Opinion
Civil Action No. 3:96-CV-2068-R.
June 5, 2003.
MEMORANDUM OPINION ORDER
Pursuant to the provisions of 28 U.S.C. § 636(b) and an Order of the Court in implementation thereof, Lyn-Lea Travel Corp.'s Motion for Leave to File Amended Answer was referred to the United States Magistrate Judge for hearing, if necessary, and determination. The following pleadings are presently before this Court:
(1) Lyn-Lea Travel Corp.'s Motion for Leave to File Amended Answer, filed January 22, 2003;
(2) Plaintiff's Response to Defendant's Motion for Leave to File Amended Answer, filed February 10, 2003;
(3) Lyn-Lea Travel Corp.'s Reply, filed February 14, 2003;
(4) Lyn-Lea Travel Corp.'s Supplemental Reply in Support of Defendant's Motion for Leave to File Amended Answer, filed March 4, 2003;
(5) Plaintiff's Motion to Strike Defendant's Supplemental Reply in Support of Defendant's Motion for Leave to File Amended Answer, filed March 13, 2003; and
(6) Defendant's Response to Motion to Strike Defendant's Supplemental Reply in Support of Defendant's Motion for Leave to File Amended Answer, filed May 21, 2003.
The supplemental reply is unauthorized under this Court's briefing rules. Cf. N.D. TEX. CIV. R. 7.1(f). The Court will not consider it. Accordingly, it denies Sabre's March 13, 2002 motion to strike as moot. See El Conejo Bus Lines, Inc. v. Metropolitan Life Ins. Co., Civil Action No. 3:98-cv-00608-D, 1999 WL 354237, at *1 (N.D. Tex. May 27, 1999) (refusing to consider a similar pleading and denying the related motion to strike as moot).
Having reviewed the pertinent pleadings and the evidence submitted therewith, the Court is of the opinion that Lyn-Lea Travel Corp.'s Motion for Leave to File Amended Answer should be GRANTED, in part, and DENIED, in part.
I. BACKGROUND
The following factual and procedural background is taken largely from the Fifth Circuit's opinion: Lyn-Lea Travel Corp. v. American Airlines, Inc., 283 F.3d 282 (5th Cir. 2002).
Lyn-Lea Travel Corp. (Lyn-Lea) is a travel agency formerly authorized to sell airline tickets for American Airlines (American) pursuant to the terms of an Airline Reporting Commission Reporting Agreement. Lyn-Lea, 283 F.3d at 284. The agreement required American to pay Lyn-Lea commissions for booking flights in accordance with American's published commission schedule. The agreement permitted American to modify its commission schedule at any time. Id.
In 1994, Lyn-Lea began negotiating a new booking agreement with American through American's Sabre Travel Information Network Division (Sabre). Id. On December 7, 1994, Lyn-Lea and American executed a new booking agreement (the Sabre Agreement) under which Lyn-Lea leased four Sabre booking terminals from American. Id. The Sabre Agreement required Lyn-Lea to use the four Sabre terminals for at least 1,200 transactions per month. Id.
On February 10, 1995, American announced modifications to its domestic commission schedule that dramatically reduced the commissions paid to travel agencies such as Lyn-Lea. Id. Lyn-Lea's main contention in this lawsuit is that American knew at the time it negotiated the Sabre Agreement that it was about to reduce commissions and that it should have disclosed the impending changes to Lyn-Lea. Id. Lyn-Lea contends that had it known of the impending reductions in commissions, it would not have entered into the Sabre Agreement. Id. On March 1, 1996, American sent Lyn-Lea an invoice for amounts due under the terms of the Sabre Agreement, but Lyn-Lea refused to pay. Id. at 285. American terminated the agreement with Lyn-Lea, demanded full payment, and disconnected the four Sabre terminals. Id. Lyn-Lea allegedly lost several clients because it could no longer book American flights. Id.
B. Procedural Background
On July 24, 1996, Lyn-Lea filed suit against American, asserting state law claims for tortious interference with business relationships, breach of contract, conspiracy, fraud, and violations of the Texas Deceptive Trade Practices Act. Id. Sabre intervened as a defendant on June 26, 1997, and thereafter filed a counterclaim against Lyn-Lea for breach of contract. Id. On December 2, 1997, the Court granted Sabre's summary judgment and dismissed all of Lyn-Lea's claims. Remaining were Sabre's breach of contract counterclaim and Lyn-Lea's nine affirmative defenses thereto: (1) illegality, (2) failure to state a claim, (3) res judicata or collateral estoppel, (4) failure of consideration, (5) lack of capacity, (6) statute of frauds, (7) fraud in the inducement, (8) breach of duty of good faith and fair dealing, and (9) estoppel. (Final J. at 1; Sept. 3, 1999 Ord. at 1-2.)
During the course of the litigation, American transferred ownership of the computer reservations network to Sabre and assigned Sabre all rights in the Sabre Agreement. Thus, Sabre succeeded American as defendant and counter-plaintiff in this suit. See Lyn-Lea., 283 F.3d at 285 n. 2.
As an affirmative defense, Lyn-Lea asserted that "by its own actions, Sabre is barred from maintaining any action on the Sabre agreement." Lyn-Lea Travel Corp. v. American Airlines, Inc., 2000 WL 1456448, at *3 (N.D. Tex. Sept. 28, 2000). The Court construed this defense as "estoppel." Id. (finding that Lyn-Lea "alleged a theory of estoppel" in stating that `[b]y its own actions, SABRE is barred from maintaining any action on the SABRE agreement.'").
