COLONIAL SURETY COMPANY v. ALPHA SOFTWARE, INC.

Filing 98

SUPPLEMENTAL OPINION ON PLAINTIFF'S MOTION TO AMEND FIRST AMENDED COMPLAINT; For the foregoing reasons, Colonial's motion for leave to file a second amended complaint 70 is GRANTED in part and DENIED in part; etc. Signed by Magistrate Judge Steven C. Mannion on 5/16/2019. (sms)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY

COLONIAL SURETY COMPANY,
Plaintiff,

Civil Action No.
2:17-CV-01701-ES-SCM

v.
ALPHA SOFTWARE
CORPORATION,
Defendant.

SUPPLEMENTAL OPINION ON
PLAINTIFF’S MOTION TO AMEND
FIRST AMENDED COMPLAINT
[D.E. 70]

STEVEN C. MANNION, United States Magistrate Judge.
Plaintiff Colonial Surety Company’s (“Colonial”) moved for leave to file a second
amended complaint to add Colonial Surety Agency, LLC (“Agency”) as a plaintiff. 1 Defendant
Alpha Software Corporation (“Alpha”) opposed. 2 The parties met and conferred after the filing of
the instant motion, and Colonial submitted an updated proposed second amended complaint. 3 The
Court considered the parties’ respective submissions and heard oral argument on April 16, 2019.
For the reasons stated on the record, this Court issued an order on April 26, 2019 granting in part
the motion for leave to file a second amended complaint. 4

1

(ECF Docket Entry (“D.E.”) 70, Pl.’s Mot. to Amend Compl.). Unless indicated otherwise, the
Court will refer to documents by their docket entry number and the page numbers assigned by the
Electronic Case Filing System.
2

(D.E. 70-5, Def.’s Opp’n).

3

(D.E. 80, Letter; D.E. 82, Proposed Second Am. Compl.).

4

(D.E. 88, Order).

I.

BACKGROUND AND PROCEDURAL HISTORY 5
In this breach of contract action, Colonial alleges that Alpha “induc[ed] Colonial to enter

into a contract” under which excess payment of the contract price was made for computer services
and Alpha “false[ly] represent[ed] to Colonial regarding Alpha’s capabilities and the state of
services Alpha was purportedly rendering.” 6 Colonial further alleges that as a result of Alpha’s
failure to meet obligations under the contract, Colonial has suffered damages in excess of
$778,000. 7
Colonial filed its original complaint in this Court in March 2017. 8 In February 2018,
Colonial moved to amend its complaint to add additional claims against Alpha. 9 The Court then
administratively terminated the case and ordered the parties to mediation. 10 The parties were
unable to resolve the case through mediation, and in June 2018, the Court reopened this matter. 11
In August 2018, this Court granted in part and denied in part Colonial’s motion. 12 Thereafter,
Colonial filed its amended complaint. 13

5

The allegations set forth within the pleadings and motion record are relied upon for purposes of
these motions only. The Court has made no findings as to the veracity of the parties’ allegations.
6

(D.E. 55, Am. Compl., at ¶¶ 2–3).

7

(Id. at ¶¶ 77–78).

8

(D.E. 1, Compl.).

9

(D.E. 39, Pl.’s Mot. to Am. Compl.).

10

(D.E. 46, Order).

11

(D.E. 51, Order)

12

(D.E. 53, Order).

13

(D.E. 55, Am. Compl.).
2

In January 2019, Colonial filed the instant motion seeking to add Agency, Colonial’s
affiliate, as a plaintiff. 14 The Court provided the parties with an opportunity to meet and confer
regarding a proposed pleading, 15 and ordered Colonial to submit jurisdictional affidavits
concerning the addition of Agency as a plaintiff. 16 In March 2019, Colonial submitted a revised
proposed second amended complaint, which “deleted the tort causes of action raised in the earlier
proposed pleading by proposed additional plaintiff [Agency]; added allegations in further support
of diversity jurisdiction; and, added additional factual allegations.” 17 Alpha opposed the proposed
pleading and contended it is unduly delayed and prejudicial to Alpha. 18
The Court heard oral argument on April 16, 2019, and issued its bench opinion and order
on April 26, 2019, granting in part the motion for leave to file a second amended complaint. 19
II.

MAGISTRATE JUDGE AUTHORITY
Magistrate judges are authorized to decide any non-dispositive motion designated by the

Court. 20 This District has specified that magistrate judges may determine any non-dispositive pretrial motion. 21 Motions to amend are non-dispositive, 22 and decisions by magistrate judges must

14

(D.E. 70, Pl.’s Mot. to Am. Compl.).

