- Category: Judge Somers
- Published on 17 June 2011
- Written by Judge Somers
SIGNED this 14 day of June, 2011.
Dale L. Somers
UNITED STATES BANKRUPTCY JUDGE
Designated for on-line distribution but not for print publication.
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS
BROOKE CORPORATION, et. al.,
ALBERT A. RIEDERER, Chapter 7
Trustee of Brooke Corporation, Brooke
Capital Corporation, and Brooke
DALLAS NATIONAL INSURANCE
CO., et al.,
CASE NO. 08-22786
ADV. NO. 10-06162
MEMORANDUM OPINION AND ORDER GRANTING CHAPTER 7 TRUSTEE’S
MOTION FOR LEAVE TO FILE SECOND AMENDED COMPLAINT TO
NAME NATIONAL SPECIALTY LINES, INC. AS A DEFENDANT
Case 10-06162 Doc# 94 Filed 06/14/11 Page 1 of 15
The matter under advisement is the Chapter 7 Trustee’s Motion for Leave to File
Second Amended Complaint (hereafter “Motion”).1 The proposed Second Amended
Complaint attached to the Motion seeks to amend the names of two defendants:
(1) Changing defendant “Republic Companies Group, Inc.” to “Republic Companies,
Inc.”; and (2) changing defendant “NSL Gainsco” to “National Specialty Lines, Inc.”
National Specialty Lines, Inc. (hereafter “NSL”) objects to the Motion.2 It
characterizes the Motion as seeking to add a new party to the action long after the
expiration of the statute of limitations. It argues that the amendment would be futile and
therefore should not be allowed.
A. THE LEGAL STANDARD.
The Trustee seeks leave to file a second amended complaint pursuant to Fed. R.
Civ. P. 15(a)(2), made applicable to this proceeding by Fed. R. Bankr. P. 7015. Rule
15(a) applies to amendments before trial. Subsection (a)(1) permits a party to amend a
complaint as a matter of course within 21 days after service. Subsection (a)(2) addresses
other amendments, stating:
(2) Other Amendments. In all other cases, a party may
amend its pleading only with the opposing party’s written
1 Dkt. no. 62.
2 Dkt. no. 73. Defendants Four Corners Insurance Services, Inc., and Republic
Companies, Inc., filed a response. Dkt. no. 70. They do not oppose the amendment but assert
that neither Republic Companies Group, Inc., nor Republic Companies, Inc., the parent of
defendant Four Corners Insurance Services, Inc., are proper parties to this case. They request
dismissal of Republic Companies, Inc. That response is not yet under advisement and will be the
subject of a future order.
Case 10-06162 Doc# 94 Filed 06/14/11 Page 2 of 15
consent or the court’s leave. The court should freely give
leave when justice so requires.
Collier on Bankruptcy, a leading treatise, states the following about this subsection:
If the right to amend as a matter of course is lost by the
passage of time, amendment is permissible by leave of court
or by obtaining the written consent of the adverse party. Rule
15(a) also provides that leave by the court shall be freely
given “when justice so requires.” Professor Moore indicates
that the more common reasons for denying leave to amend
include undue prejudice to the adverse party, undue delay,
lack of good faith and sufficient opportunity to state a claim
encompassing several failed attempts to do so. Leave should
probably be denied where the amendment would be subject to
a motion to dismiss or strike. In such an instance the
amendment serves no useful purpose. The same result should
obtain where the amendment is objected to on the ground that
the claim or defense would not relate back under Rule 15(c)
and would therefore be barred by the applicable statute of
NSL asserts that the proposed amendment is futile because the amendment would
not relate back to the date of the original Complaint and the time for the Trustee to file
avoidance actions has expired. It seeks to benefit from the generally accepted rule that
new parties cannot be added to an action after the applicable statute of limitations has run.
However, courts have long recognized an identity of interest exception to that rule, which
is discussed below, the simplification and uniformity of which was achieved through the
1966 amendment of Rule 15(c), which explicitly authorized “changing parties along with
additional requirements designed to assure that any party who is added by amendment
3 10 Collier on Bankruptcy, ¶ 7015.04 (Alan N. Resnick & Henry J. Sommer eds.-inchief,
16th ed. 2011) (citations omitted).
