Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_05-cv-03216/USCOURTS-azd-2_05-cv-03216-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1442 Petition for Removal- Breach of Contract

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

HUMISTON, 

Plaintiff, 

vs.

NATIONWIDE MUTUAL FIRE

INSURANCE CO., 

Defendant. 

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No. 05-3216-PHX-JAT

ORDER

Pending before this Court is Defendant’s Motion to Amend Answer and Assert

Counterclaim (Doc. 12). 

I. FACTUAL BACKGROUND

The Plaintiff suffered a water loss on his property on September 28, 2004. On

October 13, 2004, the Plaintiff hired James O’Toole (O’Toole), a public adjuster, to estimate

the value of the loss. O’Toole later requested an appraiser, and on November 5, 2004,

Plaintiff retained John Hall (Hall). On May 10, 2005, appraisers for the Defendant and

Plaintiff signed an award, agreeing upon the amount of money that Nationwide Mutual Fire

Insurance Company (Nationwide) would pay the Plaintiff. The contract provided that in the

event that the parties’ appraisers could not agree upon the amount of the loss, then they

would choose an umpire. The contract further specified that any two of the three signatures

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would determine the amount of the loss. Although he was never called upon to resolve a

dispute, the umpire ratified and signed the appraisers’ award on May 12, 2005. 

Plaintiff brought suit in Maricopa County Superior Court on September 7, 2005. The

complaint alleges breach of contract and breach of the covenant of good faith and fair dealing

against Nationwide for the manner in which they handled Plaintiff’s claim. On October 14,

2005, Nationwide removed the action to the United States District Court for the District of

Arizona. 

On December 19, 2005, this Court held the Rule 16(b) pretrial conference. At that

conference, the Court adopted three deadlines. This Court scheduled: (1) March 10, 2006,

as the deadline for Defendant to amend its Answer; (2) September 11, 2006, as the deadline

for discovery; and (3) October 16, 2006, as the deadline for dispositive motions. On January

3, 2006, Defendant received Plaintiff’s initial disclosure statement. Within that disclosure

statement are facts that purportedly demonstrate an inappropriate business relationship

between O’Toole and Hall. On March 10, 2006, Defendant filed a Motion to Amend Answer

and Assert Counterclaim based upon the information contained within the disclosure.

Plaintiff objects to Defendant’s Motion to Amend Answer and Assert Counterclaim.

II. LEGAL ANALYSIS AND CONCLUSION

Generally, Federal Rule of Civil Procedure 15(a) governs a motion to amend

pleadings to add claims or parties. In the present case, Rule 16 could also apply because

Defendant requested leave to amend after Court issued the Rule 16 Scheduling Order. Here,

Defendant submitted its Motion to Amend Answer by the deadline the Court set in the Rule

16(b) pretrial conference. It is therefore unnecessary to examine Rule 16 further. 

Rule 15(a) provides in pertinent part: 

A party may amend the party’s pleading once as a matter of course at

any time before a responsive pleading is served or, if the pleading is one to

which no responsive pleading is permitted and the action has not been placed

upon the trial calendar, the party may so amend it at any time within 20 days

after it is served. Otherwise 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 given when justice so requires. 

Fed. R. Civ. P. 15(a). The decision whether to grant or deny a motion to amend is within the

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trial court’s discretion. In Foman v. Davis, the Supreme Court declared that leave to amend

“shall be freely given when justice so requires. This mandate is to be heeded.” 371 U.S.

178, 182 (1962). Therefore, when exercising its discretion under Rule 15(a), a court must

be guided by the underlying purpose of the rule, which is “to facilitate decision on the merits

rather than on the pleadings or technicalities.” Eldridge v. Block, 832 F.2d 1132, 1135 (9th

Cir. 1987). Thus, Rule 15’s policy of favoring amendments to pleadings should be applied

with extreme liberality. “Generally, this determination should be performed with all

inferences in favor of granting the motion.” Griggs v. Pace Am. Group, Inc., 170 F.3d 877,

880 (9th Cir. 1999) (citing DCD Programs v. Leighton, 833 F.2d 183, 186 (9th Cir. 1987)).

A party does not have an unlimited opportunity to amend its Answer. The United

States Supreme Court has established that motions to amend should not be granted if the

district court determines that there has been a showing of: (1) undue delay; (2) bad faith or

dilatory motives on the part of the movant; (3) repeated failure to cure deficiencies by

previous amendments; (4) undue prejudice to the opposing party; or (5) futility of the

proposed amendment. Foman, 371 U.S. at 182; Madeja v. Olympic Packers, 310 F.3d 628,

636 (9th Cir. 2002) (quoting Yakima Indian Nation v. Wash. Dep’t of Revenue, 176 F.3d

1241, 1246 (9th Cir. 1999)) (citation and internal quotation marks omitted). 

Here, Plaintiff argues that Nationwide’s motion should be denied on four grounds: (1)

it acted with undue delay; (2) the amendment would be futile; (3) Nationwide waived its

objection to Plaintiff’s chosen appraiser; and (4) the Amendment is barred by Rule 13.

Significantly, Plaintiff, as the “party opposing amendment,” bears the burden of showing

prejudice, futility, or one of the other permissible reasons for denying a motion to amend.

DCD Programs, 833 F.2d at 187; see Richardson v. United States, 841 F.2d 993, 999 (9th

Cir. 1988) (stating that leave to amend should be freely given unless opposing party makes

“an affirmative showing of either prejudice or bad faith”).

A. UNDUE DELAY 

The first ground upon which this Court could deny leave to amend is undue delay.

