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Sunflower Condominium Association, Inc. v. Owners Insurance Co.

United States District Court, D. Colorado

December 11, 2017

SUNFLOWER CONDOMINIUM ASSOCIATION, INC., a Colorado nonprofit corporation, Plaintiff,
v.
OWNERS INSURANCE COMPANY, Defendant.

          RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE

          Nina Y. Wang United States Magistrate Judge.

         This matter comes before the court on Defendant's Motion for Leave to File Amended Answer and Counterclaims (“Motion to Amend Answer”). [#80, filed September 18, 2017]. The Motion to Amend Answer is before the undersigned Magistrate Judge pursuant to the Order Referring Case dated January 20, 2017 [#27] and the memorandum dated September 18, 2017 [#81]. After carefully reviewing the Motion and related briefing, the entire case file, and the applicable case law, I respectfully RECOMMEND that the Motion to Amend Answer be GRANTED.[1]

         PROCEDURAL BACKGROUND

         Plaintiff Sunflower Condominium Association, Inc. (“Sunflower” or “Plaintiff”) initiated this civil action by filing a Complaint in the District Court for Arapahoe County, Colorado on September 28, 2016. See [#4]. The dispute arises between Plaintiff, a multi-family homeowners association, and Defendant Owners Insurance Company (“Owners” or “Defendant”), regarding Defendant's alleged breach of its insurance contract.[2] Owners filed its Answer on January 20, 2017. See [#22]. The court has subject matter jurisdiction over this action pursuant to 28 U.S.C. 1332.

         The Amended Complaint asserted two causes of action for Breach of Contract and Declaratory Relief arising from Owners's alleged failure to compensate Plaintiff pursuant to an insurance policy and agreement (“Insurance Contract”) for damage caused to covered property (the “Property”) by a September 29, 2014 wind and hailstorm. See generally [#20]. On December 23, 2015, Sunflower submitted an insurance claim to Owners related to damages resulting from the storm, and Owners assigned its adjusters to investigate and report on the loss to the Property. [#62 at ¶¶ 18, 22]. On March 13, 2016, Sunflower, through its public adjuster, Matrix Business Consulting, Inc. (“Matrix”), received an estimate of the damages from Owners's adjuster, Gary Stevens, with a replacement cost value of $857, 233.89 and an actual cash value of $590, 458.91. [#86 at 2]. On May 4, 2016, Owners received a sworn statement and proof of loss of damage to the Property prepared by R3NG, LLC (“R3NG” and “R3NG Estimate, ” respectively), in the amount of $1, 808, 692.36. Id. In August 2016, Owners paid Sunflower $515, 458.91 for the undisputed amount of the claim. [#62 at ¶ 38]. Owners based this amount off of the estimate authored by Mr. Stevens in March 2016. [#86-2 at 125:8-125:11]. In April 2017, Owners tendered a supplemental payment of $92, 951.05, for a total of $608, 409.96. [#80-1 at 19].

         On February 2, 2017, this court held a Scheduling Conference, at which the undersigned set a deadline of March 20, 2017 for the joinder of parties and amendment of pleadings and August 2, 2017 as the discovery deadline. See [#35, #36]. On March 20, 2017, Plaintiff filed a motion to amend its pleading to add allegations that Owners had acted in bad faith in refusing to fully compensate it for the damages, and corresponding claims for statutory bad faith pursuant to Colo. Rev. Stat. §§ 10-3-1115, 1116 and common law bad faith. See [#40]. On April 28, 2017, this court issued a Recommendation that Plaintiff's motion to amend be granted. [#47]. The court accepted and adopted the Recommendation on May 30, 2017, [#52], and the Second Amended Complaint was filed the same day, see [#53].

         Approximately two weeks later, on June 13, 2017, Plaintiff sought without opposition to amend its pleading to remove any claim to or allegation regarding emotional damages. See [#59]. On June 13, 2017, the court accepted the Third Amended Complaint, which is Plaintiff's operative pleading. [#62]. On June 19, 2017, the undersigned granted Owners's unopposed motion to extend the discovery deadline to August 21, 2017. See [#65]. Owners filed an Answer to the Third Amended Complaint on June 27, 2017. [#66]. On August 22, 2017, the undersigned granted Plaintiff's unopposed motion to extend the discovery deadline to October 16, 2017 and the dispositive motion deadline to October 30, 2017. See [#74]. This court sua sponte continued the Final Pretrial Conference from November 1, 2017 to January 5, 2018. Id.

         On September 18, 2017, Owners filed the pending Motion to Amend Answer, [#80], seeking to add an affirmative defense related to language in the Insurance Contract pertaining to acts of concealment, misrepresentation, or fraud, and to add two counterclaims for Recoupment and Breach of Contract. See [#80-1]. Plaintiff filed a Response on October 10, 2017, [#86], and Owners filed a Reply on October 24, 2017, [#90]. The matter is now ripe for disposition.

         STANDARD OF REVIEW

         I. Federal Rules of Civil Procedure 15 and 16

         Owners filed the Motion to Amend Answer after the expiration of the deadline for amendment of pleadings and joinder of parties as specified in this court's Scheduling Order. Therefore, this court considers the Motion pursuant to a two-step inquiry. First, the court reviews whether the moving party demonstrates good cause pursuant to Rule 16(b) of the Federal Rules of Civil Procedure. See Gorsuch, Ltd., B.C. v. Wells Fargo Nat'l Bank Assoc., 771 F.3d 1230, 1242 (10th Cir. 2014); SIL-FLO, Inc. v. SFHC, Inc., 917 F.2d 1507, 1518 (10th Cir. 1990). Next, the court weighs whether the amendment should be allowed pursuant to Rule 15(a). Gorsuch, 771 F.3d at 1242. Cf. Fernandez v. Bridgestone/Firestone, Inc., 105 F.Supp.2d 1194, 1195 (D. Colo. 2000) (applying only Rule 15 when the deadline set for amendment in the Scheduling Order has not yet passed).

