Carter Bryant v. Mattel Inc

OPPOSITION OPPOSITION re: MOTION to Dismiss MGA Entertainment, Inc.'s Purported "Compulsory Counterclaims In Reply" [Public Redacted Version] 8703

C.D. Cal.September 16, 2010

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 MGA OPP. TO MOT. TO DISMISS AND CROSS-MOTION FOR LEAVE TO AMEND CV-04-9049 DOC (RNBX) ANNETTE L. HURST (State Bar No. 148738) ahurst@orrick.com WARRINGTON S. PARKER III (State Bar No. 148003) wparker@orrick.com ORRICK, HERRINGTON & SUTCLIFFE LLP The Orrick Building, 405 Howard Street San Francisco, CA 94105 Tel. (415) 773-5700/ Fax: (415) 773-5759 WILLIAM A. MOLINSKI (State Bar No. 145186) wmolinski@orrick.com ORRICK, HERRINGTON & SUTCLIFFE LLP 777 South Figueroa Street, Suite 3200 Los Angeles, CA 90017 Tel. (213) 629-2020/Fax: (213) 612-2499 THOMAS S. MCCONVILLE (State Bar No. 155905) tmcconville@orrick.com ORRICK, HERRINGTON & SUTCLIFFE LLP 4 Park Plaza, Suite 1600 Irvine, CA 92614-2258 Tel: (949) 567-6700/Fax: (949) 567-6710 Attorneys for MGA Parties UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA SOUTHERN DIVISION CARTER BRYANT, an individual Plaintiff, v. MATTEL, INC., a Delaware Corporation Defendant. AND CONSOLIDATED ACTIONS Case No. CV 04-9049 DOC (RNBx) Consolidated with: CV 04-9059, CV 05- 2727 MGA’S OPPOSITION TO MATTEL INC.’S MOTION TO STRIKE AND/OR DISMISS; ALTERNATIVE CROSS-MOTION FOR LEAVE TO AMEND COMPLAINT Date: September 27, 2010 Time: 5:00 p.m. Courtroom: Hon. David O. Carter Trial Date: January 11, 2010 Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 1 of 42 Page ID #:272181 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 TABLE OF CONTENTS Page - i - NOTICE OF ALTERNATIVE CROSS-MOTION AND ALTERNATIVE CROSS-MOTION........................................................................................... 1 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF: (1) OPPOSITION TO MOTION TO DISMISS AND/OR STRIKE, AND (2) ALTERNATIVE CROSS-MOTION FOR LEAVE TO AMEND .......................................................................................................... 1 INTRODUCTION ..................................................................................................... 1 PLEADING ALLEGATIONS .................................................................................. 3 A. Mattel Directs Its Employees To Steal Competitive Information ........ 3 B. This Theft Is Known By The Highest Executives At Mattel................ 4 C. Mattel Hides This Scheme From MGA................................................ 4 D. Mattel’s Concealment, With The Aid Of Its Counsel, Extends To Other Aspects Of This Case ............................................................ 6 E. The Result Is A Sweeping Injunction, Now Reversed, And Enormous Harm To MGA .................................................................... 7 F. MGA Diligently Sought Information Supporting Its Claims ............... 8 ARGUMENT............................................................................................................. 8 I. THE COUNTERCLAIMS-IN-REPLY MUST BE ALLOWED ................... 8 A. The Federal Rules Authorize The Filing Of A Counterclaim-in- Reply Without Prior Leave Of Court.................................................... 8 B. The Counterclaims-in-Reply Are Compulsory...................................11 C. If The Court Determines That Leave To Amend Is Required, Then MGA Hereby Requests It And It Must Be Granted ..................14 1. There Is No Undue Delay .........................................................15 2. There Is No Prejudice ...............................................................16 3. There Is No Bad Faith ..............................................................17 4. Amendment Is Not Futile .........................................................19 II. THE MOTION TO DISMISS THE WRONGFUL INJUNCTION CLAIM MUST BE DENIED........................................................................19 Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 2 of 42 Page ID #:272182 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 TABLE OF CONTENTS (continued) Page - ii - A. A Bond Is Not A Prerequisite For A Claim Of Wrongful Permanent Injunction ..........................................................................20 B. The Wrongful Injunction Claim Is Not Premature .............................22 C. MGA Is Entitled To Recover On All Applicable Theories ................23 III. THE MOTION TO DISMISS THE OTHER TWO COUNTERCLAIMS-IN-REPLY ON STATUTE OF LIMITATIONS GROUNDS IS MERITLESS ........................................................................25 A. MGA’s Trade Secret Misappropriation Claim Is Not Barred ............25 B. The RICO Claim Is Not Barred ..........................................................28 IV. THE MOTION TO STRIKE IS MERITLESS .............................................30 A. California’s Litigation Privilege Does Not Apply To Federal Claims Brought In Federal Court........................................................30 B. California’s Anti-Slapp Statute Similarly Does Not Apply To The Federal Common Law Wrongful Injunction Claim ....................30 CONCLUSION........................................................................................................31 Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 3 of 42 Page ID #:272183 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 TABLE OF AUTHORITIES Page - i - CASES Aerotech Res., Inc. v. Dodson Aviation, Inc., 2001 WL 474302 (D. Kan. Apr. 23, 2001) ....................................................10 Agostini v. Felton, 521 U.S. 203 (1997) .......................................................................................22 Aldrich v. McCulloch Properties, Inc., 627 F.2d 1036 (10th Cir. 1980)................................................................29, 30 AmerisourceBergen Corp. v. Dialysist West, Inc., 465 F.3d 946 (9th Cir. 2006)..........................................................................15 AntiCancer, Inc. v. Fujifilm Med. Sys. U.S.A., 2010 WL 318406 (S.D. Cal. Jan. 19, 2010)...................................................10 Arkadelphia Co. v. St. Louis S.W. Ry. Co., 249 U.S. 134 (1919) .....................................................................20, 21, 22, 31 Arpin v. Santa Clara Valley Transp. Agency, 261 F.3d 912 (9th Cir. 2001)..........................................................................26 Atlanta Journal and Constitution v. City of Atlanta Dep’t of Aviation, 322 F.3d 1298 (11th Cir. 2003) (en banc)................................................22, 23 Atlanta Journal and Constitution v. City of Atlanta Dep’t of Aviation, 442 F.3d 1283 (11th Cir. 2006)......................................................................21 Bankers Trust v. Rhoades, 859 F.2d 1096 (2d Cir. 1988)...................................................................29, 31 Benz v. Campania Naviera Hidalgo, S.A., 205 F.2d 944 (9th Cir. 1953)..........................................................................20 Beverly Hills Bancorp v. R.W. Hine, 752 F.2d 1334 (9th Cir. 1984)........................................................................18 Buddy Sys., Inc. v. Exer-Genie, Inc., 545 F.2d 1164 (9th Cir. 1976)..................................................................20, 23 Burlington Indus., Inc. v. Milliken & Co., 690 F.2d 380 (4th Cir. 1982)..........................................................................27 Conceptus, Inc. v. Hologic, Inc., 2010 WL 1460162 (N.D. Cal. Apr. 12, 2010) ...............................................14 Davis & Cox v. Summa Corp., 751 F.2d 1507 (9th Cir. 1985)..........................................................................9 Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 4 of 42 Page ID #:272184 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 TABLE OF AUTHORITIES (continued) Page - ii - Davis v. Foster Farms Dairy, 2007 WL 114003 (E.D. Cal. Jan. 10, 2007)...................................................10 DCD Programs Ltd. v. Leighton, 833 F.2d 183 (9th Cir. 1987)..............................................................14, 15, 16 Dornan v. Sheet Metal Works’ Int’l, 810 F. Supp. 856 (E.D. Mich. 1992) ............................................20, 21, 22, 23 Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048 (9th Cir. 2003)........................................................................16 Erickson v. Horing, 2000 WL 35500986 (D. Minn. Oct. 23, 2000)...........................................9, 10 Foman v. Davis, 371 U.S. 178 (1962) .......................................................................................16 Fort Howard Paper Co. v. Standard Havens, Inc., 901 F.2d 1373 (7th Cir. 1990)........................................................................18 Frank Briscoe Co. v. Clark County, 857 F.2d 606 (9th Cir. 1988)............................................................................9 Fujitsu Ltd. v. Nanya Technology Corp., 2007 WL 1660694 (N.D. Cal. June 6, 2007) .................................................10 Gengler v. U.S. ex rel. Dept. of Defense and Navy, 463 F. Supp. 2d 1085 (E.D. Cal. 2006)....................................................10, 11 Grimmett v. Brown, 75 F.3d 506 (9th Cir. 1996)......................................................................28, 29 Hal Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d 1542 (9th Cir. 1990)........................................................................27 Hartford v. Gibbons & Reed Co., 617 F.2d 567 (10th Cir. 1980)........................................................................27 Hilton v. Hallmark Cards, 599 F.3d 894 (9th Cir. 2010)..........................................................................30 Howey v. United States, 481 F.2d 1187 (9th Cir. 1973)........................................................................15 Huynh v. Chase Manhattan Bank, 465 F.3d 992 (9th Cir. 2006)..........................................................................25 In re Lazar, 237 F.3d 967 (9th Cir. 2001)....................................................................11, 14 Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 5 of 42 Page ID #:272185 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 TABLE OF AUTHORITIES (continued) Page - iii - In re Pegasus Gold Corp., 394 F.3d 1189 (9th Cir. 2005)........................................................................14 In re Price, 42 F.3d 1068 (7th Cir. 1994)..........................................................................11 IXYS Corp. v. Advanced Power Tech., Inc., 2004 WL 135861 (N.D. Cal. Jan. 22, 2004) ..................................................15 J & M Turner, Inc v. Applied Bolting Technology Products, Inc., 1997 WL 83766 (E.D.Pa. 1997).....................................................................31 Jablon v. Dean Witter & Co., 614 F.2d 677 (9th Cir. 1980)..........................................................................26 Kearney v. Foley & Lardner, LLP, 590 F.3d 638 (9th Cir. 2009)..........................................................................31 Kimes v. Stone, 84 F.3d 1121 (9th Cir. 1996)..........................................................................30 Klehr v. A.O. Smith Corp., 521 U.S. 179 (1997) .......................................................................................29 Lee v. City of Los Angeles, 250 F.3d 668 (9th Cir. 2001)..........................................................................27 Malley-Duff v. Crown Life Ins. Co., 792 F.2d 341 (3d Cir. 