About eight months later, in a July 28, 1999 letter, counsel for Sabre requested that the Court hold a pre-trial status conference to address the viability of Lyn-Lea's nine affirmative defenses. (Aug. 6, 1999 Ord. at 1.) The Court sua sponte ordered briefing from both sides. Id. In orders filed September 3 and 29, 1999, the Court ruled on Lyn-Lea's affirmative defenses as follows:
Affirmative Ruling Order Date Defense
Illegality Not pleaded; thus September 3, 1999 waived
"Failure to State a Rejected September 3, 1999 Claim"
Failure of Overruled as a September 3, 1999 Consideration matter of law
Res Judicata or Overruled as a September 3, 1999 Collateral Estoppel matter of law
Although the Order "rejected" this defense as a Rule 12 challenge to Sabre's breach of contract counterclaim, the Order did "not rule out a Fed.R.Civ.P. 50 challenge to the sufficiency of the evidence if one is presented at the close of evidence on the counter-claim" (Sept. 3, 1999 Ord. at 1-2.).
Lack of Capacity Allowed September 3, 1999
The Court required that Lyn-Lea argue lack of capacity outside the presence of the jury before introducing evidence regarding this defense. (Sept. 3, 1999 Ord. at 2.).
Statute of Frauds Not overruled September 3, 1999
Fraud in the Struck and precluded September 29, 1999 Inducement as preempted
Breach of Duty of Struck and precluded September 29, 1999 Good Faith and Fair as preempted and Dealing insufficiently pleaded
Estoppel Struck and precluded September 29, 1999 as preempted and insufficiently pleaded
(Sept. 3, 1999 Ord. at 1-2; Sept. 29, 1999 Mem. Op. Ord., at 2-3.) After these orders, Lyn-Lea's only remaining affirmative defenses were lack of capacity and statute of frauds. Despite these two remaining affirmative defenses, the parties agreed to have judgment entered in favor of Sabre on its breach of contract counterclaim to allow Lyn-Lea to appeal, among other matters, the Court's dismissal of its other seven affirmative defenses. Pursuant to this agreement, on September 29, 2000, the Court entered judgment in favor of Sabre on its breach of contract counterclaim. (Final J. at 1.)
On October 12, 2000, Lyn-Lea appealed, arguing that the Court erred in dismissing the affirmative defenses of fraud in the inducement, breach of duty of good faith and fair dealing, and estoppel as preempted. Lyn-Lea, 283 F.3d at 289 n. 12. Of these defenses, the Fifth Circuit addressed only fraud in the inducement because "the breach of duty of good faith and fair dealing and estoppel defenses had been insufficiently pleaded and dismissed. Lyn-Lea has not challenged this ruling." Id. In explaining the scope of preemption, the Fifth Circuit noted that "`some state-law principles of contract law . . . might well be preempted to the extent they seek to effectuate the State's public policies, rather than the intent of the parties.'" Id. at 289 (quoting American Airlines v. Wolens, 513 U.S. 219, 233 n. 8 (1995)). After finding that fraud in the inducement was a "core concept" of contract law that "does not reflect a state policy seeking to expand or enlarge the parties' agreement[,]" the Fifth Circuit determined that the Court erred in finding that it was preempted. Id. at 290. Judgment for Sabre was vacated and the case was remanded for the Court to "reassess Sabre's contract claim in light of Lyn-Lea's non-preempted defense." Id. at 292.
The Court reopened the case on October 31, 2002, and issued an amended scheduling order on November 14,2002. On January 7, 2003, the parties filed an Agreed Order to Realign the Parties and Modify the Amended Scheduling Order. The order was granted, Sabre became the plaintiff and Lyn-Lea became the defendant, and the parties agreed to extend the deadline for amending pleading from February 4 to February 18, 2003. On January 22,2003, Lyn-Lea timely filed the instant motion to amend its answer to replead all of its affirmative defenses, add new affirmative defenses, and assert new counterclaims. (Def. Br. App. at 3-10.)
Lyn-Lea seeks leave to assert sixteen affirmative defenses, nine of which were the previously-asserted defenses in the chart above. Id. at 3-4. The seven new affirmative defenses that Lyn-Lea seeks leave to raise are: lack of subject matter jurisdiction, preemption, failure to mitigate damages, breach of fiduciary duty, excessive demand for attorney's fees, illegal penalty regarding attorney's fees, and estoppel. Id. Sabre concedes that Lyn-Lea may amend its answer to add the affirmative defenses of fraud in the inducement, statute of frauds, and lack of capacity because these defenses were either not overruled by this Court or mandated by the Fifth Circuit's opinion. (Resp. at 2-3.) Lyn-Lea withdrew the proposed defenses of res judicata or collateral estoppel and failure of consideration, recognizing that these defenses were overruled as a matter of law. (Reply at 6-7.) Consequently, out of the initial sixteen affirmative defenses, the ten challenged defenses are: (1) illegality, (2) failure to state a claim, (3) breach of duty of good faith and fair dealing, (4) lack of subject matter jurisdiction, (5) preemption, (6) failure to mitigate damages, (7) breach of fiduciary duty, (8) estoppel, (9) excessive demand for attorney's fees, and (10) illegal penalty regarding attorney's fees.
