Summary
holding that plaintiff exhibited diligence by moving to amend less than two months after deposition disclosed new information
Summary of this case from Martell Strategic Funding LLC v. Am. Hosp. Acad.Opinion
03 Civ. 943 (LAK) (GWG).
June 17, 2004
OPINION AND ORDER
Defendant Loctite Corporation ("Loctite") has moved for leave to amend its answer to assert two new counterclaims, for misappropriation of trade secrets and for tortious interference with contractual relations. Plaintiff Permatex, Inc. ("Permatex") opposes both amendments. For the reasons stated below, Loctite's motion is granted.
I. GOVERNING LAW
Under Fed.R.Civ.P. 13(f), "[w]hen 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." This rule must be "read . . . together with Rule 15(a) . . ., which provides that leave to amend a pleading 'shall be freely given when justice so requires.'" Gillette Co. v. Philips Oral Healthcare, Inc., 2001 WL 1442637, at *14 (S.D.N.Y. Nov. 15, 2001) (quoting Fed.R.Civ.P. 15(a)); accord Bergquist v. Aetna U.S. Healthcare, 289 F. Supp.2d 400, 415 (S.D.N.Y. 2003). The logic behind Rule 15(a)'s liberal standard is that "pleadings are to serve the limited role of providing the opposing party with notice of the claim or defense to be litigated, and 'mere technicalities' should not prevent cases from being decided on the merits." Monahan v. N.Y.C. Dep't of Corr., 214 F.3d 275, 283 (2d Cir.) (citations omitted), cert. denied, 531 U.S. 1035 (2000). Indeed, "it is rare that such leave should be denied." Ricciuti v. N.Y.C. Transit Auth., 941 F.2d 119, 123 (2d Cir. 1991) (citation omitted). Nonetheless, "'[u]ndue 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 . . . [or] futility of amendment' will serve to prevent an amendment prior to trial." Dougherty v. Town of N. Hempstead Bd. of Zoning Appeals, 282 F.3d 83, 87 (2d Cir. 2002) (quoting Foman v. Davis, 371 U.S. 178, 182 (1962)). Where, as here, an amendment to add a counterclaim is at issue, a court should also consider "whether the counterclaim is compulsory."Gucci Am., Inc. v. Exclusive Imps. Int'l, 2001 WL 21253, at *6 (S.D.N.Y. Jan. 9, 2001); accord Gabourel v. Bouchard Transp. Co., 901 F. Supp. 142, 144 (S.D.N.Y. 1995).
II. DISCUSSION
A. Permatex's Undue Delay and Prejudice Arguments
Permatex first argues that leave should be denied because of Loctite's undue delay in bringing this motion and the resulting prejudice. See Plaintiff's Memorandum of Law in Opposition to Defendant's Motion for Leave to Amend Its Counterclaim, filed May 24, 2004 (Docket #47) ("Pl. Mem."), at 3-6. Loctite responds that its motion was timely filed because it learned of the factual bases underlying its proposed counterclaims only on March 2, 2004 — during the deposition of Hans Haas, the current Vice President of Technology for Permatex and former manager of product development for Loctite — and shortly thereafter filed its motion for leave to amend. See Loctite Corporation's Memorandum in Support of Its Motion for Leave to Amend Its Answer to Assert Additional Counterclaims, dated April 29, 2004 ("Def. Mem.") (reproduced in Notice of Motion for Leave to Amend Its Answer to Assert Additional Counterclaims, filed April 29, 2004 (Docket #45)), at 3-5; see also Declaration of Hans Haas, filed May 24, 2004 (Docket #46) ("Haas Decl."), ¶¶ 1, 5.
Permatex's argument is threefold. First, it asserts that Loctite knew or should have known in 1999 of the alleged misappropriation because Loctite neither removed the alleged trade-secret documents from Haas's files before his move to Permatex nor objected when the movers packed his files and shipped them to Permatex. See Pl. Mem. at 4. See generally Berman v. Parco, 986 F. Supp. 195, 217 (S.D.N.Y. 1997) ("[T]he Court may deny a motion to amend when the movant knew or should have known of the facts upon which the amendment is based when the original pleading was filed, particularly when the movant offers no excuse for the delay." (internal quotation marks and citation omitted)). Thus, according to Permatex, "Loctite should be charged with knowing for more than three years before filing this motion that Hass [sic] had [the alleged trade-secret documents] and shipped them to Permatex." Pl. Mem. at 4.
