Two Moms and a Toy, LLC v. International Playthings, LLC

Filing 134

ORDER AFFIRMING MAGISTRATE JUDGE'S RECOMMENDATIONS. Plaintiff Two Moms and a Toy, LLC's 59 , 124 Objections to Recommendation of United States Magistrate Judge and Order are overrruled. The 52 , 117 Recommendations of United States Ma gistrate Judge and Orders are accepted. Plaintiff's 42 Motion for Leave to Join Parties and Amend First Amended Complaint is granted in part and denied in part. Plaintiff's 102 Motion for Leave to Join Parties and Amend the Second Amended Complaint is granted in part and denied in part. By Judge Philip A. Brimmer on 11/17/11.(mnfsl, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Philip A. Brimmer
Civil Action No. 10-cv-02271-PAB-BNB
TWO MOMS AND A TOY, LLC, a Colorado limited liability company,
Plaintiff,
v.
INTERNATIONAL PLAYTHINGS, LLC, a Delaware limited liability company,
Defendant.
_____________________________________________________________________
ORDER AFFIRMING MAGISTRATE JUDGE’S RECOMMENDATIONS
_____________________________________________________________________
This matter is before the Court on Plaintiff’s Motion for Leave to Join Parties and
Amend First Amended Complaint [Docket No. 42] filed on May 24, 2011 and Plaintiff’s
Motion for Leave to Join Parties and Amend the Second Amended Complaint [Docket
No. 102] filed on September 15, 2011. Magistrate Judge Boyd N. Boland issued
Recommendations as to each motion [Docket Nos. 52, 117]. Judge Boland granted
plaintiff’s motions to amend insofar as it asserted additional claims and sought to add
Yookidoo, Ltd. (“Yookidoo”) [Docket No. 52] and Golos Weisman Design Ltd.
(“Weisman”) [Docket No. 117] as defendants. However, Judge Boland recommended
that plaintiff’s request, made in both motions, to add Toys “R” Us as a defendant be
denied. Plaintiff filed timely objections to those parts of the Recommendations denying
leave to add Toys “R” Us as a defendant [Docket Nos. 59, 124]. The Court therefore
takes up the motions in light of plaintiff’s objections and conducts a de novo review.

