Opinion
CIV. NO. S-09-580 FCD/JFM.
November 17, 2009
MEMORANDUM AND ORDER
This matter is before the court on plaintiff Franklin Fueling Systems, Inc.'s ("plaintiff") motion to sever defendant Veeder-Root Company's ("defendant") counterclaim, or alternatively, to order separate trials. Defendant opposes the motion, arguing it should be denied in its entirety, or alternatively, the court should defer ruling on the propriety of separate trials. For the reasons set forth below, plaintiff's motion to sever defendant's counterclaim is DENIED, and the court DEFERS ruling on plaintiff's alternative request for separate trials. Plaintiff may renew that motion, following the close of discovery, at a time closer to trial.
Because the court finds that oral argument will not be of material assistance, the court orders this matter submitted on the briefs. E.D. Cal. L.R. 78-230(h).
BACKGROUND
Plaintiff and defendant both market Phase II Enhanced Vapor Recovery ("EVR") products in California, which are designed to capture gasoline vapor released during vehicle refueling. (Am. Compl., filed May 26, 2009, ¶ 2.) There are several different types of Phase II EVR products, including the EVR System (which is comprised of the nozzle, dispenser and related components) and the in-station diagnostic system, or ISD System (which monitors the performance of the EVR System and triggers warnings and alarms if it fails to perform as required). (Id. at ¶ 3.)
Plaintiff manufactures an EVR System called the Healy System and an ISD System called the INCON ISD. (Id. at ¶ s 4, 8.) Defendant markets a competing EVR System and ISD System (the "Veeder-Root ISD System"). (Id. at ¶ 9.)
In the latter half of 2008, gas station owners began to report a number of alarms being triggered when the Veeder-Root ISD System was used with the Healy System, including many false alarms. (Id. at ¶ 25.) The California Air Resources Board ("ARB") began investigating the alarms. (Id.) Starting on or about February 12, 2009, plaintiff alleges defendant began circulating marketing materials that contained a number of false statements about the Healy System, including that ARB had found a 22% failure rate for the Healy System in its investigation of the alarms, and that one in four Healy Systems would need to be replaced to maintain "site performance." (Id. at ¶ s 27-28.) After defendant continued to make these representations to distributors and other potential customers of plaintiff, plaintiff alleges it was forced to file the instant suit on March 2, 2009. Plaintiff thereafter filed an amended complaint on May 26, 2009, alleging claims for false and misleading advertising in violation of the federal Lanham Act and state law claims for trade libel, false advertising, unfair competition and intentional interference with prospective economic advantage.
On August 25, 2009, defendant filed an answer and counterclaim to plaintiff's first amended complaint (Docket #35). By its counterclaim, defendant alleges claims for intentional and negligent misrepresentation against plaintiff based on the following facts:
One of the key components of the Healy System is the nozzle. California service station owners began experiencing problems with the Healy System in late 2006. However, defendant alleges that rather than accept responsibility for the flaws in its product, plaintiff's " modus operandi has been to blame others, namely defendant, which manufactures a competing ISD system." (Counterclaim at ¶ 2.) More specifically, defendant alleges that during the Summer of 2007, California service station owners and operators using the Healy System and Veeder-Root ISD System started experiencing numerous ISD system warnings and alarms. Defendant claims plaintiff later admitted the problem was attributable to an undisclosed component change in the Healy 900 Series EVR Nozzle. But, for several months, plaintiff "embarked on a deliberate campaign to conceal this fact from its customers, [defendant], and the [ARB], charged with regulating EVR products." (Id. at ¶ 3.) Defendant alleges that in reliance on plaintiff's false representations that there had been no changes to the Healy System (including the nozzles), the ARB and defendant conducted an extensive investigation into other potential causes for the ISD system warning and alarm problem. Defendant contends that it was only after plaintiff was caught trying to manipulate results of an ARB test that plaintiff finally admitted that it had known all along about the material change to the Healy System nozzles. (Id. at ¶ 4.) The ARB, defendant alleges, later confirmed that the component change to the nozzles was the root cause of the alarm problem, and ultimately, it decertified all Healy 900 Series EVR Nozzles manufactured or rebuilt in 2007. As a result, plaintiff was forced to recall its product in February 2008. (Id. at ¶ 5.) The ARB later issued a Notice of Violation to plaintiff for its failure to obtain approval from the agency before making the component change. (Id. at ¶ 6.)
However, by that point, defendant alleges it already expended significant funds and personnel time investigating alternative causes for the ISD system warnings and alarms, and that it was further damaged in the marketplace by plaintiff's repeated denials and efforts to blame the ISD system warnings and alarms on the Veeder-Root ISD System. By blaming defendant's system, plaintiff "encouraged customers to drop the Veeder-Root ISD [S]ystem in favor of [plaintiff's] [INCON] ISD." (Id. at ¶ 7.)
