WEATHER MODIFICATION LLC LLC v. BRACKIN LLC (2021)

ORDER

Defendant Neil S. Brackin moves to amend his counterclaims to add claims for exemplary damages, (Doc. 141), and plaintiffs Weather Modification LLC and Fargo Jet Center LLC move to amend their Second Amended Complaint to add a claim for fraud and deceit and to bring a claim for exemplary damages against Brackin and defendant Specialty Aviation Holdings Corporation (SAHC), (Doc. 167). The court held oral argument on the motions on April 27, 2021.

Background

Plaintiffs are engaged in the business of cloud seeding. Plaintiffs allege Brackin—former president of WMI and former board member of Fargo Jet—engaged in “secretive, self-dealing, and self-interested” conduct, (Doc. 26, p. 1), especially in connection with a cloud seeding project in the Indian state of Maharashtra. The parties strenuously disagree about the role of Sunag LLC in the Maharashtra project, but over strong objection from the plaintiffs, the court granted a motion to add Sunag as a defendant. (Doc. 78; Doc. 105).

Brackin now owns and operates SAHC, which he describes as plaintiffs’ competitor in the weather modification and atmospheric sciences industry. Brackin's counterclaims include a defamation claim alleging plaintiffs engaged in a campaign designed to destroy Brackin's reputation in the industry, and he now seeks to add a claim for exemplary damages to his defamation claim. WMI and Fargo Jet, on the other hand, allege Brackin engaged in fraudulent and deceitful conduct in connection with the Maharashtra project that justifies their request to add claims against Brackin and SAHC for fraud and deceit and for exemplary damages.

Law and Discussion

1. Application of North Dakota Century Code section 32-03.2-11(1)

North Dakota Century Code section 32-03.2-11(1) does not allow exemplary damages claims to be included in an initial complaint; rather, a party must move to amend a complaint to include a claim for exemplary damages, and the motion must be accompanied by evidence sufficient to support a finding of entitlement to exemplary damages by a preponderance of the evidence. At issue here is whether that standard, or the more liberal standard of Federal Rule of Civil Procedure 15, applies when the court's jurisdiction is based on diversity of citizenship and North Dakota substantive law governs.

If Rule 15 governs a motion to amend a pleading, the court is to “freely give leave [to amend] when justice so requires.” A motion for leave to amend is generally granted, in the absence of the movant's undue delay, the movant's bad faith, futility, or unfair prejudice to an opposing party. Hillesheim v. Myron's Cards & Gifts, Inc., 897 F.3d 953, 955 (8th Cir. 2018). Unlike section 32-03.2-11(1), Rule 15 does not require submission of evidence supporting a proposed amendment. In determining whether a proposed amendment would be futile, the court considers whether it would withstand a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). Zutz v. Nelson, 601 F.3d 842, 850 (8th Cir. 2010). Generally, when deciding a motion under Rule 12(b)(6) or Rule 15, the court is not to consider matters outside the pleadings. Urbieta v. Mentor Corp., Civ. No. 13-1927, 2018 WL 3475484, at *3 (D. Minn. July 19, 2018).

For a number of years, courts in this district have considered section 32-03.2-11(1) to be substantive in nature and have therefore applied it in cases in which the court's jurisdiction is based on diversity of citizenship and North Dakota's substantive law applies. More recently, however, courts in this district have reexamined applicability of that statute to cases based on diversity jurisdiction. Ralston v. PFG Transco, Inc., No. 3:20-cv-236, Docs. 60 & 77 (D.N.D. Mar. 5, 2021 & May 4, 2021); First Int'l Bank & Trust v. Oasis Petroleum N. Am., LLC, No. 1:18-cv-67, Doc. 50 (D.N.D. Feb. 11, 2020), aff'd, Doc. 81 (D.N.D. Aug. 18, 2020); Rodenburg LLP v. Certain Underwriters At Lloyd's London, No. 3:19-cv-27, Doc. 43, p. 5 (D.N.D. July 30, 2019).