The Court notes that Lyn-Lea asserts estoppel twice. Lyn-Lea again asserts that "by its own actions, Sabre is barred from maintaining any action on the Sabre agreement." (Def. Br. App. at 3.) The Court follows its prior decision and construes this defense as estoppel. See Lyn-Lea, 2000 WL 1456448, at *3. The two assertions are therefore consolidated and considered as one proposed affirmative defense of "estoppel."
In its September 3, 1999 Order, the Court required Lyn-Lea to argue lack of capacity outside the presence of the jury before introducing evidence regarding this defense. (Sept. 3, 1999 Ord. at 2.) Neither party has briefed whether this condition should continue to apply to this unchallenged defense. In the interest of judicial comity, the Court follows its previous decision and orders that Lyn-Lea must argue lack of capacity outside the presence of the jury before introducing evidence regarding this defense.
This defense may be raised at any time, including in an answer, and a party cannot waive it or be estopped from asserting it. See Insurance Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702 (1982); see also Coury v. Prot, 85 F.3d 244, 249 (5th Cir. 1996) (citing FED. R. CIV. P. 12(h)(3)); Stewart v. City of Pontotoc, Miss., 461 F. Supp. 767, 774 (D.C. Miss. 1978). Thus, leave to add it shall be allowed.
Lyn-Lea also seeks leave to add counterclaims for "intentional" interference with business relationships and conspiracy, fraud and misrepresentation, and breach of fiduciary duty. (Def. Br. App. at 3-10.)
Sabre argues that leave to amend should be denied because of Lyn-Lea's undue delay. Additionally, Sabre argues that leave should be denied because the amendments are sought in bad faith and they are futile, unduly prejudicial, and judicially uneconomical. Sabre does not argue separate grounds for futility, undue prejudice, or judicial economy. Instead, Sabre contends that it can prove these factors by showing that Lyn-Lea's affirmative defenses are barred by the law of the case and its counterclaims are barred by res judicata. (Resp. at 4-9.)
II. ANALYSIS
Federal Rule of Civil Procedure Rule 15(a) allows leave to amend an answer to assert affirmative defenses. FED. R. Civ. P. 15(a). Federal Rule of Civil Procedure 13(f) allows leave to amend an answer to assert omitted counterclaims. FED. R. Civ. P. 13(f). "The standards for determining whether leave should be granted under Rule 13(f) to allege an omitted counterclaim are similar to those under Rule 15(a)." Inline Corp. v. Tricon Restaurants Int'l, 2002 WL 1331885, at *1 (N.D. Tex. June 14, 2002) (citing 6 CHARLES ALAN WRIGHT, ET AL., FEDERAL PRACTICE AND PROCEDURE § 1479 at 573-74 (1990) ("Thus, little seems to turn on whether the amendment is made under Rule 13(f) or Rule 15(a) because using the latter provision's permissive approach would permit the counterclaim to be added in almost every case under Rule 13(f)."); see also Garcia v. Madison River Communications, L.L.C., 2002 WL 1798774, at *2 (E.D.La. Aug. 5, 2002) ("Rule 13 should be read in conjunction with Rule 15 of the Federal Rules of Civil Procedure.") (citing Inline Corp., 2002 WL 1331885, at *1). Given the similarity of the two standards, and that both parties briefed leave to amend under Rule 15(a), the Court will analyze all of Lyn-Lea's proposed amendments under Rule 15(a).
Rule 15(a) evinces a bias in favor of amendment and requires that leave be granted "freely." Chitimacha Tribe of La. v. Harry L. Laws Co., Inc., 690 F.2d 1157, 1162 (5th Cir. 1982). Thus, leave should not be denied unless there is a substantial reason to do so. Jacobsen v. Osbourne, 133 F.3d 315, 318 (5th Cir. 1998). There is a substantial reason to deny leave to amend if the proposed amendment would cause undue delay or prejudice to the non-movant, if it is motivated by bad faith or dilatory motives, if there have been repeated failures to cure deficiencies with prior amendment, or if the amendment is futile. Foman v. Davis, 371 U.S. 178, 182 (1962). Undue delay may be present if a court is required "to try the case on various theories seriatim, or if the delay presents the possibility of serious prejudice to the opponent." Dussouy v. Gulf Coast Inv. Corp., 660 F.2d 594, 598 n. 2 (5th Cir. 1981). Bad faith may bar amendment if the movant was aware of certain facts but failed to plead them in order to gain a tactical advantage. See id. at 599. "In such a case, where the movant first presents a theory difficult to establish but favorable and, only after that fails, a less favorable theory, denial of leave to amend on the grounds of bad faith may be appropriate." Id. Undue prejudice arises if a "new theory necessitate[s] reiteration of discovery proceedings[.]" Id. An amendment is futile if it would fail to state a claim upon which relief can be granted. See J.R. Stripling v. Jordan Production Co., LLC, 234 F.3d 863, 873 (5th Cir. 2000); see also Jamieson v. Shaw, 772 F.2d 1205, 1209-11 (5th Cir. 1985) (observing that amendments are futile if the theory presented lacks legal foundation or was presented in prior version of a complaint). Alternatively, "if the proposed amendment is legally insufficient on its face the Court should deny leave to amend without consideration of the other factors." Durgin v. Crescent Towing Salvage, Inc., 2002 WL 1022510, at *2 (E.D.La. May 17, 2002) (citing Truehart v. Blandon, 684 F. Supp. 1368, 1371 n. 2 (E.D.La. 1988), rev'd on other grounds, 884 F.2d 223 (5th Cir. 1989)). These factors apply equally to an offer of amendment after remand. See Hartsell v. Dr. Pepper Bottling Co. of Texas, 2000 WL 1194537, at *4 and *7 (N.D. Tex. Aug. 18, 2000) (discussing Rule 15(a) standard and allowing amendment after remand to conform to Fifth Circuit's mandate); see also Hays v. State of La., 936 F. Supp. 360, 366-67 (W.D.La. 1996) (per curiam) (allowing amendment after remand from the Supreme Court); accord Thompson v. Colorado, 60 Fed. Appx. 212,215 (10th Cir. 2003) (holding that Rule 15(a) "factors likewise control resolution of a motion to amend considered by a district court after a remand."). Finally, the court may "weigh in the movant's favor any prejudice that will arise from the denial of leave to amend." Dussouy, 660 F.2d at 598.
