Rose v. Hartford Underwriters Insurance Company, 98-4286

• Decision Date: 07 December 1999
• Docket Number: No. 98-4286,98-4286
• Citation: 203 F.3d 417
• Parties: (6th Cir. 2000) Allen W. Rose, Plaintiff-Appellant, v. Hartford Underwriters Insurance Company, Defendant-Appellee. Argued and Submitted:
• Court: U.S. Court of Appeals — Sixth Circuit

Page 417

203 F.3d 417 (6th Cir. 2000)

Allen W. Rose, Plaintiff-Appellant, v. Hartford Underwriters Insurance Company, Defendant-Appellee.

No. 98-4286

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

Argued and Submitted: December 7, 1999

Decided and Filed: February 14, 2000

Appeal from the United States District Court for the Northern District of Ohio at Akron; No. 98-00600--James S. Gwin, District Judge.

Robert Chudakoff, ULMER & BERNE, Cleveland, Ohio, for Appellee.

Edward C. Pullekins, GENOVESE & PULLEKINS, Akron, Ohio, for Appellant.

Before: JONES, BATCHELDER, and MOORE, Circuit Judges.

OPINION

KAREN NELSON MOORE, Circuit Judge.

Plaintiff Allen Rose appeals the district court's denial of his motion to amend his original complaint in this insurance coverage dispute. The district court issued a marginal entry order denying Rose's motion to amend his complaint, but the district court failed to provide any explanation for its decision. Because the district court's denial of the motion to amend without explanation qualifies as an abuse of discretion, and because this abuse of discretion does not amount to a harmless error, we REVERSE the district court's denial of the motion to amend, and REMAND the case to the district court for further proceedings consistent with this opinion.

I. BACKGROUND

This case involves a dispute between the parties over Hartford Underwriters Insurance Company's financial responsibility for a February 14, 1997 fire that destroyed Rose's home in Akron, Ohio. Hartford acknowledges that it had provided Rose with a policy that was effective at the time of the fire, but the insurance company refused to honor its policy after the company's investigators determined that the fire had been set intentionally. Hartford's investigation revealed that the fire had been started in four separate areas of the home, and two samples of debris taken from Rose's home tested positive for the presence of a flammable liquid substance. On October 24, 1997, Hartford informed Rose that it had decided to deny payment of his claims on grounds that Rose had engaged in arson and had made material misrepresentations regarding the policy. According to the parties, Rose was later indicted and arrested for arson related to the fire in January of 1998, but was subsequently acquitted of the arson charges. Rose's Br. at 6; Hartford's Br. at 4.

On February 18, 1998, Rose filed a complaint in Summit County Common Pleas Court in which he alleged that Hartford breached the insurance contract when the company denied his claim. Hartford subsequently removed the case to federal district court on grounds that the district court had diversity jurisdiction over the case pursuant to 28 U.S.C. § 1332. On May 13, 1998, Rose filed a motion to amend his original complaint and sought leave to include additional allegations that charged Hartford with acting in bad faith when it denied him coverage under the fire insurance policy. Rose asserted that the bad faith claim had been "inadvertently omitted" from the original complaint, and he claimed that he had discovered "additional information" that supported the bad faith claim. Hartford responded by filing a brief in opposition to Rose's motion to amend in which it argued that the addition of Rose's bad faith claim would be futile because Rose had been indicted on arson charges. Hartford did not, however, attach any evidentiary material to its response, such as the actual indictment that charged Rose with arson. On June 18, 1998, the district court issued a marginal entry order and denied without explanation Rose's motion to amend his complaint.

On August 4, 1998, Hartford filed a motion for summary judgment in which it argued that Rose's remaining breach of contract claim was barred as a matter of law by the one-year statute of limitations set forth in the fire insurance policy. The fire insurance policy stated that "[n]o action can be brought unless the policy provisions have been complied with and the action is started within one year after the date of loss." J.A. at 124 (Hartford Ins. Policy) (emphasis added). Hartford argued that this language barred Rose's breach of contract claim because the fire destroyed Rose's home on February 14, 1997, and he did not file his complaint against Hartford until February 18, 1998. The district court agreed that Rose's failure to file his complaint within the one-year period in the policy barred his breach of contract claim, and, as a result, the district court granted summary judgment in favor of Hartford on September 18, 1998.

