Skyline Steel, L.L.C. v. Pilepro, L.L.C.
Filing
242
OPINION AND ORDER: For the foregoing reasons, Skyline's motion to strike is GRANTED in part and DENIED in part. Specifically, the Court will not strike PilePro's Amended Answer in its entirety, but does DISMISS PilePro's countercla ims without prejudice to re-filing those counterclaims in the New Jersey Action. Given that decision, PilePro's motion (in the alternative) for leave to amend its Amended Answer to bring those counterclaims is DENIED as moot. The Clerk of Court is directed to terminate Docket Nos. 122 and 138. SO ORDERED. (Signed by Judge Jesse M. Furman on 3/5/2015) (kl)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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SKYLINE STEEL, LLC,
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Plaintiff,
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-v:
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PILEPRO, LLC,
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Defendant.
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03/05/2015
13-CV-8171 (JMF)
OPINION AND ORDER
JESSE M. FURMAN, United States District Judge:
In this acrimonious patent litigation, general familiarity with which is assumed, Plaintiff
Skyline Steel, LLC (“Skyline”) moves to strike the Amended Answer of Defendant PilePro, LLC
(“PilePro”) or, in the alternative, to dismiss its counterclaims. In the alternative to its opposition
to Skyline’s motion, and in the event that the Court grants Skyline’s motion to strike its
Amended Answer, PilePro itself moves for leave of Court to file its Amended Answer and
counterclaims. For the reasons that follow, Skyline’s motion is GRANTED in part and DENIED
in part, and PilePro’s motion is DENIED as moot.
BACKGROUND
The following facts — an overview of the relevant procedural history in this case and
related litigation — is presented by way of background to the issues presented in these motions.
On May 10, 2013, Skyline served a Demand for Arbitration on PilePro, along with PilePro Sales
Corp., Inc. (“PilePro Sales”) and PilePro Steel, LP (together, “PilePro Defendants”), seeking to
commence an arbitration before JAMS (formerly known as “Judicial Arbitration and Mediation
Services”) in New York, New York. (Decl. Aldo A. Badini Supp. Skyline Steel, LLC’s Mot. To
Strike or Dismiss (Docket No. 123) (“Badini Decl.”) ¶ 3). Skyline’s Demand for Arbitration was
made pursuant to an arbitration provision in a settlement agreement (the “Settlement
Agreement”) between the parties, which had been executed after PilePro and PilePro Sales sued
Skyline for infringement of two of PilePro’s patents, neither of which is implicated in this instant
lawsuit. (Id.; id., Ex. C (“D.N.J. Compl.”) ¶¶ 75-77, 88-89, 95).
In or about August 2013, Skyline learned of an allegedly unlawful exclusive dealing
arrangement between PilePro and Plymouth Tube Company (“Plymouth”), and — taking the
position that the Settlement Agreement and the arbitration provision contained therein were
procured through fraud and anticompetitive conduct — filed a lawsuit in the United States
District Court for the District of New Jersey against PilePro Defendants and Plymouth (the “New
Jersey Action”), asserting claims based on unfair competition, antitrust violations, and patent
infringement. (Badini Decl. ¶ 12; see D.N.J. Compl.). In response to Skyline’s complaint in the
New Jersey Action, PilePro moved to compel arbitration, arguing that the Settlement Agreement
and its arbitration provision were still in effect. (Badini Decl. ¶ 13; id., Ex. D). PilePro also
moved to stay the New Jersey Action. (Decl. Michael C. Van Supp. Pilepro, LLC’s Opp’n
Skyline Steel, LLC’s Mot. To Strike or Dismiss (Docket No. 137) (“Van Decl.”), Ex. 1 (“New
Jersey Docket”), No. 25). The district judge presiding over the New Jersey Action, the
Honorable Claire C. Cecchi, has administratively terminated both of PilePro’s motions pending
further briefing on whether the New Jersey Action should be transferred to a district court in
New York. (New Jersey Docket No. 48). PilePro has not yet filed an answer or any
counterclaims against Skyline in the New Jersey Action. (See New Jersey Docket). See also
Skyline Steel, LLC v. PilePro LLC et al., 13-CV-4930 (CCC) (D.N.J.).
