Summary
upholding the Magistrate Judge's denial of the motion to amend; finding “plaintiff would be unduly prejudiced if amendment were allowed at this stage of the litigation” and “[w]ere the court to allow amendment and to allow additional discovery on the proposed counterclaims, plaintiff would be required to expend time and effort to defend the new claims by reopening the discovery, and accordingly, the trial in this matter would be delayed.” The court further noted, “The court finds no reason to doubt plaintiff's assertion that it would, in fact, need to conduct additional discovery to adequately defend against the proposed counterclaims. Even assuming plaintiff had been placed on notice of the potential amendments, it would not have been unreasonable for plaintiff to forgo discovery on these potential claims, as they had not been officially raised during the discovery period.”
Summary of this case from Clark v. Newman Univ., Inc.Opinion
Civil Action No. 00-2099-CM
April 23, 2001
MEMORANDUM AND ORDER
Pending before the court is defendants' motion for review of magistrate order (Doc. 85). Defendant seeks the court to reverse Magistrate Waxse's March 1, 2001 order denying defendants' motion to amend its answer to assert compulsory counterclaims and to add third party defendants. For the reasons set forth below, defendants' motion is denied and the magistrate's order is affirmed.
• Standard for Review of Magistrate's Decision
Under 28 U.S.C. § 636(b)(1)(A), the district court's scope of review of a magistrate's decision is whether the order has been shown to be "clearly erroneous or contrary to law." Ocelot Oil Corp. v. Sparrow Indus., 847 F.2d 1458, 1461-62 (10th Cir. 1988). The "clearly erroneous standard" requires that the court affirm the decision of the magistrate unless "`on the entire evidence [the court] is left with a definite and firm conviction that a mistake has been committed.'" Id. at 1464 (quoting United States v. United States Gypsum Co., 333 U.S. 364, 395 (1948)); see also Fed.R.Civ.P. 72(a); D. Kan. Rule 72.1.1(c) 72.1.4(a).
• Background
• Factual Background
This case arises out of the sale of defendants' Boeing 727 commercial jet aircraft. The parties dispute the type and effect of their relationship preceding defendants' sale of the aircraft to the Ecuadorian airline TAME. Plaintiff contends it entered into a brokerage agreement with defendants, whereby it was to be the exclusive broker of the aircraft for sale to TAME. Defendants dispute this characterization and contend that they attempted to enter into a purchase agreement with plaintiff, whereby plaintiff would purchase the aircraft and resell it to TAME, at a profit. Following defendants' sale of the aircraft to TAME without plaintiff's involvement, plaintiff filed suit alleging tortious interference with a business relationship, fraudulent promise of a future event, fraud by silence and breach of fiduciary duty. Following the close of discovery in this matter, defendants moved the court to amend its answer out of time to assert compulsory counterclaims and to add third party defendants. The court referred the motion to Magistrate Waxse, who denied the motion to amend. Defendants now seek the court to review Magistrate Waxse's order.
• Magistrate's Order
In his order, Magistrate Waxse denied defendants' requests: 1) to amend their answer to include compulsory counterclaims of fraud, breach of contract and breach of fiduciary duty and 2) to add the three owners of plaintiff as third party defendants. Defendants asserted that the counterclaim theories of recovery arose from newly discovered evidence obtained during the October 24 and 25, 2000 depositions of plaintiff Aerotech's owners.
Defendants filed their motion for leave to amend out of time. The court entered its scheduling order in this case on July 6, 2000. Pursuant to the order, the parties had until September 29, 2000 in which to file motions to amend or to add additional parties. Defendants discovered the new evidence during the depositions of plaintiff's owners on October 24 and 25, 2000. Discovery closed December 1, 2000. Defendants did not seek leave to amend their answer until December 13, 2000 — 63 days late, 49 days after the depositions in which the counterclaim theories of recovery allegedly arose, and two weeks after discovery in this case had closed. Trial in this case is set on the court's May 2001 calendar.
• Undue Delay
Magistrate Waxse based his opinion on three distinct findings. First, the magistrate found that there was undue delay in seeking the amendment. Plaintiff had asserted that there was undue delay in the request for leave to amend, as defendants had received plaintiff's pre-discovery initial disclosures in June 2000, but did not request their first deposition until October 2000. Plaintiff also argued that defendants caused undue delay by waiting 49 days following the alleged discovery of the new evidence giving rise to their counterclaims to seek an amendment.
Defendant responded by asserting that the delay in depositions was a direct result of the time spent preparing for three of plaintiff's depositions in August and September, conducting two depositions in early October and time spent responding to plaintiff's interrogatories and information requests. Defendants also argue that the 49 day delay was due to defendants' involvement with the three depositions, responding and supplementing plaintiff's discovery requests, and preparing various discovery motions. The magistrate found that defendants' reasons for delay related only to the "normal demands of ongoing litigation."
