Metzler Investment GmbH and Construction Laborers Pension Trust of Greater ( 2020 )

18-3807-cv
Metzler Investment GmbH and Construction Laborers Pension Trust of Greater St. Louis v. Chipotle Mexican Grill, Inc., et al.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
August Term, 2019
(Argued: December 18, 2019 Decided: August 12, 2020)
Docket No. 18-3807-cv
METZLER INVESTMENT GMBH, CONSTRUCTION LABORERS PENSION TRUST OF
GREATER ST. LOUIS,
Plaintiffs-Appellants,
SUSIE ONG, Individually and On Behalf of All Others Similarly Situated,
Plaintiff,
v.
CHIPOTLE MEXICAN GRILL, INC., MONTGOMERY F. MORAN, JOHN R. HARTUNG, M.
STEVEN ELLS,
Defendants-Appellees.
Before: POOLER, SACK, AND HALL, Circuit Judges.
The United States District Court for the Southern District of New York
(Katherine Polk Failla, Judge) granted the defendants-appellees' motion pursuant
to Federal Rule of Civil Procedure 12(b)(6) to dismiss with prejudice the
plaintiffs-appellants' second amended complaint which alleged violations of the
federal securities laws against the defendants-appellees, and entered judgment
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Metzler Investment GmbH and Construction Laborers Pension Trust of Greater St. Louis v. Chipotle Mexican Grill, Inc., et al.
for the defendants-appellees. The plaintiffs-appellants then brought a motion
under Federal Rules of Civil Procedure 59(e) and 60(b) for relief from the
judgment and for leave to file a third amended complaint. The district court
denied the motion on the grounds that the plaintiffs-appellants were not entitled
to relief under those rules and, in the alternative, that amendment would be
futile. The plaintiffs-appellants appealed. We agree that the plaintiffs-appellants
are not entitled to relief under Rules 59(e) and 60(b). The judgment of the district
court is therefore
AFFIRMED.
DOUGLAS WILENS, Robbins Geller Rudman
& Dowd LLP, Boca Raton, FL, for Plaintiffs-
Appellants.
Samuel H. Rudman, David A. Rosenfeld,
and Michael G. Capeci, on the brief, Robbins
Geller Rudman & Dowd LLP, Melville, NY,
for Plaintiffs-Appellants.
James M. Hughes, and Christopher F.
Moriarty, on the brief, Motley Rice LLC,
Mount Pleasant, SC, for Plaintiffs-Appellants.
William H. Narwold, and Mathew P.
Jasinski, on the brief, Motley Rice LLC,
Hartford, CT, for Plaintiffs-Appellants.
Louis M. Bogard, on the brief, Motley Rice
LLC, Washington, DC, for Plaintiffs-
Appellants.
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ANDREW B. CLUBOK (Susan E. Engel,
Matthew J. Peters, and Jessica L. Saba, on
the brief), Latham & Watkins LLP,
Washington, DC, for Defendants-Appellees.
Kendra N. Beckwith, on the brief, Messner
Reeves LLP, Denver, CO, for Defendants-
Appellees.
SACK, Circuit Judge:
This appeal concerns an amended class-action complaint filed by the
plaintiffs-appellants, Metzler Asset Management GmbH and Construction
Laborers Pension Trust of Greater St. Louis, in the United States District Court
for the Southern District of New York alleging violations of the federal securities
laws by the defendants-appellees, Chipotle Mexican Grill, Inc., M. Steven Ells,
John R. Hartung, and Montgomery F. Moran. On the defendants-appellees'
motion, the district court (Katherine Polk Failla, Judge) dismissed the amended
complaint without prejudice for failure to state a claim.
The plaintiffs-appellants filed a second amended complaint and the
defendants-appellees again moved to dismiss. In their opposition papers, the
plaintiffs-appellants requested leave to file a third amended complaint if the
court were to grant the defendants-appellees' motion. After the close of briefing,
the court granted the defendants-appellees' motion to dismiss and denied the
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plaintiffs-appellants' request for permission to file a third amended complaint on
the grounds that they had failed to cure deficiencies by amendments previously
allowed, amendment would prejudice the defendants, and amendment would be
futile. Accordingly, the district court dismissed the second amended complaint
with prejudice and entered judgment for the defendants-appellees.
The plaintiffs-appellants then moved under Federal Rules of Civil
Procedure 59(e) and 60(b) for relief from the judgment and for leave to file a third
amended complaint. The court denied the motion on the grounds that the
plaintiffs-appellants were not entitled to relief under Rules 59(e) and 60(b) and,
in the alternative, that amendment would be futile. The plaintiffs-appellants
challenge this ruling on appeal. They argue that the district court analyzed their
motion incorrectly under Rules 59(e) and 60(b) and erred in concluding that
amendment would be futile. For the reasons set forth below, we conclude that
the district court correctly analyzed the plaintiffs-appellants' motion under Rules
59(e) and 60(b) and acted well within its discretion in denying that motion. As a
result, we do not reach the district court's alternative holding or the plaintiffs-
appellants' challenges to it. We therefore affirm the judgment of the district
court.
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Metzler Investment GmbH and Construction Laborers Pension Trust of Greater St. Louis v. Chipotle Mexican Grill, Inc., et al.
BACKGROUND
I. Factual Background
The following statement of facts is drawn from the allegations in the
plaintiffs-appellants' proposed third amended complaint.
