Marquette et al v. Southern Fidelity Insurance Company
Filing
118
ORDER AND REASONS DENYING 98 Motion for Leave to File Second Supplemental and Amending Answer and Third Party Complaint for the reasons stated within document.Signed by Magistrate Judge Joseph C. Wilkinson, Jr on 8/26/2015. (my)(NEF:JCZ)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
CHARLES MARQUETTE ET AL.
CIVIL ACTION
VERSUS
NO. 14-2311
SOUTHERN FIDELITY INS. CO.
SECTION “A” (2)
ORDER AND REASONS ON MOTIONS
This is a homeowner’s insurance claim arising from a house fire. Plaintiffs seek to
recover payments allegedly due to them under an insurance policy issued by defendant,
their insurer. Defendant’s Motion for Leave to File Second Supplemental and Amending
Answer and Third Party Complaint is pending before me. Record Doc. No. 98. The
motion seeks in part to add three new affirmative defenses to defendant’s answer, all
essentially asserting fraud by plaintiffs and two non-parties in plaintiffs’ submissions to
defendant in support of their claim for additional living expenses (“ALE”) under the policy.
The alleged fraud resulted in a payment by defendant to plaintiffs in the amount of
$6,800.00. Record Doc. No. 98-3 at pp. 17-18 (30th, 31st and 32nd Affirmative Defenses
in proposed amended answer). Defendant also seeks leave to file a third-party complaint
naming two new parties and asserting five new causes of action, including two claims
under the complex federal Racketeering Influenced and Corrupt Organizations Act
(“RICO”), 18 U.S.C. § 1964, one asserting a substantive civil RICO claim and the other
alleging a RICO conspiracy among the new parties and plaintiffs. Id. at pp. 19-31.
The deadline for amending pleadings and adding new parties lapsed seven months
ago. Record Doc. No. 18. Although the presiding district judge recently continued both
the final pretrial conference and the trial date, his order doing so noted that all other
deadlines “have passed, and no extensions will be permitted.” Record Doc. No. 110 at p. 3.
Having considered the record, the applicable law and the written submissions of
counsel, IT IS ORDERED that the motion is DENIED for the following reasons:
The policy of the Federal Rules of Civil Procedure is liberal in favor of permitting
amendment of pleadings, and Rule 15(a) evinces a bias in favor of granting leave to amend.
Unless there is a substantial reason to deny leave to amend, the discretion of the district
court is not broad enough to permit denial. Stripling v. Jordan Prod. Co., 234 F.3d 863, 872
(5th Cir. 2000) (citing Foman v. Davis, 371 U.S. 178, 182 (1962); Leffall v. Dallas Indep.
Sch. Dist., 28 F.3d 521, 524 (5th Cir. 1994); Martin’s Herend Imports, Inc. v. Diamond &
Gem Trading U.S. Am. Co., 195 F.3d 765, 770 (5th Cir. 1999); Dussouy v. Gulf Coast Inv.
Corp., 660 F.2d 594, 597-98 (5th Cir. 1981)). Thus, “[t]he court should freely give leave
when justice so requires,” Fed. R. Civ. P. 15(a)(2), but such leave “is by no means
automatic.” Wimm v. Jack Eckerd Corp., 3 F.3d 137, 139 (5th Cir. 1993) (quotation
omitted). Relevant factors to consider include “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, and futility of amendment.” Id.
However, where–as here–the court has entered a scheduling order setting a deadline
for the amendment of pleadings which lapsed seven months ago, Record Doc. No. 18, the
schedule “may be modified only for good cause and with the judge’s consent.” Fed. R.
Civ. P. 16(b)(4) (emphasis added). “Rule 16(b) governs amendment of pleadings after a
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scheduling order deadline has expired. Only upon the movant’s demonstration of good
cause to modify the scheduling order will the more liberal standard of Rule 15(a) apply to
the district court’s decision to grant or deny leave.” S&W Enters., L.L.C. v. SouthTrust
Bank of Ala., NA, 315 F.3d 533, 536 (5th Cir. 2003). “In determining good cause, we
consider four factors: ‘(1) the explanation for the failure to timely move for leave to amend;
(2) the importance of the amendment; (3) potential prejudice in allowing the amendment;
and (4) the availability of a continuance to cure such prejudice.’” Sw. Bell Tel. Co. v. City
of El Paso, 346 F.3d 541, 546 (5th Cir. 2003) (citing Fed. R. Civ. P. 16(b)) (quoting S & W
Enters., 315 F.3d at 535); accord Fahim v. Marriott Hotel Servs., Inc., 551 F.3d 344, 348
(5th Cir. 2008); Nunez v. U.S. Postal Serv., 298 F. App’x 316, 319 (5th Cir. 2008); In re
Int’l Marine, LLC, No. 07-6424, 2009 WL 498372, at *1-2 (E.D. La. Feb. 26, 2009)
(Fallon, J.).