In their initial briefing on Brackin's motion, neither side addressed whether the motion was governed by Rule 15 or by section 32-03.2-11(1). The court therefore ordered supplemental briefing on that question. Brackin and plaintiffs both filed supplemental briefs; Brackin asserted application of the state statute, (Doc. 165, p. 10), while plaintiffs argued that Rule 15 should control rather than the state statute but that Brackin's proposed amendment should be considered futile under Rule 15. (Doc. 175, pp. 3-4).

From at least 1992 until 2020, courts in this district had applied section 32-03.2-11(1) when addressing motions to amend pleadings to add exemplary damages claims in diversity cases. Nereson v. Zurich Ins. Co., Civ. No. A3-91-72, 1992 WL 212233 (D.N.D. Aug. 20, 1992).¹ Application of the statute was premised on there being no direct conflict between the statute and the Federal Rules of Civil Procedure. Id. at *1. Subsequent to the Supreme Court's decision in Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., 559 U.S. 393, 130 S.Ct. 1431, 176 L.Ed.2d 311 (2010), federal courts in other districts began to reconsider whether state statutes similar to section 32-03.2-11(1) controlled motions to amend pleadings in diversity cases. In re: Bair Hugger, No. MDL 15-2666, 2017 WL 5187832, at *5 (D. Minn. July 27, 2017): Jenkins v. Immedia, Inc., No. 13-CV-00327-CMA-KLM, 2019 WL 1875501, at *5 (D. Colo Apr. 25, 2019), report and recommendation adopted, 2019 WL 2314972 (D. Colo. May 31, 2019). Recent decisions in this district, like those in other districts, have concluded motions to amend pleadings to add exemplary damages claims are governed by Rule 15 and not by the state statute. See First Int'l Bank & Trust, No. 1:18-cv-67; Ralston, No. 3:20-cv-236.

2. Impact of Shady Grove

In Shady Grove, the Supreme Court addressed whether a New York statute prohibiting class actions to collect unpaid statutory interest conflicted with Federal Rule of Civil Procedure 23. The federal district court found the claim barred under the state statute, though it would have been allowed to proceed under the class action criteria of Rule 23. On appeal, the Second Circuit affirmed the district court's decision, finding no conflict between Rule 23 and the New York statute but opining that if there were a conflict between the two, Rule 23 would control unless it violated the Rules Enabling Act. Concluding the New York law was substantive rather than procedural, the Second Circuit applied it under the doctrine of Erie R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), which noted, consistent with the Rules of Decision Act, 28 U.S.C. § 1652, that “[e]xcept in matters governed by the Federal Constitution or by Acts of Congress, the law to be applied in any case is the law of the State.” The Supreme Court disagreed with the Second Circuit's application of the state statute.

Justice Scalia, writing for a plurality in Shady Grove, described the framework for analysis of the issue:

We must first determine whether Rule 23 answers the question in dispute. If it does, it governs—New York's law notwithstanding—unless it exceeds statutory authorization of Congress's rule making power. We do not wade into Erie’s murky water unless the federal rule is inapplicable or invalid.

Shady Grove, 559 U.S. at 398, 130 S.Ct. 1431 (citations omitted). “[I]t is not the substantive or procedural nature or purpose of the affected state law that matters, but the substantive or procedural nature of the Federal Rule.” Id. at 410, 130 S.Ct. 1431. In a concurrence, Justice Stevens agreed with the plurality's statement of the framework for analysis, describing the question as whether the federal rule is “sufficiently broad to control the issue before the Court.” Id. at 421, 130 S.Ct. 1431 (quoting Burlington N.R.R. Co. v. Woods, 480 U.S. 1, 5, 107 S.Ct. 967, 94 L.Ed.2d 1 (1987)). If the federal rule is sufficiently broad, it controls unless it violates the Rules Enabling Act, 28 U.S.C. § 2072. The plurality and concurring opinions agreed—if a federal rule answers the question and does not violate the Rules Enabling Act, Erie does not apply, and the state statute does not govern. As the Sixth Circuit stated in discussing Shady Grove:

The first question we must ask is whether the Federal Rules of Civil Procedure answer the question in dispute ․ In other words, do the Federal Rules answer “the same question” as the state rule? If the Federal Rules answer that question, we then must ask whether the Federal Rules are valid under the Constitution and the Rules Enabling Act. If the answers to both those questions are yes, then our work is done. We apply the Federal Rules ․

Gallivan v. United States, 943 F.3d 291, 293 (6th Cir. 2019) (citations omitted).

