Church Mut. Ins. Co. v. Phillip Marshall Coutu, an Individual, Power Adjusters, Inc.

• Decision Date: 12 February 2018
• Docket Number: Civil Action No. 17-cv-00209-RM-NYW
• Parties: CHURCH MUTUAL INSURANCE COMPANY, a Wisconsin corporation, Plaintiff, v. PHILLIP MARSHALL COUTU, an individual, POWER ADJUSTERS, INC., a Colorado corporation, JUDAH LEON BENSUSAN, an individual, and ATLANTIS CLAIMS SERVICES, LLC, a Florida limited liability company, Defendants.
• Court: U.S. District Court — District of Colorado

CHURCH MUTUAL INSURANCE COMPANY, a Wisconsin corporation, Plaintiff, v. PHILLIP MARSHALL COUTU, an individual, POWER ADJUSTERS, INC.,a Colorado corporation, JUDAH LEON BENSUSAN, an individual,and ATLANTIS CLAIMS SERVICES, LLC, a Florida limited liability company, Defendants.

Civil Action No. 17-cv-00209-RM-NYW

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

February 12, 2018

RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE

Magistrate Judge Nina Y. Wang

This matter is before the court on Plaintiff Church Mutual Insurance Company's ("Plaintiff' or "Church Mutual") Motion for Leave to File Second Amended Complaint ("Motion" or "Motion to Amend"), filed October 6, 2017. [#128]. The undersigned considers the Motion pursuant to 28 U.S.C. § 636(b), the Order Referring Case dated March 30, 2017 [#33], and the memorandum dated October 10, 2017 [#130]. This court has carefully reviewed the Motion and associated briefing, the entire case file, and applicable law, and concludes that oral argument will not materially assist in the resolution of this matter. For the reasons stated herein, this court respectfully RECOMMENDS that the Motion to Amend be GRANTED.

BACKGROUND

This court has discussed the background of this case in its prior Recommendation and Orders, see e.g., [#103; #120], and does so here only as it pertains to the instant Motion. Plaintiff initiated this action by filing its Complaint in this District on January 23, 2017. [#1]. Plaintiff's Complaint alleged two claims against Defendants Phillip Marshall Coutu, Power Adjusters, Inc. ("Power Adjusters"), Judah Leon Bensusan, and Atlantis Claims Services, LLC ("Atlantis Claims") (collectively, "Defendants"): (1) civil conspiracy and (2) fraudulent concealment. [Id.]. The events giving rise to Plaintiff's Complaint involved an appraisal award issued to one of Church Mutual's policyholders for repairs completed to the policyholder's roof following a hailstorm. [Id.]. Plaintiff alleged that Defendants conspired to unlawfully inflate the cost of repairs needed for their own economic gains, as each had a stake in a higher appraisal award. [Id.].

Following several extensions of time to answer or otherwise respond to Plaintiff's Complaint, and pursuant to this court's Order [#46], Plaintiff filed its First Amended Complaint ("FAC") on April 25, 2017, and asserted the following claims: (1) civil conspiracy against all Defendants ("Claim I"); (2) fraudulent concealment against all Defendants ("Claim II"); (3) federal civil violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO") against all Defendants ("Claim III"); (4) federal civil RICO conspiracy against Messrs. Coutu and Bensusan ("Claim IV"); and (5) state civil violations of the Colorado Organized Crime Control Act ("COCCA") against Messrs. Coutu and Bensusan ("Claim V"). [#49]. On June 5, 2017, Defendants filed a Joint Motion to Dismiss all five of Church Mutual's claims [#65], which the undersigned recommended granting in part and denying in part [#120]. Relevant here, this court recommended dismissing Plaintiff's RICO and COCCA claims (Claims III-V) for failure to state a claim, because Plaintiff's those claims suffered from a similar deficiency: the failure to plead a pattern of racketeering activity with specificity, a necessary component to any RICO or COCCA violation as well as to any RICO or COCCA conspiracy claim. See [id.]. Also on June 5, 2017, Defendants filed a Motion to Stay discovery [#64], which the undersigneddenied, and then directed the Parties to limit discovery to the "Montview matter and the relationships between the four Defendants." See [#103 at 7].

Per the Scheduling Order, this court set the deadline for joinder of parties and amendment of pleadings as October 6, 2017. See [#76 at 29]. Plaintiff filed the instant Motion to Amend on October 6, 2017. [#128]. Plaintiff requests leave to file its proposed Second Amended Complaint ("SAC") that includes a request for exemplary damages pursuant to Colo. Rev. Stat. § 13-21-102 and "addresses alleged deficiencies in Church Mutual's RICO and COCCA claims by providing more particularity with respect to the multiple predicate acts of wire and mail fraud, thereby satisfying the 'pattern' element of Church Mutual's RICO and COCCA claims." [Id. at 1-2]. Defendants have filed their Response and Plaintiff its Reply. [#135; #136]. The Motion to Amend is now ripe for recommendation.

