Employment Practices Decisions Archive: 1937 - 1995, EMPLOYMENT-PRACTICES 57 EPD ¶41,229, Gordon DeShaw et al., Plaintiffs v. Lord $amp; Taylor, a Division of the May Department Stores Company, Defendant., (June 13, 1991), (Jun. 13, 1991)

Gordon DeShaw et al., Plaintiffs v. Lord $amp; Taylor, a Division of the May Department Stores Company, Defendant.

United States District Court, Southern District of New York. No. 90 Civ. 0490 (JFK), June 13, 1991

Age Discrimination in Employment Act of 1967

New York--Common Law

Complaints, Age Discrimination in Employment Act--Counterclaims--Delay, Bad Faith Lacking.

--An employer was allowed to amend its answer to include counterclaims against a discharged employee because it did not act in bad faith or with undue delay in asserting the counterclaims. Bad faith was absent since there were sufficient facts to support the counterclaims. Further, there was no undue delay because the employer was not aware of the counterclaims at the time it filed its initial answer. Moreover, upon learning of the counterclaims, the employer properly took time to investigate their merit.

Back references.--¶2244.40 and New York ¶25,999 .

Complaints, Age Discrimination in Employment Act--Counterclaims--Compulsory Counterclaims.

--An employer was not required to establish an independent basis for jurisdiction over its counterclaims against an employee’s discriminatory discharge action since the counterclaims were compulsory. The counterclaims were related to the employee’s employment and termination. Although the employee alleged that he was terminated because of his age, the counterclaims asserted that he would have been discharged, regardless of his age, for violating company policy.

Back references.--¶2244.40 and New York ¶25,999 .

Complaints, Age Discrimination in Employment Act--Counterclaims--Tort Counterclaims Proper.

--An employer could assert counterclaims for breach of fiduciary duty, unjust enrichment and tortious interference with economic advantage against an employee’s ADEA action alleging discriminatory discharge. Counterclaims sounding in tort are permissible in such actions. Further, the counterclaims showed that the employee would have been discharged, regardless of his age, for violating company policy.

Back references.--¶2244.40 and New York ¶25,999 .

Complaints, Age Discrimination in Employment Act--Error in Naming Defendants--Corporate Relationships.

--An employer in an ADEA action was allowed to amend its answer to include an affirmative defense of failure to join a necessary party based on a misstatement of the corporate relationships between defendants named in its initial answer. The employer argued that, as a result of the error, a corporate entity that was a necessary party to the lawsuit was not named as a defendant. The addition of the affirmative defense was proper based on a lack of prejudice to the plaintiffs. The plaintiffs would have sufficient opportunity to investigate the validity of the defense during the discovery process.

Back reference.--¶2246.12

Laura S. Schnell (Vladeck, Waldman, Elias $amp; Engelhard), New York, New York, for Plaintiffs.

Gregory I. Rasin, Elise M. Bloom (Jackson, Lewis, Schnitzler $amp; Krupman), New York, New York, for Defendant.

Keenan, D.J.: Defendant Lord $amp; Taylor, a division of The May Department Stores Company (“May”), seeks an Order pursuant to Fed. R. Civ. P. 13 and 15 and Local Rule 3 permitting it to amend its answer to assert counterclaims against plaintiff James E. Ricci. In an amended notice of motion, defendant seeks leave “to correct misstatements made by inadvertent error as to the corporate and operating relationship between Lord $amp; Taylor, Associated Dry Goods Corporation, and The May Department Stores Company.” (Amended Notice of Motion to Amend Answer). In addition, defendant seeks to amend its answer further to add two affirmative defenses.

Complaint and Answer

This is an action for damages arising from defendant’s alleged discrimination on the basis of age in the terms, conditions and privileges of employment, in violation of the Age Discrimination in Employment Act, as amended, 29 U.S.C. §621 et seq. (“ADEA”).

Defendant Lord $amp; Taylor is in the business of selling specialty items and department store merchandise to the general public, and it maintains its headquarters in New York City. May also is in the business of selling specialty items and department store merchandise to the general public. In 1986, May acquired Lord $amp; Taylor and continues to own and operate Lord $amp; Taylor. Both May and Lord $amp; Taylor are alleged to be in an industry affecting commerce within the meaning of the ADEA, 29 U.S.C. §630(b) .

