Gardner Standard Kentaurus Holdco, LLC v. Eaton

Background

Plaintiff Gardner Standard Kentaurus Holdco, LLC, a Delaware limited liability company, filed this diversity action (a federal lawsuit between parties from different states, applying state substantive law) on July 9, 2024, against Alex Eaton individually and as trustee of the Alexander James Eaton Revocable Trust UTD November 17, 2017. The complaint alleged breach of contract and securities fraud arising from Plaintiff's $2 million purchase of 2,000 Class A Units in Kentaurus Holdings, LLC, a company Eaton formed to buy, operate, and resell multifamily housing units in Minnesota.

The original complaint alleged that a Letter Agreement required Defendants to redeem the Class A Units by March 31, 2023 or cause Eaton to purchase them, and that failure to do either gave Plaintiff the right to direct a sale of Kentaurus's assets. Plaintiff alleged Defendants failed on all fronts. Notably, the original complaint already alleged that Eaton "never intended" to pay the redemption price or sell the properties.

Procedural History

Defendants moved for partial dismissal of Counts 1, 4, 5, and 6 (declaratory judgment and securities fraud claims) in October 2024. The court's Pretrial Scheduling Order, issued October 31, 2024, set a January 31, 2025 deadline for motions to amend the pleadings and a March 30, 2025 deadline specifically for adding punitive damages. The scheduling order expressly warned parties that meeting a deadline does not automatically mean a motion is timely if earlier filing was feasible with diligence.

Judge Doty granted the partial dismissal in full on December 16, 2024, dismissing the securities fraud claims. Although Plaintiff had informally requested leave to replead fraud claims in its opposition brief, Judge Doty denied that request because Plaintiff had not filed a proper motion to amend, submitted a proposed amended complaint, or explained what changes it would make.

On December 20, 2024, Defendants served discovery responses articulating the theory that Eaton, as manager of Kentaurus, owed fiduciary duties to the company that prevented him from complying with the Letter Agreement, and that all parties knew this at the time of execution. On January 27, 2025 — four days before the amendment deadline — Plaintiff stipulated to Defendants' filing of an Amended Answer asserting this theory as an affirmative defense. During the January 27 status conference, Plaintiff raised no concerns about the amendment deadline, discovery timing, or the schedule.

Plaintiff deposed Eaton on February 18, 2025, after the amendment deadline had passed. Plaintiff filed its motion to amend on March 28, 2025 — more than five weeks after the deposition and nearly two months after the January 31, 2025 deadline.

The Proposed Amendments

Legal Standards Applied

Because the motion was filed after the scheduling order deadline, the court applied a two-step analysis. Under Federal Rule of Civil Procedure 16(b)(4), the moving party must first show "good cause" — meaning the schedule could not reasonably have been met despite the party's diligence — before the court will consider whether amendment is proper under Rule 15(a)(2), which directs courts to "freely give leave when justice so requires." The court noted that "good cause" is an exacting standard focused primarily on the movant's diligence, not on reasons the deadline was missed.

Analysis: Good Cause for the Promissory Fraud Claim

The court rejected Plaintiff's good cause argument for multiple reasons:

Prior knowledge of the core theory. The promissory fraud claim rested on Eaton's alleged lack of intent to comply with the Letter Agreement — the very same allegation Plaintiff made in the original complaint ("Eaton has refused to sell the assets of Kentaurus and its subsidiaries and has demonstrated that he never intended to pay Plaintiff"). Plaintiff made substantially similar arguments in October 2024 in opposing the partial motion to dismiss.

Early awareness of the fiduciary duties theory. Although this specific theory emerged later in the case, Plaintiff received Defendants' discovery responses articulating the fiduciary duty defense on December 20, 2024, and then stipulated to the Amended Answer asserting it as an affirmative defense on January 27, 2025 — the same day as a status conference at which Plaintiff raised no scheduling concerns. The court found Plaintiff therefore had most or all of the information needed to seek leave to amend by January 27, 2025, at the latest.

Failure to explain inability to depose Eaton before the deadline. Plaintiff relied heavily on Eaton's February 18, 2025 deposition, but did not explain why it could not depose Eaton before the January 31 deadline or why it did not seek a deadline extension before the deposition was scheduled.

Post-deposition delay. Even after the February 18 deposition, Plaintiff waited over a month to file the motion. The court found this further demonstrated a lack of diligence.

Because Plaintiff had not shown diligence, the court declined to consider the question of prejudice to Defendants and denied the motion as to the promissory fraud claim.

Note on the Bridgewater Bank allegations: Plaintiff conceded at oral argument that the proposed Bridgewater Bank allegations did not support the promissory fraud claim; the court therefore did not address them.

Analysis: Punitive Damages

Having denied leave to add the promissory fraud claim, the only remaining claims were for breach of contract. Under Minnesota law, punitive damages are generally not available for breach of contract unless the breach constitutes or is accompanied by an independent, willful tort. Plaintiff itself conceded at the May 21, 2025 hearing that its punitive damages request could not survive if the promissory fraud claim was denied. The court denied leave to amend to add punitive damages on this basis.

Disposition

The court denied Plaintiff Gardner Standard Kentaurus Holdco, LLC's Motion for Leave to Amend Complaint to Add Claims for Promissory Fraud and Punitive Damages in its entirety. Because the motion was denied under Rule 16 for lack of good cause, the court did not reach the parties' arguments about whether the proposed amendments would be futile.