Biz Court puts hard limit on pleading amendments

A provision in the North Carolina Rules of Civil Procedure that allows litigants to amend a pleading “once as a matter of course” means only once in the whole life of the litigation, not once after each new response by the opposing party, a state Business Court judge has ruled.

Judge Louis Bledsoe’s ruling is the latest turn in contentious litigation between a Mebane-based mattress manufacturer and the company’s former CEO. Kingsdown Inc. is suing Eric Hinshaw and his wife, alleging that Hinshaw abused his position as CEO to line his own pockets, including sticking the company with the costs for a “luxurious” home for him on Ocean Isle Beach.

The company is also suing another former employee, Anne Ray, claiming that Ray and Hinshaw authorized non-business expenses for each other and that Hinshaw rewarded Ray with an exorbitant pay package. Ray, in turn, filed a bevy of counterclaims against Kingsdown.

Last March, Bledsoe dismissed those counterclaims. Some were dismissed with prejudice, while others were filed without prejudice to give Ray an opportunity to restate her “voluminous” claims in a manner consistent with the state’s Rules of Civil Procedure.

Ray took the opportunity to file an amended complaint, and later Kingsdown filed an amendment to its complaint. A few months later, Ray sought to amend her counterclaims yet again, but Kingsdown moved to strike these later amendments, arguing that because she had already amended her claims once, she needed—but had not obtained—the court’s permission to amend them again.

Ray contended that Rule 15, the rule at issue, permits litigants to amend complaints “once as a matter of course” (that is, without needing special permission) in response to each new pleading from the other side, rather than once in the lifetime of the litigation.

North Carolina state courts had never considered the question before, but Bledsoe cited a federal court decision out of California interpreting the basically identical federal version of Rule 15. Bledsoe agreed with the federal court’s reason that “once” means once for the whole litigation, and “the filing of an amended complaint did not ‘restart the clock.’”

Although Rule 15 empowers judges to “freely” grant permission to file extra amendments, Bledsoe declined to accept Ray’s amendments, finding that Ray had repeatedly failed to cure the defects in her counterclaims and that granting her leave to file further amendments would be futile.

“The Court is satisfied that Ms. Ray has been given the full benefit of the ‘second chance’ the Court sought to afford her to re-plead the claims the Court dismissed without prejudice,” Bledsoe wrote.

Bledsoe then granted most of Kingsdown’s motions to dismiss Ray’s counterclaims, while allowing a few of the claims to move forward. In doing so, Bledsoe resolved a second question that presented an issue of first impression for the state’s courts.

One of Ray’s counterclaims against Kingsdown alleged wrongful termination, and in North Carolina, an employee may not be terminated for engaging in a legally protected activity. Ray claimed that she was terminated in part because she was “friends” with Hinshaw. Although there was no North Carolina case addressing the issue, Bledsoe noted that federal courts have routinely concluded that work friendships do not constitute a constitutionally protected association or legally protected activity.

“The Court finds these federal cases persuasive and rejects Plaintiff’s contention that her friendship with Mr. Hinshaw constitutes legally protected activity for purposes of her wrongful discharge claim,” Bledsoe wrote.

William Ray of Whitsett represented Anne Ray. The only number provided for Ray on the North Carolina State Bar’s website registered as disconnected.

Allison Mullins, Alan W. Duncan and Leslie Cooper Harrell of Mullins Duncan Harrell & Russell in Greensboro represented Kingsdown. Mullins declined to comment on the decision, citing the ongoing nature of the litigation.

The 47-page decision is Kingsdown, Inc. v. Hinshaw (Lawyers Weekly No. 020-017-16). The full text of the opinion is available online at nclawyersweekly.com.

Follow David Donovan on Twitter @NCLWDonovan