Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_12-cv-00711/USCOURTS-azd-2_12-cv-00711-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1441 Petition for Removal- Breach of Contract

---

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

WO 

IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF ARIZONA 

Empire Talent-Modeling Agency, LLC and 

Marisa Sclafani, a married woman, 

Plaintiffs, 

v. 

Auto-Owners Insurance Company, et al., 

Defendants. 

No. CV-12-0711-PHX DGC

ORDER 

On May 18, 2012, the Court issued a Case Management Order which stated: “The 

deadline for joining parties, amending pleadings, and filing supplemental pleadings is 30 

days from the date of this Order.” Doc. 16 ¶ 2. The Court emphasized that the “parties 

are advised that the Court intends to enforce the deadlines set forth in this Order, and [the 

parties] should plan their litigation activities accordingly.” Doc. 16 ¶ 9. Almost seven 

months later, on December 10, 2012, Defendant Auto-Owners Insurance Company filed a 

motion to amend its answer to include the affirmative defense of fraud. Doc. 42. 

Defendant asked permission to do so under Rule 15 of the Federal Rules of Civil 

Procedure. Id. at 1. Although Rule 15 embodies a liberal amendment policy, see Fed. R. 

Civ. P. 15(a)(2), that is not the standard to be applied in this case. The Court finds that 

although Defendant has shown “good cause” to modify the scheduling order under Rule 

16, the Defendant’s motion to amend is nonetheless futile and prejudicial. 

A. Rule 16. 

 When a party seeks to modify the schedule set by a case management order, that 

Case 2:12-cv-00711-DGC Document 59 Filed 02/20/13 Page 1 of 4
- 2 - 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

party must show “good cause” to do so under Rule 16. Fed. R. Civ. P. 16(b)(4). Good 

cause exists when a deadline “cannot reasonably be met despite the diligence of the party 

seeking the extension.” Fed. R. Civ. P. 16 Advisory Comm.'s Notes (1983 Am.). “Rule 

16(b)'s ‘good cause’ standard primarily considers the diligence of the party seeking the 

amendment.” Johnson v. Mammoth Recreations, Inc., 975 F.2d 604, 608 (9th Cir. 1992); 

see also Coleman v. Quaker Oats Co., 232 F.3d 1271, 1294 (9th Cir. 2000). 

 In this case, Defendant has shown the necessary diligence. Defendant did not 

suspect Plaintiffs of fraud until a deposition of Plaintiff Marisa Sclafani on July 18, 2012. 

Doc. 51 at 2. Afterwards, Defendant repeatedly requested that Plaintiffs produce 

financial documents and contact information for Plaintiffs’ clients, all of which may have 

been probative of fraud. Doc. 51 at 3, 4. Defendant did not receive these materials until 

November 5, 2012, after this Court ordered production of the documents. Doc. 51 at 3. 

One month later, Defendant filed its motion to amend. Doc. 42. While this motion 

certainly comes late in the proceedings, Defendant has nonetheless been diligent in 

pursuing its defense of fraud. 

B. Rule 15. 

 If a party shows the Court good cause to modify the schedule, the Court must still 

consider whether to grant leave to amend under Rule 15(a). See Johnson, 975 F.2d at 

608. The Court may deny a motion to amend if there is a showing of undue delay or bad 

faith on the part of the moving party, undue prejudice to the opposing party, or futility of 

the proposed amendment. Foman v. Davis, 371 U.S. 178, 182 (1962). Since the Court 

finds that the motion to amend is futile and prejudicial, the Court will not address issues 

of undue delay, bad faith, and pleading fraud with particularity. 

In deciding whether an amendment would be futile, courts have examined the 

legal sufficiency of the proposed amendment. Miller v. Rykoff-Sexton, Inc., 845 F.2d 

209, 214 (9th Cir. 1988) (“A motion for leave to amend may be denied if it appears to be 

futile or legally insufficient.”) (citation omitted); see also Sound of Music Co. v. 