1986).....................................................................29, 31 Maryland Dept. of Human Resources v. U.S. Dep’t of Agriculture, 976 F.2d 1462 (4th Cir. 1992)..................................................................21, 23 Middlewest Motor Freight Bureau v. United States, 433 F.2d 212 (8th Cir. 1970)..........................................................................22 Miller v. Rykoff-Sexton, Inc., 845 F.2d 209 (9th Cir. 1988)..........................................................................19 Minnesota Power & Light Co. v. Hockett, 105 F. Supp. 2d 939 (S.D. Ind. 1999) ............................................................30 Mission Appliance Corp. v. Ajax Thermostatic Controls Co., 8 F.R.D. 588 (N.D. Ohio 1948)........................................................................9 Mitchell v. Riegal Textile, 259 F.2d 954 (D.C. Cir. 1954) .......................................................................23 Monolith Portland Midwest Co. v. RFC, 128 F. Supp. 824 (S.D. Cal. 1955) .................................................................23 Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 6 of 42 Page ID #:272186 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 TABLE OF AUTHORITIES (continued) Page - iv - Moore v. New York Cotton Exch., 270 U.S. 593 (1926) .......................................................................................11 Natomas Gardens Inv. Group v. Sinadinos, 2010 WL 1558961 (E.D. Cal. Apr. 19, 2010)................................................10 Nintendo of Am. Inc. v. Lewis Galoob Toys, Inc., 16 F.3d 1032 (9th Cir. 1994)...................................................................passim North County Commc’ns Corp. v. Verizon Global Networks, Inc., 685 F. Supp. 2d 1112 (S.D. Cal. 2010) ....................................................27, 28 Pardi v. Kaiser Found. Hospitals, 389 F.3d 840 (9th Cir. 2004)..........................................................................30 Pochiro v. Prudential Ins. Co. of Am., 827 F.2d 1246 (9th Cir. 1987)............................................................11, 13, 14 Pogue v. Allied Prods. Corp., 1989 WL 111854 (N.D. Ill. Sept. 20, 1989) ....................................................9 Power Tools & Supply, Inc. v. Cooper Power Tolls, Inc., 2007 WL 1218701 (E.D. Mich. 2007) .............................................................9 Probert v. The Clorox Co., 258 F.R.D. 491 (D. Utah 2009)......................................................................16 Public Serv. Comm’n of Missouri v. Brashear Freight Lines, Inc., 312 U.S. 621 (1941) .......................................................................................21 RA Med. Sys., Inc. v. Photomedex, Inc., 373 F. App’x 784 (9th Cir. 2010)...................................................................26 Raytheon Co. v. Indigo Sys. Corp., 2008 WL 3852715 (E.D. Tex. Aug. 14, 2008) ..............................................17 Rotella v. Wood, 528 U.S. 549 (2000) .......................................................................................29 Russell v. Farley, 105 U.S. 433 (1881) .......................................................................................30 Sanders v. Magill, 70 P.2d 159 (Cal. 1937) .................................................................................27 Sidney v. Superior Court, 198 Cal. App. 3d 710 (1988)..........................................................................28 Sierra Club v. Union Oil Co. of Cal., 813 F.2d 1480 (9th Cir. 1987),.................................................................16, 17 Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 7 of 42 Page ID #:272187 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 TABLE OF AUTHORITIES (continued) Page - v - Simon Property Group, L.P v. mySimon, Inc., 2003 U.S. Dist. Lexis 5438 (S.D. Ind. Mar. 26, 2003) ............................16, 17 Supermail Cargo, Inc. v. United States, 68 F.3d 1204 (9th Cir. 1995)..........................................................................25 Swanson v. U.S. Forest Service, 87 F.3d 339 (9th Cir. 1996)............................................................................10 Texaco, Inc. v. Ponsoldt, 939 F.2d 794 (9th Cir. 1991)..........................................................................15 United States ex rel. Jajdelski v. Kaplan, Inc., 2010 WL 2326069 (D. Nev. June 7, 2010) ....................................................17 UNR Indus., Inc. v. Continental Ins. Co., 623 F. Supp. 1319 (N.D. Ill. 1985) ................................................................15 W.R. Grace & Co. v. Local 759, 461 U.S. 757 (1983) .......................................................................................21 W.R. Grace & Co. v. Western U.S. Indus., Inc., 608 F.2d 1214 (9th Cir. 1979)........................................................................27 Weatherly v. Universal Music Publ’g Group, 125 Cal. App. 4th 913 (2004).........................................................................27 STATUTE 17 U.S.C. § 504.........................................................................................................25 RULES Fed. R. Civ. P. 7(a)(3).................................................................................................8 Fed. R. Civ. P. 12(b)(6) ............................................................................................24 Fed. R. Civ. P. 13(a) .............................................................................................8, 11 Fed. R. Civ. P. 13(b) ...................................................................................................8 Fed. R. Civ. P. 15(a) .................................................................................................16 Fed. R. Civ. P. 65(c) .................................................................................................20 OTHER AUTHORITY 5 WRIGHT & MILLER, FEDERAL PRACTICE AND PROCEDURE § 1188 (3d ed. 2004)....9 Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 8 of 42 Page ID #:272188 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 MGA OPP. TO MOT. TO DISMISS AND CROSS-MOTION FOR LEAVE TO AMEND CV-04-9049 DOC (RNBX) NOTICE OF ALTERNATIVE CROSS-MOTION AND ALTERNATIVE CROSS-MOTION TO ALL PARTIES AND THEIR ATTORNEYS OF RECORD: PLEASE TAKE NOTICE that on September 27, 2010, in the Courtroom of the Honorable David O. Carter, located at 411 West Fourth Street, Santa Ana, California 92701, MGA Entertainment, Inc. (“MGA”) will, and hereby conditionally does, cross-move the Court in the alternative, pursuant to Federal Rule of Civil Procedure 15(a), for an order granting MGA Entertainment, Inc. leave to amend its original Complaint in this action to include the matters alleged in its Counterclaims-in-Reply. This is a Cross-Motion to Mattel’s Motion to Dismiss the Counterclaims-in-Reply. MGA’s position, as expressed in the Opposition Memorandum below, is that Mattel’s Motion to Dismiss the Counterclaims-in-Reply on the ground that they were filed without prior leave of Court is ill-taken. MGA had a right to file the Counterclaims-in-Reply under Federal Rules of Civil Procedure 7 and 13 without prior leave of Court. This Cross-Motion to Amend is made only in the alternative if the Court nonetheless determines in connection with Mattel’s Motion to Dismiss that the Counterclaims-in-Reply may not be interposed without prior leave of Court. Mattel has failed to demonstrate undue delay and resulting prejudice, bad faith, or that the Counterclaims-in-Reply are futile. Accordingly, if necessary, leave to amend the original Complaint must be granted. This Alternative Cross-Motion for Leave to Amend is based on this Notice of Cross-Motion and Cross-Motion, MGA’s Complaint in Case No. 05-CV-2727, MGA’s Counterclaims-in-Reply, the memorandum of points and authorities that follows, the accompanying proposed order, all matters cited to herein, all other matters of which the Court may take judicial notice, and all matters which may be brought to the Court’s attention concerning these Motions prior to or at the hearing thereof. Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 9 of 42 Page ID #:272189 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 - MGA OPP. TO MOT. TO DISMISS AND CROSS-MOTION FOR LEAVE TO AMEND CV-04-9049 DOC (RNBX) Dated: September 16, 2010 Respectfully submitted, ORRICK, HERRINGTON & SUTCLIFFE LLP By: /s/_Annette L. Hurst Annette L. Hurst Attorneys for MGA Parties Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 10 of 42 Page ID #:272190 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 MGA OPP. TO MOT. TO DISMISS AND CROSS-MOTION FOR LEAVE TO AMEND CV-04-9049 DOC (RNBX) MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF: (1) OPPOSITION TO MOTION TO DISMISS AND/OR STRIKE, AND (2) ALTERNATIVE CROSS-MOTION FOR LEAVE TO AMEND INTRODUCTION For over a decade, at least, Mattel systematically stole and used the trade secrets of its competitors, including MGA. Then, when it filed suit against MGA it turned around and claimed that MGA had stolen the very same types of information and claimed they were trade secrets. When MGA sought discovery about this to defend itself, Mattel hid and concealed any information that would reveal the truth. Mattel went so far as to alter documents, pay hush money to witnesses and sanction misleading and false testimony. Mattel did not stop there. In its crusade to drive MGA out of business, Mattel decided to hide and conceal other evidence, specifically evidence relating to Bratz, so that it could pursue its claims against MGA without risk that a judge or jury would have complete evidence to consider whether Mattel’s claims were barred by the statute of limitations and laches, whether Mattel’s fraudulent concealment rebuttal to those defenses was specious in light of its spying on MGA, whether Mattel’s own claims for damages were meritorious, and whether Mattel even considered itself the owner of Bratz after it filed its lawsuit against Carter Bryant. This information and Mattel’s remarkable efforts to conceal it has now come to light, and MGA has properly alleged these facts and its resulting legal claims in its Counterclaims-in-Reply. As soon as these facts came out, Mattel began running away from prior positions taken in this case relevant to its trade secret misappropriation counterclaims, its state law tort counterclaims, and its RICO counterclaims. In order to blunt the effect of its own misconduct, Mattel has suddenly started to claim that what used to be the supposed crown jewels of confidential business information are in fact not confidential at all and probably valueless. Mattel has suddenly started to claim that litigation conduct shouldn’t Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 11 of 42 Page ID #:272191 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 - MGA OPP. TO MOT. TO DISMISS AND CROSS-MOTION FOR LEAVE TO AMEND CV-04-9049 DOC (RNBX) really be the subject of this lawsuit after all, even though attacking MGA for purported litigation misconduct in the form of RICO predicate acts has been its mantra since 2007 when its Counterclaims were first filed. Mattel’s sudden about- faces since MGA’s filing alone demonstrates the important relationship between MGA’s Counterclaims-in-Reply and Mattel’s Counterclaims. As even Mattel admits, Counterclaims-in-Reply are permitted. In fact, they must be allowed where, as here, the Counterclaims-in-Reply are compulsory. Therefore, they may be filed even absent leave to amend. See Part I(A). That they are compulsory is revealed by