Ohio Security Insurance Company v. K R Enterprises, Inc. et al

Filing 70

ORDER: Plaintiff's 52 motion for leave to file amended complaint is GRANTED and the Clerk is directed to file the amended complaint attached as Exhibit 2 to plaintiff's motion. (ECF No. 52-2). Because of the court's ruling on the motion to amend, plaintiff's 61 motion for judgment on the pleadings is DENIED without prejudice as moot. The Clerk is further directed to send a copy to defendant Evans c/o attorney David G. Thompson. Signed by Senior Judge David A. Faber on 5/22/2017. (cc: counsel of record; any unrepresented party, Defendant Evans c/o Attorney David G. Thompson) (mk)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF WEST VIRGINIA
AT BLUEFIELD
OHIO SECURITY INSURANCE COMPANY,
Plaintiff,
v.

CIVIL ACTION NO. 1:15-16264

K R ENTERPRISES, INC., et al.,
Defendants.
MEMORANDUM OPINION AND ORDER
Pending before the court is plaintiff’s motion for leave to
file an amended complaint.

(Doc. No. 52).

For the reasons that

follow, that motion is GRANTED.
Factual and Procedural Background
The instant dispute centers on fraudulent tax returns filed
by defendant Jeremy Evans, a former employee of defendant K R
Enterprises, doing business as Jackson Hewitt.1

Specifically,

former customers of K R Enterprises have alleged that Evans
improperly accessed the records of K R Enterprises to obtain
their personal and confidential information for the purpose of
fraudulently filing their 2014 income tax returns.

All of the

former customers had sought assistance preparing their 2013 tax
returns from K R Enterprises and their confidential information
had been saved in the company’s database.
According to the Amended Complaint, there was a franchise
agreement between K R Enterprises and Jackson Hewitt. See
Amended Complaint at ¶ 3.
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Upon discovering Evans’ conduct, certain customers of K R
Enterprises filed suit in the Circuit Court of McDowell County,
West Virginia, against Evans, K R Enterprises, and Jackson Hewitt
raising various state law claims including, but not limited to,
Breach of Fiduciary Duty, Negligence, and Invasion of Privacy.
There are six of these lawsuits currently pending in the McDowell
County Circuit Court.2

All of the state lawsuits allege that

Evans was arrested on or about February 4, 2015, at a K R
Enterprise location and that Evans admitted to police that he had
used the customers’ 2013 tax return information to fraudulently
file 2014 tax returns in their names.
Plaintiff Ohio Security Insurance Company (“Ohio Security”)
issued a BusinessOwners Liability Policy to K R Enterprises,
Policy Number BZS (15) 56 08 16 29.
60.

See Amended Complaint at ¶

The Ohio Security Policy also included Data Compromise and

CyberOne Coverage endorsements.

See id. at ¶¶ 73 and 75.

On December 18, 2015, Ohio Security Insurance Company filed
a declaratory judgment action on the basis of diversity
jurisdiction pursuant to 28 U.S.C. § 1332 and, on March 14, 2016,

These lawsuits are as follows: Bailey, et al. v. Jackson
Hewitt, Inc., et al., Civil Action No. 15-C-50; Morgan v. Jackson
Hewitt, Inc., et al., Civil Action No. 15-C-49; Presley, et al.
v. Jackson Hewitt, Inc., et al., Civil Action No. 15-C-48; Sacra,
et al. v. Jackson Hewitt, Inc., et al., Civil Action No. 15-C117; Vanover, et al. v. Jackson Hewitt, Inc., et al., No. 15-C58; Wheeler, et al. v. Jackson Hewitt, Inc., et al., No. 15-C-48.
See Amended Complaint at ¶¶ 18-59.
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it filed an amended complaint.

Ohio Security asks this court to

determine that it has no duty to defend or indemnify K R
Enterprises, Evans, or Jackson Hewitt3 under the BusinessOwners
liability coverage and/or or the Data Compromise and CyberOne
coverage for the six underlying lawsuits.
On March 17, 2017, plaintiff filed a motion for leave to
file a second amended complaint seeking to add Cathy S. Goodman
as a defendant to the lawsuit.

On February 27, 2017, Goodman had

filed an amended complaint in the Circuit Court of Wood County
raising allegations similar to the six underlying lawsuits and
naming Jackson Hewitt, Ohio Security, Evans, and K R Enterprises
as defendants.

(ECF No. 52-1).

Ohio Security was served with

the Goodman complaint on March 8, 2017, and file its motion to
amend on March 17, 2017.

The defendants who are plaintiffs in

the underlying lawsuits oppose the motion to amend.

(ECF No.

