Bona Fide Conglomerate, Inc. v. SourceAmerica et al

Filing 266

ORDER Granting 246 Plaintiff's Motion to Supplement Complaint; Granting 247 Defendant's Motion for Leave to File First Amended Answer and Counterclaims. Signed by Judge Gonzalo P. Curiel on 1/5/16. (dlg)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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BONA FIDE CONGLOMERATE, INC.,

Case No.: 14-cv-0751-GPC-DHB

Plaintiff,

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ORDER:

v.
SOURCEAMERICA et al.,

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(1) GRANTING PLAINTIFF’S
MOTION TO SUPPLEMENT
COMPLAINT

Defendant.

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(2) GRANTING DEFENDANT’S
MOTION FOR LEAVE TO FILE
FIRST AMENDED ANSWER AND
COUNTERCLAIMS

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[ECF Nos. 246 & 247]

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Plaintiff Bona Fide Conglomerate, Inc. (“Plaintiff” or “Bona Fide”) brings this

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breach of contract action against SourceAmerica (“Defendant” or “SourceAmerica”)

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concerning a July 27, 2012 Settlement Agreement (“Settlement Agreement”) between the

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parties. Presently before the Court are Plaintiff’s motion for leave to file a supplemental

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complaint (Plf.’s Mot., ECF No. 246) and Defendant’s motion for leave to file a First

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Amended Answer (“FAA”) and counterclaims (Def.’s Mot., ECF No. 247). The Parties

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have fully briefed both motions. (ECF Nos. 249-50, 256-57.) The Court finds the motions
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suitable for disposition without oral argument pursuant to Civil Local Rule 7.1(d)(1). For

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the reasons set forth below, the Court GRANTS Plaintiff’s motion for leave to file a

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supplemental complaint and GRANTS Defendant’s motion for leave to file an FAA and

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counterclaims.

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FACTUAL BACKGROUND

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This action arises out of the AbilityOne Program (“AbilityOne” or “Program”), a

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government procurement system for goods and services from designated non-profits (i.e.,

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“Affiliates”) that substantially employ blind or severely disabled persons. (FAC ¶ 2, ECF

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No. 128.) Services provided by Affiliates to the Federal Government include

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custodial/janitorial, grounds maintenance, information technology, and total facilities

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management. (Id. ¶ 50.) Plaintiff is one such Affiliate of the AbilityOne Program. (Id.

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¶ 17.)

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The AbilityOne Program has selected SourceAmerica as the Central Non-Profit

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Agency (“CNA”) responsible for allocating procurement opportunities for services by the

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severely disabled among its more than 1,200 member Affiliates. (Id. ¶¶ 4, 72.) As the

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CNA, SourceAmerica develops opportunities and selects Affiliates, and then recommends

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to an AbilityOne Commission that the service and Affiliate be added to a Procurement List.

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(Id. ¶¶ 38, 44-45.) Once a service is added to the Procurement List, a federal agency must

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procure that service from the designated Affiliate unless the Affiliate cannot meet the

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agency’s demand. (Id. at ¶ 38.) The AbilityOne Commission ultimately determines which

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services are added to the Procurement List based on the recommendations of

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SourceAmerica. (Id. ¶¶ 44-45.) However, the AbilityOne Commission does not oversee

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SourceAmerica’s allocation.

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Plaintiff alleges a history of disputes between Plaintiff and SourceAmerica over the

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allocation of AbilityOne opportunities. Plaintiff alleges filing a post-award bid protest in

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the U.S. Court of Federal Claims in October 2010, challenging the government’s award of

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a General Services Administration (“GSA”) contract to Defendant Opportunity Village

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pursuant to SourceAmerica’s recommendation. (Id. ¶ 86.)

Following the voluntary

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voidance of SourceAmerica’s recommendation and a re-solicitation of the GSA contract

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opportunity, Plaintiff’s post-award bid protest was dismissed as moot. (Id.) Plaintiff then

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commenced a second bid protest in April 2012, challenging the contract award again made

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to Opportunity Village pursuant to SourceAmerica’s recommendation. (Id. ¶ 87.) Plaintiff

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and SourceAmerica reached a settlement memorialized in a July 27, 2012 agreement

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(“Settlement Agreement”) prior to conducting discovery. (Id. ¶ 88.) Under the terms of

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the Settlement Agreement, SourceAmerica agreed to:

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use best efforts to provide that Bona Fide is treated objectively, fairly, and
equitably in its dealings with [SourceAmerica], with specific attention to
contract allocation . . . [SourceAmerica] will also use best efforts to provide
that Bona Fide is afforded equal access to services provided by
[SourceAmerica] including, regulatory assistance; information technology
support; engineering, financial and technical assistance; legislative and
workforce development assistance; communications and public expertise; and
an extensive training program.

