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Lincoln General Insurance Company v. Kingsway America Agency

January 18, 2013

LINCOLN GENERAL INSURANCE COMPANY,
PLAINTIFF
v.
KINGSWAY AMERICA AGENCY, INC., F/K/A AVALON RISK MANAGEMENT, INC.; GLOBAL SOLUTIONS INSURANCE SERVICES, INC.; EAST-WEST ASSOCIATES, INC.; GARY C. BHOJWANI; AND SCOTT D. WOLLNEY,
DEFENDANTS



The opinion of the court was delivered by: Judge Sylvia H. Rambo

MEMORANDUM

In this civil action involving the alleged improper issuance of United States custom bonds, Plaintiff, Lincoln General Insurance Company, has sued Defendants Kingsway America Agency, Inc., f/k/a Avalon Risk Management, Inc. ("Avalon"), Global Solutions Insurance Services, Inc. ("GSIS"), East-West Associates, Inc. ("East-West"), and two individuals, Gary C. Bhojwani ("Bhojwani") and Scott D. Wollney ("Wollney"), in their individual capacities (collectively "Individual Defendants"), both of whom were allegedly officers of Avalon during the time relevant to the events giving rise to this action. Presently before the court is Plaintiff's motion for leave to amend its complaint and to voluntarily dismiss the Individual Defendants, which was opposed, in part, by Defendants Avalon, GSIS, and East-West. For the reasons stated herein, the court will grant in part and deny in part Plaintiff's motion.

I. Background

The facts underlying this action have been previously set forth by this court, and for the present purposes, a brief overview of the history of the matter is sufficient.*fn1 On June 23, 2011, Plaintiff initiated this action by filing a complaint. (Doc. 1.) Over the course of the following months, Defendants filed motions to dismiss (Docs. 11 (by Avalon), 12 (by Bhojwani), 13 (by Wollney), 19 (by GSIS), and 38 (by East-West)), which were opposed by Plaintiff (Doc. 40). Following full briefing on the issue, the court addressed the Defendants' motions collectively, and entered a memorandum and order on May 7, 2012, which granted in part and denied in part the motions. (Doc. 45.) Concluding that "Plaintiff ha[d] properly pleaded claims of breach of contract and breach of fiduciary duty . . . within the applicable four and two-year statute of limitations," the May 7, 2012 order denied the motions to dismiss as to Counts I through IV, but granted the motions as to the declaratory judgment action asserted at Count V due to the court's finding that the claim was premature. (Doc. 45 at p. 17 of 20.) The court acknowledged the possibility that facts may "arise which make Plaintiff's claim for declaratory relief real and substantive," and at that time, Plaintiff would be "permitted to re-seek relief with this court." (Doc. 45 at p. 18 of 20.) Thereafter, each Defendant filed an answer to the complaint. (Docs. 22 (by East-West), 49 (by Avalon, Bhojwani, and Wollney), and 51 (by GSIS).)

On September 7, 2012, Plaintiff filed the instant motion for leave to amend its complaint and to voluntarily dismiss the Individual Defendants. (Doc. 62.)

In the proposed amended complaint, attached to the motion, Plaintiff, inter alia, reasserted at Count IV the declaratory judgment action that the court had previously dismissed from Count V of the original complaint as premature.*fn2 (See Doc. 62-4 at ¶¶ 90-95.) In support, Plaintiff attached and referred to several complaints filed by the Department of Justice ("DOJ"), in which it was named a defendant in connection to the customs bonds that allegedly had been issued improperly ("DOJ action"), and averred that the filing of the DOJ complaints caused the declaratory judgment action to become ripe. (Doc. 63 at p. 13 of 20 ("[The pending DOJ lawsuits] make Count V for declaratory judgment ripe for adjudication").) Additionally, the proposed amended complaint removes certain references to the Individual Defendants, does not name either Bhojwani or Wollney as defendants to any claim, and includes direct references to the DOJ complaints in its claims for breaches of fiduciary duties asserted at Count II (against Avalon) and Count III (against East-West and GSIS).

