United States District Court, Southern District of New York
April 25, 2003
EFAM ENTERPRISES, LLC, ETC., PLAINTIFF, AGAINST THE TRAVELERS INDEMNITY COMPANY OF AMERICA, INC., ETC., ET ANO., DEFENDANTS.
The opinion of the court was delivered by: Lewis A. Kaplan, United States District Judge
This is an action on a business-owner's insurance policy in which the plaintiff insured seeks to, inter alia, recover legal fees and expenses it has incurred in defending an action brought against it which the insured claims the defendants are obliged by the policy to defend. The action was commenced in state court and, after an unsuccessful effort, eventually removed to this Court on the basis of diversity of citizenship. The matter is before the Court on plaintiff's motion for leave to serve a second amended complaint and to add as a defendant All Risk Brokerage Co., Inc. ("All Risk"). The addition of All Risk would destroy complete diversity and oust this Court of subject matter jurisdiction. Defendants resist the addition of All Risk.
The ostensible reason for adding All Risk revolves around the carrier's defense of untimely notice, first asserted by answer in July 2002. Plaintiff's present theory, embodied in the proposed second amended complaint, is that the underlying claim was made in late May 2000, that plaintiff notified All Risk in early June 2000, and that All Risk then either (a) notified the carrier, in which case the notice defense is baseless, or (b) failed to notify the carrier, in which event All Risk would be liable to plaintiff if and to the extent that the carrier defeats plaintiff's claim on the policy on the basis of the untimely notice defense. It asserts that it first learned that the carrier denies receipt in June 2000 of notice from All Risk upon the carrier's recent production of its claims file. And it argues that it should be permitted to bring All Risk into this case to avoid having to bring a second action.
Defendants argue that this is all a ruse to defeat federal subject matter jurisdiction, and there is at least some fire amidst the smoke. The original complaint in this case makes no reference to notice to or through All Risk or of notice as early as June 2000. Rather, it alleges that plaintiff gave notice directly to the carrier on or about September 29, 2000. Cpt. ¶ 12. The existence of an allegation as to the giving and timing of notice certainly indicates that plaintiff was aware of their importance when it brought the action, so the lack of any reference to All Risk or to notice prior to September 29, 2000 in the original complaint undermines the veracity of the proposed claim against All Risk, particularly in light of the fact plaintiff has come forward with no documentary evidence of any such notice notwithstanding its reference to an alleged fax from plaintiff to All Risk. Ehrlich Aff. ¶ 3. Moreover, even if the lack of reference to All Risk in the complaint could be chalked up to an oversight, the fact remains that the carrier asserted the notice defense last July. That surely would have caused plaintiff to review the notice question and, if there were a legitimate basis for claiming notice in June 2000 to and through All Risk, to have sought leave to amend then.
Equally telling, plaintiff's moving papers reveal that plaintiff seeks leave to amend not only to bring in All Risk, but to make a jury demand for the first time.*fn1 Penn. Decl. ¶ 15. Thus, plaintiff evidences a belated awareness that the failure to make a timely demand in the past quite possibly waived a jury. The addition of All Risk, with its concomitant ouster of federal jurisdiction, would resurrect plaintiff's right to demand a jury because the state practice requires such a demand only upon the filing of a note of issue and statement of readiness, neither of which exists in federal practice.
In ordinary circumstances, leave to amend should be given freely. E.g., Foman v. Davis, 371 U.S. 178, 182 (1962). Thus, in the absence of undue delay, bad faith, dilatory motive, or other aggravating factors, leave to amend is given routinely. E.g., 3 Moore's Federal Practice § 15.15 (3d ed. 2000). This liberality, however, is not as great where the effect of an amendment would be to add a non-diverse party and thus to defeat federal jurisdiction. See, e.g., Briarpatch Ltd., L.P. v. Pate, 81 F. Supp.2d 509, 515 (S.D.N.Y. 2000). Accordingly, what is called for is a sound exercise of discretion, taking into account the bona fides of the movant, "competing interests in efficient adjudication and the need to protect diversity jurisdiction from manipulation,"*fn2 the prejudice or lack thereof to the non-moving party, and other relevant factors.
In this case, the balance is fairly close. Weighing in favor of the application, and thus in favor of sending the entire controversy back to state court, is plaintiff's interest in resolving the entire dispute in one action and the lack of any real prejudice to the defendants, who might well benefit from any delay. Weighing against it are the debatable veracity of plaintiff's claim of notice to All Risk and its perhaps less than entirely candid effort to avoid the possible consequences of its failure to make a timely jury demand. Bearing in mind, however, that a motion for leave to amend is a less than desirable vehicle for passing judgment on the merits of plaintiff's claim against All Risk, and considering all the other circumstances, the Court exercises its discretion in plaintiff's favor.
The motion for leave to amend and to join All Risk as a party is granted. As this destroys complete diversity of citizenship, the Court no longer has subject matter jurisdiction, and the case therefore is remanded to the Supreme Court of the State of New York, County of New York.