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(Id. ¶ 89) (alterations in original). The Settlement Agreement also provided that

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SourceAmerica would “reasonably monitor” Plaintiff’s participation in the AbilityOne

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Program for three years. (Id. ¶ 90.) Plaintiff alleges it has “not been awarded a single new

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contract by SourceAmerica since the Settlement Agreement was signed.” (Id. ¶ 93.) The

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Settlement Agreement also provides that Plaintiff must notify the Office of General

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Counsel at SourceAmerica of every AbilityOne opportunity to which Plaintiff responds.

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(Decl. of Kevin W. Alexander (“Alexander Decl.”) ¶ 13, ECF No. 247-2.)

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PROCEDURAL BACKGROUND

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On April 1, 2014, Plaintiff filed the Complaint in this matter alleging antitrust

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violations against various defendants and breach of contract against only Defendant

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SourceAmerica. (ECF. No. 1.) Defendants filed ten separate motions to dismiss Plaintiff’s

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Complaint. (Dkt. Nos. 23, 47, 48, 51, 53, 55, 66, 85, 86, 87.) On August 20, 2014, the

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Court granted in part and denied in part Defendants’ motions to dismiss, leaving only the

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breach of contract claim against SourceAmerica. (ECF No. 123.)

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On September 19, 2014, Plaintiff filed the operative FAC.

(ECF. No. 128.)

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Defendants filed ten separate motions to dismiss the FAC. (ECF. Nos. 138, 140, 141, 143,

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144, 148, 149, 150, 155, 159.) On January 6, 2015, the Court again dismissed Plaintiff’s

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antitrust claims but denied SourceAmerica’s motion to dismiss the breach of contract

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claim. (ECF No. 189.)

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On August 21, 2015, Magistrate Judge David H. Bartick issued a Scheduling Order

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which, among other things, provided that any motion to join other parties, to amend the

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pleadings, or to file additional pleadings shall be filed on or before October 30, 2015. (ECF

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No. 245.) On October 30, 2015, Plaintiff filed the instant motion for leave to file a

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supplemental complaint (ECF No. 246) and Defendant filed a motion for leave to file first

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amended answer and counterclaims (ECF No. 247). The parties filed oppositions on

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November 20, 2015 (ECF Nos. 249, 250) and replies on December 4, 2015 (ECF Nos. 256,

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257.)

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STANDARD OF REVIEW

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Federal Rule of Civil Procedure 15(a) provides that a party may amend its pleading

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once as a matter of course within (1) 21 days after serving the pleading or (2) 21 days after

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the earlier of service of a responsive pleading or service of a Rule 12(b) motion. Fed. R.

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Civ. Pro. 15(a). Otherwise, “a party may amend its pleading only with the opposing party's

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written consent or the court's leave,” though the court “should freely give leave when

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justice so requires.” Id. “Five factors are taken into account to assess the propriety of a

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motion for leave to amend: bad faith, undue delay, prejudice to the opposing party, futility

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of amendment, and whether the [party] has previously amended [a pleading].” Johnson v.

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Buckley, 356 F.3d 1067, 1077 (9th Cir. 2004) (citing Nunes v. Ashcroft, 348 F.3d 815, 818

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(9th Cir. 2003)). In practice, however, courts more freely grant plaintiffs leave to amend

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pleadings in order to add claims than new parties. Union Pacific R.R. Co. v. Nevada Power

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Co., 950 F.2d 1429, 1432 (9th Cir. 1991). These factors do not “merit equal weight,” and

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“it is the consideration of prejudice to the opposing party that carries the greatest weight.”

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Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003). “Absent

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prejudice, or a strong showing of any of the remaining [ ] factors, there exists a presumption
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under Rule 15(a) in favor of granting leave to amend.” Id. (original emphasis).

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Federal Rule of Civil Procedure 15(d) provides, “On motion and reasonable notice,

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the court may, on just terms, permit a party to serve a supplemental pleading setting out

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any transaction, occurrence, or event that happened after the date of the pleading to be

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supplemented.” Fed. R. Civ. Pro. 15(d). “The purpose of Rule 15(d) is to promote as

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complete an adjudication of the dispute between the parties as is possible.” LaSalvia v.

