The Leaders Institute, LLC et al v. Jackson et al

Filing 167

MEMORANDUM OPINION AND ORDER: The Court GRANTS in part and DENIES in part Defendants' Expedited Motion for Leave to Amend Counterclaims (Doc. 142 ). Should Defendants choose to amend their pleadings to the extent permitted by the Court above, they must do so by 4/3/2017. Under Rule 15(a)(3), Plaintiffs will have 14 days to answer. The Court DENIES without prejudice all pending Motions for Summary Judgement (Docs. 146 & 149 ). The parties may re-file summary judgment motions after Plaintiffs have had the opportunity to respond to Defendants' amended counterclaims. The Court thus EXTENDS the deadline for dispositive motions until 5/8/2017. (Ordered by Judge Jane J. Boyle on 3/29/2017) (sss)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
THE LEADER’S INSTITUTE, LLC and
DOUG STANEART,

§
§
§
Plaintiffs,
§
§
v.
§
§
ROBERT JACKSON and MAGNOVO §
TRAINING GROUP, LLC,
§
§
Defendants.
§

CIVIL ACTION NO. 3:14-CV-3572-B

MEMORANDUM OPINION & ORDER
Before the Court is Defendants Robert Jackson and Magnovo Training Group, LLC’s
(collectively Defendant or Defendants) Expedited Motion for Leave to Amend Counterclaims. Doc.
142, Defs.’ Expedited Mot. for Leave to Am. Countercl. [hereinafter Defs.’ Mot.]. For the following
reasons, the Court GRANTS in part and DENIES in part Defendants’ Motion.
I.
BACKGROUND
Plaintiffs The Leader’s Institute, LLC and Doug Staneart (collectively Plaintiff or Plaintiffs)
initially filed their lawsuit in this Court on October 2, 2014. Doc. 1, Pls.’ Orig. Compl. Put simply,
Plaintiffs, purveyors of corporate leadership and team-building events using a trademarked “Build-ABike” training method, allege Defendant, a former independent contractor of Plaintiff, breached an
independent contractor agreement by going into the corporate training business against Plaintiff
using a similar method, and violated Plaintiff’s “Build-A-Bike” trademark by registering confusingly
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similar

domain

names—such

as

www.letsbuildabike.com,

www.charitybuildabike.com,

www.buildabikecharity.com, and www.buildabikeforcharity.com—in a deliberate attempt to confuse
consumers. See generally id. Accordingly, Plaintiffs’ causes of action against Defendants include, inter
alia, claims for federal trademark infringement, violations of federal anti-cybersquatting law, breach
of contract, unfair competition, and tortious interference with prospective business relations.
On December 17, 2015, Plaintiffs filed their Third Amended Complaint. Doc. 82, Pls.’ 3d
Am. Compl. In response, Defendants filed an Answer on January 11, 2016. Doc. 91, Defs.’ Answer
to Pls.’ 3d Am. Compl. Defendants’ Answer also included counterclaims for, inter alia, tortious
interference with business relations, fraud and defamation, and copyright infringement against
Plaintiff. See generally id. According to Defendants, Plaintiff registered four internet domain
names—(1)

http://bicycle-team-building.org/,

(2)

http://bicycles-team-building.com/,

(3) http://bicycleteambiulding.org/, and (4) http://bicycleteambuildings.org/—and “[f]ollowing such
domain registrations, . . . caused such registered domains to then ‘frame’ Defendant Magnovo’s
internet website . . ., whereby the full content of [Defendant’s] website, including the Copyrighted
Works, was presented within and under Plaintiffs’ registered domain name as though Plaintiffs owned
and operated such Magnovo website content and Copyrighted Works.” Id. ¶¶ 256–57. At that time
Defendants also accused Plaintiffs of: (1) “retaliating against Jackson due to Jackson resigning and
starting his own consulting firm”; (2)“holding Defendants’ business out as that of Plaintiffs”;
(3) creating a “false persona” to “obtain a Magnovo client proposal document” and then using “the
Magnovo client proposal document, along with printouts of Magnovo’s website, in order to
fraudulently file a trademark application for ‘MAGNOVO’ with the United States Patent and

