Leines v. Homeland Vinyl Products, Inc.

Filing 127

ORDER signed by Chief District Judge Kimberly J. Mueller on 10/13/2020 GRANTING 51 Homeland's Motion to Amend the Complaint. Plaintiff may (1) propound two supplemental interrogatories to Homeland, (2) make two supplemental document reques ts, (3) take one additional Rule 30(b)(6) deposition of Homelands person most knowledgeable relating to warranties and lost profits for up to five hours in length by videoconference, and (4) supplement plaintiff's expert report on damages base d on the information received in the additional discovery. Should the parties believe it is necessary, they may file a joint statement within 14 days addressing the necessity of any other amendments to the scheduling order consistent with this order. (Kastilahn, A)

1
2
3
4
5
6
7
8

UNITED STATES DISTRICT COURT

9

FOR THE EASTERN DISTRICT OF CALIFORNIA

10
11

RICHARD A. LEINES,

12

Plaintiff/Counter-Defendant,

13
14

No. 2:18-cv-00969-KJM-DB

v.

ORDER

HOMELAND VINYL PRODUCTS, INC.,

15

Defendant/Counterclaimant.

16
Defendant and counterclaimant Homeland Vinyl Products, Inc. (“Homeland”)

17
18

moves for leave to amend its counterclaims. Mot., ECF No. 51. For the reasons below, the court

19

GRANTS the motion to amend.
I.

20

BACKGROUND

21

Plaintiff Richard Leines entered into a licensing agreement whereby Homeland

22

could manufacture and sell certain deck construction products, called “Gorilla Lock,” that are

23

purportedly based on an invention Leines patented. First Am. Compl. (“FAC”), ECF No. 27 ¶ 1.

24

Homeland alleges Leines granted Homeland an exclusive license to manufacture and sell Gorilla

25

Lock products throughout the United States. Proposed First Am. Counterclaims, ECF No. 53-1

26

¶ 9.

27
28

On April 19, 2018, plaintiff sued Homeland for breach of contract, breach of
express and implied warranties, breach of the covenant of good faith and fair dealing, false
1

1

advertising, unfair competition and patent infringement. Compl., ECF No. 1. Plaintiff alleges

2

Homeland produced Gorilla Lock in ways that did not meet contractual standards of quality.

3

FAC ¶¶ 29, 34. Plaintiff also alleges Homeland continued to manufacture Gorilla Lock products,

4

infringing plaintiff’s patent, after the licensing agreement expired on July 31, 2017. FAC ¶¶ 89-

5

90; FAC Ex. A, Art. 7.1, ECF No. 27-1.

6

On June 22, 2018, Homeland answered and counterclaimed for declaratory

7

judgment, equitable relief and breach of the implied covenant of good faith and fair dealing.

8

Def.’s Answer & Counterclaim, ECF No. 13.

9
10

On October 11, 2018, the court issued its pretrial scheduling order. Scheduling
Order, ECF No. 24. The fact discovery cutoff was set as October 7, 2019. Scheduling Order at 2.

11

On April 23, 2019, plaintiff produced approximately 3,600 pages of documents in

12

response to Homeland’s discovery requests. Homeland’s attorney, Brandon Christensen, states,

13

“[i]n reviewing these documents, Homeland discovered that Plaintiff had formed a relationship

14

with American PlasTech, LLC to manufacture and sell decking materials.” Declaration of

15

Brandon Christensen (“Christensen Decl.”), ECF No. 53 ¶ 12. On August 13, 2019, the parties

16

stipulated to amend the fact discovery cutoff to November 22, 2019, which the court approved.

17

Order Am. Pretrial Scheduling Order, ECF No. 43. Homeland subpoenaed documents from

18

American PlasTech on September 3, 2019. Christensen Decl. ¶ 13. On September 18 and 20,

19

2019, American PlasTech produced 118 pages of responsive documents relating to its relationship

20

with plaintiff. Id. ¶ 14.

21

On September 30, 2019, plaintiff produced an additional 2,700 pages of additional

22

documents responsive to Homeland’s initial document request. Id. ¶ 15. On October 8, 2019,

23

Homeland took plaintiff’s deposition. Id. ¶ 16. On October 10, 2019, Homeland took plaintiff’s

24

wife’s deposition. Id. ¶ 17. On October 15 and 16, 2019, Homeland took the depositions of two

25

contractors who sold Gorilla Lock and four Gorilla Lock purchasers. Id. ¶ 18. On the last day of

26

fact discovery, November 22, 2019, Homeland took the deposition of American PlasTech through

27

its owner, Richard Amato. Id. ¶ 19.