A. Undue Delay Bad Faith
Sabre argues that Lyn-Lea has unduly delayed in seeking amendment since its proposed affirmative defenses and counterclaims were "well established prior to the November 15, 1999 trial setting." (Resp. at 4.) Lyn-Lea responds that it could not have amended its answer any sooner because its defenses were dismissed over two years after the June 2, 1997 deadline for amending pleadings expired. (Reply at 2.)
Lyn-Lea's alleged knowledge of the underlying facts is relevant to undue delay and bad faith. See Dussouy, 660 F.2d at 599 (finding that bad faith may bar amendment if the movant was aware of certain facts but failed to plead them in order to gain a tactical advantage); see also Matter of Southmark Corp., 88 F.3d 311, 316 (5th Cir. 1996) (finding that undue delay may bar amendment if the underlying facts are known at the time the complaint was filed).
1. Undue Delay
Sabre bears the burden of proving undue delay. See Dussouy, 660 F.2d at 598 n. 2 (noting that the nonmovant bears the burden unless the delay would require the court, "for instance, to try the case on various theories seriatim, or if the delay presents the possibility of serious prejudice to the opponent."). In determining if there was undue delay, the Court "may properly consider (1) an `unexplained delay' following an original complaint, and (2) whether the facts underlying the amended complaint were known to the party when the original complaint was filed." Southmark Corp., 88 F.3d at 316. The "mere passage of time need not result in refusal of leave to amend; on the contrary, it is only undue delay that forecloses amendment. Amendment can be appropriate as late as trial or even after trial[.]" Dussouy, 660 F.2d at 598 (citing 6 CHARLES ALAN WRIGHT ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE § 1488 (1971) and FED. R. CIV. P. 15(b)). When "a party files a motion to amend by the court-ordered deadline, there is a `presumption of timeliness'" that the non-movant must rebut to show undue delay. See Inline Corp., 2002 WL 1331885, at * 1 (quoting Poly-America, Inc. v. Serrot Int'l, Inc., 2002 WL 206454, at *1 (N.D. Tex. Feb. 7, 2002)).
Lyn-Lea filed the instant motion on January 22, 2003, which was approximately two months after the Court entered its amended scheduling order and almost one month before the agreed deadline for amending pleadings. Thus, the proposed amendments are presumed timely. Sabre attempts to rebut the presumption by stating that the "parties have not conducted any new discovery or learned of any new facts regarding their claims or defenses. [Lyn-Lea's] claims and defenses should have been well established prior to the November 15, 1999 trial setting." (Resp. at 4.) The contention that Lyn-Lea's proposed amendments "should have been well established" is speculative. Indeed, Sabre presents no evidence or other support to establish this point. Nor does Sabre argue that Lyn-Lea's delay, if it exists, causes Sabre undue prejudice or forces the Court to try this case of theories seriatim. Assuming, without deciding, that Sabre has rebutted the presumption of timeliness, its speculation about Lyn-Lea's knowledge is insufficient to carry the burden of establishing undue delay.
As noted above, Sabre agreed to extend the deadline for amending pleadings to February 18, 2003.
2. Bad Faith
Lyn-Lea's alleged knowledge of the facts underlying its proposed amendments is also relevant to whether or not Lyn-Lea is acting in bad faith to gain a tactical advantage. See Dussouy, 660 F.2d at 599. Courts have denied leave to amend when the facts underlying a proposed amendment were known before the action commenced, but were first asserted in an obvious attempt to avoid summary judgment. Denial of leave to amend on grounds of bad faith maybe appropriate if the movant first presents a theory difficult to establish but favorable and, only after that fails, presents a less favorable theory. Dussouy, 660 F.2d at 598 (citing Zenith Radio v. Hazeltine Research, 401 U.S. 321, 332-33 (1971) (alternative holding)). In this case, Sabre does not argue that Lyn-Lea is attempting to gain a tactical advantage by seeking leave, such as to avoid summary judgment. Thus, even if the facts underlying Lyn-Lea's proposed amendments were known prior to appeal, Sabre has failed to establish that Lyn-Lea's is acting in bad faith by not seeking amendment sooner.
