Nationwide Mutual Insurance Company v. Korzan et al
Filing
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ORDER denying 14 Motion for Partial Judgment on the Pleadings; granting 18 Motion to Amend Answer and Counterclaims. Signed by U.S. District Judge Karen E. Schreier on 8/4/16. (SLW)
UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
SOUTHERN DIVISION
NATIONWIDE MUTUAL INSURANCE
COMPANY,
CIV. 15-4124-KES
ORDER GRANTING MOTION TO
AMEND DEFENDANTS’ ANSWER
AND COUNTERCLAIMS AND
DENYING DEFENDANTS’ PARTIAL
JUDGMENT ON THE PLEADINGS
Plaintiff,
vs.
CURTIS KORZAN and LORIE KORZAN,
Defendants.
Defendants, Curtis Korzan and Lorie Korzan, seek to amend their answer
and counterclaims to include affirmative defenses and also move for partial
judgment on the pleadings. Plaintiff, Nationwide Mutual Insurance Company,
resists the motions. For the following reasons, the court grants defendants’
motion to amend their answer and counterclaims and denies defendants’
motion for partial judgment on the pleadings.
FACTS
The facts as alleged in the pleadings, taken in favor of plaintiff, are as
follows:
Defendants own Grand Slam Hunts, LLC, a hunting lodge, located in
rural Kimball, South Dakota. In 2014, defendants purchased additional
property near the lodge that included an outbuilding and a dwelling.
Defendants obtained a Nationwide farm insurance policy on the new property.
On March 24, 2015, a fire destroyed the outbuilding valued at $250,000. On
March 27, 2014, a second fire destroyed the dwelling and its contents. Both the
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defendants and Nationwide agree that the dwelling was valued at $394,586,
but disagree as to the value of the contents. Nationwide states that the
contents were valued at $5,170 while defendants assert the contents were
worth significantly more.
Nationwide investigated the second fire and found that the dwelling had
not been occupied for at least 120 consecutive days before the fire. The policy
included an unoccupancy and vacancy provision:
If a dwelling is ‘vacant’ or ‘unoccupied’ beyond a period of 120
consecutive days, we will reduce the amount we would otherwise
pay for damage to the dwelling and its contents by 50%, unless we
extend the period of ‘vacancy’ or ‘unoccupancy’ by endorsement
made a part of this Coverage Form.
Docket 1-1 at 38 (Farm Property Coverage Form). The policy defined
“unoccupied” as “a ‘dwelling’ (except while being constructed) not being lived
in.” Id. at 41. Per the unoccupancy provision, Nationwide paid a total of
$199,878, which was 50% of the $394,586 for the dwelling plus 50% of the
$5,170 in contents coverage.
Defendants subsequently filed a complaint with the South Dakota
Department of Labor and Regulation Division of Insurance (DOI). In the DOI
complaint, defendants alleged that Nationwide was required to pay the full
amount for the dwelling and its contents under SDCL 58-10-10.1 Defendants
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SDCL 58-10-10 states
whenever any policy of insurance is written or renewed to insure
any real property in this state . . . the amount of insurance written
in the policy shall be taken conclusively to be the true value of the
property insured and the true amount of loss and measure of
damages . . . .
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claim that the DOI found in their favor. Defendants also assert, however, that
the DOI shared its decision solely with Nationwide.
On July 16, 2015, Nationwide filed a complaint with this court asking for
a declaratory judgment on whether the unoccupancy provision is valid under
South Dakota law. Docket 1. On September 14, 2015, defendants filed an
answer and counterclaims. Docket 7. Defendants did not, however, plead the
affirmative defenses of res judicata or failure to exhaust administrative
remedies. See Id. On October 28, 2015, the scheduling order set the deadline
for prediscovery disclosures as November 17, 2015, the deadline for motions to
amend the pleadings as February 2, 2016, and all discovery to be commenced
by April 4, 2016. Docket 13.
On March 4, 2016, defendants moved for partial judgment on the
pleadings. Docket 14. On March 30, 2016, defendants moved to amend the
answer and counterclaims to include the affirmative defenses of res judicata
and failure to exhaust administrative remedies.2 Docket 18.
I.
Defendants’ Motion to Amend Their Answer and Counterclaims
A.
Legal Standard
Fed. R. Civ. P. 8(c) requires a defendant to plead affirmative defenses in
its answer otherwise, “[g]enerally, [the] failure to plead an affirmative defense
As an initial matter, Nationwide and defendants disagree as to whether failure
to exhaust administrative remedies is an affirmative defense. Docket 23 at 3.