1. The Parties
The plaintiffs-appellants in this class action are Metzler Asset Management
GmbH and Construction Laborers Pension Trust of Greater St. Louis ("Metzler"
and the "Trust" respectively; together the "plaintiffs" or the "plaintiffs-
appellants"). They purchased shares of Chipotle Mexican Grill, Inc. ("Chipotle")
common stock between February 5, 2015 and February 2, 2016 (the "class
period").
The defendants-appellees are Chipotle, M. Steven Ells ("Ells"),
Montgomery F. Moran ("Moran"), and John R. Hartung ("Hartung"). Chipotle is
a fast-food restaurant chain. It was founded by defendant Ells in 1993 and by
December 31, 2015 had grown to operate over 1,900 restaurants.
During the class period, which originally ran from February 5, 2015,
through February 2, 2016, before it was shortened to October 21, 2015, through
February 2, 2016, defendants Ells and Moran served as co-chief executive officers
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("co-CEOs") of Chipotle while defendant Hartung served as chief financial officer
("CFO"). Defendants Ells and Moran served also on Chipotle's board of directors
(the "board") — Moran as a director and Ells as the chairman. On December 12,
2016, Moran resigned both of his positions at the board's request. Ells then
served as the sole CEO until he resigned on November 29, 2017. He continued to
serve as chairman of the board.
2. Chipotle's Methods of Food Preparation
Chipotle sells ready-to-eat food products that contain produce including
tomatoes, lettuce, red onions, jalapeños, and cilantro. Up until late 2014, the
company prepared its produce in centralized commissaries. For example,
tomatoes would be sliced or diced in such a commissary before being shipped to
individual restaurants.
During 2014 and 2015, FDA regulations required such centralized
commissaries to provide two different types of testing to ensure food safety: raw
material testing and end-product testing.
Raw material testing involves testing raw food items for pathogens upon
their arrival at the commissary. If any products test positive, they would not be
processed.
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End-product — or batch — testing involves testing a sample of processed
food at set time intervals, for example, every fifteen minutes. If a sample tests
negative for pathogens, then the batch from which the sample came would be
approved for shipment to the company's individual restaurants. If, however, a
sample tests positive for pathogens, then the batch of processed food from which
the sample came would be discarded. In addition, the Chipotle commissary
would trace through its supply chain to try to identify the source of the
contaminated batch and prevent the company's restaurants from using
potentially contaminated produce.
In late 2014, Chipotle transitioned from preparing the produce for its
ready-to-eat food products in centralized commissaries to preparing the produce
in its individual restaurants. "[T]his switch meant that 1,900 individual Chipotle
restaurants were asked overnight to do something they previously had no
training or experience with doing — ensuring the same level of food safety
standards and controls that are in place in established commissaries." Proposed
Third Amended Complaint ("PTAC") ¶ 83. But, according to a former Chipotle
employee and area manager, both before the transition and throughout the class
period, the individual restaurants did not have a procedure in place to test
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produce for pathogens. As a result, the "risks to Chipotle's operations,"
specifically that its food products would cause outbreaks of food-borne illness,
"dramatically increased" after the transition. Id. ¶ 84.
Several additional factors contributed to the increased risk: (1) "the number
of workers handling the produce without effective training in food safety," id. ¶
86, (2) the increased "number of surfaces that the produce would come into
contact with by virtue of being prepared in the restaurants," id., and (3) the
difficulty or impossibility of performing end-product testing at, and supply chain
tracing from, individual restaurants, which, in the event of a food-borne illness
outbreak, would preclude health regulators from identifying and
"extinguish[ing] the source of . . . [the] outbreak with any reasonable degree of
certainty," id. ¶ 95.
3. The Outbreaks
The plaintiffs allege that this increased risk of food-borne illness outbreaks
following the transition was realized. Prior to the transition, from 2008 to
December 2014, there were three outbreaks of food-borne illness from Chipotle
food products. After the transition, from December 2014 through December
2015, there were fourteen outbreaks linked to Chipotle customers or locations:
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five Salmonella outbreaks, six E. coli outbreaks, and three Norovirus outbreaks.
These outbreaks occurred in various parts of the country, affecting at least 23
states and sickening a total of approximately 611 people.
The Center for Disease Control ("CDC"), the Food and Drug
Administration ("FDA"), and state or local public health officials investigated at
least seven of these outbreaks. 1 The government entities requested "ingredient
traceback information from Chipotle to identify the source of the outbreak[s]."
PTAC ¶ 117. Chipotle responded with "limited" or "incomplete" information,
which hindered, delayed, or prevented public health officials from identifying
conclusively specific ingredients or suppliers as the source of the outbreaks. Id.
¶¶ 120, 122-23.
Public health officials were able to identify sources they suspected of
causing several outbreaks. They included contaminated produce items such as
cilantro, red onions, jalapeños, tomatoes, and lettuce which caused six outbreaks,
and sick employees reporting to work which caused three outbreaks. They were
unable to identify a source or suspected source for five of the outbreaks.
1According to the plaintiffs, Chipotle would have been made aware of several
outbreaks because a state or local health agency's report "on the Chipotle restaurants
involved in the outbreak" would have been forwarded to the company. PTAC ¶ 133.