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United Dairymen of Ariz., 804 F.2d 1113, 1119 (9th Cir. 1986) (citation and brackets

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omitted). “The standards for granting a motion for leave to file a supplemental pleading

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are the same as those for granting a motion to file an amended complaint under Rule 15(a).”

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Frederick v. Calif. Dep't of Corr. & Rehab., No. 08–cv-2222–MMC, 2012 WL 2077305,

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at *2 (N.D. Cal. June 8, 2012) (citation omitted). “The court should also consider whether

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permitting the supplemental pleading will serve to promote judicial efficiency.” Id.

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DISCUSSION
I.

Plaintiff’s Motion to File First Supplemental Complaint

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Plaintiff seeks leave to file a supplemental complaint to allege facts that occurred

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after the filing of the initial complaint (Compl., ECF No. 1) that it states provide further

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bases of liability and damages as to Plaintiff’s breach of contract related to the performance

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of the Settlement Agreement. Specifically, Plaintiff states that since the commencement

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of this action Plaintiff has competed for several contracts as an Affiliate in the AbilityOne

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Program. (Mot. Supp. Compl. at 2, ECF No. 246.) Plaintiff alleges that of the contracts

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Plaintiff competed for, Defendant awarded five to Affiliates—CW Resources, Professional

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Contract Services, Inc. and Goodwill—that Jean Robinson (“Robinson”), Defendant’s

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former General Counsel, has stated “receive contracts unfairly and automatically,

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regardless of merit.” (Id.)

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Defendant argues that Plaintiff’s motion is untimely, unduly prejudicial because it

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is “nothing short of a ‘moving target’ and subject to continual expansion as Plaintiff

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continues to apply for AbilityOne contracts and . . . alleges unfair treatment anytime it is

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not awarded one.” (Opp’n Supp. Compl. at 1, ECF No. 249.) Defendant also argues that
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Plaintiff’s proposed supplemental complaint is futile because “it contains no additional

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substantive allegations” and the allegations are “vague and conclusory.” (Id.)

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After review of the motion for leave to file a supplemental complaint and all related

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filings, the Court concludes that, under the Foman test, Defendant has failed to overcome

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the presumption under Rule 15(a) in favor of granting leave to amend. See Eminence

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Capital, 316 F.3d at 1052. Plaintiff’s motion is not untimely as the parties agreed at the

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August 20, 2015 Rule 26(f) conference to the October 30, 2015 deadline to make motions

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to amend pleadings, as reflected in the Court’s Scheduling Order. (See Scheduling Order,

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ECF No. 245.) In fact, in compliance with that deadline, Plaintiff filed its motion to

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supplement complaint and Defendant filed its motion for leave to file an amended answer

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and counterclaims on October 30, 2015.

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Nor is there any showing of wrongful motive in supplementing the FAC as the events

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Plaintiff seeks to allege are related to the same transaction that forms the basis of Plaintiff’s

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breach of contract claim—the Settlement Agreement. The Court does not find that there

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would be undue prejudice to Defendant in allowing the supplemental complaint. As

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Defendant states, the case is its “very early stages” and discovery has just begin. (Def.’s

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Mot. at 12, ECF No. 247.) The deadline for filing pretrial dispositive motions is July 15,

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2016. (Scheduling Order at 3, ECF No. 245.) Accordingly, no prejudice has been shown.

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As to the futility factor, Defendant has not shown that Plaintiff’s supplemental

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pleading would “clearly be subject to dismissal.” DCD Programs, Ltd. v. Leighton, 833

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F.2d 183, 188 (9th Cir. 1987.) Plaintiff’s proposed supplemental complaint alleges

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additional AbilityOne opportunities were denied in breach of the Settlement Agreement.

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At this point of the proceedings, it is not the Court’s role to determine the validity of these

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claims. The Court cannot conclude that Plaintiff’s supplemental complaint is futile.

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As to the last factor, Plaintiff has not previously sought leave to supplement the

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complaint. Based on the five factors that support granting leave to file a supplemental

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complaint, and in light of the Ninth Circuit’s extremely liberal policy favoring leave to

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amend and supplement a complaint, the Court GRANTS Plaintiff’s motion.
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II.

