Opinion
No. 85-1636-SAC.
October 2000.
MEMORANDUM AND ORDER
The case comes before the court on the plaintiffs' motion for leave to amend pleadings and their submissions for a new pretrial order. (Dk. 973). The plaintiffs advocate modifying the pretrial order to reflect the Tenth Circuit's rulings, to dismiss by stipulation several individual defendants, to conform the pretrial order to the evidence introduced at the first trial, and to clarify their constructive fraud claim. The defendants do not object to making modifications that would reflect the case's current status, but they adamantly oppose any proposed changes that would alter the fundamental nature of the plaintiff's remaining claims.
RELEVANT LAW
Rule 16(e) of the Federal Rules of Civil Procedure provides that the pretrial order "shall control the subsequent course of the action unless modified by a subsequent order." Thus, the final pretrial order "`measures the dimensions of the lawsuit both in the trial court and on appeal.'" Koch v. Koch Industries, Inc., 203 F.3d 1202, 1212 (10th Cir. 2000) (quoting Air-Exec Inc. v. Two Jacks Inc., 584 F.2d 942, 944 (10th Cir. 1978)), petition for cert. filed, 68 U.S.L.W. 3023 (Jul. 3, 2000) (No. 00-28). It necessarily follows that the final pretrial order will continue to control the course of the action on remand to the extent it is consistent with and not overruled by the appellate court's mandate.
The plaintiffs refer to Fed.R.Civ.P. 15 arguing that it and Rule 16 "tend to coalesce where an appellate decision has raised questions as to the interpretation of the causes of action pled by Plaintiffs and further has necessitated a replacement of the earlier pretrial order." (Dk. 973, p. 3). Besides citing no authority for this proposition, the plaintiffs fail to show that the Tenth Circuit's decision here raises any questions on the interpretation of the claims to be tried on remand. The new trial was ordered because of an erroneous jury instruction not an erroneous interpretation of the claims. Moreover, the court questions any "necessity" for modifying the final pretrial order in light of the Tenth Circuit's decision. That some of the claims and parties no longer remain in the case simply means the pretrial order contains unnecessary matters, but it does not alter the order's effectiveness with respect to the claims and parties remanded for a new trial. The pretrial order remains controlling whether or not it currently reflects the Tenth Circuit's disposition as to the other claims and parties that were not remanded for a new trial. The plaintiffs point to nothing in the pretrial order that is inconsistent with the Tenth Circuit's mandate on the matters to be tried on remand. Nor is there anything in the Tenth Circuit's opinion suggesting the plaintiffs should be allowed on remand to amend their contentions in the pretrial order or to plead their claims as they now see fit.
Rule 15(a) and its provision that leave to amend "shall be freely given when justice so requires" govern "pleadings," and the pretrial order is not a "pleading" enumerated in Rule 7(a). The plaintiffs cite a series of cases as permitting pleadings to be amended after remand by the appellate court. (Dk. 973, ¶. 3-4, nn. 6, 7, and 10). A close reading reveals that none of the cited circuit court cases support the argument that Rule 15(a) governs efforts to amend claims or defenses following a remand when the appeal was taken from a judgment entered after a trial where all the claims and defenses tried had been reduced to a final pretrial order.
The plaintiffs also cite Flenker v. Willamette Industries, Inc., No. 95-2480-JWL, 1999 WL 459348, at *1-2 (D.Kan. Jun. 14, 1999). Less than three weeks after the final pretrial order was entered, Judge Vratil granted summary judgment for the defendant on the ground that OSHA provided an adequate alternative remedy to the plaintiff's state retaliatory discharge claim. After receiving the Kansas Supreme Court's answer to its certification, the Tenth Circuit reversed the summary judgment order. On remand, the case was transferred to Judge Lungstrum. Flenker v. Willamette Industries, Inc., 68 F. Supp.2d 1261, 1264 (D.Kan. 1999). Judge Lungstrum apparently reopened discovery and referred the case to the magistrate judge for supplemental scheduling of these discovery matters. Flenker, 1999 WL 459348, at *2. The magistrate judge set deadlines for additional discovery and for filing motions to amend pleadings. Id. The Flenker opinion cited by the plaintiffs is the magistrate judge's opinion concerning the plaintiff's motion to amend the pleadings. The cited opinion does not address the district court's reasons for reopening discovery or for conducting supplemental pretrial proceedings. In sum, the Flenker case is procedurally unique and offers no guidance as to when Rule 15(a) should apply following remand of a case in which a final pretrial order existed.
