Greene et al v. AB Coaster Holdings, Inc.

Filing 122

OPINION AND ORDER granting in part and denying in part 114 in case 2:10-cv-00038-EAS-TPK & (106) in case 2:10-cv-00234-EAS-TPK Motion for Leave to File Third Amended Complaint - A Third Amended complaint consistent with this order is due w/in seven (7) days. Signed by Magistrate Judge Terence P Kemp on 6/20/2012. Associated Cases: 2:10-cv-00038-EAS-TPK, 2:10-cv-00234-EAS-TPK (kk2)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
Brian Greene, et al.,

:

Plaintiffs,

:

v.

:

Ab Coaster Holdings, Inc.,
Defendant.

Case No. 2:10-cv-38

:

JUDGE EDMUND A. SARGUS, JR.
Magistrate Judge Kemp

:

Ab Coaster Holdings, Inc.

:

Plaintiff,

:

v.

:
:

Brian Greene, et al., ,
Defendants.

Case No. 2:10-cv-234
JUDGE EDMUND A. SARGUS, JR.
Magistrate Judge Kemp

:
OPINION AND ORDER

This case is before the Court to consider a motion for leave
to file a third amended complaint filed by plaintiffs Brian
Greene, Penny Greene and Professional Billing Consultants, Inc.
This motion has been fully briefed.

For the following reasons,

the motion will be granted in part and denied in part.
I.

Background

The Greenes filed the original complaint in Case No. 2:10cv-38 on January 13, 2010.

On April 6, 2010, the Court granted

leave to file a first amended complaint although the motion for
leave was filed within the time frame for the Greenes to amend as
of right.

By order dated January 30, 2012, the Greenes were

granted leave to file a second amended complaint.
In their second amended complaint, the Greenes sought a
declaratory judgment that they have not infringed any of Ab
Coaster’s patents, that the patents are invalid or unenforceable,

that this is an exceptional case supporting an award of costs and
attorneys’ fees under 35 U.S.C. §285, that Ab Coaster’s trademark
registration is cancelled and that they have not infringed Ab
Coaster’s trademark or any valid copyright, and that they have
not engaged in unfair competition under state or federal law.
They requested that the Court enter judgment in their favor for
attorneys’ fees as the prevailing party in a copyright action
pursuant to 17 U.S.C. §505 and enter judgment in their favor in
an amount to be determined pursuant to 35 U.S.C. §292 for Ab
Coaster’s acts of false marking.

The false marking allegation

requested that a penalty be levied against Ab Coaster of up to
$500 per offense pursuant to 35 U.S.C. §292(a) as allowed by the
qui tam nature of the statute in effect at the time the suit was
filed.
Prior to the filing of the second amended complaint, the
Leahy–Smith America Invents Act was enacted. Leahy–Smith America
Invents Act, Pub.L. No. 112–29 (125 Stat. 284) (Sep. 16, 2011).
Part of this new Act amended 35 U.S.C. §292, specifically
limiting, among other things, who can sue for the penalty
authorized by 35 U.S.C. §292(a), thereby eliminating the qui tam
provision of the statute.

Id.

Consequently, following the

enactment of the America Invents Act, private suits may be
brought only by persons who have “suffered a competitive injury
as a result of a violation” of the false marking statute, and
damages are limited to that which is “adequate to compensate for
the injury.”

Hollander v. Ortho-McNeil-Janssen Pharmaceuticals,

2012 WL 85437, *1 (E.D. Pa. January 10, 2012); 35 U.S.C. §292(b).
Further, the Act stated that “[t]he amendments made by this
subsection shall apply to all cases, without exception, that are
pending on, or commenced on or after, the date of the enactment
of this Act.”
On February 13, 2012, Ab Coaster filed a motion to dismiss
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Count Ten of the Greenes’ second amended complaint relating to
the false marking claim under 35 U.S.C. §292.
currently pending.

This motion is

The motion raises two grounds for dismissal.

The first ground is that the qui tam portion of Count Ten was
eliminated by the America Invents Act.

