United States District Court, D. Colorado
CHURCH MUTUAL INSURANCE COMPANY, a Wisconsin corporation, Plaintiff,
PHILLIP MARSHALL COUTU, an individual, POWER ADJUSTERS, INC., a Colorado corporation, JUDAH LEON BENSUSAN, an individual, and ATLANTIS CLAIMS SERVICES, LLC, a Florida limited liability company, Defendants.
RECOMMENDATION OF UNITED STATES MAGISTRATE
Y. Wang United States Magistrate Judge.
matter is before the court on Plaintiff Church Mutual
Insurance Company's (“Plaintiff' or
“Church Mutual”) Motion for Leave to File Second
Amended Complaint (“Motion” or “Motion to
Amend”), filed October 6, 2017. [#128]. The undersigned
considers the Motion pursuant to 28 U.S.C. § 636(b), the
Order Referring Case dated March 30, 2017 [#33], and the
memorandum dated October 10, 2017 [#130]. This court has
carefully reviewed the Motion and associated briefing, the
entire case file, and applicable law, and concludes that oral
argument will not materially assist in the resolution of this
matter. For the reasons stated herein, this court
respectfully RECOMMENDS that the Motion to
Amend be GRANTED.
court has discussed the background of this case in its prior
Recommendation and Orders, see e.g., [#103; #120],
and does so here only as it pertains to the instant Motion.
Plaintiff initiated this action by filing its Complaint in
this District on January 23, 2017. [#1]. Plaintiff's
Complaint alleged two claims against Defendants Phillip
Marshall Coutu, Power Adjusters, Inc. (“Power
Adjusters”), Judah Leon Bensusan, and Atlantis Claims
Services, LLC (“Atlantis Claims”) (collectively,
“Defendants”): (1) civil conspiracy and (2)
fraudulent concealment. [Id.]. The events giving
rise to Plaintiff's Complaint involved an appraisal award
issued to one of Church Mutual's policyholders for
repairs completed to the policyholder's roof following a
hailstorm. [Id.]. Plaintiff alleged that Defendants
conspired to unlawfully inflate the cost of repairs needed
for their own economic gains, as each had a stake in a higher
appraisal award. [Id.].
several extensions of time to answer or otherwise respond to
Plaintiff's Complaint, and pursuant to this court's
Order [#46], Plaintiff filed its First Amended Complaint
(“FAC”) on April 25, 2017, and asserted the
following claims: (1) civil conspiracy against all Defendants
(“Claim I”); (2) fraudulent concealment against
all Defendants (“Claim II”); (3) federal civil
violations of the Racketeer Influenced and Corrupt
Organizations Act (“RICO”) against all Defendants
(“Claim III”); (4) federal civil RICO conspiracy
against Messrs. Coutu and Bensusan (“Claim IV”);
and (5) state civil violations of the Colorado Organized
Crime Control Act (“COCCA”) against Messrs. Coutu
and Bensusan (“Claim V”). [#49]. On June 5, 2017,
Defendants filed a Joint Motion to Dismiss all five of Church
Mutual's claims [#65], which the undersigned recommended
granting in part and denying in part [#120]. Relevant here,
this court recommended dismissing Plaintiff's RICO and
COCCA claims (Claims III-V) for failure to state a claim,
because Plaintiff's those claims suffered from a similar
deficiency: the failure to plead a pattern of racketeering
activity with specificity, a necessary component to any RICO
or COCCA violation as well as to any RICO or COCCA conspiracy
claim. See [id.]. Also on June 5, 2017,
Defendants filed a Motion to Stay discovery [#64], which the
undersigned denied, and then directed the Parties to limit
discovery to the “Montview matter and the relationships
between the four Defendants.” See [#103 at 7].
Scheduling Order, this court set the deadline for joinder of
parties and amendment of pleadings as October 6, 2017.
See [#76 at 29]. Plaintiff filed the instant Motion
to Amend on October 6, 2017. [#128]. Plaintiff requests leave
to file its proposed Second Amended Complaint
(“SAC”) that includes a request for exemplary
damages pursuant to Colo. Rev. Stat. § 13-21-102 and
“addresses alleged deficiencies in Church Mutual's
RICO and COCCA claims by providing more particularity with
respect to the multiple predicate acts of wire and mail
fraud, thereby satisfying the ‘pattern' element of
Church Mutual's RICO and COCCA claims.”
[Id. at 1-2]. Defendants have filed their Response
and Plaintiff its Reply. [#135; #136]. The Motion to Amend is
now ripe for recommendation.
15(a) governs motions to amend when the moving party seeks
leave to amend its pleadings on or before the deadline for
joinder of parties and amendment of pleadings set by the
Scheduling Order. See Fernandez v. Bridgestone/Firestone,
Inc., 105 F.Supp.2d 1194, 1195 (D. Colo. 2000)
(explaining that the movant need not demonstrate good cause
under Rule 16(b) under such circumstances). Rule 15(a)(2)
provides that leave to amend “shall be freely given
when justice so requires.” Fed.R.Civ.P. 15(a)(2). 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. See
Frank v. U.S. West, Inc., 3 F.3d 1357, 1365 (10th
Cir. 1993); accord Watson v. Beckel, 242 F.3d 1237,
1239-40 (10th Cir. 2001) (observing that a court may dismiss
a motion to amend if amendment is futile, i.e., the
amended complaint would be subject to dismissal for any
reason). 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).