Plaintiffs allege that upon May’s acquisition of Lord $amp; Taylor, May began a process of removing older managerial and professional employees from Lord $amp; Taylor’s workforce and replacing them with younger individuals. Plaintiffs contend that in replacing these older employees with younger employees, defendants did not properly consider the plaintiffs’ qualifications for continued employment because of their ages.

Plaintiff Gordon DeShaw (“DeShaw”) was born on June 25, 1938, and was employed by Lord $amp; Taylor for twenty-one years, until he was terminated involuntarily on January 23, 1989. At the time of his termination, DeShaw alleges that he performed his job functions and responsibilities satisfactorily, and that his position was filled by a younger, less experienced employee. DeShaw therefore alleges that his employment was terminated based on his age, in violation of the ADEA. In June 1989, DeShaw learned that his former position was open, and he applied for that position. Defendants did not offer DeShaw the position even though he was qualified. DeShaw alleges that he was denied the position on the basis of his age, in violation of the ADEA.

Plaintiff Alexander G. Chatkewitz (“Chatkewitz”) was born on August 5, 1940, and was employed by Lord $amp; Taylor for eleven years until he was terminated involuntarily on January 10, 1989. At the time of his termination, Chatkewitz was Senior Vice President, Administration and Expense Management. Plaintiff Ricci was born on May 21, 1943. Ricci was employed by defendants for more than twenty-three years, until his employment was terminated involuntarily on January 23, 1989. At the time of his termination, Ricci was Senior Vice President, Administration and Expense Management. Both Chatkewitz and Ricci contend that they performed all of their duties satisfactorily. Their job functions and responsibilities were assumed by a younger, less experienced employee, and they alleges that their employment was terminated in violation of the ADEA.

Plaintiffs seek the following relief: a declaration that the acts and practices complained of violate the ADEA; an injunction permanently restraining these violations of the ADEA; an order directing defendant to take affirmative steps in order to ensure that the effects of the unlawful employment practices are limited and do not continue to affect plaintiffs’ employment opportunities; an order directing defendant to reinstate plaintiffs in the positions they would have occupied save for defendant’s discriminatory treatment and making plaintiffs whole for all earnings they would have received but for this discriminatory treatment; an order directing defendant to pay plaintiffs liquidated damages pursuant to Section 7(b) of the ADEA, 29 U.S.C. §626(b) ; and attorneys fees.

Defendant answered the complaint, denying that it committed any acts of age discrimination. Defendant also asserted five affirmative defenses: (1) failure to state a claim upon which relief can be granted; (2) plaintiffs would have been discharged regardless of their ages; (3) defendant has acted in good faith and has not violated any rights of plaintiffs under federal, state or local laws; (4) plaintiffs’ claims for damages are barred because they failed to mitigate their alleged damages; and (5) plaintiffs are not entitled to recover liquidated damages. (Answer at 7).

Discovery is to be concluded by September 23, 1991. No trial date has been set in this action.

Instant Motion

Defendant seeks to amend its answer to assert counterclaims and an affirmative defense against Ricci as well as an affirmative defense against all of the plaintiffs. In its initial moving papers, defendant failed to attach a copy of the proposed amended answer, and plaintiffs’ opposition to the motion focused in large part on this omission by defendants. Defendant, however, realized the error and submitted a proposed amended answer. Plaintiffs then were given an opportunity to respond to defendant’s proposed amended answer.

A. Ricci

Defendant seeks to assert counterclaims against Ricci for breach of fiduciary duty, unjust enrichment and tortious interference with economic advantage. In addition, defendant seeks to add an affirmative defense against Ricci, claiming that his employment would have been terminated had defendant known of Ricci’s violation of company policy.

The proposed counterclaims allege that while employed as Vice President Purchasing, Mail, Telephone and Catalogue, Ricci had the responsibility of purchasing various supplies necessary to support the sale of merchandise in defendant’s stores. Ricci purchased those supplies from outside vendors, whom he chose. Lord $amp; Taylor had a policy of requiring its purchasing employees to solicit competitive bids and a policy prohibiting employees from accepting gifts of greater than $25.00 in value from any person or entity with whom they did business on behalf of Lord $amp; Taylor. Defendant alleges that Ricci accepted cash and/or gifts of greater than $25.00 in value from outside vendors from whom he purchased supplies on behalf of Lord $amp; Taylor, and that he failed to solicit competitive bids.