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Trademark Office”; and (4) making “defamatory statements . . . to current and former [The Leader’s
Institute] employees” that “Jackson is the subject of a ‘sting operation’ and is being investigated by
the Federal Bureau of Investigation for criminal violations.” Id. ¶¶ 225, 233, 237–42.
The Court’s Scheduling Order in this case required that all pleading amendments be
submitted by December 24, 2015. Doc. 61, Sched. Order 1. On August 8, 2016, with leave of Court,
Plaintiffs filed their Fourth Amended Complaint. Doc. 130, Pls.’ 4th Am. Compl. On August 19,
2016, Defendants filed an Answer to Plaintiffs’ Fourth Amended Complaint, which included the
same counterclaims as its January 11, 2016 Answer to Plaintiffs’ Third Amended Complaint,
including the following: (1) abuse of process; (2) tortious interference with business relations;
(3) fraud and defamation; (4) cancellation of Plaintiffs’ trademarks; (5) attorneys’ fees; and
(6) federal copyright infringement. Doc. 131, Defs.’ Answer to Pls.’ 4th Am. Compl. ¶¶ 230–74.
On September 21, 2016, Defendants moved for leave to amend their counterclaims “based
on recently discovered acts of Plaintiffs and in order to clarify counterclaims previously pleaded.”
Doc. 142, Defs.’ Mot. 1. Specifically, Defendants allege they discovered on July 27, 2016, that
Plaintiffs “content scraped, framed, mirrored, copied and reposted Magnovo website data, including
Magnovo’s logo, and proprietary photos from” two of Defendants’ websites, onto another site
allegedly managed by Plaintiffs at www.charityteambuildingevent.com. Id. at 2. Based on the newly
discovered website, Defendants seek to amend their counterclaims by: (1) adding additional
counterclaims for (i) money had and received, (ii) retaliation under the Fair Labor Standards Act
(FLSA), (iii) false advertising under the Lanham Act, and (iv) tortious interference with prospective
contracts; (2) dropping their claims for fraud and attorneys’ fees; and (3) supplementing their

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remaining causes of action with additional facts and allegations. See id. at 5; Doc. 142-1, Defs.’
[Proposed] Am. Countercls. ¶¶ 21–72. Plaintiffs have responded, Doc. 154, Pls.’ Resp., and
Defendants have replied. Doc 162, Defs.’ Reply. Thus, Defendants’ Motion is ripe for this Court’s
review.
II.
LEGAL STANDARD
A.

Federal Rule of Civil Procedure 16
Once a court has entered a scheduling order and the deadline for amending pleadings has

passed, the decision to permit post-deadline amendments is governed by Rule 16(b) of the Federal
Rules of Civil Procedure. S & W Enters., L.L.C. v. South Trust Bank of Ala., 315 F.3d 533, 536 (5th
Cir. 2003) (“We take this opportunity to make clear that Rule 16(b) governs amendment of
pleadings after a scheduling order deadline has expired.”). Under Rule 16(b), a scheduling order
should not be modified unless there is a showing of good cause. Fed. R. Civ. P. 16(b)(4) (“A schedule
may be modified only for good cause and with the judge's consent.”).
The Fifth Circuit has set forth four factors to determine whether a movant has established
good cause for modification of a scheduling order to allow an untimely amendment of pleadings:
(1) the explanation for the failure to timely move for leave to amend; (2) the importance of the
amendment; (3) potential prejudice in allowing the amendment; and (4) the availability of a
continuance to cure such prejudice. S & W Enters., L.L.C., 315 F.3d at 536 (quotations and
alterations omitted). “The ‘good cause’ standard focuses on the diligence of the party seeking a
modification of the scheduling order.” Forge v. City of Ball, No. 3:03-CV-0256, 2004 WL 1243151,

