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Campbell v. Mercury Casualty Co.

United States District Court, E.D. New York

June 26, 2018

MERCURY CASUALTY COMPANY, a member of Mercury Insurance Group., MERCURY INSURANCE GROUP a/k/a MERCURY INS. GROUP, Defendants.



         On February 8, 2017, plaintiffs John Campbell and Elizabeth Campbell (collectively “Plaintiffs” or the “Campbells”) commenced this diversity breach of contract action against their homeowner's insurance carrier, defendants Mercury Casualty Company and Mercury Insurance Group (collectively “Mercury”). On November 6, 2017, Mercury moved to amend its answer to assert a counterclaim against Plaintiffs, and to file a third-party action against Long Island Public Adjusters, LLC (“LIPA”), Kevin Godfrey (“Godfrey”), and Just Right Carpentry & Painting, Inc. (“Just Right”) (collectively, the “third-party defendants”). See Motion, Docket Entry (“DE”) [6].[2] The motion was referred by District Judge Wexler to Magistrate Judge Arlene R. Lindsay for a report and recommendation. For the reasons stated herein, Magistrate Judge Lindsay's Report and Recommendation (“Report”), DE [50], is accepted.

         I. BACKGROUND

         The claims in this action arise from Mercury's denial of insurance coverage for water damage suffered at the Campbells' home due to a burst pipe on February 20, 2016. Plaintiffs claim that they immediately filed a claim with Mercury, and that Mercury immediately retained non-party Advanced Restoration Corporation (“Advanced Restoration”) to perform initial remediation at the house. Mercury claims that before providing notice to it, Plaintiffs contacted Godfrey, who is the owner of LIPA, to assist them in the handling of their insurance claim. Godfrey contacted Just Right and instructed that company to begin remediation at the house. See Proposed Third Party Complaint and Counterclaim (“Prop. 3rd Party Compl.”), ¶9, DE [32-5]. Representatives of Just Right and Advanced Restoration were at the house the same day, although the parties dispute whether they were there at the same time.

         Mercury claims that after the initial remediation and the day before it was to inspect the damage, Just Right gutted the kitchen, including the cabinets. Prop. 3rd Party Compl. ¶23. Godfrey, on behalf of Just Right, subsequently submitted an estimate in an amount over $73, 000 for a new kitchen. Id. ¶28. From March 2016 through August 2016, Mercury paid Plaintiffs over $39, 000 to cover rent for temporary housing. Id. ¶38.

         Upon receiving invoices from both Just Right and Advance Restoration for similar remediation work performed by each on the same date, Mercury began to investigate both the work performed and the claim. Prop. 3rd Party Compl. ¶18. Mercury ultimately determined that Just Right had submitted invoices for work it did not perform. Id. ¶19. After investigation, Mercury also “determined that the kitchen was not damaged in the manner described by plaintiffs and certainly did not warrant a new kitchen.” Id. ¶31. In August 2016, Mercury denied coverage for failing to preserve the damage for Mercury's review.

         In their complaint, Plaintiffs seek contractual damages of $150, 000 and punitive damages for Mercury's “bad faith conduct directed at the public generally and at the plaintiffs specifically to deny coverage where no legitimate basis exists for such denial.” Complaint, ¶39, DE [1]. Mercury now moves for leave to add a counterclaim against Plaintiffs for breach of contract to recover the rental payments, claiming that it would not have made those payments but for the material misrepresentations made by Plaintiffs. In addition, Mercury requests permission to file a third-party complaint against the third-party defendants alleging claims of breach of contract against LIPA and Godfrey, and fraudulent misrepresentation against Just Right. Prop. 3rd Party Compl. ¶¶ 38, 43.

         In the Report, Magistrate Judge Lindsay recommended that Mercury's motion be (1) granted to the extent it seeks to add a counterclaim against plaintiffs; (2) granted to the extent it seeks to file a third party action against third-party defendants for fraudulent misrepresentation; and (3) denied to the extent that it seeks to assert a claim for breach of contract against third-party defendants. Report and Recommendation (“Report”), DE [50]. Magistrate Judge Lindsay further sua sponte recommended that the Clerk of the Court be directed to amend the caption to reflect the proper names of the defendants.


         A. Legal Standards

         Pursuant to 28 U.S.C. § 636, a “judge of the court shall make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made.” 28 U.S.C. § 636(b)(1); see also Fed.R.Civ.P. 72(b) (“The district judge must determine de novo any part of the magistrate judge's disposition that has been properly objected to”). Upon reviewing the report, a district judge may “accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge.” 28 U.S.C. § 636(b)(1); see also Fed.R.Civ.P. 72(b). “[I]n providing for a ‘de novo determination' . . . Congress intended to permit whatever reliance a district judge, in the exercise of sound judicial discretion, chose to place on a magistrate's proposed findings and recommendations.” United States v. Raddatz, 447 U.S. 667, 676, 100 S.Ct. 2406, 65 L.Ed.2d 424 (1980).

         Permission to assert the counterclaim is governed by Rule 15, which provides that leave to amend pleadings should be freely given “when justice so requires.” Fed.R.Civ.P. 15 (a)(2). “A district court has discretion to deny leave for good reason, including futility, bad faith, undue delay, or undue prejudice to the opposing party.” McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 200-01 (2d Cir. 2007). The party opposing the motion has the burden of establishing that amendment should be denied. See Blaskiewicz v. Cnty. of Suffolk, 29 F.Supp.2d 134, 137-38 (E.D.N.Y. 1998).

         Rule 14(a) provides that a defendant may serve a third-party complaint “on a nonparty who is or may be liable to it for all or part of the claim against it.” Fed.R.Civ.P. 14(a). The defendant must obtain leave of court to commence a third-party action more than fourteen days after serving its answer. Fed.R.Civ.P. 14(a)(1). Motions to implead non-parties “should be freely granted to promote efficiency unless to do so would prejudice the plaintiff, unduly complicate the trial, or would foster an obviously unmeritorious claim.” New York v. Pride Solvents & Chem. Co., 15-CV-6569, 2017 WL 6403515, at *2 (E.D.N.Y. Dec. 15, 2017) (quoting Shafarman v. Ryder Truck Rental, Inc., 100 F.R.D. 454, 459 (S.D.N.Y. 1984)).

         B. ...

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