Cardiovascular Systems, Inc. v. Cardio Flow, Inc.

Filing 131

ORDER denying 123 APPEAL/OBJECTION OF MAGISTRATE JUDGE DECISION to District Judge (Written Opinion). Signed by Judge Susan Richard Nelson on 4/17/2020. (MJC)

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UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA

Cardiovascular Systems, Inc.,

Case No. 18-cv-1253 (SRN/KMM)

Plaintiff,
v.

ORDER ON OBJECTIONS

Cardio Flow, Inc.,
Defendant.

Daniel Lewis Allender and Roman Silberfeld, Robins Kaplan LLP, 2049 Century Park E.
Ste. 3400, Los Angeles, CA 90067-3208; Thomas F. Berndt, Robins Kaplan LLP, 800
LaSalle Ave., 2800 LaSalle Plaza, Minneapolis, MN 55402, for Plaintiff.
Daniel R. Hall, Joseph W. Anthony, and Joseph Richie, Anthony Ostlund Baer &
Louwagie PA, 90 S. 7th St., Ste. 3600, Minneapolis, MN 55402, for Defendant.

SUSAN RICHARD NELSON, United States District Judge
I.

INTRODUCTION

This matter is before the Court on the Objection [Doc. No. 123] of Plaintiff
Cardiovascular Systems, Inc. (“CSI”) to the February 27, 2020 Order (hereafter, “the
Order”) [Doc. No. 121] on Plaintiff’s Motion to Amend the Amended Complaint [Doc.
No. 95]. In the Order, Magistrate Judge Katherine Menendez denied CSI’s motion. (Order
at 9.) Based on a review of the record, and for the reasons set forth below, the Court
overrules CSI’s Objection and affirms the Order.

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II.

BACKGROUND

This case is a breach of contract action between two medical device manufacturers.
(See Am. Compl. [Doc. No. 34] ⁋⁋ 22–27.) In addition to monetary damages, CSI seeks
declaratory and injunctive relief against Cardio Flow. (Id. ⁋⁋ 28–38.) As the magistrate judge
recounted in the Order, CSI alleges that Cardio Flow breached a 2012 settlement agreement,
originally executed between CSI and Lela Nadirashvili. (Order at 1.) Pursuant to the
settlement agreement, CSI and Ms. Nadirashvili agreed to divide ownership of certain patent
portfolios involving rotational atherectomy devices.1 (Id.) CSI asserts that it received an
exclusive

right

to

practice

rotational

atherectomy

devices

employing

“solid

counterweights”—a right that went beyond the specific patents at issue. (Id.) CSI contends
that after the settlement, Ms. Nadirashvili assigned to Cardio Flow her interest in patent
applications, and the agreement to abide by prohibitions against practicing rotational
atherectomy devices using solid counterweights. (Id. at 1–2.) Further, CSI asserts that Cardio
Flow is developing or is in the process of developing an atherectomy device that uses one or
more solid counterweights, in violation of the settlement agreement. (Id. at 2.)
Cardio Flow, however, argues that it was not a party to the settlement agreement, and
is not bound by its terms. (Id.) It further disputes CSI’s interpretation of the contract as
effectuating more than the division of contract rights between CSI and Ms. Nadirashvili. (Id.)
In the Order, the magistrate judge addressed CSI’s Motion to Amend the Amended
Complaint to add a claim of tortious interference with a contract. Although the deadline for

1

“Atherectomy devices clear arteries by grinding, aspirating, or cutting away plaque
buildup.” (Am. Compl. ⁋ 6.)
2