• Undue Prejudice
Second, the magistrate found that if the amendments were allowed, they would unduly prejudice the plaintiff, as additional discovery would likely be necessary at an advanced stage of the litigation. Plaintiff asserted that it would be unduly prejudiced if defendants were allowed to amend their answer. Specifically, plaintiff argued that it would be required to re-depose some, or all, of the 15 deponents deposed in five different cities. Further, plaintiff asserted that it would be necessary to propound a new round of interrogatories and requests for production of documents. Defendants argued that plaintiff's claim to need further discovery was meritless because, in their opinion, no further discovery was necessary regarding their counterclaims. Defendants asserted that plaintiff failed to point to any additional fact that would need discovery through depositions. The court declined to accept defendants' "bare assertion that no further discovery is needed if the Court grants their motion to amend to add their proposed counterclaims."
• Recognition of Compulsory Counterclaims
Magistrate Waxse acknowledged that defendants' proposed counterclaims were compulsory. However, he found significant that defendants were "on notice of the motion to amend deadline and failed to request its extension," that defendants knew their "proposed counterclaims existed throughout the 49 day period after the alleged date of discovery and were aware of the impending discovery deadline and trial date," and that the "delay in discovering the facts underlying Defendants' counterclaims is attributable to their own delay in conducting discovery." Accordingly, Magistrate Waxse found that the compulsory nature of the asserted counterclaims did not outweigh the untimeliness of the defendants' motion or the prejudice such amendment would cause to plaintiff. Considering all of these factors, the magistrate denied defendants' motion to amend its answer.
• Federal Rules of Civil Procedure 13(f) and 15(a)
Pursuant to Federal Rule of Civil Procedure 13(f), a district court may grant a party leave to make a counterclaim by amendment when the party has failed to do so in its original pleading "through oversight, inadvertence, or excusable neglect, or when justice requires. . . ." Whether to grant a party's motion to amend its answer to assert a counterclaim is within the discretion of the district court. Sil-Flo, Inc. v. SFHC, Inc., 917 F.2d 1507, 1518 (10th Cir. 1990). Here, because defendants omitted their counterclaim in their original pleading and any addition must be by amendment, Rule 13(f) must be read together with Federal Rule of Civil Procedure 15(a), which directs that leave to amend a pleading "shall be freely given when justice so requires."
In Foman v. Davis, 371 U.S. 178, 182 (1962), the Supreme Court recognized that the decision to grant or deny a request to amend was also within the discretion of the district court. In Foman, the Court concluded that leave should normally be granted under Rule 15(a) absent:
any apparent or declared reason — such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of the amendment, etc."
Id. at 182. Accordingly, defendants' motion to amend should have been granted unless it was apparent from the circumstances of the case that one or more of these reasons for denial existed.
As noted above, the magistrate found undue delay and undue prejudice to plaintiff present in the circumstances of this case, and accordingly, denied the motion to amend. In so ruling, the court recognized that defendants' counterclaims were compulsory, but determined, in its discretion, that their compulsory nature did not outweigh the undue delay and prejudice. The court agrees with the magistrate's decision.
• Analysis
Under the applicable standard, the court finds that Magistrate Waxse's decision denying defendants leave to amend their pleadings is not "clearly erroneous or contrary to law." Ocelot Oil Corp., 847 F.2d at 1461-62. Following a review of the entire evidence, the court is not "left with a definite and firm conviction that a mistake has been committed," and therefore, the court affirms Magistrate Waxse's decision. Id. at 1464. Defendants shall not be allowed to amend their pleadings to assert their compulsory counterclaims or to add the three new third party defendants.
• Undue Delay
The court finds undue delay in defendants' assertion of its compulsory counterclaims. Defendants argue that delay itself is not a sufficient reason to deny defendant's motion for leave to amend. In support of this argument, defendants cite several cases outside of the Tenth Circuit where courts found that delay, in and of itself, did not defeat a party's motion to amend a pleading to add a counterclaim. See Mercantile Trust Co. Nat'l Ass'n v. Inland Marine Prods. Corp., 542 F.2d 1010, 1012 (8th Cir. 1976) (finding mere delay may not in and of itself be a reason to deny leave to amend, absent prejudice where amendment granted); Spartan Gran Mill Co. v. Ayers, 517 F.2d 214, 220 (5th Cir. 1975) ("mere passage of time between an original filing and an attempted amendment is not a sufficient reason for denial of the motion").
The court is not persuaded by defendants' argument. The Supreme Court has explicitly stated that whether undue delay exists is a proper consideration for a court considering a motion for leave to amend pleadings. Foman, 371 U.S. 178. And, as noted above, the magistrate's order was not based solely on undue delay, but instead delay was but one of the factors meriting its decision. The court finds, considering the factors cited by defendants, that the motion for leave to amend to assert counterclaims and add defendants was unduly delayed.
