United States District Court, D. Colorado
SUNFLOWER CONDOMINIUM ASSOCIATION, INC., a Colorado nonprofit corporation, Plaintiff,
OWNERS INSURANCE COMPANY, Defendant.
RECOMMENDATION OF UNITED STATES MAGISTRATE
Y. Wang United States Magistrate Judge.
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.
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. 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.
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
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].
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.
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.
Federal Rules of Civil Procedure 15 and 16
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).
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).
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).
Federal Rule of Civil Procedure 13
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).
insurance policy (“Policy”) herein at issue
contains the following provision:
MISREPRESENTATION OR FRAUD
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
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].
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].
Discovery on Which Defendant Relies
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 ...