In addition, motions for leave to file third-party complaints are governed by Fed. R.
Civ. P. 14(a)(1), which provides:
A defending party may, as third-party plaintiff, serve a summons and
complaint on a nonparty who is or may be liable to it for all or part of the
claim against it. But the third-party plaintiff must, by motion, obtain the
court’s leave if it files the third-party complaint more than 14 days after
serving its original answer.
“The district court is accorded ‘wide discretion in determining whether to permit
such third party procedure . . . .’” McDonald v. Union Carbide Corp., 734 F.2d 182, 183
(5th Cir. 1984) (quoting S. Ry. v. Fox, 339 F.2d 560, 563 (5th Cir. 1964)) (emphasis
added). In exercising this wide discretion, courts have considered a number of factors,
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including effectuating the purposes of Rule 14 (avoiding circuity of action, eliminating
duplication of suits on closely related matters and promoting judicial economy); whether
other parties will be prejudiced; the unreasonableness of delay by the party asserting the
third-party complaint; lack of substance to the third-party claim; and whether the action
will become unduly complex or unduly delayed by permitting the impleader. 6 C. Wright,
A. Miller & M. Kane, Federal Practice and Procedure § 1443 at 351-67 (West 2010).
There is little case law in the Fifth Circuit which examines what
factors are properly considered when deciding whether to permit a third-party
complaint. In Bell v. Bolivar County, an unpublished, per curiam opinion,
the Fifth Circuit affirmed a district court’s denial of leave to allow a third
party complaint, because the filing would prejudice the plaintiff by delaying
the case, and the defendant was not prejudiced because it could file its claims
against the third party in a separate proceeding.
Am. Int’l Speciality Lines Ins. Co. v. 7-Eleven, Inc., No. 3:08-cv-807-M, 2009 WL
2448440, at *1 (N.D. Tex. Aug. 7, 2009) (Lynn, J.) (citing Bell v. Bolivar Cnty., 24 F.3d
240, 1994 WL 243455, at *2 (5th Cir. 1994)).
Considering the foregoing factors as a whole, I find that defendant’s motion should
be denied. Weighing the Rule 16 factors in this case militates against a finding of good
cause. The explanation for the failure timely to amend is unpersuasive. Defendant asserts
that it was not in possession of “pertinent information” necessary to assert these new claims
until two depositions were taken on August 12, 2015. Record Doc. No. 98-1 at p. 11. Yet,
the “additional living expenses” claim as to which the new fraud claims relate, including
the name of the relocation company whom defendant now seeks to add as a third-party
defendant, has been known in the case from its very beginning almost one year ago.
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Record Doc. No. 1-1 (State Court Petition at ¶ 8). Defendant provides no explanation why
it delayed until now, with less than one week remaining before the already once previously
extended and apparently not-to-be extended-again discovery deadline, to assert a claim that
diligent investigation should have revealed months ago.
Significantly, the manner in which defendant puts forth its new assertions casts
doubt on the credibility of defendant’s proffered explanation for the late amendment.
Defendant has cloaked what is in essence a simple state law fraud claim in the shroud of
the “arsenal of draconian weapons” with the “almost inevitable stigmatizing effect” reeking
of “litigation strategy” that complex and histrionic RICO claims regarding a mere
$6,800.00 would insert into an otherwise garden-variety lawsuit like this one. Carousel
Foods of Am., Inc. v. Abrams & Co., 423 F. Supp. 2d 119, 123 (S.D.N.Y. 2006).
Plaintiffs’ opposition raises the specter of a complicating and time-consuming Rule 11
sanctions battle over defendant’s new submission, Record Doc. No. 100 at pp. 6-8 and 1419, in this case in which the presiding district judge has already found a need to delay the
trial date in part because of “the ongoing plethora of motions filed by both parties.” Record
Doc. No. 110 at p. 2.
Civil RICO claims are extremely susceptible to the impropriety embraced
within . . . Rule 11 . . . since, by their very nature, they invoke both economic
and social concerns, including the possibility of complicated and expensive
legal proceedings and the fear of being labeled a “racketeer.” As a result of
the solicitude they instill in defendants, civil RICO claims serve as powerful
strategic litigation devices and are, therefore, often improperly
“bootstrapped” onto complaints to increase costs, delay proceedings, and
coerce settlements.
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Petra J. Rodrigues, “The Civil RICO Racket: Fighting Back with Federal Rule of
Procedure 11,” 64 St. John’s L. Rev. 931, 947 (1990) (citing Chapman & Cole v. Itel
Containers Int’l, 865 F.2d 676, 684-85 (5th Cir. 1989) “(RICO counterclaim used as part
of defensive strategy to increase litigation costs in hopes of plaintiff’s withdrawal)”); see
also Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 506 (1985) (Marshall, J.,
dissenting) “(RICO wrongfully used for ‘extortive purposes’ resulting in perpetuation of
‘evils that it was designed to combat’”)).
