Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_06-cv-02355/USCOURTS-azd-2_06-cv-02355-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Citizenship

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Robert M. Heywood and Delene A.

Heywood, husband and wife, 

Plaintiffs, 

vs.

Western Reserve Life Assurance

Company of Ohio, 

Defendant. 

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No. CV-06-2355-PHX-DGC

ORDER

Pending before the Court is Defendant’s motion for leave to file a counterclaim.

Dkt. #18. Plaintiffs have filed a response to the motion and Defendant has filed a reply.

Dkt. ##22-23. For the reasons set forth below, the Court will grant the motion.

I. Background.

Plaintiffs Robert and Delene Heywood are the parents of Trent Heywood, now

deceased. Defendant issued Trent a life insurance policy on September 15, 2004. Plaintiffs

are beneficiaries under the policy. Trent died on February 16, 2005. Plaintiffs subsequently

submitted a claim for benefits under the policy. Defendant denied the claim and attempted

to rescind the policy based on alleged material misrepresentations on the policy application.

Plaintiffs commenced this action on September 14, 2006 by filing a complaint against

Defendant in Arizona state court. The complaint asserts a bad faith tort claim against

Defendant based on its denial of Plaintiffs’ claim for benefits under the policy. Defendant

Case 2:06-cv-02355-DGC Document 24 Filed 02/27/07 Page 1 of 4
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removed the action to this Court on October 3, 2006. Dkt. #1, Ex. A. Defendant filed an

answer to the complaint on October 25, 2006. Dkt. #8.

II. Defendant’s Motion for Leave to File a Counterclaim.

Defendant seeks leave of Court to file a declaratory judgment counterclaim. Dkt. #18.

The proposed counterclaim seeks a declaration that Defendant is entitled to rescind the policy

under A.R.S. § 20-1109. Dkt. #20 at 3.

Defendant argues in its motion that leave to amend should be granted under

Rule 15(a) of the Federal Rules of Civil Procedure. Dkt. #18 at 2. Plaintiffs correctly note

that Defendant’s motion is governed by Rule 13(f) rather than Rule 15(a). Dkt. #22 at 4; see

A.J. Indus., Inc. v. U.S. Dist. Ct., 503 F.2d 384, 388 (9th Cir. 1974) (“Where a responsive

pleading had not yet been filed we see no reason why Rule 15(a) should not apply with Rule

13(f) coming into force after the filing of the responsive pleading.”). Under either rule,

however, leave to amend shall be freely given when justice so requires. See In re

Independent Serv. Orgs. Antitrust Litig., 161 F.R.D. 107, 108 (D. Kan. 1995) (“[Rule] 15(a)

requires that leave to amend be freely granted when justice so requires. Rule 13(f) also

addresses the filing of counterclaims by amendment when justice so requires.”) (citing

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

Relying on Rule 13(a), Plaintiffs argue that “the proposed counterclaim is a

compulsory counterclaim which was waived when not stated at the time of the filing of the

answer.” Dkt. #22 at 4. This argument lacks merit for three reasons. First, Rule 13(a) was

directed against a party, unlike Defendant in this case, that “failed to assert a counterclaim

in one action and then instituted a second action in which that counterclaim became the basis

of the complaint.” S. Constr. Co. v. Pickard, 371 U.S. 57, 60 (1962). Second, Rule 13(f)

explicitly permits a party to seek leave of court to assert an omitted counterclaim. Third,

Defendant asserted rescission as an affirmative defense in its answer. Dkt. #8 ¶ 21.

Rule 8(c) provides that when a party has mistakenly designated a counterclaim as a defense,

the court, “if justice so requires, shall treat the pleading as if there had been a proper

designation.” Fed. R. Civ. P. 8(c); see Reiter v. Cooper, 507 U.S. 258, 263 (1993) (quoting

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Rule 8(c) and stating that it made “no difference that [the defendants] designated their

counterclaims as defenses”).

Plaintiffs further argue that leave to amend should be denied because the only purpose

of the proposed counterclaim is to allow Defendant to engage in discovery on the rescission

issue. Dkt. #22 at 4-5. But Plaintiffs’ “‘burden of undertaking discovery, standing alone,

does not suffice to warrant denial of [Defendant’s] motion[.]’” Mann v. GTCR Golder

Rauner, L.L.C., 351 B.R. 714, 723 (D. Ariz. 2006) (citation omitted). Moreover, Defendant

would be permitted to conduct discovery in support of its affirmative defense of rescission

even in the absence of an amendment.

Courts have construed both Rule 13(f) and Rule 15(a) “liberally, in line with the

Federal Rules’ overall goal of resolving disputes . . . on the merits and in a single judicial

proceeding.” Spartan Grain & Mill Co. v. Ayers, 517 F.2d 214, 220 (5th Cir. 1975) (citing

Foman); see Eldridge v. Block, 832 F.2d 1132, 1135 (9th Cir. 1987) (“In exercising its

discretion with regard to the amendment of pleadings, ‘a court must be guided by the

underlying purpose of Rule 15—to facilitate decision on the merits rather than on the

pleadings or technicalities.’”) (citations omitted); Morongo Band of Mission Indians v. Rose,

893 F.2d 1074, 1079 (9th Cir. 1990) (stating that leave to amend is generally allowed with

“extreme liberality”); Griggs v. Pace Am. Group, Inc., 170 F.3d 877, 880 (9th Cir. 1999)

(stating that in ruling on a motion to amend the court should draw “all inferences in favor of

granting the motion”). In this case, Defendant filed the instant motion within the time period

set forth in the Court’s scheduling order. See Dkt. #15 ¶ 2. The discovery deadline is more

than four months away. See id. ¶ 4. Plaintiffs have not shown that Defendant has acted in

bad faith in filing the motion or that Plaintiffs will be prejudiced by the assertion of the

proposed counterclaim. See DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 187 (9th Cir.

1987) (stating that the party opposing amendment has the burden of showing prejudice or one

of the other permissible reasons for denying a motion to amend). Justice requires that

Defendant be granted leave to file the proposed counterclaim.

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IT IS ORDERED:

1. Defendant’s motion for leave to file a counterclaim for declaratory judgment

(Dkt. #18) is granted.

2. The Clerk shall file the lodged proposed counterclaim (Dkt. #20).

DATED this 27th day of February, 2007.

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