Misle v. Schnitzer Steel Industries, Inc. et al

Filing 75

ORDER GRANTING, IN PART, AND DENYING, IN PART 62 Motion for Leave to File Amended Answer. Signed by Judge Jeffrey S. White on February 17, 2017. (jswlc3S, COURT STAFF) (Filed on 2/17/2017)

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NOT FOR CITATION

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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Plaintiff,

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United States District Court
Northern District of California

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Case No. 15-cv-06031-JSW

HOWARD MISLE,

ORDER GRANTING, IN PART, AND
DENYING, IN PART, MOTION FOR
LEAVE TO FILE AMENDED ANSWER
TO COUNTERCLAIM

v.
SCHNITZER STEEL INDUSTRIES, INC.,

Re: Dkt. No. 62

Defendant.

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Now before the Court for consideration is the motion for leave to file an amended answer

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filed by Plaintiff Howard Misle (“Misle”), in which he seeks to amend his answer to Defendant

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Schnitzer Steel Industries, Inc.’s (“SSI”) counterclaim. The Court has considered the parties’

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papers, relevant legal authority, the record in this case, and it has had the benefit of oral argument.

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For the reasons set forth herein, the Court GRANTS, IN PART, AND DENIES, IN PART,

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Misle’s motion.
BACKGROUND

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On November 19, 2015, Misle filed the Complaint in this action in the Superior Court of

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the State of California, County of San Francisco. (Dkt. No. 1, Notice of Removal, Ex. A,

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Complaint.) Misle asserted claims for breach of contract, declaratory relief, and conversion. On

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December 23, 2015, SSI removed the case to this Court and asserted the Court has diversity

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jurisdiction over the matter. (Notice of Removal, ¶¶ 4-9.) SSI filed its answer on December 30,

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2015. (Dkt. No. 8.)

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On April 15, 2016, the parties appeared before the Court for the initial case management
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conference. (Dkt. No. 29.) In the joint case management conference statement, SSI stated that it

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might amend its pleadings, if the parties could not resolve certain issues. (Dkt. No. 28, Joint Case

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Management Conference Statement at 8:18-25.) In its minute order, the Court stated that a

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“stipulation re cross-complaint or amended complaint” would be due by May 16, 2016. (Dkt. No.

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29.) On May 16, 2016, the parties submitted a stipulation permitting SSI to file an amended

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answer and counterclaim, which the Court approved on May 19, 2016. (Dkt. Nos. 32-33.) SSI

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filed its Amended Answer and Counterclaim (the “Counterclaim”) on May 20, 2016, in which it

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asserted counterclaims against Misle for breach of contract, equitable indemnity, and declaratory

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relief. (Dkt. No. 34.)
On June 6, 2016, Misle filed his Answer to SSI’s Counterclaim. (Dkt. No. 35.) Misle did

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United States District Court
Northern District of California

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not include any affirmative defenses in his Answer. (See id.) The parties proceeded with

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discovery and filed motions for summary judgment. The Court heard oral argument on those

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motions, in conjunction with the oral argument on this motion. The parties are scheduled to go to

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trial in May 2017.
Approximately a week after the parties filed their motions for summary judgment, Misle

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filed the motion for leave to amend his answer to SSI’s Counterclaim to include eleven affirmative

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defenses, which he argues were inadvertently omitted from his original answer.1 At the hearing on

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this motion, SSI stated that he will no longer pursue three of those proposed affirmative defenses:

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(1) the proposed third affirmative defense of laches; (2) the proposed sixth affirmative defense,

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that damages were caused by third parties; and (3) the proposed seventh affirmative defense that

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SSI’s claims are barred by the doctrines of res judicata and collateral estoppel.
Misle still seeks to add the following affirmative defenses: (1) SSI has failed to state a

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claim; (2) SSI’s claims are barred by the statute of limitations; (3) SSI is barred from asserting

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claims based on the doctrines of waiver and estoppel; (4) SSI is barred from recovery by the

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Misle initially filed the motion on December 30, 2016, but he was advised to “re-notice
[the] motion properly and schedule it for hearing according to Judge White’s calendar
availability.” (See ECF Docket entry between Dkt. Nos. 61, 62.) Instead of merely re-noticing the
motion, which would not have altered the original briefing schedule, on January 4, 2017, Misle refiled the motion in its entirety, thereby triggering a new briefing schedule.
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doctrine of unclean hands; (5) SSI failed to perform its own contractual obligations; (6) Misle

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performed his obligations or his obligations were excused; (7) SSI failed to mitigate its damages;

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and (8) SSI was contributorily negligent.
ANALYSIS

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A.

Applicable Legal Standards.
Federal Rule of Civil Procedure 15(a) permits a party to amend its pleading once as a

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matter of right any time before a responsive pleading has been served. Once a responsive pleading

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has been served, however, the amendment requires written consent of the adverse party or leave of

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the court, and leave “shall be freely given when justice requires.” Fed. R. Civ. P. 15(a). “Rule

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15’s policy of favoring amendments to pleadings should be applied with ‘extreme liberality.’”

