United States District Court, S.D. New York
April 12, 2005.
LYONDELL-CITGO REFINING, LP, Plaintiff,
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.
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
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 their discretion is abused." Am. Stock Exch., LLC v.
Mopex, Inc., 215 F.R.D. 87, 90 (S.D.N.Y. 2002). Thus, a party
seeking to overturn or modify a discovery order bears a heavy
A. Amendment of Pleadings
Defendant argues that it should be granted leave to amend its
answer and file a counterclaim pursuant to Rule 13(f) of the
Federal Rules of Civil Procedure, which states, "When a pleader
fails to set up a counterclaim through oversight, inadvertence,
or excusable neglect, or when justice requires, the pleader may
by leave of court set up the counterclaim by amendment."
Fed.R.Civ.P. 13(f). Defendant argues that because it only learned of
the basis for its proposed counterclaim late in the discovery
process, it should be allowed to interpose a counterclaim at this
time. (Def.'s Objection to Magistrate Judge's Den. of Mot. for
Leave to Am. Answer and File Countercl. at 3-4).
Courts must read Rule 13(f) together with Rule 15(a), which
provides that leave to amend a pleading "shall be freely given
when justice so requires." Fed.R.Civ.P. 15(a). See Resorts
and Motel Advancement Dev. Agency, Ltd. v. Sloan, et al.,
160 F.R.D. 449, 450 (S.D.N.Y. 1995); Bank of New York v. Sasson,
786 F.Supp. 349, 352 (S.D.N.Y. 1992). However, leave to amend is
by no means automatic. In Foman v. Davis, 371 U.S. 178 (1962),
the Supreme Court held that, "In the absence of any apparent or
declared reason such as undue delay, bad faith or dilatory
motive on the part of the movant . . . undue prejudice to the
opposing party by virtue of allowance of the amendment, futility
of amendment, etc. the leave sought should, as the rules
require, be `freely given.'" Foman, 371 U.S. at 182. See
also Cartier, Inc., et al. v. Four Star Jewelry Creations,
Inc., et al., 2004 WL 169746, at *1 (S.D.N.Y. Jan. 28, 2004)
(holding that "district courts may deny leave to amend in the
face of undue delay, bad faith, dilatory motive, undue prejudice,
repeated failure to cure deficiencies by amendments previously
allowed, or futility of the amendment.")
In Credit Suisse First Boston, the district court affirmed
the magistrate's denial of defendant's motion to amend its answer
and file counterclaims where the magistrate's ruling was based on
the proposed motion's interference with the court's scheduling
order, prejudice to the plaintiff, and unjustified delay. Credit
Suisse First Boston, 2005 WL 323714, at *2. The same grounds are
present in the instant case. Judge Peck found that plaintiff
would be unduly prejudiced if defendant were to file its proposed
counterclaim. In measuring prejudice to the non-moving party,
courts consider "whether the assertion of the new claim would (i)
require the opponent to expend significant additional resources
to conduct discovery and prepare for trial; (ii) significantly
delay the resolution of the dispute; or (iii) prevent the
plaintiff from bringing a timely action in another jurisdiction."
Block v. First Blood Assoc., 988 F.2d 344, 350 (2d Cir. 1993).
See also A.V. By Versace, Inc. v. Gianni Versace S.p.A.,
160 F.Supp.2d 657, 669-70 (S.D.N.Y. 2001). Here, Judge Peck noted
that both plaintiff and defendant would require additional
discovery, and held that, "The delay of additional months of
discovery, followed perhaps by further summary judgment motions, would significantly delay resolution of this case, to
the prejudice of [plaintiff] and the judicial process."
Lyondell-Citgo Refining, LP v. Petroleos de Venezuela, S.A.,
2004 WL 2650884, at *3 (S.D.N.Y. Nov. 22, 2004).
Further, as set forth in this court's original scheduling
order, the deadline for amendments to pleadings was January 16,
2004, over one year ago. Though defendant asserts that it made
this motion at such a late date because it only learned of the
facts that form the basis of its proposed counterclaim through a
deposition that took place in early October, plaintiff argues,
and Judge Peck agreed, that defendant "knew or should have known"
of these facts and could have amended in a timely manner. Id.
