Opinion
Civil Action No. DKC 2002-1565
January 20, 2004
MEMORANDUM OPINION
Presently pending and ready for resolution in this franchise-related action are the following motions: (1) Plaintiff's motion for leave to file an amended complaint and (2) Defendant's motion for final judgment under Fed.R.Civ.P. 54(b). The issues have been fully briefed and no hearing is deemed necessary. See Local Rule 105.6. For the reasons that follow, both motions will be denied.
I. Background
Plaintiff Sensormatic Security Corp. (SSC) has been a franchisee of Defendant Sensormatic Electronics Corp., Inc. (SEC) since 1967 with certain rights pertaining to the sale of SEC products in the District of Columbia, Maryland and Virginia. The parties' relationship is based on the 1976 Restated Franchise Agreement, as amended by a 1984 settlement (SSC Franchise Agreement). At the time the parties entered into this agreement, SEC maintained a network of franchises to perform its local marketing and servicing across the country. Over the years, SEC's operating model has shifted away from a franchise system toward direct sales and marketing as well as sales through independent dealers and distributors. In November 2001, Tyco International Ltd. (Tyco) acquired SEC and, as a result, become SSC's franchisor under the original franchise agreement between SEC and SSC.
On April 30, 2002, SSC commenced this action with the filing of a complaint and a motion for preliminary injunction. In its complaint, SSC asserted claims against Tyco for breach of contract and tortious interference with business relations, and sought injunctive relief, as well as money damages. SSC contemporaneously moved for leave to take expedited discovery. SSC's motion for expedited discovery was granted.
On May 31, 2002, based upon its initial discovery, SSC filed an amended complaint that added SEC and ADT, another Tyco subsidiary, as defendants. The court heard oral argument on SSC's preliminary injunction motion on July 1, 2002 and, at the conclusion of the hearing, the court and counsel discussed the possible need for an additional amendment of the complaint due to information learned through discovery. Upon entry of a consent order, SSC's Second Amended Complaint was accepted for filing on August 15, 2002. Shortly thereafter, SEC asserted two counterclaims against SSC, the first of which sought a declaratory judgment that the SSC Franchise Agreement was a contract of indefinite duration and therefore terminable at will by SEC. On October 15, 2002, Defendant SEC moved for summary judgment on its declaratory judgment counterclaim. SSC filed an opposition to SEC's motion, and cross-moved for summary judgment. On March 28, 2003, this court denied SEC's motion for summary judgment, as a matter of Florida law, and granted summary judgment in SSC's favor, declaring that the Franchise Agreement is not terminable at will by Sensormatic upon giving reasonable notice.
Based on information learned through discovery, it no longer appeared that Tyco was SSC's franchisor, and SSC learned of conduct by another computer company that indicated the possible need to add another defendant. See paper 107, at 4.
Also on March 28, 2002, the court denied SSC's motion for a preliminary injunction. A scheduling order was entered on April 22, 2003, requiring that all amendments to the pleadings be made by June 6, 2003. Discovery proceeded and no motions seeking amendment of the pleadings were filed before the scheduled deadline.
On May 9, 2003, SSC allegedly learned that on or about November 30, 1978, SEC entered into an amendment of a Restated Franchise Agreement entered into between SEC and Winner Bagnara, Inc. — a former SEC franchisee in Western Pennsylvania. SSC contends that the amendment, entitled "Addendum to Restated Franchise Agreement" (Winner Addendum), falls within the scope of paragraph 21 of the SSC Franchise Agreement. Paragraph 21 requires that, if SEC enters into any contract with a similarly situated franchisee containing more favorable terms or conditions, the SSC Franchise Agreement must be amended to include the more favorable terms. SSC contends that SEC breached paragraph 21 by not informing SSC of the addendum's existence and not modifying SSC's agreement to include the terms and conditions contained in the Winner Addendum. Finally, on August 5, 2003, SSC contacted SEC regarding the Winner Addendum and demanded that SEC immediately deem the SSC Franchise Agreement amended by the Winner Addendum retroactive to November 30, 1978. SSC requested a response within 15 days, thereby giving SEC until August 20, 2003 to respond. On August 27, 2003, SEC notified SSC that it needed an additional 7 to 14 days to respond due to summer vacation schedules.