15

(D.E. 72, Text Order).

16

(D.E. 73, Order).

17

(D.E. 80, Letter; D.E. 82, Proposed Second Am. Compl.).

18

(D.E. 70-5, Def.’s Opp’n).

19

(D.E. 88, Order).

20

28 U.S.C. § 636(b)(1)(A).

21

L. Civ. R. 72.1(a)(1).

22

Cont’l Cas. Co. v. Dominick D’Andrea, Inc., 150 F.3d 245, 251 (3d Cir. 1998).
3

be upheld unless “clearly erroneous or contrary to law.” 23
III.

DISCUSSION & ANALYSIS
As an initial matter, the Court must determine whether Rule 15 or Rule 16 of the Federal

Rules of Civil Procedure applies. 24 Although leave to amend under Rule 15 is generally freely
given, Rule 16 requires a party to demonstrate “good cause.” 25 Colonial filed its motion for leave
to amend its first amended complaint after the February 2, 2018 deadline set by the Court, 26 and
Alpha objects to the late filing. Colonial must therefore show “good cause” for its failure to
comply with the supplemental scheduling order before the Court can consider its motion. 27
A. Rule 16 “Good Cause” Analysis
After amendments as of right, “a party may amend its pleading only with the opposing
party’s written consent or the court’s leave.” 28 Where deadlines for amending pleadings are the
subject of a scheduling order and the deadlines have passed, the moving party must meet Rule 16’s
good cause standard to amend. 29 Whether good cause exists turns on the diligence of the moving

23

28 U.S.C. § 636(b)(1)(A).

24

See Sabatino v. Union Twp., No. 11-1656, 2013 WL 1622306, at *2–3 (D.N.J. Apr. 15, 2013)
(internal citation omitted).
25

See id. (internal citations omitted).

26

(D.E. 32, Supp. Sched. Order, at ¶ 4.b).

27

See Assadourian v. Harb, 430 F. App’x 79, 81 (3d Cir. 2011) (where deadlines fixed by the
court’s scheduling order expire, a party must show “good cause” under Rule 16(b) to amend).
28

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

29

White v. Smiths Detection, Inc., et al., No. 10-4078, 2013 WL 1845072, at *11 (D.N.J. Apr. 30,
2013) (citations omitted).
4

party. 30 The Court has the discretion to determine what kind of showing a party must make to
satisfy the good cause requirement. 31
Colonial asserts that only through a corporate designee’s deposition in November 2018 and
discovery did it learn that Alpha intended to claim as a defense that Agency—not Colonial—paid
Alpha. 32 Alpha disagrees and asserts that a Colonial employee’s deposition in July 2018 confirmed
that Agency paid Alpha, but Colonial waited several months to request leave to amend its first
amended complaint, which it filed after the July 2018 deposition. 33 The Court’s February 2, 2018
deadline to amend pleadings passed under either rendition. Alpha also argues that Colonial knew
when it filed its original complaint that Colonial had not paid Alpha, and Colonial made “[n]o
reasonable inquiry” before that filing.” 34
Either way, it was not until November 28, 2018, that Alpha requested that this Court order
that Colonial be bound by deposition testimony “that Colonial Surety Agency, LLC, and not
Colonial Surety Company, paid Alpha.” 35 Alpha did not contend that some payments were made
by Agency and others by Colonial, but instead argued that all payments received by Alpha were
made by Agency. Those were facts that contradicted Alpha’s four admissions in its answer that “it
performed work for Colonial and that Colonial paid some of Alpha’s invoices.” 36

30

Schwartz v. Avis Rent a Car Sys., LLC, No. 11-4052, 2013 WL 2182078, at *3 (D.N.J. May 20,
2013) (citations omitted).
31

Id. (citations omitted).

32

(D.E. 70-3, Pl.’s Br., at 2).

33

(D.E. 70-5, Def.’s Opp’n, at 3).

34

(Id., at 1–4).

35

(D.E. 66, Joint Dispute Letter, at 4–5).

