CTC Global Corporation v. Jason Huang et al

MEMORANDUM in Opposition to NOTICE OF MOTION AND MOTION for Leave to file Amended Complaint 161

C.D. Cal.March 18, 2019

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DEFENDANTS’ OPPOSITION TO CTC’S MOTION FOR LEAVE TO AMEND THE COMPLAINT Active\90870113.v1-3/18/19 JOHN J. SHAEFFER (SBN 138331) JShaeffer@FoxRothschild.com Jeff Grant (SBN 218974) JGrant@FoxRothschild.com CHARLIE NELSON KEEVER (SBN 322664) CNelsonKeever@FoxRothschild.com FOX ROTHSCHILD LLP Constellation Place 10250 Constellation Blvd, Suite 900 Los Angeles, CA 90067 Telephone: (310) 598-4150 Facsimile: (310) 556-9828 Attorneys for Defendants JASON HUANG, an individual; RULONG CHEN, an individual; JIANPING HUANG a/k/a JAMES HUANG, an individual UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA CTC GLOBAL CORPORATION, a Delaware corporation, Plaintiff, v. JASON HUANG, an individual; RULONG CHEN, an individual; JIANPING HUANG a/k/a JAMES HUANG, an individual; and DOES 1-15, inclusive, Defendant. Case No. 8:17-CV-02202-AG (KESx) Judge Andrew J. Guilford OPPOSITION TO CTC’S MOTION FOR LEAVE TO AMEND THE COMPLAINT JASON HUANG, an individual, Counterclaimant, v. CTC GLOBAL CORPORATION, a Delaware Corporation, Counterdefendant. Complaint Filed: December 18, 2017 Date: April 15, 2019 Time: 10:00 a.m. Place: Courtroom 10-D Case 8:17-cv-02202-AG-KES Document 177 Filed 03/18/19 Page 1 of 20 Page ID #:12554 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 i DEFENDANTS’ OPPOSITION TO CTC’S MOTION FOR LEAVE TO AMEND Active\90870113.v1-3/18/19 TABLE OF CONTENTS Page I. INTRODUCTION ........................................................................................... 1 II. BACKGROUND ............................................................................................. 2 A. FACTUAL BACKGROUND ............................................................... 2 B. PROCEDURAL BACKGROUND ....................................................... 2 1. CTC’s Complaint ........................................................................ 2 2. CTC Realizes It Failed to Assert a Breach of Contract Claim Against Defendant Chen ............................................................. 3 3. CTC Realizes It Failed to Assert a Breach of Contract Claim Against Defendant Huang Under the Operative Contract .......... 4 4. The Parties File Motions for Summary Judgment and CTC Files Its Motion For Leave to Amend ........................................ 4 C. Discovery In This Case Is Complete .................................................... 5 III. ARGUMENT .................................................................................................. 5 D. Legal Standard Regarding Leave to Amend ......................................... 5 E. The Court Should Not Grant CTC Leave to Amend To Add CTC’s Claim Against Defendant Chen ............................................................ 6 1. Rule 16(b) – Good Cause ........................................................... 6 i. Carelessness Is Not a Substitute For Diligence ............... 6 ii. CTC Failed to Explain Why It Waited Almost Two Months to File Leave to Amend ....................................... 8 2. Rule 15 – Undue Delay and Gross Prejudice ............................. 8 i. CTC’s Motion For Leave to Amend On This Issue Is the Product of Undue Delay ............................................. 9 Case 8:17-cv-02202-AG-KES Document 177 Filed 03/18/19 Page 2 of 20 Page ID #:12555 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ii Active\90870113.v1-3/18/19 ii. Defendants Will Be Grossly Prejudiced If CTC Is Allowed to Amend Its Complaint .................................. 10 F. The Court Should Not Grant CTC Leave to Amend To “Clarify” Its Claim Against Defendant Huang ................................................... 12 1. Rule 16(b) – Good Cause and Diligence .................................. 12 2. Rule 15 – Undue Delay and Gross Prejudice ........................... 13 i. CTC’s Motion For Leave to Amend On This Issue Is the Product of Undue Delay ........................................... 13 3. Defendants Will Be Prejudiced If CTC’s Proposed Amendments Are Granted ........................................................ 14 IV. CONCLUSION ............................................................................................. 15 Case 8:17-cv-02202-AG-KES Document 177 Filed 03/18/19 Page 3 of 20 Page ID #:12556 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 iii DEFENDANTS’ OPPOSITION TO CTC’S MOTION FOR LEAVE TO AMEND Active\90870113.v1-3/18/19 TABLE OF AUTHORITIES Page(s) Federal Cases Acri v. International Ass’n of Machinists, 781 F.2d 1393 (9th Cir. 1986) ....................................................................... 11, 14 Anderson v. City and County of San Francisco, 169 F.Supp.3d 995 (N.D.Cal. 2016) ........................................................ 