Opinion
Civil Action No. 99-655(WHW).
October 20, 1999
OPINION
Before the Court is a motion by plaintiff for leave to file an amended complaint pursuant to Federal Rule of Civil Procedure 15(a). Defendant filed opposition. The Court heard oral argument on October 7, 1999. For the reasons set forth below, plaintiff's motion is granted.
Background
This motion arises out of an action brought by plaintiff BTC Electronic Components, Inc. ("BTC") alleging breach of contract and illegal price discrimination against defendant AMP, Inc. ("AMP"). BTC is seeking to amend its complaint to add allegations of fraudulent concealment and to add a fourth count of common law fraud.
BTC sells and distributes electrical and electronic connectors, interconnection systems, components and assemblies. (Complaint at ¶ 5) AMP manufactures electrical and electronic connectors, interconnection systems, components and assemblies. (Id. at ¶ 7). Beginning in 1983 and continuing through 1996, BTC was a distributor of electrical and electronic connector devices for AMP and/or its wholly-owned subsidiary, Matrix Science Corporation ("Matrix").
Prior to January 1, 1995, AMP manufactured and distributed these products through, inter alia , Matrix. (Complaint at ¶ 8) On or about January 1, 1995, Matrix was merged into AMP and became AMP's Matrix Science Division ( Id . at ¶ 9)
The dispute in this case centers around three agreements between the parties. Under the first agreement, executed in 1992 (the "1992 Agreement"), BTC was to remain a stocking and value added distributor of Matrix electronic and electrical connection devices for a term of at least three years. (Id. at ¶ 19). The 1992 Agreement provided, inter alia, that Matrix's "prices, terms and conditions to BTC on all products, assemblies and services sold and supplied to BTC shall be no less favorable than the most favorable prices, terms and conditions at which Matrix Science supplies or sells any such product, assembly or service to any other party in substantially equivalent, or lesser, volumes within three (3) months of selling or supplying any such product assembly or service to BTC." (Id. at ¶ 20) This type of provision is also referred to as a "most favored nations" clause.
The second agreement was entered into by BTC and AMP in 1993 (the "1993 Agreement"). On or about January 1 of that year, BTC and AMP executed a distributorship agreement. (Id. at ¶ 21). Pursuant to the 1993 Agreement, BTC served as a stocking and value added distributor of AMP's electronic and electrical connection devices, which were sold through AMP's Distributorship Marketing Division. Id.
The third agreement, executed in 1995, was a letter agreement between BTC and AMP (which by this time included Matrix) extending the business relationship between the parties (the "1995 Agreement"). (Id. at ¶ 24) This agreement also contained a "most favored nations" clause. (Id. at ¶ 25)
BTC claims that at some point after entry into the 1995 Agreement, it discovered that AMP and Matrix had been selling products and assemblies to BTC on prices, terms and conditions that were less favorable than those offered to certain other of AMP's customers, allegedly in violation of the 1992 and 1995 Agreements. (Id. at ¶¶ 28-35) Therefore, on February 16, 1999, BTC filed its complaint in this matter, alleging breach of contract, breach of the implied covenant of good faith and fair dealing and unlawful price discrimination.
On August 27, 1999, defendant filed a motion for partial summary judgment. Through this summary judgment motion, currently pending before the District Judge, AMP seeks to preclude BTC's claim for damages for the period from February 18, 1992 to February 15, 1995. AMP argues that the applicable four-year statute of limitations bars BTC's damage claims prior to February 16, 1995 and further argues that BTC is precluded from seeking damages after BTC terminated the parties contractual arrangement effective December 16, 1996.
