G&S Metal Consultants Inc v. Continental Casualty Company

Filing 168

OPINION AND ORDER GRANTING 96 MOTION for leave to file an Amended Answer filed by Continental Casualty Company. Defendant ordered to FILE the Amended Answer upon receipt of this Order. Signed by Magistrate Judge Paul R Cherry on 11/12/13. (smp)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
SOUTH BEND DIVISION
G&S METAL CONSULTANTS, INC.,
Plaintiff,
v.
CONTINENTAL CASUALTY COMPANY,
Defendant.

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CAUSE NO.: 3:09-CV-493-JD-PRC

OPINION AND ORDER
This matter is before the Court on Defendant Continental Casualty Company’s Motion for
Leave to File an Amended Answer [DE 96], filed by Defendant Continental Casualty Company
(“Continental”) on December 21, 2012. Pursuant to Federal Rule of Civil Procedure 15, justice
requires that the amendment be permitted.
BACKGROUND
Plaintiff G&S Metal Consultants, Inc. (“G&S”), an aluminum processing and recycling
business, was insured for property damage and business interruption loss through Continental. In
November 2007, an explosion of a gas furnace at G&S’s plant in Manchester, Georgia, caused
property damage that allegedly led to the shut down of the plant and business losses. Continental
paid approximately $2 million to G&S under its insurance policy. However, G&S filed a Complaint
against Continental in the U.S. Bankruptcy Court for the Northern District of Indiana on July 15,
2009, alleging breach of contract, promissory estoppel, and bad faith claims handling. Continental
filed an Answer on August 14, 2009. This matter was withdrawn from the Bankruptcy Court by
Order on October 19, 2009, as amended on October 22, 2009.
At the Rule 16(b) scheduling conference on April 1, 2010, the Court set a discovery deadline
of April 22, 2011. During discovery, a dispute arose concerning certain documents that G&S did not

disclose. In a deposition held on September 11, 2011, G&S’s Scott Galley testified about the
existence of documents that he had turned over to G&S’s lawyers; however, Continental never
received them nor were they contained on G&S’s privilege log or subject to any objection for
privilege. The documents include, but are not limited to, personnel records, e-mails from multiple
G&S employee accounts, financial documents detailing the profitability of the business in general
and the Manchester facility in particular, agreements between G&S and its lenders, and
communications that G&S sent to and received from various third parties as part of its attempt to
value and sell the business. Several of these documents revealed information concerning the
permanent shut down of the facility at issue in April 2008 (“shut down”) and G&S’s lost profits
between November 2007 and April 2008 when it was forced to use a less-efficient gas furnace
following the explosion (“melt loss”).
As a result, Continental filed a motion to compel the production of this evidence, which was
granted on December 7, 2011. G&S subsequently disclosed approximately 300,000 documents
dating back to 2003. These documents were reviewed by G&S and submitted to Continental in
increments from January 2012 until July 2012, while a clarification of the privilege log was provided
in October 2012.
Numerous discovery deadline extensions were issued from the time of the Rule 16(b)
conference, including a final extension of the fact discovery deadline to December 20, 2012. In a
November 19, 2012 Order, Judge DeGuilio noted the length of time the case had been pending and
indicated that any further extension of the December 20, 2012 deadline must be submitted to him
for approval.