10, 11, 14 Ascon Props., Inc. v. Mobil Oil Co., 866 F.2d 1149 (9th Cir. 1989) ............................................................................... 6 Chodos v. West Publishing Co., 292 F.3d 992 (9th Cir. 2002) ........................................................................... 9, 13 Contact Lumber Co. v. P.T. Moges Shipping Co., 918 F.2d 1446 (9th Cir. 1990) ............................................................................... 9 Cook v. U.S. Capital Ins. Co. 1994 WL 327039 (N.D.Cal. June 29, 1994) ....................................................... 11 Experexchange, Inc. v. Doculex, Inc., 2009 WL 3837275 (N.D. Cal. Nov 16, 2009) ....................................................... 8 Flowrider Surf, Ltd. v. Pacific Surf Designs, Inc., 2016 WL 65655888 (S.D.Cal., Nov. 4, 2016) .................................................. 7, 8 Fossen v. Blue Cross and Blue Shield of Montana, Inc., 660 F.3d 1102 (9th Cir. 2011) ............................................................................... 9 Johnson v. Mammoth Recreations, Inc., 975 F.2d 604 (9th Cir. 1992) ................................................................. 5, 7, 12, 13 M/V American Queen v. San Diego Marine Construction Corp., 708 F.2d 1483 (9th Cir. 1983) ............................................................... 6, 9, 11, 14 Maldonado v. City of Oakland, 2002 WL 826801 (N.D.Cal. 2002) ...................................................... 9, 10, 11, 14 Martell v. Marine Cooks & Stewards Union¸ 448 F.2d 729 (9th Cir. 1971) ................................................................................. 7 Case 8:17-cv-02202-AG-KES Document 177 Filed 03/18/19 Page 4 of 20 Page ID #:12557 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 iv Active\90870113.v1-3/18/19 Optivus Technology, Inc. v. Ion Beam Applications S.A., 469 F.3d 978 (Fed. Cir. 2006) ............................................................................... 7 Precor Inc. v. Fitness Quest, Inc., 2007 WL 136749 (W.D. Wash. 2007) .................................................................. 7 Sako v. Wells Fargo Bank, N.A., 2015 WL 5022326 (S.D. Cal. Aug. 24, 2015)....................................................... 8 Slip Track Systems, Inc. v. Metal-Lite, Inc., 304 F.3d 1256 (Fed. Cir. 2002) ....................................................................... 5, 12 Smith v. Stone, 308 F.2d 15 (9th Cir. 1962) ................................................................................... 7 Texaco, Inc. v. Ponsoldt, 939 F.2d 794 (9th Cir. 1991) ................................................................... 11, 12, 14 Vollrath Co. v. Sammi Corp., 9 F.3d 1455,1464 (9th Cir. 1993) .......................................................................... 9 Regulations Scheduling Order, Dkt. No. 39, ¶3 ............................................................................. 5 Other Authorities Fed. Rule Civ. Proc. 16(b) ................................................................................ 5, 6, 12 Rule 15 .............................................................................................................. 6, 8, 13 Rule 16 .......................................................................................................... 5, 6, 8, 13 Schwarzer, Tashima & Wagstaffe, Federal Civil Procedure Before Trial, section 8:420.1 (2002 ed.) ......................................................................... 10 U.S. Patent No. 9,633,766 .......................................................................................... 2 Case 8:17-cv-02202-AG-KES Document 177 Filed 03/18/19 Page 5 of 20 Page ID #:12558 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1 DEFENDANTS’ OPPOSITION TO CTC’S MOTION FOR LEAVE TO AMEND Active\90870113.v1-3/18/19 MEMORANDUM OF POINTS AND AUTHORITIES I. INTRODUCTION Plaintiff and Counterdefendant CTC Global Corporation cannot satisfy either of the element necessary for it to obtain leave to amend its complaint at this late date – it was not diligent and there can be no question that Defendants Jason Huang, Rulong Chen and James Huang (collectively “Defendants”) would be prejudiced. CTC’s motion should be denied. First, contrary to CTC’s contention, all facts indicate that CTC believed it had sued Rulong Chen for breach of contract when it filed its original complaint. CTC attached her consulting agreement to its complaint. Second, even if the Court accepted CTC’s rendition of the facts, which it need not, CTC has no explanation why it waited almost two months following Rulong Chen’s deposition to seek leave to amend, long after the discovery cutoff and on the last day motions could be filed. Third, even if CTC had been diligent with respect to Chen, which it was not, there can be no question that Defendants would be prejudiced. Defendants, who are all individuals, have all but exhausted their resources defending CTC’s