36

(D.E. 58, Answer to ¶¶ 40, 46, 49, & 117).
5

On December 18, 2018, Colonial wrote Alpha seeking consent for the amendment,
allegedly as a result of the November 2018 deposition and events thereafter. 37 Although the July
2018 deposition revealed information contradictory to the complaint, neither party corrected their
positions, and thus, Alpha shares any blame.
Alpha’s answer to the amended complaint filed in September 2018 continued to accept that
Colonial made payments to Alpha. 38 That was over a month and a half after the July 2018
deposition of a Colonial employee who confirmed that Agency paid Alpha. Both parties
nonetheless continued through this litigation under that erroneous position and it was not until
November/December 2018 that the parties demonstrated an appreciation for the significance that
Agency had made the payments, not Colonial.
In accepting Colonial’s account, it appears that Colonial took reasonably diligent steps to
seek an amendment once it realized that Alpha would no longer agree that Colonial paid Alpha,
but instead that Agency did. The November 2018 deposition led to this revelation. The Court finds
that good cause exists.
B. Rule 15 Analysis
Although courts have broad discretion to decide motions to amend, Rule 15(a) mandates
that courts should grant amendments “freely in the interests of justice.” 39 This ensures that “a
particular claim will be decided on the merits rather than on technicalities.” 40 “Denial of leave to

37

(D.E. 70-5, Def.’s Opp’n, Ex. 1; D.E. 70-3, Pl.’s Br., at 1).

38

(D.E. 58, Answer to Am. Compl., at ¶¶ 40, 46, 49, 117).

39

Voilas v. Gen. Motors Corp., 173 F.R.D. 389, 396 (D.N.J. 1997) (citations and internal quotation
marks omitted); see also Fed. R. Civ. P. 15(a)(2).

40

Dole v. Arco Chem. Co., 921 F.2d 484, 487 (3d Cir. 1990).

6

amend can be based on undue delay, bad faith or dilatory motive on the part of the movant; repeated
failure to cure deficiencies by amendments previously allowed; prejudice to the opposing party;
and futility.” 41 This list is not exhaustive. A court may “ground its decision, within reason, on
consideration of additional equities, such as judicial economy/burden on the court and the
prejudice denying leave to amend would cause to the plaintiff.” 42
1. Futility
The Court will first address futility. “An amendment is futile if the amended complaint
would not survive a motion to dismiss for failure to state a claim upon which relief could be
granted.” 43 Thus in determining futility the same legal standard employed under a Rule 12(b)(6)
motion to dismiss is applied. 44 The Court takes “all pleaded allegations as true and view[s] them
in a light most favorable to the plaintiff.” 45 However, “the Court need not accept sweeping legal
conclusions cast in the form of bald assertions, unwarranted inferences, or unsupported
conclusions.” 46 The complaint “must contain sufficient factual matter, accepted as true, to state a
claim to relief that is plausible on its face.” 47 “A claim has facial plausibility when the plaintiff

41

Mullin v. Balicki, 875 F.3d 140, 149 (3d Cir. 2017).

42

Id. at 149–50.

43

Alvin v. Suzuki, 227 F.3d 107, 121 (3d Cir. 2000).

44

See Gutwirth v. Woodford Cedar Run Wildlife Refuge, 38 F. Supp. 3d 485, 488–89 (D.N.J. 2014)
(citations omitted).
45

Winer Family Tr. v. Queen, 503 F.3d 319, 331 (3d Cir. 2007).

46

Gutwirth, 38 F. Supp. 3d at 489 (internal citations and quotation marks omitted).

47

Id. (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)).

7

pleads factual content that allows the court to draw the reasonable inference that the defendant is
liable for the misconduct alleged.” 48
Colonial seeks to add Agency as a plaintiff for Agency to assert Count I (breach of
contract), Count II (breach of the implied covenant of good faith and fair dealing), and Count III
(unjust enrichment) against Alpha.
As to breach of contract and breach of the implied covenant of good faith and fair dealing,
Agency cannot maintain these causes of action. To state a claim for breach of contract under New
Jersey law, a plaintiff must “allege (1) a contract between the parties; (2) a breach of that contract;
(3) damages flowing therefrom; and (4) that the party stating the claim performed its own
contractual obligations.” 49 Colonial, not Agency, contracted with Alpha, and Colonial affirms this
in its proposed amendment by stating “Alpha and Colonial entered into a binding contract.”50
Agency paid Alpha in relation to the contract between Colonial and Alpha, but Agency was not
contractually obligated to pay, as that obligation lied solely with Colonial. Alpha did not enter into
a binding contract with Agency—only with Colonial. Without being a party to the at-issue
contract, Agency has no grounds to bring these causes of action, and thus such an amendment is
futile.
Regarding unjust enrichment, it would not be futile for Agency to pursue this cause of
action. In accepting the pleaded allegations as true, 51 Agency’s payment to Alpha in excess of

48

Matthews v. New Jersey Inst. of Tech., 717 F. Supp. 2d 447, 451 (D.N.J. 2010) (quoting Ashcroft,
556 U.S. at 662).
49

Frederico v. Home Depot, 507 F.3d 188, 203 (3d Cir. 2007) (citing Video Pipeline, Inc. v. Buena
Vista Home Entertainment, Inc., 210 F. Supp. 2d 552, 561 (D.N.J. 2002)).
50

(See D.E. 82, Proposed Second Am. Compl., at ¶ 92).