Defendants Avalon, East-West, and GSIS each filed a response to Plaintiff's motion. (Docs. 64 (by Avalon), 65 (by East-West), and 66 (by GSIS).) Each response took the position that the court should not grant Plaintiff leave to file an amended complaint; however, the briefs failed to clearly address whether the Individual Defendants should be voluntarily dismissed from the action. Accordingly, on November 1, 2012, the court entered an order directing any interested party to show cause why the Individual Defendants should not be dismissed from the matter. (Doc. 75.) In response, Avalon filed a brief in support of dismissal of the Individual Defendants with prejudice on November 15, 2012. (Doc. 76.) Plaintiff responded on November 16, 2012, and took the position that the dismissal should be without prejudice. (Doc. 77.) On November 19, 2012, the Individual Defendants filed a joint response requesting dismissal with prejudice. (Doc. 78.) Neither East-West nor GSIS filed a response clarifying their positions on the dismissal issue. In short, although no party opposes dismissal of the Individual Defendants, the parties disagree as to whether the dismissal should be with prejudice. As the time for responding has passed, this issue is now ripe for disposition.

Regarding the portion of Plaintiff's motion seeking leave to amend, Defendants Avalon, East-West, and GSIS each argued that the court should reject Count IV of the amended complaint on the basis of futility. Specifically, Avalon argued that permitting Plaintiff to include a claim for declaratory relief is futile because "the underlying claims associated with it are time-barred." (Doc. 64-1 at p. 17 of 19.) East-West argued that Count IV is futile because "it does not demonstrate any immediacy or probability of future payment" and thus is "merely speculative." (Doc. 65 at p. 5 of 8.) Similarly, GSIS argued that Count IV is futile because "the fundamental character of the proposed claim for declaratory relief is unchanged . . . in that [the DOJ lawsuits] are still pending at this time, [Plaintiff] has denied liability in those cases, [Plaintiff's] liability has yet to be judicially determined, and [Plaintiff] has yet to incur any losses in those cases by issuing payment under the bonds" which is a "prerequisite" to the accrual of a cause of action for indemnification. (Doc. 66 at p. 6 of 12 (emphasis in original).) In short, East-West and GSIS base their opposition to amendment in the lack of ripeness, and Avalon opposes amendment on the basis of the statute of limitations. Plaintiff filed a reply on October 8, 2012 (Doc. 68), and Avalon filed a sur-reply on October 19, 2012 (Doc. 74). Thus, this issue is now ripe for disposition.

The court will first address the portion of Plaintiff's motion pertaining to its request for leave to amend its complaint before turning to whether the dismissal of the Individual Defendants will be with prejudice.

II. Plaintiff's Motion for Leave To Amend Complaint

Plaintiff attached its proposed amended complaint in compliance with Local Rule 15.1, as well as a "red-lined" copy highlighting the differences between the original and amended complaints. In addition to incorporating references to the DOJ complaints in certain factual allegations and removing claims against the Individual Defendants, Plaintiff reasserts a claim for declaratory judgment which is nearly identical to the declaratory judgment claim that was previously dismissed by this court as unripe.

A. Legal Standard for a Motion To Amend

Initially, the court notes a distinction between amending and supplementing a pleading: "Amending a pleading involves entirely replacing the earlier pleading with a new pleading containing matters that occurred prior to the filing of the original pleading, while supplementing a pleading involves merely adding to the original pleading events occurring subsequent to the earlier pleading." Inmates of Northumberland Cnty. Prison v. Reish, Civil No. 2008-cv-0345, 2009 WL 8670860, *4 (M.D. Pa. Mar. 17, 2009) (emphasis in original) (citing 6A Wright, et al., Federal Practice and Procedure § 1504 (3d ed. 2004)). Here, comparing the original and amended complaints, Plaintiff seeks to both amend and supplement its original complaint. Specifically, the amended complaint inserts changes and additions to certain factual averments set forth at the first three counts of the original complaint concerning events that occurred both prior and subsequent to the filing of the original complaint. Count IV of the original complaint is eliminated in its entirety from the amended complaint. Significant to the matter sub judice, the amended complaint re-pleads and supplements the declaratory judgment action in the original complaint by including new information concerning the DOJ complaints which were filed subsequent to the filing of the original complaint.

