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Ohio Security Insurance Co. v. K R Enterprises, Inc.

United States District Court, S.D. West Virginia, Bluefield

May 22, 2017

OHIO SECURITY INSURANCE COMPANY, Plaintiff,
v.
K R ENTERPRISES, INC., et al., Defendants.

          MEMORANDUM OPINION AND ORDER

          David A. Faber Senior United States District Judge.

         Pending before the court is plaintiff's motion for leave to file an amended complaint. (Doc. No. 52). For the reasons that follow, that motion is GRANTED.

         Factual and Procedural Background

         The instant dispute centers on fraudulent tax returns filed by defendant Jeremy Evans, a former employee of defendant K R Enterprises, doing business as Jackson Hewitt.[1] Specifically, former customers of K R Enterprises have alleged that Evans improperly accessed the records of K R Enterprises to obtain their personal and confidential information for the purpose of fraudulently filing their 2014 income tax returns. All of the former customers had sought assistance preparing their 2013 tax returns from K R Enterprises and their confidential information had been saved in the company's database.

         Upon discovering Evans' conduct, certain customers of K R Enterprises filed suit in the Circuit Court of McDowell County, West Virginia, against Evans, K R Enterprises, and Jackson Hewitt raising various state law claims including, but not limited to, Breach of Fiduciary Duty, Negligence, and Invasion of Privacy. There are six of these lawsuits currently pending in the McDowell County Circuit Court.[2] All of the state lawsuits allege that Evans was arrested on or about February 4, 2015, at a K R Enterprise location and that Evans admitted to police that he had used the customers' 2013 tax return information to fraudulently file 2014 tax returns in their names.

         Plaintiff Ohio Security Insurance Company (“Ohio Security”) issued a BusinessOwners Liability Policy to K R Enterprises, Policy Number BZS (15) 56 08 16 29. See Amended Complaint at ¶ 60. The Ohio Security Policy also included Data Compromise and CyberOne Coverage endorsements. See id. at ¶¶ 73 and 75.

         On December 18, 2015, Ohio Security Insurance Company filed a declaratory judgment action on the basis of diversity jurisdiction pursuant to 28 U.S.C. § 1332 and, on March 14, 2016, it filed an amended complaint. Ohio Security asks this court to determine that it has no duty to defend or indemnify K R Enterprises, Evans, or Jackson Hewitt[3] under the BusinessOwners liability coverage and/or or the Data Compromise and CyberOne coverage for the six underlying lawsuits.

         On March 17, 2017, plaintiff filed a motion for leave to file a second amended complaint seeking to add Cathy S. Goodman as a defendant to the lawsuit. On February 27, 2017, Goodman had filed an amended complaint in the Circuit Court of Wood County raising allegations similar to the six underlying lawsuits and naming Jackson Hewitt, Ohio Security, Evans, and K R Enterprises as defendants. (ECF No. 52-1). Ohio Security was served with the Goodman complaint on March 8, 2017, and file its motion to amend on March 17, 2017. The defendants who are plaintiffs in the underlying lawsuits oppose the motion to amend. (ECF No. 56).

         Analysis

         Rule 15(a) of the Federal Rules of Civil Procedure permits a party to amend its pleading "once as a matter of course at any time before a responsive pleading is served . . . [o]therwise a party may amend the party's pleading only by leave of court or by written consent of the adverse party; and leave shall be freely given when justice so requires." In Foman v. Davis, 371 U.S. 178, 182 (1962), the United States Supreme Court noted that amendment under Rule 15(a) should be freely given absent "undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of amendment, etc."

         However, in the Southern District of West Virginia, it is well established that “[o]nce the scheduling order's deadline for amendment of the pleadings has passed, a moving party first must satisfy the good cause standard of Rule 16(b) [of the Federal Rules of Civil Procedure]. If the moving party satisfies Rule 16(b), the movant then must pass the tests for amendment under Rule 15(a).” Marcum v. Zimmer, 163 F.R.D. 250, 254 (S.D. W.Va. 1995) (citing Lone Star Transp. Corp. v. Lafarge Corp., Nos. 93-1505, 93-1506, 1994 WL 118475 (4th Cir. April 7, 1994)).

         A. Rule 16(b) Good Cause

         As the deadline for amended pleadings passed prior to the filing of this motion, plaintiff must satisfy the “good cause” standard of Rule 16(b) in addition to meeting the requirements of Rule 15(a). “Unlike Rule 15(a)'s liberal amendment policy which focuses on the bad faith of the party seeking to interpose an amendment and the prejudice to the opposing party, Rule 16(b)'s ‘good cause' standard primarily considers the diligence of the party seeking the amendment.” Johnson v. Mammoth Recreations, Inc., 975 F.2d 604, 609 (9th Cir. 1992); Marcum, 163 F.R.D. at 254 (citing Johnson).

         After a review of the record, it appears to the court that plaintiff was diligent in filing its motion to amend the complaint. The Goodman lawsuit was not even filed until after the deadline for amendments had passed and, therefore, it was impossible for plaintiff to seek leave time to amend within the timeframe set forth in the scheduling order. Furthermore, Ohio Security filed the instant motion shortly after being served with Goodman's ...


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