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Liberty Insurance Corp v. Southwest Traders Incorp

May 1, 2013


The opinion of the court was delivered by: Justin L. Quackenbush Senior United States District Judge


BEFORE THE COURT is Defendant Southwest Traders Incorporated ("Southwest") Motion for Leave to File Counterclaim. (ECF No. 18). Plaintiff Liberty Insurance Corporation ("Liberty") has filed an Opposition Brief (ECF No. 20) and Southwest has filed a Reply (ECF No. 21).

I. Introduction/Procedural History

Liberty initiated this action by filing a Complaint on December 6, 2012. The Complaint is four pages long and contains one claim for breach of an insurance policy, that breach being the alleged failure to pay a retrospective premium adjustment. Southwest answered the Complaint on January 15, 2013. The Answer contained eight affirmative defenses, but did not assert any counterclaims.

On February 21, 2013, the parties filed a Joint Status Report (ECF No. 10), as was required by the court in advance of the Scheduling Conference. That Status Report stated that the parties believed that the following was the principal factual issue in the case: "Whether Southwest Traders owes retrospective premiums and other amounts to Liberty under the workers' compensation policy that it issued, and, if so, in what amount." (ECF No. 10, p. 3). The Status Report stated that Southwest was evaluating whether to join additional parties. The parties jointly proposed a trial date of December 11, 2013.

The court held a Scheduling Conference on March 7, 2013, and issued a Scheduling Order. (ECF No. 19). The Scheduling Order provided that any motion to amend pleadings or add named parties shall be served no later than April 5, 2013. It also set this matter for bench trial on December 11, 2013, as no demand had been made for a jury trial. On April 5, 2013, Southwest filed the Motion for Leave to file a Counterclaim and in the proposed Counterclaim demands a trial by jury.

II. Standard for Leave to Amend

Pursuant to Fed.R.Civ.P. 15(a), leave of court is required for Southwest's proposed amendment. The court "should freely give leave when justice so requires." Fed.R.Civ.P. 15(a)(2). Whether to grant such leave, rests in the discretion of the court. Foman v. Davis, 371 U.S. 178, 182 (1962). The court may deny leave to amend where there has been undue delay, bad faith, or dilatory motive on the part of the movant, or where the amendment would be futile. Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 1007 (9th Cir. 2009).

III. Discussion

Southwest's proposed Counterclaim contains 16 counts, and is 27-pages long. It is not simply a Counterclaim, but rather seeks to add an additional party to this litigation--Sullivan Curtis Monroe Insurance Services, LLC ("Sullivan Curtis"), an insurance broker. Liberty opposes the proposed amendment, both as to the counterclaims against Liberty, and the addition of Sullivan Curtis.

A. The Claims Against Sullivan Curtis

Seven of the sixteen claims are asserted against Sullivan Curtis. Southwest contends that the proposed Counterclaim "seeks to resolve issues arising from the same contract alleged in Liberty's Complaint and to resolve issues in a related auto policy." (ECF No. 18, p. 3). Southwest's Motion omits nearly any mention of the fact that Southwest is seeking to bring another party into this action. There is one brief mention of "theories of relief....against Southwest's insurance broker", but Sullivan Curtis is not even mentioned by name in the Motion. Instead, Sullivan Curtis is merely included in the proposed Counterclaim (ECF No. 18, Ex. A). The claim against Sullivan Curtis is not in fact a counterclaim, but would rather be a claim against a third-party.

A defending party, such as Southwest, may assert a claim against a third-party who is or may be liable to Southwest for all or part of the claim against it. However, in order to do so, Southwest must "obtain the court's leave if it files the third-party complaint more than 14 days after serving its original answer." Fed.R.Civ.P. 14(a)(1). Liberty argues that Southwest failed to properly seek leave of court to add a third-party because Southwest only sought leave to assert counterclaims. As a technical matter, the court agrees that Southwest did not properly seek leave to file a third-party complaint against Sullivan Curtis. Southwest's Motion fails to mention Sullivan Curtis and fails to cite to Rule 14. Southwest in its Reply addresses for the first time Rule 14 and acknowledges that whether to allow a third-party defendant to be impleaded is within the discretion of this court.

Additionally, Southwest's claim is not a proper third-party claim. "A third-party claim may be asserted only when the third party's liability is in some way dependent on the outcome of the main claim and is secondary or derivative thereto." Stewart v. American Int. Oil & Gas, 845 F.2d 196, 199 (9th Cir. 1988). The Ninth Circuit further stated that the "crucial characteristic" of a Rule 14 claim is that a "defendant is attempting to transfer to the third-party defendant the liability asserted against him by the original plaintiff." Id. at 200. Southwest is not asserting that Sullivan Curtis is actually the party liable to Liberty for breach of contract/unpaid premiums. Rather, Southwest alleges that it had a Professional Services Agreement with Sullivan Curtis and that Sullivan Curtis provided poor advice about coverage proposals, and failed to properly service policies, etc. Those claims need not be asserted in this lawsuit. "It is not sufficient that the third-party claim is a related-claim; ...

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