Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_04-cv-03435/USCOURTS-cand-3_04-cv-03435-23/pdf.json

Parties Involved:
AAI Corporation
Counter-claimant
American Home Assurance Company
Plaintiff
American International Group, Inc.
3rd party defendant
Czech Export Bank
Defendant
Electric Transit Incorporated
Defendant
National Union Fire Insurance Company of Pittsburgh, Pennsylvania
Counter-defendant
SKODA, a.s.
Defendant
Skoda Ostrov, S.R.O.
Defendant

Document Text:

United States District Court

For the Northern District of California

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 1

 The Court GRANTS AAI’s motion to strike the over-sized reply brief as failing to

comply with the Court’s page requirements set out in its order granting AIG’s motion for

leave to file a motion for reconsideration. The Court has only reviewed AIG’s 10-page reply

submission.

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

NATIONAL UNION FIRE INSURANCE

COMPANY OF PITTSBURGH,

PENNSYLVANIA, a corporation, and

AMERICAN HOME ASSURANCE

COMPANY, a corporation,

Plaintiffs,

 v.

ELECTRIC TRANSIT INCORPORATED, an

Ohio corporation and joint venture of SKODA,

a.s., a corporation, SKODA, a.s., SKODA

OSTROV, s.r.o., a corporation, AAI

CORPORATION, a corporation, and CZECH

EXPORT BANK, a corporation,

Defendants. /

No. C 04-03435 JSW

ORDER GRANTING MOTION

FOR RECONSIDERATION;

GRANTING MOTION TO AMEND

ANSWER; AND DENYING

MOTION TO AMEND EXPERT

REPORT

Now before the Court is the motion for reconsideration filed by Plaintiffs and

Counterclaim Defendants National Union Fire Insurance Company of Pittsburgh, Pennsylvania

and American Home Assurance Company, and Third-Party Defendant, American International

Group, Inc. (collectively “AIG”). The Court has received Defendant AAI Corporation

(“AAI”)’s opposition and AIG’s reply.1

 Also before the Court is AIG’s motion to amend its

answer and AIG’s motion to amend an expert report. The Court finds that these matters are

appropriate for disposition without oral argument and are hereby deemed submitted. See Civ.

Case 3:04-cv-03435-JSW Document 216 Filed 11/14/07 Page 1 of 7
United States District Court

For the Northern District of California

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

2

L.R. 7-1(b). Accordingly, the hearing set for November 16, 2007 is HEREBY VACATED.

Having carefully considered the motions and the relevant legal authority, the Court hereby

GRANTS AIG’s motion for reconsideration, GRANTS AIG’s motion to amend its answer and

DENIES AIG’s motion to amend the expert report of Sydney Firestone. 

A. Motion for Reconsideration.

A motion for reconsideration may be made on one of three grounds: (1) a material

difference in fact or law exists from that which was presented to the Court, which, in the

exercise of reasonable diligence, the party applying for reconsideration did not know at the time 

of the order; (2) the emergence of new material facts or a change of law; or (3) a manifest

failure by the Court to consider material facts or dispositive legal arguments presented before

entry of the order. Civ. L.R. 7-9(b)(1)-(3). In addition, the moving party may not reargue any

written or oral argument previously asserted to the Court. Civ. L.R. 7-9(c). 

On August 1, 2007, this Court granted AIG leave to file a motion for reconsideration. 

AIG moves for reconsideration for the Court to consider dispositive legal arguments that it

alleges the Court failed to consider initially with regard to its opposition to AAI’s motion to

strike. In particular, AIG contends that the Court’s June 4, 2007 Order granting AAI’s motion

to strike was overbroad.

On March 7, 2007, this Court issued an order denying AIG’s motion for summary

judgment in which AIG had asserted that AAI, because of its status as an insider, did not have

standing to sue on the subject bond. Subsequently, AAI moved to strike portions of AIG’s

claims and defenses on the ground that the initial order ruled out such claims and defenses. 

However, AAI’s motion not only requested that the Court dismiss those insider defenses which

the Court’s March 7 Order held to be unavailable to AIG, but also sought to strike other claims

and defenses. 

On June 4, 2007, this Court granted AAI’s motion to strike in its entirety. The motion

sought to dismiss all of AIG’s claims and defenses that mentioned the AAI’s insider status. 

However, the Court’s March 7 Order clearly denied summary judgment to AIG on the grounds

that the defense that AAI was an insider and therefore not entitled to collect on the bond was

Case 3:04-cv-03435-JSW Document 216 Filed 11/14/07 Page 2 of 7
United States District Court

For the Northern District of California

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

3

unavailable to AIG. The March 7 Order was not intended to adjudicate AIG’s other claims and

defenses that did not depend on AAI’s legal status as an alleged insider for the purpose of

determining standing to make a claim.

