Opinion
No. 02-2416-GTV
August 20, 2003
MEMORANDUM AND ORDER
Plaintiff Hanlon Chemical Co., Inc., d/b/a Container Supply Co., brings this diversity action against Defendants United Fire Casualty Company and Travelers Insurance Company for breach of insurance contract and declaratory judgment. Plaintiff claims that both insurance companies had a duty to defend Plaintiff in a state court action seeking payment for electrical services performed at Plaintiff's facility. The case is before the court on Plaintiff's motion for leave to file a second amended complaint (Doc. 21) and Defendant Travelers's motion to dismiss (Doc. 22). For the following reasons, the court grants Plaintiffs motion for leave to file a second amended complaint and denies the motion to dismiss.
I. FACTUAL BACKGROUND AND PROPOSED AMENDMENTS
The following facts are based on the allegations in Plaintiffs amended complaint and proposed second amended complaint.
From June 1, 1997 through June 1, 1999, Defendant Travelers provided Plaintiff with Commercial General Liability ("CGL") insurance coverage. From June 1, 1999 to the present, Defendant United Fire provided Plaintiff with CGL insurance coverage.
In 1997, R.L. Yates Electric Construction Company ("Yates") installed an electrical system at Plaintiff's business site and Plaintiff purchased chiller equipment to be installed at the site. The chiller equipment experienced a series of compressor failures, and Plaintiff hired NATCO Services to fix the compressors. NATCO determined that the compressor failures were due to defective electrical work performed by Yates.
On April 1, 2002, NATCO filed suit in state court (the "underlying action") against Plaintiff and Yates, seeking monetary damages for the costs of equipment, labor, and lost profits. Plaintiff asserted a counterclaim against NATCO and a cross-claim against Yates. Yates also asserted a cross-claim against Plaintiff. Plaintiff timely notified Defendant United Fire of the lawsuit and demanded coverage and a defense in accordance with the insurance contract. Whether Plaintiff timely notified Defendant Travelers of the lawsuit is a disputed fact.
Defendant Travelers maintains that it is undisputed that Plaintiff failed to give the required notice based on a footnote in Plaintiff's brief in opposition to its motion for summary judgment. At this stage of the litigation, the court only considers the allegations in SPlaintiff's complaint and must view those allegations in the light most favorable to Plaintiff.
Plaintiff's proposed amended complaint alleges that "[b]y its pleadings herein and otherwise, [Plaintiff] notified Travelers of the claims asserted against it in the Underlying Action and demanded coverage and a defense from Travelers." Plaintiff does not specifically state when it gave Defendant Travelers notification of the claims.
Plaintiff then filed the instant action on September 4, 2002. The parties to the underlying action later settled. A Journal Entry dismissing the underlying action with prejudice was entered on January 22, 2003.
Plaintiff now seeks leave to file a second amended complaint in the instant case. In the complaint, Plaintiff seeks to add an allegation that the underlying action has been dismissed with prejudice and allegations that Defendant Travelers has expressly denied that it owed any duties to Plaintiff to defend the underlying action or provide indemnity. Plaintiff also seeks to add a claim for monetary damages against Defendant Travelers based on such denials, among other less significant changes.
II. MOTION TO AMEND
The court first considers Plaintiff's motion for leave to amend. Leave to amend "shall be freely given when justice so requires." Fed.R.Civ.P. 15(a). This is a "mandate . . . to be heeded." Foman v. Davis, 371 U.S. 178, 182 (1962). Leave to amend is a matter committed to the court's sound discretion and is not to be denied without the court giving some reason or cause on the record. Fed. Ins. Co. v. Gates Learjet Corp., 823 F.2d 383, 387 (10th Cir. 1987). Leave may be denied when the amendment would cause undue prejudice to the opposing party, when the movant has "unduly and inexplicably delayed" in requesting leave, when the movant acts on a "bad faith or dilatory motive," or when the amendment would be futile. Foman, 371 U.S. at 182; State Distribs., Inc. v. Glenmore Distilleries, 738 F.2d 405, 416 (10th Cir. 1984). In exercising its discretion, the court must be mindful that the Federal Rules of Civil Procedure are designed to facilitate decisions on the merits rather than on pleading technicalities. Koch v. Koch Indus., 127 F.R.D. 206, 209 (D. Kan. 1989).
Defendants argue that the proposed amendment would be futile for two reasons: (1) the complaint on its face shows that the court lacks jurisdiction because Plaintiff failed to allege the requisite amount in controversy; and (2) Plaintiff failed to properly notify Defendant Travelers of the claims asserted against it in the underlying action. The court disagrees on both counts.
Futility may serve as the basis for denying a motion to amend when the proposed amendment would not withstand a motion to dismiss. Acker v. Burlington Northern and Santa Fe R. Co., 215 F.R.D. 645, 647 (D. Kan. 2003) (citing Lyle Commodity Credit Corp., 898 F. Supp. 808, 810 (D. Kan. 1995) (additional citation omitted)). The court therefore analyzes a proposed amendment as if it were before the court on a motion to dismiss.
A Rule 12(b)(6) motion to dismiss will be granted only if it appears beyond a doubt that the plaintiff is unable to prove any set of facts entitling her to relief under her theory of recovery. Conley v. Gibson 355 U.S. 41, 45-46 (1957). "All well-pleaded facts, as distinguished from conclusory allegations, must be taken as true." Swanson v. Bixler, 750 F.2d 810, 813 (10th Cir. 1984) (citation omitted). The court must view all reasonable inferences in favor of the plaintiff, and the pleadings must be liberally construed. Id. (citation omitted). The issue in reviewing the sufficiency of a complaint is not whether the plaintiff will prevail, but whether the plaintiff is entitled to offer evidence to support her claims. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974),overruled on other grounds by Harlow v. Fitzgerald, 457 U.S. 800 (1982).