Case 10-06162 Doc# 94 Filed 06/14/11 Page 3 of 15
after the limitations period has expired had adequate notice of the action and of plaintiff’s
mistake in failing to name the new party at the outset.”4 The rule guards against the
possibility that the new party might have a procedural due process claim that its right to
invoke the statute of limitations defense was improperly barred.5 Rule 15(c) was
amended in 1991 to link the relation back notice to the federal period for service of
process, rather than to the limitations period.6 Rule 15(c)(1)(C) now provides as follows
regarding relation back of an amendment changing a party:
(c) Relation Back of Amendments.
When an Amendment Relates Back. An amendment
to a pleading relates back to the date of the original
. . .
the amendment changes the party or the naming
of the party against whom a claim is asserted, if
Rule 15(c)(1)(B) is satisfied and if, within the
period provided by Rule 4(m) for serving the
summons and complaint, the party to be brought
in by amendment:
received such notice of the action that it
will not be prejudiced in defending on
the merits; and
knew or should have known that the
action would have been brought against
it, but for a mistake concerning the
proper party's identity.
NSL asserts the proposed amendment should not relate back to the filing of the
4 6A Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and
Procedure, Civil, § 1498 at 128 (3d ed. 2010).
6 Id., § 1498.1 at 132-34.
Case 10-06162 Doc# 94 Filed 06/14/11 Page 4 of 15
Complaint because: (1) NSL did not have notice within the 120-day period for service
under Fed. R. Civ. P. 4(m); (2) NSL will be prejudiced by the relation back of the Second
Amended Complaint; and (3) NSL did not have knowledge that it was the proper party to
B. THE RELEVANT FACTS.
Two of the Debtors filed for relief on October 28, 2008, and the third filed on
November 3, 2008. The Court is familiar with the business practices of the Debtors and
will not expand this opinion by including such facts. The last date for the timely
commencement of avoidance actions in the Brooke Corporation and Brooke Capital
Corporation cases was October 28, 2010, the date the parties use in their arguments.
The Complaint, alleging causes of action under 11 U.S.C. §§ 544, 547, 548 and
550, was filed on October 22, 2010. The transfers in issue include the Debtors’ use of
their own funds to pay insurance premiums which were in fact owed by their agents. The
original defendants included “Gainsco Inc. (and NSL Gainsco).” On October 26, 2010,
the Trustee filed an Amended Complaint naming Gainsco, Inc., and NSL Gainsco as
separate defendants. On December 14, 2010, a summons was issued to Gainsco, Inc., to
be served as follows:
c/o Glenn W. Anderson
3333 Lee Parkway, Ste. 1200
Dallas, TX 75219
An additional summons was issued on December 15, 2010, for service on NSL Gainsco
Case 10-06162 Doc# 94 Filed 06/14/11 Page 5 of 15
to be served on the Texas Department of Insurance. On January 3, 2011, the Texas
Department of Insurance notified the Trustee that NSL Gainsco was not an insurance
company registered in Texas. The Trustee thereafter learned that the proper name for
NSL Gainsco was National Specialty Lines, Inc. On February 17, 2011, the Trustee filed
the instant Motion, attached to which is the proposed Second Amended Complaint,
naming as a defendant National Specialty Lines, Inc.
On February 17, 2011, the Motion and the accompanying exhibit were sent via
overnight mail (Federal Express) addressed to NSL at three locations,7 including the
National Specialty Lines National Specialty Lines
c/o CT Corporation c/o Glenn W. Anderson, Michael S.
1200 South Pine Island Road Johnston, Richard M. Buxton, or
Plantation, FL 33324 Daniel J. Coots.
3333 Lee Parkway, Suite 1200
Dallas, TX 75219
Both mailings were delivered to the foregoing addressees on February 18, 2011.8 The
mailing to the Texas address was signed for by the receptionist. After CT Corporation
received the Motion, it forwarded the pleading to:
National Specialty Lines, Inc.