Judge Peck did not clearly err by denying defendant's motion
after weighing the impact of the proposed motion on the court's
scheduling order and the extent to which plaintiff would be
prejudiced. Judge Peck properly struck a balance between
defendant's concerns and plaintiff's assertion of prejudice, and
he was well within his discretion to conclude as he did.
B. Defendant's Assertion that Its Proposed Counterclaim is
In response to defendant's claim that it would be prejudiced if
its motion is denied because its counterclaim is compulsory,
Judge Peck held that the court need not decide that issue because
plaintiff has stipulated that defendant can bring its proposed
counterclaim in a separate action. Lyondell-Citgo Refining, LP
v. Petroleos de Venezuela, S.A., 2004 WL 2650884, at *3.
Defendant now argues, again, that addition of its proposed
counterclaim by amendment is warranted if the court deems that
the counterclaim is compulsory. The court disagrees.
As stated above, a motion for leave to amend a pleading and
assert a counterclaim is governed by Rule 13(f), which must be
read in conjunction with Rule 15(a). The decision of whether to
grant leave to amend is entirely within the discretion of the
court. Zenith Radio Corp. v. Hazeltine Research, Inc.,
401 U.S. 321, 330 (1971); Cartier, Inc., 2004 WL 169746, at *1. Although
a liberal standard governs motions for leave to amend under Rule
15(a) and applications to interpose counterclaims by amendment
under Rule 13(f), Pfeffer v. Mark, 2000 WL 516891, at *1
(S.D.N.Y. Mar. 16, 2000), courts may deny a motion for leave to
amend in the face of undue delay, bad faith, dilatory motive, or
undue prejudice. Cartier, Inc., 2004 WL 169746, at *1.
The court need not reach the issue of whether defendant's
proposed counterclaim is permissive or compulsory because,
despite the liberal standards that govern Rule 13(f) and Rule
15(a), there are ample grounds on which to deny defendant's
motion. As the court stated in Gabourel v. Bouchard
Transportation Co. Inc., et al., 901 F.Supp 142 (S.D.N.Y. 1995),
whether a proposed counterclaim is compulsory is just one of four
factors for the court to consider in assessing a motion to add a
counterclaim, the others being whether the pleader has acted in
good faith and has not unduly delayed filing the counterclaim,
whether undue prejudice would result to plaintiff, and whether
the counterclaim raises meritorious claims. Gabourel,
901 F.Supp. at 144. See also Nordco, A.S. v. Ledes, et al., 1999 WL 1243883, at
*5 (S.D.N.Y. Dec. 21, 1999); Gucci America, Inc. v. Exclusive
Imports Int'l, et al., 2001 WL 21253, at *6 (S.D.N.Y. Jan. 9,
In the instant case, defendant filed its motion for leave to
amend over a year after the deadline to amend pleadings had
passed, and after the close of extensive discovery. As stated
above, Judge Peck found, and this court agrees, that additional
months of discovery and the possibility of additional summary
judgment motions would significantly delay resolution of the case
and prejudice the plaintiff. Further, as plaintiff asserted and
Judge Peck agreed, defendant knew or should have known of the
facts that led to defendant's motion for leave to amend prior to
this late date. Finally, defendant's repeated objections to Judge
Peck's discovery rulings, on which this court has spoken in five
previous opinions, could, taken together, be construed as
evidence of defendant's stalling or otherwise delaying this
litigation. Judge Peck did not clearly err in denying defendant's
motion for leave to amend its answer and file a counterclaim, and
this court therefore affirms Judge Peck's decision.
Based on the broad discretion afforded magistrate judges when
resolving non-dispositive disputes, this court finds that
Magistrate Judge Peck was well within his discretion by resolving
defendant's motion for leave to amend its answer and file a
counterclaim as he did. Magistrate Judge Peck's opinion and order
of November 22, 2004 is therefore hereby affirmed over
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