         Rule 16(b) provides that a scheduling order “may be modified only for good cause and with the judge's consent.” Fed.R.Civ.P. 16(b)(4). “In practice, this standard requires the movant to show the ‘scheduling deadlines cannot be met despite [the movant's] diligent efforts.'” Gorsuch, 771 F.3d at 1240 (citing Pumpco, Inc. v. Schenker Int'l, Inc., 204 F.R.D. 667, 668 (D. Colo. 2001)). This burden is satisfied, for example, when a party learns of new information in a deposition, or that the governing law has subsequently changed. Id. “Rule 16(b) does not focus on the bad faith of the movant, or the prejudice to the opposing party. Rather, it focuses on the diligence of the party seeking leave to modify the scheduling order to permit the proposed amendment.” Colo. Visionary Acad. v. Medtronic, Inc., 194 F.R.D. 684, 687 (D. Colo. 2000). The party seeking an extension is normally expected to show at least good faith on its part and some reasonable basis for not meeting the deadline. Deghand v. Wal-Mart Stores, Inc., 904 F.Supp. 1218, 1221 (D. Kan. 1995).

         By contrast, Rule 15(a) provides that leave to amend “shall be freely given when justice so requires.” Fed.R.Civ.P. 15(a). The court may refuse leave to amend upon a showing of undue delay, undue prejudice to the opposing party, bad faith or dilatory motive, failure to cure deficiencies by amendments previously allowed, or futility of amendment. Frank v. U.S. West, Inc., 3 F.3d 1357, 1365 (10th Cir. 1993). A general presumption exists in favor of allowing a party to amend its pleadings, see Foman v. Davis, 371 U.S. 178, 182 (1962), and the non-moving party bears the burden of showing that the proposed amendment is improper. Jefferson County Sch. Dist. No. R-1 v. Moody's Investor's Services, Inc., 175 F.3d 848, 859 (10th Cir. 1999). Whether to allow amendment is within the trial court's discretion. Burks v. Oklahoma Publ'g Co., 81 F.3d 975, 978-79 (10th Cir. 1996).

         II. Federal Rule of Civil Procedure 13

         Owners asserts that the proposed counterclaims are compulsory under Federal Rule of Civil Procedure 13, and that if it cannot amend its Answer to assert these counterclaims it “may be barred from asserting them in any future litigation.” [#80 at 2]. Under Rule 13, which governs the court's treatment of counterclaims, a party may bring a compulsory counterclaim or a permissive counterclaim. A counterclaim is compulsory, and therefore must be raised in an answer, if it “arises out of the transaction or occurrence that is the subject matter of the opposing party's claim, ” and if it “does not require adding another party over whom the court cannot secure jurisdiction.” Id. at 13(a)(1). A counterclaim that is not compulsory is permissive. Fed.R.Civ.P. 13(b).

         ANALYSIS

         The insurance policy (“Policy”) herein at issue contains the following provision:

         CONCEALMENT, MISREPRESENTATION OR FRAUD

         We will not pay for any loss or damage in any case of:

1. Concealment or misrepresentation of a material fact; or
2. Fraud committed by you or any other insured (“insured”) at any time and relating to coverage under this policy.

[#80-2]. Owners asserts that it discovered only recently that Sunflower violated this provision of the Policy in the following two ways: “(i) by knowingly misrepresenting the date that it discovered the property damage for which it is seeking benefits, and (ii) by submitting a knowingly inflated claim for storm damage.” [#80 at 2]. Owners also contends that amendment will not cause Plaintiff prejudice and, indeed, its “affirmative defenses already encompass many of the same issues presented by the counterclaims.” [Id.]

         Sunflower responds that the proposed affirmative defense and counterclaims are not based on new information, but on facts that “Defendant's key agents knew well in advance of the March 20, 2017 deadline to amend pleadings, ” and, therefore, Owners does not meet the Rule 16(b) standard for good cause. [#86 at 7]. Sunflower argues that even if good cause is shown, the court should deny the Motion to Amend Answer on account of “1) undue delay; 2) undue prejudice to the opposing party; and 3) futility of amendment.” [Id. at 10].

         Owners argues on Reply that while it may have been aware as of this past summer of facts to support its affirmative defense of breach of contract, it lacked the factual basis to bring an affirmative counterclaim alleging misrepresentation, as opposed to an affirmative defense based on the same theory, until recently. [#90 at 1] Owners further argues that Sunflower will suffer no prejudice because it “has been on notice since at least June 2017 regarding the same issues presented in the counterclaims.” [Id. at 2].

         I. Discovery on Which Defendant Relies

         Owners relies on the following discovery to support its contentions that Plaintiff unreasonably overestimated the cost of repairs and misrepresented the date that it discovered the storm damage. On July 31, 2017, almost one month after Owners filed the operative Answer, [#66], counsel for Owners took the deposition of David Ford, the individual public adjuster assigned to Plaintiff's claim. See [#80-13]. On August 15, 2017, counsel for Owners took the deposition of Jason Domecq, Plaintiff's cost of repair expert and the 30(b)(6) representative of R3NG. See [#80-11]. The following day, counsel for Owners took the deposition of Cassandra Fricks, a condo owner and member of Plaintiff's board, as the Rule 30(b)(6) designee of Plaintiff. See [#80-8]. And, on August 17, 2017, counsel for Owners took the deposition ...


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