The second ground is that

the Greenes have not adequately pleaded a claim for false marking
under 35 U.S.C. §292, as amended by the America Invents Act,
because they have not alleged a competitive injury.
Following the briefing on the motion to dismiss, the Greenes
moved for leave to file the third amended complaint which is the
subject of this order.

Through this motion, the Greenes seek to

withdraw without prejudice the qui tam portion of their false
marking claim set forth in Count 10 of the second amended
complaint.

They also seek to add factual allegations addressed

to the competitive injury portion of that claim in order to
address the deficiencies identified in the motion to dismiss.
Ab Coaster opposes the Greenes’ motion to file a third
amended complaint on grounds similar to those asserted in its
motion to dismiss.

The primary focus of this opposition is that

the qui tam portion of the Greenes’ false marking claim must be
dismissed with prejudice.

Beyond this, however, Ab Coaster

contends that the Greenes have not demonstrated good cause for
amending after the established deadline.

Further, assuming the

Greenes have established good cause, Ab Coaster argues that
allowing the withdrawal of the qui tam claim would amount to a
waste of resources since the issue has been fully briefed, that
the proposed amendments are futile, and that it would be
prejudiced by the proposed amendments.
In reply, the Greenes argue that their proposed amendments
will simplify the issues in this case.

Further, they contend

that they have established good cause for amending after the
deadline because the proposed amendments will moot the qui tam
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portion of the motion to dismiss resulting in judicial economy.
Additionally, they assert that they are not seeking to add new
claims or theories but are simply setting forth additional facts
to support the allegations of competitive injury relating to
their false marking claim.
Both parties have filed supplemental authority, Rogers v.
Tristar Products, Inc., 2012 WL 1660604 (Fed. Cir. May 2, 2012),
addressed to the issue of qui tam actions under 35 U.S.C. 292(a)
following the signing of the America Invents Act.
II.

Legal Standard

Fed. R. Civ. P. 15(a), states that when a party is required
to seek leave of court in order to file an amended pleading,
“leave shall be given freely when justice so requires.”

However,

when, as here, the deadline established by the Court’s scheduling
order has passed, the Sixth Circuit has made clear that, “a
plaintiff must first show good cause under Rule 16(b) for failure
earlier to seek leave to amend” and the Court “must evaluate
prejudice to the nonmoving party ‘before a court will [even]
consider whether amendment is proper under Rule 15(a).’” Commerce
Benefits Group, Inc. v. McKesson Corp., 326 Fed. Appx. 369, 376
(6th Cir. 2009) quoting Leary v. Daeschner, 349 F.3d 888, 909
(6th Cir. 2003); see also Hill v. Banks, 85 Fed. Appx. 432, 433
(6th Cir. 2003)

Consequently, the Court is permitted to examine

the standard factors governing amendments of the complaints under
Rule 15(a) only if it is satisfied that the date for the filing
of a motion for leave to amend is properly extended under the
good cause provisions of Rule 16(b).
Further, although the Court has broad discretion to modify
its own pretrial orders, it must be remembered that “[a]dherence
to reasonable deadlines is ... critical to maintaining integrity
in court proceedings,” Rouse v. Farmers State Bank, 866 F.Supp.
1191, 1199 (N.D. Iowa 1994), and that pretrial scheduling orders
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are “the essential mechanism for cases becoming trial-ready in an
efficient, just, and certain manner.”

Id. at 1198.

In

evaluating whether the party seeking modification of a pretrial
scheduling order has demonstrated good cause, the Court is
mindful that “[t]he party seeking an extension must show that
despite due diligence it could not have reasonably met the
scheduled deadlines.”

Deghand v. Wal-Mart Stores, 904 F.Supp.

1218, 1221 (D. Kan. 1995).

The focus is primarily upon the

diligence of the movant; the absence of prejudice to the opposing
party is not equivalent to a showing of good cause.
McCann, 160 F.R.D. 568, 571 (N.D. Ind. 1995).

