Kendall State Bank et al v. Archway Insurance Services, LLC et al

Filing 145

MEMORANDUM AND ORDER granting 129 Defendant Union One's Motion for Leave to File Amended Counterclaim. Defendant Union One is directed to file its Amended Counterclaim forthwith. Signed by Magistrate Judge David J. Waxse on 11/26/2012. (aam)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS

KENDALL STATE BANK,
et al.,
Plaintiffs,
v.
ARCHWAY INSURANCE SERVICES, LLC,
et al,
Defendants.
_____________________________________
ARCHWAY INSURANCE SERVICES, LLC,
et al.,
Plaintiffs,
v.
HARRIS,
et al.,
Defendants.

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Civil Action
No. 10-CV-2617-KHV-DJW

Civil Action
No. 11-CV-2403-KHV-DJW

MEMORANDUM AND ORDER
This matter is before the Court on the Motion for Leave to File Amended Counterclaim (ECF
No. 129) filed by Defendant Union One Insurance Group, LLC. Plaintiffs Kendall State Bank,
Garden City State Bank, Peabody State Bank, First United Bank and Trust, and Bank of Commerce
and Trust (hereinafter collectively referred to as “Plaintiffs”) oppose the motion. For the reasons set
forth below, the motion is granted.
Plaintiff Banks sued Defendants Union One Insurance Group and Nevada Investment
Partners for breach of contract and replevin. On October 11, 20122, Union One counterclaimed for

tortious interference with business relationships. The deadline to amend the pleadings was December
15, 2011. Discovery closed on May 30, 2012. By mutual agreement of the parties, depositions of
the Banks’ representatives occurred on June 13, 2012. Defendant contends that through the course
of discovery, begun after the amendment deadline, Union One learned that the Banks communicated
individually with companies in a commercially unreasonable manner throughout the second half of
2011, and that the Banks sent a second letter purporting to exercise their rights under the U.C.C. in
September 2011 that contained untruthful statements.
In ruling on this motion to amend, the Court finds a brief recitation of the relevant facts is
warranted. The deadline for submission of the proposed pretrial order was June 25, 2012, just 12
days after the final depositions concluded. Defendants included their additional factual allegations
in the proposed pretrial order. This Court held a pretrial conference on July 2, 2012, and Plaintiffs
raised no objections to the additional allegations before or during the pretrial conference. This Court
requested that the parties submit a second proposed pretrial order by July 13, 2012, to correct several
sentences in the original order. Plaintiffs did not object to the inclusion of the additional factual
allegations until this second proposed pretrial order was due. At that time, in the proposed pretrial
order, Defendants offered to file a motion for leave to amend if the Court preferred. During the
November 6, 2012 pretrial conference, this Court advised the parties that it was inclined to
recommend exclusion of the additional factual allegations. Defendant immediately filed this motion
for leave to amend Union One’s counterclaim. Thus, the matter of whether certain language should
be permitted in the Pretrial Order is now squarely presented to the Court in the posture of ruling on
the motion to amend, which has been fully briefed by both sides.

2

In support of its motion to amend, Defendant asserts that Plaintiffs cannot truly claim surprise
at Union One’s desire to amend its counterclaim to conform with the facts as this has been an issue
since the proposed pretrial order was first submitted to the Court in June. Defendant contends that
because the matter was raised at the pretrial conference in July, the amendment should not be denied
solely because Union One did not file a motion for leave.
A party may amend pleadings as a matter of course once within three weeks of service of
the pleading.1 After that period has passed, amendments to pleadings may only occur with consent
of the opposing party or leave of the Court.2 The trial court has discretion to grant leave to amend
the pleadings under Fed. R. Civ. P. 15(a).3 Leave should be “freely given when justice so requires”4
and this is a mandate “to be heeded.”5 The intent of Rule 15 is to allow parties “the maximum
opportunity for each claim to be decided on its merits rather than on procedural niceties.”6 Leave to
amend may be denied for the following reasons: repeated failure to cure deficiencies, futility of the
amendment, bad faith, or undue prejudice to the opposing party.7
1. Timeliness of Union One’s motion for leave.