Plaintiff has filed this motion to amend its complaint in direct response to defendant's summary judgment motion. Plaintiff's counsel admits that "[i]n reviewing and investigating the matters raised in defendant's motion for summary judgment, it became apparent that plaintiff had the basis to, and should, plead in response to defendant's statute of limitations defense that AMP had engaged in a fraudulent scheme to actively conceal the fact that it was discriminating against BTC with regard to prices, terms and conditions on which it was offering and selling products and assemblies to BTC." (Kaplan Cert. at ¶ 7) Further, counsel states that while it was reviewing the basis for the allegation of fraudulent concealment, it was also determined that BTC had a claim for common law fraud. (Id. at ¶ 8) Plaintiff's counsel asserts that BTC's failure to plead these matters in the original complaint was "purely the result of inadvertence." (Id. at ¶ 10)
Discussion
Federal Rule of Civil Procedure 15 governs the amendment of pleadings. Under Rule 15(a), a party may amend its pleading once as a matter of course at any time before a responsive pleading is served. Once a response to a party's pleading is served, the pleading may be amended "only by leave of court or by written consent of the adverse party." Fed.R.Civ.P. 15(a). In this case, AMP served its answer on April 8, 1999, and AMP opposes the amendment. Therefore leave of the Court is required for BTC to amend its complaint.
Leave to amend a pleading "shall be freely given when justice so requires." Fed.R.Civ.P. 15(a). In an effort to "ensure that a particular claim will be decided on the merits rather than on technicalities," Dole v. Arco Chem. Co., 921 F.2d 484, 487 (3d Cir. 1990); the Third Circuit has "shown a strong liberality in allowing amendments under Rule 15(a)." Bechtel v. Robinson, 886 F.2d 644, 652 (3d Cir. 1989).
The Supreme Court has held that while leave to amend under Rule 15 is not without limits, it should be denied only in certain exceptional circumstances. Foman v. Davis, 371 U.S. 178, 182 (1962). The Foman Court articulated the standard as follows:
In the absence of any apparent or declared reason — such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of amendment., etc. — the leave sought should, as the rules require, be `freely given.'371 U.S. at 182.
Thus, leave to amend may be denied where there is (1) undue delay; (2) bad faith or dilatory motives; (3) undue prejudice to the opposing party; (4) repeated failures to correct deficiencies with previous; and (5) futility of the amendment. Riley v. Taylor, 62 F.3d 86, 90 (3d Cir. 1995). Defendant in the case at bar argues that plaintiff's motion should be denied because there has been undue delay, undue prejudice, and bad faith. Further, defendant argues plaintiff's amendments would be futile.
I. Prejudice and Undue Delay
With respect to the factors set forth in Foman, the Third Circuit has held that "`prejudice to the nonmoving party is the touchstone for the denial of the amendment.'" Bechtel, 886 F.2d at 652. Prejudice has been defined as "undue difficulty in prosecuting [or defending] a lawsuit as a result of a change in tactics or theories on the part of the other party." Deakyne v. Comm'rs of Lewes, 416 F.2d 290, 300 (3d Cir. 1969). The burden rests on the nonmoving party to prove such prejudice. Kiser v. General Elec. Corp., 831 F.2d 423, 428 (3d Cir. 1987). A mere claim of prejudice is not sufficient; there must be some showing that by the nonmoving party that it "was unfairly disadvantaged or deprived of the opportunity to present facts or evidence which it would have offered had the . . . amendments been timely." Id. (quoting Heyl Patterson Int'l, 663 F.2d 419, 426 (3d Cir. 1981)).
Additionally, it should be noted that the passage of time, without more, does not require that a motion for leave to amend be denied. Adams v. Gould, 739 F.2d 858, 868 (3d Cir. 1984). The Third Circuit has determined, however, that at some point the delay becomes "undue", and places an unwarranted burden on the court, or it becomes "prejudicial," and places an unfair burden on the opposing party. Id.
There clearly has been a delay by plaintiff in seeking to plead its allegations of fraud and fraudulent concealment. It appears plaintiff has been aware of the facts making up these allegations for over four years and the Court presumes plaintiff's counsel, who has represented plaintiff on various matters for the past 10 years, had knowledge of these facts when the complaint was filed. It is difficult for the Court to accept that these allegations were omitted from the original complaint as a result of "innocent inadvertence," as the plaintiff claims.
However, the question before the Court is whether such delay is undue or prejudicial. Procedurally this case is in an early stage. The action was commenced on February 16, 1999, and the answer filed on April 8, 1999. Written discovery has only recently been served. Defendant would not be required to expend significant additional resources to conduct further discovery were the amendment to be permitted. Defendant also retains the full benefits of its pending summary judgment motion. Furthermore, this is not a situation where the amendment is sought at such a late stage in the litigation so as to cause a delay of the final disposition of the case.
