Columbia Data Products, Inc. v. Autonomy Corporation PLC et al

Filing 109

Magistrate Judge Judith G. Dein: ORDER entered. MEMORANDUM OF DECISION AND ORDER granting 77 Defendants' Motion to Amend Answer to Add Affirmative Defenses and Counterclaim. (Dambrosio, Jolyne)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS

COLUMBIA DATA PRODUCTS, INC.,
Plaintiff,
v.
AUTONOMY CORPORATION
LIMITED, et al.,
Defendants.

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CIVIL ACTION
NO. 11-12077-NMG

MEMORANDUM OF DECISION AND ORDER
ON DEFENDANT’S MOTION TO AMEND ANSWER
June 28, 2013
DEIN, U.S.M.J.
I. INTRODUCTION
The plaintiff, Columbia Data Products, Inc. (“CDP”), has brought this action
against Autonomy Corporation Limited (“Autonomy”) and its predecessors, Iron
Mountain Incorporated and Iron Mountain Information Management, Inc. (collectively,
“Iron Mountain”),1 alleging that the defendants wrongfully copied and shipped CDP’s
computer software, breached the terms of the parties’ software license agreement
(“License Agreement”), and engaged in various misrepresentations aimed at covering up

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CDP originally named as defendants Autonomy Corporation PLC., Iron Mountain, Inc.,
Iron Mountain Information Management, Inc., and Connected Corp. However, pursuant to an
Assented-To Motion to Correct Party Names and Caption, the defendants’ names have since been
changed to reflect the appropriate entities.

their improper conduct. Autonomy has denied all liability and asserted various counterclaims against CDP.
This matter is presently before the court on “Defendants’ Motion for Leave to
Amend Answer to Add Counterclaim and Affirmative Defenses.” (Docket No. 77). By
this motion, Autonomy is seeking to add a defense that expressly sets forth the “limitation
of liability” clause contained in the License Agreement, an amendment which CDP does
not oppose and is therefore allowed. In addition, Autonomy is seeking to add a claim of
offset/recoupment as a counterclaim and/or affirmative defense. This claim is based on
Autonomy’s alleged overpayment of amounts due under a separate LiveVault Agreement
between the parties. CDP opposes this proposed amendment, claiming that Autonomy
delayed asserting the claim without cause, that the amendment would unduly prejudice
CDP as discovery is drawing to a close, and that the amendment would be futile.
After careful consideration of the pleadings and arguments of counsel, the motion
to amend is ALLOWED. Payment due under the LiveVault Agreement has been an issue
between the parties for years. CDP has been on notice throughout the discovery period
that Autonomy intended to assert a claim of overpayment if it was able to prove this
claim, and that Autonomy’s ability to prove the claim had been hampered by the various
mergers and acquisitions it had undergone over the years. In fact, both parties had filed
written discovery and scheduled depositions intended to address this issue before the
close of discovery. CDP withdrew its discovery requests, however, when it learned that
Autonomy intended to assert the alleged overpayment as a separate counterclaim and not
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just as an excuse for its failure to pay amounts allegedly due under the License
Agreement.
As detailed more fully herein, this court concludes that Autonomy did not unduly
delay its assertion of this claim, that CDP will not be prejudiced by the amendment, and
that the amendment is not futile. Therefore, the motion to amend (Docket No. 77) is
allowed. To the extent that additional time is needed to complete discovery on this issue,
the fact discovery deadline is extended to August 2, 2013.2 The remaining pre-trial and
trial deadlines remain in effect.
II. STATEMENT OF FACTS
In this action, CDP is seeking $23 million in royalties it claims the defendants
owe under a License Agreement CDP entered into in March 2005 with Connected
Corporation, which was subsequently acquired by an Iron Mountain entity and then by
Autonomy. In addition to this License Agreement, in or around December 2004, CDP
entered into an agreement with LiveVault Corporation, pursuant to which LiveVault was
to pay royalties to CDP for software embedded into its LiveVault 5 backup product.
LiveVault was subsequently acquired by an Iron Mountain entity and then by Autonomy
as well. The defendants contend that they overpaid CDP $1.5 million in royalties under
the LiveVault Agreement. They are seeking to add a counterclaim and/or affirmative
defense for the purpose of offsetting or recouping this amount.

