Kelly Supply v. Economy Polymers and Chemicals et al
Filing
23
ORDER granting 19 Economy's Motion to Amend First Amended Answer. Economy must promptly file its Second Amended Answer. Signed by Magistrate Judge Carolyn S Ostby on 6/30/2014. (cp.) (NOB) Modified on 6/30/2014 to change to written opinion. (NOB)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
BILLINGS DIVISION
KELLY SUPPLY, LLC a
Montana limited liability
company,
Plaintiff,
CV-14-03-BLG-SPW-CSO
ORDER GRANTING MOTION
TO AMEND FIRST AMENDED
ANSWER
vs.
ECONOMY POLYMERS AND
CHEMICALS, a division of
ECONOMY MUD PRODUCTS
COMPANY, a Texas corporation,
SIDNEY INVESTMENTS, INC.,
a Delaware corporation, and
TRAVIS CLARK, a Montana
resident,
Defendants.
I.
INTRODUCTION
This dispute arises from business dealings between Plaintiff Kelly
Supply, LLC (“Kelly Supply”) and Defendant Economy Polymers and
Chemicals, a division of Economy Mud Products Company (“Economy”)
in the Bakken oil fields in eastern Montana. Kelly Supply claims that:
(1) Economy breached in multiple ways a service agreement between
the two companies and interfered with Kelly Supply’s other business
opportunities; (2) Defendant Sidney Investments, Inc., (“Sidney”)
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interfered with Kelly Supply’s contract with Economy; and (3) both
Economy and Defendant Travis Clark (“Clark”), an individual employed
by Economy, made false representations and were unjustly enriched at
Kelly Supply’s expense. See Cmplt (ECF 11)1. Kelly Supply seeks
compensatory and punitive damages. Id. at 29-30.
Now pending is Economy’s Motion to Amend First Amended
Answer in Order to Assert Counterclaims. ECF 19. Having considered
the parties’ arguments, the Court will grant the motion for the
following reasons.
II.
BACKGROUND
Kelly Supply initiated this action in state court on October 31,
2013, and served Economy with its complaint on December 13, 2013.
See ECF 11; ECF 1-4 at 38. On January 8, 2014, Defendants removed
the case to federal court, invoking this Court’s diversity jurisdiction.
See Joint Not. of Removal (ECF 1). Economy filed its initial Answer on
January 15, 2014, and its First Amended Answer a week later. ECF 4,
8.
1
“ECF” refers to the document as numbered in the Court’s
Electronic Case Files. See The Bluebook, A Uniform System of Citation,
§ 10.8.3.
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The Court’s Scheduling Order set a deadline for amending
pleadings of May 26, 2014. ECF 17. On May 27, 2014, Economy timely
filed the pending motion to amend its First Amended Answer.2 ECF 19.
Economy seeks to amend its First Amended Answer to assert
counterclaims against Kelly Supply for conversion, unjust enrichment,
and restitution. See ECF 19-1 at 21-27. Economy also seeks to add as
an additional affirmative defense an assertion that some or all of Kelly
Supply’s claims are barred because the agreement at issue is governed
by Texas law. Id. at 20. Kelly Supply objects to the Court granting
Economy leave to amend.
III. DISCUSSION
Because Economy timely filed its motion to amend within the
time for doing so under the Scheduling Order, the Court looks to the
standards under Rule 15(a) to determine whether amendment should
be allowed. Motions to amend an answer to assert counterclaims under
Rule 13 are governed by Rule 15(a)’s liberal amendment standard. See
Rule 13, Advisory Committee Notes, 2009 Amendments (“An
amendment to add a counterclaim will be governed by Rule 15”). Rule
2
Because May 26, 2014, was a legal holiday, the deadline for
amended pleadings fell on May 27, 2014, pursuant to Rule 6(a)(1)(C).
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15(a)(2) provides that “[t]he court should freely give leave when justice
so requires.” This policy is “to be applied with extreme liberality[,]”
Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1051 (9th Cir.
2003) (quotation omitted), but leave “is not to be granted
automatically[,]” In re W. States Wholesale Natural Gas Antitrust Litig.,
715 F.3d 716, 738 (9th Cir. 2013) (quotation omitted). Courts consider
the following factors to assess whether to grant leave to amend: (1) bad
faith on the part of the movant; (2) undue delay; (3) prejudice to the
opposing party; and (4) futility of the proposed amendment. See
Lockheed Martin Corp. v. Network Solutions, Inc., 194 F.3d 980, 986
(9th Cir. 1999); see also Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct.
227, 9 L.Ed.2d 222 (1962).
Kelly Supply does not argue that the movant is acting in bad
faith. Instead, Kelly Supply contends that leave should be denied
because Economy unduly delayed seeking amendment, its amendments
are futile, and Kelly Supply will suffer prejudice. The Court addresses
each point in turn.
A.
Undue Delay
Kelly Supply first argues that leave to amend should be denied
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because Economy unduly delayed asserting the counterclaims it now
seeks to raise, particularly in light of the fact that these claims are
compulsory counterclaims and Economy pled a similar affirmative
defense for unjust enrichment in its First Amended Answer. ECF 21 at
4. Kelly Supply argues that the delay alone constitutes sufficient
grounds to deny Economy’s motion.
In evaluating whether there has been undue delay, the Court
must consider “whether the moving party knew or should have known
the facts and theories raised by the amendment” at an earlier time.
Jackson, 902 F.2d at 1388. “Undue delay by itself, however, is
insufficient to justify denying a motion to amend.” Bowles v. Reade,
198 F.3d 752, 758 (9th Cir. 1999); see also Lockheed Martin, 194 F.3d at
986 (“Although delay is not a dispositive factor in the amendment
analysis, it is relevant”).