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4. Chipotle's Response
Chipotle responded by announcing in September 2015 that it was
"implementing a comprehensive whole chain traceability program" that would
allow it to trace ingredients "across the supply chain (end to end)." PTAC
¶¶ 400-01. In November 2015, the company further announced that it had
retained two food safety consulting firms to "assess and improve upon its . . .
standards for food safety." Id. ¶ 261. Following this assessment, Chipotle issued
a press release on December 4, 2015, stating that it would adopt the consultants'
proposals in their entirety, establishing a new "enhanced food safety program."
Id. ¶ 262.
According to Chipotle, the new food safety program would include "high-
resolution testing of all fresh produce in which a series of DNA-based tests . . .
ensure the quality and safety of ingredients before they are shipped to
restaurants." Id. It also called for revised "internal training to ensure that all
employees . . . understand the company's . . . standards for food safety and food
handling." Id.
It soon became evident that the new program would also involve a switch
back to processing food in centralized commissaries: At a consumer conference
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on December 8, 2015, defendant Ells stated that the company had responded to
an outbreak in the Pacific Northwest by implementing "system-wide" changes,
including, for example, "dicing our tomatoes in a commissary, so that they could
go through a sanitizing kill step and then [be] hermetically sealed in containers
and delivered to the restaurants." PTAC ¶ 264. Ells announced that cilantro and
romaine lettuce also would be "washed and tested" before being shipped to the
individual restaurants. Id. The announcement — and others 2 — revealed
management's conclusion that it was not possible to perform in restaurants the
type of pathogen testing performed in centralized commissaries. Id. ¶¶ 264-266.
2 At a conference on January 13, 2016, Ells stated that:
For years . . . we were dicing our tomatoes in a central kitchen.
It was only for the last couple years that we brought them
back in-house to dice. But you are not able to do the high-
resolution testing in the restaurant, so that's why back into the
central kitchen.
The other item that we think is important to do in the central
kitchen is lettuce . . . . We'll shred it in the central kitchen and
wash it; do this high resolution testing. Then dry it and
package it and off to the restaurant it will go . . .
PTAC ¶ 266.
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Four days later, Chipotle announced that, at the board's request, Moran
was resigning as co-CEO and member of the board of directors effective in early
2017.
5. The Effects on Chipotle's Financial Performance
The outbreaks "had an adverse impact on [Chipotle's] financial and
operating results" in the fourth quarter of 2015. PTAC ¶ 263. In its Form 10-K
for the fiscal year ending December 31, 2015, filed on February 5, 2016, Chipotle
stated that "significant publicity regarding a number of food-borne illness
incidents associated with Chipotle restaurants . . . had a severe adverse impact
on our sales and profitability." Id. ¶ 270. Comparable restaurant sales, defined
as the "change in period-over-period sales for restaurants beginning in their 13th
full calendar month of operation," declined 14.6 percent in the fourth quarter of
2015 and approximately 36 percent in January 2016. Id.
The company stated that it planned to "increase marketing and
promotional spending considerably during the first half of 2016 . . . in an effort to
attract customers back to our restaurants and reverse negative sales trends." Id.
Chipotle's efforts, however, were unsuccessful. In its Form 10-K filed for the
fiscal year ending December 31, 2016, the company reported $22.9 million in
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earnings compared to $475.6 million in earnings for the fiscal year ending
December 31, 2015 — a 95.2 percent decline.
II. Procedural History
1. The Complaint
On January 8, 2016, plaintiff Susie Ong, who is not a party to this appeal,
filed this putative securities class action against Chipotle, Ells, Moran, and
Hartung in the United States District Court for the Southern District of New
York. The complaint asserted causes of action under sections 10(b) and 20(a) of
the Securities Exchange Act of 1934, and Rule 10b-5 thereunder, on behalf of
purchasers of Chipotle securities between February 4, 2015, and January 5, 2016.
The complaint alleged that the defendants made materially false and misleading
statements regarding the company's quality controls that artificially inflated
Chipotle's stock price. The putative class allegedly suffered damages when
Chipotle's stock price dropped after a series of food-borne illness outbreaks from
August to December 2015 were connected to Chipotle customers and restaurants.
On March 8, 2016, by-then putative class members Metzler and the Trust
made a motion asking the court to appoint them as lead plaintiffs and to approve
their counsel as lead counsel. On April 18, 2016, the court granted the motion.
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2. The First Amended Complaint and Motion to Dismiss
Two months later, on June 17, 2016, the plaintiffs filed an amended
complaint that included more detailed and specific allegations than had the
original complaint. Among other things, the amended complaint alleged that the
defendants had violated federal securities laws based on Chipotle's failure to
disclose its decision to switch "from using central commissary kitchens to process
and prepare the produce used in its restaurants to processing produce in each of
the Company's over 1,900 restaurants," and the increased risk of food-borne
illness outbreaks that resulted from that decision. First Amended Complaint ¶ 4.
That increased risk allegedly was realized when there were at least seven food-
borne illness outbreaks from July to December 2015.
On August 18, 2016, the defendants moved to dismiss the amended
complaint. On March 8, 2017, the court granted the motion. It concluded that
the plaintiffs had failed to state a claim because, among other things, the facts
alleged did not support the inference that any defendant was aware of any
heightened risk associated with the move away from central commissary food
preparation. The court determined that the allegations in fact supported the
opposite inference:
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Plaintiffs allege that Chipotle transitioned to in-store
produce production in "late 2014," and have pleaded
facts indicating that the first outbreak of food-borne
illness at a Chipotle restaurant occurred in July 2015, at
least seven months later. For at least seven months,
therefore, this transition appeared not to heighten
Chipotle's risk at all.
