Lickteig v. Cerberus Capital Management, L.P.

Background

Ronald Lickteig sued Cerberus Capital Management, L.P., Covis Pharmaceuticals, Inc., Covis Management Investors LLC, and Covis Holdings, L.P., alleging that they made false or misleading statements about the value of Covis Holdings’ equity. He alleged that, after resigning from Covis Pharmaceuticals, he accepted less for his equity because of those statements.

In an earlier ruling, the court allowed securities-fraud and control-person claims based on statements about the valuation’s TEV/EBITDA multiple and projected 2014 adjusted EBITDA. The court dismissed a claim based on the reported 2013 adjusted EBITDA because Lickteig had not pleaded specific facts supporting his allegation that the actual figure was higher.

Legal standard

Because the amendment deadline in the case-management order had expired, Lickteig had to show “good cause” under Federal Rule of Civil Procedure 16(b)(4) to modify the schedule. The main consideration was whether he had acted diligently. The court also considered whether the amendment would unfairly prejudice the defendants. Under Rule 15, leave to amend should generally be freely given, but an amendment may be denied for undue delay, bad faith, prejudice, or futility. An amendment is futile if the proposed claim could not survive a motion to dismiss.

Court’s analysis

The court found that Lickteig acted diligently. He did not learn the information supporting the amendment until August 17, 2020, and filed the motion one week later. Although Seifert had received the documents before the deadline, the court held that his knowledge was not attributed to Lickteig because Seifert received it before becoming Lickteig’s lawyer. The court also found that the separate action involved different alleged misstatements and theories, making it unsurprising that Seifert did not recognize the importance of the documents to Lickteig’s case earlier.

The court found no undue prejudice to the defendants. The proposed amendment added factual allegations supporting an existing securities-fraud claim rather than entirely new claims or defendants. The court also noted that fact and expert discovery deadlines had been extended, and that the amendment would not significantly expand the case or require substantially more litigation resources.

The court declined to decide whether the documents’ use violated a confidentiality order in the separate action. It stated that the court handling that action could address any alleged violation and that the defendants had not shown undue prejudice in this case. The court also rejected the argument that the Private Securities Litigation Reform Act categorically barred the amendment. It distinguished decisions involving claims that had failed entirely from this case, where the proposed amendment added detail to a claim that had partly survived the earlier motion to dismiss.

The court found the amendment not futile. The added allegations concerning projected 2014 adjusted EBITDA supplemented a claim that had already survived dismissal. The allegations concerning 2013 adjusted EBITDA stated that Covis Holdings’ figure was represented as $78.5 million in two presentations during the same month that the valuation given to Lickteig reported $62.2 million. The court held that these allegations supplied the specific factual basis missing from the original complaint and could support a strong inference that defendants believed the actual figure was $16 million higher than the amount reported to Lickteig.

Disposition

The court granted Lickteig’s motion for leave to amend his complaint. It denied the defendants’ request for costs under Rule 16(f), finding that Lickteig had not violated the scheduling order because he sought and received permission to modify it. The court directed Lickteig to file the amended complaint within seven days and directed the Clerk of Court to terminate the pending motion at Docket No. 53. Judge Gregory H. Woods did not decide the ultimate merits of the securities-fraud claims in this order.