Court Opinion

ID: 9554332
Source: CourtListenerOpinion
Date Created: 2023-08-08 18:00:34.983307+00
Date Added: 2024-06-11T15:33:38.522218
License: Public Domain

In the

    United States Court of Appeals
                 For the Seventh Circuit
                    ____________________
No. 22-1214
RACHAEL SCHMEES, formerly known as
RACHAEL BLACK,
                                               Plaintiff-Appellant,

                                v.

HC1.COM, INC.,
                                              Defendant-Appellee.
                    ____________________

         Appeal from the United States District Court for the
         Southern District of Indiana, Indianapolis Division.
      No. 1:18-cv-3606-JPH-DLP — James Patrick Hanlon, Judge.
                    ____________________

   ARGUED SEPTEMBER 30, 2022 — DECIDED AUGUST 8, 2023
                ____________________

   Before WOOD, ST. EVE, and KIRSCH, Circuit Judges.
    KIRSCH, Circuit Judge. One week after Rachael Schmees
started working for HC1.COM, the company eliminated her
position and terminated her employment. Schmees sued
HC1, alleging that it fraudulently induced her to join the com-
pany by making false assurances about its financial outlook
and her prospects for career advancement. This appeal is
2                                                   No. 22-1214

limited to the district court’s rulings denying Schmees leave
to amend her complaint at two points in the litigation.
    At the pleading stage, HC1 moved to dismiss Schmees’s
first amended complaint. Three months after the parties had
fully briefed the motion, Schmees sought leave to amend her
complaint a second time to add new factual allegations but-
tressing the same fraud claims. The district court resolved
both motions in the same order. The court denied HC1’s mo-
tion to dismiss Schmees’s fraud claims, concluding that her
first amended complaint contained sufficient allegations to
proceed. The court then denied as moot the motion for leave
to amend because the first amended complaint had survived
HC1’s motion to dismiss. The district court gave Schmees a
month to renew the motion, but she opted not to seek further
amendment.
   That is, until summary judgment. In response to HC1’s
motion for summary judgment, Schmees attempted to sup-
plement her complaint with a new fraud claim via her brief-
ing. The district court granted summary judgment for HC1,
finding the new fraud claim was beyond the scope of the com-
plaint and declining to treat her response brief as a de facto
amendment to the complaint.
    On appeal, Schmees challenges the district court’s deci-
sions to deny her leave to amend at both points. But the dis-
trict court did not abuse its discretion in making either ruling.
After concluding that Schmees had sufficiently stated her
fraud claims, adding new facts supporting those claims was
unnecessary. What’s more, the court invited Schmees to seek
leave again, but she never did so. And at summary judgment,
it was too late for Schmees to add a new claim beyond the
scope of the complaint. We affirm.
No. 22-1214                                                    3

                                I
    HC1.COM is a technology company that provides cloud-
based software to clients in the healthcare industry. As part of
its efforts to grow its customer base in late 2017, HC1 created
an account executive position focused on the post-acute care
market. HC1 interviewed Rachael Schmees for the position in
early October 2017. During the interview, the chief operating
officer told Schmees that the company’s finances were secure,
and it was in “an ideal position for [Schmees] to thrive.” HC1
offered Schmees the job, and she immediately accepted.
Schmees’s offer letter included a provision that made her em-
ployment contingent on her subsequent signing of an Em-
ployee Confidentiality and Non-Solicitation Agreement
(“Agreement”). Schmees started working for HC1 on Decem-
ber 11 and signed the Agreement on December 13.
    Schmees’s first week at HC1 was also her last. By the time
she had started, the company was already facing troubles in
the post-acute care market. On December 8, members of
HC1’s board of directors began discussing the company’s re-
sponse, including cutting expenses and raising additional
capital. Three days later, the board voted to eliminate the re-
cently created post-acute care positions, including Schmees’s.
A week later, HC1 informed Schmees that the company had
eliminated her position and terminated her employment.
    Schmees sued HC1, alleging fraud, fraudulent induce-
ment, promissory estoppel, and intentional infliction of emo-
tional distress. The first amended complaint alleged that HC1
knew that her position was on the chopping block by Decem-
ber 8. It also stated that the COO made false statements dur-
ing her October 2017 interview (that the company was in ex-
cellent financial condition and had a job for her to thrive) that
4                                                  No. 22-1214