Permatex, however, has offered no evidence that Loctite actually knew or should have known that these documents were in Haas's files and were being shipped to Permatex. Instead, Permatex offers only that Loctite provided the trade-secret documents to Haas, that Haas placed these documents in his files, that Loctite removed certain other documents from his files, and that Haas therefore believed that Loctite had "no objection" to his taking of the remaining items in his files, including the trade-secret documents. See Haas Decl. ¶¶ 6, 8-10, 15. But merely because Loctite may have originally provided the trade-secret documents to Haas does not mean that Loctite should have known that he was taking them when he left its employment. Nor does it show that Loctite should have known that the documents were being shared with Permatex. Indeed, although Loctite removed certain other documents from Haas's files, Haas admits that he "do[es] not know how extensively [Loctite] searched my files" before leaving. Id. ¶ 11. Without any showing of Loctite's knowledge that the trade-secret documents were being taken by Haas or of some fault on Loctite's part in searching Haas's files, it cannot be said that Loctite knew or should have known of the factual bases underlying the proposed counterclaims prior to its taking of Haas's deposition in March 2004.
Second, Permatex contends that Loctite's delay of 58 days after Haas's deposition to serve its motion "is undue delay in light of the fact that the discovery period" closed on May 31, 2004. Pl. Mem. at 4. Before filing its motion, however, Loctite was required to conduct an investigation into the alleged misappropriation, to determine whether counterclaims were warranted, and to draft the motion papers and an amended answer with the new counterclaims. While the Court believes that 58 days was longer than absolutely necessary to accomplish these tasks, it cannot say that the delay was so unreasonable that this factor should count against Loctite.
Permatex goes on to argue that because the discovery cut-off has passed, it will be prejudiced unless the period is extended.See id. at 5. However, Loctite has indicated that any additional discovery will be "minimal" in light of the fact that the two Permatex employees discussed in the proposed counterclaims have already been deposed and that Loctite has already served a request for documents which "cover[s] the issues relevant to the amended counterclaims." Loctite Corporation's Reply Memorandum in Further Support of Its Motion for Leave to Amend Its Answer to Assert Additional Counterclaims, filed June 3, 2004 (Docket #49) ("Def. Reply Mem."), at 4; accord Def. Mem. at 4-5. Moreover, Permatex's blanket contention that "discovery would require an entire new round of document requests, document production, and depositions," Pl. Mem. at 5, is unsupported by any statement of what specific discovery Permatex would need and is belied by its response to an earlier document request in this case, which was served on Permatex shortly after Haas's deposition. See Plaintiff's Responses and Objections to Defendant's Third Request for Production of Documents, dated May 28, 2004 (reproduced as Ex. 2 to Def. Reply Mem.), at Response No. 1 (stating that Permatex has already produced all documents responsive to Loctite's request for documents regarding product control notices taken by Haas or any other Permatex employee). In any event, there will be no demonstrable prejudice to Permatex resulting from the amendments inasmuch as it will be allotted an appropriate opportunity to take discovery with respect to these new counterclaims.
Third, Permatex argues that this motion is barred by the court's Rule 16 scheduling Order, which prohibits any amendments to the pleadings after July 31, 2003. Pl. Mem. at 4; see Consent Scheduling Order, filed May 13, 2003 (Docket #10). Permatex argues that, although the Court subsequently extended the discovery cut-off from this scheduling Order, the Court did not also extend the cut-off for amendments to the pleadings.See Pl. Mem. at 4. Fed.R.Civ.P. 16(b), however, explicitly permits an enlargement of a deadline contained in a scheduling order under a "good cause" standard. While this standard may not be as liberal as that provided in Fed.R.Civ.P. 15(a), see, e.g., Parker v. Columbia Pictures Indus., 204 F.3d 326, 340 (2d Cir. 2000); Topps Co. v. Cadbury Stani SAIC, 2002 WL 31014833, at *1 (S.D.N.Y. Sept. 10, 2002), it is appropriate to grant an enlargement of a deadline where the moving party has shown "diligence," Parker, 204 F.3d at 340. Because, as indicated above, Loctite did not learn of the alleged misappropriation until the deposition of Haas in March 2004 and brought this motion less than two months later, Loctite has provided the necessary "good cause" and "diligence" for excusing its failure to move for leave to amend by the July 31, 2003 cut-off.
B. Permatex's Futility Arguments
Permatex also argues that the proposed counterclaims lack merit and thus that any amendment would be futile. See Pl. Mem. at 6-9. However, this argument is itself meritless as the allegations of the proposed counterclaims are sufficient under Fed.R.Civ.P. 8, which requires only that a party be given fair notice of a claim. See, e.g., Swierkiewicz v. Sorema N.A., 534 U.S. 506, 512 (2002).