3333 Lee Parkway, Suite 1200
Dallas, TX 75219.9
7 Dkt. no. 77.
8 Dkt. nos. 80-1 and 80-2.
9 Dkt. no.73-2.
Case 10-06162 Doc# 94 Filed 06/14/11 Page 6 of 15
A transmittal letter CT Corporation included with the pleading states, “Enclosed are
copies of legal process received by the statutory agent of the above company,”10 which is
Gainsco is a holding company with its office in Dallas, Texas. NSL is a subsidiary
of Gainsco. Gainsco, and certain of its affiliates, provide centralized accounting,
financing, administrative, and marketing and branding services to NSL. NSL is an
operating company active in the southeast region of the United States. It holds an
insurance license in Florida as a managing general agent and enters into agency contracts
with agents in Florida. NSL has an office in Miami, Florida, but is not authorized to do
business in Texas and holds no insurance license in Texas.
The Complaint was filed on October 22, 2010. One hundred twenty calender days
thereafter was Saturday, February 19, 2011. Because that day was the Saturday of
President’s Day weekend, the 120 days for service under Rule 4(m) did not expire until
the following Tuesday, February 22, 2011.11 On January 15, 2011, the Court granted the
Trustee’s motion to extend by 90 days the time to effectuate service as to many
defendants, including NSL Gainsco.12 When 90 days are added to the original 120 days
for service, the new service date became Friday, May 20, 2011.
11 Fed. R. Civ. P. 6(a)(1)(C).
12 Case no. 08-22786, Dkt. no.1800; see also Case no. 08-22786, Dkt. no. 1735-2, p. 8,
which includes NSL Gainsco in the list of defendants for whom Dkt. no. 1800 extended the
service date by 90 days.
Case 10-06162 Doc# 94 Filed 06/14/11 Page 7 of 15
C. IN ACCORD WITH RULE 15(c)(1)(C), NSL RECEIVED NOTICE OF
THE ACTION WITHIN THE TIME FOR SERVICE OF THE COMPLAINT
UNDER RULE 4(m).
Rule 15(c)(1)(C) requires that the party to be brought in by amendment must have
received notice of the action within the period provided by Rule 4(m) for serving the
summons. The notice need not be formal and need not come directly from the plaintiff.13
The 120-day period established by Rule 4(m) expired on February 22, 2011. NSL
contends by affidavit that “National Specialty did not first learn that the Trustee was
seeking to add it as a party until sometime after February 22, 2011,”14 which apparently
would be the date of receipt of the Motion forwarded by CT Corporation.
The Court rejects this position as insufficient to show lack of timely notice. First,
the assertion is contrary to the fact that NSL received the Motion on February 18, 2011, at
the same office to which CT Corporation forwarded the copy it received on the same date.
Further, NSL admits that service of the Motion on NSL’s statutory agent, CT
Corporation, was accomplished within 120 days of the filing of the Complaint. Notice to
NSL’s statutory agent was notice to NSL.15
In addition, Gainsco, Inc., was served with a summons and a copy of the Amended
Complaint on December 14, 2010, by mail addressed to it in care of Glenn W. Anderson,
13 Loveall v. Employer Health Services, Inc., 196 F.R.D. 399, 403 (D. Kan. 2000).
14 Dkt. no. 73-1, ¶ 15.
15 E.g., Bailey v. Gulf Ins. Co., 389 F.2d 889, 891 (10th Cir. 1968) (“The general rule is
that knowledge of an agent obtained within the scope of his authority is ordinarily imputed to his
Case 10-06162 Doc# 94 Filed 06/14/11 Page 8 of 15
the same individual at the same address to which CT Corporation forwarded the copy of
the Motion served on it as NSL’s statutory agent. That Amended Complaint purported to
assert claims against defendants Gainsco, Inc., and NSL Gainsco. A single attachment
enumerates the transfers in issue against both defendants. Service of the Amended
Complaint on Gainsco, Inc., provided informal notice to NSL of the claims the Trustee
seeks to add by the Second Amended Complaint.
Finally, as noted above, the Court granted an additional 90 days to effectuate
service on NSL Gainsco. The appropriate time limit for notice to NSL is therefore 210
days, not 120 days. The Advisory Committee notes to the 1991 amendment to Rule 15(c)
regarding the relation back of amendments to the pleadings states:
In allowing a name-correcting amendment within the
time allowed by Rule 4(m), this rule allows not only the 120
days specified in that rule, but also any additional time
resulting from any extension ordered by the court pursuant to
NSL admits receiving notice before the expiration of 210 days.
D. NSL RECEIVED SUCH NOTICE OF THE ACTION THAT IT WILL NOT BE
PREJUDICED IN DEFENDING ON THE MERITS.