Opinion and Order of the District Court issued Mar. 8, 2017. The court
dismissed the amended complaint without prejudice and granted the plaintiffs'
request for leave to amend their complaint.
3. The Second Amended Complaint and Motion to Dismiss
The plaintiffs filed a second amended complaint (the "SAC") on April 7,
2017. It included new allegations of six additional outbreaks, including several
in late 2014 and early 2015, presumably to rebut the district court's conclusion
that the transition "appeared not to heighten Chipotle's risk at all" for the first
half of 2015. Id. The defendants again moved to dismiss. The plaintiffs, in their
opposition papers, included a request for leave to replead if the Court were to
grant any part of the defendants' motion.
After briefing on the motion was complete, the plaintiffs filed a letter with
the court to inform it that another outbreak had occurred in late 2014. The letter
stated that the plaintiffs had learned of this outbreak in the course of their
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"ongoing investigation," and that "[t]his additional information further
demonstrates that defendants . . . knew about, or recklessly disregarded,
Chipotle's food-borne illness outbreaks by at least December 2014 and Chipotle's
deficient ingredient traceability program during the Class Period." Plaintiffs'
Letter dated Nov. 1, 2017, 16-cv-141, Dct. No. 96 at 1.
The defendants filed a letter in response, arguing that the court should not
consider the plaintiffs' letter or the additional factual allegations therein. The
court agreed. "In the absence of a motion to amend or a motion to convert the
pending motion to dismiss into a motion for summary judgment," it said, it could
not consider the "newly-proffered factual information." Memo Endorsement
filed Nov. 6, 2017, 16-cv-141, Dct. No. 98 at 2.
Two days later, the plaintiffs filed a letter with the court seeking to make
clear that they did "not intend to file a motion to amend" the SAC "at this time."
It stated in relevant part that
[the plaintiffs] believe that amendment is premature
given the additional evidence Plaintiffs expect to obtain
over the next several months . . . , but anticipate moving
to amend, if necessary and/or appropriate, once this
evidence is received. While we believe that the SAC
adequately states a claim and that the pending motion to
dismiss will be denied, in the event that the Court
dismiss the SAC, Plaintiffs respectfully request that the
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information contained in our November 1 letter be
considered as part of the Court's leave to amend analysis
and that any dismissal be without prejudice.
Plaintiffs' Letter dated Nov. 8, 2017, 16-cv-141, Dct. No. 99. The plaintiffs did not
move to amend thereafter.
On March 22, 2018, the district court granted the defendants' motion to
dismiss. It concluded, inter alia, that the plaintiffs had failed to allege adequately
that the defendants knew and failed to disclose that transitioning away from
preparing produce in centralized commissaries would result in an increased risk
of food-borne illness outbreaks. The court concluded that the outbreaks,
including those in December 2014 and early 2015, were not "conclusively tied to a
specific ingredient or supplier," or "to any shift away from commissary produce
processing." Opinion and Order issued Mar. 22, 2018, Special App'x ("SPA") at
95. Any heightened risk of food-borne illness outbreaks resulting from that shift
therefore was only "potential." Id. (internal quotation marks omitted).
In the same opinion and order, the district court denied the plaintiffs'
request for leave to file a third amended complaint. While leave to amend
should be freely given "when justice so requires," id. at 118 (quoting McCarthy v.
Dun & Bradstreet Corp., 482 F.3d 184, 200 (2d Cir. 2007)), the district court noted
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that it may be denied if: (1) amendment would be futile, (2) the plaintiff has had
ample opportunity to state a claim, or (3) the defendant would suffer undue
prejudice as a consequence of further amendment, see id. at 119. The district
court concluded that there were adequate grounds to deny the application under
these principles. First, the court noted that the plaintiffs had had multiple
opportunities to cure deficiencies in the pleadings by amendments previously
allowed. Second, it stated that the plaintiffs could not assuage its concern that
further amendment would be futile because they could not demonstrate that the
fruits of their ongoing investigation would cure the deficiencies in their SAC.
Finally, the court said that "extending the pleading stage in this litigation
indefinitely would cause Defendants undue prejudice given their interest in
finality and repose." Id. at 120. The court therefore denied the application for
leave to amend and granted the defendants' motion to dismiss with prejudice.
The following day, the Clerk of Court entered judgment for the defendants and
closed the case.
4. The Plaintiffs' Motion for Relief from the Judgment and for Leave to file a Third
Amended Complaint
On April 20, 2018, the plaintiffs moved in the district court for relief from
the judgment, pursuant to Federal Rules of Civil Procedure 59(e) and 60(b), and
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for leave to file a proposed third amended complaint ("PTAC"), pursuant to Rule
15(a)(2). They sought "relief from the Judgment . . . based on: (a) information
received (i) since the SAC was filed, from FOIA requests; and (ii) since the Court
dismissed the SAC, from recently unsealed pleadings in related litigation; and (b)
other information not considered by the Court in rendering its decision." Pls.
Mem. of Law in Support of Motion, 16-cv-141, Dct. No. 107 at 1. They argued
that the court should grant them leave to file the PTAC because the new
allegations it contained "cure the deficiencies perceived by the Court" in the SAC
and therefore amendment would not be futile. Id. at 2.