Mattel’s conduct since they were filed. Mattel has already begun changing numerous previously held positions on its Counterclaims as a result of these facts, defenses and claims now interposed by MGA. Indeed, Mattel has been forced to do so because each of the Counterclaims- in-Reply depend on the same transactions and occurrences alleged in Mattel’s Counterclaims. Mattel alleges that MGA stole trade secrets that Mattel, in turn, stole. Mattel’s culture of treating the trade secrets of others with impunity establishes that its own employees would not be able to discern that which is a Mattel trade secret and that which is not. Moreover, Mattel’s concealment of evidence has occurred in this litigation and therefore cannot be divorced from it. See Part I(B). Even were MGA required to seek leave to amend, which it is not, Mattel has not demonstrated for an instant that leave to amend could properly be denied. MGA has not delayed in bringing these claims - MGA brought them as soon as it had the factual basis to do so. Nor is Mattel prejudiced. Mattel has always possessed the evidence of its actions, and the only reason MGA did not is due to Mattel’s concealment of that evidence. See Part I(C). As for the claims brought, they are legally proper and cannot be dismissed or stricken on the grounds interposed by Mattel. Almost 100 years ago, the Supreme Court sanctioned a claim for wrongful injunction. Courts since then have Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 12 of 42 Page ID #:272192 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 - MGA OPP. TO MOT. TO DISMISS AND CROSS-MOTION FOR LEAVE TO AMEND CV-04-9049 DOC (RNBX) repeatedly done so as well, and such claims are routinely brought in the same action in which the injury arose. See Part II. Nor is the wrongful injunction claim the proper subject of an anti-SLAPP motion. It is a federal common law claim. California’s anti-SLAPP statute has no application. The same holds true of the RICO allegations Mattel seeks to strike, which cannot be stricken under California’s litigation privilege. California’s litigation privilege does not apply to federal claims. See Part III. Finally, MGA’s claims are not barred by the statute of limitations. For the trade secret claims, MGA has alleged fraudulent concealment. While the facts will establish fraudulent concealment, the test to be applied at this stage-on a motion to dismiss-is only whether the facts alleged establish that MGA cannot make any such showing. The facts alleged here reflect no such thing. See Part IV(A). As for the RICO claims, MGA has alleged injury within the statute of limitations and that ends the matter. Of course, MGA has also alleged fraudulent concealment which too precludes any finding on a motion to dismiss that the statute of limitation bars MGA’s claims. See Part IV(B). For these reasons and those set forth below, Mattel’s motion should be denied. PLEADING ALLEGATIONS A. Mattel Directs Its Employees To Steal Competitive Information. Beginning at least in 1992, and continuing through at least 2006, Mattel employees working in Mattel’s market intelligence department snuck into the private showrooms of MGA and other competitors. Dkt. No. 8583 (Counterclaim in Reply) ¶¶ 1, 11. They did this like real-life spies (or thieves). They used false identifications. They pretended to work for made-up companies. They took with them cameras and video recorders. Id. They did this to steal trade secret and confidential information from MGA and others. Id. They did this to gain an unlawful competitive advantage. Id. ¶¶ 1, 10. Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 13 of 42 Page ID #:272193 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 - MGA OPP. TO MOT. TO DISMISS AND CROSS-MOTION FOR LEAVE TO AMEND CV-04-9049 DOC (RNBX) The scheme was international in scope. From at least 2001 to 2006, Mattel sent its employees, armed with lies and false identification, to Toy Fairs around the world where its competitors, including MGA, showed information to actual retailers about upcoming launches and product lines. Id. ¶¶ 11-12. Over the years, and as a result of this scheme, Mattel gained access to dozens of competitors’ trade secrets and confidential information. Id. ¶ 16. And for MGA alone, Mattel gained access to trade secrets and confidential information relating to more than 50 products. Id. ¶¶ 2-3, 22. Having obtained the information, Mattel then compiled the information, which it distributed throughout Mattel. Id. ¶ 14. The information obtained was not merely circulated in written form. To ensure the widest distribution, Mattel would make live presentations to lay out the information that Mattel stole from others. Id. ¶¶ 14-15. Then, to make the stolen information readily available for future consultation and use, Mattel maintained (and maintains) the information in a library housed on the Ninth Floor at Mattel. Access was controlled, but even Mattel’s legal department used the information that Mattel stole. Id. ¶ 17. B. This Theft Is Known By The Highest Executives At Mattel. This scheme was not the result of some rogue employee on an illegal frolic. This scheme was hatched and carried out with the approval and financial support of the highest of Mattel executives. Id. ¶¶ 1, 19. Mattel executives, including Mattel’s CEO Bob Eckert, received copies of the reports and/or attended reviews of the stolen information. Id. ¶¶ 15, 20. Top executives at Mattel supervised the group, approved its expenses and affirmatively approved of the activities of the group, as reflected in performance reviews. Id. ¶ 20. C. Mattel Hides This Scheme From MGA. Of course for a scheme like this to work, Mattel had to take steps to keep MGA from discovering that its employees were sneaking into showrooms and Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 14 of 42 Page ID #:272194 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 - MGA OPP. TO MOT. TO DISMISS AND CROSS-MOTION FOR LEAVE TO AMEND CV-04-9049 DOC (RNBX) stealing information. One simple way to do this was to hire outside contractors who it believed could successfully spy on MGA without tipping MGA off. Therefore, Mattel hired Sharon Rahimi, who entered into MGA showrooms on at least two occasions under false pretenses to steal confidential information. Id. ¶ 24. Another way was to commission Bain & Company to obtain the confidential information from MGA’s business partners, who disclosed it not knowing that the research was being done for and at the behest of Mattel. Id. ¶ 25. But this was not Mattel’s only method for concealing the scheme and keeping it under wraps. When MGA sought the information in this lawsuit, Mattel “sanitized” the documents or simply did not produce the information. For example, the report done by Bain & Company was not produced by Mattel until March 26, 2010, although it had been the subject of prior document requests and court orders. Id. ¶ 27. Even then, what MGA received was not the complete report. Instead, Bain & Company, acting at the request of Mattel’s in-house lawyers, edited out portions of the report that Mattel deemed to be harmful. The lawyers then instructed Mattel employees who had received copies of the unedited version to destroy them. Id. ¶¶ 26-27. In other instances, Mattel simply refused to provide information that would have revealed this scheme despite numerous document requests and court orders. Id. ¶ 40. When not altering reports so that they could be produced without revealing the information, id. ¶ 48, Mattel simply did not produce the information at all. For example, Mattel did not produce documents that revealed the activities of its market intelligence department until July 7, 2010, despite previous requests and court orders. Id. ¶¶ 51-52. Mattel only did so when the jig was up and MGA had finally gotten to the right witnesses that Mattel believed would disclose the information in deposition. Id. ¶ 52. Still, Mattel continued (and continues) to withhold evidence. Id. The efforts of Mattel and its counsel were not limited to withholding and Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 15 of 42 Page ID #:272195 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 - MGA OPP. TO MOT. TO DISMISS AND CROSS-MOTION FOR LEAVE TO AMEND CV-04-9049 DOC (RNBX) altering documents. It extended to tampering with witnesses. When Sal Villesenor, one of the main actors in Mattel’s market intelligence department, began to complain about his improper activities and lies, Mattel’s counsel bought his silence. Mattel paid him hush money and then hid his documents from sight. Id. ¶¶ 37-39. When MGA sought to depose Mattel witnesses, they provided false or misleading testimony regarding the tactics of the market intelligence department. This included the denial by Mattel’s person most knowledgeable on the topic of Mattel’s theft of MGA confidential information, who denied that any Mattel employee had ever snuck into showrooms. Id. ¶¶ 53-54. D. Mattel’s Concealment, With The Aid Of Its Counsel, Extends To Other Aspects Of This Case. Mattel and its counsel were not just satisfied with hiding, withholding and destroying evidence that would reveal the true activities of its market intelligence department. It extended as well to ensuring that its claims in this case could not be properly or adequately defended. For example, two of the key issues in Phase 1 of the trial related to when Mattel was on notice of its claims and the amount of damages that Mattel was entitled to as a result of those claims. Id. ¶¶ 32, 57. Yet, Mattel either suppressed or destroyed evidence critical to that issue. It altered and suppressed a 2001 Toy Fair report that provided evidence that Mattel and its counsel knew about Bratz before it came on the market. Id. ¶¶ 48, 57. Mattel suppressed and destroyed documents relating to a study commissioned by Mattel’s CEO, Bob Eckert, called the “Bratz Brief.” This document was prepared to explain the history of Barbie’s economic importance and why it failed, and it attributed MGA’s success to factors other than Carter Bryant and his drawings. Id. ¶¶ 32-33. And, despite his key role in this case, despite this litigation, despite urging the filing of this litigation, Mattel’s CEO continued to destroy documents. Id. ¶ 33. Even when documents have been produced relating to Bratz, key documents Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 16 of 42 Page ID #:272196 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 - MGA OPP. TO MOT. TO DISMISS AND CROSS-MOTION FOR LEAVE TO AMEND CV-04-9049 DOC (RNBX) were withheld until after the Phase 1 trial. “What Happened to Barbie” is a memo that expresses doubt that Mattel owned Bratz. Yet it was not produced until March 8, 2010. Even then it was not found where it should have been, with Eckert. It appears to have been recovered somewhere else, because Eckert deleted this document despite knowing that this litigation was pending. Id. ¶¶ 34-35. As with the information relating to Mattel’s market intelligence department, Mattel did not stop at hiding, destroying and altering documents. Its efforts extended to intimidating former employees that were potential witnesses as well. For example, after Mattel employees left Mattel to work for MGA, Mattel sent them threatening letters warning them not to disclose even publicly available information about Mattel. See Case No. 05-CV-2727 (MGA Complaint) ¶ 75. With Pablo Vargas, a former employee of Mattel Servicios, Mattel went one step further. Pablo Vargas is alleged to have stolen Mattel trade secrets as alleged in Mattel’s counterclaims. Mattel was also pursing a criminal claim