still- unsubstantiated allegations of misappropriation of trade secrets and breach of fiduciary duty, along with the breach of contract claim CTC now seeks to amend. Defendants simply cannot afford to litigate this matter any longer than absolutely necessary. They have already paid for and filed their motion to summarily dispose all of CTC’s claims after a hard-fought discovery period, and CTC has already made known its intention to reopen discovery if it were to be granted any leave to pursue its amended claims. Fourth, there is no dispute that CTC sued Jason Huang on a contract to which it is not a party. It attached the contract to its complaint. CTC does not even offer a diligence defense for its failure to recognize that it lacked standing to sue Jason Huang on the contract it plead. Attorney error is not a substitute for diligence. Case 8:17-cv-02202-AG-KES Document 177 Filed 03/18/19 Page 6 of 20 Page ID #:12559 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2 Active\90870113.v1-3/18/19 Fifth, ignoring its lack of diligence with respect to Jason Huang, which this Court should not, CTC does not simply seek to substite one contract for another. Jason Huang never signed a contract with CTC, let alone a separate confidentiality agreement. Discovery would need to be reopened and that would prejudice Defendants. Accordingly, Defendants request that this Court deny CTC’s motion for leave to amend. II. BACKGROUND A. FACTUAL BACKGROUND Plaintiff CTC manufactures carbon fiber cores that, when stranded with aluminum, form conductors that are used to transmit and distribute electricity around the world. Defendant and Counterclaimant Jason Huang was the Chief Technology Officer for CTC and its predecessor from 2010 until December 2016. Defendant Rulong Chen, his wife, was a contractor for CTC. Defendant Jianping Huang, aka James Huang, is the sole named inventor on U.S. Patent No. 9,633,766, which claims a conductor core design that can be used with composite core of the type sold by CTC as well as any other competitive conductor core. After learning of James Huang’s patent application and following a disagreement between Jason Huang and CTC’s CEO about the veracity of certain conductor performance representation made by CTC, CTC terminated Jason Huang and Chen. B. PROCEDURAL BACKGROUND 1. CTC’s Complaint On December 18, 2017, CTC filed its Complaint against Defendants Jason Huang, Rulong Chen, and James Huang. Dkt. No. 1 (the “Complaint”). The Complaint asserted six claims for relief, of which the following are pertinent to the motion (Dkt. No. 161-1 or “Motion”) and proposed amendments at issue: (1) trade Case 8:17-cv-02202-AG-KES Document 177 Filed 03/18/19 Page 7 of 20 Page ID #:12560 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 3 Active\90870113.v1-3/18/19 secret theft against all Defendants; (2) trade secret misappropriation against all Defendants; and (3) a breach of contract claim against Defendant Huang only. Id. The complaint attached as exhibits both Jason Huang’s contract with a predecessor of CTC, as well as Rulong Chen’s consulting agreement with CTC. Dkt. No. 1-1. Jason Huang counterclaimed against CTC for wrongful termination contending that he was terminated because he challenged CTC’s fraudulent representation that its product could perform in a manner CTC had not evidenced it could, which put the public at risk. 2. CTC Realizes It Failed to Assert a Breach of Contract Claim Against Defendant Chen After over a year of voluminous, protracted discovery, Defendants requested that the parties meet and confer to discuss their respective summary judgment motions. Declaration of Charlie Nelson Keever (“Nelson Keever Decl.”) at ¶2. On February 6, 2019, the day after discovery closed, Tamany Vinson Bentz (counsel for CTC) emailed Defense counsel informing them of CTC’s intention to move for summary judgment on “CTC’s breach of contract claim against Rulong Chen based upon her failure to return confidential information to CTC and her dissemination of CCP to individuals at the JV.” Nelson Keever Decl. at ¶2, Ex 1. The next day, Ms. Vinson Bentz met and conferred in person with John Shaeffer and Charlie Nelson Keever (counsel for Defendants). Ms. Vinson Bentz reiterated CTC’s intention to move for summary judgment on its breach of contract claim against Defendant Chen. Nelson Keever Decl. at ¶3. Defense counsel then informed Ms. Vinson Bentz that CTC had no breach of contract claim against Defendant Chen. Ms. Vinson Bentz was nonplussed. She then told Defense counsel that if, in fact, CTC had failed to file a breach of contract claim against Defendant Chen, it intended to file a Motion for Leave to Amend to add one. Id. Case 8:17-cv-02202-AG-KES Document 177 Filed 03/18/19 Page 8 of 20 Page ID #:12561 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4 Active\90870113.v1-3/18/19 3. CTC Realizes It Failed to Assert a Breach of Contract Claim Against