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Wallace Sales & Consulting, LLC. v. Tuopu North America, Ltd.

United States District Court, E.D. Michigan, Southern Division

October 3, 2016

Wallace Sales & Consulting, LLC, Plaintiff/Counter Defendant,
Tuopu North America, Limited, Defendant/Counter Claimant.

          David R. Grand United States Magistrate Judge.



         I. Introduction

         Wallace Sales & Consulting, LLC (“Plaintiff”) filed a complaint against Tuopu North America, Limited (“Defendant”) on March 2, 2015 alleging a breach of contract between the parties. Dkt. No. 1. Defendant filed a Counterclaim on August 7, 2015, Dkt. No. 21, and Plaintiff submitted its first amended complaint on August 28, 2015, Dkt. No. 28. On April 12, 2016, the Court granted partial summary judgment and dismissed Plaintiff's claim under the Michigan Sales Representatives Commission Act. Dkt. No. 50.

         Presently before the Court is Defendant's Motion to Amend Its Counter-Complaint and Implead James Wallace as Third Party Defendant [79], filed on August 26, 2016. Plaintiff filed a timely response on September 12, 2016, [1] Dkt. No. 85, to which Defendant replied on September 19, 2016, Dkt. No. 87.

         For the reasons discussed herein, the Court will DENY Defendant's Motion to Amend Its Counterclaim [79].

         II. Background

         Plaintiff is a Michigan limited liability company, whose sole member is James Wallace (“Wallace”). Defendant is a Canadian corporation and a subsidiary of Ningbo Tuopu Group Co., Ltd., a Chinese manufacturing conglomerate. Defendant first retained Plaintiff as its sales representative pursuant to a written agreement in 2007.

         In December 2011, the Plaintiff and Defendant decided to continue working together and executed a new written Manufacturer's Representative Agreement (hereinafter “the Agreement”), under which Plaintiff served as an independent manufacturer's representative. The Agreement's provisions governing the sales commissions that Defendant would be required to pay to Plaintiff in the event of termination varied based upon whether Plaintiff's termination was “without cause” or “for cause.” Additionally, the Agreement specified that any disputes related to the Agreement may be brought in Ontario, Canada and shall be governed solely by Ontario, Canada law.

         On July 11, 2014, Defendant sent Plaintiff notice of termination, without cause and for financial reasons, effective immediately. Dkt. No. 85-3, p. 2 (Pg. ID No. 1891). Plaintiff subsequently filed the present suit in March 2015. See Dkt. No. 1. A month after Plaintiff brought this lawsuit, Defendant converted its justification for terminating Plaintiff to being for cause and demanded repayment of commission in the amount of $225, 031.06. Dkt. No. 85-4, p. 2 (Pg. ID No. 1893).

         III. Legal Standard

         A. Amending Pleadings

         Federal Rule of Civil Procedure 15(a) provides that leave to amend a pleading should be freely given “when justice so requires.” Nevertheless, there are certain situations in which it is appropriate to deny leave to amend, such as where there is undue delay in filing, a lack of notice and undue prejudice to the nonmoving party, bad faith by the moving party, or when the amendment would be futile. See Foman v. Davis, 371 U.S. 178, 182 (1962). There must be at least some significant showing of prejudice to the non-moving party for a court to deny a motion to amend. Duggins v. Steak ‘N Shake, Inc., 195 F.3d 828, 834 (6th Cir. 1999). However, “[w]hen amendment is sought at a late stage in the litigation, there is an increased burden to show justification for failing to move earlier.” Wade v. Knoxville Utilities Bd., 259 F.3d 452, 459 (6th Cir. 2001). In the Sixth Circuit, allowing amendment after the close of discovery may create significant prejudice to the opposing party. Duggins, 195 F.3d at 834.

         B. Counterclaims Arising After Earlier Pleadings

         Federal Rule of Civil Procedure 13(e) provides that “[t]he court may permit a party to file a supplemental pleading asserting a counterclaim that matured or was acquired by the party after serving an earlier pleading.” “The standard applicable to amendments under Rule 15 is used to determine whether leave to file a counterclaim under Rule 13(e) should be permitted.” Hi-Lex Controls Inc. v. Blue Cross & Blue Shield of Michigan, No. 11-12557, 2013 WL 228097, at *1 (E.D. Mich. Jan. 22, 2013) (citing Kuschner v. Nationwide Credit, Inc., 256 F.R.D. 684, 689 (E.D. Cal. 2009)).

         C. Impleading a Third-Party

         Federal Rule of Civil Procedure 14(a)(1) governs when a defending party may bring in a third party. It provides that:

A defending party may, as third-party plaintiff, serve a summons and complaint on a nonparty who is or may be liable to it for all or part of the claim against it. But the third-party plaintiff must, by motion, obtain the court's leave if it files the third-party complaint more than 14 days after serving its original answer.

Fed. R. Civ. P. 14(a)(1). Additionally, Rule 13 states “Rules 19 and 20 govern the addition of a person as a party to a counterclaim or crossclaim.” Fed. R. Civ. P.13(h) (providing the rules governing required joinder (Rule 19) and permissive joinder (Rule 20) of parties).

         IV. Discussion

         Defendant's motion seeks to amend its counterclaim to bring the following causes of action: (1) a claim for unjust enrichment against Plaintiff; (2) a claim for breach of contract against Plaintiff; (3) a claim for fraud against Plaintiff and Wallace; (4) a claim for the tort of deceit against Plaintiff and Wallace; (5) a claim to pierce the corporate shield against Wallace; (6) a claim to rescind the contract, presumably against Plaintiff; and (7) a declaratory judgment against Plaintiff and Wallace. See Dkt. No. 79-2, pp. 5-12 (Pg. ID No. 1599-1606).

         Plaintiff argues in its response that leave to amend the counterclaim should be denied because of undue delay in requesting to amend and resulting substantial prejudice. Dkt. No. 85, pp. 13-18 (Pg. ID No. 1857). Further, Plaintiff argues that any claims based on allegations of fraud are barred by Michigan and Ontario's statutes of limitations. Id. at 18-25. Finally, Plaintiff contends that it would be futile to allow Defendant to amend its counterclaim, as none of the seven counts sets forth a claim upon which relief can be granted. Id. at 25-30.

         A. Undue Delay

         Defendant argues that it “only recently” learned of Wallace's fraud, blaming Plaintiff for failing to provide relevant discovery documents earlier. Dkt. No. 79, p. 13 (Pg. ID No. 1585). Such an argument stretches the definition of ...

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