Free Response to Objection to Report and Recommendation - District Court of Colorado - Colorado

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. 03-CV-02435-PSF-PAC Consolidated with 04-CV-00639-PSF-PAC LILLIAN F. SANDLE, Plaintiff, v. ANTHONY J. PRINCIPI, Secretary of Veterans Affairs, Defendant.

PLAINTIFF'S RESPONSE TO DEFENDANT'S OBJECTIONS TO ORDER AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE

Plaintiff Lillian F. Sandle, by and through her counsel, Hogan & Hartson LLP, hereby respectfully submits her response to Defendant's Objections (Doc. 236, hereinafter "Objection") to the July 21, 2006 Order and Recommendation of United States Magistrate Judge (Doc. 224, hereinafter "Order and Recommendation"). I. BACKGROUND

On November 15, 2005, this Court entered a Scheduling Order setting December 1, 2005 as the deadline for amendment of the pleadings. (Doc. 172 at 4, hereinafter "Scheduling Order".) Defendant filed its Answer to the Amended Complaint on November 25, 2005. (Doc. 179.) On December 9, 2005, Defendant filed a Motion to Amend its Answer to add a counterclaim that it "inadvertently neglected" to include in its previously-filed answer. (Doc. 185, hereinafter the "Motion".) The District Court referred Defendant's Motion to the Magistrate Judge (Doc. 186),

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and she granted Defendant's Motion on December 19, 2005. (Doc. 188, hereinafter the "December 19 Order".) Within the time allowed by Rule 72, Plaintiff Sandle filed her Objection to the Magistrate Judge's December 19 Order, asserting futility and undue delay under Rule 15(a) as grounds for setting aside the Magistrate Judge's December 19 Order and denying Defendant's Motion. (Doc. 196.) The District Court construed Sandle's Objection to the December 19 Order as a motion to reconsider and referred it to the Magistrate Judge "for a recommendation and report pursuant to Rule 72(b)." (Doc. 198.) Defendant subsequently filed a response to Sandle's Objection to the December 19 Order (Doc. 204), and Sandle filed a reply (Doc. 209). On July 21, 2006, the Magistrate Judge vacated her December 19 Order granting Defendant's Motion and recommended that the District Judge strike the counterclaim. (Doc. 224.) Because Defendant had failed to amend within the time set by the Scheduling Order, the Magistrate Judge analyzed Defendant's Motion under both Rules 15 and 16. (Doc. 224 at 5-6.) Rule 16(b) requires demonstration of good cause to amend a pleading after the Scheduling Order's deadline had passed, and the Magistrate Judge found that Defendant's excuse ­ that it had "inadvertently neglected" to include the counterclaim ­ failed to satisfy Rule 16(b)'s good cause requirement. (Id. at 7.) She further found that Defendant's "inordinate delay" in asserting the counterclaim ­ seventeen months after the latest date at which Defendant was aware of the facts giving rise to the counterclaim ­ justified denial of Defendant's Motion under Rule 15(a). (Id.) Finally, the Magistrate Judge found that Rule 60(b)(6) provided the authority to reconsider her December 19 Order because "the circumstances here are extraordinary in that there was such a substantial delay without any justification, before the motion to amend was filed," and that relief from her December 19 Order "will accomplish justice since it would be fundamentally

