Hydro Engineering v. Petter Investments
Filing
108
MEMORANDUM DECISION AND ORDER finding as moot 69 Motion to Amend Counterclaims. Signed by Magistrate Judge Evelyn J. Furse on 3/22/13 (alt)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH, CENTRAL DIVISION
HYDRO ENGINEERING, INC., a Utah
corporation,
MEMORANDUM DECISION AND
ORDER
Plaintiff,
Case No. 2:11-cv-00139-RJS-EJF
v.
PETTER INVESTMENTS, INC., a Michigan
corporation, PELLTECH SOLUTIONS, LLC,
a Utah limited liability company, and CARL
PELLETIER, an individual,
District Judge Robert J. Shelby
Magistrate Judge Evelyn J. Furse
Defendants.
On July 19, 2012, Plaintiff Hydro Engineering, Inc. (“Hydro”) filed its Third Amended
Complaint with leave of court. (ECF No. 59.) Eighteen days later, Defendant Petter
Investments, Inc. (“Petter”) filed an Answer to Hydro’s Third Amended Complaint that added
new counterclaims against Hydro. (ECF No. 68.) Concurrently with its Answer and Amended
Counterclaims, Petter filed the instant Motion for Leave to File Amended Counterclaims (nunc
pro tunc) (ECF No. 69).1 Petter believes it may file amended counterclaims as of right in
response to Hydro’s Third Amended Complaint. In the event this Court disagrees, Petter
alternatively seeks leave of court to file said counterclaims. The Court has carefully read the
Motion and Memoranda submitted for and against Petter’s Motion.2
1
Chief District Judge Ted Stewart referred this case to the undersigned Magistrate Judge
under 28 U.S.C. section 636(b)(1)(A) on May 30, 2012. (ECF No. 48.) On October 4, 2012, this
case was reassigned to newly appointed District Judge Robert J. Shelby. (ECF No. 90.)
2
The Court determined it can decide the Motion based on the briefing and does not need
oral argument. See DUCivR 7-1(f).
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Hydro’s Third Amended Complaint adds new claims against Petter for tortious
interference with contractual relations, civil conspiracy, and fraud, in addition to requests for
punitive or exemplary damages, thereby expanding the scope and theory of this case. Because
Hydro’s Third Amended Complaint expands the scope and theory of the case, Petter receives “a
fresh start” in answering Hydro’s Third Amended Complaint. E.g., Tralon Corp. v. Cedarapids,
Inc., 966 F. Supp. 812, 832 (N.D. Iowa 1997), aff’d, 205 F.3d 1347 (8th Cir. 2000) (unpublished
table decision). Accordingly, the Court finds Petter properly filed its Answer and Amended
Counterclaims without leave of Court, and Petter’s Motion is therefore MOOT.
BACKGROUND3
Hydro’s Second Amended Complaint against Petter asserted claims for a declaratory
judgment of no trademark infringement, misappropriation of trade secrets under Utah state law,
intentional interference with economic relations, and cancellation of trademark. (See ECF No.
23.) On July 19, 2012, Hydro filed its Third Amended Complaint with leave of court. (ECF No.
59.) Hydro’s Third Amended Complaint adds two new defendants—Pelltech Solutions, LLC
(“Pelltech”), and Carl Pelletier—and six additional claims for relief. Hydro’s new allegations
span an additional 201 paragraphs. Hydro brings three of the six new claims for relief only
against Mr. Pelletier: breach of non-compete agreement, breach of non-solicitation agreement,
and breach of fiduciary duty.4 Hydro brings the added claim for tortious interference with
contractual relations against Petter only. Hydro brings the final two new claims, for civil
3
The Court recites the below facts from the parties’ briefs.
4
On February 26, 2013, District Judge Robert J. Shelby granted in part Carl Pelletier and
Pelltech’s Motion to Dismiss under Federal Rule of Civil Procedure 12(b)(6), dismissing
Hydro’s claims for breach of fiduciary duty against Mr. Pelletier and intentional interference
with economic relations against all three Defendants. (See ECF No. 98.)
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conspiracy and fraud, against all three Defendants. Hydro’s Third Amended Complaint also
adds requests for exemplary or punitive damages.
On August 6, 2012, Petter filed its Answer to Hydro’s Third Amended Complaint
concurrently with the instant Motion for Leave to File Amended Counterclaims (nunc pro tunc).