In support of its motion to amend its answer, defendant submitted an affidavit of its attorney, Elise M. Bloom, Esq. of Jackson, Lewis, Schnitzler $amp; Krupman, in which she states the following. The action was instituted on February 5, 1990. On March 15, 1990, defendant served its answer to the complaint. The parties have been engaged in discovery, and an initial discovery cut off date was set for March 31, 1991. In the summer of 1990, “Defendant’s counsel was informed by Defendant of certain actions taken by Plaintiff Ricci during the course of his employment with Defendant which were against the business interests of Defendant, violated company policy and which, if true, would have been grounds for dismissal and subjected Defendant to substantial monetary loss.” (Bloom Aff. ¶6). Defendant conducted an investigation, after which counsel determined that there was a reasonable basis to support the counterclaims against Ricci. (Id. at ¶¶7-8). Defendant’s counsel then sought the consent of plaintiffs’ counsel to amend the answer to add a counterclaim against Ricci, and plaintiffs’ counsel declined to give that consent. Thereafter, leave of Court was sought and obtained in order to proceed with the instant motion. (Id. at ¶¶9-14).

B. All Plaintiffs

Defendant also seeks to amend the answer to correct misstatements as to the corporate and operating relationship between Lord $amp; Taylor, Associated Dry Goods and May. In connection with those corrections, defendant seeks to add an additional affirmative defense against each of the plaintiffs for failure to join a necessary party.

Through the affidavit of Ms. Bloom, defendant states the following:

On December 10, 1991, [Ms. Bloom] was informed that a mistake had been made concerning the identity of the proper defendant in this case and regarding the corporate and operational relationships of Lord $amp; Taylor, Associated Dry Goods Corporation and The May Department Stores Company. Specifically, on that date Anne Dolle, Senior Counsel for The May Department Stores Company, informed [Ms. Bloom] that both before and after the 1986 merger with The May Department Stores Company, Lord and Taylor remained a division of Associated Dry Goods Corporation. Furthermore, she told [Ms. Bloom] that Lord $amp; Taylor is not an operating corporate entity. Associated Dry Goods Corporation operates department stores under the trade name Lord and Taylor. Associated Dry Goods Corporation is a wholly-owned subsidiary of the May Department Stores Company.

(Bloom Aff., dated March 21, 1991, at ¶3). Ms. Bloom states that on December 11, 1990, she advised plaintiffs’ counsel of the misstatement that had resulted in the stipulation and order amending the caption of the case to read “Lord $amp; Taylor, a division of The May Department Stores Company,” rather than the original caption, “Lord $amp; Taylor and The May Department Stores Co.” Plaintiffs’ counsel allegedly declined to permit an amendment of the caption to name the following two defendants: (1) Lord $amp; Taylor, a division of Associated Dry Goods Corporation (“ADG”); and (2) The May Department Stores Company (“May”). As a result of plaintiffs’ unwillingness to amend the caption to name ADG as the proper defendant, defendant seeks to add the affirmative defense of failure to join a necessary party. (Bloom Aff., dated March 21, 1991, at ¶¶4-10).

C. Plaintiffs’ Opposition

Plaintiffs oppose these proposed amendments on several grounds. As to the claims against Ricci, plaintiff argues that defendant has failed to set forth any facts to support its counterclaims and that defendant cannot demonstrate that it did not know about these allegations against Ricci at the time that it filed its answer. Plaintiffs therefore contend that defendant’s motion is made in bad faith and will prejudice plaintiffs. In addition, plaintiffs argue that defendant has failed to set forth any grounds for jurisdiction over the counterclaims. Finally, plaintiffs argue that defendant’s proposed amended answer does not add any facts indicating that plaintiffs failed to join a necessary party.

