Ross Neely Systems Inc v. Navistar Inc et al

Filing 262

Memorandum Opinion and Order denying 217 MOTION for Leave to Amend Plaintiffs Second Amended Complaint; granting 254 MOTION for Protective Order Pursuant to Rule 26(c). The Court vacates its 3/16/2015 226 Order Granting Motion fo r Leave to Amend and Requiring Attorney Conference and Joint Status Report and 240 Supplemental Scheduling Order, and orders that 227 Plaintiffs Third Amended Original Complaint shall be unfiled. (Ordered by Magistrate Judge David L Horan on 4/8/2015) (jrr)

IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
ROSS NEELY SYSTEMS, INC.,
Plaintiff,
V.
NAVISTAR, INC., ET AL.,
Defendants.

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No. 3:13-cv-1587-M-BN

MEMORANDUM OPINION AND ORDER ON PLAINTIFF’S MOTION FOR
LEAVE TO AMEND PLAINTIFF’S SECOND AMENDED COMPLAINT
United States District Judge Barbara M.G. Lynn treated Defendants Navistar,
Inc. and Navistar International Corporation’s Objections to the Order Granting Motion
for Leave to Amend [Dkt. No. 241] and Supplemental Evidence [Dkt. No. 243], as a
Motion for Reconsideration and re-referred Plaintiff Ross Neely Systems, Inc.’s Motion
for Leave to Amend Plaintiff’s Second Amended Complaint [Dkt. No. 217] to the
undersigned magistrate judge for further consideration. See Dkt. No. 244.
For the reasons explained below, the Court, on reconsideration, DENIES
Plaintiff’s Motion for Leave to Amend Plaintiff’s Second Amended Complaint [Dkt. No.
217].
Background
Plaintiff filed this action against Defendants on April 24, 2013. See Dkt. No. 1.
Plaintiff asserted direct causes of action against both Navistar, Inc. (“Inc.”) and

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Navistar International Corporation (“International”). See id. Plaintiff also alleged that
“Navistar International Corporation (‘Navistar Holdings’) is a parent, holding company
whose subsidiaries produce heavy-duty commercial trucks”; that “Navistar, Inc.
(‘Navistar’) is a wholly-owned subsidiary of Navistar Holdings”; that, “[b]ased on
Navistar Holdings’ public statements and official filings with the Securities and
Exchange Commission, several of the officers of Navistar Holdings also hold positions
as officers and/or directors of Navistar”; that, “[t]hus, Defendants share many of the
same decision makers at the highest levels of governance for each of the companies”;
and that, “[a]lthough each individual Defendant appears to perform independent
functions, Navistar Holdings and Navistar work together in concert to deliver their
products to the public, and the ‘navistar.com’ website contains information regarding
truck sales and sales of shares to investors.” Dkt. No. 1 at 2.
On May 16, 2013, International filed a motion to dismiss, alleging that Plaintiff’s
claim against Defendants was based on a relationship between Plaintiff and Inc. and
that International was merely a holding company and a distinct legal entity apart from
Navistar. See Dkt. No. 8.
Plaintiff filed its First Amended Complaint on May 29, 2013, see Dkt. No. 11,
and the Court then denied Defendants’ motions to dismiss as moot, see Dkt. No. 15.
Plaintiff’s amended complaint alleged that “Navistar International Corporation
(‘Navistar International’) is a parent, holding company whose subsidiaries produce
heavy-duty commercial trucks”; that “Navistar, Inc. is a wholly-owned subsidiary of
Navistar International”; that, “[b]ased on Navistar International’s public statements
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and official filings with the Securities and Exchange Commission, several of the officers
of Navistar International also hold positions as officers and/or directors of Navistar,
Inc.”; that, “[t]hus, Navistar International and Navistar, Inc. share many of the same
decision makers at the highest levels of governance for each of the companies”; and
that, “[a]lthough each individual Defendant appears to perform independent functions,
Navistar International and Navistar, Inc., acting in complete cooperation with each
other and with knowledge of the other’s actions, deliver their products to the public,
and the ‘navistar.com’—operated by Navistar, Inc. and including information from and
about Navistar International—website contains information regarding truck sales and
sales of shares to investors.” Dkt. No. 11 at 2.
Defendants’ Original Answer to Plaintiff’s First Amended Complaint admitted,
“[w]ith respect to Navistar International Corporation’s officers, ... that several of the
officers also hold position as officers of Navistar, Inc.” Dkt. No. 28 at 2.
Defendants also filed another motion to dismiss. See Dkt. No. 14. Defendants
asserted, in pertinent part:
Plaintiff still fails to allege the elements that would make a parent
company liable for a truck manufactured by a subsidiary. Plaintiff has
not even alleged a theory for corporate lines to be blurred. It is unclear
what theory is being espoused by plaintiff against the parent company so
it is difficult to respond with briefing. It is clear that “[a] bedrock
principle of corporate law is that ‘a parent corporation…is not liable’ for
actions taken by its subsidiaries.” Bridas S.A.P.I.C. v. Gov’t of Tukm, 447
F.3d 411, 416 (5th Cir. 2006) (citing United States v. Bestfoods, 524 U.S.
51, 61 (1998)). Without plaintiff distinguishing conduct between
subsidiary and plaintiff and without plaintiff espousing a theory that
would make the parent company liable for the actions of its subsidiary,
plaintiff has failed to state a claim against the parent company, Navistar
International Corporation.
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Dkt. No. 14 at 2. The Court’s February 18, 2014 order granted this motion only in part.
See Dkt. No. 27. The Court noted that, “[b]ecause Navistar, Inc. is a wholly-owned
subsidiary of Navistar International Corporation, the two entities cannot conspire with
each other” and further permitted Plaintiff to replead its fraud claims. Id. at 1-2.
Around this time, the Court issued its scheduling order on January 31, 2014,
setting the case for a jury trial on the Court’s two-week docket beginning February 17,
2015 and setting July 17, 2014 at the deadline for filing any amendment of pleadings.
See Dkt. No. 26 at 1-2.
Plaintiff repleaded its fraud claims on March 18, 2014 in its Second Amended
Original Complaint. See Dkt. No. 30. Plaintiff’s second amended complaint also alleged
that “Navistar International Corporation (‘Navistar International’) is a parent, holding
company whose subsidiaries produce heavy-duty commercial trucks”; that “Navistar,
Inc. is a wholly owned subsidiary of Navistar International”; that, “[b]ased on Navistar
International’s public statements and official filings with the U.S. Securities and
Exchange Commission (‘SEC’), several of the officers of Navistar International also
hold positions as officers and/or directors of Navistar, Inc.”; that, “[t]hus, Navistar
International and Navistar, Inc. share many of the same decision makers at the
highest levels of governance for each of the companies”; and that, “[a]lthough each
individual Defendant appears to perform independent functions, Navistar
International and Navistar, Inc., acting in complete cooperation with each other and
with knowledge of the other’s actions, deliver their products to the public and the
‘navistar.com’ website—operated by Navistar, Inc. and including information from and
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about Navistar International—contains information regarding truck sales and sales
of shares to investors.” Dkt. No. 30 at 2.
Defendants’ answer to Plaintiff’s Second Amended Original Complaint again
admitted, “[w]ith respect to Navistar International Corporation’s officers, ... that
several of the officers also hold position as officers of Navistar, Inc.” Dkt. No. 32 at 2.
In response to Plaintiff’s Second Amended Original Complaint, Defendants also
filed another motion to dismiss, asserting, in pertinent part:
Plaintiff has failed to distinguish which Defendant, Navistar, Inc.
or Navistar International Corporation, made which of the 37 alleged
misrepresentations. Instead, Plaintiff has lumped the two distinct
corporations together and summarily alleged that both corporations made
the same representations to Plaintiff as though they were acting as the
same entity. Plaintiff must distinguish the actions of one defendant from
another. See Holmes v. Acceptance Cas. Ins. Co., 942 F. Supp. 2d 637, 648
(E.D. Tex. 2013) (citing Taj Props., LLC v. Zurich Am. Ins. Co., 2010 WL
4923473 (S.D. Tex. Nov. 29, 2010)). Plaintiff has not done so, nor has
Plaintiff cited or alleged any theory for treating the entities as the same.
Further, Plaintiff has failed to allege any elements that make the parent
company (Navistar International Corporation) liable for a truck
manufactured by its subsidiary (Navistar, Inc.). As such, Plaintiff’s
causes of action for fraud and fraud by nondisclosure are not sufficient to
satisfy the heightened pleadings requirements for fraud.
Dkt. No. 33 at 9. In response, Plaintiff asserted that, “[t]o the extent that a question
remains as to whether or not Plaintiff has adequately distinguished between the
actions of the Defendants, Plaintiff has, in fact, specifically identified facts that
differentiate Navistar International from Navistar, Inc., where possible,” citing
“Complaint, Paragraphs 139(a) – (kk) (identifying the sources of Misrepresentations
as being representatives of Navistar International, Navistar, Inc., or both, e.g. Ramin