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The District Judge to whom this case is assigned has approved this extension of fact
discovery.

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Existing Discovery Schedule
As noted above, the License Agreement at issue in CDP’s complaint was entered
into between CDP and Autonomy’s predecessor, Connected Corporation. As detailed in
the parties’ Joint Motion to Amend Scheduling Order dated May 8, 2013, which resulted
in an extension of fact discovery to July 15, 2013, the corporate history of Autonomy is
complex, and has made discovery challenging in this case. Thus, the parties asserted:
the merger, purchase, and sale of certain entities affiliated with
Defendants has complicated and delayed the retrieval and production
of documents responsive to CDP’s requests. Shortly after CDP
entered into the underlying license agreement with Connected
Corporation (“Connected”), Connected was purchased by and
thereafter merged into Iron Mountain Information Management. In
2011, Iron Mountain’s digital division, which included the
Connected assets and liabilities, was sold to Autonomy Corporation
Limited (“Autonomy”). In 2012, Hewlett Packard purchased
Autonomy. The various mergers and acquisitions involving
Connected have added complexity to Defendants’ efforts to collect
and produce documents.
(Docket No. 76 at ¶ 2).
As a result of these difficulties, the defendants were unable to begin a substantial
production of financial records with backup data until March 26-27, 2013, and the document production is continuing. (See Baim Aff. (Docket No. 79) at ¶ 24; Autonomy Reply
(Docket No. 104) at 15-16). The parties presently have a number of depositions
scheduled. The existing discovery schedule calls for the completion of fact discovery by
July 15, 2013, expert designations and disclosures by September 13, 2013, completion of
expert discovery by November 22, 2013, and the filing of dispositive motions by
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December 20, 2013. (Docket Nos. 76, 88). A Final Pretrial Conference is presently
scheduled for March 26, 2014, and trial is scheduled to commence on April 7, 2014.
(Docket No. 51).
History of the LiveVault Dispute
While the parties dispute whether the License Agreement and LiveVault
Agreement are interconnected, an issue which the court does not have to resolve at this
time, the evidence before the court is that the parties had attempted to resolve all of their
outstanding issues before suit was commenced. For example, on November 19, 2010,
CDP’s principal, Rex Walsh, sent Iron Mountain’s in-house counsel an email itemizing
“the universe of buckets we are potentially in[.]” (Baim Aff. Ex. F at 1). While that
email did not specifically reference any claim by Iron Mountain of overpayment, CDP
did note that payments due under both the LiveVault Agreement and the Connected
License Agreement had to be resolved. (See id.). Thus, the fact that payments under the
LiveVault Agreement needed to be reconciled in order to fully resolve the issues between
the parties was known to CDP even before the litigation was commenced.
During initial discovery exchanges, it became clear that Autonomy believed that
there had been overpayments made under the LiveVault Agreement, but that it lacked
sufficient information to assert this as a claim.3 For example, in its August 29, 2012

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This court does not find persuasive Autonomy’s contention that CDP should have been
aware of the alleged overpayment claim in light of the Thirty-Eighth Affirmative Defense raised
by Autonomy in its original answer entitled “Offset/Setoff/Recoupment.” (Baim Aff. Ex. G at
17). Therein, Autonomy asserted “Plaintiff is barred from any legal or equitable relief under each

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response to CDP’s interrogatories, Autonomy wrote that “Defendants believe there may
be an offset of any royalties potentially due to CDP, but Defendants’ investigation into
this issue is continuing and incomplete.” (Baim Aff. Ex. J at 15). CDP, through counsel,
then asked for “the basis for Defendants’ assertion that they may be entitled to an
offset[.]” (Baim Aff. Ex. K at ¶ G). By letter dated November 8, 2012, Autonomy’s
counsel wrote:
As to the source of offset, you are likely aware of your clients’
emails and spreadsheets regarding settlement proposals in 2010 that
acknowledge a potential overpayment of royalties on the LiveVault
product.
(Baim Aff. Ex. L at 2-3).
The record further reflects that the alleged overpayment under the LiveVault
Agreement remained an issue in the litigation. Thus, on March 20, 2013, Autonomy sent
CDP a proposed 30(b)(6) deposition notice which included the following category:
13. Royalties that You received from Defendants relating to the
LiveVault product, including, without limitation, the extent to which
You received payments in excess of the amount due to be received
under Your agreement with Defendants.
(Baim Aff. Ex. M at 6). One week later, on March 27, 2013, CDP amended its
outstanding 30(b)(6) deposition notice to add the following category:

of the purported causes of action in the Complaint to the extent Defendants have offsetting
claim(s), and any liability to Plaintiff, which Defendants hereby deny, must be reduced under the
doctrines of offset, setoff and/or recoupment.” (Id.). In this court’s view, there is nothing therein
which would put CDP on notice of a dispute concerning the LiveVault Agreement, much less a
claim of overpayment thereunder. Moreover, Autonomy withdrew this defense when faced with
CDP’s challenge to the lack of specificity therein.

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32. Royalties relating to the LiveVault product, including, without
limitation, the basis for Defendants assertion that CDP received
payments in excess of the amount due to be received under its
agreement with Defendants.
(Baim Aff. Ex. N at 10). Eventually, it was agreed that CDP would take the deposition of
the defendants’ designee on June 17 or 18, 2013. (Baim Aff. ¶ 17). Meanwhile, CDP
filed interrogatories and document requests on April 24, 2013 relating to the “Defendants’
assertion that CDP received payments in excess of the amount due to be received under
any agreement between CDP and LiveVault.” (Baim Aff. Ex. R at Interrog. 20; Ex. S at
Doc. Req. 76-79). At no time during this period did CDP contend that discovery relating
to payments under the LiveVault Agreement were beyond the scope of the issues raised
in this litigation.
By email dated May 7, 2013, counsel for Autonomy requested that counsel for
CDP assent to an amendment to Autonomy’s answer and counterclaim to “reinsert our
setoff/recoupment defense” “based on what appears to be a substantial overpayment of
LiveVault royalties.” (Baim Aff. Ex. A). According to Autonomy, “we’ve more recently
learned through financial discovery and investigation” that there has been “a substantial
overpayment of LiveVault royalties.” (Id.). Autonomy further agreed to supplement its
answers to interrogatories if CDP so desired. (Id.). By email dated May 9, 2013, CDP
refused to consent. (Baim Aff. Ex. B). On May 17, 2013, CDP withdrew its outstanding
discovery relating to LiveVault. (Baim Aff. Ex. V). Despite this purported withdrawal,

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Autonomy is continuing to produce documents relevant to its claim. (See Baim Aff.
¶ 24).
Additional facts will be provided below where appropriate.
III. ANALYSIS
A.