The Rules Enabling Act, 28 U.S.C. § 2702, confers on the Supreme Court “the power to prescribe general rules of practice and procedure and rules of evidence for cases in the United States district courts (including proceedings before magistrate judges thereof) and courts of appeals,” but that power is not unlimited. The Act provides that rules of practice and procedure “shall not abridge, enlarge or modify any substantive right,” and that “[a]ll laws in conflict with such rules shall be of no further force or effect after such rules have taken effect.” 28 U.S.C. § 2702(b).

Recently, courts in this district have concluded Rule 15, rather than section 32-03.2-11(1), sets the standard for motions to amend pleadings to add claims for exemplary damages in diversity cases. In First International, the magistrate judge considered the issue in light of the Shady Grove decision, concluding the state statute and Rule 15 both answer the question at issue. The magistrate judge agreed with both parties’ position that Rule 15 does not run afoul of the Rules Enabling Act and applied the Rule 15 standard in granting the motion to amend the complaint to add a claim for exemplary damages. First Int'l Bank & Trust, No. 1:18-cv-67, Doc. 50. On appeal, after thorough analysis of the issue under Shady Grove, the presiding district judge affirmed the magistrate judge's decision. Id. at Doc. 81. Relying on First International, another presiding district judge reached the same conclusion—“Rule 15’s liberal standard governs amending a pleading to assert exemplary damages.” Ralston, 3:20-cv-236, Docs. 60 & 77.

As to the first question in the Shady Grove analysis, Brackin and plaintiffs agree that Rule 15 and the state statute answer the same question—what is required of a party seeking to amend a pleading to add a claim for exemplary damages. The court agrees.

As to the second question in the Shady Grove analysis, the parties disagree. Brackin asserts section 32-03.2-11(1) both creates a substantive right to seek exemplary damages and places limitations on that right. He argues applying Rule 15 would therefore violate the Rules Enabling Act because doing so would nullify the limitations placed by the statute. He describes the question as “an extremely close one” in light of circuit courts having disagreed as to whether any of the Shady Grove opinions can be considered controlling.²

Brackin contends a majority of courts have followed Justice Stevens’ concurrence in determining whether application of Rule 15 would violate the Rules Enabling Act. Justice Stevens opined that courts determining whether a state statute is substantive or procedural should not focus on the form of the statute but should instead focus on whether a statute is “part of a State's framework of substantive rights or remedies.” Shady Grove, 559 U.S. at 419, 130 S.Ct. 1431. In Justice Stevens’ view, state laws that “may be seemingly procedural rules that make it significantly more difficult to bring or to prove a claim” can have the effect of limiting the claim and application of a federal procedural rule might therefore be contrary to the Rules Enabling Act. Id. at 420, 130 S.Ct. 1431.

Brackin argues section 32-03.2-11(1) is different from Minnesota statutes involved in cases in which federal courts have recently found Rule 15, rather than the state statutes, to set the standard for motions to amend pleadings to add punitive damages claims. As discussed below, in the Minnesota statutes addressed in those cases, procedural aspects are contained in different subdivisions or different statutes than are substantive rights.

Rogers v. Mentor Corp. addressed whether a Minnesota statute requiring prima facie evidence to amend a complaint to add a punitive damages claim governed in a diversity case. No. 12-cv-2602, 2018 WL 2215519 (D. Minn May 15, 2018). The substantive requirements for proving punitive damages under Minnesota law are set out in Minnesota Statute section 549.20, while Minnesota Statute section 549.191 sets out the procedural requirements for an amendment. In concluding the motion was governed by Rule 15, the court stated:

The Minnesota legislature made a conscious decision to separate the procedural requirement from the substantive standard of proof. This decision underscores that the evaluation to amend a pleading to add a punitive damages claim is different from the evaluation to allow an award of punitive damages. Courts in this District routinely highlight this distinction. Further, when a party claims punitive damages under Minnesota law, the punitive damages pleading statute requires a party to “allege the applicable legal basis under section 549.20 or other law.” Thus, the punitive damages pleading statute also applies when the claim for punitive damages is made under another state's law. This distinction further highlights that the substantive statute, not the punitive damages pleading statute, “define[s] the scope of the state-created right.” Therefore, contrary to [the plaintiffs’] assertion, even under Justice Stevens's test, Rule 15 is valid under the Rules Enabling Act and applies in this case because it does not displace the substantive right to claim punitive damages under Minnesota law.