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unfair for plaintiff to respond now, almost three years after filing suit, to a restitution/unjust enrichment counterclaim, and to prepare for trial when the settlement and payment events occurred nine years ago in 1997." (Id. at 8.) Defendant filed its Objection on August 10, 2006. (Doc. 236.) Defendant contends that seeking leave to amend eight days after the Scheduling Order's deadline for amendment of pleadings is not "undue delay." (Doc. 236 at 8.) Moreover, Defendant asserts, "finding that defendant has engaged in undue delay is the same as asserting that defendant is guilty of laches," a defense to which the United States is immune. (Id.) Defendant further argues that because the Court permitted Sandle to amend her Complaint in 2005, Defendant's motion for leave to amend should be granted "as a matter of equity and justice." (Id. at 11.) Finally, Defendant asserts that the Court may grant the Motion for leave to amend as a matter of judicial economy, because Defendant could institute a separate action against Sandle asserting the claim. (Id. at 13.) Defendant's Objections lack merit, and this Court should adopt the Magistrate Judge's Order and Recommendation denying Defendant's Motion. The Magistrate Judge properly analyzed Defendant's Motion under Rules 15 and 16. The Defendant failed to demonstrate good cause under Rule 16(b); "inadvertent neglect" is not good cause for failing to meet the Scheduling Order deadline. Nor did Defendant satisfy Rule 15(a)'s requirements for amending pleadings after the deadline. Untimeliness alone is sufficient to justify denial of the Defendant's Motion under Rule 15(a), and Defendant knew of the facts giving rise to the claim long before the deadline. Defendant's peripheral arguments similarly fail to sustain its position. Specifically, Defendant's contention that "equity and justice" require the Court to grant its Motion is

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irrelevant. Defendant's ­ not Sandle's ­ justification for seeking to amend past the deadline is before the Court, and Defendant cannot demonstrate that untimely amendment is warranted here. Defendant also admits that denying the Motion would not cause prejudice because Defendant could assert the claim in a separate action. Furthermore, Defendant's laches argument evidences its misunderstanding of the law. The doctrine of laches has no applicability to the question of whether Defendant should be permitted to amend its answer to add a counterclaim after the expiration of the Scheduling Order deadline. Finally, on review, the Court need not determine whether Sandle demonstrated the requirements of Rule 60(b)(6) ­ extraordinary circumstances and necessity to accomplish justice ­ to obtain relief from the December 19 Order. The Magistrate Judge possessed the inherent authority to reconsider her prior interlocutory ruling and was not bound by Rule 60(b)'s limitations, even though the Magistrate Judge found that Sandle had satisfied the Rule. II. A. Legal Standard In her Order and Recommendation, the Magistrate Judge properly evaluated whether to permit Defendant to amend its answer after the December 1, 2005 scheduling order deadline in light of Rules 15 and 16 of the Federal Rules of Civil Procedure. See Doc. 224 at 5. Rule 15 establishes the time in which a party may amend or supplement pleadings. See Fed. R. Civ. P. 15(a). When determining whether to allow amendment to the pleadings after the Rule 15 deadline expires, courts consider the following factors: (1) undue delay, (2) undue prejudice to the opposing party, (3) bad faith and dilatory motive, (4) failure to cure deficiencies ARGUMENT

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by amendments previously allowed, and (5) futility of amendment. See Frank v. U.S. West, Inc., 3 F.3d 1357, 1365-1366 (10th Cir. 1993). However, where ­ as here ­ a scheduling order, rather than Rule 15, sets the deadline for amendment of the pleadings, Rule 16(b) governs the determination of whether to permit amendment. See Fed. R. Civ. P. 16(b). Under Rule 16(b), courts are to apply a "`two-step analysis'" when determining whether to grant leave to amend beyond a scheduling order deadline. See Colorado Visionary Acad. v. Medtronic, Inc., 194 F.R.D. 684, 687 (D. Colo. 2000) (quoting Dilmar Oil Co., Inc. v. Federated Mut. Ins. Co., 986 F. Supp. 959, 980 (D. S.C. 1997), aff'd, 129 F.3d 116 (4th Cir. 1997)). The moving party must first demonstrate that it has "good cause" to seek modification of the scheduling deadline. See id. If the moving party establishes "good cause" under Rule 16(b), it then must satisfy the requirements for amendment under Rule 15(a). See id. In this case, the Scheduling Order entered by the Court on November 15, 2005 set December 1, 2005 as the deadline for amendment of the pleadings. See Doc. 172. To amend after that date, Defendant was required to demonstrate, first, good cause under Rule 16(b). Then, if the Court finds that the Defendant has satisfied Rule 16(b), Defendant must meet the requirements of Rule 15(a). Because Defendant's sole basis for seeking to amend its answer after the Scheduling Order deadline is that it "inadvertently neglected" to include a counterclaim, Defendant cannot satisfy either prong of the two-part test. See Doc. 185. Therefore, the Magistrate Judge's Order and Recommendation should be accepted and Defendant's Motion for leave to amend its answer denied.