Standard of Review

As an initial matter, the parties disagree as to whether the liberal amendment
standard of Fed. R. Civ. P. 15 applies to the instant motion to amend or whether
Autonomy must establish “good cause” for the proposed amendment under the stricter
standard set forth in Fed. R. Civ. P. 16. Of critical importance to this analysis is whether
the court had established a binding schedule for amended pleadings in its scheduling
orders. As detailed below, this court is unable to determine whether the parties had
understood that a finite schedule for amending pleadings had been set by the court.
However, this court also concludes that the proposed amendment is warranted under
either standard.
The decision whether to grant a motion for leave to amend falls within the trial
court’s discretion. Sheehan v. City of Gloucester, 321 F.3d 21, 26 (1st Cir. 2003).
“Leave to amend under Rule 15 ‘is freely given when justice so requires’ absent an
adequate basis to deny amendment such as futility, bad faith, undue delay or a dilatory
motive.” Transwitch Corp. v. Galazar Networks, Inc., 377 F. Supp. 2d 284, 290 (D.
Mass. 2005) (quotations and citation omitted), and cases cited. However, once a
scheduling order establishing a cut-off date for amendments has been set, it may be
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“modified only for good cause and with the judge’s consent” pursuant to Fed. R. Civ. P.
16(b)(4). See Steir v. Girl Scouts of the USA, 383 F.3d 7, 12 (1st Cir. 2004) (“Once a
scheduling order is in place, the liberal default rule is replaced by the more demanding
‘good cause’ standard of Fed. R. Civ. P. 16(b).”). This standard “emphasizes the
diligence of the party seeking the amendment[ ]” and “[p]rejudice to the opposing party
remains relevant but is not the dominant criterion.” O’Connell v. Hyatt Hotels of P.R.,
357 F.3d 152, 155 (1st Cir. 2004).
In the instant case, at the scheduling conference held before the District Judge on
March 28, 2012, the parties agreed to a number of deadlines. In particular, a trial date
was set for October 7, 2013, and the parties agreed that any amendments to pleadings
would be due by July 31, 2012. (See 3/28/12 Docket Entry). All subsequent extensions
were requested after the July 31, 2012 date had passed, and did not mention any dates for
amending the pleadings. (See, e.g., Docket No. 40 requesting six month extension of
deadlines and resulting in a trial date of April 7, 2014 per Docket No. 51; Docket No. 76
requesting extension of discovery deadlines but not trial date). Nevertheless, when CDP
moved to amend its complaint on January 14, 2013, it proceeded under Fed. R. Civ. P.
15(a) even though the July 31, 2012 date for amended pleadings had long since passed.
(See Docket No. 68). The amended complaint added a new copyright to CDP’s claim of
copyright infringement, and CDP argued that the amendment would not prejudice the
defendants, thereby applying the Rule 15 liberal amendment standard. (Id. at ¶¶ 2, 3).
The defendants assented to the amendment. Thus, it appears that prior to the instant
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motion, the parties were in agreement that the scheduling orders in effect did not preclude
consideration of amendments to the pleadings under Fed. R. Civ. P. 15.
For the reasons detailed below, this court concludes that the proposed amendment
is appropriate under either standard. Given the parties’ history, however, and the fact that
“undue delay” is a consideration under either standard, it would have been more
consistent for CDP to have allowed Autonomy to file its motion to amend under Rule 15
without dispute.
B.

Undue Delay

CDP contends that Autonomy’s undue delay in asserting its claims based on
alleged overpayments under the LiveVault Agreement requires that the motion to amend
be denied under Fed. R. Civ. P. 16. This court finds that whether the motion to amend is
evaluated under Fed. R. Civ. P. 16 or 15, Autonomy has been sufficiently diligent in
bringing the issue of overpayments under the LiveVault Agreement into the litigation so
that its motion to amend should be allowed.
There is absolutely no evidence that Autonomy intentionally delayed bringing this
claim. The difficulties Autonomy has faced in locating and analyzing its documents is
well-documented and was well-known to CDP. Autonomy made it clear both in prelitigation settlement discussions and throughout the discovery period that an accounting
under the LiveVault Agreement was necessary, and that it believed that there had been
overpayments made to CDP. Autonomy’s request that CDP produce a 30(b)(6) witness
on the issue of LiveVault payments in March 2013 coincided with its production of
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financial records and backup data. Moreover, as Autonomy has explained, its analysis of
the PriceWaterhouseCoopers documents, which were produced on January 31, 2013 and
February 19, 2013, were very important for its ability to formalize its claim of overpayment. (See Autonomy Reply (Docket No. 104) at 14-15). The record does not support
CDP’s contention that Autonomy was dilatory.
CDP’s claim that Autonomy’s motion should be denied because of its “repeated
failure to cure deficiencies by amendments previously allowed” also is not persuasive.
(CDP Opp. (Docket No. 89) at 12 (internal citation omitted)). As Autonomy argues, the
amended answers filed by the defendants have, at least in part, tracked CDP’s corrections
and amendments to its complaint. (See Autonomy Reply at 7). In any event, the
existence of prior amendments in the instant case does not negate the fact that CDP was
moving diligently to develop a factual basis for a claim that all the parties knew was
lurking. This court concludes that the motion to amend was timely.
C.