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at *2 (N.D. Tex. June 4, 2004). A party's mere inadvertence to meet a deadline and the absence of
prejudice to the opposing side are insufficient to establish good cause. Id. Rather, one must show that
“despite his diligence, he could not have reasonably met the scheduling deadline.” Id. (quoting Am.
Tourmaline Fields v. Int'l Paper Co., No. 3:96-CV-3363, 1998 WL 874825, at *1 (N.D. Tex. Dec. 7,
1998)). Rule 15(a), which governs the substance of amendments and allows for liberal leave to
amend, only comes into play once the moving party has demonstrated good cause under Rule 16(b).
S & W Enters., L.L.C., 315 F.3d at 536 n.4 (“[T]he presence of a scheduling order renders the Rule
15 inquiry secondary.”).
Here, Defendants seek leave to amend their counterclaims nearly nine months after the
December 24, 2015 deadline for amending pleadings established in the Scheduling Order. See Doc.
61, Sched. Order; Doc. 142, Defs.' Mot. (filed September 21, 2016). Thus, Rule 16(b) governs
whether to permit an amendment. See S & W Enters. L.L.C., 315 F.3d at 536. Only if Defendants
have demonstrated good cause will the Court consider whether granting leave to amend is consistent
with Rule 15. See id. at 536 n.4.
B.

Federal Rule of Civil Procedure 15
Under Rule 15(a), courts “should freely give leave [to amend] when justice so requires.” Fed.

R. Civ. P. 15(a)(2). But this “generous standard is tempered by the necessary power of a district court
to manage a case.” Priester v. JP Morgan Chase Bank, N.A., 708 F.3d 667, 678 (5th Cir. 2013)
(quoting Schiller v. Physicians Res. Grp. Inc., 342 F.3d 563, 566 (5th Cir. 2003)). Although Rule 15
indicates a bias in favor of granting leave to amend, leave is by no means automatic. Southmark Corp.
v. Schulte Roth & Zabel (In re Southmark Corp.), 88 F.3d 311, 318 (5th Cir. 1996) (citing Wimm v.

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Jack Eckerd Corp., 3 F.3d 137, 139 (5th Cir. 1993)). A district court must have a “substantial reason”
to deny leave, yet the decision remains within the court's discretion. Smith v. EMC Corp., 393 F.3d
590, 595 (5th Cir. 2004) (citing Quintanilla v. Tex. Television, Inc., 139 F.3d 494, 499 (5th Cir.
1998)). In its discretion, the court should consider several factors, including “undue delay, bad faith
or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments
previously allowed, undue prejudice to the opposing party by virtue of the allowance of the
amendment, [and] futility of the amendment.” Rosenzweig v. Azurix Corp., 332 F.3d 854, 864 (5th
Cir. 2003) (quoting Foman v. Davis, 371 U.S. 178, 182 (1962)). Absent one of these factors, leave
should be freely given. Id. (citing Foman, 371 U.S. at 182).
III.
ANALYSIS
The Court begins its analysis under Federal Rule of Civil Procedure 16(b) before deciding
whether to analyze the Defendants’ Motion under the more liberal Rule 15(a) standard. See S & W
Enters., L.L.C., 315 F.3d at 536. In their Motion and Reply, Defendants argue that the Court should
grant leave to amend under Rules of Civil Procedure 15 and 16, however, their arguments under
each respective rule are closely related and thus will be addressed concurrently. See Doc. 142, Defs.’
Mot. 4–7; Doc. 162, Defs.’ Reply 3–9. Defendants assert that: (1) the reason they failed to timely
move for leave to amend is because they were not aware of the newly discovered website until after
the pleadings amendment deadline passed, Doc. 142, Defs.’ Mot. 5; (2) they had previously
submitted written discovery requests to Plaintiffs before the pleading deadline, which were “broad
enough” to cover disclosing the newly discovered website, id. at 3; (3) the amendment is important

