ING Bank fsb v. Palmer et al

Filing 129

MEMORANDUM ORDER re 113 MOTION to Amend/Correct Answer to Plaintiff's Complaint filed by American Reporting Company LLC, 89 MOTION to Preclude Plaintiff from Recovering Damages in Excess of $750.00 filed by Amer ican Reporting Company LLC, 76 Cross-Motion to exclude filed by ING Bank fsb, 72 MOTION to Preclude Motion to Exclude the Expert Testimony of Gary Walker filed by American Reporting Company LLC, 99 MOTION to Preclude Motio n in Limine to Preclude Reference at Trial to the April 24, 2009 Email from Francois Madath to Dana Palmer filed by American Reporting Company LLC, MOTION to Preclude filed by ING Bank fsb, 114 MOTION for Leave to File an Amended Complaint filed by ING Bank fsb, 100 MOTION in Limine filed by ING Bank fsb. SEE MEMORANDUM ORDER FOR FURTHER DETAILS). Signed by Judge Sue L. Robinson on 5/8/2012. (fms)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

lNG BANK, FSB.,
Plaintiff,

v.
AMERICAN REPORTING
COMPANY, LLC

Defendant.

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) Civ. No. 09-CV-897-SLR
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MEMORANDUM ORDER
At Wilmington this 8th day of May, 2012, in consideration of the parties'
outstanding pretrial motions;
IT IS ORDERED, for the reasons discussed below, that:
1. Background: The parties were set to go to trial on March 12, 2012. (D.I. 34)
In anticipation of their trial date, the court held a pretrial conference on February 29,
2012. (D. I. 127) Prior to this conference, the parties filed numerous pretrial motions.
These included: 1) defendant's motion to exclude the expert testimony of Gary Walker
(D.I. 72); 2) plaintiff's cross-motion to exclude the expert testimony of William King (D.I.
76); 3) defendant's motion to preclude plaintiff from recovering in excess of $750.00
(D. I. 89); 4) defendant's motion to preclude reference to the April 24, 2009 email from
Francis Madath to Dana Palmer (D. I. 99); 5) plaintiff's motion to exclude issues relating
to ING's origination of the Long loan (D.I. 100); 6) defendant's motion to amend or

correct its answer to include the affirmative defense of release (0.1. 113); and 7)
plaintiff's motion for leave to file an amended complaint (0.1. 114).
2. At the pretrial conference, the court definitively addressed 0.1. 99, explaining
that the motion was granted. (0.1. 127 at 6)
3. In order to address 0.1. 72, 76, 89 and 100, the court made the following
observation about plaintiff's theory of damages:
Plaintiff has asked the Court to decide whether its allegedly negligent
origination of the Long loan is relevant at trial; defendant claims it is while
plaintiff claims it is not. In order to resolve this motion, both sides directed
the court to the Restatement (Second) of Tort[s] section 465 ... which
provides in pertinent part: "The plaintiff's negligence is a legally contributing
cause of his harm if, but only if, it is a substantial factor in bringing about his
harm, and there is no rule restricting his responsibility for it.
Accordingly, in my mind, the first step of the analysis that I [should
take] in connection with all of these motions, because they are all
interrelated, I think, is to determine what harm the plaintiff is asserting.
[T]o the extent that plaintiff is requesting in damages the value of the
defaulted mortgage, then the origination of the loan is relevant.

I believe plaintiff's theory is in error, however. I believe the only
[injury] that can be properly asserted against defendant is based on the fact
that lNG, relying on ARC's appraisal, issued a mortgage that was not fully
secured by the value of the property. Consistent with this view, the value of
the damages in this case would be limited to the value of the unsecured
portion of the mortgage, not the value of the entire defaulted mortgage.
(/d. at 4-5) The court then indicated that it was up to plaintiff to decide whether it was

willing to move forward on the court's theory of damages. (/d. at 7) Assuming plaintiff
was, then issues regarding origination would be irrelevant and motions 0.1. 76, 89 and

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100 would be moot; 1 however, a retroactive appraisal would be relevant and, therefore,
in connection with 0.1. 72, defendant would be given time to find an expert to do a
reappraisal. 2 (/d. at 6)
4. At the pretrial conference, the court also addressed the parties' motions to
amend (0.1. 113 and 114), both filed on the eve of the pretrial conference, but no
rulings were made at the time.
5. On March 5, 2012, the court held a telephone conference with the parties to
address outstanding issues; in particular, the court and defendant needed to know
which theory of damages plaintiff would be pursuing at trial. (0.1. 128 at 3) Following
the telephone conference, in an effort to address outstanding issues, the court issued a
March 8, 2012 order. In that order, the court requested: 1) "simultaneous submissions
regarding the proper interpretation of damages" in which both parties were to use exact
figures and cite to relevant case law in support of their positions; and 2) a proffer from
plaintiff on "whether the issue of direct negligence was vetted during discovery and
incorporated into its complaint." (0.1. 118) Given that plaintiff had agreed to move
forward with the court's interpretation of damages, the court also ordered defendant to
find and produce an expert report regarding valuation. (/d.)
6. To date, the following issues remain: a ruling on the parties' motions to

0.1. 76 and 100 were plaintiffs attempts to exclude issues relating to origination of
the loan; 0.1. 89 was defendant's attempt to limit damages to $750 which the court
indicated at oral argument that it did not see as the proper theory of recovery.
1

In 0.1. 72, defendant sought to exclude the expert testimony of Gary Walker in that he
was not timely identified as an expert witness and defendant had not obtained a
rebuttal expert report.

