Opinion
Civil Action No. 02-2216-JAR
December 5, 2002
MEMORANDUM AND ORDER
Pending before the Court is the Motion of Defendant Air Products and Controls, Inc. for Leave to Amend Its Answer and Counterclaims (doc. 20). For the reasons set forth below, the Court will grant the motion.
I. Background Information
Defendant's Original Answer and Counterclaims asserted eight counterclaims against Plaintiff SafeTech International, Inc. ("SafeTech") for breach of contract, unjust enrichment, quantum meruit, detrimental reliance, and fraud. Defendant seeks leave to assert a cause of action for fraud against an additional party, Gaylen Davenport. Defendant alleges that at all times relevant to the counterclaims Mr. Davenport was President of SafeTech.
SafeTech opposes the motion on the basis that (1) Defendant had knowledge of the facts underlying its proposed fraud claim but failed to include them in its original Answer and Counterclaims, and (2) amendment would be futile because the proposed fraud claim fails to state a claim upon which relief can be granted.
II. Standard for Ruling on a Motion to Amend
Rule 15 of the Federal Rules of Civil Procedure allows a party to amend the party's pleading once as a matter of course before a responsive pleading is served. Subsequent amendments are allowed only by leave of court or by written consent of the adverse party. Leave to amend, however, is to be "freely given when justice so requires," and the Supreme Court has emphasized that "this mandate is to be heeded." The decision to grant leave to amend, after the permissive period, is within the district court's discretion and will not be disturbed absent an abuse of that discretion.
Id.
Id.
Foman v. Davis, 371 U.S. 178, 182 (1962).
Woolsey v. Marion Labs., Inc., 934 F.2d 1452, 1462 (10th Cir. 1991).
Leave to amend should be denied when the court finds " undue prejudice to the opposing party, bad faith or dilatory motive, failure to cure deficiencies by amendments previously allowed, or futility of amendment." In addition, the court may properly refuse leave to amend if a party knew or should have known of the facts upon which the proposed amendment is based but failed to include the allegations in its original pleading.
Frank v. U.S. West, Inc., 3 F.3d 1357, 1365 (10th Cir. 1993).
Steinert v. Winn Group, Inc., 190 F.R.D. 680, 684 (D.Kan. 2000) (citing State Distrib., Inc. v. Glenmore Distilleries Co., 738 F.2d 405, 416 (10th Cir. 1984)).
III. Analysis
A. Defendant's Prior Knowledge
Plaintiff asserts that Defendant knew of the alleged facts upon which its proposed fraud claim is based at the time it filed its original Answer and Counterclaims, but failed to include them in its Counterclaims. Defendant does not reply directly to this assertion, and it is unclear whether Defendant in fact possessed such knowledge prior to filing its Counterclaims. Even assuming that Defendant did have such knowledge and failed to plead the allegations in its original Counterclaims, the Court does not find this sufficient to deny Defendant leave to amend given the early stages of this lawsuit. Defendant's motion was filed only a few days following the scheduling conference and within the time period for filing motions to amend and add parties. In addition, it was filed four months before the deadline for completing discovery. SafeTech should have ample time to conduct discovery on these new allegations. Moreover, SafeTech has failed to demonstrate how allowing Defendant leave to amend to assert this counterclaim would prejudice either SafeTech or Mr. Davenport. The Court therefore finds it would be inappropriate and unjust to deny Defendant leave to amend on this basis.
Defendant's motion was filed on October 2, 2002, two weeks before the deadline for filing motions to amend and to add parties. See Scheduling Order (doc. 19) at ¶ III.a.
The deadline for completing discovery is February 2, 2002. Id., ¶ II.b.
B. Futility
SafeTech also asks the Court to deny Defendant leave to amend on the basis of futility, i.e., that its proposed fraud count fails to state a claim upon which relief can be granted. SafeTech asserts that Defendant' s proposed claim actually asserts a cause of action for "fraud by silence," and that it fails to state a claim because it fails to allege the necessary element that Mr. Davenport had an obligation to communicate material facts to Defendant.
It is well settled that a court may deny a motion to amend as futile if the proposed amendment would not withstand a motion to dismiss or if it otherwise fails to state a claim. Thus, the court must analyze a proposed amendment as if it were before the court on a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6). Dismissal of a claim under Rule 12(b)(6) is appropriate only when it appears "beyond a doubt" that a party can prove no set of facts in support of the theory of recovery that would entitle him or her to relief. The issue before this Court is therefore not whether Defendant will ultimately prevail on the proposed fraud claim, but whether its is entitled to offer evidence to support its allegations.
Lyle v. Commodity Credit Corp., 898 F. Supp. 808, 810 (D.Kan. 1995) (citing Ketchum v. Cruz, 961 F.2d 916, 920 (10th Cir. 1992)).
Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Maher v. Durango Metals, Inc., 144 F.3d 1302, 1304 (10th Cir. 1998).
See Baumann v. Hall, No. 98-2126-JWL, 1998 WL 513008, at *1 (D.Kan. July 15, 1998) (citing Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)).
The Court cannot say, based on the allegations pled in the proposed fraud claim, that it appears "beyond a doubt" that Defendant can prove no facts in support of its fraud claim. Defendant alleges affirmative acts of misrepresentation, i.e., that Mr. Davenport fraudulently represented "that Air Products was being assigned SafeTech's accounts receivable[s] and contractual right to receive payment" from certain customers. Defendant is not alleging "fraud by silence," as SafeTech asserts, and, thus, SafeTech's argument that the proposed cause of action fails to state a claim for fraud by silence is without merit. In sum, the Court finds no reason to deny Defendant leave to amend based on futility.
Proposed First Amended Answer and Counterclaims, Ninth Cause of Action, p. 15, attached as Ex. 1 to Defendant's Motion for Leave to Amend (doc. 20).
IV. Conclusion
For the reasons discussed above, the Court finds no basis to deny Defendant leave to amend to assert a counterclaim against Gaylen Davenport. The Court finds that Defendant's motion is timely and that amendment will not cause SafeTech or Mr. Davenport undue prejudice. In addition, the Court does not find that amendment would be futile. Finally, the Court finds that at this stage in the litigation, the interests of justice are best served by allowing Defendant to amend its Counterclaims to allege a cause of action for fraud against Mr. Davenport. Accordingly, Defendant's motion for leave to amend will be granted.
IT IS THEREFORE ORDERED that Defendant's Motion for Leave to Amend Its Answer and Counterclaims (doc. 20) is granted.
IT IS FURTHER ORDERED that pursuant to D. Kan Rule 15.1(a), the Clerk shall detach and file the original First Amended Answer and Counterclaims of Defendant Air Products and Controls, Inc., and it shall be deemed filed as of the date this Order is filed. Defendant shall serve the First Amended Answer and Counterclaims on SafeTech International, Inc. and Gaylen Davenport within ten (10) days after the First Amended Answer and Counterclaims is deemed filed. In addition, Defendant shall file separate certificates of service. SafeTech International, Inc. and Gaylen Davenport shall plead in response to the First Amended Answer and Counterclaims as set forth in D. Kan. Rule 15.1.
IT IS SO ORDERED.