28

/////
2

1

Homeland claims that through the discovery detailed above, it learned plaintiff

2

breached the exclusivity provision of the license agreement by hiring American PlasTech to

3

manufacture and sell decking products based on the patent-in-suit. Id. ¶ 20. It also claims that

4

discovery revealed plaintiff used a product manufactured by American PlasTech to replace decks

5

that Homeland warrantied, wrongfully profiting from such warranty claims. Id. ¶ 21.

6

Also before the discovery cutoff, on October 21, 2019, plaintiff’s counsel traveled

7

with plaintiff to Birmingham, Alabama to depose several key Homeland witnesses. Declaration

8

of Eric Benisek (“Benisek Decl.”), ECF No. 55-1 ¶ 8. Homeland did not inform plaintiff or

9

plaintiff’s counsel at that time that it had discovered new claims, and therefore plaintiff did not

10

explore these topics in his depositions of Homeland witnesses. Id.

11

On November 18, 2019, Homeland attempted to secure plaintiff’s stipulation to

12

amendment of its counterclaims to add a breach of the exclusivity provision of the license

13

agreement and a claim for breach of the implied covenant of good faith and fair dealing, but

14

plaintiff declined to agree without a second deposition under Rule 30(b)(6), held in California to

15

avoid travel expenses. Christensen Decl. ¶¶ 23–26; Benisek Decl. ¶ 8. Homeland offered to

16

stipulate to two supplemental interrogatories, two supplemental document requests and limited

17

supplementation of expert reports on the scope of damages from the new claims, but no additional

18

deposition. Christensen Decl. ¶ 25. Plaintiff again declined. Homeland now brings the instant

19

motion. Plaintiff and counter-defendant Richard Leines oppose. Opp’n, ECF No. 55. Homeland

20

replied. Reply, ECF No. 59.

21
22

II.

LEGAL STANDARD
A party seeking leave to amend pleadings after a deadline specified in the

23

scheduling order must first satisfy Federal Rule of Civil Procedure 16(b)’s “good cause” standard.

24

Johnson v. Mammoth Recreations, Inc., 975 F.2d 604, 608–09 (9th Cir. 1992). Under Rule 16(b),

25

“[a] schedule may be modified only for good cause and with the judge’s consent.” Fed. R. Civ. P.

26

16(b)(4). Distinct from Rule 15(a)’s liberal amendment policy, Rule 16(b)’s good cause standard

27

focuses primarily on the diligence of the moving party, and its reasons for seeking modification.

28

Johnson, 975 F.2d at 609.
3

1

If good cause exists, the movant next must satisfy Rule 15(a). See id. at 608

2

(citing approvingly Forstmann v. Culp, 114 F.R.D. 83, 85 (M.D.N.C. 1987), for its explication of

3

this order of operations). Federal Rule of Civil Procedure 15(a)(2) provides, “[t]he court should

4

freely give leave [to amend the pleadings] when justice so requires” and the Ninth Circuit has

5

“stressed Rule 15’s policy of favoring amendments.” Ascon Props, Inc. v. Mobil Oil Co.,

6

866 F.2d 1149, 1160 (9th Cir. 1989). “In exercising its discretion ‘a court must be guided by the

7

underlying purpose of Rule 15—to facilitate decision on the merits rather than on the pleadings or

8

technicalities.’” DCD Programs, Ltd. v. Leighton et al., 833 F.2d 183, 186 (9th Cir. 1987)

9

(quoting United States v. Webb, 655 F.2d 977, 979 (9th Cir. 1981)). Courts consider five factors

10

in determining whether justice requires allowing amendment under Rule 15(a): “bad faith, undue

11

delay, prejudice to the opposing party, futility of amendment, and whether the party has

12

previously amended his pleadings.” Johnson v. Buckley, 356 F.3d 1067, 1077 (9th Cir. 2004)

13

(citation omitted); Bonin v. Calderon, 59 F.3d 815, 845 (9th Cir. 1995) (citation omitted).

14

III.

DISCUSSION

15

A. Good Cause Under Rule 16

16

Homeland’s motion to amend comes after the close of fact discovery, and thus

17

must first be analyzed under Rule 16’s “good cause” standard. A moving party may be required

18

to show (1) diligence in creating a workable Rule 16 order; (2) its noncompliance with a Rule 16

19

deadline occurred or will occur, notwithstanding diligent efforts to comply, because of the

20

development of matters that could not have been reasonably foreseen or anticipated at the time of

21

the scheduling conference; and (3) the moving party was diligent in seeking amendment of the

22

scheduling order once it became apparent it could not comply with the order. Jackson v.

23

Laureate, Inc., 186 F.R.D. 605, 608 (E.D. Cal. 1999) (citations omitted).