2
Meanwhile, on November 15, 2013, Skyline filed this lawsuit, initially seeking only a
declaratory judgment against PilePro that Skyline did not infringe a separate patent owned by
PilePro (the “’543 Patent”) and that the ’543 Patent is invalid. (Docket No. 1). On July 24,
2014, Skyline filed a Second Amended Complaint (the “Complaint”) adding Lanham Act and
state law claims relating to PilePro’s allegedly unfair and anticompetitive business practices.
(Second Am. Compl. (Docket No. 58)). PilePro then filed a motion to dismiss the Complaint’s
declaratory judgment claims on August 15, 2014, which the Court denied in an oral opinion on
September 23, 2015. (Docket Nos. 62, 83). Seventeen days after the Court’s ruling, on October
10, 2014, PilePro filed its Answer to the Complaint (Docket No. 93); twenty-one days thereafter,
on October 31, 2014, PilePro filed its Amended Answer with six counterclaims against Skyline.
(Docket Nos. 119).
Thereafter, Skyline moved to strike PilePro’s Amended Answer or, in the alternative,
dismiss PilePro’s newly asserted counterclaims, arguing that the answer and its counterclaims
were untimely and that, pursuant to PilePro’s own representations, “either PilePro’s
[counter]claims are arbitrable because of its interpretation of the arbitration clause of the
Settlement Agreement, in which case they do not belong in any court; or they are not arbitrable
and are compulsory counterclaims to the earlier-filed New Jersey litigation which deals with the
same transactions and occurrences.” (Pl. Skyline Steel, LLC’s Mot. To Strike or Dismiss Def.
Pilepro, LLC’s First Am. Answer & Countercls. Pls.’ Second Am. Compl. (Docket No. 124)
(“Pl.’s Strike Mem.”) 6). Plaintiff further requested that the Court sanction PilePro and its
counsel based on its bad faith in filing late counterclaims that, in any event, do not belong in this
Court. (Id. at 8-10). PilePro filed an opposition to Skyline’s motion on November 18, 2014 and,
on that same day, filed another motion requesting leave to file its Amended Answer with the
3
same counterclaims “in the alternative” to its opposition of Skyline’s motion. (Docket Nos. 136,
138). Pursuant to the Court’s order (Docket No. 140), the parties filed a consolidated opposition
and reply to PilePro’s motion to amend and PilePro’s motion to stay the litigation pending
reissue of the ’543 Patent (on which the Court has since ruled (Docket No. 204)) (Docket Nos.
155, 172).
DISCUSSION
A. Skyline’s Motion To Strike PilePro’s Amended Answer
Skyline first requests that the Court strike PilePro’s entire Amended Answer and enter a
default judgment against PilePro because, although the Amended Answer was filed as of right
twenty-one days after the initial Answer to the Complaint pursuant to Rule 15(a)(1)(A) of the
Federal Rules of Civil Procedure, the initial Answer itself was filed seventeen days after the
Court’s denial of PilePro’s motion to dismiss — three days after the deadline to do so under Rule
12(a)(4)(A). (Pl.’s Strike Mem. 1-3). 1 “[W]here a motion to strike an answer is based on
untimeliness . . . such a motion properly arises under the Court’s authority to enforce the
deadline for filing an answer established by the Fed. R. Civ. P. 12(a)[] (and any relevant Local
Rules of Practice).” Car-Freshner Co. v. Air Freshners, Inc., No. 10-CV-1491 (GTS) (DEP),
2012 WL 3294948, at *5 (N.D.N.Y. Aug. 10, 2012). “Generally, such a motion is governed by
the same standard that governs a motion to set aside an entry of default,” id., meaning that the
Court must consider “(1) whether the default was willful; 2) whether [the delay in filing] would
1
Skyline asserts in its memorandum that PilePro’s initial Answer was filed twenty-four
days after the Court’s decision on its motion to dismiss (Pl.’s Strike Mem. 1-2), but its math is
incorrect — PilePro filed its answer on October 10, 2014, only seventeen days after the Court’s
decision on September 23, 2014. Nevertheless, PilePro’s Answer was still three days late, as
Rule 12(a)(4)(A) of the Federal Rules of Civil Procedure grants a party fourteen days to file a
responsive pleading after the court denies a Rule 12 motion.