Defendant Huang Under the Operative Contract At the same meet and confer on February 7, 2019, Defense counsel set forth its various grounds for summary judgment. With respect to CTC’s breach of contract, Defense counsel told CTC’s Counsel that since CTC was not a party to the contract asserted in its complaint, CTC did not have standing to bring the claim. Again, CTC’s counsel seemed surprised and indicated that she would need to check if that was the case. Nelson Keever Decl. at ¶4. A week later, on February 14, CTC requested a meet and confer on its motion to amend the Court’s scheduling order to allow it to amend its complaint to assert a breach of contract claim against Chen and to amend its breach of contract claim against Jason Huang. Nelson Keever Decl. at ¶5. With this letter, CTC produced, for the first time, an email indicating that Jason Huang had received a proposed contract from CTC that attached a confidentiality agreement. Nelson Keever Decl. at ¶6, Ex. 2. All evidence previously produced did not indicate that Jason Huang was ever provided a confidentiality agreement with his draft contract. Id. at ¶¶6-7. Surprisingly, CTC again waited several weeks before filing its motion. 4. The Parties File Motions for Summary Judgment and CTC Files Its Motion For Leave to Amend On March 4, 2019, the last day to file motions, the parties filed their respective motions for summary judgment. Since CTC had not filed its motion to amend this Court’s scheduling order, Defendants moved for summary judgment on the breach of contract as originally plead by CTC. CTC filed the instant motion with its motion for summary adjudication along with two other motions. While it is typical for parties to file their motions for summary judgment on the motion cut-off date, CTC has no justification for delaying the filing of its other motions, including the instant motion, other than a lack of diligence and to put an undue burden on Defendants – forcing them to respond to Case 8:17-cv-02202-AG-KES Document 177 Filed 03/18/19 Page 9 of 20 Page ID #:12562 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5 Active\90870113.v1-3/18/19 four motions in one week. C. Discovery In This Case is Complete The discovery fact cut-off for this case was December 5, 2018. Defendants have no desire to reopen discovery or delay trial. However, CTC has made clear that, if its motion for leave to amend is granted, it intends to reopen discovery. Dkt. No. 161-1 at 14:12-13; Nelson Keever Decl. Ex. 3 at 414:5-7. Additionally, CTC argues that its proposed amendments concern a different set of operative facts from the alleged misappropriation (and are therefore not preempted by those claims). Dkt. No. 161-1 at 15:6-10. In that case, additional discovery is not only warranted, but necessary for Defendants to respond to these claims. III. ARGUMENT A. Legal Standard Regarding Leave to Amend Plaintiff’s motion for leave to amend is subject to the “good cause” standard of Rule 16. Fed. Rule Civ. Proc. 16(b). The Court’s Scheduling Order states that, “[a]bsent good cause, any motion to join another party or to amend a pleading shall be filed and served within 60 days after the date of this Order and noticed for a hearing occurring within 90 days after the date of this Order.” Scheduling Order, Dkt. No. 39, ¶3 (emphasis added). The Scheduling Order was dated March 12, 2018, and the deadline for amending the pleadings was, therefore, May 11, 2018. The Scheduling Order mirrors the “good cause” requirement set forth under Rule 16(b), which requires a showing of good cause for the amendment of a Rule 16 scheduling order. The focus of the “good cause” analysis is whether the moving party was diligent. Johnson v. Mammoth Recreations, Inc., 975 F.2d 604, 609 (9th Cir. 1992) (“Johnson”) (“[T]he focus of the [Rule 16(b)] inquiry is upon the moving party’s reason for seeking modification ... [i]f that party was not diligent, the inquiry should end.”); Slip Track Systems, Inc. v. Metal-Lite, Inc., 304 F.3d 1256, 1270 (Fed. Cir. 2002) (“Slip Track Systems, Inc.”). If a moving party can establish that “good cause” supports an amendment in Case 8:17-cv-02202-AG-KES Document 177 Filed 03/18/19 Page 10 of 20 Page ID #:12563 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 6 Active\90870113.v1-3/18/19 spite of the deadline set forth in a scheduling order, the court must assess whether the amendment satisfies the Rule 15 standard for amending pleadings. Under Rule 15, “the liberality in granting leave to amend is subject to several limitations. Leave need not be granted where the amendment of the complaint would cause the opposing party undue prejudice, is sought in bad faith, constitutes an exercise in futility, or creates undue delay.” Ascon Props., Inc. v. Mobil Oil Co., 866 F.2d 1149, 1160 (9th Cir. 1989) (“Ascon”). As set forth below, CTC has failed to establish an entitlement to relief under either Rule 16 or Rule 15. B. The