Discussion

Defendant’s motion to amend its answer to assert additional affirmative defenses and to add counterclaims is governed by Fed. R. Civ. P. 13(f) and 15(a). Rule 15(a) provides that leave to amend pleadings “shall be freely given when justice so requires.” While leave to amend under Rule 15(a) is within the sound discretion of the district court, the Court may deny the application where there exists undue delay, bad faith, or dilatory motive on the part of the moving party or undue prejudice to the opposing party. Foman v. Davis, 371 U.S. 178, 182 (1962). Rule 13(f) provides that “when a pleader fails to set up a counterclaim through oversight, inadvertence, or excusable neglect, or when justice requires, the pleader may by leave of court set up the counterclaim by amendment.” Motions to amend counterclaims are liberally granted where defendant will not be unduly prejudiced and defendant did not act in bad faith. See Index Fund, Inc. v. Hagopian, 91 F.R.D. 599, 606 (S.D.N.Y. 1981). See also Pan Am. World Airways, Inc. v. Abrams, 1991 U.S. Dist. LEXIS 6362 (S.D.N.Y. May 9, 1991) (setting forth standards for considering motion to amend answer); Carey v. Berisford Metals Corp., 1991 U.S. Dist. LEXIS 3776 (S.D.N.Y. March 28, 1991) (same); Panio v. Beverly Enterprises, Inc., 1990 U.S. Dist. LEXIS 3688 (S.D.N.Y. April 3, 1990) (same).

A. Delay and Bad Faith

Plaintiffs’ argument that defendant has failed to set forth any facts to support its counterclaims against Ricci is rendered moot with the filing of defendant’s proposed amended answer. In its proposed amended answer, defendant clearly enunciates the allegations against Ricci which, defendant argues, constitute sufficient independent grounds for his termination.

Plaintiffs further argue that defendant unduly delayed asserting its counterclaims against Ricci and submit that defendant knew of these allegations at the time it filed its initial answer to the complaint. The Court finds, however, that defendant’s delay in asserting its counterclaims against Ricci is excusable and not the product of bad faith. Defendant has submitted affidavits indicating at what point during discovery it discovered Ricci’s alleged violations of company policy. Rather than move for a hasty amendment to its answer, defendant proceeded to investigate the claims in order to determine whether or not such claims were meritorious. The Court is satisfied that defendant’s delay in moving to amend its answer to assert its claims against Ricci is excusable and was not done in bad faith. Moreover, discovery in this action has been extended until September 23, 1991, and no trial date has been set. Plaintiffs therefore, while subject to the burden of answering new counterclaims, will not be prejudiced by the amendment. See Morse/Diesel, Inc. v. Fidelity $amp; Deposit Co. of Md., 715 F. Supp. 578, 581 (S.D.N.Y. 1989) (“ ‘[i]t is difficult to imagine an amendment to pleadings under Rule 15(a) that would not create some increased work to the opposing party’ ”) (quoting International Bank v. Price Waterhouse $amp; Co., 85 F.R.D. 140, 142 (S.D.N.Y. 1980)).

B. Jurisdictional Grounds

Next, plaintiffs argue that defendant has failed to set forth any grounds for jurisdiction over the counterclaims. Plaintiffs contend that defendant’s proposed counterclaims for breach of fiduciary duty, unjust enrichment and tortious interference with economic advantage cannot be added to the answer because they violate Fed. R. Civ. P. 8(a), which provides in pertinent part as follows:

A pleading which sets forth a claim for relief, whether an original claim, counterclaim, cross-claim, or third-party claim shall contain (1) a short and plain statement of the grounds upon which the court’s jurisdiction depends, unless the court already has jurisdiction and the claim needs no new grounds of jurisdiction to support it.

Plaintiffs argue that defendant is attempting, by its motion to add ADG as a necessary party, to create diversity jurisdiction over these counterclaims. Plaintiffs contend that May is a New York corporation and Ricci is a New York citizen, and that therefore no diversity of citizenship exists between these parties. If defendant succeeds in adding ADG, a Virginia corporation, as a necessary party, defendant then would move to dismiss May as a party in order to create diversity between ADG and Ricci. Further, plaintiffs contend that defendant has failed to set forth that its counterclaims against Ricci are compulsory, and that in any event “[a]n employer should not generally be permitted to counterclaim or defend based on tort claims when charged with discrimination in a Title VII action.” (Plaintiffs’ March 11, 1991 Mem. in Opp. at 5).