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Younessi and Daniel Ustian, who were officers of both Navistar International and
Navistar, Inc.).” Dkt. No. 37 at 9 & n.42.
The deadline to amend pleadings then passed on July 17, 2014. See Dkt. No. 26
at 2. The day before, on July 16, 2014, Plaintiff filed an Unopposed Motion to Modify
Scheduling Order, which did not request any extension to the deadline for amending
pleadings. See Dkt. No. 59. The Court granted that motion on July 18, 2014 but did not
continue the February 2015 trial setting. See Dkt. No. 61.
On August 18, 2014, the Court denied Defendants’ latest motion to dismiss,
holding that “Plaintiff has adequately pleaded its claims for fraud and fraud by
nondisclosure” and that “Defendants’ objections to the merits of Plaintiff’s claims are
more properly resolved at trial or on summary judgment.” Dkt. No. 64 at 1.
Defendants filed their Motion for Summary Judgment on November 17, 2014.
See Dkt. No. 113. International asserted that “Plaintiff has sued both Navistar, Inc.
and Navistar International Corporation”; that International “is a holding company
with one employee, who is the CEO of Navistar, Inc.”; that International “did not
design, manufacture, sell, or distribute the Trucks at issue”; that International “did not
offer any warranties on the Trucks”; that “[t]he Trucks were designed and
manufactured by Navistar, Inc. and sold by Southland”; that Plaintiff “has failed to
circumvent long established principles of corporate law”; that “[a] bedrock principle of
corporate law is that a parent corporation is not liable for actions taken by
subsidiaries”; that, “[f]urther, no agency relationship exists between NIC and
Southland”; that “Southland’s dealership contract is with Navistar, Inc.”; that “Plaintiff
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pleads causes of action for breach of express warranty, breach of implied warranty,
breach of contract, and fraud against” International but “[t]he acts and omissions
which Plaintiff alleges are not attributable to” International; and that, “[c]onsequently,
[International] is entitled to summary judgment on all causes of action asserted by
Plaintiff.” Id. at 2; see also Dkt. No. 114 at 7-9.
On January 7, 2015, following very active motion practice regarding discovery
matters, the Court entered an Order Continuing Trial and Modifying Scheduling
Orders, which extended the discovery deadline and various expert-related deadlines
and continued the trial setting to Judge Lynn’s two-week docket beginning June 15,
2015. See Dkt. No. 159. The Court did not reactivate or reset the July 17, 2014 deadline
to amend pleadings, and no party has ever asked the Court to do so.
On March 6, 2015, Plaintiff filed its Motion for Leave to Amend Plaintiff’s
Second Amended Complaint [Dkt. No. 217], seeking leave to amend its Second
Amended Complaint “to add in facts about the unity of corporate organization of the
Defendants, and the lack of separateness in the corporations.” Dkt. No. 217 at 1-2.
Plaintiff’s motion specifically notes that, “[o]n January 28, 2015, Defendants submitted
their Responses to Plaintiff’s First Set of Interrogatories to Defendants Navistar, Inc.
and Navistar International Corporation”; “[o]n February 12 and 13, 2015, Plaintiff took
the depositions of Navistar International Corporation and Navistar, Inc.’s Corporate
Representatives”; “[o]n February 20, 2015, Plaintiff took the deposition of Scott
McCandless”; and, “[o]n March 5, 2015, Defendant Navistar International Corporation

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submitted its Objections and Responses to Plaintiff’s Second Set of Interrogatories.”
Id.
In support of its request for leave to amend, Plaintiff asserts that:
•