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filing such a motion was May 31, 2019, CSI filed its motion on January 15, 2020. Magistrate
Judge Menendez summarized the parties’ arguments, noting that CSI asserted that the
settlement agreement required Ms. Nadirashvili to guarantee that any assignee of her patent
portfolio agreed to be bound by the terms of the settlement agreement. (Id.) CSI further
contended that Cardio Flow was aware of this obligation, but through its founder and
chairman, Gary Petrucci, devised a scheme to induce Ms. Nadirashvili to transfer her rights
without requiring Cardio Flow to accept CSI’s corresponding right to exclusively practice
solid counterweight rotational atherectomy devices.2 (Id.) CSI asserted that at the December
4, 2019 deposition of Cardio Flow’s founder and chairman, Gary Petrucci, it first learned of
the factual basis for a claim of tortious interference with a contract. (See Pl.’s Mem. Supp.
Mot. to Am. [Doc. No. 97] at 4.)
In response to CSI’s Motion to Amend, Cardio Flow argued that the Court should
deny the motion as untimely and futile. (Def.’s Opp’n to Mot. to Am. [Doc. No. 103] at 1.)
In the Order, Magistrate Judge Menendez observed that CSI’s Motion to Amend was
filed more than seven months past the May 31, 2019 deadline. (Order at 2) (citing Pretrial
Sched. Order [Doc. No. 30] & Am. Pretrial Sched. Order [Doc. No. 76]). Applying the goodcause standard for amendments under Fed. R. Civ. P. 16(b)(4), she found that CSI had failed
to demonstrate good cause. (Id. at 2–8.) Rejecting CSI’s claim that its delay was attributable
to Cardio Flow’s intentional discovery misconduct, Magistrate Judge Menendez instead

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Petrucci had served as CSI’s chairman and CEO prior to his departure in March
2010. (Allender Decl. [Doc. No. 124], Ex. H (Petrucci Dep. at 121).) He formed Cardio
Flow in July 2010. (Id. at 128.)
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found that CSI was not diligent in pursuing discovery related to its tortious interference
theory, and it knew or should have known information prompting it to pursue such discovery
in a timely fashion. (Id.) Because she found that CSI failed to demonstrate good cause, the
magistrate judge declined to address Cardio Flow’s additional argument that the proposed
amendment should be denied on grounds of futility, due to the statute of limitations. (Id. at
8.)
This Objection followed. CSI argues that the magistrate judge’s ruling is clearly
erroneous and contrary to law for the following reasons: (1) the Order ignores evidence of
CSI’s diligence; (2) CSI initially lacked evidence of tortious interference; and (3) the
amendment does not alter the scope of the case and Cardio Flow would suffer no prejudice
if CSI were allowed to amend its pleading. (Obj. at 3–5.)
III.

DISCUSSION

A. Standard of Review
In reviewing an order from a magistrate judge on nondispositive matters, such as a
motion to amend a complaint, the standard of review “is extremely deferential.” Magee v.
Trs. of the Hamline Univ., Minn., 957 F. Supp. 2d 1047, 1062 (D. Minn. 2013). The Court
must set aside portions of an order that are “clearly erroneous or contrary to law.”3 28 U.S.C.
§ 636(b)(1)(A); Fed. R. Civ. Proc. 72(a); Local Rule 72.2(a)(3). Such an order is “clearly
erroneous” when, after a thorough review of the record, the “court is left with the definite and