Id. at *8; aff’d sub nom., Urbieta, 2018 WL 3475484.

Plaintiffs point to Justice Stevens’ concurrence acknowledging “the bar for finding an Enabling Act problem is a high one” and there must be “little doubt” that application of a federal rule would abridge a substantive right to find the rule application would violate the Rules Enabling Act. Shady Grove, 559 U.S. at 432, 130 S.Ct. 1431. And, as discussed in another Minnesota case on which Brackin relies, the Supreme Court has never found a Federal Rule of Civil Procedure invalid as abridging, enlarging, or modifying any substantive right. Selective Ins. Co. of S.C. v. Sela, 353 F. Supp. 3d 847, 859-60 (D. Minn. 2018). Indeed, virtually any procedural rule could have some impact on the outcome of a case, and thus virtually any procedural rule could be considered to limit substantive rights. See Hanna v. Plumer, 380 U.S. 460, 464-65, 468, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965) (stating “most alterations of the rules of practice and procedure may and often do affect the rights of litigants” and “every procedural variation is ‘outcome determinative’ ”).

Selective Insurance, a case in which Minnesota substantive law governed, raised the question of the standard governing motions to amend pleadings to add a claim for bad faith denial of insurance coverage. A Minnesota statute sets out a procedure for such amendments that is in some respects similar to the North Dakota statute addressing amendments to add exemplary damages claims. Just as courts in this district have applied section 32-03.2-11(1), federal courts in the District of Minnesota had “long applied state pleading standards to claims for punitive damages” arising under Minnesota law. Selective Inc. Co. of S.C., 353 F. Supp. 3d at 857. After ordering supplemental briefing on the question of the governing legal standard, the magistrate judge concluded Rule 15 controlled and granted the motion to amend to add bad faith claims. The insurer appealed to the presiding district judge, who agreed that Rule 15 rather than the state statute governed the motion to amend.

Though concluding Rule 15 was the governing legal standard, the district judge disagreed with the magistrate judge's application of that rule to one aspect of the proposed bad faith claims, concluding the proposed bad faith claim based on refusal to submit the dispute to appraisal did not state a plausible claim. The district judge then addressed the “tricky question” of whether the plaintiff should be allowed to amend his counterclaim to bring a bad-faith claim based on his other allegations of bad faith. Id. at 866. In the “unusual posture” of the case, the district judge wrote:

Given the posture of the case, the Court believes that, rather than continue to litigate over the question of whether [the plaintiff] can adequately litigate over the question of whether [the plaintiff] can adequately plead a bad-faith claim (a question that focuses on the face of the pleadings), the Court and the parties should just cut to the chase and address whether [the plaintiff] can recover on a bad-faith claim (a question that focuses on the evidence).

Id. at 867. The district judge then allowed the plaintiff to amend his pleading, stating the insurer could then “move for summary judgment on the bad-faith claim, the Court can review the evidence in the record, and the Court can decide whether a reasonable jury could return a verdict in [the plaintiff's] favor on that claim.” Id. Brackin suggests this court employ a “cut to the chase” approach analogous to that applied in Selective Insurance. But the circumstances leading to the “cut to the chase” approach in Selective Insurance are not present here. In Selective Insurance, the court found the proposed amended pleading did not state a plausible claim as to one aspect of the bad faith claim. As discussed below, Brackin's proposed amended pleading states a plausible counterclaim.