A. Amount in Controversy
Defendants allege that Plaintiff's claim would not survive a motion to dismiss because Plaintiff does not seek damages in excess of $75,000 as required by 28 U.S.C. § 1332(a). When the required jurisdictional amount under § 1332(a) is challenged, the court looks to the good-faith allegations of the complaint. St. Paul Mercury Indem. Co., v. Red Cab Co., 303 U.S. 283, 288 (1938); Fitzgerald v. City of Ottawa, 975 F. Supp. 1402, 1405 (D. Kan. 1997). The sums demanded in the complaint control. St. Paul Mercury Indem. Co., 303 U.S. at 288;Fitzgerald, 975 F. Supp. at 1405. The plaintiff bears the burden of showing that its claim exceeds the jurisdictional amount. St. Paul Mercury Indem. Co., 303 U.S. at 289; Gibson v. Jeffers, 478 F.2d 216, 221 (10th Cir. 1973). "If the legal impossibility of recovering $75,000 is so certain that it virtually negates [the] plaintiffs good faith in asserting the claim, the [c]ourt must dismiss the action for lack of jurisdiction. Fitzgerald, 975 F. Supp. at 1405-06. The relevant date for determining whether the jurisdictional requirement has been met is the date the plaintiff filed the complaint. Id. at 1406 (citing Sellers v. O'Connell, 701 F.2d 575, 579 (6th Cir. 1983)). Subsequent events that reduce the recoverable damages below the jurisdictional requirement do not divest the court of jurisdiction. Miera v. Dairvland Ins. Co., 143 F.3d 1337, 1340 (10th Cir. 1998) (citation omitted); Bank IV Salina, N.A. v. Aetna Cas. Sur. Co., 783 F. Supp. 1315, 1317 (D. Kan. 1992) (citation omitted).Defendants do not argue that Plaintiff failed to meet the amount in controversy requirement at the outset of this case. They argue that in the proposed second amended complaint, the claim for damages is really only $15,000. Plaintiff's proposed second amended complaint does not merely ask for $15,000; it states, "[T]he amount in dispute at the time this action was commenced, exclusive of interest and costs, exceed[ed] $75,000."
Plaintiff's original complaint sought damages, exclusive of interest and costs, exceeding $75,000. The original complaint alleges facts that sufficiently support this demand. Although the parties have since reached a settlement in the underlying action, significantly reducing the amount of damages now at issue in the instant case, subsequent events that reduce the amount in dispute are irrelevant. See Miera, 143 F.3d at 1340 (citation omitted); Bank IV Salina, N.A., 783 F. Supp. at 1317 (citation omitted).
The court determines that because Defendants have not challenged whether Plaintiff met the amount in controversy requirement at the outset of this litigation, and because Plaintiff's original demand is properly supported by factual allegations, there is no "legal certainty" that Plaintiff's claim was actually for less than the jurisdictional amount.St. Paul Mercury Indem. Co., 303 U.S. at 289; Gibson 478 F.2d at 221. Accordingly, the court determines that Plaintiff should not be denied leave to amend based on the amount in controversy.
B. Notification of Underlying Action
Defendant Travelers next claims that Plaintiff's proposed amendment, specifically, the declaratory judgment action, would be fiitile because Plaintiff failed to properly notify Defendant Travelers of the claims in the underlying action as required by the insurance contract. Defendant Travelers has also raised the issue in its motion to dismiss.
At this stage of the litigation, Defendant Travelers's argument is unavailing. Defendant Travelers has raised an affirmative defense and must show not only that it did not receive timely notice in accordance with the insurance contract, but also that it suffered actual and substantial prejudice from the lack of notice or untimely notice. Creek v. Harder Constr., Inc., 961 P.2d 1240, 1244 (Kan.Ct.App. 1998) (citation omitted). Based on the allegations in Plaintiff's amended complaint and proposed second amended complaint, the court cannot determine whether Defendant Travelers can meet this burden. Defendant Travelers essentially asks the court to presume prejudice based on its inability to defend the underlying action. Presumption of prejudice is not allowed. Id. (citation omitted). The court will entertain Defendant Travelers's argument again in the context of a motion for summary judgment. But at this stage of the litigation, the court will not deny Plaintiff leave to amend based on futility/untimely notice.
For the above-stated reasons, the court grants Plaintiff's motion for leave to amend.
II. MOTION TO DISMISS
Defendant Travelers also moves to dismiss Plaintiff's amended complaint. Technically, the motion should be denied as moot because the court has granted Plaintiff leave to file its second amended complaint. But Defendant Travelers's motion is also relevant with respect to Plaintiff's second amended complaint and the court has already addressed the sole argument Defendant Travelers makes. The motion to dismiss argues that Plaintiff's case against Defendant Travelers should be dismissed because Plaintiff failed to provide timely notice of the underlying action as required by the terms of the insurance policy. For the reasons stated above, the court denies Defendant Travelers's motion to dismiss.
IT IS, THEREFORE, BY THE COURT ORDERED that Plaintiff's motion for leave to file a second amended complaint (Doc. 21) is granted and Defendant Travelers's motion to dismiss (Doc. 22) is denied.
Copies or notice of this order shall be transmitted to counsel of record.
IT IS SO ORDERED.