Layne Christensen Co. v. Bro-Tech Corp.

• Decision Date: 29 August 2011
• Docket Number: Case No. 09-cv-2381-JWL-GLR
• Parties: LAYNE CHRISTENSEN COMPANY and DR. ARUP K. SENGUPTA, Plaintiffs, v. BRO-TECH CORPORATION, d.b.a. The Purolite Company, Defendant.
• Court: U.S. District Court — District of Kansas

LAYNE CHRISTENSEN COMPANYand DR. ARUP K. SENGUPTA, Plaintiffs,

v. BRO-TECH CORPORATION,d.b.a. The Purolite Company, Defendant.

Case No. 09-cv-2381-JWL-GLR

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF KANSAS

Dated: August 29, 2011

MEMORANDUM AND ORDER

In this action for patent infringement and breach of contract, Plaintiffs allege that Defendant, a former licensee, infringed upon a patent for removal of arsenic from drinking water and breached the post-termination provisions of the license agreement. Before the Court is Defendant's Motion for Leave to File an Amended Answer (ECF No. 298). Defendant seeks to add a counterclaim and defense that SolmeteX¹ violated an implied covenant of good faith and fair dealing, an affirmative defense of unclean hands, and a defense that the non-competition clause asserted against it is void and unenforceable.² Plaintiffs oppose these additions on grounds of untimeliness, futility, and undue prejudice. For the reasons set out below, the motion is granted.³

I. Procedural History

Plaintiff Layne Christensen Company ("Layne") commenced this action against defendant The Purolite Company ("Purolite") on July 21, 2009.⁴ In December 2009, the Court ordered Plaintiff to file an amended complaint to add Arup SenGupta ("SenGupta") as a necessary party.⁵ After the filing of such amended complaint (ECF No. 22), Defendant filed an Answer with counterclaims (ECF No. 23) against Plaintiffs on January 7, 2010. Three weeks later Plaintiffs filed an answer to the counterclaims (ECF No. 24).

In its original Scheduling Order (ECF No. 28) dated March 23, 2010, the Court set a deadline of April 6, 2010 for motions to amend pleadings. A week after that deadline Defendant filed its First Amended Answer with counterclaims (ECF No. 43) with leave of Court and without opposition by Plaintiffs. They then filed an answer to the amended counterclaims (ECF No. 49).

On September 15, 2010, with leave of Court and without opposition, Defendant filed its Second Amended Answer with counterclaims (ECF No. 111). On September 21, 2010, as jointly requested by the parties, the Court extended the discovery deadline to June 10, 2011, and set a deadline of April 1, 2011, for amending pleadings to add allegations of inequitable conduct without leave of Court.⁶ Plaintiffs filed an answer to the Second Amended Counterclaims (ECF No. 117) onSeptember 29, 2010.

With leave of Court, Plaintiffs filed a Second Amended Complaint (ECF No. 222) on April 12, 2011, to substitute Bro-Tech Corporation, doing business as The Purolite Company, as the defendant in this action. In this complaint, Plaintiffs assert that Defendant infringed United States Letters Patent No. 7,291,578 ("578 patent"), which Layne has an exclusive license to enforce although SenGupta is the inventor and owner.⁷ They further assert that Defendant and SolmeteX entered into an Exclusive Manufacturing, Supply, and Distribution Agreement ("Agreement")⁸ that Defendant breached by failing to pay royalties and by using "intellectual property and/or confidential information" of SolmeteX in connection with the manufacturing, marketing, and selling of a product of Defendant (FerrIX™ A33E) in direct competition with SolmeteX.⁹ Plaintiffs contend that Defendant is obligated to pay royalties even though the Agreement has terminated.¹⁰

On April 26, 2011, Defendant filed an Answer to Second Amended Complaint (ECF No. 246) and asserted eight defenses (including lack of infringement, breach of contract by SolmeteX, invalid patent, lack of standing, and breach of implied duty of good faith and fair dealing by SolmeteX) and eight counterclaims (including breach of contract, unlawful restraint of trade, unfair competition, and recoupment) against Plaintiffs. Plaintiffs filed an Answer to Defendant's Third Amended Counterclaims (ECF No. 264) on May 10, 2011.