The Court finds, however, that the counterclaims asserted against Ricci are compulsory counterclaims and therefore defendant need not assert an independent jurisdictional basis. Fed. R. Civ. P. 13(a) provides in pertinent part as follows:

A pleading shall state as a counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party’s claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction.

Defendant’s counterclaims against Ricci arise out of his employment with defendant and the termination of his employment. Any discovery concerning Ricci’s performance while employed by defendant is relevant to this claim, and plaintiffs will not be prejudiced by burdensome discovery outside the scope of the initial claims and counterclaims asserted in this action. The Court therefore finds that there is a “logical relationship” between the plaintiffs’ claim of discriminatory employment practices resulting from Ricci’s termination and between defendant’s claims that Ricci violated company policy while employed by defendant. See Kamakazi Music Corp. v. Robbins Music Corp., 534 F. Supp. 57, 64 (S.D.N.Y. 1981). No independent jurisdictional basis for these counterclaims needs to be alleged by defendant.

The Court also rejects plaintiffs’ argument that in a Title VII action, defendant may not assert counterclaims sounding in tort. Defendant indicates that in Avigliano v. Sumitomo Shoji America, Inc., 473 F. Supp. 506, 515-516 (S.D.N.Y. 1979), a Title VII action, the court sustained defendant employer’s counterclaim for prima facie tort against plaintiff employee. Furthermore, in Price Waterhouse v. Hopkins, [49 EPD ¶38,936 ] 109 S. Ct. 1775, 1788 (1989), the Supreme Court expressly stated that an employer may avoid liability under Title VII if it can prove “that it would have made the same decision even if it had not allowed gender [or age] to play such a role.” The propriety of defendant’s counterclaims against Ricci is evident.

C. Failure to Join a Necessary Party

Defendant further seeks to amend its answer to correct certain misstatements concerning the corporate relationships set forth in its initial answer and to add the affirmative defense of failure to join a necessary party. Plaintiffs initially filed this action against two entities: (1) Lord $amp; Taylor, and (2) The May Department Stores Co. Plaintiffs then were advised by defendant that Lord $amp; Taylor had been acquired by May, and that therefore the caption should be amended to read as follows: “Lord $amp; Taylor, a division of the May Department Stores Company.” Plaintiffs agreed to amend the caption and entered into a stipulation with defendant setting forth the proper party to this lawsuit. See Schnell Aff. ¶¶2-3. Defendant now argues that due to its own misstatement of corporate relationships, plaintiffs have failed to join a necessary party: ADG.

Plaintiffs argue that discovery conducted thus far indicates that ADG is neither plaintiffs’ former employer nor a necessary party. Plaintiffs submit that Lord $amp; Taylor is “a Division of The May Department Store Company.” Furthermore, in over six depositions taken during the course of discovery in this action, none of the deponents has identified ADG as his or her employer. Plaintiffs submit, then, that under no set of facts can defendant assert a valid and sufficient affirmative defense, and further that if permitted to assert this affirmative defense, plaintiffs will be prejudiced “by conceivably opening the door to this Court’s jurisdiction over the counterclaims.” (Plaintiffs’ March 11, 1991 Mem. in Opp. at 14).

First, the Court has determined that defendant’s counterclaims are compulsory. Plaintiffs’ fear, then, that the addition of ADG as a defendant will “open the door” to jurisdiction over the counterclaims is moot. Next, the Court finds that plaintiffs were advised by defendant of its error in stating the corporate relationships at issue in this case, see Bloom March 21, 1991 Aff. ¶¶4-10, and plaintiffs chose not to amend the caption based on this new information. Plaintiffs will not be prejudiced by the addition of this affirmative defense. Plaintiffs will be given a sufficient opportunity to conduct discovery concerning the validity of defendant’s defense. Should plaintiffs reach the conclusion that ADG indeed is a necessary party to this action, the Court will permit plaintiffs to amend their complaint to add ADG.

Conclusion

Defendant’s motion to amend its answer to add counterclaims and affirmative defenses is granted. The amended answer is to be filed with the Court within 20 days of the issuance of this Opinion and Order.

[QR]So Ordered.