II. Motion for Leave to File Amended Complaint
On August 28, 2003, SSC filed a motion for leave to file a third amended complaint and to amend the April 23, 2003 Scheduling Order. SSC's proposed third amended complaint replaces previously dismissed Count V with an additional breach of contract claim against SEC based upon its alleged breach of paragraph 21 of the SSC Franchise Agreement. SSC asserts that it satisfies the good cause standard of Fed.R.Civ.Pro. 16(b) as well as the tests for amendments under Fed.R.Civ.Pro. 15(a).
A. Standard of Review
The Scheduling Order set June 6, 2003, as the deadline for all motions to join parties and amend pleadings. Plaintiff SSC filed the instant motion on August 29, 2003, over two months late. While a motion to amend a complaint after the deadline triggers Fed.R.Civ.P. 15(a) governing amendments to pleadings, it also triggers Fed.R.Civ.P. 16(b) governing modification to a scheduling order. The standards for satisfying the rules are at odds. See Rassoull v. Maximus, Inc., 209 F.R.D. 372, 373 (D.Md. 2002). Rule 15(a) states, in pertinent part, that "leave shall be freely given when justice so requires." According to Rule 16(b) however, "[a] schedule shall not be modified except upon a showing of good cause and by leave of the district judge. . . ."
Neither the Fourth Circuit nor the Supreme Court has dealt decisively with the interplay of these two rules when a motion to amend is made after the deadline set in the scheduling order has passed. However, one district court in the Fourth Circuit set up a "two step" analysis:
In an unpublished opinion, Lone Star Indus., Inc., 19 F.3d 1429 (4th Cir. 1994) (table), the Fourth Circuit refused to consider whether the district court was correct to link Rule 15(a) and 16(b) because it concluded that the amending party met both standards.
Once the scheduling order's deadline for amendment of the pleadings has passed, a moving party first must satisfy the good cause standard of Rule 16(b). If the moving party satisfies Rule 16(b), the movant then must pass the tests for amendment under 15(a).Marcum v. Zimmer, 163 F.R.D. 250, 254 (S.D.W.Va. 1995); see also Johnson v. Mammoth Recreations, Inc., 975 F.2d 604, 607-608 (9th Cir. 1992) (applying "two step" analysis to deny motion to amend for lack of good cause). This is the analysis that will be applied here.
B. Analysis
In the present context, the Rule 16(b) analysis is less concerned with the substance of the proposed amendment. Instead, Rule 16(b)'s "good cause" standard focuses on the timeliness of the amendment and the reasons for its tardy submission. Because a court's scheduling order "`is not a frivolous piece of paper, idly entered, which can be cavalierly disregarded by counsel without peril,'" Potomac Electric Power Co. v. Electric Motor Supply, Inc., 190 F.R.D. 372, 375-376 (D.Md. 1999) (quoting Gestetner v. Case Equipment Co., 108 F.R.D. 138, 141 (D.Me. 1985)), a movant must demonstrate that the reasons for the tardiness of his motion justify a departure from the rules set by the court in its scheduling order.
The primary consideration of the Rule 16(b) "good cause" standard is the diligence of the movant. Lack of diligence and carelessness are "hallmarks of failure to meet the good cause standard." West Virginia Housing Dev. Fund v. Ocwen Technology Xchange, Inc., 200 F.R.D. 564, 567 (S.D.W.Va. 2001). "[T]he focus of the inquiry is upon the moving party's reasons for seeking modification. If that party was not diligent, the inquiry should end." Marcum, 163 F.R.D. at 254, quoting Johnson, 975 F.2d at 609.
