Total Safety U.S., Inc. v. Rowland

Filing 288

ORDERED that 221 Motion for Leave to File Third Amending Complaint is DENIED. Signed by Magistrate Judge Karen Wells Roby on 9/19/2014. (cml)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
TOTAL SAFETY U.S., INC.

CIVIL ACTION

VERSUS

NO:

GARY ROWLAND, ET AL.

SECTION: "B" (4)

13-6109

ORDER
Before the Court is Plaintiff, Total Safety U.S., Inc.'s Motion for Leave to File Third
Amended Complaint for Damages and Injunctive Relief (R. Doc. 221). Total Safety seeks leave
of court to amend its Second Amended Complaint and add Amy Hains, one of the owners of 24
Hour Safety, LLC ("24 HR Safety"), as an additional defendant in this action. The motion is opposed
by Defendant Gary Rowland (R. Doc. 236) and Defendant 24 HR Safety (R. Docs. 238). Total
Safety filed a reply (R. Doc. 242) to the opposition and Defendant Rowland filed a sur-reply (R.
Doc. 250). The Motion was heard by oral argument on Wednesday, August 20, 2014.
I.

Background
This case arises from Defendant Gary Rowland’s (“Rowland”) decision to leave his

employment with Plaintiff, Total Safety U.S., Inc. (“Total Safety”) for that of 24 HR Safety in
October of 2013. See R. Doc. 1, p. 1. Rowland resigned on October 6, 2013, and Total Safety
initiated this suit four days later. In the complaint, Total Safety asserted a single claim for breach
of an employment agreement and sought injunctive relief to restrain Rowland from working for 24
HR Safety in certain regards. Id. at 10-13.

On October 23, 2013, Total Safety filed an amended complaint adding 24 HR Safety as a
defendant and to assert claims for (i) Breach of Employment Agreement, (ii) Misappropriation of
Confidential Information and Trade Secrets, (iii) Unfair Trade Practices, (iv) Conversion, (v) Breach
of Fiduciary Duty, (vi) Conspiracy, (vii) Violation of the Computer Fraud and Abuse Act, and (viii)
Violation of the Federal Stored Communications Act. Id. The Amended Complaint was also
accompanied by a motion for renewed and expanded injunctive relief, restricting Rowland from
competing in any way with Total Safety. See R. Doc. 19. On February 26, 2014, Total Safety filed
its Second Amended Complaint adding claims for specific performance as to 24 HR Safety and
grounds for breach as to Rowland.
As to the instant motion, on July 25, 2014 Total Safety filed the subject motion seeking to
add Amy Harris, one of the owners of 24 HR Safety, as a defendant to this action. Amy Hains
formerly worked as a comptroller for Total Safety and was subject to an employment contract that
prohibited her from divulging, or using Total Safety trade secrets. See R. Doc. 221-2. Total Safety
alleges that before resigning from the company in June 2005, Amy Hains took its trade secrets and
confidential information and used it to form 24 HR Safety with her boyfriend Todd Dartez. Id. In
February 2010, a few years after forming 24 HR Safety, Hains allegedly received an email from
former Total Safety employee Roger Strickland. The email contained Total Safety's business plan,
pricing worksheet, budget, sales quotes and client data. Id. at 11. Two years later, Dartez allegedly
forwarded Total Safety's customer revenue list to Hains, which he received from an unknown
source.
Based on these occurrences, Total Safety alleges claims of (i) Breach of Employment
Contract, (ii) Misappropriation of Confidential Information and Trade Secrets, (iii) Unfair Trade
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Practices, (iv) Conversion, (v) Breach of Fiduciary Duty, and (vi) Conspiracy. See R. Doc. 221-2.
According to the Scheduling Order (R. Doc. 135), the deadline to amend pleadings was on
March 27, 2014. The subject motion was filed on July 25, 2014, four months after the deadline.
Total Safety contends that these new allegations against Hains are based on newly discovered
evidence revealed during the course of discovery and after the amendment deadline. Thus, Total
Safety contends that it could not have brought the new claims sooner. See R. Doc. 221. Total Safety
also claims that the Defendants have not cooperated in the discovery process and that the evidence
supporting the new claims was not produced until June 25, 2014. Id.
In opposition, Defendant Rowland asserts that the amendment seeks to add an entirely
different set of claims against a new defendant. See R. Doc. 236. Rowland contends that the
amendment is based on events that occurred over nine years ago, as well as Hains' employment
contract, both of which do not involve Rowland's departure from Total Safety in October 2013. Id.
Rowland argues that the amendment is prejudicial and futile under Federal Rule of Civil Procedure
15(a). Id. Rowland argues that the amendment will expand the scope of the action and confuse the
jury. Id. Rowland also contends that the amendment is not a permissible joinder under Federal Rule
of Civil Procedure 20. Id.
Defendant 24 HR Safety opposes the motion because it seeks to add additional claims against
Hains and 24 HR Safety based on events that occurred in 2005, 2010, and 2012. See R. Doc. 238.
24 HR Safety contends that these new claims are unrelated and wholly distinct actions from those
engaged by Rowland in October 2013. Id. Additionally, 24 HR argues that the amendment is futile
because venue is not proper for Hains or the claims against her. Id.
Based on the arguments presented by the parties, the Court will now consider whether leave
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of court is appropriate for the proposed Third Amended Complaint.
II.