Having considered Shady Grove, First International Bank & Trust, Ralston, Rogers, and Selective Insurance, this court concludes Rule 15 controls. Like Judge Hovland expressed in First International, this court does not lightly reach a decision contrary to previous decisions in this district, including this court's previous decisions. But careful analysis of Shady Grove leads to the conclusion that section 32-03.2-11(1) does not abridge, enlarge, or modify any substantive right. As Judge Hovland noted in First International:

[T]he Court's order today serves only to limit the applicability of the portion of N.D.C.C. § 32-03.2-11(1) aimed at amending a complaint to add punitive damages in federal court sitting in diversity within North Dakota. Section 32-03.2-11(1) still serves to provide the standard upon which a plaintiff may recover punitive damages: “In any action for the breach of an obligation not arising from contract, when the defendant has been guilty by clear and convincing evidence of oppression, fraud, or actual malice, the court or jury, in addition to actual damages, may give damages for the sake of example and by way of punishing the defendant.” N.D.C.C. 32-03.2-11(1). Nothing in the Court's order today changes the application of this standard to punitive damages claims in federal diversity cases.

First Int'l Bank & Trust, No. 1:18-cv-67, Doc. 81, p. 17.

3. Brackin's Motion to Add Counterclaim for Exemplary Damages

Having decided the motion should be evaluated under Rule 15 rather than under section 32-03.2-11(1), the court then applies that standard to Brackin's motion to add a counterclaim for exemplary damages. Brackin alleges plaintiffs engaged in a campaign designed to destroy his reputation by making false accusations against him in “dozens of email messages to some of the most important and influential figures in the weather modification and atmospheric sciences industry.” (Doc. 142, p. 1).

Plaintiffs argue Brackin's exemplary damages claim is futile because it could not withstand a motion to dismiss under Rule 12(b)(6). Though stating they are “mindful of the fact that assessing the plausibility of a claim does not require the Court to sift through competing versions of facts,” plaintiffs argue the “decontextualized, allegedly defamatory statements upon which Brackin's motion to amend is based have been properly contextualized through discovery.” (Doc. 175, pp. 4-5).³

The court will not accept plaintiffs’ suggestion of straying from the standard of judging plausibility from the face of a pleading. Though Brackin did not follow Civil Local Rule 5.1(C) requiring that he submit his proposed amended counterclaim with his motion to amend, he submitted it after oral argument on the motion. (Doc. 217). Reviewing Brackin's proposed amended pleading, without making any determinations as to credibility, the court concludes Brackin has stated a plausible claim for exemplary damages.

4. Plaintiffs’ Motion to Add Fraud and Deceit Claim

Plaintiffs’ motion to add a fraud and deceit claim was filed after the established deadline to amend pleadings, but they argue there is good cause for their failure to meet that deadline. Brackin and SAHC contend good cause does not exist. Additionally, Brackin and SAHC assert that plaintiffs’ proposed amended pleading would be futile, that the proposed new claim would be duplicative of existing claims, and that they would be prejudiced if plaintiffs’ motion to amend were granted. (Doc. 186).

The initial scheduling order set a September 1, 2020 deadline for filing motions to amend pleadings. (Doc. 28). The order was later amended to extend the deadline for defendants to file motions to amend because of the other motions that were under advisement at that time. (Doc. 77). After the court granted defendants’ motion for joinder of Sunag as a defendant, the scheduling order was further amended, extending deadlines for document production, fact discovery, discovery motions, and motions to amend pleadings to add claims for punitive damages. (Doc. 116). But plaintiffs did not request amendment of the deadline to file motions to amend their pleadings; that date remained September 1, 2020.

Plaintiffs assert good cause under Rule 16 for the delay because of timing of document production and depositions and also because of the heightened pleading requirement for fraud and deceit claims. According to plaintiffs, the parties made their first document productions in early October 2020 and both sides produced additional documents on a rolling basis through early March 2021. The first depositions were taken in March 2021 and continued into April 2021. Plaintiffs state they received over 13,000 instant and text messages extracted from Brackin's cell phone in March 2021, (Doc. 168, p. 1), and deposed Brackin on March 9-11, 2021. Plaintiffs contend it was not until they received the cell phone extraction and deposed Brackin that they learned “the full extent, mechanics, and details of the deceitful conduct” that forms the basis for their proposed amendment. (Doc. 169-2, p. 13). Plaintiffs filed their motion to amend on March 26, 2021. (Doc. 167).

