Insight Public Sector Incorporated v. Proteam Solutions Incorporated

Filing 75

ORDER denying Proteam's 43 MOTION to Amend Counterclaim and Modify the Scheduling Order. While the instant motion was under consideration, the time for filing dispositive motions in this case (April 22, 2016) expired. The time for serving and filing dispositive motions is extended to June 10, 2016. (See document for further details). Signed by Judge H Russel Holland on 5/11/16. (LAD)

WO
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ARIZONA

INSIGHT PUBLIC SECTOR, INC.,

)
)
Plaintiff, )
vs.
)
)
PROTEAM SOLUTIONS, INC.,
)
)
Defendant. )
_______________________________________)

No. 2:14-cv-2529-HRH

ORDER
Motion to Extend Deadlines and for
Leave to File Second Amended Counterclaim
Procedural History
Defendant/counterclaimant moves for leave to amend its counterclaim and to modify
the scheduling order in this case.1 This motion is opposed.2 Oral argument has not been
requested.
Facts
Plaintiff/counterdefendant is Insight Public Sector, Inc. Defendant/counterclaimant
is Proteam Solutions.
“Insight is a global provider of information technology hardware, software and
service solutions to private and public sector organizations.”3 “Proteam offers professional

1

Docket No. 43.

2

Docket Nos. 57 & 58.

3

Complaint at 2, ¶ 5, attached to Notice of Removal, Docket No. 1.

Order – Motion to Extend Deadlines and for
Leave to File Second Amended Counterclaim

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information technology solutions and consulting services to private and public sector
organizations in Ohio.”4
“In March 2010, Insight and Proteam entered into an agreement ... in which Proteam
agreed to provide Insight with information about specific sales opportunities within Ohio.”5
The agreement referred to these sale opportunities as “Designated Opportunities.”6 If
Insight made any “Designated Opportunities” sales, Proteam was to receive a royalty in the
amount of 50% of the gross profit for the sale.7 The “Designated Opportunities” were to
order products directly from Insight.8
Insight alleges that from July 2013 through October 2013, Proteam placed orders in
its own name in the amount of $726,498.07.9 Proteam paid Insight $350,000 plus Proteam
had a $23,438 credit with Insight, which left $352,950.07 unpaid.10 Insight alleges that
Proteam owes it this unpaid amount because these sales were not governed by the parties’
agreement, but rather were purchases made directly by Proteam and not by “Designated
Opportunities.”11
Proteam alleges that after the parties entered into their agreement, Insight learned
that “the involved Ohio purchasing agencies require[d] that payments for purchases be

4

Id. at ¶ 6.

5

Id. at ¶ 7.

6

Id. at ¶ 8.

7

Id. at ¶ 8.

8

Id. at ¶ 9.

9

Id. at 3, ¶¶ 11-14.

10

Id. at 4, ¶ 17.

11

Id. at 3-4, ¶ 15.

Order – Motion to Extend Deadlines and for
Leave to File Second Amended Counterclaim

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remitted to Proteam, rather than Insight” and that “Insight did not thereafter make any
effort to amend the Contract to reflect that requirement.”12 Proteam alleges that during the
time that the parties’ agreement was in effect, it “brokered the sales of $4,387,034.33 of
Insight-supplied goods and services to various Ohio governmental agencies.”13 Proteam
alleges that “[d]uring the tenure of the Contract, Insight either instructed Proteam to submit
bids to purchasing agencies in amounts equal to 101% to 103% of Insight’s pricing, or to
submit bids in amounts equal to Insight’s pricing for the goods.”14 Proteam alleges that
Insight told Proteam that this small mark-up was equal to the amount of Proteam’s
royalty,15 which resulted in an average royalty payment for Proteam of 1.6%. Proteam
alleges that this royalty amount was inconsistent with “Insight’s annual reports to
shareholders [which] state that during each year of the term of the Contract, Insight’s gross
profits were in excess of 13%.”16 Thus, Proteam alleges that Insight breached the contract
“by ... concealing the true gross profits resulting from Proteam-brokered sales, and failing
to pay Proteam its Contractually established royalties in the amount of 50% of such gross
profits.”17 Proteam further alleges that Insight misrepresented the amount of royalty that
Proteam was due under the parties’ agreement and that Insight concealed its gross profits

12

Amended Counterclaim at 3, ¶ 10, Docket No. 28.

