Millennium Laboratories, Inc. v. Rocky Mountain Tox, LLC et al

Filing 121

ORDER granting 113 Defendants' Motion for Leave to Amend Answer to Add Counterclaim. Defendant shall file a new proposed Amended Answer and Counterclaim no later than 10/14/2011, by Magistrate Judge Kathleen M. Tafoya on 10/07/2011.(wjc, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Magistrate Judge Kathleen M. Tafoya
Civil Action No. 10–cv–02734–MSK–KMT

MILLENNIUM LABORATORIES, INC., a California corporation,
Plaintiff,
v.
ROCKY MOUNTAIN TOX, LLC, d/b/a FORENSIC LABORATORIES,
Defendant.

ORDER

This matter is before the court on “Defendants’1 Motion for Leave to Amend Answer to
Add Counterclaim.” (Doc. No. 113, filed July 15, 2011 [Mot.].) “Plaintiff’s Response in
Opposition to Defendant’s Motion for Leave to Add Counterclaim” was filed on August 5, 2011
(Doc. No. 116 [Resp.]) and “Defendant’s Reply in Support of Its Motion for Leave to Amend
Answer to Add Counterclaim” was filed on August 23, 2011 (Doc. No. 117 [Reply]).
Accordingly, this matter is ripe for the court’s review and ruling.

1

Defendant’s Motion was originally filed by Defendant Rocky Mountain Tox, LLC,
d/b/a Forensic Laboratories, as well as former Defendant Slater Laboratories, Inc., d/b/a Forensic
Laboratories. However, Slater Laboratories was dismissed as a defendant pursuant to Plaintiff’s
“Amended Complaint and Jury Demand” (Doc. No. 112, filed July 15, 2011). As such, because
Slater Laboratories is no longer a party to this action, the court finds that only Defendant Rocky
Mountain Tox, LLC may now properly seek the relief outlined in Defendant’s Motion.

