Opinion
6:20-CV-06025 EAW
2021-06-25
ROCHESTER DRUG CO-OPERATIVE, INC., Plaintiff, v. HISCOX INSURANCE COMPANY, INC., Defendant.
Brian Marc Feldman, Harter Secrest & Emery LLP, Rochester, NY, Lauren Renee Mendolera, Patrick Tomovic, Harter, Secrest and Emery LLP, Buffalo, NY, for Plaintiff. David S. Sheiffer, Patrick J. Lawless, Richard W. Boone, Jr., Wilson Elser Moskowitz Edelman & Dicker LLP, New York, NY, for Defendant.
Brian Marc Feldman, Harter Secrest & Emery LLP, Rochester, NY, Lauren Renee Mendolera, Patrick Tomovic, Harter, Secrest and Emery LLP, Buffalo, NY, for Plaintiff.
David S. Sheiffer, Patrick J. Lawless, Richard W. Boone, Jr., Wilson Elser Moskowitz Edelman & Dicker LLP, New York, NY, for Defendant.
DECISION AND ORDER
ELIZABETH A. WOLFORD, United States District Judge
INTRODUCTION
Plaintiff Rochester Drug Co-Operative ("Plaintiff") seeks leave to amend its complaint against Hiscox Insurance Company, Inc. ("Defendant") for breach of a Private Company Management Liability Insurance Policy bearing number UVA1901769.17, covering the policy period of March 8, 2017 through March 8, 2018 ("the Policy"). (Dkt. 1). Specifically, Plaintiff seeks leave to add a claim related to coverage for a criminal investigation beginning in November 2017, when Plaintiff received a grand jury subpoena from the criminal division of the United States Attorney's Office for the Southern District of New York (the "SDNY Criminal Investigation"). (Dkt. 75). Defendant opposes Plaintiff's request, arguing that Plaintiff improperly delayed in making it and that Plaintiff's proposed amendments are futile in any event. (Dkt. 77). For the reasons set forth below, the Court grants Plaintiff leave to amend.
BACKGROUND
The background and procedural history of this matter are set forth in detail in this Court's prior Decisions and Orders (1) granting Plaintiff's motion for a preliminary injunction and denying Defendant's motion to dismiss (Dkt. 57 (the "June 2020 D&O")) and (2) denying Defendant's motion for reconsideration or alternatively for an order concerning an immediate appeal pursuant to 28 U.S.C. § 1292(b) (Dkt. 84), familiarity with which is assumed for purposes of the instant Decision and Order. The Court briefly summarizes the facts salient to the instant motion for leave to amend below.
In seeking leave to amend, Plaintiff alleges that it became aware in November 2017 that it "was the target of a criminal investigation by the Criminal Division of the United States Attorneys’ Office for the Southern District of New York (‘SDNY’), when the SDNY sent a criminal grand jury subpoena to [Plaintiff]." (Dkt. 75-2 at ¶ 16). Plaintiff further alleges that it provided notice of the SDNY Criminal Investigation to Defendant in November 2017 and "retained counsel to respond to criminal compulsory process issued by the SDNY, including the review and production of documents demanded by the SDNY grand jury subpoena." (Id. at ¶¶ 16, 33). Plaintiff's proposed amended complaint asserts "on information and belief" that Defendant "never issued correspondence reserving rights under the Policy or disclaiming coverage for the SDNY Criminal Investigation." (Id. at ¶ 34).
In opposition to Plaintiff's motion for leave to amend, Defendant has submitted numerous documents to the Court, including several emails between the parties regarding the SDNY Criminal Investigation. (See Dkt. 77-2; Dkt. 77-3; Dkt. 77-4; Dkt. 77-5; Dkt. 77-6; Dt. 77-7; Dkt. 77-8; Dkt. 77-9; Dkt. 77-10; Dkt. 77-11; Dkt. 77-12; Dkt. 77-13). These documents confirm Plaintiff's proposed new allegations in some respects and contradict them in others. In particular, the documents submitted by Defendant confirm that Plaintiff advised Defendant of the SDNY Criminal Investigation in November 2017. (See Dkt. 77-6 at 3; Dkt. 77-13 at 2). However, the documents submitted by Defendant indicate that, contrary to Plaintiff's allegations, Defendant acknowledged receipt of the notice on November 21, 2017, with an email in which it indicated that it was "respectfully reserv[ing] all rights at law and under the terms of the policy[.]" (Dkt. 77-7 at 2). Defendant has further submitted emails from March and April of 2018 in which Plaintiff's attorneys communicated with Defendant regarding the SDNY Criminal Investigation. (See Dkt. 77-6; Dt. 77-7; Dkt. 77-8). Finally, the Court notes that Defendant has submitted a copy of a letter dated June 1, 2018, in which Defendant—again, contrary to Plaintiff's proposed new allegations—disclaims coverage for the SDNY Criminal Investigation. (Dkt. 77-13).