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Where the magistrate judge’s denial of leave to amend is based on futility, the
Court’s review is de novo. Magee, 957 F. Supp. 2d at 1062. Because Magistrate Judge
Menendez did not rule on the basis of futility, the Court reviews her decision under the
clearly erroneous/contrary to law standard.
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firm conviction that a mistake has been committed.” Knutson v. Blue Cross & Blue Shield of
Minn., 254 F.R.D. 553, 556 (D. Minn. 2008) (quoting Thorne v. Wyeth, No. 06-cv-3123
(PAM/JJG), 2007 WL 1455989, at * 1 (D. Minn. May 15, 2007)). The order is “contrary to
law” when it “fails to apply or misapplies relevant statutes, case law or rules of procedure.”
Id. (quoting Transamerica Life Ins. Co. v. Lincoln Nat'l Life Ins. Co., 592 F. Supp. 2d 1087,
1093 (N.D. Iowa 2008)).
B. Analysis
As Magistrate Judge Menendez properly observed, because CSI’s Motion to Amend
was filed outside the time permitted under the Scheduling Order, it was required to show good
cause in order to receive leave to amend. Fed. R. Civ. P. 16(b)(4); Ellingsworth v. Vermeer
Mfg. Co., 949 F.3d 1097, 1100 (8th Cir. 2020); Kmak v. Am. Century Cos., Inc., 873 F.3d
1030, 1034 (8th Cir. 2017). “The primary measure of good cause is the movant’s diligence.”
Kmak, 873 F.3d at 1034 (quoting Harris v. FedEx Nat’l LTL, Inc., 760 F.3d 780, 786 (8th
Cir. 2014)). In general, courts do not consider prejudice to the non-moving party if the
moving party has not been diligent in meeting the court’s scheduling deadlines. Id. (citing
Hartis v. Chi. Title Ins. Co., 694 F.3d 935, 948 (8th Cir. 2012)).
The magistrate judge’s determination that CSI failed to demonstrate good cause is
supported by the record. CSI faults the magistrate judge for overlooking its efforts to compel
the production of discovery and for improperly focusing on “hypothetical” discovery that it
could have sought. (Obj. at 3–4.) But the magistrate judge correctly found that “CSI could
have pursued discovery other than Mr. Petrucci’s deposition, such as interrogatories, requests
for admission, or depositions of other witnesses in an effort to learn about Cardio Flow’s
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understanding or knowledge of the settlement agreement.” (Order at 3.) For example, the
magistrate judge pointed to a Cardio Flow interrogatory response that should have prompted
a request for additional information about when Cardio Flow first learned about the settlement
agreement, and the details that it possessed when Ms. Nadirashvili assigned her rights to
Cardio Flow. (Id. at 4.) She noted that CSI, however, failed to “explain why it could not have
gotten the necessary discovery for pleading a tortious interference claim in some other manner
prior to the deadline.” (Id.) (citing Target Corp. v. LCH Pavement Consultants, LLC, 960 F.
Supp. 2d 999, 1007 (D. Minn. 2013). The Court assigns no error to the magistrate judge’s
findings in this regard.
CSI also argues that Magistrate Judge Menendez “wrongly [found] that CSI should
have filed its tortious interference claim at the outset.” (Obj. at 4.) It contends that it could
not have alleged such a claim without a good-faith basis for doing so, as it would have
otherwise violated Fed. R. Civ. P. 11. (Id.) But Magistrate Judge Menendez did not find that
CSI should have asserted a tortious interference claim at the outset of the case. Rather, she
highlighted evidence of CSI’s knowledge of Mr. Petrucci’s involvement, sufficient for CSI
to have brought a tortious interference claim “sooner, or at least to investigate the claim ahead
of the amendment deadline.” (Order at 5.) Her finding in this regard was not clearly
erroneous, nor contrary to law. When evaluating good cause, courts may consider steps
counsel should have reasonably undertaken in light of the facts and posture of the case. See,