Pursuant to Fed. R. Civ. P. 15(a), “[t]he court should freely give leave [to amend the
pleadings] when justice so requires.” See also York v. Cherry Creek Sch. Dist. No. 5, 232 F.R.D.
648, 649 (D. Colo. 2005); Aspen Orthopaedics & Sports Medicine, LLC v. Aspen Valley Hosp.
Dist., 353 F.3d 832, 842 (10th Cir. 2003). The Supreme Court has explained the circumstances
under which denial of leave to amend is appropriate.
If the underlying facts or circumstances relied upon by a [party] may be a proper
subject of relief, he ought to be afforded an opportunity to test his claim on the
merits. 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 sought should, as the rules require, be “freely given.” Of course, the grant
or denial of an opportunity to amend is within the discretion of the District Court,
but outright refusal to grant the leave without any justifying reason appearing for
the denial is not an exercise of discretion; it is merely abuse of that discretion and
inconsistent with the spirit of the Federal Rules.
Foman v. Davis, 371 U.S. 178, 182 (1962); see also Triplett v. LeFlore County, Okl., 712 F.2d
444, 446 (10th Cir. 1983).
In its Motion, Defendant seeks leave to amend its Answer (Doc. No. 11, filed Nov. 15,
2010) to assert a state-law counterclaim for abuse of process. Plaintiff opposes Defendant’s
Motion, arguing that the Motion is untimely, that the court lacks jurisdiction over Defendant’s
proposed counterclaim, and that Defendant’s proposed counterclaim would otherwise be futile.
The court first rejects Plaintiff’s argument that Defendant’s Motion is untimely. As
Plaintiff concedes, Defendant has complied with the deadline for amending the pleadings.
Moreover, the discovery deadline was over two-and-a-half months away when Defendant’s
Motion was filed. Bd of County Comm’rs v. Brown Retail Group, No. 08-cv-00855-LTB, 2009
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WL 1706446, at *1 (D. Colo. June 16, 2009) (finding any argument of undue delay to be without
merit where the motion to amend was filed before the deadline to amend the pleadings and
discovery remained open); but see Vester v. Asset Acceptance, No. 08-cv-01957-MSK-LTM,
2009 WL 2940218, at *9 n. 7 (D. Colo. Sept. 9, 2009) (finding undue delay, notwithstanding the
plaintiff’s compliance with the deadline to amend the pleadings, where discovery had effectively
closed). Therefore, the court finds that even if Defendant knew of its proposed counterclaim at
an earlier date, Defendant’s proposed amendments are not unduly delayed.
Plaintiff also argues that the court does not have jurisdiction over Defendant’s proposed
counterclaim. (Resp. at 9-12.) More specifically, Plaintiff maintains that Defendant’s proposed
abuse-of-process counterclaim does not share a “common nucleus of operative fact” with
Plaintiff’s existing claims, as is required for the court to exercise supplemental jurisdiction
pursuant to 28 U.S.C. § 1367(a), because Plaintiff’s existing claims focus on Defendant’s
conduct prior to when the Stipulated Temporary Restraining Order (“Stipulated TRO”) was
entered in this case, whereas Defendant’s proposed abuse-of-process counterclaim focuses on
Plaintiff’s conduct after the Stipulated TRO was entered. (Id. at 10-11.)
Prior to the enactment of the supplemental-jurisdiction statute, 28 U.S.C § 1367, some
courts determined supplemental jurisdiction over state-law counterclaims based on whether the
counterclaim was compulsory or permissive. If a counterclaim was compulsory under Fed. R.
Civ. P. 13(a)(1)(A)—meaning that the counterclaim arises out of the same “transaction or
occurrence that is the subject matter of the opposing party’s claim”—the court had jurisdiction to
consider it. See, e.g., Pipeliners Local Union No. 798 v. Ellerd, 503 F.2d 1193, 1198 (10th Cir.
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1974). If a counterclaim was permissive, however, an “independent grounds of jurisdiction” was
required before the court could consider it. Id.
Since Congress enacted Section 1367, the Tenth Circuit has not affirmatively determined
whether a court’s supplemental jurisdiction over counterclaims continues to be controlled by this
compulsory versus permissive distinction. However, those courts that have addressed the issue
have concluded that Section 1367 supercedes case law holding that supplemental jurisdiction
depends on whether a counterclaim was properly considered compulsory or permissive. See
Walker v. THI of N.M., --- F. Supp. 2d ----, 2011 WL 2429267, at * 8-10 (D.N.M. May 20, 2011)
(citing cases and engaging in an extended discussion of pre and post-Section 1367 approaches to
counterclaims); Wilhelm v. TLC Lawn Care, Inc., No. 07-2465-KHV, 2008 WL 640733, at *1
(D. Kan. Mar. 6, 2008). The court agrees that, by its plain language, Section 1367 supercedes
prior case law outlining supplemental jurisdiction over state-law counterclaims.
Once the court has original jurisdiction, additional claims can be added under the Section
1367(a), “which grants the district courts jurisdiction ‘over all other claims that are so related to
claims in the action within such original jurisdiction that they form part of the same case or
controversy under Article III of the United States Constitution.’” Price v. Wolford, 608 F.3d
698, 702 (10th Cir. 2010) (quoting § 1367). A claim, or counterclaim, “is part of the same case
or controversy if it ‘derive[s] from a common nucleus of operative fact.’” Price, 608 F.3d at 702
(quoting City of Chicago v. Int’l Coll. of Surgeons, 522 U.S. 156, 165 (1997) (quoting United
Mine Workers of Am. v. Gibbs, 383 U.S. 715 (1966))).

