New Bankruptcy Opinion: DEALERS ASSURANCE COMPANY v. FIDELITY BANK AND TRUST – Dist. Court, SD Ohio, 2015




Civil Action No. 2:13-CV-987.

United States District Court, S.D. Ohio, Eastern Division.

March 20, 2015.


NORAH McCANN KING, Magistrate Judge.

This matter is before the Court on defendant Fidelity Bank and Trust’s (“Fidelity”) Motion to Strike Plaintiff’s Amended Complaint, ECF 40 (“Motion to Strike”), and plaintiff Dealers Assurance Company’s (“plaintiff” or “Dealers”) motion for leave to file an amended complaint, instanter, ECF 42 (“Motion for Leave to File”). For the reasons that follow, the Motion to Strike is DENIED and the Motion for Leave to File is GRANTED.


In August 2001, plaintiff and N.C. & VA. Warranty, Inc. (“NCVA”) entered into an agreement whereby plaintiff insured NCVA in the event that NCVA defaulted in the payment of warranty claims (“the Insurance Agreement”). Complaint, ECF 2, ¶ 3; Insurance Agreement, Exhibit B to Motion to Join, ECF 19, PAGEID#:161 (filed under seal). Under the Insurance Agreement, NCVA was to deposit funds as security in the event of NCVA’s default. Insurance Agreement, ¶¶ 6-7, 20.

In November 2009, plaintiff, NCVA and Fidelity signed an agreement (“the Trust Agreement”) whereby NCVA agreed to establish a trust account (“Trust Account”) with Fidelity acting as trustee. Complaint, ¶¶ 4, 6-7; Exhibit A, attached thereto. [1] Plaintiff alleges that, from 2009 through 2012, Fidelity represented to plaintiff that more than $3 million was on deposit with Fidelity in the Trust Account. Id. at ¶¶ 9-16 (citing Exhibits B, C, D and E, attaTroy L. Nunleyched thereto). In fact, however, Fidelity had never taken possession of any funds for that account. Id. at ¶ 17. According to Fidelity, the bank statements sent to plaintiff bearing Fidelity’s purported letterhead (see Exhibits B and D attached to the Complaint) were forgeries sent by NCVA’s financial advisor. Opinion and Order, ECF 36, pp. 3-4.

On September 6, 2013, plaintiff filed the Complaint in the Court of Common Pleas for Franklin County, alleging that Fidelity had reported to it that funds had been deposited and remained in the Trust Account when, in fact, no funds had ever been deposited. Naming only Fidelity as a defendant, plaintiff asserted claims of breach of trust, breach of fiduciary duty, violation of Ohio’s statutes governing the trust agreement, O.R.C. §§ 5808.10, .13, negligence and breach of contract in connection with Fidelity’s alleged failure to hold and maintain funds in the Trust Account and failure to accurately report to plaintiff on the status of the Trust Account. See Complaint; Notice of Removal, ¶ 1, ECF 1. Fidelity has denied liability and asserted several defenses. Fidelity’s Answer to Complaint, pp. 5-6.

On October 2, 2013, Fidelity removed the action to this Court as one arising under the Court’s diversity jurisdiction. Notice of Removal. In establishing a case schedule on November 20, 2013, the Court required, inter alia, that all motions or stipulations for leave to amend the pleadings be filed no later than February 7, 2014. Preliminary Pretrial Order, ECF 11, p. 2. The Court further required that all discovery be completed by June 30, 2014, and that motions for summary judgment, if any, be filed no later than July 30, 2014. Id. at 2-3. [2]

Thereafter, Fidelity moved to join NCVA as a necessary party or to dismiss for failure to join a necessary and indispensable party. ECF 17. Plaintiff thereafter expressed “its intention to seek leave to amend the complaint to assert additional claims.” Order, ECF 35. The Court specifically advised that it “will entertain a request to modify the current pretrial schedule following resolution of” Fidelity’s motion to join. Id.

On September 26, 2014, the Court granted Fidelity’s motion to join NCVA as a party. Opinion and Order, ECF 36. Finding, inter alia, that “NCVA retains an interest in any funds deposited in the event that it is not determined to be in default[,]” this Court concluded that NCVA was a necessary party within the meaning of Rule 19(a) and that its joinder was feasible. Id. at 6-13. The Court ordered plaintiff to “file an amended complaint joining [NCVA] as a defendant.” Id. at 13-14.

