CDW LLC et al v. NETECH CORPORATION

Filing 323

ENTRY denying 304 Plaintiffs' Motion for Leave to File Amended Complaint. (See Entry for details.) Signed by Magistrate Judge Debra McVicker Lynch on 8/14/2012. (TMA)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
CDW LLC, CDW DIRECT LLC, and
BERBEE INFORMATION NETWORKS
CORPORATION (n/k/a CDW TECHNOLOGIES,
INC.),
Plaintiffs,
v.
NETECH CORPORATION,
Defendant.

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) CASE NO.: 1:10-cv-0530-SEB-DML
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Entry on Plaintiffs’ Motion for Leave to File Amended Complaint
This matter is before the court on a motion (Dkt. 304) by the plaintiffs for leave to file a
second amended complaint to add a new plaintiff—CDW Government LLC—which is a whollyowned subsidiary of plaintiff CDW LLC and a sister corporation to the other two plaintiffs.
NETech opposes the motion on the grounds that (a) the plaintiffs have not shown good cause to
amend after the case management deadline and have unduly delayed in seeking leave to amend
and (b) NETech will be prejudiced by the proposed amendment. The court agrees with NETech.
The course of proceedings demonstrates that the plaintiffs made a strategic decision not to
include CDW Government as a plaintiff in this case. It is too late now to change course. The
plaintiffs’ motion for leave to amend is DENIED.
Background
CDW LLC, CDW Direct LLC, and Berbee Information Networks Corporation (hereafter,
“CDW-Berbee”) brought this suit in April 2010, alleging that defendant NETech Corp. had
raided their employees, who went to work for NETech in violation of the employees’ noncompete agreements. The plaintiffs also alleged that the employees gave confidential

information to NETech (some of it before they even left their jobs) that was used to steal
customers. Early in the case, the plaintiffs moved for a preliminary injunction to enforce the
non-competition agreements and prevent NETech’s interference with them, and the court heard
testimony and argument over six days in May, June, and July 2010. At that time, NETech raised
its defense that the plaintiff corporations must be treated as separate corporate entities capable of
enforcing only their own respective contractual rights. NETech’s counsel stated:
There are three Plaintiffs in this case who have named CDW in them. One has
the name Berbee in them. They are separate corporations or LLCs. It will be
important, as the evidence shows, to know and keep the distinction there . . . . It
will not be acceptable to us to use CDW as a name to describe three separate
corporations with three separate interests.
Transcript of May 14, 2010 hearing at p. 10, lines 16-22, Dkt. 314-1. The issue arose at that
point because some of the employees’ non-compete agreements were not with any of the
plaintiffs. The employees’ agreements were with a Wisconsin corporation (Wisconsin-Berbee),
which had been acquired by CDW LLC (actually by CDW Corporation, a predecessor to CDW
LLC). The acquisition was effected by CDW LLC’s creation of a wholly-owned acquisition
subsidiary, into which Wisconsin-Berbee had been merged. The surviving entity was plaintiff
Berbee Information Networks Corporation (CDW-Berbee).
After CDW-Berbee’s entry into the CDW parent family and to integrate its operations
with the CDW family as a whole, many CDW-Berbee employees and CDW-Berbee customer
accounts were transferred to other CDW subsidiaries. For example, some CDW-Berbee
employees and some CDW-Berbee customer accounts were transferred to plaintiff CDW Direct
LLC. CDW Direct LLC is a wholly-owned subsidiary of CDW LLC, and it sells its services to
commercial businesses and not-for-profit corporations. Other CDW-Berbee employees and
CDW-Berbee customer accounts were transferred to non-party CDW Government LLC, also a

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wholly-owned subsidiary of CDW LLC, which sells its services to local, state, and federal
governments, and educational institutions and healthcare facilities. Other CDW-Berbee
employees and CDW-Berbee customer accounts apparently stayed with CDW-Berbee.
NETech argued in opposing the plaintiffs’ request for preliminary injunctive relief that
the employment of the persons who had worked for Berbee-Wisconsin ended when the
employees were transferred to CDW Direct, making their two-year tail period of noncompetition over by the time the plaintiffs brought suit or were seeking injunctive relief. The
court, initially, found that NETech had not offered evidence or timely legal authority to support
this defense, and had agreed with the plaintiffs that CDW LLC was the surviving entity after the
merger and was entitled to enforce the non-compete agreements. See Order Granting
Defendant’s Motion for Partial Summary Judgment, Dkt. 255, at p. 8. Later, on February 16,
2012, and after the introduction of evidence on summary judgment on this issue, the court ruled
that CDW-Berbee was the surviving entity in the merger (not CDW LLC) that succeeded to the
contractual rights and obligations of Berbee-Wisconsin, and that neither its parent (CDW LLC)
or a sister corporation (CDW Direct) has the right to enforce the contractual rights possessed by
CDW-Berbee. Id. at p. 13.
In the meantime, the parties’ discovery efforts concerned damages the plaintiffs were
seeking for NETech’s alleged tortious conduct, and included NETech’s depositions of a CEO of
the plaintiff corporations on September 24, 2011, and the plaintiffs’ damages expert, Mark
Hosfield, on November 16, 2011. NETech’s questioning during these depositions raised the
issue that CDW Government was a separate corporation from the plaintiffs but that Mr.
Hosfield’s damages calculations included damages relating to lost profits on customers served by
CDW Government and not by the plaintiffs. See NETech’s opposition to motion for leave to

