Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_04-cv-01076/USCOURTS-cand-4_04-cv-01076-1/pdf.json

Nature of Suit Code: 120
Nature of Suit: Marine Contract Actions
Cause of Action: 28:1331 Fed. Question

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

DONALD F.

CHIARIELLO,

Plaintiff,

v.

ING GROEP NV, a

Netherlands

corporation,

Defendant.

 /

No. C 04-1076 CW

ORDER GRANTING

PLAINTIFF LEAVE TO

FILE SECOND AMENDED

COMPLAINT

 Plaintiff Donald F. Chiarello moves for leave to file a

second amended complaint (SAC), in order (1) to withdraw his

identification of his claim as within maritime and admiralty

jurisdiction and (2) to add allegations of bad faith conduct so

as to permit recovery of attorneys' fees. Defendant ING GROEP NV

opposes the motion. 

The matter was heard on July 15, 2005. Having considered

all of the papers filed by the parties and oral argument on the

motion, the Court grants Plaintiff's motion. 

BACKGROUND

This case involves a dispute over denial of coverage under a

marine insurance policy. Plaintiff is a resident of Colorado. 

First Amended Complaint (FAC) ¶ 3. Defendant is a Netherlands

corporation with its principal place of business in Amsterdam. 

Case 4:04-cv-01076-CW Document 77 Filed 07/21/05 Page 1 of 8
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Id.

Defendant issued Plaintiff an insurance policy to cover his

wooden sailing schooner, the ATTU. The policy application

provided that its terms would be governed by Florida law. FAC,

Ex. A, Insurance Application at 2. The insurance policy

agreement provided that dispute would be adjudicated according to

substantive federal admiralty laws, or New York law if no federal

admiralty precedent exists. FAC, Ex. B, Insurance Agreement at

12. Both the application and agreement list Plaintiff's

residence as Annapolis, Maryland. 

The ATTU later sank off the South China Sea and was declared

a total loss. Defendant denied Plaintiff's claim for benefits,

on the grounds that he had breached a condition in the

application for the policy prohibiting single-handed operation of

the vessel. 

Plaintiff originally filed his complaint in propria persona

on March 17, 2004, alleging one cause of action for recovery of

sums due under the maritime insurance policy. In the second

paragraph of the complaint, Plaintiff alleged that jurisdiction

existed based on diversity and also under Federal Rule of Civil

Procedure 9(h), which provides that claims "within the

jurisdiction of the district court on some other ground may

contain a statement identifying the claim as an admiralty or

maritime claim." Defendant answered and brought counterclaims

seeking a declaratory judgment voiding the policy. At the same

time, Defendant agreed to the dismissal of an action it had

brought against Plaintiff for declaratory judgment in the

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District of Maryland. Gendell Decl., Ex. 4, April 12, 2004

Stipulation of Dismissal. 

On July 22, 2004, Plaintiff, still in pro per, moved to

amend his complaint to allege three additional State law causes

of action, including breach of contract, breach of the implied

covenant of good faith and fair dealing, and unfair and deceptive

trade practices. Plaintiff demanded a jury trial for the

additional claims only. Defendant opposed the motion to amend. 

The Court permitted Plaintiff to file a FAC, but struck the

proposed second count for breach of contract as redundant. 

September 17, 2004 Order Granting Motion for Leave to Amend

Complaint and Striking Count Two. 

Defendant then moved to dismiss the FAC's claims for breach

of the implied covenant and unfair and deceptive trade practices. 

Plaintiff, who had by then obtained representation, did not

oppose the motion with respect to his unfair trade practices

claim, and the Court dismissed that claim with prejudice. 

Plaintiff did oppose dismissal of his claim for breach of the

implied covenant; the Court dismissed it without prejudice. 

December 3, 2004 Minute Order. The Court later approved a

stipulation by the parties clarifying that the Court's order

meant that if Florida law were found to apply and Plaintiff were

to prevail on his breach of contract claim, he would be permitted

to file a separate lawsuit asserting a statutory claim of bad

faith. February 7, 2005 Stipulation. The Court has since

ordered that the choice of law issues will not be addressed until

the summary judgment motion briefing. June 2, 2005 Scheduling

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Order. 

Plaintiff now seeks to file a SAC. The proposed SAC brings

only the surviving claim for breach of contract. However,

Plaintiff seeks to withdraw his prior Rule 9(h) statement

identifying this claim as within admiralty or maritime

jurisdiction, leaving only diversity as a basis for jurisdiction,

and to demand a jury trial on his claim. Plaintiff also seeks to

add additional allegations of bad faith in order to support a

claim for attorneys' fees. 

LEGAL STANDARD

Federal Rule of Civil Procedure 15(a) provides that leave to

amend a pleading "shall be freely given when justice so

requires." Leave to amend lies within the sound discretion of

the trial court, which discretion "must be guided by the

underlying purpose of Rule 15 to facilitate decision on the

merits, rather than on the pleadings or technicalities." United

States v. Webb, 655 F.2d 977, 979 (9th Cir. 1981) (citations

omitted). Thus, Rule 15's policy of favoring amendments to

pleadings should be applied with "extreme liberality." Id.; DCD

Programs, Ltd. v. Leighton, 833 F.2d 183, 186 (9th Cir. 1987)

(citations omitted). 