Previously, however, this court treated failure to exhaust administrative
remedies as an affirmative defense. See Bishop v. Pennington Cty., No. CIV. 065066-KES, 2007 WL 2979869, at *1 (D.S.D. Oct. 11, 2007).
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results in a waiver of that defense.” First Union Nat'l Bank v. Pictet Overseas
Trust Corp., 477 F.3d 616, 622 (8th Cir. 2007). A “technical failure to comply
with Rule 8(c) is not fatal[,]” however, if it is done “in a manner that does not
result in unfair surprise.” Sherman v. Winco Fireworks, Inc., 532 F.3d 709, 715
(8th Cir. 2008) (quoting First Union Nat'l Bank, 477 F.3d at 622) (citations
omitted)). The Eighth Circuit has “recognized that Rule 8(c) is not an absolute
bar to a party’s belated attempt to plead an affirmative defense . . . .” Id.
Additionally, defendants’ motion to amend “implicated both Rule 15(a)
and Rule 16(b).” Id. “Rule 15(a) governs the pretrial amendment of pleadings
and states that where an amendment is not sought ‘as a matter of course’—as
defined by the Rule—‘a party may amend its pleading only with the opposing
party's written consent or the court's leave.’ ” Id. (quoting Fed. R. Civ. P.
15(a)(2)). “A district court appropriately denies the movant leave to amend if
‘there are compelling reasons such as undue delay, bad faith, or dilatory
motive, repeated failure to cure deficiencies by amendments previously allowed,
undue prejudice to the non-moving party, or futility of the amendment.’ ” Id.
(quoting Moses.com Sec., Inc. v. Comprehensive Software Sys., Inc., 406 F.3d
1052, 1065 (8th Cir. 2005) (citations omitted)).
Rule 16(b), on the other hand, requires that scheduling orders “be
modified only for good cause and with the judge's consent.” Fed. R. Civ. P.
16(b)(4) (emphasis added). The Eighth Circuit has ruled that “in cases in which
the deadline to amend pleadings has past,” then “the primacy of Rule 16(b)
over Rule 15(a)” establishes that the “good cause” standard applies. Sherman,
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532 F.3d at 715-16 (citing Fin. Holding Corp. v. Garnac Grain Co., 127 F.R.D.
165, 165–66 (W.D. Mo.1989)).
B.
Discussion
1.
Good Cause
The principal measurement of good cause is “the movant’s diligence in
attempting to meet the order’s requirements.” Rahn v. Hawkins, 464 F.3d 813,
822 (8th Cir. 2006). In Sherman, the Eighth Circuit found the defendant failed
to establish good cause to amend its answer to include an affirmative defense
for a number of reasons: (1) the motion to amend was filed over seventeen
months after the scheduling deadline for amending pleadings; (2) defendant
admitted awareness of the defense eight months prior to moving for the
amendment; (3) defendant did not apply the defense until the summary
judgment stage; and (4) “no change in the law, no newly discovered facts, or
any other circumstance made the [affirmative] defense more viable after the
scheduling deadline for amending pleadings.” Sherman, 532 F.3d at 717-18.
In Barstad v. Murray County, the court ruled the plaintiffs did not have
good cause to amend the complaint when they were almost two months past
the deadline, but had known about the claim they sought to add for twenty-one
months. Barstad v. Murray Cty., 420 F.3d 880, 883 (8th Cir. 2005). In Hartis v.
Chicago Title Insurance Co., the court found the plaintiffs were not diligent
when they waited to amend their complaint until two years after the scheduling
order deadline. The court found their actions to be a deliberate, tactical
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decision that was made to avoid the possibility of the court denying class
certification. Hartis v. Chi. Title Ins. Co., 694 F.3d 935, 948-89 (8th Cir. 2012).
Here, defendants assert there is good cause to amend the answer to
include the affirmative defenses of res judicata and failure to exhaust
administrative remedies because defendants were not made aware of the DOI
decision until November 2015.3 Defendants still waited, however, to amend
their answer until March 30, 2015—nearly four months after receiving the DOI
decision and almost two months after the deadline passed for amending the
pleadings.
Although the defendants were somewhat dilatory, their delay fails to
compare to situations where courts have not found good cause. In Sherman,
the motion to amend came eight months after the defendant was aware of the
defense, and seventeen months after the deadline. Sherman, 532 F.3d at 71718. In Barstad, plaintiffs were aware of the claim for twenty-one months before
they moved to amend the complaint two months past the deadline. Barstad,
420 F.3d at 883. In Lillibridge v. Nautilus Insurance Co., this court denied
defendant’s motion to amend its answer and withdraw a defense when it was
made twelve months after the scheduling order deadline. Lillibridge v. Nautilus
Ins. Co., No. 10-4105-KES, 2013 WL 870439, at *6 (D.S.D. March 7, 2013). In
The Korzans were pro se in regards to their DOI complaint and, because of
that, assert that “[n]either the Division nor Nationwide copied the Korzans on
correspondence between the Division and Nationwide.” Docket 20 at 3-4.
