeway for district court discretion in the shaping of a lawsuit by the addition of new parties." Nat'l Union Fire Ins. Co. of Pittsburgh, Pa. v. Cont'l Ill. Corp., 113 F.R.D. 527, 531 (N.D. Ill. 1986) (quoting Alkot Indus., Inc. v. Takara Co., 106 F.R.D. 373, 377 (N.D. Ill. 1985)).

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Courts will deny motions to join parties under Rule 20(a) to "prevent delay and prejudice." See Allied Chem. Corp. v. Strouse, Inc., 53 F.R.D. 588, 589 (E.D. Pa. 1971). Courts also reject motions for permissive joinder if the addition of the new party would "create considerable delay, prejudice or expense" to the existing parties. See Nat'l Union Fire, 113 F.R.D. at 531. Fulfillment of the specific requirements of Rule 20 . . . is not enough to warrant granting the plaintiff's motion. [Citation omitted.] Permissive joinder rests with the "sound discretion of the court, which must determine if joinder `will comport with the principles of fundamental fairness.'" [Citation omitted.] A district court may deny a motion for joinder where the addition of the defendants would cause prejudice, expense, and delay by opening up a "Pandora's box" of discovery. Travelers Indem. Co. of Conn. v. Losco Group, Inc., 150 F. Supp. 2d 556, 565 (S.D.N.Y. 2001) (quoting Shaw v. Munford, 526 F. Supp. 1209, 1213 (S.D.N.Y. 1981)). "One of the most important considerations in determining whether amendment would be prejudicial is the degree to which it would delay the final disposition of the action." Krumme v. WestPoint Stevens, Inc. 143 F.3d 71, 88 (2d Cir. 1998) (quoting H.L. Hayden Co. of N.Y. v. Siemens Med. Sys., Inc., 112 F.R.D. 417, 419 (S.D.N.Y. 1986)). A court may deny a motion for joinder under Rule 20(a) based upon prejudice, in the form of one or more of the following circumstances: The motion comes on the eve of trial after many months or years of pretrial activity; the amendment would cause undue delay in the final disposition of the case; the amendment brings entirely new and separate claims, adds new parties or a change in the allegations of the complaint; . . . and the amendment would require expensive and time-consuming new discovery.

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Chavez v. Ill. State Police, No. 94 C 5307, 1999 WL 515483, at *2 (N.D. Ill. July 15, 1999) (quoting A. Cherney Disposal Co. v. Chicago & Suburban Refuse Disposal Corp., 68 F.R.D. 383, 385 (N.D. Ill. 1975)). Chavez teaches that the Motion should be denied for at least five separate reasons ­ (1) Cartel's motion comes after "years of pretrial activity," and joinder would (2) delay final disposition of the case, (3) bring an "entirely new and separate" claim arising under OFC's guarantee, (4) add a new party, OFC, and (5) likely result in "expensive and time-consuming new discovery." See id. A. Cartel's Request to Add a New Claim and a New Party Comes in the Seventh Year of this Litigation.

This case has been pending since August, 2001. This action should be expeditiously headed to the second trial and not further delayed through procedural sideshows. B. Joinder of OFC Would Delay the Final Disposition of the Case.

Adding a new claim and a new party would necessarily delay resolution of this matter. If the Motion were granted, Cartel would presumably need to file a Third Amended Complaint to assert formally its new claim against OFC, OFC would have the right to file an Answer, discovery could proceed on the new claim, and the Pretrial Order would need to be amended to reflect the guarantee claim. As explained in Section I(E) below, Cartel has already revealed its intention to take significant discovery from OFC, which would delay the case for at least seventy-five days, if not longer.

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C.

The Motion Seeks to Inject a New Claim into the Case.

There is currently no claim in this action relating to OFC's guarantee of the Bank's obligations. For this reason, granting the Motion would necessarily add a new claim, new facts, and a new legal theory to the case. D. Cartel Is Seeking to Add a New Party.

Cartel's original claims against OFC had nothing to do with OFC's status as a guarantor of the Bank's obligations, as Cartel itself acknowledges. See Motion at 1 n.1. OFC has requested that its name be removed from the case caption because the original claims against OFC were resolved in OFC's favor. See id. Therefore, Cartel's proposed new guarantee claim would effectively bring a new party into the litigation, even though OFC's name technically still appears in the case caption in a different capacity. E. Granting the Motion Would Likely Result in "Expensive and TimeConsuming New Discovery."