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amend, Dkt. 312, at pp. 4-5. One month later, in December 2011, NETech served its own expert
report on damages, which critiqued Mr. Hosfield’s damages theories in part on the ground that
Mr. Hosfield had included lost revenues for CDW Government customers even though CDW
Government is not a named party. Id. at p. 5. Two months later, in February 2012, NETech
filed a Daubert motion (Dkt. 256) regarding Mr. Hosfield’s expert opinions challenging, among
other things, Mr. Hosfield’s inclusion in his damages calculation lost profits attributable to CDW
Government customers. See id.at p. 6. The latter motion is pending before the court.
Analysis
The plaintiffs’ motion for leave to amend to add CDW Government was filed May 31,
2012, about 19 months past the November 1, 2010 deadline for pleading amendments under the
case management order. See Dkt. 109 at Section III.D. To amend after the expiration of the
court’s case management deadline, Federal Rule of Civil Procedure 16(b) requires the moving
party to show “good cause.” Alioto v. Town of Lisbon, 651 F.3d 715, 719-720 (7th Cir. 2011).
The good cause inquiry focuses primarily on whether the moving party acted diligently. Id.;
Trustmark Ins. Co. v. General & Cologne Life Re of America, 424 F.3d 542, 553 (7th Cir. 2005).
Once a party has satisfied the showing under Rule 16(b), it must satisfy Rule 15(a). Alioto, 651
F.3d at 719-720. Rule 15(a)’s liberal standard allows for amendments at virtually any time
during the course of litigation, though the court may deny leave to amend for undue delay, bad
faith, dilatory motive, repeated failure to cure deficiencies, undue prejudice, or futility. Shotts v.
Bombardier, Inc., 2006 WL 1663837 at *1 (S.D. Ind. June 8, 2006). Prejudice to the opposing
party is the most important factor. Id. (citing 6 Charles Alan Wright et al., Federal Practice and
Procedure § 1487 (2d ed. 1990)). When an amendment proposes to add a party, Rules 20 and 21
also are considered, and the court may deny amendment because joinder creates undue

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“prejudice, expense or delay.” Chavez v. Illinois State Police, 251 F.3d 612, 632 (7th Cir. 2001)
(citing Charles Alan Wright et al., Federal Practice and Procedure § 1652 at 396 (2001)).
The plaintiffs have not demonstrated the requisite good cause to allow amendment nearly
19 months past the deadline. They have known for more than two years that a theme of
NETech’s defense is that the plaintiffs and the court must respect the plaintiffs’ separate
corporate identities. Although it may not have been apparent early that this defense theme was
directed at damages too—and specifically to the recovery of damages attributable to CDW
Government customers because CDW Government is not a party—the plaintiffs were practically
hit over the head with this defense during the deposition questioning of Mr. Hosfield in
November 2011. The court has little doubt that the plaintiffs’ counsel knew exactly what
NETech was driving at, and very likely assessed at that point (more likely re-assessed) whether
to join CDW Government as a party plaintiff. The plaintiffs’ litigation decision then, for
whatever reasons, was to keep CDW Government as a non-party, and that decision remained the
strategy even after (a) NETech served its expert’s report; (b) NETech sought summary judgment
on the theory that CDW LLC could not assert contractual rights under non-compete agreements
belonging to its subsidiary corporation; (c) the court granted partial summary judgment to
NETech; and (d) NETech filed its Daubert motion.
The plaintiffs did not act with diligence in seeking to amend their compliant to add a
new party and thus have not demonstrated good cause for permitting amendment past the case
management deadline. See Carroll v. Stryker Corp., 658 F.3d 675, 684 (7th Cir. 2011) (affirming
district court’s denial of motion for leave to amend when the motion was filed seven months
after the deadline for amending pleadings, and rejecting argument that the plaintiff’s counsel’s

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delay should be excused because he had not understood a defense theory that the court called
“obvious”).
Moreover, even considering Rule 15(a) and Rule 20 guidelines, the court finds NETech
would be unduly prejudiced if CDW Government were permitted to join the case now. Although
it may be true that discovery would not have been different had CDW Government been a party,1
NETech has structured much of its defense based on CDW Government’s non-party status. It
would be unfair to require NETech to change its strategy at this late date, after discovery has
closed, and after having briefed motions and sought relief based on the non-party status. See
Johnson v. Cypress Hill, 641 F.3d 867, 872 (7th Cir. 2011) (affirming denial of leave to amend
when plaintiff waited for years after litigation commenced, after discovery closed, and after
dispositive motion was filed challenging deficiency plaintiff had been alerted to much earlier and
which the proposed amendment now was trying to obviate).
Conclusion
For the foregoing reasons, the plaintiffs’ motion (Dkt. 304) for leave to amend the
complaint to add CDW Government as a party plaintiff is DENIED.
So ORDERED.
08/14/2012
Date: ___________________

Distribution: All ECF-registered counsel of record
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____________________________________
Debra McVicker Lynch
United States Magistrate Judge
Southern District of Indiana

The plaintiffs insist that they did not withhold discovery based on CDW Government’s
non-party status, although they did raise its non-party status as an objection to some discovery
requests. See NETech’s opposition brief, Dkt. 312, at p. 3. It seems likely that controlling the
scope of discovery was one reason the plaintiffs purposefully left CDW Government off the
caption. At earlier points in this litigation, NETech attempted to construct an equitable defense
and broaden discovery based on alleged wrongdoing by CDW Government. Even if the scope of
discovery conducted by the parties was not, in the end, materially affected by CDW
Government’s non-party status, discovery matters affecting CDW Government caused the
plaintiffs’ counsel to continue to assess the decision not to make CDW Government a party.
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