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amend (0.1. 113 and 114) and the court's interpretation of damages. 3
7. Motions to amend. Pursuant to Fed. R. Civ. P. 15(a), a party may amend its
pleading once as a matter of course within twenty-one days after serving it or, if the
pleading is one to which a responsive pleading is required, twenty-one days after
service of a responsive pleading or twenty-one days after service of a Rule 12(b ),
whichever is earlier. Fed. R. Civ. P. 15(a). Otherwise, a party may amend its pleading
only with the opposing party's written consent or the court's leave. /d.
8. The court should freely grant leave to amend "when justice so requires." /d.
The Third Circuit has adopted a liberal approach to the amendment of pleadings to
ensure that "a particular claim will be decided on the merits rather than on
technicalities." Dole v. Arco Chern. Co., 921 F.2d 484, 486-87 (3d Cir. 1990) (citations
omitted). Amendment, however, is not automatic. See Dover Steel Co., Inc. v. Hartford
Accident and lndem., 151 F.R.O. 570, 574 (E.O. Pa. 1993). The court may exercise its

discretion to deny leave to amend where there is "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 the allowance of
the amendment, futility of amendment, etc." Foman v. Davis, 371 U.S. 178, 182 (1962);
see a/so Oran v. Stafford, 226 F.3d 275, 291 (3d Cir. 2000). "Delay becomes 'undue,'

and thereby creates grounds for the district court to refuse leave, when it places an
unwarranted burden on the court or when the plaintiff has had previous opportunities to

As discussed above, 0.1. 99 was definitively resolved at the pretrial conference. By
agreeing to move forward on the court's theory of damages, 0.1. 76, 89 and 100 were
mooted, and 0.1. 72 was resolved to the extent that the court permitted defendant to
find a rebuttal expert on valuation.
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amend." Bjorgung v. Whitetail Resort, LP, 550 F.3d 263, 266 (3d Cir. 2008) (citing,
inter alia, Cureton v. Nat'/ Collegiate Athletic Ass'n, 252 F.3d 267, 273 (3d Cir. 2001 )).
Therefore, when considering undue delay, the court focuses on the movant's reasons
for not amending sooner. /d. Undue prejudice exists when an unfair burden has been
placed on the opposing party. Cureton, 252 F.3d at 273 (citation omitted). With
respect to prejudice, the court focuses on the hardship to the defendant if the
amendment were permitted, and in particular will consider ''whether allowing an
amendment would result in additional discovery, cost, and preparation to defend
against new facts or new theories." /d. (citations omitted). Futility of amendment
occurs when the complaint or defense, as amended, does not state a claim upon which
relief can be granted. See In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410,
1434 (3d Cir. 1997). If the proposed amendment "is frivolous or advances a claim or
defense that is legally insufficient on its face, the court may deny leave to amend."
Harrison Beverage Co. v. Dribeck Importers, Inc., 133 F.R.D. 463, 468 (D.N.J. 1990).

9. Plaintiff, in its memorandum in support of its motion to amend, explained that
the proposed amendments "are necessary to ... remove the allegations and counts
that relate solely to Palmer and [to] ... clarify and more specifically state the remaining
allegations against ARC." (D. I. 115 at 4) The court finds that the original complaint
sounded in vicarious liability and plaintiff's proposed amendment does much more than
"clarify" the remaining allegations. The amendment, filed on the eve of the pretrial
conference and just weeks before the trial, was designed to add claims of direct
negligence, claims not originally pled or argued. For this reason, the court denies

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plaintiff's motion to amend. Had plaintiff sought to move forward on a theory of direct
liability it could have, and should have, sought leave to amend well before it did. To
allow plaintiff to alter its theory of the case at this point in time would unduly prejudice
the defendant by forcing it to prepare to defend against a new theory of the case after
discovery has been completed.
10. With respect to defendant's motion to amend, it claims that its motion is
case dispositive in the sense that the release signed between Palmer and lNG
extinguishes the liability of ARC. (D.I. 113

at~

12, 15; D.l. 127 at 13) The court finds

otherwise. Under Delaware's Uniform Contribution Among Joint Tortfeasors Law: 4
A release by the injured person of 1 joint tort-feasor, whether before or after
judgment, does not discharge the other tort-feasor unless the release so
provides; but reduces the claim against the other tort-feasors in the amount
of the consideration paid for the release, or in any amount or proportion by
which the release provides that the total claim shall be reduced, if greater
than the consideration paid.
10 Del. C. § 6304(a). Joint-tortfeasors are defined as "2 or more persons jointly or
severally liable in tort for the same injury to person or property, whether or not judgment
has been recovered against all or some of them." 10 Del. C. § 6301. Because Palmer
and ARC fit within this definition and the Palmer-ING release does not provide for