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United States District Court
Northern District of California

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United States v. Webb, 655 F.2d 977, 979 (9th Cir. 1981) (citation omitted).

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The Court considers five factors to determine whether it should grant leave to amend: “‘(1)

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bad faith, (2) undue delay, (3) prejudice to the opposing party, (4) futility of amendment[,]’” and

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(5) whether the moving party previously amended a pleading. In re Western States Wholesale

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Nat. Gas Antitrust Litig., 715 F.3d 716, 738 (9th Cir. 2013) (quoting Allen v. City of Beverly Hills,

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911 F.2d 367, 373 (9th Cir. 1990)); see also DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 186

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(9th Cir. 1987) (listing the first four factors as factors to be considered). Each factor is not given

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equal weight. Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003); Bonin

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v. Calderon, 59 F.3d 815, 845 (9th Cir. 1995). “Absent prejudice, or a strong showing of any of

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the remaining … factors, there exists a presumption under Rule 15(a) in favor of granting leave to

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amend.” Eminence Capital, 316 F.3d at 1052 (emphasis in original).

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Once a court has entered a scheduling order, the standards set forth in Rule 16 apply, and a

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court can modify the scheduling order only for good cause. Fed. R. Civ. P. 16(b)(4). Under Rule

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16, a court’s inquiry should focus on a party’s diligence. See, e.g., Johnson v. Mammoth

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Recreations, Inc., 975 F.2d 604, 609 (9th Cir. 1992). “The pretrial schedule may be modified ‘if it

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cannot reasonably be met despite the diligence of the party seeking the extension.’” Zivkovic v.

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Southern California Edison Co., 302 F.3d 1080, 1087 (9th Cir. 2002) (quoting Johnson, 975 F.2d

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at 609). If the moving party fails to show diligence, the inquiry should end. Zivkovic, 302 F.3d at
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1087; Johnson, 975 F.2d at 609.

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B.

The Court Grants, in part, and Denies, in part, the Motion.

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SSI argues Misle must satisfy Rule 16’s good cause standard, because the Court set a

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deadline of May 16, 2016 to amend the pleadings. An answer to a counterclaim is a pleading. See

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Fed. R. Civ. P. 7(a)(3). The Court’s minute order referred a deadline to file the proposed counter-

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claim or amended complaints. The parties filed their stipulation on May 16, 2016, and because the

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Court did not approve the stipulation on that date, SSI filed its Amended Answer and

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Counterclaim on May 20, 2016. Misle was permitted to file his answer within the time frame

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permitted by Federal Rules of Civil Procedure. However, under SSI’s interpretation of the Court’s
minute order, Misle would have been required to file a final answer by May 16, 2016, to a

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United States District Court
Northern District of California

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counterclaim that had not yet been filed. The Court shall analyze this motion under Rule 15.

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It is undisputed that this is Misle’s first request for leave to amend his answer. That fact

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Prior Amendments.

weighs in favor of granting leave to amend.

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2.

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In order for a court to find that a moving party filed for leave to amend in bad faith, the

Bad Faith.

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adverse party must offer evidence that shows “wrongful motive” on the part of the moving party.

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See DCD Programs, 833 F.2d at 187. Misle argues that the omission of affirmative defenses from

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the answer was inadvertent. SSI has not pointed to anything in the record that would suggest

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otherwise. Indeed, the record suggests that SSI also did not realize that Misle’s answer did not

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include any affirmative defenses. (See Declaration of Donnelly A. Gillen, ¶¶ 6-7, Exs. A-B.) The

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Court finds that this factor weighs in favor of amendment.

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3.

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As noted, Misle has withdrawn three of the affirmative defenses. In its opposition, SSI did

Futlity.

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not argue that it would be futile to grant Misle leave to amend. However, at the hearing, SSI

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argued it could not raise an argument about futility about the remaining affirmative defenses,

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because it does not know what facts support the affirmative defenses. As SSI correctly noted,

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Misle’s affirmative defenses consist of legal conclusions and contain no underlying facts. As a
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result, this Court also cannot evaluate whether amendment would be futile.
With the exception of three affirmative defenses discussed in Section B.5, below, the Court

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finds this factor weighs against granting leave to amend.

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When assessing whether a party unduly delayed in seeking leave to amend, courts focus on

Undue Delay.

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“‘whether the moving party knew or should have known the facts and theories raised by the

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amendment in the original pleading,’” rather than on whether the motion to amend was timely

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filed. AmerisourceBergen Corp. v. Dialysis West, Inc., 465 F.3d 946, 953 (9th Cir. 2006) (quoting

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Jackson v. Bank of Hawaii, 902 F.2d 1385, 1388 (9th Cir. 1990)).2 Misle filed his answer in June
2016, but he did not seek leave to amend until after the parties filed motions for summary

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United States District Court
Northern District of California

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judgment. He attests that the omission was inadvertent, and as noted there is nothing to contradict

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that assertion. However, the record also shows Misle was aware of this omission by mid-

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November 2016. (Declaration of Bao M. Vu (“Vu Decl.”), ¶ 3, Ex. A.) Misle did not seek leave

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to amend until December 30, 2016.