e.g., In re Milk Prods. Antitrust Litig., 195 F.3d 430, 438 (8th Cir. 1999) (finding that plaintiffs
failed to show good cause to amend complaint where dismissal of first amended complaint
should have alerted them to certain pleading deficiencies much earlier).
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Magistrate Judge Menendez identified evidence that should have prompted CSI to
bring a tortious interference claim sooner, or to explore the claim prior to the expiration of the
deadline. First, she noted that in Cardio Flow’s March 2019 Answer to the Amended
Complaint, filed two months before the expiration of the amendment deadline, Cardio Flow
expressly denied that it was bound by the settlement agreement. (Order at 5) (citing Answer
to Am. Compl. [Doc. No. 46] ⁋ 16). And one month earlier, in response to Plaintiff’s
interrogatories, Cardio Flow “dispute[d] that it [was] bound to the terms of the Settlement
Agreement as if it were a party,” and “did not agree to be bound by the alleged contract terms
that CSI purports to assert in this case.” (Id.) (citing Allender Decl. [Doc. No. 98], Ex. G
(Def.’s Resp. to Pl.’s Interrogs.) at Interrog. Resp. 1 & 2). The magistrate judge did not clearly
err in finding, from these pleadings, that “CSI could have inferred that Cardio Flow knew
about the settlement agreement,” or, “at a minimum, CSI could have pursued that line of
questioning using additional interrogatories or other discovery tools to better understand what
Cardio Flow knew and when.” (Id.) Nor were these findings contrary to law.
Second, the magistrate judge noted that in March 2019—again, prior to the expiration
of the amendment deadline—Cardio Flow produced the August 2012 assignment agreement
between it and Ms. Nadirashvili. (Id.) The assignment agreement expressly referenced the
settlement agreement between CSI and Ms. Nadirashvili. (Id.) Thus, the magistrate judge
found:
A reasonable inference could be made from this fact that Cardio Flow was
aware of the settlement agreement and its terms five and a half years ago. It is
difficult to believe that a reasonable attorney would recommend a client
become a party to a contract that was contingent on a previous settlement
agreement without also being familiar with the terms of the settlement
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agreement. By March 2019, CSI should have known that Cardio Flow had
been aware of the settlement agreement for many years. Counsel could have
sought discovery on this point then, amended the complaint then, or sought an
extension of the amendment deadline to gather evidence on this issue. They
chose none of these options, instead waiting until near the very end of discovery
to explore the matter in a deposition.
(Id. at 5–6.)
Third, Magistrate Judge Menendez pointed to other record evidence showing that CSI
knew or should have known—even earlier than the February and March 2019 disclosures—
that Cardio Flow was aware of the terms of the settlement agreement. (Id. at 6.) She noted
that several documents in CSI’s possession supported this inference. For example, a letter
sent from CSI’s own outside counsel to Mr. Petrucci in 2010 indicated that CSI’s management
and board had considered a proposal by Mr. Petrucci related to the patents that were
eventually addressed in the settlement agreement. 4 (Id.) In addition, the minutes of an
October 20, 2010 CSI board of directors meeting noted that “Gary Petrucci, on behalf of
Cardio Flow,” proposed that CSI “assign to Cardio Flow all rights to the counterbalance
technology in exchange for a dismissal of all litigation and a right of first refusal to later
acquire Cardio Flow and its counterbalance technology rights.” (Id.)
Magistrate Judge Menendez further noted that the 2012 settlement agreement between
CSI and Ms. Nadirashvili “specifically names Mr. Petrucci as an individual that Ms.