13

Id. at ¶ 12.

14

Id. at 4, ¶ 22.

15

Id. at 5, ¶ 23.

16

Id. at ¶ 25.

17

Id. at ¶ 29.

Order – Motion to Extend Deadlines and for
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on the goods that it sold to Proteam.18 Proteam alleges that Insight owes it in excess of
$500,000.19
On October 16, 2014, Insight commenced this action, in which it asserts a breach of
contract claim and an unjust enrichment claim against Proteam. Proteam has asserted three
counterclaims against Insight: (1) breach of contract, (2) breach of the implied covenant of
good faith and fair dealing, and (3) intentional misrepresentation.
Following the filing of the instant motion to amend counterclaim and modify
scheduling order, an informal discovery conference was convened on March 25, 2016. As
a consequence of that conference, the court ordered that the parties re-brief the pending
motion.20 The supplemental briefing has been received21 and reviewed by the court. The
focus of the supplemental briefing is Proteam’s contention that its motion to extend
discovery deadlines should be granted.
Discussion
Proteam seeks leave to amend in order to add new factual allegations to its
counterclaims.22 Although Proteam moves to amend its counterclaims to add this new
factual information, Proteam also takes the position that its counterclaims as currently pled
are broad enough to encompass this new information. The court agrees with the latter
contention.

18

Id. at 6-7, ¶ 40.

19

Id. at 5, ¶ 30.

20

Docket No. 70.

21

Docket Nos. 72, 73 & 74.

22

Although Proteam moves to amend its counterclaims to add this new factual
information, Proteam also takes the position that its counterclaims as currently pled are
broad enough to encompass this new information.
Order – Motion to Extend Deadlines and for
Leave to File Second Amended Counterclaim

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In support of its motion to amend counterclaims, Proteam contends that it only
recently discovered that Insight deliberately increased the cost of goods it sold to Proteam
by purchasing the goods at a marked-up cost from Insight Direct USA, a sister company
and co-subsidiary of Insight’s parent company, Insight Enterprises, Inc. Proteam contends
that this practice by Insight significantly lowered the gross profit on Proteam-brokered
sales, thereby reducing the royalty to which Proteam was due on each sale. Proteam argues
that amending its counterclaims to add these additional factual allegations will ensure that
its fraud counterclaim is pled with sufficient particularity. To support its contention that it
only recently discovered the information about Insight Direct USA, Proteam offers
Insight’s supplemental responses to Proteam’s first set of interrogatories, dated
November 11, 2015.23 Proteam asked Insight:
With respect to each business entity from which you purchased
Goods, identify (1) the total dollar amount of your annual
purchases, and (2) the total annual dollar amount(s) of
incentives, rebates, discounts and other things of value which
you received as the result of such purchases during each of the
calendar years 2010 through 2013.[24]
Insight responded that “the vast majority of [its] annual sales are supplied by Insight Direct
USA, Inc., as were all the sales at issue in this lawsuit. [Insight] does not receive any break
on pricing that would not have been disclosed to Proteam to utilize in determining its sale
price to the end user.”25
Insight argues that Proteam did not recently learn that the goods that Insight sold to
Proteam were purchased from Insight Direct USA. Rather, Insight contends that Proteam

23

Defendant/Counterclaimant’s Motion to Extend Deadlines and for Leave to File
Second Amended Counterclaim, Exhibit C, Docket No. 43-1.
24

Id. at 7-8.

25

Id. at 8.

Order – Motion to Extend Deadlines and for
Leave to File Second Amended Counterclaim

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has known about Insight Direct USA’s involvement since August 2015. To support this
contention, Insight offers its initial responses to Proteam’s first set of interrogatories, dated
August 15, 2015, in which Insight provided the same answer as it did in its supplemental
responses,26 quoted above. Proteam filed the instant motion for leave to amend on
February 16, 2016, six months after Insight’s August 15, 2015, discovery response. Insight
contends that Proteam could have filed the instant motion long before now instead of
waiting until approximately one month before discovery was to close.27 Insight also argues
that any amendment would be futile because Proteam has no evidence to support these new
factual allegations. Insight contends that further discovery will not lead to evidence that it
marked up the cost of goods sold to Proteam.28
Even as to a second motion to amend,
“In the absence of any apparent or declared reason – such as
undue delay, bad faith or dilatory motive on the part of the
movant, repeated failure to cure deficiencies by amendments
previously allowed, undue prejudice to the opposing party by
virtue of allowance of the amendment, futility of amendment,
etc., the leave [to amend] ‘should ... be freely given.’”
Nat’l Council of La Raza v. Cegavske, 800 F.3d 1032, 1041-42 (9th Cir. 2015) (quoting
Foman v. Davis, 371 U.S. 178, 182 (1962)).