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1.

Defendant's "Inadvertent Neglect" In Amending Its Answer Failed To Demonstrate Good Cause Under Rule 16(b).

Rule 16(b) provides, in pertinent part, that a scheduling order "shall not be modified except upon a showing of good cause and by leave of the district court judge." Fed. R. Civ. P. 16(b). In this case, Defendant cannot establish "good cause" to seek amendment under Rule 16(b) and, therefore, Defendant's Motion to Amend should be denied on this basis alone. Under Rule 16(b), "`good cause' means that scheduling deadlines cannot be met despite a party's diligent efforts." Colorado Visionary Acad., 194 F.R.D. at 687. The "good cause" standard "focuses on the diligence of the party seeking leave to modify the scheduling order to permit the proposed amendment." Id. Unlike the less stringent requirements for amendment under Rule 15, the Rule 16(b) standard does not focus on the bad faith of the moving party to amend its pleading or on any prejudice to the opposing party. See id. Instead, courts generally will only allow amendment "on a showing of good cause if [the deadline] cannot be met despite the diligence of the party seeking the extension." Id. Thus, Rule 16(b) requires "some persuasive reason as to why the amendment could not have been effected within the time frame established by the court." Westcor Co. II, LP v. Travelers Indem. Co., 2006 WL 2256984, at *2 (D. Colo. 2006) (internal quotations omitted). "Carelessness is not compatible with a finding of diligence and offers no reason for a grant of relief" under Rule 16(b). Colorado Visionary Acad., 194 F.R.D. at 687. As noted in the Magistrate Judge's Order and Recommendation, Defendant offers absolutely no reason as to why its proposed amendment to its answer could not have been effected by the Scheduling Order deadline, other than that it had "inadvertently neglected" to do so. (See Doc. 224 at 7.) The Magistrate Judge found that Defendant has "not demonstrated that 6
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he could not meet the scheduling order's December 1, 2005 deadline despite his diligent efforts." Id. Defendant's explanation demonstrably fails to establish "good cause" under Rule 16(b) and, consequently, fails to provide a valid basis for granting his Motion for leave to amend. Furthermore, Defendant's argument that equity and fairness require the Court to allow Defendant's untimely request for leave to amend its answer is unfounded. See Doc. 236 at 1. Defendant bases his argument on the fact that "almost exactly two years after initiating this action," the Court permitted Sandle "to amend her complaint ... and add 13 new claims that she never raised in her initial complaint." Id. at 1-2. The Court allowed Sandle ­ a pro se litigant­ to amend her initial complaint only after she retained counsel in this matter on October 18, 2005. In stark contrast, Defendant "admittedly did not file its counter-claim with its initial answer on April 25, 2005," and "inadvertently neglected" to include a counterclaim with its amended answer by the Scheduling Order deadline. Id. at 1; Doc. 185 at 4. The Court's decision to allow a pro se plaintiff leave to amend the complaint after retaining counsel provides no justification ­ in equity or otherwise ­ for allowing Defendant leave to amend for "inadvertently neglecting" to abide by the Scheduling Order deadline. Rule 16 was drafted to prevent parties from disregarding the agreed-upon course of litigation. See Dilmar Oil, 986 F. Supp. at 980. The Rule assures the Court and the parties that "at some point both the parties and the pleadings will be fixed." Rule 16(a), advisory committee's note, 1983 amendment. A "scheduling order is not a frivolous piece of paper, idly entered, which can be cavalierly disregarded by counsel without peril." Dilmar Oil, 986 F. Supp. at 980. Rule 16 contemplates a rigid standard for extending a scheduling order deadline, and

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Defendant's inexcusable failure to seek to amend its answer in a timely fashion should not be avoided on the grounds of equity and fairness. In sum, the Magistrate Judge appropriately concluded that Defendant failed to demonstrate good cause under Rule 16(b) because it provided no basis other than "inadvertent neglect" for seeking to amend its answer after the Scheduling Order deadline. 2. Defendant's Undue Delay In Seeking To Assert Its Counterclaim Precludes Its Satisfaction Of Rule 15.