4
prejudice the adversary; and (3) whether a meritorious defense is presented,” along with “[o]ther
relevant equitable factors . . . for instance, whether the failure to follow a rule of procedure was a
mistake made in good faith and whether the entry of default would produce a harsh or unfair
result.” Gates v. Wilkinson, No. 03-CV-763 (GLS), 2005 WL 3115826, at *1 (N.D.N.Y. Nov.
21, 2005) (citing Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 96 (2d Cir. 1993)). In weighing
those factors, the Court must be mindful that “strong public policy favors resolving disputes on
the merits,” Pecarsky v. Galaxiworld.com Ltd., 249 F.3d 167, 172 (2d Cir. 2001) (internal
quotation marks omitted), and that, accordingly, “judgment by default is a drastic remedy to be
applied only in extreme circumstances,” Alli v. Steward-Bowden, No. 11-CV-4952 (PKC)
(KNF), 2012 WL 3711581, at *3 (S.D.N.Y. Aug. 24, 2012).
The Court is troubled by PilePro’s complete failure to explain — or even fully
acknowledge — its delay in filing the initial Answer to the Complaint. (Def.’s Strike Mem. 6-7
(arguing that since “PilePro filed its Answer to the Second Amended Complaint . . . on October
10, 2014, and its amended answer on October 31, 2014,” its “Amended Answer was
appropriately filed as a matter of course”), 8 (referring to the three-day delay as “claimed” and
“alleged”)). Some courts have found that where “a party offers no good reason for the late filing
of its answer,” as here, “entry of default judgment against that party is appropriate.” In re
Knight, 833 F.2d 1515, 1516 (11th Cir. 1987) (per curiam). Nevertheless, the Court declines to
impose such a harsh remedy here for several reasons.
First, at least one court has held that, “[n]otwithstanding that some courts in this circuit
consider the filing of a late answer analogous to a motion to vacate a default, that practice is not
appropriate” where, as here, “no default was entered and the answer was filed prior to the instant
motion.” Alli, 2012 WL 3711581, at *3 (internal quotation marks and citation omitted). Second,
5
despite PilePro’s failure to acknowledge its tardiness in filing the initial Answer, there is no
indication that its three-day delay in filing was willful. See Gravatt v. City of N.Y., No. 97-CV0354 (RWS), 1997 WL 419955, at *3 (S.D.N.Y. July 28, 1997) (“Imprudent, inattentive,
careless, or even negligent handling of a case, although not to be condoned, does not demonstrate
willfulness.” (internal quotation marks omitted)). Third, and perhaps most important, Skyline
has not shown — or even alleged — any prejudice resulting from PilePro’s three-day delay in
filing its initial Answer to the Complaint, a delay that Skyline now attempts to use to strike the
Amended Answer. In fact, Skyline did not even object to PilePro’s late filing of its initial
Answer until over three weeks later, after PilePro filed its Amended Answer — and filed
counterclaims. Whether those counterclaims are properly before this Court is a matter the Court
addresses below. But PilePro’s three-day delay in filing an answer preceding the Amended
Answer is insufficient for this Court to strike the Amended Answer in its entirety and enter a
default judgment on Skyline’s behalf. See, e.g., Panzella v. Cnty. of Nassau, No. 13-CV-5640
(SJF) (SIL), 2015 WL 224967, at *1 (E.D.N.Y. Jan. 15, 2015) (declining to strike defendants’
answer, apparently filed four months late, “given defendants’ participation in this action and the
strong public policy favoring resolving disputes on the merits” (internal quotation marks
omitted)); Scott v. WorldStarHipHop, Inc., No. 10-CV-9538 (PKC) (RLE), 2012 WL 5835232,
at *1 (S.D.N.Y. Nov. 14, 2012) (declining to strike an answer filed three weeks later because,
among other factors, “the delay did not cause significant prejudice to plaintiff”); Candelaria v.
Erickson, No. 01-CV-8594 (LTS) (RLE), 2005 WL 1529566, at *11 (S.D.N.Y. June 28, 2005)
(declining to strike the defendant’s answer, finding “that the approximately three-month delay in
answering Plaintiff’s complaint did not cause Plaintiff significant prejudice”).
