United States District Court, E.D. Kentucky
OPINION AND ORDER
KAREN K. CALDWELL, Chief District Judge.
This matter is before the Court on Plaintiff's motion to file a Third Amended Complaint. For the reasons set forth below, the motion will be granted in part and denied in part.
In October 2008, Kayla Adkins ("Adkins") was the victim of an automobile accident caused by Anthony Mason ("Mason"), who was insured by Shelter Mutual Insurance Company ("Shelter"). Adkins was seventeen years old at the time of the accident. On December 19, 2008, Adkins' mother settled Adkins' claim for $500 and signed Shelter's "Indemnifying Release" ("Release"), which said it "fully settles and discharges all claims" and indemnifies the Releasees "if any litigation arises from these injuries." DE 82-4. No court approval for the settlement was sought. Kentucky law requires court approval for settlements involving minors. KRS 387.280.
In 2009, Adkins retained counsel and filed suit against Mason. Adkins alleges that Shelter refused to negotiate the claim based on the signed Release. DE 1-7, Second Amended Complaint, ¶ 9. Adkins subsequently settled her claim with Shelter for $12, 000. In 2012, Adkins filed this action against Shelter, alleging violation of the Unfair Claims Settlement Practices Act ("UCSPA") and Common Law Bad Faith. DE 1-7. The parties have engaged in contentious discovery involving multiple hearings and orders by Magistrate Judge Robert E. Wier. After Shelter was ordered to provide certain limited discovery, Judge Wier expanded the scope of discovery in March 2013 to include Kentucky claims by minors from May 2008 to May 2011 that were settled without court approval. DE 37. Shelter's objections to this order and motion for a stay were overruled. DE 46. Shelter's petition for a writ of prohibition to the Sixth Circuit was denied. DE 50.
On September 24, 2013, Shelter provided a final status report that eighty claim files were being produced. DE 54. Adkins argues that the production included "over ten thousand pages of additional claims files." DE 90 at p. 2. After reviewing these documents and other discovery, Adkins alleges she found at least eighty-eight other claims involving minors that were settled by Shelter without court approval. DE 82-2 ¶ 19. Accordingly, she says she "now has basis to believe that Shelter's behavior was not an isolated incident, or the product of an innocent mistake, " as Shelter has argued. DE 90 at p, 2.
The Fourth Amended Scheduling Order in this case permitted motions to amend pleadings through April 28, 2014. DE 61. Adkins moved to file a Third Amended Complaint on April 23, 2014, adding claims of violation of the Kentucky Consumer Protection Act, fraud in the inducement, fraud by omission, negligence/gross negligence, negligent misrepresentation, negligent training and supervision, intentional misrepresentation, intentional infliction of emotional distress, and RICO. DE 82-2. These claims are based primarily on allegations of a pattern or practice of settling minors' claims and obtaining signed Releases without court approval. Id. Shelter moved to file an Amended Answer on April 28, 2014. DE 83.
Shelter opposes the motion to amend as unduly delayed and prejudicial. It further argues that most of the claims are futile, as they would not survive a motion to dismiss. DE 85.
A. Motion To Amend Generally
While Fed.R.Civ.P. 15(a) provides that leave to amend a pleading shall be freely given, several factors are to be considered when deciding whether to grant a motion to amend:
Undue delay in filing, lack of notice to the opposing party, bad faith by the moving party, repeated failure to cure deficiencies by previous amendments, undue prejudice to the opposing party, and futility of amendment are all factors which may affect the decision. Delay by itself is not sufficient reason to deny a motion to amend. Notice and substantial prejudice to the opposing party are critical factors in determining whether an amendment should be granted.
Wray v. American United Life Ins. Co., 503 F.Appx. 377, 384 (6th Cir. 2012), (quoting Wade v. Knoxville Utilities Bd., 259 F.3d 452, 458-59 (6th Cir. 2001). Rule 16 was amended in 1983 to limit the time to amend the pleadings. Fed.R.Civ.P. 16, 1983 advisory committee's notes. The present motion to amend was filed before the Rule 16 deadline to amend.
With respect to notice to Shelter, Magistrate Judge Wier's Order of September 28, 2012 compelled disclosure of claims adjusted or settled by Linda Yates between October 2008 and October 2009. DE 12 ¶ 3. Ms. Yates' supervisor, Crystal Turner, testified on January 25, 2013 that "it was up to the discretion of the branch on whether you sought court approval of minor injury claims." DE 90-1 at p. 35. Adkins' counsel argued on January 9, 2013, that "additional discovery of claim files showing other incidents of similar conduct by Defendant, Shelter, is needed to fully develop Plaintiff's case." DE 23-1, ¶ 5. It is this additional discovery that was ordered from Shelter on March 5, 2013 [DE 37] and finally produced September 24, 2013 [DE 54]. In ordering the discovery, the court noted Adkins' argument "that Shelter's provisional settlement' model would be fraudulent because Shelter would know the settlement was ineffectual, but the parent/claimant would, per Shelter's prepared release documentation, think the settlement concluded and that the parent would be liable for any later reopened claim." DE 37 at 3. Accordingly, Shelter was on notice for at least more than a year that Adkins claimed Shelter repeatedly engaged in a pattern of settlements and releases for injuries to minors without court approval and that such conduct was in bad faith and fraudulent.
Shelter argues that the "new claims will probably necessitate additional discovery which cannot be completed before the existing deadline of June 30, 2014." Id. at 10. This conclusory allegation of prejudice is not supported by any explanation of what discovery would be needed or why existing discovery would not address the new claims.
Shelter also argues in conclusory fashion that Adkins "has essentially transformed the nature of this litigation by adding nine new causes of action, " but there is no explanation as to how the case has been "transformed" or how Shelter would be substantially prejudiced. DE 85 at 10-11. Since "[n]otice and substantial prejudice to the opposing party are critical factors in determining whether an amendment should be granted, " this Court will not deny the motion to amend on those grounds. The arguments regarding futility of the new claims are addressed separately below.
B. Futility of the Amended Counts
Shelter argues that most of Adkins' new claims would not survive a motion to dismiss. Accordingly, Shelter contends the amendment should be denied as futile. See Riverview Health Institute LLC v. Medical Mutual of , 601 F.3d 505, 520 (6th Cir. 2010) ("A proposed amendment is futile if the amendment could not withstand a Rule 12(b)(6) motion to dismiss.").
To withstand a motion to dismiss, a complaint must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.544, 547 (2007); Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of an entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level. Id. at 555. In ruling on the motion to dismiss, all of a plaintiff's allegations ...