Though Defendant's Motion should be denied on the basis of its failure to satisfy Rule 16(b) alone, Defendant's Motion should also be denied because it failed to satisfy the requirements of Rule 15. The Magistrate Judge correctly stated that under Rule 15, "untimeliness alone may be a sufficient basis for denial of leave to amend." (Doc. 224 at 5, citing Frank, 3 F.3d at 1365.) "[P]rejudice to the opposing party need not also be shown." Id. Moreover, leave to amend may be denied where the moving party was aware of the facts on which the amendment was based for some time prior to the filing of the motion to amend. See id. at 5-6. In this case, Defendant admittedly failed to seek leave to amend its answer to include a counterclaim for more than seven months after filing its initial answer and nearly thirty-one months after being served, despite clearly having knowledge of alleged facts sufficient to assert the counterclaim.1 (See Doc. 224 at 7.) Moreover, Defendant provided no valid reason for its failure to seek leave to amend its answer beyond the Scheduling Order deadline.

As noted in the Order and Recommendation, Defendant's initial answer, filed on April 25, 2005, included three affirmative defenses based on the purported settlement agreement upon which Defendant now seeks to base its counterclaim. See Doc. 90, Defenses 2, 11 and 12.

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As a result, the Magistrate Judge determined that "inadvertent neglect" was not a persuasive explanation for Defendant's "inordinate delay" in moving to amend to include a counterclaim. The Magistrate Judge, therefore, properly concluded in her Order and Recommendation that Defendant's Motion should be denied on the basis of undue delay pursuant to Rule 15. (See Doc. 224 at 8.) B. Defendant's Laches Argument Is Incorrect And Irrelevant. Defendant's claim that the "Magistrate Judge's finding that defendant has engaged in undue delay is the same as asserting that defendant is guilty of laches" is simply without basis in law and is entirely irrelevant to the Court's analysis of whether to permit Defendant to amend its answer. (See Doc. 236 at 9.) As a threshold matter, Defendant relies upon the dissenting opinion in Mahn v. Harwood, 112 U.S. 354, 366 (U.S. 1884) for the assertion that the doctrine of laches is synonymous with the concept of undue delay in the context of seeking leave to amend. See id. In fact, the dissenting opinion in Mahn defines the doctrine of laches as "improper delay" in the context of patent reissues. See Mahn, 112 U.S. at 364. However, neither the Mahn opinion, nor any other case cited by Defendant even remotely suggests that the equitable doctrine of laches should somehow exempt the United States from complying with the procedural deadlines set forth in the Federal Rules of Civil Procedure or with scheduling order deadlines established and agreed upon by courts and parties to litigation. Ultimately, Defendant's assertion is based upon the faulty premise that the doctrine of laches ­ an affirmative defense ­ may be used offensively by the United States as a basis to

