Diocese of St. Cloud v. Arrowood Indemnity Company

Background

The Diocese of St. Cloud and 30 Catholic parishes initially brought an insurance-coverage action concerning which parties would pay compensation to victims of clerical abuse who had filed claims in state court. Seventeen parishes were later dismissed, leaving the Diocese and 13 parishes.

The plaintiffs asserted declaratory-relief claims against their insurers and a breach-of-contract claim against Arrowood Indemnity Company. Earlier orders dismissed other claims against Arrowood, including claims for promissory estoppel, bad faith or breach of fiduciary duty, fraudulent misrepresentation, and tortious interference with contractual relations. Church Mutual Insurance Company was later dismissed by stipulation.

The pretrial scheduling order required motions to amend the pleadings or add parties to be filed and heard before August 1, 2018. On August 1, the plaintiffs moved to amend the complaint and modify the scheduling order. They sought to add a claim against Church Mutual, rejoin or add insurance companies, add Arrowpoint Capital Corporation and Arrowpoint Group, Inc., and add allegations against Arrowood. The proposed new insurance-company defendants included Nationwide Affinity Insurance Company of America, Employers Insurance Company of Wausau, and Western National Mutual Insurance Company. The plaintiffs also asked to extend the amendment deadline to August 20.

United States Magistrate Judge Leo Brisbois denied the motion after an August 20 hearing. He found that the motion was untimely and that the plaintiffs had not shown good cause to modify the scheduling order because they had not been diligent. The plaintiffs filed a partial objection. They did not object to the denial of joinder of Western National.

Standard of review

Because the objection concerned a nondispositive issue, the district court could set aside the magistrate judge’s decision only if it was clearly erroneous or contrary to law. The court described this review as extremely deferential.

Modification of the scheduling order

Federal Rule of Civil Procedure 16(b)(4) allows a scheduling order to be modified only for good cause. The court explained that when a party seeks to amend after the scheduling-order deadline, the party must first show good cause to change the schedule. The primary question is whether the party acted diligently in trying to meet the deadline.

The court upheld the finding that the plaintiffs were not diligent. The information supporting the proposed amendments had been in the plaintiffs’ possession, but their counsel did not begin searching for the necessary documents until April 2018. The plaintiffs did not provide the search log they said counsel had maintained, identify when they found the information supporting the amendments, or adequately explain why the search prevented a timely motion. The court also noted that the plaintiffs had known about deficiencies in their claims against Arrowood since at least June 2017 but waited ten months to enlist counsel to search for additional records.

The court also rejected the plaintiffs’ alternative argument that good cause existed even without diligence. It distinguished a prior case in which delay was partly justified by defendants’ failure to produce discovery despite repeated requests. Here, the court found that the proposed amendments were based on information the plaintiffs themselves discovered, not on information defendants had failed to produce.

Proposed amendments

Because the plaintiffs failed to show good cause to modify the scheduling order, the court held that the motion to amend was properly denied as untimely.

The court nevertheless addressed the proposed amendments. It upheld the finding that permissive joinder under Rule 20 was not warranted for Nationwide, Employers, and Church Mutual because the insurance-coverage claims were based on separate contracts and did not assert a joint right to relief against those defendants.

The court also affirmed the finding that adding Arrowpoint Capital Corporation and Arrowpoint Group, Inc. would be futile. In this context, “futile” means the proposed claims would not survive a motion to dismiss for failure to state a claim. The plaintiffs had made no specific factual allegations about those entities’ conduct.

The court further concluded that the proposed amendments would not cure the earlier deficiencies in the claims against Arrowood. The proposed promissory-estoppel allegations did not show detrimental reliance. The proposed fiduciary-duty allegations did not identify a specific claim for which Arrowood accepted a duty to defend and settle and then acted in bad faith. The proposed fraudulent-misrepresentation allegations still did not connect the alleged statements to detrimental reliance. The proposed tortious-interference allegations still did not support a reasonable inference that Arrowood intentionally caused a contract breach without justification.

Disposition

The court overruled the plaintiffs’ partial objection and affirmed Magistrate Judge Brisbois’s order. The order states that the magistrate judge’s denial of the plaintiffs’ motion to amend the pleadings was affirmed on the ground that the motion was untimely.