against him in Mexico. Id. ¶ 55. In order to turn Vargas, Mattel offered to settle the Mexican criminal action in exchange for his testimony. Id. ¶ 56. However, it was clear that Mattel did not want just any testimony from him; Mattel wanted testimony that supported Mattel. This was revealed when Vargas appeared for deposition. On day one, he testified in a manner that was not largely helpful to Mattel; it was for MGA. On day two, after a threat to the pardon, Vargas changed his tune. He changed answers and his testimony became more favorable to Mattel. Id. ¶ 56. E. The Result Is A Sweeping Injunction, Now Reversed, And Enormous Harm To MGA. The result of all of this hiding, destroying and altering of information can be found in the Court’s injunctions, now reversed. Neither the judge nor the jury could properly assess the statute of limitations or laches defenses. Nor did the Court have the opportunity to consider an unclean hands defense. Instead, the Court-believing that Mattel was the offended party-issued sweeping injunctions, Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 17 of 42 Page ID #:272197 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 - MGA OPP. TO MOT. TO DISMISS AND CROSS-MOTION FOR LEAVE TO AMEND CV-04-9049 DOC (RNBX) despite the jury’s clear indication that such relief was not appropriate. The injunctive relief nearly destroyed MGA and did destroy the brand equity in Bratz. Id. ¶¶ 57-60. Of course, this says nothing of the untold thousands upon thousands of dollars expended by MGA just to uncover the evidence that Mattel and its counsel were under an obligation to maintain and then disclose. F. MGA Diligently Sought Information Supporting Its Claims. If not clear from what is set forth above, MGA diligently pursued the facts that give rise to its Counterclaims-in-Reply. MGA sought documents that would reveal Mattel’s theft of trade secrets, but Mattel concealed them. Id. ¶¶ 25-27, 40, 48-52. Mattel did all that it could to make sure that witnesses would not reveal the information, including buying their silence. Id. ¶ 55. MGA questioned Mattel witnesses about the thefts alleged in the Counterclaims-in-Reply. Mattel’s witnesses gave misleading and untruthful information. Indeed, one went so far to deny that it ever happened at all. Id. ¶¶ 53-54. And when a witness tried to testify in a manner favorable to MGA, Mattel threatened the witness and coerced him into changing his testimony. Id. ¶¶ 56. As for Bratz, MGA sought information relating to Bratz. Mattel concealed that information as well. Id. ¶¶ 33-35. Indeed, more than that, Mattel destroyed relevant information knowing that the information was relevant to this lawsuit. Id. ARGUMENT I. THE COUNTERCLAIMS-IN-REPLY MUST BE ALLOWED. A. The Federal Rules Authorize The Filing Of A Counterclaim-in- Reply Without Prior Leave Of Court. Rule 7(a)(3) defines as a pleading an “answer to a counterclaim designated as a counterclaim”; Rule 13(a) requires, and Rule 13(b) permits, compulsory or permissive counterclaims in any pleading. Neither Rule requires prior permission of the Court. The plain language of these rules therefore authorized the filing of MGA’s Counterclaims-in-Reply as part of MGA’s answer to Mattel’s FAAC. See Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 18 of 42 Page ID #:272198 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 - MGA OPP. TO MOT. TO DISMISS AND CROSS-MOTION FOR LEAVE TO AMEND CV-04-9049 DOC (RNBX) Power Tools & Supply, Inc. v. Cooper Power Tolls, Inc., 2007 WL 1218701, at *2 (E.D. Mich. 2007) (“‘aside from a rogue decision or two, courts have long agreed that the federal rules provide for a counterclaim in reply’”) (quoting Pogue v. Allied Prods. Corp., 1989 WL 111854, at *4 (N.D. Ill. Sept. 20, 1989)); see Mission Appliance Corp. v. Ajax Thermostatic Controls Co., 8 F.R.D. 588 (N.D. Ohio 1948). Without textual explanation, the Ninth Circuit has limited such filings to compulsory counterclaims-in-reply (apparently creating a circuit split). Davis & Cox v. Summa Corp., 751 F.2d 1507, 1525 (9th Cir. 1985); Power Tools & Supply, Inc., 2007 WL 1218701, at *2 (noting split). But, as even Mattel concedes (Mot. at 9), there is no doubt that the Ninth Circuit permits that compulsory counterclaims- in-reply be filed without any prior leave of court. Id. at 1525 (“the weight of authority allows [a party] to file such pleadings if the counterclaims-in-reply are compulsory . . . .”); see also Frank Briscoe Co. v. Clark County, 857 F.2d 606, 610 (9th Cir. 1988) (agreeing that compulsory counterclaims-in-reply are permitted). Such claims are allowed because otherwise a party risks losing the right to bring the claims entirely. Indeed, this is the point made by the same treatise in the same section that Mattel cites in support of its argument that leave to amend is required for permissive claims. A compulsory counterclaim in reply must be allowed because were it otherwise the party asserting it “risk[s] being barred from bringing a later action on it.” 5 WRIGHT & MILLER, FEDERAL PRACTICE AND PROCEDURE § 1188 (3d ed. 2004). And, for the reasons discussed in Part B, infra, there is no doubt that these counterclaims-in-reply are compulsory. Mattel seeks to argue that a counterclaim in reply should be treated as an amendment to a complaint-the implication being that leave of court is required- but the cases cited by Mattel do not support that conclusion. Erickson v. Horing, 2000 WL 35500986 (D. Minn. Oct. 23, 2000), cited by Mattel, Mot. 9, concerned whether the plaintiff should be allowed to file an amended counterclaim in reply. Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 19 of 42 Page ID #:272199 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 - MGA OPP. TO MOT. TO DISMISS AND CROSS-MOTION FOR LEAVE TO AMEND CV-04-9049 DOC (RNBX) Plaintiffs argued that an amended counterclaim in reply should be allowed because defendant had not yet responded to their original counterclaim in reply. Id. at * 9. Based on this fact, the court noted that it would not permit the plaintiffs “to amend their counterclaim as of right” and that leave of court was required. Id. at *10. Fujitsu Ltd. v. Nanya Technology Corp., 2007 WL 1660694 (N.D. Cal. June 6, 2007), which Mattel claims establishes that compulsory counterclaims-in-reply should be treated as an amendment to the complaint, says no such thing. Mot. at 11. In response to a counterclaim by Nanya, Fujitsu alleged a counterclaim in reply, which the court found was compulsory. Nanya argued that the counterclaim in reply should be stricken because Fujitsu “could have brought, in its original complaint, the claims it now seeks to bring, but chose not to do so.” Id. at * 2. The court rejected this argument because “This . . . does not provide cause to strike Fujitsu’s counterclaims-in-reply.” Id. Moving beyond that, the court did direct Fujitsui to amend its complaint to add its counterclaims-in-reply, but it do so “[t]o simplify the pleadings.” Id. The only fault the court found was that Fujitsu’s pleading violated the Northern District of California’s local patent rules, which not even Mattel claims apply here. And even then, the court excused that oversight. Id. In other words, Mattel’s cases say nothing about what we have here: compulsory counterclaims-in-reply. They are not amendments to complaints. See Natomas Gardens Inv. Group v. Sinadinos, 2010 WL 1558961, at *3 (E.D. Cal. Apr. 19, 2010) (“it is appropriate to treat [it] as a counterclaim in reply rather than an amendment to the complaint.”). And research has uncovered no cases stating that leave to amend must be granted under these circumstances.1 1 Mattel cites five additional cases that it claims supports its argument that leave to amend must be sought before filing an amended pleading. Swanson v. U.S. Forest Serv., 87 F.3d 339 (9th Cir. 1996); Gengler v. U.S. ex rel. Dep’t of Defense and Navy, 463 F. Supp. 2d 1085 (E.D. Cal. 2006); Davis v. Foster Farms Dairy, 2007 WL 114003 (E.D. Cal. Jan. 10, 2007); AntiCancer, Inc. v. Fujifilm Med. Sys. U.S.A., 2010 WL 318406 (S.D. Cal. Jan. 19, 2010); Aerotech Res., Inc. v. Dodson Aviation, Inc., 2001 WL 474302 (D. Kan. Apr. 23, 2001). None support Mattel’s claims. Each involve amending a preexisting pleading. For example, Swanson, Davis, and AntiCancer, Inc. concern an amendment to a complaint. Gengler Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 20 of 42 Page ID #:272200 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 - MGA OPP. TO MOT. TO DISMISS AND CROSS-MOTION FOR LEAVE TO AMEND CV-04-9049 DOC (RNBX) B. The Counterclaims-in-Reply Are Compulsory. As Mattel correctly notes, whether a claim is compulsory turns on whether the claims “‘arise out of the transaction or occurrence that is the subject matter of the opposing party’s claim.’” Pochiro v. Prudential Ins. Co. of Am., 827 F.2d 1246, 1249 (9th Cir. 1987) (quoting Fed. R. Civ. P. 13(a)); see also Mot. at 10. Where the parties part company is how this test is actually applied. Whether a claim arises out of the same transaction or occurrence is not some wooden test to be applied blindly. See In re Price, 42 F.3d 1068, 1073 (7th Cir. 1994) (noting same and cited with approval in In re Lazar, 237 F.3d 967, 980 (9th Cir. 2001)). Rather, the test is to be flexibly applied with a liberal construction. Pochiro, 827 F.2d at 1249; see also id. at 1252-53 (“[W]e believe that the liberal reading of the ‘transaction or occurrence’ standing is more in keeping with the pronouncements of the Supreme Court . . . .”). Or, as stated in In re Lazar, cited by Mattel, Mot. at 10, “‘Transaction’ is a word of flexible meaning. It may comprehend a series of many occurrences depending not so much upon the immediateness of their connection as upon their logical relationship.’” 237 F.3d at 979 (quoting Moore v. New York Cotton Exch., 270 U.S. 593, 610 (1926)). Therefore, the question to be answered is whether the claims are “so logically connected that considerations of judicial economy and fairness dictate that all of the issues be resolved in one lawsuit.” Pochiro, 827 F.2d at 1249. They are. Claim 1--Trade Secret Misappropriation. Mattel has alleged in the Counterclaims that MGA systematically stole its trade secrets from Mexico, Canada and the United States by hiring various Mattel employees. See Dkt. No. 7714, 7733, 7766 (FAAC) ¶¶ 37-85. MGA’s Counterclaims-in-Reply arise from the same transactions and occurrences for at least three reasons. First, Mattel is in some instances alleging as trade secrets against MGA the very same things it stole from MGA and others. Second, the very nature of what constitutes a trade secret in the involves an amendment to a petition for writ of habeas corpus. Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 21 of 42 Page ID #:272201 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 - MGA OPP. TO MOT. TO DISMISS AND CROSS-MOTION FOR LEAVE TO AMEND CV-04-9049 DOC (RNBX) toy industry must be tried in this case because of Mattel’s counterclaims, and MGA’s Counterclaims-in-Reply bear directly on MGA’s defense of that issue in Mattel’s case. Third, Mattel has alleged that MGA induced Mattel’s departing employees to steal trade secrets. Mattel has repeatedly argued that there is no good explanation for why the employees took what they supposedly took other than that MGA bribed them with above-market salaries and told them to bring it. The Counterclaims-in- Reply offer obvious alternative explanations: Mattel’s own culture and conduct either left employees completely mystified by what could possibly constitute a trade secret, or affirmatively taught them it was okay to take whatever they needed to perform their jobs anyway. MGA thus will of necessity be presenting this very same evidence to negate elements of Mattel’s claims and in support of affirmative defenses. By definition, for at least these three reasons, the Counterclaims-in-Reply arise out of the same transactions and occurrences, and the trade secret misappropriation Counterclaim-in-Reply is compulsory to the trade secret counterclaim under even the narrowest interpretation (which, as noted above, is not proper in this context anyway). Claim 2--RICO. The RICO claim likewise arises out of the same transaction and occurrence in at least two respects. Mattel’s counterclaims present a story of MGA supposedly stealing Mattel’s intellectual property in the form of Bratz, then stealing a bunch of other trade secrets to support the business deriving from the first theft, and then trying to cover it all up in litigation and transactions designed to evade the purported results of litigation. MGA’s RICO Counterclaim-in-Reply presents its story as the second side of the same coin: in reality, Mattel knew it didn’t own Bratz and that Barbie had failed on its own, but still suppressed that evidence; Mattel-not MGA-was the real thief and is directly responsible for how its employees behaved when they left Mattel; Mattel lied and covered up its own thievery both in order to further it and to keep it out of this litigation so that it could Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 22 of 42 Page ID #:272202 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 - MGA OPP. TO MOT. TO DISMISS AND CROSS-MOTION FOR LEAVE TO AMEND CV-04-9049 DOC (RNBX) deceive the jury and the Court; the Court entered wrongful permanent injunctions as a result; and Mattel now refuses to pay for the damage it caused through its own misconduct. These two stories relate directly to the same set of transactions and occurrences, and it would make absolutely no sense at all for two separate juries to hear them at two separate times-in fact, it would directly and inappropriately prejudice MGA not to be able to present its version of these events to the jury. And indeed, MGA will be entitled to present its defenses along these lines to place its conduct in relation to that of Mattel. Under these circumstances, depriving MGA of its affirmative claim makes no sense. Claim 3--Wrongful Injunction. MGA’s claim for a wrongful injunction is also compulsory. Mattel’s RICO Counterclaims assert that MGA engaged in wrongful conduct related to this litigation, including the Omni 808 transaction and other transactions designed to evade the Court’s orders, and including the very injunctive orders that are the subject of the Wrongful Injunction Counterclaim-in- Reply. Not to mention that the Wrongful Injunction Counterclaim-in-Reply arises directly from Mattel’s other state law tort and copyright infringement Counterclaims as they were tried in Phase 1. This is plainly the same set of transactions and occurrences. Cf. Pochiro, 827 F.2d at 1252 (abuse of process is compulsory counterclaim). By any definition, the facts underlying MGA’s Counterclaims-in-Reply “arise out of the transaction or occurrence that is the subject matter of the opposing party’s claim.” The parties are fighting over the same thing: are Mattel’s claims justified, did Mattel bring those claims improperly, and did Mattel seek to prevent a defense of those claims through its own wrongdoing. To try Mattel’s claims, this Court is necessarily trying the same facts that give rise to MGA’s Counterclaims- in-Reply. They are therefore compulsory. See Pochiro, 827 F.2d at 1250 (defamation claim compulsory because facts necessary to prove it substantially overlap with allegations of complaint); id. at 1252 (abuse of process claim Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 23 of 42 Page ID #:272203 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 - MGA OPP. TO MOT. TO DISMISS AND CROSS-MOTION FOR LEAVE TO AMEND CV-04-9049 DOC (RNBX) compulsory because “the Pochiros [the party asserting the claim] would have to demonstrate that Prudential had a wrongful purpose in pursuing its action.”); In re Lazar, 237 F.3d at 980 (claims for payment of fees from a fund and reimbursement from the fund both “arise out of activities associated with the same bankruptcy case” and therefore the claims are compulsory).2 The allegations in reply are not, therefore, as Mattel would have it, like those made in Conceptus, Inc. v. Hologic, Inc., 2010 WL 1460162 (N.D. Cal. Apr. 12, 2010). The court there found that the allegations of misrepresenting clinical data were similar and had a “thematic relationship,” but were not the same transactions. Here, the allegations are two sides of the same coin-two different ways of presenting the same story. And, if this case is like Conceptus, then the Court should either reject the narrow view of the transaction and occurrence test espoused in that case or should, as did the court in that case, simply grant leave to amend the original complaint. Because the Counterclaims-in-Reply are compulsory, no leave to amend was required even under the Ninth Circuit’s interpretation of Rules 7 and 13, let alone the interpretation of the other circuits with which it has split on this issue. C. If The Court Determines That Leave To Amend Is Required, Then MGA Hereby Requests It And It Must Be Granted. Leave to amend MGA’s original Complaint is not required for the reasons set forth above. But if the Court determines otherwise, then MGA hereby moves for such leave, and for the reasons set forth herein is entitled to it. As Mattel has recited for this Court over and again, leave to amend “shall be freely given when justice so requires” and the “policy of favoring amendment to pleadings should be applied with extreme liberality.” DCD Programs Ltd. v. Leighton, 833 F.2d 183, 2 These facts distinguish this case from In re Pegasus Gold Corp., 394 F.3d 1189 (9th Cir. 2005). There, the court found that the State’s claim that the bankruptcy debtor failed to post a sufficient reclamation bond was not related to the debtor’s claim that arose later that there was a breach of an agreement to allow further reclamation efforts. Id. at 1192, 1196. Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 24 of 42 Page ID #:272204 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 - MGA OPP. TO MOT. TO DISMISS AND CROSS-MOTION FOR LEAVE TO AMEND CV-04-9049 DOC (RNBX) 185-86 (9th Cir. 1987); see also Dkt. No. 7675 (Mattel’s Motion for Leave to Amend) at 6. Nor is there undue delay, prejudice or bad faith. 1. There Is No Undue Delay. Starting with first principles, mere delay alone is not a sufficient basis for denying leave to amend. Indeed, it is an abuse of discretion to deny leave to amend based on delay alone. See, e.g., Howey v. United States, 481 F.2d 1187, 1190-91 (9th Cir. 1973); DCD Programs Ltd., 833 F.2d at 186. In any case, there was no undue delay. As the case Mattel cites acknowledges, undue delay occurs when a party seeks leave to amend “long after” it possesses or should have possessed the information on which the amendment is based. See IXYS Corp. v. Advanced Power Tech., Inc., 2004 WL 135861, at *4 (N.D. Cal. Jan. 22, 2004) (cited at Mot. at 12). Indeed, each of the undue delay cases cited by Mattel note the length of time between the discovery of the information and the requested amendment. Mot. at 12. For example, in AmerisourceBergen Corp. v. Dialysist West, Inc., 465 F.3d 946, 953 (9th Cir. 2006), and Texaco, Inc. v. Ponsoldt, 939 F.2d 794, 799 (9th Cir. 1991), the Court found undue delay due to lapses of 15 months and eight months, respectively, between the discovery of the evidence and leave to amend. In UNR Indus., Inc. v. Continental Ins. Co., 623 F. Supp. 1319, 1326-27 (N.D. Ill. 1985), plaintiff knew of its claims at the time it filed a previous amended complaint. Here, there was no such delay and the facts simply do not support any claim that MGA knew of its claims at the time of any prior amendment. As demonstrated in the Statement of Facts, MGA diligently sought the information that forms the basis of the Counterclaims-in-Reply. Mattel, in response, assiduously hid those facts. It failed to respond to discovery. It entered into agreements with witnesses so that the information would not be disclosed. And, indeed, this Court has seen the lengths to which Mattel has gone, even to the point of falsely stating to the Court that Villasenor did not obtain information from MGA, which is demonstrably Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 25 of 42 Page ID #:272205 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 - 16 - MGA OPP. TO MOT. TO DISMISS AND CROSS-MOTION FOR LEAVE TO AMEND CV-04-9049 DOC (RNBX) false. There is no basis for finding undue delay. DCD Programs Ltd., 833 F.2d at 187 (waiting to seek leave until one has sufficient evidence of the conduct giving rise to the claim is not undue delay); Probert v. The Clorox Co., 258 F.R.D. 491, 494 (D. Utah 2009) (delay does not justify denying leave to amend “while Defendant . . . had suspicions about inequitable conduct upon receipt of Plaintiffs’ document production, it appropriately waited until after taking Plaintiffs’ deposition”). And once it had the information, MGA filed its Counterclaims-in- Reply. This is not undue delay. See id. Additionally, and here the law and common sense agree, a party cannot hide evidence and then claim delay as a result, even if it means that the amendment is not brought until the far stages of a case. See Sierra Club v. Union Oil Co. of Cal., 813 F.2d 1480, 1485-86, 1493 (9th Cir. 1987), vacated on other grounds, 485 U.S. 931 (1988) . 2. There Is No Prejudice. The absence of unfair prejudice is a strong factor supporting amendment, and the party opposing the amendment bears the burden of showing prejudice. Foman v. Davis, 371 U.S. 178, 187 (1962); see also Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003) (absent prejudice or strong showing of other factors “there exists a presumption under Rule 15(a) in favor of granting leave to amend”). Mattel has known that MGA wished to discover the facts underlying the allegations set forth in the Counterclaims-in-Reply. In fact, this is the entire point of Mattel’s motion-that MGA was asking for discovery from Mattel and from witnesses about the facts underlying the Counterclaims-in-Reply. The only reason that MGA did not obtain this information is due to Mattel’s misconduct. A prejudice argument in these circumstances is without merit. See Simon Property Group, L.P v. mySimon, Inc., 2003 U.S. Dist. Lexis 5438, *29-30 (S.D. Ind. Mar. 26, 2003) (rejecting argument that party seeking a new trial failed to exercise due diligence where opposing party had belatedly produced key documents as “a Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 26 of 42 Page ID #:272206 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 - 17 - MGA OPP. TO MOT. TO DISMISS AND CROSS-MOTION FOR LEAVE TO AMEND CV-04-9049 DOC (RNBX) transparent effort to blame the victim of deceptive discovery practices.”) Mattel has been on notice that MGA would assert these claims provided there was evidence to support them. And the fact that Mattel was on notice is sufficient. As Mattel itself argued when it sought leave to amend, Dkt. No. 7675 at 7 n. 26, when a party has concealed evidence and has been put on notice even if only by “[their] own records” of the events in question, a prejudice argument is not one that a Court may defer to. Sierra Club, 813 F.2d 1480, 1485-86, 1493; Raytheon Co. v. Indigo Sys. Corp., 2008 WL 3852715 (E.D. Tex. Aug. 14, 2008) * 2-3 (finding no prejudice because “[h]ad the documents at issue been timely disclosed, the complaint could have been amended to assert fraudulent concealment without leave of the court”). Indeed, the fact that Mattel has concealed evidence distinguishes this case entirely from those cases Mattel cites in support of its argument that the delay here prejudiced Mattel. Mot. at 14-17. In none of those cases were there facts to show the concealment of evidence. This stands in contrast to Sierra Club, where a motion for leave to amend was made on August 27, 1985-two months prior to the October 29, 1985 trial date, and 13 days prior to the original trial date of September 9, 1985. The Ninth Circuit overruled the denial of the motion for leave to amend as to the concealed claims. “[W]here all of the amendments were based on facts contained in [defendant’s] own records, [defendant] had notice of the facts. Thus, there is no prejudice . . . .” 