6
B. Skyline’s Request To Dismiss PilePro’s Counterclaims
Having determined that the Amended Answer should not be stricken in its entirety, the
question remains whether the counterclaims asserted by PilePro in its Amended Answer are
properly before this Court. Skyline argues that PilePro’s counterclaims are improper because,
among other things, they are compulsory counterclaims to the New Jersey Action and hence
must be filed in that Court. (Pl.’s Mem. 5 n.2; Pl.’s Skyline Steel, LLC’s Reply Mem. Law
Further Supp. Mot. To Strike or Dismiss Def. PilePro, LLC’s First Am. Answer & Countercls.
Pl.’s Second Am. Compl. (Docket No. 153) (“Pl.’s Reply Mem.”) 5-7). 2 Under Rule 13(a) of the
Federal Rules of Civil Procedure, a claim is considered compulsory if it “(A) arises out of the
transaction or occurrence that is the subject matter of the opposing party’s claim; and (B) does
not require adding another party over whom the court cannot acquire jurisdiction.” Fed. R. Civ.
P. 13(a)(1). “The test for determining whether a counterclaim is compulsory is whether a logical
relationship exists between the claim and the counterclaim and whether the essential facts of the
claims are so logically connected that considerations of judicial economy and fairness dictate
that all the issues be resolved in one lawsuit.” Adam v. Jacobs, 950 F.2d 89, 92 (2d Cir. 1991)
(internal quotation marks omitted); see also Jones v. Ford Motor Credit Co., 358 F.3d 205, 209
(2d Cir. 2004). 3 In interpreting Rule 13(a), “this Circuit generally has taken a broad view, not
2
Skyline also argues that PilePro should not be able to assert its counterclaims in this
action because PilePro has previously argued that the claims are subject to arbitration, and hence
they cannot be heard in any court. (Pl.’s Strike Mem. 6-7). As neither party has filed a motion
to compel arbitration, however, this issue need not and should not be decided now.
3
In arguing that PilePro’s claims had to be brought in the New Jersey Action, Skyline
relies on Third Circuit law. (Pl.’s Reply Mem. 5 n.4). In evaluating whether a claim before it
would be compulsory in another federal district, however, the Second Circuit has applied its own
law, and so the Court will apply Second Circuit law as well. See Adam, 950 F.2d at 91-92
(applying its own law to determine whether counterclaims would have been compulsory in an
earlier-filed action in the Eastern District of Michigan); see also Critical-Vac Filtration Corp. v.
Minuteman Int’l, Inc., 233 F.3d 697, 698-700 (2d Cir. 2000) (citing Adam in determining
7
requiring an absolute identity of factual backgrounds[,] but only a logical relationship between
them.” United States v. Aquavella, 615 F.2d 12, 22 (2d Cir. 1979) (internal quotation marks
omitted); see also Mosdos Chofetz Chaim, Inc. v. Vill. of Wesley Hills, 701 F. Supp. 2d 568, 588
(S.D.N.Y. 2010).
With that guidance in mind, the Court finds that PilePro’s counterclaims in this action are
compulsory counterclaims in the earlier-filed New Jersey Action. In that action, Skyline asserts
that the PilePro Defendants and Plymouth have conspired to engage in a wide-ranging scheme of
fraud and anticompetitive conduct that has harmed Skyline’s business, conduct that included
filing sham litigation against Skyline and fraudulently procuring the Settlement Agreement with
Skyline through that litigation. (See D.N.J. Compl. ¶¶ 75-77, 88-89, 95, 233-37). As a result,
Skyline seeks, among other relief, “a declaration that the Settlement Agreement constitutes
patent misuse and that the Settlement Agreement and all patents covered by the agreement are
unenforceable”; “a declaration that the Settlement Agreement is unenforceable, invalid, and void
as against public policy”; and “injunctive relief preventing and restraining PilePro from
enforcing the Settlement Agreement.” (Id. ¶¶ 248-49, 252). By contrast, PilePro’s
counterclaims in its Amended Answer are all predicated on the validity of the Settlement
Agreement, in that they all seek to hold Skyline liable for alleged violations of its terms.
whether counterclaims were compulsory in an earlier Northern District of Illinois action). In any
event, the Third Circuit’s interpretation of Rule 13(a) is substantially similar to the Second
Circuit’s, so the choice of law does not affect the analysis. See, e.g., Transamerica Occidental
Life Ins. Co. v. Aviation Office of Am., Inc., 292 F.3d 384, 389-90 (3d Cir. 2002) (in determining
whether a counterclaim is compulsory, “there need not be precise identity of issues and facts
between the claim and the counterclaim; rather, the relevant inquiry is whether the counterclaim
bears a logical relationship to an opposing party’s claim . . . [A] logical relationship between
claims exists where separate trials on each of the claims would involve a substantial duplication
of effort and time by the parties and the courts.” (internal quotation marks omitted)).