See Wimm v. Jack Eckerd Corp., 3 F.3d 137 (5th Cir. 1993) (holding that denial of leave to amend was proper when the facts underlying the new claim were known 20 months prior to filing the action and leave to amend was sought nine months later, after the defendant sought summary judgment); see also Barrett v. Independent Order of Foresters, 625 F.2d 73 (5th Cir. 1980) (finding that denial of leave to amend was not an abuse of discretion when the proposed amendment adding new parties and additional counts was sought nearly 10 months after the original complaint was filed and there were no matters that could not have been raised initially); Layfield v. Bill Heard Chevrolet Co., 607 F.2d 1097 (5th Cir. 1979) (finding no abuse of discretion in denying leave to amend when all the relevant facts were known at the time of filing the original complaint); Agar Corp. v. Multi-Fluid Inc., 47 U.S.P.Q.2d 1375 (S.D. Tex. 1998) (holding that where the facts relevant to the defendants' proposed amendments were known at the time prior answers were filed, leave to amend to allege a counterclaim was properly denied).
Because undue delay and bad faith are the only grounds on which Sabre challenges Lyn-Lea's new affirmative defenses of preemption, failure to mitigate damages, excessive demand, and illegal penalty, (Resp. at 2), leave to add these affirmative defenses shall be granted. The remaining disputed affirmative defenses are: illegality, failure to state a claim, breach of fiduciary duty, breach of duty of good faith and fair dealing, and estoppel. The Court will address whether these affirmative defenses are barred by the law of the case.
It is worth noting that, prior to the appeal, Sabre was granted leave to amend its answer well after the deadline for amending pleadings expired. Sabre's late amendment to add the affirmative defense of preemption ultimately proved fatal to Lyn-Lea's case. It is just to allow Lyn-Lea to assert the same defense.
B. Law of the Case Doctrine
Sabre argues that Lyn-Lea's affirmative defenses of illegality, failure to state a claim, breach of the duty of good faith and fair dealing, and estoppel are barred by the law of the case. (Resp. at 5-6.) Sabre admits that none of these defenses were considered by the Fifth Circuit, but argues that this Court's previous dismissals are law of the case which precludes these defenses. Id. at 6 and n. 2. Lyn-Lea replies that its defenses were dismissed as insufficiently pleaded, and that its attempt to cure those insufficiencies would be frustrated if those dismissals were preclusive. (Reply at 5.) Lyn-Lea also contends that, to extent the law of case applies, it "expressly preserved [the defense of failure to state a claim] as a Rule 50 challenge, merely rejecting a Rule 12 challenge[.]" Id.
Sabre's law of the case argument is intertwined with the mandate rule, which "provides that a lower court on remand must implement both the letter and the spirit of the appellate court's mandate and may not disregard the explicit directives of that court." United States v. Matthews, 312 F.3d 652, 657 (5th Cir. 2002) (discussing the similarities between the law of the case and the mandate rule). The "doctrine of `law of the case' is a rule of practice under which a rule of law enunciated by a federal court `not only establishes a precedent for subsequent cases under the doctrine of stare decisis, but [also] establishes the law which other courts owing obedience to it [m]ust, and which it itself will, normally, apply to the same issues in subsequent proceedings in the same case.' The doctrine's reach is not as expansive as the rule of res judicata: the doctrine of `law of the case' is limited insofar as it applies only to issues that were decided in the former proceeding but not to questions which might have been decided but were not. Nevertheless, `the doctrine does mean that the duty of a lower court to follow what has been decided at an earlier stage of the case comprehends things [d]ecided by necessary implication as well as those decided explicitly.'" Morrow v. Dillard, 580 F.2d 1284, 1289-90 (5th Cir. 1978) (quoting Carpa, Inc. v. Ward Foods, Inc., 567 F.2d 1316, 1320 (5th Cir. 1978)). "When the law of the case doctrine is applied by a court to its own prior decisions, it is properly characterized as discretionary in nature." United States v. O'Keefe, 169 F.3d 281, 283 (5th Cir. 1999) (citing JAMES WM. MOORE ET AL., 18 MOORE'S FEDERAL PRACTICE § 134.21[1] (3d ed. 1998)). "A court has the power to revisit prior decisions of its own or of a coordinate court in any circumstance, although as a rule courts should be loathe to do so in the absence of extraordinary circumstances such as where the initial decision was `clearly erroneous and would work a manifest injustice.'" Id. (quoting Christianson v. Colt Industries, 486 U.S. 800, 817 (1988); see also Illinois Union Ins. Co. v. Tri Core Inc., 191 F. Supp.2d 794, 798 n. 13 (N.D. Tex. 2002).
1. Previously-Asserted Affirmative Defenses
Sabre argues that Lyn-Lea is "precluded from reasserting its affirmative defenses that were dismissed by previous order of this Court and upheld as dismissed by the Fifth Circuit" under the law of the case. (Resp. at 6.) However, as Sabre admits, the Fifth Circuit addressed only the dismissal of the defense of fraud in the inducement, finding that it was a "`core,' uniform and non-diverse" aspect of contract law and thus not preempted. (Resp. at 6 n. 2) (citing Lyn-Lea, 283 F.3d at 289 n. 12, 290.) Thus, there is no Fifth Circuit law of the case that upheld these defenses as properly dismissed. However, the Fifth Circuit found that "extra-contractual common law business torts," such as fraud, are not core contract precepts and thus are preempted. See Lyn-Lea, 283 F.3d at 288. The necessary implication of the Fifth Circuit's opinion is that core contract precepts are not preempted, but extra-contractual common law business torts are preempted. See id. This is law of the case. See Morrow, 580 F.2d at 1290 (noting that law of the case binds a lower court to decisions on "things [d]ecided by necessary implication as well as those decided explicitly.").