Court Should Not Grant CTC Leave to Amend To Add CTC’s Claim Against Defendant Chen 1. Rule 16(b) – Good Cause i. Carelessness Is Not a Substitute For Diligence CTC failed to include a breach of contract claim against Defendant Chen when both the facts and the theory were known to it since the inception of the cause of action. M/V American Queen v. San Diego Marine Construction Corp., 708 F.2d 1483, 1492 (9th Cir. 1983) (“M/V American Queen”) (holding late amendments to assert new theories are not viewed favorably when the facts and the theory have been known to the party seeking amendment since the inception of the cause of action). As evidenced by Ms. Vinson Bentz’s email of February 6, 2019, CTC not only knew the factual basis for its proposed breach of contract claim against Defendant Chen, but in fact believed it had already filed such a claim against her. Nelson Keever Decl. at ¶3, Ex. 1. Accordingly, CTC knew the facts that form the basis of its proposed breach of contract claim against Ms. Chen at the time of filing the complaint (or would have learned them soon thereafter). In the first place, Ms. Chen’s signed confidentiality agreement with CTC was attached to the complaint. Second, Defendants have produced thousands of documents in this case – a substantial portion of which clearly Case 8:17-cv-02202-AG-KES Document 177 Filed 03/18/19 Page 11 of 20 Page ID #:12564 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 7 Active\90870113.v1-3/18/19 issue from Defendants’ time at CTC. These documents were produced by Defendants Chen and Huang, which CTC knew (or must have known). In fact, because CTC confiscated Mr. Huang’s computer containing the bulk of his remaining CTC materials, they clearly knew (or must have suspected) that the materials produced by Defendants must have been coming from another source: Defendant Chen. Thus, CTC’s newly fashioned allegation that it never suspected that Defendant Chen had retained CTC’s confidential information until her January 11 deposition strains credibility. Courts routinely reject amendments in these circumstances. For example, in Johnson v. Mammoth Recreations, Inc., supra, 975 F.2d 604, the plaintiff in a personal injury action against defendant ski resort’s holding company moved to amend the complaint to add the ski resort as a defendant after the joinder cut-off date had passed, even though the holding company’s interrogatory responses several months earlier clearly indicated that it was not the proper defendant. Id. at 606-607. The plaintiff claimed he only became aware of this oversight when defendant’s counsel informed him of defendant’s intention to move for summary judgment. Id. at 607. The court denied the motion, holding that plaintiff failed to establish “good cause,” finding that “carelessness is not compatible with a finding of diligence and offers no reason for a grant of relief.” Id. at 609 (emphasis added); see also, Martell v. Marine Cooks & Stewards Union¸ 448 F.2d 729, 730 (9th Cir. 1971); Smith v. Stone, 308 F.2d 15, 18 (9th Cir. 1962). Other courts are in accord. See, e.g., Precor Inc. v. Fitness Quest, Inc., 2007 WL 136749 (W.D. Wash. 2007) (“If [the moving party] had investigated their claims in a timely fashion they would have been able to amend” their pleading prior to the deadline for seeking leave to amend set forth in the court’s scheduling order); Flowrider Surf, Ltd. v. Pacific Surf Designs, Inc., 2016 WL 65655888 (S.D. Cal., Nov. 4, 2016) (“Flowrider Surf”) (rejecting leave to amend where information that gave rise to the proposed amendments was publically available); Optivus Technology, Inc. v. Ion Beam Applications S.A., 469 F.3d 978 Case 8:17-cv-02202-AG-KES Document 177 Filed 03/18/19 Page 12 of 20 Page ID #:12565 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8 Active\90870113.v1-3/18/19 (Fed. Cir. 2006) (applying Ninth Circuit law and holding that the district court properly refused leave to amend after the deadline set forth in the scheduling order had passed). ii. CTC Failed to Explain Why It Waited Almost Two Months to File Leave to Amend Even assuming that CTC’s allegations that it only recently learned of the defects in its complaint were true, CTC’s motion should be denied because it waited nearly two months to bring its motion after supposedly learning of the “new” facts. CTC alleges that it learned of the facts underlying its proposed breach of contract claim against Defendant Chen in her January 11, 2019 deposition. CTC then waited until March 4, 2019 – nearly two months later – to file this motion. This delay, in and of itself, establishes that CTC was not diligent in seeking an amendment. Courts hold that a two-month delay in seeking an amendment after learning of new facts establishes that the movant was not diligent and that, therefore, leave to amend is not warranted. Flowrider Surf, 2016 WL 65655888, *2 (leave to amend denied where movant waited two months