On November 20, 2018, the court denied the motion. It concluded that the
plaintiffs were not entitled to relief because the purported newly discovered
evidence — but for a single allegation — was not in fact new for purposes of
Rules 59(e) and 60(b). The court noted that the plaintiffs had received the
information prior to entry of the judgment or otherwise failed to make clear
when they had received it. And "the single new fact identified by Plaintiffs [did]
not move the needle in favor of reopening the Court's prior decision." Opinion
and Order dated Nov. 20, 2018, SPA at 139. The court noted, however, that even
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if it were to consider the purported new information in the PTAC, the result
would not change because the proposed amendment would be futile.
This appeal followed.
DISCUSSION
On appeal, the plaintiffs-appellants contend only, in sum, that "[i]n
denying [their] post-judgment motion for leave to amend[,] the district court
applied an incorrect legal standard," and that "[t]he district court erroneously
determined that the filing of the PTAC was futile." Appellants' Br. at iii. As to
the former, they argue that the court was obliged to consider only the standard
that governs pre-trial motions for leave to amend a pleading pursuant to Federal
Rule of Civil Procedure 15(a)(2), which states that before trial, "a party may
amend its pleading only with the opposing party's written consent or the court's
leave. The court should freely give leave when justice so requires." Fed. R. Civ.
P. 15(a)(2). We conclude that the argument is without merit and that the district
court applied the correct legal standard. We also conclude that the district court
acted well within its discretion in denying the plaintiffs-appellants' motion. We
therefore affirm the judgment of the district court without addressing its
alternative holding that amendment would be futile.
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I. Legal Standard
1. Rules 59(e), 60(b), and 15(a)(2)
"We review the district court's denial of a post-judgment motion for leave
to replead for abuse of discretion." Williams v. Citigroup Inc., 659 F.3d 208, 212 (2d
Cir. 2011) (citations omitted). "A district court abuses its discretion when it
'bases its ruling on an incorrect legal standard or a clearly erroneous assessment
of the facts.'" City of New York v. Group Health Inc., 649 F.3d 151, 156 (2d Cir. 2011)
(quoting Bronx Household of Faith v. Bd. of Educ., 331 F.3d 342, 348 (2d Cir. 2003)).
On appeal, the plaintiffs-appellants argue that the district court applied the
wrong legal standard to their post-judgment motion for relief from the judgment
and for leave to file an amended complaint. They contend that the correct
standard is that applicable to pre-trial motions for leave to amend a pleading
pursuant to Rule 15(a)(2), which requires leave to be freely given unless there is
"any apparent or declared reason—such as undue delay, bad faith or dilatory
motive on the part of the movant, repeated failure to cure deficiencies by
amendments previously allowed, undue prejudice to the opposing party by
virtue of allowance of the amendment, futility of amendment, etc." Appellants'
Br. at 32 (quoting Foman v. Davis, 371 U.S. 178, 182 (1962)).
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We disagree. It is well established that "[a] party seeking to file an
amended complaint post[-]judgment must first have the judgment vacated or set
aside pursuant to Fed. R. Civ. P. 59(e) or 60(b)." Ruotolo v. City of New York, 514
F.3d 184, 191 (2d Cir. 2008). "[I]t would be contradictory to entertain a motion to
amend the complaint" without "a valid basis to vacate the previously entered
judgment." Nat'l Petrochemical Co. of Iran v. M/T Stolt Sheaf, 930 F.2d 240, 245 (2d
Cir. 1991). "To hold otherwise would enable the liberal amendment policy of
Rule 15(a) to be employed in a way that is contrary to the philosophy favoring
finality of judgments and the expeditious termination of litigation." Williams, 659
F.3d at 213 (brackets and internal quotation marks omitted) (quoting Nat'l
Petrochemical, 930 F.2d at 245).
Rule 59(e) provides that a "motion to alter or amend a judgment must be
filed no later than 28 days after the entry of the judgment." Fed. R. Civ. P. 59(e).
A court may grant a Rule 59(e) motion "only when the [movant] identifies 'an
intervening change of controlling law, the availability of new evidence, or the
need to correct a clear error or prevent manifest injustice.'" See Kolel Beth Yechiel
Mechil of Tartikov, Inc. v. YLL Irrevocable Trust, 729 F.3d 99, 104 (2d Cir. 2013)
(quoting Virgin Atl. Airways, Ltd. v. Nat'l Mediation Bd., 956 F.2d 1245, 1255 (2d
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Cir. 1992)); see also Hollander v. Members of the Bd. of Regents of the Univ. of N.Y.,
524 F. App'x 727, 729 (2d Cir. 2013) (summary order).
Rule 60(b) provides that a court may relieve a party from a final judgment
for the following reasons:
(1) mistake, inadvertence, surprise, or excusable neglect;
(2) newly discovered evidence that, with reasonable
diligence, could not have been discovered in time to
move for a new trial under Rule 59(b);
(3) fraud (whether previously called intrinsic or
extrinsic), misrepresentation, or misconduct by an
opposing party;
(4) the judgment is void;
(5) the judgment has been satisfied, released, or
discharged; it is based on an earlier judgment that has
been reversed or vacated; or applying it prospectively
is no longer equitable; or
(6) any other reason that justifies relief.
Fed. R. Civ. P. 60(b). We have described Rule 60(b)(6) as a catch-all provision
that "is properly invoked only when there are extraordinary circumstances
justifying relief, when the judgment may work an extreme and undue hardship,
and when the asserted grounds for relief are not recognized in clauses (1)–(5) of
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the Rule." Nemaizer v. Baker, 793 F.2d 58, 63 (2d Cir. 1986) (internal citations
omitted).
