Employers Mutual Casualty Company v. Brant Lake Sanitary District et al

Filing 34

OPINION AND ORDER denying 32 Motion to Strike ; granting 19 Motion to Amend Answer and Assert Counterclaim. Signed by U.S. District Judge Roberto A. Lange on 01/04/2019. (LH)

UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
SOUTHERN DIVISION

EMPLOYERS MUTUAL CASUALTY
COMPANY,

4:18-CV -04029-RAL

Plaintiff,
OPINION AND ORDER GRANTING
MOTION TO AMEND ANSWER AND
ASSERT COUNTERCLAIM AND
DENYING MOTION TO STRIKE

vs.
BRANT LAKE SANITARY DISTRICT, A
POLITICAL SUBDIVISION OF THE STATE
OF SOUTH DAKOTA; and EXCEL
UNDERGROUND, INC. ,
Defendants.

This opinion and order addresses two pending motions: Defendant Brant Lake Sanitary
District's (Brant Lake) motion to amend its answer and assert a counterclaim, Doc. 19, and Plaintiff
Employers Mutual Casualty Company' s (EMCC) motion to strike the surreply of Defendant Excel
Underground, Inc. (Excel), Doc. 32.

I.

Motion to Amend Answer and Assert Counterclaim

Brant Lake contracted with Excel to build a wastewater treatment system for Brant Lake' s
residents. Excel and Brant Lake had a disagreement over construction of the system and ended up
suing each other in South Dakota state court. A jury decided in Excel' s favor and awarded it
$800,000 in lost profits, $285.921.81 for "retainage," and $483 ,770 "for other payments under the
contract." Doc. 1-3 at 2. EMCC, who insured Brant Lake under a Linebacker Public Officials and
Employment Practices Liability Policy (Policy), filed this declaratory judgment action seeking,

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among other things, a declaration that the Policy' s "contractual liability" exclusion excludes
coverage for Excel ' s verdict against Brant Lake. Doc. 1.
Brant Lake answered EMCC ' s complaint first, asserting that the contractual liability
exclusion is ambiguous and did not apply in any event because Excel' s claims sounded in tort.
Doc. 7. Excel answered the complaint next, asserting a counterclaim against EMCC. Doc. 9.
Count I of Excel's counterclaim alleged that the contractual liability exclusion only applied to
direct contract damages and that the $800,000 in lost profits were covered as consequential
damages. Doc. 9. EMCC then moved for judgment on the pleadings,. arguing among other things
that the Policy excludes coverage for both direct and consequential contractual damages. Docs.
15, 16. Brant Lake moved to amend its answer and assert a counterclaim against EMCC less than
a week later. Doc. 19. Like Count I ofExcel' s counterclaim, Brant Lake' s proposed counterclaim
asserted that the contractual liability exclusion does not apply to the $800,000 in lost profits, which
Brant Lake argued could only have been awarded as consequential damages. EMCC opposed
Brant Lake' s motion to amend. Doc. 23.
Rule l 5(a) of the Federal Rules of Civil Procedure establishes a liberal approach towards
granting motions to amend. See Fed. R. Civ. P. 15(a)(2) (explaining that courts should "freely"
give leave to amend "when justice so requires"). Denial of a motion to amend "is appropriate only
in those limited circumstances in which undue delay, bad faith on the part of the moving party,
futility of the amendment, or unfair prejudice to the non-moving party can be demonstrated."
Hillesheim v. Myron's Cards and Gifts, Inc., 897 F.3d 953 , 955 (8th Cir. 2018) (cleaned up). There
is no evidence of undue delay or bad faith here, and EMCC does not argue that the proposed
amendments would cause it prejudice. Instead, EMCC ' s only justification for denying the motion
is that the proposed amendment would be futile. An amendment is futile if it "could not withstand

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a motion to dismiss under Rule 12(b)( 6)." Id. (cleaned up). Rather than deciding the futility issue
now, this Court will grant the motion to amend, deem EMCC's motion for judgment on the
pleadings to apply to the amended answer and counterclaim, and address the coverage issues raised
by the motion for judgment on the pleadings after hearing oral argument. This approach will not
prejudice EMCC or any party and avoids the need for EMCC to refile another motion for judgment
on the pleadings. After all, a similar standard governs both the futility question and the motion for
judgment on the pleadings, Hillesheim, 897 F.3d at 955; Ashley Cty. v. Pfizer, Inc., 552 F.3d 659,
665 (8th Cir. 2009), Brant Lake's counterclaim raises the same issue as Count I of Excel's
counterclaim, and EMCC has fully briefed the Defendants' claim that the contractual liability
exclusion does not apply to the $800,000 in lost profits, Doc. 16 at 7-10, Doc. 23 at 4-7, Doc. 28.
II.

Motion to Strike

Excel filed a surreply brief to EMCC's motion for judgment on the pleadings over a month
after briefing on that motion ended. Doc. 31. Excel's surreply stated that EMCC's reply brief
"contains new arguments to which a response is warranted." Doc. 31 at 1. EMCC moved to strike
the surreply but requested alternatively that it be given a chance to submit a response brief. Docs.
32, 33. Neither the Local Rules nor the Federal Rules of Civil Procedure allowed Excel to submit
a surreply, and Excel did not seek leave of court before doing so. Nevertheless, this Court will
permit Excel's surreply to remain on file and not strike it. Excel is advised, however, that any
future surreply filed without this Court's permission will be stricken. This Court wants to have
oral argument before ruling on EMCC's motion for judgment on the pleadings, so EMCC will
have an opportunity to address the issues raised in the surreply at the hearing. Additional briefing
in this case is unnecessary at this time.

III.

Conclusion

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For the reasons stated above, it is hereby
ORDERED that Brant Lake' s Motion to Amend Answer and to Assert Counterclaim, Doc.
19, is granted. Brant Lake may file and serve its first amended answer and counterclaim. It is
further
ORDERED that EMCC's Motion to Strike, Doc. 32, is denied. It is further
ORDERED that the parties cooperate with this Court' s judicial assistant to set a hearing in
this case.

DATED this

4"" day of January, 2019.
BY THE COURT:

ROBERTO A. LANE
UNITED STATES DISTRICT JUDGE

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