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because without it Defendants will have to file a new lawsuit alleging the additional counterclaims,
Doc. 162, Defs.’ Reply 4–6; and (4) allowing the proposed amendments would not prejudice Plaintiffs
because there is likely no need for additional discovery. Id. at 4; Doc. 142, Defs.’ Mot. 6.
In response, Plaintiffs argue that “Defendants cannot overcome their burden under Rule 16
to show good cause for any of their proposed amendments, other than to add [the newly discovered
website] to the list of domain names included in Defendants’ previously-asserted claim for copyright
infringement.” Doc. 154, Pls.’ Resp. 4. Plaintiffs contend that allowing Defendants leave to amend
their counterclaims in light of the newly discovered website is improper because the new
counterclaims are all premised upon information Defendants already knew when they filed their
January 11, 2016 counterclaims. Id. at 4–6.
Plaintiffs concede that Defendants did not know of the newly discovered website until after
the deadline to amend pleadings. Id. at 4. Nonetheless, Plaintiffs argue that Defendants fail to show
why the newly discovered website is any different from the four other allegedly fraudulent websites
asserted in Defendants’ previous counterclaims such as would warrant the proposed amendments and
additional counterclaims. Id. Plaintiffs also argue they would be substantially prejudiced given the
expired discovery, expert designation, and dispositive motions deadlines. Id. at 6.
Plaintiffs point out that since at least January 11, 2016—the date Defendants filed their
currently-pending counterclaims in response to Plaintiff’s Third Amended Complaint—Defendants
were aware of (1) “the previously-identified domain names,” (2) “the trademark application for
MAGNOVO,” and (3) the “allegations made to law-enforcement agencies and the framing of
various websites,” all of which also form the basis for Defendants’ new proposed counterclaims. Id.

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at 4–6; Doc. 91, Defs.’ Answer, Defenses, and Countercls. to Pls.’ 3rd Am. Compl. ¶¶ 231, 233, 237,
240–41, 243, 256–57 [hereinafter Defs.’ Answer to 3rd Am. Compl.].
Similarly, Defendants live counterclaims, filed on August 19, 2016, in response to Plaintiffs’
Fourth Amended Complaint, are based on Plaintiff allegedly: (1) “retaliating against Jackson due to
Jackson resigning and starting his own consulting firm”; (2) “filing a fraudulent trademark application
for MAGNOVO”; (3) “informing current and former TLI employees that Jackson is the subject of
a ‘sting operation’ and is being investigated by the [FBI] for criminal violations”; and (4) registering
four domain names that “‘frame’ Defendant Magnovo’s internet website . . . whereby the full content
of Magnovo’s . . . website, including the Copyrighted Works, was presented within and under
Plaintiffs’ registered domain name.” Doc. 131, Defs.’ Answer to 4th Am. Compl. ¶¶ 239, 245, 251,
270–71.
Defendants sole arguments for the amendments sought are that they did not know of the
newly discovered website until July 27, 2016, after the pleading amendment deadline, and that their
new counterclaims are important to asserting their rights against Plaintiffs. Doc. 162, Defs.’ Reply
4–5. Thus, Defendants now seek to bring in additional counterclaims through the newly discovered
website based on the same alleged actions of Plaintiffs for which Defendants previously asserted
counterclaims in their Answer to Plaintiffs’ Third and Fourth Amended Complaint. Although
Defendants have sufficiently shown that they did not know of the newly discovered website until July
27, 2016, they have failed to show why this discovery warrants the additional counterclaims based
on facts previously known as early as January 11, 2016. There is no reason Defendants could not
have brought these additional counterclaims in their January 11, 2016 or August 19, 2016 Answers

