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UNR INDUSTRIES INC. v. CONTINENTAL INS.
April 9, 1985
UNR INDUSTRIES, INC., ET AL., PLAINTIFFS,
CONTINENTAL INSURANCE COMPANY, ET AL., DEFENDANTS.
The opinion of the court was delivered by: William T. Hart, District Judge.
MEMORANDUM OPINION AND ORDER
Presently before the court is UNR's motion for leave to file
a second amended complaint. This motion was filed one month
after this court's opinion of November 30, 1984, 607 F. Supp. 855,
(N.D.Ill. 1984) ("November 30 Opinion") which, among other
things, dismissed the antitrust claims (counts 1 and 2) of
UNR's first amended complaint. Other counts in UNR's complaint
seek recovery for the same conduct complained of in those
dismissed counts, but the November 30 Opinion had the effect of
removing the only federal-law claims and the possibility of
recovering treble damages.
UNR's second amended complaint would add three new counts,
all based on the same set of facts and against the same
defendants. Proposed count 1, a revised
version of the previously dismissed count 1,*fn1 claims that
section 1 of the Sherman Act, 15 U.S.C. § 1, was violated when
UNR was prevented from participating as a consumer in the
insurance market by a conspiracy between three of UNR's
insurers and Corroon and Black ("C & B"), UNR's insurance
broker at the relevant times. Proposed count 2 alleges that
those same acts violated the RICO statute, 18 U.S.C. § 1961-1968,
because they constituted a scheme to defraud UNR
which was conducted at least in part through mail and wire
communication in violation of the mail and wire fraud laws,
18 U.S.C. § 1341 and 1343. Finally, proposed count 15 alleges C &
B's misconduct described in proposed count 1 violated the
Illinois Consumer Fraud and Deceptive Business Practices Act,
Ill.Rev.Stat. ch. 121 1/2, par. 262.
I. Standards Governing Request to Amend
Rule 15(a) of the Federal Rules of Civil Procedure provides
that when a party seeks leave to amend a pleading "leave shall
be freely given when justice so requires." In Foman v. Davis,
371 U.S. 178, 182, 83 S.Ct. 227, 230, 9 L.Ed.2d 222 (1962), the
[T]his mandate is to be heeded. If the underlying
facts or circumstances relied upon by a plaintiff
may be a proper subject of relief, he ought to be
afforded an opportunity to test his claim on the
merits. 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.'
Here, defendants assert that three factors — undue delay,
undue prejudice, and futility of amendment — each are present
and any one of them sufficient to deny leave to amend. UNR
claims, and defendant C & B apparently concedes, that undue
delay is not a sufficient reason by itself but must be
accompanied by undue prejudice. To resolve this dispute and to
better articulate the discretion vested in this court, Zenith
Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 330, 91
S.Ct. 795, 802, 28 L.Ed.2d 77 (1971), an examination of the
interrelationship of those three factors is necessary.
The wording used in the Foman case ("In the absence of any
apparent or declared reason") suggests that any one of the
reasons listed by the Supreme Court, including undue delay, is
sufficient to justify denying leave to amend. Until recently
the Seventh Circuit seemed to agree. See Jafree v. Barber,
689 F.2d 640, 644 (7th Cir. 1982); United States Labor Party v.
Oremus, 619 F.2d 683, 692 (7th Cir. 1980). In Textor v. Board
of Regents, 711 F.2d 1387, 1391 (7th Cir. 1983), however, the
court stated that "[d]elay in presenting the amendment will be
a sufficient basis for denial of leave to amend only when the
delay has caused the opposing party undue prejudice." Though
relying solely on 6 Wright & Miller, Federal Practice and
Procedure § 1488 (1971) for what amounts to an implicit
reversal of the Oremus case, the statement in Textor does
find support in several cases from this district. Issen v. GSC
Enterprises, 522 F. Supp. 390, 394 (N.D.Ill. 1981); Farr v.
United Airlines, Inc., 84 F.R.D. 618, 620 (N.D.Ill. 1979); A.
Cherney Disposal Co. v. Chicago & Suburban Refuse Disposal
Corp., 68 F.R.D. 383, 385 (N.D.Ill. 1975); Ozark Air Lines,
Inc. v. Delta Air Lines, Inc., 63 F.R.D. 69, 72 (N.D.Ill.
1974). Contra, Skokie Gold Standard Liquors, Inc. v. Joseph E.
& Sons, Inc., 99 F.R.D. 108, 109 (N.D.Ill. 1983).
From Textor this court concludes that delay and prejudice are
tied together in a way similar to the sliding scale approach to
preliminary injunctions adopted in Roland Machinery Co. v.
Dresser Industries, Inc., 749 F.2d 380, 387-88 (7th Cir. 1984).
