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BAC Local Union 15 Welfare Fund v. Williams Restoration Co., Inc.

United States District Court, D. Kansas

October 26, 2018

BAC LOCAL UNION 15 WELFARE FUND, et al., Plaintiffs,
v.
WILLIAMS RESTORATION COMPANY, INC., et al., Defendants.

          MEMORANDUM AND ORDER

          GWYNNE E. BIRZER UNITED STATES MAGISTRATE JUDGE.

         This matter is before the Court on defendant Fox Holdings, Inc.'s Motion for Leave to File Second Amended Answer to Add Crossclaim (ECF No. 105). On October 10, 2018, the Court convened a conference to address the pending motion (see Minute Entry, ECF No. 114). After review of the parties' briefing and hearing the arguments of counsel, the motion was GRANTED as fully explained below. This written ruling memorializes the oral ruling announced at the motion conference.

         I. Background [1]

         A. Nature of the Case

         This case, filed in April 2016, arises from a dispute regarding employee benefit plan contributions. Plaintiffs comprise four jointly-managed multiemployer employee benefit plans (BAC Local Union 15 Welfare Fund, BAC Local Union 15 Apprenticeship and Training Fund, Bricklayers and Allied Craftworkers International Pension Fund and the International Masonry Institute) and their authorized trustees (collectively, “BAC”). Defendant Williams Restoration Company, Inc. (“Williams”) is a Nebraska corporation which performs waterproofing, concrete and masonry restoration, and roofing services in Nebraska and the Midwest. Defendant Fox Holdings, Inc. (“FHI”) is also a Nebraska corporation, performing commercial and industrial waterproofing and concrete and masonry restoration services in Nebraska and the Midwest.

         In April 2016, Plaintiffs filed suit against Williams, as the sole defendant, claiming Williams was obligated by collective bargaining agreement to pay fringe benefits contributions for its employees. In their initial Complaint, BAC alleged Williams insufficiently contributed to the employee benefit plans in violation of certain ERISA[2] statutes. Through the lawsuit, Plaintiffs sought an audit to determine Williams' actual contributions and whether it submitted the required written reports for each covered employee. Plaintiffs claim Williams failed to pay, or submit the reports as required, from January 1, 2013 to date.

         Prior to the lawsuit, on or about November 7, 2014, Williams sold its assets to FHI. During the course of discovery in this case, Plaintiffs realized FHI may also be liable for employee benefit plan contributions. Plaintiffs sought to amend the Complaint to add FHI as a defendant, which Williams did not oppose. (See ECF Nos. 23, 24, 28, 29.)

         In the Amended Complaint, Plaintiffs allege FHI is a successor to Williams and is therefore liable for Williams' contractual obligations. (ECF No. 30, filed Feb. 8, 2017.) But FHI, in its Answer and Amended Answer, alleges through its affirmative defenses Williams made misrepresentations during the asset purchase negotiations. FHI contends Williams presented itself as a non-union company, and told FHI there “was no current collective bargaining agreement of any kind in place” the time of sale. (ECF Nos. 48, 54; filed July 31 and Aug. 21, 2017, respectively.)

         B. Procedural Posture

         An initial Scheduling Order was filed in October 2016 and the parties engaged in discovery. On multiple occasions-including after the addition of FHI-the parties either jointly sought extensions of time to respond to discovery, or did not oppose motions to do so. (See ECF Nos. 29, 57, 75, 79, 90.) Then, in June 2018, Williams requested a conference with the Court, seeking a stay of the upcoming discovery, expert, and pretrial deadlines, while it reportedly engaged in settlement discussions with Plaintiffs. (See ECF No. 92.) Williams' request was granted (ECF No. 96), and the Court reconvened the parties one month later to establish a second revised schedule. (See Second Revised Scheduling Order, ECF No. 103.) During that conference, FHI announced its intent to file either a state court action against Williams in Nebraska, or seek to add a crossclaim to this action. The Second Revised Scheduling Order set a deadline of July 27, 2018 to file motions for leave to amend the pleadings, and on July 27, FHI filed the instant motion (ECF No. 105).

         II. Motion for Leave to File Second Amended Answer to Add Crossclaim (ECF No. 105)

         FHI requests leave to file a Second Amended Answer (first amended answer filed 8/21/17, ECF No. 54) to add a crossclaim against Williams. According to FHI, during the 2014 negotiations prior to its purchase of Williams assets, Williams' owner, Jeff Williams, stated only a few employees belonged to a union. He said the company was non-union, and although there may have been a union contract many years prior, it was no longer valid. FHI claims it requested a copy of the union contract, but none was produced. Then, after this lawsuit was filed, FHI discovered Jeff Williams signed a contract with a Nebraska union in July 2012 and 2013 which remained effective until May 2016. FHI discontinued payments it had been making to the Plaintiff funds, and determined it had no obligations to any union for lack of a valid agreement. This resulted in litigation against FHI in National Labor Relations Board (“NLRB”) proceedings, as well as this lawsuit.

         The proposed crossclaim includes state contract claims, governed by Nebraska law, over which FHI asks this Court to take supplemental jurisdiction under 28 U.S.C. § 1367(a). The crossclaim includes a jury demand, and contains claims for 1) fraudulent misrepresentation; 2) negligent misrepresentation; 3) fraudulent concealment; 4) breach of contract and indemnification; and 5) contribution. Essentially, FHI expands its earlier affirmative defenses, claiming it made clear to both the sale broker and Williams that it was interested only in purchasing a company without union contracts in place. FHI maintains Williams did not disclose the current collective bargaining agreement and misrepresented its involvement in such a contract.