Minnesota Min. & Mfg. Co., 477 F.3d 910, 923 (7th Cir. 2007) (finding that leave to 

Case 2:12-cv-00711-DGC Document 59 Filed 02/20/13 Page 2 of 4
- 3 - 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

amend may be denied if court properly can determine that the claim would not survive 

summary judgment). In this case, Defendant seeks to amend its answer to include the 

affirmative defense of fraud. The proposed amendment states: 

As and for a separate defense, and in the alternative, Defendant alleges that 

Plaintiffs have committed concealment, misrepresentation, and/or fraud 

concerning a claim under the applicable insurance policy which voids the policy. 

During the presentation of the claim, Defendant alleges that Plaintiffs 

misrepresented information regarding their claim including, but not limited to, the 

value of the modeling portfolios and the identities of clients. These 

misrepresentations void the policy. 

Doc. 42-1 ¶ 74 (emphasis added). The thrust of this defense is that Defendant has no 

duty to pay Plaintiffs’ claims, because the insurance policy was voided when Plaintiffs 

presented fraudulent claims. 

 Plaintiffs argue that Defendant’s policy is not necessarily voided when an insured 

presents fraudulent claims. Doc. 48 at 11. Quoting the relevant policy sections, Plaintiffs 

show that Defendant may cancel the insured’s policy if the insured presents a fraudulent 

claim, but to do so Defendant must provide notice of cancellation sixty days before 

cancellation. Id. at 10–11. Defendant does not allege that it gave any notice of 

cancellation to Plaintiffs. Moreover, in its reply, Defendant does not seriously contest 

Plaintiffs’ assertions, nor does Defendant identify the policy provisions that void an 

insured’s policy merely upon the presentation of fraudulent claims. 

Instead, Defendant argues that the amended answer need only give “fair notice” of 

the affirmative defense to Plaintiffs, citing Wyshak v. City Nat’l Bank, 607 F.2d 824 (9th 

Cir. 1979), as authority. Doc. 51 at 6. But the court in Wyshak found the “fair notice” 

standard satisfied because, in addition to asserting a statute of limitations defense, the 

defendant also indicated the specific statute that provided the relevant time limits. 

Wyshak, 607 F.2d at 827. Here, Defendant has not identified a provision in its insurance 

policy that immediately voids a fraudulent claim. Defendant in its reply also asserts that 

there is a common law fraud defense that permits it to void a policy when an insured 

presents a fraudulent claim. Doc. 51 at 6. But Defendant provides no support for this 

Case 2:12-cv-00711-DGC Document 59 Filed 02/20/13 Page 3 of 4
- 4 - 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

assertion. Its citation to Am. Pepper Supply Co. v. Fed. Ins. Co., 93 P.3d 507 (Ariz. 

2004), is inapposite as this case discussed the burden of proof for an insurer’s policy

defense of concealment or misrepresentation. Id. at 512. 

 Therefore, Defendant’s proposed defense is legally insufficient. Whatever effect 

an insured’s fraudulent claim may have, the policy does not provide for automatic 

cancellation. 

Moreover, by allowing Defendant to amend its answer, there would be a strong 

possibility of prejudice to Plaintiffs. Plaintiffs would be unable to conduct further 

discovery as to the fraud defense, because the deadline for the completion of fact 

discovery (January 18, 2013) has already passed. Doc. 16 ¶ 4. While the prejudice to 

Plaintiffs may not be great, as they are best situated to know whether they have presented 

fraudulent claims, it is still significant. Defendant remains free to dispute whether 

Plaintiffs have in fact incurred any losses and whether its policy would provide coverage 

for those losses. 

IT IS ORDERED that Defendant’s motion for leave to file first amended answer 

(Doc. 42) is denied. 

Dated this 20th day of February, 2013. 

Case 2:12-cv-00711-DGC Document 59 Filed 02/20/13 Page 4 of 4