Delay, by itself, is insufficient to justify denial of motion to amend. Hurn v. Retirement

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Fund Trust of Plumbing, 648 F.2d 1252, 1254 (9th Cir. 1981) (citing Howey v. United States,

481 F.2d 1187, 1190-91 (9th Cir. 1973)). Additionally, the Defendant was not even late to

file. It submitted its motion to amend on March 10, 2006, which is within the deadline this

Court set in the Rule 16 Scheduling Order. Plaintiff then claims that Defendant’s “ultimate

goal” is to file a motion to vacate the appraisal award, and that the Court must disallow an

amendment to the answer because this “ultimate goal” would be untimely. This Court is not

ruling on a hypothetical motion that may be filed in the future. It is ruling on the ability of

the Defendant to amend its Answer, and thus undue delay does not apply. 

B. FUTILITY 

Second, Plaintiff argues that the motion would be futile. Regarding futility, “[a]

district court does not err in denying leave to amend where the amendment would be futile

. . . or would be subject to dismissal.” Saul v. United States, 928 F.2d 829, 843 (9th Cir.

1991) (citations omitted); see also 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)). Similarly, a motion for leave to amend is futile if it can be

defeated on a motion for summary judgment. Gabrielson v. Montgomery Ward & Co., 785

F.2d 762, 766 (9th Cir. 1986). “However, a proposed amendment is futile only if no set of

facts can be proved under the amendment to the pleadings that would constitute a valid and

sufficient claim or defense.” Miller, 845 F.2d at 214. For the reasons discussed below,

neither the additional affirmative defense nor the counterclaim are futile. 

First, Plaintiff argues that because the appraisal award only required the signature of

two out of the three representatives, the replacement of its agent would not alter the

magnitude of the award. Because the magnitude of the award could not change, Plaintiff

asserts that it must prevail in a motion for summary judgment on the issue. This Court does

not believe that issue to be dispositive. Judge David C. Bury’s decision in the matter of

Charlie Gahn dba Olde Tymers Restaurant v. Columbia Casualty Insurance Company, No.

03-630 (D. Ariz. Nov 22, 2005) (Order granting Disqualification of Plaintiff’s Appraiser),

indicates that at least one trier of fact was troubled by the allegations that Hall and O’Toole

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were working together. He also found that under a similar contract, the removal of Hall

would make a difference despite the rule that two out of three signatures on the award would

be binding upon both parties. Plaintiff has not met its burden of convincing this Court that

“no set of facts can be proven under the amendment to the pleadings that would constitute

a valid and sufficient claim or defense.” Miller, 845 F.2d at 214. 

Second, Defendant wishes to assert a Counterclaim alleging breach of contract by

Plaintiff. Rule 15 strongly reflects an intent for litigation to be resolved on the merits and

that amendments for valid claims should be liberally granted. “This liberality . . . is not

dependent on whether the amendment will add causes of action or parties.” DCD Programs,

LTD. v. Leighton, 833 F.2d 183, 186 (9th Cir. 1987). A trier of fact could find that the

Plaintiff breached its duty to the Defendant under the contract. Additionally, the

counterclaim asserted does not address the appraisal award. The counterclaim asserts that

the Plaintiff breached its contract on other grounds, namely by not choosing an independent

or impartial appraiser. It would not be futile for the Defendant to pursue this cause of action

because the Plaintiff could prevail on the merits of its claim and the Defendant could prevail

on the merits of this entirely unrelated matter. 

C. WAIVER

Third, Plaintiff contests the motion to amend by alleging that Defendant waived its

right to dispute the appraiser. This motion does not concern impartiality of the appraiser, but

rather, the ability of the Defendant to amend its Answer. Waiver occurs when a party

relinquishes a known right or exhibits conduct that clearly warrants an inference of an

intentional relinquishment. Meineke v. Twin city fire Ins. Co., 892 P.2d 1365, 181 Ariz. 576

(Ct. App. 1995). Here it is clear that Defendant did not waive its right to amend its Answer,

and this Court will look no further to determine whether it waived rights under the contract

which forms the basis of this action. 

D. RULE 13

Fourth, Plaintiff claims that Defendant’s counterclaim is a compulsory counterclaim

within the meaning of Rule 13(a), and must therefore be barred as untimely. Under Rule

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13(a), a party who fails to plead a compulsory counterclaim against an opposing party is

deemed to have waived that claim. Dragor Shipping Corp. v. Union Tank Car Co., 378 F.2d

241, 244 (9th Cir. 1967). However, Rule 13(f) allows a party to amend its pleadings and

assert a counterclaim if the counterclaim was originally omitted “through oversight,

inadvertence, or excusable neglect, or when justice requires.” Fed. R. Civ. P. 13. Plaintiff

cites to Ralston-Purina Co. v. Bertie, 541 F.2d 1363 (9th Cir. 1976), stating the proposition

that barring of counterclaims is favored where the party seeking leave to amend could not

adequately explain the reason for the delay. Although this court agrees with that statement

of law, it is not applicable here. Here, Defendant adequately explained the reason for delay.

This motion is based upon information that was acquired by Defendant during discovery.

Rule 13 does not bar the Defendant from Amending Answer and Asserting Counterclaim.

/ / /

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Based on the foregoing, 

IT IS ORDERED that Plaintiff’s Motion to Amend and Assert Counterclaim (doc.

12) is granted. 

IT IS FURTHER ORDERED that Defendant shall file the Amended Answer and

Counterclaim within ten days of the date of this order. 

DATED this 27th day of June, 2006.

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