Plaintiff thereafter filed an amended complaint, adding NCVA as a defendant and asserting new allegations and new claims against Fidelity. See First Amended Complaint of Dealers Assurance Company, ECF 37 (“Amended Complaint”). The original complaint asserted six claims against Fidelity, see Complaint, ECF 2, ¶¶ 22-49; the Amended Complaint asserts six claims against NCVA, twelve claims against Fidelity, and two claims against both Fidelity and NCVA. Id. at ¶¶ 101-108 (two claims against both Fidelity and NCVA), 109-70 (new claims against Fidelity only), 171-200 (claims against NCVA only). The Amended Complaint also amends the prayer for relief. Id. at p. 29.

Fidelity moved to strike the Amended Complaint and, in response, plaintiff moved for leave to file the Amended Complaint instanter. After these motions were fully briefed and became ripe for resolution, the parties filed notices that NCVA had filed a petition in bankruptcy in the United States Bankruptcy Court for the Middle District of North Carolina. ECF 51, 52. The Court therefore stayed all claims against NCVA pending resolution of its bankruptcy proceedings or relief from the automatic stay by the bankruptcy court. Opinion and Order, ECF 56, p. 7. [3]


Fidelity has moved to strike the Amended Complaint pursuant to Rule 12(f) and Rule 15(a)(2) of the Federal Rules of Civil Procedure. See generally Motion to Strike. Rule 12 permits courts to strike a pleading or portion of a pleading that contains “an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.” Fed. R. Civ. P. 12(f). “[T]he action of striking a pleading should be sparingly used by the courts” because it is “a drastic remedy to be resorted to only when required for the purposes of justice” and “only when the pleading to be stricken has no possible relation to the controversy.” Brown & Williamson Tobacco Corp. v. United States, 201 F.2d 819, 822 (6th Cir. 1953) . “`Immaterial’ allegations are generally defined as those that `have no bearing on the subject matter of the litigation.'” New Day Farms, LLC v. Bd. of Trs. of York Twp., No. 2:08-cv-1107, 2009 U.S. Dist. LEXIS 130429, at *8 (S.D. Ohio June 10, 2009) (quoting Johnson v. The County of Macomb, No. 08-10108, 2008 U.S. Dist. LEXIS 38617, at *1 (E.D. Mich. May 13, 2008)).

Rule 15(a) provides that “[t]he court should freely give leave [to amend] when justice so requires.” Fed. R. Civ. P. 15(a)(2). Rule 15 reinforces “the principle that cases `should be tried on their merits rather than the technicalities of pleadings.'” Moore v. City of Paducah, 790 F.2d 557, 559 (6th Cir. 1986) (quoting Tefft v. Seward, 689 F.2d 637, 639 (6th Cir. 1982) ). The grant or denial of a request to amend a complaint is left to the broad discretion of the trial court. Gen. Elec. Co. v. Sargent & Lundy, 916 F.2d 1119, 1130 (6th Cir. 1990) . “In deciding whether to grant a motion to amend, courts should consider 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.” Brumbalough v. Camelot Care Ctrs., Inc., 427 F.3d 996, 1001 (6th Cir. 2005) (citing Brooks v. Celeste, 39 F.3d 125, 130 (6th Cir. 1994) ).

Fidelity also argues that the Amended Complaint is untimely because it was filed after the February 7, 2014 deadline established by the Preliminary Pretrial Order. Motion to Strike, pp. 3-4. Rule 16(b)(4) requires a plaintiff to show “good cause” to modify a pretrial deadline. The United States Court of Appeals for the Sixth Circuit has recognized that, once a court’s amendment deadline passes, “a plaintiff first must show good cause under Rule 16(b) for failure earlier to seek leave to amend before a court will consider whether amendment is proper under Rule 15(a).” Leary v. Daeschner, 349 F.3d 888, 909 (6th Cir. 2003) . “The primary measure of Rule 16’s `good cause’ standard is the moving party’s diligence in attempting to meet the case management order’s requirements.” Andretti v. Borla Performance Indust., Inc., 426 F.3d 824, 830 (6th Cir. 2005) (internal quotations omitted). “A district court should also consider possible prejudice to the party opposing the modification.” Id.


Fidelity argues that the Court’s Opinion and Order, ECF 36, did not authorize plaintiff to add new allegations and claims against Fidelity and notes that plaintiff did not seek Fidelity’s consent or permission from the Court before filing the Amended Complaint. Motion to Strike, pp. 1-5; Defendant’s Reply Memorandum Contra/Memorandum Contra to Plaintiff’s Opposition to Defendant Fidelity Bank’s Motion to Strike the Amended Complaint, and in the Alternative, Motion of Leave to file the Amended Complaint Instanter, ECF 46, pp. 1-4 (“Fidelity’s Opposition”). Fidelity contends that plaintiff was dilatory in waiting months before seeking leave to amend the Complaint and that the untimely amendments prejudice Fidelity. Motion to Strike, p. 2; Fidelity’s Opposition, pp. 4, 6-10. Plaintiff disagrees, arguing, inter alia, that its request for leave to amend is not untimely and that granting leave to amend will not unduly prejudice Fidelity. Motion to Amend, pp. 6-17; Reply of Plaintiff Dealers Assurance Company in Support of Its Motion for Leave to File the Amended Complaint, Instanter, ECF 50, pp. 2-6 (“Plaintiff’s Reply”). Plaintiff goes on to argue that justice requires granting leave to amend so that it may try its case on the merits. Motion to Amend, p. 17; Plaintiff’s Reply, p. 2.