I. BACKGROUND
Two Moms and a Toy, LLC initiated this suit as a direct patent infringement case
on September 16, 2010 against International Playthings, LLC (“IPT”) [Docket No. 1].
Plaintiff alleges that IPT infringed U.S. Patent No. 6,782,567 (the “’567 patent”) when it
sold two toys under the Yookidoo brand name that contain elements similar to those
found in plaintiff’s ’567 Patent. Id. at 4. On January 31, 2011, plaintiff filed an
Unopposed Motion for Leave to Amend Complaint [Docket No. 9], which was granted by
the Court [Docket No. 14]. The first amended complaint was filed to correct a technical
error (i.e., to correct a citation to 35 U.S.C. § 271(a)), but no new claims or defendants
were added. Docket No. 9 at 1.
On May 24, 2011, plaintiff sought leave to add new claims and join additional
defendants [Docket No. 42]. Specifically, plaintiff sought to: (1) amend its claim for
direct patent infringement to add additional defendants, namely, Yookidoo, the
manufacturer of the allegedly infringing product, and Toys “R” Us, a retailer that
purchased the allegedly infringing product from IPT; (2) add Yookidoo as a defendant to
its claim for inducing infringement; (3) add claims for false marking and false advertising
against IPT and Yookidoo; (4) add a claim for false advertising in violation of the
Lanham Act against IPT and Yookidoo; and (5) add a claim for violation of the Colorado
Consumer Protection Act against IPT and Yookidoo. See Docket No. 42-1.
In response to plaintiff’s motion for leave to join parties and amend the complaint,
IPT asserts that plaintiff’s motion is made in bad faith and is undertaken for “no other
purpose than to harass Defendant and cause potential harm to its customer relations.”
Docket No. 47 at 2.
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Subsequent to both parties’ filings, Judge Boland scheduled a hearing on
plaintiff’s motion. On June 21, 2011, after reviewing the evidence presented at the
hearing and in the motions, Judge Boland issued a Recommendation of United States
Magistrate Judge and Order [Docket No. 52]. In the Order, Judge Boland
recommended denial of plaintiff’s motion insofar as it sought to add Toys “R” Us as a
defendant. Docket No. 52 at 3. Judge Boland concluded that plaintiff’s motion was
made in bad faith because plaintiff’s primary purpose in joining Toys “R” Us was to
facilitate discovery and not to pursue a direct infringement suit against Toys “R” Us. Id.
Judge Boland reasoned that it would be improper to join Toys “R” Us solely for
discovery purposes since subpoenas were a less burdensome means of accomplishing
the same goal. Id.
On June 30, 2011, plaintiff filed an objection to Judge Boland’s Recommendation
of June 21, 2011, challenging Judge Boland’s finding that its attempt to add Toys “R” Us
is improper and in bad faith. Plaintiff asserts that the request to add Toys “R” Us is not
improper because plaintiff is entitled to sue a “customer” defendant. Docket No 59 at 2.
Plaintiff maintains that, because the customer-suit exception does not apply to this
case, plaintiff can sue the manufacturer and the customer jointly since they are within
the same jurisdiction. Docket No. 59 at 2-3. Moreover, plaintiff argues that, because
IPT has been uncooperative during discovery, it needs to file suit against one of IPT’s
customers to facilitate the discovery process. Docket No. 59 at 3.
On September 15, 2011, plaintiff sought leave to amend the complaint for a third
time by adding Weisman and Toys “R” Us as defendants. Docket No. 103 at 2-3.
Plaintiff asserts that it must add Weisman as a defendant because, under Israeli law,
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Yookidoo is not a partnership amenable to service of process. Id. at 4. Second, plaintiff
claims that it should be granted leave to add Toys “R” Us to the litigation because Toys
“R” Us was involved in “designing the box packaging for the accused products.” Id. at 3.
Plaintiff argues that an email between IPT and Babies “R” Us establishes that Toys “R”
Us was involved in the manufacturing and advertising of the alleged infringing product.
Id. Additionally, plaintiff argues that Toys “R” Us was aware of the ’567 patent as early
as July 29, 2004. Docket No. 102-2 at 2. Defendant opposes both requests and states
that plaintiff has not established “good cause” to amend the Scheduling Order. Docket
No. 115 at 3.
On October 17, 2011, Judge Boland entered a Recommendation of United
States Magistrate Judge and Order [Docket No. 117]. In the Order, Judge Boland again
recommended denial of plaintiff’s motion to add Toys “R” Us as a defendant. Docket
No. 117 at 3. Judge Boland found that a single email between IPT and Babies “R” Us
did not constitute “heavy” involvement in the “manufacturing of the accused products as
well as the advertising of the accused products.” Docket No. 117 at 3. Judge Boland
concluded these allegations were insufficient to amend the complaint because plaintiff
failed to establish a credible corporate relationship between Babies “R” Us and Toys “R”
Us. Id. at 4.
On November 1, 2011, plaintiff filed an objection to the October 17, 2011
Recommendation [Docket No. 123]. Plaintiff argues that it should be granted leave to
add Toys “R” Us as a party because research confirms what it asserted at the October
7, 2011 hearing, namely, that Babies “R” Us is a subsidiary of Toys “R” Us. Docket No.
123 at 4.
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II. ANALYSIS