Defendant asserts that while these actions by plaintiff occurred in the marketplace in 2007, they are part of a broader pattern of deceptive behavior by plaintiff that continues to date. (Id. at ¶ 8.) For example, defendant alleges plaintiff has told customers in response to the occurrence of false alarms occurring in 2008, that the Veeder-Root ISD System has a higher propensity to trigger alarms than the INCON ISD. Defendant claims that plaintiff continues to misrepresent the facts, alleging on information and belief, that plaintiff "has made unauthorized changes to the [INCON] ISD system software" in order to "mask the defects in the Healy System that are recognized by the Veeder-Root ISD System." (Id. at ¶ 9.)
STANDARD
1. Severance of Claims
Permissive joinder of claims is the rule, not the exception, in federal court. Federal Rule of Civil Procedure 18(a) encourages a party to bring "as many claims as it has against an opposing party" in a single action. Under Rule 20(a), parties may join to an existing action any claim arising from "the same transaction, occurrence, or series of transactions or occurrences" that involve "common" questions of law or fact. "The purpose of [Rule 20(a)] is to address the `broadest possible scope of action consistent with fairness to the parties; joinder of claims, parties and remedies is strongly encouraged." Allen v. Woodford, Nos. 05-1104, 05-1282, 2006 WL 3825008, *15 (E.D. Cal. Dec. 26, 2006). Permissive joinder advances the Rules' goals of efficiency and fairness by discouraging "piecemeal litigation and inconsistent results." Gaston v. Gottesman, No. 06-7840, 2007 WL 1114014, *3 (N.D. Cal. Apr. 13, 2007); Schwarzer, et al., Federal Civil Procedure Before Trial, California and 9th Cir. Ed., at § 7:138 ("Rutter Guide") (noting that "[t]he requirements governing permissive joinder are construed liberally in order to promote trial convenience and to expedite final determination of disputes"). Accordingly, while Rule 21 permits this court to sever claims, courts generally disfavor such motions, placing a high burden on the moving party to show significant prejudice absent severance of the claim, and that the issues to be severed are truly distinct and separable.See League to Save Lake Tahoe v. Tahoe Reg'l Planning Agency, 558 F.2d 914, 917 (9th Cir. 1977); Equal Rights Ctr. v. Equity Residential, 483 F. Supp. 2d 482, 289 (D. Md. 2007).
All further references to a "Rule" are to the Federal Rules of Civil Procedure.
2. Separate Trials of Claims
Rule 42(b) governs orders directing separate trials of claims. The Rule provides in pertinent part: "For convenience, to avoid prejudice, or to expedite and economize, the court may order a separate trial of one or more separate issues, claims, crossclaims, counterclaims, or third-party claims." Fed.R.Civ.P. 42(b). Thus, the Ninth Circuit has recognized that severance for purposes of trial is proper to further the convenience of the parties, to avoid prejudice or to simplify issues for the jury and reduce the danger of unnecessary jury confusion, when the issues are clearly separable. Hirst v. Gertzen, 676 F.2d 1252, 1261 (9th Cir. 1982).
ANALYSIS
1. Severance of ClaimsAs reflected above, the claims stated in plaintiff's amended complaint and defendant's counterclaim involve the same products (the Healy System, INCON ISD and Veeder-Root ISD System), the same market (the California vapor recovery market), the same problem (unexplained ISD alarms), as well as the same key players. The events at issue in the two complaints also occurred close in time. Indeed, it is defendant's theory, both in defense of plaintiff's complaint and in its affirmative action, that plaintiff's conduct in 2007 and 2008 is part of the same occurrence giving rise to the parties' dispute in 2009; namely, plaintiff's alleged "sustained two-year campaign to shift blame for all ISD-related alarms in California away from itself and onto to others, [specifically] [defendant]." (Opp'n, filed Oct. 30, 2009, at 5:6-7.)
Rule 20(a) does not require identity of facts. Instead, claims should be joined in one action where they are part of the same " series of transactions or occurrences." Fed.R.Civ.P. 20(a). The Rules require that all claims arising from "logically related events" be decided in a single action. Wright, et al., Federal Practice and Procedure, § 1653 at 409 (3d Ed. 2001); Coughlin v. Rodgers, 130 F.3d 1348, 1350 (9th Cir. 1997) (holding that the same transaction requirement "refers to similarity in the factual background of a claim"). These requirements are flexbile concepts and are to be read as broadly as possible whenever doing so is likely to promote judicial economy. Wright, et al., Federal Practice and Procedure, § 1653 at 415 (3d Ed. 2001). Given the similarity in circumstances in this case, there is, at the very least, a "logical relationship" between the ISD alarm problems that California service station owners experienced in 2007 and 2008. As such, the court finds that the claims are properly joined in this one proceeding. Rutter Guide at 7-D at § 7:141 (noting that the requirement that the right to relief arise from the "same transaction, occurrence or series of transactions or occurrences" is satisfied if there is a "logical relationship between the claims joined").
