HECKLER & KOCH, INC. v. GERMAN SPORT GUNS GMBH et al

Filing 44

ORDER granting Plaintiff's 35 Motion for Leave to Amend the Complaint. Because Plaintiff did not properly file the proposed amended complaint as an exhibit separate from its motion, see Local Rule 5-6(a), Plaintiff is given leave to refile the amended complaint within 14 days, which is deemed filed as of February 10, 2012, the date of Plaintiff's motion for leave (see Order for additional information). Signed by Magistrate Judge Tim A. Baker on 5/10/2012. (SWM)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION

HECKLER & KOCH, INC.,
Plaintiff,
vs.
GERMAN SPORTS GUNS GMBH, and
AMERICAN TACTICAL IMPORTS, INC.,
Defendants.

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1:11-cv-1108-SEB-TAB

ORDER ON PLAINTIFF’S MOTION FOR LEAVE TO AMEND THE COMPLAINT
I.

Introduction
Plaintiff and Defendants are in the business of designing and selling firearms. Prior

litigation between these entities resulted in a settlement agreement where Defendants allegedly
agreed to cease manufacturing, distributing, and selling the SG-5 product line. [Docket No. 1,
Ex. 1 at 2.] As part of the agreement, Plaintiff apparently approved Defendants’ new firearm
design known as GSG-522. [Id. at 2–3.] However, not long after reaching this agreement,
Plaintiff filed a lawsuit against Defendants, claiming that Defendants breached the agreement by
deviating from the approved design. [Docket No. 1, Ex. 1.] Plaintiff now seeks leave to amend
its complaint to add a new party and new claims. [Docket No. 35.] For the reasons below,
Plaintiff’s motion for leave to amend the complaint is granted.
II.

Discussion
Federal Rule of Civil Procedure 15(a)(2) provides that when a party can no longer amend

its complaint as a matter of course, it “may amend its pleading only with the opposing party’s
written consent or the court’s leave.” This rule reflects a liberal attitude toward amendments,
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and a court should freely grant leave when justice requires. Soltys v. Costello, 520 F.3d 737, 743
(7th Cir. 2008). “Reasons for finding that leave should not be granted include ‘undue delay, bad
faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by
amendment previously allowed, undue prejudice to the opposing party by virtue of allowance of
the amendment, [and] futility of the amendment.’” Arlin–Golf, LLC v. Vill. of Arlington Heights,
631 F.3d 818, 822 (7th Cir. 2011). Defendants raise a series of objections asserting that HK
GmbH is not a proper party to this suit and the newly asserted claims are futile.1
A.

HK GmbH and the contract claims

With respect to the breach of contract claims, Defendants contend that HK GmbH is not a
proper party because HK GmbH is not a party to the settlement agreement. [Docket No. 38 at 7.]
Plaintiff asserts that HK GmbH was assigned the rights to the MP5 registered trademarks that are
at issue in the agreement and claims that this successive ownership in the trademarks puts HK
GmbH in privity with HK USA and thus makes HK GmbH a proper party. [Docket No. 39 at 7.]
“Generally, only parties to a contract or those in privity with the parties have rights under
the contract.” Bkcap LLC v. Captec Franchise Trust 2000-1, No. 3:07-CV-00637, 2009 WL
3075353, at *2 (N.D. Ind. 2009) (quoting OEC-Diasonics, Inc. v. Major, 674 N.E.2d 1312,
1314–15 (Ind. 1996)). “Privity has been defined as mutual or successive relationships to the
same right of property, or an identification of interest of one person with another as to represent
the same legal right.” Network Commc’n of Ind. v. IDT Corp., No. 1:03-CV-0631-RLY-TAB,
2004 WL 3315374, at *3 (S.D. Ind. Sept. 30, 2004) (internal quotation marks omitted). Because

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Defendants do not object to Plaintiff’s assertion that permissive and mandatory joinder
are appropriate. Therefore, the Court does not address joinder under Rules 19 and 20.
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HK GmbH is the successive owner in interest to the MP5 property rights, it is in privity of
contract with HK USA. Accordingly, HK GmbH is a proper party as to the contract claims.
B.