DISCUSSION
I. LEGAL STANDARD
"A district court has broad discretion in determining whether to grant leave to amend[.]" Gurary v. Winehouse , 235 F.3d 792, 801 (2d Cir. 2000). "The court should freely give leave when justice so requires." Fed. R. Civ. P. 15(a)(2). "Where it appears that granting leave to amend is unlikely to be productive, however, it is not an abuse of discretion to deny leave to amend." Ruffolo v. Oppenheimer & Co. , 987 F.2d 129, 131 (2d Cir. 1993). "One appropriate basis for denying leave to amend is that the proposed amendment is futile," and a proposed amendment "is futile if the proposed claim could not withstand a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6)." Lucente v. Int'l Bus. Machines Corp. , 310 F.3d 243, 258 (2d Cir. 2002).
To withstand dismissal under Rule 12(b)(6), a plaintiff must set forth "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Turkmen v. Ashcroft , 589 F.3d 542, 546 (2d Cir. 2009) (quoting Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ). "The party opposing a motion to amend bears the burden of establishing that an amendment would be futile." Lumetrics, Inc. v. Bristol Instruments, Inc. , 101 F. Supp. 3d 264, 268 (W.D.N.Y. 2015) (citation omitted).
Because the standard on a motion for leave to amend is the same as that on a Rule 12(b)(6) motion to dismiss, "the Court cannot consider facts outside the pleadings in considering the futility of an amendment." A. ex rel. A. v. Hartford Bd. of Educ. , No. 3:11-CV-1381 CSH, 2012 WL 3887020, at *4 (D. Conn. Sept. 6, 2012) ; see also Perez v. 117 Ave. of the Americas Food Corp. , No. 15-CV-8151 (JPO), 2016 WL 5415090, at *3 (S.D.N.Y. Sept. 27, 2016) (declining to consider documents submitted by the defendant in deciding motion for leave to amend).
Here, as noted above, Defendant has made a voluminous documentary submission in connection with its opposition to Plaintiff's motion. Defendant has failed to offer any explanation for why it would be appropriate for the Court to consider these documents in assessing whether Plaintiff's proposed amendments are futile. Accordingly, the Court will not rely on these documents in making its determination . However, the Court notes that to the extent these documents have impacted Plaintiff's "information and belief" regarding Defendant's response to being notified of the SDNY Criminal Investigation, any amended complaint filed by Plaintiff should reflect the same, consistent with Federal Rule of Civil Procedure 11.
As discussed more fully below, even if the Court considered the documents submitted by Defendant, it would not change the Court's view that Plaintiff's proposed amendments are not futile.
II. PLAINTIFF DID NOT UNDULY DELAY IN SEEKING LEAVE TO AMEND
Defendant makes a threshold argument that the Court should not entertain Plaintiff's request for leave to amend because Plaintiff has unduly delayed in making it. (Dkt. 77 at 24-25). This argument is without merit. The case is still in the early stages—indeed, because of the parties’ extensive early motion practice, there has not even been a scheduling conference held under Federal Rule of Civil Procedure 16. No case management order has been issued and no deadline for the amendment of pleadings has been set. Defendant has cited no case where a court has denied a request for leave to amend as untimely under similar circumstances.
Further, Defendant has not demonstrated that it would suffer meaningful prejudice if leave to amend is granted. Given the procedural posture of this case, allowing amendment would not significantly delay final disposition of this matter. See Krumme v. WestPoint Stevens Inc. , 143 F.3d 71, 88 (2d Cir. 1998) ("One of the most important considerations in determining whether amendment would be prejudicial is the degree to which it would delay the final disposition of the action." (citation omitted)). Moreover, while Defendant asserts that it would be prejudiced because it has been "forced to litigate this claim for nearly a year, fully briefing numerous motions, only to now have to face additional claims that RDC has known of since the litigation began" (Dkt. 77 at 25), it has offered no explanation for how its litigation strategy has been impaired or would have been different had the proposed new claim been asserted earlier. Under these circumstances, the Court will not deny the motion for leave to amend on the basis of undue delay.
