ORDER GRANTING LEAVE TO AMEND

SAMUEL CONTI, District Judge.

I. INTRODUCTION

Now before the Court is Defendants The Permanente Medical Group, Inc. ("TPMG") and The Permanent Medical Group, Inc. Long Term Disability Plan for Physicians' ("TMPG Plan") motion for summary judgment. ECF No. 67. That motion is premised on the argument that a settlement agreement (the "Settlement Agreement") between Plaintiff Dr. Thomas A. Gonda, Jr., M.D. and TPMG releases all of Dr. Gonda's claims in this action. The Court has previously held that Defendants must amend their answer if they wish to raise release as an affirmative defense, and the Court ordered supplemental briefing as to whether Defendants should be permitted to amend their answer. See ECF No. 84 ("Supp. Br. Order"). Both Defendants and Dr. Gonda timely filed briefs on the issue. See ECF Nos. 85, 91. For the reasons set forth below, the Court finds that Defendants should be permitted to amend their answer to add the relevant affirmative defense.

II. LEGAL STANDARD

Federal Rule of Procedure 15(a) permits a party to amend its pleading once as a matter of course within 21 days of serving it. Rule 15 allows amendments beyond the 21-day period only with the opposing party's consent or the court's leave, and the rule instructs courts to "freely give leave when justice so requires." Fed. R. Civ. P. 15(a)(2). "The purpose of pleadings is `to facilitate a proper decision on the merits,' and not to erect formal and burdensome impediments in the litigation process. Unless undue prejudice to the opposing party will result, a trial judge should ordinarily permit a party to amend its complaint." Howey v. United States, 481 F.2d 1187, 1190 (9th Cir. 1973) (internal quotations and citations omitted). The Ninth Circuit has identified "several factors" used to determine whether leave to amend should be granted. "These criteria include undue delay, bad faith, futility of amendment, and prejudice to the opposing party. While all these factors are relevant, the crucial factor is the resulting prejudice to the opposing party." Id.

III. DISCUSSION

A. Undue Delay

This action was filed in March of 2011. Defendants answered Dr. Gonda's complaint on June 16. They could not have raised the Settlement Agreement as a defense at that time, because the Settlement Agreement had not yet been executed. When the Settlement Agreement was executed in November of 2011, this case was stayed pending the outcome of Dr. Gonda's arbitration proceedings against Defendants, and then the stay was continued during his administrative appeals. See ECF Nos. 19 ("Stay Order"); 21. Defendants argue that "it would have been improper" to move for leave to amend at that time. That is correct, but the parties could have moved to lift the stay and dismiss the case, given that they had apparently agreed to release this lawsuit.

Regardless, on May 20, 2013, Dr. Gonda reported that his administrative appeals had been exhausted and requested a case management conference. See ECF No. 24. On May 30, the Clerk set a case management conference on the Court's calendar. See ECF No. 25. Once the case was restored to the Court's calendar, Defendants still did not seek leave to amend their answer. On November 11, 2013, Defendants filed a motion for summary judgment. ECF No. 35. That summary judgment motion did not mention the Settlement Agreement, nor did Defendants seek leave to amend their answer at that time. It was not until November 6, 2014 — almost three years after the Settlement Agreement was executed — that Defendants finally raised the issue in their motion for summary judgment. See ECF No. 67 ("SJ Mot."). Even accepting that it would have been improper to move for leave to amend during the stay, Defendants waited almost a year and a half after the exhaustion of Dr. Gonda's administrative appeals to raise this issue.

TPMG argues that its attorneys did not obtain a copy of the release until August 2014. Because Defendants filed their motion for summary judgment about two months thereafter, Defendants argue that any delay was not undue. See Defs. Supp. Br. at 5-6. However, Defendant TPMG was a party to the Settlement Agreement and was therefore aware of it from the date it was executed. Failure to turn over the agreement to counsel does not excuse the delay. The Court finds that the sheer length of the delay in this case — either three years or one and a half years, depending on when you start counting — counsels against granting leave to amend. Cf. Toth v. Glazer, 163 F.R.D. 549, 550 (E.D. Wis. 1995) (two month delay in moving to amend answer supported denial of motion).

B. Bad Faith

The Life Insurance Company of North America ("LINA") provides long-term disability benefit insurance coverage for the TPMG Plan. As the TPMG Plan's insurer, LINA agreed to provide TPMG and the TPMG Plan with counsel in this case, and so TPMG was represented by different attorneys in Dr. Gonda's wrongful termination action. Defs. Supp. Br. at 2-3. LINA requested a copy of the Settlement Agreement from TPMG for use in this action in December of 2013 (still two years after the agreement's execution). Id. at 3. TPMG did not respond. After LINA followed up with TPMG, TPMG referred LINA to the counsel who represented TPMG in the wrongful termination arbitration. However, TPMG's attorneys refused to turn over a copy of the Settlement Agreement. Defendants' attorneys also sought a copy of the agreement from Kaiser Foundation Hospitals ("KFH"), but KFH's attorneys also refused to turn it over. Id.

In April of 2014, Defendants served a request for production on Dr. Gonda that sought, among other things, a copy of the Settlement Agreement. That is rather remarkable. Defendant TPMG was a party to the Settlement Agreement and alleges in its motion for summary judgment that the Settlement Agreement applies to this action. But TPMG could not obtain a copy of a contract to which it was a party for use in its own defense and was put in the position of requesting that contract from the adverse party.1 While that does not necessarily indicate that bad faith caused the delay in raising this defense, it certainly gives the Court pause. TPMG's inability to obtain its own contract for its own defense casts some doubt on the forthrightness of the release argument. If the Settlement Agreement was truly intended to cover this litigation, then is difficult to understand why TPMG's attorneys had such difficulty getting a copy.