Tschantz v.

Of course,

“[c]arelessness is not compatible with a finding of diligence and
offers no reason for a grant of relief.”

Dilmer Oil Co. v.

Federated Mut. Ins. Co., 986 F.Supp. 959, 980 (D.S.C. 1997).
Further, although the primary focus of the inquiry is upon the
moving party’s diligence, the presence or absence of prejudice to
the other party or parties is a factor to be considered.
Rock Financial Corp., 281 F.3d 613 (6th Cir. 2002).

Inge v.

The Court of

Appeals has made it clear that this standard applies to any
deadline set in a Rule 16 order, such as a date by which motions
to amend the pleadings must be made (see Inge, supra), a
discovery cutoff date (see Commerce Benefits Group v. McKesson
Corp., 326 Fed. Appx. 2369 (6th Cir. May 20, 2009)), or a date
for filing summary judgment motions (see Andretti v. Borla
Performance Industries, 426 F.3d 824 (6th Cir. 2005)).

The Sixth

Circuit, in recently upholding a district court’s denial of
additional time for discovery, discussed various factors to be
considered under Rule 16(b) but reiterated that “‘[t]he
overarching inquiry ... is whether the moving party was diligent
....’”

Bentkowski v. Scene Magazine, 637 F.3d 689, 696 (6th Cir.

2011) quoting Dowling v. Cleveland Clinic Found., 593 F.3d 472,
478 (6th Cir. 2010).

It is with these standards in mind that the
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instant motion will be decided.
III.

Analysis

That the deadline for seeking leave to amend has passed is
not in dispute here.

According to the Court’s order dated

September 12, 2011, that date was December 1, 2011 - a full four
months prior to the Greenes’ filing of their request for leave to
file a third amended complaint and the date on which the Greenes
sought leave to file, in light of the revisions to 292(b)
following the adoption of the America Invents Act, a second
amended complaint asserting a claim of competitive injury in
connection with its false marking allegations.

The Greenes,

however, do not address the good cause requirement of Rule 16(b)
in their motion for leave, instead arguing only in terms of Rule
15(a).
In their reply, on the other hand, following Ab Coaster’s
raising of the issue in its response, the Greenes state that they
“do not dispute that Rule 16(b) applies to amendments filed after
the date specified in the scheduling order.”

They go on to

contend that, because their proposed amendments “withdraw[] a
claim from the present action, simplif[y] the issues to be
decided, and streamline[] the Court’s docket by mooting a portion
of the pending motion to dismiss,” they have satisfied the good
cause requirement of Rule 16(b).
The argument the Greenes set forth with respect to their
demonstration of good cause, although not framed in terms of the
factors relevant under Rule 16(b), appears to be addressed only
to their proposed withdraw of the qui tam claim and does not
address in any way the reason for the delay in proposing
additional factual allegations relating to competitive injury.
As a result, with respect to the additional factual allegations
set forth in paragraphs 92 through 99 of the proposed third
amended complaint, the Greenes have not offered any information
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to demonstrate to the Court that they could not reasonably have
amended their complaint prior to the scheduling deadline.
Instead, much of their argument in support of allowing this
proposed amendment demonstrates just the opposite.

For example,

they contend that these factual allegations have been well known
for some time.

As they state in their motion for leave,

...Ab Coaster Holdings is now and has been aware
of the facts demonstrating its intent to deceive the
public. Ab Coaster Holdings is and has been aware of
the nature of the injuries inflicted upon the Greens
(sic) by Ab Coaster’s misrepresentations regarding its
intellectual property rights, including assertions of
infringement based on patents not applicable to the
product involved and assertions of infringement based
on patents not owned by Ab Coaster Holdings. These
facts have been previously documented in detail at
least in the Greenes’ pending motions for summary
judgment, in the Opposition to the pending motion to
dismiss, and in various pleading (sic) before both this
Court and the U.S. Bankruptcy Court.
Further undermining any showing of good cause, the Greenes
suggest that the only reason they are proposing these allegations
at all is in an effort to placate Ab Coaster.