Here, Plaintiff argues that good cause to amend exists because the information upon which the amendment is based was discovered only recently, after having been concealed by SEC for over 24 years. Plaintiff asserts that the proposed amendment will not result in any prejudice to SEC as the amendment does not expand the issues in this case or require extensive additional discovery. While SSC has provided the court with a lengthy explanation of the diligent, and exhaustive, efforts it has put towards litigating this case as to the previously advanced claims, it has not provided the court with sufficient explanation as to why it did not diligently address the need for an amendment of the scheduling order when it first learned of the Winner Addendum, before the scheduling order deadline passed.
Regardless of why SSC had not discovered this decades-old contract until May 2003, the fact remains that SEC was aware of the contract a month prior to the scheduling order deadline for amendments of the pleadings. As SSC acknowledges, it "could have filed a motion to amend the Scheduling Order prior to June 6, 2003," but instead chose to not to, claiming it felt it best to look into the matter further and raise its concerns with SEC. Even after allowing the June 6th deadline to pass, however, SSC then waited another two months before even contacting SEC with its concerns. While pursuit of its initial claims certainly requires intense effort, that does not excuse SSC's apparent failure to diligently pursue the new claim and the need to request an extension of time. Moreover, when SSC finally contacted SEC about the Winner Addendum, knowing that its tardiness was quickly increasing, SSC refused to grant SEC additional time in which to respond to its claims. Instead, it filed this motion, over two months after the deadline for amendments had passed. Based on SSC's failure to show good cause, its motion for leave to amend will be denied.
III. Motion for Entry of Final Judgment
On August 23, 2002, SEC filed two counterclaims against SSC, the first of which is presently at issue. In its first counterclaim, SEC sought a declaratory judgment that the franchise agreement was a contract of indefinite duration, terminable at will by SEC. SEC moved for summary judgment, but, on March 28, 2003, the court denied SEC's motion and instead granted summary judgment in favor of SSC. Claiming the court's ruling to be a final judgment and there being no just reason for delay, SEC, on April 22, 2003, filed a motion for entry of final judgment pursuant to Fed.R.Civ.Pro. 54(b) on its first counterclaim against SSC.
A. Standard of Review
Federal Rule of Civil Procedure 54(b) provides, in pertinent part:
(b) Judgment Upon Multiple Claims or Involving Multiple Parties. When more than one claim for relief is presented in an action,. . . or when multiple parties are involved, the court may direct the entry of a final judgment as to one or more but fewer than all of the claims or parties only upon an express determination that there is no just reason for delay and upon an express direction for the entry of judgment.
Fed.R.Civ.P. 54(b). Because of the importance of preventing piecemeal appeals of a case, a Rule 54(b) certification should be the exception, not the rule. Braswell Shipyards, Inc. v. Beazer East, Inc., 2 F.3d 1331 (4th Cir. 1993). To make a proper Rule 54(b) certification, a district court must take two steps:
(1) determine whether the judgment is "final" . . . in the sense that it is "an ultimate disposition of an individual claim entered in the course of a multiple claims action[,]" [and] . . .
(2) determine whether there is no just reason for the delay in the entry of judgment.Id. at 1335 (citing Curtis-Wright Corp. v. General Electric Co., 446 U.S. 1, 7-8 (1980) (internal citations omitted)). The Fourth Circuit has explained that, in making this case-specific determination, the district court should consider the following factors if applicable:
(1) the relationship between the adjudicated and unadjudicated claims; (2) the possibility that the need for review might or might not be mooted by future developments in the district court; (3) the possibility that the reviewing court might be obliged to consider the same issue a second time; (4) the presence or absence of a claim or counterclaim which could result in a set-off against the judgment sought to be made final; and (5) miscellaneous factors such as delay, economic and solvency considerations, shortening the time of trial, frivolity of competing claims, expense, and the like.Braswell Shipyards, 2 F.3d at 1335-36 (citations omitted).