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At the hearing, Misle suggested that expert discovery may uncover facts that will support

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these defenses. Misle has not provided the Court with any evidence that would show he was not

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aware of the facts that would support these affirmative defenses prior to November 2016. Indeed,

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to the extent Misle intends to assert he “performed all of [his] obligations under his contract with

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SSI or that his performance was excused,” he presumably has been aware of the facts to support

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that defense at a much earlier point in this litigation. The Court finds the same would be true for

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his proposed affirmative defense that SSI failed to perform its contractual obligations.
Therefore, the Court finds Plaintiff has unduly delayed in seeking leave to amend.

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Because delay alone generally is not sufficient to deny leave to amend, the Court examines

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whether amendment would cause SSI prejudice. See Morongo Band of Mission Indians v. Rose,

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893 F.2d 1074, 1079 (9th Cir. 1990).

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If Rule 16 did apply, Misle’s assertion of inadvertence would not amount to “good cause,”
and his subsequent delay in seeking leave to amend also demonstrates his lack of diligence. See,
e.g., Johnson, 975 F.2d at 609 (“carelessness is not compatible with a finding of diligence and
offers no reason for a grant of relief”).
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5.

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Prejudice is the most significant factor for considering whether leave to amend should be

Prejudice.

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granted. Eminence Capital, 316 F.3d at 1052. Prejudice must be substantial in order for the Court

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to justify denying leave to amend. Morongo, 893 F.2d at 1079. “A need to reopen discovery and

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therefore delay the proceedings supports a district court's finding of prejudice from a delayed

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motion to amend the complaint.” Lockheed Martin Corp. v. Network Solutions, Inc., 194 F.3d

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980, 986 (9th Cir. 1999). In that case, the Ninth Circuit affirmed the district court’s decision to

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deny the plaintiff’s request for leave to amend to include new domain name registrants, because

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the motion was filed after defendants had filed a motion for summary judgment and the parties had
not conducted discovery on the domain name registrants plaintiff was seeking to add to the case.

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United States District Court
Northern District of California

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Id.; cf. Medtronic, Inc. v. AGA Med. Corp., No. 07-cv-0567 MMC, 2009 WL 416538, at *2 (N.D.

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Cal. Feb. 18, 2009) (finding late amendment would cause prejudice, because it would require the

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preparation of “a defense to a counterclaim with a factual basis distinct from that of [the]

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underlying claims and whose inclusion in the action would substantially expand the issues for

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trial”).

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The deadline to complete non-expert discovery was October 14, 2016. (Dkt. No. 30.)

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With the exception of one deposition, that deadline has not been extended. SSI argues that it

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would be necessary to re-open discovery to depose Misle, HMH Engineers, and a representative

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for the City of San Jose to obtain facts relevant to the affirmative defenses of waiver and estoppel,

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failure to mitigate damages, and contributory negligence. At the hearing, Misle conceded that it

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would be reasonable to permit SSI to propound contention interrogatories on those defenses. SSI

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also argued that had it been aware that these and other affirmative defenses would be at issue, it

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might have moved for summary judgment on some or all of them. Now, however, the deadline to

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file dispositive motions has passed.

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SSI did not articulate any additional discovery it would need with respect to Misle’s first

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(failure to state a claim), eighth (SSI failed to perform its own contractual obligations), and ninth

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(Misle performed or was excused from performing) proposed affirmative defenses. In addition,

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the facts underlying those affirmative defenses are part and par of the co
e
a
d
rcel
ompeting br
reach of

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con
ntract claims Because SSI has not articulated th it would require addi
s.
S
a
hat
itional discov
very on

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tho proposed affirmative defenses, th Court con
ose
d
e
he
ncludes that i would not be prejudiced by
it
t

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per
rmitting Mis leave to amend his an
sle
a
nswer to incl
lude those af
ffirmative de
efenses.

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However, the Court finds SSI would be pre
t
w
ejudiced if th Court wer to grant M
he
re
Misle leave to
o

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am
mend to inclu the other five proposed affirmativ defenses: the statute o limitation waiver
ude
ve
:
of
ns,

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and estoppel, unclean hand failure to mitigate dam
d
u
ds,
mages, and c
contributory negligence. The
y
.

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Court’s conclu
usion is based on the lack of factual s
d
k
specificity as to the rema
s
aining affirm
mative

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def
fenses and SSI’s argume that addi
ents
itional disco
overy would be necessary to uncover the facts
y
r

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sup
pporting thos defenses.
se
CONCLU
USION

United States District Court
Northern District of California

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For the foregoing re
easons, the Court GRAN
C
NTS, IN PAR AND D
RT,
DENIES, IN P
PART,

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Mi
isle’s leave to file an ame
ended answe Misle sh file its am
er.
hall
mended answ by no la than
wer
ater

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Feb
bruary 24, 2017.

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IT IS SO ORDER
S
RED.
Da
ated: Februa 17, 2017
ary
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___
__________
___________
__________
________
JEF
FFREY S. W
WHITE
Un
nited States D
District Judg
ge

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