GWYNNE E. BIRZER, Magistrate Judge.
This matter is before the Court on Defendants' Motion for Leave to Amend their Answer
This dispute arises from an employee's claims of misclassification, unpaid earnings, and wrongful termination. Plaintiff Eric Endecott was a project manager employed by defendant Commercial Floorworks, Inc. ("CFW"), and its President, James E. Pederson, from approximately 2006 through September 25, 2015. As a project manager, Plaintiff bid, sold, and managed commercial flooring projects on behalf of CFW in both Kansas and Missouri. Plaintiff was not paid a salary, but he was compensated through commissions, calculated as a percentage of gross profits, minus specified expenses, on each flooring project. Plaintiff was paid through a guaranteed weekly draw against his commission account.
Plaintiff claims Defendants misclassified him as an exempt employee under the Fair Labor Standards Act, 29 U.S.C. §§ 201, et seq., ("FLSA") and failed to pay him overtime wages, although he worked approximately 60 hours each week. Plaintiff alleges other FLSA violations, including Defendants' failure to maintain accurate records of his hours worked. Additionally, he contends Defendants incorrectly calculated his commissions, in violation of the Kansas Wage Payment Act, K.S.A. § 44-313, et seq. ("KWPA"). He claims Defendants applied a lower commission rate than agreed upon and erroneously deducted items from his commission account which were not true expenses.
While still employed by CFW, and after discovering what he believed were missing commissions, Plaintiff sent a demand letter to Defendants in August 2015, outlining his FLSA and KWPA claims. One month later, Plaintiff's employment was terminated. He now brings claims for unpaid overtime and retaliation under the FLSA, unpaid wages under the KWPA, and a common law claim of retaliatory discharge.
Defendants deny Plaintiff's allegations, and claim he was terminated due to poor performance. Defendants also claim their customers were leaving due to Plaintiff's neglect of his accounts. According to Defendants, when Plaintiff's draw against his commission exceeded his earned commission, Defendants suspended his ability to draw against unearned commission. Because Plaintiff refused to work, he was terminated.
Plaintiff filed this lawsuit on March 24, 2016 (ECF No. 1), and Defendants timely filed an Answer (ECF No. 7). A Scheduling Order was entered on July 15, 2016, establishing a deadline of August 30, 2016, for any motions to amend the pleadings (ECF No. 15).
In August 2016, Defendants served initial written discovery requests, asking Plaintiff to produce his federal and state tax returns for the years he was employed by Defendants. In Plaintiff's responses, he produced his IRS Form W-2s and 1099s, but he objected to producing the returns themselves. More than a month later, Defendants sought an extension of the deadline for a motion to compel (ECF No. 32), which Plaintiff opposed. In November 2016, after the parties were unable to agree on production of the returns, Defendants finally obtained Plaintiff's 2013 tax return through an alternate avenue—the court file in Plaintiff's divorce case, which also included hearing transcripts.
As a result of information gleaned from the tax documents and divorce hearing transcripts, Defendants propounded a second set of written discovery to Plaintiff on November 30, 2016 (ECF No. 36), regarding the additional income Plaintiff received in 2013-14. In Plaintiff's January 6, 2017 responses, he confirmed he received "specifier fees" from three of Defendants' vendors during 2013-14. Defendants contend it was their policy for these specifier fees to be paid directly to CFW, not directly to the Sales Manager, and the fee would be credited to the Sales Manager when calculating commissions. Defendants assert any effort by a Sales Manager to "divert and/or accept a specifier fee directly is grounds for termination" (ECF No. 44 at 5).
Having discovered Plaintiff's receipt of the specifier fees, Defendants now wish to amend their Answer to include the "after-acquired-evidence"
Fed. R. Civ. P. 15 establishes the standard for amending pleadings, while Rule 13 specifically addresses the filing of counterclaims and crossclaims. Additionally, Rule 16 provides the general framework for pretrial management. All three rules are implicated by Defendants' motion, with Rule 15 providing the starting point.
The standard for permitting a party to amend his or her pleadings is well established. A party may amend its pleading as a matter of course under Fed. R. Civ. P. 15(a)(1) within 21 days after serving it. However, in cases such as this, where the time to amend as a matter of course has passed, without the opposing party's consent, a party may amend a pleading only by leave of the court under Rule 15(a)(2).
