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LYONDELL-CITGO REFINING v. PETROLEOS DE VENEZUELA

April 12, 2005.

LYONDELL-CITGO REFINING, LP, Plaintiff,
v.
PETROLEOS DE VENEZUELA, S.A. AND PDVSA-PETROLEO, S.A., Defendants.



The opinion of the court was delivered by: CONSTANCE MOTLEY, Senior District Judge

MEMORANDUM OPINION AND ORDER

Defendant requests that this court set aside Magistrate Judge Peck's November 22, 2004 opinion and order denying defendant's motion for leave to amend its answer and file a counterclaim. For the reasons set forth below, defendant's request is DENIED.

I. The Parties

  Plaintiff, Lyondell-Citgo Refining, LP ("LCR"), is a limited partnership with its principal place of business in Houston, Texas, where it owns a crude oil refinery. Defendant Petroleos de Venezuela, S.A. ("PDVSA"), is the national oil company of Venezuela, and defendant PDVSA-Petroleo, S.A. ("Petroleo"), is a wholly owned subsidiary of PDVSA.

  II. Background

  This action was initiated by the filing of a civil suit on February 1, 2002. The complaint alleges that defendants breached contracts to supply heavy crude oil to plaintiff, and that their declaration of force majeure was invalid. Plaintiff seeks damages, specific performance of the contracts, and declaratory judgment. The case was transferred to this court from Judge Deborah Batts on May 22, 2003. On October 30, 2003, this court set a discovery deadline of October 1, 2004. On August 30, 2004, this case was referred to Magistrate Judge Peck for supervision of the remainder of discovery. On October 29, 2004, after the close of discovery, defendant filed a motion for leave to amend its answer and file a counterclaim. Specifically, defendant asserted that a deposition of one of plaintiff's witnesses on October 4-5, 2004 revealed that plaintiff breached the parties' Crude Oil Supply Agreement by time-trading crude oil in violation of the Agreement, and that these newly discovered facts form the basis of a compulsory breach of contract counterclaim On November 22, Judge Peck issued an opinion denying defendant's motion on the grounds that the motion, which came after the close of discovery and after the filing of extensive cross-motions for summary judgment, would require substantial additional discovery and would prejudice plaintiff by delaying decision of the case. In response to defendant's argument that its proposed counterclaim is compulsory, Judge Peck held that the court need not reach that issue because plaintiff stipulated that defendant can bring its proposed counterclaim in a separate action.

  On December 7, 2004, defendant filed an objection to Judge Peck's denial of defendant's motion for leave to amend its answer and file a counterclaim. Defendant requests that this court review Judge Peck's opinion and order under a de novo standard of review on the grounds that Judge Peck's order is a dispositive order, and grant defendant's motion to amend its answer and file a counterclaim. Alternatively, defendant argues that Judge Peck clearly erred in denying defendant's motion, and that this court should grant defendant's motion. Defendant further urges the court to find that its proposed counterclaim is compulsory, and therefore that defendant should be permitted to file it.

  Plaintiff opposes defendant's motion and argues that Judge Peck's opinion and order should be reviewed under the clearly erroneous standard that is applicable to a magistrate's non-dispositive rulings. Plaintiff further submits that it would be prejudiced if defendant's motion is granted, as additional discovery would be required and the discovery would likely extend to third parties. Plaintiff argues that defendant's proposed counterclaim is not compulsory and that because plaintiff has stipulated that defendant can bring the proposed counterclaim in a separate action, defendant will suffer no prejudice if its motion is denied.

  III. Standard of Review

  As a preliminary matter, the court must determine the appropriate standard of review for considering Judge Peck's opinion and order. Pursuant to Rule 72 of the Federal Rules of Civil Procedure and its enabling statute, the Federal Magistrates Act, 28 U.S.C. § 636(b)(1) (2002), determination of the standard of review turns on whether the magistrate's decision is dispositive of a claim or defense of a party. Both the rule and the statute state that, as to non-dispositive matters, a district court shall reverse a magistrate's order only where it has been shown that the order is "clearly erroneous or contrary to law." 28 U.S.C. § 636(b)(1)(A) (2002); Fed.R.Civ.P. 72(a). When reviewing a magistrate's order regarding a dispositive pretrial motion, however, a district court "shall make a de novo determination . . . of any portion of the magistrate judge's disposition to which specific written objection has been made." 28 U.S.C. § 636(b)(1)(C) (2002); Fed.R.Civ.P. 72(b).