Defendant’s Motion for Leave to Amend Answer and File Counterclaims

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Defendant seeks leave to amend its answer to add additional affirmative defenses

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and to assert new counterclaims against Plaintiff and third-party Counter-defendant Ruben

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Lopez (“Lopez”), President and CEO of Bona Fide. Specifically, with respect to the

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Answer, Defendant seeks to (1) clarify its response regarding the evaluation process for

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awarding contracts, (2) break up Defendant’s current affirmative defenses of waiver,

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estoppel and/or laches into separate sections, and (3) add the affirmative defenses of

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frustration of purpose, prevention of performance and unclean hands. (Def.’s Mot. at 6-7,

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ECF No 247.)

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In addition, Defendant requests leave to file counterclaims for (1) violation of

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California Penal Code Section 632(a) (“California Invasion of Privacy Act” or “CIPA”);

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(2) unfair, unlawful and/or fraudulent business practices in violation of California Business

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and Professions Code Section 17200; and (3) breach of contract. (Id. at 7.) Defendant

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contends that its proposed counterclaims are based on newly discovered facts, which

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include Plaintiff and Lopez secretly recording conversations between Lopez and Robinson;

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Plaintiff failing to notify Defendant of every AbilityOne opportunity to which Plaintiff

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responded in violation of the Settlement Agreement; and Counter-defendants having

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additional privileged and confidential information that belongs to Defendant that was not

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previously disclosed. (Id. at 1, 7.) Defendant also argues that its proposed counterclaims

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are further based on Counter-defendants’ “history of wrongful misconduct in an attempt to

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obtain AbilityOne Program opportunities for Bona Fide to which it is neither suitable nor

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entitled.” (Id. at 8.) Plaintiff does not oppose Defendant’s motion to amend the Answer

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but opposes Defendant’s motion to add counterclaims on futility grounds.

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A.

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There can be bad faith in bringing an amendment if the party seeks to prolong

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meritless litigation by adding baseless amendments to their complaint or if there is any

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evidence of wrongful motive. Jones v. Bates, 127 F.3d 839, 847 n. 8 (9th Cir. 1997);

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Griggs v. Pace American Group, Inc., 170 F.3d 877, 881 (9th Cir. 1999); DCD Programs.

Bad Faith, Undue Delay, Prejudice

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Ltd., 833 F.2d at 187. Here Plaintiff does not argue nor is there any indication of wrongful

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motive in bringing the counterclaims.

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As to undue delay, the Court looks at whether the moving party unduly delayed in

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filing their motion. Jackson v. Bank of Hawaii, 902 F.2d 1385, 1388 (9th Cir. 1990). In

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making such a determination, the court looks at “whether the moving knew or should have

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known the facts and theories raised by the amendment in the original pleading.” Id.

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According to Defendant, the facts underlying its counterclaims were not learned until

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recently. The Court finds that assertion is only partially supported by the record. However,

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as discussed supra, the parties agreed to an October 30, 2015 deadline to file motions to

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amend pleadings and add parties (see Scheduling Order, ECF No. 245) and discovery has

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just begun. Consequently, there is an insufficient showing of undue delay.

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More importantly, there is no showing of prejudice, as the case is in the early stages.

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Defendant is in compliance with the Scheduling Order and although Lopez was not

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previously named as a party, as the President and CEO of Bona Fide, he has been on notice

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of the litigation.

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B.

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Defendant argues that amendment is not futile because it alleges legitimate,

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colorable claims. (Def.’s Mot. at 13-14, ECF No. 247.) Plaintiff argues that amendment

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to add counterclaims would be futile because Defendant lacks standing and is otherwise

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precluded from bringing two of its three counterclaims and Defendant’s third counterclaim

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alleges damages that do not and cannot exist. (Plf.’s Opp’n at 11, ECF No. 250.)

Futility of Amendment

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“[A] proposed amendment is futile only if no set of facts can be proved under the

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amendment to the pleadings that would constitute a valid and sufficient claim or defense.”

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Miller v. Rykoff-Sexton, Inc., 845 F.2d 209, 214 (9th Cir. 1988). Courts ordinarily do not

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consider the validity of a proposed amended pleading in deciding whether to grant leave to

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amend and defer consideration of challenges to the merits of a proposed amendment until

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after leave to amend is granted and the amended pleadings are filed. Netbula, LLC v.

