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Bnsf Railway Company v. San Joaquin Valley Railroad Company

August 2, 2011

BNSF RAILWAY COMPANY,
PLAINTIFF,
v.
SAN JOAQUIN VALLEY RAILROAD COMPANY, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Sandra M. Snyder United States Magistrate Judge

ORDER DENYING DEFENDANT'S MOTION TO AMEND ITS COUNTERCLAIMS

(Docs. 179 and 204)

On January 11, 2010, Defendant San Joaquin Valley Railroad Company ("SJVR") moved for leave to amend its counterclaim to add two new tort claims (fraud and fraudulent misrepresentation). The Magistrate Judge denied SJVR's motion on December 14, 2010. SJVR moved for reconsideration by the District Court, which vacated the December 14, 2010 order and remanded the motion to the Magistrate Judge for reconsideration of Plaintiff BNSF Railway Company's ("BNSF") contentions of (1) prejudice, (2) untimeliness, and (3) futility arising from the general California rule that a breach of contract will not give rise to a tort claim. Having reviewed the record, the parties' arguments, and applicable law, this Court denies SJVR's motion to amend its counterclaims to add tort claims.

I. Discussion

If a party has already amended its pleadings once as a matter of course, further amendment requires the consent of the adverse party or leave of the court. F.R.Civ.P. 15(a). Courts should freely grant leave to amend when justice so requires. Id. In general, courts should apply this policy with "extreme liberality." Owens v. Kaiser Found. Health Plan, Inc., 244 F.3d 708, 712 (9th Cir. 2001), quoting Moronga Band of Mission Indians v. Rose, 893 F.2d 1074, 1079 (9th Cir. 1990). The Supreme Court directed district courts to consider the following specific factors in deciding whether to grant a motion to amend:

In the absence of any apparent or declared reason--such as 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.--the leave sought should, as the rules require, be "freely given."

Foman v. Davis, 371 U.S. 178, 182 (1962).

The factors are not to be given equal weight. Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003). Prejudice to the opposing party must be given the greatest weight. Id. The factors should not be understood rigidly or evaluated mechanically; the court should "examine each case on its facts" and determine the propriety of granting leave to amend on that basis. SAES Getters S.p.A. v. Aeronex, Inc., 219 F.Supp.2d 1081, 1086 (S.D.Cal. 2002), quoting 6 Charles Alan Wright, et al., Federal Practice and Procedure Civil 2d § 1430 (2d ed. 1990). "Absent prejudice, or a strong showing of any of the other the remaining Foman factors, there exists a presumption under Rule 15(a) in favor of granting leave to amend." SAES Getters, 219 F.Supp.2d at 1086.

The District Court remanded this matter to the Magistrate Judge for reconsideration of SJVR's motion to amend in light of three factors: (1) prejudice to BNSF; (2) untimeliness of the motion to amend; and (3) futility arising from the general California rule that a breach of contract will not give rise to a tort action.

A. Untimeliness and Prejudice

In evaluating a motion for leave to amend, a court may consider the moving party's undue delay in pursuing the amendment. Bowles v. Reade, 198 F.3d 752, 757-58 (9th Cir. 1999). BNSF contends that, because SJVR's motion to amend was filed after the close of discovery, SJVR unduly delayed moving to add the tort counterclaims. Granting leave to amend at this late date would greatly prejudice BNSF. This Court agrees that SJVR unduly delayed in bringing its tort counterclaims, thereby prejudicing BNSF.

Delay alone is generally insufficient justification for denying a motion to amend unless the court also specifically finds prejudice to the opposing party, bad faith of the moving party, or futility of amendment. Id. at 758. Certain factors may justify permitting late amendment of pleadings: restatement of a claim already in issue; new instances of previously alleged statutory violations; timing early in the discovery period or long before trial; the party's loss of its claim if it were not added to the pending suit; delay but no prejudice to the opposing party; or a claim that may be tried on its merits with no additional facts. Chrysler Corp. v. Fedders Corp., 540 F.Supp. 706, 715-16 (S.D.N.Y. 1982).

