UNR Industries, Inc. v. Continental Ins. Co., 83 A 2523.

• Decision Date: 09 April 1985
• Docket Number: No. 83 A 2523.,83 A 2523.
• Citation: 623 F. Supp. 1319
• Court: U.S. District Court — Northern District of Illinois
• Parties: UNR INDUSTRIES, INC., et al., Plaintiffs, v. CONTINENTAL INSURANCE COMPANY, et al., Defendants.

623 F. Supp. 1319

UNR INDUSTRIES, INC., et al., Plaintiffs, v. CONTINENTAL INSURANCE COMPANY, et al., Defendants.

No. 83 A 2523.

United States District Court, N.D. Illinois, E.D.

April 9, 1985.

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Michael J. Gallagher, D. Patterson Gloor, Cassiday, Schade & Gloor, Chicago, Ill., for Bituminous Coal.

Michael E. Dowd, Dowd & Dowd, Ltd., Chicago, Ill., for Northbrook Excess and Surplus Ins. Co.

Philip C. Stahl, Donald Vogelsang, Reuben & Proctor, Chicago, Ill., for Nat. Sur. Corp. and Fireman's Fund Ins. Co.

Perry L. Fuller, Robert E. Nord, Hinshaw, Culbertson, Moelmann, Hoban & Fuller, Chicago, Ill., for Continental Cas. Ins. Co.

Patrick W. O'Brien, Kenneth J. Jurek, Mayer, Brown & Platt, Chicago, Ill., for Ins. Service Office, Inc.

Merrill C. Hoyt, Thomas L. Aries, Aries, Hoyt & Williams, Chicago, Ill., for Continental Ins. Co. and Underwriters Adjusting Co.

Lloyd E. Williams, Jr., Anthony P. Katauskas, Jacobs, Williams & Montgomery, Chicago, Ill., for Commercial Union Ins. Co.

John G. Jacobs, Plotkin & Jacobs, Chicago, Ill., Stuart Parker, Siff & Newman, P.C., New York City, for American Mut. Liability Co.

Peter C. John, Phelan, Pope & John, Louis Levit, Levit & Mason, Ltd., Chicago, Ill., for Zurich Ins. Co.

William F. Ryan, Michael J. Sehr, Haskell & Perrin, Chicago, Ill., for Home Ins. Co.

Stanley B. Block, Vedder, Price, Kaufman & Kammholz, Chicago, Ill., for Continental Ins. Co. and Underwriters Adjusting Co.

Sherman I. Goldberg, First National Bank of Chicago Law Dept., Chicago, Ill.

J. William Cuncannan, Defrees & Fiske, Chicago, Ill., for Official Creditors Committee.

George P. Von Schaumburg, Securities & Exchange Comm., Chicago, Ill.

Susan Pierson DeWitt, U.S. Trustee, Chicago, Ill.

Malcolm M. Gaynor, Schwartz, Cooper, Kolb & Gaynor, Chicago, Ill., Joseph J. O'Malley, Ronald A. Oster, Paul, Hastings, Janofsky & Walker, Los Angeles, Cal., Michael Horton, c/o Mark D. Romness, UNR Industries, Inc., Chicago, Ill., for debtor.

Dennis Diczok, Citibank, New York City.

John S. Belisle, Manufacturer's Hanover Trust Co., New York City.

Daniel J. Pope, Coffield, Ungaretti, Harris & Slavin, Chicago, Ill., for American Re-Insurance Co.

Thomas C. Walker, James E. O'Halloran, Jr., O'Halloran, Lively & Walker, Northbrook, Ill., for Corroon & Black of Illinois, Inc.

MEMORANDUM OPINION AND ORDER

WILLIAM T. HART, District Judge.

Presently before the court is UNR's motion for leave to file a second amended complaint. This motion was filed one month after this court's opinion of November 30, 1984, 607 F.Supp. 855, (N.D.Ill.1984) ("November 30 Opinion") which, among other things, dismissed the antitrust claims (counts 1 and 2) of UNR's first amended complaint. Other counts in UNR's complaint seek recovery for the same conduct complained of in those dismissed counts, but the November 30 Opinion had the effect of removing the only federal-law claims and the possibility of recovering treble damages.

UNR's second amended complaint would add three new counts, all based on the same set of facts and against the same defendants. Proposed count 1, a revised version of the previously dismissed count 1,¹ claims that section 1 of the Sherman Act, 15 U.S.C. § 1, was violated when UNR was prevented from participating as a consumer in the insurance market by a conspiracy between three of UNR's insurers and Corroon and Black ("C & B"), UNR's insurance broker at the relevant times. Proposed count 2 alleges that those same acts violated the RICO statute, 18 U.S.C. §§ 1961-1968, because they constituted a scheme to defraud UNR which was conducted at least in part through mail and wire communication in violation of the mail and wire fraud laws, 18 U.S.C. §§ 1341 and 1343. Finally, proposed count 15 alleges C & B's misconduct described in proposed count 1 violated the Illinois Consumer Fraud and Deceptive Business Practices Act, Ill.Rev.Stat. ch. 121½, par. 262.