a. Breach of the Duty of Good Faith Fair Dealing
Lyn-Lea seeks to replead the extra-contractual state common law business tort of breach of the duty of good faith and fair dealing as an affirmative defense. Lyn-Lea merges this affirmative defense with its affirmative defense and counterclaim for breach of fiduciary duty and most of its proposed answer:
Sabre and Lyn-Lea Travel were in a confidential and agency relationship. Sabre has a fiduciary duty to Lyn-Lea Travel. Sabre's actions as set forth above constitute a breach of fiduciary duty and a breach of the duty of good faith and fair dealing, which were a proximate cause of actual damages to Lyn-Lea Travel, for which Lyn-Lea Travel seeks judgment, by way of offset.
(Def. Br. App. at 10; Reply at 5-6) (emphasis added).
Under Texas law, the duty of good faith and fair dealing arises from certain "special relationships." Crim Truck Tractor Co. v. Navistar Int'l Transp. Corp., 823 S.W.2d 591, 594 (Tex. 1992), superseded by TEX. REV. CIV. STAT. ANN. art. 4413, § 6.06(e) (Vernon 2001) (establishing a duty of good faith and fair dealing between parties to a car dealership franchise agreement). Not all contractual relationships are sufficient to create this duty. See Subaru of Am. v. David McDavid Nissan, Inc., 84 S.W.3d 212, 225 (Tex. 2002). A fiduciary relationship, such as that between a principal and an agent or between partners, is a one type of "special relationship." See id. (citing Kinzbach Tool Co. v. Corbett-Wallace Corp., 160 S.W.2d 509, 513 (1942) (principal/agent), and Johnson v. Peckham, 120 S.W.2d 786, 787 (1938) (partners)). In addition, a "special relationship" is common between an insured and the insurer or a workers' compensation carrier and an injured worker. See, e.g., Aranda v. Insurance Co. of N. Am., 748 S.W.2d 210, 212-13 (Tex. 1988) (recognizing the relationship in both contexts). In this case, assuming, without deciding, that there is a "special relationship" between Lyn-Lea and Sabre such that a duty of good faith and fair dealing exists, the breach of that duty is an extra-contractual business tort. See King v. State Farm Mut. Auto. Ins. Co., 2001 WL 694576, at *2 (N.D. Tex. June 14, 2001) (recognizing that the breach of duty of good faith and fair dealing is an "extra-contractual tort claim [which requires] the same predicate for recovery as bad faith causes of action in Texas.") (quoting Higginbotham v. State Farm Mut. Auto. Ins. Co., 103 F.3d 456, 460 (5th Cir. 1997)). As stated above, extra-contractual business torts are preempted and the Fifth Circuit's opinion precludes Lyn-Lea from adding preempted defenses to its answer. See Lyn-Lea, 283 F.3d at 288. Thus, Lyn-Lea may not assert the tort of breach of the duty of good faith and fair dealing as an affirmative defense.
b. Estoppel
Sabre also argues that the proposed affirmative defense of estoppel is barred by the law of the case. (Resp. at 5-6). The Court dismissed this defense as insufficiently pleaded and preempted. (Sept. 3, 1999 Ord. at 1; Sept. 29, 1999 Mem. Op. Ord. at 2-3.) Lyn-Lea replies that it is attempting to cure its insufficient pleading, and its attempt would be frustrated if the previous dismissal was law of the case. (Reply at 5.)
A previous finding of insufficiency does not establish law of the case that prevents a curative amendment. See Poly-America, Inc. v. GSE Lining Technology, Inc., 1998 WL 355477, at *7 (N.D. Tex. June 29, 1998) (allowing leave to replead and cure insufficiently pleaded allegations). Thus, the affirmative defense of estoppel is not barred from being properly pleaded because it was previously found to be insufficient. See id.
Notwithstanding the law of the case analysis, the Court must also determine "if the proposed amendment is legally insufficient on its face." Durgin, 2002 WL 1022510, at * 1. A preempted or otherwise insufficient defense would be futile if it would fail to state a claim upon which relief can be granted. See J.R. Stripling, 234 F.3d at 872-73. To determine futility, the Court applies "the same standard of legal sufficiency as applies under Rule 12(b)(6)." Id. "The question therefore is whether in the light most favorable to the plaintiff and with every doubt resolved in his behalf, the complaint states any valid claim for relief." Id. The Court "may not dismiss a complaint under [R]ule 12(b)(6) `unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.'" Id. (quoting Shipp v. McMahon, 199 F.3d 256,260 (5th Cir. 2000)).
