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TRAVELERS INDEM. OF CONNECTICUT v. LOSCO GROUP

June 29, 2001

TRAVELERS INDEMNITY COMPANY OF CONNECTICUT A/S/O THE GERMAN SCHOOL OF NEW YORK, PLAINTIFF,
v.
THE LOSCO GROUP, INC., PACIFIC IRON WORKS, INC., FAIRWAY TESTING CO., INC., AND PETER ENGLERT & ASSOCIATES, INC., DEFENDANTS.



The opinion of the court was delivered by: McMAHON, District Judge.

 
MEMORANDUM DECISION AND ORDER GRANTING IN PART DEFENDANT'S MOTION FOR LEAVE TO AMEND THE COUNTERCLAIM AND DENYING DEFENDANT'S MOTION FOR LEAVE TO FILE A THIRD PARTY COMPLAINT

In an action to recover damages for the collapse of a school gymnasium at the German School in White Plains, New York, defendant The Losco Group, Inc. ("Losco") moves for leave to amend its counterclaim against Travelers Indemnity Company of Connecticut ("Travelers") to allege that Losco was an intended Third Party Beneficiary under a Travelers insurance policy taken out by The German School of New York ("the German School"), and to include claims of promissory estoppel and unjust enrichment against Travelers. Losco also moves for leave to file a third party complaint against the German School for breach of contract, breach of fiduciary duty, and unjust enrichment. Finally, Losco seeks to discontinue Count Two of its original counterclaim, which alleged intentional misconduct by Travelers.

FACTUAL BACKGROUND

On or about July 23, 1997, Losco entered into a written agreement with the German School to perform general construction work necessary for the building of a gymnasium on the premises of the school.*fn1 (the "First Agreement") Pursuant to the terms and conditions of the First Agreement, the German School was required, inter alia, to purchase and maintain a comprehensive builder's risk insurance policy. The builder's risk policy insured against physical loss and damage to the property at the School during the construction of the gymnasium. On or about January 20, 1998, Travelers issued a builder's risk insurance policy to the German School that covered such risks. Losco was not a party to the Builder's Risk Policy, nor was it named as an additional insured on said policy.

On June 30, 1998, during Losco's construction of the gymnasium's roof structure, the roof of the gymnasium collapsed as a result of faulty welding on steel trusses that were designed to support the roof. After the collapse, The German School hired Losco to replace the damaged building construction at the German School site.*fn2 According to Losco, Michael Losco had a conversation with Jim Hanrahan of Travelers in which Losco agreed to replace all damaged building construction. (Losco Dep. at 40.) (the "Second Agreement"). Losco allegedly agreed orally with the German School and Travelers that Losco was to be paid only for the post-collapse repairs and construction that was of "like and kind" to the construction damaged during the collapse. Losco also alleges that the German School authorized Losco to perform additional extra work, and promised (again, orally) to pass through to Losco the monies received from Travelers for the post-collapse repairs. (Losco Dep. at 23.)

Ultimately, a dispute arose among Losco, the German School and Travelers regarding the amount that Losco was owed for its post-collapse construction and repair work. Losco claimed that it incurred costs of approximately $997,784 for the like-kind repairs at the German School. However, Travelers paid the German School, and The German School in turn paid Losco, only $759,230 for the repairs. Losco claims that it is owed at least $238,554 under the German School Construction Contract (the First Agreement), the Travelers Policy, and/or Losco's oral agreement with Travelers. (Losco Mem. in Support of Motion to Amend at 3.) Travelers contends that Losco has to look to the German School for payment, because the German School was the only insured on the Builder's Risk Policy.

PROCEDURAL BACKGROUND

On November 12, 1999, Travelers, as subrogee, filed a complaint against defendants Losco, Pacific Iron Works, Inc., and Fairway Testing Co., Inc. to recover the amount paid to the German School for the damage resulting from the collapse of the gym roof. With permission of the Court, on October 16, 2000, Travelers amended its complaint to name Peter Englert & Associates, Inc. as defendant in the action. In its amended complaint, Travelers alleged two counts against Losco: gross negligence and negligence.

On or about November 20, 2000, Losco filed and served its counterclaim against Travelers. It alleged, inter alia, breach of contract (Count One) and intentional misconduct with respect to the redesigned roof trusses (Count Two). Travelers timely answered Losco's counterclaim on December 13, 2000.