“[w]hen Plaintiff filed its first and second Amended Complaints (on May 29,
2013 and March 18, 2014, respectively), Defendant Navistar, Inc. had produced
only 4,444 pages of documents, mostly containing only documents regarding
warranty work on Plaintiff’s trucks”;

•

“[b]y July 17, 2014—the deadline for amending pleadings in this
case—Defendant Navistar, Inc. had produced only 4,500 pages more, mostly
containing the one warranty document that Defendant Navistar, Inc. had
produced at that time”;

•

“[t]he first documents produced by Navistar International Corporation—the
parent company—were produced only after the Court compelled their
production, in December 2014”;

•

“[t]he last four months have seen much activity and discovery in this case”;

•

“[o]n November 13 and 14, 2014, Plaintiff deposed two former employees in this
case, one of which followed Defendants’ quashing of deposition notices for James
Hebe”; and

•

“December and January saw the deposition of the dealer principal for Southland
International and, after this Court’s December 1 Order compelling production,
the production of over 1.3 million pages of documentation produced by

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Defendant Navistar, Inc. and 457 pages of documentation produced by
Defendant Navistar International Corporation.” Id. at 2.
Plaintiff seeks leave to file its Third Amended Original Complaint, contending that,
“[f]ollowing the depositions of Defendants’ Corporate Representatives on February 12
and 13, 2015, and the Deposition of Scott McCandless on February 20, 2015, Plaintiff
received the Responses of Navistar International Corporation to Plaintiff’s Second Set
of Interrogatories; when cross-referenced with the Responses of Navistar, Inc. to
Plaintiff’s First Set of Interrogatories, Plaintiff has come to the conclusion that the
overwhelming evidence provided in the above referenced discovery requires Plaintiff
to amend its current live pleading to present facts to the Court regarding Defendants’
steadfast claim that Navistar International Corporation is a empty, shell holding
company and takes no actions regarding the sales of trucks like those purchased by
Plaintiff and receives no benefits either.” Id. at 2-3.
Plaintiff attached to the Motion for Leave to Amend Plaintiff’s Second Amended
Complaint [Dkt. No. 217] a Joint Status Report Regarding Plaintiff’s Motion for Leave
to File Plaintiff’s Third Amended Complaint, as required by the Court’s Standing
Order on Non-Dispositive Motions [Dkt. No. 195], and the joint status report included
the response of Defendants Navistar, Inc. and Navistar International Corporation. See
Dkt. No. 217-3.
Defendants oppose the requested leave to amend and assert that “Plaintiff’s
proposed amendment would prejudice Defendants” where, “[a]fter almost two years in
this lawsuit, Defendants now have to defend against an alter ego claim which will
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require additional resources to conduct discovery (to discover all of Plaintiff’s bases for
such a claim), gather witnesses and evidence to refute such a claim and prepare its
defense to that claim for trial”; where, “[c]onsidering discovery closes on April 30, 2015
and trial is set for June 15, 2015, such an endeavor might be impossible”; and where
“Defendants’ Motion for Summary Judgment, which has been on file since November
of 2014, will now have to be amended to encompass the new claims.” Dkt. No. 217-3 at
3.
Also on March 6, 2015, Plaintiff filed its response to Defendants’ Motion for
Summary Judgment [Dkt. No. 113], after several extensions of the response deadline.
See Dkt. No. 218. Plaintiff’s response relies on the alter-ego allegations in its proposed
Third Amended Original Complaint. See Dkt. No. 219 at 7-12 of 24.
The Court then held oral argument on the motion for leave to amend on March
16, 2015. See Dkt. Nos. 225 & 230. Following oral argument, the Court granted
Plaintiff’s motion for leave in its March 16, 2015 Order Granting Motion for Leave to
Amend and Requiring Attorney Conference and Joint Status Report [Dkt. No. 226].
The Court found that, “[u]nder the particular circumstances presented here, ...
notwithstanding Defendants’ arguments that Plaintiff could have pleaded these
allegations sooner, Plaintiff could not have reasonably met the deadline to amend its
complaint to assert these additional factual allegations without the discovery responses
only recently served by Defendants, that the proposed amendments are important to
Plaintiff, that Defendant will not be prejudiced by the proposed amendments in light
of the existing deadline for discovery and other scheduling considerations discussed
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below, and that leave to amend should be granted here where, the Court finds, justice
requires it.” Dkt. No. 226 at 4. The Court further explained that it was “not persuaded
that [Defendants’] allegations of potential prejudice [noted above] weigh decisively
against allowing amendment under the circumstances here,” where “[t]he discovery
cutoff [was then] still 45 days away, on April 30, 2015,” and where, “[a]s the Court
discussed with counsel during oral argument, deadlines for discovery and related
motions and for supplemental or amended summary judgment briefing can be
expedited to ensure that the June 2015 trial date will hold, and the Court finds that
they should be.” Id. at 5. The Court granted the motion for leave and ordered “that
Plaintiff is granted leave to file its Third Amended Complaint, as attached as Exhibit
1 to the motion [Dkt. No. 217-1], which is deemed filed as of the date of this order and
which the Clerk of the Court is DIRECTED to file.” Id.
Plaintiff’s Third Amended Original Complaint, in pertinent part, adds the
following new or amended allegations:
9. Based on Navistar International’s public statements and official
filings with the U.S. Securities and Exchange Commission (“SEC”), all or
most of the officers of Navistar International also hold positions as
officers and/or directors of Navistar, Inc., and in fact in numerous
pleadings, they claim that Navistar International has no operational
employees, and has had only one “employee”: the CEO of Navistar
International, who is also the CEO of Navistar, Inc.
10. Navistar International and Navistar, Inc. share common offices
and common officers.
11. Navistar, Inc. is one of the two apparent operating subsidiaries
Navistar International owns.
12.
Navistar
International’s
investor
relations
department—dealing with Navistar International’s shareholders, market
analysts, and the media—is staffed solely by Navistar, Inc. employees.
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13. Navistar, Inc.’s former and current employees as well as dealer
principals are confused about the difference between Navistar
International and Navistar, Inc.
14. Navistar International and Navistar, Inc., acting in complete
cooperation with each other and with knowledge of the other’s actions,
deliver their products to the public and the “navistar.com”
website—including information from and about Navistar