Cartel has revealed that its ulterior motive in seeking to expand the case at this late date is to reopen discovery. See Cartel's Motion to: (i) Conduct Limited Additional Discovery, (ii) Require Defendants to Supplement Disclosures and Discovery Responses, and (iii) Reserve the Right to Introduce Different and/or Additional Evidence at Retrial (the "Motion to Reopen Discovery") (docket no. 456) at 5 ¶ 9.1 In the Motion to Reopen Discovery, Cartel seeks leave to propound up to ten new interrogatories and

1

The Bank will be filing a separate response to Cartel's Motion to Reopen Discovery.

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up to ten new document requests to each of OFC and the Bank, and to take other and further discovery, for at least seventy-five days. See id. "A district court may deny a motion for joinder where the addition of the defendants would cause prejudice, expense, and delay by opening up a `Pandora's box' of discovery." Landmark Dev. Group v. JEG Holdings, Inc., 185 F.R.D. 126, 128 (D. Conn. 1999). "A court may also consider the motive of the party moving for the joinder of additional parties." Id. If the Motion is denied, Cartel would have no legal right to take any discovery from OFC. Denial of Cartel's attempt to join OFC is warranted, if only to avoid unnecessary discovery that would further delay resolution of Cartel's damages claim. F. The Prejudice Resulting from Joinder of OFC Can Be Avoided if Cartel Waits Until After the Second Trial Before Seeking to Inject OFC's Guarantee into the Case.

Cartel should not be permitted to expand the scope of this litigation with a new claim against OFC unless and until Cartel obtains a judgment against the Bank (or the Bank's successor-in-interest)2 and Cartel is unable to collect on such judgment. Until such time, there is no need to inject a new claim, a new party, and new issues into the case. OFC should not be forced to expend attorneys' fees and costs to litigate a claim that would vanish if Cartel either did not prevail on its damages claim or won and

2

The Bank moved for substitution of Ocwen Loan Servicing ("OLS"), the Bank's sole successor-in-interest, for the Bank, pursuant to Rule 25(c). See the Bank's Motion for Substitution of Party and for Amendment of Caption (docket no. 442) (the "Bank's Motion"). The Bank's Motion is currently awaiting decision.

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collected on a judgment.3 As this Court perceptively noted during the January 31, 2008 status conference: If you can't satisfy the judgment from the named party, there is at least -- I agree, at least a theoretical possibility that that would be your logical next step [to sue the guarantor separately]. But you'd only take that logical next step if it turns out you couldn't satisfy the judgment in the named successor-in-interest. Tr. of Jan. 31, 2008 status conf. at 13:24-14:4 (emphasis added). (Relevant pages from such transcript are attached hereto as Exhibit A.) Cartel could not possibly be prejudiced if OFC is not joined as a party at this stage of the litigation. Cartel could not collect from OFC, under any circumstances, unless and until Cartel won the second trial and sought, without success, to collect on its judgment. It is therefore of no consequence to Cartel whether it joins OFC at this time or waits until after the second trial before pursuing a claim against OFC. Adding OFC to the case prior to trial would not render OFC any more capable of paying the judgment Cartel hopes to win than if OFC remains on the sidelines until resolution of Cartel's damages claim. The prejudice resulting from delay of the case and the unnecessary discovery expenses that OFC would be forced to incur vastly outweighs

3

There is little likelihood that Cartel would need to look to a third party to collect any judgment entered against OLS, assuming Cartel wins its damages claim and the Court substitutes OLS for the Bank. OLS is an active loan servicing company that conducts business in all fifty states, the District of Columbia, and Puerto Rico. See Exhibit A to the Bank's Motion (page 3 of OFC's Form 10-K filed on March 30, 2006). Cartel offers no evidence that OLS is incapable of satisfying any judgment Cartel may win at the second trial on damages.

