Opinion
NO. C 05-00198 JW.
June 20, 2006
ORDER GRANTING PLAINTIFF'S MOTION FOR LEAVE TO FILE SECOND AMENDED COMPLAINT
I. INTRODUCTION
Plaintiff Santana Row Hotel Partners, LP ("Plaintiff") brings suit against Zurich America Insurance Company ("Zurich"), Gallagher-Pipino, Inc. ("Gallagher"), and Arthur J. Gallagher Co. ("AJG") alleging breach of contract and fraud. Presently before this Court is Plaintiff's motion to amend its complaint to add a claim for breach of duty against Gallagher and AJG, and to clarify two of its claims. For the reasons stated below, Plaintiff's Motion is GRANTED.
II. BACKGROUND
Plaintiff is the owner and operator of the Hotel Valencia, located in the Santana Row development. Santana Row was developed by Federal Realty Investment Trust ("FRIT"). Defendant Zurich is an insurance carrier. Defendant Gallagher is an insurance agent. Defendant AJG is the parent company of Gallagher.
Zurich issued a builder's risk insurance policy to FRIT related to the construction and development of Santana Row in May 2000. At that time, Plaintiff had leased from FRIT part of a Santana Row building for the Hotel Valencia. Zurich later added Plaintiff as an additional insured, but the date on which this occurred is in dispute. On August 19, 2002, a fire at Santana Row caused massive damage and significant delays to the hotel's scheduled opening. Following the fire, Certificates of Insurance were issued to the Plaintiff which allegedly prove that Plaintiff was insured at the time of the fire. In September 2004, Zurich paid Plaintiff $713,839; three months later, Zurich formally denied Plaintiff's claim.
Briefly stated, Plaintiff claims that (1) it is an insured under the policy issued by Zurich to FRIT; and (2) the policy covers losses it sustained in the Santana Row fire. Plaintiff seeks over $10 million in damages.
Plaintiff filed its original complaint on January 12, 2005, alleging breach of contract, tortious breach of contract in bad faith, breach of third-party beneficiary contract, and fraud. Zurich moved to dismiss the complaint; the Court denied the motion, explaining that it preferred to proceed to cross-motions for summary judgment on the issue of insurance coverage. Plaintiff obtained leave to file the First Amended Complaint (FAC) on November 16, 2005. The FAC reasserted the original claims in essentially the same form, added new claims for promissory estoppel and breach of third-party beneficiary contract, and also added AJG as a new defendant. Zurich again moved to dismiss, on essentially the same theories as its previous motion to dismiss. The Court denied the motion with regard to the older claims for the same reasons that it denied the previous motion, and also found that the allegations behind the new claims were sufficient to survive a motion to dismiss.
III. STANDARDS
Leave to amend a pleading "shall be freely given when justice so requires." FED. R. CIV. P. 15(a). Generally, leave to amend is "to be applied with extreme liberality." Owens v. Kaiser Found. Health Plan, Inc., 244 F.3d 708, 712 (9th Cir. 2001) (quotingMorongo Band of Mission Indians v. Rose, 893 F.2d 1074, 1079 (9th Cir. 1990)). Factors weighed in determining whether leave should be granted include undue delay, bad faith, futility, prejudice to the opposing party, and whether the plaintiff has previously amended his complaint . . . Nunes v. Ashcroft, 375 F.3d 805, 808 (9th Cir. 2004) (citing Bonin v. Calderon, 59 F.3d 815, 845 (9th Cir. 1995)), reh'g and reh'g en banc denied, 375 F.3d 810 (9th Cir. 2004), cert. denied, 543 U.S. 1188 (2005). In considering these factors, the consideration of prejudice to the opposing party carries the greatest weight. Eminence Capital, L.L.C. v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003). Absent undue prejudice or a strong showing of any other factors, "there exists a presumption under Rule 15(a) in favor of granting leave to amend.Id. (emphasis in original); see also In re Fritz Co. Sec. Litig., 282 F. Supp. 2d 1105, 1109 (N.D. Cal. 2003).