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to Plaintiffs’ Third and Fourth Amended Complaint. See Doc. 91, Defs.’ Answer to Pls.’ 3rd Am.
Compl. ¶¶ 231, 233, 237, 240-41, 243, 256-57; Doc. 131, Defs.’ Answer to Pls.’ 4th Am. Compl. ¶¶
239, 245, 251, 270-71. Additionally, Defendants have not shown how Plaintiffs’ newly discovered
website, which allegedly “content scraped, framed, mirrored, copied and reposted Magnovo website
data, including Magnovo’s logo, and proprietary photos,” Doc. 142, Defs.’ Mot. 2, is any different
from the other four previously known websites that Defendants previously alleged “‘frame[d]’
Defendant Magnovo’s internet website . . . whereby the full content of Magnovo’s Bicycle Team
Building website, including the Copyrighted Works, was presented within and under Plaintiffs’
registered domain name as though Plaintiffs owned and operated such Magnovo website content and
Copyrighted Works.” Doc. 91, Defs.’ Answer to Pls.’ 3rd Am. Compl. ¶¶ 256–57; Doc. 131, Defs.’
Answer to Pls.’ 4th Am. Compl. ¶¶ 270–71. Thus, the Court finds that Defendants’ reliance on
previously known information for their new counterclaims, as well as their failure to show how the
newly discovered website is different than the previously known websites, does not sufficiently
explain Defendants’ failure to timely move for leave to amend. See S & W Enters., L.L.C., 315 F.3d
at 536.
Even assuming Defendants’ additional counterclaims are “important” for purposes of Rule
16, allowing Defendants to completely amend their counterclaims with new claims and information
at this late stage in the litigation when they have failed to show “good cause” for their failure to
timely move would be prejudicial to Plaintiffs. In their Motion and Response, Defendants argue that
Plaintiffs are not prejudiced by the addition of four new counterclaims because the new
counterclaims will likely not require any additional discovery. Doc. 142, Defs.’ Mot. 6; Doc. 162,

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Defs.’ Resp. 4. However, the Court finds that Defendants’ proposed lack of the need for additional
discovery on four new counterclaims further demonstrates that Defendants were already aware of
the facts that form the basis of these counterclaims. Because the Court finds that Defendants have
failed to show “good cause” under Rule 16(b), the Court need not consider whether leave to amend
is warranted under the less stringent Rule 15 standard. See S & W Enters., L.L.C., at 536 n.4.
However, the Court does find that Defendants have shown “good cause” to add the newly
discovered website to the list of the four other websites in their previously pleaded federal copyright
infringement claim. See Doc. 91, Defs.’ Answer to Pls.’ 3rd Am. Compl. ¶ 256; Doc. 131, Defs.’
Answer to Pls.’ 4th Am. Compl. ¶ 270. Defendants have shown that, “despite their diligence,” they
did not know about the newly discovered website until after the amending pleadings deadline. See
Forge, 2004 WL 1243151, at *2. Also, in their response, Plaintiffs stated they are unopposed to the
addition of the newly discovered website to the existing copyright infringement counterclaim. Doc.
154, Pls.’ Resp. 6–7. Therefore, the Court concludes that Defendants have sustained their burden
under Rule 16(b) for adding the newly discovered website under the federal copyright infringement
claim.
The Court will now consider whether to grant leave to amend under the less onerous Rule
15 standard with regard to adding the newly discovered website. Absent “undue delay, bad faith or
dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments
previously allowed, undue prejudice to the opposing party by virtue of the allowance of the
amendment, [or] futility of the amendment,” leave should be freely given. Rosenzweig, 332 F.3d at
864 (quoting Forman, 371 U.S. at 182). As explained above, the delay and prejudice from adding the

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newly discovered website is not undue, and there is no indication of bad faith. Therefore, the Court
concludes that Defendants have sustained their burden under Rule 15. Accordingly, the Court
GRANTS in part Defendants’ Expedited Motion for Leave to Amend Counterclaims only to the
extent that Defendants may add the newly discovered website under their existing federal copyright
infringement claim. In all other respects, Defendants’ Motion is DENIED.
IV.
CONCLUSION
For these reasons, the Court GRANTS in part and DENIES in part Defendants’ Expedited
Motion for Leave to Amend Counterclaims (Doc. 142). Should Defendants choose to amend their
pleadings to the extent permitted by the Court above, they must do so by April 3, 2017. Under Rule
15(a)(3), Plaintiffs will have 14 days to answer.
To allow the parties an opportunity to file dispositive motions in relation to their live
pleadings, the Court DENIES without prejudice all pending Motions for Summary Judgement
(Docs. 146 & 149). The parties may re-file summary judgment motions after Plaintiffs have had the
opportunity to respond to Defendants’ amended counterclaims. The Court thus EXTENDS the
deadline for dispositive motions until May 8, 2017.

SO ORDERED.
SIGNED: March 29, 2017.
_________________________________
JANE J. BOYLE
UNITED STATES DISTRICT JUDGE
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