In asserting plaintiffs have not met Rule 16's good cause standard, Brackin and SAHC contend plaintiffs’ motion largely relies on documents and information available to plaintiffs before the litigation began. Plaintiffs supported their motion with an affidavit of counsel and a multitude of attached documents. (Doc. 168). Brackin and SAHC identify only six of those documents as not having been produced by plaintiffs and only one of the six as not having been in plaintiffs’ possession prior to initiation of the litigation. (Doc. 186, p. 5; Doc. 187). Additionally, Brackin and SAHC contend plaintiffs asked few questions about the context of or explanation of the 280 exhibits presented to Brackin during his deposition. (Doc. 186, pp. 4-5). In their reply, plaintiffs acknowledge they had custody of the documents but argue “the precise legal import of these documents was not known and would not have been apparent in the absence of attorney review as part of the discovery process.” (Doc. 192, p. 2). They point to the complexity of the case, the manner in which the litigation has progressed, and the need to plead fraud and deceit claims with particularity.

Federal Rule of Civil Procedure 16(b)(4) provides that a pretrial schedule may be modified only for good cause and with the judge's consent. Application of the good cause standard is mandatory. Sherman v. Winco Fireworks, Inc., 532 F.3d 709, 716 (8th Cir. 2008). The primary factor considered in determining good cause is the movant's diligence in attempting to meet requirements of the scheduling order. Id.; Dyrdahl v. Matthys, No. 3:18-cv-124, 2019 WL 10894117, at *4 (D.N.D. July 30, 2019).

Federal Rule of Civil Procedure 9(b) requires that allegations of fraud or mistake “state with particularity the circumstances constituting fraud or mistake,” though malice, intent, knowledge and other “conditions of a person's mind may be alleged generally.” North Dakota law recognizes the tort of deceit, North Dakota Century Code section 9-10-03, and views fraud and deceit as similar concepts. The distinction between claims for fraud and deceit depends on whether there is a contract between the parties. If there is no contract between the parties, the claim is one for deceit; if there is a contract, the claim is one for fraud. N. Bottling Co., Inc. v. Henry's Foods, Inc., 474 F. Supp. 3d 1016, 1020 (citing Nagel v. Sykes Realty, Inc., 400 F.Supp.2d 1198, 1202 (D.N.D. 2005)). Claims grounded in either fraud or deceit must meet the heightened pleading requirements of Rule 9(b). Olin v. Dakota Access, LLC, 910 F.3d 1072, 1076 (8th Cir. 2018); Streambend Props. II, LLC v. Ivy Tower Minneapolis, LLC, 781 F.3d 1003, 1010 (8th Cir. 2015).

In this court's opinion, plaintiffs have not met the Rule 16 standard of good cause. Though the court understands it was necessary that an attorney review the evidence before proceeding with a claim for fraud or deceit, plaintiffs have not adequately explained why an attorney could not have reviewed the evidence in plaintiffs’ possession sooner. Moreover, when the parties stipulated to extend the deadline for Brackin and SAHC to move to amend pleadings until after other pending motions were decided, plaintiffs could have sought a stipulation that included their motion to add a claim for fraud or deceit. Or, prior to expiration of the deadline, plaintiffs could have requested an extension of that deadline from the court. Under the facts presented, the court cannot conclude plaintiffs were diligent in attempting to meet the established deadline to move to amend their pleadings. See Kinetic Leasing, Inc. v. Nelson, No. 3:16-cv-99, 2017 WL 2985536, at *9 (D.N.D. April 14, 2017); Rodenburg, No. 3:19-cv-27, Doc. 43, pp. 8-10.

Given the conclusion that diligence has not been established, the court does not address whether Brackin and SAHC would be prejudiced by the amendment or whether the proposed new claim duplicates plaintiffs’ existing claims. Arguments concerning futility are addressed below.

5. Plaintiffs’ Motion to Add Claim for Exemplary Damages

In accordance with this district's practice and pursuant to the parties’ agreement, the scheduling order established a deadline for motions to amend to add exemplary damages claims that was later than the deadline for other motions to amend pleadings. Plaintiffs’ motion was filed prior to the deadline for motions to amend to add claims for exemplary damages, so the question of good cause is not at issue as to that portion of plaintiffs’ motion.