That is, while delay itself is never sufficient, the longer a
party has delayed in bringing the amendment, the less prejudice
the other party must show to justify denying leave to
amend.*fn2 That interpretation appears to reconcile Foman and
Textor, is hinted at in Zenith Radio Corp. v. Hazeltine
Research, Inc., 401 U.S. 321, 91 S.Ct. 795, 28 L.Ed.2d 77
(1971); Murphy v. White Hen Pantry Co., 691 F.2d 350, 353-54
(7th Cir. 1981); and Kirby v. P.R. Mallory & Co., 489 F.2d 904,
912 (7th Cir. 1973), and is supported by the following
considerations. First, a party who inexcusably delays in
seeking leave to amend is in effect holding back and only
playing his cards when necessary to avoid defeat. That approach
is contrary to the policy of the federal rules in favor of "the
just, speedy and inexpensive determination of every action."
Fed.R.Civ.P. 1. If the other party can point to no prejudice
that would be suffered by allowing the amendment, then Textor
can be taken as saying that denying leave would be too harsh a
punishment to visit on a party whose only "victim" is the
system of justice generally. See also Carson v. Polley,
689 F.2d 562, 584 (5th Cir. 1982) ("Merely because a claim was not
presented as promptly as possible, however, does not vest the
district court with authority to punish the litigant").
However, if the inexcusable delay has caused the other party
some prejudice, then depending on the degree of delay and
prejudice, denying leave to amend may be what justice requires.
That leaves "futility of amendment" to consider. Where it is
clear that an amendment would be futile (as, e.g., where it
would not survive a motion to dismiss) then quite apart from
any considerations of delay or prejudice leave should be denied
to avoid doing a "futile thing," Textor, 711 F.2d at 1391 n. 1.
(Denying leave in those circumstances would not contravene the
policy, see Green v. J.C. Penney Auto Insurance Co.,
722 F.2d 330, 333 n. 3 (7th Cir. 1983), in favor of deciding cases on
their merits, since a futile amendment has no merit). Even an
amendment that would survive a motion to dismiss is properly
barred "in those instances where the prejudice outweighs the
right to have the case tried on the merits." Hess v. Gray, 85
F.R.D. 15, 20 (N.D.Ill. 1979). See also Wakeen v. Hoffman
House, Inc., 724 F.2d 1238, 1244 (7th Cir. 1983) (movant must
show that a proposed amendment has "substantial" merit). Thus,
the more merit a proposed amendment has, the stronger the
countervailing factors (such as prejudice and delay) must be to
justify denying leave.
The first sort of prejudice defendants claim will result from
granting leave to amend is that they would have to file and
brief a second round of "laborious and costly" motions to
dismiss. (Defendants also seem to argue this court would be
prejudiced by having to deal with the new claims and new
motions to dismiss them, but of course that is not a
consideration here.) Accepting that as "undue" prejudice,
however, would effectively nullify Rule 15(a) since nearly
every amendment requires the parties to analyze and in some
manner respond to new claims or allegations.
C & B argues that it will be particularly prejudiced by the
recent and unexpected
death of David Leavitt, UNR's chief executive officer, because
that person had discussions with Morton Gainer, the broker at
C & B who handled the UNR account, concerning the availability
and cost of insurance during the relevant time period. Relying
on Boris v. Moore, 253 F.2d 523 (7th Cir. 1958), C & B argues
that the unavailability of Leavitt precludes it from
questioning Leavitt on the proposed amended counts. That of
course is true, but the prejudice is not so extreme as C & B
claims. As UNR points out, Leavitt had previously testified
that he left insurance matters to Robert Penn, UNR's president,
and that he himself rarely met with C & B's agents. This
situation is therefore different from Boris, in which the
person who died after the action was commenced but before
amendment was sought was the only person from whom the party
claiming prejudice could have obtained any evidence regarding
the amended claim. Therefore, that prejudice must be taken into
account but is small.
Defendant next argues that the proposed amendments would
require much new discovery, some of it duplicative, and would
delay final disposition of the case. As defendants point out,
adding C & B as a new and crucial partner in the alleged
conspiracy will require discovery into the kind and degree of
contact between C & B and the other alleged conspirators, facts
which previously were of secondary importance at best.
Defendants do not attempt to quantify this new discovery, but
the number of potential witnesses, the length of time involved,
and the number of meetings among witnesses strongly suggest it
would be substantial. On the other hand, the proposed general
discovery plan indicates discovery is only about half finished,
and how long if at all the trial would be delayed by allowing
the amendments is difficult to determine.
A possible solution in these circumstances is to try to cure
any prejudice to defendants by charging UNR for the
diseconomies created by its tardiness. See Ovitz v. Jefferies &
Co., Inc., 102 F.R.D. 242 (N.D. Ill. 1984). That approach would
not work here, however. Obviously, that solution would do
nothing to cure C & B's inability to examine David Leavitt on
the new allegations. More important, the nature of this case
makes it unlikely that the amount representing expenses
attributable to UNR's tardiness could be determined without in
turn incurring substantial (and perhaps greater) expense.
Finally, this court is unwilling to impose any such costs on
this estate unless they are ...