4

Plaintiff maintains that the circumstances presented here are similar to a recent District of
New Mexico case where the court found that it did not have supplemental jurisdiction over the
defendants’ abuse-of-process counterclaim. See Walker, 2011 WL 2429267, at * 8-10. In
Walker, the plaintiff alleged that the defendants, including her former employer, subjected her to
“numerous acts of racial discrimination, and terminated her employment . . . because of her
race.” Id. at *1. Several of the defendants counterclaimed for abuse of process, alleging that the
plaintiff “filed claims without probable cause” and “made the allegations [of racial
discrimination] without having evidentiary support or conducting a reasonable investigation to
determine whether good grounds existed.” Id. at *2.
The court found that it did not have supplemental jurisdiction over the defendants’
counterclaim because the plaintiff’s claims and the defendants’ counterclaim did not derive from
a common nucleus of operative fact. Id. at *35. Specifically, the court found that the facts
underlying the plaintiff’s claims related to her employment with the defendants and how she was
treated during that time, whereas the defendants’ abuse-of-process counterclaim was based on
the plaintiff’s actions in filing her complaint and her actions in the litigation. Id. Thus, the court
found that the plaintiff’s claim and the abuse-of-process counterclaim arose from “separate
occurrences, which are separated in time, space, and origin.” Id.
The court finds that this case is distinguishable from Walker. While in Walker, the court
found that the facts underlying the plaintiff’s claims were distinct from those underlying the
defendants’ proposed abuse-of-process counterclaim, here the court finds that the factual
allegations underlying both Plaintiff’s claims and Defendant’s proposed counterclaim are part of
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a continuous stream of actions and reactions. First, Defendant allegedly misappropriated, and
infringed Plaintiff’s copyright in, Plaintiff’s requisition form, which resulted in Plaintiff bringing
this suit. Defendant maintains that it essentially acquiesced to Plaintiff’s proposed relief by
stipulating to the Stipulated TRO. (See Doc. No. 10-1). Thereafter, Defendant effectively
alleges that Plaintiff went “overboard” and abused process by providing a copy of the Stipulated
TRO to Defendant’s customers to gain a competitive advantage, and by initiating contempt
proceedings against Defendant alleging that Defendant failed to strictly comply with the
Stipulated TRO. Thus, unlike the discrete events, separable in time, place, and origin, at issue in
Walker, Plaintiff’s claims and Defendant’s counterclaim instead resulted from ongoing
interactions starting with Defendant’s alleged misappropriation of Plaintiff’s retention forms,
and continuing through Plaintiff’s allegedly overreaching use of process.
Furthermore, “the ‘common nucleus’ test is broader than the ‘transaction or occurrence’
test used in the Civil Rules . . . . In practice, § 1367(a) requires only that the jurisdictioninvoking claim and the supplemental claim have some loose factual connection.” 13D CHARLES
ALAN WRIGHT, ET AL., FEDERAL PRACTICE AND PROCEDURE § 3567.1 (3d Ed. 2011) (emphasis
added). Relevant Tenth Circuit case law confirms that supplemental jurisdiction under Section
1367(a) is broad in scope and encompasses claims that arise during the underlying litigation
granting original jurisdiction. See Price, 608 F.3d at 703 (finding that the district court had
supplemental jurisdiction over an intervening party’s claim for a share of settlement proceeds
because that claim arose out of the same facts as the tort claims that granted original
jurisdiction); Edward v. Doe, 331 F. App’x 563, 568-571 (10th Cir. 2009) (finding that a fee
6

dispute between attorneys was part of the same case or controversy as the plaintiff’s underlying
personal injury litigation).
Altogether, the court finds that, under this relatively broad test, Defendant’s proposed
counterclaim “form[s] part of the same case or controversy” as Plaintiff’s claims. 28 U.S.C. §
1367. Accordingly, the court finds that it has supplemental jurisdiction under Section 1367 to
consider Defendant’s proposed abuse-of-process counterclaim.
Finally, Plaintiff argues that Defendant’s proposed counterclaim is futile. “Although
Fed. R. Civ. P. 15(a) provides that leave to amend shall be given freely, the district court may
deny leave to amend where amendment would be futile. A proposed amendment is futile if the
complaint, as amended, would be subject to dismissal.” Jefferson Cnty. Sch. Dist. v. Moody’s
Investor Servs., Inc., 175 F.3d 848, 859 (10th Cir. 1999).
Plaintiff argues that where “the process alleged to have been abused is an actual lawsuit,
as opposed to a lis penden or a writ of replevin, an additional showing is required: ‘The party
asserting the abuse of process claim also has to show that the other party’s claim is devoid of
factual support or if supportable in fact, [has] no cognizable basis in law.’” (Resp. at 16 (quoting
Walker v. Van Laningham, 148 P.3d 391, 394 (Colo. App. 2006)2). Plaintiff further maintains
that Defendant’s counterclaim is premised on the filing of parallel lawsuits in Arizona and
Florida. (Id. at 16-17.) Thus, Plaintiff argues that Defendant’s failure to properly allege this
additional element renders Defendant’s proposed counterclaim is futile. (Id.)