Rule 15 of the Federal Rules of Civil Procedure sets forth the rules governing amended and supplemental pleadings, and provides that, if more than 21 days has elapsed after a defendant has served a motion to dismiss under Rule 12(b), a party may amend its pleading only with leave of court or with the opposing party's written consent. Fed. R. Civ. P. 15.*fn3 In the instant matter, Plaintiff must obtain leave of court because the opposing parties have not given such consent, and more than 21 days have elapsed since the motions to dismiss were filed. See Fed. R. Civ. P. 15(a) & (d). Moreover, although Rule 15(a) and (d) have different functions and utilize different wording,*fn4 the differences in wording are "semantic only," and "courts in the Third Circuit generally apply the Rule 15(a) standard to Rule 15(d) motions and liberally grant leave to supplement." Hankin Family P'ship v. Upper Merion Twp., Civil No. 2001-cv-1622, 2012 WL 43599, *9 (E.D. Pa. Jan. 6, 2012) (citing CMR D.N. Corp. v. City of Phila., Civil No. 2007-cv-1045, 2011 WL 857294, *4 (E.D. Pa. Mar. 11, 2011); Tormasi v. Hayman, Civil No. 2009-cv-2330, 2010 WL 1878961, *2 (D.N.J. May 10, 2010); Medeva Pharma Ltd. v. Am. Home Prods. Corp., 201 F.R.D. 103, 104 (D. Del. 2001); Epstein v. Twp. of Whitehall, Civil No. 1988-cv-0534, 1989 WL 73741, *4 (E.D. Pa. June 29, 1989)). Thus, the applicable standard is "essentially the same" regardless of whether the proposed amended complaint is treated as an amended or supplemental pleading. Medeva, 201 F.R.D. at 104 n. 3 (citing Epstein, 1989 WL 73741 at *2).

However, "[t]he policy favoring liberal amendment of pleadings is not . unbounded." Kearney v. JPC Equestrian, Inc., Civil No. 2011-cv-1419, 2012 WL 5247322, *4 (M.D. Pa. Oct. 23, 2012) (citing Dole v. Arco Chem. Co., 921 F.2d 484, 487 (3d Cir. 1990)). Although the decision whether to grant or to deny a motion for leave to amend rests within the sound discretion of the district court, Forman v. Davis, 371 U.S. 178, 182 (1962), a district court may deny leave to amend a complaint where "it is apparent from the record that (1) the moving party has demonstrated undue delay, bad faith or dilatory motives, (2) the amendment would be futile, or (3) the amendment would prejudice the other party." Diaz v. Palakovich, 448 F. App'x 211, 215-16 (3d Cir. 2011) (citing Lake v. Arnold, 232 F.3d 360, 373 (3d Cir. 2000)).

In this context, for a proposed amendment to be futile, "the complaint -- as amended -- must fail to state a claim upon which relief could be granted." Id. at 216. Futility of amendment may only serve as a basis for denial of leave to amend where "the proposed amendment is 'frivolous or advances a claim that is legally insufficient on its face.'" Harrison Beverage Co. v. Dribeck Imps., Inc., 133 F.R.D. 463, 468 (D.N.J. 1990) (citing 6 Wright, et al. Federal Practice and Procedure § 1487 (2d ed. 1990)). Amendment of the complaint is futile if the amended complaint "cannot withstand a renewed motion to dismiss." Jablonski v. Pan Am. World Airways, Inc., 863 F.2d 289, 292 (3d Cir. 1988) (citing Massarsky v. Gen. Motors Corp., 706 F.2d 111, 125 (3d Cir. 1983)) (holding that the district court did not abuse its discretion in denying motion to amend based on futility of amendment because proposed claim was barred by the statute of limitations). Thus, in determining whether a claim would be futile, "the district court applies [to the proposed amendments] the same standard of legal sufficiency as applie[d] under Federal Rule of Civil Procedure 12(b)(6)." Travelers Indem. Co. v. Dammann & Co., Inc., 594 F.3d 238, 243 (3d Cir. 2010) (citing In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1434 (3d Cir. 1997)); see also Miller v. Beneficial Mgmt. Corp., 844 F. Supp. 990, 1001 (D.N.J. 1993) ("Futility of an amendment is shown when the claim . . . is not accompanied by a showing of plausibility sufficient to present a triable issue.").

Rule 12(b)(6) of the Federal Rules of Civil Procedure, in turn, provides that a complaint should be dismissed for "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). In considering whether a complaint fails to state a claim upon which relief can be granted, the court "must accept all of the complaint's well-pleaded facts as true," Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009), and construe all reasonable inferences that can be drawn therefrom in the light most favorable to the plaintiff. Jordan v. Fox Rothschild, O'Brien & Frankel, Inc., 20 F.3d 1250, 1261 (3d Cir. 1994). However, a court need not credit a complaint's bald assertions and may "disregard any legal conclusions" when deciding a motion to dismiss. Fowler, 578 F.3d at 210-11.