Nationwide provided this correspondence to defendants in November 2015 as
part of its initial disclosures. Docket 22 at 3. Defendants assert they became
cognizant of the importance of the DOI’s decision that SDCL 58-10-10 voided
the unoccupancy provision when defendants reviewed the initial disclosure
information in “late February and early March of 2016.” Docket 23 at 2.
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Pucket v. Hot Springs School District No. 23-2, this court refused defendant’s
motion to amend its pleadings when the motion was not made until “over three
years past the court’s deadline.” Pucket v. Hot Springs Sch. Dist. No. 23-2, 239
F.R.D. 572, 589-90 (D.S.D. 2006). In this case, defendants’ delay was relatively
brief.
Additionally, there is no evidence that defendants deliberately delayed
making the motion to amend or chose to delay as a tactical matter as the
plaintiffs did in Hartis. Hartis, 694 F.3d at 948-49. Also, defendants have not
missed any other scheduling order deadlines. Thus, the court finds the
defendants were diligent “in attempting to meet the order’s requirements.” See
Hawkins, 464 F.3d at 822.
2.
Undue Prejudice
A secondary measure of good cause is “prejudice to the nonmovant
resulting from modification of the scheduling order.” Sherman, 532 F.3d at 717
(holding undue prejudice should only be explored if the movant has been found
diligent). “The burden of proving prejudice lies with the party opposing the
motion.” Lillibridge, 2013 WL 870439, at *6 (citing Roberson v. Hayti Police
Dep't, 241 F.3d 992, 995 (8th Cir.2001)). Plaintiffs do not cite any reason why
the amendment would prejudice them through further delay or additional
discovery. Docket 22.
In Pucket, the court found that allowing defendants to raise third-party
complaints three years after the pleadings deadline passed, after “[d]iscovery is
closed and the motions deadline has passed,” while “[t]here are three pending
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motions for summary judgment,” and when “third-party defendants would
want to engage in [further] discovery” would further delay the case and
“prejudice plaintiffs.” Pucket, 239 F.R.D. at 590. In this case, defendants moved
to amend their answer prior to the discovery deadline of April 4, 2016. Docket
18; Docket 13 at ¶ 3. Furthermore, defendants moved to amend their answer
prior to the dispositive motions deadline of May 3, 2016. Docket 13 at ¶ 8.
Because defendants’ amendment would not further delay the case, they have
not prejudiced the plaintiffs. Thus, the motion to amend the answer and
counterclaims is granted.
II.
Defendants’ Motion for Judgment on the Pleadings
A.
Legal Standard
“When reviewing a motion for judgment on the pleadings pursuant to
Federal Rule of Civil Procedure 12(c), the court applies the same standard as
that on a motion to dismiss under Rule 12(b)(6).” Day v. Minnehaha Cty., No.
14-4037-KES, 2015 WL 926147, at *1 (D.S.D. March 4, 2015) (citing Westcott
v. City of Omaha, 901 F.2d 1486, 1488 (8th Cir.1990)). “Judgment on the
pleadings is appropriate when there are no material facts to resolve and the
moving party is entitled to judgment as a matter of law.” Mills v. City of Grand
Forks, 614 F.3d 495, 497–98 (8th Cir.2010) (citing Faibisch v. Univ. of Minn.,
304 F.3d 797, 803 (8th Cir.2002)). “The facts pleaded by the non-moving party
must be accepted as true and all reasonable inferences from the pleadings
should be taken in favor of the non-moving party.” Id. The court may consider
the pleadings themselves, materials embraced by the pleadings, exhibits
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attached to the pleadings, and matters of public record. Id. (citing Porous Media
Corp. v. Pall Corp., 186 F.3d 1077, 1079 (8th Cir.1999)).
B.
Discussion
1.
Res Judicata
Defendants argue that the DOI has issued a final rule in their favor and
that SDCL 58-10-10 bars Nationwide’s unoccupancy provision. “Federal courts
must give the findings of a state agency the same preclusive effect that those
findings would be entitled to in that state's court, provided that the agency was
acting in a judicial capacity, the questions litigated were properly before the
agency judge, and the parties had an adequate opportunity to litigate the
issues.” Schlimgen v. City of Rapid City, 83 F. Supp. 2d 1061, 1068 (D.S.D.
