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.
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)
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 between the parties (in
spite of the errors and oversights of their attorneys) against
the need for maintaining orderly and efficient procedural
arrangements.'" Id. (citation omitted).
Losco's request comes very late. The initial action was filed
on November 12, 1999, and Losco's counterclaim was filed one year
later — on November 20, 2000. This case is now over a year and a
half old. I set a discovery deadline on Losco's counterclaim at
March 31, 2001, a date that has long passed. I was also quite
explicit that there would be no extension of that discovery
schedule. Accordingly, I will not entertain any amendment to the
counterclaim that could require any additional discovery to be
taken. Discovery on the counterclaims is no longer "in its
infancy" as Losco claims — nor should it have been on March 21,
2001 (ten days before the scheduled close of discovery) when
Losco moved to amend its counterclaim.
For the reasons stated below, Losco's motion to add a
counterclaim for promissory estoppel is granted, but its motion
to add counterclaims in quantum meruit and as a third party
beneficiary of the Travelers Building Risk Policy is denied as
futile. Losco's motion to add file a Third Party Complaint
against the German School is also denied.
1. Losco's Counterclaims
Travelers argues that granting Losco's motion amend the
counterclaims would be futile, and that it would result in undue
prejudice to them.
Losco's original counterclaim alleged breach of contract
against Travelers. The Amended Counterclaim adds counts for (1)
breach of contract under a theory that Losco was an intended
third-party beneficiary under the Travelers Policy; (2)
promissory estoppel; and (3) unjust enrichment/quantum
A. Third-Party Beneficiary
In order for a third party to enforce a policy of insurance, it
must be demonstrated that the parties intended to insure the
interest of the person seeking to recover on the policy. See
Stainless, Inc. v. Employers Fire Ins. Co., 69 A.D.2d 27, 33,
418 N.Y.S.2d 76, 80 (1st Dep't 1979), aff'd, 49 N.Y.2d 924,
428 N.Y.S.2d 675, 406 N.E.2d 490 (1980). In Stainless, 69 A.D.2d at
33, 418 N.Y.S.2d 76, the court wrote:
As with other contracts, unless it is established
that there is an intention to benefit the third
party, the third party will be held to be a mere
incidental beneficiary, with no enforceable rights
under the contract. . . . The intention to benefit
the third party must appear from the four corners of
the instrument. The terms contained in the contract
must clearly evince an intention to benefit the third
person who seeks the protection of the contractual
Id. (emphasis added) Where the insurance contract does not
name, describe, or otherwise refer to the entity or individual
seeking the benefit as an insured, there is no obligation to
defend or indemnify. State v.
American Mfrs. Mut. Ins. Co., 188 A.D.2d 152, 155, 593 N.Y.S.2d 885,
887 (3d Dep't 1993).
Losco does not allege that it was named in the insurance
policy, and nothing in the Builder's Risk Policy expresses an
intent to benefit Losco as a third party. To the contrary, the
"German School of New York" is the only named insured, and the
policy makes no reference to Losco in any manner — either as an
additional insured or as a third party. Because there is no
allegation that the four corners of the policy show an intention
to benefit Losco, this theory of recovery would fail as a matter
of law. Therefore any amendment to the counterclaim would be
To the extent that Losco maintains that its status as a
third-party beneficiary is evidenced by General Condition 11.3 of
the First Agreement between The German School and Losco
(requiring the German School to purchase an all-risk policy),
this argument is unavailing. Even though the contract between
these parties required that the German School purchase a
builder's risk policy, the policy itself makes no mention of
Losco's motion to amend the counterclaim to include this theory
of recovery is denied.
B. Quantum Meruit
To state a claim for quantum meruit, a plaintiff must allege
that: (1) the plaintiff rendered services to the defendant; (2)
that the defendant accepted those services; (3) that the
plaintiff expected reasonable compensation for those services;
and (4) the reasonable value of the services rendered.
Huntington Dental & Medical Co. v. Minnesota Mining & Manuf.
Co., No. Civ. 95-10959, 1998 WL 60954, *7 (S.D.N.Y. 1998).
If a plaintiff fails to prove a valid contract, the court may
nonetheless allow recovery in quantum meruit to assure a just and
equitable result where the defendant "received a benefit from the
plaintiff's services under circumstances which, in justice,
preclude him from denying an obligation to pay for them." Rule
v. Brine, 85 F.3d 1002 (2d Cir. 1996) (quoting Bradkin v.