24

The dispute here essentially boils down to a question of when Homeland

25

discovered the viability of the proposed counterclaims. Plaintiff asserts Homeland knew or

26

should have known of these additional claims as early as April 23, 2019. That is the date plaintiff

27

produced 3,200 pages of responsive documents containing emails demonstrating a business

28

relationship between plaintiff and American PlasTech. Opp’n, ECF No. 55 at 5–6. The court
4

1

disagrees. Homeland rightly points out that “even the most efficient lawyers need time to review

2

documents.” Reply at 3. Homeland asserts it took until August 2019 to finish reviewing this first

3

production. Reply at 4; Second Christiansen Decl. ¶ 4, ECF No. 59-1.

4

Homeland also asserts the first production did not support the proposed

5

counterclaims on its own. Reply at 4. Homeland claims it only had sufficient information to

6

assert a breach of the exclusivity provision in good faith after the depositions of plaintiff, his

7

wife, several customers and contractors in mid-October of 2019. Id. Homeland alleges the

8

depositions revealed that a previously-disclosed agreement between plaintiff and American

9

PlasTech to manufacture products was more particularly an agreement to manufacture products

10

based on the patent-in-suit, a key fact for breach of exclusivity. Id. at 5; Second Christiansen

11

Decl. ¶ 15.

12

Homeland’s arguments about time spent reviewing a voluminous document

13

production and the need to confirm with depositions the theory underlying its new counterclaims

14

ring true. It appears Homeland’s additional claims were not developed well enough for inclusion

15

in Homeland’s pleadings until late October 2019, when the follow-up depositions of Leines and

16

his wife took place. At that point, there remained only a month to draft amended counterclaims

17

and either negotiate a stipulation to amendment or bring a motion.

18

On the flip side of the coin, plaintiff’s assertion that Homeland knew of its alleged

19

warranty claims well before the discovery cutoff rings hollow. Homeland may have “admitted in

20

its discovery responses that it was suspicious of certain warranty claims years before this lawsuit

21

was even filed,” Opp’n at 6, but suspicion is not the same as diligent prelitigation investigation,

22

nor is it confirmation that such a counterclaim exists.

23

In short, Homeland had some support for additional counterclaims well before the

24

discovery cutoff. However, Homeland only uncovered sufficient information to add those claims

25

close to the cutoff. Homeland was sufficiently diligent to satisfy Rule 16’s good cause

26

requirement. Cf. United States ex rel. Terry v. Wasatch Advantage Group, LLC, 327 F.R.D. 395,

27

406 (E.D. Cal. 2018) (finding good cause where discovery revealed existence of additional

28

properties covered by complaint’s legal theories two weeks before close of fact discovery).
5

1

B. Compliance With Rule 15

2

The court now turns to Rule 15. As discussed above, the court applies the factors

3

cited in Johnson v. Buckley to determine whether amendment should be granted. 356 F.3d at

4

1077. In evaluating the five factors, the court must grant all inferences in favor of allowing

5

amendment. Griggs v. Pace Am. Group, Inc., 170 F.3d 877, 880 (9th Cir. 1999).1 The party

6

opposing amendment has the burden of showing prejudice. DCD Programs, Ltd., 833 F.2d at

7

187 (citing Beeck v. Aqua-slide ‘N’ Dive Corp., 562 F.2d 537, 540 (8th Cir. 1977)).

8

Here, there is no indication that Homeland is bringing its counterclaims in bad

9

faith. Bad faith means acting with intent to deceive, harass, mislead, delay or disrupt. See Leon

10

v. IDX Sys. Corp., 464 F.3d 951, 961 (9th Cir. 2006) (explaining bad faith in sanctions context).

11

Bad faith is present when the moving party seeks leave to amend “to prolong the litigation by

12

adding new but baseless legal theories.” Griggs, 170 F. 3d at 880. Nothing indicates, and

13

plaintiff does not argue, that Homeland’s additional theories are baseless. To the contrary,

14

Homeland’s approach overall appears reasonably intended to confirm the additional claims had

15

adequate support before confirming them. The proposed addition of these counterclaims is not in

16

bad faith.