Undue delay is delay that prejudices the nonmoving party or imposes unwarranted burdens on the court. Mayreaux v. Louisiana Health Service and Indem. Co., 376 F.3d 420, 427 (5th Cir. 2004). Prejudice results when an amendment would unnecessarily increase costs or would diminish the opposing party's ability to respond to the amended pleading. Morongo Band, 893 F.2d at 1079. "Prejudice and undue delay are inherent in an amendment asserted after the close of discovery and after dispositive motions have been filed, briefed, and decided." Campbell v. Emory Clinic, 166 F.3d 1157, 1162 (11th Cir. 1999). As BNSF reminds us, SJVR's motion to amend was brought after discovery had closed.

A moving party's inability to acceptably explain its delay may also indicate that the delay was undue. Swanson v. United States Forest Service, 87 F.3d 339, 345 (9th Cir. 1996); Jackson v. Bank of Hawaii, 902 F.2d 1385, 1388 (9th Cir. 1990); E.E.O.C. v. Boeing Co., 843 F.2d 1213, 1222 (9th Cir.), cert. denied, 488 U.S. 889 (1988). Whether the moving party knew or should have known the facts and theories raised in the proposed amendment at the time it filed its original pleadings is a relevant consideration in assessing untimeliness. Jackson, 902 F.2d at 1388. For example, in Campbell, the district court did not abuse its discretion in denying a plaintiff's motion to amend which was filed one year after discovery ended, after dispositive motions had been filed, and between five and six years after the complaint was filed, and which incorporated allegations based on facts that were available to the plaintiff when he filed his complaint. 166 F.3d at 1162.

In Mayreaux, the Fifth Circuit considered a motion to amend that was clearly untimely since the case had been in the court for years and the discovery period was ending. 376 F.3d at 427-28. An untimely motion to amend, said the court, may either (1) present alternative theories of recovery under the existing facts or (2) fundamentally alter the nature of the case. Id. at 427. When an amendment merely incorporates alternative theories using existing facts, it falls safely within Rule 15(a)'s policy of promoting litigation on the merits over procedural technicalities.

Id. But when, after a period of extensive discovery, a party proposes a late-tendered amendment that would fundamentally change the case to incorporate new causes of action and that would require additional discovery, the amendment may be appropriately denied as prejudicial to the opposing party. Id. See also Solomon v. North American Life and Cas. Ins. Co., 151 F.3d 1132, 1139 (9th Cir. 1998) (finding that the district court did not abuse its discretion in denying leave to amend based on undue delay and prejudice since the motion, made on the eve of the discovery deadline, would have required re-opening discovery and delaying the proceedings); Morongo Band, 893 F.2d at 1079 (holding that the district court did not abuse its discretion in denying leave to amend when plaintiffs moved to amend two years after the initial filing, and the new claims would have greatly altered the nature of the litigation and required the opposing party to prepare "an entirely new course of defense"); Singh v. City of Oakland, 295 Fed. Appx.118, 122 (9th Cir. 2008) (holding that the district court did not abuse its discretion in denying the plaintiff leave to amend his complaint a month before the scheduled trial when the plaintiff had known the facts alleged in the proposed amendment for at least two years before moving for leave to amend and the new claims would have required additional discovery and trial preparation, prejudicing the opposing parties and delaying the proceedings).

"A need to reopen discovery and therefore delay the proceedings supports a district court's finding of prejudice from a delayed motion to amend." Lockheed Martin Corp. v. Network Solutions, Inc., 194 F.3d 980, 986 (9th Cir. 1999). See also Elite Entertainment, inc. v. Khela Brothers Entertainment, 227 F.R.D. 444, 448 (E.D.Va. 2005) (finding the defendants' motion to file amended counterclaims that would expand scope and theory of liability just ...


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