Rose now appeals the district court's decision to deny his motion to amend his original complaint. Because Rose's initial appellate brief does not address the district court's grant of summary judgment on his breach of contract claim, we limit our review to the district court's decision to deny Rose's motion to amend his original complaint. Indeed, Rose abandoned any argument relating to the district court's grant of summary judgment on the breach of contract claim when he failed to raise this issue on appeal. See McMurphy v. City of Flushing, 802 F.2d 191, 198-99 (6th Cir. 1986).

II. ANALYSIS

A. Rose's Motion to Amend His Original Complaint

Rose contends that the district court erred when it denied his motion to amend his original complaint, which prevented him from adding a claim of bad faith against Hartford in this insurance dispute. Rule 15(a) of the Federal Rules of Civil Procedure provides that leave to amend "shall be freely given when justice so requires." We review a district court's order denying a Rule 15(a) motion to amend for an abuse of discretion. General Elec. Co. v. Sargent & Lundy, 916 F.2d 1119, 1130 (6th Cir. 1990).

Although a district court has discretion to deny a motion to amend a complaint after an answer has been filed, we have held on several occasions that a district court abuses its discretion when it fails to state a basis for its decision to deny a motion to amend. Jet, Inc. v. Sewage Aeration Sys., 165 F.3d 419, 425 (6th Cir. 1999); Moore v. City of Paducah, 790 F.2d 557, 559 (6th Cir. 1986); see also Foman v. Davis, 371 U.S. 178, 182 (1962) ("[An] outright refusal to grant the leave without any justifying reason appearing for the denial is not an exercise of discretion; it is merely abuse of that discretion and inconsistent with the spirit of the Federal Rules."). In the present case, the district court issued a marginal entry order denying Rose's motion for leave to amend his complaint, but it did not provide a justification or explanation for its denial. Because the district court denied Rose's motion without explanation, it has clearly abused its discretion in this case.

Nevertheless, the district court's abuse of its discretion could amount to a harmless error if adding Rose's proposed amendment would have been futile. See, e.g., Jet, Inc., 165 F.3d at 425 (holding that magistrate judge's denial of motion to amend without providing an explanation was harmless because "[t]he futility of amending [the plaintiff's] complaint would have been appropriate grounds on which to deny the motion to amend."). A proposed amendment is futile if the amendment could not withstand a Rule 12(b)(6) motion to dismiss. Thiokol Corp. v. Department of Treasury, State of Michigan, Revenue Div., 987 F.2d 376, 382-83 (6th Cir. 1993).

In this case, Hartford argues that the district court's decision should be affirmed because there is evidence in the record, i.e., Rose's criminal indictment on arson charges, that shows that adding Rose's bad faith claim would have been futile. The district court, however, could not have properly considered Rose's indictment on criminal charges on a Rule 12(b)(6) motion to dismiss. Because the criminal indictment qualifies as a "matter[ ] outside the pleading," the district court would have had to treat a Rule 12(b)(6) motion and accompanying indictment as a motion for summary judgment. See Fed. R. Civ. P. 12(b)(6) (stating that if "matters outside the pleading 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, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56."). Hartford claims that Rose's proposed amendment is futile because the district court would have eventually granted summary judgment in the insurance company's favor once the district court considered the criminal indictment. The test for futility, however, does not depend on whether the proposed amendment could potentially be dismissed on a motion for summary judgment; instead, a proposed amendment is futile only if it could not withstand a Rule 12(b)(6) motion to dismiss. Because the proposed bad faith claim could withstand a Rule 12(b)(6) motion to dismiss, Rose's proposed amendment was not futile. Thus, the district court's abuse of discretion in this case does not amount to a harmless error.

Hartford also argues that the district court's dismissal of Rose's motion to amend should be affirmed because the district court could have taken judicial notice of the criminal indictment pursuant to Federal Rule of Evidence 201. Rule 201 states in part that:

(a) Scope of rule. This rule governs only judicial notice of adjudicative facts.

(b) Kinds of Facts. A judicially noticed fact must be one not subject to reasonable dispute in that it is either (1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned.

(c) When discretionary. A court may take judicial notice, whether requested or not.

(e) Opportunity to be heard. A party is entitled upon timely request to an opportunity to be heard as to the propriety of taking judicial notice and the tenor of the matter noticed. In the absence of prior notification,...