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On December 21, 2012, Continental filed the instant Motion for Leave to File Amended
Answer. G&S filed a response on January 22, 2013, and Continental filed a reply on February 1,
2013. Also on February 1, 2013, Magistrate Judge Nuechterlein issued an Order denying the instant
motion. On February 19, 2013, Continental filed a Motion for Review of that Order. On April 26,
2013, this matter was reassigned to the undersigned Magistrate Judge. On September 10, 2013,
Judge Jon DeGuilio vacated the February 1, 2013 Order, basing the decision in part on the fact that
the reply brief had not been considered, and directed the undersigned Magistrate Judge to issue a
new ruling on the Motion for Leave to File an Amended Answer after considering all the briefing.
ANALYSIS
As a result of the production of documents by G&S following the December 7, 2011 Order,
Continental seeks leave of court to amend its Answer to assert additional affirmative defenses
against G&S’s Complaint and to assert counterlcaims based on G&S’s alleged misconduct.
Continental seeks to add four additional affirmative defenses asserting fraud on G&S’s part, G&S’s
failure to comply with the Continental Policy’s provision requiring G&S to permit Continental to
examine and make copies of its books and records, unclean hands, and set-off. Continental also
asserts Counterclaims for breach of contract (Count I) and for unjust enrichment (Count II).
Federal Rule of Civil Procedure 15 governs amendments to pleadings and provides that when
a party is no longer permitted to amend its pleading as a matter of course, the “party may amend its
pleading only with the opposing party’s written consent or the court’s leave. The court should freely
give leave when justice so requires.” Fed. R. Civ. P. 15(a). The United States Supreme Court
explained the term “freely give” as follows:
In the absence of any apparent or declared reason-such as undue delay, bad faith or
dilatory motive on the part of a movant, repeated failure to cure deficiencies by
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amendments previously allowed, undue prejudice to the opposing party by virtue of
allowance of the amendment, futility of the amendment, etc.-the leave sought should,
as the rules require be freely given.
Foman v. Davis, 371 U.S. 178, 182 (1962); see also Bausch v. Stryker Corp., 630 F.3d 546, 562 (7th
Cir. 2010).
G&S opposes the motion to amend on the bases that the motion is untimely, unduly
prejudicial, and inappropriately taxes the judicial system and G&S’s ability to prosecute its claims
to a prompt conclusion. As an initial matter, G&S’s response to the motion to amend was due on
January 7, 2013; however, it was not filed until January 22, 2013, without seeking an extension of
time from the Court or the agreement of Continental. The Court considers each objection in turn.
1.

Timeliness
G&S first argues that Continental’s delay in proposing the amendment is undue, contending

that Continental has had the information on which it now relies for years. In response, Continental
explains that it filed the instant motion as soon as it finished analyzing the documents produced by
G&S from January through October 2012. Continental contends that most of the documents that
form the basis for the proposed amendments were not produced by G&S to Continental until July
2012, with critical additional documents produced as late as October 2, 2012. Continental filed its
Motion for Leave less than three months later. Continental notes that G&S’s initial production in
2010 consisted of 3,468 pages of documents and did not include any native format documents or
spreadsheets. In contrast, the 2012 production contained nearly 300,000 pages of documents,
including numerous spreadsheets showing the internal workings of G&S’s operations at the
Manchester facility prior to and following the explosion. Thus, Continental contends that the more
recent disclosures are not duplicative of the initial disclosures, as asserted by G&S.

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G&S also identifies several factual areas raised by Continental in its proposed amendments
and attempts to show that Continental had relevant information on those topics long before the 2012
document production and that none of the recently disclosed information is “new.” However, a
review of the topics demonstrates that, although certain facts regarding the topic may have been
known earlier in the litigation, the new facts that give rise to the affirmative defenses and
counterclaims proposed by Continental were not disclosed until the 2012 document production.
For example, Continental contends that spreadsheets produced by G&S for the first time in
July 2012 reveal that, during the claim adjustment process, G&S intentionally hid from Continental
the data demonstrating its actual melt recoveries while falsely informing Continental that such data
did not exist. Continental explains that G&S deleted the columns that contained that data from
otherwise-identical versions of the spreadsheets it provided to Continental during the claims
adjustment process. Continental’s receipt of the full version of the spreadsheet, after July 2012, has
led it determine that G&S’s $1 million “melt loss” claim is a sham. Although Continental had the
spreadsheet initially disclosed by G&S for years , it did not have the critical missing columns until
recently.
As another example, during the claims process, G&S asserted that it was forced to shut down
its Manchester facility on April 29, 2008, because Mr. Galley visited the facility that day, noticed
the leaking roof, and immediately shut down the facility. However, Continental received for the first
time on October 2, 2012 a “worksheet” that it argues supports it contention that G&S fraudulently
asserted that it was forced to shut down its facility because of the roof rather than because of its poor
financial condition. Continental argues that this “worksheet” shows that four days prior to the April
29, 2008 visit, Mr. Galley was already discussing the possibility of shutting down the Manchester

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facility and had identified the “fixed expenses” that G&S would be able to save by shutting down
the facility.
The Court finds that Continental’s motion is not untimely because Continental acted
reasonably given the volume of discovery disclosed by G&S from January through October 2012
as a result of the December 2011 Order. The Court makes no ruling regarding the meaning or import
of the evidence discussed by the parties in the briefing of the motion.
2.