Rule 16(e) further provides, "The order following a final pretrial conference shall be modified only to prevent manifest injustice." "[T]he burden of demonstrating manifest injustice falls upon the party moving for modification." Koch, 203 F.3d at 1222 (citation omitted). A motion to amend is committed to the district court's sound discretion. United Phosphorus, Ltd. v. Midland Fumigant, Inc., 205 F.3d 1219, 1236 (10th Cir. 2000). Factors relevant in the exercise of that discretion include:
(1) prejudice or surprise to the party opposing trial of the issue;
(2) the ability of that party to cure any prejudice;
(3) disruption to the orderly and efficient trial of the case by inclusion of the new issue;
(4) bad faith by the party seeking to modify the order.
Koch, 203 F.3d at 1222 (citations omitted). Another factor is whether the moving party acted in a timely manner. Id. at 1223.
In their brief, the plaintiffs also refer to Rule 15(b) of the Federal Rules of Civil Procedure, which provides in relevant part:
When issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any party at any time, even after judgment. . . .
The standards of Rule 15(b) govern whether the issue has been omitted from a pleading or from the pretrial order. Kirkland v. District of Columbia, 70 F.3d 629, 635 (D.C. Cir. 1995). "A party impliedly consents to the trial of an issue not contained within the pleadings either by introducing evidence on the new issue or by failing to object when the opposing party introduces such evidence." Koch, 203 F.3d at 1217 (citation omitted). "`When the evidence claimed to show that the issue was tried by consent is relevant to an issue already in the case, and there is no indication that the party presenting the evidence intended thereby to raise a new issue, amendment may be denied in the discretion of the trial court.'" Id. (quoting Hardin v. Manitowoc-Forsythe Corp., 691 F.2d 449, 457 (10th Cir. 1982)). "`[I]f the evidence or issue was within the knowledge of the party seeking modification [of the pretrial order] at the time of the [pretrial conference] . . . then it may not be allowed.'" Koch, 203 F.3d at 1217 (quoting 6A Charles A. Wright Arthur R. Miller, Federal Practice Procedure § 1527, at 287-89 (1990)). Denial of an amendment under Rule 15(b) is "not improper when `there is nothing in the record indicating the parties tried the issue by express or implied consent.'" Gold v. Local 7 United Food and Commercial Workers, 159 F.3d 1307, 1309 (10th Cir. 1998) (quoting Rios v. Bigler, 67 fed 1543, 1553 (10th Cir. 1995)).
DISCUSSION AND HOLDING
Asserting grounds of "clarification," "simplification" and "streamlining," the plaintiffs seek to amend their contentions concerning capacity at Pine Bend Refinery and concerning the reversal of the Williams Pipeline. In the same memoranda, the plaintiffs also candidly admit these amendments are intended to lessen their burden in proving a recoverable claim at trial. The plaintiffs maintain the defendants would suffer no prejudice from the "clarifying" amendments, even though the amendments arguably would reduce the plaintiffs' substantive burden at trial. The defendants argue the prejudice to them is obvious. The court will address individually the four principal amendments that the plaintiffs propose: capacity of Pine Bend Refinery, reversal of Williams Pipeline, constructive fraud legal theory, and compensatory damages for time value of money.
A. Capacity of Pine Bend Refinery
In the 1993 pretrial order, the plaintiffs set forth the following as their contentions on capacity:
Like the Tenth Circuit, 203 F.3d at 1211 n. 3, the court will treat the parties' proposed order of 1993 as a pretrial order.