International—contains information regarding both truck sales and sales
of shares to investors.
15. The financial benefit of Navistar, Inc.’s actions accrues solely
to the shareholders of Navistar International, and the board of directors
of Navistar International (the “NIC Board”) “establishes broad corporate
policies, sets strategic direction and oversees management, which is
responsible for [Navistar International’s] day-to-day operations.”
16. Navistar International’s management employees are also the
management employees of Navistar, Inc.
....
Defendant Navistar, Inc. is an Alter Ego for Defendant Navistar
International, and the Two Companies Have Abused the
Corporate Form
I. Defendant Navistar International has financial interest,
ownership and control over Defendant Navistar, Inc.
111. Defendant Navistar International has claimed, in its Amended
Answers, Motions to Dismiss, and Motion for Summary Judgment that
Defendant Navistar, Inc. is a wholly-owned subsidiary of a “holding”
company, Defendant Navistar International.
112. Defendant Navistar, Inc.’s income is reported on a
consolidated return with Defendant Navistar International to the SEC
and other entities, presumably the Internal Revenue Service.
113. Defendant Navistar, Inc.’s income is funneled directly to
Defendant Navistar International as income from a subsidiary.
114. The financial benefit of Defendant Navistar, Inc.’s actions
accrues solely to the shareholders of Defendant Navistar International,
and the “NIC Board “establishes broad corporate policies, sets strategic
direction and oversees management, which is responsible for [Defendant
Navistar International’s] day-to-day operations.”
115. Thus, Defendant Navistar International has financial interest,
ownership and control over Defendant Navistar, Inc. [footnote 3:
Navistar, Inc., an Illinois corporation, was organized in 1988, while
Navistar International, the parent company, was organized in Delaware
in 1993, according to Navistar’s own website. Navistar, Inc. appears to
have acquired or absorbed several companies in existence prior to
Navistar, Inc., including International Truck and Engine Corporation.]
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ii. There is such unity between the two corporations that
the separateness of the two corporations has ceased.
116. According to Defendants’ Motion for Summary Judgment and
the Declaration of Curt Kramer attached thereto, Defendant Navistar
International has “no operational employees,” including any management
employees, but is instead operated by its subsidiary employees. [footnote
4: It is unclear from the records currently produced if Navistar
International reimburses Navistar, Inc. for the salaries or time of these
employees.]
117. Defendant Navistar International’s most recent quarterly
report filed with the SEC on March 3, 2015 states that Navistar’s
principal operating entities are Defendant Navistar, Inc. and Navistar
Financial.
118. Even the “officers” of Defendant Navistar International are
those of Defendant Navistar, Inc. According to interrogatory responses
served by both Defendant Navistar International and Defendant
Navistar, Inc., Defendant Navistar International’s only officers are also
officers of Defendant Navistar, Inc., and share the same titles.
119. Even Defendant Navistar, Inc.’s own employees, both former
and current, do not know the difference between the two companies, and
Defendant Navistar International and Defendant Navistar, Inc.’s
“common” corporate representative produced for deposition,
vice-president of customer support for Defendant Navistar, Inc., recently
testified that “if the employees of [Navistar] don’t [know the distinction
and the difference between Navistar International and Navistar, Inc.], I
wouldn’t expect the customers to…”
120. Even one of Defendant Navistar, Inc.’s dealer principals didn’t
understand the difference between the two companies and has recently
testified that they wouldn’t expect customers to know the difference.
121. Defendant Navistar, Inc. and its financial
activities—manufacturing engines and trucks and selling those through
its “Dealer Network” —are solely for the benefit of Defendant Navistar
International.
122. Defendant Navistar International’s most recent quarterly
report shows that, of the two subsidiaries—Defendant Navistar, Inc. and
Navistar Financial—over 98% of Defendant Navistar International’s
gross revenues come from Defendant Navistar, Inc.
123. When Defendant Navistar International’s “officers” discuss
sales of trucks to customers on earnings calls, in press releases, and in
analyst presentations—sales made presumably by Navistar, Inc.—it is
“our engine volumes” and “our trucks and parts business” that they
discuss.
124. As Defendant Navistar International’s corporate
representative stated, the subsidiary’s officers speak on behalf of the
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parent company, although he does not understand under what authority
they do so.
125. However, the “loss” [or presumably gain] that the
shareholders of Defendant Navistar International have is directly related,
and is almost solely created, by the subsidiary Defendant Navistar, Inc.
iii. Holding only Defendant Navistar, Inc. or Defendant
Navistar International liable—without the other as well—would
result in grave injustice to the Plaintiff.
126. Statements made by counsel for Defendants seem to indicate
that one or the other of the Defendants may be inadequately capitalized,
but a review of the most recent consolidated financial statements for
Defendants show that the warranty obligations caused by the repairs for
the defective parts described herein rests with the subsidiary, while
investments and any profits from other manufacturing and from the
financial side of the business enterprise are lodged within the parent.
127. Clearly, the corporate form utilized by Defendants here is a
sham to perpetrate a fraud. This is a shell game where common officers
of the parent and subsidiary make presentations to analysts and
investors in order to gain media/customer attention, but—when
customers or investors attempt to hold the parent company accountable
for those very statements and the direct benefit the parent company and
its shareholders obtained from those sales—the parent company points
to the subsidiary, which now has inadequate capital alone to withstand
the warranty and other obligations that were the direct result of the
fraud to begin with.
128. Defendants’ combined failure to fully and completely disclose
to its shareholders, investors, dealers, and customers I) the extent of the
problems it knew it was experiencing with the EGR technology; ii) the
resulting defects to the equipment being sold to the public; and iii) its
escalating inability to correct those defects, while assuring the public and
their customers that the equipment sold was of a high quality and any
problems had been and were being solved is actionable actual fraud,
common law fraud, and fraud by nondisclosure.
Dkt. Nos. 217-1, 217-2, & 227.
In the March 16, 2015 Order Granting Motion for Leave to Amend and