HK GmbH and the non-contract claims

With respect to the non-contractual claims, Defendants claim that HK GmbH is not a
proper party because “HK has not pled or alleged, in its Motion to Amend, that HK GmbH is an
assignee of rights from HK.” [Docket No. 38 at 9.] Despite Defendants’ contentions, Plaintiff is
not required to plead detailed allegations about the ownership history of the MP5. See Fed. R.
Civ. P. 8. It is sufficient that the proposed complaint alleges that “HK GmbH owns a federal
registration for the MP5 mark (Regis. # 1594109). This registration is active and unrevoked, and
constitutes prima facie evidence of HK GmbH’s ownership of the mark.” [Docket No. 35 at 4.]
Defendants also assert that Plaintiff has improperly taken contrary positions in its
proposed amended complaint as to who owns the intellectual property rights. [Id.] Defendants’
argument is somewhat well taken since portions of the proposed complaint barely do a sufficient
job of distinguishing between HK BgmH’s, HK USA’s, and HK’s ownership rights.
Nonetheless, the proposed complaint explicitly states that HK BgmH is the owner of the
intellectual property rights and HK USA is the entity that markets and sells the firearms.
[Docket No. 35 at 2–3.] This allegation sufficiently clarifies any confusion that may exist in
other portions of the proposed complaint. Moreover, even if the proposed complaint alleged that
both entities owned the intellectual property, it is not uncommon for more than one entity to
share intellectual property rights in the same property. See Brown v. Budz, 398 F.3d 904, 912
(7th Cir. 2005) (“At this early stage of the proceedings, we take plaintiff’s factual allegations as
true, draw all reasonable inferences in his favor, and will hypothesize any set of facts consistent

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with those allegations to avoid dismissal.”); see also Chi. Police Sergeants Ass’n v. City of Chi.,
No. 08-CV-4214, 2011 WL 2637203, at *6 (N.D. Ill. July 6, 2011) (citing a litany of authority
for the proposition that a complaint “may alternatively plead inconsistent facts as well as
inconsistent theories.”). HK GmbH is therefore a proper party with respect to the noncontractual claims.
C.

Dispute resolution

Defendants argue that Counts V–IX are futile because “HK neither pled in the proposed
amended complaint that it engaged in the required [dispute resolution] process, nor has it in fact
engaged in the process.” [Docket No. 38 at 10.] As Plaintiff correctly points out, the dispute
resolution provision only applies to ATI, and Counts V–IX are only being asserted against GSG,
a separate entity from ATI. [Docket No. 39 at 10.] Therefore, Plaintiff’s proposed claims are
not futile with respect to the dispute resolution clause.
D.

Covenant not to sue

Defendants also argue that HK reviewed the design of the GSG-522 attached to the
settlement agreement and “covenanted not to sue GSG or any of its customers, distributors, or
importers for its sale . . . .” [Docket No. 38 at 11.] However, as Plaintiff correctly asserts, the
covenant not to sue only extends to the GSG-522 design that was approved and attached to the
settlement agreement. [Docket No. 39 at 1.] Because Plaintiff alleges that Defendants’ firearm
labeled GSG-522 does not conform to the “specific form and design” that was approved, the
covenant not to sue does not render Plaintiff’s claims futile.

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E.

Tortious interference

Defendants assert that the proposed tortious interference claim is futile because “failure
to comply with the express terms of the contract . . . is limited to a suit for breach of contract.”
[Docket No. 38 at 2 (quoting Rexnord Corp. v. DeWolff Boberg & Assocs., Inc., 286 F.3d 1001,
1005 (7th Cir. 2002)).] Defendants’ citation, however, is incomplete. The full sentence of the
text Defendants quote reads:
But the difference is that the mess-up resulted from a failure to comply with express terms
of the contract; and when a standard of care is specified in the contract it supersedes the tort
standard (for why shouldn’t the parties be able to cut their own deal, so far as their rights and
liabilities to each other are concerned?) and the promisee’s remedy is limited to a suit for
breach of contract.
Rexnord, 286 F.3d at 1005. Thus, Rexnord is not particularly helpful to Defendants’ position
since it deals with contractual language specifying the standard of care for a tort claim.
Similarly, Defendants’ claim that a tort is a “legal wrong committed upon the person or
property independent of contract,” is not particularly helpful either. [Docket No. 38 at 12.]
While it is true that a tort claim is distinct and independent from a contractual claim, that does
not mean Plaintiff is prohibited from alleging breach of contract and tortious interference claims
in the same suit. Finally, Defendants assert that the tortious interference claim is futile due to the
release in the settlement. [Docket No. 38 at 12.] However, as Plaintiff has repeatedly explained,
“Defendants are not being sued for the manufacture and sale of the GSG-522 as detailed in
Exhibit A of the Settlement Agreement.” [Docket No. 39 at 13.] Rather, “Defendants are
instead being sued for the manufacture and sale of the non-conforming Infringing Firearms.”

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[Id.] Accordingly, Plaintiff’s proposed tortious interference claim is not futile.2
F.