As of the date of the stock sale, defendants knew but did not inform the selling shareholders that KII already was increasing, and making plans for further increasing, the crude processing capacity of the Pine Bend Refinery to approximately 145,000 B/D by June 1983; to approximately 155,000 B/D by the end of 1983; and to approximately 175,000 B/D within the next two years thereafter.203 F.3d at 1211 (italics in original). At summary judgment, these contentions were treated as three discrete capacity claims or allegations by the parties in their briefs and by the district court in its order. In the 1998 final pretrial order entered after the summary judgment ruling, the plaintiffs essentially repeated the same contentions keeping the discrete allegations of capacity increases and corresponding dates. (Dk. 676, ¶. 5-6). As demonstrated at trial, the parties prepared their cases and presented their evidence in an effort to establish their respective positions on each of these separate capacity allegations. In keeping with all of this, the court also separated into individual claims the plaintiffs' capacity allegations in jury instruction number seventeen. On appeal, the Tenth Circuit likewise recognized the plaintiffs' discrete capacity allegations:
Evidence of general market expansion, however, does not specifically support the Plaintiffs' discrete claims for crude production expansion to 145,000; 155,000; 175,000; or 200,000 B/D. Indeed, to succeed on each of these claims, the Plaintiffs must direct this court to evidence of distinct plans to expand production capacity to each specifically alleged number of barrels per day, independent of evidence demonstrating efforts to expand general markets. When the Plaintiffs' stated claims so discretely reference 145,000 B/D, 155,000 B/D, and 175,000 B/D and further include anticipated dates of accomplishment for each expansion, they must provide evidence differentiating between the three claims.203 F.3d at 1214.
After more than seven years of litigation on these discrete capacity claims, the plaintiffs now seek to change these claims by (1) deleting all references to specific barrel per day figures regarding alleged capacity increases in favor of a general range of increase, "by up to approximately 20%;" and (2) by removing any allegation of a capacity change by June of 1983 in favor of "by the end of 1983." The plaintiffs say these changes are necessary because the Tenth Circuit "construed the 1998 Pretrial Order contrary to Plaintiffs' intent so as to impose an overly-detailed evidentiary burden on the Pine Bend Refinery claim greater than that required by law." (Dk. 973, ¶. 9-10). Rather than having to prove the defendants failed to inform them of particular capacity increases anticipated by certain dates, which is the kind of proof expected with allegations of fraud that are pleaded with certainty, definiteness and particularity, the plaintiffs want a claim that relieves them of the burden to prove specific capacity increases:
"[A] proper pretrial order is `definitive,' `sharpen[s] and simplifie[s] the issues to be tried,' and `represents a complete statement of all of the contentions of the parties.'" Koch, 203 F.3d at 1221 (quoting Trujillo v. Uniroyal Corp., 608 F.2d 815, 817 (10th Cir. 1979)).
If the refinery ended up having even a 1% increase in capacity over what should have been disclosed by Defendants, that would constitute an omission or misrepresentation, and the jury would be asked to assess, under Texas law, the materiality of such a 1% misrepresentation along with any and all other misrepresentations or omissions found. Plaintiffs do not have to show any particular capacity increase in order to recover; all they have to show is that Defendants failed to disclose whatever capacity the jury finds to have occurred. The burden Defendants seek to impose on Plaintiffs is not proper under Texas law.
(Dk. 981, Plaintiffs' Reply, p. 3).