As they state in

their motion,
The Greenes maintain that Ab Coaster Holdings’
demand for additional detail in the complaint is
inappropriate and not required under the Federal Rules
or applicable precedent. Nevertheless, in the interest
of advancing this matter to resolution on the merits,
the Greenes have incorporated this additional detail
into the proposed amended complaint.
Based on this record, the Court has no basis on which to
conclude that the Greenes exercised due diligence in moving for
leave to amend to include the proposed additional factual
allegations in Count 10 after the deadline.

Accordingly, they

have not established the good cause required for a modification
of the case schedule under Rule 16(b) and the Court need not
undertake any analysis under Rule 15(a) with respect to the
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additional factual allegations contained at paragraphs 92-99.
Consequently, the motion for leave to amend will be denied as it
relates to these additional allegations in Count 10.
This brings the Court to the issue of the withdrawal of the
qui tam portion of the false marking claim.

Certainly, the

withdrawal of a claim does not present the same type of concerns
- new theories of recovery or the imposition of additional
discovery requirements - that underlie the consideration of the
moving party’s diligence in seeking leave to amend.

While that

is the primary issue to be considered under Rule 16, as discussed
above, the Sixth Circuit has held that the issue of prejudice to
the opposing party also is a relevant consideration.
Accordingly, the Court will consider the issue of whether
prejudice to Ab Coaster would result from the withdrawal of the
Greenes’ qui tam claim.
Ab Coaster’s arguments relating to prejudice are made
primarily within the context of its arguments relating to the
standard for amending under Rule 15.

Further, many of these

assertions of prejudice are more relevant to the proposed
additional factual allegations in Count Ten.

For example, Ab

Coaster argues that it will be required to “review all previously
provided discovery to determine whether production is complete
with respect to Plaintiffs’ new theory of recovery,” “file yet
another Answer,” and “prepare a new defense strategy to counter
Plaintiffs’ new unfounded and insufficiently pleaded theory of
recovery.”
With respect to the withdrawal of the qui tam claim,
however, Ab Coaster appears to be arguing that prejudice exists
because resources have been expended on briefing the issue in
connection with the motion to dismiss.

Generally, this is not

the type of prejudice deserving of much weight.

Again, the

proposed withdrawal of a claim does not raise the same type of
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concerns regarding prejudice as does the proposed addition of
claims.

For example, prejudice typically may be found where

amendments to add claims after the close of discovery would
require the reopening of discovery or the preparation of a new
defense, or where a dispositive motion already has been
submitted.

See, e.g., Duggins v. Steak’n Shake, 195 F.3d 828,

834 (6th Cir. 1999); Weese v. Wyndham Vacation Resorts, 2009 WL
1884045 (E.D. Tenn. 2009).

That simply is not the situation

here.
Given that the Greenes are seeking to withdraw a claim and
Ab Coaster has failed to cite any substantial prejudice relevant
to Rule 16 considerations, the Court will consider the motion for
leave to amend as it relates to the qui tam portion of the claim
under the standard set forth in Rule 15.

Rule 15(a)(2) states

that when a party is required to seek leave of court in order to
file an amended pleading, “[t]he court should freely give leave
when justice so requires."

The United States Court of Appeals

for the Sixth Circuit has spoken extensively on this standard,
relying upon the decisions of the United States Supreme Court in
Foman v. Davis, 371 U.S. 178 (1962) and Zenith Radio Corp. v.
Hazeltine Research, Inc., 401 U.S. 321 (1971), decisions which
give substantial meaning to the phrase "when justice so
requires."

In Foman, the Court indicated that the rule is to be

interpreted liberally, and that in the absence of undue delay,
bad faith, or dilatory motive on the part of the party proposing
an amendment, leave should be granted.