Rule 15(a)(2) provides leave "shall be freely given when justice so requires," and the decision to allow an amendment is within the sound discretion of the court.
Because Defendants seek not only to amend their answer but to add a counterclaim, it is also appropriate for the Court to consider Rule 13. Rule 13(a)(1) requires a "compulsory counterclaim" if a defendant's claim "arises out of the transaction or occurrence that is the subject matter of the [plaintiff]'s claim and does not require adding another party over whom the court cannot acquire jurisdiction." In the event the counterclaim is not filed with the initial answer, Rule 13(e) gives the court discretion to "permit a party to file a supplemental pleading asserting a counterclaim that matured or was acquired by the party after serving an earlier pleading."
When a proposed amendment is offered after the deadline to amend pleadings has passed, Fed. R. Civ. P. 16(b)(4) is implicated. It provides that a "schedule may be modified only for good cause and with the judge's consent." When considering a motion to amend the pleadings filed past the scheduling order deadline, "judges in this District have consistently applied a two-step analysis based on both Rule 16(b) and Rule 15(a)."
"Good cause" under Rule 16(b)(4) requires the moving party to "show that the amendment deadline could not have been met even if it had acted with due diligence."
Defendants contend they could not have sought amendment prior to the August 30, 2016 Scheduling Order deadline, because they were unaware of the context of Plaintiff's receipt of the specifier fees until he confirmed it in his January 2017 discovery responses. Therefore, they believe good cause has been demonstrated for amendment after the Scheduling Order deadline, and justice requires an order permitting assertion of the new defense and claims.
Plaintiff disputes Defendants' assertion of good cause, and of the factors analyzed by the Court when considering amendment of pleadings, Plaintiff opposes the amendment on three grounds: undue delay, undue prejudice, and futility. Plaintiff argues Defendants lacked diligence, because the 1099's should have alerted them to Plaintiff's additional income as early as October 3, 2016. Allowing Defendants to amend their answer at this late stage of the lawsuit would require reopening discovery, which would significantly affect the schedule of the case. Finally, Plaintiff contends Defendants' proposed conversion and breach of duty of loyalty claims, along with a portion of the unjust enrichment claims, are futile, because the statutes of limitations for those claims has expired. Although Plaintiff admits Defendants could timely assert a fraud claim, he argues the proposed counterclaim does not plead fraud with particularity; therefore, the claim is subject to dismissal. Each argument raised by the parties is addressed in turn.
The parties' arguments regarding whether Defendants demonstrated good cause for their request, filed nearly five months after the deadline for amendment, can be narrowed to a primary question: whether Defendants should have known, based upon the limited tax information (form W-2's and 1099's) provided by Plaintiff in October 2016, that Plaintiff accepted specifier fees. Although the 1099's alerted Defendants to three payments to Plaintiff from known vendors, Defendants claim they had no reason to suspect, based upon only the 1099 forms, the income was from specifier fees paid on a project where CFW lost the bid to a competitor. And, after reviewing the divorce file in late November 2016, although Defendants suspected the 2013 payments were from specifier fees, no information regarding 2014 income was included in the divorce file. Until Plaintiff confirmed the source and basis for both the 2013 and 2014 income in his January 2017 discovery responses, Defendants felt they did not have adequate information to bring new but non-frivolous claims. Defendants filed their motion to amend one week after reviewing Plaintiff's January 2017 discovery responses.
Regardless of what Defendants knew, or what Plaintiff argues they should have known—in October or November 2016, or January 2017—the parties agree Defendants' knowledge about the specifier fees occurred after the Scheduling Order deadline to amend pleadings. The question is a matter of how long after. With only three months truly in question, the Court finds no carelessness on the part of Defendants in waiting to clarify their suspicions with written discovery before seeking to amend.