Petter’s Answer to Hydro’s Third Amended Complaint adds counterclaims for intentional
interference with contractual relations and intentional interference with economic relations.5 The
parties’ dispute centers on the addition of these intentional interference counterclaims.
DISCUSSION
Petter believes the filing of Hydro’s Third Amended Complaint entitled Petter to amend
its counterclaims as of right. In the event this Court disagrees, Petter seeks leave of court to
amend. For its part, Hydro believes Petter may not amend its counterclaims without leave of
court, and this Court must deny leave because federal patent law preempts the intentional
interference counterclaims, and Petter moved to amend in an untimely manner under Federal
Rule of Civil Procedure 16(b).
This Court must therefore first determine whether a defendant served with an amended
complaint may file amended counterclaims as of right or only with leave of court.
A. Petter Did Not Require Leave of Court to Amend
Federal Courts have taken a wide range of positions in deciding whether a defendant
must seek leave of court to add counterclaims when responding to an amended complaint. One
court has noted “[t]he case law addressing this particular situation . . . is all over the map.”
5
Petter previously asserted these claims against Hydro in an earlier action between the
parties filed in the Western District of Michigan. The parties dispute whether the court in the
Michigan action dismissed Petter’s intentional interference claims with prejudice. (See ECF No.
104.) Because the Court finds that Petter had the right to file its amended counterclaims in
response to Hydro’s Third Amended Complaint without needing to seek leave of court, the Court
need not address this issue at present.
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Pereira v. Cogan, No. 00 Civ. 619(RWS), 2002 WL 1822928, at *2 (S.D.N.Y. Aug. 7, 2002).
No appellate courts have directly addressed this situation. E.g., Slim CD, Inc. v. Heartland
Payment Sys., Inc, No. 06-2256, 2007 WL 2459349, at *6 (D.N.J. Aug. 24, 2007) (unpublished).
Nor does this District appear to have previously addressed this situation. Federal courts outside
this District that have addressed this issue have reached a range of results, generally falling
within one of three categories: permissive or narrow or moderate.
Under the so-called permissive approach, a defendant served with an amended complaint
may amend its answer without leave of court, regardless of the scope of the changes in the
amended complaint. See Am. Home Prods. Corp. v. Johnson & Johnson, 111 F.R.D. 448, 453
(S.D.N.Y. 1986) (citing Deutsch v. Health Ins. Plan of Greater N.Y., 573 F. Supp. 1443, 1445
(S.D.N.Y. 1983)) (permitting significantly amended counterclaims late in the case because of
entitlement to respond to amended pleading).6 “The philosophy underlying this approach
appears to be that plaintiffs ‘amend [ ] their complaint at their peril, opening themselves up to
any and all counterclaims [the defendants] choose to assert.’” S. New England Tel. Co. v. Global
NAPS, Inc., No. 3:04-CV-2075 (JCH), 2007 WL 521162, at *2 (D. Conn. Feb. 14, 2007)
(alterations in original) (quotation omitted). Courts justify the permissive approach as
comporting with Rule 15(a)’s “liberal standard for the amendment of pleadings.” See Veronico
v. Pastapunto, No. 98 Civ. 1154 NRB, 1999 WL 1216951, at *1 (S.D.N.Y. Dec. 17, 1999)
(citations omitted) (denying a motion to strike an answer to an amended complaint).
6
See also Mun. Revenue Servs., Inc. v. Xspand, Inc., No. 4:05CV671, 2006 WL 91358, at
*2 (M.D. Pa. Jan. 12, 2006) (applying permissive approach); E.I. Dupont De Nemours & Co. v.
Millennium Chems., Inc., No. 97-237-SLR, 1999 WL 615164, at *4 (D. Del. Aug. 2, 1999)
(same); Standard Chlorine of Del., Inc. v. Sinibaldi, No. 91-188-SLR, 1995 WL 562285, at *2
(D. Del. Aug. 24, 1995) (same).
