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AZ DNR, LLC v. Luxury Travel Brokers, Inc.

United States District Court, District of Kansas

September 3, 2014

AZ DNR, LLC, d/b/a ERC, LLC, Plaintiff,
v.
LUXURY TRAVEL BROKERS, INC. d/b/a Flyer Miles, et al. Defendants.

REPORT AND RECOMMENDATION

JAMES P. O’HARA U.S. MAGISTRATE JUDGE

This is a contract case which arises from the souring of the parties' business relationship. The case was filed on November 22, 2013, but due to a pattern of inactivity by defendants and their counsel, it has not advanced much past the initial pleading stages. Defendants' original answer unreasonably asserted that defendants were "without information or knowledge sufficient to form a belief as to nearly two-thirds of the factual allegations in plaintiffs amended complaint.[1] On June 30, 2014, the undersigned U.S. Magistrate Judge, James P. O'Hara, entered an order requiring defendants to file a revised answer by July 7, 2014, or to show cause by that date why the original answer did not violate Fed.R.Civ.P. 11(b).[2] Defendants filed an amended answer on July 8, 2014, which contained the same deficient assertions as their original answer.[3]

Three motions related to the amended answer have been filed. First, defendants have filed a motion for leave to file a second amended answer which addresses deficiencies in their earlier answers and which asserts counterclaims for the first time (ECF doc. 39). Second, plaintiff has filed a motion to strike the amended answer (as well as the original, deficient answer) for failure to comply with the June 30, 2014 order, and to enter default judgment against defendants (ECF doc. 44). Defendants filed no response to the motion to strike by the response deadline, and instead, one week later, filed a motion for extension of time to respond (ECF doc. 49). Because defendants have demonstrated a continuing pattern of inaction in this case and have failed to meet their burden for amending the deadline for filing a new answer, the undesigned respectfully recommends to the presiding U.S. District Judge, John W. Lungstrum, that defendants’ motions be denied, that plaintiff’s motion be granted, and that default judgment be entered against defendants.

The pending motions are most logically addressed in the reverse order of which they were filed.

I. Motion for Extension of Time to Respond to Motion to Strike (ECF doc. 49)

As noted above, defendants did not file a motion for extension of time to respond to plaintiff’s motion to strike their answers until one week after their response was due. When a motion for extension of time is filed after the specified time expires, the court will only grant the extension request if it finds good cause for the delay upon a showing that the party failed to act because of excusable neglect.[4] This standard “requires both a demonstration of good faith by the parties seeking the enlargement and also it must appear that there was a reasonable basis for not complying within the specified period.”[5]

Defendants do not specifically explain why they could not meet the August 5, 2014 response deadline.[6] Instead, they state generally that the “press of other urgent and important business made [it] impossible” for their counsel “to act in a timely manner” or to communicate the deadline to them.[7] The Tenth Circuit has made it clear that counsel’s “busy workload does not establish excusable neglect” under Rule 6(b).[8] Because defendants have given no other basis for their failure to respond to plaintiff’s motion to strike answers or to timely seek an extension for so doing, the undersigned recommends that Judge Lungstrum deny defendants’ motion for extension of time to respond to the motion to strike.

II. Motion to Strike Answer and Amended Answer (ECF doc. 44)

Plaintiff asks the court to strike the amended answer that defendants filed on July 8, 2014.[9] Plaintiff asserts that, in addition to being filed a day late, the amended answer fails to correct any of the Rule 11(b) problems identified in the undersigned’s June 30, 2014 order.[10] In that order, the undersigned analyzed defendants’ original answer and found that it was “clear that certain responses in defendants’ answer are not reasonable or based on a reasonable inquiry.”[11] Because Rule 11(b) imposes a “reasonable inquiry” requirement on pleadings, the undersigned concluded that “defense counsel likely violated Rule 11(b) in filing defendants’ answer.”[12] However, because plaintiff’s counsel did not comply with the “safe harbor” provisions of Rule 11(c), the undersigned declined to enter sanctions against defendants at that time. Instead, the undersigned directed defendants to file a compliant answer:

[T]he court, on its own motion, orders defendants to file a revised answer by July 7, 2014, or to show cause by that same date why the current answer does not violate Rule 11(b) (which, as should be clear from the discussion above, would be an uphill battle). Defendants are warned that should they fail to satisfy at least one of these directives, the court will likely sanction defendants by striking the answer and entering default against defendants.[13]

Defendants filed the amended answer six hours after the court’s July 7, 2014 deadline. Although this fact is bothersome (and creates the appearance that defendants are flouting the court’s indulgence after the court noted defendants’ pattern of untimeliness and inaction), it is the least of defendants’ problems. Much more significant is the fact that the amended answer clearly—and without explanation—did not correct any of the Rule 11(b) deficiencies identified by the court.[14] Rather, the amended answer is a near twin of the original answer, making only stylistic changes and adding a “thirteenth affirmative defense.”[15] Additionally, defendants did not attempt to show cause why the original answer did not violate Rule 11(b). Because it is undeniable that defendants failed to satisfy either of the undersigned’s directives in the June 30, 2014 order, [16] the undersigned recommends that Judge Lungstrum strike defendants’ answer and amended answer. The undersigned will address below plaintiff’s request for the entry of default judgment in plaintiff’s favor.

III. Motion for Leave to File a Second Amended Answer (ECF doc. 39)

On July 16, 2014, defendants filed their motion for leave to file a second amended answer with counterclaims.[17] The motion asks that defendants be permitted to revise their answer to (1) include information learned “during recent investigation by counsel” and (2) add counterclaims against plaintiff which defendants had mistakenly believed their counsel had included in their original answer.[18] The proposed second amended answer both addresses the Rule 11(b) problems in defendants’ earlier answers and includes the addition of counterclaims for breach of contract, fraud, and intentional interference with contractual relations.[19] Plaintiff opposes the motion, arguing that defendants have not met the standards for untimely amendment.

Under Fed.R.Civ.P. 15(a)(2), once a responsive pleading has been filed and twenty-one days have passed, “a party may amend its pleading only with the opposing party’s written consent or the court’s leave.” Rule 15 dictates that the court “should freely give leave when justice so requires.”[20] When the deadline set in the scheduling order for amending pleadings has passed, however, Fed.R.Civ.P. 16(b)(4) may also be implicated.[21] Rule 16(b)(4) provides that a scheduling order may be modified “only for good cause.” Thus, courts in the District of Kansas determine whether the Rule 16(b)(4) good-cause standard has been established before proceeding to determine if the more liberal Rule 15(a) standard has been satisfied.[22] Because the ...


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