2000) (citing Univ. of Tenn. v. Elliott, 478 U.S. 788 (1986) (citations omitted)). If
the DOI issued a final agency decision, then the doctrine of res judicata bars
Nationwide from bringing their complaint to federal court. South Dakota law
requires that four elements be met for res judicata to bar a claim:
(1) a final judgment on the merits in an earlier action; (2) the
question decided in the former action is the same as the one
decided in the present action; (3) the parties are the same; and (4)
there was a full and fair opportunity to litigate the issues in the
prior proceeding.
Farmer v. S.D. Dep’t. of Revenue and Regulation, 781 N.W.2d 655, 659 (S.D.
2010) (citing People ex rel. L.S., 721 N.W.2d 83, 89-90 (S.D. 2006) (citations
omitted)).
A “final decision on the merits” must be made pursuant to SDCL
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1-26-25, which states that “a final decision . . . . [S]hall include findings of fact
and conclusions of law [and] . . . . Parties shall be notified either personally or
by mail of any decision or order.” Defendants allege that the DOI issued a final
decision in their favor, but only sent the decision to Nationwide. The DOI,
however, was required by SDCL 1-26-25 to also notify defendants of the
judgment. Thus, the decision of the DOI was not a “final” judgment on the
issue and the first element is not met.
The fourth element requiring a “full and fair opportunity to litigate the
issues” is also not met. In Schlimgen, this court noted that the presence of an
administrative law judge, representation by counsel for both parties, exchange
of written discovery, taking of depositions, presentation of witnesses under
oath with an opportunity to cross examine during a hearing, and presentation
of evidence during a hearing constituted a full and fair opportunity to litigate.
See Schlimgen, 83 F. Supp. 2d at 1068. Because none of these factors is
present in the current situation, there was no full and fair opportunity to
litigate the issue. Thus, the first and fourth elements are not present and the
defendants’ res judicata claim fails.
2.
Failure to Exhaust Administrative Remedies
Defendants argue that, alternatively, Nationwide’s claim is barred
because of its failure to exhaust administrative remedies. Nationwide
responded to the DOI’s requests, defendants argue, and so Nationwide
accepted the jurisdiction of the DOI. Furthermore, defendants allege that
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Nationwide needed to see the entire administrative process through before
bringing a claim to federal court.
“It is a settled rule of judicial administration that ‘no one is entitled to
judicial relief for a supposed or threatened injury until the prescribed
administrative remedy has been exhausted.’ ” Robinson v. Human Relations
Comm’n of City of Sioux Falls, 416 N.W.2d 864, 866 (S.D. 1987) (quoting Zar v.
S.D. Bd. of Exam’rs of Psychologists, 376 N.W.2d 54, 56 (S.D. 1985) (citations
omitted)). There is, however, “no failure to exhaust administrative remedies . . .
where a party is not mandated or required to proceed administratively.” Matter
of Petree, 520 N.W.2d 610, 611 (S.D. 1994) (citing Sioux Valley Hosp. Ass’n v.
Bryan, 399 N.W.2d 352 (S.D. 1987)). The Administrative Procedures Act states
that
A person who has exhausted all administrative remedies available
within any agency or a party who is aggrieved by a final decision in
a contested case is entitled to judicial review under this chapter.
SDCL 1-26-30.
No final decision was made by the DOI regarding the unoccupancy
provision’s applicability under SDCL 58-10-10 or Nationwide’s possible
violation of SDCL 58-33-67. In their briefs, both Nationwide and defendants
agree that the DOI has closed the complaint. South Dakota has ruled that
“exhaustion is not required where the agency fails to act.” Jansen v. Lemmon
Fed. Credit Union, 562 N.W.2d 122, 124 (S.D. 1997) (citing Weltz v. Bd. of Educ.
of Scotland Sch. Dist. No. 4-3 of Bon Homme Cty., 329 N.W.2d 131, 134 n.1
(S.D. 1983). Because the DOI closed the complaint instead of addressing
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Nationwide’s response to the DOI’s preliminary decision, the DOI failed to act.
Thus, administrative exhaustion is not required.
CONCLUSION
Defendants’ motion to amend the pleadings that was made after the
scheduling order deadline had passed was made with good cause and does not
submit Nationwide to undue prejudice. The DOI, however, did not issue a final
decision on the issue and subsequently failed to act. Thus, the claim is not
barred by res judicata or failure to exhaust administrative remedies.
Thus, it is ORDERED that defendants’ motion to amend their answer
and counterclaims (Docket 18) is granted.
IT IS FURTHER ORDERED that defendants’ motion for partial judgment
on the pleadings is (Docket 14) is denied.
Dated August 4, 2016.
BY THE COURT:
/s/ Karen E. Schreier
KAREN E. SCHREIER
UNITED STATES DISTRICT JUDGE
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