Undue Prejudice

Despite its protestations to the contrary, this court concludes that CDP will not be
prejudiced if the amendment is allowed. As an initial matter, the issue of potential
overpayments under the LiveVault Agreement has long been an issue between the parties,
and has been a significant enough issue in this litigation so that it has been the subject of
discovery requests during the agreed-upon discovery period. The fact that Autonomy
raised the overpayment as an excuse for non-payment of amounts allegedly due under the
License Agreement, as opposed to an express claim for recoupment and/or setoff, does
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not alter the scope of relevant factual discovery. CDP “cannot reasonably be surprised”
at Autonomy’s articulation of its overpayment defense, and its claim of prejudice is not
persuasive. See Jillson v. Vt. Log Bldgs., Inc., 857 F. Supp. 985, 987 (D. Mass. 1994)
(third-party plaintiff would not be prejudiced by an amendment asserting an affirmative
defense where it “has long been an issue in this case.”). This is especially true where, as
here, Autonomy has responded to some discovery on the issue already, and is in the
process of producing additional information.4 See Angela Adams Licensing LLC v. WalMart Stores, Inc., No. 2:11-cv-5-GZS, 2012 WL 1820932, at *1 (D. Me. May 18, 2012)
(claim of prejudice by addition of affirmative defense “would be unlikely to succeed”
where plaintiff had already sought discovery on the issue).
It also does not appear that any depositions will have to be retaken, although even
some additional deposition testimony from a previously deposed witness would not be
unduly burdensome. As of the date of the parties’ filings, CDP had taken five depositions, and none of them was of the individual designated by Autonomy on the topic of
payments under the LiveVault Agreement. To the extent that new fact witnesses will
need to be deposed, the brief extension of time to conclude fact discovery should be
sufficient. The issues raised by the proposed amendment are limited in scope and are
discrete.

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The parties dispute whether Autonomy has produced most of the relevant documents in
response to other requests by CDP which were not directed specifically to the LiveVault
Agreement. That issue, however, does not need to be resolved in light of the specific discovery
requests to which Autonomy has responded or is in the process of responding.

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In sum, under the facts presented here, and even focusing primarily on the
defendants’ conduct, this court finds that there is good cause for the delay in filing the
proposed claims. Moreover, the plaintiff will not be prejudiced by the amendment. The
defendants are “not springing completely new theories on plaintiff on the eve of trial, or
making significant eleventh hour changes.” Shea v. Clinton, 288 F.R.D. 1, 5 (D.D.C.
2012) (internal punctuation omitted). The amendment is appropriate.
D.

Futility

Finally, CDP argues that the proposed amendment would be futile because “[t]he
offset claim is barred by § 2-717 of the UCC, which only allows setoffs on the same
contract.” (CDP Opp. at 15). “If leave to amend is sought before discovery is complete
and neither party has moved for summary judgment, the accuracy of the ‘futility’ label is
gauged by reference to the liberal criteria of Federal Rule of Civil Procedure 12(b)(6).”
Hatch v. Dep’t for Children, Youth & their Families, 274 F.3d 12, 19 (1st Cir. 2001). In
such circumstances, “amendment is not deemed futile as long as the proposed amended
complaint sets forth a general scenario which, if proven, would entitle the plaintiff to
relief against the defendant on some cognizable theory.” Id. In the instant case, this
court cannot conclude that the proposed amendment is futile as a matter of law on the
instant record. Any further analysis of the legal sufficiency of the claim is best resolved
at the summary judgment stage, if appropriate.
As an initial matter, Autonomy challenges whether the UCC applies to the contract
at issue. Moreover, it appears that Autonomy could present its claim as a simple breach
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of contract argument, seeking to “recoup” or “offset” the amounts it claims are due
against the amounts it owes under the License Agreement as a matter of convenience.
CDP’s UCC argument is relevant to whether Autonomy has the right to withhold
payment under the License Agreement because of amounts CDP owes under the
LiveVault Agreement. See ITV Direct, Inc. v. Healthy Solutions, LLC, 379 F. Supp. 2d
130, 133 (D. Mass. 2005). The UCC does not negate any obligations CDP may have to
refund overpayments made by Autonomy.
IV. CONCLUSION
For all the reasons detailed herein, the “Defendants’ Motion for Leave to Amend
Answer to Add Counterclaim and Affirmative Defenses” (Docket No. 77) is ALLOWED.
The date for completion of fact discovery on the LiveVault Agreement claims is extended
to August 2, 2013. The remaining pretrial and trial deadlines remain in effect.

/ s / Judith Gail Dein
Judith Gail Dein
U.S. Magistrate Judge

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