Most importantly, defendant has not shown that it "was unfairly disadvantaged or deprived of the opportunity to present facts or evidence" as a result of plaintiff's delay in seeking the amendment. See Kiser, 831 F.2d at 428. Defendant claims that during the four and a half years it took for plaintiff to make these allegations of fraud, corporate changes have occurred at AMP causing "prejudice to AMP as to its ability to defend these charges." (Def. Brief at 4) However, it must be noted that plaintiff could amend its complaint as of right until April 8, 1999, when defendant filed its answer. Further, defendant has failed to articulate facts which demonstrate specifically how it has been prejudiced, e.g., which witnesses or evidence are no longer available as a result of the delay. See id. (a mere claim prejudice is not sufficient). As a result, the Court cannot conclude that any delay in plaintiff seeking to amend its complaint is undue or prejudicial.
Defendant argues plaintiff's actions in the case sub judice are analagous to the facts of GSS Properties, Inc. v. Kendale Shopping Center, Inc., 119 F.R.D. 379 (M.D.N.C. 1988), where the court denied plaintiff's motion to amend its complaint based plaintiff's on "blatant" delay in seeking the amendment coupled with a finding of bad faith. InGSS Properties, the plaintiff sought to amend its complaint to add to fraud and unfair trade practices claims based on the defendant's alleged wrongful conduct in the sale of a shopping center. The court found that the plaintiff clearly knew of the facts constituting the amendment prior to filing the complaint. Although the original complaint had only been filed three months previously, the court found plaintiff's delay in amending the complaint was "blatant" in the sense that plaintiff knew of the facts prior to filing the action, "yet did not make the proposed causes of action part of the original complaint and . . . went through an initial pretrial conference and scheduling order . . . without disclosing to the court that amending the complaint was a possibility." Id. at 380-81.
Indeed, BTC knew of the facts making up the proposed amendment prior to filing its complaint, yet did not include such in its original complaint. BTC also attended an initial pretrial conference without ever disclosing to the Court or AMP that an amendment to the complaint was a possibility. As such, the Court does not hesitate to deem BTC's delay "blatant." However, as the court in GSS Properties noted, even such blatant delay is normally not itself sufficient to deny a motion to amend. Id. at 381. The plaintiff's motion in GSS Properties was denied because the court found that the plaintiff's actions constituted bad faith, and for the reasons discussed further infra this Court finds that the actions of BTC do not rise to the level of bad faith.
II. Bad Faith
As discussed previously, a finding of bad faith is an adequate basis for denying a motion for leave to amend. See Foman v. Davis, 371 U.S. 178, 182 (1962). Courts may consider the motives underlying a motion for leave to amend, and if a court "determines that the amendment was asserted in bad faith . . . the court may not allow the amendment . . . ." See 6 Charles Alan Wright, Federal Practice and Procedure § 1487 (2d ed. 1990). "Bad faith amendments are those which may be abusive or made in order to secure some ulterior tactical advantage." GSS Properties, Inc., 119 F.R.D. at 381.
While it is difficult for the Court to accept that plaintiff omitted its allegations of fraud in the original complaint as a result of mere inadvertence, neither does the court believe plaintiff withheld the allegations for some wrongful ulterior purpose. In GSS Properties, the court found bad faith where it determined plaintiff's motion to amend had an ulterior purpose of either attempting to force the defendant to settle or punishing the defendant for failing to settle. In the case at bar, the Court finds that, at most, plaintiff's counsel made a strategic decision to omit the allegations from the original complaint; a decision it now seeks to correct. The Court does not find that this constitutes bad faith.
III. Futility
Defendant argues that the claim in the proposed fourth count of the amendment complaint, common law fraud, is futile because Pennsylvania's two year statute of limitations applies and therefore the fraud count is timebarred. Courts have recognized that futility is an appropriate, independent ground for denying leave to amend. See Allied Erecting Dismantling Co. v. United States Steel Corp., 786 F. Supp. 1223, 1227 (W.D.Pa. 1992). An amendment is futile if "the claim . . . is not accompanied by a showing of plausibility sufficient to present a triable issue." Harrison Beverage Co. v. Dribeck Importers, Inc., 133 F.R.D. 463, 468 (D.N.J. 1990).