While the Palmer-ING settlement agreement is "governed by the laws of the State of
Washington" (D. I. 113, Ex. D, section 6), the controversy at bar, between lNG and ARC,
does not arise from that agreement. The parties to the case at bar have specifically
agreed that their contract, and consequently disputes arising from it, will "be governed
by the laws of the State of Delaware." (D.I. 1 at Ex. A, section 10.3) Therefore, even
though the release at issue is to be interpreted under Washington law, the current
controversy has been, and will continue to be, adjudicated under the laws of Delaware
in accordance with the intention of the parties.
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ARC's release from liability, 5 the court finds that defendant's motion to amend is futile. 6
Even if defendant's amendment were permitted, the Palmer-ING release could not
extinguish ARC's liability under Delaware law. However, the parties agree that, under
Delaware law, any recovery by lNG against ARC may be reduced by the amount
recovered by lNG from Palmer.
11. Damages. At issue in this case are negligence claims and a breach of
contract claim, all based on the allegedly faulty appraisal. Whether damages flow from
a breach of duty or from a breach of contract, damages are not cognizable unless they
flow from an injury that has been proximately caused by the defendant. See, e.g.,
Duphily v. Delaware Elec. Co-op, Inc., 662 A.2d 821, 829 (Del. 1995); Atwell v. RHIS,
Inc., 2006 WL 2686531, at *1 (Del. Super. July 28, 2006).

12. There can be no dispute that an inflated appraisal (ARC's alleged conduct)
would have been a significant factor in ING's decision to issue the $1,610,000
mortgage. Just as evident, however, is the fact that lNG did not issue the mortgage on

In fact, the release explicitly provides the opposite, stating: "lNG Bank does not
hereby release ARC from any claim aris[ing] out of or related to the Delaware Action."
(D.I. 113 at Ex. D, section 1)

s

In Blackshear v. Clark, 391 A.2d 747 (Del. 1978), the Supreme Court of Delaware
applied§ 6304(a) to allow a plaintiff to proceed against her doctor for medical
malpractice after she had settled with the doctor's principal (i.e., the hospital). The
court, however, "express[ed] no view about a case in which the servant is released but
not a master." /d. at 748. While the Court of Chancery, in First State Staffing Plus, Inc.
v. Montgomery Mut. Ins. Co., No. Civ.A. 2100-S, 2005 WL 2173993, at *10 (Del. Ch.
Sept. 6, 2005), suggested that an exception may apply in that factual scenario, this
court declines to read one in in light of the plain language of the statute. Moreover, as
plaintiff notes in its brief, numerous jurisdictions have concluded that, under Uniform
Contribution Among Tortfeasors Act, settlement with an agent will not prohibit
subsequent recovery from a principal. (D. I. 121 at 1f 3)

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just that one criterion; lNG itself evaluated the credit-worthiness of the mortgagee and
applied its internal loan policies and other regulations to the data it gathered in deciding
whether, and in what amount, to issue the mortgage. Consequently, in order to
determine whether the appraisal was the proximate cause of ING's alleged injury (as
opposed to just one of the proximate causes), the origination process would have to be
explored.
13. Faced with the prospects of having that evidence presented to the jury, lNG
agreed to a different measure of damages. ARC also moved from its original damages
position ($750, the appraisal fee) in order to present its own revised appraisal.
Because the parties still disagree about how the damages case should be presented to
the jury, 7 the court attempts to do so, recognizing that neither parties' theory of
damages is a perfect measure of the injury lNG allegedly sustained and recognizing
further that a damages award should represent "adequate" compensation determined
with as much certainty as the circumstances permit. See Restatement (Second) of
Torts,§ 912.
14. The court continues to hold that the damages award in this case should not
be divorced from the amount of the loan- the money that lNG put at risk- and how
much of that loan lNG can recoup through the value of the property. The court

lNG contends that the amount of its damages should be the difference between
ARC's appraisal of the property at issue ($2,300,000) and ING's expert's appraisal of
the property ($740,000), for a total of $1,560,000. ARC suggests that the amount of
damages should reflect the fact that there was insufficient collateral for the loan
amount; i.e., the calculation would be $1,610,000 minus the revised appraisal amount
(as the jury determines that to be).
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acknowledges that the use of the loan amount implicates ING's loan policies 8 and the
conduct of both parties. Nevertheless, in the interests of clarity and justice, the court
concludes that the loan amount (without evidence as to whether that amount was
reasonable in the first instance) and the revised appraisal amount (as the jury
determines that to be) best reflectING's injury under the facts at bar and represents
adequate compensation determined with as much certainty as circumstances permit.

s The court, frankly, sees no problem with the scenario lNG poses in this regard, to wit,
that if actual losses were the bases of damages in cases like this, the same property
appraised the same negligent way would result in different damages awards depending
on who the bank was, with some banks (making riskier loans) recouping more damages
than other banks (making more conservative loans). The purpose of damages is to
compensate for individual losses, not to quantify negligent conduct.

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