56).
Analysis
Rule 15(a) of the Federal Rules of Civil Procedure permits a
party to amend its pleading "once as a matter of course at any
time before a responsive pleading is served . . . [o]therwise a
party may amend the party’s pleading only by leave of court or by
written consent of the adverse party; and leave shall be freely
The Amended Complaint alleges that Jackson Hewitt might be an
additional insured under the Policy. See Amended Complaint at ¶¶
80-82.
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given when justice so requires."

In Foman v. Davis, 371 U.S.

178, 182 (1962), the United States Supreme Court noted that
amendment under Rule 15(a) should be freely given absent "undue
delay, bad faith or dilatory motive on the part of the movant,
repeated failure to cure deficiencies by amendments previously
allowed, undue prejudice to the opposing party by virtue of
allowance of the amendment, futility of amendment, etc."
However, in the Southern District of West Virginia, it is
well established that “[o]nce the scheduling order’s deadline for
amendment of the pleadings has passed, a moving party first must
satisfy the good cause standard of Rule 16(b) [of the Federal
Rules of Civil Procedure].

If the moving party satisfies Rule

16(b), the movant then must pass the tests for amendment under
Rule 15(a).”

Marcum v. Zimmer, 163 F.R.D. 250, 254 (S.D.W. Va.

1995) (citing Lone Star Transp. Corp. v. Lafarge Corp., Nos. 931505, 93-1506, 1994 WL 118475 (4th Cir. April 7, 1994)).
A. Rule 16(b) Good Cause
As the deadline for amended pleadings passed prior to the
filing of this motion, plaintiff must satisfy the “good cause”
standard of Rule 16(b) in addition to meeting the requirements of
Rule 15(a).

“Unlike Rule 15(a)’s liberal amendment policy which

focuses on the bad faith of the party seeking to interpose an
amendment and the prejudice to the opposing party, Rule 16(b)'s
‘good cause’ standard primarily considers the diligence of the
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party seeking the amendment.”

Johnson v. Mammoth Recreations,

Inc., 975 F.2d 604, 609 (9th Cir. 1992); Marcum, 163 F.R.D. at
254 (citing Johnson).
After a review of the record, it appears to the court that
plaintiff was diligent in filing its motion to amend the
complaint.

The Goodman lawsuit was not even filed until after

the deadline for amendments had passed and, therefore, it was
impossible for plaintiff to seek leave time to amend within the
timeframe set forth in the scheduling order.

Furthermore, Ohio

Security filed the instant motion shortly after being served with
Goodman’s state court complaint.

Based on the foregoing, Ohio

Security has met the “good cause” standard of Rule 16(b).
B. Rule 15(a)
Advancing now to the requirements of Rule 15(a), the court
further finds that there has been no undue delay, bad faith, or
dilatory motive on the part of plaintiff in filing its motion to
amend.

Furthermore, the court cannot say that the proposed

amendment would be futile given that Goodman’s complaint raises
the same coverage issues already before the court.

Finally, the

court is not persuaded by defendants’ arguments regarding the
prejudice it will allegedly suffer if amendment is allowed.

As

this court has previously noted, the coverage decision regarding
the duty to defend will require this court to compare the
underlying complaints filed in state court against the insurance
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policies at issue herein.

To the extent that the allegations in

Goodman’s complaint may differ somewhat from those in the other
six lawsuits, the court is confident in counsel’s ability to
highlight those differences to the court and in its own ability
to understand those differences.
Conclusion
As outlined more fully above, plaintiff’s motion for leave
to file amended complaint is GRANTED and the Clerk is directed to
file the amended complaint attached as Exhibit 2 to plaintiff’s
motion.

(ECF No. 52-2).

Furthermore, because of the court’s

ruling on the motion to amend, plaintiff’s motion for judgment on
the pleadings (Doc. No. 61) is DENIED without prejudice as moot.4
If it chooses, plaintiff may renew its motion by refiling the
same motion or file a new motion consistent with the amended
complaint if appropriate.
The Clerk is directed to send copies of this Memorandum
Opinion and Order to counsel of record and to any unrepresented

“As a general rule, an amended pleading ordinarily supersedes
the original and renders it of no legal effect.” Young v. City
of Mt. Ranier, 238 F.3d 567, 572 (4th Cir. 2001). “It is well
settled that a timely-filed amended pleading supersedes the
original pleading, and that motions directed at superseded
pleadings may be denied as moot.” Catlin Specialty Ins. Co. v.
Jafrum International, Inc., Civil Action No. 3:14-CV-607-RJC-DCK,
2015 WL 10434683, *3 (W.D.N.C. Sept. 14, 2015) (recommending that
district court deny as moot motion for judgment on the pleadings
where leave to file amended complaint had been granted and
amended complaint superseded earlier complaint).
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parties.

The Clerk is further directed to send a copy to

defendant Evans c/o attorney David G. Thompson.
IT IS SO ORDERED this 22d day of May, 2017.
ENTER:

David A. Faber
Senior United States District Judge

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