813 F.2d at 1493. So here. 3. There Is No Bad Faith. There is no bad faith here. There is no tactical advantage gained by waiting. This is not an instance where, for example, as in United States ex rel. Jajdelski v. Kaplan, Inc., 2010 WL 2326069, at * 3 (D. Nev. June 7, 2010), Mot. at 17, a finding of bad faith is appropriate because MGA is “attempting to improperly influence jurisdiction” and delay resolution of this case in order to “influence” another matter. It is not a case where MGA has sought leave to amend after trial. Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 27 of 42 Page ID #:272207 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 - 18 - MGA OPP. TO MOT. TO DISMISS AND CROSS-MOTION FOR LEAVE TO AMEND CV-04-9049 DOC (RNBX) See Fort Howard Paper Co. v. Standard Havens, Inc., 901 F.2d 1373, 1379 (7th Cir. 1990) (cited at Mot. at 18). Nor is it even a case like that presented by Mattel in seeking to amend its counterclaims now to completely change its theory of Bratz ownership after losing its original theory on appeal, a change which is both inconsistent with the Ninth Circuit’s opinion (and will violate the mandate once it issues) and is complete gamesmanship warranting reversal were the Court to permit this type of amendment (that motion for leave to amend is still pending). See Beverly Hills Bancorp v. R.W. Hine, 752 F.2d 1334, 1338 (9th Cir. 1984). Rather, this is a circumstance where MGA filed its Counterclaims-in-Reply immediately after obtaining the evidence that supports them. Mattel locked up all of its employees with confidentiality agreements, sued or threatened to sue them, and they wouldn’t talk. Anything they knew once they got to MGA was information acquired in the course and scope of their employment for Mattel-not for MGA. Once MGA got the evidence, it brought the claims. Indeed, not even Mattel can articulate the tactical advantage gained. Mattel claims that MGA was attempting to “sandbag” it and that MGA has engaged in “gamesmanship.” Mot. at 18. But how this was an effort at sandbagging is never explained. Nor could it be. As Mattel’s motion amply demonstrates, MGA was seeking the evidence supporting its Counterclaims-in-Reply for several years and Mattel was withholding it-apparently on the specious theory that it wasn’t really relevant to MGA. In fact, right up until last week Mattel was still arguing that this evidence was irrelevant to MGA, and that Mattel was perfectly justified in withholding it, because Sal Villasenor didn’t have the goods on MGA. Of course, not twenty minutes after that argument Mattel produced for the first time an email that demonstrated on its face that Villasenor did in fact have the goods on MGA along with everyone else3-putting the lie to Mattel’s argument and amply 3 See Dkt. No. 8726 (Supplemental Declaration of Annette L. Hurst Re: MGA’s Motion to Compel Documents Regarding Mattel’s Theft of Confidential Competitor Information, filed on September 10, 2010). Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 28 of 42 Page ID #:272208 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 - 19 - MGA OPP. TO MOT. TO DISMISS AND CROSS-MOTION FOR LEAVE TO AMEND CV-04-9049 DOC (RNBX) demonstrating exactly why MGA was justified in waiting until it had evidence of what it suspected was true before bringing a claim. There is no way that Judge Larson would have permitted such allegations without the type of evidence MGA has now discovered. It is no tactical advantage for MGA to be faced with finding this evidence when discovery is already closing, having already used up its depositions, having limited ability to move to compel, and with no privilege logs at all from Mattel ever having been served concerning this issue. This late discovery of evidence hampers MGA far more than Mattel. At least Mattel knows - and has always known - exactly what it has done. MGA must scramble to support its claim. Of course, MGA would wish it otherwise. There is no advantage gained to it by waiting. MGA would have loved to have brought these claims long before this. In fact, the very notion that MGA would have deliberately sat on these claims through the pounding it took in Phase 1 is so convoluted and stupid that it is obviously wrong. Occam’s Razor: Mattel hid the evidence, ergo MGA did not make its bombshell claims based on evidence it suspected might exist but did not have. Not: MGA knew about the evidence and sat on it, taking a massive pounding that nearly put it out of business as a consequence, and then at the very last minute decided to bring it in as an afterthought. 4. Amendment Is Not Futile. The futility standard is the same standard as used when considering a motion to dismiss. Miller v. Rykoff-Sexton, Inc., 845 F.2d 209, 214 (9th Cir. 1988); see also Mot. at 18. For the reasons set forth below, the Counterclaims-in-Reply are far from futile. II. THE MOTION TO DISMISS THE WRONGFUL INJUNCTION CLAIM MUST BE DENIED. Mattel makes three arguments in support of its motion to dismiss the wrongful injunction claim. First, it argues that a wrongful injunction claim can Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 29 of 42 Page ID #:272209 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 - 20 - MGA OPP. TO MOT. TO DISMISS AND CROSS-MOTION FOR LEAVE TO AMEND CV-04-9049 DOC (RNBX) only be brought as an independent action. According to Mattel, it “has discovered [no case] that permitted the insertion of an independent claim for wrongful injunction in the action in which the injunction at issue was entered.” Mot. at 19. Apparently it has not been reading very many cases, let alone Federal Rule of Civil Procedure 65.1. Second, Mattel claims that there is no cause of action for wrongful injunction absent a bond. Mot. at 22-23. Again, Mattel has missed the venerable and controlling Supreme Court precedent. Third, Mattel claims that MGA has not alleged unjust enrichment and that a claim for restitution is not a valid claim. Mot. 20, 23. Again, Mattel is wrong. A. A Bond Is Not A Prerequisite For A Claim Of Wrongful Permanent Injunction. There is a viable claim for a wrongful permanent injunction even absent a bond. Rule 65(c) provides that a bond is required for preliminary injunctions, and the Ninth Circuit has held that such bonds are the exclusive remedy for a damages claim based upon such a preliminary injunction. Buddy Sys., Inc. v. Exer-Genie, Inc., 545 F.2d 1164, 1167 (9th Cir. 1976). The cases cited by Mattel all involved the issuance of a preliminary injunction. See Mot. at 22-23. Nintendo of Am. Inc. v. Lewis Galoob Toys, Inc., 16 F.3d 1032, 1036 n. 3 (9th Cir. 1994) (preliminary injunction); Buddy Sys., Inc., 545 F.2d at 1167 (preliminary injunction); Benz v. Campania Naviera Hidalgo, S.A., 205 F.2d 944, 948 (9th Cir. 1953) (temporary injunction). But, as discussed at great length in a very scholarly opinion in Dornan v. Sheet Metal Works’ Int’l, 810 F. Supp. 856 (E.D. Mich. 1992), there is a long tradition in common law for wrongful permanent injunction claims which do not depend on the existence of a bond. The Supreme Court long ago found that such an action was viable. See Arkadelphia Co. v. St. Louis S.W. Ry. Co., 249 U.S. 134, 145 (1919). Indeed, the Dornan opinion explains at length the history of such actions, and in so doing, reconciles what one party argued appeared to be a conflict Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 30 of 42 Page ID #:272210 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 - 21 - MGA OPP. TO MOT. TO DISMISS AND CROSS-MOTION FOR LEAVE TO AMEND CV-04-9049 DOC (RNBX) in Supreme Court precedent. In Arkadelphia Co., 249 U.S. at 145, the Supreme Court found that a party was entitled to receive damages as a result of a wrongfully issued injunction even in the absence of a bond. In the words of the Supreme Court, a party against whom an erroneous judgment or decree has been carried into effect is entitled, in the event of reversal to be restored by his adversary to that which he has lost thereby. This right, so well founded in equity, has been recognized in the practice of the courts of common law from an early period. The Court reiterated this view in Public Serv. Comm’n of Missouri v. Brashear Freight Lines, Inc., 312 U.S. 621, 629 (1941), when it found that it has long been settled that “damages sustained by parties injured because of an injunctive restraint ultimately determined to have been improperly granted” may be awarded. See also Mitchell v. Riegal Textile, 259 F.2d 954, 955 n. 3 (D.C. Cir. 1954) (noting that on remand the district court in Brashear Freight Lines, Inc. 41 F. Supp. 952 (D. Mo. 1941), assessed damages in excess of the bond); Atlanta Journal and Constitution v. City of Atlanta Dep’t of Aviation, 442 F.3d 1283, 1287-89 (11th Cir. 2006) (affirming order of restitution for harm caused by injunction); Maryland Dep’t of Human Resources v. U.S. Dep’t of Agriculture, 976 F.2d 1462, 1482-83 (4th Cir. 1992) (reversing injunction and directing court to allow consideration of damages incurred as a result of injunction although no bond was granted). No Supreme Court precedent has overruled Arkadelphia and Brashear. Dornan distinguished, and rightly so, W.R. Grace & Co. v. Local 759, 461 U.S. 757 (1983). First, the Dornan court noted that the party claiming damages had actually sought the injunction in Grace, which is of course not the case here. Second, the company there had expressly agreed to accept the losses from the injunction-also certainly not the case here. 810 F. Supp. at 858. In all events, nothing in Grace purported to overrule Arkadelphia and Brashear and they control. See Agostini v. Felton, 521 U.S. 203, 237 (1997) (“[i]f a precedent of this Court has direct Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 31 of 42 Page ID #:272211 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 - 22 - MGA OPP. TO MOT. TO DISMISS AND CROSS-MOTION FOR LEAVE TO AMEND CV-04-9049 DOC (RNBX) application in a case, yet appears to rest on reasons rejected in some other line of decisions, the Court of Appeals should follow the case which directly controls, leaving to this Court the prerogative of overruling its own decisions.” (citation and internal quotes omitted)). The claim for wrongful injunction here is based upon the reversal of a permanent injunction. The Court issued permanent injunctions after a trial on the merits. It called them that and it said that. See Dkt. No. 4441(Order Granting Mattel’s Motion for Constructive Trust and for Finding Liability and Injunctive Relief) at 3 (“The MGA Defendants . . . are HEREBY PERMANENTLY ENJOINED . . . .”); Dkt. No. 4443 (Order Granting Mattel, Inc.’s