26

Insight Public Sector’s Responses to Proteam’s 1st Set of Interrogatories at 8,
Exhibit B, Opposition to Defendant/Counterclaimant’s Motion to Extend Deadlines and
for Leave to File Second Amended Counterclaim, which is attached to Notice of Errata,
Docket No. 58.
27

All discovery in this case was set to close on March 25, 2016. Scheduling and
Planning Order at 4, Docket No. 18.
28

Insight also argues that Proteam cannot prove that the transactions alleged in the
complaint were governed by the parties’ agreement or that it is entitled to a 13% royalty,
but these are arguments that go to the merits of Proteam’s current counterclaims, not to
whether amending those counterclaims would be futile.
Order – Motion to Extend Deadlines and for
Leave to File Second Amended Counterclaim

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Proteam’s motion to amend is denied because of undue delay. Proteam was not
diligent in seeking leave to amend. Proteam knew about Insight Direct USA in August
2015. If Proteam believed that it needed to amend its counterclaims based on this
information, it should have done so before February 2016, particularly since discovery in
this case was set to close in March 2016.
If the motion for leave to amend is granted (which it is not), then Proteam moves to
extend the deadlines in this case so that it can take discovery regarding Insight Direct
USA’s involvement in Insight’s sales to Proteam. More specifically, Proteam requests that
the current scheduling order be vacated and a new Rule 16 conference ordered, to allow the
scheduling of amended litigation deadlines.
“In general, the pretrial scheduling order can only be modified ‘upon a showing of
good cause.’” Zivkovic v. S. Cal. Edison Co., 302 F.3d 1080, 1087 (9th Cir. 2002)
(quoting Johnson v. Mammoth Recreations, Inc., 975 F.2d 604, 608 (9th Cir. 1992)). “The
pretrial schedule may be modified ‘if it cannot reasonably be met despite the diligence of
the party seeking the extension.’” Id. (quoting Johnson, 975 F.2d at 609). “If the party
seeking the modification ‘was not diligent, the inquiry should end’ and the motion to
modify should not be granted.” Id. (quoting Johnson, 975 F.2d at 609).
Proteam argues that it has shown good cause to modify the scheduling order because
it has discovered new factual information that is pertinent to its counterclaims. Proteam
also argues that it has been diligent in moving to modify the scheduling order.
Insight argues that Proteam’s motion to modify the scheduling order should be
denied because Proteam was not diligent in seeking amendment. Insight again points out
that Proteam knew in August 2015 that Insight had purchased the goods it sold to Proteam
from Insight Direct USA, but then Proteam waited six months before bringing the instant
Order – Motion to Extend Deadlines and for
Leave to File Second Amended Counterclaim

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motion. Insight also argues that there is no need to modify the scheduling order because
Proteam has already taken discovery related to its allegations about Insight Direct USA’s
involvement in this case by propounding discovery upon Insight and serving a subpoena
upon Insight Direct, USA.
In consideration of the foregoing and after having reviewed the parties’ extensive
supplemental briefing in which the parties debate the history of discovery in this case, the
court concludes that Proteam has failed to demonstrate good cause to depart from the
March 25, 2016, date for the completion of all discovery which the parties proposed29 and
the court approved.30 The court is satisfied from the parties’ supplemental briefing that
adequate discovery has been undertaken with respect to the issues presented by Insight’s
complaint and defendant’s answer and amended counterclaims.
Conclusion
Proteam’s motion for leave to amend and to modify the scheduling order is denied.
While the instant motion was under consideration, the time for filing dispositive
motions in this case (April 22, 2016) expired. The time for serving and filing dispositive
motions is extended to June 10, 2016.
DATED at Anchorage, Alaska, this 11th day of May, 2016.

/s/ H. Russel Holland
United States District Judge

29

Scheduling and Planning Conference Report at 4, Docket No. 17.

30

Scheduling and Planning Order at 4, Docket No. 18.

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