had fraudulently induced Schmees to resign from her former
employer. The first amended complaint contained no men-
tion of reliance on the Agreement or that HC1 eliminated her
position before she signed the Agreement.
    HC1 moved to dismiss the first amended complaint. After
the motion had been fully briefed for three months, Schmees
moved for leave to file a second amended complaint. The mo-
tion sought to add new allegations that HC1 knew that
Schmees’s position would be eliminated before she started
working there but failed to tell her. HC1 opposed Schmees’s
motion for leave to file a second amended complaint, arguing
in part that Schmees added new facts—not new claims—so
whether to grant leave to amend might be moot.
    The district court denied HC1’s motion to dismiss
Schmees’s fraud and fraudulent inducement claims. (It dis-
missed other claims not relevant to this appeal.) In the same
order, the district court denied Schmees’s motion to file a sec-
ond amended complaint as moot—Schmees had argued that
the amendment only added new facts in support of the first
amended complaint’s claims. Even so, the court gave Schmees
thirty days to refile a motion seeking leave to amend. She did
not refile.
    Following discovery, HC1 moved for summary judgment
on the remaining fraud claims. Schmees’s response opposing
HC1’s motion for summary judgment argued that when HC1
gave her the Agreement on December 12 and asked her to en-
ter into it on December 13, HC1 committed fraud because it
had already eliminated the position. Her response brief em-
phasized that there were two instances of fraud perpetuated
by HC1—the false statements about the financial health of the
company (alleged in the operative complaint) and the new
No. 22-1214                                                       5

conduct-based fraud (identified in her summary judgment
brief). Schmees conceded that this latter conduct-based fraud
claim was a new claim but asked the district court to amend
her pleadings at summary judgment.
    The district court declined and granted summary judg-
ment for HC1. It concluded that the new fraud claim based on
the presentation of the Agreement was beyond the scope of
the complaint, and that Schmees’s renewed attempt to amend
the complaint by a footnote in her summary judgment brief
came too late.
                                 II
     To begin, Schmees argues the district court abused its dis-
cretion by concluding that her motion for leave to file a second
amended complaint was moot. We review the denial of leave
to amend for abuse of discretion. Lee v. NE. Ill. Reg’l Commuter
R.R. Corp., 912 F.3d 1049, 1052 (7th Cir. 2019). District courts
are to “freely give leave [to amend] when justice so requires.”
Fed. R. Civ. P. 15(a)(2). In evaluating a denial of leave to
amend, we consider whether it caused prejudice to the plain-
tiff, which “ordinarily requires a party to show how she
would have amended her pleading … in the district court, un-
less the court closed that door[.]” Law Offs. of David Freydin,
P.C. v. Chamara, 24 F.4th 1122, 1133 (7th Cir. 2022).
    Schmees says the district court’s failure to provide a justi-
fication for the denial to amend her pleadings was an abuse
of discretion. The district court, however, denied the motion
as “moot,” for reasons that are apparent from the record. See
Access Living of Metro. Chi. v. Uber Techs., Inc., 958 F.3d 604, 616
(7th Cir. 2020) (“A court abuses its discretion if its conclusions
cannot be rationally supported by the record.”) (citation and
6                                                    No. 22-1214

quotation marks omitted). Schmees stated that her motion
was merely providing more facts to support her existing
fraud claims. When a plaintiff characterizes a new proposed
complaint in this way, district courts are not required to parse
through that material to determine whether the new facts give
rise to a new claim that the plaintiff has failed to identify. See
Alioto v. Town of Lisbon, 651 F.3d 715, 721 (7th Cir. 2011). In-
stead, the plaintiff carries the responsibility of identifying the
nature of the contents within its complaint. See id. Here, after
the district judge concluded that the first amended complaint
sufficiently stated claims for fraud, the additional factual alle-
gations became superfluous. At that point, the claim was
moving forward with or without the new allegations, so the
district court did not abuse its discretion in denying the mo-
tion to amend as moot. Schmees also cannot show any preju-
dice because the court permitted her to renew the motion, but
she declined to do so.
    Next, Schmees contests the district court’s determination
that her new conduct-based fraud claim—asserted for the first
time at summary judgment—was beyond the scope of her
complaint. We agree with the district court. The operative
first amended complaint alleged that Schmees gave up guar-
anteed employment at her old job because she relied on cer-
tain fraudulent statements about HC1’s financial stability be-
fore her employment there officially began on December 11.
That alleged fraud is separate from the new fraud claim she
asserted at summary judgment, which concerned fraudulent
conduct by HC1 after she started working at the company (i.e.,
the presentation of an Agreement on December 12 when HC1
knew her position would be eliminated). This second fraud
claim was not pleaded in the first amended complaint—a
No. 22-1214                                                       7