Leverton, 26 N.Y.2d 192, 196, 309 N.Y.S.2d 192, 257 N.E.2d 643
(1970)). Such a recovery for unjust enrichment is permissible
"when and because the acts of the parties or others have placed
in the possession of one person money, or its equivalent, under
such circumstances that in equity and good conscience he ought
not to retain it, and which ex aequo et bono belongs to
another." Id. (quoting Miller v. Schloss, 218 N.Y. 400, 407,
113 N.E. 337, 339 (1916)).
The amended counterclaim alleges that Losco rendered
construction services to Travelers' insured, the German School,
which in turn accepted the services. However, plaintiff also
contends that Travelers asked it to provide the services, and
agreed that it would cause the German School to compensate Losco
out of the proceeds paid by Travelers to the German School. Thus,
it is Losco's position that it provided services to Travelers.
Losco contends that it expected the reasonable compensation for
those services, in an amount of at least $997,784, and was only
Travelers responds that the quantum meruit theory is
unavailable because Losco failed to demonstrate that its services
were performed for Travelers, rather than the German School.
Travelers further argues that Losco and Travelers are not in
privity, and that it "is not enough that the defendant received a
benefit from the activities of the plaintiff; if services were
performed at the behest of someone other
than the defendant, the plaintiff must look to that person for
recovery." Heller v. Kurz, 228 A.D.2d 263, 264, 643 N.Y.S.2d 580,
581-82 (1st Dep't 1996).
Travelers is correct that the services were provided by Losco
to the German School. Losco is a builder. It built and then
repaired a school. Travelers may have been involved in the
discussions that led to Losco's providing those services (see
below), but that does not mean that the services were provided
to Travelers. It is counterintuitive to say that services
provided to an insured are also provided to its insurer. The
insurance company derives no benefit from those services; indeed,
what the insurer gets is a ripened obligation to pay money to the
insured — which hardly can be called a benefit. In the absence of
any authority espousing this theory — and Losco has provided none
— I conclude that it would be futile for Losco to assert a claim
against Travelers in quantum meruit.
C. Promissory Estoppel
In order to state a claim of promissory estoppel under New York
law, plaintiff must allege that there was (1) a clear and
unambiguous promise; (2) a reasonable and foreseeable reliance by
the party to whom the promise is made; and (3) an injury
sustained by the party asserting the estoppel by reason of his
reliance. Arcadian Phosphates, Inc. v. Arcadian Corp.,
884 F.2d 69, 74 (2d Cir. 1989). Losco's proposed amended counterclaim
alleges that Travelers promised to compensate Losco for
repairing, replacing and constructing the roof after the
The motion to amend the counterclaim to add a promissory
estoppel claim is granted. Promissory estoppel is an alternative
theory to breach of contract. The factual issues raised by this
new theory (e.g. whether Losco acted in reliance on those
promises) would not require any additional discovery, since Losco
already has developed testimony about what promises were or were
not made by Travelers, and what work was accomplished in reliance
on the promises. Because the facts underlying the claims are the
same, the addition of a promissory estoppel claim will not
2. Losco May Not File a Third Party Complaint
On June 16, 2000, Losco filed an Amended Verified Complaint
against the German School in the Supreme Court of the State
of New York, County of Westchester. In that Complaint, Losco
alleged breach of its July 23, 1997 contract with the German
School for failing to pay for work done on the gymnasium.
Plaintiff alleged $3,214,255 in damages, and for enforcement of a
mechanics lien on the premises in the amount of $2,785,670. Losco
now seeks to add the German School as a third party defendant in
this action, and to assert breach of contract, breach of
fiduciary duty, and unjust enrichment against the German School.
Plaintiff alleges that the German School should be joined as a
necessary party under Federal Rule of Civil Procedure 19(a), or
in the alternative, under the permissive joinder rules of Rule 13
(a) The German School is Not a Necessary Party
The German School will not be joined pursuant to Rule 19(a).
Fed. R.Civ.P. 19(a) states that a "necessary party" shall be
(1) in the person's absence, complete relief cannot
be accorded among those already parties, or (2) the
person claims an interest relating to the subject of
the action and is so situated that the disposition of
the action in the person's absence may (i) as a
practical matter impair or impede the person's
ability to protect that interest or (ii) leave any
risk of the persons already parties subject to a
substantial risk of incurring double, multiple or
otherwise inconsistent obligations by reason of the
Losco argues that the German School is a necessary party
because it was a party to the First Agreement, signed in July
1997, and because it is the subrogor in Travelers' main action.
(Def. Mem. In Supp. of Motion to Amend Counterclaim at 7.) It
also contends that it would be prejudiced if required to maintain
a separate state court cause of action against the German School.
Losco cites, as an example, the possibility that a trier-of-fact
could find against Losco in its counterclaim against Travelers in
this case, believing that the German School was the party truly
liable. At the same time, a trier-of-fact in state court could
find against Losco on its claim against the German School for the
same monies, finding that Travelers is the true party liable.