Notwithstanding the foregoing, the plaintiffs-appellants argue that Rule
15(a)(2) alone governs all post-judgment motions for leave to amend because of
our previous statement in dicta that:
in view of the provision in rule 15(a) that 'leave [to
amend] shall be freely given when justice so requires,' it
might be appropriate in a proper case to take into
account the nature of the proposed amendment in
deciding whether to vacate the previously entered
judgment.
Nat'l Petrochemical, 930 F.2d at 245 (internal citation omitted; brackets in original).
We have considered this dicta in two decisions that warrant discussion: Williams
v. Citigroup Inc., 659 F.3d 208 (2d Cir. 2011), and Indiana Pub. Ret. Sys. v. SAIC,
Inc., 818 F.3d 85 (2d Cir. 2016).
In Williams, the district court granted the defendants' motion to dismiss
with prejudice and entered judgment without ever providing the plaintiff with
an opportunity to replead. See 659 F.3d at 211-12. The plaintiff moved pursuant
to Rules 59(e) and 60(b) to reopen the judgment and obtain leave to amend her
complaint. Id. The court denied the motion on the grounds that the plaintiff
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failed to "demonstrate[] any basis" for relief from the judgment and to "explain
why she should be granted leave to replead at this stage when she failed to
request an opportunity to replead" at an earlier stage in the litigation. Id. at 212.
We reversed. We began by recognizing the well-established rule that a
plaintiff seeking to amend a complaint post-judgment must first have the
judgment vacated pursuant to Rules 59(e) or 60(b). Id. at 213. We then observed
that "it might be appropriate in a proper case to take into account the nature of
the proposed amendment in deciding whether to vacate the previously entered
judgment." Id. (quoting Ruotolo, 514 F.3d at 191). From these formulations, we
reasoned that "post[-]judgment motions for leave to replead must be evaluated
with due regard to both the value of finality and the policies embodied in Rule
15." Id.
We looked to Foman v. Davis, 371 U.S. 178 (1962), for authority with respect
to this interplay. There, the Supreme Court addressed a post-judgment motion
to amend the complaint. See 371 U.S. at 179-81. The plaintiff had asserted a
claim seeking to enforce an alleged oral agreement regarding the amount she
stood to inherit from her father's estate. See id. at 179. The district court
dismissed the complaint for failure to state a claim on the grounds that the
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alleged agreement was unenforceable under the statute of frauds. Id. Judgment
was entered. Id. The next day, the plaintiff moved to vacate the judgment and to
amend her complaint to seek recovery in quantum meruit. Id. The district court
denied the motion without explanation. See id.
The Supreme Court reversed. It construed the motion as one filed
pursuant to Rule 59(e). Id. at 181. And, against the backdrop of a plaintiff who
was never afforded an opportunity to replead, the Court stated:
Rule 15(a) declares that leave to amend "shall be freely
given when justice so requires"; this mandate is to be
heeded. If the underlying facts or circumstances relied
upon by a plaintiff may be a proper subject of relief, he
ought to be afforded an opportunity to test his claim on
the merits. In the absence of any apparent or declared
reason—such as undue delay, bad faith or dilatory
motive on the part of the movant, repeated failure to cure
deficiencies by amendments previously allowed, undue
prejudice to the opposing party by virtue of allowance of
the amendment, futility of amendment, etc.—the leave
sought should, as the rules require, be "freely given." Of
course, the grant or denial of an opportunity to amend is
within the discretion of the District Court, but outright
refusal to grant leave without any justifying reason
appearing for the denial is not an exercise of discretion;
it is merely abuse of that discretion and inconsistent with
the spirit of the Federal Rules.
Id. at 182. It follows that it is an abuse of discretion to deny a motion under Rule
59(e) — to prevent a "manifest injustice," although the Court did not say so
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explicitly — when the plaintiff was never given an opportunity to replead in the
first place.
It was apparently based on this principle that we reversed the district
court's denial of the post-judgment motion to amend in Williams. In doing so, we
explained that Foman "makes unmistakably clear" that a plaintiff need not "seek
leave to replead either together with her response to the motion to dismiss, or
indeed prior to the district court's entry of judgment." Williams, 659 F.3d at 214.
In Indiana Public Retirement System v. SAIC, Inc., 818 F.3d 85 (2d Cir. 2016),
the district court granted in part and denied in part a motion to dismiss a first
amended complaint. 818 F.3d at 91. In its decision, the court granted the
plaintiffs leave to amend the claims that it dismissed without prejudice. See id.
The plaintiffs did not file an amendment within the time allotted, however, and
proceeded with their claims that had survived the motion to dismiss instead. Id.
The defendants, meanwhile, moved for reconsideration. Id. The court granted
the motion for reconsideration and reversed course. See id. On reconsideration,
the court granted the motion to dismiss in full and dismissed all the plaintiffs'
claims with prejudice. Id. It then entered judgment for the defendant. See id.
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The plaintiffs moved to amend or vacate the judgment and to file a
proposed second amended complaint. Id. The district court denied the motions
on the grounds that the plaintiffs had failed to demonstrate any grounds for
relief under Rule 60(b) and the proposed amendment would be futile. Id. at 92.