Rule 15(c)(1) allows an amended complaint changing a party or naming a party
against whom a claim is asserted to relate back to the original filing date if two
conditions are satisfied. First, the notice received must be such that the party “will not be
prejudiced in defending the action.” As the Court understands this requirement, the
question is whether the party to be added received such notice of the action that it will not
Case 10-06162 Doc# 94 Filed 06/14/11 Page 9 of 15
be prejudiced by the filing of the amended complaint and summons outside the limitations
NSL alleges that it is prejudiced because: (1) the Trustee seeks to add it as a party
after hearings on a motion the Trustee filed in the Debtors’ main cases, the Omnibus
Procedures Motion,16 that concerned this and many other adversary proceedings;
(2) many of the transfers in issue occurred three to four years ago, and its ability to defend
itself is diminished each day beyond the limitations period; and (3) the attachment to the
proposed Second Amended Complaint enumerating the transfers in issue is the same as
the one attached to the Amended Complaint and does not differentiate transfers made to
Gainsco from those made to NSL. The Trustee responds that NSL will not be prejudiced
in defending the action, even though his motion to file the Second Amended Complaint
was filed after the limitations period expired.
The Court agrees with the Trustee and finds that NSL will not be prejudiced by the
filing of the action outside the limitations period. Gainsco, the parent of NSL, which
provides centralized accounting, financing, administrative, and marketing services to
NSL, was served with a summons and the Amended Complaint within the limitations
period for recovery of the same transfers which the Trustee seeks to recover from NSL in
the Second Amended Complaint. It appears highly likely that the same records would be
central to the defense of both the parent and the subsidiary. NSL does not argue that any
16Case no. 08-22786, Dkt. no. 1635.
Case 10-06162 Doc# 94 Filed 06/14/11 Page 10 of 15
records of NSL were destroyed because it was not named as a party in the Amended
NSL’s not being included in the hearings on the Trustee’s Omnibus Procedural
Motion is not prejudicial to NSL’s defense. The order finally entered governs procedures
in all cases similar to the one against NSL. If unique circumstances of an individual
defendant such as NSL render the general procedures prejudicial to that defendant, the
Court may enter an order addressing such problems.
Likewise, NSL’s argument that the attachment to the proposed Second Amended
Complaint fails to give adequate notice of the claims against it does not constitute
prejudice for purposes of the relation back doctrine. It is an argument about the
sufficiency of the complaint that is not related to the time of the complaint’s filing.
E. NSL KNEW OR SHOULD HAVE KNOWN THAT THE ACTION WOULD
HAVE BEEN BROUGHT AGAINST IT, BUT FOR A MISTAKE CONCERNING
THE PROPER PARTY’S IDENTITY.
Rule 15(c)(1)(C)(ii), as the second condition for relation back when the
amendment changes a party or the naming of a party against whom a claim is asserted,
requires that the party “knew or should have known that the action would have been
brought against it, but for a mistake concerning the proper party’s identity.” The relevant
time is the 120 days (or expanded service time) of Rule 4(m).17
When arguing this requirement is not satisfied, NSL states, “National Specialty
17 Krupski v. Costa Crociere S.p.A., __ U.S. __, __, 130 S. Ct. 2485, 2493 (2010).
Case 10-06162 Doc# 94 Filed 06/14/11 Page 11 of 15
submits it did not know, and certainly was not in a position where it should have known,
anything about the proposed amendments.”18 Knowledge about the substance of the
amendments is not the relevant issue. The rule requires the defendant knew or should
have known that it would have been named as a party to the complaint but for the mistake
of the plaintiff.
The facts examined above which show the absence of prejudice to NSL from being
sued after the expiration of the limitations period also show that NSL knew or should
have known that it should have been named as a party. This knowledge arose during the
120 days as a result of service of the Amended Complaint on NSL’s parent company and
the receipt by NSL’s agent, CT Corporation, of a copy of the Motion. A review of the
Amended Complaint and the proposed Second Amended Complaint, which include
allegations of transfer of the Debtors’ own funds for payment of insurance premiums
owed by agents, clearly evidence that the Trustee made a mistake and named NSL
Gainsco as a defendant in place of NSL, the holder of an insurance license and a
managing general insurance agent.