Plaintiff's reliance on CVI/Beta Ventures, Inc. v. Custom Optical Frames, Inc., 896 F. Supp. 505 (D. Md. 1995) and Tab Express Int'l, Inc. v. Aviation Simulation Technology, Inc., 215 F.R.D. 621 (D. Kan. 2003) is unavailing. Not only are these decisions not binding on this court, they are factually distinguishable and thus do not support severing the counterclaim in this case. In CVI/Beta, the counterclaim at issue involved a different product (eyeglass temples as opposed to eyeglass frames at issue in the complaint) and different parties (the counterclaim was brought against only one of the plaintiffs). InTab Express, primarily driving the court's decision to sever the counterclaim was its finding that the counterclaim was not properly venued in the same court as the complaint.
Moreover, severance of the claims would create inefficiencies. Both claims involve nearly identical questions relating to the design and performance of the Healy System and Veeder-Root ISD System and how the two products interact with each other. There is also some overlap in the legal issues, given the two products were governed by the same ARB regulations throughout 2007 and 2008. As a result, defendant states that it anticipates that many of the same witnesses will be relevant to both claims. While plaintiff disputes this assertion, considering the factual and legal overlap in the two claims, defendant's expectation is reasonable.
Finally, plaintiff fails to identify any prejudice it will suffer pre-trial by litigating the two claims in one proceeding. At most, plaintiff raises the possibility of prejudice at trial due to jury confusion and/or the admission of what plaintiff contends would be improper character evidence against it. However, such possible prejudice at trial does not justify severing the counterclaim for pre-trial purposes.
Contrary to plaintiff's argument, plaintiff's actions in 2007 are not wholly irrelevant to its claims against defendant arising in 2008 and 2009. Defendant emphasizes that plaintiff's reputation in the marketplace before the events at issue in the amended complaint are important to defendant's defenses to plaintiff's claims. For example, to rebut plaintiff's claim that defendant's marketing practices were the proximate cause of any loss of sales plaintiff suffered, defendant indicates it will attempt to show that customers' decisions were influenced by other factors, including plaintiff's alleged, preexisting reputation for being a dishonest supplier with an unreliable product. Plaintiff has specifically put its reputation at issue in this case, asserting that due to defendant's actions it has lost customer goodwill. Defendant expects to try to counter that allegation with evidence that plaintiff's loss of goodwill has been caused by plaintiff's own bad acts, including its 2007 conduct regarding the Healy System nozzle, the alleged coverup of the problem, the recall and the ARB Notice of Violation. Thus, even putting aside defendant's counterclaim, plaintiff's alleged actions in 2007, relating to the Healy System nozzle, are relevant to the action as defendant expects to defend plaintiff's claims in part based on this alleged conduct. At a minimum, these facts demonstrate why joinder of plaintiff's and defendant's claims is appropriate, at least for pre-trial purposes.
The court's discussion of the "relevance" of certain possible evidence is for the purposes of this motion only. Whether any such evidence is ultimately discoverable or admissible for purposes of trial is not at issue on this motion. Instead, the court discusses relevance here only in the context of ascertaining whether there is a "logical relationship" between the claims to support joinder.
2. Separate Trials of Claims
While plaintiff asserts that it would be unfairly prejudiced at trial if defendant's counterclaim is adjudicated in the same proceeding as its complaint, until discovery in this matter is complete, the court lacks an adequate record to determine whether separate trials are warranted. Indeed, to date, no discovery has taken place between the parties. Thus, the court has no basis to assess the veracity of plaintiff's claims about the purported unrelatedness of its conduct in 2007 and 2008, what prejudice, if any, plaintiff stands to suffer if the claims are tried in one proceeding, whether there is any risk of jury confusion or whether defendant will be prejudiced by having to try its counterclaim separately. See Allen, 2006 WL 3825008, *17 (denying pre-discovery motion to sever and noting that "[i]t is too early in the litigation to determine whether and to what extent the evidence will prejudice the Defendants"). Accordingly, the court will defer ruling on plaintiff's request for separate trials. Plaintiff may renew its motion, following the close of discovery, but prior to the dispositive motion cut-off.
CONCLUSION
For the foregoing reasons, the court DENIES plaintiff's motion to sever defendant's counterclaim from this action. The court DEFERS ruling on plaintiff's alternative request to order separate trials of its complaint and the counterclaim; plaintiff may renew that motion, following the close of discovery, at a time closer to trial.IT IS SO ORDERED.