397 P.3d 604
Utah Ct. App.2017Background
- Appellants (investors) alleged they invested about $2 million in In-Store Broadcasting Network (IBN) entities based on IBN defendants’ misrepresentations and filed successive complaints asserting fraud, securities, fraudulent transfer, constructive trust, and related claims.
- After initial pleadings and multiple amendments (including two amended complaints filed without leave), the parties agreed to a scheduling deadline for amended pleadings; later iterations continued without court approval.
- IBN moved to dismiss under Utah R. Civ. P. 12(b)(6), arguing fraud allegations failed to meet Rule 9(c)’s particularity requirement; in response the Appellants sought leave to file a Fifth Amended Complaint to add specificity.
- The district court denied leave to amend as untimely, unjustified, and prejudicial to IBN, and concluded the proposed Fifth Amended Complaint still failed to plead fraud with the particularity required by Rule 9(c); the court dismissed the complaint.
- Appellants appealed, arguing the denial of leave to amend was an abuse of discretion, the Fifth Amended Complaint was sufficient under Rule 9(c), and Rule 9(c) did not apply to their constructive (insolvency) fraudulent-transfer claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did the district court abuse its discretion by denying leave to file a Fifth Amended Complaint under Rule 15(a)? | Amendment would not prejudice IBN; liberal pleading standards permit amendment and fair notice sufficed. | Motion to amend was untimely, unjustified (facts long known), and would substantially prejudice IBN. | Affirmed: denial not an abuse of discretion—motion untimely, lacked justification, and would unduly prejudice IBN. |
| Was the proposed Fifth Amended Complaint futile because it failed to plead fraud with particularity under Rule 9(c)? | The Fifth Amended Complaint alleged who, when, and to whom representations were made with required specificity. | Complaint remained collective and narrative, failing to specify which defendant made what false statement to which plaintiff and how each plaintiff relied. | Affirmed: dismissal proper—complaint did not plead individualized fraud claims with the particularity Rule 9(c) requires. |
| Does Rule 9(c) apply to the Appellants’ fraudulent-transfer claims (specifically constructive/insolvency transfers)? | Rule 9(c) need not apply to constructive fraudulent-transfer claims; courts generally apply Rule 9(c) only to intentional fraudulent transfers. | The complaint alleged a general fraudulent-transfer claim (not distinguishing intentional vs. constructive); Rule 9(c) applies to pleadings alleging fraud. | Affirmed: issue not preserved below and, in any event, complaint was general so Rule 9(c) appropriately applied. |
Key Cases Cited
- Coroles v. Sabey, 79 P.3d 974 (Utah Ct. App. 2003) (factors and flexible, multi-factored inquiry for motions to amend pleadings)
- Kelly v. Hard Money Funding, Inc., 87 P.3d 734 (Utah Ct. App. 2004) (timeliness, prejudice, and justification considerations for amendment; amendments filed late are typically untimely)
- Carlton v. Brown, 323 P.3d 571 (Utah 2014) (Rule 9(c) requires clear, specific description of facts underlying fraud claim)
- Williams v. State Farm Ins. Co., 656 P.2d 966 (Utah 1982) (articulates liberal pleading purpose and fair-notice standard for pleadings)
- Golden Meadows Props., LC v. Strand, 241 P.3d 375 (Utah Ct. App. 2010) (appellate courts will not assume a party’s burden to develop arguments or attack trial court reasoning)