A finding of futility requires an analysis under Federal Rule of Civil Procedure 12(b)(6). See Massarsky v. General Motors Corp., 706 F.2d 111, 125 (3d Cir. 1983). When considering a motion to dismiss under Rule 12(b)(6), a court must view all allegations in a light most favorable to the plaintiff. See Markowitz v. Northeast Land Co., 906 F.2d 100, 103 (3d Cir. 1990). Furthermore, the court must (1) accept as true the facts pleaded in the complaint and (2) accept any and all reasonable inferences derived from those facts. See Unger v. National Residents Matching Program, 928 F.2d 1392, 1400 (3d Cir. 1991). Although this determination does not require the parties to engage in formal motion practice upon the amended claim, it does require that the proposed assertion be "well-grounded in fact or law [such] that it is not a frivolous pursuit."Harrison Beverage, 133 F.R.D. at 469.
The parties disagree as to whether the applicable limitations period for the proposed fraud count is governed by Pennsylvania law, which has a two year limitation period, or New Jersey law, which has a six years limitation period. As a federal court sitting in diversity jurisdiction, this Court must apply the choice of law rules of the state in which it sits. Klaxon v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, (1941). Thus, the Court must look to New Jersey's choice of law rules to determine whether a New Jersey court would apply the limitations period from New Jersey or Pennsylvania to the proposed fraud count.
New Jersey's general rule is that the forum state's limitations period applies. Dent v. Cunningham, 786 F.2d 173, 176 (3d Cir. 1986). The Supreme Court of New Jersey has noted, however, that in certain narrowly defined circumstances, its courts should borrow the limitations period of the jurisdiction creating the substantive cause of action. See Heavner v. Uniroyal, Inc., 63 N.J. 130, 141, 305 A.2d 412 (1973). Courts interpreting Heavner have found that it extends the "governmental interest" analysis previously reserved for choice of substantive law to conflicts of law concerning statutes of limitations. See Schum v. Bailey, 578 F.2d 493, 495 (3d Cir. 1978) ("We glean from Heavner that the critical determination underlying the "borrowing" of a foreign statute of limitations is a determination as to whether a foreign substantive law is to be applied."); Henry v. Richardson-Merrell, Inc., 508 F.2d 28, 32 (3d. Cir. 1975) ("In determining whether the present cause of action is timebarred, New Jersey choice of law rules . . . require a determination of which law will govern the merits of the case.").
In Henry, the Third Circuit characterized New Jersey's governmental-interest approach to conflict of law questions as one requiring the following two-step analysis: "[t]he court determines first the governmental policies evidenced by the laws of each related jurisdiction and second the factual contacts between the parties and each related jurisdiction." Henry, 508 F.2d at 32.
New Jersey decisions have recognized the state's strong interest in the compensation of its domiciliaries for the tortious conduct of others.See Pine v. Eli Lilly Company, 201 N.J. Super. 186, 192, 492 A.2d 1079, 1082 (1985) ("In most instances, [New Jersey] courts, as well as the Third Circuit, have favored applying New Jersey law in tort actions where the plaintiff is domiciled in New Jersey."). BTC is a New Jersey corporation, which was located and headquartered in Old Bridge, New Jersey until 1996. BTC purchased, distributed and sold products from its Old Bridge location until 1998. Therefore, at the time the alleged fraud took place, BTC principal place of business was New Jersey.
Applying the foregoing, the Court concludes that New Jersey's six-year statute of limitations would likely apply to the common law fraud count and plaintiff would withstand a motion to dismiss on that issue. As a result, the proposed fourth count of common law fraud is not futile. As such, the Court grants plaintiff's motion for leave to amend and add the fourth count of common law fraud in addition to the allegations of fraudulent concealment.
Conclusion
For the reason's stated above, plaintiff's motion to amend its complaint pursuant to Federal Rule of Civil Procedure 15 is granted. An appropriate order follows.
ORDER
Before the Court is a motion by plaintiff for leave to file an amended complaint pursuant to Federal Rule of Civil Procedure 15(a). Defendant filed opposition. The Court heard oral argument on October 7, 1999. For the reasons set forth in the attached opinion,
IT IS on this 20th day of October, 1999
ORDERED that plaintiff's motion to amend its complaint is GRANTED.