Kelly Supply cites McGlinchy v. Shell Chemical Co., 845 F.2d 802
(9th Cir. 1988) and Jackson v. Bank of Hawaii, 902 F.2d 1385 (9th Cir.
1990) to show that the Ninth Circuit has found that delays of 6 and 7
months, respectively, warrant denying leave to amend. See ECF 21 at
4. These cases are clearly distinguishable. The motion to amend in
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McGlinchy was not filed until nearly two years after the plaintiffs filed
the original complaint, on a date after the original trial date and a
month after the original discovery deadline. McGlinchy, 845 F.2d at
809. Similarly, in Jackson, although the plaintiffs first informed the
court of their intention to amend in March 1987, they delayed offering
their amended complaint until May 1988, a date after the discovery
deadline and nearly a year and a half after the filing of the original
complaint. Jackson, 902 F.2d at 1388.
Here, by contrast, discovery does not close until March 31, 2015.
See Scheduling Order (ECF 17) at 2. Economy filed its motion to
amend a little over 4 months after it filed its original answer, and
within the Scheduling Order’s deadline for doing so. Under these
circumstances, the delay here, without more, is insufficient to deny
leave to amend.
B.
Futility
Kelly Supply next argues that Economy’s proposed additional
affirmative defense predicated on the contractually mandated
application of Texas law is futile because Economy failed to explain the
factual basis for the defense, or provide an explanation for the delay in
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bringing it. ECF 21 at 7. It argues that Economy’s proposed
counterclaims are also futile because they are inconsistent with
Economy’s assertion that the contract governs and mandates
application of Texas law. Id.
“A motion for leave to amend may be denied if it appears to be
futile or legally insufficient.” Miller v. Rykoff-Sexton Inc., 845 F.2d 209,
214 (9th Cir. 1983). A proposed amendment is viewed as futile “if no
set of facts can be proved under the amendment to the pleadings that
would constitute a valid and sufficient claim or defense.” Id. Here, the
Court cannot say that Economy’s proposed amendments constitute
invalid claims or defenses. The factual basis for Economy’s fortieth
defense can be found on the service agreement attached to Kelly
Supply’s Complaint. See ECF 11-2 at 1 (“The laws of the State of Texas
shall apply to this Agreement”). And the fact that Economy’s
counterclaims are equitable claims usually applicable in the absence of
a contract does not invalidate them – Economy is permitted to plead
alternative or inconsistent claims. See Rule 8(d)(3) (“A party may state
as many separate claims or defenses as it has, regardless of
consistency”). Thus, leave to amend will not be denied on futility.
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C.
Prejudice
Finally, Kelly Supply argues that leave to amend should be
denied because it will suffer prejudice if Economy is permitted to add
counterclaims “this late in the game.” ECF 21 at 7. Kelly Supply
argues that the proposed counterclaims expose it to money damages
and that it was entitled to know “at a much earlier date this potential
exposure in this lawsuit[.]” Id.
Of the Rule 15(a) factors, “it is the consideration of prejudice to
the opposing party that carries the greatest weight.” Eminence
Capital, 316 F.3d at 1052. Absent prejudice, or a strong showing of any
of the remaining factors, “there exists a presumption under Rule 15(a)
in favor of granting leave to amend.” Id. (emphasis in original). The
party opposing amendment bears the burden of showing prejudice.
DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 187 (9th Cir. 1987).
Kelly Supply has failed to demonstrate prejudice sufficient to
deny Economy leave to amend. Kelly Supply cites Texaco, Inc. v.
Ponsoldt, 939 F.2d 794 (9th Cir. 1991) for the proposition that leave to
amend should be denied based on prejudice where the amendments
raise money damages for the first time. ECF 21 at 8. In Texaco, the
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plaintiff sought leave to amend its complaint eight months after the
district court granted summary judgment against it, nearly two years
after filing the initial complaint, after discovery was over, and just four
and a half months before the trial date. 939 F.3d at 798-99. Because
the proposed amended complaint which added a claim for money
damages was filed so close to trial, the court found that the defendants
would have been unreasonably prejudiced by the amendment and
affirmed the denial of leave to amend. Id. at 799.
Kelly Supply has failed to show similar prejudice. As noted
above, discovery runs through March of next year. Kelly Supply does
not indicate the extent of discovery it has already conducted, to what
extent such discovery would be nullified or duplicated, or how the
assertion of counterclaims will otherwise cause it undue prejudice.
Because Kelly Supply has failed to meets its burden, the Court will not
deny leave to amend based on prejudice.
And although throughout its response Kelly places added
significance on the fact that these claims are compulsory counterclaims
under Rule 13, which they appear to be, this fact cuts in favor of
granting leave to amend. Courts are generally more willing to grant
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leave to amend when a compulsory counterclaim is involved, “since an
omitted compulsory counterclaim cannot be asserted in subsequent
cases ... and the pleader will lose the opportunity to have the claim
adjudicated.” 6 Fed. Prac. & Proc. Civ. § 1430, Omitted Counterclaims
(3d ed.).
In light of Rule 15(a)’s liberal amendment policy, and having
found Kelly Supply’s opposition unpersuasive, the Court will grant
Economy leave to amend its First Amended Answer.
IV.
CONCLUSION
Based on the foregoing, IT IS ORDERED that Economy’s Motion
to Amend First Amended Answer (ECF 19) is GRANTED. Economy
must promptly file its Second Amended Answer attached to its motion.
See Local Rule 15.1.
DATED this 30th day of June, 2014.
/s/ Carolyn S. Ostby
United States Magistrate Judge
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