Rule 15 of the Federal Rules of Civil Procedure provides that, following a twentyone day period for service of complaint, service of a responsive pleading, or a Rule 12
motion, a party may amend its pleading “only with the opposing party’s written consent
or the court’s leave.” Fed. R. Civ. P. 15(a). Rule 15 instructs courts to “freely give leave
[to amend] when justice so requires.” Id. Nevertheless, denying leave to amend is
justified if the proposed amendments are unduly delayed, unduly prejudicial, futile, or
sought in bad faith. Foman v. Davis, 371 U.S. 178, 182 (1962); Frank v. U.S. West,
Inc., 3 F.3d 1357, 1365 (10th Cir. 1993). As a general rule, the Court retains the
discretion to permit such amendments. Minter v. Prime Equip. Co., 451 F.3d 1196,
1204 (10th Cir. 2006). However, the Court must delineate its rationale if it refuses leave
to amend. Federal Ins. Co. v. Gates Learjet Corp., 823 F.2d 383, 387 (10th Cir. 1987).
A. June 21, 2011 Recommendation
1. Bad Faith and Improper Purpose
Bad faith with regard to a Rule 15 motion can be inferred if the proposed
amendment directly contradicts allegations made in the original pleading, such that the
original and amended factual accounts cannot be reconciled. See Ayon v. Gourley, 185
F.3d 873, 1999 WL 516088, at *3 (10th Cir. 1999); First Am. Mortg., Inc. v. First Home
Builders of Fla., No. 10-cv-00824-REB-MEH, 2010 WL 5230902, at *6 (D. Colo. Dec.
15, 2010) (discussing bad faith in conjunction with Rule 15 within the Tenth Circuit).
Bad faith may also be inferred if a party seeks leave to amend for an improper purpose.
See Ayon, 1999 WL 516088, at *3 (“lightly veiled attempt to avoid allegations . . . which
are unfavorable to plaintiff”).
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Judge Boland concluded that the addition of Toys “R” Us was significantly
motivated by discovery and not plaintiff’s desire to enforce a direct infringement suit
against Toys “R” Us. See Docket No. 52 at 3. Plaintiff acknowledged this purpose
during a hearing in front of Judge Boland when, in response to the direct question of
why Toys “R” Us should be added, plaintiff stated, “[f]or the reason of pursuing
discovery against [Toys “R” Us] in the case . . . That’s the primary reason.” Docket No.
71-1 at 10. Additionally, plaintiff did not deny that it could obtain the relevant discovery
from Toys “R” Us through the use of subpoenas, but plaintiff objected to this option
because it would “actually increase costs for plaintiff.” Docket No. 59 at 3.
In Hayes v. SmithKline Beecham Corp., the court, faced with a similar set of
facts, denied plaintiffs’ motion to amend the complaint to add a defendant because the
motion was “merely an attempt to circumvent the discovery process.” 2008 WL
5003567, *4 (N.D. Okla. Nov. 20, 2008). In that case, defendant SmithKline Beecham
Corporation (“SKB”) was the U.S. based subsidiary of GlaxoSmithKline plc (“GSK”), a
United Kingdom (“UK”) corporation. Id. at *1. Plaintiffs sought leave to add GSK as a
defendant “for the purpose of securing needed testimony from fact witnesses.” Id. at *4.
Plaintiffs asserted that SKB refused to cooperate during discovery and adding GSK as a
party would allow plaintiffs to gain access to certain UK-based witnesses that were
otherwise under SKB’s control. Id. SKB responded that plaintiffs’ motion to amend
should be denied because it was made in bad faith for an improper purpose. Id. at 4.
SKB claimed that plaintiffs’ motion to amend was an attempt to circumvent the
discovery procedures established in the Hague Convention for deposing foreign
individuals. Id. at 4.
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In denying plaintiffs’ motion for leave, Hayes held that plaintiffs would not be
permitted to add parties for the purpose of gaining access to discovery. Id. at 4. The
court found that plaintiffs could not assert valid claims against GSK and reasoned that,
in the absence of a valid claim, allowing plaintiffs to amend the complaint would only
serve to facilitate discovery. Id. Moreover, the court found that adding GSK to the
litigation would force SKB to incur additional expenses. Id.
Similarly, allowing plaintiff to amend the complaint in this case would only serve
to facilitate discovery. Plaintiff acknowledges that the primary purpose for adding Toys
“R” Us as a party is to pursue discovery. Further, just as plaintiffs in Hayes could obtain
discovery by complying with the Hague Convention, here plaintiff does not deny that it
could obtain discovery through the use of subpoenas. Additionally, it is undisputed that
adding Toys “R” Us to the litigation would significantly increase IPT’s litigation costs and
potentially affect its business relations. Finally, although plaintiffs in Hayes were unable
to assert a valid claim against GSK, the court’s primary concern was plaintiffs’ attempt
to add a party for the improper purpose of circumventing discovery procedures. Thus,
even though plaintiff asserts a claim against Toys “R” Us, the Court finds that plaintiff’s
motion to amend is not motivated by an intent to pursue an infringement action against
Toys “R” Us. On the contrary, plaintiff’s motion is motivated by the improper purpose of
circumventing the costs of discovery. Accordingly, plaintiff’s motion for leave to amend
the complaint is denied and the Court accepts Judge Boland’s Recommendation issued
on June 21, 2011 [Docket No. 52].

