Opinion
Civ. No. 99-1091, SECTION "N".
February 4, 2000.
ORDER AND REASONS
Before the Court are Defendant DePuy Orthopaedics, Inc.'s Motion for Leave to File First Supplemental and Amended Counterclaim and Motion to Recognize Jury Demand. For the following reasons, Defendant's Motion for Leave to File First Supplemental and Amended Counterclaim is DENIED and Defendant's Motion to Recognize Jury Demand is GRANTED.
This motion was originally set before United States Magistrate Judge Karen Wells Roby. Because the outcome of this motion depended entirely on this Court's prior rulings, this Court decided the motion on the memoranda.
A. BACKGROUND
This case involves a dispute between DePuy Orthopaedics, Inc. ("DePuy") and Nall Gearheard and Audubon Medical, Inc. (collectively "Gearheard") over the validity of various provisions of an employment agreement. Specifically, the parties quarreled over the validity of a non-competition provision and Gearheard's right to keep certain accelerated payments that DePuy had given him, arguably in consideration for his promise not to compete. Gearheard filed suit in this Court, seeking a declaratory judgment that the non-competition provision was invalid and unenforceable, and argued that he was entitled to keep the accelerated payments. DePuy filed counterclaims for breach of contract, unjust enrichment, and unfair trade practices, arguing that the non-competition provision was valid and unenforceable, and if it was not, that Gearheard should return the accelerated payments.
Familiarity with the facts is assumed. See August 19, 2000 Order and Reasons.
On August 19, 1999, this Court granted summary judgment in favor of Gearheard, finding that the non-competition provision at issue was null and void under LSA-R.S. 23:921(A), but upholding the remainder of the contract, including the acceleration clause. The Court concluded
that the non-competition provision at issue is only an accessory clause to which the agreement was not subject for its existence. This Court declines to presume, based on the nature of the provision or the intention of the parties, that "the contract would not have been made without the [non-competition] provision." See LA. Civ. CODE ANN. art. 2034. The Court agrees with Gearheard that the primary purpose of the change of control provision was to induce Gearheard to enter into an exclusive employment agreement with DePuy. The non-competition provision reads as an addendum to the change of control provision, not the cause of the change of control provision. DePuy must abide by the consequences of drafting a non-competition agreement contrary to public policy. Accordingly, the non-competition provision at issue is deleted, and the remainder of the Agreement stands.
Order and Reasons pp. 13-14. Because the August 19, 1999 Order Reasons did not state explicitly what effect these findings had on DePuy's counterclaims, the Court issued a Minute Entry on September 23, 1999 in which it stated
[t]he Court finds that its August 19, 1999 Order and Reasons moots DePuy's breach of contract and unjust enrichment claims. In the Order Reasons, the Court held that the entire contract, with the exception of the non-competition provision, was valid. Most importantly for the purposes of DePuy's counterclaims, the Court held that the accelerated payment option was an inducement for Mr. Gearheard to sign with DePuy and that the non-compete provision was only an accessory, which could be struck without voiding the rest of the paragraph. Thus, Mr. Gearheard was entitled to the accelerated payment. This finding necessarily moots DePuy's breach of contract and unjust enrichment claims. Should DePuy wish to amend its counterclaim, it must file leave to amend.
Minute Entry pp. 1-2. In addition, responding to DePuy's statements that its jury demand had not been recognized, the Court advised DePuy in the same Minute Entry that it should notice the motion for recognition of its jury demand. See Minute Entry p. 2.
DePuy now moves to amend its counterclaim and for recognition of its jury demand.
B. LAW AND ANALYSIS 1. DEPUY'S MOTION FOR LEAVE TO FILE FIRST SUPPLEMENTAL AND AMENDED COUNTERCLAIM
DePuy moves the Court for leave to add a counterclaim for detrimental reliance. This new claim would read in part:
DePuy reasonably relied on promises and representations made by plaintiffs. Plaintiffs represented to and promised DePuy orally, in writing and through their actions that they would not compete with DePuy in exchange for DePuy's payment of various sums of money to plaintiffs, including the acceleration payment made to plaintiffs. . . . DePuy, in good faith and reasonable reliance on plaintiffs promises and representations, paid to plaintiffs various sums of money. DePuy's good faith and reasonable reliance was, however, to its detriment when plaintiffs accepted DePuy's payments and then immediately claimed that plaintiffs were not bound by their promises and representations. DePuy would not have made any payments to plaintiffs but for their promises and representations to DePuy.
Gearheard opposes this amendment. According to Gearheard, "this Court's rulings on the unenforceability of the non-competition clause and the validity of the remainder of the contract have rendered moot any further attempted claim to obtain return of monies paid under the contract." Gearheard argues that the motion for summary judgment clearly included the issue of DePuy's reliance on the change of control provisions and payment of the accelerated payments and that the Minute Entry recognized that DePuy's counterclaims "had been dismissed and/or rendered moot by the Court's ruling that the non-competition clause was unenforceable, but that the remainder of the agreement stands." DePuy further argues that the Court cannot consider outside statements upon which DePuy might have relied because the contract states that "this Agreement supersedes any and all other agreements written or oral."