We reversed. As in Williams, we stated first that a party seeking to file an
amended complaint post-judgment must first have the judgment vacated
pursuant to Rules 59(e) or 60(b). Id. We noted that Rule 60(b) "authorizes a court
to grant relief from a final judgment for 'any . . . reason that justifies relief.'" Id. at
92 (ellipsis in original) (quoting Fed. R. Civ. P. 60(b)(6)). Then we articulated the
formulation from National Petrochemical: that "it might be appropriate in a proper
case to take into account the nature of the proposed amendment in deciding
whether to vacate the previously entered judgment." Id. (quoting Williams, 659
F.3d at 213).
We then noted that the district court "denied leave to amend under Rule
60(b)(6) solely on the ground that amendment . . . would be futile, a
determination that we review de novo." Id. (citation and footnote omitted).
There, however, we concluded that the amendment would not be futile and
reversed without "reach[ing] th[e] issue" of whether the district court abused its
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discretion in rejecting the plaintiffs' argument that the judgment should be set
aside because of newly discovered evidence. Id. at 92 n.4.
We decided SAIC in light of background principles regarding Rules 59(e)
and 60(b), including the dicta in Nat'l Petrochemical, 930 F.2d at 245. But we did
not address directly whether that case was a "proper" one within the meaning of
National Petrochemical, or indeed what the phrase meant. Nor did we identify
any circumstances in the case that would render it "appropriate" to consider the
nature of the proposed amendment in determining whether the judgment should
be vacated.
Importantly, (1) the district court in SAIC had permitted amendment after
its first decision on the motion to dismiss; (2) the plaintiffs had not availed
themselves of it, but were able to proceed with their surviving claims; (3) on
reconsideration, the district court dismissed all the plaintiffs' claims including
the theretofore surviving claims with prejudice, prohibiting amendment without
providing a justification; and (4) the plaintiffs then were unable to proceed
except by motion for relief from the judgment. See SAIC, 818 F.3d at 91-92. This
history parallels the procedural pattern in Foman and Williams; the only key
distinction in SAIC being that the plaintiffs had — and availed themselves of —
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one opportunity to amend while the plaintiffs in Foman and Williams had none.
Notwithstanding this distinction, the cases —SAIC, Foman, and Williams — are
consistent.
In the case at bar, by contrast, the plaintiffs had three opportunities to state
a claim and had requested a fourth in their opposition to the defendants' motion
to dismiss before the district court granted the defendants' motion with prejudice
and denied the plaintiffs' request. In dismissing the First Amended Complaint,
the district court issued a thorough opinion that identified defects that a second
amended complaint should cure. Even with the benefit of that opinion, however,
the plaintiffs failed to cure such deficiencies in their Second Amended
Complaint. Moreover, the plaintiffs-appellants cite no authority — and we are
aware of none — that supports their assertion that the district court was obliged
to consider their proposed amendment only under Rule 15(a)(2), effectively
replacing the standards under Rules 59(e) and 60(b) with those in Rule 15(a)(2) to
decide their post-judgment motion. We conclude that our well-established rule
that a plaintiff "seeking to file an amended complaint post[-]judgment must first
have the judgment vacated or set aside pursuant to Rules 59(e) or 60(b)," SAIC,
818 F.3d at 92 (quoting Williams, 659 F.3d at 213), stands.
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In the post-judgment context, we have indeed given "due regard" to "the
liberal spirit of Rule 15" by ensuring plaintiffs at least one opportunity to replead.
Williams, 659 F.3d at 213-14. But we have not given sole regard to Rule 15. Doing
so would allow the "liberal amendment policy of Rule 15(a)" to swallow the
"philosophy favoring finality of judgments" whole. Nat'l Petrochem., 930 F.2d at
245 (internal quotation marks omitted). The plaintiffs-appellants' argument that
their motion is governed solely by the legal standard applicable to Rule 15(a)(2)
motions therefore is without merit.
2. Newly Discovered Evidence
On the other side of the proverbial coin, the plaintiffs-appellants argue that
the district court erred by considering whether they had presented any newly
discovered evidence that would entitle them to relief under Rules 59(e) (which
may relate to "the availability of new evidence") and 60(b) (which may, under
60(b)(2), serve to "relieve a party . . . from a final judgment" because of "newly
discovered evidence that, with reasonable diligence, could not have been
discovered in time to move for a new trial under Rule 59(b)"). The newly
discovered evidence standard, they say, is incorrect not only because it is
irrelevant in light of their view that only Rule 15(a)(2) applies to their motion,
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which we reject for the reasons stated above, but also because it is specific to
actions in which judgment was entered following trial — not after dismissal on a
Rule 12(b)(6) motion.
We are not persuaded. We recently reiterated that "Rule 60(b) allows relief
from a judgment or order when evidence has been newly discovered or for any
other reason justifying relief from the operation of the judgment." Mirlis v. Greer,
952 F.3d 36, 50 (2d Cir. 2020) (internal quotation marks and citations omitted).
Newly discovered evidence must be of "facts that existed at the time of trial or
other dispositive proceeding." Id. (emphasis added) (quoting United States v. Int'l
Bhd. of Teamsters, 247 F.3d 370, 392 (2d Cir. 2001)). A motion to dismiss is one
such dispositive proceeding. The newly discovered evidence provisions of Rules
59(e) and 60(b) thus apply to the plaintiffs-appellants' post-judgment motion for
leave to amend because it was made following grant of a motion to dismiss
which, like a trial, is a "dispositive proceeding." The plaintiffs-appellants'
challenge to the legal standard applied by the district court thus fails.