The plaintiffs have not carried their burden of proving manifest injustice without these modifications to their contentions in the pretrial order. It is disingenuous for the plaintiffs to claim any surprise by the Tenth Circuit's interpretation of the pretrial order. The Tenth Circuit's interpretation is consistent with how the plaintiffs drafted their contention in 1993, with how the parties briefed these issues on summary judgment in 1993 and 1994, with how the district court interpreted the plaintiff's claims in the summary judgment order of 1997, with how the plaintiffs then drafted their contentions for the final pretrial order in 1997 and 1998, and finally with how the district court instructed the jury in 1998. Despite full knowledge of how their contentions had been construed in the summary judgment proceedings, the plaintiffs made no attempt to draft their contentions for the final pretrial order so as to avoid discrete allegations of capacity increases. Nor did they ever seek to modify their pretrial contentions until now. This knowledge and their failure to act on it "cuts deeply against" the plaintiffs' efforts to prove manifest injustice. Joseph Mfg. Co., Inc. v. Olympic Fire Corp., 986 F.2d 416, 420 (10th Cir. 1993). "Indeed, `if the evidence or issue was within the knowledge of the party seeking modification [of the pretrial order] at the time of the [pretrial] conference or if modification would place a great burden on the opposing party, then it may not be allowed.'" Id. (quoting 6A Charles A. Wright Arthur R. Miller, Federal Practice Procedure § 1527, at 287-89 (1990)); see Koch, 203 F.3d at 1217; Correa v. Hospital San Francisco, 69 F.3d 1184, 1195 (1st Cir. 1995) (A court "should not lightly relieve a litigant from the condign consequences of its failure to list a theory of defense at that critical stage of the proceedings." (citation omitted)), cert. denied, 517 U.S. 1136 1996). As the Tenth Circuit observed in this case, "because numerous draft pretrial orders were produced over the many years of this litigation, the Plaintiffs cannot claim that they lacked opportunities to draft the order to clearly encompass their claims." 203 F.3d at 1221.
The court believes the prejudice from this proposed modification would be real and substantial to the defendants. The record bears out that the defendants focused some of their discovery efforts and all of their dispositive motion work and trial preparation on the specific amounts and specific points in time now that the plaintiffs alleged in the pretrial orders. The defendants plausibly argue that they would have to repeat certain discovery, file new dispositive motions, and change their presentations for trial. Considering that they now want to recover for as little as a one percent increase in production capacity, however it happened and whenever it occurred prior to 1984, the plaintiffs cannot show the defendants' arguments of prejudice to be exaggerated or insubstantial. That the prejudice to the defendants is due to the plaintiffs' unexplained errors in drafting their own contentions, that this case has been aggressively litigated by competent counsel for over a decade, and that both sides have spent the better part of these fifteen years honing their claims and defenses are circumstances the plaintiffs simply cannot overcome in proving their modification is needed to prevent manifest injustice. See United States v. First Nat. Bank of Circle, 652 F.2d 882, 887 (9th Cir. 1981) (discussing factors to consider, including inexcusable neglect, in determining whether to permit amendment of pre-trial order). The court denies this request to modify the pretrial order.
B. Reversal of the Williams Pipeline
At the conclusion of the first trial, the plaintiffs took the position that their allegations regarding Williams Pipeline were merely supporting factual contentions for their refinery expansion claim and were "not a `separate', `stand-alone' claim for damages." (Dk. 934, p. 27). Relying on the plaintiffs' representation, the court "left the reference to Williams Pipeline in Instruction No. 17 as a supporting factual contention but deleted all other references to Williams Pipeline as a claim on which the plaintiffs could recover." Id. This remains the law of the case, that is, the plaintiffs' allegations concerning Williams Pipeline do not state a separate claim for relief but are merely factual contentions in aid of their refinery expansion claims.
The final pretrial order of 1998 reads, in relevant part:
Contrary to these statements, defendants hid from the selling shareholders their actions and plans to increase the capacity of Pine Bend Refinery, to maintain or increase refining margins while simultaneously increasing volumes — despite the industry's downward trend — and to gain access to greater volumes of low-priced Canadian crudes. Defendants' plans also included delivering and selling the increased Pine Bend output into existing and new market territories to be accessed more effectively by the reversal of the direction of flow of the Williams Pipeline.
(Dk. 676, p. 7). The plaintiffs propose to modify the second sentence, as follows: "Defendants' plans also included delivering and selling the increased Pine Bend output into existing and new market territories to be accessed more effectively by the increased deliveries into and/or reversal of the direction of the flow of the Williams Pipeline." (Dk. 973, Attach. B, p. 9). The plaintiffs argue the evidence at trial established the defendants did not disclose the building of the eight-mile connection to the Williams Pipeline. This undisclosed connection, according to the plaintiffs, "would be expected to generate profits and additional value for Koch Industries whether or not the output actually flowed south or north when it reached the Williams Pipeline." (Dk. 973, p. 11).
