Air Products and Chemicals v. Eaton Metal Products

• Decision Date: 31 March 2003
• Docket Number: C.A. No. 02-CV-1277.
• Parties: AIR PRODUCTS AND CHEMICALS, INC., Plaintiff, v. EATON METAL PRODUCTS CO., et al., Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

256 F.Supp.2d 329

AIR PRODUCTS AND CHEMICALS, INC., Plaintiff, v. EATON METAL PRODUCTS CO., et al., Defendants.

C.A. No. 02-CV-1277.

United States District Court, E.D. Pennsylvania.

March 31, 2003.

COPYRIGHT MATERIAL OMITTED

Howard M. Klein, Andrew Hanan, Marianne Bechtle Daniels, Lauren A. Schochor, Conrad O'Brien Gellman & Rohn, P.C., Philadelphia, PA, for Plaintiff.

Daniel R. Frost, Scott S. Barker, Timothy W. Gordon, Holland & Hart LLP, Denver, CO, Debra S. Goodman, Margolis Edelstein, Philadelphia, PA, John C. Sullivan, Stephen R. Bishop, Post & Schell, PC, Philadelphia, PA, for Eaton Metal Products Co., defendant.

Mark H. Scoblionko, Scoblionko, Scoblionko, Muir & Bartholomew, Allentown, PA, R. Dennis Withers, Esq., RObins, Kaplan, Miller & Ciresi L.L.P., Atlanta, GA, for Hartford Steam Boiler Inspection and Ins. Co., defendant.

Larry B. Lipe, Mark E. Dreyer, Melodie Freeman-Burney, Conner & Winters, Tulsa, OK, Timothy T. Trump, Tulsa, OK, Christopher J. Pakuris, Margolis Edelstein, Matthew J. Zamites, Philadelphia, PA, for Lumbermen's Mut. Cas. Inc. Co., defendant.

MEMORANDUM AND ORDER

Van ANTWERPEN, District Judge.

Plaintiff Air Products and Chemicals, Inc. ("Air Products") moves to amend its first amended complaint, filed July 19, 2002, pursuant to Rule 15(a) of the Federal Rules of Civil Procedure based on new evidence obtained during discovery that it alleges support a new claim of fraud against defendants Eaton Metal Products Co. ("Eaton"), Lumbermens Mutual Casualty Insurance Co. ("Lumbermens") and The Hartford Steam Boiler Inspection and Insurance Company ("HSB"). Defendants contend that the plaintiffs motion should be denied as frivolous because the count it seeks to add alleging fraud is barred by the economic loss doctrine and/or the gist of the action doctrine. In the alternative, the defendants argue that even if the motion is not frivolous, they would be subject to undue prejudice should it be granted.

Presently before us are Plaintiffs Motion for Leave to Amend the Complaint, filed February 14, 2003, and accompanying Memorandum of Law; defendant Eaton's Brief in Opposition to Air Products and Chemicals, Inc.'s Motion for Leave to Amend the Complaint, filed March 11, 2003; Defendant The Hartford Steam Boiler and Inspection and Insurance Company's Opposition to Plaintiffs Motion for Leave to Amend the Complaint, filed March 13, 2003;¹ and Plaintiff Air Products and Chemicals Inc.'s Reply Brief in Support of its Motion for Leave to Amend the Complaint, filed March 17, 2003.² For the reasons discussed below, we grant the plaintiffs motion for leave to amend its complaint.

I. STANDARD OF REVIEW

Rule 15(a) of the Federal Rules of Civil Procedure provides that, when an answer has been filed, a plaintiff may amend her complaint by consent of the adverse party or by leave of the court, which "shall be freely given when justice so requires." Fed.R.Civ.P 15(a). The Third Circuit has noted that the courts have demonstrated a "strong liberality" in their interpretation of this rule. Heyl & Patterson Int'l, Inc. v. F.D. Rich Housing of the Virgin Islands, Inc., 663 F.2d 419, 425 (3d Cir.1981). Indeed, determinations as to whether to allow amendment are left within the trial court's discretion, which should be exercised in favor of granting leave to amend except in unusual circumstances. Thus, as the Supreme Court has stated,

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 an 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.'

Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962).

The Third Circuit has emphasized that among these factors, "prejudice to the nonmoving party is the touchstone for the denial of an amendment." Heyl, 663 F.2d at 425. Mere delay, without more, "does not require that a motion to amend a complaint be denied." Adams v. Gould, Inc., 739 F.2d 858, 868 (3d Cir.1984). Instead, "to become a legal ground for denying a motion to amend, [delay] must result in prejudice to the party opposing the motion". Riser v. General Elec. Corp., 831 F.2d 423 (3d Cir.1987).