Opposition to Motion for Leave to File Amended Counterclaim p. 1.
Id. p. 3.
Supplemental Opposition p. 1.
In support of its amendment, DePuy points out that a detrimental reliance claim is distinct from a breach of contract or unjust enrichment claim. In particular, DePuy argues that a detrimental reliance claim (1) has different elements of proof and (2) does not depend on the existence of a valid, unenforceable contract. "Thus," DePuy concludes, "although the non-competition clause was stricken from the accelerated payments provision in the plaintiffs' contract, they are not relieved from the consequences of the representations they made to DePuy." DePuy further argues that, although its other counterclaims dealt with matters within the four corners of the contract, the detrimental reliance counterclaim looks to extrinsic evidence.
Reply Memorandum in Support of Its Motion for Leave to File First Supplemental and Amended Counterclaim p. 2.
Federal Rule of Civil Procedure 15(a), which governs amendments to a party's pleadings, provides that leave to amend "shall be freely given where justice so requires." The Fifth Circuit has closely adhered to this rule. See, e.g., Rolf v. City of San Antonio, 77 F.3d 823, 828 (5th Cir. 1996) ("A decision to grant leave is within the discretion of the court, although if the court lacks a substantial reason to deny leave, its discretion is not broad enough to permit denial."); Robertson v. Plano City of Texas, 70 F.3d 21, 22 (5th Cir. 1995) ("leave to amend complaint should be granted liberally"). In exercising its discretion to grant or deny leave to amend, a court may consider (1) undue delay; (2) bad faith; (3) dilatory motive; (4) prejudice to the other party; and (5) the futility of the proposed amendments. See Rolf, 77 F.3d at 828. Even if substantial reason to deny leave to amend exists, the Court may consider the prejudice to the movant in denying leave to amend, as well as the interests of judicial economy. See Jamieson v. Shaw, 772 F.2d 1205, 1208 (5th Cir. 1985).
Based on this Court's prior rulings, the Court finds that DePuy's proposed amendments are futile. Gearheard is correct that the Court considered the issue of DePuy's reliance in its August 19, 1999 Order and Reasons. See p. 5 (considering DePuy's argument "that it is entitled to recover from Gearheard the payments made in good faith reliance on the change in control clause and its corresponding acceleration of payments"). The Court's findings that "the primary purpose of the change of control provision was to induce Gearheard to enter into an exclusive employment agreement with DePuy" and that the non-competition provision did not "cause" the change of control provision necessarily imply that DePuy did not rely to its detriment on Gearheard's promises not to compete when it made the accelerated payments. Thus, DePuy will not be able to recover under a theory of detrimental reliance, which requires proof of three elements: (1) a representation by conduct or word; (2) justifiable reliance thereon; and (3) a change of position to one's detriment because of that reliance. The proposed amendment is therefore futile. See Wilson v. America Trans Air, Inc., 874 F.2d 386, 392 (7th Cir. 1989) (stating that an amendment is a "futile gesture" if the amended pleading could not survive a motion for summary judgment); Klamath-Lake Pharm. Ass'n v. Klamath Med. Serv. Bureau, 701 F.2d 1276, 1293 (9th Cir. 1983) (affirming the district court's denial of leave to amend because the proposed amendment "could not affect the outcome of this lawsuit").
See Nicholas v. Allstate Ins. Co., 739 So.2d 830, 849 (La.Ct.App. 1999)
The Court also questions whether DePuy could have "justifiably relied" on a non-competition provision that violated public policy.
Because "futile amendments should not be permitted",Klamath-Lake, 701 F.2d at 1293, the Court denies DePuy's motion to amend its counterclaim.
2. DEPUY'S MOTION TO RECOGNIZE JURY DEMAND
Pursuant to the Court's September 23, 1999 Minute Entry, DePuy also moves for a recognition of its jury demand. DePuy is correct when it states that it included a jury demand in its June 9, 1999 Answer to Amended Complaint and Counterclaim. Thus, the Court grants DePuy's motion to recognize this demand.
The Court notes that Gearheard filed no opposition to this motion, which provides an alternative ground for granting DePuy's motion. Local Rule 7.5E of the Eastern District of Louisiana requires that memoranda in opposition to a motion be filed and a copy be delivered to chambers eight days prior to the date set for hearing of the motion.
C. CONCLUSION
Because the Court's prior rulings moot DePuy's proposed detrimental reliance counterclaim, the Court denies DePuy's Motion for Leave to File First Supplemental and Amended Counterclaim as futile. Because DePuy demanded a jury in its Answer to Gearheard's Amended Complaint, the Court grants DePuy's Motion to Recognize Jury Demand. Accordingly,IT IS ORDERED that Defendant's Motion for Leave to File First Supplemental and Amended Counterclaim is DENIED. IT IS FURTHER ORDERED that Defendant's Motion to Recognize Jury Demand is GRANTED.
New Orleans, Louisiana, this 4th day of February, 2000.