Plaintiffs’ motion focuses on the alleged misconduct of Brackin and SAHC in connection with the Maharashtra project. They allege Brackin misled plaintiffs about the proceeds due to WMI for its work on that project and “engineered a scheme to funnel payments that should have gone to WMI for its work on the project through, to and for the benefit of, his own company, SAHC,” resulting in WMI receiving $1,075,000 rather than $2,100,000 for its work on that project. (Doc. 172, p. 1).

As it did with Brackin's motion to amend his counterclaims, the court considers plaintiffs’ motion to amend their Second Amended Complaint to add a claim for exemplary damages under Rule 15. The court therefore does not address the parties’ arguments concerning the adequacy of evidence that would have been necessary had the motion been decided under section 32-03.2-11(1).

Brackin and SAHC argue plaintiffs cannot satisfy Rule 15 requirements because their proposed claim for exemplary damages is futile. They point to plaintiffs alleging only the fraud component of section 32-03.2-11(1) and not the statute's oppression or malice components. They argue plaintiffs’ proposed amended pleading does not allege “that Plaintiffs relied on any purported fraudulent or deceitful conduct to [their] detriment,” that reliance is an essential element of a fraud or deceit claim, that a claim lacking allegations of reliance does not allege a plausible claim for fraud or deceit, and that plaintiffs’ proposed amended pleading is therefore futile. (Doc. 186, pp. 15-16).

Plaintiffs reply that section 32-03.2-11(1) does not require particularity in a pleading alleging a claim for exemplary damages based on fraud. Further, plaintiffs argue that if particularity is required, their proposed amended pleading meets Rule 9(b)’s standard. (Doc. 192, pp. 6-7). The parties do not analyze application of Rule 9(b) under Shady Grove, and it is not necessary that the court do so. If particularity is required to plead a claim for exemplary damages based on fraud, the court concludes plaintiffs’ proposed amended pleading is sufficiently particular.

Conclusion

As other judges in this district have recently concluded, a motion to amend a pleading to add a claim for exemplary damages in a federal case in which North Dakota law applies is governed by Rule 15 rather than by North Dakota Century Code section 32-03.2-11(1). Brackin and plaintiffs both satisfy Rule 15’s standard. Though plaintiffs have not shown good cause for failure to move to add fraud and deceit claims prior to expiration of the deadline to amend other pleadings, plaintiffs’ motion is timely as to amending to add a claim for exemplary damages. Brackin's motion to amend his counterclaims is therefore GRANTED. Plaintiffs’ motion to file a third amended complaint is DENIED as to their fraud and deceit claim but GRANTED as to their exemplary damages claim.

IT IS SO ORDERED.

FOOTNOTES

1.   See also White v. Minn-Dak Farmers Coop., No. 3:16-cv-36, 2017 WL 10153525 (D.N.D. Aug. 7, 2017); Star v. United States, No. 1:15-cv-132, 2016 WL 11325675, at *3 (D.N.D. Nov. 22, 2016); Lonesome Dove Petroleum, Inc. v. Holt, No. 1:13-cv-99, Doc. 122 (D.N.D. Jan. 7, 2016), aff'd, Doc. 129 (D.N.D. Jan. 21, 2016); Kuntz v. Ecolab Inc., No. 2:15-cv-3, 2015 WL 12803641 (D.N.D. Nov. 12, 2015); QBE Ins. Corp. v. Burckhard, No. 4:13-cv-125, 2014 WL 11531555 (D.N.D. Oct. 17, 2014).

2.   Brackin suggests this court should continue to apply the state statute until the issue is addressed by the Eighth Circuit. The circumstances under which an appeal of the issue could properly be raised, however, appear limited. This court therefore declines follow the approach Brackin suggests.

3.   Plaintiffs’ initial response argued Brackin's motion was procedurally premature because the motion was filed before discovery was complete. Plaintiffs contended they were therefore deprived of the opportunity to present evidence refuting that which Brackin submitted pursuant to section 32-3.2-11(1). (Doc. 151, pp. 1-2). Given plaintiffs’ later position that Rule 15 controls rather than section 32-3.2-11(1), the court does not consider the argument that Brackin's motion was made prematurely.

Alice R. Senechal, United States Magistrate Judge