1

Fed. R. Civ. P. 15(a)(1).

2

Fed. R. Civ. P. 15(a)(2).

3

Minter v. Prime Equip. Co., 451 F.3d 1196, 1204 (10th Cir. 2006).

4

Id.

5

Acker v. BNSF Rwy., 215 F.R.D. 645, 646 (D. Kan. 2003).

6

Layne Christensen Co. v. Bro-Tech Corp., 2011 U.S. Dist. LEXIS 96368 *10 (D. Kan. Aug.
29, 2011)(internal citations omitted).
7

Acker, 215 F.R.D. at 647.
3

Though courts have held that untimeliness alone can be a reason to deny leave to amend,
most cases emphasize that this is true when there is no adequate explanation for the delay.8 The
Court finds in this case, based upon a full review of the record, that Union One has presented good
cause for the delay in proposing to amend its factual allegations.
While Plaintiffs cite three cases for their contention that Union One’s motion is too tardy to
be allowed, the Court finds that these cases are distinguishable from the present circumstances. In
Welch v. Centex Home Equity Co., the plaintiff proposed an amended complaint that added a claim
for fraud, was twice the length of the original complaint, and – what the Welch court deemed most
important – was proposed after the plaintiff had been granted leave three times to amend her
complaint already.9 Important to this Court’s decision is the Welch court’s statement that the
plaintiff’s latest attempt to amend her complaint did not come from new facts she had learned
during discovery.10 This is what distinguishes this case from Welch. The Court recognizes that Union
One is not adding a new cause of action, the proposed counterclaim is not significantly longer, it has
not had multiple chances to amend its counterclaim, and the new factual allegations are based on
facts learned late in discovery. Accordingly, the Court finds that the treatment of the facts in Welch
support allowing Union One to amend its factual allegations.
The second case Plaintiffs cite is Campbell v. Meredith Corporation, 260 F. Supp. 2d 1087
(D. Kan. 2003). There, the court refused to allow the amendment.11 But in Campbell, the pretrial
order had been on file for six months before the plaintiff attempted to amend.12 In this case, Union

8

See Minter v. Prime Equip. Co., 451 F.3d 1196, 1204 (10th Cir. 2006); Welch v. Centex
Home Equity Co., 323 F. Supp. 2d 1087 (D. Kan. 2004).
9

323 F. Supp. 2d at 1091.

10

Id. at 1092.

11

Id.

12

Id. at 1109.
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One learned of the new allegations in the weeks preceding the pretrial order and attempted to include
the additional factual allegations in the pretrial order. Under Fed. R. Civ. P. 16(c)(2)(B), the pretrial
conference is an appropriate time to amend the pleadings. And Union One offered to file a motion
for leave if the Court so desired. Based on the facts presented here, the Court finds that Union One’s
motion for leave is dissimilar from Campbell’s motion, and thus Campbell is not persuasive
authority
Finally, Plaintiffs’ cite to Duncan v. Manager, Department of Safety,13 for the proposition
that untimeliness alone is a reason to deny leave to amend. There, the Tenth Circuit found the
district court’s decision to be an appropriate exercise of discretion because the plaintiff’s proposed
amendment was based on evidence inadmissible in court.14 Here, not only is Union One’s evidence
supporting its additional factual allegations admissible at trial, but Union One has indicated such
evidence will be introduced at trial as evidence of malice on Union One’s original counterclaim
facts. Consequently, the Court finds that Duncan does not support denial of Union One’s motion.
2. Plaintiffs will not suffer undue prejudice if this Court grants Union One leave.
Union One’s original counterclaim alleged that Plaintiff Banks had sent two sets of demand
letters out, in June 2011 and then again shortly before the counterclaim was filed. Union One
represents that at the time the counterclaim was filed, Union One only knew that the letters should
not have been sent because Union One had been released from the loan agreement and the letters
were sent to many companies Union One was not doing business with. The deadline to amend
pleadings passed a mere two months later. Then discovery began. According to Union One, it was
not until late May and early June 2012 that it learned that the second set of letters contained several
misleading and untruthful statements. At the same time, Union One learned of commercially
unreasonable communications between Bank employees and between the Bank employees or their