Standard of Review
Federal Rule of Civil Procedure 15(a) governs the amendment of pleadings. It provides that

leave to amend pleadings “shall be freely given when justice so requires.” This, and other federal
rules, “reject the approach that pleading is a game of skill in which one misstep by counsel may be
decisive to the outcome and accept the principle that the purpose of pleading is to facilitate a proper
decision on the merits.” Conley v. Gibson, 355 U.S. 41, 48 (1957).
Thus, Rule 15(a) evinces a liberal and lenient amendment policy and a motion to amend
should not be denied absent a substantial reason to do so. See Jacobsen v. Osborne, 133 F.3d 315,
318 (5th Cir. 1998). Furthermore, “[t]his policy is certainly strongest where the motion challenged
is the first motion to amend.” Thompson v. New York Life Ins. Co., 644 F.2d 439, 444 (5th Cir.
1981).
Leave to amend is not automatic, but is within the sound discretion of the trial court.
Addington v. Farmer's Elevator Mut. Ins. Co., 650 F.2d 663, 666 (5th Cir. 1981). In exercising its
discretion, the trial court must determine that there is a "substantial reason" for the delay. Mayeaux
v. Louisiana Health Service and Indemnity Co., 376 F.3d 420, 425 (5th Cir. 2004). The Court may
consider such factors as (1) undue delay, bad faith, or dilatory motive on the part of the movant; (2)
repeated failure to cure deficiencies by amendments previously allowed; (3) undue prejudice to the
opposing party by virtue of allowance of the amendment; and (4) futility of the amendment.
Gregory v Mitchell, 634 F.2d 199, 203 (5th Cir. 1981). Nevertheless, "[e]ven if substantial reason
to deny leave exists, the court should consider prejudice to the movant, as well as judicial economy,
in determining whether justice requires granting leave." Jamieson By & Through Jamieson v. Shaw,
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772 F.2d 1205, 1208 (5th Cir. 1985)
Although Rule 15(a) governs the amendments of pleadings, the Fifth Circuit has established
that Rule 16(b) "governs the amendment of pleadings after a scheduling order deadline has expired."
S & W Enterprises, L.L.C. v. S. Trust Bank of Ala., NA, 315 F.3d 533, 536 (5th Cir. 2003). Rule 16
provides that a scheduling order may only be modified for good cause shown and with the Judge’s
consent. See Fed. R. Civ. P. 16(b)(4). Therefore, only after the movant has satisfied the good cause
requirement of Rule 16(b) will the more liberal standard of 15(a) apply. S&W Enterprises, 315 F.3d
at 536.
In determining whether a party has provided good cause under Rule 16(b) to amend a
pleading after the scheduling order deadline, courts may examine four factors: “(1) the explanation
for the untimely conduct; (2) the importance of the requested untimely action; (3) the potential
prejudice in allowing the untimely conduct; and (4) the availability of a continuance to cure such
prejudice.” Huey v. Super Fresh/Sav-A-Center, Inc., No. 07-1169, 2008 WL 2633767, at *1 (E.D.
La. June 25, 2008) (citing S & W Enterprises., 315 F.3d at 535). “The good cause standard requires
the party seeking relief to show that the deadlines cannot reasonably be met despite the diligence
of the party needing the extension.” S & W Enterprises., LLC, at 535 (internal quotations and
citations omitted).