  The proper classification of a denial of leave to amend a pleading is not clearly settled in this Circuit. See Credit Suisse First Boston LLC v. Coeur D'Alene Mines Corp., 2005 WL 323714, at *3 (S.D.N.Y. Feb. 10, 2005); Am. Stock Exch., LLC v. Mopex, Inc., 215 F.R.D. 87, 90-91 (S.D.N.Y. 2002); HCC, Inc. v. R H & M Machine Co., 39 F.Supp 2d 317, 321 (S.D.N.Y. 1999); Rao v. Envirodyne Eng'rs of N.Y., 1996 WL 594054, at *2 (E.D.N.Y. Oct. 11, 1996). Some courts have reviewed a denial of a motion to amend a pleading under a de novo standard. See Covington v. Kid, et al., 1999 WL 9835, at *2 (S.D.N.Y. Jan. 7, 1999) (finding that because magistrate judge's denial of leave to amend complaint foreclosed potential claims against defendants, it was dispositive); Moss v. Stinnes Corp., 1995 WL 625698, at *1 (S.D.N.Y. Oct. 25, 1995) (holding that magistrate's denial of motion to further amend complaint was dispositive of certain of plaintiff's claims so district court should apply de novo standard of review); Champion Titanium Horseshoe, Inc. v. Wyman-Gordon Inv. Castings, Inc., 925 F.Supp 188, 189-90 (S.D.N.Y. 1996) (holding that magistrate's denial of leave to file an amended pleading should be subject to reconsideration de novo since it is dispositive of proposed new claims).

  Many other courts, however, have reviewed a denial of a motion to amend a pleading under a "clearly erroneous" standard of review. See Benedict v. Amaducci, 1995 WL 413206, at *11 (S.D.N.Y. July 12, 1995) (holding that a magistrate's denial of leave to amend a complaint will not be overturned by the district court unless it is shown to be clearly erroneous or contrary to law); St. Paul Fire and Marine Ins. Co. v. Heath Fielding Ins. Broking Ltd. et al., 1996 WL 19028, at *4 (S.D.N.Y. Jan. 17, 1996) (holding that because a motion to amend a complaint is not dispositive, the court reviews the magistrate's disposition of plaintiff's motion only to determine whether it was clearly erroneous or contrary to law); Wahad v. F.B.I., et al., 132 F.R.D. 17, 20 (S.D.N.Y. 1990) (holding that a motion for leave to amend is considered nondispositive and, accordingly, clearly erroneous standard of review should be applied); Dais v. Lane Bryant, Inc., 2000 WL 145755, at *1 (S.D.N.Y. Feb. 8, 2000) (holding that although de novo review is appropriate where magistrate's denial of plaintiff's leave to amend is based on futility, a denial based on other grounds would subject the magistrate's decision to a clearly erroneous standard of review); Smith v. Montefiore Med. Ctr.-Health Servs. Div., et al., 1997 WL 711053, at *2 (S.D.N.Y. Nov. 13, 1997) (holding that review of a magistrate's denial of plaintiff's motion to amend complaint was subject to review under clearly erroneous standard, as plaintiff's request was "unambiguously" not dispositive of a claim or defense of a party).

  Most recently, in Credit Suisse First Boston, a case in which, as here, the defendant objected to the magistrate's denial of defendant's motion to amend its answer and file counterclaims, the court held, "Although the proper classification of a denial of leave to amend a pleading is not settled in this Circuit, where magistrate judges prohibit a party from asserting a potential claim, courts tend to review the preclusion of such a claim under a clearly erroneous standard." Credit Suisse First Boston, 2005 WL 323714, at *3 (internal quotations omitted). See also Corcoran v. Sinclair, et al., 1999 WL 177444, at *13 (S.D.N.Y. Mar. 30, 1999) (holding that "most courts considering the question have concluded that a ruling regarding amendment of a complaint is non-dispositive"). This court agrees. Based on the weight of authority in this Circuit applying a clearly erroneous standard of review to a magistrate's ruling on a party's motion to amend a pleading, this court will apply a clearly erroneous standard of review to Judge Peck's order denying defendant's motion to amend and file a counterclaim.

  The Supreme Court has held that a finding is "clearly erroneous" if the reviewing court is "left with the definite and firm conviction that a mistake has been committed." Easley v. Cromartie, 532 U.S. 234, 242 (2001) (quoting United States v. United Gypsum Co., 333 U.S. 364, 395 (1948)). Indeed, "[w]here there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous." Anderson v. City of Bessemer City, 470 U.S. 564, 574 (1985) (citing United States v. Yellow Cab Co., 338 U.S. 338, 342 (1949)). Pursuant to this highly deferential standard of review, a magistrate judge is "afforded broad discretion in resolving non-dispositive disputes and reversal is appropriate only if ...


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