to file motion after learning of new facts); Sako v. Wells Fargo Bank, N.A., 2015 WL 5022326, at *2 (S.D. Cal. Aug. 24, 2015) (“Courts have held that waiting two months after discovery of new facts to bring a motion to amend does not constitute diligence under Rule 16.”); Experexchange, Inc. v. Doculex, Inc., 2009 WL 3837275, at *29 (N.D. Cal. Nov 16, 2009) (leave to amend denied where movant waited two months after discovering new facts). Accordingly, CTC has failed to establish that it acted diligently with respect to its proposed breach of contract claim against Defendant Chen. 2. Rule 15 – Undue Delay and Gross Prejudice Even if CTC established good cause under Rule 16 (it did not), CTC’s request fails under Rule 15. CTC’s untimely motion to amend its claim against Defendant Chen constitutes undue delay, and (if granted) would grossly prejudice Defendants. Case 8:17-cv-02202-AG-KES Document 177 Filed 03/18/19 Page 13 of 20 Page ID #:12566 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 9 Active\90870113.v1-3/18/19 i. CTC’s Motion For Leave to Amend On This Issue Is the Product of Undue Delay “Undue delay is a valid reason for denying leave to amend.” Contact Lumber Co. v. P.T. Moges Shipping Co., 918 F.2d 1446, 1454 (9th Cir. 1990); Fossen v. Blue Cross and Blue Shield of Montana, Inc., 660 F.3d 1102, 1115 (9th Cir. 2011) (denying plaintiff’s motion to amend to add breach of contract claim where plaintiff first asserted the theory in opposition to summary judgment and eight months after obtaining the relevant facts). Courts particularly disfavor motions requesting leave to amend filed after the discovery cutoff date has passed. See, e.g. Vollrath Co. v. Sammi Corp., 9 F.3d 1455,1464 (9th Cir. 1993) (affirming district court’s decision to reject plaintiff’s motion for leave to amend as untimely because the discovery cutoff date had already passed). Further, delay is particularly inexcusable where the facts that form the bases for the proposed amendment were known to the moving party long before they filed their proposed amendment. M/V American Queen, 708 F.2d at 1492 (holding late amendments to assert new theories are not reviewed favorably when the facts and the theory have been known to the party seeking amendment since the inception of the cause of action); Chodos v. West Publishing Co., 292 F.3d 992, 1003 (9th Cir. 2002) (“Chodos”) (affirming district court’s denial of plaintiff’s motion for leave to amend based on newly discovered facts where “those ‘new’ facts had been available to [plaintiff]…”); Maldonado v. City of Oakland, 2002 WL 826801,*6 (N.D.Cal. 2002) (“Maldonado”) (“Plaintiff’s proposed amendment is precluded by undue delay… where the facts and the theory [were] known to [plaintiff] since the inception of the cause of action.”). Here, the facts that form the basis for CTC’s proposed amendment were known to CTC long before this Motion. CTC knew of Defendant Chen’s confidentiality agreement at the time it filed its complaint because the agreement was attached to the complaint. As explained above, CTC must have known the factual basis for its breach Case 8:17-cv-02202-AG-KES Document 177 Filed 03/18/19 Page 14 of 20 Page ID #:12567 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 10 Active\90870113.v1-3/18/19 of contract claim against Defendant Chen because CTC believed it had brought a claim for breach of contract against her until the parties met and conferred on their proposed summary judgment motions on February 7, 2019. Nelson Keever Decl. at ¶3, Ex. 1. Thus, CTC’s delay in moving for leave to amend on this claim is inexcusable. Finally, CTC’s decision to file the instant motion with three other motions is the height of gamesmanship. Along with its motion for summary adjudication, CTC filed two other motions at the same time as the instant motion. It is not a leap to suggest that CTC employed this tactic to unduly burden Defendants by requiring them to respond to four motion over the course of one week. There is simply no explanation other than gamesmanship for CTC’s decision to delay the filing of the three motions so that they could be filed with CTC’s motion for summary adjudication. ii. Defendants Will Be Grossly Prejudiced If CTC Is Allowed to Amend Its Complaint In evaluating a motion for leave to amend, “it is the consideration of prejudice to the opposing party that carries the greatest weight.” Anderson v. City and County of San Francisco, 169 F.Supp.3d 995, 1037 (N.D.Cal. 2016) (“Anderson”). Here, Defendants would be unduly prejudiced by Plaintiff’s proposed amendment at this advanced stage of litigation. Id. at 1038 (finding where trial set to commence in less than two months, and given the advanced stage of litigation, defendant would be unduly prejudiced by plaintiff’s amendment). First, the timing of CTC’s motion – the same day the parties filed dueling motions for summary judgment, and the last day to file such motions – is particularly prejudicial. “In cases in which there is a summary judgment motion pending, leave to amend may be denied unless the plaintiff can make a substantial showing to support the amendment.” Maldonado, supra, 2002 WL 826801,*4; Schwarzer, Tashima & Wagstaffe, Federal Civil Procedure Before Trial, section 8:420.1 (2002 Case 8:17-cv-02202-AG-KES Document 177 Filed 03/18/19 Page 15 of 20 Page ID #:12568 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 11 Active\90870113.v1-3/18/19 ed.) (citing Cowen v. Bank United of Texas, FSB, 70 F.3d 937, 944 (7th Cir. 1995); Parish v. Frazier, 195 F.3d 761, 764 (5th Cir. 1999)). “This higher standard prevents a party from using amendment to avoid summary judgment.” Anderson, supra, 169 F.Supp.3d at 1038; see also M/V American Queen, supra, 708 F.2d at 1492 (“[a] motion for leave to amend is not a vehicle to circumvent summary judgment.”). Here, CTC sought leave to amend on the same day that Defendants filed their motion for summary judgment, and only after Defense counsel corrected CTC’s mistaken belief that it had filed a breach of contract claim against Defendant Chen. Realizing that its carelessness would likely lead to summary judgment in Defendants’ favor on its breach of contract claim, CTC now seeks to circumvent this outcome by requesting the amendments at issue. As a result, CTC’s timing “weighs heavily against granting leave [to amend].” Maldonado, supra, 2002 WL 826801,*5; M/V American Queen, supra, 708 F.2d at 1492; see also Cook v. U.S. Capital Ins. Co. 1994 WL 327039, *9 (N.D.Cal. June 29, 1994) (“plaintiffs seek leave to amend their complaint solely as a last ditch effort to survive summary judgment”). Tellingly, CTC has failed to cite to a single instance where a court has granted leave to amend after summary judgment has already been filed. Second, CTC has made clear that, if its motion for leave to amend is granted, it intends to reopen discovery. Dkt. No. 161-1 at 14:12-13; Nelson Keever Decl., Ex. 3 at 414:5-7. Reopening discovery would constitute significant prejudice to Defendants. Acri v. International Ass’n of Machinists, 781 F.2d 1393 (9th Cir. 1986) (“Acri”) (finding amendment “would result in substantial prejudice… because it would necessitate further discovery.”). The voluminous and protracted discovery process has already placed a profound strain on Defendants’ businesses, finances, and spirits. See, e.g., Texaco, Inc. v. Ponsoldt, 939 F.2d 794, 799 (9th Cir. 1991) (“Texaco”) (“The parties have engaged in voluminous and protracted discovery…. Expense, delay, and wear and tear on individuals and companies count toward prejudice.”). Case 8:17-cv-02202-AG-KES Document 177 Filed 03/18/19 Page 16 of 20 Page ID #:12569 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 12 Active\90870113.v1-3/18/19 Finally, CTC’s suggestion that the factual basis for its proposed amendment was known to Defendants and that “Defendants’ discovery covered similar factual issues related to the contract claims” is unavailing. Texaco, supra, 939 F.2d at 799 (no amendment allowed where defendant “would have been unreasonably prejudiced by the addition of numerous claims so close to trial, regardless of [plaintiff’s] argument that they were ‘implicit’ in the previously pleaded claims.”). CTC itself claims that the operative facts underlying its breach of contract claim against Defendant Chen are not the same as those underlying its trade secret theft and misappropriation claims. Dkt. No. 161-1 at 15:6-10. In that case, additional discovery is not only warranted, but necessary for Defendants to respond to these claims. Thus, CTC’s characterization of these new claims as “straightforward” and not requiring additional discovery is unpersuasive. See Texaco, supra, 939 F.2d at 798. C. The Court Should Not Grant CTC Leave to Amend To “Clarify” Its Claim Against Defendant Huang 1. Rule 16(b) – Good Cause and Diligence The focus of the “good cause” analysis is whether the moving party was diligent. Johnson, supra, 975 F.2d at 609. “If that party was not diligent, the inquiry should end.” Id; Slip Track Systems, Inc., supra, 304 F.3d at 1270. Here, CTC failed to assert its breach of contract claim against Defendant Huang under the operative contract, and failed to amend this issue for over a year, though it could easily have discovered this defect through the exercise of even minimal diligence. CTC fails to cite to a single case that excuses this utter lack of diligence. Rather, CTC attempts to characterize its proposed amendment as the result of a “new fact” rather than the product of its careless pleading. In actuality, CTC knew (or reasonably could have discovered) the underlying facts for the basis of its proposed amendment at the time CTC filed its complaint. Case 8:17-cv-02202-AG-KES Document 177 Filed 03/18/19 Page 17 of 20 Page ID #:12570 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 13 Active\90870113.v1-3/18/19 