As stated above, the plaintiffs carry the burden of proving manifest injustice without this modification to the pretrial order. The plaintiffs offer nothing to explain their delay in seeking to add this new interpretation and argument of evidence that was known to them before they drafted their contentions to the final pretrial order and before they presented their case in the first trial. It is true that the parties introduced evidence in the first trial regarding the construction of this eight-mile stretch of pipe. It was introduced as part of the plaintiffs' allegations that the defendants planned to increase refinery capacity and ship the increased production into the reversed Williams Pipeline. The plaintiffs, however, do not assert that during the first trial there was any evidence or argument of this eight-mile pipeline by itself, without the Williams Pipeline reversal, justifying or contributing to the refinery's expansion. Nor do they assert there was any evidence or claim presented that this eight-mile stretch of pipeline by itself was expected to generate profits and additional value for Koch Industries. If this new issue were added to the pretrial order, the defendants presumably would be entitled to take additional discovery, at least obtain new expert reports, and to file another dispositive motion if appropriate. In addition, the defendants would be required to prepare a new presentation of evidence and arguments. Considering the unexplained delay by the plaintiffs and the apparent prejudice to the defendants, the plaintiffs have not proved manifest injustice without this modification. The court denies the plaintiffs' request to add this contention.
C. Constructive Fraud Theory
At the instruction conference in the first trial, the court commented as follows about the plaintiffs' proposed constructive fraud instruction:
However, I do wish to just address briefly the constructive fraud that counsel has raised. And I don't believe that the pretrial order adequately addresses the Texas constructive fraud claim. In the pretrial order, all of the Plaintiffs' breach of fiduciary duty claims are governed by Kansas law. The Plaintiff lists common-law fraud as a Texas claim. And in Texas, the breach of fiduciary duty or confidential relationship is virtually the same tort as constructive fraud. And I cite United Teachers Association versus McKeen and Bailey, 847 F. Supp. 521, a western district of Texas case, 1994. The Court does not believe that the Plaintiffs have properly preserved this claim in the pretrial order.
(Dk. 923, Trial Trans. ¶. 6999-7000). On appeal, the plaintiffs argued the district court erred in not amending the pretrial order pursuant to Fed.R.Civ.P. 15(b) to include their constructive fraud claim. The Tenth Circuit held the district court did not abuse its discretion in declining to amend the pretrial order and further found that the plaintiffs waived their challenge to the district court's reading of the pretrial order. 203 F.3d at 1234-35.
The plaintiffs now move to include their claim for constructive fraud in the pretrial order. The plaintiffs say this is simply an effort to make it "explicitly clear that constructive fraud is part of the Texas fraud claim which has now been remanded for trial by the Tenth Circuit." (Dk. 981, p. 6). The plaintiffs say they have not had their day in court on this claim, because Texas law uses a standard of subjective materiality for claims of constructive fraud/breach of fiduciary duty.
The court denies this request to modify the pretrial order. First, there is nothing in the Tenth Circuit's opinion and mandate to suggest this proposed constructive fraud claim is part of the plaintiffs' common-law fraud claim to be tried on remand. Second, the plaintiffs offer no grounds for the court to reconsider its ruling that under Texas law a claim for constructive fraud is virtually the same tort as breach of fiduciary duty and that the Texas plaintiffs stipulated in the pretrial order to bringing their fiduciary duty claims under Kansas law. By stipulating to Kansas law, the plaintiffs necessarily waived their right to assert essentially the same common-law claim under Texas law. Having lost on their common-law fiduciary duty claims under Kansas law, the plaintiffs may not inlay a Texas label and get another venture at it.
D. Compensatory Damages for Time Value of Money
The plaintiffs seek to amend their contentions concerning this damage element. The amendment would work a substantive change in their theory on the availability of such damages. The plaintiffs do not explain the circumstances for waiting until now to request this modification. The plaintiffs make no attempt to carry their burden of proving manifest injustice without this requested modification. For this reason alone, the court denies the plaintiff's request.
E. Other Requested Modifications
To the extent that the parties can agree on any suggested modifications to the pretrial order, the court may consider making them. In the absence of any joint submission from the parties, the court is content to work from the existing final pretrial order and to proceed to trial on the plaintiffs' common-law and statutory fraud claims under Texas law as they have been set out in this pretrial order.