III.

Analysis
A.

Rule 16(b)

On July 25, 2014 Total Safety filed the instant motion for leave to amend, which was four
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months after the March 27, 2014 amendment deadline. See R. Doc. 135. Therefore, the Court must
apply Rule 16(b) to determine whether Total Safety has good cause for filing the motion after the
Scheduling Order deadline. The Court may consider: (1) the explanation for the untimely conduct;
(2) the importance of the requested untimely action; (3) the potential prejudice in allowing the
untimely conduct; and (4) the availability of a continuance to cure such prejudice. See Huey No.
07-1169, 2008 WL 2633767, at *1.
Total Safety contends that the untimeliness of the instant motion is attributed to information
learned during discovery and after the Scheduling Order deadline. Between May 14, 2014 and June
21, 2014, Total Safety argues that it found fragmented files produced by 24 HR Safety that appeared
to contain confidential information belonging to Total Safety. See R. Doc. 221. Total Safety argues
that it found information supporting its claim that 24 HR Safety and Hains misappropriated trade
secrets in 2005, 2010, and 2012. See id. at 9-14. This includes Total Safety's customer database,
2005 budget and revenue forecast, 2005 capital expenditures, business plan, pricing worksheet,
budget, sales quotes and 2011 Louisiana customer/revenue list. See id.
Courts in the Fifth Circuit have held that information learned during discovery is good cause
to amend under Rule 16. See e.g. Mobius Risk Grp., LLC v. Global Clean Energy Holdings, Inc.,
No. H-10-1708, 2011 WL 2193294 (S.D. Tex. June 6, 2011) (granting leave to amend to add the
CEO as a new defendant after his deposition); Udoewa v. Plus4 Credit Union, No. H–08–3054, 2010
WL 1169963, at *2–3 (S.D.Tex. Mar.23, 2010) (granting leave to amend to add claim based on
deposition testimony); STMicroelectronics, Inc. v. Motorola, Inc., 307 F. Supp. 2d 845, 853
(E.D.Tex.2004) (granting leave to amend after discovery uncovered additional products that might
have been infringed).
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Here, Total Safety has good cause to amend its complaint. Total Safety claims it did not
discover Hains' alleged involvement in the conspiracy until May and June 2014, when the forensics
from Hains' laptop and email accounts were produced. See R. Doc. 221-1. There is nothing in the
record to suggest that Total Safety knew or could have known about the files produced from Hains'
laptop and email accounts. Therefore, this Court finds good cause for Total Safety's delay in filing
the motion to amend the complaint.
B.

Rule 15(a)

Having determined Total Safety has good cause under Rule 16(b), this Court shall address
the merits of the motion under Rule 15(a). To determine whether to grant leave to amend, the Court
may consider such factors as (1) undue delay, bad faith, or dilatory motive on the part of the movant;
(2) repeated failure to cure deficiencies by amendments previously allowed; (3) undue prejudice to
the opposing party by virtue of allowance of the amendment; and (4) futility of the amendment.
Gregory, 634 F.2d at 203.
The Court shall now consider each of these four factors in the Rule 15(a) analysis in light
of the parties arguments.
1.