51

See Gutwirth, 38 F. Supp. 3d at 489.
8

Colonial and Alpha’s contract price and Alpha’s incompliance with the contract may have unjustly
enriched Alpha. The doctrine of unjust enrichment is a quasi-contract theory. 52 It permits a plaintiff
to allege that a defendant received a benefit from the plaintiff, and retention of that benefit is
inequitable. 53 However, “[a] claim of unjust enrichment will not stand when ‘an express contract
exists concerning the identical subject matter.’” 54 As discussed above, there is no express contract
between Agency and Alpha, but as the payor and an affiliate of Colonial, it would not be futile to
allow the amendment as to Agency’s claim for unjust enrichment.
Also, Alpha alleges that Colonial has not pled a basis for jurisdiction, thus requiring
extensive discovery and prejudicing Alpha. 55 This case is premised on diversity of citizenship. In
its updated proposed amendment, Colonial includes information regarding jurisdiction and
Agency’s structure. Colonial states that Agency is a limited liability company with one individual
member and a trust formed under the laws of Connecticut. 56 Colonial submitted jurisdictional
affidavits as to members of the trust. 57 At this stage, it appears that diversity jurisdiction is
maintained. Colonial sufficiently pleads a jurisdictional basis for Agency, and the Court anticipates
that any necessary discovery on the matter will be minimal.

52

Davis v. Bankers Life & Cas. Co., No. 15-3559, 2016 WL 7668452, at *12 (D.N.J. Dec. 23,
2016).

53

Id. (citations omitted).

54

Spano v. JP Morgan Chase Bank, NA, 521 Fed. Appx. 66, 70 (3d Cir. 2013) (quoting Suburban
Transfer Serv., Inc. v. Beech Holdings, Inc., 716 F.2d 220, 226–27 (3d Cir. 1983)).
55

(D.E. 70-5, Def.’s Opp’n, at 1–2).

56

(D.E.82, Proposed Second Am. Compl., at ¶¶ 9–10, 12).

57

(D.E. 74, Certs.).

9

If after jurisdictional discovery Alpha determines that this Court lacks complete diversity,
it can move for dismissal at that time.
2. Undue Delay
Next, I address Alpha’s undue delay argument. “Undue delay” recognizes there is a gap
between when an amendment is possible and when it is sought. 58 Delay “that is protracted and
unjustified—can place a burden on the court or counterparty, or can indicate a lack of diligence
sufficient to justify a discretionary denial of leave.” 59 There is “no presumptive period in which
… delay becomes ‘undue,’ the question of undue delay requires that we focus on the movant’s
reasons for not amending sooner.” 60
Colonial filed the instant motion nearly two years after filing its original complaint and
nearly a year since moving for leave to file its first amended complaint, but neither of those dates
are significant in light of Alpha’s admission to facts which it also knew were erroneous. Judicial
admissions from a clear and unambiguous statement in the complaint are binding on the party who
made them. 61 “When a statement meets such a threshold, ‘even if the post-pleading evidence
conflicts with the evidence in the pleadings, admissions in the pleadings are binding on the parties
and may support summary judgment against the party making such admissions.’” 62

58

Mullin v. Balicki, 875 F.3d 140, 151 (3d Cir. 2017).

59

Id.

60

Id. (citations and internal quotation marks omitted).

61

Am. Title Ins. Co. v. Lacelaw Corp., 861 F.2d 224, 226 (9th Cir. 1988); see also Elec. Mobility
Corp. v. Bourns Sensors/Controls, Inc., 87 F. Supp. 2d 394, 405 (D.N.J. 2000).
62

Elec. Mobility Corp., 87 F. Supp. 2d at 405 (quoting Missouri Housing Dev. Comm’n v. Brice,
919 F.2d 1306, 1315 (8th Cir.1990)).