Motion for Permanent Injunction). Under Arkadelphia and Brashear, MGA is entitled to make a claim for wrongful injunction. And, under Nintendo, it is clear that the only criteria for demonstrating the wrongfulness of an injunction is that it was reversed-no bad faith need be proven. All that MGA need prove to establish its claim is that it was enjoined when it had the right all along to do what it was enjoined from doing. Nintendo of Am., Inc., 16 F.3d at 1036 (a party is wrongfully enjoined “when it turns out the party enjoined had the right all along to do what it was enjoined from doing”). Accordingly, the federal common law claim for wrongful injunction is well and properly pled. B. The Wrongful Injunction Claim Is Not Premature. A wrongful injunction claim is properly considered in the same action in which the injunction arose. Dornan, 810 F. Supp. 856; Middlewest Motor Freight Bureau v. United States, 433 F.2d 212, 215-18 (8th Cir. 1970) (shippers intervened in action in which carriers obtained temporary injunction that resulted in increased freight rates seeking restitution for excessive rates while temporary injunction was in place); see also Atlanta Journal and Constitution v. City of Atlanta Dep’t of Aviation, 322 F.3d 1298, 1312 (11th Cir. 2003) (en banc) (directing district court to consider claim for lost revenues as a result of overturned injunction without Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 32 of 42 Page ID #:272212 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 - 23 - MGA OPP. TO MOT. TO DISMISS AND CROSS-MOTION FOR LEAVE TO AMEND CV-04-9049 DOC (RNBX) requiring the filing of a separate lawsuit); Maryland Dep’t of Human Resources, 976 F.2d at 1485 (directing court to consider damages claims arising from reversed injunction); Mitchell v. Riegel Textile, Inc., 259 F.2d 954, 955 (D.C. Cir. 1958) (allowing recovery for wrongful injunction in same action injunction was obtained); Rule 65.1 (enforcement of an injunction bond may be made “on motion without an independent action”); Nintendo, 16 F.3d 1032 (wrongful injunction claim heard and damages awarded in same proceeding in which injunction was issued).4 In fact, here, as expressly approved in Dornan, MGA has pled wrongful injunction as part of its legal defense of setoff. As noted above, the jury is therefore going to have to hear this claim as part of MGA’s defenses. To deprive MGA of the right to an affirmative recovery on the very same evidence the jury already will have to consider makes absolutely no sense whatsoever. Nor do the cases Mattel cites suggest otherwise. First, and consistent with the above, as Mattel acknowledges, courts have considered damages arising from an injunction in the same action. See Mot. at 19 (citing cases). Second, Monolith Portland Midwest Co. v. RFC, 128 F. Supp. 824 (S.D. Cal. 1955), see Mot. at 19, did not hold that a separate action had to be filed. Indeed, the party seeking damages based on the issuance of the injunction brought the claims as a counterclaim. Id. at 875-77. As for Buddy Sys, Inc., 545 F.2d 1164, it is, as noted, a preliminary injunction case. C. MGA Is Entitled To Recover On All Applicable Theories. Mattel claims that there were no damages arising from the injunctions because the injunction was stayed, “sales of Bratz products were never enjoined,” and the constructive trust “was never executed in favor of Mattel.” Mot. at 20. Moreover, Mattel argues that MGA fails to state a claim that would entitle it to restitution which, according to Mattel, is “ ‘a return or restoration of what [a party] 4 Based on the foregoing sections, Mattel’s claim that MGA is somehow limited to a malicious prosecution claim, which can be brought at some other time, Mot. at 24-25, is without merit. Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 33 of 42 Page ID #:272213 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 - 24 - MGA OPP. TO MOT. TO DISMISS AND CROSS-MOTION FOR LEAVE TO AMEND CV-04-9049 DOC (RNBX) gained in a transaction.’” Mot. at 23. In other words, Mattel argues that MGA was not harmed and Mattel did not gain, and therefore MGA is not entitled to recover. This is a ridiculous argument even for summary judgment or trial given the facts in this case, let alone for a 12(b)(6) motion. Causation of harm raises an inherently factual dispute and does not even pass the red-face test for a 12b(6) argument here. Moreover, this argument is plainly based on incorrect premises. The injunctions remained substantially in effect. The recall provisions were not stayed at all until the Ninth Circuit stayed them on December 9, which meant that everyone in the industry knew for all of 2009 that they would have to give back any product right after the holidays in 2009-a situation that by Mattel’s and the Court’s design would disincentivize sales. Additionally, the Court’s April 27, 2009 Stay Order (Dkt. 5273) provided a stay only in order to sell the previously designed 2009 lines of product until the recall took effect. The stay permitted no new lines of product to be manufactured and sold prior to the recall. This inability to update the product was devastating to the brand of a toy company, which depends upon constantly refreshing its lines in order to maintain currency with an inherently fickle and rapidly changing population. To say that the injunctions never went into effect is simply false. Mattel knows this because Mattel resisted at every stage any attempt to lift the injunctions. See Dkt. No. 4513 (Mattel Opp. to Mot. for Stay Pending Appeal); Dkt. No. 5495 (Mattel Opp. to Mot. for Stay Pending Appeal); Dkt. No. 7071, 7079 (Mattel Opp. to Mot. to Vacate). Indeed, even when the Ninth Circuit granted the stay, Mattel came back with a motion to reconsider the stay. Ninth Circuit Dkt. No. 97 (Mattel Motion for Reconsideration of Stay Order). And MGA incurred damages as a result. Dkt. No. 8583 ¶¶ 4, 59-60, 320. Second, as for damages, MGA is entitled to the amounts that it lost as a result of the injunction and whatever Mattel received, to the extent not duplicative. It is simply not the case that the only remedy is the amount of money that fell into Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 34 of 42 Page ID #:272214 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 - 25 - MGA OPP. TO MOT. TO DISMISS AND CROSS-MOTION FOR LEAVE TO AMEND CV-04-9049 DOC (RNBX) Mattel’s hands. The court in Nintendo, 16 F.3d at 1038-39, awarded damages for lost profits based on lost sales that would have otherwise been made by the enjoined party. That case involved no claim of unjust enrichment at all. Moreover, Mattel has been unjustly enriched. It forced MGA out of the market, something that it brought this litigation to do. What was taken from MGA: its ability to sell Bratz. What was given to Mattel: a marketplace that it could exploit without Bratz. Dkt. No. 8583 ¶¶ 4, 57, 59-60, 320. MGA is entitled to recover its damages and the benefits received by Mattel, limited only by the principle that the recovery may not be duplicative. That was what Mattel was entitled to recover when it won its copyright claim (17 U.S.C. § 504), and MGA should be entitled to no less now that Mattel’s injunction based on that claim has been reversed. III. THE MOTION TO DISMISS THE OTHER TWO COUNTERCLAIMS-IN-REPLY ON STATUTE OF LIMITATIONS GROUNDS IS MERITLESS. A complaint may not be dismissed on the basis of statute of limitations unless from the face of the complaint it is apparent that the statute of limitations has run. See, e.g., Huynh v. Chase Manhattan Bank, 465 F.3d 992, 997 (9th Cir. 2006). To state it another way, “a complaint cannot be dismissed unless it appears beyond doubt that the plaintiff can prove no set of facts that would establish the timeliness of the claim.” Supermail Cargo, Inc. v. United States, 68 F.3d 1204, 1206 (9th Cir. 1995) (emphasis added). Based on the allegations of the complaint, Mattel is not entitled to a dismissal on the basis of statute of limitations. A. MGA’s Trade Secret Misappropriation Claim Is Not Barred. MGA has alleged fraudulent concealment at every turn. Mattel worked to ensure that MGA would not discover that its employees were spying on MGA by directing them and approving of their use of false identifications. Dkt. No. 8583 ¶ 11. It hired employees specifically because they would be able to sneak in and steal MGA’s information without notice. Id. ¶ 24. It suppressed evidence Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 35 of 42 Page ID #:272215 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 - 26 - MGA OPP. TO MOT. TO DISMISS AND CROSS-MOTION FOR LEAVE TO AMEND CV-04-9049 DOC (RNBX) establishing that it actually possessed MGA’s confidential information, including destroying and altering documents that would. Id. ¶ 25-27. It paid hush money to the employees that did steal information. Id. ¶¶ 38-39. It failed to produce documents when requested or even when ordered by the Court. Id. ¶¶ 40, 48-52. Witnesses were prepared to conceal information and provide misleading testimony. Id. ¶¶ 53-54, 57. Moreover, MGA was diligent in its pursuit of this information. MGA sought documents that would reveal Mattel’s theft of trade secrets, but Mattel concealed it. Counterclaim in Reply ¶¶ 25-27, 40, 48-52. MGA sought information relating to Bratz. Mattel concealed that as well. Id. ¶¶ 33-35. MGA questioned Mattel witnesses about the thefts alleged in the Counterclaim in Reply. Mattel’s witnesses gave misleading and untruthful information. Id. ¶¶ 53-54. Mattel did all that it could to make sure that witnesses would not reveal the information. Id. ¶ 55. And when a witness tried to testify in a manner favorable to MGA, Mattel threatened the witness and coerced him into changing his testimony. Id. ¶¶ 56. These facts amply support a claim of fraudulent concealment sufficient to reject any argument that MGA’s claims should be dismissed based on statute of limitations. It certainly is enough to satisfy the standard that applies. That standard requires this Court to consider whether, taking all facts as true and drawing all reasonable inferences in favor of MGA, Arpin v. Santa Clara Valley Transp. Agency, 261 F.3d 912, 923 (9th Cir. 2001), “the assertions of the complaint, read with the required liberality, would not permit the plaintiff to prove that the statute of limitations was tolled.” Jablon v. Dean Witter & Co., 614 F.2d 677, 682 (9th Cir. 1980) (emphasis added); see also RA Med. Sys., Inc. v. Photomedex, Inc., 373 F. App’x 784, 787 (9th Cir. 2010). Certainly, it cannot be said that there are no facts alleged that would not permit proof of fraudulent concealment. Moreover, while Mattel claims that the statute of limitations begin to run before “smoking gun” evidence, Mot. at 28, the law also provides that “a defendant Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 36 of 42 Page ID #:272216 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 - 27 - MGA OPP. TO MOT. TO DISMISS AND CROSS-MOTION FOR LEAVE TO AMEND CV-04-9049 DOC (RNBX) cannot hinder the plaintiff’s discovery through misrepresentations and then fault the plaintiff for failing to investigate,” which is what we have here. Weatherly v. Universal Music Publ’g Group, 125 Cal. App. 4th 913, 919 (2004). Nor is it the case that the knowledge of Machado and Brawer can be imputed to MGA. First, Mattel took steps to ensure that its former employees would not reveal information, even public information about Mattel to MGA. See Case No. 05-CV-2727 (MGA Complaint) ¶ 75. Second, as the case law on which Mattel relies makes clear, see Mot. at 27, 31, the knowledge of an employee