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Distinct Corp., 212 F.R.D. 534, 539 (N.D. Cal. 2003) (citation omitted); accord Green
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Valley Corp. v. Caldo Oil Co., No. 09cv4028-LHK, 2011 WL 1465883, at *6 (N.D. Cal.

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April 18, 2011) (noting “the general preference against denying a motion for leave to

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amend based on futility”). Arguments concerning the sufficiency of the proposed

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pleadings, even if meritorious, are better left for briefing on a motion to dismiss. Lillis v.

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Apria Healthcare, No. 12-cv-0052-IEG-KSC-, 2012 WL 4760908, at * 1 (S.D. Cal. Oct.

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5, 2012).

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1)

Defendant’s CIPA Claim

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Defendant’s first counterclaim alleges that Plaintiff has violated CIPA through

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Lopez’ surreptitious recording of his conversations with Robinson and David Dubinsky

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(“Dubinsky”), a Regional Director for Source America. (Countercl. ¶¶ 67-70, ECF No.

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257-2.) Defendant alleges that Plaintiff provided these illegal recordings to third parties

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and that these recordings eventually ended up on WikiLeaks. (Id. ¶¶ 72-73.)

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Plaintiff opposes Defendant’s CIPA counterclaim on the basis of futility because (1)

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Defendant lacks standing because CIPA does not apply extraterritorially and (2) Defendant

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has “disavowed” Robinson as its agent. (Plf.’s Opp’n at 11-13, ECF No. 250.) Plaintiff

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argues that Defendant lacks standing because it neither holds its principal place of business

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nor is incorporated in California and Defendant does not allege that any of the recordings

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at issue were made while Robinson was within California’s boundaries. (Id. at 12.)

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Plaintiff contends that because CIPA expressly provides that it was “not intended to have

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extraterritorial operation,” Defendant’s CIPA counterclaim must fail. Plaintiff further

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argues that Defendant lacks standing because Defendant alleges that Robinson made all

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the recorded disclosures to Lopez “[u]nbeknownst to SourceAmerica and without

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authorization.” (Id. (citing Countercl. ¶ 12, ECF No. 29, ECF No. 257-2.)

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Defendant responds that at least one party to the unlawfully recorded

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conversations—Lopez—was located in California, and, in any event, Defendant has offices

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in California and Dubinsky is a California resident. Defendant further argues that it has

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standing because the statute creates a private right of action for “[a]ny person who has been

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injured by a violation of this section” and is not limited to the party that was illegally
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recorded (Def.’s Reply at 4, ECF No. 257 (citing Cal. Penal Code § 637.2).) Accordingly,

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it is irrelevant whether Robinson was acting within the scope of her employment. (Id.)

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CIPA, California's anti-wiretapping and anti-eavesdropping statute, prohibits

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unauthorized interceptions of communications in order “to protect the right of privacy.”

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Cal. Penal Code § 630. The California Legislature enacted CIPA in 1967 in response to

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“advances in science and technology [that] have led to the development of new devices

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and techniques for the purpose of eavesdropping upon private communications.” Id.

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Section

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conversations. See Cal. Penal Code § 632(a). To state a claim under section 632, a plaintiff

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must allege an electronic recording of or eavesdropping on a confidential communication,

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and that not all parties consented to the eavesdropping. Flanagan v. Flanagan, 41 P.3d

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575, 577 (Cal. 2002).

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prohibits

unauthorized

electronic

eavesdropping

on

confidential

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Here, both parties raise numerous factual and legal issues supported by declarations

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regarding the applicability of CIPA to the recorded conversations that are in dispute. At

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this point of the proceedings, it is not the Court’s role to determine the legal or factual

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merits of the claim. The Court cannot conclude that Defendant has failed to sufficiently

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plead a plausible claim for relief under CIPA.

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2)

Defendant’s UCL Claim

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Defendant alleges that Bona Fide and Lopez violated California Business and

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Professions Code Section 17200 (“UCL”) by engaging in various misconduct in an attempt

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to force Defendant to recommend Bona Fide for AbilityOne opportunities to which it was

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not entitled.

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fraudulent conduct” in his capacity of as President of Bona Fide and, as a result, these

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wrongful acts caused SourceAmerica substantial injury, including reputational harm,

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damages, and litigation and other legal costs. (Countercl. ¶¶ 79-81, ECF No. 257-2.)