point that Schmees conceded in her response opposing HC1’s
summary judgment motion and again at oral argument.
    Schmees argues that HC1 had notice of the allegations sur-
rounding the Agreement, which she referenced in the pro-
posed second amended complaint and throughout the litiga-
tion. Schmees therefore contends the district court should
have allowed her to constructively amend her complaint at
summary judgment. But defendants are entitled to fair notice
of each claim against them, as required by the Federal Rules
of Civil Procedure. See Anderson v. Donahoe, 699 F.3d 989, 997
(7th Cir. 2012) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544,
545 (2007)). And we agree with the district court that
Schmees’s summary judgment briefing sought to add a new
claim, not merely a new legal theory.
     Our case law is muddled as to whether district courts have
discretion to allow amendment of a complaint through sum-
mary judgment briefing. In Chessie Logistics Co. v. Krinos Hold-
ings, Inc., 867 F.3d 852 (7th Cir. 2017), we said that if the plain-
tiff’s arguments change the complaint’s factual theory, “the
plaintiff may be attempting in effect to amend its complaint,
and the district court has discretion to deny the de facto amend-
ment and to refuse to consider the new factual claims.” Id. at
860 (emphasis added). The very next year, we wrote that “alt-
hough a plaintiff generally can alter the legal theories asserted
in its complaint, it cannot alter the factual basis of its complaint
at summary judgment. Such an alteration would be an unac-
ceptable attempt to amend the pleadings through summary
judgment argument.” BRC Rubber & Plastics, Inc. v. Cont'l Car-
bon Co., 900 F.3d 529, 540 (7th Cir. 2018) (cleaned up) (empha-
ses added). Thus, sometimes our cases say that a district court
has discretion to treat a new factual allegation presented in
8                                                     No. 22-1214

briefing as a constructive motion to amend; other times they
say that presenting new factual allegations in briefing is abso-
lutely prohibited—that district courts lack discretion to con-
sider them. Circuits appear similarly split on this issue. Adams
v. C3 Pipeline Const. Inc., 30 F.4th 943, 971 & n.12 (10th Cir.
2021) (treating new claims in briefing as a constructive motion
to amend and noting that the Sixth and Eleventh Circuits take
“a more restrictive view” like that in BRC). We take this op-
portunity to clean up our case law and provide guidance to
district courts.
    We hold that district courts retain discretion to interpret
new factual allegations or claims presented in a plaintiff’s
briefs as a constructive motion to amend. We do so for three
reasons.
    The first is textual. The Federal Rules of Civil Procedure
coexist, for the most part, in harmony. They contain no blan-
ket prohibition like that mentioned in BRC or recognized by
some other circuits. See, e.g., Jackson v. Gautreaux, 3 F.4th 182,
188–89 (5th Cir. 2021). The proposed blanket prohibition finds
a ready home in none of Rule 8 (pleading requirements), Rule
15 (amendment), or Rule 56 (summary judgment). However
well-intentioned the blanket rule is, we decline to locate it in
the Rules’ interstices. Doing so would be all the more odd
given that Rule 15(b) permits amendments during trial. If
amendments during trial are entrusted to a district court’s
discretion, amendments before trial should be, too.
    The second is precedential. Our prohibition line of cases
traces to Shanahan v. City of Chicago, 82 F.3d 776 (7th Cir. 1996),
where we held that “[a] plaintiff may not amend his com-
plaint through arguments in his brief in opposition to a mo-
tion for summary judgment.” Id. at 781. For that proposition
No. 22-1214                                                     9