In Zenith Radio Corp.,

the Court indicated that mere delay, of itself, is not a reason
to deny leave to amend, but delay coupled with demonstrable
prejudice either to the interests of the opposing party or of the
Court can justify such denial.
Expanding upon these decisions, the Court of Appeals has
noted that:
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[i]n determining what constitutes prejudice, the
court considers whether the assertion of the new
claim or defense would: require the opponent to
expend significant additional resources to conduct
discovery and prepare for trial; significantly
delay the resolution of the dispute; or prevent
the plaintiff from bringing a timely action in
another jurisdiction.
Phelps v. McClellan, 30 F.3d 658, 662-63 (6th Cir. 1994) (citing
Tokio Marine & Fire Insurance Co. v. Employers Insurance of
Wausau, 786 F.2d 101, 103 (2d Cir. 1986)).

See also Moore v.

City of Paducah, 790 F.2d 557 (6th Cir. 1986); Tefft v. Seward,
689 F.2d 637 (6th Cir. 1982).

Stated differently, deciding if

any prejudice to the opposing party is “undue” requires the Court
to focus on, among other things, whether an amendment at any
stage of the litigation would make the case unduly complex and
confusing, see Duchon v. Cajon Co., 791 F.2d 43 (6th Cir. 1986)
(per curiam), and to ask if the defending party would have
conducted the defense in a substantially different manner had the
amendment been tendered previously.

General Electric Co. v.

Sargent and Lundy, 916 F.2d 1119, 1130 (6th Cir. 1990); see also
Davis v. Therm-O-Disc, Inc., 791 F. Supp. 693 (N.D. Ohio 1992).
The Court of Appeals has also identified a number of
additional factors which the District Court must take into
account in determining whether to grant a motion for leave to
file an amended pleading.

They include whether there has been a

repeated failure to cure deficiencies in the pleading, and
whether the amendment itself would be an exercise in futility.
Robinson v. Michigan Consolidated Gas Co., 918 F.2d 579 (6th
Cir.1990); Head v. Jellico Housing Authority, 870 F.2d 1117 (6th
Cir.1989).

The Court may also consider whether the matters

contained in the amended complaint could have been advanced
previously so that the disposition of the case would not have
been disrupted by a later, untimely amendment.
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Id.

The precise focus of Ab Coaster’s argument regarding
prejudice becomes more clear within the context of Rule 15.

Ab

Coaster’s position is that the Greenes should not be allowed to
withdraw their qui tam claim without prejudice in lieu of facing
dismissal with prejudice by way of a ruling on the motion to
dismiss.

Some explanation of the basis for this argument, which

is more fully detailed in connection with the motion to dismiss,
is in order for purposes of the current motion for leave to
amend.

According to Ab Coaster, the Greenes, while admitting

that they currently lack standing to maintain a qui tam claim,
are requesting dismissal without prejudice so that if the
retroactive elimination of qui tam claims is eventually found
unconstitutional, they may request reinstatement of that claim
based on a change in applicable law.

Relying on Public Patent

Foundations, Inc. v. McNeil-PPC, Inc. 2012 WL 527198 (S.D.N.Y.
February 16, 2012), Ab Coaster contends that the Greenes’
position has no merit.

Ab Coaster quotes the following language

from Public Patent in support of its position.
The Court is not aware of any authority – and
plaintiff has cited none - that allows a party who
lacks standing to preserve a claim based upon the
speculative potential that at some uncertain future
date the law that currently deprives the plaintiff of
standing may be deemed unconstitutional, paving the way
for resuscitation of the dismissed claims.
Accordingly, the dismissal must be with prejudice.
Id. at *2.
In further support of their position that the qui tam
portion of the false marking claim must be dismissed with
prejudice, Ab Coaster relies on the supplemental authority of
Rogers v. Tristar, supra.

Ab Coaster asserts that Rogers

completely extinguishes the Greenes’ theory that the
retroactivity provision may someday be found unconstitutional.
For these reasons, Ab Coaster contends that it will be prejudiced

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by allowing the Greenes to withdraw the claim simply by amendment
when it instead should be dismissed on its merits with prejudice.
A request to withdraw an existing count of a complaint as
part of a motion to amend overlaps conceptually with the
provisions of Rule 41(a)(2), which requires the permission of the
court, or a stipulation, to dismiss a complaint after an answer
to the complaint has been filed.