13

14

397 F.3d 1300 (10th Cir. 2005).
Id. at 1315.
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attorneys and the companies receiving the letters. Union One did not know the content of these
communications in October 2011, and did not learn about the content until late May and mid-June
2012. The Court thus finds, contrary to Plaintiffs’ assertions, that these allegations do not present
a moving target. They are the same allegations raised in the depositions of the Bank representatives
in May and June 2012, the same allegations made in the two proposed pretrial orders in June and
July 2012, and the same allegations included in the proposed Amended Counterclaim.
The Court finds any claim of surprise by the Banks by these allegations is undermined by the
fact that the allegations are based on letters and emails written by Bank employees and their
attorneys, and on telephone calls between Bank employees and the companies that received the
demand letters. While the Banks argue they will suffer prejudice because they cannot “conduct
discovery,” they do not specify what discovery they wish to conduct. What can the Banks ask Union
One regarding the Banks’ internal communications? What relevant information does Union One
hold that the Banks do not regarding the Bank employees’ conversations and correspondence with
third parties? The Court finds the case P.S. v. The Farm, Inc.15 instructive here. The defendants in
that case also claimed the court should deny leave to amend because of an inability to conduct
discovery.16 But, just as here, the defendants never identified any specific discovery requests or
depositions that would be necessary. Id. And, just as here, the defendants failed to show the court
that discovery from the plaintiff was necessary regarding the defendant’s own state of mind. Id. The
factual allegations involve the Banks’ own state of mind and actions, not those of Union One or a
third party. Discovery will not materially assist the Banks in mounting a defense to their own words.
Further, Union One has made a showing that the Banks do know what Union One’s specific
allegations are. Union One maintains that the depositions of the Bank representatives on May 25,
2012, and June 13, 2012, covered the correspondence and communications that Union One believes

15

658 F. Supp. 2d 1281 (D. Kan. 2009).

16

658 F. Supp. 2d at 1302.
6

is misleading and not commercially reasonable. Union One further asserts that Defendants’ response
to Plaintiffs’ summary judgment motion lays out what statements are misleading and what
statements and actions are not commercially reasonable. The Court finds that it is not unduly
prejudicial to the Banks to allow Union One to make allegations regarding these communications.
Lastly, the Banks’ attorney attempts to invoke judicial immunity for his communications with
Union One’s account debtors. This is unsupported by law or statute. Judicial immunity protects
judges.17 The Banks’ attorneys are not judges. Quasi-judicial immunity extends to individuals
“faithfully carrying out the appointing judge’s orders.”18 The Court has not yet ordered judgment
in this matter. The Banks’ attorneys were not faithfully carrying out this Court’s orders when they
communicated with account debtors to collect on this loan. Judicial immunity, quasi or full, offers
no protection to the Banks or their attorneys for their actions in attempting to collect on the loan.
In sum, the Court finds that Defendant has sufficiently explained why it did not file a motion
to amend at an earlier date – that Defendant believed it would be permitted to amend the
Counterclaim through inclusion of the language in the Pretrial Order. The Court finds that Union
One meets the liberal standards of Rule 15. Union One learned of new communications after filing
its tortious interference counterclaim. It learned this well after the deadline to amend the pleadings,
and shortly before pretrial, which is an appropriate time to amend the pleadings. The Court, in its
discretion, based upon all the facts and circumstances, finds in the interests of justice, that Union
One’s motion for leave should be granted.
IT IS THEREFORE ORDERED that Defendant Union One's Motion for Leave to File
Amended Counterclaim (ECF No. 129) is granted as set forth herein. Defendant Union One is
directed to file its Amended Counterclaim forthwith.
Dated in Kansas City, Kansas on this 26th day of November, 2012.

17

18

See Orr v. Riederer, 2010 U.S. Dist. LEXIS 135198 *10 (D. Kan. Dec. 21, 2010).
Id. at *11.
7

s/ David J. Waxse
David J. Waxse
U.S. Magistrate Judge
cc:

All counsel

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