Nothing supports, as CTC suggests, that an amendment that simply “clarifies” a cause of action, is a substitute for the diligence requirement. Moreover, CTC’s contention here is utterly false. Jason Huang never signed an employment contract with CTC. While there is email correspondence indicating Jason Huang’s willingness to sign a contract, there is a disputed factual question as to whether CTC ever presented him with its confidentiality agreement along with a draft employment contract. Thus, this amendment would necessarily require that discovery be reopened, hardly the ministerial act CTC suggests. CTC was anything but diligent here, so “the inquiry should end.” Johnson, supra, 975 F.2d at 609. As a result, CTC has failed to establish good cause for requesting leave to amend the complaint as to the breach of contract claim against Defendant Huang under Rule 16. 2. Rule 15 – Undue Delay and Gross Prejudice i. CTC’s Motion For Leave to Amend On This Issue Is the Product of Undue Delay As explained above, CTC waited over one year to amend its complaint as to the breach of contract claim against Defendant Huang, though the basis for this amendment was known (or reasonably discoverable) by CTC at the time it filed the Complaint. CTC had both Defendant Huang’s contracts with CTC and its predecessor in its possession. By applying even minimal diligence and care, CTC could have determined that it had, in fact, brought its breach of contract claim against Defendant Huang under the wrong agreement. These do not constitute “new facts,” and CTC’s carelessness does not excuse its undue delay in requesting an amendment on this issue. See, e.g., Chodos, supra, 292 F.3d at 1003 (affirming district court’s denial of plaintiff’s motion for leave to amend based on newly discovered facts where “those ‘new’ facts had been available to [plaintiff]…”). Case 8:17-cv-02202-AG-KES Document 177 Filed 03/18/19 Page 18 of 20 Page ID #:12571 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14 Active\90870113.v1-3/18/19 3. Defendants Will Be Prejudiced If CTC’s Proposed Amendments Are Granted Again, the timing of CTC’s motion is prejudicial to Defendants because it effectively allows CTC to circumvent summary judgment on this issue. Courts impose a higher standard on parties seeking leave to amend after summary judgment motions have already been filed for precisely this reason. Maldonado, supra, 2002 WL 826801,*4 (“In cases in which there is a summary judgment motion pending, leave to amend may be denied unless the plaintiff can make a substantial showing to support the amendment.”). “This higher standard prevents a party from using amendment to avoid summary judgment.” Anderson, supra, 169 F.Supp.3d at 1038; see also M/V American Queen, supra, 708 F.2d at 1492 (“[a] motion for leave to amend is not a vehicle to circumvent summary judgment.”). CTC has failed to meet this standard. Further, as explained above, if CTC’s Motion is granted, it intends to reopen discovery. Dkt. No. 161-1 at 14:12-13; Nelson Keever Decl., Ex. 3 at 414:5-7. Reopening discovery would be extremely prejudicial to Defendants. Acri, supra, 781 F.2d at 1393 (finding amendment “would result in substantial prejudice… because it would necessitate further discovery.”). The voluminous and protracted discovery process has already placed a profound strain on Defendants’ businesses, finances, and spirits. Defendants are individuals and small businesspersons, attempting to salvage their careers and livelihood, while also financing their defense in this litigation. The fees and costs associated with additional discovery efforts would be a significant burden. . See, e.g., Texaco, supra, 939 F.2d at 799 (“The parties have engaged in voluminous and protracted discovery…. Expense, delay, and wear and tear on individuals and companies count toward prejudice.”). Finally, CTC’s repeated suggestion that the factual basis for its proposed amendment as to claim against Defendant Huang was known to Defendants and that “Defendants’ discovery covered similar factual issues related to the contract claims” Case 8:17-cv-02202-AG-KES Document 177 Filed 03/18/19 Page 19 of 20 Page ID #:12572 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 15 Active\90870113.v1-3/18/19 is unavailing. Id. (denying leave to amend in spite of plaintiff’s argument that it was “merely clarifying earlier claims, and as not raising any new theories.”) (emphasis added). Thus, CTC’s characterization of these new claims as merely “clarifying” earlier claims is unpersuasive. Id. IV. CONCLUSION For the reasons state above, CTC’s Motion should be denied. Dated: March 18, 2019 FOX ROTHSCHILD LLP By:/s/ Jeff Grant John J. Shaeffer Jeff Grant Charlie Nelson Keever Attorneys for Defendants JASON HUANG, an individual; RULONG CHEN, an individual; JIANPING HUANG a/k/a JAMES HUANG, an individual Case 8:17-cv-02202-AG-KES Document 177 Filed 03/18/19 Page 20 of 20 Page ID #:12573