Keiter v. Penn Mut. Ins. Co.

• Decision Date: 22 September 1995
• Docket Number: Civ. No. 95-00164 DAE.
• Citation: 900 F. Supp. 1339
• Parties: Lester R. KEITER, also known as Les Keiter, and Lila J. Keiter, husband and wife, Plaintiffs, v. The PENN MUTUAL INSURANCE COMPANY, a Pennsylvania Corporation; the Penn Insurance and Annuity Company, a Delaware corporation; Bernard Golden; John Does 1-10, Individuals, Corporations, Partnerships, Limited Partnerships, Joint Ventures, Defendants.
• Court: U.S. District Court — District of Hawaii

900 F. Supp. 1339

Lester R. KEITER, also known as Les Keiter, and Lila J. Keiter, husband and wife, Plaintiffs, v. The PENN MUTUAL INSURANCE COMPANY, a Pennsylvania Corporation; the Penn Insurance and Annuity Company, a Delaware corporation; Bernard Golden; John Does 1-10, Individuals, Corporations, Partnerships, Limited Partnerships, Joint Ventures, Defendants.

Civ. No. 95-00164 DAE.

United States District Court, D. Hawai`i.

September 22, 1995.

Joy S. Omonaka, Edmunds & Verga, Honolulu, HI, for Lester R. Keiter.

George H. Keller, Greeley Walker & Kowen, Honolulu, HI, for Lila J. Keiter.

Janice T. Futa, George H. Keller, Greeley Walker & Kowen, Honolulu, HI, for Penn Mut. Ins. Co., Penn Ins. & Annuity Co.

James T. Wong, Law Offices of John Cregor, Honolulu, HI, James T. Wong, Law Offices of James T. Wong, Honolulu, HI, for Bernard Golden.

ORDER GRANTING PLAINTIFFS' MOTION TO FILE SECOND AMENDED COMPLAINT; DENYING AS MOOT DEFENDANTS' MOTION FOR PARTIAL SUMMARY JUDGMENT AND JUDGMENT ON THE PLEADINGS ON FIRST AMENDED COMPLAINT; AND DISMISSING CERTAIN CLAIMS

DAVID ALAN EZRA, District Judge.

The court heard the parties' motions on September 18, 1995. John S. Edmunds, Esq., Ronald J. Verga, Esq., Joy S. Omonaka, Esq., and Wesley D. Shimazu, Esq., appeared on the briefs or at the hearing on behalf of Plaintiffs; Janice T. Futa, Esq., and George H. Keller, Esq., appeared on the briefs or at the hearing on behalf of Defendants The Penn Mutual Life Insurance Company and The Penn Insurance and Annuity Company. James T. Wong, Esq., appeared on behalf of Defendant Bernard Golden. After hearing argument and reviewing the motion and the supporting and opposing memoranda, the court GRANTS Plaintiffs' leave to File their Second Amended Complaint. The court considers the Defendants' motion as it applies to Plaintiffs' Second Amended Complaint, and DISMISSES certain claims therein. The court DENIES as moot Defendants' Motion for Summary Judgment and for Judgment on the Pleadings on the First Amended Complaint.

BACKGROUND

This dispute arises out of Plaintiffs' purchases of life insurance from Defendant Bernard Golden ("Golden"). Plaintiff Lester Keiter is a retired television and radio sportscaster, known as Les Keiter. He and his wife Lila Keiter are longtime residents of Hawaii. Golden, a resident of New York and an insurance agent, acted as an agent for The Penn Mutual Life Insurance Company ("PML") and The Penn Insurance and Annuity Company ("PIA") (collectively "PML/PIA"). Les Keiter purchased a "whole life" policy from one Arnold Panella in New York in the 1950s. After Golden took over the policy as agent, the policy continued in effect until 1982. Plaintiffs moved to Hawaii in 1970, but met with Golden in 1982 during a trip to New York.

Plaintiffs assert that Golden told them that Les Keiter needed to change the policy from "whole" to "universal life." Plaintiffs contend that Golden and PML/PIA knew or should have known that Les Keiter intended to retain Lila Keiter as the beneficiary. Plaintiffs allege that Golden focused on what would be best for "them" when he discussed their needs.

Plaintiffs assert that Golden then sold Les Keiter a "universal life" policy, mailing it to Honolulu. Les Keiter sent all payments from Honolulu until a dispute arose in 1994. Plaintiffs contend that Golden and PML/PIA did not disclose to them that, under a "universal life" policy, a drop in interest rates could erode Les Keiter's equity and greatly increase premium payments. Plaintiffs contend that Defendants marketed and sold the policy as part of a pattern of deliberately and fraudulently selling such policies during a period of high interest rates. Plaintiffs claim that Defendants specifically represented that the policy would benefit Lila Keiter. Plaintiffs allege that in an April 9, 1993 letter, Defendants failed to advise him that the monthly premium could increase from approximately $529.00 to approximately $2,784.00 per month, while the death benefit remained more or less unchanged. Les Keiter could not afford the increased premiums and let the policy lapse, obtaining a new policy with a difference in the death benefit of $280,000.00.