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the minimal, if any, impact on Cartel resulting from deferring litigation of its guarantee claim. In fighting this premature joinder battle, Cartel has lost sight of the requirement that the Federal Rules of Civil Procedure "should be construed and administered to secure the just, speedy, and inexpensive determination of every action and proceeding." Fed. R. Civ. P. 1. Cartel has transformed what should have been a simple matter -- substitution of OLS, the Bank's only successor-in-interest, for the Bank ­ into satellite litigation that, including this response and Cartel's inevitable reply in support of the Motion, will take up eight docket entries in a case file already staggering under the burden of more than 450 filings. In its seventh year, this case should remain sharply focused on the only issue remaining for adjudication ­ whether Cartel can prove its damages claim against the Bank after failing to do so during the first trial. II. THE CASES CITED IN THE MOTION DO NOT SUPPORT JOINDER OF OFC. Setting aside the compelling argument for denial of the Motion based on the prejudice that would inevitably result from joinder of OFC, the case that Cartel claims supports joinder of a guarantor "without the necessity of the plaintiff first obtaining a judgment against the principal obligor," Motion at 3 ¶ 6, actually stands for the opposite proposition. In Decatur Coca-Cola Bottling Co. v. Variety Vending Corp., 277 F. Supp. 393, 393-94 (N.D. Ga. 1967), the court noted that the "second defendant" against which the plaintiff sought a judgment was a surety and not a guarantor. See id. at 394. "[A] guarantor, unlike a surety, is not liable until it appears that the debt is uncollectible from the primary debtor . . . ." Id.

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The Decatur court concluded that the "second defendant" was subject to suit along with the primary debtor because it was a surety, and not a guarantor. See id. Decatur is consistent with the principle that "the guarantor cannot be sued jointly as a co-defendant with the debtor unless the debtor is shown to be insolvent," except where the subject guaranty agreement specifically permits suit against the guarantor "without . . . having to proceed against the . . . debtor." Graybar Elec. Co. v. Opp, 226 S.E.2d 271, 273 (Ga. App. 1976) (quoting Gen. Fin. Corp. of Atlanta, Ne. v. Welborn, 105 S.E.2d 386, 389 (Ga. App. 1958)). The other cases cited in the Motion did not involve guarantors, as Cartel acknowledges in the parentheticals set forth in Paragraph 6 of the Motion. See Motion at 3 ¶ 6 (citing Bailey v. Zlotnick, 133 F.2d 35, 37 (D.C. Cir. 1942); Sypherd v. Haeckl's Express, Inc., 31 F.R.D. 255, 255-56 (S.D. Ohio 1962); Citizens Bank of Ashville v. Cameron & Co., 40 F. Supp. 1002, 1004 (S.D. Ohio 1941), aff'd, 134 F.2d 888 (6th Cir. 1943)). Such decisions are not analogous to the situation presented here, where the prospective new party defendant could not possibly be held liable to the plaintiff unless and until the plaintiff won a judgment on which the plaintiff could not collect. The Motion fails, if only because Cartel cited no authority in support of its assertion that OFC may be joined pursuant to Rules 18(b) and 20(a), even setting aside the prejudice such joinder would cause. CONCLUSION The Bank respectfully requests that the Court deny the Motion.

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Respectfully submitted this 20th day of February, 2008.

/s/Lino S. Lipinsky de Orlov_________ Lino S. Lipinsky de Orlov Sandra B. Wick Mulvany MCKENNA LONG & ALDRIDGE LLP 1875 Lawrence Street, Suite 200 Denver, CO 80202 (303) 634-4000 ATTORNEYS FOR DEFENDANT OCWEN FEDERAL BANK FSB

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CERTIFICATE OF SERVICE I hereby certify that on this 20th day of February, 2008, a true and correct copy of the foregoing DEFENDANT OCWEN FEDERAL BANK FSB'S RESPONSE TO MOTION TO JOIN OCWEN FINANCIAL CORP. AS A PARTY DEFENDANT was electronically filed with the clerk of court using the CM/ECF System, which will send notification of such filing to the following: Glenn W. Merrick, Esq. G.W. Merrick & Associates, LLC 5445 DTC Parkway, Suite 912 Greenwood Village, CO 80111 [email protected] /s/Lino S. Lipinsky de Orlov_________

DN:32136654.1

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