Requiring Attorney Conference and Joint Status Report [Dkt. No. 226], the Court
further ordered “counsel for Plaintiff and Defendants to confer in person or by
telephone and attempt in good faith to agree on expedited deadlines for serving and
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responding to discovery requests regarding Plaintiff’s new alter-ego allegations, for
filing and briefing any motion to compel or for a protective order regarding that
discovery, and for filing and briefing any supplemental or amended motion for
summary judgment that Defendants may file to address these new alter-ego
allegations – bearing in mind that the Court has set June 1, 2015 as the deadline for
pretrial materials for a June 12, 2015 trial setting.” Dkt. No. 226 at 5-6.
The parties did so, and the Court then entered a Supplemental Scheduling
Order. See Dkt. Nos. 237 & 240.
Defendants then filed Objections to the Order Granting Motion for Leave to
Amend [Dkt. No. 241] and Supplemental Evidence in support of their objection [Dkt.
No. 243]. After Judge Lynn ordered the objections and supplemental evidence to be
treated as a motion to reconsider and re-referred Plaintiff’s Motion for Leave to Amend
Plaintiff’s Second Amended Complaint [Dkt. No. 217] to the undersigned for further
consideration, see Dkt. No. 244, Plaintiff filed a response to the objections on April 3,
2015, see Dkt. No. 253, and the Court held a hearing and oral argument on the motion
for leave to amend and motion to reconsider on April 6, 2015, see Dkt. No. 259.
Legal Standards
Because the standards by which the Court evaluates a motion for leave to amend
the pleadings vary according to whether the motion was filed before or after the
deadline established in the scheduling order, the Court must determine, as an initial
matter, whether the motion was filed before or after the deadline. See, e.g ., Orthoflex,
Inc. v. Thermotek, Inc., Nos. 3:11-cv-08700-D & 3:10-cv-2618-D, 2011 WL 4398279, at
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*1 (N.D. Tex. Sept. 21, 2011) (“Motions for leave to amend are typically governed by
[Federal Rule of Civil Procedure] 15(a)(2), or, if the time to seek leave to amend has
expired, by [Federal Rule of Civil Procedure] 16(b)(4) and then by Rule 15(a)(2).”).
When the deadline for seeking leave to amend pleadings has expired, the Court
must first determine whether to modify the scheduling order under the Federal Rule
of Civil Procedure 16(b)(4) good cause standard. See S&W Enters., L.L.C. v. SouthTrust
Bank of Ala., N.A., 315 F.3d 533, 536 (5th Cir. 2003). The Court’s scheduling order
“may be modified only for good cause and with the judge’s consent.” FED. R. CIV. P.
16(b)(4). To meet the good cause standard, the party must show that, despite her
diligence, she could not reasonably have met the scheduling order deadline. See S&W,
315 F.3d at 535. The Court assesses four factors when deciding whether to grant an
untimely amendment under Rule 16(b)(4): “‘(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.’” Id. at 536 (quoting Reliance Ins. Co. v. La. Land & Exploration Co., 110
F.3d 253, 257 (5th Cir. 1997)).
In the related context of deciding whether to exclude an untimely expert
designation, the United States Court of Appeals for the Fifth Circuit, looking to the
same four factors, has explained that, if “the first and third factors militate against
permitting the testimony, the trial court was not obligated to continue the trial,”
where, “[o]therwise, the failure to satisfy the rules would never result in exclusion, but
only in a continuance,” and, “[b]ecause of a trial court’s need to control its docket, a
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party’s violation of the court’s scheduling order should not routinely justify a
continuance.” Hamburger v. State Farm Mut. Auto. Ins. Co., 361 F.3d 875, 883-84 (5th
Cir. 2004); see also Reliance Ins. Co. v. La. Land & Exploration Co., 110 F.3d 253, 258
(5th Cir. 1997) (“District judges have the power to control their dockets by refusing to
give ineffective litigants a second chance to develop their case.”).
Moreover, courts “more carefully scrutinize a party’s attempt to raise new
theories of recovery by amendment when the opposing party has filed a motion for
summary judgment.” Parish v. Frazier, 195 F.3d 761, 764 (5th Cir. 1999) (citations
omitted). And, “[w]hen leave to amend is sought after a summary judgment motion has
been filed, courts routinely decline to permit the moving party to amend.” Hunsinger
v. Sko Brenner American, Inc., No. 3:13-cv-988-D, 2014 WL 1462443, at *14 (N.D. Tex.
Apr. 15, 2014). As the Fifth Circuit has recognized, “[t]o grant ... leave to amend is
potentially to undermine [the non-amending party’s] right to prevail on a motion that
necessarily was prepared without reference to an unanticipated amended complaint....
A party should not, without adequate grounds, be permitted to avoid summary
judgment by the expedient of amending [his] complaint.” Overseas Inns S.A. P.A. v.
United States, 911 F.2d 1146, 1151 (5th Cir. 1990) (internal quotation marks omitted).
The Fifth Circuit very recently invoked this standard in affirming a district
court’s denial of an untimely amendment to add a new claim, explaining:
Finally, Squyres sought leave to amend his complaint on August
22, 2013. By that time, the December 31, 2012 deadline to amend
pleadings had long since passed. Therefore, because Squyres sought to
amend his pleadings after the deadline set in the scheduling order,
Squyres had to satisfy Rule 16(b)’ s standard and again demonstrate that
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he could not reasonably have met this deadline despite exercising
diligence. Filgueira, 734 F.3d at 422. Citing both Rule 16 and Rule 15, the
district court denied Squyres’s motion, concluding that Squyres had failed
“to show that a third amended complaint should be permitted at this
stage in the litigation.”
Squyres fails to show good cause for his delay. Squyres’s only
reason for failing to amend his complaint sooner is that he did not have
the basis to allege a fraud claim until after he had deposed Frediani in
mid-August 2013. Squyres, however, had informed the district court back
in September 2012 that there was a possibility he would amend his
complaint to include a fraudulent misrepresentation claim. Despite this
knowledge, Squyres then waited almost a year to seek leave to amend his
complaint. See E.E.O.C. v. Serv. Temps Inc., 679 F.3d 323, 334 (5th Cir.
2012) (affirming that the district court had acted within its discretion in
denying leave to amend because the plaintiff’s “reasonable suspicion” of
a potential claim “accent[ed] [the plaintiff’s] inability to explain the delay”
in asking for leave to amend). Even assuming that it was reasonable for
Squyres to delay amending his complaint until after he had deposed
Frediani, his delay in scheduling Frediani’s deposition was self-imposed,
as discussed above. See Lozano v. Ocwen Fed. Bank, FSB, 489 F.3d 636,
644 (5th Cir. 2007) (affirming the district court’s denial of leave to amend