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Other federal courts offer less leeway. Under what courts generally term the narrow
approach, courts permit such counterclaims as of right only if they directly relate to the changes
in the amended complaint. See Nolan v. City of Yonkers, No. 92 Civ. 6067 (KMW), 1996 WL
120685, at *4 (S.D.N.Y. Mar. 19, 1996); Global NAPS, 2007 WL 521162, at *2–3. The
rationale for this approach, generally based upon the interplay of the pre-2009 Amendment
versions of Federal Rules of Civil Procedure 13 and 15, “is that a defendant does not have a right
to assert new counterclaims unrelated to the amendment in the same way that they had a right to
assert counterclaims in their original answer.” Buffalo Wild Wings, Inc. v. Buffalo Wings &
Rings, LLC, No. 09-CV-1426 (JRT/SER), 2011 WL 2261298, at *3 (D. Minn. Mar. 21, 2011)
(citing Global NAPS, Inc., 2007 WL 521162, at *2), report and recommendation adopted sub
nom., Buffalo Wild Wings, Inc. v. Buffalo Wings & Rings, No. 09-1426 (JRT/SER), 2011 WL
2261284 (D. Minn. June 8, 2011).
Still other federal courts have struck a balance between the permissive and narrow
approaches. The Northern District of Iowa provided perhaps the clearest statement of the aptlynamed moderate approach in Tralon, 966 F. Supp. at 832:
“[W]hen a plaintiff files an amended complaint which changes the theory or scope
of the case, the defendant is allowed to plead anew as though it were the original
complaint filed by the Plaintiff.” . . . The obvious corollary is that if an amended
complaint does not change the theory or scope of the case, a [Defendant] must
seek leave of court pursuant to Rule 15(a) before it can amend its answer to assert
a counterclaim.
966 F. Supp. at 832 (quoting Brown v. E.F. Hutton & Co., Inc., 610 F. Supp. 76, 78 (S.D. Fla.
1985)). The rationale underlying this approach emphasizes equitable treatment of the parties.
“‘Since the amended pleader chooses to redo his original work, and receives the benefit of this
nunc pro tunc treatment, he can hardly be heard to complain that claims filed against him are
improper because they should have been asserted in response to his original pleading.’” Id. at
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832 (quoting Joseph Bancroft & Sons Co. v. M. Lowenstein & Sons, Inc., 50 F.R.D. 415, 419 (D.
Del. 1970)). Professor James William Moore has likewise noted that “when a plaintiff’s
amended complaint changes the theory of the case, it would be inequitable to require leave of
court before the defendant could respond with appropriate counterclaims.” 3 James W. Moore,
et al., Moore’s Federal Practice § 15.17[6] (3d Ed. 2012). The moderate approach predominates
among federal courts. Uniroyal Chem. Co., Inc. v. Syngenta Crop Prot., Inc., No. 3:02CV02253
(AHN), 2005 WL 677806, at *2 (D. Conn. Mar. 23, 2005) (adopting moderate approach and
citing cases).7
Courts adopting the moderate approach have noted that consideration of the change in
theory or scope of the amended complaint best meets the language of the previous version of
Rule 15(a), which required that an amended pleading “plead in response to” the amended
pleading. See, e.g., Elite Entm’t, 227 F.R.D. at 446–47. Rule 15, however, was amended
effective December 1, 2009. The amended version of Rule 15, among other changes, no longer
includes the language providing that “[a] party shall plead in response to an amended pleading
within the time remaining for response to the original pleading or within 10 days after service of
the amended pleading.” Fed. R. Civ. P. 15(a) (2006) (emphasis added). Yet the advisory
committee’s note to the 2009 amendment clearly indicates they intended the changes to the rule
to create new time limits for filing responsive pleadings. See Fed. R. Civ. P. 15 advisory
7
See also Panoceanis Mar., Inc. v. M/V EULA B. DEVALL, No. 11-2739, 2013 WL
264616, at *2–3 (E.D. La. Jan. 23, 2013) (applying moderate approach); Buffalo Wild Wings,
2011 WL 2261284, at *2–3 (same); Turbomin AB v. Base-X, Inc., No. 6:09cv00007, 2009 WL
2870968, at *2 (W.D. Va. Sept. 2, 2009) (same and noting “federal courts of Virginia . . . appear
to have adopted the moderate view”); Slim CD, 2007 WL 2459349, at *6–7 (same); Elite Entm’t,
Inc. v. Khela Bros. Entm’t, 227 F.R.D. 444, 446–47 (E.D. Va. 2005) (same); E.E.O.C. v. Morgan
Stanley & Co., Inc., 211 F.R.D. 225, 226–27 (S.D.N.Y. 2002) (same); Synermed Int’l, Inc. v.