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In its Objection, CSI argues that Magistrate Judge Menendez’s Order improperly
“rests on” this letter. (Obj. at 17–18.) It further states that Cardio Flow only produced the
letter “the day after the hearing on CSI’s motion.” (Id.) While CSI may not have known
that the letter, written years earlier, existed, it nevertheless came from CSI’s own outside
counsel. Moreover, the magistrate judge relied on several forms of evidence, not the letter
alone.
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Nadirashvili is permitted to partner with in exploiting her patent rights under the deal.” (Id.)
Given this evidence in the record, it was not error, nor contrary to law, for the magistrate
judge to conclude that “[a] reasonably diligent attorney could infer from this that Mr. Petrucci
was well aware of the settlement agreement in which he, and he alone, was expressly named.”
(Id.)
Finally, the magistrate judge noted that Ms. Nadirashvili’s November 2012
assignment of her patent rights to Cardio Flow was publicly filed with the USPTO on
December 31, 2012. (Id.) Not long after, patents issued from applications in the Nadirashvili
patent portfolio, listing Cardio Flow as the assignee. (Id. at 7.) At that time, CSI did not
receive notice from Cardio Flow stating that Cardio Flow agreed to be bound to the settlement
agreement as if it were a party, although CSI alleges that Ms. Nadirashvili’s assignment to
Cardio Flow required such notice. (Id.)
Magistrate Judge Menendez found that all of this evidence supplied the following
information to CSI, from which it could have brought a tortious interference claim or sought
further discovery in this regard:
(1) Cardio Flow believed it was not a party to the settlement agreement; (2)
Cardio Flow knew about the settlement agreement’s existence in 2012 when
Ms. Nadirashvili assigned her rights to Cardio Flow; (3) Mr. Petrucci was
attempting to gain access to the patents that eventually formed the basis for the
settlement agreement as early as 2010; (4) Mr. Petrucci was named in the
settlement agreement between CSI and Ms. Nadirashvili; and (5) Cardio Flow
was assigned Ms. Nadirashvili’s patent rights but had not agreed to be bound
by the settlement agreement.
(Id.)
Moreover, the magistrate judge noted that any “revelations” at Petrucci’s deposition
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were “less dramatic” than CSI suggested, and did not justify CSI’s late effort to amend. (Id.
at 7 n.2.) Magistrate Judge Menendez found that the content of Petrucci’s testimony did not
portray him as a “‘puppet master guiding the 2012 litigation,’” as CSI suggested. (Id.) Rather,
she found his testimony elicited the following facts—none of which could be characterized
as a “smoking gun”: (1) he used to be on CSI’s board; (2) he wanted to start Cardio Flow in
2010 after he left CSI, but was counseled by a friend and CSI’s attorney that CSI would sue
him; (3) he introduced Ms. Nadirashvili to the law firm Fish & Richardson after she expressed
fears about losing her income after her husband died; (4) he believed that CSI had put their
name on patents that belonged to Ms. Nadirashvili; (5) he wanted to partner with her to use
the patents that he believed were hers to start Cardio Flow; and (6) a lawyer from Fish and
Richardson called Petrucci to tell him that Ms. Nadirashvili’s case against CSI had settled.
(Id.) (citing Allender Decl., Ex. H (Petrucci Dep.) at 13–14, 17–18, 22–23, 28–29, 34–35.)
The Court finds no clear error in the magistrate judge’s findings with respect to the
significance of Petrucci’s testimony or any new evidence contained therein.
As to CSI’s argument that it had no reason to believe Cardio Flow would promptly
respond to further discovery, (Obj. at 4), CSI could have propounded the discovery, brought
a motion to compel, or sought an extension of the schedule. Thus, regardless of Cardio Flow’s
alleged delay in responding to prior discovery requests, for which CSI lays the blame for its
untimely motion to amend, (Obj. at 3), Magistrate Judge Menendez did not clearly err in
concluding that “[t]o the extent that this factual reality could support a claim of tortious
interference, CSI was aware of it well ahead of the amendment deadline.” (Order at 7.)
Further support for this conclusion is found in CSI’s Objection, in which it acknowledges that
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it “explored the possibility that it had a tortious interference claim” as early as December
2018. (Obj. at 3.) Thus, it was not clear error for the magistrate judge to conclude that a
reasonably diligent attorney “could have inferred that a tortious interference claim might have
‘evidentiary support after a reasonable opportunity for further investigation or discovery,’ and
therefore could have bought such a claim at that point,” without violating Rule 11. (Order at
7–8) (quoting Fed. R. Civ. P. 11(b)(3)).
Finally, CSI argues that the magistrate judge applied the wrong legal standard, arguing
that under Fed. R. Civ. P. 15(b), parties should be permitted to amend a pleading even during
trial. (Obj. at 5.) But Rule 15(b) refers to amendments that are based on objections at trial,
or for issues tried by consent, Fed. R. Civ. P. 15(b)(1)-(2), neither of which apply here.
Rather, the Eighth Circuit has held that “[w]hen a party seeks to amend a pleading after the
scheduling deadline for doing so, the application of Rule 16(b)’s good-cause standard is not
optional.” Sherman v. Winco Fireworks, Inc., 532 F.3d 709, 716 (8th Cir. 2008). In fact,
“[t]o permit district courts to consider motions to amend pleadings under Rule 15(a) without
regard to Rule 16(b) ‘would render scheduling orders meaningless and effectively . . . read
Rule 16(b) and its good cause requirement out of the Federal Rules of Civil Procedure.’” Id.
(quoting Sosa v. Airprint Sys., Inc., 133 F.3d 1417, 1419 (11th Cir. 1998)).
In sum, the Court finds no clear error in Magistrate Judge Menendez’s finding of a
lack of good cause for permitting CSI to amend its pleading. Because the magistrate judge
found a lack of diligence on CSI’s part, she was not required to further consider the issue of
prejudice to the non-moving party. Kmak, 873 F.3d at 1034. And, because Magistrate Judge
Menendez found that CSI failed to demonstrate good cause, she properly declined to address
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Cardio Flow’s other argument in opposition—that CSI’s proposed claim would be futile. Her
rulings in the Order were neither clearly erroneous nor contrary to law. Accordingly, for all
the foregoing reasons, the Court overrules CSI’s Objection and affirms the Order.
Based upon the foregoing, and all the files, record, and proceedings herein, IT IS
HEREBY ORDERED that
1. CSI’s Objection [Doc. No. 123] to the February 27, 2020 Order on Plaintiff’s
Motion to Amend is OVERRULED; and
2. Magistrate Judge Menendez’s Order of February 27, 2020 [Doc. No. 121] is
AFFIRMED;
Dated: April 17, 2020
s/Susan Richard Nelson
SUSAN RICHARD NELSON
United States District Judge

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