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HIGHLAND CAPITAL MGMT. v. GLOBAL AEROSPACE U/W MGRS.

United States District Court, S.D. New York


May 18, 2004.

HIGHLAND CAPITAL MANAGEMENT L.P., Plaintiff, -against- GLOBAL AEROSPACE UNDERWRITING MANAGERS LIMITED, ACE USA, and INDEMNITY INSURANCE COMPANY OF NORTH AMERICA, Defendants

The opinion of the court was delivered by: JAMES FRANCIS, Magistrate Judge

MEMORANDUM AND ORDER

This is an insurance coverage matter involving the alleged misappropriation of aircraft and aircraft engines owned by the plaintiff, Highland Capital Management L.P. ("Highland"), which was insured by defendants Global Aerospace Underwriting Managers Limited ("Global"), ACE USA ("ACE"), and Indemnity Insurance Company of North America ("IIC"). Highland seeks leave to file an amended complaint pursuant to Rule 21 of the Federal Rules of Civil Procedure in order to join additional parties and to dismiss its claims against ACE. Highland seeks to join several of the "pool member companies" that Global represented when it underwrote a portion of the insurance coverage at issue in this dispute. While defendants ACE and IIC do not oppose the filing of the proposed amended complaint, Global objects on the basis that the plaintiff has not included all of the relevant pool member companies, instead only selecting certain companies it wishes to add as defendants. For the reasons that follow, the plaintiff's motion is granted.

Background

  According to the Complaint, the plaintiff was the mortgagee and subsequent owner of a Boeing 747 airframe and seven Pratt & Whitney JT9D aircraft engines. (Complaint ("Compl."), ¶¶ 2, 9). Highland claims that the airframe and engines were covered under two insurance policies. Each insurance policy was underwritten by approximately fifteen subscribing insurers, consisting of company insurers (such as Global), and several Lloyd's of London syndicates. (Defendant Global Aerospace's Opposition to Plaintiff's Motion for Leave to File Amended Complaint ("Def. Memo.") at 2). Global was the lead underwriter for the two policies that insured the full value of the airframe and engines. (Compl., ¶¶ 3, 11; Def. Memo. at 3). On July 21, 2000, Highland filed a claim under the coverage policy for theft of certain parts of the engines. (Compl., ¶ 20). Global denied Highland's claim on June 18, 2001. (Compl., ¶ 22).

  Global asserts that it functions as a managing agent, acting for and on behalf of its pool member companies in subscribing to certain insurance risks. (Def. Memo. at 3). For the insurance policies at issue, there were six pool member companies — The Marine Insurance, Commercial Union, Tokio Marine and Fire, Mitsui Marine and Fire, Munich Re, and Eagle Star — on whose behalf Global was acting, and who ultimately are liable for the insurance risks assumed by the policies. (Def. Memo. at 3). In its proposed amended complaint, Highland has included only two of those companies, The Marine Insurance and Commercial Union, as defendants. According to the plaintiff, the liability of each insurer in this case is several, with each company being responsible only to the extent of the percentage of the total risk it agreed to underwrite. (Plaintiff's Memorandum in Support of Motion for Leave to File Amended Complaint ("Pl. Memo.") at 3). Accordingly, if the four other companies were included, the claims against each defendant would be less than the $75,000 jurisdictional minimum required for federal jurisdiction. (Pl. Memo. at 3). Because the joinder of these companies would deprive this Court of subject matter jurisdiction, the plaintiff elected not to name them as additional defendants in the proposed amended complaint. It is Highland's failure to include these companies to which Global objects.

 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." See Ronzani v. Sanofi S.A., 899 F.2d 195, 198 (2d Cir. 1990). Rule 21 governs, however, where the proposed amendment adds new parties. Momentum Luggage & Leisure Baas v. Jansport, Inc., No. 00 Civ. 7909, 2001 WL 58000, at *1 (S.D.N.Y. Jan. 23, 2001) (citing Kaminsky v. Abrams, 41 F.R.D. 168, 170 (S.D.N.Y. 1966)). Rule 21 states that a party may be added to an action "at any stage of the action and on such terms as are just." In deciding whether to permit joinder, courts apply the "same standard of liberality afforded to motions to amend pleadings under Rule 15." Soler v. G & U, Inc., 86 F.R.D. 524, 528 (S.D.N.Y. 1980). The United States Supreme Court has explained that refusal to grant leave to amend must be justified by grounds such as undue delay, bad faith, futility, or prejudice to the opposing party. Foman v. Davis, 371 U.S. 178, 182 (1962); accord Richardson Greenshields Securities, Inc. v. Lau, 825 F.2d 647, 653 n.6 (2d Cir. 1987). In determining whether the defendants would be prejudiced by the amendment, the Court considers whether the addition of the proposed defendants "would: (i) require the opponent to expend significant additional resources to conduct discovery and prepare for trial; [or] (ii) significantly delay the resolution of the dispute." Block v. First Blood Associates, 988 F.2d 344, 350 (2d Cir. 1993) (citations omitted).

  Here, Global seems to oppose the proposed amendment primarily on futility grounds. Global maintains that the additional four companies are "indispensable parties" under Rule 19, and that absent their inclusion, the action cannot proceed. (Def. Memo. at 7). Global asserts that "a judgment rendered in the absence of certain pool member companies" would be contrary to the "interest of the courts and the public in complete, consistent, and efficient settlement of controversies." (Def. Memo. at 8). Highland argues that Global will not be prejudiced by the joinder of the additional parties, and that Global's objection is an affirmative defense which should be asserted in a responsive pleading or motion. (Pl. Memo. at 4-5).

  An amendment is considered futile when the proposed new claim would not withstand a motion to dismiss, either for failure to state a cause of action, or on another ground. See Milanese v. Rust-Oleum Corp., 244 F.3d 104, 110 (2d Cir. 2001); Avent v. Solfaro, No. 02 Civ. 0914, 2003 WL 21361730, at *3-4 (S.D.N.Y. June 12, 2003) (addition of new defendants was futile where defendants were immune from suit). In this case, Global is asserting its potential Rule 19 defense as a basis for disallowing the inclusion of the two new defendants. This is not persuasive. A proposed amendment may be considered futile when the new claim is fatally defective. But here, Global's argument addresses an alleged flaw that is independent of the amendment; if the complaint is doomed because Tokio Marine and Fire, Mitsui Marine and Fire, Munich Re, and Eagle Star are necessary parties that have not been joined, then that is the case regardless of whether The Marine Insurance and Commercial Union are added as defendants. Global can move at any time to dismiss the complaint for failure to join necessary parties, but that potential motion is not dependent upon whether the complaint is amended. Therefore, the necessary party argument is not a basis for denying Highland's motion to amend.

 Conclusion

  For the reasons set forth above, the plaintiff's motion to amend the complaint is granted.

  SO ORDERED.

20040518

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