To qualify as a "final judgment":
It must be a judgment in the sense that it is a decision upon a cognizable claim for relief, and it must be "final" in the sense that it is "an ultimate disposition of an individual claim entered in the course of a multiple claims action."Curtiss-Wright, 466 U.S. at 7 (quoting Sears, Roebuck Co. v. Mackey, 351 U.S. 427, 436 (1956)). The parties do not dispute that the court's grant of summary judgment on SEC's first counterclaim qualifies. Thus, the remaining question is whether "there is no just reason for delay." Fed.R.Civ.P. 54(b). In making such a determination, the court "must take into account judicial administrative interests as well as the equities involved." Curtiss-Wright, 446 U.S. at 8. As the Supreme Court has cautioned, Rule 54(b) certification is not something to be granted lightly, but a "remedy [that] should be reserved for the infrequent harsh case." Id. at 5.
SEC contends that the court's holding that the franchise agreement is not terminable at will results in the "required continuation of a business relationship that has long outlived its usefulness." See paper no. 70 at, 8. It argues that, if permitted to appeal immediately the dismissed counterclaim, it will avoid additional economic harm caused by continued operation of the business relationship with SSC. SEC also argues that its counterclaim does not turn on any questions of fact and, therefore, any future factual development relating to the remaining claims will not affect the appellate court's consideration of the issues presented upon appeal. Id. at 12. According to SEC, "[r]esolution of the franchise termination issue by the court of appeals will not affect this Court's resolution of the legal or factual issues in the remaining counts." Id. at 11.
Based on a review of all facets of this case, the court finds no sufficiently important reason for granting the certification. Rather, there is sufficient reason to delay appeal until the remaining claims are fully adjudicated. As this circuit has noted, "the fact the parties on appeal remain contestants below militates against the use of Rule 54(b)." Braswell Shipyards, 2 F.3d at 1336 (citing Spiegel v. Trustees of Tufts College, 843 F.2d 38, 44 (1st Cir. 1988)). Regardless of how the appellate court may rule, SEC is party fully enmeshed in almost every aspect of this suit. Moreover, although SEC's first counterclaim may not be inextricably entwined with the remaining claims, permitting an appeal of SEC's counterclaim will in no guaranteed terms help to streamline the resolution of the remaining issues. See Fox v. Baltimore City Police Dept., 201 F.3d 526, 532 (4th Cir. 2000) (permitting appeal when it would streamline the resolution of the remaining claims). While SEC asserts that allowing termination of the agreement with SSC with likely encourage settlement, this is an unsupported contention, albeit not surprisingly advanced by a party seeking judgment in its favor. Furthermore, while the pending claims may not be dependent on the resolution of the counterclaim, they do involve other issues of the same contract. Granting certification would therefore require the appellate court to review the SSC Franchise Agreement and the parties' business relationship on two separate occasions. This is certainly not in the best interests of efficient judicial administration.
Equally unpersuasive is SEC's argument that denial of the right to appeal will result in extreme economic hardship to its business operations. Continuing business with its only remaining franchise may carry some financial consequence to SEC, but there is no evidence, nor does SEC assert, that the economic harm suffered will result in consequences of such severity as insolvency or an inability to pay damages or costs resulting from this litigation. See Curtiss-Wright, 446 U.S. at 12-13. Additionally, unlike the situation in Curtiss-Wright, upon which SEC relies heavily, the financial consequence SEC seeks to avoid is not a debt "admittedly owing and adjudged to be due." See id. at 12. Rather, any resulting financial consequence is simply a foreseeable cost of business arising from a franchise agreement that SEC freely entered and has operated under for almost thirty years. That SEC wishes to discontinue its business relations with SSC and avoid any financial costs due under the franchise agreement is insufficient to satisfy the stringent standards of a Rule 54(b) certification.
IV. Conclusion
For the foregoing reasons, the court will (1) deny Plaintiff SSC's motion for leave to amend under Fed.R.Civ.Pro. 15(a) and (2) deny Defendant SEC's motion for final judgment under Fed.R.Civ.Pro. 54(b).