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2. Customer-Suit Exception
In patent cases, where an infringement action has been filed in one court and a
declaratory judgment action raising the same issues in another, the “first-to-file” rule
favors as a “principle of sound judicial administration” that the first suit should have
priority. Sprint Corp. v. Aerotel, Ltd., 2000 WL 382031, at *2 (D. Kan. March 17, 2000)
(quoting Kahn v. General Motors Corp., 889 F.2d 1078, 1081 (Fed. Cir. 1989)). The
“customer-suit exception” is an exception to the first-to-file rule which favors the
litigation of the subsequent case where the first suit filed is a direct infringement case
against a customer who is a reseller of the accused goods and the second suit is a
declaratory action brought by the manufacturer of the accused goods. Air Prods. &
Chems., Inc. v. MG Nitrogen Servs., Inc., 133 F. Supp. 2d 354, 357 (D. Del. 2001). The
stay in the second case is usually justified on the rationale that, because the
manufacturer is the true defendant, it is presumed to have a “greater interest in
defending its actions against charges of patent infringement.” Kahn, 889 F.2d at 1081.
Plaintiff asserts that the motion for leave to amend was wrongfully denied
because plaintiff has a right to sue any infringer of its ’567 Patent. Docket No. 59 at 3.
Plaintiff argues that, since both cases would be filed within the same jurisdiction, the
customer-suit exception does not apply. Id. However, as noted above, the customersuit exception is merely an exception to the first-to-file rule and does not by itself
provide a basis to add a party to ongoing litigation.
The customer-suit exception allows a court to exercise its discretion to stay
litigation in a direct infringement suit against a customer while litigation continues in a
different jurisdiction against the manufacturer. See Kahn, 889 F.2d at 1081. The issue
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in front of Judge Boland was not a stay of the proceedings, nor did defendants request
a stay of the litigation from the Court. On the contrary, the issue before Judge Boland
was a Rule 15(a) motion for leave to amend which, if denied, does not necessarily
preclude a party from pursuing its claims. Therefore, because Judge Boland’s ruling did
not pertain to a stay of the litigation, plaintiff’s reliance on Edizone, LLC v. ScheringPlough Healthcare Prods. Inc., 2011 WL 1559944 (D. Utah Apr. 25, 2011), and the
customer-suit exception is misplaced. As a result, the Court finds that Judge Boland did
not err in refusing to add Toys “R” Us as a defendant because the customer-suit
exception is inapplicable.
B. October 17, 2011 Recommendation
The Court’s April 21, 2011 Minute Order [Docket No. 38] extended the original
deadline to join parties and amend pleadings to May 25, 2011. Plaintiff filed its third
motion to amend on September 15, 2011 [Docket No. 102].
Plaintiff claims that an email between IPT and Babies “R” Us is sufficient proof to
assert that Toys “R” Us was involved in the manufacturing of the alleged infringing
products. Docket No. 103 at 3. In its objections, plaintiff attaches a copy of the Toys
“R” Us website, Docket No. 123-1 at 3, as support for the corporate relationship
between Babies “R” Us and Toys “R” Us that it alleged at the hearing on October 7,
2011 [Docket No. 116]. However, plaintiff does not claim that this evidence was
unavailable prior to the hearing on October 7, 2011, and plaintiff does not explain why it
waited until filing an objection to present this information to the Court. As a
consequence, the Court declines to address plaintiff’s website evidence because it was
not part of the record reviewed by Judge Boland. See United States v. Garfinkle, 261
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F.3d 1030-31 (10th Cir. 2001) (“[i]n this circuit, theories raised for the first time in
objections to the magistrate judge’s report are deemed waived.”); see also Thomas v.
Arn, 474 U.S. 140, 148 (1985) (“[t]he same rationale that prevents a party from raising
an issue before a circuit court of appeals that was not raised before the district court
applies [to theories raised for the first time in objections to magistrate judge’s
recommendations].”). Therefore, the Court accepts Judge Boland’s Recommendation
entered on October 17, 2011 [Docket No. 117].
III. CONCLUSION
After de novo review, and for the foregoing reasons, it is
ORDERED that plaintiff Two Moms and a Toy, LLC’s Objections to
Recommendation of United States Magistrate Judge and Order [Docket Nos. 59, 124]
are OVERRULED. It is further
ORDERED that the Recommendations of United States Magistrate Judge and
Orders [Docket Nos. 52, 117] are ACCEPTED. It is further
ORDERED that Plaintiff’s Motion for Leave to Join Parties and Amend First
Amended Complaint [Docket No. 42] is GRANTED in part and DENIED in part. It is
further
ORDERED that Plaintiff’s Motion for Leave to Join Parties and Amend the
Second Amended Complaint [Docket No. 102] is GRANTED in part and DENIED in
part.

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DATED November 17, 2011.

BY THE COURT:

s/Philip A. Brimmer
PHILIP A. BRIMMER
United States District Judge

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