         A. Legal Standards

         The parties cite to three applicable Federal Rules of Civil Procedure in their briefing: Fed.R.Civ.P. 13, which addresses the filing of counterclaims and crossclaims; Rule 15, which establishes the standard for amending pleadings, and Rule 16, which provides the general framework for pretrial management but outlines the necessity of good cause for modifying a schedule.

         In its memorandum in support of its motion, FHI discusses the Rule 13(g) standards for filing a crossclaim against a coparty. (ECF No. 107 at 13-14) The rule permits a “claim by one party against a coparty if the claim arises out of the transaction or occurrence that is the subject matter of the original action or of a counterclaim, ” and permits a crossclaim to “include a claim that the coparty is or may be liable to the cross-claimant for all or part of a claim asserted in the action against the cross-claimant.”[3]However, neither Williams nor Plaintiffs mention Rule 13 in their briefing, or appear to take issue with the permissiveness of the crossclaim, under Rule 13, so an in-depth discussion of the rule is unnecessary.

         Plaintiffs contend the Court should apply Rule 16(b)(4) in its analysis, because FHI is seeking to amend after the Revised Scheduling Order deadline for amendment passed. (Pls.' Mem., ECF No. 110 at 6.) Plaintiffs argue the (first) Revised Scheduling Order filed September 22, 2017 did not include a deadline to amend the pleadings because the parties represented to the Court that amendments to the pleadings were not contemplated. (Id.) But Plaintiffs base their argument on a prior schedule. During the July 18, 2018 conference, the Court discussed the issue and specifically set a short time frame in which FHI must file any anticipated motion to amend-setting a deadline of July 27, 2018-and FHI met that deadline. (See Second Revised Scheduling Order, ECF No. 103.) Plaintiffs' request to bar the amendment based upon Rule 16 is rejected.

         Therefore, the only rule which the Court must analyze to decide the motion is Fed.R.Civ.P. 15, which provides the well-established standard by which this motion is considered. A party may amend its pleading as a matter of course under Rule 15(a)(1) within 21 days after serving it. However, in cases such as this, where the time to amend as a matter of course has passed, without the opposing party's consent, a party may amend a pleading only by leave of the court under Rule 15(a)(2).

         Rule 15(a)(2) provides leave “shall be freely given when justice so requires, ” and the decision to allow an amendment is within the sound discretion of the court.[4] The court considers a number of factors in deciding whether to allow an amendment, including timeliness, prejudice to the other party, bad faith, and futility of amendment.[5]In exercising its discretion, the court must be “mindful of the spirit of the federal rules of civil procedure to encourage decisions on the merits rather than on mere technicalities.”[6]The Tenth Circuit has respectfully made clear, and this Court has repeatedly acknowledged, that Rule 15 is intended “to provide litigants ‘the maximum opportunity for each claim to be decided on its merits rather than on procedural niceties, '”[7] especially in the absence of bad faith by an offending party or prejudice to a non-moving party.[8]

         B. Discussion

         FHI argues substantial facts revealed during discovery support its proposed crossclaim against defendant Williams. FHI contends the facts were not known when it filed its earlier answers, so it was unable to assert the crossclaim at an earlier time, and no party will be prejudiced by the filing of the crossclaim. It also suggests, in the interest of judicial economy, all claims arising from Plaintiffs' Complaint should be heard together in a single proceeding.

         All Plaintiffs and codefendant Williams oppose the amendment and proposed crossclaim. They each contend FHI knew or should have known of the alleged facts on which it bases its crossclaim long before it sought amendment, and undue delay alone should bar the crossclaims. Additionally, they reason the proposed crossclaim is futile because it is directly and clearly contradicted by documentary evidence. Plaintiffs and Williams argue the crossclaim is a change of tactics and theories, which prejudice them by making the case unduly difficult to defend at this late stage of proceedings, and would require more extensive additional discovery than FHI suggests. Plaintiffs also maintain the crossclaim is premature, because FHI's claim against Williams is contingent upon Williams' own liability, and Williams' liability has not been established. The arguments raised by the parties are addressed in turn.

         1. Timeliness/Undue Delay

         FHI asserts it timely requested amendment, according to the latest scheduling order, and it did not truly know it would be necessary to file a crossclaim until more recent events occurred. First, it contends it gathered information through discovery which supported its potential crossclaims. Although it was provided a union agreement by email on October 22, 2014 (see ECF No. 109 at 5-6, ΒΆΒΆ 6, 16) during the negotiations between FHI and Williams, FHI contends the document was only a blank, form agreement, and Jeff Williams said no current, signed agreement existed. It was not until Jeff Williams' deposition, the deposition of the broker representative, and receipt of Jeff Williams' NLRB affidavit during discovery that FHI determined Jeff Williams' depiction of the sale negotiations and related discussions was very different from its own understanding. In addition to learning this information during discovery, FHI realized during the June 2018 conference with this Court that Williams was pursuing settlement with Plaintiffs, which created a sense of urgency and caused FHI to reevaluate its position. FHI ...


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