Quality Products, Inc. v. Verka Food Products Ltd et al

Filing 70

ORDER granting Defendant's 56 Motion to Amend 27 Answer to Complaint. Defendants must file their amended answer within seven days of the date of this order. Signed by Judge Marsha J. Pechman. (TH)

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UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
AT SEATTLE

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QUALITY PRODUCTS INC,
Plaintiff,

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v.

CASE NO. C17-1418 MJP
ORDER ON MOTON TO AMEND
ANSWER TO INCLUDE
COUNTERCLAIM

VERKA FOOD PRODUCTS LTD,
Defendant.

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The above-entitled Court, having received and reviewed:

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1. Defendant VFI’s Motion to Amend Answer to Include Counterclaim (Dkt. No. 56),

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2. Plaintiff Quality Products’ Opposition to Defendant’s Motion to Amend Answer to

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Include Counterclaim (Dkt. No. 58),
3. Defendant’s Reply in Support of Defendant VFI’s Motion to Amend Answer to
Include Counterclaim (Dkt. No. 61),
all attached declarations and exhibits, and relevant portions of the record, rules as follows:

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ORDER ON MOTON TO AMEND ANSWER TO INCLUDE COUNTERCLAIM - 1

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IT IS ORDERED that the motion is GRANTED. Defendants must file their amended
answer within seven days of the date of this order.
Background
The origins of this dispute date back to 2011, when Plaintiff sued Defendant Verka Food

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Products (“VFP”) for trademark infringement and unfair competition. (Quality Food Products,

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Inc. v. Verka Food Products Ltd., et al., Case No. 2:11-cv-0533MJP.) The matter was resolved

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through entry of a settlement agreement. (Id. at Dkt. No. 36.)

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Later, Plaintiff came to believe that a new entity (Verka Food international, Ltd.; “VFI”),
operated by the Defendants, was offering infringing products in violation of the settlement

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agreement and federal trademark law. On September 20, 2017, Plaintiff filed another lawsuit

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against the same parties, also naming VFI. (Quality Food Products, Inc. v. Verka Food Products

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Ltd., et al., Case No. 2:17-cv-1418MJP; see Dkt. No. 1.)

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Defendants now seek to file a counterclaim against Plaintiff for actions which occurred

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when representatives of Plaintiff contacted customers of VFI and demanded that these retailers

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cease selling VFI products with the trademarked VERKA designation. Defendants request leave

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of the Court to file an amended answer which includes a counterclaim for intentional interference

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with a business relationship. (Dkt. No. 57, Decl. of Franz, Ex. A at 22.)

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Discussion
A party may amend its answer with leave of the court, which “should freely give leave

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when justice so requires.” FRCP 15(a). The federal rules also indicate that the court may

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“permit a party to file a supplemental pleading asserting a counterclaim that matured or was

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acquired by the party after serving an earlier pleading.” FRCP 13(e).

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ORDER ON MOTON TO AMEND ANSWER TO INCLUDE COUNTERCLAIM - 2

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Plaintiff interposes two objections to the proposed amendment. First, it argues that the

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amendment is futile because it is contravened by the state’s “litigation privilege.” The Court

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does not agree.

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The Washington “litigation privilege” provides absolute immunity for statements made

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by witnesses, parties or attorneys “in the course of a judicial proceeding.” McNeal v. Allen, 95

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Wn.2d 265, 267 (1980); Jeckle v. Crotty 120 Wn.App. 374, 386 (2004). Plaintiff seizes on

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language in the cases protecting acts or statements which are “pertinent or material to the relief

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sought” (Jeckle, id.) but it is lifting that description out of context – a review of the cases makes

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it clear that the privilege only extends to acts or statements related to ongoing litigation (in

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depositions, in pleadings, at trial, etc.). The communications alleged in the proposed

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counterclaim relate to (a) violations of the settlement agreement (which, by definition, is not an

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ongoing piece of litigation) and (b) an implication that the recipient vendors might be sued if

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they did not cease selling Defendants’ Verka products. These kind of statements are not

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protected by the state’s “litigation privilege.”

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Plaintiff also objects to the proposed amendment on grounds of the federal “Noerr-

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Pennington doctrine,” a doctrine which provides immunity for acts done in the course of

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litigation or for “conduct incidental to the prosecution of” a lawsuit. Sosa v. DirecTV, Inc., 437

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F.3d 923, 936-37 (9th Cir. 2006). Included within the protections of the doctrine are

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“prelitigation letters and notices that ‘threaten legal action and mak[e] legal representations.’”

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Id. at 940.

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The immunity of Noerr-Pennington can be penetrated by what is known as the “sham
litigation” exception. The exception is defined in two parts:

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ORDER ON MOTON TO AMEND ANSWER TO INCLUDE COUNTERCLAIM - 3

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First, the lawsuit must be objectively baseless in the sense that no reasonable litigant
could realistically expect success on the merits. If an objective litigant could conclude
that the suit is reasonably calculated to elicit a favorable outcome, the suit is immunized
under Noerr, and an antitrust claim premised on the sham exception must fail[]. Only if
challenged litigation is objectively meritless may a court examine the litigant's subjective
motivation. Under this second part of our definition of sham, the court should focus on
whether the baseless lawsuit conceals “an attempt to interfere directly with the business
relationships of a competitor…” through the “use [of] the governmental process—as
opposed to the outcome of that process—as an anticompetitive weapon…”

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Prof'l Real Estate Inv'rs, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 60–61 (1993)

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(emphasis in original, footnote and citations omitted).

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This is, frankly, a closer call. Requiring proof that litigation (or threatened litigation) is

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“objectively baseless” sets a very high bar, and it is far from clear at this point whether it is one

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which Defendants can hurdle. Despite vigorous arguments on both sides concerning the merits

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of the present lawsuit, it is the Court’s finding that a ruling that this lawsuit is either “baseless”

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or at least colorably meritorious is premature. Such a finding awaits further development of the

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facts through discovery and elaboration of the legal arguments through dispositive motions

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practice.

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On that basis, the Court will permit Defendants to amend their answer to include the

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proposed counterclaim. Defendants are directed to file their amended answer within seven days

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of the entry of this order.

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The clerk is ordered to provide copies of this order to all counsel.

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Dated December 13, 2018.

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A
The Honorable Marsha J. Pechman
United States Senior District Court Judge

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ORDER ON MOTON TO AMEND ANSWER TO INCLUDE COUNTERCLAIM - 4