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trump the Federal Rules of Civil Procedure. Defendant's position, therefore, is contrary to law and entirely irrelevant to the Court's resolution of this matter. C. Defendant Admits That Denial Of Its Motion Would Not Prejudice Its Right To Assert The Claim. Defendant states in its Objection that instead of asserting a counterclaim, it "could have filed a separate action against plaintiff for unjust enrichment." Doc. 236 at 13. In fact, Defendant acknowledges that if its counterclaim is stricken by the Court, it "may seek to file an independent action against plaintiff." Id. at 13-14. Therefore, this Court's acceptance of the Magistrate Judge's recommendation will not, according to the Defendant, prejudice Defendant's right to seek recovery on this issue. D. The Court Need Not Determine Whether Sandle Satisfied Rule 60(b)(6) Because Reconsideration Of The Magistrate Judge's Interlocutory Order Is Within The Court's Inherent Authority To Render Justice. In her Order and Recommendation, the Magistrate Judge construed Sandle's Objection to her December 19 Order as a motion for reconsideration filed under Rule 60(b)(6). (Doc. 224 at 4.) The Magistrate Judge found that Sandle satisfied Rule 60(b)(6)'s requirements for relief from her December 19 Order. (Doc. 224 at 8.) However, under the Rules, the Magistrate Judge possessed the authority to reconsider her December 19 Order even without concluding that Sandle satisfied Rule 60(b)(6). The power of the Court to reconsider and modify an interlocutory order (such as a Magistrate Judge's order or report and recommendation) is not limited by Rule 60(b) but is within the Court's inherent authority to render justice. See In re Popa, 214 B.R. 416, 420 (1st Cir. B.A.P. 1997) (holding that bankruptcy court did not abuse its discretion in reconsidering its prior order denying a motion to dismiss because "interlocutory orders ... remain open to 10
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reconsideration"), aff'd, 140 F.3d 317 (1st Cir.), cert. denied, 525 U.S. 869 (1998); 11 Charles Alan Wright, Arthur R. Miller, and Mary Kay Kane, Federal Practice and Procedure § 2852, at 233-34 n.8 (2d ed. 1995). The Advisory Committee Note to the 1948 amendments to Rule 60(b) provides that Rule 60(b) applies only to final judgments and that interlocutory orders may be reconsidered and revised "as justice requires": "The addition of the qualifying word `final' emphasizes the character of the judgments, orders or proceedings from which Rule 60(b) affords relief; and hence interlocutory judgments are not brought within the restrictions of the rule, but rather they are left subject to the complete power of the court rendering them to afford such relief from them as justice requires." Wright, Miller & Kane, supra § 2852, at 233-34 n.8 (quoting Rule 60(b)(6) Advisory Committee Note to the 1948 amendment). In this case, Sandle properly filed her Objection to the Magistrate Judge's December 19 Order pursuant to Rule 72. See Rule 72; Doc. 196. The District Court then referred the objection to the Magistrate Judge for reconsideration of her December 19 Order and for a recommendation and report pursuant to Rule 72(b). (See Doc. 198.) The Magistrate Judge properly found that Sandle satisfied Rule 60(b)(6)'s requirements for reconsideration. (See Doc. 224 at 8.) However, the Magistrate Judge's reconsideration of her prior interlocutory order of December 19 was not limited by Rule 60(b)(6), and Sandle was not required to demonstrate extraordinary circumstances and necessity to accomplish justice in her Objection to obtain relief from the Magistrate Judge's December 19 Order. Thus, on review, the Court need not determine whether Sandle met Rule 60(b)(6)'s requirements.

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III.

CONCLUSION

WHEREFORE, for the reasons set forth herein, Plaintiff respectfully requests that the Court accept the U.S. Magistrate Judge's Order and Recommendation denying Defendant's untimely motion for leave to amend its answer. Respectfully submitted this 30th day of August, 2006.

HOGAN & HARTSON LLP

s/ Dugan Bliss Sean R. Gallagher Dugan Bliss 1200 Seventeenth Street, Suite 1500 Denver, CO 80202 Telephone: 303.899.7300 Fax: 303.899.7333 E-mail: [email protected] [email protected] ATTORNEYS FOR PLAINTIFF

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CERTIFICATE OF SERVICE I hereby certify that on this 30thday of August, 2006, I electronically filed the foregoing PLAINTIFF'S RESPONSE TO DEFENDANT'S OBJECTIONS TO ORDER AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE with the Clerk of the Court using the CM/ECF system which will send notification of such filing to the following:

Michael C. Johnson Assistant U.S. Attorney 1225 17th Street, 7th Floor Denver, Colorado 80202 Telephone: 303.454.0134 Fax: 303.454.0408 E-mail: [email protected]

s/ Dugan Bliss

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