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A & M Petroleum, Inc. v. Markel Insurance Co.

United States District Court, S.D. California

June 1, 2015

A & M PETROLEUM, INC., a California corporation; JEREMY'S INVESTMENTS, LLC, a California limited liability company dba J'S MARKET; and ARKAN HAMANA, an individual, Plaintiffs,
v.
MARKEL INSURANCE COMPANY, an Illinois corporation; and DOES 1 through 50, inclusive, Defendant.

ORDER GRANTING DEFENDANT'S MOTION FOR LEAVE TO FILE COUNTERCLAIM [Dkt. No. 33.]

GONZALO P. CURIEL, District Judge.

Before the Court is Defendant's motion for leave to file a counterclaim. (Dkt. No. 33.) Plaintiffs filed an opposition on May 15, 2015. (Dkt. No. 40.) Defendant filed a reply on May 22, 2015. (Dkt. No. 41.) Based on the reasoning below, the Court GRANTS Defendant's motion for leave to file a counterclaim.

Background

On December 5, 2013, a complaint was filed against Defendant. (Dkt. No. 1.) On March 31, 2014, Plaintiffs A&M Petroleum, Inc. d/b/a J's Market, and Jeremy's Investments, LLC ("Plaintiffs") filed an amended complaint against Defendant Markel Insurance Company, ("MIC"), alleging breach of contract and breach of the implied covenant of good faith and fair dealing pursuant to a "Commercial Lines Policy" which includes a Commercial Property Coverage Part for property covering a self-service gas station, convenience store and carwash located at 8170 Broadway, Lemon Grove, California. (Dkt. No. 9.)

On April 27, 2015, Defendant filed a motion for leave to file a counterclaim. (Dkt. No. 33.) Plaintiffs filed an opposition. (Dkt. No. 40.) Defendant filed a reply. (Dkt. No. 41.)

Discussion

Defendant seeks leave to file a counterclaim claiming voidance of the policy, breach of contract and declaratory relief. (Dkt. No. 33-2 at 10, Proposed Counterclaim.) The standard for a motion for leave to file a counterclaim is the same as those governing a motion for leave to amend a pleading under Rule 15(a). Magnesystems, Inc. v. Nikken, Inc., 933 F.Supp. 944, 947 (C.D. Cal. 1996).

A. Legal Standard Under Federal Rule of Civil Procedure 15(a)

Under Federal Rule of Civil Procedure 15(a), leave to amend a complaint after a responsive pleading may be allowed by leave of the court and such leave "shall be freely given when justice so requires." Fed.R.Civ.P. 15(a). Granting leave to amend rests in the sound discretion of the trial court. Int'l Ass'n of Machinists & Aerospace Workers v. Republic Airlines, 761 F.2d 1386, 1390 (9th Cir. 1985). This discretion must be guided by the strong federal policy favoring the disposition of cases on the merits and permitting amendments with "extreme liberality." DCD Programs Ltd. v. Leighton, 833 F.2d 183, 186 (9th Cir. 1987).

"Five factors are taken into account to assess the propriety of a motion for leave to amend: bad faith, undue delay, prejudice to the opposing party, futility of amendment, and whether the [party] has previously amended [a pleading]." Johnson v. Buckley, 356 F.3d 1067, 1077 (9th Cir. 2004) (citing Nunes v. Ashcroft, 348 F.3d 815, 818 (9th Cir. 2003)). In practice, however, courts more freely grant plaintiffs leave to amend pleadings in order to add claims than new parties. Union Pacific R.R. Co. v. Nevada Power Co., 950 F.2d 1429, 1432 (9th Cir. 1991).

B. Bad Faith

Defendant argues that the counterclaim is not being brought in bad faith such as to protract litigation. Plaintiffs contend that the motion for leave to file a counterclaim is evidence of bad faith. They argue that MIC's promise to pay the claim, making a partial payment, forcing the insured to file suit and then engaging in aggressive litigation tactics is continued evidence of bad faith.

There can be bad faith in bringing an amendment if the party seeks to prolong meritless litigation by adding baseless amendments to their complaint or if there is any evidence of wrongful motive. Jones v. Bates, 127 F.3d 839, 847 n. 8 (9th Cir. 1997); Griggs v. Pace American Group, Inc., 170 F.3d 877, 881 (9th Cir. 1999); DCD Programs. Ltd., 833 F.2d at 187. A wrongful motive has been found when a party seeks to amend in order to destroy diversity jurisdiction. Sorosky v. Burroughs Corp., 826 F.2d 794, 805 (9th Cir. 1987). Here, there has been no showing of wrongful motive in bringing the counterclaim. While Plaintiffs may believe that filing a ...


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