Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_13-cv-02903/USCOURTS-casd-3_13-cv-02903-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1330 Breach of Contract

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

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,

CASE NO. 13cv2903-GPC(DHB)

ORDER GRANTING

DEFENDANT’S MOTION FOR

LEAVE TO FILE

COUNTERCLAIM

vs. [Dkt. No. 33.]

MARKEL INSURANCE COMPANY,

an Illinois corporation; and DOES 1

through 50, inclusive,

Defendant.

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

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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). 

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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

counterclaim is a continuation of MIC’s bad faith conduct, as discussed below, they

have not demonstrated that the counterclaim has been brought to prolong meritless

litigation. 

C. Undue Delay

Defendant argues that there has been no undue delay because they discovered

the facts to support its claims during recent discovery. Defendant states that it knew

in February 2015 about the facts supporting the claims in the counterclaim; however,

at that time, MIC sought a stipulation with Plaintiffs’ counsel regarding its filing of a

counterclaim and it was not until April, after continued discussions, that an agreement

was not reached and the motion was then filed with the Court in April 2015. 

In opposition, Plaintiffs assert that there has been undue delay because four and

a half years have gone by since the alleged theft that caused the loss to Plaintiffs. They

allege that several investigations have been conducted and closed, an EUO has been

held, MIC said they would pay Plaintiffs $110,000 but never paid the full amount. 

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Therefore, there has been undue delay. However, Plaintiffs’ argument concerning

undue delay is misplaced. 

As to undue delay, the Court looks at whether the moving party unduly delayed

in filing their motion. Jackson v. Bank of Hawaii, 902 F.2d 1385, 1388 (9th Cir. 1990). 

In making such a determination, the court looks at “whether the moving knew or

should have known the facts and theories raised by the amendment in the original

pleading.” Id. 

According to Defendant, the facts as to the alleged misrepresentation and

concealment of material facts was not learned until discovery revealed these claims. 

Therefore, Defendant did not know about the facts at the time it filed its answer on

June 4, 2014. Fact discovery is currently still open and set to close on June 5, 2015 and 

expert discovery is set to close on August 7, 2015. (See Dkt. No. 29.) There has been

no showing of undue delay. 

D. Prejudice 

Defendant contends that there would be no substantial prejudice to Plaintiffs

because the counterclaim would not require significant discovery on new matters,

change the focus of the case or prolong the litigation. Plaintiffs argue that they will

suffer undue prejudice because they have already had to endure over three years of

investigation by MIC.

Here, there would be no undue prejudice to Plaintiffs in allowing the

counterclaim. As stated by Defendant, the claims in the counterclaim would not

require significant discovery or prolong the case. Discovery is still open, and the

deadline for filing pretrial dispositive motions is not until August 21, 2015. 

Accordingly, no prejudice has been shown. 

E. Futility of Amendment

Defendant maintainsthat the amendment is not futile because discoveryrevealed

substantial evidence that Plaintiffs misrepresented and concealed material information

during their presentation of their insurance claimto MIC. Plaintiffs argue that the facts

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alleged by Defendants are without merit and each fact has been twisted and convoluted

in a effort to discredit Plaintiffs and deny liability. 

“[A] proposed amendment isfutile 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 v. Rykoff-Sexton, Inc., 845 F.2d 209, 214 (9th Cir. 1988). Courts

ordinarily do not consider the validity of a proposed amended pleading in deciding

whether to grant leave to amend and defer consideration of challenges to the merits of

a proposed amendment until after leave to amend is granted and the amended pleadings

are filed. Netbula, LLC v. Distinct Corp., 212 F.R.D. 534, 539 (N.D. Cal. 2003)

(citation omitted); accord Green Valley Corp. v. Caldo Oil Co., No. 09cv4028-LHK,

2011 WL 1465883, at *6 (N.D. Cal. April 18, 2011) (noting “the general preference

against denying a motion for leave to amend based on futility.”). Arguments

concerning the sufficiency of the proposed pleadings, even if meritorious, is better left

for briefing on a motion to dismiss. Lillis v. Apria Healthcare, No. 12cv52-IEG(KSC),

2012 WL 4760908, at * 1 (S.D. Cal. Oct. 5, 2012). 

Here, both parties raise numerous factual issues, supported by declarations by

both attorneys, as to the claims process, that are in dispute. At this point of the

proceedings, it is not the Court’s role to determine the validity of these facts. The

Court cannot conclude that no set of facts can be proved on the allegations in the

counterclaim, and therefore, granting Defendant leave to file a counterclaim would be

not be futile. 

As to the last factor, Defendant has not previously sought leave to file a

counterclaim. Based on the five factors thatsupport the filing of the counterclaim, and

in light of the Ninth Circuit’s extremely liberal policy favoring leave to amend, the

Court GRANTS Defendant’s motion for leave to file a counterclaim. 

Conclusion

Based on the above, the Court GRANTS Defendant’s motion for leave to file a

counterclaim. Defendant shall file the proposed counterclaim within three (3) days of

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the filing of this order. The hearing set for June 5, 2015 shall be vacated. 

IT IS SO ORDERED.

DATED: June 1, 2015

HON. GONZALO P. CURIEL

United States District Judge

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