Dr. Gonda suggests that Defendants are using the Settlement Agreement in a last-ditch effort to avoid adjudication on the merits because a court in this District issued a decision that adversely affected Defendants' chances in this litigation. See Pl.'s Supp. Br. at 3-4. However, other than the timing (the decision, Polnicky v. Liberty Life Assurance Co. of Boston, 999 F.Supp.2d 1144 (N.D. Cal. 2013) was issued November 26, 2013, and Defendants' first attempts to locate a copy of the Settlement Agreement came on December 11), there is no evidence that that was Defendants' motive.

The Court finds that this factor weighs in favor of granting leave to amend. While the Court has some concerns about Defendants' inability to obtain a copy of the release, there is no evidence that Defendants acted in bad faith.

C. Futility of Amendment

This factor weighs in favor of granting Defendants leave to amend. The Court cannot say that amendment would be futile, as the Settlement Agreement does specifically refer to ERISA claims. This factor, too, weighs in favor of granting leave to amend.

D. Prejudice to Dr. Gonda

"[T]he consideration of prejudice to the opposing party carries the greatest weight." Sonoma Cnty. Ass'n of Retired Emps. v. Sonoma Cnty., 708 F.3d 1109, 1117 (9th Cir. 2013) (quoting Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir.2003)). The discovery cutoff in this case was December 1, 2014 (three weeks after Defendants filed the instant motion), and cross-motions for judgment under Rule 52 (in lieu of a trial) are set to be heard on March 6, 2015. Dr. Gonda argues that he would be unduly prejudiced were the Court to permit amendment, because amendment would either leave Dr. Gonda insufficient time to investigate Defendants' claims regarding the Settlement Agreement or require the Court to postpone the hearing date.

Defendants argue that the Settlement "is an integrated contract subject to legal interpretation by the Court based on its four corners," and, therefore, that Dr. Gonda will not need to conduct any discovery. Defs. Supp. Br. at 9. The Court is not so sure; California's rules on explanatory evidence for contracts are rather permissive. See Cal. Civ. Code § 1647 ("A contract may be explained by reference to the circumstances under which it was made, and the matter to which it relates."); see also NavCom Tech., Inc. v. Oki Elec. Indus. Co., No. 5:12-CV-04175-EJD, 2014 WL 991102, at *8 (N.D. Cal. Mar. 11, 2014) ("[T]he court can consider the circumstances under which a contract was negotiated, including its object, nature, and subject matter."). Additionally, the TPMG Plan was not a party to the Settlement Agreement, nor was it named as one of the parties thereby released. Thus discovery would potentially be warranted into the Settlement Agreement's application to the TPMG Plan.

However, despite Defendants' undue delay, any need to conduct additional discovery at this point is a result of Dr. Gonda's decision not to conduct that discovery before the discovery deadline. The parties filed a joint case management statement on September 12, 2014, that mentioned Defendants' intention to file a motion for summary judgment on the grounds that the Settlement Agreement bars Dr. Gonda's claims. ECF No. 57 at 6. At a case management conference on September 19, the Court set the discovery cutoff date for December 1. Thus Dr. Gonda had two and a half months to conduct any discovery regarding the Settlement Agreement. He apparently chose not to do so. If Dr. Gonda needed more time for discovery into this issue, he could have requested it at the conference, but he did not. Consequently, any prejudice to Dr. Gonda that would be caused by permitting this amendment is a result of his own failure to timely conduct the necessary discovery.

Dr. Gonda also argues that he "spent a lot of money and devoted a lot of effort to pursuing the internal appeals which, he had been led to believe were for a viable LTD claim. If this defense is . . . inserted into the case now, then all that was wasted." See Pl.'s Supp. Br. at 8. It is not entirely clear what Dr. Gonda means. Apparently, Dr. Gonda is saying that, had TPMG and the TPMG Plan made clear that they intended to rely on the Settlement Agreement as an affirmative defense in this action, Dr. Gonda would not have pursued his internal appeals with LINA. That makes little sense for two reasons. First, the parties agreed that Dr. Gonda's LINA appeals should be concluded before this lawsuit was adjudicated. See ECF No. 21 at 2-3 (parties stipulated to stay this matter for Dr. Gonda's administrative appeal). Presumably this case would have been rendered moot had LINA upheld Dr. Gonda's LINA appeal. It is difficult to understand why Dr. Gonda would not have pursued that appeal had Defendants informed him earlier of their intention to rely upon the Settlement Agreement as an affirmative defense in this case. Second, LINA is not a party to this lawsuit. So TPMG and the TPMG Plan's intention to rely on the Settlement Agreement (to which LINA was not a party) in this case (to which LINA is not a party) has no bearing on Dr. Gonda's appeals with LINA.2

Thus the Court finds that Dr. Gonda will suffer no prejudice as a result of Defendants' proposed amendment that is not of his own making. Because the prejudice factor carries the most weight, the lack of prejudice to Dr. Gonda convinces the Court that granting leave to amend is appropriate.

IV. CONCLUSION

The Court finds that Defendants unduly delayed in raising the affirmative defense of the Settlement Agreement. However, there is no evidence of bad faith or futility. Most importantly, the Court finds that there will be no undue prejudice to Dr. Gonda. For those reasons, the Court GRANTS Defendants leave to amend their answer to add the affirmative defense that the Settlement Agreement releases Dr. Gonda's claims. Defendants shall file an amended answer within four (4) days of the signature date of this Order. The Court will defer resolution of Defendants' motion for summary judgment until Defendants have filed the amended pleading (or the four-day deadline passes with no amended pleading filed).

IT IS SO ORDERED.