Lyn-Lea alleges: "In addition to the unilateral termination of the Sabre agreement with Lyn-Lea Travel, Sabre intentionally interfered with existing business relationships between Lyn-Lea Travel and others." (Def. Br. App. at 8.) To the extent that Lyn-Lea relies on Sabre's "unilateral termination," Lyn-Lea seeks to revive its breach of contract claim. Lyn-Lea is precluded from arguing breach of contract because that claim was dismissed and waived by not being appealed. See Lyn-Lea, 283 F.3d at 289; see also McKethan v. Texas Farm Bureau, 996 F.2d 734,739 n. 9 (5th Cir. 1993) (failure to sufficiently brief issue constitutes waiver of issue). Likewise, Lyn-Lea cannot assert "intentional" interference with its business relations because that claim was dismissed and affirmed on appeal. See Lyn-Lea, 283 F.3d at 289. Because Lyn-Lea's estoppel defense is based on premises that are precluded by the law of the case, Lyn-Lea's proposed amendment fails to state a claim for estoppel on which relief could be granted. Lyn-Lea's estoppel claim is therefore legally insufficient, and the Court will deny leave to add it.
c. Illegality
Sabre argues that this defense is barred by the law of the case. (Resp. at 5-6). As with estoppel, the Court dismissed this defense as insufficiently pleaded and preempted. (Sept. 3, 1999 Ord. at 1; Sept. 29, 1999 Mem. Op. Ord. at 2-3.) A previous finding of insufficiency does not establish law of the case that prevents a curative amendment. See Poly-America, Inc., 1998 WL 355477, at *7. Thus, the affirmative defense of illegality is not barred from being properly pleaded. See id.
As with estoppel, the Court must determine if the proposed amendment of illegality is legally insufficient on its face. See Durgin, 2002 WL 1022510, at *2. An illegal contract is one in which the parties undertake to do something that the law forbids. See Cross v. Dallas County Flood Control Dist. No. 1, 773 S.W.2d 49, 53 (Tex.App.-Dallas, 1989, no writ). Courts presume, however, that contracts are legal, and the burden to prove illegality is on the party asserting it. See Franklin v. Jackson, 847 S.W.2d 306, 310 (Tex.App.-El Paso, 1992, writ denied). Lyn-Lea bases its illegality defense on "paragraphs 35-52" and specifically the following:
¶ 16. Sabre's claims are barred, in whole or in part, by the Airline Deregulation Act, 49 U.S.C. § 41713(b).
¶ 23. Sabre's claims are barred, in whole or in part, because of illegality, as set forth in paragraphs 35-52, which are incorporated herein by this reference for all purposes.
¶ 43. Because $72,240.00 is not based on an actual or foreseeable calculation of damages, it is an illegal penalty.
Lyn-Lea cites paragraph 23 as support for its illegality claim. However, paragraph 23 refers to estoppel not illegality; paragraph 24 refers to illegality. The Court assumes that this was a typographical error. However, to the extent that Lyn-Lea intended to base its illegality defense on paragraph 23, it is also an insufficient basis on which to plead illegality.
(Reply at 6; Def. Br. App. at 3,4, and 7.)
Paragraph 16 states an affirmative defense of preemption, while paragraph 43 states an affirmative defense of illegal penalty. Even construing the proposed answer in favor of Lyn-Lea, none of these three paragraphs, nor the remaining "paragraphs 35-52," could support any finding of an illegal contract. Consequently, Lyn-Lea has failed to sufficiently plead illegality and the Court will deny leave to add this defense because the proposed amendment is "legally insufficient on its face[.]" Durgin, 2002 WL 1022510, at *2; see also JR. Stripling, 234 F.3d at 872-73.
d. Failure to State a Claim
The Court dismissed Lyn-Lea's affirmative defense of "failure to state a claim," finding that it presented a Rule 12(b)(6) challenge. (Sept. 3, 1999 Ord. at 1.) Lyn-Lea now argues that the Court "preserved" this defense as a "Rule 50 challenge to the sufficiency of the evidence[.]" (Reply at 5.) Although Lyn-Lea obviously believes that this is a Rule 50 "affirmative defense," the language clearly presents a Rule 12(b)(6) defense. See FED. R. Civ. P. 12(b)(6). The Court denies leave to add "failure to state a claim" because Lyn-Lea offers it as a "Rule 50 challenge" to the sufficiency of the evidence. See Durgin, 2002 WL 1022510, at *2.
As was noted in the September 3, 1999 Order, this denial not prohibit Lyn-Lea from moving under Rule 50 for judgment as a matter of law, which may be made by motion "at any time before submission of the case to the jury." FED. R. Civ. P. 50(a)(2).
2. Counterclaims
Sabre does not argue that Lyn-Lea's counterclaims are barred by the law of the case. Nevertheless, the Court must determine if the proposed counterclaims are contrary to the law of the case. See Morrow, 580 F.2d at 1289-90; see also Durgin, 2002 WL 1022510, at *2. Lyn-Lea moves to add counterclaims for "intentional" interference with business relationships and conspiracy, fraud and misrepresentation, and breach of fiduciary duty as "offset" claims. (Def. Br. at 9.)
An "offset" is an amount by which a responsible party reduces its damages on a claim against it by succeeding on its own claim. See Armstrong v. Alliance Trust Co., 126 F.2d 164, 168 (5th Cir. 1942) (noting that "plaintiff seeks to offset these claims for damages against what he may owe under the deed of trust."); see also In re J.F. Naylor and Co., Inc., 67 B.R. 184, 192 (Bankr. M.D.La. 1986) ("The Court is aware that Tudor asserts offsets; given the lack of any manner of examining the substance of those claims, the amount deposited may not be reduced by the claim for offset.")
