United States District Court, D. Alaska
ATTORNEYS LIABILITY PROTECTION SOCIETY, INC., a Risk Retention Group, Plaintiff,
v.
INGALDSON FITZGERALD, P.C., f/k/a Ingaldson, Maassen & Fitzgerald, P.C., Defendant.
ORDER RE MOTION TO AMEND
SHARON
L. GLEASON UNITED STATES DISTRICT JUDGE.
Before
the Court at Docket 92 is Defendant Ingaldson
Fitzgerald's (“IMF”) Motion to Allow
Amendment and Counterclaims Against ALPS. Plaintiff Attorneys
Liability Protection Society (“ALPS”) opposed the
motion at Docket 96, to which IMF replied at Docket 103. Oral
argument was not requested and was not necessary to the
Court's decision.
INTRODUCTION
IMF
seeks to amend its answer to assert additional defenses and
counterclaims for misrepresentation, fraud, deceit, and
estoppel against ALPS for allegedly misrepresenting that it
hired IMF's independent counsel, Matthew Peterson,
pursuant to the Alaska Independent Counsel statute, AS
21.96.100(d).[1] ALPS opposes the motion on several
grounds; it maintains that the Ninth Circuit's decision
forecloses the counterclaims, that IMF cannot demonstrate
good cause as required by Federal Rule of Civil Procedure 16,
and that the motion is untimely, prejudicial, and
futile.[2]
BACKGROUND
From
April 29, 2007 to April 29, 2008, IMF was covered by an
attorneys' liability policy issued by ALPS
(“Policy”).[3]
On
October 22, 2008, an adversary proceeding for recovery of a
retainer fee was initiated against IMF in the U.S. Bankruptcy
Court for the District of Alaska.[4] IMF notified ALPS of the
suit, and ALPS accepted IMF's tender of the defense but
reserved “all rights, ” including the right to
reimbursement of costs expended defending uncovered
claims.[5]IMF then retained independent counsel, Mr.
Peterson, whom ALPS has paid in full.
In
2011, after the bankruptcy court entered summary judgment
against IMF, ALPS filed this suit against IMF seeking
declarations that the Policy did not cover the underlying
claims and that it was not obliged to furnish an appeal bond.
It also sought a monetary award reimbursing it for the cost
of defending IMF in the bankruptcy court.[6] IMF's Answer
to Complaint included a broadly worded defense that
ALPS's prayer for relief violates AS 21.96.100 and
ALPS's duty of good faith and fair dealing to
IMF.[7]
In an
order issued on December 21, 2012, this Court held ALPS was
not entitled to reimbursement of the expenses it had incurred
defending IMF because the reimbursement provision of the
Policy did not comply with AS 21.96.100(d).[8] And on January
24, 2013, this Court held that the Policy did not cover the
underlying claims that ALPS had paid to defend IMF and ALPS
was not obligated to provide an appeal bond.[9]
Both
sides appealed. The Ninth Circuit then certified two
questions to the Alaska Supreme Court that can be summarized
as follows: (1) does Alaska law prohibit enforcement of a
policy provision entitling an insurer to reimbursement of
fees and costs incurred by the insurer defending claims under
a reservation of rights under certain specified conditions;
and, if so, (2) is enforcement of a provision entitling an
insurer to reimbursement still prohibited if the duty to
defend never arose under the policy because there was no
possibility of coverage?
The
Alaska Supreme Court answered “yes” to both
certified questions, holding that “[a] review of [AS
21.96.100(d)'s] text indicates that reimbursement is
prohibited, ” and prohibited regardless of whether the
duty to defend arose.[10] However, the Ninth Circuit held that
AS 21.96.100(d)'s prohibition on reimbursement of fees
and costs incurred by an insurer defending a non-covered
claim was preempted by the Liability Risk Retention Act of
1986, 15 U.S.C. §§ 3901-3906.[11] The Ninth
Circuit also held that “ALPS did not breach the implied
covenant of good faith and fair dealing.” IMF had
argued that by failing to attend settlement conferences, ALPS
had acted in bad faith and therefore should be estopped from
denying coverage. But the Ninth Circuit held that “ALPS
informed [IMF] from the outset that it intended to assert
coverage defenses, provided independent counsel to [IMF], and
acted consistently with its view that coverage did not
exist.”[12] The Ninth Circuit reversed that portion
of the decision that precluded ALPS from recovering fees and
affirmed “the district court's holding that the
claims in the underlying dispute were not covered under the
policy.” The Circuit Court then remanded the case
“for further proceedings consistent with [its]
opinion.”[13]
Now on
remand, IMF seeks to amend its answer and add
counterclaims.[14]
DISCUSSION
1.
Jurisdiction
This
Court has diversity jurisdiction over this matter pursuant to
28 U.S.C. § 1332(a)(1). Under diversity jurisdiction,
the Court applies federal procedural law and Alaska
substantive law.
2.