As to importance, while allegations of fraud are certainly serious, their importance
in this case is greatly lessened by the overblown pleading included in defendant’s proposed
new submission. The $6,800.00 amount at stake in the alleged fraud is small. The
increased delay and expense in litigating defendant’s new claims, especially its complicated
and inflated RICO allegations, far outweigh this amount. In addition, it appears entirely
unnecessary – and therefore unimportant – to add the fraud allegations as an affirmative
defense, since defendant has effectively asserted the same defenses at least twice in its
prolix original answer. See Record Doc. No. 5 (Answer at p. 16, 24th Affirmative Defense:
“To the extent there is later determined to be an intentional act by any insured that caused
or contributed to the loss, then there is no coverage for plaintiffs’ claims,” citing ¶ 8 of the
policy; and 26th Affirmative Defense: “Should it be known that plaintiffs have made any
material misrepresentations in connections with their claim for recovery for damages under
the policy, [defendant] pleads such representations are in violation of the terms and
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conditions of said policy, thereby voiding coverage and any obligations therein, pursuant
to the terms and conditions of said policy, which are plead as if copied herein in extenso.”).
The prejudice that would result to plaintiffs and the new parties whom defendant
proposes to add at this late date would be severe. Less than one week remains before the
discovery deadline, which has already been extended once. Record Doc. Nos. 18, 74. The
district judge’s order continuing the final pretrial conference and trial indicates that it will
not be extended again. Record Doc. No. 110. The proposed new pleading would
materially change the substantive nature of this case and add five causes of action that are
complex in terms of proof and that have not previously been included in the parties’
preparation of this case. Any discovery, motion filing or other deadline extensions to cure
this prejudice would have to be lengthy and would further prejudice plaintiffs in their
ability to obtain resolution of their claim. Defendant suffers minimal prejudice by denial
of its motion. It remains able to defend itself by rebutting plaintiffs’ ALE claim with the
testimony it has recently obtained or using the evidence to support its 24th and 26th
Affirmative Defenses, which have long been asserted in its previous answer. Defendant
also remains free to pursue its $6,800.00 fraud claim, even through the overwrought causes
of action involved in its proposed third-party complaint, as a separate action that would not
delay and unduly convolute trial of the instant case.
Because “good cause” under Rule 16 has not been established, the more liberal
Rule 15 standard does not apply and need not be addressed.
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For many of the same reasons discussed above, evaluating the Rule 14 factors
weighs heavily against the court exercising its wide discretion to permit the third-party
complaint at this late date. As an initial matter, plaintiff’s claims against defendant include
bad faith adjusting, an intentional kind of fault arising from defendant’s statutory and
contractual obligations to plaintiffs under Louisiana law. Four of the five causes of action
asserted by defendant in its proposed third-party complaint are not the type that give rise
to the kind of indemnity or contribution claim that Rule 14 contemplates. See Snyder v.
Asercion, No. 13-4752, 2013 WL 6004052, at *4-5 (E.D. La. Nov. 13, 2013) (Berrigan, J.)
(a defendant has no cause of action for indemnity against third-party defendants when
defendant’s own alleged liability is based on its own actual or active fault, both intentional
and negligent); Whitney Nat’l Bank v. Boylston, No. 09-0059, 2011 WL 1898918, at *6
(W.D. La. May 17, 2011) (Doherty, J.).
While circuity of action might be avoided by adding these new parties and causes
of action to this otherwise ordinary homeowners’ insurance policy dispute so that all issues
arising from the underlying transaction might be addressed at once, any resulting benefit
to judicial economy is more than offset by the much greater harm to judicial economy that
would be caused by the undue complication and delay resulting from the new pleading and
addition of two new parties. As noted in the Rule 16 discussion above, adding the two
RICO claims and the Louisiana Unfair Trade Practices cause of action asserted by
defendant would unduly complicate trial and/or other resolution of the underlying dispute
by multiples and delay these proceedings interminably.
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A simple case would be
transformed into a complex one, undoubtedly increasing motion practice and the time
required for pretrial preparation and trial, thus undermining the interests of judicial
economy. As noted above, plaintiffs have already raised in their opposition memorandum
the distinct possibility that they will counter defendant’s new allegations, if permitted to
be asserted, with their own motion for Rule 11 sanctions. Record Doc. No. 100 at pp. 6-8
and 14-19. The defendant insurance company, with its resources far superior to the
individual plaintiffs, might be able to bear, even benefit, from the kind of additional delay
in resolution of this matter that its new pleading would cause, but plaintiffs would be
severely prejudiced by and should not be subjected to it.
For all of the foregoing reasons, defendant’s motion to amend its answer and to
assert a third-party complaint is denied.
26th
New Orleans, Louisiana, this _________ day of August, 2015.
JOSEPH C. WILKINSON, JR.
UNITED STATES MAGISTRATE JUDGE
CLERK TO NOTIFY:
HON. JAY C. ZAINEY
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