III. PLAINTIFF'S PROPOSED AMENDMENTS ARE NOT FUTILE
Defendant contends that Plaintiff's proposed amendments are futile, because "coverage for the [SDNY] Criminal Investigation is barred by several terms of the at-issue insurance policy ..., including the ‘Fines or Penalties Exclusion,’ the ‘Prior Knowledge Exclusion,’ the ‘Illegal Conduct Exclusion,’ and the ‘Consent to Settlement Provision[.]’ " (Dkt. 77 at 6). In reply, Plaintiff argues that none of the policy exclusions identified by Defendant apply here, and that Defendant is in any event estopped from denying coverage based on its own conduct. (See Dkt. 80 at 6-14). For the reasons set forth below, the Court agrees with Plaintiff that it is plausible, at this stage of the proceedings, that Defendant is estopped from denying coverage for the SDNY Criminal Investigation. As the Court explained in the June 2020 D&O, under New York law, the doctrine of equitable estoppel may prevent an insurer from asserting even valid exclusions in an insurance policy or other defenses to coverage. (Dkt. 57 at 33) (quoting N. River Ins. Co. v. Town of Grand Island , No. 93-CV-100S, 1995 WL 250391, at *7 (W.D.N.Y. Mar. 31, 1995) ); see also Bluestein & Sander v. Chicago Ins. Co. , 276 F.3d 119, 122 (2d Cir. 2002) ("Under New York common law, an insurer, who undertakes the defense of an insured, may be estopped from asserting a defense to coverage, no matter how valid, if the insurer unreasonably delays in disclaiming coverage and the insured suffers prejudice as a result of that delay." (citation omitted)). "To show prejudice, the insured must show reliance and a change in position resulting from the delay." William Crawford, Inc. v. Travelers Ins. Co. , 838 F. Supp. 157, 160 (S.D.N.Y. 1993), aff'd , 23 F.3d 663 (2d Cir. 1994).
Here, accepting as true the allegations in the proposed amended complaint, Defendant did not assert policy defenses or reserve the privilege to do so when notified of the SDNY Criminal Investigation, but instead acted in a way that led Plaintiff to believe that coverage would be provided. Further, it is a matter of record in this case that Defendant renewed Plaintiff's insurance policy in March 2018, resulting in Plaintiff paying a substantial insurance premium. (See Dkt. 57 at 34). On such facts, the Court cannot conclude that Plaintiff's proposed claim regarding the SDNY Criminal Investigation is implausible. See Burt Rigid Box, Inc. v. Travelers Prop. Cas. Corp. , 302 F.3d 83, 95 (2d Cir. 2002) ("Estoppel ... arises where an insurer acts in a manner inconsistent with a lack of coverage, and the insured reasonably relies on those actions to its detriment.").
The Court's view would not change even if it considered the documents submitted by Defendant. While the documents submitted by Defendant indicate that it reserved its rights under the Policy upon being notified of the SDNY Criminal Investigation, that means only that the Court cannot presume prejudice, but that Plaintiff must instead establish the same as a matter of fact. See Scottsdale Ins. Co. v. United Indus. & Constr. Corp. , No. 12-CV-5732 RRM LB, 2017 WL 52581, at *3 (E.D.N.Y. Jan. 4, 2017) ("[W]here the insurer asserts its rights to disclaim coverage once realized, prejudice may not be presumed—rather, it must be established."). At this stage of the proceedings, the Court cannot conclude as a matter of law that Plaintiff could not make such a showing.
Further, the Court finds the issue of whether the approximately seven-month delay between Plaintiff's notice to Defendant of the SDNY Criminal Investigation in November 2017 and Defendant's claimed disclaimer of coverage in June 2018 was unreasonable cannot be resolved at this stage of the proceedings. While Defendant argues that it spent that time period investigating "coverage for the ... [SDNY] Criminal Investigation diligently and in good faith" (Dkt. 77 at 12), that assertion cannot be resolved on the pleadings, or even on the documents submitted by Defendant.
Because the Court finds that Plaintiff's estoppel argument is plausible, it need not and does not resolve, at this stage of the proceedings, the merits of Defendant's assertion of various exclusions in the Policy with respect to the SDNY Criminal Investigation. After discovery and on a more fulsome record, the Court and the parties will be in a superior position to assess the viability of Defendant's arguments. CONCLUSION
For the foregoing reasons, Plaintiff's motion for leave to file an amended complaint including a claim for coverage of the SDNY Criminal Investigation (Dkt. 75) is granted. Plaintiff may file an amended complaint consistent with this Decision and Order that complies with the proposed amended complaint by no later than July 1, 2021, except that in accordance with the requirements of Federal Rule of Civil Procedure 11, Plaintiff should make appropriate changes to any allegations on information and belief that can no longer be asserted in view of the documents submitted by Defendant. Defendant shall answer the amended complaint consistent with Federal Rule of Civil Procedure 15(a)(3).
SO ORDERED.