Prejudice
G&S contends that it will suffer prejudice if Continental is allowed to amend its answer and

assert counterclaims after years of delay. First, G&S will not be forced to go to trial without the
opportunity to conduct discovery because the Court will reopen discovery related to the proposed
amendments. Second, G&S is correct that it may incur some expense related to additional discovery.
However, it is G&S’s disclosure over the months of January through October 2012 of the discovery
ordered by the Court in December 2011 that has resulted in the request for these amendments.
The prejudice to Continental in being prevented from bringing the proposed amendments in
light of the recent disclosure by G&S of the evidence giving rise to the amendments outweighs any
financial prejudice to G&S. Although there are situations, as in Menendez v. Wal-Mart Stores East
L.P., No. 1:10-CV-53, 2012 WL 2159250 (N.D. Ind. June 13, 2012), which is cited by G&S, in
which a defense request to amend pleadings when discovery is complete or almost complete unduly
prejudices a plaintiff, this is not such a case. Continental did not fail to act with diligence. The
parties are not yet preparing for trial. Importantly, much of the evidence underlying the proposed
amendments has been in the sole possession of G&S throughout the litigation and earlier.

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Continental could not have brought these proposed amendments prior to the receipt of the discovery;
thus, the facts of this case changed in the months leading up to the filing of the instant motion.
Finally, discovery has already been reopened by Judge DeGuilio for the purpose of allowing
Continental to conduct previously-unavailable discovery based on G&S’s recent disclosures. Those
recent disclosures are the basis for Continental’s proposed amendments. Therefore, it is unlikely that
these amendments will give rise to any significant amount of discovery beyond the additional
discovery already being permitted by the Court.
3.

Futility
G&S also argues that the motion should be denied because the claims and defenses are

baseless and redundant of previously disposed-of issues. G&S reasons that the affirmative defenses
deal with the production of documents and examination of books and records as well as alleged
omissions and misrepresentations that have already been dealt with in the rulings on Continental’s
discovery and sanctions motions. Thus, G&S argues that the evidence should be excluded under
Federal Rule of Evidence 403 because it would cause confusion to the jury and, thus, would be
prejudicial to G&S. First, this argument is premature to the extent it goes to the admissibility of
evidence at trial. Second, G&S has mischaracterized the nature of Continental’s allegations as being
related to the alleged discovery misconduct in this action. This is incorrect. Continental’s proposed
amendments are based on G&S’s conduct during Continental’s attempts to adjust G&S’s underlying
claim.
At this stage of the litigation, the question is whether the amendments would be futile, which
is governed by the same standard of legal sufficiency that applies under Federal Rule of Civil
Procedure 12(b)(6). See Townsel v. DISH Network LLC, 668 F.3d 967, 969 (7th Cir. 2012); Gen.

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Elec. Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074, 1085 (7th Cir. 1997). G&S has not
argued that the proposed affirmative defenses and counterclaims are legally insufficient.
Continental responds to G&S’s characterization of this lawsuit as being “about what
Continental did and didn’t do” (Def. Reply 7 (citing Pl. Resp. 4)), by noting that its proposed
affirmative defenses and counterlcaims address the obligations of both parties under the Policy.
Continental cites portions of the Policy: “This Coverage Part is void in any case of fraud by you as
it relates to this Coverage Part at any time. It is also void if you or any other insured, at any time,
intentionally conceal or misrepresent a material fact concerning . . . the Covered Property.” (Def.
Reply 7). G&S made a claim for coverage under the Policy and filed this suit alleging that
Continental did not fulfill its responsibilities; in the proposed amendments, Continental responds
by alleging that G&S itself did not comply with its own obligations under the Policy and the law.
4.

Burden on the Court
Finally, G&S opposes the amendment on the ground that it would unduly burden the judicial

system. While G&S is correct that the Court is concerned with the amount of time this case has been
pending, in light of the Court’s recent ruling on the Motion for Sanctions and the reopening of
discovery for the limited purposes identified in that ruling, reopening discovery related to the
affirmative defenses and counterclaims, all of which are related and all of which are based on
information already in the possession of G&S, will not create an additional burden on the Court.
CONCLUSION
Based on the foregoing, the Court hereby GRANTS Defendant Continental Casualty
Company’s Motion for Leave to File an Amended Answer [DE 96] and ORDERS Defendant

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Continental Casualty Company to FILE the Amended Answer and Counterclaim upon receipt of
this Order.
SO ORDERED this 12th day of November, 2013.
s/ Paul R. Cherry
MAGISTRATE JUDGE PAUL R. CHERRY
UNITED STATES DISTRICT COURT
cc:

All counsel of record

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