8
Accordingly, were this Court to allow PilePro’s counterclaims to go forward, both this Court and
the Court in the New Jersey Action would have to determine, as a key threshold matter, whether
the Settlement Agreement is, in fact, valid — raising the possibility of inconsistent outcomes and
a near certainty of duplicative efforts.
Courts have consistently found that counterclaims based on a contract are compulsory in
actions relating to the same contract. See, e.g., MMZ Assocs., Inc. v. Gelco Corp., No. 06-CV3414 (WHP), 2006 WL 3531429, at *3 (S.D.N.Y. Dec. 8, 2006) (finding that counterclaims
related to the same contract were compulsory, and noting that “[w]henever two courts look at the
same contract, differing interpretations are possible, even if not likely. Even if both courts read
the contract in the same way, one of them will have spent its time doing so unnecessarily.”
(internal quotation marks omitted)); see also Adam, 950 F.2d at 90, 93 (finding that claims for
enforcement of a contract should have been filed as compulsory counterclaims to original claims
seeking rescission of the contract on grounds that it was induced by fraud); Bezuszka v. L.A.
Models, Inc., No. 04-CV-7703 (NRB), 2006 WL 770526, at *19 (S.D.N.Y. Mar. 24, 2006)
(finding that counterclaims arising out of the same contract as the earlier action were compulsory
in the earlier action); Bonadio v. E. Park Research, Inc., 220 F.R.D. 187, 189 (N.D.N.Y. 2003)
(finding that claims were compulsory counterclaims in an earlier-filed action arising out of the
same contract because allowing them to proceed “would be duplicative of the [other] action . . .
and would be contrary to the purpose of Rule 13 which is preserving scarce judicial resources
and preventing inconsistent judicial determination and verdicts on similar issues.”). A similar
result is compelled in this case. Ultimately, “[a]lthough this action and the [New Jersey] Action
are not identical, combining the actions will serve the interest of judicial economy by preventing
likely duplication of effort.” MMZ Associates, 2006 WL 3531429, at *3.
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In arguing otherwise, PilePro insists that Skyline’s current position regarding the
relatedness of PilePro’s counterclaims to the New Jersey Action is contrary to Skyline’s
representations to the Court in the New Jersey Action. Specifically, in opposing the transfer of
the New Jersey Action to a New York district court, Skyline argued that “while PilePro and
Skyline are engaged in a patent infringement lawsuit in the Southern District of New York, this
antitrust action would not be considered a ‘related case’ because, among other reasons, there are
no overlapping issues and Plymouth is not a party to that litigation.” (Van Decl., Ex. 2 at 7; see
Def.’s Strike Mem. 3-4). The accusation of “inconsistency,” however, is frivolous; indeed, if
anything, Skyline’s representations in the New Jersey Action support the conclusion that
PilePro’s counterclaims should have been brought there. In the New Jersey Action, Skyline
argued — correctly — that its claims in this Court were not related to its claims before the Court
in New Jersey. Its argument had nothing to do with whether Pilepro’s counterclaims were
related to the New Jersey Action — nor could it have, as Skyline filed its brief almost three
months before PilePro filed its counterclaims. (Van Decl., Ex. 2 at 9; see Docket No. 119).
Skyline’s representations thus do not affect the Court’s determination that PilePro’s
counterclaims before this Court are indeed compulsory counterclaims in the New Jersey Action.
When a party files claims in a later action that are compulsory counterclaims in an
earlier-filed action, that party “technically has not violated Rule 13(a),” because “[n]othing in
Rule 13 prevents the filing of a duplicative action [or counterclaim] instead of a compulsory
counterclaim.” Adam, 950 F.2d at 93. Nevertheless, such a practice “does contravene the
purpose of the Rule in that it creates a multiplicity of actions, wastes judicial resources, and
unduly burdens the litigation process.” J. Lyons & Co. Ltd. v. Republic of Tea, Inc., 892 F. Supp.