may be imputed to a corporation only when that knowledge is “obtained while acting in the course of their employment and within the scope of their authority . . . .” W.R. Grace & Co. v. Western U.S. Indus., Inc., 608 F.2d 1214, 1218 (9th Cir. 1979); see also Sanders v. Magill, 70 P.2d 159, 163 (Cal. 1937) (“Knowledge of an officer of a corporation within the scope of his duties is imputable to the corporation.”). There is no plausible argument that the work of Brawer or Machado at MGA concerned the activities of Mattel and its counsel alleged in the complaint. It was not encompassed in the course of their work or in the scope of their authority.5 Finally, as noted, see Part I, supra, MGA’s Counterclaims-in-Reply are compulsory. They therefore relate back to the filing of Mattel’s complaint giving rise to these claims, which is January 2007 and which is within the three year statute of limitations. Burlington Indus., Inc. v. Milliken & Co., 690 F.2d 380, 389 (4th Cir. 1982); Hartford v. Gibbons & Reed Co., 617 F.2d 567, 570 (10th Cir. 1980); North County Commcn’s Corp. v. Verizon Global Networks, Inc., 685 F. 5 Mattel’s Motion to Dismiss also cites misleading snippets of testimony to suggest that MGA’s employees knew much more about Mattel’s misconduct than the evidence actually suggests. MGA need not address this testimony in detail here, as it is well settled that a court may not consider matters outside of the pleadings on a motion to dismiss, with the exception of documents attached to the compliant, documents referenced in the complaint about which there is no dispute, or items that may be judicially noticed. Lee v. City of Los Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001); Hal Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d 1542, 1555 n. 19 (9th Cir. 1990). Mattel’s Motion violates these rules, and the facts it asserts must be disregarded. Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 37 of 42 Page ID #:272217 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 - 28 - MGA OPP. TO MOT. TO DISMISS AND CROSS-MOTION FOR LEAVE TO AMEND CV-04-9049 DOC (RNBX) Supp. 2d 1112, 1118-19 (S.D. Cal. 2010); Sidney v. Superior Court, 198 Cal. App. 3d 710, 714 (Cal. App. 1988) (“‘The statute [of limitations] is a bar to the defendant’s affirmative claim only if the period has already run when the complaint is filed. The filing of the complaint suspends the statute during the pendency of the action, and the defendant may set up his cross claim by appropriate pleading at any time.’”). B. The RICO Claim Is Not Barred. Mattel argues that the RICO statute of limitations has run because MGA knew or should have known of the injury that forms the basis for its RICO claims prior to August 16, 2006. Mot. at 31. In making this argument, Mattel focuses solely on MGA’s claim of trade secret misappropriation, stating that MGA knew of those claimed thefts “more than four years before it filed.” Id. at 31. Even with that as a focus, and assuming MGA did in fact know of the thefts more than four years before it filed its affirmative claims, the statute of limitations for RICO runs from the point of each new and independent injury. Grimmett v. Brown, 75 F.3d 506, 510 (9th Cir. 1996). There is no basis for finding from the face of the complaint that the injuries from Mattel’s theft of trade secrets, some of which occurred as late as 2006 (at least the theft of which we are aware), were limited solely to the period of time prior to the running of the statute of limitations. Moreover, Mattel’s sole focus on the trade secret misappropriation claim is telling. Assuming just for now that MGA knew or should have known of its injury from Mattel’s theft of trade secrets, Mattel misses that MGA’s RICO claim is not premised solely on Mattel’s theft of trade secrets. In addition to the scheme to steal trade secrets, Counterclaim in Reply ¶¶ 6-22, MGA alleges new and independent injuries that, on the face of the complaint, clearly are within the four year statute of limitations. MGA alleges that Mattel engaged in a cover-up of facts in connection with this case up to and including July 2010. Counterclaim in Reply ¶¶ 48-57. Mattel also misled the Court in order to obtain the injunctions that were the result Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 38 of 42 Page ID #:272218 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 - 29 - MGA OPP. TO MOT. TO DISMISS AND CROSS-MOTION FOR LEAVE TO AMEND CV-04-9049 DOC (RNBX) of the Phase 1 trial. Id. ¶¶ 58-60. The injuries incurred are independent from the act of trade secret misappropriation. And they inflicted new and different injuries. The hiding of evidence and the tampering with witnesses, at the least, drove up the cost of this litigation for MGA. See Malley-Duff v. Crown Life Ins. Co., 792 F.2d 341 (3d Cir. 1986). The wrongfully obtained injunction and relief granted by the Court injured MGA by depriving it of sales, interfering with relationships with retailers and licensees, and destroying an estimated billion dollars in brand equity. Counterclaim in Reply ¶¶ 317. Neither a cover-up nor lies to a Court are “are injuries that naturally flow from” a theft of trade secrets. See Grimmett, 75 F.3d at 513; Bankers Trust Co. v. Rhoades, 859 F.2d 1096, 1102-05 (2d Cir. 1988) (wrongfully concealing assets is a an injury independent of the conducting of harassing lawsuits and fraudulent conveyance of property). In addition, even were it the case that MGA knew of its injury as a result of Mattel’s theft of trade secrets, the statute of limitations is tolled until such time as a party who knows of their injury can investigate the facts that support the RICO claim. Rotella v. Wood, 528 U.S. 549, 560-61 (2000) (“where a pattern remains obscure in the face of a plaintiff’s diligence in seeking to identify it” equitable tolling applies); Klehr v. A.O. Smith Corp., 521 U.S. 179 (1997) (affirming that fraudulent concealment will toll the statute of limitations for RICO); Grimmett, 75 F.3d at 512 (court may toll statute of limitation until pattern can be found by RICO claimant). As already noted, see Part III-A, supra, MGA diligently pursued discovery of the facts that now give rise to its RICO claim. At every stage in this process, Mattel thwarted that effort. Mattel altered and hid documents. Mattel coerced witnesses and bought the silence of others. And even when Mattel offered witnesses, they were not truthful. During this entire time period, the statute of limitations was tolled. See Aldrich v. McCulloch Properties, Inc., 627 F.2d 1036, Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 39 of 42 Page ID #:272219 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 - 30 - MGA OPP. TO MOT. TO DISMISS AND CROSS-MOTION FOR LEAVE TO AMEND CV-04-9049 DOC (RNBX) 1042 (10th Cir. 1980) (reversing granting of motion to dismiss because complaint alleged concealment). IV. THE MOTION TO STRIKE IS MERITLESS. A. California’s Litigation Privilege Does Not Apply To Federal Claims Brought In Federal Court. California’s litigation privilege does not allow Mattel to strike allegations made in support of federal claims. Paragraphs 41, 46, and 47, the subject of the motion to strike, are alleged in support of MGA’s RICO claims. As such, an attorney cannot claim the protections of California’s litigation privilege. Pardi v. Kaiser Found. Hospitals, 389 F.3d 840, 851 (9th Cir. 2004). “A construction of [a] federal statute which permitted a state immunity defense to have controlling effect would transmute a basic guarantee into an illusory promise; and the supremacy clause of the Constitution insures that the proper construction may be enforced.” Kimes v. Stone, 84 F.3d 1121, 1127 (9th Cir. 1996). B. California’s Anti-Slapp Statute Similarly Does Not Apply To The Federal Common Law Wrongful Injunction Claim. California’ anti-SLAPP statute does not apply to federal claims. It applies only to state law claims, as Mattel acknowledges. Mot. at 25; Hilton v. Hallmark Cards, 599 F.3d 894, 900-01 (9th Cir. 2010). A wrongful injunction claim based on a federal court’s issuance of an injunction is a federal common law claim. The right to recover for a wrongfully issued injunction issued by a federal court is governed by federal law. Russell v. Farley, 105 U.S. 433, 437 (1881); Minnesota Power & Light Co. v. Hockett, 105 F. Supp. 2d 939, 941 (S.D. Ind. 1999). California’s anti-SLAPP statute simply does not apply. MGA’s wrongful injunction claim also does not challenge Mattel’s right to petition, as Mattel claims. Mot. at 25. A wrongful injunction claim is instead premised on the notion that a party wrongfully enjoined should be allowed recovery. No court has ever held that providing a remedy of this type impinges the Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 40 of 42 Page ID #:272220 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 - 31 - MGA OPP. TO MOT. TO DISMISS AND CROSS-MOTION FOR LEAVE TO AMEND CV-04-9049 DOC (RNBX) right to petition. Instead, as the Supreme Court noted in Arkadelphia Co., 249 U.S. at 145, “a party against whom an erroneous judgment or decree has been carried into effect is entitled, in the event of reversal to be restored by his adversary to that which he has lost thereby.” See also Nintendo, 16 F.3d at 1036 (no element of bad faith required for wrongful injunction recovery). Even were it proper to view a wrongful injunction claim as somehow implicating the right to petition, Mattel’s argument would still have no merit. The wrongful injunction claim is also premised on Mattel’s improper acts over the course of this litigation. Federal causes of action are properly based on claims that a party and their attorneys have engaged in a cover-up of facts to obtain results in federal court. That conduct is not protected by any “right to petition.” Rather, it is governed by the laws prohibiting such acts. Kearney v. Foley & Lardner, LLP, 590 F.3d 638, 646-47 (9th Cir. 2009) (RICO claim based on suppression of expert report properly brought); Malley-Duff, 792 F.2d 341 (RICO claim based on improper discovery conduct, among other things, properly brought); Bankers Trust v. Rhoades, 859 F.2d 1096 (RICO claim based on misrepresentations to court and filing of lawsuits properly brought); J & M Turner, Inc v. Applied Bolting Tech. Prods., Inc., 1997 WL 83766 (E.D. Pa. 1997).6 Finally, Mattel claims that MGA bears the burden of establishing that its wrongful injunction claim has “at least minimal merit.” Mot. at 25. It does. All that MGA need prove to establish its claim is that it was enjoined when it had the right all along to do what it was enjoined from doing. Nintendo of Am., Inc., 16 F.3d at 1036. The Ninth Circuit’s opinion establishes the “minimal merit” of this claim. CONCLUSION For all of the foregoing reasons, Mattel’s Motion to Dismiss and/or Strike 6 For these same reasons, the Noerr-Pennington doctrine does not apply. Mot. at 34 n. 95. See Kearney, 590 F.3d at 646-47. Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 41 of 42 Page ID #:272221 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 - 32 - MGA OPP. TO MOT. TO DISMISS AND CROSS-MOTION FOR LEAVE TO AMEND CV-04-9049 DOC (RNBX) should be denied. Alternatively, if the Court finds that the Counterclaims-in-Reply are not compulsory and required leave to amend, then the cross-motion for leave to amend the original Complaint should be granted. Dated: September 16, 2010 Respectfully submitted, ORRICK, HERRINGTON & SUTCLIFFE LLP By: /s/ Annette L. Hurst Annette L. Hurst Attorneys for MGA Parties Case 2:04-cv-09049-DOC -RNB Document 8747 Filed 09/16/10 Page 42 of 42 Page ID #:272222