Zurich American Insurance Company of Illinois v. First Rate Staffing Corporation et al

Filing 36

MINUTES (IN CHAMBERS) by Judge Christina A. Snyder: RE DEFENDANTS EX PARTE APPLICATION FOR LEAVE TO AMEND ANSWER AND COUNTERCLAIM AND CONTINUE TRIAL 32 .the Court hereby GRANTS First Rates ex parte application for leave to file a second amended ans wer and counterclaim, and add Zurich North America and World Wide as defendants. First Rate may file its amended answer and counterclaim on or before April 16, 2018.All remaining dates, beginning with the Exchange of Expert Report Cut-off, shall be c ontinued by four (4) months. Status Conference re: Settlement (11:00 A.M.) September 10, 2018; Last Day to File Motions is October 1, 2018; Pretrial Conference/Hearings on Motions in Limine (11:00 A.M.) November 5, 2018; Jury Trial (9:30 A.M.) December 11, 2018.(SEE DOCUMENT FOR OTHER SPECIFIC DEADLINES) . (lc). Modified on 4/11/2018 (lc).

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

Case No.
Title

CIVIL MINUTES – GENERAL
‘O’
2:17-cv-04864-CAS(KSx)
Date April 10, 2018
ZURICH AMERICAN INSURANCE COMPANY OF ILLINOIS v. FIRST
RATE STAFFING CORPORATION, ET AL.

Present: The Honorable

CHRISTINA A. SNYDER

Catherine Jeang
Deputy Clerk

Not Present
Court Reporter / Recorder

Attorneys Present for Plaintiffs:

N/A
Tape No.

Attorneys Present for Defendants:

Not Present
Not Present
(IN CHAMBERS) - DEFENDANT’S EX PARTE APPLICATION
Proceedings:
FOR LEAVE TO AMEND ANSWER AND COUNTERCLAIM
AND CONTINUE TRIAL (Dkt. 32, filed April 6, 2018)
I.

INTRODUCTION & BACKGROUND

On July 1, 2017, plaintiff Zurich American Insurance Company of Illinois
(“Zurich”) filed the instant action against defendant First Rate Staffing Corporation
(“First Rate”). Dkt. 1 (“Compl.”). Zurich alleges that it issued a worker’s compensation
insurance policy to First Rate for the period May 7, 2014 to May 7, 2015, and that First
Rate owes Zurich approximately $1.2 million in unpaid premium adjustments pursuant to
a May 5, 2017 payroll audit.
On August 31, 2017, First Rate filed an answer. Dkt. 13. On September 21, 2017,
First Rate filed an amended answer and a counterclaim against Zurich for breach of
contract and intentional interference with an economic relationship, stemming from
Zurich’s alleged false reporting of First Rate as “uncooperative” to the Worker’s
Compensation Insurance Rating Bureau (“WCIRB”). See Dkt. 16. First Rate alleges that
this reporting caused its worker’s compensation insurance coverage to increase by $1.3
million. See id. On October 12, 2017, Zurich filed an answer to First Rate’s
counterclaim. Dkt. 21.
On April 6, 2018, First Rate filed an ex parte application to amend its answer and
counterclaim, to add new parties, and for a continuance of all forthcoming dates. Dkt. 32
(“Application”). On April 9, 2018, Zurich filed an opposition. Dkt. 33 (“Opp’n”). On
the same day, First Rate filed a request for Zurich to withdraw its opposition, asserting

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

Case No.
Title

CIVIL MINUTES – GENERAL
‘O’
2:17-cv-04864-CAS(KSx)
Date April 10, 2018
ZURICH AMERICAN INSURANCE COMPANY OF ILLINOIS v. FIRST
RATE STAFFING CORPORATION, ET AL.

that Zurich’s opposition improperly references confidential details about settlement
negotiations conducted on March 20, 2018. Dkt. 34.
II.

DISCUSSION

First Rate requests leave to amend the Court’s scheduling order so that First Rate
may file a second amended answer and counterclaim, adding two counter-defendants,
Zurich North America and World Wide Specialty Programs, Inc. (“World Wide”), and
adding new claims for tortious breach of the implied covenant of good faith and fair
dealing, negligence, and unfair business practices. First Rate also requests that the Court
continue the trial and all other dates remaining on the scheduling order by eight months
to allow First Rate to develop these additional claims.
First Rate argues that good cause permits amendment to the scheduling order1
because First Rate did not discover the facts on which its requested amendment is based
until March 5-9, 2018, during depositions of Zurich’s employees. Motion at 4. In
particular, First Rate argues that Zurich is required to set premiums based on its manual
of rates, and that these rates must be approved by the California Department of Insurance.
Id. at 5. First Rage contends that it learned during the March 7, 2018 deposition of James
Buck—testifying on behalf of Zurich—that Zurich had an unlawful and discriminatory
policy of determining premiums with respect to temporary staffing insureds, and that it
places all temporary staffing insureds in its most expensive carrier in violation of policy
language. Id. at 5–7. First Rate further asserts that Zurich’s managing general agent,
World Wide, was heavily involved in underwriting First Rate and shares liability for
premium overcharges in excess of $400,000. Id. at 7. First Rate argues that it could
never have discovered these facts prior to discovery, given that these facts were known
exclusively to Zurich and World Wide.
First Rate asserts that it has remained diligent, and that since discovering the new
facts it turned its attention on the Court-ordered mandatory settlement conference on
March 20, 2018, in the hopes of settling the case. Id. at 8–9. Since that time, First Rate
contends that it has been preparing its expert reports in light of the expert report deadline
on April 16, 2018, and has simultaneously been drafting its second amended answer and
counterclaim and the instant application. Id. 9. First Rate argues that Zurich will not be
The last date to amend pleadings and add new parties was February 16, 2018. See
Dkt. 26.
1