17

At the same time, the court is troubled by Homeland’s decision to withhold any

18

indication of its intent to bring new counterclaims until after plaintiff completed his depositions

19

of Homeland witnesses in Alabama and only four days before the fact discovery cutoff. While

20

the proposed amendment itself shows no bad faith, the timing of Homeland’s disclosure of its

21

plans and this motion is suspect. As noted by plaintiff, “[h]ad Homeland sought amendment in

22

mid-October after it deposed Plaintiff, there would still have been enough time for Plaintiff to

23

arrange the necessary additional discovery and prepare to examine Homeland’s Rule 30(b)(6)

24

deposition witnesses.” Opp’n at 6. While Homeland proffers its attorney’s correspondence with

25

plaintiff’s counsel attempting to secure a stipulation to amendment in support of its motion,

26

/////

27
28

1

Griggs refers to four factors; the Ninth Circuit has since added whether a party has already
amended the pleadings as a fifth. See Buckley, 356 F.3d at 1077.
6

1

Christiansen Decl. Ex. C, ECF No. 53-3, the proposal came too late for any meaningful

2

negotiation.

3

This goes to the second and third factors, undue delay and prejudice to the

4

opposing party. “Undue delay” is delay that prejudices the nonmoving party or imposes

5

unwarranted burdens on the court. BNSF Ry. Co. v. San Joaquin Valley R.R. Co., No. 08-01086,

6

2011 WL 3328398, at *2 (E.D. Cal. Aug. 2, 2011) (citation omitted). “Whether there has been

7

‘undue delay’ should be considered in the context of (1) the length of the delay measured from

8

the time the moving party obtained relevant facts; (2) whether discovery has closed; and

9

(3) proximity to the trial date.” Wizards of the Coast LLC v. Cryptozoic Entertainment LLC, 309

10

F.R.D. 645, 652 (W.D. Wash. 2015) (citing Texaco, Inc. v. Ponsoldt, 939 F.2d 794, 798–99 (9th

11

Cir. 1991)).

12

“In the context of a motion to amend, prejudice means ‘undue difficulty in

13

prosecuting a lawsuit as a result of change in tactics or theories on the part of the other party.’”

14

Bennett v. Forbes, No. 17-464, 2017 WL 4557215, at *6 (S.D. Cal. Oct. 12, 2017) (quoting

15

Deakyne v. Comm’rs of Lewes, 416 F.2d 290, 300 (3d Cir. 1969)). Prejudice to the opposing

16

party carries the greatest weight in the Rule 15 analysis. Eminence Capital, LLC v. Aspeon, Inc.,

17

316 F.3d 1048, 1052 (9th Cir. 2003). The opposing party “must do more than merely claim

18

prejudice; ‘it must show that it was unfairly disadvantaged or deprived of the opportunity to

19

present facts or evidence which it would have offered had the … amendments been timely.’”

20

Shuey v. County of Ventura, No. 14-09520, 2016 WL 4367224, at *4 (C.D. Cal. Aug. 11, 2016)

21

(citations omitted).

22

Here, the delay between when Homeland learned facts supporting the proposed

23

counterclaims and when it sought a stipulation to allow amendment is short but important.

24

Homeland confirmed the basis for its additional claims in mid-October, yet its counsel did not

25

request a stipulation to amendment until mid-November. In the interim, plaintiffs deposed

26

several Homeland witnesses who likely had information material to the proposed counterclaims,

27

yet Homeland said nothing about the potential it would seek to amend the counterclaims. In

28

addition, as noted, Homeland’s attorneys gave notice of their intent to amend a mere four days
7

1

before the close of fact discovery. Homeland’s failure to give more notice of its intent to amend

2

in these circumstances is unreasonable and will prejudice plaintiff without the provision of

3

additional discovery to meet these additional claims. The purpose of Rule 15’s liberal standard to

4

amend is to facilitate decisions on the merits; the corollary is that parties facing additional claims

5

through amendment must be able to sufficiently investigate the merits of those claims through

6

discovery.

7

Plaintiff does not address the remaining factors, futility of amendment and whether

8

the movant has previously amended its pleadings, and they are not relevant to the court’s analysis.

9

However, because the proposed additional counterclaims do not appear to be

10

brought in bad faith, and because plaintiff has indicated the prejudicial effect of late amendment

11

could be cured by additional discovery, the court finds granting leave to amend would be in the

12

interests of justice. The court further orders additional discovery as detailed below.

13
14

IV.

CONCLUSION
For the foregoing reasons, the court GRANTS Homeland’s motion for leave to

15

amend. The court further ORDERS that plaintiff may (1) propound two supplemental

16

interrogatories to Homeland, (2) make two supplemental document requests, (3) take one

17

additional Rule 30(b)(6) deposition of Homeland’s person most knowledgeable relating to

18

warranties and lost profits for up to five hours in length by videoconference, and (4) supplement

19

plaintiff’s expert report on damages based on the information received in the additional

20

discovery. Should the parties believe it is necessary, they may file a joint statement within

21

fourteen (14) days addressing the necessity of any other amendments to the scheduling order

22

consistent with this order.

23
24

IT IS SO ORDERED
DATED: October 13, 2020.

25
26
27
28
8