2

The court notes that while Plaintiff cites to Walker for this proposition, no such
quotation actually exists in the text of the Walker opinion.
7

Defendant disputes both Plaintiff’s statement of the law and Plaintiff’s characterizations
of Defendant’s abuse-of-process claim. As to the former, Defendant maintains that the
additional abuse-of-process element invoked by Plaintiff only applies when the alleged abuse of
process involves the actual filing of a lawsuit. (Reply at 6.) Thereafter, as to the latter,
Defendant maintains that Plaintiff’s filing of the Arizona and Florida state-court lawsuits do not
go to the willful acts element of its abuse-of-process counterclaim; rather Defendant avers to
these acts as evidence of Plaintiff’s ulterior purpose. (Id. at 6–7.) See also Mintz v. Accident
and Injury Med. Specialists, --- P.3d ----, 2010 WL 4492222, at *3 (Colo. App. 2010)
(ordinarily, the elements of an abuse-of-process claim include: (1) an ulterior purpose in using a
judicial proceeding; (2) a use of the proceeding in an improper manner by taking a willful action
that was improper in the proceeding’s regular course; and (3) damage.) As such, Defendant
argues that the additional element pointed to by Plaintiff is not implicated in this case. (Reply at
6-7.)
The court finds that Defendant accurately states the law applicable to abuse-of-process
claims. Indeed, it is only “when the process alleged to have been abused entails . . . the very
filing of a lawsuit” that the party asserting the abuse of process claim must show that “the
opposing party’s claim is ‘devoid of factual support or if supportable in fact, [has] no cognizable
basis in law.” Yadon v. Lowry, 126 P.3d 332, 337 (Colo. App. 2005) (quoting Ware v.
McCutchen, 784 P.2d 846, 848 (Colo. App. 1989)) (emphasis added).
However, upon reviewing Defendant’s proposed counterclaim and supporting facts, it is
far from clear that Defendant is not alleging that Plaintiff’s filing the Florida and Arizona state8

court suits represent the improper willful acts underlying Defendant’s abuse of process
counterclaim. (See Doc. No. 113-1 ¶¶ 14, 21-24 [Am. Answer and Counterclaim].)
Nevertheless, Defendant has now admitted that Plaintiff’s filing the Florida and Arizona statecourt suits do not go to the willful act element. Thus, because Defendant is not alleging that “the
process alleged to have been abused entails . . . the very filing of a lawsuit,” Yadon, 126 P.3d at
337, Plaintiff’s argument that Defendant’s proposed abuse-of-process claim is futile is
effectively moot. Accordingly, the court finds that Plaintiff has failed to demonstrate that
Defendant’s proposed abuse of process counterclaim is futile.
Therefore, for the foregoing reasons, it is ORDERED that
“Defendants’ Motion for Leave to Amend Answer to Add Counterclaim” (Doc. No. 113)
is GRANTED. Defendant shall file a new proposed Amended Answer and Counterclaim no
later than October 14, 2011.3
Dated this 7th day of October, 2011.

3

The Amended Answer and Counterclaim currently attached to Defendant’s Motion
contains Slater Laboratories as a party in the caption, as well as in the title and text of the
document. (Am. Answer and Counterclaim at 1.) Defendant shall file a corrected version of its
Amended Answer and Counterclaim that reflects the current parties to this case.
9