F. RELATION BACK IS ALSO SUPPORTED BY CASE LAW ADDRESSING
THE IDENTITY OF INTEREST DOCTRINE.
The specific provisions of Rule 15(c) addressing relation back of amendments
changing parties were added in 1966. Before that amendment, some courts prevented the
“barring effect of limitations statutes by holding that the general notice requirements of
18 Dkt. no. 73, p. 8.
Case 10-06162 Doc# 94 Filed 06/14/11 Page 12 of 15
Rule 15(c) were satisfied when the named and intended parties were closely related.”19
“Identity of interest generally means that the parties are so closely related in their
business operations or other activities that the institution of an action against one serves to
provide notice of the litigation against the other.”20 In other words, the close relationship
allows the imputation of notice to the party sought to be added or substituted, as a
substitute for actual notice.21 The Tenth Circuit, in cases arising before 1966, recognized
an exception, consistent with amended Rule 15(c), “where the new and old parties have
such an identity of interest that it can be assumed that relation back will not prejudice the
NSL, as an additional and apparently independent argument in support of its
objection to the Motion, argues that the identity of interest doctrine is not satisfied in this
case. The Court rejects this argument as a basis to deny the Motion.
First, the Court rejects NSL’s position that “[w]here there is no identity of interest,
the amendment should not relate back.”23 As examined above, the doctrine was
developed before enactment of the current rule regarding changing of parties, and the
19 6A Wright, Miller & Kane at § 1499.
21 Schiavone v. Fortune, 477 U.S. 21, 29 (1986); Unger v. Caloric Corp.(In re Allbrand
Appliance & Television Co., Inc.), 875 F.2d 1021, 1025 (2nd Cir.1989).
22 Graves v. General Ins. Corp., 412 F.2d 583, 585 (10th Cir, 1969) (citing Travelers
Indem. Co. v. United States, ex rel. Constr. Specialities Co., 382 F.2d 103 (10th Cir. 1967)).
23 Dkt. no. 73, p. 10.
Case 10-06162 Doc# 94 Filed 06/14/11 Page 13 of 15
current rule is consistent with the doctrine. The general language of Rule 15(c)(1)(C),
added to Rule 15(c) by the 1966 amendment, preserves the “judicially developed
exception to the proposition that amendments changing parties after the limitations period
has expired will not relate back.”24 When, as in this case, Rule 15(c)(1)(C) is satisfied
based upon actual notice to the party to be added, the imputation of notice under the
doctrine is irrelevant. The cases cited by NSL do not convince the Court that identity of
interest is a requirement for relation back imposed in addition to the conditions of Rule
Second, based upon the limited facts provided by the parties, the Court finds that it
is highly likely that there is an identity of interest between NSL and Gainsco, Inc.,
sufficient for the imputation of notice. Identity of interest has been found between a
parent and a wholly-owned subsidiary.25 In this case, not only is NSL a subsidiary of
Gainsco, but Gainsco (which holds no insurance license) provides centralized accounting,
financing, administrative, and marketing and branding support services to NSL, which
holds an insurance license in Florida as a managing general agent and enters into
contracts with agents in Florida. The Trustee provides evidence that Glenn W. Anderson
and Richard Buxton are either officers or directors of both Gainsco and NSL, and Daniel
J. Coots is an of officer of both companies. Glenn W. Anderson is the individual on
24 6A Wright, Miller & Kane, Federal Practice & Procedure § 1499 at 203.
25 E.g., Travelers Indem. Co. v. United States, ex rel. Constr. Specialities Co., 382 F.2d at
Case 10-06162 Doc# 94 Filed 06/14/11 Page 14 of 15
whom service was made on behalf of both Gainsco and NSL. Since the allegations of the
complaint concern the payment of insurance premiums on behalf of insurance agents,
notice to Gainsco of the litigation should have provided notice to officers and directors of
NSL that NSL was a party intended to be sued.
For the reasons stated above, the Court rules that the Motion to amend the
Amended Complaint to include NSL as a defendant is granted. The filing of the Second
Amended Complaint substituting NSL as a defendant in place of NSL Gainsco will not be
a futile act. Even though service of the Second Amended Complaint on NSL will be
outside the limitations period, the amendment will relate back to the original filing date
because the conditions of Rule 15(c)(1)(C) are satisfied.
IT IS SO ORDERED.
# # #
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