The First Amended Complaint contains Eight Counts: Negligence (Count I), gross negligence (Count II), breach of contract (Count III), breach of fiduciary duty (Count IV), fraud (Count V), intentional misconduct (Count VI), unfair and/or deceptive business practices (Count VII), and failure to turn over records (Count VIII). Defendants move for summary judgment¹ as to all claims brought by Lila Keiter, arguing that she was not a party to the contract. Defendants also move for judgment on the pleadings on the claims for breach of fiduciary duty (Count IV) and failure to turn over records (Count VIII),² arguing that PML/ PIA does not owe Plaintiffs a fiduciary duty under the insurance contract.

Plaintiffs admit that "certain of Penn Defendants' arguments are well taken," and move for leave to file a Second Amended Complaint. The Second Amended Complaint replaces the claim for breach of fiduciary duty (Count IV) with a claim for breach of the implied covenant of good faith and fair dealing (new Count IV). It also changes the basis for the claim of failure to turn over records, alleging in Count VIII that Defendants' failure also constitutes a breach of the implied covenant. Finally, the Second Amended Complaint attempts to clarify the role of Lila Keiter, adding under the claim for breach of contract (Count II) a claim for tortious breach of contract, and alleging that Lila Keiter suffered emotional distress. Defendants oppose Plaintiffs' motion, arguing that the proposed amendments are futile.³

STANDARD OF REVIEW

I. Motion for Leave to File an Amended Complaint

The Supreme Court has stated that amendment to pleadings is to be "freely given." Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230, 9 L.Ed.2d 222 (1962). Accordingly, the Ninth Circuit has held that leave to amend under Rule 15(a) "shall be freely given when justice so requires," and that this policy should be applied with "extreme liberality." DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 186 (9th Cir.1987).

This liberality "is, however, subject to the qualification that amendment of the complaint does not cause the opposing party undue prejudice, is not sought in bad faith, and does not constitute an exercise in futility." DCD Programs, Ltd., 833 F.2d at 186. A critical factor to consider is the resulting prejudice to the opposing party. Jordan v. County of Los Angeles, 669 F.2d 1311, 1324 (9th Cir.1982). Prejudice to the opposing party would result if they were required to conduct extensive additional discovery if the amendment were allowed. Howey v. United States, 481 F.2d 1187, 1191 (9th Cir.1973).

A district court does not abuse its discretion in denying a motion for leave to amend when a new claim would prejudice the defendants and "greatly change the nature of the litigation." Morongo Band of Mission Indians v. Rose, 893 F.2d 1074, 1079 (9th Cir.1990). "Putting the defendants `through the time and expense of continued litigation on a new theory, with the possibility of additional discovery, would be manifestly unfair and unduly prejudicial.'" Priddy v. Edelman, 883 F.2d 438, 447 (6th Cir.1989) (quoting Troxel Mfg. Co. v. Schwinn Bicycle Co., 489 F.2d 968, 971 (6th Cir.1973)). Denial of a motion to amend is proper where there has been undue delay and more importantly, where discovery has closed. Vollrath Co. v. Sammi Corp., 9 F.3d 1455 (1993), cert. denied, ___ U.S. ___, 114 S.Ct. 2163, 128 L.Ed.2d 886 (1994); McGlinchy v. Shell Chemical Co., 845 F.2d 802, 809-10 (9th Cir. 1988).

II. Motion to Dismiss

A motion to dismiss will be granted where the plaintiff fails to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). A complaint should not be dismissed "unless it appears beyond doubt that plaintiff can prove no set of facts in support of her claim which would entitle her to relief." Buckey v. County of Los Angeles, 968 F.2d 791, 794 (9th Cir.1992) (quoting Love v. United States, 915 F.2d 1242, 1245 (9th Cir.1989)) (further citations omitted). All allegations of material fact are taken as true and construed in the light most favorable to the plaintiff. Id. Civil rights complaints are to be liberally construed. Id. (citing Gobel v. Maricopa County, 867 F.2d 1201, 1203 (9th Cir.1989)).

To the extent, however, that "matters outside the pleadings are presented to and not excluded by the court, the motion shall be treated as one for summary judgment." Fed.R.Civ.P. 12(b); Del Monte Dunes at Monterey, Ltd. v. Monterey, 920 F.2d 1496, 1507 (9th Cir.1990).

III. Motion for Judgment on the Pleadings

Rule 12(c) of the Federal Rules of Civil Procedure provides in part as follows:

After the pleadings are closed but within such time as not to delay the trial, any party may move for judgment on the pleadings. If, on a motion for judgment on the pleadings, matters outside the pleadings are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56,....

The dismissal on the pleadings is proper only if the moving party is clearly entitled to prevail. Doleman v. Meiji Mutual Life Insurance Co., 727 F.2d 1480, 1482 (9th Cir. 1984). All allegations of fact of the opposing party are accepted as true. Id. Generally, the court is unwilling to grant dismissal pursuant to Rule 12(c) "unless the movant clearly establishes that he is entitled to judgment as a matter of law." Id. (quoting 5A Wright & Miller, Federal Practice and Procedure: Civil § 1368). To the extent, however, that "matters outside the pleadings are presented to and not excluded by the court, the motion shall be treated as one for summary judgment." Fed.R.Civ.P. 12(c).

IV. Motion for Summary Judgment

Summary judgment is appropriate when there is no genuine issue as to any...