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finding no undue delay and noting that the defendant complied with the time frame for amending pleadings in the court's Rule 16 Scheduling Order
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No. 05-3216-PHX-JAT.
June 27, 2006
ORDER
Pending before this Court is Defendant's Motion to Amend Answer and Assert Counterclaim (Doc. 12).
I. FACTUAL BACKGROUND
The Plaintiff suffered a water loss on his property on September 28, 2004. On October 13, 2004, the Plaintiff hired James O'Toole (O'Toole), a public adjuster, to estimate the value of the loss. O'Toole later requested an appraiser, and on November 5, 2004, Plaintiff retained John Hall (Hall). On May 10, 2005, appraisers for the Defendant and Plaintiff signed an award, agreeing upon the amount of money that Nationwide Mutual Fire Insurance Company (Nationwide) would pay the Plaintiff. The contract provided that in the event that the parties' appraisers could not agree upon the amount of the loss, then they would choose an umpire. The contract further specified that any two of the three signatures would determine the amount of the loss. Although he was never called upon to resolve a dispute, the umpire ratified and signed the appraisers' award on May 12, 2005.
Plaintiff brought suit in Maricopa County Superior Court on September 7, 2005. The complaint alleges breach of contract and breach of the covenant of good faith and fair dealing against Nationwide for the manner in which they handled Plaintiff's claim. On October 14, 2005, Nationwide removed the action to the United States District Court for the District of Arizona.
On December 19, 2005, this Court held the Rule 16(b) pretrial conference. At that conference, the Court adopted three deadlines. This Court scheduled: (1) March 10, 2006, as the deadline for Defendant to amend its Answer; (2) September 11, 2006, as the deadline for discovery; and (3) October 16, 2006, as the deadline for dispositive motions. On January 3, 2006, Defendant received Plaintiff's initial disclosure statement. Within that disclosure statement are facts that purportedly demonstrate an inappropriate business relationship between O'Toole and Hall. On March 10, 2006, Defendant filed a Motion to Amend Answer and Assert Counterclaim based upon the information contained within the disclosure. Plaintiff objects to Defendant's Motion to Amend Answer and Assert Counterclaim.
II. LEGAL ANALYSIS AND CONCLUSION
Generally, Federal Rule of Civil Procedure 15(a) governs a motion to amend pleadings to add claims or parties. In the present case, Rule 16 could also apply because Defendant requested leave to amend after Court issued the Rule 16 Scheduling Order. Here, Defendant submitted its Motion to Amend Answer by the deadline the Court set in the Rule 16(b) pretrial conference. It is therefore unnecessary to examine Rule 16 further.
Rule 15(a) provides in pertinent part:
A party may amend the party's pleading once as a matter of course at any time before a responsive pleading is served or, if the pleading is one to which no responsive pleading is permitted and the action has not been placed upon the trial calendar, the party may so amend it at any time within 20 days after it is served. Otherwise a party may amend the party's pleading only by leave of court or by written consent of the adverse party; and leave shall be freely given when justice so requires.
Fed.R.Civ.P. 15(a). The decision whether to grant or deny a motion to amend is within the trial court's discretion. In Foman v. Davis, the Supreme Court declared that leave to amend "shall be freely given when justice so requires. This mandate is to be heeded." 371 U.S. 178, 182 (1962). Therefore, when exercising its discretion under Rule 15(a), a court must be guided by the underlying purpose of the rule, which is "to facilitate decision on the merits rather than on the pleadings or technicalities." Eldridge v. Block, 832 F.2d 1132, 1135 (9th Cir. 1987). Thus, Rule 15's policy of favoring amendments to pleadings should be applied with extreme liberality. "Generally, this determination should be performed with all inferences in favor of granting the motion." Griggs v. Pace Am. Group, Inc., 170 F.3d 877, 880 (9th Cir. 1999) (citing DCD Programs v. Leighton, 833 F.2d 183, 186 (9th Cir. 1987)).
A party does not have an unlimited opportunity to amend its Answer. The United States Supreme Court has established that motions to amend should not be granted if the district court determines that there has been a showing of: (1) undue delay; (2) bad faith or dilatory motives on the part of the movant; (3) repeated failure to cure deficiencies by previous amendments; (4) undue prejudice to the opposing party; or (5) futility of the proposed amendment. Foman, 371 U.S. at 182; Madeja v. Olympic Packers, 310 F.3d 628, 636 (9th Cir. 2002) (quoting Yakima Indian Nation v. Wash. Dep't of Revenue, 176 F.3d 1241, 1246 (9th Cir. 1999)) (citation and internal quotation marks omitted).
Here, Plaintiff argues that Nationwide's motion should be denied on four grounds: (1) it acted with undue delay; (2) the amendment would be futile; (3) Nationwide waived its objection to Plaintiff's chosen appraiser; and (4) the Amendment is barred by Rule 13. Significantly, Plaintiff, as the "party opposing amendment," bears the burden of showing prejudice, futility, or one of the other permissible reasons for denying a motion to amend. DCD Programs, 833 F.2d at 187; see Richardson v. United States, 841 F.2d 993, 999 (9th Cir. 1988) (stating that leave to amend should be freely given unless opposing party makes "an affirmative showing of either prejudice or bad faith").
