Fourth Circuit Reverses Forum Non Conveniens Dismissal, Says Iraq Might Not Be An Adequate Forum For A Defamation Lawsuit

The Fourth Circuit's ruling last Friday in Galustian v. Peter reinstated a Iraq-based defamation case which had been dismissed by the District Court on the grounds of forum non conveniens. The opinion also contains some significant points on amendments as of right under the Rules of Civil Procedure.

The lawsuit was brought in the Eastern District of Virginia by Galustian, a resident of the United Arab Emirates. Peter, the Defendant, was a resident of Virginia. Galustian contended that Peter had defamed him to a trade association of contractors working in Iraq. The statements in question were made by Peter in Iraq, where he lived and worked. Peter moved to dismiss on grounds of forum non conveniens, and the District Court granted the Motion.

The Fourth Circuit reversed. The case turned partly on whether Iraqi law provided a remedy in defamation to Galustian and whether Peter was immune from suit in Iraq, but I'll leave those esoteric points to those of you who specialize in defamation law in Iraq. Here's what business litigators might find significant in Galustian: 

The Obligation To Prove That There Is An Adequate Alternative Forum

First, a main focus of the case was whether Iraq was an "alternate, adequate, and available forum."  The Fourth Circuit said that an alternative forum is adequate when "(1) all parties can come within that forum's jurisdiction, and (2) the parties will not be deprived of all remedies or treated unfairly, even though they may not enjoy all the same benefits as they might receive in an American court."

Whether Iraq provided a remedy for defamation, and whether an additional defendant who was added to the case after the motion to dismiss was filed could be subject to suit in Iraq, were both matters the Fourth Circuit said should be considered more fully by the District Court after remand.

The Role Of Defendant's Residence On A Forum Non Conveniens Motion

Second, Peter's residence in Virginia was an important factor. The Court observed that while it was not required to give much deference to the choice of forum by a foreign plaintiff, "this lack of deference is muted . . . when the defendant is a resident and citizen of the forum he seeks to have declared inconvenient for litigation."

Peter's residence in Virginia wasn't dispositive, said the Court, but that factor needed to be examined more closely by the District Court on remand. 

Amendments As Of Right

Third, the Fourth Circuit said that reversal was appropriate because the trial judge had refused to allow Galustian to amend to add the additional defendant after the motion to dismiss had been filed. The Court stated that "it is this Circuit's policy to liberally allow amendment in keeping with the spirit of Federal Rule of Civil Procedure 15(a)."

The appellate court pointed out that the motion to amend had been made before the filing of a responsive pleading, and that Galustian therefore had an absolute right to amend his pleading. That was true even though the trial court had determined that the amendment would be futile.

On this point, Judge Gregory said "the doctrine of futility only applies when the plaintiff seeks leave of court to amend and does not have a right to amend. The plaintiff's right to amend once is absolute." That absolute right extends to amendments seeking to add parties, as Galustian's motion did.  (There's a split in Circuits on the point whether Rule 15(a) applies to amendments adding parties). The District Court's refusal to allow the amendment was an abuse of discretion.

Last, the Court reminded lawyers that Rule 15, which governs amendments to pleadings, changed on December 1, 2009. Formerly, a party could amend as of right literally up until the Court ruled on a motion to dismiss, because a motion to dismiss is not a responsive pleading. The changed rule says that amendments as of right must be made within 21 days after service of a 12(b) motion. The revised rule setting the new time limit didn't apply to Galustian's case, but the result might have been different if it had. 

Harco National Insurance Co. v. Grant Thornton LLP, February 16, 2009 (Tennille)(unpublished)

The Court denied a Motion to Amend, finding that there was undue delay in seeking the amendment.  Discovery in the case had gone on for years and had been completed months before the Motion to Amend was filed.  Plaintiff furthermore had the documents on which the Motion was based in its possession for two years.

The Court also denied the Motion based upon the prejudice to the Defendant.  The new causes of action would have changed the Defendant's approach to discovery.  Furthermore, one of the proposed new claims was for punitive damages, and it would have been prejudicial to the Defendant to "change 'the stakes of the lawsuit' at this late stage of the proceedings."

Full Opinion

Motion To Amend To Add Statute Of Limitations Defense Denied Based On Undue Delay

Today, in Cope v. Daniel, the Business Court denied the Defendant's request to amend its Answer to add a statute of limitations defense and a defense of ERISA preemption.  Judge Tennille found that the Defendant had unduly delayed by raising the statute of limitations defense, and that the Plaintiff would be prejudiced if it were allowed.  The Court denied the ERISA amendment for another reason, finding it to be futile.

The case involves a dispute between shareholders of a medical practice.  Plaintiff alleged that the Defendant engaged in financial misdoings, including charging unauthorized expenses to the practice, improperly reporting to taxing authorities, paying himself unauthorized distributions of salary and bonus, and overcharging rent.

The amendment on the statute of limitations was requested fourteen months after the original Answer was filed.  The Court noted that the Complaint asserted claims based on events beginning as far back as 1999, and stated "[n]o questions have been raised as to whether Defendants knew at the time the complaint was filed . . . what claims were being asserted against them and during what timeframe."

The Court denied the Motion, holding that "[a] delay of over fourteen months before filing a statutes of limitation defense is an undue delay and causes undue prejudice to Plaintiff."  It also held that "[a] defense based upon statutes of limitation is, by definition, time sensitive. A delay of over fourteen months before asking for an amendment could be acceptable in certain circumstances. . . . The situation where statutes of limitations defense is raised is not one of those circumstances."

The ERISA claim came in for a different analysis.

The Court held that although the Complaint did reference the pension plan of the practice, this was insufficient to warrant ERISA preemption because the claim did not involve the existence or extent of benefits under an employee benefit plan.  It held:

Summarizing many courts’ view on this matter—simply referring to a pension plan for the calculation of damages is not sufficient to implicate federal preemption. (See Pl.’s Resp. Opp’n 10, 10 n.3.) “Generally speaking, ERISA preempts state common law claims of fraudulent or negligent misrepresentation when the false representations concern the existence or extent of benefits under an employee benefit plan.” Griggs v. E.I. DuPont De Nemours & Co., 237 F.3d 371, 378 (4th Cir. 2001). This action does include a fraud claim against Defendant Daniels that alleges misrepresentations concerning salaries and the finances of Defendant Daniel Urological Center, Inc. (Compl. ¶ 55.) That claim does not concern the existence or extent of benefits under an employee benefit plan. See Griggs, 237 F.3d at 378. The additional claims would only tangentially relate to the employee benefits plan as one aspect of alleged damages. Regardless of the undue delay that has occurred in filing this amendment as shown above, an amendment adding an ERISA defense would be a futile amendment and justice does not require the Court allow such an amendment. The Court hereby DENIES Defendants’ motion to amend the answer as to the sixteenth defense.

Brief in Support of Motion to Amend

Brief in Opposition to Motion to Amend

Reply Brief in Support of Motion to Amend