Fraud

Defendants also object to Plaintiff’s proposed fraud claim. For a fraud claim to survive a
motion to dismiss, the plaintiff must allege “(1) at least one representation of past or existing fact
that (2) is false, (3) was made with knowledge or reckless disregard of its falsity, and (4) causes
reasonable reliance to the detriment of the person relying upon it.” Bowman v. City of
Indianapolis, 133 F.3d 513, 518–19 (7th Cir. 1998) (citing Scott v. Bodor, Inc., 571 N.E.2d 313,
319 (Ind. Ct. App. 1991); Plymale v. Upright, 419 N.E.2d 756, 760 (Ind. Ct. App. 1981)).
Additionally, a plaintiff must “state with particularity the circumstances constituting the fraud . .
. .” Fed. R. Civ. P. 9(b). For example, a plaintiff must identify “the person making the
misrepresentation, the time, place, and content of the misrepresentation, and the method by
which the misrepresentation was communicated.” IWOI, LLC v. Monaco Coach Corp., 581 F.
Supp. 2d 994, 1002 (N.D. Ill. 2008). “Malice, intent, knowledge and other conditions of a
person’s mind may be alleged generally.” Id.
Plaintiff has properly alleged the elements of fraud. The past or existing representation
of fact alleged is the agreement to conform to the approved design and to cease sales of the
GSG-5s. [Docket No. 35 at 7.] According to the complaint, this representation was false and
made with knowledge or reckless disregard as to its falsity. [Id.] Moreover, Plaintiff claims that
it reasonably relied upon the representation when entering into the agreement. [Id.] As to
specificity, the persons who allegedly made the misrepresentations are Michael Swoboda and

2

Defendants raise additional objections to this claim that they previously raised in
response to other proposed claims. As such, the Court need not address these arguments again.
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Tony DiChario. [Id. at 25.] Although the proposed complaint does not identify these individuals
by name, the settlement agreement attached to the complaint identifies them by name. See
PharMerica Chi., Inc. v. Meisels, 772 F. Supp. 2d 938, 948 (N.D. Ill. 2011) (explaining that a
settlement agreement attached as an exhibit to a complaint is part of the pleadings). Finally, the
time, place, and content of the misrepresentation and the method by which the misrepresentation
was communicated is set forth in the proposed complaint or contained in the attached settlement
agreement. Therefore, Plaintiff has properly pleaded the elements of fraud with particularity.
Defendants further assert that “courts disfavor attempts to convert breach of contract
claims into fraud claims.” [Docket No. 38 at 16 (citing All-Tech Telecom, Inc. v. Amway Corp.,
174 F.3d 862, 865 (7th Cir. 1999)).] However, All-Tech is not particularly helpful to Defendants
since the promise in the settlement agreement does not address the quantity, fitness, or
specifications of goods in the context of commercial transactions. All-Tech provides that:
Where there are well-developed contractual remedies, such as the remedies that the Uniform
Commercial Code (in force in all U.S. states) provides for breach of warranty of the quality,
fitness, or specifications of goods, there is no need to provide tort remedies for
misrepresentation. The tort remedies would duplicate the contract remedies, adding
unnecessary complexity to the law. Worse, the provision of these duplicative tort remedies
would undermine contract law.
Id. at 865. In contrast, the parties’ settlement agreement deals with the specific design of goods
in the context of intellectual property law. Thus, All-Tech is not applicable to Plaintiff’s
proposed fraud claim. Accordingly, the fraud claim is not futile.3

3

Defendants raise additional objections to this claim that they previously raised in
response to other proposed claims. As such, the Court need not address these arguments again.
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G.

Intellectual property and competition claims

Defendants raise the same objections to these claims that they previously raised in
response to other proposed claims. [See Docket No. 38 at 17.] As such, the Court need not
address these arguments again.
III.

Conclusion
For the reasons above, Plaintiff’s motion for leave to file an amended complaint [Docket

No. 35] is granted. Because Plaintiff did not properly file the proposed amended complaint as an
exhibit separate from its motion, see Local Rule 5-6(a), Plaintiff is given leave to refile the
amended complaint within 14 days, which is deemed filed as of February 10, 2012, the date of
Plaintiff’s motion for leave.
Dated: 05/10/2012
_______________________________
Tim A. Baker
United States Magistrate Judge
Southern District of Indiana

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Copies to:
Neal F. Bailen
STITES & HARBISON, LLP
[e-mail]
Douglas B. Bates
STITES & HARBISON, LLP
[e-mail]
Tracy Nicole Betz
TAFT STETTINIUS & HOLLISTER LLP
[e-mail]
Michael Zachary Gordon
TAFT STETTINIUS & HOLLISTER LLP
[e-mail]
Jonathan G. Polak
TAFT STETTINIUS & HOLLISTER LLP
[e-mail]
Darlene R. Seymour
[e-mail]
Jason M. Sneed
JASON SNEED PLLC
[e-mail]

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