Exemplary Damages, Colo. Rev. Stat. § 13-21-102
Rev. Stat. § 13-21-102 governs proposed amendments
concerning exemplary damages. Pursuant to section
13-21-102(1.5)(a), a plaintiff cannot move for exemplary
damages in the initial pleading, and may seek to amend the
pleading to add a claim for exemplary damages “only
after the exchange of initial disclosures pursuant to rule 26
of the Colorado rules of civil procedure, ” and if he
or she establishes prima facie proof of a triable issue. In
finding that there is no direct conflict between this statute
and the Federal Rules of Civil Procedure and that application
of the statute would not necessarily result in forum shopping
or the inequitable administration of the law, courts in this
District have held that section 13-21-102, rather than Rules
15(a) or 16(b), control whether to permit the amendment of a
claim for exemplary damages. See Wollam v. Wright Medical
Group, Inc., No. 1:10-cv-3104-DME-BNB, 2012 WL 4510695,
at *9 (D. Colo. Sept. 30, 2012) (applying Colo. Rev. Stat.
§ 13-21-102 to motion to amend to add exemplary damages
claim); Witt v. Condominiums at the Boulders
Ass'n, No. 04- cv-02000-MSK-OES, 2006 WL 348086, at
*7 (D. Colo. Feb. 13, 2006) (finding the court must give
effect to Colorado statute in evaluating whether exemplary
damages claim properly brought in diversity action). See
also American Economy Ins. Co. v. William Schoolcraft, M.D.,
P.C., No. 05-cv-01870-LTB-BNB, 2007 WL 160951, at *2 (D.
Colo. Jan. 17, 2007) (applying Jones v. Krautheim,
208 F.Supp.2d 1173, 1179 (D. Colo. 2002)). Even with the
application of section 13-21-102, however, the court may deny
a motion to amend to add exemplary damages because of delay,
bad faith, undue expense, or other demonstrable prejudice.
Stamp v. Vail Corp., 172 P.3d 437, 449 (Colo. 2007)
13-21-102 provides that an award of exemplary damages is
permissible when “the injury complained of is attended
by circumstances of fraud, malice, or willful and wanton
conduct.” Colo. Rev. Stat. § 13-21-102(1)(a). The
purpose of the award of punitive damages is to punish the
wrongdoer, not compensate for injuries. See Lira v.
Shelter Insurance Co., 913 P.2d 514, 517 (Colo. 1996). A
“finding that the elements of fraud [are] established
also establishe[s] the ‘circumstances of fraud'
required for punitive damages.” Berger v. Sec. Pac.
Info. Sys., Inc., 795 F.2d 1380, 1386 (Colo.App. 1990)
(upholding award of exemplary damages where the plaintiff
prevailed on her fraudulent concealment claim at trial).
the requirement of a prima facie showing, “[p]rima
facie evidence is evidence that, unless rebutted, is
sufficient to establish a fact.” Stamp, 172
P.3d at 449 (citation omitted). Such proof is established by
“a reasonable likelihood that the issue will ultimately
be submitted to the jury for resolution.” Id.
(quoting Leidholt v. Dist. Court, 619 P.2d 768, 771
n.3 (Colo. 1980)). Parties may offer this proof in
the form of discovery and by evidentiary means. Id.
“The question of whether the plaintiff has established
sufficient proof to add a claim for exemplary damages lies
within the sound discretion of the trial court.”
Id. (citation omitted). In reviewing the Motion to
Amend, this court considers only the “preliminary
question” of whether Plaintiff has made a prima facie
showing that the injury complained of is attended by
“circumstances of fraud, ” not whether it will
ultimately prevail. American Economy Ins. Co., 2007
WL 160951, at *4.
Motion, Plaintiff requests leave to assert a claim for
exemplary damages based on Messrs. Coutu and Bensusan's
failure to disclose their business relationship and financial
interest in the underlying Montview appraisal award. [#128 at
3-4; #136 at 3]. Because the Parties have exchanged initial
disclosures, Church Mutual contends that it can now proffer
sufficient evidence to demonstrate a prima facie showing of
“circumstances of fraud” under Colo. Rev. Stat.
§ 13-21-102(1.5)(a), such that a claim for exemplary
damages is appropriate.
prove a fraudulent concealment claim Church Mutual must
demonstrate: (1) Defendants concealed a material fact that in
equity and good conscience should have been disclosed; (2)
Defendants knew they were concealing such a fact; (3)
Plaintiff was ignorant to the concealed fact; (4) Defendants
intended Plaintiff to act upon the concealed fact; and (5)
Plaintiff acted on the concealed fact to its detriment.
See Wood v. Houghton Mifflin Harcourt Publ'g.
Co., 589 F.Supp.2d 1230, 1254 (D. Colo. 2008) (applying
Colorado law); Baker v. Wood, Ris & Hames, Prof'l
Corp., 364 P.3d 872, 883 (Colo. 2016). “A
defendant has a duty to disclose to a plaintiff with whom he
or she deals material facts that in equity or good conscience
should be disclosed.” See Mallon Oil Co. v.
Bowen/Edwards Assocs., Inc., 965 P.2d 105, 111 (Colo.
1998) (internal quotation ...