Undue Delay, Bad Faith, or Dilatory Motive

The first factor in the Rule 15(a) analysis is whether the amendment will cause an undue
delay, is in bad faith, or whether the movant has some dilatory motive in filing the motion.
Total Safety argues that the delay in filing the proposed Third Amended Complaint is due
to the intentional conduct of 24 HR Safety, Hains, and Rowland. See R. Doc. 240-1. Total Safety
contends that the Defendants and Hains have intentionally concealed key facts that are the subject
of the proposed amendment. Id. at 2.Total Safety contends that production of these key facts would
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have allowed it to bring the proposed claims shortly after it initiated this action on October 10, 2013.
Id.
Defendant Rowland argues that he did not engage in bad faith or dilatory tactics to conceal
the production of evidence that is the subject of the proposed Third Amended Complaint. See R.
Doc. 243-2, p. 2. Rowland contends that Total Safety has no basis for claiming that Rowland knew
about the alleged misappropriation by Hains or 24 HR Safety in 2005, 2010, and 2012. Id. Rowland
argues that it has produced all of the non-privileged documents that Total Safety's forensic expert
collected from his devices and email accounts in November 2013. Id.
According to the Fifth Circuit, “[a] litigant's failure to assert a claim as soon as he could have
is properly a factor to be considered in deciding whether to grant leave to amend. Merely because
a claim was not presented as promptly as possible, however, does not vest the district court with
authority to punish the litigant.” Carson v. Polley, 689 F.2d 562, 584 (5th Cir. 1982) (finding that
the motion to amend should not be denied due to a four month delay between the pro se attorneys
being assigned to the case and the filing of the second amended complaint).
Total Safety filed the instant motion seeking leave to amend four months after the
amendment deadline in the Scheduling Order. It is not disputed that Total Safety discovered Hains'
involvement in the alleged conspiracy a few months after the amendment deadline. Hence, this Court
finds that the first factor is satisfied.
2.

Failure to Cure Deficiencies by Amendments Previously Allowed

The second factor is whether the party has previously filed repeated amendments before
filing the instant motion. The parties do not dispute that Total Safety's complaint is not an attempt
to cure deficiencies.
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Courts in the Fifth Circuit have found that where a party has been given multiple
opportunities to cure a defect, denial of a 15(a) motion is proper. See, e.g., Price v. Pinnacle
Brands, Inc., 138 F.3d 602, 607-08 (5th Cir. 1998) (upholding district court’s denial of 15(a) motion
where plaintiffs had three prior opportunities to amend their complaint); Fuller v. Harrah's Entm't,
Inc., No. 04-2108, 2004 WL 2452771 (E.D. La. Oct. 29, 2004) (denying request to amend complaint
after the Court already provided an opportunity to amend the same issue).
Total Safety is now seeking its third amended complaint. Although this weighs against the
second factor in the Rule 15(a) analysis, Total Safety is not deemed to have failed to cure this defect
in the prior two amendments because its earlier amendments predate the discovery of the content
found on Hains' laptop and email accounts in May and June of 2014. Total Safety's First Amended
Complaint was filed on October 23, 2013 and the Second Amended Complaint was filed on
February 26, 2014. Therefore, Total Safety did not fail to cure this defect in the prior two
amendments and the second factor in the analysis is satisfied.
3.