The Supreme Court has identified four factors relevant to

whether a motion for leave to amend should be denied: undue

delay, bad faith or dilatory motive, futility of amendment, and

prejudice to the opposing party. Foman v. Davis, 371 U.S. 178,

182 (1962). The Ninth Circuit holds that these factors are not

of equal weight; specifically, delay alone is insufficient ground

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for denying leave to amend. Webb, 655 F.2d at 980. Further, the

"liberality in granting leave to amend is not dependent on

whether the amendment will add causes of action or parties." DCD

Programs, 833 F.2d at 186. Rather, the court should consider

whether the proposed amendment would cause the opposing party

undue prejudice, is sought in bad faith, or constitutes an

exercise in futility. Id. (citing Acri v. Int’l Ass'n of

Machinists & Aerospace Workers, 781 F.2d 1393, 1398-99 (9th Cir.

1986); United States v. City of Twin Falls, 806 F.2d 862, 876

(9th Cir. 1986); Howey v. United States, 481 F.2d 1187, 1190-91

(9th Cir. 1973); Klamath-Lake Pharm. Ass’n v. Klamath Med. Serv.

Bureau, 701 F.2d 1276, 1293 (9th Cir. 1983)).

Prejudice typically arises where the opposing party is

surprised with new allegations which require more discovery or

will otherwise delay resolution of the case. See, e.g., Acri,

781 F.2d at 1398-99; Guthrie v. J.C. Penney Co., 803 F.2d 202,

210 (5th Cir. 1986). The party opposing the motion bears the

burden of showing prejudice. DCD Programs, 833 F.2d at 186;

Beeck v. Aquaslide 'N' Dive Corp., 562 F.2d 537, 540 (8th Cir.

1977).

DISCUSSION

Defendant opposes the motion to file a SAC on grounds of

futility and prejudice, specifically that (1) under any

potentially applicable law, Plaintiff cannot maintain a claim for

bad faith and (2) Plaintiff's proposed demand for a jury trial is

ineffective and prejudicial. These issues are addressed in turn. 

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Defendant's first objection rests on its misapprehension

that Plaintiff seeks to add a new cause of action for "bad

faith." Instead, the proposed SAC brings only the single,

surviving breach of contract claim; Plaintiff intends the

allegations regarding bad faith to support a request for

attorneys' fees. Plaintiff does not request punitive damages. 

The availability of attorneys' fees may depend on the applicable

law, but that issue will not be decided until summary judgment,

at the earliest. Therefore, Defendant has not shown that

Plaintiff's proposed amendments are futile. 

Second, Defendant argues that by originally electing the

Court's admiralty jurisdiction under Rule 9(h), Plaintiff has

waived his right to a jury trial. 

Defendant's argument runs counter to the express language of

Rule 9(h). Rule 9(h) contemplates that pleadings electing to

identify a claim within admiralty and maritime jurisdiction may

be later amended to withdraw such an identifying statement, and

specifies that such a proposed amendment "is governed by the

principles of Rule 15." 

Defendant argues that withdrawal of Plaintiff's Rule 9(h)

election would necessarily result in the forfeiture of any right

to a jury trial on the newly-designated State law claim. 

However, the two cases cited by Defendant are entirely

inapposite. In Pacific Tall Ships v. Kuehne & Nagel, Inc., 2000

WL 283918, 2000 A.M.C. 1152 (N.D. Ill. 2000), the plaintiff

clearly intended to bring its claims in admiralty, and then

demanded a jury trial without revoking its Rule 9(h) election. 

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Similarly, the issue in Foulk v. Donjon Marine Co., Inc., 144

F.3d 252, 255-257 (3rd Cir. 1998), was whether the plaintiff had

sufficiently alleged admiralty jurisdiction so as to grant the

appellate court jurisdiction to hear an interlocutory appeal; the

court expressly did not consider the implications of its order on

the plaintiff's demand for a jury trial. Id. at n.7. Here, in

contrast, Plaintiff intends to revoke his election of admiralty

jurisdiction without taking any advantage of admiralty

procedures. The cases upon which Pacific Tall Ships and Foulk

rely likewise do not support Defendant's argument. 

Defendant suggests that it faces undue prejudice if

Plaintiff is allowed to withdraw his Rule 9(h) identification

because Defendant relied upon Plaintiff's admiralty election when

it made its decisions not to contest jurisdiction and venue in

California and to dismiss its first-filed Maryland declaratory

judgment action. Otherwise, Defendant contends, it would have

successfully moved to dismiss or transfer based on Plaintiff's

lack of connection with this forum. Instead, Defendant relied on

its successful motion to dismiss the State law claims against it. 

Defendant has shown no justifiable basis for its assumption

that Plaintiff would not withdraw his Rule 9(h) identification. 

Plaintiff's original complaint clearly set forth a claim for

relief alleging both admiralty and diversity jurisdiction. 

Defendant has not shown that Plaintiff has subsequently availed

himself of the advantages of his admiralty and maritime election,

e.g., taking an interlocutory appeal available only to claims in

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admiralty. See Ghotra v. Bandila Shipping, Inc., 113 F.3d 1050,

1058 (9th Cir. 1997) (holding plaintiffs entitled to jury trial

on both common law and in rem admiralty claims where plaintiffs

did not introduce a new jurisdictional basis in the midst of

litigation or utilize the advantages of admiralty procedures). 

Therefore, the Court will allow Plaintiff to file the proposed

SAC. The Court will give Defendant the opportunity to cure any

prejudice, however, by entertaining an otherwise untimely motion

to transfer the case based on Plaintiff's lack of connection to

this forum. 

CONCLUSION

For the foregoing reasons, the Court GRANTS Plaintiff's

motion for leave to amend his complaint (Docket No. 69). 

Plaintiff may file the proposed SAC within one week of the date

of this order. Defendant may file a motion to transfer the

action within two weeks after the filing of the SAC. 

IT IS SO ORDERED.

Dated: 7/21/05 /s/ CLAUDIA WILKEN 

CLAUDIA WILKEN

United States District

Judge

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