LEGAL STANDARDS

I. Rule 15(a)(2)

Rule 15(a) governs motions to amend when the moving party seeks leave to amend its pleadings on or before the deadline for joinder of parties and amendment of pleadings set by the Scheduling Order. See Fernandez v. Bridgestone/Firestone, Inc., 105 F. Supp. 2d 1194, 1195 (D. Colo. 2000) (explaining that the movant need not demonstrate good cause under Rule 16(b) under such circumstances). Rule 15(a)(2) provides that leave to amend "shall be freely given when justice so requires." Fed. R. Civ. P. 15(a)(2). The court may refuse leave to amend upon a showing of undue delay, undue prejudice to the opposing party, bad faith or dilatory motive, failure to cure deficiencies by amendments previously allowed, or futility of amendment. See Frank v. U.S. West, Inc., 3 F.3d 1357, 1365 (10th Cir. 1993); accord Watson v. Beckel, 242 F.3d 1237, 1239-40 (10th Cir. 2001) (observing that a court may dismiss a motion to amend if amendment is futile, i.e., the amended complaint would be subject to dismissal for any reason).Whether to allow amendment is within the trial court's discretion. Burks v. Oklahoma Publ'g Co., 81 F.3d 975, 978-79 (10th Cir. 1996).

II. Exemplary Damages, Colo. Rev. Stat. § 13-21-102

Colo. Rev. Stat. § 13-21-102 governs proposed amendments concerning exemplary damages. Pursuant to section 13-21-102(1.5)(a), a plaintiff cannot move for exemplary damages in the initial pleading, and may seek to amend the pleading to add a claim for exemplary damages "only after the exchange of initial disclosures pursuant to rule 26 of the Colorado rules of civil procedure," and if he or she establishes prima facie proof of a triable issue. In finding that there is no direct conflict between this statute and the Federal Rules of Civil Procedure and that application of the statute would not necessarily result in forum shopping or the inequitable administration of the law, courts in this District have held that section 13-21-102, rather than Rules 15(a) or 16(b), control whether to permit the amendment of a claim for exemplary damages. See Wollam v. Wright Medical Group, Inc., No. 1:10-cv-3104-DME-BNB, 2012 WL 4510695, at *9 (D. Colo. Sept. 30, 2012) (applying Colo. Rev. Stat. § 13-21-102 to motion to amend to add exemplary damages claim); Witt v. Condominiums at the Boulders Ass'n, No. 04-cv-02000-MSK-OES, 2006 WL 348086, at *7 (D. Colo. Feb. 13, 2006) (finding the court must give effect to Colorado statute in evaluating whether exemplary damages claim properly brought in diversity action). See also American Economy Ins. Co. v. William Schoolcraft, M.D., P.C., No. 05-cv-01870-LTB-BNB, 2007 WL 160951, at *2 (D. Colo. Jan. 17, 2007) (applying Jones v. Krautheim, 208 F. Supp. 2d 1173, 1179 (D. Colo. 2002)). Even with the application of section 13-21-102, however, the court may deny a motion to amend to add exemplary damages because of delay, bad faith, undue expense, or other demonstrable prejudice. Stamp v. Vail Corp., 172 P.3d 437, 449 (Colo. 2007) (citation omitted).

Section 13-21-102 provides that an award of exemplary damages is permissible when "the injury complained of is attended by circumstances of fraud, malice, or willful and wanton conduct." Colo. Rev. Stat. § 13-21-102(1)(a). The purpose of the award of punitive damages is to punish the wrongdoer, not compensate for injuries. See Lira v. Shelter Insurance Co., 913 P.2d 514, 517 (Colo. 1996). A "finding that the elements of fraud [are] established also establishe[s] the 'circumstances of fraud' required for punitive damages." Berger v. Sec. Pac. Info. Sys., Inc., 795 F.2d 1380, 1386 (Colo. App. 1990) (upholding award of exemplary damages where the plaintiff prevailed on her fraudulent concealment claim at trial).

As to the requirement of a prima facie showing, "[p]rima facie evidence is evidence that, unless rebutted, is sufficient to establish a fact." Stamp, 172 P.3d at 449 (citation omitted). Such proof is established by "a reasonable likelihood that the issue will ultimately be submitted to the jury for resolution." Id. (quoting Leidholt v. Dist. Court, 619 P.2d 768, 771 n.3 (Colo. 1980)). Parties may offer this proof in the form of discovery and by evidentiary means. Id. "The question of whether the plaintiff has established sufficient proof to add a claim for exemplary damages lies within the sound discretion of the trial court." Id. (citation omitted). In reviewing the Motion to Amend, this court considers only the "preliminary question" of whether Plaintiff has made a prima facie showing that the injury complained of is attended by "circumstances of fraud," not whether it will ultimately prevail. American Economy Ins. Co., 2007 WL 160951, at *4

ANALYSIS

I. Exemplary Damages

In the Motion, Plaintiff requests leave to assert a claim for exemplary damages based on Messrs. Coutu and Bensusan's failure to disclose their business relationship and financial interestin the underlying Montview appraisal award. [#128 at 3-4; #136 at 3]. Because the Parties have exchanged initial disclosures, Church Mutual contends that it can now proffer sufficient evidence to demonstrate a prima facie showing of "circumstances of fraud" under Colo. Rev. Stat. § 13-21-102(1.5)(a), such that a claim for exemplary damages is appropriate.

To prove a fraudulent concealment claim Church Mutual must demonstrate: (1) Defendants concealed a material fact that in equity and good conscience should have been disclosed; (2) Defendants knew they were concealing such a fact; (3) Plaintiff was ignorant to the...