under Rule 15 because the plaintiffs “had been aware of the factual
underpinnings of the [new] fraud claim for some time, and ... they had not
been diligent in pursuing the claim”).
In addition to failing to explain his delay (both in seeking leave to
amend and in scheduling Frediani’s deposition), Squyres also fails to
demonstrate that the amendment would have caused no prejudice to
Appellees. Because Appellees had sought no discovery related to
Squyres’s fraud claim, allowing amendment would have imposed
additional discovery costs. Moreover, Appellees had already filed their
summary judgment motion by the time Squyres sought leave to amend.
Thus, not only would the district court have needed to reopen discovery,
but it also would have needed to allow another round of dispositive
motions. See Parish v. Frazier, 195 F.3d 761, 764 (5th Cir. 1999) (per
curiam) (noting that this court, even under the more liberal Rule 15
standard, “more carefully scrutinize[s] a party’s attempt to raise new
theories of recovery by amendment when the opposing party has filed a
motion for summary judgment”).
Squyres’s final argument is that the district court abused its
discretion because it ignored his quid pro quo agreement with Appellees.
This argument does not help Squyres. For one, the district court was not
bound by the parties’ agreement and instead had “broad discretion to
preserve the integrity and purpose of the pretrial order.” S & W Enters.,
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L.L.C. v. SouthTrust Bank of Ala ., NA, 315 F.3d 533, 535 (5th Cir.2003)
(internal quotation marks and citation omitted); see also Fed. R. Civ. P.
16(b)(4) (stating that a scheduling order “may be modified only for good
cause and with the judge’s consent ” (emphasis added)). Next, it was also
not an abuse of discretion for the district court to grant Appellees’ motion
to amend their answer, but to deny Squyres’s motion to amend his
complaint. Although the deadline to amend the pleadings had also
already passed when Appellees filed their motion for leave to amend,
Appellees had not yet filed their summary judgment motion and discovery
had not yet closed under the new July 21 deadline. Squyres, on the other
hand, did not file his motion until the end of August, after discovery had
closed, after Appellees had filed their motion for summary judgment, and
just two days before Squyres’s response to the summary judgment motion
was due. It was therefore not an abuse of discretion for the district court
to conclude that Squyres’s motion came too late in the litigation.
Squyres v. Heico Cos., L.L.C., ___ F.3d ___, No. 13-11358, 2015 WL 1501050, at *11
(5th Cir. Apr. 2, 2015).
If the movant satisfies these requirements, the Court must then determine
whether to grant leave to amend under Federal Rule of Civil Procedure 15(a)(2)’s more
liberal standard, which provides that “[t]he court should freely give leave when justice
so requires.” FED. R. CIV. P. 15(a)(2); see S&W, 315 F.3d at 536. When the party is not
subject to an expired deadline for seeking leave to amend, Rule 15(a) requires that
leave to amend be granted freely “when justice so requires.” FED. R. CIV. P. 15(a)(2).
Leave to amend is not automatic, Jones v. Robinson Prop. Grp., L.P., 427 F.3d 987, 994
(5th Cir. 2005), but the federal rules’ policy “is to permit liberal amendment to
facilitate determination of claims on the merits and to prevent litigation from becoming
a technical exercise in the fine points of pleading,” Dussouy v. Gulf Coast Inv. Corp.,
660 F.2d 594, 598 (5th Cir. 1981). The Court “may consider a variety of factors” when
deciding whether to grant leave to amend, “including undue delay, bad faith or dilatory
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motive on the part of the movant, repeated failures to cure deficiencies by amendments
previously allowed, undue prejudice to the opposing party by virtue of allowance of the
amendment, and futility of the amendment.” Jones, 427 F.3d at 994. But Rule 15(a)
provides a “strong presumption in favor of granting leave to amend,”Fin. Acquisition
Partners, LP v. Blackwell, 440 F.3d 278, 291 (5th Cir. 2006), and the Court must do so
“unless there is a substantial reason to deny leave to amend,” Dussouy, 660 F.2d at
598; accord Jebaco Inc. v. Harrah’s Operating Co. Inc., 587 F.3d 314, 322 (5th Cir.
2009) (“leave to amend is to be granted liberally unless the movant has acted in bad
faith or with a dilatory motive, granting the motion would cause prejudice, or
amendment would be futile”).
Analysis
As the Court previously held, and no party disputes, Plaintiff’s motion for leave
to amend is untimely under the Court’s Amended Scheduling Order. See Dkt. No. 26.
The deadline to amend pleadings was July 17, 2014, see id. at 2, and Plaintiff filed its
Motion for Leave to Amend Plaintiff’s Second Amended Complaint [Dkt. No. 217] on
March 6, 2015, see Dkt. No. 217.
Rule 16(b) “governs amendment of pleadings after a scheduling order deadline
has expired.” S&W, 315 F.3d at 536. Turning to the second Rule 16(b) factor first,
Defendants do not deny the importance of the amendment to Plaintiff, which weighs
in favor of granting leave. Indeed, as noted above, Plaintiff’s summary judgment
response relies heavily on its new allegations in its Third Amended Original
Complaint. See Dkt. No. 219 at 7-12 of 24. As Defendants’ counsel explained at oral
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argument, if Plaintiff is allowed to amend to allege that International is liable for Inc.’s
conduct based on an alter-ego theory, International may remain in the case even if it
prevails on its summary judgment arguments as to Plaintiff’s claims of direct liability
against International.
The Court turns, then, to Plaintiff’s explanation for failing to timely amend or
more timely move for leave to amend. Plaintiff emphasizes that the amendments do
not add a new party or claim or cause of action and explains that it could not earlier
amend or move for leave to amend – at least not without facing stiff opposition by
Defendants – to add its new alter-ego allegations until it had learned more information
through recent depositions and interrogatory responses. See Dkt. No 217; Dkt. No. 253.
But Plaintiff’s counsel acknowledged at oral argument that no documents produced by
Defendants actually lend support to the alter-ego allegations – and so, the Court finds,
Plaintiff’s assertions regarding Defendants’ document production do not provide any
explanation for Plaintiff’s not amending or moving for leave earlier.
The Court has carefully scrutinized Plaintiff’s explanation by reviewing its new
allegations against the information that Plaintiff reports that it recently learned in
discovery, including through several depositions and Defendants’ interrogatory
responses identifying their respective officers.
The Court notes that Plaintiff’s and Defendants’ counsel agree that Delaware
law will govern any alter-ego allegations against Defendants, which are Delaware
corporations. See Dkt. No. 30 at 1; Dkt. No. 32 at 2; Dkt. No. 255 at 4; Alberto v.