As explained by the court in

Innovation Ventures, LLC v. N2G Distributing, Inc., 2009 WL
6040220, *2 (E.D. Mich. July 10, 2009)
The discretion to allow a party to withdraw a count in
a complaint as part of a motion to amend appears to
have similar limits to the discretion of the court to
reach the same conclusion under Rule 41. Rule 41 does
include the discretion to dismiss a matter with
prejudice and that is not an insignificant difference.
See also Chambers v. Time Warner, Inc., 2003 WL 1107790, at
*2 (S.D.N.Y. March 12, 2003) (“[A] Rule 15(a) amendment
eliminating a claim is the same as a Rule 41(a) voluntary
dismissal of the claim” and is subject to the same standard of
review.); 6 Charles Alan Wright et al., Federal Practice and
Procedure § 1479 (2012) (“[T]he same considerations are relevant
to dropping [a] claim regardless of which rule [41(a) or 15(a)]
is invoked.”).
Within the context of Rule 41(a)(2), an “abuse of discretion
is found only where the defendant would suffer ‘plain legal
prejudice’ as a result of a dismissal without prejudice.”
Bridgeport Music, Inc. v. Universal-MCA Music Publ’g., Inc., 583
F.3d 948, 953 (6th Cir. 2009) quoting Grover by Grover v. Eli
Lilly and Co., 33 F.3d 716, 718 (6th Cir. 1994).

In considering

whether prejudice would result, courts look to such factors as
“‘the defendant’s efforts and expense of preparation for trial,
excessive delay and lack of diligence on the part of the
plaintiff in prosecuting the action, insufficient explanation for

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the need to take a dismissal, and whether a motion for summary
judgment has been filed by the defendant.’”

Id. quoting Grover

at 718.
Applying the above factors in the context of the Greenes’
request to amend to withdraw their qui tam claim, the Court
cannot conclude that Ab Coaster would be prejudiced by the
withdrawal of that claim.

The qui tam claim no longer exists.

As a result, the motion to dismiss is effectively moot.

See

Premium Balloon Accessories, Inc. v. Creative Balloons Mfg.,
Inc., 2012 WL 443254, *2 (N.D. Ohio February 10, 2012).

Under

this circumstance, the Court does not believe that any interests
of judicial economy would be served by precluding the Greenes
from withdrawing the qui tam allegations.

To the extent that Ab

Coaster’s insistence on a dismissal with prejudice was motivated
by a desire to foreclose the Greenes’ ability to potentially
reinstate this claim, the existence of such potential seems
highly unlikely following the decision in Rogers.

For these

reasons, the motion for leave to amend to the extent it seeks to
withdraw the qui tam portion of Count 10 will be granted.
IV.

Conclusion

Based on the foregoing, the motion for leave to file a third
amended complaint (#114 in Case No. 2:10-cv-38) is granted in
part and denied in part as set forth above.

Plaintiffs shall

file a third amended complaint consistent with this order within
seven days.
APPEAL PROCEDURE
Any party may, within fourteen days after this Order is
filed, file and serve on the opposing party a motion for
reconsideration by a District Judge.

28 U.S.C. §636(b)(1)(A),

Rule 72(a), Fed. R. Civ. P.; Eastern Division Order No. 91-3, pt.
I., F., 5.

The motion must specifically designate the order or

part in question and the basis for any objection.
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Responses to

objections are due fourteen days after objections are filed and
replies by the objecting party are due seven days thereafter.
The District Judge, upon consideration of the motion, shall set
aside any part of this Order found to be clearly erroneous or
contrary to law.
This order is in full force and effect, notwithstanding the
filing of any objections, unless stayed by the Magistrate Judge
or District Judge.

S.D. Ohio L.R. 72.3.

/s/ Terence P. Kemp
United States Magistrate Judge

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