Undue Prejudice to the Opposing Party

The third factor is whether the amendment will cause an undue prejudice to the opposing
party.
Defendant Rowland claims the proposed amendment would cause extreme prejudice because
it would expand the scope of the action and delay the disposition of the original complaint against
Rowland. See R. Doc. 236. Rowland contends that the amendment would fundamentally alter the
nature of the case by adding a new defendant and alleging a new conspiracy claim that did not
involve Rowland. Id. at 6. In addition to expanding the scope this action, Rowland contends that the
amendment would confuse the jury. Id. at 8. Rowland argues that Total Safety plans to tell the jury
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that Hains' actions in 2005 somehow prove that a conspiracy existed between Rowland and 24 HR
Safety in 2013. Id.
Total Safety argues that Rowland and 24 HR Safety should be precluded from arguing
prejudice because they caused the delay by concealing evidence. See R. Doc. 240-1, p. 6.
Additionally, Total Safety contends that Rowland will not be prejudiced by confusion of the jury
because the conspiracy theory is straight forward. Id. at 7-8. Total Safety argues that 24 HR Safety
remains the hub of this conspiracy, Hains is the initial co-conspirator, and Rowland is the most
recent co-conspirator. Id. Further, Total Safety claims that Rowland will not be prejudiced because
he has already admitted on the stand that he stole trade secrets, breached his employment contract,
and breached his fiduciary duty. Id.
The Fifth Circuit has cautioned that amendments should not be permitted where they would
“fundamentally alter the nature of the case.” Hebert v. Specialized Environmental Resources, LLC,
Nos. 12–0071, 12–1798, 2013 WL 1288219, at *4 (E.D. La. Mar. 23, 2013); see also In re
American International Refinery, Inc., 676 F.3d 455, 467 (5th Cir. 2012) (noting that new
allegations of fraud in the bankruptcy proceeding would have “fundamentally altered” the nature
of a case which had previously been limited to determination of whether one party possessed a
conflict of interest warranting disgorgement of monies paid). Furthermore, while granting leave to
amend may be proper to add alternative legal theories on the same underlying facts, it may not be
proper to add new causes of action and new defendants. See Mayeaux, 376 F.3d at 427–28 (finding
that the complaint would be “fundamentally altered” where proposed amendment would destroy
jurisdiction and “effectively reconstruc[t] the case anew.”).
Here, Total Safety seeks to add a new defendant and new causes of action. The new causes
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of action allege a different conspiracy, between different parties. Total Safety's current complaint
alleges a conspiracy between 24 HR Safety and Rowland that occurred around his departure from
Total Safety on October 6, 2013. Additionally, the current complaint asserts a breach of contract
claim by Rowland for working in the same industry and territory despite his non-compete agreement
with Total Safety.
In contrast, the proposed Third Amended Complaint alleges a new conspiracy between Hains
and 24 HR Safety, dating as far back as 2005. These claims are not temporally or factually
connected given that Rowland did not leave until 2013, when he allegedly breached the noncompete agreement. Further, there is no factual information developed between 2005 and 2013
suggesting that Rowland gave Total Safety information to 24 HR Safety before his departure from
Total Safety. Based on these facts, the Court finds that Total Safety does not satisfy the third factor.
4.

Futility of the Amendment

The fourth factor in the analysis is whether the amendment, and or potential new claims are
futile. The Defendants claim the amendment is futile because it seeks impermissible joinder and
venue is not proper.
a.

Joinder

Rowland contends that the amendment is futile because it is not a permissible joinder under
Federal Rule of Civil Procedure 20. See R. Doc. 236, p. 10. Rowland argues that the claims against
Rowland and the claims against Hains are based on different contracts, different alleged trade
secrets, and a different set of events. Id. at 11. Therefore, Rowland argues that the claims against
Hains do not arise out of the same transaction or occurrence as the claims against Rowland. Id.
Total Safety argues that the amendment is not futile under Rule 20 because the claims against
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Hains fall under the same conspiracy alleged against 24 HR Safety and Rowland. See R. Doc. 240-1,
p. 9. Total Safety argues that "[t]he 'same transaction' requirement means that there must be some
allegation that the joined defendants 'conspired or acted jointly.'" Id. at 10 (quoting Arista Records
LLC v. Doe, 589 F. Supp. 2d 151, 154 (D. Conn.2008). Total Safety argues that 24 HR Safety is the
hub of the conspiracy and that it conspired with Hains and Rowland to further the conspiracy to
misappropriate Total Safety's trade secrets. Id. Additionally, Total Safety asserts that Hains herself
recruited Rowland and conspired with him to misappropriate trade secrets. Id.
Rule 20 governs the joinder of defendants and allows joinder only if (1) the claims arise out
of the same transaction, occurrence, or series of occurrences, and (2) there is at least one common
question of law or fact linking all of the claims. In assessing "same transaction," courts have
concluded that "all 'logically related' events entitling a person to institute a legal action against
another generally are regarded as comprising a transaction or occurrence." In re Silica Prods. Liab.
Litig.,398 F. Supp. 2d 563, 650 (S.D. Tex.2005). Additionally, courts are "inclined to find that
claims arise out of the same transaction or occurrence when the likelihood of overlapping proof and
duplication in testimony indicates that separate trials would result in delay, inconvenience, and
added expense to the parties and to the court." Thus, Rule 20 also takes in to account judicial
economy when analyzing whether joinder is proper.
The "same transaction" element under Rule 20 is the only element in dispute. Here, the
breach claims against Hains are from different contracts and a different fiduciary relationship.
Although they are similar to the claims against Rowland, they do not arise out of the same
transaction or occurrence. Total Safety has personal actions against Hains and Rowland for
distinctively separate contractual and fiduciary relationships.
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As to the conspiracy claim, this Court finds that the allegations against Hains and Rowland
do not fall under the same transaction or occurrence. The conspiracy alleged between Hains and 24
HR Safety occurred in 2005, 2010, and 2012, while the conspiracy alleged between Rowland and
24 HR Safety occurred in 2013. These are separate conspiracy claims with separate operative facts.
Here, there is not a concern that there would be overlapping proof and duplication of testimony in
a separate action because the conspiracy claims are not temporally connected.
b.