Plaintiff’s arguments are well-taken. First, considering the record as a whole, plaintiff’s request for leave to amend is not unduly delayed. Fidelity complains that plaintiff was not diligent because it failed to seek leave to amend the Complaint after plaintiff was on notice of additional material facts. See, e.g., Fidelity’s Opposition, pp. 7-9 (noting that Fidelity’s counsel alerted plaintiff’s counsel in October 25, 2013 that Fidelity possessed a different trust agreement than the version attached to the original Complaint and that Fidelity’s initial disclosures further alerted plaintiff of possible additional causes of action). However, the Court specifically advised the parties that it would entertain a request to modify the pretrial schedule after resolution of Fidelity’s motion for joinder was resolved. Order, ECF 35. That motion was resolved on September 26, 2014, Opinion and Order, ECF 36, and plaintiff filed the Amended Complaint on October 17, 2014. After Fidelity filed its Motion to Strike, plaintiff formally moved for leave to amend on November 24, 2014. In light of the fact that plaintiff’s formal request for leave to amend came less than two months after resolution of the motion for joinder, the Court cannot say that plaintiff was not diligent in requesting leave to amend the Complaint and, therefore, in seeking leave to amend the pretrial schedule. The current record therefore establishes good cause for modifying the current pretrial schedule.

Second, the Court is likewise not persuaded that granting leave to amend will prejudice Fidelity. Fidelity argues that “[t]he prejudice is additional exposure to liability which heretofore did not exist. Defendant had extensively evaluated the facts and claims of the case” and plaintiff has now “belatedly” added claims that expose Fidelity to punitive damages and attorney’s fees. Fidelity’s Opposition, pp. 9-10. Even accepting Fidelity’s contention that it did not anticipate new claims at this stage in the litigation, plaintiff’s representation that the parties agreed to postpone depositions and certain discovery until the issue of NCVA’s joinder had been resolved is uncontroverted. Plaintiff’s Reply, pp. 4, 6. Moreover, the Court previously advised the parties that it would entertain a request to review the pretrial schedule following resolution of the motion for joinder. Although the Court’s Order, ECF 36, p. 14, did not specifically authorize plaintiff to include additional allegations and new claims directed against Fidelity, this fact is not dispositive of the issue. Where discovery has been limited, an amended complaint adds new claims and parties [4] and the deadline for filing dispositive motions has passed, a revised pretrial schedule is warranted. In short, Fidelity will have ample opportunity to evaluate the new allegations and claims against it and to seek dismissal of those claims, if otherwise appropriate, once a new case schedule has been established. Under these circumstances, the Court cannot conclude that granting leave to amend works to the prejudice of Fidelity.

WHEREUPON, Defendant’s Motion to Strike Plaintiff’s Amended Complaint, ECF 40, is DENIED and plaintiff’s motion for leave to file an amended complaint, instanter, ECF 42, is GRANTED. The Clerk is DIRECTED to file the tendered amended complaint, which is attached to plaintiff’s motion, ECF 42. The claims against NCVA remain STAYED. Fidelity is DIRECTED to respond to the Amended Complaint within twenty (20) days of this Opinion and Order. The deadlines previously established in the Preliminary Pretrial Order, ECF 11, are VACATED. The Court expects to establish a new pretrial schedule during the next conference currently scheduled for April 23, 2015. Order, ECF 57.

[1] It is undisputed that plaintiff and Fidelity signed different versions of the Trust Agreement. Opinion and Order, ECF 36, pp. 2-3. Apart from these differences, both versions obligated Fidelity, as trustee, to take possession of and hold funds in trust. Id. at 3.

[2] No motions for summary judgment have been filed.

[3] The Bankruptcy Trustee for NCVA will require approximately 60 days — until late April 2015 — to determine whether she will pursue claims against Fidelity in this action. Order, ECF 57. A status conference is currently scheduled for April 23, 2015. Id.

[4] NCVA’s Bankruptcy Trustee may also decide to assert claims against Fidelity. Order, ECF 57.

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