A. UNDUE DELAY
The first ground upon which this Court could deny leave to amend is undue delay. Delay, by itself, is insufficient to justify denial of motion to amend. Hurn v. Retirement Fund Trust of Plumbing, 648 F.2d 1252, 1254 (9th Cir. 1981) (citing Howey v. United States, 481 F.2d 1187, 1190-91 (9th Cir. 1973)). Additionally, the Defendant was not even late to file. It submitted its motion to amend on March 10, 2006, which is within the deadline this Court set in the Rule 16 Scheduling Order. Plaintiff then claims that Defendant's "ultimate goal" is to file a motion to vacate the appraisal award, and that the Court must disallow an amendment to the answer because this "ultimate goal" would be untimely. This Court is not ruling on a hypothetical motion that may be filed in the future. It is ruling on the ability of the Defendant to amend its Answer, and thus undue delay does not apply.
B. FUTILITY
Second, Plaintiff argues that the motion would be futile. Regarding futility, "[a] district court does not err in denying leave to amend where the amendment would be futile . . . or would be subject to dismissal." Saul v. United States, 928 F.2d 829, 843 (9th Cir. 1991) (citations omitted); see also Miller v. Rykoff-Sexton, Inc., 845 F.2d 209, 214 (9th Cir. 1988) ("A motion for leave to amend may be denied if it appears to be futile or legally insufficient."(citation omitted)). Similarly, a motion for leave to amend is futile if it can be defeated on a motion for summary judgment. Gabrielson v. Montgomery Ward Co., 785 F.2d 762, 766 (9th Cir. 1986). "However, a proposed amendment is futile only if no set of facts can be proved under the amendment to the pleadings that would constitute a valid and sufficient claim or defense." Miller, 845 F.2d at 214. For the reasons discussed below, neither the additional affirmative defense nor the counterclaim are futile.
First, Plaintiff argues that because the appraisal award only required the signature of two out of the three representatives, the replacement of its agent would not alter the magnitude of the award. Because the magnitude of the award could not change, Plaintiff asserts that it must prevail in a motion for summary judgment on the issue. This Court does not believe that issue to be dispositive. Judge David C. Bury's decision in the matter of Charlie Gahn dba Olde Tymers Restaurant v. Columbia Casualty Insurance Company, No. 03-630 (D. Ariz. Nov 22, 2005) (Order granting Disqualification of Plaintiff's Appraiser), indicates that at least one trier of fact was troubled by the allegations that Hall and O'Toole were working together. He also found that under a similar contract, the removal of Hall would make a difference despite the rule that two out of three signatures on the award would be binding upon both parties. Plaintiff has not met its burden of convincing this Court that "no set of facts can be proven under the amendment to the pleadings that would constitute a valid and sufficient claim or defense." Miller, 845 F.2d at 214.
Second, Defendant wishes to assert a Counterclaim alleging breach of contract by Plaintiff. Rule 15 strongly reflects an intent for litigation to be resolved on the merits and that amendments for valid claims should be liberally granted. "This liberality . . . is not dependent on whether the amendment will add causes of action or parties." DCD Programs, LTD. v. Leighton, 833 F.2d 183, 186 (9th Cir. 1987). A trier of fact could find that the Plaintiff breached its duty to the Defendant under the contract. Additionally, the counterclaim asserted does not address the appraisal award. The counterclaim asserts that the Plaintiff breached its contract on other grounds, namely by not choosing an independent or impartial appraiser. It would not be futile for the Defendant to pursue this cause of action because the Plaintiff could prevail on the merits of its claim and the Defendant could prevail on the merits of this entirely unrelated matter.
C. WAIVER
Third, Plaintiff contests the motion to amend by alleging that Defendant waived its right to dispute the appraiser. This motion does not concern impartiality of the appraiser, but rather, the ability of the Defendant to amend its Answer. Waiver occurs when a party relinquishes a known right or exhibits conduct that clearly warrants an inference of an intentional relinquishment. Meineke v. Twin city fire Ins. Co., 892 P.2d 1365, 181 Ariz. 576 (Ct.App. 1995). Here it is clear that Defendant did not waive its right to amend its Answer, and this Court will look no further to determine whether it waived rights under the contract which forms the basis of this action.
D. RULE 13
Fourth, Plaintiff claims that Defendant's counterclaim is a compulsory counterclaim within the meaning of Rule 13(a), and must therefore be barred as untimely. Under Rule 13(a), a party who fails to plead a compulsory counterclaim against an opposing party is deemed to have waived that claim. Dragor Shipping Corp. v. Union Tank Car Co., 378 F.2d 241, 244 (9th Cir. 1967). However, Rule 13(f) allows a party to amend its pleadings and assert a counterclaim if the counterclaim was originally omitted "through oversight, inadvertence, or excusable neglect, or when justice requires." Fed.R.Civ.P. 13. Plaintiff cites to Ralston-Purina Co. v. Bertie, 541 F.2d 1363 (9th Cir. 1976), stating the proposition that barring of counterclaims is favored where the party seeking leave to amend could not adequately explain the reason for the delay. Although this court agrees with that statement of law, it is not applicable here. Here, Defendant adequately explained the reason for delay. This motion is based upon information that was acquired by Defendant during discovery. Rule 13 does not bar the Defendant from Amending Answer and Asserting Counterclaim. Based on the foregoing,
IT IS ORDERED that Plaintiff's Motion to Amend and Assert Counterclaim (doc. 12) is granted.
IT IS FURTHER ORDERED that Defendant shall file the Amended Answer and Counterclaim within ten days of the date of this order.