Venue

24 HR Safety argues that the amendment is futile because Total Safety did not establish
proper venue for Hains or the claims against her. See R.Doc. 238, p. 2. 24 HR Safety argues that
Total Safety must establish venue for each claim and each defendant. Id. at 3. In reference to this
action, 24 Hour Safety contends that none of the Defendants are residents of the Eastern District of
Louisiana. Id. 24 Hour Safety asserts that Rowland resides in the Middle District of Louisiana, Hains
resides in the Western District of Louisiana, and 24 HR Safety is a Texas corporation with its
principle place of business in Texas. Id. 24 HR Safety argues that the claims against Hains occurred
either in the Western District of Louisiana or in the Southern District of Texas. Id. Furthermore, 24
HR Safety contends that the contract between Hains and Total Safety has Texas as the choice of
forum. Id.
Total Safety contends that this Court has already established venue in the Eastern District
of Louisiana because all defendants are residents of Louisiana. See R. Doc. 240-1, p. 9. Contrary
to 24 HR Safety's assertion that it's a Texas company, Total Safety argues that as a LLC, 24 HR
Safety is amenable to suit in Louisiana because one of its members is a Louisiana resident. Id. Thus,
Total Safety argues that adding Hains does not affect venue because she is also a Louisiana citizen.
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"When jurisdiction is founded only on diversity of citizenship, section 1391(a) applies for
purposes of determining proper venue." Ortiz v. Robert Holman Trucking, Inc., No. B-06-020, 2006
WL 1098904 (S.D. Tex. Apr. 11, 2006). According to section 1391(a), when all defendants are
residents of the same state, venue is proper in "a judicial district where any defendant resides." Id.;
28 USCS § 1391(b)(1). Venue is also proper in "a judicial district in which a substantial part of the
events or omissions giving rise to the claim occurred." 28 USCS § 1391(b)(2). For the purposes of
a Limited Liability Company, "citizenship . . . is determined by the citizenship of all of its
members." Harvey v. Grey Wolf Drilling Co.,542 F.3d 1077, 1080 (5th Cir. 2008).
Although 24 HR Safety was incorporated in Texas and its principal place of business is in
Texas, 24 HR Safety is deemed a resident of any district its members reside. 24 HR Safety is owned
by Dartez and Hains. Hains is a resident of Louisiana and resides in the Western District, which
renders 24 HR Safety a resident of Louisiana in the Western District. Rowland resides in the Middle
District of Louisiana. Thus, all defendants are residents of Louisiana and venue is proper in the
district where any defendant resides or where a substantial part of the claims occurred. Unless
Dartez as a member of 24 HR Safety lives in the Eastern District of Louisiana, which has not been
plead, venue will only be proper for Hains if a substantial part of the claims occurred here. Total
Safety has not demonstrated that a substantial part of the claims against Hains occurred here and did
not dispute 24 HR Safety's representation that none of the claims occurred here. Thus, venue in the
Eastern District is futile and the fourth factor is not satisfied.
IV.

Conclusion
IT IS ORDERED that Plaintiff, Total Safety’s Motion for Leave to File Third

Amending Complaint (R. Doc. 221) is DENIED.

New Orleans, Louisiana, this 18th day of September 2014.

KAREN WELLS ROBY
UNITED STATES MAGISTRATE JUDGE

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