Lab. Corp. of Am. Holdings, No. 1:97CV00966, 1999 WL 1939253, at *1–2 (M.D.N.C. Mar. 3,
1999) (same).
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committee’s note to 2009 Amendment. Nothing in the advisory committee’s note indicates the
changes in any way alter the permissible scope of a party’s response to an amended pleading.
The 2009 amendments therefore do not diminish the persuasive value of cases basing their
analyses in part on the pre-2009 Amendment version of Rule 15. Accord Buffalo Wild Wings,
2011 WL 2261298, at *3 n.5 (discussing this effect of the 2009 amendment to Fed. R. Civ. P. 15
and concluding the change “does not make these cases any less instructive”). Indeed, the 2009
Amendment, by its deletion of Rule 13(f) and advisory committee note to that rule, bolster the
argument for this approach by having all amendments governed by a liberal amendment
standard.
Moreover, the rationale behind the moderate approach remains sound even without
consideration of the “plead in response to” language of pre-amendment Rule 15. As one court
has wisely noted, “[i]f every amendment, no matter how minor or substantive, allowed
defendants to assert counterclaims or defenses as of right, claims that would otherwise be barred
or precluded could be revived without cause. This would deprive the Court of its ability to
effectively manage the litigation.” Morgan Stanley, 211 F.R.D. at 227.
On the opposite side of the spectrum, the narrow approach seems overly restrictive in
light of Rule 15’s liberal directive that “court[s] should freely give leave [to amend] when justice
so requires.” Fed. R. Civ. P. 15(a)(2). The Supreme Court has stated in no uncertain terms that
“this mandate is to be heeded.” Foman v. Davis, 371 U.S. 178, 182 (1962). This Court finds
persuasive the reasoning of courts applying the moderate approach and, accordingly, now puts
this case to that standard.
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1. Hydro’s Amended Complaint Expanded the Scope and Theory of the Case
Although Hydro’s Third Amended Complaint increased in length over the Second
Amended Complaint to the tune of an additional 201 paragraphs spanning an additional 39
pages, (compare ECF No. 23, with ECF No. 57), the length of the Third Amended Complaint
holds little to no value in this analysis. An amended complaint often has an increased length
because it includes additional information that has either no effect on the scope or theory of the
case or in fact narrows the scope or theory. For example, a complaint may require amendment to
conform to Federal Rule of Civil Procedure 9(b)’s requirement that claimants of fraud or mistake
must plead their allegations with particularity. Such an amendment, although it may increase the
length of the complaint, does not necessarily expand the scope or theory of the case—and quite
possibly just the opposite. Instead, a court undertaking this inquiry must look to the substance of
the changes in the complaint.
Hydro’s Third Amended Complaint names two new Defendants and adds new claims
against Petter for tortious interference with contractual relations, civil conspiracy, and fraud.
The civil conspiracy and fraud claims also bring heretofore unseen requests for punitive or
exemplary damages. Thus, Hydro’s Third Amended Complaint expanded the scope and theory
of the case, and Petter therefore may raise new counterclaims as of right. See Slim CD, 2007 WL
2459349, at *7 (allowing amendment without leave where amended complaint added new claim
seeking exemplary damages). Because Hydro expanded the scope of this litigation, it cannot
now complain when Petter responds in kind. See Uniroyal, 2005 WL 677806, at *3 (noting that
“fairness compel[s] the court to conclude that if a plaintiff is permitted to expand the scope of the
case by amending her complaint to add new theories of recovery, a defendant should be
permitted to do the same”); Tralon, 966 F. Supp. at 832 (finding that defendant was “entitled to a
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‘fresh start’ in answering Plaintiffs’ Second Amended Complaint” where the amended complaint
expanded factual allegations and scope of claims).
For these reasons Petter timely amended its Counterclaims. Because the Court
determines that Petter could amend as of right, the procedural posture of the case does not
provide for a futility analysis.
CONCLUSION
Because the Court finds Petter had the right to file its Amended Counterclaims without
leave of Court, the Court FINDS AS MOOT Petter’s Motion for Leave to File Amended
Counterclaims (nunc pro tunc) (Docket No. 69). Petter validly filed its Amended Counterclaims
on August 6, 2012. (ECF No. 68.) Hydro will have 14 days from this Order’s entry to respond
to the Counterclaims.
DATED this 22nd day of March, 2013.
BY THE COURT:
_______________________________
Evelyn J. Furse
United States Magistrate Judge
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