The June 4 Order properly dismissed Count I and the second, twelfth and thirteenth

affirmative defenses. However, the Court finds, upon reconsideration, that the June 4 Order

improperly dismissed Court II, Count II, paragraphs 4 and 5 of the prayer, and the Answer’s

third, fourth, seventh, eighth, ninth, eleventh, fourteenth and thirty-first affirmative defenses. 

AIG’s motion for reconsideration is GRANTED and those claims and defenses are reinstated.

B. Motion to Amend Answer.

Federal Rule of Civil Procedure 15(a) allows a plaintiff to amend their complaint, after a

responsive pleading has been served, by leave of court or by consent of the adverse party. Rule

15(a) provides that leave to amend “shall be freely given.” See Fed. R. Civ. Proc. 15(a). The

Ninth Circuit has stated that “[r]ule 15’s policy of favoring amendments to pleadings should be

applied with ‘extreme liberality.’” United States v. Webb, 655 F.2d 977, 979 (9th Cir. 1981). 

Four factors are considered to determine whether a motion for leave to amend should be

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

are: bad faith, undue delay, prejudice to the opposing party, and futility of amendment. Id. 

While these “factors are usually used as criteria to determine the propriety of a motion for leave

to amend ... the crucial factor is the resulting prejudice to the opposing party.” Howey v. United

States, 481 F.2d 1187, 1190 (9th Cir. 1973). 

The Court finds that there is no evidence of bad faith in bringing the proposed

amendment. In order for a court to find that a moving party filed for leave to amend in bad

faith, the adverse party must offer evidence that shows “wrongful motive” on the part of the

moving party. See DCD Programs, 833 F.2d at 187. 

Second, while undue delay is a factor for denying leave to amend, “[u]ndue delay by

itself is insufficient to justify denying a motion to amend.” Bowles v. Reade, 198 F.3d 752,

757-58 (9th Cir. 1999). A moving party may be precluded from asserting an amendment on the

basis of undue delay where the matters asserted in the amendment were known to them from the

Case 3:04-cv-03435-JSW Document 216 Filed 11/14/07 Page 3 of 7
United States District Court

For the Northern District of California

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

4

beginning of the suit. Komie v. Buehler Corp., 449 F.2d 644, 648 (9th Cir. 1971) (finding that

where the moving party filed a motion to amend the pleadings 31 months after the answer was

filed, the trial court did not abuse its discretion in denying leave to amend). Although the

motion to amend the answer comes late in the course of this litigation, the Court does not find

that the delay is undue or is sufficient to merit denying leave to amend.

Next, AAI argues that the delay in moving to amend has caused it prejudice. The Ninth

Circuit has held that undue delay may result in prejudice when a motion for leave to amend is

made on the eve of the discovery deadline, which would have required reopening discovery, or

when an amendment is asserted at a late stage of the action and would inevitably lead to a delay

in the trial and further expense to the opposing party. Solomon v. North Am. Life & Cas. Ins.

Co., 151 F.3d 1132, 1139 (9th Cir. 1998) (citations omitted); see also McGlinchy v. Shell

Chemical Co., 845 F.2d 802 (9th Cir. 1998) (where plaintiffs waited more than 6 months after

the original complaint was filed and until after the original trial date had been vacated to

attempt to amend the complaint, delay was undue, and leave to amend was properly denied). 

An adverse party may also suffer prejudice by undue delay when the moving party asserts a

totally new and unrelated claim, which is filed at a late stage of the proceeding. Morongo Band

of Mission Indians v. Rose, 893 F.2d 1074, 1079 (9th Cir. 1990) (undue delay was prejudicial

where new claims set forth in the amended complaint would have greatly altered the nature of

the litigation and would have required defendants to have undertaken, at a late hour, an entirely

new course of defense). Here, the submissions of portions of the record indicate that AIG’s

new defense was basically known by all parties and further, that there has been adequate

discovery on the issue. Accordingly, the Court finds AAI will suffer no prejudice if the Court

grants AIG leave to amend, and this factor weighs in favor of granting the motion. 

Lastly, AAI argues that the proposed amendment is futile, based on its contentions that

the Court has eliminated the “insider” defense from this case. Leave to amend is properly

denied where the amendment would be futile. DeSoto v. Yellow Freight Sys., Inc., 957 F.2d

655, 658 (9th Cir. 1992). The Court does not find that the defense is an essential part of the

Case 3:04-cv-03435-JSW Document 216 Filed 11/14/07 Page 4 of 7
United States District Court

For the Northern District of California

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

2

 Rule 37 provides in pertinent part: “A party that without substantial justification

fails to disclose information required by Rule 26(a) or 26(e)(1), or to amend a prior response

to discovery as required by Rule 26(e)(2), is not, unless such failure is harmless, permitted to

use as evidence at a trial, at a hearing, or on a motion any witness or information not so

disclosed.” Fed. R. Civ. Proc. 37(c)(1).