Concerning Loctite's proposed counterclaim for tortious interference with contractual relations, Permatex's only arguments are that Loctite "cannot plead or prove" that Permatex's conduct was improper or that Permatex had an unlawful motive. Pl. Mem. at 6-7 (citing Fred Siegel Co. v. Arter Hadden, 707 N.E.2d 853, 858 (Ohio 1999), for the proposition that only improper interference with a contract is actionable, and Matusoff v. Kuhlman, 2000 WL 192449, at *8 (Ohio Ct.App. Sept. 28, 1999), for the proposition that a claim of tortious interference with contractual relations requires an unlawful motive). However, at this stage Loctite is not required to "prove" anything but rather only set forth "a short and plain statement of the claim showing that [it] is entitled to relief." Fed.R.Civ.P. 8(a)(2). Loctite has met this requirement through its allegations that Permatex knew that Loctite's employment contracts with its former employees prohibited employees from disclosing trade secrets to third parties, that Permatex induced a breach of these contracts "[d]espite this knowledge . . . in order for Permatex to obtain the benefits and exploit the knowledge of such information," and that there was "no justification for Permatex procuring the breach of any contract between Loctite and its former employees." First Amended Answer and Counterclaim to First Amended Complaint, undated ("Proposed Answer") (reproduced as Ex. A to Def. Mem.), ¶¶ 122-24. Permatex's assertion that Haas — and not Permatex — "provided the impetus for his use" of the trade secrets, Pl. Mem. at 7, relies on materials outside of the pleadings and thus cannot be considered on a motion for leave to amend. See, e.g., Nettis v. Levitt, 241 F.3d 186, 194 n. 4 (2d Cir. 2001) (per curiam) ("Determinations of futility [of amendment] are made under the same standards that govern Rule 12(b)(6) motions to dismiss."); see also Cosmas v. Hassett, 886 F.2d 8, 13 (2d Cir. 1989) ("On a motion to dismiss, the district court must limit itself to a consideration of the facts alleged on the face of the complaint and to any documents attached as exhibits or incorporated by reference." (citations omitted)).
As reflected in an earlier Report and Recommendation issued in this case, the parties have agreed that Ohio law applies to their claims and counterclaims. See Permatex, Inc. v. Loctite Corp., 2003 WL 22683341, at *4-*5 (S.D.N.Y. Nov. 14, 2003) (Report and Recommendation adopted by 2004 WL 1277972 (S.D.N.Y. June 10, 2004)). It would appear that the same conclusion applies to Loctite's proposed counterclaims, as Permatex's brief and Loctite's reply brief assume that Ohio law applies, see Pl. Mem. at 6-8; Def. Reply Mem. at 5, 7, and this "'implied consent . . . is sufficient to establish choice of law,'" Krumme v. WestPoint Stevens Inc., 238 F.3d 133, 138 (2d Cir. 2000) (quoting Tehran-Berkeley Civil Envtl. Eng'rs v. Tippetts-Abbett-McCarthy-Stratton, 888 F.2d 239, 242 (2d Cir. 1989)). Loctite does cite some Connecticut case law in its original brief on this motion. See Def. Mem. at 3 n. 3, 4 n. 4. However, Loctite acknowledges that the laws of Connecticut and Ohio are "substantively the same" or "identical" for purposes of establishing a cause of action for misappropriation or tortious interference with contractual relations. Id. Thus, the Court need not answer the question of whether Connecticut law or Ohio law applies to the proposed counterclaims.
As for Loctite's proposed counterclaim for misappropriation, Permatex's only argument is that "neither Permatex nor Haas obtained the [trade secrets] by improper means." Pl. Mem. at 8 (citing Ohio Rev. Code Ann. § 1333.61 for the proposition that no claim of misappropriation may lie unless the alleged trade secrets were appropriated improperly). Again, however, Permatex's argument relies on information outside of the pleadings and therefore may not be considered by this Court in the context of the current motion. Because the proposed answer alleges that Permatex used improper means in appropriating the alleged trade secrets, see, e.g., Proposed Answer ¶¶ 113, 115-16, the requirements of Fed.R.Civ.P. 8(a)(2) have been met.
C. Permatex's Rule 13(a) Argument
Finally, Permatex argues that Loctite has conceded that "the proposed counterclaims are not compulsory within the meaning of Fed.R.Civ.P. 13(a)." Pl. Mem. at 3. This alleged concession was Loctite's statement in its memorandum of law that "the alternative to allowing leave to amend would be a grossly inefficient separate lawsuit by Loctite." Def. Mem. at 5. Permatex thus argues that leave should be denied because "a compulsory counterclaim cannot by definition be brought separately" and "[t]hus, this factor weighs in favor of denying Loctite's motion." Pl. Mem. at 3.
Whether a counterclaim is compulsory, however, is merely one factor for a court to consider in deciding a motion for leave to amend. See, e.g., Gucci Am., 2001 WL 21253, at *6; Gabourel, 901 F. Supp. at 144. Even assuming arguendo that the counterclaims are not compulsory, this factor would not alter the Court's conclusion that leave to amend should be granted based on the lack of undue delay, prejudice, or futility. Moreover, if Permatex is correct that the counterclaims are not compulsory, denying leave to amend and thereby requiring Loctite to file a separate lawsuit — one that would allege only misappropriation and tortious interference — would merely cause a pointless duplication of Court and party resources. Conclusion
Loctite's motion for leave to amend (Docket #45) is granted. Exhibit A thereto is deemed filed as an amended pleading. Permatex shall respond to the amended answer and counterclaims on or before July 13, 2004.
SO ORDERED.