However, the German School is not a necessary party within
the meaning of the rule because complete relief can be accorded
here as between Losco and Travelers, and the German School has no
interest in these proceedings. There is also no risk that either
Travelers or Losco would be subject to double, multiple or
inconsistent obligations (as opposed to results) if the federal
and state actions both proceed. Delgado v. Plaza Las Americas,
Inc., 139 F.3d 1 (1st Cir. 1998). In Delgado, defendants faced
a federal action and a state action arising from the same
incident. The First Circuit, reversing the district court's
dismissal of the complaint, stated that "the mere possibility of
inconsistent results in separate actions does not make the
plaintiff in each action a necessary party to the other." Id.
Inconsistent obligations occur when a party is
unable to comply with one court's order without
breaking another court's order concerning the same
incident. Inconsistent adjudications or results, by
contrast, occur when a defendant successfully defends
a claim in one forum, yet loses on another claim
arising from the same incident in another forum.
Unlike a risk of inconsistent obligations, a risk
that a defendant who has successfully defended
against a party may be found liable to another party
in a subsequent action arising from the
same incident — i.e., a risk of inconsistent
adjudications or results — does not necessitate
joinder of all of the parties into one action
pursuant to Fed. R.Civ.P. 19(a).
Delgado, 139 F.3d at 3 (emphasis added). See also Southern Co.
Energy Marketing LP v. Virginia Elec. and Power Co., 190 F.R.D.
182 (E.D.Va. 1999) (same); No. Am. Specialty Ins. Co. v.
Chichester School Dist., No. CIV-A 99-2394, 2000 WL 1052055, *25
(E.D.Pa. July 20, 2000) (same).
Losco's fear is that each jury will conclude that the other
party is liable to it. But as was true in Delgado, the mere
possibility of inconsistent verdicts does not make the German
School a necessary party under Rule 19(a). It is possible that
Losco could win both cases, or lose both cases, or win one and
lose one (one way or the other); but none of these results would
result in Losco's incurring inconsistent obligations.
(b) Permissive Joinder Not Warranted
Plaintiff asks this Court, in the alternative, to join The
German School under the permissive joinder rules of Fed.R.Civ.P.
13 and 20. Rule 13 provides that "persons other than those made
parties to the original action may be made parties to a
counterclaim or cross-claim in accordance with the provisions of
rules 19 and 20." Rule 20 states that persons may be joined in
one action "if there is asserted against them jointly, severally,
or in the alternative, any right to relieve in respect of or
arising out of the same transaction, occurrence, or series of
transactions or occurrences and if any question of law or fact
common to all defendants will arise in the action."
Fulfillment of the specific requirements of Rule 20, however,
is not enough to warrant granting the plaintiff's motion. Shaw
v. Munford, 526 F. Supp. 1209, 1213 (S.D.N.Y. 1981). Permissive
joinder rests with the "sound discretion of the Court, which must
determine if joinder `will comport with the principles of
fundamental fairness.'" Shaw v. Munford, 526 F. Supp. 1209, 1213
(S.D.N.Y. 1981) (quoting Desert Empire Bank v. Ins. Co. of N.
Am., 623 F.2d 1371, 1375 (9th Cir. 1980)). A district court may
deny a motion for joinder where the addition of the defendants
would cause prejudice, expense, and delay by opening up a
"Pandora's box" of discovery. Barr Rubber Products Co. v. Sun
Rubber Co., 425 F.2d 1114, 1127 (2d Cir.), cert. denied,
400 U.S. 878, 91 S.Ct. 118, 27 L.Ed.2d 115 (1970); Krumme v.
West-Point Stevens, Inc., 143 F.3d 71, 88 (2d Cir. 1998) ("One
of the most important considerations in determining whether
amendment would be prejudicial is the degree to which it would
delay the final disposition of the action"); Republic Nat'l Bank
v. Hales, 75 F. Supp.2d 300, 308 (S.D.N.Y. 1999) (noting that a
court must consider whether joinder would require the opponent to
expend significant additional resources to conduct discovery and
to prepare for trial, or significantly delay the resolution of
Losco's motion to file a Third Party Complaint against the
German School is denied. Losco (albeit with its former counsel)
chose the state court as its forum, and now must live with that
decision. Joining the German School at this late stage would
delay the proceedings, prejudice Travelers, and significantly
delay resolution of this dispute. The German School would have
the right to retake all depositions, and discovery — which has
been completed for months — would need to be re-opened. Losco's
claims are already being litigated in the state court action that
Losco commenced six months after the present action was
Losco has new claims against the German School, it can amend its
pleading in state court.
Losco's motion to amend the counterclaim is granted in part,
allowing only the promissory estoppel claim to be included, and
allowing Losco to omit Count Two of the original counterclaim.
Losco's motion to file a Third Party Complaint against the German
School is denied.
This constitutes the decision and order of this Court.