It is the substance of a claim, not whether it is characterized as an "offset," that determines if it is barred by the law of the case or preempted. See In re Felt, 255 F.3d 220, 225 (5th Cir. 2001) (noting that "those matters that were fully briefed to the appellate court and were necessary predicates to the ability to address the issue or issues" comprise the law of the case). Thus, whether or not Lyn-Lea offers these claims affirmatively, defensively, or as "offsets," they may be barred.
a. Intentional Interference with Business Relationships and Conspiracy
Lyn-Lea's previously asserted claims that
(1) American intentionally interfered with its business relationships with four customers and an employee, luring the customers away with discounted fares; and
(2) American acted fraudulently and deceptively while negotiating the Sabre CRS agreement with Lyn-Lea.Lyn-Lea Travel, 283 F.3d at 287. This Court dismissed Lyn-Lea's claim for tortious interference. Id. at 288-89. The Fifth Circuit agreed, holding that the "interference with business relations claim [was] plainly preempted because it involves American's prices and services to customers." Id. at 288. Similarly, the Fifth Circuit found that Lyn-Lea's fraud claim was based on "fraud related to the making of the contract" and was preempted because American's "relations with travel agents, as intermediaries between carriers and passengers, plainly fall within the ADA's deregulatory concerns. Lyn-Lea's claims are ADA-preempted because they have a `connection with' American's prices and services." Id. The Fifth Circuit found that both claims had "a significant relationship to the economic aspects of the airline industry." Lyn-Lea, 283 F.3d at 287. Lyn-Lea concedes that its former claims are barred by law of the case, but now asserts similar counterclaims. (Reply at 9.)
Lyn-Lea's counterclaim for "intentional" interference with business relationships and conspiracy is the same tortious interference with business relations claim that this Court dismissed and the Fifth Circuit found was "plainly preempted." Lyn-Lea, 283 F.3d at 287 (finding Lyn-Lea's "interference with business relations claim [was] plainly preempted"). Thus, the law of the case bars this counterclaim. See In re Felt, 255 F.3d at 225.
b. Fraud and Misrepresentation
Lyn-Lea's fraud and misrepresentation counterclaim would allege that it "was unwittingly negotiating without being apprised by Sabre that American Airlines was considering a revision in the way that is had been doing business with travel agencies all across the country." (Def. Br. App. at 6.) Additionally, Lyn-Lea alleges that American reneged on its long-standing commission practices and altered another compensatory program, all to Lyn-Lea's detriment. Id. at 6-7. Thus, according to Lyn-Lea, "it would not have entered into the agreement with American Airlines had it known the truth of American Airlines' intentions." Id. at 7.
Lyn-Lea's fraud and misrepresentation counterclaim is similar to its preempted fraud claim, which this Court dismissed. See Lyn-Lea, 283 F.3d at 288-89. The Fifth Circuit agreed, finding that Lyn-Lea's claims for fraud were "ADA-preempted because they have a `connection with' American's prices and services." Lyn-Lea, 283 F.3d at 288. Because Lyn-Lea seeks to reassert the same claim for fraud and misrepresentation, this counterclaim is barred by the law of the case. See In re Felt, 255 F.3d at 225.
c. Breach of Fiduciary Duty
Lastly, Lyn-Lea moves to amend its answer to include the counterclaim for breach of fiduciary duty arising out of the parties' "confidential and agency relationship." (Def. Br. at 10.) Assuming a fiduciary relationship existed between Sabre and Lyn-Lea, the breach of that duty is an extra-contractual common law business tort, which is preempted. See King, 2001 WL 694576, at *2; see also Lyn-Lea, 283 F.3d at 285 Id. at 288. As a preempted counterclaim, it is barred by the law of the case. See In re Felt, 255 F.3d at 225. Accordingly, all of Lyn-Lea's counterclaims are barred by the law of the case.
For the same reasons, the Court denies Lyn-Lea leave to add its affirmative defense of breach of a fiduciary duty.
Sabre also argues that Lyn-Lea's claims are barred by res judicata. Res judicata requires that a prior action conclude with a final judgment on the merits. See Eubanks v. FDIC, 977 F.2d 166, 169 (5th Cir. 1992). This action's "Final Judgment" was reversed; thus, res judicata in inapplicable.
III. CONCLUSION
For the foregoing reasons, Lyn-Lea Motion for Leave to File Amended Answer is GRANTED, in part, and DENIED in part. Accordingly, Lyn-Lea is hereby GRANTED leave to amend its answer to assert the unchallenged affirmative defenses:(1) Fraud in the inducement;
(2) Statute of frauds; and
(3) Lack of capacity.
Lyn-Lea is also hereby GRANTED leave to amend its answer to assert the challenged affirmative defenses:
(1) Lack of subject matter jurisdiction;
(2) Preemption;
(3) Failure to mitigate damages;
(4) Excessive demand; and
(5) Illegal penalty.
Lyn-Lea is also hereby DENIED leave to add all other requested amendments.
The Court will permit Lyn-Lea to file its amended answer in conformity with this Order no later than fifteen days from the date this Order is filed.
The procedural basis for ordering a filing in conformity with this Order is taken from McCombs v. Allwaste Recovery Systems, Inc., 1999 WL 102816, at *2 (N.D. Tex. Feb. 24, 1999) (granting in part and denying in part a motion to amend and ordering that "[w]ithin 15 days of the date this order is filed, A B must file its second amended complaint in conformity with this order.").
SO ORDERED