Through this lens, the court must determine "whether the facts alleged in the complaint are sufficient to show that the plaintiff has a 'plausible claim for relief.'" Id. at 211 (quoting Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009)). "[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged -- but it has not 'shown' -- 'that the pleader is entitled to relief.'" Iqbal, 556 U.S. at 679 (quoting Fed. R. Civ. P. 8(a)(2)). In other words, a claim has "facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. at 678 (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007)). In addressing a Rule 12(b)(6) motion, the court is limited in its review to a few basic documents: the complaint, exhibits attached thereto, matters of public record, and undisputedly authentic documents if the plaintiff's claims are based upon those documents. See Williams v. BASF Catalysts LLC, Civil No. 2011-cv-1754, 2012 WL 6204182, *6 (D.N.J. Dec. 12, 2012) (citing Pension Benefit Guar. Corp. v. White Consol. Indus., 998 F.2d 1192, 1196 (3d Cir. 1993)).

B. Discussion*fn5

Although each Defendant opposes amendment on the basis of futility, the arguments relied on in support of their opposition varies: Avalon's opposition to Plaintiff's proposed amendments are based upon its contention that the statute of limitations has expired. East-West and GSIS argue futility based upon their contention that a declaratory judgment action is not yet ripe. The two separate arguments will be addressed ad seriatim.

1. Statute of Limitations

Avalon opposes the proposed amendments on the basis of futility, arguing that the DOJ complaints "clearly reveal" that Plaintiff was "aware of its exposure and the alleged breaches of contract and fiduciary duty" as early as 2004, and no later than April 17, 2007, the date on which Plaintiff was put on notice that it was exposed to liability by virtue of the liquidation of the customs bonds by the Commerce Department. (Doc. 64-1 at pp. 1, 15-16 of 19.) Avalon reasons that Plaintiff's initial complaint was not filed until June 23, 2011, more than four years after April 17, 2007, and thus any claim seeking damages arising from the issuance of bonds that are the subject of the DOJ action is barred by the applicable statute of limitations. (Id. at p. 1 of 19.) Contending that such a bar is apparent from the face of the amended complaint and the attachments thereto, Avalon urges the court to find that Plaintiff knew or should have known of its claims arising from the alleged improper issuances of bonds more than four years ago, which is beyond the limitations periods, and consequently conclude that the proposed amended complaint would not survive a motion to dismiss and would thus be futile.

a. Statute of limitations raised in motion to dismiss

The Federal Rules of Civil Procedure indicate that a statute of limitations defense generally cannot be used in the context of a Rule 12(b)(6) motion.*fn6 See Robinson v. Johnson, 313 F.3d 128, 135 (3d Cir. 2002) ("[A] limitations defense must be raised in the answer, since Rule 12(b) does not permit it to be raised by motion."). However, it is well-established that an exception may be made where "the complaint facially shows noncompliance with the limitations period and the affirmative defense clearly appears on the face of the pleading." Fidelity Nat. Title Ins. Co. v. Craven, Civil No. 2012-cv-4306, 2012 WL 5881856, *5 (E.D. Pa. Nov. 21, 2012) (citing Oshiver v. Levin, Fishbein, Sedran & Berman, 38 F.3d 1380, 1385 n.1 (3d Cir. 1994)). A court may not dismiss a claim on a Rule 12 motion "where the face of the [complaint] does not unequivocally reveal whether a cause of action has been commenced within the limitations period." Id. (citing Robinson, 313 F.3d at 135); see also Jaramillo v. Experian Info. Solutions, Inc., 155 F. Supp. 2d 356, 358-59 (E.D. Pa. 2001) (holding that for a Rule 12 dismissal of a claim as time-barred, noncompliance with limitations period must clearly appear on the face of the pleading).

b. Applicable statutes of limitations

As set forth in this court's May 7, 2012 memorandum, the limitations period for each of the counts is either two or four years. A claim for breach of contract is subject to a four-year limitations period. 42 Pa. Cons. Stat. Ann. ยง 5525(a)(8); accord Lutz v. Philips Elec. N. Am. Corp., 347 F. App'x 773, 776 (3d Cir. 2009); Benyamini v. St. Clair Real Estate Dev. Co., Civil No. 2009-cv-0375, 2010 WL 1137936, *4 (M.D. Pa. Mar. 19, 2010). Claims for indemnity, because of their "contractual nature," are also subject to a four-year limitations period. See Gen. Motors Corp. v. Emerson Elec. Co., Civil No. 1985-cv-5259, 1986 WL 2459, *1 (E.D. Pa. Feb. 20, 1986) (citing Thermo King Corp. v. Strick Corp., 467 F. Supp. 75, 77 (W.D. Pa. 1979)); see also Lincoln Gen. Ins. Co. v. Kingsway Am. Agency, Civil No. 2011-cv-1127, 2012 WL 1701984 (M.D. Pa. May 17, 2012). A two-year limitations period applies ...


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