486, 490 (S.D.N.Y. 1995). Accordingly, “[i]deally, once a court becomes aware that an action
10
on its docket involves a claim that should be a compulsory counterclaim in another pending
federal suit, it will stay its own proceedings or will dismiss the claim with leave to plead it in the
prior action.” 6 C. Wright, A. Miller & M. Kane, Fed. Prac. & Proc. Civ. § 1418 (3d ed.). When
faced with duplicative litigation in an earlier-filed action, as here, “[t]he decision whether or not
to stay or dismiss a proceeding rests within a district judge’s discretion.” Adam, 950 F.2d at 92. 4
Here, PilePro has not yet filed its answer in the New Jersey Action, and — should the Court in
the New Jersey Action (or, in the event it is transferred, a court in New York) deny PilePro’s
motion to compel arbitration — PilePro has not indicated that dismissing the claims here would
affect PilePro’s rights to assert those same claims in an answer before that Court. Cf. Inforizons,
Inc. v. VED Software Servs., Inc., 204 F.R.D. 116, 120 (N.D. Ill. 2001) (electing to institute a
stay because “dismissal of this case could create an unwarranted risk of legal prejudice” if the
plaintiff then dismissed its own suit and the defendant was barred from re-filing the claims by a
statute of limitations). Accordingly, PilePro’s counterclaims are DISMISSED without prejudice
to PilePro refiling the counterclaims in the New Jersey Action. See Adam, 950 F.2d at 94
4
Some courts have analyzed a court’s discretion to dismiss or stay counterclaims that are
compulsory in a pending lawsuit under the “first-to-file” rule — the presumption that “where
there are two competing lawsuits, the first suit should have priority, absent the showing of
balance of convenience or special circumstances giving priority to the second,” First City Nat.
Bank & Trust Co. v. Simmons, 878 F.2d 76, 79 (2d Cir. 1989) (internal quotation marks omitted).
See Adam, 950 F.2d at 92-94, see also J. Lyons & Co., 892 F. Supp. at 490. The rule does not
apply (1) “when there are ‘special circumstances,’” such as “manipulative or deceptive behavior
on the part of the first-filing plaintiff,” New York Marine & Gen. Ins., 599 F.3d at 112 (quoting
Wausau, 522 F.3d at 276); or (2) when the balance of convenience — determined using the same
factors considered in connection with motions to transfer venue — favors the second-filed
action, see id. Even assuming that the Court need conduct such an analysis in this case, see, e.g.,
Hollinee Corp. v. Weyher, No. 91-CV-6855 (PKL), 1992 WL 110989, at *5, *9 (S.D.N.Y. May
4, 1992) (describing first-to-file principles in discussing compulsory counterclaims in another
action but staying claims without analyzing factors in test), the Court finds that the presumption
in favor of the earlier-filed action should hold, substantially for the reasons stated in Skyline’s
brief opposing transfer of the New Jersey Action. (See Van Decl., Ex. 2).
11
(remanding the case to the district court with instructions to dismiss the action because the
plaintiff “stated on the record that he procedurally will not oppose the filing of counterclaims in
the [earlier-filed] action”); Bonadio, 220 F.R.D. at 189 (dismissing counterclaims found to be
compulsory in a pending action); Donnkenny, Inc. v. Nadler, 544 F. Supp. 166, 170 (S.D.N.Y.
1982) (noting that the court had discretion to “dismiss the claims before it without prejudice to
an application to the [other court] for leave to set up the claims as counterclaims by amendment
to the Answer therein”).
C. Skyline’s Request for Sanctions
Finally, Skyline requests that the Court exercise its inherent authority to impose sanctions
on PilePro, contending that PilePro filed its Amended Answer in bad faith because it knew of the
counterclaims long before they were filed and because PilePro itself has asserted that those same
claims are subject to arbitration. (Pls.’ Strike Mem. 8-10). “In order to impose sanctions
pursuant to its inherent power, a district court must find that: (1) the challenged claim was
without a colorable basis and (2) the claim was brought in bad faith, i.e., motivated by improper
purposes such as harassment or delay.” Enmon v. Prospect Capital Corp., 675 F.3d 138, 143 (2d
Cir. 2012) (internal quotation marks omitted). The Second Circuit has “declined to uphold
awards [of attorneys’ fees] under the bad-faith exception absent both clear evidence that the
challenged actions are entirely without color and are taken for reasons of harassment or delay or
for other improper purposes and a high degree of specificity in the factual findings of the lower
courts.” Wilson v. Citigroup, N.A., 702 F.3d 720, 724 (2d Cir. 2012) (internal quotation marks
omitted). Applying those standards here, the Court declines to impose sanctions.