On or about May 1, 2000 — but five months before Losco asserted counterclaims here — Losco filed a Verified Complaint against The German School in New York Supreme Court, County of Westchester. Losco subsequently filed an Amended Verified Complaint, dated June 16, 2000. Losco's state action seeks damages for breach of both the first and second agreement for construction and repairs done before and after the collapse of The German School's roof. The First Agreement was terminated by the German School on April 12, 2000 as a result of alleged failures by Losco to correct "various defaults" under the contract. In Losco's Amended Verified Complaint against the German School, dated June 16, 2000, Losco seeks $3,214,255 for damages resulting from, inter alia, The German School's failure "to recognize and promptly pay for the extra and additional work it directed [Losco] to perform and to compensate Losco for the additional home office and field expenses Losco incurred in performing the contract work and extra work."

Since the inception of Losco's counterclaim, Travelers and Losco have engaged in document exchange and inspection. On December 12, 2000, this Court extended discovery on the counterclaim until March 31, 2001, noting that: "There will be no more extensions. Discovery is limited to the new counterclaim."

On March 21, 2001, ten days before the discovery deadline on the counterclaim, Losco moved to amend its counterclaim against Travelers and to add a third party complaint against The German School. Losco's proposed amended counterclaim would add the following counts against Travelers: (1) breach of contract based on a theory of intended third party beneficiary; (2) promissory estoppel; and (3) unjust enrichment/quantum meruit. Losco also seeks to delete Count Two of its original counterclaim, relating to the redesign of the roof trusses. Losco's proposed third-party complaint against The German School asserts three claims: (1) breach of contract (the First Agreement); (2) breach of fiduciary duty; and (3) unjust enrichment/quantum meruit.

DISCUSSION

A motion to amend is governed by Rule 15(a) of the Federal Rules of Civil Procedure, which states that leave to amend "shall be freely given when justice so requires." Fed.R.Civ.P. 15(a); Ronzani v. Sanofi S.A., 899 F.2d 195, 198 (2d Cir. 1990). Notwithstanding the liberality of the general rule, "[w]hether to allow amendment is a decision that rests in the discretion of the district court," H.L. Hayden Co. v. Siemens Medical Sys., Inc., 112 F.R.D. 417, 419 (S.D.N.Y. 1986) (citations omitted), and for a proper reason, a court may deny permission to amend, in whole or in part. In discussing the use of this discretion, the Supreme Court has stated that in the absence 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, or futility of the amendment, the leave sought should be "freely given." Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962). "Mere delay . . . absent a showing of bad faith or undue prejudice, does not provide a basis for a district court to deny the right to amend." State Teachers Retirement Bd. v. Fluor Corp., 654 F.2d 843, 856 (2d Cir. 1981) (citations omitted).

The federal courts consistently grant motions to amend where it appears that new facts and allegations were developed during discovery, are closely related to the original claim, and are foreshadowed in earlier pleadings. See id. (granting plaintiff's amendment despite delay of three years on grounds that there was no undue prejudice); Litton Indus., Inc. v. Lehman Bros. Kuhn Loeb, Inc., 734 F. Supp. 1071, 1078 (S.D.N Y 1990) (allowing amended claim for punitive damages after three years where discovery was still open, little additional discovery was required, and no undue delay would result). Furthermore, amendment is favored where it would allow the merits of a claim to be fully adjudicated. S.S. Silberblatt, Inc. v. East Harlem Pilot Block-Building Housing Development Co., 608 F.2d 28, 43 (2d Cir. 1979).

Of course, the liberal policy with regard to granting leave to amend must be reconciled with Rule 16 of the Federal Rules of Civil Procedure, which governs pretrial scheduling orders. "A schedule shall not be modified except upon a showing of good cause and leave of the [Court]." Fed.R.Civ.P. 16(b). A court may grant permission to amend the pretrial order when "the interests of justice make such a course desirable." Ismail v. Cohen, 706 F. Supp. 243, 255 (S.D.N.Y. 1989) (quoting Madison Consultants v. Federal Deposit Insurance Corp., 710 F.2d 57, 62 n. 3 (2d Cir. 1983)). In making this determination, the Court must consider any prejudice to the non-movant and "balance `the need for doing justice on the merits ...


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