I. Standards Governing Request to Amend

Rule 15(a) of the Federal Rules of Civil Procedure provides that when a party seeks leave to amend a pleading "leave shall be freely given when justice so requires." In Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230, 9 L.Ed.2d 222 (1962), the Court stated:

This mandate is to be heeded. 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 as 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.'

Here, defendants assert that three factors — undue delay, undue prejudice, and futility of amendment — each are present and any one of them sufficient to deny leave to amend. UNR claims, and defendant C & B apparently concedes, that undue delay is not a sufficient reason by itself but must be accompanied by undue prejudice. To resolve this dispute and to better articulate the discretion vested in this court, Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 330, 91 S.Ct. 795, 802, 28 L.Ed.2d 77 (1971), an examination of the interrelationship of those three factors is necessary.

The wording used in the Foman case ("In the absence of any apparent or declared reason") suggests that any one of the reasons listed by the Supreme Court, including undue delay, is sufficient to justify denying leave to amend. Until recently the Seventh Circuit seemed to agree. See Jafree v. Barber, 689 F.2d 640, 644 (7th Cir.1982); United States Labor Party v. Oremus, 619 F.2d 683, 692 (7th Cir.1980). In Textor v. Board of Regents, 711 F.2d 1387, 1391 (7th Cir.1983), however, the court stated that "delay in presenting the amendment will be a sufficient basis for denial of leave to amend only when the delay has caused the opposing party undue prejudice." Though relying solely on 6 Wright & Miller, Federal Practice and Procedure § 1488 (1971) for what amounts to an implicit reversal of the Oremus case, the statement in Textor does find support in several cases from this district. Issen v. GSC Enterprises, 522 F.Supp. 390, 394 (N.D.Ill.1981); Farr v. United Airlines, Inc., 84 F.R.D. 618, 620 (N.D.Ill.1979); A. Cherney Disposal Co. v. Chicago & Suburban Refuse Disposal Corp., 68 F.R.D. 383, 385 (N.D.Ill.1975); Ozark Air Lines, Inc. v. Delta Air Lines, Inc., 63 F.R.D. 69, 72 (N.D.Ill.1974). Contra, Skokie Gold Standard Liquors, Inc. v. Joseph E. Seagram & Sons, Inc., 99 F.R.D. 108, 109 (N.D.Ill.1983).

From Textor this court concludes that delay and prejudice are tied together in a way similar to the sliding scale approach to preliminary injunctions adopted in Roland Machinery Co. v. Dresser Industries, Inc., 749 F.2d 380, 387-88 (7th Cir.1984). That is, while delay itself is never sufficient, the longer a party has delayed in bringing the amendment, the less prejudice the other party must show to justify denying leave to amend.² That interpretation appears to reconcile Foman and Textor, is hinted at in Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 91 S.Ct. 795, 28 L.Ed.2d 77 (1971); Murphy v. White Hen Pantry Co., 691 F.2d 350, 353-54 (7th Cir.1981); and Kirby v. P.R. Mallory & Co., 489 F.2d 904, 912 (7th Cir.1973), and is supported by the following considerations. First, a party who inexcusably delays in seeking leave to amend is in effect holding back and only playing his cards when necessary to avoid defeat. That approach is contrary to the policy of the federal rules in favor of "the just, speedy and inexpensive determination of every action." Fed.R.Civ.P. 1. If the other party can point to no prejudice that would be suffered by allowing the amendment, then Textor can be taken as saying that denying leave would be too harsh a punishment to visit on a party whose only "victim" is the system of justice generally. See also Carson v. Polley, 689 F.2d 562, 584 (5th Cir.1982) ("Merely because a claim was not presented as promptly as possible, however, does not vest the district court with authority to punish the litigant"). However, if the inexcusable delay has caused the other party some prejudice, then depending on the degree of delay and prejudice, denying leave to amend may be what justice requires.

That leaves "futility of amendment" to consider. Where it is clear that an amendment would be futile (as, e.g., where it would not survive a motion to dismiss) then quite apart from any considerations of delay or prejudice leave should be denied to avoid doing a "futile thing," Textor, 711 F.2d at 1391 n. 1. (Denying leave in those circumstances would not contravene the policy, see Green v. J.C. Penney Auto Insurance Co., 722 F.2d 330, 333 n. 3 (7th Cir.1983), in favor of deciding cases on their merits, since a futile amendment has no merit). Even an amendment that would survive a motion to dismiss is properly barred "in those instances where the prejudice outweighs the right to have the case tried on the merits." Hess v. Gray, 85 F.R.D. 15, 20 (N.D.Ill.1979). See also Wakeen v. Hoffman House, Inc., 724 F.2d 1238, 1244 (7th Cir.1983) (movant must show that a proposed amendment has "substantial" merit). Thus, the more merit a proposed amendment has, the stronger the countervailing factors (such as prejudice and delay) must be to justify denying leave.

A. Degree of Prejudice

The first sort of prejudice defendants claim will result from granting leave to amend is that they would have to file and brief a second round of "laborious and costly" motions to dismiss. (Defendants also seem to argue this court would be prejudiced by having to deal with the new claims and new motions to dismiss them, but of course that...