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

Case No.
Title

CIVIL MINUTES – GENERAL
‘O’
2:17-cv-04864-CAS(KSx)
Date April 10, 2018
ZURICH AMERICAN INSURANCE COMPANY OF ILLINOIS v. FIRST
RATE STAFFING CORPORATION, ET AL.

prejudiced by the relief it seeks, and that a denial of this application will result in First
Rate having to file another lawsuit, which will result in a waste of judicial resources. Id.
In opposition, Zurich asserts that the ex parte application is improper as it fails to
demonstrate the extraordinary circumstances warranting ex parte relief, and that First
Rate’s application should be denied on those grounds. Opp’n at 6. Moreover, Zurich
argues that there is no reason why First Rate could not have started discovery earlier,
given that the case is nine months old, and that First Rate’s delay in discovery should not
be a basis for allowing the relief it seeks. Id. at 6–8. Zurich asserts that First Rate will
not be prejudiced by a denial of its application, as First Rate can file the claims in another
lawsuit. Id. at 8. Last, Zurich requests that insofar as the Court is inclined to grant leave
to amend, the Court only allow a two-month continuance of all remaining dates, grant
Zurich leave to retake the depositions of First Rate’s CEO Cliff Blake and President
Devon Galpin regarding the new claims and damages claims, and deny First Rate’s
request to add new parties. Id. at 8–9.
Once the deadline to file amended pleadings has passed, a party seeking leave to
amend must satisfy the requirements of both Rule 16(b) and Rule 15(a) of the Federal
Rules of Civil Procedure. See Johnson v. Mammoth Recreations, Inc., 975 F.2d 604, 609
(9th Cir. 1992). Rule 16(b)(4) provides that a scheduling order may be modified “only
for good cause and with the judge’s consent.” Fed. R. Civ. P. 16(b)(4). This requirement
“primarily considers the diligence of the party seeking the amendment.” Johnson, 975
F.2d at 609. If the moving party shows good cause under Rule 16(b), the court applies
Rule 15(a)’s liberal standards in determining whether to grant leave to amend. Id. at 608.
Rule 15(a) provides that “leave [to amend] shall be freely given when justice so
requires.” Fed. R. Civ. P. 15(a)(2).
The Court finds that modification of the scheduling order to allow amendment of
First Rate’s answer and counterclaim should be permitted. In deciding whether to permit
modification to the order, the Court should consider: (1) the degree of prejudice to the
moving party resulting from failure to modify; (2) the degree of prejudice to the
nonmoving party from a modification; (3) the impact of a modification at that stage of the
litigation on the orderly and efficient conduct of the case; and (4) the degree of
willfulness, bad faith, or inexcusable neglect on the part of the moving party. United
States v. First Nat. Bank of Circle, 652 F.2d 882, 887 (9th Cir. 1981). Here, it does not
appear that the parties would face significant prejudice in the event of a denial or grant of
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

Case No.
Title

CIVIL MINUTES – GENERAL
‘O’
2:17-cv-04864-CAS(KSx)
Date April 10, 2018
ZURICH AMERICAN INSURANCE COMPANY OF ILLINOIS v. FIRST
RATE STAFFING CORPORATION, ET AL.

the application. However, the Court finds that modification is in the interest of judicial
economy. Moreover, it appears that First Rate discovered the new information
concerning Zurich’s rate setting policy for premiums in early March, that the parties
engaged in settlement discussions in late March, and that shortly thereafter First Rate
filed the instant application for ex parte relief. Accordingly, the Court finds that First
Rate has demonstrated diligence, as it asserts that it only learned of the policy
information during depositions taken in early March and that there was no other way to
obtain this policy information.
In light of the above circumstances, the Court finds good cause for amending the
scheduling order to permit First Rate to file a second amended answer and counterclaim,
and to add Zurich North America and World Wide as new parties. In addition, Zurich is
hereby permitted to depose Cliff Blake and Devon Galpin regarding the newly-added
claims.
III.

CONCLUSION

In accordance with the foregoing, the Court hereby GRANTS First Rate’s ex parte
application for leave to file a second amended answer and counterclaim, and add Zurich
North America and World Wide as defendants. First Rate may file its amended answer
and counterclaim on or before April 16, 2018.
All remaining dates, beginning with the Exchange of Expert Report Cut-off, shall
be continued by four (4) months.
1. Initial Expert Designation and Exchange of Expert Reports is continued
from April 16, 2018 to August 16, 2018;
2. Rebuttal Expert Designation and Rebuttal Report is continued from April 30,
2018 to August 30, 2018;
3. Status Conference re: Settlement (11:00 A.M.) is continued from April 30,
2018 to September 10, 2018;
4. Expert Discovery Cut-off is continued from May 30, 2018 to September 28,
2018;
5. Last Day to File Motions is continued from June 1, 2018 to October 1, 2018;
6. Pretrial Conference/Hearings on Motions in Limine (11:00 A.M.) is
continued from July 2, 2018 to November 5, 2018;
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

Case No.
Title

CIVIL MINUTES – GENERAL
‘O’
2:17-cv-04864-CAS(KSx)
Date April 10, 2018
ZURICH AMERICAN INSURANCE COMPANY OF ILLINOIS v. FIRST
RATE STAFFING CORPORATION, ET AL.

7. Jury Trial (9:30 A.M.) is continued from August 7, 2018 to December 11,
2018.
IT IS SO ORDERED.
00
Initials of Preparer

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:

00

CMJ

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