Law of the Case
When a
case is remanded, the trial court may not deviate from the
mandate of the appellate court. This principle, the so-called
mandate rule, precludes a trial court from reconsidering
issues “decided explicitly or by necessary
implication” on appeal.[15] “When acting under an
appellate court's mandate, an inferior court
‘cannot vary it, or examine it for any other purpose
than execution; or give any other or further relief; or
review it, even for apparent error, upon any matter decided
upon appeal; or intermeddle with it, further than to settle
so much as has been remanded.'”[16]
IMF
maintains that the Ninth Circuit did not address whether
IMF's affirmative defenses apply, whether “ALPS is
entitled to recover attorney's fees, ” or whether
ALPS misrepresented the applicable law to IMF; rather,
according to IMF, nothing in the Ninth Circuit opinion
“directed this Court to enter summary judgment in
ALPS' favor.”[17]
ALPS
disagrees, asserting that the Ninth Circuit opinion left
“no discretion for this Court to entertain new
counterclaims.”[18] In support, ALPS cites Matter of
Beverly Hills Bancorp.[19] In Beverly Hills
Bancorp, the Ninth Circuit remanded “for the
purpose of determining the proper interpretation of
‘interest earned, '” a term used in a
contested settlement agreement.[20] Bancorp's Trustee
then petitioned the Ninth Circuit for rehearing or
clarification to direct the bankruptcy court to allow the
Trustee to amend his pleadings on remand. The Ninth Circuit
denied the Trustee's petition. Nonetheless, on remand the
Trustee requested permission to amend its pleadings, which
the bankruptcy court granted, and which resulted in a
five-week trial. On renewed appeal, the Ninth Circuit held
that the bankruptcy court erred in permitting the Trustee to
amend on remand, because that action was inconsistent with
the Ninth Circuit's original mandate, as it had
previously denied the Trustee's request to direct the
bankruptcy court to allow amendment. The original mandate
made clear that the only issue remaining on remand was how to
interpret “interest earned.” This “[b]y
necessary implication, [] foreclosed a trial on an entirely
new theory of recovery.”[21] Moreover, the Ninth Circuit
held that Federal Rule of Civil Procedure 15's directive,
that amendments be freely granted, should not be extended if
amendment is requested “after a claim had been fully
litigated on the merits through appeal.”[22]
However,
two years later, the Ninth Circuit in Nguyen v. United
States held that “absent a mandate explicitly or
impliedly precluding amendment, the decision whether to allow
leave to amend is within the trial court's
discretion.”[23] In Nguyen, the district court
granted partial summary judgment for plaintiffs Bertrand and
Nguyen and denied the government's motions for summary
judgment. On appeal, the Ninth Circuit reversed and remanded.
In Bertrand, the Ninth Circuit directed the trial
court to enter “summary judgment in favor of the
government.” In Nguyen, the Ninth Circuit
remanded for “further consideration” and
explicitly permitted “other challenges to the agency
action” to be “presented to the district court on
remand.”[24] On remand, the district court granted
both Bertrand and Nguyen leave to amend their complaints and
later granted summary judgment against the government in both
cases. On renewed appeal, the Ninth Circuit held that the
decision whether to allow leave to amend was within the
district court's discretion in both cases, because its
prior mandates did not expressly or impliedly preclude
amendment. But the Ninth Circuit held that the district court
had erred in Bertrand by failing to follow the
mandate that directed the entry of summary judgment for the
government. The Circuit Court also observed that the entry of
summary judgment may have affected the trial court's
decision to grant leave to amend, as trial courts are
“ordinarily reluctant to allow leave to amend to a
party against whom summary judgment has been
entered.”[25]
The
Court reconciles these cases by noting that in Beverly
Hills Bancorp, the Ninth Circuit, by denying the
Trustee's petition regarding amendment, implicitly
precluded amendment. Also, the mandate in Beverly Hills
Bancorp was precise and restricted in its directive to
the trial court. In contrast, in Nguyen the mandate
did not impliedly preclude amendment, and in Nguyen's
particular case, expressly authorized it.
In this
case, there is no indication from the Ninth Circuit mandate
or any other appellate order that it would not permit
amendment. Moreover, rather than remand for the entry of
judgment or the resolution of a discrete issue, the Ninth
Circuit remanded “for further proceedings consistent
with [its] opinion.”[26] And, unlike the Trustee in
Beverly Hills Bancorp, IMF raised the claims it now
seeks to add in a motion to strike it filed in
2012.[27] Based on the foregoing, the Court finds
that the Ninth Circuit mandate does not preclude this Court
from permitting IMF to amend its answer and add
counterclaims.
3.
Request to Amend the Scheduling Order
In its
proposed amended answer, IMF seeks to add a new theory of bad
faith based on the allegation that ALPS misrepresented to IMF
that AS 21.96.100 would apply to ALPS's hiring of
independent counsel.[28] IMF brings its motion for leave to amend
under Rule 15, which provides that “[t]he court should
freely give leave when justice so requires.” But when a
motion to amend is made after the deadline for amendment
specified in a Rule 16(b) scheduling order, the party seeking
amendment must show good cause to modify the expired deadline
in the scheduling order.[29] Here, the Court entered a Scheduling
and Planning Order on February 22, 2012 that required all
motions to amend to “be served and filed not later than
the times specified by Local Rule
16.1(c)(6).”[30]District of Alaska Local (Civil) Rule
16.1(c)(6) provides that any motion to amend pleadings must
be filed not later than 60 days of the date the scheduling
order is entered. The parties thus had until April 22, 2012
to file any motions to amend the pleadings pursuant to Rule
15. IMF's motion to amend, filed on December 7, 2016,
misses this deadline by over four years.
To
amend the Scheduling Order so as to permit an amended
pleading at this time, IMF must show “good
cause.” “Unlike Rule 15(a)'s liberal
amendment policy . . . Rule 16(b)'s “good
cause” standard primarily considers the diligence of
the party seeking the amendment.”[31] Good cause
exists when “scheduling deadlines cannot be met despite
[a] party's diligence.”[32] “Although the
existence or degree of prejudice to the party opposing the
modification might supply additional reasons to deny a
motion, the focus of the inquiry is upon the moving
party's reasons for seeking
...