The burden of showing undue prejudice rests with the party opposing amendment. Id. at 427. This is a "heavier burden than claiming prejudice." Heyl, 663 F.2d at 426. In order to make the requisite showing of prejudice, the adverse party "is required to demonstrate that its ability to present its case would be seriously impaired were the amendment allowed." Dole v. Arco Chemical Co., 921 F.2d 484, 488 (3d Cir.1990).

An adverse party may also succeed in opposing a motion for leave to amend by demonstrating that it is futile. Shane v. Fauver, 213 F.3d 113, 115 (3d Cir.2000). Futility exists where the added claim would be subject to dismissal under Rule 12(b)(6), and in such cases the motion for leave to amend should be denied. Id. In making this determination, a court is to apply the standards applicable to a motion under Rule 12(b)(6). See Massarsky v. General Motors Corp., 706 F.2d 111, 125 (3d Cir.1983) ("The trial court may properly deny leave to amend where the amendment would not withstand a motion to dismiss."). Thus, the proposed amended pleading must be viewed in the light most favorable to the plaintiff and should not be rejected unless it is clear that the plaintiff is not entitled to any relief thereunder. Epstein v. Township of Whitehall, No. Civ.A. 88-0534, 1989 WL 73741, at *2 (E.D.Pa. June 29, 1989). Nevertheless, it is not required that the parties "engage in the equivalent of substantive motion practice upon the proposed new claim; [what is required is] that the newly asserted claim appear to be sufficiently well-grounded in fact or law that it is not a frivolous pursuit." Cooper v. Ficarra, No.Civ.A. 96-7520, 1997 WL 587339, at *3 (E.D.Pa. Sept.12, 1997). Thus, under "the liberal pleading standard applied to the amendment of pleadings, courts place a heavy burden on opponents who wish to declare a proposed amendment futile." Pharmaceutical Sales and Consulting Corp. v. J.W.S. Delavau Co., Inc., 106 F.Supp.2d 761, 765 (D.N.J.2000).

This is a diversity action, thus in determining whether Air Products' amended complaint could survive a motion to dismiss, we must apply Pennsylvania substantive law. Erie Railroad v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938) (when federal jurisdiction is based on diversity of citizenship under 28 U.S.C. § 1332, federal courts must, "[e]xcept in matters governed by the Federal Constitution or by Acts of Congress, ... [apply] the law of the State.") Though we apply federal procedural rules, the forum state's laws govern substantively. See Commissioner of Internal Revenue v. Bosch's, 387 U.S. 456, 465, 87 S.Ct. 1776, 18 L.Ed.2d 886 (1967). In this case, the governing standards are Pennsylvania's, as established by the Pennsylvania Supreme Court. As the Third Circuit explained, applying Erie, "While the Federal Courts should properly employ its [sic] own rules of procedure to secure the just, efficient and prompt determination of all claims inherent in any litigation before it, nevertheless the ultimate results reached must be such as accord with the substantive jurisprudence of the State of the forum." Smith v. Whitmore, 270 F.2d 741, 745 (3rd Cir.1959) (internal citations omitted).

Lower state court decisions are persuasive, but not binding, on the federal court's authority; if the State's highest court has not spoken on a particular issue, the "federal authorities must apply what they find to be the state law after giving `proper regard' to relevant rulings of other courts of the State." Id.; see also Polselli v. Nationwide Mut. Fire Ins., 126 F.3d 524, 528 (3d Cir.1997); Scranton Dunlop, Inc. v. St. Paul Fire & Marine Ins. Co., 2000 WL 1100779, at *1 (E.D.Pa.Aug.4, 2000) ("Since this is a matter of state law that has not been decided by the Pennsylvania Supreme Court, a prediction must be made as to how that court would rule if confronted with the same facts.").

II. FACTUAL SUMMARY

We briefly outline the facts that Air Products alleges to support its motion for leave to amend its complaint. Although there may be dispute as to some of these allegations, we take them, for the purposes of this motion, as fact, just as we would in evaluating a motion to dismiss under Rule 12(b)(6).

From 1994 through 2001, Air Products contracted with Eaton to purchase approximately 100 pressure vessels to be constructed in compliance with the American Society of Mechanical Engineers Boiler and Pressure Vessel Code ("ASME Code" or "Code"). The ASME Code imposes a comprehensive and rigorous framework of rules for the design, fabrication, testing and inspection of pressure vessels. In order to manufacture ASME Code compliant pressure vessels, a manufacturer must obtain from the American Society of Mechanical Engineers ("ASME") a Certificate of Authorization for each manufacturing plant that is to build Code compliant pressure vessels. To obtain one of these certificates, the manufacturer must, inter alia, develop and implement an ASME-approved written Quality Control System and submit to thorough review of its manufacturing facilities. Upon review of the information thus acquired, the ASME determines whether to issue a Certificate of Authorization.

For as long as a manufacturer wishes to construct ASME Code compliant pressure vessels and maintain its Certificate of Authorization, it must subject itself to continuous independent inspection and auditing by a certified Authorized Inspection Agency ("AIA"). The AIA must...