To be sure, since this case was filed in late 2013, PilePro has engaged in various tactics
seemingly designed to delay the litigation. (See, e.g., Mem. Op. & Order (Docket No. 204) 3-4
12
(rejecting PilePro’s motion to stay Skyline’s claims of noninfringement and patent invalidity
pending the Patent and Trademark Office’s (“PTO”) decision on PilePro’s recently filed reissue
application on the basis that it was “plainly tactically motivated to achieve either delay or a
second bite at the apple,” and citing examples of PilePro’s dilatory tactics)). Nevertheless, in
order to impose sanctions in conjunction with PilePro’s instant conduct, the Court must first find
that its belated assertion of counterclaims found to be compulsory in the New Jersey Action was
“entirely without color,” meaning it “lack[ed] any legal or factual basis.” Schlaifer Nance &
Co., Inc. v. Estate of Warhol, 194 F.3d 323, 337 (2d Cir. 1999) (internal quotation marks
omitted). Although the question is a close one, the Court cannot find that PilePro’s
counterclaims — or its three-day delay in filing the initial Answer — were “so completely
without merit as to require the conclusion that they must have been undertaken for some
improper purpose.” Enmon, 675 F.3d at 143 (internal quotation marks omitted); see also Wilson,
702 F.3d at 724 (reversing a district court’s imposition of sanctions on plaintiff’s co-counsel
because it was “[un]reasonable to infer that [his] submission of opposition papers four days late
was for reasons of harassment or delay or for other improper purposes.” (internal quotation
marks omitted)). That PilePro knew it had grounds for its counterclaims as early as May 2013
— as evidenced by the fact that five of its counterclaims in this action are essentially copied
from its response to Skyline’s Demand for Arbitration (see Badini Decl. ¶¶ 7-11; Pl.’s Strike
Mem. 4-6) — is troubling, but does not compel a finding of bad faith, as Rule 15(a)(1)(A) of the
Federal Rules of Civil Procedure entitles a party to amend its pleading as a matter of course
within twenty-one days after serving it, and there is no evidence that PilePro deliberately
refrained from asserting the counterclaims at previous stages of the litigation. Accordingly,
Skyline’s request for sanctions is DENIED.
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CONCLUSION
For the foregoing reasons, Skyline’s motion to strike is GRANTED in part and DENIED
in part. Specifically, the Court will not strike PilePro’s Amended Answer in its entirety, but does
DISMISS PilePro’s counterclaims without prejudice to re-filing those counterclaims in the New
Jersey Action. Given that decision, PilePro’s motion (in the alternative) for leave to amend its
Amended Answer to bring those counterclaims is DENIED as moot.
Finally, after submitting its Amended Answer, PilePro — upon request from Skyline —
— asked that Exhibit A be stricken from the docket and that it be permitted to re-file it under
seal because it contained “confidential pricing information.” (Docket No. 126). The Court
temporarily granted PilePro’s request and held that it would rule on the propriety of PilePro’s
request in conjunction with its ruling on this motion (Docket No. 130). Although the Court has
since received Exhibit A itself, it has not received any briefing from the parties as to why the
entire exhibit should be filed under seal, apart from Skyline’s two-paragraph reference to Exhibit
A in its brief filed on November 7, 2014 (which notably indicates that PilePro filed the document
at issue in redacted form in other litigation). (Docket No. 127, at 2-3). Accordingly, within two
weeks of the date of this Order, any party that wishes to have Exhibit A filed under seal or in
redacted form shall file a letter brief not to exceed five pages addressing the propriety of sealing
or redacting the exhibit in light of the presumption in favor of public access. See, e.g., Lugosch
v. Pyramid Co. of Onondaga, 435 F.3d 110, 119 (2d Cir. 2006). Before submitting any such
brief, the parties are advised to consult the Court’s Order in connection with PilePro’s proposed
redactions to its consolidated reply to its motion to stay and motion to amend. (Docket No. 226).
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The Clerk of Court is directed to terminate Docket Nos. 122 and 138.
SO ORDERED.
Date: March 5, 2015
New York, New York
15
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