10

Here, Colonial’s amended complaint alleged that it made payments to Alpha pursuant to
the parties’ agreement. 63 Facts which Alpha now disputes though it admitted four times in its
answer that “it performed work for Colonial and that Colonial paid some of Alpha’s invoices.”64
Alpha is bound by those admissions despite the evidence to the contrary. 65 It nonetheless only
made clear that it will seek to contradict its admissions after the November 2018 deposition. Not
long thereafter, Colonial sought Alpha’s consent in December 2018 to join Agency as a party.
The Court therefore finds that Colonial’s delay is not undue. The amendment does not add
new facts that were unknown to Alpha or require Alpha to expend significant additional resources
for discovery. In fact, the litigation, expenses, and delays would be multiplied if Agency were
forced to pursue a separate action.
3. Prejudice
The factors considered for an amendment are not equal because prejudice to the nonmovant is the touchstone for denial. 66 Courts should deny leave to amend a complaint based on
undue delay if the non-moving party is prejudiced. 67 To establish prejudice created by an untimely
receipt of the proposed amendment, the non-moving party must do more than simply claim
prejudice. 68 The party opposing amendment “must show that it was unfairly disadvantaged or

63

(D.E. 55, Am. Compl. ¶¶ 40, 46, 49, & 117).

64

(D.E. 58, Answer to ¶¶ 40, 46, 49, & 117).

65

In re Teleglobe Commc’ns Corp., 493 F.3d 345, 377 (3d Cir. 2007), as amended (Oct. 12, 2007)
(“Judicial estoppel prevents a party from ‘playing fast and loose with the courts’ by adopting
conflicting positions in … different stages of the same proceeding”).
66

Mullin v. Balicki, 875 F.3d 140, 150 (3d Cir. 2017).

67

Cincerella v. Egg Harbor Twp. Police Dept., No. 06-1183, 2007 WL 2682965, at *2 (D.N.J.
Sept. 6, 2007).
68

Bechtel v. Robinson, 886 F.2d 644, 652 (3d Cir. 1989).
11

deprived of the opportunity to present facts or evidence which it would have offered had the
[plaintiff’s] amendments been timely.” 69 The Third Circuit has acknowledged that although “[t]he
exact nature and degree of prejudice necessary for denial of an amendment is not readily
susceptible to a precise formula, . . . the defendants must show that the amendment would adversely
affect their ability to defend adequately the case.” 70
Alpha argues that it will be prejudiced by an amendment because it has already begun
drafting its summary judgment motion based on extensive discovery, and the second amended
complaint would delay the filing of its motion to allow for more discovery. 71 These claims of
prejudice, however, would have applied even if Colonial were quicker in appreciating its mistake
in not including Agency in the first amended complaint. With regard to a similar claim of prejudice,
the Mullin Court stated, “we view the ‘delay’ complained of here as referring to the pendency of
the litigation as a whole and not to the delay in seeking to amend once the [reason for amendment
was discovered].” 72
Alpha shares some blame for its answer and answer to the amended complaint both
accepted as true that Colonial had made the payments to Alpha, though it also knew otherwise.
The gap between its abandonment of that position in November 2018 and Colonial’s December
18, 2018 request to amend on consent is minimal and the Court finds is not prejudicial to Alpha.

69

Heyl & Patterson Int’l, Inc. v. F.D. Rich Hous, of Virgin Islands, Inc., 663 F.2d 419, 426 (3d
Cir. 1981) (citing Deakyne v. Comm’rs of Lewes, 416 F.2d 290, 300 n.19 (3d Cir. 1969)).
70

Johnson v. Trueblood, 629 F.2d 287, 297 (3d Cir. 1980).

71

(D.E. 70-5, Def.’s Opp’n, at 1–3).

72

Mullin, 875 F.3d at 156.

12

4. Judicial Economy
“Judicial economy is an equitable consideration that can be considered in deciding whether
amendment should be allowed. . . . Considerations include judicial efficiency and effective case
management.” 73
Alpha’s counsel agreed at oral argument that if the amendment is denied, a new case can
be filed, and Colonial will seek to consolidate the two related cases. Nevertheless, Alpha hopes to
divide and conquer Colonial and Agency by keeping their claims in separate cases because it is
possible that neither can prevail without the other.
Despite the delay that would result from this amendment, judicial economy will be served
by having all claims by all parties arising out of the same transaction, i.e., the entire controversy,
litigated before a single judge. It is more likely that a final resolution or settlement will be possible
if Colonial and Agency’s claims are brought within one case, as Colonial intended and, but for a
mistake, would have occurred from the outset.
This is the course also commanded by Rule 1 which requires that each of the Federal Rules
“be construed, administered, and employed by the court and the parties to secure the just, speedy,
and inexpensive determination of every action and proceeding.”

73

Id. at 157.
13

IV.

CONCLUSION
For the foregoing reasons, Colonial’s motion for leave to file a second amended complaint

is GRANTED in part and DENIED in part.

5/16/2019 1:25:47 PM

Original: Clerk of the Court
Hon. Esther Salas, U.S.D.J.
cc: All parties
File

14