Upon a finding of good cause under Rule 16, the Court must assess whether the standards for amendment under Rule 15 (a)(2) have been satisfied. Combined with his good cause analysis, Plaintiff focuses on the timing of Defendants' motion to amend. He asserts Defendants lacked diligence in seeking additional information about the specifier fees after receiving the 1099's on October 3, 2016, and because Defendants should have known, for nearly three months, that Plaintiff received specifier fees, their motion is untimely. Plaintiff cites a recent District of Kansas case, Klaassen v. Atkinson,
Likewise, Plaintiff cites to the Tenth Circuit case of Birch v. Polaris Industries, Inc.,
But Klaasen and Birch are each distinguishable from the facts at hand. This is Defendants' first request to amend—not the fourth, as in Klaasen. For the reasons discussed above, the Court finds Defendants adequately explained and demonstrated good cause for their delay, which was three months at worst, and only one week at best. Therefore, Defendants' motion will not be denied on the basis of untimeliness under Rule 15(a)(2).
As the party opposing the amendment, Plaintiff bears the burden to demonstrate undue prejudice within the meaning of Rule 15.
Considering this "most important factor,"
Plaintiff's claim of prejudice focuses on the rescheduling of deadlines and necessity for additional discovery. But equally important to this Court is, whether Defendants assert their counterclaim in this action, or file a separate action, it is clear they intend to make those claims. Permitting Defendants to do so within this case, already in progress, furthers the interests of economy and efficiency for both the court and the parties.
In addition to the scheduling modifications and additional discovery, Plaintiff claims he has been prejudiced due to Defendants' failure to disclose a written policy regarding specifier fees. Plaintiff contends he did not have an opportunity to request the information through the discovery process, and despite repeatedly being requested to produce all policies applicable to Plaintiff, Defendants failed to produce it. The Court finds this argument unpersuasive in the context of a motion to amend, and Plaintiff will be afforded adequate opportunity to issue additional, pointed and intentional discovery requests to Defendants on this topic, which alleviates any concern of prejudice.
Finding Defendants demonstrated good cause for their delay in seeking amendment, and no undue prejudice exists, the Court next considers whether the amendment would be futile. As the party opposing amendment, Plaintiff bears the burden of establishing its futility.
The parties agree Defendants' proposed conversion and breach of duty of loyalty claims are subject to a two-year statute of limitations, under K.S.A. § 60-513(a)(2)
Plaintiff relies upon a Kansas Court of Appeals case, Robinson v. Shah,
The parties disagree on the limitations period applicable to Defendants' proposed unjust enrichment claim: Plaintiff cites K.S.A. § 60-512, which sounds in contract, to argue a three-year limitations period applies,
Although the Court tends to agree the discovery rule works in Defendants' favor, the motion for leave to amend pleadings is not the appropriate context in which to determine which statute is applicable or when CFW's alleged injury became reasonably ascertainable.
Plaintiff's final argument regarding futility focuses on Defendants' proposed fraudulent concealment claim. Fed. R. Civ. P. 9(b) requires a party to "state with particularity the circumstances constituting fraud." Plaintiff contends Defendants' fraud claim is subject to dismissal, because it does not adequately plead particular facts. Additionally, because Defendants did not provide evidence of any specifier fee policy preventing Plaintiff from receiving those fees, or that Defendants actually communicated such policy to either Plaintiff or the vendors,
At this stage, Defendants are not required to prove their allegations with evidence, but are merely required by Rule 9(b) to articulate in detail the circumstances constituting fraud. In the proposed counterclaim, Defendants specifically assert Plaintiff occupied "a position of the highest trust"
Based upon the facts alleged in the proposed answer and counterclaim, and construing all reasonable inferences from those facts in favor of Defendants,
In the event Defendants' motion to amend is granted, Plaintiff asks that the costs of any additional depositions be borne by Defendants, including all costs for the court reporters, videographer, and Plaintiff's attorney's fees (ECF No. 47 at 9). Plaintiff cites no authority for the shifting of costs, and the Court assumes he requests costs under the general pretrial sanctions provisions of Rule 16(f) or Rule 37(b), for Defendants' failure to meet the deadline for amendment set by the scheduling order. The language of both rules make clear costs or fees may be awarded when a party fails to obey a court order, "unless the failure was substantially justified or other circumstances make an award of expenses unjust."
Because this Court has determined Defendants' proposed counterclaim is not futile, on its face, and its filing would result in merely practical, rather than undue, prejudice, the Court in its discretion will allow Defendants to amend their answer under Rule 15(a) and assert their counterclaims under Rule 13(e). Because the Court prefers the case to proceed on its full merits,