we cited our earlier opinion in Car Carriers, Inc. v. Ford Motor
Co., 745 F.2d 1101 (7th Cir. 1984), which held it “axiomatic”
that a complaint may not be amended by a brief in opposition
to a motion to dismiss. Id. at 1107. But if we dig through the
authority Car Carriers relied on, we reach Chambliss v. Coca-
Cola Bottling Corp., 274 F. Supp 401 (E.D. Tenn. 1967), which
concluded only that “the practice of amending by brief seems
inappropriate.” Id. at 409. We wholeheartedly agree, but in-
appropriate and impermissible are not synonyms. Other cir-
cuits’ precedent yields similar results. Take the Fifth Circuit
as an example. The seminal case supporting a blanket prohi-
bition in that circuit seems to be Cutrera v. Board of Supervisors
of Louisiana State University, 429 F.3d 108, 113 (5th Cir. 2005)
(“A claim which is not raised in the complaint but, rather, is
raised only in response to a motion for summary judgment is
not properly before the court.”). Cutrera’s lone authority for
that proposition is Fisher v. Metropolitan Life Insurance Co., 895
F.2d 1073 (5th Cir. 1990). But Fisher held only that the district
court did not “abuse its discretion” in denying leave to
amend. Id. at 1078. In short, the blanket prohibition recog-
nized here and elsewhere rests on an unsettled foundation.
    Finally, whether a plaintiff’s argument amounts to a new
claim (generally impermissible) or a new legal theory (per-
missible) is unknowable until the district court considers and
resolves the issue. This raises both a prudential and a practical
point. On the prudential point: District courts are far better
positioned to discern whether a plaintiff’s new claims are fair
game. We are reluctant to foreclose the possibility that an im-
probable confluence of events might justify constructive
amendment. Such a confluence will be all but impossible for
a counseled plaintiff to establish. Even so, only when the gen-
eral principles governing amendment of a complaint are
10                                                              No. 22-1214

satisfied should constructive amendment be permitted. We
expect justice will rarely require leave to amend in the context
of new claims presented for the first time in opposition to a
motion for summary judgment. On the practical side: Since
she cannot know how the district court will construe her op-
position until after summary judgment is resolved, a plaintiff
may lose the opportunity to seek leave to amend if her argu-
ments are treated as a new claim. Given Rule 1’s instruction
that we interpret the Rules to promote the “just, speedy, and
inexpensive” resolution of cases, we decline to adopt a rule
that could burden courts with a slew of perhaps-unnecessary
motions to amend.
    In sum, a district court retains discretion to treat new
claims presented for the first time in briefing as a constructive
motion to amend. It will rarely be appropriate to do so. If the
district court elects to do so, it should apply the familiar
standards governing when leave to amend should be granted,
paying particular attention to the potential for prejudice to
other parties. The practical effect of today’s holding should be
negligible. As we said at the outset, our goal is to clean up an
inconsistency we detected in our precedents, nothing more. *
    Returning to the particulars of this case: The district court
did not abuse its discretion by declining to treat Schmees’s
new allegations as a constructive motion to amend. Schmees
first offered the facts to support her new claim in her pro-
posed second amended complaint, the one the district court
denied as unnecessary. When it did so, the district court

*   We circulated this opinion to the full court pursuant to Circuit Rule 40(e)
    because it abandons the parts of our cases recognizing a blanket prohibi-
    tion on constructive amendment through briefing. No judge favored re-
    hearing en banc the question of whether to disavow our bright line rule.
No. 22-1214                                                  11

granted Schmees thirty days to explain why the second
amendment was necessary. She declined the invitation. Hav-
ing rejected the opportunity to properly add the factual un-
derpinnings for the new claim, justice did not require that
Schmees be allowed to smuggle it into the case through her
summary judgment briefing.
    Schmees’s counterarguments are unpersuasive. She tries
to distinguish Andersonv. Donahoe, 699 F.3d 989 (7th Cir. 2012),
by saying the district court relied on Rule 9(b)’s particularity
requirement, which wasn’t at issue in Anderson. But the dis-
trict court rooted its decision in the general rule against
amendment-by-briefing, not Rule 9(b). Schmees also says
HC1 had notice of her conduct-based fraud claim through her
(1) proposed second amended complaint, (2) statement of
claims, (3) reference to the Agreement during the settlement
conference, and (4) witness and exhibit lists. But none of this
could put HC1 on notice that Schmees was pursuing a new
claim of fraud not mentioned in the operative first amended
complaint. This is all the more true because the new claim’s
underpinnings were in the proposed second amended com-
plaint—the complaint Schmees elected not to pursue. It was
reasonable for HC1 to assume that, since she elected not to
refile that complaint, Schmees was not pursuing any claims
based on those facts. In sum, Schmees’s “attempt to amend
[her] complaint by way of a footnote in [her] response to de-
fendants’ motion for summary judgment was properly de-
nied by the district court,” Shanahan, 82 F.3d at 781, so it had
no need to consider the viability of that untimely claim.
                                                     AFFIRMED