5

proposed amendment adding an estoppel defense. Accordingly, the motion to amend the

answer is GRANTED. AIG may file its amended answer.

C. Motion to Amend Expert Report.

AIG moves to be allowed to amend the expert report of Sydney Firestone to provide

expert analysis on AIG’s defenses that were not dismissed by the Court’s ruling on March 7,

2007. 

Rule 26 requires parties to disclose the identity of their expert witnesses “accompanied

by a written report prepared and signed by the witness.” Fed. R. Civ. P. 26(a)(2)(B). Parties

are required to serve their opening and expert rebuttal reports “at the times and in the sequence

directed by the court.” Fed. R. Civ. Proc. 26(a)(2)(C). “Rule 37(c)(1) gives teeth to these

requirements by forbidding the use at trial of any information required to be disclosed by Rule

26(a) that is not properly disclosed.”2

 Yetti by Molly Ltd v. Deckers Outdoor Corp., 259 F.3d

1101, 1106 (9th Cir. 2001). This rule excludes untimely expert witness testimony, unless the

“parties’ failure to disclose the required information is substantially justified or harmless.” Id.;

see also Carson Harbor Village, Ltd. v. Unocal Corp., 2003 WL 22038700, *2 (C.D. Cal. 2003)

(“Excluding expert evidence as a sanction for failure to disclose expert witnesses in a timely

fashion is automatic and mandatory unless the party can show the violation is either justified or

harmless.”) (internal quotes and citation omitted). AIG bears the burden of demonstrating its

failure was either substantially justified or harmless. See Yetti by Molly, 259 F.3d at 1107.

1. Substantial Justification.

A failure to disclose testimony is not substantially justified, where, as here, the need for

such testimony could reasonably have been anticipated. See Wong v. Regents of the Univ. of

Calif., 410 F.3d 1052, 1061-62 (9th Cir. 2005). The Court’s deadline to serve opening expert

reports was March 20, 2007 (or ninety days prior to the previously set trial date of June 18,

2007). According to AIG’s own motion, the defenses it wishes Ms. Firestone to opine upon

Case 3:04-cv-03435-JSW Document 216 Filed 11/14/07 Page 5 of 7
United States District Court

For the Northern District of California

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

6

were known at the time of the original disclosure of the report. AIG merely claims that it

sought to streamline the issues for the parties and the Court by focusing the expert report on

what AIG believed in good faith would be the most straightforward and dispositive analysis. 

However, the apparent miscalculation of AIG’s expert’s focus is not substantial justification for

the late amendment. Accordingly, the Court finds that AIG’s late request to amend the

Firestone Report is not substantially justified.

2. Harmlessness.

AIG fails to demonstrate that its failure to prepare the Report by the original deadline

was harmless. The dates set for pretrial and trial have been reset twice as a result of last-minute

filings by both parties. Moreover, the Court would need to delay both the pretrial conference

and the trial again to allow Defendants to rebut the new report and perhaps take further

discovery. Disruption of the schedule of the Court and of Defendants “is not harmless.” See

Wong v. Regents of the Univ. of Calif., 410 F.3d 1052, 1062 (9th Cir. 2005) (finding untimely

disclosure of expert witness was not harmless, “even though the ultimate trial date was still

some months away” where the deadlines for completing discovery and for filing motions for

summary judgment had expired); see also Carson Harbor Village, Ltd. v. Unocal Corp., 2003

WL 22038700, *3 (C.D. Cal. 2003) (finding submission of untimely expert evidence would

substantially prejudice defendants because they would have incurred significant expenses in

deposing the proffered expert and in preparing an appropriate expert rebuttal and would have

suffered from prolonged proceedings if it were allowed). The Court thus finds allowing

amendment of the Firestone Report at this stage in the litigation would not be harmless to

Defendants. 

Accordingly, AIG’s motion to amend the Firestone Report is DENIED.

CONCLUSION

For the foregoing reasons, the Court GRANTS AIG’s motion for reconsideration,

GRANTS AIG’s motion for leave to file an amended answer, and DENIES AIG’s motion to

allow amendment of its expert’s report.

Case 3:04-cv-03435-JSW Document 216 Filed 11/14/07 Page 6 of 7
United States District Court

For the Northern District of California

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

7

The parties were set for a case management conference to follow the hearing set on

these matters on November 16, 2007 at 9:00 a.m. As the hearing has been vacated and the

parties failed to submit a joint case management conference statement, the Court RESETS the

case management conference for November 30, 2007 at 1:30 p.m. The parties shall file a joint

submission no later than November 26, 2007, which details the parties’ preferred dates for

pretrial and trial.

IT IS SO ORDERED.

Dated: November 14, 2007 

JEFFREY S. WHITE

UNITED STATES DISTRICT JUDGE

Case 3:04-cv-03435-JSW Document 216 Filed 11/14/07 Page 7 of 7