Approximately a month later, Defendant filed its motion seeking leave to file the instant amended answer with defenses and counterclaims, including new assertions that the non-competition clause asserted against it is void and unenforceable¹¹ and Plaintiffs violated an implied covenant ofgood faith and fair dealing¹² and acted with unclean hands.¹³

II. Legal Standard Applicable to Motion for Leave to Amend

Parties may amend pleadings "once as a matter of course" before trial if they do so within (A) twenty-one days of serving the pleading or (B) "if the pleading is one to which a responsive pleading is required," twenty-one days of service of a responsive pleading or a motion under Fed. R. Civ. P. 12(b), (e), or (f), whichever is earlier.¹⁴ Other amendments before trial are allowed "only with the opposing party's written consent or the court's leave."¹⁵ Courts "should freely give leave when justice so requires."¹⁶ Rule 15 is intended "to provide litigants 'the maximum opportunity for each claim to be decided on its merits rather than on procedural niceties.'"¹⁷

Courts may deny leave to amend, however, based on "undue delay, bad faith or dilatorymotive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, [or] futility of amendment."¹⁸ Additionally, a party seeking to file a motion outside a scheduling order deadline may be required to show good cause for filing the motion out of time.¹⁹

Whether to allow a proposed amendment, after the permissive period, addresses the sound discretion of the court.²⁰ "In exercising its discretion, the court must be mindful that the Federal Rules of Civil Procedure are designed to facilitate decisions on the merits rather than on pleading technicalities."²¹

III. Summary of the Parties' Arguments

In support of its motion, Defendant argues that its proposed additions satisfy both the standard of good cause, required by Fed. R. Civ. P. 16(b), and the liberal amendment policy of Rule 15(a).²² It asserts that it had insufficient information to assert the additions before the deadline ofApril 6, 2010.²³ With respect to its allegations of unclean hands and unfair dealings, Defendant contends that it first learned on March 25, 2011, that SolmeteX developed an unreasonable view of the Agreement as early as May 2005.²⁴ With respect to its new defense that the non-compete provision is void and unenforceable, it contends that Plaintiffs did not specifically allege that they were asserting the post-termination clause of the Agreement (§ 11.2) until February 23, 2011, and did not explain their interpretation of that clause until May 19, 2011.²⁵

Defendant also asserts that, for the following reasons, the proposed additions to its answer will not prejudice Plaintiffs: (1) The non-competition defense is closely related to current counterclaims of breach of contract, restraint of trade, and unfair competition. (2) All additions are based on the same Agreement and facts placed at issue by the complaint. (3) The additions will not delay final disposition of this case or necessitate additional written discovery or further depositions, because Plaintiffs were aware of the proposed additions prior to "the vast majority of the fact depositions" in this case. (4) The additions essentially assert the same basic issues already present in the case, i.e., performance and enforcement of the Agreement.²⁶ Defendant finally argues that its proposed additions are not futile.²⁷

Plaintiffs oppose the proposed additions. They argue that Defendant has not shown good cause to extend the expired deadline to amend pleadings, because it has known the alleged facts tothe proposed additions for years.²⁸ They further argue that allowing the new claim and defenses would be futile, because the Agreement between the parties expressly permits the conduct of which Defendant complains and because it has alleged insufficient facts to show they are plausible.²⁹ Lastly they argue that the amendments would unduly prejudice them, because Defendant moved to amend just one day before the close of discovery and that they did not know about the proposed additions while pursuing prior discovery.³⁰

IV. Analysis

A. Good Cause

As noted previously, when the deadline for amending pleadings set in the scheduling order has passed, as is the case here, the moving party may be required to show good cause under Fed. R. Civ. P. 16(b)(4) to modify the scheduling order.³¹ Although the Tenth Circuit has expressly declined to decide whether a party must satisfy the requirements of Rule 16(b) and Rule 15(a) in such circumstances,³² this Court routinely applies a two-step analysis based on the two rules in these situations.³³ Consequently, when a proposed amendment implicates Rule 16(b)(4), this Court first determines whether the movant has established "good cause" to modify the scheduling order "so as to justify allowing the untimely amendment."³⁴ Only if the movant establishes good cause does the Court proceed to the more liberal standard for allowing an amendment under Rule 15(a).³⁵

To establish good cause under Rule 16(b), the moving party must show that "it could not have reasonably met the scheduled deadline[]" even had it acted with due diligence.³⁶ This compels more than showing "excusable neglect, as to which simple inadvertence or mistake of counsel or ignorance of the rules usually does not suffice."³⁷ Neither an absence of prejudice nor carelessness provides a basis for finding good cause.³⁸ Whether a party has established good cause to modify a deadline under Rule 16(b)(4) lies within the court's discretion.³⁹

Defendant moved to amend its answer on June 10, 2011, approximately fourteen months after the April 10, 2010 deadline for amending pleadings.⁴⁰ It justifies the failure to meet the deadline bypointing to new information produced during discovery. Although Plaintiffs quarrel with the alleged newness of the information, Defendant has carried its burden to show good cause for filing its motion...