• Undue Prejudice
The court finds plaintiff would be unduly prejudiced if amendment were allowed at this stage of the litigation. Defendants did not raise their amendments until the close of discovery, effectively precluding plaintiff the opportunity to conduct discovery on the new claims. Absent amendment, the parties will be prepared to proceed to trial on the court's May 2001 calendar. Were the court to allow amendment and to allow additional discovery on the proposed counterclaims, plaintiff would be required to expend time and effort to defend the new claims by reopening the discovery, and accordingly, the trial in this matter would be delayed.
Defendants assert that because plaintiff has failed to point to any specific facts that it was precluded from developing, the court should not give weight to its argument that additional discovery is needed. In support of their arguments, defendants cite to Wayzata Bank Trust Co. v. AB Farms, 855 F.2d 590 (8th Cir. 1988). In Wayzata, the Eighth Circuit was unpersuaded by plaintiff's argument that because it was unable to develop a factual record, it was prejudiced by the assertion of a counterclaim. In affirming the district court's decision to allow amendment, the Eighth Circuit found significant that the plaintiff had "sufficient time to conduct discovery." Id. at 594. In contrast, plaintiff here has not had sufficient time to conduct discovery on these matters because the amendments were not raised until the close of discovery. Further, there was no indication in Wayzata, that, in order to develop the factual record and to defend itself against the allowed counterclaims, the plaintiff would have been required to reopen discovery previously conducted. In contrast, plaintiff asserts here that discovery would have to be reopened if amendment were allowed. Accordingly, the court finds Wayzata does not dictate a result different from that reached by Magistrate Waxse.
The court finds no reason to doubt plaintiff's assertion that it would, in fact, need to conduct additional discovery to adequately defend against the proposed counterclaims. Even assuming plaintiff had been placed on notice of the potential amendments, it would not have been unreasonable for plaintiff to forgo discovery on these potential claims, as they had not been officially raised during the discovery period.
Accordingly, the court finds, considering all arguments raised by the parties, that allowing amendment would unduly prejudice plaintiff.
• Compulsory Counterclaim
In its discretion, the court finds that the compulsory nature of defendants' counterclaims does not outweigh the undue delay and undue prejudice presented by an amendment at this advanced stage of the litigation. Defendants argue that under Rule 15(a)'s liberal amendment standard, when a compulsory counterclaim is asserted, the rule of liberality is to be accorded even greater deference in light of the potential for res judicata. In support of its argument, defendant cites Fields v. Atchison, Topeka and Santa Fe Railway Co., 167 F.R.D. 462 (D.Kan. 1996). The Field court applied Rule 13(f)'s concept that "when justice requires, the pleader may by leave of court set up the counterclaim by amendment." In doing so, the Field court considered the type of counterclaim raised, whether the amendment would cause prejudice to the opposing party, and whether there would be a delay of trial for additional discovery. Id. at 463. The court found that the compulsive nature of the counterclaim weighed in favor of allowing the defendant's counterclaim. In addition, the court found no prejudice would result to the plaintiff because the counterclaim was asserted a month prior to the close of discovery, and discovery had been extended for an additional three months for unrelated reasons. Finally, the court found the amendment would not cause a delay in the trial.
The facts in Field contrast with those before this court. Although the court recognizes the compulsive nature of defendants' counterclaims, the type of claim raised is only one of the factors the court must consider when ruling on a motion for leave to amend. The court must also consider, as noted in Fields, whether prejudice would result to the plaintiff and whether the amendment would cause a trial delay. As noted above, the court finds the amendment would unduly prejudice plaintiff. Further, as the trial of this matter is set on the court's May 2001 trial calendar — effectively two weeks from the date of this order — an amendment would clearly cause a delay in the trial, as the parties prepared themselves to try the newly raised issues.
Defendants argue that prejudice to the party should not outweigh the compulsory nature of their counterclaims. However, as noted, the type of claim raised is only one of the factors the court must consider when exercising its discretion to allow amendments to pleadings. Where, as here, prejudice will result to plaintiff, where undue delay is found, and where the trial would be delayed, the court is within its discretion to deny leave to amend pleadings. See Smith Contracting Corp. v. Trojan Const. Co., 192 F.2d 234, 236 (10th Cir. 1951) (noting that "rigid adherence to pretrial conference agreements should not be exacted, . . . where so to do will result in injustice to one party and relaxing of such agreement will not cause prejudice to the other party").
Finally, the court notes that the parties have devoted much of their pleadings to a discussion of the merits of defendants' counterclaims. As the court has found the undue delay and undue prejudice factors merit an affirmance of the magistrate's opinion, it finds it unnecessary to reach these arguments.
• Order
IT IS THEREFORE ORDERED that defendants' motion for review of magistrate's order (Doc. 85) is denied. Magistrate Waxse's March 1, 2001 order is affirmed. Accordingly, defendants shall not be allowed to amend their answer to include the asserted counterclaims or to add the third party defendants.
IT IS SO ORDERED.