Defendant alleges that Lopez committed various “unlawful, unfair, or

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Plaintiff argues that Defendant lacks statutory standing to bring a UCL claim based

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upon out-of-state conduct because Defendant is an out-of-state claimant and of the

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“wrongful” conduct alleged by SourceAmerica, the only conduct that occurred in
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California is the instant lawsuit. (Plf.’s Mot. at 14, ECF No. 250.) Defendant responds

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that the alleged wrongful conduct occurred largely in California, Defendant maintains an

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office and conducts business in California, and certain opportunities to which Bona Fide

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claims to have been entitled were in California. (Def.’s Reply at 5-6. ECF No. 257.)

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Plaintiff also argues that Defendant’s UCL claim based on Plaintiff’s

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commencement of this and other lawsuits or promoting government investigations is

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privileged under Cal. Civ. Code § 47(b), Defendant has not alleged that it “suffered injury

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in fact . . . and lost money or property” as required by Cal. Bus. & Prof. Code § 17204

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because litigation expenses do not qualify for UCL purposes, and Defendant has released

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all claims against Plaintiff for pre-July 27, 2012 conduct under the Settlement Agreement.

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Defendant responds that it has sufficiently alleged injury, the litigation privilege does not

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apply to Defendant’s UCL claim because it does not bar recovery for injuries for tortious

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conduct, and the litigation privilege is inapplicable to illegal recordings by Plaintiff.

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(Def.’s Opp’n at 7-8, ECF No. 257.) Defendant contends that its UCL claim is not barred

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by the Settlement Agreement because “many of the allegations, including the illegal

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recordings, occurred well after this date.” (Id. at 9.)

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At this stage, the Court cannot conclude that no set of facts can be proved on the

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allegations in the counterclaim. In its proposed claim under the UCL, Plaintiff specifically

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identifies the conduct that allegedly violates the UCL. The parties dispute where the

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alleged wrongful acts occurred and whether Defendant is an out-of-state claimant. Even if

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the Court finds that some of Plaintiff’s conduct is privileged, it is unclear at this juncture

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that the privileged conduct extends to allegedly illegal recordings by Plaintiff. Defendant

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alleges that at least some of the allegedly illegal recordings occurred after July 27, 2012.

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Defendant also alleges injury beyond litigation expenses, including harm to its reputation.

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The Court therefore concludes that granting Defendant leave to file a counterclaim would

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not be futile.

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//

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//
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3)

Defendant’s Breach of Contract Claim

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In its third counterclaim Defendant alleges that Bona Fide “breached the Settlement

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Agreement by failing to notify SourceAmerica of every opportunity for which it submitted

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a response.” (Countercl. ¶ 88, ECF No. 257-2.)

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Plaintiff argues that amendment would be futile because SourceAmerica “cannot

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possibly have been damaged by Bona Fide’s alleged breach of its duty to report its

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submission of responses.” (Plf.’s Opp’n at 18, ECF No. 250.) Plaintiff contends that there

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is no connection between its reporting of a response to an opportunity and “any source of

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potential revenue or loss for Source America.” (Id.) Defendant responds that Plaintiff’s

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breach of the Settlement Agreement has injured Defendant because “Bona Fide’s failure

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to report has caused SourceAmerica additional litigation expenses, and is a contributing

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factor in the ongoing dispute brought by Bona Fide against SourceAmerica alleging that

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Source America breached the Settlement Agreement.” (Def.’s Reply at 10, ECF No. 257.)

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Defendant alleges that it has been damaged as a direct and proximate result of the

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breach. (Countercl. ¶ 89.) At this time, Plaintiff has not demonstrated that Defendant

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cannot prove damages resulting from Bona Fide’s alleged breach and that granting

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Defendant leave to file a counterclaim is futile.

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As to the last factor, Defendant has not previously sought leave to file a

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counterclaim. Based on the five factors that support the filing of counterclaims, and in

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light of the Ninth Circuit’s extremely liberal policy favoring leave to amend, the Court

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GRANTS Defendant’s motion for leave to file counterclaims.

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Court did not rely on the documents in Plaintiff’s request for judicial notice, the Court

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denies the request for judicial notice.

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//

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//

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//

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//

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//

Because the

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CONCLUSION

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For the foregoing reasons, the Court hereby:

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(1)

GRANTS Plaintiff’s motion for leave to file a supplemental complaint; and

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(2)

GRANTS Defendant’s motion for leave to file an amended answer and

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counterclaims.
IT IS SO ORDERED.
Dated: January 5, 2016

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