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Diversified Group, Inc., 55 F.3d 201, 203 (5th Cir. 1995); Weaver v. Kellogg, 216 B.R.
563, 585 (S.D. Tex. 1997).
Now-Chief Bankruptcy Judge Barbara J. Houser has summarized Delaware’s
alter ego law as follows:
Delaware law provides clear requirements for veil piercing, and the
case law reveals that to pierce the corporate veil based upon an alter ego
theory, a plaintiff must demonstrate a misuse of the corporate form along
with an overall element of injustice or unfairness. However, the plaintiff
need not prove actual fraud – “the standard may be restated as whether
the two entities operated as a single economic entity such that it would
be inequitable for the Court to uphold a legal distinction between them.”
In short, the test applied under Delaware law is two pronged: (I) whether
the entities in question operated as a single economic entity, and (ii)
whether there was an overall element of injustice or unfairness. This two
pronged test was recently described by the Second Circuit as follows:
Stated generally, the inquiry initially focuses on whether
those in control of a corporation did not treat the
corporation as a distinct entity; and, if they did not, the
court then seeks to evaluate the specific facts with a
standard of fraud or misuse or some other general term of
reproach in mind, such as whether the corporation was used
to engage in conduct that was inequitable, or prohibited, or
an unfair trade practice, or illegal.
With respect to the first prong of the veil piercing test – i.e.,
whether the entities operated as a single economic entity, the factors to
be considered in deciding this question include: (1) whether the entity
was adequately capitalized for the corporate undertaking; (2) whether the
entity was solvent; (3) whether dividends were paid, corporate records
kept, officers and directors functioned properly, and other corporate
formalities were observed; (4) whether the dominant interest holder
siphoned corporate funds; and (5) whether, in general, the corporation
simply functioned as a facade for the dominant interest holder. No single
factor can justify a decision to disregard the corporate entity, and
Delaware law requires a “strong case to induce a court of equity to
consider two corporations as one.” ....
And, with respect to the second prong of the alter ego veil piercing
test – i.e., whether there was an overall element of injustice or
unfairness, the “ ‘underlying cause of action, at least by itself, does not
supply the necessary fraud and injustice’.” The party seeking to pierce the
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corporate veil “need not prove that the corporation was created with fraud
or unfairness in mind. It is sufficient to prove that it was so used.” As
explained by the Second Circuit in NetJets Aviation:
the claimed injustice must consist of more than merely the
tort or breach of contract that is the basis of the plaintiff’s
lawsuit: The underlying cause of action does not supply the
necessary fraud or injustice. To hold otherwise would render
the fraud or injustice element meaningless. This proposition
has been endorsed by the Delaware courts. But nothing
prevents a court, in determining whether there is sufficient
evidence of fraud or unfairness, from taking into account
relevant evidence that is also pertinent to the question of
whether the two entities in question functioned as one.
In re The Heritage Organization, L.L.C., 413 B.R. 438, 512-13 (Bankr. N.D. Tex. 2009)
(citations and footnote omitted). Faced with this standard, Plaintiff alleges in its Third
Amended Original Complaint various facts attempting to meet this standard.
But a careful review of the new allegations and comparison of those allegations
with what Plaintiff’s amended complaints previously alleged and what Plaintiff’s
counsel indisputedly already knew well before moving for leave now reveals what
Plaintiff’s counsel effectively admitted at oral argument: The only new facts that
Plaintiff learned recently in discovery and added into the new alter-ego allegations are
that all of International’s officers are also Inc.’s officers and that at least some of
Defendants’ employees and dealers do not know the difference between the two
companies. Plaintiff contends that it “promptly filed its Motion for Leave to Amend
once it had ascertained – with verified certainty – that the relationship between the
two Defendants merited allegations of facts regarding alter ego, that the two
Defendants shared not only common officers and directors, but that employees acted
on behalf of the two companies, moving freely at will between the two – so much so
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that the employees themselves were confused about the relationship between the two
companies.” Dkt. No. 253 at 4. Plaintiff further asserts that it seeks to add factual
allegations “regarding the interrelationship between the two Defendants – for among
other reasons, because Plaintiff has learned exactly how high the warranty costs for
Defendant Navistar, Inc. have and will be” – and “fears that any judgment against
Navistar, Inc. will be met with a hollow purse, since Navistar International is the
entity that sells shares of the company, and appears to gain profits or revenue from its
subsidiaries.” Id. at 1-2.
But Defendants have long admitted in their answers that several of
International’s officers are also officers of Inc., such that Plaintiff could have relied on
that fact in support of alleging an alter-ego theory of liability against International
long ago. See Dkt. No. 28 at 2; Dkt. No. 32 at 2. Complete identity of two companies’
officers or directors does not appear to be necessary or, for that matter, sufficient to
allege alter-ego liability under Delaware law.
Further, Defendants’ own summary judgment evidence – specifically, an
unsworn declarations under penalty of perjury pursuant to 28 U.S.C.§ 1746 – stated
that International had only one employee. See Dkt. No. 115-1, Ex. 5 at 1. Insofar as
Plaintiff believed it needed to know that International relied on another company’s
employees, Plaintiff could have at least moved for leave to amend after receiving this
information in November 2014.
And, while at least one Delaware court has found confusion about the distinction
between companies can support a finding that the companies operate as a single
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economic entity such that it would be inequitable to uphold a legal distinction between
them, see Microsoft Corp. v. Amphus, Inc., C.A. No. 8092–VCP, 2013 WL 5899003, at
*6-*7 (Del. Ch. Oct. 31, 2013), the fact of some customers’, employees’, and dealers’
confusion, obtained through deposition testimony in the last few months, does not
alone appear to justify Plaintiff’s waiting until filing its summary judgment response
to seek to amend to add allegations that Defendants operated as a single economic
entity, where Plaintiff has, since the time of filing its original complaint, raised related
factual allegations, see Dkt. No. 1 at 2; Dkt. No. 11 at 2; Dkt. No. 30 at 2.
That leaves Plaintiff’s new allegations directed to whether there was an overall
element of injustice or unfairness, as to which Plaintiff contends that International will
claim that Inc. alone has any warranty liability and that Plaintiff fears that it will find
Inc. to be an hollow purse. Plaintiff’s counsel asserted at oral argument that Plaintiff
could not plead these alter-ego allegations on mere information and belief. And
Plaintiff explains that “Navistar International corporate representative Mark Reiter
testified that the warranty adjustments during the first two quarters of 2012 reported
to Navistar International totaled close to $250 million, the largest he had ever seen”
and that “[t]he warrantor for both warranties on the 2011-2013 MaxxForce Pro Stars
appears [to be] Navistar, Inc., while revenue for any truck sales or sales by any other
divisions or subsidiaries is claimed in earnings calls and consolidated financials by
Navistar International.” Dkt. No. 253 at 3 n.5. In essence, Plaintiff asserts that it could
not adequately plead an alter-ego theory of liability until learning the amount of Inc.’s
warranty adjustments in 2012.
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But the Third Amended Original Complaint does not actually plead that fact.
See Dkt. Nos. 217-1, 217-2, & 227. And Plaintiff has not explained what factual basis
it has recently learned for exactly how high the warranty costs for Inc. will be, as
opposed to how high they may have been a few years ago. Further, it is not the case
that fraud or alter ego liability may never be pleaded on information and belief –
rather, fraud may be pleaded on information and belief where the facts relating to the
alleged fraud are peculiarly within the alleged perpetrator’s knowledge (although, even
then, the complaint must set forth a factual basis for such belief). See ABC Arbitrage
Plaintiffs Group v. Tchuruk, 291 F.3d 336, 350 n.67 (5th Cir. 2002); Lincoln Gen. Ins.
Co. v. U.S. Auto Ins. Servs., No. 3:07-cv-1985-B, 2009 WL 1174641, at *7 (N.D. Tex.
Apr. 29, 2009).
Plaintiff’s counsel admittedly has been considering raising alter-ego allegations
for some time and has sought to obtain relevant information in discovery. Well before
the amendment deadline, Defendants repeatedly pointed out that Plaintiff had not
alleged any theory to hold International liable for Inc. or any truck that Inc.
manufactured. See Dkt. No. 14 at 2; Dkt. No. 33 at 9. Yet, Plaintiff did not even seek
to amend after Defendants filed their summary judgment motion in November 2014
but rather only sought leave almost five months later and just over three months prior
to the already continued trial setting. And Plaintiff did so to raise a new theory of
liability in opposition to International’s motion seeking summary judgment on the
existing claims and theories of liability against it. See Dkt. No. 219 at 7-12 of 24.

