$5.2 Million Summary Judgment Is Reversed Because Defendant Was Not Permitted to Argue Validity of Affirmative Defenses Contained in Answer to Complaint That Was No Longer Operative Pleading
By a MetNews Staff Writer
The Ninth U.S. Circuit Court of Appeals yesterday reversed a summary judgment for $5.2 million in a breach-of-contract action because the defendant was barred by the District Court from arguing the affirmative defenses contained in its answer to the first amended complaint, the judge’s theory being that no new answer had been filed to the second amended complaint, and the defenses had no continuing effect.
District Court Judge Eric F. Melgren of the District of Kansas, sitting by designation, wrote for a three-judge panel:
“Is a defendant required to file a new answer reasserting its affirmative defenses when the claim in the amended complaint related to those affirmative defenses remains the same? We hold that the defendant is not.”
Suit by Subcontractor
The opinion reverses a judgment awarded by District Court Judge S. James Otero of the Central District of California to plaintiff KST Data, Inc., which sued Enterprise Services, LLC (“ES”) for non-payment of its invoices. KST had a contract with the National Aeronautics and Space Administration, and ES was one of its subcontractors.
Judgment for KST was entered on March 13, 2019, in the amount of $5,239,939.94. That included $3,180,232.41 due on the invoices, plus pre-judgment interest at 18 percent, the rate stated on the invoices.
Interest has continued to mount at 10 percent, and the setting of attorney fees was deferred by Otero until after the Ninth Circuit acted on ES’s appeal.
Otero’s view was:
“As soon as KST filed a Second Amended Complaint, ES needed to file a new answer that specified its affirmative defenses.”
KST argued on appeal that Otero was right, pointing to Federal Rule of Civil Procedure 15(a)(3), which provides:
“Unless the court orders otherwise, any required response to an amended pleading must be made within the time remaining to respond to the original pleading or within 14 days after service of the amended pleading, whichever is later.”
Otero gave ES 10 days in which to file an answer, KST recited, and no new answer was filed, thus waiving the affirmative defenses it previously pled, it argued.
Ninth Circuit’s Opinion
“But the district court’s order only invited ES to file an answer. It did not require it. Furthermore, by its plain terms, Rule 15(a)(3) does not render a prior response to a prior pleading moot and require the filing of a new answer.”
“A defendant is not required to file a new answer to an amended complaint when the allegations in the amended complaint do not ‘change the theory or scope of the case.’…Here, the Second Amended Complaint contained the same material allegations with respect to the breach of contract claim as the First Amended Complaint. Therefore, ES did not waive its affirmative defenses to that claim by not filing an answer to the Second Amended Complaint.”
Choice of Law
Other contentions of the parties were disposed of in a separate memorandum opinion. Applying California law. ES argued that New York law should be applied, as provided in the parties’ contract.
The court responded that the forum state’s choice-of-law rules are applied in diversity jurisdiction cases, such as the one before the court, and California declines to honor the parties’ selection of the law of a state where a reasonable basis for doing so is lacking.
The opinion says:
“Contrary to ES’s argument, neither the sophistication of the parties nor the inclusion of a choice-of-law provision in a contract is sufficient to establish a reasonable basis. If a reasonable basis were created simply through the inclusion of a choice-of-law provision in a contract, this would nullify the entire choice-of-law analysis that the California Supreme Court has delineated. We affirm the district court’s conclusion that California law governs the parties’ claims.”
The case is KST Data, Inc. v. DXC Technology Co., 19-55422.
Copyright 2020, Metropolitan News Company