II. Application
To repeat, we "review the district court's denial of a post-judgment motion
for leave to replead for abuse of discretion." Williams, 659 F.3d at 212.
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1. Newly Discovered Evidence
The district court denied the plaintiffs-appellants' motion principally
because it concluded that they failed to proffer any newly discovered evidence
that would entitle them to relief under Rules 59(e) or 60(b). The court held also
that even if the purported newly discovered evidence was indeed new, the result
would be the same because amendment would be futile.
To prevail on a motion for relief from a judgment on the grounds of newly
discovered evidence, a party must establish that:
(1) the newly discovered evidence was of facts that
existed at the time of trial or other dispositive
proceeding, (2) the movant must have been justifiably
ignorant of them despite due diligence, (3) the evidence
must be admissible and of such importance that it
probably would have changed the outcome, and (4) the
evidence must not be merely cumulative or impeaching.
United States v. Int'l Bhd. of Teamsters, 247 F.3d 370, 392 (2d Cir. 2001). The
district court here concluded that — but for a single allegation — the
plaintiffs failed to establish the second prong of this test. And, with
respect to "the single new fact identified by Plaintiffs," they failed to
establish the third prong of the test because the fact "[did] not move the
needle in favor of reopening the Court's prior decision." Opinion and
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Order dated Nov. 20, 2018, SPA at 139.
The plaintiffs-appellants do not challenge these conclusions on appeal. 3 To
the extent that the plaintiffs-appellants address them, they contend that they
received the new evidence in "drips [sic]-and-drabs over an extended period and
without any organization," and that they "needed time to understand and
assimilate the information received." Appellants' Br. at 35. They further contend
that the district court's "charge of 'strategic reticence' was overly rigid and
unfair." Id. These contentions do not amount to an argument that the "new"
evidence satisfied the standard for relief pursuant to Rules 59(e) or 60(b). And
we see no abuse of discretion here.
2. Manifest Injustice or Other Grounds Justifying Relief
Finally, in the plaintiffs-appellants' reply brief, they ask this court to
"vacate the judgment and grant leave to file the PTAC to correct a clear error of
law or prevent manifest injustice." Appellants' Reply Br. at 2 (internal quotation
marks omitted). They suggest also that we vacate the judgment under the
catchall provision of Rule 60(b)(6) that encompasses any "reason that justifies
3 Indeed, in the plaintiffs-appellants' reply brief, they assert that they "never argued
that the additional allegations constituted 'newly discovered evidence' that would
justify post-judgment relief." Appellants' Reply Br. at 2.
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relief," and argue that "[t]his approach" would "comport[] with this Court's
'strong preference for resolving disputes on the merits.'" Appellants' Reply Br. at
3 (quoting Williams, 659 F.3d at 212-213).
Assuming arguendo that they have not waived or forfeited the argument,
the plaintiffs-appellants are not entitled to relief on these grounds. First, the
plaintiffs-appellants fail to identify any "extraordinary circumstances" that would
"justify[] relief" under Rule 60(b)(6). Nemaizer, 793 F.2d at 63. Second, unlike in
Foman, Williams, and SAIC, the plaintiffs-appellants here were afforded and
availed themselves of three opportunities — beyond the original complaint — to
state a claim. The district court's denial of the post-judgment motion accordingly
rests on no clear error of law. Nor did it cause any injustice, manifest or
otherwise; four bites at the apple is more than enough.
It seems to us to be self-evident that a plaintiff afforded attempt after
attempt — and consequently, additional time to investigate — might one day
succeed in stating a claim. But the federal rules and policies behind them do not
permit such limitless possibility. Rules 59(e) and 60(b) serve this purpose. So too
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does Rule 15(a)(2). Rule 15 is liberal, yes, but it is also temperate. 4 And Rule 15's
temperate spirit does not necessarily dissolve as soon as judgment is entered. Cf.
Williams, 659 F.3d at 214.
Thus, we conclude that the plaintiffs-appellants are not entitled to relief
from the judgment and a fourth opportunity to state a claim.
***
It is well settled that we "may affirm on any basis for which there is
sufficient support in the record[.]" Lotes Co., Ltd. v. Hon Hai Precision Indus. Co.,
753 F.3d 395, 413 (2d Cir. 2014) (internal quotation marks and citation omitted).
Because we conclude that the district court applied the correct legal standard to
the plaintiffs-appellants' post-judgment motion by considering whether the
plaintiffs were entitled to relief under Rules 59(e) or 60(b), and committed no
abuse of discretion in denying the motion on the grounds that the plaintiffs had
failed to identify an adequate basis for relief pursuant to those rules, we do not
reach the district court's alternative holding that amendment would be futile or
4 Under Rule 15(a)(2), leave to amend should be freely given unless there is "any
apparent or declared reason—such as undue delay, bad faith or dilatory motive on the part
of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue
prejudice to the opposing party by virtue of allowance of the amendment, futility of
amendment, etc." Foman, 371 U.S. at 182 (emphasis added).
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the plaintiffs-appellants' challenge to it. Cf. Janese v. Fay, 692 F.3d 221, 229 (2d
Cir. 2012) (concluding that the district court "properly denied the motion to
amend following its denial of the motion for [relief from the judgment]").
CONCLUSION
We have considered the plaintiffs-appellants' remaining arguments on
appeal and conclude that they are without merit. We therefore AFFIRM the
judgment of the district court.
37