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On reconsideration, the Court finds that Plaintiff has failed to show that, despite
its diligence, it could not reasonably have amended to add these allegations before the
deadline or, at least, moved earlier for leave to amend – where length of delay in
seeking leave for an untimely amendment is a relevant consideration. The Court
therefore finds that the first Rule 16(b)(4) factor, the explanation for the failure to
timely move for leave to amend, weighs against permitting this late amendment.
As to the third factor, potential prejudice in allowing the amendment, the Court
reconsiders its prior finding that Defendant will not be prejudiced by the proposed
amendments in light of the existing deadline for discovery and other scheduling
considerations.
As the Court previously noted, discovery is still open in this case until April 30,
2015. And Plaintiff’s counsel noted that that presents a somewhat unusual situation,
where discovery is generally closed before summary judgment motions are filed.
But, without having offered adequate grounds for seeking leave at this late date,
the Court finds that Defendant will be prejudiced if Plaintiff is permitted leave to
amend. Allowing Plaintiff to pursue this newly alleged theory of liability against
International will significantly expand the scope of discovery in a very compressed
period (as Plaintiff’s served discovery requests bear out, see Dkt. Nos. 243, 254, 255,
& 256), will increase litigation costs to conduct that discovery and supplemental
summary judgment practice, and will potentially undermine International’s right to
prevail on a motion that necessarily was prepared without reference to an
unanticipated amended complaint – indeed, one that Defendants essentially long
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suggested that Plaintiff should file if it could but which Plaintiff did not seek to file
until several months after Defendants filed their summary judgment motion. See
Squyres, 2015 WL 1501050, at *11; Overseas, 911 F.2d at 1151. Accordingly, the Court
finds that the third factor weighs against granting leave to amend.
As to the fourth Rule 16(b)(4) factor, the Court previously determined that
granting leave did not require a continuance, and Plaintiff’s counsel stated at oral
argument that Plaintiff does not seek one. But, to the extent that Plaintiff asserts that
any prejudice could and should be cured by a continuance if necessary, the Court
rejects that assertion. Where, as here, the first and third factors militate against
granting leave for an untimely amendment, the Court is not required to continue the
trial and finds that it should not, where, “[o]therwise, the failure to satisfy the rules
would never result in exclusion, but only in a continuance” and where, “[b]ecause of a
trial court’s need to control its docket, a party’s violation of the court’s scheduling order
should not routinely justify a continuance.” Hamburger, 361 F.3d at 883-84.
Conclusion
The Court DENIES Plaintiff’s Motion for Leave to Amend Plaintiff’s Second
Amended Complaint [Dkt. No. 217], VACATES its March 16, 2015 Order Granting
Motion for Leave to Amend and Requiring Attorney Conference and Joint Status
Report [Dkt. No. 226] and Supplemental Scheduling Order [Dkt. No. 240], and
ORDERS that Plaintiff’s Third Amended Original Complaint [Dkt. No. 227] shall be
unfiled and this case will proceed on Plaintiff’s Second Amended Original Complaint

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[Dkt. No. 30]. The Clerk of Court is directed to note on the docket that Plaintiff’s Third
Amended Original Complaint [Dkt. No. 227] has been unfiled.
In light of these rulings, the Court further GRANTS Defendants Navistar, Inc.
and Navistar International Corporation’s Motion for Protective Order Pursuant to Rule
26(c) [Dkt. No. 254] insofar as, in light of the Court’s denying leave to amend to add
alter-ego allegations, the Court will hereby grant a protective order protecting
Defendants from responding to Plaintiff’s alter-ego-related discovery in its Sixth
Requests for Production to Defendants and its request for the depositions of Walter G.
Borst, Troy A. Clarke and Curt A. Kramer.
SO ORDERED.
DATED: April 8, 2015

_________________________________________
DAVID L. HORAN
UNITED STATES MAGISTRATE JUDGE

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