IV. DISCUSSION
The proposed Second Amended Complaint adds one new claim and modifies two existing claims. The new seventh claim, based on the recent case of Business to Business Markets, Inc. v. The Zurich Specialties, 135 Cal. App. 4th 165 (2005), alleges that Gallagher and AJG had a duty to secure insurance for Plaintiff, and that this duty was breached. The fourth claim is modified to additionally allege that Zurich failed to add Plaintiff as an additional insured despite taking an additional payment to do so. The sixth claim is modified to allege that an additional Certificate of Insurance was fraudulently issued, and to streamline the allegations therein.
A. Prejudice to the Opposing Party
The Second Amended Complaint will not prejudice any of the defendants. Ample time remains for Defendants to carry out whatever discovery or other preparation is necessary to respond to the new allegations in the new seventh claim; in Zurich's case, the seventh claim does not apply to it. Plaintiff's refinements to its fourth and sixth claim merely clarify Plaintiff's allegations in light of discovery, and should not impair Defendants' ability to defend their cases.
B. Undue Delay
Plaintiff filed for leave to amend within three months of learning of the basis for the seventh claim. Such a delay is not undue. Defendant points out that Exhibit B, the basis of part of the amendments to the fourth and sixth claim, was submitted in initial discovery over a year ago — a more significant delay. However, delay alone is not grounds for denying leave to amend in the absence of prejudice to the opposing party. Howey v. US, 481 F.2d 1187, 1191 (9th Cir. 1973). As noted above, there is no evidence that Defendant has been or will be prejudiced by Plaintiff's delay.
C. Futility
An amendment may be denied if the amended complaint would be futile or subject to dismissal. Saul v. United States, 928 F.2d 829, 843 (9th Cir. 1991). An amendment is futile only if no set of facts can be proved under the amendment which would constitute a valid claim or defense. Miller v. Rykoff-Sexton, Inc., 845 F.2d 209 (9th Cir. 1988). Here, Defendant argues that recent depositions prove that Plaintiff did not actually rely on one of the Certificates of Insurance that it claims it did. The Certificate of Insurance objected to, however, is not the sole support for any of Plaintiff's claims. Even if the allegations referring to it were infirm, it would still be possible for plaintiff to prove all its claims on the basis of its other allegations. As such, amendment would not render the complaint futile.
D. Previous Amendment
Leave to amend may be refused if the plaintiff has repeatedly failed to cure deficiencies by previously allowed amendments.Eminence Capital, 316 F.3d at 1052. Here, although Plaintiff has amended once before, both that amendment and the present one were intended to expand upon Plaintiff's claims, not to cure defects in the complaint.
E. Bad Faith
Leave to amend may be refused if the amendment is intended to delay trial or for some other improper purpose. There is no evidence here that the amendment is sought for any improper purpose.
F. Defendant's Argument That Justice Demands Denial
Defendant raises an additional argument against granting leave to amend in its opposition. It argues that leave to amend is granted only when justice so requires, and that here justice demands that leave to amend be refused because the complaint contains knowingly false allegations. Specifically, Defendant argues that the complaint alleges that Plaintiff relied to its detriment on documents which its designated representative said in deposition that it did not. However, a party's testimony does not necessarily constitute a judicial admission — that determination is for the trier of fact. McNeil v. Young, 201 Cal. App. 2d 488, 492 (Cal.App. 2 Dist. 1962). A motion for leave to amend is not the appropriate time to consider the impact of Plaintiff's representative's deposition.
Defendant's opposition could also be construed to argue that a knowingly false allegation is filed in bad faith and as such is reason to deny leave to amend. However, the allegedly objectionable allegations exist in the previous complaints as well. Plaintiff's amendment cannot be said to be filed for the purpose of introducing those allegations.
In light of the presumption in favor of amendment, Defendant's argument is not an appropriate reason to deny leave to amend.
V. CONCLUSION
For the reasons stated above, Plaintiff's Motion is GRANTED. Plaintiff's Proposed Second Amended Complaint submitted as Exhibit A to the Declaration of Steven A. Ellenberg in Support of Plaintiff's Motion for Leave to File Second Amended Complaint (Docket Item No. 103) is deemed filed.